Management’s Discussion and Analysis and Financial Statements

Second Quarter Ended June 30, 2007 THE ONEX OPERATING COMPANIES

Table of Contents

3 Management’s Discussion and Analysis 28 Consolidated Financial Statements 48 Shareholder Information ONEX CORPORATION

Onex Corporation is one of Canada’s largest corporations with businesses that generate annual revenues of $33 billion, have assets of $37 billion and employ 227,000 people worldwide.

A Leading Private Equity Investor and Alternative Asset Manager Founded in 1983, Onex is one of North America’s oldest and most successful private equity investors. The Company has completed more than 200 acquisitions valued at approximately $40 billion by employing a disciplined, active-ownership investment approach. These acquisitions have been in a variety of industries and our businesses currently operate in electronics manufac- turing services, aerospace, healthcare, financial services, automotive, metal services, customer support services, theatre exhibition and consumer products. Over its 24-year history, Onex has generated 3.1 times its invested capital, earning a 28% compound annual IRR.

Onex, as an alternative asset manager, makes its private equity investments through the Onex Partners and ONCAP family of Funds. Through these Funds, the Company currently manages approximately $5 billion of third-party capital, on which it earns management fees and is enti- tled to a share of the profits on the third-party capital. Onex also has a Real Estate Fund and a Public Markets Fund.

The Onex Funds Large-cap Private Equity Funds • Onex Partners LP, initiated November 2003 – US$1.655 billion • Onex Partners II LP, initiated November 2006 – US$3.45 billion

Mid-cap Private Equity Funds • ONCAP L.P., initiated December 1999 – $400 million • ONCAP II L.P., initiated May 2006 – $574 million

Real Estate Fund • Onex Real Estate Partners, initiated January 2005 – $350 million

Public Markets Fund • Onex Capital Management, initiated February 2005 – $170 million

Onex is a public company whose shares are traded on the Toronto Stock Exchange under the symbol OCX.

Throughout this report, all amounts are in Canadian dollars unless otherwise indicated.

Onex Corporation Second Quarter Report 2007 1 2007 SECOND-QUARTER HIGHLIGHTS

Onex completed the $2.6 billion acquisition of Carestream Health, Inc., a leading global provider of medical and dental imaging and healthcare information technology solutions. Onex Partners II invested $521 million in the equity of Carestream Health.

Spirit AeroSystems (NYSE: SPR) completed a $1.2 billion secondary offering. Onex Partners and Onex sold a portion of their ownership in Spirit AeroSystems in the offering. Onex realized proceeds of $361 million on the sale, including $42 million for its share of the carried interest.

In May, Skilled Healthcare Group, Inc. (NYSE: SKH) completed an initial public offering for proceeds of approximately $325 million. Onex Partners and Onex sold a portion of their ownership in the offering. Onex realized proceeds of $43 million on the sale of a portion of its ownership, including $4 million of carried interest.

In June, Onex entered into an agreement to acquire Allison Transmission in a transaction valued at $5.9 billion. Allison Transmission is the world leader in the design, manufacture and sale of commercial-duty automatic transmissions, hybrid propulsion systems, and related parts and services for on-highway trucks and buses, off-highway equipment and military vehicles. The purchase was completed in early August. Onex and The Carlyle Group jointly and equally acquired Allison Transmission, with Onex, Onex Partners II and certain limited partners investing approximately $813 million in the equity of this business.

With the acquisition of Allison Transmission, Onex has now invested approximately 60 per- cent of the US$3.45 billion Onex Partners II Fund. The first acquisition of that Fund was in November 2006, the same month in which this Fund started operations.

ONCAP II completed two acquisitions: • Mister Car Wash, the fourth-largest conveyor car wash business in the United States; and • CiCi’s Pizza, a leading franchisor of family-oriented “all you want” buffet-style restaurants.

Onex reported strong financial results in the quarter: • Revenues increased 27 percent to $5.9 billion; • Operating earnings grew 33 percent to $356 million; • Net earnings were $166 million, up from $48 million last year; • Assets climbed to $25.4 billion.

2 Onex Corporation Second Quarter Report 2007 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 and comprehensive 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 considered 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 9, 2007. The Board of Directors carries out its responsibility for the review of this disclosure through its Audit and Corporate Governance Committee, comprised exclusively of inde- pendent directors. The Audit and Corporate Governance Committee has reviewed and approved the disclosure.

The MD&A is presented in the following sections:

4 Industry Segments 6 Financial Review 6 Significant Events for the Period Ended June 30, 2007 9 Consolidated Operating Results 23 Consolidated Financial Position 25 Liquidity and Capital Resources 27 Outlook

Forward-Looking/Safe Harbour Statements

This interim MD&A may contain, without limitation, statements concerning possible or assumed future results preceded by, followed by or that include words such as “believes”, “expects”, “anticipates”, “estimates”, “intends”, “plans” and words of similar connotation, which would constitute forward-looking statements. Forward-looking statements are not guarantees of future performance. They 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 limitation, those discussed on pages 6 through 8 of this interim MD&A. Onex is under no obliga- tion to update any forward-looking statements contained herein should material facts change due to new information, future events or other factors. These cautionary statements expressly qualify all forward-looking statements in this MD&A.

Onex Corporation Second Quarter Report 2007 3 MANAGEMENT’S DISCUSSION AND ANALYSIS

INDUSTRY SEGMENTS

A description of our operating companies at June 30, 2007, and Onex’ economic and voting own- ership in those businesses, is presented below. Ownership Industry (Onex Owns/ Segments Companies Onex Votes)

Electronics Celestica Inc. (TSX/NYSE: CLS), one of the world’s largest electronics manufac- 13%/79% Manufacturing turing services companies for original equipment manufacturers (“OEMs”). Services (website: www.celestica.com) Onex shares held: 27.3 million

Aerostructures Spirit AeroSystems, Inc. (NYSE: SPR), the largest independent non-OEM 6%/76% designer and manufacturer of aerostructures in the world. (website: www.spiritaero.com) Onex shares held: 8.6 million Onex Partners I shares subject to a carried interest: 17.2 million

Healthcare Emergency Medical Services Corporation (NYSE: EMS), a leading provider of 29%/97% emergency medical services in the United States. (website: www.emsc.net) Onex shares held: 12.1 million Onex Partners I shares subject to a carried interest: 16.3 million

Center for Diagnostic Imaging, Inc., a leading provider of diagnostic and thera- 19%/100% peutic radiology services in the United States. (website: www.cdiradiology.com) Total Onex and Onex Partners I investment at cost: $88 million Onex portion: $21 million Onex Partners I portion: $67 million

Skilled Healthcare Group, Inc. (NYSE: SKH), a leading operator of skilled 9%/90% nursing and assisted living facilities in the United States, specifically in California, Texas, Kansas, Missouri and Nevada, that is focused on treating patients who require a high level of skilled nursing care and extensive reha- bilitation therapy. (website: www.skilledhealthcare.com) Onex shares held: 3.5 million Onex Partners I shares subject to a carried interest: 10.7 million

Carestream Health, Inc., a leading provider of medical and dental 39%/100% imaging and healthcare information technology solutions. (website: www.carestreamhealth.com) Total Onex and Onex Partners II investment at cost: $521 million Onex portion: $206 million Onex Partners II portion: $315 million

Res-Care, Inc.(1) (NASDAQ: RSCR), a leading U.S. provider of residential, training, 6%/26% educational and support services for people with disabilities and special needs. (website: www.rescare.com) Onex shares held: 2.0 million Onex Partners I shares subject to a carried interest: 6.2 million

Financial Services The Warranty Group, Inc., one of the world’s largest providers of extended 31%/100% warranty contracts. (website: www.thewarrantygroup.com) Total Onex and Onex Partners I and II investment at cost: $556 million Onex portion: $175 million Onex Partners I portion: $214 million Onex Partners II portion: $167 million

(1) This investment is accounted for on an equity basis in Onex’ unaudited interim consolidated financial statements.

4 Onex Corporation Second Quarter Report 2007 MANAGEMENT’S DISCUSSION AND ANALYSIS

Ownership Industry (Onex Owns/ Segments Companies Onex Votes)

Metal Services Tube City IMS Corporation, a leading provider of outsourced services to 35%/100% steel mills. (website: www.tubecityims.com) Total Onex and Onex Partners II investment at cost: $234 million Onex portion: $92 million Onex Partners II portion: $142 million

Customer Support Sitel Worldwide Corporation, a leading global provider of outsourced cus- 66%/88% Services tomer care services. (website: www.sitel.com) Onex investment at cost: $308 million

Other Businesses • Theatre Exhibition Cineplex Entertainment Limited Partnership(1) (TSX: CGX.UN), Canada’s 22%/(a) largest film exhibition company operating 129 theatres with a total of 1,297 screens under the Cineplex Odeon, Famous Players and Galaxy Entertain- ment brands. (website: www.cineplex.com) Onex shares held: 12.8 million

(a) On April 2, 2007, Onex ceased to have voting rights on certain units of Cineplex Enter- tainment Limited Partnership held by unitholders other than Onex and accordingly ceased to have the right to appoint a majority of the directors. Onex now has the right to appoint three of seven directors of the General Partner of Cineplex Entertainment Limited Partnership. • Aircraft & Hawker Beechcraft Corporation(1), a leading designer and manufacturer of busi- 20%/49% Aftermarket ness jet, turboprop and piston aircraft. (website: www.hawkerbeechcraft.com) Total Onex and Onex Partners II investment at cost: $605 million Onex portion: $238 million Onex Partners II portion: $367 million • Personal Care Cosmetic Essence, Inc., a leading provider of outsourced supply chain man- 21%/100% Products agement services, including manufacturing, filling, packaging and distribu- tion, to the personal care products industry. (www.cosmeticessence.com) Total Onex and Onex Partners I investment at cost: $138 million Onex portion: $32 million Onex Partners I portion: $106 million • Mid-cap ONCAP, a private equity fund focused on acquiring and building the value of mid- 44%/100% Opportunities capitalization companies based in North America (website: www.oncap.com), which actively manages investments in CSI Global Education Inc., EnGlobe Corp. (TSX: EN), Mister Car Wash and CiCi’s Pizza. Total Onex and ONCAP investment at cost: $157 million Onex portion: $72 million ONCAP portion: $85 million • Real Estate Onex Real Estate Partners LP, a partnership dedicated to acquiring and 86%/100% improving real estate assets in North America. Onex investment at cost: $98 million(2)

(1) These investments are accounted for on an equity basis in Onex’ unaudited interim consolidated financial statements. (2) Investment at cost in Onex Real Estate excludes Onex’ investment in Town and Country properties as Town and Country has been substantially realized and has returned all of Onex’ invested capital.

Onex Corporation Second Quarter Report 2007 5 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, 2007 compared to those for the same periods ended June 30, 2006 and compares Onex’ financial condition at June 30, 2007 to that at December 31, 2006.

SIGNIFICANT EVENTS FOR THE PERIOD Skilled Healthcare completes ENDED JUNE 30, 2007 initial public offering In mid-May 2007, Skilled Healthcare Group, Inc. (“Skilled A number of significant events occurred during the first Healthcare”) completed an initial public offering of ap- half of 2007 that affected Onex’ unaudited interim consoli- proximately 19 million shares of Class A common stock dated operating results for the three and six months ended (NYSE: SKH) following a stock split. The offering was priced June 30, 2007 and their comparability to the results for the at US$15.50 per share for gross proceeds of approximately same periods of 2006. These significant events are pre- $325 million. As part of the offering, Skilled Healthcare sented with the most recent events first. issued approximately 8.3 million treasury shares while Onex and Onex Partners I sold 10.6 million shares. Onex and Onex SECOND QUARTER OF 2007 Partners I received total net proceeds of $166 million for their shares sold and recorded a pre-tax gain of $68 million. Spirit AeroSystems completes $1.2 billion Onex’ portion of the net proceeds was $43 million, secondary offering including $4 million of carried interest. Onex recorded a In late May 2007, Spirit AeroSystems Holdings, Inc. (“Spirit net pre-tax gain of $13 million on the sale. The issuance of AeroSystems”) completed a secondary offering of approx- the treasury shares by Skilled Healthcare resulted in an imately 34.3 million shares of Class A common stock at additional non-cash accounting dilution gain of $20 mil- a price of US$33.50 per share. Onex, Onex Partners LP lion, of which Onex’ share was $5 million. (“Onex Partners I”) and certain limited partners sold Onex and Onex Partners I continue to hold approximately 31.8 million of the shares in the offering for 14.75 million shares of Skilled Healthcare’s common stock gross proceeds of $1.2 billion and recorded a pre-tax gain for an approximate 40 percent ownership interest. Of the of $965 million. Spirit AeroSystems did not issue any new total shares held, Onex holds 3.5 million shares for a 9 per- shares as part of this offering. cent ownership interest. Giving effect to the stock split, Onex received net proceeds of $319 million on Onex’ purchase price of Skilled Healthcare’s stock was its portion of the shares sold and $42 million of carried US$8.19 per share. interest. Onex recorded a pre-tax gain of $258 million on the sale of its shares. Onex, Onex Partners I and certain limited Acquisition of Carestream Health partners continue to hold 32.4 million shares of Spirit Aero- In late April 2007, Onex completed the $2.6 billion acquisi- Systems’ common stock, which represents a 24 percent tion of the Health Group of Eastman Kodak Company. ownership interest, and continue to retain voting control of Following the purchase, the business continued opera- the company. Onex’ portion of the Spirit AeroSystems tions under the new name of Carestream Health, Inc. shares held at June 30, 2007 is 8.6 million shares for a 6 per- (“Carestream Health”). Onex and Onex Partners II LP cent ownership interest. (“Onex Partners II”) invested $521 million in the equity of Carestream Health for a 99 percent ownership interest. Onex’ share of the total equity was $206 million for a 39 per- cent ownership interest. Carestream Health is a leading global provider of medical and dental imaging and healthcare information technology solutions. The company’s offerings include

6 Onex Corporation Second Quarter Report 2007 MANAGEMENT’S DISCUSSION AND ANALYSIS

digital x-ray systems, molecular imaging systems and FIRST QUARTER OF 2007 x-ray film, as well as dental imaging products, software and services. Onex also acquired Kodak’s non-destructive Purchase of Hawker Beechcraft testing business, which sells x-ray film and digital x-ray In late March 2007, Onex, in partnership with the private products to the non-destructive testing market. equity subsidiary of Goldman Sachs, acquired Raytheon Carestream Health’s results from the date of acqui- Aircraft Company in a transaction valued at $3.8 billion. sition have been reported in the healthcare segment in The total equity invested by Onex and Onex Partners II Onex’ unaudited interim consolidated financial statements. was $605 million for a 49 percent ownership interest, of which Onex’ share was $238 million for a 20 percent own- ONCAP II completes two acquisitions – ership interest. Hawker Beechcraft has been accounted for Mister Car Wash and CiCi’s Pizza on an equity basis. In early April 2007, ONCAP II acquired the Mister Car Wash The acquired business now operates as Hawker chain, the fourth-largest conveyor car wash business in the Beechcraft Corporation (“Hawker Beechcraft”). The com- United States. Mister Car Wash operates 39 car washes, pany is a leading manufacturer of business jet, turboprop 11 lube shops and two convenience stores in eight regional and piston aircraft through its Hawker and Beechcraft markets in the western United States. Mister Car Wash brands. Its products include the Hawker 850XP, the best- employs more than 1,500 people and services more than five selling business jet family in the history of the general avi- million vehicles a year. Also, in early June 2007, ONCAP ation industry, as well as the King Air family of aircraft, the acquired CiCi’s Pizza, a leading franchisor of family-oriented industry’s best-selling turboprop line. Hawker Beechcraft “all you want” buffet-style restaurants serving fresh pizza, is also a significant manufacturer of military training air- pasta, salad and desserts. CiCi’s Pizza operates approxi- craft for the United States Air Force, United States Navy mately 600 restaurants in 29 states in the United States. and a variety of foreign governments. Onex and ONCAP II invested $103 million in these two acquisitions. Onex’ portion of these investments was Acquisition of Tube City IMS $47 million. Onex and ONCAP II have a 93 percent owner- Onex completed the $730 million acquisition of Tube City ship interest in Mister Car Wash and a 56 percent owner- IMS Corporation (“Tube City IMS”) in late January 2007; ship interest in CiCi’s Pizza. The operations of Mister Car Onex and Onex Partners II invested $234 million of equity Wash and CiCi’s Pizza have been consolidated in Onex’ in the transaction for a 91 percent ownership interest. other segment with other current ONCAP investments Onex’ share of that equity investment was $92 million for from the date of their acquisitions. an initial 36 percent ownership interest. Tube City IMS is a leading provider of outsourced Cineplex Entertainment services to steel mills. Tube City IMS provides raw materials In early April 2007, Onex ceased to have voting rights on procurement, scrap and materials management, and slag certain units of Cineplex Entertainment Limited Partner- processing services. The company operates at 67 steel mills ship (“Cineplex Entertainment”) held by other Cineplex in the United States, Canada and Europe, and procures Entertainment unitholders. As a result, Onex no longer materials for mills and foundries worldwide. had sufficient voting rights over the units to continue to Tube City IMS’ results have been reported in a elect a majority of the board of the General Partner of new reportable segment – Metal Services – in Onex’ unau- Cineplex Entertainment, retaining the right to elect three dited interim consolidated financial statements from the of the seven directors. Therefore, beginning in the second date of the acquisition. quarter of 2007, Onex no longer consolidates Cineplex Entertainment and now accounts for its 22 percent owner- ship interest on an equity basis. On a comparative basis, Cineplex Entertainment’s results are consolidated in Onex’ unaudited interim consolidated statements of earnings for the three and six months ended June 30, 2006.

