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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549




FORM 20-F

o  Registration statement pursuant to Section 12(b) or (g)
of the Securities Exchange Act of 1934
or
ý  Annual report pursuant to Section 13 or 15(d)
of the Securities Exchange Act of 1934
for the fiscal year ended December 31, 2011
or
o  Transition report pursuant to Section 13 or 15(d)
of the Securities Exchange Act of 1934
or
o  Shell company report pursuant to Section 13 or 15(d)
of the Securities Exchange Act of 1934

Date of event requiring this shell company report:

For the transition period from                          to                         

Commission file number: 1-14832



CELESTICA INC.
(Exact name of registrant as specified in its charter)

Ontario, Canada
(Jurisdiction of incorporation or organization)

844 Don Mills Road
Toronto, Ontario, Canada M3C 1V7
(Address of principal executive offices)
Manny Panesar
416-448-2211
clsir@celestica.com
844 Don Mills Road
Toronto, Ontario, Canada M3C 1V7
(Name, Telephone, E-mail and/or Facsimile number and Address of Company Contact Person)



SECURITIES REGISTERED OR TO BE REGISTERED
PURSUANT TO SECTION 12(b) OF THE ACT:

Subordinate Voting Shares
(Title of each class)

  The Toronto Stock Exchange
New York Stock Exchange
(Name of each exchange on which registered)



SECURITIES REGISTERED OR TO BE REGISTERED
PURSUANT TO SECTION 12(g) OF THE ACT:

N/A



SECURITIES FOR WHICH THERE IS A REPORTING OBLIGATION
PURSUANT TO SECTION 15(d) OF THE ACT:

N/A



Indicate the number of outstanding shares of each of the issuer's classes of capital or common stock as of the close of the period covered by the annual report.

197,564,498 Subordinate Voting Shares

  0 Preference Shares

18,946,368 Multiple Voting Shares

   

Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act. Yes ý No o

If this report is an annual or transition report, indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934. Yes o No ý

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes ý No o

Indicate by check mark whether the registrant has submitted electronically and posted on its corporate web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files). Yes o No o

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, or a non-accelerated filer. See definition of "accelerated filer and large accelerated filer" in Rule 12b-2 of the Exchange Act. (Check one):

ý Large accelerated filer                          o Accelerated filer                           o Non-accelerated filer

Indicate by check mark which basis of accounting the registrant has used to prepare the statements included in this filing:

U.S. GAAP o        International Financial Reporting Standards as issued by the International Accounting Standards Board ý        Other o

If "Other" has been checked in response to the previous question, indicate by check mark which financial statement item the registrant has elected to follow. Item 17 o Item 18 o

If this is an annual report, indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes o No ý

   



TABLE OF CONTENTS

 
   
   
  Page

Part I

  1

Item 1.

  Identity of Directors, Senior Management and Advisers   2

Item 2.

  Offer Statistics and Expected Timetable   2

Item 3.

  Key Information   3

  A.   Selected Financial Data   3

  B.   Capitalization and Indebtedness   6

  C.   Reasons for the Offer and Use of Proceeds   6

  D.   Risk Factors   6

Item 4.

  Information on the Company   19

  A.   History and Development of the Company   19

  B.   Business Overview   20

  C.   Organizational Structure   29

  D.   Property, Plants and Equipment   30

Item 4A.

  Unresolved Staff Comments   30

Item 5.

  Operating and Financial Review and Prospects   31

Item 6.

  Directors, Senior Management and Employees   62

  A.   Directors and Senior Management   62

  B.   Compensation   65

  C.   Board Practices   98

  D.   Employees   101

  E.   Share Ownership   102

Item 7.

  Major Shareholders and Related Party Transactions   104

  A.   Major Shareholders   104

  B.   Related Party Transactions   105

  C.   Interests of Experts and Counsel   106

Item 8.

  Financial Information   106

  A.   Consolidated Statements and Other Financial Information   106

  B.   Significant Changes   107

Item 9.

  The Offer and Listing   107

  A.   Offer and Listing Details   107

  B.   Plan of Distribution   109

  C.   Markets   109

  D.   Selling Shareholders   109

  E.   Dilution   109

  F.   Expenses of the Issue   109

 
   
   
  Page

Item 10.

  Additional Information   109

  A.   Share Capital   109

  B.   Memorandum and Articles of Incorporation   109

  C.   Material Contracts   109

  D.   Exchange Controls   109

  E.   Taxation   110

  F.   Dividends and Paying Agents   115

  G.   Statement by Experts   115

  H.   Documents on Display   115

  I.   Subsidiary Information   115

Item 11.

  Quantitative and Qualitative Disclosures about Market Risk   116

Item 12.

  Description of Securities Other than Equity Securities   117

  A.   Debt Securities   117

  B.   Warrants and Rights   117

  C.   Other Securities   117

  D.   American Depositary Shares   117

Part II

  117

Item 13.

  Defaults, Dividend Arrearages and Delinquencies   117

Item 14.

  Material Modifications to the Rights of Security Holders and Use of Proceeds   117

Item 15.

  Controls and Procedures   117

Item 16.

  [Reserved.]   117

Item 16A.

  Audit Committee Financial Expert   117

Item 16B.

  Code of Ethics   117

Item 16C.

  Principal Accountant Fees and Services   118

Item 16D.

  Exemptions from the Listing Standards for Audit Committees   118

Item 16E.

  Purchases of Equity Securities by the Issuer and Affiliated Purchasers   118

Item 16F.

  Change in Registrant's Certifying Accountant   119

Item 16G.

  Corporate Governance   119

Item 16H.

  Mine Safety Disclosure   120

Part III

  121

Item 17.

  Financial Statements   121

Item 18.

  Financial Statements   121

Item 19.

  Exhibits   122


Part I

        In this Annual Report, "Celestica," the "Company," "we," "us" and "our" refer to Celestica Inc. and its subsidiaries.

        In this Annual Report, all dollar amounts are expressed in United States dollars, except where we state otherwise. All references to "U.S.$" or "$" are to U.S. dollars and all references to "C$" are to Canadian dollars. Unless we indicate otherwise, any reference in this Annual Report to a conversion between U.S.$ and C$ is a conversion at the average of the exchange rates in effect for the year ended December 31, 2011. During that period, based on the relevant noon buying rates in New York City for cable transfers in Canadian dollars, as certified for customs purposes by the Board of Governors of the Federal Reserve Bank, the average daily exchange rate was U.S.$1.00 = C$0.9887.

        Unless we indicate otherwise, all information in this Annual Report is stated as of February 22, 2012, the date as of which we prepared information for our annual report to shareholders and management information circular and proxy statement.

Forward-Looking Statements

        Item 4, "Information on the Company," Item 5, "Operating and Financial Review and Prospects" and other sections of this Annual Report contain forward-looking statements within the meaning of Section 27A of the Securities Act of 1933, as amended, or the U.S. Securities Act, Section 21E of the Securities Exchange Act of 1934 as amended, or the U.S. Exchange Act, and applicable Canadian securities legislation including those related to our future growth; trends in our industry; our financial or operational results, including our quarterly earnings and revenue guidance; the impact of program wins or losses and acquisitions on our financial results and working capital requirements; anticipated expenses, capital expenditures, benefits or payments; our financial or operational performance; our expected tax outcomes; our cash flows and financial targets; and the effect of the global economic environment on customer demand. Such forward-looking statements are predictive in nature, and may be based on current expectations, forecasts or assumptions involving risks and uncertainties that could cause actual outcomes and results to differ materially from the forward-looking statements themselves. Such forward-looking statements may, without limitation, be preceded by, followed by, or include words such as "believes," "expects," "anticipates," "estimates," "intends," "plans," or similar expressions, or may employ such future or conditional verbs as "may," "will," "should" or "would," or may otherwise be indicated as forward-looking statements by grammatical construction, phrasing or context. For those statements, we claim the protection of the safe harbor for forward-looking statements contained in the U.S. Private Securities Litigation Reform Act of 1995, and in applicable Canadian securities legislation.

        Forward-looking statements are not guarantees of future performance. You should understand that the following important factors, in addition to those discussed in Item 3, "Key Information — Risk Factors," and elsewhere in this Annual Report, could affect our future results and could cause those results to differ materially from those expressed in such forward-looking statements:

1


        Our forward-looking statements are also based on various assumptions which management believes are reasonable under the current circumstances, but may prove to be inaccurate, and many of which involve factors that are beyond our control. The material assumptions may include the following:

        Our assumptions and estimates are based on management's current views with respect to current plans and events, and are and will be subject to the risks and uncertainties discussed above. Forward-looking statements are provided for the purpose of providing information about management's current expectations and plans relating to the future. Readers are cautioned that such information may not be appropriate for other purposes.

        Except as required by applicable law, we disclaim any intention or obligation to update or revise any forward-looking statements, whether as a result of new information, future events or otherwise. You should read this Annual Report and the documents, if any, that we incorporate by reference with the understanding that our actual future results may be materially different from what we expect. We may not update these forward-looking statements, even if our situation changes in the future. All forward-looking statements attributable to us are expressly qualified by these cautionary statements.

Item 1.    Identity of Directors, Senior Management and Advisers

        Not applicable.

Item 2.    Offer Statistics and Expected Timetable

        Not applicable.

2



Item 3.    Key Information

A.    Selected Financial Data

        You should read the following selected financial data together with Item 5, "Operating and Financial Review and Prospects," the Consolidated Financial Statements in Item 18 and the other information in this Annual Report. The selected financial data is derived from the Consolidated Financial Statements for the years presented below.

        The Consolidated Financial Statements for 2010 and 2011 were prepared in accordance with International Financial Reporting Standards (IFRS) as issued by the International Accounting Standards Board (IASB). The consolidated financial information in the below tables for 2007, 2008, 2009 and 2010 was prepared in accordance with prior Canadian generally accepted accounting principles (GAAP) which conform in all material respects with U.S. GAAP except as described in footnote 6 below. GAAP differs in some respects from IFRS. We have provided an explanation of how the transition to IFRS has affected our reported financial position, financial performance and cash flows in note 3 to the Consolidated Financial Statements in Item 18.

 
  Year ended
December 31
 
 
  2010(1)   2011(1)  
 
  (in millions, except per
share amounts)

 

Consolidated Statements of Operations Data (IFRS):

             

Revenue

  $ 6,526.1   $ 7,213.0  

Cost of sales

    6,082.0     6,721.6  
           

Gross profit

    444.1     491.4  

Selling, general and administrative expenses (SG&A)(2)

    252.1     267.2  

Amortization of intangible assets

    15.8     13.5  

Other charges(3)

    49.9     6.5  

Finance costs(4)

    6.9     5.4  
           

Earnings before income taxes

    119.4     198.8  

Income tax expense

    18.2     3.7  
           

Net earnings

  $ 101.2   $ 195.1  
           

Other Financial Data (IFRS):

             

Basic earnings per share

  $ 0.44   $ 0.90  

Diluted earnings per share

  $ 0.44   $ 0.89  

Property, plant and equipment and computer software cash expenditures

  $ 60.8   $ 62.3  

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

             

Basic

    227.8     216.3  

Diluted

    230.1     218.3  

 

 
  As at December 31  
 
  2010(1)   2011(1)  
 
  (in millions)
 

Consolidated Balance Sheet Data (IFRS):

             

Cash and cash equivalents

  $ 632.8   $ 658.9  

Working capital(5)

    1,009.1     1,116.0  

Property, plant and equipment

    332.2     322.7  

Total assets

    3,013.9     2,969.6  

Equity

    1,282.9     1,463.8  

3


 
  Year ended December 31  
 
  2007(1)   2008(1)   2009(1)   2010(1)  
 
  (in millions, except per share amounts)
 

Consolidated Statements of Operations Data (Canadian GAAP):

                         

Revenue

  $ 8,070.4   $ 7,678.2   $ 6,092.2   $ 6,526.1  

Cost of sales

    7,648.0     7,147.1     5,662.4     6,082.8  
                   

Gross profit

    422.4     531.1     429.8     443.3  

SG&A(2)

    271.7     292.0     244.5     250.2  

Amortization of intangible assets

    44.7     26.9     21.9     15.6  

Integration costs related to acquisitions

    0.1              

Other charges(3)

    47.6     885.2     68.0     68.4  

Interest expense(4)

    51.2     42.5     35.0     6.5  
                   

Earnings (loss) before income taxes

    7.1     (715.5 )   60.4     102.6  

Income tax expense

    20.8     5.0     5.4     21.8  
                   

Net earnings (loss)

  $ (13.7 ) $ (720.5 ) $ 55.0   $ 80.8  
                   

Other Financial Data (Canadian GAAP):

                         

Basic earnings (loss) per share

  $ (0.06 ) $ (3.14 ) $ 0.24   $ 0.35  

Diluted earnings (loss) per share

  $ (0.06 ) $ (3.14 ) $ 0.24   $ 0.35  

Property, plant and equipment and computer software cash expenditures

  $ 63.7   $ 88.8   $ 77.3   $ 60.8  

Consolidated Statements of Operations Data (U.S. GAAP)(6):

                         

Net earnings (loss)

  $ (16.1 ) $ (725.8 ) $ 39.0   $ 80.9  

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

                         

Basic

    228.9     229.3     229.5     227.8  

Diluted

    228.9     229.3     230.9     230.1  

 

 
  As at December 31  
 
  2007(1)   2008(1)   2009(1)   2010(1)  
 
  (in millions)
 

Consolidated Balance Sheet Data (Canadian GAAP):

                         

Cash and cash equivalents

  $ 1,116.7   $ 1,201.0   $ 937.7   $ 632.8  

Working capital(5)

    1,553.0     1,603.6     1,023.0     968.9  

Property, plant and equipment

    427.1     433.5     393.8     368.7  

Total assets

    4,470.5     3,786.2     3,106.1     3,103.6  

Total long-term debt, including current portion(7)

    758.5     733.1     222.8      

Equity

    2,118.2     1,365.5     1,475.8     1,421.3  

Consolidated Balance Sheet Data (U.S. GAAP)(6):

                         

Total assets

  $ 4,485.8   $ 3,786.2   $ 3,106.1   $ 3,107.2  

Total long-term debt, including current portion(7)

    757.2     723.4     221.2      

Equity

    1,996.5     1,254.8     1,346.8     1,275.8  

(1)
Changes in accounting policies:

(i)
In February 2008, the Canadian Accounting Standards Board announced the adoption of IFRS for publicly accountable enterprises in Canada effective January 1, 2011. Accordingly, our Consolidated Financial Statements for 2011 in Item 18 have been prepared in accordance with IFRS as issued by the IASB. We have retroactively applied IFRS to our 2010 Consolidated Financial Statements and comparative data and have included the reconciliations and descriptions of the effect of our transition from prior GAAP to IFRS in the notes to our 2011 Consolidated Financial Statements in Item 18. We have included in notes 2 and 3 of our 2011 Consolidated Financial Statements in Item 18 a description of our adoption of IFRS and a discussion of our significant accounting policies and the application of critical accounting estimates and judgments. We have restated our 2010 comparative data to reflect the adoption of IFRS, with effect from January 1, 2010 (Transition Date).

4


    (ii)
    We were not required to retroactively apply IFRS to our financial statements for years prior to 2010. Accordingly, the operating results and financial information in the chart above for 2009, 2008 and 2007 were prepared in accordance with GAAP. Solely to provide a meaningful comparison to the 2009 and prior years' information, we have included in the above chart the 2010 comparative data prepared in accordance with GAAP.

(2)
SG&A expenses include research and development costs.

(3)
Under GAAP, other charges in 2007 totaled $47.6 million, comprised primarily of: (a) a $37.3 million restructuring charge and (b) a non-cash write-down of $15.1 million relating to the annual impairment assessment, primarily against property, plant and equipment.

    Under GAAP, other charges in 2008 totaled $885.2 million, comprised primarily of: (a)(i) a non-cash write-down of $850.5 million relating to the annual goodwill impairment assessment, (ii) a $35.3 million restructuring charge and (iii) a non-cash write-down of $8.8 million relating to the annual impairment assessment, primarily against property, plant and equipment, offset, in part, by (b) a $7.6 million gain on repurchase of long-term debt.

    Under GAAP, other charges in 2009 totaled $68.0 million, comprised primarily of: (a)(i) a $83.1 million restructuring charge and (ii) a non-cash write-down of $12.3 million relating to the annual impairment assessment, primarily against property, plant and equipment, offset, in part, by (b)(i) a net $23.7 million recovery of damages from the settlement of a class action lawsuit and (ii) a net $2.8 million gain on repurchase of long-term debt, net of a write-down to the embedded options on the debt.

    Under GAAP, other charges in 2010 totaled $68.4 million, comprised primarily of: (a) a $55.3 million restructuring charge, (b) a non-cash write-down of $8.9 million relating to the annual impairment assessment, primarily against computer software assets and property, plant and equipment and (c) an $8.8 million loss on repurchase of long-term debt.

    Under IFRS, other charges in 2010 totaled $49.9 million, comprised primarily of: (a) a $35.8 million restructuring charge, (b) a non-cash write-down of $9.1 million relating to the annual impairment assessment, primarily against computer software assets and property, plant and equipment and (c) an $8.8 million loss on repurchase of long-term debt.

    Under IFRS, other charges in 2011 totaled $6.5 million, comprised primarily of: (a) a $14.5 million restructuring charge offset, in part, by (b) a $6.5 million reversal of provisions.

(4)
Interest expense/finance costs, is comprised of interest expense incurred on indebtedness and debt facilities, less interest income earned on cash and cash equivalents. For years ended 2007, 2008 and 2009, interest expense included marked-to-market adjustments related to our subordinated debt and interest rate swaps. Our swap agreements were terminated in February 2009 and we redeemed all outstanding subordinated debt by March 2010.

(5)
Calculated as current assets less current liabilities.

(6)
The significant differences between the line items under Canadian GAAP and U.S. GAAP, for 2007, 2008, 2009 and 2010 arose primarily from:

For 2007: the transition adjustment resulting from adopting the standards on financial instruments, hedges and comprehensive income for Canadian GAAP in 2007;

For 2008: reversal of gain on foreign exchange contract, the timing of recording certain tax uncertainties and the adjustments relating to the adoption of financial instruments, hedges and comprehensive income for Canadian GAAP;

For 2009: adjustments relating to financial instruments and hedging, and the timing of recording certain tax uncertainties; and

For 2010: adjustments relating to financial instruments and hedging, and the treatment of acquisition-related costs.

(7)
Long-term debt includes capital lease obligations.

Exchange Rate Information

        The rate of exchange as of February 22, 2012 for the conversion of Canadian dollars into United States dollars was U.S.$1.00 and for the conversion of United States dollars into Canadian dollars was C$0.9999. The following table sets forth the exchange rates for the conversion of U.S.$1.00 into Canadian dollars for the identified periods. The rates of exchange set forth herein are shown as, or are derived from, the reciprocals of the noon buying rates in New York City for cable transfers payable in Canadian dollars, as certified for customs purposes by the Federal Reserve Bank of New York. The source of this data is the Board of Governors of the Federal Reserve's website (http://www.federalreserve.gov).

 
  2007   2008   2009   2010   2011  

Average

    1.0734     1.0660     1.1412     1.0298     0.9887  

5


 
  February 2012   January 2012   December 2011   November 2011   October 2011   September 2011  

High

  1.0016     1.0272     1.0403     1.0487     1.0605     1.0389  

Low

  0.9866     0.9986     1.0106     1.0125     0.9932     0.9751  

B.    Capitalization and Indebtedness

        Not applicable.

C.    Reasons for the Offer and Use of Proceeds

        Not applicable.

D.    Risk Factors

        Our shareholders and prospective investors should carefully consider each of the following risks and all of the other information set forth in this Annual Report.

We are dependent on a limited number of customers and on our customers' ability to compete and succeed in their marketplace for the products we manufacture. We are also dependent on limited end markets, primarily within the communications, consumer and computing markets, for a substantial portion of our revenue.

        A decline in revenue from the customers on which we are dependent or the loss of a large customer could have a material adverse effect on our financial condition and operating results. During 2011, two customers individually represented more than 10% of our total revenue, and our top 10 customers represented 71% of our total revenue. During 2010, one customer from our consumer end market individually represented more than 10% of our total revenue, and our top 10 customers represented 72% of total revenue. Research in Motion Limited (RIM), a consumer end market customer, represented 19% of total revenue in 2011 (2010 — 20%). Our customers' ability to compete and succeed in their marketplace (for the products we manufacture) would likely impact our operating results. Our customers' success in the marketplace is directly affected by continued and rapid shifts in technology, changes in end market demand and increased competition in their markets. In the past, some of our customers have experienced severe revenue erosion, pricing and margin pressures, and excess inventories that, in turn, have adversely affected our operating results.

        We expect to continue to depend upon a relatively small number of customers for a significant percentage of our revenue. The mix of our customers and the types of products or services we provide to these customers will have an impact on our operating results from period-to-period. To reduce this reliance, we have been targeting new customers and new services in our traditional markets, as well as expanding our business in the diversified markets such as industrial, aerospace and defense, healthcare, green technology and the semiconductor capital equipment market. We continue to pursue acquisition opportunities to further diversify our revenue and/or our customer base, although there can be no assurance that any acquisition will increase revenue or reduce our customer concentration. Acquisitions are also subject to integration risk and volumes and margins could be lower than we anticipate. During the past two years, we completed the acquisitions of Invec Solutions Limited (Invec), Allied Panels Entwicklungs-und Produktions GmbH (Allied Panels), and the semiconductor equipment contract manufacturing operations of Brooks Automation, Inc. (Brooks Automation) to enhance our service offerings and expand our customer base. As we continue to pursue opportunities in new markets, we may encounter challenges as our knowledge or experience may be limited in these new markets or technologies.

        Although we generally enter into master supply agreements with our customers, the level of business to be transacted under those agreements is not guaranteed. Instead, we bid on a program-by-program basis and typically receive customer purchase orders for specific quantities and timing of products. We are dependent on customers to fulfill the terms associated with these orders and/or contracts.

        There is no assurance that present or future large customers will not terminate their manufacturing or service arrangements with us or significantly change, reduce or delay the volume of manufacturing or other services they order from us, any of which would adversely affect our operating results. Customers may also shift business to a competitor or bring programs in-house to improve their own utilization or to adjust the

6


concentration of their supplier base. Significant reductions in, or the loss of, revenue from any of our large customers could have a material adverse effect on us. We cannot assure the timely replacement of delayed, cancelled or reduced orders with new business. In addition, the ramping of new programs can take from several months to more than a year before production starts and may require significant up-front investments and increased working capital requirements. During this start-up period, these programs may generate losses or may not achieve the expected financial performance due to start-up inefficiencies. These programs are also subject to significant change or outright cancellation, compared to the expectations at the time the new business was awarded, due to changes in end-market demand or changes in the viability of our customers' products in the marketplace.

        The end markets we serve can experience major fluctuations in demand which, in turn, can significantly impact our operations. Enterprise communications and consumer were our two largest end markets representing 26% and 25%, respectively, of total revenue for 2011. In general, business in the consumer end market and, in particular, smartphones, is highly competitive and characterized by shorter product lifecycles, higher revenue volatility, and lower margins. In addition, program volumes can vary significantly period-to-period based on the strength in end-market demand or the timing of ramping new programs. End-user preferences for these products and services can change rapidly and these programs are shifted among EMS competitors. Our exposure to this end market could lead to volatility in our revenue and operating margins and adversely impact our financial position and cash flows.

We are in an industry comprised of numerous competitors and aggressive pricing dynamics.

        We are in a highly competitive industry. We compete globally to provide innovative supply chain solutions to original equipment manufacturers (OEMs) and service providers in the communications (comprised of enterprise communications and telecommunications), consumer, computing (comprised of servers and storage) and diversified (comprised of industrial, aerospace and defense, healthcare, green technology, semiconductor capital equipment and other) end markets. Our competitors include Benchmark Electronics, Inc., Flextronics International Ltd., Hon Hai Precision Industry Co., Ltd., Jabil Circuit, Inc., Plexus Corp., and Sanmina-SCI Corporation, as well as smaller EMS companies that often have a regional, product, service or industry-specific focus or original design manufacturers (ODMs) that provide internally designed products and manufacturing services. We also face indirect competition from the manufacturing operations of our current and prospective customers, as these companies could choose to manufacture products internally rather than to outsource to EMS providers, or they may choose to insource previously outsourced business, particularly where internal excess capacity exists.

        The competitive environment in our industry is very intense and aggressive pricing is a common business dynamic. Some of our competitors have greater scale as well as a broader service offering than we have. While we have increased our capacity in lower-cost regions to reduce our costs, these regions may not provide the same operational benefits that they have in the past due to rising costs and a more aggressive pricing environment. Additionally, our current or potential competitors may also increase or shift their presence in new lower-cost regions to try to offset the continuous competitive pressure and increasing labor costs, may develop or acquire services comparable or superior to those we develop, combine or merge to form larger competitors, or adapt more quickly than we may to new technologies, evolving industry trends and changing customer requirements. Some of our competitors also have capabilities to manufacture components, such as metal or plastic enclosures, semiconductors and cabling, they use in the products they assemble. This expanded capability may provide them with a competitive advantage and greater cost savings and may lead to more aggressive pricing for electronics manufacturing services. Competition has caused and will continue to cause pricing pressures, increased working capital requirements and reduced profits, or a loss of market share (from both program and customer disengagements), any of which could materially and adversely affect us. These factors have exerted and will continue to exert additional pressures on pricing for components and services, thereby increasing the competitive pressures in the EMS industry. We may not be able to compete successfully against our current and future competitors, and the competitive pressures we face may have a material adverse effect on us.

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We are operating in an uncertain global economic environment.

        The uncertain global economy and financial markets continue to limit overall visibility to end markets. This uncertainty may continue to impact our industry, resulting in lower demand for some of the products we manufacture and limiting end-market visibility for our customers. This environment can pose significant risk to our business by impacting demand for our customers' products, the financial condition of our customers or suppliers, as well as the level of customer consolidations.

        A deterioration in the economic environment may accelerate the effect of the various risk factors described in this Annual Report, as well as result in other unforeseen events that will impact our business and financial condition.

Rising oil and other commodity prices may negatively impact our operating results due to higher production and transportation costs.

        We rely on various energy sources in our production and transportation activities. The price of commodities, including oil, has been volatile and remains uncertain. Increased prices for energy and other commodities could result in higher raw material and component costs and transportation costs. Any increase in our costs that we are unable to recover in our pricing to our customers could adversely impact our operating results.

Our results can be affected by rising labor costs.

        There is some uncertainty with respect to rising labor costs, in particular within the lower-cost regions in which we operate. Any increase in labor costs that we are unable to recover in our pricing to our customers could adversely impact our operating results.

Our operations could be adversely affected by local events, including natural disasters, political instability, labor and social unrest, criminal activity and other risks present in the jurisdictions in which we operate.

        Our operations and those of our customers, component suppliers or our logistic partners may be disrupted by local events, including natural disasters (such as the March 2011 earthquake and tsunami in Japan and the flooding in Thailand), political instability, labor and social unrest, criminal activity and other risks present in the jurisdictions in which we, our suppliers and customers operate. Such events could seriously harm our results of operations and increase our costs. We have insurance to cover damage to our facilities, including damage that may occur as a result of natural disasters, such as flooding and earthquakes, or other events. Our insurance policies are subject to deductibles and coverage limits and may not provide adequate coverage.

        Increased international political instability, evidenced by the threat or occurrence of terrorist attacks, enhanced national security measures, conflicts in the Middle East and Asia, security issues at the U.S./Mexico border related to illegal immigration or criminal activities associated with illegal drug activities, labor and social unrest, strained international relations arising from these conflicts and the related decline in consumer confidence may hinder our ability to conduct business. Any escalation in these events or similar future events may disrupt our operations or those of our customers and suppliers and could affect the availability of materials needed to manufacture our products or the means to transport those materials to manufacturing facilities and finished products to customers.

        We rely on a variety of common carriers for the transportation of materials and products and for their ability to route these materials and products through various international ports. A work stoppage, strike or shutdown of any important supplier's facility or operations, or at any major port or airport, could result in manufacturing and shipping delays or expediting charges, which could have a material adverse effect on our operating results.

        These events have had and may continue to have an adverse impact on the U.S. and world economy in general and customer confidence and spending in particular, which in turn could adversely affect our revenue and operating results. The impact of these events on the volatility of the U.S. and world financial markets could increase the volatility of the market price of our securities and may limit the capital resources available to us and our customers and suppliers.

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We may encounter difficulties expanding our operations which could adversely affect our operating results.

        As we expand our business, enter into new markets and products, invest more capital in research and development, acquire new businesses or capabilities, and transfer business from one region to another, we may encounter difficulties that result in higher than expected costs associated with such activities and customer dissatisfaction with our performance. Potential difficulties related to our growth and/or operations could include:

        We may encounter difficulties with the ramping and execution of new program wins from existing or new customers. We may require significant investments to support these new programs, including increased working capital requirements, and may generate lower margins during the ramp period. There is no guarantee that we will benefit from, or be able to grow our business as a result of, our increased investments. In addition, as we pursue opportunities in new markets or technologies, we may encounter challenges due to our limited knowledge or experience. Any of these factors could prevent us from realizing the anticipated benefits of growth in new markets, which could adversely affect our business and operating results.

