OncoCyte Annual Report 2004

FY2004 Annual Report · OncoCyte

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Onex is a diversiﬁed company.

REVENUES
ASSETS
EMPLOYEES

$16 billion
$12 billion
83,000

Onex’ objective is to create long-term value
by building industry-leading businesses
and to have that value reﬂected in our share price.

Onex Corporation December 31, 2004 Report

ONEX CORPORATION

Onex is a diversiﬁed company with 2004 annual revenues of $16 billion, assets of $12 billion and

83,000 employees worldwide.

We operate through autonomous subsidiaries in a variety of industries, including

electronics manufacturing services, theatre exhibition, healthcare, customer management

services, automotive products, personal care products and communications infrastructure.

Onex’ objective is to create long-term value by building industry-leading businesses

and to have that value reﬂected in our share price.

Table of Contents

2 To Our Shareholders

5 2004 Review of Onex Operating Companies

21 Management’s Discussion and Analysis

66 Consolidated Financial Statements

104 Summary Historical Financial Information

IBC Shareholder Information

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

Our website is your source for complete,

up-to-date information about Onex.

We invite you to visit www.onex.com.

Get to know our people

and the individual

strengths they bring

to our team.

Here is what we look for in

businesses we want to own

and what we provide.

Get our financial results in

a simple, comprehensible

format, with interactive

annual and quarterly

financial statements.

Learn about our operating

See how Onex has

principles and values,

and why you should own

Onex shares.

performed against key

market indices.

Find out about

our companies.

Learn about our

directors and corporate

governance practices.

To Our Shareholders

Onex had excellent performance in 2004.

We made four important acquisitions or investments during the year and added two

more early in 2005. We completed substantial realizations on the value we created in Loews

Cineplex, Armtec and the Commercial Vehicle Group. And, as the discussion and analysis that

follows this letter shows, we recorded solid ﬁnancial performance at Onex and most of our

operating companies.

All of this was reﬂected in our share price, which increased 34 percent during the year

to close at $19.75 at year end.

The closing of the Onex Partners private equity fund in February 2004 was a key

event in the evolution of Onex. This $2 billion Fund, to which Onex has committed $480 mil-

lion for a 24 percent interest, provides capital for new Onex-sponsored acquisitions. As the

General Partner, Onex earns management fees that help offset Onex’ corporate expenses, as

well as a carried interest on the other investors’ capital. Equally important, ready access to a

substantial pool of committed capital is enabling us to be highly responsive to attractive

investment opportunities.

Excellent value realizations

We sold Loews Cineplex but retained the Canadian operations, primarily units of Cineplex

Galaxy Limited Partnership. That transaction brought Onex’ total value from the theatre exhi-

bition segment, including the year-end market value of the CGLP units we hold, to just over

$1 billion on an investment of about $540 million. In late July, Armtec Limited, owned by

ONCAP, our small cap fund, completed a successful initial public offering of income trust

units. ONCAP, in which Onex owns a 28 percent interest and earns a carried interest as

General Partner, sold all of its ownership of Armtec for proceeds of $76 million, more than

double its original investment.

After several years of restructuring, cost reductions, quality improvements and changes

in senior management, the companies in our automotive products segment are performing

well. Terriﬁc operating performance by Commercial Vehicle Group and a strong resurgence in

the heavy truck market enabled CVG to complete an initial public offering of equity, which

raised $180 million. We sold some of our holdings in CVG in the offering and retained a 24 per-

cent minority interest. Onex’ total value to date with respect to CVG, including the value of

shares held at the end of 2004, is close to $200 million on an investment of $69 million.

2 Onex Corporation December 31, 2004 Report

T O O U R S H A R E H O L D E R S

Six signiﬁcant investments

Onex made four important acquisitions or investments during 2004 and two that closed in

early 2005, despite very competitive private equity markets. We believe it’s important to note

that whether these transactions were acquisitions of controlling interests or minority-interest

investments, our objective is to work in partnership with the management teams to build the

value of the companies for all shareholders.

In early January 2004, Onex Partners invested $131 million in the equity of Magellan

Health Services. The company, which is the leading provider of managed behavioural health-

care in the United States, has performed beyond our expectations. Our investment was made

at US$9.78 per share. Magellan shares at year end were US$34.16.

In June, Onex Partners made a $114 million equity investment in Res-Care, Inc. to help

fund its business expansion and to provide liquidity to some shareholders. That company

delivers a range of valuable social services through two major divisions and is the largest U.S.

provider of residential services for persons with developmental disabilities. Through the end

of 2004, ResCare had recorded 52 consecutive quarters of revenue growth.

In November 2004, Onex Partners completed a $102 million investment in convertible

subordinated bonds of Compagnie Générale de Géophysique. CGG is a leading global supplier

of products and services to the oil and gas industry. We received and accepted a very attrac-

tive offer to sell just over half of our CGG bonds in early 2005 at 138 percent of our cost. We

continue to hold the balance of our original position.

In December, Onex Partners also acquired Cosmetic Essence in a transaction valued

at approximately $300 million; the total investment made by Onex Partners was $138 million

for 92 percent of the equity ownership. Cosmetic Essence is a leading provider of outsourced

supply chain management services – a business model we understand well – to the personal

care products industry.

Subsequent to year end, Onex Partners made two important additions to Onex’

growing healthcare segment, completing acquisitions that had been agreed to in 2004. In early

January 2005, Onex Partners acquired Center for Diagnostic Imaging, Inc., a leading provider of

diagnostic and therapeutic radiology services. The transaction, valued at $225 million, was

completed with an $88 million equity investment by Onex Partners for 84 percent of the

equity of this company.

Onex Corporation December 31, 2004 Report 3

T O O U R S H A R E H O L D E R S

In early February, Onex Partners acquired two subsidiaries of Laidlaw International,

American Medical Response, Inc. and EmCare Holdings Inc., investing $270 million for 97 per-

cent of the equity in a transaction valued at approximately $1 billion. AMR is the largest

provider of ambulance transport in the United States; EmCare is the largest supplier of

outsourced services for hospital emergency department physician stafﬁng and management.

We’re also creating other opportunities to put Onex’ cash to work to achieve superior

returns by investing in businesses that meet our benchmarks for entrepreneurial man-

agement and value-creation potential. In early 2005, we established Onex Real Estate Partners

LP, a $250 million opportunity fund focused on acquiring and adding value to real estate

properties in North America. Onex Real Estate Partners is led by a talented team of pro-

fessionals who bring a strong track record and share Onex’ investment philosophy of value

creation. We are evaluating opportunities in other alternative asset categories where we

believe we can earn appropriate returns and also generate attractive acquisition opportunities.

Looking ahead

We expect the acquisition environment to remain competitive during 2005 as an increasing

number of private equity ﬁrms with readily available ﬁnancing seek attractive investments

throughout North America. Onex Partners is proving its value by enabling us to commit to

acquisitions more efﬁciently and on a more timely basis. While it is too early at this writing to

have certainty, the success of the ﬁrst Onex Partners fund may encourage us to create a second

fund. If we do so, it is likely that we will use a substantial portion of our current $1.7 billion in

cash resources to take a larger equity position in any new fund.

Our intention, as always, is to be prudent managers of the cash and companies under

our care. Our objective remains to buy for value and build for value and then to have that

value reﬂected in our share price.

Gerald W. Schwartz

Chairman & Chief Executive Ofﬁcer

March 2005

4 Onex Corporation December 31, 2004 Report

2 0 0 4 R E V I E W O F O N E X O P E R AT I N G C O M PA N I E S

2004 REVIEW OF ONEX OPERATING COMPANIES

This is an introduction to Onex’ signiﬁcant operating companies as at December 31, 2004 and

is presented by industry segment. Onex has major operating companies in eight industries,

which are reviewed in the pages that follow. As a preface to these discussions, the table below

provides a brief description of each operating company, Onex’ ownership and voting interest in

that company, and 2004 revenue and asset information.

2004
Ownership/
Voting

2003
Ownership/
Voting

Electronics Manufacturing Services

Celestica Inc., one of the world’s largest electronics manufacturing

18%/84%

19%/85%

services companies for original equipment manufacturers.
2004 Revenues – $11.5 billion

2004 Assets – $5.9 billion

Theatre Exhibition

Cineplex Galaxy Limited Partnership, Canada’s second-largest ﬁlm ex-

31%/100%

hibition company, which operates 86 theatres with a total of 775 screens

under the Cineplex Odeon and Galaxy Entertainment brands.
2004 Revenues – $356 million

2004 Assets – $368 million

Healthcare

Magellan Health Services, Inc., the largest provider of managed

behavioural healthcare and insurance services in the United States.
2004 Assets – $1.5 billion
2004 Revenues – $2.2 billion

Res-Care, Inc., the largest U.S. provider of residential, therapeutic,

job training and educational support services to people with devel-

opmental or other disabilities, to youth with special needs and to

adults who are experiencing barriers to employment.

Center for Diagnostic Imaging, Inc. (acquired in January 2005),

a leading provider of diagnostic and therapeutic radiology services

in the United States.

Emergency Medical Services Corporation (acquired in February

2005), the largest U.S. provider of ambulance transport services,

operating as American Medical Response, and EmCare, the largest

provider of outsourced services for hospital emergency department

physician stafﬁng and management.

6%/50%
24%/50%(a)

7%/34%
28%/34%(a)

20%/100%
84%/100%(a)

37%/100%
97%/100%(a)

–

Customer Management Services

ClientLogic Corporation, a leading business process outsourcer in

68%/88%

71%/89%

the contact centre and fulﬁllment industries; the company provides

customer care services for telecommunications, consumer goods,

retail, technology, transportation, ﬁnance and utility companies.
2004 Assets – $303 million
2004 Revenues – $730 million

(a) Represents the ownership and voting percentages of Onex Partners LP, including Onex.

Onex Corporation December 31, 2004 Report 5

2 0 0 4 R E V I E W O F O N E X O P E R AT I N G C O M PA N I E S

2004
Ownership/
Voting

2003
Ownership/
Voting

Automotive Products

J.L. French Automotive Castings, Inc., a leading manufacturer

77%/100%

56%/100%

of aluminum die-cast components for North American and

European automotive original equipment manufacturers.
2004 Revenues – $691 million

2004 Assets – $452 million

Commercial Vehicle Group, Inc., a leading supplier of interior

24%/24%

(1)

systems, vision safety solutions and other cab-related products to

the global commercial vehicle market and other specialized trans-

portation markets.

Performance Logistics Group, a leading North American provider

26%/26%

50%/100%

of automotive transportation and logistics services for light

vehicle OEMs.

Other Businesses

Personal Care Products

Cosmetic Essence, Inc., a leading provider of outsourced supply

chain management services to the personal care products industry.

21%/100%
92%/100%(a)

–

Communications Infrastructure

Radian Communication Services Corporation, a leading North

89%/100%

71%/80%

American wireless communications infrastructure and network

services company.
2004 Revenues – $113 million

2004 Assets – $70 million

Small-capitalization Opportunities

28%/100%

25%/100%

ONCAP LP, a $400 million fund focused on acquiring and building

the value of small-capitalization companies based in North

America, which actively manages investments in CMC Electronics

Inc., Western Inventory Service Ltd., Futuremed Health Care

Products L.P. and Canadian Securities Registration Systems Ltd.
2004 Assets – $820 million
2004 Revenues – $431 million

(1)

In 2003, Onex had ownership and voting in Bostrom (49%/100%) and Trim Systems (79%/100%), which were merged in August 2004 to form Commercial Vehicle Group.

The logos in this table are the property of the particular companies listed.

Additional information on the industry segments in which the Onex companies operate is provided in the Management’s Discussion and Analysis and in note 27 to the audited

annual consolidated financial statements.

(a) Represents the ownership and voting percentages of Onex Partners LP, including Onex.

6 Onex Corporation December 31, 2004 Report

2 0 0 4 R E V I E W O F O N E X O P E R AT I N G C O M PA N I E S

Onex represents more value than the simple addition of the individual operating companies and
investments discussed below. Onex has substantial cash resources for investment in attractive
opportunities that can quickly alter the overall valuation of the Company, as the six acquisitions
completed or announced in 2004 attest. We are a highly entrepreneurial enterprise, with extensive
experience and expertise in acquisitions, strategy, negotiations and ﬁnancing that enable us to
identify and acquire attractive companies. Moreover, we have a long history and strong track
record of success in partnering with management teams to build acquired businesses into industry
leaders, which has enabled signiﬁcant growth in value for Onex shareholders over the long term.
The discussion that follows is a brief summary of signiﬁcant activities at Onex and

its operating companies during 2004. The 2005 outlook for each operating company begins
on page 57 of this report.

E L E C T R O N I C S
M A N U F A C T U R I N G S E R V I C E S

Celestica
Celestica, Inc. (“Celestica”) (NYSE, TSX: CLS, CLS.SV,

respectively) is a world leader in the delivery of innovative

electronics manufacturing services (“EMS”). The company

operates a highly sophisticated global manufacturing net-

work with operations in

Asia, Europe and the

Americas, providing a

broad range of integrated services and solutions to leading

original equipment manufacturers (“OEMs”) such as

Avaya, Inc., Cisco Systems, EMC Corporation, Hewlett-

Packard, IBM, Lucent Technologies, Motorola, NEC and

Sun Microsystems.

The resurgence in business volumes evident at the

end of 2003 continued during the ﬁrst half of 2004. While

still above prior-year levels, growth during the second

half of the year was lower than expectations as some of

Celestica’s largest communications and information tech-

nology (“IT”) customers reduced their orders in response

to lower end-market demand.

Given this environment of improved, but unpre-

dictable demand, Celestica management continued trans-

forming Celestica with a focus on reducing capacity in

high-cost geographies, diversifying revenue and expanding

its service offerings. The company embarked on a US$175–

US$200 million restructuring program that will be com-

pleted during the ﬁrst quarter of 2005. Five plants were

closed under the program during 2004. In early 2005, the

company announced an additional US$225–US$275 mil-

lion restructuring initiative that will, during 2005 and early

2006, reduce capacity in its high-cost geographies in North

America and Europe and shift greater levels of production

to lower-cost regions.

Diversifying revenue remained a key initiative

during 2004, and annualized revenue from new business

increased throughout the year. This, along with the results

from acquisitions in 2004, resulted in a more diversiﬁed

customer base. Customers outside Celestica’s traditional

communications and IT segments – industries such as

aerospace and defence, automotive, industrial and con-

sumer – represented 19 percent of total revenues in 2004

compared to just 10 percent in 2003. The company also

increased its efforts on growing its revenues and capa-

bilities in its service offerings, such as design, fulﬁllment

and after-market services, as customers look for its EMS

providers to offer broader supply chain solutions beyond

traditional manufacturing services.

Stronger ﬁnancial performance

Revenues increased 31 percent to US$8.8 billion in 2004 from

US$6.7 billion in 2003. Approximately 17 percent of the rev-

enue growth was due to improved base business volumes

from some of Celestica’s largest customers and from new

business wins. The acquisitions of Manufacturers’ Services

Limited (“MSL”) in March 2004 and NEC Corporation’s oper-

ations in the Philippines in April 2004 contributed a 14 per-

cent increase in revenues. All of the company’s regions – the

Americas, Europe and Asia – increased revenues year-over-

year. In addition, the Asia region, which increased revenues

by 44 percent from 2003 levels, beneﬁtted from the shift of

Onex Corporation December 31, 2004 Report 7

2 0 0 4 R E V I E W O F O N E X O P E R AT I N G C O M PA N I E S

manufacturing capabilities and volume from Celestica oper-

ations in other geographic areas.

Celestica reported operating earnings of US$178 mil-

lion, before charges relating to the writedowns of receiv-

ables and inventory. This compared to the US$1 million of

operating earnings reported in 2003. During 2004, Celestica

beneﬁtted from higher volumes, the inclusion of operating

earnings from acquisitions and improvements resulting from

its restructuring initiatives. This was partially offset by ap-

proximately US$161 million of writedowns taken in the fourth

quarter of 2004 due to uncertainty over the recoverability of

certain receivables and inventory of one of the company’s

customers whose ﬁnancial condition had deteriorated.

Celestica

FIGURE 1

(US$ millions)

Revenues

Operating earnings (1)

Acquisition, restructuring

and other expenses

Writedowns of goodwill and

intangible assets

Writedowns of long-lived assets

Net loss

Total assets

Total long-term debt

2004

8,840

178

(154)

(319)

(69)

(863)

4,940

6,735

(95)

(25)

(58)

(266)

5,135

(including current portion)

624

211

Onex’ ownership/voting

Employees

18%/84%

19%/85%

46,800

40,100

The above amounts are based on Onex’ accounting policies (Canadian) and

therefore may differ from those presented in Celestica’s ﬁnancial results.

(1) Excludes US$178 million of charges related to writedown of receivables

and inventory in 2004.

2003

of its CGLP units, is just over $1 billion compared to a total

T H E A T R E E X H I B I T I O N

In July 2004, Onex completed the sale of Loews Cineplex for

approximately $2 billion. Onex received proceeds of about

$739 million for its interest and retained Loews Cineplex’

interest in the Canadian operations. Those operations

include units of Cineplex Galaxy Limited Partnership

(“CGLP”) and Cineplex Odeon Corporation (“Cineplex

Odeon Canada”), which owns a small number of theatres

and real property not included in CGLP at the time of its

initial public offering. These combined operations now

represent Onex’ holdings in the theatre exhibition industry.

Onex’ total value from the theatre exhibition

segment, including the market value at December 31, 2004

investment of approximately $540 million made primarily

in 2001. Onex currently owns 31 percent of the outstanding

CGLP units and has a 100 percent voting interest.

Cineplex Galaxy Income Fund
In November 2003, Cineplex Galaxy Income Fund (“CGIF”)

completed an initial public offering of trust units and used

the proceeds from this offering to purchase an interest

in the operating entity CGLP. At

December 31, 2004, CGIF had a

42 percent interest in CGLP, while

Onex and other shareholders held

the other 58 percent ownership interest.

CGLP acquired and combined the Canadian oper-

ations of Loews Cineplex, known as Cineplex Odeon, and

Onex’ Galaxy Entertainment subsidiary. This transaction

created one of the leading Canadian cinema companies.

Moreover, it brought together two of the most experienced

To drive further gains in proﬁtability, Celestica deployed

management teams in the business whom we were conﬁdent

lean manufacturing techniques and six sigma quality prac-

could achieve strong synergies between the two circuits.

tices across its facilities. Additionally, management divest-

We have not been disappointed. The management

ed non-core businesses such as its Power Systems business

team at Cineplex Galaxy, energized by industry veteran

during the third quarter of 2004 and it signed a supply

Ellis Jacob, merged the two organizations quickly and

agreement to manufacture certain products for the buyer,
C&D Technologies. In order to better align its capabilities to

seamlessly, taking the best practices of both and imple-

menting them throughout Cineplex Galaxy. The combined

the needs of its largest OEM customers, Celestica also dis-

organization has improved its purchasing efﬁciencies

continued the development of its own 64-bit reference

and reduced overheads by more than $2 million. Cineplex

designs and exited its channel distribution activities for

Galaxy has also pursued multiple re-branding opportuni-

these products.

8 Onex Corporation December 31, 2004 Report

ties in the past year to ensure that its circuit is exploiting

the best of its two strongest brands.

2 0 0 4 R E V I E W O F O N E X O P E R AT I N G C O M PA N I E S

The company continued to expand its high-quality

circuit during 2004. It opened three new theatres – ten

screens in Guelph, Ontario, six screens in Orillia, Ontario

and ten screens in Pitt Meadows, B.C. – and expanded and

upgraded its Lethbridge, Alberta theatre by four screens.

Cineplex Galaxy now has 775 screens in 86 locations.

Three-quarters of these screens are in theatres that are

less than eight years old, ensuring patrons an outstanding

entertainment experience.

Box-ofﬁce revenues outpace industry

Box-ofﬁce revenues for Cineplex Galaxy advanced 5 per-

cent in 2004 compared to a 1 percent increase in box-ofﬁce

revenues for the North American theatre exhibition indus-

try. Concession revenues grew by more than 7 percent.

Ancillary revenues from on-screen advertising, electronic

games in theatre lobbies and events in theatres were up

10 percent for the year. While still a relatively small part of

overall sales, ancillary revenues will be a key strategic focus

of Cineplex Galaxy management in 2005 and beyond.

Overall, 2004 revenues reported by Onex’ theatre

segment were $356 million, a 6 percent increase compared

to the $336 million reported in 2003. As noted, new theatres,

higher average admission prices and concession revenues

were the major drivers of the revenue increase. Operating

earnings advanced 10 percent in 2004 to $43 million from

$39 million in the prior year due primarily to higher rev-

enues, purchasing efﬁciencies and reduced overhead costs.

Cineplex Galaxy

H E A L T H C A R E

In 2002, we identiﬁed the healthcare industry in the United

States as an attractive sector in which to apply our

approach to value creation. Not only is the industry as

a whole large and multi-disciplinary, it is also highly frag-

mented. With an aging population requiring increasing

care, and with governments expanding the scope of services

they provide to employees and communities, we believe

there is a signiﬁcant opportunity to deliver cost-effective

services that create value for patients, payors and share-

holders. During 2004 and early 2005, Onex made four

important acquisitions or investments in the healthcare

sector, as described below.

Magellan Health Services
In early January 2004, Onex completed its investment

in Magellan Health Services, Inc. (“Magellan”) (NASDAQ:

MGLN) as part of the plan for Magellan’s emergence

from bankruptcy. The company

is the leading provider of man-

aged behavioural healthcare in

the United States. Its customers

include major health plans, state and local government agen-

cies funded under Medicaid, and Fortune 1000 employers.

Onex made a $131 million investment in Magellan for a

24 percent equity interest and effective voting control of the

company. This was funded by Onex and Onex Partners LP

(“Onex Partners”) with Onex’ share of the investment being

FIGURE 2

(Cdn$ millions)

2004

2003

$30 million for an approximate 6 percent equity interest.

Revenues

Operating earnings

Earnings before taxes

Total assets

Total long-term debt

(including current portion)

356

368

129

336

147

359

114

Onex’ ownership/voting

31%/100%

While Magellan was under bankruptcy protection,

Onex worked with the company’s management and was an

integral part of the reorganization plan. The reorganization

enabled the company to emerge from bankruptcy with a

US$500 million reduction in debt and an equity infusion of

US$150 million, which includes the investment made by

Onex. This strengthened capital structure created a very

Employees

3,950

3,860

solid base for strategic growth at Magellan in an industry

The above amounts are based on Onex’ consolidated results of Cineplex Galaxy

Income Fund and Cineplex Odeon Canada, which has operations not included in

Cineplex Galaxy Income Fund. Therefore these results will differ from those

ﬁnancial results published by Cineplex Galaxy Income Fund.

that we believe offers attractive opportunities for expansion.

In its core business, Magellan offers clients an

integrated suite of products under three broad categories

of care. Behavioural care management provides cost-effec-

tive solutions for managed mental health and substance

abuse beneﬁts. Condition care management offers inte-

grated solutions that address the challenges of co-morbid

Onex Corporation December 31, 2004 Report 9

2 0 0 4 R E V I E W O F O N E X O P E R AT I N G C O M PA N I E S

behavioural and medical conditions, such as depression

Attractive avenues to long-term growth

associated with chronic illness. The company’s employee

We share management’s view that Magellan has many

assistance and life management programs focus on prob-

strengths that will enable it to grow proﬁtably in the

lem resolution that combines traditional employee assis-

coming years. A diversiﬁed base of high-quality customers,

tance programs with work/life services.

solid ﬁnancial position, very experienced management

Strong performance in 2004

team, industry-leading information systems and demon-

strated expertise in behavioural healthcare – each of these

Under the guidance of an excellent management team led

will play a key role in Magellan’s pursuit of growth. In

by CEO Steve Shulman, Magellan was quick to deliver on

the company’s core business of managed healthcare, an

the promise we saw throughout the bankruptcy process.

important opportunity is emerging from state and local gov-

Contract retention was strong during 2004, with minimal

ernments responsible for administering Medicaid services.

rate concessions in negotiations with customers. Magellan

With medical costs outstripping inﬂation, governments

reduced its cost of care expenses during 2004 by more than

are increasingly looking to the managed care model as an

ﬁve percent through initiatives such as tighter utilization

attractive alternative, and Magellan is actively seeking to

management, improved claims recovery and lower unit

administer more of its customers’ total healthcare spending.

costs. Administrative expenses were also driven down by

Longer term, Magellan believes it can do more

the closure of four call centres, ongoing migration to an

to serve the millions of lives it insures by developing new

integrated information technology platform and company-

products that take advantage of its information systems

wide process improvements.

and established delivery system. Magellan intends to test

These meaningful gains resulted in ﬁnancial

predictive modelling of high-cost members of its plans,

performance for 2004 that exceeded our expectations.

with a focus on depression, and then expand its modelling

Revenues were US$1.7 billion and operating income was

to a wider base of behavioural conditions that are dramati-

US$184 million. Revenues and operating earnings increased

cally increasing the total cost of care to health plans. During

over 2003 due to cost of care that was not only lower than

the ﬁrst half of 2005, Magellan will also launch a pilot pro-

anticipated but also lower than the historical trends built

gram designed to provide more-effective screening and

into contract pricing. Margins were strong as a result

care for the seriously obese, who tend to have signiﬁcantly

and were further buoyed by lower administrative costs.

greater medical costs, drug beneﬁts and time lost than the

Importantly, Magellan generated signiﬁcant cash ﬂow in

general population.

2004 – more than US$330 million – leaving the company

with virtually no net debt and substantial resources with

which to pursue new opportunities for growth.

Magellan

FIGURE 3

(US$ millions)

Revenues

Operating earnings

Acquisition, restructuring and other expenses

Net earnings

Total assets

Total long-term debt (including current portion)

Onex’ ownership/voting

Employees

2004(a)

1,687

182

(5)

1,183

374

6%/50%

4,300

The above amounts are based on Onex’ accounting policies (Canadian) and there-
fore may differ from those financial results published by Magellan Health Services.

(a)

Includes Magellan’s financial results from the date of Onex’ investment,
January 5, 2004.

10 Onex Corporation December 31, 2004 Report

Res-Care, Inc.
Res-Care, Inc. (“ResCare”) (NASDAQ: RSCR) is a human

service company providing residential, therapeutic, job

training and educational support to people with devel-

opmental or other disabilities, to youth with special

needs and to adults who

are experiencing barriers

to employment. In June 2004,

Onex completed a $114 mil-

lion equity investment in ResCare for an approximate

28 percent ownership interest in the company; this

followed overwhelming approval of our participation

from ResCare shareholders. This investment was funded

through Onex Partners LP; Onex’ portion of the investment

was about $27 million. ResCare is using the investment

proceeds to fund its growth plans.

2 0 0 4 R E V I E W O F O N E X O P E R AT I N G C O M PA N I E S

Largest U.S. provider of residential services

during 2004 that will add approximately US$26 million

ResCare delivers a range of valuable social services through

in annual revenues. Just prior to year end, ResCare’s

two major divisions. Disabilities Services, representing

education and training unit was awarded a three-year,

about 80 percent of revenues and operating earnings, pro-

US$90 million contract by New York City to provide a range

vides a full array of services from more than 2,500 locations

of services to people with disabilities.

to people with developmental disabilities such as Down’s

syndrome and autism. ResCare is by far the largest provider

Growing opportunity in in-home services

of these services in the United States, operating in 33 states,

The company is also growing organically. The provision of

Washington, DC, as well as Ontario, Canada. These services

periodic in-home services, in which state governments hire

are primarily funded by Medicaid.

ResCare to provide services to the elderly and to aging

In its Training Services division, ResCare is the

parents with developmentally disabled adult children at

second-largest provider of Job Corps programs funded

home, has been growing at double-digit rates over the

by the U.S. Department of Labor. The company operates

past three years. That trend is expected to continue, and

16 Job Corps centres in 12 states and Puerto Rico that

capturing a growing share of the market for periodic

provide training services to nearly 6,000 16 to 24-year-olds

in-home services will remain a key initiative for ResCare.

each day and 12,000 each year. ResCare also delivers

The company is also pursuing revenue and margin

training services to more than 6,000 under-skilled persons

enhancement at its core ofﬁces by adding new homes.

who are experiencing barriers to employment. The division

ResCare also purchases operations from competitors that

provides services to more than 20,000 Americans annually

can be integrated into its existing clusters; in 2004, the

under local programs funded by the Department of Health

company completed “tuck-ins” representing annualized

and Human Services and the Department of Labor.

revenues of approximately US$20 million.

Quality care, quality performance

In making the investment in ResCare, we were particularly

Center for Diagnostic Imaging
In early January 2005, we completed the previously

impressed with the quality and dedication of the manage-

announced acquisition of Center for Diagnostic Imaging,

ment team led by CEO Ron Geary. His team has created a

Inc. (“CDI”) in a transaction valued at approximately

caring, mission-driven culture that lives its slogan of

“building lives, reaching potential.” That quality of care for

clients has also led to an outstanding record of ﬁnancial

success for shareholders. At year-end 2004, ResCare had

$225 million. The company

is the leading provider of

diagnostic and therapeutic

radiology services in the

delivered 52 consecutive quarters of revenue increases. We

United States, operating 32 diagnostic imaging centres in

believe management has a compelling strategy for further

nine major markets and having annual revenues of more

growth, and we are pleased to be partners with them to

than $125 million. The acquisition was funded through

help facilitate their objectives.

Onex Partners, which invested $88 million of equity in the

ResCare is pursuing expansion on a variety of

transaction for an 84 percent ownership interest. Onex’

fronts. After successfully integrating 48 acquisitions made

portion of the equity investment was $21 million for an

between 1997 and 2000 on a single business platform, the

approximate 20 percent ownership interest.

company is returning to an active acquisition program that

CDI’s imaging services include magnetic resonance

will take advantage of the continuing consolidation of this

imaging (“MRI”), computed tomography (“CT”), diagnos-

highly fragmented industry. Management’s intention is to

tic and therapeutic injection procedures and other proce-

add to existing clusters of group homes surrounding the

dures such as PET/CT, conventional x-ray, mammography

company’s core ofﬁces. ResCare completed two acquisitions

and ultrasound.

Onex Corporation December 31, 2004 Report 11

C U S T O M E R M A N A G E M E N T
S E R V I C E S

ClientLogic
ClientLogic Corporation (“ClientLogic”) is a leading inter-

national provider of business process outsourcing (“BPO”)

services in the customer care, fulﬁllment, item processing

and marketing services

industry. The company

has 55 facilities in North

America, Europe, Africa

and Asia, including ﬁve distribution centres, that are

staffed by more than 20,000 associates. Customer care –

around-the-clock customer service, sales and technical

support – represented 88 percent of revenues in 2004, while

fulﬁllment – cost-effective “pick, pack and ship” of client

products – comprised 10 percent. ClientLogic manages

more than 140 million customer transactions each year.

The market for outsourced customer contact

continued to expand during 2004 as corporations sought

customer-care strategies that not only optimize their

expenditures but also protect their brand image with

consumers. ClientLogic’s solution for clients is known

as its “Right Shore Strategy”, which focuses on partnering

with clients to determine their core customer care needs

and selecting the service offerings and locations that

best meet those needs. Under this strategy, ClientLogic

typically blends domestic contact centre capabilities with a

‘near-shore’ component where similarities in language

skills and time zone ensure a seamless transition to out-

sourced services. A low-cost offshore component is added

where appropriate to get the best overall cost proﬁle at the

lowest risk.

2 0 0 4 R E V I E W O F O N E X O P E R AT I N G C O M PA N I E S

We believe the diagnostic imaging industry pro-

vides an excellent opportunity for growth. An aging popu-

lation is driving increased demand for these services, while

technological advances are making diagnostic imaging

increasingly important for physicians and their patients.

CDI’s industry leadership, strong management team and

advanced processes make it a strong foundation for value

creation in Onex’ healthcare segment.

American Medical Response and EmCare
In late 2004, Onex announced an agreement to acquire

American Medical Response, Inc. (“AMR”) and EmCare

Holdings Inc. in a transaction valued at approximately

$1 billion. In February 2005, we

completed the purchase directly

and through Onex Partners, which

together with certain limited

partner co-investors provided

approximately $270 million in

equity for a 97 percent ownership

interest; Onex’ share of the total equity was $100 million for

an approximate 37 per-cent ownership interest. Senior

management of the businesses are also co-investors.

Approximately $770 million of debt was raised to provide

the balance of the funding for the transaction.

