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 October 31, 2010

OR



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

For the transition period from              to

Commission File Number: 001-34699





MITEL NETWORKS CORPORATION

(Exact name of Registrant as specified in its charter)







|                                                               |  |                                     
|-------------------------------------------------------------- |  | ------------------------------------
|Canada                                                         |  | 98-0621254                          
|(State or other jurisdiction of
incorporation or organization) |  | (I.R.S. Employer Identification No.)
|                                                               | 
|350 Legget Drive, Ottawa, Ontario
Canada                       |  | K2K 2W7                             
|(Address of principal executive offices)                       |  | (Zip Code)                          

(613) 592-2122

(Registrants telephone number, including area code)

N/A

(Former name, former address and former fiscal year, if changed since last report)





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   ̈

Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every
Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such
files).    Yes   ̈     No   ̈

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller
reporting company. See the definitions of large accelerated filer and smaller reporting company in Rule 12b-2 of the Exchange Act.



|                        |  |                                                  |  |                           |  |  
|----------------------- |  | ------------------------------------------------ |  | ------------------------- |  | -
|Large accelerated filer |  |  ̈                                                |  | Accelerated Filer         |  |  ̈
|                        |  |                                                  | 
|Non-accelerated filer   |  | x  (do not check if a smaller reporting company) |  | Smaller reporting company |  |  ̈

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the
Act).    Yes   ̈    No  x

Indicate the number of shares outstanding of each of the issuers classes of common stock, as of the last practicable date:

As of November 30, 2010, there were 52,896,194 common shares outstanding.









---

PART IFINANCIAL INFORMATION



|Item 1. | Financial Statements.
|------- | ---------------------



2



---

MITEL NETWORKS CORPORATION

(incorporated under the laws of Canada)

CONSOLIDATED BALANCE SHEETS

(in U.S. dollars, millions)

(Unaudited)



|                                                                                                                                                    |  |                 |        |   |               |   |        |  
|--------------------------------------------------------------------------------------------------------------------------------------------------- |  | --------------- | ------ | - | ------------- | - | ------ | -
|                                                                                                                                                    |  | October 31,2010 |        |   | April 30,2010 |  
|ASSETS                                                                                                                                              |  |                 |        |   |               |   |        |  
|Current assets:                                                                                                                                     |  |                 |        |   |               |   |        |  
|Cash and cash equivalents                                                                                                                           |  | $               | 90.0   |   |               | $ | 76.6   |  
|Accounts receivable (net of allowance for doubtful accounts of $9.5 and $11.9, respectively)                                                        |  |                 | 123.0  |   |               |   | 121.5  |  
|Sales-type lease receivables (net) (note 3)                                                                                                         |  |                 | 32.8   |   |               |   | 33.8   |  
|Inventories (net) (note 4)                                                                                                                          |  |                 | 32.0   |   |               |   | 26.7   |  
|Deferred tax asset                                                                                                                                  |  |                 | 12.5   |   |               |   | 15.0   |  
|Other current assets (note 5)                                                                                                                       |  |                 | 43.2   |   |               |   | 46.5   |  
|                                                                                                                                                    |  |                 |        |   |               |   |        |  
|                                                                                                                                                    |  |                 | 333.5  |   |               |   | 320.1  |  
|Non-current portion of sales-type lease receivables (net) (note 3)                                                                                  |  |                 | 24.8   |   |               |   | 29.2   |  
|Deferred tax asset                                                                                                                                  |  |                 | 85.6   |   |               |   | 5.0    |  
|Property and equipment (net)                                                                                                                        |  |                 | 15.0   |   |               |   | 17.0   |  
|Identifiable intangible assets (net) (note 6)                                                                                                       |  |                 | 111.8  |   |               |   | 123.1  |  
|Goodwill                                                                                                                                            |  |                 | 134.5  |   |               |   | 134.5  |  
|Other non-current assets                                                                                                                            |  |                 | 9.9    |   |               |   | 12.1   |  
|                                                                                                                                                    |  |                 |        |   |               |   |        |  
|                                                                                                                                                    |  | $               | 715.1  |   |               | $ | 641.0  |  
|                                                                                                                                                    |  |                 |        |   |               |   |        |  
|LIABILITIES AND SHAREHOLDERS EQUITY (DEFICIENCY)                                                                                                   |  |                 |        |   |               |   |        |  
|Current liabilities:                                                                                                                                |  |                 |        |   |               |   |        |  
|Accounts payable and accrued liabilities (note 7)                                                                                                   |  | $               | 116.6  |   |               | $ | 107.7  |  
|Due to related parties (note 8)                                                                                                                     |  |                 | 0.4    |   |               |   | 7.2    |  
|Current portion of deferred revenue                                                                                                                 |  |                 | 42.8   |   |               |   | 46.2   |  
|Current portion of long-term debt                                                                                                                   |  |                 | 4.1    |   |               |   | 4.1    |  
|                                                                                                                                                    |  |                 |        |   |               |   |        |  
|                                                                                                                                                    |  |                 | 163.9  |   |               |   | 165.2  |  
|Long-term debt                                                                                                                                      |  |                 | 344.8  |   |               |   | 345.7  |  
|Lease recourse liability (note 3)                                                                                                                   |  |                 | 7.2    |   |               |   | 7.9    |  
|Long-term portion of deferred revenue                                                                                                               |  |                 | 12.2   |   |               |   | 14.1   |  
|Deferred tax liability                                                                                                                              |  |                 | 59.2   |   |               |   | 70.9   |  
|Pension liability (note 9)                                                                                                                          |  |                 | 71.4   |   |               |   | 68.1   |  
|Other non-current liabilities                                                                                                                       |  |                 | 22.5   |   |               |   | 24.0   |  
|                                                                                                                                                    |  |                 |        |   |               |   |        |  
|                                                                                                                                                    |  |                 | 681.2  |   |               |   | 695.9  |  
|                                                                                                                                                    |  |                 |        |   |               |   |        |  
|Commitments, guarantees and contingencies (note 10)                                                                                                 |  |                 |        |   |               |   |        |  
|Shareholders equity (deficiency):                                                                                                                  |  |                 |        |   |               |   |        |  
|Common shares, without par valueunlimited shares authorized, issued and outstanding: 52.8 at October 31, 2010 and 52.8
at April 30, 2010 (note 11) |  |                 | 803.0  |   |               |   | 802.8  |  
|Preferred sharesunlimited shares authorized, nil issued and outstanding                                                                            |  |                 |       |   |               |   |       |  
|Warrants (note 12)                                                                                                                                  |  |                 | 55.6   |   |               |   | 55.6   |  
|Additional paid-in capital                                                                                                                          |  |                 | 10.0   |   |               |   | 7.7    |  
|Accumulated deficit                                                                                                                                 |  |                 | (742.2 | ) |               |   | (829.9 | )
|Accumulated other comprehensive loss                                                                                                                |  |                 | (92.5  | ) |               |   | (91.1  | )
|                                                                                                                                                    |  |                 |        |   |               |   |        |  
|                                                                                                                                                    |  |                 | 33.9   |   |               |   | (54.9  | )
|                                                                                                                                                    |  |                 |        |   |               |   |        |  
|                                                                                                                                                    |  | $               | 715.1  |   |               | $ | 641.0  |  
|                                                                                                                                                    |  |                 |        |   |               |   |        |  

(The accompanying notes are an integral part of these unaudited consolidated financial statements)



3



---

MITEL NETWORKS CORPORATION

(incorporated under the laws of Canada)

CONSOLIDATED STATEMENTS OF OPERATIONS

(in U.S. dollars, millions except
per share amounts)

(Unaudited)



|                                                               |  |                    |       |   |                  |   |       |                 |  |   |                 |   |  |   |       |  
|-------------------------------------------------------------- |  | ------------------ | ----- | - | ---------------- | - | ----- | --------------- |  | - | --------------- | - |  | - | ----- | -
|                                                               |  | Three Months Ended |       |   | Six Months Ended |  
|                                                               |  | October 31,2010    |       |   | October 31,2009  |   |       | October 31,2010 |  |   | October 31,2009 |  
|Revenues:                                                      |  |                    |       |   |                  |   |       |                 |  |   |                 |   |  |   |       |  
|Telecommunications                                             |  | $                  | 141.5 |   |                  | $ | 143.6 |                 |  | $ | 282.3           |   |  | $ | 284.0 |  
|Network services                                               |  |                    | 19.6  |   |                  |   | 18.8  |                 |  |   | 38.8            |   |  |   | 37.8  |  
|                                                               |  |                    |       |   |                  |   |       |                 |  |   |                 |   |  |   |       |  
|                                                               |  |                    | 161.1 |   |                  |   | 162.4 |                 |  |   | 321.1           |   |  |   | 321.8 |  
|                                                               |  |                    |       |   |                  |   |       |                 |  |   |                 |   |  |   |       |  
|Cost of revenues:                                              |  |                    |       |   |                  |   |       |                 |  |   |                 |   |  |   |       |  
|Telecommunications                                             |  |                    | 73.9  |   |                  |   | 72.8  |                 |  |   | 146.3           |   |  |   | 144.4 |  
|Network services                                               |  |                    | 10.7  |   |                  |   | 11.0  |                 |  |   | 21.2            |   |  |   | 22.2  |  
|                                                               |  |                    |       |   |                  |   |       |                 |  |   |                 |   |  |   |       |  
|                                                               |  |                    | 84.6  |   |                  |   | 83.8  |                 |  |   | 167.5           |   |  |   | 166.6 |  
|                                                               |  |                    |       |   |                  |   |       |                 |  |   |                 |   |  |   |       |  
|Gross margin                                                   |  |                    | 76.5  |   |                  |   | 78.6  |                 |  |   | 153.6           |   |  |   | 155.2 |  
|                                                               |  |                    |       |   |                  |   |       |                 |  |   |                 |   |  |   |       |  
|Expenses:                                                      |  |                    |       |   |                  |   |       |                 |  |   |                 |   |  |   |       |  
|Selling, general and administrative                            |  |                    | 55.0  |   |                  |   | 53.4  |                 |  |   | 108.2           |   |  |   | 106.8 |  
|Research and development                                       |  |                    | 13.3  |   |                  |   | 13.2  |                 |  |   | 26.4            |   |  |   | 26.3  |  
|Special charges and restructuring costs (note 14)              |  |                    | 4.4   |   |                  |   | 2.3   |                 |  |   | 4.3             |   |  |   | 2.7   |  
|                                                               |  |                    |       |   |                  |   |       |                 |  |   |                 |   |  |   |       |  
|                                                               |  |                    | 72.7  |   |                  |   | 68.9  |                 |  |   | 138.9           |   |  |   | 135.8 |  
|                                                               |  |                    |       |   |                  |   |       |                 |  |   |                 |   |  |   |       |  
|Operating income                                               |  |                    | 3.8   |   |                  |   | 9.7   |                 |  |   | 14.7            |   |  |   | 19.4  |  
|Interest expense                                               |  |                    | (5.1  | ) |                  |   | (8.9  | )               |  |   | (10.2           | ) |  |   | (17.7 | )
|Fair value adjustment on derivative instruments (note 15)      |  |                    | 0.2   |   |                  |   | (23.9 | )               |  |   | 1.0             |   |  |   | (23.3 | )
|Other income (expense), net                                    |  |                    | (0.4  | ) |                  |   | 1.0   |                 |  |   | (0.3            | ) |  |   | (0.4  | )
|                                                               |  |                    |       |   |                  |   |       |                 |  |   |                 |   |  |   |       |  
|Income (loss) before income taxes                              |  |                    | (1.5  | ) |                  |   | (22.1 | )               |  |   | 5.2             |   |  |   | (22.0 | )
|Current income tax recovery                                    |  |                    | 1.5   |   |                  |   | 1.4   |                 |  |   | 0.5             |   |  |   | 0.8   |  
|Deferred income tax recovery (note 20)                         |  |                    | 80.9  |   |                  |   | 0.7   |                 |  |   | 82.0            |   |  |   | 3.2   |  
|                                                               |  |                    |       |   |                  |   |       |                 |  |   |                 |   |  |   |       |  
|Net income (loss)                                              |  | $                  | 80.9  |   |                  | $ | (20.0 | )               |  | $ | 87.7            |   |  | $ | (18.0 | )
|                                                               |  |                    |       |   |                  |   |       |                 |  |   |                 |   |  |   |       |  
|Net income (loss) per common share (note 13)                   |  |                    |       |   |                  |   |       |                 |  |   |                 |   |  |   |       |  
|Basic                                                          |  | $                  | 1.53  |   |                  | $ | (2.23 | )               |  | $ | 1.66            |   |  | $ | (2.88 | )
|Diluted                                                        |  | $                  | 1.45  |   |                  | $ | (2.23 | )               |  | $ | 1.56            |   |  | $ | (2.88 | )
|Weighted-average number of common shares outstanding (note 13) |  |                    |       |   |                  |   |       |                 |  |   |                 |   |  |   |       |  
|Basic                                                          |  |                    | 52.8  |   |                  |   | 14.3  |                 |  |   | 52.8            |   |  |   | 14.3  |  
|Diluted                                                        |  |                    | 56.0  |   |                  |   | 14.3  |                 |  |   | 56.2            |   |  |   | 14.3  |  

(The accompanying
notes are an integral part of these unaudited consolidated financial statements)



4



---

MITEL NETWORKS CORPORATION

(incorporated under the laws of Canada)

CONSOLIDATED STATEMENTS OF SHAREHOLDERS EQUITY (DEFICIENCY)

AND
COMPREHENSIVE INCOME (LOSS)

(in U.S. dollars, millions)

(Unaudited)



|                                         |        |               |      |        |  |   |          |                    |  |         |             |  |         |                                 |      |               |                     |   |            |   |  |   |       |   |  |   |       |  
|---------------------------------------- | ------ | ------------- | ---- | ------ |  | - | -------- | ------------------ |  | ------- | ----------- |  | ------- | ------------------------------- | ---- | ------------- | ------------------- | - | ---------- | - |  | - | ----- | - |  | - | ----- | -
|                                         |        | Common Shares |      |        |  |   |          | Additional Paid-in |  |         | Accumulated |  |         | Accumulated Other Comprehensive |      |               | Total Shareholders |  
|                                         | Number |               |      | Amount |  |   | Warrants |                    |  | Capital |             |  | Deficit |                                 |      | Income (Loss) |                     |   | Deficiency |  
|Balance at April 30, 2010                |        |               | 52.8 |        |  | $ | 802.8    |                    |  | $       | 55.6        |  |         | $                               | 7.7  |               |                     | $ | (829.9     | ) |  | $ | (91.1 | ) |  | $ | (54.9 | )
|                                         |        |               |      |        |  |   |          |                    |  |         |             |  |         |                                 |      |               |                     |   |            |   |  |   |       |   |  |   |       |  
|Net income                               |        |               |     |        |  |   |         |                    |  |         |            |  |         |                                 |     |               |                     |   | 6.8        |   |  |   |      |   |  |   | 6.8   |  
|Foreign currency translation adjustments |        |               |     |        |  |   |         |                    |  |         |            |  |         |                                 |     |               |                     |   |           |   |  |   | (0.9  | ) |  |   | (0.9  | )
|                                         |        |               |      |        |  |   |          |                    |  |         |             |  |         |                                 |      |               |                     |   |            |   |  |   |       |   |  |   |       |  
|Comprehensive income                     |        |               |     |        |  |   |         |                    |  |         |            |  |         |                                 |     |               |                     |   | 6.8        |   |  |   | (0.9  | ) |  |   | 5.9   |  
|Issue of shares                          |        |               |     | (1)    |  |   | 0.1      |                    |  |         |            |  |         |                                 |     |               |                     |   |           |   |  |   |      |   |  |   | 0.1   |  
|Stock-based compensation                 |        |               |     |        |  |   |         |                    |  |         |            |  |         |                                 | 0.8  |               |                     |   |           |   |  |   |      |   |  |   | 0.8   |  
|                                         |        |               |      |        |  |   |          |                    |  |         |             |  |         |                                 |      |               |                     |   |            |   |  |   |       |   |  |   |       |  
|Balance at July 31, 2010                 |        |               | 52.8 |        |  | $ | 802.9    |                    |  | $       | 55.6        |  |         | $                               | 8.5  |               |                     | $ | (823.1     | ) |  | $ | (92.0 | ) |  | $ | (48.1 | )
|                                         |        |               |      |        |  |   |          |                    |  |         |             |  |         |                                 |      |               |                     |   |            |   |  |   |       |   |  |   |       |  
|Net income                               |        |               |     |        |  |   |         |                    |  |         |            |  |         |                                 |     |               |                     |   | 80.9       |   |  |   |      |   |  |   | 80.9  |  
|Foreign currency translation adjustments |        |               |     |        |  |   |         |                    |  |         |            |  |         |                                 |     |               |                     |   |           |   |  |   | (0.5  | ) |  |   | (0.5  | )
|                                         |        |               |      |        |  |   |          |                    |  |         |             |  |         |                                 |      |               |                     |   |            |   |  |   |       |   |  |   |       |  
|Comprehensive income                     |        |               |     |        |  |   |         |                    |  |         |            |  |         |                                 |     |               |                     |   | 80.9       |   |  |   | (0.5  | ) |  |   | 80.4  |  
|Issue of shares                          |        |               |     | (1)    |  |   | 0.1      |                    |  |         |            |  |         |                                 |     |               |                     |   |           |   |  |   |      |   |  |   | 0.1   |  
|Stock-based compensation                 |        |               |     |        |  |   |         |                    |  |         |            |  |         |                                 | 1.5  |               |                     |   |           |   |  |   |      |   |  |   | 1.5   |  
|                                         |        |               |      |        |  |   |          |                    |  |         |             |  |         |                                 |      |               |                     |   |            |   |  |   |       |   |  |   |       |  
|Balance at October 31, 2010              |        |               | 52.8 |        |  | $ | 803.0    |                    |  | $       | 55.6        |  |         | $                               | 10.0 |               |                     | $ | (742.2     | ) |  | $ | (92.5 | ) |  | $ | 33.9  |  
|                                         |        |               |      |        |  |   |          |                    |  |         |             |  |         |                                 |      |               |                     |   |            |   |  |   |       |   |  |   |       |  



|(1) | Issue of shares was less than 0.1 for the period.
|--- | -------------------------------------------------

(The accompanying notes are an integral part of these unaudited consolidated financial statements)



5



---

MITEL NETWORKS CORPORATION

(incorporated under the laws of Canada)

CONSOLIDATED STATEMENTS OF SHAREHOLDERS EQUITY (DEFICIENCY)

AND
COMPREHENSIVE INCOME (LOSS) (continued)

(in U.S. dollars, millions)

(Unaudited)



|                                                     |        |               |      |        |  |   |          |                    |  |         |             |   |         |                                 |     |               |                     |   |            |   |  |   |       |   |  |   |        |  
|---------------------------------------------------- | ------ | ------------- | ---- | ------ |  | - | -------- | ------------------ |  | ------- | ----------- | - | ------- | ------------------------------- | --- | ------------- | ------------------- | - | ---------- | - |  | - | ----- | - |  | - | ------ | -
|                                                     |        | Common Shares |      |        |  |   |          | Additional Paid-in |  |         | Accumulated |   |         | Accumulated Other Comprehensive |     |               | Total Shareholders |  
|                                                     | Number |               |      | Amount |  |   | Warrants |                    |  | Capital |             |   | Deficit |                                 |     | Income (Loss) |                     |   | Deficiency |  
|Balance at April 30, 2009                            |        |               | 14.3 |        |  | $ | 277.8    |                    |  | $       | 56.6        |   |         | $                               | 4.4 |               |                     | $ | (728.0     | ) |  | $ | (40.9 | ) |  | $ | (430.1 | )
|                                                     |        |               |      |        |  |   |          |                    |  |         |             |   |         |                                 |     |               |                     |   |            |   |  |   |       |   |  |   |        |  
|Adoption of the ASC Derivatives and Hedging Topic    |        |               |     |        |  |   |         |                    |  |         | (1.0        | ) |         |                                 |    |               |                     |   | 1.0        |   |  |   |      |   |  |   |       |  
|                                                     |        |               |      |        |  |   |          |                    |  |         |             |   |         |                                 |     |               |                     |   |            |   |  |   |       |   |  |   |        |  
|Balance at May 1, 2009                               |        |               | 14.3 |        |  |   | 277.8    |                    |  |         | 55.6        |   |         |                                 | 4.4 |               |                     |   | (727.0     | ) |  |   | (40.9 | ) |  |   | (430.1 | )
|                                                     |        |               |      |        |  |   |          |                    |  |         |             |   |         |                                 |     |               |                     |   |            |   |  |   |       |   |  |   |        |  
|Net income                                           |        |               |     |        |  |   |         |                    |  |         |            |   |         |                                 |    |               |                     |   | 2.0        |   |  |   |      |   |  |   | 2.0    |  
|Unrealized derivative gain on cash flow hedges       |        |               |     |        |  |   |         |                    |  |         |            |   |         |                                 |    |               |                     |   | 1.8        |   |  |   |      |   |  |   | 1.8    |  
|Foreign currency translation adjustments             |        |               |     |        |  |   |         |                    |  |         |            |   |         |                                 |    |               |                     |   |           |   |  |   | 5.0   |   |  |   | 5.0    |  
|                                                     |        |               |      |        |  |   |          |                    |  |         |             |   |         |                                 |     |               |                     |   |            |   |  |   |       |   |  |   |        |  
|Comprehensive income                                 |        |               |     |        |  |   |         |                    |  |         |            |   |         |                                 |    |               |                     |   | 3.8        |   |  |   | 5.0   |   |  |   | 8.8    |  
|Stock-based compensation                             |        |               |     |        |  |   |         |                    |  |         |            |   |         |                                 | 0.6 |               |                     |   |           |   |  |   |      |   |  |   | 0.6    |  
|Accretion of interest on redeemable preferred shares |        |               |     |        |  |   |         |                    |  |         |            |   |         |                                 |    |               |                     |   | (11.4      | ) |  |   |      |   |  |   | (11.4  | )
|                                                     |        |               |      |        |  |   |          |                    |  |         |             |   |         |                                 |     |               |                     |   |            |   |  |   |       |   |  |   |        |  
|Balance at July 31, 2009                             |        |               | 14.3 |        |  | $ | 277.8    |                    |  | $       | 55.6        |   |         | $                               | 5.0 |               |                     | $ | (734.6     | ) |  | $ | (35.9 | ) |  | $ | (432.1 | )
|                                                     |        |               |      |        |  |   |          |                    |  |         |             |   |         |                                 |     |               |                     |   |            |   |  |   |       |   |  |   |        |  
|Net loss                                             |        |               |     |        |  |   |         |                    |  |         |            |   |         |                                 |    |               |                     |   | (20.0      | ) |  |   |      |   |  |   | (20.0  | )
|Unrealized derivative gain on cash flow hedges       |        |               |     |        |  |   |         |                    |  |         |            |   |         |                                 |    |               |                     |   | 2.6        |   |  |   |      |   |  |   | 2.6    |  
|Foreign currency translation adjustments             |        |               |     |        |  |   |         |                    |  |         |            |   |         |                                 |    |               |                     |   |           |   |  |   | (1.3  | ) |  |   | (1.3   | )
|                                                     |        |               |      |        |  |   |          |                    |  |         |             |   |         |                                 |     |               |                     |   |            |   |  |   |       |   |  |   |        |  
|Comprehensive loss                                   |        |               |     |        |  |   |         |                    |  |         |            |   |         |                                 |    |               |                     |   | (17.4      | ) |  |   | (1.3  | ) |  |   | (18.7  | )
|Stock-based compensation                             |        |               |     |        |  |   |         |                    |  |         |            |   |         |                                 | 1.2 |               |                     |   |           |   |  |   |      |   |  |   | 1.2    |  
|Accretion of interest on redeemable preferred shares |        |               |     |        |  |   |         |                    |  |         |            |   |         |                                 |    |               |                     |   | (11.9      | ) |  |   |      |   |  |   | (11.9  | )
|                                                     |        |               |      |        |  |   |          |                    |  |         |             |   |         |                                 |     |               |                     |   |            |   |  |   |       |   |  |   |        |  
|Balance at October 31, 2009                          |        |               | 14.3 |        |  | $ | 277.8    |                    |  | $       | 55.6        |   |         | $                               | 6.2 |               |                     | $ | (763.9     | ) |  | $ | (37.2 | ) |  | $ | (461.5 | )
|                                                     |        |               |      |        |  |   |          |                    |  |         |             |   |         |                                 |     |               |                     |   |            |   |  |   |       |   |  |   |        |  

