UNITED STATES
                       SECURITIES AND EXCHANGE COMMISSION
                             WASHINGTON, D.C. 20549
                                    FORM 10-Q

                [X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d)
                    OF THE SECURITIES EXCHANGE ACT OF 1934

                For the quarterly period ended December 29, 2000

                                       OR

                [ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d)
                    OF THE SECURITIES EXCHANGE ACT OF 1934

                          Commission file number 1-8139

                                MITEL CORPORATION

             (Exact name of registrant as specified in its charter)

               CANADA                                NONE

      (State or other jurisdiction of          (I.R.S. Employer
      incorporation or organization)            Identification No.)

         350 Legget Drive
         P.O. Box 13089
         Kanata, Ontario, Canada                 K2K 2W7

       (Address of principal                   (Postal Code)
        executive offices)

   Registrant's telephone number, including area code: (613) 592-2122

Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the  preceding 12 months (or for such  shorter  period that the  registrant  was
required  to file  such  reports),  and  (2) has  been  subject  to such  filing
requirements for the past 90 days.

Yes (X)  No ( )

The number of common shares outstanding as at February 1, 2001 was 126,041,008.


                                  Page 1 of 32

<PAGE>

                                MITEL CORPORATION

                                      INDEX

PART I. FINANCIAL INFORMATION (Unaudited)

ITEM 1. FINANCIAL STATEMENTS

          Consolidated Balance Sheets -
          December 29, 2000 and March 31, 2000 .............................  3

          Consolidated Statements of Retained Earnings -
          Three months ended December 29, 2000 and December 24, 1999 .......  4
          Nine months ended December 29, 2000 and December 24, 1999 ........  4

          Consolidated Statements of Income -
          Three months ended December 29, 2000 and December 24, 1999 .......  5
          Nine months ended December 29, 2000 and December 24, 1999 ........  5

          Consolidated Statements of Cash Flows -
          Nine months ended December 29, 2000 and December 24, 1999 ........  6

          Notes to the Consolidated Financial Statements ...................  7

ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
        CONDITION AND RESULTS OF OPERATIONS ................................ 20

ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT
        MARKET  RISK ....................................................... 31

PART II.OTHER INFORMATION

ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K ................................... 32


                                       2
<PAGE>

                                Mitel Corporation
                     (incorporated under the laws of Canada)
                           CONSOLIDATED BALANCE SHEETS
                        (in millions of Canadian dollars)
                                   (Unaudited)



                                                       Dec. 29,      March 31,
                                                         2000           2000
                                                      ----------    ----------

ASSETS

Current assets:
  Cash and cash equivalents                           $    244.5  $    195.5
  Short-term investments                                     2.4        32.9
  Accounts receivable                                      273.8       288.2
  Inventories (note 4)                                     195.5       187.7
  Prepaid expenses and other                                37.3        37.2
  Future income taxes                                        8.3         9.5
                                                      ----------  ----------
                                                           761.8       751.0

Long-term receivables (note 5)                              24.8        21.7
Fixed assets (note 6)                                      439.1       457.4
Acquired intangible assets (note 7)                        219.6         3.0
Patents, trademarks and other (notes 8 and 14)              20.6        11.3
                                                      ----------  ----------

                                                      $  1,465.9  $  1,244.4
                                                      ==========  ==========

LIABILITIES AND SHAREHOLDERS' EQUITY

Current liabilities:
  Accounts payable and accrued liabilities (note 9)   $    214.5  $    215.4
  Income and other taxes payable                             2.6        26.2
  Future income tax liabilities                              8.8        11.7
  Deferred revenue                                          38.4        44.1
  Current portion of long-term debt                         30.9        57.9
                                                      ----------  ----------
                                                           295.2       355.3
Long-term debt                                             201.1       217.5
Pension liability                                           17.5        13.4
Future income tax liabilities                               22.0        27.2
                                                      ----------  ----------
                                                           535.8       613.4
                                                      ----------  ----------
Shareholders' equity:
      Capital stock (note 10)
         Preferred shares                                   36.7        37.0
         Common shares                                     634.2       325.6
      Contributed surplus                                    9.2         9.2
      Retained earnings                                    253.4       262.6
      Translation account (note 11)                         (3.4)       (3.4)
                                                      ----------  ----------
                                                           930.1       631.0
                                                      ----------  ----------
                                                      $  1,465.9  $  1,244.4
                                                      ==========  ==========

        (See accompanying notes to the consolidated financial statements)


                                       3
<PAGE>

                                Mitel Corporation
                  CONSOLIDATED STATEMENTS OF RETAINED EARNINGS
                        (in millions of Canadian dollars)
                                   (Unaudited)
<TABLE>
<CAPTION>

                                                                    Three Months Ended   Nine Months Ended
                                                                    Dec. 29,  Dec. 24,   Dec. 29, Dec. 24,
                                                                      2000      1999       2000     1999
                                                                    --------  --------  --------- --------
<S>                                                                 <C>       <C>       <C>       <C>
Retained earnings, beginning of period (as previously
  reported)                                                         $  288.4  $  222.5  $  267.4  $  218.4

Change in accounting policy for income taxes (note 2)
                                                                          --        --      (4.8)       --
                                                                    --------  --------  --------  --------

Retained earnings, beginning of period (as restated)                   288.4     222.5     262.6     218.4
Net income (loss) for the period                                       (34.2)     16.6      (6.1)     24.5
                                                                    --------  --------  --------- --------
                                                                       254.2     239.1     256.5     242.9

Cost of common share issue (note 10)                                      --        --      (0.7)       --
Cost of common share repurchase (note 10)                                 --      (1.6)       --      (3.8)
Dividends on preferred shares (note 10)                                 (0.8)     (0.8)     (2.4)     (2.4)
                                                                    --------  --------  --------  --------

Retained earnings, end of period                                    $  253.4  $  236.7  $  253.4  $  236.7
                                                                    ========  ========  ========  ========
</TABLE>



        (See accompanying notes to the consolidated financial statements)


                                       4
<PAGE>

                                Mitel Corporation
                    CONSOLIDATED STATEMENTS OF INCOME (LOSS)
           (in millions of Canadian dollars, except per share amounts)
                                   (Unaudited)
<TABLE>
<CAPTION>

                                                                                     Three Months Ended      Nine Months Ended
                                                                                    Dec. 29,    Dec. 24,    Dec. 29,    Dec. 24,
                                                                                      2000        1999        2000        1999
                                                                                   ---------   ---------   ---------   ---------
<S>                                                                                <C>         <C>         <C>         <C>
Revenue                                                                            $   171.1   $   163.4   $   549.2   $   427.9
                                                                                   ---------   ---------   ---------   ---------
Cost of sales:

  Cost of sales other than amortization                                                 68.3        72.3       223.8       199.7
  Amortization of manufacturing assets                                                  12.6        12.6        38.6        39.7
                                                                                   ---------   ---------   ---------   ---------
                                                                                        80.9        84.9       262.4       239.4
                                                                                   ---------   ---------   ---------   ---------
Gross margin                                                                            90.2        78.5       286.8       188.5
                                                                                   ---------   ---------   ---------   ---------

Expenses:
  Selling and administrative                                                            40.5        32.9       103.8        84.9
  Research and development (net) (note 13)                                              33.0        19.8        85.0        61.0
  Amortization of acquired intangibles                                                  35.8         3.8        59.8        11.4
                                                                                   ---------   ---------   ---------   ---------
                                                                                       109.3        56.5       248.6       157.3
                                                                                   ---------   ---------   ---------   ---------
Operating income (loss) from continuing operations                                     (19.1)       22.0        38.2        31.2
Interest income                                                                          3.4         1.8         9.8         5.4
Interest expense                                                                        (5.1)       (4.9)      (15.2)      (15.3)
Debt issue costs                                                                          --          --        (0.6)         --
                                                                                   ---------   ---------   ---------   ---------
Income (loss) from continuing operations before income taxes                           (20.8)       18.9        32.2        21.3
Income tax expense                                                                       4.8         8.7        29.1        12.2
                                                                                   ---------   ---------   ---------   ---------
Net income (loss) from continuing operations for the period                            (25.6)       10.2         3.1         9.1
Income (loss) from discontinued operations for the period (note 14a)                    (8.6)       14.4        (9.2)       23.4
Loss on disposal of discontinued operations for the period (note 14b)                     --        (8.0)         --        (8.0)
                                                                                   ---------   ---------   ---------   ---------
Net income (loss) for the period                                                   $   (34.2)  $    16.6   $    (6.1)  $    24.5
                                                                                   =========   =========   =========   =========

Net income (loss) attributable to common shareholders
   after preferred share dividends                                                 $   (35.0)  $    15.8   $    (8.5)  $    22.1
                                                                                   =========   =========   =========   =========

Net income (loss) per common share (notes 3 & 10):
   Net income (loss) per common share from continuing operations:
      Basic and fully diluted                                                      $   (0.21)  $    0.08   $    0.01   $    0.06
                                                                                   ==========  ==========  ==========  ==========
   Net income (loss) per common share:
      Basic and fully diluted                                                      $   (0.28)  $    0.14   $   (0.07)  $    0.19
                                                                                   ==========  ==========  ==========  ==========

Weighted average number of common shares outstanding (millions):
      Basic                                                                            124.4       113.7       119.9       115.1
                                                                                   ==========  ==========  ==========  ==========
      Fully diluted                                                                    126.0       119.6       120.9       115.4
                                                                                   ==========  ==========  ==========  ==========
</TABLE>

        (See accompanying notes to the consolidated financial statements)


                                       5
<PAGE>

                                Mitel Corporation
                      CONSOLIDATED STATEMENTS OF CASH FLOWS
                        (in millions of Canadian dollars)
                                   (Unaudited)

                                                         Nine Months Ended
                                                        Dec. 29,    Dec. 24,
                                                         2000        1999
                                                        --------   --------
CASH PROVIDED BY (USED IN)