AMR, headquartered in Denver, Colorado, is the

largest U.S. provider of ambulance transport and emer-

gency response services, operating 4,400 vehicles in more

than 260 locations in 34 states. EmCare, based in Dallas,

Texas, is the leading provider of outsourced services for

hospital emergency department physician stafﬁng and

management. The company provides its hospital clients

with services such as employee recruiting, quality assur-

ance, risk management and record-keeping. EmCare has

more than 300 contracts with facilities in 38 states.

AMR and EmCare give Onex very strong founda-

tions for expansion in the emergency medical sector. The

companies have industry-leading market positions, excel-

lent customer bases and highly experienced management

teams led by William Sanger, who is CEO of both compa-

nies. We look forward to working with management to take

advantage of growth opportunities that will build value not

only for shareholders but also for customers.

12 Onex Corporation December 31, 2004 Report

2 0 0 4 R E V I E W O F O N E X O P E R AT I N G C O M PA N I E S

Comprehensive right-shore footprint

Thanks largely to the sharp focus of CEO Dave

After a very active 2004, ClientLogic has substantially

Garner and his management team, ClientLogic achieved a

completed its right-shore infrastructure. The company

signiﬁcant turnaround in its ﬁnancial results in 2004.

added more than 1,100 seats at two new facilities in New

Revenues increased 30 percent to US$562 million com-

Brunswick and 500 seats at contact centres in Bangalore,

pared to US$433 million in 2003. Part of that increase was

India. The acquisition of Service Zone, Inc., which was

attributable to ClientLogic’s acquisition of Service Zone

completed in December 2003, and new construction in

in late December 2003, which added US$75 million of

2004 added 1,400 seats at contact centres in the Philippines.

revenue growth in North America in 2004. In addition, new

A call centre in Rabat, Morocco was established to provide

business wins with clients such as DirecTV and Bell Canada

near-shore support for clients based in France. ClientLogic

contributed US$31 million of revenue growth in 2004.

is aggressively selling this increasingly comprehensive

Higher revenues and the beneﬁts of cost-reduction initia-

right-shore footprint to clients requiring scalable, cost-

tives that began in 2003 led to a substantial increase in

effective solutions for their customer contact.

operating earnings, which rose US$50 million to US$34 mil-

With the ongoing consolidation of the industry,

lion in 2004 from an operating loss of US$16 million in the

capable international competitors in offshore markets and

prior year.

the growing presence of non-traditional BPO providers

in the customer care space, competition has remained

ClientLogic

intense. Client demands for ongoing cost and process im-

provements favour large, stable providers, like ClientLogic,

FIGURE 4

(US$ millions)

2004

2003

with a reputation for quality delivery and cost-effective

Revenues

solutions. Improving operational quality and productivity

Operating earnings (loss)

against clear metrics were key initiatives at ClientLogic. The

Acquisition, restructuring and other expenses

company achieved best-in-class status on both measures in

Writedowns of goodwill and

its North American operations in 2004 and will implement

intangible assets

similar strategies in its European operations in 2005. As one

measure of the success of the management team’s focus on

quality, ClientLogic was named a “Top 5 Global Provider” in

the 2004 Teleservices Agencies Awards, a major recognition

by its industry.

Net loss

Total assets

Total long-term debt

(including current portion)

Onex’ ownership/voting

Employees

562

(3)

(11)

253

198

433

(16)

(6)

(4)

(52)

263

184

68%/88%

71%/89%

20,300

14,400

New business wins and solid performance

The above amounts are based on Onex’ accounting policies (Canadian) and

ClientLogic’s quality, cost-effectiveness and compelling

therefore may differ from those presented in ClientLogic’s financial results.

right-shore strategy led to net new business with Fortune

500 companies of about US$65 million during 2004, the

majority of it with clients based in North America.

ClientLogic’s fulﬁllment business completed a transition

year in 2004 as the company refocused the segment on a

true “pick, pack and ship” operation. Management imple-

mented new information systems and resolved the execu-

tion issues that had hampered the fulﬁllment area in 2003,

and the operation entered 2005 with a very robust pipeline

of new contracts.

Onex Corporation December 31, 2004 Report 13

2 0 0 4 R E V I E W O F O N E X O P E R AT I N G C O M PA N I E S

A U T O M O T I V E P R O D U C T S

With our partner, Hidden Creek Industries (“HCI”), we have

pursued a three-part strategy at Onex automotive products

companies during the past three years: strengthen the

management teams at each company, implement structural

cost reductions to enable the companies to better address

OEM pricing demands and improve their capital structures

so that each company had more ﬁnancial ﬂexibility to grow.

These initiatives take perseverance if they are to lead to

sustainable value creation. As described below, during 2004

we began to see tangible beneﬁts from the consistent exe-

cution of these performance improvement strategies by

our operating teams.

Partnership with Hidden Creek Industries

The exclusive partnership Onex created with Hidden Creek

Industries has been very successful in creating value for

shareholders by acquiring and building major suppliers to

automotive and commercial vehicle OEMs. In the six plat-

form company investments since 1989, Onex and HCI have

created approximately $700 million in value for Onex in

these platforms – a remarkable record of achievement.

During the time of our partnership, both Onex and HCI

have evolved. The original partners at HCI have moved on.

The automotive sector, while still of interest to Onex, has

been reduced as a percentage of our total holdings, and our

focus is now on large-scale transactions. As a result, we

agreed with HCI management to end our formal partner-

ship, effective the end of 2004. HCI staff, under a new com-

pany, will continue to be involved with our holdings for a

period of time, but will also be free to provide advice to other

parties. We thank them for the key role they have played in

helping us to identify and build value in this sector.

Onex ownership interests

Onex has ownership interests in three leading companies

in the automotive products sector:

• J.L. French Automotive Castings, Inc.: One of the world’s

largest independent designers and manufacturers of high-

pressure aluminum die castings and assemblies for the

automotive marketplace;

14 Onex Corporation December 31, 2004 Report

• Performance Logistics Group: The second-largest

transporter of new automobiles in North America; and

• Commercial Vehicle Group, Inc.: The world’s largest

supplier of interior systems, vision safety solutions and

other cab-related products for the global commercial

vehicle market.

In April 2004, Onex sold its remaining interest in Dura
Automotive Systems, Inc. (“Dura Automotive”) for proceeds

of approximately $23 million. The sale is the culmination of

a 13-year partnership between Onex and Dura Automotive,

during which Onex received total proceeds of $44 million

from its $7 million investment in the company.

North American car and light truck production

declined slightly to 15.8 million units in 2004 from a vol-

ume of 15.9 million units in 2003. As has been the case in

recent years, retail sales were spurred by domestic OEM

offers of purchase incentives such as attractive lease rates

and cash bonuses. Overall, retail sales rose by 2 percent,

with light trucks – pickups and sport utility vehicles – com-

manding the major share of sales.

J.L. French Automotive Castings, Inc.
J.L. French Automotive Castings, Inc. (“J.L. French

Automotive”) is a vertically integrated manufacturer with

captive smelting operations, advanced engineering capa-

bilities, large-scale, high-pressure die-casting operations,

as well as machining and

assembly expertise. The

company, which operates

ﬁve manufacturing loca-

tions in North American and three in Europe, is the

leading supplier of aluminum parts on two of the highest-

volume domestic automotive platforms and provides

signiﬁcant content on 12 of the 20 best-selling vehicles in

North America.

The senior management team that took over the

leadership of J.L. French Automotive in the second half of

2003 has done an excellent job on its mandate of generating

new business to ﬁll existing capacity. During 2004, the

company’s focused sales approach and enhanced ﬁnancial

ﬂexibility led to more than US$120 million in new business

awards that will beneﬁt 2005 and future years. A portion of

this business is with new customers, part of a deliberate

initiative to diversify J.L. French Automotive’s customer

base in North America by 2007.

2 0 0 4 R E V I E W O F O N E X O P E R AT I N G C O M PA N I E S

Good ﬁnancial and operating performance

In August 2004, the company completed a reﬁnancing of

Revenues increased 2 percent to US$530 million in

its outstanding indebtedness. The new ﬁnancing gives

2004 compared to US$521 million in 2003; approximately

J.L. French Automotive improved liquidity, extends the

US$10 million of the increase was attributable to new busi-

maturity of the debt by nearly six years and provides the

ness awards over the past two years. Stronger production

ﬁnancial stability and ﬂexibility to pursue business growth.

on key platforms for Ford – J.L. French Automotive’s largest

As a result of the reﬁnancing, the company’s balance sheet

customer – added US$5 million in revenues, though the

was signiﬁcantly de-leveraged and interest costs were

impact was partially offset by lower production volumes on

reduced by US$25 million annually, allowing further debt

speciﬁc General Motors models. In addition, J.L. French

reduction. Onex invested US$39 million in new equity as

Automotive’s European operations increased revenues by

part of the reﬁnancing transaction, increasing its ownership

US$16 million in 2004 due primarily to the beneﬁt of

of J.L. French Automotive to 77 percent from 56 percent.

favourable changes in foreign currency rates, partially off-

Financial stability and the ﬂexibility to invest in new

set by changes in product mix.

programs are increasingly conditions of winning – or

Operating income at J.L French Automotive, how-

keeping – business in the automotive supply industry.

ever, declined slightly to US$49 million in 2004 from US$51

million in 2003 due primarily to an additional US$4 million

increase in materials costs and a growing reluctance by

Commercial Vehicle Group, Inc.
Commercial Vehicle Group, Inc. (“CVG”) (NASDAQ: CVGI)

OEMs to accept a full pass-through of higher aluminum

is a leading supplier of interior systems, vision safety

prices. Under a multi-year program initiated by CEO Jack

solutions and other cab-related products for the global

Falcon, the company achieved more than US$10 million

commercial vehicle market, including the heavy-duty

in additional cost savings with the implementation of the

(Class 8) truck market, the construction market and other

ﬁrst phase of a new expense-reduction system based on

specialized transportation markets.

six sigma practices. Improved productivity and better use

of raw scrap in North America added to overall efﬁciency.

Despite these initiatives, performance in J.L. French

Automotive’s United Kingdom operations that were not as

efﬁcient offset a portion of the productivity gains achieved

In August 2004, CVG

completed a $180 million initial

public offering. As part of that

offering, Onex sold approximately

45 percent of its CVG shares,

in North America. A consolidation plan to right size the

receiving $54 million in net proceeds and recording a gain

business to an appropriate level of employment in the UK

of $60 million after considering previously recorded losses.

is in place to improve performance in 2005.

In addition, Onex received approximately $27 million on

J.L. French Automotive

FIGURE 5

(US$ millions)

2004

2003

Revenues

Operating earnings

Acquisition, restructuring and other expenses

Writedown of goodwill

Net loss

Total assets

Total long-term debt

(including current portion)

530

(5)

–

(33)

376

638

521

(3)

(157)

(201)

367

656

Onex’ ownership/voting

77%/100%

56%/100%

Employees

2,700

2,900

The above amounts are based on Onex’ accounting policies (Canadian) and

therefore may differ from those presented in J.L. French Automotive’s

financial results.

the repayment of debt held by Onex, which resulted in a

further gain of $15 million. The total value Onex has

received on CVG, including the value of shares still held,

totalled $196 million at the end of 2004 compared to an

investment of approximately $69 million. Following the

offering, Onex retained a 24 percent ownership interest in

CVG but ceased to control the company.

Resurgence of demand in 2004

During the past several years we have discussed the factors

that impeded Class 8 heavy truck production in North

America. By late 2003, those factors, which included over-

building by OEMs in the late 1990s and a reluctance by

trucking companies to purchase new equipment, had

given over to more favourable dynamics. Pent-up demand

Onex Corporation December 31, 2004 Report 15

2 0 0 4 R E V I E W O F O N E X O P E R AT I N G C O M PA N I E S

for new trucks to replace aging vehicle ﬂeets, increased use

strong operating synergies as well. PLG’s strength is in the

of trucks as a more efﬁcient alternative to rail shipments

southern and western United States; Leaseway primarily

and overall economic expansion are pushing production

serves markets in the eastern and Midwestern areas of the

rates up substantially. OEMs built 170,000 units in 2003.

country and Canada. Where their operations overlap in the

Production increased by more than 50 percent in 2004 to

Midwest, there is signiﬁcant opportunity to eliminate

260,000 units.

empty miles through improved logistics. By year-end, PLG

Two important trends in this expansion favour

and HCI had completed about half of their planned inte-

CVG’s business model. In the ﬁrst, OEMs are awarding

gration of Leaseway, including conversion of all Leaseway

business to suppliers like CVG who can provide complete

information systems onto the PLG platform. The conver-

cab solutions. In the second, large ﬂeet operators, in an

sion was accomplished with a very low incremental cost

effort to retain drivers, are acquiring vehicles with more

and is expected to lead to US$1 million in savings in 2005.

comfortable, fully ﬁtted interiors. For CVG, higher content

The company believes that the total opportunity for merger-

per vehicle not only drives revenues but margins as well. As

related savings exceeds US$7 million.

a result, revenues soared 32 percent in 2004 to US$380 mil-

lion from US$288 million in 2003. Revenues were also driven

by substantial growth in European and Asian markets.

Three years of sharp focus on reducing ﬁxed costs by CVG

enabled the company to record a substantial increase in

operating earnings on higher revenues.

Performance Logistics Group
Performance Logistics Group (“PLG”) is the second-largest

transporter of new automobiles in North America. The

company delivers more than 3.8 mil-

lion vehicles annually from OEM

plants to dealers.

In March 2004, Onex and HCI negotiated PLG’s

acquisition of Leaseway Auto Carrier Group (“Leaseway”)

from Penske Truck Leasing Co. (“Penske”) in a share-

exchange transaction. Onex’ equity ownership in the new,

larger PLG was reduced to 26 percent from 50 percent

due to the issuance of additional shares by PLG, and Onex

ceased to have voting control of the company on com-

pletion of the transaction but retained signiﬁcant board

representation.

We believe the Leaseway acquisition was a

very good strategic ﬁt for PLG. The combination created a

company with three well-respected brands that serve all

major automotive OEMs. The company became the second

largest in the industry, touching more than 25 percent of

all new cars and light trucks in North America. There are

O T H E R B U S I N E S S E S

Communications Infrastructure
Radian Communications Services
Radian Communications Services Corporation (“Radian”)

is a provider of communications infrastructure, including

network design, installa-

tion and management, as

well as tower engineering

and construction to the

telecommunications, broadcast and government sectors

in North America. The company has a broad product

offering and the capability to be a single-source provider of

network communications, infrastructure technology and

life-cycle service.

Contrary to expectations at the end of 2003, the

rebound in capital expenditures by wireless carriers antici-

pated for 2004 by the communications infrastructure

industry did not materialize in Canada, and spending

increases in the United States during the second half

of 2004 were modest. While sales of new towers did not

achieve the levels expected for the year, Radian was suc-

cessful in winning over $9 million in new broadcast tower

contracts, primarily in the U.S. and international markets.

16 Onex Corporation December 31, 2004 Report

2 0 0 4 R E V I E W O F O N E X O P E R AT I N G C O M PA N I E S

Further cost reductions in 2004

During the ﬁrst half of 2004, Radian struggled with poor

margins in its tower business and uneven execution in its

Personal Care Products
Cosmetic Essence
In early December 2004, Onex completed the acquisition

U.S. operations. In June 2004, we appointed a new CEO,

of Cosmetic Essence, Inc. (“CEI”), in a transaction valued

Jack Pulkinen, an executive with strong ﬁnancial creden-

at approximately $300 million. CEI is a leading provider

tials and excellent general management experience. Jack

has restructured Radian in recent months by simplifying

the organizational structure, closing or consolidating

branch operations, moving the head ofﬁce to the Oakville

plant, reducing administrative and senior management

of outsourced supply chain man-

agement services to the personal

care products industry, including

formulating, manufacturing, ﬁlling,

packaging and distribution. The

staff and improving job execution and margins. These and

company manufactures products such as fragrances,

other initiatives have resulted in annual cost reductions of

crèmes, lotions and colour cosmetics for a diversiﬁed cus-

approximately $3.5 million and position Radian to be more

tomer base of leading branded manufacturers and major

efﬁcient and effective in the future.

retailers. Annual revenues exceed $250 million. Onex and

Late in 2003, Radian acquired certain assets of

Onex Partners made a $138 million investment in the busi-

ROHN Industries out of that company’s bankruptcy protec-

ness comprised of $66 million of debt and $72 million of

tion. By late 2004, all purchased equipment had been

equity for a 92 percent ownership interest. Management of

installed in the Peoria, IL facility and a single shift was fully

CEI have the balance of the ownership. Onex’ share of the

manned. ROHN continues to be a well-respected brand

investment was $16 million of debt and $17 million in the

with both domestic and international customers, and sales

equity for a 21 percent ownership interest.

are increasing each month. Radian expects the facility to

contribute to proﬁtability during 2005.

Compelling value proposition for customers

Revenues for 2004 increased 5 percent to $113 mil-

We believe CEI represents a very attractive opportunity

lion. Approximately $12 million of the increase was

to build value by helping to accelerate the growth of an

attributable to the ROHN business. Radian reported an

established market leader. The company’s fully integrated

operating loss of $11 million in 2004 compared to an oper-

outsourcing model presents a strong value proposition

ating loss of $7 million in the prior year. The signiﬁcant

to customers, enabling them to increase their speed-to-

turnaround plan implemented by the new management

market, focus on their own core strengths while reducing

team began to show positive results in the fourth quarter.

their cost structures. Nine of CEI’s top ten customers rely

extensively on CEI to manage key aspects of the supply

Radian

chain on their behalf.

FIGURE 6

(Cdn$ millions)

2004

2003

Revenues

Operating loss

Acquisition, restructuring

and other expenses

Writedowns of goodwill

Net loss

Total assets

Total long-term debt

(including current portion)

113

(11)

(4)

–

(19)

108

(7)

(2)

(8)

(23)

Onex’ ownership/voting

89%/100%

71%/80%

Employees

600

The above amounts are based on Onex’ accounting policies (Canadian) and

therefore may differ from those presented in Radian’s financial results.

CEI is run by a highly respected and experienced

management team, led by John Croddick, Sr., the compa-

ny’s CEO and founder, that has rapidly grown the compa-

ny’s market leadership with a strong group of customers.

Sales are well diversiﬁed across its supply-chain capabili-

ties, distribution channels and products. Moreover, the

company enjoys excellent relationships with a loyal, high-

quality customer base of leading marketers and retailers

of personal care products such as Bath & Body Works,

Onex Corporation December 31, 2004 Report 17

2 0 0 4 R E V I E W O F O N E X O P E R AT I N G C O M PA N I E S

Elizabeth Arden, Wal-Mart and Target. As a result, CEI’s

The ONCAP team, under the direction of its

compound annual growth in revenues from 1999–2004

Managing Partner Michael Lay, is doing an excellent job of

was more than 22 percent; operating income advanced at

delivering on the primary objective for its ﬁrst fund. The

a compound rate of more than 35 percent annually over

commitment period for initial investments by the ﬁrst fund

the same period.

Attractive growth potential

expired at the end of December 2004, though ONCAP has

the ability to make follow-on investments for another two

years. ONCAP has made six acquisitions to date and has

We ﬁnd the longer-term opportunity in the US$33 billion

realized fully on two of those. At the end of 2004, the fund

personal care products industry in the United States to be

had returned more than 80 percent of investors’ capital and

very attractive. Strong stable growth is expected to be at a

held four attractive companies with excellent prospects for

compound annual rate slightly higher than the 4.5 percent

continuing value creation. The two investments on which

rate of recent years. Consumer demand for greater multi-

ONCAP has realized value – Enerﬂex Systems and Armtec

functional and therapeutic beneﬁts from products,

Limited (“Armtec”) – generated an internal rate of return of

favourable demographics and growth in private-label

nearly 28 percent on invested capital. ONCAP manage-

brands are expected to drive the need for outsourced

ment has initiated discussions with potential investors for

services such as research and development, manufacturing

a new, slightly larger fund to be raised in 2005, in which

and distribution. CEI operates in a large, highly fragmented

Onex expects to be a major partner. The investment goals

market, where meeting customer demands for speed-to-

of the second fund are expected to mirror those of the ﬁrst.

market, quality assurance and relationship management

The environment for small- and mid-cap acquisi-

are the key drivers of success. In our view, CEI has both

tions continued to be very competitive during 2004.

the management capability and physical infrastructure to

Canadian and U.S. private equity ﬁrms, ﬂush with cash and

leverage its signiﬁcant competitive advantages into future

readily available ﬁnancing, aggressively pursued attractive

growth, beginning in 2005.

Small-capitalization Opportunities
ONCAP
ONCAP LP (“ONCAP”) is Onex’ dedicated vehicle for

investments; in Canada speciﬁcally, the very strong market

for income trusts also increased competitive pressures for

quality assets. Nevertheless, during the ﬁrst half of 2004

ONCAP completed two acquisitions, Futuremed Health

Care Products L.P. (“Futuremed”) and Canadian Securities

pursuing value creation in small- and mid-cap companies.

Registration Systems Ltd. (“CSRS”) – both leaders in their

The ONCAP fund was estab-

industry segments – that it believes have excellent

lished with $400 million of

prospects for value growth.

committed capital from major

In July, ONCAP used the income trust market to

investors, of which Onex’ commitment was $120 million.

complete an initial public offering of trust units of Armtec,

ONCAP’s objective is to acquire signiﬁcant equity positions

a leading manufacturer and marketer of drainage products

in companies with leading positions in their industries or

and engineered solutions for infrastructure applications.

industry segments, in partnership with those companies’

ONCAP sold its entire interest in the company as part of the

management teams. ONCAP typically makes equity invest-

offering for gross proceeds of $76 million; Onex’ share of

ments of $20 to $80 million in established companies in

those proceeds was $25 million. The realization was more

North America. These companies usually have enterprise

than twice ONCAP’s initial investment, representing a

values that range from $50 million to $500 million. Like

33.7 percent internal rate of return over the three years of

Onex, ONCAP’s investment objective is to create superior

Armtec ownership.

value for its partners over the long term.

18 Onex Corporation December 31, 2004 Report

2 0 0 4 R E V I E W O F O N E X O P E R AT I N G C O M PA N I E S

The ONCAP companies reported consolidated

Western Inventory Service

revenues of $431 million in 2004, up from $275 million in

Western Inventory Service (“WIS”), acquired early in 2003,

2003. The growth in revenues was due primarily to the

is the largest data collection and veriﬁcation company in

inclusion of Futuremed from its February 2004 acquisition

Canada and the third largest in the United States. WIS pro-

date and CSRS from its April 2004 acquisition date.

vides services such as inventory counting and consulting,

Operating earnings of $41 million in 2004, however, were

retail price veriﬁcation and information management. The

slightly lower than the $43 million earned in 2003 due pri-

company has a strong management group and excellent

marily to the impact of the strengthening Canadian dollar

relationships with customers that include major depart-

on the results of CMC Electronics during 2004.

ment, drug and electronics chains.

CMC Electronics

WIS executed its business plan in Canada

efﬁciently and proﬁtably during 2004, also winning attrac-

CMC Electronics, Inc. (“CMC Electronics”), acquired in

tive new business from a national grocery retailer. While

2001, is a world-class leader in the design, manufacture and

the company is continuing to explore opportunities to

marketing of electronics and communications products

expand beyond its traditional retail clients, the strategic

for commercial and military applications. Late in 2004,

focus of the business over the past year remained on

CMC Electronics sold its CMC Electronics Cincinnati

inventory counting. In the United States, WIS pursued and

division, a manufacturer of infrared sensors and space

won additional business, although not the volume of new

electronics, for US$179 million. The sale leaves CMC

business anticipated for 2004. The company continues to

Electronics with a strategic focus on the aviation elec-

pursue rapid growth in the U.S. market and potential new

tronics business, with a primary emphasis on commercial

service offerings.

and military cockpit avionics. In September 2004, CMC

Electronics hired Jean-Pierre Mortreux as President and

Futuremed Health Care Products

CEO to champion CMC Electronic’s next phase of growth.

In February 2004, ONCAP invested $25 million in the

He brings 25 years of industry experience and extensive

equity of Futuremed in partnership with the company’s

capabilities in leading the development, marketing, manu-

founder and CEO Raymond Stone. Futuremed is Canada’s

facture and support of aerospace electronics products and

leading supplier of medical supplies, equipment and furni-

systems. Mr. Mortreux was formerly CEO of Thales Avionics

ture to long-term care facilities. The company is the largest

North America.

supplier in Ontario and has a strong presence in Alberta

CMC Electronic’s commercial aviation business

and in British Columbia.

had an excellent year in 2004. The division found a very

ONCAP is working closely with the company in

positive reception to its new enhanced vision systems and

evaluating opportunities to expand the company’s geo-

electronic ﬂight bag for the business jet market. Its ﬂight

graphic coverage and the range of products it provides to

management systems sold well, and component manufac-

nursing-home customers. The demographics of an aging

turing rebounded nicely from lacklustre performance

population base and the opportunity to create a national

during 2003. CMC Electronic’s NovAtel had an outstanding

presence suggest that Futuremed has substantial room to

year with sales of its high-end GPS-based avionics safety

grow in both size and revenues.

system. CMC Electronic’s 50-percent ownership interest

in publicly traded NovAtel (NASDAQ: NGPS) was valued

at $239 million at December 31, 2004. In early 2005, CMC

Electronics sold approximately 73 percent of its ownership

in NovAtel for proceeds of about $118 million.

Onex Corporation December 31, 2004 Report 19

2 0 0 4 R E V I E W O F O N E X O P E R AT I N G C O M PA N I E S

Canadian Securities Registration Systems

CGG is a leading global supplier of applied reser-

In April 2004, ONCAP invested $29 million in equity in the

voir solutions, geophysical services and products to the

acquisition of CSRS. CSRS is a leading Canadian provider of

worldwide oil and gas industry. We believe our investment

registration and search services to ﬁnancial institutions

in CGG to be both attractive and timely. CGG is expected to

and auto ﬁnance and leasing companies. CSRS specializes

experience growing demand for its services as oil produc-

in registering Personal Property Security Act (“PPSA”)

ers increase their exploration budgets in response to high

charges on assets, conducting PPSA searches and register-

commodity prices and declining reserve levels.

ing security under the Bank Act. The Burnaby, B.C.-based

In January 2005, Onex sold approximately $55 mil-

company is the only national provider of these services,

lion principal amount of its convertible subordinated

processing up to 17,000 transactions each business day.

bonds of CGG for proceeds of $76 million after receiving an

CSRS has performed very well since ONCAP’s acquisition,

attractive offer from a third party. The remaining bonds

executing on its strategic initiatives and strengthening its

would convert into approximately 650,000 ordinary shares

reporting capabilities.

of CGG having a value of $54 million based on the

December 31, 2004 market price.

Seismic services and equipment
Compagnie Générale de Géophysique

In early November 2004, Onex and Onex Partners completed

a $102 million investment in the convertible subordinated

bonds of Compagnie Générale de Géophysique (“CGG”)

(Paris: GA_FP, NYSE: GGY). The eight-year bonds bear

interest at the rate of 7.75 percent per annum and are con-

vertible by Onex at any time into freely tradeable ordinary

shares of CGG at a conversion price of US$60.70 per share.

At their conversion price, the bonds would have converted

into approximately 1.4 million ordinary shares of CGG,

representing approximately 10.5 percent of the diluted

ordinary shares. The bonds are not generally callable by

CGG prior to maturity. Onex’ portion of this investment

was $24 million.

20 Onex Corporation December 31, 2004 Report

MANAGEMENT ’S DISCUSSION AND ANALYSIS

The Management’s Discussion and Analysis (“MD&A”) analyzes signiﬁcant changes in

the consolidated statements of earnings, consolidated balance sheets and consolidated

statements of cash ﬂows of Onex Corporation (“Onex” or the “Company”). It should be

read in conjunction with the audited annual consolidated ﬁnancial statements and notes

thereto on pages 72 to 103 of this report. The MD&A and the Onex consolidated ﬁnancial

statements have been prepared to provide information on Onex on a consolidated basis

and should not be considered as providing sufﬁcient information to make an investment

decision in regard to any particular Onex operating company.

The MD&A is presented in the following sections:

Onex Business Objective and Strategy
Key Performance Indicators

21 Forward-Looking/Safe Harbour Statement and Fair Disclosure Statement
22 Overview
22
23
24 Financial Review
27
29
45
52
57 Outlook
62 Risk Management

Significant Events in 2004
Consolidated Operating Results
Consolidated Financial Position
Liquidity and Capital Resources

The MD&A is prepared as of March 3, 2005.

FORWARD-LOOKING/SAFE HARBOUR STATEMENT

AND FAIR DISCLOSURE STATEMENT

This MD&A may contain, without limitation, certain statements that include words such as
“believes”, “expects”, “anticipates” and words of similar connotation, which would constitute
forward-looking statements. Forward-looking statements are not guarantees of future
performance and involve risks and uncertainties that may cause actual performance or results
to be materially different from those anticipated in these forward-looking statements. Onex is
under no obligation to update any forward-looking statements contained herein should material
facts change due to new information, future events or other factors.

Onex Corporation December 31, 2004 Report 21

M A N A G E M E N T ’ S D I S C U S S I O N A N D A N A LY S I S

OVERVIEW

Onex is a diversiﬁed company that operates through autonomous subsidiaries in a variety
of industries, including electronics manufacturing services, theatre exhibition, healthcare,
customer management services, automotive products, personal care products and commu-
nications infrastructure.

O N E X B U S I N E S S O B J E C T I V E A N D S T R A T E G Y

Onex’ primary objective is to create long-term value by acquiring and building industry-leading businesses, and to
have that value reﬂected in the Company’s share price. Onex employs various strategies to achieve this long-term
objective, including:

Industry leadership
We seek to acquire companies that we believe offer a clear opportunity to create value for shareholders. The company
must have exhibited leadership or the potential for leadership within its own industry. Opportunities for signiﬁcant growth
may be in rapidly growing industries or in mature industries where there is the scope to build a leadership position
through consolidation. We look to work in partnership with a strong and committed management team that is willing to
make a sizeable personal ﬁnancial commitment to the business.

Diversiﬁcation of capital
Onex deliberately diversiﬁes its capital across a variety of companies and industries in order to limit its exposure to a single
company or industry. This strategy also enables Onex to better weather the ebbs and ﬂows of economic and/or industry
business cycles. At December 31, 2004, Onex had signiﬁcant businesses in the following reportable segments:

Reportable Segments

Companies

Electronics Manufacturing
Services

Celestica Inc., one of the world’s largest electronics manufacturing services companies for original
equipment manufacturers (“OEMs”).

Theatre Exhibition

Healthcare

Cineplex Galaxy Limited Partnership, Canada’s second-largest ﬁlm exhibition company, which oper-
ates 86 theatres with a total of 775 screens under the Cineplex Odeon and Galaxy Entertainment brands.

Magellan Health Services, Inc., a leading provider of managed behavioural healthcare and insurance
services in the United States.

Res-Care, Inc., a leading U.S. provider of residential, therapeutic, job training and educational
support services to people with developmental or other disabilities, to youth with special needs and
to adults who are experiencing barriers to employment.

Center for Diagnostic Imaging, Inc. (acquired in January 2005), a leading provider of diagnostic
and therapeutic radiology services in the United States.

Emergency Medical Services Corporation (acquired in February 2005), the largest U.S. provider
of ambulance transport services operating under American Medical Response and EmCare, a
leading provider of outsourced services for hospital emergency department physician stafﬁng
and management.

Customer Management
Services

ClientLogic Corporation, a leading business process outsourcer in the contact centre and
fulﬁllment industries; the company provides customer care services for telecommunications, con-
sumer goods, retail, technology, transportation, ﬁnance and utility companies.

22 Onex Corporation December 31, 2004 Report

M A N A G E M E N T ’ S D I S C U S S I O N A N D A N A LY S I S

Automotive Products

J.L. French Automotive Castings, Inc., a leading manufacturer of aluminum die-cast components
for North American and European automotive OEMs.

Other Businesses

• Personal Care Products
• Communications
Infrastructure

• Small-capitalization

Opportunities

Commercial Vehicle Group, Inc., a leading supplier of interior systems, vision safety solutions
and other cab-related products to the global commercial vehicle market and other specialized
transportation markets.

Performance Logistics Group, a leading North American provider of automotive transportation and
logistics services for light vehicle OEMs.

Cosmetic Essence, Inc., a leading provider of outsourced supply chain management services to the
personal care products industry.

Radian Communication Services Corporation, a leading North American wireless communica-
tions infrastructure and network services company.