(The accompanying notes are an integral part of these unaudited consolidated financial statements)



6



---

MITEL NETWORKS CORPORATION

(incorporated under the laws of Canada)

CONSOLIDATED STATEMENTS OF CASH FLOWS

(in U.S. dollars, millions)

(Unaudited)



|                                                                                     |  |                    |       |   |                  |   |       |                 |  |   |                 |   |  |   |       |  
|------------------------------------------------------------------------------------ |  | ------------------ | ----- | - | ---------------- | - | ----- | --------------- |  | - | --------------- | - |  | - | ----- | -
|                                                                                     |  | Three Months Ended |       |   | Six Months Ended |  
|                                                                                     |  | October 31,2010    |       |   | October 31,2009  |   |       | October 31,2010 |  |   | October 31,2009 |  
|CASH PROVIDED BY (USED IN)                                                           |  |                    |       |   |                  |   |       |                 |  |   |                 |   |  |   |       |  
|Operating activities:                                                                |  |                    |       |   |                  |   |       |                 |  |   |                 |   |  |   |       |  
|Net income (loss)                                                                    |  | $                  | 80.9  |   |                  | $ | (20.0 | )               |  | $ | 87.7            |   |  | $ | (18.0 | )
|Adjustments to reconcile net income to net cash from (used in) operating activities: |  |                    |       |   |                  |   |       |                 |  |   |                 |   |  |   |       |  
|Amortization and depreciation                                                        |  |                    | 8.4   |   |                  |   | 8.3   |                 |  |   | 17.0            |   |  |   | 16.9  |  
|Fair value adjustment on derivative instruments                                      |  |                    | (0.2  | ) |                  |   | 23.9  |                 |  |   | (1.0            | ) |  |   | 23.3  |  
|Stock-based compensation                                                             |  |                    | 1.3   |   |                  |   | 1.2   |                 |  |   | 2.1             |   |  |   | 1.8   |  
|Loss on disposal of assets                                                           |  |                    |      |   |                  |   | 0.6   |                 |  |   |                |   |  |   | 1.0   |  
|Investment impairment                                                                |  |                    |      |   |                  |   | 0.9   |                 |  |   |                |   |  |   | 0.9   |  
|Accretion of interest on litigation settlement obligation                            |  |                    | 0.1   |   |                  |   | 0.3   |                 |  |   | 0.3             |   |  |   | 0.6   |  
|Unrealized foreign exchange loss                                                     |  |                    | 0.3   |   |                  |   | 0.4   |                 |  |   |                |   |  |   | 1.5   |  
|Deferred income taxes                                                                |  |                    | (80.9 | ) |                  |   | (3.0  | )               |  |   | (82.0           | ) |  |   | (4.4  | )
|Non-cash movements in provisions                                                     |  |                    | 0.3   |   |                  |   | 1.3   |                 |  |   | (2.9            | ) |  |   | 0.1   |  
|Non-cash change in operating assets and liabilities (note 17)                        |  |                    | (2.8  | ) |                  |   | (17.4 | )               |  |   | (4.5            | ) |  |   | (18.7 | )
|                                                                                     |  |                    |       |   |                  |   |       |                 |  |   |                 |   |  |   |       |  
|Net cash from (used in) operating activities                                         |  |                    | 7.4   |   |                  |   | (3.5  | )               |  |   | 16.7            |   |  |   | 5.0   |  
|                                                                                     |  |                    |       |   |                  |   |       |                 |  |   |                 |   |  |   |       |  
|Investing activities:                                                                |  |                    |       |   |                  |   |       |                 |  |   |                 |   |  |   |       |  
|Additions to property, equipment and intangible assets                               |  |                    | (0.6  | ) |                  |   | (2.3  | )               |  |   | (1.6            | ) |  |   | (3.4  | )
|Change in restricted cash                                                            |  |                    | (0.3  | ) |                  |   | 1.1   |                 |  |   | 0.9             |   |  |   | 1.2   |  
|Realized foreign exchange loss on hedging activities                                 |  |                    |      |   |                  |   | (0.1  | )               |  |   |                |   |  |   | (0.1  | )
|                                                                                     |  |                    |       |   |                  |   |       |                 |  |   |                 |   |  |   |       |  
|Net cash used in investing activities                                                |  |                    | (0.9  | ) |                  |   | (1.3  | )               |  |   | (0.7            | ) |  |   | (2.3  | )
|                                                                                     |  |                    |       |   |                  |   |       |                 |  |   |                 |   |  |   |       |  
|Financing activities:                                                                |  |                    |       |   |                  |   |       |                 |  |   |                 |   |  |   |       |  
|Repayment of capital lease liabilities                                               |  |                    | (0.3  | ) |                  |   | (0.8  | )               |  |   | (0.9            | ) |  |   | (1.3  | )
|Repayment of long-term debt                                                          |  |                    | (0.5  | ) |                  |   | (0.5  | )               |  |   | (1.0            | ) |  |   | (1.0  | )
|Payment of litigation settlement obligation                                          |  |                    | (1.0  | ) |                  |   | (0.9  | )               |  |   | (1.9            | ) |  |   | (1.7  | )
|Issuance of shares from option exercises                                             |  |                    | 0.2   |   |                  |   |      |                 |  |   | 0.2             |   |  |   |      |  
|                                                                                     |  |                    |       |   |                  |   |       |                 |  |   |                 |   |  |   |       |  
|Net cash used in financing activities                                                |  |                    | (1.6  | ) |                  |   | (2.2  | )               |  |   | (3.6            | ) |  |   | (4.0  | )
|                                                                                     |  |                    |       |   |                  |   |       |                 |  |   |                 |   |  |   |       |  
|Effect of exchange rate changes on cash and cash equivalents                         |  |                    | 0.4   |   |                  |   | (0.2  | )               |  |   | 1.0             |   |  |   | 1.8   |  
|                                                                                     |  |                    |       |   |                  |   |       |                 |  |   |                 |   |  |   |       |  
|Net increase (decrease) in cash and cash equivalents                                 |  |                    | 5.3   |   |                  |   | (7.2  | )               |  |   | 13.4            |   |  |   | 0.5   |  
|Cash and cash equivalents, beginning of period                                       |  |                    | 84.7  |   |                  |   | 36.1  |                 |  |   | 76.6            |   |  |   | 28.4  |  
|                                                                                     |  |                    |       |   |                  |   |       |                 |  |   |                 |   |  |   |       |  
|Cash and cash equivalents, end of period                                             |  | $                  | 90.0  |   |                  | $ | 28.9  |                 |  | $ | 90.0            |   |  | $ | 28.9  |  
|                                                                                     |  |                    |       |   |                  |   |       |                 |  |   |                 |   |  |   |       |  

(Note 17 contains supplementary cash flow information)

(The accompanying notes are an integral part of these unaudited consolidated financial statements)



7



---

MITEL NETWORKS CORPORATION

(incorporated under the laws of Canada)

NOTES TO THE UNAUDITED INTERIM CONSOLIDATED FINANCIAL STATEMENTS

For the
three and six months ended October 31, 2010 and October 31, 2009

(in U.S. dollars, millions except per share
amounts)

1. BASIS OF PRESENTATION

These unaudited interim consolidated financial statements have been prepared by Mitel Networks Corporation (Mitel or the Company) in United States (U.S.) dollars,
unless otherwise stated, and in accordance with accounting principles generally accepted in the U.S. (GAAP) for interim financial statements. Accordingly, these unaudited interim consolidated financial statements do not include all
information and footnotes normally included in financial statements prepared in accordance with GAAP and the rules and regulations of the U.S. Securities and Exchange Commission for complete financial statements. In the opinion of management of
the Company, these unaudited interim consolidated financial statements reflect all adjustments necessary to present fairly the financial position at October 31, 2010 and the results of operations and cash flows of the Company for each of the
three-month and six-month periods ended October 31, 2010 and October 31, 2009 in accordance with GAAP applied on a consistent basis. The consolidated financial statements include the accounts of Mitel and its wholly-owned
subsidiaries. Inter-company transactions and balances have been eliminated.

These unaudited interim consolidated financial
statements and the accompanying notes should be read in conjunction with the audited annual consolidated financial statements and notes thereto for each of the three years ended April 30, 2010, 2009 and 2008 contained in the Companys
Annual Report on Form 10-K filed with the Securities and Exchange Commission on July 27, 2010 (the audited annual consolidated financial statements). The results of operations for the periods presented are not necessarily indicative
of the results to be expected for the full year or future periods.

2. SIGNIFICANT ACCOUNTING POLICIES

The Companys significant accounting policies are described in note 2 to the audited annual consolidated financial statements. There
have been no significant changes to these policies. With the exception of the accounting pronouncements below, there have been no recent accounting pronouncements that are expected to have a significant effect on the consolidated financial
statements.

In October 2009, the Financial Accounting Standards Board (FASB) issued Accounting Standards Update
(ASU) 2009-14 to address concerns raised by constituents relating to the accounting for revenue arrangements that contain tangible products and software. The amendments in this ASU change the accounting model for revenue
arrangements that include both tangible products and software elements. Tangible products containing software components and non-software components that function together to deliver the tangible products essential functionality will no
longer be within the scope of guidance in the SoftwareRevenue Recognition Subtopic of the FASB Accounting Standards Codification (FASB ASC). The amendments in this ASU will be effective prospectively for revenue arrangements
entered into or materially modified in fiscal years beginning on or after June 15, 2010. The Company is required to adopt this ASU in the first quarter of fiscal 2012. The Company is currently evaluating the effect that the adoption
of this ASU will have on its consolidated financial statements.

In October 2009, the FASB issued ASU 2009-13 to address the
accounting for multiple-deliverable arrangements to enable vendors to account for products or services (deliverables) separately rather than as a combined unit. This ASU provides amendments to the criteria in the Revenue
RecognitionMultiple-Element Arrangements Subtopic of the FASB ASC. As a result of those amendments, multiple-deliverable arrangements will be separated in more circumstances than under existing GAAP. The amendments in this ASU will
be effective prospectively for revenue arrangements entered into or materially modified in fiscal years beginning on or after June 15, 2010. The Company is required to adopt this ASU in the first quarter of fiscal 2012. The Company is
currently evaluating the effect that the adoption of this ASU will have on its consolidated financial statements.

In July
2010, the FASB issued ASU 2010-20 to enhance disclosure about the credit quality of financing receivables and the related allowance for credit losses. The Company is required to adopt this ASU in the third quarter of fiscal 2011. As a result of this
ASU, the Company expects to provide additional disclosures surrounding its sales-type lease receivables and its related allowances in the third quarter of fiscal 2011.



8



---

MITEL NETWORKS CORPORATION

(incorporated under the laws of Canada)

NOTES TO THE UNAUDITED INTERIM CONSOLIDATED FINANCIAL STATEMENTS(Continued)

For the three and six months ended October 31, 2010 and October 31, 2009

(in U.S. dollars, millions except per share amounts)



3. NET INVESTMENT IN SALES-TYPE LEASES

Net investment in sales-type leases represents the value of sales-type leases presently held under the TotalSolution® program. The Company currently sells the rental payments due to the Company from some of the sales-type leases. The
Company maintains reserves against its estimate of potential recourse for the balance of sales-type leases (recorded net, against the receivable) and for the balance of sold rental payments remaining unbilled (recorded separately as a lease recourse
liability). The following table provides detail on the sales-type leases:



|                                                                                             |  |                  |       |  |                |   |       |      |  |   |       |  |  |           |       |  |     |   |       |      |  |   |       | 
|-------------------------------------------------------------------------------------------- |  | ---------------- | ----- |  | -------------- | - | ----- | ---- |  | - | ----- |  |  | --------- | ----- |  | --- | - | ----- | ---- |  | - | ----- | 
|                                                                                             |  | October 31, 2010 |       |  | April 30, 2010 |  
|                                                                                             |  | Gross            |       |  | Allowance      |   |       | Net  |  |   | Gross |  |  | Allowance |       |  | Net |  
|Lease balances included in consolidated accounts receivable                                  |  | $                | 14.1  |  |                | $ | (4.2  | )    |  | $ | 9.9   |  |  | $         | 13.4  |  |     | $ | (4.1  | )    |  | $ | 9.3   | 
|Current portion of investment in sales-type leases                                           |  |                  | 34.2  |  |                |   | (1.4  | )    |  |   | 32.8  |  |  |           | 35.3  |  |     |   | (1.5  | )    |  |   | 33.8  | 
|Non-current portion of investment in sales-type leases                                       |  |                  | 26.0  |  |                |   | (1.2  | )    |  |   | 24.8  |  |  |           | 30.5  |  |     |   | (1.3  | )    |  |   | 29.2  | 
|                                                                                             |  |                  |       |  |                |   |       |      |  |   |       |  |  |           |       |  |     |   |       |      |  |   |       | 
|Total unsold sales-type leases (recorded as assets, net, on the consolidated balance sheets) |  |                  | 74.3  |  |                |   | (6.8  | )    |  |   | 67.5  |  |  |           | 79.2  |  |     |   | (6.9  | )    |  |   | 72.3  | 
|Sold rental payments remaining unbilled                                                      |  |                  | 172.3 |  |                |   | (7.2  | )(1) |  |   | 165.1 |  |  |           | 184.9 |  |     |   | (7.9  | )(1) |  |   | 177.0 | 
|                                                                                             |  |                  |       |  |                |   |       |      |  |   |       |  |  |           |       |  |     |   |       |      |  |   |       | 
|Total of sales-type leases unsold and sold                                                   |  | $                | 246.6 |  |                | $ | (14.0 | )    |  | $ | 232.6 |  |  | $         | 264.1 |  |     | $ | (14.8 | )    |  | $ | 249.3 | 
|                                                                                             |  |                  |       |  |                |   |       |      |  |   |       |  |  |           |       |  |     |   |       |      |  |   |       | 



|(1) | Allowance for sold rental payments is recorded as a lease recourse liability on the consolidated balance sheets
|--- | ---------------------------------------------------------------------------------------------------------------

A sale of rental payments represents the total present value of the payment stream on the sale of the rental payments to third parties.
For the three-month period ended October 31, 2010, the Company sold $12.9 of rental payments and recorded gains on sale of those rental payments of $2.1 (three-month period ended October 31, 2009sold $7.0 and recorded gains of $0.9).
For the six-month period ended October 31, 2010, the Company sold $29.4 of rental payments and recorded gains on sale of those rental payments of $4.5 (six-month period ended October 31, 2009sold $24.5 and recorded gains of $2.8).
Sold rental payments remaining unbilled at the end of the period represents the total balance of leases that are not included in our consolidated balance sheets. The Company is compensated for administration and servicing of rental payments sold.

4. INVENTORIES



|                                       |  |                  |      |   |                |   |      |  
|-------------------------------------- |  | ---------------- | ---- | - | -------------- | - | ---- | -
|                                       |  | October 31, 2010 |      |   | April 30, 2010 |  
|Raw materials and work in process      |  | $                | 7.3  |   |                | $ | 5.1  |  
|Finished goods                         |  |                  | 32.6 |   |                |   | 30.0 |  
|Less: provision for obsolete inventory |  |                  | (7.9 | ) |                |   | (8.4 | )
|                                       |  |                  |      |   |                |   |      |  
|                                       |  | $                | 32.0 |   |                | $ | 26.7 |  
|                                       |  |                  |      |   |                |   |      |  

5. OTHER CURRENT ASSETS



|                                      |  |                  |      |  |                |   |      | 
|------------------------------------- |  | ---------------- | ---- |  | -------------- | - | ---- | 
|                                      |  | October 31, 2010 |      |  | April 30, 2010 |  
|Prepaid expenses and deferred charges |  | $                | 17.3 |  |                | $ | 16.5 | 
|Unbilled receivables                  |  |                  | 10.1 |  |                |   | 14.3 | 
|Other receivables                     |  |                  | 7.4  |  |                |   | 6.7  | 
|Service inventory                     |  |                  | 7.0  |  |                |   | 6.7  | 
|Restricted cash                       |  |                  | 1.4  |  |                |   | 2.3  | 
|                                      |  |                  |      |  |                |   |      | 
|                                      |  | $                | 43.2 |  |                | $ | 46.5 | 
|                                      |  |                  |      |  |                |   |      | 

6. IDENTIFIABLE INTANGIBLE ASSETS



|                              |  |                  |       |  |                         |   |       |     |  |   |       |  |  |                         |       |  |     |   |       |   |  |   |       | 
|----------------------------- |  | ---------------- | ----- |  | ----------------------- | - | ----- | --- |  | - | ----- |  |  | ----------------------- | ----- |  | --- | - | ----- | - |  | - | ----- | 
|                              |  | October 31, 2010 |       |  | April 30, 2010          |  
|                              |  | Cost             |       |  | Accumulatedamortization |   |       | Net |  |   | Cost  |  |  | Accumulatedamortization |       |  | Net |  
|Patents, trademarks and other |  | $                | 13.5  |  |                         | $ | (8.5  | )   |  | $ | 5.0   |  |  | $                       | 12.8  |  |     | $ | (7.7  | ) |  | $ | 5.1   | 
|Customer relationships        |  |                  | 99.9  |  |                         |   | (40.3 | )   |  |   | 59.6  |  |  |                         | 99.9  |  |     |   | (34.0 | ) |  |   | 65.9  | 
|Developed technology          |  |                  | 78.8  |  |                         |   | (31.6 | )   |  |   | 47.2  |  |  |                         | 78.8  |  |     |   | (26.7 | ) |  |   | 52.1  | 
|Trade name                    |  |                  |      |  |                         |   |      |     |  |   |      |  |  |                         | 2.3   |  |     |   | (2.3  | ) |  |   |      | 
|                              |  |                  |       |  |                         |   |       |     |  |   |       |  |  |                         |       |  |     |   |       |   |  |   |       | 
|Intangible assets, net        |  | $                | 192.2 |  |                         | $ | (80.4 | )   |  | $ | 111.8 |  |  | $                       | 193.8 |  |     | $ | (70.7 | ) |  | $ | 123.1 | 
|                              |  |                  |       |  |                         |   |       |     |  |   |       |  |  |                         |       |  |     |   |       |   |  |   |       | 



9



---

MITEL NETWORKS CORPORATION

(incorporated under the laws of Canada)

NOTES TO THE UNAUDITED INTERIM CONSOLIDATED FINANCIAL STATEMENTS(Continued)

For the three and six months ended October 31, 2010 and October 31, 2009

(in U.S. dollars, millions except per share amounts)



7. ACCOUNTS PAYABLE AND ACCRUED LIABILITIES



|                                             |  |                  |       |  |                |   |       | 
|-------------------------------------------- |  | ---------------- | ----- |  | -------------- | - | ----- | 
|                                             |  | October 31, 2010 |       |  | April 30, 2010 |  
|Trade payables                               |  | $                | 31.3  |  |                | $ | 27.5  | 
|Employee-related payables                    |  |                  | 13.9  |  |                |   | 16.4  | 
|Restructuring, warranty and other provisions |  |                  | 6.4   |  |                |   | 6.2   | 
|Other accrued liabilities                    |  |                  | 65.0  |  |                |   | 57.6  | 
|                                             |  |                  |       |  |                |   |       | 
|                                             |  | $                | 116.6 |  |                | $ | 107.7 | 
|                                             |  |                  |       |  |                |   |       | 

8. RELATED PARTY TRANSACTIONS

The Matthews Group

Dr. Terence Matthews (Dr.
Matthews) and certain entities controlled by Dr. Matthews (collectively, the Matthews Group) are significant shareholders of the Company. In addition, the Matthews Group holds certain warrants and options of the Company.
Significant transactions with companies controlled by or related to Dr. Matthews include the following:

BreconRidge
manufacturing agreement

Throughout fiscal 2010, the Matthews Group had a significant interest in BreconRidge Manufacturing
Solutions (BreconRidge), a significant supplier to Mitel. In May 2010, the Matthews Group and other BreconRidge shareholders sold their interest in BreconRidge to SanminaSCI. As a result, for fiscal 2011, BreconRidge is no longer a
related party to Mitel. The Company does not currently anticipate significant changes to its manufacturing supply agreement as a result of this transaction.

