AS FILED WITH THE 
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As filed with the Securities and Exchange Commission on May 19, 2004
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION ON APRIL 21, 2003

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

                                   
FORM 20-F

         / /  REGISTRATION STATEMENT PURSUANT TO SECTION 12(B) OR 12(G)
                     OF THE SECURITIES EXCHANGE ACT OF
o    Registration statement pursuant to Section 12(b) or 12(g)
of the Securities Exchange Act of 1934
                                       OR
               /X/  ANNUAL REPORT PURSUANT TO SECTION
or
ý    Annual report pursuant to Section 13 OR 15(D)
                     OF THE SECURITIES EXCHANGE ACT OFor 15(d)
of the Securities Exchange Act of 1934
                  FOR THE FISCAL YEAR ENDED DECEMBER
for the fiscal year ended December 31, 2002
                                       OR
             / /  TRANSITION REPORT PURSUANT TO SECTION2003
or
o    Transition report pursuant to Section 13 OR 15(D)
                     OF THE SECURITIES EXCHANGE ACT OFor 15(d)
of the Securities Exchange Act of 1934

                        COMMISSION FILE NUMBER:
Commission file number: 1-14832
                            ------------------------

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

                                ONTARIO, CANADA

                (JURISDICTION OF INCORPORATION OR ORGANIZATION)

                           
Ontario, Canada
(Jurisdiction of incorporation or organization)
1150 EGLINTON AVENUE EAST
                        TORONTO, ONTARIO, CANADAEglinton Avenue East
Toronto, Ontario, Canada M3C 1H7
             (ADDRESS OF REGISTRANT'S PRINCIPAL EXECUTIVE OFFICES)
                         ------------------------------

                   
(Address of registrant's principal executive offices)
SECURITIES REGISTERED OR TO BE REGISTERED
PURSUANT TO SECTION 12(B)12(b) OF THE ACT:
Subordinate Voting Shares
(Title of Class)
The Toronto Stock Exchange
               (TITLE OF CLASS)                            
The New York Stock Exchange
                                                   (NAME OF EACH EXCHANGE ON WHICH REGISTERED)

    
(Name of each Exchange on which Registered)

Liquid Yield Option-TM-Option™ Notes due 2020
(Title of Class)


The New York Stock Exchange
               (TITLE OF CLASS)                    (NAME OF EACH EXCHANGE ON WHICH REGISTERED)

(Name of each Exchange on which Registered)


                            ------------------------

                   
SECURITIES REGISTERED OR TO BE REGISTERED
PURSUANT TO SECTION 12(G)12(g) OF THE ACT:
N/A
                            ------------------------

              
SECURITIES FOR WHICH THERE IS A REPORTING OBLIGATION
PURSUANT TO SECTION 15(D)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.

      189,538,365
169,808,542 Subordinate Voting Shares
    0    Preference Shares
  39,065,950 Multiple Voting Shares


                            ------------------------
        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  /X/ý    No  / /o
        Indicate by check mark which financial statement item the registrant has elected to follow. Item 17  / /o    Item 18  /X/

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ý

TABLE OF CONTENTS

                                                                PAGE
                                                              --------

Page
PART I......................................................      I
1
Item 1. Identity of Directors, Senior Management and Advisers...............................................      Advisers
1
Item 2. Offer Statistics and Expected Timetable.........      Timetable
1
Item 3. Key Information.................................      1
        Information
2
A.      Selected Financial Data.........................      1
        Data
2
B.      Capitalization and Indebtedness.................      Indebtedness
5
C.      Reasons for Offer and Use of Proceeds...........      Proceeds
5
D.     Risk Factors....................................      5
    Factors
6
Item 4. Information on the Company......................     Company
14
A.      History and Development of the Company..........     Company
14
B.      Business Overview...............................     14
        Overview
15
C.      Organizational Structure........................     26
        Structure
24
D.     Description of Property.........................     26
    Property
25
Item 5. Operating and Financial Review and Prospects....     27
        Prospects
26
A.      Operating Results...............................     31
        Results
30
B.      Liquidity and Capital Resources.................     35
        Resources
37
C.      Research and Development, Patents and Licenses, Etc.................................................     39
        Etc.
41
D.     Trend Information...............................     39
    Information
41
Item 6. Directors, Senior Management and Employees......     39
        Employees
41
A.      Directors and Senior Management.................     39
        Management
41
B.      Compensation....................................     44
        Compensation
45
C.      Board Practices.................................     49
        Practices
51
D.     Employees.......................................     50
        Employees
52
E.      Share Ownership.................................     51
    Ownership
53
Item 7. Major Shareholders and Related Party Transactions...........................................     55
        Transactions
57
A.      Major Shareholders..............................     55
        Shareholders
57
B.      Related Party Transactions......................     56
        Transactions
59
C.      Interests of Experts and Counsel................     57
    Counsel
60
Item 8. Financial Information...........................     57
        Information
60
A.      Consolidated Statements and Other Financial Information.........................................     57
        Information
60
B.      Significant Changes.............................     57
    Changes
60
Item 9. The Offer and Listing...........................     57
        Listing
60
A.      Offer and Listing Details.......................     57
        Details
60
B.      Plan of Distribution............................     59
        Distribution
62
C.      Markets.........................................     60
        Markets
62
D.     Selling Shareholders............................     60
        Shareholders
62
E.      Dilution........................................     60
        Dilution
62
F.       Expense of the Issue...........................     60
    Issue
63
Item 10. Additional Information.........................     60
        Information
63
A.      Share Capital...................................     60
        Capital
63
B.      Memorandum and Articles of Incorporation........     60
        Incorporation
63
C.      Material Contracts..............................     62
        Contracts
65
D.     Exchange Controls...............................     62
        Controls
65
E.      Taxation........................................     62
        Taxation
65
F.       Dividends and Paying Agents....................     67
        Agents
70
G.     Statement by Experts............................     67
        Experts
70
H.     Documents on Display............................     67
        Display
70
I.       Subsidiary Information.........................     67
    Information
70
Item 11. Quantitative and Qualitative Disclosures about Market Risk............................................     68
    Risk
71
Item 12. Description of Securities Other than Equity Securities.............................................     69
Securities
72

i

PART II.....................................................     69
    II


72
Item 13. Defaults, Dividend Arrearages and Delinquencies..........................................     69
    Delinquencies
72
Item 14. Material Modifications to the Rights of Security Holders and Use of Proceeds...................     69
    Proceeds
72
Item 15. Controls and Procedures........................     69
    Procedures
72
Item 16. [Reserved].....................................     69
[Reserved]
72
Item 16A. Audit Committee Financial Expert
72
Item 16B. Code of Ethics
72
Item 16C. Principal Accountant Fees and Service
72
Item 16D. Exemptions from the Listing Standards for Audit Committees
73
Item 16E. Purchases of Equity Securities by the Issuer and Affiliated Purchasers
73

PART III....................................................     70
    III


74
Item 17. Financial Statements...........................     70
    Statements
74
Item 18. Financial Statements...........................     70
    Statements
74
Item 19. Exhibits.......................................     70
Exhibits
74


                                       i
ii

PART I

    IN THIS ANNUAL REPORT, "CELESTICA,
In this Annual Report, "Celestica," THE "COMPANY,the "Company," "WE,"we," "US" AND "OUR"
REFER TO CELESTICA INC. AND ITS SUBSIDIARIES.

    IN DECEMBER"us" and "our" refer to Celestica Inc. and its subsidiaries.
In December 1999, CELESTICA COMPLETED A TWO-FOR-ONE SPLIT OF OUR SUBORDINATE
VOTING SHARES AND MULTIPLE VOTING SHARES BY WAY OF A STOCK DIVIDEND. WE HAVE
RESTATED ALL HISTORICAL SHARE AND PER SHARE INFORMATION TO REFLECT THE EFFECTS
OF THIS TWO-FOR-ONE SPLIT ON A RETROACTIVE BASIS, EXCEPT WHERE WE SPECIFICALLY
STATE OTHERWISE.

    IN THIS ANNUAL REPORT, ALL DOLLAR AMOUNTS ARE EXPRESSED IN UNITED STATES
DOLLARS, EXCEPT WHERE WE STATE OTHERWISE. UNLESS WE STATE OTHERWISE, ALL
REFERENCES TOwe completed a two-for-one split of our subordinate voting shares and multiple voting shares by way of a stock dividend. We have restated all historical share and per share information to reflect the effects of this two-for-one split on a retroactive basis, except where we specifically state otherwise.
In this Annual Report, all dollar amounts are expressed in United States dollars, except where we state otherwise. All references to "U.S.$" ORor "$" ARE TOare to U.S. DOLLARS AND ALL REFERENCES TOdollars and all references to "C$" ARE
TO CANADIAN DOLLARS. UNLESS WE INDICATE OTHERWISE, ANY REFERENCE IN THIS ANNUAL
REPORT TO A CONVERSION BETWEENare to Canadian dollars. Unless we indicate otherwise, any reference in this Annual Report to a conversion between U.S.$ ANDand C$ IS GIVEN AS OF FEBRUARY 28, 2003. AT
THAT DATE, THE NOON BUYING RATE IN NEW YORK CITY FOR CABLE TRANSFERS IN CANADIAN
DOLLARS WASis given as of March 11, 2004. At that date, the noon buying rate in New York City for cable transfers in Canadian dollars was U.S.$1.00=C$1.4880, AS CERTIFIED FOR CUSTOMS PURPOSES BY THE FEDERAL
RESERVE BANK OF NEW YORK.

    UNLESS WE INDICATE OTHERWISE, ALL INFORMATION IN THIS ANNUAL REPORT IS
STATED AS OF FEBRUARY 28, 2003.

FORWARD-LOOKING STATEMENTS1.3228, as certified for customs purposes by the Federal Reserve Bank of New York.
Unless we indicate otherwise, all information in this Annual Report is stated as of March 11, 2004, the date as of which information was prepared for our annual report to shareholders and management information circular and proxy statement.
Forward-Looking Statements
        Item 4, "Information on the Company," "Management's Discussion and Analysis of Financial Condition and Results of Operations" included in Item 5 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, and section 21E of the Securities Exchange Act of 1934, as amended, or the U.S. Exchange Act, including (without limitation) statements concerning possible or assumed future results of operations of Celestica preceded by, followed by or that include the words "believes," "expects," "anticipates," "estimates," "intends," "plans," or similar expressions. For those statements, we claim the protection of the safe harbor for forward-
lookingforward-looking statements contained in the U.S. Private Securities Litigation Reform Act of 1995.
        Forward-looking statements are not guarantees of future performance. They involve risks, uncertainties and assumptions. 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: the challenges of effectively
managing our operations during uncertain economic conditions; the challenge of
responding to lower-than-expected customer demand; the effects of price competition and other business and competitive factors generally affecting the electronics manufacturing services or EMS,(EMS) industry; the challenges of effectively managing our operations during uncertain economic conditions; our dependence on the
information technology and communications industries;industries affected by rapid technological change; our dependence on a limited number of customers and on industries affected by rapid technological
change;customers; the challenge of responding to lower-than-expected customer demand; component constraints; variability of operating results among periods;
and theour ability to manage our restructuring and the shift of production to lower cost geographies.geographies; our ability to achieve the anticipated benefits of our merger with Manufacturers' Services Limited (MSL); and variability of operating results among periods.
        We disclaim any intention or obligation to update or revise any forward-looking statements, contained in this Annual Report or the documents we
incorporate by reference herein, whether as a result of new information, future events or otherwise. ITEMYou should read this Annual Report and the documents, if any, that we incorporate by reference with the understanding that the 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 ADVISERSIdentity of Directors, Senior Management and Advisers
        Not applicable.

ITEM
Item 2.    OFFER STATISTICS AND EXPECTED TIMETABLEOffer Statistics and Expected Timetable
        Not applicable.

ITEM

Item 3.    KEY INFORMATION

Key Information
A.    SELECTED FINANCIAL DATASelected 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 we present.
        The Consolidated Financial Statements have been prepared in accordance with Canadian generally accepted accounting principles or GAAP.(GAAP). These principles conform in all material respects with U.S. GAAP except as described in note 2220 to the Consolidated Financial Statements in Item 18. For all the years presented, the selected financial data is prepared in accordance with Canadian GAAP. The differences between the line items under Canadian GAAP and those as
determined under U.S. GAAP are not significant except that, under U.S. GAAP:

    - our net loss for the year ended December 31, 1998 would be $6.2 million
      greater due to non-cash charges for compensation expense;

    - our net earnings for the year ended December 31, 1999 would be
      $1.9 million less due to non-cash charges for compensation expense;

    - our net earnings for the year ended December 31, 2000 would be
      $2.5 million less due to non-cash charges for compensation expense and
      $6.8 million less due to interest on the convertible debt we issued in
      August 2000, in the principal amount of $1,813.6 million, that would be
      classified as a long-term liability rather than as an equity instrument;

    - our net loss for the year ended December 31, 2001 would be $3.2 million
      greater due to non-cash charges for compensation expense, $17.7 million
      greater due to interest on convertible debt classified as a long-term
      liability rather than as an equity instrument, $2.7 million greater due to
      other charges, and $12.1 million less due to the gain on a foreign
      exchange contract; and

    - our net loss for the year ended December 31, 2002 would be $3.8 million
      greater due to non-cash charges for compensation expense, $27.8 million
      greater due to interest on convertible debt classified as a long-term
      liability rather than as an equity instrument, $26.5 million greater due
      to other charges, and $8.4 million less due to gain on repurchase of
      convertible debt.


                                                               YEAR ENDED DECEMBER 31
                                              ---------------------------------------------------------
                                               1998(1)     1999(1)     2000(1)     2001(1)     2002(1)
                                              ---------   ---------   ---------   ---------   ---------
                                                       (in millions, except per share amounts)

CONSOLIDATED STATEMENTS OF EARNINGS (LOSS)
  DATA:
Revenue.....................................  $3,249.2    $5,297.2    $9,752.1    $10,004.4   $8,271.6
Cost of sales...............................   3,018.7     4,914.7     9,064.1      9,291.9    7,715.8
                                              --------    --------    --------    ---------   --------
Gross profit................................     230.5       382.5       688.0        712.5      555.8
Selling, general and administrative
  expenses..................................     130.5       202.2       326.1        341.4      298.5
Amortization of goodwill and intangible
  assets(2).................................      45.4        55.6        88.9        125.0       95.9
Integration costs related to
  acquisitions(3)...........................       8.1         9.6        16.1         22.8       21.1
Other charges(4)............................      64.7       --          --           273.1      677.8
                                              --------    --------    --------    ---------   --------
Operating income (loss).....................     (18.2)      115.1       256.9        (49.8)    (537.5)
Interest expense (income), net(5)...........      32.3        10.7       (19.0)        (7.9)      (1.1)
                                              --------    --------    --------    ---------   --------
Earnings (loss) before income taxes.........     (50.5)      104.4       275.9        (41.9)    (536.4)
Income tax expense (recovery)...............      (2.0)       36.0        69.2         (2.1)     (91.2)
                                              --------    --------    --------    ---------   --------
Net earnings (loss).........................  $  (48.5)   $   68.4    $  206.7    $   (39.8)  $ (445.2)
                                              ========    ========    ========    =========   ========
Basic earnings (loss) per share(6)..........  $  (0.47)   $   0.41    $   1.01    $   (0.26)  $  (1.98)
Diluted earnings (loss) per share(6)........  $  (0.47)   $   0.40    $   0.98    $   (0.26)  $  (1.98)

OTHER DATA:
Capital expenditures........................  $   65.8    $  211.8    $  282.8    $   199.3   $  151.4


                                       2

                                                                  AS AT DECEMBER 31
                                              ---------------------------------------------------------
                                                1998        1999        2000        2001        2002
                                              ---------   ---------   ---------   ---------   ---------
                                                                    (in millions)

CONSOLIDATED BALANCE SHEET DATA:
Cash and short-term investments.............  $   31.7    $  371.5    $  883.8    $1,342.8    $1,851.0
Working capital(7)..........................  $  356.2    $1,000.2    $2,262.6    $2,339.8    $2,093.2
Capital assets..............................  $  214.9    $  365.4    $  633.4    $  915.1    $  727.8
Total assets................................  $1,636.4    $2,655.6    $5,938.0    $6,632.9    $5,806.8
Total long-term debt, including current
  portion...................................  $  135.8    $  134.2    $  132.0    $  147.4    $    6.9
Shareholders' equity........................  $  859.3    $1,658.1    $3,469.3    $4,745.6    $4,203.6


- ------------

unless otherwise indicated.
 
 
Year ended December 31
 
 
 
1999(1)
 
2000(1)
 
2001(1)
 
2002(1)
 
2003(1)
 
 
 
(in millions, except per share amounts)

 
Consolidated Statements of Earnings (Loss) Data (Canadian GAAP):
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Revenue
 
$
5,297.2
 
$
9,752.1
 
$
10,004.4
 
$
8,271.6
 
$
6,735.3
 
Cost of sales
 
 
4,914.7
 
 
9,064.1
 
 
9,291.9
 
 
7,715.8
 
 
6,474.3
 
 
 
 
 
 
 
 
Gross profit
 
 
382.5
 
 
688.0
 
 
712.5
 
 
555.8
 
 
261.0
 
Selling, general and administrative expenses(2)
 
 
202.2
 
 
326.1
 
 
341.4
 
 
298.5
 
 
273.8
 
Amortization of goodwill and intangible assets(3)
 
 
55.6
 
 
88.9
 
 
125.0
 
 
95.9
 
 
48.5
 
Integration costs related to acquisitions(4)
 
 
9.6
 
 
16.1
 
 
22.8
 
 
21.1
 
 
—
 
Other charges(5)
 
 
—
 
 
—
 
 
273.1
 
 
677.8
 
 
175.4
 
 
 
 
 
 
 
 
Operating income (loss)
 
 
115.1
 
 
256.9
 
 
(49.8
)
 
(537.5
)
 
(236.7
)
Interest expense (income), net(6)
 
 
10.7
 
 
(19.0
)
 
(7.9
)
 
(1.1
)
 
(4.0
)
 
 
 
 
 
 
 
Earnings (loss) before income taxes
 
 
104.4
 
 
275.9
 
 
(41.9
)
 
(536.4
)
 
(232.7
)
Income tax expense (recovery)
 
 
36.0
 
 
69.2
 
 
(2.1
)
 
(91.2
)
 
33.1
 
 
 
 
 
 
 
 
Net earnings (loss)
 
$
68.4
 
$
206.7
 
$
(39.8
)
$
(445.2
)
$
(265.8
)
 
 
 
 
 
 
 

Basic earnings (loss) per share

 

$

0.41

 

$

1.01

 

$

(0.26

)

$

(1.98

)

$

(1.22

)
Diluted earnings (loss) per share(7)
 
$
0.40
 
$
0.98
 
$
(0.26
)
$
(1.98
)
$
(1.22
)

Capital expenditures

 

$

211.8

 

$

282.8

 

$

199.3

 

$

151.4

 

$

175.9

 

Consolidated Statements of Earnings (Loss) Data (U.S. GAAP)(8):

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 
Operating income (loss)
 
$
113.2
 
$
254.4
 
$
(40.0
)
$
(569.8
)
$
(210.5
)
Net earnings (loss)
 
$
66.5
 
$
197.4
 
$
(51.3
)
$
(494.9
)
$
(258.9
)

 
 
As at December 31
 
 
1999
 
2000
 
2001
 
2002
 
2003
 
 
(in millions)

Consolidated Balance Sheet Data (Canadian GAAP):
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Cash and short-term investments
 
$
371.5
 
$
883.8
 
$
1,342.8
 
$
1,851.0
 
$
1,028.8
Working capital(9)
 
$
1,000.2
 
$
2,262.6
 
$
2,339.8
 
$
2,093.2
 
$
1,513.6
Capital assets
 
$
365.4
 
$
633.4
 
$
915.1
 
$
727.8
 
$
679.6
Total assets
 
$
2,655.6
 
$
5,938.0
 
$
6,632.9
 
$
5,806.8
 
$
5,134.7
Total long-term debt, including current portion(10)
 
$
134.2
 
$
132.0
 
$
147.4
 
$
6.9
 
$
3.4
Shareholders' equity
 
$
1,658.1
 
$
3,469.3
 
$
4,745.6
 
$
4,203.6
 
$
3,468.3

Consolidated Balance Sheet Data (U.S. GAAP)(8):

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 
Total assets
 
$
2,653.6
 
$
5,936.0
 
$
6,640.3
 
$
5,805.4
 
$
5,181.3
Total long-term debt, including current portion
 
$
134.2
 
$
1,005.1
 
$
1,046.8
 
$
831.7
 
$
626.4
Shareholders' equity
 
$
1,656.2
 
$
2,605.4
 
$
3,841.1
 
$
3,344.4
 
$
2,854.7
(1)
The consolidated statements of earnings (loss) data for:

    1998, 


1999, 2000, 2001, 2002 and 2002 include the results of operations of the
    manufacturing operation acquired from Madge Networks N.V. in February 1998,
    the manufacturing operation acquired from Lucent Technologies Inc. in
    April 1998, Analytic Design, Inc. acquired in May 1998, the manufacturing
    operation acquired from Silicon Graphics Inc. in June 1998, and
    Accu-Tronics, Inc. acquired in September 1998;

    1999, 2000, 2001 and 20022003 include the results of operations of International Manufacturing Services, Inc., or IMS, (IMS) acquired in December 1998, Signar SRO acquired in April 1999, greenfield operations established in Brazil and Malaysia in June 1999, VXI Electronics, Inc. acquired in September 1999, the assets acquired from Hewlett-Packard's Healthcare Group in October 1999, EPS Wireless, Inc. acquired in December 1999, and certain assets acquired from Fujitsu-ICL Systems Inc. in December 1999;


2000, 2001, 2002 and 20022003 include the results of operations of the assets of the Enterprise System Group and the Microelectronics Division of IBM in Minnesota and in Italy acquired in February and May 2000, respectively, NDB Industrial Ltda. acquired in June 2000, Bull Electronics Inc. acquired in August 2000, and NEC Technologies (UK) Ltd. acquired in November 2000;


2001, 2002 and 2002 includes2003 include the results of operations of Excel Electronics, Inc. acquired in January 2001, certain assets of Motorola Inc. in Ireland and Iowa acquired in February 2001, certain assets of a repair facility of N.K. Techno Co., Ltd. in Japan acquired in March 2001, certain assets of Avaya Inc. in Arkansas and Colorado acquired in May 2001, Sagem CR s.r.o. acquired in June 2001, certain assets of Avaya Inc. in France acquired in August 2001, certain assets of Lucent Technologies Inc. in Ohio and Oklahoma acquired in August 2001, Primetech Electronics Inc. acquired in August 2001, and Omni Industries Limited acquired in October 2001; and


2002 includesand 2003 include the results of operations of certain assets of NEC Corporation in Miyagi and Yamanashi, Japan acquired in March 2002, and certain assets of Corvis Corporation in the United States acquired in August 2002.

(2) Effective January 1, 1998,
Selling, general and administrative expenses include research and development costs. During 2003, we revisedadopted the estimated useful life of our
    goodwill and intellectual property for accounting purposes from 20 years
    each to 10 years and 5 years, respectively.

    In 2001, therevised Canadian Institute of Chartered Accountants (CICA) Handbook Series 3870, "Stock Based Compensation," which requires that a fair value method of accounting be applied to all stock-based compensation payments to both employees and non-employees. In accordance with the transitional provisions of Section 3870, we have prospectively applied the fair value method of accounting for stock option awards granted after January 1, 2003 and, accordingly, have recorded compensation expense of $0.3 million in 2003. Prior to January 1, 2003, we accounted for our stock options using the settlement method and no compensation expense was recognized.

(3)
In 2001, the CICA approved Handbook Sections 1581, "Business combinations" and 3062, "Goodwill and other intangible assets." The new standards mandate the purchase method of accounting for business combinations and require that the value of the shares issued in a business combination be measured using the average share price for a reasonable period before and after the date the terms of the acquisition are agreed to and announced. The new standards are substantially consistent with U.S. GAAP.


Effective July 1, 2001, goodwill acquired in business combinations completed after June 30, 2001 has not been amortized. Celestica has fully adopted these new standards as of January 1, 2002, and discontinued amortization of all existing goodwill. We also evaluated existing intangible assets, including estimates of remaining useful lives, and have reclassed $9.1 million from intellectual property to goodwill, as of January 1, 2002, to conform with the new criteria.


Section 3062 required the completion of a transitional goodwill impairment evaluation within six months of adoption. Any transitional impairment would have been recognized as an effect of a change in accounting principleprinciples and would have been charged to opening retained earnings as of January 1, 2002. We completed the transitional goodwill impairment assessment during the second quarter of 2002, and determined that no impairment existed as of the date of adoption. Under U.S. GAAP, any transitional impairment charge would have been recognized in earnings as a cumulative effect of a change in accounting principle.

                                       3
principles.


Effective January 1, 2002, we had unamortized goodwill of $1,137.9 million which is no longer being amortized. This change in accounting policy is not applied retroactively and the amounts presented for prior periods have not been restated for this change. The following table shows the impact of this change as if the policy had been applied retroactively to 2001:

                                                                    YEAR ENDED DECEMBER 31
                                                                  ---------------------------
                                                                      2001           2002
                                                                  ------------   ------------
                                                                     (in millions, except
                                                                      per share amounts)
    
    Net loss as reported........................................    $ (39.8)       $(445.2)
    Add back: goodwill amortization.............................       39.2         --
                                                                    -------        -------
    Net loss before goodwill amortization.......................    $  (0.6)       $(445.2)
                                                                    =======        =======
    Basic loss per share:
    As reported.................................................    $ (0.26)       $ (1.98)
    Before goodwill amortization................................    $ (0.07)       $ (1.98)

    Diluted loss per share:
    As reported.................................................    $ (0.26)       $ (1.98)
    Before goodwill amortization................................    $ (0.07)       $ (1.98)


(3) 

 
 
Year ended December 31
 
 
 
2001
 
2002
 
 
 
(in millions, except per share amounts)

 
Net loss as reported
 
$
(39.8
)
$
(445.2
)
Add back: goodwill amortization
 
 
39.2
 
 
—
 
 
 
 
 
Net loss before goodwill amortization
 
$
(0.6
)
$
(445.2
)
 
 
 
 

Basic loss per share:

 

 

 

 

 

 

 
As reported
 
$
(0.26
)
$
(1.98
)
Before goodwill amortization
 
$
(0.07
)
$
(1.98
)

Diluted loss per share:

 

 

 

 

 

 

 
As reported
 
$
(0.26
)
$
(1.98
)
Before goodwill amortization
 
$
(0.07
)
$
(1.98
)
(4)
These costs include costs to implement new information systems and processes, including salary and other costs directly related to the integration activities in newly acquired facilities.

(4) In 1998, other charges totaled $64.7 million ($51.5 million after income
    taxes), comprised of non-cash charges of $35.0 million relating to the
    write-down of intellectual property, $6.8 million of goodwill which became
    impaired as a result of the merger with IMS, a write-off of deferred
    financing fees and debt redemption fees of $17.8 million relating to the
    prepayment of debt with the net proceeds of our initial public offering, and
    other charges of $5.1 million.

    

(5)
In 2001, other charges totaled $273.1 million ($226.4 million after income
    taxes) comprised of (a) a $237.0 million restructuring charge, and (b) a non-cash charge of $36.1 million relating to the annual impairment assessment of long-lived assets, comprised primarily of a write-down of goodwill, intangible assets and intangible assets.

    certain long-term equity investments.


In 2002, other charges totaled $677.8 million ($562.6 million after income
    taxes) comprised primarily of (a) a $385.4 million restructuring charge, (b) a non-cash write-down of $203.7 million relating to the annual goodwill impairment assessment, (c) a non-cash write-down of $81.7 million relating to the annual impairment assessment of long-lived assets, primarily a write-down of intangible assets and capital assets, and (d) a $9.6 million charge for the premium paid and related deferred financing costs on the redemption of our Senior Subordinated Notes.

(5) 


In 2003, other charges totaled $175.4 million comprised primarily of (a) a $94.9 million restructuring charge and (b) a non-cash write-down of $82.8 million relating to the annual impairment assessment of long-lived assets, primarily a write-down of intangible assets and capital assets.


Effective January 1, 2003, we adopted the new CICA Handbook Section 3063, "Impairment or Disposal of Long-Lived Assets" and the revised Section 3475, "Disposal of Long-Lived Assets and Discontinued Operations," which are consistent with U.S. GAAP. These sections establish standards for recognizing, measuring and disclosing impairment for long-lived assets held-for-use, and for measuring and separately classifying assets available-for-sale. Previously, long-lived assets were written down to net recoverable value if the undiscounted future cash flows were less than net book value. Under the new standards, assets must be classified as either held-for-use or available-for-sale. Impairment losses for assets held-for-use are measured based on fair value which is measured by discounted cash flows. Available-for-sale assets are measured based on expected proceeds less direct costs to sell.


Effective January 1, 2003, we adopted the new CICA Emerging Issues Committee Abstracts EIC-134, "Accounting for Severance and Termination Benefits," and EIC-135, "Accounting for Costs Associated with Exit and Disposal Activities," which establishes standards for recognizing, measuring and disclosing costs relating to an exit or disposal activity. These standards are similar to U.S. GAAP. We have applied the new standards to restructuring plans initiated after January 1, 2003. These EICs allow recognition of a liability for an exit or disposal activity only when the costs are incurred and can be measured at fair value. Previously, a commitment to an exit or disposal plan was sufficient to record the majority of costs.

(6)
Interest expense (income), net is comprised of interest expense incurred on indebtedness and debt facilities, less interest income earned on cash and short-term investments.

(6) 

(7)
In 2001, we retroactively adopted the new CICA Handbook Section 3500, "Earnings per share," which requires the retroactive use of the treasury stock method for calculating diluted earnings per share. This change results in an earnings (loss) per share calculation which is consistent with U.S. GAAP.


For purposes of the basic and diluted earnings (loss) per share calculations, the weighted average number of shares outstanding were:

                                                                                 YEAR ENDED DECEMBER 31
                                                                  ----------------------------------------------------
                                                                    1998       1999       2000       2001       2002
                                                                  --------   --------   --------   --------   --------
                                                                                     (in millions)
    
    Basic.......................................................   103.0      167.2      199.8      213.9      229.8
    Diluted.....................................................   103.0      171.2      211.8      213.9      229.8


(7) 

 
 
Year ended December 31
 
 
1999
 
2000
 
2001
 
2002
 
2003
 
 
(in millions)

Basic
 
167.2
 
199.8
 
213.9
 
229.8
 
216.5
Diluted
 
171.2
 
211.8
 
213.9
 
229.8
 
216.5
(8)
The significant differences between the line items under Canadian GAAP and those as determined under U.S. GAAP arise from:

•
for 1999: non-cash charges for compensation expense;

•
for 2000: non-cash charges for compensation expense, interest on the convertible debt we issued in August 2000 and classification of the convertible debt as a long-term liability rather than as an equity instrument;

•
for 2001: non-cash charges for compensation expense, interest on convertible debt classified as a long-term liability rather than as an equity instrument, impairment charges to write-down certain assets and gain on a foreign exchange contract;

•
for 2002: non-cash charges for compensation expense, interest on convertible debt classified as a long-term liability rather than as an equity instrument, impairment charges to write-down certain assets and gain on repurchase of convertible debt; and

•
for 2003: interest on convertible debt classified as a long-term liability rather than as an equity instrument, impairment on certain long-lived assets, gain on repurchase of convertible debt, recognition of asset retirement obligations, and the adoption of fair value accounting for stock compensation expense for Canadian GAAP only.


For 2003, net loss in accordance with U.S. GAAP is after the accumulated effect of a change in accounting policy.

(9)
Calculated as current assets less current liabilities.

                                       4

EXCHANGE RATE INFORMATION

(10)
Long-term debt includes capital lease obligations.

Exchange Rate Information
        The rate of exchange as of February 28, 2003March 11, 2004 for the conversion of Canadian dollars into United States dollars was U.S. $0.6720.$0.7559 and for the conversion of United States dollars into Canadian dollars was C$1.3228. The following table sets forth the exchange rates for the conversion of U.S.$1.00 into C$1.00 as at the
end ofCanadian dollars for the following fiscal periods and the average exchange rates for those
periods (based upon the average of the exchange rates on the last day of each
month during the periods).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 Federal Reserve Statistical Releases.

                                                    1998       1999       2000       2001       2002
                                                  --------   --------   --------   --------   --------

Average(1)......................................   1.4836     1.4858     1.4855     1.5487     1.5704

                                         MARCH     FEBRUARY   JANUARY    DECEMBER   NOVEMBER   OCTOBER
                                          2003       2003       2003       2002       2002       2002
                                        --------   --------   --------   --------   --------   --------

High..................................   1.4905     1.5315     1.5798     1.5792     1.5903     1.5943
Low...................................   1.4659     1.4880     1.5219     1.5478     1.5528     1.5610


- ------------

 
 
1999
 
2000
 
2001
 
2002
 
2003
Average(1)
 
1.4858
 
1.4855
 
1.5487
 
1.5704
 
1.3916
 
 
April
2004
 
March
2004
 
February
2004
 
January
2004
 
December
2003
 
November
2003
High
 
1.3771
 
1.3480
 
1.3480
 
1.3265
 
1.3405
 
1.3362
Low
 
1.3095
 
1.3080
 
1.3108
 
1.2690
 
1.2923
 
1.2973
(1)
Calculated by using the averages of the exchange rates as of the last day of each month during the period.
B.    Capitalization and Indebtedness
        Not applicable.
C.    Reasons for 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.
Our Subordinate Voting Shares May Not Maintain Their Value
        The share price of our subordinate voting shares is subject to the general price fluctuations in the market for publicly-traded equity securities and may decline in value. The price of our subordinate voting shares has been and may continue to be highly volatile. During 2003, the market price of our subordinate voting shares on the New York Stock Exchange ranged from $9.55 to $20.29 per share. The trading price of subordinate voting shares could fluctuate widely in response to:
•
quarterly variations in our operations and financial results;

•
announcements by us or our competitors of technological innovations or new products;

•
announcements by a customer or competitor regarding its outlook or financial condition;

•
changes in our prices or the prices of our competitors' products and services;

•
changes in our growth rate as a whole or for a particular portion of exchange as of February 28, 2003 forour business;

•
general conditions in the conversion of United
States dollars into Canadian dollars was 1.4880 (U.S.$1 = C$1.4480).

B.  CAPITALIZATION AND INDEBTEDNESS

    Not applicable.

C.  REASONS FOR OFFER AND USE OF PROCEEDS

    Not applicable.

D.  RISK FACTORS

    SHAREHOLDERS AND PROSPECTIVE INVESTORS IN CELESTICA SHOULD CAREFULLY
CONSIDER EACH OF THE FOLLOWING RISKS AND ALL OF THE OTHER INFORMATION SET FORTH
IN THIS ANNUAL REPORT. THE RISKS AND UNCERTAINTIES WE DESCRIBE BELOW ARE NOT THE
ONLY ONES FACING OUR COMPANY. ADDITIONAL RISKS AND UNCERTAINTIES NOT CURRENTLY
KNOWN TO US OR THAT WE CURRENTLY BELIEVE TO BE IMMATERIAL MAY ALSO ADVERSELY
AFFECT OUR BUSINESS.

    OUR OPERATING RESULTS FLUCTUATE

    Our annualEMS industry; and quarterly results

•
systemic fluctuations in the stock markets.
        The stock markets have fluctuated widely in the past. The reasons
for thesesecurities of many technology companies, including companies in the EMS industry, have experienced extreme price and volume fluctuations, which often have been unrelated to the companies' operating performance. These broad market fluctuations may similarlyadversely affect us in the future. Our operating
results may fluctuate in the future as a result of many factors, including:

    - the volume of orders received relative to our manufacturing capacity;

    - fluctuations in material costs and the mix in material costs versus labor
      and manufacturing overhead costs; and

    - variations in the level and timing of orders placed by a customer due to
      the customer's attempts to balance its inventory, changes in the
      customer's manufacturing strategy or sourcing plans, and variation in
      demand for the customer's products. These changes can result from life
      cycles of customer products, competitive conditions, and general economic
      conditions.

    Any onemarket price of the following factors or combinations of these factors could also
affect our results of operations for a financial period:

    - the level of price competition as a result of the highly competitive
      nature of our business;

    - our past experiencesubordinate voting shares.
We Have Had Recent Operating Losses and Significant Restructuring Charges and May Experience Losses and Restructuring Charges in manufacturing a particular product;

    - the degree of automation we use in the assembly process;

                                       5

    - whether we are managing our inventories and fixed assets effectively;

    - our customer and end-market concentrations;

    - the timing of our expenditures in anticipation of increased sales;

    - increased or unexpected expenses associated with the shifting of products
      between manufacturing locations, including transfer delays from higher
      cost locations;

    - customer product delivery requirements and shortages of components or
      labor;

    - the shifting of production by our customers from our operations, to one of
      our competitor's operations; and

    - the timing of, and the price we pay for, our acquisitions and related
      integration costs.

    In addition, most of our customers typically do not commit to firm
production schedules for more than 30 to 90 days in advance. Accordingly, we
cannot forecast the level of customer orders with certainty. This makes it
difficult to order appropriate levels of materials and to schedule production
and maximize utilization of our manufacturing capacity. In the past, we have
been required to increase staffing, purchase materials, and incur other expenses
to meet the anticipated demand of our customers. Sometimes these anticipated
orders from certain customers have failed to materialize, and sometimes delivery
schedules have been deferred as a result of changes in the customer's business
needs. On other occasions, customers have required rapid and sudden increases in
production which have placed an excessive burden on our manufacturing capacity.
Deferred delivery schedules result in a delay, and may result in a reduction in
our revenue from these customers, and also may lead to excess capacity at
affected facilities. Also, certain customers may be unable to pay us or
otherwise meet their commitments under their agreements or purchase orders with
us.

    Any of these factors or a combination of these factors could have a material
adverse effect on our results of operations.

    Prospective investors should not rely on results of operations in any past
period to indicate what our results will be for any future period.

    WE HAVE HAD RECENT OPERATING LOSSESFuture Periods
        We generated net earnings in each of the years from 1993 through 1996, and in 1999 and 2000. We recorded net losses of $6.9 million in 1997, $48.5 million
in 1998, $39.8 million in 2001, and $445.2 million in 2002. In 1997, we incurred
$13.32002 and $265.8 million of integration costs related to acquisitions and a $13.9 million
credit loss, with these charges totaling $27.2 million ($17.0 million after
income taxes). In 1998, we incurred $8.1 million of integration costs related to
acquisitions, a $41.8 million write-down of intellectual property and goodwill,
a write-off of deferred financing fees and debt redemption fees of
$17.8 million, and $5.1 million of charges related to the acquisition of IMS
with these charges totaling $72.8 million ($56.5 million after income taxes).in 2003. In 2001, we incurred $22.8 million of integration costs related to acquisitions, $237.0 million of restructuring charges, and a $36.1 million write-down of certain assets, primarily goodwill, and intangible assets and certain long-term equity investments, with these charges totaling $295.9 million ($245.2 million after income taxes). In 2002, we incurred $21.1 million of integration costs related to acquisitions, $385.4 million of restructuring charges, a $285.4 million write-down of certain assets, primarily goodwill and intangible assets, and $9.6 million in deferred financing costs and debt redemption fees, with these charges totaling $701.5 million ($582.2 million after income taxes). In 2003, we incurred $94.9 million of restructuring charges, a $25.3 million write-down of intangible assets and a $57.5 million impairment against capital assets, with these charges totaling $177.7 million ($166.8 million after income taxes). In April 2004, we announced additional pre-tax restructuring charges of between $175.0 million and $200.0 million to be recorded over the next 12 months. We have undertaken numerous initiatives to restructure and reduce our capacity in response to the difficult economic climate, with the intention of improving utilization and realizing cost savings in the future. These initiatives have included changing the number and location of our production facilities, largely to align our capacity and infrastructure with anticipated customer demand, and to rationalize our operations worldwide. We will continue to evaluate our operations, and may propose future restructuring actions as a result of changes in the marketplace. Any failure to successfully execute these initiatives, including any delay in effecting these initiatives, can have a material adverse impact on our results. Furthermore, we may not be profitable in future periods.
We Are in a Highly Competitive Industry Which Has Resulted in Lower Prices, Reduced Gross Margins and Loss of Revenue
        We are in a highly competitive industry. We compete on a global basis to provide EMS services to original equipment manufacturers (OEMs) in the communications, high-end computing, personal computing, storage, aerospace and defense, automotive, industrial and consumer end markets. Our competitors include major domestic and foreign companies such as Flextronics International Inc., Hon Hai Precision Industry Co., Ltd.,

Sanmina-SCI Corporation, Solectron Corporation and Jabil Circuit, Inc., as well as smaller EMS companies that often have a regional product, service or industry specific focus. In responseaddition, in recent years, original design manufacturers (ODMs), which are companies that provide design and manufacturing services to OEMs, have been increasing their share of outsourced manufacturing services provided to OEMs in several markets, such as notebook and desktop computers, personal computer motherboards, and consumer electronic products, such as cell phones. While we have not, to date, encountered significant competition from ODMs, such competition may increase if our business in these markets grows or if ODMs expand further into or beyond these markets. We also face indirect competition from the continued limited visibilitymanufacturing operations of our current and prospective customers, which continually evaluate the merits of manufacturing products internally rather than using EMS providers. Some of our competitors have more geographically diversified international operations, a greater production presence in end markets,lower cost geographies, as well as substantially greater manufacturing, financial, procurement, research and development and marketing resources than we planhave. These competitors may create alliances and rapidly acquire significant market share. Accordingly, our current or potential competitors may develop or acquire services comparable or superior to further reduce ourthose we develop, combine or merge to form larger competitors, or adapt more quickly than we will to new technologies, evolving industry trends and changing customer requirements. Competition has caused and may continue to cause price reductions, reduced profits or loss of market share, any of which could materially and adversely affect us. In addition, the EMS industry has been experiencing an increase in excess manufacturing capacity. The reductioncapacity as well as increased competition from Asian competitors. This has and will continue to exert additional pressures on pricing for components and services, thereby increasing the competitive pressures in capacity
will resultthe EMS industry. We may not be able to compete successfully against current and future competitors, and the competitive pressures we face may materially adversely affect us.
We Are Dependent on the Computing and Communications Industries and Are Exposed to Changes in an estimated pre-tax restructuring charge of between
$50.0 millionGeneral Economic Conditions That Can Adversely Impact Our Business, Operating Results and $70.0 million, to be recorded during 2003. If end-market
conditions were to weaken significantly from current levels, we may undertake
additional restructuring activities, thereby reducing profitability in future
periods.

    WE ARE EXPOSED TO CHANGES IN GENERAL ECONOMIC CONDITIONSFinancial Condition
        As a result of unfavorable general economic conditions over the past three years and the reduced demand for technology capital goods, our sales have been particularly volatilenegatively affected in recent quarters. Specifically,years. Our financial performance depends on our customers' viability, financial stability, and the end-market demand for our customers' products. Most of our customers, in turn, depend substantially on the growth of the computing and communications industries. The computing and communications industries are characterized by rapidly changing technologies and shortening product lifecycles. These industries have experienced severe revenue erosion, pricing and margin pressures, excess inventories, and increased difficulty in attracting capital over the past few years. As a result of these factors, since the first fiscal quarter of 2001, we have seen declines in the demand for products in the end markets that we serve. If
global economic conditions in

                                       6
Although we experienced some improvements during the markets we serve do not improve, we may experience a continued material
adversefourth quarter of 2003, these factors and their impact on our customers could continue to have a material adverse effect on our business.
We Depend on a Limited Number of Customers For a Substantial Portion of Our Revenues and Declines In Sales to These Customers Could Adversely Affect Our Operating Results
        Our four largest customers in 2003 were Cisco Systems Inc., IBM Corporation, Lucent Technologies Inc. and Sun Microsystems Inc., each of which represented more than 10% of our total 2003 revenue and in the aggregate represented 44% of our total 2003 revenue. Our top ten customers represented 73% of total 2003 revenue. Our three largest customers in 2002 were IBM Corporation, Lucent Technologies Inc. and Sun Microsystems Inc. each of which represented more than 10% of our total 2002 revenue and collectively represented 48% of our total 2002 revenue. Our top ten largest customers represented 85% of our total revenue in 2002. We expect to continue to depend upon a relatively small number of customers for a significant percentage of our revenue. There was a steady decline in revenue from our top three customers in 2003, as their volumes were most negatively impacted by the broad-based reductions in corporate spending for computing and communications infrastructure products. In addition, some of our customers have in the past significantly reduced or delayed the volume of manufacturing services ordered from us. We cannot assure you that present or future large customers will not terminate their manufacturing arrangements with us or significantly change, reduce or delay the amount of manufacturing services ordered from us, any of which would adversely affect our operating results.

        Other than in connection with asset acquisitions, otherwise known as "original equipment manufacturers (OEM) divestitures," we generally do not enter into long-term supply commitments with our customers. Instead, we bid on a project basis and typically have supply contracts or purchase orders in place for the project. We are dependent on customers to fulfill the terms associated with these orders and/or contracts. Significant reductions in, or the loss of, sales to any of our large customers would have a material adverse effect on us. OEM divestitures often entail long-term supply agreements between ourselves and the OEM customer, and we are similarly dependent on customers to fulfill their obligations under these contracts.
Inherent Difficulties in Managing Capacity Utilization Place Strains on Our Planning and Affect Our Results of Operations
        Our customers are increasingly dependent on EMS providers for new product introductions and rapid response times to volume requirements. Most of our customers typically do not commit to firm production schedules for more than 30 to 90 days in advance and we often experience reduced lead-times in customers' orders. Accordingly, we cannot forecast the level of customer orders with certainty. This makes it difficult to order appropriate levels of materials and to schedule production and maximize utilization of our manufacturing capacity. In the past, we have been required to increase staffing, purchase materials, and incur other expenses to meet the anticipated demand of our customers. In addition, customers may cancel their orders, change production quantities, or delay production for a number of reasons. The uncertain economic condition of our customers' end markets and general order volume volatility has 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. Cancellation, reduction or delays by a significant customer, or by a group of customers, would seriously harm our results of operations by reducing the volumes of products manufactured and delivered by us for the customers in that period. Such order changes could also cause a delay in the repayment to us for inventory expenditures we incurred in preparation for the customer orders. Order cancellations and delays could also lower asset utilization, resulting in higher levels of unproductive assets and lower margins. On other occasions, customers have required rapid and sudden increases in production, which has placed an excessive burden on our manufacturing capacity. Any of these factors or a combination of these factors could have a material adverse effect on our results of operations.
        Shareholders and prospective investors should not rely on results of operations in any past period to indicate what our results will be for any future period.
Any Failure to Successfully Manage Our International Operations Would Have a Material Adverse Effect on Our Financial Condition and Results of Operations
        During 2003, more than half of our revenue was produced from locations outside of North America. In addition, we purchased material from international suppliers for much of our business, operating resultsincluding our North American business. We believe that our future growth depends largely on our ability to increase our business in international markets and, as we describe above, the shift of much of our production to lower cost geographies. We will continue to expand our operations outside of North America.
        This expansion will require significant management attention and financial resources. International operations are subject to inherent risks, which may adversely affect us, including:
•
labor unrest and differences in regulations and statutes governing employee relations;

•
changes in regulatory requirements;

•
tariffs, import and export duties, value-added taxes and other barriers;

•
less favorable intellectual property laws;

•
difficulties in staffing and managing foreign sales and support operations;

•
longer accounts receivable payment cycles and difficulties in collecting payments;

•
changes in local tax rates and other potentially adverse tax consequences, including the cost of repatriation of earnings;

•
burdens of complying with a wide variety of foreign laws, including changing import and export regulations, which could erode our profit margins or restrict exports;

•
adverse changes in trade policies between countries in which we maintain operations;

•
political instability;

•
potential restrictions on the transfer of funds;

•
inflexible employee contracts that restrict our flexibility in responding to business downturns; and

•
foreign exchange risks.
        We have either purchased or built manufacturing facilities in numerous Asian countries, including Thailand, Malaysia, China, Indonesia, Singapore and the Philippines, and are subject to the significant political, economic and legal risks associated with doing business in these countries. For instance, under its current leadership, the Chinese government has instituted a policy of economic reform which has included encouraging foreign trade and investment, and greater economic decentralization. However, the Chinese government may discontinue or change these policies, and these policies may not be successful. Moreover, despite progress in developing its legal system, particularly as it relates to foreign investment activities and foreign trade, enforcement of existing and future laws and contracts is uncertain, and implementation and interpretation of such laws may be inconsistent. As the Chinese legal system develops, new laws and changes to existing laws may adversely affect foreign operations in China. While Hong Kong has had a long history of promoting foreign investment, its incorporation into China means that the uncertainty related to China and its policies may now also affect Hong Kong. The Philippines, Thailand and Indonesia have each also had a long history of promoting foreign investment but have experienced economic and political turmoil and significant fluctuations in the value of their currencies in the recent past. There is a risk that economic and political turmoil may result in the reversal of current policies encouraging foreign investment and trade, restrictions on the transfer of funds overseas, employee turnover, labor unrest or other domestic problems that could adversely affect us.
Our Results Can be Affected by Limited Availability of Components
        A significant portion of our costs is for electronics components. All of the products we manufacture require one or more components that we order from suppliers of these particular components. In many cases, there may be only one supplier of a particular component. Supply shortages for a particular component can delay production and thus delay revenue of all products using that component or cause price increases in the products and services we provide. In the past, we have secured sufficient allocations of constrained components so that revenue was not materially impacted. In addition, at various times there have been industry-wide shortages of electronic components. Such shortages, or future fluctuations in material costs, may have a material adverse effect on our business or cause our results of operations to fluctuate from period to period.
Restrictions on Our Ability to Restructure Quickly Enough in Some of Our Key Manufacturing Regions, Such as Europe, Can Affect the Timing and Effectiveness of Our Restructuring Efforts
        We have operations in multiple regions around the world. As a result, we are subject to different regulatory requirements governing how quickly we are able to reduce manufacturing capacity and terminate related employees, and these requirements are particularly stringent in Europe. Restrictions on our ability to close under-performing facilities will result in higher expenses associated with carrying excess capacity and infrastructure during our restructuring activities.
Our Increased Reference Design Activity May Reduce Our Profitability
        We have recently begun providing reference design services, in which we design and develop off-the-shelf hardware that enables OEMs to enhance their own products roadmaps with standard or easily customizable systems that we or our key technology partners develop. The success of our product development efforts in 64-bit and other technologies is dependent on market acceptance and the adoption of these new technologies, the competitiveness of our offerings and our investment levels. In connection with this undertaking, we have made investments in the resources and assets necessary to design, develop and supply these products that are more significant than our typical service offerings, and we may not generate sales sufficient to cover our expenses or earn any profits from these efforts if our customers do not approve the designs in a timely manner or at all. We may design and develop products for our customers prior to receiving purchase orders or other firm

commitments from them, and sell standard products through distributors. Accordingly, we may purchase inventory for production runs before we have any purchase commitments.
Our Customers May Be Adversely Affected by Rapid Technological Change Which Can Adversely Impact Our Business
        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 short 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 or fail to gain widespread commercial acceptance, our business could be materially adversely affected.
Failure of Our Customers to Timely Pay the Amounts Owed to Us May Adversely Affect Our Results of Operations
        We generally provide payment terms ranging from 30 to 60 days. As a result, we generate significant accounts receivable from sales to our customers, historically representing 22% to 26% of current assets. Accounts receivable from sales to customers at December 31, 2003 were $771.5 million (December 31, 2002 — $785.9 million; December 31, 2001 — $1,054.1 million). At December 31, 2003, one customer represented 18% of total accounts receivable (December 31, 2002 — one customer represented 28% of total accounts receivable; December 31, 2001 — two customers represented 14% and 26% of total accounts receivable, respectively). If any of our customers have insufficient liquidity, we may encounter significant delays or defaults in payments owed to us by customers, which may have an adverse effect on our financial condition and results of operations. We regularly review our accounts receivable valuations and make adjustments when necessary. Our allowance for doubtful accounts at December 31, 2003 was $50.3 million (December 31, 2002 — $62.4 million; December 31, 2001 — $74.6 million), which represented 6.1% of the gross accounts receivable balance (December 31, 2002 — 7.4%; December 31, 2001 — 6.6%). Historically, the credit-related accounts receivable adjustments have not been significant to our results of operations. For the year ended December 31, 2003, we wrote off accounts receivable of $14.2 million (December 31, 2002 — $30.0 million; December 31, 2001 — $11.8 million) against the allowance for doubtful accounts in the normal course of business.
Moving Our Manufacturing Base to Lower Cost Regions Could Have a Material Adverse Effect on Our Financial Condition and Results of Operations
        With the significant and severe weakness in technology end markets over the past few years, our customers require significant cost reductions in order to maintain sales and improve their financial performance. This environment has resulted in an accelerated movement of our production from higher cost regions such as North America and Western Europe to lower cost regions such as Asia, Latin America and Central Europe. This accelerated move could impact current and future results by such factors as increasing the risks associated with transferring production to new regions where skills or experience may be more limited than in higher cost regions, higher operating expenses during the transition, additional restructuring costs associated with the decrease in production levels in higher cost geographies and the risks of operating in new foreign jurisdictions.
We May Encounter Difficulties Completing or Integrating Our Acquisitions Which Could Adversely Affect Our Results of Operations
        A significant portion of our growth in prior years was generated through acquisitions. These transactions have involved acquisitions of entire companies and acquisitions of selected assets from OEMs. These assets typically consist primarily of equipment, inventory and, in certain cases, facilities or facility leases. OEM asset divestiture transactions also typically involve our entering into new supply agreements with OEMs. Acquisitions may involve difficulties, including:
•
integrating acquired operations, systems and businesses;

•
maintaining customer, supplier or other favorable business relationships of acquired operations and restructuring or terminating unfavorable relationships;

•
addressing unforeseen liabilities of acquired businesses;

•
lack of experience operating in the geographic market or industry sector of the business acquired;

•
losing key employees of acquired operations; and

•
not achieving the anticipated business volumes.
        Any of these factors could prevent us from realizing the anticipated benefits of the acquisition, including operational synergies, economies of scale and increases in the value of our business. Our failure to realize the anticipated benefits of acquisitions could adversely affect our business and operating results.
If Our Products Are Subject to Warranty Claims, Our Business Reputation May be Damaged and We May Incur Significant Costs
        In certain of our contracts, we provide a warranty against defects in our designs or deficiencies with respect to our manufacturing processes. A successful product liability claim in excess of our insurance coverage, or any material claim for which insurance coverage was denied or limited and for which indemnification was not available, could have a material adverse effect on our business, results of operations and financial condition.

    THE WAR IN IRAQ, ACTS OF TERRORISM, AND OTHER POLITICAL AND ECONOMIC
     DEVELOPMENTS COULD ADVERSELY AFFECT OUR BUSINESS
We Are Subject to the Risk of Increased Income Taxes Which Could Adversely Affect Our Results of Operations
        We conduct business operations in a number of countries, including countries where:
•
tax incentives have been extended to encourage foreign investment; or

•
income tax rates are low.
        We develop our tax position based upon the anticipated nature and structure of our business and the tax laws, administrative practices and judicial decisions now in effect in the countries in which we have assets or conduct business, all of which are subject to change or differing interpretations, possibly with retroactive effect. Any such change would increase our income taxes and adversely affect our results of operations and our liquidity.
We Face Financial Risks Due to Foreign Currency Fluctuations
        The principal currency in which we conduct our operations is U.S. dollars. However, some of our subsidiaries transact business in foreign currencies, such as Canadian dollars, Mexican pesos, British pounds sterling, Euros, Singapore dollars, Japanese yen, Chinese renminbi, Czech koruna and the Thai baht. We sometimes enter into hedging transactions to minimize our exposure to foreign currency and interest rate risks. Our current hedging activity is designed to reduce the variability of our foreign currency costs and consists of contracts to purchase or sell these foreign currencies at future dates. In general, these contracts extend for periods of less than 25 months. Our hedging transactions may not successfully minimize foreign currency risk.
The Efficiency of Our Operations Could Be Adversely Affected By Any Delay in Delivery From Our Suppliers
        We rely on a variety of common carriers for materials and product transportation and for routing these through various world ports. A work stoppage, strike or shutdown of any important supplier's facility, or any major port or airport could result in manufacturing and shipping delays or expediting charges, which could have a material adverse effect on our results of operations.
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 generally do not have employment or non-competition agreements with 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 us.
We May Be Unable to Keep Pace With 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 develop and to market manufacturing services which meet changing customer needs, to maintain technological leadership, and to successfully anticipate or respond to technological changes in production, manufacturing and supply chain processes in cost-effective and timely ways. Our

manufacturing and supply chain processes, test development efforts and design capabilities may not be successful.
We May Be Unable to Protect Our Intellectual Property
        We believe that certain of our proprietary intellectual property rights and information give us 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 disclosure of our property or information.
        There is also a risk that infringement claims may be brought against us or our customers in the future. If someone does successfully assert an infringement claim, we may be required to spend significant time and money to develop a manufacturing process that does not infringe upon the rights of such other 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.
We May Not Be Able to Increase Revenue if the Trend of Outsourcing by OEMs Slows
        Future growth in our revenue depends on new outsourcing opportunities in which we assume additional manufacturing and supply chain management responsibilities from OEMs. To the extent that these opportunities are not available, because OEMs decide to perform these functions internally, our future growth will be limited.
Acts of Terrorism and Other Political and Economic Developments Could Adversely Affect Our Business
        Increased international political instability, evidenced by the threat or occurrence of terrorist attacks, enhanced national security measures, sustained military action in Iraq, other conflicts in the Middle East and Asia, strained international relations arising from these conflicts and the related decline in consumer confidence and continued economic weakness, may hinder our ability to do business and may adversely affect our stock price. Any escalation in these events or similar future events may disrupt our operations or those of our customers and suppliers and may 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. 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 adversely affects our revenuesrevenue and results of operations. The impact of these events on the volatility of the U.S. and world financial markets could increase the volatility inof our stock price and may limit the capital resources available to us and our customers or suppliers.

    WE ARE UNCLEAR HOW THE SEVERE ACUTE RESPIRATORY SYNDROME (SARS) OUTBREAK
     WILL IMPACT OUR BUSINESS
Our Compliance with Environmental Laws Could Be Costly
        We our suppliers, and our customers have manufacturing operations in Asia,
the geographic region most directly affected by the current outbreak of the SARS
virus. Existing bans being imposed by some employers on non-essential travel to
this region could begin to impact business in that region, including
postponement of factory maintenance and delay in customer qualification of our
manufacturing facilities for new programs. The continuation of this disease
outbreak in Asia, or its expansion in other regions where we or our customers or
suppliers have operations, could also disrupt our manufacturing supply chain and
adversely affect our operations through higher operating expenses, lower or
delayed production volumes resulting in weaker than expected utilization of our
facilities, and delays in product transfer activities from higher to lower cost
facilities as we implement our restructuring programs.

    OUR RESULTS CAN BE AFFECTED BY LIMITED AVAILABILITY OF COMPONENTS

    A significant portion of our costs reflects component purchases. A majority
of the products we manufacture require one or more components that we order from
sole-source suppliers of these particular components. Supply shortages for a
particular component can delay production of all products using that component
or cause price increases in the services we provide. In addition, at various
times there have been industry-wide shortages of electronic components. Such
shortages, or future fluctuations in material costs, may have a material adverse
effect on our business or cause our results of operations to fluctuate from
period to period. Also, we rely on a variety of common carriers for materials
transportation and route materials through various world ports. A work stoppage,
strike or shutdown of a major port or airport could result in manufacturing and
shipping delays or expediting charges, which could have a material adverse
effect on our results of operations.

    WE DEPEND ON CERTAIN INDUSTRIES

    Our financial performance depends on our customers' viability, financial
stability, and the demand for our customers' end-market products. Our customers,
in turn, depend substantially on the growth of the information technology and
communications industries. These industries are characterized by rapidly
changing technologies and shortening product life cycles. These industries have
been experiencing severe revenue erosion, pricing and margin pressures, excess
inventories, and increased difficulty in attracting capital. These factors
affecting the information technology and communications industries in general,
and the impact these factors might have from time to time on our customers in
particular, could continue to have a material adverse effect on our business.

    WE FACE CUSTOMER CREDIT RISK

    We generate significant accounts receivable and inventory balances in
providing manufacturing services to our customers. We may encounter significant
delays or defaults in payments owed to us by customers.

                                       7

    WE DEPEND ON A LIMITED NUMBER OF CUSTOMERS

    Our three largest customers in 2002 were IBM Corporation, Sun
Microsystems Inc., and Lucent Technologies Inc., which each represented more
than 10% of our total 2002 revenue and collectively represented 48% of our total
2002 revenue. Our next seven largest customers collectively represented 37% of
our total revenue in 2002. IBM Corporation, Sun Microsystems Inc., and Lucent
Technologies Inc., our three largest customers in 2001, each represented more
than 10% of our total 2001 revenue and collectively represented 55% of our total
2001 revenue. Our next seven largest customers represented 29% of total 2001
revenue. We expect to continue to depend upon a relatively small number of
customers for a significant percentage of our revenue.

    Our mix of business with customers in higher complexity communications and
information technology products had a major impact on our results in 2002 as
spending in these areas was adversely affected. We saw the biggest declines in
revenues from our top 10 customers, which represent over 80% of our business.

    Other than in the case of asset acquisitions, otherwise known as "OEM
divestitures," we generally do not enter into long-term supply commitments with
our customers. Instead, we bid on a project basis and have supply contracts or
purchase orders in place for each project. We are dependent on customers to
fulfill the terms associated with these orders and/or contracts. Significant
reductions in, or the loss of, sales to any of our largest customers would have
a material adverse effect on us. OEM divestitures often entail long-term supply
agreements between ourselves and the OEM customer, and we are similarly
dependent on customers to fulfill their obligations under these contracts.

    OUR CUSTOMERS MAY CANCEL THEIR ORDERS, CHANGE PRODUCTION QUANTITIES OR DELAY
     PRODUCTION

    Our customers are increasingly dependent on EMS providers for new product
introductions and rapid response times to volume requirements. We generally do
not obtain firm, long-term purchase commitments from our customers and we often
experience reduced lead-times in customers' orders. Customers may cancel their
orders, change production quantities, or delay production for a number of
reasons. The uncertain economic condition of our customers' end markets and
general order volume volatility has 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. Cancellation, reduction, or delays by a
significant customer, or by a group of customers, would seriously harm our
results of operations by reducing the volumes of products manufactured and
delivered by us for the customers in that period. Such order changes could also
cause a delay in the repayment to us for inventory expenditures we incurred in
preparation for the customer orders. Order cancellations and delays could also
lower asset utilization, resulting in higher productive assets and lower
margins.

    WE FACE RISKS ARISING FROM THE RESTRUCTURING OF OUR OPERATIONS

    We have undertaken numerous initiatives to restructure and reduce our
capacity in response to the difficult economic climate, with the intention of
improving utilization and realizing cost savings in the future. These
initiatives have included changing the number and location of our production
facilities, largely to align our capacity and infrastructure with anticipated
customer demand, and to rationalize our footprint worldwide. This alignment
includes transferring programs from higher cost geographies to lower cost
geographies. The process of restructuring entails, among other activities,
moving product production between facilities, reducing staff levels, realigning
our business processes and reorganizing our management. Any failure to
successfully execute these initiatives can have a material adverse impact on our
results. If, in the future, our customer demand falls, or we are required to
reduce prices, at a rate exceeding the rate at which we are able to reduce our
costs, this could have a material adverse impact on our operating results.

    WE MAY NOT BE ABLE TO RESTRUCTURE QUICKLY ENOUGH IN SOME OF OUR KEY
     MANUFACTURING REGIONS, SUCH AS EUROPE

    We have operations in multiple regions around the world. As a result, we are
subject to different regulatory requirements governing how quickly we are able
to reduce manufacturing capacity and terminate related employees. Restrictions
on our ability to close under-performing facilities will result in higher
expenses associated with carrying excess capacity and infrastructure during our
restructuring activities.

                                       8

    CHANGES IN OUR INDUSTRY REQUIRE US TO MOVE A SIGNIFICANT PORTION OF OUR
     MANUFACTURING BASE TO LOWER COST REGIONS

    With the significant and severe weakness in technology end markets over the
past two years, our customers require significant cost reductions in order to
maintain sales and improve their financial performance. This environment has
resulted in an accelerated movement of our production from higher cost regions
such as North America and western Europe to lower cost regions such as Asia,
Latin America and Central Europe. This accelerated move could impact current and
future results by such factors as increasing the risks associated with
transferring production to new regions where skills or experience may be more
limited than in higher cost regions, higher operating expenses during the
transition, and additional restructuring costs associated with the decrease in
production levels in higher cost geographies.

    WE FACE RISKS DUE TO OUR INTERNATIONAL OPERATIONS

    During 2002, approximately 40% of our revenue was produced from locations
outside of North America. In addition, we purchased material from international
suppliers for much of our business, including our North American business. We
believe that our future growth depends in large part on our ability to increase
our business in international markets and, as we describe above, the shift of
much of our production to lower cost geographies. We will continue to expand our
operations outside of North America. This expansion will require significant
management attention and financial resources. International operations are
subject to inherent risks, which may adversely affect us, including:

    - labor unrest;

    - unexpected changes in regulatory requirements;

    - tariffs, import and export duties, value-added taxes and other barriers;

    - less favorable intellectual property laws;

    - difficulties in staffing and managing foreign sales and support
      operations;

    - longer accounts receivable payment cycles and difficulties in collecting
      payments;

    - changes in local tax rates and other potentially adverse tax consequences,
      including the cost of repatriation of earnings;

    - lack of acceptance of locally manufactured products in other foreign
      countries;

    - burdens of complying with a wide variety of foreign laws, including
      changing import and export regulations which could erode our profit
      margins or restrict exports;

    - adverse changes in Canadian and U.S. trade policies with the other
      countries in which we maintain operations;

    - political instability;

    - potential restrictions on the transfer of funds;

    - inflexible employee contracts that restrict our flexibility in responding
      to business downturns; and

    - foreign exchange risks.

    We have either purchased or built manufacturing facilities in numerous Asian
countries, including Thailand, Malaysia, China, Indonesia, and Singapore, and
are subject to the significant political, economic, and legal risks associated
with doing business in these countries. For instance, under its current
leadership, the Chinese government has instituted a policy of economic reform
which has included encouraging foreign trade and investment, and greater
economic decentralization. However, the Chinese government may discontinue or
change these policies, and these policies may not be successful. Moreover,
despite progress in developing its legal system, China does not have a
comprehensive and highly developed system of laws, particularly as it relates to
foreign investment activities and foreign trade. Enforcement of existing and
future laws and contracts is uncertain, and implementation and interpretation of
such laws may be inconsistent. As the Chinese legal system develops, new laws
and changes to existing laws may adversely affect foreign operations in China.
While Hong Kong has had a long history of promoting foreign investment, its
incorporation into China means that the uncertainty related to China and its
policies may now also affect Hong Kong. Thailand and Indonesia have also had a
long history of promoting foreign investment but have experienced economic and
political turmoil and a significant devaluation of their currencies in the
recent past. There is a risk that economic and political turmoil may result in
the reversal of current policies encouraging foreign investment and trade,
restrictions on the transfer of funds overseas, employee turnover, labor unrest,
or other domestic problems that could adversely affect us.

                                       9

    OUR RECENT CAPACITY REDUCTION ACTIVITIES AND MANUFACTURING RESTRUCTURING
     PROGRAMS MAY IMPACT OUR ABILITY TO MEET THE GROWTH NEEDS OF OUR CUSTOMERS

    With the significant and severe weakness in technology end markets over the
past two years, we have experienced poor asset utilization and responded by
significantly reducing our manufacturing infrastructure. If our customers were
to experience sharp and unforecasted improvements in demand, the removal of this
infrastructure could potentially impact customer satisfaction and limit our
ability to grow if we are not able to respond to higher volumes required by our
customers.

    WE FACE FINANCIAL RISKS DUE TO FOREIGN CURRENCY FLUCTUATIONS

    The principal currency in which we conduct our operations is U.S. dollars.
However, some of our subsidiaries transact business in foreign currencies, such
as Canadian dollars, Mexican pesos, British pounds sterling, Euros, Singapore
dollars, Japanese yen, Brazilian reais, and the Thai baht. We may sometimes
enter into hedging transactions to minimize our exposure to foreign currency and
interest rate risks. Our current hedging activity is designed to reduce the
variability of our foreign currency costs and consists of contracts to purchase
or sell these foreign currencies at future dates. In general, these contracts
extend for periods of less than 19 months. Our hedging transactions may not
successfully minimize foreign currency risk.

    INTEREST RATE DECREASES WILL REDUCE INTEREST INCOME ON OUR PORTFOLIO OF CASH
     EQUIVALENTS AND SHORT-TERM INVESTMENTS

    The primary objective of our investment activities is to preserve principal
while, at the same time, maximize yields without significantly increasing risk.
To achieve this objective, we maintain our portfolio of cash equivalents and
short-term investments in a variety of securities, including both government and
corporate obligations, certificates of deposit, and money market funds. If
interest rates, and therefore interest income, were to fall significantly, there
may be a material adverse impact on our financial results.

    WE DEPEND ON HIGHLY SKILLED PERSONNEL

    The recruitment of personnel for 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 generally do not have employment or non-competition agreements
with 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 us.

    WE ARE IN A HIGHLY COMPETITIVE INDUSTRY

    We are in a highly competitive industry. We compete against numerous
domestic and foreign companies. Two of our competitors, Flextronics
International and Solectron Corporation, each have revenue in excess of
$12.0 billion for fiscal 2002 and one of our competitors, Sanmina-SCI
Corporation, has revenue in excess of $8.0 billion for fiscal 2002. We also face
indirect competition from the manufacturing operations of our current and
prospective customers, which continually evaluate the merits of manufacturing
products internally rather than using EMS providers. Some of our competitors
have more geographically diversified international operations, a greater
production presence in lower cost geographies as well as substantially greater
manufacturing, financial, procurement, research and development, and marketing
resources than we have. These competitors may create alliances and rapidly
acquire significant market share. Accordingly, our current or potential
competitors may develop or acquire services comparable or superior to those we
develop, combine or merge to form significant competitors, or adapt more quickly
than we will to new technologies, evolving industry trends and changing customer
requirements. Competition has caused and may continue to cause price reductions,
reduced profits, or loss of market share, any of which could materially and
adversely affect us. We may not be able to compete successfully against current
and future competitors, and the competitive pressures that we face may
materially adversely affect us. The EMS industry has been experiencing an
increase in excess manufacturing capacity. This has and will continue to exert
additional pressures on pricing for components and services, thereby increasing
the competitive pressures in the EMS industry. Excess capacity will limit the
industries ability to attain economics of scale and other synergies.

                                       10

    WE DEPEND ON THE CONTINUING TREND OF OUTSOURCING BY OEMS

    Future growth in our revenue depends on new outsourcing opportunities in
which we assume additional manufacturing and supply chain management
responsibilities from OEMs. To the extent that these opportunities are not
available, either because OEMs decide to perform these functions internally or
because they use other EMS providers, our future growth will be limited.

    WE MAY BE UNABLE TO KEEP PACE WITH 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 develop
and to market manufacturing services which meet changing customer needs, to
maintain technological leadership, and to successfully anticipate or respond to
technological changes in production and manufacturing processes in
cost-effective and timely ways. Our manufacturing processes, test development
efforts, and design capabilities may not be successful.