ONCAP LP, a $400 million fund focused on acquiring and building the value of small-capitalization
companies based in North America, which actively manages investments in CMC Electronics Inc.,
Western Inventory Service Ltd., Futuremed Health Care Products L.P. and Canadian Securities
Registration Systems Ltd.

Maintain a ﬁnancially strong parent company
Onex, the parent company, maintains a strong ﬁnancial position with substantial liquidity in order to be responsive to new
opportunities to create long-term value and, if required, support existing operating companies. Onex also has committed
capital through its private equity funds, Onex Partners LP (“Onex Partners”) and ONCAP LP (“ONCAP”). Onex has committed
$480 million (US$400 million) to the $2 billion (US$1.7 billion) Onex Partners fund and controls the General Partner and
Manager. ONCAP is a $400 million fund committed to acquiring and building value in small- to medium-cap companies
based in North America. Onex has committed approximately $120 million to ONCAP and controls ONCAP’s General Partner.
At December 31, 2004, Onex, the parent company, had approximately $1.7 billion of cash and near-cash items. In
addition, the uncalled committed capital available through Onex Partners from other limited partners was $1.1 billion at the
end of 2004.

Ownership by management
Each member of Onex’ management has a meaningful personal ﬁnancial interest in Onex and its operating companies.
The Onex management team’s depth and breadth of experience on acquisitions, integration, strategy, negotiations and
ﬁnancing supports the management teams of the operating companies in building the value of their businesses. In addition,
the senior management teams at each operating company typically have a meaningful personal ownership in that business.
During 2004, Onex’ management and Onex’ board of directors invested $32 million in the investments or acquisi-

tions completed by Onex in 2004.

K E Y P E R F O R M A N C E I N D I C A T O R S

Onex operating companies performance
Onex uses a number of key performance indicators to monitor the performance of its various operating companies. Some
of these performance indicators are speciﬁc to the industry in which each company operates. While Onex considers net
earnings to be an important measure of performance, we believe that revenues and operating earnings (as deﬁned on page 36)
are more relevant in assessing the performance of Onex’ operating companies because operating earnings, in particular,
eliminate interest charges, which are a function of the particular ﬁnancing structure, as well as any unusual charges. The
discussion of these factors by industry segment provides an informative analysis of the components of the consolidated
ﬁnancial results of Onex. Accordingly, we have used these measures for much of our discussion on performance in this MD&A.

Share performance
Onex’ success in building its businesses, the completion of signiﬁcant acquisitions and investments during 2004, and
signiﬁcant value realizations led a 34 percent increase in Onex’ share price in 2004. At December 31, 2004, the market value
of an Onex share had increased to $19.75 per share from $14.69 per share at December 31, 2003.

Onex Corporation December 31, 2004 Report 23

M A N A G E M E N T ’ S D I S C U S S I O N A N D A N A LY S I S

FINANCIAL REVIEW

This section discusses signiﬁcant changes in Onex’ consolidated statements of earnings,
consolidated balance sheets and consolidated statements of cash ﬂows for the ﬁscal year ended
December 31, 2004 compared to those for the year ended December 31, 2003 and in selected
areas to those for the year ended December 31, 2002.

Accounting policies and estimates
Onex prepares its ﬁnancial statements in accordance

and future cash ﬂows is subjective and requires manage-

ment of the particular operating companies to exercise

with Canadian generally accepted accounting principles

judgment in making assumptions about future results,

(“GAAP”).

including revenues, operating expenses, capital expendi-

The preparation of ﬁnancial statements in con-

tures and discount rates. When an impairment test is under-

formity with Canadian GAAP requires management to

taken, the underlying assumptions are re-evaluated and

make estimates and assumptions. These estimates and

could give rise to future impairment charges. Included in

assumptions affect the reported amounts of assets and

Onex’ audited annual consolidated ﬁnancial statements

liabilities, disclosures of contingent assets and liabilities,

for the year ended December 31, 2004 is a writedown of

and the reported amounts of revenues and expenses for

goodwill and intangible assets of $393 million and a $94 mil-

the period of the consolidated ﬁnancial statements.

lion writedown of long-lived assets related to Onex’ oper-

Signiﬁcant accounting policies and methods used in

ating companies. These writedowns are discussed on

preparation of the ﬁnancial statements are described in

pages 40 and 41 of this MD&A. Notes 18 and 19 to the

note 1 to the audited annual consolidated ﬁnancial state-

audited annual consolidated ﬁnancial statements also

ments. Onex and its operating companies evaluate their

provide information on these charges.

estimates and assumptions on a regular basis, based on

historical experience and other relevant factors. Included

Income tax valuation allowance

in Onex’ consolidated ﬁnancial statements are estimates

The income tax valuation allowance is recorded against

used in determining allowance for doubtful accounts,

future income tax assets when it is more likely than not

inventory valuation, the useful lives of property, plant

that some portion or all of the future income tax assets will

and equipment and intangible assets, pension and post-

not be realized. The reversal of future income tax liabilities,

employment beneﬁts, restructuring costs, liability for

projected future taxable income, the character of income

medical claims incurred but not reported (“IBNR”) and

tax assets, tax planning strategies and changes in tax laws

other matters. Actual results could differ materially from

are some of the factors taken into consideration when

those estimates and assumptions.

determining the valuation allowance. A change to these

The assessment of goodwill and intangible assets

factors would affect the estimated valuation allowance

for impairment and the determination of income tax

and income tax expense. Included in Onex’ audited

valuation allowances requires the use of judgments,

annual consolidated ﬁnancial statements for the year

assumptions and estimates. Due to the material nature of

ended December 31, 2004 was a $302 million charge

these factors, they are discussed here in greater detail.

recorded by Celestica relating to a valuation allowance for

most of the company’s remaining deferred tax assets in the

Goodwill, intangible assets and long-lived assets

United States and Europe. Note 20 to the audited annual

impairment tests

consolidated ﬁnancial statements provides additional

The impairment tests of goodwill, intangible assets and

disclosure on income taxes.

long-lived assets involve consideration of future cash

ﬂows and fair values of individual assets, groups of assets

or reporting units. The process of determining fair value

24 Onex Corporation December 31, 2004 Report

M A N A G E M E N T ’ S D I S C U S S I O N A N D A N A LY S I S

New accounting policies in 2004
Generally accepted accounting principles

on these instruments are deferred until such time as the

instruments are settled. As a result of these pronounce-

In the ﬁrst quarter of 2004, Onex adopted Canadian

ments, Onex recorded income of $29 million in the 2004

Institute of Chartered Accountants (“CICA”) Handbook

audited annual consolidated ﬁnancial statements even

Section 1100, “Generally Accepted Accounting Principles”.

though there was no economic or ﬁnancial impact to

This section establishes standards for ﬁnancial reporting

Onex. The recorded income reﬂects the decline in value of

in accordance with GAAP and provides guidance on sources

the debenture liability and an increase in the value of the

to consult when selecting accounting policies and deter-

forward sales contracts.

mining the appropriate disclosure if a matter is not explic-

itly dealt with in the primary sources of GAAP. In addition,

Asset retirement obligations

Onex has adopted CICA Handbook Section 1400, “General

Onex adopted the new CICA Handbook Section 3110, “Asset

Standards of Financial Statement Presentation”, which

Retirement Obligations”, in the ﬁrst quarter of 2004. This

provides updated guidance on general concepts associated

section establishes standards for the recognition, mea-

with ﬁnancial statements. The adoption of these sections

surement and disclosure of liabilities for asset retirement

did not have a material impact on Onex’ audited annual

obligations and the associated retirement costs. It applies

consolidated ﬁnancial statements.

to all legal obligations associated with the retirement

Hedging relationships

of a tangible long-lived asset that result from its acquisi-

tion, construction, development or normal operation. The

Effective January 1, 2004, Onex adopted Accounting

adoption of this section did not have a material impact on

Standards Board Accounting Guideline 13 (“AcG-13”),

Onex’ audited annual consolidated ﬁnancial statements.

“Hedging Relationships”, which addresses the identiﬁ-

cation, designation, documentation and effectiveness of

Stock-based compensation and other

hedging relationships for the purpose of applying hedge

stock-based payments

accounting. This guideline also establishes certain con-

Effective January 1, 2004, Onex’ operating companies

ditions for applying hedge accounting and deals with

adopted the revised CICA Handbook Section 3870, “Stock-

the discontinuance of hedge accounting. Onex also

based Compensation and Other Stock-based Payments”,

adopted Emerging Issues Committee Abstract 128 (“EIC-

which requires that a fair-value-based method of account-

128”), “Accounting for Trading, Speculative or Non-

ing be applied to all stock-based compensation payments

Hedging Derivative Financial Instruments”, which requires

to employees. Previously, only non-employee and employee

that any derivative ﬁnancial instrument that is not desig-

awards that called for settlement with cash or other assets,

nated as a compliant hedge under AcG-13 be measured

or stock appreciation rights that called for settlement by

at fair value, with changes in fair value recorded in current

the issuance of equity instruments, were required to be

year income.

recorded as compensation expense. Onex has been

At December 31, 2004, Onex, the parent company,

recording the change in value of options on its shares and

had two types of derivative instruments in place –

investment rights under the Management Investment Plan

exchangeable debentures and forward sales contracts

as a charge or credit to earnings since January 1, 2002. The

related to approximately 11 million shares of Celestica

current change affects only the accounting for certain

held by Onex – that were affected by these new pro-

stock option plans at Onex’ operating companies. The

nouncements. These instruments were entered into in

operating companies adopted this new requirement on a

2000 and 2001. Onex determined that these instruments

retroactive basis for awards made since January 1, 2002

did not qualify for hedge accounting based on the new

that had not previously been recognized as compensation

guidance, and accordingly Onex is required to mark-to-

expense in the consolidated statements of earnings; there

market these instruments to the value of the underlying

was no restatement of prior periods. Accordingly, as at

securities, which are Celestica subordinate voting shares,

January 1, 2004, the adoption of this new requirement

with the change in value since January 1, 2004 being

reduced retained earnings by $5 million and decreased

credited to income. Previously deferred gains of $730 million

non-controlling interests by $5 million.

Onex Corporation December 31, 2004 Report 25

M A N A G E M E N T ’ S D I S C U S S I O N A N D A N A LY S I S

The adoption of this revised section resulted

issuer’s option, by a variable number of the issuer’s own

in Onex’ operating companies recording $69 million of

equity instrument to be presented as liabilities. Any

expense in Onex’ audited annual consolidated statement

securities issued by an enterprise that give the issuer

of earnings for the year ended December 31, 2004, which

unrestricted rights to settle the principal amount in cash

was in addition to the expense recorded by the parent

or the equivalent value of its own equity instruments will

company. Note 14 to the audited annual consolidated

no longer be presented as equity. This standard is appli-

ﬁnancial statements provides pro forma net loss and loss

cable on a retroactive basis, with restatement of prior

per share for the year ended December 31, 2003 adjusted

periods. As a result of adopting this standard, Onex re-

for the effect of the stock option plans of operating compa-

classiﬁed $149 million and $273 million, respectively, of

nies not recorded through the statements of earnings.

the principal component of convertible debt held by

Celestica from non-controlling interests liability to long-

Revenue recognition

term debt as at December 31, 2004 and 2003.

Effective January 1, 2004, Onex adopted the new pro-

nouncements under EIC-141, “Revenue Recognition”, EIC-

Consolidation of variable interest entities

142, “Revenue Arrangements with Multiple Deliverables”

In June 2003, the CICA issued Accounting Guideline 15

and EIC-143, “Accounting for Separately Priced Extended

(“AcG-15”), “Consolidation of Variable Interest Entities”.

Warranty and Product Maintenance Contracts”. These

Variable interest entities (“VIEs”) are entities that have

sections provide more speciﬁc guidance on CICA Handbook

insufﬁcient equity and/or their equity investors lack one

Section 3400, “Revenue”, and improve the harmonization

or more speciﬁed essential characteristics of a controlling

of revenue standards between Canadian and U.S. GAAP.

ﬁnancial interest. This guideline provides speciﬁc guidance

The adoption of these EIC standards did not have a

for determining when an entity is a VIE, and who, if anyone,

material impact on Onex’ audited annual consolidated

should consolidate the VIE. This guideline is effective on a

ﬁnancial statements.

Employee future beneﬁts

prospective basis for Onex’ 2005 ﬁscal year. The effect of

the adoption of this guideline is currently being evaluated.

In the second quarter of 2004, Onex adopted the amended

Investment companies

CICA Handbook Section 3461, “Employee Future Beneﬁts”,

In January 2004, the CICA issued Accounting Guideline 18

which requires additional disclosures about the assets,

(“AcG-18”), “Investment Companies”. AcG-18 provides

cash ﬂows and net periodic beneﬁt costs of deﬁned beneﬁt

guidance regarding an investment company’s measure-

pension plans and other post-retirement beneﬁts plans.

ment of its investments, determining whether an entity is

The new annual disclosures were effective for ﬁscal years

an investment company; and when an investor in an

ending on or after June 30, 2004, and the new interim dis-

investment company should account for the investment

closures were effective for quarters ending on or after that

company’s investments in the same manner as the invest-

date. Note 25 to the audited annual consolidated ﬁnancial

ment company accounts for those investments. Generally,

statements includes the additional disclosure of pension

the guideline is effective for ﬁscal years beginning on or

plans and other post-retirement beneﬁts plans.

after July 1, 2004, and may be applied prospectively or

retroactively. However, certain provisions are not required

Financial instruments – presentation and disclosure

to be adopted until ﬁscal years beginning on or after July 1,

In December 2004, Onex adopted the amendment to

2005. Onex has determined that the adoption of this

CICA Handbook Section 3860, “Financial Instruments –

guideline will not have a material effect on Onex’ audited

Presentation and Disclosure”. This amendment requires

annual consolidated ﬁnancial statements.

obligations of a ﬁxed amount that may be settled, at the

26 Onex Corporation December 31, 2004 Report

M A N A G E M E N T ’ S D I S C U S S I O N A N D A N A LY S I S

S I G N I F I C A N T E V E N T S I N 2 0 0 4

There were a number of signiﬁcant events that occurred

during the year that affected Onex’ consolidated results for

2004 and their comparability to results for 2003. These

events are provided here in chronological order.

Investment in Magellan

In January 2004, Onex and Onex Partners completed their

investment in Magellan Health Services, Inc. (“Magellan”),

a leading provider of managed behavioural healthcare in

the United States. The total investment by Onex and Onex

Partners was $131 million, of which Onex’ portion was

$30 million for a 6 percent equity ownership in the company.

Onex has effective voting control of Magellan through

Onex Partners. As a result, Magellan’s operations have

been consolidated and reported in a new reportable seg-

ment – Healthcare – from the date of acquisition. Note 3 to

the audited annual consolidated ﬁnancial statements pro-

vides additional information on this acquisition.

Performance Logistics Group acquired Leaseway

Auto Carrier Group

In late March 2004, Performance Logistics Group (“PLG”)

acquired Leaseway Auto Carrier Group (“Leaseway”) from

Penske Truck Leasing Co., L.P. in a share-exchange transac-

tion. As part of this acquisition, PLG issued additional

shares, which diluted Onex’ ownership in PLG to 26 per-

cent from 50 percent, at which time Onex ceased to have

voting control of the company. Consequently, PLG’s oper-

ating results have been included on an equity accounting

basis in 2004, with the presentation of the company’s

revenues and operating earnings being collapsed to one

line in the audited consolidated statement of earnings –

“Equity-accounted investments.” For comparison, included

in Onex’ ﬁscal 2003 audited annual consolidated statement

of earnings were PLG’s revenues and operating earnings of

$260 million and $4 million, respectively.

Onex also recorded a $58 million non-cash gain

relating to the Leaseway transaction, which has been

included in the “Gains on shares of operating companies”

line in Onex’ audited annual consolidated statement of

earnings for the year ended December 31, 2004. The gain

was comprised of a $22 million non-cash accounting dilu-

tion gain and $36 million of losses of PLG previously rec-

ognized by Onex that were in excess of other shareholders’

equity in PLG.

Sale of Dura Automotive
In April 2004, Onex sold its remaining interest in Dura
Automotive. Onex received net proceeds of approximately
$23 million and recorded a pre-tax gain of $4 million. This
brings total proceeds from Onex’ ownership in Dura
Automotive to $44 million compared to a total investment
of $7 million in the company made since 1990. As a result of
the sale, Dura Automotive’s operating results up to the date
of sale in 2004 and for the full year ended December 31,
2003 have been reclassiﬁed to be presented as earnings
from discontinued operations in Onex’ audited annual
consolidated statements of earnings. Note 2 to the audited
annual consolidated ﬁnancial statements discloses those
amounts in the December 31, 2003 balance sheet that
have been reclassiﬁed to show the assets and liabilities
as discontinued.

Investment in ResCare
In June 2004, Onex and Onex Partners completed their
$114 million equity investment in Res-Care, Inc. (“ResCare”)
for an approximate 28 percent ownership interest in the
company. Onex’ share of this investment was $27 million
for a 7 percent ownership interest. ResCare provides resi-
dential, therapeutic, job training and educational support
to people with developmental or other disabilities, to youth
with special needs and to adults who are experiencing
barriers to employment. ResCare’s operating results from
the date of acquisition have been included on an equity
accounting basis in Onex’ audited annual consolidated
ﬁnancial statements. Onex’ share of the net earnings of
ResCare is reported in the “Equity-accounted investments”
line in Onex’ audited annual consolidated statements of
earnings and reported in the Healthcare segment in note
27 to the audited annual consolidated ﬁnancial statements.

Sale of Loews Cineplex Entertainment and Cinemex

In July 2004, Onex and Oaktree Capital Management, LLC

(“Oaktree”), its partner in Loews Cineplex Entertainment

Corporation and Grupo Cinemex (collectively “Loews

Cineplex”), sold Loews Cineplex for approximately $2 bil-

lion. Onex received proceeds of approximately $739 mil-

lion for its interest and retained Loews Cineplex’ interest

in the Canadian operations – primarily its units of Cineplex

Galaxy Limited Partnership (“CGLP”) – which had a value

of $112 million at the time of sale, and certain assets of the

holding company, Cineplex Odeon Corporation (“Cineplex

Odeon Canada”). As a result, Onex recorded a pre-tax gain

Onex Corporation December 31, 2004 Report 27

M A N A G E M E N T ’ S D I S C U S S I O N A N D A N A LY S I S

of $238 million on this sale, which excluded the value of

the Canadian operations. The total value Onex has received

from the theatre exhibition segment, including the market

value at December 31, 2004 of the CGLP units it holds,

is just over $1 billion compared to a total investment of

approximately $540 million. As a result of the sale, Onex

has presented Loews Cineplex’ results as earnings from

discontinued operations in the audited annual consoli-

dated ﬁnancial statements; the comparative 2003 full-year

results of Loews Cineplex have also been reclassiﬁed to be

presented as discontinued. Note 2 to the audited annual

consolidated ﬁnancial statements discloses those amounts

in the December 31, 2003 balance sheet that have been

reclassiﬁed to show the assets and liabilities as discontinued.
The Canadian operations of Loews Cineplex
that were retained by Onex and Oaktree include CGLP
and Cineplex Odeon Canada, which has operations not
included in CGLP. Collectively these operations represent
the reported results of the theatre exhibition segment for
the year ended December 31, 2004 and the comparative
results for the same period of 2003.

Commercial Vehicle Group initial public offering
In August 2004, Commercial Vehicle Group, Inc. (“CVG”)
completed a $180 million initial public offering. As part of
that offering, Onex sold approximately 45 percent of its CVG
shares, which had a cost of $31 million, receiving $54 mil-
lion in net proceeds, and recording a gain of $60 million
after accounting for previously recorded losses. In addi-
tion, Onex received approximately $27 million on the
repayment of debt held by Onex, which resulted in a
further gain of $15 million. Onex’ equity ownership in CVG
was reduced to 24 percent from 55 percent as a result of
the offering and sale of shares, and Onex ceased to have
voting control of the company at that time. As a result,
CVG has been accounted for by the equity method follow-
ing the offering. At December 31, 2004, Onex held 4.2 million
CVG shares with a market value of $113 million compared
to a cost of $38 million.

28 Onex Corporation December 31, 2004 Report

Acquisition of Cosmetic Essence, Inc.
In early December 2004, Onex acquired Cosmetic Essence,
Inc. (“CEI”) in a transaction valued at approximately
$300 million. The investment made through Onex Partners
was approximately $138 million for a 92 percent ownership
interest. Onex’ share of this investment was approximately
$33 million for a 21 percent ownership interest. CEI is a
leading provider of outsourced supply chain management
services to the personal care products industry, which
includes formulating, manufacturing, ﬁlling, packaging
and distribution services. The company manufactures
products such as fragrances, crèmes, lotions and colour
cosmetics for a diversiﬁed customer base of leading
branded manufacturers and major retailers. CEI’s ﬁnancial
results from the date of acquisition in December 2004 are
not signiﬁcant to Onex’ consolidated results, and there-
fore, are not consolidated in the audited annual statement
of earnings for the year ended December 31, 2004. As at
December 31, 2004, CEI’s balance sheet has been included
in the audited balance sheet.

Sale of Cincinnati Electronics business
In December 2004, ONCAP’s subsidiary, CMC Electronics,
Inc. (“CMC Electronics”), sold its Cincinnati Electronics
business (“Cincinnati Electronics”) for net proceeds of
$226 million, which the company used to repay its senior
debt. As a result of this sale, Onex recorded an after-tax
gain of $49 million.

In January 2005, CMC Electronics paid a dividend
to all its shareholders. ONCAP received approximately
$136 million of that dividend, of which Onex’ portion
was approximately $40 million. Onex received an addi-
tional dividend of $77 million due to its direct ownership
interest in CMC Electronics not held through ONCAP.

The results of Cincinnati Electronics have been
presented as earnings from discontinued operations in
Onex’ audited annual consolidated ﬁnancial statements.
The comparative 2003 full-year results of Cincinnati
Electronics have also been reclassiﬁed and presented
as discontinued. Note 2 to the audited annual consoli-
dated ﬁnancial statements discloses those amounts in the
December 31, 2003 balance sheet that have been restated
to show the assets and liabilities as discontinued.

Sale of InsLogic
In late December 2004, Onex signed an agreement to
sell InsLogic Corporation (“InsLogic”) for approximately
$22 million. This compares to a total investment of equity
and debt in InsLogic of $52 million. The sale was com-
pleted in mid-January 2005. As a result of the agreement to
sell InsLogic as at December 31, 2004, Onex has presented
InsLogic’s results as earnings from discontinued opera-
tions on the audited annual consolidated ﬁnancial state-
ments; the comparative ﬁscal 2003 results of InsLogic have
also been reclassiﬁed to be presented as discontinued.
Note 2 to the audited annual consolidated ﬁnancial state-
ments discloses those amounts in the December 31, 2003
balance sheet that have been restated to show the assets
and liabilities as discontinued.

Weakening of the U.S. dollar relative
to the Canadian dollar
Most of Onex’ operating companies are based in the
United States or report in U.S. dollars. As Onex reports its
consolidated ﬁnancial results in Canadian dollars, the
movement of the U.S. dollar to Canadian dollar exchange
rate directly affects Onex’ audited annual consolidated
statements of earnings and audited consolidated balance
sheets. The U.S. dollar’s average value was 1.3015 Canadian
dollars for the year ended December 31, 2004 compared to
1.4015 Canadian dollars for the prior year. The lower U.S.
dollar to Canadian dollar exchange rate used to convert
Onex’ U.S.-based operating companies’ results was a con-
tributing factor in the variance of the 2004 full-year results
compared to last year.

In addition, Onex, the parent company, holds a

signiﬁcant portion of its cash in U.S. dollars. The revalua-

tion of U.S.-dollar-denominated cash based on the current

exchange rate has resulted in an exchange loss of $124 mil-

lion being recorded for the year ended December 31, 2004.

This compares to a loss of $139 million recorded for the

year ended December 31, 2003.

Share repurchases under Onex’
Normal Course Issuer Bids
Onex’ consolidated balance sheet as at December 31, 2004
reﬂects the impact of Onex’ repurchases of its Subordinate
Voting Shares under the Company’s Normal Course Issuer

M A N A G E M E N T ’ S D I S C U S S I O N A N D A N A LY S I S

Bids. During 2004, the Company repurchased 9,143,100
Subordinate Voting Shares at a total cost of $150 million.
This compares to 11,586,100 Subordinate Voting Shares
repurchased at a total cost of $166 million in the prior year.

C O N S O L I D A T E D O P E R A T I N G R E S U L T S

This section should be read in conjunction with the

audited annual consolidated statements of earnings,

found on page 69 of this report, and the corresponding

notes thereto.

Variability of results

Onex’ annual consolidated operating results may vary

substantially from year to year for a number of reasons,

including some of the following: acquisitions or disposi-

tions of businesses by Onex, the parent company; the

volatility of the exchange rate between the U.S. dollar and

the Canadian dollar; the change in market value of stock-

based compensation and derivative instruments; and

activities at Onex’ operating companies. These activities

may include the purchase or sale of businesses; ﬂuctua-

tions in customer demand, materials and employee-

related costs; changes in the mix of products and services

produced and charges to restructure operations. The dis-

cussion that follows identiﬁes some of the material factors

that affected each of Onex’ operating segments and Onex’

audited annual consolidated ﬁnancial results.

Consolidated revenues
Consolidated revenues were $16.2 billion in 2004 compared

to $12.1 billion in 2003 and $15.9 billion in 2002. Chart 1

shows consolidated revenues in Canadian dollars by industry

and geographic segments for 2004, 2003 and 2002. Table 1

provides a breakdown of revenues by industry segment in

the functional currencies of the companies for 2004, 2003

and 2002 and the change in revenues from those periods.

We provide revenues in the operating companies’ func-

tional currencies to show the impact of foreign exchange

translation on revenues.

Onex Corporation December 31, 2004 Report 29

M A N A G E M E N T ’ S D I S C U S S I O N A N D A N A LY S I S

Revenue Diversiﬁcation by Industry and Geographic Segments

CHART 1 ($ millions)

E L E C T R O N I C S

M A N U FA C T U R I N G

S E R V I C E S

T H E AT R E

E X H I B I T I O N

H E A LT H -

C A R E

C U S T O M E R

M A N A G E M E N T

S E R V I C E S

A U T O M O T I V E

P R O D U C T S

O T H E R (a)

T O TA L

12,984

356

2,199

730

1,669

547

16,244

15,911

11,480

336

627

605

1,394

402

375

12,119

9,382

256

932

U.S.
Canada
Europe
Other(b)

17%
18%
21%
44%

21%
20%
19%
40%

37%
15%
17%
31%

–
100%
–
–

100%
–
–
–

47%
10%
36%
7%

50%
8%
41%
1%

52%
7%
41%
–

81%
–
19%
–

78%
1%
20%
1%

83%
–
16%
1%

17%
82%
–
1%

20%
80%
–
–

19%
80%
–
1%

33%
18%
17%
32%

28%
22%
19%
31%

41%
16%
18%
25%

(a) Includes Radian, ONCAP and parent company.

(b) Other includes primarily operations in Central and South America, Asia and Australia.

Revenues by Industry Segment in the Functional Currency

TABLE 1

($ millions)

Functional Currency

Electronics Manufacturing Services

Theatre Exhibition

Healthcare

Customer Management Services

Automotive Products

Other(a)

2004

2003

US8,840

C356

US1,687

US562

US710

C547

US6,735

C336

–

US433

US994

C402

Revenue

Increase/

(Decrease)

2004–2003

US2,105

C20

US1,687

US129

US(284)

C145

Revenue

Increase/

(Decrease)

2003–2002

2002

US8,272

US(1,537)

C256

–

US399

US1,064

C375

C80

–

US34

US(70)

C27

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

(a) Other includes Radian, ONCAP and parent company.

Electronics Manufacturing Services (“EMS”)
Celestica reported revenues of $11.5 billion in 2004, a

volumes from some of Celestica’s top customers and new

business wins, which collectively accounted for a 17 percent

22 percent increase from $9.4 billion in 2003. In the com-

increase in revenue. Revenue from the acquisitions of

pany’s functional currency, Celestica reported revenues

Manufacturers’ Services Limited (“MSL”) in March 2004 and

of US$8.8 billion, up 31 percent from US$6.7 billion in

NEC Corporation’s operations in the Philippines in April

2003. Revenues increased due to improved base business

2004 contributed a further 14 percent increase in revenues.

30 Onex Corporation December 31, 2004 Report

M A N A G E M E N T ’ S D I S C U S S I O N A N D A N A LY S I S

All of the company’s regions – the Americas, Europe and

primarily to additional revenues from the inclusions of

Asia – increased revenues year-over-year as they beneﬁtted

new theatres ($19 million), an improvement in average

from new business wins from existing and new customers

admission and concession revenues per patron ($5 million),

and from acquisition revenue. In addition, the Asia region,

partially offset by decreased attendance levels ($7 million).

which increased revenues by 44 percent in 2004, beneﬁtted

That revenue increase was split between box-ofﬁce rev-

from its expanded manufacturing capabilities and volume

enue of $11 million and concession revenue of $6 million.

from Celestica operations in other geographic areas.

The 2003 combined operations of CGLP and

For the year ended December 31, 2003, Celestica

Cineplex Odeon Canada reported revenues of $336 mil-

reported revenues of $9.4 billion, a 28 percent decline from

lion, up $80 million from $256 million in 2002. Much of the

$13 billion in 2002. Excluding the impact of foreign cur-

revenue growth in 2003 was due to the inclusion of a full

rency translation, the company reported revenues in its

year of revenues for CGLP and Cineplex Odeon Canada,

functional currency of US$6.7 billion, down 19 percent

which Onex acquired in March 2002.

from US$8.3 billion in 2002. Lower volumes due to pro-

longed weakness in end-markets in the communications

and computing sectors and reduced prices on compo-

Healthcare
The healthcare segment is a new reportable segment in

nents and services related to excess capacity in the EMS

2004 following Onex’ investment in Magellan in early

industry were the signiﬁcant factors in the decline of rev-

January 2004. Reported revenues for Magellan totalled

enues. Most of the revenue decrease was from Celestica’s

$2.2 billion in 2004. In the company’s functional currency,

Americas and Europe regions, which collectively reported

Magellan reported revenues of US$1.7 billion in Canadian

revenues of US$4.5 billion in 2003, down from US$6.4 bil-

GAAP. The company is a leading provider of managed

lion in 2002, due to reduced customer orders resulting

behavioural healthcare and insurance services in the

from the downturn in end-market demand and from

United States. The company reports ﬁnancial results in

product transfers to some of the company’s lower cost

four segments – Health Plan Solutions, Employer Solutions,

operations in Asia. Partially offsetting the lower revenues

Public Sector Solutions and Corporate and Other. Health

in the Americas and Europe regions were higher revenues

Plan Solutions accounted for US$923 million of revenues

in Asia, up 17 percent, due to new business wins, the

from contracts with managed care companies, health

transfer of production from Celestica operations located in

insurers and other health plans. Employee Solutions,

higher-cost geographic areas and the inclusion of full-year

which accounted for US$136 million of revenues, provides

revenues from acquisitions completed in 2002.

employee assistance program services, managed behav-

Theatre Exhibition
The theatre exhibition segment includes the operations

ioural healthcare services and integrated products under

contracts with employers, including corporations, govern-

ment agencies and labour unions. Public Sector Solutions,

of CGLP and Cineplex Odeon Canada, which operates a

which generated US$628 million in revenues, provides

small number of theatres in Canada not included in CGLP.

managed behavioural healthcare services to Medicaid

CGLP and Cineplex Odeon Canada generate revenues pri-

recipients under contracts with state and local govern-

marily from box-ofﬁce and concession sales, which are

mental agencies. The Corporate and Other clients segment

affected by attendance levels and by changes in the aver-

comprises operational support functions such as infor-

age per patron admission and concession revenues, as

mation technology and sales and marketing as well as

well as by the commercial appeal of the ﬁlms released and

corporate support functions such as executive, ﬁnance,

the successful marketing and promotion of those ﬁlms by

human resources and legal.

the ﬁlm studios and distributors. Theatres opened or closed

in the year will also affect revenues.