In the three- and six-month periods ended October 31, 2009, the Company purchased $8.0 and $18.7 of products and services and sold $0.2 and $0.4 of raw material inventory, respectively, under a
manufacturing supply agreement with BreconRidge. As of April 30, 2010, balances payable pursuant to this agreement amounted to $6.6 and balances receivable pursuant to this agreement amounted to $0.7.

Leased properties

The Company leases its Ottawa-based headquarter facilities from a company controlled by Dr. Matthews. During the three- and six-month periods ended October 31, 2010, Mitel recorded lease expense
of $1.7 and $3.3, respectively (three- and six-month periods ended October 31, 2009$1.7 and $3.3, respectively). At October 31, 2010, balances payable relating to the lease agreement totaled nil (April 30, 2010$0.7). The lease
expires in February 2011.

Other

During the three- and six-month periods ended October 31, 2010, other transactions with companies related to Dr. Matthews arising in the normal course consisted of sales of $0.4 and $0.8 and
purchases of $0.4 and $1.1, respectively (three and six-month periods ended October 31, 2009sales of $0.3 and $0.5 and purchases of $0.5 and $0.9, respectively). At October 31, 2010, the net balance receivable as a result of these
transactions was $1.1 (April 30, 2010$1.5) and is included in accounts receivable in the consolidated balance sheet.

In
the three-month period ended October 31, 2009, the Company recorded an impairment charge of $1.1 related to its investment in Natural Convergence Inc. (NCI). Dr. Matthews had a significant ownership interest in NCI. The
impairment charge was included in special charges and restructuring costs in the consolidated statement of operations.

The Francisco Group

Francisco Partners Management, LLC and certain of its affiliates (collectively, the Francisco Group) are significant shareholders of the Company. In addition, the Francisco Group holds certain
warrants and options of the Company. Significant transactions with companies controlled by or related to the Francisco Group include the following:

Second Lien Debt

During the third quarter of fiscal 2010, an affiliate of
the Francisco Group purchased $21.2 in principal of the outstanding second lien term debt. Interest of $0.4 and $0.8 was expensed during the first quarter and first six months of fiscal 2011, respectively, relating to the second lien debt held by an
affiliate of the Francisco Group. The Matthews Group has a 40% participating interest in the second lien debt held by such affiliate of the Francisco Group, but is neither a party to nor a lender under our second lien term loan and has no
contractual rights or enforcement rights against Mitel in connection with its participating interest in such second lien debt.



10



---

MITEL NETWORKS CORPORATION

(incorporated under the laws of Canada)

NOTES TO THE UNAUDITED INTERIM CONSOLIDATED FINANCIAL STATEMENTS(Continued)

For the three and six months ended October 31, 2010 and October 31, 2009

(in U.S. dollars, millions except per share amounts)



9. PENSION PLANS

The Company and its subsidiaries maintain defined contribution pension plans that cover substantially all employees. In addition, the Companys U.K. subsidiary maintains a defined benefit pension
plan. At October 31, 2010, the pension liability was $71.4 (April 30, 2010$68.1). The Companys net periodic benefit cost was as follows:



|                                 |  |                    |      |   |                  |   |      |                 |  |   |                 |   |  |   |      |  
|-------------------------------- |  | ------------------ | ---- | - | ---------------- | - | ---- | --------------- |  | - | --------------- | - |  | - | ---- | -
|                                 |  | Three months ended |      |   | Six months ended |  
|                                 |  | October 31,2010    |      |   | October 31,2009  |   |      | October 31,2010 |  |   | October 31,2009 |  
|Defined Contribution             |  |                    |      |   |                  |   |      |                 |  |   |                 |   |  |   |      |  
|Current service cost             |  | $                  | 0.5  |   |                  | $ | 0.3  |                 |  | $ | 1.1             |   |  | $ | 0.6  |  
|Defined Benefit                  |  |                    |      |   |                  |   |      |                 |  |   |                 |   |  |   |      |  
|Current service cost             |  |                    | 0.4  |   |                  |   | 0.2  |                 |  |   | 0.7             |   |  |   | 0.4  |  
|Interest cost                    |  |                    | 2.4  |   |                  |   | 1.9  |                 |  |   | 4.8             |   |  |   | 3.8  |  
|Expected return on plan assets   |  |                    | (2.0 | ) |                  |   | (1.6 | )               |  |   | (3.9            | ) |  |   | (3.1 | )
|Amortization of actuarial loss   |  |                    | 0.7  |   |                  |   | 0.1  |                 |  |   | 1.3             |   |  |   | 0.2  |  
|                                 |  |                    |      |   |                  |   |      |                 |  |   |                 |   |  |   |      |  
|Total periodic benefit cost, net |  | $                  | 2.0  |   |                  | $ | 0.9  |                 |  | $ | 4.0             |   |  | $ | 1.9  |  
|                                 |  |                    |      |   |                  |   |      |                 |  |   |                 |   |  |   |      |  

The Companys annual funding requirement for its U.K. defined benefit plan is determined every three
years in accordance with U.K. regulations, and is based on a calendar year. In October 2010, the Companys annual funding requirement for the calendar year 2011 was determined to be £2.5, and will increase at an annual rate of 3% for
calendar years 2012 and 2013.

10. COMMITMENTS, GUARANTEES AND CONTINGENCIES

Product warranties

The Company provides its customers with standard warranties on hardware and software for periods of up to 15 months. At October 31, 2010, the warranty accrual was $1.3 (April 30, 2010$1.6).

Intellectual property indemnification obligations

The Company enters on a regular basis into agreements with customers and suppliers that include limited intellectual property
indemnification obligations that are customary in the industry. These guarantees generally require the Company to compensate the other party for certain damages and costs incurred as a result of third party intellectual property claims arising from
these transactions. The nature of these intellectual property indemnification obligations prevents the Company from making a reasonable estimate of the maximum potential amount it could be required to pay to its customers and suppliers.
Historically, the Company has not made any significant indemnification payments under such agreements and no amount has been accrued in the consolidated financial statements with respect to these guarantees.

Bid and performance related bonds

The Company enters into bid and performance related bonds related to various customer contracts. Performance related bonds usually have a term of twelve months and bid bonds generally have a much shorter
term. For the periods reported, the liability recognized related to these bid and performance related bonds was insignificant. At October 31, 2010, the total maximum potential amount of future payments the Company could be required to make
under bid and performance related bonds was $3.6 (April 30, 2010$4.8).

Contingencies

On February 27, 2008, the Company issued a statement of claim against one of its customers for non-payment of invoices arising from
the provision of hardware, software and services. The customer responded with a counterclaim for a return of amounts paid plus other unquantified costs. In September 2010, the parties reached a settlement, including a consent to dismiss all
outstanding claims and counterclaims in the matter.

The Company is also party to a small number of other legal proceedings,
claims or potential claims arising in the normal course of business. In the opinion of the Companys management and legal counsel, any monetary liability or financial impact of such claims or potential claims to which the Company might be
subject after final adjudication would not be material to the consolidated financial position of the Company, its results of operations or its cash flows. In circumstances where the outcome of the lawsuit is expected to be unfavorable, the Company
has recorded a provision for the expected settlement amount. Where the expected settlement amount is a range, the Company has provided for at least the minimum amount of the range.



11



---

MITEL NETWORKS CORPORATION

(incorporated under the laws of Canada)

NOTES TO THE UNAUDITED INTERIM CONSOLIDATED FINANCIAL STATEMENTS(Continued)

For the three and six months ended October 31, 2010 and October 31, 2009

(in U.S. dollars, millions except per share amounts)



11. SHARE CAPITAL

Share Capital

At October 31, 2010 and April 30, 2010, the
Companys authorized capital stock consisted of an unlimited number of common shares and an unlimited number of preferred shares. The holders of common shares are entitled to one vote per share and are entitled to dividends when and if declared
by the Board of Directors. No preferred shares were outstanding at October 31, 2010 or April 30, 2010.

Stock
Options

Following is a summary of the Companys stock option activity (in millions, except per option amounts):



|                              |  |                  |      |     |                                          |   |      |                  |  |  |                                          |     |  |   |       |    
|----------------------------- |  | ---------------- | ---- | --- | ---------------------------------------- | - | ---- | ---------------- |  |  | ---------------------------------------- | --- |  | - | ----- | ---
|                              |  | Six months ended |     
|                              |  | October 31, 2010 |      |     | October 31, 2009                         |  
|                              |  | Number ofOptions |      |     | Weighted AverageExercise Price perOption |   |      | Number ofOptions |  |  | Weighted AverageExercise Price perOption |    
|Outstanding options:          |  |                  |      |     |                                          |   |      |                  |  |  |                                          |     |  |   |       |    
|Balance, beginning of period: |  |                  | 2.6  |     |                                          | $ | 4.02 |                  |  |  | 2.1                                      |     |  | $ | 14.55 |    
|Granted                       |  |                  | 1.7  |     |                                          | $ | 8.39 |                  |  |  | 0.7                                      |     |  | $ | 3.75  |    
|Exercised                     |  |                  |     | (1) |                                          | $ | 3.75 |                  |  |  |                                         | (1) |  | $ | 3.75  |    
|Forfeited                     |  |                  | (0.1 | )   |                                          | $ | 5.76 |                  |  |  |                                         | (1) |  | $ | 10.19 |    
|Expired                       |  |                  |     | (1) |                                          | $ | 6.58 |                  |  |  | (0.1                                     | )   |  | $ | 15.06 |    
|                              |  |                  |      |     |                                          |   |      |                  |  |  |                                          |     |  |   |       |    
|Balance, end of period:       |  |                  | 4.2  |     |                                          | $ | 5.85 |                  |  |  | 2.7                                      |     |  | $ | 4.06  | (2)
|                              |  |                  |      |     |                                          |   |      |                  |  |  |                                          |     |  |   |       |    
|Number of options exercisable |  |                  | 1.5  |     |                                          | $ | 4.38 |                  |  |  | 0.9                                      |     |  | $ | 4.41  | (2)
|                              |  |                  |      |     |                                          |   |      |                  |  |  |                                          |     |  |   |       |    



|(1) | Number of options is less than 0.1 for the period.
|--- | --------------------------------------------------

|(2) | Weighted average exercise price at October 31, 2009 reflects a July 2009 stock option modification that lowered the exercise price of substantially all outstanding
stock options.
|--- | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

The Company used the Black-Scholes-Merton option-pricing model to determine the fair value of
the stock option grants during the period. The assumptions and fair value for the three months ended are as follows:



|                                |  |                  |           |   |               |   |           |                  |  |   |               |   |  |   |           |  
|------------------------------- |  | ---------------- | --------- | - | ------------- | - | --------- | ---------------- |  | - | ------------- | - |  | - | --------- | -
|                                |  | October 31, 2010 |           |   | July 31, 2010 |   |           | October 31, 2009 |  |   | July 31, 2009 |  
|Number of options granted       |  |                  | 0.3       |   |               |   | 1.4       |                  |  |   | 0.2           |   |  |   | 0.5       |  
|Risk-free interest rate         |  |                  | 1.43      | % |               |   | 1.76      | %                |  |   | 2.38          | % |  |   | 2.30      | %
|Dividends                       |  |                  | 0         | % |               |   | 0         | %                |  |   | 0             | % |  |   | 0         | %
|Expected volatility             |  |                  | 55.0      | % |               |   | 55.0      | %                |  |   | 85.0          | % |  |   | 85.0      | %
|Annual forfeiture rate          |  |                  | 10        | % |               |   | 10        | %                |  |   | 10            | % |  |   | 10        | %
|Expected life of the options(1) |  |                  | 4.6 years |   |               |   | 4.6 years |                  |  |   | 5.0 years     |   |  |   | 5.0 years |  
|Fair value per option(2)        |  | $                | 2.78      |   |               | $ | 4.45      |                  |  | $ | 1.32          |   |  | $ | 1.32      |  



|(1) | In accordance with the Stock Compensation topic of the FASB ASC, the Company determined the expected life of the options for fiscal 2011 using a simplified method due
to the Companys short history as a publicly-traded company. As a result, the expected life was calculated using an average of the original contract term (seven years) and the vesting term, taking into account graded vesting. The expected term
for options granted in the first six months fiscal 2010 was based on the contract term of the options as the Company was privately held.
|--- | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|(2) | The fair value per option is also dependent on the exercise price and stock price on the day of grant. Options granted in the six-month period ended October 31,
2009 had an exercise price below the fair value of the stock price on day of grant. All other options granted had an exercise price that approximated the stock price on the day of grant.
|--- | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

The number of options (and all other security-based compensation) available for grant under the Companys 2006 Equity Incentive Plan
at October 31, 2010 was 1.4 (April 30, 20102.9).

Deferred Share Unit (DSU) Plans

At October 31, 2010, there were 0.04 million (April 30, 20100.04 million) DSUs outstanding with a fair
value of $0.3 (April 30, 2010$0.4) recorded as a liability in accounts payable and accrued liabilities on the consolidated balance sheets.



12



---

MITEL NETWORKS CORPORATION

(incorporated under the laws of Canada)

NOTES TO THE UNAUDITED INTERIM CONSOLIDATED FINANCIAL STATEMENTS(Continued)

For the three and six months ended October 31, 2010 and October 31, 2009

(in U.S. dollars, millions except per share amounts)



12. WARRANTS

The following table outlines the carrying value of warrants outstanding as of October 31, 2010 and April 30, 2010:



|                                                                        |  |                  |      |  |                |   |      | 
|----------------------------------------------------------------------- |  | ---------------- | ---- |  | -------------- | - | ---- | 
|                                                                        |  | October 31, 2010 |      |  | April 30, 2010 |  
|Warrants issued in connection with government funding (a)               |  | $                | 39.1 |  |                | $ | 39.1 | 
|Warrants issued in connection with Senior Secured Convertible Notes (b) |  |                  | 10.5 |  |                |   | 10.5 | 
|Warrants issued in connection with Class 1 Preferred Shares (c)         |  |                  | 6.0  |  |                |   | 6.0  | 
|Warrants issued in connection with Series A Preferred Shares (d)        |  |                  |     |  |                |   |     | 
|                                                                        |  |                  |      |  |                |   |      | 
|                                                                        |  | $                | 55.6 |  |                | $ | 55.6 | 
|                                                                        |  |                  |      |  |                |   |      | 



|(a) | At October 31, 2010, there were 2.48 million warrants outstanding that were issued in connection with government funding (April 30, 20102.48 million).
The warrants have an exercise price of nil, are exercisable at any time at the option of the holder and have no expiry date.
|--- | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|(b) | At October 31, 2010, there were 1.35 million warrants outstanding that were issued in connection with the issuance of the Senior Secured Convertible Notes
(April 30, 20101.35 million). The warrants have an exercise price of $15.69 per share, are exercisable at any time at the option of the holder and expire in August 2012.
|--- | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|(c) | At October 31, 2010, there were 1.81 million warrants outstanding that were issued in connection with the issuance of Class 1 Preferred Shares (April 30,
20101.81 million). The warrants have an exercise price of $16.48 per share, are exercisable at any time at the option of the holder and expire in August 2012.
|--- | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|(d) | At October 31, 2010, there were 0.44 million warrants outstanding that were issued in connection with Series A Preferred Shares (April 30, 20100.44
million). The warrants have an exercise price of C$14.18 per share, are exercisable at any time at the option of the holder and expire in April 2011. As a result of the exercise price being in a currency other than U.S. dollars, the warrants are
recorded as a liability at fair value in the consolidated balance sheets. The fair value at October 31, 2010 was less than $0.1 (April 30, 2010$1.0) and was included in other long-term liabilities.
|--- | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

13. EARNINGS (LOSS) PER SHARE (EPS)

During the first six months of fiscal 2010, the Company had Class 1 Preferred Shares outstanding. Because the holders of the Class 1 Preferred Shares were entitled to dividends on a basis equivalent to
holders of common shares, the Company used the two-class method to determine income attributable to common shareholders and then divided it by the weighted-average common shares outstanding for the period to determine basic EPS. The Class 1
Preferred Shares were converted into common shares in April 2010 and therefore the use of the two-class method was no longer necessary for fiscal 2011.

The following table sets forth the computation of basic and diluted EPS (in millions, except per share amounts):



|                                                                      |  |                    |      |  |                  |   |       |                 |  |   |                 |  |  |   |       |  
|--------------------------------------------------------------------- |  | ------------------ | ---- |  | ---------------- | - | ----- | --------------- |  | - | --------------- |  |  | - | ----- | -
|                                                                      |  | Three months ended |      |  | Six months ended |  
|                                                                      |  | October 31,2010    |      |  | October 31,2009  |   |       | October 31,2010 |  |   | October 31,2009 | 
|Net income (loss), as reported                                        |  | $                  | 80.9 |  |                  | $ | (20.0 | )               |  | $ | 87.7            |  |  | $ | (18.0 | )
|Accreted interest on redeemable shares                                |  |                    |     |  |                  |   | (11.9 | )               |  |   |                |  |  |   | (23.3 | )
|                                                                      |  |                    |      |  |                  |   |       |                 |  |   |                 |  |  |   |       |  
|Net income (loss) attributable to common shareholders                 |  | $                  | 80.9 |  |                  | $ | (31.9 | )               |  | $ | 87.7            |  |  | $ | (41.3 | )
|                                                                      |  |                    |      |  |                  |   |       |                 |  |   |                 |  |  |   |       |  
|Weighted average common shares outstanding during the period, basic   |  |                    | 52.8 |  |                  |   | 14.3  |                 |  |   | 52.8            |  |  |   | 14.3  |  
|                                                                      |  |                    |      |  |                  |   |       |                 |  |   |                 |  |  |   |       |  
|Income (loss) per common share, basic                                 |  | $                  | 1.53 |  |                  | $ | (2.23 | )               |  | $ | 1.66            |  |  | $ | (2.88 | )
|                                                                      |  |                    |      |  |                  |   |       |                 |  |   |                 |  |  |   |       |  
|Weighted average common shares outstanding during the period, basic   |  |                    | 52.8 |  |                  |   | 14.3  |                 |  |   | 52.8            |  |  |   | 14.3  |  
|Dilutive effect of options                                            |  |                    | 0.7  |  |                  |   |      |                 |  |   | 0.9             |  |  |   |      |  
|Dilutive effect of warrants                                           |  |                    | 2.5  |  |                  |   |      |                 |  |   | 2.5             |  |  |   |      |  
|                                                                      |  |                    |      |  |                  |   |       |                 |  |   |                 |  |  |   |       |  
|Weighted average common shares outstanding during the period, diluted |  |                    | 56.0 |  |                  |   | 14.3  |                 |  |   | 56.2            |  |  |   | 14.3  |  
|                                                                      |  |                    |      |  |                  |   |       |                 |  |   |                 |  |  |   |       |  
|Income (loss) per common share, diluted                               |  | $                  | 1.45 |  |                  | $ | (2.23 | )               |  | $ | 1.56            |  |  | $ | (2.88 | )
|                                                                      |  |                    |      |  |                  |   |       |                 |  |   |                 |  |  |   |       |  



13



---

MITEL NETWORKS CORPORATION

(incorporated under the laws of Canada)

NOTES TO THE UNAUDITED INTERIM CONSOLIDATED FINANCIAL STATEMENTS(Continued)

For the three and six months ended October 31, 2010 and October 31, 2009

(in U.S. dollars, millions except per share amounts)



The following securities have been excluded in the computation of diluted earnings per
share because to do so would have been anti-dilutive based on the terms of the securities:



|                                  |  |                    |     |  |                  |  |     |                 |  |  |                 |  |  |  |     | 
|--------------------------------- |  | ------------------ | --- |  | ---------------- |  | --- | --------------- |  |  | --------------- |  |  |  | --- | 
|                                  |  | Three Months Ended |     |  | Six Months Ended | 
|(Number outstanding, in millions) |  | October 31,2010    |     |  | October 31,2009  |  |     | October 31,2010 |  |  | October 31,2009 | 
|Stock options                     |  |                    | 1.7 |  |                  |  | 2.7 |                 |  |  | 1.6             |  |  |  | 2.7 | 
|Warrants                          |  |                    | 3.2 |  |                  |  | 1.5 |                 |  |  | 3.2             |  |  |  | 1.5 | 

The following
securities have been excluded in the computation of diluted earnings per share because to do so would have been anti-dilutive based on having a net loss attributable to common shareholders for the three and six months ended October 31, 2009:



|                                  |  |                                    |     |  |                                  |  |     | 
|--------------------------------- |  | ---------------------------------- | --- |  | -------------------------------- |  | --- | 
|(Number outstanding, in millions) |  | Three Months 
EndedOctober 31,2009 |     |  | Six Months EndedOctober 
31,2009 | 
|Warrants                          |  |                                    | 2.5 |  |                                  |  | 2.5 | 
|Convertible, redeemable shares    |  |                                    | 0.3 |  |                                  |  | 0.3 | 

Additionally, for the
three and six months ended October 31, 2009, warrants to acquire 1.1 million common shares were excluded from the above tables since they were contingently issuable and the conditions for issuance had not been met by the end of the period.
For the three and six months ended October 31, 2010, the warrants were excluded in the diluted EPS calculation because the exercise price exceeded the average market price of the common shares and as such, they are included in the tables above.