Operating activities:
  Net income (loss) for the period                      $   (6.1)  $   24.5
  Amortization of capital and other assets                 147.8      121.4
  Investment tax credits                                     1.7        5.9
  Loss (gain) on sale of capital assets                      2.2       (0.1)
  Future income taxes                                       (5.3)      (3.5)
  Change in pension liability                                0.6        0.9
  Deferred loss on discontinued operations (note 14)        (4.8)        --
  Decrease (increase) in working capital (note 18)          (4.4)      11.8
                                                        --------   --------
     Total                                                 131.7      160.9
                                                        --------   --------
Investing activities:
  Change in short-term investments                          39.3      (10.2)
  Increase in long-term receivables                         (2.2)      (0.5)
  Additions to capital assets                              (70.5)     (45.7)
  Proceeds from disposal of capital assets                   1.6        0.8
  Increase in long-term investments (note 8)                (7.6)        --
  Acquisitions (notes 15 and 18)                            10.3         --
  Net change in non-cash balances related
     to investing activities                                (6.1)      (6.9)
                                                        --------   --------
     Total                                                 (35.2)     (62.5)
                                                        --------   --------
Financing activities:
  Repayment of long-term debt                              (27.1)      (7.9)
  Repayment of capital lease liabilities                   (26.3)     (22.6)
  Dividends on preferred shares                             (2.4)      (2.4)
  Issue of common shares - net (note 10)                     7.2        1.1
  Repurchase of common and preferred shares
    (note 10)                                               (0.3)     (36.4)
  Net change in non-cash balances related
    to financing activities                                   --       (0.2)
                                                        --------   --------
     Total                                                 (48.9)     (68.4)
                                                        --------   --------
Effect of currency translation on cash                       1.4       (1.7)
                                                        --------   --------
Increase in cash and cash equivalents                       49.0       28.3

Cash and cash equivalents, beginning of period             195.5      125.3
                                                        --------   --------
Cash and cash equivalents, end of period                $  244.5   $  153.6
                                                        ========   ========

        (See accompanying notes to the consolidated financial statements)


                                       6
<PAGE>

                                MITEL CORPORATION
                 NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
           (in millions of Canadian dollars, except per share amounts)
                                   (Unaudited)

1.   In  the  opinion  of  Management,   the  unaudited  consolidated  financial
     statements  reflect  all  adjustments,  which  consist  only of normal  and
     recurring  adjustments,  necessary to present fairly the financial position
     at  December  29,  2000 and the  results of  operations  and the changes in
     financial  position for the three and nine month periods ended December 29,
     2000 and  December 24,  1999,  in  accordance  with  accounting  principles
     generally accepted in Canada. (See also note 17).

     These financial statements should be read in conjunction with the financial
     statements  and notes thereto  contained in the Company's  Annual Report on
     Form 10-K for the year ended March 31, 2000. The Company's  fiscal year-end
     is the last Friday in March.

     Due to the cyclical  nature of the business,  the results of operations for
     the periods  presented are not necessarily  indicative of the results to be
     expected for the full year.

     Discontinued Operations

     On November 3, 2000, the Company adopted formal plans to pursue divestiture
     opportunities  related to the  distinct  operations  of the  communications
     systems business ("Systems").  Accordingly,  the operations related to this
     business were accounted for as discontinued operations.

     On January 5, 2001, the Company entered into a definitive agreement for the
     sale of its worldwide  Systems business,  including the name "Mitel",  to a
     company controlled by Dr. Terence H. Matthews.  As part of the transaction,
     Mitel will also  transfer its Ottawa,  Canada real estate to Dr.  Matthews.
     The Company will receive $318.3 in cash proceeds,  subject to  adjustments,
     in exchange for selling a 90 percent  ownership  interest in the  Company's
     communications  systems  business  and all of its real  property in Ottawa,
     Canada.  The  closing of the  transaction,  which is subject to  regulatory
     approvals  and the  satisfaction  of customary  conditions,  is expected to
     occur in February 2001.

     The Company will adopt a new name, subject to shareholder approval,  within
     six months of the closing of the transaction. (See also note 14a).

2.   Change in accounting policies

     a) Income taxes

     In the first  quarter  ended June 30,  2000,  the  Company  adopted the new
     recommendations  of Section  3465 of the  Canadian  Institute  of Chartered
     Accountants ("CICA") Handbook "Income Taxes" and has applied the provisions
     retroactively   without   restatement  of  the  prior  periods'   financial
     statements.  The  adoption  of this  recommendation  has no  impact  on the
     results of operations in Fiscal 2001. The cumulative  adjustment to opening
     retained  earnings  was a  reduction  of $4.8 as a result of the  change in
     accounting policy. In addition,  current future income tax assets increased
     by $9.5;  current  future  income tax  liabilities  increased by $5.3;  and
     long-term future income tax liabilities increased by $14.4.

     The new  recommendations  require the Company and its subsidiaries to adopt
     the  liability  method of accounting  for income taxes.  Under this method,
     future income tax assets and liabilities are


                                       7
<PAGE>

     determined  based on differences  between the tax and  accounting  bases of
     assets and liabilities as well as for the benefit of losses available to be
     carried  forward  to future  years for tax  purposes  that are likely to be
     realized.  Future  income tax assets and  liabilities  are  measured  using
     enacted tax rates expected to apply to taxable income in the years in which
     temporary  differences  are  expected to be  recovered  or settled.  Future
     income tax assets are evaluated and if realization is not considered  "more
     likely than not", then a valuation allowance is recorded.  For fiscal years
     prior  to the  adoption  of the  new  recommendations,  income  taxes  were
     accounted  for using the deferred tax  allocation  method,  under which the
     income tax provision is based on the income reported in the accounts.

     b) Employee future benefits

     In the first quarter ended June 30, 2000,  the Company also adopted the new
     recommendations  of Section  3461 of the CICA  Handbook,  "Employee  Future
     Benefits".  Under these new rules, the costs of retirement benefits,  other
     than pensions, and certain post-employment benefits are recognized over the
     period in which the employees render services in return for those benefits.
     Other post-employment benefits are recognized when the event triggering the
     obligation  occurs.  The  adoption  of the  new  CICA  recommendations  for
     employee future benefits resulted in no significant impact on the Company's
     financial position or results of operations.

     c) Recent accounting pronouncements

     The Financial  Accounting Standards Board has issued Statement of Financial
     Accounting  Standards No. 133,  Accounting for Derivative  Instruments  and
     Hedging  Activities  ("SFAS 133") which will be effective for the Company's
     March 31, 2002 year end. The Company has not determined the impact, if any,
     of this pronouncement on its consolidated financial statements.

     In  December  1999,  the SEC issued  Staff  Accounting  Bulletin  No.  101,
     "Revenue  Recognition in Financial  Statements" ("SAB 101"), which provides
     guidance on the  recognition,  presentation  and  disclosure  of revenue in
     financial  statements  filed  with  the SEC.  SAB 101  outlines  the  basic
     criteria  that  must be met in  order to  recognize  revenue  and  provides
     guidance for disclosures related to revenue recognition policies.  Although
     the Company is still in the process of assessing the impact of adopting SAB
     101 on its financial  position and results of operations in Fiscal 2001 and
     thereafter, management does not expect the effect, if any, to be material.

     The Canadian  Institute of Chartered  Accountants  has revised and replaced
     Section  3500 of the CICA  Handbook,  "Earnings  Per Share",  which will be
     effective  for the Company's  first interim  period in the year ended March
     29,  2002.  The Company  has not  determined  the  impact,  if any, of this
     pronouncement on its consolidated financial statements.

3.   Supplementary income information

     As a  supplementary  measure to assess  financial  performance,  management
     utilizes Adjusted Net Income and Adjusted Net Income per common share which
     exclude the impact of amortization of acquired intangibles, special charges
     (net),  non-cash  debt issue and other costs  expensed on an early  partial
     debt  repayment and  discontinued  operations.  The Adjusted Net Income and
     Adjusted Net Income per common share are as follows:


                                       8
<PAGE>

<TABLE>
<CAPTION>
                                                                 Three Months Ended         Nine Months Ended
                                                               Dec. 29,     Dec. 24,      Dec. 29,     Dec. 24,
                                                                 2000         1999          2000         1999
                                                              ------------ ------------ ------------- ------------

<S>                                                            <C>            <C>          <C>          <C>
     Net income (loss) for the period as reported              $    (34.2)    $   16.6     $    (6.1)   $    24.5

     Adjusted Net Income, as adjusted for:
       Amortization of acquired intangibles                          35.8          3.8          59.8         11.4
       Debt issue costs                                                 -            -           0.6            -
       Loss (income) from discontinued operations                     8.6        (14.4)          9.2        (23.4)
      Loss on disposal of discontinued operations                       -          8.0             -          8.0
                                                               ----------     --------     ---------    ---------

     Adjusted Net Income for the period                        $     10.2     $   14.0     $    63.5    $    20.5
                                                               ==========     ========     =========    =========

     Adjusted Net Income per common share (after preferred
      share dividends) - basic                                 $     0.08     $   0.12     $    0.51    $    0.16
                                                               ==========     ========     =========    =========
</TABLE>

4.   Inventories:

                                                     Dec. 29,       March 31,
                                                       2000           2000
                                                     --------        -------

        Raw materials                                 $ 49.1          $ 53.5
        Work-in-process                                 76.6            68.3
        Finished goods                                  69.8            65.9
                                                     -------         -------
                                                     $ 195.5         $ 187.7
                                                     =======         =======

5.   Long-term receivables

                                                         Dec. 29,     March 31,
                                                          2000          2000
                                                         ------        -----
     Investment tax credits recoverable                   $ 7.8        $ 7.8
     Promissory note, bearing interest at 8%,
      payable annually, due in June 2004 and
      against which a first deed on real property was
      pledged as security                                   6.7          6.1
     Other long-term receivables                           10.3          7.8
                                                         ------       ------
                                                         $ 24.8       $ 21.7
                                                         ======       ======

6.   Fixed assets:

                                                        Dec. 29,      March 31,
                                                          2000          2000
                                                        -------       -------
     Cost                                               $ 860.1       $ 826.9
     Accumulated amortization                            (421.0)       (369.5)
                                                        -------       -------
                                                        $ 439.1       $ 457.4
                                                        =======       =======


                                       9
<PAGE>

7.   Acquired intangible assets

                                                    Dec. 29,      March 31,
                                                      2000          2000
                                                    --------     ----------
     Cost:
       In-process technology                        $  7.6           $ 5.2
       Developed technology                           34.8            23.7
       Customer base and work force                    3.1            11.6
       Goodwill                                      233.9             6.3
                                                   -------          ------
                                                     279.4            46.8
                                                   -------          ------
     Less accumulated amortization:
       In-process technology                           1.6             4.7
       Developed technology                            7.2            22.4
       Customer base and work force                    0.8            10.9
       Goodwill                                       50.2             5.8
                                                   -------          ------
                                                      59.8            43.8
                                                   -------          ------
                                                   $ 219.6          $  3.0
                                                   =======          ======

     On July 28, 2000, the Company purchased  completed and in-process  research
     and development (R&D), an assembled  work-force and goodwill,  amounting to
     $278.1 in connection with the acquisition of Vertex Networks,  Incorporated
     ("Vertex") (see also note 15).