    OUR CUSTOMERS MAY BE ADVERSELY AFFECTED BY RAPID TECHNOLOGICAL CHANGE

    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 short product life cycles.
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 or fail to gain widespread commercial
acceptance, our business could be materially adversely affected.

    WE MAY BE UNABLE TO PROTECT OUR INTELLECTUAL PROPERTY

    We believe that certain of our proprietary intellectual property rights and
information give us 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 disclosure of our property or information.

    There is also a risk that infringement claims may be brought against us or
our customers in the future. If someone does successfully assert an infringement
claim, we may be required to spend significant time and money to develop a
manufacturing process that does not infringe upon the rights of such other
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.

    WE ARE SUBJECT TO THE RISK OF INCREASED INCOME TAXES

    Our business operations are carried on in a number of countries, including
countries where:

    - tax incentives have been extended to encourage foreign investment; or

    - income tax rates are low.

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

    OUR COMPLIANCE WITH ENVIRONMENTAL LAWS COULD BE COSTLY

    Like others in similar businesses, we are subject to extensive environmental laws and regulations in numerous jurisdictions. Our environmental policiesapproach and practices have been designed to ensure compliance with these laws and regulations in a manner consistent with local practice. Future developments and increasingly stringent regulationregulations could require us to incur additional expenditures relating to environmental matters at any of theour facilities. Achieving and maintaining compliance with present, changing and future environmental laws could restrict our ability to modify or expand our facilities or continue production. This compliance could also require us to acquire costly equipment or to incur other significant expenses.

                                       11

    Some of our operating sites have a history of industrial use. Soil and
groundwater contamination have occurred at some of our facilities.
        Certain environmental laws impose liability for the costs of removal or remediation of hazardous or toxic substances on an owner, occupier or operator of real estate, even if such person or company was not aware of or responsible for the presence of such substances. In addition, in some countries in which we have operations, any person or company who arranges for the disposal or treatment of hazardous or toxic substances at a disposal or treatment facility may be liable for the costs of removal or remediation of such substances at such facility, whether or not the person or company owns or operates the facility.
        Some of our operating sites have a history of industrial use. Soil and groundwater contamination have occurred at some of our facilities. From time to time we investigate, remediate, and monitor soil and groundwater contamination at certain of our operating sites. In certain instances where soil or groundwater contamination existed prior to our ownership or occupation of a site, landlords or former owners have


contractually retained responsibility and liability for the contamination and its remediation. However, failure of such former owners or landlords to perform, as the result of financial inability or otherwise, could result in our company being required to remediate such contamination.

    Except for facilities we acquired in the Omni transaction, we
        We generally obtained
Phase I or similar environmental assessments, or reviewed recent assessments initiated by others, for most of the manufacturing facilities that we own or lease at the time we either acquired or leased such facilities. Typically, these
assessments include general inspections without soil sampling or groundwater
analysis. Where contamination is suspected, Phase II intrusive environmental
assessments (including soil and/or groundwater testing) are usually performed.
These assessments have not revealed any environmental liability that we believe,
based on current information, will have a material adverse effect on us, in part
because of the contractual retention of liability for some contamination and its
remediation by landlords and former owners. Our assessments may not reveal all environmental liabilities and current assessments are not available for all facilities. Consequently, there may be material environmental liabilities of which we are not aware. In addition, ongoing clean up and containment operations may not be adequate for purposes of future laws. The conditions of our properties could be affected in the future by the conditionscondition of the land or operations in the vicinity of the properties, (suchsuch as the presence of underground storage tanks).tanks. These developments and others, (suchsuch as increasingly stringent environmental laws, increasingly strict enforcement of environmental laws by governmental authorities, or claims for damage to property or injury to persons resulting from the environmental, health or safety impact of our operations)operations may cause us to incur significant costs and liabilities that could have a material adverse effect on us.

    OUR LOAN AGREEMENTS CONTAIN RESTRICTIVE COVENANTS
Our Credit Agreements Contain Restrictive Covenants That May Impair Our Ability to Conduct Our Business
        Certain of our outstanding loancredit agreements contain 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. POTENTIAL ADVERSE EFFECT OF SHARES ELIGIBLE FOR FUTURE SALEAt March 31, 2004, we were in compliance with these covenants. At March 31, 2004, we were limited to approximately $120 million of additional debt incurrence based on minimum financial ratios.
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.
        As of February 28, 2003,at March 11, 2004, we had 189,102,903169,989,473 subordinate voting shares and 39,065,950 multiple voting shares outstanding. On March 12, 2004, we acquired all of the shares of MSL and issued approximately 14,100,000 subordinate voting shares. 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). and shares we issued in connection with our acquisition of MSL to persons who were affiliates of MSL. Shares held by our affiliates include all of the multiple voting shares and 3,483,2383,172,191 subordinate voting shares held by Onex.Onex Corporation. 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 adopted under 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 Celestica.us. Similar resale provisions apply to the subordinate voting shares issued to MSL affiliates in connection with our acquisition of MSL.
        In addition, as of February 28, 2003,March 11, 2004, there were approximately 33,497,00032,615,000 subordinate voting shares reserved for issuance under our employee share purchase and option plans and for director compensation, 12
including outstanding options to purchase approximately 25,536,00026,639,000 subordinate voting shares. As part of the MSL acquisition on March 12, 2004, we issued options to purchase approximately 2,100,000 subordinate voting shares and warrants to purchase approximately 1,100,000 subordinate voting shares. Moreover, we may, pursuant to our articles of incorporation, 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.

    OUR COMPANY IS CONTROLLED BY ONEX CORPORATION

The Interest of Our Controlling Shareholder May Conflict With the Interest of the Remaining Holders of Our Subordinate Voting Shares
        Onex owns, directly or indirectly, all of the outstanding multiple voting shares and less than 1%1.6% of the outstanding subordinate voting shares. The number of shares owned by Onex, together with those shares Onex has the right to vote, represent 84%85.2% of the voting interest in Celesticaus and approximately 2% of theour 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 to approve significant corporate transactions such as certain amendments to our articles of incorporation, mergers, amalgamations, plans of arrangement, and the sale of all or substantially all of our assets. Onex'assets and plans of arrangement in certain circumstances. 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 revolving credit facilities, it is an event of default entitling our lenders to demand repayment if Onex ceases to control Celestica and if ourunless the shares cease to beof Celestica become widely held ("widely held" meaning that no one person owns more than 20% of the votes). Under the indenture governing our Liquid Yield Option™ Notes (LYONs), our
lenders could demand repayment.we are required to offer to repurchase all of the LYONs if any person, other than Onex, becomes the beneficial owner of more than 50% of the voting interest in Celestica. Gerald W. Schwartz, the Chairman, President and Chief Executive Officer of Onex and one of our directors, owns shares with a majority of the voting rights of the shares of Onex. 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 our principal shareholders, please turn to Item 7(A), "Major Shareholders."
        In private placements outside of the United States, certain subsidiaries of Onex have offered exchangeable debentures due 2025 that are exchangeable and redeemable under certain circumstances during their 25-year term for 9,214,320 subordinate voting shares. In addition, 1,757,467 subordinate voting shares may be delivered, at the option of Onex or certain persons related to Onex, to satisfy the obligations of such persons under equity forward agreements. If the issuers of the exchangeable debentures elect or the party to the equity forward agreements elects to deliver solely subordinate voting shares and no cash upon the exchange or redemption, or at maturity or acceleration of the debentures, or the settlement of the equity forward agreement, as the case may be, the number of shares owned by Onex, together with those shares Onex has the right to vote, would, if such delivery had occurred on February 28, 2003,March 11, 2004, represent in the aggregate 78%80% of the voting interest in our company.

    POTENTIAL VOLATILITY OF SHARE PRICE

    The markets for our subordinate voting shares are highly volatile. The
trading price
Potential Unenforceability of subordinate voting shares could fluctuate widely in response
to:

    - quarterly variations in our operationsCivil Liabilities and financial results;

    - announcements by us or our competitors of technological innovations, new
      products, new contracts or acquisitions;

    - changes in our prices or the prices of our competitors' products and
      services;

    - changes in our product mix;

    - changes in our growth rate as a whole or for a particular portion of our
      business;

    - general conditions in the EMS industry; and

    - systemic fluctuations in the stock markets.

    The stock markets have fluctuated widely in the past. The securities of many
technology companies, including companies in the EMS industry, have experienced
extreme price and volume fluctuations, which often have been unrelated to the
companies' operating performance. These broad market fluctuations may adversely
affect the market price of the subordinate voting shares.

                                       13

    POTENTIAL UNENFORCEABILITY OF CIVIL LIABILITIES AND JUDGMENTSJudgments
        We are incorporated under the laws of the Province of Ontario, Canada. MostSubstantially all 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 for
shareholders to initiate a lawsuiteffect service within the United States against these
non-U.S.upon those directors, controlling persons and officers who are not residents of the United States or to enforce,realize in the U.S., judgments which are obtained inUnited States upon a judgment of courts of the United States predicated upon the civil liability provisions of the U.S. court against us or these persons. It may also be difficult for
shareholders to enforce a U.S. judgment in Canada or to succeed in a Canadian
court, in a lawsuit based only on U.S.federal securities laws.

ITEM
Item 4. INFORMATION ON THE COMPANY

Information on the Company
A. HISTORY AND DEVELOPMENT OF THE COMPANY

    Celestica wasHistory and Development of the Company
        We were incorporated in Ontario, Canada under the name Celestica International Holdings Inc. on September 27, 1996. Since that date, we have amended our articles of incorporation on various occasions, principally to modify our corporate name and our share capital. Our legal name and commercial name is Celestica Inc. We are a corporation domiciled in the Province of Ontario, Canada and operate under the Ontario Business Corporations Act. Our principal executive offices are located at 1150 Eglinton Avenue East, Toronto, Ontario, Canada M3C 1H7 and our telephone number is (416) 448-5800. Our Web site is http://www.celestica.com. Information on our Web site is not incorporated by reference in this Annual Report.
        We are a world leader in the delivery of innovative electronics manufacturing services. We operate a highly sophisticated global manufacturing network with operations in Asia, Europe and the Americas, providing a broad range of services to leading OEMs. A recognized leader in quality, technology and supply chain


management, Celestica provides competitive advantage to customers by improving time-to-market, scalability and manufacturing efficiency.
        As an important IBM manufacturing unit, Celesticawe provided manufacturing services to IBM for more than 75 years. In 1993, we began providing EMS services to non-IBM customers. In October 1996, Celestica waswe were purchased from IBM by an investor group, led by Onex, which included our management.

OUR ACQUISITIONS
Our Acquisitions
        A listing of our acquisitions since 19981999 is included in note (1) to the Selected Financial Data table, seetable. See Item 3, "Key Information --— Selected Financial Data."
        In 2002, we completed the acquisition of:

    - 
•
certain manufacturing assets of NEC Corporation in Miyagi and Yamanashi, Japan; and

    - 

•
certain assets from Corvis Corporation in the United States.
        In connection with these acquisitions, we also entered into supply agreements.
        In 2003, we did not complete any acquisitions.
        As of April 1, 2004, we completed the acquisition of:
•
all of the shares of MSL; and

•
certain assets from NEC Corporation in the Philippines.
        The aggregate purchase price for these acquisitions was $111.0$443.7 million.
        Certain information concerning capital expenditures, including acquisitions and financing activities, is set forth in notes 3, 7, 8, 9 10, 11, and 2018 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, such as
restructuring,including our restructurings, is set forth in note 1311 to the Consolidated Financial Statements in Item 18, in Item 4, "Information on the Company --— Description of Property," and Item 5, "Operating and Financial Review and Prospects --— Management's Discussion and Analysis of Financial Condition and Results of Operations."
B. BUSINESS OVERVIEWBusiness Overview
        Our goal is to be the "partner of choice" in EMS. We believe we are uniquelywell positioned to achieve this goal given our position as one of the major EMS providers worldwide and our widely recognized skills in our core areas of competency. The Company'sOur strategy is to (i) maintainsteadily improve our leadershipoperating margins and increase operating efficiency by driving costs lower and providing supply chain solutions that capture value for us and our customers, (ii) leverage our position in the areas of

                                       14
 technology, quality and supply chain management, (ii)(iii) develop and enhance profitable, strategic relationships with industry leaders, (iii) continually expandleading OEMs, (iv) broaden the range of the services we provide to OEMs (iv)in areas that can reduce their manufacturing, supply chain and product development costs, (v) continue to diversify our customer base,end markets, serving a wide variety of end markets, (v)OEMs, and (vi) selectively pursue strategic
acquisitions that enhance the company's EMS and (vi) steadily improve our operating margins.supply chain strategies. We believe that the successful implementation of this strategy will allow us to achieve superiorsignificantly improved financial performance and enhance shareholder value.
        We have operations in the Americas, Europe and Asia. We provide a wide variety of products and services to our customers, including the manufacture, assembly and test of complex printed circuit assemblies or PCAs, and(PCAs), the full system assembly of final products.products and order fulfillment. In addition, we provide a broad range of EMS services from product design to worldwide distribution, order fulfillment and after-salesafter-market service and support.

    Celestica targets
        We have targeted industry-leading OEMs primarily in the information
technologycomputing and communications sectors. Celestica suppliesIn addition to this, we are increasing our diversification across other markets, such as aerospace and defense, industrial, consumer and automotive, to reduce the risk of reliance on those sectors. We supply products and


services to over 100160 OEMs. In the aggregate, our top ten customers represented over 80%73% of revenue in 2002.2003. The products we manufacture can be found in a wide array of end products, including: cell phones and pagers, electronic metering devices, hubs and switches, LAN and WAN networking cards, laser printers, mainframe computers, mass storage devices, medical products, modems, multimedia peripherals, PBX switches, personal computers, PDAs, photonic devices, routers, scalable processors, servers, switching products, token ring products, video broadcasting equipment, wireless base stations, wireless loop systems and workstations.
        Our principal competitive advantages are our advanced capabilities and
leadership in the areas of technology and quality, our flexible manufacturing network and our effective supply chain management. We are an industry leader in a wide range of advanced manufacturing technologies, using established and emerging process technologies. We believe our test capabilities are among the best in the industry and enable us to produce highly reliable products, including products that are critical to the functioning of our customers' products and systems. Our size, geographic reach and leading expertise in supply chain management allow us to purchase materials effectively and to deliver products to customers faster, thereby reducing overall product costs and reducing the time to market.
        We believe that our highly skilled workforce gives us a distinct competitive advantage. Through innovative compensation and broad-basedan employee stock ownership plan, we have developed a uniquean entrepreneurial, participative and team-based culture.

ELECTRONICS MANUFACTURING SERVICES INDUSTRY

    OVERVIEW
Electronics Manufacturing Services Industry
Overview
        The EMS industry is comprised of companies that provide a broad range of manufacturing services to OEMs. The industry (i) has experienced rapid growth in
the past and has potential for growth in the future as the market for
outsourcing, as a whole, grows, (ii) is highly fragmented and (iii) is poised
for continuing consolidation due to the advantages of scale and geographic
diversity. In 2002, two EMS providers -- Flextronics International and Solectron
Corporation -- each achieved total revenue in excess of $12.0 billion, and two
EMS providers -- Celestica and Sanmina-SCI Corporation -- each achieved total
revenue in excess of $8.0 billion.

    We see numerous industry vectors that are fueling the EMS industry. These
include the continuing trend of information technology and communications
companies to outsource their electronics manufacturing and to divest their
manufacturing assets; OEMs in Japan increasingly execute an electronics
manufacturing outsourcing strategy; the increasing adoption of an outsourcing
strategy by the industrial, medical, military, and consumer electronics
industries; and OEMs increasingly looking to the EMS industry to reduce their
overall cost of goods sold and to provide a full range of services including
design, system build, order fulfillment, reverse logistics, and other related
manufacturing and customer support services.

    In the current weak economic environment, the industry is dealing with the
challenges of low utilization rates and the shifting of more production and
manufacturing infrastructure to lower cost geographies. However, we believe that
as the trend to outsourcing continues, OEMs will increasingly outsource more of
their manufacturing and related services to EMS providers. This trend will favor
larger EMS providers that have clear advantages of scale, financial strength,
geographic diversity, and leading supply chain capabilities, and is expected to
lead to a sustained period of consolidation in the EMS industry.

                                       15

    EVOLUTION OF THE EMS INDUSTRY

    Historically, OEMs were fully integrated. They invested heavily in
manufacturing assets, establishing facilities around the world to support the
manufacture, service and distribution of their products. Since the 1970s, the
EMS market has evolved significantly. In the early stages of development of the
EMS industry, EMS companies acted as subcontractors and performed simple
material assembly functions mainly on a consignment basis for
OEMs. Accordingly, the relationship between OEMs and EMS providers tended
originally to be transactional in nature.

    Significant advancements in manufacturing process technology in the 1980s
enabled EMS companies to provide cost savings to OEMs while at the same time
increasing the quality of their products. Furthermore, asAs the capabilities of EMS companies expanded,evolved from manufacturing components or partial assemblies to providing complex manufacturing services, an increasing number of OEMs adopted and became increasingly reliant upon manufacturing outsourcing strategies. In recent years,
large sophisticatedToday, the leading EMS companies have further expanded their capabilities to
include providingglobal footprints with worldwide supply chain management and offer end-to-end services in support of their OEM customers, ranging fromfor the product lifecycle, including front-end design toand product development, advanced manufacturing, final distribution and after-sales support.
For the services they provide, the larger EMS companies generally have a lower
cost structure, superior technological know-how and more advanced manufacturing
processes relative to most of the OEM customers they serve. In this environment,
OEMs have begun increasingly to outsource front-end design functions as well as
back-end full system assembly productand test, test development,direct order fulfillment, and distribution functions.after-market service and support. By outsourcing their manufacturing and related services, OEMs are able to focus on their core competencies, including product development, sales, marketing and customer service, while leveraging the expertise of EMS providers
for design, procurement, assemblyproviders.
        According to IDC, the global EMS market was estimated to be $92 billion in 2003 and test operations, and supply chain
management. Asis expected to grow to $144 billion by 2007, representing a result, larger, more sophisticated EMS providers have
established strong strategic relationships with manycompounded annual growth rate of their OEM customers.

    The Company believes11.8%. We see numerous industry trends that the principal reasons OEMs establish relationships
with EMS providersare fueling this growth. These include the following:

    DECREASE TIME TO MARKET.  Electronics productscontinuing trend of computing and communications companies to outsource their electronics manufacturing and to divest manufacturing assets; the more widespread adoption of an electronic manufacturing outsourcing strategy by the industrial, aerospace and defense and consumer electronics industries; and OEMs increasingly looking to the EMS industry to reduce their overall cost of goods sold. We believe increased outsourcing adoption by OEMs will continue because it allows OEMs to:
        Reduce Operating Costs and Invested Capital.    OEMs are experiencing increasingly
shorter product life cycles, requiring OEMsunder significant pressure to continually reduce the time
required to bring products to market. OEMs can significantly improve product
development cyclesmanufacturing costs and enhance time to market by benefiting from the expertise
and infrastructure of EMS providers. This includes capabilities relating to
design, quick-turn prototype development and rapid ramp-up of new products to
high volume production, with the critical support of worldwide supply chain
management.

    REDUCE OPERATING COSTS AND INVESTED CAPITAL.  Ascapital expenditures as electronics products have become more technically advanced and the manufacturing process has become increasingly automated, requiringwhich requires greater levels of investment in capital equipment. EMS companies enable OEMs to gain access to advanced manufacturing facilities, supply chain management and engineering capabilities, additional capacity, greater flexibility for both product ramp-up and changeover, and the economies of scale which EMS companies provide. As a result, OEMs can reduce overall operating costs, working capital and capital investment requirements.

    FOCUS RESOURCES ON CORE COMPETENCIES.
        Focus Resources on Core Competencies.    The electronics industry is experiencing greater levels of competition and rapid technological change. In this environment, many OEMs are seeking to focus on their core competencies of product development, sales, marketing and customer service, and to outsource design, manufacturing and related requirements to their EMS partners.

    ACCESS LEADING MANUFACTURING TECHNOLOGIES.


        Speed Time-to-Market.    Electronics products and
electronics manufacturing technology have becomeare experiencing increasingly sophisticated and
complex, making it difficult for manyshorter product lifecycles, requiring OEMs to maintaincontinually reduce the necessary
technologicaltime required to bring products to market. OEMs can significantly improve product development cycles and enhance time-to-market by benefiting from the expertise and focus requiredinfrastructure of EMS providers. This includes capabilities relating to efficiently manufacturedesign services, quick-turn prototype development and rapid ramp-up of new products
internally. By working closely with EMS providers, OEMs gain access to high quality manufacturing expertisevolume production, with the critical support of worldwide supply chain management.
Utilize EMS Companies'Procurement,Inventory Management and capabilities in the areas of advanced
process, interconnect and test technologies.

    UTILIZE EMS COMPANIES' PROCUREMENT, INVENTORY MANAGEMENT AND LOGISTICS
EXPERTISE.Logistics Expertise. OEMs whothat manufacture internally are faced with greater complexities in planning, procurement and inventory management due to frequent design changes, short product life cycleslifecycles and product demand fluctuations. OEMs can address

                                       16
 these complexities by outsourcing to EMS providers that (i) possess sophisticated supply chain management capabilities and (ii) can leverage significant component procurement advantages to lower product costs.

    IMPROVE ACCESS TO GLOBAL MARKETS.
        Access Leading Engineering Capabilities and Technologies.    Electronics products and electronics manufacturing technology have become increasingly sophisticated and complex. As a result, OEMs increasingly rely on EMS companies to provide design and engineering support and manufacturing and technological expertise. EMS companies' design and engineering services can assist OEMs with the development of a new product concept, as well as with improvements in 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.    OEMs are generally increasing their international activities in an effort to expand sales through access to foreign markets. EMS companies with worldwide capabilities are able to offer such OEMs global manufacturing solutions, to meet local content requirements, distribute products efficiently around the world and lower costs.

    KEY SUCCESS FACTORS

    Celestica believes that the following are the key success factors for EMS
providers seeking to establish and expand relationships with leading OEMs:

    SOPHISTICATED TECHNOLOGICAL CAPABILITIES.  The desire among OEMs to increase
product performance, functionality and quality is driving a requirement for
increasingly complex assembly and test technologies. EMS companies that possess
sophisticated skills in manufacturing technology, and that continually innovate
and develop advanced assembly and test techniques, provide a competitive
advantage to their OEM customers. We believe that as the trend to outsourcing
continues, OEMs will increasingly outsource more complex products.

    LARGE-SCALE AND FLEXIBLE PRODUCTION CAPACITY.  Increasingly, leading
OEMs are seeking to outsource large-scale manufacturing programs. Generally
those EMS providers that can meet the volume and sensitive time-to-market
requirements associated with these programs will be able to exploit these
opportunities. EMS providers must be of a certain scale and diversity to be
awarded large-scale programs, as OEMs are often seeking partners with the
resources to support simultaneous product launches in multiple geographic
markets.

    GLOBAL SUPPLY CHAIN MANAGEMENT SKILLS.  EMS providers must possess the
skills required to optimize many aspects of the OEM's global supply chain, from
managing a sophisticated supplier base, component selection and cost-effective
procurement to inventory management and rapid distribution direct to end
customers. Therefore, EMS providers who lack the sophisticated material resource
planning and information technology systems necessary to effectively optimize
the supply chain will be significantly disadvantaged in the marketplace.

    BROAD SERVICE OFFERING.  In order to establish strategic relationships with
OEM customers, EMS companies must be able to effectively provide a broad
portfolio of services. These services include front-end product design and
design for manufacturability, component selection and procurement, quick-turn
prototyping, PCA test, product assurance and failure analysis, as well as
back-end functions such as full system assembly, order fulfillment, worldwide
distribution and after-sales support, including repair services. The complex
nature of certain services such as front-end design and testing requires a
significant investment in highly trained engineering personnel.

    COMPETITIVE COSTS.  EMS companies with global plant networks can simplify
and shorten an OEM's supply chain, significantly reduce the time it takes to
bring products to market, and significantly reduce the total cost of an OEM's
product. EMS providers that have significant capability in lower cost regions
such as Mexico, Asia, and Central Europe can provide lower cost manufacturing
solutions to their OEM customers. As a result of these trends, many large
OEMs tend to work with a smaller number of EMS providers that, as worldwide
suppliers, can meet their needs in multiple geographic markets at the lowest
cost.

    MARKET CONSOLIDATION

    The Company believes that larger EMS providers that possess the above-noted
attributes will be well positioned to take advantage of the future outsourcing
trend. Conversely, the Company believes that smaller providers who seek to serve
leading OEMs, and compete directly with larger EMS providers, will generally be
disadvantaged due to a lack of scale and their difficulty in meeting OEM
requirements relating to technology, capacity, supply chain management, broad
service offerings, global manufacturing capabilities, and competitive costs.

    The EMS industry continues to experience large-scale acquisition activity,
primarily through the sale of facilities and manufacturing operations from
OEMs to larger EMS providers. OEMs have tended to award these

                                       17

opportunities to larger EMS providers that possess the capital, management
expertise and advanced systems required to integrate the acquired business
effectively as the acquiror in most cases becomes an important supplier to the
OEM post-acquisition. For the EMS provider, these acquisitions have been driven
by the need for additional capacity or capability, a desire to enter new
geographic or product markets and services, or a desire to establish or further
develop a customer relationship with a particular OEM.

    Given this environment, Celestica believes that the EMS industry may
experience significant consolidation, driven by the continued trend among
OEMs to outsource large-volume programs to leading EMS providers, the continued
disposition of OEM manufacturing assets to these companies and acquisition
activity among EMS businesses themselves.

CELESTICA'S STRATEGY

    
Celestica's Strategy
        Our goal is to be the "partner of choice" in EMS.the EMS industry. To achieve this goal, Celestica workswe work closely with OEM customers to proactively identify and fulfill each of their requirements, and exceed their expectations in areas such as price, delivery, quality,service offerings, reliability and serviceability.serviceability, quality and delivery. By deploying the following strategy, we believe that Celesticawe will maximize customer satisfaction, achieve superior financial performance and enhance shareholder value:

    LEVERAGE LEADERSHIP IN TECHNOLOGY, QUALITY AND SUPPLY CHAIN MANAGEMENT.
        Steadily Improve Operating Margins and Increase Operating Efficiency.    Operating margins and working capital performance deteriorated in 2003 as demand hit three-year lows for us. To address this challenge, management is committed to applying strategies and processes designed to improve margins around the world. We are executing our plan to improve overall financial margins by (i) completing our restructuring program, (ii) leveraging corporate procurement capabilities to lower materials costs, (iii) increasing utilization of facilities to take advantage of significant operating leverage, (iv) deploying corporate cost reduction and productivity enhancement initiatives on a global basis, (v) applying best practices throughout our operations worldwide, (vi) moving production to lower cost regions and (vii) compensating our employees based, in part, on the achievement of earnings targets. In order to drive greater efficiency, we are also committed to the deployment of lean manufacturing and Six Sigma techniques, designed to improve manufacturing processes by reducing waste and redundancy within our manufacturing facilities. We will continue our intensive focus on maximizing asset turnover, which, combined with the margin enhancements measures described above, we believe will increase our return on invested capital.
        Leverage Expertise in Technology, Quality and Supply Chain Management.    We are committed to maintainingmeeting our leadership positioncustomers' needs in the areas of technology, quality and supply chain management. Our modern plants across the world and leading technological capabilities enable us to produce complex and highly sophisticated products to meet the rigorous demands of our OEM customers. The Company's Customer Gateway
Centre strategy provides customer access to the Company's broad base of
services, capabilities, skills, geographic coverage and larger production
facilities. Our commitment to quality in all aspects of our business allows us to deliver consistently reliable products to our OEM customers. The systems and processes associated with our leadershipexpertise in supply chain management enable us to rapidly ramp operations to meet customer needs, flexibly shift capacity in response to product demand fluctuations, and effectively distribute products directly to


end customers. We often work closely with many suppliers to influence component design for the benefit of OEM customers. We have been recognized through numerous customer and industry achievement awards.

    DEVELOP AND ENHANCE RELATIONSHIPS WITH LEADING OEMS.  Celestica seeks
        Develop and Enhance Profitable and Strategic Relationships with Leading OEMs.    We seek to build and sustain profitable, strategic relationships with industry leaders in sectors that can benefit from the information
technologydelivery of our innovative electronics manufacturing services. In addition, we are focused on identifying and communications sectors.developing new customer relationships. To this end, we pursue opportunities which exploit our competitive advantages in the areas of technology, quality and supply chain management. We conduct ourselves as an extension of our customers' organizations, which enables us to respond to their needs with speed, agility and a commitment to deliver results. This strategy has allowed us to establish and maintain strong manufacturing relationships with a wide range of leading OEMs. We are also committed to
diversification ofOEMs such as Cisco Systems, Inc., IBM Corporation, Lucent Technologies, Inc. and Sun Microsystems Inc. Going forward, we believe our existing OEM customer base will be a strong source of growth for us as we seek to strengthen these relationships through the delivery of additional products and to expanding our global presence as
required by our customers.

    BROADEN SERVICE OFFERINGS.services.
        Broaden Service Offerings.    We continually look to expand the breadth and depth of the services we provide to OEMs.OEMs in areas that can reduce their design, manufacturing, supply chain and product costs. Although we traditionally offered our services in connection with the production of higher-end and more complex products, we have significantly broadened our offering of services to facilitate the manufacture of a broader spectrum of products and to support the full product lines of leading OEMs. In the past few years, we have acquired additional capabilities in prototyping and PCA design, embedded system design, full system assembly, logistics, fulfillment and repairafter-market services. We have also developed reference designs for servers and workstations based on next-generation 64-bit microprocessors. We will expand our capabilities and service offerings on a global basis as required bybased on potential returns to the company and in response to the changing needs of our customers.

    DIVERSIFY END MARKETS.  Celestica has
        Continue to Diversify End Markets and Customer Base.    We have a diversified customer base whose products serve the communications, server, storage and other, workstation and personal computer industries. In 2002,2003, revenue by end-market users was as follows: enterprise communications -- 45%— 25%; telecommunications — 23%; servers -- 26%— 22%; storage and— 13%; other -- 22%— 10%; and workstations and personal computer --computers — 7%. Celestica targetsWe target industry-leading OEMs, primarily in the information technologycomputing and communications sectors. In addition to this, Celestica'sour strategy includes increasing itsour diversification across other end markets, such as aerospace military,and defense, industrial, medical, consumer, and automotive, to reduce the risk of reliance on certain sectors. 18

    SELECTIVELY PURSUE STRATEGIC ACQUISITIONS.  CelesticaAs a result of our acquisition of MSL, our customer base has expanded to include commercial avionics, automotive, retail systems and peripherals.
        Selectively Pursue Strategic Acquisitions.    We have completed numerous acquisitions. We will continue to selectively to seek acquisition opportunities in order to (i) further develop strategic relationships with leading OEMs, (ii) expand our capacity and capability, (iii) diversify into new market sectors, (iv) broaden our service offerings and (v) optimize our global positioning. Celestica hasWe have developed and deployed a comprehensive integration strategy thatto support our acquisitions. This includes establishing a common culture at all locations with broad-based workforce participation, providing a single marketing "face" to customers worldwide, deploying common information technology platforms, leveraging global procurement and transferring best practices among operations worldwide.

    INCREASE OPERATING EFFICIENCY.  While operating margins were relatively
stable for the past two years, operating margins fell in 2002 as a result of
revenue declines and weaker facilities utilization. Management is committed to
applying our proven strategies and processes to enhance margins around the
world. Additionally, we
Celestica's Business
EMS Services
        We are executing our plan to improve overall financial
margins by (i) completing our restructuring program, (ii) leveraging corporate
procurement capabilities to lower materials costs, (iii) increasing utilization
of facilities to take advantage of significant operating leverage,
(iv) deploying corporate cost reduction and productivity enhancement initiatives
on a global basis, (v) consistently applying best practices among our operations
worldwide, and (vi) compensating our employees based in part on the achievement
of earnings targets. In addition, we will continue our intensive focus on
maximizing asset turnover which, combined with the margin enhancements described
above, we believe will increase our return on invested capital.

CELESTICA'S BUSINESS

    EMS SERVICES

    Celestica is positioned as a value-added provider within the EMS industry with a full spectrum of products and services to capitalize on theour extensive technological know-how and intellectual capital within Celestica.capital. We believe that our ability to deliver this wide spectrum of services to our OEM customers provides us with a competitive advantage over EMS providers focused in few service areas. Celestica offersWe offer a full range of manufacturing services including those discussed below.

    SUPPLY CHAIN MANAGEMENT.
        Supply Chain Management.    We utilize our fully integrated enterprise resource planning and supply chain management system to enable us to optimize materials management from supplier to end customer. Effective


management of the supply chain is critical to the success of OEMs as it directly impacts the time required to deliver product to market and the capital requirements associated with carrying inventory.

    DESIGN.  Celestica's
        Design.    Our design team works with OEM product developers in the early stages of product development. The design team uses advanced design tools to enable new product ideas to progress from electrical and ASIC design, to simulation and physical layout, to design for manufacturability.manufacture. Electronic linkages between the customer theand our design group and theour manufacturing group at
Celestica help to ensure that new designs are released rapidly, smoothly and cohesively into production.

    PROTOTYPING.
        Reference Designs.    Reference designs are off-the-shelf hardware that enable OEMs to enhance their own product roadmaps with standard or easily customizable systems developed by us and our key technology partners. Increased product design activity is one of the additional services OEMs are requesting from EMS companies, and our strong track record in the manufacture of advanced information technology should allow us to be effective in this area. An example is the major initiative that we have taken in the area of 64-bit reference designs, where we have developed server and workstation products based on next-generation, industry-standard microprocessors from Advanced Micro Devices (AMD) and Intel Corporation.
        Prototyping.    Prototyping is a critical stage in the development of new products which is enhanced by linkages between OEM and EMS engineers. Celestica'sOur prototyping and new product introduction centers referred to as
"Customer Gateway Centres," are strategically located, enabling us to provide a quick response to customer demands, facilitating greater collaboration between our engineers and those customers, and providing a seamless entry tointo our larger manufacturing facilities.

    PRODUCT ASSEMBLY AND TEST.
        Product Assembly and Test.    We use sophisticated technology in the assembly and testing of our products, and have continually made significant investments in developing new assembly and test process techniques and improving product quality, reducing cost and improving delivery time to customers. Celestica
worksWe work independently and with customers and suppliers to develop leading assembly and test technologies.

    FULL SYSTEM ASSEMBLY.  Celestica provides
        Full System Assembly.    We provide full system assembly services to OEMs. These services require sophisticated logistics capabilities to rapidly procure components, assemble products, perform complex testing and distribute products to customers around the world. Celestica'sOur full system assembly services involve combining a wide range of sub-assemblies (including PCA) and employing advanced test techniques tofor various sub-assemblies and final end products. Increasingly, OEMs require custom build-to-order system solutions with

                                       19
 very short lead times. We are focused on exploiting this trend through our advanced supply chain management capabilities.

    PRODUCT ASSURANCE.  Celestica provides
        Product Assurance.    We provide product assurance to our OEM customers. Celestica'sOur product assurance team performs product life testing and full circuit characterization to ensure that designs meet or exceed required specifications. Celestica isWe are accredited as a National Testing Laboratory capable of testing to international standards (E.G.(e.g., Canadian Standards Association and Underwriters Laboratories). Celestica believesWe believe that this service allows customers to attain product certification significantly faster than is customary in the EMS industry.

    FAILURE ANALYSIS.  Celestica's
        Failure Analysis.    Our extensive failure analysis capabilities concentrate on identifying the root cause of product failures and determining corrective action. Root causes of failures typically relate to inherent component defects or design robustness deficiencies. Products are subjected to various environmental extremes, including temperature, humidity, vibration, voltage and rate of use, and field conditions are simulated in failure analysis laboratories which also employ advanced electron microscopes, spectrometers and other advanced equipment. We are proficient in discovering failures before products are shipped and, more importantly, our highly qualified engineers are very pro
activeproactive in working in partnership with suppliers and customers to develop and implement resolutions.

    PACKAGING AND GLOBAL FULFILLMENT.  Celestica designs
        Logistics.    We are able to leverage our expertise, relationships and testsglobal scale in manufacturing, supply chain management and fulfillment to provide a fully integrated logistics solution to meet every need. Our logistics offering includes warehouse and distribution, freight management, logistics consulting services, product and materials visibility and reverse logistics.

        Packaging and Global Fulfillment.    We design and test packaging of products for bulk shipment or single end-customerend customer use. We have a sophisticated integrated system for managing complex international order fulfillment allowingthat allows us to ship worldwide and, in many cases, directly to the OEMs' endOEM's customers.

    AFTER-SALES SUPPORT.  Celestica offers
        After-Market Services.    We offer a wide range of after-salesafter-market support services. This support can be individualized to meet each customer's requirements and includes field failure analysis, product upgrades, repair and engineering change management.

    QUALITY MANAGEMENT
Quality Management
        One of our strengths has been our ability to consistently deliver high quality services and products. Celestica hasWe have an extensive quality management system that focuses on continual process improvement and achieving high customer satisfaction. Celestica employsWe 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 or ISO 9002 standards. Most of our principal facilities are also certified to the ISO 14001 (environmental) standards.
        In addition to these standards, we are committed to deployment of lean manufacturing and Six Sigma techniques throughout all of our manufacturing network. The implementation of lean production systems should result in increased efficiencies and greater operating leverage.
        We believe that our success is directly linked to high customer satisfaction. As such,a result, a portion of the compensation of employees is based on the results of extensive customer satisfaction surveys conducted on Celestica'sour behalf by an independent consultant.

    GEOGRAPHIES
Geographies
        In 2002,2003, approximately 56%44% of Celestica'sour revenue was produced in North America. Facilities in Asia and Europe generated approximately 23%36% and 21%20%, respectively, of Celestica'sour revenue in 2002.2003. A listing of our principal locations is included in Item 4, "Information on the Company --— Description of Property." We are focused on expanding our resources and capability in lower cost geographies. We believe that locating in lower cost geographic regions such as Central Europe and Asia complements our service offerings by providing lower cost manufacturing solutions to our OEM customers for certain price-sensitive applications.
        Certain information concerning geographic segments is set forth in note 2018 to the Consolidated Financial Statements in Item 18.

    SALES AND MARKETING

    
Sales and Marketing
        We have adopted a focused marketing approach targeted at Celesticacreating profitable, strategic relationships with leading OEMs in our end markets. Our sales and marketing is an integrated set of processes designed to provide a single "face" to the customer worldwide. Celestica'sOur coordination of efforts with key global customers has been enhanced by the creation of customer-focused units — each headed by a group general manager to oversee the entire relationship with such customers. We have a global network comprised of direct sales representatives, operational and project managers, account executives and supply chain management, as well as senior executives. Celestica's

                                       20
Our sales resources are directed at multiple management and staff levels within target accounts. Sales offices are located in proximity to key customers and markets.

    Celestica has adopted a focused marketing approach
Customers
        We have targeted at creating
profitable, strategic relationships with leading OEMs primarily in the
information technology and communications sectors.

    CUSTOMERS

    Celestica targets industry-leading customers primarily in the information
technologycomputing and communications sectors. Celestica supplies products and services to over 100160 OEMs, including such industry leaders as Avaya Inc., Cisco Systems Inc., Dell Computer Corporation, EMC Corporation, Hewlett-Packard Corporation, IBM Corporation, Lucent Technologies Inc., Motorola Inc., NEC Corporation, and Sun Microsystems Inc.
        During 2002, Celestica's three2003, our four largest customers, Cisco Systems Inc., IBM Corporation, Lucent Technologies Inc. and Sun Microsystems Inc., and Lucent Technologies Inc., each represented in excess of 10% of total revenue and in the aggregate represented 48%44% of total revenue. During 2001, Celestica's2002, our three largest customers, IBM Corporation, Lucent Technologies Inc. and Sun Microsystems Inc., and Lucent Technologies Inc., each represented in excess of 10% of total revenue and in the aggregate represented 55%


48% of total revenue. Celestica's next seven largestOur top ten customers represented approximately 37%73% of Celestica's total revenue in 20022003 (compared with 29% for the next seven largest
customers85% in 2001)2002).
        We generally enter into supply arrangements in connection with our acquisition of facilities from OEMs. These arrangements generally govern the conduct of business between the parties relating to, among other things, the manufacture of products which were previously produced at that facility by the seller itself. Such arrangements, which in certain instances contain limited overhead contribution provisions or limited revenue or product volume guarantees, range from one to five years. There can be no assurance that these arrangements will be renewed. As a result of the weak economic environment over the past three years, these supply agreements have been affected by order cancellations and rescheduling as our customers' base-businessbase business volumes have decreased.

    TECHNOLOGY AND RESEARCH AND DEVELOPMENT
        We derive most of our revenue from OEM customers. The contractual agreements with our key customers generally provide a framework for our overall relationship with the customers. We have contractual arrangements with the majority of our customers that require the customer to purchase unused inventory that we have purchased to fulfill that customer's forecasted manufacturing demand.
Technology and Research and Development
        We use advanced technology in the assembly and testing of the products we manufacture. We believe that our processes and skills are among the most sophisticated in the industry, which provides us with advantages over many of our smaller and less sophisticated competitors.
        Our customer-focused factories are highly flexible and are continually reconfigured to meet customer-specific product requirements. Celestica hasWe have extensive capabilities across a broad range of specialized assembly process technologies, including chip on board, chip scale packaging, flip chip attach,
tape automated bonding, wire bonding, multi-chip module, ball grid array, micro
ball grid array, tape ball grid array, and column grid array.technologies. We also work with a wide range of substrate types from thin flexible printed circuit boards to highly complex, dense multilayer boards.
        Our assembly capabilities are complemented by advanced test capabilities. Technologies include high speed functional testing, 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, three-dimensional laser paste volumetric inspection and scanning electron microscopy, is among the most sophisticated in the EMS industry. Furthermore, Celestica employswe 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. Celestica isWe are proactive in developing manufacturing techniques whichthat take advantage of the latest component and product designs and packaging. We often work with industry groups to advance the state of technology in the industry.

    SUPPLY CHAIN MANAGEMENT

    Celestica has
        We have recently increased our research and development spending as a result of our participation in reference designs. Reference designs are off-the-shelf hardware that enable OEMs to enhance their own product roadmaps with standard or easily customizable systems developed by us and our key technology partners. Reference design is a major initiative for us. In the area of 64-bit reference designs, we have developed server and workstation products based on next-generation, industry-standard microprocessors from AMD and Intel. Over time, our investment in research and development activities could fluctuate based on the level of development activity we have in our reference design service offering.
Supply Chain Management
        We have strong relationships with a broad range of suppliers. We use electronic data interchange with our key suppliers and ensure speed of supply through the use of automated receiving and full-service distribution capabilities. During 2002, Celestica2003, we procured and managed over $6.0approximately $5 billion in materials and related services. We

                                       21
 view this size of procurement as an important competitive advantage as it enhances our ability to obtain better pricing, influence component packaging and design, and obtain supply of components in constrained markets.

        We utilize two fully integrated enterprise systems which provide comprehensive information on our logistics, financial and engineering support functions. One system is used in Asia, Brazil,Europe and Europeseveral locations in the Americas and the other system is common throughout the rest of Celestica'sour operations. These systems provide management with the data required to manage the logistical complexities of the business. These systems are augmented by and integrated with other applications such as shop floor controls, component database management and design tools.
        We employ a strategy of risk minimization relative to our inventory and generally order materials and components only to the extent necessary to satisfy existing customer orders. Celestica hasWe 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 "real-time component pricing" (the ability to obtain the advantage of the most recent price change in component pricing) designed to minimize the risk to us of cost fluctuations. In providing contract 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.

    Almost all
        All of the products manufacturedwe manufacture or assembled by Celesticaassemble require one or more components, one or more of whichcomponents. In many cases, there may be ordered fromonly one supplier of a sole-source
supplier.particular component. Some of these components could be rationed in response to supply shortages. We attempt to ensure continuity ofin 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 to defer planned production in response to the anticipated unavailability of the critical components. In some cases, supply shortages will substantially curtail production of all full system assemblies using a particular component. In addition, at various times there have been industry-wide shortages of electronic components. There can be no assurance that such shortages, or future fluctuations in material cost, will not have a material adverse effect on our results of operations, business, prospects and financial condition.

    INTELLECTUAL PROPERTY
Intellectual Property
        We hold licenses to various technologies which we acquired in connection with acquisitions from Fujitsu-ICL, Hewlett-Packard, IBM Corporation, NEC Corporation and other companies. 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 also have intellectual property associated with our reference design activity and may develop additional intellectual property based on the products we may produce in the future with this service offering. 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.

    Celestica
        We currently hashave a limited number of patents and patent applications pending. 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 manufacturing services.
        We license some technology from third parties which we use in providing 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 Celesticaus non-exclusive, worldwide licenses with respect to the subject technology and terminate upon a material breach by Celesticaus of the terms of the licensing agreement.

    COMPETITION

    The EMS industry is comprised of
Competition
        We compete on a global basis to provide electronics manufacturing services to OEMs in our end markets. Our competitors include a large number of domestic and foreign companies, of which two companies,such as Flextronics International, andHon Hai Precision Industry, Sanmina-SCI Corporation, Solectron Corporation each had revenueand Jabil Circuit, as well as smaller EMS companies that often have a regional, product, service or industry specific focus. In addition, in excessrecent years, ODMs, companies that provide design and manufacturing services to OEMs, have been increasing

their share of $12.0 billion for fiscal year 2002outsourced manufacturing services provided to OEMs in several markets, such as notebook and two companies, Celesticadesktop computers, personal computer motherboards, and Sanmina-SCI Corporation, each had revenueconsumer electronic products, such as cell phones. While we have not to date encountered significant competition from ODMs, such competition may increase if our business in excess of $8.0 billion for fiscal year 2002.these markets grows or if ODMs expand further into or beyond these markets.
        We could also face competition from current and prospective customers which evaluate our capabilities against the merits of manufacturing products internally. We compete with different

                                       22
 companies depending on the type of service or geographic area. Certain of our competitors may have greater manufacturing, financial, research and development, and marketing resources than we do. We believe that the primary basis of competition in our targeted markets is manufacturing technology, quality, responsiveness, the provision of value-added services and price. To remain competitive, we believe we must continue to provide technologically advanced manufacturing services, maintain quality levels, offer flexible delivery schedules, deliver finished products on a reliable basis and compete favorably on the basis of price.

    HUMAN RESOURCES
Human Resources
        As of December 31, 2002,2003, we employemployed over 40,000 permanent and temporary (contract) employees worldwide. Given the variable nature of our project flow and the quick response time required by our customers, it is critical that we be able to quickly ramp-up and ramp-downramp our production up or down to maximize efficiency. To achieve this, our strategy has been to employ a skilled temporary labor force, as required.
        Culturally, Celestica iswe are team-oriented, values-driven, empowerment-based, dynamic and results-oriented, with an overriding sensitivity to customer service and quality at all levels. This environment is a critical factor for us to be able to fully utilize the intellectual capital of our employees. We have
never experienced a work stoppage or strike. We believe that our employee relations are good. Certain of our employees in the United Kingdom, France, Italy, Mexico, U.S., Japan and Brazil are represented by unions.

    ENVIRONMENTAL MATTERS

    Celestica is
Environmental Matters
        We are subject to extensive environmental, health and safety laws and regulations, including measures relating to the release, use, storage, treatment, transportation, discharge, disposal and remediation of contaminants, hazardous substances and wastes, as well as practices and procedures applicable to the construction and operation of our plants. We believe that we are in compliance in all material respects with current environmental laws. However, there can be no assurance that we will not experience difficulties with our efforts to maintain material compliance at our facilities, or to comply either with currently applicable environmental laws or environmental laws as they change in the future, or that our continued compliance efforts (or failure to comply with applicable requirements) will not have a material adverse effect on our results of operations, business, prospects, and financial condition. Our need to comply with present and changing future environmental laws could restrict our ability to modify or expand our facilities or continue production and could require us to acquire costly equipment or to incur other significant expense.
        Some of our operating sites have a history of industrial use. As is typical for such businesses, soil and groundwater contamination has occurred. We fromFrom time to time we investigate, remediate and monitor soil and groundwater contamination at certain of our operating sites.
        Except for the facilities we acquired in the Omni transaction, Phase I or similar environmental assessments (which involve general inspections without soil sampling or ground water analysis) were obtained for most of the manufacturing facilities leasedwe lease or owned by Celesticaown in connection with our acquisition or lease of such facilities. Where contamination is suspected, Phase II intrusive environmental assessments (including soil and/or groundwater testing) are usually performed. We expect to conduct such environmental assessments in respect ofto future property acquisitions where consistent with local practice. These environmental assessments have not revealed any environmental liability that we believe, based on current information, will have a material adverse effect on our results of operations, business, prospects or financial condition, nor are we aware that we have any such material environmental liability, in part because of the contractual retention of liability for some contamination and its remediation by landlords and former owners at some sites. It is possible that our assessments do not reveal all environmental liabilities or that there are material environmental liabilities of which we are not


presently aware or that future changes in law or enforcement standards will cause us to incur significant costs or liabilities in the future.

    BACKLOG
Backlog
        Although we obtain firm purchase orders from our customers, OEM customers typically do not make firm orders for delivery of products more than 30 to 90 days in advance. We do not believe that the backlog of 23
expected product sales covered by firm purchase orders is a meaningful measure of future sales, since orders may be rescheduled or canceled.

    SEASONALITY
Seasonality
        With a significant exposure to information technologycomputing and communications infrastructure products, the Company haswe have historically seen a level of seasonality in its quarterly revenue patterns. This seasonality has generally resulted in lower volumes in the Company'sour first quarter, gradually increasing throughout the year, culminating in higher revenue in the fourth quarter. Seasonality is also reflective of the mix and complexity of the products manufactured. As a result of the current weakthis mix and uncertain economic
environment,our efforts to diversify our revenue base, it is difficult to predict the extent and impact of seasonality on our business.

GLOSSARY


Ball grid array...................      A silicon chip packaging technique that provides high
                                        interconnection density at a low cost, high thermal
                                        electrical performance, high reliability and high card
                                        assembly yields. This technology uses an array of solder
                                        balls to connect the silicon chip to the printed circuit
                                        board.

Chip on board.....................      A generic term for the use of unpackaged or "bare" silicon
                                        that is attached to the surface of the printed circuit
                                        board. The "bare" silicon is often sealed with an epoxy to
                                        strengthen reliability. Chip on board allows for space
                                        savings as well as faster signal processing speeds. Examples
                                        of chip on board are flip chip attach, tape automated
                                        bonding and wire bonded chips.

Consignment.......................      An outsourcing method in which the outsourcing company
                                        provides most or all of the materials required for the
                                        products, and the EMS provider supplies only the
                                        manufacturing service.

EMS...............................      Electronics manufacturing services.

Flip chip attach..................      A type of chip on board that involves attaching the "bare"
                                        silicon directly to the printed circuit board using solder.

Full system assembly..............      The assembly of a variety of PCAs and other
                                        subassemblies/components into a final product, such as a
                                        server, workstation or personal computer. Full system
                                        assembly typically includes the testing and distribution of
                                        the final product.

In-circuit test...................      One of the first electrical tests performed on completed
                                        PCAs, where small portions of the PCAs can be individually
                                        tested down to the silicon chip level.

In-situ dynamic thermal cycling
  stress testing..................      The electrical testing of PCAs while varying temperature, in
                                        an effort to uncover potential defects in assembly and
                                        electronics components.

Interconnect technology...........      The series of techniques used to electrically connect
                                        silicon chips, substrates and other electronics components
                                        together to create a functional product.

LAN...............................      "Local area network." Multiple computers linked together to
                                        facilitate shared communications in a local or office
                                        environment.

Multi-chip module.................      A packaging technique that combines multiple silicon chips
                                        together into a single functional device.

OEM...............................      Original equipment manufacturer.

PBX switch........................      "Private branch exchange switch." A switch used in a
                                        telephone system consisting of central office trunks, a
                                        switchboard and extension telephones which may be
                                        interconnected with the trunks or with each other through
                                        the


                                       24

                                        switchboard and associated equipment. These switches are
                                        typically used within a single company, office or building.

PCAs..............................      "Printed circuit assemblies." Printed circuit boards which
                                        are populated with various electronics components to form
                                        functional products.

PDA...............................      "Personal Digital Assistant." A small form factor portable
                                        computing device.

Scalable processor................      A processor system that allows for the combination of
                                        multiple microprocessors together to provide significantly
                                        higher processing power and speed.

SMT...............................      "Surface mount technology." A manufactured technology for
                                        attaching electronics components directly onto the surface
                                        of printed circuit boards.

Substrate.........................      Also referred to as a "printed circuit board" or "board." A
                                        substrate acts as a carrier to provide very dense wiring
                                        between silicon chips. A substrate can take the form of
                                        ceramic, plastic, film or fibreglass sheets with embedded
                                        copper wiring.

Tape automated bonding............      A type of chip on board that involves attaching "bare"
                                        silicon through a mass bonding method. The silicon possesses
                                        gold- or tin-plated copper lead frames which are mounted
                                        directly to the printed circuit board.

Tape ball grid array..............      A ball grid array silicon chip which is packaged on a thin
                                        tape/film carrier.

Three-dimensional laser paste
  volumetric inspection...........      An inspection system that uses a laser light source and a
                                        camera for image capture in a controlled process. It is used
                                        to measure the volume of solder paste that has been screened
                                        onto a printed circuit board in order to ensure solder
                                        quality.

Token ring........................      A type of LAN technology.

WAN...............................      "Wide area network." A communications network that covers a
                                        wide geographic area, such as a province, state or country.

Wire bonding......................      A method of attaching a "bare" silicon chip on a board. This
                                        process involves ultrasonically bonding fine aluminum wire
                                        (the size of a human hair) from the silicon chip to the PCB.
                                        This procedure is often performed in a clean room
                                        environment.

Wireless base stations............      A base station transmitter used in digital cellular
                                        telephone networks. This is the electrical communication
                                        device that links a cellular telephone to the telephone
                                        network.

Wireless loop system..............      A system providing wireless communications between the
                                        telephone network box on a residential street and all of the
                                        homes in the neighborhood, eliminating buried telephone
                                        cable to homes. This system can also be used in an office
                                        campus environment.

X-ray laminography................      An inspection process used for examining the quality of
                                        solder joints in an array package like ball grid array and
                                        column grid array. The technique is very similar to that of
                                        a CAT scan in the medical industry. The assembly is x-rayed
                                        in slices down through the solder joints, and the images are
                                        compared to a known good image for solder quality.


                                       25
C.    ORGANIZATIONAL STRUCTUREOrganizational 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 (U.S.) Inc., a Delaware corporation.
Celestica Corporation, a Delaware corporation.
Celestica Europe Inc., an Ontario corporation.

    Celestica Hong Kong Limited, a Hong Kong corporation.

    
Celestica Liquidity Management Hungary Limited Liability Company, a Hungarian corporation.
Celestica International Inc., an Ontario corporation.
Celestica Italia S.r.l., an Italian corporation.
Celestica Singapore Pte Ltd., a Singapore corporation.

D.    DESCRIPTION OF PROPERTYDescription of Property
        The following table summarizes our principal facilities as of February 28,
2003.April 1, 2004. Our facilities are used to manufacture printed circuit boards, assemble and configure final systems and configuration, and for other related manufacturing and customer support activities.

                                                              MANUFACTURING
FACILITY                                                      SQUARE FOOTAGE   OWNED/LEASED
- --------                                                      --------------   -------------
                                                              (in
Facility
Manufacturing Square Footage
Owned/Leased

(in thousands)


Toronto, Ontario............................................       Ontario
888
Owned
Montreal, Quebec............................................       Quebec(1)
180
Owned
Oklahoma City, Oklahoma(1)..................................       430            Leased
Denver, Colorado............................................       300            Colorado
235
Leased
Little Rock, Arkansas.......................................       Arkansas
424
Owned
Fort Collins, Colorado......................................       Colorado
200
Leased
Rochester, Minnesota(1).....................................       200            Leased
Chippewa Falls, Wisconsin...................................       Wisconsin(1)
127
Owned
Salem, New Hampshire........................................       139            Hampshire
278
Leased
San Jose, California........................................       California
131
Leased
Dallas, Texas...............................................        69            Leased
Mt. Pleasant, Iowa..........................................        69            Iowa
85
Leased
Milwaukie, Oregon...........................................        Oregon
61
Leased
Chelmsford, Massachusetts(1)................................        37            
Charlotte, North Carolina
273
Leased
Raleigh, North Carolina.....................................        26            Carolina
70
Leased
Arden Hills, Minnesota
158
Leased
Austin, Texas...............................................        Texas
51
Leased
Dallas, Texas
69
Leased
Kidsgrove, England..........................................       375            England
100
Owned
Telford, England............................................        England
50
Owned
Galway, Ireland
133
Leased
Vimercate, Italy............................................       Italy
550
Owned
Santa Palombo, Italy........................................       150            Owned
Dublin, Ireland.............................................       210            Owned
Saumur, France..............................................       France
142
Owned
Guerande, France
130
Owned
Rajecko, Czech Republic.....................................       Republic
170
Owned
Kladno, Czech Republic......................................       Republic
166
Owned
Barcelona, Spain
58
Leased
Valencia, Spain(2)
518
Leased/Owned
Monterrey, Mexico...........................................       214            Mexico(2)
327
Leased/Owned
Reynosa, Mexico(2)
481
Leased
Monterrey, Mexico...........................................       113            Owned
Queretaro, Mexico...........................................        Mexico
77
Leased
Aquadilla, Puerto Rico
94
Leased
Jaguariuna, Brazil..........................................       142            Brazil
134
Leased
Shanghai, China.............................................       273            China
392
Owned
Dongguan, China.............................................       172            China
331
Leased
China(2)....................................................       208         
Suzhou, China(2)
516
Owned/Leased
Xiamen, China
25
Leased
Shatin, Hong Kong...........................................        Kong
82
Leased
Indonesia(3)(4).............................................        46         Owned/
Indonesia
48
Leased
Johor Bahru, Malaysia(3)....................................       491            Malaysia(2)
497
Leased


                                       26

                                                              MANUFACTURING
FACILITY                                                      SQUARE FOOTAGE   OWNED/LEASED
- --------                                                      --------------   -------------
                                                              (in thousands)
Kulim, Malaysia.............................................       Malaysia
324
Owned
Malaysia....................................................        40            
Singapore(3)
315
Owned/Leased
Singapore...................................................       298            
Japan(3)
491
Owned/Leased
Singapore...................................................        65            Owned
Laem Chabang, Thailand......................................       422            Thailand
437
Leased
Japan(2)....................................................       566         Owned/Leased
Rayong, Thailand............................................        Thailand
41
Leased
Cebu, Philippines
125
Owned


- ------------

(1)
As part of our restructuring plans, we have announced that we will close this site by the end of 2003.

2004.

(2)
This represents two facilities.

(3)
This represents three facilities.

(3) This represents two facilities.

(4) As part of our restructuring plans, we have announced that we will close one
    of the two sites by the end of 2003.

    Celestica's
        Our principal executive office is located at 1150 Eglinton Avenue East, Toronto, Ontario M3C 1H7. All of our principal facilities are ISO certified to ISO 9001 or ISO 9002 standards. Most of our principal facilities are also certified to the ISO 14001 (environmental) standards.
        The leases for our leased facilities expire between 20032004 and 2056. CelesticaWe currently expectsexpect to be able to extend the terms of expiring leases or to find replacement facilities on reasonable terms.
        As part of our restructuring plans, we have consolidated facilities and changed our strategic focus as to the number and geography of sites. We are
rationalizinghave rationalized our footprint worldwideglobal manufacturing network to increase the percentage of our facilities in lower cost geographies. See Item 5, "Operating and Financial Review and Prospects --— Management's Discussion and Analysis of Financial Condition and Results of Operations --— Operating Results" for additional information concerning our restructurings.

ITEM
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 OF CELESTICA SHOULD BE READ IN CONJUNCTION WITH THE CONSOLIDATED
FINANCIAL STATEMENTS IN ITEMOperating 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 of Celestica should be read in conjunction with the Consolidated Financial Statements in Item 18. ALL DOLLAR AMOUNTS ARE EXPRESSED INAll dollar amounts are expressed in U.S. DOLLARS.

    CERTAIN STATEMENTS CONTAINED IN THE FOLLOWING MANAGEMENT'S DISCUSSION AND
ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS, INCLUDING, WITHOUT
LIMITATION, STATEMENTS CONTAINING THE WORDS BELIEVES, ANTICIPATES, ESTIMATES,
EXPECTS, AND WORDS OF SIMILAR IMPORT, CONSTITUTE FORWARD-LOOKING STATEMENTS.
FORWARD-LOOKING STATEMENTS ARE NOT GUARANTEES OF FUTURE PERFORMANCE AND INVOLVE
RISKS AND UNCERTAINTIES WHICH COULD CAUSE ACTUAL RESULTS TO DIFFER MATERIALLY
FROM THOSE ANTICIPATED IN THESE FORWARD-LOOKING STATEMENTS. THESE RISKS AND
UNCERTAINTIES INCLUDE, BUT ARE NOT LIMITED TO: THE CHALLENGES OF EFFECTIVELY
MANAGING OUR OPERATIONS DURING UNCERTAIN ECONOMIC CONDITIONS; THE CHALLENGE OF
RESPONDING TO LOWER-THAN-EXPECTED CUSTOMER DEMAND; THE EFFECTS OF PRICE
COMPETITION AND OTHER BUSINESS AND COMPETITIVE FACTORS GENERALLY AFFECTING THEdollars.
Certain statements contained in the following Management's Discussion and Analysis of Financial Condition and Results of Operations, including, without limitation, statements containing the words believes, anticipates, estimates, expects, and words of similar import, constitute forward-looking statements. Forward-looking statements are not guarantees of future performance and involve risks and uncertainties which could cause actual results to differ materially from those anticipated in these forward-looking statements. These risks and uncertainties include, but are not limited to: the effects of price competition and other business and competitive factors generally affecting the EMS INDUSTRY; OUR DEPENDENCE ON THE INFORMATION TECHNOLOGY AND COMMUNICATIONS
INDUSTRIES; OUR DEPENDENCE ON A LIMITED NUMBER OF CUSTOMERS AND ON INDUSTRIES
AFFECTED BY RAPID TECHNOLOGICAL CHANGE; COMPONENT CONSTRAINTS; VARIABILITY OF
OPERATING RESULTS AMONG PERIODS; AND THE ABILITY TO MANAGE OUR RESTRUCTURING AND
THE SHIFT OF PRODUCTION TO LOWER COST GEOGRAPHIES. THESE AND OTHER RISKS AND
UNCERTAINTIES AND FACTORS ARE DISCUSSED IN THIS ANNUAL REPORT. SEE ITEMindustry; the challenges of effectively managing our operations during uncertain economic conditions; our dependence on industries affected by rapid technological change; our dependence on a limited number of customers; the challenge of responding to lower-than-expected customer demand; component constraints; our ability to manage our restructuring and the shift of production to lower cost geographies; our ability to achieve the anticipated benefits of our merger with Manufacturers' Services Limited; and variability of operating results among periods. These and other risks and uncertainties and factors are discussed in this Annual Report. See Item 3, "KEY
INFORMATION -- RISK FACTORS."Key Information — Risk Factors."

    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.

OVERVIEW
We also file an Annual Information Form with the Canadian Securities Commissions which is available electronically at www.sedar.com.
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 of which we hereafter become aware. You should read this Annual Report with the understanding that the 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
        Celestica is a world leader in providing electronics manufacturing services (EMS) to OEMs in the information technologycomputing, communications and communicationsother industries. Celestica provides a wide variety of products and services to its customers, including the high-volume manufacture of complex printed circuit board assemblies and the full

                                       27
system assembly of final products. In addition, the Company is a leading-edge provider of engineering, design repair and engineeringafter-market services, supply chain management and power products. Celestica operates facilities in the Americas, Europe and Asia.

    2002 was a challenging year as
        During the information technologypast three years, the EMS industry has experienced continued demand weakness, particularly in the computing and communications end markets, remained weak. Revenue for 2002as spending on higher complexity and infrastructure products was $8.3 billion, down 17% from
$10.0 billion for 2001.reduced or cut. The reduced demand for Celestica's Company's concentration of business with customers in these higher complexity


products and services
contributed tohad an adverse effect on the decrease inCompany's revenue and margins for 2002. Revenue2002 and 2003. The downturn also created excess capacity in the EMS industry, resulting in continued pricing pressures as EMS providers competed for a reduced amount of business. Declining end markets and volumes have led to lower utilization rates which continue to adversely impact margins. Celestica's revenue for 2003 was $6.7 billion, down 19% from existing$8.3 billion in 2002.
        During these difficult periods, the Company has responded by focusing on improving operating efficiency, rebalancing its global manufacturing network, reducing capacity by restructuring, diversifying into new markets and expanding its customer base. As the Company executes its plan to expand into new markets and services, and to add new customers, decreased formargins in the second consecutive year.

    Historically, acquisitions have contributed significantly tonear term will be affected by the Company's
growth, with 2001 being the most active year for acquisitions, in termsstart-up costs of the
number of acquisitions closedthese new investments and the total purchase price. Growth from
acquisitions in 2002, however, was minimal. Celestica continuesinitiatives. The Company will continue to evaluate acquisition opportunities and anticipates that acquisitions will continue to
contribute to itsas a source of future growth. See "Acquisition History."
        In 2001, the Company announced its first restructuring plan in response to the weakened end markets. TheAs the downturn continued downturn into 2002, resulted in the Company announcingannounced its second restructuring plan. In January 2003, the Company announced a further restructuring actions, which it expectsplan, to completebe completed by the end of 2003.mid-2004. The restructurings wererestructuring plans are focused on consolidating facilities and increasing capacity utilization in lower cost geographies. The Company expects that it
will have a better-balancedan improved balance in its global manufacturing footprintnetwork when all of the planned restructuring actions including those announced in January 2003, are completed. See "-- Recent Developments."

    InAt the fourth quarterend of 2002, Celestica recorded impairment losses totaling
$285.4 million, in connection with its annual impairment tests of goodwill and
long-lived assets, based on factors and conditions at the time the assessments
were performed. Conditions in the marketplace deteriorated significantly from
January 1, 2002, when2003, the Company completedhad approximately 70% of its evaluationproduction facilities in lower cost geographies, up from approximately 50% a year ago.
        As a result of the transitional
goodwill impairment, as requireddepressed volumes for 2003 and significant program transfer and ramping activities, gross margins ended at 3.9% compared to 6.7% in 2002. As these activities stabilize, and restructuring benefits materialize, profitability is expected to improve during the next year.
        The Company maintained a strong balance sheet in 2003 and finished the year with over $1.0 billion in cash. During the year, the Company continued to utilize its strong financial position to reduce debt by the new goodwill standards. Future
impairment tests may result in additional impairment charges.

    In 2002, management focused on reducing working capital, and increased its
cash balance to its highest level in the Company's history. Cash earned from
operations in 2002 fully funded the Company's 2002 acquisitions of
$111.0 million, repayment of $130.0 million of subordinated debt, the repurchase
of $32.5 million in capital stock and the repurchase ofrepurchasing convertible debt and expand its share repurchase program. The Company's stronger balance sheet gives it greater flexibility to grow its business, or continue its debt or share repurchases.
        The table below sets forth selected financial data for an
aggregate purchase price of $100.3 million.

CRITICAL ACCOUNTING POLICIES AND ESTIMATESthe years indicated:
 
 
Year ended December 31
 
 
 
2001
 
2002
 
2003
 
 
 
(in millions, except per share amounts)

 
Revenue
 
$
10,004.4
 
$
8,271.6
 
$
6,735.3
 
Net loss
 
$
(39.8
)
$
(445.2
)
$
(265.8
)
Basic loss per share
 
$
(0.26
)
$
(1.98
)
$
(1.22
)
Diluted loss per share
 
$
(0.26
)
$
(1.98
)
$
(1.22
)
 
 
As at December 31
 
 
2001
 
2002
 
2003
 
 
(in millions)

Total assets
 
$
6,632.9
 
$
5,806.8
 
$
5,134.7
Total long-term debt, including current portion(1)
 
$
147.4
 
$
6.9
 
$
3.4
(1)
Long-term debt includes capital lease obligations.
Critical Accounting Policies and Estimates
        Celestica prepares its financial statements in accordance with generally
accepted accounting principles (GAAP) in CanadaCanadian GAAP with a reconciliation to United States GAAP, as disclosed in note 2220 to the 2003 Consolidated Financial Statements.
        The preparation of financial statements in conformity with generally
accepted accounting principlesGAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and related disclosures of contingent assets and liabilities at the date of the financial statements, and the reported amounts of revenue and expenses during the reporting period. Significant accounting policies and methods used in preparation of the financial statements are described in note 2 to the 2003 Consolidated Financial Statements. The Company evaluates its estimates and assumptions on a regular basis, based on historical experience and other relevant factors. Significant estimates are used in determining, but not limited
to, the allowance for doubtful accounts, inventory valuation, income tax
valuation allowances, the fair value of reporting units for purposes of goodwill
impairment tests, the useful lives and valuation of intangible assets, and
restructuring charges. Actual results could differ materially from thosethese estimates and assumptions. REVENUE RECOGNITION:The following critical accounting policies are impacted by judgments, assumptions and estimates used in preparation of the Consolidated Financial Statements.

Revenue recognition:
        Celestica derives most of its revenue from OEM customers. The contractual agreements with its key customers generally provide a framework for itsthe Company's overall relationship with the customer.customers. Celestica recognizes product manufacturing revenue upon shipment to the customer as title has passed, persuasive evidence of an arrangement exists, performance has occurred, all customer specified acceptancetest criteria have been tested and met, and the earnings process is considered complete. Actual production volumes are basedCelestica has contractual arrangements with the majority of the Company's customers that require the customer to purchase unused inventory that Celestica has purchased to fulfill that customer's forecasted manufacturing demand. Celestica accounts for raw material returns as reductions in inventory and does not record revenue on purchase ordersthese transactions.
Allowance for the delivery of products. These orders typically do not commit to firm
production schedules for more than 30 to 90 days in advance. Celestica minimizes
its risk relative to its inventory by ordering materials and components only to
the extent necessary to satisfy existing customer orders. Celestica is largely
protected from the risk of inventory cost fluctuations as these costs are
generally passed through to customers.

                                       28

    ALLOWANCE FOR DOUBTFUL ACCOUNTS:doubtful accounts:
        Celestica records an allowance for doubtful accounts related to accounts receivable that are considered to be impaired. The allowance is based on the Company's knowledge of the financial condition of its customers, the aging of the receivables, current business environment, customer and industry concentrations, and historical experience. A change to these factors could impact the estimated allowance and the provision for bad debts recorded in selling, general and administrative expenses.

    INVENTORY VALUATION:
Inventory valuation:
        Celestica values its inventory on a first-in, first-out basis at the lower of cost and replacement cost for production parts, and at the lower of cost and net realizable value for work in progress and finished goods. Celestica regularly adjusts its inventory valuation based on shrinkage and management's estimates of net realizable value, taking into consideration factors such as inventory aging, future demand for the inventory, and the nature of the contractual agreements with customers and suppliers, including the ability to return inventory to them. A change to these assumptions could impact the valuation of inventory and have a resulting impact on margins.