14. SPECIAL CHARGES AND RESTRUCTURING COSTS

The following tables summarize the change in provision for special charges and restructuring costs during the first six months of fiscal 2011 and the first six months of fiscal 2010:



|                                            |  |                    |      |   |                            |   |      |       |  |   |      |  
|------------------------------------------- |  | ------------------ | ---- | - | -------------------------- | - | ---- | ----- |  | - | ---- | -
|Description                                 |  | WorkforceReduction |      |   | LeaseTerminationObligation |   |      | Total | 
|Balance of provision as of April 30, 2010   |  | $                  | 0.3  |   |                            | $ | 6.5  |       |  | $ | 6.8  |  
|Charges (reversals)                         |  |                    | 0.1  |   |                            |   | (0.2 | )     |  |   | (0.1 | )
|Cash payments                               |  |                    | (0.4 | ) |                            |   | (0.6 | )     |  |   | (1.0 | )
|                                            |  |                    |      |   |                            |   |      |       |  |   |      |  
|Balance of provision as of July 31, 2010    |  | $                  |     |   |                            | $ | 5.7  |       |  | $ | 5.7  |  
|                                            |  |                    |      |   |                            |   |      |       |  |   |      |  
|Charges                                     |  |                    | 3.7  |   |                            |   | 0.7  |       |  |   | 4.4  |  
|Cash payments                               |  |                    | (1.7 | ) |                            |   | (0.5 | )     |  |   | (2.2 | )
|                                            |  |                    |      |   |                            |   |      |       |  |   |      |  
|Balance of provision as of October 31, 2010 |  | $                  | 2.0  |   |                            | $ | 5.9  |       |  | $ | 7.9  |  
|                                            |  |                    |      |   |                            |   |      |       |  |   |      |  

In the second quarter of fiscal 2011, the Company undertook additional actions to reduce its cost structure
and improve operational efficiency. The charge consists primarily of $3.7 of employee severance related to workforce reductions for approximately 50 employees, which are expected to be paid within the next two years. The current portion of the
workforce reduction liability of $2.0 and lease termination obligation liability of $2.9 are included in accounts payable and accrued liabilities, with the remaining balance included in other non-current liabilities.



|                                            |  |                    |      |   |                            |   |      |                   |  |   |       |   |  |   |      |  
|------------------------------------------- |  | ------------------ | ---- | - | -------------------------- | - | ---- | ----------------- |  | - | ----- | - |  | - | ---- | -
|Description                                 |  | WorkforceReduction |      |   | LeaseTerminationObligation |   |      | Assets WrittenOff |  |   | Total |  
|Balance of provision as of April 30, 2009   |  | $                  | 2.7  |   |                            | $ | 8.1  |                   |  | $ |      |   |  | $ | 10.8 |  
|Charges                                     |  |                    | 0.2  |   |                            |   | 0.2  |                   |  |   |      |   |  |   | 0.4  |  
|Cash payments                               |  |                    | (1.3 | ) |                            |   | (0.1 | )                 |  |   |      |   |  |   | (1.4 | )
|Foreign currency impact                     |  |                    | 0.4  |   |                            |   | 0.1  |                   |  |   |      |   |  |   | 0.5  |  
|                                            |  |                    |      |   |                            |   |      |                   |  |   |       |   |  |   |      |  
|Balance of provision as of July 31, 2009    |  | $                  | 2.0  |   |                            | $ | 8.3  |                   |  | $ |      |   |  | $ | 10.3 |  
|                                            |  |                    |      |   |                            |   |      |                   |  |   |       |   |  |   |      |  
|Charges                                     |  |                    | 0.9  |   |                            |   | 0.3  |                   |  |   | 1.1   |   |  |   | 2.3  |  
|Cash payments                               |  |                    | (1.5 | ) |                            |   | (2.0 | )                 |  |   |      |   |  |   | (3.5 | )
|Assets written off                          |  |                    |     |   |                            |   |     |                   |  |   | (1.1  | ) |  |   | (1.1 | )
|Foreign currency impact                     |  |                    | (0.1 | ) |                            |   | (0.1 | )                 |  |   |      |   |  |   | (0.2 | )
|                                            |  |                    |      |   |                            |   |      |                   |  |   |       |   |  |   |      |  
|Balance of provision as of October 31, 2009 |  | $                  | 1.3  |   |                            | $ | 6.5  |                   |  | $ |      |   |  | $ | 7.8  |  
|                                            |  |                    |      |   |                            |   |      |                   |  |   |       |   |  |   |      |  



14



---

MITEL NETWORKS CORPORATION

(incorporated under the laws of Canada)

NOTES TO THE UNAUDITED INTERIM CONSOLIDATED FINANCIAL STATEMENTS(Continued)

For the three and six months ended October 31, 2010 and October 31, 2009

(in U.S. dollars, millions except per share amounts)



In the second quarter of fiscal 2010, the Company recorded $0.9 of restructuring charges
in order to better strategically align its U.S. and European operations. In addition, the Company recorded an asset impairment related to NCI, as described in note 8.

In the first six months of fiscal 2011 and fiscal 2010, the Company made payments on previously accrued restructuring charges, as described in note 7 to the audited annual consolidated financial
statements.

15. FAIR VALUE ADJUSTMENT ON DERIVATIVE INSTRUMENTS

The change in fair value of the Companys derivative instruments that are required to be recorded as a liability is as follows:



|                                                                    |  |                    |     |  |                  |   |       |                 |  |   |                 |  |  |   |       |  
|------------------------------------------------------------------- |  | ------------------ | --- |  | ---------------- | - | ----- | --------------- |  | - | --------------- |  |  | - | ----- | -
|                                                                    |  | Three Months Ended |     |  | Six Months Ended |  
|                                                                    |  | October 31,2010    |     |  | October 31,2009  |   |       | October 31,2010 |  |   | October 31,2009 | 
|Gain on change in fair value of Class 1 Preferred Shares (a)        |  | $                  |    |  |                  | $ | (23.7 | )               |  | $ |                |  |  | $ | (23.1 | )
|Warrants with an exercise price denominated in Canadian dollars (b) |  |                    | 0.2 |  |                  |   | (0.2  | )               |  |   | 1.0             |  |  |   | (0.2  | )
|                                                                    |  |                    |     |  |                  |   |       |                 |  |   |                 |  |  |   |       |  
|                                                                    |  | $                  | 0.2 |  |                  | $ | (23.9 | )               |  | $ | 1.0             |  |  | $ | (23.3 | )
|                                                                    |  |                    |     |  |                  |   |       |                 |  |   |                 |  |  |   |       |  



|(a) | As further described in notes 21 and 22 to the audited annual consolidated financial statements, as a result of the features of the Class 1 Preferred Shares, the
conversion option was required to be recorded at fair value each reporting period, with changes in fair value recorded in the consolidated statements of operations. The change in fair value of the derivative for the three- and six- month periods
ended October 31, 2009 was an increase in the liability of $23.7 and $23.1, respectively resulting in a corresponding charge to the consolidated statements of operations. As described in note 1 to the audited annual consolidated financial
statements, in connection with the April 2010 initial public offering, the Class 1 Preferred Shares were converted into common shares.
|--- | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|(b) | At October 31, 2010 there were 0.44 million warrants outstanding with an exercise price of C$14.18 (October 31, 20090.44 million warrants
outstanding). These warrants expire in April 2011. Since the warrants are exercisable in a currency other than U.S. dollars, the fair value of the warrants is recorded as a liability, with changes in fair value recorded in the consolidated
statements of operations. For the three and six months ended October 31, 2010, the Company has recorded a gain of $0.2 and $1.0, respectively (three and six months ended October 31, 2009, loss of $0.2 and $0.2, respectively). | 
|--- | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------- | 

16. SEGMENT INFORMATION

Mitels portfolio of solutions provide advanced voice, video and data communications platforms, desktop phones and Internet
appliances, applications for customer relationship management and mobility, messaging and multimedia collaboration. The Companys reportable segments are represented by the four geographic areas: United States, Canada and Caribbean and Latin
America (Canada and CALA), Europe, Middle East and Africa (EMEA), and Asia Pacific. Financial information by geographic area for the three and six months ended October 31, 2010 and October 31, 2009 is summarized
below.



|                                    |  |              |       |  |      |   |      |               |  |   |             |  |  |                   |     |  |       |   |       |   |  |   |       |  
|----------------------------------- |  | ------------ | ----- |  | ---- | - | ---- | ------------- |  | - | ----------- |  |  | ----------------- | --- |  | ----- | - | ----- | - |  | - | ----- | -
|                                    |  | UnitedStates |       |  | EMEA |   |      | CanadaandCALA |  |   | AsiaPacific |  |  | CorporateandOther |     |  | Total |  
|Three months endedOctober 31, 2010 |  |              |       |  |      |   |      |               |  |   |             |  |  |                   |     |  |       |   |       |   |  |   |       |  
|Revenue                             |  |              |       |  |      |   |      |               |  |   |             |  |  |                   |     |  |       |   |       |   |  |   |       |  
|Telecommunications                  |  | $            | 88.9  |  |      | $ | 38.3 |               |  | $ | 9.9         |  |  | $                 | 4.4 |  |       | $ |      |   |  | $ | 141.5 |  
|Services and other                  |  |              | 19.6  |  |      |   |     |               |  |   |            |  |  |                   |    |  |       |   |      |   |  |   | 19.6  |  
|                                    |  |              |       |  |      |   |      |               |  |   |             |  |  |                   |     |  |       |   |       |   |  |   |       |  
|                                    |  |              | 108.5 |  |      |   | 38.3 |               |  |   | 9.9         |  |  |                   | 4.4 |  |       |   |      |   |  |   | 161.1 |  
|                                    |  |              |       |  |      |   |      |               |  |   |             |  |  |                   |     |  |       |   |       |   |  |   |       |  
|Contribution margin                 |  |              | 38.9  |  |      |   | 14.5 |               |  |   | 4.3         |  |  |                   | 1.5 |  |       |   |      |   |  |   | 59.2  |  
|Shared and unallocated costs        |  |              |      |  |      |   |     |               |  |   |            |  |  |                   |    |  |       |   | (55.4 | ) |  |   | (55.4 | )
|                                    |  |              |       |  |      |   |      |               |  |   |             |  |  |                   |     |  |       |   |       |   |  |   |       |  
|Operating income (loss)             |  | $            | 38.9  |  |      | $ | 14.5 |               |  | $ | 4.3         |  |  | $                 | 1.5 |  |       | $ | (55.4 | ) |  | $ | 3.8   |  
|                                    |  |              |       |  |      |   |      |               |  |   |             |  |  |                   |     |  |       |   |       |   |  |   |       |  
|Three months endedOctober 31, 2009 |  |              |       |  |      |   |      |               |  |   |             |  |  |                   |     |  |       |   |       |   |  |   |       |  
|Revenue                             |  |              |       |  |      |   |      |               |  |   |             |  |  |                   |     |  |       |   |       |   |  |   |       |  
|Telecommunications                  |  | $            | 89.2  |  |      | $ | 39.9 |               |  | $ | 11.4        |  |  | $                 | 3.1 |  |       | $ |      |   |  | $ | 143.6 |  
|Services and other                  |  |              | 18.8  |  |      |   |     |               |  |   |            |  |  |                   |    |  |       |   |      |   |  |   | 18.8  |  
|                                    |  |              |       |  |      |   |      |               |  |   |             |  |  |                   |     |  |       |   |       |   |  |   |       |  
|                                    |  |              | 108.0 |  |      |   | 39.9 |               |  |   | 11.4        |  |  |                   | 3.1 |  |       |   |      |   |  |   | 162.4 |  
|                                    |  |              |       |  |      |   |      |               |  |   |             |  |  |                   |     |  |       |   |       |   |  |   |       |  
|Contribution margin                 |  |              | 39.2  |  |      |   | 14.3 |               |  |   | 4.7         |  |  |                   | 0.4 |  |       |   |      |   |  |   | 58.6  |  
|Shared and unallocated costs        |  |              |      |  |      |   |     |               |  |   |            |  |  |                   |    |  |       |   | (48.9 | ) |  |   | (48.9 | )
|                                    |  |              |       |  |      |   |      |               |  |   |             |  |  |                   |     |  |       |   |       |   |  |   |       |  
|Operating income (loss)             |  | $            | 39.2  |  |      | $ | 14.3 |               |  | $ | 4.7         |  |  | $                 | 0.4 |  |       | $ | (48.9 | ) |  | $ | 9.7   |  
|                                    |  |              |       |  |      |   |      |               |  |   |             |  |  |                   |     |  |       |   |       |   |  |   |       |  



15



---

MITEL NETWORKS CORPORATION

(incorporated under the laws of Canada)

NOTES TO THE UNAUDITED INTERIM CONSOLIDATED FINANCIAL STATEMENTS(Continued)

For the three and six months ended October 31, 2010 and October 31, 2009

(in U.S. dollars, millions except per share amounts)





|                                  |  |              |       |  |      |   |      |               |  |   |             |  |  |                   |     |  |       |   |        |   |  |   |        |  
|--------------------------------- |  | ------------ | ----- |  | ---- | - | ---- | ------------- |  | - | ----------- |  |  | ----------------- | --- |  | ----- | - | ------ | - |  | - | ------ | -
|                                  |  | UnitedStates |       |  | EMEA |   |      | CanadaandCALA |  |   | AsiaPacific |  |  | CorporateandOther |     |  | Total |  
|Six months endedOctober 31, 2010 |  |              |       |  |      |   |      |               |  |   |             |  |  |                   |     |  |       |   |        |   |  |   |        |  
|Revenue                           |  |              |       |  |      |   |      |               |  |   |             |  |  |                   |     |  |       |   |        |   |  |   |        |  
|Telecommunications                |  | $            | 178.4 |  |      | $ | 73.3 |               |  | $ | 21.0        |  |  | $                 | 9.6 |  |       | $ |       |   |  | $ | 282.3  |  
|Network services                  |  |              | 38.8  |  |      |   |     |               |  |   |            |  |  |                   |    |  |       |   |       |   |  |   | 38.8   |  
|                                  |  |              |       |  |      |   |      |               |  |   |             |  |  |                   |     |  |       |   |        |   |  |   |        |  
|                                  |  |              | 217.2 |  |      |   | 73.3 |               |  |   | 21.0        |  |  |                   | 9.6 |  |       |   |       |   |  |   | 321.1  |  
|                                  |  |              |       |  |      |   |      |               |  |   |             |  |  |                   |     |  |       |   |        |   |  |   |        |  
|Contribution margin               |  |              | 81.3  |  |      |   | 27.4 |               |  |   | 9.2         |  |  |                   | 3.4 |  |       |   |       |   |  |   | 121.3  |  
|Shared and unallocated costs      |  |              |      |  |      |   |     |               |  |   |            |  |  |                   |    |  |       |   | (106.6 | ) |  |   | (106.6 | )
|                                  |  |              |       |  |      |   |      |               |  |   |             |  |  |                   |     |  |       |   |        |   |  |   |        |  
|Operating income (loss)           |  | $            | 81.3  |  |      | $ | 27.4 |               |  | $ | 9.2         |  |  | $                 | 3.4 |  |       | $ | (106.6 | ) |  | $ | 14.7   |  
|                                  |  |              |       |  |      |   |      |               |  |   |             |  |  |                   |     |  |       |   |        |   |  |   |        |  
|Six months ended October 31, 2009 |  |              |       |  |      |   |      |               |  |   |             |  |  |                   |     |  |       |   |        |   |  |   |        |  
|Revenue                           |  |              |       |  |      |   |      |               |  |   |             |  |  |                   |     |  |       |   |        |   |  |   |        |  
|Telecommunications                |  | $            | 179.5 |  |      | $ | 77.1 |               |  | $ | 20.4        |  |  | $                 | 7.0 |  |       | $ |       |   |  | $ | 284.0  |  
|Network services                  |  |              | 37.8  |  |      |   |     |               |  |   |            |  |  |                   |    |  |       |   |       |   |  |   | 37.8   |  
|                                  |  |              |       |  |      |   |      |               |  |   |             |  |  |                   |     |  |       |   |        |   |  |   |        |  
|                                  |  |              | 217.3 |  |      |   | 77.1 |               |  |   | 20.4        |  |  |                   | 7.0 |  |       |   |       |   |  |   | 321.8  |  
|                                  |  |              |       |  |      |   |      |               |  |   |             |  |  |                   |     |  |       |   |        |   |  |   |        |  
|Contribution margin               |  |              | 78.2  |  |      |   | 28.4 |               |  |   | 8.3         |  |  |                   | 1.3 |  |       |   |       |   |  |   | 116.2  |  
|Shared and unallocated costs      |  |              |      |  |      |   |     |               |  |   |            |  |  |                   |    |  |       |   | (96.8  | ) |  |   | (96.8  | )
|                                  |  |              |       |  |      |   |      |               |  |   |             |  |  |                   |     |  |       |   |        |   |  |   |        |  
|Operating income (loss)           |  | $            | 78.2  |  |      | $ | 28.4 |               |  | $ | 8.3         |  |  | $                 | 1.3 |  |       | $ | (96.8  | ) |  | $ | 19.4   |  
|                                  |  |              |       |  |      |   |      |               |  |   |             |  |  |                   |     |  |       |   |        |   |  |   |        |  

Geographic information

Revenues from external customers are attributed to the following countries based on location of the customers.



|                        |  |                    |       |  |                  |   |       |                 |  |   |                 |  |  |   |       | 
|----------------------- |  | ------------------ | ----- |  | ---------------- | - | ----- | --------------- |  | - | --------------- |  |  | - | ----- | 
|                        |  | Three months ended |       |  | Six months ended |  
|                        |  | October 31,2010    |       |  | October 31,2009  |   |       | October 31,2010 |  |   | October 31,2009 | 
|United States           |  | $                  | 108.3 |  |                  | $ | 108.7 |                 |  | $ | 217.2           |  |  | $ | 218.1 | 
|United Kingdom          |  |                    | 27.0  |  |                  |   | 27.2  |                 |  |   | 51.5            |  |  |   | 54.6  | 
|Canada                  |  |                    | 7.4   |  |                  |   | 7.8   |                 |  |   | 16.2            |  |  |   | 14.9  | 
|Other foreign countries |  |                    | 18.4  |  |                  |   | 18.7  |                 |  |   | 36.2            |  |  |   | 34.2  | 
|                        |  |                    |       |  |                  |   |       |                 |  |   |                 |  |  |   |       | 
|                        |  | $                  | 161.1 |  |                  | $ | 162.4 |                 |  | $ | 321.1           |  |  | $ | 321.8 | 
|                        |  |                    |       |  |                  |   |       |                 |  |   |                 |  |  |   |       | 



16



---

MITEL NETWORKS CORPORATION

(incorporated under the laws of Canada)

NOTES TO THE UNAUDITED INTERIM CONSOLIDATED FINANCIAL STATEMENTS(Continued)

For the three and six months ended October 31, 2010 and October 31, 2009

(in U.S. dollars, millions except per share amounts)



17. SUPPLEMENTARY CASH FLOW INFORMATION

Cash and cash equivalents at October 31, 2010 consisted of cash of $49.0 (April 30, 2010$46.6) and cash equivalents of $41.0
(April 30, 2010$30.0). Cash interest and cash taxes paid during three months ended October 31, 2010 were $4.6 and $2.4, respectively (three months ended October 31, 2009$8.3 and $0.5, respectively) and for the six months ended
October 31, 2010 were $9.0 and $3.7, respectively (six months ended October 31, 2009$16.7 and $0.7, respectively). Additions to property, equipment and intangible assets for the three and six months ended October 31, 2010 are
shown in the consolidated statements of cash flows net of property and equipment acquired through capital leases of $1.1 and $1.4, respectively (three and six months ended October 31, 2009nil and $0.1, respectively).



|                                                      |  |                    |      |   |                  |   |       |                 |  |   |                 |   |  |   |       |  
|----------------------------------------------------- |  | ------------------ | ---- | - | ---------------- | - | ----- | --------------- |  | - | --------------- | - |  | - | ----- | -
|                                                      |  | Three months ended |      |   | Six months ended |  
|                                                      |  | October 31,2010    |      |   | October 31,2009  |   |       | October 31,2010 |  |   | October 31,2009 |  
|Non-cash changes in operating assets and liabilities: |  |                    |      |   |                  |   |       |                 |  |   |                 |   |  |   |       |  
|Accounts receivable and sales-type lease receivables  |  | $                  | (6.8 | ) |                  | $ | (12.2 | )               |  | $ | 7.7             |   |  | $ | (11.3 | )
|Inventories                                           |  |                    | (3.5 | ) |                  |   | 1.8   |                 |  |   | (4.4            | ) |  |   | 2.8   |  
|Other current assets(1)                               |  |                    | 1.5  |   |                  |   | 5.3   |                 |  |   | 1.4             |   |  |   | 9.0   |  
|Other non-current assets                              |  |                    | 1.2  |   |                  |   |      |                 |  |   | 1.2             |   |  |   |      |  
|Accounts payable and accrued liabilities              |  |                    | 9.3  |   |                  |   | (6.1  | )               |  |   | (1.3            | ) |  |   | (9.9  | )
|Due to related parties                                |  |                    | (0.4 | ) |                  |   | 0.9   |                 |  |   | (0.3            | ) |  |   | 1.5   |  
|Deferred revenue                                      |  |                    | (0.8 | ) |                  |   | (2.5  | )               |  |   | (5.3            | ) |  |   | (3.8  | )
|Other non-current liabilities(2)                      |  |                    | (3.9 | ) |                  |   | (4.3  | )               |  |   | (4.0            | ) |  |   | (6.5  | )
|Change in pension liability                           |  |                    | 0.6  |   |                  |   | (0.3  | )               |  |   | 0.5             |   |  |   | (0.5  | )
|                                                      |  |                    |      |   |                  |   |       |                 |  |   |                 |   |  |   |       |  
|                                                      |  | $                  | (2.8 | ) |                  | $ | (17.4 | )               |  | $ | (4.5            | ) |  | $ | (18.7 | )
|                                                      |  |                    |      |   |                  |   |       |                 |  |   |                 |   |  |   |       |  



|(1) | Included in other current assets on the consolidated balance sheets is restricted cash, the change in which is presented separately on the consolidated statements of
cash flows.
|--- | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|(2) | Included in other non-current liabilities on the consolidated balance sheets are the derivative instrument liability and the litigation settlement obligation, the
changes in which are presented separately on the consolidated statements of cash flows.
|--- | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

18. HEDGING ACTIVITIES

The Company operates globally, and therefore incurs expenses in currencies other than its various functional currencies
and its U.S. dollar reporting currency. The Company utilizes forward contracts to enhance its ability to manage foreign currency exchange rate risk that exists as part of its ongoing operations. The Company does not use derivative contracts for
speculative purposes. At October 31, 2010 and April 30, 2010, all of the Companys outstanding forward contracts had a term of one month or less.