     Fully  amortized  acquired  intangibles  of  $46.8  were  removed  from the
     accounts of the Company at December 29, 2000.

8.   Patents, trademarks and other

                                                         Dec. 29,     March 31,
                                                           2000         2000
                                                         -------      ---------
     Cost:
       Patents, trademarks and other                      $ 16.0       $ 16.3
       Deferred loss on discontinued
          operations (see also note 14)                      4.8            -
       Deferred debt issue costs                             7.5          8.5
       Investment in Optenia, Inc.                           7.6            -
                                                          ------       ------
                                                            35.9         24.8
                                                          ------       ------
     Less accumulated amortization:
       Patents and trademarks                               10.9          9.7
       Deferred debt issue costs                             4.4          3.8
                                                          ------       ------
                                                            15.3         13.5
                                                          ------       ------
                                                          $ 20.6       $ 11.3
                                                          ======       ======

     During the third quarter,  the Company  deposited $7.6 in escrow in respect
     of an  equity  investment  to be  made  in  privately  held  Optenia,  Inc.
     ("Optenia").  The  transaction  closed on January 22, 2001.  The  Company's
     equity  position on inception  will  approximate 53 percent in exchange for
     the cash contribution of $7.6 and an in-kind  contribution of equipment and
     skilled  personnel.  The Company  expects that its equity  position will be
     reduced  proportionally  as other third party  investments  are  finalized.
     Optenia is a new developer of photonic components and subsystems,  focussed
     on altering  the  economics of bandwidth  distribution  over  high-capacity
     optical networks.


                                       10
<PAGE>

9.   Accounts payable and accrued liabilities

                                                        Dec. 29,       March 31,
                                                          2000           2000
                                                        -------        -------

Trade payables                                          $  56.5        $  68.5
Employee-related payables                                  64.7           34.9
Goods received not invoiced                                25.5           12.7
Other accrued liabilities                                  67.8           99.3
                                                        -------        -------
                                                        $ 214.5        $ 215.4
                                                        =======        =======

10.  Capital Stock

     a)                                              Dec. 29,         March 31,
                                                       2000              2000
                                                    -----------      -----------
         Shares outstanding:
           Preferred shares - R&D Series              1,596,000        1,607,900
           Common shares                            126,029,079      113,997,734

     There were 11,900  preferred  shares  repurchased  and  cancelled  for cash
     consideration of $0.3 during the nine months ended December 29, 2000.

     An analysis of the changes in the number of common shares and the amount of
     share capital for the nine months ended December 29, 2000, is as follows:

                                                            Number       Amount
                                                         -----------    --------
     Balance, beginning of period                        113,997,734    $ 325.6
     Shares issued relating to acquisitions
       (see also note 15)                                 10,997,968      300.7
     Exercise of employee stock options                    1,033,377        7.9
                                                         ===========    =======
     Balance, end of period                              126,029,079    $ 634.2
                                                         ===========    =======

     On June 5, 2000, the Company announced its intention to continue its normal
     course  issuer bid program for up to 5,706,196  common shares (5 percent of
     114,123,921  common shares issued and  outstanding at May 30, 2000) between
     June 9, 2000 and June 8, 2001. All repurchased shares will be cancelled. In
     the nine month period ended  December 29, 2000, no shares were  repurchased
     under the normal course issuer bid.

     b) A summary of the Company's stock option activity is as follows:

                                                       Nine Months Ended
                                                  Dec. 29,             Dec. 24,
                                                   2000                 1999
                                                -----------          ----------
Outstanding options:
Balance, beginning of period                      9,017,262           5,918,988
Granted                                           2,868,225           3,766,257
Exercised                                        (1,033,377)           (173,775)
Forfeited                                          (493,330)         (2,296,021)
                                                ===========         ===========
Balance, end of period                           10,358,780           7,215,449
                                                ===========         ===========


     Available for grant at December 29, 2000 were  4,316,353  (March 31, 2000 -
     6,691,248) common shares.  The exercise prices on outstanding stock options
     range from $1.10 to $38.23 per share with  exercise  periods  extending  to
     January, 2008.


                                       11
<PAGE>

      c)    The net income per common share figures were calculated based on net
            income after the  deduction of preferred  share  dividends and using
            the weighted monthly average number of shares outstanding during the
            respective  periods.  The calculation of fully diluted  earnings per
            share  assumes  that,  if  a  dilutive   effect  is  produced,   all
            outstanding options had been exercised at the later of the beginning
            of the fiscal  year and the  option  issue  date,  and  includes  an
            allowance  for  imputed   earnings  net  of  tax  derived  from  the
            investment of funds that would have been received. In addition,  the
            fully diluted earnings per share calculation  includes common shares
            issued with restrictions (see also note 15).

11.  The following table summarizes changes in the translation account:

<TABLE>
<CAPTION>
                                               Three Months Ended     Nine Months Ended
                                               Dec. 29,   Dec. 24,   Dec. 29,   Dec. 24,
                                                 2000       1999      2000        1999
                                                ------      -----     -----      -----
<S>                                             <C>         <C>       <C>        <C>
Balance, beginning of period                    $(10.2)     $18.6     $(3.4)     $28.2
Increase (decrease):
  Movements in exchange rates -
     United Kingdom Pound Sterling                 6.5       (7.4)     (9.2)     (12.3)
     United States Dollar                         (0.8)      (0.2)     11.1       (5.9)
     Swedish Krona                                 0.4       (0.6)     (1.4)      (1.3)
     Other currencies                              0.5       (0.6)     (0.7)       1.4
Reduction of net investments in subsidiaries       0.2       (0.2)      0.2       (0.5)
                                                ------      -----     -----      -----
Balance, end of period                          $ (3.4)     $ 9.6     $(3.4)     $ 9.6
                                                ======      =====     =====      =====
</TABLE>

12.  The Company has not declared or paid any  dividends  on its common  shares.
     During the third quarter,  a $0.50 per share dividend was declared and paid
     on the preferred shares.

13.  Research and development

     The research and development  expenses from continuing  operations were net
     of $1.2 and $3.2 in R&D  government  assistance,  including  ITCs,  for the
     three and nine month periods ended December 29, 2000,  respectively  (three
     months ended December 24, 1999 - $1.2;  nine months ended December 24, 1999
     - $3.8).

14.  Discontinued operations

     (a) Communications Systems Business

     On November 3, 2000, the Company adopted formal plans to pursue divestiture
     opportunities  related to the distinct  operations of the Systems business.
     Accordingly,  the operations related to this business were accounted for as
     discontinued   operations   with  November  3,  2000  being  the  effective
     measurement date.

     On January 5, 2001, the Company entered into a definitive agreement for the
     sale of its worldwide  Systems business,  including the name "Mitel",  to a
     company controlled by Dr. Terence H. Matthews.  As part of the transaction,
     Mitel will also  transfer its Ottawa,  Canada real estate to Dr.  Matthews.
     The Company will receive $318.3 in cash proceeds,  subject to  adjustments,
     in exchange for selling a 90 percent  ownership  interest in the  Company's
     communications  systems  business  and all of its real  property in Ottawa,
     Canada.  The  closing of the  transaction,  which is subject to  regulatory
     approvals  and the  satisfaction  of customary  conditions,  is expected to
     occur in February 2001.


                                       12
<PAGE>

     The Company  expects to record a net gain when  realized  on  closing.  The
     gain, net of transaction  costs and taxes,  is expected to be sufficient to
     offset  operating  losses  between  the  measurement  date  and the date of
     closing.  Accordingly,  the operating losses  subsequent to the measurement
     date and  transaction  costs  together  amounting  to $4.8 and  incurred to
     December 29, 2000,  net of taxes,  were deferred on the balance sheet as at
     that date.

     The Company will adopt a new name, subject to shareholder approval,  within
     six months of the closing of the transaction.

     The Company  expects to fully  repay the AXELs  Series B loan in the fourth
     quarter  of  Fiscal  2001  from the  proceeds  received  on the sale of the
     Systems  business.  At December 29, 2000, the balance of the AXELs Series B
     loan amounted to $168.8 (U.S.$112.5).

     The results of the  Systems  business  operations  during the period to the
     measurement date of November 3, 2000 were as follows:

<TABLE>
<CAPTION>
                                                                 Three Months Ended         Nine Months Ended
                                                                Dec. 29,     Dec. 24,     Dec. 29,      Dec. 24,
                                                                  2000         1999         2000          1999
                                                                 ------       ------       ------        ------
<S>                                                             <C>          <C>          <C>           <C>
     Sales for the three and nine month periods                 $ 145.1      $ 200.4      $ 455.6       $ 595.8
                                                                =======      =======      =======       =======
     Results of operations to the measurement date of
       November 3, 2000:
       Income (loss) before income taxes                        $  (7.2)     $  18.5      $ (13.7)      $  38.2
       Income tax (expense ) recovery                              (1.4)        (4.1)         4.5         (14.8)
                                                                -------      -------      -------       -------
       Income (loss) from discontinued operations to the
          measurement date of November 3, 2000                  $  (8.6)     $  14.4      $  (9.2)      $  23.4
                                                                =======      =======      =======       =======
     Basic income (loss) per common share from
       discontinued operations                                  $ (0.07)     $  0.13      $ (0.08)      $  0.20
                                                                =======      =======      =======       =======
     Fully diluted income (loss) per common share from
       discontinued operations                                  $ (0.07)     $  0.12      $ (0.08)      $  0.20
                                                                =======      =======      =======       =======
</TABLE>

     For the period from the measurement  date to December 29, 2000, the Systems
     business  incurred a loss of $4.0,  net of income tax  recoveries of $10.0,
     and certain  transaction  costs of $0.8,  net of income tax  recoveries  of
     $0.2. These losses were deferred and included in patents,  trademarks,  and
     other as management anticipates that the estimated gain on disposal will be
     sufficient to recover these amounts.