Onex Corporation Second Quarter Report 2007 7 MANAGEMENT’S DISCUSSION AND ANALYSIS

ClientLogic acquires SITEL Corporation The gains on the sales of WIS and CMC Electronics In January 2007, ClientLogic Corporation (“ClientLogic”) were reported as earnings from discontinued operations in completed the $550 million acquisition of SITEL Corpora- the unaudited interim consolidated statement of earnings tion. ClientLogic and SITEL Corporation were merged for the six months ended June 30, 2007. immediately following this purchase, with the new com- pany operating as Sitel Worldwide Corporation (“Sitel SIGNIFICANT SUBSEQUENT TRANSACTION Worldwide”). Sitel Worldwide is a leading global provider of The significant event below is a transaction that was com- outsourced customer care services, offering fully inte- pleted subsequent to June 30, 2007 and thus did not affect grated, world-class customer care and back-office pro- Onex’ unaudited interim consolidated operating results cessing services. The merger created a company with for the three and six months ended June 30, 2007. Further annualized revenues of approximately $2 billion and details on this event are provided in the Outlook section significant diversification in its customer base, geographies on page 27 of this report. and service offerings. The company operates more than 145 facilities throughout North America, South America, Onex acquires Allison Transmission Europe, Africa and Asia Pacific and employs more than In late June 2007, Onex announced that it had partnered 67,000 associates in 28 countries. At June 30, 2007, Sitel with The Carlyle Group to acquire Allison Transmission Worldwide’s assets were $1 billion. Sitel Worldwide expects from General Motors Corporation in a transaction valued that the merger will generate operating synergies of more at $5.9 billion. Allison Transmission is the world leader than US$70 million. Approximately US$62 million of annu- in the design, manufacture and sale of commercial-duty alized cost savings were implemented by Sitel Worldwide automatic transmissions, hybrid propulsion systems, and from these synergies during the first half of 2007. related parts and services for on-highway trucks and buses, off-highway equipment and military vehicles. The ONCAP’s sale of WIS and CMC Electronics company employs 3,400 people and sells its transmissions ONCAP completed the sale of its operating company, WIS through a worldwide distribution network and sales International (“WIS”), for $445 million in January 2007. offices in North America, South America, Europe, Africa ONCAP received cash proceeds of $222 million on this sale and Asia. Allison Transmission generates annual revenues compared to its $30 million investment made in 2003. of approximately $2.1 billion (US$2 billion). Onex’ share of the proceeds was $80 million, on which This acquisition was completed in early August Onex recorded a pre-tax gain of $52 million. 2007. Onex Partners II and The Carlyle Group shared equally In March 2007, ONCAP sold its operating com- the total equity investment of $1.6 billion (US$1.5 billion) in pany, CMC Electronics Inc. (“CMC Electronics”), which it Allison Transmission. Onex and Onex Partners II and certain acquired in 2001. ONCAP received proceeds of $148 mil- limited partners invested approximately $813 million lion on this sale, bringing total proceeds realized by (US$763 million). At the time of closing, Onex Partners II ONCAP on CMC Electronics to $284 million, compared to invested approximately $640 million (US$600 million), of its $70 million investment. Onex’ proceeds from the sale, which Onex’ share was $253 million (US$237 million) for a including those from its direct investment in CMC Elec- 16 percent ownership interest. The balance of $173 million tronics, were $145 million. Onex recorded a pre-tax gain of (US$163 million) was funded at closing by Onex and it $90 million on these proceeds. Including these proceeds, expects to syndicate the majority, if not all, of this amount the total amount Onex has received on CMC Electronics to other equity participants. The investment in Allison is $261 million compared to an investment of $63 million Transmission will be accounted for on an equity basis. in 2001.

8 Onex Corporation Second Quarter Report 2007 MANAGEMENT’S DISCUSSION AND ANALYSIS

CONSOLIDATED OPERATING RESULTS New accounting policies in 2007 Financial instruments, hedges This section should be read in conjunction with the unau- and comprehensive income dited interim consolidated statements of earnings for the On January 1, 2007, Onex adopted the Canadian Insti- three and six months ended June 30, 2007 and 2006, the tute of Chartered Accountants Handbook (“CICA Handbook”) corresponding notes thereto and the December 31, 2006 Section 3855, “Financial Instruments – Recognition and audited annual consolidated financial statements. Measurement”; Section 3865, “Hedges”; Section 1530, “Com- prehensive Income”; and Section 3861, “Financial Instru- Accounting policies and estimates ments – Disclosure and Presentation”. Under these new Onex prepares its financial statements in accordance standards, Onex is required to measure certain securities and with Canadian generally accepted accounting principles hedging derivatives at fair value and include a new line (“GAAP”). The preparation of these financial statements in called accumulated other comprehensive earnings in the conformity with Canadian GAAP requires management to consolidated statement of shareholders’ equity to report make estimates and assumptions that affect the reported unrealized gains or losses, all net of income taxes, related to amounts of assets and liabilities, disclosures of contingent certain available-for-sale securities, cash flow hedges, and assets and liabilities, and the reported amounts of revenues foreign exchange gains or losses on the net investment in and expenses for the period of the unaudited interim con- self-sustaining operations. solidated financial statements. Significant accounting poli- The adoption of these standards did not have a cies and methods used in the preparation of the financial significant effect on the unaudited interim consolidated statements are described in note 1 to the unaudited interim financial statements. The comparative unaudited interim consolidated financial statements and in note 1 to the consolidated financial statements have not been restated for December 31, 2006 audited annual consolidated financial the adoption of these new standards other than to reclassify statements. Onex and its operating companies evaluate their the change in currency translation adjustment to a compo- estimates and assumptions on a regular basis, based on his- nent of other comprehensive earnings. For details of the torical experience and other relevant factors. Included in specific accounting changes and related impacts, see note 1 Onex’ unaudited interim consolidated financial statements to the unaudited interim consolidated financial statements. are estimates used in determining the allowance for doubt- ful accounts, inventory valuation, the valuation of intangible Variability of results assets and goodwill, the useful lives of property, plant and Onex’ unaudited interim consolidated quarterly operating equipment and intangible assets, revenue recognition under results may vary substantially from period to period for a contract accounting, pension and post-employment bene- number of reasons, including some of the following: acqui- fits, losses and loss adjustment expenses reserves, restruc- sitions or dispositions of businesses by Onex, the parent turing costs and other matters. Actual results could differ company; the volatility of the exchange rate between the materially from those estimates and assumptions. U.S. dollar and the Canadian dollar; the change in market value of stock-based compensation for both the parent company and its operating companies; changes in the mar- ket value of Onex’ publicly traded operating companies; and activities at Onex’ operating companies. These activi- ties may include the purchase or sale of businesses; fluc- tuations in customer demand and in materials and employee-related costs; changes in the mix of products and services produced or delivered; and charges to restructure operations. The discussion that follows identifies material factors that affected Onex’ operating segments and unau- dited interim consolidated results for the three and six months ended June 30, 2007.

Onex Corporation Second Quarter Report 2007 9 MANAGEMENT’S DISCUSSION AND ANALYSIS

The statements of earnings for the three and • a $433 million increase in revenues at Spirit AeroSys- six months ended June 30, 2006 have been restated from tems resulting from the inclusion of a full half year those previously reported in accordance with required of revenues of Spirit AeroSystems (Europe), Ltd. (“Spirit accounting policies for discontinued operations for those Europe”), acquired in April 2006 ($149 million), and businesses that were disposed of in the first half of 2007 higher shipments to Boeing on its B737, B747 and B777 or in the second half of 2006. These include the operations programs over the first half of 2006; of WIS and CMC Electronics. • a $579 million increase in revenues at Sitel Worldwide primarily from the acquisition of SITEL Corporation; Consolidated revenues and Consolidated revenues grew 27 percent, or $1.3 billion, to • higher revenues of $102 million at EMSC from acquisi- $5.9 billion for the three months ended June 30, 2007 from tions completed by AMR in the second half of 2006 and $4.6 billion for the same period of 2006. Second-quarter the first half of 2007. revenue growth was driven primarily by: • the inclusion of Onex’ acquisitions of The Warranty Partially offsetting the revenue growth for the three and Group Inc. (“The Warranty Group”) in late November six months ended June 30, 2007 was a $373 million and 2006 ($367 million of revenues), Tube City IMS in late $448 million decline in revenues at Celestica Inc. January 2007 ($462 million of revenues), and Carestream (“Celestica”) to $2.1 billion and $4.3 billion, respectively. Health in late April 2007 ($450 million of revenues); The overall decline in revenues for both periods was pri- • higher revenues of $90 million at Spirit AeroSystems marily due to lower volumes of business from customers resulting from a 15 percent increase in shipments to in the telecommunications markets, as well as program Boeing on its B737, B747 and B777 programs over losses and customer disengagements mainly in the indus- the second quarter of 2006 and the delivery of the first trial market. Partially offsetting the revenue decline in the 787 forward fuselage to Boeing in the second quarter first six months of 2007 were higher revenues from new of 2007; and program wins in the consumer and server market com- • a $324 million increase in revenues at Sitel Worldwide pared to the same period in 2006. primarily from ClientLogic’s acquisition of and merger In addition, the change to Cineplex Entertain- with SITEL Corporation in late January 2007. ment being accounted for on an equity basis beginning in the second quarter of 2007 reduced consolidated revenues. For the six months ended June 30, 2007, consolidated rev- This is discussed in detail in the significant events section enues increased $2.6 billion, or 29 percent, to $11.4 billion of this report. Prior to the second quarter of 2007, Cineplex from $8.8 billion reported for the first six months of 2006 Entertainment was fully consolidated in Onex’ consoli- due primarily to: dated statements of earnings. For the second quarter of • Onex’ acquisitions of The Warranty Group ($723 million 2006, Cineplex Entertainment’s revenues were $183 mil- of revenues), Tube City IMS ($783 million of revenues) lion. In Table 1 that follows, the revenues for Cineplex and Carestream Health ($450 million of revenues); Entertainment are included in the other segment.

10 Onex Corporation Second Quarter Report 2007 MANAGEMENT’S DISCUSSION AND ANALYSIS

Table 1 presents revenues in Canadian dollars believes that reporting in the operating companies’ func- and in the functional currency of the companies for the tional currencies is useful in evaluating the performance three and six months ended June 30, 2007 and 2006 and of those businesses year-over-year since it eliminates the the percentage change in revenues for those periods. Onex impact of foreign currency translation on revenues.

Revenues by Industry Segment

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

Three months ended June 30 2007 2006 Change (%) 2007 2006 Change (%)

Electronics Manufacturing Services $ 2,116 $ 2,489 (15)% US$ 1,937 US$ 2,224 (13)% Aerostructures 1,055 965 9 % US$ 959 US$ 861 11 % Healthcare 1,215 716 70 % US$ 1,114 US$ 639 74 % Financial Services 367 – – US$ 334 – – Customer Support Services 497 173 187 % US$ 453 US$ 155 192 % Metal Services 462 – – US$ 420 – – Other (a) 161 281 (43)% C$ 161 C$ 281 (43)%

Total $ 5,873 $ 4,624 27 %

(Unaudited) ($ millions) Canadian Dollars Functional Currency

Six months ended June 30 2007 2006 Change (%) 2007 2006 Change (%)

Electronics Manufacturing Services $ 4,274 $ 4,722 (9)% US$ 3,779 US$ 4,158 (9)% Aerostructures 2,173 1,740 25 % US$ 1,913 US$ 1,532 25 % Healthcare 2,029 1,431 42 % US$ 1,809 US$ 1,258 44 % Financial Services 723 – – US$ 638 – – Customer Support Services 938 359 161 % US$ 829 US$ 316 162 % Metal Services 783 – – US$ 694 – – Other (a) 484 566 (14)% C$ 484 C$ 566 (14)%

Total $ 11,404 $ 8,818 29 %

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 Cineplex Entertainment, Cosmetic Essence, Radian, Onex Real Estate, ONCAP and parent company.

Onex Corporation Second Quarter Report 2007 11 MANAGEMENT’S DISCUSSION AND ANALYSIS

Consolidated cost of sales Table 2 provides a breakdown of cost of sales by Consolidated cost of sales was up 20 percent to $4.9 bil- industry segment for the three and six months ended lion for the three months ended June 30, 2007 and up June 30, 2007 and 2006 and the percentage change in cost 24 percent to $9.5 billion for the first six months of 2007. of sales between those periods in both Canadian dollars This compares to consolidated cost of sales of $4.1 bil- and the companies’ functional currencies, as indicated. lion and $7.7 billion for the three and six months ended Cost of sales is provided in the companies’ functional June 30, 2006. currencies to eliminate the impact of foreign exchange translation fluctuations on cost of sales.

Cost of Sales by Industry Segment

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

Three months ended June 30 2007 2006 Change (%) 2007 2006 Change (%)

Electronics Manufacturing Services $ 1,995 $ 2,327 (14)% US$ 1,826 US$ 2,078 (12)% Aerostructures 847 804 5 % US$ 769 US$ 717 7 % Healthcare 982 595 65 % US$ 902 US$ 530 70 % Financial Services 193 – – US$ 176 – – Customer Support Services 324 108 200 % US$ 295 US$ 96 207 % Metal Services 422 – – US$ 383 – – Other (a) 93 229 (59)% C$ 93 C$ 229 (59)%

Total $ 4,856 $ 4,063 20 %

(Unaudited) ($ millions) Canadian Dollars Functional Currency

Six months ended June 30 2007 2006 Change (%) 2007 2006 Change (%)

Electronics Manufacturing Services $ 4,036 $ 4,415 (9)% US$ 3,568 US$ 3,887 (8)% Aerostructures 1,757 1,407 25 % US$ 1,546 US$ 1,239 25 % Healthcare 1,652 1,193 38 % US$ 1,474 US$ 1,048 41 % Financial Services 371 – – US$ 328 – – Customer Support Services 608 220 176 % US$ 537 US$ 193 178 % Metal Services 714 – – US$ 632 – – Other (a) 345 438 (21)% C$ 345 C$ 438 (21)%

Total $ 9,483 $ 7,673 24 %

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 Cineplex Entertainment, Cosmetic Essence, Radian, Onex Real Estate, ONCAP and parent company.

The second-quarter growth in cost of sales over the same The 65 percent growth in cost of sales in the quarter last year was due primarily to acquisitions. healthcare segment was due primarily to the April 2007 Onex’ acquisition of The Warranty Group in acquisition of Carestream Health, which added cost of November 2006 added $193 million in cost of sales in the sales in that segment of $356 million in the second quar- financial services segment and the purchase of Tube City ter. Included in Carestream Health’s cost of sales from the IMS in January 2007 contributed $422 million in cost of time of its acquisition was a cost of $102 million stemming sales in the metal services segment in the quarter. from the valuation of inventory on the company’s balance sheet at the date of acquisition. Accounting principles for

12 Onex Corporation Second Quarter Report 2007 MANAGEMENT’S DISCUSSION AND ANALYSIS

acquisitions require that inventory be stepped up in value • Sitel Worldwide, formerly ClientLogic, added $388 mil- to its selling price less the direct cost to complete and sell lion in cost of sales in the first six months of 2007 associ- the product. Accordingly, when that inventory is sub- ated primarily with the acquisition of SITEL Corporation. sequently sold in the normal course of business, the accounting for these sales will not report the typical profit Partially offsetting the cost of sales increase in the three margins for the company and therefore, will not cover the and six months ended June 30, 2007 was a decrease in operating costs of the business in that period. Celestica’s cost of sales of 12 percent and 8 percent, Cost of sales in the customer support services respectively, in its functional currency compared to a segment increased 200 percent, or $216 million, primarily respective 13 percent and 9 percent decrease in revenues as a result of the inclusion of the operations of SITEL for the second quarter and first six months of 2007. Corporation purchased in late January 2007. Celestica’s underutilization of facilities in Europe and con- tinued operating inefficiencies at its Mexican facilities For the six months ended June 30, 2007, the main drivers have adversely affected operating margins. of cost of sales growth were similar to those of revenue In addition, consolidated cost of sales was reduced growth: by approximately $149 million for the three and six months • Onex’ acquisitions of The Warranty Group ($371 mil- ended June 30, 2007 due to Cineplex Entertainment being lion), Tube City IMS ($714 million) and Carestream Health accounted for on an equity basis beginning in the second ($356 million); quarter of 2007. This compares to being fully consolidated • Spirit AeroSystems’ purchase of Spirit Europe in April in Onex’ unaudited interim consolidated statements of 2006, as well as higher shipments to Boeing, were the earnings for the three and six months ended June 30, 2006. primary factors in the $350 million increase in cost of Table 3 provides additional information on cost of sales in the aerostructures segment; and sales as a percentage of revenues by industry segment for the three and six months ended June 30, 2007 and 2006.