Inherent difficulties in managing capacity utilization and unanticipated changes in customer orders place strains on our planning and supply chain execution and may affect our operating results.

        Our customers are dependent on EMS providers for new product introductions and rapid response times to meet changes in volume requirements. Most of our customers typically do not commit to production schedules for more than 30 days to 90 days in advance and we often experience volatility in customer orders. Additionally, a significant portion of our revenue can occur in the last month of the quarter and could be subject to change or cancellation that will affect our quarter-to-quarter results. Accordingly, we cannot always forecast the level of customer orders with certainty. This can make it difficult to order appropriate levels of materials and to schedule production and maximize utilization of our manufacturing capacity.

        In addition, customers may cancel their orders, change production quantities or delay production for a number of reasons. When customers change production volumes or request different products to be manufactured than what they originally forecasted to us, the unavailability of components and materials for such changes could also impact our revenue and working capital performance. Furthermore, in order to guarantee continuity of supply for many of our customers, we are required to manufacture and hold a specified amount of finished goods in our warehouses. The uncertainty of our customers' end markets, intense competition in our customers' industries and general order volume volatility have resulted, and may continue to result, in some of our customers delaying or canceling the delivery of some of the products we manufacture for them and placing purchase orders for lower volumes of products than previously anticipated.

        Changes or delays in customer orders could have a material adverse impact on our operating results and working capital performance, including requiring us to carry higher than expected levels of inventory. We may be able to return or re-sell this inventory, or we may be required to hold the inventory for a period of time, any of which may result in our taking additional reserves for the inventory if it becomes excess or obsolete. Order cancellations and delays could also lower our asset utilization, resulting in higher levels of unproductive assets and lower margins. Any of these factors or a combination of these factors could have a material adverse effect on our operating results.

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Our results can be affected by limited availability of components.

        A significant portion of our costs is for the purchase of electronic components. All of the products we manufacture or assemble require one or more components that we order from component suppliers. An interruption in supply from a component supplier, especially for single-sourced components, could have a significant impact on our operations and on our customers, if we are unable to deliver finished products in a timely manner.

        Supply shortages for a particular component can delay production as well as revenue relating to products using that component, and may result in our carrying higher levels of inventory and extended lead times, or may cause price increases in the products and services we provide. At various times in our industry's history, there have been industry-wide shortages of electronic components. During 2011, the EMS industry experienced component shortages primarily driven by the effects of the earthquake and tsunami in Japan and the flooding in Thailand. Shortages, or fluctuations in the cost of components, may have a material adverse effect on our business or cause our operating results to fluctuate from period-to-period. Changes in forecasted volumes or in our customers' requirements can affect our ability to attain components which could impact our results. Additionally, quality or reliability issues at any of our component providers, or financial difficulties that affect their production and ability to supply us with components, could halt or delay production of a customer's product which could adversely impact our operating results.

We face financial risks due to foreign currency volatility.

        Global currency markets continue to be volatile. Although we conduct the majority of our business in U.S. dollars, our financial results are affected by the valuation of foreign currencies relative to the U.S. dollar. The European sovereign debt crisis has increased uncertainty in financial and currency markets, contributing to the market volatility. This crisis may continue to impact currency markets and negatively affect our operating results.

        Our significant non-U.S. currency exposures include the Canadian dollar, British pound sterling, Chinese renminbi, Thai baht, Malaysian ringgit, Mexican peso, Euro, Singapore dollar, Japanese yen and the Romanian lei. We enter into forward exchange contracts to hedge against our cash flows and significant balance sheet exposures in many of these foreign currencies. Our contracts generally extend for periods ranging from one month to 15 months. Our hedging program is designed to reduce the short to medium-term variability of our foreign currency costs and exposures, and may not mitigate the full impact of currency fluctuations, which could adversely impact our operating results.

Our customers may be adversely affected by rapid technological changes which may have an adverse impact on their success in their markets and on our business.

        Many of our customers compete in markets that are characterized by rapidly changing technology, evolving industry standards and continuous improvements in products and services. These conditions frequently result in shorter product lifecycles. Our success will depend largely on the success achieved by our customers in developing and marketing their products. If technologies or standards supported by our customers' products become obsolete, fail to gain widespread acceptance or are cancelled, our business could be adversely affected. Declines in end-market demand for customer-specific proprietary systems in favor of open systems with standardized technologies could have an adverse impact on our business. Model obsolescence and rapid shifts in technologies, especially evident in the consumer end market, can adversely impact our operating results. The highly competitive nature of our customers' products could also drive consolidation among OEMs, which could result in product line consolidation that could impact our revenue or customer relationships.

Our operating results in certain end markets are subject to seasonality and can be unpredictable.

        In the past, we have experienced some level of seasonality in our quarterly revenue patterns across most of the end markets we serve. As our revenue from quarter-to-quarter is dependent on the level of demand and mix in each of our end markets, it is difficult for us to predict the extent and impact of seasonality on our business.

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Any failure to successfully manage our international operations would have a material adverse effect on our financial condition and operating results.

        We have facilities in numerous countries, including Austria, China, Ireland, Japan, Malaysia, Mexico, Romania, Scotland, Singapore, Spain and Thailand. During 2011, approximately two-thirds of our revenue was produced from locations outside of North America. We also purchase the majority of components and materials from international suppliers.

        International operations are subject to inherent risks which may adversely affect us, including:

We are subject to the risk of increased income taxes and our inability to successfully defend tax audits or meet the conditions of tax incentives could adversely affect our financial condition and operating results.

        We conduct business operations in a number of countries, including countries where tax incentives have been extended to encourage foreign investment or where income tax rates are low. Our taxes could increase if certain tax incentives we benefit from are retracted. A retraction could occur if we fail to satisfy the conditions on which these tax incentives are based, if they are not renewed upon expiration, if tax rates applicable to us in such jurisdictions are otherwise increased or if there are changes in legislation or administrative practices. We believe we will comply with the conditions of the tax incentives; however, changes in our outlook in any particular country could impact our ability to meet the conditions.

        We develop our tax filing positions based upon the anticipated nature and structure of our business and the tax laws, administrative practices and judicial decisions currently in effect in the jurisdictions in which we have assets or conduct business, all of which are subject to change or differing interpretations, possibly with retroactive effect.

        We are subject to tax audits and reviews by various tax authorities of historical information which could result in additional tax expense in future periods relating to prior results. Any such increase in our income tax expense and related interest and penalties could have a significant impact on our future earnings and cash flows.

        Certain of our subsidiaries provide financing, products and services to, and may from time-to-time undertake certain significant transactions with, other subsidiaries in different jurisdictions. Moreover, several jurisdictions in which we operate have tax laws with detailed transfer pricing rules which require that all transactions with non-resident related parties be priced using arm's length pricing principles, and that contemporaneous documentation must exist to support such pricing.

        We currently have ongoing tax audits where the tax authorities have taken the position that income reported by our subsidiaries for certain years should have been materially higher as a result of certain inter-company transactions. The successful pursuit of the assertions made by tax authorities arising from these tax audits could result in our owing significant amounts of tax, interest and possibly penalties. There can be no assurance as to the final resolution of these claims and any resulting proceedings, and if these claims and any

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ensuing proceedings are determined adversely against us, the amounts we may be required to pay could be material.

        In addition, we have and expect to continue to recognize the future benefit of certain Brazilian tax losses on the basis that these tax losses can and will be fully utilized in the fiscal period ending on the date of dissolution of our Brazilian subsidiary. While we believe that our interpretation of applicable Brazilian law is correct, our ability to realize this benefit is not certain and a failure to do so could have a material adverse effect on our operating results and financial condition.

        As at December 31, 2011, a significant portion of our cash and cash equivalents was held by numerous foreign subsidiaries outside of Canada. Although substantially all of the cash and cash equivalents held outside of Canada could be repatriated, a significant portion may be subject to withholding taxes under current tax laws. We have not recognized deferred tax liabilities for cash and cash equivalents held by certain foreign subsidiaries related to earnings that are considered indefinitely reinvested outside of Canada and that we will not repatriate in the foreseeable future (approximately $380.0 million of cash and cash equivalents as at December 31, 2011).

We have incurred significant restructuring charges and accounting losses in the past and may experience restructuring charges and losses in future periods.

        In the past, we have recorded losses resulting primarily from restructuring charges and the write-down of goodwill. These amounts have varied from period-to-period. We have undertaken numerous initiatives to restructure and reduce our capacity and cost structures in response to changes in the EMS industry and end market demand, with the intention of improving utilization and reducing our cost structures. See note 16 to the Consolidated Financial Statements in Item 18. These restructuring actions have had a negative impact on our financial and operating results, including incurring higher operating expenses during periods of transition. In certain situations, product transfers have resulted in our inability to retain existing business or grow revenue due to execution problems resulting from significant headcount reductions, plant closures and product transfers. During 2011, we recorded restructuring charges of $14.5 million (2010 — $35.8 million). We evaluate our operations from time-to-time and may propose additional restructuring actions in the future. Any failure to successfully execute or realize the expected benefits from these initiatives, including any delay in implementing these initiatives, can have a material adverse impact on our operating results. Furthermore, we may not be profitable in future periods.

We may encounter difficulties completing or integrating our acquisitions which could adversely affect our operating results.

        We expect to expand our presence in new end markets and/or expand our capabilities, some of which may occur through acquisitions. These transactions may involve acquisitions of entire companies and/or acquisitions of selected assets from OEMs or other companies. Potential difficulties related to our acquisitions include:

        Any of these factors could prevent us from realizing the anticipated benefits of an acquisition, including additional revenue, operational synergies and economies of scale. Our failure to realize the anticipated benefits of acquisitions could adversely affect our business and operating results. Previous acquisitions have resulted in the recording of a significant amount of goodwill and intangible assets at the time of acquisition. Our failure to support the carrying value of goodwill and intangible assets in periods subsequent to the acquisitions has resulted, and could in the future result, in write-downs that adversely affect our operating results.

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The efficiency of our operations could be adversely affected by disruptions to our Information Technology (IT) systems.

        We rely on information technology networks and systems to process, transmit and store electronic information. In particular, we depend on our information technology infrastructure for a variety of functions, including worldwide financial reporting, inventory management, procurement, invoicing and email communications. Any of these systems may be susceptible to outages due to fire, floods, power loss, telecommunications failures, terrorist attacks and similar events. Despite the implementation of network security measures and disaster recovery plans, our systems and those of third parties on which we rely may also be vulnerable to computer viruses, break-ins and similar disruptions. If we or our vendors are unable to prevent such outages and breaches, our operations could be disrupted.

If we are unable to recruit or retain highly skilled personnel, our business could be adversely affected.

        The recruitment of personnel in the EMS industry is highly competitive. We believe that our future success will depend, in part, on our ability to continue to attract and retain highly skilled executive, technical and management personnel. We do not have employment or non-competition agreements with the majority of our employees. To date, we have been successful in recruiting and retaining executive, managerial and technical personnel; however, the loss of services of certain of these employees could have a material adverse effect on our operations.

Consolidation in the electronics industry could adversely affect our business relationships or the volume of business we conduct with our customers.

        Our customers, competitors and suppliers are subject to merger and acquisition transactions. Future mergers and acquisitions of our customers could result in a decrease in demand from our customers or a loss of business to our competitors as customers rationalize their business and consolidate their suppliers. Mergers or consolidation among our competitors could increase their competitive advantage over us, which may also result in a loss of business if customers shift their production.

We may be required to make larger contributions to our defined benefit pension plans in the future, which may have an adverse impact on our liquidity and our operating results.

        We maintain multiple defined benefit pension plans, as well as supplemental pension plans. Some employees in Canada, Japan and the United Kingdom (U.K.) participate in our defined benefit pension plans; however, the Canada and U.K. plans are closed to new members. We also have defined contribution plans for certain employees, primarily in Canada and the U.S.

        Our pension funding policy is to contribute amounts sufficient to meet minimum local statutory funding requirements that are based on actuarial calculations. Our obligations are based on certain assumptions relating to expected plan asset performance, salary escalation, employee turnover, retirement ages, expected healthcare costs, the performance of the financial markets and discount rates. If actual results or future expectations differ from these assumptions, the amounts we are obligated to contribute to the pension plans may increase. If the financial markets result in returns lower than our assumptions, we may be required to make larger contributions in the future and our pension expense may also be impacted.

If our products or services are subject to warranty claims, our business reputation may be damaged and we may incur significant costs.

        In certain of our sales contracts, and in some of our design and development activities, we provide warranties against defects or deficiencies in our products, services or designs. A successful claim for damages arising as a result of such defects or deficiencies, for which we are not insured or where the damages exceed our insurance coverage, or any material claim for which insurance coverage is denied or limited and for which indemnification is not available, could have a material adverse effect on our business, operating results and financial condition. As we expand our service offerings and pursue business in new end markets, our warranty obligations may increase and we may not be successful in pricing our products to appropriately cover our warranty costs.

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We could face increased financial risk due to the potential non-performance by counterparties, including but not limited to financial institutions, customers and suppliers.

        The potential occurrence of default by a counterparty on its contractual obligations may result in a financial loss to us. We generally provide payment terms to our customers ranging from 15 days to 60 days. Our accounts receivable balance at December 31, 2011 was $810.8 million, with two customers individually representing more than 10% of the total accounts receivable. If any of our customers have insufficient liquidity, we could encounter significant delays or defaults in payments owed to us by such customers, or we may extend our payment terms, which could adversely impact our financial condition and operating results. A deterioration in our customers' financial condition could result in customers going into bankruptcy or reorganization proceedings. At December 31, 2011, less than 1% of our gross accounts receivable was over 90 days past due. Our allowance for doubtful accounts balance at December 31, 2011 was $2.7 million.

We may be unable to keep pace with manufacturing technology changes.

        We continue to evaluate the advantages and feasibility of new manufacturing processes. Our future success will depend, in part, upon our ability to continually develop and market electronics manufacturing services that meet our customers' evolving needs. This could entail investing in new processes, capabilities or equipment to support new technologies used in our customers' current or future products, and to support their supply chain processes. Additionally, as we expand our service offerings, such as the launch of our new Joint Design and Manufacturing (JDM) strategy, or pursue business in new end markets, such as the semiconductor capital equipment or green technology markets, where our experience may be limited, we may be less effective in adapting to technological change. Our manufacturing and supply chain processes, test development efforts and design capabilities may not be successful.

        In addition, various industry-specific standards, qualifications and certifications are required to produce certain types of products for our customers. Failure to maintain those certifications could adversely affect our ability to maintain existing levels of business or win new business.

We may be unable to protect our intellectual property or the intellectual property of others.

        We believe that certain of our proprietary intellectual property rights and information provide us with a competitive advantage. Accordingly, we have taken, and intend to continue to take, appropriate steps to protect this proprietary information. These steps include signing non-disclosure agreements with customers, suppliers, employees and other parties, and implementing rigid security measures. Our protection measures may not be sufficient to prevent the misappropriation or unauthorized use or disclosure of our property or information.

        There is also a risk that infringement claims may be brought against us, our customers or our suppliers in the future. If an infringement claim is successfully asserted, we may be required to spend significant time and money to develop processes that do not infringe upon the rights of another person or to obtain licenses for the technology, process or information from the owner. We may not be successful in such development, or any such licenses may not be available on commercially acceptable terms, if at all. In addition, any litigation could be lengthy and costly and could adversely affect us even if we are successful in such litigation. As we expand our service offerings and pursue business in new end markets, we may be less effective in anticipating the intellectual property risks related to new manufacturing, design and other services.

Due to inherent limitations, there can be no assurance that our system of disclosure and internal controls will be successful in preventing all errors or fraud in a timely manner.

        Because of the inherent limitations of a cost-effective control system, misstatements due to error or fraud may occur and may not be detected. All systems of internal control contain inherent limitations. Accordingly, we cannot provide absolute assurance that all control issues, errors or instances of fraud, if any, within the Company have been or will be prevented or detected. In addition, over time, certain aspects of a control system may become inadequate because of changes in conditions, or the degree of compliance with the policies or procedures may deteriorate, which we may not be able to address quickly enough to prevent all instances of error or fraud.

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We may not be able to increase revenue if the trend of outsourcing by OEMs or service providers slows.

        Future growth in our revenue includes a dependence on new outsourcing opportunities in which we assume additional manufacturing and supply chain management responsibilities from OEMs or service providers. Our future growth will be limited to the extent that these opportunities are not available as a result of OEMs or service providers deciding to perform these functions internally or delaying their decision to outsource or our inability to win new contracts. The global economic environment has impacted, and may continue to impact, the trend of outsourcing as some customers have reversed, and other customers may reverse, their outsourcing decisions and shift production back to their own facilities to improve their factory utilization. Political pressures or negative sentiment by our customers' customers or local governments may impede the movement of production from one geography to another. These and other factors could adversely affect the rate of outsourcing generally, or adversely affect the rate of outsourcing to EMS providers, such as Celestica.

Compliance with governmental laws and obligations could be costly and impact our operations.

        We are subject to various federal/national, state/provincial, local and multi-national environmental laws and regulations. Our environmental management systems and practices have been designed to ensure compliance with these laws and regulations in a manner consistent with local practice. Maintaining compliance with and responding to increasingly stringent regulations require a significant investment of time and resources and may restrict our ability to modify or expand our facilities or to continue production. Our failure to comply with these laws and regulations could potentially result in significant fines and penalties, our operations could be suspended and our cost of related investigations could be material in any period.

        More complex and stringent environmental legislation continues to be imposed, including laws that place increased responsibility and requirements on the "producers" of electronic equipment and, in turn, their providers and suppliers. Such laws may relate to product inputs (such as hazardous substances and energy consumption) and product use (such as energy efficiency and waste management/recycling). Noncompliance with these requirements could potentially result in substantial costs, including fines and penalties, as well as liability to our customers and consumers.

        Where compliance responsibility rests primarily with OEMs rather than with EMS companies, OEMs may turn to EMS companies for assistance in meeting their obligations. Our customers are becoming increasingly concerned about issues such as waste management (including recycling), climate change (including the reduction of carbon footprints) and product stewardship, and expect their suppliers to be environmental leaders. Although we strive to meet such customer expectations, such demands may extend beyond our regulatory obligations and significant investments of time and resources may be required to attract and retain customers.

        We have generally obtained environmental assessment reports, or reviewed recent assessment reports undertaken by others, for most of our manufacturing facilities at the time of acquisition or leasing. Such assessments may not reveal all environmental liabilities and current assessments are not available for all facilities. As well, some of our operations have involved hazardous substances that could cause contamination. Although we may investigate, remediate or monitor soil and groundwater contamination at certain of our owned sites, we may not be aware of or address all such conditions and we may incur significant costs to perform such work in the future. In many jurisdictions in which we operate, environmental laws impose liability for the costs of removal, remediation or risk assessment of hazardous or toxic substances on an owner, occupier or operator of real estate, even if such person or company was unaware of or not responsible for the discharge or migration of such substances. In some instances where soil or groundwater contamination existed prior to our ownership or occupation, landlords or former owners may have retained some contractual responsibility or regulatory liability, but this may not provide sufficient protection for us to avoid liability. Third-party claims for damages or personal injury are also possible. Moreover, current remediation, mitigation and risk assessment measures may not be adequate to comply with future laws.

        In the healthcare end market, we face substantial regulations, primarily from the U.S. Food and Drug Administration in the U.S., as well as other jurisdictions, relating to some of the healthcare products we manufacture. We are required to comply with the various statutes and regulations related to the design, development, testing, manufacturing and labeling of our healthcare products in addition to reporting of certain information with respect to the safety of such products. If we are unable to comply with these regulations, we

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may be faced with fines, injunctions, product recalls, or suspension of production, among other penalties. Failure to comply with these regulations could materially affect our relationships with customers and our operating results.

        We provide design and manufacturing related services to our customers in the aerospace and defense end market. As part of these services, we are subject to substantial regulation from government agencies including the Department of Defense and the U.S. Federal Aviation Administration in the U.S. and in other jurisdictions. In addition, several of our sites around the world are certified in quality management standards applicable to the aerospace and defense industry. Failure to comply with these regulations may result in fines, penalties, injunctions, and may prevent us from winning future contracts, any of which could materially affect our financial condition and operating results, as could the loss of any of our quality management certifications.

        Our international operations require us to comply with various anti-bribery laws, including the U.S. Foreign Corrupt Practices Act (FCPA). In many foreign countries, particularly in those with developing economies, it may be customary for businesses to engage in business practices that are prohibited by the FCPA or other laws and regulations. Although we have implemented policies and procedures designed to ensure compliance with the FCPA and similar laws, there can be no assurance that all of our employees and agents, as well as those companies to which we outsource certain of our business operations, will not be in violation of our policies. Failure to comply with these laws could subject us to, among other things, adverse publicity, penalties and legal expenses that could harm our reputation and have a material adverse effect on our business, financial condition and operating results. In addition to the difficulty of monitoring compliance, any suspected activity would require a costly investigation by us.

Compliance or the failure to comply with employment laws and regulations could be costly and impact our operating results.

        We are subject to a variety of domestic and foreign employment laws, including those related to workplace safety, discrimination, whistle-blowing, wages and severance payments. Such laws are subject to change and there can be no assurance that we will not be found to have violated any such laws in the future. Such violations could lead to the assessment of fines or damages against us by regulatory authorities or by employees, any of which could adversely affect our operating results.

Failure to comply with the conditions of government grants could lead to grant repayments and negatively impact our financial position and operating results.

        We have received grants from government organizations or other third parties as incentives related to capital investments or other spending. These grants often have future conditions which we must comply with or face possible repayment. We currently believe we will comply with the conditions of the grants; however, if we become unable to meet future conditions, we may be obligated to repay the grant, or a portion of the grant, which could adversely affect our financial position and operating results.

Our credit agreement contains restrictive covenants that may impair our ability to conduct business.

        Our credit agreement contains financial and operating covenants that limit our management's discretion with respect to certain business matters. Among other things, these covenants restrict our ability and our subsidiaries' ability to incur additional debt, create liens or other encumbrances, change the nature of our business, sell or otherwise dispose of assets, and merge or consolidate with other entities.

We are exposed to interest rate fluctuations.

        In January 2011, we renewed our revolving credit facility on generally similar terms and conditions as our previous facility and increased the size of the facility to $400.0 million, with a maturity of January 2015. Borrowings under our revolving credit facility bear interest at LIBOR or Prime rate plus a margin. Our borrowings under this facility expose us to interest rate risks due to fluctuations in these rates. Significant interest rate fluctuations may affect our business, operating results and financial condition.

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The deterioration of financial markets and continued instability of the global economy may adversely affect our ability to raise funds or may increase the cost of raising those funds.

        We currently have access to a revolving credit facility through financial institutions. We may also issue debt or equity securities to fund our operations or make acquisitions. As the financial market instability continues or deteriorates, our ability to borrow or raise capital may be impacted. In addition, a rating agency downgrade of our credit rating may also impact our ability to raise funds in the time and amount necessary for us, or we may incur additional costs of raising funds, which may adversely affect our business, operating results and financial condition.

The interest of our controlling shareholder, Onex Corporation, with a 71% voting interest, may conflict with the interest of the remaining holders of our subordinate voting shares.

        Onex Corporation, or Onex, owns, directly or indirectly, all of the outstanding multiple voting shares and less than 1% of the outstanding subordinate voting shares. The number of shares owned by Onex, together with those shares Onex has the right to vote, represents 71% of the voting interest in Celestica and less than 1% of the voting interest in our outstanding subordinate voting shares. Accordingly, Onex exercises a controlling influence over our business and affairs and has the power to determine all matters submitted to a vote of our shareholders where our shares vote together as a single class. Onex has the power to elect our directors and its approval is required for significant corporate transactions such as certain amendments to our articles of incorporation, the sale of all or substantially all of our assets and plans of arrangement. Onex's voting power could have the effect of deterring or preventing a change in control of our Company that might otherwise be beneficial to our other shareholders. Under our credit agreement, it is an event of default entitling our lenders to demand repayment if Onex ceases to control Celestica unless the shares of Celestica become widely held ("widely held" meaning that no one person owns more than 20% of the votes). Gerald W. Schwartz, the Chairman and Chief Executive Officer of Onex and one of our directors, owns multiple voting shares of Onex, carrying the right to elect a majority of the Onex board of directors. Mr. Schwartz, therefore, effectively controls our affairs. The interests of Onex and Mr. Schwartz may differ from the interests of the remaining holders of subordinate voting shares. For additional information about shareholder rights and restrictions relative to our subordinate voting shares and multiple voting shares, see Item 10(B), "Memorandum and Articles of Incorporation." For additional information about our principal shareholders, see Item 7(A), "Major Shareholders." Onex has, from time-to-time, issued debentures exchangeable and redeemable under certain circumstances for our subordinate voting shares, entered into forward equity agreements with respect to subordinate voting shares, sold shares (after exchanging multiple voting shares for subordinate voting shares), or redeemed these debentures through the delivery of subordinate voting shares and could do so in the future. These sales could impact our share price, or have consequences on our debt and ownership structure.

We face securities class action and shareholder derivative lawsuits which could result in substantial costs, diversion of management's attention and resources and negative publicity.

        In 2007, securities class action lawsuits were commenced against us and our former Chief Executive and Chief Financial Officers in the United States District Court of the Southern District of New York by certain individuals, on behalf of themselves and other unnamed purchasers of our stock, claiming that they were purchasers of our stock during the period January 27, 2005 through January 30, 2007. The plaintiffs allege violations of United States federal securities laws and seek unspecified damages. They allege that during the purported period we made statements concerning our actual and anticipated future financial results that failed to disclose certain purportedly material adverse information with respect to demand and inventory in our Mexican operations and our information technology and communications divisions. In an amended complaint, the plaintiffs added one of our directors and Onex as defendants. On October 14, 2010, the District Court granted the defendants' motions to dismiss the consolidated amended complaint in its entirety. The plaintiffs appealed to the United States Court of Appeals for the Second Circuit the dismissal of its claims against us and our former Chief Executive and Chief Financial Officers, but not as to the other defendants. In a summary order dated December 29, 2011, the Court of Appeals reversed the District Court's dismissal of the consolidated amended complaint and remanded the case to the District Court for further proceedings. Parallel class proceedings, including a claim issued in October 2011, remain against us and our former Chief Executive and

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Chief Financial Officers in the Ontario Superior Court of Justice, but neither leave nor certification of any actions has been granted by that court. We believe the allegations in the claims and the appeal are without merit and we intend to defend against them vigorously. However, there can be no assurance that the outcome of the litigation will be favorable to us or that it will not have a material adverse impact on our financial position or liquidity. In addition, we may incur substantial litigation expenses in defending these claims. We have liability insurance coverage that may cover some of our litigation expenses, potential judgments and settlement costs.

Potential unenforceability of civil liabilities and judgments.

        We are incorporated under the laws of the Province of Ontario, Canada. A significant number of our directors, controlling persons and officers are residents of Canada. Also, a substantial portion of our assets and the assets of these persons are located outside of the United States. As a result, it may be difficult to effect service within the United States upon those directors, controlling persons and officers who are not residents of the United States or to realize in the United States upon a judgment of courts of the United States predicated upon the civil liability provisions of the U.S. federal securities laws.

Changes in accounting standards enacted by the standard-setting bodies may adversely affect our operating results, profitability and financial condition.

        Accounting standards are revised periodically and/or expanded upon by the standard-setting bodies. Accordingly, we are required to adopt new or revised accounting standards and to comply with revised interpretations issued from time-to-time by these authoritative bodies, which include the Canadian Accounting Standards Board (CASB), the International Accounting Standards Board (IASB), the Financial Accounting Standards Board (FASB) and the U.S. Securities and Exchange Commission (SEC). In 2008, the CASB announced the adoption of IFRS for publicly accountable enterprises in Canada, effective 2011. At that time, the SEC adopted rules to accept annual filings of financial statements prepared in accordance with IFRS without the annual reconciliation to U.S. GAAP under certain circumstances. Our Consolidated Financial Statements for the year ended 2011 were our first annual financial statements prepared under IFRS. We were required to apply IFRS retroactively to our 2010 comparative data. We were not required to apply IFRS to years prior to 2010, which have been reported in the selected financial data table in Item 3(A) and prepared in accordance with prior Canadian GAAP with reconciliation to U.S. GAAP. Refer to Item 5, "Operating and Financial Review and Prospects — Management's Discussion and Analysis of Financial Condition and Results of Operations," and notes 2 and 3 to the 2011 Consolidated Financial Statements in Item 18 for the impact of IFRS on our Consolidated Financial Statements, including the significant accounting policies we adopted under IFRS. The FASB and IASB have been jointly collaborating on a series of projects to converge, improve and align the U.S. and international accounting standards as one global high quality standard. While there have been some delays in the convergence effort, we continue to monitor developments and consider the potential impacts. Future changes in accounting standards could adversely affect our operating results, profitability or financial condition.

Shares eligible for public sale could adversely affect our share price.

        Future sales of our subordinate voting shares in the public market, or the issuance of subordinate voting shares upon the exercise of stock options or otherwise could adversely affect the market price of the subordinate voting shares.