     The significant assets and liabilities of discontinued  operations included
     in the financial statements were as follows:

                                                        Dec. 29,    March 31,
                                                          2000        2000
                                                       ---------   ----------

     Current assets                                    $  229.9     $   256.7
     Long-term receivables                             $    9.8     $     7.8
     Fixed assets                                      $   93.8     $    95.6
     Patents, trademarks and other                     $    7.0     $     2.5
     Accounts payable and accrued liabilities          $   67.0     $    86.2
     Deferred revenue                                  $   20.3     $    27.0


                                       13
<PAGE>

     (b) Lincoln Power and Automotive

     On March 26, 1999, the Company  adopted formal plans to pursue  divestiture
     opportunities  related to the distinct  operations of the Lincoln Power and
     Automotive  business  segment  ("Lincoln"),  which was part of the  Plessey
     Semiconductors Group acquired in Fiscal 1998.  Accordingly,  the operations
     related to this business were accounted for as discontinued operations.

     On January 19, 2000,  the Company  completed  the sale of Lincoln for total
     consideration  of $12.0,  including  cash of $9.5 and a note  receivable of
     $2.5. As a result of the sale, the Company recorded  additional  provisions
     of  $8.0,  net of tax  recoveries  of  $3.4,  as a loss  from  discontinued
     operations in the third quarter of Fiscal 2000.

15.  Acquisitions

     On  July  28,  2000,  the  Company   acquired   privately-held   Vertex,  a
     California-based  fabless semiconductor company providing silicon solutions
     for the enterprise  switching and wide area network access  markets.  Mitel
     acquired Vertex in a share  transaction for  approximately 11 million newly
     issued common shares valued at $300.7.  Approximately 1.1 million shares or
     10 percent of the issued shares were placed in escrow for a two-year period
     to indemnify the Company for  representations  made by Vertex. In addition,
     approximately   535   thousand   issued   shares  are  subject  to  certain
     restrictions  over a two-year period.  The fair value of the  consideration
     was based on the average  closing price of the  Company's  common shares on
     the  Toronto  Stock   Exchange   shortly  before  and  after  the  date  of
     acquisition.  The acquisition was accounted for by the purchase  accounting
     method.  The purchase price allocation was based on fair values assigned to
     net assets as determined  and finalized by an  independent  valuation  firm
     using standard valuation  techniques.  An amount of $278.1 was allocated to
     intangible  assets which  include  completed  and  in-process  research and
     development  and  other  intangible  assets.  The  difference  between  the
     purchase price and the fair value of the  identifiable  net assets amounted
     to $233.9,  which was recorded as  goodwill.  The  identifiable  intangible
     assets  and  the  goodwill  are  amortized  over  a  two-year  period.  The
     allocation to net assets included $1.6 in respect of acquisition  costs and
     costs to integrate the operations of the acquired company.  The preliminary
     estimate of acquisition and integration  costs as at September 29, 2000 was
     $8.6,  of which  $7.0 was  subsequently  determined  to be in excess of the
     actual requirement.  Accordingly,  the excess of $7.0 was applied to reduce
     goodwill.  As at December 29, 2000, the liability in respect of acquisition
     and integration costs was $0.6.

     The purchase transaction is summarized as follows:

     Net assets acquired, at approximate fair value:

        Current assets                                       $  29.9
        Capital assets                                           2.3
        Goodwill and acquired intangible assets                278.1
                                                             -------
        Total assets                                           310.3
        Current liabilities                                     (9.6)
                                                             -------
        Total net assets                                     $ 300.7
                                                             =======
        Common share consideration                           $ 300.7
                                                             =======


                                       14
<PAGE>

     Unaudited Pro Forma  financial  information  for the  acquisition as if the
     business  had been  acquired at the  beginning  of each  respective  fiscal
     period is presented as follows:

<TABLE>
<CAPTION>
                                                                           Nine Months Ended
                                                                         Dec. 29,       Dec. 24,
                                                                          2000           1999
                                                                        ---------      --------
<S>                                                                     <C>            <C>
     Revenue                                                            $  552.0       $  430.0
     Net loss from continuing operations                                $ (108.0)      $ (102.3)
     Net loss                                                           $ (117.2)      $  (86.9)
     Net loss attributable to common shareholders after
       preferred dividends                                              $ (119.6)      $  (89.3)
     Net loss per common share from continuing operations:
           Basic and fully diluted                                      $  (0.85)      $  (0.84)
     Net loss per common share:
           Basic and fully diluted                                      $  (0.92)      $  (0.72)
     Weighted average number of common shares outstanding
       (millions):
           Basic                                                           130.3          124.5
           Fully diluted                                                   131.9          126.4
</TABLE>

     The unaudited Pro Forma  information does not include the operating savings
     or synergies as a result of the combined operations.

16.  Information on business segments

     The Company's  reportable business segments from continuing  operations are
     comprised of the Semiconductor  Communications  and  Semiconductor  Medical
     groups (see also Note 14a).  Reportable  segments are  business  units that
     offer different products and services and are managed separately because of
     these differences.

     The  Company  evaluates  the  performance  of  each  business  segment  and
     allocates  resources based on operating income from continuing  operations,
     which excludes any intersegment sales of products and services.  Mitel does
     not allocate amortization of intangibles,  special charges, interest income
     or  interest  expense  or  income  taxes  to its  reportable  segments.  In
     addition,  total  assets  are  not  allocated  to  each  segment;  however,
     depreciation  of capital  assets is allocated  to he segments  based on the
     asset usage.  The accounting  policies of the  reportable  segments are the
     same as those described in the summary of significant accounting policies.

<TABLE>
<CAPTION>
                                                                                  Unallocated
Three Months Ended December 29, 2000                 Communications     Medical      Costs         Total
                                                     --------------    ---------  ------------    -------
<S>                                                     <C>              <C>           <C>        <C>
Total external sales revenue                            $ 158.8         $ 12.3         $  -       $ 171.1
Amortization of buildings and equipment                    22.1            0.2            -          22.3
Amortization of acquired intangibles                          -             -          35.8          35.8
Segment's operating income (loss) from continuing
  operations                                               18.4           (1.7)       (35.8)        (19.1)
</TABLE>


                                       15
<PAGE>

<TABLE>
<CAPTION>
                                                                                   Unallocated
Three Months Ended December 24, 1999                 Communications     Medical       Costs        Total
                                                     --------------    ---------   -----------    -------
<S>                                                     <C>              <C>           <C>        <C>
Total external sales revenue                            $ 154.2          $ 9.2         $  -       $ 163.4
Amortization of buildings and equipment                    18.9            0.2            -          19.1
Amortization of acquired intangibles                          -              -          3.8           3.8
Segment's operating income from continuing
  operations                                               23.4            2.4         (3.8)         22.0
</TABLE>

<TABLE>
<CAPTION>
                                                                                   Unallocated
Nine Months Ended December 29, 2000                  Communications     Medical       Costs        Total
                                                     --------------    ---------   -----------    -------
<S>                                                     <C>              <C>           <C>        <C>
Total external sales revenue                            $ 513.6          $35.6         $  -       $ 549.2
Amortization of buildings and equipment                    65.7            0.7            -          66.4
Amortization of acquired intangibles                          -              -         59.8          59.8
Segment's operating income from continuing
  operations                                               96.6            1.4        (59.8)         38.2
</TABLE>

<TABLE>
<CAPTION>
                                                                                   Unallocated
Nine Months Ended December 24, 1999                  Communications     Medical       Costs        Total
                                                     --------------    ---------   -----------    -------
<S>                                                     <C>              <C>          <C>         <C>
Total external sales revenue                            $ 399.0          $28.9         $  -       $ 427.9
Amortization of buildings and equipment                    58.5            0.6            -          59.1
Amortization of acquired intangibles                          -              -         11.4          11.4
Segment's operating income from continuing
  operations                                               35.4            7.2        (11.4)         31.2
</TABLE>

17.  United States accounting principles

     The consolidated financial statements have been prepared in accordance with
     accounting  principles generally accepted in Canada (Canadian GAAP), which,
     in the case of the Company,  conform in all material respects with those in
     the United States (U.S.  GAAP) and with the  requirements of the Securities
     and Exchange  Commission (SEC), except as fully described in Note 23 to the
     consolidated financial statements as at March 31, 2000.

     Under  Canadian  GAAP,  the fair  value  of the  share  consideration  in a
     business  combination  is based on the  quoted  market  value of the shares
     shortly before and after the date of  acquisition.  Under US GAAP, the fair
     value of the share consideration is based on the quoted market value of the
     shares  shortly  before  and after the  first  date on which the  number of
     shares  becomes fixed  without  subsequent  revision.  This can result in a
     difference  in the  fair  value of the  purchase  price  and the  resulting
     valuation  of goodwill at the time of the  purchase  and in the  subsequent
     amortization of the goodwill.

     Accordingly,  for the purpose of reporting  under U.S.  GAAP, the aggregate
     purchase price of Vertex was $312.0, which was based on the average closing
     price of the Company's  common  shares on the Toronto Stock  Exchange on or
     about June 6, 2000 (the date of the announcement of the  transaction)  (see
     also note 14).

     Under  Canadian  GAAP,  there is no  requirement  to record a stock  option
     compensation  expense when the terms of a previously fixed stock option are
     modified.  Under U.S.  GAAP,  a stock option  compensation  expense must be
     recorded  in the  Company's  results  of  operations  when  the  terms of a
     previously fixed stock option are modified.


                                       16
<PAGE>

     Under  Canadian  GAAP,  shares   contingently   issuable  to  employees  in
     connection with an acquisition,  under certain conditions, form part of the
     cost of the purchase at the date of  acquisition.  Under U.S. GAAP,  shares
     contingently  issuable to employees in connection  with an acquisition  are
     recorded as stock compensation expense.