Cost of Sales as a Percentage of Revenues by Industry Segment

Three months ended June 30 Six months ended June 30 TABLE 3 (Unaudited) 2007 2006 2007 2006

Electronics Manufacturing Services 94% 93% 94% 93% Aerostructures 80% 83% 81% 81% Healthcare 81% 83% 81% 83% Financial Services 53% – 51% – Customer Support Services 65% 62% 65% 61% Metal Services 91% – 91% – Other(a) 58% 81% 71% 77%

Total 83% 88% 83% 87%

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) Other includes Cineplex Entertainment, Cosmetic Essence, Radian, ONCAP, Onex Real Estate and parent company.

Onex Corporation Second Quarter Report 2007 13 MANAGEMENT’S DISCUSSION AND ANALYSIS

Operating earnings items such as acquisition and restructuring charges, and Operating earnings is defined as EBIAT, or earnings before other income, as well as non-controlling interests and dis- interest expense, amortization of intangible assets and continued operations. Table 4 provides a reconciliation of deferred charges, and income taxes. As Onex’ objective is to the unaudited interim consolidated statements of earnings achieve an operating earnings measurement of our busi- to operating earnings for the three and six months ended nesses, the Company also excludes foreign exchange gains June 30, 2007 and 2006. (loss), stock-based compensation charges, non-recurring

Operating Earnings Reconciliation

Three months ended June 30 Six months ended June 30 TABLE 4 (Unaudited) ($ millions) 2007 2006 2007 2006

Earnings before the undernoted items $ 464 $ 319 $ 939 $ 643 Amortization of property, plant and equipment (130) (83) (255) (171) Interest income 30 28 65 55 Equity-accounted investments (8) 3 (2) 6

Operating earnings (EBIAT) $ 356 $ 267 $ 747 $ 533

Foreign exchange loss (74) (35) (82) (31) Stock-based compensation (84) (15) (140) (56) Other income 2 5 5 12 Amortization of intangible assets and deferred charges (101) (16) (169) (35) Interest expense of operating companies (141) (82) (257) (161) Gains on sales of operating investments, net 1,137 48 1,143 49 Acquisition, restructuring and other expenses (20) (69) (41) (104) Writedown of goodwill and intangible assets (2) – (2) (5)

Earnings before income taxes, non-controlling interests and discontinued operations $ 1,073 $ 103 $ 1,204 $ 202

14 Onex Corporation Second Quarter Report 2007 MANAGEMENT’S DISCUSSION AND ANALYSIS

Onex uses EBIAT as a measure to evaluate each operating to measures used by other companies. EBIAT is not a per- company’s performance because it eliminates interest formance measure under Canadian GAAP and should not charges, which are a function of the operating company’s be considered either in isolation of, or as a substitute for, particular financing structure, as well as any unusual or net earnings prepared in accordance with Canadian GAAP. non-recurring charges. Onex’ method of determining Table 5 provides a breakdown of and the change in oper- operating earnings may differ from other companies’ ating earnings by industry segment for the three and six methods and, accordingly, EBIAT may not be comparable months ended June 30, 2007 and 2006.

Operating Earnings (Loss) by Industry Segment

Three months ended June 30 Six months ended June 30 TABLE 5 (Unaudited) ($ millions) 2007 2006 Change ($) 2007 2006 Change ($)

Electronics Manufacturing Services $31 $56 $ (25) $ 40 $ 102 $ (62) Aerostructures 147 132 15 297 250 47 Healthcare 49 64 (15) 130 121 9 Financial Services 99 – 99 202 – 202 Customer Support Services 16 8 84222 20 Metal Services 11 – 11 19 – 19 Other(a) 3 7 (4) 17 38 (21)

Total $ 356 $ 267 $ 89 $ 747 $ 533 $ 214

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) Other includes Cineplex Entertainment, Cosmetic Essence, Hawker Beechcraft, Radian, ONCAP, Onex Real Estate and parent company.

Consolidated operating earnings were $356 million for the For the six months ended June 30, 2007, operating earnings second quarter of 2007, up 33 percent, or $89 million, from grew by $214 million to $747 million from $533 million in operating earnings of $267 million for the same quarter the first half of 2006. Operating earnings for the first six of 2006. The quarter-over-quarter change in operating months of 2007 grew primarily due to: earnings was due primarily to the following factors: • a $47 million increase in Spirit AeroSystems’ operating • Onex’ acquisitions of The Warranty Group in November earnings resulting primarily from its acquisition of Spirit 2006 and Tube City IMS in January 2007 contributed Europe in April 2006 and increased product deliveries at $99 million and $11 million, respectively, to operating Spirit AeroSystems’ existing North American operations; earnings in the quarter; • Onex’ acquisitions of The Warranty Group ($202 mil- • Spirit AeroSystems’ operating earnings grew $15 million lion), reported in the financial services segment, and in the quarter due primarily to higher product deliveries Tube City IMS ($19 million), reported in the metal ser- to Boeing in the quarter; and vices segment; • growth in operating earnings at Sitel Worldwide, for- • the SITEL Corporation acquisition by ClientLogic boosted merly ClientLogic, of $8 million primarily associated operating earnings in the customer support segment by with its January 2007 acquisition of SITEL Corporation. $20 million for the first six months of 2007; and • improved operating costs and higher revenues grew operating earnings at EMSC by $26 million.

Onex Corporation Second Quarter Report 2007 15 MANAGEMENT’S DISCUSSION AND ANALYSIS

Partially offsetting the growth in operating earnings was the date of acquisition. Accounting principles for acquisi- a $25 million and a $62 million decline, respectively, in tions require that inventory be stepped up in value to its operating earnings at Celestica for the three and six selling price less the direct cost to complete and sell the months ended June 30, 2007. Lower revenues resulted in product. Accordingly, when that inventory is subsequently the decline in operating earnings. sold in the normal course of business, the accounting for Carestream Health reported an operating loss of these sales will not report the typical profit margins for the $23 million for the initial period of Onex’ ownership from company and therefore, will not cover the operating costs late April 2007 to June 30, 2007. This originated from the of the business in that period. valuation of inventory on the company’s balance sheet at

Stock-based Compensation Expense (Income) by Industry Segment

Three months ended June 30 Six months ended June 30 TABLE 6 (Unaudited) ($ millions) 2007 2006 Change ($) 2007 2006 Change ($)

Electronics Manufacturing Services $3 $6 $ (3) $ 7 $16 $ (9) Aerostructures 16 2 14 23 4 19 Healthcare – – –11 – Financial Services 2 – 22– 2 Customer Support Services – – –2(1) 3 Other(a) 2 1 131 2 Onex, the parent company 61 6 55 102 35 67

Total $84 $15 $ 69 $ 140 $56 $84

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) Other includes Cineplex Entertainment, Cosmetic Essence, Radian, ONCAP and Onex Real Estate.

Stock-based compensation • a $14 million increase in stock-based compensation During the second quarter of 2007, stock-based compensa- expense at Spirit AeroSystems due primarily to the tion expense was $84 million compared to $15 million accelerated vesting of restricted stock as a result of the reported in the second quarter of 2006. For the first six May 2007 secondary offering. months of 2007, stock-based compensation expense was up 150 percent to $140 million from $56 million in the same For the six months ended June 30, 2007, the $84 million period of 2006. Table 6 provides a breakdown of and the increase in stock-based compensation expense was due change in stock-based compensation by industry segment primarily to: for the three and six months ended June 30, 2007 and 2006. • $67 million of the increase in expense recorded by Onex, Stock-based compensation expense was up $69 mil- the parent company, due to the increase in value of lion in the second quarter due primarily to: Onex’ stock options as a result of the 30 percent growth • a $55 million increase in stock-based compensation of Onex’ share price from December 31, 2006; and expense recorded by Onex, the parent company, which • Spirit AeroSystems accounted for $19 million of the accounted for most of the total stock-based compensa- increase in total stock-based compensation expense in tion expense in the quarter. Much of this expense was the first half of 2007 due primarily to the same factor that associated with the increase in the value of the liability was discussed for the quarter. for Onex’ stock options as a result of the growth in market value of Onex shares from $32.06 per share at March 31, 2007 to $36.80 per share at June 30, 2007; and

16 Onex Corporation Second Quarter Report 2007 MANAGEMENT’S DISCUSSION AND ANALYSIS

Foreign exchange loss associated with the company’s new larger credit facility, The net foreign exchange loss reflects the impact of changes consisting of a US$675 million term loan and a US$85 in foreign currency exchange rates, primarily on the U.S.- million revolving credit facility. The new facility was dollar-denominated cash held at Onex, the parent company. used to repay ClientLogic’s previous facility and to fund While changes in foreign currency exchange rates may apply the purchase of SITEL Corporation in late January 2007 to multiple currencies, the primary impact of foreign cur- as well as two additional acquisitions in the first quarter. rency translation on Onex’ consolidated results is due to the conversion of the U.S. dollar to the Canadian dollar. Note 15 to the unaudited interim consolidated finan- A net foreign exchange loss of $74 million and cial statements provides a breakdown of interest expense $82 million, respectively, was recorded for the three and by industry segment. six months ended June 30, 2007. This compares to a net foreign exchange loss of $35 million and $31 million, Equity-accounted investments respectively, for the same periods of 2006. At June 30, 2007, Onex reported a loss on equity-accounted investments of the U.S. dollar to Canadian dollar exchange rate closed at $8 million and $2 million, respectively, for the three and six 1.0654 Canadian dollars, down from 1.1546 Canadian dollars months ended June 30, 2007. This compares to earnings of at March 31, 2007 and 1.1654 Canadian dollars at Decem- $3 million and $6 million for the three and six months ber 31, 2006. Since Onex, the parent company, holds a sig- ended June 30, 2006. nificant portion of its cash in U.S. dollars, this exchange rate The earnings (loss) from equity-accounted invest- movement decreased the value of the U.S. cash held and ments for the second quarter and the first six months of Onex recorded a foreign exchange loss of $66 million and 2007 primarily represents Onex’ share in the net earnings $77 million, respectively, for the three and six months ended (loss) of Res-Care, Inc. (“ResCare”), Cineplex Entertainment, June 30, 2007. This compares to a foreign exchange loss of Hawker Beechcraft, Cypress Property & Casualty Insurance $38 million and $35 million recorded by Onex, the parent Company (“Cypress”), a Florida homeowners insurance company, for the same periods of 2006. The closing value of company, and Onex Real Estate Partners’ investments in the the U.S. dollar was 1.1162 Canadian dollars at June 30, 2006, Camden partnerships, Flushing Town Center and NY Credit. down from 1.1680 Canadian dollars at March 31, 2006 and Hawker Beechcraft accounted for $17 million of the 1.1630 Canadian dollars at December 31, 2005. loss on equity-accounted investments for the second quarter and first six months of 2007 due to the expense stemming Interest expense of operating companies from the valuation of inventory on that company’s balance Consolidated interest expense was $141 million for the sheet at the date of acquisition. Accounting principles for second quarter of 2007 compared to $82 million for the acquisitions require that inventory be stepped up in value to second quarter of 2006. For the six months ended June 30, the selling price of the inventory less the direct cost to com- 2007, consolidated interest expense was $257 million, up plete and sell that product. Accordingly, when that inventory $96 million from $161 million for the same period last year. is subsequently sold in the normal course of business, for The growth in the quarter and in the first six months was accounting purposes, these sales will not report the typical due primarily to: profit margins for the company and therefore, will not cover • the acquisitions of The Warranty Group, Tube City the operating costs of the business in that period leading to IMS and Carestream Health, which collectively added the operating loss. $46 million and $60 million, respectively, of interest Partially offsetting this were earnings on equity- expense in the second quarter and first half of 2007; and accounted investments of Cineplex Entertainment, Cypress • Sitel Worldwide reporting increases of $10 million and and ResCare that totalled $9 million and $14 million, respec- $21 million, respectively, for the three and six months tively, for the three and six months ended June 30, 2007. ended June 30, 2007, due to additional interest costs

Onex Corporation Second Quarter Report 2007 17 MANAGEMENT’S DISCUSSION AND ANALYSIS

Gains on sales of operating investments investments were $1,143 million compared to $49 million for Consolidated gains on sales of operating investments were the first six months of 2006. Table 7 details the nature of the $1,137 million in the second quarter of 2007 compared to gains recorded in the three and six months ended June 30, $48 million in the same quarter of 2006. For the six months 2007 and 2006. ended June 30, 2007, consolidated gains on sales of operating

Gains on Sales of Operating Investments

Three months ended June 30 Six months ended June 30 Onex’ Onex’ Onex’ Onex’ Total Share of Total Share of Total Share of Total Share of Gains Gains Gains Gains Gains Gains Gains Gains TABLE 7 (Unaudited) ($ millions) 2007 2007 2006 2006 2007 2007 2006 2006

Gains on: Issue of shares of Sitel Worldwide $36$36 $– $– $36$36 $– $– Sale of shares of Skilled Healthcare 68 13 ––68 13 –– Dilution gain on issue of shares by Skilled Healthcare 20 5 ––20 5 –– Sale of shares of Spirit AeroSystems 965 258 ––965 258 –– Carried interest 48 48 ––48 48 –– Sale of units of Cineplex Entertainment ––25 25 ––25 25 Dilution gain on June 2006 issue of units by Cineplex Entertainment ––12 6 ––12 6 Other, net ––11 11 6612 12

Total $ 1,137 $ 360 $48 $42 $ 1,143 $ 366 $49 $43

Sitel Worldwide and an accounting dilution gain resulting from the trea- During the second quarter of 2007, certain investors, other sury share issuance at a value above the net book value per than Onex, invested $36 million in the equity of Sitel share. The gain on shares sold by Onex and Onex Partners I Worldwide. In prior years, Onex had to record the losses was $68 million, of which Onex’ portion was $13 million. of non-controlling interests of ClientLogic prior to the In addition, Onex received carried interest of $4 million on acquisition of SITEL Corporation as the non-controlling the sale of the shares. The non-cash accounting dilution gain interests amount in the company cannot be recorded as recorded from the treasury share issuance was $20 million, a negative amount. While Onex did not receive the cash of which Onex’ portion was $5 million. proceeds, for consolidation reporting purposes Onex is required to record the amount as a gain. Onex will con- Spirit AeroSystems tinue to record gains until the losses from non-controlling In late May 2007, Spirit AeroSystems completed a $1.2 bil- investors have been recovered. lion secondary offering of 34.3 million Class A common stock. Onex, Onex Partners I and certain limited partners Skilled Healthcare sold approximately 31.8 million shares in the offering for In mid-May 2007, Skilled Healthcare completed an initial net proceeds of $1.1 billion. Onex’ portion of the shares public offering of common stock. As part of that offering, sold was 9.2 million shares for net proceeds of $319 mil- Skilled Healthcare issued 8.3 million treasury shares; Onex lion. A $965 million pre-tax gain on the sale of Spirit Aero- and Onex Partners I sold 10.6 million shares, of which Systems shares was recorded in the quarter, of which Onex’ portion was 2.5 million shares. The gain that was Onex’ portion was $258 million. In addition, Onex received recorded has two components: a gain on the shares sold carried interest of $42 million.