        At February 22, 2012, we had 198.3 million subordinate voting shares and 18.9 million multiple voting shares outstanding. All of the subordinate voting shares are freely transferable without restriction or further registration under the U.S. Securities Act, except for shares held by our affiliates (as defined in the U.S. Securities Act). Shares held by our affiliates include all of the multiple voting shares and 0.6 million subordinate voting shares held by Onex. An affiliate may not sell shares in the United States unless the sale is registered under the U.S. Securities Act or an exemption from registration is available. Rule 144 of the U.S. Securities Act permits our affiliates to sell our shares in the United States subject to volume limitations and requirements relating to manner of sale, notice of sale and availability of current public information with respect to us.

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        In addition, as of February 22, 2012, there were 22.7 million subordinate voting shares reserved for issuance under our employee equity-based compensation plans and for director compensation, including outstanding stock options for 8.6 million subordinate voting shares and outstanding restricted share units for 2.4 million subordinate voting shares. Moreover, pursuant to our articles of incorporation, we may issue an unlimited number of additional subordinate voting shares without further shareholder approval (subject to any required stock exchange approvals). As a result, a substantial number of our subordinate voting shares will be eligible for sale in the public market at various times in the future. The issuances and/or sale of such shares would dilute the holdings of our shareholders and could adversely affect the market price of the subordinate voting shares.

        In February 2012, we launched a share buyback program allowing us to repurchase up to 16.2 million subordinate voting shares on the open market or as otherwise permitted, subject to the normal terms and limitations of such bids. The repurchase of such shares could affect the market price of our subordinate voting shares.

The market price of our stock is volatile.

        The stock market in recent years has experienced significant price and volume fluctuations that have affected the market price of our stock. These fluctuations have often been unrelated to the operating performance of our company. Factors such as fluctuations in our operating results, announcements by our customers, competitors or other events affecting companies in the electronics industry, currency fluctuations, general market fluctuations, and macro economic conditions may cause the market price of our subordinate voting shares to decline.

Item 4.    Information on the Company

A.    History and Development of the Company

        We were incorporated in Ontario, Canada on September 27, 1996. Our legal and commercial name is Celestica Inc. We are domiciled in the Province of Ontario, Canada and operate under the Business Corporations Act (Ontario). Our principal executive offices are located at 844 Don Mills Road, Toronto, Ontario, Canada M3C 1V7 and our telephone number is (416) 448-5800. Our website is http://www.celestica.com. Information on our website is not incorporated by reference in this Annual Report.

        Prior to our incorporation, we were an IBM manufacturing unit that provided manufacturing services to IBM for more than 75 years. In 1993, we began providing electronics manufacturing services to non-IBM customers. In October 1996, we were purchased from IBM by an investor group, led by Onex, which included members of our senior executive team at the time.

        Celestica offers a range of supply chain solutions globally to OEMs and service providers across many industries.

Recent Acquisitions

        Certain information concerning our acquisition activities, including property, plant and equipment expenditures, and financing activities, currently in progress and in the last three fiscal years, is set forth in notes 4, 8, 9, 12, 13, 22 and 25 to the Consolidated Financial Statements in Item 18, and Item 5, "Operating and Financial Review and Prospects — Management's Discussion and Analysis of Financial Condition and Results of Operations."

        Certain information concerning our divestiture activities, including our restructurings, currently in progress and in the last three fiscal years, is set forth in notes 7 and 16 to the Consolidated Financial Statements in Item 18, and Item 5, "Operating and Financial Review and Prospects — Management's Discussion and Analysis of Financial Condition and Results of Operations."

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B.    Business Overview

        We deliver innovative supply chain solutions globally to OEMs and service providers in the communications, consumer, computing and diversified (comprised of industrial, aerospace and defense, healthcare, green technology, semiconductor capital equipment and other) end markets. We believe our services and solutions help our customers reduce their time-to-market and eliminate waste from their supply chains, resulting in lower product lifecycle costs, better financial returns and improved competitive advantage in their respective business environments.

        Our global operating network spans the Americas, Asia and Europe. In an effort to drive speed and flexibility for our customers, we conduct the majority of our business through centers of excellence strategically located around the world. We strive to align a network of suppliers around these centers in order to increase flexibility in our supply chain, deliver shorter overall product lead times and reduce inventory. We operate other facilities around the world with specialized supply chain management and high-mix/low-volume manufacturing capabilities to meet the specific production and product lifecycle requirements of our customers.

        Through our centers of excellence and the deployment of our Total Cost of Ownership™ (TCOO) strategy with our suppliers, we strive to provide our customers with the lowest total cost throughout the product lifecycle. This approach enables us to focus our capabilities on solutions that address the total cost of design, sourcing, production, delivery and after-market services for our customers' products, which drives greater levels of efficiency and improved service levels throughout our customers' supply chains.

        Although we supply products and services to over 100 customers, we depend on a relatively small number of customers for a significant portion of our revenue. In the aggregate, our top 10 customers represented 71% of revenue in 2011 and our largest customer represented 19% of revenue. In 2011, our revenue by end market was as follows: enterprise communications (26% of revenue); consumer (25% of revenue); servers (15% of revenue); diversified (14% of revenue); storage (11% of revenue) and telecommunications (9% of revenue). The products and services we provide can be found in a wide variety of end products, including smartphones; servers; networking, wireless and telecommunications equipment; storage devices; aerospace and defense electronics, such as in-flight entertainment and guidance systems; healthcare products; audiovisual equipment; printer supplies; peripherals; semiconductor capital equipment; and a range of industrial and green technology electronic equipment, including solar panels and inverters.

        We believe our principal strengths include our advanced capabilities in the areas of technology and quality, our flexible service offerings, our financial strength and our supply chain management capabilities. We offer a wide range of advanced manufacturing technologies, test capabilities and processes, and services to support our customers' needs. We believe our size, geographic reach and expertise in supply chain management allow us to purchase materials cost-effectively and to deliver products and services to customers faster, thereby reducing overall product costs and reducing the time-to-market. We have a highly skilled workforce focused on continuous improvement, flexibility and customer service excellence.

        We believe we are well positioned to compete effectively in the EMS industry, based on our services and capabilities, operational performance and track record as one of the major global EMS companies. Our priorities include (i) growing revenue in our targeted business areas; (ii) continuing to improve financial results, including margins, returns and free cash flow; (iii) developing and enhancing profitable relationships with leading customers across our strategic target markets; and (iv) increasing our capabilities in services and technologies beyond our traditional areas of EMS expertise. We believe that success in these areas will continue to strengthen our competitive position and enhance customer satisfaction and shareholder value.

Electronics Manufacturing Services Industry

Overview

        Leading EMS companies operate global networks delivering worldwide supply chain management solutions to OEMs and service providers. They offer end-to-end services for the entire product lifecycle, including design and engineering, manufacturing and systems integration, fulfillment and after-market services. OEMs and service providers have increased their reliance on these services to become more efficient and to enhance their

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competitive positions. By outsourcing the manufacturing and related services, OEMs and service providers are able to overcome their most pressing business challenges related to cost, asset utilization, quality, time-to-market and rapidly changing technologies.

        We believe the adoption of outsourcing by OEMs and other companies will continue across a number of industries, because it allows them to:

        Reduce Operating Costs and Invested Capital.    OEMs are under significant pressure to reduce total product lifecycle costs, and property, plant and equipment expenditures. The manufacturing process of electronics products has become increasingly automated, which requires greater levels of investment in property, plant and equipment. EMS companies enable OEMs to gain access to a global network of manufacturing facilities with supply chain management expertise, advanced engineering capabilities, flexible capacity and economies of scale. By working with EMS companies, OEMs can reduce their overall product lifecycle and operating costs, working capital and property, plant and equipment investment requirements.

        Focus Resources on Core Competencies.    Our customers operate in a highly competitive environment characterized by rapid technological change and shortening product lifecycles. In this environment, many customers are prioritizing their resources on their core competencies of product development, sales, marketing and customer service, and outsourcing design, engineering, manufacturing, supply chain and other product support requirements to their EMS partners.

        Improve Time-to-Market.    Electronic products experience shorter lifecycles, requiring OEMs to continually reduce the time and cost of bringing products to market. OEMs can significantly improve product development cycles and enhance time-to-market by benefiting from the expertise and infrastructure of EMS providers, including capabilities relating to design and engineering services, prototyping and the rapid ramp-up of new products to high-volume production, all with the critical support of global supply chain management and manufacturing networks.

        Utilize EMS Companies' Procurement, Inventory Management and Logistics Expertise.    Successful manufacturing of electronic products requires significant resources to deal with the complexities in planning, procurement and inventory management, frequent design changes, shorter product lifecycles and product demand fluctuations. OEMs can address these complexities by outsourcing to EMS providers that (i) possess sophisticated IT systems and global supply chain management capabilities and (ii) can leverage significant component procurement advantages to lower product costs.

        Access Leading Engineering Capabilities and Technologies.    Electronic products and the electronics manufacturing technology needed to support them are complex and require significant investment. As a result, OEMs increasingly rely on EMS companies to provide design, supply chain management, engineering, manufacturing and technological expertise. Through their design and engineering services, and through the knowledge gained from manufacturing and repairing products, EMS companies can assist OEMs in the development of new product concepts, or the re-design of existing products, as well as assist with improvements in the performance, cost and time required to bring products to market. In addition, OEMs gain access to high-quality manufacturing expertise and capabilities in the areas of advanced process, interconnect and test technologies.

        Improve Access to Global Markets.    Some of our customers provide products or services to a global customer base. EMS companies with global infrastructure and support capabilities provide customers with efficient global manufacturing solutions, distribution capabilities and after-market services.

        Access to Broadening Service Offerings.    In response to OEMs' continued desire to outsource activities that were traditionally handled internally, EMS providers are continually expanding their offerings to include services such as design, fulfillment and after-market services, including repair and recycling. This enables OEMs to benefit from outsourcing more of their cost of goods sold.

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Celestica's Focus

        We are dedicated to building solid partnerships and delivering innovative supply chain solutions to our customers. To achieve this, we collaborate with our customers to proactively identify and fulfill current requirements and anticipate future needs. We strive to exceed our customers' expectations by offering a range of services to lower costs, increase flexibility and predictability, improve quality and provide better service to their customers. We also look at ways to invest in our customers' future by continuing to deepen our knowledge of their businesses and to develop solutions to meet their needs. We constantly look to advance our technical capabilities to help our customers achieve a competitive advantage. By succeeding in the following areas, we believe we will continue to strengthen our competitive position and enhance customer satisfaction and shareholder value:

        Continue to Penetrate Strategic Target End Markets.    We strive to establish a diverse customer base with OEMs and service providers in several industries. We believe our legacy of expertise in technology, quality and supply chain management, in addition to our service offerings and centers of excellence, have positioned us as an attractive partner to companies across these markets. Our goal is to grow across our targeted end markets, with particular emphasis on our diversified end market, which is comprised of industrial, aerospace and defense, healthcare, green technology, semiconductor capital equipment and other end markets. In 2011, we acquired the contract manufacturing operations of Brooks Automation to enhance our service offerings, specifically for the semiconductor capital equipment market. Revenue from our diversified end markets has increased 40% from 2010 to just over $1 billion in 2011.

        Our revenue by end market as a percentage of total revenue is as follows:

 
  2009   2010   2011  

Consumer

    28%     25%     25%  

Diversified

    10%     12%     14%  

Enterprise Communications

    22%     24%     26%  

Servers

    13%     14%     15%  

Storage

    12%     12%     11%  

Telecommunications

    15%     13%     9%  

        Selectively Pursue Strategic Acquisitions.    We will selectively seek acquisition opportunities in order to (i) profitably grow our revenue, (ii) further develop strategic relationships with customers in our target markets and (iii) enhance the scope of our capabilities and service offerings.

        Continue to Improve Financial Results, Including Operating Margins, Returns and Free Cash Flow.    We continue to focus on (i)  managing the mix of business, service offerings and volume of business to improve our overall operating margins, (ii) leveraging our supply chain practices globally to lower material costs, minimize lead times and improve our planning cycle to better meet changes in customers' demand and improve asset utilization, (iii) improving operating efficiencies to reduce costs and improve operating margins, and (iv) maximizing free cash flow.

        Develop and Enhance Profitable Relationships with Leading OEMs and Service Providers.    We seek to build profitable, strategic relationships with targeted industry leaders that can benefit from our services and solutions. We strive to conduct ourselves as an extension of our customers' organizations which enables us to respond to their needs with speed, flexibility and predictability in delivering results. We have established and maintain strong relationships with a diverse mix of leading OEMs and service providers across several of our targeted markets. We believe that our customer base is a strong potential source of growth for us as we seek to strengthen these relationships through the delivery of additional services.

        Expand Range of Service Offerings.    We continually look to expand the services we offer to our customers, which include prototyping, design, engineering services, systems assembly, logistics, fulfillment and after-market services. During 2011, the acquisition of the contract manufacturing operations of Brooks Automation enhanced our offering in complex electro-mechanical assembly.

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        Leverage Expertise in Technology, Quality and Supply Chain Management.    We are committed to meeting our customers' needs in the areas of technology, quality and supply chain management. We believe our expertise in these areas enables us to meet the rigorous demands of our customers, and allows us to produce a variety of electronic products ranging from high-volume consumer electronics to highly complex technology infrastructure products. We believe our commitment to quality allows us to deliver consistently reliable products to our customers. The systems and collaborative processes associated with our expertise in supply chain management have generally enabled us to rapidly adjust our operations to meet the lead time requirements of our customers, flexibly shift capacity in response to product demand fluctuations and quickly and effectively deliver products directly to end customers. We often collaborate with suppliers to influence component design for the benefit of our customers. As a result of the successes that we have had in these areas, we have been recognized with numerous customer and industry achievement awards.

Celestica's Business

OEM Supply Chain Services and Solutions

        We are a global provider of innovative supply chain solutions. We offer a full range of services including design, supply chain management, manufacturing, engineering, complex mechanical and systems integration, order fulfillment, logistics and after-market services. We capitalize on our global operating network, information technology and supply chain expertise using a collaborative processes and a team of highly skilled, customer-focused employees. We believe that our ability to deliver a range of supply chain solutions to our customers provides them with a competitive time-to-market and cost advantage.

        Supply Chain Management.    We use enterprise resource planning and supply chain management systems to optimize materials management from suppliers through to our customers' customers. The effective management of the supply chain is critical to our customers' success, as it directly impacts the time and cost required to deliver products to market and the capital requirements associated with carrying inventory.

        Through the deployment of our TCOO strategy with our suppliers, we strive to provide our customers with the true cost of producing, delivering and supporting their products so that we can exceed their expectations for time-to-market and quality and provide them with the lowest total cost. We also strive to align a network of suppliers around our centers of excellence to increase the agility, flexibility and collaborative approach of our supply chain and deliver the shortest overall lead times for any given product. As such, we believe we have a differentiated supply chain offering.

        Through our global supply chain management processes and information technology tools, we strive to provide our customers with enhanced visibility to balance their global demand and supply requirements. Through our integrated platforms, we strive to assist our customers in inventory management and order management.

        Design.    Our global design services and solutions architects are focused on opportunities that span the entire product lifecycle. Supported by a disciplined approach to program management, we strive to provide flexible design solutions and expertise to help customers optimize their development to reduce overall product costs, improve time-to-market and introduce competitively differentiated products. For customer-owned designs, we leverage our proprietary CoreSim Technology™ and other design analysis capabilities to minimize design revisions, shorten time-to-market and provide improved manufacturing yields for our customers. Through our collective experience with common technologies across multiple industries and product groups, we believe we can provide quality and cost-focused solutions for our customers' design needs.

        We continue to increase our investment in research and development. As trusted design partners to some of our core customers, our teams collaborate with our customers' product designers in the early stages of product development. Our design teams use advanced tools to enable new product ideas to progress from electrical and application-specific integrated circuit design, to simulation, physical layout and design for manufacturing. Collaborative links and databases between the customer and our design and manufacturing groups help to ensure that new designs are released rapidly, smoothly and cohesively into production.

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        We strive to enhance our design services capabilities through strategic relationships with global engineering and research and development organizations, as well as other IT services and business process outsourcing firms. We believe that by combining our companies' strengths, we can create solutions to help our customers overcome design-related challenges. The skills and scalability that we can access enable us to better manage projects throughout the life of the product, including software development and systems validation, as well as complete product sustainability.

        As a key initiative aimed at enhancing our design services offering, we launched our Joint Design and Manufacturing (JDM) strategy in late 2010. We believe this strategy provides higher value-add to our customers by offering specific design solutions that can be used as is, or that can be customized to customer specifications. We believe these design solutions will help customers reach their markets faster by reducing design cycles without compromising intellectual property.

        Green Services™. We have developed a suite of services to help our customers comply with environmental legislation, such as those relating to the removal of hazardous substances and waste management/recycling. Our services help our customers design, prototype, introduce, manufacture, test, ship, takeback, repair, refurbish, reuse, recycle and properly dispose of end-of-life (EOL) products in compliance with existing and evolving environmental legislation in countries in which we operate.

        Prototyping.    Prototyping is a critical early-stage process in the development of new products. Our engineers collaborate with our customers engineers to build early-stage products at our new product introduction centers. These centers are strategically located around the world to enable us to provide a quick response in the early stages of the product development lifecycle.

        Systems Assembly and Test.    We use sophisticated technologies in the assembly and testing of our products. We continue to make investments in the development of new assembly and test process techniques to enhance product quality, reduce cost and improve delivery time to customers. We work independently and also collaborate with customers and suppliers to develop leading assembly and test technologies. Systems assembly and testing require sophisticated logistics capabilities to rapidly procure components, assemble products, perform complex testing and distribute products to customers around the world. Our full systems assembly services involve combining and testing a wide range of subassemblies and components before shipping to their final destination. Increasingly, customers require custom build-to-order system solutions with very short lead times and we are focused on using our advanced supply chain management capabilities to respond to our customers' needs.

        Product Assurance.    We provide product assurance to our customers. Our product assurance teams perform product life testing and full circuit characterization to ensure that designs meet or exceed required specifications. We are accredited as a National Testing Laboratory capable of testing to international standards (e.g., Canadian Standards Association and Underwriters Laboratories). We believe that this service allows our customers to attain product certification significantly faster than is customary in the EMS industry.

        Failure Analysis.    Our extensive failure analysis capabilities concentrate on identifying the root cause of product failures and determining corrective actions. The root causes of failures typically relate to inherent component defects and/or deficiencies in design robustness. Products are subjected to various environmental extremes, including temperature, humidity, vibration, voltage and rate of use. Field conditions are simulated in failure analysis laboratories which employ advanced electron microscopes, spectrometers and other advanced equipment. We are also able to discover failures before products are shipped. Our highly qualified engineers work proactively in partnership with suppliers and customers to develop and implement resolutions.

        Quality Management.    We believe one of our strengths is our ability to consistently deliver high-quality services and products. We have an extensive quality management system that focuses on continual process improvement and achieving high levels of customer satisfaction. We employ a variety of advanced statistical engineering techniques and other tools to assist in improving product and service quality. All of our principal facilities are ISO certified to ISO 9001 and ISO 14001 standards, as well as to other industry-specific certifications.

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        In addition to these standards, we continue to deploy Lean and Six Sigma initiatives throughout our operations network. Implementing Lean throughout the manufacturing process improves efficiency, shortens cycle times and reduces waste in areas such as inventory on hand, set up times, floor space and the number of people required for production. Six Sigma ensures continuous improvement by reducing process variation. We also apply the knowledge we gain in our after-market services to improve the quality and reliability of next-generation products. Success in these areas helps our customers lower their costs, positioning them more competitively in their respective business environments.

        After-Market Services.    We provide value to our customers through our after-market services offerings which include repair, fulfillment, reverse logistics, reclamation and returns processing and prevention. Our fulfillment offering includes the design and management of integrated supply chain and materials management for light manufacturing and final assembly. Our reverse logistics offering includes the design and management of transportation networks, warehousing and distribution of product, asset recovery services, and transportation and supply chain event monitoring. The returns processing and prevention offering provides our customers with product screening and testing and product design and process analysis. We offer these services individually or integrated through a 'Control Tower' model which combines our resources, systems and processes with those of our partner organizations to provide the customer with an increased level of visibility and analytics throughout the entire after-market value stream.

Geographies

        For 2011, approximately one-half (2010 and 2009 — one half) of our revenue is produced in Asia and over one-third (2010 and 2009 — one-third) of our revenue is produced in North America. A listing of our principal locations is included in Item 4, "Information on the Company — Property, Plants and Equipment." Certain geographic information is set forth in note 25 to the Consolidated Financial Statements in Item 18.

Sales and Marketing

        We structure our business development teams by targeted end market, with a focus on offering complete manufacturing and supply chain solutions to leading OEMs and service providers. We have customer-focused teams, each headed by a group general manager who oversees the global relationship with our key customers. These teams work with our solutions architects to develop specific solutions that meet the needs of each customer's product or supply chain requirements. Our global network is comprised of customer-focused teams, including direct sales representatives, operational and project managers, account executives, and supply chain management teams, as well as senior executives.

Customers

        We supply products and services to over 100 customers. We target industry leading customers in our strategic markets. Our customers include Alcatel-Lucent, Cisco Systems, Inc., EMC Corporation, Hewlett-Packard Company, Hitachi Global Storage Technologies, Honeywell Inc., IBM Corporation, Juniper Networks, Inc., NEC Corporation, Oracle Corporation, Polycom, Inc., Raytheon Company and RIM. We are focused on strengthening our relationships with these strategic customers through the delivery of new and expanding end-to-end solutions, such as design, engineering, order fulfillment, logistics and after-market services.

        During 2011, two customers individually represented more than 10% of total revenue (2010 — one customer). Our top 10 customers represented 71% and 72%, respectively, of total revenue for 2011 and 2010.

        We generally enter into master supply agreements with our customers that provide the framework for our overall relationship, although there is no guaranteed level of business. Instead, we bid on a program-by-program basis and receive customer purchase orders for specific quantities and timing of products. A majority of these agreements also require the customer to purchase unused inventory that we have purchased to fulfill that customer's forecasted manufacturing demand.

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Technology and Research and Development

        We use advanced technology in the design, assembly and testing of the products we manufacture. We continue to deploy more resources in our global research and development organization to expand our design capabilities. We believe that our processes and skills are among the most sophisticated in the industry.

        Our customer-focused factories are highly flexible and are reconfigured as needed to meet customer-specific product requirements and fluctuations in volumes. We have extensive capabilities across a broad range of specialized assembly processes. We work with a variety of substrate types based on the products we build for our customers, from thin, flexible printed circuit boards to highly complex, dense multi-layer boards as well as a broad array of advanced component and attach technologies employed in our customers' products. Increasing demand for full-system assembly solutions continues to drive technical advancement in complex mechanical assembly and configuration.

        Our assembly capabilities are complemented by advanced test capabilities. The technologies we use include high-speed functional testing, optical, burn-in, vibration, radio frequency, in-circuit and in-situ dynamic thermal cycling stress testing. We believe that our inspection technology, which includes X-ray laminography, advanced automated optical inspection, three-dimensional laser paste volumetric inspection and scanning electron microscopy, is among the most sophisticated in the EMS industry. We work directly with the leaders in the equipment industry to optimize their products and solutions or to jointly design a solution to better meet our needs and the needs of our customers. Furthermore, we employ internally developed automated robotic technology to perform in-process repair.

        Our ongoing research and development activities include the development of processes and test technologies, as well as some focused product development and technology building blocks that can be used by customers in the development of their products or to accelerate their products time-to-market. In late 2010, we launched our Joint Design and Manufacturing (JDM) strategy to focus on developing these design solutions and subsequently managing the other aspects of the supply chain, including manufacturing. Our efforts in these building blocks are particularly focused in the areas of data servers and storage and communications and networking as they comprise the major elements of data centers, areas we believe will grow in the future. We work directly with our customers to understand their product roadmaps and to develop the technology solutions to optimally solve their future needs. We are proactive in developing manufacturing techniques that take advantage of the latest component, product and packaging designs and we have worked with, and taken a leadership role in, industry groups that strive to advance the state of technology in the industry. As we continue to pursue deeper relationships with our customers, and participate in additional services and revenue opportunities with them, we will increase our spending in these development areas.

Supply Chain Management

        We share data electronically with our key suppliers and ensure speed of supply through strong relationships with our component suppliers and logistics partners. During 2011, we procured and managed over $5 billion in materials and related services. We view the size and scale of our procurement activities, including our IT systems, as an important competitive advantage, as they enhance our ability to obtain better pricing, influence component packaging and designs, and obtain a supply of components in constrained markets. We procure substantially all of our materials and components pursuant to individual purchase orders that are short-term in nature.

        We believe we have a differentiated supply chain offering compared to our competitors. Through the deployment of our TCOO strategy with our suppliers, we strive to provide our customers with the true cost of producing, delivering and supporting their products so that we can exceed their expectations for time-to-market and quality and provide them with the lowest total cost. We also strive to align a network of suppliers around our centers of excellence to increase agility, flexibility and a collaborative approach in our supply chain and to deliver the shortest overall product lead times.

        We utilize our enterprise systems, as well as specific supply chain IT tools, to provide comprehensive information on our logistics, financial and engineering support functions. These systems provide management with the data required to manage the logistical complexities of the business and are augmented by and

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integrated with other applications, such as shop floor controls, component and product database management and design tools.

        To minimize the risk associated with inventory, we primarily order materials and components only to the extent necessary to satisfy existing customer orders and forecasts covered by the applicable customer contract terms and conditions. We have implemented specific inventory management strategies with certain suppliers, such as "supplier managed inventory" (pulling inventory at the production line on an as-needed basis) and on-site stocking programs. Our initiatives in Lean and Six Sigma also focus on eliminating excess inventory throughout the supply chain. In providing electronics manufacturing services to our customers, we are largely protected from the risk of fluctuations in inventory costs, as these costs are generally passed through to customers.

        All of the products we manufacture or assemble require one or more components. In many cases, there may be only one supplier of a particular component. Some of these components could be rationed in response to supply shortages. We work with our suppliers and customers to attempt to ensure continuity in the supply of these components. In cases where unanticipated customer demand or supply shortages occur, we attempt to arrange for alternative sources of supply, where available, or defer planned production in response to the availability of the critical components. During 2011, the EMS industry experienced component shortages, primarily driven by the effects of the earthquake and tsunami in Japan and the flooding in Thailand. To date, we have not been materially impacted by these shortages.

Intellectual Property

        We hold licenses to various technologies which we acquired in connection with acquisitions. In addition, we believe that we have secured access to all required technology that is material to the current conduct of our business.

        We regard our manufacturing processes and certain designs as proprietary trade secrets and confidential information. We rely largely upon a combination of trade secret laws, non-disclosure agreements with our customers and suppliers and our internal security systems, confidentiality procedures and employee confidentiality agreements to maintain the trade secrecy of our designs and manufacturing processes. Although we take steps to protect our trade secrets, there can be no assurance that misappropriation will not occur.

        We currently have a limited number of patents and patent applications pending to protect our intellectual property. However, we believe that the rapid pace of technological change makes patent protection less significant than such factors as the knowledge and experience of management and personnel and our ability to develop, enhance and market electronics manufacturing services.

        We license some technology from third parties that we use in providing electronics manufacturing services to our customers. We believe that such licenses are generally available on commercial terms from a number of licensors. Generally, the agreements governing such technology grant to us non-exclusive, worldwide licenses with respect to the subject technologies and terminate upon a material breach by us of the terms of such agreements.

Competition

        The EMS industry is highly competitive with multiple global EMS providers competing for the same customers across various end markets. Our competitors include Benchmark Electronics, Inc., Flextronics International Ltd., Hon Hai Precision Industry Co., Ltd., Jabil Circuit, Inc., Plexus Corp., and Sanmina-SCI Corporation, as well as smaller EMS companies that often have a regional, product, service or industry-specific focus or ODMs that provide internally designed products and manufacturing services.

        We may also face competition from current and prospective customers who evaluate our capabilities against the merits of manufacturing products internally. We compete with different companies depending on the type of service or geographic area. Some of our competitors may have greater manufacturing, procurement, research and development, and sales and marketing resources than we do. We believe our competitive advantage in our targeted markets is our track record in manufacturing technology, quality, responsiveness and cost-effective, value-added services. To remain competitive, we believe we must continue to provide technologically advanced

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manufacturing services and solutions, maintain quality levels, offer flexible delivery schedules, deliver finished products and services on time and compete favorably on price. To enhance our competitiveness, we continue to focus on expanding our service offerings and capabilities beyond our traditional areas of EMS expertise.

Environmental Matters

        We are subject to various federal/national, state/provincial, local and multi-national laws and regulations, including environmental measures relating to the release, use, storage, treatment, transportation, discharge, disposal and remediation of contaminants, hazardous substances and waste, and health and safety measures related to practices and procedures applicable to the construction and operation of our plants. We believe that we are currently in compliance in all material respects with applicable laws and have management systems in place to maintain compliance.