     The  following  table   reconciles  the  net  income  as  reported  on  the
     consolidated  statements  of income to the net income  that would have been
     reported had the financial statements been prepared in accordance with U.S.
     GAAP and the requirements of the SEC:

<TABLE>
<CAPTION>
                                                                 Three Months Ended      Nine Months Ended
                                                                 Dec. 29,   Dec. 24,    Dec. 29,   Dec. 24,
                                                                   2000       1999       2000       1999
                                                                 --------    ------     ------     -------
<S>                                                               <C>        <C>        <C>        <C>
Net income from continuing operations for the
  period in accordance with Canadian GAAP                         $(25.6)    $ 10.2     $  3.1     $  9.1

Acquirers redundancy provision                                       0.2       --          1.5       --
Write-off of acquired in-process technology                         (1.7)      --         (7.6)      --
Amortization of acquired in-process technology                       1.1       --          1.6       --
Amortization of  goodwill                                            1.7       --          0.8       --
Stock compensation expense                                          (3.0)      --         (4.0)      --
Effect of deferral accounting related to foreign
 exchange contracts                                                  0.7       (3.6)      10.6        3.3
Translation of foreign currency denominated debt                     1.6       (0.3)      (5.1)       4.5
                                                                  ------     ------     ------     ------

U.S. GAAP and SEC requirements:
Net income (loss) from continuing operations for the period        (25.0)       6.3        0.9       16.9
Income (loss) from discontinued operations for the period           (8.5)      15.3       (9.3)      27.5
Estimated loss on disposal of discontinued operations for the
  period                                                            --         (8.0)      --         (8.0)
                                                                  ------     ------     ------     ------
Net income (loss) for the period                                   (33.5)      13.6       (8.4)      36.4
Less: dividends on cumulative preferred shares                       0.8        0.8        2.4        2.4
                                                                  ------     ------     ------     ------
Net income (loss) attributable to common shareholders             $(34.3)    $ 12.8     $(10.8)    $ 34.0
                                                                  ======     ======     ======     ======

Net income (loss) per common share from continuing operations:
   Basic                                                         $ (0.21)   $  0.05    $ (0.01)   $  0.13
                                                                 =======    =======    =======    =======
   Diluted                                                       $ (0.20)   $  0.05    $ (0.01)   $  0.12
                                                                 =======    =======    =======    =======
Net income (loss) per common share:
   Basic                                                         $ (0.28)   $  0.11    $ (0.09)   $  0.30
                                                                 =======    =======    =======    =======
   Diluted                                                       $ (0.27)   $  0.11    $ (0.09)   $  0.29
                                                                 =======    =======    =======    =======

Weighted average shares for basic EPS (millions)                   124.4      113.7      119.9      115.1
Weighted average issued shares subject to
  restrictions (millions)                                            1.6       --          0.9       --
Weighted average shares on conversion of stock
   options (millions)                                               --          2.7       --          1.7
                                                                 -------    -------    -------    -------
Adjusted weighted average shares and share
   equivalents for diluted EPS (millions)                          126.0      116.4      120.8      116.8
                                                                 =======    =======    =======    =======
</TABLE>

The following  options were excluded in the computation of diluted  earnings per
share because the options'  exercise  price exceeded the average market price of
the common shares and, therefore, the effect would be antidilutive:


                                       17
<PAGE>

i)   All options outstanding at December 29, 2000.

ii)  Options  outstanding  for the  three  months  ended  December  24,  1999 to
     purchase  987,250  shares of common stock at an average price of $18.46 per
     share.

iii) Options outstanding for the nine months ended December 24, 1999 to purchase
     1,079,000 shares of common stock at an average price of $17.88 per share.

US GAAP earnings  included  foreign exchange losses of $2.0 for the three months
ended  December 29, 2000 and foreign  exchange gains of $2.0 for the nine months
ended December 29, 2000 (three months ended December 24, 1999 - foreign exchange
losses of $3.6; nine months ended December 24, 1999 - foreign  exchange gains of
$8.9).

The components of comprehensive income were as follows:

                                          Three Months Ended  Nine Months Ended
                                          Dec. 29,  Dec. 24,  Dec. 29,  Dec. 24,
                                            2000      1999      2000     1999
                                            ----      ----      ----     ----
     Comprehensive income for the period:
      Net income (loss) for the period    $(33.5)    $13.6     $(8.4)   $36.4
      Other comprehensive income -
        Foreign currency adjustment          6.8      (9.0)     --      (18.6)
                                           -----     -----     -----    -----
     Comprehensive income (loss) for
        the period                        $(26.7)    $ 4.6     $(8.4)   $17.8
                                           =====     =====     =====    =====

Balance  sheet  items  which  vary  in   conformity   with  U.S.  GAAP  and  SEC
requirements:

                                                         Dec. 29,    March 31,
                                                           2000         2000
                                                        ---------     -------
     Fixed assets                                       $   428.9     $ 445.6
     Acquired intangible assets                         $   210.5     $   2.5
     Patents, trademarks, other                         $    21.0     $  11.3
     Accounts payable and accrued liabilities           $   211.2     $ 217.0
     Shareholders' equity:
         Redeemable preferred shares                    $    33.8     $  34.2
         Common shares                                  $ 1,071.7     $ 763.1
         Contributed surplus                            $       -     $     -
         Accumulated other comprehensive income         $    (3.4)    $  (3.4)
         Deficit                                        $  (187.6)    $(176.8)

18.  Consolidated statements of cash flows

     (a) Net change in non-cash  working capital  balances  related to operating
     activities:

                                                            Nine Months Ended
                                                         Dec. 29,      Dec. 24,
     Decrease (Increase):                                  2000          1999
                                                         -------        ------
     Accounts receivable                                 $ 23.4          $ 4.0
     Inventories                                           (6.0)           2.4
     Accounts payable and accrued liabilities               7.1            0.6
     Income and other taxes payable                       (28.7)           3.2
     Deferred revenue                                      (5.1)           0.5
     Other                                                  4.9            1.1
                                                         ------         ------
                                                         $ (4.4)        $ 11.8
                                                         ======         ======


                                       18
<PAGE>

     b) Acquisitions:

     The following  table  summarizes  the Company's  cash flows from  investing
     activities  resulting from acquisitions  (there were no acquisitions in the
     comparative period):

                                                              Nine Months
                                                                 Ended
                                                             Dec. 29, 2000
                                                             -------------
     Vertex:
          Cash acquired                                        $  11.1
          Net assets acquired other than cash                    289.6
                                                                -------
          Total purchase price                                   300.7
          Less:  cash acquired                                   (11.1)
          Less:  non-cash consideration paid                    (300.7)
                                                                -------
     Cash acquired for Vertex                                     11.1
     Less:  cash paid for other acquisitions                      (0.8)
                                                               =======
     Cash acquired net of cash paid                            $  10.3
                                                               =======

19.  Comparative figures

     Certain of the 2000  comparative  figures have been  reclassified  so as to
     conform to the presentation adopted in Fiscal 2001.


                                       19
<PAGE>

                MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
                       CONDITION AND RESULTS OF OPERATIONS
           (in millions of Canadian dollars, except per share amounts)

The Company is currently a two-business  organization involved in communications
systems and  semiconductors  and is transitioning to be a focused  semiconductor
company  (see  Recent  Significant  Events).  Mitel  is  a  global  provider  of
semiconductors  for  converging  voice and data  networks in a rapidly  evolving
Internet economy.  Mitel's semiconductor  Communications business specializes in
broadband connectivity solutions over wired, wireless and optical media. Mitel's
semiconductor Medical business provides applications specific integrated circuit
("ASIC")  solutions  for  applications  such as  pacemakers,  hearing  aids  and
portable instruments. The Company presently employs some 2,500 people worldwide,
including over 500 designers, in its semiconductor business.

The  following  discussion  and analysis  explains  trends in Mitel's  financial
condition and results of operations for the three and nine months ended December
29, 2000  compared with the  corresponding  periods in the previous  year.  This
discussion is intended to help  shareholders  and other readers  understand  the
dynamics of the Company's  business and the key factors underlying its financial
results. Commencing with this Form 10-Q, the Company began to report the results
of its Communications  Systems business ("Systems") as a discontinued  operation
(see Recent  Significant  Events).  Accordingly,  the discussion,  figures,  and
comparative figures were reclassified to conform to the presentation  adopted in
the third quarter ended  December 29, 2000.  This  discussion  should be read in
conjunction  with  the  consolidated  financial  statements  and  notes  thereto
included   elsewhere  in  this  Form  10-Q,  and  with  the  Company's   audited
consolidated  financial  statements  and notes thereto for the fiscal year ended
March 31, 2000.

RECENT SIGNIFICANT EVENTS

Mitel Enters into a Definitive Agreement to Sell its Communications
-------------------------------------------------------------------
  Systems Business
  ----------------

On November 3, 2000, the Company announced that its Board of Directors  intended
to separate Mitel's Systems segment from its Semiconductor segment. Accordingly,
the Systems  business  results were accounted for as discontinued  operations in
this Form 10-Q for the quarterly period ended December 29, 2000. The decision to
sell Systems was  developed in response to  increasing  differences  in customer
types,  technology roadmaps, and investment  requirements and, most importantly,
the competitive needs of the two businesses.  As a result,  management  believes
the Company can better focus its resources and efforts  toward  solidifying  its
leadership position in the communications semiconductor industry.

On January 5, 2001, the Company  announced that it had entered into a definitive
agreement  for  the  sale  of its  worldwide  communications  systems  business,
including the name "Mitel",  to a company controlled by Dr. Terence H. Matthews.
As part of the  transaction,  Mitel will also  transfer its Ottawa,  Canada real
estate to Dr.  Matthews.  The  Company  will  receive  $318.3 in cash  proceeds,
subject to adjustments,  in exchange for selling a 90 percent ownership interest
in the Company's communications systems business and all of its real property in
Ottawa,  Canada. The closing of the transaction,  which is subject to regulatory
approvals and the satisfaction of customary conditions,  is expected to occur in
February 2001. The final accounting,  including the expected gain on sale of the
business and property,  will be completed when realized in the fourth quarter of
Fiscal 2001.

The company expects to adopt a new name after the approval from its shareholders
at the next annual general meeting of shareholders on July 25, 2001.


                                       20
<PAGE>

Mitel Invests in a New Photonics Venture
----------------------------------------

On January  15,  2001,  the  Company  announced  that it  established  an equity
interest in a new privately held  photonics  company that will focus on reducing
the cost of bandwidth distribution in optical networks. The new company - called
Optenia - combines the financial,  technological and human resources from Mitel,
the National Research Council ("NRC") of Canada, and other investors.

Optenia's technological  foundation is based on joint research between Mitel and
the  NRC in  the  area  of  dense  wavelength  division  multiplexing  ("DWDM").
Management  believes  that  Mitel's  investment  in Optenia  will  optimize  and
accelerate  product  development  as well as  establish  new  avenues  for other
research and development.