18 Onex Corporation Second Quarter Report 2007 MANAGEMENT’S DISCUSSION AND ANALYSIS

Carried interest Acquisition, restructuring and other expenses The General Partners of Onex Partners I and II, which are Acquisition, restructuring and other expenses are consid- controlled by Onex, are entitled to a carried interest of ered to be costs incurred by the operating companies to 20 percent on the realized gains of third-party limited realign organizational structures or restructure manufac- partners in each Fund, subject to an 8 percent compound turing capacity to obtain operating synergies critical to annual preferred return to those limited partners on all building the long-term value of those businesses. Acquisi- amounts contributed in each particular Fund. Onex, as tion, restructuring and other expenses totalled $20 million sponsor of Onex Partners I and II, is entitled to 40 percent for the three months ended June 30, 2007 compared to of the carried interest and the Onex management team is $69 million for the same period of 2006. For the first half of entitled to 60 percent. Under the terms of the partnership 2007, acquisition, restructuring and other expenses were agreements, carried interest may be received by Onex as $41 million, down from $104 million for the six months realizations occur. The ultimate amount of carried interest ended June 30, 2006. Celestica accounted for $57 million of earned will be based on the overall performance of each of the decline in the second quarter and $68 million in the Onex Partners I and II, independently, and includes typical first half of 2007. Many of the costs were recorded in con- catch-up and clawback provisions. Accordingly, any car- nection with Celestica’s restructuring plans, which were ried interest amounts received by Onex will be deferred spread over several reporting periods. These plans, which from inclusion in income for accounting purposes until include reducing workforce and consolidating facilities, such time that the potential for clawback is remote. Table 8 are intended to improve capacity utilization and acceler- provides a reconciliation of the deferred carried interest ate margin improvements. on Onex’ balance sheet at December 31, 2006 to the car- Note 15 to the unaudited interim consolidated ried interest deferred as at June 30, 2007. financial statements shows acquisition, restructuring and other expenses by industry segment. Carried Interest Reconciliation Non-controlling interests TABLE 8 (Unaudited) ($ millions) In the unaudited interim consolidated statements of Carried interest deferred at December 31, 2006 $ 60 earnings, the non-controlling interests amount represents Carried interest received on realizations: the interests of shareholders other than Onex in the net Spirit AeroSystems’ secondary offering 42 earnings or losses of Onex’ operating companies and Skilled Healthcare’s initial public offering 4 in the gains on sales of operating investments. For the Carried interest recorded as gains on sales second quarter of 2007, this amount was $850 million of of operating investments in 2007 (48) earnings compared to earnings of $39 million for the sec- ond quarter of 2006. For the first six months of 2007, the Carried interest deferred at June 30, 2007 $ 58 non-controlling interests amount in Onex’ operating com- panies’ earnings and gains was $906 million compared to During the three and six months ended June 30, 2007, $74 million for the six months ended June 30, 2006. The Onex received carried interest of $4 million and $42 mil- significant change in the non-controlling interests amount lion, respectively, on the realized gains of Skilled Health- for the quarter and first six months of 2007 was due to the care and Spirit AeroSystems, as discussed earlier. Onex participation of the other limited partners of Onex Part- determined that, with these realizations, the potential for ners I in the $762 million of gains recorded as a result of clawback was remote on a significant portion of the carried the Spirit AeroSystems secondary offering and Skilled interest received. Accordingly, Onex recorded $48 million Healthcare initial public offering. A further $15 million of carried interest in gains on sales of operating invest- resulted from the portion of other limited partners in the ments during the second quarter of 2007. Onex continues non-cash accounting dilution gain recorded as a result of to defer from inclusion in income a further $58 million Skilled Healthcare’s treasury share issuance at a value per of carried interest that has been received as cash as of share above the net book value per share. June 30, 2007.

Onex Corporation Second Quarter Report 2007 19 MANAGEMENT’S DISCUSSION AND ANALYSIS

Earnings from continuing operations operations were $195 million ($1.51 per share) compared Onex’ consolidated earnings from continuing operations to $80 million ($0.59 per share) of consolidated earnings were $162 million ($1.26 per share) for the second quarter from continuing operations for the first six months of of 2007 compared to consolidated earnings from contin- 2006. Table 9 details the earnings (loss) before income uing operations of $47 million ($0.35 per share) reported taxes, non-controlling interests and discontinued opera- for the same quarter of 2006. For the six months ended tions by industry segment for the three and six months June 30, 2007, consolidated earnings from continuing ended June 30, 2007 and 2006.

Earnings (loss) from continuing operations

Three months ended June 30 Six months ended June 30 TABLE 9 (Unaudited) ($ millions) 2007 2006 2007 2006

Earnings (loss) before income taxes and non-controlling interests: Electronics Manufacturing Services $ (1) $ (32) $ (32) $ (42) Aerostructures 117 112 244 210 Healthcare (76) 29 (34) 51 Financial Services 51 – 105 – Customer Support Services (5) 2 – 6 Metal Services (3) – (7) – Other(a) (147) (56) (215) (72) Gains on sales of operating investments 1,137 48 1,143 49

1,073 103 1,204 202 Provision for income taxes (61) (17) (103) (48) Non-controlling interests (850) (39) (906) (74)

Earnings from continuing operations $ 162 $47 $ 195 $80

(a) Other includes Cineplex Entertainment, Cosmetic Essence, Hawker Beechcraft, Radian, ONCAP, Onex Real Estate and parent company.

The loss from continuing operations in the healthcare seg- these sales will not report the typical profit margins for the ment for the three and six months ended June 30, 2007 company and therefore, will not cover the operating costs compared to earnings from continuing operations for the of the business in that period leading to the reported loss. same periods of 2006 resulted primarily from a loss from The amount of $102 million recorded by Carestream continuing operations reported by Carestream Health. Health was a pre-tax step up in inventory that affected the This loss resulted primarily from costs stemming from the second quarter and first six months of 2007. valuation of inventory on the company’s balance sheet at The increase in loss in the other segment for the the date of its acquisition. Accounting principles for acqui- second quarter and first six months of 2007 was due primar- sitions require that inventory be stepped up in value to its ily to the increase in stock-based compensation expense and selling price less the direct cost to complete and sell the the foreign exchange loss recorded by Onex, the parent com- product. Accordingly, when that inventory is subsequently pany, as reviewed earlier in this report. sold in the normal course of business, the accounting for

20 Onex Corporation Second Quarter Report 2007 MANAGEMENT’S DISCUSSION AND ANALYSIS

Earnings from discontinued operations compared to $647 million ($4.77 per share) for the same Earnings from discontinued operations for the second period last year. Table 10 provides a breakdown of earnings quarter of 2007 were $4 million ($0.03 per share) com- (loss) by company, including the net after-tax gains on pared to earnings from discontinued operations of $1 mil- sales of operating investments as well as Onex’ share of lion ($0.01 per share) for the second quarter of 2006. For earnings (loss) of those businesses that were discontinued the six months ended June 30, 2007, earnings from discon- in the first half of 2007 and in fiscal 2006. tinued operations were $120 million ($0.93 per share)

Earnings (Loss) from Discontinued Operations

TABLE 10 (Unaudited) ($ millions) Three months ended June 30 2007 2006

Onex’ Share Gain, Net Onex’ Share Gain, Net of Earnings of Tax of Earnings Total of Tax (Loss) Total

Sale of WIS $2 $– $2 $– $1 $1 Sale of CMC Electronics 3–3–11 Sale of certain Town and Country properties (1) – (1) – (1) (1)

Total $4 $– $4 $– $1 $1

(Unaudited) ($ millions) Six months ended June 30 2007 2006

Onex’ Share Gain, Net Onex’ Share Gain, Net of Earnings of Tax of Loss Total of Tax (Loss) Total

Sale of WIS $41 $– $41 $– $2 $2 Sale of CMC Electronics 76 – 76 –22 Sale of certain Town and Country properties 5 (2) 3 – (1) (1) J.L. French Automotive –––605 – 605 Sale of CSRS –––21 – 21 Sale of Futuremed –––19 – 19 Sitel Worldwide’s warehouse management business –––– (1) (1)

Total $ 122 $ (2) $ 120 $ 645 $ 2 $ 647

As discussed earlier, during the first half of 2007 the opera- Consolidated net earnings tions of WIS, CMC Electronics and certain Town and Consolidated net earnings for the second quarter of 2007, Country properties were classified as discontinued. In including gains on sales of operating investments and addition to these operations, included in the earnings earnings from discontinued operations, were $166 million from discontinued operations for the second quarter and ($1.29 per share) compared to consolidated net earnings of first six months of 2006 are the operations and gain on dis- $48 million ($0.36 per share) for the second quarter of position of J.L. French Automotive Castings, Inc. (“J.L. 2006. For the six months ended June 30, 2007, Onex’ con- French Automotive”), Canadian Securities Registration solidated net earnings were $315 million ($2.44 per share) Systems Ltd. (“CSRS”), Futuremed Health Care Products compared to consolidated net earnings of $727 million Limited Partnership (“Futuremed”) and Sitel Worldwide’s ($5.36 per share) for the first six months of 2006. warehouse management business.

Onex Corporation Second Quarter Report 2007 21 MANAGEMENT’S DISCUSSION AND ANALYSIS

For the three and six months ended June 30, 2007, The net loss of other shareholders included in Onex was required, for accounting purposes, to recognize Onex’ unaudited interim consolidated financial state- 100 percent of the earnings or losses of Radian and Sitel ments totalled $4 million in the second quarter of 2007 Worldwide, formerly ClientLogic, even though Onex does (second quarter of 2006 – net loss of $1 million) and a not own 100 percent of these businesses. Prior losses at these $5 million net loss for the first six months of 2007 (first six companies have eliminated the value contributed by other months of 2006 – net loss of $4 million). shareholders in these companies. Thus, for accounting purposes, the other shareholders’ portion of any current Comprehensive earnings losses is required to be included in determining Onex’ net Comprehensive earnings are comprised of Onex’ consoli- earnings. Similarly, Onex will include 100 percent of any dated net earnings and other comprehensive earnings. For profits in these companies until Onex has recovered the the three and six months ended June 30, 2007, comprehen- amount of the losses of non-controlling shareholders that sive earnings were $96 million and $242 million, respec- were previously recorded. The cumulative interests of other tively. This compares to $21 million and $572 million for shareholders of $10 million in the net liabilities of these the three and six months ended June 30, 2006. Table 11 companies cannot be recorded as a negative value for con- provides a breakdown of other comprehensive earnings solidation accounting purposes. for the three and six months ended June 30, 2007 com- pared to the same periods of 2006.

Comprehensive Earnings

Three months ended June 30 Six months ended June 30 TABLE 11 (Unaudited) ($ millions) 2007 2006 2007 2006

Net earnings for the period $ 166 $48 $ 315 $ 727 Other comprehensive earnings (loss), net of taxes Currency translation adjustments (83) (27) (86) (155) Change in fair value of derivatives designated as hedges 15 – 15 – Other (2) – (2) –

Comprehensive earnings $96 $21 $ 242 $ 572

Included in comprehensive earnings were net earnings of the three and six months ended June 30, 2007, partially $166 million for the second quarter and $315 million for offset by changes in fair value of derivatives designated as the first six months of 2007 and other comprehensive loss hedges of $15 million for both periods of 2007. Changes in of $70 million and $73 million for the three and six the currency translation adjustment primarily represent months ended June 30, 2007. Much of the change in other the effect of changes in foreign currency rates in the comprehensive loss consisted of the negative currency period on the value of Onex’ ownership in U.S.-based translation adjustment of $83 million and $86 million for operating companies.

22 Onex Corporation Second Quarter Report 2007 MANAGEMENT’S DISCUSSION AND ANALYSIS

SUMMARY QUARTERLY INFORMATION

Table 12 summarizes Onex’ key consolidated financial information for the last eight quarters.

TABLE 12 (Unaudited) ($ millions except per share amounts) 2007 2006 2005

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

Revenues $ 5,873 $ 5,531 $ 4,992 $ 4,810 $ 4,624 $ 4,194 $ 4,148 $ 4,083

Earnings (loss) from continuing operations $ 162 $ 33 $ 211 $ (35) $ 47 $ 33 $ 29 $ (55)

Net earnings (loss) $ 166 $ 149 $ 244 $ 31 $ 48 $ 679 $ (8) $ 13

Earnings (loss) per Subordinate Voting Share Basic and Diluted: Continuing operations $ 1.26 $ 0.26 $ 1.64 $ (0.27) $ 0.35 $ 0.24 $ 0.21 $ (0.40) Net earnings (loss) $ 1.29 $ 1.16 $ 1.89 $ 0.24 $ 0.36 $ 4.95 $ (0.06) $ 0.09

Onex’ quarterly consolidated financial results do not that investment was $238 million for a 20 percent own- follow any specific trends due to acquisitions or disposi- ership interest; and tions of businesses by Onex, the parent company; the • $56 million in Onex Real Estate Partners (“OREP”) for volatility of the exchange rate between the U.S. dollar and its investment in NY Credit, a real estate specialty the Canadian dollar; and varying business cycles at Onex’ finance company that focuses on originating, acquiring, operating companies. structuring, selling and trading commercial real estate related loans, completed in the second quarter of 2007. CONSOLIDATED FINANCIAL POSITION Consolidated long-term debt This section should be read in conjunction with the unau- Onex, the parent company, has no debt. It has been Onex’ dited interim consolidated balance sheet as at June 30, 2007 policy to preserve a financially strong parent company and the corresponding notes thereto and the audited that has funds available for new acquisitions and to sup- annual consolidated balance sheet as at December 31, 2006. port the growth of its operating companies. This policy means that all debt financing is within our operating com- Consolidated assets panies without recourse to Onex and each company is Consolidated assets grew 12 percent to $25.4 billion at required to support its own debt. June 30, 2007 from $22.6 billion at December 31, 2006 due Total long-term debt (consisting of the current primarily to acquisitions completed in the first six months portion of long-term debt and long-term debt) increased of 2007, which include: to $6.4 billion at June 30, 2007 from $3.8 billion at Decem- • Carestream Health, purchased in April 2007 ($3.1 billion); ber 31, 2006 due primarily to acquisitions. Approximately • Tube City IMS, acquired in late January 2007 ($958 million); $2.1 billion of the increase was the debt of Carestream • ClientLogic’s purchase of and merger with SITEL Corpora- Health and $398 million was the debt of Tube City IMS. tion, now operating as Sitel Worldwide ($786 million); and In addition, during the first quarter of 2007, Sitel • ONCAP II’s purchase of Mister Car Wash and CiCi’s Pizza Worldwide, formerly ClientLogic, added $621 million of debt ($447 million). associated with that company’s purchase of and merger with SITEL Corporation. The company’s new credit facility of In addition, included in consolidated assets at June 30, US$760 million consists of a US$675 million term loan that 2007 are the following investments accounted for by the matures in 2014 and a US$85 million revolving credit facility equity method: that matures in 2013. Proceeds from the new credit facility • $605 million in Hawker Beechcraft completed by Onex were used to repay ClientLogic’s prior US$170 million credit and Onex Partners II in March 2007; Onex’ portion of facility and to fund the acquisition of SITEL Corporation.