        Our past operations and historical operations of others may have resulted in soil and groundwater contamination on our sites. From time-to-time we investigate, remediate and monitor soil and groundwater contamination at certain of our operating sites. Generally, Phase I or similar environmental assessments (which involve general inspections without soil sampling or groundwater analysis) were obtained for most of our manufacturing facilities at the time of acquisition or leasing. Where contamination is suspected at sites being acquired, Phase II intrusive environmental assessments (including soil and/or groundwater testing) are usually performed. We expect to conduct Phase I or similar environmental assessments in respect of future property acquisitions and will perform Phase II assessments where appropriate. Past environmental assessments have not revealed any environmental liability that we believe will have a material adverse effect on our operating results or financial condition, in part because of contractual retention of liability by landlords and former owners at certain sites.

        Environmental legislation also operates at the product level. Since 2004, we have developed our Green Services™, offering a suite of services that help our customers comply with environmental legislation, such as the European Union's Restriction of Hazardous Substances (RoHS) and Waste Electrical and Electronic Equipment directive laws and China's RoHS legislation.

Backlog

        Although we obtain purchase orders from our customers, they typically do not commit to delivery of products more than 30 days to 90 days in advance. We do not believe that the backlog of expected product sales covered by purchase orders is a meaningful measure of future sales, since orders may be rescheduled or cancelled.

Seasonality

        Seasonality is reflected in the mix and complexity of the products we manufacture from quarter-to-quarter. In the past, we have experienced some level of seasonality across most of the end markets we serve. The pace of technological change, the frequency of customers transferring business among EMS competitors and the constantly changing dynamics of the global economy will also continue to impact us. As a result of these factors, the impact of new program wins, and limited visibility in technology end markets, it is difficult for us to predict the extent and impact of seasonality on our business.

Controlling Shareholder Interest

        Onex is our controlling shareholder with a 71% voting interest in Celestica. Accordingly, Onex exercises influence over our business, including those matters submitted to a vote by shareholders. Onex also has the power to elect our board of directors, thereby influencing significant corporate transactions, including mergers, acquisitions, divestitures and financing arrangements. For further details, refer to footnote 2 in Item 7, "Major Shareholders and Related Party Transactions — Major Shareholders."

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Government Regulation

        Information regarding material effects of government regulations on Celestica's business is provided in the risk factors entitled "We are subject to the risk of increased income taxes and our inability to successfully defend tax audits or meet the conditions of tax incentives could adversely affect our financial condition and operating results," "Compliance with governmental laws and obligations could be costly and impact our operations," and "Compliance or the failure to comply with employment laws and regulations could be costly and impact our operating results" in Item 3(D), "Key Information — Risk Factors."

Financial Information Regarding Geographic Areas

        Details of our financial information regarding geographic areas, including revenues generated in, or property, plants and equipment located in, Canada and foreign countries are disclosed in note 25 to the Consolidated Financial Statements in Item 18. Risks associated with the foreign operations are disclosed in Item 3(D), "Key Information — Risk Factors."

C.    Organizational Structure

        We conduct our business through subsidiaries operating on a worldwide basis. The following companies are considered significant subsidiaries and each of them is wholly owned:

        Celestica Cayman Holdings 1 Limited, a Cayman Islands corporation;

        Celestica Cayman Holdings 9 Limited, a Cayman Islands corporation;

        Celestica (Gibraltar) Limited, a Gibraltar corporation;

        Celestica Holdings Pte Limited, a Singapore corporation;

        Celestica Hong Kong Limited, a Hong Kong corporation;

        Celestica LLC, a Delaware limited liability company;

        Celestica Liquidity Management Hungary Limited Liability Company, a Hungary corporation;

        Celestica (Luxembourg) S.À.R.L., a Luxembourg corporation;

        Celestica (Romania) S.R.L., a Romania corporation;

        Celestica (Thailand) Limited, a Thailand corporation;

        Celestica (USA) Inc., a Delaware corporation;

        Celestica (US Holdings) LLC, a Delaware limited liability company;

        IMS International Manufacturing Services Limited, a Cayman Islands corporation;

        1681714 Ontario Inc., an Ontario corporation;

        1755630 Ontario Inc., an Ontario corporation; and

        3250297 Nova Scotia Company (formerly 1282087 Ontario Inc.), a Nova Scotia corporation.

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D.    Property, Plants and Equipment

        The following table summarizes our principal facilities as of February 22, 2012. Our facilities are used to provide electronics manufacturing services and solutions, such as the manufacture of printed circuit boards, assembly and configuration of final systems, and other related manufacturing and customer support activities, including warehousing, distribution and fulfillment.

Major locations
  Square Footage   Owned/Leased
 
  (in thousands)
   

Canada

    888   Owned

California(1)

    288   Leased

Oregon

    188   Leased

Texas

    51   Leased

Mexico(1)

    832   Leased

Ireland(1)

    241   Leased

Spain

    100   Owned

Austria

    54   Leased

Romania

    200   Owned

Scotland

    58   Leased

China(1)

    1,162   Owned/Leased

Malaysia(1)

    927   Owned/Leased

Thailand(1)

    1,085   Leased

Singapore(1)

    282   Leased

Japan

    274   Owned

(1)
This represents multiple locations.

        Our principal executive office is located at 844 Don Mills Road, Toronto, Ontario, Canada M3C 1V7. Our principal facilities are certified to ISO 9001 and ISO 14001 standards, as well as to other industry-specific certifications.

        Our land and facility leases expire between 2012 and 2060. We currently expect to be able to extend the terms of expiring leases or to find replacement facilities on reasonable terms.

Item 4A.    Unresolved Staff Comments

        None.

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Item 5.    Operating and Financial Review and Prospects

MANAGEMENT'S DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

        The following discussion of the financial condition and results of operations should be read in conjunction with the 2011 consolidated financial statements, which we prepared in accordance with International Financial Reporting Standards (IFRS) as issued by the International Accounting Standards Board (IASB). All dollar amounts are expressed in U.S. dollars. The information in this discussion is provided as of February 22, 2012 unless we indicate otherwise.

        Certain statements contained in the following Management's Discussion and Analysis of Financial Condition and Results of Operations (MD&A) constitute forward-looking statements within the meaning of section 27A of the U.S. Securities Act of 1933, section 21E of the U.S. Securities Exchange Act of 1934, and applicable Canadian securities legislation, including, without limitation: statements related to our future growth; trends in our industry; our financial or operational results, including our quarterly earnings and revenue guidance; the impact of program wins or losses and acquisitions on our financial results and working capital requirements; anticipated expenses, capital expenditures, benefits or payments; our financial or operational performance; our expected tax outcomes; our cash flows and financial targets; and the effect of the global economic environment on customer demand. Such forward-looking statements are predictive in nature, and may be based on current expectations, forecasts or assumptions involving risks and uncertainties that could cause actual outcomes and results to differ materially from the forward-looking statements themselves. Such forward-looking statements may, without limitation, be preceded by, followed by, or include words such as "believes," "expects," "anticipates," "estimates," "intends," "plans," or similar expressions, or may employ such future or conditional verbs as "may," "will," "should" or "would" or may otherwise be indicated as forward-looking statements by grammatical construction, phrasing or context. For those statements, we claim the protection of the safe harbor for forward-looking statements contained in the U.S. Private Securities Litigation Reform Act of 1995, and in applicable Canadian securities legislation. Forward-looking statements are not guarantees of future performance. You should understand that the following important factors could affect our future results and could cause those results to differ materially from those expressed in such forward-looking statements: our dependence on a limited number of customers and on our customers' ability to compete and succeed in their marketplace for the products we manufacture; the effects of price competition and other business and competitive factors generally affecting the electronics manufacturing services (EMS) industry; the challenges of effectively managing our operations and our working capital performance during uncertain economic conditions, including responding to significant changes in demand from our customers; the challenges of managing changing commodity and labor costs; disruptions to our operations, or those of our customers, component suppliers, or our logistics partners, resulting from local events including natural disasters, political instability, labor and social unrest, criminal activity and other risks present in the jurisdictions in which we operate; our inability to retain or expand our business due to execution problems relating to the ramping of new programs; the delays in the delivery and/or general availability of various components and materials used in our manufacturing process; the challenge of managing our financial exposures to foreign currency volatility; our dependence on industries affected by rapid technological change; variability of operating results among periods; our ability to successfully manage our international operations; increasing income taxes and our inability to successfully defend tax audits or meet the conditions of tax incentives; the completion of our restructuring activities or integration of our acquisitions; and the risk of potential non-performance by counterparties, including but not limited to financial institutions, customers and suppliers. Our forward-looking statements are also based on various assumptions which management believes are reasonable under the current circumstances, but may prove to be inaccurate, and many of which involve factors that are beyond our control. The material assumptions may include the following: forecasts from our customers, which range from 30 days to 90 days and can fluctuate significantly in terms of volume and mix of products or services; the timing and execution of, and investments associated with, ramping new business; the success in the marketplace of our customers' products; general economic and market conditions; currency exchange rates; pricing and competition; anticipated customer demand; supplier performance and pricing; commodity, labor, energy and transportation costs; operational and financial matters; and technological developments. Our assumptions and estimates are based on management's current views with respect to current plans and events, and are and will be subject to the risks and uncertainties discussed above. Forward-looking statements are provided for the purpose of providing information about management's current expectations and plans relating to the future. Readers are cautioned that such information may not be appropriate for other purposes. These and other risks

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and uncertainties, as well as other information related to the company, are discussed in our various public filings at www.sedar.com and www.sec.gov, including our Annual Report on Form 20-F and subsequent reports on Form 6-K filed with the Securities and Exchange Commission and our Annual Information Form filed with Canadian securities regulators.

        Except as required by applicable law, we disclaim any intention or obligation to update or revise any forward-looking statements, whether as a result of new information, future events or otherwise. You should read this document with the understanding that our actual future results may be materially different from what we expect. We may not update these forward-looking statements, even if our situation changes in the future. All forward-looking statements attributable to us are expressly qualified by these cautionary statements.

Overview

What Celestica does:

        We deliver innovative supply chain solutions globally to original equipment manufacturers (OEMs) and service providers in the communications (comprised of enterprise communications and telecommunications), consumer, computing (comprised of servers and storage), and diversified (comprised of industrial, aerospace and defense, healthcare, green technology, semiconductor capital equipment and other) end markets. We believe our services and solutions help our customers reduce their time-to-market and eliminate waste from their supply chains, resulting in lower product lifecycle costs, better financial returns and improved competitive advantage in their respective business environments.

        Our global operating network spans the Americas, Asia and Europe. In an effort to drive speed and flexibility for our customers, we conduct the majority of our business through centers of excellence strategically located around the world. We strive to align a network of suppliers around these centers in order to increase flexibility in our supply chain, deliver shorter overall product lead times and reduce inventory. We operate other facilities around the world with specialized supply chain management and high-mix/low-volume manufacturing capabilities to meet the specific production and product lifecycle requirements of our customers.

        Through our centers of excellence and the deployment of our Total Cost of Ownership™ (TCOO) strategy with our suppliers, we strive to provide our customers with the lowest total cost throughout the product lifecycle. This approach enables us to focus our capabilities on solutions that address the total cost of design, sourcing, production, delivery and after-market services for our customers' products, which drives greater levels of efficiency and improved service levels throughout our customers' supply chains.

        We offer a full range of services to our customers including design, supply chain management, manufacturing, engineering, complex mechanical and systems integration, order fulfillment, logistics and after-market services. We are focused on expanding these service offerings across our major markets with existing and new customers and on growing our business in the diversified end market. We will continue to invest in assets and resources to expand our design, engineering and after-market service capabilities, while continuing to pursue higher-value opportunities with existing customers. During the past two years, we completed the acquisitions of Invec Solutions Limited (Invec), Allied Panels Entwicklungs-und Produktions GmbH (Allied Panels) and the semiconductor equipment contract manufacturing operations of Brooks Automation, Inc. (Brooks Automation), enhancing and adding new capabilities to our offerings and expanding our customer base.

        Although we supply products and services to over 100 customers, we depend upon a relatively small number of customers for a significant portion of our revenue. In the aggregate, our top 10 customers represented 71% of revenue in 2011 (72% — 2010). Our largest customer represented 19% of revenue in 2011 (20% — 2010). Revenue generated from our customers typically varies from period-to-period depending on the success in the marketplace of our customers' products, changes in demand from our customers for the products we manufacture, and the extent and timing of new program wins, losses or follow-on business from our customers, among other factors.

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        The products and services we provide can be found in a wide variety of end products, including smartphones; servers; networking, wireless and telecommunications equipment; storage devices; aerospace and defense electronics, such as in-flight entertainment and guidance systems; healthcare products; audiovisual equipment; printer supplies; peripherals; semiconductor capital equipment; and a range of industrial and green technology electronic equipment, including solar panels and inverters.

        We believe we are well positioned in the EMS industry, based on our services and capabilities, operational performance and track record as one of the major global EMS companies. Our priorities include (i) growing revenue in our targeted business areas, (ii) continuing to improve financial results, including operating margins, returns, and free cash flow, (iii) developing and enhancing profitable relationships with leading customers across our strategic target markets and (iv) increasing our capabilities in services and technologies beyond our traditional areas of EMS expertise. We believe that success in these areas will continue to strengthen our competitive position and enhance customer satisfaction and shareholder value.

        We established three-year financial targets at the beginning of 2010. These targets included achieving a compound annual revenue growth rate of 6% to 8%, and generating the following performance on various non-IFRS measures: annual operating margin of 3.5% to 4.0%, annual return on invested capital (ROIC) of greater than 20%, and annual free cash flow of between $100 million and $200 million. The achievement of these targets is primarily dependent upon the strength of the economy, the success of our customers' products in the marketplace, our revenue mix and magnitude of customer program bookings by end markets and the margin profile for the services we provide. For 2011, we achieved revenue growth of 11%, operating margin of 3.6%, ROIC of 27.5%, and free cash flow of $144.1 million. While we drive towards achieving our three-year financial targets, the uncertainty in the global economy continues to limit overall visibility to end market demand. As a result of this continued economic uncertainty and weak end market demand, we expect revenue for the first quarter of 2012 to decline sequentially by 6% compared to the fourth quarter of 2011 and to decline year over year by 8% compared to the first quarter of 2011. We expect our operating margin to be 3.3% for the first quarter of 2012 with negative free cash flow as we expand capacity to support new customer programs. The uncertain economic environment could negatively impact our ability to achieve our targets for 2012.

        Our financial targets for operating margin, ROIC and free cash flow are non-IFRS measures without standardized meanings and are not necessarily comparable to similar measures presented by other companies. Our management uses non-IFRS measures to (i) assess operating performance and the effective use and allocation of resources, (ii) provide more meaningful period-to-period comparisons of operating results, (iii) enhance investors' understanding of the core operating results of our business, and (iv) set management incentive targets. See "Non-IFRS measures" below.

Overview of business environment:

        The EMS industry is highly competitive with multiple global EMS providers competing for the same customers and programs. Although the industry is characterized by a large revenue base and new business opportunities, the revenue is volatile on a quarterly basis, the business environment is highly competitive, and aggressive pricing is a common business dynamic. Capacity utilization, customer mix and the types of products and services we provide are important factors affecting operating margins. The amount and location of qualified people, manufacturing capacity, and the mix of business through that capacity are vital considerations for EMS providers. The EMS industry is also working capital intensive. As a result, we believe that ROIC, which is primarily affected by operating margin and investments in working capital and equipment, is an important metric for measuring an EMS provider's financial performance.

        EMS companies are exposed to a variety of customers and end markets. Demand visibility is limited, making revenue from customers and by end markets difficult to predict. This is due primarily to the short product lifecycles inherent in technology markets resulting in short production lead times expected by our customers, rapid shifts in technology for our customers' products, frequent changes in preference by our customers' customers, model obsolescence and general volatility in the economy. This is particularly evident in high-volume markets such as the consumer end market, where product lifecycles tend to be the shortest and our customers' customers can suddenly and significantly shift their preferences to other designs or technologies. The

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global economy and financial markets continue to be uncertain and may continue to negatively impact the operations of most EMS providers, including Celestica.

        The EMS industry has experienced component shortages in the past. In many cases, components used in the manufacturing and assembly processes are only available from a single supplier. We procure substantially all of our component and materials pursuant to individual purchase orders that are generally short-term in nature. Component shortages can delay production as well as the revenue related to products using those components, and may result in higher inventory levels and extended lead times. During 2011, the EMS industry experienced component shortages, primarily driven by the effects of the earthquake and tsunami in Japan and the flooding in Thailand. To date, we have not been materially impacted by these shortages. In addition to natural disasters, other external factors that could impact our business include political instability, labor and social unrest, criminal activity and other risks present in the jurisdictions in which we, our suppliers and our customers operate. These types of local events could disrupt operations at one or more of our facilities or those of our customers, component suppliers or our logistics partners. These events could lead to higher costs or supply shortages or may disrupt the delivery of components to us or the ability to provide finished products or services to our customers, any of which could adversely affect our operating results. We carry insurance to cover damage to our facilities, including damage that may occur as a result of natural disasters, such as flooding and earthquakes, or other events. However, our policies are subject to deductibles and limitations and may not provide adequate coverage.

        Our business is also affected by customers who will sometimes shift production between EMS providers for a number of reasons, including pricing concessions or their preference for consolidating their supply chain. Customers may also choose to accelerate the amount of business they outsource, insource previously outsourced business or change the concentration of their EMS suppliers to better balance production risk. As we respond to our customers' actions, these factors have impacted, and may continue to impact, among other items, our ability to grow revenue, our operating profitability, our level of capital expenditures and our cash flows.

Transition to IFRS:

        In February 2008, the Canadian Accounting Standards Board announced the adoption of IFRS for publicly accountable enterprises in Canada effective January 1, 2011. Accordingly, our consolidated financial statements for 2011 have been prepared in accordance with IFRS as issued by the IASB. Our unaudited interim consolidated financial statements for the three months ended March 31, 2011 were our first financial statements prepared under IFRS. We have retroactively applied IFRS to our 2010 quarterly and annual comparative data and have included the reconciliations and descriptions of the effect of our transition from prior Canadian generally accepted accounting principles (GAAP) to IFRS in the notes to our interim and annual consolidated financial statements. See also notes 2 and 3 of our 2011 consolidated financial statements for a description of our adoption of IFRS and a discussion regarding our significant accounting policies and the application of critical accounting estimates and judgments.

        We have restated our 2010 comparative data to reflect the adoption of IFRS, with effect from January 1, 2010 (Transition Date). Our 2010 IFRS net earnings of $101.2 million were $20.4 million higher than under GAAP. See chart below. The most significant GAAP to IFRS adjustment to our consolidated statement of operations throughout 2010 related to the timing of recognizing restructuring charges. Under IFRS, we defer the recognition of restructuring charges until we announce the actions. The most significant adjustment to our consolidated balance sheet related to the accounting for actuarial losses arising from pension and post-retirement benefit plans. IFRS allows us to recognize on our consolidated balance sheet, as at the Transition Date, our cumulative actuarial losses previously unrecognized under GAAP through equity. In management's view, this transition adjustment better reflects the economic position of our pension and post-retirement benefit plans than under GAAP. Under IFRS as compared to GAAP, our deferred pension assets as at January 1, 2010 decreased by approximately $90 million and our pension liabilities increased by approximately $40 million, with a corresponding adjustment against equity of approximately $130 million. We were not required to retroactively apply IFRS to our 2009 financial statements; the 2009 operating results and financial information in the following chart were prepared in accordance with GAAP. Solely to provide a meaningful comparison to the 2009 information, we also included in the chart below the 2010 comparative data prepared in accordance with GAAP.

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Summary of 2011

        The following table shows certain key operating results and financial information for the years indicated (in millions, except per share amounts):

 
  Year ended December 31  
 
  2009(i)   2010(i)   2010   2011  
 
  GAAP
  GAAP
  IFRS
  IFRS
 
       

Revenue

  $ 6,092.2   $ 6,526.1   $ 6,526.1   $ 7,213.0  

Gross profit

    429.8     443.3     444.1     491.4  

Selling, general and administrative expenses (SG&A)

    244.5     250.2     252.1     253.4  

Other charges

    68.0     68.4     49.9     6.5  

Net earnings

    55.0     80.8     101.2     195.1  

Basic earnings per share

  $ 0.24   $ 0.35   $ 0.44   $ 0.90  

Diluted earnings per share

  $ 0.24   $ 0.35   $ 0.44   $ 0.89  

 

 
  December 31  
 
  2009(i)   2010(i)   2010   2011  
 
  GAAP
  GAAP
  IFRS
  IFRS
 
       

Cash and cash equivalents

  $ 937.7   $ 632.8   $ 632.8   $ 658.9  

Total assets

    3,106.1     3,103.6     3,013.9     2,969.6  

Senior subordinated notes (Notes)

    222.8              

(i)
Prepared in accordance with GAAP.

        Revenue for 2011 of $7.2 billion increased 11% from $6.5 billion in 2010. Compared to 2010, revenue dollars from our diversified end market increased 40%, enterprise communications increased 18%, server increased 14% and consumer increased 11%. These revenue increases were primarily due to new program wins with existing and new customers and from acquisitions. Revenue from our acquisitions contributed approximately one-third of the revenue increase in our diversified end market. Enterprise communications and consumer were our largest end markets for 2011, representing 26% and 25% of revenue, respectively (2010 — 24% and 25%, respectively). Revenue dollars from our telecommunications end market decreased 20% from 2010 reflecting primarily lower volumes associated with weaker demand from some of our customers for the products we manufacture and the insourcing of a program by one customer. Revenue dollars from our storage end market decreased 4% from 2010.

        Our production and service volumes and revenue vary each period because of the impacts associated with the success in the marketplace of our customers' products, changes in demand from the customer for the products or services we provide, the extent, timing and rate of new program wins, follow-on business or losses from new, existing or disengaging customers, the transfer of programs among our facilities at our customers' request, the timing and rate at which new programs are ramped, and the impact of seasonality for various end markets, among other factors.

        Gross profit for 2011 increased 11% from 2010, in line with the revenue increase. Gross margin as a percentage of revenue was 6.8% in both years. SG&A for 2011 was relatively flat compared to 2010.

        Net earnings for 2011 of $195.1 million were $93.9 million higher than 2010 primarily reflecting improved operating earnings and lower restructuring charges, as well as lower income tax expense resulting from income tax recoveries recognized in 2011.

        In June 2011, we completed the acquisition of the semiconductor equipment contract manufacturing operations of Brooks Automation for $80.5 million, funded with cash on hand and $45.0 million from our revolving facility which we repaid in 2011. We paid $49.4 million during 2011 for the purchase of subordinate voting shares in the open market by a trustee to satisfy the delivery of subordinate voting shares under our equity-based compensation plans.

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        Our balance sheet remains strong. We completed the year with $658.9 million in cash and cash equivalents. Our free cash flow for 2011 improved compared to 2010 primarily as a result of our improved operating earnings. Our cash flows during 2010 and 2011 were negatively impacted as we funded higher levels of inventory and investments to support growth. To meet our working capital requirements and to provide additional short-term liquidity, we may draw on our $400.0 million revolving credit facility, utilize our accounts receivable (A/R) sales programs, or we may negotiate cash deposits with customers. We amended our A/R facility in November 2011 to allow us to sell up to an additional $150.0 million in A/R on an uncommitted basis. At December 31, 2010 and 2011, no amounts were drawn under our revolving credit facility. We had sold $60.0 million of A/R at December 31, 2011 (September 30, 2011 — $100.0 million; December 31, 2010 — $60.0 million). We have an arrangement with a customer whereby inventory on hand, in excess of previously agreed upon levels, is funded by that customer through cash deposits. These deposits are short-term in nature and are generally repaid in 2 to 3 months. At December 31, 2011, we had a deposit of $120.0 million from that customer pursuant to an agreement which expires in March 2012, with any outstanding amounts repayable by Celestica at that time (September 30, 2011 — $100.0 million; December 31, 2010 — $75.0 million which we repaid in February 2011). The amount and timing of each deposit is negotiated between our customer and us, and there can be no assurance that we will be successful in negotiating future deposits. We record these cash deposits in accounts payable (A/P). We expect the dollar amount of these deposits to decline going forward.

        On February 7, 2012, the Toronto Stock Exchange (TSX) approved a new Normal Course Issuer Bid (NCIB) allowing us to repurchase, at our discretion, until the earlier of February 8, 2013 and the completion of purchases under the bid, up to approximately 16.2 million subordinate voting shares, representing 10% of the public float of our subordinate voting shares (or approximately 7.5% of our total subordinate voting and multiple voting shares outstanding), in the open market or as otherwise permitted, subject to the normal terms and limitations of such bids. The maximum number of subordinate voting shares we are permitted to repurchase for cancellation under the new bid will be reduced by the number of subordinate voting shares we purchase for equity-based compensation plans, which we estimate will be approximately 3 million shares.

Summary of 2010:

        In order to provide a meaningful comparison to 2009, the financial information for 2010 included in this summary was prepared in accordance with GAAP.

        Revenue for 2010 of $6.5 billion increased 7% from $6.1 billion in 2009. Compared to 2009, revenue dollars from our server end market increased 18%, diversified increased 18%, enterprise communications increased 16% and storage increased 12%. These revenue increases in 2010 reflected new program wins and increased demand resulting from an improved economic environment compared to 2009. Revenue for 2010 from our telecommunications end market decreased 10% from 2009 driven primarily by declines in demand and program losses. Revenue for 2010 from our consumer end market decreased $30 million, or 2%, from 2009. Specifically, consumer revenue for 2010 decreased 15% from 2009 due to our disengagement of a program in the gaming console business, which more than offset the increased revenue from new program wins, resulting in a net 2% decrease in 2010. Consumer continued to be our largest end market, representing 25% of revenue in 2010.

        Gross profit for 2010 increased 3% from 2009 while revenue increased 7% from 2009. Gross margin as a percentage of revenue decreased from 7.1% in 2009 to 6.8% in 2010 primarily due to changes in product mix and higher variable compensation costs (that reduced gross margin by 0.2%). SG&A for 2010 increased $5.7 million, or 2%, from 2009, primarily due to a $10 million increase in variable compensation costs and a $3 million decrease in bad debt recoveries, offset partially by cost reductions, including IT spending.

        We recorded restructuring charges of $55.3 million in 2010 (2009 — $83.1 million). Net earnings for 2010 were $80.8 million compared to net earnings of $55.0 million in 2009. The improvement in net earnings was driven primarily by improved gross profit and lower interest expense in 2010, offset partially by higher income tax expense.

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        During 2010, we paid $140.6 million to repurchase and cancel a total of 16.1 million subordinate voting shares under a NCIB we commenced in July 2010. During 2010, we paid $26.2 million for the repurchase of subordinate voting shares in the open market by a trustee to satisfy the delivery of subordinate voting shares under our equity-based compensation plans. In March 2010, we paid $231.6 million to repurchase our remaining subordinated debt. In 2010, we completed the acquisition of Scotland-based Invec and Austrian-based Allied Panels for a total purchase price of $18.3 million financed with cash.

Other performance indicators:

        In addition to the key operating results and financial information described above, management reviews the following non-IFRS measures:

 
  1Q10   2Q10   3Q10   4Q10   1Q11   2Q11   3Q11   4Q11  

Cash cycle days:

                                                 

Days in A/R

    49     46     46     42     45     42     40     41  

Days in inventory

    45     43     46     42     50     53     52     51  

Days in A/P

    (61 )   (57 )   (57 )   (55 )   (64 )   (60 )   (56 )   (56 )
                                   

Cash cycle days

    33     32     35     29     31     35     36     36  
                                   

Inventory turns

    8.1x     8.4x     8.0x     8.7x     7.4x     6.8x     7.0x     7.2x  
                                   

 

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

Amount of A/R sold (in millions)

  $ 30.0   $ 50.0   $ 50.0   $ 60.0   $ 60.0   $ 120.0   $ 100.0   $ 60.0  

        Days in A/R is calculated as the average A/R for the quarter divided by the average daily revenue. Days in inventory is calculated as the average inventory for the quarter divided by the average daily cost of sales. Days in A/P is calculated as the average A/P for the quarter divided by average daily cost of sales. Cash cycle days is calculated as the sum of days in A/R and inventory, minus the days in A/P. Inventory turns is calculated as 365 divided by the number of days in inventory. These non-IFRS measures do not have comparable measures under IFRS to which we can reconcile. Our transition from GAAP to IFRS did not impact the calculation of our performance indicators.

        Cash cycle days for the fourth quarter of 2011 increased by 7 days to 36 days compared to the same period in 2010. Days in inventory increased by 9 days while A/R days decreased by 1 day compared to the same period in 2010. The year-over-year increase in inventory days primarily reflects higher inventory to support one of our largest customers and lower revenue levels in the fourth quarter of 2011 compared to the fourth quarter of 2010. Our acquisition in June 2011 also increased inventory by 1 day. Cash cycle days for the fourth quarter of 2011 was consistent with the third quarter of 2011. Days in A/R increased by 1 day while days in inventory decreased by 1 day sequentially from the third quarter of 2011.

        Management reviews other non-IFRS measures including adjusted net earnings, operating margin, ROIC and free cash flow. See "Non-IFRS measures" below.