During 2004, CGLP and Cineplex Odeon Canada

reported combined revenues of $356 million, up 6 percent

from $336 million in 2003. The revenue growth was due

Onex Corporation December 31, 2004 Report 31

M A N A G E M E N T ’ S D I S C U S S I O N A N D A N A LY S I S

Customer Management Services
ClientLogic Corporation (“ClientLogic”) reported revenues

Automotive Products
Onex’ automotive products segment includes the opera-

of $730 million in 2004, up 21 percent from $605 million in

tions of J.L. French Automotive Castings, Inc. (“J.L. French

2003. In the company’s local currency and Canadian GAAP,

Automotive”), PLG and CVG. In 2004, there were signiﬁ-

ClientLogic’s revenues grew 30 percent to US$562 million in

cant events affecting the accounting for PLG and CVG in

2004 from US$433 million in 2003. ClientLogic’s acquisition

the automotive products segment. The issuance of shares

of Service Zone, Inc. (“Service Zone”) in late December

by PLG for its acquisition of Leaseway in March 2004 and

2003 contributed US$75 million of the revenue growth

the initial public offering (“IPO”) of CVG and corresponding

in North America. In addition, net new business wins

sale of CVG shares by Onex as part of that IPO in August

with clients such as DirecTV and Bell Canada provided

2004, resulted in Onex ceasing to have voting control of

US$31 million, or 24 percent, of the revenue growth in 2004

both companies. As a result, the revenues for each of PLG

over last year.

and CVG have been consolidated up to the time that Onex

In 2003, revenues for ClientLogic reported in

ceased to have voting control. Thereafter, Onex began

Canadian dollars declined to $605 million from $627 mil-

to report the operations of PLG and CVG on an equity

lion in 2002. In the company’s functional currency,

accounting basis, which is reported in the “Equity-

however, ClientLogic reported an 8 percent increase in

accounted investments” line in the audited annual consol-

revenues to US$433 million in 2003 from US$399 million

idated statement of earnings in 2004.

in 2002. The revenue increase was due primarily to a

The automotive products segment reported con-

6 percent increase in North American warehouse man-

solidated revenues of $932 million in 2004 compared

agement services associated with a new client, SBC

to $1.4 billion in 2003 and $1.7 billion in 2002. Table 2

Communications; a US$4 million increase in revenues

provides comparative revenues by operating company in

from the inclusion of a new joint-venture call centre in

the automotive segment for 2004, 2003 and 2002 in both

India that commenced operations in the second quarter of

Canadian dollars and the companies’ functional currencies.

2003; and the strengthening of the euro and the British

pound against the U.S. dollar in 2003. These increases

were partially offset by customer disengagements and

lower North American and European customer contact

management revenues caused by pricing pressures.

Automotive Products Revenues

TABLE 2

($ millions)

Canadian Dollars

Functional Currency

J.L. French Automotive

Commercial Vehicle Group (1)

Performance Logistics Group(2)

Total

2004

691

241

–

932

2003

732

402

260

2002

865

490

314

1,394

1,669

2004

US530

US180

–

US710

2003

US521

US288

US185

US994

2002

US550

US313

US201

US1,064

(1)

Includes CVG’s revenues up to the time of the company’s initial public offering in August 2004 when Onex ceased to have voting control of the company and thereafter began

to account for CVG’s operations on an equity basis.

(2) PLG’s operating results were accounted for on an equity basis in 2004 and therefore the company’s revenues were not included in Onex’ consolidated audited annual

financial statements.

32 Onex Corporation December 31, 2004 Report

M A N A G E M E N T ’ S D I S C U S S I O N A N D A N A LY S I S

J.L. French Automotive

(US$180 million) represent that company’s revenues up to

North American car and light truck production declined

the time of the August initial public offering, after which

slightly to 15.8 million units in 2004 from 15.9 million units

Onex’ ownership in CVG was accounted for on an equity

in 2003 and 16.4 million units in 2002 as non-domestic

basis with the company’s revenues and operating earnings

automotive companies gained market share and the Big

being collapsed to one line in the statement of earnings.

Three North American automotive companies – General

A comparative discussion of 2004 revenues to those of

Motors, Ford and DaimlerChrysler – experienced lower

2003 is not relevant as the 2003 revenues represent

sales in 2004. J.L. French Automotive, a leading independ-

12 months of operations.

ent supplier of complex die-cast aluminum components

CVG reported revenues of $402 million in 2003,

for automotive original equipment manufacturers (“OEMs”),

an $88 million decline from $490 million in 2002.

reported revenues of $691 million, down 6 percent from

Excluding the foreign currency translation impact, the

$732 million in 2003. Excluding the impact of foreign

company reported revenues of US$288 million, down

exchange translation, the company reported a 2 percent

US$25 million from US$313 million in 2002. Approximately

increase in revenues to US$530 million in 2004 from

US$17 million of the revenue decline was due primarily to

US$521 million in 2003. Approximately US$5 million of the

overall lower production volumes in the heavy truck and

revenue growth was due to stronger production on speciﬁc

bus markets. In addition, approximately US$15 million of

Ford platforms and US$10 million from new business with

the decline was due to the completion of projects with

new and existing customers. Partially offsetting these

some of CVG’s existing customers and customer-driven

growth factors were lower revenues of US$6 million, caused

change in product mix to fewer value-added components.

by lower production on speciﬁc platforms. In addition,

Partially offsetting these unfavourable factors was approx-

J.L. French Automotive’s European operations increased

imately US$16 million in revenues from stronger OEM

revenues by US$16 million in 2004 due primarily to the

revenues in the Asian construction seating market and

beneﬁt of favourable changes in foreign currency rates,

new business wins.

partially offset by changes in product mix.

In 2003, J.L. French Automotive’s revenues declined

Performance Logistics Group

to $732 million from $865 million in 2002. In its functional

The acquisition of Leaseway by PLG in late March 2004 in

currency, J.L. French Automotive reported revenues of

a share-exchange transaction resulted in PLG issuing addi-

US$521 million in 2003, a 5 percent decline from 2002 rev-

tional shares. This issuance of shares by PLG diluted Onex’

enues of US$550 million. Much of that year-over-year

ownership in PLG to 26 percent from 50 percent, at which

decline was due to lower automotive production volumes

time Onex ceased to have voting control of the company.

at one of its primary customers, Ford. Partially offsetting

Therefore, PLG’s operating results have been included on

this decline were favourable changes in European curren-

an equity accounting basis in 2004 with the presentation

cies relative to the U.S. dollar, which improved revenues

of the company’s revenues and operating earnings being

from J.L. French Automotive’s European operations by

collapsed to one line in the audited annual consolidated

$19 million.

statement of earnings – “Equity-accounted investments.”

PLG’s revenues in 2003 declined 17 percent to

Commercial Vehicle Group

$260 million from $314 million in 2002, due primarily to

In early August 2004, CVG, a supplier of interior systems,

lower new vehicle deliveries associated with lower auto-

vision safety solutions and other cab-related products

motive production volumes from PLG’s major customer.

to the global commercial vehicle market, completed a

The company reported revenues in its functional currency

$180 million initial public offering. As part of that offering,

of US$185 million, down 8 percent from US$201 million

Onex sold some its CVG shares, which reduced its equity

in 2002.

ownership to 24 percent from 55 percent, and Onex ceased

to have voting control of the company at the time of

the offering. CVG’s reported revenues of $241 million

Onex Corporation December 31, 2004 Report 33

M A N A G E M E N T ’ S D I S C U S S I O N A N D A N A LY S I S

Other Businesses
Communications Infrastructure

Radian’s revenues were up slightly to $113 million in

2004 from $108 million reported in 2003 and down from

$120 million in 2002. Radian’s revenue growth in 2004 was

due primarily to the purchase of ROHN Industries’ opera-

tions in December 2003, which contributed $12 million of

revenues in 2004. Much of this revenue growth was offset

by the effect of the consolidation of major carriers in the

United States and Canada, which created strong competi-

tion and price pressures in 2004. Similarly, strong competi-

tion and pricing pressures drove the revenue decline in

2003 from 2002.

Small-capitalization Opportunities

ONCAP’s companies – CMC Electronics, Western Inventory

Service Ltd. (“WIS”), Futuremed Health Care Products

L.P. (“Futuremed”) and Canadian Securities Registration

Systems Ltd. (“CSRS”) – reported combined revenues of

$431 million in 2004, up $156 million from $275 million

reported in 2003. Substantially all of the revenue growth

for 2004 was due to the inclusion of revenues of Futuremed

and CSRS from their respective February and April 2004

acquisition dates.

ONCAP’s companies reported combined revenues

of $275 million in 2003, up $22 million from those reported

in 2002. The revenue growth was due primarily to the

Cost of Sales by Industry Segment

TABLE 3

($ millions)

Canadian Dollars

Cost of
Sales
Increase/
(Decrease)

2004

2003

Electronics Manufacturing Services

10,913

8,831

2,082

Theatre Exhibition

Healthcare

Customer Management Services

Automotive Products

Other (a)

Total

271

1,762

458

743

363

259

–

399

1,077

293

1,762

(334)

14,510

10,859

3,651

Functional Currency

Cost of
Sales
Increase/
(Decrease)

2004

2003

Electronics Manufacturing Services US8,413

US6,342

US2,071

Theatre Exhibition

Healthcare

Customer Management Services

Automotive Products

Other(a)

C271

C259

C12

US1,354

–

US1,354

US352

US567

C363

US285

US67

US768

US(201)

C293

C70

Results are reported in accordance with Canadian generally accepted accounting

inclusion of WIS from its March 2003 acquisition date.

principles. These results may differ from those reported by the individual

Consolidated cost of sales
Consolidated cost of sales was $14.5 billion in 2004 com-

pared to $10.9 billion in 2003. Table 3 provides a detailed

breakdown of reported cost of sales by industry segment

operating companies.

(a) Other includes Radian, ONCAP and parent company.

Cost of Sales as a Percentage
of Revenues by Industry Segment

for 2004 and 2003 and the change in cost of sales from

those periods in both Canadian dollars and the functional

TABLE 4

currencies of the companies. We provide the cost of sales

Electronics Manufacturing Services

in the companies’ functional currencies to show the impact

Theatre Exhibition

of foreign exchange translation on cost of sales. Table 4

Healthcare

provides additional details on cost of sales as a percentage

Customer Management Services

of revenues by industry segment for 2004 and 2003.

Automotive Products

Other(a)

Total

2004

2003

95%

76%

80%

63%

80%

66%

89%

94%

77%

–

66%

77%

73%

90%

Results are reported in Canadian dollars and in accordance with Canadian generally

accepted accounting principles. These results may differ from those reported by

the individual operating companies.

(a) Other includes Radian, ONCAP and parent company.

34 Onex Corporation December 31, 2004 Report

M A N A G E M E N T ’ S D I S C U S S I O N A N D A N A LY S I S

Electronics Manufacturing Services
Celestica’s cost of sales was $10.9 billion in 2004 compared

Healthcare
Magellan’s reported cost of sales was $1.8 billion in 2004,

to $8.8 billion in 2003. In the company’s functional cur-

or 80 percent as a percentage of revenues. Under Canadian

rency, cost of sales increased 33 percent to US$8.4 billion

GAAP and in the company’s functional currency, cost of

from US$6.3 billion, while revenues were up 31 percent.

sales was US$1.4 billion. Approximately US$667 million of

Cost of sales as a percentage of revenues was 95 percent

the total cost of sales was associated with Health Plan

in 2004 compared to 94 percent in 2003. Included in the

Solutions; approximately US$103 million with Employer

cost of sales for 2004 were $217 million (US$178 million) of

Solutions; and US$584 million with Public Sector Solutions.

charges associated with the writedown of receivables and

inventory. Of that amount approximately US$161 million

was taken in the fourth quarter of 2004 due to uncertainty

Customer Management Services
ClientLogic reported cost of sales of $458 million in 2004,

over the recoverability of certain receivables and inventory

up $59 million from the cost of sales last year. In

related to the deterioration in the ﬁnancial condition of

ClientLogic’s functional currency, the company reported

one of the company’s customers. Despite these unfavour-

cost of sales of US$352 million in 2004 compared to

able charges, Celestica reported gross proﬁt in 2004 of

US$285 million in 2003, an increase of 24 percent. This

US$427 million, a US$34 million increase over 2003 due

compares to an increase of 30 percent in revenues for the

primarily to increased base business volumes, reduced

same period. ClientLogic’s cost of sales as a percentage of

pricing pressures, improved operating efﬁciency and the

revenues declined to 63 percent in 2004 from 66 percent in

beneﬁts derived from the company’s restructuring activ-

2003. This improvement was due primarily to tighter cost

ities and acquisitions. Celestica’s Americas operations

management, cost-reduction initiatives implemented in the

improved margins over last year as a result of the factors

fourth quarter of 2003 and the beneﬁt of a US$8 million

discussed above and the exiting of the reference design

settlement on previously reserved contingent liabilities.

activities. The company’s European operations had signiﬁ-

cantly better margins compared to last year as a result of

improved utilization, restructuring beneﬁts and cost reduc-

Automotive Products
Consolidated cost of sales in the automotive products

tions. In addition, Celestica’s Asia operations beneﬁtted

segment was $743 million in 2004 compared to $1.1 billion

from higher production volumes.

in 2003. A breakdown of cost of sales in the automotive

products segment by company is shown below in Table 5.

Theatre Exhibition
The theatre exhibition segment reported cost of sales of

$271 million in 2004, a 5 percent increase from $259 million

Automotive Products Cost of Sales

reported in 2003. This compares to a 6 percent increase in

TABLE 5

($ millions)

revenues for the same period. Cost of sales as a percentage

of revenues of 76 percent in 2004 was slightly lower than

the 77 percent reported in 2003. Approximately 45 percent

and 7 percent of the total cost of sales was attributable to

ﬁlm and concession costs, respectively. During 2004, ﬁlm

costs increased $5 million, or 4 percent. As a percentage of

box-ofﬁce revenue, ﬁlm cost decreased slightly to 51 percent

in 2004 from 52 percent in 2003. Cost of concessions also

increased 6 percent, or $1 million, due primarily to $1 mil-

lion in incremental costs associated with new theatres that

were opened in 2004. As a percentage of concession rev-

enues, cost of concessions of 20 percent in 2004 was equal

to that of 2003.

J.L. French Automotive

Commercial Vehicle Group

Performance Logistics Group

Total

2004

2003

551

192

–

743

572

321

184

1,077

J.L. French Automotive

J.L. French Automotive reported cost of sales of $551 mil-

lion in 2004, a 4 percent decrease from $572 million in

2003. In the company’s functional currency, cost of sales

increased by US$16 million to US$423 million in 2004 from

US$407 million in 2003. Cost of sales as a percentage of

revenues increased to 80 percent in 2004 from 78 percent

Onex Corporation December 31, 2004 Report 35

M A N A G E M E N T ’ S D I S C U S S I O N A N D A N A LY S I S

in 2003 due primarily to higher aluminum prices in 2004

that could not be fully recovered in pricing to customers.

Operating earnings
We deﬁne operating earnings as EBIAT, or earnings before

Partially offsetting this increase were improved labour

interest expense, amortization of intangibles and deferred

productivity and tighter control of a variety of manufac-

charges, acquisition and restructuring expenses, other

turing expenses.

Commercial Vehicle Group

non-recurring items and income taxes. Table 6 provides a

reconciliation of the audited annual consolidated state-

ments of earnings to operating earnings for the years

Included in Onex’ audited annual consolidated ﬁnan-

ended December 31, 2004 and 2003.

cial statements is CVG’s cost of sales of $192 million, or

US$144 million in the company’s functional currency. This

Operating Earnings Reconciliation

amount represents the cost of sales up to the time of CVG’s

initial public offering in August 2004, when Onex ceased to

TABLE 6

($ millions)

2004

2003

Earnings before the undernoted items

781

494

consolidate the operations of CVG. This compares to full-

year cost of sales of $321 million reported for 2003. The

operations of CVG from August 2004 were included on an

equity accounting basis.

Performance Logistics Group

There was no cost of sales reported for PLG in 2004 as the

company was accounted for on an equity basis following

its acquisition of Leaseway as previously discussed. PLG

Amortization of property,

plant and equipment

Interest and other income

Equity-accounted investments

Foreign exchange loss

Stock-based compensation

Operating earnings

reported cost of sales of $184 million, or US$132 million in

Amortization of intangible assets

its functional currency, in 2003.

Other Businesses
Communications Infrastructure

and deferred charges

Interest expense of

operating companies

Derivative instruments

Radian’s cost of sales was $100 million in 2004, up from

Gains on shares of operating companies, net

$88 million in 2003. As a percentage of revenues, the

Acquisition, restructuring and other expenses

company’s cost of sales was 88 percent in 2004 compared to

Debt prepayment costs

82 percent in 2003. The decline in Radian’s gross margin to

Writedown of goodwill and intangible assets

$13 million in 2004 from $20 million in 2003 was due prima-

Writedown of long-lived assets

(416)

111

(8)

(116)

(104)

248

(407)

–

(122)

(94)

(91)

(253)

(191)

182

(211)

(8)

(393)

(94)

–

129

(151)

(11)

(402)

(88)

rily to price competition, which reduced margins. In late

2004, the company, led by a new Chief Executive Ofﬁcer,

began to implement a detailed turnaround plan, which is

focused on reducing costs, improving project execution and

restructuring its U.S. operations to improve efﬁciencies.

Small-capitalization Opportunities

ONCAP’s companies reported a combined cost of sales

of $263 million in 2004 compared to $204 million reported

in 2003. As was the case with revenues, essentially all of

the increase in cost of sales was associated with the acqui-

sitions of Futuremed and CSRS in February and April 2004,

respectively.

36 Onex Corporation December 31, 2004 Report

Loss before income taxes,

non-controlling interests and

discontinued operations

(594)

(745)

Onex uses EBIAT to evaluate each operating company’s

performance because it eliminates interest charges, which

are a function of the operating company’s particular

ﬁnancing structure, as well as any unusual or non-recur-

ring charges. Onex’ method of determining operating

earnings may differ from other companies’ methods and,

accordingly, EBIAT may not be comparable to measures

used by other companies. EBIAT is not a performance

measure under Canadian GAAP and should not be consid-

ered either in isolation or as a substitute for net earnings

(loss) prepared in accordance with Canadian GAAP.

M A N A G E M E N T ’ S D I S C U S S I O N A N D A N A LY S I S

Consolidated operating earnings were $248 mil-

Included in the 2004 operating earnings were a

lion in 2004, up $188 million from $60 million in 2003.

Table 7 provides a breakdown and change in operat-

$104 million expense from stock-based compensation
compared to a $14 million beneﬁt in 2003, and a $116 million

ing earnings by industry segment for the years ended

foreign exchange loss compared to a loss of $122 million

December 31, 2004 and 2003.

in the prior year. A discussion of the changes in both stock-

based compensation and foreign exchange in 2004 com-

Operating Earnings (Loss) by Industry Segment

pared to 2003 is provided below.

TABLE 7

($ millions)

2004

2003

Electronics Manufacturing Services

Theatre Exhibition

Healthcare

Customer Management Services

Automotive Products

Other(a)

Total operating earnings

236

(157)

248

–

(23)

112

(99)

Operating
Earnings
Increase/
(Decrease)

(24)

236

(37)

(58)

188

Automotive Products Operating Earnings (Loss)

TABLE 8

($ millions)

2004

2003

J.L. French Automotive

Commercial Vehicle Group

Performance Logistics Group

Other

Total

–

(2)

112

Operating
Earnings
Increase/
(Decrease)

(5)

(24)

(4)

(37)

Results are reported in Canadian dollars and in accordance with Canadian generally

accepted accounting principles. These results may differ from those reported by the

individual operating companies.

(a) Other includes Radian, ONCAP and parent company.

The $188 million improvement in operating earnings in

2004 over last year was due primarily to the inclusion of

Magellan, which contributed $236 million and a $67 mil-

lion increase in ClientLogic’s operating earnings, which

was driven primarily by cost-reduction initiatives imple-

mented in late 2003. Celestica’s reported operating earn-

ings were $24 million lower than in the prior year due

mainly to $217 million in charges related to the writedown

of receivables and inventory associated with one cus-

tomer. The writedowns offset the substantial beneﬁts

achieved at Celestica from the inclusion of operating

earnings from acquisitions, higher volumes, operational

efﬁciencies and improvements resulting from its restruc-

turing initiatives. The automotive products segment also

reported $37 million in lower operating earnings. As

shown in Table 8, the decline was due to accounting for

PLG and CVG on an equity basis from the ﬁrst and third

quarters of 2004, respectively.

Stock-based compensation
Since January 2002, the change in the value of stock-based

compensation at the parent company has been recorded

through the statements of earnings. As a result, operating

earnings may increase or decrease depending upon

changes in the market value of the shares underlying the

stock-based compensation.

Effective January 1, 2004, Onex’ operating compa-

nies adopted new accounting rules for stock-based

compensation, which require a fair-value-based method

to be applied to all stock-based compensation payments

to employees. Previously, only those non-employee and

employee awards that called for settlement with cash or

other assets, or stock appreciation rights that called for

settlement by the issuance of equity instruments, were

required to be recorded as compensation expense. While

Onex’ operating companies have adopted this policy

change on a retroactive basis, prior year earnings have not

been restated. Instead, retained earnings and non-control-

ling interests have each been reduced by $5 million. As a

result of this new policy, Onex’ operating companies,

excluding the parent company, recorded stock compensa-

tion charges of $69 million, all relating to 2004. There were

no such charges in 2003. Note 14 to the audited annual

consolidated ﬁnancial statements provides additional

disclosure on stock-based compensation in 2003.

Onex Corporation December 31, 2004 Report 37

M A N A G E M E N T ’ S D I S C U S S I O N A N D A N A LY S I S

In 2004, stock-based compensation was an

expense of $104 million compared to a beneﬁt of $14 mil-

Interest expense of operating companies
Onex has a policy to structure each of its operating com-

lion in 2003. The 2004 expense for stock-based compen-

panies with sufﬁcient equity in the company to enable it to

sation was contributed primarily by the overall increase

self-ﬁnance a signiﬁcant portion of its acquisition cost

in value of Onex’ stock options and investment rights

with a prudent level of debt. The level of debt assumed is

of $35 million from their value at December 31, 2003; a

commensurate with the operating company’s available

$14 million expense recorded by CVG; a $35 million

cash ﬂow, including consideration of funds required to

expense recorded by Magellan; and a $20 million expense

pursue growth opportunities. It is the responsibility of the

recorded by Celestica.

acquired operating company to service its own debt obli-

During 2003, stock-based compensation added

gations. The debt of each operating company is without

$14 million to earnings. This was due primarily to the

recourse to Onex or to any other Onex operating company.

decline in the market value of the stock-based compen-

Consolidated interest expense increased 32 per-

sation liability from December 31, 2002. The decline in

cent to $253 million in 2004 from $191 million in 2003.

market value was primarily due to the revaluation of the

Celestica accounted for $56 million of interest expense in

Onex stock options and the investment rights associated

2004 compared to $36 million in 2003 due primarily to its

with Celestica.

issuance in June 2004 of US$500 million of senior subordi-

nated notes. In addition, the inclusion of Magellan in 2004

Foreign exchange loss
The foreign exchange loss reﬂects the impact of changes

added $48 million in interest expense in 2004. Partially off-

setting these factors was lower interest expense in the

in foreign currency exchange rates, primarily on the U.S.-

automotive segment due primarily to lower borrowing

dollar-denominated cash held at Onex, the parent com-

rates at J.L. French Automotive associated with that com-

pany. While changes in foreign currency exchange rates

pany’s reﬁnancing and debt repayment in 2004, and lower

may apply to multiple currencies, the primary impact

interest expense consolidated for CVG in 2004 due to

of foreign currency translation on Onex’ consolidated

Onex’ sale of CVG shares that resulted in Onex ceasing to

results is due to the conversion of the U.S. dollar to the

control that company in August 2004. Table 9 details the

Canadian dollar.

change in consolidated interest expense from 2003 to 2004.

A net foreign exchange loss of $116 million was

recorded in 2004 compared to a loss of $122 million in

Change in Interest Expense

2003 and a foreign exchange gain of $18 million reported

in 2002. Onex, the parent company, recorded $124 million

TABLE 9

($ millions)

of the foreign exchange loss in 2004, as it holds a sig-

niﬁcant portion of its cash in U.S. dollars. During 2004, the

U.S. dollar declined by approximately C$0.0945 relative

to the Canadian dollar, or from 1.2965 Canadian dollars

Reported interest expense for 2003

Additional interest expense in 2004 due to:

Celestica’s senior subordinated debt

Acquisitions completed in 2004

to 1.2020 Canadian dollars. This compares to a foreign

Other

exchange loss at the parent company of $139 million in

Interest expense reduction due to:

2003 and a foreign exchange gain of $17 million in 2002.

Non-controlled entities in 2004

Note 27 to the audited annual consolidated ﬁnancial state-

Commercial Vehicle Group and

ments provides a breakdown of foreign exchange gains

Performance Logistics Group

(loss) by industry segment.

Reported interest expense for 2004

191

(18)

253

38 Onex Corporation December 31, 2004 Report

M A N A G E M E N T ’ S D I S C U S S I O N A N D A N A LY S I S

Interest and other income
Interest and other income totalled $111 million in 2004, up

Onex determined that these instruments did not qualify

for hedge accounting based on the new accounting guid-

37 percent from $81 million reported in 2003. Included in

ance and accordingly Onex is required to mark-to-market

the 2004 interest and other income was $30 million of

these instruments to the value of the underlying securities,

income realized on the sale of public securities by Onex,

which are Celestica subordinate voting shares.

the parent company, and $8 million from the inclusion of

During 2004, Onex recorded a $29 million beneﬁt

Magellan in 2004. Partially offsetting these factors was

to earnings for the decrease in the exchangeable deben-

lower interest income earned on cash balances primarily

tures liability and an increase in value of the forward sales

at Onex, the parent company, and at Celestica due mainly

contracts as a result of the decrease in market value of the

to lower average cash balances and lower rates of return

underlying Celestica shares since December 31, 2003.

on those balances in 2004. Onex used $150 million in cash

While these accounting adjustments were required to be

to repurchase 9,143,100 of its Subordinate Voting Shares

made in accordance with the new accounting guideline,

during 2004.

Equity-accounted investments
Onex reported a loss from equity accounted investments

of $8 million in 2004. This amount represents Onex’ share

they do not have a cash impact on Onex. In February 2005,

Onex settled the exchangeable debentures with the deliv-

ery of Celestica shares that it held and that were pledged

as security.

in the net earnings (loss) of four businesses – ResCare,

CVG, PLG and Cypress Property & Casualty Insurance

Gains on shares of operating companies
Onex recorded gains on shares of operating companies of

Company (“Cypress”). Onex’ share of ResCare’s earnings

$182 million in 2004 compared to $129 million of such

contributed approximately $1 million of the total equity-

gains in 2003. Table 10 details the nature of the gains

accounted investments following Onex Partners’ invest-

recorded in 2004 compared to 2003.

ment in that company in late June 2004. Cypress, a Florida

homeowners insurance company, contributed a $9 million

Gains on Shares of Operating Companies

loss to equity-accounted investments due to an unprece-

dented number of hurricanes in Florida during 2004.

TABLE 10

($ millions)

2004

2003

There were no earnings recognized in 2004 for PLG and

Gains (loss) on:

CVG as the losses booked by Onex on these investments in

Issue of shares of Commercial Vehicle Group

prior years have exceeded the earnings to date.

Derivative instruments
Effective January 1, 2004, Onex adopted the new guideline

Performance Logistics Group

Issue of shares by Celestica

Sale of Tower Automotive

Gain on initial public offering

AcG-13, “Hedging Relationships”, which addresses the

of Cineplex Galaxy Income Fund

identiﬁcation, designation, documentation and effective-

Vencap sale of operating company

ness of hedging relationships for the purpose of applying

Other, net

hedge accounting. This guideline also establishes certain

conditions for applying hedge accounting and deals with

Total

–

182

–

118

(5)

129

the discontinuation of hedge accounting. Onex also adopted

EIC-128, “Accounting for Trading, Speculative or Non-

Hedging Derivative Financial Instruments”, which requires

those derivative instruments that do not qualify for hedge

accounting to be marked-to-market values. At December 31,

2003, Onex, the parent company, had two derivative

instruments in place – exchangeable debentures and for-

ward sales contracts related to shares of Celestica held by

Onex – that were affected by these new pronouncements.

In August 2004, CVG completed a $180 million initial

public offering. As part of that offering, Onex sold approxi-

mately 45 percent of its CVG shares, receiving $54 million

in net proceeds. The gain on the sale of shares, the dilution

gain from the initial public offering and the recovery of

previously recorded losses resulted in a gain of $60 mil-

lion. In addition, Onex received approximately $27 million

on the repayment of debt held, which resulted in a further

gain of $15 million.

Onex Corporation December 31, 2004 Report 39

M A N A G E M E N T ’ S D I S C U S S I O N A N D A N A LY S I S

Onex also recorded a $58 million non-cash gain

repositioning the number and location of production facil-

on PLG relating to its purchase of Leaseway in 2004

ities, are primarily intended to align Celestica’s capacity

through a share exchange. The gain was comprised of a

with anticipated customer requirements for more produc-

$22 million non-cash accounting dilution gain and the

tion in lower-cost geographies, as well as to rationalize its

accounting recovery of $36 million of losses of PLG previ-

manufacturing network to lower overall demand levels.

ously recognized by Onex that were in excess of other

Note 16 to the audited annual consolidated ﬁnancial

shareholders’ equity in PLG.

statements details the nature of the acquisition, restruc-

Onex recorded a $9 million accounting dilution

turing and other expenses, such as employee termination

gain following the issuance of shares by Celestica for the

costs, facility and exit costs and other charges, by the

purchase of MSL in March 2004 and a $6 million gain on

year in which the activity was initiated. During 2003,

the sale of its remaining Tower Automotive shares in the

Celestica recorded $128 million of acquisition, restruc-

second quarter of 2004. Onex also recorded $34 million in

turing and other expenses associated primarily with these

gains on strategic investments in 2004, which are included

restructuring plans.

in the “Other” line in Table 10 on the previous page.

Included in the 2003 gains on shares of operating

Acquisition, Restructuring and Other Expenses

companies was a $118 million gain from the initial public

offering of CGIF associated with the cash proceeds on the

TABLE 11

($ millions)

offering. Also included in the 2003 accounting gains on

shares of operating companies was a $16 million gain

recorded by Vencap from the company’s sale of its remaining

Celestica

Magellan

ClientLogic

operating company.

J.L. French Automotive

Note 15 to the audited annual consolidated ﬁnan-

cial statements provides additional details on the gains on

shares of Onex’ operating companies.

Other

Total

2004

2003

184

128

–

211

151

Acquisition, restructuring and other expenses
Acquisition, restructuring and other expenses are consid-

ered costs incurred to realign organizational structures

or restructure manufacturing capacity to obtain opera-

tional synergies critical to building the long-term value of

Onex’ operating companies. During 2004, acquisition,

restructuring and other expenses totalled $211 million, a

40 percent increase from the $151 million reported in

2003. Table 11 details acquisition, restructuring and other

expenses by operating company.

Celestica accounted for $184 million of these

expenses due primarily to costs associated with the com-

pany’s previously announced restructuring, partially offset

by a $15 million gain recorded on the sale of its Power

Systems business for proceeds of $68 million. Many of the

costs to implement these restructuring plans can only be

recorded as they are incurred and thus the costs may be

spread over several reporting periods. These plans, which

include reducing workforce, consolidating facilities and

Writedown of goodwill and intangible assets
The management of each operating company undertakes

an annual review of the value of its recorded goodwill and

intangible assets to assess the recoverability of these assets.

An impairment in the value of goodwill and indeﬁnite-

lived intangibles is tested at the operating company by

comparing the operating company’s carrying amount of

assets and intangible assets to their estimated fair value.

These reviews may be required to be made down to a busi-

ness unit or plant level. The fair values of the operating

companies are estimated using a combination of a market

approach and discounted cash ﬂows. The process of deter-

mining fair values is necessarily subjective and requires

each operating company’s management to exercise judg-

ment in making assumptions about future results, including
revenue and cash ﬂow projections at the operating com-

pany as well as appropriate discount rates.

40 Onex Corporation December 31, 2004 Report

M A N A G E M E N T ’ S D I S C U S S I O N A N D A N A LY S I S

During 2004, writedowns of goodwill and intangi-

associated with those facilities was not certain, and there-

ble assets totalled $393 million compared to $402 million

fore in the third quarter of 2003 wrote off $214 million in

reported in the prior year. Table 12 presents these charges

goodwill associated with those operations. In December

recorded by operating company, and note 18 to the audited

2003, PLG also recorded a $142 million writedown of good-

annual consolidated ﬁnancial statements provides addi-

will and intangible assets due to lower fair values resulting

tional disclosure on these writedowns of goodwill and

from reduced business volumes.

intangible assets.