    INCOME TAX VALUATION ALLOWANCE:
Income tax valuation allowance:
        Celestica records a valuation allowance against deferred income tax assets when management believes it is more likely than not that some portion or all of the deferred income tax assets will not 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, and tax planning strategies.strategies, changes in tax laws and other factors. A change to these factors could impact the estimated valuation allowance and income tax expense.

    GOODWILL:
Goodwill:
        Celestica performs its annual goodwill impairment teststest in the fourth quarter of each year (to correspond with its planning cycle), and more frequently if events or changes in circumstances indicate that an impairment loss may have been incurred. Impairment is tested at the reporting unit level by comparing the reporting unit's carrying amount to its fair value. The fair values of the reporting units are estimated using a combination of a market approach and discounted cash flows. The process of determining fair values is subjective and requires management to exercise judgment in making assumptions about future results, including revenue and cash flow projections at the reporting unit level, and discount rates. Celestica recorded an impairment loss in the fourth quarter of 2002. There was no impairment identified in 2003. Future goodwill impairment tests may result in further impairment charges.

    INTANGIBLE ASSETS:
Long-lived assets:
        Celestica performs its annual impairment tests on long-lived assets in the fourth quarter of each year (to correspond with its planning cycle), and more frequently if events or changes in circumstances indicate that an impairment loss may have been incurred. Celestica estimates the useful lives of capital and intangible assets based on the nature of the asset, historical experience and the terms of any related supply contracts. The valuation of intangiblelong-lived assets is based on the amount of future net cash flows these assets are estimated to generate. Revenue and expense projections are based on management's estimates, including estimates of current and future industry conditions. A significant change to these assumptions could impact the estimated useful lives

or valuation of intangiblelong-lived assets resulting in a change to depreciation or amortization expense and impairment charges. RESTRUCTURING CHARGES:

    Celestica recorded long-lived impairment losses in 2002 and 2003. Future impairment tests may result in further impairment charges.
Restructuring charges:
        Celestica has recorded restructuring charges in 2001 and 2002, relating to facility consolidations and workforce reductions. These charges are recorded
based on detailed plans approved and committed to by management. The restructuring charges include employee severance and benefit costs, costs related to leased facilities that will behave been abandoned or subleased, owned facilities which are no longer used and will be held for disposition,are available-for-sale, the cost of leased equipment that will behas been abandoned, impairment of owned equipment that will
be held for disposition,available-for-sale, and impairment of related intangible assets, primarily intellectual property. The recognition of these charges requires management to make certain judgments and estimates regarding the nature, timing and amount 29
associated with these plans. For owned facilities and equipment, the impairment loss recognized was 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 will be abandoned or subleased, the estimated lease cost represents future lease payments subsequent to abandonment less estimated sublease income. To estimate future sublease income, the Company worked with independent brokers to determine the estimated tenant rents the Company could be expected to realize. The estimatesestimated amount of future liability may change, requiring additional restructuring charges or a reduction of the liabilities already recorded. At the end of each reporting period, the Company evaluates the appropriateness of the remaining accrued balances.

RECENT ACQUISITIONS
        Costs associated with restructuring activities initiated on or after January 1, 2003 are recorded in accordance with CICA Emerging Issues Committee Abstracts EIC-134, "Accounting for Severance and Termination Benefits," and EIC-135, "Accounting for Costs Associated with Exit and Disposal Activities."
Pension and non-pension post-employment benefits:
        Celestica has pension and non-pension post-employment benefit costs and liabilities, which are determined from actuarial valuations. Actuarial valuations require management to make certain judgments and estimates on expected plan investment performance, salary escalation, compensation levels at the time of retirement, retirement ages, and expected health care costs. The Company evaluates these assumptions on a regular basis taking into consideration current market conditions and historical data. A change in these factors could impact future pension expense.
Acquisition History
        A significant portion of Celestica's growth in prior years was generated by strengthening its customer relationships, building a global manufacturing network, and increasing the breadth of its service offerings through asset and business acquisitions. The Company focused on investing strategically in acquisitions that better positioned the Company for future outsourcing opportunities. Celestica's most active year for acquisitions was 2001. TheWith a global manufacturing network established, the historical pace of Celestica's acquisitions did not continue in 2002 or in 2003, and may not continue in the future.
        As a result of the continued downturn in the economy,technology manufacturing, some of the sites acquired in prior years have been impacted by the Company's latest round of
restructuring.closed or have experienced headcount reductions. Supply agreements entered into in connection with certain acquisitions were also affected by order cancellations and reschedulings, as base-businessbase business volumes have decreased. See discussion below in "-- Results"Results of Operations."

    2001 ASSET ACQUISITIONS:

    In February 2001, Celestica acquired certain manufacturing assets in Dublin,
Ireland and Mt. Pleasant, Iowa from Motorola Inc. and signed supply agreements.
In March 2001, Celestica acquired certain assets relating to N.K.
Techno Co. Ltd.'s repair business, which expanded the Company's presence in
Japan, and established a greenfield operation in Shanghai. In May 2001,
Celestica acquired certain assets from Avaya Inc. in Little Rock, Arkansas and
Denver, Colorado, and, in August 2001, acquired certain assets in Saumur,
France. The Company signed a five-year supply agreement with Avaya. In
August 2001, Celestica acquired certain assets in Columbus, Ohio and Oklahoma
City, Oklahoma from Lucent Technologies Inc. and signed a five-year supply
agreement. The aggregate purchase price for these asset acquisitions in 2001 of
$834.1 million was financed with cash.

    2001 BUSINESS COMBINATIONS:

    In January 2001, Celestica acquired Excel Electronics, Inc. through a merger
with Celestica (U.S.) Inc., which enhanced the Company's prototype service
offering in the southern region of the United States. In June 2001, Celestica
acquired Sagem CR s.r.o., in the Czech Republic, from Sagem SA, of France, which
enhanced the Company's presence in central Europe. In August 2001, Celestica
acquired Primetech Electronics Inc. (Primetech), an EMS provider in Canada. The
purchase price for Primetech was financed primarily with the issuance of
3.4 million subordinate voting shares and the issuance of options to purchase
0.3 million subordinate voting shares of the Company.

    In October 2001, Celestica acquired Omni Industries Limited (Omni). Omni is
an EMS provider, headquartered in Singapore, with locations in Singapore,
Malaysia, China, Indonesia and Thailand, and had approximately 9,000 employees
at the date of acquisition. Omni provides printed circuit board assembly and
system assembly services, as well as other related supply chain services
including plastic injection molding and distribution. Omni manufactures products
for industry-leading OEMs in the PC, storage and communications sectors. The
acquisition significantly enhanced Celestica's EMS presence in Asia. The
purchase price for Omni of $865.8 million was financed with the issuance of
9.2 million subordinate voting shares and the issuance of options to purchase
0.3 million subordinate voting shares of the Company, and $479.5 million in
cash.

    The aggregate purchase price for these business combinations in 2001 was
$1,093.3 million, of which $526.3 million was financed with cash.

    2002 ASSET ACQUISITIONS:
        In March 2002, the Company acquired certain assets located in Miyagi and Yamanashi, Japan from NEC Corporation. The CompanyCorporation and signed a five-year supply agreement to provide a complete range of electronics manufacturing services for
a broad range of NEC's optical backbone and broadband access equipment.agreement. In August 2002, the Company acquired certain assets from Corvis Corporation in the United States. The Company

                                       30
States and signed a multi-year supply agreement with Corvis, which positioned Celestica as
the exclusive manufacturer of Corvis' terrestrial optical networking products
and sub-sea terminating equipment.agreement. The aggregate purchase price for these acquisitions in 2002 of $111.0 million was financed with cash and allocated to the net assets acquired, based on their relative fair values at the date of acquisition.
        In October 2003, the Company entered into an agreement to acquire all the shares of Manufacturers' Services Limited (MSL), a full-service global electronics manufacturing and supply chain services company, headquartered in Concord, Massachusetts. This acquisition provides Celestica with an expanded customer base and service offerings. This acquisition also supports Celestica's strategy of diversifying its markets. MSL's


customers come from diverse industries including industrial, commercial avionics, automotive, retail systems, medical, communications and network storage, and peripherals. The shareholders of MSL were entitled to receive 0.375 of a subordinate voting share of Celestica for each common share of MSL. Preferred shareholders of MSL were entitled to receive cash or, at the holder's election, subordinate voting shares of Celestica. The Company issued approximately 14.1 million subordinate voting shares to the common shareholders and certain preferred shareholders of MSL, including a cash consideration of approximately $51.6 million to certain of MSL's preferred shareholders. The acquisition closed in March 2004.
        Celestica may at any time be engaged in ongoing discussions with respect to several possible acquisitions of widely-varyingwidely varying sizes, including small single facility acquisitions, significant multiple facility acquisitions and corporatecompany acquisitions. Celestica has identified severalidentifies possible acquisitions that would enhance its global operations,manufacturing network, increase its penetration in several industries and establish strategic relationships with new customers. 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 agreement would be. Celestica expects to continue any current discussionsactively pursue and actively pursueconsider other acquisition opportunities.
A.    OPERATING RESULTSOperating Results
        Celestica's annual and quarterly operating results vary from period to period as a result of the level and timing of customer orders, fluctuations in materials and other costs, and the relative mix of value-add products and services. The level and timing of customers' orders will vary due to customers' attempts to balance their inventory, changes in their manufacturing strategies, variation in demand for their products and general economic conditions. Celestica's annual and quarterly operating results are also affected by capacity utilization, geographic manufacturing mix and other factors, including price competition, manufacturing effectiveness and efficiency, the degree of automation used in the assembly process, the ability to manage labour, inventory and capital assets effectively, the timing of expenditures in anticipation of forecasted sales levels, the timing of acquisitions and related integration costs, customer product delivery requirements, shortages of components or labour, the costs of transferring and ramping up programs, and other factors. Weak end-market conditions began to emerge in early to mid-2001 and have continued to weakenthrough 2003 for most of the Company's communications and information
technology industries.computing industries customers. This has resulted in customers rescheduling or canceling orders which have negatively impacted Celestica's results of operations.
        The higher cost manufacturing geographies in Europe and North America experienced the greatest declines in revenue and operating profits due to declining volumes, significant pricing pressures and inefficiencies associated with the Company's product transfer activities to lower cost manufacturing sites. The Company's Asian operations had production levels that enabled the region to maintain profitability throughout 2003. Asia benefited from higher demand and from product transfers from Europe and North America, as customers wanted the benefits of that region's lower cost structure.


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

                                                                 YEAR ENDED DECEMBER 31
                                                       ------------------------------------------
                                                         2000             2001             2002
                                                       --------         --------         --------

Revenue..............................................   100.0%           100.0%           100.0%
Cost of sales........................................    92.9             92.9             93.3
                                                        -----            -----            -----
Gross profit.........................................     7.1              7.1              6.7
Selling, general and administrative expenses.........     3.3              3.4              3.6
Amortization of goodwill and intangible assets.......     1.0              1.3              1.2
Integration costs related to acquisitions............     0.2              0.2              0.2
Other charges........................................     0.0              2.7              8.2
                                                        -----            -----            -----
Operating income (loss)..............................     2.6             (0.5)            (6.5)
Interest income, net.................................    (0.2)            (0.1)            (0.0)
                                                        -----            -----            -----
Earnings (loss) before income taxes..................     2.8             (0.4)            (6.5)
Income taxes (recovery)..............................     0.7              0.0             (1.1)
                                                        -----            -----            -----
Net earnings (loss)..................................     2.1%            (0.4)%           (5.4)%
                                                        =====            =====            =====


    REVENUE
 
 
Year ended December 31
 
 
 
2001
 
2002
 
2003
 
Revenue
 
100.0
%
100.0
%
100.0
%
Cost of sales
 
92.9
 
93.3
 
96.1
 
 
 
 
 
 
Gross profit
 
7.1
 
6.7
 
3.9
 
Selling, general and administrative expenses
 
3.2
 
3.4
 
3.7
 
Research and development costs
 
0.2
 
0.2
 
0.4
 
Amortization of goodwill and intangible assets
 
1.3
 
1.2
 
0.7
 
Integration costs related to acquisitions
 
0.2
 
0.2
 
—
 
Other charges
 
2.7
 
8.2
 
2.6
 
 
 
 
 
 
Operating loss
 
(0.5
)
(6.5
)
(3.5
)
Interest income, net
 
(0.1
)
(0.0
)
(0.1
)
 
 
 
 
 
Loss before income taxes
 
(0.4
)
(6.5
)
(3.4
)
Income taxes (recovery)
 
0.0
 
(1.1
)
0.5
 
 
 
 
 
 
Net loss
 
(0.4
)%
(5.4
)%
(3.9
)%
 
 
 
 
 
Revenue
        Revenue decreased 17%19%, to $8,271.6 million$6.7 billion in 20022003 from $10,004.4 million$8.3 billion in 2001, primarily due to a reduction2002. The most significant factors causing the decline were the reductions in base-business volumesvolume as a result of the prolonged weakened end-market conditions. Excessconditions and reduced prices on components and services caused by continued excess capacity in the EMS industry
also put pressure onindustry. The reductions in volume accounted for approximately 75% of the revenue decrease and the rest was reduced pricing for components and services, thereby reducing
revenue. The visibility of end-market conditions remains limited.

                                       31
driven primarily by lower component costs.
        Celestica currently manages its operations on a geographic basis. The three reporting segments are the Americas, Europe and Asia. The following table is a breakdown of revenue by reporting segment:
 
 
Year ended December 31
 
 
 
2001
 
2002
 
2003
 
 
 
(in billions)

 
Americas
 
$
6.3
 
$
4.6
 
$
3.1
 
Europe
 
 
3.0
 
 
1.8
 
 
1.4
 
Asia
 
 
1.0
 
 
2.1
 
 
2.5
 
Inter-segment
 
 
(0.3
)
 
(0.2
)
 
(0.3
)
 
 
 
 
 
Total
 
$
10.0
 
$
8.3
 
$
6.7
 
 
 
 
 
 
        Revenue from the Americas operations decreased 33% from 2002. Revenue from European operations decreased 22% from 2002. Operations in the Americas and Europe were significantly impacted by customer order reductions due to the downturn in end-market demand for their products as well as severe pricing pressures. The Company has completed the majority of its plans to reduce its manufacturing capacity in these geographies by downsizing and/or closing facilities. In addition, the customers' continued demands for significantly lower product manufacturing costs has resulted in the transfer of programs from higher cost geographies to lower cost geographies, which further reduced the revenue in these higher cost geographies. Revenue from Asian operations increased 17% from 2002. The Company's Asian operations have benefited from new business wins, the transfer of production from other geographies and the flow-through of acquisitions. Offsetting this is the impact of continued softness in end markets and pricing pressures. Of the net increase in Asian revenue, approximately half resulted from the transfer of programs and from the flow-through of the acquisition in Japan which closed on March 31, 2002.


        In 2002, revenue decreased 17% from 2001, primarily due to a reduction in base business volumes as a result of the prolonged weakened end-market conditions. Excess capacity in the EMS industry put pressure on pricing for components and services, also reducing revenue. Revenue from the Americas operations decreased 27%, to $4,640.8 million in 2002 from $6,334.6 million in 2001. Revenue from European operations decreased 40%, to $1,786.5 million in 2002 from $3,001.3 million in 2001. The Americas and European operations have beenwere hardest hit by customer cancellations and delays of orders because of the downturn in end-market demand for their products, as well as the customers' demands for lower product manufacturing costs. As a result, theThe Company hashad initiated restructuring actions in 2002 to reduce the manufacturing capacity in these geographies, which includesincluded downsizing and closure of manufacturing facilities. The restructuring actions also includeincluded transferring programs from higher cost geographies to lower cost geographies. Revenue from Asian operations increased 113%, to $2,109.7 million in 2002 from $991.1 million in 2001. The increase in
revenue from Asian operations is2001, primarily due to acquisitions and an increase in base-businessbase business volumes.
        The effect of the 2002 acquisitions and the shifting
of program activities from other geographies are expected to increase revenue in
the Asian operations in 2003.

    Revenue increased 3%, to $10,004.4 million in 2001 from $9,752.1 million in
2000. Acquisition revenue grew by 14%, offset by an 11% decline in base-business
volumes. The acquisition growth was a result of strategic acquisitions in the
communications industry primarily in the U.S. and Asia. Base-business revenue
declined in 2001 due to the softening of end markets. Revenue from the Americas
operations decreased 3%, to $6,334.6 million in 2001 from $6,542.7 million in
2000, primarily due to continued end-market softening which was partially offset
by acquisitions. Revenue from European operations increased 6%, to
$3,001.3 million in 2001 from $2,823.3 million in 2000, due to the flow through
of the IBM acquisition from 2000, and from the 2001 acquisitions, partially
offset by the general industry downturn. Revenue from Asian operations increased
14%, to $991.1 million in 2001 from $871.6 million in 2000, primarily due to the
Omni acquisition offset in part by the general industry downturn.

    The following represents the end-market industriesmarket segmentation as a percentage of revenue for 2003 is: enterprise communications — 25%, telecommunications — 23%, servers — 22%, storage — 13%, other — 10%, and workstations and PCs — 7%. At the indicated periods:


                                                  YEAR ENDED DECEMBER 31
                                        ------------------------------------------
                                          2000             2001             2002
                                        --------         --------         --------

Communications........................    31%              36%              45%
Servers...............................    33%              31%              26%
Storage and other.....................    14%              18%              22%
Workstations and PCs..................    22%              15%               7%
beginning of 2003, as the Company continued to diversify into new markets, it separated its communications market segment into enterprise and telecommunications and also separated storage from other. The prior year's comparatives have not been adjusted to reflect the new market segmentation. The industry market segmentation as a percentage of revenue for 2002 is: communications — 45%, servers — 26%, storage and other — 22%, and workstations and PCs — 7%. For 2001, the industry market segmentation as a percentage of revenue is: communications — 36%, servers — 31%, storage and other — 18%, and workstations and PCs — 15%. Historically, revenue is highest in the fourth quarter, with the exception of 2002, when the Company was hardest hit by the downturn. Throughout 2003, revenue continued to improve sequentially each quarter, with a 17% increase in the fourth quarter of 2003 over the third quarter.
        The following customers represented more than 10% of total revenue for each of the indicated periods:

                                                  YEAR ENDED DECEMBER

Year ended December 31
                                        ------------------------------------------
                                          2000             

2001
2002
                                        --------         --------         --------
2003
Sun Microsystems......................    Microsystems
X
X
X
IBM...................................    
IBM
X
X
X
Lucent Technologies...................                     Technologies
X
X
X
Cisco Systems
X
        Celestica's top fiveten customers represented in the aggregate 66%73% of total revenue in 2002,2003, compared to 67%85% in 20012002 and 69%84% in 2000.2001. There has been a steady decline in revenue from the Company's top three customers over the past year, as their volumes were most negatively impacted by the broad-based reductions in corporate spending for computing and communications infrastructure products. At the same time, the Company has been focused on diversifying its customer base by adding new customers in areas outside of the traditional communications and computing markets, such as aerospace and defense, automotive, industrial and consumer. Revenue from its non-top ten customers represented in the aggregate 27% of total revenue in 2003, up from 15% a year ago.
        The Company is dependent upon continued revenue from its top customers. There can be no assurance that revenue from these or any other customers will not increasedecrease in absolute terms or
decrease as a percentage of total revenue either individually or as a group. Any material decrease in revenue from these or other customers could have a material adverse effect on the Company's results of operations. See notes 1715 (concentration of risk) and 1917 to the 2003 Consolidated Financial Statements.

    GROSS PROFIT
        The Company believes its growth depends on increasing sales to existing customers for their current and future product generations, and on successfully attracting new customers. Customer contracts can be cancelled and volume levels can be changed or delayed. The timely replacement of delayed, cancelled or reduced orders with new business cannot be assured. In addition, the Company has no assurance that any of its current customers will continue to utilize its services, which could have a material adverse effect on the Company's results of operations.
        The Company has also focused on expanding its product and service offerings. During the year, the Company announced that it would make investments to support the Company's reference design activities for


next generation servers, workstations and other products. Revenue earned during the year was minimal, however, management expects revenue to increase as the Company expands this new business. The Company's start-up costs for this business negatively impacted the year's results. The cost of the new investments included in cost of sales, selling, general and administrative expenses, and research and development expenses totaled approximately 1% of total revenue.
Gross profit
        Gross profit decreased 53% to $261.0 million in 2003 from $555.8 million in 2002. Gross margin decreased to 3.9% in 2003 from 6.7% in 2002. Gross margin decreased disproportionately due to the significant reduction in business volumes and corresponding low asset utilization rates, industry pricing pressures, a change in the mix of products manufactured (from higher complexity, higher value-add products to lower complexity, lower value-add products), costs of ramping new customer programs, costs of transferring programs to other geographies and costs to support the new reference design activities. Lower volumes contributed to approximately a 65% decrease in gross profit from 2002, with the remainder, primarily pricing, mix and the cost of new investments, reducing gross profit by approximately a further 20%. This decrease was offset in part by the benefits from the Company's restructuring programs and various other cost reduction initiatives. The benefits from restructuring amounted to approximately $250.0 million in 2003 of which approximately 75% was realized in lower cost of sales.
        The Company's higher cost operations in the Americas and Europe were significantly impacted by reductions in higher complexity and higher value-add products due to the weak demand from the Company's computing and telecommunications customers. As a result of these conditions, volumes declined and pricing pressure increased, driving the majority of the gross margin declines.
        European operations continued to be the most adversely affected by lower utilization levels and higher fixed costs. Most of the planned restructuring actions for Europe were announced by year-end 2003. Although the Company realized some benefits of the restructuring during the latter part of the year, further savings are expected to be realized in 2004, as the Company completes its planned restructuring actions by mid-2004. Americas operations have also been affected by significant volume reductions, the cost of transferring programs and investments in new product and service offerings, specifically in reference design activities. Asian operations have been affected by program ramping costs and overall pricing pressures offset, in part, by higher production volumes.
        Gross profit decreased 22%, to $555.8 million in 2002 from $712.5 million in 2001. Gross margin decreased to 6.7% in 2002 from 7.1% in 2001. Gross margins
decreased 0.4% from prior year,2001, primarily due to the significant reduction in business volumes and industry pricing pressures. The European operations were most adversely affected as they were operating at lower levels of utilization and higher fixed costs for the year. The volume reductions tended to impact higher value-addedvalue-add products disproportionately, further adversely affecting

                                       32
 the European margins. In addition, costs for the Company's European operations were higher than expected due to delays in transferring programs, the slower pace of restructuring and some process scrap and related inventory issues, in the latter part of the year. The margin declines in the Company's European operations were offset partially by improved margins in the Americas and Asian operations. The Americas improved its operating efficiencies, had higher value-addedvalue-add product mix and benefited from restructuring actions. Asian margins improved on higher volumes and utilization rates.

    Gross profit increased 4%,
        By the end of 2003, the Company had transitioned most of its high volume products to $712.5 millionlower cost geographies, with approximately 70% of its production facilities in 2001lower cost geographies, up from $688.0 million in
2000. Gross margin was 7.1% in 2001, consistent with 2000. Margins were
maintained due50% a year ago. Capacity utilization has improved to continued focus on costs and supply chain initiatives, andbetween 55% to 60% at the benefitsend of 2003 from 45% to 50% at the 2001 restructuring actions.end of 2002.
        For the foreseeable future, the Company's gross margin is expected to depend
onbe impacted by product volume and mix, production efficiencies, utilization of manufacturing capacity, geographic manufacturing mix, start-up activity,and ramp-up activities, new product introductions, pricing within the electronics industry, cost structurestructures at individual sites, and other factors.factors, including the overall highly competitive nature of the EMS industry. Over time, gross margins at individual sites and for the Company as a whole are expected to fluctuate. Also, the availability of labour and raw materials, which are subject to lead time and other constraints, could possibly limit the Company's revenue growth. SELLING, GENERAL AND ADMINISTRATIVE EXPENSESThrough the fourth quarter of 2003, increased volumes and improved capacity utilization have


stabilized pricing on components and our services. This, together with the continued restructuring benefits, should add to the Company's future profitability.
Selling, general and administrative expenses
        Selling, general and administrative (SG&A) expenses decreased 13%11%, to $298.5$249.8 million (3.6%(3.7% of revenue) in 2003 from $280.3 million (3.4% of revenue) in 2002. SG&A as a percentage of revenue increased as a result of a significant reduction in revenue, higher spending in sales and marketing to support diversified markets, as well as the benefits from the Company's restructuring activities lagging behind the revenue decline. The decrease in SG&A, on an absolute basis, reflects the benefits from the Company's restructuring programs, offset by higher costs, largely to support new products and new markets.
        SG&A expenses decreased 14%, to $280.3 million (3.4% of revenue) in 2002 from $341.4$324.3 million (3.4%(3.2% of revenue) in 2001. SG&A as a percentage of revenue increased as certain elementsa result of expenses were fixed over this period.a significant reduction in revenue and the benefits from the Company's restructuring activities lagging behind the revenue decline. The decrease in SG&A, on an absolute basis, reflects the benefits from the Company's restructuring programs and a reduction in discretionary spending, which more than offset the increase in expenses due to operations acquired in the latter part of 2001 and in 2002.

    SG&A
Research and development costs
        Research and development (R&D) increased 5%32%, to $341.4$24.0 million (3.4%(0.4% of revenue) in 20012003 from $326.1$18.2 million (3.3%(0.2% of revenue) in 2000.2002. The increaseincreased spending in expensesR&D was primarily
dueprincipally to operations acquired during 2000support the Company's reference design activities for next generation servers, workstations and 2001.

    Research and developmentother products.
        R&D costs increased slightly to $18.2 million (0.2% of revenue) in 2002, compared to $17.1 million (0.2% of revenue) in 2001 and $19.52001.
Amortization of intangible assets
        Amortization of intangible assets decreased 49%, to $48.5 million (0.2%in 2003 from $95.9 million in 2002. In the fourth quarter of revenue)2002, the Company recorded an impairment charge to write down its intangible assets. As a result of the write down in 2000.

    AMORTIZATION OF GOODWILL AND INTANGIBLE ASSETS2002, the amortization expense decreased in 2003. The decrease in expense is partially offset by amortization of intangible assets arising from the 2002 acquisitions.
        Amortization of goodwill and intangible assets decreased 23%, to $95.9 million in 2002 from $125.0 million in 2001. The decrease in amortization is the result of a change in accounting for goodwill, offset in part by the amortization of intangible assets arising from the 2001 and 2002 acquisitions. Effective January 1, 2002, the Company fully adopted the new accounting standards for goodwill and discontinued amortization of all goodwill effective that date. Amortization of goodwill for 2001 was $39.2 million. See "-- Recent Accounting Developments."
The decrease in amortization isnote 2(q)(i) to the result of this change in accounting for
goodwill, offset in part by the amortization of intangible assets arising from
the 2001 and 2002 acquisitions. See note 2(q)(ii) to the2003 Consolidated Financial Statements for the impact of the change in policy on net earnings (loss)loss and per share calculations.

    Amortization of goodwill and intangible assets increased 41%,
Integration costs related to $125.0 million in 2001 from $88.9 million in 2000. The increase is attributable
to the goodwill and intangible assets arising from the 2000 and 2001
acquisitions.

    INTEGRATION COSTS RELATED TO ACQUISITIONSacquisitions
        Integration costs related to acquisitions represent one-time costs incurred within 12 months of the acquisition date, such as the costs of implementing compatible information technology systems in newly acquired operations, establishing new processes related to marketing and distribution processes to accommodate new customers, and the salaries of personnel directly involved with integration activities. All of the integration costs incurred are related to newly acquired facilities, and not to the Company's existing operations.

    Integration
        There were no integration costs werein 2003, compared to $21.1 million in 2002 compared toand $22.8 million in 2001 and $16.1 million in 2000. The integration costs incurred in 2002 primarily
relate to the Lucent, NEC Japan and Omni acquisitions.2001. Integration costs vary from period to period due to the timing of acquisitions and related integration activities.

                                       33

    OTHER CHARGES

    In 2002, Celestica incurred $677.8 million in other


Other charges compared to
$273.1 million in 2001.


                                                                     YEAR ENDED
                                                                     DECEMBER 31
                                                              -------------------------
                                                                2001             2002
                                                              --------         --------
                                                                    (in millions)

2001 restructuring..........................................   $237.0           $  1.9
2002 restructuring..........................................    --               383.5
2002 goodwill impairment....................................    --               203.7
Other impairment............................................     36.1             81.7
Deferred financing costs and debt redemption fees...........    --                 9.6
Gain on sale of surplus land................................    --                (2.6)
                                                               ------           ------
                                                               $273.1           $677.8
                                                               ======           ======
 
 
Year ended December 31
 
 
 
2001
 
2002
 
2003
 
Total
 
 
 
(in millions)

 
2001 restructuring
 
$
237.0
 
$
1.9
 
$
7.9
 
$
246.8
 
2002 restructuring
 
 
—
 
 
383.5
 
 
15.7
 
 
399.2
 
2003 restructuring
 
 
—
 
 
—
 
 
71.3
 
 
71.3
 
 
 
 
 
 
 
Total restructuring
 
$
237.0
 
$
385.4
 
$
94.9
 
$
717.3
 
2002 goodwill impairment
 
 
—
 
 
203.7
 
 
—
 
 
203.7
 
Other impairment
 
 
36.1
 
 
81.7
 
 
82.8
 
 
200.6
 
Deferred financing costs and debt redemption fees
 
 
—
 
 
9.6
 
 
1.3
 
 
10.9
 
Gain on sale of surplus land
 
 
—
 
 
(2.6
)
 
(3.6
)
 
(6.2
)
 
 
 
 
 
 
 
 
$
273.1
 
$
677.8
 
$
175.4
 
$
1,126.3
 
 
 
 
 
 
 
        Further details of the other charges are included in note 1311 to the 2003 Consolidated Financial Statements and note 6 to the December 31, 2003 Interim Consolidated Financial Statements.

    As of December 31, 2002,
        To date, the Company had announced twohas recorded charges in connection with three separate restructuring plans in response to the challenging economic climate. These actions, which included reducing the
workforce, consolidating facilities and changing the strategic focus of the
number and geographylocation of sites,production facilities, were largely intended to align the Company's capacity and infrastructure to anticipated customer demand,requirements for more capacity in lower cost regions, as well as to rationalize its footprint worldwide.manufacturing network to the lower demand levels. The Company has recorded charges totaling $246.8 million for its 2001 restructuring plan, amounted to
$237.0 million. The$399.2 million for its 2002 restructuring plan amountedand $71.3 million relating to $383.5 million. Cashits 2003 restructuring plan.
        The Company recorded a combined total of $717.3 million for its three restructuring plans. The focus of these restructuring plans was on the Americas and Europe, as they were hit the hardest by the downturn. A total of 18,510 employees have been released from the business as of December 31, 2003. Approximately 620 employee positions remain to be eliminated by mid-2004. Approximately 70% of the employee terminations were in the Americas and 30% in Europe. A total of 29 facilities were closed or downsized in the Americas and Europe, which included the transfer of programs from these higher cost geographies to lower cost geographies. The remaining lease facilities costs are estimated to be paid out through 2015. All cash outlays are expected to be funded from cash on hand. In January 2003, the Company announced a
restructuring to further reduce its manufacturing capacity. See "-- Recent
Developments."
        The Company has benefited and expects to continue to benefit from the restructuring measures taken in 2001 and 2002prior years through reduced operating costs.depreciation, lease and labour costs in cost of sales and SG&A expenses, and reduced amortization of intangibles. These benefits amounted to approximately $250 million in 2003, of which approximately 75% was realized in lower cost of sales and the balance in lower SG&A and amortization of intangibles. The Company has completed the major components of the 2001 and 2002 restructuring plan,plans, except for certain employee terminations in the Americas and certain long-term lease and other contractual obligations. The Company expects to complete the major components of the 2002remaining 2003 restructuring planactions in Europe by the end of
2003, except for certain long-term lease and other contractual obligations.mid-2004.
        The Company continueswill continue to evaluate its operations, and could propose future restructuring actions as a result of changes in the marketplace. See "— Recent Development."
        The Company conducts an annual review of goodwill and long-lived assets in the fourth quarter of each year to correspond with its planning cycle, absent any triggering factors which would have necessitated a review earlier in the year. In the course of finalizing its annual plans, the Company made certain decisions regarding its restructuring plans and the transfer of customer programs from higher cost structure relative to itslower cost geographies. These actions, coupled with weakened end markets, have significantly impacted forecasted revenue levels
and has announced that it will take additional restructuringhave reduced the net cash flows for certain sites, resulting in impairment when compared to the carrying value of long-lived assets including intangible assets and capital assets. In the fourth quarter of 2003, the Company recorded non-cash charges in 2003.
See "-- Recent Developments."against intangible assets of $25.3 million, and $57.5 million against capital assets, which included an impairment of $14.3 million relating to the purchase of a leased facility. In the fourth quarter of 2002, the Company recorded a non-cash charge
against goodwillcharges of $203.7 million in connection with its annual impairment
assessments of goodwill. An independent third-party valuation confirmed the fair
value of the reporting unitsagainst goodwill, $69.0 million against


intangible assets, and the impairment assessment. In the fourth
quarter of 2002, the Company also recorded a non-cash charge of $81.7$12.7 million primarily against intangiblecapital assets. In 2001, the Company recorded a non-cash charge ofcharges totaling $36.1 million, primarily against goodwill, intangible assets and intangibleother assets. See
note 7 to the Consolidated Financial Statements.
        The Company may continue to experience goodwill and intangiblelong-lived asset impairment charges in the future as a result of adverse changes in the electronics industry, customer demand and other market conditions, which may have a material adverse effect on the Company's financial condition.

    INTEREST INCOME, NET
Interest income, net
        Interest income in 2003 decreased to $9.4 million compared to $17.2 million in 2002. The reduction in interest income in 2003 is due to lower cash balances being invested at lower interest rates compared to 2002. Interest income was offset by interest expense of $5.4 million in 2003, compared to $16.1 million in 2002.
        Interest income in 2002 amounted to $17.2 million, compared to $27.7 million in 2001, and $36.8 million in 2000.2001. Interest income decreased for 2002 compared to 2001, primarily due to lower interest rates on cash balances. Interest income was offset by interest expense incurred on the Company's Senior Subordinated Notes and debt facilities, which hasfacilities. Interest expense decreased from $19.8 million in 2001 to $16.1 million in 2002, due to the redemption of the Senior Subordinated Notes in August 2002. Interest
Income taxes
        Income tax expense is expectedin 2003 was $33.1 million on a net loss before tax of $232.7 million, compared to decreasea recovery of $91.2 million on a net loss before tax of $536.4 million in 2002. The effective tax rate for 2003 as a result of the full-year effect of the redemption.

                                       34

    INCOME TAXES

    The income tax recovery in 2002 was $91.2 million, reflectingnegative 14.2%, compared to an effective tax recovery rate of 17%. This is compared to an income in 2002. The tax recovery of
$2.1 millionrate and resulting tax expense were impacted by the increase in 2001, reflecting an effectivethe valuation allowance, primarily recorded against existing European deferred tax recovery rate of 5%.

    Theassets ($35.3 million) and 2003 European restructuring charges and European operating losses.
        In addition, the Company's effective tax rate is the result ofimpacted by the mix and volume of business in lower tax jurisdictions within Europe and Asia. These lower tax
rates includeAsia, tax holidays and tax incentives that Celestica hashave been negotiated with the respective tax authorities which(which expire between 2004 and 2012.2012 — see note 12 to the 2003 Consolidated Financial Statements), restructuring charges, operating losses, the time period in which losses may be used under tax laws, and the impairment of deferred income tax assets. The tax benefit arising from thesethe tax holidays and tax incentives is approximately $17.6 million, or $0.08 diluted per share, for 2003 and $24.9 million, or $0.11 diluted per share, for 2002 and $9.6 million, or $0.04 diluted per share for
2001. The Company expects the current2002. Such tax rate of 17%holidays are subject to continue for the
foreseeable future based on the anticipated nature and conduct of its business
and the tax laws, administrative practices and judicial decisions now in effect
in the countries inconditions with which the Company has assets or conducts business, all of
which are subjectexpects to change or differing interpretation, possibly with
retroactive effects.continue to comply.
        The net deferred income tax asset for 2003 of $225.0 million ($274.3 million as at December 31, 2002 of $274.3 million2002) arises from available income tax losses and future income tax deductions. The Company's ability to use these income tax losses and future income tax deductions is dependent upon the operations of the Company in the tax jurisdictions in which such losses or deductions arose. Management records a valuation allowance against deferred income tax assets when management believes it is more likely than not that some portion or all of the deferred income tax assets will not be realized. Based on the reversal of deferred income tax liabilities, projected future taxable income, and the character of the income tax assetassets and tax planning strategies, management has determined that a valuation allowance of $76.6$185.3 million is required in respect of its deferred income tax assets as at December 31, 2002. No valuation allowance was required for the
deferred income tax assets2003 ($76.6 million as at December 31, 2001.2002). In order to fully utilize the net deferred income tax assets of $274.3$225.0 million, the Company will need to generate future taxable income of approximately $741.0$642.5 million. Based on the Company's current projection of taxable income for the periods in which the deferred income tax assets are deductible, it is more likely than not that the Company will realize the benefit of the net deferred income tax assets as at December 31, 2002.

UNAUDITED QUARTERLY FINANCIAL HIGHLIGHTS


                                                            2001                                        2002
                                          -----------------------------------------   -----------------------------------------
                                           FIRST      SECOND     THIRD      FOURTH     FIRST      SECOND     THIRD      FOURTH
                                          QUARTER    QUARTER    QUARTER    QUARTER    QUARTER    QUARTER    QUARTER    QUARTER
                                          --------   --------   --------   --------   --------   --------   --------   --------
                                                                 (in millions, except per share amounts)

Revenue.................................  $2,692.6   $2,660.7   $2,203.0   $2,448.2   $2,151.5   $2,249.2   $1,958.9   $1,911.9
Cost of Sales...........................  $2,499.3   $2,468.5   $2,053.5   $2,270.7   $1,999.4   $2,087.2   $1,827.6   $1,801.6
Gross Profit %..........................      7.2%       7.2%       6.8%       7.3%       7.1%       7.2%       6.7%       5.8%
Net earnings (loss).....................  $   54.8   $   15.8   $  (38.7)  $  (71.8)  $   39.7   $   40.4   $  (90.6)  $ (434.7)

Weighted average # of shares outstanding
  (in millions)
    -- basic............................     203.6      207.0      218.1      227.1      229.8      230.2      230.1      229.0
    -- diluted..........................     223.1      225.5      218.1      227.1      236.8      236.0      230.1      229.0
Earnings (loss) per share
    -- basic............................  $   0.25   $   0.06   $  (0.20)  $  (0.33)  $   0.15   $   0.16   $  (0.40)  $  (1.90)
    -- diluted..........................  $   0.25   $   0.06   $  (0.20)  $  (0.33)  $   0.15   $   0.15   $  (0.40)  $  (1.90)
2003.


Unaudited quarterly financial highlights
 
 
2002
 
2003
 
 
 
First Quarter
 
Second Quarter
 
Third Quarter
 
Fourth Quarter
 
First Quarter
 
Second Quarter
 
Third Quarter
 
Fourth Quarter
 
 
 
(in millions, except per share amounts)

 
Revenue
 
$
2,151.5
 
$
2,249.2
 
$
1,958.9
 
$
1,911.9
 
$
1,587.4
 
$
1,598.4
 
$
1,634.8
 
$
1,914.8
 
Cost of Sales
 
$
1,999.4
 
$
2,087.2
 
$
1,827.6
 
$
1,801.6
 
$
1,511.7
 
$
1,549.6
 
$
1,570.5
 
$
1,842.6
 
Gross Profit %
 
 
7.1%
 
 
7.2%
 
 
6.7%
 
 
5.8%
 
 
4.8%
 
 
3.1%
 
 
3.9%
 
 
3.8%
 
Net earnings (loss)
 
$
39.7
 
$
40.4
 
$
(90.6
)
$
(434.7
)
$
3.4
 
$
(39.6
)
$
(64.8
)
$
(164.8
)
Weighted average # of shares outstanding (in millions)
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
— basic
 
 
229.8
 
 
230.2
 
 
230.1
 
 
229.0
 
 
227.0
 
 
218.0
 
 
211.8
 
 
209.3
 
 
— diluted
 
 
236.8
 
 
236.0
 
 
230.1
 
 
229.0
 
 
230.2
 
 
218.0
 
 
211.8
 
 
209.3
 
Earnings (loss) per share
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
— basic
 
$
0.15
 
$
0.16
 
$
(0.40
)
$
(1.90
)
$
0.02
 
$
(0.18
)
$
(0.30
)
$
(0.80
)
 
— diluted
 
$
0.15
 
$
0.15
 
$
(0.40
)
$
(1.90
)
$
0.02
 
$
(0.18
)
$
(0.30
)
$
(0.80
)
        See "--"— Capital Resources" for information regarding the impact of foreign currency fluctuations on the Company.
B.    LIQUIDITY AND CAPITAL RESOURCESLiquidity and Capital Resources
        In 2002,2003, operating activities provided Celestica with $982.8utilized $158.5 million in cash, compared to $1,290.5providing $982.8 million in 2001.cash in 2002. Cash was generated from earnings and
a reduction in working capital, primarily inventory, due to improved inventory
management, and the collection of accounts receivable. The Company will continue
to focus on improving working capital management. Cash generated from operations was sufficientnegatively impacted by depressed volumes and program transfers. $252.6 million was used to fully fundsupport higher inventory levels. Inventory was purchased earlier in the Company's investing and financingcycle to ensure adequate supply in response to increased customer demand in the fourth quarter of 2003, as well as to support the increasing sales momentum going into the first quarter of 2004. Investing activities for 2002.

                                       35
2003 included capital expenditures of $175.9 million, primarily to expand manufacturing capacity in Asia and to purchase the building in Fort Collins, Colorado which the Company previously leased. Investing activities for 2002 included capital expenditures of $151.4 million and asset acquisitions of $111.0 million, offset, in part, by proceeds from the sale-leaseback of machinery and equipment, and the sale of the Company's Columbus, Ohio facilityfacility.
        The Company continues to focus on efficiency including improving cash cycle days and inventory turns. The Company's average cash cycle, calculated as accounts receivable days plus inventory days minus payable days (defined as current liabilities excluding interest bearing items), for 2003 was 7 days, an improvement of 11 days over 2002.
        The Company continued to reduce the leverage on its balance sheet by repurchasing LYONs in the open market. In 2003, LYONs with a principal amount at maturity of $435.9 million were repurchased at an average price of $512.75 per LYON, for a total cash outlay of $223.5 million. A loss of $2.8 million was recorded for the year. The Company may, from time to time, purchase additional LYONs in the sale-leasebackopen market. Through December 31, 2003, the Company repurchased LYONs with a total principal amount at maturity of machinery$658.8 million, for a total cash outlay of $323.8 million. The Company currently has pre-approval to spend up to an additional $126.2 million to repurchase LYONs, at management's discretion. The amount and equipment.timing of future purchases cannot be determined at this time.
        As at December 31, 2003, the Company has outstanding LYONs with a principal amount at maturity of $1,154.7 million payable August 1, 2020. Holders of the instruments have the option to require Celestica to repurchase their LYONs on August 2, 2005, at a price of $572.82 per LYON, or a total of $661.4 million. The Company may elect to settle its repurchase obligation in cash or shares, or any combination thereof. See further details in note 8 to the 2003 Consolidated Financial Statements.
        In April 2003, Celestica amended its Normal Course Issuer Bid (NCIB) to permit it to repurchase up to 10% of the public float, or 18.6 million subordinate voting shares, for cancellation, over a period from August 1, 2002 to July 31, 2003. This program was completed in July 2003. In July 2003, Celestica filed a new NCIB to repurchase up to an additional 10% of the public float, or 17.0 million subordinate voting shares, for cancellation, over a period from August 1, 2003 to July 31, 2004. Under these programs, shares are purchased at the market price at the time of purchase. The number of shares to be repurchased during any 30-day period may


not exceed 2% of the outstanding subordinate voting shares. A copy of the notices relating to the two NCIB programs may be obtained from Celestica, without charge, by contacting the Company's Investor Relations department at clsir@celestica.com. In 2003, the Company repurchased 20.6 million subordinate voting shares at a weighted average price of $13.35 per share. All of these transactions were funded with cash on hand. Through December 31, 2003, a total of 22.6 million subordinate voting shares have been repurchased pursuant to these NCIBs.
        As of December 31, 2003, the Company had 169.8 million outstanding subordinate voting shares and 39.1 million outstanding multiple voting shares.
        In 2002, Celestica redeemed the entire $130.0 million of outstanding Senior Subordinated Notes which were due in 2006 and paid the contractual premium of 5.25%, or $6.9 million, on redemption. The
        Since the Company also reduced the leverage onbegan its balance sheet by repurchasing Liquid Yield Option-TM- Notes (LYONs)share and debt repurchase activities in the open market. These LYONs, having a principal amount at maturitythird quarter of $222.9 million, were repurchased at an average price of $450.10 per LYON, for2002, a total of $100.3 million. A gain of $6.7 million, net of taxes of $3.9$768.1 million was recorded. See further details in note 10 to the Consolidated Financial
Statements. The Company may, from time to time, purchase additional LYONs in the
open market. Subsequent to year-end, the board of directors authorized the
Company to spend up to an additional $100.0 millionspent to repurchase LYONs, at
management's discretion. This is in addition to the amounts authorized in
October 2002, of which $48.0 million remains available for future purchases. The
amount and timing of future purchases cannot be determined at this time.

    In July 2002, Celestica filed a Normal Course Issuer Bid to repurchase up to
9.6 millionsenior subordinated notes, subordinate voting shares for cancellation, over a period from
August 1, 2002 to July 30, 2003. The shares will be purchased at the market
price at the time of purchase. The number of shares to be repurchased during any
30-day period may not exceed 2% of the outstanding subordinate voting shares. A
copy of our Notice relating to the Normal Course Issuer Bid may be obtained from
Celestica, without charge, by contacting the Company's Investor Relations
Department at clsir@celestica.com. In 2002, the Company repurchased 2.0 million
subordinate voting shares at a weighted average price of $16.23 per share. All
of these transactions were funded with cash on hand.

    In 2001, operating activities provided Celestica with $1,290.5 million in
cash principally from earnings and a reduction in working capital. The primary
factors contributing to the positive cash flow for the year were the reduction
of inventory due to better inventory management, strong accounts receivable
collections and the sale of $400.0 million in accounts receivable under a
revolving facility, offset by a decrease in accounts payable and accrued
liabilities. Investing activities in 2001 included capital expenditures of
$199.3 million and $1,299.7 million for acquisitions. See "-- Recent
Acquisitions." The Company fully funded the 2001 acquisitions with cash from
operations. The Company's 2001 financing activities included the issuance in May
of 12.0 million subordinate voting shares for gross proceeds of $714.0 million
and the repayment of $56.0 million of debt acquired in connection with the
acquisition of Omni.

CAPITAL RESOURCES

    During the year, Celestica amended its credit facilities.LYONs.
Capital Resources
        At December 31, 2002,2003, the Company had two credit facilities: a $500.0 million four-year revolving term credit facility and a $250.0 million (reduced from $350.0 million in October 2003) revolving term credit facility which expire in July 2005 and October 2004, respectively. The Company elected to
cancel its third credit facility which was originally entered into in
July 1998. The credit facilities permit Celestica and certain designated subsidiaries to borrow funds directly for general corporate purposes (including acquisitions) at floating rates. Under the credit facilities: Celestica is required to maintain certain financial ratios; its ability and that of certain of its subsidiaries to grant security interests, dispose of assets, change the nature of its business or enter into business combinations, is restricted; and, a change in control is an event of default. The Company does not currently anticipate requiring any borrowings from the credit facilities to support existing operations. Based on the required minimum financial ratios, at December 31, 2003, the Company is limited by these facilities to approximately $140 million of additional debt incurrence. Additional borrowing amounts would be available to support the funding of acquisitions or to support certain other potential refinancing needs. No borrowings were outstanding under the revolving credit facilities and Celestica was in compliance with all covenants at December 31, 2002.2003.
        Celestica and certain subsidiaries have additional uncommitted bank overdraft facilities which total $47.1$55.1 million that are available for operating requirements.
        Celestica believes that cash flow from operating activities, together with cash on hand and borrowings available under its credit facilities, will be sufficient to fund currently anticipated working capital, planned capital spending and debt service requirements for the next 12 months. At December 31, 2003, Celestica had committed $18.7 million in capital expenditures, principally for machinery and equipment and facilities in Asia. The Company expects capital spending for 20032004 to be in the range of 1.5% to 2.0%2.5% of revenue.
At December 31, 2002, Celestica had committed $30.3 million in capital
expenditures.revenue and it will be funded from cash on hand. In addition, Celestica regularly reviews acquisition opportunities and, therefore,as a result, may require additional debt or equity financing.
        The Company has an arrangement to sell up to $400.0 million in accounts receivable under a revolving facility which is available until September 2004. As of year-end,December 31, 2003, the Company generated cash from the sale of 36

$320.5$359.3 million in accounts receivable. The purchaser of the accounts receivable is a division of a Schedule "A" rated Canadian bank, with a Standard and Poor's Rating Service rating of A and Stable outlook, and had assets under management of over $50.0 billion as of the date of its last annual filing. The terms of the arrangement provide that the purchaser may elect not to purchase receivables if Celestica's corporate credit rating falls below BB- as determined by Standard and Poor's Rating Service.
        Celestica's corporate, or senior implied, ratings are BB+ from Standard and Poor's and Ba1 from Moody's Investor Services. During 2003, both Moody's and Standard and Poor's revised their outlook on the Company from stable to negative, as a specified threshold.result of reduced revenue and operating profit performance. A reduction in Celestica's credit rating is significantly
above that threshold.ratings could impact Celestica's future cost of borrowing.
        Celestica prices the majority of its products in U.S. dollars, and the majority of its material costs are also denominated in U.S. dollars. However, a significant portion of its non-material costs (including payroll, facilities costs, and costs of locally sourced supplies and inventory) are denominated in various currencies. The majority


of the Company's cash balances are held in U.S. dollars. As a result, Celestica may experience transaction and translation gains or losses because of currency fluctuations. The Company has an exchange risk management policy in place to control its hedging programs and does not enter into speculative trades. At December 31, 2002,2003, Celestica had forward foreign exchange contracts covering various currencies in an aggregate notional amount of $669.1$623.2 million with expiry dates up to March 2004, except for
one contract for $10.6 million that expires in January 2006. The fair value of these contracts at December 31, 2002,2003 was an unrealized gain of $18.9$49.8 million. Celestica's current hedging activity is designed to reduce the variability of its foreign currency costs in the regions in which the Company has manufacturing operations and generally involves entering into contracts to trade U.S. dollars for Canadian dollars, British pounds sterling, Mexican pesos,
euros, Thai baht, Singapore dollars, Brazilian reais, Japanese yen and Czech
korunavarious currencies at future dates. In general, these contracts extend for periods of less
than 19up to 25 months. Celestica may, from time to time, enter into additional hedging transactions to minimize its exposure to foreign currency and interest rate risks. There can be no assurance that such hedging transactions if entered
into, will be successful. See notenotes 2(n) and 15 to the 2003 Consolidated Financial Statements.
        As at December 31, 2002,2003, the Company has contractual obligations that require future payments as follows:

                                          TOTAL       2003       2004       2005       2006       2007     THEREAFTER
                                         --------   --------   --------   --------   --------   --------   ----------
                                                                        (in millions)

Long-term debt.........................   $  6.9     $  2.7     $  2.5     $  1.5     $  0.1     $  0.1      $--
Operating leases.......................    338.3      106.5       59.5       38.9       23.0       18.9        91.5
 
 
Total
 
2004
 
2005
 
2006
 
2007
 
2008
 
Thereafter
 
 
(in millions)

Long-term debt
 
$
3.4
 
$
2.7
 
$
0.7
 
$
—
 
$
—
 
$
—
 
$
—
Operating leases
 
 
255.2
 
 
60.8
 
 
43.1
 
 
30.1
 
 
21.8
 
 
18.9
 
 
80.5
        As at December 31, 2002, the Company has convertible instruments, the LYONs,
with an outstanding principal amount at maturity of $1,590.6 million payable
August 1, 2020. Holders of the instruments have the option to require Celestica
to repurchase their LYONs on August 2, 2005, at a price of $572.82 per LYON, or
a total of $911.1 million. The Company may elect to settle its repurchase
obligation in cash or shares, or any combination thereof. See further details in
note 10 to the Consolidated Financial Statements.

    Under the terms of an existing real estate lease which expires in 2004,
Celestica has the right to acquire the real estate at a purchase price equal to
the lease balance which currently is approximately $37.3 million. In the event
that the lease is not renewed, subject to certain conditions, Celestica may
choose to market and complete the sale of the real estate on behalf of the
lessor. If the highest offer received is less than the lease balance, Celestica
would pay the lessor the lease balance less the gross sale proceeds, subject to
a maximum of $31.5 million. In the event that no acceptable offers are received,
Celestica would pay the lessor $31.5 million and return the property to the
lessor. Alternatively, Celestica may choose to acquire the real estate at the
expiration for a price equal to the then current lease balance. The future lease
payments under this lease are included in the total operating lease commitments.

    As at December 31, 2002,2003, the Company has commitments that expire as follows:

                                          TOTAL       2003       2004       2005       2006       2007     THEREAFTER
                                         --------   --------   --------   --------   --------   --------   ----------
                                                                        (in millions)

Foreign currency contracts.............   $669.1     $621.5     $ 39.6     $  5.3     $  2.7     $--         $--
Letters of credit, letters of guarantee
  and surety and performance bonds.....     61.2       37.6        1.0       16.9      --           3.9         1.8
 
 
Total
 
2004
 
2005
 
2006
 
2007
 
2008
 
Thereafter
 
 
(in millions)

Foreign currency contracts
 
$
623.2
 
$
585.6
 
$
34.9
 
$
2.7
 
$
—
 
$
—
 
$
—
Letters of credit, letters of guarantee and surety and performance bonds
 
 
55.9
 
 
32.6
 
 
16.9
 
 
—
 
 
4.0
 
 
2.4
 
 
—
Capital expenditures
 
 
18.7
 
 
18.7
 
 
—
 
 
—
 
 
—
 
 
—
 
 
—
        Cash outlays for the Company's contractual obligations and commitments identified above are expected to be funded by cash on hand. Purchase commitments are not included in the above table as non-cancelable purchase orders are generally short-term in nature and longer term purchase orders are typically cancelable.
        The Company's pension funding policy is to contribute amounts sufficient to meet minimum local statutory funding requirements that are based on actuarial calculations. The Company may make additional discretionary contributions based on actuarial assessments. During 2003, the Company made pension contributions of $33.8 million ($13.5 million in 2002), of which $26.7 million was discretionary ($6.7 million in 2002). The Company estimates the 2004 statutory pension contribution to range from $7.0 million to $10.0 million and the voluntary pension contribution to range from $8.0 million to $10.0 million.
        The Company has also provided routine indemnifications, whose terms range in duration and often are not explicitly defined. These guarantees may include indemnifications against adverse effects due to changes in tax laws and patent infringements by third parties. The maximum amounts from these indemnifications cannot be reasonably estimated. In some cases, the Company has recourse against other parties to mitigate its risk of loss 37
from these guarantees.indemnifications. Historically, the Company has not made significant payments relating to these indemnifications.
        The Company expenses management relatedexpensed management-related fees of $1.4 million charged by its parent company.company, based on the terms of a management agreement. See "Related Party Transactions — Interest of Management believes that the fees charged are reasonable in relationCertain Transactions." See note 13 to the services provided. See note 15 to the2003 Consolidated Financial Statements.

RECENT DEVELOPMENTS
Controls and Procedures
        The Chief Executive Officer and Chief Financial Officer have evaluated the Company's disclosure controls and procedures as of the end of the year, and have concluded that such controls and procedures are effective.
        There were no changes in the Company's internal controls over financial reporting or in other factors that have materially affected, or are reasonably likely to materially affect, such controls.


Recent Development
        In January 2003,April, 2004 the Company made the following announcements:

    In response to the continued limited visibility in end markets, the Company
plans to further reduce its manufacturing capacity. The reduction in capacity
will result in aannounced that it would incur an additional pre-tax restructuring charge of between $50.0$175.0 million and $70.0$200.0 million to be recorded during 2003,over the next 12 months. The Company expects to reduce its manufacturing footprint and reduce its global workforce by approximately 10% to 15% over the next 12 months. The Company estimates that approximately 75% of which approximately 80%the charges will be cash costs.

    The Company has, from time to time, purchased LYONs on the open market. The
Company has been authorized by the board of directors to spend up to an
additional $100.0 million to repurchase LYONs, at management's discretion. This
is in addition to the amounts authorized in October 2002, of which
$48.0 million remains available for future purchases.

RECENT ACCOUNTING DEVELOPMENTS

    BUSINESS COMBINATIONS, GOODWILL AND OTHER INTANGIBLE ASSETS:

    In September 2001, the CICA issued Handbook Sections 1581, "Business
Combinations"
Recent Accounting Developments
Stock-based compensation and 3062, "Goodwill and Other Intangible Assets." The FASB issued
similar standards in July 2001. See notes 2(q)(ii) and 22(k) to the Consolidated
Financial Statements.

    STOCK-BASED COMPENSATION AND OTHER STOCK-BASED PAYMENTS:other stock-based payments:
        Effective January 1, 2002,2003, the Company adopted the newrevised CICA Handbook Section 3870. See note 2(q)(iii)(ii) to the 2003 Consolidated Financial Statements.

    FOREIGN CURRENCY TRANSLATION AND HEDGING RELATIONSHIPS:
Hedging relationships:
        In January 2002, the CICA issued Accounting Guideline AcG-13. See note 2(r) to the 2003 Consolidated Financial Statements.

    IMPAIRMENT OF LONG-LIVED ASSETS:
Impairment of long-lived assets:
        In August 2001, FASB approved SFAS No. 143, "Accounting for Asset Retirement
Obligations" and in October 2001, FASB issued SFAS No. 144, "Accounting for the Impairment or Disposal of Long-Lived Assets." In December 2002, the CICA issued standards similar to SFAS No. 144. See notes 22(k) and 2(r)note 2(j) to the 2003 Consolidated Financial Statements.

    COSTS ASSOCIATED WITH EXIT OR DISPOSAL ACTIVITIES:

    In July 2002, FASB issued SFAS No. 146, "Accounting for Costs Associated
with Exit or Disposal Activities," effective for exit or disposal activities
that are initiated after December 31, 2002. See note 22(k) to the Consolidated
Financial Statements.

    GUARANTEES:
Guarantees:
        In November 2002, FASB issued FIN 45, "Guarantor's Accounting and Disclosure Requirements." In December 2002, the CICA approved AcG-14 which harmonizes Canadian GAAP to the disclosure requirements of FIN 45. See notes 22(k)20(l) and 2(r)16 to the 2003 Consolidated Financial Statements.

    CONSOLIDATION OF VARIABLE INTEREST ENTITIES:
Consolidation of variable interest entities:
        In January 2003, FASB issued FIN 46, "Consolidation of Variable Interest Entities." See note 22(k)20(l) to the 2003 Consolidated Financial Statements. 38
In June 2003, the CICA issued standards similar to FIN 46, effective for 2005.
Restructuring charges:
        In March 2003, the CICA issued EIC-134, "Accounting for Severance and Termination Benefits," and EIC-135, "Accounting for Costs Associated with Exit and Disposal Activities." The FASB issued similar standards in July 2002. See notes 2(p) and 20(l) to the 2003 Consolidated Financial Statements.
Asset retirement obligations:
        In March 2003, the CICA issued Handbook Section 3110, "Asset Retirement Obligations." The FASB issued similar standards in August 2001. See notes 2(r) and 20(l) to the 2003 Consolidated Financial Statements.
Liabilities and equity:
        In November 2003, the CICA revised Handbook Section 3860, "Financial Instruments — Presentation and Disclosure." See note 2(r) to the 2003 Consolidated Financial Statements.
Revenue recognition:
        In December 2003, the CICA issued EIC-141, "Revenue Recognition" and EIC-142, "Revenue Arrangements with Multiple Deliverables." The FASB has similar standards. See note 2(r) to the 2003 Consolidated Financial Statements.
Generally accepted accounting principles:
        In July 2003, the CICA issued Handbook Section 1100, "Generally Accepted Accounting Principles." See note 2(r) to the 2003 Consolidated Financial Statements.

C.    RESEARCH AND DEVELOPMENT, PATENTS AND LICENSES, ETC.Research and Development, Patents and Licenses, Etc.
        Certain information concerning research and development and intellectual property is set forth in "--"— Operating Results -- Selling, general— Research and administrative expenses"development costs" and in Item 4, "Information of the Company --— Business Overview --— Celestica's Business --— Technology and Research and Development."
D.    TREND INFORMATIONTrend Information
        During the past twothree years, economic growth slowed and, in some regions of the world, the economy contracted. The demand for technology products fell significantly and Celestica'sour customers experienced commensurately reduced demand for their products. In turn, Celesticawe experienced reduced demand for the manufacturing services that we provide. In 2003, the economic environment continuescontinued to be uncertain, and Celestica continueswe continued to experience limited visibility in end-market demand. Given the difficult economic environment, Celestica haswe have been focused on re-aligning capacity to match current levels of product demand, generating increased levels of cash flow, and improving operating efficiencies. WeWhile economic conditions have improved, we intend to continue these activities in 2003.2004 in order to align our cost structure with current revenue levels. There continues to be a significant number of outsourcing opportunities and Celestica
iswe are well positioned to participate further in the trend towards increased outsourcing by OEMs. If, however, economic conditions were to deteriorate significantly beyond current expectations, Celesticawe would likely continue reducing capacity to match reduced levels of demand.

ITEM
Item 6.    DIRECTORS, SENIOR MANAGEMENT AND EMPLOYEES

Directors, Senior Management and Employees
A.    DIRECTORS AND SENIOR MANAGEMENTDirectors and Senior Management
        Each director of Celestica is elected by the shareholders to serve until the next annual meeting or until a successor is elected or appointed. Executive officers of Celestica are appointed annually and serve at the discretion of the board of directors. The following table sets forth certain information regarding the directors and senior officers of Celestica.

NAME                                     AGE                        POSITION WITH CELESTICA
- ----                                   --------   ------------------------------------------------------------

Eugene V. Polistuk...................     56      
Name
Age
Position with Celestica
Robert L. Crandall
68
Chairman of the Board and Director
William A. Etherington
62
Director
Richard S. Love
66
Director
Anthony R. Melman
56
Director
Gerald W. Schwartz
62
Director
Charles W. Szuluk
61
Director
Don Tapscott
56
Director
Stephen W. Delaney
44
Chief Executive Officer and Director
Robert L. Crandall...................     67      Director
William A. Etherington...............     61      Director
Richard S. Love......................     65      Director
Roger L. Martin......................     46      Director
Anthony R. Melman....................     55      Director
Michio Naruto........................     67      Director
Gerald W. Schwartz...................     61      Director
Charles W. Szuluk....................     60      Nominee to Board of Directors
Don Tapscott.........................     55      Director
J. Marvin M(a)Gee....................     50      MaGee
51
President and Chief Operating Officer
Anthony P. Puppi.....................     45      Executive Vice President, Puppi
46
Chief Financial Officer and
                                                    General Manager, Global Services
R. Thomas Tropea.....................     50      Vice Chair, Global Customer Units and Worldwide Marketing
                                                  and Business Development
Stephen W. Delaney...................     43      
Neo Kia Quek
56
President, Asia Operations
John Boucher
44
President, Americas N.K. Quek............................     55      President, Asia
Operations
Peter J. Bar.........................     45Bar
46
Senior Vice President and Corporate Controller
Arthur P. Cimento....................     45      Cimento
46
Senior Vice President, Corporate Strategies
Elizabeth L. DelBianco...............     43DelBianco
44
Senior Vice President, General Counsel,Chief Legal Officer and Corporate Secretary


                                       39

NAME                                     AGE                        POSITION WITH CELESTICA
- ----                                   --------   ------------------------------------------------------------
Iain S. Kennedy......................     41      Kennedy
42
Group Executive, Global Supply Chain and Information Technology
Donald S. McCreesh...................     54      
Lisa J. Colnett
46
Senior Vice President, Human Resources
Paul Nicoletti.......................     35Nicoletti
36
Senior Vice President and Corporate Treasurer
Daniel P. Shea.......................     46      Group Executive and Chief Technology Officer
Rahul Suri...........................     38      Suri
39
Senior Vice President, Corporate Development
F. Graham Thouret....................     48      Senior Vice President, Finance
        The following is a brief biography of each of Celestica's directors and senior officers:

    EUGENE V. POLISTUK is the founder,
Robert L. Crandall was appointed Chairman of the Board of Directors and
Chief Executive Officer of Celestica.Celestica in January 2004. He has been the Chief Executive Officer of
Celestica since its establishment in 1994, and was Celestica's President until
February 2001. Since 1986, Mr. Polistuk has been instrumental in charting
Celestica's transformation and executing the company's successful evolution from
its early history as an operating unit with IBM, to a standalone public company
and leader in the electronics manufacturing services industry. Previously,
Mr. Polistuk spent 25 years with IBM Canada, where, over the course of his
career, he managed all key functional areas of the business. In 1994, he was
presented with the "2T5 Meritorious Service Medal" in recognition of his
meritorious service in and for the profession, by his peers in the University of
Toronto Engineering Alumni Association. And more recently, in 2002,
Mr. Polistuk was inducted by the University of Toronto into its Engineering Hall
of Distinction for his contributions to engineering and society. Mr. Polistuk
holds a Bachelor of Applied Science degree in Electrical Engineering from the
University of Toronto and a Doctor of Engineering (Hon.) from Ryerson
University.

    ROBERT L. CRANDALL is the retired Chairman of the Board and Chief Executive Officer of AMR Corporation/American Airlines Inc. Mr. Crandall has been a director of Celestica since July 1998 and was appointed Lead Director in
December 2002.1998. He is also a director of Air Cell Inc., Anixter International Inc.,


the Halliburton Company and i2 Technologies Inc. He is also serves ona member of the International
Advisory BoardCouncil of American International Group, Inc. and of the Federal Aviation Administration Management Advisory Committee. Mr. Crandall 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.

    WILLIAM
William A. ETHERINGTONEtherington is a corporate director servingand the Non-Executive Chairman of the Board of Canadian Imperial Bank of Commerce. He also serves on the boards of CelesticaAllstream Inc. (since October 2001), Canadian Imperial Bank of Commerce, Dofasco Inc., MDS Inc. and AT&T Canada.The Relizon Company (private equity). Mr. Etherington has been a director of Celestica since October 2001. He is the former Senior Vice President and Group Executive, Sales and Distribution, IBM Corporation and Chairman, President and Chief Executive Officer of IBM World Trade Corporation. After joining IBM Canada in 1964, Mr. Etherington ran successively larger portions of the company's business in Canada, Latin America, Europe and from the corporate office in Armonk, New York. He retired from IBM after a 37-year career. Mr. Etherington holds a Bachelor of Science degree in Electrical Engineering and a Doctor of Laws (Hon.) from the University of Western Ontario.

    RICHARD
Richard S. LOVELove is a former Vice President of Hewlett-Packard and a former General Manager of the Computer Order Fulfillment and Manufacturing Group for Hewlett-Packard's Computer Systems Organization. Mr. Love has been a director of Celestica since July 1998. From 1962 until 1997, he held positions of increasing responsibility with Hewlett-Packard, becoming Vice President in 1992. He is a former director of HMT Technology Corporation (electronics manufacturing) and the Information Technology Industry Council. Mr. Love holds a Bachelor of Science degree in Business Administration and Technology from Oregon State University and a Master of Business Administration degree from Fairleigh Dickinson University.

    ROGER L. MARTIN
Anthony R. Melman is Dean and Professor of Strategy at the Joseph L. Rotman
School of Management at the University of Toronto and has been a director of
Celestica since July 1998. Mr. Martin was formerly a director of Monitor
Company, a Cambridge, Massachusetts based consulting firm, and is Chair of the
Ontario Task Force on Competitiveness, Productivity, and Economic Progress.
Mr. Martin also serves as a director on the board of The Thomson Corporation,
serves on the advisory boards of Butterfield & Robinson and Social Capital
Partners, is a founder of E-magine and serves as a trustee of The Hospital for
Sick Children. Mr. Martin holds an AB degree (cum laude) from Harvard College
and a Master of Business Administration degree from the Harvard University
Graduate School of Business Administration.

                                       40

    ANTHONY R. MELMAN is Vice PresidentManaging Director of Onex and has been a director of Celestica since 1996. Dr. Melman joined Onex in 1984. He serves on the boards of various Onex subsidiaries. From 1977 to 1984, Dr. Melman was Senior Vice President of Canadian Imperial Bank of Commerce, in charge of worldwide merchant banking, project financing, acquisitions and other specialized financing activities. Prior to emigrating to Canada in 1977, he had extensive merchant banking experience in South Africa and the U.K. Dr. Melman is also a director of The Baycrest Centre Foundation, The Baycrest Centre for Geriatric Care, the University of Toronto Asset Management Corporation, and a member of the Board of Governors of Mount Sinai Hospital. He is also Chair of Fundraising for the Pediatric Oncology Group of Ontario (POGO). Dr. Melman holds a Bachelor of Science degree in Chemical Engineering from the University of The Witwatersrand, a Master of Business Administration (gold medalist) from the University of Cape Town and a Ph.D. in Finance from the University of The Witwatersrand.

    MICHIO NARUTO had been Chairman of the Board of Fujitsu Services (formerly
ICL) since 2002. He has been special representative of Fujitsu since June 2000
and was Vice Chairman of Fujitsu until April 2000. Mr. Naruto is currently
Chairman of Toyota InfoTechnology Center, a subsidiary of Toyota Motor
Corporation. He has been a director of Celestica since October 2001. Mr. Naruto
joined Fujitsu Limited in February 1962. In 1981, when the company entered into
the technology agreement with ICL, he held the position of General Manager,
Business Administration of International Operations. He was appointed to the
board of Fujitsu Limited in 1985, in charge of International Operations. Later
his responsibility in Fujitsu covered the ICL Business Group; Legal and Industry
Relations; and, External Affairs and Export Control. In his current capacity, he
attends various international conferences as special representative of Fujitsu
and also takes a role as chairman of Fujitsu Research Institute. Mr. Naruto
holds a Bachelor of Laws degree from the University of Tokyo.

    GERALD
Gerald W. SCHWARTZSchwartz is the Chairman of the Board, President and Chief Executive Officer of Onex Corporation and has been a director of Celestica since July 1998. Prior to founding Onex in 1983, Mr. Schwartz was a co-founder (in 1977) of what is now CanWest Global Communications Corp. He is a director of Onex, The Bank of Nova Scotia, Phoenix Entertainment Corp. and Vincor International Inc., and Chairman of Loews Cineplex Entertainment Corp.Corporation. Mr. Schwartz is also Vice Chairman and member of the Executive Committee of Mount Sinai Hospital, and is a director, governor or trustee of a number of other organizations, including Junior Achievement of Toronto, Canadian Council of Christians and Jews, The Board of Associates of the Harvard Business School 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, and a Doctor of Laws (Hon.) from St. Francis Xavier University.