Critical Accounting Policies and Estimates

        The preparation of financial statements in conformity with IFRS requires management to make judgments, estimates and assumptions that affect the application of accounting policies and the reported amounts of assets and liabilities, revenue and expenses and the related disclosures of contingent assets and liabilities. Actual results could differ materially from these estimates and assumptions. We review our estimates and underlying assumptions on an ongoing basis. Revisions are recognized in the period in which the estimates are revised and may impact future periods as well.

        Significant accounting policies and methods used in the preparation of our consolidated financial statements are described in note 2 to our consolidated financial statements.

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Inventory valuation:

        We value our inventory on a first-in, first-out basis at the lower of cost and net realizable value. Cost includes direct materials, labor and overhead. In determining the net realizable value, we consider factors such as shrinkage, the aging of and future demand for the inventory and contractual arrangements with customers. We attempt to utilize excess inventory in other products we manufacture or return inventory to the suppliers or customers. A change to these assumptions could impact our inventory valuation and have a resulting impact on gross margins. We procure inventory based on specific customer orders and forecasts. If actual market conditions or our customers' product demands are less favorable than those projected, additional valuation adjustments may be required. To the extent economic circumstances have changed, previous write-downs are reversed and recognized in the consolidated statement of operations in the period the change occurs.

Income taxes:

        We record an income tax expense or recovery based on the income earned or loss incurred in each tax jurisdiction and the substantively enacted tax rate applicable to that income or loss. In the ordinary course of business, there are many transactions for which the ultimate tax outcome is uncertain and estimates are required for exposures related to examinations by taxation authorities. We review these transactions and exposures and record tax liabilities for open years based on our assessment of many factors, including past experience and interpretations of tax law applied to the facts of each matter. The determination of tax liabilities is subjective and generally involves a significant amount of judgment. The final tax outcome of these matters may be different from the estimates made by management in determining our income tax provisions. We recognize a tax benefit related to tax uncertainties when it is probable based on our best estimate of the amount that will ultimately be realized. A change to these estimates could impact our income tax provision.

        We recognize deferred income tax assets to the extent management believes it is probable that the amount will be realized. Management considers factors such as the reversal of deferred income tax liabilities, projected future taxable income, the character of the income tax asset, tax planning strategies, changes in tax laws and other factors. A change to these factors could impact the amount of deferred income tax assets we recognize.

Goodwill, intangible assets and property, plant and equipment:

        We estimate the useful lives of intangible assets and property, plant and equipment based on the nature of the asset, historical experience and the terms of any related supply contracts.

        The carrying amounts of goodwill, intangible assets and property, plant and equipment are reviewed for impairment on an annual basis or whenever events or changes in circumstances (triggering events) indicate that the carrying amount of an asset may not be recoverable. If any such indication exists, the carrying amount of the asset is tested for impairment. Absent triggering events during the year, we conduct our impairment assessment in the fourth quarter of the year to correspond with our planning cycle.

        We recognize an impairment loss when the carrying amount of an asset, cash-generating unit (CGU) or group of CGUs exceeds the recoverable amount. The recoverable amount of an asset or CGU is the greater of its value-in-use and its fair value less costs to sell. The process of determining the recoverable amount is subjective and requires management to exercise significant judgment in estimating future growth rates, including revenue and cash flow projections, and discount rates, among other factors. The process of determining fair value less costs to sell requires the valuation and use of appraisals to support our real property values. Impairment losses are recognized in the consolidated statement of operations. Impairment losses recognized in respect of a CGU are first allocated to reduce the carrying amount of goodwill and then allocated to reduce the carrying amount of other assets in the CGU on a pro rata basis.

        Impairment losses for goodwill are not reversed in future periods. Impairment losses other than for goodwill are reversed if the losses recognized in prior periods no longer exist or have decreased. At each reporting date, we review for indicators that could change the estimates used to determine the recoverable amount. The amount of the reversal is limited to restoring the carrying amount to the amount that would have been determined, net of depreciation or amortization, had no impairment loss been recognized in prior periods.

38


Restructuring charges:

        We incur restructuring charges relating to workforce reductions, facility consolidations and costs associated with exiting businesses. Our restructuring charges include employee severance and benefit costs, costs related to leased facilities and equipment we no longer use, gains, losses or impairments related to owned facilities and equipment we no longer use and which are available for sale, and impairment of related intangible assets. The recognition of these charges requires management to make certain judgments and estimates regarding the nature, timing and amounts associated with these restructuring plans. We recognize employee termination costs when the restructuring actions are announced to employees. We recognize an impairment loss for owned facilities and equipment based on the fair value less costs to sell, with fair value estimated based on existing market prices for similar assets. For leased facilities that have been vacated, we discount the lease obligation based on future lease payments net of estimated sublease income. We recognize the change in the liability due to the passage of time as finance costs. To estimate future sublease income, we work with independent brokers to determine the estimated tenant rents we can expect to realize. Adjustments to the recorded amounts may be required to reflect actual experience or changes in future estimates. At the end of each reporting period, we evaluate the appropriateness of the remaining balances.

Pension:

        We have pension and non-pension post-employment benefit costs and liabilities that are determined from actuarial valuations. Actuarial valuations require management to make certain judgments and estimates relating to expected plan investment performance, salary escalation, compensation levels at the time of retirement, retirement ages, the discount rate used in measuring the liability and expected healthcare costs. The actuarial assumptions could change from period-to-period and actual results could differ materially from the estimates originally made by management. The fair values of our pension assets were based on a measurement date of December 31, 2011. We evaluate our assumptions on a regular basis, taking into consideration current market conditions and historical data. There is no assurance that our pension plan assets will earn the assumed rate of return. Market driven changes may affect our discount rates and other variables which could cause actual results to differ significantly from our estimates. Changes in assumptions could also impact our pension plan valuations and our future pension expense and funding. See notes 2(n) and 19 to our consolidated financial statements.

Stock-based compensation:

        The grant date fair value of options granted to employees is recognized as compensation expense, with a corresponding charge to contributed surplus, over the period that the employees become unconditionally entitled to the options. The expense is adjusted to reflect the estimated number of options expected to vest at the end of the vesting period. When options are exercised, the proceeds are credited to capital stock. We measure the fair value of options using the Black-Scholes option pricing model. Measurement inputs include the price of our subordinate voting shares on the grant date, exercise price of the option, expected volatility of our subordinate voting shares (based on weighted average historic volatility), weighted average expected life of the option (based on historical experience and general option holder behavior), expected dividends, and the risk-free interest rate.

        The cost we record for equity-settled restricted share units (RSUs), and for performance share units (PSUs) granted prior to 2011, is based on the market value of our subordinate voting shares at the time of grant. We amortize this cost to compensation expense with a corresponding charge through contributed surplus over the period the employees become unconditionally entitled to the awards. The cost of the PSUs, which vest based on a non-market performance condition, is recorded based on our best estimate of the outcome of the performance condition and adjusted as new facts and circumstances arise. Historically, we have generally settled these awards with subordinate voting shares purchased in the open market. Cash-settled awards are accounted for as liabilities and remeasured based on our share price at each reporting date until the settlement date. The corresponding charge is recorded in our consolidated statement of operations.

39


        The cost we record for PSUs granted after 2010 is determined using a Monte Carlo simulation model. The number of awards expected to be earned is factored into the grant date Monte Carlo valuation for the award. The number of PSUs that will vest depends on the level of achievement of a market performance condition, over a three-year period, based on the total shareholder return (TSR) of Celestica relative to the TSR of a pre-defined EMS competitor group. The grant date fair value is not subsequently adjusted regardless of the eventual number of awards that are earned based on the market performance condition. Compensation expense is recognized in the consolidated statement of operations on a straight-line basis over the requisite service period and is reduced for estimated PSU awards that will not vest as a result of not meeting the employment conditions.

        We grant deferred share units (DSUs) to certain members of our board of directors as part of their compensation, which is comprised of an annual retainer, an annual equity award and meeting fees. We amortize the cost of DSUs to compensation expense over the period the services are rendered.

Operating Results

        Our annual and quarterly operating results, including working capital performance, vary from period-to-period as a result of the level and timing of customer orders, mix of revenue, and fluctuations in materials and other costs. The level and timing of customer orders will vary due to changes in demand for their products, general economic conditions, their attempts to balance their inventory, availability of components and materials, and changes in their supply chain strategies or suppliers. Our annual and quarterly operating results are specifically affected by, among other factors: our mix of customers and the types of products or services we provide; the rate at which, and costs associated with, new program ramps; volumes and, in certain of our end markets, seasonality of business; price competition; the mix of manufacturing or service value-add; capacity utilization; manufacturing efficiency; the degree of automation used in the assembly process; the availability of components or labor; the timing of receiving components and materials; costs and inefficiencies of transferring programs between facilities; the loss of programs and customer disengagements; the impact of foreign exchange fluctuations; the performance of third-party providers; our ability to manage inventory, production location and equipment effectively; our ability to manage changing labor, component, energy and transportation costs effectively; fluctuations in variable compensation costs; the timing of our expenditures in anticipation of forecasted sales levels; and the timing of acquisitions and related integration costs.

        As described above, our operations may also be affected by natural disasters or other local risks present in the jurisdictions in which we, our suppliers and our customers operate. These events could lead to higher costs or supply shortages or may disrupt the delivery of components to us or the ability to provide finished products or services to our customers, any of which could adversely affect our operating results. We carry insurance to cover damage to our facilities, including damage that may occur as a result of natural disasters, such as flooding and earthquakes, or other events. However, our policies are subject to deductibles and limitations and may not provide adequate coverage.

        In the EMS industry, customers can award new programs or shift programs to other EMS providers for a variety of reasons including changes in demand for the customers' products, pricing benefits offered by other EMS providers, execution or quality issues, preference for consolidation or a change in their supplier base, rebalancing the concentration of their EMS providers, mergers and consolidation among OEMs, as well as decisions to adjust the volume of business being outsourced. Customer or program transfers between EMS competitors are part of the competitive nature of our industry. Some customers use more than one EMS provider to manufacture a product and/or may have the same EMS provider support them from more than one geographic location. Customers may choose to change the allocation of demand amongst their EMS providers and/or may shift programs from one region to another region within an EMS provider's global network. Our operating results for each period include the impacts associated with program wins, follow-on business or losses from new, existing or disengaging customers. The volume of, profitability of or the location of new business awards will vary from period-to-period and from program-to-program. Significant period-to-period variations can also result from the timing of new programs reaching full production, existing programs being fully or partially transferred internally or to a competitor and programs reaching end-of-life.

40


        The following table sets forth certain operating data expressed as a percentage of revenue for the years indicated:

 
  Year ended
December 31
 
 
  2010   2011  

Revenue

    100.0 %   100.0 %

Cost of sales

    93.2     93.2  
           

Gross profit

    6.8     6.8  

SG&A

    3.9     3.5  

Research and development costs

        0.2  

Amortization of intangible assets

    0.2     0.2  

Other charges

    0.8     0.1  

Finance costs

    0.1      
           

Earnings before income tax

    1.8     2.8  

Income tax expense

    (0.2 )   (0.1 )
           

Net earnings

    1.6 %   2.7 %
           

Revenue:

        Revenue for 2011 of $7.2 billion increased 11% from $6.5 billion in 2010. Compared to 2010, revenue dollars from our diversified end market increased 40%, enterprise communications increased 18%, server increased 14%, and consumer increased 11%. These revenue increases were primarily due to new program wins with existing and new customers and from acquisitions. Revenue from our acquisitions contributed approximately one-third of the revenue increase in our diversified end market. Enterprise communications and consumer were our largest end markets for 2011, representing 26% and 25% of revenue, respectively (2010 — 24% and 25%, respectively). Revenue dollars from our telecommunications end market decreased 20% from 2010 reflecting primarily lower volumes associated with weaker demand from some of our customers for the products we manufacture and the insourcing of a program by one customer. Revenue dollars from our storage end market decreased 4% from 2010.

        The following table shows the end markets we served as a percentage of revenue for the periods indicated:

 
  2010   2011  
 
  Q1   Q2   Q3   Q4   FY   Q1   Q2   Q3   Q4   FY  

Consumer

    28%     26%     24%     24%     25%     26%     25%     25%     26%     25%  

Diversified

    10%     11%     12%     11%     12%     11%     13%     16%     18%     14%  

Enterprise Communications

    22%     24%     25%     24%     24%     25%     25%     26%     25%     26%  

Servers

    12%     14%     13%     17%     14%     15%     17%     14%     13%     15%  

Storage

    14%     12%     12%     12%     12%     12%     11%     11%     10%     11%  

Telecommunications

    14%     13%     14%     12%     13%     11%     9%     8%     8%     9%  

Revenue (in billions)

 
$

1.52
 
$

1.59
 
$

1.55
 
$

1.88
 
$

6.53
 
$

1.80
 
$

1.83
 
$

1.83
 
$

1.75
 
$

7.21
 

        Our product and service volumes, revenue and operating results vary from period-to-period depending on the success in the marketplace of our customers' products, changes in demand from the customer for the products we manufacture, seasonality in certain of our end markets, the mix and complexity of the products or services we provide, the timing of receiving components and materials, the impact associated with program wins, follow-on business or losses from new, existing or disengaging customers and shifts of programs among our facilities at our customers' request, and the timing and rate at which new programs are ramped up, among other factors. We are dependent on a limited number of customers in the communications, consumer and computing end markets for a substantial portion of our revenue. We expect that the pace of technological change, the frequency of OEMs transferring business among EMS competitors or OEMs changing the volumes they outsource, and the constantly changing dynamics of the global economy will also continue to impact our business from period-to-period.

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        In the past, we have experienced some level of seasonality in our quarterly revenue patterns across most of the end markets we serve. We expect that the numerous factors described above that affect our period-to-period results will continue to make it difficult for us to predict the extent and impact of seasonality and other external factors on our business.

        Our enterprise communications end market represented 26% of total revenue for 2011, up from 24% of total revenue in 2010. This growth was primarily from new program wins from existing customers. Revenue dollars from our diversified end market increased 40% compared to 2010 and represent 14% of total revenue for 2011. Revenue dollars from our diversified end market increased to 18% of total revenue for the fourth quarter of 2011 as we continued to target this strategic market. New customer wins and revenue from acquisitions contributed to the increase in revenue in this end market. Our telecommunications revenue as a percentage of total revenue decreased to 9% (2010 — 13%) and continued to be impacted by lower volumes associated with weaker demand from some of our customers for the products we manufacture and the insourcing of a program by one customer. Starting with the first quarter of 2012, we will be consolidating the enterprise communications and telecommunications end markets for reporting purposes.

        Our consumer end market represented 25% of total revenue for 2011 (2010 — 25%). Approximately three-quarters of our consumer business was generated by one smartphone customer. We continue to win new programs from existing and new customers in consumer which resulted in an 11% increase in revenue dollars compared to 2010. Business in the consumer end market and, in particular, smartphones, is highly competitive and characterized by shorter product lifecycles, higher revenue volatility, and lower margins. In addition, program volumes can vary significantly period-to-period based on the strength in end market demand or the timing of ramping new programs. End-user preferences for these products and services can change rapidly and these programs are shifted among EMS competitors. Our exposure to this end market could lead to volatility in our revenue and operating margins and impact our financial position and cash flows.

        For 2011, we had two customers (Research In Motion (RIM) and Cisco Systems) who individually represented more than 10% of total revenue (one customer — 2010). RIM is in our consumer end market and accounted for 19% of total revenue for 2011 (20% for 2010). Our revenue dollars from RIM in the fourth quarter of 2011 were relatively flat compared to the third quarter of 2011. There can be no assurance that our revenue from RIM will continue at these levels. We currently manufacture certain of RIM's smartphone models and also provide certain after-market services. There can be no assurance that the current products we manufacture for RIM will succeed as expected in the marketplace due to rapid shifts in technology and increased competition in the markets RIM serves. In the past, we have received new program wins from RIM to replace programs reaching end-of-life. There can be no assurance that this trend will continue.

        Whether any of our customers individually account for more than 10% of revenue in any period depends on various factors affecting our business with that customer and with other customers, including overall changes in demand for a customers' product, seasonality of business, the extent and timing of new program wins, losses or follow-on business, the phasing in or out of programs, the growth rate of other customers, price competition and changes in our customers' supplier base or supply chain strategies.

        In the aggregate, our top 10 customers represented 71% of revenue in 2011 (2010 — 72%). We are dependent upon continued revenue from our largest customers. We generally enter into master supply agreements with our customers that provide the framework for our overall relationship. These agreements do not typically guarantee a particular level of business or fixed pricing. Instead, we bid on a program-by-program basis and typically receive customer purchase orders for specific quantities and timing of products. There can be no assurance that revenue from our largest customers or any other customers will continue at the same historical levels or will not decrease in absolute terms or as a percentage of total revenue. A significant decrease in revenue from these or other customers, or a loss of a major customer, would have a material adverse impact on our business, our revenue and our results of operations.

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        In the EMS industry, customers may cancel contracts and volume levels can be changed or delayed. Customers may also shift business to a competitor or bring programs in-house to improve their own utilization or to adjust the concentration of their supplier base to manage production risk. We cannot assure the timely replacement of delayed, cancelled or reduced orders with new business. In addition, we cannot assure that any of our current customers will continue to utilize our services. Order cancellations and changes or delays in production could have a material adverse impact on our results of operations and working capital performance, including requiring us to carry higher than expected levels of inventory. Order cancellations and delays could also lower our asset utilization, resulting in lower margins. Significant period-to-period changes in margins can also result if new program wins or follow-on business are more competitively priced than past programs.

        We believe that delivering sustainable revenue growth depends on increasing sales to existing customers for their current and future product generations and expanding the range of services we provide to these customers. We continue to pursue new customers and acquisition opportunities to expand our end market penetration, diversify our end market mix, and to enhance and add new technologies and capabilities to our offerings.

Gross profit:

        The following table is a breakdown of gross profit and gross margin as a percentage of revenue for the years indicated:

 
  Year ended
December 31
 
 
  2010   2011  

Gross profit (in millions)

  $ 444.1   $ 491.4  

Gross margin

    6.8%     6.8%  

        Gross profit for 2011 increased 11% from 2010, in line with the revenue increase. Gross margin as a percentage of revenue was 6.8% in both years.

        Multiple factors cause gross margin to fluctuate including, among other factors: volume and mix of products or services; higher revenue concentration in lower gross margin products and end markets; pricing pressure; production efficiencies; utilization of manufacturing capacity; changing material and labor costs, including variable labor costs associated with direct manufacturing employees; manufacturing and transportation costs; start-up and ramp-up activities; new product introductions; disruption in production at individual sites; cost structures at individual sites; foreign exchange volatility; and the availability of components and materials.

        Our gross profit and SG&A are impacted by the level of variable compensation expense we record in each period. Variable compensation includes our team incentive plans available to eligible manufacturing and office employees, sales incentive plans and equity-based compensation, such as stock options, PSU and RSU awards. See "Stock-based compensation" below. The amount of variable compensation expense varies each period depending on the level of achievement of pre-determined performance goals and financial targets.

Selling, general and administrative expenses:

        SG&A for 2011 of $253.4 million (3.5% of revenue) was relatively flat compared to $252.1 million (3.9% of revenue) for 2010. The decrease in SG&A as a percentage of revenue for 2011 compared to 2010 reflects the higher revenue levels in 2011.

Stock-based compensation:

        Our stock-based compensation expense varies each period, and includes mark-to-market adjustments for awards we settle in cash and plan adjustments. Our performance-based compensation expense generally varies depending on the level of achievement of pre-determined performance goals and financial targets. We recorded

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the following stock-based compensation expense, included in cost of sales and SG&A, for the years indicated (in millions):

 
  Year ended
December 31
 
 
  2010   2011  

Stock-based compensation

  $ 41.9   $ 44.2  

        Our stock-based compensation expense for 2011 included a mark-to-market adjustment of $2.7 million for awards we settled in cash compared to $7.6 million adjustment in 2010. We elected to cash-settle certain share unit awards vesting in the first quarters of 2010 and 2011 due to limitations in the number of subordinate voting shares we could purchase in the open market as a result of terms in our subordinated debt and our share buy-back program. Cash-settled awards are accounted for as liabilities and remeasured based on our share price at each reporting date until the settlement date, with a corresponding charge to compensation expense.

        Our stock-based compensation expense for 2011 also included a $4.8 million adjustment due to changes we made to the retirement eligibility clauses in our equity-based compensation plans, which resulted in an accelerated recognition of the related compensation expense.

Research and development expenses:

        In late 2010, we launched a new Joint Design and Manufacturing (JDM) strategy that focuses on developing design solutions and subsequently managing the other aspects of the supply chain, including manufacturing. We invested $13.8 million in research and development activities in 2011. This was primarily for engineering personnel costs to develop specific design building blocks that can be used as is, or customized to support our customers' product roadmaps, in markets such as communications and information technology. We did not incur any significant costs related to the JDM strategy during 2010. We expect to continue to invest in research and development activities at the same or slightly higher levels in the near term.

Other charges:

        (i)    We have recorded the following restructuring charges for the years indicated (in millions):

 
  Year ended
December 31
 
 
  2010   2011  

Restructuring charges

  $ 35.8   $ 14.5  

        Under GAAP, we recorded restructuring charges in the period we finalized our detailed plans and could reasonably estimate the amount and timing of the actions. Under IFRS, we defer the recognition of charges until the plans are implemented or announced to employees. Under GAAP, our restructuring charges for 2010 included $10.7 million for actions not yet announced at December 31, 2010, which we reversed under IFRS. We announced these actions during 2011. During 2011, we recorded restructuring charges of $18.2 million, primarily for employee termination costs associated with announced restructuring actions, offset partially by recoveries of $3.7 million representing gains from the sale of vacated properties and surplus equipment. Our net restructuring charges for 2011 were $14.5 million, slightly higher than our estimated costs for 2011 of $10.7 million, reflecting additional actions we announced in response to continued economic uncertainties. Our ending restructuring liability was $16.7 million at December 31, 2011. We expect to pay our remaining employee termination costs during the first half of 2012. All cash outlays have been, and the balance will be, funded from cash on hand.

        We evaluate our operations from time-to-time and may propose future restructuring actions or divestitures as a result of changes in the marketplace and/or our exit from less profitable or non-strategic operations.

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  Year ended
December 31
 
 
  2010   2011  

Asset impairment

  $ 9.1    
 

        We conduct our annual impairment assessment of goodwill, intangible assets and property, plant, and equipment in the fourth quarter of each year or whenever triggering events indicate that the carrying amount of an asset or CGU may not be recoverable. We recognize an impairment loss when the carrying amount of an asset, CGU or group of CGUs exceeds the recoverable amount, which is determined as the greater of its value-in-use and its fair value less costs to sell. During the fourth quarter of 2011, we performed our annual asset impairment assessment and determined there was no impairment (2010 — impairment of $9.1 million).

        In March 2010, we paid $231.6 million to repurchase the remaining Notes due 2013 and recognized a loss of $8.8 million, primarily as a result of the premium we paid to redeem the Notes prior to maturity. The loss on the repurchase was measured based on the carrying value of the repurchased portion of the Notes on the date of repurchase.

Income taxes:

        Income tax expense for 2011 was $3.7 million on earnings before tax of $198.8 million compared to an income tax expense of $18.2 million for 2010 on earnings before tax of $119.4 million. Current income taxes for 2011 consisted primarily of the tax expense in jurisdictions with current taxes payable and changes to our net provisions related to tax uncertainties, including current tax recoveries resulting from the settlement of tax audits. Deferred income taxes for 2011 were comprised primarily of the deferred tax recovery we recognized in Canada for an inter-company investment we wrote off relating to a restructured subsidiary. Current income taxes for 2010 consisted primarily of the tax expense in jurisdictions with current taxes payable and additional taxes and penalties related to the tax audit in Hong Kong (which we formally settled in the second quarter of 2011). Deferred income taxes for 2010 were comprised primarily of deferred tax recoveries for future deductible temporary differences and recognition of certain deferred income tax assets previously not recognized in Canada.

        We conduct business operations in a number of countries, including countries where tax incentives have been extended to encourage foreign investment or where income tax rates are low. Our effective tax rate can vary significantly period-to-period for various reasons, including the mix and volume of business in lower tax jurisdictions in Europe and Asia, and in jurisdictions with tax holidays and tax incentives that have been negotiated with the respective tax authorities (which expire between 2012 and 2020). Approximately one-half of our earnings before tax in 2011 were realized in certain jurisdictions in Asia where our combined effective income tax rate was approximately 2.1% due to income tax incentives we have been granted. Our effective tax rate can also vary as a result of restructuring charges, foreign exchange fluctuations, operating losses, certain tax exposures, the time period in which losses may be used under tax laws and whether management believes it is probable that future taxable profit will be available to allow us to recognize deferred income tax assets.

        Certain countries in which we do business negotiate tax incentives to attract and retain our business. Our taxes could increase if certain tax incentives from which we benefit are retracted. A retraction could occur if we fail to satisfy the conditions on which these tax incentives are based, if they are not renewed upon expiration, if tax rates applicable to us in such jurisdictions are otherwise increased, or due to changes in legislation or administrative practices. Changes in our outlook in any particular country could impact our ability to meet the conditions.

        In certain jurisdictions, primarily in the Americas and Europe, we currently have significant net operating losses and other deductible temporary differences, which we expect will reduce taxable income in these jurisdictions in future periods.

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        We develop our tax filing positions based upon the anticipated nature and structure of our business and the tax laws, administrative practices and judicial decisions currently in effect in the jurisdictions in which we have assets or conduct business, all of which are subject to change or differing interpretations, possibly with retroactive effect. We are subject to tax audits and reviews by local tax authorities of historical information which could result in additional tax expense in future periods relating to prior results. Reviews by tax authorities generally focus on, but are not limited to, the validity of our inter-company transactions, including financing and transfer pricing policies which generally involve subjective areas of taxation and a significant degree of judgment. Any such increase in our income tax expense and related interest and penalties could have a significant impact on our future earnings and future cash flows.

        Certain of our subsidiaries provide financing, products and services, and may from time-to-time undertake certain significant transactions with other subsidiaries in different jurisdictions. Moreover, several jurisdictions in which we operate have tax laws with detailed transfer pricing rules which require that all transactions with non-resident related parties be priced using arm's length pricing principles, and that contemporaneous documentation must exist to support such pricing.

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

        In connection with a tax audit in Brazil, tax authorities have taken the position that income reported by our Brazilian subsidiary in 2004 should have been materially higher as a result of certain inter-company transactions. If Brazilian tax authorities ultimately prevail in their position, our Brazilian subsidiary's tax liability would increase by approximately 43.5 million Brazilian reais (approximately $23.2 million at current exchange rates). In addition, Brazilian tax authorities may make similar claims in future audits with respect to these types of transactions. In June 2011, we received a ruling from the Brazilian Lower Administrative Court that was largely consistent with our original filing position. As the ruling generally favored the taxpayer, the matter has been sent to a court of appeals. We have not accrued for any potential adverse tax impact for the 2004 tax audit as we believe our Brazilian subsidiary has reported the appropriate amount of income arising from inter-company transactions.

        We have and expect to continue to recognize the future benefit of certain Brazilian tax losses on the basis that these tax losses can and will be fully utilized in the fiscal period ending on the date of dissolution of our Brazilian subsidiary. While our ability to do so is not certain, we believe that our interpretation of applicable Brazilian law will be sustained upon full examination by the Brazilian tax authorities and, if necessary, upon consideration by the Brazilian judicial courts. Our position is supported by our Brazilian legal tax advisors. A change to the benefit realizable on these Brazilian losses could increase our net future tax liabilities by approximately 55.5 million Brazilian reais (approximately $29.6 million at current exchange rates).

        Tax audits for the years 2001 through 2006 and 2009 of one of our Malaysian subsidiaries were closed in 2011 without any significant adjustments. As a result of our successful defenses, we have released provisions previously recorded for Malaysian tax uncertainties of 31.9 million Malaysian ringgit (approximately $10.0 million at current exchange rates).

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

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Acquisitions:

        We may, at any time, be engaged in ongoing discussions with respect to possible acquisitions that could expand our service offerings, increase our penetration in various industries, establish strategic relationships with new or existing customers and/or enhance our global supply chain network. In order to enhance our competitiveness and expand our revenue base or the services we offer our customers, we may also look to grow our services or capabilities beyond our traditional areas of EMS expertise. There can be no assurance that any of these discussions will result in a definitive purchase agreement and, if they do, what the terms or timing of any such agreement would be. There can also be no assurance that an acquisition can be successfully integrated or will generate the returns that we expected.

        In January 2010, we completed the acquisition of Scotland-based Invec. Invec provides warranty management, repair and parts management services to companies in the information technology and consumer electronics markets. This acquisition enhanced our global after-market services offering by integrating Invec's proprietary reverse logistics software throughout our network.

        In August 2010, we completed the acquisition of Austrian-based Allied Panels, a medical engineering and manufacturing service provider that offers concept-to-full-production solutions in medical devices with a core focus on the diagnostic and imaging market. This acquisition enhanced our healthcare offering by expanding our capability in the healthcare diagnostics and imaging market, and broadening our healthcare global network to include a center of excellence in Europe.