Mitel's equity position on inception will approximate 53 percent in exchange for
a cash contribution of $7.6 and an in-kind contribution of equipment and skilled
personnel.   Management  expects  that  its  equity  position  will  be  reduced
proportionally as other third party  investments are finalized.  Mitel will also
enjoy certain privileges for joint business  development.  For example,  Mitel's
Bromont facility will maintain a strategic  manufacturing agreement with Optenia
that  encompasses  foundry   arrangements  and  joint  development  of  critical
microfabrication techniques. The investment is not expected to materially impact
Mitel's financial results from operations or its financial  position in the next
twelve months.

Acquisition of Vertex Networks, Incorporated
--------------------------------------------

On July 28,  2000,  the Company  acquired  100  percent of the capital  stock of
privately-held Vertex Networks, Incorporated ("Vertex"), for total consideration
of  approximately  11 million  common  shares  newly issued by Mitel with a fair
value of $300.7.  The  acquisition  was  accounted  for by the purchase  method.
Accordingly,  Vertex's  results  from  operations  have  been  included  in  the
consolidated accounts of the Company from the date of acquisition.

Vertex is a fabless  semiconductor  company providing  high-performance  network
packet  processing,  switching and routing silicon  solutions for the enterprise
and wide  area  network  ("WAN")  access  markets.  Vertex  provides  integrated
circuits for Layer 3 Internet  Protocol  ("IP") routing  switches and developing
chipsets,  reference  designs,  and software for  intelligent  packet  switching
applications.  Vertex's products encompass Quality of Service ("QoS")-enabled IP
switching for enterprise communications, WAN traffic concentration, and fiber to
the home  ("FTTH")  markets.  Vertex,  which was  founded  in 1995,  is based in
Irvine,  California,  United  States,  and  has  design  centers  in  San  Jose,
California,  and Taiwan. Vertex employed  approximately 75 people as at the date
of acquisition.

Management  believes  the  acquisition  of Vertex  will allow Mitel to enter the
packet processing and switch fabric market to offer system-wide,  IP-based,  QoS
for  convergent  networks.  QoS is a term  that  qualifies  certain  performance
attributes  of voice  transmission  over IP  networks,  and  usually  refers  to
measures of delay,  latency and jitter.  Mitel's  focus will be to deliver  wire
speed  non-blocking  scalability  for the edge of WANs,  providing  the  maximum
packet-switching  throughput  required by systems designers and their customers.
Management  believes the approach will introduce Local Area Network ("LAN") cost
structures  into WAN  applications to provide a more  competitive  solution that
accommodates diverse switching technologies in use at the edge of the network.

Common Share Repurchase Program
-------------------------------

On June 5, 2000, the Company announced its Board of Directors had authorized the
continuation  of its normal  course  issuer  bid  program  to  repurchase  up to
5,706,196  common shares,  representing  5 percent of 114,123,921  common shares
issued and  outstanding  at May 18, 2000.  The purchases  will take place on the
open  market  through  the  stock  exchanges  of New  York  and  Toronto  over a
twelve-month  period beginning on June 9, 2000 and ending on June 8, 2001, or on
such  earlier date as the Company may


                                       21
<PAGE>

complete  its  purchases  pursuant to the notice of  intention  to make a normal
course  issuer bid filed with The Toronto  Stock  Exchange.  The Company,  which
intends to cancel the repurchased shares,  believes that at present no director,
senior officer or insider of the Company intends to sell any common shares under
this program.  No common shares were  repurchased  under this program during the
period from June 9, 2000 to February 1, 2001.

RESULTS OF CONTINUING OPERATIONS

Mitel's continuing  operations are comprised of two reportable business segments
- Communications  and Medical.  These two segments combine to establish  Mitel's
continuing  operations  as a  semiconductor  company.  Mitel sells its  products
through both direct and indirect channels of distribution. Factors affecting the
choice of distribution  include,  among others,  end-customer type, the level of
product   complexity  and  integration   requirements,   the  stage  of  product
introduction, geographic presence and location of markets, and volume levels.

Mitel's   semiconductor   Communications   business   specializes  in  broadband
connectivity  solutions over wired,  wireless and optical media.  Network Access
and User  Access  represent  the two major  growth  product  categories  in this
business  segment.  Network Access products  include those products that provide
connectivity  to the network's  core backbone  such as feeder,  aggregation  and
transmission applications and those that address the multi-protocol physical and
network layers.  User Access products  involve those products  allowing users to
connect to the network.  These products include wireless (for example,  cellular
chipsets) and infotainment  applications (for example, set top boxes and digital
TV). The Communications business also includes Custom Products which involve the
design of custom ASICs as well as custom foundry services for external parties.

Mitel's  semiconductor Medical business provides ASIC solutions for applications
such as pacemakers, hearing aids and portable instruments.

                                                              Nine Months Ended
                                                             Dec. 29,   Dec. 24,
(millions of Canadian dollars, except per share amounts)       2000      1999
                                                             --------   -------

Consolidated revenue from continuing operations               $ 549.2   $ 427.9
  Semiconductor Communications segment revenue                $ 513.6   $ 399.0
  Semiconductor Medical segment revenue                       $  35.6   $  28.9

Operating income from continuing operations                   $  38.2   $  31.2
  Semiconductor Communications segment operating income       $  96.6   $  35.4
  Semiconductor Medical segment operating income              $   1.4   $   7.2
  Unallocated costs - amortization of acquired intangibles    $  59.8   $  11.4

Net income from continuing operations                         $   3.1   $   9.1
Net income (loss)                                             $  (6.1)  $  24.5

Net income per common share from continuing operations        $  0.01   $  0.06
Net income (loss) per common share                            $ (0.07)  $  0.19

Adjusted Net Income                                           $  63.5   $  20.5
Adjusted Net Income per common share                          $  0.51   $  0.16
Weighted average common shares outstanding                      119.9     115.1

Net income and cash flows for each  period,  as  determined  by U.S.  accounting
principles,  are detailed and discussed in note 17 to the consolidated financial
statements included elsewhere in this Form 10-Q.


                                       22
<PAGE>

Semiconductor  revenue for the third quarter totaled $171.1  million,  down from
the record $194.3  million of the second quarter of Fiscal 2001 but up 5 percent
from $163.4  million for the same  period last year.  Year to date,  revenue was
$549.2 million, up 28 percent from $427.9 million last year.

Although the Company  continues to benefit from a  significant  amount of design
wins, third quarter sales were adversely affected,  as expected, by customer and
channel  inventory  adjustments  in its  network and user  access  business.  On
December  15, 2000,  the Company  announced  that it expected its  Semiconductor
sales for the third quarter to be sequentially lower by approximately 10 percent
from the $194.3  million  recorded  in the second  quarter of Fiscal  2001.  The
expected  decline was  principally  due to the reduction in the orders  normally
booked and shipped in the same quarter ("turns"), and to order re-scheduling and
cancellations, both resulting from market uncertainties.

In  addition  to  the  above  market  conditions,  the  Company's  results  from
continuing  operations  were  influenced by two other major  factors.  The first
factor  was  Mitel's   continuing   significant   investment   in  research  and
development, principally in the areas of network and user access, to develop and
launch new  products  supporting  broadband  communications.  The second  factor
related to steps underway in the company to establish a new business model based
exclusively  on its  semiconductor  operations,  resulting in higher selling and
administrative expenses during this transition.

Adjusted  Net  Income for the  quarter  was $10.2  million,  or $0.08 per share,
compared with $14.0 million,  or $0.12 per share, in the third quarter of Fiscal
2000.  The  decline in Adjusted  Net Income for the quarter  from a year ago was
mainly  attributable to higher research and development and marketing  expenses,
partially offset by improved sales and margins. Adjusted Net Income for the year
to date period was $63.5  million,  or $0.51 per share,  up  significantly  from
$20.5 million, or $0.16 per share, for the nine months ended last year.

Adjusted Net Income excludes the impact of amortization of acquired intangibles,
special charges (net),  non-cash debt issue and other costs expensed on an early
partial debt repayment and  discontinued  operations.  Although not a substitute
for net income or net income per common share,  management utilizes Adjusted Net
Income and Adjusted Net Income per common  share as a  supplementary  measure to
assess financial performance.

In the third quarter,  Mitel recorded a net loss from  continuing  operations of
$25.6  million,   or  $0.21  per  share,  after  the  amortization  of  acquired
intangibles  of $35.8  million.  This  compares  to net income  from  continuing
operations of $10.2  million,  or $0.08 per share,  in the same period of Fiscal
2000,  after the amortization of acquired  intangibles of $3.8 million.  Year to
date,  net income from  continuing  operations  was $3.1  million,  or $0.01 per
share, down from $9.1 million, or $0.06 per share, recorded a year ago.

Semiconductor Communications Segment

                                            Three Months Ended
                                       Dec. 29,    Dec. 24,     %
(millions of Canadian dollars)          2000        1999     Change
                                      -----------------------------
Communications revenue by product:
  Network Access                      $ 68.6      $ 71.5
  User Access                           36.0        36.2
  Custom Products                       54.2        46.5
                                      ------      ------
Total Communications                  $158.8      $154.2         3%
                                      ======      ======     =====


                                       23
<PAGE>

Communications revenue mix by product:
  Network Access                           43%        46%
  User Access                              23%        23%
  Custom Products                          34%        31%
                                        -----     ------
Total Communications                      100%       100%
                                        =====     ======
Communications revenue as a
   percentage of total revenue             93%        94%
                                        =====     ======

Communications operating income         $18.4     $ 23.4     (21)%
                                        =====     ======     =====

                                             Nine Months Ended
                                      Dec. 29,   Dec. 24,     %
(millions of Canadian dollars)          2000      1999      Change
                                      ----------------------------
Communications revenue by product:
  Network Access                       $235.2   $  177.1
  User Access                           106.2       89.4
  Custom Products                       172.2      132.5
                                       ------   --------
Total Communications                   $513.6   $  399.0       29%
                                       ======   ========     =====

Communications revenue mix by product:

  Network Access                           46%       44%
  User Access                              21%       22%
  Custom Products                          33%       34%
                                       ======    ======
Total Communications                      100%      100%
                                       ======    ======
Communications revenue as a
   percentage of total revenue             94%       93%
                                       ======    ======

Communications operating income        $ 96.6    $ 35.4       173%
                                       ======    ======      =====

Communications  semiconductor sales for the third quarter of Fiscal 2001 reached
$158.8  million,  a 3% increase  over the $154.2  million  achieved for the same
period in Fiscal  2000.  Sales of  Custom  products  grew by 16% from a year ago
while the sales of network and user access  products were adversely  affected by
the recent industry downturn  described  elsewhere in this Form 10-Q. The strong
sales growth in the year to date period was principally driven by high demand by
data networking manufacturers for the company's network access products.