At October 31, 2010, the Company held forward option contracts to sell Canadian dollars and Australian dollars at a fixed rate on a notional amount of $6.7 U.S. dollars. As well, the Company held
forward option contracts to buy Euros and British pounds sterling at a fixed rate on a total notional amount of $8.5 U.S. dollars. At October 31, 2010, the Company recorded a net unrealized gain on fair value adjustments on the outstanding
forward contracts of $0.1.

At April 30, 2010, the Company held forward contracts to sell Euros and Australian dollars at
a fixed rate on a notional amount of $2.8 U.S. dollars. As well, the Company held forward option contracts to buy British pounds sterling and Canadian dollars at a fixed rate on a notional amount of $12.9 U.S. dollars. At April 30, 2010, the
Company had an unrealized loss on fair value adjustments on the outstanding forward contracts of $0.1.

19. FAIR VALUE MEASUREMENTS

The Fair Value Measurements and Disclosure Topic of the FASB ASC requires that financial assets and liabilities carried at
fair value be classified and disclosed in one of the following three categories:

Level 1: Quoted market prices in active
markets for identical assets or liabilities.

Level 2: Observable market based inputs or unobservable inputs that are
corroborated by market data.

Level 3: Unobservable inputs that are not corroborated by market data.



17



---

MITEL NETWORKS CORPORATION

(incorporated under the laws of Canada)

NOTES TO THE UNAUDITED INTERIM CONSOLIDATED FINANCIAL STATEMENTS(Continued)

For the three and six months ended October 31, 2010 and October 31, 2009

(in U.S. dollars, millions except per share amounts)



Assets/Liabilities Measured at Fair Value on a Recurring Basis



|                                |  |                                                       |     |  |                                  |   |      |                               |  |   |       |     |  |   |      |    
|------------------------------- |  | ----------------------------------------------------- | --- |  | -------------------------------- | - | ---- | ----------------------------- |  | - | ----- | --- |  | - | ---- | ---
|                                |  | Fair Value Measurement at Reporting Date              |    
|                                |  | Quoted Price inActive Marketsfor IdenticalInstruments |     |  | SignificantOtherObservableInputs |   |      | SignificantUnobservableInputs |  |   | Total |    
|                                |  | Level 1                                               |     |  | Level 2                          |   |      | Level 3                       |  |  
|October 31, 2010                |  |                                                       |     |  |                                  |   |      |                               |  |   |       |     |  |   |      |    
|Assets                          |  |                                                       |     |  |                                  |   |      |                               |  |   |       |     |  |   |      |    
|Cash equivalents                |  | $                                                     |    |  |                                  | $ | 41.0 |                               |  | $ |      |     |  | $ | 41.0 |    
|Restricted cash                 |  |                                                       | 1.4 |  |                                  |   |     |                               |  |   |      |     |  |   | 1.4  |    
|Forward contracts               |  |                                                       |    |  |                                  |   | 0.1  |                               |  |   |      |     |  |   | 0.1  |    
|Liabilities                     |  |                                                       |     |  |                                  |   |      |                               |  |   |       |     |  |   |      |    
|Derivative liability instrument |  |                                                       |    |  |                                  |   |     |                               |  |   |      | (1) |  |   |     | (1)
|Forward contracts               |  |                                                       |    |  |                                  |   |     | (1)                           |  |   |      |     |  |   |     | (1)
|                                |  |                                                       |     | 
|April 30, 2010                  |  |                                                       |     |  |                                  |   |      |                               |  |   |       |     |  |   |      |    
|Assets                          |  |                                                       |     |  |                                  |   |      |                               |  |   |       |     |  |   |      |    
|Cash equivalents                |  | $                                                     |    |  |                                  | $ | 30.0 |                               |  | $ |      |     |  | $ | 30.0 |    
|Restricted cash                 |  |                                                       | 2.3 |  |                                  |   |     |                               |  |   |      |     |  |   | 2.3  |    
|Liabilities                     |  |                                                       |     |  |                                  |   |      |                               |  |   |       |     |  |   |      |    
|Derivative liability instrument |  |                                                       |    |  |                                  |   |     |                               |  |   | 1.0   |     |  |   | 1.0  |    
|Forward contracts               |  |                                                       |    |  |                                  |   | 0.1  |                               |  |   |      |     |  |   | 0.1  |    



|(1) | Fair value of less than $0.1.
|--- | -----------------------------

The decrease in the derivative liability instrument (classified as a Level 3 financial liability) from April 30, 2010 to
October 31, 2010 was due to a decrease in the Companys share price and the fact that the warrants are six months closer to expiry.

20. DEFERRED TAXES

In
the second quarter of fiscal 2011, the Company updated its assessment of the realizability of its deferred tax assets. Based on a number of factors, including completion of a reorganization of certain subsidiaries, cumulative income for the last 36
months and forecasted income for fiscal 2011, the Company determined that the weight of the evidence indicated that it was now more likely than not that the Company will realize a benefit from a portion of its deferred tax assets in Canada. At
April 30, 2010, the Company completed an assessment of the realizability of its deferred tax assets and determined that a substantial valuation allowance was appropriate due to the uncertainty surrounding the Companys ability to earn
taxable income in certain jurisdictions. In the three months ended October 31, 2010, the Company relieved a valuation allowance of approximately $80.0, net of a provision for uncertain tax provisions, primarily relating to its deferred tax
assets in Canada. At October 31, 2010, there continues to be a valuation allowance of $75.9 against deferred tax assets, primarily in Canada and the United Kingdom.



18



---

|Item 2. | Managements Discussion and Analysis of Financial Condition and Results of Operations
|------- | -------------------------------------------------------------------------------------

The following discussion of the financial condition and results of operations of the Company should be read in conjunction with the
unaudited interim consolidated financial statements and accompanying notes included elsewhere in this Quarterly Report on Form 10-Q. All amounts are expressed in U.S. dollars unless otherwise noted.

Certain information contained in this Quarterly Report, including information regarding future financial results, performance and plans,
expectations, and objectives of management, constitute forward-looking information within the meaning of Canadian securities laws and forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995. We refer to
all of these as forward-looking statements. Statements that include the words may, will, should, could, estimate, continue, expect, intend,
plan, predict, potential, believe, project, anticipate and similar statements of a forward-looking nature, or the negatives of those statements, identify forward-looking
statements. In particular, this Quarterly Report contains forward-looking statements pertaining to, among other matters: general global economic conditions; our business strategy; our plans and objectives for future operations; our industry; our
future economic performance, profitability and financial condition; the costs of operating as a public company; and our R&D expenditures. Forward-looking statements are subject to a variety of known and unknown risks, uncertainties, assumptions
and other factors that could cause actual events or results to differ from those expressed or implied by the forward-looking statements, including, without limitation:



| |  |  | our ability to achieve profitability in the future;
| | - |  | ---------------------------------------------------



| |  |  | fluctuations in our quarterly and annual revenues and operating results;
| | - |  | ------------------------------------------------------------------------



| |  |  | fluctuations in foreign exchange rates;
| | - |  | ---------------------------------------



| |  |  | current and ongoing global economic instability;
| | - |  | ------------------------------------------------



| |  |  | intense competition;
| | - |  | --------------------



| |  |  | our ability to keep pace with technological developments and evolving industry standards;
| | - |  | -----------------------------------------------------------------------------------------



| |  |  | failure of the market for unified communications and collaboration (UCC) to become more widespread;
| | - |  | -----------------------------------------------------------------------------------------------------



| |  |  | risks related to the rate of adoption of IP telephony by our customers;
| | - |  | -----------------------------------------------------------------------



| |  |  | fluctuations in our working capital requirements and cash flows;
| | - |  | ----------------------------------------------------------------



| |  |  | our ability to access additional sources of funds;
| | - |  | --------------------------------------------------



| |  |  | risks related to our level of indebtedness;
| | - |  | -------------------------------------------



| |  |  | our ability to protect our intellectual property and our possible infringement of the intellectual property rights of third parties;
| | - |  | ------------------------------------------------------------------------------------------------------------------------------------



| |  |  | our reliance on channel partners for a significant component of our sales;
| | - |  | --------------------------------------------------------------------------



| |  |  | our dependence upon a small number of outside contract manufacturers to manufacture our products;
| | - |  | -------------------------------------------------------------------------------------------------



| |  |  | our dependence on sole source and limited source suppliers for key components;
| | - |  | ------------------------------------------------------------------------------



| |  |  | possible delays in the delivery of, or lack of access to, software or other intellectual property licensed from our suppliers;
| | - |  | ------------------------------------------------------------------------------------------------------------------------------



| |  |  | uncertainties arising from our foreign operations;
| | - |  | --------------------------------------------------



| |  |  | fluctuations in interest rates;
| | - |  | -------------------------------



| |  |  | our ability to realize our deferred tax assets;
| | - |  | -----------------------------------------------



| |  |  | challenges to our transfer pricing policies by tax authorities;
| | - |  | ---------------------------------------------------------------



| |  |  | our ability to sell leases derived from our managed services offering or a breach of our obligations in respect of such sales;
| | - |  | ------------------------------------------------------------------------------------------------------------------------------



| |  |  | risks related to the financial condition of our customers;
| | - |  | ----------------------------------------------------------



| |  |  | reliance on our key personnel;
| | - |  | ------------------------------



| |  |  | the search for and transition to a new Chief Executive Officer;
| | - |  | ---------------------------------------------------------------



| |  |  | design defects, errors, failures or bugs in our solutions;
| | - |  | ------------------------------------------------------------



| |  |  | our ability to successfully integrate future strategic acquisitions;
| | - |  | --------------------------------------------------------------------



| |  |  | problems with the infrastructure of carriers; and
| | - |  | -------------------------------------------------



| |  |  | our ability to successfully implement and achieve our business strategies.
| | - |  | --------------------------------------------------------------------------



19



---

These statements reflect our current views with respect to future events and are based on
assumptions and subject to risks and uncertainties. We operate in a very competitive and rapidly changing environment. New risks emerge from time to time. In making these statements we have made assumptions regarding, among other things: stable
foreign exchange rates; no unforeseen changes occurring in the competitive landscape that would affect our industry; a stable or recovering economic environment; no significant event occurring outside the ordinary course of our business; stable
interest rates; and certain other assumptions that are set out proximate to the applicable forward-looking statements contained in this Quarterly Report. While we believe our plans, intentions, expectations, assumptions and strategies reflected in
these forward-looking statements are reasonable, we cannot assure you that these plans, intentions, expectations assumptions and strategies will be achieved. Our actual results, performance or achievements could differ materially from those
contemplated, expressed or implied by the forward-looking statements contained in this Quarterly Report as a result of various factors, including the risks and uncertainties discussed below.

All forward-looking statements attributable to us or persons acting on our behalf are expressly qualified in their entirety by the
cautionary statements set forth in this Quarterly Report. Except as required by law, we are under no obligation to update any forward-looking statement, whether as a result of new information, future events or otherwise. Please refer to the section
entitled Risk Factors included in our Annual Report on Form 10-K for the fiscal year ended April 30, 2010 (the Annual Report) for a further discussion of risks and uncertainties affecting our business and financial
results.

Overview

We are a leading provider of integrated communications solutions focused on the small-to-medium sized enterprise, or SME, market. We also have a strong and growing presence in the large enterprise market
with a portfolio of products that support up to 65,000 users. Our IP-based communications solutions consist of a combination of IP telephony platforms, which we deliver as software, appliances and desktop devices, and a suite of UCC applications
that integrate voice, video and data communications with business applications. We believe that our solutions, including associated managed and network services, enable our customers to realize significant cost benefits and to conduct their business
more effectively.

In April 2010, we completed our initial public offering (IPO) on the The NASDAQ Global Market.
The net proceeds of $130.7 million were used to repay $30.0 million outstanding under our revolving credit facility and to prepay $72.0 million of our first lien term loan, with the remainder held for general corporate purposes. In conjunction with
our IPO, we converted all of our outstanding Class 1 Preferred Shares into common shares.

In fiscal 2011, our operating
results continue to be affected by the global economic downturn, which started in mid-calendar year 2008. Many of our current and prospective customers, particularly in the United States (U.S.), have responded to the financial and credit
crises and general macroeconomic uncertainty by suspending, delaying or reducing their capital expenditures. These conditions have negatively impacted our sales since the second half of fiscal 2009. The tightened credit markets have also affected
our sales of net rental payments under sales-type leases, resulting in lower cash flows generated from such sales, compared to historical levels. We responded to the negative effect of the downturn by implementing cost reduction programs to re-align
our operating model. These programs, which were implemented during the second half of fiscal 2009 and throughout fiscal 2010, included headcount reductions, reduced discretionary spending, closure of excess facilities across our geographic regions
and renegotiation of key supplier contracts. In fiscal 2009, we implemented a temporary reduced work week program, which remained in effect throughout fiscal 2010. In June 2010, we made the decision to phase out the reduced work week program
gradually during fiscal 2011.

We cannot predict when the overall economy will return to stable, pre-recession conditions. We
plan to monitor our cost structure so that it is appropriate for our revenue levels. Depending on the future macroeconomic climate and its impact on our revenues, we may implement additional cost reduction programs in an effort to keep operating
expenses in line with revenues. Conversely, if our revenues improve above current levels we may gradually increase our expenditures while ensuring that our operating expense to revenue ratio remains within our target level. In either scenario, we
plan to continue to invest in new product development and other significant R&D initiatives. However, there is no certainty that these investments will allow us to develop and introduce new IP-based communications solutions in a timely manner to
allow us to compete effectively against existing and new competitors and meet customer requirements.

During fiscal 2011, we
announced some changes to our senior management team. More specifically, in September 2010, Don Smith, our chief executive officer, announced his retirement. A search committee has been formed by our Board of Directors to identify a successor.
Mr. Smith will continue to serve as Mitels chief executive officer until his successor is found. The Company expects that this role will be filled within the next two to three months. Mr. Smith will continue to serve as a director of
Mitel after his retirement.

Further, in August 2010, we announced that Paul Butcher, our president and chief operating
officer, in addition to his current responsibilities, and on an interim basis, has taken direct responsibility for the management and direction of Mitels U.S. operations. He assumed this role following the departure of the former president of
our Mitel U.S. division. We do not expect that any of these changes to our senior management will have a material impact on our business, operations or financial condition.

Total revenue for the quarter ended October 31, 2010 was $161.1 million compared to $162.4 million for the quarter ended October 31, 2009. The sales decrease was the result of lower revenues in
Europe, Middle East and Africa (collectively EMEA) due largely to changes in foreign exchange rates as well as decreased volumes in the Canada and Caribbean and Latin America



20



---

(collectively Canada and CALA) segment. This was partially offset by increased revenue in the Asia Pacific segment. Revenue in the U.S., our target segment, increased slightly in the
second quarter of fiscal 2011 compared to the second quarter of fiscal 2010 as we had increased customers in our network services business. Our U.S. telecommunications revenues were relatively unchanged as the continued effect of the economic
downturn resulted in longer sales cycles and delays in equipment purchases.

Our operating income decreased to
$3.8 million in the second quarter of fiscal 2011 compared with operating income of $9.7 million in the second quarter of fiscal 2010. The decrease in operating income was largely due to increased SG&A expenses, an increase in special
charges due to restructuring activity in the quarter, as well as a decrease in gross margin.

Our net income in the second
quarter of fiscal 2011 included a deferred income tax recovery of $80.9 million relating primarily to a reduction of the valuation allowance we had previously recorded against certain deferred tax assets. Upon updating our assessment of the
realizability of our deferred tax assets, we concluded that it was now more-likely-than-not that we would be able to realize a benefit on certain deferred tax assets, primarily in Canada.

Selected consolidated financial data

The following table sets forth our comparative results of operations, both in dollars and as a percentage of total revenues, for the three months ended October 31, 2010 and October 31, 2009:



|                                                             |  |                                                         |       |   |             |  |       |         |  |   |             |   |  |        |       |    |   |   |       |   |  |  |       |  
|------------------------------------------------------------ |  | ------------------------------------------------------- | ----- | - | ----------- |  | ----- | ------- |  | - | ----------- | - |  | ------ | ----- | -- | - | - | ----- | - |  |  | ----- | -
|                                                             |  | Three months ended October 31,                          |       |   | Change      | 
|                                                             |  | 2010                                                    |       |   | 2009        |  |      
|                                                             |  | Amounts                                                 |       |   | % ofRevenue |  |       | Amounts |  |   | % ofRevenue |   |  | Amount |       |    | % |  
|                                                             |  | (in millions, except percentages and per share amounts) |      
|Revenues:                                                    |  |                                                         |       |   |             |  |       |         |  |   |             |   |  |        |       |    |   |   |       |   |  |  |       |  
|Telecommunications                                           |  | $                                                       | 141.5 |   |             |  |       |         |  | $ | 143.6       |   |  |        |       |    |   | $ | (2.1  | ) |  |  | (1.5  | )
|Network services                                             |  |                                                         | 19.6  |   |             |  |       |         |  |   | 18.8        |   |  |        |       |    |   |   | 0.8   |   |  |  | 4.3   |  
|                                                             |  |                                                         |       |   |             |  |       |         |  |   |             |   |  |        |       |    |   |   |       |   |  |  |       |  
|                                                             |  |                                                         | 161.1 |   |             |  | 100.0 | %       |  |   | 162.4       |   |  |        | 100.0 | %  |   |   | (1.3  | ) |  |  | (0.8  | )
|                                                             |  |                                                         |       |   |             |  |       |         |  |   |             |   |  |        |       |    |   |   |       |   |  |  |       |  
|Cost of revenues:                                            |  |                                                         |       |   |             |  |       |         |  |   |             |   |  |        |       |    |   |   |       |   |  |  |       |  
|Telecommunications                                           |  |                                                         | 73.9  |   |             |  |       |         |  |   | 72.8        |   |  |        |       |    |   |   | 1.1   |   |  |  | 1.5   |  
|Network services                                             |  |                                                         | 10.7  |   |             |  |       |         |  |   | 11.0        |   |  |        |       |    |   |   | (0.3  | ) |  |  | (2.7  | )
|                                                             |  |                                                         |       |   |             |  |       |         |  |   |             |   |  |        |       |    |   |   |       |   |  |  |       |  
|                                                             |  |                                                         | 84.6  |   |             |  | 52.5  | %       |  |   | 83.8        |   |  |        | 51.6  | %  |   |   | 0.8   |   |  |  | 1.0   |  
|                                                             |  |                                                         |       |   |             |  |       |         |  |   |             |   |  |        |       |    |   |   |       |   |  |  |       |  
|Gross margin                                                 |  |                                                         | 76.5  |   |             |  | 47.5  | %       |  |   | 78.6        |   |  |        | 48.4  | %  |   |   | (2.1  | ) |  |  | (2.7  | )
|                                                             |  |                                                         |       |   |             |  |       |         |  |   |             |   |  |        |       |    |   |   |       |   |  |  |       |  
|Expenses:                                                    |  |                                                         |       |   |             |  |       |         |  |   |             |   |  |        |       |    |   |   |       |   |  |  |       |  
|Selling, general and administrative                          |  |                                                         | 55.0  |   |             |  | 34.1  | %       |  |   | 53.4        |   |  |        | 32.9  | %  |   |   | 1.6   |   |  |  | 3.0   |  
|Research and development                                     |  |                                                         | 13.3  |   |             |  | 8.3   | %       |  |   | 13.2        |   |  |        | 8.1   | %  |   |   | 0.1   |   |  |  | 0.8   |  
|Special charges and restructuring costs                      |  |                                                         | 4.4   |   |             |  | 2.7   | %       |  |   | 2.3         |   |  |        | 1.4   | %  |   |   | 2.1   |   |  |  | +     |  
|                                                             |  |                                                         |       |   |             |  |       |         |  |   |             |   |  |        |       |    |   |   |       |   |  |  |       |  
|                                                             |  |                                                         | 72.7  |   |             |  | 45.1  | %       |  |   | 68.9        |   |  |        | 42.4  | %  |   |   | 3.8   |   |  |  | 5.5   |  
|                                                             |  |                                                         |       |   |             |  |       |         |  |   |             |   |  |        |       |    |   |   |       |   |  |  |       |  
|Operating income                                             |  |                                                         | 3.8   |   |             |  | 2.4   | %       |  |   | 9.7         |   |  |        | 6.0   | %  |   |   | (5.9  | ) |  |  | (60.8 | )
|Interest expense                                             |  |                                                         | (5.1  | ) |             |  | (3.2  | )%      |  |   | (8.9        | ) |  |        | (5.5  | )% |   |   | 3.8   |   |  |  | (42.7 | )
|Fair value adjustment on derivative instruments              |  |                                                         | 0.2   |   |             |  | 0.1   | %       |  |   | (23.9       | ) |  |        | (14.7 | )% |   |   | 24.1  |   |  |  | +     |  
|Other income (expense)                                       |  |                                                         | (0.4  | ) |             |  | (0.2  | )%      |  |   | 1.0         |   |  |        | 0.6   | %  |   |   | (1.4  | ) |  |  | +     |  
|                                                             |  |                                                         |       |   |             |  |       |         |  |   |             |   |  |        |       |    |   |   |       |   |  |  |       |  
|Loss before taxes                                            |  |                                                         | (1.5  | ) |             |  | (0.9  | )%      |  |   | (22.1       | ) |  |        | (13.6 | )% |   |   | 20.6  |   |  |  | +     |  
|Income tax recovery                                          |  |                                                         | 82.4  |   |             |  | 51.1  | %       |  |   | 2.1         |   |  |        | 1.3   | %  |   |   | 80.3  |   |  |  | +     |  
|                                                             |  |                                                         |       |   |             |  |       |         |  |   |             |   |  |        |       |    |   |   |       |   |  |  |       |  
|Net income (loss)                                            |  | $                                                       | 80.9  |   |             |  | 50.2  | %       |  | $ | (20.0       | ) |  |        | (12.3 | )% |   | $ | 100.9 |   |  |  | +     |  
|                                                             |  |                                                         |       |   |             |  |       |         |  |   |             |   |  |        |       |    |   |   |       |   |  |  |       |  
|Adjusted EBITDA, a non-GAAP measure                          |  | $                                                       | 18.2  |   |             |  | 11.3  | %       |  | $ | 22.0        |   |  |        | 13.5  | %  |   | $ | (3.8  | ) |  |  | (17.3 | )
|                                                             |  |                                                         |       |   |             |  |       |         |  |   |             |   |  |        |       |    |   |   |       |   |  |  |       |  
|Net income (loss) per share:                                 |  |                                                         |       |   |             |  |       |         |  |   |             |   |  |        |       |    |   |   |       |   |  |  |       |  
|Net income (loss) attributable to common shareholders(1)     |  | $                                                       | 80.9  |   |             |  |       |         |  | $ | (31.9       | ) |  |        |       |    |   |   |       |   |  |  |       |  
|Weighted average number of common shares outstandingbasic   |  |                                                         | 52.8  |   |             |  |       |         |  |   | 14.3        |   |  |        |       |    |   |   |       |   |  |  |       |  
|Weighted average number of common shares outstandingdiluted |  |                                                         | 56.0  |   |             |  |       |         |  |   | 14.3        |   |  |        |       |    |   |   |       |   |  |  |       |  
|Net income (loss) per common sharebasic                     |  | $                                                       | 1.53  |   |             |  |       |         |  | $ | (2.23       | ) |  |        |       |    |   |   |       |   |  |  |       |  
|Net income (loss) per common sharediluted                   |  | $                                                       | 1.45  |   |             |  |       |         |  | $ | (2.23       | ) |  |        |       |    |   |   |       |   |  |  |       |  