        The total purchase price for the 2010 acquisitions, excluding contingent consideration, was $18.3 million and was financed with cash in 2010. The purchase price for Allied Panels is subject to adjustment for contingent consideration if specific pre-determined financial targets are achieved through 2012. We estimated the fair value of this contingency and recorded $4.5 million in goodwill on the acquisition date. The amount of goodwill and amortizable intangible assets recorded on the acquisition dates was $14.1 million (of which we expect the majority will not be tax deductible) and $16.1 million, respectively. We expensed $1.0 million of acquisition-related transaction costs in 2010. At December 31, 2011, we reduced the fair value of the contingent consideration we recorded on the acquisition of Allied Panels from $4.5 million to $3.2 million by releasing $1.3 million through other charges in our consolidated statement of operations.

        In June 2011, we completed the acquisition of the semiconductor equipment contract manufacturing operations of Brooks Automation. The operations, based in Portland, Oregon and Wuxi, China, specialize in manufacturing complex mechanical equipment and providing systems integration services to some of the world's largest semiconductor equipment manufacturers. This acquisition strengthened our service offerings by providing our customers with additional capabilities in complex mechanical and systems integration services. The final purchase price of $80.5 million, net of cash acquired, was financed from cash on hand and $45.0 million from our revolving credit facility, which we repaid in the third quarter of 2011. The amount of goodwill arising from the acquisition was $33.8 million (of which we expect approximately one-third will be tax deductible) and the amount of amortizable intangible assets was $12.5 million. We expensed $0.6 million in acquisition-related transaction costs in 2011.

        Revenue and earnings for the combined companies for each of the reporting periods would not have been materially different had the acquisitions in each year occurred at the beginning of the respective years.

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Liquidity and Capital Resources

Liquidity

        The following table shows key liquidity metrics for the years indicated (in millions):

 
  December 31  
 
  2010   2011  

Cash and cash equivalents

  $ 632.8   $ 658.9  

 

 
  Year ended
December 31
 
 
  2010   2011  

Cash provided by operating activities

  $ 165.9   $ 196.3  

Cash used in investing activities

    (61.1 )   (125.7 )

Cash used in financing activities

    (409.7 )   (44.5 )

Changes in non-cash working capital items (included with operating activities above):

             

A/R

  $ (111.8 ) $ 147.0  

Inventories

    (162.8 )   2.0  

Other current assets

    (11.9 )   3.9  

A/P, accrued and other current liabilities and provisions

    211.4     (216.9 )
           

Working capital changes

  $ (75.1 ) $ (64.0 )
           

Cash provided by operating activities:

        We generated $196.3 million in cash from operations during 2011 driven primarily by the net earnings for 2011, after adding back non-cash items such as depreciation and amortization expense, offset partially by negative working capital. Negative working capital was driven primarily by a decrease in A/P compared to 2010, offset partially by a reduction in A/R. The decrease in A/P, accrued and other liabilities and provisions reflects primarily lower inventory purchases, offset partially by a $45.0 million increase in the amount of a customer deposit. The improvement in A/R for 2011 reflects lower revenue levels in the fourth quarter of 2011 relative to the fourth quarter of 2010 and continued strong collections. At December 31, 2011, we had sold $60.0 million of A/R (December 31, 2010 — $60.0 million of A/R sold).

        We generated $165.9 million in cash from operations during 2010 driven primarily by net earnings for 2010, after adding back non-cash items such as depreciation and amortization expense, offset partially by negative working capital requirements in 2010 compared to 2009, to support new programs ramping in the latter half of 2010 and early 2011. The increases to our A/R and inventory balances were offset partially by higher A/P. The higher A/P balance included a $75.0 million deposit we received from a customer to fund working capital in support of that customer's growth. Our A/R balance at December 31, 2010 was reduced by the sale of $60.0 million of A/R under our A/R sales program (December 31, 2009 — no A/R sold).

        Included in our cash and A/P balances at December 31, 2011 was a $120.0 million deposit we received from a customer pursuant to an agreement which expires in March 2012; any outstanding amounts are repayable by Celestica at that time ($75.0 million deposit at December 31, 2010 which we repaid in February 2011).

Cash used in investing activities:

        Our capital expenditures of $62.3 million for 2011 (2010 — $60.8 million) were incurred primarily to enhance our manufacturing capabilities in various geographies and to support new customer programs. From time-to-time, we receive cash proceeds from the sale of surplus equipment and property.

        During 2011, we acquired the semiconductor equipment contract manufacturing operations of Brooks Automation for a purchase price of $80.5 million. During 2010, we completed the acquisitions of Invec and Allied Panels for an aggregate purchase price of $18.3 million.

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Cash used in financing activities:

        During 2011, we paid $49.4 million (2010 — $26.2 million) for the purchase of subordinate voting shares in the open market by a trustee to satisfy the delivery of subordinate voting shares under our equity-based compensation plans. During 2010, we also paid $140.6 million to repurchase subordinate voting shares in the open market for cancellation under our NCIB. We did not repurchase any subordinate voting shares for cancellation under the NCIB during 2011. In March 2010, we paid $231.6 million to repurchase all outstanding Notes.

Cash requirements:

        We maintain a revolving credit facility and an A/R sales program to provide short-term liquidity and to have funds available for working capital and other investments to support our business strategies. Our working capital requirements can vary significantly from month-to-month due to a range of business factors which includes the ramping of new programs, timing of purchases, higher levels of inventory for new programs and anticipated customer demand, timing of payments and A/R collections, and customer forecasting variations. The international scope of our operations may also create working capital requirements in certain countries while other countries generate cash in excess of working capital needs. Moving cash between countries on a short-term basis to fund working capital is not always expedient due to local currency regulations, tax considerations, and other factors. To meet our working capital requirements and to provide short-term liquidity, we may draw on our revolving credit facility or sell A/R utilizing our A/R sales program. During the course of a year, we may borrow and repay amounts under these facilities. The timing and the amounts we may borrow or repay can vary significantly from month-to-month depending upon our cash requirements. We have also negotiated the receipt of cash deposits from one customer to fund short-term working capital requirements.

        At times, our customers require us to carry inventory in excess of current production requirements. We have negotiated cash deposits from one customer to cover such excess inventory. These deposits are short term in nature and are generally repaid in 2 or 3 months. We have received cash deposits each quarter beginning in December 2010 from this customer. At December 31, 2011, our customer deposit was $120.0 million (December 31, 2010 — $75.0 million deposit we repaid in February 2011). The amount and timing of each deposit is negotiated with our customer. There can be no assurance that we will be successful in negotiating future deposits. If we do not obtain future deposits, our cash flow and financial results would be negatively impacted until the excess material is used in the manufacturing process or shipped to the customer. We expect the dollar amount of these deposits to decline going forward.

        We had $658.9 million in cash and cash equivalents at December 31, 2011. We believe that cash flow from operating activities, together with cash on hand, borrowings available under our revolving credit facility and intraday and overnight bank overdraft facilities, and cash from the sale of A/R, will be sufficient to fund currently anticipated working capital, planned capital spending, and planned repurchases under our new NCIB for the next 12 months. We may issue debt, convertible debt or equity securities in the future to fund operations or make acquisitions. Equity or convertible debt securities could dilute current shareholders' positions; debt or convertible debt securities could have rights and privileges senior to equity holders and the terms of these debt securities could impose restrictions on our operations. The pricing of our securities would be subject to market conditions at the time of issuance.

        As at December 31, 2011, a significant portion of our cash and cash equivalents were held by numerous foreign subsidiaries outside of Canada. Although substantially all of the cash and cash equivalents held outside of Canada could be repatriated, a significant portion may be subject to withholding taxes under current tax laws. We have not recognized deferred tax liabilities for cash and cash equivalents held by certain foreign subsidiaries that relate to earnings that are considered indefinitely reinvested outside of Canada and that we will not repatriate in the foreseeable future (approximately $380.0 million of cash and cash equivalents as at December 31, 2011).

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        As at December 31, 2011, we have contractual obligations that require future payments as follows (in millions):

 
  Total(i)   2012   2013   2014   2015   2016   Thereafter  

Operating leases

  $ 104.4   $ 29.6   $ 25.8   $ 17.8   $ 7.6   $ 4.4   $ 19.2  

Deposit from customer(ii)

    120.0     120.0                      

Pension plan contributions(iii)

    20.4     20.4                      

Non-pension post-employment plan payments

    47.3     4.1     4.1     4.0     4.0     4.7     26.4  

Total

  $ 292.1   $ 174.1   $ 29.9   $ 21.8   $ 11.6   $ 9.1   $ 45.6  

(i)
The contractual obligations chart above does not include our agreement with a third party for the outsourcing of our IT support. Our costs under this IT support agreement fluctuate based on our usage.

(ii)
We entered into an agreement to receive a cash deposit from a customer in December 2011 to fund working capital requirements. This agreement expires in March 2012; any outstanding amounts are repayable by Celestica at that time.

(iii)
Based on our latest actuarial valuations, we estimate our minimum funding requirement for 2012 to be $20.4 million (2011 — $45.5 million; 2010 — $33.6 million). See further details in note 19 to our consolidated financial statements. A significant deterioration in the asset values or asset returns could lead to higher than expected future contributions. Risks associated with actuarial valuation measurements may also result in higher future cash contributions. We fund our pension contributions from cash on hand. Although we have defined benefit plans that are currently in a net unfunded position, we do not expect our pension obligations will have a material adverse impact on our future results of operations, cash flows or liquidity.

        As at December 31, 2011, we have commitments that expire as follows (in millions):

 
  Total   2012   2013   2014   2015   2016   Thereafter  

Foreign currency contracts(i)

  $ 776.5   $ 735.3   $ 41.2                  

Letters of credit, letters of guarantee and surety bonds(ii)

    40.9     37.1         1.8             2.0  

Capital expenditures(iii)

    48.0     48.0                      

Contingent consideration(iv)

    3.2     3.2                    
 

(i)
Represents the aggregate notional amounts of the forward currency contracts.

(ii)
Includes $27.0 million of letters of credit that we issued under our revolving credit facility.

(iii)
Our capital spending varies each period based on the timing of new business wins and forecasted sales levels. Based on our current operating plans, we anticipate capital spending for 2012 to be approximately 1.1% to 1.5% of revenue, and expect to fund this spending from cash on hand. As at December 31, 2011, we had committed $48.0 million in capital expenditures, principally for facilities, machinery and equipment to support new customer programs. Included in the $48.0 million is a building we acquired in Malaysia in February of 2012. In addition, based on the tax incentives we have benefited from as at December 31, 2011, we have met the capital expenditure commitments as at that date and have other ongoing conditions for retaining these tax incentives which we expect to meet.

(iv)
In connection with the acquisition of Allied Panels, we have a contingent obligation if specified pre-determined financial targets are achieved through 2012. At December 31, 2011, we have recorded a contingent liability of $3.2 million.

        Cash outlays for our contractual obligations and commitments identified above are expected to be funded by cash on hand. We also have outstanding purchase orders with certain suppliers for the purchase of inventory. These purchase orders are generally short-term. Orders for standard items can typically be cancelled with little or no financial penalty. Our policy regarding non-standard or customized orders dictates that such items are generally ordered specifically for customers who have contractually assumed liability for the inventory. In addition, a substantial portion of the standard items covered by our purchase orders were procured for specific customers based on their purchase orders or forecasts under which the customers have contractually assumed liability for such material. We cannot quantify with a reasonable degree of accuracy the amount of our liability from purchase obligations under these purchase orders.

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        From time-to-time, we pay cash for the purchase of subordinate voting shares in the open market by a trustee to satisfy the delivery of subordinate voting shares under our equity-based compensation plans. During 2011, we paid $49.4 million for the purchase of 5.7 million subordinate voting shares in the open market for equity-based awards vested throughout 2011 and the first quarter of 2012. During 2010, we paid $26.2 million to purchase 2.8 million subordinate voting shares for equity-based awards that vested throughout 2010 and in the first quarter of 2011. We expect to continue to make these payments for the purchase of subordinate voting shares in the open market to meet our on-going obligations to equity-settle awards as they vest in future periods. We estimate that approximately 3 million equity-based awards could vest during 2012 and the first quarter of 2013, for which we expect to satisfy by purchasing subordinate voting shares in the open market. The estimated cash outlay to purchase this number of subordinate voting shares in the open market, based on our share price on December 30, 2011, is approximately $22 million. The actual cash outlay will likely differ, and may differ materially, as it is difficult to estimate future share prices, forfeiture rates, and whether we will achieve our performance metrics.

        During 2010, we paid $140.6 million to repurchase 16.1 million subordinate voting shares for cancellation under the NCIB which expired in August 2011. On February 7, 2012, the TSX approved a new NCIB allowing us to repurchase, at our discretion, until the earlier of February 8, 2013 and the completion of purchases under the bid, up to approximately 16.2 million subordinate voting shares, representing 10% of the public float of our subordinate voting shares (or approximately 7.5% of our total subordinate voting and multiple voting shares outstanding), on the open market or as otherwise permitted, subject to the normal terms and limitations of such bids. The maximum number of subordinate voting shares we are permitted to repurchase for cancellation under the new bid will be reduced by the number of subordinate voting shares we purchase for equity-based compensation plans, which we estimate will be approximately 3 million shares.

        We provide routine indemnifications, the terms of which range in duration and often are not explicitly defined. These may include indemnifications against adverse impacts due to changes in tax laws, third-party intellectual property infringement claims and third-party claims for property damage resulting from our negligence. We have also provided indemnifications in connection with the sale of certain businesses and real property. The maximum potential liability from these indemnifications cannot reasonably be 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 and contingencies:

        In the normal course of our operations, we may be subject to lawsuits, investigations and other claims, including environmental, labor, product, customer disputes and other matters. Management believes that adequate provisions have been recorded in the accounts where required. Although it is not always possible to estimate the extent of potential costs, if any, management believes that the ultimate resolution of such matters will not have a material adverse impact on our results of operations, financial position or liquidity.

        In 2007, securities class action lawsuits were commenced against us and our former Chief Executive and Chief Financial Officers in the United States District Court of the Southern District of New York by certain individuals, on behalf of themselves and other unnamed purchasers of our stock, claiming that they were purchasers of our stock during the period January 27, 2005 through January 30, 2007. The plaintiffs allege violations of United States federal securities laws and seek unspecified damages. They allege that during the purported period we made statements concerning our actual and anticipated future financial results that failed to disclose certain purportedly material adverse information with respect to demand and inventory in our Mexican operations and our information technology and communications divisions. In an amended complaint, the plaintiffs added one of our directors and Onex Corporation (Onex) as defendants. On October 14, 2010, the District Court granted the defendants' motions to dismiss the consolidated amended complaint in its entirety. The plaintiffs appealed to the United States Court of Appeals for the Second Circuit the dismissal of its claims against us, our former Chief Executive and Chief Financial Officers, but not as to the other defendants. In a summary order dated December 29, 2011, the Court of Appeals reversed the District Court's dismissal of the consolidated amended complaint and remanded the case to the District Court for further proceedings. Parallel class proceedings, including a claim issued in October 2011, remain against us and our former Chief Executive and Chief Financial Officers in the Ontario Superior Court of Justice, but neither leave nor certification of any

51


actions has been granted by that court. We believe the allegations in the claims are without merit and we intend to defend against them vigorously. However, there can be no assurance that the outcome of the litigation will be favorable to us or that it will not have a material adverse impact on our financial position or liquidity. In addition, we may incur substantial litigation expenses in defending the claims. We have liability insurance coverage that may cover some of our litigation expenses, potential judgments and settlement costs.

        The major earthquake and tsunami in Japan in March 2011, including the aftermath of those events, affected our local operations which include a sales office, a repair service center and a manufacturing facility. Operations at our facility in Miyagi, Japan, which generated less than 5% of our total annual revenue in 2010, were interrupted for approximately two weeks in March 2011. Production had resumed by the end of the first quarter of 2011. We have filed an insurance claim which exceeds the carrying value of the damaged assets. We expect to finalize our settlement in the first quarter of 2012. Any excess of the insurance proceeds above the carrying value of the damaged assets will be recorded in the period the insurance claim is resolved.

Capital Resources

        Our main objectives in managing our capital resources are to ensure liquidity and to have funds available for working capital or other investments required to grow our business. Our capital resources consist of cash, short-term investments, access to a revolving credit facility, intraday and overnight bank overdraft facilities, an A/R sales program and capital stock. We regularly review our borrowing capacity and make adjustments, as available, for changes in economic conditions.

        At December 31, 2011, we had cash and cash equivalents of $658.9 million, comprised of cash (approximately 29%) and cash equivalents (approximately 71%). Our current portfolio consists of bank deposits and certain money market funds that hold primarily U.S. government securities. The majority of our cash and cash equivalents are held with financial institutions each of which had at December 31, 2011 a Standard and Poor's rating of A-1 or above. Our cash and cash equivalents are subject to intra-quarter swings, generally related to the timing of A/R collections, inventory purchases and payments, and other capital uses.

        In January 2011, we renewed our revolving credit facility on generally similar terms and conditions as our previous facility and increased the size of the facility to $400.0 million, with a maturity of January 2015. The facility has restrictive covenants, including those relating to debt incurrence, the sale of assets and a change of control. We are also required to comply with financial covenants relating to indebtedness, interest coverage and liquidity and we have pledged certain assets as security. During the third quarter of 2011, we repaid the $45.0 million we borrowed in June 2011 under this facility. At December 31, 2011, there were no amounts drawn under the facility and we were in compliance with all covenants. At December 31, 2011, we had $27.0 million of letters of credit that were issued under our credit facility.

        We also have access to $70.0 million in intraday and overnight bank overdraft facilities, which were undrawn at December 31, 2011 (undrawn at December 31, 2010).

        We have an agreement to sell up to $250.0 million in A/R (subject to pre-determined limits by customer) on a committed basis and up to an additional $150.0 million in A/R on an uncommitted basis. The A/R facility is with third-party banks which have at December 31, 2011 a Standard and Poor's rating of A-1. Our facility expires in November 2012. At December 31, 2011, we had sold $60.0 million of A/R under this facility (December 31, 2010 — $60.0 million of A/R sold).

        The timing and the amounts we may borrow and repay under our revolving credit and overdraft facilities, or sell under our A/R sales program, can vary significantly from month-to-month depending upon our working capital and other cash requirements.

        We redeemed all of our outstanding Notes prior to March 31, 2010. We also cancelled 16.1 million subordinate voting shares under the NCIB we commenced in July 2010, which represented approximately 7% of our total subordinate voting and multiple voting shares outstanding when the NCIB expired in August 2011. On February 7, 2012, the TSX approved a new NCIB allowing us to repurchase up to 16.2 million subordinate voting shares, or 10% of the public float of our subordinate voting shares as at January 26, 2012 (or approximately 7.5% of our total subordinate voting and multiple voting shares outstanding), in the open market or as otherwise permitted, subject to the normal terms and limitations of such bids.

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        Standard and Poor's provides a corporate credit rating on Celestica. This rating is not a recommendation to buy, sell or hold securities and may be subject to revision or withdrawal at any time by the rating organization. A rating does not comment as to market price or suitability for a particular investor. At December 31, 2011, our Standard and Poor's corporate credit rating is BB, with a stable outlook. A reduction in our credit rating could adversely impact our future cost of borrowing.

        Our strategy on capital risk management has not changed significantly since the end of 2010. Other than the restrictive covenants associated with our revolving credit facility noted above, we are not subject to any contractual or regulatory capital requirements. While some of our international operations are subject to government restrictions on the flow of capital into and out of their jurisdictions, these restrictions have not had a material impact on our operations or cash flows.

Financial instruments:

        Our short-term investment objectives are to preserve principal and to maximize yields without significantly increasing risk, while at the same time not materially restricting our short-term access to cash. To achieve these objectives, we maintain a portfolio consisting of a variety of securities, including bank deposits and certain money market funds that hold primarily U.S. government securities.

        The majority of our cash balances are held in U.S. dollars. We price the majority of our products in U.S. dollars and the majority of our material costs are also denominated in U.S. dollars. However, a significant portion of our non-material costs (including payroll, pensions, facility costs and costs of locally sourced supplies and inventory) are denominated in various other currencies. As a result, we may experience foreign exchange gains or losses on translation or transactions due to currency fluctuations.

        We have a foreign exchange risk management policy in place to control our hedging activities and we do not enter into speculative trades. Our current hedging activity is designed to reduce the variability of our foreign currency costs where we have local manufacturing operations. We enter into forward exchange contracts to hedge against our cash flows and significant balance sheet exposures in certain foreign currencies. Balance sheet hedges are based on our forecasts of the future position of net monetary assets or liabilities denominated in foreign currencies and, therefore, may not mitigate the full impact of any translation impacts in the future. There is no assurance that our hedging transactions will be successful.

        At December 31, 2011, we had forward exchange contracts to trade U.S. dollars in exchange for the following currencies:

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

Canadian dollar

  $ 349.6   $ 0.98     15   $ (2.0 )

Thai baht

    144.2     0.03     15     (4.7 )

Malaysian ringgit

    97.4     0.32     15     (2.4 )

Mexican peso

    49.7     0.08     12     (3.0 )

Chinese renminbi

    33.9     0.16     12     (0.2 )

British pound

    33.4     1.54     4     0.1  

Singapore dollar

    19.8     0.80     12     (0.6 )

Euro

    14.8     1.29     4      

Japanese yen

    14.0     0.01     3      

Romanian lei

    10.8     0.32     12     (0.8 )

Other

    8.9         4     (0.3 )
                       

Total

  $ 776.5               $ (13.9 )
                       

        These contracts generally extend for periods of up to 15 months and expire by the end of the first quarter of 2013. The fair value of these contracts at December 31, 2011 was a net unrealized loss of $13.9 million (December 31, 2010 — net unrealized gain of $13.0 million). The unrealized gains or losses are a result of fluctuations in foreign exchange rates between the date the currency forward contracts were entered into and the valuation date at period end.

53


Financial risks:

        We are exposed to a variety of market risks associated with financial instruments.

        Currency risk: Due to the global nature of our operations, we are exposed to exchange rate fluctuations on our cash receipts, cash payments and balance sheet exposures denominated in various currencies. The majority of our currency risk is driven by the operational costs incurred in local currencies by our subsidiaries. We manage our currency risk through our hedging program using forecasts of future cash flows and balance sheet exposures denominated in foreign currencies.

        Interest rate risk: Borrowings under our revolving credit facility bear interest at LIBOR or Prime rate plus a margin. Our borrowings under this facility expose us to interest rate risks due to fluctuations in these rates.

        Credit risk: Credit risk refers to the risk that a counterparty may default on its contractual obligations resulting in a financial loss to us. We believe our credit risk of counterparty non-performance is low. To mitigate the risk of financial loss from defaults under our foreign currency forward exchange contracts, our contracts are held by counterparty financial institutions each of which had at December 31, 2011 a Standard and Poor's rating of A- or above. Each financial institution with which we have our A/R sales program had a Standard and Poor's rating of A-1 at December 31, 2011. At December 31, 2011, we had sold $60.0 million of A/R under this sales program. We also provide unsecured credit to our customers in the normal course of business. We mitigate this credit risk by monitoring our customers' financial condition and performing ongoing credit evaluations. We consider credit risk in establishing our allowance for doubtful accounts and we believe our allowances are adequate. At December 31, 2011, less than 1% of our gross A/R are over 90 days past due and our allowance for doubtful accounts balance was $2.7 million (December 31, 2010 — $5.1 million). The decrease in our allowance for doubtful accounts reflects our continued strong collection efforts and is in line with improvements in our aged accounts receivable.

        Liquidity risk: Liquidity risk is the risk that we may not have cash available to satisfy our financial obligations as they come due. The majority of our financial liabilities recorded in accounts payable, accrued and other current liabilities and provisions are due within 90 days. We believe that cash flow from operations, together with cash on hand, cash from the sale of A/R, and borrowings available under our revolving credit facility and intraday and overnight bank overdraft facilities are sufficient to support our financial obligations.

Related Party Transactions

        Onex owns, directly or indirectly, all of our outstanding multiple voting shares. Accordingly, Onex generally has the power to control the outcome of matters on which stockholders are entitled to vote. Gerald Schwartz, the Chairman and Chief Executive Officer of Onex and one of our directors, owns multiple voting shares of Onex carrying the right to elect a majority of Onex's board of directors.

        We have manufacturing agreements with two companies related to or under the control of Onex or Gerald Schwartz (2010 — one company). During 2011, we recorded revenue of $90.9 million from these companies (2010 — $43.3 million). At December 31, 2011, we had $15.5 million due from these companies (December 31, 2010 — $4.9 million). All transactions with these companies were in the normal course of operations and were recorded at the exchange amounts as agreed to by the parties based on arm's length terms. One of these companies was sold subsequent to year-end and will not be reported as a related party in 2012.

        In January 2009, we entered into a Services Agreement with Onex for the services of Gerald Schwartz, as a director of Celestica. The term of this agreement was for one year and it automatically renews for successive one-year terms unless either party provides a notice of intent not to renew. Onex receives compensation under the Services Agreement in an amount equal to $200,000 per year, payable in DSUs in equal quarterly installments in arrears.

Outstanding Share Data

        As of February 22, 2012, we had 198.3 million outstanding subordinate voting shares and 18.9 million outstanding multiple voting shares. We also had 8.8 million outstanding stock options, 4.6 million outstanding RSUs, 5.9 million outstanding PSUs (based on a maximum payout of 200%), and 0.9 million outstanding DSUs, each such option or unit entitling the holder to receive one subordinate voting share (or in certain cases, cash at our option) pursuant to the terms thereof (subject to time or performance-based vesting).

54


Controls and Procedures

Evaluation of disclosure controls and procedures:

        Our management is responsible for establishing and maintaining a system of disclosure controls and procedures (as defined in Rules 13a-15(e) and 15d-15(e) under the U.S. Exchange Act) designed to ensure that information we are required to disclose in the reports that we file or submit under the U.S. Exchange Act is recorded, processed, summarized and reported within the time periods specified in the SEC's rules and forms. Disclosure controls and procedures include, without limitation, controls and procedures designed to ensure that information required to be disclosed by an issuer in the reports that it files or submits under the U.S. Exchange Act is accumulated and communicated to the issuer's management, including its principal executive officer or officers and principal financial officer or officers, or persons performing similar functions, as appropriate, to allow timely decisions regarding required disclosure.

        Under the supervision of and with the participation of management, including the Chief Executive Officer and Chief Financial Officer, we have evaluated the effectiveness of the design and operation of our disclosure controls and procedures as of the end of the period. Based on that evaluation, our Chief Executive Officer and Chief Financial Officer have concluded that our disclosure controls and procedures are effective to meet the requirements of Rules 13a-15 and 15d-15 under the U.S. Exchange Act.

        A control system, no matter how well conceived and operated, can provide only reasonable, not absolute, assurance that its objectives are met. Due to inherent limitations in all such systems, no evaluation of controls can provide absolute assurance that all control issues within a company have been detected. Accordingly, our disclosure controls and procedures are designed to provide reasonable, not absolute, assurance that the objectives of our disclosure control system are met.

Changes in internal controls over financial reporting:

        During 2011, there were no changes in our internal controls over financial reporting that have materially affected, or are reasonably likely to materially affect, our internal controls over financial reporting.

Management's report on internal control over financial reporting:

        Reference is made to our Management's Report on page F-1 of our Annual Report. Our auditors, KPMG LLP, an independent registered public accounting firm, have issued an audit report on our internal controls over financial reporting for the year ended December 31, 2011. This report appears on page F-2 of our Annual Report on Form 20-F.

        Unaudited Quarterly Financial Highlights(i) (in millions, except per share amounts):

 
  2010   2011  
 
  First
Quarter
  Second
Quarter
  Third
Quarter
  Fourth
Quarter
  First
Quarter
  Second
Quarter
  Third
Quarter
  Fourth
Quarter
 

Revenue

  $ 1,518.1   $ 1,585.4   $ 1,546.5   $ 1,876.1   $ 1,800.1   $ 1,829.4   $ 1,830.1   $ 1,753.4  

Gross profit %

    6.9%     6.8%     7.0%     6.5%     6.5%     6.9%     6.9%     7.0%  

Net earnings

  $ 28.5   $ 13.0   $ 21.3   $ 38.4   $ 30.0   $ 45.7   $ 50.2   $ 69.2  

Weighted average # of basic shares

    229.9     230.3     229.6     221.4     215.4     216.6     216.6     216.6  

Weighted average # of diluted shares

    232.8     232.8     231.5     223.5     219.2     220.0     219.5     218.7  

# of shares outstanding

    230.0     230.2     225.5     214.2     216.3     216.4     216.4     216.5  

Net earnings per share:

                                                 

basic

  $ 0.12   $ 0.06   $ 0.09   $ 0.17   $ 0.14   $ 0.21   $ 0.23   $ 0.32  

diluted

  $ 0.12   $ 0.06   $ 0.09   $ 0.17   $ 0.14   $ 0.21   $ 0.23   $ 0.32  

(i)
We have restated our 2010 comparative data in accordance with IFRS.