    CHARLES
Charles W. SZULUK,Szuluk, formerly an officer of The Ford Motor Company, was President of Visteon Automotive Systems, and a former Group Vice President. From 1988 until 1999, he held positions of increasing responsibility with Ford, including General Manager, Electronics Division, and Vice President, Process Leadership and Information Systems. He retired from Ford in 1999. Prior to joining Ford, he spent 24 years with IBM Corporation in a variety of management and executive management positions. Mr. Szuluk holds a Bachelor of Science degree in Chemical Engineering from the University of Massachusetts and attended Union College of New York in Advanced Graduate Studies.

    DON TAPSCOTT
Don Tapscott is an internationally respected authority, consultant and speaker on business strategy and organizational transformation. He is the author of several widely read books on the application of technology in


business. Mr. Tapscott is President of New Paradigm Learning Corporation --— a business strategy and education company he founded in 1992, and an adjunct Professor of Management at the University of Toronto's Joseph L. Rotman School of Management. He is also a founding member of the Business and Economic Roundtable on Addiction and Mental Health, and a fellow of the World Economic Forum. Mr. Tapscott has been a director of Celestica since September 1998. He holds a Bachelor of Science degree in Psychology and Statistics, and a Master of Education degree, specializing in Research Methodology, as well as a Doctor of Laws (Hon.) from the University of Alberta.

    J. MARVIN M(A)GEE
Stephen W. Delaney has been the President andCelestica's Chief OperatingExecutive Officer of
Celestica since February 2001. Prior to that, he held the position of Executive
Vice President, Worldwide Operations since October 1999. He joined the Company
in January 1997, as Senior Vice President, Canadian Operations.2004. Mr. M(a)Gee
currently has

                                       41

responsibility for global manufacturing operations. Before joining Celestica,
Mr. M(a)Gee spent 18 years with IBM Canada where he held a number of executive
positions in manufacturing and development, with assignments in Canada and the
United States. Mr. M(a)Gee holds a Bachelor of Science degree in Mechanical
Engineering from the University of New Brunswick and a Master of Business
Administration degree from McMaster University.

    ANTHONY P. PUPPI has been the Chief Financial Officer of Celestica since its
establishment and was a director of Celestica from October 1996 to April 2002.
He was appointed Executive Vice President in October 1999 and General Manager,
Global Services in January 2001. Mr. PuppiDelaney is responsible for charting Celestica's global
financial activities, as well as a number of global services businesses,
including design, repair, power systems,course and plastics. From 1980 to 1992, he
held positions of increasing financial management responsibility with IBM
Canada. Mr. Puppi holds a Bachelor of Business Administration degree in Finance
and a Master of Business Administration degree from York University in Ontario.

    R. THOMAS TROPEA has been Vice Chair, Global Customer Units and Worldwide
Marketing and Business Development of Celestica since February 2001.overall company strategy. Prior to that,this position, he was the Executive Vice President, Worldwide Marketing and Business
Development since October 1999, and was Senior Vice President of Marketing and
Business Development from August 1998 to October 1999. Mr. Tropea has
responsibility for global marketing and business development. He joined
Celestica after an extensive career with Northern Telecom and has over 18 years
of experience in the telecommunications industry in North America and Europe,
working in critical areas such as sales, finance, business development, investor
relations, and manufacturing operations. Mr. Tropea holds a Master of Business
Administration degree from the University of Toronto and a Bachelor of Commerce
degree from Carleton University.

    STEPHEN W. DELANEY has been the President, Americas of Celestica since
September 2002. He isoperations, where he was responsible for Celestica's operations in North and South
America. Prior to that, Mr. Delaney was Senior Vice President, U.S. East
Operations since January 2002, and was Senior Vice President, U.S. Central
Operations from May 2001 to January 2002.the region. Before joining Celestica in 2001, Mr. Delaney was the vice presidentVice President and general managerGeneral Manager of Interior and Exterior Systems Business at Visteon Automotive Services, where he was responsible for a division with 25 plants and 25,000 employees spanning North and South America, Europe, and Asia. Prior to joining Visteon in 1997, as vice presidentVice President of Supply, Mr. Delaney held executive and senior management roles in the operations of AlliedSignal's Electronic Systems business, Ford's Electronics Division, and IBM's Telecommunications division. Mr. Delaney holds a Masters degree in Business Administration from Duke University in North Carolina and a Bachelor of Science degree in Industrial Engineering from Iowa State University.

    N. K. QUEK
J. Marvin MaGee has been President of Celestica since February 2001. In his current role, he is responsible for Celestica's worldwide business development including Regional Sales, Global Customer Accounts, Diversified Markets and Marketing and Sales. Previously he served as President and Chief Operating Officer of Celestica from February 2001 until April 2004. Prior to that, he held the position of Executive Vice President, Worldwide Operations since October 1999. Mr. MaGee joined the company in January 1997, as Senior Vice President, Canadian Operations. Before joining Celestica, he spent 18 years with IBM Canada where he held a number of executive positions in manufacturing and development, with assignments in Canada and the United States. Mr. MaGee holds a Bachelor of Science degree in Mechanical Engineering from the University of New Brunswick and a Master of Business Administration degree from McMaster University.
Anthony P. Puppi has been the Chief Financial Officer of Celestica since its establishment and was a Director of Celestica from October 1996 to April 2002. Mr. Puppi is responsible for Celestica's global financial activities. He was appointed Executive Vice President in October 1999, and served as General Manager, Global Services from January 2001 until April 2004. From 1980 to 1992, he held positions of increasing financial management responsibility with IBM Canada. Mr. Puppi holds a Bachelor of Business Administration degree in Finance and a Master of Business Administration degree from York University.
Neo Kia Quek has been the President, Asia of Celestica since September 2002. He is responsible for Celestica's operations in China, Hong Kong, Indonesia, Japan, Malaysia, Singapore and Thailand. Prior to that, Mr. Quek was Senior Vice President, Asia Operations.Operations from February 2000. Before joining Celestica in 1999, he was the Senior Vice President of Asia Operations for IMS. Mr. Quek has over 25 years direct high-tech experience and, over the course of his career, has held positions at Intel, Seagate, National Semi-conductor, GE, SCI Systems and Siemens in operations, repair services, process engineering, quality assurance and power. Mr. Quek holds a Bachelor degree in Management Studies from the Management Institute of Singapore.

    PETER J. BAR has been
John Boucher joined Celestica in March 2004. He currently holds the position of President, Americas Operations, and is responsible for all manufacturing operations in Canada, the U.S., Mexico and Brazil. Prior to joining Celestica, he was Group Vice President, Electronics Manufacturing Services Operations, MSL since 2003. Prior to that, Mr. Boucher was Corporate Vice President, Global Supply Chain Management since 1999. Before joining MSL in 1995 as part of the company's founding team, Mr. Boucher managed the start up of after-market operations at Circuit Test Inc. Prior to that, he spent over 17 years with Digital Equipment Corporation, where he held a number of senior management positions. Mr. Boucher's educational background includes: the Executive Program in International Management, Babson College, Wellesley, Massachusetts; the Professional Enrichment program Boston University; and Fitchburg State College, Business Management program.
Peter J. Bar has been Corporate Controller of Celestica since February 1999.1999 and was appointed Senior Vice President in April 2004. He joined Celestica in March 1998, as Vice President, Finance --— Power Systems. Prior to joining Celestica, Mr. Bar was the Director of Finance for the Personal Systems Group of IBM Canada.


During his 14-year career in the information technology industry, he has served in several senior management positions for both IBM Canada and IBM's headquarters in Armonk, New York. Mr. Bar holds a Bachelor of Commerce degree from the University of Toronto and a Chartered Accountants designation.

    ARTHUR
Arthur P. CIMENTOCimento joined Celestica in September 1999 as Senior Vice President, Corporate Strategies. Prior to joining Celestica, he was at McKinsey & Co., a leading international management consulting firm, with a client portfolio focused on electronics operations. Mr. Cimento joined McKinsey in 1988, was elected a Principal in 1993, and held leadership positions in McKinsey's Operations and Electronics practices. Before joining McKinsey, Mr. Cimento held management positions in several engineering services firms. He is a director of the San Francisco Chamber of Commerce. Mr. Cimento holds both a Bachelor of Science and a Master of Science degree in Mechanical Engineering from the Massachusetts Institute of Technology.

                                       42

    ELIZABETH
Elizabeth L. DELBIANCODelBianco joined Celestica Inc. in February 1998, as1998. As the Senior Vice President, General Counsel,Chief Legal Officer and Corporate Secretary. SheSecretary, she is responsible for the legal affairs of Celestica on a global basis, including all aspects of regulatory compliance and corporate governance. Ms. DelBianco came to Celestica following a 13-year career as a senior corporate legal advisor in the telecommunications industry. Ms. DelBianco is currently a member of the Continuous Disclosure Advisory Committee to the Ontario Securities Commission. Ms. DelBianco 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.

    IAIN
Iain S. KENNEDYKennedy has been a Senior Vice President of Celestica since 1996. He is currently is responsible for Celestica's global supply chain managementGlobal Supply Chain Management (SCM) and information technologyInformation Technology (IT) organizations. As such, Mr. Kennedy is
responsible fororganizations, which includes maintaining industry-leading SCMperformance and IT performance, while
continuing to deploydeploying a competitive operational strategy across all functions and
regions of the Company'scompany's sophisticated global manufacturing network. Previously, he was responsible for the integration of new acquisitions as well as South American operationsOperations from October 2000 until November 2002. Prior to that he led Celestica's Mergers and Acquisitions team from 1996 through September 2000. Mr. Kennedy joined IBM Canada in 1984, and, over the course of his career, has held a number of senior management positions in key areas of the business, including supply chain management, manufacturing operations, business development, and information technology as chief information officerChief Information Officer from 1996 to 1998. Mr. Kennedy holds a Bachelor of Science degree in Computer Science from the University of Western Ontario and a Master of Business Administration (Ivey Scholar) degree from the Richard Ivey School of Business, University of Western Ontario.
Lisa J. Colnett has been a Senior Vice President since October 1996. In 1998, he was the recipient of Canada's Top 40 Under 40-TM- award in
recognition of attaining a significant level of success before the age of 40.

    DONALD S. MCCREESH joined Celestica in August 1999her current role as Senior Vice President, Human Resources. Prior to joining Celestica, he was the Executive Vice President
of Human Resources, at the Canadian Imperial Bank of Commerce (CIBC), one of
North America's leading financial institutions. In 1988 he joined Northern
Telecom, ashe is responsible for Celestica's global leader in telephony, data, wirelesshuman resources programs and wireline solutions for
the Internet. There he held a number of senior human resource management
positions. In 1993, he was namedpractices. Previously, Ms. Colnett served as Senior Vice President, Human Resources, where
he oversaw all globalChief Information Officer and Worldwide Process Management, and was responsible for key functions including information technology and manufacturing. Prior to that, Ms. Colnett headed the Memory Division of Celestica. Ms. Colnett joined IBM Canada in 1981, and, over the course of her career, has had experience in materials logistics, cost engineering, site logistics, manufacturing management and human resource operations for Nortel. Mr. McCreeshresources. Ms. Colnett holds both a Bachelor of Psychology and a Master of Business Administration degree from McMaster University.

    PAUL NICOLETTIthe University of Western Ontario.
Paul Nicoletti has been Vice President and Corporate Treasurer since September 2002.2002 and was appointed Senior Vice President in April 2004. He is responsible for all corporate finance and treasury-related matters, in addition to global tax and investor relations. Previously, he was Vice President, Global Financial Operations sincefrom February 2001, where he led the regional financial organizations on a global basis. Prior to that, sincefrom August 1999, he was Vice President, Finance and was responsible for all financial aspects of Celestica's Canadian and Mexico EMS operations. Mr. Nicoletti joined IBM in 1989 and, over the course of his career, has held a number of senior financial roles in business development, planning, accounting, pricing and financial strategies. He was responsible for leading all financial strategies and due diligence relating to the divestiture of Celestica from IBM. Mr. Nicoletti holds a Bachelor of Arts degree from the University of Western Ontario and a Masters of Business Administration degree from York University.

    DANIEL P. SHEA
Rahul Suri has been a Senior Vice President of Celestica since
October 1996, and has been the company's Chief Technology Officer since
March 1998. In his current role as Group Executive and Chief Technology Officer,
Mr. Shea is responsible for all activities including sales, business
development, operations, and profit and loss associated with his global
accounts, as well as all aspects of the Company's technology development.
Mr. Shea joined IBM Canada in 1980, and, over the course of his career, has held
a number of engineering management roles including quality, reliability,
procurement, development and power systems. Mr. Shea holds a Bachelor of Applied
Science degree in Electrical Engineering from the University of Toronto.

    RAHUL SURI has been a Senior Vice President of Celestica since July 2000. In his current role as Senior Vice President, Corporate Development, he is responsible for global mergers and acquisitions, as well as for pursuing,
developingoverseeing and implementing strategicCelestica's corporate development opportunities with
new(including acquisitions) strategy and existing customersprogram, and partners. Mr. Suri has more than 13 years of
mergers and acquisitions and corporate development experience.integrating each initiative Celestica completes. Prior to joining Celestica, he heldworked in a range of seniorrelated positions, including Managing Director in the mergers Mergers


and acquisitions
field, including managing director of the M&A groupAcquisitions Group at BMO Nesbitt Burns Investment Banking, and Partner at 43
Davies Ward & Beck (now Davies Ward Phillips & Vineberg a leading M&A law firm.LLP). For three years, Mr. Suri was also a visiting professor at Queen's University Law School, Ontario for three years,
where he taught advanced corporate law and mergers and acquisitions.acquisitions to final year students. In 1992, he served as policy advisoran Advisor to the chairman and the executive director of the Ontario Securities Commission on policy and legal matters.Commission. Mr. Suri has a Master of Arts degree in lawLaw from Cambridge University, England. HeEngland and is alsoqualified as a qualified barrister and solicitor in the Province of Ontario.

    F. GRAHAM THOURET has been a Senior Vice President of Celestica since
September 2002. He is currently responsible for the Company's global finance
organization. Prior to that, Mr. Thouret was Vice President and Corporate
Treasurer of Celestica since October 1997. Before joining Celestica, he served
as vice president and treasurer of Dominion Textile Inc., a public company with
international manufacturing and marketing operations. Mr. Thouret has also held
senior management positions in the oil and gas industry (Gulf Canada) and
investment banking (Burns Fry). Mr. Thouret holds a Bachelor of Engineering
(Honours) degree from McGill University and a Master of Science degree in
Management from the Massachusetts Institute of Technology.
        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 members of senior management were selected.
B.    COMPENSATION

AGGREGATE COMPENSATION OF DIRECTORS AND OFFICERSCompensation
Aggregate Compensation of Directors and Officers
        Directors who are not officers or employees of Celestica or Onex receive compensation for their services as directors. TheseUnder the directors' compensation plan that was in effect until April 2003, eligible directors receivereceived an annual retainer fee of $25,000 and a fee of $2,500 for each meeting of the Board of Directors attended and each meeting attended of a committee of the Board of Directors of which the Director isdirector was a member. Meetings of directors are expected
to occur at least quarterly. In lieu of receiving such retainer and attendance fees in cash, these directors maywere entitled to elect, at the time they arewere first elected or appointed to Celestica's Board of Directors, to receive their fees in subordinate voting shares. Directors who joined the Board of Directors at or about the time of Celestica's initial public offering receive an annual retainer and per meeting fee of 2,860 and 286 subordinate voting shares, respectively. UnderIn the Directors' Compensation Plan adopted incase of directors who joined the Board after July 2001, the number of shares paid in lieu of cash was calculated, in the case of meeting fees, by dividing the cash fee that would otherwise be payable by the closing price of subordinate voting shares on the NYSE on the date of the meeting, and, in the case of annual retainer fees, 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 day of the quarter. In addition, Mr. Crandall received an annual grant of 10,000 Performance Share Units under Celestica's Long-Term Incentive Plan, convertible into subordinate voting shares upon his retirement from the Board of Directors in his capacity as Chairman of the Executive Committee.
        In April 2003, the Board of Directors adopted a new directors' compensation plan. Under this plan, directors receive an annual retainer fee of $45,000. The Chairmen of the Audit and Compensation Committees are entitled to bean additional annual retainer of $10,000. The Lead Director or non-executive Chairman, who also serves as the Chairman of the Executive and Corporate Governance Committees, receives an additional annual retainer of $30,000. Directors receive a fee of $2,500 for each day of meetings of the Board of Directors attended. Directors who travel outside of their home state or province to attend a meeting are entitled to a travel fee of $2,500. Directors may elect, on an annual basis, to receive all or half of their fees in subordinate voting shares. The number of shares paid to other eligible directors in lieu of cash is calculated, in the case of meeting fees, by dividing the cash fee that would otherwise be payable by the closing price of subordinate voting shares on the NYSE on the date of the meeting and, in the case of annual retainer fees, 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 day of the quarter. Each
director hasUnder the right tocurrent and previous plans, directors may elect to defer payment of his fees.fees taken in the form of subordinate voting shares until such time as they retire from the Board.
        Grants of subordinate voting shares for directorunder the directors' compensation plan may not exceed an aggregate of 500,000 subordinate voting shares. At the time they are appointed to the Board, directors are granted an option to acquire 15,000 subordinate voting shares and, thereafter, are granted annually options to acquire 5,000 subordinate voting shares. The Lead Director or non-executive Chairman receives an additional grant of 5,000 options. Options are granted pursuant to the Company's Long-Term Incentive Plan.
The aggregate compensation paid in 20022003 by Celestica to ourits directors in their capacity as directors was $60,000$91,250 and the right to receive, in the aggregate, for 2002, 19,28624,118 subordinate voting shares (an aggregate of 77,830 subordinate voting shares from the initial public
offering through 2002).and 2,500 Performance Share Units under Celestica's Long-Term Incentive Plan. The delivery of these shares wasis deferred until the respective directors cease to be directors of Celestica. Mr. Crandall, in his
capacity as Chairman of the Executive Committee, also receives an annual grant
of 10,000 Performance Units convertible into subordinate voting shares upon his
retirement from the Board of Directors.


        In 2002,2003, eligible directors were issued, in aggregate, options to acquire 10,00045,000 subordinate voting shares, pursuant to the Long-Term Incentive Plan, at an exercise price of US$32.40.

                                       44
$10.62.
        As of February 28,at December 31, 2003, senior officers and directors as a group held options to purchase a total of the following numbers of subordinate voting shares at the purchase price per share indicated below:

  NUMBER OF
 SUBORDINATE        PURCHASE PRICE
VOTING SHARES         PER SHARE
- -------------       --------------

   210,000            $   0.925
   596,737            $   5.00
   483,690            $   8.75
    69,700            $   7.50
   293,880            C$ 18.90
    28,600            C$ 20.625
    80,000            C$ 31.85
    70,000            $  22.97
   486,000            C$ 57.845
    60,000            $  39.03
   100,000            C$ 60.00
   251,000            C$ 86.50
    59,000            $  56.1875
    25,000            C$ 73.50
   100,000            $  50.00
   480,200            C$ 66.06
   149,000            $  41.89
     5,000            $  40.06
    40,000            C$ 34.50
    40,000            $  23.41
    40,000            C$ 72.60
    40,000            $  48.69
    40,000            C$ 66.78
    40,000            $  44.23
    40,000            $  35.95
    50,000            $  13.10
   145,000            $  18.66
   482,000            C$ 29.11
     3,000            C$ 23.29
    10,000            $  32.40
Number of Subordinate Voting Shares
 
Purchase Price Per Share
210,000
 
   $
0.925
543,149
 
   $
5.00
460,690
 
   $
8.75
69,700
 
   $
7.50
303,880
 
C$
18.90
28,600
 
C$
20.625
70,000
 
   $
22.97
466,000
 
C$
57.845
60,000
 
   $
39.03
100,000
 
C$
60.00
239,000
 
C$
86.50
59,000
 
   $
56.1875
25,000
 
C$
73.50
100,000
 
   $
50.00
459,200
 
C$
66.06
149,000
 
   $
41.89
5,000
 
   $
40.06
20,000
 
C$
34.50
40,000
 
   $
23.41
20,000
 
C$
72.60
40,000
 
   $
48.69
20,000
 
C$
66.78
40,000
 
   $
44.23
20,000
 
   $
35.95
50,000
 
   $
13.10
145,000
 
   $
18.66
442,000
 
C$
29.11
3,000
 
C$
23.29
5,000
 
   $
32.40
8,000
 
C$
15.35
45,000
 
   $
10.62
        These options expire at various dates from November 4, 2005June 13, 2006 through DecemberApril 18, 2012.2013. See "--"— Share Ownership --— Share Purchase and Option Plans" below. See note 119 to the Consolidated Financial Statements in Item 18 for further information about options.

REMUNERATION OF NAMED EXECUTIVE OFFICERS
Remuneration of Named Executive Officers
        The following table sets forth the compensation of the Chief Executive Officer of Celestica and the fourfive other most highly compensated executive officers of Celestica during the year ended December 31, 20022003 (collectively, the "Named Executive Officers") for services rendered in all capacities during our two most recently completed financial years.

                                       45

                           SUMMARY COMPENSATION TABLE




Summary Compensation Table

                                                                                LONG-TERM
                                              ANNUAL COMPENSATION(1)       COMPENSATION AWARDS
                                          ------------------------------   -------------------
                                                                            SECURITIES UNDER        ALL OTHER
NAME AND PRINCIPAL POSITION                 YEAR      SALARY     BONUS     OPTIONS GRANTED(2)    COMPENSATION(3)
- ---------------------------               --------   --------   --------   -------------------   ---------------
                                                       

Annual Compensation(1)
Long-term Compensation Awards

Name and Principal Position
Year
Salary
Bonus
Securities Under Options Granted(2)
Restricted
Share Units
All Other Compensation(3)


($)

($)

(#)

(#)

($)

Eugene V. Polistuk......................    2002     700,000         --          150,000             645,161
Polistuk
Chairman of the Board and Chief 2001     700,000         --          150,000             225,962
  Executive Officer(4)
2003
2002
700,000
700,000
—

—
—

150,000
—

—
860,296
725,733
Stephen W. Delaney
President, Americas(6)
2003
2002
360,000
333,750
—

—
200,000(5)
75,000(7)
15,000
—
12,000
7,000
J. Marvin M(a)Gee.......................    2002     525,000         --          110,000              31,589
MaGee
President and Chief Operating Officer       2001     516,250         --          135,000              61,947

2003
2002
525,000
525,000
—

—
160,000(5)
110,000
—

—
38,123
35,534
Anthony P. Puppi........................    2002     400,000         --           60,000             117,608
Puppi
Executive Vice President, Chief             2001     400,000         --           59,000              55,565 Financial Officer and General Manager, Global Services
2003
2002
425,000
400,000
—

—
160,000(5)
60,000
—

—
155,730
132,295
R. Thomas Tropea........................    2002     400,000         --           45,000              11,500
Tropea
Vice Chair, Global Customer Units and       2001     400,000         --           59,000              10,200 Worldwide Marketing and Business Development

Stephen W. Delaney......................    (8)
2003
2002     333,750         --           75,000(4)            7,000
400,000
400,000
—

—
90,000(5)
45,000
—

—
12,000
11,500
Neo Kia Quek
President, Americas                         2001     204,694(5) 150,000(6)       140,000(7)          154,500(8)
Asia Operations
2003
2002
310,000
291,827
64,000
—
90,000(5)
55,000
—

—
3,973(9)
10,575(9)


- ------------

(1)
Excludes perquisites and other personal benefits because such compensation did not exceed the lesser of C$50,000 and 10% of the total annual salary and bonus for any of the Named Executive Officers.

(2)
See table under "Options Granted During Year Ended December 31, 20022003 to Named Executive Officers."

(3)
Represents amounts set aside to provide benefits under Celestica's pension plans (see " --"— Pension Plans").

(4)
Mr. Polistuk retired from Celestica in January 2004.

(5)
Options granted in January 2004 in relation to 2003. These options are subject to performance conditions as described in "— Annual Incentives."

(6)
Mr. Delaney was appointed Chief Executive Officer on January 28, 2004.

(7)
Includes 25,000 options granted to Mr. Delaney on October 1, 2002 when he assumed responsibility for the Americas.

(5) 

(8)
Mr. Delaney joinedTropea retired from Celestica in May 2001. The amount specified represents
    Mr. Delaney's salaryApril 2004.

(9)
Amount shown is converted into U.S. dollars from his dateSingapore dollars (S$) at an exchange rate of hire toUS$1.00 = S$1.7125, reflecting the endMarch 11, 2004 noon buying rate in New York City for cable transfers in Singapore dollars as certified for customs purposes by the Federal Reserve Bank of the year.

(6) Represents the amount Celestica agreed to pay to Mr. Delaney at his date of
    hire as a bonus for the year endedNew York.

Options Granted During Year Ended December 31, 2001.

(7) Includes 100,000 options granted2003 to Mr. Delaney upon joining Celestica.

(8) Includes $150,000 paid to Mr. Delaney upon joining Celestica.

    OPTIONS GRANTED DURING YEAR ENDED DECEMBER 31, 2002 TO NAMED EXECUTIVE
     OFFICERSNamed Executive Officers
        The following table sets out options to purchase subordinate voting shares granted by the Company to the Named Executive Officers during the year ended December 31, 2002.


                        SUBORDINATE                                           MARKET VALUE OF
                       VOTING SHARES   % OF TOTAL OPTIONS                    SUBORDINATE VOTING
                       UNDER OPTIONS       GRANTED TO                          SHARES ON THE
NAME                    GRANTED(1)     EMPLOYEES IN 2002    EXERCISE PRICE     DATE OF GRANT       EXPIRATION DATE
- ----                   -------------   ------------------   --------------   ------------------   -----------------
                            (#)                               ($/share)          ($/share)

Eugene V. Polistuk...     150,000             3.9%               C$29.11            C$29.11        December 3, 2012
J. Marvin M(a)Gee....     110,000             2.8%               C$29.11            C$29.11        December 3, 2012
Anthony P. Puppi.....      60,000             1.5%               C$29.11            C$29.11        December 3, 2012
R. Thomas Tropea.....      45,000             1.2%            U.S.$18.66         U.S.$18.66        December 3, 2012
Stephen W. Delaney...      25,000             0.6%            U.S.$13.10         U.S.$13.10         October 1, 2012
                           50,000             1.3%            U.S.$18.66         U.S.$18.66        December 3, 2012


- ------------

2003.
Name
 
Subordinate Voting Shares Under Options Granted(1)
 
% of Total Options Granted to Employees in 2003
 
Exercise Price
 
Market Value of Subordinate Voting Shares on the Date of Grant
 
Expiration Date
 
 
(#)

 
 
 
($/share)

 
($/share)

 
 
Eugene V. Polistuk
 
—
 
—
 
 
—
 
 
—
 
—
Stephen W. Delaney
 
200,000
 
4.7%
 
U.S.$
17.15
 
U.S.$
17.15
 
January 31, 2014
J. Marvin MaGee
 
160,000
 
3.8%
 
 
C$22.75
 
 
C$22.75
 
January 31, 2014
Anthony P. Puppi
 
160,000
 
3.8%
 
 
C$22.75
 
 
C$22.75
 
January 31, 2014
R. Thomas Tropea
 
90,000
 
2.1%
 
U.S.$
17.15
 
U.S.$
17.15
 
January 31, 2014
Neo Kia Quek
 
90,000
 
2.1%
 
U.S.$
17.15
 
U.S.$
17.15
 
January 31, 2014
(1)
The options granted are subject to performance conditions and vesting as described in "— Annual Incentives."
Options vest in four equal annual installments.

                                       46

    OPTIONS EXERCISED DURING MOST RECENTLY COMPLETED FINANCIAL YEAR AND VALUE OF
     OPTIONS AT DECEMBERExercised During Most Recently Completed Financial Year and Value of Options at December 31 2002 FOR NAMED EXECUTIVE OFFICERS, 2003 for Named Executive Officers
        The following table sets out certain information with respect to options to purchase subordinate voting shares that were exercised by Named Executive Officers during the year ended December 31, 20022003 and with respect to subordinate voting shares under option to the Named Executive Officers as at December 31, 2002.


                                                                                                       VALUE OF UNEXERCISED
                                                                  UNEXERCISED OPTIONS AT              IN-THE-MONEY OPTIONS AT
                          SUBORDINATE VOTING    AGGREGATE            DECEMBER 31, 2002                 DECEMBER 31, 2002(2)
                           SHARES ACQUIRED        VALUE      ---------------------------------   ---------------------------------
NAME                         ON EXERCISE       REALIZED(1)   EXERCISABLE(3)   UNEXERCISABLE(3)   EXERCISABLE(3)   UNEXERCISABLE(3)
- ----                      ------------------   -----------   --------------   ----------------   --------------   ----------------

Eugene V. Polistuk.....        --                  --            598,333           347,500         $2,738,230          --
J. Marvin M(a)Gee......        --                  --            252,382           248,750         $  962,551          --
Anthony P. Puppi.......         14,869           $139,769        193,446           139,250         $  483,210          --
R. Thomas Tropea.......        --                  --            271,302           170,888         $  998,053         $249,513
Stephen W. Delaney.....        --                  --             35,000           180,000            --              $ 25,000


- ------------

2003.
 
 
 
 
 
 
Unexercised Options at December 31, 2003
 
Value of Unexercised in-the-Money Options at December 31, 2003(1)
 
 
Subordinate Voting Shares Acquired on Exercise
 
 
Name
 
Aggregate Value Realized
 
Exercisable(2)
 
Unexercisable(2)
 
Exercisable(2)
 
Unexercisable(2)
Eugene V. Polistuk
 
—
 
—
 
733,333
 
212,500
 
$
3,131,888
 
 
—
Stephen W. Delaney
 
—
 
—
 
88,750
 
126,250
 
$
12,313
 
$
36,938
J. Marvin MaGee
 
—
 
—
 
341,132
 
160,000
 
$
1,104,299
 
 
—
Anthony P. Puppi
 
—
 
—
 
249,446
 
83,250
 
$
588,645
 
 
—
R. Thomas Tropea
 
—
 
—
 
370,190
 
72,000
 
$
1,473,761
 
 
—
Neo Kia Quek
 
—
 
—
 
366,000
 
60,500
 
$
3,423,090
 
$
36,938
(1) Based on the closing price of the underlying shares on The New York Stock
    Exchange on the date of exercise of the options.

(2) 
Based on the closing price of the subordinate voting shares on Thethe New York Stock Exchange on December 31, 20022003 of $14.10.

(3) $15.07.

(2)
Options granted under the ESPO Plans and the Long-Term Incentive Plan. Exercisable options include options that vested January 1, 2004.
Base Salary
        Base salaries are established taking into account individual performance and experience, level of responsibility and competitive pay practices. Celestica references the median level of base salaries at similarly sized companies in the EMS industry and closely related industries in the U.S.
        Base salaries are reviewed annually and adjusted as appropriate. Although base salaries are not directly linked to specific corporate performance, Celestica considers the level of corporate performance achieved in the prior year as well as the expected level of performance in making any adjustments to them. For example, in response to a difficult economic environment in 2001, 2002 and 2003 and Celestica's relative performance in that environment, a general salary freeze was in place for executives during that period. As noted above, however, an important element of Celestica's compensation philosophy is compensating executive officers at a level and in a manner that ensures Celestica is capable of attracting, motivating, and retaining individuals with exceptional executive skills and abilities. Accordingly, in order to keep salaries at competitive levels relative to the marketplace, the Compensation Committee expects to approve salary increases in 2004.


Annual Incentives
        Designated executives of Celestica participate in the Celestica Executive Team Incentive Plan. Payments under this plan are tied to Celestica's meeting or exceeding preset targets for financial and customer results, individual performance and Celestica's performance relative to our direct competitors on key financial metrics. The Chief Executive Officer and the President evaluate each executive's individual performance in accordance with our stated values, teamwork and the executive's key accomplishments. The Board of Directors evaluates the Chief Executive Officer. Based on this individual assessment, the amount of the executive's earned award may increase or decrease by as much as 50%. The Compensation Committee evaluates our performance relative to that of specific direct EMS competitors based on defined performance metrics. Based on that analysis, the amount available to be paid out under the plan may decrease to zero or increase by as much as 100%. Based on our performance in 2003 relative to that of our competitors on the designated metrics, the Compensation Committee determined that no payouts would be made under the Executive Team Incentive Plan. However, the Committee authorized a special bonus for N.K. Quek, President of Celestica's Asia region, to recognize an exceptional individual contribution.
        All executives not participating in the Executive Team Incentive Plan and most non-executive employees participate in the Celestica Team Incentive Plan. Awards under this plan are based on financial performance, customer satisfaction results and individual performance. Under Celestica's Performance and Development Plan, each participant establishes personal objectives at the beginning of each year that are aligned with Celestica's annual business objectives. At the end of the year, each participant's accomplishments and results with respect to his or her objectives are reviewed and assessed by his or her manager. The participant's rating is then used in the determination of the actual award to be paid. A partial bonus was paid to most business units in 2003. PENSION PLANSSome employees received above target payments based on achievement of business unit objectives.
Pension Plans
        Messrs. Polistuk, Puppi and M(a)MaGee each participate, and Mr. Polistuk participated, in Celestica's non-contributory pension plan (the "Canadian Pension Plan"). The Canadian Pension Plan has a defined benefit and a defined contribution portion and provides for a maximum of 30 years' service and retirement eligibility at the earlier of 30 years' service or age 55. They also participate in an unregistered supplementary pension plan (the "Supplementary Plan") that provides benefits equal to the difference between the benefits determined in accordance with the formula set out in the Canadian Pension Plan and Canada Customs and Revenue Agency maximum pension benefits.
        Mr. M(a)MaGee participates only in the defined contribution portion of the Canadian Pension Plan. The defined contribution portion of the Canadian Pension Plan allows employees to choose how Celestica contributions are invested on their behalf within a range of investment options provided by third party fund managers. Celestica's contributions to this plan on behalf of an employee range from 3% of earnings to a maximum of 6.75% of earnings based on the number of years of service. Retirement benefits depend upon the performance of the investment options chosen. Celestica currently contributes 6% of earnings annually on behalf of Mr. MaGee.

    Messrs.MaGee.
        Mr. Puppi participates, and Mr. Polistuk and Puppi participateparticipated, only in the defined benefit portion of the Canadian Pension Plan. The benefit provided under this plan is equal to the benefit entitlement accrued under the relevant IBM plan prior to October 22, 1996, the date Celestica was divested from IBM, plus the benefits earned under the Canadian Pension Plan since that date. The terms of the Canadian Pension Plan, which were accepted by certain employees when they transferred to Celestica, mirrored those of the IBM pension plan in place at the time of divestiture. The Plan is of a modified career average design with benefits based on a three-year earnings average to December 31 of a designated base year (the "Base Year"). In 2002,2003, the Base Year was updated to December 31, 20012002 and may be updated from time to time until December 31, 2009. The formula for calculating benefits for the period after October 22, 1996 is the greater of 1.2% of earnings (salary and bonus) or 0.9% of earnings up to the yearly maximum pensionable earnings ("YMPE") level, plus 1.45% of earnings above the YMPE. The defined benefit portion of the Canadian Pension Plan also provides for supplementary early retirement benefits from the date of early retirement to age 65.


        The following table sets forth the estimated aggregate annual benefits payable under the defined benefit portion of the Canadian Pension Plan and the Supplementary Plan based on average earnings and years of service.

                                       47

                       CANADIAN PENSION PLAN TABLE(1)

Canadian Pension Plan Table(1)(2)

                               YEARS OF SERVICE
                   -----------------------------------------
EARNINGS AVERAGE      20         25         30         35
- ----------------   --------   --------   --------   --------

   $  400,000      $113,000   $142,000   $170,000   $170,000
   $  600,000      $171,000   $214,000   $257,000   $257,000
   $  800,000      $229,000   $287,000   $344,000   $344,000
   $1,000,000      $287,000   $359,000   $431,000   $431,000
   $1,200,000      $345,000   $432,000   $518,000   $518,000
   $1,400,000      $403,000   $504,000   $605,000   $605,000
   $1,600,000      $461,000   $577,000   $692,000   $692,000
   $1,800,000      $519,000   $649,000   $779,000   $779,000


- ------------


 
 
Years of Service
Earnings Average
 
20
 
25
 
30
 
35
 
$
400,000
 
$
113,000
 
$
142,000
 
$
170,000
 
$
170,000
 
$
600,000
 
$
171,000
 
$
214,000
 
$
257,000
 
$
257,000
 
$
800,000
 
$
229,000
 
$
287,000
 
$
344,000
 
$
344,000
 
$
1,000,000
 
$
287,000
 
$
359,000
 
$
431,000
 
$
431,000
 
$
1,200,000
 
$
345,000
 
$
432,000
 
$
518,000
 
$
518,000
 
$
1,400,000
 
$
403,000
 
$
504,000
 
$
605,000
 
$
605,000
 
$
1,600,000
 
$
461,000
 
$
577,000
 
$
692,000
 
$
692,000
 
$
1,800,000
 
$
519,000
 
$
649,000
 
$
779,000
 
$
779,000
(1)
This table assumes total of retirement age and years of service is greater than or equal to 80.

(2)
All amounts are shown converted into U.S. dollars from Canadian dollars at an exchange rate of US$1.00 = C$1.4880.1.30.
        As at December 31, 2002,2003, Messrs. Polistuk and Puppi had completed 3435 and 2324 years of service, respectively.
        During the year ended December 31, 2002,2003, Celestica accrued an aggregate of $749,574$1,054,149 to provide pension benefits for Messrs. Polistuk, Puppi and M(a)MaGee pursuant to the Canadian Pension Plan. No other amounts were set aside or accrued by Celestica during the year ended December 31, 20022003 for the purpose of providing pension, retirement or similar benefits for Messrs. Polistuk, Puppi and M(a)MaGee pursuant to any other plans.

    Messrs.
        Mr. Delaney participates, and Mr. Tropea and Delaney participateparticipated, in the "U.S. Plan." The U.S. Plan qualifies as a deferred salary arrangement under section 401 of the Internal Revenue Code (United States). Under the U.S. Plan, participating employees may defer a portion of their pre-tax earnings not to exceed 20% of their total compensation. Celestica may make contributions for the benefit of eligible employees.
        During the year ended December 31, 2002,2003, Celestica contributed $18,500$24,000 in the aggregate to the U.S. Plan for the benefit of Messrs. Tropea and Delaney. Except as described above, no other amounts were set aside or accrued by Celestica during the year ended December 31, 20022003 for the purpose of providing pension, retirement or similar benefits for Messrs. Tropea and Delaney.

EMPLOYMENT AGREEMENTS
        Mr. Quek participates in the "Singapore Plan". The Singapore Plan is a deferred salary arrangement under theCentral Provident Fund Act (Singapore). Under the Singapore Plan, participating employees may defer a portion of their pre-tax earnings not to exceed 20% of their total compensation, but up to a specified limit. Celestica may make contributions for the benefit of eligible employees. Celestica contributed $3,973 for Mr. Quek in 2003.
Employment Agreements
        Messrs. Polistuk and Puppi each entered into an employment agreement with Celestica as of October 22, 1996. Mr. Tropea entered into an employment agreement with Celestica as of June 30, 1998. Each agreement provides for the executive's base salary and for benefits in accordance with Celestica's established benefit plans for employees from time to time. Each agreement provides for the executive to receive an amount equivalent to 36 months' salary if Celestica terminates the executive's employment, other than for cause, subject to reduction if the executive earns replacement earnings during such period from other sources.

INDEMNIFICATION AGREEMENTS


Indemnification Agreements
        Celestica and certain of our subsidiaries have entered into indemnification agreements with certain of the directors and officers of Celestica and our subsidiaries. These agreements generally provide that Celestica or the subsidiary of Celestica which is a party to the agreement, as applicable, will indemnify the director or officer in question (including his or her heirs and legal representatives) against all costs, charges and expenses incurred by him or her in respect of any civil, criminal or administrative action or proceeding to which he or she is made a party by reason of being or having been a director or officer of such corporation or a subsidiary thereof, provided that (a) he or she has acted honestly and in good faith with a view to the best interests of the corporation, and (b) in the case of a criminal or administrative proceeding that is enforced by a monetary penalty, he or she had reasonable grounds for believing that his or her conduct was lawful.

                                       48
C.    BOARD PRACTICESBoard Practices
        Members of the Board of Directors are elected until the next annual meeting or until their successors are elected or appointed.
        Except for the right to receive deferred compensation (see Item 6(B), "Compensation"), no director is entitled to benefits from Celestica when they cease to serve as a director.

BOARD COMMITTEES
Board Committees
        The Board of Directors has established four standing committees, each with a specific mandate. The Executive Committee, includes a majority of independent
directors. The Audit Committee, Compensation Committee and the Nominating and Corporate Governance Committee are each composed of independent directors.

    EXECUTIVE COMMITTEE
Executive Committee
        Subject to the limitations set out in subsection 127(3) of the Business Corporations Act (Ontario), the Board of Directors has delegated to the Executive Committee the powers to consider and approve certain matters relating to the management of Celestica subject to any regulations or restrictions that may from time to time be made or imposed upon the Executive Committee by the Board of Directors. The members of the Executive Committee are Mr. Crandall Mr. Melman and Mr. Polistuk, the majority of whom are independent.

    AUDIT COMMITTEEDr. Melman.
Audit Committee
        The Audit Committee consists of Mr. Crandall, Mr. Etherington Mr. Love,
Mr. Martin and Mr. Tapscott, all of whom are independent directors. The Audit Committee has a well-defined mandate which, among other things, sets out its relationship with, and expectations of, the external auditors, including the establishment of the independence of the external auditors and approval of any non-audit mandates of the external auditor; the engagement, evaluation, remuneration and termination of the external auditor; its relationship with, and expectations of, the internal auditor function and its oversight of internal control; and the disclosure of financial and related information. The Audit Committee has direct communication channels with the internal and external auditors to discuss and review specific issues and has the authority to retain such independent advisors as it may consider appropriate. The Audit Committee annually reviews and approves the mandate and plan of the internal audit department. The Audit Committee's duties include the responsibility for reviewing financial statements with management and the auditors, monitoring the integrity of Celestica's management information systems and internal control procedures, and reviewing the adequacy of Celestica's processes for identifying and managing risk.

                                       49

    COMPENSATION COMMITTEE

Compensation Committee
        The Compensation Committee consists of Mr. Crandall, Mr. Etherington, Mr. Love, Mr.Szuluk, Dr. Melman and Mr. Tapscott, all of whom are unrelated directors. Although Dr. Melman would not be an independent directors.director under the rules of the New York Stock Exchange (the "NYSE Rules") because he is an officer of Onex, Dr. Melman's membership on the Compensation Committee is consistent with the provision in the NYSE Rules permitting an officer of a parent company to sit on the compensation committee of a company that it controls. It is the responsibility of the Compensation Committee to define and communicate compensation policy and principles that reflect and support the Company's strategic direction, business goals and desired culture. The mandate of the Compensation Committee includes the following: review and recommend to the Board of Directors the Company's overall reward/compensation strategy,policy, including plan design,
performance targetsan executive compensation policy that is consistent with competitive practice and program administration;supports organizational objectives and shareholder interests; recommend to the Board of Directors the compensation of the Chief Executive Officer based on the Board of Directors' assessment of the annual performance of the Chief Executive Officer; review and recommend to the Board of Directors the compensation of the Named Executive Officers and other senior managersexecutives whose compensation is subject to review by the Board of Directors; review the Company's succession plans for key executive positions; and review and approve material changes to the Company's organizational structure and human resource policies.

    NOMINATING AND CORPORATE GOVERNANCE COMMITTEE
Nominating and Corporate Governance Committee
        The Nominating and Corporate Governance Committee consists of Mr. Crandall, Mr. Etherington, Mr. Love, Mr.Dr. Melman and Mr. Tapscott, all of whom are unrelated directors. Although Dr. Melman would not be an independent directors.director under the NYSE Rules because he is an officer of Onex, Dr. Melman's membership on the Nominating and Corporate Governance Committee is consistent with the provision in the NYSE Rules permitting an officer of a parent company to sit on the nominating and corporate governance committee of a company that it controls. The Nominating and Corporate Governance Committee recommends to the Board the criteria for selecting candidates for nomination to the Board and the individuals to be nominated for election by the shareholders. The Committee's mandate includes making recommendations to the Board relating to the Company's approach to corporate governance, developing the Company's corporate governance guidelines, assessing the performance of the Chief Executive Officer relative to corporate goals and objectives established by the Committee, and assessing the effectiveness of the Board of Directors and its committees.
D.    EMPLOYEESEmployees
        Celestica has over 40,000 permanent and temporary (contract) employees worldwide as ofat December 31, 2002.2003. The following table sets forth information concerning our employees by geographic location:

                                                                   NUMBER OF EMPLOYEES
                                                              ------------------------------
DATE                                                          AMERICAS    EUROPE      ASIA
- ----                                                          --------   --------   --------

December 31, 2000...........................................   16,000     6,000       7,000
December 31, 2001...........................................   17,500     7,500      15,000
December 31, 2002...........................................   14,500     6,000      19,500
 
 
Number of Employees
Date
 
Americas
 
Europe
 
Asia
December 31, 2001
 
17,500
 
7,500
 
15,000
December 31, 2002
 
14,500
 
6,000
 
19,500
December 31, 2003
 
13,000
 
5,500
 
21,500
        During the year ended December 31, 2002,2003, approximately 10,000 temporary (contract) employees were engaged by Celestica worldwide. During the year ended December 31, 2002,2003, approximately 4,600 employees, including temporary (contract)3,600 employees were terminated as a result of restructuring actions announced during the year. See note 1311 to the Consolidated Financial Statements in Item 18 for further information on the restructuring.
        The number of employees in the Americas and Europe has decreased from December 31, 2001 to December 31, 2003 due to the downsizing or closure of some of our facilities and the transfer of production from higher cost geographies to lower cost geographies. The number of employees in Asia has increased from December 31, 2001 to December 31, 2003 due to the increase in business in Asia, the transfer of production from other geographies and from our acquisition in Japan which closed March 2002.


        Certain information concerning employees is set forth in Item 4, "Information on the Company --— Business Overview --— Human Resources."

                                       50
E.    SHARE OWNERSHIPShare Ownership
        The following table sets forth certain information concerning the direct and beneficial ownership of shares of Celestica at February 28, 2003March 11, 2004 by each director who holds shares and each of the Named Executive Officers and all directors and executive officers of Celestica as a group. Unless otherwise noted, the address of each of the shareholders named below is Celestica's principal executive office. In this table, multiple voting shares are referred to as "MVS", subordinate voting shares are referred to as "SVS", and Celestica's Liquid Yield Option-TM-Option™ Notes due 2020 are referred to as "LYONs."

                                                                                            PERCENTAGE OF        PERCENTAGE
                                                                              PERCENTAGE         ALL             OF VOTING
NAME OF BENEFICIAL OWNER(1)                          VOTING SHARES             OF CLASS     EQUITY SHARES          POWER
- ---------------------------                 -------------------------------   ----------   ----------------   ----------------

Eugene V. Polistuk(2).....................               720,892   SVS           *                *                  *
Robert L. Crandall(3).....................               110,000   SVS           *                *                  *
                                                          15,130   LYONs (4)     *                *                  *
William E. Etherington(5).................                16,250   SVS           *                *                  *
Richard S. Love(6)........................               105,000   SVS           *                *                  *
Roger L. Martin(7)........................                73,000   SVS           *                *                  *
Anthony R. Melman(8)(9)...................               450,000   SVS           *                *                  *
Gerald W. Schwartz(8)(10).................            39,065,950   MVS          100.0%               17.1%               83.8%
                                                       3,671,982   SVS            1.9%                1.6%           *
Don Tapscott(11)..........................                93,000   SVS           *                *                  *
J. Marvin M(a)Gee.........................               308,632   SVS           *                *                  *
Anthony P. Puppi..........................               293,667   SVS           *                *                  *
R. Thomas Tropea..........................               351,302   SVS           *                *                  *
Stephen W. Delaney........................                61,657   SVS           *                *                  *
All directors and executive officers as a
  group
  (22 persons)(2)(3)(5)(6)(7)(8)(9)(10)(11)(12)....           39,065,950 MVS    100.0%               17.1%               83.8%
                                                       7,280,453   SVS            3.8%                3.2%           *
  Total percentage of all equity shares
    and total percentage of voting
    power.................................                                                           20.3%               84.4%


- ------------

Name of Beneficial Owner(1)
 
Voting Shares
 
Percentage of Class
 
Percentage of all Equity Shares
 
Percentage of Voting Power
Robert L. Crandall(2)
 
132,500
 
SVS
 
*
 
*
 
*
 
 
15,130
 
LYONs
(3)
*
 
*
 
*
William E. Etherington(4)
 
23,750
 
SVS
 
*
 
*
 
*
Richard S. Love(5)
 
116,520
 
SVS
 
*
 
*
 
*
Anthony R. Melman(6)(7)
 
450,000
 
SVS
 
*
 
*
 
*
Gerald W. Schwartz(6)(8)
 
39,065,950
 
MVS
 
100.0%
 
18.7%
 
85.2%
 
 
3,360,935
 
SVS
 
2.0%
 
1.6%
 
*
Charles W. Szuluk(9)
 
5,000
 
SVS
 
*
 
*
 
*
Don Tapscott(10)
 
111,250
 
SVS
 
*
 
*
 
*
Stephen W. Delaney
 
116,303
 
SVS
 
*
 
*
 
*
J. Marvin MaGee
 
382,382
 
SVS
 
*
 
*
 
*
Anthony P. Puppi
 
380,538
 
SVS
 
*
 
*
 
*
R. Thomas Tropea
 
450,190
 
SVS
 
*
 
*
 
*
Eugene V. Polistuk
 
895,892
 
SVS
 
*
 
*
 
*
Neo Kia Quek
 
427,250
 
SVS
 
*
 
*
 
*
All directors and executive officers as a group (21 persons, including above)(11)
 
39,065,950
7,521,523
 
MVS
SVS
 
100.0%
4.4%
 
18.7%
3.6%
 
85.2%
*
Total percentage of all equity shares and total percentage of voting power
 
 
 
 
 
 
 
22.3%
 
85.8%
*
Less than 1%.

(1)
As used in this table, "beneficial ownership" means sole or shared power to vote or direct the voting of the security, or the sole or shared investment power with respect to a security (I.E.(i.e., the power to dispose, or direct a disposition, of a security). A person is deemed at any date to have "beneficial ownership" of any security that such person has a right to acquire within 60 days of such date. Certain shares subject to options granted pursuant to management investment plans of Onex are included as owned beneficially by named individuals, although the exercise of these options is subject to Onex meeting certain financial targets. More than one person may be deemed to have beneficial ownership of the same securities.

(2)
Includes 598,333112,500 subordinate voting shares subject to exercisable options.

(3) Includes 100,000 subordinate voting shares subject to exercisable options.

(4) 
Each LYON is convertible into 5.6748 subordinate voting shares at the option of the holder.

(5) 

(4)
Includes 6,25013,750 subordinate voting shares subject to exercisable options.

(6) 

(5)
Includes 100,000111,250 subordinate voting shares subject to exercisable options.

(7) Includes 73,000 subordinate voting shares subject to exercisable options.

(8) 

(6)
The address of such shareholders is: c/o Onex Corporation, 161 Bay Street, P.O. Box 700, Toronto, Ontario, Canada M5J 2S1.

(9) 

(7)
Includes 274,588 subordinate voting shares owned by Onex which are subject to options granted to Mr.Dr. Melman pursuant to certain management investment plans of Onex.

(10) 

(8)
Includes 188,744 subordinate voting shares owned by a company controlled by Mr. Schwartz and all of the shares of Celestica beneficially owned by Onex, or in respect of which Onex exercises control or direction, of which 1,077,500 subordinate voting shares are subject to options granted to Mr. Schwartz pursuant to certain management incentive plans of Onex. Mr. Schwartz, a director of Celestica, is the Chairman of the Board, President and Chief Executive Officer of Onex, and controls Onex through his ownership of

shares, with a majority of the voting rights attaching to all shares of Onex. Accordingly, Mr. Schwartz may be deemed to be the beneficial owner of shares of Celestica beneficially owned by Onex.

                                       51

(11) Includes 93,000
(9)
Represents 5,000 subordinate voting shares subject to exercisable options.

(12) 

(10)
Represents 111,250 subordinate voting shares subject to exercisable options.

(11)
Includes 425,200190,200 subordinate voting shares held by Towers Perrin Share Plan Services, in trust for Celestica Employee Nominee Corporation as agent for and on behalf of individual Celestica executives, pursuant to the provisions of Celestica employee benefit plans, and 666,437337,016 subordinate voting shares which are subject to options.
        MVS and SVS have different voting rights. See Item 10, "Additional Information --— Memorandum and Articles of Incorporation."

SHARE PURCHASE AND OPTION PLANS
Share Ownership and Option Plans (the "ESPO Plans")
        We have issued subordinate voting shares and have granted options to acquire subordinate voting shares for the benefit of certain of our employees and executives pursuant to various employee share purchase and option plansthe ESPO Plans which were in effect prior to our initial public offering (the "ESPO Plans").offering. No further options or subordinate voting shares (other than pursuant to outstanding options) may be issued under these ESPO Plans.
        Pursuant to the ESPO Plans, employees and executives of Celestica were offered the opportunity to purchase subordinate voting shares and, in connection with such purchase, receive options to acquire an additional number of subordinate voting shares based on the number of subordinate voting shares acquired by them under the ESPO Plans (on average, approximately 1.435 options for each subordinate voting share acquired under the ESPO Plans). In each case, the exercise price for the options is equal to the price per share paid for the corresponding subordinate voting shares acquired under the ESPO Plans.
        Upon the completion of Celestica's initial public offering, certain options became exercisable. The balance of the options issued under the ESPO Plans vestvested over a period of five years beginning December 31, 1998. All options granted under the ESPO Plans were fully vested as of December 31, 2002.2003. All subordinate voting shares acquired by employees under the ESPO Plans are held either by the employee, or by Towers Perrin Share Plan Services in trust for Celestica Employee Nominee Corporation as agent for and on behalf of such employees.
        As at February 28, 2003,March 11, 2004, approximately 4,5006,800 persons held options to acquire an aggregate of approximately 25,536,00026,639,000 subordinate voting shares. Most of these options were issued pursuant to the ESPO Plan and LTIP Plans.Long-Term Incentive Plan. The following table sets forth information with respect to options outstanding as at February 28, 2003.

                              OUTSTANDING OPTIONS


                                                  NUMBER OF
                                                 SUBORDINATE
                                                VOTING SHARES
BENEFICIAL HOLDERS                              UNDER OPTION     EXERCISE PRICE      YEAR OF ISSUANCE      DATE OF EXPIRY
- ------------------                              -------------   -----------------   ------------------   ------------------

Executive Officers (15 persons in total)......      210,000     $0.925              June 13, 1996        June 13, 2006
                                                    596,737     $5.00               During 1997          April 8, 2007
                                                    387,390     $7.50-$8.75         During 1997 and      October 22, 1997
                                                                                    1998                 to July 3, 2008
                                                    472,480     C$18.90-$22.97      During 1999          January 1, 2009 to
                                                                                                         September 20, 2009
                                                    546,000     $39.03/C$57.845     December 7, 1999     December 7, 2009
                                                    105,000     $40.06-C$60.00      During 2000          February 1, 2010
                                                                                                         to May 26, 2010
                                                    310,000     $56.1875/C$86.50    December 5, 2000     December 5, 2010
                                                     25,000     C$73.50             March 1, 2001        March 1, 2011
                                                    100,000     $50.00              April 20, 2001       April 20, 2011
                                                    629,200     $41.89/C$66.06      December 4, 2001     December 4, 2011
                                                    680,000     $13.10-C$29.11      During 2002          October 1, 2012 to
                                                                                                         December 18, 2012
Directors who are not Executive Officers......      166,000     $8.75               During 1998          July 7, 2008
                                                     80,000     $23.41/C$34.50      July 7, 1999         July 7, 2009
                                                     80,000     $48.69/C$72.60      July 7, 2000         July 7, 2010
                                                     80,000     $44.23/C$66.78      July 7, 2001         July 7, 2011
                                                     40,000     $35.95              October 22, 2001     October 22, 2011
                                                     10,000     $32.40              April 21, 2002       April 21, 2012


                                       52

                                                  NUMBER OF
                                                 SUBORDINATE
                                                VOTING SHARES
BENEFICIAL HOLDERS                              UNDER OPTION     EXERCISE PRICE      YEAR OF ISSUANCE      DATE OF EXPIRY
- ------------------                              -------------   -----------------   ------------------   ------------------

All other Celestica Employees (other than IMS
  and Primetech) (more than 4,000 persons in
  total)......................................    3,108,372     $5.00               During 1997          April 8, 2007(1)
                                                    621,985     $7.50-C$14.05       During 1998          April 29, 2008 to
                                                                                                         November 9, 2008
                                                    726,945     $13.69-C$21.45      January 1, 1999 to   January 1, 2009 to
                                                                                    March 17, 1999       March 17, 2009
                                                  2,162,075     $39.03/C$57.845     December 7, 1999     December 7, 2009
                                                    577,705     $13.65-C$53.75      During 1999          January 1, 2009 to
                                                                                                         December 31, 2009
                                                  1,040,416     $40.06-C$123.65     During 2000          January 1, 2010 to
                                                                                                         December 31, 2010
                                                  2,332,290     $56.1875/C$86.50    December 5, 2000     December 5, 2010
                                                  1,223,292     $49.00-C$108.45     During 2001          January 1, 2011 to
                                                                                                         December 31, 2011
                                                  5,286,348     $41.89/C$66.06      December 4, 2001     December 4, 2011
                                                    451,976     $13.10-C$70.81      During 2002          January 1, 2012 to
                                                                                                         December 31, 2012
                                                  2,713,228     $18.66/C$29.11      December 3, 2002     December 3, 2012
                                                     48,150     $11.76-C$18.12      January 1, 2003 to   January 1, 2013 to
                                                                                    February 28, 2003    February 28, 2013
IMS Employees(2)(3)...........................      509,434     $0.925-$13.31       December 30, 1998    June 13, 2006 to
                                                                                                         December 18, 2008
Primetech Employees(4)........................       31,793     C$47.73             June 29, 1998        June 29, 2003
                                                     58,821     C$65.91             July 14, 1999        July 14, 2004
                                                     93,500     C$97.73-C$111.36    February 15, 2000    February 15, 2005
                                                                                    to June 15, 2000     to June 15, 2005
                                                     31,735     C$45.45-C$67.05     January 10, 2001     January 10, 2006
                                                                                    to March 16, 2001    to March 16, 2006


- ---------------

March 11, 2004.

Outstanding Options
Beneficial Holders
 
Number of Subordinate Voting Shares Under Option
 
Exercise Price
 
Year of Issuance
 
Date of Expiry
Executive Officers (13 persons in total)
 
210,000
 
$0.925
 
June 13, 1996
 
June 13, 2006
 
 
267,316
 
$5.00
 
During 1997
 
April 8, 2007
 
 
387,390
 
$7.50–$8.75
 
During 1997 and 1998
 
October 22, 2007 to July 3, 2008
 
 
272,480
 
C$18.90–$22.97
 
During 1999
 
January 1, 2009 to September 20, 2009
 
 
386,000
 
$39.03/C$57.845
 
December 7, 1999
 
December 7, 2009
 
 
105,000
 
$40.06–C$60.00
 
During 2000
 
February 1, 2010 to May 26, 2010
 
 
198,000
 
$56.1875/C$86.50
 
December 5, 2000
 
December 5, 2010
 
 
25,000
 
C$73.50
 
March 1, 2001
 
March 1, 2011
 
 
100,000
 
$50.00
 
April 20, 2001
 
April 20, 2011
 
 
458,200
 
$41.89/C$66.06
 
December 4, 2001
 
December 4, 2011
 
 
490,000
 
$13.10–C$29.11
 
During 2002
 
October 1, 2012 to December 18, 2012
 
 
8,000
 
C$15.35
 
April 18, 2003
 
April 18, 2013
 
 
1,140,000
 
$17.15/C$22.75
 
January 31, 2004
 
January 31, 2014
 
 
 
 
 
 
 
 
 

Directors who are not Executive Officers
 
143,000
 
$8.75
 
During 1998
 
July 7, 2008
 
 
60,000
 
$23.41/C$34.50
 
July 7, 1999
 
July 7, 2009
 
 
60,000
 
$48.69/C$72.60
 
July 7, 2000
 
July 7, 2010
 
 
60,000
 
$44.23/C$66.78
 
July 7, 2001
 
July 7, 2011
 
 
20,000
 
$35.95
 
October 22, 2001
 
October 22, 2011
 
 
5,000
 
$32.40
 
April 21, 2002
 
April 21, 2012
 
 
45,000
 
$10.62
 
April 18, 2003
 
April 18, 2013
All other Celestica Employees (other than IMS, Primetech and MSL) (more than 6,000 persons in total)
 
2,906,516
 
$5.00
 
During 1997
 
April 8, 2007(1)
 
 
498,728
 
$7.50–C$14.05
 
During 1998
 
April 29, 2008 to November 9, 2008
 
 
752,700
 
$13.69–C$21.45
 
January 1, 1999 to March 17, 1999
 
January 1, 2009 to March 17, 2009
 
 
1,974,429
 
$39.03/C$57.845
 
December 7, 1999
 
December 7, 2009
 
 
554,150
 
$13.65–C$53.75
 
During 1999
 
January 1, 2009 to December 31, 2009
 
 
842,350
 
$40.06–C$123.65
 
During 2000
 
January 1, 2010 to December 31, 2010
 
 
1,992,025
 
$56.1875/C$86.50
 
December 5, 2000
 
December 5, 2010
 
 
918,200
 
$49.00–C$108.45
 
During 2001
 
January 1, 2011 to December 31, 2011
 
 
4,939,902
 
$41.89/C$66.06
 
December 4, 2001
 
December 4, 2011
 
 
424,118
 
$13.10–C$70.81
 
During 2002
 
January 1, 2012 to December 31, 2012
 
 
2,756,948
 
$18.66/C$29.11
 
December 3, 2002
 
December 3, 2012
 
 
285,150
 
$10.19–C$22.54
 
During 2003
 
January 1, 2013 to December 31, 2013
 
 
74,800
 
$17.11–C$26.47
 
January 1, 2004 to March 11, 2004
 
January 1, 2014 to March 11, 2014
 
 
2,758,776
 
$17.15/C$22.75
 
January 31, 2004
 
January 31, 2014
IMS Employees(1)
 
460,525
 
$0.925–$13.31
 
December 30, 1998
 
June 13, 2006 to December 18, 2008
Primetech Employees(2)
 
24,436
 
C$65.91
 
July 14, 1999
 
July 14, 2004
 
 
37,319
 
C$97.73–C$111.36
 
February 15, 2000 to June 15, 2000
 
February 15, 2005 to June 15, 2005
 
 
24,365
 
C$45.45–C$67.05
 
January 10, 2001 to March 16, 2001
 
January 10, 2006 to March 16, 2006
MSL Employees(3)
 
112,722
 
$10.67–$12.80
 
January 20, 1995 to November 8, 1999
 
January 20, 2005 to November 8, 2009
 
 
24,569
 
$53.33
 
September 30, 1997
 
September 30, 2007
 
 
250,330
 
$13.33–$32.75
 
December 1, 1999 to December 27, 2000
 
December 1, 2009 to December 27, 2010
 
 
75,409
 
$42.67–$78.00
 
May 1, 2000 to September 25, 2000
 
May 1, 2010 to September 25, 2010
 
 
1,647,076
 
$7.47–$25.17
 
January 8, 2001 to September 8, 2003
 
January 8, 2011 to September 8, 2013
(1) Except for 157,035 options which expire on November 4, 2005.

(2) 
Represents options outstanding under certain stock option plans that were assumed by Celestica on December 30, 1998.

(3) The original exercise price for these options was based on the NASDAQ market price of IMS common stock at the date of issuance.

(4) 

(2)
Represents options outstanding under certain stock option plans that were assumed by Celestica on August 3, 2001.

(3)
Represents options outstanding under certain stock option plans that were assumed by Celestica on March 12, 2004.
        Our compensation philosophy is predicated on the belief that broadly-basedbroadly based employee participation in share ownership is critical to maintain a common entrepreneurial culture and motivation throughout our operational units, and across functional and geographic boundaries. Accordingly, prior to the completion of our initial public offering, we established the Long-Term Incentive Plan and the Employee Share Ownership Plan.

LONG-TERM INCENTIVE PLAN

    Under the


Long-Term Incentive Plan
        The objectives of Celestica's Long-Term Incentive Plan (the "Plan"("LTIP"), are: (i) to align employee interests with those of shareholders; (ii) to reward employees for their contribution to Celestica's success; and (iii) to allow Celestica to attract and retain the qualified and experienced personnel who are critical to Celestica's success. Under the Plan, the board of directors of Celestica may in its discretion grant from time to time stock options, performance shares, performance share units and stock appreciation rights ("SARs") to directors, permanent employees and consultants ("eligible participants") of Celestica, our subsidiaries and other companies or partnerships in which Celestica has a significant investment ("affiliated entities"). Since the objectives of the LTIP are to incentive appropriate behaviors over the longer term, the current financial performance of Celestica does not have a direct impact on awards under the LTIP.
Under the Plan,LTIP, up to 29,000,000 subordinate voting shares of Celestica may be issued from treasury. The number of subordinate voting shares which may be issued from treasury under the PlanLTIP to directors is limited to 2,000,000. In addition, Celestica may satisfy obligations under the PlanLTIP by acquiring subordinate voting shares in the market. The PlanLTIP limits the number of subordinate voting shares which may be reserved for issuance to insiders or any one participant pursuant to options or rights granted pursuant to the Plan,LTIP, together with subordinate voting shares reserved for issuance under any other employee-related plan of Celestica or options for services granted by Celestica, to 10% and 5%, respectively, of the aggregate issued and outstanding subordinate voting shares and multiple voting shares of Celestica.

                                       53

    The exercise price for any stock option issued under the Plan will not be
less than the market price of the subordinate voting shares on the day preceding
the date of grant, except that options
        Options to acquire subordinate voting shares were issued to directors and an officer substantially concurrently with the completion of the initial public offering with an exercise price equal to the initial public offering price ($8.75). Options issued under the PlanLTIP may be exercised during a period determined under the Plan,LTIP, which may not exceed ten years. The PlanLTIP also provides that, unless otherwise determined by the board of directors, options will terminate within specified time periods following the termination of employment of an eligible participant with Celestica or our affiliated entities. The exercise of options may be subject to vesting conditions, including specific time schedules for vesting and performance-based conditions such as share price and financial results. The grant to, or exercise of options by, an eligible participant may also be subject to certain share ownership requirements.
        Under the Plan,LTIP, eligible participants may be granted SARs, a right to receive a cash amount equal to the difference between the market price of the subordinate voting shares at the time of the grant and the market price of such shares at the time of exercise of the SAR. Such amounts may also be payable by the issuance of subordinate voting shares. SARs may be granted under the Plan on
a one-for-one or other basis in tandem with option grants, in which case it may
be a term of the option and the SAR that the exercise of one results in the
cancellation of the other. The exercise of SARs may also be subject to conditions similar to those which may be imposed on the exercise of stock options.

    Upon
        Under the issuance of performance units,LTIP, eligible participants willmay be entitledallocated Performance Units, which represent the right to receive grantsan equivalent number of subordinate voting shares at a specified release date, with such shares to be issued at the then market price of subordinate voting shares.shares on the release date. The issue of such shares may be subject to vesting requirements similar to those described above with respect to the exercisability of options and SARs, including such time or performance-based conditions as may be determined by the board of directors in its discretion. The number of subordinate voting shares which may be issued from the treasury of Celestica under the performance unit program is limited to 2,000,000 and the number of subordinate voting shares which may be issued pursuant to the performance unit program to any one person shall not exceed 1% of the aggregate issued and outstanding subordinate voting shares and multiple voting shares of Celestica.
        The interests of any participant under the PlanLTIP or in any option, rights or performance unit shallare not be transferable, by him or her except to a spouse or a
personal holding company or family trust controlled by the participant, the
shareholders or beneficiaries of which, as the case may be, are any combination
of the participant, the participant's spouse, the participant's minor children
and the participant's minor grandchildren, subject to applicable stock exchange
rules.limited exceptions.
        The Plan,LTIP, or the terms of any option, SAR or performance unit granted thereunder, can be amended by the board of directors, subject to obtaining any required regulatory approvals and participant and shareholder approval where so required. Participation in
        Stock options are currently granted annually to eligible employees, under the Plan by eligible participants is not a conditionLTIP, based on the recommendation of employmentthe management of an eligible participant.each business unit and are subject to the approval of the Chief Executive Officer. The Compensation Committee recommends option grants for our senior executives to the Board of Directors for approval. During the year, Celestica may appoint a trustee grant stock options and/or administrator to perform certain functions restricted stock units


under the PlanLTIP's performance unit program to newly hired employees or in special retention circumstances with the approval of the Chief Executive Officer. The total number of stock options and restricted stock units to be granted in a given year is established after taking into account the number of options and restricted stock units to be granted in that year relative to the total number of shares outstanding (burn rate) as well as the total number of stock options and restricted stock units outstanding relative to the total number of shares outstanding (overhang). Celestica targets a maximum level for both burn rate and overhang after taking into account competitive practice with reference to the comparator group as well as its direct competitors. The Compensation Committee approves the total number of stock options and restricted stock units to be granted in a given year.
        In January 2004, the Board of Directors established performance conditions for option awards to senior executives to align rewards more closely with Celestica performance. These performance-contingent options provide the opportunity for significant gains for superior performance and reduced gain for marginal performance. The option exercise price is equal to the market price of subordinate voting shares at the close of business on the day prior to the grant date (except where a longer period is required by local law.) The options vest over three years and the board of
directors may delegate its rights and duties under the Plannumber vested will vary from 25% to a committee100% of the boardeligible options in a given year. The portion of directors or one or more specified officers.

EMPLOYEE SHARE OWNERSHIP PLANthe option grant award that vests each year (and the number of options that may be exercised) is contingent on our rank relative to that of specific direct EMS competitors based on defined performance metrics.
Employee Share Ownership Plan
        The purpose of the Celestica Employee Share Ownership Plan ("ESOP"CESOP") is to enable eligible employees, including executive officers, and directors ("Eligible Participants") of Celestica to acquire subordinate voting shares, so as to encourage continued employee interest in the operation, growth and development of Celestica, as well as to
provide an additional investment opportunity to employees and directors.Celestica. The ESOPCESOP enables Eligible Participants to acquire subordinate voting shares from shares acquired by an administrator in the market. Under the ESOP,CESOP, an Eligible Participant who is an employee may elect to contribute an amount by deduction from each regular payroll, representing no more than 10% of his or her compensation.salary. A participant who is a director may elect to designate all or a portion of his or her cash retainer fees, meeting fees, committee or similar fees as a contribution under the ESOP.CESOP. Celestica will contribute 25% of the amount of theemployee contributions of employees, up to a maximum total for each
contribution of 1% of the employee's compensationsalary for the relevant payroll period. Unless otherwise determined by Celestica, no Celestica contribution shall be made for contributions by directors. The ESOPCESOP provides for vesting conditions relating to shares acquired under the ESOPCESOP using Celestica

                                       54
 contributions. Under the ESOP,CESOP, following each payroll period, an administrator acquires in the market subordinate voting shares for the purposes of satisfying purchases by Eligible Participants under the ESOP,CESOP, using funds contributed by employees and Celestica. The ESOPCESOP also provides that participation in the Planplan by Eligible Participants is not a condition of employment of an Eligible Participant.