Onex Corporation Second Quarter Report 2007 23 MANAGEMENT’S DISCUSSION AND ANALYSIS

Non-controlling interests addition, the treasury issue of new shares by Skilled Health- The non-controlling interests liability in Onex’ unaudited care as part of its initial public offering added $128 million interim consolidated balance sheet as at June 30, 2007 primar- to non-controlling interest in the first half of 2007. ily represents the ownership interests of shareholders other Partially offsetting these were distributions to than Onex in Onex’ consolidated operating companies. At the limited partners of Onex Partners I of $869 million for June 30, 2007, the non-controlling interests balance amounted the sale of a portion of their interests in Spirit AeroSys- to $5.5 billion compared to $4.6 billion at December 31, 2006. tems’ secondary offering and Skilled Healthcare’s initial Table 13 details the change in the non-controlling interests public offering. balance from December 31, 2006 to June 30, 2007. Shareholders’ equity Change in Non-controlling Interests Shareholders’ equity increased to $2.1 billion at June 30, 2007 from $1.8 billion at December 31, 2006 due primarily TABLE 13 (Unaudited) ($ millions) to $315 million of net earnings reported for the six months Non-controlling interests as at December 31, 2006 $ 4,594 ended June 30, 2007, partially offset by other comprehen- Non-controlling interests in net earnings for the first sive loss of $73 million. The unaudited interim consoli- six months of 2007: dated statements of shareholders’ equity show the changes Gains on sales of operating investments 777 to the components of shareholders’ equity for the six Operating companies’ earnings 129 906 months ended June 30, 2007 and 2006. At July 31, 2007, Onex had 128,183,254 Subordinate Investments by shareholders other than Onex in: Voting Shares issued and outstanding. Table 14 shows the Onex Partners II 824 Skilled Healthcare’s initial public offering – change in the number of Subordinate Voting Shares out- issuance of new shares 128 standing from December 31, 2006. New shareholders’ purchase of Onex’ and Onex Partners I’s shares of Skilled Healthcare Change in Subordinate Voting Shares Outstanding and Spirit AeroSystems sold in those offerings 240 TABLE 14 (Unaudited) Other operating companies 84 Distributions to limited partners of Onex Partners I (869) Subordinate Voting Shares outstanding Foreign currency translation (428) at December 31, 2006 128,927,135 Other 24 Shares repurchased and cancelled under Onex’ Normal Course Issuer Bid (746,500) Non-controlling interests as at June 30, 2007 $ 5,503 Issue of shares – Dividend Reinvestment Plan 2,619

Subordinate Voting Shares outstanding The non-controlling interests in net earnings of operating at July 31, 2007 128,183,254 companies for the first six months of 2007 were $906 million. Approximately $777 million of those earnings were from the gains on the shares sold by other limited partners in the Under the Company’s Normal Course Issuer Bid (the offerings of Spirit AeroSystems and Skilled Healthcare as “Bid”), Onex is able to repurchase up to 10 percent of its well as the dilution gain on Skilled Healthcare. public float of Subordinate Voting Shares. During the period The limited partners of Onex Partners II invested from January 1, 2007 to July 31, 2007, Onex repurchased a total of $824 million for the acquisitions completed in 746,500 Subordinate Voting Shares at an average cost per the first half of 2007 of Tube City IMS and Carestream share of $33.36 for a total cost of approximately $25 million. Health, as well as the investment in Hawker Beechcraft. Onex’ Dividend Reinvestment Plan (the “Plan”) New shareholders’ purchase of shares sold by enables Canadian shareholders to reinvest cash dividends Onex and Onex Partners I in Spirit AeroSystems’ secondary to acquire new Subordinate Voting Shares of Onex at a offering and Skilled Healthcare’s initial public offering market-related price at the time of reinvestment. Onex added $240 million to non-controlling interests in 2007. In issued 2,619 Subordinate Voting Shares under the Plan at

24 Onex Corporation Second Quarter Report 2007 MANAGEMENT’S DISCUSSION AND ANALYSIS

an average cost of $32.80 per Subordinate Voting Share, LIQUIDITY AND CAPITAL RESOURCES creating cash savings of less than $1 million during the seven months ended July 31, 2007. This section should be read in conjunction with the unau- During the first six months of 2007, 791,600 op- dited interim consolidated statements of cash flows for the tions were exercised or surrendered at an average exercise three and six months ended June 30, 2007 and the corre- price of $11.22 for cash consideration aggregating $18 mil- sponding notes thereto. lion. At June 30, 2007, Onex had 12,323,500 options out- Onex believes that maintaining a strong financial standing to acquire Subordinate Voting Shares, of which position at the parent company with substantial liquidity 7,223,100 options were vested, and all of those vested enables the Company to pursue new opportunities to options were exercisable. create long-term value and support Onex’ existing oper- ating companies. Major Cash Flow Components

Three months ended June 30 Six months ended June 30 TABLE 15 (Unaudited) ($ millions) 2007 2006 2007 2006

Cash from operating activities $ 233 $ 375 $ 211 $ 444 Cash from (used in) financing activities (424) (98) 580 (108) Cash from (used in) investing activities 508 (501) (849) (1,001) Consolidated cash held by continuing operations $ 2,706 $ 2,361 $ 2,706 $ 2,361

Cash from operating activities six months ended June 30, 2007, cash from operating activi- Cash from operating activities totalled $233 million in the ties was $211 million compared to cash from operating second quarter of 2007 compared to cash from operating activities of $444 million for the first half of 2006. Table 16 activities of $375 million in the same quarter of 2006. For the provides the components of cash from operating activities.

Components of Cash from Operating Activities

Three months ended June 30 Six months ended June 30 TABLE 16 (Unaudited) ($ millions) 2007 2006 2007 2006

Cash from operations $ 288 $ 225 $ 644 $ 474 Increase (decrease) in cash from non-cash working capital items, warranty reserves and unearned premiums and other liabilities and discontinued operations (55) 150 (433) (30)

Cash from operating activities $ 233 $ 375 $ 211 $ 444

Cash from operations excludes changes in non-cash results at Spirit AeroSystems. A detailed discussion on working capital items, warranty reserves and unearned operating results can be found under the heading “Con- premiums, and other liabilities and discontinued oper- solidated Operating Results” on page 9 of this MD&A. ations. Cash from operations was $288 million and Non-cash working capital items, warranty reserves $644 million, respectively, for the three and six months and unearned premiums, and other liabilities and discontin- ended June 30, 2007. This compares to $225 million and ued operations reduced cash by $55 million in the second $474 million of cash from operations for the three and six quarter of 2007 compared to an increase of $150 million in months ended June 30, 2006. The improvement in cash cash in the same quarter of 2006. Much of this use of cash from operations was primarily due to the inclusion of was due to higher accounts receivable at Spirit AeroSystems Carestream Health in April 2007, The Warranty Group, and Carestream Health. Partially offsetting this were lower acquired in November 2006, and the acquisition of Tube inventory levels at Celestica and higher accounts payable at City IMS in January 2007, as well as improved operating Spirit AeroSystems and Carestream Health.

Onex Corporation Second Quarter Report 2007 25 MANAGEMENT’S DISCUSSION AND ANALYSIS

For the first half of 2007, non-cash working capital, from Onex’ and Onex Partners I’s sale of a portion of their warranty reserves and unearned premiums, and other liabil- shares in the Spirit AeroSystems’ secondary offering and ities and discontinued operations reduced cash by $433 mil- Skilled Healthcare initial public offering brought in cash lion compared to a decline of $30 million for the six months of $1,273 million. Partially offsetting these proceeds was ended June 30, 2007. Much of the decline in the first quarter $587 million of cash spent on acquisitions primarily of was from a reduction of accounts payable at Celestica. Carestream Health in April 2007 and ONCAP’s purchase of Mister Car Wash in April 2007 and CiCi’s Pizza in June 2007. Cash from (used in) financing activities For the first half of 2007, cash used in investing Cash used in financing activities totalled $424 million for activities totalled $849 million compared to cash used the second quarter of 2007 compared to cash used in of $1,001 million for the same period of 2006. Acquisi- financing activities of $98 million for the same quarter last tions completed in the first half of 2007 accounted for year. Included in the second-quarter cash used in financing $1,223 million of the cash spent in the first half of 2007. activities was $869 million of distributions to the limited The 2007 acquisitions primarily included: partners of Onex Partners, other than Onex, from the sale • $203 million of cash spent on the January 2007 acquisi- of shares in the offerings of Spirit AeroSystems and Skilled tion of Tube City IMS by Onex and Onex Partners II; Healthcare. Partially offsetting this was cash of $315 million • $454 million of cash used in the April 2007 purchase of from the limited partners of Onex Partners II for the pur- Carestream Health by Onex and Onex Partners II; chase of Carestream Health in April 2007. • $363 million of cash spent on ClientLogic’s acquisition For the six months ended June 30, 2007, cash of SITEL Corporation in January 2007; and from financing activities was $580 million compared to • $92 million of cash used for ONCAP’s purchase of $108 million of cash used in financing activities in the first Mister Car Wash and CiCi’s Pizza in April and June 2007, six months of last year. Included in cash from financing respectively. activities in the first half of 2007 was: • $824 million of cash received from the limited partners In addition, included in other investing activities for the first of Onex Partners II, primarily for the acquisitions of six months of 2007 was $577 million of cash used for Onex’ Tube City IMS, completed in January 2007, Hawker and Onex Partners II’s investment in Hawker Beechcraft. Beechcraft, purchased in late March 2007, and Care- Partially offsetting the cash used in acquisi- stream Health, acquired in April 2007; tions and investments in the first six months of 2007 was • $128 million of cash received from new shareholders of $1,273 million of cash proceeds received by Onex and Skilled Healthcare who purchased the new shares issued Onex Partners I on the sale of a portion of their shares in in that company’s initial public offering in May 2007; and the Spirit AeroSystems and Skilled Healthcare offerings. • additional long-term debt at Sitel Worldwide of approxi- mately $376 million associated primarily with the acqui- Consolidated cash sition of SITEL Corporation. At June 30, 2007, consolidated cash with continuing operations was $2.7 billion compared to $2.9 billion at Partially offsetting cash from financing activities for the six December 31, 2006. Onex, the parent company, represented months ended June 30, 2007 was $883 million of cash distrib- approximately $1.3 billion of cash on hand and Celestica uted primarily by Onex Partners I to limited partners, other had approximately $0.8 billion of cash at June 30, 2007. than Onex, on the partial sale of shares of Spirit AeroSystems In addition, Onex, the parent company, had $94 million of as part of that company’s secondary offering and Skilled near-cash items at June 30, 2007. No amount of cash of the Healthcare from that company’s initial public offering. other limited partners of Onex Partners is included in the Onex consolidated cash amount. At June 30, 2007, the other Cash from (used in) investing activities limited partners in Onex Partners had remaining commit- Cash from investing activities was $508 million for the ments to provide $1.5 billion of funding for future Onex- second quarter of 2007 compared to cash used of $501 mil- sponsored acquisitions. Onex, the parent company, has a lion for the three months ended June 30, 2006. Proceeds conservative cash management policy that limits invest- ments to short-term low-risk money-market products. 26 Onex Corporation Second Quarter Report 2007 MANAGEMENT’S DISCUSSION AND ANALYSIS

OUTLOOK

The following provides an update to the Outlook section of Onex’ December 31, 2006 report and the report for the first quarter ended March 31, 2007.

Onex acquires Allison Transmission Allison Transmission is the world leader in the In early August 2007, Onex, together with its partner design, manufacture and sale of commercial-duty auto- The Carlyle Group, acquired Allison Transmission from matic transmissions, hybrid propulsion systems, and General Motors Corporation in a transaction valued at related parts and services for on-highway trucks and $5.9 billion. Onex Partners II and The Carlyle Group buses, off-highway equipment and military vehicles. The invested total equity of $1.6 billion (US$1.5 billion) in company employs 3,400 people and sells its transmissions Allison Transmission. Onex and Onex Partners II and cer- through a worldwide distribution network with sales tain limited partners invested approximately $813 million offices in North America, South America, Europe, Africa (US$763 million). At the time of closing, Onex Partners II and Asia. Allison Transmission generates annual revenues invested approximately $640 million (US$600 million), of more than US$2 billion. of which Onex’ share was $253 million (US$237 million) for a 16 percent ownership interest. The balance of $173 million (US$163 million) was funded at closing by Onex and it expects to syndicate the majority, if not all, of this amount to other equity participants.

Onex Corporation Second Quarter Report 2007 27 CONSOLIDATED BALANCE SHEETS

(Unaudited) As at June 30 As at December 31 (in millions of dollars) 2007 2006

Assets Current assets Cash and cash equivalents $ 2,706 $ 2,944 Marketable securities 936 1,129 Accounts receivable 3,572 2,586 Inventories 2,319 2,345 Other current assets 1,559 1,694 Current assets held by discontinued operations (note 4) – 139

11,092 10,837 Property, plant and equipment 3,004 2,899 Investments (note 3) 2,486 1,822 Other long-term assets 2,808 2,894 Intangible assets 2,257 1,036 Goodwill 3,729 2,696 Long-lived assets held by discontinued operations (note 4) – 394

$ 25,376 $ 22,578

Liabilities and Shareholders’ Equity Current liabilities Accounts payable and accrued liabilities $ 4,301 $ 4,066 Current portion of long-term debt, without recourse to Onex 164 43 Current portion of obligations under capital leases, without recourse to Onex 36 35 Current portion of warranty reserves and unearned premiums 1,813 2,246 Current liabilities held by discontinued operations (note 4) – 96

6,314 6,486 Long-term debt of operating companies, without recourse to Onex (note 5) 6,236 3,798 Obligations under capital leases of operating companies, without recourse to Onex 36 70 Long-term portion of warranty reserves and unearned premiums 2,555 2,623 Other liabilities 1,625 1,818 Future income taxes 1,056 1,050 Long-term liabilities held by discontinued operations (note 4) – 324

17,822 16,169 Non-controlling interests 5,503 4,594 Shareholders’ equity 2,051 1,815

$ 25,376 $ 22,578

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

28 Onex Corporation Second Quarter Report 2007 CONSOLIDATED STATEMENTS OF EARNINGS AND COMPREHENSIVE EARNINGS

(Unaudited) Three months ended June 30 Six months ended June 30 (in millions of dollars, except per share data) 2007 2006 2007 2006

Revenues $ 5,873 $ 4,624 $ 11,404 $ 8,818 Cost of sales (4,856) (4,063) (9,483) (7,673) Selling, general and administrative expenses (553) (242) (982) (502)

Earnings Before the Undernoted Items $ 464 $ 319 $ 939 $ 643 Amortization of property, plant and equipment (130) (83) (255) (171) Amortization of intangible assets and deferred charges (101) (16) (169) (35) Interest expense of operating companies (141) (82) (257) (161) Interest income 30 28 65 55 Equity-accounted investments (8) 3 (2) 6 Foreign exchange loss (74) (35) (82) (31) Stock-based compensation (84) (15) (140) (56) Other income 2 5 5 12 Gains on sales of operating investments, net (note 7) 1,137 48 1,143 49 Acquisition, restructuring and other expenses (note 8) (20) (69) (41) (104) Writedown of goodwill and intangible assets (2) – (2) (5)

Earnings before income taxes, non-controlling interests and discontinued operations 1,073 103 1,204 202 Provision for income taxes (61) (17) (103) (48) Non-controlling interests (850) (39) (906) (74)

Earnings from continuing operations 162 47 195 80 Earnings from discontinued operations (note 4) 4 1 120 647

Net Earnings for the Period $ 166 $ 48 $ 315 $ 727

Other comprehensive earnings (loss), net of taxes Currency translation adjustments (83) (27) (86) (155) Change in fair value of derivatives designated as hedges 15 – 15 – Other (2) – (2) –

Comprehensive Earnings $96 $ 21 $ 242 $ 572

Net Earnings per Subordinate Voting Share (note 10) Basic and Diluted: Continuing operations $ 1.26 $ 0.35 $ 1.51 $ 0.59 Discontinued operations $ 0.03 $ 0.01 $ 0.93 $ 4.77 Net earnings $ 1.29 $ 0.36 $ 2.44 $ 5.36

See accompanying notes to unaudited interim consolidated financial statements. These unaudited interim consolidated financial statements should be read in conjunction with the 2006 audited annual consolidated financial statements. The June 30, 2006 unaudited interim consolidated statement of earnings has been restated for discontinued operations.

Onex Corporation Second Quarter Report 2007 29 CONSOLIDATED STATEMENTS OF SHAREHOLDERS’ EQUITY

Accumulated (Unaudited) Share Other Total (in millions of dollars, except per share data) Capital Retained Comprehensive Shareholders’ Six months ended June 30 (note 6) Earnings Earnings (Loss) Equity

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

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

Balance – December 31, 2006 $ 541 $ 1,469 $ (195) $ 1,815 Adoption of financial instrument accounting policies (note 1) – 1 – 1 Dividends declared(a) – (7) – (7) Net earnings for the period – 315 – 315 Other comprehensive earnings (loss) for the period – – (73) (73)

Balance – June 30, 2007 $ 541 $ 1,778 $ (268)(c) $ 2,051

(a) Dividends declared per Subordinate Voting Share were $0.055 for the six months ended June 30, 2007 and 2006. For the six months ended June 30, 2007 and 2006, shares issued under the dividend reinvestment plan amounted to less than $1. (b) Accumulated Other Comprehensive Earnings (Loss) at December 31, 2005 and June 30, 2006 consists of currency translation adjustments. Included in the currency translation adjustment for the period ending June 30, 2006 is negative $129 relating to the discontinued operations of J.L. French Automotive Castings, Inc. (c) Accumulated Other Comprehensive Earnings (Loss) as at June 30, 2007 consists of currency translation adjustments of negative $281, unrealized losses on available- for-sale financial assets of $4 and unrealized gains on the effective portion of cash flow hedges of $17.