21



---



|+ | The comparison is not meaningful.
|- | ---------------------------------

|(1) | Included in the net loss attributable to common shareholders for the three months ended October 31, 2009 is an accreted interest charge of $11.9 on the
then-outstanding Class 1 Preferred Shares. The Class 1 Preferred Shares were converted in April 2010, therefore no charge was recorded for the three months ended October 31, 2010.
|--- | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

The following table sets forth our comparative results of operations, both in dollars and as a percentage of total revenues, for the six
months ended October 31, 2010 and October 31, 2009:



|                                                             |  |                                                         |       |   |             |  |       |         |  |   |             |   |  |        |       |    |   |   |       |   |  |  |       |  
|------------------------------------------------------------ |  | ------------------------------------------------------- | ----- | - | ----------- |  | ----- | ------- |  | - | ----------- | - |  | ------ | ----- | -- | - | - | ----- | - |  |  | ----- | -
|                                                             |  | Six months ended October 31,                            |       |   | Change      | 
|                                                             |  | 2010                                                    |       |   | 2009        |  |      
|                                                             |  | Amounts                                                 |       |   | % ofRevenue |  |       | Amounts |  |   | % ofRevenue |   |  | Amount |       |    | % |  
|                                                             |  | (in millions, except percentages and per share amounts) |      
|Revenues:                                                    |  |                                                         |       |   |             |  |       |         |  |   |             |   |  |        |       |    |   |   |       |   |  |  |       |  
|Telecommunications                                           |  | $                                                       | 282.3 |   |             |  |       |         |  | $ | 284.0       |   |  |        |       |    |   | $ | (1.7  | ) |  |  | (0.6  | )
|Network services                                             |  |                                                         | 38.8  |   |             |  |       |         |  |   | 37.8        |   |  |        |       |    |   |   | 1.0   |   |  |  | 2.6   |  
|                                                             |  |                                                         |       |   |             |  |       |         |  |   |             |   |  |        |       |    |   |   |       |   |  |  |       |  
|                                                             |  |                                                         | 321.1 |   |             |  | 100.0 | %       |  |   | 321.8       |   |  |        | 100.0 | %  |   |   | (0.7  | ) |  |  | (0.2  | )
|                                                             |  |                                                         |       |   |             |  |       |         |  |   |             |   |  |        |       |    |   |   |       |   |  |  |       |  
|Cost of revenues:                                            |  |                                                         |       |   |             |  |       |         |  |   |             |   |  |        |       |    |   |   |       |   |  |  |       |  
|Telecommunications                                           |  |                                                         | 146.3 |   |             |  |       |         |  |   | 144.4       |   |  |        |       |    |   |   | 1.9   |   |  |  | 1.3   |  
|Network services                                             |  |                                                         | 21.2  |   |             |  |       |         |  |   | 22.2        |   |  |        |       |    |   |   | (1.0  | ) |  |  | (4.5  | )
|                                                             |  |                                                         |       |   |             |  |       |         |  |   |             |   |  |        |       |    |   |   |       |   |  |  |       |  
|                                                             |  |                                                         | 167.5 |   |             |  | 52.2  | %       |  |   | 166.6       |   |  |        | 51.8  | %  |   |   | 0.9   |   |  |  | 0.5   |  
|                                                             |  |                                                         |       |   |             |  |       |         |  |   |             |   |  |        |       |    |   |   |       |   |  |  |       |  
|Gross margin                                                 |  |                                                         | 153.6 |   |             |  | 47.8  | %       |  |   | 155.2       |   |  |        | 48.2  | %  |   |   | (1.6  | ) |  |  | (1.0  | )
|                                                             |  |                                                         |       |   |             |  |       |         |  |   |             |   |  |        |       |    |   |   |       |   |  |  |       |  
|Expenses:                                                    |  |                                                         |       |   |             |  |       |         |  |   |             |   |  |        |       |    |   |   |       |   |  |  |       |  
|Selling, general and administrative                          |  |                                                         | 108.2 |   |             |  | 33.7  | %       |  |   | 106.8       |   |  |        | 33.2  | %  |   |   | 1.4   |   |  |  | 1.3   |  
|Research and development                                     |  |                                                         | 26.4  |   |             |  | 8.2   | %       |  |   | 26.3        |   |  |        | 8.2   | %  |   |   | 0.1   |   |  |  | 0.4   |  
|Special charges and restructuring costs                      |  |                                                         | 4.3   |   |             |  | 1.3   | %       |  |   | 2.7         |   |  |        | 0.8   | %  |   |   | 1.6   |   |  |  | +     |  
|                                                             |  |                                                         |       |   |             |  |       |         |  |   |             |   |  |        |       |    |   |   |       |   |  |  |       |  
|                                                             |  |                                                         | 138.9 |   |             |  | 43.3  | %       |  |   | 135.8       |   |  |        | 42.2  | %  |   |   | 3.1   |   |  |  | 2.3   |  
|                                                             |  |                                                         |       |   |             |  |       |         |  |   |             |   |  |        |       |    |   |   |       |   |  |  |       |  
|Operating income                                             |  |                                                         | 14.7  |   |             |  | 4.6   | %       |  |   | 19.4        |   |  |        | 6.0   | %  |   |   | (4.7  | ) |  |  | (24.2 | )
|Interest expense                                             |  |                                                         | (10.2 | ) |             |  | (3.2  | )%      |  |   | (17.7       | ) |  |        | (5.5  | )% |   |   | 7.5   |   |  |  | (42.4 | )
|Fair value adjustment on derivative instruments              |  |                                                         | 1.0   |   |             |  | 0.3   | %       |  |   | (23.3       | ) |  |        | (7.2  | )% |   |   | 24.3  |   |  |  | +     |  
|Other income (expense)                                       |  |                                                         | (0.3  | ) |             |  | (0.1  | )%      |  |   | (0.4        | ) |  |        | (0.1  | )% |   |   | 0.1   |   |  |  | +     |  
|                                                             |  |                                                         |       |   |             |  |       |         |  |   |             |   |  |        |       |    |   |   |       |   |  |  |       |  
|Income (loss) before taxes                                   |  |                                                         | 5.2   |   |             |  | 1.6   | %       |  |   | (22.0       | ) |  |        | (6.8  | )% |   |   | 27.2  |   |  |  | +     |  
|Income tax recovery                                          |  |                                                         | 82.5  |   |             |  | 25.7  | %       |  |   | 4.0         |   |  |        | 1.2   | %  |   |   | 78.5  |   |  |  | +     |  
|                                                             |  |                                                         |       |   |             |  |       |         |  |   |             |   |  |        |       |    |   |   |       |   |  |  |       |  
|Net income (loss)                                            |  | $                                                       | 87.7  |   |             |  | 27.3  | %       |  | $ | (18.0       | ) |  |        | (5.6  | )% |   | $ | 105.7 |   |  |  | +     |  
|                                                             |  |                                                         |       |   |             |  |       |         |  |   |             |   |  |        |       |    |   |   |       |   |  |  |       |  
|Adjusted EBITDA, a non-GAAP measure                          |  | $                                                       | 38.6  |   |             |  | 12.0  | %       |  | $ | 41.5        |   |  |        | 12.9  | %  |   | $ | (2.9  | ) |  |  | (7.0  | )
|                                                             |  |                                                         |       |   |             |  |       |         |  |   |             |   |  |        |       |    |   |   |       |   |  |  |       |  
|Net income (loss) per share:                                 |  |                                                         |       |   |             |  |       |         |  |   |             |   |  |        |       |    |   |   |       |   |  |  |       |  
|Net income (loss) attributable to common shareholders(1)     |  | $                                                       | 87.7  |   |             |  |       |         |  | $ | (41.3       | ) |  |        |       |    |   |   |       |   |  |  |       |  
|Weighted average number of common shares outstandingbasic   |  |                                                         | 52.8  |   |             |  |       |         |  |   | 14.3        |   |  |        |       |    |   |   |       |   |  |  |       |  
|Weighted average number of common shares outstandingdiluted |  |                                                         | 56.2  |   |             |  |       |         |  |   | 14.3        |   |  |        |       |    |   |   |       |   |  |  |       |  
|Net income (loss) per common sharebasic                     |  | $                                                       | 1.66  |   |             |  |       |         |  | $ | (2.88       | ) |  |        |       |    |   |   |       |   |  |  |       |  
|Net income (loss) per common sharediluted                   |  | $                                                       | 1.56  |   |             |  |       |         |  | $ | (2.88       | ) |  |        |       |    |   |   |       |   |  |  |       |  



|+ | The comparison is not meaningful.
|- | ---------------------------------

|(1) | Included in the net loss attributable to common shareholders for the six months ended October 31, 2009 is an accreted interest charge of $23.3 on the
then-outstanding Class 1 Preferred Shares. The Class 1 Preferred Shares were converted in April 2010, therefore no charge was recorded in the six months ended October 31, 2010.
|--- | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



22



---

Adjusted Earnings Before Interest, Taxes, Depreciation and Amortization (Adjusted
EBITDA)

The following table presents a reconciliation of Adjusted EBITDA to net income, the most directly comparable
U.S. GAAP measure, for the three and six months ended October 31, 2010 and October 31, 2009:



|                                                |  |                               |       |   |                             |   |       |      |  |   |       |   |  |   |       |  
|----------------------------------------------- |  | ----------------------------- | ----- | - | --------------------------- | - | ----- | ---- |  | - | ----- | - |  | - | ----- | -
|                                                |  | Three months ended October 31 |       |   | Six months ended October 31 |  
|                                                |  | 2010                          |       |   | 2009                        |   |       | 2010 |  |   | 2009  |  
|                                                |  | (in millions)                 |       |   | (in millions)               |  
|Net income (loss)                               |  | $                             | 80.9  |   |                             | $ | (20.0 | )    |  | $ | 87.7  |   |  | $ | (18.0 | )
|Adjustments:                                    |  |                               |       |   |                             |   |       |      |  |   |       |   |  |   |       |  
|Interest expense                                |  |                               | 5.1   |   |                             |   | 8.9   |      |  |   | 10.2  |   |  |   | 17.7  |  
|Income tax recovery                             |  |                               | (82.4 | ) |                             |   | (2.1  | )    |  |   | (82.5 | ) |  |   | (4.0  | )
|Amortization and depreciation                   |  |                               | 8.4   |   |                             |   | 8.3   |      |  |   | 17.0  |   |  |   | 17.2  |  
|Foreign exchange loss (gain)                    |  |                               | 0.7   |   |                             |   | (0.5  | )    |  |   | 0.8   |   |  |   | 0.8   |  
|Fair value adjustment on derivative instruments |  |                               | (0.2  | ) |                             |   | 23.9  |      |  |   | (1.0  | ) |  |   | 23.3  |  
|Special charges and restructuring costs         |  |                               | 4.4   |   |                             |   | 2.3   |      |  |   | 4.3   |   |  |   | 2.7   |  
|Stock-based compensation                        |  |                               | 1.3   |   |                             |   | 1.2   |      |  |   | 2.1   |   |  |   | 1.8   |  
|                                                |  |                               |       |   |                             |   |       |      |  |   |       |   |  |   |       |  
|Adjusted EBITDA                                 |  | $                             | 18.2  |   |                             | $ | 22.0  |      |  | $ | 38.6  |   |  | $ | 41.5  |  
|                                                |  |                               |       |   |                             |   |       |      |  |   |       |   |  |   |       |  

We believe that the use of Adjusted EBITDA provides consistency and comparability of, and facilitates,
period to period comparisons, and also facilitates comparisons with other companies in our industry, many of which use similar non-GAAP financial measures to supplement their U.S. GAAP results.

We believe Adjusted EBITDA may also be useful to investors in evaluating our operating performance because securities analysts use
Adjusted EBITDA as a supplemental measure to evaluate the overall operating performance of companies, and our investor and analyst presentations include Adjusted EBITDA. However, we also caution you that other companies in our industry may calculate
Adjusted EBITDA or similarly titled measures differently than we do, which limits the usefulness of Adjusted EBITDA as a comparative measure.

Moreover, although Adjusted EBITDA is frequently used by investors and securities analysts in their evaluations of companies, Adjusted EBITDA and similar non-GAAP measures have limitations as analytical
tools, and you should not consider them in isolation or as a substitute for an analysis of our results of operations as reported under U.S. GAAP.

Adjusted EBITDA is not a measure calculated in accordance with U.S. GAAP. Adjusted EBITDA should not be considered as an alternative to net income, income from operations or any other measure of financial
performance calculated and presented in accordance with U.S. GAAP. We prepare Adjusted EBITDA to eliminate the impact of items that we do not consider indicative of our core operating performance. We encourage you to evaluate these adjustments and
the reasons we consider them appropriate, as well as the material limitations of non-GAAP measures and the manner in which we compensate for those limitations. Our use of Adjusted EBITDA and its limitations are further discussed under Item 6 of
our Annual Report.

Results of operations

Revenues and Geographic Segment Revenues

Our reportable segments are represented by the following four geographic sales regions: the United States; Europe, Middle East and Africa (collectively EMEA); Canada and
Caribbean and Latin America (collectively Canada and CALA); and Asia Pacific. Our telecommunications business segment generates revenues throughout our geographic regions, while our network services business segment generates
revenue solely in the United States. The following tables set forth total revenues by geographic regions and by business segment in dollars and as a percentage of total revenues:



|                             |  |                                   |       |  |              |  |      |          |  |   |              |  |  |        |      |   |   |   |      |   |  |  |       |  
|---------------------------- |  | --------------------------------- | ----- |  | ------------ |  | ---- | -------- |  | - | ------------ |  |  | ------ | ---- | - | - | - | ---- | - |  |  | ----- | -
|                             |  | Three months ended October 31,    |       |  | Change       | 
|                             |  | 2010                              |       |  | 2009         |  |     
|                             |  | Revenues                          |       |  | % ofRevenues |  |      | Revenues |  |   | % ofRevenues |  |  | Amount |      |   | % |  
|                             |  | (in millions, except percentages) |      
|Telecommunications revenues: |  |                                   |       |  |              |  |      |          |  |   |              |  |  |        |      |   |   |   |      |   |  |  |       |  
|United States                |  | $                                 | 88.9  |  |              |  | 55.2 | %        |  | $ | 89.2         |  |  |        | 54.9 | % |   | $ | (0.3 | ) |  |  | (0.3  | )
|EMEA                         |  |                                   | 38.3  |  |              |  | 23.8 | %        |  |   | 39.9         |  |  |        | 24.6 | % |   |   | (1.6 | ) |  |  | (4.0  | )
|Canada and CALA              |  |                                   | 9.9   |  |              |  | 6.1  | %        |  |   | 11.4         |  |  |        | 7.0  | % |   |   | (1.5 | ) |  |  | (13.2 | )
|Asia Pacific                 |  |                                   | 4.4   |  |              |  | 2.7  | %        |  |   | 3.1          |  |  |        | 1.9  | % |   |   | 1.3  |   |  |  | 41.9  |  
|                             |  |                                   |       |  |              |  |      |          |  |   |              |  |  |        |      |   |   |   |      |   |  |  |       |  
|                             |  |                                   | 141.5 |  |              |  | 87.8 | %        |  |   | 143.6        |  |  |        | 88.4 | % |   |   | (2.1 | ) |  |  | (1.5  | )



23



---

|                           |  |                                   |       |  |              |  |       |          |  |   |              |  |  |        |       |   |   |   |      |   |  |  |      |  
|-------------------------- |  | --------------------------------- | ----- |  | ------------ |  | ----- | -------- |  | - | ------------ |  |  | ------ | ----- | - | - | - | ---- | - |  |  | ---- | -
|                           |  | Three months ended October 31,    |       |  | Change       | 
|                           |  | 2010                              |       |  | 2009         |  |      
|                           |  | Revenues                          |       |  | % ofRevenues |  |       | Revenues |  |   | % ofRevenues |  |  | Amount |       |   | % |  
|                           |  | (in millions, except percentages) |      
|Network services revenues: |  |                                   |       |  |              |  |       |          |  |   |              |  |  |        |       |   |   |   |      |   |  |  |      |  
|United States              |  |                                   | 19.6  |  |              |  | 12.2  | %        |  |   | 18.8         |  |  |        | 11.6  | % |   |   | 0.8  |   |  |  | 4.3  |  
|                           |  |                                   |       |  |              |  |       |          |  |   |              |  |  |        |       |   |   |   |      |   |  |  |      |  
|                           |  | $                                 | 161.1 |  |              |  | 100.0 | %        |  | $ | 162.4        |  |  |        | 100.0 | % |   | $ | (1.3 | ) |  |  | (0.8 | )
|                           |  |                                   |       |  |              |  |       |          |  |   |              |  |  |        |       |   |   |   |      |   |  |  |      |  



|                             |  |                                   |       |  |              |  |       |          |  |   |              |  |  |        |       |   |   |   |      |   |  |  |      |  
|---------------------------- |  | --------------------------------- | ----- |  | ------------ |  | ----- | -------- |  | - | ------------ |  |  | ------ | ----- | - | - | - | ---- | - |  |  | ---- | -
|                             |  | Six months ended October 31,      |       |  | Change       | 
|                             |  | 2010                              |       |  | 2009         |  |      
|                             |  | Revenues                          |       |  | % ofRevenues |  |       | Revenues |  |   | % ofRevenues |  |  | Amount |       |   | % |  
|                             |  | (in millions, except percentages) |      
|Telecommunications revenues: |  |                                   |       |  |              |  |       |          |  |   |              |  |  |        |       |   |   |   |      |   |  |  |      |  
|United States                |  | $                                 | 178.4 |  |              |  | 55.6  | %        |  | $ | 179.5        |  |  |        | 55.8  | % |   | $ | (1.1 | ) |  |  | (0.6 | )
|EMEA                         |  |                                   | 73.3  |  |              |  | 22.8  | %        |  |   | 77.1         |  |  |        | 24.0  | % |   |   | (3.8 | ) |  |  | (4.9 | )
|Canada and CALA              |  |                                   | 21.0  |  |              |  | 6.5   | %        |  |   | 20.4         |  |  |        | 6.3   | % |   |   | 0.6  |   |  |  | 2.9  |  
|Asia Pacific                 |  |                                   | 9.6   |  |              |  | 3.0   | %        |  |   | 7.0          |  |  |        | 2.2   | % |   |   | 2.6  |   |  |  | 37.1 |  
|                             |  |                                   |       |  |              |  |       |          |  |   |              |  |  |        |       |   |   |   |      |   |  |  |      |  
|                             |  |                                   | 282.3 |  |              |  | 87.9  | %        |  |   | 284.0        |  |  |        | 88.3  | % |   |   | (1.7 | ) |  |  | (0.6 | )
|                             |  |                                   |       |  |              | 
|Network services revenues:   |  |                                   |       |  |              |  |       |          |  |   |              |  |  |        |       |   |   |   |      |   |  |  |      |  
|United States                |  |                                   | 38.8  |  |              |  | 12.1  | %        |  |   | 37.8         |  |  |        | 11.7  | % |   |   | 1.0  |   |  |  | 2.6  |  
|                             |  |                                   |       |  |              |  |       |          |  |   |              |  |  |        |       |   |   |   |      |   |  |  |      |  
|                             |  | $                                 | 321.1 |  |              |  | 100.0 | %        |  | $ | 321.8        |  |  |        | 100.0 | % |   | $ | (0.7 | ) |  |  | (0.2 | )
|                             |  |                                   |       |  |              |  |       |          |  |   |              |  |  |        |       |   |   |   |      |   |  |  |      |  

Our revenues in fiscal 2011 continue to be affected by the global economic downturn. In the
weakened economic climate, many of our existing and prospective customers reduced their capital expenditures or delayed new equipment purchases. After adjusting the EMEA region for changes in foreign exchange rates, our telecommunications revenues
were down slightly or flat across most geographies for the three and six months ended October 31, 2010 versus the comparable periods of fiscal 2010. This decrease was partially offset by an increase in revenues in the Asia Pacific region, as
that region has recovered more quickly from the downturn. Our revenues from network services increased in fiscal 2011 due to an increase in the number of active customers.