ITEM
Item 7.    MAJOR SHAREHOLDERS AND RELATED PARTY TRANSACTIONS

Major Shareholders and Related Party Transactions
A.    MAJOR SHAREHOLDERSMajor Shareholders
        The following table sets forth certain information concerning the direct and beneficial ownership of the shares of Celestica at February 28, 2003March 11, 2004 by each person known to Celestica to own beneficially, directly or indirectly, 5% or more of the subordinate voting shares or the multiple voting shares. In this table, multiple voting shares are referred to as "MVS" and subordinate voting shares are referred to as "SVS."

                                                                              PERCENTAGE      PERCENTAGE OF ALL    PERCENTAGE OF
NAME OF BENEFICIAL OWNER(1)   TYPE OF OWNERSHIP      NUMBER OF SHARES          OF CLASS         EQUITY SHARES       VOTING POWER
- ---------------------------  -------------------   ---------------------   ----------------   -----------------   ----------------

Onex Corporation(2)(3)...    Direct and Indirect   39,065,950   MVS                  100.0%         17.1%                    83.8%
                                                    3,483,238   SVS                    1.8%          1.5%                *

Gerald W. Schwartz(2)(4)...  Direct and Indirect   39,065,950   MVS                  100.0%         17.1%                    83.8%
Toronto, Ontario...                                 3,671,982   SVS                    1.9%          1.6%                *

  Total percentage of all equity shares and total percentage of voting
    power...............................................................                            20.3%                    84.4%


- ------------

Name of Beneficial Owner(1)
 
Type of Ownership
 
Number of Shares
 
Percentage of Class
 
Percentage of all Equity Shares
 
Percentage of Voting Power
Onex Corporation(2)(3)
 
Direct and Indirect
 
39,065,950
 
MVS
 
100.0%
 
18.7%
 
85.2%
 
 
 
 
3,172,191
 
SVS
 
1.9%
 
1.5%
 
*
Gerald W. Schwartz(2)(4)
 
Direct and Indirect
 
39,065,950
 
MVS
 
100.0%
 
18.7%
 
85.2%
 
 
 
 
3,360,935
 
SVS
 
2.0%
 
1.6%
 
*
FMR Corp.(5)(6)
 
Indirect
 
19,399,724
 
SVS
 
11.4%
 
9.3%
 
1.7%

Total percentage of all equity shares and total percentage of voting power

 

29.6%

 

87.2%
*
Less than 1%.

(1)
As used in this table, "beneficial ownership" means sole or shared power to vote or direct the voting of the security, or the sole or shared investment power with respect to a security (I.E.(i.e., the power to dispose, or direct a disposition, of a security). A person is deemed at any date to have "beneficial ownership" of any security that such person has a right to acquire within 60 days of such date. More than one person may be deemed to have beneficial ownership of the same securities.

(2)
The address of such shareholders is: c/o Onex Corporation, 161 Bay Street, P.O. Box 700, Toronto, Ontario, Canada M5J 2S1.

(3)
Includes 11,635,958 multiple voting shares held by wholly-owned subsidiaries of Onex, 1,540,7341,284,686 subordinate voting shares held in trust for Celestica Employee Nominee Corporation as agent for and on behalf of certain executives and employees of Celestica pursuant to certain of Celestica's employee share purchase and option plans, 33,75433,755 subordinate voting shares representing an undivided interest of approximately 10.2% in 330,872 subordinate voting shares, and 280,376225,376 subordinate voting shares directly or indirectly held by certain officers of Onex which Onex has the right to vote. Of these shares, 9,214,320 subordinate voting shares may be delivered, at the issuer's option, upon the exercise or redemption, or at maturity or acceleration, of exchangeable debentures due 2025 issued by certain subsidiaries of Onex and 1,757,467 subordinate voting shares may be delivered, at the option of Onex or certain persons related to Onex, to satisfy the obligations of such persons under equity forward agreements. If a debenture is exercised or an equity forward agreement is settled and the issuer of the debenture or, in the case of an equity forward agreement, Onex does not elect to satisfy its obligations in cash rather than delivering subordinate voting shares, if the issuer or Onex, as the case may be, does not hold a sufficient number of subordinate voting shares to satisfy its obligations, the requisite number of multiple voting shares held by such person will immediately be converted into subordinate voting shares, which will be delivered to satisfy such obligations.

Multiple
voting shares will be converted automatically into subordinate voting shares upon any transfer thereof, except (i) a transfer to Onex or any affiliate of Onex or (ii) a transfer of 100% of the outstanding multiple voting shares to a purchaser who also has offered to purchase all of the outstanding subordinate voting shares for a per share consideration identical to, and otherwise on the same terms as, that offered for the multiple voting shares and the multiple voting shares held by such purchaser thereafter shall be subject to the provisions relating to conversion as if all references to Onex were references to such purchaser. In addition, if (i) any holder of any multiple voting shares ceases to be an affiliate of Onex or (ii) Onex and its affiliates cease to have the right, in all cases, to exercise the votes attached to, or to direct the voting of, any of the multiple voting shares held by Onex and its affiliates, such multiple voting shares shall convert automatically into subordinate voting shares on a one-for-one basis. For these purposes, (i) "Onex" includes any successor corporation resulting from an amalgamation, merger, arrangement, sale of all or substantially all of its assets, or other business combination or reorganization involving Onex, provided that such successor corporation beneficially owns directly or indirectly all multiple voting shares beneficially owned directly or indirectly by Onex immediately prior to such transaction and is controlled by the same person or persons as controlled Onex prior to the consummation of such transaction; (ii) a corporation shall be deemed to be a subsidiary of another corporation if, but only if (a) it is controlled by that other, or that other and one or more corporations each of which is controlled by that other, or two or more corporations each of which is controlled by that other, or (b) it is a subsidiary of a corporation that is that other's subsidiary; (iii) "affiliate" means a subsidiary of Onex or a corporation controlled by the same person or company that controls Onex; and (iv) "control" means beneficial ownership of, or control or direction over, securities carrying more than 50% of the votes that may be cast to elect directors if those votes, if cast, could elect more than 50% of the directors. For these purposes, a person is deemed to beneficially own any security which is beneficially owned by a corporation by such person.

Onex,
which owns all of the outstanding multiple voting shares, has entered into an agreement with Computershare Trust Company of Canada, as trustee for the benefit of the holders of the subordinate voting shares, that has the effect of preventing transactions that otherwise would deprive the holders of subordinate voting shares of rights under applicable provincial take-over bid legislation to which they would have been entitled in the event of a take-over bid for the multiple voting shares if the multiple voting shares had been subordinate voting shares.

The
shares Onex owns and the shares Onex has the right to vote represent in the aggregate 84%85% of the voting power of all Celestica shares. If the issuer of the exchangeable debentures or the party to the equity forward agreements, as the case may be, elects to deliver solely subordinate voting shares and no cash upon the exchange or redemption, or at maturity or acceleration, of the debentures or the settlement of the equity forward agreement, as the case may be, the number of shares owned by Onex, together with those shares Onex has the right to vote, would, if such delivery had occurred on February 28, 2003,March 11, 2004, represent in the aggregate 78%80% of the voting interest in our company.

(4)
Includes 188,744 subordinate voting shares owned by a company controlled by Mr. Schwartz and all of the shares of Celestica beneficially owned by Onex, or in respect of which Onex exercises control or direction, of which 1,077,500 subordinate voting shares are subject to options granted to Mr. Schwartz pursuant to certain management incentive plans of Onex. Mr. Schwartz is a director of Celestica and the Chairman of the Board, President and Chief Executive Officer of Onex, and controls Onex through his ownership of shares with a majority of the voting rights attaching to all shares of Onex. Accordingly, Mr. Schwartz may be deemed to be the beneficial owner of the Celestica shares owned by Onex.

                                       55

HOLDERS

(5)
The address of this shareholder is: 82 Devonshire Street, Boston, Massachusetts 02109.

(6)
This information reflects share ownership as of December 31, 2003 and is taken from the Schedule 13G/A filed by FMR Corp. with the SEC on February 16, 2004, a joint filing of FMR Corp., Edward C. Johnson 3d, Abigail P. Johnson and Fidelity Management & Research Company.
        Onex' ownership percentages have not changed materially over the past three years and FMR Corp. only recently became a beneficial owner of 5% or more of our subordinate voting shares.

Holders
        On February 28, 2003,March 11, 2004, there were approximately 1,7771,865 holders of record of subordinate voting shares, of which approximately 410482 holders, holding approximately 46%52% of the outstanding subordinate voting shares, were resident in the United States.
        On February 28, 2003,March 11, 2004, there was one holder of record of the Liquid Yield Option-TM-Option™ Notes due 2020; the holder of record was in the United States.
B.    RELATED PARTY TRANSACTIONS

INTEREST OF MANAGEMENT IN CERTAIN TRANSACTIONSRelated Party Transactions
Interest of Management in Certain Transactions
        Celestica and Onex are parties to an agreementAmended and Restated Management Services Agreement dated July 1, 2003 under which Onex has agreed to provide certain strategic planning, financial and support services to Celestica of such nature as Celestica may reasonably request from time to time having regard to Onex's experience, expertise and personnel or the personnel of its subsidiaries, as the case may be. Celestica has agreed to pay Onex certain fees under the agreement including a base fee and a performance incentive fee, if any. The base fee is equal to $2.0 millionapproximately $500,000 per year, adjusted for changesincreasing after two years to $1,000,000 per year. The incentive fee payable in the Canadian consumer price index.any year is tied to company performance. The agreement also provides that if Celestica uses Onex management personnel to provide investment banking or financial advice in connection with any acquisition, Onex will be entitled to receive fees consistent in the determination of the boardBoard of directorsDirectors of Celestica with fees typically paid for financial advice in such circumstances to investment bankers or other expert advisors at arm's-length to Celestica. The agreement has a term
of five years, commencing July 7, 1998, with automatic renewal for successive
one-year periods thereafter,terminates on December 31, 2008, subject to automatic termination on 12 months' prior written
notice at any time after the initial five-year term by the directors of
Celestica who are independent of Celestica and Onex, and provided that in any
event the agreement, and the rights of Onex to receive fees (other than accrued
and unpaid fees), will terminate 30 days after the first day upon which Onex ceases to hold at least one multiple voting share. In the event of a change of control of Celestica, Onex is entitled to receive an amount equal to the difference between $10,000,000 and the aggregate amount of base fees and incentive fees paid to Onex during the term of the agreement, and no further base or incentive fees are payable thereafter. During 2002,2003, Celestica paid to Onex managementmanagement-related fees of approximately $2.2$1.4 million. INDEBTEDNESS OF DIRECTORS AND SENIOR OFFICERSThe payment obligations under the agreement are not considered to be material to either Celestica or Onex.
Indebtedness of Directors and Senior Officers
        As at February 28, 2003,March 11, 2004, Celestica had guaranteed $4,128,012$2,383,733 aggregate indebtedness of certain officers and employees of Celestica incurred in connection with the purchase of subordinate voting shares. The security for each of the guaranteed amounts is the purchased subordinate voting shares. The following table sets forth details of such guarantees by Celestica of indebtedness of the directors and officers of Celestica.

       INDEBTEDNESS OF SENIOR OFFICERS UNDER SECURITIES PURCHASE PROGRAMS


                                                                LARGEST AMOUNT               AMOUNT
                                                              OUTSTANDING DURING        OUTSTANDING AS AT
NAME AND PRINCIPAL POSITION                                         2002(1)          FEBRUARY 28, 2003(1)(2)
- ---------------------------                                   -------------------   -------------------------

J. Marvin M(a)Gee...........................................     $     166,618            $     166,618
President and Chief Operating Officer

R. Thomas Tropea............................................     $     436,828            $     436,828
Vice Chair, Global Customer Units and Worldwide Marketing
  and Business Development

Daniel P. Shea..............................................     $     301,299            $     301,299
Group Executive and Chief Technology Officer

Rahul Suri..................................................     $   1,026,254            $   1,026,254
Senior Vice President, Corporate Development


- ------------


Indebtedness of Senior Officers under Securities Purchase Programs(1)
Name and Principal Position
 
Largest amount
outstanding during
2003(1)
 
Amount outstanding
as at March 11, 2004(1)
 
J. Marvin MaGee
President
 
$
187,426
 
$
187,426
 
R. Thomas Tropea
Vice Chair, Worldwide Marketing and Business Development
 
$
491,382
 
$
491,382
 
Rahul Suri
Senior Vice President, Corporate Development
 
$
1,357,186
(2)
$
1,365,998
(2)
(1)
All amounts shown are converted into U.S. dollars from Canadian dollars at an exchange rate of U.S.$1.00 = C$1.4880.

1.3228.

(2) All guaranteed
The amounts incuroutstanding for Mr. Suri as at March 11, 2004 include accrued interest at a rate equalwhich is owed to certain commercial
    banks' prime lending rates. The security for each of the guaranteed amounts
    is the purchased subordinate voting shares.

                                       56
Celestica pursuant to an agreement entered into with Mr. Suri in 2000.
        No securities were purchased by any director or officer during 20022003 with the financial assistance of Celestica. No director, officer or employee was indebted to Celestica other than in connection with securities purchase programs during the year ended December 31, 2002.

2003.


C.    INTERESTS OF EXPERTS AND COUNSELInterests of Experts and Counsel
        Not applicable.

ITEM
Item 8.    FINANCIAL INFORMATION

Financial Information
A.    CONSOLIDATED STATEMENTS AND OTHER FINANCIAL INFORMATIONConsolidated Statements and Other Financial Information
        See Item 18, "Financial Statements."

LITIGATION
Litigation
        We are not a party to any legal proceedings which, if decided adversely, could reasonably be expected to have a material adverse effect on the results of operations, business, prospects or financial condition of Celestica.

DIVIDEND POLICY
Dividend Policy
        We have not declared or paid any dividends to our shareholders. We will retain earnings for general corporate purposes to promote future growth; as such, the board of directors does not anticipate paying any dividends for the foreseeable future. Celestica's board of directors will review this policy from time to time, having regard to our financial condition, financing requirements and other relevant factors.
B.    SIGNIFICANT CHANGESSignificant Changes
        See note 2322 to the Consolidated Financial Statements in Item 18 for information on significant changes.

ITEM
Item 9.    THE OFFER AND LISTING

The Offer and Listing
A.    OFFER AND LISTING DETAILS

MARKET INFORMATIONOffer and Listing Details 
Market Information
        The subordinate voting shares are listed on Thethe New York Stock Exchange (the "NYSE") and Thethe Toronto Stock Exchange (the "TSX"). The market price range and trading volume of the subordinate voting shares on the NYSE and the TSX for the periods indicated are set forth in the following tables, which have been restated to reflect the effect of the 1999 two-for-one stock split on a retroactive basis. In the following tables, subordinate voting shares are defined as "SVS."

    THE ANNUAL HIGH AND LOW MARKET PRICES FOR THE FIVE MOST RECENT FISCAL YEARS


                                                                            NYSE
                                                              --------------------------------
                                                                HIGH       LOW       VOLUME
                                                              --------   -------   -----------
                                                               (Price per SVS)

Year ended December 31, 1998 (from June 30, 1998)(1)........   $13.75    $ 5.19     22,165,800
Year ended December 31, 1999................................    57.00     12.06    115,803,800
Year ended December 31, 2000................................    87.00     35.50    314,486,100
Year ended December 31, 2001................................    76.40     20.69    602,213,700
Year ended December 31, 2002................................    47.08      9.89    544,914,800


- ------------

(1) 
The SVS began trading on June 30, 1998.

                                       57

                                                                            TSX
                                                              --------------------------------
                                                                HIGH       LOW       VOLUME
                                                              --------   -------   -----------
                                                               (Price per SVS)

Year ended December 31, 1998 (from June 30, 1998)(1)........  C$ 21.13   C$ 8.00    33,833,130
Year ended December 31, 1999................................     82.75     18.40   142,584,064
Year ended December 31, 2000................................    128.25     51.05   202,303,300
Year ended December 31, 2001................................    114.00     32.42   323,130,318
Year ended December 31, 2002................................     75.05     15.78   328,786,676


- ------------

(1) annual high and low market prices for the five most recent fiscal years
 
 
NYSE
 
 
High
 
Low
 
Volume
 
 
(Price per SVS)

 
 
Year ended December 31, 1999
 
$
57.00
 
$
12.06
 
115,803,800
Year ended December 31, 2000
 
 
87.88
 
 
35.50
 
268,587,200
Year ended December 31, 2001
 
 
76.40
 
 
20.69
 
600,773,000
Year ended December 31, 2002
 
 
47.08
 
 
9.89
 
544,198,500
Year ended December 31, 2003
 
 
20.29
 
 
9.55
 
392,558,600
 
 
TSX
 
 
High
 
Low
 
Volume
 
 
(Price per SVS)

 
 
Year ended December 31, 1999
 
C$
82.75
 
C$
18.40
 
142,584,064
Year ended December 31, 2000
 
 
128.25
 
 
51.05
 
202,303,300
Year ended December 31, 2001
 
 
114.00
 
 
32.42
 
323,130,318
Year ended December 31, 2002
 
 
75.05
 
 
15.78
 
328,786,676
Year ended December 31, 2003
 
 
27.98
 
 
13.50
 
339,281,662

The SVS began trading on June 30, 1998.

    THE HIGH AND LOW MARKET PRICES FOR EACH FULL FISCAL QUARTER FOR THE TWO MOST
     RECENT FISCAL YEARS


                                                                            NYSE
                                                              --------------------------------
                                                                HIGH       LOW       VOLUME
                                                              --------   -------   -----------
                                                               (Price per SVS)

Year ended December 31, 2001
  First quarter.............................................   $76.40    $25.80    143,622,000
  Second quarter............................................    63.25     24.00    166,006,300
  Third quarter.............................................    50.94     20.69    148,784,400
  Fourth quarter............................................    48.40     25.41    143,801,000

Year ended December 31, 2002
  First quarter.............................................   $47.08    $31.50    141,144,200
  Second quarter............................................    36.98     21.14    127,727,400
  Third quarter.............................................    26.70     12.95    153,867,600
  Fourth quarter............................................    19.28      9.89    122,175,600

                                                                            TSX
                                                              --------------------------------
                                                                HIGH       LOW       VOLUME
                                                              --------   -------   -----------
                                                               (Price per SVS)

Year ended December 31, 2001
  First quarter.............................................  C$114.00   C$40.75    85,670,137
  Second quarter............................................     97.50     37.55    81,722,757
  Third quarter.............................................     78.10     32.42    65,423,337
  Fourth quarter............................................     76.50     40.12    90,314,087

Year ended December 31, 2002
  First quarter.............................................  C$ 75.05   C$49.85    74,912,318
  Second quarter............................................     58.98     32.00    67,102,498
  Third quarter.............................................     41.45     20.60    92,428,385
  Fourth quarter............................................     29.99     15.78    94,343,475


    THE HIGH AND LOW MARKET PRICES FOR EACH MONTH FOR THE MOST RECENT
     SIX MONTHS


                                                                            NYSE
                                                              --------------------------------
                                                                HIGH       LOW       VOLUME
                                                              --------   -------   -----------
                                                               (Price per SVS)

October 2002................................................   $15.08    $ 9.89     57,744,300
November 2002...............................................    18.75     13.07     37,332,900
December 2002...............................................    19.28     13.38     27,098,400
January 2003................................................    17.52     11.26     44,389,300
February 2003...............................................    12.40     10.31     27,387,400
March 2003..................................................    13.67     11.24     23,280,100


                                       58

                                                                            TSX
                                                              --------------------------------
                                                                HIGH       LOW       VOLUME
                                                              --------   -------   -----------
                                                               (Price per SVS)

October 2002................................................  C$23.50    C$15.78    40,853,685
November 2002...............................................    29.45      20.51    30,695,160
December 2002...............................................    29.99      20.80    22,794,630
January 2003................................................    27.24      17.25    41,242,030
February 2003...............................................    18.73      15.77    28,779,217
March 2003..................................................    20.23      16.52    27,584,270
high and low market prices for each full fiscal quarter for the two most recent fiscal years
 
 
NYSE
 
 
High
 
Low
 
Volume
 
 
(Price per SVS)

 
 
Year ended December 31, 2002
 
 
 
 
 
 
 
 
 
First quarter
 
$
47.08
 
$
31.50
 
140,891,200
 
Second quarter
 
 
36.98
 
 
21.10
 
127,592,000
 
Third quarter
 
 
26.70
 
 
12.95
 
153,715,800
 
Fourth quarter
 
 
19.28
 
 
9.89
 
121,999,500
Year ended December 31, 2003
 
 
 
 
 
 
 
 
 
First quarter
 
$
17.53
 
$
10.31
 
94,833,400
 
Second quarter
 
 
17.10
 
 
9.55
 
110,120,500
 
Third quarter
 
 
20.29
 
 
13.65
 
98,844,700
 
Fourth quarter
 
 
18.50
 
 
12.91
 
88,760,000
 
 
TSX
 
 
High
 
Low
 
Volume
 
 
(Price per SVS)

 
 
Year ended December 31, 2002
 
 
 
 
 
 
 
 
 
First quarter
 
C$
75.05
 
C$
49.85
 
74,912,318
 
Second quarter
 
 
58.98
 
 
32.00
 
67,102,498
 
Third quarter
 
 
41.45
 
 
20.60
 
92,428,385
 
Fourth quarter
 
 
29.99
 
 
15.78
 
94,343,475
Year ended December 31, 2003
 
 
 
 
 
 
 
 
 
First quarter
 
C$
27.24
 
C$
15.77
 
97,605,517
 
Second quarter
 
 
23.15
 
 
13.50
 
91,567,283
 
Third quarter
 
 
27.98
 
 
19.01
 
78,510,142
 
Fourth quarter
 
 
24.00
 
 
16.90
 
71,598,720
The high and low market prices for each month for the most recent six months
 
 
NYSE
 
 
High
 
Low
 
Volume
 
 
(Price per SVS)

 
 
November 2003
 
$
16.15
 
$
13.71
 
24,142,400
December 2003
 
 
16.03
 
 
13.60
 
25,822,700
January 2004
 
 
21.75
 
 
15.11
 
41,001,500
February 2004
 
 
18.88
 
 
16.47
 
21,869,800
March 2004
 
 
18.45
 
 
15.08
 
30,111,100
April 2004
 
 
20.00
 
 
15.88
 
30,385,900
 
 
TSX
 
 
High
 
Low
 
Volume
 
 
(Price per SVS)

 
 
November 2003
 
C$
21.38
 
C$
17.96
 
19,316,337
December 2003
 
 
20.90
 
 
17.95
 
23,587,194
January 2004
 
 
28.40
 
 
19.60
 
39,525,483
February 2004
 
 
24.90
 
 
21.91
 
17,996,194
March 2004
 
 
24.60
 
 
20.08
 
23,448,471
April 2004
 
 
27.10
 
 
21.40
 
25,084,780

        Celestica's Liquid Yield Option-TM-Option™ Notes due 2020, or LYONs, are listed on the NYSE. Liquid Yield Option-TM-Option™ Notes is a trademark of Merrill Lynch & Co., Inc. The market price range of the LYONs on the NYSE for the periods indicated areis set forth in the following tables.

    THE ANNUAL HIGH AND LOW MARKET PRICES FOR THE LYONS FOR THE THREE MOST
     RECENT FISCAL YEARS


                                                                     NYSE
                                                              -------------------
                                                                HIGH       LOW
                                                              --------   --------

Year ended December 31, 2000 (from August 1, 2000)(1).......   $55.83     $40.05
Year ended December 31, 2001................................    53.74      34.56
Year ended December 31, 2002................................    46.00      33.00


- ------------

(1) 
The annual high and low market prices for the LYONs began trading on August 1, 2000.

    THE HIGH AND LOW MARKET PRICES FOR THE LYONS FOR EACH FULL FISCAL QUARTER
     FOR THE TWO MOST RECENT FISCAL YEARS


                                                                     NYSE
                                                              -------------------
                                                                HIGH       LOW
                                                              --------   --------

Year ended December 31, 2001
  First quarter.............................................   $53.74     $35.48
  Second quarter............................................    48.82      34.56
  Third quarter.............................................    44.24      35.82
  Fourth quarter............................................    44.72      36.51

Year ended December 31, 2002
  First quarter.............................................   $41.00     $35.25
  Second quarter............................................    46.00      34.00
  Third quarter.............................................    40.50      33.00
  Fourth quarter............................................    44.50      39.25


    THE HIGH AND LOW MARKET PRICES FOR THE LYONS FOR EACH MONTH FOR THE MOST
     RECENT SIX MONTHS


                                                                     NYSE
                                                              -------------------
                                                                HIGH       LOW
                                                              --------   --------

October 2002................................................   $40.50     $40.50
November 2002...............................................    42.00      39.25
December 2002...............................................    44.50      42.13
January 2003................................................    44.00      42.25
February 2003...............................................    48.25      42.25
March 2003..................................................    48.63      48.00
for the three most recent fiscal years
 
 
NYSE
 
 
High
 
Low
Year ended December 31, 2001
 
$
53.74
 
$
34.56
Year ended December 31, 2002
 
 
46.00
 
 
33.00
Year ended December 31, 2003
 
 
52.50
 
 
42.00
The high and low market prices for the LYONs for each full fiscal quarter for the two most recent fiscal years
 
 
NYSE
 
 
High
 
Low
Year ended December 31, 2002
 
 
 
 
 
 
 
First quarter
 
$
41.00
 
$
35.25
 
Second quarter
 
 
46.00
 
 
34.00
 
Third quarter
 
 
40.50
 
 
33.00
 
Fourth quarter
 
 
44.50
 
 
39.25
Year ended December 31, 2003
 
 
 
 
 
 
 
First quarter
 
$
48.63
 
$
42.00
 
Second quarter
 
 
50.88
 
 
45.00
 
Third quarter
 
 
52.50
 
 
50.88
 
Fourth quarter
 
 
52.50
 
 
50.88
The high and low market prices for the LYONs for each month for the most recent six months
 
 
NYSE
 
 
High
 
Low
November 2003
 
$
52.50
 
$
50.88
December 2003
 
 
52.50
 
 
51.00
January 2004
 
 
54.00
 
 
51.50
February 2004
 
 
53.63
 
 
53.00
March 2004
 
 
54.00
 
 
51.50
April 2004
 
 
54.00
 
 
51.50
B.    PLAN OF DISTRIBUTIONPlan of Distribution
        Not applicable.

                                       59
C.    MARKETSMarkets
        The subordinate voting shares are listed on the NYSE and the TSX.
        Celestica's LYONs are listed on the NYSE. In Canada,
D.    Selling Shareholders
        Not applicable.
E.    Dilution
        Not applicable.


F.     Expense of the LYONs are offered
on a private placement basis through Merrill Lynch & Co., Inc.Issue
        Not applicable.
Item 10.     Additional Information
A. Share Capital
        Not applicable.
B.    Memorandum and its
affiliates.

D.  SELLING SHAREHOLDERS

    Not applicable.

E.  DILUTION

    Not applicable.

F.  EXPENSE OF THE ISSUE

    Not applicable.

ITEM 10.  ADDITIONAL INFORMATION

A.  SHARE CAPITAL

    Not applicable.

B.  MEMORANDUM AND ARTICLES OF INCORPORATION

    ANNUAL AND SPECIAL MEETINGS OF SHAREHOLDERSArticles of Incorporation
Annual and Special Meetings of Shareholders
        The Business Corporations Act (Ontario), or the OBCA, requires Celestica to call an annual shareholders' meeting not later than 15 months after holding the last preceding annual meeting and permits Celestica to call a special shareholders' meeting at any time. In addition, in accordance with the OBCA, the holders of not less than 5% of Celestica's shares carrying the right to vote at a meeting sought to be held may requisition our directors to call a special shareholders' meeting for the purposes stated in the requisition. Celestica is required to mail a notice of meeting and management information circular to registered shareholders not less than 21 days and not more than 50 days prior to the date of any annual or special shareholders' meeting. These materials also are filed with Canadian securities regulatory authorities and the SEC. Our by-laws provide that a quorum of two shareholders in person or represented by proxy holding or representing by proxy not less than 35% of Celestica's issued shares carrying the right to vote at the meeting is required to transact business at a shareholders' meeting. Shareholders, and their duly appointed proxies and corporate representatives, as well as our auditors, are entitled to be admitted to our annual and special shareholders' meetings.

    ARTICLES OF INCORPORATION
Articles of Incorporation
        Celestica's articles of incorporation do not place any restrictions on Celestica's objects and purposes.

    CERTAIN POWERS OF DIRECTORS
Certain Powers of Directors
        The OBCA requires that every director who is a party to a material contract or transaction or a proposed material contract or transaction with a company, or who is a director or officer of, or has a material interest in, any person who is a party to a material contract or transaction or a proposed material contract or transaction with the company, shall disclose in writing to the company or request to have entered in the minutes of the meetings of directors the nature and extent of his or her interest, and shall refrain from voting in respect of the material contract or transaction or proposed material contract or transaction unless the contract or transaction is:
(a)
an arrangement by way of security for money lent to or obligations undertaken by the director for the benefit of the corporation or an affiliate;

                                       60


(b)
one relating primarily to his or her remuneration as a director, officer, employee or agent of the corporation or an affiliate;

(c)
one for indemnity of, or insurance for directors, as contemplated under the OBCA; or

(d)
one with an affiliate.
        However, a director who is prohibited by the OBCA from voting on a material contract or proposed material contract may be counted in determining whether a quorum is present for the purpose of the resolution, if the director disclosed his or her interest in accordance with the OBCA and the contract or transaction was reasonable and fair to the corporation at the time it was approved.
        Celestica's by-laws provide that the directors shall from time to time determine by resolution the remuneration to be paid to the directors, which shall be in addition to the salary paid to any officer or employee of Celestica who is also a director. The directors may also by resolution award special remuneration to any director in undertaking any special services on Celestica's behalf other than the normal work ordinarily required of a director of Celestica. The by-laws provide that confirmation of any such resolution by Celestica's shareholders is not required.


        The by-laws provide that the directors may:
(a)
borrow money upon the credit of Celestica;

(b)
limit or increase the amount to be borrowed;

(c)
issue, reissue, sell or pledge bonds, debentures, notes or other securities or debt obligations of Celestica;

(d)
issue, sell or pledge such bonds, debentures, notes or other securities or debt obligations for such sums and at such prices as may be deemed expedient; and

(e)
mortgage, hypothecate, charge, pledge or otherwise create a security interest in all or any currently owned or subsequently acquired real and personal, movable and immovable, property of Celestica, and Celestica's undertaking and rights to secure any such bonds, debentures, notes or other securities or debt obligations, or to secure any of Celestica's present or future borrowing, liability or obligation.
        The directors may, by resolution, amend or repeal any by-laws that regulate the business or affairs of Celestica. The OBCA requires the directors to submit any such amendment or repeal to Celestica's shareholders at the next meeting of shareholders, and the shareholders may confirm, reject or amend the amendment or repeal.

    ELIGIBILITY TO SERVE AS A DIRECTOR
Eligibility to Serve as a Director
        The by-laws provide that every director shall be an individual 18 or more years of age, and that no one who is of unsound mind and has been so found by a court in Canada or elsewhere or who has the status of a bankrupt shall be a director. There is no provision of the articles of incorporation or by-laws imposing a requirement for retirement or non-retirement of directors under an age limit requirement. The OBCA requires that a majority of the directors of Celestica be resident Canadians.
        The OBCA provides that unless the articles of a corporation otherwise provide, a director of a corporation is not required to hold shares issued by the corporation. There is no provision in the articles of incorporation imposing a requirement that a director hold any shares issued by Celestica.
        The rights and preferences attaching to our subordinate voting shares and multiple voting shares are described in the section entitled "Description of Capital Stock" of our registration statement on Form F-3 (Reg. No. 333-69278), filed with the SEC on September 12, 2001. The rights and preferences attaching to our LYONs are described in the section entitled "Description of LYONs" of our Rule 424(b) prospectus, filed with the SEC on July 26, 2000, as part of our registration statement on Form F-3 (Reg. No. 333-12338), filed with the SEC on July 24, 2000. Those sections are hereby incorporated by reference into this Annual Report.

                                       61
        Additional information concerning the rights and limitations of shareholders found in Celestica's articles of incorporation is hereby incorporated by reference to our registration statement on Form F-4 (Reg. No. 333-9636).


C.    MATERIAL CONTRACTSMaterial Contracts
        The following table summarizes each material contract, other than contracts entered into in the ordinary course of business, to which Celestica or any member of Celestica's group is a party, for the two years immediately preceding the publication of this Annual Report:

                                                                                                         APPROXIMATE
DATE                            PARTIES                TYPE               TERMS AND CONDITIONS          CONSIDERATION
- ----                    ------------------------  --------------   -----------------------------------  -------------

February 19, 2001,      Celestica Corporation     Asset Purchase   Celestica Corporation acquired       $200 million
amended May 4, 2001
Date
Parties
Type
Terms and Avaya, Inc.           Agreement        certain assets from Avaya in
                                                                   Denver, Colorado and Little Rock,
                                                                   Arkansas

May 31, 2001            Celestica and Primetech   Arrangement      Celestica acquired all of the        $179 million
                        Electronics Inc.          Agreement        shares of Primetech
                                                                   Electronics Inc.

June 15, 2001           Celestica and Omni        Merger           Celestica acquired all of the        $865 million
                        Industries Limited        Agreement        shares of Omni Industries Limited

July 24, 2001           Celestica Corporation     Asset Purchase   Celestica Corporation acquired       $570 million
                        and Lucent                Agreements       certain assets from Lucent in
                        Technologies Inc.                          Columbus, Ohio and Oklahoma City,
                                                                   Oklahoma

Conditions
Approximate Consideration
March 31, 2002
Celestica and NEC Corporation
Stock Purchase Agreement
Celestica acquired all the business  $105 million
                        Corporation               Agreement operations of NEC Miyagi and NEC Yamanashi
$
105 million
October 14, 2003
Celestica, MSL Acquisition Sub Inc. and Manufacturers' Services Limited
Agreement and Plan of Merger
Manufacturers' Services Limited merged with and into a wholly-owned subsidiary of Celestica.
$
320 million
(1)
(1)
The acquisition closed on March 12, 2004. Celestica issued to the MSL security holders approximately 17.3 million subordinate voting shares (including shares reserved for issuance for outstanding options and warrants) to the common shareholders and certain preferred shareholders of MSL, and cash consideration of approximately $51.6 million.
D.    EXCHANGE CONTROLSExchange Controls
        Canada has no system of exchange controls. There are no Canadian restrictions on the repatriation of capital or earnings of a Canadian public company to non-resident investors. There are no laws of Canada or exchange restrictions affecting the remittance of dividends, interest, royalties or similar payments to non-resident holders of Celestica's securities, except as described under Item 10(E), "--"— Taxation," below.
E.    TAXATION

CERTAIN CANADIAN FEDERAL INCOME TAX CONSIDERATIONSTaxation
Material Canadian Federal Income Tax Considerations
        The following is a summary of the material Canadian federal income tax considerations generally applicable to a person (a "U.S. Holder") who acquires subordinate voting shares and who, for purposes of the Income Tax Act (Canada) (the "Canadian Tax Act") and the Canada-United States Income Tax Convention (1980) (the "Tax Treaty"), at all relevant times is resident in the United States and is neither resident nor deemed to be resident in Canada, deals at arm's length and is not affiliated with the Company,Celestica, holds such subordinate voting shares as capital property, and does not use or hold, and is not deemed to use or hold, the subordinate voting shares in carrying on business in Canada. Special rules, which are not discussed in this summary, may apply to a U.S. Holder that is a financial institution (as defined in the Canadian Tax Act), or is an insurer that carries on anto whom the subordinate voting shares are designated insurance businessproperty (as defined in Canada and
elsewhere.the Canadian Tax Act).
        This summary is based on the current provisions of the Tax Treaty, the Canadian Tax Act and the regulations thereunder, all specific proposals to amend the Canadian Tax Act or the regulations publicly announced by the Minister of Finance (Canada) prior to February 28, 2003,April 30, 2004, and Celestica's understanding of the current published administrative practices of the Canada Customs and Revenue Agency.
        This summary is not exhaustive of all possible Canadian federal income tax considerations and, except as mentioned above, does not take into account or anticipate any changes in law, whether by legislative, administrative or judicial decision or action, nor does it take into account the tax legislation or considerations of any province or territory of Canada or any jurisdiction other than Canada, which may differ significantly from the considerations described in this summary.

                                       62

    THIS SUMMARY IS OF A GENERAL NATURE ONLY AND IS NOT INTENDED TO BE, NOR
SHOULD IT BE CONSTRUED TO BE, LEGAL OR TAX ADVICE TO ANY PARTICULAR HOLDER, AND
NO REPRESENTATION WITH RESPECT TO THE CANADIAN FEDERAL INCOME TAX CONSEQUENCES
TO ANY PARTICULAR HOLDER IS MADE. CONSEQUENTLY,
This summary is of a general nature only and is not intended to be, nor should it be construed to be, legal or tax advice to any particular holder, and no representation with respect to the Canadian federal income tax consequences to any particular holder is made. Consequently, U.S. HOLDERS OF SUBORDINATE
VOTING SHARES SHOULD CONSULT THEIR OWN TAX ADVISORS WITH RESPECT TO THE INCOME
TAX CONSEQUENCES TO THEM HAVING REGARD TO THEIR PARTICULAR CIRCUMSTANCES.Holders of subordinate voting shares should consult their own tax advisors with respect to the income tax consequences to them having regard to their particular circumstances.
        All amounts relevant in computing a U.S. Holder's liability under the Canadian Tax Act are to be computed in Canadian dollars.

    TAXATION OF DIVIDENDS


Taxation of Dividends
        By virtue of the Canadian Tax Act and the Tax Treaty, dividends (including stock dividends) on subordinate voting shares paid or credited or deemed to be paid or credited to a U.S. Holder who is the beneficial owner of such dividenddividends will be subject to Canadian non-resident withholding tax at the rate of 15% of the gross amount of such dividends. Under the Tax Treaty, the rate of withholding tax on dividends is reduced to 5% if that U.S. Holder is a company that beneficially owns at least 10% of the voting stock of Celestica. Moreover, under the Tax Treaty, dividends paid to certain religious, scientific, literary, educational or charitable organizations and certain pension organizations that are resident in, and generally exempt from tax in, the U.S., generally are exempt from Canadian non-resident withholding tax. Provided that certain administrative procedures are observed by such an organization, Celestica would not be required to withhold such tax from dividends paid or credited to such organization.

    DISPOSITION OF SUBORDINATE VOTING SHARES
Disposition of Subordinate Voting Shares
        A U.S. Holder will not be subject to tax under the Canadian Tax Act in respect of any capital gain realized on the disposition or deemed disposition of subordinate voting shares unless the subordinate voting shares constitute or are deemed to constitute "taxable Canadian property" (as defined in the Canadian Tax Act) (other than treaty-protected property, as defined in the Canadian Tax Act) at the time of such disposition. Shares of a corporation resident in Canada that are listed on a prescribed stock exchange for purposes of the Canadian Tax Act will be "taxable Canadian property" under the Canadian Tax Act if, at any time during the five-year period immediately preceding the disposition or deemed disposition of the share, the non-resident,U.S. Holder, persons with whom the non-residentU.S. Holder did not deal at arm's length, or the non-residentU.S. Holder together with such persons owned 25% or more of the issued shares of any class or series of shares of the corporation that issued the shares. Provided they are listed on a prescribed stock exchange for purposes of the Canadian Tax Act (which includes the TSX and NYSE), subordinate voting shares acquired by a U.S. Holder generally will not be taxable Canadian property to a U.S. Holder unless the foregoing 25% ownership threshold applies to the U.S. Holder with respect to Celestica.Celestica or the subordinate voting shares are otherwise deemed by the Canadian Tax Act to be taxable Canadian property. Even if the subordinate voting shares are taxable Canadian property to a U.S. Holder, they generally will be treaty-protected property if the value of such shares at the time of disposition is not derived principally from real property situated in Canada. Consequently, any gain realized by the U.S. Holder upon the disposition of the subordinate voting shares generally will be exempt from tax under the Canadian Tax Act.

CERTAIN UNITED STATES FEDERAL INCOME TAX CONSIDERATIONS
Material United States Federal Income Tax Considerations
        The following discussion describes the material United States federal income tax consequences to United States Holders (as defined below) of subordinate voting shares. A United States Holder is a citizen or resident of the United States, a corporation or(or other entity taxable as a corporation), partnership or limited liability company created or organized in or under the laws of the United States or of any political subdivision thereof, an estate, the income of which is includible in gross income for U.S. federal income tax purposes regardless of its source, or a trust, if either (i) a court within the United States is able to exercise primary supervision over the administration of the trust and one or more U.S. persons have the authority to control all substantial decisions of the trust, or (ii) the trust has made an election under applicable U.S. Treasury regulations to be treated as a United States person. If a partnership (or limited liability company that is treated as a partnership) holds subordinate voting shares, the tax treatment of a partner generally will depend upon the status of the partner and upon the activities of the partnership. If you are a partner of a partnership holding subordinate voting shares, we suggest that you consult with your tax advisor. This summary is for general information purposes only. It does not purport to be a comprehensive description of all of the tax considerations that may be relevant to your decision to purchase, hold or dispose of subordinate voting shares. This summary considers only United States Holders who will own subordinate voting shares as capital assets within the meaning of Section 1221 of the Internal Revenue Code of 1986, as amended (the "Internal Revenue Code"). In this context, the term "capital assets" means, in general, assets held for investment by a 63
taxpayer. Material aspects of U.S. federal income tax relevant to non-United States Holders are also discussed below.
        This discussion is based on current provisions of the Internal Revenue Code, current and proposed Treasury regulations promulgated thereunder and administrative and judicial decisions as of February 28, 2003,April 30, 2004, all of which


are subject to change, possibly on a retroactive basis. This discussion does not address all aspects of U.S. federal income taxation that may be relevant to any particular United States Holder based on the United States Holder's individual circumstances. In particular, this discussion does not address the potential application of the alternative minimum tax or U.S. federal income tax consequences to United States Holders who are subject to special treatment, including taxpayers who are broker-dealers or insurance companies, taxpayers who have elected mark-to-market accounting, individual retirement and other tax-deferred accounts, tax-exempt organizations, financial institutions or "financial services entities," taxpayers who hold subordinate voting shares as part of a straddle,"straddle," "hedge" or "conversion transaction" with other investments, taxpayers owning directly, indirectly or by attribution at least 10% of the voting power of our share capital, and taxpayers whose functional currency (as defined in Section 985 of the Internal Revenue Code) is not the U.S. dollar.
        This discussion does not address any aspect of U.S. federal gift or estate tax or state, local or non-U.S. tax laws. Additionally, the discussion does not consider the tax treatment of persons who hold subordinate voting shares through a limited liability company or through a partnership or other pass-through entity.entity (such as an S corporation). For U.S. federal income tax purposes, income earned through a foreign or domestic partnership or similar entity is generally attributed to its owners. You are advised to consult your own tax advisor with respect to the specific tax consequences to you of purchasing, holding or disposing of the subordinate voting shares.

    TAXATION OF DIVIDENDS PAID ON SUBORDINATE VOTING SHARES
Taxation of Dividends Paid on Subordinate Voting Shares
        In the event that Celestica pays a dividend, and subject to the discussion of the passive foreign investment company (PFIC) rules below, a United States Holder will be required to include in gross income as ordinary income the amount of any distribution paid on subordinate voting shares, including any Canadian taxes withheld from the amount paid, on the date the distribution is received, to the extent that the distribution is paid out of our current or accumulated earnings and profits as determined for U.S. federal income tax purposes. In addition, distributions of the Company's current or accumulated earnings and profits will be foreign source passive income for U.S. foreign tax credit purposes and will not qualify for the dividends-received deduction available to corporations. Distributions in excess of such earnings and profits will be applied against and will reduce the United States Holder's tax basis in the subordinate voting shares and, to the extent in excess of such basis, will be treated as capital gain.
        Distributions of current or accumulated earnings and profits paid in Canadian dollars to a United States Holder will be includible in the income of the United States Holder in a dollar amount calculated by reference to the exchange rate on the date the distribution is received. A United States Holder who receives a distribution of Canadian dollars and converts the Canadian dollars into U.S. dollars subsequent to receipt will have foreign exchange gain or loss based on any appreciation or depreciation in the value of the Canadian dollar against the U.S. dollar. Such gain or loss will generally be ordinary income and loss and will generally be U.S. source gain or loss for U.S. foreign tax credit purposes. United States Holders should consult their own tax advisors regarding the treatment of a foreign currency gain or loss.
        United States Holders will generally have the option of claiming the amount of any Canadian income taxes withheld either as a deduction from gross income or as a dollar-for-dollar credit against their U.S. federal income tax liability, subject to specified conditions and limitations. Individuals who do not claim itemized deductions, but instead utilize the standard deduction, may not claim a deduction for the amount of the Canadian income taxes withheld, but these individuals generally may still claim a credit against their U.S. federal income tax liability. The amount of foreign income taxes that may be claimed as a credit in any year is subject to complex limitations and restrictions, which must be determined on an individual basis by each shareholder. The total amount of allowable foreign tax credits in any year cannot exceed the pre-credit U.S. tax liability for the year attributable to foreign source taxable income.income and further limitations may apply under the alternative minimum tax. A United States Holder will be denied a foreign tax credit with respect to Canadian income tax withheld from dividends received on subordinate voting shares to the extent that he or she has not held the subordinate voting shares for at least 16 days of the 30-day period 64
beginning on the date which is 15 days before the ex-dividend date or to the extent that he or she is under an obligation to make related payments with respect to substantially similar or related property. Instead, a deduction may be allowed. Any days during which a


United States Holder has substantially diminished his or her risk of loss on his or her subordinate voting shares are not counted toward meeting the 16-day holding period.

    TAXATION OF DISPOSITION OF SUBORDINATE VOTING SHARES
        Individuals who receive "qualified dividend income" (excluding dividends from a PFIC) in taxable years beginning after December 31, 2002 and before January 1, 2009 generally will be taxed at a maximum U.S. federal rate of 15% (rather than the higher tax rates generally applicable to items of ordinary income) provided certain holding period requirements are met. Based upon current Internal Revenue Service pronouncements, Celestica believes that dividends paid by it with respect to its subordinate voting shares should constitute "qualified dividend income" for United States federal income tax purposes and that holders who are individuals (as well as certain trusts and estates) should be entitled to the reduced rates of tax, as applicable. However, the precise extent to which dividends paid by non-U.S. corporations will constitute "qualified dividend income" and the effect of such status on the ability of taxpayers to utilize associated foreign tax credits is not entirely clear at present. It is anticipated that there will be administrative pronouncements concerning these provisions in the future. In the meantime, holders are urged to consult their own tax advisors regarding the impact of the "qualified dividend income" provisions of the Internal Revenue Code on their particular situations, including related restrictions and special rules.
Taxation of Disposition of Subordinate Voting Shares
        Subject to the discussion of the PFIC rules below, upon the sale, exchange or other disposition of subordinate voting shares, a United States Holder will recognize capital gain or loss in an amount equal to the difference between his or her adjusted tax basis in his or her shares and the amount realized on the disposition. A United States Holder's adjusted tax basis in the subordinate voting shares will generally be the initial cost, but may be adjusted for various reasons including the receipt by such United States Holder of a distribution that was not made up wholly of earning and profits as described above under the heading "Taxation of Dividends Paid on Subordinate Voting Shares." A United States Holder that uses the cash method of accounting calculates the dollar value of the proceeds received on the sale date as of the date that the sale settles, while a United States Holder who uses the accrual method of accounting is required to calculate the value of the proceeds of the sale as of the "trade date," unless he or she has elected to use the settlement date to determine his or her proceeds of sale. Capital gain from the sale, exchange or other disposition of shares held more than one year is long-term capital gain and is eligible for a maximum 20%15% rate of taxation for non-corporate taxpayers. Special rules (and generally lower maximum rates) apply to non-corporate taxpayers in lower tax brackets. Further preferential tax treatment may be available for non-corporate taxpayers who dispose of subordinate voting shares held for over five years. Gain or loss recognized by a United States Holder on a sale, exchange or other disposition of subordinate voting shares generally will be treated as U.S. source income or loss for U.S. foreign tax credit purposes. The deductibility of a capital loss recognized on the sale, exchange or other disposition of subordinate voting shares is subject to limitations. A United States Holder who receives foreign currency upon disposition of subordinate voting shares and converts the foreign currency into U.S. dollars subsequent to receipt will have foreign exchange gain or loss based on any appreciation or depreciation in the value of the foreign currency against the U.S. dollar. United States Holders should consult their own tax advisors regarding the treatment of a foreign currency gain or loss.

    TAX CONSEQUENCES IF WE ARE A PASSIVE FOREIGN INVESTMENT COMPANY
Tax Consequences if We Are a Passive Foreign Investment Company
        A non-U.S. corporation will be a passive foreign investment company, or PFIC, if, in general, either (i) 75% or more of its gross income in a taxable year, including the pro rata share of the gross income of any U.S. or foreign company in which it is considered to own 25% or more of the shares by value, is passive income or (ii) 50% or more of its assets in a taxable year, averaged over the year and ordinarily determined based on fair market value and including the pro rata share of the assets of any company in which it is considered to own 25% or more of the shares by value, are held for the production of, or produce, passive income. Passive income includes amounts derived by reason of the temporary investment of funds raised in a public offering. If we were a PFIC and a United States Holder did not make an election to treat the company as a "qualified electing fund" and did not make a mark-to-market election, each as described below, then:

    - 
•
excess distributions by Celestica to a United States Holder would be taxed in a special way. "Excess distributions" are amounts received by a United States Holder with respect to subordinate voting shares

in any taxable year that exceed 125% of the average distributions received by the United States Holder from the company in the shorter of either the three previous years or his or her holding period for his or her shares before the present taxable year. Excess distributions must be allocated ratably to each day that a United States Holder has held subordinate voting shares. A United States Holder must include amounts allocated to the current taxable year and to any non-PFIC years in his or her gross income as ordinary income for that year. A United States Holder must pay tax on amounts allocated to each prior taxable PFIC year at the highest rate in effect for that year on ordinary income and the tax is subject to an interest charge at the rate applicable to deficiencies for income tax;

    - 
•
the entire amount of gain that is realized by a United States Holder upon the sale or other disposition of shares will also be considered an excess distribution and will be subject to tax as described above; and

                                       65

    - 

•
a United States Holder's tax basis in shares that were acquired from a decedent will not receive a step-up to fair market value as of the date of the decedent's death but instead will be equal to the decedent's tax basis, if lower.
        The special PFIC rules will not apply to a United States Holder if the United States Holder makes an election to treat the company as a "qualified electing fund" in the first taxable year in which he or she owns subordinate voting shares and if we comply with reporting requirements. Instead, a shareholder of a qualified electing fund is required for each taxable year to include in income a pro rata share of the ordinary earnings of the qualified electing fund as ordinary income and a pro rata share of the net capital gain of the qualified electing fund as long-term capital gain, subject to a separate election to defer payment of taxes, which deferral is subject to an interest charge. We have agreed to supply United States Holders with the information needed to report income and gain pursuant to this election in the event that we are classified as a PFIC. The election is made on a shareholder-by-shareholder basis and may be revoked only with the consent of the Internal Revenue Service.Service, or IRS. A shareholder makes the election by attaching a completed IRS Form 8621, including the PFIC annual information statement, to a timely filed U.S. federal income tax return. Even if an election is not made, a shareholder in a PFIC who is a United States Holder must file a completed IRS Form 8621 every year.
        A United States Holder who owns PFIC shares that are publicly traded could elect to mark the shares to market annually, recognizing as ordinary income or loss each year an amount equal to the difference as of the close of the taxable year between the fair market value of the PFIC shares and the United States Holder's adjusted tax basis in the PFIC shares. If the mark-to-market election were made, then the rules set forth above would not apply for periods covered by the election. The subordinate voting shares would be treated as publicly traded for purposes of the mark-to-market election and, therefore, such election would be made if Celestica were classified as a PFIC. A mark-to-market election is, however, subject to complex and specific rules and requirements, and United States Holders are strongly urged to consult their tax advisors concerning this election if we are classified as a PFIC.
        We believe that we will not be a PFIC for 2003.2004. Based on our current business plan, we do not expect to become a PFIC in the foreseeable future. These conclusions rest, at least in part, on factual issues, including a determination as to value of assets and projections as to our revenue. We cannot assure you that our actual revenues, including our revenues for the remainder of 2003,2004, will be as projected or that a determination as to non-PFIC status would not be challenged by the Internal Revenue Service. Moreover, the tests for determining PFIC status are applied annually, and it is difficult to make accurate predictions of future income and assets, which are relevant to the determination as to whether we will be a PFIC in the future. A United States Holder who holds subordinate voting shares during a period in which we are a PFIC will be subject to the PFIC rules, even if we cease to be a PFIC, unless he or she has made a qualifying electing fund election. If we were determined to be a PFIC with respect to a year in which we had not thought that we would be so treated, the information needed to enable United States Holders to make a qualifying electing fund election would not have been provided. United States Holders are strongly urged to consult their tax advisors about the PFIC rules, including the consequences to them of making a mark-to-market or qualifying electing fund elections with respect to subordinate voting shares in the event that we are treated as a PFIC.

    TAX CONSEQUENCES FOR NON-UNITED STATES HOLDERS OF SUBORDINATE VOTING SHARES


Tax Consequences for Non-United States Holders of Subordinate Voting Shares
        Except as described in "Information Reporting and Back-up Withholding" below, a non-United States Holder of subordinate voting shares will not be subject to U.S. federal income or withholding tax on the payment of dividends on, and the proceeds from the disposition of, subordinate voting shares unless:

    - 
•
the item is effectively connected with the conduct by the non-United States Holder of a trade or business in the United States and, in the case of a resident of a country that has an income treaty with the United States, such item is attributable to a permanent establishment in the United States;

    - 

•
the non-United States Holder is an individual who holds the subordinate voting shares as a capital asset and is present in the United States for 183 days or more in the taxable year of the disposition and does not qualify for an exemption; or

                                       66

    - 

•
the non-United States Holder is subject to tax pursuant to the provisions of U.S. tax law applicable to U.S. expatriates.

    INFORMATION REPORTING AND BACK-UP WITHHOLDING
Information Reporting and Back-up Withholding
        United States Holders generally are subject to information reporting requirements and back-up withholding at a current rate of 30% (which rate will
be reduced over the next four years in accordance with recently enacted tax
legislation)28% with respect to dividends paid in the United States and on proceeds paid from the disposition of shares, unless the United States Holder (i) is a corporation or comes within certain other exempt categories and demonstrates this fact when so required, or (ii) provides a correct taxpayer identification number, certifies that it is not subject to backup withholdings, and otherwise complies with applicable requirements of the backup withholding rules.
        Non-United States Holders generally are not subject to information reporting or back-up withholding with respect to dividends paid on or upon the disposition of shares, provided in some instances that the non-United States Holder provides a taxpayer identification number, certifies to his foreign status or otherwise establishes an exemption.
        The amount of any back-up withholding will be allowed as a credit against U.S. federal income tax liability and may entitle the Holder to a refund, provided that required information is furnished to the Internal Revenue Service.
F.     DIVIDENDS AND PAYING AGENTSDividends and Paying Agents
        Not applicable.
G.    STATEMENT BY EXPERTSStatement by Experts
        Not applicable.
H.    DOCUMENTS ON DISPLAYDocuments on Display
        Any statement in this Annual Report about any of our contracts or other documents is not necessarily complete. If the contract or document is filed as an exhibit to this Annual Report or is incorporated by reference, the contract or document is deemed to modify our description. You must review the exhibits themselves for a complete description of the contract or document.
        You may review a copy of our filings with the SEC, including exhibits and schedules filed with this Annual Report, at the SEC's public reference facilities in Room 1024, Judiciary Plaza, 450 Fifth Street, N.W., Washington, D.C. 20549. You may also obtain copies of such materials from the Public Reference Section of the SEC, Room 1024, Judiciary Plaza, 450 Fifth Street, N.W., Washington, D.C. 20549, at prescribed rates. You may call the SEC at 1-800-SEC-0330 for further information on the public reference rooms. The SEC maintains a web-site (http://www.sec.gov) that contains reports, proxy and information statements and other information regarding registrants that file electronically with the SEC. We began to file electronically with the SEC in November 2000.


        You may read and copy any reports, statements or other information that we file with the SEC at the addresses indicated above and you may also access some of them electronically at the web-site set forth above. These SEC filings are also available to the public from commercial document retrieval services.
        We also file reports, statements and other information with the Canadian Securities Administrators, or the CSAs,CSA, and these can be accessed electronically at the CSAs'CSA's System for Electronic Document Analysis and Retrieval web-site (http://www.sedar.com.)
I.     SUBSIDIARY INFORMATIONSubsidiary Information
        Not applicable.

                                       67

ITEM
Item 11.    QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

EXCHANGE RATE RISKQuantitative and Qualitative Disclosures about Market Risk
Exchange Rate Risk
        Celestica has entered into foreign currency contracts to hedge foreign currency risk. These financial instruments include, to varying degrees, elements of market risk in excess of amounts recognized in the balance sheets. As at
December 31, 2002, Celestica had outstanding foreign exchange contracts to trade
U.S. $282.7 million in exchange for Canadian dollars over a period of 15 months
at a weighted average exchange rate of U.S.$0.64. Celestica also had forward
contracts to trade U.S. $10.6 million in exchange for Canadian dollars over a
period of 37 months at a weighted average exchange rate of U.S. $0.63. In
addition, Celestica had exchange contracts to trade U.S. $36.4 million in
exchange for British pounds sterling over a 13-month period at a weighted
average exchange rate of U.S. $1.45, U.S. $37.1 million in exchange for Mexican
pesos over a period of 12 months at a weighted average rate of exchange of
U.S. $0.10, U.S. $168.7 million in exchange for Euros over a 15-month period at
a weighted average exchange rate of U.S. $0.93, U.S. $27.6 million in exchange
for Singapore dollars over a 12-month period at a weighted average exchange rate
of U.S. $0.57, 64.5 million Brazilian reais in exchange for U.S. dollars over a
1-month period at a weighted average exchange rate of U.S. $0.30,
U.S. $40.7 million in exchange for Japanese yen over a 1-month period at a
weighted average exchange rate of U.S. $0.01, and U.S. $11.9 million in exchange
for Czech koruna over a 12-month period at a weighted average exchange rate of
U.S. $0.03. The table below provides information about Celestica's foreign currency contracts. The table presents the notional amounts and weighted average exchange rates by expected (contractual) maturity dates. These notional amounts generally are used to calculate the contractual payments to be exchanged under the contracts. At December 31, 2002,2003, these contracts had a fair value unrealized gain of U.S. $18.9$49.8 million.

                                                             EXPECTED MATURITY DATE
                                        -----------------------------------------------------------------   FAIR VALUE
                                          2003       2004       2005       2006     THEREAFTER    TOTAL     GAIN (LOSS)
                                        --------   --------   --------   --------   ----------   --------   -----------

FORWARD EXCHANGE AGREEMENTS
Receive C$/Pay U.S.$
  Contract amount (in millions).......  $261.0      $24.3      $5.3       $2.7        $   --      $293.3       $(2.9)
  Average exchange rate...............  $  0.64     $ 0.63     $0.63      $0.63

Receive THB/Pay U.S.$
  Contract amount (in millions).......  $ 34.3       --        --         --              --      $ 34.3       $(0.4)
  Average exchange rate...............  $  0.02

Receive L/Pay U.S.$
  Contract amount (in millions).......  $ 34.7      $ 1.7      --         --              --      $ 36.4       $ 3.5
  Average exchange rate...............  $  1.45     $ 1.52

Receive Mexican Pesos/Pay U.S.$
  Contract amount (in millions).......  $ 37.1       --        --         --              --      $ 37.1       $(1.5)
  Average exchange rate...............  $  0.10

Receive Euro/Pay U.S.$
  Contract amount (in millions).......  $155.1      $13.6      --         --              --      $168.7       $19.5
  Average exchange rate...............  $  0.93     $ 0.99

Receive Singapore$/Pay U.S.$
  Contract amount (in millions).......  $ 27.6       --        --         --              --      $ 27.6       $ 0.3
  Average exchange rate...............  $  0.57

Sell Reais/Receive U.S.$
  Contract amount (in millions).......  $ 19.1       --        --         --              --      $ 19.1       $ 0.8
  Average exchange rate...............  $  0.30

Receive Yen/Pay U.S.$
  Contract amount (in millions).......  $ 40.7       --        --         --              --      $ 40.7       $(1.1)
  Average exchange rate...............  $  0.01


                                       68

                                                             EXPECTED MATURITY DATE
                                        -----------------------------------------------------------------   FAIR VALUE
                                          2003       2004       2005       2006     THEREAFTER    TOTAL     GAIN (LOSS)
                                        --------   --------   --------   --------   ----------   --------   -----------

Receive Koruna/Pay U.S.$
  Contract amount (in millions).......  $ 11.9       --        --         --              --      $ 11.9       $ 0.7
  Average exchange rate...............  $  0.03
                                        -------     ------     -----      -----       ------      ------       -----
    Total.............................  $621.5      $39.6      $5.3       $2.7        $   --      $669.1       $18.9
                                        =======     ======     =====      =====       ======      ======       =====


INTEREST RATE RISK
 
 
Expected Maturity Date
 
 
 
 
 
Fair Value Gain (Loss)
 
 
 
2004
 
2005
 
2006
 
2007
 
2008
 
Thereafter
 
Total
 
Forward Exchange Agreements
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Receive C$/Pay U.S.$
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Contract amount (in millions)
 
$
251.4
 
$
24.3
 
$
2.7
 
 
—
 
 
—
 
 
—
 
$
278.4
 
$
28.9
 
 
Average exchange rate
 
$
0.70
 
$
0.72
 
$
0.63
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Receive THB/Pay U.S.$
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Contract amount (in millions)
 
$
59.4
 
 
—
 
 
—
 
 
—
 
 
—
 
 
—
 
$
59.4
 
$
0.8
 
 
Average exchange rate
 
$
0.02
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Receive £/Pay U.S.$
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Contract amount (in millions)
 
$
21.0
 
$
1.8
 
 
—
 
 
—
 
 
—
 
 
—
 
$
22.8
 
$
2.7
 
 
Average exchange rate
 
$
1.57
 
$
1.65
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Receive Mexican Pesos/Pay U.S.$
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Contract amount (in millions)
 
$
41.4
 
$
3.2
 
 
—
 
 
—
 
 
—
 
 
—
 
$
44.6
 
$
(1.6
)
 
Average exchange rate
 
$
0.09
 
$
0.08
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Receive Euro/Pay U.S.$
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Contract amount (in millions)
 
$
109.5
 
$
5.6
 
 
—
 
 
—
 
 
—
 
 
—
 
$
115.1
 
$
17.3
 
 
Average exchange rate
 
$
1.09
 
$
1.14
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Receive Singapore $/Pay U.S.$
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Contract amount (in millions)
 
$
24.3
 
 
—
 
 
—
 
 
—
 
 
—
 
 
—
 
$
24.3
 
$
0.6
 
 
Average exchange rate
 
$
0.58
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Receive Czech Koruna/Pay U.S.$
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Contract amount (in millions)
 
$
24.0
 
 
—
 
 
—
 
 
—
 
 
—
 
 
—
 
$
24.0
 
$
1.6
 
 
Average exchange rate
 
$
0.04
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Receive Chinese Renminbi/Pay U.S.$
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Contract amount (in millions)
 
$
54.6
 
 
—
 
 
—
 
 
—
 
 
—
 
 
—
 
$
54.6
 
$
(0.5
)
 
Average exchange rate
 
$
0.12
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Total
 
$
585.6
 
$
34.9
 
$
2.7
 
$
—
 
$
—
 
$
—
 
$
623.2
 
$
49.8
 
 
 
 
 
 
 
 
 
 
 
Interest Rate Risk
        Celestica's existing debt is comprised of capital lease commitments amounting to $6.9 million, which$3.4 million. These capital lease commitments are not sensitive to changes in interest rates.

CONVERTIBLE DEBT (LYONS)


Convertible debt (LYONs)
        As of December 31, 2002,2003, we have convertible instruments, with an outstanding principal amount at maturity of $1.6$1.2 billion, payable August 1, 2020. We were not exposed to interest rate risk on this debt because (i) the issue price represents a fixed yield to maturity, (ii) the principal payable at maturity is fixed and (iii) the conversion ratio into subordinate voting shares of Celestica is fixed.

ITEM
Item 12.    DESCRIPTION OF SECURITIES OTHER THAN EQUITY SECURITIESDescription of Securities Other than Equity Securities
        Not applicable.

PART II

ITEM
Item 13.    DEFAULTS, DIVIDEND ARREARAGES AND DELINQUENCIESDefaults, Dividend Arrearages and Delinquencies
        None.

ITEM
Item 14.    MATERIAL MODIFICATIONS TO THE RIGHTS OF SECURITY HOLDERS AND USE OF
  PROCEEDSMaterial Modifications to the Rights of Security Holders and Use of Proceeds
        None.

ITEM
Item 15.    CONTROLS AND PROCEDURESControls and Procedures
        Based on their evaluation of Celestica's disclosure controls and procedures as of a date within 90 daysthe end of the filing ofperiod covered by this Annual Report, the Chief Executive Officer and Chief Financial Officer have concluded that such controls and procedures are effective.
        There were no significant changes in Celestica's internal controls over financial reporting identified in connection with their evaluation that occurred during the period covered by this annual report that have materially affected, or are reasonably likely to materially affect, Celestica's control over financial reporting.
Item 16.    [Reserved]
Item 16A.    Audit Committee Financial Expert
        The Board of Directors has considered the extensive financial experience of each of Mr. Crandall and Mr. Etherington, including their respective experiences serving as the Chief Financial Officer of a large U.S. and/or Canadian organization, and has determined that each of them is an audit committee financial expert within the meaning of the U.S. Sarbanes-Oxley Act of 2002.
Item 16B.    Code of Ethics
        The Board of Directors has adopted a Finance Code of Professional Conduct for Celestica's Chief Executive Officer, our senior finance officers, and all personnel in the finance organization to deter wrongdoing and promote honest and ethical conduct in the practice of financial management; full, fair, accurate, timely and understandable disclosure; and compliance with all applicable laws and regulations. These professionals are expected to abide by this code as well as Celestica's Business Conduct Guidelines and all of our other factorsapplicable business policies, standards and guidelines.
        The Finance Code of Professional Conduct and the Business Conduct Guidelines can be accessed electronically at http://www.celestica.com.
Item 16C.    Principal Accountant Fees and Service
        The Audit Committee of Celestica's board of directors approves the external auditor's Audit Plan, the scope of the external auditor's quarterly reviews and all related fees. The Audit Committee approves any non-audit services provided by the auditor and considers whether these services are compatible with the external auditor's independence.


        Celestica's auditors are KPMG LLP. KPMG did not provide any financial information systems design or implementation services to Celestica during 2002 or 2003. The Audit Committee has determined that could significantly affect such controls subsequent to the dateprovision of their evaluation.

ITEM 16.  [RESERVED]

                                       69
the non-audit services by KPMG does not compromise KPMG's independence. Celestica also used other public accounting firms for consulting and other services totaling $4.0 million in 2003 and $3.1 million in 2002.
Audit Fees
        KPMG billed Celestica $1.7 million in 2003 and $1.7 million in 2002 for audit services.
Audit-Related Fees
        KPMG billed Celestica $0.4 million in 2003 and $0.4 million in 2002 for audit-related services, primarily in connection with financial due diligence services for acquisitions and other non-statutory audits.
Tax Fees
        KPMG billed Celestica $2.0 million in 2003 and $1.0 million in 2002 for tax compliance, tax advice, tax planning services and tax due diligence services.
All Other Fees
        KPMG billed Celestica $0.6 million in 2003 and $0.5 million in 2002 for actuarial and other services provided in connection with Celestica's pension plans.
Item 16D.    Exemptions from the Listing Standards for Audit Committees
        Not applicable.
Item 16E.    Purchases of Equity Securities by the Issuer and Affiliated Purchasers
        Not applicable.



PART III

ITEM
Item 17.    FINANCIAL STATEMENTSFinancial Statements
        Not applicable.

ITEM
Item 18.    FINANCIAL STATEMENTSFinancial Statements
        The following financial statements have been filed as part of this Annual Report:

                                                                PAGE
                                                              --------

Page
Auditors' Report............................................       Report
F-2
Comments by Auditors for U.S. Readers on Canada-U.S. Reporting Difference......................................       Difference
F-3
Consolidated Balance Sheets as at December 31, 20012002 and 2002......................................................       2003
F-4
Consolidated Statements of Earnings (Loss)Loss for the years ended December 31, 2000, 2001, 2002 and 2002....................       2003
F-5
Consolidated Statements of Shareholders' Equity for the years ended December 31, 2000, 2001, 2002 and 2002..............       2003
F-6
Consolidated Statements of Cash Flows for the years ended December 31, 2000, 2001, 2002 and 2002..........................       2003
F-7
Notes to the Consolidated Financial Statements..............       Statements
F-8


ITEM
Item 19.    EXHIBITSExhibits
        The following exhibits have been filed as part of this Annual Report:

EXHIBIT
NUMBER                  DESCRIPTION
- -------                 -----------

         1.             Articles of Incorporation and Bylaws as currently in effect:

         1.1            Certificate and Articles of Incorporation(1)

         1.2            Certificate and Articles of Amendment effective October 22,
                          1996(1)

         1.3            Certificate and Articles of Amendment effective January 24,
                          1997(1)

         1.4            Certificate and Articles of Amendment effective October 8,
                          1997(1)

         1.5            Certificate and Articles of Amendment effective April 29,
                          1998(2)

         1.6            Articles of Amendment effective June 26, 1998(3)

         1.7            Restated Articles of Incorporation effective June 26,
                          1998(3)

         1.8            Restated Articles of Incorporation effective November 20,
                          2001

         1.9            Bylaw No. 1(4)

         1.10           Bylaw No. 2(1)

         2.             Instruments defining rights of holders of equity or debt
                          securities:

         2.1            See Certificate and Articles of Incorporation and amendments
                          thereto identified above.