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

30 Onex Corporation Second Quarter Report 2007 CONSOLIDATED STATEMENTS OF CASH FLOWS

(Unaudited) Three months ended June 30 Six months ended June 30 (in millions of dollars) 2007 2006 2007 2006 Operating Activities Net earnings for the period $ 166 $48 $ 315 $ 727 Earnings from discontinued operations (4) (1) (120) (647) Items not affecting cash: Amortization of property, plant and equipment 130 83 255 171 Amortization of intangible assets and deferred charges 101 16 169 35 Writedown of goodwill and intangible assets 2 – 2 5 Non-cash component of restructuring (5) 37 (5) 37 Non-controlling interests 850 39 906 74 Future income taxes 16 30 23 27 Stock-based compensation 84 15 140 56 Foreign exchange loss 63 29 69 24 Gains on sales of operating investments, net (1,137) (48) (1,143) (49) Other 22 (23) 33 14 288 225 644 474 Changes in non-cash working capital items: Accounts receivable (357) (150) (376) (223) Inventories 143 (95) 250 (227) Other current assets 15 11 91 2 Accounts payable and accrued liabilities 409 250 (253) 200 Increase (decrease) in cash due to changes in working capital items 210 16 (288) (248) Increase (decrease) in warranty reserves and unearned premiums and other liabilities (265) 135 (145) 215 Cash from (used in) discontinued operations – (1) – 3 233 375 211 444 Financing Activities Issuance of long-term debt 167 95 1,347 207 Repayment of long-term debt (256) (119) (914) (216) Cash dividends paid (3) (4) (7) (8) Repurchase of share capital – (97) – (139) Issuance of share capital by operating companies 515 46 1,036 66 Distributions by operating companies (869) (20) (883) (24) Increase due to other financing activities 22 13 1 8 Cash used in discontinued operations – (12) – (2) (424) (98) 580 (108) Investing Activities Acquisition of operating investments, net of cash in acquired companies of $150 (2006 – $10) (note 2) (587) (173) (1,223) (248) Purchase of property, plant and equipment (156) (228) (335) (446) Proceeds from sales of operating investments 1,309 38 1,309 39 Decrease due to other investing activities (63) (144) (801) (275) Cash from (used in) discontinued operations 5 6 201 (71) 508 (501) (849) (1,001) Increase (Decrease) in Cash for the Period 317 (224) (58) (665) Decrease in cash due to changes in foreign exchange rates (173) (87) (191) (77) Cash, beginning of the period – continuing operations 2,562 2,673 2,944 3,089 Cash, beginning of the period – discontinued operations – 11 11 26 Cash, End of the Period 2,706 2,373 2,706 2,373 Cash held by discontinued operations (note 4) – (12) – (12) Cash and Cash Equivalents Held by Continuing Operations $ 2,706 $ 2,361 $ 2,706 $ 2,361

See accompanying notes to unaudited interim consolidated financial statements. These unaudited interim consolidated financial statements should be read in conjunction with the 2006 audited annual consolidated financial statements. The June 30, 2006 unaudited interim consolidated statement of cash flows has been restated for discontinued operations.

Onex Corporation Second Quarter Report 2007 31 NOTES TO INTERIM CONSOLIDATED FINANCIAL STATEMENTS (unaudited) (in millions of dollars, except per share data)

Onex Corporation (“Onex” or the “Company”) is a diversi- changes in the accounting for financial instruments as well as the fied company whose subsidiaries operate as autonomous recognition of certain transition adjustments that have been businesses. All amounts are in millions of Canadian dol- recorded in opening retained earnings or opening accumulated lars unless otherwise noted. other comprehensive earnings as described below. The compara- tive unaudited interim consolidated financial statements have not 1. BASIS OF PREPARATION been restated for the adoption of these standards, except for the presentation of currency translation adjustments. The principal The Company prepares its consolidated financial statements in changes in the accounting for financial instruments due to the accordance with Canadian generally accepted accounting princi- adoption of these accounting standards are described below. ples (“GAAP”). The disclosures contained in these unaudited interim consolidated financial statements do not include all the a) Financial assets and financial liabilities requirements of generally accepted accounting principles for Under the new standards, financial assets and financial liabilities annual financial statements. The unaudited interim consolidated are initially recognized at fair value and are subsequently financial statements should be read in conjunction with the accounted for based on their classification as described below. audited annual consolidated financial statements for the year The classification depends on the purpose for which the financial ended December 31, 2006. Certain amounts presented in the instruments were acquired and their characteristics. Except in comparative prior periods have been reclassified to conform to very limited circumstances, the classification is not changed the presentation adopted in the period. subsequent to initial recognition. Financial assets purchased and The unaudited interim consolidated financial state- sold, where the contract requires the asset to be delivered within ments are based on accounting principles consistent with those an established time frame, are recognized on a trade-date basis. used and described in the audited annual consolidated financial statements, except as described below. Held-for-trading Financial assets and financial liabilities that are purchased and Consolidation incurred with the intention of generating profits in the near On April 2, 2007, Onex ceased to have voting rights on certain units term are classified as held-for-trading. Other instruments may of Cineplex Entertainment Limited Partnership (“CELP”) held by be designated as held-for-trading on initial recognition. These unitholders other than Onex. As a result, Onex no longer controls a instruments are accounted for at fair value with the change in the sufficient number of units to elect the majority of the board of the fair value recognized in earnings. General Partner of CELP and, therefore, Onex ceased consolidating At January 1, 2007, no investments required mandatory CELP on April 2, 2007. As Onex continues to have significant classification as held-for-trading. However, certain investments influence over CELP, beginning in the second quarter of 2007 Onex previously recorded at cost were designated as held-for-trading has accounted for its interest in CELP using equity accounting, on January 1, 2007. The difference of $1 between the fair value with the results included in the other segment in note 15. and the cost was recorded as an increase to retained earnings on January 1, 2007. The tax effect on this transitional amount was Accounting Changes not significant. In January 2007, the Company adopted the Canadian Institute of In the first six months of 2007, the decrease in the fair Chartered Accountants Handbook (“CICA Handbook”) Section 1506, value of assets designated as held-for-trading of $9 was included “Accounting Changes”, which requires that voluntary changes in other income in the unaudited interim consolidated statement in accounting policy be made only if the changes result in finan- of earnings. cial statements that provide more reliable and more relevant information. It also requires prior period errors to be corrected Available-for-sale retrospectively. The adoption of this standard did not impact the Financial assets classified as available-for-sale are carried at fair unaudited interim consolidated financial statements. value with the changes in fair value recorded in other comprehen- sive earnings. Securities that are classified as available-for-sale Financial Instruments and do not have a quoted price in an active market are recorded at The Company adopted CICA Handbook Section 3855, “Financial cost. Available-for-sale securities are written down to fair value Instruments – Recognition and Measurement”; Section 3865, through earnings whenever it is necessary to reflect an other-than- “Hedges”; Section 1530, “Comprehensive Income”; and Section 3861, temporary impairment. Gains and losses realized on disposal of “Financial Instruments – Disclosure and Presentation” on January 1, available-for-sale securities, which are calculated on an average 2007. The adoption of these new accounting standards resulted in cost basis, are recognized in earnings.

32 Onex Corporation Second Quarter Report 2007 NOTES TO INTERIM CONSOLIDATED FINANCIAL STATEMENTS

At January 1, 2007, unrealized losses of $7 on securities Cash flow hedge classified as held-for-sale that have a quoted price in an active The Company is exposed to variability in future interest cash market were recorded as a decrease to investments. Onex’ share flows on non-trading assets and liabilities that bear interest at of $2 was recorded as an opening adjustment to accumulated variable rates or are expected to be reinvested in the future. other comprehensive earnings. The tax effect on this transitional The effective portion of changes in the fair value of amount was not significant. derivatives that are designated and qualify as cash flow hedges is recognized in other comprehensive earnings. Any gain or loss in Held-to-maturity fair value relating to the ineffective portion is recognized immedi- Securities that have fixed or determinable payments and a fixed ately in the unaudited interim consolidated statement of earnings maturity date, which the Company intends and has the ability to in other income. hold to maturity, are classified as held-to-maturity and accounted Amounts accumulated in other comprehensive earnings for at amortized cost using the effective interest rate method. are reclassified in the unaudited interim consolidated statement Investments classified as held-to-maturity are written down to fair of earnings in the period in which the hedged item affects income. value through earnings whenever it is necessary to reflect an However, when the forecasted transaction that is hedged results other-than-temporary impairment. in the recognition of a non-financial asset or a non-financial liability, the gains and losses previously deferred in other com- b) Derivatives and hedge accounting prehensive earnings are transferred from other comprehensive Hedge accounting earnings and included in the initial measurement of the cost of At the inception of a hedging relationship, the Company docu- the asset or liability. ments the relationship between the hedging instrument and the When a hedging instrument expires or is sold, or when a hedged item, its risk management objective and its strategy for hedge no longer meets the criteria for hedge accounting, any undertaking the hedge. The Company also requires a documented cumulative gain or loss existing in other comprehensive earnings assessment, both at hedge inception and on an ongoing basis, of at that time remains in other comprehensive earnings until the whether or not the derivatives that are used in the hedging transac- forecasted transaction is eventually recognized in the statement tions are highly effective in offsetting the changes attributable to of income. When a forecasted transaction is no longer expected to the hedged risks in the fair values or cash flows of the hedged items. occur, the cumulative gain or loss that was reported in other com- Under the previous standards, derivatives that met the prehensive earnings is immediately transferred to the statement requirements for hedge accounting were generally accounted for of earnings. Upon adoption of the new standards, the Company on an accrual basis. Under the new standards, all derivatives are recorded an increase in assets of $13 relating to cash flow hedges. recorded at fair value. The method of recognizing fair value gains Onex’ share of $2 was recorded as an opening adjustment to accu- and losses depends on the nature of the risks being hedged. mulated other comprehensive earnings. The tax effect on this Derivatives that are not designated in effective hedging transitional amount was not significant. relationships continue to be accounted for at fair value with changes in fair value being included in other income in the Net investment hedges unaudited interim consolidated statement of earnings. Hedges of net investments in foreign operations are accounted for When derivatives are designated as hedges, the Company similar to cash flow hedges. Any gain or loss on the hedging classifies them either as: (i) hedges of the change in fair value of instrument relating to the effective portion of the hedge is recog- recognized assets or liabilities or firm commitments (fair value nized in other comprehensive earnings. The gain or loss relating hedges); (ii) hedges of the variability in highly probable future cash to the ineffective portion is recognized immediately in the flows attributable to a recognized asset or liability or a forecasted unaudited interim consolidated statement of earnings. Gains and transaction (cash flow hedges); or (iii) hedges of net investments in losses accumulated in other comprehensive earnings are included a foreign self-sustaining operation (net investment hedges). in the unaudited interim consolidated statement of earnings upon the reduction or disposal of the investment in the foreign Fair value hedge operation. The adoption of the new standards resulted in the The Company’s fair value hedges principally consist of interest reclassification of the foreign currency translation adjustment rate swaps that are used to protect against changes in the fair account to accumulated other comprehensive earnings. value of fixed-rate long-term financial instruments due to move- ments in market interest rates. c) Comprehensive earnings Changes in the fair value of derivatives that are desig- Comprehensive earnings is composed of the Company’s net earn- nated and qualify as fair value hedging instruments are recorded ings and other comprehensive earnings. Other comprehensive in the statement of earnings, along with changes in the fair value earnings includes unrealized gains and losses on available-for-sale of the assets, liabilities or group thereof that are attributable to the hedged risk. Onex Corporation Second Quarter Report 2007 33 NOTES TO INTERIM CONSOLIDATED FINANCIAL STATEMENTS

1. BASIS OF PREPARATION (cont’d) d) Financing charges and other transaction costs Under the new standards, financing charges and other transaction securities, foreign currency translation gains and losses on the net costs may continue to be capitalized. However, deferred financing investment in self-sustaining operations and changes in the fair charges now must be recorded net against the associated debt. market value of derivative instruments designated as cash flow As a result of the adoption of this policy, at January 1, 2007, $81 of hedges, all net of income taxes. The components of comprehensive deferred financing charges were reclassified from other assets to earnings are disclosed in the unaudited interim consolidated state- long-term debt. ment of earnings and comprehensive earnings.

The following table summarizes the adjustments required to adopt the new standards.

(Unaudited) As at January 1, 2007 Increase/(Decrease) Decrease/(Increase)

Accumulated Other Long-term Non-controlling Retained Comprehensive Investments Other Assets Debt Interest Liability Earnings(1) Earnings

Held-for-trading securities $ 5 $ – $ – $ (4) $ (1) $ – Available-for-sale securities (7)––5–2 Hedges – 13 – (11) – (2) Classification of transaction costs – (81) 81 – – –

Total $ (2) $ (68) $ 81 $ (10) $ (1) $ –

(1) Income taxes did not have a significant effect on the adoption of the new standards.

Financial instruments were classified as follows: a) In January 2007, the Company completed the acquisition of Tube City IMS Corporation (“Tube City IMS”), a leading provider (Unaudited) December 31, 2006 June 30, 2007 of outsourced services to steel mills. Headquartered in Glassport, Carrying Carrying Fair (1) Pennsylvania, Tube City IMS provides raw materials procurement, Value Value Value scrap and materials management and slag processing services at Held-for-trading(2) $ 136 $ 136 $ 136 67 steel mills throughout the United States, Canada and Europe. Available-for-sale(3) $ 2,297 $ 2,258 $ 2,258 Held-to-maturity(4) $ 136 $ 139 $ 138 The total equity investment of $234, for a 91% equity ownership interest, was made through Onex and Onex Partners II. Onex’ net (1) December 31, 2006 carrying value represents the carrying amount in the 2006 investment in the acquisition was $92, for a 36% equity ownership financial statements of instruments that are now classified as held-for-trading, interest. Onex has effective voting control of Tube City IMS available-for-sale and held-to-maturity. (2) Amounts are included in investments in the unaudited interim consolidated through Onex Partners II. balance sheet. At June 30, 2007, these securities classified as held-for-trading were optionally designated as such. b) In January 2007, ClientLogic Corporation (“ClientLogic”) com- (3) Amounts are included in investments and marketable securities in the unaudited pleted the acquisition of SITEL Corporation, a global provider of interim consolidated balance sheet. outsourced customer support services. The total equity invest- (4) Amounts are primarily included in other long-term assets in the unaudited interim consolidated balance sheet. ment of $401 was financed by ClientLogic, without any additional investment by Onex. The new combined entity now operates as In addition to the above, at June 30, 2007 cash and cash equiva- Sitel Worldwide Corporation (“Sitel Worldwide”). In connection lents of $2,706 have been classified as held-for-trading. with the transaction, Onex converted $63 of mandatorily redeem- Long-term debt has not been designated as held-for- able preferred shares of ClientLogic into common shares of the trading and therefore is recorded at amortized cost subsequent to combined entity. Subsequent to the transaction, Onex had a 70% initial recognition. economic interest and 89% voting interest in Sitel Worldwide. In addition, in the first quarter of 2007, Sitel Worldwide 2. ACQUISITIONS completed two other acquisitions for total consideration of $57. These acquisitions related to the purchase of the non-controlling During the first six months of 2007 the following acquisitions, interests in two businesses in which Sitel Worldwide had owner- which were accounted for as purchases, were completed either ship interests. directly by Onex or through subsidiaries of Onex. Any third-party borrowings in respect of the acquisitions are without recourse to Onex. The significant acquisitions were:

34 Onex Corporation Second Quarter Report 2007 NOTES TO INTERIM CONSOLIDATED FINANCIAL STATEMENTS

c) In April 2007, the Company completed the acquisition of the captive purchasing and distribution business with three distribu- Health Group division of Eastman Kodak Company (“Kodak”). tion centres in the United States. Onex and ONCAP II have a 93% The acquired business, which was renamed Carestream Health, equity ownership in Car Wash Partners and a 56% equity owner- Inc. (“Carestream Health”), is headquartered in Rochester, New ship in CiCi’s Pizza. York and is a leading global provider of medical imaging and Onex and ONCAP II’s total equity investment in these healthcare information technology solutions. The equity invest- acquisitions was $83, of which Onex’ share was $38. ment of $521, for a 99% equity ownership interest, was made through Onex and Onex Partners II. Onex’ net investment in e) Other includes acquisitions made by Skilled Healthcare Group, the acquisition was $206 for a 39% equity ownership interest. The Inc. (“Skilled Healthcare”), Emergency Medical Services Corpo- acquisition agreement provides that if Onex and Onex Partners II ration (“EMSC”), Center for Diagnostic Imaging, Inc., CSI Global realize an internal rate of return in excess of 25% on their invest- Education Inc. and Onex Real Estate Partners (“OREP”). ment, Kodak will receive payment equal to 25% of the excess The purchase prices of the acquisitions were allocated return up to US$200. to the net assets acquired based on their relative fair values at the dates of acquisition. In certain circumstances where estimates have d) In April 2007, ONCAP II completed the acquisition of Car Wash been made, the companies are obtaining third-party valuations of Partners, Inc. (“Car Wash Partners”). Car Wash Partners owns and certain assets, which could result in further refinement of the fair- operates 39 full-service and exterior car wash locations in the value allocation of certain purchase prices. The results of operations United States operating under the Mister Car Wash brand. In June for all acquired businesses from their respective dates of acquisi- 2007, ONCAP II completed the acquisition of CiCi’s Pizza. CiCi’s tion are included in the unaudited interim consolidated statement Pizza is a franchisor of approximately 600 low-cost quick service of earnings and comprehensive earnings of the Company. restaurants in the United States. CiCi’s Pizza also operates a

Details of the 2007 acquisitions, which were accounted for as purchases, are as follows:

Sitel Carestream Tube City IMS(a) Worldwide(b) Health(c) ONCAP II(d) Other(e) Total

Cash $ 31 $ 41 $ 67 $ 11 $ – $ 150 Other current assets 229 281 1,009 25 1 1,545 Intangible assets with limited life 184 47 1,400 101 3 1,735 Intangible assets with indefinite life – – 10 108 1 119 Goodwill 384 356 357 161 10 1,268 Property, plant and equipment and other long-term assets 222 122 457 88 72 961

1,050 847 3,300 494 87 5,778 Current liabilities (264) (234) (497) (117) (3) (1,115) Long-term liabilities(1) (529) (155) (2,276) (244) (27) (3,231)

257 458 527 133 57 1,432 Non-controlling interests in net assets (23) – (6) (50) – (79)

Increase in net assets acquired $ 234 $ 458 $ 521 $ 83 $ 57 $ 1,353

(1) Included in long-term liabilities of ONCAP II is $20 of acquisition financing provided by ONCAP II, of which ONEX’ share is $9.