Telecommunication revenues in the United States decreased by $0.3 million, or 0.3%, in the second quarter of fiscal 2011 compared to the second quarter of fiscal 2010. For the first six months of fiscal
2011 compared to the first six months of fiscal 2010, revenue decreased by $1.1 million, or 0.6%. We believe that the decrease in telecommunications revenues was primarily due to the weakened economic climate in the United States, which adversely
affected consumer demand.

Revenues in EMEA decreased by $1.6 million, or 4.0%, in the second quarter of fiscal 2011 compared
to the second quarter of fiscal 2010 primarily as a result of the weakening of the British pound sterling against the U.S. dollar. As approximately 90% of this regions revenues are generated in currencies other than the U.S. dollar, most
significantly the British pound sterling and the Euro, our revenues, as reported in U.S. dollars, are impacted by significant changes in exchange rates. Revenues in the EMEA segment decreased 2.9% due to lower average exchange rates, primarily the
British pound sterling, during the second quarter of fiscal 2011 versus the second quarter of fiscal 2010. Excluding the impact of foreign exchange, revenues in EMEA were down 1.1% quarter over quarter.

Revenues in EMEA decreased by $3.8 million, or 4.9%, in the first six months of fiscal 2011 compared to the first six months of fiscal
2010. Revenues in the EMEA segment decreased 4.4% due to lower average exchange rates, primarily the British pound sterling for the first six months of fiscal 2011. Excluding the impact of foreign exchange, revenues in EMEA were down 0.5% period
over period.

Revenues in Canada and CALA decreased $1.5 million in the second quarter of fiscal 2011 compared to the second
quarter of fiscal 2010. For the first six months of fiscal 2011 compared to the first six months of fiscal 2010, Canada and CALA revenues were up $0.6 million, or 2.9%. We believe the decrease in revenues in the second quarter was largely due to
economic conditions coupled with the timing of certain projects.

Revenues in Asia Pacific increased by $1.3 million in the
second quarter of fiscal 2011 compared to the second quarter of fiscal 2010 and increased by $2.6 million for the first six months of fiscal 2011 compared to the first six months of fiscal 2010 as we continue our efforts to grow the business in this
region.



24



---

Network services revenues in the United States increased by $0.8 million, or 4.3%, in the
second quarter of fiscal 2011 compared to the second quarter of fiscal 2010 and increased by $1.0 million, or 2.6% for the first six months of fiscal 2011 compared to the first six months of fiscal 2010. The increases in revenues from network
services were due to an increase in the number of customers compared to the prior periods.

Gross Margin

The following table sets forth gross margin, both in dollars and as a percentage of revenues, for the periods indicated:



|                   |  |                                   |      |  |                              |  |      |             |  |  |               |  |  |             |      |   |               |  |       |             |  |  |               |   |  |  |       |  |  |  |      |  
|------------------ |  | --------------------------------- | ---- |  | ---------------------------- |  | ---- | ----------- |  |  | ------------- |  |  | ----------- | ---- | - | ------------- |  | ----- | ----------- |  |  | ------------- | - |  |  | ----- |  |  |  | ---- | -
|                   |  | Three months ended October 31,    |      |  | Six months ended October 31, | 
|                   |  | 2010                              |      |  | 2009                         |  |      | 2010        |  |  | 2009          | 
|                   |  | GrossMargin                       |      |  | GrossMargin %                |  |      | GrossMargin |  |  | GrossMargin % |  |  | GrossMargin |      |   | GrossMargin % |  |       | GrossMargin |  |  | GrossMargin % |  
|                   |  | (in millions, except percentages) |     
|Telecommunications |  |                                   | 67.6 |  |                              |  | 47.8 | %           |  |  | 70.8          |  |  |             | 49.3 | % |               |  | 136.0 |             |  |  | 48.2          | % |  |  | 139.6 |  |  |  | 49.2 | %
|Network Services   |  |                                   | 8.9  |  |                              |  | 45.4 | %           |  |  | 7.8           |  |  |             | 41.5 | % |               |  | 17.6  |             |  |  | 45.4          | % |  |  | 15.6  |  |  |  | 41.3 | %
|                   |  |                                   |      |  |                              |  |      |             |  |  |               |  |  |             |      |   |               |  |       |             |  |  |               |   |  |  |       |  |  |  |      |  
|Total              |  |                                   | 76.5 |  |                              |  | 47.5 | %           |  |  | 78.6          |  |  |             | 48.4 | % |               |  | 153.6 |             |  |  | 47.8          | % |  |  | 155.2 |  |  |  | 48.2 | %
|                   |  |                                   |      |  |                              |  |      |             |  |  |               |  |  |             |      |   |               |  |       |             |  |  |               |   |  |  |       |  |  |  |      |  

Gross margin percentage declined by 0.9% to 47.5% in the second quarter of fiscal 2011 from 48.4%
in the second quarter of fiscal 2010, driven by a decrease in the gross margin percentage from telecommunications. Gross margin percentage declined by 0.4% to 47.8% in the first six months of fiscal 2011 from 48.2% in the first six months of fiscal
2010, also driven by a decrease in the gross margin percentage from telecommunications. Gross margin percentage on telecommunication revenues decreased in the first six months of fiscal 2011 by 1.0 % to 48.2% from 49.2% in the comparable period
of fiscal 2010.

The decrease in gross margin for both the three- and six-month periods was primarily the result of an
unfavorable shift in revenue mix coupled with unfavorable changes in the foreign exchange rates. The declines in margin were partially offset by a reduction in costs due to improved prices from our contract manufacturers.

Network services typically generate lower gross margins as compared to sales of software and systems. The gross margin percentage from
our network services revenues improved to 45.4% in the second quarter of fiscal 2011 from 41.5% in the second quarter of fiscal 2010 and to 45.4% for the first six months of fiscal 2011 from 41.3% in the comparative period of fiscal 2010. The
increase was primarily the result of lower rates negotiated with our local and long distance carriers during the third quarter of fiscal 2010.

Operating Expenses

Selling, General and Administrative
(SG&A)

SG&A expenses increased to 34.1% of revenues in the second quarter of fiscal 2011 compared to
32.9% of revenues in the second quarter of fiscal 2010, a change of $1.6 million in absolute dollars. SG&A expenses increased to 33.7% of revenues in the first six months of fiscal 2011 compared to 33.2% of revenues in the comparable period
of fiscal 2010, a change of $1.4 million in absolute dollars. Our SG&A expenditures for the three months and six months ended October 31, 2010 include certain non-cash charges, most significantly $6.0 million and $12.0 million,
respectively (three and six months ended October 31, 2009  $6.0 million and $12.3 million, respectively) for the amortization of intangible assets such as customer relationships and developed technology, primarily related to the
acquisition of Inter-Tel. In addition, SG&A included $1.3 million and $2.1 million for the three and six months ended October 31, 2010 (three and six months ended October 31, 2009 $1.2 million and $1.8 million) of non-cash
compensation expense associated with employee stock options.

The increase in SG&A expenses as a percent of revenues for
the second quarter and first six months of fiscal 2011 over the comparable periods of fiscal 2010 was primarily due to higher selling and marketing expenses and the phase-out of the reduced work week program during the second quarter of fiscal 2011.

Research and Development (R&D)

R&D expenses were $13.3 million, or 8.3% of total revenues, in the second quarter of fiscal 2011, effectively unchanged compared to
the second quarter of fiscal 2010. R&D expenses were $26.4 million, or 8.2% of total revenues, in the first six months of fiscal 2011, effectively unchanged compared to the first six months of fiscal 2010. Our investment level in R&D
remained consistent over both periods.

We have historically invested heavily in R&D, consistent with an aggressive
R&D investment strategy that has positioned us with a broad range of feature-rich, scalable, standards-based and interoperable IP-based communication solutions. R&D expenses in absolute dollars fluctuate depending on the timing and number of
development initiatives in any given quarter. R&D expenses as a percentage of revenues is highly dependent on revenue levels and varies significantly depending on actual revenues achieved.



25



---

Special Charges and Restructuring Costs

In the second quarter of fiscal 2011 we undertook certain restructuring actions to reduce our cost structure and improve operational
efficiencies. We recorded a total charge of $4.4 million in the quarter relating to these activities. The charge consisted of $3.7 million relating to a workforce reduction of approximately 50 employees and $0.7 million relating to lease termination
obligations. In the second quarter of fiscal 2010 we recorded a charge of $2.3 million consisting of restructuring charges of $1.2 million and a special charge of $1.1 million related to an asset impairment.

The special charges and restructuring costs of $4.3 million for the first six months of fiscal 2011 and $2.7 million for the first six
months of fiscal 2010 were predominantly driven by the charges for the second quarter of fiscal 2011 and 2010, respectively.

We may take additional restructuring actions in the future to reduce our operating expenses and gain operating efficiencies. The timing
and potential amount of such actions will depend on several factors, including future revenue levels and opportunities for operating efficiencies identified by management.

Operating Income

We reported operating income of $3.8 million
in the second quarter of fiscal 2011 compared to operating income of $9.7 million in the second quarter of fiscal 2010. We reported operating income of $14.7 million in the first six months of fiscal 2011 compared to operating income of $19.4
million in the first six months of fiscal 2010. The decrease in operating income was due primarily to the decrease in gross margin, increase in SG&A expenses, as well as the increase in restructuring charges, as described above.

Non-Operating Expenses

Interest Expense

Interest expense was $5.1 million in the second quarter
of fiscal 2011 compared to $8.9 million in the second quarter of fiscal 2010. The decrease in interest expense was due to lower debt balances during the period and a lower effective interest rate. In April 2010, in conjunction with our IPO, we
repaid $30.0 million on our revolving credit facility and prepaid $72.0 million of our first lien term loan. As a result, the average long-term debt outstanding during the second quarter of fiscal 2011 was approximately $100 million lower than in
the second quarter of fiscal 2010. The lower long-term debt balance resulted in a decrease in interest expense of approximately $1.0 million in the second quarter of fiscal 2011 compared to the same quarter of last fiscal year.

The remainder of the decrease was due to a lower average LIBOR, on which the interest expense on our debt is based, coupled with the
expiry of an interest rate swap agreement where we had fixed a portion of our interest expense. The fixed rate under the interest rate swap agreement was higher than the variable rate, LIBOR. The interest rate swap agreement expired at the end of
the second quarter of fiscal 2010 and was not renewed or replaced upon expiry.

Interest expense was $10.2 million in the
first six months of fiscal 2011 compared to $17.7 million in the comparable period of fiscal 2010. The decrease in interest expense was due to same factors as for the second quarter of fiscal 2011. The lower long-term debt balance resulted in
approximately $2.1 million of the decrease in interest expense in the second quarter of fiscal 2011 compared to the same quarter of last fiscal year, with the remainder due to a lower average LIBOR rate and the expiry of the interest rate swap.

Fair Value Adjustment on Derivative Instruments

Fair value adjustment on derivative instruments in the three and six months ended October 31, 2010 consisted of a fair value
adjustment of $0.2 million and $1.0 million, respectively, on warrants that have an exercise price in Canadian dollars. The adjustments were due to a decrease in the fair value of the warrant liability resulting from a decrease in our stock price
from April 30, 2010 to October 31, 2010 and the fact that the warrants are closer to expiry. The warrants have an exercise price of C$14.18 and expire in April 2011.

Fair value adjustment on derivative instruments in the three and six months ended October 31, 2009 consisted of a fair value adjustment of $23.7 million and $23.1 million, respectively on the
embedded derivative in the Class 1 Preferred Shares, and a $0.2 million charge related to warrants that have an exercise price in Canadian dollars. The adjustment on the embedded derivative in the Class 1 Preferred Shares was due to a decrease in
the fair value of the embedded derivative liability. The Class 1 Preferred Shares were converted to common shares in April 2010 in conjunction with our IPO.

Provision for Income Taxes

We recorded a net income tax recovery of $82.4
million and $82.5 million in the three and six months ended October 31, 2010 compared to a recovery of $2.1 million and $4.0 million in the three and six months ended October 31, 2009. The recovery for the second quarter 2011 was driven by
the release of valuation allowance related to deferred tax assets, primarily in Canada.

In the second quarter of fiscal 2011,
we updated our assessment of the realizability of the deferred tax assets. Based on a number of factors, including completion of a reorganization of certain subsidiaries, cumulative income for the last 36 months and forecasted income for fiscal
2011, we determined that the weight of the evidence indicated that it was now more likely than not that



26



---

the Company will realize a benefit from a portion of its deferred tax assets in Canada. At April 30, 2010, we completed an assessment of the realizability of our deferred tax assets and
determined that a substantial valuation allowance was appropriate due to the uncertainty surrounding the Companys ability to earn taxable income in certain jurisdictions. In the three months ended October 31, 2010, we relieved a valuation
allowance of approximately $80.0 million, net of a provision for uncertain tax provisions, primarily relating to the deferred tax assets in Canada. At October 31, 2010, there continues to be a valuation allowance of $75.9 against deferred tax
assets, primarily in Canada and the United Kingdom. Details of our accounting policies regarding deferred tax assets and valuation allowances are found under the Critical Accounting PoliciesDeferred Taxes section below.

Net Income (Loss)

We recorded net income of $80.9 million in the second quarter of fiscal 2011 compared to a net loss of $20.0 million in the second quarter of fiscal 2010. The net income in the second quarter of fiscal
2011 was driven by a recovery of deferred taxes of $80.9 million, while the net loss in the second quarter of fiscal 2010 was driven by a $23.9 million charge for the fair value adjustment on derivative instruments. After adjusting for these items,
the lower net income in the second quarter of fiscal 2011 was due to lower operating income, partially offset by lower interest expense, as discussed above.

We recorded net income of $87.7 million in the first six months of fiscal 2011 compared to a net loss of $18.0 million in the first six months of fiscal 2010. The net income in the first six months of
fiscal 2011 was driven by a recovery of deferred taxes of $82.0 million, while the net loss in the first six months of fiscal 2010 was driven by a $23.3 million charge for the fair value adjustment on derivative instruments. The net income in the
first six months of fiscal 2011 was consistent with the first six months of fiscal 2010, after adjusting for these items, as lower interest expense was offset by a decrease in gross margin and higher restructuring charges.

Adjusted EBITDA

Adjusted EBITDA, a non-GAAP measure, was $18.2 million in the second quarter of fiscal 2011 compared to $22.0 million in the second quarter of fiscal 2010, a decrease of $3.8 million. This decrease in
Adjusted EBITDA was driven by lower revenues and gross margin, as well as the effect of the phase-out of the reduced work week program, which began in July 2010. Adjusted EBITDA was $38.6 million for the first six months of fiscal 2011 compared to
$41.5 million in the first six months of fiscal 2010, a decrease of $2.9 million. The decrease in Adjusted EBITDA for the first six months of fiscal 2011 was driven by the same factors as the decrease in Adjusted EBITDA for the second quarter. For a
definition and explanation of Adjusted EBITDA as well a reconciliation of Adjusted EBITDA to net income, see Selected consolidated financial data, above.



27



---

Cash Flows

Below is a summary of comparative results of cash flows and a discussion of the results for the three months and six months ended
October 31, 2010 and October 31, 2009.



|                                                             |  |                               |      |   |      |   |      |                             |  |   |      |  |  |      |      |   |        |   |      |   |  |   |      |  
|------------------------------------------------------------ |  | ----------------------------- | ---- | - | ---- | - | ---- | --------------------------- |  | - | ---- |  |  | ---- | ---- | - | ------ | - | ---- | - |  | - | ---- | -
|                                                             |  | Three months endedOctober 31, |      |   |      |   |      | Six months endedOctober 31, |  |   |      | 
|                                                             |  | 2010                          |      |   | 2009 |   |      | Change                      |  |   | 2010 |  |  | 2009 |      |   | Change |  
|                                                             |  | (in millions)                 |     
|Net cash provided by (used in)                               |  |                               |      |   |      |   |      |                             |  |   |      |  |  |      |      |   |        |   |      |   |  |   |      |  
|Operating activities                                         |  | $                             | 7.4  |   |      | $ | (3.5 | )                           |  | $ | 10.9 |  |  | $    | 16.7 |   |        | $ | 5.0  |   |  | $ | 11.7 |  
|Investing activities                                         |  |                               | (0.9 | ) |      |   | (1.3 | )                           |  |   | 0.4  |  |  |      | (0.7 | ) |        |   | (2.3 | ) |  |   | 1.6  |  
|Financing activities                                         |  |                               | (1.6 | ) |      |   | (2.2 | )                           |  |   | 0.6  |  |  |      | (3.6 | ) |        |   | (4.0 | ) |  |   | 0.4  |  
|Effect of exchange rate changes on cash and cash equivalents |  |                               | 0.4  |   |      |   | (0.2 | )                           |  |   | 0.6  |  |  |      | 1.0  |   |        |   | 1.8  |   |  |   | (0.8 | )
|                                                             |  |                               |      |   |      |   |      |                             |  |   |      |  |  |      |      |   |        |   |      |   |  |   |      |  
|Increase (decrease) in cash and cash equivalents             |  | $                             | 5.3  |   |      | $ | (7.2 | )                           |  | $ | 12.5 |  |  | $    | 13.4 |   |        | $ | 0.5  |   |  | $ | 12.9 |  
|                                                             |  |                               |      |   |      |   |      |                             |  |   |      |  |  |      |      |   |        |   |      |   |  |   |      |  

Cash Provided by Operating Activities

Cash generated from operating activities in the second quarter of fiscal 2011 was $7.4 million compared with cash used by operating
activities of $3.5 million in the second quarter of fiscal 2010. The cash generated from operating activities for the first six months of fiscal 2011 was $16.7 million compared to $5.0 million for the first six months of fiscal 2010. The increased
cash flows from operations for the fiscal 2011 periods was primarily the result of improved changes in the non-cash operating assets and liabilities. The improvement in this item was driven primarily by the timing of certain cash flows near
October 31, 2010.

Cash Used in Investing Activities

Net cash used for investing activities was $0.9 million in the second quarter of fiscal 2011 compared to net cash used of $1.3 million in
the second quarter of fiscal 2010. Net cash used for investing activities was $0.7 million in the first six months of fiscal 2011 compared to net cash used of $2.3 million in the first six months of fiscal 2010. The lower use of cash in the fiscal
2011 periods was due primarily to the increased financing of property and equipment purchases through capital leases. Assets purchased through capital lease in the three and six months ended October 31, 2010 were $1.1 million and $1.4 million,
respectively compared to nil and $0.1 million for the three and six months ended October 31, 2009.

Cash Provided by
Financing Activities

Net cash used in financing activities in the second quarter of fiscal 2011 was $1.6 million compared
to cash used in financing activities of $2.2 million during the second quarter of fiscal 2010. Net cash used in financing activities in the first six months of fiscal 2011 was $3.6 million compared to cash used in financing activities of $4.0
million during the first six months of fiscal 2010. The use of cash in all periods was primarily due to repayments of long-term debt, capital leases, and payments under a fiscal 2007 litigation settlement obligation.

Effect of exchange rate changes on cash

Our overall cash position was also impacted by exchange rate changes during the period, which increased cash by $0.4 million during the second quarter of fiscal 2011 (second quarter of fiscal
2010$0.2 million decrease) and by $1.0 million during the first six months of fiscal 2011 (first six months of 2010$1.8 million increase).

Liquidity and Capital Resources

As of October 31, 2010, we had
cash and cash equivalents of $90.0 million, increased from April 30, 2010 due primarily to cash flow from operations. In addition, we have an undrawn $30.0 million revolving facility that matures in August 2012 that provides additional
liquidity. The revolving facility was not drawn during the six-month period ending October 31, 2010. At October 31, 2010 we had $344.4 million outstanding under our credit facilities, consisting of a first lien term loan due 2014 and
second lien term loan due 2015, a decrease from $345.3 million outstanding at April 30, 2010 due to our scheduled repayments of principal under the first lien term loan.

We have a defined benefit pension plan in place for a number of our past and present employees in the United Kingdom. The plan has been closed to new members since 2001. At October 31, 2010, the plan
had an unfunded pension liability of $71.4 million. The contributions to fund the benefit obligations under this plan are based on actuarial valuations, which themselves are based on certain assumptions about the long-term operations of the
plan, including employee turnover and retirement rates, the performance of the financial markets and interest rates. In the three and six months ended October 31, 2010, we contributed $0.7 million and $2.4 million, respectively, to meet funding
requirements (three and six months ended October 31, 2009$0.7 million and $1.4 million,



28



---

respectively). The amount of required employer contributions required annually is determined every three years, in accordance with United Kingdom regulations. The 2011 contributions are the final
year of this cycle. In October 2010, the Companys annual funding requirement for the calendar year 2011 was determined to be £2.5 million and will increase at an annual rate of 3% for calendar years 2012 and 2013.

At October 31, 2010 and April 30, 2010, our cash equivalents consist of short-term, investment-grade commercial paper and
government debt. We classify our cash equivalents as current based on their nature and their availability for use in current operations. We believe the overall credit quality of our portfolio is strong, with a majority of our cash equivalents
invested in federal government treasury bills of Canada, the U.S. and the U.K.

We follow an investment policy where our
excess cash is invested in investment-grade commercial paper and government debt, generally with a maturity of less than three months. There is no limit on the investments in the Federal Governments of Canada, the U.S. and the U.K. We diversify our
portfolio by limiting the amount invested in any other single institution.