         2.2            Form of Subordinate Voting Share Certificate(5)

         2.3            Indenture, dated as of August 1, 2000, between
                          Celestica Inc. and The Chase Manhattan Bank, as Trustee
                          (including a form of the Outstanding Notes)(6)

         2.4            Second Amended and Restated Credit Agreement, dated as of
                          December 17, 2002, between Celestica Inc., the
                          subsidiaries of Celestica Inc., specified therein as
                          Designated Subsidiaries, The Bank of Nova Scotia, as
                          Administrative Agent, CIBC World Markets, as Joint Lead
                          Arranger and Syndication Agent, RBC Capital Markets, as
                          Joint Lead Arranger and Co-Documentation Agent, Banc of
                          America Securities LLC, as Joint Lead Arranger and
                          Co-Documentation Agent, and the financial institutions
                          named in Schedule A as lenders


                                       70

EXHIBIT
NUMBER                  DESCRIPTION
- -------                 -----------

         2.5            Amended and Restated Four Year Revolving Term Credit
                          Agreement, dated as of December 17, 2002, among
                          Celestica Inc. and Celestica International Inc., as
                          Borrowers, The Bank of Nova Scotia, as Administrative
                          Agent, and the financial institutions named therein, as
                          Lenders

         3.             Certain Contracts:

         3.1            Management Services Agreement, dated as of July 7, 1998,
                          among Celestica Inc., Celestica North America Inc. and
                          Onex Corporation(5)

         3.2            Asset Purchase Agreement, dated as of February 19, 2001, by
                          and between Avaya Inc. and Celestica Corporation(4)*

         3.3            Amendment No. 1 to the Asset Purchase Agreement, dated as of
                          May 4, 2001, by and between Avaya Inc. and Celestica
                          Corporation(4)

         3.4            Arrangement Agreement, dated as of May 31, 2001, between
                          Celestica Inc. and Primetech Electronics Inc.(7)*

         3.5            Merger Agreement, dated as of June 15, 2001, between Omni
                          Industries Limited and Celestica Inc.(7)*

         3.6            Asset Purchase Agreement, dated as of July 24, 2001, between
                          Lucent Technologies Inc. and Celestica Corporation(7)*

         3.7            Asset Purchase Agreement, dated as of July 24, 2001, between
                          Lucent Technologies Inc. and Celestica Corporation(7)*

         3.8            Stock Purchase Agreement, dated January 28, 2002, between
                          NEC Corporation, NEC Miyagi, Ltd.,
                          NEC Yamanashi, Ltd., 1325091 Ontario Inc., and
                          Celestica Inc.**

         3.9            Employment Agreement, dated as of October 22, 1996, by and
                          between Celestica, Inc. and Eugene V. Polistuk(1)

         3.10           Employment Agreement, dated as of October 22, 1996, by and
                          between Celestica, Inc. and Anthony P. Puppi(1)

         3.11           Employment Agreement, dated as of October 22, 1996, by and
                          between Celestica, Inc. and Daniel P. Shea(1)

         3.12           Employment Agreement, dated as of June 30, 1998, by and
                          between Celestica Inc. and R. Thomas Tropea(8)

         3.13           D2D Employee Share Purchase and Option Plan (1997)(2)

         3.14           Celestica 1997 U.K. Approved Share Option Scheme(1)

         3.15           1998 U.S. Executive Share Purchase and Option Plan(9)

         8.1            Subsidiaries of Registrant

        99.1            Certification required by Section 906 of the
                          Sarbanes-Oxley Act of 2002***


- ------------

 
 
 
 
Incorporated by Reference
Exhibit
Number
 
Description
 
Form
 
File No.
 
Filing Date
 
Exhibit No.
 
Filed Herewith
1.    
 
Articles of Incorporation and Bylaws as currently in effect:
 
 
 
 
 
 
 
 
 
 
1.1  
 
Certificate and Articles of Incorporation
 
F-1
 
333-8700
 
April 29, 1998
 
3.1
 
 
1.2  
 
Certificate and Articles of Amendment effective October 22, 1996
 
F-1
 
333-8700
 
April 29, 1998
 
3.2
 
 
1.3  
 
Certificate and Articles of Amendment effective January 24, 1997
 
F-1
 
333-8700
 
April 29, 1998
 
3.3
 
 
1.4  
 
Certificate and Articles of Amendment effective October 8, 1997
 
F-1
 
333-8700
 
April 29, 1998
 
3.4
 
 
1.5  
 
Certificate and Articles of Amendment effective April 29, 1998
 
F-1/A
 
333-8700
 
June 1, 1998
 
3.5
 
 
1.6  
 
Articles of Amendment effective
June 26, 1998
 
F-1
 
333-10030
 
February 16, 1999
 
3.6
 
 
1.7  
 
Restated Articles of Incorporation effective June 26, 1998
 
F-1
 
333-10030
 
February 16, 1999
 
3.7
 
 
1.8  
 
Restated Articles of Incorporation effective November 20, 2001
 
20-F
 
001-14832
 
April 21, 2003
 
1.8
 
 
1.9  
 
Restated Article of Incorporation effective May 13, 2003
 
 
 
 
 
 
 
 
 
X
1.10
 
Bylaw No. 1
 
20-F
 
001-14832
 
May 22, 2001
 
1.8
 
 
1.11
 
Bylaw No. 2
 
F-1
 
333-8700
 
April 29, 1998
 
3.9
 
 
1.12
 
Bylaw No. 3
 
 
 
 
 
 
 
 
 
X
1.13
 
Bylaw No. 4
 
 
 
 
 
 
 
 
 
X
1.14
 
Bylaw No. A
 
 
 
 
 
 
 
 
 
X
2.    
 
Instruments defining rights of holders of equity or debt securities:
 
 
 
 
 
 
 
 
 
 

2.1  
 
See Certificate and Articles of Incorporation and amendments thereto identified above.
 
 
 
 
 
 
 
 
 
 
2.2  
 
Form of Subordinate Voting Share Certificate
 
F-1/A
 
333-8700
 
June 25, 1998
 
4.1
 
 
2.3  
 
Indenture, dated as of August 1, 2000, between Celestica Inc. and The Chase Manhattan Bank, as Trustee (including a form of the Outstanding Notes)
 
6-K
 
001-14832
 
August 9, 2000
 
1
 
 
2.4  
 
Second Amended and Restated Credit Agreement, dated as of December 17, 2002, between Celestica Inc., the subsidiaries of Celestica Inc., specified therein as Designated Subsidiaries, The Bank of Nova Scotia, as Administrative Agent, CIBC World Markets, as Joint Lead Arranger and Syndication Agent, RBC Capital Markets, as Joint Lead Arranger and Co-Documentation Agent, Banc of America Securities LLC, as Joint Lead Arranger and Co-Documentation Agent, and the financial institutions named in Schedule A as lenders
 
20-F
 
001-14832
 
April 21, 2003
 
2.4
 
 
2.5  
 
First Amendment to the Second Amended and Restated Revolving Term Credit Agreement, dated as of October 31, 2003, among Celestica Inc., the subsidiaries of Celestica Inc., specified therein as Designated Subsidiaries, The Bank of Nova Scotia, as Administrative Agent, and the financial institutions named in Schedule A as lenders
 
F-4
 
333-110362
 
November 10, 2003
 
4.5
 
 
2.6  
 
Second Amendment to the Second Amended and Restated Revolving Term Credit Agreement, dated March 30, 2004, between Celestica Inc., the subsidiaries of Celestica Inc. specified therein as Designated Subsidiaries, the Bank of Nova Scotia, as Administrative Agent, and the financial institutions named in Schedule A as lenders
 
 
 
 
 
 
 
 
 
X
2.7  
 
Amended and Restated Four Year Revolving Term Credit Agreement, dated as of December 17, 2002, among Celestica Inc. and Celestica International Inc., as Borrowers, The Bank of Nova Scotia, as Administrative Agent, and the financial institutions named in Schedule A as lenders
 
20-F
 
001-14832
 
April 21, 2003
 
2.5
 
 
2.8  
 
First Amendment to the Amended and Restated Four Year Revolving Term Credit Agreement, dated as of October 31, 2003, among Celestica Inc., Celestica International Inc., as Borrowers, The Bank of Nova Scotia, as Administrative Agent, and the financial institutions named in Schedule A as lenders
 
F-4
 
333-110362
 
November 10, 2003
 
4.7
 
 

4.    
 
Certain Contracts:
 
 
 
 
 
 
 
 
 
 
4.1  
 
Amended and Restated Management Services Agreement, dated as of July 1, 2003, among Celestica Inc., Celestica North America Inc. and Onex Corporation
 
F-4
 
333-110362
 
November 10, 2003
 
10.1
 
 
4.2  
 
Stock Purchase Agreement, dated January 8, 2002, between NEC Corporation, NEC Miyagi, Ltd., NEC Yamanashi, Ltd., 1325091 Ontario Inc., and Celestica Inc.*
 
20-F
 
001-14832
 
April 21, 2003
 
3.8
 
 
4.3  
 
Agreement and Plan of Merger, dated as of October 14, 2003, by and among Celestica Inc., MSL Acquisition Sub Inc. and Manufacturers' Services Limited
 
F-4
 
333-110362
 
November 10, 2003
 
2.1
 
 
4.4  
 
Employment Agreement, dated as of October 22, 1996, by and between Celestica, Inc. and Anthony P. Puppi
 
F-1
 
333-8700
 
April 29, 1998
 
10.13
 
 
4.5  
 
D2D Employee Share Purchase and
Option Plan (1997)
 
F-1/A
 
333-8700
 
June 1, 1998
 
10.20
 
 
4.6  
 
Celestica 1997 U.K. Approved Share
Option Scheme
 
F-1
 
333-8700
 
April 29, 1998
 
10.19
 
 
4.7  
 
1998 U.S. Executive Share Purchase and Option Plan
 
S-8
 
333-9500
 
October 8, 1998
 
4.6
 
 
8.1  
 
Subsidiaries of Registrant
 
 
 
 
 
 
 
 
 
X
12.1
 
Chief Executive Officer Certification
 
 
 
 
 
 
 
 
 
X
12.2
 
Chief Financial Officer Certification
 
 
 
 
 
 
 
 
 
X
13.1
 
Certification required by Rule 13a-14(b)**
 
 
 
 
 
 
 
 
 
X
*
Request for confidential treatment granted. Confidential portions of this document have been redacted and filed separately with the Securities and Exchange Commission.

**  Confidential treatment requested. Confidential portions of this document
    have been redacted and filed separately with the Securities and Exchange
    Commission.

**

**
Pursuant to Commission Release No. 33-8212, this certification will be treated as "accompanying" this Annual Report on Form 20-F and not "filed" as part of such report for purposes of Section 18 of the Exchange Act, or otherwise subject to the liability of Section 18 of the Exchange Act, and this certification will not be incorporated by reference into any filing under the Securities Act, or the Exchange Act, except to the extent that the registrant specifically incorporates it by reference.

(1) Incorporated by reference to the Registration Statement on Form F-1 of
    Celestica Inc. filed on April 29, 1998 (Registration No. 333-8700).

(2) Incorporated by reference to Amendment No. 1 to the Registration Statement
    on Form F-1 of Celestica Inc. filed on June 1, 1998 (Registration
    No. 333-8700).

                                       71

(3) Incorporated by reference to the Registration Statement on Form F-1 of
    Celestica Inc. filed on February 16, 1999 (Registration No. 333-10030).

(4) Incorporated by reference to the Annual Report on Form 20-F of
    Celestica Inc. filed on May 22, 2001.

(5) Incorporated by reference to Amendment No. 3 to the Registration Statement
    on Form F-1 of Celestica Inc. filed on June 25, 1998 (Registration
    No. 333-8700).

(6) Incorporated by reference to the Current Report on Form 6-K of
    Celestica Inc. for the month of August, 2000.

(7) Incorporated by reference to the Annual Report on Form 20-F of
    Celestica Inc. filed on May 3, 2002.

(8) Incorporated by reference to the Annual Report on Form 20-F of
    Celestica Inc. filed on May 18, 2000.

(9) Incorporated by reference to the Registration Statement on Form S-8 of
    Celestica Inc. filed on October 8, 1998 (Registration No. 333-9500).

                                       72


SIGNATURES
        The registrant hereby certifies that it meets all of the requirements for filing on Form 20-F and that it has duly caused and authorized the undersigned to sign this annual report on its behalf.
CELESTICA INC.


By:  /s/ 

/s/  ELIZABETH L. DELBIANCO      --------------------------------------------
                                                                 Name: 
Elizabeth L. DelBianco
                                                                 Title:
Senior Vice President, & General Counsel


Date: April 21, 2003

                                       73

                                 CERTIFICATIONS

I, Eugene V. Polistuk, certify that:

    1.  I have reviewed this annual report on Form 20-F of Celestica Inc.;

    2.  Based on my knowledge, this annual report does not contain any untrue
statement of a material fact or omit to state a material fact necessary to make
the statements made, in light of the circumstances under which such statements
were made, not misleading with respect to the period covered by this annual
report;

    3.  Based on my knowledge, the financial statements, and other financial
information included in this annual report, fairly present in all material
respects the financial condition, results of operations and cash flows of the
registrant as of, and for, the periods presented in this annual report;

    4.  The registrant's other certifying officers and I are responsible for
establishing and maintaining disclosure controls and procedures (as defined in
Exchange Act Rules 13a-14 and 15d-14) for the registrant and have:

        (a) Designed such disclosure controls and procedures to ensure that
    material information relating to the registrant, including its consolidated
    subsidiaries, is made known to us by others within those entities,
    particularly during the period in which this annual report is being
    prepared;

        (b) Evaluated the effectiveness of the registrant's disclosure controls
    and procedures as of a date within 90 days prior to the filing date of this
    annual report (the "Evaluation Date"); and

        (c) Presented in this annual report our conclusions about the
    effectiveness of the disclosure controls and procedures based on our
    evaluation as of the Evaluation Date;

    5.  The registrant's other certifying officers and I have disclosed, based
on our most recent evaluation, to the registrant's auditors and the audit
committee of registrant's board of directors (or persons performing the
equivalent function):

        (a) All significant deficiencies in the design or operation of internal
    controls which could adversely affect the registrant's ability to record,
    process, summarize and report financial data and have identified for the
    registrant's auditors any material weaknesses in internal controls; and

        (b) Any fraud, whether or not material, that involves management or
    other employees who have a significant role in the registrant's internal
    controls; and

    6.  The registrant's other certifying officers and I have indicated in this
annual report whether or not there were significant changes in internal controls
or in other factors that could significantly affect internal controls subsequent
to the date of our most recent evaluation, including any corrective actions with
regard to significant deficiencies and material weaknesses.


Date:  April 21, 2003                               /s/ EUGENE V. POLISTUK
                                                    -------------------------------------------------------
                                                    Eugene V. Polistuk
                                                    Chairman of the Board and
                                                    
Chief Executive Officer


                                       74

                                 CERTIFICATIONS

I, Anthony P. Puppi, certify that:

    1.  I have reviewed this annual report on Form 20-F of Celestica Inc.;

    2.  Based on my knowledge, this annual report does not contain any untrue
statement of a material fact or omit to state a material fact necessary to make
the statements made, in light of the circumstances under which such statements
were made, not misleading with respect to the period covered by this annual
report;

    3.  Based on my knowledge, the financial statements, and other financial
information included in this annual report, fairly present in all material
respects the financial condition, results of operations and cash flows of the
registrant as of, and for, the periods presented in this annual report;

    4.  The registrant's other certifying officers and I are responsible for
establishing and maintaining disclosure controls and procedures (as defined in
Exchange Act Rules 13a-14 and 15d-14) for the registrant and have:

        (a) Designed such disclosure controls and procedures to ensure that
    material information relating to the registrant, including its consolidated
    subsidiaries, is made known to us by others within those entities,
    particularly during the period in which this annual report is being
    prepared;

        (b) Evaluated the effectiveness of the registrant's disclosure controls
    and procedures as of a date within 90 days prior to the filing date of this
    annual report (the "Evaluation Date"); and

        (c) Presented in this annual report our conclusions about the
    effectiveness of the disclosure controls and procedures based on our
    evaluation as of the Evaluation Date;

    5.  The registrant's other certifying officers and I have disclosed, based
on our most recent evaluation, to the registrant's auditors and the audit
committee of registrant's board of directors (or persons performing the
equivalent function):

        (a) All significant deficiencies in the design or operation of internal
    controls which could adversely affect the registrant's ability to record,
    process, summarize and report financial data and have identified for the
    registrant's auditors any material weaknesses in internal controls; and

        (b) Any fraud, whether or not material, that involves management or
    other employees who have a significant role in the registrant's internal
    controls; and

    6.  The registrant's other certifying officers and I have indicated in this
annual report whether or not there were significant changes in internal controls
or in other factors that could significantly affect internal controls subsequent
to the date of our most recent evaluation, including any corrective actions with
regard to significant deficiencies and material weaknesses.


Date:  April 21, 2003                               /s/ ANTHONY P. PUPPI
                                                    -------------------------------------------------------
                                                    Anthony P. Puppi
                                                    Executive Vice President, Chief FinancialLegal Officer and General Manager, Global Services
Corporate Secretary

                                       75
Date: May 19, 2004

Consolidated Financial Statements of
CELESTICA INC.
Years ended December 31, 2000, 2001, 2002 and 2002
                         (in2003
(in millions of U.S. dollars)

                                      F-1

AUDITORS' REPORT
To the Board of Directors of
Celestica Inc.
        We have audited the consolidated balance sheets of Celestica Inc. as at December 31, 20012002 and 20022003 and the consolidated statements of earnings (loss),loss, shareholders' equity and cash flows for each of the years in the three year period ended December 31, 2002.2003. These financial statements are the responsibility of the Company's management. Our responsibility is to express an opinion on these financial statements based on our audits.
        We conducted our audits in accordance with Canadian generally accepted auditing standards and United States generally accepted auditing standards. Those standards require that we plan and perform an audit to obtain reasonable assurance whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation.
        In our opinion, these consolidated financial statements present fairly, in all material respects, the financial position of the Company as at December 31, 20012002 and 20022003 and the results of its operations and its cash flows for each of the years in the three year period ended December 31, 20022003 in accordance with Canadian generally accepted accounting principles.


Toronto, Canada                                                                    /s/
/s/ KPMG LLP
January 21, 2003                                                           20, 2004
Chartered Accountants


                                      F-2


COMMENTS BY AUDITORS FOR U.S. READERS ON
CANADA-U.S. REPORTING DIFFERENCE
        In the United States, reporting standards for auditors require the addition of an explanatory paragraph (following the opinion paragraph) when there is a change in accounting principles that has a material effect on the comparability of the Company'scompany's financial statements, such as the changes described in note 2(q) to the financial statements relating to the adoption by the Companycompany of CICA Handbook Section 1581 -- Business Combinations, CICA Handbook
Section 3062 -- Goodwill and Other Intangible Assets, and CICA Handbook
Section 3870 --— Stock-based Compensation and Other Stock-based Payments. Our report to the Board of Directors of Celestica Inc. dated January 21, 200320, 2004 is expressed in accordance with Canadian reporting standards which do not require a reference to such changes in accounting principles in the auditors' report when the change is properly accounted for and adequately disclosed in the financial statements.


Toronto, Canada                                                                    /s/
/s/ KPMG LLP
January 21, 2003                                                           20, 2004
Chartered Accountants


                                      F-3


CELESTICA INC.

CONSOLIDATED BALANCE SHEETS

                         (IN MILLIONS OF

(in millions of U.S. DOLLARS)


                                                                AS AT DECEMBER 31
                                                              ----------------------
                                                                2001          2002
                                                              --------      --------

ASSETS
Current assets:
  Cash and short-term investments...........................  $1,342.8      $1,851.0
  Accounts receivable (note 4)..............................   1,054.1         785.9
  Inventories (note 5)......................................   1,372.7         775.6
  Prepaid and other assets..................................     177.3         115.1
  Deferred income taxes.....................................      49.7          36.9
                                                              --------      --------
                                                               3,996.6       3,564.5

Capital assets (note 6).....................................     915.1         727.8
Goodwill from business combinations (note 7)................   1,128.8         948.0
Intangible assets (note 7)..................................     427.2         211.9
Other assets (note 8).......................................     165.2         354.6
                                                              --------      --------
                                                              $6,632.9      $5,806.8
                                                              ========      ========
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
  Accounts payable..........................................  $1,198.3      $  947.2
  Accrued liabilities.......................................     405.7         475.4
  Income taxes payable......................................      21.0          24.5
  Deferred income taxes.....................................      21.8          21.5
  Current portion of long-term debt (note 9)................      10.0           2.7
                                                              --------      --------
                                                               1,656.8       1,471.3

Long-term debt (note 9).....................................     137.4           4.2
Accrued pension and post-employment benefits (note 16)......      47.3          77.2
Deferred income taxes.......................................      41.5          46.2
Other long-term liabilities.................................       4.3           4.3
                                                              --------      --------
                                                               1,887.3       1,603.2
Shareholders' equity........................................   4,745.6       4,203.6
                                                              --------      --------
                                                              $6,632.9      $5,806.8
                                                              ========      ========


Commitments, contingencies and guarantees (note 18)

Canadian and United States accounting policy differences (note 22)

Subsequent events (note 23)

          SEE ACCOMPANYING NOTES TO CONSOLIDATED FINANCIAL STATEMENTS.

                                      F-4
dollars)
 
 
As at December 31,
 
 
2002
 
2003
Assets
 
 
 
 
 
 
Current assets:
 
 
 
 
 
 
 
Cash and short-term investments
 
$
1,851.0
 
$
1,028.8
 
Accounts receivable (note 2(e))
 
 
785.9
 
 
771.5
 
Inventories (note 2(f))
 
 
775.6
 
 
1,030.6
 
Prepaid and other assets
 
 
115.1
 
 
158.4
 
Deferred income taxes
 
 
36.9
 
 
40.8
 
 
 
 
 
 
3,564.5
 
 
3,030.1
Capital assets (note 4)
 
 
727.8
 
 
679.6
Goodwill from business combinations (note 5)
 
 
948.0
 
 
948.0
Intangible assets (note 5)
 
 
211.9
 
 
137.9
Other assets (note 6)
 
 
354.6
 
 
339.1
 
 
 
 
 
$
5,806.8
 
$
5,134.7
 
 
 

Liabilities and Shareholders' Equity

 

 

 

 

 

 
Current liabilities:
 
 
 
 
 
 
 
Accounts payable
 
$
947.2
 
$
1,101.9
 
Accrued liabilities (note 20(k))
 
 
475.4
 
 
382.3
 
Income taxes payable
 
 
24.5
 
 
8.2
 
Deferred income taxes
 
 
21.5
 
 
21.4
 
Current portion of long-term debt (note 7)
 
 
2.7
 
 
2.7
 
 
 
 
 
 
1,471.3
 
 
1,516.5
Long-term debt (note 7)
 
 
4.2
 
 
0.7
Accrued pension and post-employment benefits (note 14)
 
 
77.2
 
 
86.0
Deferred income taxes
 
 
46.2
 
 
57.2
Other long-term liabilities
 
 
4.3
 
 
6.0
 
 
 
 
 
 
1,603.2
 
 
1,666.4
Shareholders' equity
 
 
4,203.6
 
 
3,468.3
 
 
 
 
 
$
5,806.8
 
$
5,134.7
 
 
 

Commitments, contingencies and guarantees (note 16)

 

 

 
Canadian and United States accounting policy differences (note 20)
 
 
 
See accompanying notes to consolidated financial statements.


CELESTICA INC.

CONSOLIDATED STATEMENTS OF EARNINGS (LOSS)

            (IN MILLIONS OFLOSS

(in millions of U.S. DOLLARS, EXCEPT PER SHARE AMOUNTS)


                                                                  YEAR ENDED DECEMBER 31
                                                              -------------------------------
                                                                2000       2001        2002
                                                              --------   ---------   --------

Revenue.....................................................  $9,752.1   $10,004.4   $8,271.6
Cost of sales...............................................   9,064.1     9,291.9    7,715.8
                                                              --------   ---------   --------
Gross profit................................................     688.0       712.5      555.8
Selling, general and administrative expenses................     326.1       341.4      298.5
Amortization of goodwill and intangible assets (note 7).....      88.9       125.0       95.9
Integration costs related to acquisitions (note 3)..........      16.1        22.8       21.1
Other charges (note 13).....................................     --          273.1      677.8
                                                              --------   ---------   --------
                                                                 431.1       762.3    1,093.3
                                                              --------   ---------   --------
Operating income (loss).....................................     256.9       (49.8)    (537.5)
Interest on long-term debt..................................      17.8        19.8       16.1
Interest income, net........................................     (36.8)      (27.7)     (17.2)
                                                              --------   ---------   --------
Earnings (loss) before income taxes.........................     275.9       (41.9)    (536.4)
                                                              --------   ---------   --------
Income taxes (note 14):
  Current expense...........................................      80.1        25.8       16.6
  Deferred (recovery).......................................     (10.9)      (27.9)    (107.8)
                                                              --------   ---------   --------
                                                                  69.2        (2.1)     (91.2)
                                                              --------   ---------   --------
Net earnings (loss).........................................  $  206.7   $   (39.8)  $ (445.2)
                                                              ========   =========   ========
Basic earnings (loss) per share (note 12)...................  $   1.01   $   (0.26)  $  (1.98)
Diluted earnings (loss) per share (notes 2, 12).............  $   0.98   $   (0.26)  $  (1.98)

Weighted average number of shares outstanding (note 12)
  Basic (in millions).......................................     199.8       213.9      229.8
  Diluted (in millions) (note 2)............................     211.8       213.9      229.8

Net earnings (loss) in accordance with U.S. GAAP
  (note 22).................................................  $  197.4   $   (51.3)  $ (494.9)
Basic earnings (loss) per share, in accordance with
  U.S. GAAP (note 22).......................................  $   0.99   $   (0.24)  $  (2.15)
Diluted earnings (loss) per share, in accordance with
  U.S. GAAP (note 22).......................................  $   0.96   $   (0.24)  $  (2.15)


          SEE ACCOMPANYING NOTES TO CONSOLIDATED FINANCIAL STATEMENTS.

                                      F-5
dollars, except per share amounts)
 
 
Year ended December 31,
 
 
 
2001
 
2002
 
2003
 
Revenue
 
$
10,004.4
 
$
8,271.6
 
$
6,735.3
 
Cost of sales
 
 
9,291.9
 
 
7,715.8
 
 
6,474.3
 
 
 
 
 
 
Gross profit
 
 
712.5
 
 
555.8
 
 
261.0
 
Selling, general and administrative expenses
 
 
324.3
 
 
280.3
 
 
249.8
 
Research and development costs
 
 
17.1
 
 
18.2
 
 
24.0
 
Amortization of goodwill and intangible assets (note 5)
 
 
125.0
 
 
95.9
 
 
48.5
 
Integration costs related to acquisitions (note 3)
 
 
22.8
 
 
21.1
 
 
—
 
Other charges (note 11)
 
 
273.1
 
 
677.8
 
 
175.4
 
 
 
 
 
 
 
 
 
762.3
 
 
1,093.3
 
 
497.7
 
 
 
 
 
 
Operating loss
 
 
(49.8
)
 
(537.5
)
 
(236.7
)
Interest on long-term debt
 
 
19.8
 
 
16.1
 
 
5.4
 
Interest income, net
 
 
(27.7
)
 
(17.2
)
 
(9.4
)
 
 
 
 
 
Loss before income taxes
 
 
(41.9
)
 
(536.4
)
 
(232.7
)
 
 
 
 
 
Income taxes expense (recovery) (note 12):
 
 
 
 
 
 
 
 
 
 
 
Current
 
 
25.8
 
 
16.6
 
 
6.0
 
 
Deferred
 
 
(27.9
)
 
(107.8
)
 
27.1
 
 
 
 
 
 
 
 
 
(2.1
)
 
(91.2
)
 
33.1
 
 
 
 
 
 
Net loss
 
$
(39.8
)
$
(445.2
)
$
(265.8
)
 
 
 
 
 

Basic loss per share (note 10)

 

$

(0.26

)

$

(1.98

)

$

(1.22

)
Diluted loss per share (note 10)
 
$
(0.26
)
$
(1.98
)
$
(1.22
)

Weighted average number of shares outstanding (in millions) (note 10)

 

 

 

 

 

 

 

 

 

 
 
Basic
 
 
213.9
 
 
229.8
 
 
216.5
 
 
Diluted
 
 
213.9
 
 
229.8
 
 
216.5
 

Net loss in accordance with U.S. GAAP (note 20)

 

$

(51.3

)

$

(494.9

)

$

(258.9

)
Basic loss per share, in accordance with U.S. GAAP (note 20)
 
$
(0.24
)
$
(2.15
)
$
(1.20
)
Diluted loss per share, in accordance with U.S. GAAP (note 20)
 
$
(0.24
)
$
(2.15
)
$
(1.20
)
See accompanying notes to consolidated financial statements.


CELESTICA INC.

CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY

                         (IN MILLIONS OF

(in millions of U.S. DOLLARS)


                                                                                                 FOREIGN
                                       CONVERTIBLE                                 RETAINED     CURRENCY         TOTAL
                                          DEBT       CAPITAL STOCK   CONTRIBUTED   EARNINGS    TRANSLATION   SHAREHOLDERS'
                                        (NOTE 10)      (NOTE 11)       SURPLUS     (DEFICIT)   ADJUSTMENT       EQUITY
                                       -----------   -------------   -----------   ---------   -----------   -------------

Balance -- December 31, 1999.........    $--           $1,646.1         -$-         $  16.2       $(4.1)       $1,658.2

Convertible debt issued, net.........      850.4         --             --            --          --              850.4
Convertible debt accretion, net of
  tax................................       10.1         --             --             (5.4)      --                4.7
Shares issued, net...................     --              749.3         --            --          --              749.3
Net earnings for the year............     --             --             --            206.7       --              206.7
                                         -------       --------          ----       -------       -----        --------
Balance -- December 31, 2000.........      860.5        2,395.4         --            217.5        (4.1)        3,469.3

Convertible debt accretion, net of
  tax................................       26.3         --             --            (15.0)      --               11.3
Shares issued, net...................     --            1,303.6         --            --          --            1,303.6
Currency translation.................     --             --             --            --            1.2             1.2
Net loss for the year................     --             --             --            (39.8)      --              (39.8)
                                         -------       --------          ----       -------       -----        --------
Balance -- December 31, 2001.........      886.8        3,699.0         --            162.7        (2.9)        4,745.6

Convertible debt accretion, net of
  tax................................       28.7         --             --            (17.5)      --               11.2
Repurchase of convertible debt
  (note 10)..........................     (110.9)        --             --              6.7       --             (104.2)
Shares issued, net...................     --                8.5         --            --          --                8.5
Repurchase of shares (note 11).......     --              (36.9)          5.8          (1.4)      --              (32.5)
Currency translation.................     --             --             --            --           20.2            20.2
Net loss for the year................     --             --             --           (445.2)      --             (445.2)
                                         -------       --------          ----       -------       -----        --------
Balance -- December 31, 2002.........    $ 804.6       $3,670.6          $5.8       $(294.7)      $17.3        $4,203.6
                                         =======       ========          ====       =======       =====        ========


          SEE ACCOMPANYING NOTES TO CONSOLIDATED FINANCIAL STATEMENTS.

                                      F-6
dollars)
 
 
Convertible Debt (note 8)
 
Capital Stock (note 9)
 
Contributed Surplus
 
Retained
Earnings
(Deficit)
 
Foreign Currency Translation Adjustment
 
Total Shareholders' Equity
 
Balance — December 31, 2000
 
$
860.5
 
$
2,395.4
 
$
—
 
$
217.5
 
$
(4.1
)
$
3,469.3
 

Convertible debt accretion, net of tax

 

 

26.3

 

 

—

 

 

—

 

 

(15.0

)

 

—

 

 

11.3

 
Shares issued, net
 
 
—
 
 
1,303.6
 
 
—
 
 
—
 
 
—
 
 
1,303.6
 
Currency translation
 
 
—
 
 
—
 
 
—
 
 
—
 
 
1.2
 
 
1.2
 
Net loss for the year
 
 
—
 
 
—
 
 
—
 
 
(39.8
)
 
—
 
 
(39.8
)
 
 
 
 
 
 
 
 
Balance — December 31, 2001
 
 
886.8
 
 
3,699.0
 
 
—
 
 
162.7
 
 
(2.9
)
 
4,745.6
 

Convertible debt accretion, net of tax

 

 

28.7

 

 

—

 

 

—

 

 

(17.5

)

 

—

 

 

11.2

 
Repurchase of convertible debt (note 8)
 
 
(110.9
)
 
—
 
 
—
 
 
6.7
 
 
—
 
 
(104.2
)
Shares issued, net
 
 
—
 
 
8.5
 
 
—
 
 
—
 
 
—
 
 
8.5
 
Repurchase of shares (note 9)
 
 
—
 
 
(36.9
)
 
5.8
 
 
(1.4
)
 
—
 
 
(32.5
)
Currency translation
 
 
—
 
 
—
 
 
—
 
 
—
 
 
20.2
 
 
20.2
 
Net loss for the year
 
 
—
 
 
—
 
 
—
 
 
(445.2
)
 
—
 
 
(445.2
)
 
 
 
 
 
 
 
 
Balance — December 31, 2002
 
 
804.6
 
 
3,670.6
 
 
5.8
 
 
(294.7
)
 
17.3
 
 
4,203.6
 

Convertible debt accretion, net of tax

 

 

23.6

 

 

—

 

 

—

 

 

(15.5

)

 

—

 

 

8.1

 
Repurchase of convertible debt (note 8)
 
 
(224.7
)
 
—
 
 
—
 
 
(2.8
)
 
—
 
 
(227.5
)
Shares issued, net
 
 
—
 
 
7.3
 
 
—
 
 
—
 
 
—
 
 
7.3
 
Repurchase of shares (note 9)
 
 
—
 
 
(380.1
)
 
105.2
 
 
—
 
 
—
 
 
(274.9
)
Stock based compensation (note 2(q)(ii))
 
 
—
 
 
—
 
 
0.3
 
 
—
 
 
—
 
 
0.3
 
Other
 
 
—
 
 
—
 
 
4.4
 
 
—
 
 
—
 
 
4.4
 
Currency translation
 
 
—
 
 
—
 
 
—
 
 
—
 
 
12.8
 
 
12.8
 
Net loss for the year
 
 
—
 
 
—
 
 
—
 
 
(265.8
)
 
—
 
 
(265.8
)
 
 
 
 
 
 
 
 
Balance — December 31, 2003
 
$
603.5
 
$
3,297.8
 
$
115.7
 
$
(578.8
)
$
30.1
 
$
3,468.3
 
 
 
 
 
 
 
 
 
See accompanying notes to consolidated financial statements.


CELESTICA INC.

CONSOLIDATED STATEMENTS OF CASH FLOWS

                         (IN MILLIONS OF

(in millions of U.S. DOLLARS)


                                                                  YEAR ENDED DECEMBER 31
                                                              -------------------------------
                                                                2000       2001        2002
                                                              --------   ---------   --------

CASH PROVIDED BY (USED IN):
OPERATIONS:
  Net earnings (loss).......................................  $  206.7   $   (39.8)  $ (445.2)
  Items not affecting cash:
    Depreciation and amortization...........................     212.5       319.5      311.0
    Deferred income taxes...................................     (10.9)      (27.9)    (107.8)
    Restructuring charges (note 13).........................     --           98.6      194.5
    Other charges (note 13).................................     --           36.1      292.1
    Other...................................................      (4.4)        1.7       (6.1)
                                                              --------   ---------   --------
  Cash from earnings........................................     403.9       388.2      238.5
                                                              --------   ---------   --------
  Changes in non-cash working capital items:
    Accounts receivable.....................................    (995.3)      887.2      297.4
    Inventories.............................................    (656.7)      822.5      623.9
    Other assets............................................     (94.7)       45.7       26.1
    Accounts payable and accrued liabilities................   1,230.4      (854.0)    (202.7)
    Income taxes payable....................................      27.3         0.9       (0.4)
                                                              --------   ---------   --------
  Non-cash working capital changes..........................    (489.0)      902.3      744.3
                                                              --------   ---------   --------
Cash provided by (used in) operations.......................     (85.1)    1,290.5      982.8
                                                              --------   ---------   --------
INVESTING:
  Acquisitions, net of cash acquired........................    (634.7)   (1,299.7)    (111.0)
  Purchase of capital assets................................    (282.8)     (199.3)    (151.4)
  Proceeds on sale of capital assets........................     --         --           71.6
  Other.....................................................     (59.5)        1.4       (0.7)
                                                              --------   ---------   --------
Cash used in investing activities...........................    (977.0)   (1,497.6)    (191.5)
                                                              --------   ---------   --------
FINANCING:
  Bank indebtedness.........................................      (8.6)       (2.8)      (1.6)
  Repayments of long-term debt..............................      (2.2)      (56.0)    (146.5)
  Debt redemption fees (note 9).............................     --         --           (6.9)
  Deferred financing costs..................................      (0.1)       (3.9)      (2.6)
  Issuance of convertible debt..............................     862.9      --          --
  Convertible debt issue costs, pre-tax.....................     (19.4)     --          --
  Repurchase of convertible debt (note 10)..................     --         --         (100.3)
  Issuance of share capital.................................     766.6       737.7        7.4
  Share issue costs, pre-tax................................     (26.8)      (10.0)     --
  Repurchase of capital stock (note 11).....................     --         --          (32.5)
  Other.....................................................       2.0         1.1       (0.1)
                                                              --------   ---------   --------
Cash provided by (used in) financing activities.............   1,574.4       666.1     (283.1)
                                                              --------   ---------   --------
Increase in cash............................................     512.3       459.0      508.2
Cash, beginning of year.....................................     371.5       883.8    1,342.8
                                                              --------   ---------   --------
Cash, end of year...........................................  $  883.8   $ 1,342.8   $1,851.0
                                                              ========   =========   ========


Cash is comprised of cash and short-term investments.

Supplemental cash flow information (note 21)

          SEE ACCOMPANYING NOTES TO CONSOLIDATED FINANCIAL STATEMENTS.

                                      F-7
dollars)
 
 
Year ended December 31,
 
 
 
2001
 
2002
 
2003
 
Cash provided by (used in):
 
 
 
 
 
 
 
 
 
 
Operations:
 
 
 
 
 
 
 
 
 
 
Net loss
 
$
(39.8
)
$
(445.2
)
$
(265.8
)
Items not affecting cash:
 
 
 
 
 
 
 
 
 
 
 
Depreciation and amortization
 
 
319.5
 
 
311.0
 
 
222.1
 
 
Deferred income taxes
 
 
(27.9
)
 
(107.8
)
 
27.1
 
 
Non-cash charge for option issuances
 
 
—
 
 
—
 
 
0.3
 
 
Restructuring charges (note 11)
 
 
98.6
 
 
194.5
 
 
(2.3
)
 
Other charges (note 11)
 
 
36.1
 
 
292.1
 
 
80.5
 
Other
 
 
1.7
 
 
(6.1
)
 
(14.0
)
Changes in non-cash working capital items:
 
 
 
 
 
 
 
 
 
 
 
Accounts receivable
 
 
887.2
 
 
297.4
 
 
14.4
 
 
Inventories
 
 
822.5
 
 
623.9
 
 
(252.6
)
 
Other assets
 
 
45.7
 
 
26.1
 
 
(43.2
)
 
Accounts payable and accrued liabilities
 
 
(854.0
)
 
(202.7
)
 
65.2
 
 
Income taxes payable
 
 
0.9
 
 
(0.4
)
 
9.8
 
 
 
 
 
 
 
Non-cash working capital changes
 
 
902.3
 
 
744.3
 
 
(206.4
)
 
 
 
 
 
Cash provided by (used in) operations
 
 
1,290.5
 
 
982.8
 
 
(158.5
)
 
 
 
 
 

Investing:

 

 

 

 

 

 

 

 

 

 
 
Acquisitions, net of cash acquired
 
 
(1,299.7
)
 
(111.0
)
 
(0.5
)
 
Purchase of capital assets
 
 
(199.3
)
 
(151.4
)
 
(175.9
)
 
Proceeds on sale of capital assets
 
 
—
 
 
71.6
 
 
7.3
 
 
Other
 
 
1.4
 
 
(0.7
)
 
(0.4
)
 
 
 
 
 
Cash used in investing activities
 
 
(1,497.6
)
 
(191.5
)
 
(169.5
)
 
 
 
 
 

Financing:

 

 

 

 

 

 

 

 

 

 
 
Bank indebtedness
 
 
(2.8
)
 
(1.6
)
 
—
 
 
Repayments of long-term debt
 
 
(56.0
)
 
(146.5
)
 
(3.5
)
 
Debt redemption fees (note 11(f))
 
 
—
 
 
(6.9
)
 
—
 
 
Deferred financing costs
 
 
(3.9
)
 
(2.6
)
 
(1.6
)
 
Repurchase of convertible debt (note 8)
 
 
—
 
 
(100.3
)
 
(223.5
)
 
Issuance of share capital
 
 
737.7
 
 
7.4
 
 
5.1
 
 
Share issue costs, pre-tax
 
 
(10.0
)
 
—
 
 
—
 
 
Repurchase of capital stock (note 9)
 
 
—
 
 
(32.5
)
 
(274.9
)
 
Other
 
 
1.1
 
 
(0.1
)
 
4.2
 
 
 
 
 
 
Cash provided by (used in) financing activities
 
 
666.1
 
 
(283.1
)
 
(494.2
)
 
 
 
 
 

Increase (decrease) in cash

 

 

459.0

 

 

508.2

 

 

(822.2

)
Cash, beginning of year
 
 
883.8
 
 
1,342.8
 
 
1,851.0
 
 
 
 
 
 
Cash, end of year
 
$
1,342.8
 
$
1,851.0
 
$
1,028.8
 
 
 
 
 
 

Cash is comprised of cash and short-term investments.

 

 

 

 

 

 

 
Supplemental cash flow information (note 19)
 
 
 
 
 
 
 
See accompanying notes to consolidated financial statements

CELESTICA INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

            (IN MILLIONS OF
(in millions of U.S. DOLLARS, EXCEPT PER SHARE AMOUNTS)

dollars, except for per share amounts)
1.     NATURE OF BUSINESS:
The primary operations of the Company include providing a full range of electronics manufacturing services including design, prototyping, system assembly, testing, product assurance, supply chain management, worldwide distribution and after-sales serviceafter-market services to its customers primarily in the information
    technologycomputing and communications industries. The Company has operations in the Americas, Europe and Asia.
The Company's accounting policies are in accordance with accounting principles generally accepted in Canada (Canadian GAAP) and, except as outlined in note 22,20, are, in all material respects, in accordance with accounting principles generally accepted in the United States (U.S. GAAP).
2.     SIGNIFICANT ACCOUNTING POLICIES:
(a)   PRINCIPLES OF CONSOLIDATION:

       Principles of consolidation:
These consolidated financial statements include the accounts of the Company and its subsidiaries. The results of subsidiaries acquired during the year are consolidated from their respective dates of acquisition. The Company's business combinations are accounted for using the purchase method. Inter-company transactions and balances are eliminated on consolidation.
(b)   USE OF ESTIMATES:

       Use of estimates:
The preparation of financial statements in conformity with generally accepted accounting principles requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosures of contingent assets and liabilities at the date of the financial statements, and the reported amounts of revenue and expenses during the reporting period. Significant estimates are used in
       determining, but not limited to, the allowance for doubtful accounts,
       inventory valuation, income tax valuation allowances, restructuring
       charges, the useful lives and valuation of intangible assets and the fair
       values of reporting units for purposes of goodwill impairment tests.
       Actual results could differ materially from those estimates and assumptions.
(c)   REVENUE:

       Revenue:
Revenue is comprisedderived primarily from the sale of product sales and service revenue earned from
       engineering, design and repair services.electronics equipment that has been built to customer specifications. Revenue from product sales is recognized upon shipment, since title has passed to the customer, persuasive evidence of an arrangement exists, performance has occurred, customer specified test criteria have been met and the goods. Serviceearnings process is complete. The Company has no further performance obligations other than its standard manufacturing warranty. Celestica has contractual arrangements with the majority of its customers that require the customer to purchase unused inventory that Celestica has purchased to fulfill that customer's forecasted manufacturing demand. Celestica accounts for raw material returns as reductions in inventory and does not record revenue on these transactions.
The Company also derives revenue from engineering, design and after-market services. Services revenue is recognized as services are performed.

    performed for short-term contracts and on a percentage-of-completion basis for long-term contracts.
(d)   CASH AND SHORT-TERM INVESTMENTS:

       Cash and short-term investments:
Cash and short-term investments include cash on account, demand deposits and short-term investments with original maturities of less than three months.
(e)   ALLOWANCE FOR DOUBTFUL ACCOUNTS:

       Allowance for doubtful accounts:
The Company evaluates the collectibility of accounts receivable and records an allowance for doubtful accounts, which reduces the receivables to the amount management reasonably believes will be collected. A specific allowance is recorded against customer receivables that are considered to be impaired based on the Company's knowledge of the financial condition of its customers. In determining the amount of the allowance, the following factors are considered: the lengthaging of time the receivables have been outstanding,receivables; customer and industry concentrations,concentrations; the current business environment,environment; and historical experience.
Accounts receivable are net of an allowance for doubtful accounts of $50.3 at December 31, 2003 (2002 — $62.4).
(f)    INVENTORIES:

       Inventories:
Inventories are valued on a first-in, first-out basis at the lower of cost and replacement cost for production parts, and at the lower of cost and net realizable value for work in progress and finished goods. Cost includes materials and an application of relevant manufacturing value-add. In determining the net realizable value, the Company considers factors such as shrinkage, the aging and

future demand of the inventory, past experiencecontractual arrangements with specific customers, and the ability to redistribute inventory to other programs or return inventory to suppliers.

                                      F-8

                                 CELESTICA INC.

             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

            (IN MILLIONS OF U.S. DOLLARS, EXCEPT PER SHARE AMOUNTS)

2.  SIGNIFICANT ACCOUNTING POLICIES: (CONTINUED)
    
 
 
2002
 
2003
Raw materials
 
$
479.8
 
$
736.6
Work in progress
 
 
101.0
 
 
119.2
Finished goods
 
 
194.8
 
 
174.8
 
 
 
 
 
$
775.6
 
$
1,030.6
 
 
 
(g)   CAPITAL ASSETS:

       Capital assets:
Capital assets are carried at cost and amortized over their estimated useful lives on a straight-line basis. Estimated useful lives for the principal asset categories are as follows:

        Buildings...................................................  
Buildings
25 years
Buildings/leasehold improvements............................  improvements
Up to 25 years or term of lease
Office equipment............................................  equipment
5 years
Machinery and equipment.....................................equipment
3 to 5 years
        Software....................................................  
Software
1 to 10 years
(h)   GOODWILL FROM BUSINESS COMBINATIONS:

       Goodwill from business combinations:
Prior to July 1, 2001, all goodwill was amortized on a straight-line basis over 10 years. Goodwill acquired in business combinations subsequent to June 30, 2001 haswas not been amortized. Effective January 1, 2002, the Company discontinued amortization of all existing goodwill. These changes arewere a result of new accounting standards issued in 2001 which are summarized in note 2(q)(ii) --(i) — Changes in accounting policies.

       Upon adopting
From adoption of these standards on January 1, 2002, the Company is required to evaluate goodwill annually or whenever events or changes in circumstances indicate that the carrying amount may not be recoverable. Absent any triggering factors during the year, the Company conducts its goodwill assessment in the fourth quarter of the year to correspond with its planning cycle. Impairment is tested at the reporting unit level by comparing the reporting unit's carrying amount to its fair value. The fair values of the reporting units are estimated using a combination of a market approach and discounted cash flows. To the extent a reporting unit's carrying amount exceeds its fair value, an impairment of goodwill exists. Impairment is measured by comparing the fair value of goodwill, determined in a manner similar to a purchase price allocation, to its carrying amount. The Company conducted its annual goodwill assessment in the fourth quarter of 2003 and determined that there was no impairment for 2003. In the fourth quarter of 2002, andthe Company recorded an impairment charge. See notes 7 --5 — Goodwill from business combinations and intangible assets and 13(c) --11(d) — Other charges.
Prior to 2002, the Company assessed the recoverability of goodwill by comparing its carrying amount to its projected future net cash flows as described under note 2(j) --— Impairment or disposal of long-lived assets.
(i)    INTANGIBLE ASSETS:

       Intangible assets:
Intangible assets are comprised of intellectual property and other intangible assets. Intellectual property assets consist primarily of certain non-patented intellectual property and process technology, and are amortized on a straight-line basis over their estimated useful lives, to a maximum of 5 years. Other intangible assets consist primarily of customer relationships and contract intangibles, and represent the excess
       of cost over the fair value of tangible assets and intellectual property
       acquired in asset acquisitions.intangibles. Other intangible assets are amortized on a straight-line basis over their estimated useful lives, to a maximum of 10 years.
(j)    IMPAIRMENT OF LONG-LIVED ASSETS:

       Impairment or disposal of long-lived assets:
The Company reviews capital and intangible assets (long-lived assets) for impairment on a
       regularan annual basis or whenever events or changes in circumstances indicate that the carrying amount may not be recoverable. Recoverabilityrecoverable in accordance with the new accounting standards CICA Handbook Section 3063, "Impairment or Disposal of Long-Lived Assets" and revised Section 3475, "Disposal of Long-Lived Assets and Discontinued Operations," which the Company adopted effective January 1, 2003. Absent any triggering factors during the year, the Company conducts its long-lived asset assessment in the fourth quarter to correspond with its planning cycle. Under the new standards, assets must be classified as either held-for-use or available-for-sale. An impairment loss is

recognized when the carrying amount of an asset that is held and used exceeds the projected undiscounted future net cash flows expected from its use and disposal, and is measured as the amount by which the carrying amount of the asset exceeds its fair value, which is measured by discounted cash flows when quoted market prices are not available. For assets available-for-sale, an impairment loss is recognized when the carrying amount exceeds the fair value less costs to sell. Prior to January 1, 2003, the Company assessed and measured impairment by comparing the carrying amount to the projectedundiscounted future net cash flows the long-lived assets arewere expected to generate. The Company has recorded impairment charges in 2001, 2002 and 2002.2003. See note 13(d) --11(e) — Other charges.
(k)   PENSION AND NON-PENSION, POST-EMPLOYMENT BENEFITS:

       Pension and non-pension post-employment benefits:
The Company accrues its obligations under employee benefit plans and the related costs, net of plan assets. The cost of pensions and other post-employment benefits earned by employees is actuarially determined using the projected benefit method pro-rated on service, and management's best estimate of expected plan investment performance, salary escalation, compensation levels at time of retirement, retirement ages of employees and expected health care costs. Changes in these assumptions could impact future pension expense. For the purpose of calculating the expected return on plan assets, assets are valued at fair value. Past service costs arising from plan amendments are amortized on a straight-line basis over the average remaining service period of employees active at the date of amendment. Actuarial gains or losses exceeding 10% of a plan's accumulated benefit obligations or the fair market value of the plan assets at the beginning of the year are amortized over the average remaining service period of active employees. Plan assets and the accrued benefit obligations are measured at December 31. The average remaining service period of active employees covered by the pension plans is 14 years for 2001 and 11 years for 2002.2002 and 12 years for 2003. The average remaining service period of active employees covered by the other post-employment benefit plans is 21 years for 2001 and 23 years for 2002.2002 and 22 years for 2003. Curtailment gains or losses may arise from significant changes to a plan. Curtailment gains are offset against unrecognized losses and any excess gains and all curtailment losses are recorded in the period in which the curtailment occurs. F-9

                                 CELESTICA INC.

             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

            (IN MILLIONS OF U.S. DOLLARS, EXCEPT PER SHARE AMOUNTS)

2.  SIGNIFICANT ACCOUNTING POLICIES: (CONTINUED)
       Pension assets are recorded as Other assets whileand pension liabilities are recorded as Accrued pension and post-employment benefits.
(l)    DEFERRED FINANCING COSTS:

       Deferred financing costs:
Costs relating to long-term debt are deferred and recorded in otherOther assets and amortized over the term of the related debt or debt facilities.
(m)  INCOME TAXES:

       Income taxes:
The Company uses the asset and liability method of accounting for income taxes. Deferred income tax assets and liabilities are recognized for future income tax consequences attributable to differences between the financial statement carrying amounts of existing assets and liabilities, and their respective tax bases. A valuation allowance is recorded to reduce deferred income tax assets to an amount that, in the opinion of management, is more likely than not to be realized. The effect of changes in tax rates is recognized in the period in which the rate change occurs.
(n)   FOREIGN CURRENCY TRANSLATION AND HEDGING:

       Foreign currency translation and hedging:
The functional currency of the majority of the Company's subsidiaries is the United States dollar. For such subsidiaries, monetary assets and liabilities denominated in foreign currencies are translated into U.S. dollars at the year-end rate of exchange. Non-monetary assets and liabilities denominated in foreign currencies are translated at historic rates, and revenue and expenses are translated at average exchange rates prevailing during the month of the transaction. Exchange gains or losses are reflected in the consolidated statements of earnings (loss).

       loss.
The accounts of the Company's self-sustaining foreign operations for which the functional currency is other than the U.S. dollar are translated into U.S. dollars using the current rate method. Assets and liabilities are translated at the year-end exchange rate, and revenue and expenses are translated at average exchange rates prevailing during the month of the transaction. Gains and losses arising from the translation of financial statements of foreign operations are deferred in the "foreign currency translation adjustment" account included as a separate component of shareholders' equity.
The Company enters into forward exchange contracts to hedge the cash flow risk associated with firm purchase commitments and forecasted transactions in foreign currencies and foreign-currency denominated balances. The Company does not enter into derivatives for speculative purposes.
The Company formally documents all relationships between hedging instruments and hedged items, as well as its risk management objective and strategy for undertaking various hedge transactions. This process includes linking all derivatives to specific assets and


liabilities on the balance sheet or to specific firm commitments or forecasted transactions. The Company also formally assesses, both at the hedge's inception and at the end of each quarter, whether the derivatives that are used in hedged transactions are highly effective in offsetting changes in cash flows of hedged items.
Gains and losses on hedges of firm commitments are included in the cost of the hedged transaction when they occur. Gains and losses on hedges of forecasted transactions are recognized in earnings in the same period and on the same line item as the underlying hedged transaction. Foreign exchange translation gains and losses on forward contracts used to hedge foreign-currency denominated amounts are accrued on the balance sheet as current assets or current liabilities and are recognized currently in the income statement, offsetting the respective translation gains or losses on the foreign-currency denominated amounts. The forward premium or discount is amortized over the term of the forward contract. Gains and losses on hedged forecasted transactions are recognized in earnings immediately when the hedge is no longer effective or the forecasted transactions are no longer expected.
(o)   RESEARCH AND DEVELOPMENT:

       Research and development:
The Company incurs costs relating to research and development activities which are expensed as incurred unless development costs meet certain criteria for capitalization. Total research and development costs
       recorded in selling, general and administrative expenses for 2002 were
       $18.2 (2001 -- $17.1; 2000 -- $19.5). No amounts have been capitalized.
(p)   RESTRUCTURING CHARGES:

       Restructuring charges:
The Company records restructuring charges relating to employee terminations, contractual lease obligations and other exit costs based
       onin accordance with CICA Emerging Issues Committee Abstracts EIC-134, "Accounting for Severance and Termination Benefits" and EIC-135, "Accounting for Costs Associated with Exit and Disposal Activities," which the Company adopted effective January 1, 2003. These standards require the Company to prospectively record any 2003 restructuring charges only when the liability is incurred and can be measured at fair value. Prior to 2003, the Company recorded the restructuring charges when the detailed plans were approved and committed to by management. The recognition of theserestructuring charges requires management to make certain judgments regarding the nature, timing and amount associated with the planned restructuring activities, including F-10

                                 CELESTICA INC.

             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

            (IN MILLIONS OF U.S. DOLLARS, EXCEPT PER SHARE AMOUNTS)

2.  SIGNIFICANT ACCOUNTING POLICIES: (CONTINUED)
       estimating sublease income and the net recoveryrecoverable amount of equipment to be disposed of. At the end of each reporting period, the Company evaluates the appropriateness of the remaining accrued balances.
(q)   CHANGES IN ACCOUNTING POLICIES:

        Changes in accounting policies:
(i) Earnings per share:

        Effective 2001, the Company retroactively applied the new Canadian
        Institute of Chartered Accountants (CICA) Handbook Section 3500,
        "Earnings per share," which requires the use of the treasury stock
        method for calculating diluted earnings per share. The diluted earnings
        per share calculation includes employee stock options and the conversion
        of convertible debt instruments, if dilutive. The new standard is
        consistent with U.S. GAAP. Previously reported diluted earnings per
        share have been restated to reflect this change. See
        note 12 -- Earnings (loss) per share and weighted average shares
        outstanding.

        (ii) 
Business combinations, goodwill and other intangible assets:
In September 2001, the CICA issued Handbook Sections 1581, "Business Combinations" and 3062, "Goodwill and Other Intangible Assets." The new standards mandate the purchase method of accounting for business combinations and require that goodwill no longer be amortized, but instead be tested for impairment at least annually. The standards also specify criteria that intangible assets must meet to be recognized and reported apart from goodwill. The standards require that the value of the shares issued in a business combination be measured using the average share price for a reasonable period before and after the date the terms of the acquisition are agreed to and announced. Previously, the consummation date was used to value the shares issued in a business combination. The new standards are substantially consistent with U.S. GAAP.
Effective July 1, 2001, goodwill acquired in business combinations completed after June 30, 2001 has not been amortized. In addition, the new criteria for recognition of intangible assets apart from goodwill and the valuation of the shares issued in a business combination have been applied to business combinations completed after June 30, 2001.
The Company has fully adopted these new standards as of January 1, 2002, and discontinued amortization of all existing goodwill. The Company also evaluated existing intangible assets, including estimates of remaining lives, and has reclassified $9.1 from intellectual property to goodwill, as of January 1, 2002, to conform with the new criteria.
Section 3062 requiresrequired the completion of a transitional goodwill impairment evaluation within six months of adoption. Impairment iswas identified by comparing the carrying amounts of the Company's reporting units with their fair values. To the extent a reporting unit's carrying amount exceedsexceeded its fair value, the impairment of goodwill mustwas required to be recorded by December 31, 2002. The impairment of goodwill iswas measured by comparing the fair value of goodwill, determined in a manner similar to a purchase price allocation, to its carrying amount. Any transitional impairment would have been recognized as an effect of a change in accounting principle and would have been charged to opening retained earnings as of January 1, 2002. The Company completed the transitional goodwill impairment assessment, and determined that no impairment existed as of the date of adoption.


Effective January 1, 2002, the Company had unamortized goodwill of $1,137.9 which is no longer amortized. This change in accounting policy was not applied retroactively and the amounts presented for prior years have not been restated for this change. The following table shows the impact of this change as if the policy had been applied retroactively to 2001 and 2000:


                                                                              YEAR ENDED DECEMBER 31
                                                                          ------------------------------
                                                                            2000       2001       2002
                                                                          --------   --------   --------
            
            Net earnings (loss) as reported.............................   $206.7     $(39.8)   $(445.2)
            Add back: goodwill amortization.............................     39.1       39.2      --
                                                                           ------     ------    -------
            Net earnings (loss) before goodwill amortization............   $245.8     $ (0.6)   $(445.2)
                                                                           ======     ======    =======
            Basic earnings (loss) per share:
              As reported...............................................   $ 1.01     $(0.26)   $ (1.98)
              Before goodwill amortization..............................   $ 1.20     $(0.07)   $ (1.98)

            Diluted earnings (loss) per share:
              As reported...............................................   $ 0.98     $(0.26)   $ (1.98)
              Before goodwill amortization..............................   $ 1.16     $(0.07)   $ (1.98)


                                      F-11

                                 CELESTICA INC.

             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

            (IN MILLIONS OF U.S. DOLLARS, EXCEPT PER SHARE AMOUNTS)

2.  SIGNIFICANT ACCOUNTING POLICIES: (CONTINUED)
       (iii) 2001:
 
 
Year ended December 31,
 
 
 
2001
 
2002
 
2003
 
Net loss as reported
 
$
(39.8
)
$
(445.2
)
$
(265.8
)
Add back: goodwill amortization
 
 
39.2
 
 
—
 
 
—
 
 
 
 
 
 
Net loss before goodwill amortization
 
$
(0.6
)
$
(445.2
)
$
(265.8
)
 
 
 
 
 

Basic loss per share:

 

 

 

 

 

 

 

 

 

 
 
As reported
 
$
(0.26
)
$
(1.98
)
$
(1.22
)
 
Before goodwill amortization
 
$
(0.07
)
$
(1.98
)
$
(1.22
)

Diluted loss per share:

 

 

 

 

 

 

 

 

 

 
 
As reported
 
$
(0.26
)
$
(1.98
)
$
(1.22
)
 
Before goodwill amortization
 
$
(0.07
)
$
(1.98
)
$
(1.22
)
(ii)
Stock-based compensation and other stock-based payments:

        Effective January 1, 2002,
During 2003, the Company adopted the newrevised CICA Handbook Section 3870, "Stock Based Compensation," which requires that a fair value based method of accounting be applied to all stock-based compensation payments to non-employeesboth employees and to direct awardsnon-employees. In accordance with the transitional provisions of stock to employees. However, the new standard
        permitsSection 3870, the Company has prospectively applied the fair value method of accounting for stock option awards granted after January 1, 2003 and, accordingly, has recorded the compensation expense in 2003. Prior to continueJanuary 1, 2003, the Company accounted for its existing policy of recordingemployee stock options using the settlement method and no compensation cost onexpense was recognized. For awards granted in 2002, the grant of stock options to employees with the
        addition of pro forma information. The standard requires the disclosure of pro forma net earnings and earnings per share information as if the Company had accounted for employee stock options under the fair value method. The Company has applied the pro forma disclosure provisions of
        the new standard to awards granted on or after January 1, 2002. The
        pro forma effect of awards granted prior to January 1, 2002 has not been included.

        The fair value ofincluded in the options issued by the Company during 2002 was
        determined using the Black-Scholes option pricing model. The Company
        used the following weighted average assumptions: risk-free rate of
        5.14%; dividend yield of 0%; a volatility factor of the expected market
        price of the Company's shares of 70%; and, an expected option life of
        5 years. The weighted-average grant date fair value of options issued
        during the year was $12.02 per share. For purposes of pro forma disclosures, thenet earnings and earnings per share information.
The estimated fair value of the options is amortized to income over the vesting period, on a straight-line basis.basis, and was determined using the Black-Scholes option pricing model with the following weighted average assumptions:
 
 
Year ended December 31,
 
 
 
2002
 
2003
 
Risk-free rate
 
 
5.1
%
3.9
%
Dividend yield
 
 
0.0
%
0.0
%
Volatility factor of the expected market price of the Company's shares
 
 
70.0
%
70.0
%
Expected option life (in years)
 
 
5.0
 
4.3
 
Weighted-average grant date fair values of options issued
 
$
12.02
 
$7.84
 
(a)
2003 options: For the year ended December 31, 2003, the Company expensed $0.3 relating to the fair value of options granted in 2003.

(b)
2002 the Company'soptions: The pro forma net lossdisclosure relating to options granted in 2002 is $447.4,
        pro forma basic loss per share is $1.99 and pro forma diluted loss per
        share is $1.99. as follows:

 
 
Year ended December 31,
 
 
 
2002
 
2003
 
Net loss as reported
 
$
(445.2
)
$
(265.8
)

Deduct: Stock-based compensation costs using fair-value method, net of tax

 

 

(2.2

)

 

(9.6

)
 
 
 
 
Pro forma net loss
 
$
(447.4
)
$
(275.4
)
 
 
 
 

Loss per share:

 

 

 

 

 

 

 
 

Basic — as reported

 

$

(1.98

)

$

(1.22

)
 
Basic — pro forma
 
$
(1.99
)
$
(1.27
)
 

Diluted — as reported

 

$

(1.98

)

$

(1.22

)
 
Diluted — pro forma
 
$
(1.99
)
$
(1.27
)
See note 11(c)9(c) for a description of the stock option plans.
(r)   RECENTLY ISSUED ACCOUNTING PRONOUNCEMENTS:

        Recently issued accounting pronouncements:
(i) Foreign currency translation and hedging
Hedging relationships:

        Effective January 1, 2002, the CICA amended Section 1650 to eliminate
        the deferral and amortization of foreign currency translation gains and
        losses on long-lived monetary items, with retroactive restatement of
        prior periods. The Company was not impacted by this change. 
The CICA issued Accounting Guideline AcG-13, "Hedging Relationships," which establishes criteria for hedge accounting effective on a prospective basis for the Company's 2004 fiscal year. The Company has reviewed the requirements of AcG-13 and has determined that all of its current hedges will continue to qualify for hedge accounting whenunder the guideline becomes effective.

        new guideline.
(ii) Impairment or disposal of long-lived assets:

        
Asset retirement obligations:
In December 2002,March 2003, the CICA issued Handbook Section 3063, "Impairment or
        Disposal of Long-Lived Assets" and revised Section 3475, "Disposal of
        Long-Lived Assets and Discontinued Operations.3110, "Asset Retirement Obligations," These sections supersede
        the write-down and disposal provisions of Section 3061, "Property, Plant
        and Equipment" and Section 3475, "Discontinued Operations." The new
        standards are consistent with U.S. GAAP. Section 3063which establishes standards for recognizing, measuringthe recognition, measurement and disclosing impairmentdisclosure of liabilities for asset retirement obligations and the associated retirement costs. This section applies to legal obligations associated with the retirement of tangible long-lived assets held-for-use. An impairmentthat results from their acquisition, lease construction, development or normal operation. This standard is recognizedeffective on a retroactive basis with restatement as of January 1, 2004. The Company has obligations with respect to retirement of leasehold improvements at maturity of facility leases, and estimates its obligation at January 1, 2004 to be $4.0, which will be amortized over the remaining lease terms. See note 20(g).
(iii)
Consolidation of variable interest entities:
In June 2003, the CICA issued Accounting Guideline AcG-15, "Consolidation of Variable Interest Entities" (VIEs). VIEs are entities that have insufficient equity and/or their equity investors lack one or more specified essential characteristics of a controlling financial interest. The guideline provides specific guidance for determining when an entity is a VIE and who, if anyone, should consolidate the VIE. The guideline is effective on a prospective basis for the Company's 2005 fiscal year. The adoption of this standard is not expected to have a material impact on the consolidated financial statements.
(iv)
Generally accepted accounting principles:
In July 2003, the CICA issued Handbook Section 1100, "Generally Accepted Accounting Principles." This section establishes standards for financial reporting in accordance with Canadian GAAP. It describes what constitutes Canadian GAAP and its sources. This section also provides guidance on sources to consult when selecting accounting policies and determining appropriate disclosures when the carrying amountprimary sources of an asset to be held and used, exceeds the projected
        future net cash flows expected from its use and disposal, and is
        measured as the amount by which the carrying amount of the asset exceeds
        its fair value. Section 3475 provides specific criteria for and requires
        separate classification for assets held-for-sale and for these assets to
        be measured at the lower of their carrying amounts or fair value, less
        costs to sell. Section 3475 also broadens the definition of discontinued
        operations to include all distinguishable components of an entity that
        will be eliminated from operations. Section 3063Canadian GAAP are silent. This standard is effective for the Company's 2004 fiscal year, however, early application is permitted.
        Revised Section 3475 is applicable to disposal activities committed to
        by the Company after May 1, 2003, however, early application is
        permitted.year. The Company expects that the adoption of these standards willthis standard is not expected to have noa material impact on itsthe consolidated financial position, results of operations
        or cash flows.

       (iii) Guarantees:

        statements.
(v)
Liabilities and equity:
In December 2002,November 2003, the CICA approved Accounting Guideline AcG-14 which
        requires certain disclosuresamendments to Handbook Section 3860, "Financial Instruments — Presentation and Disclosure," to require obligations that may be settled, at the issuer's option, by a variable number of the issuer's own equity

instruments to be presented as liabilities. Thus securities issued by an enterprise that give the issuer unrestricted rights to settle the principal amount in cash or in the equivalent value of its own equity instruments will no longer be presented as equity.
The CICA concluded that not all such obligations under guarantees,establish the type of relationship that exists between an entity and its owners, but rather they convey more of a debtor/creditor relationship because they require the issuer to convey a fixed amount of value to the holder that does not vary with changes in the fair value of the issuer's equity instruments. Therefore, these instruments should be presented as liabilities. The standard will be effective for the Company's first quarter2005 fiscal year on a retroactive basis and will result in the principal equity portion of 2003. The guidelinethe Company's convertible debt (LYONs — see note 8 — Convertible debt) being reclassified as debt instruments, with all accretion charges and gains and losses on repurchase reported as charges to earnings.
(vi)
Revenue recognition:
In December 2003, the Emerging Issues Committee released EIC-141, "Revenue Recognition" and EIC-142, "Revenue Arrangements with Multiple Deliverables," which is generally
        consistent witheffective on a prospective basis for the disclosure requirements for guarantees under
        U.S. GAAP. The guideline does not apply to product warranties orCompany's 2004 fiscal year. EIC-141 incorporates the measurement requirements under U.S. GAAP. The Company has disclosed its
        guaranteesprinciples and guidance under U.S. GAAP in note 22(k).and EIC-142 addresses certain aspects of the accounting by a vendor for arrangements under which it will perform multiple revenue generating activities. The Company expects that the adoption of this guideline willstandard is not expected to have noa material impact on itsthe consolidated financial position, results of operations or cash flows.

                                      F-12

                                 CELESTICA INC.

             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

            (IN MILLIONS OF U.S. DOLLARS, EXCEPT PER SHARE AMOUNTS)

statements.
3.     ACQUISITIONS:

    2001 ACQUISITIONS:

    (a) ASSET ACQUISITIONS:

       In February 2001, the Company acquired certain assets located in Dublin,
       Ireland and Mt. Pleasant, Iowa from Motorola Inc. In March 2001, the
       Company acquired certain assets of a repair facility in Japan from N.K.
       Techno Co. Ltd. In May 2001, the Company acquired certain assets in
       Little Rock, Arkansas and Denver, Colorado from Avaya Inc., and in
       August 2001, acquired certain assets in Saumur, France. In August 2001,
       the Company acquired certain assets in Columbus, Ohio and Oklahoma City,
       Oklahoma from Lucent Technologies Inc. The total purchase price for these
       acquisitions of $834.1 was financed with cash and was allocated to the
       net assets acquired, including intangible assets of $195.7, based on
       their relative fair values at the date of acquisition.

    (b) BUSINESS COMBINATIONS:

       Omni:

       In October 2001, the Company acquired Omni Industries Limited (Omni), an
       EMS provider headquartered in Singapore. This acquisition significantly
       enhanced the Company's presence in Asia. The purchase price of $865.8 was
       financed with the issuance of 9.2 million subordinate voting shares and
       the issuance of options to purchase 0.3 million subordinate voting shares
       of the Company, and $479.5 in cash. The goodwill recorded for Omni is not
       tax deductible.

       Other business combinations:

       In January 2001, the Company acquired Excel Electronics, Inc. through a
       merger with Celestica (US) Inc., a subsidiary of the Company. In
       June 2001, the Company acquired Sagem CR s.r.o., in the Czech Republic,
       from Sagem SA, of France. In August 2001, the Company acquired Primetech
       Electronics Inc. (Primetech), an EMS provider in Canada. The purchase
       price of Primetech was financed primarily with the issuance of
       3.4 million subordinate voting shares and the issuance of options to
       purchase 0.3 million subordinate voting shares of the Company.

       The value of the shares issued in the Primetech and Omni acquisitions was
       determined based on the average market price of the shares for a
       reasonable period before, and after the date the terms of the
       acquisitions were agreed to and announced.

       In 2002, the Company completed the valuations of certain assets relating
       to its 2001 business combinations, resulting in changes to the fair-value
       allocations of the purchase prices. Details of the final net assets
       acquired in these business combinations, at fair value, are as follows:


                                                                                 OTHER BUSINESS
                                                                        OMNI      COMBINATIONS
                                                                      --------   --------------
        
        Current assets..............................................  $ 260.7        $ 63.2
        Capital assets..............................................     91.8          46.3
        Other long-term assets......................................      4.1           0.1
        Goodwill....................................................    777.5         136.2
        Intellectual property.......................................     34.5          10.0
        Liabilities assumed.........................................   (302.8)        (28.3)
                                                                      -------        ------
        Net assets acquired.........................................  $ 865.8        $227.5
                                                                      =======        ======
        Financed by:
        Cash........................................................  $ 479.5        $ 46.8
        Issuance of shares and options..............................    386.3         180.7
                                                                      -------        ------
                                                                      $ 865.8        $227.5
                                                                      =======        ======


    2002 ACQUISITIONS:

    (c) ASSET ACQUISITIONS:

       
Asset Acquisitions:
In March 2002, the Company acquired certain assets located in Miyagi and Yamanashi, Japan from NEC Corporation. In August 2002, the Company acquired certain assets from Corvis Corporation in the United States. The aggregate purchase price for these acquisitions of $111.0 was financed with cash and allocated to the net assets acquired, including intangible assets of $49.4, F-13

                                 CELESTICA INC.