3. INVESTMENTS Beechcraft brands. It is also a significant manufacturer of mili- tary training aircraft for the U.S. Air Force and Navy and for a In March 2007, the Company, together with GS Capital Partners, an small number of foreign governments. The equity investment of affiliate of The Goldman Sachs Group, Inc., acquired Raytheon US$1,040 was split equally between the Company and GS Capital Aircraft Company, the business aviation division of Raytheon Partners. The Company’s investment of $605 was made through Company. The acquired business now operates as Hawker Onex and Onex Partners II. Onex’ net investment in the acquisition Beechcraft Corporation (“Hawker Beechcraft”). Hawker Beechcraft, was $238, for a 20% equity ownership interest. As a result of Onex’ headquartered in Wichita, Kansas, is a leading manufacturer of significant influence over Hawker Beechcraft, the investment is business jet, turboprop and piston aircraft through its Hawker and accounted for using the equity-accounting method.

Onex Corporation Second Quarter Report 2007 35 NOTES TO INTERIM CONSOLIDATED FINANCIAL STATEMENTS

4. DISCONTINUED OPERATIONS

The following table shows the revenue and net after-tax results from discontinued operations for the three- and six-month periods ended June 30, 2007 and 2006.

2007 2006 2007 2006

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

WIS International(a) $– $71 $2 $– $2 $– $1 $1 CMC Electronics(b) – 48 3–3–11 Town and Country – 18 (1) – (1) – (1) (1) Futuremed – – –––––– J.L. French Automotive – – –––––– CSRS – – –––––– Cineplex Entertainment – 1 –––––– Sitel Worldwide warehouse – 6 ––––––

$– $ 144 $4 $– $4 $– $1 $1

2007 2006 2007 2006

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

WIS International(a) $– $ 166 $ 41 $ – $ 41 $– $2 $2 CMC Electronics(b) – 109 76 – 76 –22 Town and Country 1 18 5 (2) 3 – (1) (1) Futuremed – – –––19 – 19 J.L. French Automotive – – –––605 – 605 CSRS – – –––21 – 21 Cineplex Entertainment – 7 –––––– Sitel Worldwide warehouse – 13 –––– (1) (1)

$1 $ 313 $ 122 $ (2) $ 120 $ 645 $ 2 $ 647

a) In January 2007, ONCAP I sold its interest in its operating com- b) In March 2007, ONCAP I sold its interest in its operating com- pany, WIS International, for net proceeds of $222, of which Onex’ pany, CMC Electronics, Inc. (“CMC Electronics”). Onex’ net pro- share was $80. Onex’ gain on the transaction was $52, before a tax ceeds, which include proceeds from its direct investment in CMC provision of $11. Amounts held in escrow of US$9 (of which Onex’ Electronics, were $145. Onex’ gain on the transaction was $90, share is US$3) have been excluded from the gain. before a tax provision of $14. Onex’ share of amounts held in Under the terms of the Management Investment Plan escrow is $11 and has been excluded from the gain. (“MIP”) as described in note 23(f ) to the audited annual consoli- Under the terms of the MIP as described in note 23(f ) to dated financial statements, management members participated the audited annual consolidated financial statements, manage- in the realizations the Company achieved on the sale of WIS ment members participated in the realizations the Company International. Amounts paid on account of these transactions achieved on the sale of CMC Electronics. Amounts paid on related to the MIP totalled $4 and have been deducted from the account of these transactions related to the MIP totalled $10 and gain included in earnings from discontinued operations. have been deducted from the gain included in earnings from In addition, management of ONCAP I received $16 as discontinued operations. its carried interest from investors other than Onex on those In addition, management of ONCAP I received $12 as investors’ proceeds of $142. its carried interest from investors other than Onex on those investors’ proceeds of $99.

36 Onex Corporation Second Quarter Report 2007 NOTES TO INTERIM CONSOLIDATED FINANCIAL STATEMENTS

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

As at December 31, 2006

WIS CMC Town and International Electronics Country Other Total

Cash $1$10$–$–$11 Accounts receivable 21 40 1 2 64 Inventories –48– –48 Other current assets 214– –16

Current assets held by discontinued operations 24 112 1 2 139

Property, plant and equipment 14 28 45 – 87 Other long-term assets 68––14 Intangible assets 44 26 – – 70 Goodwill 147 76 – – 223

Long-lived assets held by discontinued operations 211 138 45 – 394

Accounts payable and accrued liabilities (14) (71) (1) – (86) Current portion of long-term debt, without recourse to Onex (1) (1) – – (2) Current portion of obligations under capital leases, without recourse to Onex (1) (7) – – (8)

Current liabilities held by discontinued operations (16) (79) (1) – (96)

Long-term debt, without recourse to Onex (162) (91) (39) – (292) Obligations under capital leases, without recourse to Onex (1) – – – (1) Other liabilities (18) (13) – – (31)

Long-term liabilities held by discontinued operations (181) (104) (39) – (324)

Cumulative translation adjustment 5 (3) – – 2

Net assets of discontinued operations $ 43 $ 64 $ 6 $ 2 $ 115

Onex Corporation Second Quarter Report 2007 37 NOTES TO INTERIM CONSOLIDATED FINANCIAL STATEMENTS

5. LONG-TERM DEBT OF OPERATING COMPANIES, In addition, Tube City IMS issued US$225 of unsecured WITHOUT RECOURSE TO ONEX senior subordinated notes. The notes bear interest at a rate of 9.75% and mature in February 2015. The notes are redeemable at The following describes the significant changes to Onex’ consoli- the option of the company at various premiums above face value, dated long-term debt from the information provided in the Decem- beginning in 2011. ber 31, 2006 audited annual consolidated financial statements. c) Sitel Worldwide a) Change in accounting policy In January 2007, in connection with ClientLogic’s acquisition As a result of the adoption of new accounting policies, as of SITEL Corporation as described in note 2, Sitel Worldwide described in note 1, beginning January 1, 2007 deferred financing closed a new credit facility consisting of a US$675 term loan, with charges have been reclassified and are recorded net against long- quarterly instalments of US$2 and maturing in January 2014, and term debt. At June 30, 2007, long-term debt is shown net of $142 a US$85 revolving credit facility maturing in January 2013. The of deferred financing charges. At December 31, 2006, deferred term loan and revolving credit facility bear interest at a rate of financing charges of $81 are included in other long-term assets. LIBOR plus a margin. Borrowings under the facility are secured by substantially all of Sitel Worldwide’s assets. b) Tube City IMS Sitel Worldwide is required under the terms of the The January 2007 acquisition of Tube City IMS resulted in facility to maintain certain financial ratio covenants. The facility additional debt being recorded in the unaudited interim consoli- also contains certain additional requirements, including limita- dated financial statements. In connection with the acquisition, tions or prohibitions on additional indebtedness, payment of cash Tube City IMS entered into a senior secured asset-based revolving dividends, redemption of stock, capital spending, investments, credit facility with an aggregate principal amount of US$165, acquisitions and asset sales. a senior secured term loan credit facility with an aggregate princi- The proceeds from the facility were used to repay pal amount of US$165 and a senior secured synthetic letter of the previous credit facility and fund ClientLogic’s acquisition of credit facility of US$20. The credit facilities bear interest at a base SITEL Corporation. rate plus a margin. In April 2007, Sitel repaid US$16 of its term loan from The senior secured asset-based revolving facility is avail- a portion of the proceeds from the April 2007 share issue, as able through to January 2013. The maximum availability under the described in note 7(a). As a result, the quarterly repayments of revolving facility is based on specified percentages of eligible US$2 now begin in September 2009. accounts receivable and inventory. As at June 30, 2007, US$41 was At June 30, 2007, US$661 and US$25 were outstanding outstanding under the revolving facility. The obligations under the under the term and revolving credit facility, respectively. senior secured asset-based lending facility are secured on a first- priority lien basis by Tube City IMS’ accounts receivable, inventory d) CEI and cash proceeds therefrom and on a second-priority lien basis In March 2007, Cosmetic Essence, Inc. (“CEI”) completed a by substantially all of Tube City IMS’ other property and assets, refinancing of its credit agreement. The new credit agreement subject to certain exceptions and permitted liens. consists of a term loan of US$122 and a revolving line of credit The senior secured term loan facility and senior secured with maximum borrowings of US$35. The term loan is repayable synthetic letter of credit facility are repayable quarterly, with with quarterly payments of principal and interest with the annual payments of US$2, and mature in January 2014. The facili- balance of US$114 due on maturity in March 2014. The revolving ties require Tube City IMS to prepay outstanding amounts under line of credit matures in March 2013. At June 30, 2007, US$122 certain conditions. At June 30, 2007, US$165 was outstanding and US$11 were outstanding on the term loan and revolving line under the term loan and there were US$20 of letters of credit out- of credit, respectively. standing relating to the synthetic letter of credit facility. The obli- Interest on the borrowings is based, at the option of CEI, gations under the senior secured term loan facility and senior upon either LIBOR or a base rate plus a margin. Substantially all secured synthetic letter of credit facility are secured on a first- of CEI’s assets are pledged as collateral for the borrowings. priority lien basis by all of Tube City IMS’ property and assets The proceeds from the new credit agreement were used (other than accounts receivable and inventory and cash proceeds by CEI to repay the first lien term loan and second lien term loan therefrom) and on a second-priority lien basis on all of Tube City of CEI’s previous credit agreement. IMS’ accounts receivable and inventory and cash proceeds there- from, subject to certain exceptions and permitted liens.

38 Onex Corporation Second Quarter Report 2007 NOTES TO INTERIM CONSOLIDATED FINANCIAL STATEMENTS

e) Celestica 6. SHARE CAPITAL In April 2007, Celestica renegotiated the terms of its revolving As at June 30, 2007, Onex’ issued and outstanding share capital credit facility, including reducing the size from US$600 to US$300 consisted of 128,928,875 (December 31, 2006 – 128,927,135) and extending the maturity from June 2007 to April 2009. No Subordinate Voting Shares, 100,000 (December 31, 2006 – 100,000) amounts were outstanding under this facility as at June 30, 2007. Multiple Voting Shares and 176,078 (December 31, 2006 – 176,078) f) Carestream Health Series 1 Senior Preferred Shares. The April 2007 acquisition of Carestream Health resulted in Onex renewed its Normal Course Issuer Bid in April 2007 additional debt being recorded in the unaudited interim consoli- for one year, permitting the Company to purchase on the Toronto dated financial statements. In connection with the acquisition, Stock Exchange up to 10 percent of the public float of its Carestream Health entered into senior secured first and second Subordinate Voting Shares. The 10 percent limit represents approx- lien term loans with an aggregate principal amount of US$1,510 imately 10 million shares. and US$440, respectively. Additionally, as part of the first lien The Company did not purchase any shares under its term loan, Carestream Health obtained a senior revolving credit Normal Course Issuer Bid during the first six months of 2007. In the facility with available funds of up to US$150. The term loans and first six months of 2006, the Company repurchased and cancelled revolving credit facility bear interest at LIBOR plus a margin. 6,479,500 of its Subordinate Voting Shares at a cost of $139, of The first lien term loan matures in April 2013, with quar- which 4,380,900 were in the second quarter at a cost of $97. terly instalment payments of US$25 commencing in December During the first six months of 2007, the total cash 2007. The second lien term loan matures in October 2013, with the consideration paid on 791,600 (2006 – 44,000) options surren- entire balance due upon maturity. The revolving credit facility, dered was $18 (2006 –$1), of which 299,600 (2006 – 25,000) were with US$52 outstanding at June 30, 2007, matures in April 2013. surrendered in the second quarter for cash consideration of $9 Substantially all of Carestream Health’s assets are pledged as col- (2006 – less than $1). This amount represents the difference lateral under the term loans. between the market value of the Subordinate Voting Shares at the time of surrender and the exercise price, both as determined g) Skilled Healthcare under Onex’ Stock Option Plan as described in note 15 to the In the second quarter of 2007, Skilled Healthcare redeemed US$70 audited annual consolidated financial statements. At June 30, of its 11% senior subordinated notes using proceeds from its May 2007, the Company had 12,323,500 (December 31, 2006 – 2007 initial public offering, as described in note 7. A premium of 13,095,100) options outstanding to acquire Subordinate Voting US$8 above face value was paid to redeem the notes before their Shares, of which 7,223,100 were vested and exercisable. The exer- 2014 maturity date. cisable options have a weighted average exercise price of $16.24. On April 4, 2007, 20,000 options to acquire Subordinate Voting h) ONCAP II Shares were issued under the Company’s Stock Option Plan with ONCAP II’s 2007 acquisitions of Car Wash Partners and CiCi’s Pizza an exercise price of $33.40 per share, which was the market price resulted in additional debt being recorded in the unaudited interim per share at the time of the issuance of the options. consolidated financial statements. There are separate arrange- During the second quarter of 2007, a total grant of ments for each of the acquisitions, with no cross-guarantees 40,000 (2006 – 40,000) Deferred Share Units (“DSUs”) was issued between the companies or by Onex. to directors. In addition, certain directors have chosen to receive Under the terms of the credit agreements, combined term their directors’ fees in DSUs in lieu of cash. At June 30, 2007, there borrowings of US$190 are outstanding and combined revolving were 224,994 (December 31, 2006 – 177,134) DSUs outstanding. credit facilities of US$30 are available. The facilities bear interest During the first six months of 2007, under the Dividend at various rates determined using a base floating rate plus a Reinvestment Plan, the Company issued 1,740 (2006 – 2,149) margin. The term loans have quarterly repayments and mature Subordinate Voting Shares at a total value of less than $1 (2006 – in 2012 and 2013. The companies also have subordinated notes less than $1). of US$19, due in 2012, that bear interest at 13%, of which the Company owns US$17. As at June 30, 2007, US$190 of term borrowings were outstanding and US$6 of borrowings were outstanding on the revolving credit facilities.

Onex Corporation Second Quarter Report 2007 39 NOTES TO INTERIM CONSOLIDATED FINANCIAL STATEMENTS

7. GAINS ON SALES OF OPERATING INVESTMENTS, NET

Three months ended June 30 Six months ended June 30 2007 2006 2007 2006

Gain on issue of shares by Sitel Worldwide(a) $36 $– $36 $– Sale of shares of Skilled Healthcare(b) 68 – 68 – Dilution gain on issue of shares by Skilled Healthcare(c) 20 – 20 – Sale of shares of Spirit AeroSystems(d) 965 – 965 – Carried interest(e) 48 – 48 – Sale of units of Cineplex Entertainment – 25 – 25 Dilution gain on issue of units by Cineplex Entertainment – 12 – 12 Other – 11 6 12

$ 1,137 $48 $ 1,143 $49

a) In April 2007, non-Onex investors provided US$33 of additional As a result of the dilutive transaction above and Onex’ capital in the new combined entity, Sitel Worldwide, as described sale of shares as described in note 7(b), Onex’ economic ownership in note 2. As a result of Onex having recorded losses in excess in Skilled Healthcare was reduced to 9% from 21% and Onex’ voting of its investment in the predecessor company, ClientLogic, prior interest was reduced to 90% from 100%. Onex continues to control to the acquisition, Onex is required to record these proceeds as an and consolidate Skilled Healthcare. accounting gain. As a result of this transaction, Onex’ economic ownership was reduced to 66% from 70% and Onex’ voting inter- d) In May 2007, Spirit AeroSystems completed a secondary est was reduced to 88% from 89%. Onex did not receive any of the offering of common stock. As part of the offering, Onex and Onex proceeds on the issuance of the Sitel Worldwide shares. Partners I sold 31.8 million shares, of which Onex’ share was 9.2 million shares. Net proceeds of $1,107 were received by Onex b) In May 2007, Skilled Healthcare completed an initial public and Onex Partners I, resulting in a pre-tax gain of $965. Onex’ offering of common stock. As part of the offering, Onex and Onex share of the net proceeds and pre-tax gain was $319 and $258, Partners I sold 10.6 million shares, of which Onex’ portion was respectively. Onex recorded a tax provision of $52 on the gain. 2.5 million shares. Net proceeds of $166 were received by Onex As a result of this transaction, Onex’ economic owner- and Onex Partners I, resulting in a pre-tax gain of $68. Onex’ share ship in Spirit AeroSystems was reduced to 7% from 13% and Onex’ of the net proceeds and pre-tax gain was $39 and $13, respectively. voting interest was reduced to 76% from 90%. Onex continues to Onex recorded a tax provision of $3 on the gain. control and consolidate Spirit AeroSystems after this transaction. Additional amounts received on account of the transac- Amounts paid on account of the MIP totalled $24 and tions related to the carried interest totalled $10, of which Onex’ have been deducted from the gain. Additional amounts received on portion was $4 and management’s portion was $6. As a result of account of the transactions related to the carried interest totalled this transaction, Onex recorded a portion of its carried interest $105, of which Onex’ portion was $42 and management’s portion as income, as described in note 7(e). was $63. As a result of this transaction, Onex recorded a portion of No amounts were paid on account of this transaction its carried interest into income, as described in note 7(e). related to the MIP as the required performance targets have not been met at this time. e) As described in note 23(d) to the audited annual consolidated financial statements, Onex defers gains associated with the carried c) In May 2007, as part of Skilled Healthcare’s initial public offering, interest until such time as the potential for repayment of amounts Skilled Healthcare issued 8.3 million new common shares. As received is remote. Upon receiving the proceeds from the sale of a result of the dilution of the Company’s ownership interest in Spirit AeroSystems and Skilled Healthcare in May 2007, a significant Skilled Healthcare from the issuance, a non-cash dilution gain portion of the carried interest received has no potential for repay- of $20 was recorded, of which Onex’ share was $5. This reflects ment. As a result, $48 of carried interest was recognized as income Onex’ share of the increase in book value of the net assets of in the three-month period ended June 30, 2007. At June 30, 2007, Skilled Healthcare due to the issue of additional shares at a value $58 of carried interest continues to be deferred. above book value.