Radian recorded a goodwill impairment charge of

$8 million during 2003 due to the adverse impact of the

Writedown of Goodwill and Intangible Assets

slowdown in the telecommunications sector arising from

tightened capital markets and reductions in capital spend-

TABLE 12

($ millions)

2004

2003

ing by wireless service providers.

Celestica

ClientLogic

J.L. French Automotive

Performance Logistics Group

Radian

Total

388

–

393

214

142

402

During the fourth quarter of 2004, Celestica performed its

annual goodwill impairment test and identiﬁed reporting

units, speciﬁcally the Americas and Europe regions, which

it determined to be impaired. These reporting units were

recorded on the company’s balance sheet at carrying

values that were higher than their fair values based on cur-

rent estimated industry conditions and customer demands

for production in lower-cost geographies. As a result of

this analysis, Celestica wrote down $388 million of good-

will and intangible assets associated with these regions

in 2004. Included in the 2003 writedown of goodwill and

intangible assets was $33 million recorded by Celestica

related to changes in the electronics industry, customer

demand and other market conditions.

ClientLogic assessed that the recorded value of

several of its customer contracts was impaired in 2004 and

2003, and therefore wrote off the intangible assets associ-

ated with those contracts, which totalled $5 million in

both 2004 and 2003.

Writedown of long-lived assets
During 2004, there were $94 million of writedowns of long-

lived assets. Celestica recorded approximately $84 million

of the writedowns in long-lived assets, which affected the

company’s Americas and European operations. In addition,

J.L. French Automotive recorded $8 million of writedowns

of long-lived assets associated with the restructuring of its

United Kingdom operations. Note 19 to the audited annual

consolidated ﬁnancial statements provides additional

disclosure on these writedowns of long-lived assets.

During 2003, writedowns of long-lived assets

totalled $88 million taken primarily by Celestica and

J.L. French Automotive. Celestica recorded $75 million in

capital asset writedowns, which included an impairment

of $18 million related to the purchase of a leased facility.

When J.L. French Automotive completed its 2003 annual

assessment of its long-lived assets, management of the

company concluded that its Mexican facility was achieving

lower than acceptable proﬁt margins on its operations and

that the business would be outsourced to another supplier.

As a result, J.L. French Automotive recorded a $7 million

writedown of long-lived assets associated with that facil-

ity. J.L. French Automotive also wrote off $3 million in

long-lived assets related to the restructuring of various

operations in the United Kingdom.

During 2003, J.L. French Automotive’s manage-

Income taxes

ment assessed the goodwill and intangible assets of its

Sheboygan and Ansola facilities in light of lower produc-

tion volumes from the company’s largest customers, Ford

and General Motors; some production was also trans-

ferred from these plants to J.L. French Automotive’s Nelson

facility. Management of J.L. French Automotive concluded

from its assessment that the recoverability of goodwill

During 2004, the provision for income taxes was $347 mil-

lion compared to a provision of $67 million in 2003.

Included in the 2004 provision for income taxes is a $302 mil-

lion charge recorded by Celestica relating to a valuation

allowance for most of the company’s remaining deferred tax

assets in the United States and Europe. Celestica determined

that a valuation reserve was necessary as it evaluated further

Onex Corporation December 31, 2004 Report 41

M A N A G E M E N T ’ S D I S C U S S I O N A N D A N A LY S I S

restructuring actions to attain proﬁtability and the con-

other shareholders in ClientLogic, J.L. French Automotive

tinued transfer of customer programs from higher cost

and Radian. During 2004, Onex recorded income of

to lower cost geographies. As a result of this charge,

$38 million relating to the recovery of prior year losses

the future income tax asset included in the investments

absorbed on behalf of non-controlling shareholders of

and other assets on the consolidated balance sheet for the

J.L. French Automotive, ClientLogic and Radian. This

year ended December 31, 2004 has been reduced.

compares to a $175 million pick-up of losses from non-

Non-controlling interests of
operating companies
In the audited annual consolidated statements of earn-

controlling shareholders in 2003. J.L. French Automotive

represented $153 million of the change, which was from

the absorption of losses related to the goodwill write-off

in 2003 and a recovery from the reﬁnancing in the third

ings, the non-controlling interest amounts of $781 million

quarter of 2004.

in 2004 and $256 million in 2003 represent the interests of

shareholders other than Onex in the net losses of Onex’

operating companies. Table 13 details the losses (earnings)

Loss from continuing operations
Onex’ consolidated loss from continuing operations,

by industry segment attributable to non-controlling share-

including gains on sales of shares, was $160 million ($1.12

holders in our operating companies.

per share) in 2004 compared to a loss from continuing

Non-controlling Interests in Losses (Earnings)
of Operating Companies

operations of $556 million ($3.62 per share) reported in

2003 and a loss of $63 million ($0.39 per share) reported

in 2002. Table 14 details the loss from continuing opera-

tions by industry segment before income taxes and non-

TABLE 13

($ millions)

2004

2003

controlling interests.

Electronics Manufacturing Services

Theatre Exhibition

Healthcare

Customer Management Services

Automotive Products

Other (a)

Total

857

(36)

(100)

281

(57)

–

(4)

Earnings (Loss) from Continuing Operations

TABLE 14

($ millions)

2004

2003

2002

Earnings (loss) before income taxes

and non-controlling interests:

781

256

Electronics Manufacturing Services

(752)

(311)

(838)

(a) Other includes Radian, ONCAP and parent company.

Theatre Exhibition

Healthcare

Customer Management Services

The change in the non-controlling interests amount was

Automotive Products

due primarily to Celestica’s signiﬁcant writedowns of good-

Other (a)

163

(2)

(46)

147

–

(71)

(401)

(109)

–

(31)

141

(594)

(745)

(688)

Recovery of (provision for)

income taxes

(347)

(67)

Non-controlling interests of

operating companies

781

256

560

Loss from continuing operations

(160)

(556)

(63)

(a) Other includes Radian, ONCAP and parent company.

will, intangible assets and long-lived assets, restructuring

and accounts receivable provisions; these writedowns and

provisions totalled approximately $798 million and share-

holders other than Onex have an 82 percent interest in

Celestica. Partially offsetting these were the inclusion of

Magellan’s earnings from the date of Onex’ investment in

January 2004, and the pick-up for accounting purposes by

Onex, the parent company, of lower amounts of losses of

42 Onex Corporation December 31, 2004 Report

M A N A G E M E N T ’ S D I S C U S S I O N A N D A N A LY S I S

Earnings (loss) from discontinued operations
Earnings from discontinued operations were $195 million

($1.37 per share) in 2004 compared to $224 million

($1.46 per share) in 2003. During 2004, the operations of

in the 2003 earnings from discontinued operations were

the operations of Rogers Sugar and Lantic Sugar and
m ag n at r ax that were discontinued in 2003. Table 15
provides a breakdown of earnings (loss) by company,

Loews Cineplex, Dura Automotive, Armtec, Cincinnati

including the net after-tax gains on sales as well as Onex’

Electronics and InsLogic were reclassiﬁed as discontinued

share of earnings (loss) of those businesses that have been

operations. In addition to these operations, also included

discontinued in 2004 and 2003.

Earnings from Discontinued Operations

TABLE 15

($ millions)

2004

2003

Dura Automotive

Loews Cineplex Group

Cincinnati Electronics

Armtec

InsLogic

M AG N AT R A X

Lantic Sugar/Rogers Sugar

Total

Gain, net
of tax

Onex’ share of
earnings (loss)

135

–

194

–

(9)

–

Total

140

(9)

–

195

Gain, net
of tax

Onex’ share of
earnings (loss)

–

274

327

–

(15)

(110)

(103)

Total

–

(15)

164

224

Included in the 2004 earnings (loss) from discontinued

earnings (loss) by industry segment as well as the con-

operations were: a $140 million net after-tax gain from

tribution from net after-tax gains on sales of shares of

the sale of Loews Cineplex in July 2004, including the

operating companies and discontinued operations.

operations up to the date of sale; a $9 million net after-tax

gain from the sale of Armtec in August 2004 by ONCAP;

Consolidated Net Earnings (Loss)

$53 million from the sale of CMC Electronics’ Cincinnati

Electronics division, including the operations up to the

date of sale, and a $1 million net after-tax gain from the

sale of Dura Automotive.

TABLE 16

($ millions)

2004

2003

2002

Onex’ share of net earnings (loss):

Electronics Manufacturing Services

(202)

Included in the 2003 earnings from discontinued

Theatre Exhibition

operations was a $66 million net after-tax gain from the

Healthcare

sale of Rogers Sugar Income Fund and the operations of

Customer Management Services

Rogers Sugar and Lantic Sugar businesses up to the time of
sale; and a $164 million net gain from magnatrax, which
represented the negative book value of Onex’ investment
in magnatrax of $274 million at the time of disposition,
less the company’s loss on operations of $110 million

recorded in 2003.

Consolidated net earnings (loss)
Consolidated net earnings in 2004 were $35 million com-

pared to a consolidated net loss of $332 million in 2003

and a loss of $145 million in 2002. Table 16 identiﬁes the net

(6)

(160)

(73)

–

(72)

(368)

(109)

(119)

–

(35)

(72)

134

(63)

Automotive Products

Other(a)

Net after-tax gains on shares

of operating companies

182

Loss from continuing operations

(160)

(556)

Earnings (loss) from

discontinued operations

Consolidated net earnings (loss)

195

224

(82)

(332)

(145)

(a) Other includes Radian, ONCAP and parent company.

Onex Corporation December 31, 2004 Report 43

M A N A G E M E N T ’ S D I S C U S S I O N A N D A N A LY S I S

Table 17 presents the earnings (loss) per share from

Earnings (Loss) per Subordinate Voting Share

continuing operations, discontinued operations and net

earnings (loss).

TABLE 17

($ per share)

2004

2003

2002

Basic and Diluted:

Continuing operations

$ (1.12)

$ (3.62)

$ (0.39)

Discontinued operations

$ 1.37

$ 1.46

$ (0.51)

Net earnings (loss)

$ 0.25

$ (2.16)

$ (0.90)

S U M M A R Y Q U A R T E R L Y I N F O R M A T I O N

Table 18 summarizes Onex’ key consolidated ﬁnancial information for the last eight quarters. The summarized results pre-

sented in this table may differ from those results previously reported in 2004 and 2003 as a result of operations that have

been discontinued and reclassiﬁed as discussed above.

TABLE 18

($ millions except per share amounts)

2004

2003

Dec.

Sept.

June

Mar.

Dec.

Sept.

June

Mar.

Revenues

$ 3,925

$ 4,004

$ 4,421

$ 3,894

$ 3,230

$ 2,889

$ 2,886

$ 3,114

Earnings (loss) from continuing operations

(264)

138

(78)

Net earnings (loss)

$ (214)

281

(69)

(124)

(282)

(137)

(13)

152

$ (287)

$ (162)

(35)

Earnings (loss) per Subordinate Voting Share

Basic and Diluted:

Continuing operations

Net earnings (loss)

$ (1.90)

$ 0.97

$ (0.55)

$ 0.30

$ (0.82)

$ (1.85)

$ (0.90)

$ (0.08)

$ (1.54)

$ 2.02

$ (0.49)

$ 0.25

$ 1.01

$ (1.88)

$ (1.06)

$ (0.23)

Onex’ quarterly consolidated ﬁnancial results do not fol-

detail on pages 40 and 41 of this report under the full-year

low any speciﬁc trends due to acquisitions or dispositions

discussion of writedowns of goodwill and intangible assets

of businesses by Onex, the parent company; the volatility

and writedowns of long-lived assets. In addition, Celestica

of the exchange rate between the U.S. dollar and the

established a provision in the amount of $142 million

Canadian dollar; and varying business cycles at Onex’

for a loss on a receivable from a speciﬁc customer and a

operating companies.

valuation allowance on deferred income tax assets, which

totalled $302 million.

Fourth quarter 2004 results
There were a number of signiﬁcant items that took place

Onex, the parent company, recorded a $59 million

foreign exchange loss due to the decrease in value of the

during the fourth quarter that affected 2004 results. In the

U.S. dollar during the last three months of 2004. In addi-

fourth quarter, Celestica wrote down $388 million of good-

tion, Onex, the parent company, recorded stock-based

will and intangible assets and $84 million of long-lived

compensation expense of $21 million in the fourth quarter

assets as a result of its annual goodwill and long-lived

of 2004 due primarily to the increase in value of Onex’

asset impairment reviews. These charges are discussed in

stock options and investment rights from their value at

September 30, 2004.

44 Onex Corporation December 31, 2004 Report

M A N A G E M E N T ’ S D I S C U S S I O N A N D A N A LY S I S

C O N S O L I D A T E D F I N A N C I A L P O S I T I O N

This section should be read in conjunction with the audited
annual consolidated balance sheets on page 68 of this
report, and the corresponding notes thereto.

Consolidated assets
Consolidated assets were $11.8 billion at December 31, 2004,

down by $2.8 billion from $14.6 billion at December 31,

2003. Chart 2 shows Onex’ consolidated assets by industry

and geographic segments.

Asset Diversiﬁcation by Industry and Geographic Segments

CHART 2 ($ millions)

E L E C T R O N I C S

M A N U FA C T U R I N G

S E R V I C E S

T H E AT R E

E X H I B I T I O N

H E A LT H -

C A R E

C U S T O M E R

M A N A G E M E N T

S E R V I C E S

A U T O M O T I V E

P R O D U C T S

O T H E R (a)

T O TA L

9,161

368

359

1,537

303

336

338

6,645

5,925

1,381

8,674

19,890

779

6,500

14,621

11,809

452

3,224

U.S.
Canada
Europe
Other(b)

12%
10%
24%
54%

13%
18%
21%
48%

30%
17%
14%
39%

–
100%
–
–

100%
–
–
–

36%
6%
44%
14%

46%
3%
44%
7%

48%
3%
49%
–

55%
–
45%
–

63%
1%
35%
1%

75%
2%
22%
1%

14%
85%
–
1%

44%
30%
18%
8%

41%
37%
13%
9%

26%
32%
15%
27%

30%
24%
21%
25%

38%
25%
15%
22%

(a) Includes Radian, ONCAP, CEI and parent company. Includes discontinued operations of $4,762 million and $6,795 million for 2003 and 2002, respectively.

(b) Other includes primarily operations in Central and South America, Asia and Australia.

The consolidated asset decline in 2004 was due to the sales

Partially offsetting these declines in consolidated

of Dura Automotive, Loews Cineplex, Cincinnati Electronics

total assets were the inclusion of assets of Magellan, which

and Armtec, which represented $4.8 billion of the total

added $1.5 billion of assets, Celestica’s purchase of MSL

consolidated assets at December 31, 2003. In addition, the

in mid-March 2004 and certain assets of NEC Corporation,

change in accounting for PLG and CVG to equity basis at

which added $0.7 billion in assets, and $0.2 billion in

December 31, 2004 from consolidation at December 31,

assets from the acquisition of CEI in early December 2004.

2003 provided a further decrease in consolidated assets

Table 19 outlines the more signiﬁcant acquisitions com-

of $0.3 billion.

pleted by Onex and its operating companies in 2004, 2003

The value of consolidated assets on Onex’ consol-

and 2002. Note 3 to the audited annual consolidated ﬁnan-

idated balance sheets was also affected by changes in the

cial statements also provides additional disclosure on the

U.S. dollar to Canadian dollar exchange rate, as most of

acquisitions completed in 2004.

the operations of Onex’ companies report in U.S. dollars.

During 2004, the value of the U.S. dollar relative to the

Canadian dollar declined by approximately C$0.0945. As a

result, the total value of Onex’ consolidated assets declined

from year-end 2003.

Onex Corporation December 31, 2004 Report 45

M A N A G E M E N T ’ S D I S C U S S I O N A N D A N A LY S I S

Included in the consolidated assets for the year

barriers to employment. In addition, in November 2004,

ended December 31, 2004 were Onex’ investments in

Onex completed a $102 million investment in convertible

ResCare and Compagnie Générale de Géophysique

subordinated bonds of CGG. This investment was made

(“CGG”) completed in 2004. In June 2004, Onex, through

through Onex Partners, which includes Onex’ share of

Onex Partners, invested $114 million in equity in ResCare

$24 million. CGG is a publicly traded French company that

for an approximate 28 percent ownership interest. Onex’

operates in the land and marine seismic services industry

portion of that investment was $27 million, representing a

and is a global leader in the manufacture of geophysical

7 percent ownership interest. ResCare provides residential,

equipment. Note 6 to the audited annual consolidated

therapeutic, job training and educational support services

ﬁnancial statements provides additional disclosure on the

to people with developmental or other disabilities, to youth

breakdown of investments and other assets.

with special needs and to adults who are experiencing

TABLE 19

Operating company and total assets of acquisitions

Celestica – $832 million

Two acquisitions in 2004:

2004 Acquisitions

• Manufacturers’ Services Limited – a full-service global electronics manufacturing and supply

chain services company headquartered in the United States

• NEC Corporation assets – acquired certain assets located in the Philippines

Magellan – $1,629 million

Onex’ investment in Magellan Health Services, Inc., a leading U.S. provider of managed
behavioural healthcare and insurance services headquartered in Connecticut, United States

ONCAP – $248 million

Two acquisitions in 2004:

• Futuremed Health Care Products L.P. – the leading Canadian supplier of medical supplies

and equipment to long-term care facilities headquartered in Ontario, Canada

• Canadian Securities Registration Systems Ltd. – a leading Canadian provider of registration
and search services to financial institutions and auto acceptance and leasing companies
headquartered in British Columbia, Canada

Cosmetic Essence – $383 million

Onex’ acquisition of Cosmetic Essence, Inc., a leading provider of outsourced supply chain
management services to the personal care products industry including formulating, manufacturing,
filling, packaging and distribution services headquartered in New Jersey, United States

Operating company and total assets of acquisitions

2003 Acquisitions

ClientLogic – $90 million

Radian – $10 million

ONCAP – $92 million

ClientLogic’s purchase of Service Zone Holdings, Inc., a provider of high-quality call centre
operations headquartered in Florida, United States with facilities in the United States and
the Philippines

Radian’s acquisition of certain assets related to the tower and tower accessory manufacturing
operations of ROHN Industries, Inc. located in Indiana and Illinois, United States

ONCAP’s acquisition of Western Inventory Service Ltd. – a leading North American provider of
data collection and inventory counting services headquartered in Ontario, Canada

46 Onex Corporation December 31, 2004 Report

M A N A G E M E N T ’ S D I S C U S S I O N A N D A N A LY S I S

TABLE 19

Operating company and total assets of acquisitions

Celestica – $269 million

Two acquisitions in 2002:

2002 Acquisitions

• NEC Corporation facilities – acquired certain assets in Japan and signed a five-year supply

agreement to provide a range of electronics manufacturing services for NEC

• Corvis Corporation assets – acquired certain assets and signed a multi-year supply agreement

to exclusively manufacture Corvis’ terrestrial optical networking products and sub-sea
terminating equipment

ONCAP – $51 million

CMC Electronics Inc.’s acquisition of Flight Visions, Inc., a U.S.-based aviation company that
manufactures heads-up displays and mission computers

Total consolidated assets declined by $5.3 billion to

company is required to support its own debt. There are no

$14.6 billion at December 31, 2003 from $19.9 billion at

guarantees by Onex or cross-guarantees between the

December 31, 2002. The weakening of the U.S. dollar to

operating companies. As a result, there can be no calls on

Canadian dollar exchange rate by C$0.28 accounted for

Onex or on an operating company for the debt of another

part of the decline in consolidated assets. In addition, the

operating company.

use of $166 million of cash for the repurchase of shares by

Total consolidated long-term debt (consisting of

Onex, the parent company, under its Normal Course Issuer

the current portion of long-term debt and long-term debt)

Bid, as well as Celestica’s repurchase of some of its shares

was $2.7 billion at December 31, 2004, $1.7 billion at

and outstanding Liquid Yield Option Notes (“LYONs”) for

December 31, 2003 and $2.0 billion at December 31, 2002.

$691 million, accounted for a portion of the decline in the

Table 20 summarizes consolidated long-term debt by

total consolidated assets. Furthermore, the dispositions of
Lantic Sugar, Rogers Sugar and m ag n at r ax decreased
assets by $1.1 billion compared to December 31, 2002.

Partially offsetting these declines in consolidated

total assets was the inclusion of assets from acquisitions

completed by ClientLogic, Radian and ONCAP, which col-

lectively added $125 million, net of cash used, to total con-

solidated assets and that are outlined in more signiﬁcant

detail in table 19 on page 46.

Consolidated long-term debt,
without recourse to Onex
Onex, the parent company, has no debt, with the exception

of the debentures that are exchangeable into shares of

Celestica; these are discussed in greater detail under

the heading “Exchangeable debentures” on page 49. It has

been Onex’ policy to preserve a ﬁnancially strong parent

company that has funds available for new acquisitions and

to support the growth of its operating companies. We

industry segment.

Consolidated Long-term Debt,
Without Recourse to Onex

TABLE 20

($ millions)

2004

2003

2002

Electronics Manufacturing Services

Theatre Exhibition

Healthcare

Customer Management Services

Automotive Products

Other (a)

Long-term debt of ClientLogic and

Performance Logistics Group,

750

129

450

192

721

416

273

114

–

206

1,026

130

413

–

237

1,201

161

2,658

1,749

2,048

reclassified as current

–

(256)

(25)

Current portion of long-term debt of

operating companies(b)

(295)

(22)

(70)

adhere strictly to this policy, which means that all debt

Total

2,363

1,471

1,953

ﬁnancing is within our operating companies and each

(a) Other includes CEI, Radian, ONCAP and parent company.

(b) 2003 current portion of long-term debt excludes ClientLogic and PLG.

Onex Corporation December 31, 2004 Report 47

M A N A G E M E N T ’ S D I S C U S S I O N A N D A N A LY S I S

At December 31, 2004, long-term debt increased by approx-

Partially offsetting these increases in debt was the

imately $1 billion from December 31, 2003 due primarily to

reﬁnancing by J.L. French Automotive in August 2004,

a new debt issue at Celestica and the inclusion of debt from

which included the repurchase and retirement of a signi-

acquisitions and investments completed in 2004, which

ﬁcant portion of that company’s 11.5 percent senior subor-

include Magellan, CEI and ONCAP acquisitions – Futuremed

dinated notes at a discount. The company also arranged

and CSRS. The inclusions of debt of Magellan, CEI as well as

new credit facilities with total borrowings of US$465 million

ONCAP increased long-term debt in 2004 by approximately

that mature in 2011 and 2012. These new facilities replaced

$450 million, $158 million and $118 million, respectively.

the company’s previous senior secured credit facilities. In

Celestica issued US$500 million of senior subor-

addition, the exclusion of long-term debt of CVG and PLG,

dinated notes in June 2004 with a 7.875 percent ﬁxed inter-

which had $239 million of long-term debt in 2003, partially

est rate that are due in 2011. Approximately US$300 million

offset the increase in long-term debt in 2004.

of the proceeds from this issue were used to repurchase

Subsequent to year-end, ClientLogic completed

a portion of Celestica’s LYONs having a principal amount

a US$157 million debt reﬁnancing of its credit facilities,

at maturity of approximately US$540 million. In addi-

which matured in early 2005. The new credit facilities

tion, effective December 31, 2004, Celestica adopted

mature in 2012. Accordingly, the company’s debt was

early the revised CICA Handbook Section 3860, “Financial

classiﬁed as long term in the audited annual consolidated

Instruments – Presentation and Disclosure”, which

ﬁnancial statements at December 31, 2004.

becomes effective January 1, 2005. This revised standard

Long-term debt decreased to $1.7 billion at

requires obligations of a ﬁxed amount that may be

December 31, 2003 from $2.0 billion at December 31, 2002

settled, at the issuer’s option, by a variable number of the

due primarily to the decline in value of the U.S. dollar

issuer’s own equity instruments to be presented as liabilities.

relative to the Canadian dollar in 2003 with the currency

Celestica had LYONs at December 31, 2004 that were

translation of the U.S.-dollar-denominated debt and

affected by early adoption of this standard. As a result,

Celestica’s redemption of a portion of its LYONs in 2003.

Onex reclassiﬁed the principal component of $149 million

of the LYONs as debt, which in prior years had been

Contractual obligations

recorded as non-controlling interests. The option compo-

Table 21 provides a breakdown of consolidated contrac-

nent of the LYONs continues to be accounted for as equity.

tual obligations and the required future payments on

The revised standard also requires retroactive restatement

those obligations at December 31, 2004 for the Onex

of prior periods, which resulted in Onex reclassifying

operating companies.

$273 million from non-controlling interests to debt in 2003.

Contractual Obligations

TABLE 21

($ millions)

Total

Less than 1 year

1–3 years

4–5 years

After 5 years

Payments Due by Period

Long-term debt, without recourse to Onex

Capital and operating leases

Total contractual obligations

2,658

1,038

3,696

295

209

504

349

281

630

393

171

564

1,621

377

1,998

Additional disclosure on long-term debt is provided

ﬁnancial statements provides further additional disclosure

in note 8 to the audited annual consolidated ﬁnancial

on capital and operating leases.

statements. Note 9 to the audited annual consolidated

48 Onex Corporation December 31, 2004 Report

M A N A G E M E N T ’ S D I S C U S S I O N A N D A N A LY S I S

Exchangeable debentures
At December 31, 2004, four series of debentures issued by

As a result of these pronouncements, Onex

recorded income of $24 million for the year ended

Onex and exchangeable into shares of Celestica remained

December 31, 2004 even though there was no economic or

outstanding, which the Company issued in 2000 for an

ﬁnancial impact to Onex. This represents the decline in

aggregate carrying amount of $729 million. At the time

market value of Celestica shares pledged under the deben-

Onex entered into these transactions in 2000, Celestica’s

tures, which reduced the value of the debenture obliga-

market value had signiﬁcantly increased, resulting in

tion. As at December 31, 2004, there was an unrealized

Onex’ ownership interest in Celestica representing, in

accounting pre-tax gain with respect to the exchangeable

Onex’ view, too large a portion of the Company’s aggregate

debentures of approximately $550 million.

value. The exchangeable debentures provided Onex with

In February 2005, Onex redeemed the out-

additional liquidity and reduced the risk associated with

standing debentures and settled the obligation through the

holding too large a portion of Onex’ total value in one

delivery of approximately 9.2 million Celestica subordi-

operating company. The debentures are exchangeable into

nate voting shares. The deferred gain will be taken into

approximately 9.2 million Celestica subordinate voting

income in 2005.

shares, at ﬁxed exchange rates, or at Onex’ option, into the

cash equivalent based on the market price of Celestica

shares at the time of exchange. The debentures by their

Off-balance sheet arrangements
In 2000, Onex entered into four series of forward sales

terms mature in 2025. Onex has the option to repay the

contracts relating to the subordinate voting shares of

debentures at any time by delivering the cash equivalent

Celestica, of which there were two series outstanding at

based on the market price of Celestica shares at the time of

December 31, 2004. The forward contracts mature in 2025

exchange, the exchange number of Celestica shares or a

but may be closed out earlier by Onex. Approximately

combination of shares and cash. Onex’ obligation upon

1.8 million Celestica shares have been pledged as collateral

the exercise of the holders’ exchange right is secured by a

for these forward sales contracts and it is contemplated

pledge of approximately 9.2 million Celestica shares.

that they will be used to satisfy the agreements. These

At December 31, 2004, the market value of the

contracts are off-balance sheet arrangements.

exchangeable debentures was $156 million, down from a

Effective January 1, 2004, Onex adopted the new

market value of $180 million at December 31, 2003 and

AcG-13, “Hedging Relationships” and EIC-128, “Accounting

$203 million at December 31, 2002. The market value of

for Trading, Speculative or Non-Hedging Derivative

the exchangeable debentures is directly tied to the market

Financial Instruments”, which affected the accounting for

price of Celestica shares, which declined to $16.90 per share

the forward sales contracts at Onex. Onex determined that

at December 31, 2004 from $19.56 per share and $22.05 per

this instrument did not qualify for hedge accounting based

share at December 31, 2003 and 2002, respectively.

on the new guidance, and accordingly Onex was required

Effective January 1, 2004, Onex adopted the new

to mark-to-market this instrument.

AcG-13, “Hedging Relationships” and EIC-128, “Accounting

As a result of these pronouncements, Onex

for Trading, Speculative or Non-Hedging Derivative

recorded income of $5 million for the year ended

Financial Instruments”, which affected the accounting for

December 31, 2004 even though there was no economic or

the exchangeable debentures at Onex. Onex determined

ﬁnancial impact to Onex. As at December 31, 2004, there

that the debentures did not qualify for hedge accounting

was an unrealized accounting pre-tax gain with respect to

based on the new guidance, and accordingly Onex was

the forward sales contracts of $181 million. This gain will

required to mark-to-market this instrument.

continue to be deferred until such time as these instru-

ments are settled.

Onex Corporation December 31, 2004 Report 49

M A N A G E M E N T ’ S D I S C U S S I O N A N D A N A LY S I S

Non-controlling interests
The non-controlling interests liability on Onex’ consoli-

dated balance sheets represents the ownership interests

Change in Shareholders’ Equity

TABLE 23

($ millions)

of shareholders, other than Onex, in Onex’ operating

Shareholders’ equity as at December 31, 2003

companies. As at December 31, 2004, the non-controlling

Change in stock-based compensation

interests balance amounted to $3.9 billion compared to

accounting policy(a)

$4 billion in 2003. Table 22 details the change in the

Regular dividends declared

non-controlling interests balance from December 31, 2003

Issue of shares – Dividend Reinvestment Plan

to December 31, 2004.

Change in Non-controlling Interests

TABLE 22

($ millions)

and stock options exercised

Shares repurchased and cancelled

Currency translation adjustment on

self-sustaining foreign operations

Net earnings for 2004

Non-controlling interests as at December 31, 2003

4,002

Shareholders’ equity as at December 31, 2004

293

(5)

(15)

(150)

227

Non-controlling interests in net earnings (loss) of

operating companies in 2004

Investments by shareholders other than Onex in:

Onex Partners

Acquisitions completed in 2004

Other, net

Foreign currency translation

(781)

386

758

(238)

(253)

Non-controlling interests as at December 31, 2004

3,874

Shareholders’ equity
Shareholders’ equity decreased to $227 million at Decem-

ber 31, 2004 from $293 million at December 31, 2003. The

decrease in shareholders’ equity was due primarily to the

$150 million spent on share repurchases under Onex’

Normal Course Issuer Bids. Partially offsetting these factors

were reported net earnings of $35 million for the year

ended December 31, 2004 and a $68 million increase in

equity relating to ﬂuctuations in foreign currency transla-

(a) Adoption of the revised CICA Handbook Section 3870, “Stock-based

Compensation and Other Stock-based Payments”.

Further information on the components of shareholders’

equity as at December 31, 2004 and 2003 is found in the

audited annual consolidated statements of shareholders’

equity on page 70 of this report.

Shares outstanding

At February 28, 2005, Onex had 139,015,924 Subordinate

Voting Shares issued and outstanding. Dividends are paid

on the Subordinate Voting Shares. In mid-October 2004,

The Toronto Stock Exchange changed Onex’ trading sym-

bol from OCX to OCX.SV. Table 24 shows the change in the

number of Subordinate Voting Shares outstanding from

December 31, 2003 to February 28, 2005.

Change in Subordinate Voting Shares Outstanding

tion, primarily associated with the effect of the change in

TABLE 24

value of the U.S. dollar on Onex’ net equity in U.S.-based

consolidated operating companies. Table 23 provides a

reconciliation of the change in shareholders’ equity from

December 31, 2003 to December 31, 2004.

Subordinate Voting Shares outstanding

at December 31, 2003

Issue of shares – Dividend Reinvestment Plan

Issue of shares – Stock options exercised

Shares repurchased and cancelled under

148,015,300

72,724

71,000

Onex’ Normal Course Issuer Bids

(9,143,100)

Subordinate Voting Shares outstanding

at February 28, 2005

139,015,924

50 Onex Corporation December 31, 2004 Report

M A N A G E M E N T ’ S D I S C U S S I O N A N D A N A LY S I S

Onex also has 100,000 Multiple Voting Shares outstanding,
which have a nominal paid-in value, and 176,078 Series 1
Senior Preferred Shares, which have no paid-in amount
reﬂected in Onex’ audited annual consolidated ﬁnancial
statements. Note 12 to the audited annual consolidated
ﬁnancial statements provides additional information on
Onex’ share capital. There was no change in the Multiple
Voting Shares and Series 1 Preferred Shares outstanding
during 2004.