We believe that we will have sufficient liquidity
to support our business operations for the next 12 months. However, we may elect to seek additional funding prior to that time. Our future capital requirements will depend on many factors, including our rate of revenue growth, the timing and
extent of spending to support product development efforts and expansion of sales and marketing, the timing of introductions of new products and enhancements to existing products, and market acceptance of our products. Additional equity or debt
financing may not be available on acceptable terms or at all. In addition, any proceeds from the issuance of equity or debt may be required to be used in whole or in part, to make mandatory payments under our credit agreements. We believe that our
sources of liquidity beyond the next 12 months will be our then-current cash balances, funds from operations and funds available from borrowings under our revolving credit facility.

Contractual Obligations

The following table sets forth our contractual obligations as of October 31, 2010:



|                                              |  |                             |       |  |                      |   |      |      |  |   |      |  |  |      |      |  |      |   |      |               |  |   |       |  |  |   |       | 
|--------------------------------------------- |  | --------------------------- | ----- |  | -------------------- | - | ---- | ---- |  | - | ---- |  |  | ---- | ---- |  | ---- | - | ---- | ------------- |  | - | ----- |  |  | - | ----- | 
|                                              |  | Payments Due by Fiscal Year |      
|Contractual Obligations                       |  | Total                       |       |  | Lastsixmonthsof 2011 |   |      | 2012 |  |   | 2013 |  |  | 2014 |      |  | 2015 |   |      | 2016andbeyond | 
|                                              |  | (in millions)               |      
|Long-term debt obligations(1)                 |  | $                           | 437.0 |  |                      | $ | 11.8 |      |  | $ | 23.5 |  |  | $    | 23.5 |  |      | $ | 23.5 |               |  | $ | 221.6 |  |  | $ | 133.1 | 
|Capital lease obligations(2)                  |  |                             | 4.6   |  |                      |   | 1.3  |      |  |   | 1.7  |  |  |      | 0.9  |  |      |   | 0.5  |               |  |   | 0.2   |  |  |   |      | 
|Operating lease obligations(3)                |  |                             | 58.3  |  |                      |   | 10.4 |      |  |   | 11.4 |  |  |      | 7.9  |  |      |   | 6.4  |               |  |   | 4.9   |  |  |   | 17.3  | 
|Defined benefit pension plan contributions(4) |  |                             | 13.4  |  |                      |   | 2.0  |      |  |   | 4.0  |  |  |      | 4.2  |  |      |   | 3.2  |               |  |   |      |  |  |   |      | 
|Other(5)                                      |  |                             | 29.9  |  |                      |   | 5.5  |      |  |   | 9.1  |  |  |      | 4.6  |  |      |   | 4.3  |               |  |   | 4.1   |  |  |   | 2.3   | 
|                                              |  |                             |       |  |                      |   |      |      |  |   |      |  |  |      |      |  |      |   |      |               |  |   |       |  |  |   |       | 
|Total                                         |  | $                           | 543.2 |  |                      | $ | 31.0 |      |  | $ | 49.7 |  |  | $    | 41.1 |  |      | $ | 37.9 |               |  | $ | 230.8 |  |  | $ | 152.7 | 



|(1) | Represents the principal balance and interest payments for the first and second lien borrowings. Interest on the first and second lien borrowings is based on LIBOR plus
3.25%, and LIBOR plus 7.0%, respectively, as described in our consolidated financial statements. For the purposes of estimating the variable interest, the average 3-month LIBOR from the last three years, 1.58%, has been used.
|--- | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|(2) | Represents the principal and interest payments for capital lease obligations. Interest rates on these loans range from 5.6% to 11.6%, as described in our consolidated
financial statements.
|--- | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|(3) | Operating lease obligations exclude payments to be received by us under sublease arrangements. The contractual obligation has not materially changed from those
disclosed in our Annual Report.
|--- | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|(4) | Represents the estimated contribution to our defined benefit pension plan in the United Kingdom. The Companys annual funding requirement for its U.K. defined
benefit plan is determined every three years in accordance with U.K. regulations, and is based on a calendar year. In October 2010, the Companys annual funding requirement for the calendar year 2011 was determined to be
£2.5 million, and will increase at an annual rate of 3% for calendar years 2012 and 2013. As of October 31, 2010, the unfunded status of the plan was $71.4 million.
|--- | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|(5) | Includes payments under the fiscal 2007 litigation settlement and an Information Technology outsourcing agreement signed in November 2010.
|--- | ------------------------------------------------------------------------------------------------------------------------------------------



29



---

Off-Balance Sheet Arrangements

Off-balance sheet arrangements that have material changes from those disclosed in our Annual Report are as follows:

Sales-type leases

We offer our customers lease financing and other services under our managed services offering. We fund this offering, which we have branded as the TotalSolution®program, in part through the sale to financial institutions of rental payment streams under the leases. Such
financial institutions have the option to require us to repurchase such income streams, subject to limitations, in the event of defaults by lease customers and, accordingly, we maintain reserves based on loss experience and past due accounts. In
addition, such financial institutions have the option to require us to repurchase such income streams upon any uncured breach by us under the terms of the underlying sale agreements. At October 31, 2010, sold payments remaining unbilled net of
lease recourse reserves, which represents the total balance of leases that is not included in our balance sheet, were $165.1 million (April 30, 2010$177.0 million).

Critical Accounting Policies

The preparation of our consolidated
financial statements and related disclosures in conformity with GAAP requires us to make estimates and assumptions about future events that can have a material impact on the amounts reported in our consolidated financial statements and accompanying
notes. The determination of estimates requires the use of assumptions and the exercise of judgment and as such actual results could differ from those estimated. Our significant accounting policies are described in Note 2 to our audited consolidated
financial statements for fiscal 2010, included in our Annual Report. The following critical accounting policies are those that we believe require a high level of subjectivity and judgment and have a material impact on our financial condition and
operating performance: revenue recognition, allowance for doubtful accounts and the lease recourse liability, provisions for inventory, provisions for product warranties, long-lived asset depreciation, goodwill valuation, special charges,
contingencies, deferred taxes, pension and post-retirement benefits, and the valuation of stock options, warrants and other derivative instruments. The following critical accounting policies have been updated from the disclosure provided in our
Annual Report.

Sales-Type Leases, reserves

Our total reserve for losses related to the entire lease portfolio, including amounts classified as accounts receivable on our balance sheet was 5.7% of the ending aggregate lease portfolio as of
October 31, 2010 approximately unchanged from 5.6% at April 30, 2010. The reserve is based on a review past write-off experience and a review of the accounts receivable aging. We believe our reserves are adequate to cover future potential
write-offs. Should, however, the financial condition of our customers deteriorate in the future, additional reserves in amounts that could be material to the financial statements could be required.

Allowance for Doubtful Accounts

Our allowance for doubtful accounts is based on our assessment of the collectibility of customer accounts. A considerable amount of judgment is required in order to make this assessment including a
detailed analysis of the aging of our accounts receivable, the current credit worthiness of our customers and an analysis of historical bad debts and other adjustments. If there is a deterioration of a major customers credit worthiness or
actual defaults are higher than our historical experience, our estimate of the recoverability of amounts due could be adversely affected. We review in detail our allowance for doubtful accounts on a quarterly basis and adjust the allowance amount
estimate to reflect actual portfolio performance and change in future portfolio performance expectations. As of October 31, 2010 and April 30, 2010, the provision represented 7.2% and 8.9% of gross receivables, respectively. The decrease
in reserve level from April 30, 2010 was due to write-offs of accounts receivable during the first quarter of fiscal 2011. Substantially all of the write-offs in the first quarter were already fully provided for at April 30, 2010.
Adjusting for the April 30, 2010 provision for the write-offs, the provision would have represented 7.5% of gross receivables, consistent with the October 31, 2010 provision.

Deferred Taxes

We have significant net deferred tax assets resulting from operating loss carryforwards, tax credit carryforwards and deductible temporary differences that may reduce taxable income in future periods. In
assessing the realizability of deferred tax assets, management considers, on a periodic basis, whether it is more-likely-than-not that some portion or all of the deferred tax assets will not be realized. This assessment is based on a number of
factors, including our estimate of future taxable income in each tax jurisdiction in which the Company operates, the number of years over which the deferred tax assets will be recoverable, and scheduled reversals of deferred tax liabilities. To the
extent that recovery is not believed to be more-likely-than-not, a valuation allowance is recorded. Our valuation allowance may increase or decrease materially period-to-period as we update our assessment, in particular relating to our estimate of
future taxable income in each tax jurisdiction.

In the three months ended October 31, 2010, we released approximately
$80.0 million of valuation allowance, net of a provision for uncertain tax positions, based on our assessment that it was now more likely than not that the benefit from certain Canadian deferred tax assets will be realized. At October 31, 2010,
based on uncertainty regarding the future utilization of net deferred tax assets primarily in Canada and the United Kingdom, our balance sheet contains a $75.9 million valuation allowance against $216.6 million of deferred tax assets.



30



---

Numerous taxing authorities in the jurisdictions in which we do business are increasing
their scrutiny of various tax positions taken by businesses. We believe that we maintain adequate tax reserves to offset the potential tax liabilities that may arise upon audit in these jurisdictions. If such amounts ultimately prove to be
unnecessary, the resulting reversal of such reserves would result in tax benefits being recorded in the period the reserves are no longer deemed necessary. If such amounts ultimately prove to be less than the ultimate assessment, a future charge to
expense may result.

Stock-Based Compensation

The fair value of the stock options granted is estimated on the grant date using the Black-Scholes-Merton option-pricing model for each award, net of estimated forfeitures, and is recognized over the
employees requisite service period, which is generally the vesting period. The assumptions used in the Black-Scholes-Merton option-pricing model for the options granted in the first quarter and second quarter of fiscal 2011 were as follows:



|                                        |  |                             |           |   |                              |   |           |  
|--------------------------------------- |  | --------------------------- | --------- | - | ---------------------------- | - | --------- | -
|                                        |  | First Quarter ofFiscal 2011 |           |   | Second Quarter ofFiscal
2011 |  
|Number of options granted (in millions) |  |                             | 1.4       |   |                              |   | 0.3       |  
|Risk-free interest rate                 |  |                             | 1.76      | % |                              |   | 1.43      | %
|Dividends                               |  |                             | 0         | % |                              |   | 0         | %
|Expected volatility                     |  |                             | 55.0      | % |                              |   | 55.0      | %
|Annual forfeiture rate                  |  |                             | 10        | % |                              |   | 10        | %
|Expected life of the options            |  |                             | 4.6 years |   |                              |   | 4.6 years |  
|Fair value per option                   |  | $                           | 4.45      |   |                              | $ | 2.78      |  

Forfeitures are
estimated based on our estimate of the expected forfeiture rate. The risk-free interest rate was determined by reference to the United States treasury rates with the remaining term approximating the expected life assumed at the date of grant. We
have estimated the volatility of our common shares using historical volatility of comparable public companies. We expect to continue to use the historical volatility of comparable companies until our historical volatility as a publicly-traded
company is sufficiently established to measure expected volatility for option grants. The volatility assumption used during fiscal 2010 was higher due primarily to the effect of our higher leverage on our assessment of the expected volatility in the
period. The expected life of the options was calculated using an average of the original contract term (seven years) and the vesting term, taking into account graded vesting. We will continue to use this simplified method until such time as we have
sufficient historical data as a public company to determine a reliable estimated life. In addition to the assumptions listed, the fair value per option is affected by the stock price at the date of grant.

Based on our assumptions, stock-based compensation expense was $1.3 million for the second quarter of fiscal 2011, (second quarter of
fiscal 2010$1.2 million) and $2.1 million for the first six months of fiscal 2011 (first six months of fiscal 2010$1.8 million). As of October 31, 2010, there was $8.5 million of unrecognized stock-based compensation expense
related to stock option awards (April 30, 2010$4.3 million). We expect this cost to be recognized over a weighted average period of 2.9 years (April 30, 20101.9 years).

Recent Accounting Pronouncements

In October 2009, the Financial Accounting Standards Board (FASB) issued Accounting Standards Update (ASU) 2009-14 to address concerns raised by constituents relating to the
accounting for revenue arrangements that contain tangible products and software. The amendments in this ASU change the accounting model for revenue arrangements that include both tangible products and software elements. Tangible products
containing software components and non-software components that function together to deliver the tangible products essential functionality will no longer be within the scope of guidance in the SoftwareRevenue Recognition Subtopic of the
FASB Accounting Standards Codification (FASB ASC). The amendments in this ASU will be effective prospectively for revenue arrangements entered into or materially modified in fiscal years beginning on or after June 15,
2010. We are required to adopt this ASU in the first quarter of fiscal 2012. We are currently evaluating the effect that the adoption of this ASU will have on our consolidated financial statements.

In October 2009, the FASB issued ASU 2009-13 to address the accounting for multiple-deliverable arrangements to enable vendors to account
for products or services (deliverables) separately rather than as a combined unit. This ASU provides amendments to the criteria in the Revenue RecognitionMultiple-Element Arrangements Subtopic of the FASB ASC. As a result of those
amendments, multiple-deliverable arrangements will be separated in more circumstances than under existing GAAP. The amendments in this ASU will be effective prospectively for revenue arrangements entered into or materially modified in fiscal
years beginning on or after June 15, 2010. We are required to adopt this ASU in the first quarter of fiscal 2012. We are currently evaluating the effect that the adoption of this ASU will have on our consolidated financial statements.

In July 2010, the FASB issued ASU 2010-20 to enhance disclosure about the credit quality of financing receivables and the
related allowance for credit losses. We are required to adopt this ASU in the third quarter of fiscal 2011. As a result of this ASU, we



31



---

expect to provide additional disclosures surrounding our sales-type lease receivables and the related allowances in third quarter of fiscal 2011.



|Item 3. | Quantitative and Qualitative Disclosures About Market Risk
|------- | ----------------------------------------------------------

Management believes there have been no material changes to our quantitative and qualitative disclosures about market risk during the six-month period ended October 31, 2010, compared to those
discussed in our Annual Report.



|Item 4. | Controls and Procedures.
|------- | ------------------------

a) Evaluation of disclosure controls and procedures

Our management carried out an evaluation, with the participation of the Chief Executive Officer and Chief Financial Officer, of the effectiveness of our disclosure controls and procedures as of
October 31, 2010. Based upon that evaluation, our Chief Executive Officer and Chief Financial Officer concluded that our disclosure controls and procedures were effective to provide reasonable assurance that information required to be disclosed
by us in reports that we file or submit under the Exchange Act, is recorded, processed, summarized and reported, within the time period specified in the rules and forms of the SEC.

For purposes of this section, the term disclosure controls and procedures means controls and other procedures of an issuer that are
designed to ensure that information required to be disclosed by the issuer in the reports that it files or submits under the Exchange Act is recorded, processed, summarized and reported, within the time periods specified in the SEC rules and forms.
Disclosure controls and procedures include, without limitation, controls and procedures designed to ensure that information required to be disclosed by an issuer in the reports that it files or submits under the Exchange Act is accumulated and
communicated to the issuers management, including its principal executive and principal financial officers, or persons performing similar functions, as appropriate to allow timely decisions regarding required disclosure. There are inherent
limitations to the effectiveness of any system of disclosure controls and procedures, including the possibility of human error and the circumvention or overriding of the controls and procedures. Accordingly, even effective disclosure controls and
procedures can only provide reasonable assurance of achieving their control objectives, and management necessarily is required to use its judgment in evaluating the cost-benefit relationship of possible disclosure controls and procedures.

b) Changes in internal controls

There have been no changes in the Corporations internal control over financial reporting (as defined in Rule 13a-15(f) under the Exchange Act) during our most recently completed fiscal quarter that
have materially affected, or are reasonably likely to materially affect, the Corporations internal control over financial reporting.



32



---

PART IIOTHER INFORMATION



|Item 1. | Legal Proceedings.
|------- | ------------------

We
are involved in legal proceedings, as well as demands, claims and threatened litigation, that arise in the normal course of our business. In particular, as is common in our industry, we have received notices alleging that we infringe patents
belonging to various third parties. These notices are dealt with in accordance with our internal procedures, which include assessing the merits of each notice and seeking, where appropriate, a negotiated resolution. Where a negotiated resolution
cannot be reached, litigation may be necessary. The ultimate outcome of any litigation is uncertain, and regardless of outcome, litigation can have an adverse impact on our business because of defense costs, negative publicity, diversion of
management resources and other factors. Our failure to obtain any necessary license or other rights on commercially reasonable terms, or otherwise, or litigation arising out of intellectual property claims could materially adversely affect our
business. As of the date of this Quarterly Report, except for the item outlined below, we are not party to any litigation that we believe is material to our business.

On February 27, 2008, we issued a statement of claim against one of our customers for non-payment of invoices arising from the provision of hardware, software and services. The customer responded
with a counterclaim for a return of amounts paid plus other unquantified costs. The parties reached a settlement in September 2010, including a consent to dismiss all outstanding claims and counterclaims in the matter.



|Item 1A. | Risk Factors.
|-------- | -------------

In
addition to the other information set forth in this Report and the additional risk factor below, you should carefully consider the factors discussed in Part I, Item 1A. Risk Factors in our Annual Report on Form 10-K for the fiscal
year ended April 30, 2010, which have not materially changed. Those risks, which could materially affect our business, financial condition or future results, are not the only risks we face. Additional risks and uncertainties not currently known
to us or that we currently deem to be immaterial also may adversely affect our business, financial condition and/or operating results.

At October 31, 2010, our balance sheet contained a $75.9 million valuation allowance against $216.6 million of gross deferred tax assets. A valuation allowance is provided when it is more likely than
not that some portion of the deferred tax asset will not be realized. In managements opinion, as of October 31, 2010, it was more likely than not that the results of future operations will generate sufficient taxable income to recognize
the deferred tax assets not covered by the valuation allowance. Future losses or reduced estimates of future income may result in an increase to the partial valuation allowance or even a full valuation allowance on our deferred tax assets in future
periods, which will negatively impact results of operations. See Management Discussion & AnalysisCritical Accounting PoliciesDeferred Taxes.



|Item 2. | Unregistered Sales of Equity Securities and Use of Proceeds.
|------- | ------------------------------------------------------------

None.



|Item 3. | Defaults Upon Senior Securities.
|------- | --------------------------------

None.



|Item 4. | (Removed and Reserved).
|------- | -----------------------



|Item 5. | Other Information.
|------- | ------------------

On
September 2, 2010, we announced the retirement of our chief executive officer, Don Smith. The Company has entered into a Separation Agreement with Mr. Smith. Please see to Item 5, Part II of our Quarterly Report on Form 10-Q for the
fiscal quarter ended July 31, 2010 for further details. A copy of the Separation Agreement was also filed as Exhibit 10.1 to that report.

As previously disclosed in the Companys Annual Report on Form 10-K filed with the Securities and Exchange Commission on July 27, 2010, certain performance-based stock options were granted on
March 12, 2009 under the 2006 Equity Incentive Plan, including stock option grants to the Companys named executive officers. 50% of the stock options vest on a four year schedule (12.5% per year) from the date of grant. The remaining 50% vest
as follows: 12.5% of the options vest on the trigger date and the remainder vest monthly over an 18-month period following the issue date. The trigger date is defined as the date that is one month following the month in which the five-day average
trading price is equal to or greater than $38.25 per share (the Trigger Date Price). All unexercised options expire on the earlier of 24 months after the trigger date or five years from the date of grant.

On December 7, 2010, the Board of Directors agreed to adjust the Trigger Date Price from $38.25 to $16.80 in order to ensure that
the performance-based stock options continue to represent a tangible incentive for each of the named participants. The



33



---

Companys IPO was priced at $14.00 per share so this adjustment to the new Trigger Date Price represents a 20% premium to the IPO price. As of Nasdaq market close on December 7, 2010,
the Companys shares of common stock were trading at a price equal to $5.45 per share.



34



---

|Item 6. | Exhibits.
|------- | ---------



|              |  |                                                                                                                                                                                                                                                                 
|------------- |  | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|ExhibitNumber |  | Description                                                                                                                                                                                                                                                     
|              | 
|10.1          |  | Separation Agreement between Mitel Networks Corporation and Donald W. Smith, dated September 1, 2010 (incorporated by reference to Exhibit 10.1 to the Registrants Form
10-Q for the period ending July 31, 2010 and filed with the SEC on September 14, 2010).
|              | 
|31.1          |  | Certification of Chief Executive Officer pursuant to Section 302 of the Sarbanes-Oxley Act and Rules 13a-14(a)/15d-14(a).                                                                                                                                       
|              | 
|31.2          |  | Certification of Chief Financial Officer pursuant to Section 302 of the Sarbanes-Oxley Act and Rules 13a-14(a)/15d-14(a).                                                                                                                                       
|              | 
|32.1          |  | Certification of Chief Executive Officer pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.                                                                                                              
|              | 
|32.2          |  | Certification of Chief Financial Officer pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.                                                                                                              



35



---

SIGNATURE

Pursuant to the requirements of the Securities Exchange Act of 1934, the Registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized on
December 10, 2010.



MITEL NETWORKS CORPORATIONBy:

/S/  STEVEN E.
SPOONERSteven E. Spooner Chief Financial Officer




36



---

EXHIBIT INDEX



|               |  |                                                                                                                                                   
|-------------- |  | --------------------------------------------------------------------------------------------------------------------------------------------------
|Exhibit
Number |  | Description                                                                                                                                       
|               | 
|10.1           |  | Separation Agreement between Mitel Networks Corporation and Donald W. Smith, dated September 1, 2010.                                             
|               | 
|31.1           |  | Certification of Chief Executive Officer pursuant to Section 302 of the Sarbanes-Oxley Act and Rules 13a-14(a)/15d-14(a).                         
|               | 
|31.2           |  | Certification of Chief Financial Officer pursuant to Section 302 of the Sarbanes-Oxley Act and Rules 13a-14(a)/15d-14(a).                         
|               | 
|32.1           |  | Certification of Chief Executive Officer pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.
|               | 
|32.2           |  | Certification of Chief Financial Officer pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.



37