15383 Onex Q2 MDA.Qxd

Management’s Discussion and Analysis and Financial Statements Second Quarter Ended June 30, 2006 ONEX CORPORATION Onex manages third party private equity investments through the Onex Partners and ONCAP family of funds and invests in real estate and public equities through Onex Real Estate Partners and Onex Capital Management. It generates annual management fee income and earns a carried interest on more than $3.5 billion of third party capital. Onex is a diversified company with annual revenues of approximately $19 billion, assets of $15 billion and 136,000 employees worldwide. It operates through autonomous subsidiaries in a variety of industries, including electronics manufacturing services, aerostructures manufacturing, healthcare, theatre exhibition, customer management services, personal care products and communications infrastructure. Onex is listed on the Toronto Stock Exchange under the symbol OCX. Table of Contents 2 Management’s Discussion and Analysis 22 Consolidated Financial Statements 40 Shareholder Information Throughout this report, all amounts are in Canadian dollars unless otherwise indicated. This report includes Onex Corporation’s Management’s Discussion and Analysis and Financial Statements for the second quarter ended June 30, 2006. We invite you to visit our website, www.onex.com, for your complete and up-to-date source of information about Onex. Get our financial results Get to know our people in a simple, comprehensible Here is what we look for in and the individual format, with interactive businesses we want to own strengths they bring annual and quarterly and what we provide. to our team. financial statements. Find out about See how Onex has our companies. Learn about our operating performed against key Learn about our principles and values, market indices. directors and corporate and what we do. governance practices. MANAGEMENT’S DISCUSSION AND ANALYSIS The Management’s Discussion and Analysis (“MD&A”) of the financial condition and results of operations analyzes significant changes in the unaudited interim consolidated statements of earnings, the unaudited interim consolidated balance sheet and the unaudited interim consolidated statements of cash flows of Onex Corporation (“Onex”). It should be read in conjunction with the unaudited interim consolidated financial statements and notes thereto. The MD&A and Onex’ unaudited interim consolidated financial statements have been prepared to provide information about Onex on a consolidated basis and should not be con- sidered as providing sufficient information to make an investment decision in regard to any particular Onex operating company. The following MD&A is the responsibility of management and is as of August 3, 2006. The Board of Directors carries out its responsibility for the review of this disclosure through its Audit and Corporate Governance Committee, comprised exclusively of independent directors. The Audit and Corporate Governance Committee has reviewed and approved the disclosure. The MD&A is presented in the following sections: 3 Financial Review 3 Significant Events for the Period Ended June 30, 2006 6 Consolidated Operating Results 17 Consolidated Financial Position 18 Liquidity and Capital Resources 21 Outlook Forward-Looking/Safe Harbour Statement and Fair Disclosure Statement This interim MD&A may contain, without limitation, certain statements that include words such as “believes”, “expects”, “antici- pates” and words of similar connotation, which would constitute forward-looking statements. Forward-looking statements are not guarantees of future performance and involve risks and uncertainties that may cause actual performance or results to be materially different from those anticipated in these forward-looking statements, including without limitations, those discussed on pages 3 through 21 of this MD&A. Onex is under no obligation to update any forward-looking statements contained herein should material facts change due to new information, future events or other factors. Readers interested in a descriptive listing of the Onex operating companies and Onex’ ownership interest in each can find this information on the Onex website at www.onex.com under the Onex Businesses section. 2 Onex Corporation Second Quarter Report 2006 MANAGEMENT’S DISCUSSION AND ANALYSIS FINANCIAL REVIEW This section discusses the significant changes in Onex’ unaudited interim consolidated statements of earnings and unaudited interim consolidated statements of cash flows for the three and six months ended June 30, 2006 compared to those for the same periods ended June 30, 2005 and compares Onex’ financial condition at June 30, 2006 to that at December 31, 2005. Accounting policies and estimates Realty Holdings LLC, acquired Town and Country Trust Onex prepares its financial statements in accordance with (“Town and Country”) in an all-cash transaction valued Canadian generally accepted accounting principles (“GAAP”). at approximately $1.7 billion, including the assumption The preparation of financial statements in con- of debt. OREP invested approximately $116 million for a formity with Canadian GAAP requires management to make 48 percent equity interest in the Town and Country joint estimates and assumptions. These estimates and assump- venture. Onex’ share of that investment was $100 million, tions affect the reported amounts of assets and liabilities, representing a 41 percent equity interest. disclosures of contingent assets and liabilities, and the Town and Country is a real estate investment trust reported amounts of revenues and expenses for the period that owns and operates 37 apartment communities in the of the unaudited interim consolidated financial statements. Mid-Atlantic States and Florida. Note 2 to the unaudited Significant accounting policies and methods used in interim consolidated financial statements provides addi- preparation of the financial statements are described in tional information on this acquisition. note 1 to the unaudited interim consolidated financial During the second quarter of 2006, OREP deter- statements and in note 1 to the December 31, 2005 audited mined that it would divest Town and Country’s assets in annual consolidated financial statements. Onex and its various components. It is not known at this time how long operating companies evaluate their estimates and assump- the sale process will take. Due to the plan to sell the assets, tions on a regular basis, based on historical experience and the results of Town and Country’s operations have been other relevant factors. Included in Onex’ unaudited interim accounted for as discontinued in Onex’ unaudited interim consolidated financial statements are significant estimates consolidated financial statements for the three and six used in determining the allowance for doubtful accounts, months ended June 30, 2006. inventory valuation, income tax valuation allowances, the useful lives of property, plant and equipment and intangible Skilled Healthcare completes first acquisitions assets, revenue recognition under contract accounting, In early March 2006, Skilled Healthcare Group, Inc. (“Skilled pension and post-employment benefits, restructuring costs Healthcare”), a leading skilled nursing and assisted living and other matters. Actual results could differ materially facility operator in the United States, expanded with the from those estimates and assumptions. acquisition of a group of three long-term care facilities in the state of Missouri. This acquisition added 436 skilled SIGNIFICANT EVENTS FOR THE PERIOD nursing and assisted living beds and broadened Skilled ENDED JUNE 30, 2006 Healthcare’s operations beyond the company’s existing operations in the states of California, Texas, Kansas and A number of significant events occurred during the first Nevada. In June 2006, Skilled Healthcare purchased the half of 2006 that affected Onex’ unaudited interim consoli- leasehold interest of one skilled nursing facility with dated operating results for the three and six months ended 100 beds in Nevada. Skilled Healthcare’s subsidiaries now June 30, 2006 and their comparability to the results for the operate 72 skilled nursing and assisted living facilities same periods of 2005. and also provide hospice and rehabilitation therapy services in its affiliated facilities and for third parties. Onex Real Estate acquires Town and Country Trust These purchases, which were funded entirely by Skilled In March 2006, Onex Real Estate Partners (“OREP”), in a Healthcare, have been consolidated and reported in the joint venture with Morgan Stanley Real Estate and Sawyer healthcare segment from the date of acquisition. Onex Corporation Second Quarter Report 2006 3 MANAGEMENT’S DISCUSSION AND ANALYSIS Accounting gain recorded Sale of Futuremed on J.L. French Automotive In early January 2006, Futuremed Health Care Products J.L. French Automotive Castings, Inc. (“J.L. French Limited Partnership (“Futuremed”), an operating company Automotive”) was unable to meet the financial require- of ONCAP I, completed a $120 million initial public ments under certain of its lending agreements as a result offering. In that offering, ONCAP I sold all of its Futuremed of the difficult market conditions affecting the North shares, receiving $74 million in net proceeds. Including American automotive supply sector. Consequently, in prior distributions, ONCAP I has received net proceeds of February 2006, J.L. French Automotive filed a voluntary $100 million compared to its investment in Futuremed of petition for reorganization under Chapter

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