Cash dividends

During 2004, Onex declared dividends of $0.11 per

Subordinate Voting Share to its shareholders, which were

paid quarterly at a rate of $0.0275 per Subordinate Voting

Share. The dividends are payable on or about January 31,

April 30, July 31 and October 31 of each year. The dividend
rate remained unchanged from that of 2003 and 2002.
The total payments for dividends have decreased with the

repurchase of Subordinate Voting Shares under the Normal

Course Issuer Bids as discussed below.

Stock Option Plan

Onex, the parent company, has a Stock Option Plan in

place that provides for options and/or share appreciation

rights to be granted to Onex directors, ofﬁcers and

employees for the acquisition of Subordinate Voting

Shares of the Company for a term not exceeding 10 years.

The options vest equally over ﬁve years. The exercise price

of the options is not less than the market value of the

Subordinate Voting Shares on the business day preceding

the day of the grant. The options are not exercisable unless

the average ﬁve-day, market price of Onex Subordinate

Voting Shares is 25 percent greater than the exercise price.
At December 31, 2004, Onex had 13,961,700 options out-
standing to acquire Subordinate Voting Shares, of which

2,743,000 were vested and 1,975,200 of those vested options

were exercisable. Table 25 provides a detailed reconciliation

of the options outstanding at December 31, 2004.

Change in Stock Options Outstanding

Dividend Reinvestment Plan

Onex’ Dividend Reinvestment Plan (the “Plan”) enables

TABLE 25

Outstanding at

Number
of Options

Weighted Average
Exercise Price

Canadian shareholders to reinvest cash dividends to

December 31, 2002

12,250,600

acquire new Subordinate Voting Shares of Onex at a

Granted

market-related price at the time of reinvestment. In early

Exercised or surrendered

March 2004, the Plan was amended to remove the dis-

Expired

count to market so that future Subordinate Voting Shares

acquired would be priced according to their market value.

Eliminating the discount brought the terms of the Plan in

line with most of the dividend reinvestment plans of The

Toronto Stock Exchange-listed issuers. During 2004, Onex

issued 72,166 Subordinate Voting Shares under the Plan at

an average cost of $15.08 per Subordinate Voting Share,

creating cash savings of $1 million for investors. During

2003, 317,599 Subordinate Voting Shares were issued under

the Plan at an average cost of $14.343 per Subordinate

Voting Share, creating cash savings of approximately

$5 million. During 2002, Onex issued 189,281 Subordinate

Voting Shares under the Plan at an average cost of $19.49

710,000

(596,600)

(105,000)

12,259,000

10,205,000

(8,345,800)

(156,500)

$ 9.34

$ 14.90

$ 7.78

$ 18.45

$ 9.66

$ 16.54

$ 7.78

$ 18.56

Outstanding at

December 31, 2003

Granted

Exercised or surrendered

Expired

Outstanding at December 31, 2004

13,961,700

$ 15.71

In February 2004, Onex issued 7,260,000 options to acquire

Subordinate Voting Shares at an exercise price of $15.87,

which was the market price of Onex Subordinate Voting

Shares at the time of issuance of the options. Similarly,

Onex issued 2,945,000 options in November 2004 at an

per Subordinate Voting Share, creating cash savings of

exercise price of $18.18.

approximately $4 million. In January 2005, Onex issued an

additional 558 Subordinate Voting Shares under the Plan

at an average cost of $19.067 per Subordinate Voting Share.

During 2004, 8,345,800 options were exercised or

surrendered at an average exercise price of $7.78. Of those

options exercised, 8,274,800 options were surrendered for

cash consideration of $71 million and 71,000 options were

exercised for Subordinate Voting Shares of Onex at a total

Onex Corporation December 31, 2004 Report 51

M A N A G E M E N T ’ S D I S C U S S I O N A N D A N A LY S I S

value of approximately $1 million. This compares to

cost of $166 million during 2003 and 1,587,100 Subordinate

596,960 options exercised or surrendered in 2003 and

Voting Shares at a total cost of $26 million in 2002.

1,300,600 options in 2002. Of the total options exercised,

approximately 55,000 options were exercised for Subor-

Currency translation adjustment

dinate Voting Shares in 2003 and 50,000 in 2002 at a total

The currency translation component increased sharehold-

value of $1 million and $1 million, respectively.

ers’ equity by $68 million in 2004 compared to a decrease

Deferred Share Unit Plan

of $242 million in 2003. Changes in the currency transla-

tion adjustment primarily represent the cumulative effect

In November 2004, Onex, the parent company, established

of changes in foreign currency rates on the value of Onex’

a Deferred Share Unit Plan (“DSU Plan”), which allows

ownership in U.S.-based operating companies from their

Onex directors to apply directors’ fees to acquire Deferred

respective acquisition dates.

Share Units (“DSUs”) based on the market value of Onex

shares at the time. Grants of DSUs may also be made to

L I Q U I D I T Y A N D C A P I T A L R E S O U R C E S

Onex directors from time to time. Holders of DSUs are

entitled to receive, for each DSU upon redemption, a cash

This section should be read in conjunction with the

payment equivalent to the market value of a Subordinate

audited annual consolidated statements of cash ﬂows on

Voting Share at the redemption date. The DSUs vest imme-

page 71 and the corresponding notes thereto.

diately, are only redeemable once the holder retires from

Onex believes that maintaining a strong ﬁnancial

the board of directors and must be redeemed by the end of

position at the parent company with substantial liquidity

the year following the year of retirement. Additional units

enables the Company to pursue new opportunities to

are issued equivalent to the value of any cash dividends

create long-term value and support Onex’ existing oper-

that would have been paid on the Subordinate Voting

ating companies.

Shares. The Company has recorded a liability for the future

settlement of DSUs at the balance sheet date by reference

Major Cash Flow Components

to the value of underlying shares at that date. On a quar-

terly basis, the liability is adjusted up or down for the

change in the market value of the underlying Subordinate

TABLE 26

($ millions)

2004

2003

Cash from operating activities, excluding

Voting Shares, with the corresponding amount reﬂected

changes in non-cash

in the consolidated statements of earnings. At Decem-

net working capital and other liabilities

415

107

ber 31, 2004, Onex had 40,000 DSUs outstanding with a

Increase in non-cash net

cost of $1 million being recorded as stock-based compen-

working capital and other liabilities

sation expense.

Normal Course Issuer Bids

Onex had Normal Course Issuer Bids (the “Bids”) in place

during 2004 that enabled it to repurchase up to 10 percent

of its public ﬂoat of Subordinate Voting Shares. Onex

believes that it is advantageous to Onex and its sharehold-

ers to continue to repurchase Onex’ Subordinate Voting

Shares from time to time when the Subordinate Voting

Shares are trading at prices that reﬂect a signiﬁcant dis-

count to their intrinsic value. During 2004, Onex repur-

Cash from (used in) ﬁnancing activities

Cash used in investing activities

Cash from discontinued operations

(279)

608

(609)

572

(313)

(879)

(147)

Consolidated cash(a)

3,310

2,800

(a)

Includes cash from discontinued operations.

Cash from operating activities
Cash from operations, excluding changes in working capital

and other liabilities, totalled $415 million in 2004 compared
to $107 million in 2003. Table 27 provides a breakdown of

chased 9,143,100 Subordinate Voting Shares under the Bids

cash from (used in) operating activities, excluding changes

at a total cost of $150 million. Under similar Bids, Onex

in non-cash net working capital and other liabilities, by

repurchased 11,586,100 Subordinate Voting Shares at a total

industry segment. The increase in cash generated from

operations compared to the same period last year was

52 Onex Corporation December 31, 2004 Report

M A N A G E M E N T ’ S D I S C U S S I O N A N D A N A LY S I S

related primarily to the inclusion of Magellan, which added

activities was due primarily to acquisitions completed in

$180 million. In addition, improved operating results,

2004, which used cash of $216 million, compared to

primarily at Celestica and ClientLogic, also contributed

$99 million of cash used for acquisitions in 2003. Note 3

to the growth in cash generated from operating activities.

to the consolidated ﬁnancial statements discloses the

A detailed discussion of the consolidated operating results

by industry segment can be found under the heading

amount of cash invested in each acquisition completed
during 2004 and 2003. Table 19 on page 46 provides details

“Consolidated Operating Results” beginning on page 29.

on the acquisitions completed in 2004, 2003 and 2002.

Cash from (used in) Operating Activities

$216 million investment in ResCare and CGG completed in

TABLE 27

($ millions)

2004

2003

June and November 2004, respectively.

Included in the 2004 cash from investing activities

In addition, cash used in investing activities includes the

Electronics Manufacturing Services

Theatre Exhibition

Healthcare

Customer Management Services

Automotive Products

Other (a)

Total

200

180

128

–

(1)

were cash proceeds of $81 million received by Onex from

CVG’s initial public offering of shares and debt repayment

in August 2004 as well as $68 million in proceeds recorded

by Celestica on the sale of its Power Systems business in

the third quarter of 2004. This compares to $256 million in

(85)

(107)

proceeds from sales of shares in 2003 due primarily to the

415

107

initial public offering of the Cineplex Galaxy Income Fund

in November 2003.

(a) Other includes Radian, ONCAP and parent company.

Cash from (used in) ﬁnancing activities
Cash from ﬁnancing activities was $608 million in 2004

compared to cash used of $879 million in 2003. Included

in the 2004 cash provided from ﬁnancing activities was

$386 million of cash received from limited partners of

Onex Partners LP for the investments in Magellan,

Onex’ operating companies spent $348 million

on property, plant and equipment in 2004 compared

to $387 million of such expenditures in 2003. Table 28

details property, plant and equipment expenditures by

industry segment.

Property, Plant and Equipment Expenditures

ResCare, CGG, CEI and CDI. In addition, Celestica’s 7.875 per-

TABLE 28

($ millions)

2004

2003

cent senior notes offering completed in the second quarter

of 2004 contributed US$500 million of cash from ﬁnancing

activities. Partially offsetting these amounts were cash used

by Onex for the repurchase of Subordinate Voting Shares of

$150 million and Celestica’s repurchase of LYONs, which

used cash of $405 million in 2004.

Included in the 2003 cash used in ﬁnancing

activities was $166 million of cash used for Onex’ repur-

chase of its Subordinate Voting Shares and $691 million of

cash used by Celestica for the repurchase of some of its

Subordinate Voting Shares under that company’s normal

course issuer bid and the repurchase of a portion of

its LYONs.

Cash used in investing activities
Cash used in investing activities totalled $609 million in

2004, an increase from $147 million of cash used in investing

activities in 2003. The increase in cash used in investing

Electronics Manufacturing Services

180

234

Theatre Exhibition

Healthcare

Customer Management Services

Automotive Products

Other (a)

Total

–

348

387

(a) Other includes Radian, ONCAP and parent company.

Celestica recorded $180 million in property, plant and
equipment expenditures relating primarily to the expansion
of manufacturing capabilities in lower-cost geographies
including Mexico, Malaysia, Romania, Thailand and the
Czech Republic. Cineplex Galaxy spent $23 million in
capital expenditures in 2004 compared to $47 million in
2003 primarily for new theatre construction. Magellan
utilized approximately $39 million of cash on capital

Onex Corporation December 31, 2004 Report 53

M A N A G E M E N T ’ S D I S C U S S I O N A N D A N A LY S I S

expenditures in 2004 related to management information
systems and related equipment. ClientLogic spent $43 mil-
lion on property, plant and equipment mainly for call centre
capacity expansions in 2004. J.L. French Automotive used
US$30 million in cash on capital expenditures in 2004 pri-
marily for equipment purchases related to new programs
and replacement programs.

Commitments
As at December 31, 2004, Onex and its operating companies
had total commitments as follows:

Commitments

TABLE 29

($ millions)

Corporate investments

Capital expenditures

Letters of credit, letters of guarantee

and surety and performance bonds

Total commitments

161

314

The corporate investment commitments of $161 million
noted in table 29 include primarily Onex’ share of commit-
ments ($121 million) in acquisitions completed by Onex
Partners in early 2005. In early January 2005, Onex com-
pleted the acquisition of Center for Diagnostic Imaging,
Inc. (“CDI”), investing $88 million for an 84 percent equity
ownership. Onex provided approximately $21 million of
that equity investment and the balance of $67 million was
funded through Onex Partners. In addition, in February
2005, Onex acquired American Medical Response, Inc.
(“AMR”) and EmCare Holdings Inc. (“EmCare”) in a
purchase valued at approximately $1 billion. The total
equity investment was approximately $270 million with
Onex initially investing $100 million and the balance
through Onex Partners and certain of its limited partners.
These corporate investments are discussed in further
detail below under the heading “Pending Transactions at
December 31, 2004”.

Capital expenditures commitments are essen-

tially those of Onex’ operating companies. Celestica had

US$20 million in capital commitments, principally for

machinery, equipment and facilities in Asia. In total,

Celestica expects capital spending for 2005 to be in the

range of 1.5–2.5 percent of the company’s revenues, which

will be funded from cash on hand. The theatre exhibition

segment had capital commitments of $23 million associ-

ated with the construction of ﬁve new theatre properties

that will comprise 51 screens. These theatres are expected

to be completed and opened at various times during

2005 and 2006.

Contingent liabilities in the form of letters of

credit, letters of guarantee, and surety and performance

bonds are provided by certain operating companies to

various third parties and include certain bank guarantees.

In addition, certain operating companies have also made

guarantees with respect to employee share purchase loans.

As at December 31, 2004, the commitments with respect to

these guarantees collectively totalled $95 million. These

guarantees are without recourse to Onex.

Cash from discontinued operations
Cash from discontinued operations represents the cash

received on the sale of businesses adjusted for the opening

cash positions of those businesses that have been discon-

tinued. The companies that have been reported as dis-

continued in 2004 are Loews Cineplex, Armtec, Cincinnati

Electronics, Dura Automotive and InsLogic. Cash from

discontinued operations was $572 million in 2004 com-

pared to cash provided of $53 million in 2003. Included in

the cash from discontinued operations for the year ended

December 31, 2004 were proceeds of $739 million on

the sale of Loews Cineplex; $226 million on the sale of

Cincinnati Electronics; $22 million on the sale of Armtec;

and $23 million on the sale of Dura Automotive less cash

of $438 million, which was held by these businesses at the

beginning of 2004. Note 2 to the audited annual consoli-

dated ﬁnancial statements provides additional informa-

tion on cash ﬂows from discontinued operations.

Included in the 2003 cash from discontinued

operations were the cash positions of those businesses

that were discontinued in 2004, as well as those of
magnatrax, Rogers Sugar and Lantic Sugar, which were
discontinued in 2003.

54 Onex Corporation December 31, 2004 Report

M A N A G E M E N T ’ S D I S C U S S I O N A N D A N A LY S I S

Additional sources of cash
In early February 2004, Onex completed the ﬁnal closing

Related party transactions
Related party transactions are primarily investments by

of Onex Partners, a fund with total commitments of $2 bil-

the management of Onex and of the operating companies

lion (US$1.7 billion). Onex Partners provides capital to

in the equity of the operating companies acquired.

Onex-sponsored acquisitions not related to Onex’ operating

Onex has a Management Incentive Plan (the

companies that existed prior to the formation of Onex

“MIP”) in place that requires its management members to

Partners or ONCAP. Onex controls the General Partner and

invest in each of the operating companies acquired

the Manager of Onex Partners and has pledged $480 mil-

by Onex. The funds required for investments under

lion (US$400 million) to Onex Partners. Onex Partners has

the MIP are neither loaned to the management members

a diverse group of limited partner investors, including pub-

nor guaranteed by Onex or the operating companies.

lic and private pension funds, banks, insurance companies

During 2004, there were investments of $2 million under

and endowment funds from the United States, Canada,

the MIP compared to less than $1 million in 2003.

Europe and Asia. This substantial pool of committed funds

Management members of the MIP participated in the real-

enables Onex to be more ﬂexible and timely in responding

izations the Company achieved on Loews Cineplex and

to investment opportunities. At December 31, 2004, Onex

Armtec, receiving $35 million in 2004. This compares to

Partners, including Onex, had invested $485 million in

$6 million in realizations under the MIP in 2003. Notes 1

investments or acquisitions completed in 2004. The avail-

and 24 to the audited annual consolidated ﬁnancial state-

able committed capital from Onex Partners, excluding

ments provide additional details on the MIP.

Onex, totalled $1.1 billion at December 31, 2004. Acqui-

Members of management and the Board of

sitions completed in 2004 are disclosed in detail in note 3 to

Directors of Onex can invest limited amounts in partner-

the audited annual consolidated ﬁnancial statements. Onex

ship with Onex in all acquisitions outside of Onex Partners

Partners had equity investment commitments outstanding,

at the same cost as Onex and other outside investors.

which included Onex’ share of those commitments, of

During 2004, approximately $9 million in investments

approximately $358 million at December 31, 2004 for the

were made by Onex management and Onex board mem-

acquisitions of CDI ($88 million), completed in January

bers; this compares to less than $1 million in investments

2005, and of AMR and EmCare ($270 million), completed

made in 2003 by management and the Onex board, which

in February 2005; Onex’ share of those commitments was

were related primarily to ONCAP’s acquisition of Western

$21 million and $93 million, respectively.

Inventory Service.

In addition, Onex Partners requires Onex man-

Consolidated cash
At December 31, 2004, consolidated cash from continuing

agement to invest 1 percent (US$16.5 million) in all future

acquisitions and Onex management and directors have

operations was $3.3 billion compared to $2.4 billion in

committed to invest an additional 3 percent of the total cap-

2003. Onex, the parent company, had approximately

ital invested by Onex Partners. This structure will apply to

$1.4 billion of cash, Celestica had more than $1.1 billion of

those acquisitions completed through Onex Partners. The

cash on hand and Magellan had approximately $0.4 billion

total amount invested in 2004 by Onex management and

of cash at December 31, 2004. In addition, Onex, the par-

directors on acquisitions and investments completed

ent company, had approximately $0.3 billion of near-cash

through Onex Partners was $21 million.

items at December 31, 2004. The Company has a conserva-

During the investment period of Onex Partners

tive cash management policy that limits investment to

(up to six years), Onex will receive a management fee of

short-term low-risk money-market products. No amounts

2 percent on the US$1.25 billion of committed capital

of cash from the limited partners of Onex Partners are

provided by third-party investors. Thereafter, a 1 percent

included in consolidated cash.

management fee is payable to Onex on invested capital.

Onex Partners’ General Partner will also receive a carried

Onex Corporation December 31, 2004 Report 55

M A N A G E M E N T ’ S D I S C U S S I O N A N D A N A LY S I S

interest of 20 percent on the realized gains of the third-

$76 million, recognized an increase in the bonds’ market

party limited partners, subject to an 8 percent compound

value. Onex’ share of those proceeds was $18 million,

annual preferred return to such limited partners on all

excluding any carried interest amount that Onex is enti-

amounts contributed to Onex Partners. This carried interest

tled to. In January 2005, Onex also established Onex Real

will be based on the overall performance of Onex Partners

Estate Partners LP (“Onex Real Estate Partners”), a fund

and includes typical catch-up and clawback provisions.

dedicated to acquiring and improving real estate assets in

Consistent with market practice, Onex, as sponsor of Onex

North America. Onex’ initial commitment is $250 million,

Partners, will be allocated 40 percent of the carried interest

which will be funded as acquisitions are completed. Onex

with 60 percent allocated to the Onex principals.

intends to increase the size of the fund over time with the

Onex does not guarantee the debt on behalf of

participation of institutional investors.

any of its operating companies, nor are there any cross-

In February 2005, Onex acquired AMR and

guarantees between operating companies. Onex will invest

EmCare in a transaction valued at approximately $1 bil-

in debt of its operating companies, which amounted to

lion. The investment was made through Onex Partners and

$204 million at December 31, 2004 compared to $134 mil-

certain of its limited partners, which invested approxi-

lion at December 31, 2003. Note 8 to the audited annual

mately $270 million in equity for a 97 percent ownership

consolidated ﬁnancial statements provides information on

interest. Onex’ investment was approximately $100 million

the debt of operating companies held by Onex.

for a 37 percent ownership interest. Senior management of

Note 24 to the audited annual consolidated ﬁnan-

the businesses are also investors and owners along with

cial statements describes related party transactions.

Onex. AMR is the largest U.S. provider of ambulance trans-

Pending Transactions at December 31, 2004
In January 2005, Onex, through Onex Partners, acquired

port services. The company provides emergency response

services on behalf of communities, municipalities and

other local government agencies as well as non-emer-

CDI in a transaction valued at approximately $225 million.

gency transports between healthcare facilities or from

Onex Partners invested approximately $88 million in

a healthcare facility to a patient’s home. EmCare is the

equity for an approximate 84 percent ownership interest.

leading provider of outsourced services for hospital

Onex’ portion of that investment was approximately

emergency department physician stafﬁng and manage-

$21 million, representing an approximate 20 percent own-

ment. The company assists its clients in the operation of

ership interest. CDI is a leading provider of diagnostic and

their emergency departments, providing recruiting ser-

therapeutic radiology services. The company operates

vices, staff coordination, quality assurance, departmental

32 diagnostic imaging centres in nine markets in the

accreditation, risk management, billing, record keeping,

United States. CDI’s imaging services include magnetic

third-party payment, and other administrative services.

resonance

imaging (“MRI”), computed tomography

(“CT”), diagnostic and therapeutic-injection procedures,

as well as other procedures such as conventional x-ray,

mammography and ultrasound.

Other matters
Onex Corporation’s ﬁnancial ﬁlings, including its 2004

Annual Report and interim quarterly reports, Annual

In addition, in January 2005, Onex Partners sold

Information Form and Management Circular, are available

more than half of its CGG convertible subordinated bonds

on the Company’s website at www.onex.com or on the

after receiving an attractive purchase offer from a third

Canadian System for Electronic Document Analysis and

party. The transaction, which generated proceeds of

Retrieval (“SEDAR”) at www.sedar.com.

56 Onex Corporation December 31, 2004 Report

M A N A G E M E N T ’ S D I S C U S S I O N A N D A N A LY S I S

OUTLOOK

P A R E N T C O M P A N Y

Onex ended 2004 with substantial cash resources for the
acquisitions of businesses and to support new initiatives
to invest in other asset categories. The participants in
Onex Partners LP (“Onex Partners”) also have remaining
commitments to provide $1.1 billion of funding for future
Onex-sponsored acquisitions.

At the end of 2004, Onex had outstanding agree-
ments to acquire three businesses. These transactions were
completed in January and February 2005 with funding
provided by Onex and Onex Partners.

In early January 2005, Onex completed the acquisi-
tion of Center for Diagnostic Imaging, Inc. (“CDI”), investing
$88 million for an 84 percent equity ownership. Approx-
imately $21 million of the amount was provided by Onex
with $67 million through Onex Partners. CDI is expected
to have annual revenues of approximately $125 million.

In February 2005, Onex acquired American Medical
Response, Inc. (“AMR”) and EmCare Holdings Inc. (“EmCare”)
in a purchase valued at approximately $1 billion. AMR is the
largest U.S. provider of ambulance transport services on
behalf of communities, municipalities, government agencies
and healthcare facilities. EmCare is the largest provider of
outsourced services for hospital emergency department
physician stafﬁng and management. The total equity invest-
ment was approximately $270 million with Onex investing
$100 million and the balance through Onex Partners and
certain of its limited partners. Annual revenues of AMR and
EmCare are estimated at $2 billion.

In late February 2005, Onex announced that it
had signed an agreement to acquire the Wichita/Tulsa
Division of Boeing Commercial Airplanes in a transaction
valued at approximately $1.5 billion, consisting of $1.1 bil-
lion in cash and the assumption of certain liabilities. The
purchase will include Boeing’s commercial airplane man-
ufacturing facilities in Wichita, Kansas and Tulsa and
McAlester, Oklahoma. The operations will be under a new
company that will enter into long-term agreements with
Boeing to supply components such as fuselage sections,
struts and nacelles, and wing elements on all of Boeing’s
existing 737, 747, 767, and 777 platforms, as well as the
new 787 platform. The division currently employs approx-
imately 9,000 people and represented approximately
$2.5 billion in annual costs in 2004. The new company
will also seek new business from other customers. Onex,
through Onex Partners and certain of its limited partners,

intends to invest approximately $465 million. Onex’ share
is expected to be at least $116 million. Closing of the
transaction is subject to the satisfactory completion of a
number of conditions and is expected to be completed late
in the second quarter or during the third quarter of 2005.
Onex is also pursuing other opportunities to put
substantial cash resources to work by investing in initia-
tives that meet our benchmarks for entrepreneurial
management and value-creation potential. Early in 2005,
Onex established Onex Real Estate Partners LP (“Onex
Real Estate Partners), a fund dedicated to acquiring and
improving real estate assets in North America. Onex’ part-
ners in Onex Real Estate Partners are highly experienced
real estate professionals who share our philosophy of
long-term value growth. Onex’ initial commitment of
$250 million will be funded as acquisitions are completed.
Onex intends to increase the size of the real estate fund
over time with the participation of institutional investors.
In early February 2005, Onex redeemed all four
series of its outstanding 25-year debentures exchangeable
for Celestica subordinate voting shares. The aggregate
principal amount of the debentures redeemed was approxi-
mately $729 million. Onex elected to satisfy the principal
amount by providing Celestica subordinate voting shares
based upon the ﬁxed exchange rates under the terms of
the debentures. In aggregate, 9,214,320 Celestica subordi-
nate voting shares were delivered to the debenture holders
on redemption. In addition, an early termination premium
of approximately $12.2 million and accrued interest was
paid in cash on redemption.

Onex will record an accounting gain in the ﬁrst
quarter of 2005 on the redemption on the debentures. An
estimate of that gain is approximately $550 million before
tax based on the December 31, 2004 carrying values.
After these transactions and excluding shares for MIP
investment rights and shares pledged under the forward
contracts, Onex would continue to hold 27.3 million multi-
ple voting shares of Celestica. The shares Onex will continue
to hold represent an equity and voting interest in Celestica
of approximately 13 percent and 78 percent, respectively.
At the end of 2004, the commitment period for
initial investments by the ﬁrst ONCAP fund expired. As a
result of the success of ONCAP’s ﬁrst fund, ONCAP is
intending to raise a second fund with a size of approxi-
mately $500 million. It is currently Onex’ intention to have
a greater participation in the second ONCAP fund than its
approximate 28 percent participation in the ﬁrst fund.

Onex Corporation December 31, 2004 Report 57

M A N A G E M E N T ’ S D I S C U S S I O N A N D A N A LY S I S

Onex, the parent company, has approximately
$1.4 billion in cash to meet its commitments to Onex
Partners, ONCAP and Onex Real Estate Partners and to
support the growth plans of our operating companies.
More importantly, the creation of Onex Partners has made
available a substantial amount of time and resources
previously dedicated to ﬁnding investment partners for
major transactions. It has enabled us to more efﬁciently
evaluate and act on new opportunities to create value for
Onex shareholders and investors in Onex Partners, as the
four important acquisitions or investments made during
2004 demonstrate.

Certiﬁcation of disclosures
and internal controls
In early 2004, the Canadian Securities Association (“CSA”)
issued proposed Multilateral Instrument 52-109, “Certiﬁ-
cation of Disclosure in Issuers’ Annual and Interim Filings”
related to the certiﬁcation of disclosures and other matters
in issuers’ annual and interim ﬁlings. This instrument
requires CEOs and CFOs of all reporting issuers to person-
ally certify the accuracy and completeness of the annual
and interim ﬁlings of the issuer. Onex, the parent com-
pany, implemented this requirement in early 2004 and has
ﬁled the necessary certiﬁcations for 2004.

In February 2005, the CSA issued proposed
Multilateral Instrument 52-111, “Reporting on Internal
Control over Financial Reporting”. This instrument as pro-
posed will require an evaluation by management of the
effectiveness of internal controls over ﬁnancial reporting
against a suitable controls framework; maintenance of evi-
dence providing reasonable support for the evaluation of
the effectiveness of internal controls over ﬁnancial report-
ing; reporting of material weaknesses in internal controls
over ﬁnancial reporting; and an external audit of internal
controls over ﬁnancial reporting.

In addition, in February 2005 the CSA announced
the proposed repeal and replacement of Multilateral
Instrument 52-109. Multilateral Instrument 52-111 does not
change issuers’ certiﬁcation requirements for disclosure
controls and processes, that were effective for years ending
on or after March 31, 2005, but rather will require issuers

to certify that they have disclosed signiﬁcant deﬁciencies
and material weaknesses in the design or operation of
internal controls over ﬁnancial reporting and fraud, if any,
to their audit committee and auditors when the issuer is
required to comply with Multilateral Instrument 52-111.

The implementation of proposed instrument
52-111 for companies with market capitalization in excess
of $500 million is expected to be effective for the year end-
ing on or after June 30, 2006. At December 31, 2004, Onex
had a market value of $2.7 billion and therefore would
have to implement this new instrument for the year ended
December 31, 2006. Onex, the parent company, has been
addressing the requirements under this proposed instru-
ment and anticipates that it will have implemented all
necessary procedures to meet this new requirement as it
becomes effective.

O P E R A T I N G C O M P A N I E S

Electronics Manufacturing Services (“EMS”)
Based on the very moderate growth environment antici-
pated in 2005, Celestica’s priorities will be similar to those
in 2004. Celestica will continue to focus on restructuring
its excess capacity in higher cost geographies, resulting
in pre-tax charges of US$225–US$275 million. This initia-
tive will align its manufacturing capacity and workforce
with the current demand environment. Upon completing
this restructuring, the company expects its capacity uti-
lization to increase to approximately 70 percent for its
EMS manufacturing capacity, which will be primarily
located in lower-cost regions, such as Asia, Mexico, Central
and Eastern Europe. Expanding and diversifying the cus-
tomer base beyond communications and information
technology OEMs will remain an important priority, par-
ticularly in areas such as industrial, defence and aero-
space, automotive and consumer end markets. Celestica
also intends to further its deployment of lean manufacturing
and six sigma efﬁciency initiatives, and to continue to
broaden its offering outside its core manufacturing busi-
ness, particularly in areas such as design, fulﬁllment and
after-market services, in an effort to capture more of OEM
customers’ outsourced business.

58 Onex Corporation December 31, 2004 Report

M A N A G E M E N T ’ S D I S C U S S I O N A N D A N A LY S I S

Theatre Exhibition
Cineplex Galaxy Limited Partnership (“CGLP”) expects to

annual revenue. However, minimal impact is anticipated

in 2005 due to the long lead time in being awarded bids on

open new theatres during 2005 in Aurora, Barrhaven

gaining customer acceptance and in the event of any such

and Brockville, all in Ontario, with a total of 23 screens.

successes, the long lead time for contract start-up.

Management will also promote a variety of new programs

intended to build attendance at its theatres: Jump, CGLP’s

Res-Care, Inc. (“ResCare”)

proprietary internet ticketing product, a new loyalty

The growing demand for services to individuals with de-

program and an innovative marketing and promotions

velopmental disabilities, which represents approximately

strategy will differentiate Cineplex Odeon and Galaxy

80 percent of ResCare’s revenues and operating earnings,

theatres from its competitors.

is underpinned by a variety of long-term social and demo-

An important long-term growth initiative for

graphic factors: aging family caregivers; pressure to reduce

CGLP, and an ongoing beneﬁt of combining the two busi-

state-compiled waiting lists; legislation and litigation

nesses, is to build the level of its ancillary revenues. With

arising from the Americans with Disabilities Act; and the

32 million patrons annually, a signiﬁcant portion of whom

trend to privatization of services. These factors, combined

are in the 18 to 25-year-old category, CGLP theatres repre-

with the lengthy average stay of residents and ResCare’s

sent an attractive opportunity for advertisers to reach this

ability to meet their needs with services that are both

important demographic group. During the ﬁrst half of 2005,

efﬁcient and caring, have led to 52 consecutive quarters of

CGLP will install a digital delivery system in all its Greater

revenue growth at the company.