55


Comparability quarter-to-quarter:

        The quarterly data reflects the following: the fourth quarters of 2010 and 2011 include the results of our annual impairment testing of goodwill, intangible assets and property, plant and equipment; and all quarters of 2010 and 2011 were impacted by our restructuring plans. The amounts vary from quarter-to-quarter.

Fourth quarter 2011 compared to fourth quarter 2010:

        Revenue for the fourth quarter of 2011 decreased 7% to $1.75 billion from $1.88 billion for the same period in 2010. Revenue dollars decreased in all end markets (reflecting continued softness and uncertainty in the global markets), other than our consumer market which was relatively flat for the fourth quarter of 2011 compared to the same period in 2010, and our diversified end market which increased 45% due primarily to new programs wins and our Brooks Automation contract manufacturing acquisition. If we exclude revenue from acquisitions, revenue from our diversified end market would have grown 27% from the same period in 2010. The decrease in revenue from our storage end market also reflects our decision to discontinue a lower margin program with one customer. Revenue decreases in our server end market were driven primarily by demand declines from one of our largest customers in this end market. The decrease in revenue from our telecommunications end market also reflects the insourcing of a program by one customer. Gross margin increased to 7.0% of revenue for the fourth quarter of 2011 from 6.5% for the same period in 2010, primarily due to changes in product mix, which benefited in part from our increasing revenue in the diversified end market. Gross margin and SG&A for the fourth quarter of 2010 were negatively impacted by the mark-to-market adjustment on share unit awards that we elected to settle in cash; there was no comparable impact in the fourth quarter of 2011. SG&A for the fourth quarter of 2011 decreased $10 million compared to the same period in 2010, reflecting lower variable compensation costs and a $3 million bad debt recovery, largely in line with the improvements in our aged A/R. Net earnings for the fourth quarter of 2011 improved from the fourth quarter of 2010, reflecting primarily improved earnings and lower SG&A, as well as higher income tax recoveries resulting from the settlement of tax audits and income tax benefits related to a restructured subsidiary. We completed our annual impairment assessment in the fourth quarter of 2011 and did not record any impairment charges (fourth quarter 2010 — $9.1 million impairment).

Fourth quarter 2011 compared to third quarter 2011:

        Revenue for the fourth quarter of 2011 decreased 4% sequentially. Revenue dollars decreased quarter-to-quarter in all end markets other than our diversified end market, which increased 6% sequentially due principally to new program wins. Gross margin of 7.0% for the fourth quarter of 2011 was relatively consistent with the third quarter of 2011. Net earnings for the fourth quarter of 2011 improved from the third quarter of 2011 reflecting primarily income tax recoveries resulting from the settlement of tax audits and income tax benefits related to a restructured subsidiary, as well as bad debt recoveries.

Fourth quarter 2011 actual compared to guidance:

        On October 20, 2011, we provided the following guidance for the fourth quarter of 2011:

 
  Q4 2011  
 
  Guidance   Actual  

Revenue (in billions)

  $1.70 to $1.85   $ 1.75  

Adjusted net earnings per share (diluted)

  $0.23 to $0.29   $ 0.33  

        For the fourth quarter of 2011, revenue of $1.75 billion was within our published guidance. Included in the fourth quarter of 2011 adjusted net earnings per share of $0.33 was an income tax benefit of $0.05 per share arising from the settlement of our Malaysian tax audits. Our per share guidance did not include this recovery.

56


        Our guidance includes a range for adjusted net earnings per share (which is a non-IFRS measure and is defined below). We believe adjusted net earnings is an important measure for investors to understand our core operating performance and to compare our operating results with our competitors. A reconciliation of adjusted net earnings to IFRS net earnings is set forth below.

        IFRS net earnings per share for the fourth quarter of 2011 was $0.32 on a diluted basis. IFRS net earnings for the fourth quarter included an aggregate $0.08 per share (diluted) pre-tax charge for the following recurring items: stock-based compensation, amortization of intangible assets (excluding computer software) and restructuring charges. This aggregate pre-tax charge was slightly above the range we provided on October 20, 2011 of between $0.04 and $0.07 per share (diluted), primarily due to higher than expected restructuring charges.

Non-IFRS measures:

        Management uses adjusted net earnings and other non-IFRS measures to (i) assess operating performance and the effective use and allocation of resources, (ii) provide more meaningful period-to-period comparisons of operating results, (iii) enhance investors' understanding of the core operating results of our business, and (iv) set management incentive targets.

        We believe investors use both IFRS and non-IFRS measures to assess management's past, current and future decisions associated with strategy and allocation of capital, as well as to analyze how businesses operate in, or respond to, swings in economic cycles or to other events that impact core operations.

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

        These non-IFRS measures do not have any standardized meaning prescribed by IFRS and are not necessarily comparable to similar measures presented by other companies. Non-IFRS measures are not measures of performance under IFRS and should not be considered in isolation or as a substitute for any standardized measure under IFRS. The most significant limitation to management's use of non-IFRS financial measures is that the charges and expenses excluded from the non-IFRS measures are nonetheless charges that are recognized under IFRS and that have an economic impact on us. Management compensates for these limitations primarily by issuing IFRS results to show a complete picture of our performance, and reconciling non-IFRS results back to IFRS, unless there are no comparable IFRS measures. Our transition from GAAP to IFRS did not significantly impact the calculation of these measures.

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

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

57


        Amortization charges (excluding computer software) consist of non-cash charges against intangible assets that are impacted by the timing and magnitude of acquired businesses. Amortization of intangibles varies among competitors, and we believe that excluding these charges permits a better comparison of core operating results with those of our competitors who also generally exclude amortization charges.

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

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

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

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

58


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

 
  Three months ended December 31   Year ended December 31  
 
  2010   2011   2010   2011  
 
   
  % of revenue    
  % of revenue    
  % of revenue    
  % of revenue  

Revenue

  $ 1,876.1         $ 1,753.4         $ 6,526.1         $ 7,213.0        

IFRS gross profit

 
$

122.6
   
6.5%
 
$

122.1
   
7.0%
 
$

444.1
   
6.8%
 
$

491.4
   
6.8%
 

Stock-based compensation

    5.8           3.8           16.6           15.5        
                                           

Non-IFRS gross profit

  $ 128.4     6.8%   $ 125.9     7.2%   $ 460.7     7.1%   $ 506.9     7.0%  
                                           

IFRS SG&A

 
$

68.7
   
3.7%
 
$

58.5
   
3.3%
 
$

252.1
   
3.9%
 
$

253.4
   
3.5%
 

Stock-based compensation

    (9.2 )         (5.9 )         (25.3 )         (28.7 )      
                                           

Non-IFRS SG&A

  $ 59.5     3.2%   $ 52.6     3.0%   $ 226.8     3.5%   $ 224.7     3.1%  
                                           

IFRS earnings before income taxes

 
$

35.1
   
1.9%
 
$

54.2
   
3.1%
 
$

119.4
   
1.8%
 
$

198.8
   
2.8%
 

Finance costs

    0.7           1.1           6.9           5.4        

Stock-based compensation

    15.0           9.7           41.9           44.2        

Amortization of intangible assets (excluding computer software)

    1.8           0.8           5.9           6.2        

Restructuring and other charges

    4.6           1.0           32.0           6.5        

Impairment charges

    9.1                     9.1                  

Losses related to the repurchase of shares or debt

                        8.8                  
                                           

Non-IFRS operating earnings (EBIAT)(1)

  $ 66.3     3.5%   $ 66.8     3.8%   $ 224.0     3.4%   $ 261.1     3.6%  
                                           

IFRS net earnings

 
$

38.4
   
2.0%
 
$

69.2
   
3.9%
 
$

101.2
   
1.6%
 
$

195.1
   
2.7%
 

Stock-based compensation

    15.0           9.7           41.9           44.2        

Amortization of intangible assets (excluding computer software)

    1.8           0.8           5.9           6.2        

Restructuring and other charges

    4.6           1.0           32.0           6.5        

Impairment charges

    9.1                     9.1                  

Losses related to the repurchase of shares or debt

                        8.8                  

Adjustments for taxes(2)

    (7.6 )         (9.6 )         (1.2 )         (10.1 )      
                                           

Non-IFRS adjusted net earnings

  $ 61.3     3.3%   $ 71.1     4.1%   $ 197.7     3.0%   $ 241.9     3.4%  
                                           

Diluted EPS

                                                 

Weighted average # of shares (in millions)

    223.5           218.7           230.1           218.3        

IFRS earnings per share

  $ 0.17         $ 0.32         $ 0.44         $ 0.89        

Non-IFRS adjusted net earnings per share

  $ 0.27         $ 0.33         $ 0.86         $ 1.11        

# of shares outstanding (in millions)

    214.2           216.5           214.2           216.5        

IFRS cash provided by operations

 
$

55.3
       
$

96.8
       
$

165.9
       
$

196.3
       

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

    (23.4 )         (6.8 )         (44.9 )         (45.2 )      

Finance costs paid

    (1.3 )         (1.0 )         (15.0 )         (7.0 )      
                                           

Non-IFRS free cash flow(3)

  $ 30.6         $ 89.0         $ 106.0         $ 144.1        
                                           

ROIC %(4)

    32.0%           27.5%           27.2%           27.5%        

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

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

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

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

59


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

 
  Three months ended
December 31
  Year ended
December 31
 
 
  2010   2011   2010   2011  

Non-IFRS operating earnings (EBIAT)

  $ 66.3   $ 66.8   $ 224.0   $ 261.1  

Multiplier

    4     4     1     1  
                   

Annualized EBIAT

  $ 265.2   $ 267.2   $ 224.0   $ 261.1  
                   

Average net invested capital for the period

  $ 828.8   $ 972.1   $ 822.8   $ 950.7  

ROIC %

   
32.0%
   
27.5%
   
27.2%
   
27.5%
 

 

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

Net invested capital consists of:

                               

Total assets

  $ 3,013.9   $ 2,997.3   $ 3,020.6   $ 2,914.8   $ 2,969.6  

Less: cash

    632.8     584.0     552.6     586.1     658.9  

Less: accounts payable, accrued and other current liabilities, provisions and income taxes payable

    1,552.6     1,483.1     1,417.3     1,348.6     1,346.6  
                       

Net invested capital by quarter

  $ 828.5   $ 930.2   $ 1,050.7   $ 980.1   $ 964.1  
                       

 

 
  December 31
2009
  March 31
2010
  June 30
2010
  September 30
2010
  December 31
2010
 

Net invested capital consists of:

                               

Total assets

  $ 3,021.8   $ 2,808.6   $ 2,697.3   $ 2,831.2   $ 3,013.9  

Less: cash

    937.7     712.2     683.9     705.6     632.8  

Less: accounts payable, accrued and other current liabilities, provisions and income taxes payable

    1,298.3     1,270.8     1,168.4     1,296.5     1,552.6  
                       

Net invested capital by quarter

  $ 785.8   $ 825.6   $ 845.0   $ 829.1   $ 828.5  
                       

First quarter 2012 guidance:

        For the first quarter of 2012, we expect revenue to be in the range of $1.6 billion to $1.7 billion, which represents a 6% sequential decline in revenue at the midpoint of the guidance. We expect revenue from our consumer end market to decline approximately 15% sequentially, primarily due to program transitions and demand weakness with our largest customer. We expect continued growth from our diversified end market in the first quarter of 2012, with revenue from all other end markets to be relatively flat or down slightly compared to the fourth quarter of 2011.

        We expect adjusted net earnings per share for the first quarter of 2012 to be in the range of $0.18 to $0.24 per share (diluted), as compared to the normalized adjusted net earnings per share of $0.28 for the fourth quarter of 2011. The normalized adjusted net earnings per share of $0.28 for the fourth quarter of 2011 excludes a $0.05 per share income tax benefit arising from the settlement of tax audits. We expect a negative $0.05 to $0.07 per share (diluted) pre-tax aggregate impact on an IFRS basis for the following recurring items: stock-based compensation and amortization of intangible assets (excluding computer software).

        Our guidance for the first quarter of 2012 is based on various assumptions which management believes are reasonable under the current circumstances, but may prove to be inaccurate, and many of which involve factors that are beyond our control. The material assumptions may include the following: forecasts from our customers, which range from 30 days to 90 days and can fluctuate significantly in terms of volume and mix of products or services; the timing, execution of, and investments associated with ramping new business; the success in the

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marketplace of our customers' products; general economic and market conditions; currency exchange rates; pricing and competition; anticipated customer demand; supplier performance and pricing; commodity, labor, energy and transportation costs; operational and financial matters; and technological developments. Our assumptions and estimates are based on management's current views with respect to current plans and events, and are and will be subject to the risks and uncertainties referred to above. Our guidance for the first quarter of 2012 is given for the purpose of providing information about management's current expectations and plans relating to the first quarter of 2012. Readers are cautioned that such information may not be appropriate for other purposes.

Recent Accounting Developments:

        In October 2010, the IASB issued amendments to IFRS 7, Financial Instruments, which requires enhanced disclosures relating to the derecognition of financial assets that have been transferred, including quantitative and qualitative disclosures of the nature and extent of risks arising from the transfer. This amendment is effective for 2012. We do not expect the adoption of this amendment to have a material impact on the disclosures related to our A/R sales program in our consolidated financial statements.

        During 2011, the IASB finalized several standards and amendments which may impact us. These new or amended standards will be effective January 1, 2013, except for IFRS 9 which is deferred to 2015. We are currently evaluating the impact of adopting the following new or amended standards on our consolidated financial statements.

        IFRS 9, Financial Instruments:    This standard replaces IAS 39, Financial Instruments: Recognition and Measurement, in phases. The first phase of the standard establishes two primary measurement categories for financial assets: amortized cost and fair value. The basis of classification will depend on the entity's business model and the contractual cash flow characteristics of the financial asset. The second phase adds new requirements related to the classification and measurement of financial liabilities and to the derecognition of financial assets and liabilities.

        IFRS 10, Consolidated Financial Statements:    This standard replaces certain sections of IAS 27, Consolidated And Separate Financial Statements. This standard is intended to ensure the same criteria are applied to all types of entities when determining control for consolidated reporting.

        IFRS 11, Joint Arrangements:    This standard replaces the existing standards on joint ventures. It distinguishes joint ventures from joint operations and establishes the accounting for interests in each of these joint arrangements. We do not expect the adoption of this standard to have a material impact on our consolidated financial statements unless we enter into such arrangements.

        IFRS 12, Disclosure Of Interests In Other Entities:    This standard supplements the existing disclosure requirements about interests in subsidiaries, joint arrangements, associates and unconsolidated structured entities, and focuses on the nature, risks and financial effects associated with such interests on financial position, financial performance and cash flows.

        IFRS 13, Fair Value Measurement:    This standard provides extensive guidance on determining fair value for measurement or disclosure purposes.

        IAS 1, Presentation Of Financial Statements (revised):    This amendment requires changes to the presentation of items in other comprehensive income. We do not expect the adoption of this amendment to have a material impact on our consolidated financial statements.

        IAS 19, Employee Benefits (revised):    This amendment eliminates the option of deferring actuarial gains and losses resulting from defined benefit pension plans (corridor approach) and requires that all past service costs and credits, whether vested or unvested, be recognized immediately in operations. The amendment also identifies changes to the required calculation of net interest expense and requires additional disclosures about defined benefit pension plans and termination benefits. We do not expect the adoption of this revised standard to have a material impact on our consolidated financial statements since we elected to recognize all cumulative actuarial gains or losses before and subsequent to the Transition Date through other comprehensive income and deficit. We have approximately $7 million of unrecognized past service credits which we have deferred under IFRS as at December 31, 2011 that we will retroactively recognize as a reduction to deficit on adoption of this amendment in 2013.

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Item 6.    Directors, Senior Management and Employees

A.    Directors and Senior Management

        Each director of Celestica is elected by the shareholders to serve until close of the next annual meeting of shareholders or until a successor is elected or appointed, unless such office is earlier vacated in accordance with the Company's by-laws. The following table sets forth certain information regarding the current directors and executive officers of Celestica, as of February 22, 2012.

Name
  Age   Position with Celestica   Residence

Robert L. Crandall

    76   Chairman of the Board and Director   Florida, U.S.

Dan DiMaggio

    61   Director   Georgia, U.S.

William A. Etherington

    70   Director   Ontario, Canada

Laurette Koellner

    57   Director   Florida, U.S.

Joseph M. Natale

    47   Director   Ontario, Canada

Eamon J. Ryan

    66   Director   Ontario, Canada

Gerald W. Schwartz

    70   Director   Ontario, Canada

Michael Wilson

    60   Director   Alberta, Canada

Craig H. Muhlhauser

    63   Director, President and Chief Executive Officer   New Jersey, U.S.

Paul Nicoletti

    44   Executive Vice President and Chief Financial Officer   Ontario, Canada

Elizabeth L. DelBianco

    52   Executive Vice President, Chief Legal and Administrative Officer and Corporate Secretary   Ontario, Canada

John Peri

    50   Chief Operating Officer   Ontario, Canada

Peter A. Lindgren

    49   Executive Vice President, Global Operations   Colorado, U.S.

Mary Gendron

    46   Senior Vice President and Chief Information Officer   Illinois, U.S.

Glen McIntosh

    50   Senior Vice President, Global Customer Business Unit   Ontario, Canada

Scott Smith

    53   Senior Vice President, Global Sales, Solutions and Marketing   Zurich, Switzerland

        The following is a brief biography of each of Celestica's directors and executive officers:

        Robert L. Crandall has been a director of Celestica since 1998 and Chairman of the Board of Directors of Celestica since January 2004. He is the retired Chairman of the Board and Chief Executive Officer of AMR Corporation/American Airlines Inc. Mr. Crandall is a director of Air Cell, Inc., a privately held company, and holds a Bachelor of Science degree from the University of Rhode Island and a Master of Business Administration degree from the Wharton School of the University of Pennsylvania.

        Dan DiMaggio has been a director of Celestica since July 2010. Prior to retiring in 2006, he spent 35 years with United Parcel Services (UPS), most recently as Chief Executive Officer of the UPS Worldwide Logistics Group. Prior to leading UPS' Worldwide Logistics Group, Mr. DiMaggio held a number of positions at UPS with increasing responsibility, including leadership roles for the UPS International Marketing Group, as well as the Industrial Engineering function. In addition to his senior leadership roles at UPS, Mr. DiMaggio was a member of the board of directors of Greatwide Logistics Services, Inc. and CEVA Logistics. Mr. DiMaggio was serving as a director of Greatwide Logistics Services, Inc., a privately held company, when that entity filed for bankruptcy in 2008. He holds a Bachelor of Science degree from the University of Massachusetts.

        William A. Etherington has been a director of Celestica since 2001. He is also a director of Onex Corporation, which holds a 71% voting interest in Celestica and of SS&C Technologies Inc., each of which is a public corporation and of St. Michael's Hospital. He is a former director and non-executive Chairman of the board of directors of the Canadian Imperial Bank of Commerce. Mr. Etherington retired in 2001 as Senior Vice President

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and Group Executive, Sales and Distribution, IBM Corporation, and Chairman, President and Chief Executive Officer of IBM World Trade Corporation. He holds a Bachelor of Science degree in Electrical Engineering and a Doctor of Laws (Hon.) from the University of Western Ontario.

        Laurette Koellner has been a director of Celestica since 2009. She retired as President of Boeing International, a division of The Boeing Company (an aerospace company), in 2008. Prior to May 2006, she was President of Connexion by Boeing and prior to that was a member of the Office of the Chairman and served as the Executive Vice President, Internal Services, Chief Human Resources and Administrative Officer, President of Shared Services, as well as Corporate Controller for The Boeing Company. Ms. Koellner currently serves on the board of directors of the AIG Corporation and as Chair of its Regulatory Compliance Committee and a member of its Compensation Committee and on the board of directors and as Chair of the Audit Committee of Sara Lee Corporation, both of which are public corporations, is a member of the Council on Foreign Relations and a member of the University of Central Florida Dean's Executive Council. She holds a Bachelor of Science degree in Business Management from the University of Central Florida and a Masters of Business Administration from Stetson University. She holds a Certified Professional Contracts Manager designation from the National Contracts Management Association.

        Joseph M. Natale has been a director of Celestica since January 2012. Mr. Natale joined Telus Corporation, a public company, in 2003 and is currently Executive Vice President and Chief Commercial Officer, a position he has held since May 2010. Prior to 2003, Mr. Natale held successive senior leadership roles within KPMG Consulting, which he joined after it acquired the company he co-founded, PNO Management Consultants Inc., in 1997. Mr. Natale served on the board of directors of KPMG Canada in 1998 and 1999. Mr. Natale is a member of the board of directors of Soulpepper Theatre and acted as Telecommunications Chair for United Way Toronto's 2011 Campaign Cabinet. He is a past recipient of Canada's Top 40 Under 40 Award and holds a Bachelor of Applied Science degree in Electrical Engineering from the University of Waterloo.

        Eamon J. Ryan has been a director of Celestica since 2008. He is the former Vice President and General Manager, Europe, Middle East and Africa for Lexmark International Inc., a publicly traded company. Prior to that, he was the Vice President and General Manager, Printing Services and Solutions Manager, Europe, Middle East and Africa. Mr. Ryan joined Lexmark International Inc. in 1991 as the President of Lexmark Canada. Before Lexmark International Inc., he spent 22 years at IBM Canada, where he held a number of sales and marketing roles in its Office Products and Large Systems divisions. Mr. Ryan's last role at IBM Canada was Director of Operations for its Public Sector, a role he held from 1986 to 1990. He holds a Bachelor of Arts degree from the University of Western Ontario.

        Gerald W. Schwartz has been a director of Celestica since 1998. He is the Chairman of the board and Chief Executive Officer of Onex Corporation, a public corporation which holds a 71% voting interest in Celestica. Mr. Schwartz was inducted into the Canadian Business Hall of Fame in 2004 and was appointed as an Officer of the Order of Canada in 2006. He is also an honorary director of the Bank of Nova Scotia and is a director of Indigo Books & Music Inc., each of which is a public corporation, and of RSI Home Products, Inc. Mr. Schwartz is Vice Chairman of Mount Sinai Hospital and is a director, governor or trustee of a number of other organizations, including Junior Achievement of Toronto, the Canadian Council of Christians and Jews and the Simon Wiesenthal Center. He holds a Bachelor of Commerce degree and a Bachelor of Laws degree from the University of Manitoba, a Master of Business Administration degree from the Harvard University Graduate School of Business Administration, a Doctor of Laws (Hon.) from St. Francis Xavier University and a Doctor of Philosophy (Hon.) from Tel Aviv University.

        Michael Wilson was appointed as a director of Celestica on October 19, 2011. He is the President and Chief Executive Officer of Agrium Inc., a public company, and has over 30 years of international and executive management experience. Prior to joining Agrium Inc., Mr. Wilson served as President of Methanex Corporation, a public company, and held various senior positions in North America and Asia during his 18 years with Dow Chemical, also a public company. Mr. Wilson is also on Agrium Inc.'s board of directors and was the Chair of Canpotex Ltd. and of the International Plant Nutrient Institute. He is currently a director of The Fertilizer Institute, the Alberta Economic Development Authority and the Calgary Prostate Cancer Institute. He holds a degree in Chemical Engineering from the University of Waterloo.

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        Craig H. Muhlhauser is President and Chief Executive Officer, and since 2007, is also a director of Celestica. Prior to his current position, he was President and Executive Vice President of Worldwide Sales and Business Development. Before joining Celestica in May 2005, Mr. Muhlhauser was the President and Chief Executive Officer of Exide Technologies. He was serving as President of Exide Technologies when that entity filed for bankruptcy in 2002, was named Chief Executive Officer of Exide Technologies shortly thereafter and successfully led the company out of bankruptcy protection in 2004. Prior to that, he held the role of Vice President, Ford Motor Company and President, Visteon Automotive Systems. He was a director of Intermet Corporation, a privately held company, which filed for bankruptcy in the U.S. in August 2008 and emerged from Chapter 11 protection in September 2009. Throughout his career, he has worked in a range of industries spanning the consumer, industrial, communications, utility, automotive and aerospace and defense sectors. He holds a Master of Science degree in Mechanical Engineering and a Bachelor of Science degree in Aerospace Engineering from the University of Cincinnati.

        Paul Nicoletti is Executive Vice President and Chief Financial Officer. In this role, he is responsible for overseeing Celestica's accounting, financial and investor relations functions and he leads Celestica's corporate development organization which focuses on creating value through acquisitions and partnerships. Mr. Nicoletti is also responsible for overseeing Celestica's diversified markets, which includes healthcare, industrial and green technology, and Celestica's after-market services business. Previously, he was Senior Vice President, Finance and held the role of Corporate Treasurer, with responsibility for Celestica's global financial operations, segment financial reporting, strategic pricing, corporate tax and all corporate finance and treasury-related matters. Prior to that, Mr. Nicoletti was Vice President, Global Financial Operations, responsible for all financial aspects of Celestica's Canadian and Latin American operations. He was also the Controller of Celestica's Canadian EMS operations. Mr. Nicoletti joined IBM in 1989 and was part of the founding management team of Celestica. Throughout his career, he has held a number of senior financial roles in mergers and acquisitions, planning, accounting, pricing and financial strategies. Mr. Nicoletti holds a Bachelor of Arts degree from the University of Western Ontario and a Master of Business Administration degree from York University.

        Elizabeth L. DelBianco is Executive Vice President, Chief Legal and Administrative Officer and Corporate Secretary. In this role she oversees human resources, global branding, legal, contracts and communications. Ms. DelBianco joined Celestica in 1998 and since that time has been responsible for managing legal, governance, and compliance matters for Celestica on a global basis. In March 2007, Ms. DelBianco assumed the leadership of the global human resources function. In this role, she oversees all human resources policies and practices and leads Celestica's efforts to attract, develop and retain key talent. In 2008, her role expanded to include responsibility for overseeing the global branding organization. Ms. DelBianco came to Celestica following a 13-year career as a senior corporate legal advisor in the telecommunications industry. She holds a Bachelor of Arts degree from the University of Toronto, a Bachelor of Laws degree from Queen's University, and a Master of Business Administration degree from the University of Western Ontario. She is admitted to practice in Ontario and New York.

        John Peri is Chief Operating Officer responsible for Celestica's global operations, as well as Celestica's core customers. Prior to that, Mr. Peri was Executive Vice President, Electronics, Engineering and Supply Chain Management, in which role he was responsible for the strategy and execution of Celestica's design, manufacturing and supply chain network across Asia, Europe and the Americas. He also oversaw the ongoing deployment of Lean and Six Sigma initiatives. Previously, he held the position of Executive Vice President, Global Operations, in which role he was responsible for overseeing Celestica's manufacturing and supply chain operations in Asia, Europe and the Americas. Prior to that, Mr. Peri held the role of President, Asia Operations, with responsibility for Celestica's manufacturing footprint in China, Hong Kong, India, Japan, Malaysia, Philippines, Singapore and Thailand. Prior to that, he held senior level positions in the areas of quality, manufacturing excellence, services and regional leadership. Mr. Peri joined IBM in 1984 and was part of the founding management team of Celestica. Over the course of his career, he has held a number of leadership positions in operations, engineering and account management. He holds a Bachelor of Applied Science degree in Industrial Engineering from the University of Toronto.

        Peter A. Lindgren is Executive Vice President, Global Operations. In this role, he is responsible for overseeing Celestica's operations in Asia, Europe and the Americas. He is also responsible for Celestica's aerospace and defense market. Prior to that he was Senior Vice President and General Manager, Growth and

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Emerging Markets Segment. Previously, Mr. Lindgren held the role of Senior Vice President, Industry Market Segment and prior to that, was Senior Vice President, Business Development, overseeing Celestica's regional marketing and business development teams on a global basis. Prior to that, Mr. Lindgren was Vice President and General Manager, Cisco Global Customer Business Unit. He joined Celestica in February 1998 as Director of Operations in Corporate Development. Mr. Lindgren has worked in the electronics manufacturing services industry since 1985, and held a number of management positions in international operations, sales and marketing, program management and materials with SCI Systems and MTI International. He holds a Bachelor of Arts degree in Business Economics from Colorado College.

        Mary Gendron is Senior Vice President and Chief Information Officer. She is responsible for aligning Celestica's information technology strategy and its investments in IT tools and processes with Celestica's business goals. Ms. Gendron joined Celestica in October 2008 following a five-year career at The Nielsen Company, one of the largest global information measurement and media companies, where she was the Senior Vice President, IT Infrastructure Shared Services. Prior to that, she was the Chief Information Officer at ACNielsen U.S. Over the course of her career, Ms. Gendron has held management positions of increasing seniority in information technology and supply chain management at Motorola and Bell Canada. Ms. Gendron holds a Bachelor of Engineering degree from McGill University in Montreal, Quebec.

        Glen McIntosh is Senior Vice President, Global Customer Business Unit. In this role, he is responsible for the strategy and execution for one of Celestica's largest customer business units. Prior to his current position, Mr. McIntosh held similar roles with other Celestica business units which supported customers in the enterprise and communications markets. Mr. McIntosh joined Celestica in 1997 in the area of business development, as part of the team which drove the Company's initial growth. Prior to joining Celestica, he held progressively senior engineering and sales roles with other companies in the technology industry. He holds a Bachelor of Applied Science degree in Mechanical Engineering from the University of Waterloo.