             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

            (IN MILLIONS OF U.S. DOLLARS, EXCEPT PER SHARE AMOUNTS)

3.  ACQUISITIONS: (CONTINUED)
       based on their relative fair values at the date of acquisition. The weighted-average useful life of these intangible assets is approximately six years.
Integration costs related to acquisitions:
The Company incurredincurs integration costs of $21.1 in 2002 (2001 -- $22.8;
       2000 -- $16.1) relating to the establishment of business processes, infrastructure and information systems for acquired operations. None of the integration costs incurred related to existing operations.

       The Company's 2002
4.     CAPITAL ASSETS:
 
 
2002
 
 
Cost
 
Accumulated Amortization
 
Net Book Value
Land
 
$
66.0
 
$
—
 
$
66.0
Buildings
 
 
192.3
 
 
24.6
 
 
167.7
Buildings/leasehold improvements
 
 
64.4
 
 
33.8
 
 
30.6
Office equipment
 
 
102.1
 
 
55.3
 
 
46.8
Machinery and equipment
 
 
618.2
 
 
319.2
 
 
299.0
Software
 
 
202.9
 
 
85.2
 
 
117.7
 
 
 
 
 
 
$
1,245.9
 
$
518.1
 
$
727.8
 
 
 
 

 
 
2003
 
 
Cost
 
Accumulated Amortization
 
Net Book Value
Land
 
$
68.3
 
$
—
 
$
68.3
Buildings
 
 
226.8
 
 
35.1
 
 
191.7
Buildings/leasehold improvements
 
 
87.5
 
 
52.1
 
 
35.4
Office equipment
 
 
96.2
 
 
58.7
 
 
37.5
Machinery and equipment
 
 
583.7
 
 
343.8
 
 
239.9
Software
 
 
221.7
 
 
114.9
 
 
106.8
 
 
 
 
 
 
$
1,284.2
 
$
604.6
 
$
679.6
 
 
 
 
As of December 31, 2003, capital assets included $30.2 representing assets available-for-sale, primarily land and buildings in Europe, as a result of the restructuring actions have impacted some ofimplemented by the sites
       acquired in prior years. These actions have included workforce reductions
       and facility consolidations and closures. See note 13(b) -- Other
       charges.

4.  ACCOUNTS RECEIVABLE:

    Accounts receivable are net of an allowance for doubtful accounts of $62.4
    at December 31, 2002 (2001 -- $74.6).

5.  INVENTORIES:


                                                                      2001           2002
                                                                  ------------   ------------
    
    Raw materials...............................................    $  903.6       $  479.8
    Work in progress............................................       220.6          101.0
    Finished goods..............................................       248.5          194.8
                                                                    --------       --------
                                                                    $1,372.7       $  775.6
                                                                    ========       ========


6.  CAPITAL ASSETS:


                                                                                     2001
                                                                  ------------------------------------------
                                                                                 ACCUMULATED      NET BOOK
                                                                      COST       AMORTIZATION      VALUE
                                                                  ------------   ------------   ------------
    
    Land........................................................    $   53.3        $--            $ 53.3
    Buildings...................................................       258.8          17.4          241.4
    Buildings/leasehold improvements............................        66.0          24.8           41.2
    Office equipment............................................        86.8          40.2           46.6
    Machinery and equipment.....................................       727.2         291.2          436.0
    Software....................................................       136.6          40.0           96.6
                                                                    --------        ------         ------
                                                                    $1,328.7        $413.6         $915.1
                                                                    ========        ======         ======

                                                                                     2002
                                                                  ------------------------------------------
                                                                                 ACCUMULATED      NET BOOK
                                                                      COST       AMORTIZATION      VALUE
                                                                  ------------   ------------   ------------
    
    Land........................................................    $   66.0        $--            $ 66.0
    Buildings...................................................       192.3          24.6          167.7
    Buildings/leasehold improvements............................        64.4          33.8           30.6
    Office equipment............................................       102.1          55.3           46.8
    Machinery and equipment.....................................       618.2         319.2          299.0
    Software....................................................       202.9          85.2          117.7
                                                                    --------        ------         ------
                                                                    $1,245.9        $518.1         $727.8
                                                                    ========        ======         ======
Company. The above amountsCompany has initiated programs to sell these assets.
Capital assets include $17.1 (2001 -- $13.3)$22.5 (2002 — $17.1) of assets under capital lease and accumulated amortization of $4.0 (2001 -- $6.8)$11.1 (2002 — $4.0) related thereto.
Depreciation and rental expense for the year ended December 31, 20022003 was $212.4 (2001 -- $192.8; 2000 -- $121.9)$171.4 (2002 — $212.4; 2001 — $192.8) and $117.3 (2001 -- $79.8;
    2000 -- $46.7)$107.0 (2002 — $117.3; 2001 — $79.8), respectively.

                                      F-14

                                 CELESTICA INC.

             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

            (IN MILLIONS OF U.S. DOLLARS, EXCEPT PER SHARE AMOUNTS)

7.
5.     GOODWILL FROM BUSINESS COMBINATIONS AND INTANGIBLE ASSETS:

    GOODWILL FROM BUSINESS COMBINATIONS:

    
Goodwill from business combinations:
The following table details the changes in goodwill by reporting segment for
    the year ended December 31, 2002:


                                                        DECEMBER 31,    RECLASS    POST CLOSING   IMPAIRMENT    DECEMBER 31,
                                                            2001          (A)          (B)            (C)           2002
                                                        -------------   --------   ------------   -----------   -------------
    
    Americas..........................................    $  243.2       $ 1.8        $(2.1)        $(127.2)       $115.7
    Europe............................................        68.3         6.2          2.0           (76.5)       --
    Asia..............................................       817.3         1.1         13.9          --             832.3
                                                          --------       -----        -----         -------        ------
                                                          $1,128.8       $ 9.1        $13.8         $(203.7)       $948.0
                                                          ========       =====        =====         =======        ======
    ---------------
segment:
 
 
Americas
 
Europe
 
Asia
 
Total
 
Balance December 31, 2001
 
$
243.2
 
$
68.3
 
$
817.3
 
$
1,128.8
 
Reclass (a)
 
 
1.8
 
 
6.2
 
 
1.1
 
 
9.1
 
Post-closing adjustments (b)
 
 
(2.1
)
 
2.0
 
 
13.9
 
 
13.8
 
Impairment (c)
 
 
(127.2
)
 
(76.5
)
 
—
 
 
(203.7
)
 
 
 
 
 
 
Balance December 31, 2002 and 2003 (d)
 
$
115.7
 
$
—
 
$
832.3
 
$
948.0
 
 
 
 
 
 
 
(a)
The Company reclassed $9.1 from intellectual property to goodwill as of January 1, 2002 to conform with the new goodwill standards. See note 2(q)(ii)(i).

(b)
The Company completed the valuations of certain assets relating to its 2001 business combinations. This resulted in changes to the fair-value allocation of the purchase price, and thus goodwill.

(c)
During the fourth quarter of 2002, the Company performed its annual goodwill impairment test in accordance with the new goodwill standards, Section 3062. See note 2(q)(ii)(i). Prolonged declines inIn 2002, the information
       technology and communications end markets contributed to an impairment of
       goodwill in the fourth quarter as estimated fair values of theCompany identified five reporting units fell below their respective carrying values. The Company obtained
       independent valuations to supportrepresenting the fair valuesCompany's operational structure (Canada, United States, Latin America, Europe and Asia) for purposes of its reporting units.goodwill impairment test. The fair values of the reporting units were estimated using a combination of a market approach and discounted cash flows. Revenue and expense projections used in determining the fair value of the reporting units were based on management's estimates, including estimates of current and future industry conditions. Cash flows wereProlonged declines in the computing and communications end markets contributed to an impairment of goodwill in the fourth quarter as estimated fair values of certain reporting units fell below their respective carrying values. In response to these end-market conditions and in the course of finalizing its 2003 plan, the Company made certain determinations with respect to its restructuring plans and the transfer of major customer programs from higher cost geographies to lower cost geographies. The planned transfer of these programs and restructuring actions had a significant impact on the forecasted revenues of facilities in Europe and the Americas. Goodwill impairment was recorded for two of its reporting units, namely Europe and Canada. In calculating the fair values of these reporting units, the Company used a discounted using a weighted
       average costcash flow model assuming discount rates of capital.14% to 17% and long-term annual growth rates of 3% to 6%. The Company recorded a goodwill impairment charge of $203.7. See note 13(c) --11(d) — Other charges.

    INTANGIBLE ASSETS:


                                                                                     2001
                                                                  ------------------------------------------
                                                                                 ACCUMULATED      NET BOOK
                                                                      COST       AMORTIZATION      VALUE
                                                                  ------------   ------------   ------------
    
    Intellectual property.......................................     $388.6         $143.9         $244.7
    Other intangible assets.....................................      209.3           26.8          182.5
                                                                     ------         ------         ------
                                                                     $597.9         $170.7         $427.2
                                                                     ======         ======         ======

                                                                                     2002
                                                                  ------------------------------------------
                                                                                 ACCUMULATED      NET BOOK
                                                                      COST       AMORTIZATION      VALUE
                                                                  ------------   ------------   ------------
    
    Intellectual property.......................................     $194.5         $118.9         $ 75.6
    Other intangible assets.....................................      177.8           41.5          136.3
                                                                     ------         ------         ------
                                                                     $372.3         $160.4         $211.9
                                                                     ======         ======         ======


                                      F-15

                                 CELESTICA INC.

             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

            (IN MILLIONS OF U.S. DOLLARS, EXCEPT PER SHARE AMOUNTS)

7.  GOODWILL FROM BUSINESS COMBINATIONS AND INTANGIBLE ASSETS: (CONTINUED)
    

(d)
During the fourth quarter of 2003, the Company performed its annual goodwill impairment test. Due to a change in operating structure, the Company identified three reporting units representing the Company's existing operational structure (Americas, Europe and Asia) in 2003. The fair values of the reporting units were estimated using a market approach. Revenue and expense projections used in determining the fair value of the reporting units were based on management's estimates, including estimates of current and future industry conditions. The Company determined there was no impairment for 2003 as the reporting unit fair values exceeded carrying values.
Intangible assets:
 
 
2002
 
 
Cost
 
Accumulated Amortization
 
Net Book Value
Intellectual property
 
$
194.5
 
$
118.9
 
$
75.6
Other intangible assets
 
 
177.8
 
 
41.5
 
 
136.3
 
 
 
 
 
 
$
372.3
 
$
160.4
 
$
211.9
 
 
 
 
 
 
2003
 
 
Cost
 
Accumulated Amortization
 
Net Book Value
Intellectual property
 
$
129.3
 
$
99.3
 
$
30.0
Other intangible assets
 
 
165.6
 
 
57.7
 
 
107.9
 
 
 
 
 
 
$
294.9
 
$
157.0
 
$
137.9
 
 
 
 
The following table details the changes in intangible assets for the year
    ended December 31, 2002:


                                                                                   ACQUISITIONS/
                                         DECEMBER 31,                   RECLASS    POST CLOSING    IMPAIRMENT    DECEMBER 31,
                                             2001        AMORTIZATION     (A)           (B)            (C)           2002
                                         -------------   ------------   --------   -------------   -----------   -------------
    
    Intellectual property..............     $244.7          $(72.0)      $(9.1)        $ 8.5         $ (96.5)       $ 75.6
    Other intangible assets............      182.5           (23.9)       --            25.4           (47.7)        136.3
                                            ------          ------       -----         -----         -------        ------
                                            $427.2          $(95.9)      $(9.1)        $33.9         $(144.2)       $211.9
                                            ======          ======       =====         =====         =======        ======
    ---------------


    (a) assets:
 
 
Intellectual Property
 
Other Intangible Assets
 
Total
 
Balance December 31, 2001
 
$
244.7
 
$
182.5
 
$
427.2
 
Amortization
 
 
(72.0
)
 
(23.9
)
 
(95.9
)
Reclass (aa)
 
 
(9.1
)
 
—
 
 
(9.1
)
Acquisitions (bb)
 
 
24.0
 
 
25.4
 
 
49.4
 
Post-closing (bb)
 
 
(15.5
)
 
—
 
 
(15.5
)
Impairment (cc)
 
 
(96.5
)
 
(47.7
)
 
(144.2
)
 
 
 
 
 
Balance December 31, 2002
 
 
75.6
 
 
136.3
 
 
211.9
 
Amortization
 
 
(27.4
)
 
(21.1
)
 
(48.5
)
Post-closing
 
 
—
 
 
(0.2
)
 
(0.2
)
Impairment (dd)
 
 
(18.2
)
 
(7.1
)
 
(25.3
)
 
 
 
 
 
Balance December 31, 2003
 
$
30.0
 
$
107.9
 
$
137.9
 
 
 
 
 
 
(aa)
The Company reclassed $9.1 from intellectual property to goodwill as of January 1, 2002 to conform with the new goodwill standards. See note 2(q)(ii)(i).

    (b) 

(bb)
Intangible assets increased during the year2002 due to acquisitions, offset
       partially by post closingacquisitions. See note 3. The Company completed the valuation of certain assets relating to its 2001 business combinations and recorded post-closing adjustments.

    (c) 

(cc)
In the fourth quarter of 2002, the Company recorded an impairment charge totaling $144.2 to write-down intellectual property and other intangible assets, primarily in the Americas and European segments. The Company
       recordedEurope.
Of the total impairment charge, $75.2 asis a direct result of the restructuring charges primarily foractions in the latter half of 2002, and is comprised of $69.4 related to intellectual property impaired dueassets and $5.8 related to other intangible assets. The intellectual property charge of $69.4 included core process technology, ISO documentation and manufacturing technology. As part of the closure or consolidation of

certain manufacturing facilities, the relatedCompany shifted the manufacturing of those products to other facilities. An additionalIn many cases, the receiving facilities already possessed the manufacturing technology, processes and quality management systems that had existed at the closed facilities. As a result, these intellectual property assets were redundant and considered impaired. Other intangible assets of $5.8 included customer-related assets that were considered impaired due to negative forecasted cash flows. See note 11(b) — 2002 Restructuring.
The balance of the impairment charge of $69.0 wasis a result of the annual recoverability review of long-lived assets. The Company conducted its annual review of long-lived assets in the fourth quarter to correspond with its planning cycle. In the course of finalizing its 2003 plan, the Company made certain decisions regarding its restructuring plans and the transfer of customer programs from higher cost to lower cost geographies. These actions, coupled with weakened end markets, have significantly impacted forecasted revenue and have reduced the net cash flows for certain sites. In the fourth quarter of 2002, the Company recorded as
       "Other charges -- other impairment" to write-down certainan impairment charge of $69.0, comprised of $27.1 against intellectual property and $41.9 against other intangible assets, specifically customer relationships and contracts that were impaired, in
       connection with the regular recoverability review of intangiblerelationship assets. The impairment was measured as the excess of the carrying amount over the projected future net cash flows that these assets were expected to generate. See notes 13(b) and (d) --note 11(e) — Other charges.
(dd)
As the Company finalized its 2004 plan and in connection with the annual recoverability review of long-lived assets in the fourth quarter of 2003, the Company recorded an impairment charge totaling $25.3 to write-down intellectual property and other intangible assets in Europe. The impact of Europe's restructuring plans and program transfers had a significant impact on forecasted revenue for Europe. This reduced the future net cash flows for many sites in Europe, which impaired the recoverability of long-lived assets, including certain intellectual property and customer relationship assets. The impairment was measured as the excess of the carrying amount over the fair value of these assets determined on a discounted cash flow basis. See notes 11(e) — Other charges.
Amortization expense is as follows:

                                                                            YEAR ENDED DECEMBER 31
                                                                  ------------------------------------------
                                                                      2000           2001           2002
                                                                  ------------   ------------   ------------
    
    Amortization of goodwill....................................     $39.1          $ 39.2         $--
    Amortization of intellectual property.......................      39.1            68.8          72.0
    Amortization of other intangible assets.....................      10.7            17.0          23.9
                                                                     -----          ------         -----
                                                                     $88.9          $125.0         $95.9
                                                                     =====          ======         =====
 
 
Year ended December 31,
 
 
2001
 
2002
 
2003
Amortization of goodwill (ee)
 
$
39.2
 
$
—
 
$
—
Amortization of intellectual property
 
 
68.8
 
 
72.0
 
 
27.4
Amortization of other intangible assets
 
 
17.0
 
 
23.9
 
 
21.1
 
 
 
 
 
 
$
125.0
 
$
95.9
 
$
48.5
 
 
 
 
(ee)
Effective January 1, 2002, the Company discontinued amortization of all goodwill. See note 2(q)(ii) --(i) — Changes in accounting policies.
The Company estimates its future amortization expense as follows, based on existing intangible asset balances:
    2003........................................................   $46.8
    2004........................................................    43.0
    2005........................................................    35.1
    2006........................................................    27.0
    2007........................................................    16.3
    Thereafter..................................................    43.7


8.
2004
 
$
28.7
2005
 
 
28.2
2006
 
 
25.5
2007
 
 
14.8
2008
 
 
13.9
Thereafter
 
 
26.8
6.     OTHER ASSETS:

                                                                      2001           2002
                                                                  ------------   ------------
    
    Deferred pension (note 16)..................................     $ 28.4         $ 31.2
    Deferred income taxes.......................................      116.4          305.1
    Commodity taxes recoverable.................................       10.7           10.9
    Other.......................................................        9.7            7.4
                                                                     ------         ------
                                                                     $165.2         $354.6
                                                                     ======         ======
 
 
2002
 
2003
Deferred income taxes
 
$
305.1
 
$
262.8
Deferred pension (note 14)
 
 
31.2
 
 
55.0
Commodity taxes recoverable
 
 
10.9
 
 
14.6
Other
 
 
7.4
 
 
6.7
 
 
 
 
 
$
354.6
 
$
339.1
 
 
 
Amortization of deferred financing costs for the year ended December 31, 2002,2003 was $2.7 (2001 -- $1.7; 2000 --$2.1 (2002 — $2.7; 2001 — $1.7).

                                      F-16

                                 CELESTICA INC.

             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

            (IN MILLIONS OF U.S. DOLLARS, EXCEPT PER SHARE AMOUNTS)

9.

7.     LONG-TERM DEBT:

                                                                      2001           2002
                                                                  ------------   ------------
    
    Global, unsecured, revolving credit facility due
 
 
2002
 
2003
Unsecured, revolving credit facility due 2004 (a)
 
$
—
 
$
—
Unsecured, revolving credit facility due 2005 (b)
 
 
—
 
 
—
Capital lease obligations
 
 
6.9
 
 
3.4
 
 
 
 
 
 
6.9
 
 
3.4
Less current portion
 
 
2.7
 
 
2.7
 
 
 
 
 
$
4.2
 
$
0.7
 
 
 
(a)
In October 2003, (a)...     $--            $--
    Unsecured, revolving credit facility due 2004 (b)...........     --             --
    Unsecured, revolving credit facility due 2005 (c)...........     --             --
    Senior Subordinated Notes due 2006 (d)......................      130.0         --
    Other (e)...................................................       17.4           6.9
                                                                     ------         -----
                                                                      147.4           6.9
    Less current portion........................................       10.0           2.7
                                                                     ------         -----
                                                                     $137.4         $ 4.2
                                                                     ======         =====
    ---------------


    (a) Concurrently with the initial public offering on July 7, 1998, the Company entered into a global, unsecured, revolving credit facility
       providing up to $250.0 of borrowings. The credit facility permitted the
       Company and certain designated subsidiaries to borrow funds for general
       corporate purposes (including acquisitions). Borrowings under the
       facility bear interest at LIBOR plus a margin and are repayable in
       July 2003. There were no borrowings on this facility during 2001 or 2002.
       Commitment fees in 2002 were $0.6. The Company elected to cancel this
       facility in December 2002.

    (b) In December 2002, the Company extendedamended its second2004 unsecured, revolving credit facility from April$350.0 to $250.0, maturing October 2004 to(from December 2004. Concurrent with this
       extension, the Company increased the facility from $250.0 to $350.0.2004). The facility includes a $25.0 swing-line facility that provides for short-term borrowings up to a maximum of seven days. The credit facility permits the Company and certain designated subsidiaries to borrow funds for general corporate purposes (including acquisitions). Borrowings under the facility bear interest at LIBOR plus a margin except that borrowings under the swing-line facility bear interest at a base rate.rate plus a margin. There were no borrowings on this facility during 20012002 or 2002.2003. Commitment fees in 20022003 were $2.6.

    (c) $1.5.

(b)
In July 2001,October 2003, the Company entered into anamended its 2005 unsecured, revolving credit facility, providingwhich provides up to $500.0 of borrowings includingborrowings. The facility includes a $75.0 swing-line facility that provides for short-term borrowings up to a maximum of seven days. The credit facility permits the Company and certain designated subsidiaries to borrow funds for general corporate purposes (including acquisitions). The revolving facility is repayable in
       July 2005. Borrowings under the facility bear interest at LIBOR plus a margin except that borrowings under the swing-line facility bear interest at a base rate.rate plus a margin. There were no borrowings on this facility in 2001during 2002 or 2002.2003. Commitment fees in 20022003 were $1.5.

    (d) In August 2002,$2.0.
The borrowings available under the Company redeemed the entire $130.0facilities are reduced by outstanding letters of outstanding
       10.5% Senior Subordinated Notes at a premium of 5.25%. See note 13(e).

    (e) Other long-term debt includes secured loan facilities of one of the
       Company's subsidiaries of which $13.0 was outstanding at December 31,
       2001, and capital lease obligations. All secured loans were repaid during
       2002. The weighted average interest rate on these facilities in 2001 was
       4.4%. The loans were denominated in Singapore Dollars and repayable
       through quarterly payments. There were no commitment fees for 2001 or
       2002. The balance as at December 31, 2002, relates to capital lease
       obligations.

    As at December 31, 2002, principal repayments due within each of the next
    five years on all long-term debt are as follows:


    2003........................................................    $2.7
    2004........................................................     2.5
    2005........................................................     1.5
    2006........................................................     0.1
    2007........................................................     0.1
credit totaling $48.7.
The unsecured, revolving credit facilities have restrictive covenants relating to debt incurrence and sale of assets and also contain financial covenants, that require the Company to maintain certain financial ratios. A change of control is an event of default. 10.Based on the required minimum financial ratios, the Company is currently limited to approximately $140 of borrowings under the facilities. The Company does not currently anticipate requiring any borrowings from the credit facilities to support existing operations. Additional borrowing amounts would be available to support the funding of acquisitions or to support certain other potential refinancing needs. The Company was in compliance with all covenants at December 31, 2003.
As at December 31, 2003, principal repayments due within each of the next five years on all long-term debt are as follows:
2004
 
$2.7
2005
 
0.7
2006
 
—
2007
 
—
2008
 
—
8.     CONVERTIBLE DEBT:
In August 2000, Celestica issued Liquid Yield Option-TM-Option™ Notes (LYONs) with a principal amount at maturity of $1,813.6, payable August 1, 2020. The Company received gross proceeds of $862.9 and incurred $12.5 in underwriting commissions, net of tax of $6.9. No interest is payable on the LYONs and the issue price of the LYONs represents a yield to maturity of 3.75%. The LYONs are subordinated in right of payment to all existing and future senior indebtedness of the Company.

                                      F-17

                                 CELESTICA INC.

             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

            (IN MILLIONS OF U.S. DOLLARS, EXCEPT PER SHARE AMOUNTS)

10. CONVERTIBLE DEBT: (CONTINUED)
    
The LYONs are convertible at any time at the option of the holder, unless previously redeemed or repurchased, into 5.6748 subordinate voting shares for each one thousand dollars principal amount at maturity. Holders may require the Company to repurchase all or a portion of their LYONs on August 2, 2005, August 1, 2010, and August 1, 2015, and the Company may redeem the LYONs at any time on or after August 1, 2005 (and, under certain circumstances, before that date). The Company is required to offer to repurchase the LYONs if there is a change in control or a delisting event. Generally, the redemption or repurchase price is equal to the accreted value of the LYONs. The Company may elect to pay the principal amount at maturity of the LYONs or the repurchase price that is payable in certain circumstances, in cash or subordinate voting shares, or any combination thereof.


Pursuant to Canadian generally accepted accounting principles,GAAP, the LYONs are recorded as an equity instrument and bifurcated into a principal equity component (representing the present value of the notes) and an option component (representing the value of the conversion features of the notes). The principal equity component is accreted over the 20-year term through periodic charges to retained earnings. Also see note 2(r)(v) — Recently issued accounting pronouncements.
During 2002,2003, the Company paid $100.3$223.5 (2002 — $100.3) to repurchase LYONs with a principal amount at maturity of $222.9.$435.9 (2002 — $222.9). The Company recognized a gain on the
    repurchaseloss of these LYONs. The$2.8, net of tax of $1.4 (2002 — gain of $6.7, net of tax of $3.9,$3.9), on the repurchase of these LYONs which is recorded in retained earnings and apportioned between the principal equity and option components, based on their relative fair values compared to their carrying values. Consistent with the treatment of the periodic accretion charges, only the gain on the principal equity component has been included in the calculation of basic and diluted earnings (loss)loss per share. See note 12.

11.10. At December 31, 2003, LYONs outstanding have a principal amount at maturity of $1,154.7. At December 31, 2003, the Company has Board pre-approval to spend up to $126.2 to repurchase additional LYONs, at management's discretion.
9.     CAPITAL STOCK:
        (a)   AUTHORIZED:

       Authorized:
An unlimited number of subordinate voting shares, which entitle the holder to one vote per share, and an unlimited number of multiple voting shares, which entitle the holder to twenty-five25 votes per share. Except as otherwise required by law, the subordinate voting shares and multiple voting shares vote together as a single class on all matters submitted to a vote of shareholders, including the election of directors. The holders of the subordinate voting shares and multiple voting shares are entitled to share ratably, as a single class, in any dividends declared subject to any preferential rights of any outstanding preferred shares in respect of the payment of dividends. Each multiple voting share is convertible at any time at the option of the holder thereof and automatically, under certain circumstances into one subordinate voting share. The Company is also authorized to issue an unlimited number of preferred shares, issuable in series.
        (b)   ISSUED AND OUTSTANDING:


                                                                                                    TOTAL
                                                                                                 SUBORDINATE
                                                                                                 AND MULTIPLE
                                                               SUBORDINATE        MULTIPLE      VOTING SHARES      SHARES TO
        NUMBER OF SHARES (IN MILLIONS)                        VOTING SHARES    VOTING SHARES     OUTSTANDING       BE ISSUED
        ------------------------------                        --------------   --------------   --------------   -------------
        
        Balance December 31, 2000...........................      164.3             39.1            203.4             0.4
        Equity offering (i).................................       12.0           --                 12.0           --
        Other share issuances (ii)..........................        1.1           --                  1.1           --
        Issued as consideration for acquisitions (iii)......       13.2           --                 13.2             0.1
                                                                  -----             ----            -----            ----
        Balance December 31, 2001...........................      190.6             39.1            229.7             0.5
        Repurchase of shares (iv)...........................       (2.0)          --                 (2.0)          --
        Other share issuances (v)...........................        0.9           --                  0.9           --
                                                                  -----             ----            -----            ----
        Balance December 31, 2002...........................      189.5             39.1            228.6             0.5
                                                                  =====             ====            =====            ====


                                      F-18

                                 CELESTICA INC.

             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

            (IN MILLIONS OF U.S. DOLLARS, EXCEPT PER SHARE AMOUNTS)

11. CAPITAL STOCK: (CONTINUED)


                                                               SUBORDINATE        MULTIPLE        SHARES TO         TOTAL
        AMOUNT                                                VOTING SHARES    VOTING SHARES      BE ISSUED        AMOUNT
        ------                                                --------------   --------------   -------------   -------------
        
        Balance December 31, 2000...........................     $2,254.9          $138.8           $ 1.7         $2,395.4
        Equity offering, net of issue costs (i).............        707.4          --              --                707.4
        Other share issuances (ii)..........................         29.2          --              --                 29.2
        Issued as consideration for acquisitions (iii)......        562.8          --                 4.2            567.0
                                                                 --------          ------           -----         --------
        Balance December 31, 2001...........................      3,554.3           138.8             5.9          3,699.0
        Repurchase of shares (iv)...........................        (36.9)         --              --                (36.9)
        Other share issuances (v)...........................          8.5          --              --                  8.5
                                                                 --------          ------           -----         --------
        Balance December 31, 2002...........................     $3,525.9          $138.8           $ 5.9         $3,670.6
                                                                 ========          ======           =====         ========


        2001 CAPITAL TRANSACTIONS:

        (i) In May 2001, the Company issued 12.0 million subordinate voting
            shares for gross cash proceeds of $714.0 and incurred $6.6 in share
            issuance costs, net of tax of $3.4.

        (ii) During 2001, the Company issued 1.1 million subordinate voting
             shares as a result of the exercise of employee stock options for
             $23.7 and recorded a tax benefit of $5.5.

       (iii) In 2001, the Company issued 12.7 million subordinate voting shares,
             as consideration for acquisitions, for an ascribed value of $558.5
             and reserved 0.6 million shares at an ascribed value of $8.5.
             During 2001, the Company issued 0.5 million of reserved shares at
             an ascribed value of $4.3. As at December 31, 2001, 0.5 million
             subordinate voting shares remain reserved for issuance at an
             ascribed value of $5.9.

        outstanding:
Number of Shares (in millions)
 
Subordinate Voting Shares
 
Multiple Voting Shares
 
Total Subordinate and Multiple Voting Shares Outstanding
 
Shares to be issued
Balance December 31, 2001
 
190.6
 
39.1
 
229.7
 
0.5
Repurchase of shares (i)
 
(2.0
)
—
 
(2.0
)
—
Other share issuances (ii)
 
0.9
 
—
 
0.9
 
—
 
 
 
 
 
Balance December 31, 2002
 
189.5
 
39.1
 
228.6
 
0.5
Repurchase of shares (iii)
 
(20.6
)
—
 
(20.6
)
—
Other share issuances (iv)
 
0.9
 
—
 
0.9
 
—
 
 
 
 
 
Balance December 31, 2003
 
169.8
 
39.1
 
208.9
 
0.5
 
 
 
 
 
Amount
 
Subordinate Voting Shares
 
Multiple Voting Shares
 
Shares to be issued
 
Total Amount
 
Balance December 31, 2001
 
$
3,554.3
 
$
138.8
 
$
5.9
 
$
3,699.0
 
Repurchase of shares (i)
 
 
(36.9
)
 
—
 
 
—
 
 
(36.9
)
Other share issuances (ii)
 
 
8.5
 
 
—
 
 
—
 
 
8.5
 
 
 
 
 
 
 
Balance December 31, 2002
 
 
3,525.9
 
 
138.8
 
 
5.9
 
 
3,670.6
 
Repurchase of shares (iii)
 
 
(380.1
)
 
—
 
 
—
 
 
(380.1
)
Other share issuances (iv)
 
 
7.3
 
 
—
 
 
—
 
 
7.3
 
 
 
 
 
 
 
Balance December 31, 2003
 
$
3,153.1
 
$
138.8
 
$
5.9
 
$
3,297.8
 
 
 
 
 
 
 
2002 CAPITAL TRANSACTIONS:

        (iv) Capital Transactions:
(i)
In July 2002, the Company filed a Normal Course Issuer Bid (NCIB) to repurchase over the next 12 months, at its discretion, up to 5% of
             the total outstanding shares, or 9.6 million subordinate voting shares, for cancellation. During 2002, the Company repurchased 2.0 million subordinate voting shares at a weighted average price of $16.23 per share.

        (v) 

(ii)
During 2002, the Company issued 0.9 million subordinate voting shares, primarily as a result of the exercise of employee stock options, for $7.4 and recorded a tax benefit of $1.1.
2003 Capital Transactions:
(iii)
In April 2003, the Company amended its 2002 NCIB to increase the number of shares that may be repurchased, at its discretion, up to 18.6 million subordinate voting shares. In August 2003, the Company commenced a new NCIB to repurchase up to 17.0 million subordinate voting shares, for cancellation, over a period August 1, 2003 to July 31, 2004. During 2003, the Company repurchased a total of 20.6 million subordinate voting shares (16.6 million against its original NCIB) at a weighted average price of $13.35 per share.

(iv)
During 2003, the Company issued 0.9 million subordinate voting shares, primarily as a result of the exercise of employee stock options, for $5.1, and other employee share issuances for $1.9. The Company also recorded a tax benefit of $0.3.
        (c)   STOCK OPTION PLANS:

        Stock option plans:
(i)
Long-Term Incentive Plan (LTIP):

        The Company established
Under the LTIP, prior to its initial public offering.
        Under this plan, the Company may grant stock options, performance shares, performance share units and stock appreciation rights to directors, permanent employees and consultants ("eligible participants") of the Company, its subsidiaries and other companies or partnerships in which the Company has a significant investment. Under the LTIP, up to 29.0 million subordinate voting shares may be issued from treasury. Options are granted at prices equal to the market value of the day prior to the date of the grant and are exercisable during a period not to exceed ten10 years from such date.
(ii)
Employee Share Purchase and Option Plans (ESPO):
The Company has ESPO plans that were available to certain of its
        employees and executives. As a result of the establishment of the LTIP,
        noNo further options may be issued under the ESPO plans. Pursuant to the ESPO plans, employees and executives of the Company were offered the opportunity to purchase, at prices equal to market value, subordinate voting shares and, in connection with such purchase, receive options to acquire an additional number of subordinate voting shares based on the number of subordinate voting shares acquired by them under the ESPO plans. The exercise price for the options is equal to the price per share paid for the corresponding subordinate voting shares acquired under the ESPO plans.

                                      F-19

                                 CELESTICA INC.

             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

            (IN MILLIONS OF U.S. DOLLARS, EXCEPT PER SHARE AMOUNTS)

11. CAPITAL STOCK: (CONTINUED)
       
Stock option transactions were as follows:

                                                                                 WEIGHTED AVERAGE
        NUMBER OF OPTIONS (IN MILLIONS)                                SHARES     EXERCISE PRICE
        -------------------------------                               --------   ----------------
        
        Outstanding at December 31, 1999............................    14.6          $14.84
        Granted.....................................................     4.2          $55.40
        Exercised...................................................    (1.4)         $ 6.85
        Cancelled...................................................    (0.2)         $ 7.33
                                                                        ----
        Outstanding at December 31, 2000............................    17.2          $25.16
        Granted/assumed.............................................     8.5          $42.54
        Exercised...................................................    (1.6)         $14.89
        Cancelled...................................................    (0.2)         $23.36
                                                                        ----
        Outstanding at December 31, 2001............................    23.9          $31.67
        Granted.....................................................     3.9          $19.93
        Exercised...................................................    (0.9)         $ 7.42
        Cancelled...................................................    (0.8)         $41.49
                                                                        ----
        Outstanding at December 31, 2002............................    26.1          $30.51
                                                                        ====
        Shares reserved for issuance upon exercise of stock options
          or awards (in millions)...................................    33.9
                                                                        ====
Number of Options (in millions)
 
Shares
 
Weighted Average Exercise Price
Outstanding at December 31, 2000
 
17.2
 
$
25.16
Granted/assumed
 
8.5
 
$
42.54
Exercised
 
(1.6
)
$
14.89
Cancelled
 
(0.2
)
$
23.36
 
 
 
 
 
Outstanding at December 31, 2001
 
23.9
 
$
31.67
Granted
 
3.9
 
$
19.93
Exercised
 
(0.9
)
$
7.42
Cancelled
 
(0.8
)
$
41.49
 
 
 
 
 
Outstanding at December 31, 2002
 
26.1
 
$
30.51
Granted
 
0.4
 
$
13.85
Exercised
 
(0.9
)
$
5.59
Cancelled
 
(2.8
)
$
35.42
 
 
 
 
 
Outstanding at December 31, 2003
 
22.8
 
$
30.88
 
 
 
 
 
Shares reserved for issuance upon exercise of stock options or awards (in millions)
 
32.8
 
 
 
 
 
 
 
 

The following options were outstanding as at December 31, 2002:


                                  RANGE OF        OUTSTANDING    WEIGHTED AVERAGE    EXERCISABLE    WEIGHTED AVERAGE   REMAINING
        PLAN                   EXERCISE PRICES      OPTIONS       EXERCISE PRICE       OPTIONS       EXERCISE PRICE       LIFE
        ----                   ---------------   -------------   ----------------   -------------   ----------------   ----------
                                                 (in millions)                      (in millions)                       (years)
        
        ESPO.................  $5.00 - $ 7.50          4.6            $ 5.34             4.6             $ 5.34             5
        LTIP.................  $8.75 - $13.69          1.6            $12.09             1.2             $12.02             6
                               $13.10 - $25.75         3.6            $18.58           --               --                 10
                               $24.18 - $24.18         0.8            $24.18             0.6             $24.18             7
                               $24.91 - $54.15         1.4            $41.16             0.4             $41.16             9
                               $32.22 - $44.38         0.3            $37.91           --               --                 10
                               $39.03 - $39.03         2.8            $39.03             2.1             $39.03             7
                               $41.89 - $41.89         6.1            $41.89             1.5             $41.89             9
                               $55.40 - $56.19         3.9            $55.96             2.0             $55.96             8
        Other................  $0.93 - $13.31          0.8            $ 5.50             0.8             $ 5.50             4
        Other................  $29.73 - $72.84         0.2            $46.28             0.2             $46.28             4
                                                      ----                              ----
                                                      26.1                              13.4
                                                      ====                              ====


                                      F-20

                                 CELESTICA INC.

             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

            (IN MILLIONS OF U.S. DOLLARS, EXCEPT PER SHARE AMOUNTS)

12. EARNINGS (LOSS)2003:
Plan
 
Range of Exercise Prices
 
Outstanding Options
 
Weighted Average Exercise Price
 
Exercisable Options
 
Weighted Average Exercise Price
 
Weighted Average Remaining Life
 
 
 
 
(in millions)

 
 
 
(in millions)

 
 
 
(years)

ESPO
 
$  5.00 - $  7.50
 
3.8
 
$
5.30
 
3.8
 
$
5.30
 
4.0
LTIP
 
$  8.75 - $13.10
 
0.7
 
$
9.73
 
0.6
 
$
9.21
 
5.4
 
 
$13.25 - $19.90
 
4.5
 
$
17.39
 
2.7
 
$
16.76
 
7.3
 
 
$20.06 - $27.55
 
0.6
 
$
23.24
 
0.5
 
$
23.18
 
5.5
 
 
$30.23 - $44.23
 
8.9
 
$
40.33
 
7.4
 
$
40.27
 
6.4
 
 
$45.63 - $63.44
 
3.2
 
$
54.49
 
3.1
 
$
54.61
 
6.0
 
 
$69.25 - $84.00
 
0.2
 
$
73.68
 
0.2
 
$
73.70
 
6.3
Other
 
$  0.93 - $13.31
 
0.8
 
$
5.33
 
0.8
 
$
5.33
 
3.0
Other
 
$28.82 - $70.62
 
0.1
 
$
47.51
 
0.1
 
$
47.51
 
2.0
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
22.8
 
 
 
 
19.2
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
10.   LOSS PER SHARE AND WEIGHTED AVERAGE SHARES OUTSTANDING:
The Company follows the treasury stock method for calculating diluted earnings per share. The diluted per share calculation includes employee stock options and the conversion of convertible debt instruments, if dilutive.
The following table sets forth the calculation of basic and diluted earnings
    (loss)loss per share:

                                                                            YEAR ENDED DECEMBER 31
                                                                  ------------------------------------------
                                                                      2000           2001           2002
                                                                  ------------   ------------   ------------
    
    Numerator:
      Net earnings (loss).......................................     $206.7         $(39.8)       $(445.2)
      Convertible debt accretion, net of tax....................       (5.4)         (15.0)         (17.5)
      Gain on repurchase of convertible debt, net of tax(1).....     --             --                8.3
                                                                     ------         ------        -------
      Earnings (loss) available to common shareholders..........     $201.3         $(54.8)       $(454.4)

    Denominator:
      Weighted average shares -- basic (in millions)............      199.8          213.9          229.8
      Effect of dilutive securities (in millions):
        Employee stock options(2)...............................        7.8         --             --
        Convertible debt........................................        4.2         --             --
                                                                     ------         ------        -------
      Weighted average shares -- diluted (in millions)(3).......      211.8          213.9          229.8

    Earnings (loss) per share:
      Basic.....................................................     $ 1.01         $(0.26)       $ (1.98)
      Diluted...................................................     $ 0.98         $(0.26)       $ (1.98)
    ---------------
 
 
Year ended December 31
 
 
 
2001
 
2002
 
2003
 
Numerator:
 
 
 
 
 
 
 
 
 
 
 
Net loss
 
$
(39.8
)
$
(445.2
)
$
(265.8
)
 
Convertible debt accretion, net of tax
 
 
(15.0
)
 
(17.5
)
 
(15.5
)
 
Gain on repurchase of convertible debt, net of tax (note 8)
 
 
—
 
 
8.3
 
 
16.1
 
 
 
 
 
 
 
Loss available to common shareholders
 
$
(54.8
)
$
(454.4
)
$
(265.2
)
Denominator (in millions):
 
 
 
 
 
 
 
 
 
 
 
Weighted average shares — basic
 
 
213.9
 
 
229.8
 
 
216.5
 
 
Effect of dilutive securities:(1)
 
 
 
 
 
 
 
 
 
 
 
 
Employee stock options
 
 
—
 
 
—
 
 
—
 
 
 
Convertible debt
 
 
—
 
 
—
 
 
—
 
 
 
 
 
 
 
Weighted average shares — diluted(1)
 
 
213.9
 
 
229.8
 
 
216.5
 
Loss per share:
 
 
 
 
 
 
 
 
 
 
 
Basic
 
$
(0.26
)
$
(1.98
)
$
(1.22
)
 
Diluted
 
$
(0.26
)
$
(1.98
)
$
(1.22
)
(1) For 2002, the gain on the principal equity component of the convertible
       debt repurchase of $8.3 is included in the calculation of basic and
       diluted loss per share. See note 10.

    (2) For 2000, excludes the effect of 3.3 million "out of the money" options
       as they are anti-dilutive.

    (3) For 2001 and 2002, excludes
Excludes the effect of all options and convertible debt as they are anti-dilutive due to the loss.

13.loss reported in the year.

11.   OTHER CHARGES:

                                                                            YEAR ENDED DECEMBER 31
                                                                  ------------------------------------------
                                                                      2000           2001           2002
                                                                  ------------   ------------   ------------
    
    2001 restructuring (a)......................................     $--            $237.0         $  1.9
    2002 restructuring (b)......................................     --             --              383.5
    2002 goodwill impairment (c)................................     --             --              203.7
    Other impairment (d)........................................     --               36.1           81.7
    Deferred financing costs and debt redemption fees (e).......     --             --                9.6
    Gain on sale of surplus land................................     --             --               (2.6)
                                                                     ------         ------         ------
                                                                     $--            $273.1         $677.8
                                                                     ======         ======         ======
 
 
Year ended December 31
 
 
 
2001
 
2002
 
2003
 
2001 restructuring (a)
 
$
237.0
 
$
1.9
 
$
7.9
 
2002 restructuring (b)
 
 
—
 
 
383.5
 
 
15.7
 
2003 restructuring (c)
 
 
—
 
 
—
 
 
71.3
 
2002 goodwill impairment (d)
 
 
—
 
 
203.7
 
 
—
 
Other impairment (e)
 
 
36.1
 
 
81.7
 
 
82.8
 
Deferred financing costs and debt redemption fees (f)
 
 
—
 
 
9.6
 
 
1.3
 
Gain on sale of surplus land
 
 
—
 
 
(2.6
)
 
(3.6
)
 
 
 
 
 
 
 
$
273.1
 
$
677.8
 
$
175.4
 
 
 
 
 
 
(a)   2001 RESTRUCTURING:

       restructuring:
In 2001, the Company announced its restructuring plan in response to the weak end-markets. Weak end-market conditions in the computing and communications industries resulted in those customers rescheduling and canceling orders, directly impacting the Company's operations.
These restructuring actions were focused on consolidating facilities, workforce reductions, and transferring programs to lower cost geographies. A total of 11,925 employees were terminated as the Company completed its 2001 employee actions. Approximately 70% of the employee terminations were in the Americas and 30% in Europe. The majority of the employees terminated were manufacturing and plant employees. 18 facilities were closed or consolidated in the Americas and in Europe. For leased facilities that were no longer used, the lease costs included in the restructuring costs represent future lease payments less estimated sublease recoveries. In 2002, the Company made an adjustment to lease and other contractual obligations of $11.4, primarily to reflect delays in the timing of sublease recoveries and changes in estimated sublease rates, relating principally to facilities in the Americas. In 2003, the Company made a further adjustment to increase lease and other contractual obligations by $7.9, to reflect further delays in the timing of sublease recoveries and changes in estimated sublease rates for those facilities in the Americas.
The Company recorded a pre-tax restructuringnon-cash charge of $237.0$98.6 to write-down certain long-lived assets (73% in 2001,the Americas and 27% in responseEurope) which became impaired as a result of the rationalization of facilities. In addition to slowing end markets. buildings and improvements and machinery and equipment, the asset impairments also related to goodwill and other intangible assets.
The Company'sCompany completed the major components of its 2001 restructuring plan focusedin 2002, except for certain long-term lease and other contractual obligations, which will be paid out over the remaining lease terms through 2015. Cash outlays are funded from cash on facility consolidations and a workforce reduction.hand. The following table
       details the components ofCompany has benefited from the 2001 restructuring chargeplan actions through reduced depreciation, lease and labour costs included in the adjustments in 2002, as the Company executed its plan:


                                                                                YEAR ENDED DECEMBER 31
                                                                      ------------------------------------------
                                                                          2000           2001           2002
                                                                      ------------   ------------   ------------
        
        Employee termination costs..................................     $--            $ 90.7         $(4.1)
        Lease and other contractual obligations.....................     --               35.3          11.4
        Facility exit costs and other...............................     --               12.4          (2.7)
        Asset impairment (non-cash).................................     --               98.6          (2.7)
                                                                         ------         ------         -----
                                                                         $--            $237.0         $ 1.9
                                                                         ======         ======         =====


                                      F-21

                                 CELESTICA INC.

             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

            (IN MILLIONS OF U.S. DOLLARS, EXCEPT PER SHARE AMOUNTS)

13. OTHER CHARGES: (CONTINUED)
       cost of sales and selling, general and administrative expenses and reduced amortization of intangible assets.
The following table details the activity through the accrued restructuring liability:


                                                                                   LEASE
                                                                   EMPLOYEE      AND OTHER       FACILITY
                                                                 TERMINATION    CONTRACTUAL     EXIT COSTS
                                                                    COSTS       OBLIGATIONS     AND OTHER        TOTAL
                                                                 ------------   ------------   ------------   ------------
        
        Balance at January 1, 2002.............................     $ 39.5         $ 33.7         $ 9.5          $ 82.7
        Cash payments..........................................      (35.4)         (13.0)         (6.8)          (55.2)
        Adjustments............................................       (4.1)          11.4          (2.7)            4.6
                                                                    ------         ------         -----          ------
        Balance at December 31, 2002...........................     $--            $ 32.1         $--            $ 32.1
                                                                    ======         ======         =====          ======


       Employeeliability and the non-cash charge:
 
 
Employee termination costs
 
Lease and other contractual obligations
 
Facility exit costs and other
 
Total accrued liability
 
Non-cash charge
 
Total charge
January 1, 2001
 
$
—
 
$
—
 
$
—
 
$
—
 
$
—
 
$
—
Provision
 
 
90.7
 
 
35.3
 
 
12.4
 
 
138.4
 
 
98.6
 
 
237.0
Cash payments
 
 
(51.2
)
 
(1.6
)
 
(2.9
)
 
(55.7
)
 
—
 
 
—
 
 
 
 
 
 
 
December 31, 2001
 
 
39.5
 
 
33.7
 
 
9.5
 
 
82.7
 
 
98.6
 
 
237.0
Cash payments
 
 
(35.4
)
 
(13.0
)
 
(6.8
)
 
(55.2
)
 
—
 
 
—
Adjustments
 
 
(4.1
)
 
11.4
 
 
(2.7
)
 
4.6
 
 
(2.7
)
 
1.9
 
 
 
 
 
 
 
December 31, 2002
 
 
—
 
 
32.1
 
 
—
 
 
32.1
 
 
95.9
 
 
238.9
Cash payments
 
 
—
 
 
(14.1
)
 
—
 
 
(14.1
)
 
—
 
 
—
Adjustments
 
 
—
 
 
7.9
 
 
—
 
 
7.9
 
 
—
 
 
7.9
 
 
 
 
 
 
 
December 31, 2003
 
$
—
 
$
25.9
 
$
—
 
$
25.9
 
$
95.9
 
$
246.8
 
 
 
 
 
 
 
The accrued restructuring liability was recorded in Accrued liabilities in the accompanying consolidated balance sheet.

(b)   2002 restructuring:
In response to the prolonged difficult end-market conditions, particularly in the computing and communications industries, the Company announced a second restructuring plan in July 2002. This continuing reduced demand for the Company's manufacturing services resulted in an accelerated move to lower cost geographies and additional restructuring in the Americas and Europe.
These restructuring actions were focused on consolidating facilities, workforce reductions, and transferring programs to lower cost geographies. A total of 6,105 employees have been terminated as of December 31, 2003, as the Company executed its 2002 planned employee actions. Approximately 300 employee positions remain to be terminated as of December 31, 2003. Approximately 80% of the employee terminations were made across all geographic regionsin the Americas and 20% in Europe. The majority of the Company with the majority pertaining toemployees terminated were manufacturing and plant employees. A total of 11,925 employees have been terminated relatingIn 2003, the Company increased its employee termination costs by $7.4 due to changes in planned headcount reductions. The facility actions included closing or consolidating 9 facilities in the 2001Americas and Europe. For leased facilities that were no longer used, the lease costs included in the restructuring plan. Thecosts represent future lease payments less estimated sublease recoveries. In 2003, the Company made an adjustment to lease and other contractual obligations relates primarilyof $16.2 to reflect incremental cancellation fees paid for terminating certain facility leases and to reflect higher accruals for other leases due to delays in the timing of sublease recoveries and changes in estimates and
       revised timingestimated sublease rates, relating principally to facilities in the Americas.
The Company recorded a non-cash charge of expected sublease recoveries.

       The non-cash charges for asset impairment reflected the$194.5 to write-down of certain long-lived assets across all geographic regions that have become(85% in Americas, 10% in Europe and 5% in Asia) which became impaired as a result of the rationalization of facilities. The asset
       impairments relateIn addition to goodwillbuildings and intangible assets,improvements, machinery and equipment, buildingsthe asset impairments also relate to intellectual property and improvements. Theother intangible assets. See note 5(cc) — Goodwill from business combinations and intangible assets. In 2003, the Company recorded a non-cash adjustment against its capital assets of $(10.8). This recovery was primarily due to amendments of its 2002 restructuring plans in 2003 as a result of customer requirements, certain assets no longer qualified as available-for-sale and resulted in a $13.0 increase to the book value of the assets. Included in the December 31, 2002 impairment charges were written downcharges of $17.1 related to their recoverable amounts using estimated cash flows.

       these capital assets that were classified as available-for-sale.
The Company hashad completed the major components of the 2001 restructuring
       plan, except for certain long-term lease and other contractual
       obligations.

    (b) 2002 RESTRUCTURING:

       In response to the prolonged difficult end-market conditions, the Company
       announced a new restructuring plan for the consolidation of facilities
       and a workforce reduction. The Company recorded a pre-tax restructuring
       charge of $383.5. The following table details the components of the 2002
       restructuring charge:


                                                                              YEAR ENDED DECEMBER 31
                                                                      ---------------------------------------
                                                                         2000          2001          2002
                                                                      -----------   -----------   -----------
        
        Employee termination costs..................................    $--           $--           $128.8
        Lease and other contractual obligations.....................     --            --             51.7
        Facility exit costs and other...............................     --            --              8.5
        Asset impairment (non-cash).................................     --            --            194.5
                                                                        ------        ------        ------
                                                                        $--           $--           $383.5
                                                                        ======        ======        ======


       The following table details the activity through the accrued
       restructuring liability:


                                                                                     LEASE
                                                                     EMPLOYEE      AND OTHER     FACILITY
                                                                    TERMINATION   CONTRACTUAL   EXIT COSTS
                                                                       COSTS      OBLIGATIONS    AND OTHER       TOTAL
                                                                    -----------   -----------   -----------   -----------
        
        Balance at January 1, 2002................................    $--            $--           $--          $--
        Provision.................................................     128.8          51.7           8.5         189.0
        Cash payments.............................................     (41.7)         (1.7)         (0.7)        (44.1)
                                                                      ------         -----         -----        ------
        Balance at December 31, 2002..............................    $ 87.1         $50.0         $ 7.8        $144.9
                                                                      ======         =====         =====        ======


       Employee terminations were made primarily in the Americas with the
       majority pertaining to manufacturing and plant employees. A total of
       5,900 employees have been identified to be terminated, of which 2,410
       employees were terminated during 2002. The remaining termination costs
       are expected to be paid out during 2003.

                                      F-22

                                 CELESTICA INC.

             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

            (IN MILLIONS OF U.S. DOLLARS, EXCEPT PER SHARE AMOUNTS)

13. OTHER CHARGES: (CONTINUED)
       The non-cash charges for 2002 for asset impairment reflect the write-down
       of certain long-lived assets primarily in the Americas that have become
       impaired as a result of the rationalization of facilities. The asset
       impairments relate to intangible assets, machinery and equipment,
       buildings and improvements. The assets were written down to their
       recoverable amounts using estimated cash flows.

       The Company expects to complete the major components of theits 2002 restructuring plan by the end of 2003, except for certain terminations in the Americas which will be paid out during the first quarter of 2004 and certain long-term lease and other contractual obligations.

    obligations, which will be paid out over the remaining lease terms through 2011. Cash outlays are funded from cash on hand. The Company has and expects to continue to benefit from the 2002 restructuring plan actions through reduced depreciation, lease and labour costs included in the cost of sales and selling, general and administrative expenses and reduced amortization of intangible assets.
The following table details the activity through the accrued restructuring liability and the non-cash charge:
 
 
Employee termination costs
 
Lease and other contractual obligations
 
Facility exit costs and other
 
Total accrued liability
 
Non-cash charge
 
Total charge
January 1, 2002
 
$
—
 
$
—
 
$
—
 
$
—
 
$
—
 
$
—
Provision
 
 
128.8
 
 
51.7
 
 
8.5
 
 
189.0
 
 
194.5
 
 
383.5
Cash payments
 
 
(41.7
)
 
(1.7
)
 
(0.7
)
 
(44.1
)
 
—
 
 
—
 
 
 
 
 
 
 
December 31, 2002
 
 
87.1
 
 
50.0
 
 
7.8
 
 
144.9
 
 
194.5
 
 
383.5
Cash payments
 
 
(83.4
)
 
(30.0
)
 
(7.8
)
 
(121.2
)
 
—
 
 
—
Adjustments
 
 
7.4
 
 
16.2
 
 
2.9
 
 
26.5
 
 
(10.8
)
 
15.7
 
 
 
 
 
 
 
December 31, 2003
 
$
11.1
 
$
36.2
 
$
2.9
 
$
50.2
 
$
183.7
 
$
399.2
 
 
 
 
 
 
 
The accrued restructuring liability was recorded in Accrued liabilities in the accompanying consolidated balance sheet.
(c)   2003 restructuring:
In January 2003, the Company announced that it will further reduce its manufacturing capacity. The restructuring actions were focused on workforce reductions and facility consolidations in Europe. Termination announcements were made in 2003 to approximately 480 employees, primarily manufacturing and plant employees. Approximately 160 employees have been terminated as of December 31, 2003, with the balance expected to be paid out by the end of July 2004. Included in the negotiated termination costs are payments to regulatory agencies, in accordance with local labour legislation, which are expected to be paid out through 2007.
The non-cash charge for asset impairment of $8.5 reflects the write-down of certain capital assets, primarily in Europe, which were disposed of, or that have become impaired and are available-for-sale, as a result of the 2003 restructuring. The capital assets were written down to their fair values.


The Company expects to complete the major components of the 2003 restructuring plan by mid-2004. Cash outlays are funded from cash on hand. The Company expects to benefit from the 2003 restructuring plan actions through reduced depreciation and labour costs included in the cost of sales and selling, general and administrative expenses in 2004.
The following table details the activity through the accrued restructuring liability and the non-cash charge:
 
 
Employee termination costs
 
Lease and other contractual obligations
 
Facility exit costs and other
 
Total accrued liability
 
Non-cash charge
 
Total charge
January 1, 2003
 
$
—
 
$
—
 
$
—
 
$
—
 
$
—
 
$
—
Provision
 
 
61.4
 
 
0.3
 
 
1.1
 
 
62.8
 
 
8.5
 
 
71.3
Cash payments
 
 
(28.6
)
 
(0.3
)
 
(1.1
)
 
(30.0
)
 
—
 
 
—
 
 
 
 
 
 
 
December 31, 2003
 
$
32.8
 
$
—
 
$
—
 
$
32.8
 
$
8.5
 
$
71.3
 
 
 
 
 
 
 
The accrued restructuring liability was recorded in Accrued liabilities in the accompanying consolidated balance sheet.
(d)   2002 GOODWILL IMPAIRMENT:

       goodwill impairment:
In 2002, the Company recorded a non-cash charge against goodwill of $203.7 in connection with its annual impairment assessment. See note 5(c) — Goodwill from business combinations and intangible assets.
In 2003, the Company conducted its annual impairment assessment as describedand determined there was no goodwill impairment.
(e)   Other impairment:
Absent any triggering factors during the year, the Company conducts its annual review of long-lived assets in notes 2(h)the fourth quarter of each year to correspond with its planning cycle. In the course of finalizing its annual plans, the Company made certain decisions regarding its restructuring plans and 7.

    (d) OTHER IMPAIRMENT:

       the transfer of customer programs from higher cost to lower cost geographies. These actions, coupled with weakened end markets, significantly impacted forecasted revenue and have reduced the net cash flows for certain sites, resulting in impairment when compared to the carrying value of the assets.
In 2003, the Company recorded a non-cash charge of $82.8, relating primarily to the Americas (41%) and Europe (59%). The Company wrote down $25.3 of intangible assets and recorded an impairment of $57.5 against capital assets. See note 5(dd) — Goodwill from business combinations and intangible assets. Included in the $57.5 impairment of capital assets is $14.3 relating to the buyout of a leased facility. See note 16 — Commitments, contingencies and guarantees.
In 2002, the Company recorded a non-cash charge of $81.7, in connection
       with its annual impairment assessment of long-lived assets, comprisedrelating primarily of a write-downto the Americas (48%) and Europe (44%). The Company wrote down $69.0 of intangible assets and recorded an impairment of $12.7 against capital assets. See note 5(cc) — Goodwill and intangible assets.
In 2001, the Company recorded a non-cash charge of $36.1, in connection
       with its annual impairment assessment of long-lived assets comprised
       primarily of a write-down of$36.1. The Company wrote down certain goodwill and intangible assets.

    (e) DEFERRED FINANCING COSTS AND DEBT REDEMPTION FEES:

       assets which were no longer recoverable based on projected future net cash flows and wrote down certain long-term equity investments in third parties, as they had experienced a permanent decline in value.
(f)    Deferred financing costs and debt redemption fees:
In August 2002, the Company paid a premium associated with the redemption of the Senior Subordinated Notes and expensed related deferred financing costs.costs totaling $9.6.
In October 2003, the Company amended its credit facilities and expensed deferred financing costs totaling $1.3 related to the original facilities. See note 9(d).

14.7 — Long-term debt.


12.   INCOME TAXES:

                                                                            YEAR ENDED DECEMBER 31
                                                                  ------------------------------------------
                                                                      2000           2001           2002
                                                                  ------------   ------------   ------------
    
    Earnings (loss) before income tax:
      Canadian operations.......................................     $179.4         $ 34.7        $(190.1)
      Foreign operations........................................       96.5          (76.6)        (346.3)
                                                                     ------         ------        -------
                                                                     $275.9         $(41.9)       $(536.4)
                                                                     ======         ======        =======
    Current income tax expense (recovery):
      Canadian operations.......................................     $ 51.2         $ 17.2        $  (4.6)
      Foreign operations........................................       28.9            8.6           21.2
                                                                     ------         ------        -------
                                                                     $ 80.1         $ 25.8        $  16.6
                                                                     ======         ======        =======
    Deferred income tax expense (recovery):
      Canadian operations.......................................     $ 33.0         $ (5.4)       $ (15.2)
      Foreign operations........................................      (43.9)         (22.5)         (92.6)
                                                                     ------         ------        -------
                                                                     $(10.9)        $(27.9)       $(107.8)
                                                                     ======         ======        =======


                                      F-23

                                 CELESTICA INC.

             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

            (IN MILLIONS OF U.S. DOLLARS, EXCEPT PER SHARE AMOUNTS)

14. INCOME TAXES: (CONTINUED)
    
 
 
Year ended December 31
 
 
 
2001
 
2002
 
2003
 
Earnings (loss) before income tax:
 
 
 
 
 
 
 
 
 
 
 
Canadian operations
 
$
34.7
 
$
(190.1
)
$
(50.2
)
 
Foreign operations
 
 
(76.6
)
 
(346.3
)
 
(182.5
)
 
 
 
 
 
 
 
$
(41.9
)
$
(536.4
)
$
(232.7
)
 
 
 
 
 
Current income tax expense (recovery):
 
 
 
 
 
 
 
 
 
 
 
Canadian operations
 
$
17.2
 
$
(4.6
)
$
(3.2
)
 
Foreign operations
 
 
8.6
 
 
21.2
 
 
9.2
 
 
 
 
 
 
 
 
$
25.8
 
$
16.6
 
$
6.0
 
 
 
 
 
 
Deferred income tax expense (recovery):
 
 
 
 
 
 
 
 
 
 
 
Canadian operations
 
$
(5.4
)
$
(15.2
)
$
(10.8
)
 
Foreign operations
 
 
(22.5
)
 
(92.6
)
 
37.9
 
 
 
 
 
 
 
 
$
(27.9
)
$
(107.8
)
$
27.1
 
 
 
 
 
 
The overall income tax provision differs from the provision computed at the statutory rate as follows:

                                                                            YEAR ENDED DECEMBER 31
                                                                  ------------------------------------------
                                                                      2000           2001           2002
                                                                  ------------   ------------   ------------
    
    Combined Canadian federal and provincial income tax rate....       44.0%          42.1%          38.6%
                                                                     ------         ------        -------
    Income taxes (recovery) based on earnings (loss) before
      income taxes at statutory rates...........................     $121.4         $(17.7)       $(207.1)

    Increase (decrease) resulting from:
      Manufacturing and processing deduction....................      (17.7)          (5.0)           5.8
      Foreign income taxed at lower rates.......................      (43.9)          (2.9)         (19.2)
      Amortization and write-down of non-deductible goodwill and
        intangible assets.......................................        8.9           15.4           44.2
      Other, including large corporations tax...................        0.5            8.1            8.5
      Change in valuation allowance.............................     --             --               76.6
                                                                     ------         ------        -------
    Income tax expense (recovery)...............................     $ 69.2         $ (2.1)       $ (91.2)
                                                                     ======         ======        =======
 
 
Year ended December 31
 
 
 
2001
 
2002
 
2003
 
Combined Canadian federal and provincial income tax rate
 
 
42.1%
 
 
38.6%
 
 
36.6%
 
 
 
 
 
 
Income tax expense (recovery) based on loss before income taxes at statutory rate
 
$
(17.7
)
$
(207.1
)
$
(85.2
)
Increase (decrease) resulting from:
 
 
 
 
 
 
 
 
 
 
 
Manufacturing and processing deduction
 
 
(5.0
)
 
5.8
 
 
1.6
 
 
Foreign income taxed at lower rates
 
 
(2.9
)
 
(19.2
)
 
(6.7
)
 
Amortization and write-down of non-deductible goodwill and intangible assets
 
 
15.4
 
 
44.2
 
 
1.0
 
 
Other non-deductible items
 
 
8.1
 
 
8.5
 
 
13.7
 
 
Change in valuation allowance
 
 
—
 
 
76.6
 
 
108.7
 
 
 
 
 
 
Income tax expense (recovery)
 
$
(2.1
)
$
(91.2
)
$
33.1
 
 
 
 
 
 

Deferred income taxestax assets and liabilities are recognized for future income tax consequences attributable to differences between the financial statement carrying amounts of existing assets and liabilities, and their respective tax bases. Deferred income tax assets and liabilities are comprised of the following as at December 31, 20012002 and 2002:


                                                                     2001          2002
                                                                  -----------   -----------
    
    Deferred income tax assets:
      Income tax effect of operating losses carried forward.....    $ 51.9        $162.9
      Accounting provisions not currently deductible............      34.4          43.9
      Capital, intangible and other assets......................      17.0         143.9
      Share issue and convertible debt issue costs..............      17.2           9.5
      Restructuring accruals....................................      29.1          53.2
      Other.....................................................       4.5           5.2
                                                                    ------        ------
                                                                     154.1         418.6
      Valuation allowance.......................................     --            (76.6)
                                                                    ------        ------
    Total deferred income tax assets............................     154.1         342.0
                                                                    ------        ------
    Deferred income tax liabilities:
      Capital, intangible and other assets......................     (37.7)        (54.2)
      Deferred pension asset....................................      (9.1)        (10.0)
      Other.....................................................      (4.5)         (3.5)
                                                                    ------        ------
    Total deferred income tax liabilities.......................     (51.3)        (67.7)
                                                                    ------        ------
    Deferred income tax asset, net..............................    $102.8        $274.3
                                                                    ======        ======
2003:
 
 
2002
 
2003
 
Deferred income tax assets:
 
 
 
 
 
 
 
 
Income tax effect of operating losses carried forward
 
$
162.9
 
$
256.9
 
 
Accounting provisions not currently deductible
 
 
43.9
 
 
54.8
 
 
Capital, intangible and other assets
 
 
143.9
 
 
131.9
 
 
Share issue and convertible debt issue costs
 
 
9.5
 
 
5.0
 
 
Restructuring accruals
 
 
53.2
 
 
39.1
 
 
Other
 
 
5.2
 
 
1.2
 
 
 
 
 
 
 
 
418.6
 
 
488.9
 
 
Valuation allowance
 
 
(76.6
)
 
(185.3
)
 
 
 
 
Total deferred income tax assets
 
 
342.0
 
 
303.6
 
 
 
 
 
Deferred income tax liabilities:
 
 
 
 
 
 
 
 
Capital, intangible and other assets
 
 
(54.2
)
 
(62.1
)
 
Deferred pension asset
 
 
(10.0
)
 
(16.5
)
 
Other
 
 
(3.5
)
 
—
 
 
 
 
 
Total deferred income tax liabilities
 
 
(67.7
)
 
(78.6
)
 
 
 
 
Deferred income tax asset, net
 
$
274.3
 
$
225.0
 
 
 
 
 
The net deferred income tax asset arises from available income tax losses and future income tax deductions. The Company's ability to use these income tax losses and future income tax deductions is dependent upon the operations of the Company in the tax jurisdictions in which such losses or deductions arose. The Company records a valuation allowance against deferred income tax assets when management believes it is more likely than not that some portion or all of the deferred income tax assets will not be realized. Based on the reversal of deferred income tax liabilities, projected future taxable income, and the character of the income tax asset and tax planning strategies, the Company has determined that a valuation allowance of $76.6$185.3 is required in respect of its deferred income tax assets as at December 31, 2002. No2003. A valuation allowance of $76.6 was required for the deferred income tax assets as at December 31, 2001.2002. In order to fully utilize the net deferred income tax assets of $274.3,$225.0, the Company will need to generate future taxable income of approximately $741.0.$642.5. Based on the Company's current projection of taxable income for the periods in which the deferred income tax assets are deductible, it is more likely than not that the Company will realize the benefit of the net deferred income tax assets as at December 31, 2002.

                                      F-24

                                 CELESTICA INC.

             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

            (IN MILLIONS OF U.S. DOLLARS, EXCEPT PER SHARE AMOUNTS)

14. INCOME TAXES: (CONTINUED)
    Celestica intends to indefinitely re-invest income from all of its foreign
    subsidiaries. 2003.
The aggregate amount of undistributed earnings of Celestica's foreign subsidiaries for which no deferred income tax liability has been recorded is approximately $283.4$291.3 as at December 31, 2002.

    2003. Celestica intends to indefinitely re-invest income in these foreign subsidiaries.
Celestica has been granted tax incentives, including tax holidays, for its Czech Republic, China, Malaysia, Thailand and Singapore subsidiaries. The tax benefit arising from these incentives is approximately $17.6, or $0.08 diluted per share for 2003, $24.9, or $0.11 diluted per share for 2002, and $9.6, or $0.04 diluted per share for 2001, and
    $15.8, or $0.07 diluted per share for 2000.2001. These tax incentives expire between 2004 and 2012, and are subject to certain conditions with which the Company expects to comply.


As at December 31, 2002,2003, the Company had operating lossesloss carry forwards of $589.9; a
    portion of the income tax benefits of these losses has been recognized on
    the financial statements.$844.7. A summary of the operating loss carryforwards by year of expiry is as follows:

    YEAR OF EXPIRY                                                 AMOUNT
    --------------                                                --------
    
    2005........................................................   $  0.1
    2006........................................................      1.7
    2007........................................................    131.6
    2008........................................................      3.2
    2009........................................................      7.4
    2010-2022...................................................    176.5
    Indefinite..................................................    269.4
                                                                   ------
                                                                   $589.9
                                                                   ======


15.
Year of Expiry
 
Amount
2004
 
$
—
2005
 
 
—
2006
 
 
1.6
2007
 
 
100.9
2008
 
 
196.9
2009
 
 
2.0
2010-2022
 
 
300.9
Indefinite
 
 
242.4
 
 
 
 
$
844.7
 
 
13.   RELATED PARTY TRANSACTIONS:
In 2002,2003, the Company expensed management relatedmanagement-related fees of $2.2 (2001 -- $2.1;
    2000 --$1.4 (2002 — $2.2; 2001 — $2.1) and capitalized acquisition related fees of $Nil
    (2001 -- $Nil; 2000 -- $0.5) charged by its parent company. Management
    believes thatcompany, based on the fees charged were reasonable in relation to the services
    provided.

16.terms of a management agreement.
14.   PENSION AND NON-PENSION POST-EMPLOYMENT BENEFIT PLANS:
The Company provides pension and non-pension post-employment benefit plans for its employees. Pension benefits include traditional pension plans, as well as supplemental pension plans. CertainSome employees in Canada, Japan and the United Kingdom participate in defined benefit plans; all other employees participate in definedplans. Defined contribution
    plans. Maximum pension retirement benefits for employees participating in
    defined benefit plans are based upon the employees' best three consecutive
    years' pensionable earnings. Non-pensionoffered to most employees.
The Company provides non-pension post-employment benefits are
    available("Other benefit plans") to retired and terminated employees.employees mainly in Canada, Italy and the U.S. The benefits include one-time statutory retirement and termination benefits, medical, surgical, hospitalization coverage, supplemental health, dental and group life insurance.
The Company's pension funding policy is to contribute amounts sufficient to meet minimum local statutory funding requirements that are based on actuarial calculations. The Company may make additional discretionary contributions based on actuarial assessments. The most recent statutory
    pension actuarial valuations were completed as at March and April 2000. In
    2002, actuarial reviews of all defined benefit plans were completed.
    Contributions made by the Company to support ongoing plan obligations have been included in the deferred asset or liability accounts on the consolidated balance sheet. Contributions toThe most recent statutory pension fund assets are
    invested primarily in fixed incomeactuarial valuations were completed as at April and equity securities and assets are
    valued at market value.