Toronto theatres – 215 screens in total. Fifteen-minute digi-

Given these social and demographic factors, and

tal pre-shows will feature a combination of advertising,

ResCare’s industry leadership and strong reputation, we

sponsored entertainment and movie previews that will

are conﬁdent the company’s trend of increasing revenue

generate additional revenues at each theatre.

will continue during 2005. ResCare intends to accelerate

Healthcare
Magellan Health Services Inc. (“Magellan”)

its acquisition program and expects that the provision of

periodic in-home services will continue to grow. A key

strategic priority for 2005 across ResCare’s businesses

Contract pricing will be lower in 2005 as Magellan passes

will be to achieve a more normal pattern of reimburse-

on much of the beneﬁt of the lower cost of care it has

ment increases from state governments after two years of

achieved in order to provide more value to customers.

essentially unchanged rates for the services provided by

As a result, margins will return to historical norms. In

the company.

February 2005, Aetna, Inc. (“Aetna”), a major health plan

customer, informed Magellan that, effective December 31,

2005, it will not renew its agreement with Magellan and

Customer Management Services
During 2005, ClientLogic Corporation (“ClientLogic”)

will exercise its option to purchase the Magellan opera-

intends to concentrate on achieving organic growth in its

tions that manage behavioural healthcare for its members.

core customer contact business. In addition to its strategy

Under the terms of the option, which was negotiated

to build a high-quality, cost-effective right-shore offering,

during Magellan’s bankruptcy, the purchase price is

the company has established an excellent sales and

expected to be US$50 million to US$55 million; Magellan

marketing infrastructure. It intends to add scale to that

will repay its US$49 million note to Aetna at the time the

infrastructure in an effort to further penetrate Fortune

transaction closes. Net revenue from the Aetna contract

1000 companies in key international markets. ClientLogic

was US$228 million in 2004. Aetna’s decision to exercise

entered 2005 with a very good new business pipeline and

its option is not expected to have a material impact on

expects a minimal amount of business will be lost due to

Magellan’s ﬁnancial performance during 2005.

repricing issues. Margin improvement will be a key oper-

As noted, Magellan is pursuing growth on a

ating initiative in the coming year, as will incremental

variety of fronts. The company has stated that it has

improvements in operational quality and productivity in

opportunities in its pipeline that exceed US$300 million in

the company’s European operations.

Onex Corporation December 31, 2004 Report 59

M A N A G E M E N T ’ S D I S C U S S I O N A N D A N A LY S I S

Longer term, we continue to believe with

combination of PLG and Leaseway operations. Management

ClientLogic management that the business process out-

intends to pursue new revenue opportunities from

sourcing industry represents a major growth opportunity as

improved logistics, particularly where the two transporta-

companies seek to outsource non-core business functions.

tion systems overlap in the Midwest. The company will

Over the past two years, ClientLogic has transformed itself

also explore entry into new geographic and service markets

into one of the top-tier providers in the world. We expect to

that builds on PLG’s reputation for industry-leading service

see substantial value growth in the years ahead as the com-

levels. PLG management will aggressively pursue cost-

pany continues its efforts to diversify its client base, expand

reduction initiatives by eliminating redundant expenses

its global offering and improve its overall proﬁtability.

wherever possible. They also intend to take advantage of

Automotive Products
J.L. French Automotive Castings, Inc.

(“J.L. French Automotive”)

While the use of lighter-weight aluminum parts on

the substantial buying power of Penske – a 40 percent

owner of PLG – to reduce costs for fuel, tires and shop and

maintenance supplies. PLG will continue to be accounted

for on an equity basis in 2005.

cars has been slow to gain momentum in North America,

Commercial Vehicle Group, Inc. (“CVG”)

we continue to believe there is potential for this segment

CVG expects increased production volumes and content in

in the automotive products industry. The company

heavy truck cabs in 2005. OEMs are being challenged to

remains dependent upon the success of its major cus-

meet pent-up demand for new trucks by suppliers that are

tomers, which include Ford and General Motors (repre-

not yet capable of manufacturing enough components to

senting approximately 80 percent of 2004 revenues), and

meet anticipated manufacturing levels after years of

the platforms upon which they provide parts.

below-average production; this is likely to extend the cur-

J.L. French Automotive is the leading producer of

rent cycle of new builds. CVG, which has sharply reduced

domestic aluminum transmission cases and is making

its costs over the past few years, expects to be a major

inroads on the next high-potential product – aluminum

beneﬁciary of this extended cycle through increased

engine blocks. During 2004, J.L. French Automotive was

revenues and earnings.

awarded the contract for the DaimlerChrysler World

CVG also intends to broaden its revenue opportu-

Engine Block and will be the sole supplier of four-cylinder

nities in the coming year. Its capabilities in Class 8 seating

blocks to two new DaimlerChrysler plants in southern

will be introduced to European customers, while its

Michigan. J.L. French Automotive is also aggressively mar-

European expertise in construction and agricultural mar-

keting its capability to produce six-cylinder engine blocks

kets will be marketed to OEMs in North America. During

to major domestic OEMs. High-pressure aluminum parts

2005, CVG will ramp up a wholly owned assembly facility

like those produced by J.L. French Automotive are attrac-

in China to meet rapidly growing demand in that country

tive not only for their lower weight but also for their

for safer, more comfortable heavy truck cabs. CVG will

lower cost.

continue to be accounted for on an equity basis in 2005.

During 2005, management will continue its efforts

In early February 2005, CVG announced that it

to broaden J.L. French Automotive’s customer base with

has acquired substantially all of the assets and liabilities of

domestic and foreign transplant OEMs, as well as with

Mayﬂower Vehicle Systems North American Commercial

selected Tier One suppliers. The company will also make

Vehicle Operations (“MVS”) for cash consideration of

further improvements in waste reduction throughout

US$108 million. MVS is the only non-captive producer of

the business.

complete truck cabs for the commercial vehicle sector

that offers full-service engineering and development capa-

Performance Logistics Group (“PLG”)

bilities. The company’s products include cab frames and

While revenues at PLG are largely dependent on the

assemblies, sleeper boxes and other structural compo-

success of the OEMs it serves, in 2005 the company will

nents. MVS has operations in Norwalk and Shadyside,

focus on realizing further synergy opportunities from the

Ohio and Kings Mountain, North Carolina and has a tech-

60 Onex Corporation December 31, 2004 Report

M A N A G E M E N T ’ S D I S C U S S I O N A N D A N A LY S I S

nical facility in the Detroit, Michigan area. Its major cus-

ONCAP intends to focus its investments primarily on

tomers include International, Volvo/Mack and Freightliner.

businesses with strong cash ﬂows and low exposure to

Other Businesses
Communications Infrastructure

currency ﬂuctuations.

As the commitment period for initial investments

by the ﬁrst ONCAP fund expired at the end of 2004,

Onex continues to believe that Radian Communication

ONCAP initiated plans for a second fund. ONCAP expects

Services Corporation (“Radian”) has a good foundation on

the second fund to total approximately $500 million, with

which to grow. The company enjoys strong brand recogni-

Onex making a commitment of up to half of the total.

tion for its towers and has a solid customer base. With the

Year-end order backlogs suggest that CMC

organizational changes implemented under new leadership

Electronics, Inc. (“CMC Electronics”) will continue to have

in the second half of 2004, Radian will be a more efﬁcient

success with its suite of new products in ﬂight management

organization with more effective sales and marketing.

systems and components for the commercial aviation

The major challenge for Radian in recent years

segment. The company’s NovAtel division, whose Global

has been declining capital spending by its customers.

Positioning System has made it the supplier of choice for

There is reason to believe that the environment is improv-

aviation enroute and precision-approach applications, is

ing, as wireless carriers begin to invest in technology

also expected to have a very good year. A major strategic

upgrades to their networks and U.S. broadcasters invest to

focus for CMC Electronics management during 2005 will

enhance their transmission to digital formats by July 2006.

be to improve its execution in the Military Aviation divi-

During 2005, the company will also focus on capturing the

sion, particularly on new program opportunities. In early

remaining cost-reduction opportunities in the business,

January 2005, CMC Electronics sold a portion of its owner-

improve its execution in manufacturing and bidding and

ship in NovAtel for proceeds of approximately $118 million.

seek ways to reduce working capital.

Western Inventory Service Ltd. (“WIS”) intends to

continue to develop new opportunities in its primary

inventory counting business during 2005. The company’s

focus in 2005 is to continue to gain market share and

expand geographically in the United States.

During 2005, ONCAP and Futuremed Health Care

Products L.P. (“Futuremed”) intend to pursue growth on

two fronts. The companies will explore acquisition growth

that can quickly broaden Futuremed’s geographic market

coverage and broaden its product offering. It will also pur-

sue organic growth of its business through new customer

relationships.

Canadian Securities Registration Systems Ltd.

(“CSRS”) has identiﬁed a number of strategic priorities

for 2005. The company will focus on diversifying its service

offering, securing new customers, exploring new end

markets and examining selective strategic acquisitions.

Personal Care Products

Management believes that while the personal care prod-

ucts industry will continue to grow at more than 4.5 per-

cent annually, Cosmetic Essence, Inc. (“CEI”) speciﬁc cate-

gories – cosmetics, skincare and perfumes – will grow at a

faster rate. The company also expects to drive organic

growth through stronger sales to existing customers, pene-

tration of new customers and distribution channels, and

ongoing growth in the trend to outsourcing. The industry

is large and highly fragmented, providing further opportu-

nities for growth through consolidation where potential

acquisitions are both accretive and strategic.

Small-capitalization Opportunities

ONCAP added two new members to its investment team
during 2004, including a seasoned professional with 12 years

of acquisition experience in the United States. While

ONCAP’s primary focus has been in Canada, the company

intends to be more active, and successful, in pursuing

potential stand-alone and add-on acquisitions in the

U.S. during the coming year. Overall, Canadian private

equity markets are expected to remain very competitive.

Onex Corporation December 31, 2004 Report 61

M A N A G E M E N T ’ S D I S C U S S I O N A N D A N A LY S I S

RISK MANAGEMENT

As managers, it is our responsibility to identify and manage business risk. As shareholders,
we require an appropriate return for the risk we accept.

Managing risk
Onex’ general approach to the management of risk is to

We encourage operating companies to reduce risk

and/or expand opportunities by diversifying their customer

apply common-sense business principles to the manage-

bases, broadening their geographic reach or product and

ment of the Company and the ownership of its operating

service offerings, and improving productivity. In certain

companies as well as to the acquisition of new businesses.

instances, we may also encourage an operating company

Each year we conduct detailed reviews of many oppor-

to seek additional equity in the public markets in order to

tunities to purchase either new businesses or add-on

continue its growth without eroding its balance sheet. One

acquisitions for existing businesses. Our primary interest

element of this approach may be to use new equity invest-

is in acquiring well-managed companies with a strong

ment, when ﬁnancial markets are favourable, to prepay

position in growing industries. In addition, we maintain

existing debt and absorb related penalties.

diversiﬁcation among Onex’ operating companies, which

Speciﬁc strategies and policies to manage busi-

enables us to participate in the growth of a number of

ness risk at Onex and its operating companies are

high-potential industries with varying business cycles.

discussed below.

As a general rule, we attempt to arrange as many

factors as possible to minimize risk without hampering

our opportunity to maximize returns. When a purchase

Business cycles
Diversiﬁcation by industry and geography is a deliberate

candidate meets Onex’ criteria, for example, we typically

strategy at Onex to reduce the risk inherent in business

pay a fair price, though not necessarily the lowest price,

cycles. Our practice of owning companies in various indus-

for a high-quality business. We do not commit all of our

tries with differing business cycles reduces the risk of holding

capital to a single acquisition and will have equity partners

a major portion of Onex’ assets in just one or two indus-

with whom we can share the risk of ownership, especially

tries. Similarly, the Company’s focus on building industry

on large-scale transactions. The creation of Onex Partners

leaders with extensive international operations reduces

LP streamlined Onex’ process of sourcing and ﬁnalizing

the ﬁnancial impact of downturns in speciﬁc regions.

commitments from major equity partners.

We do not burden an acquired company with

more debt than it can likely sustain, but seek to structure

Operating liquidity
It is our view that one of the most important things Onex

an acquisition so that it has the ﬁnancial and operating

can do to control risk is to maintain a strong parent com-

leeway to create as much long-term growth in value as

pany with an appropriate level of liquidity. Onex needs to

possible. Finally, we buy in ﬁnancial partnership with

be in a position to support its operating companies when

management. This strategy not only gives Onex the beneﬁt

and if appropriate. Maintaining liquidity is important

of experienced managers but also ensures that an oper-

because Onex, as a holding company, generally does not

ating company is run entrepreneurially for the beneﬁt

have guaranteed sources of meaningful cash ﬂow.

of all shareholders.

In completing acquisitions, it is generally Onex’

Onex maintains an active involvement with its

policy to ﬁnance a large portion of the purchase price with

operating companies in the areas of strategic planning,

debt provided by third-party lenders. This debt is assumed

ﬁnancial structures and negotiations, and acquisitions. In

by the company acquired and is without recourse to Onex,

the early stages of ownership, we may provide resources

the parent company, or its operating companies or part-

for business and strategic planning, and ﬁnancial reporting,

nerships. The foremost consideration, however, in devel-

while an operating company builds these capabilities in-

oping a ﬁnancing structure for an acquisition is identifying

house. In all cases, we ensure there is oversight of Onex’

the appropriate amount of equity to invest. In Onex’

investment through representation on the acquired com-

view, that is the amount of equity which maximizes the

pany’s board of directors.

risk/reward equation for both shareholders and the

62 Onex Corporation December 31, 2004 Report

M A N A G E M E N T ’ S D I S C U S S I O N A N D A N A LY S I S

acquired company. In other words, it allows the acquired

company not only to manage its debt but also to have

Financial and commodity risks
In the normal course of business, Onex and its operating

signiﬁcant ﬁnancial latitude for the business to vigorously

companies may face a variety of risks related to ﬁnancial

pursue its growth objectives.

management. Individual operating companies may also

While we seek to maximize the risk/reward equa-

use ﬁnancial instruments to offset the impact of antici-

tion in all acquisitions, there is the risk that the acquired

pated changes in commodity prices related to the conduct

company will not generate sufﬁcient proﬁtability or cash

of their businesses. In all cases, it is a matter of Company

ﬂow to service its debt requirements or to provide ade-

policy that neither Onex nor its operating companies

quate ﬁnancial ﬂexibility for growth. In such circum-

engages in derivatives trading or other speculative activities.

stances, additional investment by the equity partners,

Interest rate risk As noted above, Onex gener-

including Onex, may be required. In severe circumstances,

ally ﬁnances a signiﬁcant portion of its acquisitions with

the recovery of Onex’ equity and any other investment in

debt taken on by the acquired operating company. An

that operating company is at risk.

Timeliness of investment commitments
Onex’ ability to create value for shareholders is dependent

important element in controlling risk is to manage, to the

extent possible, the impact of ﬂuctuations in interest rates

on the debt of the operating company.

It has generally been Onex’ policy to have its

in part on our ability to be the successful party on large

operating companies either ﬁx the interest on some or all

acquisitions, which may be handled through an auction or

of the term debt at the time it is entered into or otherwise

bidding process with multiple potential purchasers.

minimize the effect of interest rate increases on a substan-

Bidding is often very competitive for the large-scale acqui-

tial portion of the debt. This is achieved by taking on debt

sitions that are Onex’ primary interest, and the ability to

at ﬁxed interest rates and entering into interest rate swap

make knowledgeable, timely investment commitments is a

agreements or ﬁnancial contracts to control the level of

key component of successful purchases. Our preferred

interest rate ﬂuctuation.

course is to complete acquisitions on an exclusive basis. In

The risk inherent in such a strategy is that, should

such instances, the vendor often establishes a relatively

interest rates decline, the beneﬁt of such declines may not

short time frame for Onex to respond deﬁnitely. In order to

be obtainable or may only be achieved at the cost of penal-

improve the efﬁciency of Onex’ internal processes on both

ties to terminate existing arrangements. There is also

auction and exclusive acquisition processes, and so reduce

the risk that the counterparty on an interest rate swap

the risk of missing out on high-quality acquisition oppor-

agreement may not be able to meet its commitments.

tunities, during 2003 we created Onex Partners LP (“Onex

Guidelines are in place that specify the nature of the ﬁnan-

Partners”), a $2 billion pool of capital raised from Onex

cial institutions that operating companies can deal with

and major institutional co-investors in North America,

on interest rate contracts.

Europe and Asia. Onex has committed $480 million to the

At the end of 2004, approximately 38 percent of

Fund and controls the General Partner and Manager. At

the consolidated long-term debt was at ﬁxed rates. In addi-

December 31, 2004, $485 million had been invested in

tion, approximately 12 percent had contracts in place to ﬁx

acquisitions or investments completed through Onex

interest rates.

Partners with Onex’ share of that being approximately

Currency ﬂuctuations The majority of the activ-

$107 million. Onex Partners’ committed capital available

ities of Onex’ operating companies were conducted out-

for acquisitions at December 31, 2004 totalled $1.5 billion,

side Canada during 2004. As discussed, approximately

of which Onex’ share was approximately $350 million.

33 percent of consolidated revenues and 26 percent of

These funds will be drawn as required for acquisitions.

consolidated assets was in the United States. Approximately

Onex Corporation December 31, 2004 Report 63

M A N A G E M E N T ’ S D I S C U S S I O N A N D A N A LY S I S

49 percent of consolidated revenues was from outside

North America; however, a substantial portion of that

Integration of acquired companies
An important aspect of Onex’ strategy for value creation is

business is actually based on U.S. dollars. This makes the

to acquire what we consider to be “platform” companies.

value of the Canadian dollar relative to the U.S. dollar the

Such companies typically have distinct competitive

primary currency relationship affecting Onex’ operating

advantages in products or services in their industry that

results. Onex’ operating companies may use currency

we believe provide a solid foundation for growth in scale

derivatives in the normal course of their business to hedge

and value. In these instances, Onex works with company

against adverse ﬂuctuations in key operating currencies but,

management to identify and purchase attractive add-on

as previously noted, speculative activity is not permitted.

acquisitions that would enable the platform company to

Onex’ results are reported in Canadian dollars,

achieve its planned goals more quickly than by focusing

and ﬂuctuations in the value of the Canadian dollar

solely on the development and/or diversiﬁcation of its

relative to other currencies can have an impact on Onex’

customer base, which is known as organic growth. Growth

reported results and consolidated ﬁnancial position.

by acquisition, however, carries more risk than organic

During 2004, $68 million of the net increase in sharehold-

growth. While as many of these risks as possible are con-

ers’ equity reﬂected the increase in the value of Onex’

sidered in the acquisition planning, in Onex’ experience

net equity in those operating companies that operate in

our operating companies also face risks such as unknown

U.S. dollars.

expenses related to the cost-effective amalgamation of

Onex holds a substantial amount of cash and

operations, the retention of key personnel and customers,

marketable securities in U.S.-dollar-denominated securi-

the future value of goodwill paid as part of the acquisition

ties. The portion of securities held in U.S. dollars is based

price, and the future value of the acquired assets and

upon Onex’ view of funds it will require for future invest-

intellectual property. Onex works with company manage-

ments in the United States. Onex does not speculate on the

ment to understand and potentially mitigate such risks as

direction of exchange rates between the Canadian dollar

much as possible.

and the U.S. dollar when determining the balance of cash

and marketable securities to hold in each currency, nor

does it use foreign exchange contracts to protect itself

against translation loss.

Risk-related contracts
With the acquisition of an equity interest in Magellan

Health Services, Inc. (“Magellan”) in January 2004, Onex

Commodity prices Certain of Onex’ operating

entered an industry that poses substantially different risks

companies are vulnerable to price ﬂuctuations in major

than those of the manufacturing industries that are the

commodities. The most signiﬁcant of these is Celestica,

major portion of the Company’s assets. Magellan faces a

which purchases a substantial volume of electronic com-

variety of risks in the normal course of its business, includ-

ponents that could be viewed as a commodity in nature

ing responsibility for risk-related products, reliance on

and subject to ﬂuctuations in price. Celestica substantially

major contracts with a limited number of customers,

manages its exposure in this area by purchasing compo-

evolving state and federal regulations, claims for profes-

nents only for speciﬁc customer contracts, and by having

sional liability and dependence on government spending

those sale contracts include terms or pricing provisions

for managed healthcare. Of these, Magellan’s management

that pass any product cost ﬂuctuations on to the customer.

believes Magellan’s responsibility for risk-related products,

J.L. French Automotive is also impacted by the fluctua-

which account for more than 88 percent of the company’s

tions in the pricing of aluminum and its ability to pass

revenues, is the most signiﬁcant risk factor.

those cost changes to customers.

64 Onex Corporation December 31, 2004 Report

M A N A G E M E N T ’ S D I S C U S S I O N A N D A N A LY S I S

In general terms, the major portion of Magellan’s

revenues is derived primarily from contracts under which

Environmental considerations
Onex has an environmental protection policy that has

it assumes all or some of the responsibility for providing

been adopted by its operating companies. Senior ofﬁcers

behavioural healthcare treatment services in exchange

of each of these companies are ultimately responsible for

for a ﬁxed, per-member monthly fee. In order for these

ensuring compliance with this policy. They are required to

contracts to be proﬁtable, the company must accurately

report annually to their company’s board of directors and

estimate the rate of service utilization by beneﬁciaries and

to Onex regarding compliance with this policy.

control the costs of treatment services in relation to con-

Environmental management by the operating

tract pricing. Increases in behavioural healthcare costs

companies is accomplished through the education of

or higher-than-anticipated utilization rates – signiﬁcant

employees about environmental regulations and appro-

aspects of which are outside Magellan’s control – may

priate operating policies and procedures; site inspections

cause expenses to exceed revenues on certain contracts.

by environmental consultants; the addition of proper

Onex’ due diligence prior to its investment in the company

equipment or modiﬁcation of existing equipment to

suggests that Magellan’s management has the skill and the

reduce or eliminate environmental hazards; remediation

procedures in place to deal effectively with the aspects of

activities as required; and ongoing waste reduction

its risk contracts that are under its control. It should also

and recycling programs. Environmental consultants are

be noted that, as a provider of managed behavioural

engaged to advise on current and upcoming environmen-

healthcare services, Magellan is not burdened by the

tal regulations that may be applicable.

“catastrophic” claim risk that characterizes the business of

Most of the operating companies are involved

healthcare for physical conditions.

in the remediation of particular environmental issues such

as soil contamination. In almost all cases, these issues

Signiﬁcant customers
Onex has acquired major operating companies and divi-

have occurred prior to Onex’ acquisition of those compa-

nies. The estimated costs of remedial work and related

sions of large companies. As part of these purchases, the

activities are to be provided for either under agreement by

acquired company has often continued to supply its for-

the vendor of the company or through provisions estab-

mer owner through long-term supply arrangements. It has

lished at the time of acquisition. Manufacturing activities

been Onex’ policy to encourage its operating companies to

carry the inherent risk that changing environmental regu-

quickly diversify their customer bases to the extent practi-

lations may identify additional situations requiring capital

cable in order to manage the risk associated with serving a

expenditures or remedial work, and associated costs to

single major customer. Celestica primarily relied on one

meet those regulations.

major customer at the time of its acquisition by Onex; the

company now has a broadly diversiﬁed and global base of

signiﬁcant customers.

Certain Onex operating companies have major

customers that represent more than 10 percent of annual

revenues. The table in note 23 to the consolidated ﬁnan-

cial statements provides information on the concentration

of business the operating companies have with major

customers.

Onex Corporation December 31, 2004 Report 65

MANAGEMENT ’S RESPONSIBILITY

FOR FINANCIAL STATEMENTS

The accompanying consolidated ﬁnancial statements have been prepared by management, reviewed by the Audit and

Corporate Governance Committee and approved by the Board of Directors of the Company. Management is responsible for

the information and representations contained in these ﬁnancial statements and in other sections of this Annual Report.

The Company maintains appropriate processes to ensure that relevant and reliable ﬁnancial information is

produced. The consolidated ﬁnancial statements have been prepared in accordance with Canadian generally accepted

accounting principles. The signiﬁcant accounting policies which management believes are appropriate for the Company

are described in note 1 to the consolidated ﬁnancial statements.

The Board of Directors is responsible for reviewing and approving the consolidated ﬁnancial statements and

overseeing management’s performance of its ﬁnancial reporting responsibilities. An Audit and Corporate Governance

Committee of three non-management independent Directors is appointed by the Board.

The Audit and Corporate Governance Committee reviews the consolidated ﬁnancial statements, adequacy of

internal controls, audit process and ﬁnancial reporting with management and with the external auditors. The Audit and

Corporate Governance Committee reports to the Directors prior to the approval of the audited consolidated ﬁnancial

statements for publication.

PricewaterhouseCoopers llp, the Company’s external auditors, who are appointed by the holders of Subordinate

Voting Shares, audited the consolidated ﬁnancial statements in accordance with Canadian generally accepted auditing

standards to enable them to express to the shareholders their opinion on the consolidated ﬁnancial statements. Their

report is set out on the following page.

Ewout R. Heersink
Chief Financial Oﬃcer

March 3, 2005

Donald W. Lewtas

Managing Director

66 Onex Corporation December 31, 2004 Report

AUDITORS’ REPORT

To the Shareholders of Onex Corporation:

We have audited the consolidated balance sheets of Onex Corporation as at December 31, 2004 and 2003 and the consoli-

dated statements of earnings, shareholders’ equity and cash ﬂows for the years then ended. These consolidated ﬁnancial

statements are the responsibility of the Company’s management. Our responsibility is to express an opinion on these

consolidated ﬁnancial statements based on our audits.

We conducted our audits in accordance with Canadian generally accepted auditing standards. Those standards

require that we plan and perform an audit to obtain reasonable assurance whether the ﬁnancial statements are free of

material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in

the ﬁnancial statements. An audit also includes assessing the accounting principles used and signiﬁcant estimates made

by management, as well as evaluating the overall ﬁnancial statement presentation.

In our opinion, these consolidated ﬁnancial statements present fairly, in all material respects, the ﬁnancial position

of the Company as at December 31, 2004 and 2003 and the results of its operations and its cash ﬂows for the years then

ended in accordance with Canadian generally accepted accounting principles.

PricewaterhouseCoopers LLP

Chartered Accountants

Toronto, Canada

March 3, 2005

Onex Corporation December 31, 2004 Report 67

CONSOLIDATED BALANCE SHEETS

As at December 31 (in millions of dollars)

2004

2003

Assets

Current assets

Cash and short-term investments

$ 3,310

$ 2,362

1,666

1,447

604

7,029

1,709

762

369

1,938

1,378

1,492

477

1,205

6,914

1,762

613

302

1,473

3,557

$ 11,809

$ 14,621

2,986

2,547

321

3,325

2,363

156

1,096

691

7,708

3,874

227

298

945

3,791

1,471

180

925

637

3,294

10,326

4,002

293

$ 11,809

$ 14,621

Accounts receivable

Inventories (note 4)

Other current assets

Current assets held by discontinued operations (note 2)

Property, plant and equipment (note 5)

Investments and other assets (note 6)

Intangible assets (note 7)

Goodwill

Long-lived assets held by discontinued operations (note 2)

Liabilities and Shareholders’ Equity

Current liabilities

Bank indebtedness, without recourse to Onex

Accounts payable and accrued liabilities

Current portion of long-term debt and obligations under capital

leases of operating companies, without recourse to Onex

Current liabilities held by discontinued operations (note 2)

Long-term debt of operating companies, without recourse to Onex (note 8)

Obligations under capital leases, without recourse to Onex (note 9)

Exchangeable debentures (note 10)

Other liabilities (note 11)

Future income taxes (note 20)

Long-term liabilities held by discontinued operations (note 2)

Non-controlling interests

Shareholders’ equity

Commitments and contingencies are reported in notes 9 and 24.

Signed on behalf of the Board of Directors

Director

68 Onex Corporation December 31, 2004 Report

CONSOLIDATED STATEMENTS OF EARNINGS

Year ended December 31 (in millions of dollars except per share data)

Revenues

Cost of sales

Selling, general and administrative expenses

Earnings Before the Undernoted Items

Amortization of property, plant and equipment

Amortization of intangible assets and deferred charges

Interest expense of operating companies (note 13)

Interest and other income

Equity-accounted investments

Foreign exchange loss

Stock-based compensation

Derivative instruments

Gains on shares of operating companies, net (note 15)

Acquisition, restructuring and other expenses (note 16)

Debt prepayment costs (note 17)

Writedown of goodwill and intangible assets (note 18)

Writedown of long-lived assets (note 19)

Loss before income taxes, non-controlling interests

and discontinued operations

Provision for income taxes (note 20)

Non-controlling interests of operating companies

Loss from continuing operations

Earnings from discontinued operations (note 2)

2004

$ 16,244

(14,510)

(953)

781

2003

$ 12,119

(10,859)

(766)

494

(416)

(94)

(253)

111

(8)

(116)

(104)

182

(211)

(8)

(393)

(94)

(594)

(347)

781

(160)

195

(407)

(91)

(191)

–

(122)

–

129

(151)

(11)

(402)

(88)

(745)

(67)

256

(556)

224

Net Earnings (Loss) for the Year

(332)

Net Earnings (Loss) per Subordinate Voting Share (note 21)

Basic and Diluted:

Continuing operations

Discontinued operations

Net earnings (loss)

$ (1.12)

1.37

0.25

(3.62)

1.46

(2.16)

Onex Corporation December 31, 2004 Report 69

CONSOLIDATED STATEMENTS OF SHAREHOLDERS’ EQUITY

(in millions of dollars except per share data)

Balance – December 31, 2002

Dividends declared(a)

Issue of shares – dividend reinvestment plan

and exercise of options

Purchase and cancellation of shares

Currency translation adjustment

Net loss for the year

Balance – December 31, 2003

Change in stock-based compensation

accounting policy(b)

Dividends declared(a)

Issue of shares – dividend reinvestment plan

and exercise of options

Purchase and cancellation of shares

Currency translation adjustment

Net earnings for the year

Share
Capital
(note 12)

$ 658

–

(46)

–

Retained
Earnings
(Deficit)
(note 12)

$ 279

(17)

–

(120)

–

(332)

Cumulative
Translation
Adjustment

$ 107

–

(242)

–

Total
Shareholders’
Equity

$ 1,044

(17)

(166)

(242)

(332)

$ 618

$ (190)

$ (135)

$ 293

–

(37)

–

(5)

(15)

–

(113)

–

(5)

(15)

(150)

Balance – December 31, 2004

$ 582

$ (288)

(67)

$ 227

(a) Dividends declared per Subordinate Voting Share during 2004 totalled $0.11 (2003 – $0.11).

(b) Adoption of the revised CICA Handbook Section 3870, “Stock-based Compensation and Other Stock-based Payments” (see note 1).

70 Onex Corporation December 31, 2004 Report

CONSOLIDATED STATEMENTS OF CASH FLOWS

Year ended December 31 (in millions of dollars)

Operating Activities

Net loss for the year from continuing operations

Items not affecting cash:

Amortization of property, plant and equipment

Amortization of intangible assets and deferred charges

Writedown of goodwill and intangible assets

Writedown of long-lived assets

Non-controlling interests in results of operating companies

Future income taxes (note 20)

Stock-based compensation

Derivative instruments

Gains on shares of operating companies, net (note 15)

Other

Increase in other liabilities

Changes in non-cash working capital items:

Accounts receivable

Inventories

Other current assets

Accounts payable and accrued liabilities

Increase in non-cash net working capital related to operations

Financing Activities

Issuance of long-term debt

Repayment of long-term debt

Cash dividends paid

Repurchase of share capital

Issuance of share capital by operating companies

Repurchase of share capital by operating companies

Decrease in other ﬁnancing activities

Investing Activities

Acquisition of operating companies, net of cash in acquired

companies of $319 (2003 – $11) (note 3)

Purchase of property, plant and equipment

Proceeds from sales of shares of operating companies

Net decrease (increase) in investments and other investing activities

Cash from discontinued operations (note 2)

Increase (Decrease) in Cash and Short-term Investments for the Year

Decrease in cash and short-term investments due to changes

in foreign exchange rates

Cash and short-term investments – beginning of the year*

Cash and Short-term Investments – End of the Year

*Includes cash from discontinued operations of $438 at December 31, 2003 (note 2).

2004

2003

$ (160)

$ (556)

416

393

(781)

252

104

(29)

(182)

214

415

(294)

(139)

(329)

136

2,543

(1,797)

(14)

(150)

464

(405)

(33)

608

(216)

(348)

114

(159)

(609)

572

707

(197)

2,800

$ 3,310

407

402

(256)

(14)

–

(129)

107

(332)

(60)

(316)

(206)

496

(547)

(12)

(166)

116

(691)

(75)

(879)

(99)

(387)

256

(147)

(1,179)

(663)

4,642

$ 2,800

Onex Corporation December 31, 2004 Report 71

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(in millions of dollars except per share data)

Onex Corporation (“Onex” or the “Company”) is a diversified
company whose subsidiaries operate as autonomous busi-
nesses. The consolidated financial statements have been
prepared in accordance with Canadian generally accepted
accounting principles (“Canadian GAAP” or “GAAP”).