For  the  quarter,  Communications  semiconductor  operating  income  was  $18.4
million,  down from the $23.4  million  recorded  for the same period last year.
Despite higher sales, the lower profitability was due to a significant  increase
in R&D spending,  particularly in IP Switching as a result of the acquisition of
Vertex  Networks.  Year to date operating income more than doubled from the same
period last year on the strength of higher sales of network access products.

Semiconductor Medical Segment

                                                  Three Months Ended
                                            Dec. 29,   Dec. 24,       %
(millions of Canadian dollars)               2000       1999        Change
                                           -------------------------------
Revenue:
  Medical                                  $  12.3     $  9.2          34%
                                           =======     ======       =====
  As a percentage of total revenue               7%         6%
                                           =======     ======
Medical operating income (loss):           $  (1.7)    $  2.4         n/m
                                           =======     ======       =====


                                       24
<PAGE>

                                                   Nine Months Ended
                                            Dec. 29,   Dec. 24,     %
(millions of Canadian dollars)               2000       1999      Change
Revenue:
  Medical                                   $ 35.6    $  28.9         23%
                                            ======    =======     ======
As a percentage of total revenue                6%         7%
                                            ======    =======
Medical operating income (excluding
  unallocated costs)                        $  1.4    $   7.2       (81)%
                                            ======    =======     ======

Medical  semiconductor  sales for the third quarter of Fiscal 2001 reached $12.3
million,  a 34% increase  over the $9.2 million  achieved for the same period in
Fiscal  2000 as a  result  of  favorable  industry  conditions  and new  product
introductions.

For the quarter,  Medical incurred an operating loss of $1.7 million, as against
an operating  income of $2.4 million for the same period last year,  as a result
of unfavorable manufacturing yields and higher R&D expenses.

Semiconductor Geographic Revenue

Revenue from continuing operations,  based on the geographic location of Mitel's
customers, was distributed as follows:

                            Nine Months                  Nine Months
(millions of                   Ended        % of           Ended         % of
Canadian dollars)          Dec. 29, 2000    Total      Dec. 24, 1999     Total
                           -------------    -----      -------------     -----

United States                 $224.3          41%         $173.3          41%
Europe                         164.3          30           110.7          26
Asia/Pacific                   136.7          25           113.2          26
Canada                          15.2           3            22.1           5
Other Regions                    8.7           1             8.6           2
                              ------         ---          ------         ---
Total                         $549.2         100%         $427.9         100%
                              ======         ===          ======         ===

For the three months ended December 29, 2000, the net movement in exchange rates
from Fiscal 2000 negatively  impacted total revenue by 3 percent ($5.5). For the
nine months ended  December 29,  2000,  the net movement in exchange  rates from
Fiscal 2000 negatively impacted total revenue by 3 percent ($16.5). The negative
foreign  exchange  impacts  were  primarily  a result of changes in the UK pound
sterling exchange rate,  partially offset by changes in the U.S. dollar exchange
rate.

GROSS MARGIN

As a percentage of total revenue,  total gross margin from continuing operations
was 53  percent  and 52  percent,  respectively,  for the three  and  nine-month
periods  ended  December 29, 2000.  This  represents an  improvement  of 5 and 8
percentage  points,   respectively,   over  the  same  periods  last  year.  The
improvement was due to higher sales volumes,  a favorable sales mix and positive
manufacturing   variances  resulting  from  improved  semiconductor   production
utilization.


                                       25
<PAGE>

OPERATING EXPENSES

Selling and Administrative ("S&A")

S&A expenses from continuing operations in the third quarter of Fiscal 2001 were
$40.5, or 24 percent of sales,  compared with $32.9, or 20 percent of sales, for
the comparable  period in Fiscal 2000.  Sequentially  from the second quarter of
this fiscal year, S&A as a percentage of sales increased by 6 percentage points.
Year to date, S&A expenses were 19 percent of sales and 1 percentage point lower
than the first nine months of Fiscal  2000.  The increase in S&A expenses in the
quarter  was due  primarily  to  higher  amortization  related  to the  recently
implemented  enterprise  resource  planning  system and to  increased  marketing
spending.  In  addition,  certain  of  the  company's  expenses  related  to the
transition to a focused semiconductor company.

Research and Development ("R&D")

R&D expenses  from  continuing  operations  amounted to $33.0,  or 19 percent of
revenue,  for the quarter ended December 29, 2000. This compares to $19.8, or 12
percent of revenue,  in the  corresponding  period of Fiscal 2000. Year to date,
R&D  expenses  amounted to $85.0 or 15 percent of sales and 1  percentage  point
higher  than the first  nine  months of Fiscal  2000.  The  increase  was due to
incremental R&D expenses  resulting from the consolidation of Vertex,  which was
acquired  on July 28,  2000,  coupled  with the  increased  R&D  activity in the
network and user access product lines. Management expects that R&D spending will
continue to increase in absolute dollars into Fiscal 2002.

Third  quarter  R&D  spending  was net of $1.2  (2000 - $1.2) in R&D  government
assistance,  including investment tax credits ("ITCs").  The year to date amount
was net of $3.2 (2000 - $3.8) in R&D government assistance, including ITCs.

Mitel's R&D spending from continuing  operations is principally  directed toward
investments in high-growth communications market segments.

Amortization of Acquired Intangibles

Amortization  of acquired  intangibles  increased in the third quarter of Fiscal
2001 to $35.8 from $3.8 for the comparable period in Fiscal 2000.  Year-to-date,
acquired intangibles amortization amounted to $59.8 as compared to $11.4 for the
first nine months of Fiscal 2000. The Fiscal 2001 amounts principally related to
the  acquisition of Vertex on July 28, 2000. The Fiscal 2000 amounts  related to
previous  acquisitions  that were fully written off by the end of last year. The
Company's  policy is to  amortize  acquired  intangible  assets  over a two-year
period from the date of acquisition,  which management  believes  represents the
estimated useful life.

INTEREST INCOME AND EXPENSE

Interest  income was $3.4 and $9.8 for the three and nine months ended  December
29, 2000, up from $1.8 and $5.4 recorded in the respective corresponding periods
of Fiscal 2000, due to higher average cash balances.  Interest  expense was $5.1
and $15.2 for the three and nine months ended  December 29, 2000, as compared to
$4.9  and  $15.3  in  the  respective  corresponding  periods  of  Fiscal  2000.
Management  expects that  interest  expense will decrease  significantly  in the
future after the expected  repayment of the AXELs Series B U.S. dollar term loan
from the the sale of the Systems business in the fourth quarter of Fiscal 2001.


                                       26
<PAGE>

INCOME TAXES

Effective  for Fiscal  2001,  new rules were  applied for  corporate  income tax
accounting  which require Mitel to apply the  "liability"  method instead of the
"deferral"  method.  Under the new standard,  tax assets and liabilities must be
measured  using  income tax rates and  applying  tax laws which are  expected to
apply to taxable  income in periods in which the tax assets or  liabilities  are
expected to be realized or settled.  The impact of this change on the Company is
described in Note 2 to the unaudited  consolidated  financial statements for the
three and nine months ended December 29, 2000.

Income tax  expense  from  continuing  operations  for the three and nine months
ended December 29, 2000 was $4.8 and $29.1,  respectively,  compared to $8.7 and
$12.2 for the comparable  periods in Fiscal 2000. The effective  income tax rate
from  continuing  operations,  as a percentage of pre-tax  income and before the
effect of  amortization  of acquired  intangibles,  was 32 percent for the third
quarter of Fiscal 2001 as compared to 38 percent for the corresponding period in
Fiscal 2000. Year to date, the effective tax rate from continuing operations was
32 percent as compared  to 37 percent for the first nine months of Fiscal  2000.
The lower  effective  tax rate in Fiscal  2001 was  mainly  due to lower  income
generated in Canada, partially offset by higher income in Europe.

BACKLOG

As orders are often  booked and  shipped  within the same  fiscal  month,  order
backlog is not necessarily  indicative of a sales outlook for the month, quarter
or year. At December 29, 2000,  order  backlog from  continuing  operations  was
$224.9,  down from  $279.7 at the end of the second  quarter of Fiscal  2001 and
from $252.6 at March 31, 2000. The decrease in backlog was  attributable  to the
recent  downturn  in  the  communications   semiconductor  industry,   described
elsewhere  in  this   Management's   Discussion   and  Analysis,   which  caused
cancellations and re-scheduling of orders, principally in the areas of broadband
networking.  Most of the backlog is  scheduled  for  delivery in the next twelve
months.

DISCONTINUED OPERATIONS

Mitel Communications Systems

Systems  recorded  third  quarter  revenue of $145.1  million,  down from $165.5
million in the second quarter, and this compared to $200.4 million for the third
quarter of Fiscal  2000.  Year to date,  System  sales  were  $455.6 and down 24
percent from the $595.8  recorded in the first nine months of Fiscal  2000.  The
revenue  decrease in the quarter and year to date  periods from last fiscal year
was principally due to industry-wide market softness while end customers delayed
capital  spending  on  systems  and  applications.  Management  believes  recent
industry  announcements  regarding new voice communications systems moving to an
IP platform have resulted in certain  customers  deferring  capital  spending in
order to acquire the advanced  functionality afforded by the new IP platforms in
the future.

During the third quarter and up to the measurement date of November 3, 2000, the
Systems  business had an operating loss, net of taxes, of $8.6 million.  Year to
date, the operating loss, net of taxes,  amounted to 9.2, down from an operating
profit of $23.4 recorded in the same period last year.

The Company  expects to record a net gain from the sale of Systems when realized
on closing in the fourth  quarter of Fiscal 2001.  The gain,  net of transaction
costs and taxes,  is  expected  by  management  to be  sufficient  to offset the
operating losses subsequent to the measurement date. Accordingly,  the operating
losses  subsequent to the measurement date of $4.0, net of income tax recoveries
of $10.0, and certain transaction costs of $0.8, net of income tax recoveries of
$0.2,  incurred to December  29, 2000 were  deferred on the balance  sheet as at
that date.