        Scott Smith is Senior Vice President, Global Sales, Solutions and Marketing, and is responsible for managing all aspects of sales and marketing on a global basis. Mr. Smith joined Celestica in 2009 from Moduslink, a global provider of outsourced distribution and fulfillment services to customers in the consumer, computing, storage and software segments, where he held the role of President, Global Sales and Marketing. Prior to that, he spent three years with Lenovo Corporation as President of the Americas. Before joining Lenovo, he spent 22 years at IBM in a series of global sales and operations roles with increasing responsibility in the Americas and Asia Pacific regions. He holds a Bachelor of Science degree from Clarkson University in New York.

        There are no family relationships among any of the foregoing persons, and there are no arrangements or understandings with any person pursuant to which any of our directors or executive officers were selected.

B.    Compensation

Compensation of Directors

        Director compensation is set by the Board of Directors on the recommendation of the Compensation Committee and in accordance with director compensation guidelines established by the Nominating and Corporate Governance Committee (the Governance Committee). Under these guidelines, the Board of Directors seeks to maintain director compensation at a level that is competitive with director compensation at comparable companies. The Compensation Committee initially engaged Towers Watson Inc. (Towers Watson) to provide benchmarking information in this regard in 2009. See "— Compensation Process" and "— Comparator Companies" for a discussion regarding the role of Towers Watson. In 2011, Towers Watson conducted a competitive review of director compensation drawing on the same comparator group used to benchmark executive compensation in Towers Watson's 2010 competitive analysis. These companies represent similarly-sized technology companies and are set out in "— Compensation Discussion and Analysis — Comparator Companies." Based on the results of the review, the Compensation Committee determined that the current structure and levels of the Company's director compensation remained competitive and no adjustments were required. The guidelines also contemplate that at least half of each director's annual retainer and meeting fees be paid in deferred share units (DSUs). Each DSU represents the right to receive one subordinate voting share of the Company or an equivalent value in cash when the director ceases to be a director.

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2011 Fees

        The following table sets out the annual retainers and meeting fees payable in 2011 to the Company's directors.

Table 1: Retainers and Meeting Fees for 2011

Annual Board Retainer

  $ 65,000  

Annual Retainer for Chairman(1)

  $ 130,000  

Annual Retainer for Audit Committee Chair

  $ 20,000  

Annual Retainer for Compensation Committee Chair

  $ 10,000  

Annual Retainer for Executive Committee Chair

  $ 10,000  

Board and Committee Per Day Meeting Fee(2)

  $ 2,500  

Travel Fee(3)

  $ 2,500  

Annual DSU Grant (for directors other than the Chairman)

  $ 120,000  

Annual DSU Grant — Chairman

  $ 180,000  

(1)
The Chairman of the Board of Directors also served as the Chair of the Nominating and Corporate Governance Committee, for which no additional fee is paid.

(2)
Attendance fees are paid per day of meetings, regardless of whether a director attends more than one meeting in a single day, except that a separate attendance fee is paid for each Executive Committee meeting, even if it occurs on the same day as other meetings.

(3)
The travel fee is available only to directors who travel outside of their home state or province to attend a Board of Directors or Committee meeting.

DSUs

        Directors receive half of their annual retainer and meeting fees (or all of such retainer and fees, if they so elect) in DSUs. The number of DSUs granted in lieu of cash meeting fees is calculated by dividing the cash fee that would otherwise be payable by the closing price of subordinate voting shares on the NYSE on the last business day of the quarter in which the applicable meeting occurred. In the case of annual retainer fees, the number of DSUs granted is calculated by dividing the cash amount that would otherwise be payable quarterly by the closing price of subordinate voting shares on the NYSE on the last business day of the quarter.

        Directors also receive annual grants of DSUs. In 2011, each director receiving a retainer received an annual grant of $120,000 worth of DSUs, except for the Chairman, who received an annual grant of $180,000, and Mr. Wilson, who joined the Board of Directors on October 19, 2011 and received an annual grant of $30,000. The number of DSUs granted is calculated by dividing the cash amount that would otherwise be payable quarterly by the closing price of subordinate voting shares on the NYSE on the last business day of the quarter.

        Eligible directors also receive an initial grant of DSUs when they are appointed to the Board of Directors. For individuals who become eligible directors after December 31, 2008, the initial grant is equal to the value of the annual DSU grant multiplied by 150% and divided by the closing price of subordinate voting shares on the NYSE on the last business day of the fiscal quarter immediately preceding the date when the individual becomes an eligible director. The DSUs comprising the initial grant vest upon the retirement of the eligible director. However, if an eligible director retires within a year of becoming an eligible director, all of the DSUs comprising the initial grant are forfeited and cancelled. If an eligible director retires less than two years but more than one year after becoming an eligible director, then two-thirds of the DSUs comprising the initial grant are forfeited and cancelled. If an eligible director retires within three years but more than two years after becoming an eligible director, then one-third of the DSUs comprising the initial grant are forfeited and cancelled. Forfeiture does not apply if a director ceases to be a director due to a change of control of the Company.

        Messrs. Wilson and Natale each received an initial grant of DSUs in the amount of $180,000 upon their appointments to the Board of Directors on October 19, 2011 and January 25, 2012, respectively.

        The compensation paid in 2011 by the Company to its directors is set out in table 2, except for Mr. Muhlhauser, President and Chief Executive Officer of the Company, whose compensation is set out in table 15.

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Table 2: Director Fees Earned in 2011

Name
  Board
Annual
Retainer
(a)
  Chairman
Annual
Retainer
(b)
  Committee
Chair
Annual
Retainer
(c)
  Total
Meeting
Attendance
Fees
(d)(1)
  Total Annual
Retainer and
Meeting Fees
Payable
((a)+(b)+(c)+(d))
(e)
  Portion of Fees
Applied to
DSUs and
Value of DSUs(2)
(f)
  Annual
DSU Grant (#)
and Value of
DSUs(2)
(g)
  Initial
DSU
Grant (#)
and Value of
DSUs
(h)
  Total
((e)+(g)+(h))
 

Robert L. Crandall(3)

      $ 130,000   $ 30,000 (4) $ 52,500   $ 212,500   100%/$212,500     21,681/$180,000       $ 392,500  

Dan DiMaggio

  $ 65,000           $ 40,000   $ 105,000   100%/$105,000     14,454/$120,000       $ 225,000  

William A. Etherington

  $ 65,000       $ 10,000 (5) $ 40,000   $ 115,000   100%/$115,000     14,454/$120,000       $ 235,000  

Laurette Koellner

  $ 65,000           $ 37,500   $ 102,500   50%/$51,250     14,454/$120,000       $ 222,500  

Joseph M. Natale(6)

                                   

Eamon J. Ryan

  $ 65,000           $ 30,000   $ 95,000   100%/$95,000     14,454/$120,000       $ 215,000  

Gerald W. Schwartz(7)

                                   

Michael Wilson(8)

  $ 16,250           $ 10,000   $ 26,250   100%/$26,250     4,093/$30,000     24,828/$180,000   $ 236,250  

(1)
Includes travel fees payable to directors.

(2)
The annual retainer, meeting fees and annual grant for 2011 were paid quarterly and the number of DSUs granted in respect of the amounts paid quarterly for each such item was determined using the closing prices of subordinate voting shares on the NYSE on the last business day of each quarter, which were $10.72 on March 31, 2011, $8.76 on June 30, 2011, $7.25 on September 30, 2011 and $7.33 on December 30, 2011.

(3)
Mr. Crandall will not stand for re-election to the Board of Directors at the Company's annual meeting (the Meeting), having passed the age of retirement provided for in the Company's Corporate Governance Guidelines.

(4)
During 2011, Mr. Crandall was the Chair of each of the Audit and Executive Committees and received as Chair of those Committees $20,000 and $10,000, respectively. No additional fee was payable to him as Chair of the Nominating and Corporate Governance Committee.

(5)
During 2011, Mr. Etherington was the Chair of the Compensation Committee.

(6)
Mr. Natale was appointed to the Board of Directors on January 25, 2012 and, accordingly, was not a director of the Company in 2011.

(7)
Mr. Schwartz is an officer of Onex and did not receive any compensation in his capacity as a director of the Company in 2011; however, Onex did receive compensation for providing the services of Mr. Schwartz as a director as described in Item 7(B), "Related Party Transactions."

(8)
Mr. Wilson was appointed to the Board of Directors and to each of the Audit, Compensation and Nominating and Corporate Governance Committees on October 19, 2011.

        The total annual retainer and meeting fees earned by the Board of Directors in 2011 was $656,250. In addition, total annual grants of DSUs in the amount of $690,000 and an initial grant of DSUs in the amount of $180,000 were issued in 2011.

Outstanding Option-Based and Share-Based Awards

        In 2005, the Company amended its Long-Term Incentive Plan (LTIP) to prohibit the granting of stock options to acquire subordinate voting shares to directors. Table 3 sets out information relating to stock option grants to directors that were made between 1998 and 2004 and which remain outstanding. All stock option grants were made with exercise prices set at the closing market price on the business day prior to the date of the grant. Exercise prices range from $10.62 to $32.40. Stock options vest over three or four years and expire after ten years. The final grant of stock options occurred on May 10, 2004; those stock options will expire on May 10, 2014. Mr. Schwartz, as an employee of Onex during that period, was not granted stock options. Messrs. DiMaggio, Ryan, Wilson and Natale and Ms. Koellner, all of whom became directors after May 2004, have not been granted any stock options under the LTIP.

        DSUs that were granted prior to January 1, 2007 may be paid out in the form of subordinate voting shares issued from treasury, subordinate voting shares purchased in the open market, or an equivalent value in cash. DSUs granted after January 1, 2007 can only be paid out in the form of subordinate voting shares purchased in the open market or an equivalent value in cash. The date used in valuing the DSUs is a date within 90 days of the date on which the individual in question ceases to be a director. DSUs are redeemed and payable on or prior to the 90th day following the date on which the individual ceases to be a director. The total number of DSUs outstanding for each director is included in table 3 under the column "Share-Based Awards."

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        The following table sets out information concerning all option-based and share-based awards of the Company outstanding as of December 31, 2011 (this includes awards granted before the most recently completed financial year) for each director except for Mr. Muhlhauser, whose information is set out in table 15.

Table 3: Outstanding Option-Based and Share-Based Awards

 
  Option-Based Awards(1)   Share-Based Awards(2)  
Name
  Number of
Securities
Underlying
Unexercised
Options
(#)
  Option
Exercise Price
($)
  Option
Expiration
Date
  Value of
Unexercised
In-the-Money
Options
($)
  Number of
Outstanding
Units
(#)
  Market Payout
Value of
Outstanding
Units
($)
 

Robert L. Crandall

                                     

Apr. 18, 2003

    10,000   $ 10.62     Apr. 18, 2013              

May 10, 2004

    10,000   $ 18.25     May 10, 2014              

                    403,189   $ 2,955,375  

Dan DiMaggio

                                     

                    61,497   $ 450,773  

William A. Etherington

                                     

Apr. 21, 2002

    5,000   $ 32.40     Apr. 21, 2012              

Apr. 18, 2003

    5,000   $ 10.62     Apr. 18, 2013              

May 10, 2004

    5,000   $ 18.25     May 10, 2014              

                    189,124   $ 1,386,279  

Laurette Koellner

                                     

                    85,481   $ 626,576  

Joseph M. Natale(3)

                                     

                         

Eamon J. Ryan

                                     

                    119,332   $ 874,704  

Gerald W. Schwartz(4)

                                     

                         

Michael Wilson

                                     

                    32,502   $ 238,240  

(1)
All stock options granted under the option-based awards have vested.

(2)
Represents all outstanding share units. The market payout value was determined using a share price of $7.33, which was the closing price of subordinate voting shares on the NYSE on December 30, 2011.

(3)
Mr. Natale was appointed to the Board of Directors on January 25, 2012 and, accordingly, was not a member of the Board of Directors as of December 31, 2011.

(4)
Mr. Schwartz did not have any option-based or share-based awards of the Company outstanding as of December 31, 2011; however, 688,807 subordinate voting shares are subject to stock options granted to Mr. Schwartz pursuant to certain management investment plans of Onex.

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Directors' Equity Interest

        The following table sets out, for each director proposed for election at the Meeting, such director's direct or indirect beneficial ownership of, or control or direction over, equity in the Company, and any changes therein since February 22, 2011.

Table 4: Equity Interest Other than Options and
Outstanding Share-Based Awards(1)(3)

Name
  Date   SVS
#
  Market Value*  

Dan DiMaggio

    Feb. 22, 2011          

    Feb. 22, 2012            

    Change            

William A. Etherington

   
Feb. 22, 2011
   
10,000
 
$

94,100
 

    Feb. 22, 2012     10,000        

    Change            

Laurette Koellner

   
Feb. 22, 2011
   

   

 

    Feb. 22, 2012            

    Change            

Joseph M. Natale

   
Feb. 22, 2011
   

   

 

    Feb. 22, 2012            

    Change            

Eamon J. Ryan

   
Feb. 22, 2011
   

   

 

    Feb. 22, 2012            

    Change            

Gerald W. Schwartz(2)

   
Feb. 22, 2011
   
1,339,655
 
$

6,496,071
 

    Feb. 22, 2012     690,337        

    Change     (649,318 )      

Michael Wilson

   
Feb. 22, 2011
   

   

 

    Feb. 22, 2012            

    Change            

*
Based on the NYSE closing share price of $9.41 on February 22, 2012.

(1)
Information as to securities beneficially owned, or controlled or directed, directly or indirectly, is not within the Company's knowledge and therefore has been provided by each nominee.

(2)
Mr. Schwartz is deemed to be the beneficial owner of the 18,946,368 multiple voting shares owned by Onex, which have a market value of $178,285,323 as of February 22, 2012. Mr. Schwartz is also the beneficial owner, directly or indirectly, of 100,000 multiple voting shares of Onex and 23,108,018 subordinate voting shares of Onex.

(3)
Mr. Etherington also owns 10,000 subordinate voting shares of Onex. Other than Mr. Schwartz and Mr. Etherington, no other directors of the Company own shares of Onex.

Shareholding Requirements

        The Company has minimum shareholding requirements for directors who are not employees or officers of the Company or Onex (the Guideline). The Guideline provides that such a director who has been on the Board of Directors:

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        Although directors will not be deemed to have breached the Guideline by reason of a decrease in the market value of the Company's securities, the directors are required to purchase further securities within a reasonable period of time to comply with the Guideline. Each director's holdings of securities, which for the purposes of the Guideline include all subordinate voting shares and DSUs, are reviewed annually each year on December 31. The following table sets out, for each director proposed for election at the Meeting, whether such director was in compliance with the Guideline as of December 31, 2011.

Table 5: Shareholding Requirements

 
  Shareholding Requirements
Director
  Current
Target Value
  Value as of
December 31, 2011(1)
  Met Target as of
December 31, 2011

Dan DiMaggio

  $ 65,000   $ 450,773   Yes

William A. Etherington

  $ 375,000   $ 1,459,579   Yes

Laurette Koellner

  $ 195,000   $ 626,576   Yes

Craig H. Muhlhauser(2)

    N/A     N/A   N/A

Joseph M. Natale(3)

    N/A     N/A   N/A

Eamon J. Ryan

  $ 195,000   $ 874,704   Yes

Gerald W. Schwartz(4)

    N/A     N/A   N/A

Michael Wilson(5)

    N/A     N/A   N/A

(1)
The value of the aggregate number of subordinate voting shares and DSUs held by each director is determined using a share price of $7.33, which was the closing price of subordinate voting shares on the NYSE on December 30, 2011.

(2)
Mr. Muhlhauser, as an officer of the Company, is not subject to the minimum shareholding requirements of the Guideline applicable to directors. See "— Executive Share Ownership" for share ownership guidelines applicable to Mr. Muhlhauser in his role as President and Chief Executive Officer of the Company.

(3)
Mr. Natale was appointed to the Board of Directors on January 25, 2012 and, accordingly, was not a member of the Board of Directors as of December 31, 2011.

(4)
Mr. Schwartz, as an officer of Onex, is not subject to the minimum shareholding requirements of the Guideline applicable to directors.

(5)
In accordance with the Guideline, Mr. Wilson is encouraged, but not required, to hold securities of the Company since he has been a director for less than one year.

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Attendance of Directors at Board of Directors and Committee Meetings

        The following table sets forth the attendance of directors at Board of Directors and Committee meetings from the beginning of 2011 to February 22, 2012.

Table 6: Directors' Attendance at Board of Directors and Committee Meetings

 
   
   
   
   
   
  Meetings Attended
%
 
Director
  Board   Audit   Compensation   Governance   Executive   Board   Committee  

Robert L. Crandall

    12 of 12     7 of 7     6 of 6     4 of 4     4 of 4     100%     100%  

Dan DiMaggio

    12 of 12     7 of 7     6 of 6     4 of 4         100%     100%  

William A. Etherington

    12 of 12     7 of 7     6 of 6     4 of 4     4 of 4     100%     100%  

Laurette Koellner

    12 of 12     7 of 7     6 of 6     3 of 4         100%     94%  

Craig H. Muhlhauser

    12 of 12                     100%      

Joseph M. Natale(1)

    2 of 2                     100%      

Eamon J. Ryan

    12 of 12     7 of 7     6 of 6     4 of 4         100%     100%  

Gerald W. Schwartz

    10 of 12                     83%      

Michael Wilson(2)

    4 of 4     3 of 3     3 of 3     2 of 2         100%     100%  

(1)
Mr. Natale was appointed to the Board of Directors on January 25, 2012.

(2)
Mr. Wilson was appointed to the Board of Directors and to each of the Audit, Compensation and Nominating and Corporate Governance Committees on October 19, 2011.

COMPENSATION DISCUSSION AND ANALYSIS

        This Compensation Discussion and Analysis sets out the policies of the Company for determining compensation paid to the Company's CEO, its Chief Financial Officer (the CFO) and the three other most highly compensated executive officers (collectively, the Named Executive Officers or NEOs). A description and explanation of the significant elements of compensation awarded to the NEOs during 2011 is set out in the section "— 2011 Compensation Decisions." In 2012, the Board of Directors amended the Compensation Committee mandate to include a formal annual review of the risks associated with the Company's executive compensation policies and practices.

Compensation Objectives

        The Company's executive compensation philosophies and practices are designed to attract, motivate and retain the leaders who will drive the success of the Company. The Compensation Committee reviews compensation policies and practices every year, considers related risks and makes any adjustments it deems necessary to ensure the compensation policies are not reasonably likely to have a material adverse effect on the Company.

        Compensation for executives is linked to the Company's performance. A comparator group of similarly sized technology companies is set out in table 7 (the Comparator Group). The Company benchmarks target compensation with reference to the median of the Comparator Group, with the opportunity for higher compensation for performance that exceeds the benchmark and lower compensation for performance that is below the benchmark.

        The compensation package is designed to:

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Independent Advice

        The Compensation Committee initially engaged Towers Watson in October 2006 as its independent compensation consultant to assist in identifying appropriate comparator companies against which to evaluate the Company's compensation levels, to provide data about those companies, and to provide observations and recommendations with respect to the Company's compensation practices versus those of both the Comparator Group and the market in general.

        Management works with Towers Watson to review and, where appropriate, develop and recommend compensation programs that will ensure the Company's practices are competitive with market practices. Towers Watson also provides advice to the Compensation Committee on the policy recommendations prepared by management and keeps the Compensation Committee apprised of market trends in executive compensation. Towers Watson attended portions of all Compensation Committee meetings held in 2011, in person or by telephone, as requested by the Chairman of the Compensation Committee. The Compensation Committee holds in camera sessions with Towers Watson at each of its meetings.

        Decisions made by the Compensation Committee, however, are the responsibility of the Compensation Committee and may reflect factors and considerations other than the information and recommendations provided by Towers Watson.

        Each year, the Compensation Committee reviews the scope of activities of Towers Watson and, if it deems appropriate, approves the corresponding budget. Any services and fees provided by Towers Watson at the request of management not related to executive compensation must be pre-approved by the Chairman of the Compensation Committee.

Compensation Process

        The Compensation Committee reviews and approves compensation for the CEO and the other NEOs, including base salaries, annual incentive awards and equity-based incentive grants. The Committee evaluates the performance of the CEO relative to established objectives. The Committee reviews competitive data for the Comparator Group and consults with Towers Watson before exercising its independent judgment to determine appropriate compensation levels. The CEO reviews the performance evaluations of the other NEOs with the Committee and provides compensation recommendations. The Committee considers these recommendations, reviews market compensation information, consults with Towers Watson and exercises its independent judgment to determine if any adjustments are required prior to approval.

        The Compensation Committee generally meets five times a year in January, April, July, October and December. At the July meeting, the Compensation Committee, based on recommendations from Towers Watson, selects the Comparator Group that will be used for the compensation review. At the October meeting, Towers Watson presents a competitive analysis of the total compensation for each of the NEOs, including the CEO, based on the established Comparator Group. Using this analysis, the Chief Legal and Administrative Officer (CLAO), who has responsibility for Human Resources, and the CEO, together with Towers Watson, develop base salary and equity-based incentive recommendations for the NEOs, except that the CEO and CLAO do not participate in the preparation of their own compensation recommendations. At the December meeting, base salary recommendations for the NEOs for the following year and the value and mix of their equity-based incentives are typically approved. If the value and mix of equity-based incentives are not approved at the December meeting, they are approved the following month at the January meeting. Previous grants of

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equity-based awards and the current retention value of same are reviewed and may be taken into consideration when making this decision. The CLAO is not present at the Compensation Committee meetings when her compensation is discussed.

        The foregoing process is also followed for determining the CEO's compensation except that the CLAO works with Towers Watson to develop a proposal for base salary and equity-based incentive grants. The Compensation Committee then reviews the proposal with Towers Watson in the absence of the CEO. At that time, the Compensation Committee also considers the potential value of the total compensation package for the CEO at different levels of performance and different stock prices to ensure that there is an appropriate link between pay and performance taking into consideration the range of potential total compensation.

        In terms of the Company's annual incentive plan, targets based on a management plan approved by the Board of Directors are approved by the Compensation Committee at the beginning of the year. The Compensation Committee reviews the Company's performance relative to these targets and the projected payment at the October and December meetings. At the January meeting of the following year, final payments under the plan, as well as the vesting percentages for any previously granted equity-based incentives that have performance vesting criteria, are calculated and approved by the Compensation Committee based on the Company's year-end results as approved by the Audit Committee. These amounts are then paid in February.

Compensation Risk Assessment

        In 2011, the Compensation Committee engaged its compensation consultant, Towers Watson, to assist with a risk assessment of compensation programs provided to the senior executive team, including the annual performance incentive and the Company's two long-term incentive plans. The compensation risk assessment included interviews with key Board of Directors and management representatives to a) identify significant risks; b) understand the role of compensation in supporting appropriate risk taking; and c) understand how risk is governed and managed at the Company. Towers Watson also reviewed documentation relating to the Company's risk factors and compensation governance processes and programs. The Company's executive compensation programs for the NEOs were reviewed against Towers Watson's compensation risk assessment framework. Results of the review were presented to the Compensation Committee. The Compensation Committee has amended its mandate to include a formal review of the risks associated with the Company's compensation policies and practices on an annual basis.

        The Company's compensation programs are designed with a balanced approach aligned with its business strategy and risk profile. A number of compensation practices have been implemented to mitigate potential compensation risk. Key risk-mitigating features in the Company's compensation governance processes and compensation structure include:

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        In performing its duties, the Compensation Committee considers the implications of the risks associated with the Company's compensation policies and practices. This includes identifying any such policies or practices that encourage executive officers to take inappropriate or excessive risks, including those identified by the Canadian Securities Administrators (CSA), identifying risks arising from such policies and practices that are reasonably likely to have a material adverse effect on the Company and considering the risk implications of the Company's compensation policies and practices and any proposed changes to them.

        It is the Compensation Committee's view that the Company's compensation policies and practices do not encourage inappropriate or excessive risk-taking.

        As described below, a significant portion of the executive officers' compensation is in the form of equity-based incentives. See "— Compensation Discussion and Analysis — Compensation Elements for the Named Executive Officers — Equity-Based Incentives." As such equity-based incentives are subject to time and/or performance vesting requirements, recipients benefit if shareholder value increases over the long-term and they are not incented to take actions that provide short-term benefits and expose the Company over a longer term to inappropriate or excessive risks.

        In addition, the Company's share ownership guidelines require the CEO and executive vice presidents to continue to hold a minimum amount of the Company's shares, which also mitigates against executives taking inappropriate or excessive risks to improve short term performance. See table 25 — Share Ownership Guidelines. Moreover, executives and directors are prohibited from entering into speculative transactions and transactions designed to hedge or offset a decrease in market value of equity securities of the Company granted as compensation. For a description of the hedging policy, see "— Compensation Discussion and Analysis — Compensation Hedging Policy."

Comparator Companies

        The Compensation Committee benchmarks salary, annual incentive and equity-based incentive awards to those of the Comparator Group, which is comprised of companies in the technology sector that are of comparable size, scope, market presence and/or complexity to the Company. The revenues of the Comparator Group companies are generally in the range of half to twice the Company's revenues. In addition, for 2011 the Committee included in the Comparator Group four companies whose revenues were outside this range: three EMS companies, being Benchmark Electronics, Inc., Plexus Corp. and Flextronics International Ltd., for direct industry comparison, and one other company that is not in the EMS industry, being EMC Company, for consistency with 2010. Xerox Corp., which was previously in the Comparator Group, was removed for 2011 because its revenues increased, as a result of an acquisition, to the point it was no longer a relevant comparator. Because of the international scope and the size of the Company, the Comparator Group is composed of

74


companies with international operations, thus allowing the Company to offer its executives total compensation that is competitive in the markets in which it competes.

        The following table, which was reviewed by the Compensation Committee at its July meeting, sets out the Company's 2011 Comparator Group companies.

Table 7: Comparator Group(1)

Company Name
  2010 Annual
Revenue
(millions)
 
Company Name
  2010 Annual
Revenue
(millions)
 

Advanced Micro Devices Inc.

  $ 6,494  

Plexus Corp.

    $2,013  

Agilent Technologies Inc.

  $ 5,444  

Sanmina-SCI Corp.

    $6,319  

Applied Materials Inc.

  $ 9,549  

Seagate Technology

    $11,395  

Benchmark Electronics, Inc.

  $ 2,402  

SanDisk Corp.(2)

    $4,827  

Broadcom Corp.

  $ 6,612  

Texas Instruments Inc.

    $13,966  

Corning Inc.

  $ 6,632  

Tyco Electronics Ltd.

    $12,070  

EMC Corporation

  $ 17,015  

Western Digital Corp.

    $9,850  

Flextronics International Ltd.(2)

  $ 28,680            

Harris Corp.

  $ 5,206  

25th Percentile

    $4,821  

Jabil Circuit, Inc.

  $ 13,409  

50th Percentile

    $6,553  

Lexmark International Inc.

  $ 4,200  

75th Percentile

    $11,009  

Micron Technology Inc.

  $ 8,482            

Molex Inc.

  $ 3,007            

NCR Corp.

  $ 4,819  

Celestica Inc.

    $6,526  

NVIDIA Corp.

  $ 3,543  

Percentile

    49th percentile  

(1)
All data was sourced from Standard & Poor's Capital IQ.

(2)
Revenue for these companies reflects fiscal 2011 revenue due to the timing of year ends for those entities.

        Additionally, broader market compensation data for other similarly-sized organizations provided by Towers Watson is referenced in accordance with a process approved by the Compensation Committee. The Compensation Committee used such data, among other things, in making compensation decisions. In addition to the survey data, proxy disclosure of the comparator companies for the most recently completed fiscal year was used when determining compensation for the CEO as well as the other NEOs.

Compensation Hedging Policy

        The Company has adopted a policy regarding executive officer and director hedging. The policy prohibits executives and directors from, among other things, entering into speculative transactions and transactions designed to hedge or offset a decrease in market value of equity securities of the Company granted as compensation. Accordingly, executives may not sell short, buy put options or sell call options on the Company's securities or purchase financial instruments (including prepaid variable contracts, equity swaps, collars or units of exchange funds) which hedge or offset a decrease in the market value of the Company's securities.

Recoupment Provisions

        The Company is subject to the clawback provisions of the Sarbanes-Oxley Act of 2002. Accordingly, if the Company is required to restate financial results due to misconduct or material non-compliance with financial reporting requirements, the CEO and CFO would be required to reimburse the Company for any bonuses or incentive-based compensation they had received during the 12-month period following the period covered by the restatement, as well as any profits they had realized from the sale of corporate securities during that period.

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        Under the terms of the stock option grants and the grants made under the LTIP and the CSUP, an NEO may be required by the Company to repay an amount equal to the market value of the shares at the time of release, net of taxes, if, within 12 months of the release date, the executive:

        Executives who are terminated for cause also forfeit all unvested RSUs, PSUs and stock options as well as all vested and unexercised stock options.

Compensation Elements for the Named Executive Officers

        The compensation of the NEOs is comprised of the following elements: