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 state- ments 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 11 in the United $25 million made in February 2004. Onex’ share of those States. In July 2006, the restructured company emerged proceeds was $32 million. from bankruptcy following the U.S. Bankruptcy Court’s At the time of filing Futuremed’s registration approval of J.L. French Automotive’s plan of reorganization. statement in December 2005, management of ONCAP had Onex no longer has an ownership interest in J.L. French determined that it intended to sell the majority of its Automotive. The disposition of Onex’ interest in J.L. French holdings in Futuremed. As a result, Onex presented Automotive resulted in an accounting gain of $605 million Futuremed’s results as discontinued operations in the being recorded by Onex in the first quarter of 2006. This audited annual consolidated financial statements for the gain arises as Onex had recorded in prior years, for year ended December 31, 2005 and the comparative 2005 accounting purposes, losses of J.L. French Automotive that second-quarter and six-month period results of Futuremed were in excess of Onex’ investment in J.L. French have been reclassified to be presented as discontinued. Automotive. A significant portion of these prior year losses Note 3 to the unaudited interim consolidated financial was due to the write-off and amortization of goodwill. The statements discloses the assets and liabilities in the accounting gain is included in earnings from discontinued December 31, 2005 balance sheet that have been restated operations. Onex’ prior period consolidated financial to be shown as discontinued. results have been restated to report those operations of J.L. French Automotive as discontinued. ONCAP’s sale of Canadian Securities Note 3 to the unaudited interim consolidated Registration Systems financial statements discloses J.L. French Automotive’s In mid-March 2006, ONCAP I completed the sale of its assets and liabilities in the December 31, 2005 balance operating company, Canadian Securities Registration sheet that have been restated to be shown as discontinued. Systems Ltd. (“CSRS”), to Resolve Business Outsourcing Income Fund (“Resolve”). ONCAP I received cash proceeds Acquisition of CSI Global Education by ONCAP of $90 million compared to its investment of $29 million in In early January 2006, ONCAP’s second fund, ONCAP II, CSRS made in April 2004. In addition, as part of this sale, completed its acquisition of CSI Global Education Inc. ONCAP I received one million units of Resolve for a 3 percent (“CSI”). ONCAP II invested $8 million in the equity for equity interest. As a result of this sale, Onex received a 90 percent ownership interest in the company; Onex’ proceeds of $30 million and recorded a pre-tax gain of portion of that investment was $4 million. In addition, $25 million in the first quarter of 2006. Following this sale, ONCAP II invested $17 million in the debt of CSI, of which ONCAP I ceased to have control of CSRS and therefore, for Onex’ portion was $8 million. CSI is Canada’s leader in accounting purposes, the gain on the sale and CSRS’ results interactive investment education for the securities and are reported as earnings from discontinued operations in financial services industries. CSI’s operations have been the unaudited interim consolidated financial statements. consolidated from the date of acquisition and reported with The comparative 2005 second-quarter and six- other ONCAP investments in the Other segment. Note 2 month period results of CSRS have been reclassified to be to the unaudited interim consolidated financial state- presented as discontinued. Note 3 to the unaudited ments provides additional information on this acquisition. interim consolidated financial statements discloses the assets and liabilities in the December 31, 2005 balance sheet that have been restated to be shown as discontinued.

4 Onex Corporation Second Quarter Report 2006 MANAGEMENT’S DISCUSSION AND ANALYSIS

Cineplex Entertainment completes sale structural components, primarily for wings, for such Airbus of seven theatres aircraft as the A320 family, the A330, the A340 and the In late March 2006, Cineplex Entertainment Limited A380. In addition, the company supplies components for Partnership (“Cineplex Entertainment”) completed the sale Boeing’s 767 and 777, as well as the Raytheon Hawker of seven theatres with 78 screens located in the province of 800XP. Annual revenues for this business were approxi- Quebec in a transaction valued at approximately $2 million. mately $419 million in 2005. This acquisition enhances Onex’ share of the gain on those theatres was nominal. Spirit AeroSystems’ manufacturing operations and adds These seven theatres were required to be sold as a condi- important new customers. These operations are consoli- tion of the regulatory approval obtained for the Famous dated and reported in the aerostructures segment. Players acquisition in July 2005 under which Cineplex Entertainment agreed to sell a total of 34 theatres. The Cineplex Entertainment company sold the other 27 theatres in 2005. secondary unit offering The comparative results for the three and six In June 2006, Cineplex Entertainment completed a treasury months ended June 30, 2005 of the theatres that have been and secondary unit offering of Cineplex Galaxy Income sold have been reclassified and presented as discontinued. Fund trust units. The total offering consisted of 5.2 million Note 3 to the unaudited interim consolidated financial trust units, which represented the issuance and sale of statements discloses those assets and liabilities in the 2 million new trust units from treasury, and the sale of December 31, 2005 balance sheet that have been restated 3.2 million trust units by Onex, the parent company. In as discontinued. conjunction with Onex’ sale of its units, Onex entered into a forward contract to purchase 1.4 million units in or after Share repurchases under Onex’ January 2007 at a price computed with reference to the Normal Course Issuer Bid secondary offering. Onex’ shareholders’ equity at June 30, 2006 has been Onex received net proceeds of $28 million and reduced for the effect of Onex’ repurchases of Subordinate recorded a $25 million pre-tax gain on the net sale of Voting Shares under its Normal Course Issuer Bid. During those trust units. Cineplex Entertainment received net the first six months of 2006, Onex repurchased 6,479,500 proceeds of $30 million for its 2 million treasury unit Subordinate Voting Shares at an average cost per share of offering. The effect of the additional units being issued $21.48, for a total cost of approximately $139 million, which resulted in a non-cash accounting dilution gain of was charged against shareholders’ equity. Approximately $12 million being recorded in the second quarter, of which $97 million of those share repurchases were completed Onex’ share was $6 million. Cineplex Entertainment used during the second quarter of 2006. its net proceeds from the offering to indirectly repay indebtedness under the company’s senior secured revolving Spirit AeroSystems acquires BAE Systems’ credit facility. Onex’ ownership in Cineplex Entertainment aerostructures business was reduced to 22 percent from 27 percent as a result of On April 1, 2006, Spirit AeroSystems, Inc. (“Spirit the above transactions. AeroSystems”), the world’s largest Tier 1 aerostructures These gains are reported as gains on sales of manufacturer, acquired the aerostructures business unit of operating investments in Onex’ unaudited interim consol- BAE Systems plc in a transaction valued at $169 million. idated financial statements for the three and six months This purchase was fully funded by Spirit AeroSystems and ended June 30, 2006. Note 7 to the unaudited interim this business is now operating as Spirit AeroSystems consolidated financial statements provides additional (Europe) Ltd. (“Spirit Europe”). Spirit Europe has opera- information on these gains. tions in Prestwick, Scotland and Samlesbury, England. Its largest customer is Airbus, which provides approximately 80 percent of Spirit Europe’s revenues. The unit produces

Onex Corporation Second Quarter Report 2006 5 MANAGEMENT’S DISCUSSION AND ANALYSIS

Spirit AeroSystems initial public offering The statements of earnings for the three and six In June 2006, Spirit AeroSystems filed a registration state- months ended June 30, 2005 have been restated from those ment with the U.S. Securities and Exchange Commission previously reported in accordance with required accounting for a proposed initial public offering of shares. policies for discontinued operations for those businesses that were disposed of or planned to be disposed of in the Onex to acquire Aon Warranty Group first six months of 2006. These include the operations of: In late June 2006, Onex announced that it had agreed to • J.L. French Automotive; acquire Aon Warranty Group, one of the world’s largest • Futuremed; providers of extended warranty contracts, for approxi- • CSRS; mately $800 million (US$710 million). Further information • certain Cineplex Entertainment theatres that have is provided in the Outlook section on page 21 of this report. been sold; • ClientLogic’s warehouse management business; and CONSOLIDATED OPERATING RESULTS • Town and Country.

This section should be read in conjunction with the unau- Consolidated revenues dited interim consolidated statements of earnings for the Consolidated revenues grew 19 percent, or $771 million, three and six months ended June 30, 2006 and 2005, the to $4.7 billion for the three months ended June 30, 2006 corresponding notes thereto and the December 31, 2005 from $4.0 billion for the same quarter of 2005. The audited annual consolidated financial statements. acquisitions completed in 2005 and in the first six months of 2006 were the primary contributors to the second- Variability of results quarter revenue growth: Onex’ consolidated annual and quarterly operating • Cineplex Entertainment added $107 million in revenues, results may vary substantially from period to period for of which $99 million was due to the July 2005 acquisition a number of reasons, including one or more of the of Famous Players; following: acquisitions or dispositions of businesses by • Skilled Healthcare, acquired in late December 2005, Onex, the parent company; the volatility of the exchange boosted revenues by $149 million; and rate between the U.S. dollar and the Canadian dollar; the • the inclusion of a full quarter of revenues for Spirit change in market value of stock-based compensation; AeroSystems, acquired in late June 2005, as well as a full changes in the market value of Onex’ publicly-traded quarter of revenues from Spirit Europe, acquired on operating companies; and activities at Onex’ operating April 1, 2006, added $855 million in revenues. companies. These activities may include the purchase or sale of businesses; fluctuations in customer demand and Partially offsetting the second-quarter revenue growth was materials and employee-related costs; changes in the mix a $310 million decline in revenues contributed by Celestica of products and services produced or delivered; and Inc. (“Celestica”), which were $2.5 billion in the second charges to restructure operations. The discussion that quarter of 2006 compared to $2.8 billion in the same follows identifies some of the material factors that quarter last year. The effect of currency translation and affected each of Onex’ operating segments and Onex’ the strengthening of the Canadian dollar relative to the unaudited interim consolidated results for the three and U.S. dollar in the second quarter of 2006 accounted for six months ended June 30, 2006. most of this decline in Canadian dollar revenues quarter- over-quarter. Excluding the impact of foreign currency translation, Celestica reported a 1 percent decline in revenues in its functional currency.

6 Onex Corporation Second Quarter Report 2006 MANAGEMENT’S DISCUSSION AND ANALYSIS

For the six months ended June 30, 2006, consoli- Partially offsetting the above factors was a $716 million dated revenues increased $1.7 billion, or 23 percent, to decrease in revenues at Celestica to $4.7 billion for the six $9.1 billion from $7.4 billion reported for the first six months ended June 30, 2006. Approximately half of that months of 2005 due primarily to: decline was due to the effect of currency translation. • Onex’ acquisition of Skilled Healthcare ($293 million) in Table 1 below provides a breakdown of revenues December 2005 and Cineplex Entertainment’s July 2005 by industry segment for the three and six months ended acquisition of Famous Players ($186 million); June 30, 2006 and 2005 and the percentage change in rev- • the inclusion of a full six months of results of Spirit enues for those periods in both the Canadian dollar and AeroSystems, as well as the April 2006 acquisition of the functional currency of the companies. Onex believes Spirit Europe ($1.6 billion); and that showing the revenues in the operating companies’ • the inclusion of a full six months of results of Emergency functional currencies is useful in evaluating the performance Medical Services Corporation (“EMSC”), acquired in of those businesses quarter-over-quarter since it eliminates February 2005 ($174 million). the impact of foreign currency translation on revenues. Note 15 to the unaudited interim consolidated financial statements also shows revenues by industry segment.

Revenues by Industry Segment

TABLE 1 (Unaudited) ($ millions) Canadian Dollars Functional Currency

Change Change Three months ended June 30 2006 2005 (%) 2006 2005 (%)

Electronics Manufacturing Services $ 2,489 $ 2,799 (11)% US$ 2,224 US$ 2,250 (1)% Aerostructures 965 110 777 % US$ 861 US$ 89 867 % Healthcare 716 586 22 % US$ 639 US$ 471 36 % Theatre Exhibition 183 76 141 % C$ 183 C$ 76 141 % Customer Management Services 173 170 2 % US$ 155 US$ 137 13 % Other (a) 217 231 (6)% C$ 217 C$ 231 (6)%

Total $ 4,743 $ 3,972 19 %

(Unaudited) ($ millions) Canadian Dollars Functional Currency

Change Change Six months ended June 30 2006 2005 (%) 2006 2005 (%)

Electronics Manufacturing Services $ 4,722 $ 5,438 (13)% US$ 4,158 US$ 4,401 (6)% Aerostructures 1,740 110 1482 % US$ 1,532 US$ 89 1621 % Healthcare 1,431 969 48 % US$ 1,258 US$ 783 61 % Theatre Exhibition 346 146 137 % C$ 346 C$ 146 137 % Customer Management Services 359 343 5 % US$ 316 US$ 278 14 % Other (a) 495 416 19 % C$ 495 C$ 416 19 %

Total $ 9,093 $ 7,422 23 %

Results are reported in accordance with Canadian generally accepted accounting principles. These results may differ from those reported by the individual operating companies.

(a) Includes Cosmetic Essence, Inc. (“CEI”), Radian Communication Services Corporation (“Radian”), Onex Capital Management (“OCM”), ONCAP I, ONCAP II and parent company.

Onex Corporation Second Quarter Report 2006 7 MANAGEMENT’S DISCUSSION AND ANALYSIS

Consolidated cost of sales June 30, 2006 and 2005 and the percentage change in cost of Consolidated cost of sales was up 18 percent to $4.1 billion sales between those periods in both Canadian dollars and for the second quarter of 2006 and up 20 percent to $7.8 bil- the companies’ functional currencies, as indicated. Cost of lion for the first six months of 2006. This compares to sales is provided in the companies’ functional currencies consolidated cost of sales of $3.5 billion and $6.5 billion for to eliminate the impact of foreign currency translation the three and six months ended June 30, 2005. fluctuations on cost of sales. Note 15 to the unaudited Table 2 provides a breakdown of cost of sales interim consolidated financial statements also provides by industry segment for the three and six months ended cost of sales by industry segment in Canadian dollars.

Cost of Sales by Industry Segment

TABLE 2 (Unaudited) ($ millions) Canadian Dollars Functional Currency

Change Change Three months ended June 30 2006 2005 (%) 2006 2005 (%)

Electronics Manufacturing Services $ 2,327 $ 2,584 (10)% US$ 2,078 US$ 2,078 – Aerostructures 804 98 720 % US$ 717 US$ 79 808 % Healthcare 595 508 17 % US$ 530 US$ 408 30 % Theatre Exhibition 149 61 144 % C$ 149 C$ 61 144 % Customer Management Services 108 104 4 % US$ 96 US$ 84 14 % Other(a) 138 127 9 % C$ 138 C$ 127 9 %

Total $ 4,121 $ 3,482 18 %

(Unaudited) ($ millions) Canadian Dollars Functional Currency

Change Change Six months ended June 30 2006 2005 (%) 2006 2005 (%)

Electronics Manufacturing Services $ 4,415 $ 5,037 (12)% US$ 3,887 US$ 4,077 (5)% Aerostructures 1,407 98 1336 % US$ 1,239 US$ 79 1468 % Healthcare 1,193 819 46 % US$ 1,048 US$ 662 58 % Theatre Exhibition 286 116 147 % C$ 286 C$ 116 147 % Customer Management Services 220 211 4 % US$ 193 US$ 171 13 % Other(a) 297 259 15 % C$ 297 C$ 259 15 %

Total $ 7,818 $ 6,540 20 %

Results are reported in accordance with Canadian generally accepted accounting principles. These results may differ from those reported by the individual operating companies.

(a) Includes CEI, Radian, ONCAP I, ONCAP II and parent company.

8 Onex Corporation Second Quarter Report 2006 MANAGEMENT’S DISCUSSION AND ANALYSIS

Table 3 provides additional details on cost of sales as a percentage of revenues by industry segment for the second quarter and first six months of 2006 and 2005.

Cost of Sales as a Percentage of Revenues by Industry Segment

Three months ended June 30 Six months ended June 30 TABLE 3 (Unaudited) 2006 2005 2006 2005

Electronics Manufacturing Services 93% 92% 93% 93% Aerostructures 83% 89% 81% 89% Healthcare 83% 87% 83% 85% Theatre Exhibition 81% 80% 83% 79% Customer Management Services 62% 61% 61% 62% Other(a) 64% 55% 60% 62%

Total 87% 88% 86% 88%

Results are reported in Canadian dollars and in accordance with Canadian generally accepted accounting principles. These results may differ from those reported by the individual operating companies.

(a) Includes CEI, Radian, ONCAP I, ONCAP II and parent company.

The growth in cost of sales was primarily driven by the Partially offsetting the cost of sales increase were inclusion of businesses acquired in the healthcare and a $257 million and $622 million decline in Celestica’s aerostructures segments. In the healthcare segment, the Canadian dollar cost of sales for the second quarter and acquisition of Skilled Healthcare in December 2005 added first six months of 2006, respectively. This change was due $115 million and $223 million to cost of sales for the three primarily to foreign currency translation. While there was and six months ended June 30, 2006. a 1 percent decline in revenues quarter-over-quarter in the The cost of sales in the aerostructures segment company’s functional currency, Celestica’s cost of sales increased $706 million and $1.3 billion for the three and six remained unchanged from the second quarter of 2005. For months ended June 30, 2006, respectively, due primarily to the first six months of 2006, Celestica’s cost of sales in the inclusion of a full three and six months of results in its functional currency declined 5 percent compared to a 2006 for Spirit AeroSystems, acquired in mid-June 2005, 6 percent decrease in revenues. Gross profit for Celestica and the additional cost of sales recorded from Spirit of US$146 million and US$271 million for the three and Europe, acquired in April 2006. six months ended June 30, 2006, respectively, decreased The theatre exhibition segment represented an 15 percent and 16 percent from US$172 million and overall cost of sales increase of $88 million and $170 million US$324 million, respectively, for the same periods of 2005. for the three and six months ended June 30, 2006, Gross profit decreased due to higher than expected costs respectively, due primarily to Cineplex Entertainment’s incurred in its very high growth, low-cost facilities in acquisition of Famous Players in July 2005. Mexico and Eastern Europe, partially offset by restructuring benefits. Celestica incurred higher than expected labour and other production costs associated with the increased complexity of new programs and new customers in a constrained component supply environment.

Onex Corporation Second Quarter Report 2006 9 MANAGEMENT’S DISCUSSION AND ANALYSIS

Operating earnings interests and discontinued operations. Table 4 provides a Operating earnings is defined as EBIAT, or earnings before reconciliation of the unaudited interim consolidated state- interest expense, amortization of intangibles and deferred ments of earnings to operating earnings for the three and charges, acquisition, restructuring and other expenses, six months ended June 30, 2006 and 2005. other non-recurring items, income taxes, non-controlling

Operating Earnings Reconciliation

Three months ended June 30 Six months ended June 30 TABLE 4 (Unaudited) ($ millions) 2006 2005 2006 2005

Earnings before the undernoted items $ 337 $ 231 $ 682 $ 397 Amortization of property, plant and equipment (85) (85) (176) (163) Interest and other income 33 19 66 65 Equity-accounted investments 3 3 6 5 Foreign exchange gains (loss) (33) 21 (29) 34 Stock-based compensation (15) (8) (56) (21)

Operating earnings $ 240 $ 181 $ 493 $ 317

Amortization of intangible assets and deferred charges (19) (21) (41) (43) Interest expense of operating companies (87) (55) (172) (94) Derivative instruments – – 1 1 Gains on sales of operating investments, net 48 213 49 816 Acquisition, restructuring and other expenses (70) (52) (105) (95) Writedown of goodwill and intangible assets – (2) (5) (2)

Earnings before income taxes, non-controlling interests and discontinued operations $ 112 $ 264 $ 220 $ 900

Onex uses EBIAT as a measure to evaluate each operating performance measure under Canadian GAAP and should company’s performance because it eliminates interest not be considered either in isolation of or as a substitute charges, which are a function of the operating company’s for net earnings prepared in accordance with Canadian particular financing structure, as well as any unusual or GAAP. Table 5 provides a detailed breakdown of oper- non-recurring charges. Onex’ method of determining ating earnings by industry segment and the change in operating earnings may differ from other companies’ operating earnings for the three and six months ended methods and, accordingly, EBIAT may not be comparable June 30, 2006 and 2005. to measures used by other companies. EBIAT is not a

10 Onex Corporation Second Quarter Report 2006 MANAGEMENT’S DISCUSSION AND ANALYSIS

Operating Earnings (Loss) by Industry Segment

Three months ended June 30 Six months ended June 30 TABLE 5 (Unaudited) ($ millions) 2006 2005 Change ($) 2006 2005 Change ($)

Electronics Manufacturing Services $55 $88 $ (33) $ 91 $147 $ (56) Aerostructures 133 (11) 144 251 (11) 262 Healthcare 65 38 27 121 66 55 Theatre Exhibition 12 4 815 9 6 Customer Management Services 9 9 –2416 8 Other(a) (34) 53 (87) (9) 90 (99)

Total $ 240 $ 181 $ 59 $ 493 $317 $ 176

Results are reported in Canadian dollars and in accordance with Canadian generally accepted accounting principles. These results may differ from those reported by the individual operating companies.

(a) Includes CEI, Radian, OREP, OCM, ONCAP I, ONCAP II and parent company.

Consolidated operating earnings were $240 million for the For the six months ended June 30, 2006, operating earn- second quarter of 2006, up 33 percent, or $59 million, from ings grew by $176 million to $493 million from $317 million operating earnings of $181 million for the same quarter of in the first half of 2005. The first six months of 2006 2005. The quarter-over-quarter change in operating earn- operating earnings grew due primarily to: ings was due to several factors: • acquisitions completed in the second half of 2006: Skilled • Onex’ acquisition of Skilled Healthcare ($22 million) in Healthcare ($45 million) and Cineplex Entertainment’s December 2005 and Cineplex Entertainment’s July 2005 July 2005 purchase of Famous Players ($9 million); acquisition of Famous Players, which added $7 million • the inclusion of a full six months of results of EMSC, in operating earnings; and acquired in February 2005 ($13 million); • The inclusion of a full three months in 2006 of Spirit • the inclusion of a full six months of results of Spirit AeroSystems, which was acquired in June 2005, as well AeroSystems, acquired in June 2005, and that company’s as that company’s acquisition of BAE Systems aerostruc- purchase of Spirit Europe in April 2006 ($262 million); tures division in April 2006, added $144 million in Spirit AeroSystems’ operating earnings exclude $75 million operating earnings. Spirit AeroSystems’ second-quarter of development costs that were capitalized under operating earnings exclude $25 million of development Canadian GAAP and that Spirit AeroSystems expensed costs that were capitalized under Canadian GAAP and under U.S. GAAP; and that Spirit AeroSystems expensed under U.S. GAAP. • operating earnings growth of $8 million at ClientLogic Corporation (“ClientLogic”), due primarily to higher Partially offsetting these factors were: revenues and improved margins in the company’s mix • a $33 million decline in operating earnings at Celestica of business in the first six months of 2006. due to higher costs in its high growth, low-cost facilities in Mexico and Eastern Europe, partially offset by restruc- Partially offsetting the above factors was a decline in turing benefits; and operating earnings due to: • a $38 million foreign exchange loss recorded by Onex, • a $56 million decrease in operating earnings at Celestica the parent company, during the second quarter of 2006 resulting from lower revenues and higher costs in its compared to a $20 million foreign exchange gain in the high growth, low-cost facilities in Mexico and Eastern second quarter of 2005; much of the foreign exchange Europe, partially offset by restructuring benefits; loss resulted from the translation of Onex’ significant • a $35 million increase in stock-based compensation U.S. dollar cash balance as a result of the strengthening expense, as discussed in more detail on the following of the Canadian dollar relative to the U.S. dollar. page; and • a $35 million foreign exchange loss recorded by Onex, the parent company, in the first six months of 2006 compared to a $32 million foreign exchange gain in 2005.

Onex Corporation Second Quarter Report 2006 11 MANAGEMENT’S DISCUSSION AND ANALYSIS

Stock-based compensation cash held and Onex recorded foreign exchange losses of During the second quarter of 2006, stock-based compensa- $38 million and $35 million for the three and six months tion expense was $15 million. Onex, the parent company, ended June 30, 2006, respectively, which are included in recorded $6 million of the total expense as a result of the operating earnings. This compares to foreign exchange increase in the market value of Onex’ stock options and gains of $20 million and $32 million for the same periods investment rights from their value at March 31, 2006. In of 2005 recorded by Onex, the parent company. The closing addition, Celestica accounted for $6 million of the total value of the U.S. dollar was 1.2254 Canadian dollars at stock-based compensation expense in the quarter. This June 30, 2005, slightly weaker than the 1.2096 Canadian compares to an $8 million stock-based compensation dollars at March 31, 2005 and 1.2020 Canadian dollars expense recorded for the second quarter of 2005, the primary at December 31, 2004. Note 15 to the unaudited interim components of which were a $2 million stock-based consolidated financial statements provides a breakdown compensation expense recorded by Onex, and a $5 million of foreign exchange gains (loss) by industry segment. expense recorded by Celestica. For the six months ended June 30, 2006, stock- Interest and other income based compensation expense was $56 million compared Interest and other income increased to $33 million for the to $21 million for the same period last year. The expense second quarter of 2006 compared to $19 million for the recorded in the first half of 2006 was due primarily to a second quarter of last year due primarily to $10 million of $35 million increase in value of Onex’ stock options and interest income recorded by Spirit AeroSystems on the investment rights from December 31, 2005; a $16 million accretion of long-term receivables. For the first six months charge recorded by Celestica; and a $4 million expense of 2006, interest and other income was $66 million, up recorded by Spirit AeroSystems. slightly from $65 million for the same period of 2005. Note 15 to the unaudited interim consolidated financial Foreign exchange gains (loss) statements provides a breakdown of interest and other Foreign exchange gains (loss) reflect the impact of income by industry segment. changes in foreign exchange rates, primarily on U.S.-dollar- denominated cash held at Onex, the parent company. Interest expense of operating companies While changes in foreign currency exchange rates may Consolidated interest expense was $87 million for the apply to multiple currencies, the primary impact of foreign second quarter of 2006 compared to $55 million for the currency translation on Onex’ consolidated results is due second quarter of 2005. For the six months ended June 30, to the conversion of the U.S. dollar to the Canadian dollar. 2006, consolidated interest expense was $172 million, up Net foreign exchange losses of $33 million and $78 million from $94 million for the same period of last $29 million, respectively, were recorded for the three and year. Much of the growth in the quarter and year-to-date six months ended June 30, 2006. This compares to foreign was due to: exchange gains of $21 million and $34 million, respec- • the inclusion of Skilled Healthcare, acquired in tively, for the same periods of 2005. At June 30, 2006, the December 2005, which added $13 million in the quarter U.S. dollar to Canadian dollar exchange rate closed at and $26 million for the first six months of 2006; 1.1162 Canadian dollars, down from 1.1680 Canadian • a full period of interest expense for Spirit AeroSystems, dollars at March 31, 2006 and 1.1630 Canadian dollars at acquired in mid-June 2005, increased interest expense December 31, 2005. Since Onex, the parent company, by $12 million and $24 million for the three and six holds a significant portion of its cash in U.S. dollars, this months ended June 30, 2006, respectively; and exchange rate movement decreased the value of the U.S.

12 Onex Corporation Second Quarter Report 2006 MANAGEMENT’S DISCUSSION AND ANALYSIS

• Cineplex Entertainment reporting increases of $8 mil- Acquisition, restructuring and other expenses lion and $17 million for the three and six months ended Acquisition, restructuring and other expenses are consid- June 30, 2006, respectively, compared to the same periods ered to be costs incurred by the operating companies to last year due to the additional debt associated with the realign organizational structures or restructure manufac- acquisition of Famous Players in July 2005, which turing capacity to obtain operating synergies critical to included that company’s issuance of $105 million of building the long-term value of those businesses. During convertible debentures and other third-party financing. the second quarter of 2006, acquisition, restructuring and other expenses totalled $70 million, up from $52 million Gains on sales of operating investments, net reported in the same quarter last year. Approximately Consolidated gains on sales of operating investments were $60 million of these expenses were incurred in the second $48 million in the second quarter of 2006 compared to quarter of 2006 by Celestica; this compares to $38 million gains of $213 million in the same quarter of 2005. For the recorded by Celestica in the second quarter of 2005. Many six months ended June 30, 2006 Onex recorded gains of of the costs to implement these plans can be recorded only $49 million on sales of operating investments compared to as they are incurred and thus the costs may be spread over $816 million for the same period of 2005. Included in the several reporting periods. These latest plans, which 2006 second-quarter and year-to-date gains on sales of include reducing workforce and consolidating facilities, operating investments were: are intended to improve capacity utilization and accelerate • a $25 million pre-tax gain recorded by Onex, the parent margin improvements. company, as a result of the previously noted sale of For the six months ended June 30, 2006, acquisi- some of its Cineplex Entertainment trust units as part tion, restructuring and other expenses were $105 million of a secondary offering completed in June 2006; in compared to $95 million for the same period of 2005. conjunction with its sale of units, Onex also entered into Celestica’s restructuring plans accounted for $80 million a forward contract to purchase 1.4 million units in or of the total acquisition, restructuring and other expenses after January 2007 at a price computed with reference to recorded in the first half of 2006 compared to $79 million the secondary offering; and of restructuring charges recorded by Celestica in the first • a $12 million non-cash accounting dilution gain was half of 2005. recorded relating to Cineplex Entertainment’s 2 million In addition, Spirit AeroSystems recorded $8 million trust unit issuance from treasury, the proceeds from and $15 million in acquisition, restructuring and other which were used to indirectly repay indebtedness expenses for the three and six months ended June 30, 2006, under the company’s revolving credit facility; Onex’ respectively, related to the continued transition to and share of that gain was $6 million. set-up of a stand-alone business following the separation of the company’s operations from The Boeing Company Included in the year-to-date gains of 2005 were a $191 million (“Boeing”), as well as the integration of the April 2006 pre-tax gain recorded by Onex, the parent company, in the purchase of BAE Systems’ aerostructures division. second quarter of 2005 on the June 2005 settlement of all its forward sale agreements on Celestica shares, as well as Income taxes a $560 million pre-tax, non-cash gain on the redemption During the second quarter of 2006, the provision for of its Celestica exchangeable debentures in February 2005. income taxes was $20 million compared to $13 million in the same quarter last year. For the first six months of 2006, the income tax provision was $54 million compared to $33 million for the same period last year. The provision for income taxes for the quarter and year-to-date was largely attributable to Spirit AeroSystems.

Onex Corporation Second Quarter Report 2006 13 MANAGEMENT’S DISCUSSION AND ANALYSIS

Non-controlling interests Earnings from continuing operations In the unaudited interim consolidated statements of Onex’ consolidated earnings from continuing operations earnings, the non-controlling interests amount repre- were $49 million ($0.37 per share) for the second quarter sents the interests of shareholders other than Onex in the of 2006 compared to consolidated earnings from continu- net earnings or losses of the operating companies. For ing operations of $235 million ($1.69 per share) reported the second quarter of 2006, this amount was $43 million for the same quarter of 2005. For the six months ended in earnings compared to $16 million in earnings for the June 30, 2006, consolidated earnings from continuing second quarter of 2005. For the first six months of 2006, operations were $84 million ($0.62 per share) compared to the non-controlling interests amount in Onex’ operating $854 million ($6.14 per share) of consolidated earnings companies’ earnings was $82 million compared to a from continuing operations for the first six months of $13 million interest in earnings for the six months ended 2005. Table 6 details the earnings (loss) before income June 30, 2005. The change in the non-controlling interests taxes, non-controlling interests and discontinued operations amount for the six months ended June 30, 2006 was due by industry segment for the three and six months ended primarily to the other shareholders’ interests in the earnings June 30, 2006 and 2005. of Spirit AeroSystems, EMSC and Skilled Healthcare, par- tially offset by their interests in the net losses of Celestica and Cineplex Entertainment.

Earnings (Loss) from Continuing Operations

Three months ended June 30 Six months ended June 30 TABLE 6 (Unaudited) ($ millions) 2006 2005 2006 2005

Earnings (loss) before income taxes, non-controlling interests and discontinued operations: Electronics Manufacturing Services $ (32) $25 $ (42) $19 Aerostructures 112 (21) 210 (21) Healthcare 29 14 51 26 Theatre Exhibition (1) 1 (10) 4 Customer Management Services 2 (7) 6 (9) Other (a) 2 252(b) 5 881(c)

112 264 220 900 Provision for income taxes (20) (13) (54) (33) Non-controlling interests (43) (16) (82) (13)

Earnings from continuing operations $49 $ 235 $84 $ 854

(a) Includes CEI, Radian, OREP, OCM, ONCAP I, ONCAP II and parent company. (b) Includes a $191 million pre-tax gain on the close out of the Celestica forward sale agreements. (c) Includes a $560 million pre-tax gain on the close out of the Celestica exchangeable debentures and a $191 million pre-tax gain on the close out of the Celestica forward sale agreements.

14 Onex Corporation Second Quarter Report 2006 MANAGEMENT’S DISCUSSION AND ANALYSIS

Earnings (loss) from discontinued operations As discussed in the significant events for the The loss from discontinued operations for the second period ended June 30, 2006 section of this report, the quarter of 2006 was $1 million ($0.01 per share) compared operations of J.L. French Automotive, CSRS, Futuremed, to earnings from discontinued operations of $4 million ClientLogic’s warehouse management business and Town ($0.03 per share) for the second quarter of 2005. For the six and Country were classified as discontinued in the first months ended June 30, 2006, earnings from discontinued half of 2006. In addition to these operations, included in operations were $643 million ($4.74 per share) compared the 2005 second-quarter and year-to-date earnings from to $106 million ($0.77 per share) of earnings from discon- discontinued operations are the operations of Futuremed, tinued operations for the same period of 2005. Table 7 Cineplex Entertainment’s theatre divestitures, CMC provides a breakdown of earnings (loss) by company, Electronics’ NovAtel subsidiary, Magellan Health Services, including the net after-tax gains on sales of operating Inc. (“Magellan”) and Commercial Vehicle Group Inc. investments, as well as Onex’ share of earnings (loss) of (“CVG”). Note 3 to the unaudited interim consolidated those businesses that were discontinued in the first half of financial statements provides additional disclosure on 2006 and in fiscal 2005. earnings (loss) from discontinued operations.

Earnings (Loss) from Discontinued Operations

(Unaudited) ($ millions) TABLE 7 Three months ended June 30 2006 2005

Gain, net Onex’ share Gain, net Onex’ share of tax of loss Total of tax of loss Total

J.L. French Automotive $– $– $– $ – $(12) $ (12) Planned sale of Town and Country – (1) (1) ––– ClientLogic’s warehouse management business –––– (1) (1) CMC Electronics’ sale of NovAtel –––2–2 Sale of Magellan –––15 – 15

Total $ – $(1) $ (1) $ 17 $(13) $ 4

(Unaudited) ($ millions) Six months ended June 30 2006 2005

Onex’ share Gain, net Onex’ share Gain, net of earnings of tax of loss Total of tax (loss) Total

J.L. French Automotive $ 605 $ – $ 605 $ – $(19) $ (19) Sale of Futuremed 19 – 19 ––– Sale of CSRS 21 – 21 – (1) (1) Planned sale of Town and Country – (1) (1) ––– ClientLogic’s warehouse management business – (1) (1) – (3) (3) CMC Electronics’ sale of NovAtel –––37 – 37 Sale of InsLogic –––73 – 73 Sale of Magellan –––15 2 17 Sale of CVG ––––22

Total $ 645 $(2) $ 643 $ 125 $(19) $ 106

Onex Corporation Second Quarter Report 2006 15 MANAGEMENT’S DISCUSSION AND ANALYSIS

Consolidated net earnings be included in determining Onex’ net earnings. The cumu- Consolidated net earnings for the second quarter of 2006, lative interests of other shareholders in these companies including gains on sales of operating investments and cannot be recorded as a negative value for consolidation a loss from discontinued operations, were $48 million accounting purposes. The net losses of other shareholders ($0.36 per share) compared to consolidated net earnings included in Onex’ unaudited interim consolidated finan- of $239 million ($1.72 per share) for the second quarter cial statements totalled $1 million in the second quarter of of 2005. For the six months ended June 30, 2006, Onex’ 2006 (second quarter of 2005 – $4 million) and $4 million consolidated net earnings were $727 million ($5.36 per for the first six months of 2006 (first six months of 2005 – share) compared to consolidated net earnings of $960 mil- $5 million). When these companies record earnings, Onex lion ($6.91 per share) for the first six months of 2005. will include 100 percent of any profits in these companies For the six months ended June 30, 2006, Onex was until Onex has recovered the amount of the losses of non- required, for accounting purposes, to recognize 100 per- controlling shareholders that were previously booked. cent of the losses of ClientLogic and Radian even though Note 15 to the unaudited interim consolidated Onex does not own 100 percent of these businesses. Prior financial statements provides a detailed breakdown of losses at these companies have eliminated the value earnings (loss) before taxes, non-controlling interests contributed by other shareholders in these companies. and discontinued operations by industry segment for the Thus, for accounting purposes, the other shareholders’ three and six months ended June 30, 2006 and 2005. portion of these companies’ current losses is required to

SUMMARY QUARTERLY INFORMATION

Table 8 summarizes Onex’ key consolidated financial information for the last eight quarters.

TABLE 8 ($ millions except per share amounts) 2006 2005 2004

June March Dec. Sept. June March Dec. Sept.

Revenues $ 4,743 $ 4,350 $ 4,246 $ 4,197 $ 3,972 $ 3,450 $ 3,183 $ 3,170

Earnings (loss) from continuing operations 49 35 26 (53) 235 619 (253) 42

Net earnings (loss) 48 679 (8) 13 239 721 (214) 281

Earnings (loss) per Subordinate Voting Share Basic and Diluted: Continuing operations $ 0.37 $ 0.25 $ 0.19 $ (0.38) $ 1.69 $ 4.45 $ (1.82) $ 0.30 Net earnings (loss) $ 0.36 $ 4.95 $ (0.06) $ 0.09 $ 1.72 $ 5.19 $ (1.54) $ 2.02

16 Onex Corporation Second Quarter Report 2006 MANAGEMENT’S DISCUSSION AND ANALYSIS

CONSOLIDATED FINANCIAL POSITION funds available for new acquisitions and to support the growth of its operating companies. This policy means that This section should be read in conjunction with the unau- all debt financing is within our operating companies and dited interim consolidated balance sheet as at June 30, 2006 each company is required to support its own debt. and the corresponding notes thereto and the audited annual Total long-term debt (consisting of the current consolidated balance sheet as at December 31, 2005. portion of long-term debt and long-term debt) was $3.7 billion at June 30, 2006 compared to $3.8 billion at Consolidated assets December 31, 2005. The change was due primarily to the Consolidated assets were $15.1 billion at June 30, 2006, up overall decline in foreign exchange rates on the U.S.-dollar- slightly from $14.8 billion at December 31, 2005. A break- denominated debt of the operating companies. The net down of assets by industry segment is provided in note 15 decline in long-term debt resulting from debt repayments to the unaudited interim consolidated financial state- offset by new debt issuance was approximately $11 million. ments. Consolidated assets increased in the first six months of 2006 due primarily to the inclusion of assets Other liabilities from Spirit AeroSystems’ purchase of BAE Systems’ Other liabilities increased $225 million to $1.3 billion at aerostructures division ($130 million) and ONCAP II’s June 30, 2006 from $1.1 billion at December 31, 2005. Much purchase of CSI ($42 million). In addition, included in the of the increase in other liabilities in the first six months of assets held by discontinued operations is Onex’ propor- 2006 was due to Spirit AeroSystems, which received cash tionate share of assets from the acquisition of Town and advance payments of US$200 million from Boeing relating Country in March 2006 ($713 million). to the 787 program development costs. Partially offsetting this growth was the effect of translation on U.S.-dollar-denominated assets due to the Shareholders’ equity decline in the Canadian/U.S. foreign exchange rate from Shareholders’ equity increased to $1.6 billion at June 30, 1.1630 at December 31, 2005 to 1.1162 at June 30, 2006, as 2006 from $1.2 billion at December 31, 2005 due primarily well as the elimination of J.L. French Automotive’s assets to $727 million of net earnings reported for the six months of $408 million that were included in the December 31, ended June 30, 2006. Partially offsetting this was the effect 2005 balance sheet. of Onex’ repurchase of 6.5 million Subordinate Voting The December 31, 2005 consolidated assets have Shares at a total cost of $139 million in the first six months been restated from those originally presented to show the of 2006. The unaudited interim consolidated statements of assets of J.L. French Automotive, CSRS and ClientLogic’s shareholders’ equity show the changes to the components warehouse management business as discontinued. Note 3 of shareholders’ equity for the six months ended June 30, to the unaudited interim consolidated financial statements 2006 and 2005. provides a breakdown of the December 31, 2005 assets for The change in the currency translation adjust- each of the businesses that were discontinued in the first ment reduced shareholders’ equity by $155 million in the six months of 2006. first six months of 2006 due primarily to the elimination of J.L. French Automotive. Consolidated long-term debt, At July 31, 2006, Onex had 131,377,747 Subordinate without recourse to Onex Voting Shares issued and outstanding. Table 9 shows the Onex, the parent company, has no debt. It is Onex’ policy change in the number of Subordinate Voting Shares out- to preserve a financially strong parent company that has standing from December 31, 2005.

Onex Corporation Second Quarter Report 2006 17 MANAGEMENT’S DISCUSSION AND ANALYSIS

Change in Subordinate Voting Shares Outstanding to acquire new Subordinate Voting Shares of Onex at a market-related price at the time of reinvestment. During TABLE 9 (Unaudited) the period from January 1, 2006 to July 31, 2006, Onex

Subordinate Voting Shares outstanding issued 3,316 Subordinate Voting Shares under the Plan at at December 31, 2005 138,079,031 an average cost of $21.38 per share. Shares repurchased and cancelled under At June 30, 2006, Onex had 13,494,100 options Onex’ Normal Course Issuer Bid (6,724,600) outstanding to acquire Subordinate Voting Shares, of Issue of shares – Dividend Reinvestment Plan 3,316 which 6,472,100 were vested and 4,954,600 of those vested Issue of shares – Stock options exercised 20,000 options were exercisable. During the first six months of 2006, 64,000 options were exercised or surrendered Subordinate Voting Shares outstanding at an average exercise price of $8.00. Of those options at July 31, 2006 131,377,747 exercised, 44,000 options were surrendered for cash con- sideration of approximately $1 million and 20,000 options Under the Company’s Normal Course Issuer Bid (the were exercised for Subordinate Voting Shares of Onex. “Bid”), Onex is able to repurchase up to 10 percent of its This compares to 96,600 options surrendered for cash public float of Subordinate Voting Shares. During the consideration of approximately $1 million in the first six period from January 1, 2006 to July 31, 2006, Onex repur- months of 2005. chased 6,724,600 Subordinate Voting Shares at an average During the second quarter of 2006, Onex, the par- cost per share of $21.56 for a total cost of approximately ent company, granted 40,000 Deferred Share Units $145 million. (“DSUs”) to its Directors. In addition, certain Directors Onex’ Dividend Reinvestment Plan (the “Plan”) elected to take their directors’ fees in the form of DSUs. enables Canadian shareholders to reinvest cash dividends At June 30, 2006, Onex had 170,071 DSUs outstanding.

LIQUIDITY AND CAPITAL RESOURCES

This section should be read in conjunction with the Onex believes that maintaining a strong financial unaudited interim consolidated statements of cash flows position at the parent company with substantial liquidity for the three and six months ended June 30, 2006 and enables the Company to pursue new opportunities to create related notes. long-term value and support Onex’ existing operating companies.

Major Cash Flow Components

Three months ended June 30 Six months ended June 30 TABLE 10 (Unaudited) ($ millions) 2006 2005 2006 2005

Cash from operating activities, excluding changes in non-cash working capital and other liabilities $ 205 $ 150 $ 472 $ 262 Cash from (used in) non-cash working capital, other liabilities and discontinued operations $ 141 $60 $ (52) $12 Cash from (used in) financing activities $ (98) $ 623 $ (108) $ 565 Cash used in investing activities $ (472) $ (929) $ (977) $ (1,046) Consolidated cash and short-term investments $ 2,373 $ 3,403 $ 2,373 $ 3,403

18 Onex Corporation Second Quarter Report 2006 MANAGEMENT’S DISCUSSION AND ANALYSIS

Cash from (used in) operating activities $565 million of cash provided by financing activities in Cash from operating activities, excluding changes in non- the first six months of last year. Included in cash used in cash net working capital and other liabilities, totalled financing activities for the second quarter and first six $205 million in the second quarter of 2006 compared to months of 2006 was $97 million and $139 million, cash from operating activities of $150 million reported in respectively, of cash spent by Onex on the repurchase of the same quarter last year. For the first six months of 2006, its Subordinate Voting Shares under the Company’s cash from operations, excluding changes in non-cash net Normal Course Issuer Bid. Partially offsetting this was working capital and other liabilities, was $472 million $30 million of cash received by Cineplex Entertainment compared to cash from operations of $262 million reported as a result of its secondary unit offering in June 2006. for the same period of 2005. This increase in cash generated Included in cash from financing activities for from operations was related primarily to the inclusion of the second quarter and first six months of 2005 was Skilled Healthcare, acquired in December 2005, as well as a US$250 million of proceeds received by Celestica on its full three and six months of results for Spirit AeroSystems, 7.625 percent senior subordinated notes offering that was acquired in mid-June 2005, and the acquisition of Spirit completed in June 2005, as well as cash received from the Europe in April 2006. A detailed discussion of the consoli- limited partners of Onex Partners LP (“Onex Partners I”) dated operating results can be found under the heading for the acquisition of EMSC, completed in February 2005, “Consolidated Operating Results” on page 6 of this MD&A. and Spirit AeroSystems, purchased in mid-June 2005. Non-cash working capital, other liabilities and Partially offsetting these amounts was $384 million used discontinued operations provided cash of $141 million in for distributions by CMC Electronics relating to the earlier the second quarter of 2006 due primarily to a US$100 million sales of its Cincinnati Electronics subsidiary in 2004 and a cash advance payment received by Spirit AeroSystems from portion of its NovAtel shares in January 2005, as well as by Boeing relating to the funding of development costs for the Onex Partners I to limited partners other than Onex on the 787 program. This compares to cash provided by non-cash sale of its Compagnie Générale de Géophysique (“CGG”) working capital, other liabilities and discontinued opera- convertible bonds and the partial sale of Magellan shares. tions of $60 million in the same quarter of 2005. For the six months ended June 30, 2006, cash used in non-cash working Cash used in investing activities capital, other liabilities and discontinued operations was Cash used in investing activities was $472 million for the sec- $52 million due primarily to an increase in receivables at ond quarter of 2006 compared to cash used of $929 million Spirit AeroSystems and higher inventory levels at Celestica for the three months ended June 30, 2005. For the first half of in support of building production levels with new programs. 2006, cash used in investing activities totalled $977 million Partially offsetting this was US$200 million of cash advance compared to cash used of $1,046 million for the same period payments received by Spirit AeroSystems from Boeing of 2005. Spirit AeroSystems’ acquisition of BAE Systems relating to the funding of development costs for the 787 aerostructures business used cash of $169 million in the program. This compares to cash provided from non-cash second quarter of 2006. In addition, $79 million of cash was working capital, other liabilities and discontinued opera- spent on the acquisition of CSI and other acquisitions tions of $12 million for the first six months of 2005. completed by EMSC, Skilled Healthcare and Celestica in the first half of 2006. This compares to cash used of $812 million Cash from (used in) financing activities for acquisitions in the first six months of 2005, which Cash used in financing activities totalled $98 million for included Center for Diagnostic Imaging, Inc. (“CDI”), the second quarter of 2006 compared to cash from EMSC and Spirit AeroSystems. Note 2 to the unaudited financing activities of $623 million for the same quarter interim consolidated financial statements provides more last year. For the six months ended June 30, 2006, cash details of acquisitions completed in the first six months used in financing activities was $108 million compared to ended June 30, 2006.

Onex Corporation Second Quarter Report 2006 19 MANAGEMENT’S DISCUSSION AND ANALYSIS

The cash used in other investing activities was Included in investing activities was cash used in $251 million in the first half of 2006 compared to cash used discontinued operations of $63 million in the first six in other investing activities of $82 million in the first six months of 2006, which primarily represents the cash spent months of 2005. Approximately $127 million of the cash on Town and Country, which was reclassified to discon- used in other investing activities was 787 development tinued in the second quarter of 2006, partially offset by costs that were capitalized by Spirit AeroSystems. In addi- proceeds on the sales of Futuremed and CSRS. tion, in the first six months of 2006, approximately $32 million was cash spent on investments, which included Consolidated cash resources OREP’s investment in the Camden partnerships and At June 30, 2006, consolidated cash with continuing opera- ONCAP II’s investment in Environmental Management tions was $2.4 billion compared to $3.1 billion at Solutions Inc. The remainder was cash spent on other December 31, 2005. Onex, the parent company, repre- long-term assets by other Onex operating companies. sented approximately $1.2 billion of cash on hand and During the three and six months ended June 30, Celestica had approximately $0.8 billion of cash at June 30, 2006, Onex’ operating companies spent $230 million and 2006. No amount of cash of the other limited partners of $454 million, respectively, on the purchases of property, Onex Partners is included in the Onex consolidated cash plant and equipment compared to $71 million and amount. At June 30, 2006 the other limited partners in $145 million, respectively, in the same periods of 2005. Onex Partners I and II had remaining commitments to Spirit AeroSystems spent $95 million and $204 million on provide $2.5 billion of funding for future Onex-sponsored capital assets in the second quarter and year-to-date, acquisitions. Onex has a conservative cash management respectively, due primarily to capital expenditures for policy that limits investments to short-term low-risk its 787 program and tooling enhancements for its other money-market products. programs. In addition, Celestica spent $76 million and $139 million on property, plant and equipment in the three and six months ended June 30, 2006, respectively, primarily to expand manufacturing capabilities and capacities in lower-cost geographies including China, the Czech Republic, Mexico, Romania and Thailand. Included in cash used in investing activities for the three and six months ended June 30, 2005 was $260 million of cash used by Onex, the parent company, to purchase short-term investments with maturities greater than three months.

20 Onex Corporation Second Quarter Report 2006 MANAGEMENT’S DISCUSSION AND ANALYSIS

OUTLOOK

The following provides an update to the Outlook sections of Onex’ December 31, 2005 report and the report for the first quarter ended March 31, 2006.

Spirit AeroSystems initial public offering Onex closes second private equity fund, In June 2006, Spirit AeroSystems, Inc. (“Spirit Onex Partners II LP AeroSystems”) filed a registration statement with the U.S. Onex Partners II LP (“Onex Partners II”), Onex’ second Securities and Exchange Commission for a proposed large-cap private equity fund, has received total capital initial public offering of shares. While the impact of this commitments of approximately US$3.45 billion. Virtually transaction, if completed, is not known at this time, Onex all of the existing investors in Onex Partners LP (“Onex expects that it will continue to hold a majority ownership Partners I”) have committed to Onex Partners II and several interest in Spirit AeroSystems. significant new investors have been added. Onex has committed 41 percent of the total commitments of Onex Onex to acquire Aon Warranty Group Partners II, a much larger portion than the 24 percent it In late June 2006, Onex announced that it had agreed to had committed to Onex Partners I. Onex will benefit from acquire Aon Warranty Group (“AWG”), one of the world’s management fees paid by other investors in Onex Partners II largest providers of extended warranty contracts, for and is entitled to earn a carried interest on the overall approximately US$710 million. AWG underwrites and profits received by the investors in the second fund. administers extended warranties on a wide variety of con- The management fees to Onex that will be generated sumer goods, including automobiles, consumer elec- on an annualized basis from the Onex Partners I and II tronics and major home appliances. The company also Funds, as well as the ONCAP II Fund, will total approxi- provides consumer credit and other specialty insurance mately $60 million. products primarily through automobile dealers. This acquisition is an excellent opportunity for Onex to acquire a business with a strong track record of growth, a broad and diverse customer base and a talented and highly expe- rienced management team. It is anticipated that Onex Partners will make an equity investment of approxi- mately US$510 million in AWG. This investment is planned to be split almost equally between Onex Partners I and II. Onex’ share of this investment is anticipated to be approximately US$160 million. This acquisition is expected to close in the fourth quarter of 2006 following the receipt of customary regulatory approvals.

Onex Corporation Second Quarter Report 2006 21 CONSOLIDATED BALANCE SHEETS

(Unaudited) As at June 30 As at December 31 (in millions of dollars) 2006 2005

Assets Current assets Cash and short-term investments $ 2,365 $ 3,096 Accounts receivable 2,319 2,124 Inventories 2,172 1,944 Other current assets 430 440 Current assets held by discontinued operations (note 3) 12 156

7,298 7,760 Property, plant and equipment 2,591 2,421 Investments and other assets 1,637 1,271 Intangible assets 412 441 Goodwill 2,423 2,478 Long-lived assets held by discontinued operations (note 3) 776 474

$ 15,137 $ 14,845

Liabilities and Shareholders’ Equity Current liabilities Bank indebtedness, without recourse to Onex $10 $1 Accounts payable and accrued liabilities 3,374 3,226 Current portion of long-term debt and obligations under capital leases of operating companies, without recourse to Onex 87 60 Current liabilities held by discontinued operations (note 3) 11 877

3,482 4,164 Long-term debt of operating companies, without recourse to Onex (note 4) 3,631 3,796 Obligations under capital leases of operating companies, without recourse to Onex 82 65 Other liabilities (note 5) 1,284 1,059 Future income taxes 770 767 Long-term liabilities held by discontinued operations (note 3) 675 199

9,924 10,050 Non-controlling interests 3,636 3,643 Shareholders’ equity 1,577 1,152

$ 15,137 $ 14,845

See accompanying notes to the unaudited interim consolidated financial statements. These unaudited interim consolidated financial statements should be read in conjunction with the 2005 audited annual consolidated financial statements. The December 31, 2005 balance sheet is taken from the audited annual consolidated financial statements and has been restated for discontinued operations.

22 Onex Corporation Second Quarter Report 2006 CONSOLIDATED STATEMENTS OF EARNINGS

(Unaudited) Three months ended June 30 Six months ended June 30 (in millions of dollars, except per share data) 2006 2005 2006 2005

Revenues $ 4,743 $ 3,972 $ 9,093 $ 7,422 Cost of sales (4,121) (3,482) (7,818) (6,540) Selling, general and administrative expenses (285) (259) (593) (485)

Earnings Before the Undernoted Items $ 337 $231 $ 682 $ 397 Amortization of property, plant and equipment (85) (85) (176) (163) Amortization of intangible assets and deferred charges (19) (21) (41) (43) Interest expense of operating companies (87) (55) (172) (94) Interest and other income 33 19 66 65 Equity-accounted investments 3 3 6 5 Foreign exchange gains (loss) (33) 21 (29) 34 Stock-based compensation (15) (8) (56) (21) Derivative instruments – – 1 1 Gains on sales of operating investments, net (note 7) 48 213 49 816 Acquisition, restructuring and other expenses (note 8) (70) (52) (105) (95) Writedown of goodwill and intangible assets – (2) (5) (2)

Earnings before income taxes, non-controlling interests and discontinued operations 112 264 220 900 Provision for income taxes (20) (13) (54) (33) Non-controlling interests (43) (16) (82) (13)

Earnings from continuing operations 49 235 84 854 Earnings (loss) from discontinued operations (note 3) (1) 4 643 106

Net Earnings for the Period $48 $239 $ 727 $ 960

Net Earnings (Loss) per Subordinate Voting Share (note 10) Basic and Diluted: Continuing operations $ 0.37 $ 1.69 $ 0.62 $ 6.14 Discontinued operations $ (0.01) $ 0.03 $ 4.74 $ 0.77 Net earnings $ 0.36 $ 1.72 $ 5.36 $ 6.91

See accompanying notes to the unaudited interim consolidated financial statements. These unaudited interim consolidated financial statements should be read in conjunction with the 2005 audited annual consolidated financial statements. The June 30, 2005 unaudited interim consolidated statements of earnings have been restated for discontinued operations.

Onex Corporation Second Quarter Report 2006 23 CONSOLIDATED STATEMENTS OF SHAREHOLDERS’ EQUITY

(Unaudited) Share Retained Cumulative Total (in millions of dollars, except per share data) Capital Earnings Translation Shareholders’ Six months ended June 30 (note 6) (Deficit) Adjustment Equity

Balance – December 31, 2004 $ 582 $ (288) $ (67) $ 227 Dividends declared(a) – (8) – (8) Currency translation adjustment ––11 Net earnings for the period – 960 – 960

Balance – June 30, 2005 $ 582 $ 664 $ (66) $ 1,180

Balance – December 31, 2005 $ 578 $ 648 $ (74) $ 1,152 Dividends declared(a) – (8) – (8) Purchase and cancellation of shares (26) (113) – (139) Currency translation adjustment(b) – – (155) (155) Net earnings for the period – 727 – 727

Balance – June 30, 2006 $ 552 $ 1,254 $ (229) $ 1,577

(a) Dividends declared per Subordinate Voting Share were $0.055 for the six months ended June 30, 2006 and 2005. (b) Included in the currency translation adjustment is a negative $129 relating to the discontinued operations of J.L. French Automotive Castings, Inc., as described in note 3.

For the six months ended June 30, 2006 and 2005, shares issued under the dividend reinvestment plan amounted to less than $1. See accompanying notes to the unaudited interim consolidated financial statements. These unaudited interim consolidated financial statements should be read in conjunction with the 2005 audited annual consolidated financial statements.

24 Onex Corporation Second Quarter Report 2006 CONSOLIDATED STATEMENTS OF CASH FLOWS

(Unaudited) Three months ended June 30 Six months ended June 30 (in millions of dollars) 2006 2005 2006 2005

Operating Activities Net earnings for the period $48 $239 $ 727 $ 960 Loss (earnings) from discontinued operations 1 (4) (643) (106) Items not affecting cash: Amortization of property, plant and equipment 85 85 176 163 Amortization of intangible assets and deferred charges 19 21 41 43 Writedown of goodwill and intangible assets – 2 5 2 Non-cash component of restructuring 37 8 37 9 Non-controlling interests 43 16 82 13 Future income taxes 28 3 26 4 Stock-based compensation 15 8 56 21 Derivative instruments – – (1) (1) Gains on sales of operating investments, net (48) (213) (49) (816) Other (23) (15) 15 (30) 205 150 472 262 Increase (decrease) in other liabilities 134 – 212 (7) Changes in non-cash working capital items: Accounts receivable (124) 108 (216) 227 Inventories (103) (21) (230) (78) Other current assets 10 (23) (3) 7 Accounts payable and accrued liabilities 225 8 187 (130) Increase (decrease) in cash due to changes in working capital items 8 72 (262) 26 Cash used by discontinued operations (1) (12) (2) (7) 346 210 420 274 Financing Activities Issuance of long-term debt 96 635 209 833 Repayment of long-term debt (121) (178) (220) (387) Cash dividends paid (4) (4) (8) (8) Repurchase of share capital (97) – (139) – Issuance of share capital by operating companies 46 289 66 493 Distributions by operating companies (20) (158) (24) (383) Increase (decrease) due to other financing activities 2 12 8 (9) Cash from discontinued operations – 27 – 26 (98) 623 (108) 565 Investing Activities Acquisition of operating companies, net of cash in acquired companies of $10 (2005 – $196) (note 2) (173) (467) (248) (812) Purchase of property, plant and equipment (230) (71) (454) (145) Proceeds from sales of operating investments 38 293 39 394 Net purchase of short-term investments – (260) – (260) Decrease due to other investing activities (115) (119) (251) (82) Cash from (used by) discontinued operations 8 (305) (63) (141) (472) (929) (977) (1,046) Decrease in Cash for the Period (224) (96) (665) (207) Increase (decrease) in cash due to changes in foreign exchange rates (87) 24 (77) 40 Cash, beginning of the period – continuing operations 2,675 3,041 3,096 2,857 Cash, beginning of the period – discontinued operations 9 174 19 453 Cash, End of the Period(a) 2,373 3,143 2,373 3,143 Short-term investments(b) – 260 – 260 Cash and Short-term Investments $ 2,373 $ 3,403 $ 2,373 $ 3,403

(a) Cash includes cash and money market investments that mature in less than three months from the balance sheet date. (b) Short-term investments consists of money market investments that mature in three months to a year. See accompanying notes to the unaudited interim consolidated financial statements. These unaudited interim consolidated financial statements should be read in conjunction with the 2005 audited annual consolidated financial statements. The June 30, 2005 unaudited interim consolidated statements of cash flows have been restated for discontinued operations. Onex Corporation Second Quarter Report 2006 25 NOTES TO INTERIM CONSOLIDATED FINANCIAL STATEMENTS (unaudited) (in millions of dollars, except per share data)

Onex Corporation (“Onex” or the “Company”) is a diver- b) In January 2006, ONCAP II completed the acquisition of CSI sified company, the subsidiaries of which operate as Global Education Inc. (“CSI”). CSI is Canada’s leading provider of autonomous businesses. All amounts are in Canadian financial education and testing services. The total investment dollars unless otherwise noted. made by ONCAP II was $17 in debt and $8 in equity for a 90% equity ownership. Onex’ net investment in this acquisition was 1. BASIS OF PREPARATION $8 in debt and $4 in equity for a 40% equity ownership interest. Onex has indirect voting control of CSI through ONCAP II. The Company prepares its financial statements in accordance with Canadian generally accepted accounting principles (“GAAP”). c) In April 2006, Spirit AeroSystems, Inc. (“Spirit AeroSystems”) The disclosures contained in these unaudited interim consolidated completed the acquisition of the aerostructures business unit of financial statements do not include all the requirements of gener- BAE Systems plc, with operations in Prestwick, Scotland and ally accepted accounting principles for annual financial statements. Samlesbury, England. The total purchase price of the acquisition The unaudited interim consolidated financial statements should was $169 for a 100% equity ownership, which was financed by be read in conjunction with the audited annual consolidated Spirit AeroSystems using its available cash. financial statements for the year ended December 31, 2005. Certain amounts presented in the comparative prior periods d) Other includes acquisitions made by Celestica Inc. (“Celestica”), have been reclassified to conform to the presentation adopted in Skilled Healthcare Group, Inc. (“Skilled Healthcare”), and the period. Emergency Medical Services Corporation (“EMSC”). The unaudited interim consolidated financial statements are based on accounting principles consistent with those used and The purchase price of the acquisitions described above were allo- described in the audited annual consolidated financial statements. cated to the net assets acquired based on their relative fair values at the dates of acquisition. In certain circumstances where esti- mates have been made, the companies are obtaining third-party 2. CORPORATE INVESTMENTS valuations of certain assets, which could result in further During the first six months of 2006 the following acquisitions, refinement of the fair-value allocation of certain purchase prices. which were accounted for as purchases, were completed either The results of operations for all acquired businesses are included directly by Onex or through subsidiaries of Onex. Any third-party in the unaudited interim consolidated statement of earnings of borrowings in respect of the acquisitions are without recourse to the Company from their respective dates of acquisition. Onex. The significant acquisitions were: a) In March 2006, the acquisition of Town and Country Trust (“Town and Country”) was completed through a joint venture with Onex Real Estate Partners LP (“OREP”), Morgan Stanley Real Estate and Sawyer Realty Holdings LLC. Town and Country owns and operates 37 apartment communities in the United States. The total equity investment by the joint venture was $244 for a 100% equity ownership interest. The equity investment by OREP was $116 for a 48% equity ownership interest. Onex’ net investment in this acquisition was $100 for a 41% equity ownership at the time of acquisition. Onex accounts for Town and Country as a joint venture, applying the proportionate consolidation method. Beginning in the second quarter, the results of Town and Country have been recorded as discontinued operations, as described in note 3.

26 Onex Corporation Second Quarter Report 2006 NOTES TO INTERIM CONSOLIDATED FINANCIAL STATEMENTS

Details of the 2006 acquisitions, which were accounted for as purchases, are as follows:

Town and Spirit Country(a) CSI(b) AeroSystems(c) Other(d)

Cash $9$10$–$– Other current assets 6 1 152 8 Intangible assets 15 – 23 9 Goodwill –53513 Property, plant and equipment and other long-term assets 783 3 119 34

813 67 299 64 Current liabilities (9) (10) (77) (1) Long-term liabilities(1) (688) (48) (53) –

116 9 169 63 Non-controlling interests in net assets (16) (1) – –

Increase in net assets acquired $ 100 $ 8 $ 169 $ 63

(1) Included in liabilities of CSI is $17 of acquisition financing provided by ONCAP II.

3. DISCONTINUED OPERATIONS

The following table shows the revenue and the net after-tax results from discontinued operations for the three- and six-month periods ended June 30, 2006 and 2005.

2006 2005 2006 2005

Gain, Net Onex’ Share Gain, Net Onex’ Share Three months ended June 30 Revenue of Tax of Loss Total of Tax of Loss Total

J.L. French Automotive(a) $– $ 157 $ – $– $– $ – $ (12) $ (12) Futuremed(b) – 20 –––––– CSRS(c) – 23 –––––– Cineplex Entertainment(d) 1 9 –––––– Town and Country(e) 18 – – (1) (1) ––– ClientLogic warehouse(f) 6 7 –––– (1) (1) CMC Electronics – – –––2–2 Magellan – 182 –––15 – 15

$25 $ 398 $ – $ (1) $ (1) $ 17 $ (13) $ 4

Onex Corporation Second Quarter Report 2006 27 NOTES TO INTERIM CONSOLIDATED FINANCIAL STATEMENTS

3. DISCONTINUED OPERATIONS (cont’d)

2006 2005 2006 2005

Onex’ Share Gain, Net Onex’ Share Gain, Net of Earnings Six months ended June 30 Revenue of Tax of Loss Total of Tax (Loss) Total

J.L. French Automotive(a) $– $ 317 $ 605 $ – $ 605 $ – $ (19) $ (19) Futuremed(b) – 52 19 – 19 ––– CSRS(c) – 39 21 – 21 – (1) (1) Cineplex Entertainment(d) 7 17 –––––– Town and Country(e) 18 – – (1) (1) ––– ClientLogic warehouse(f) 13 15 – (1) (1) – (3) (3) CMC Electronics – ––––37 – 37 Magellan – 744 –––15 2 17 InsLogic – – –––73 – 73 Commercial Vehicle Group – – ––––22

$38 $ 1,184 $ 645 $ (2) $ 643 $ 125 $ (19) $ 106 a) The difficult conditions affecting the North American automo- c) In March 2006, ONCAP I’s operating company, Canadian tive supply sector rendered J.L. French Automotive Castings, Inc. Securities Registration Systems Ltd. (“CSRS”), was purchased by (“J.L. French Automotive”) unable to meet the financial require- Resolve Business Outsourcing Income Fund (“Resolve”) concurrent ments under certain of its lending agreements. In February 2006, with Resolve’s initial public offering. ONCAP I received convertible J.L. French Automotive filed for protection under Chapter 11 of units of Resolve and net cash proceeds of $90, of which Onex’ the Bankruptcy Code in the United States. At that time, Onex share was $30. Onex’ gain on the transaction was $25, before a tax ceased all involvement with the company and expected little to provision of $4. no proceeds from the bankruptcy process. As a result, in Under the terms of the MIP, management members February 2006, Onex recorded the operations of J.L. French participated in the realizations the Company achieved on its sale Automotive as discontinued and recorded an accounting gain of of CSRS. Amounts paid on account of these transactions related $605, which consists of the reversal of losses previously recorded to the MIP totalled $1 and have been deducted from earnings in excess of the Company’s investment in J.L. French Automotive. from discontinued operations. In July 2006, J.L. French Automotive emerged from bankruptcy In addition, management of ONCAP I received $5 as and Onex has no further economic interest in the company. its carried interest on the proceeds of $60 from investors other There was no Management Investment Plan (“MIP”) distribution than Onex. regarding J.L. French Automotive as the required performance targets were not met. d) In the first six months of 2006, Cineplex Entertainment Limited Partnership (“Cineplex Entertainment”) disposed of the remaining b) In January 2006, ONCAP I’s operating company, Futuremed seven theatres that were part of its consent agreement pursuant Health Care Products Limited Partnership (“Futuremed”), com- to its 2005 acquisition of Famous Players, as described in note 3 to pleted an initial public offering with 92% of ONCAP I’s ownership the audited annual consolidated financial statements. being sold and the remaining portion being sold in February 2006. Through the offering, ONCAP I received net proceeds of e) In the second quarter of 2006, OREP undertook steps toward $74, of which Onex’ share was $25. Onex’ gain on the transaction the divestiture of all of the assets from the acquisition of Town was $23, before a tax provision of $4. and Country, as described in note 2. Accordingly, the results of Under the terms of the MIP, as described in note 24(e) operations for these assets have been recorded as discontinued to the audited annual consolidated financial statements, operations. No assets had been sold as at June 30, 2006. management members participated in the realizations the f) During the second quarter of 2006, ClientLogic Corporation Company achieved on its sale of Futuremed. Amounts paid on (“ClientLogic”) determined that it would dispose of its ware- account of these transactions related to the MIP totalled $2 and house management business, and therefore, that business has have been deducted from earnings from discontinued operations. been classified as discontinued. In addition, management of ONCAP I received $6 as its carried interest on the proceeds of $49 from investors other than Onex.

28 Onex Corporation Second Quarter Report 2006 NOTES TO INTERIM CONSOLIDATED FINANCIAL STATEMENTS

The results of operations for the businesses described above have six-month periods ended June 30, 2005. The amounts for dis- been reclassified as discontinued operations in the unaudited continued operations included in the June 30, 2006 and interim consolidated statements of earnings and unaudited con- December 31, 2005 consolidated balance sheets are as follows: solidated statements of cash flows for the three-month and

As at June 30, 2006

Town and ClientLogic Country warehouse Total

Cash $8 $–$ 8 Accounts receivable –33 Other current assets 1–1

Current assets held by discontinued operations 9312

Property, plant and equipment 747 3 750 Intangibles and other assets 26 – 26

Long-lived assets held by discontinued operations 773 3 776

Accounts payable and accrued liabilities (10) (1) (11)

Current liabilities held by discontinued operations (10) (1) (11)

Long-term debt, without recourse to Onex (660) – (660) Non-controlling interests (15) – (15)

Long-term liabilities held by discontinued operations (675) – (675) Cumulative translation adjustment 4–4

Net assets of discontinued operations $ 101 $ 5 $ 106

As at December 31, 2005

J.L. French Cineplex ClientLogic Automotive CSRS Futuremed Entertainment warehouse Total

Cash $15$4$– $–$–$19 Accounts receivable 38410– 456 Inventories 48–6 ––54 Other current assets 2141 1–27

Current assets held by discontinued operations 122 12 17 1 4 156

Property, plant and equipment 263 2 1 3 4 273 Intangibles and other assets 23 63 41 – – 127 Goodwill –6212– –74

Long-lived assets held by discontinued operations 286 127 54 3 4 474

Accounts payable and accrued liabilities (71) (6) (8) – (2) (87) Current portion of long-term debt and obligations under capital leases, without recourse to Onex (790) – – – – (790)

Current liabilities held by discontinued operations (861) (6) (8) – (2) (877)

Long-term debt and obligations under capital leases, without recourse to Onex (12) (67) (53) – – (132) Other liabilities (13) (43) – (3) – (59) Non-controlling interests – – (8) – – (8)

Long-term liabilities held by discontinued operations (25) (110) (61) (3) – (199) Cumulative translation adjustment (129) – – – – (129)

Net assets (liabilities) of discontinued operations $ (607) $ 23 $ 2 $ 1 $ 6 $ (575)

Onex Corporation Second Quarter Report 2006 29 NOTES TO INTERIM CONSOLIDATED FINANCIAL STATEMENTS

4. LONG-TERM DEBT OF OPERATING COMPANIES, 5. OTHER LIABILITIES WITHOUT RECOURSE TO ONEX The following describes the significant changes in Onex’ con- The following describes the significant changes to Onex’ consolidated solidated other liabilities from the information provided in the long-term debt from the information provided in the December 31, December 31, 2005 audited annual consolidated financial 2005 audited annual consolidated financial statements. statements. a) Town and Country Spirit AeroSystems The March 2006 acquisition of Town and Country resulted in Pursuant to the 787 long-term supply agreement with The additional debt being recorded in the unaudited interim consoli- Boeing Company (“Boeing”), Boeing is to make advance pay- dated financial statements. At June 30, 2006, Town and Country ments to Spirit AeroSystems. As at June 30, 2006, US$400 in such had US$1,243 of debt outstanding, secured by the property and advance payments had been made. US$200 in such payments assets of the company. The debt is due in April 2008, with three were made in the first six months of 2006, of which US$100 were additional one-year extensions available to the company. The made in the second quarter. The advance payments will be settled debt is repayable at the option of the holder prior to April 2008 against future sales of Spirit AeroSystems’ 787 components and bears interest at LIBOR plus a margin, with interest. As Town manufactured for Boeing. and Country is accounted for using proportionate consolidation, the Company has recorded US$592 as its proportionate share 6. SHARE CAPITAL of the debt. The results of Town and Country have been recorded as As at June 30, 2006, Onex’ issued and outstanding share capital discontinued operations, as described in note 3. Accordingly, Onex’ consisted of 131,621,680 (December 31, 2005 – 138,079,031) proportionate share of Town and Country’s long-term debt has Subordinate Voting Shares, 100,000 (December 31, 2005 – 100,000) been recorded as long-term liabilities held by discontinued opera- Multiple Voting Shares and 176,078 (December 31, 2005 – 176,078) tions in the unaudited interim consolidated financial statements. Series 1 Senior Preferred Shares. Onex renewed its Normal Course Issuer Bid in April b) CSI 2006 for one year, permitting the Company to purchase on the The January 2006 acquisition of CSI resulted in additional debt Toronto Stock Exchange up to 10 percent of the public float of its being recorded in the unaudited interim consolidated financial Subordinate Voting Shares. The 10 percent limit represents statements. In connection with the acquisition, CSI executed a approximately 10.5 million shares. $28 credit agreement that consists of a $25 senior secured term In the first six months of 2006, the Company repur- loan and a $3 senior secured revolving credit facility. The senior chased and cancelled 6,479,500 of its Subordinate Voting Shares at secured term loan requires quarterly principal installments a cost of $139, of which 4,380,900 were in the second quarter at a beginning in September 2006 through January 2011. The revolving cost of $97. The Company did not purchase any shares under its facility requires the principal to be repaid at maturity in Normal Course Issuer Bids during the first six months of 2005. January 2011. As at June 30, 2006, $19 and nil were outstanding In the second quarter of 2006, 20,000 Subordinate under the term loan and revolving facility, respectively. Voting Shares were issued upon the exercise of stock options of The borrowings under the agreement bear interest the Company at a total value of less than $1. During the first six determined on a base rate plus an interest rate margin of up to months of 2006, the total cash consideration paid on 44,000 (2005 – 1.5%, payable monthly. 96,600) options surrendered was $1 (2005 – $1), of which 25,000 In connection with the acquisition, CSI issued $19 in options (2005 – nil) were surrendered in the second quarter for unsecured subordinated promissory notes, due 2012. The notes cash consideration of less than $1 (2005 – nil). This amount repre- bear interest at a fixed rate of 15%, with 5% payable in cash and sents the difference between the market value of the Subordinate 10% in additional notes. The interest is paid quarterly beginning Voting Shares at the time of surrender and the exercise price, both in March 2006. As at June 30, 2006, promissory notes of $20 were as determined under Onex’ Stock Option Plan as described in outstanding, of which $18 is held by ONCAP II. note 13 to the audited annual consolidated financial statements.

30 Onex Corporation Second Quarter Report 2006 NOTES TO INTERIM CONSOLIDATED FINANCIAL STATEMENTS

During the first quarter of 2006, 140,000 options to acquire During the second quarter of 2006, a new grant of 40,000 Subordinate Voting Shares were issued under the Company’s Stock (2005 – 45,000) Deferred Share Units (“DSUs”) were issued to Option Plan with an exercise price of $19.25 per share, which was Directors. In addition, certain directors have chosen to receive the market price at the time of issuance of the options. In addition, their directors’ fees in DSUs in lieu of cash. At June 30, 2006, there 16,500 (2005 – 410,500) options expired during the first six were 170,071 (December 31, 2005 – 116,301) DSUs outstanding. months of 2006. At June 30, 2006, the Company had 13,494,100 During the first six months of 2006, under the Dividend (December 31, 2005 – 13,434,600) options outstanding to acquire Reinvestment Plan, the Company issued 2,149 (2005 – 1,105) Subordinate Voting Shares, of which 6,472,100 were vested and Subordinate Voting Shares at a total value of less than $1 (2005 – 4,954,600 of those vested options were exercisable. The exercisable less than $1). options have a weighted average exercise price of $13.20.

7. GAINS ON SALES OF OPERATING INVESTMENTS, NET

The major transactions and the resulting pre-tax gains are summarized and described as follows:

Three months ended June 30 Six months ended June 30 2006 2005 2006 2005

Gains on: Sale of units of Cineplex Entertainment(a) $25 $– $25 $– Dilution gain on issue of units by Cineplex Entertainment(b) 12 – 12 – Close of exchangeable debentures on Celestica shares(c) – – – 560 Close on forward sales agreements on Celestica shares(d) – 191 – 191 Sale of CGG convertible bonds(e) – 20 – 41 Other, net 11 2 12 24

$48 $ 213 $49 $ 816

a) In June 2006, Onex sold 3.2 million units of Cineplex As a result of the dilutive transaction above, and Onex’ Entertainment as part of a secondary offering. In conjunction with sale of units as described in note 7(a), Onex’ economic ownership the sale of units, Onex entered into a forward contract to purchase was reduced from 27% to 22%. 1.4 million units in or after January 2007 at a price computed with As Onex continues to be the primary beneficiary as reference to the secondary offering. Onex received net proceeds defined under Accounting Guideline 15, “Consolidation of from these transactions of $28 and recorded a pre-tax gain of $25. Variable Interest Entities”, Onex continues to consolidate Cineplex Amounts accrued on account of these transactions Entertainment. related to the MIP (as described in note 24(e) to the 2005 audited annual financial statements) amounted to $2 and have been c) In February 2005, the Company redeemed all of the outstanding deducted from the gain. exchangeable debentures and satisfied the debenture obligation through the delivery of approximately 9.2 million Celestica sub- b) In June 2006, Cineplex Entertainment issued 2.0 million units ordinate voting shares. In connection with the delivery, the from treasury to indirectly repay indebtedness under its develop- Company converted approximately 9.2 million of the Celestica ment facility of its senior secured revolving credit facility. As a multiple voting shares it held into Celestica subordinate voting result of the dilution of the Company’s investment in Cineplex shares. As a result of the redemption, the Company’s equity owner- Entertainment, a non-cash dilution gain of $12 was recorded, of ship in Celestica was reduced; however, the Company continues to which Onex’ share was $6. This reflects Onex’ share of the increase have voting control of Celestica. The cash for these exchangeable in the book value of the net assets of Cineplex Entertainment due debentures was received by the Company when it originally to the issue of additional units. entered into these arrangements in 2000.

Onex Corporation Second Quarter Report 2006 31 NOTES TO INTERIM CONSOLIDATED FINANCIAL STATEMENTS

7. GAINS ON SALES OF OPERATING INVESTMENTS, NET (cont’d) d) In June 2005, the Company settled all of its outstanding for- e) In January 2005, Onex and Onex Partners sold 54% of their ward sale agreements through the delivery of approximately investment in bonds of Compagnie Générale de Géophysique 1.8 million Celestica subordinate voting shares, for which it (“CGG”) for proceeds of $76, of which Onex’ share was $18. Onex’ received proceeds of $222. In connection with the delivery, the share of the pre-tax gain was $5. Company converted approximately 0.2 million of the Celestica In May and June 2005, Onex and Onex Partners sold multiple voting shares it held into Celestica subordinate voting their remaining investment for proceeds of $69, of which Onex’ shares. As a result of the settlement, the Company’s equity owner- share was $16. Onex’ share of the May and June 2005 pre-tax ship in Celestica was reduced to 13% from 14%; however, the gain was $4. Company continues to have voting control of Celestica. The for- Amounts accrued on account of these transactions ward sale agreements were originally entered into in 2000 related to the MIP (as described in note 24(e) to the 2005 audited and 2001. annual consolidated financial statements) amounted to $1 and have been deducted from the gain. Amounts related to the carried interest (as described in note 24(d) to the 2005 audited annual consolidated financial statements) amounted to $4, of which Onex’ portion was deferred.

8. ACQUISITION, RESTRUCTURING AND OTHER EXPENSES

Acquisition, restructuring and other expenses are typically to provide for the costs of facility consolidations, workforce reductions and transition costs. Costs incurred in the three- and six-month periods ended June 30 are set out in the table below:

Three months ended June 30 Six months ended June 30 2006 2005 2006 2005

Celestica(1) $60 $38 $80 $79 Spirit AeroSystems 8 8 15 8 ClientLogic – 5 4 6 Other 2 1 6 2

$70 $52 $ 105 $95

(1) Included in acquisition, restructuring and other expenses for Celestica is a loss of $37 relating to Celestica’s sale of its plastics business.

The table below provides a summary of acquisition, restructuring and other activities undertaken by the operating companies detailing the components of the charges and movement in accrued liabilities. This summary is presented by the year in which the activities were first initiated.

Employee Lease and Other Termination Contractual Facility Exit Cost Non-cash Years prior to 2005 Costs Obligations and Other Charge Total

Total estimated expected costs $ 444 $ 162 $ 39 $ 369 $ 1,014(a) Cumulative costs expensed to date 444 162 39 369 1,014(b) Expense for the period ended June 30, 2006 –1––1

Reconciliation of accrued liability Closing balance – December 31, 2005 14 43 4 61 Cash payments (3) (6) – (9) Charges –1– 1 Other adjustments (1) (2) – (3)

Closing balance – June 30, 2006 $10 $36 $ 4 $50

(a) Includes Celestica $1,004 and ClientLogic $6. (b) Includes Celestica $1,004 and ClientLogic $6.

32 Onex Corporation Second Quarter Report 2006 NOTES TO INTERIM CONSOLIDATED FINANCIAL STATEMENTS

Employee Lease and Other Termination Contractual Facility Exit Cost Non-cash Initiated in 2005 Costs Obligations and Other Charge Total

Total estimated expected costs $ 271 $ 22 $ 70 $ 14 $ 377(a) Cumulative costs expensed to date 174 20 54 8 256(b) Expense for the period ended June 30, 2006 35 4 5 – 44

Reconciliation of accrued liability Closing balance – December 31, 2005 55 16 14 85 Cash payments (64) (5) (14) (83) Charges 35 4 5 44 Other adjustments (6) (1) (2) (9)

Closing balance – June 30, 2006 $20 $14 $ 3 $37

(a) Includes Celestica $304, Spirit AeroSystems $55 and ClientLogic $7. (b) Includes Celestica $198, Spirit AeroSystems $40 and ClientLogic $7.

Employee Lease and Other Termination Contractual Facility Exit Cost Non-cash Initiated in 2006 Costs Obligations and Other Charge Total

Total estimated expected costs $5 $– $28 $37 $70(a) Cumulative costs expensed to date 5 – 18 37 60(b) Expense for the period ended June 30, 2006 5 – 18 37 60

Reconciliation of accrued liability Cash payments (3) – (18) (21) Charges 5–18 23

Closing balance – June 30, 2006 $2 $– $– $2

(a) Includes Celestica $37, Spirit AeroSystems $24 and ClientLogic $4. (b) Includes Celestica $37, Spirit AeroSystems $15 and ClientLogic $4.

Employee Lease and Other Termination Contractual Facility Exit Cost Non-cash Total Costs Obligations and Other Charge Total

Total estimated expected costs $ 720 $ 184 $ 137 $ 420 $ 1,461 Cumulative costs expensed to date 623 182 111 414 1,330 Expense for the period ended June 30, 2006 40 5 23 37 105

Reconciliation of accrued liability Closing balance – December 31, 2005 69 59 18 146 Cash payments (70) (11) (32) (113) Charges 40 5 23 68 Other adjustments (7) (3) (2) (12)

Closing balance – June 30, 2006 $32 $50 $ 7 $89

Onex Corporation Second Quarter Report 2006 33 NOTES TO INTERIM CONSOLIDATED FINANCIAL STATEMENTS

9. PENSION

The following pension expense has been recorded related to defined benefit pension plans at certain of the operating companies:

Three months ended June 30 Six months ended June 30 2006 2005 2006 2005

Defined benefit expense $5 $5 $9 $9

10. EARNINGS PER SHARE

The weighted average number of Subordinate Voting Shares for the purpose of earnings per share calculations was as follows:

Three months ended June 30 Six months ended June 30 2006 2005 2006 2005

Weighted average number of shares outstanding (in millions) Basic 134 139 136 139 Diluted 134 139 136 139

11. SUPPLEMENTAL CASH FLOW INFORMATION

Paid during the period:

Three months ended June 30 Six months ended June 30 2006 2005 2006 2005

Interest $86 $41 $ 154 $83 Taxes $18 $55 $34 $68

34 Onex Corporation Second Quarter Report 2006 NOTES TO INTERIM CONSOLIDATED FINANCIAL STATEMENTS

12. COMMITMENTS AND GUARANTEES 14. SUBSEQUENT EVENTS

Contingent liabilities in the form of letters of credit, letters of Onex and certain operating companies have entered into agree- guarantee and surety and performance bonds are provided to ments to acquire or make investments in other businesses. These various third parties and include certain bank guarantees. At transactions are subject to a number of conditions, many of June 30, 2006 the amounts in respect of these guarantees totalled which are beyond the control of Onex or the operating companies. $148. These guarantees are without recourse to Onex. Certain The effect of these planned transactions, if completed, may be operating companies have loans and guarantees with respect significant to the consolidated financial position of Onex. to employee share purchase loans that amounted to $12 at In June 2006, the Company entered into an agreement June 30, 2006. to acquire the Aon Warranty Group division (“AWG”) of Aon The Company has commitments in the total amount Corporation. AWG underwrites and administers extended warranties of approximately $347 in respect of corporate investments, on a variety of consumer goods and also provides consumer including those discussed in note 14. credit and other specialty insurance products primarily through The Company and its operating companies have also automobile dealers. The division operates in 19 countries provided certain indemnifications, including those related to through more than 2,150 employees. The equity investment is businesses that have been sold. The maximum amounts from expected to be approximately US$510 made through Onex and many of these indemnifications cannot be reasonably estimated Onex Partners. Onex’ share is expected to be approximately at this time. However, in certain circumstances, the Company and US$160. Closing of the transaction is subject to the satisfactory its operating companies have recourse against other parties to completion of a number of customary conditions, including mitigate the risk of loss from these indemnifications. regulatory approvals, and is expected to be completed in the Onex and its operating companies have aggregate capital fourth quarter of 2006. commitments of $244 as at June 30, 2006.

13. VARIABLE INTEREST ENTITIES

In January and March 2006, the Company formed two real estate partnerships with an unrelated third party. These partnerships were formed to develop residential units on property in the United States. The partnerships are considered variable interest entities (“VIEs”) under Accounting Guideline 15. However, the Company is not the primary beneficiary of these VIEs and, accordingly, the Company accounts for its interest in the partner- ships using the equity-accounting method. The partnerships have combined assets of $112 as of June 30, 2006. The Company has a maximum exposure to loss of $81, which includes the carrying value of $12.

Onex Corporation Second Quarter Report 2006 35 NOTES TO INTERIM CONSOLIDATED FINANCIAL STATEMENTS

15. INFORMATION BY INDUSTRY SEGMENT

(Unaudited) Electronics Customer (in millions of dollars) Manufacturing Aero- Theatre Management Consolidated Three months ended June 30, 2006 Services structures Healthcare Exhibition Services Other(a) Total

Revenues $ 2,489 $ 965 $ 716 $ 183 $ 173 $ 217 $ 4,743 Cost of sales (2,327) (804) (595) (149) (108) (138) (4,121) Selling, general and administrative expenses (80) (32) (36) (6) (50) (81) (285)

Earnings (loss) before the undernoted items $ 82 $ 129 $ 85 $ 28 $ 15 $ (2) $ 337 Amortization of property, plant and equipment (28) (4) (23) (15) (8) (7) (85) Amortization of intangible assets and deferred charges (8) 1 (6) (2) – (4) (19) Interest expense of operating companies (19) (14) (29) (11) (7) (7) (87) Interest and other income 2103–21633 Equity-accounted investments –––––3 3 Foreign exchange gains (loss) 5––––(38) (33) Stock-based compensation (6) (2) – (1) – (6) (15) Gains on sales of operating investments, net –––––4848 Acquisition, restructuring and other expenses (60) (8) (1) – – (1) (70)

Earnings (loss) before income taxes, non-controlling interests and discontinued operations $ (32) $ 112 $ 29 $ (1) $ 2 $ 2 $ 112

Provision for income taxes (20) Non-controlling interests (43)

Earnings from continuing operations $49 Loss from discontinued operations (1)

Net earnings $48

(a) Includes Cosmetic Essence, Radian, OREP, Onex Capital Management, ONCAP I, ONCAP II and parent company.

36 Onex Corporation Second Quarter Report 2006 NOTES TO INTERIM CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited) Electronics Customer (in millions of dollars) Manufacturing Aero- Theatre Management Consolidated Three months ended June 30, 2005 Services structures Healthcare Exhibition Services Other(a) Total

Revenues $ 2,799 $ 110 $ 586 $ 76 $ 170 $ 231 $ 3,972 Cost of sales (2,584) (98) (508) (61) (104) (127) (3,482) Selling, general and administrative expenses (87) (19) (20) (4) (48) (81) (259)

Earnings (loss) before the undernoted items $ 128 $ (7) $ 58 $ 11 $ 18 $ 23 $ 231 Amortization of property, plant and equipment (40) (4) (20) (7) (9) (5) (85) Amortization of intangible assets and deferred charges (9) – (5) – (3) (4) (21) Interest expense of operating companies (16) (2) (19) (3) (6) (9) (55) Interest and other income 2–(1)–11719 Equity-accounted investments ––1––2 3 Foreign exchange gains (loss) 3–––(1)1921 Stock-based compensation (5)––––(3)(8) Gains on sales of operating investments, net –––––213213 Acquisition, restructuring and other expenses (38) (8) – – (5) (1) (52) Writedown of goodwill and intangible assets ––––(2)–(2)

Earnings (loss) before income taxes, non-controlling interests and discontinued operations $ 25 $ (21) $ 14 $ 1 $ (7) $ 252 $ 264

Provision for income taxes (13) Non-controlling interests (16)

Earnings from continuing operations $ 235 Earnings from discontinued operations 4

Net earnings $ 239

(a) Includes Cosmetic Essence, Radian, OREP, Onex Capital Management, ONCAP I and parent company.

Onex Corporation Second Quarter Report 2006 37 NOTES TO INTERIM CONSOLIDATED FINANCIAL STATEMENTS

15. INFORMATION BY INDUSTRY SEGMENT (cont’d)

(Unaudited) Electronics Customer (in millions of dollars) Manufacturing Aero- Theatre Management Consolidated Six months ended June 30, 2006 Services structures Healthcare Exhibition Services Other(a) Total

Revenues $ 4,722 $ 1,740 $ 1,431 $ 346 $ 359 $ 495 $ 9,093 Cost of sales (4,415) (1,407) (1,193) (286) (220) (297) (7,818) Selling, general and administrative expenses (153) (82) (75) (15) (102) (166) (593)

Earnings before the undernoted items $ 154 $ 251 $ 163 $ 45 $ 37 $ 32 $ 682 Amortization of property, plant and equipment (56) (16) (46) (29) (16) (13) (176) Amortization of intangible assets and deferred charges (16) – (12) (3) – (10) (41) Interest expense of operating companies (37) (26) (57) (22) (14) (16) (172) Interest and other income 4204–23666 Equity-accounted investments ––1––5 6 Foreign exchange gains (loss) 5––––(34) (29) Stock-based compensation (16) (4) (1) (1) 1 (35) (56) Derivative instruments –––––1 1 Gains on sales of operating investments, net –––––4949 Acquisition, restructuring and other expenses (80) (15) (1) – (4) (5) (105) Writedown of goodwill and intangible assets –––––(5)(5)

Earnings (loss) before income taxes, non-controlling interests and discontinued operations $ (42) $ 210 $ 51 $ (10) $ 6 $ 5 $ 220

Provision for income taxes (54) Non-controlling interests (82)

Earnings from continuing operations $84 Earnings from discontinued operations 643

Net earnings $ 727

Total assets(b) $ 5,427 $ 2,500 $ 2,736 $ 856 $ 229 $ 3,389 $ 15,137

Long-term debt(c) $ 837 $ 776 $ 1,132 $ 364 $ 198 $ 389 $ 3,696

(a) Includes Cosmetic Essence, Radian, OREP, Onex Capital Management, ONCAP I, ONCAP II and parent company. (b) Total assets for the Theatre Exhibition, Customer Management Services and Other segments include discontinued operations as described in note 3. (c) Long-term debt includes current portion and excludes capital leases.

38 Onex Corporation Second Quarter Report 2006 NOTES TO INTERIM CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited) Electronics Customer (in millions of dollars) Manufacturing Aero- Theatre Management Consolidated Six months ended June 30, 2005 Services structures Healthcare Exhibition Services Other(a) Total

Revenues $ 5,438 $ 110 $ 969 $ 146 $ 343 $ 416 $ 7,422 Cost of sales (5,037) (98) (819) (116) (211) (259) (6,540) Selling, general and administrative expenses (169) (19) (51) (9) (99) (138) (485)

Earnings (loss) before the undernoted items $ 232 $ (7) $ 99 $ 21 $ 33 $ 19 $ 397 Amortization of property, plant and equipment (82) (4) (33) (14) (17) (13) (163) Amortization of intangible assets and deferred charges (18) – (9) – (7) (9) (43) Interest expense of operating companies (31) (2) (31) (5) (10) (15) (94) Interest and other income 3––225865 Equity-accounted investments ––1––4 5 Foreign exchange gains (loss) 4–––(2)3234 Stock-based compensation (10) – (1) – – (10) (21) Derivative instruments –––––1 1 Gains on sales of operating investments, net –––––816816 Acquisition, restructuring and other expenses (79) (8) – – (6) (2) (95) Writedown of goodwill and intangible assets ––––(2)–(2)

Earnings (loss) before income taxes, non-controlling interests and discontinued operations $ 19 $ (21) $ 26 $ 4 $ (9) $ 881 $ 900

Provision for income taxes (33) Non-controlling interests (13)

Earnings from continuing operations $ 854 Earnings from discontinued operations 106

Net earnings $ 960

Total assets as at December 31, 2005(b) $ 5,637 $ 1,966 $ 2,753 $ 860 $ 260 $ 3,369 $ 14,845

Long-term debt as at December 31, 2005(c) $ 872 $ 839 $ 1,196 $ 346 $ 206 $ 379 $ 3,838

(a) Includes Cosmetic Essence, Radian, OREP, Onex Capital Management, ONCAP I and parent company. (b) Total assets for the Other segment as described at December 31, 2005 includes the assets held by the discontinued operations of J.L. French Automotive, CSRS and Futuremed, as described in note 3. (c) Long-term debt includes current portion and excludes capital leases.

Onex Corporation Second Quarter Report 2006 39 SHAREHOLDER INFORMATION

Second Quarter Dividend Stock Listing Offices A dividend of $0.0275 per Subordinate The Toronto Stock Exchange Toronto Voting Share was paid on July 28, 2006 to Symbol: OCX Onex Corporation shareholders of record as of July 10, 2006. 161 Bay Street Registrar and Transfer Agent P. O . B o x 7 0 0 Dividend Reinvestment Plan CIBC Mellon Trust Company Toronto, Ontario, Canada M5J 2S1 Onex has a Dividend Reinvestment Plan P. O . B o x 7 0 10 that provides a means for resident Adelaide Street Postal Station New York Canadian holders of Onex’ Subordinate Toronto, Ontario M5C 2W9 Onex Investment Corp. Voting Shares to reinvest cash dividends (416) 643-5500 712 Fifth Avenue, 40th Floor into new Subordinate Voting Shares issued or call toll-free throughout New York, New York 10019 by Onex without payment of brokerage Canada and the United States USA commissions. To participate, registered 1-800-387-0825 shareholders should contact Onex’ share Website registrar, CIBC Mellon Trust Company, All questions about accounts, stock www.onex.com at the address below. Non-registered certificates or dividend cheques E-mail shareholders should contact their should be directed to the Registrar [email protected] investment dealer or broker and and Transfer Agent. indicate their desire to participate.

40 Onex Corporation Second Quarter Report 2006