                                       27
<PAGE>

NET INCOME (LOSS)

After recording the loss from discontinued operations, Mitel recorded a net loss
of $34.2 million,  or $0.28 per share,  which also included the  amortization of
acquired  intangibles  of $35.8  million.  This  compares to net income of $15.8
million,  or $0.14 per  share,  in the same  period of  Fiscal  2000,  after the
amortization of acquired  intangibles of $3.8 million and income,  net of taxes,
from discontinued operations of $6.4 million.

LIQUIDITY AND CAPITAL RESOURCES

At December 29, 2000, cash, cash equivalents and short-term  investment balances
totaled  $246.9,  up from  $228.4  at March  31,  2000,  and up from  $230.0  at
September 29, 2000.

Cash flow from  operations  before working  capital  changes  amounted to $136.1
during the first nine months of Fiscal 2001  compared to $149.1 in Fiscal  2000.
Since March 31, 2000, Mitel's working capital,  as reflected in the consolidated
statements  of cash flows,  increased  by $4.4  mostly due to lower  payables as
payments  were made on the  higher  year-end  balances  and to  slightly  higher
inventory  levels.  Mitel  maintains  a minimum  of  critical  inventory  at its
foundries to ensure continuity of supply for its manufacturing requirements.

Capital asset  additions  were $70.5 during the first nine months of Fiscal 2001
compared  with  $45.7 in the  corresponding  period  of Fiscal  2000,  excluding
additions  of $4.8 and  $16.3  financed  by  capital  lease  for each of the two
respective   periods.   The  additions  were  primarily  related  to  continuing
improvements  to  Mitel's  information   technology  resources  as  well  as  to
semiconductor manufacturing capacity and design tools.

On February  12,  1998,  Mitel  entered  into two term loans,  respectively  the
AXELsSM*  Series B loan and the Tranche A Term Loan,  with a syndicate  of banks
led by Goldman,  Sachs Credit  Partners  L.P. as the  syndication  agent and the
Canadian Imperial Bank of Commerce as the administrative agent. The principal of
the AXELs  Series B loan is payable in four  quarterly  installments  commencing
March 2003.  The  principal  of the Tranche A Term Loan was fully repaid in June
2000 as a result of a  mandatory  prepayment  required  to be made from  Mitel's
defined excess cash flow in Fiscal 2000 (see below).

The  remaining  AXELs Series B loan bears  interest at a variable  interest rate
based on the lower of a defined  base rate or the  London  Inter Bank Offer Rate
("LIBOR")  plus a premium.  Mitel  entered into an interest rate swap to fix the
effective interest rate on a portion of the term loan.  Management believes that
the interest rate swap is  considered  to be an effective  hedge of the variable
interest  rates on the  term  loan.  Mitel is  subject  to  certain  restrictive
covenants and commitments and is required to maintain  certain  financial ratios
for the purpose of ensuring the Company's  ability to meet its obligations under
the credit agreement.  The term loan is subject to mandatory  prepayments out of
certain insurance proceeds, defined excess cash flow generated by Mitel, and the
proceeds of certain asset sales (other than inventory), equity offerings or debt
issuances  by  Mitel.  Mandatory  prepayments  range  from  50% to  100%  of the
applicable net cash proceeds.  Prior to February 2003, mandatory prepayments are
restricted  to paying down the amounts,  if any, that are drawn on the revolving
credit facility. Management believes Mitel is in compliance with the obligations
and restrictive covenants under the credit agreement.

As mentioned elsewhere in this Management's Discussion and Analysis,  management
expects to fully repay the AXELs  Series B loan in the fourth  quarter of Fiscal
2001 from the proceeds received on the sale of the Systems business. At December
29,  2000,   the  balance  of  the  AXELs  Series  B  loan  amounted  to  $168.8
(U.S.$112.5).

Long-term debt decreased principally due to the mandatory prepayment,  mentioned
above, in the amount of $27.1 against the syndicated term loans.  Long-term debt
also decreased due to scheduled repayments


                                       28
<PAGE>

of $26.3 against capital lease liabilities.

In the quarter ended December 29, 2000,  approximately  11 million common shares
valued at $300.7 were issued by the Company to acquire all of the capital  stock
of Vertex.  Approximately  1.1 million shares or 10 percent of the issued shares
were  placed in escrow  for a  two-year  period to  indemnify  the  Company  for
representations  made by Vertex. In addition,  approximately 535 thousand issued
shares are subject to certain restrictions over a two-year period.

On June 5, 2000,  Mitel  announced  its intention to make a normal course issuer
bid for up to 5,706,196  common shares.  These  purchases will take place on the
open  market  through  the  stock  exchanges  of New  York  and  Toronto  over a
twelve-month  period which commenced on June 9, 2000 and ends on June 8, 2001 or
on such earlier date as the Company may complete its  purchases  pursuant to the
normal course issuer bid filed with the Toronto Stock Exchange.  All repurchased
shares will be cancelled. As at February 1, 2001, no shares were purchased under
the normal course issuer bid.

As at December  29, 2000,  Mitel's  capitalization  was  comprised of 20 percent
debt, 3 percent preferred equity, and 77 percent common equity. This compares to
30 percent debt, 4 percent preferred equity, and 66 percent common equity at the
end of Fiscal 2000.

In addition to cash,  cash  equivalent  and  short-term  investment  balances of
$246.9 as at December 29, 2000, Mitel has an unused revolving credit facility of
approximately $109.2 (U.S.$72.8).  Management believes Mitel is in a position to
meet all foreseeable  business cash  requirements and debt service from its cash
balances on hand, existing financing facilities and cash flow from operations.

OTHER

Foreign Currency Translation

Management periodically evaluates the financial and operational  independence of
its  foreign  operations  and the  resulting  accounting  classification  of the
foreign subsidiaries as self-sustaining enterprises. Should a foreign subsidiary
cease to be classified as  self-sustaining,  then translation gains or losses on
consolidating the foreign subsidiary's  financial statements would be charged to
operating  income instead of a separate  component of shareholders'  equity.  At
December 29, 2000, the  translation  account  balance was in a debit position of
$3.4,  the same as compared to the end of Fiscal 2000.  Offsetting  movements by
the Canadian dollar as measured  against,  principally,  the U.S. dollar and the
U.K. pound  sterling  netted to result in no change to the  translation  account
balance since March 31, 2000.

Recently Issued Accounting Standards

The  Financial  Accounting  Standards  Board has issued  Statement  of Financial
Accounting Standards No. 133, Accounting for Derivative  Instruments and Hedging
Activities ("SFAS 133") which will be effective for the Company's March 31, 2002
year  end.  The  Company  has  not  determined  the  impact,  if  any,  of  this
pronouncement on its consolidated financial statements.

In December 1999,  the SEC issued Staff  Accounting  Bulletin No. 101,  "Revenue
Recognition in Financial Statements" ("SAB 101"), which provides guidance on the
recognition,  presentation  and  disclosure  of revenue in financial  statements
filed with the SEC.  SAB 101  outlines  the basic  criteria  that must be met in
order to recognize  revenue and provides  guidance  for  disclosures  related to
revenue  recognition  policies.  Although the Company is still in the process of
assessing the impact of adopting SAB 101 on its  financial  position and results
of  operations  in Fiscal 2001 and  thereafter,  management  does not expect the
effect, if any, to be material.

The Canadian Institute of Chartered Accountants has revised and replaced Section
3500 of the CICA


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<PAGE>

Handbook,  "Earnings Per Share", which will be effective for the Company's first
interim  period in the year ended March 29, 2002. The Company has not determined
the  impact,  if  any,  of  this  pronouncement  on its  consolidated  financial
statements.

Forward Looking Statements

Certain  statements  in this  management's  discussion  and analysis  constitute
forward-looking  statements.  Such forward-looking  statements involve known and
unknown  risks,  uncertainties,  and other  factors  which may cause the  actual
results,  performance  or  achievements  of Mitel,  or industry  results,  to be
materially  different  from any future  results,  performance,  or  achievements
expressed   or  implied  by  such   forward-looking   statements.   Such  risks,
uncertainties  and assumptions  include,  among others,  the following:  general
economic and business  conditions;  demographic  changes;  import protection and
regulation;   rapid  technology  development  and  changes;  timing  of  product
introductions;  the mix of  products/services;  industry  competition,  industry
capacity  and other  industry  trends;  and the  ability of Mitel to attract and
retain key employees.

SM* AXEL is a registered service mark of Goldman, Sachs and Co.


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<PAGE>

ITEM 3:  QUANTITATIVE AND QUALITATIVE DISCLOSURE ABOUT MARKET RISKS

Market  risk  represents  the risk of loss  that may  impact  Mitel's  financial
statements  due to adverse  changes in  financial  markets.  Mitel is exposed to
market risk from changes in interest rates and foreign exchange rates. To manage
these risks,  Mitel uses certain  derivative  financial  instruments,  including
interest rate swaps,  forward  contracts and other  derivative  instruments from
time to time, that have been authorized pursuant to board-approved  policies and
procedures.  Mitel does not hold or issue  financial  instruments for trading or
speculative purposes.

Mitel currently uses forward  contracts and foreign  currency  options to reduce
the exposure to foreign  exchange risk. The most  significant  foreign  exchange
exposures for Mitel relate to the U.S. dollar, U.K. pound sterling and the Euro.
As at December 29, 2000,  there were no material  changes in  information  about
market risks as disclosed in the  Company's  Form 10-K for the fiscal year ended
March 31, 2000.


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<PAGE>

PART II - OTHER INFORMATION

Item 6. Reports on Form 8-K

a) Reports on Form 8-K

The  Company  filed a  Current  Report on Form 8-K in the  three  months,  ended
December 29, 2000. The Report was dated December 15, 2000 and related to Mitel's
letter of intent to sell the  communications  systems group,  including the name
"Mitel", to companies  controlled by Dr. Terence H. Matthews.  In addition,  the
Report  described  management's  expectations for the  Semiconductor  division's
sales in the third quarter of Fiscal 2001.

                                    SIGNATURE

Pursuant to the  requirements  of the  Securities  and Exchange Act of 1934, the
registrant  has duly  caused  this  report  to be  signed  on its  behalf by the
undersigned thereunto duly authorized.

                                                MITEL CORPORATION

February 1, 2001
----------------                                -------------------------------
Date                                            Jean-Jacques Carrier
                                                Senior Vice President, Finance
                                                  and Chief Financial Officer


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