40 Onex Corporation Second Quarter Report 2007 NOTES TO INTERIM CONSOLIDATED FINANCIAL STATEMENTS

8. ACQUISITION, RESTRUCTURING AND OTHER EXPENSES

Restructuring charges are typically to provide for the costs of facility consolidations and workforce reductions. Restructuring expenses 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 2007 2006 2007 2006

Celestica $3 $60 $12 $80 Spirit AeroSystems 4 8 10 15 Sitel Worldwide 2 – 3 4 Other 11 1 16 5

$20 $69 $41 $ 104

The table below provides a summary of restructuring activities undertaken by the operating companies detailing the components of the charges and movement in accrued liabilities for the six-month period ended June 30, 2007. This summary is presented by the year in which the restructuring activities were first initiated.

Employee Lease and Other Termination Contractual Facility Exit Cost Non-cash Years prior to 2006 Costs Obligations and Other Charge Total

Total estimated expected costs $ 740 $ 186 $ 71 $ 418 $ 1,415(a) Cumulative costs expensed to date 709 185 67 417 1,378(b) Expense for the period ended June 30, 2007 13 2 12 (5) 22

Reconciliation of accrued liability Closing balance – December 31, 2006 62 50 11 123 Cash payments (46) (8) (11) (65) Charges 13 2 12 27 Other adjustments (6) (4) (1) (11)

Closing balance – June 30, 2007 $23 $40 $11 $74

(a) Includes Celestica $1,377, Sitel Worldwide $14, Radian $11 and Spirit AeroSystems $13. (b) Includes Celestica $1,344, Sitel Worldwide $14, Radian $11 and Spirit AeroSystems $9.

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

Total estimated expected costs $11$–$3$–$14(a) Cumulative costs expensed to date 11 – 3 – 14(b) Expense for the period ended June 30, 2007 ––1–1

Reconciliation of accrued liability Closing balance – December 31, 2006 8–1 9 Cash payments (8) – (1) (9) Charges ––1 1

Closing balance – June 30, 2007 $– $– $1 $1

(a) Includes Sitel Worldwide $5 and EMSC $7. (b) Includes Sitel Worldwide $5 and EMSC $7.

Onex Corporation Second Quarter Report 2007 41 NOTES TO INTERIM CONSOLIDATED FINANCIAL STATEMENTS

8. ACQUISITION, RESTRUCTURING AND OTHER EXPENSES (cont’d)

Employee Lease and Other Termination Contractual Facility Exit Cost Non-cash Initiated in 2007 Costs Obligations and Other Charge Total

Total estimated expected costs $12 $ 1 $14 $ – $27(a) Cumulative costs expensed to date 6–12–18(b) Expense for the period ended June 30, 2007 6–12–18

Reconciliation of accrued liability Cash payments (2) – (7) (9) Charges 6–12 18

Closing balance – June 30, 2007 $4 $– $5 $9

(a) Includes Sitel Worldwide $3, EMSC $3 and CSI $3. (b) Includes Sitel Worldwide $3, EMSC $3 and CSI $1.

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

Total estimated expected costs $ 763 $ 187 $ 88 $ 418 $ 1,456 Cumulative costs expensed to date 726 185 82 417 1,410 Expense for the period ended June 30, 2007 19 2 25 (5) 41

Reconciliation of accrued liability Closing balance – December 31, 2006 70 50 12 132 Cash payments (56) (8) (19) (83) Charges 19 2 25 46 Other adjustments (6) (4) (1) (11)

Closing balance – June 30, 2007 $27 $40 $17 $84

9. PENSION

The following pension expense (income) 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 2007 2006 2007 2006

Defined benefit expense (income) $ (2) $5 $ (7) $8

10. EARNINGS PER SHARE

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

Three months ended June 30 Six months ended June 30 2007 2006 2007 2006

Weighted average number of shares outstanding (in millions) Basic 129 134 129 136 Diluted 129 134 129 136

42 Onex Corporation Second Quarter Report 2007 NOTES TO INTERIM CONSOLIDATED FINANCIAL STATEMENTS

11. SUPPLEMENTAL CASH FLOW INFORMATION

Paid during the period:

Three months ended June 30 Six months ended June 30 2007 2006 2007 2006

Interest $72 $86 $ 192 $ 154 Taxes $64 $18 $94 $34

12. COMMITMENTS AND GUARANTEES 13. VARIABLE INTEREST ENTITIES

Contingent liabilities in the form of letters of credit, letters of In 2006, the Company formed three real estate partnerships with guarantee and surety and performance bonds are provided by an unrelated third party. The partnerships were formed to develop certain operating companies to various third parties and include residential units on property in the United States. The partnerships certain bank guarantees. At June 30, 2007 the amounts potentially are considered variable interest entities (“VIEs”) under Accounting payable in respect of these guarantees totalled $423. Certain oper- Guideline 15. However, the Company is not the primary bene- ating companies have guarantees with respect to employee share ficiary of these VIEs and, accordingly, the Company accounts for purchase loans that amounted to less than $1 at June 30, 2007. its interest in the partnerships using the equity-accounting These guarantees are without recourse to Onex. method. The partnerships have combined assets of $265 at The Company, which includes the operating companies, June 30, 2007. The Company has a maximum exposure to loss of has commitments in the total amount of approximately $962 in $219, which includes the June 30, 2007 carrying value of $23. respect of corporate investments, including amounts as described in note 14. 14. SUBSEQUENT EVENTS The Company and its operating companies have also Onex and certain operating companies have entered into agree- provided certain indemnifications, including those related to ments to acquire or make investments in other businesses. These businesses that have been sold. The maximum amounts from transactions are subject to a number of conditions, many of which many of these indemnifications cannot be reasonably estimated are beyond the control of Onex or the operating companies. at this time. However, in certain circumstances, the Company and The effect of these planned transactions, if completed, may be its operating companies have recourse against other parties to significant to the consolidated financial position of Onex. mitigate the risk of loss from these indemnifications. The Company and its operating companies have aggre- a) In August 2007, the Company, together with The Carlyle Group, gate capital commitments of $149 at June 30, 2007. completed the acquisition of Allison Transmission, a division of General Motors Corporation. Allison Transmission, headquar- tered in Speedway, Indiana, designs and manufactures automatic transmissions for on-highway trucks and buses, off-highway equipment and military vehicles worldwide. The equity invest- ment of approximately US$1,525 was split equally between the Company and The Carlyle Group. The Company’s investment was made through Onex and Onex Partners II. Onex, Onex Partners II and certain limited partners invested US$763. At the time of closing, Onex and Onex Partners II invested US$600 million, of which Onex’ share was US$237 for an initial 16% equity ownership interest. The balance of the US$163 was funded at closing by Onex and it expects to syndicate the majority, if not all, of this amount to other equity participants. The Company will record the results of Allison Transmission using the equity-accounting method.

Onex Corporation Second Quarter Report 2007 43 NOTES TO INTERIM CONSOLIDATED FINANCIAL STATEMENTS

15. INFORMATION BY INDUSTRY SEGMENT

(Unaudited) Electronics Customer (in millions of dollars) Manufacturing Aero- Financial Support Metal Consolidated Three months ended June 30, 2007 Services structures Healthcare Services Services Services Other(a) Total

Revenues $ 2,116 $ 1,055 $ 1,215 $ 367 $ 497 $ 462 $ 161 $ 5,873 Cost of sales (1,995) (847) (982) (193) (324) (422) (93) (4,856) Selling, general and administrative expenses (65) (47) (144) (72) (141) (15) (69) (553)

Earnings (loss) before the undernoted items $ 56 $ 161 $ 89 $ 102 $ 32 $ 25 $ (1) $ 464 Amortization of property, plant and equipment (27) (22) (42) (3) (17) (14) (5) (130) Amortization of intangible assets and deferred charges (6) (1) (43) (43) (2) (3) (3) (101) Interest expense of operating companies (19) (11) (72) (3) (17) (11) (8) (141) Interest income 281–1–1830 Equity-accounted investments ––1–––(9)(8) Foreign exchange loss (1) – (3) – (1) – (69) (74) Stock-based compensation (3) (16) – (2) – – (63) (84) Other income (loss) –2(1)–1–– 2 Gains on sales of operating investments, net ––––––1,137 1,137 Acquisition, restructuring and other expenses (3) (4) (4) – (2) – (7) (20) Writedown of goodwill ––(2)––––(2)

Earnings (loss) before income taxes, non-controlling interests and discontinued operations $ (1) $ 117 $ (76) $ 51 $ (5) $ (3) $ 990 $ 1,073

Provision for income taxes (61) Non-controlling interests (850)

Earnings from continuing operations $ 162 Earnings from discontinued operations 4

Net earnings $ 166

(a) Includes Cineplex Entertainment, Hawker Beechcraft, Radian, Cosmetic Essence, Onex Real Estate, ONCAP and parent company.

44 Onex Corporation Second Quarter Report 2007 NOTES TO INTERIM CONSOLIDATED FINANCIAL STATEMENTS

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

Revenues $ 2,489 $ 965 $ 716 $ 173 $ 281 $ 4,624 Cost of sales (2,327) (804) (595) (108) (229) (4,063) Selling, general and administrative expenses (80) (32) (36) (50) (44) (242)

Earnings before the undernoted items $ 82 $ 129 $ 85 $ 15 $ 8 $ 319 Amortization of property, plant and equipment (28) (4) (23) (8) (20) (83) Amortization of intangible assets and deferred charges (8) 1 (6) – (3) (16) Interest expense of operating companies (19) (14) (29) (7) (13) (82) Interest income 27211628 Equity-accounted investments ––––3 3 Foreign exchange gains (loss) 5 – – – (40) (35) Stock-based compensation (6) (2) – – (7) (15) Other income –3 11–5 Gains on sales of operating investments, net ––––4848 Acquisition, restructuring and other expenses (60) (8) (1) – – (69)

Earnings (loss) before income taxes, non-controlling interests and discontinued operations $ (32) $ 112 $ 29 $ 2 $ (8) $ 103

Provision for income taxes (17) Non-controlling interests (39)

Earnings from continuing operations $47 Earnings from discontinued operations 1

Net earnings $48

(a) Includes Cineplex Entertainment, Cosmetic Essence, Radian, Onex Real Estate, ONCAP and parent company.

Onex Corporation Second Quarter Report 2007 45 NOTES TO INTERIM CONSOLIDATED FINANCIAL STATEMENTS

15. INFORMATION BY INDUSTRY SEGMENT (cont’d)

(Unaudited) Electronics Customer (in millions of dollars) Manufacturing Aero- Financial Support Metal Consolidated Six months ended June 30, 2007 Services structures Healthcare Services Services Services Other(a) Total

Revenues $ 4,274 $ 2,173 $ 2,029 $ 723 $ 938 $ 783 $ 484 $ 11,404 Cost of sales (4,036) (1,757) (1,652) (371) (608) (714) (345) (9,483) Selling, general and administrative expenses (146) (94) (185) (145) (258) (24) (130) (982)

Earnings before the undernoted items $ 92 $ 322 $ 192 $ 207 $ 72 $ 45 $ 9 $ 939 Amortization of property, plant and equipment (56) (42) (67) (5) (31) (26) (28) (255) Amortization of intangible assets and deferred charges (13) (3) (49) (88) (3) (5) (8) (169) Interest expense of operating companies (41) (21) (101) (7) (35) (21) (31) (257) Interest income 4173–1–4065 Equity-accounted investments ––2–––(4)(2) Foreign exchange gain (loss) 1 – (3) – (1) – (79) (82) Stock-based compensation (7) (23) (1) (2) (2) – (105) (140) Other income (loss) –4(1)–2–– 5 Gains on sales of operating investments, net ––––––1,143 1,143 Acquisition, restructuring and other expenses (12) (10) (7) – (3) – (9) (41) Writedown of goodwill and intangibles ––(2)––––(2)

Earnings (loss) before income taxes, non-controlling interests and discontinued operations $ (32) $ 244 $ (34) $ 105 $ – $ (7) $ 928 $ 1,204

Provision for income taxes (103) Non-controlling interests (906)

Earnings from continuing operations $ 195 Earnings from discontinued operations 120

Net earnings $ 315

Total assets $ 4,559 $ 3,289 $ 5,949 $ 5,917 $ 1,015 $ 924 $ 3,723 $ 25,376

Long-term debt(b) $ 787 $ 612 $ 3,107 $ 210 $ 718 $ 398 $ 568 $ 6,400

(a) Includes Cineplex Entertainment, Hawker Beechcraft, Radian, Cosmetic Essence, Onex Real Estate, ONCAP and parent company. (b) Long-term debt includes current portion, excludes capital leases and is net of deferred charges.

46 Onex Corporation Second Quarter Report 2007 NOTES TO INTERIM CONSOLIDATED FINANCIAL STATEMENTS

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

Revenues $ 4,722 $ 1,740 $ 1,431 $ 359 $ 566 $ 8,818 Cost of sales (4,415) (1,407) (1,193) (220) (438) (7,673) Selling, general and administrative expenses (153) (82) (75) (102) (90) (502)

Earnings before the undernoted items $ 154 $ 251 $ 163 $ 37 $ 38 $ 643 Amortization of property, plant and equipment (56) (16) (46) (16) (37) (171) Amortization of intangible assets and deferred charges (16) – (12) – (7) (35) Interest expense of operating companies (37) (26) (57) (14) (27) (161) Interest income 4 15 3 1 32 55 Equity-accounted investments ––1–5 6 Foreign exchange gains (loss) 5 – – – (36) (31) Stock-based compensation (16) (4) (1) 1 (36) (56) Other income –5 11512 Gains on sales of operating investments, net ––––4949 Acquisition, restructuring and other expenses (80) (15) (1) (4) (4) (104) Writedown of goodwill and intangible assets ––––(5)(5)

Earnings (loss) before income taxes, non-controlling interests and discontinued operations $ (42) $ 210 $ 51 $ 6 $ (23) $ 202

Provision for income taxes (48) Non-controlling interests (74)

Earnings from continuing operations $80 Earnings from discontinued operations 647

Net earnings $ 727

Total assets at December 31, 2006(b) $ 5,449 $ 3,212 $ 2,887 $ 256 $ 10,774 $ 22,578

Long-term debt at December 31, 2006(c) $ 874 $ 687 $ 1,177 $ 196 $ 907 $ 3,841

(a) Includes Cineplex Entertainment, Cosmetic Essence, Radian, Onex Real Estate, ONCAP and parent company. Other also includes the assets ($6,615) and long-term debt ($233) of The Warranty Group. (b) Customer Support Services and Other include discontinued operations as described in note 4. (c) Long-term debt includes current portion and excludes capital leases.

Onex Corporation Second Quarter Report 2007 47 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 31, 2007 to Symbol: OCX Onex Corporation shareholders of record as of July 10, 2007. 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 P. O . B o x 7 0 10 Plan 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.

48 Onex Corporation Second Quarter Report 2007 This report includes Onex Corporation’s Management’s Discussion and Analysis and Financial Statements for the second quarter ended June 30, 2007. We invite you to visit our website, www.onex.com, for your complete and up-to-date source of information about Onex.

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