    December 2002. The measurement date used for the accounting valuation for pensions is December 31, 2003.
The Company's non-pension post-employment benefitsbenefit plans are currently unfunded.funded as benefits payments are incurred. The most recent actuarial valuation for non-pension post-employment benefits was completed in January 2002.2003. The Company accrues the expected costs of providing non-pension post-employment benefits during the periods in which the employees render service. F-25

                                 CELESTICA INC.

             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

            (IN MILLIONS OF U.S. DOLLARS, EXCEPT PER SHARE AMOUNTS)

16. PENSION AND NON-PENSION POST-EMPLOYMENT BENEFIT PLANS: (CONTINUED)
    The measurement date used for the accounting valuation for non-pension post-employment benefits is December 31, 2003.
Pension fund assets are invested primarily in fixed income and equity securities. Asset allocation between fixed income and equity is adjusted based on the expected life of the plan and the expected retirement of the plan participants. Currently, the asset allocation allows for 50-55% investment in fixed income and 45-50% investment in equities through mutual funds. The Company employs both active and passive investment approaches in its pension plan asset management strategy. The Company's pension funds are not invested directly in equities or derivative instruments. The Company's pension funds are not invested directly in the equity of Celestica or its affiliates, but may be invested indirectly as a result of the inclusion of Celestica and its affiliates' equities in certain market investment funds.


The table below presents the market value of the assets as follows:
 
 
Fair Market Value
at December 31
 
Actual Asset Allocation (%)
at December 31
 
 
2002
 
2003
 
2002
 
2003
Asset Category:
 
 
 
 
 
 
 
 
 
 
Equities
 
$
104.2
 
$
125.2
 
60%
 
49%
Fixed income
 
 
68.6
 
 
120.7
 
39%
 
47%
Other
 
 
2.1
 
 
12.0
 
1%
 
4%
 
 
 
 
 
Total
 
$
174.9
 
$
257.9
 
100%
 
100%
 
 
 
 
 
The following table provides a summary of the estimated financial position of the Company's pension and non-pension post-employment benefit plans:

                                                                        PENSION PLANS            OTHER BENEFIT PLANS
                                                                   YEAR ENDED DECEMBER 31      YEAR ENDED DECEMBER 31
                                                                  -------------------------   -------------------------
                                                                     2001          2002          2001          2002
                                                                  -----------   -----------   -----------   -----------
    
    Plan assets, beginning of year..............................    $188.6        $174.5        $--           $--
      Employer contributions....................................      10.1          13.5           3.8           6.1
      Actual return on assets...................................     (13.1)        (21.9)        --            --
      Voluntary employee contributions..........................       2.1           4.6         --              0.1
      Effect of acquisitions....................................     --              4.8         --            --
      Benefits paid.............................................      (5.2)        (10.5)         (3.8)         (6.2)
    Foreign currency exchange rate changes......................      (8.0)          9.9         --            --
                                                                    ------        ------        ------        ------
    Plan assets, end of year....................................    $174.5        $174.9        $--           $--
                                                                    ======        ======        ======        ======

                                                                        PENSION PLANS            OTHER BENEFIT PLANS
                                                                   YEAR ENDED DECEMBER 31      YEAR ENDED DECEMBER 31
                                                                  -------------------------   -------------------------
                                                                     2001          2002          2001          2002
                                                                  -----------   -----------   -----------   -----------
    
    Accrued benefit obligations (ABO), beginning of year........    $170.3        $179.1        $ 47.7        $ 56.4
      Reclassification of supplemental plan.....................     --              4.9         --             (4.9)
      Service cost..............................................       8.6           7.2           7.6           9.7
      Interest cost.............................................      11.3          12.5           2.0           2.5
      Voluntary employee contributions..........................       2.1           4.6         --              0.1
      Actuarial (gains) / losses................................      (1.9)         14.0           3.2           8.2
      Plan amendments...........................................       1.9         --            --             (0.3)
      Effect of acquisitions....................................     --             22.8           1.1           0.9
      Effect of curtailments....................................     --              1.3         --             (1.1)
      Benefits paid.............................................      (5.2)        (10.5)         (3.8)         (6.2)
      Foreign currency exchange rate changes....................      (8.0)         14.6          (1.4)          0.1
                                                                    ------        ------        ------        ------
    Accrued benefit obligations, end of year....................    $179.1        $250.5        $ 56.4        $ 65.4
                                                                    ======        ======        ======        ======
    Deficit of plan assets over accrued benefit obligations.....    $ (4.6)       $(75.6)       $(56.4)       $(65.4)
    Unrecognized actuarial losses...............................      33.0          87.3           9.1           7.7
                                                                    ------        ------        ------        ------
    Deferred (accrued) pension cost.............................    $ 28.4        $ 11.7        $(47.3)       $(57.7)
                                                                    ======        ======        ======        ======
 
 
Pension Plans
Year ended December 31
 
Other Benefit Plans
Year ended December 31
 
 
 
2002
 
2003
 
2002
 
2003
 
Plan assets, beginning of year
 
$
174.5
 
$
174.9
 
$
—
 
$
—
 
 
Employer contributions
 
 
13.5
 
 
33.8
 
 
6.1
 
 
13.2
 
 
Actual return on assets
 
 
(21.9
)
 
25.6
 
 
—
 
 
—
 
 
Voluntary employee contributions
 
 
4.6
 
 
1.2
 
 
0.1
 
 
0.2
 
 
Effect of acquisitions
 
 
4.8
 
 
—
 
 
—
 
 
—
 
 
Benefits paid
 
 
(10.5
)
 
(10.4
)
 
(6.2
)
 
(13.4
)
 
Foreign currency exchange rate changes
 
 
9.9
 
 
32.8
 
 
—
 
 
—
 
 
 
 
 
 
 
Plan assets, end of year
 
$
174.9
 
$
257.9
 
$
—
 
$
—
 
 
 
 
 
 
 
 
 
Pension Plans
Year ended December 31
 
Other Benefit Plans
Year ended December 31
 
 
 
2002
 
2003
 
2002
 
2003
 
Projected benefit obligations (PBO), beginning of year
 
$
179.1
 
$
250.5
 
$
56.4
 
$
65.4
 
 
Reclassification of supplemental plan
 
 
4.9
 
 
—
 
 
(4.9
)
 
—
 
 
Service cost
 
 
7.2
 
 
7.3
 
 
9.7
 
 
9.8
 
 
Interest cost
 
 
12.5
 
 
14.6
 
 
2.5
 
 
3.3
 
 
Voluntary employee contributions
 
 
4.6
 
 
1.2
 
 
0.1
 
 
0.2
 
 
Actuarial losses
 
 
14.0
 
 
18.9
 
 
8.2
 
 
7.4
 
 
Plan amendments
 
 
—
 
 
(9.2
)
 
(0.3
)
 
(1.7
)
 
Effect of acquisitions
 
 
22.8
 
 
—
 
 
0.9
 
 
—
 
 
Effect of curtailments
 
 
1.3
 
 
(1.2
)
 
(1.1
)
 
(3.3
)
 
Benefits paid
 
 
(10.5
)
 
(10.4
)
 
(6.2
)
 
(13.4
)
 
Foreign currency exchange rate changes
 
 
14.6
 
 
39.2
 
 
0.1
 
 
12.8
 
 
 
 
 
 
 
 
Projected benefit obligations, end of year
 
$
250.5
 
$
310.9
 
$
65.4
 
$
80.5
 
 
 
 
 
 
 
Deficit of plan assets over projected benefit obligations
 
$
(75.6
)
$
(53.0
)
$
(65.4
)
$
(80.5
)
Unrecognized actuarial losses
 
 
87.3
 
 
86.8
 
 
7.7
 
 
15.7
 
 
 
 
 
 
 
Deferred (accrued) pension cost
 
$
11.7
 
$
33.8
 
$
(57.7
)
$
(64.8
)
 
 
 
 
 
 

The following table reconciles the deferred (accrued) pension balances to that reported as of December 31, 2002:


                                                                                    OTHER
                                                                    PENSION        BENEFIT
                                                                     PLANS          PLANS          TOTAL
                                                                  ------------   ------------   ------------
    
    Accrued pension and post-employment benefits................     $(19.5)        $(57.7)        $(77.2)
    Deferred pension assets (note 8)............................       31.2         --               31.2
                                                                     ------         ------         ------
                                                                     $ 11.7         $(57.7)        $(46.0)
                                                                     ======         ======         ======


                                      F-26

                                 CELESTICA INC.

             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

            (IN MILLIONS OF U.S. DOLLARS, EXCEPT PER SHARE AMOUNTS)

16. PENSION AND NON-PENSION POST-EMPLOYMENT BENEFIT PLANS: (CONTINUED)


                                                  PENSION PLANS                             OTHER BENEFIT PLANS
                                              YEAR ENDED DECEMBER 31                       YEAR ENDED DECEMBER 31
                                    ------------------------------------------   ------------------------------------------
                                        2000           2001           2002           2000           2001           2002
                                    ------------   ------------   ------------   ------------   ------------   ------------
    
    Net plan expense:
      Service cost................     $  7.5         $  8.6         $  7.2         $  1.5         $  7.6         $  9.7
      Interest cost...............       10.6           11.3           12.5            1.5            2.0            2.5
      Expected return on assets...      (13.9)         (14.0)         (13.7)        --             --             --
      Net amortization of
        actuarial
        (gains)/losses............       (0.2)          (0.1)           1.6            0.3            0.8            0.5
                                       ------         ------         ------         ------         ------         ------
                                          4.0            5.8            7.6            3.3           10.4           12.7

    Defined contribution pension
      plan expense................       12.8           18.9           21.9         --             --             --
    Curtailment loss..............     --             --                2.9         --             --                1.7
                                       ------         ------         ------         ------         ------         ------
    Total.........................     $ 16.8         $ 24.7         $ 32.4         $  3.3         $ 10.4         $ 14.4
                                       ======         ======         ======         ======         ======         ======

                                                  PENSION PLANS                             OTHER BENEFIT PLANS
                                              YEAR ENDED DECEMBER 31                       YEAR ENDED DECEMBER 31
                                    ------------------------------------------   ------------------------------------------
                                        2000           2001           2002           2000           2001           2002
                                    ------------   ------------   ------------   ------------   ------------   ------------
    
    Actuarial assumptions
      (percentages):
    Weighted average discount rate
      for projected benefit
      obligations.................       6.5            6.2            5.5            7.5            7.3            6.9
    Weighted average rate of
      compensation increase.......       4.0            4.5            4.0            4.5            4.5            5.0
    Weighted average expected
      long-term rate of return on
      plan assets.................       7.4            7.5            7.3          --             --             --
    Healthcare cost trend rate....     --             --             --               5.0            6.4           10.5

                                                                      OTHER BENEFIT PLANS
                                                                    YEAR ENDED DECEMBER 31
                                                                  ---------------------------
                                                                      2001           2002
                                                                  ------------   ------------
    
    Sensitivity re: healthcare trend rate for non-pension,
      post-employment benefits:
    1% Increase
      Effect on ABO.............................................     $ 5.1          $ 5.3
      Effect on service cost and interest cost..................       0.9            1.2

    1% Decrease
      Effect on ABO.............................................      (4.0)          (4.2)
      Effect on service cost and interest cost..................      (0.7)          (1.0)
2003:
 
 
Pension Plans
 
Other
Benefit Plans
 
Total
 
Accrued pension and post-employment benefits
 
$
(21.2
)
$
(64.8
)
$
(86.0
)
Deferred pension assets (note 6)
 
 
55.0
 
 
—
 
 
55.0
 
 
 
 
 
 
 
 
$
33.8
 
$
(64.8
)
$
(31.0
)
 
 
 
 
 
 
 
Pension Plans
Year ended December 31
 
Other Benefit Plans
Year ended December 31
 
 
2001
 
2002
 
2003
 
2001
 
2002
 
2003
Net periodic pension cost:
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Service cost
 
$
8.6
 
$
7.2
 
$
7.3
 
$
7.6
 
$
9.7
 
$
9.8
 
Interest cost
 
 
11.3
 
 
12.5
 
 
14.6
 
 
2.0
 
 
2.5
 
 
3.3
 
Expected return on assets
 
 
(14.0
)
 
(13.7
)
 
(13.7
)
 
—
 
 
—
 
 
—
 
Net amortization of actuarial (gains)/losses
 
 
(0.1
)
 
1.6
 
 
5.7
 
 
0.8
 
 
0.5
 
 
0.4
 
 
 
 
 
 
 
 
 
 
5.8
 
 
7.6
 
 
13.9
 
 
10.4
 
 
12.7
 
 
13.5
Defined contribution pension plan expense
 
 
18.9
 
 
21.9
 
 
17.6
 
 
—
 
 
—
 
 
—
Curtailment loss
 
 
—
 
 
2.9
 
 
—
 
 
—
 
 
1.7
 
 
0.1
 
 
 
 
 
 
 
Total expense for the year
 
$
24.7
 
$
32.4
 
$
31.5
 
$
10.4
 
$
14.4
 
$
13.6
 
 
 
 
 
 
 
 
 
Pension Plans
Year ended December 31
 
Other Benefit Plans
Year ended December 31
 
 
2001
 
2002
 
2003
 
2001
 
2002
 
2003
Actuarial assumptions (percentages):
 
 
 
 
 
 
 
 
 
 
 
 
Weighted average discount rate for:
 
 
 
 
 
 
 
 
 
 
 
 
 
Projected benefit obligations
 
6.2
 
5.5
 
5.5
 
7.3
 
6.9
 
6.4
 
Net periodic pension cost
 
6.5
 
6.2
 
5.5
 
7.5
 
7.3
 
6.9
Weighted average rate of compensation increase for:
 
 
 
 
 
 
 
 
 
 
 
 
 
Projected benefit obligations
 
4.5
 
4.0
 
3.4
 
4.5
 
5.0
 
4.0
 
Net periodic pension cost
 
4.0
 
4.5
 
4.0
 
4.5
 
4.5
 
5.0
Weighted average expected long-term rate of return on plan assets for:
 
 
 
 
 
 
 
 
 
 
 
 
 
Estimated rate for the following 12-month net periodic pension cost
 
7.5
 
7.3
 
6.5
 
—
 
—
 
—
 
Net periodic pension cost
 
7.4
 
7.5
 
7.3
 
—
 
—
 
—
Healthcare cost trend rate for:
 
 
 
 
 
 
 
 
 
 
 
 
 
Projected benefit obligations
 
—
 
—
 
—
 
6.4
 
10.5
 
9.7
 
Net periodic pension cost
 
—
 
—
 
—
 
5.0
 
6.4
 
10.5
 
Estimated rate for the following 12 month net periodic pension cost
 
—
 
—
 
—
 
6.4
 
10.5
 
9.7

 
 
Other Benefit Plans
Year ended December 31
 
 
 
2002
 
2003
 
Sensitivity re: healthcare trend rate for non-pension post-employment benefits:
 
 
 
 
 
 
 
1% Increase
 
 
 
 
 
 
 
 
Effect on PBO
 
$
5.3
 
$
5.9
 
 
Effect on service cost and interest cost
 
 
1.2
 
 
1.4
 
1% Decrease
 
 
 
 
 
 
 
 
Effect on PBO
 
 
(4.2
)
 
(6.8
)
 
Effect on service cost and interest cost
 
 
(1.0
)
 
(1.2
)
The ultimate healthcare trend rate is estimated to be 5% and is expected to be achieved between 2008 and 2011.
The weighted average rate of return for each asset class contained in the Company's approved investment strategy is used to derive the expected long-term rate of return on assets. For fixed income securities, the long-term rate of return on bonds for each country is used. The duration of the long-term rate of return on the bonds coincides with the estimated maturity of the plan obligations. For equity securities, an expected equity risk premium is aggregated with the long-term rate of return on bonds. The expected equity risk premium is specific for each country and is based on historic equity returns.
In 2002, the Company assumed net pension liabilities relating to an acquisition in Japan from NEC Corporation. Regulatory funding restrictions preclude the Company from fully funding the plan. The plan has an
    accumulated benefit obligation of $31.3 in excess of its plan assets of
    $6.8. At the time of closing the acquisition, the Company received amounts to cover the unfunded liabilities.

    Theportion of the liabilities that was not funded. In 2003, the Company amended the pension plan in Japan, which resulted in a gain of $9.2. At December 31, 2003, the plan has an accumulated benefit obligation of $33.8 in excess of its plan assets of $17.8.
At December 31, 2003, the Company has a second pension plan with an accumulated benefit obligation of $123.2$162.5 that is in excess of plan assets of $83.7.

    The$129.6.
At December 31, 2003, the Company has a supplemental retirement plan that has an accumulated benefit obligation of $8.7$13.3 and no plan assets.assets of $0.6. In 2002, the plan was reclassified from other benefit plans to pension plans.
At December 31, 2003, the total accumulated benefit obligation for the pension plans was $302.6 and for the non-pension post-employment benefit plans was $80.5.
In 2002, the Company incurred net curtailment losses due to the rationalization of facilities. These losses are included as restructuring charges in note 13(b)11(b).

                                      F-27

                                 CELESTICA INC.

             NOTES TO CONSOLIDATED
In 2003, the Company made contributions to the pension plans of $33.8, of which $26.7 was discretionary. The Company estimates that it will make between $7.0 and $10.0 in statutory contributions to the pension plans in 2004. The Company may, from time to time, make additional voluntary contributions to the pension plans. The estimated additional voluntary contributions for 2004 is between $8.0 and $10.0.
In 2003, the Company made contributions to the non-pension post-employment benefit plans of $13.2 to fund benefit payments. Contributions to these plans are estimated to be between $6.0 and $8.0 in 2004.

15.   FINANCIAL STATEMENTS (CONTINUED)

            (IN MILLIONS OF U.S. DOLLARS, EXCEPT PER SHARE AMOUNTS)

17. FINANCIAL INSTRUMENTS:

    FAIR VALUES:

    
Fair values:
The following methods and assumptions were used to estimate the fair value of each class of financial instruments:
(a)
The carrying amounts of cash, short-term investments, accounts receivable, accounts payable and accrued liabilities approximate fair value due to the short-term nature of these instruments.

(b) In 2001, the fair value of the Company's Senior Subordinated Notes was
       estimated based on the current trading value, where available, or with
       reference to similarly traded instruments with similar terms.

    (c) 
The fair values of foreign currency contract obligations are estimated based on the current trading value, as quoted by brokers active in these markets.
The carrying amounts and fair values of the Company's financial instruments, where there are differences, at December 31, 2001, and 2002, are as follows:

                                                                      DECEMBER 31, 2001             DECEMBER 31, 2002
                                                                 ---------------------------   ---------------------------
                                                                   CARRYING         FAIR         CARRYING         FAIR
                                                                    AMOUNT         VALUE          AMOUNT         VALUE
                                                                 ------------   ------------   ------------   ------------
    
    Senior Subordinated Notes and other long-term debt.........     $143.0         $149.5         $  6.9         $  6.9
    Foreign currency contracts -- asset (liability)............     --               (7.4)        --               18.9


    DERIVATIVES AND HEDGING ACTIVITIES:

    
 
 
December 31, 2002
 
December 31, 2003
 
 
Carrying Amount
 
Fair Value
 
Carrying Amount
 
Fair Value
Foreign currency contracts — asset
 
—
 
$
18.9
 
—
 
$
49.8
Derivatives and hedging activities:
The Company has entered into foreign currency contracts to hedge foreign currency risk relating to cash flow and cash position exposures. The Company's forward exchange contracts do not subject the Company to risk from exchange rate movements because gains and losses on such contracts offset losses and gains on exposures being hedged. The counterparties to the contracts are multinational commercial banks and, therefore, the credit risk of counterparty non-performance is low. As at
At December 31, 2002,2003, the Company had forward foreign exchange contracts to trade $282.7 in U.S. dollars in exchange for Canadian dollars over a period of 15 months at a weighted
    average exchange rate of U.S. $0.64. The Company also had forward contracts
    to trade $10.6 in exchange for Canadian dollars over a period of 37 months
    at a weighted average exchange rate of U.S. $0.63. In addition, the Company
    had exchange contracts to trade $168.7 in exchange for euros over a period
    of 15 months at a weighted average exchange rate of U.S. $0.93, $36.4 in
    exchange for British pounds sterling over a period of 13 months at a
    weighted average exchange rate of U.S. $1.45, $37.1 in exchange for Mexican
    pesos over a period of 12 months at a weighted average exchange rate of
    U.S. $0.10, $27.6 in exchange for Singapore dollars over a period of
    12 months at a weighted average exchange rate of U.S. $0.57, 64.5 Brazilian
    reais in exchange for U.S. dollars over a period of 1 month at a weighted
    average exchange rate of U.S. $0.30, $40.7 in exchange for Japanese yen over
    a period of 1 month at a weighted average exchange rate of U.S. $0.01, and
    $11.9 in exchange for Czech koruna over a period of 12 months at a weighted
    average exchange rate of U.S. $0.03. following currencies:
Currency
 
Amount of U.S. dollars
 
Weighted average exchange rate of U.S. dollars
 
Maximum period in months
Canadian dollars
 
$
278.4
 
$
0.70
 
25
Euros
 
 
115.1
 
 
1.09
 
13
Thai baht
 
 
59.4
 
 
0.02
 
12
Chinese renminbi
 
 
54.6
 
 
0.12
 
12
Mexican peso
 
 
44.6
 
 
0.09
 
15
Singapore dollars
 
 
24.3
 
 
0.58
 
12
Czech koruna
 
 
24.0
 
 
0.04
 
12
British pounds sterling
 
 
22.8
 
 
1.57
 
15
At December 31, 2002,2003, these contracts hadwere in a fair-value asset position of $18.9 (2001 -- liability$49.8 (2002 — asset of $7.4)$18.9).

    CONCENTRATION OF RISK:

    
Concentration of risk:
Financial instruments that potentially subject the Company to concentrations of credit risk are primarily inventory repurchase obligations of customers, accounts receivable and cash equivalents. The Company performs ongoing credit evaluations of its customers' financial conditions. In certain instances, the Company obtains letters of credit or other forms of security from its customers. The Company considers its concentrations of credit risk in determining its estimates of reserves for potential credit losses. The Company maintains cash and cash equivalents in high quality short-term investments or on deposit with major financial institutions.

18.

16.   COMMITMENTS, CONTINGENCIES AND GUARANTEES:

    The
At December 31, 2003, the Company has operating leases that require future payments as follows:

                                                                  OPERATING
                                                                   LEASES
                                                                  ---------
    
    2003........................................................   $106.5
    2004........................................................     59.5
    2005........................................................     38.9
    2006........................................................     23.0
    2007........................................................     18.9
    Thereafter..................................................     91.5


                                      F-28

                                 CELESTICA INC.

             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

            (IN MILLIONS OF U.S. DOLLARS, EXCEPT PER SHARE AMOUNTS)

18. COMMITMENTS, CONTINGENCIES AND GUARANTEES: (CONTINUED)
    
 
 
Operating Leases
2004
 
$
60.8
2005
 
 
43.1
2006
 
 
30.1
2007
 
 
21.8
2008
 
 
18.9
Thereafter
 
 
80.5
Effective January 1, 2003, the Company adopted the new CICA Accounting Guideline AcG-14, "Disclosure of Guarantees", which requires certain disclosures of obligations under guarantees.
Contingent liabilities in the form of letters of credit, letters of guarantee, and surety and performance bonds, are provided to various third parties. These guarantees cover various payments including customs and excise taxes, utility commitments and certain bank guarantees. At December 31, 2002,2003, these liabilities, including guarantees of employee share purchase loans, amounted to $61.2 (2001 --  $24.1)$55.9
(2002 — $61.2).
In addition to the above guarantees, the Company has also provided routine indemnifications, whose terms range in duration and often are not explicitly defined. These guarantees may include indemnifications against adverse effects due to changes in tax laws and patent infringements by third parties. The maximum amounts from these indemnifications cannot be reasonably estimated. In some cases, the Company has recourse against other parties to mitigate its risk of loss from these guarantees.indemnifications. Historically, the Company has not made significant payments relating to these types of indemnifications.
Under the terms of an existinga real estate lease which expires in 2004, Celestica has the right to acquireCompany acquired the real estate at a purchase price equal
    toproperty for $37.3 in December 2003, representing the lease balance, which currently is approximately $37.3. Inbalance. The Company recorded an impairment charge of $14.3 to reflect the event
    that the lease is not renewed, subject to certain conditions, Celestica may
    choose to market and complete the salefair value of the real estate on behalfestate. This charge was recorded as part of the lessor. If the highest offer received is less than the lease balance,
    Celestica would pay the lessor the lease balance less the gross sale
    proceeds, subject to a maximum of $31.5. In the event that no acceptable
    offers are received, Celestica would pay the lessor $31.5 and return the
    property to the lessor. Alternatively, Celestica may choose to acquire the
    real estate at the expiration for a price equal to the then current lease
    balance. The future lease payments under this lease are included in the
    total operating lease commitments.

    other impairment against capital assets. See note 11(e).
In the normal course of operations the Company may be subject to litigation and claims from customers, suppliers and former employees. Management believes that adequate provisions have been recorded in the accounts where required. Although it is not possible to estimate the extent of potential costs, if any, management believes that the ultimate resolution of such contingencies would not have a material adverse effect on the results of operations, financial position or liquidity of the Company.

19.
17.   SIGNIFICANT CUSTOMERS:
During 2003, four customers individually comprised 13%, 11%, 10% and 10% of total revenue across all geographic segments. At December 31, 2003, one customer represented 18% of total accounts receivable.
During 2002, three customers individually comprised 17%, 16% and 15% of total revenue across all geographic segments. At December 31, 2002, one customer represented 28% of total accounts receivable.
During 2001, three customers individually comprised 23%, 21% and 11% of total revenue across all geographic segments. At December 31, 2001, two customers represented 14% and 26% of total accounts receivable.

    During 2000, two customers individually comprised 25% and 21% of total
    revenue across all geographic segments. At December 31, 2000, two customers
    represented 21% and 26% of total accounts receivable.

20.
18.   SEGMENTED INFORMATION:
The Company's operations fall into one dominant industry segment, the electronics manufacturing services industry. The Company manages its operations, and accordingly determines its operating segments, on a geographic basis. The performance of geographic operating segments is monitored based on EBIAT (earnings(earnings/loss before interest, income taxes, amortization of goodwill and intangible assets, integration costs related to acquisitions and other charges). Inter-segment transactions are reflected at market value.

The following is a breakdown by reporting segment:

                                                                            YEAR ENDED DECEMBER 31
                                                                  ------------------------------------------
                                                                      2000           2001           2002
                                                                  ------------   ------------   ------------
    
    REVENUE
    Americas....................................................    $6,542.7      $ 6,334.6       $4,640.8
    Europe......................................................     2,823.3        3,001.3        1,786.5
    Asia........................................................       871.6          991.1        2,109.7
    Elimination of inter-segment revenue........................      (485.5)        (322.6)        (265.4)
                                                                    --------      ---------       --------
                                                                    $9,752.1      $10,004.4       $8,271.6
                                                                    ========      =========       ========


                                      F-29

                                 CELESTICA INC.

             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

            (IN MILLIONS OF U.S. DOLLARS, EXCEPT PER SHARE AMOUNTS)

20. SEGMENTED INFORMATION: (CONTINUED)


                                                                            YEAR ENDED DECEMBER 31
                                                                  ------------------------------------------
    EBIAT                                                             2000           2001           2002
    -----                                                         ------------   ------------   ------------
    
    Americas....................................................     $200.1        $ 192.9        $ 157.7
    Europe......................................................      121.1          128.5          (11.5)
    Asia........................................................       40.7           49.7          111.1
                                                                     ------        -------        -------
                                                                      361.9          371.1          257.3
    Interest, net...............................................       19.0            7.9            1.1
    Amortization of goodwill and intangible assets..............      (88.9)        (125.0)         (95.9)
    Integration costs related to acquisitions...................      (16.1)         (22.8)         (21.1)
    Other charges...............................................     --             (273.1)        (677.8)
                                                                     ------        -------        -------
    Earnings (loss) before income taxes.........................     $275.9        $ (41.9)       $(536.4)
                                                                     ======        =======        =======

                                                                            YEAR ENDED DECEMBER 31
                                                                  ------------------------------------------
                                                                      2000           2001           2002
                                                                  ------------   ------------   ------------
    
    CAPITAL EXPENDITURES
    Americas....................................................     $154.0         $107.9         $ 90.0
    Europe......................................................       86.9           55.4           28.0
    Asia........................................................       41.9           36.0           33.4
                                                                     ------         ------         ------
                                                                     $282.8         $199.3         $151.4
                                                                     ======         ======         ======

                                                                       AS AT DECEMBER 31
                                                                  ---------------------------
                                                                      2001           2002
                                                                  ------------   ------------
    
    TOTAL ASSETS
    Americas....................................................    $3,408.2       $2,894.1
    Europe......................................................     1,626.3        1,047.6
    Asia........................................................     1,598.4        1,865.1
                                                                    --------       --------
                                                                    $6,632.9       $5,806.8
                                                                    ========       ========
    CAPITAL ASSETS
    Americas....................................................    $  468.0       $  281.1
    Europe......................................................       279.1          231.9
    Asia........................................................       168.0          214.8
                                                                    --------       --------
                                                                    $  915.1       $  727.8
                                                                    ========       ========
 
 
Year ended December 31
 
 
 
2001
 
2002
 
2003
 
Revenue
 
 
 
 
 
 
 
 
 
 
Americas
 
$
6,334.6
 
$
4,640.8
 
$
3,091.1
 
Europe
 
 
3,001.3
 
 
1,786.5
 
 
1,399.3
 
Asia
 
 
991.1
 
 
2,109.7
 
 
2,475.4
 
Elimination of inter-segment revenue
 
 
(322.6
)
 
(265.4
)
 
(230.5
)
 
 
 
 
 
 
 
$
10,004.4
 
$
8,271.6
 
$
6,735.3
 
 
 
 
 
 
 
 
Year ended December 31
 
 
 
2001
 
2002
 
2003
 
EBIAT
 
 
 
 
 
 
 
 
 
 
Americas
 
$
192.9
 
$
157.7
 
$
14.4
 
Europe
 
 
128.5
 
 
(11.5
)
 
(95.8
)
Asia
 
 
49.7
 
 
111.1
 
 
68.6
 
 
 
 
 
 
 
 
 
371.1
 
 
257.3
 
 
(12.8
)
Interest, net
 
 
7.9
 
 
1.1
 
 
4.0
 
Amortization of goodwill and intangible assets
 
 
(125.0
)
 
(95.9
)
 
(48.5
)
Integration costs related to acquisitions
 
 
(22.8
)
 
(21.1
)
 
—
 
Other charges
 
 
(273.1
)
 
(677.8
)
 
(175.4
)
 
 
 
 
 
Loss before income taxes
 
$
(41.9
)
$
(536.4
)
$
(232.7
)
 
 
 
 
 
 
 
Year ended December 31
 
 
2001
 
2002
 
2003
Capital expenditures
 
 
 
 
 
 
 
 
 
Americas
 
$
107.9
 
$
90.0
 
$
84.3
Europe
 
 
55.4
 
 
28.0
 
 
7.8
Asia
 
 
36.0
 
 
33.4
 
 
83.8
 
 
 
 
 
 
$
199.3
 
$
151.4
 
$
175.9
 
 
 
 
 
 
As at December 31
 
 
2002
 
2003
Total assets
 
 
 
 
 
 
Americas
 
$
2,894.1
 
$
1,762.4
Europe
 
 
1,047.6
 
 
1,084.6
Asia
 
 
1,865.1
 
 
2,287.7
 
 
 
 
 
$
5,806.8
 
$
5,134.7
 
 
 
Capital assets
 
 
 
 
 
 
Americas
 
$
281.1
 
$
259.2
Europe
 
 
231.9
 
 
166.2
Asia
 
 
214.8
 
 
254.2
 
 
 
 
 
$
727.8
 
$
679.6
 
 
 

The following table details the Company's external revenue allocated by manufacturing location among foreign countries exceeding 10%:

                                                                            YEAR ENDED DECEMBER 31
                                                                  ------------------------------------------
                                                                      2000           2001           2002
                                                                  ------------   ------------   ------------
    
    REVENUE
    Canada......................................................      28%            20%            15%
    United States...............................................      30%            35%            37%
    Italy.......................................................      10%            13%            13%
    United Kingdom..............................................      17%            11%          --


                                      F-30

                                 CELESTICA INC.

             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

            (IN MILLIONS OF U.S. DOLLARS, EXCEPT PER SHARE AMOUNTS)

21.
 
 
Year ended December 31
 
 
2001
 
2002
 
2003
Revenue
 
 
 
 
 
 
Canada
 
20%
 
15%
 
20%
United States
 
35%
 
37%
 
21%
Italy
 
13%
 
13%
 
13%
United Kingdom
 
11%
 
—
 
—
19.   SUPPLEMENTAL CASH FLOW INFORMATION:

                                                                            YEAR ENDED DECEMBER 31
                                                                  ------------------------------------------
                                                                      2000           2001           2002
                                                                  ------------   ------------   ------------
    
    Paid during the year:
      Interest..................................................     $15.9          $ 20.7         $22.0
      Taxes.....................................................     $55.0          $ 89.0         $25.5

    Non-cash financing activities:
      Convertible debt accretion, net of tax....................     $ 5.4          $ 15.0         $17.5
      Shares issued for acquisitions............................     $--            $567.0         $--


22.
 
 
Year ended December 31
 
 
2001
 
2002
 
2003
Paid during the year:
 
 
 
 
 
 
 
 
 
 
Interest
 
$
20.7
 
$
22.0
 
$
10.4
 
Taxes
 
$
89.0
 
$
25.5
 
$
14.1
Non-cash financing activities:
 
 
 
 
 
 
 
 
 
 
Convertible debt accretion, net of tax
 
$
15.0
 
$
17.5
 
$
15.5
 
Shares issued for acquisitions
 
$
567.0
 
$
—
 
$
—
20.   CANADIAN AND UNITED STATES ACCOUNTING POLICY DIFFERENCES:
The consolidated financial statements of the Company have been prepared in accordance with generally accepted accounting principles (GAAP) as applied
    in Canada.Canadian GAAP. The significant differences between Canadian and U.S. GAAP, and their effect on the consolidated financial statements of the Company, are described below:

    CONSOLIDATED STATEMENTS OF EARNINGS (LOSS):

    
Consolidated statements of loss:
The following table reconciles net earnings (loss)loss as reported in the accompanying consolidated statements of earnings (loss)loss to net earnings
    (loss)loss that would have been reported had the consolidated financial statements been prepared in accordance with U.S. GAAP:

                                                                            YEAR ENDED DECEMBER 31
                                                                  ------------------------------------------
                                                                      2000           2001           2002
                                                                  ------------   ------------   ------------
    
    Net earnings (loss) in accordance with Canadian GAAP........     $206.7         $(39.8)       $(445.2)
    Compensation expense (a)....................................       (2.5)          (3.2)          (3.8)
    Interest expense on convertible debt, net of tax (b)........       (6.8)         (17.7)         (27.8)
    Gain on repurchase of convertible debt, net of tax (b)......     --             --                8.4
    Other charges, net of tax (c)...............................     --               (2.7)         (26.5)
    Gain on foreign exchange contract, net of tax (d)...........     --               12.1         --
                                                                     ------         ------        -------
    Net earnings (loss) in accordance with U.S. GAAP............     $197.4         $(51.3)       $(494.9)

    Other comprehensive income (loss):
    Cumulative effect of a change in accounting policy, net of
      tax (e)...................................................     --                5.6         --
    Net gain (loss) on derivatives designated as hedges, net of
      tax (e)...................................................     --              (11.7)          21.8
    Minimum pension liability, net of tax (f)...................     --              (14.9)         (23.6)
    Foreign currency translation adjustment.....................     --                1.2           20.2
                                                                     ------         ------        -------
    Comprehensive income (loss) in accordance with U.S. GAAP....     $197.4         $(71.1)       $(476.5)
                                                                     ======         ======        =======
 
 
Year ended December 31
 
 
 
2001
 
2002
 
2003
 
Net loss in accordance with Canadian GAAP
 
$
(39.8
)
$
(445.2
)
$
(265.8
)
Compensation expense (a)
 
 
(3.2
)
 
(3.8
)
 
—
 
Interest expense on convertible debt, net of tax (b)
 
 
(17.7
)
 
(27.8
)
 
(19.9
)
Gain on repurchase of convertible debt, net of tax (b)
 
 
—
 
 
8.4
 
 
1.9
 
Other charges and amortization, net of tax (c)
 
 
(2.7
)
 
(26.5
)
 
26.8
 
Gain on foreign exchange contract, net of tax (d)
 
 
12.1
 
 
—
 
 
—
 
Leasehold retirement obligations, net of tax (g)
 
 
—
 
 
—
 
 
(0.9
)
2003 compensation expense (h)
 
 
—
 
 
—
 
 
0.3
 
 
 
 
 
 
Net loss before cumulative effect of a change in accounting policy, in accordance with U.S. GAAP
 
 
(51.3
)
 
(494.9
)
 
(257.6
)
Cumulative effect of a change in accounting policy, net of tax (g)
 
 
—
 
 
—
 
 
(1.3
)
 
 
 
 
 
Net loss in accordance with U.S. GAAP
 
$
(51.3
)
$
(494.9
)
$
(258.9
)
Other comprehensive loss:
 
 
 
 
 
 
 
 
 
 
Cumulative effect of a change in accounting policy, net of tax (e)
 
 
5.6
 
 
—
 
 
—
 
Net gain (loss) on derivatives designated as hedges, net of tax (e)
 
 
(11.7
)
 
21.8
 
 
21.4
 
Minimum pension liability, net of tax (f)
 
 
(14.9
)
 
(23.6
)
 
(1.8
)
Foreign currency translation adjustment
 
 
1.2
 
 
20.2
 
 
12.8
 
 
 
 
 
 
Comprehensive loss in accordance with U.S. GAAP
 
$
(71.1
)
$
(476.5
)
$
(226.5
)
 
 
 
 
 

The following table details the computation of U.S. GAAP basic and diluted earnings (loss)loss per share:

                                                                            YEAR ENDED DECEMBER 31
                                                                  ------------------------------------------
                                                                      2000           2001           2002
                                                                  ------------   ------------   ------------
    
    Earnings (loss) available to shareholders -- basic..........     $197.4         $(51.3)       $(494.9)
    Add back: Interest expense on convertible debt, net of tax
      (if dilutive).............................................        6.8         --             --
                                                                     ------         ------        -------
    Earnings (loss) available to shareholders -- diluted........     $204.2         $(51.3)       $(494.9)
                                                                     ======         ======        =======
    Weighted average shares -- basic (in millions)..............      199.8          213.9          229.8
    Weighted average shares -- diluted (in millions)(1).........      211.8          213.9          229.8

    Basic earnings (loss) per share.............................     $ 0.99         $(0.24)       $ (2.15)
    Diluted earnings (loss) per share...........................     $ 0.96         $(0.24)       $ (2.15)


    -------------------

    
 
 
Year ended December 31
 
 
 
2001
 
2002
 
2003
 
Loss available to shareholders — basic and diluted
 
$
(51.3
)
$
(494.9
)
$
(258.9
)
Weighted average shares — basic (in millions)
 
 
213.9
 
 
229.8
 
 
216.5
 
Weighted average shares — diluted (in millions)(1)
 
 
213.9
 
 
229.8
 
 
216.5
 
Basic loss per share
 
$
(0.24
)
$
(2.15
)
$
(1.20
)
Diluted loss per share
 
$
(0.24
)
$
(2.15
)
$
(1.20
)
(1) For 2001 and 2002, excludes
Excludes the effect of all options and convertible debt as they are anti-dilutive due to the loss.

                                      F-31

                                 CELESTICA INC.

             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

            (IN MILLIONS OF U.S. DOLLARS, EXCEPT PER SHARE AMOUNTS)

22. CANADIAN AND UNITED STATES ACCOUNTING POLICY DIFFERENCES: (CONTINUED)
    loss reported in the year.
The cumulative effect of these adjustments on shareholders' equity of the Company is as follows:

                                                                              AS AT DECEMBER 31
                                                                  ------------------------------------------
                                                                      2000           2001           2002
                                                                  ------------   ------------   ------------
    
    Shareholders' equity in accordance with Canadian GAAP.......    $3,469.3       $4,745.6       $4,203.6
    Compensation expense (a)....................................       (10.6)         (13.8)         (17.6)
    Capital stock (a)...........................................         8.6           11.8           15.6
    Interest expense on convertible debt, net of tax (b)........        (6.8)         (24.5)         (52.3)
    Convertible debt (b)........................................      (860.5)        (886.8)        (804.6)
    Convertible debt accretion, net of tax (b)..................         5.4           20.4           37.9
    Gain on repurchase of convertible debt for Canadian GAAP
      (b).......................................................      --             --               (6.7)
    Gain on repurchase of convertible debt for U.S. GAAP (b)....      --             --                8.4
    Other charges (c)...........................................      --               (2.7)         (29.2)
    Gain on foreign exchange contract, net of tax (d)...........      --               12.1           12.1
    Net gain (loss) on cash flow hedges (e).....................      --               (6.1)          15.7
    Minimum pension liability, net of tax (f)...................      --              (14.9)         (38.5)
                                                                    --------       --------       --------
    Shareholders' equity in accordance with U.S. GAAP...........    $2,605.4       $3,841.1       $3,344.4
                                                                    ========       ========       ========
    ---------------
 
 
As at December 31
 
 
 
2001
 
2002
 
2003
 
Shareholders' equity in accordance with Canadian GAAP
 
$
4,745.6
 
$
4,203.6
 
$
3,468.3
 
Compensation expense (a)
 
 
(2.0
)
 
(2.0
)
 
(2.0
)
Interest expense on convertible debt, net of tax (b)
 
 
(24.5
)
 
(52.3
)
 
(72.2
)
Convertible debt (b)
 
 
(886.8
)
 
(804.6
)
 
(603.5
)
Convertible debt accretion, net of tax (b)
 
 
20.4
 
 
37.9
 
 
53.4
 
Gain on repurchase of convertible debt for Canadian GAAP (b)
 
 
—
 
 
(6.7
)
 
(3.9
)
Gain on repurchase of convertible debt for U.S. GAAP (b)
 
 
—
 
 
8.4
 
 
10.3
 
Other charges and amortization (c)
 
 
(2.7
)
 
(29.2
)
 
(2.4
)
Gain on foreign exchange contract, net of tax (d)
 
 
12.1
 
 
12.1
 
 
12.1
 
Net gain (loss) on cash flow hedges (e)
 
 
(6.1
)
 
15.7
 
 
37.1
 
Minimum pension liability, net of tax (f)
 
 
(14.9
)
 
(38.5
)
 
(40.3
)
Cumulative effect of a change in accounting policy, net of tax (g)
 
 
—
 
 
—
 
 
(1.3
)
Leasehold retirement obligations, net of tax (g)
 
 
—
 
 
—
 
 
(0.9
)
 
 
 
 
 
Shareholders' equity in accordance with U.S. GAAP
 
$
3,841.1
 
$
3,344.4
 
$
2,854.7
 
 
 
 
 
 
(a)
In 1998, the Company amended the vesting provisions of 6.2 million employee stock options issued in 1997 and 1998. Under the previous vesting provisions, such options vested based on the achievement of earnings targets. AAs a result, a portion of these options now vestvested over a specified time period and the balance vested on completion of the initial public offering in 1998. Under U.S. GAAP, this amendment required a new measurement date for purposes of accounting for compensation expense, resulting in a charge equal to the aggregate difference between the fair value of the underlying subordinate voting shares at the date of the amendment and the exercise price for such options. As a result, under U.S. GAAP the Company has recorded an aggregate $15.6 non-cash stock compensation charge reflected in earnings and capital stock over the vesting period as follows: 1998 --— $4.2; 1999 --— $1.9; 2000 --— $2.5; 2001 --— $3.2; 2002 --— $3.8. No similar charge is required to be recorded by the Company under Canadian GAAP.
Goodwill for Canadian GAAP is $2.0 higher than under U.S. GAAP as the final settlement of an earn-out was expensed for U.S. GAAP in 1998.
(b)
Under Canadian GAAP, the Company recorded the convertible debt as an equity instrument and recorded accretion charges to retained earnings. Under U.S. GAAP, the convertible debt was recorded as a long-term liability and, accordingly, the Company recorded the accretion charges and amortization of debt issue costs to interest expense of $19.9, net of tax of $9.8 (2002 — $27.8, net of tax of $13.9 (2001 --$13.9; 2001 — $17.7, net of tax of $9.5; 2000 -- $6.8, net of tax
       of $3.8)$9.5).

       In 2002, the
The Company has reported a cumulative gain on the repurchase of a portion of convertible debt. Under Canadian GAAP, thethis cumulative gain is recorded to retained earnings. Under U.S. GAAP, the Company records the gain through income of $1.9, net of $0.9 in taxes (2002 �� $8.4, net of $4.2 in taxes.

    taxes).
(c)
In 2002, the Company recorded impairment charges to write-down certain assets, primarily intangible assets, which waswere measured using undiscounted cash flows. U.S. GAAP requires the use of discounted cash flows, resulting in an additional charge of $26.5, net of tax of $2.0
       (2001 -- $2.7).

    $2.0. In 2003, the Company wrote-down certain assets for $16.2, net of tax of $0.6 under Canadian GAAP which were

previously written down under U.S. GAAP. The Company also adjusted for 2003 amortization expense of $10.6, net of tax of $0.8, recorded under Canadian GAAP relating to these assets which were written down under U.S. GAAP.
(d)
In 2001, the Company entered into a forward exchange contract to hedge the cash portion of the purchase price for the Omni acquisition. The transaction does not qualify for hedge accounting treatment under SFAS No. 133, which specifically precludes hedges of forecasted business combinations. As a result, the gain on the exchange contract of $15.7, less tax of $3.6, is recognized in income for U.S. GAAP. For Canadian GAAP, the gain on the contract was included in the cost of the acquisition, resulting in a goodwill value that is $15.7 lower for Canadian GAAP than U.S. GAAP.

(e)
The Financial Accounting Standards Board (FASB) has issued SFAS No. 133, "Accounting for Derivative Instruments and Hedging Activities" and SFAS No. 138 which amends SFAS No. 133. SFAS No. 133 establishes methods of accounting for derivative financial instruments and hedging activities related to those instruments, as well as other hedging activities. The standard requires that all derivatives be recorded on the balance sheet at fair value. The Company has implemented SFAS No. 133 effective for 2001 for purposes of the U.S. GAAP reconciliation. The Company enters into forward exchange contracts to hedge certain forecasted cash flows. The contracts are for periods consistent with the forecasted transactions. All relationships between hedging instruments and hedged items, as well as risk management objectives and strategies, are documented. Changes in the spot value of the foreign currency contracts that are designated, effective and qualify as cash flow hedges of forecasted transactions are reported in accumulated other comprehensive income and are reclassified into the same component of earnings and in the same period as the hedged transaction is recognized. Accordingly, on January 1, 2001, the Company recorded an asset in the amount of $7.5 (less $1.9 in taxes) and a corresponding credit to other comprehensive income as a cumulative effect — type adjustment to reflect the initial

                                      F-32

                                 CELESTICA INC.

             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

            (IN MILLIONS OF U.S. DOLLARS, EXCEPT PER SHARE AMOUNTS)

22. CANADIAN AND UNITED STATES ACCOUNTING POLICY DIFFERENCES: (CONTINUED) mark-to-market on the foreign currency contracts pursuant to U.S. GAAP. At December 31, 2001, the Company recorded a liability of $7.4 (less $1.3 in taxes) and a corresponding gross adjustment of $14.9 (less $3.2 in taxes) to other comprehensive incomeloss and earnings.net loss. At December 31, 2002, the Company has recorded an asset of $18.9 (less $3.2 in taxes) and a corresponding gain of $26.3 (less $4.5 in taxes) to other comprehensive incomeloss and earnings.net loss. At December 31, 2003, the Company has recorded an asset of $49.8 (less $12.7 in taxes) and a corresponding gain of $30.9 (less $9.5 in taxes) to other comprehensive loss and net loss. It is expected that $18.8$47.1 of net pre-tax gains reported in accumulated other comprehensive income will be reclassified into earnings during 2003.2004. Under Canadian GAAP, the derivative instruments are not marked to market and the related, off-balance sheet gains and losses are recognized in earnings in the same period as the hedged transactions.

(f)
Under U.S. GAAP, the Company is required to record an additional minimum pension liability for threetwo of its plans to reflect the excess of the accumulated benefit obligations over the fair value of the plan assets. Other comprehensive incomeloss has been charged with $1.8, net of tax of $0.8 (2002 — three plans for $23.6, net of tax of $12.0, (2001 --2001 — one plan for $14.9, net of tax of $6.4). No such adjustments are required under Canadian GAAP.

    OTHER DISCLOSURES REQUIRED UNDER

(g)
Effective January 1, 2003, the Company adopted the new SFAS No. 143, "Accounting for Asset Retirement Obligations," which requires that the fair value of an asset retirement obligation be recorded as a liability in the period in which the Company incurs the obligation. On January 1, 2003, the Company recorded a liability of $3.7 for the estimated costs of retiring leasehold improvements at maturity of the facility leases. The Company also recorded asset retirement costs of $2.4 and a charge against earnings as a cumulative effect adjustment of $1.3 (net of tax of $0.2), to reflect amortization expense and accretion charges from the date the Company incurred the obligation through January 1, 2003, the effective date of this standard. The following table details the changes in the leasehold retirement liability:

Balance at January 1, 2003
 
$
3.7
Accretion charges
 
 
0.3
 
 
Balance at December 31, 2003
 
$
4.0
 
 
The adjustment to the leasehold assets in respect of asset retirement costs is amortized into income over the remaining life of the leases, on a straight-line basis. For the year ended December 31, 2003, amortization expense was $0.6, net of tax of $0.1.
Other disclosures required under U.S. GAAP:

    (g) 
(h)
Stock-based compensation:
Under U.S. GAAP, the Company measures compensation costs related to stock options granted to employees using the intrinsic value method as prescribed by APB Opinion No. 25, "Accounting for Stock Issued to Employees" as permitted by SFAS No. 123. However, SFAS No. 123 does require the disclosure of pro forma net earnings (loss)loss and earnings
       (loss)loss per share information as if the Company had accounted for its employee stock options under the fair-value method prescribed by SFAS No. 123. The estimated fair value of the

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

                                                                                YEAR ENDED DECEMBER 31
                                                                      ------------------------------------------
                                                                          2000           2001           2002
                                                                      ------------   ------------   ------------
        
        Risk-free rate..............................................       5.4%           5.4%           5.1%
        Dividend yield..............................................       0.0%           0.0%           0.0%
        Volatility factor of the expected market price of the
          Company's shares..........................................      70.0%          70.0%          70.0%
        Expected option life (in years).............................        7.5            7.5            5.0
        Weighted-average grant date fair values of options issued...     $40.49         $34.31         $12.02
 
 
Year ended December 31
 
 
 
2001
 
2002
 
2003
 
Risk-free rate
 
 
5.4
%
 
5.1
%
 
3.9
%
Dividend yield
 
 
0.0
%
 
0.0
%
 
0.0
%
Volatility factor of the expected market price of the Company's shares
 
 
70.0
%
 
70.0
%
 
70.0
%
Expected option life (in years)
 
 
7.5
 
 
5.0
 
 
4.3
 
Weighted-average grant date fair values of options issued
 
$
34.31
 
$
12.02
 
$
7.84
 
The pro forma disclosure for U.S. GAAP is as follows:

                                                                                YEAR ENDED DECEMBER 31
                                                                      ------------------------------------------
                                                                          2000           2001           2002
                                                                      ------------   ------------   ------------
        
        Net earnings (loss) in accordance with U.S. GAAP, as
          reported..................................................     $197.4         $(51.3)       $(494.9)
        Deduct: Stock-based compensation costs using fair-value
          method, net of tax........................................      (21.2)         (45.8)         (87.7)
                                                                         ------         ------        -------
        Pro forma net earnings (loss) in accordance with
          U.S. GAAP.................................................     $176.2         $(97.1)       $(582.6)
                                                                         ======         ======        =======
        Earnings (loss) per share:
          Basic -- as reported......................................     $ 0.99         $(0.24)       $ (2.15)
          Basic -- pro forma........................................     $ 0.88         $(0.45)       $ (2.54)
          Diluted -- as reported....................................     $ 0.96         $(0.24)       $ (2.15)
          Diluted -- pro forma......................................     $ 0.86         $(0.45)       $ (2.54)


                                      F-33

                                 CELESTICA INC.

             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

            (IN MILLIONS OF U.S. DOLLARS, EXCEPT PER SHARE AMOUNTS)

22. CANADIAN AND UNITED STATES ACCOUNTING POLICY DIFFERENCES: (CONTINUED)
    (h) Accumulated other comprehensive loss:


                                                                                YEAR ENDED DECEMBER 31
                                                                      ------------------------------------------
                                                                          2000           2001           2002
                                                                      ------------   ------------   ------------
        
        Opening balance of accumulated net gain on cash flow
          hedges....................................................     $--            $--            $ (6.1)
        Cumulative effect of a change in accounting policy, net of
          tax (e)...................................................     --                5.6         --
        Net gain (loss) on derivatives designated as hedges (e).....     --              (11.7)          21.8
                                                                         -----          ------         ------
        Closing balance.............................................     --               (6.1)          15.7

        Opening balance of foreign currency translation account.....      (4.1)           (4.1)          (2.9)
        Foreign currency translation gain...........................     --                1.2           20.2
                                                                         -----          ------         ------
        Closing balance.............................................      (4.1)           (2.9)          17.3

        Opening balance of minimum pension liability................     --             --              (14.9)
        Minimum pension liability, net of tax (f)...................     --              (14.9)         (23.6)
                                                                         -----          ------         ------
        Closing balance.............................................     --              (14.9)         (38.5)
                                                                         -----          ------         ------
        Accumulated other comprehensive loss........................     $(4.1)         $(23.9)        $ (5.5)
                                                                         =====          ======         ======


    (i)
 
 
Year ended December 31
 
 
 
2001
 
2002
 
2003
 
Net loss in accordance with U.S. GAAP, as reported
 
$
(51.3
)
$
(494.9
)
$
(258.9
)
Deduct: Stock-based compensation costs using fair-value method, net of tax
 
 
(45.8
)
 
(87.7
)
 
(86.8
)
 
 
 
 
 
Pro forma net loss in accordance with U.S. GAAP
 
$
(97.1
)
$
(582.6
)
$
(345.7
)
 
 
 
 
 
Loss per share:
 
 
 
 
 
 
 
 
 
 
 
Basic — as reported
 
$
(0.24
)
$
(2.15
)
$
(1.20
)
 
Basic — pro forma
 
$
(0.45
)
$
(2.54
)
$
(1.60
)
 

Diluted — as reported

 

$

(0.24

)

$

(2.15

)

$

(1.20

)
 
Diluted — pro forma
 
$
(0.45
)
$
(2.54
)
$
(1.60
)
In 2003, the Company adopted the fair-value method of accounting for stock-based compensation for Canadian GAAP and recorded compensation expense of $0.3, net of tax, in 2003. Under U.S. GAAP, the subtotal "cash from earnings" would be excluded
       fromCompany continued to use the consolidated statements of cash flows.

    intrinsic value method and disclosed pro forma information.
(i)
Accumulated other comprehensive income (loss):

 
 
Year ended December 31
 
 
 
2001
 
2002
 
2003
 
Opening balance of accumulated net gain (loss) on cash flow hedges
 
$
—
 
$
(6.1
)
$
15.7
 
Cumulative effect of a change in accounting policy, net of tax (e)
 
 
5.6
 
 
—
 
 
—
 
Net gain (loss) on derivatives designated as hedges (e)
 
 
(11.7
)
 
21.8
 
 
21.4
 
 
 
 
 
 
Closing balance
 
 
(6.1
)
 
15.7
 
 
37.1
 

Opening balance of foreign currency translation account

 

 

(4.1

)

 

(2.9

)

 

17.3

 
Foreign currency translation gain
 
 
1.2
 
 
20.2
 
 
12.8
 
 
 
 
 
 
Closing balance
 
 
(2.9
)
 
17.3
 
 
30.1
 

Opening balance of minimum pension liability

 

 

—

 

 

(14.9

)

 

(38.5

)
Minimum pension liability, net of tax (f)
 
 
(14.9
)
 
(23.6
)
 
(1.8
)
 
 
 
 
 
Closing balance
 
 
(14.9
)
 
(38.5
)
 
(40.3
)
 
 
 
 
 
Accumulated other comprehensive income (loss)
 
$
(23.9
)
$
(5.5
)
$
26.9
 
 
 
 
 
 
(j)
Warranty liability:
The Company records a liability for future warranty costs based on management's best estimate of probable claims under its product warranties. The accrual is based on the terms of the warranty which vary by customer and product, and historical experience. The Company regularly evaluates the appropriateness of the remaining accrual.

The following table details the changes in the warranty liability:
        Balance at January 1, 2002..................................   $18.1
        Accrual in excess of claims incurred........................     5.6
                                                                       -----
        Balance at December 31, 2002................................   $23.7
                                                                       =====
Balance at January 1, 2002
 
$
18.1
 
Accruals
 
 
8.6
 
Cash payments
 
 
(3.0
)
 
 
 
Balance at December 31, 2002
 
 
23.7
 
Accruals
 
 
4.7
 
Adjustments
 
 
(6.3
)
Cash payments
 
 
(2.6
)
 
 
 
Balance at December 31, 2003
 
$
19.5
 
 
 
 
(k)
Accrued liabilities include $79.9 at December 31, 2003 (2002 — $62.6) relating to payroll and benefit accruals.

(l)
New United States accounting pronouncements:
In July 2001, the FASB issued SFAS No. 141, "Business Combinations," and SFAS No. 142, "Goodwill and Intangible Assets" which the Company fully adopted effective January 1, 2002. These statements are substantially consistent with CICA Sections 1581 and 3062 (refer to note 2(q)(i)) except that, under U.S. GAAP, any transitional impairment charge would have been recognized in earnings as a cumulative effect of a change in accounting principle. Under Canadian GAAP, the cumulative adjustment would have been recognized in opening retained earnings. There was no impact to the Company as no transitional impairment charges were recognized.
In August 2001, SFAS No. 143, "Accounting for Asset Retirement Obligations" was approved and requires that the fair value of an asset retirement obligation be recorded as a liability, at fair value, in the period in which the Company incurs the obligation. The Company adopted SFAS No. 143 is
       effective for the Company's fiscal year commencingas of January 1, 2003. The
       Company expects the adoption of this standard will have no material
       impact on its financial position, results of operations or cash flows.

       See note 20(g).
In October 2001, FASB issued SFAS No. 144, "Accounting for the Impairment or Disposal of Long-Lived Assets," which retains the fundamental provisions of SFAS No. 121 for recognizing and measuring impairment losses of long-lived assets other than goodwill. SFAS No. 144 also broadens the definition of discontinued operations to include all distinguishable components of an entity that will be eliminated from ongoing operations. The Company prospectively adopted SFAS No. 144 effective January 1, 2002.
In May 2002, FASB issued SFAS No. 145, "Rescission of FASB Nos. 4, 44 and 64, Amendment of FASB No. 13 and Technical Corrections." SFAS No. 145 requiresprovides that certain gains and losses from extinguishment of debt no longer qualify as extraordinary. The Company has early adopted SFAS No. 145 commencing January 1, 2002.

                                      F-34

                                 CELESTICA INC.

             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

            (IN MILLIONS OF U.S. DOLLARS, EXCEPT PER SHARE AMOUNTS)

22. CANADIAN AND UNITED STATES ACCOUNTING POLICY DIFFERENCES: (CONTINUED)
       
In July 2002, FASB issued SFAS No. 146, "Accounting for Costs Associated with Exit or Disposal Activities." SFAS No. 146 recognizes the liability for an exit or disposal activity only when the costs are incurred and can be measured at fair value. Currently, a commitment to an exit or disposal
       plan is sufficient to record the majority of the costs.The Company has adopted SFAS No. 146 is effective for exit or disposal activities initiated after December 31, 2002. TheFor exit or disposal activities initiated prior to December 31, 2002, the Company expects the adoption of this standard will not have a
       material impact on its existing restructuring plans as these plans were
       initiated under an exit plan that meetsfollowed the criteria of Emerging Issues Task Force No. 94-3.
In November 2002, FASB issued Interpretation No. 45, "Guarantor's Accounting and Disclosure Requirements for Guarantees, Including Indirect Guarantees of Indebtedness of Others" (FIN 45), which requires certain disclosures of obligations under guarantees. The disclosure requirements of FIN 45 are effective for the Company's fiscal year ended December 31, 2002. Effective for 2003, FIN 45 also requires the recognition of a liability by a guarantor at the inception of certain guarantees entered into or modified after December 31, 2002, based on the fair value of the guarantee. The Company has adopted the disclosure requirements in its 2002 consolidated financial statements. See notes 18statements and 22(j). The
       Company has not determined the impact of the measurement requirements in 2003. See notes 16 and 20(j). The adoption of FIN 45.

       this standard did not have a material impact on the consolidated financial statements.
In January 2003, FASB issued Interpretation No. 46, "Consolidation of Variable Interest Entities" (FIN 46). The consolidation provisions ofIn December 2003, the FASB issued FIN 46R which superseded FIN 46 are effectiveand contains numerous exemptions. FIN 46R applies to financial statements of public entities that have or potentially have interests in entities considered special purpose entities for all newly created entities createdperiods ended after January 31,December 15, 2003 and otherwise to interests in VIEs for periods ending after March 15, 2004. VIEs are applicableentities that have insufficient equity and/or their equity investors lack one or more specified essential characteristics of a controlling financial interest. The guideline provides specific guidance for determining when an entity is a VIE and who, if anyone, should consolidate the VIE. The Company does not anticipate the adoption of this standard to existing entitieshave a material impact on the consolidated financial statements.
In April 2003, FASB issued SFAS No. 149, "Amendment of Statement 133 on Derivative Instruments and Hedging Activities," which amends and clarifies the accounting and reporting for derivative instruments, including those embedded in other contracts


and for hedging activities under SFAS No. 133. SFAS No. 149 is effective as of July 1, 2003. The adoption of this standard did not have a material impact on the consolidated financial statements.
In May 2003, FASB issued SFAS No. 150, "Accounting for Certain Financial Instruments with Characteristics of Both Liabilities and Equity", which establishes standards for the classification and measurement of these financial instruments. SFAS No. 150 is effective as of the Company's third quarter beginning July 1, 2003. It is possible that the
       Company's variable interests in the real estate assets subject to the
       lease arrangement disclosed in note 18 will be subject to the
       consolidation provisions of FIN 46. The Company haswas not determined the
       impact, however, any difference between the asset and liability on
       initial measurement would be accounted for as a cumulative effect of
       change in accounting policy in the 2003 statement of earnings. Refer to
       note 18.

23. SUBSEQUENT EVENTS:

    In January 2003, the Company made the following announcements:

    In response to the continued limited visibility in end markets, the Company
    plans to further reduce its manufacturing capacity. The reduction in
    capacity will result in a pre-tax restructuring charge of between $50.0 and
    $70.0, to be recorded during 2003.

    The Company has, from time to time, purchased LYONs on the open market. The
    Company has been authorizedimpacted by the board of directors to spend up to an
    additional $100.0 to repurchase LYONs, at management's discretion. This is
    in addition to the amounts authorized in October 2002, of which $48.0
    remains available for future purchases.

24.this standard.
21.   COMPARATIVE INFORMATION:
The Company has reclassified certain prior year information to conform to the current year's presentation.

                                      F-35

                                      Exhibit Index
Exhibit
Number      Description
- ---------   -----------------------------------------------------------------

1.          Articles of Incorporation and Bylaws as currently in effect:

1.1         Certificate and Articles of Incorporation(1)

1.2         Certificate and Articles of Amendment effective October 22, 1996(1)

1.3         Certificate and Articles of Amendment effective January 24, 1997(1)

1.4         Certificate and Articles of Amendment effective October 8, 1997(1)

1.5         Certificate and Articles of Amendment effective April 29, 1998(2)

1.6         Articles of Amendment effective June 26, 1998(3)

1.7         Restated Articles of Incorporation effective June 26, 1998(3)

1.8         Restated Articles of Incorporation effective November 20, 2001

1.9         Bylaw No. 1(4)

1.10        Bylaw No. 2(1)

2.          Instruments defining rights of holders of equity or debt securities:

2.1         See Certificate and Articles of Incorporation and amendments
            thereto identified above.

2.2         Form of Subordinate Voting Share Certificate(5)

2.3         Indenture, dated as of August 1, 2000, between Celestica Inc. and
            The Chase Manhattan Bank, as Trustee (including a form of the
            Outstanding Notes)(6)

2.4         Second Amended and Restated Credit Agreement, dated as of December
            17, 2002, between Celestica Inc., the subsidiaries
22.   OTHER EVENT:
In October 2003, the Company entered into an agreement to acquire all the shares of Manufacturers' Services Limited (MSL). The shareholders of MSL are entitled to receive 0.375 subordinate voting share of Celestica
            Inc., specified therein as Designated Subsidiaries, The Bank of Nova
            Scotia, as Administrative Agent, The Bank of Nova Scotia, as
            Canadian Facility Agent, CIBC World Markets, as Joint Lead Arranger
            and Syndication Agent, RBC Capital Markets, as Joint Lead Arranger
            and Co-Documentation Agent, Bank of America Securities LLC, as Joint
            Lead Arranger and Co-Documentation Agent, and the financial
            institutions named in Schedule A as lenders

2.5         Amended and Restated Four Year Revolving Term Credit Agreement,
            dated as of December 17, 2002, among Celestica Inc. and Celestica
            International Inc., as Borrowers, The Bank of Nova Scotia, as
            Administrative Agent, and the financial institutions named therein,
            as Lenders

3.          Certain Contracts:

3.1         Management Services Agreement, dated as of July 7, 1998, among
            Celestica Inc., Celestica North America Inc. and Onex Corporation(5)

3.2         Asset Purchase Agreement, dated as of February 19, 2001, by and
            between Avaya Inc. and Celestica Corporation(4)*

3.3         Amendment No. 1 to the Asset Purchase Agreement, dated as of May 4,
            2001, by and between Avaya Inc. and Celestica Corporation(4)

Exhibit
Number      Description
- ---------   -----------------------------------------------------------------

3.4         Arrangement Agreement, dated as of May 31, 2001, between Celestica
            Inc. and Primetech Electronics Inc.(7)*

3.5         Merger Agreement, dated as of June 15, 2001, between Omni Industries
            Limited and Celestica Inc.(7)*

3.6         Asset Purchase Agreement, dated as of July 24, 2001, between Lucent
            Technologies Inc. and Celestica Corporation(7)*

3.7         Asset Purchase Agreement, dated as of July 24, 2001, between Lucent
            Technologies Inc. and Celestica Corporation(7)*

3.8         Asset Purchase Agreement, dated January 8, 2002, between NEC
            Corporation, NEC Miyagi, Ltd., NEC Yamanashi, Ltd., 1325091 Ontario
            Inc., and Celestica Inc.**

3.9         Employment Agreement, dated as of October 22, 1996, by and between
            Celestica, Inc. and Eugene V. Polistuk(1)

3.10        Employment Agreement, dated as of October 22, 1996, by and between
            Celestica, Inc. and Anthony P. Puppi(1)

3.11        Employment Agreement, dated as of October 22, 1996, by and between
            Celestica, Inc. and Daniel P. Shea(1)

3.12        Employment Agreement, dated as of June 30, 1998, by and between
            Celestica Inc. and R. Thomas Tropea(8)

3.13        D2D Employee Share Purchase and Option Plan (1997)(2)

3.14        Celestica 1997 U.K. Approved Share Option Scheme(1)

3.15        1998 U.S. Executive Share Purchase and Option Plan(9)

8.1         Subsidiaries of Registrant

99.1        Certification required by Section 906 of the Sarbanes-Oxley
            Act of 2002***

- -----------
*        Request for confidential treatment granted. Confidential portionseach common share of this document have been redactedMSL, subject to adjustment. Preferred shareholders of MSL are entitled to receive cash or, at the holder's election, shares of Celestica. This acquisition is subject to MSL shareholder approval and governmental approvals and is expected to close in the first quarter of 2004.



QuickLinks
As filed separately with the Securities and Exchange Commission.

**       Confidential treatment requested. Confidential portions of this
         document have been redacted and filed separately with the Securities
         and Exchange Commission.

***      Pursuant to Commission Release No. 33-8212, this certification will
         be treated as "accompanying" this Annual Report on Form 20-F and not
         "filed" as part of such report for purposes of Section 18 of the
         Exchange Act, or otherwise subject to the liability of Section 18 of
         the Exchange Act, and this certification will not be incorporated by
         reference into any filing under the Securities Act, or the Exchange
         Act, except to the extent that the registrant specifically incorporates
         it by reference.

(1)      Incorporated by reference to the Registration Statement on Form F-1 of
         Celestica Inc. filed on April 29, 1998 (Registration No. 333-8700).

(2)      Incorporated by reference to Amendment No. 1 to the Registration
         Statement on Form F-1 of Celestica Inc. filed on June 1, 1998
         (Registration No. 333-8700).

(3)      Incorporated by reference to the Registration Statement on Form F-1 of
         Celestica Inc. filed on February 16, 1999 (Registration No. 333-10030).

(4)      Incorporated by reference to the Annual Report on Form 20-F of
         Celestica Inc. filed on May 22, 2001.

(5)      Incorporated by reference to Amendment No. 3 to the Registration
         Statement on Form F-119, 2004
TABLE OF CONTENTS
PART I
Summary Compensation Table
Canadian Pension Plan Table(1)(2)
Outstanding Options
Indebtedness of Celestica Inc. filed on June 25, 1998
         (Registration No. 333-8700).


(6)      Incorporated by reference to the Current Report on Form 6-KSenior Officers under Securities Purchase Programs(1)
PART II
PART III
SIGNATURES
AUDITORS' REPORT
COMMENTS BY AUDITORS FOR U.S. READERS ON CANADA-U.S. REPORTING DIFFERENCE
CELESTICA INC. CONSOLIDATED BALANCE SHEETS (in millions of Celestica Inc. for the monthU.S. dollars)
CELESTICA INC. CONSOLIDATED STATEMENTS OF LOSS (in millions of August, 2000.

(7)      Incorporated by reference to the Annual Report on Form 20-FU.S. dollars, except per share amounts)
CELESTICA INC. CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY (in millions of Celestica Inc. filed on May 3, 2002.

(8)      Incorporated by reference to the Annual Report on Form 20-FU.S. dollars)
CELESTICA INC. CONSOLIDATED STATEMENTS OF CASH FLOWS (in millions of Celestica Inc. filed on May 18, 2000.

(9)      Incorporated by reference to the Registration Statement on Form S-8 of
         Celestica Inc. filed on October 8, 1998 (Registration No. 333-9500).