In addition to the above, investments over which

Onex exercises signiﬁcant inﬂuence but does not control at

December 31, 2004, are accounted for by the equity method and

include Commercial Vehicle Group, Inc. (“CVG”), Performance

Logistics Group (“PLG”), Res-Care, Inc. (“ResCare”) and Cypress

1. B A S I S O F P R E PA R AT I O N A N D

S I G N I F I C A N T A C C O U N T I N G P O L I C I E S

B A S I S O F P R E PA R AT I O N

The consolidated ﬁnancial statements include the accounts of the

Company and its subsidiaries.

The principal operating companies and the Company’s

ownership and voting interests in these entities are as follows:

Property & Casualty Insurance Company.

Joint ventures are accounted for using the proportionate

consolidation method. The consolidated ﬁnancial statements

include revenues of $199 (2003 – nil), net assets of $17 (2003 – nil)

and net earnings before income taxes of $7 (2003 – nil) with respect

to joint ventures.

Other long-term investments are accounted for at cost

unless it is determined by management that a diminution in

value that is other than temporary has occurred, at which point

December 31, 2004

December 31, 2003

a provision is recorded.

Celestica

Cineplex Galaxy

Magellan

ClientLogic

J.L. French Automotive

Bostrom

Trim Systems

Performance

Logistics Group

Radian

Cosmetic Essence

ONCAP

Loews Cineplex Group

Dura Automotive

InsLogic

Ownership

Voting

Ownership

Voting

18%

31%

68%

77%

(b)

(c)

89%

21%

28%

–

84%
100%(a)
50%

88%

100%

(b)

(c)

100%

–

52%

57%

19%

31%

–

71%

56%

49%

79%

50%

71%

–

25%

51%

52%

85%
100%(a)
–

89%

100%

80%

–

100%

96%

51%

57%

(a) Voting is with respect to Cineplex Galaxy Limited Partnership.

(b) Entities combined in August 2004. See note 15 for details.

The ownership percentages are before the eﬀect of any potential
dilution relating to the Management Investment Plans as described

in note 24(e).

The above percentages for Celestica Inc. (“Celestica”)
exclude the dilutive eﬀect of the exchangeable debentures and
forward agreements on shares of Celestica as described in notes 10
and 22(b). The dilutive eﬀect of these instruments, if exercised or
closed out, as well as the eﬀect of the Management Investment
Plans as described in note 24(e), would be to reduce the above

S I G N I F I C A N T A C C O U N T I N G P O L I C I E S
Generally accepted accounting principles
In the ﬁrst quarter of 2004, the Company adopted Section 1100 of

the Canadian Institute of Chartered Accountants (“CICA”) Handbook,

“Generally Accepted Accounting Principles”, and Section 1400,

“General Standards of Financial Statement Presentation”. Section

1100 establishes standards for ﬁnancial reporting in accordance

with GAAP and provides guidance on sources to consult when

selecting accounting policies and determining the appropriate

disclosures when a matter is not explicitly dealt with in the

primary sources of GAAP. Section 1400 provides updated guidance

on general concepts associated with ﬁnancial statements. Adoption

did not have a material effect on these audited annual consolidated

ﬁnancial statements.

Cash and short-term investments
Cash and short-term investments consist of liquid investments

such as term deposits, money market instruments and commer-

cial paper carried at cost plus accrued interest, which approximates

market value.

Other current assets
Included in other current assets is $137 of restricted cash and

investments that represent amounts held primarily for payment

of claims under managed care contracts, for regulatory purposes

and in regard to the maintenance of minimum tangible net

equity restrictions associated with companies included in the

healthcare segment.

ownership and voting percentages to 12% (2003 – 13%) and 78%

Restricted cash and investments consist of liquid invest-

(2003 – 80%), respectively.

ments such as term deposits, money market instruments and

The voting interest includes shares that Onex has

commercial paper carried at cost plus accrued interest, which

the right to vote through contractual arrangements or through

approximates market value. Other current assets also include $88

multiple voting rights attached to particular shares. In certain

of funds held for the acquisition of Center for Diagnostic Imaging,

circumstances, the voting arrangements give Onex the right to

Inc. (“CDI”) in January 2005 (note 26).

elect the majority of the boards of directors.

72 Onex Corporation December 31, 2004 Report

N O T E S T O C O N S O L I D AT E D F I N A N C I A L S TAT E M E N T S

Inventories
Inventories are recorded at the lower of cost and replacement

Foreign currency translation
The Company’s operations conducted in foreign currencies, other

cost for raw materials, and at the lower of cost and net realizable

than those operations that are associated with investment-holding

value for work in process and ﬁnished goods. For substantially all

subsidiaries, are considered to be self-sustaining operations.

inventories, cost is determined on a ﬁrst-in, ﬁrst-out basis.

Assets and liabilities of self-sustaining operations conducted in

Property, plant and equipment
Property, plant and equipment are recorded at cost less accu-

mulated amortization and provision for impairments, if any. For

substantially all property, plant and equipment, amortization is

provided for on a straight-line basis over the estimated useful lives

of the assets: 10 to 40 years for buildings, and up to 35 years for

machinery and equipment. The cost of plant and equipment is

reduced by applicable investment tax credits more likely than not

to be realized.

Leasehold improvements are amortized over the terms

of the leases.

Leases that transfer substantially all the risks and bene-

foreign currencies are translated into Canadian dollars at the

exchange rate in effect at the balance sheet date. Revenues and

expenses are translated at average exchange rates for the year.

Unrealized gains or losses on translation of self-sustaining opera-

tions conducted in foreign currencies are shown as a separate

component of shareholders’ equity.

The Company, including investment-holding subsid-

iaries, translates monetary assets and liabilities denominated in

foreign currencies at exchange rates in effect at the balance sheet

date and non-monetary items at historical rates. Revenues and

expenses are translated at average exchange rates for the year. Gains

and losses on translation are included in the income statement.

ﬁts of ownership are recorded as capital leases. Buildings and

equipment under capital leases are amortized over the shorter

Income taxes
Income taxes are recorded using the asset and liability method of

of the term of the lease and the estimated useful life of the asset.

income tax allocation. Under this method, assets and liabilities

Amortization of assets under capital leases is on a straight-

are recorded for the future income tax consequences attributable

line basis.

Impairment of long-lived assets
Property, plant and equipment and intangible assets with limited

life are reviewed for impairment whenever events or changes

in circumstances suggest that the carrying amount of an asset

may not be recoverable. An impairment is recognized when the

carrying amount of an asset to be held and used exceeds the

undiscounted projected future net cash ﬂows expected from its

use and disposal, and is measured as the amount by which the

carrying amount of the asset exceeds its fair value.

to differences between the ﬁnancial statement carrying values

of assets and liabilities and their respective income tax bases.

These future income tax assets and liabilities are recorded using

substantively enacted income tax rates. The effect of a change in

income tax rates on these future income tax assets or liabilities is

included in income in the period in which the rate change occurs.

Certain of these differences are estimated based on the current

tax legislation and the Company’s interpretation thereof.

Pension and non-pension post-retirement beneﬁts
The operating companies accrue their obligations under employee

Assets must be classiﬁed as either held for use or

beneﬁt plans and related costs, net of plan assets. The costs of

available for sale. Impairment losses for assets held for use are

deﬁned beneﬁt pensions and other retirement beneﬁts earned by

measured based on fair value, which is measured by discounted

employees are accrued in the period incurred and are actuarially

cash ﬂows. Available-for-sale assets are measured based on the lower

determined using the projected beneﬁt method pro-rated on ser-

of carrying value and expected proceeds less direct costs to sell.

vice, based on management’s best estimates of items, including

Asset retirement obligations
In the ﬁrst quarter of 2004, the Company adopted CICA Handbook

Section 3110, “Asset Retirement Obligations”, which establishes

standards for the recognition, measurement and disclosure of

liabilities for asset retirement obligations and the associated

retirement costs. This section applies to all legal obligations

associated with the retirement of tangible long-lived assets that

result from their acquisition, construction, development or

normal operation. Adoption did not have a material impact on

these audited annual consolidated ﬁnancial statements.

expected plan investment performance, salary escalation, retire-

ment ages of employees and expected healthcare costs. Plan

assets are valued at fair value for the purposes of calculating

expected return on those assets. Past service costs from plan

amendments are deferred and amortized on a straight-line basis

over the average remaining service period of employees active at

the date of amendment.

Actuarial gains (losses) arise from the difference between

the actual long-term rate of return on plan assets and the expected

long-term rate of return on plan assets for a period or from

changes in actuarial assumptions used to determine the beneﬁt

obligation. Actuarial gains (losses) exceeding 10% of the greater of

Onex Corporation December 31, 2004 Report 73

N O T E S T O C O N S O L I D AT E D F I N A N C I A L S TAT E M E N T S

the beneﬁt obligation and the fair value of plan assets are amor-

earnings under “Derivative Instruments”. Previously deferred

tized over the average remaining service period of active employees.

gains on these instruments, which at January 1, 2004 amounted to

The average remaining service period of active employees

$549 for the exchangeable debentures and $181 for the forward

covered by the signiﬁcant pension plans is 11 years (2003 –

sales contracts, will continue to be deferred until such items

11 years) and for those active employees covered by the other sig-

mature or are otherwise closed out. At the date of adoption, the

niﬁcant post-retirement beneﬁt plans is 19 years (2003 – 21 years).

fair value of the exchangeable debentures was a liability of $180

Goodwill and intangible assets
Goodwill represents the cost of investments in operating compa-

nies in excess of the fair value of the net identiﬁable assets

and for the forward sales contracts an asset of $181.

Exchangeable debentures
The carrying amount of the Company’s exchangeable debentures

acquired. Essentially all of the goodwill and intangible asset

is based on the market price, at the balance sheet date, of the

amounts that appear on the consolidated balance sheets were

underlying Celestica shares that would have satisﬁed the deben-

recorded by the operating companies. The recoverability of good-

ture liability if the debentures had been exchanged or Onex had

will and intangible assets with indeﬁnite lives is assessed annually

elected to settle with Celestica shares on December 31, 2004.

or whenever events or changes in circumstances indicate that the

Each issue of exchangeable debentures is exchangeable

carrying amount may not be recoverable. Impairment of goodwill

for Celestica shares based on a ﬁxed conversion factor deter-

is tested at the reporting unit level by comparing the carrying

mined at the date the debentures were issued or, at the option of

value of the reporting unit to its fair value. When the carrying

the Company, it may deliver the cash equivalent based on the

value exceeds the fair value, an impairment exists and is mea-

market price of the shares at the time of exchange, or a combina-

sured by comparing the carrying amount of goodwill to its fair

tion of shares and cash.

value determined in a manner similar to a purchase price alloca-

Effective January 1, 2004, the Company adopted AcG-13.

tion. Impairment of indeﬁnite-life intangible assets is tested by

Accordingly, previously deferred gains, which at January 1, 2004

comparing their carrying value to their fair value.

amounted to $549, will continue to be deferred until such time as

Intangible assets, including intellectual property, are

there is a redemption or maturity of the exchangeable debentures,

recorded at their allocated cost at the date of acquisition of the

when a realized gain on the exchange will be recorded. Changes

related operating company. Amortization is provided for intangi-

in market value of the exchangeable debentures since the date

ble assets with limited life, including intellectual property, on a

of adoption are recorded in the statement of earnings under

straight-line basis over their estimated useful lives, which range

“Derivative Instruments”.

from ﬁve to 25 years. The weighted average period of amortization

at December 31, 2004 was approximately 10 years (2003 – 10 years).

Hedging relationships
Effective January 1, 2004, the Company adopted Accounting

Derivative financial instruments
The Company’s operating companies use foreign currency con-

tracts and interest rate swap agreements as derivative ﬁnancial

instruments to manage risks from ﬂuctuations in exchange rates

Standards Board Accounting Guideline 13 (“AcG-13”), “Hedging

and interest rates. When determined to be compliant hedges

Relationships”, which addresses the identiﬁcation, designation,

under AcG-13, the carrying value of the ﬁnancial instruments are

documentation and effectiveness of hedging relationships for the

not adjusted to reﬂect their current market value. The current

purpose of applying hedge accounting. AcG-13 also establishes

market values of these instruments are disclosed in note 22.

certain conditions for applying hedge accounting and deals with

The Company and its operating companies formally

discontinuance of hedge accounting. The Company also adopted

document relationships between hedging instruments and hedged

Emerging Issues Committee Abstract 128 (“EIC-128”), “Accounting

items, as well as the risk management objective and strategy for

for Trading, Speculative or Non-Hedging Derivative Financial

undertaking various hedge transactions. This process includes

Instruments”. This EIC abstract requires that any derivative ﬁnan-

linking all derivatives to speciﬁc assets and liabilities on the

cial instrument that is not designated as a compliant hedge under

balance sheet or to speciﬁc ﬁrm commitments or forecasted

AcG-13 be measured at fair value, with changes in fair value

transactions. The Company also formally assesses, both at the

recorded in current year income.

hedge’s inception and at the end of each quarter, whether the

Under this pronouncement, the Company’s hedge rela-

derivatives that are used in hedged transactions are highly effec-

tionships for its exchangeable debentures and forward sales con-

tive in offsetting changes in cash ﬂows of hedged items.

tracts no longer qualify for hedge accounting and thus, on a

Gains and losses on hedges of ﬁrm commitments

prospective basis, the changes in fair values of these instruments

are included in the cost of the hedged transaction when they

from January 1, 2004 have been reﬂected in the statements of

occur. Gains and losses on hedges of forecasted transactions are

74 Onex Corporation December 31, 2004 Report

N O T E S T O C O N S O L I D AT E D F I N A N C I A L S TAT E M E N T S

recognized in earnings in the same period and on the same line

recognized at the time that the loss is probable and reasonably

item as the underlying hedged transaction. Foreign exchange

estimable and are recorded at the minimum amount necessary to

translation gains and losses on forward contracts used to hedge

fulﬁll the company’s obligation to the customer.

foreign currency-denominated amounts are accrued on the

Depending on the terms under which the operating

balance sheet as current assets or current liabilities and are recog-

companies supply product, the operating companies may also be

nized currently in the income statement, offsetting the respective

responsible for some or all of the repair or replacement costs of

translation gains or losses on the foreign currency-denominated

defective products. The companies establish reserves for issues

amounts. The forward premium or discount is amortized over the

that are probable and estimable in amounts management believes

term of the forward contract. Gains and losses on hedged fore-

are adequate to cover ultimate projected claim costs. The ﬁnal

casted transactions are recognized in earnings immediately when

amounts determined to be due related to these matters could

the hedge is no longer effective or the forecasted transactions are

differ signiﬁcantly from recorded estimates.

no longer expected.

Deferred charges
Costs incurred by the operating companies relating to the issuance

of debt are deferred and amortized over the term of the related

debt or as the debt is retired. Deferred charges also include net

pension assets.

Earnings per share
Basic earnings per share is based on the weighted average number

of Subordinate Voting Shares outstanding during the year. Diluted

earnings per share is calculated using the treasury stock method.

Revenue recognition
Effective January 1, 2004, the Company and its operating subsid-

iaries adopted EIC-141, “Revenue Recognition”, EIC-142, “Revenue

Arrangements with Multiple Deliverables” and EIC-143, “Accounting

for Separately Priced Extended Warranty and Product Maintenance

Contracts”. These sections provide more detailed guidance on

CICA Handbook Section 3400, “Revenue”, and improve the harmo-

nization of revenue standards between Canadian and U.S. GAAP.

Adoption did not have a material impact on these audited annual

consolidated ﬁnancial statements.

Revenues are principally comprised of product sales

and service revenues.

Revenue from product sales is primarily in the electronics

manufacturing services and automotive products segments.

Product sales revenue is recognized upon shipment, when title

passes to the customer. Certain operating companies in the auto-

motive segment enter into agreements to produce products for their

customers at the beginning of a given vehicle’s production cycle.

Once such agreements are entered into by the company, fulﬁllment

of the customers’ purchasing requirements is often the obligation of

the company for the entire production life of the vehicle, with terms

over several years and no provisions to terminate such contracts.

In certain instances, the operating company is committed under

existing agreements to supply products to its customers at selling

prices that are not sufﬁcient to cover all of the costs to produce such

products. In such situations, the operating company records a liabil-

ity for the estimated future amount of the losses. Such losses are

In the electronics manufacturing services segment,

Celestica has contractual arrangements with certain customers

that require the customer to purchase certain inventory that

Celestica has purchased to fulﬁll forecasted manufacturing demand

provided by that customer. Celestica accounts for raw material

returns as reductions in inventory and does not record revenue on

these transactions.

Revenue from services is primarily in the customer

management services, theatre exhibition and healthcare segments.

Service revenue is recognized primarily as services are performed

and, for the theatre exhibition segment, when admission and

concession sales occur at the theatres.

Research and development
Costs incurred on activities that relate to research and develop-

ment are expensed as incurred unless development costs meet

certain criteria for capitalization. Total research and development

costs expensed for 2004 were $46 (2003 – $36). No amounts have

been capitalized.

Stock-based compensation
Effective January 1, 2004, the Company adopted revised CICA

Handbook Section 3870, “Stock-based Compensation and Other

Stock-based Payments”, which requires that a fair-value-based

method of accounting be applied to all stock-based compensation

payments to employees. Previously, only non-employee awards

and employee awards that called for settlement in cash or other

assets, or stock appreciation rights that called for settlement by

the issuance of equity instruments, were required to be recorded

as compensation expense. Onex has been recording the change

in value of options on its shares and investment rights under

the Management Investment Plan (the “MIP”) as a charge or credit

to earnings since January 1, 2002. This change will affect the

accounting for certain stock option plans at the operating com-

panies. The adoption of this section by the operating companies

will be on a retroactive basis for awards made since January 1,

2002 that have not been previously recognized as compensation

expense in the consolidated statements of earnings, with no

restatement of prior periods. Retained earnings as at January 1,

2004 was reduced by $5 and non-controlling interests was

reduced by $5.

Onex Corporation December 31, 2004 Report 75

N O T E S T O C O N S O L I D AT E D F I N A N C I A L S TAT E M E N T S

There are four types of stock-based compensation plans.

The ﬁrst is the Company’s Stock Option Plan (the “Plan”) described

Financial instruments – presentation and disclosure
In December 2004, the Company adopted the amendment to

in note 12(e), which provides that in certain situations the Company

CICA Handbook Section 3860, “Financial Instruments – Presentation

has the right, but not the obligation, to settle any exercisable

and Disclosure”. The amendment requires obligations of a ﬁxed

option under the Plan by the payment of cash to the option holder.

amount that may be settled, at the issuer’s option, by a variable

The Company has recorded a liability for the potential future

number of the issuer’s own equity to be presented as liabilities. Any

settlement of the value of vested options at the balance sheet date

securities issued by an enterprise that give the issuer unrestricted

by reference to the value of Onex shares at that date. On a quar-

rights to settle the principal amount in cash or the equivalent

terly basis, the liability is adjusted up or down for the change in

value of its own equity instruments will no longer be presented as

the market value of the underlying shares, with the corresponding

equity. This standard is applicable on a retroactive basis with

amount reﬂected in the consolidated statements of earnings.

restatement of prior periods. As a result of adopting this standard,

The second type of plan is the MIP, which is described in

as at December 31, 2004 and 2003 the Company reclassiﬁed $149

note 24(e). The MIP provides that exercisable investment rights

and $273, respectively, of the principal component of convertible

may be settled by issuance of the underlying shares or, in certain

debt held by one of its operating companies from non-controlling

situations, by a cash payment for the value of the investment

interests liability to long-term debt.

Consolidation of variable interest entities
In June 2003, the CICA issued Accounting Guideline AcG-15,

“Consolidation of Variable Interest Entities”. Variable interest enti-

ties (“VIEs”) are entities that have insufﬁcient equity and/or their

equity investors lack one or more speciﬁed essential characteris-

tics of a controlling ﬁnancial interest. The guideline provides

speciﬁc guidance for determining when an entity is a VIE and

who, if anyone, should consolidate the VIE. The guideline is effec-

tive on a prospective basis for the Company’s 2005 ﬁscal year. The

adoption of this standard is currently being evaluated.

Use of estimates
The preparation of consolidated ﬁnancial statements in con-

formity with Canadian generally accepted accounting principles

requires management of Onex and its operating companies to

make estimates and assumptions that affect the reported amounts

of assets and liabilities, the disclosure of contingent assets and

liabilities at the date of the consolidated ﬁnancial statements, and

the reported amounts of revenues and expenses during the

reporting period. This includes the liability for healthcare claims

incurred but not yet reported for the Company’s healthcare

segment. Actual results could differ from such estimates.

Comparative amounts
Certain amounts presented in the prior year have been reclassi-

ﬁed to conform to the presentation adopted in the current year.

rights. Under the MIP, once the targets have been achieved for the

exercise of investment rights, a liability is recorded for the value

of the investment rights under the MIP by reference to the value

of underlying investments, with a corresponding compensation

expense recorded in the consolidated statements of earnings.

The third type of plan, which began in 2004, is the

Deferred Share Unit Plan. A Deferred Share Unit (“DSU”) entitles

the holder to receive, upon redemption, a cash payment equiva-

lent to the market value of a subordinate voting share at the

redemption date. The DSU Plan enables Onex directors to apply

directors’ fees to acquire DSUs based on the market value of Onex

shares at the time. Grants of DSUs may also be made to Onex

directors from time to time. The DSUs vest immediately, are only

redeemable once the holder retires and must be redeemed within

one year following the year of retirement. Additional units are

issued for any cash dividends paid on the subordinate voting

shares. The Company has recorded a liability for the future settle-

ment of the DSUs at December 31, 2004 by reference to the value

of underlying subordinate voting shares at that date. On a quar-

terly basis, the liability is adjusted up or down for the change in

the market value of the underlying shares, with the corresponding

amount reﬂected in the consolidated statement of earnings.

The fourth type of plan is an employee stock option

plan in place for employees at various operating companies under

which, on payment of the exercise price, stock of the particular

operating company is issued. Prior to 2004, this type of plan was

not required to be accounted for by the fair-value-based method;

however, these plans did require disclosure in the notes to these

statements of pro forma net earnings and earnings per share

information as if these plans had been accounted for under the

fair-value-based method. This information for 2003 is included in

note 14.

76 Onex Corporation December 31, 2004 Report

N O T E S T O C O N S O L I D AT E D F I N A N C I A L S TAT E M E N T S

2 . E A R N I N G S F R O M D I S C O N T I N U E D O P E R AT I O N S

The following table shows the revenue and the net after-tax results from discontinued operations.

Dura Automotive(a)

Loews Cineplex Group(b)

Cincinnati Electronics(c)

Armtec(d)

InsLogic(e)

M AG N AT R A X

Lantic Sugar/Rogers Sugar

Revenue

2004

2003

2004

Onex’ Share
of Earnings
(Loss)

Gain, Net
of Assets

635

702

$ 3,329

1,436

–

117

677

200

135

–

$ 1,480

$ 5,866

194

–

(9)

–

Total

140

(9)

–

Gain, Net
of Assets

–

274

2003

Onex’ Share
of Earnings
(Loss)

–

(15)

(110)

Total

–

(15)

164

195

327

(103)

224

a) In April 2004, the Company sold its remaining interest in Dura
Automotive Systems, Inc. (“Dura Automotive”) for net proceeds

securities and assets of Armtec from ONCAP LP (“ONCAP”) and

other shareholders and to repay certain existing indebtedness of

of $23. The accounting gain on the disposition amounted to $4

Armtec. ONCAP sold all of its shares in Armtec in this offering

before a tax provision of $3.

b) In July 2004, the Company sold its interest in the Loews
Cineplex Group, excluding the Canadian operations, for net

proceeds of $739. The accounting gain on the disposition

amounted to $238 before a tax provision of $103. The results of

Loews Cineplex Group, excluding the Canadian operations, have

been reclassiﬁed in the audited annual consolidated ﬁnancial

statements as discontinued operations. The Canadian operations

retained are comprised of Loews Cineplex Group’s interest in

Cineplex Galaxy Limited Partnership (“CGLP”) and Cineplex

Odeon Corporation (“Cineplex Odeon”).

for net proceeds of $76, of which Onex’ share was $25. Onex’

accounting gain on the disposition amounted to $12 before a tax

provision of $3.

Under the terms of the MIP, management members,

including ONCAP management, participated in the realization

the Company achieved on Armtec. Amounts related to the MIP

paid on account of the sale amounted to $3 and have been

deducted in determining the accounting gain on discontinued

operations for Armtec.

e) In November 2004, the Company entered into an agreement
to sell InsLogic Corporation (“InsLogic”). The sale was completed

Under the terms of the MIP as described in note 24(e),

in January 2005 and did not result in Onex recovering the full

management members participated in the realizations the

amount of its investment. However, an accounting gain will

Company achieved on the Loews Cineplex Group. Amounts paid

be recorded in 2005 due to a negative carrying value for

on account of the sale related to the MIP amounted to $32 (7.5%

InsLogic prior to disposition. There will be no MIP distribution

of the cash and the unit value gain) and have been deducted in

for InsLogic.

determining the accounting gain on discontinued operations for

the Loews Cineplex Group noted above.

The results of operations for the businesses described above

have been reclassiﬁed in the audited consolidated statements of

c) In December 2004, CMC Electronics Inc. (“CMC Electronics”)
sold its interest in its Cincinnati Electronics business unit

earnings and audited consolidated statements of cash ﬂows for

the years ended December 31, 2004 and 2003 as discontinued

(“Cincinnati Electronics”) for net proceeds of $226, of which

operations. The amounts for operations now discontinued that

Onex’ share was $95. Onex’ accounting gain on disposition

were included in the December 31, 2004 and December 31, 2003

amounted to $49, after a tax provision of nil. The MIP component

consolidated balance sheets are as follows:

will be determined in 2005 once a distribution has been made

to Onex.

As at December 31, 2004

InsLogic

d) In July 2004, ONCAP’s operating company, Armtec Limited
(“Armtec”), completed an initial public offering in Canada of

Long-lived assets held by discontinued operations

Current liabilities held by discontinued operations

units of Armtec Infrastructure Income Fund (“Armtec Fund”).

Long-term liabilities held by discontinued operations

Current assets held by discontinued operations

The proceeds from the Armtec Fund were used to acquire all the

Net liabilities of discontinued operations

(53)

Onex Corporation December 31, 2004 Report 77

N O T E S T O C O N S O L I D AT E D F I N A N C I A L S TAT E M E N T S

As at December 31, 2003

Dura
Automotive

Loews
Cineplex
Group

CMC
Electronics

Armtec

InsLogic

Total

Cash and short-term investments

$ 236

$ 196

Accounts receivable

Inventories

Other current assets

Current assets held by discontinued operations

Property, plant and equipment

Other assets

Intangible assets

Goodwill

Long-lived assets held by discontinued operations

Accounts payable and accrued liabilities

Current portion of long-term debt, without recourse to Onex

Current liabilities held by discontinued operations

Long-term debt, without recourse to Onex

Obligations under capital leases, without recourse to Onex

Other liabilities

Future income taxes

Non-controlling interests and cumulative translation adjustment

Long-term liabilities held by discontinued operations

356

165

123

880

633

158

1,114

1,922

560

567

1,544

156

428

2,216

269

964

152

278

1,455

112

271

316

545

–

285

906

–

$ 438

429

185

153

1,205

1,663

230

200

1,464

3,557

883

945

2,226

211

102

723

3,294

Net assets (liabilities) of discontinued operations

$ 502

$ (56)

$ 523

3 . C O R P O R AT E I N V E S T M E N T S

During 2004 and 2003 several acquisitions, which were accounted

for as purchases, were completed either directly by Onex or

through subsidiaries of Onex. Any third-party borrowings in

respect of acquisitions are without recourse to Onex.

2 0 0 4 A C Q U I S I T I O N S

During 2004 the following acquisitions, which were accounted

for as purchases, were completed through subsidiaries of Onex.

The signiﬁcant acquisitions were:

a) In January 2004, the Company completed an investment
in Magellan Health Services, Inc. (“Magellan”). Magellan,

b) In March 2004, Celestica acquired Manufacturers’ Services
Limited (“MSL”), a full-service global electronics manufacturing

and supply chain services company headquartered in the United

States. The purchase was ﬁnanced with the issuance of 14.1 mil-

lion subordinate voting shares of Celestica, the issuance of

options to purchase 2.1 million subordinate voting shares of

Celestica, the issuance of warrants to purchase 1.1 million subor-

dinate voting shares of Celestica and $69 of cash provided by

Celestica. The value of the shares was determined based on the

average market price of the shares for a reasonable period before

and after the date on which the terms of the acquisition were

agreed to and announced. In April 2004, Celestica paid approxi-

mately $10 in cash to acquire certain assets located in the

headquartered in Connecticut, United States, is a behavioural

Philippines from NEC Corporation.

managed healthcare organization in the United States. The total

equity investment was $131 for an approximate 24% ownership

interest. This was provided through Onex and Onex Partners LP

(“Onex Partners”). Onex’ net investment was $30 for a 6% equity

ownership. Onex has effective voting control of Magellan through

Onex Partners.

c) During 2004, ONCAP completed the acquisition of Futuremed
Health Care Products L.P. (“Futuremed”) and Canadian Securities

Registration Systems Ltd. (“CSRS”). Futuremed, headquartered in

Ontario, Canada, is a supplier of medical supplies and equipment

to long-term care facilities. CSRS, headquartered in British

Columbia, Canada, is a national provider of Personal Property

Security Act registration and search services in Canada. The total

78 Onex Corporation December 31, 2004 Report

N O T E S T O C O N S O L I D AT E D F I N A N C I A L S TAT E M E N T S

purchase price of the acquisitions of $208 was ﬁnanced with $133

of borrowings, which are without recourse to Onex or ONCAP, and

e) The purchase prices of the acquisitions were allocated to the
net assets acquired based on their relative fair values at the date

$75 of equity. Onex’ net investment in these acquisitions was $17.

of acquisition. In certain circumstances where estimates have

Onex has indirect voting control of Futuremed and CSRS.

been made, the companies are obtaining third-party valuations of

d) In December 2004, the Company completed the acquisition
of Cosmetic Essence, Inc. (“CEI”). CEI, headquartered in New

Jersey, United States, is a provider of outsourced supply chain

management services to the personal care industry. The invest-

ment of $66 in debt and $72 in equity for a 92% equity ownership

at the time of acquisition was provided through Onex and Onex

Partners. Onex’ net investment in this acquisition was $16 in debt

and $17 in equity for a 21% equity ownership. Onex has effective

voting control of CEI through Onex Partners.

certain assets, which could result in further reﬁnement of the fair-

value allocation of certain purchase prices. The results of operations

for all acquired operations are included in the consolidated state-

ments of earnings of the Company from their respective dates of

acquisition.

The cost of acquisitions made during the year includes

restructuring and integration costs of $25. As at December 31,

2004, accounts payable and accrued liabilities and other long-

term liabilities include $99 and $2, respectively, for these and

earlier acquisitions.

Details of the 2004 acquisitions, which are all accounted for as

purchases, are as follows:

2004 Acquisitions

Cash

Current assets

Intangible assets with limited life

Goodwill

Property, plant and equipment and other long-term assets

Current liabilities

Acquisition financing

Long-term liabilities

Non-controlling interests in net assets

Interest in net assets acquired

Magellan(a)

Celestica(b)

ONCAP(c)

CEI(d)

282

510

576

187

1,629

(508)

(617)

(7)

497

(366)

373

298

832

(296)

–

(99)

437

(358)

123

248

(40)

(133)

–

(21)

205

383

(61)

(66)

(171)

(13)

131

Onex Corporation December 31, 2004 Report 79

N O T E S T O C O N S O L I D AT E D F I N A N C I A L S TAT E M E N T S

2 0 0 3 A C Q U I S I T I O N S
a) ONCAP
In March 2003 ONCAP completed the acquisition of Western

net purchase price of $27 was ﬁnanced with cash on hand at

ClientLogic. Onex invested approximately $24 in the equity of

ClientLogic to provide a signiﬁcant portion of the funds required

Inventory Service Ltd. (“WIS”). WIS is a leading North American

for the acquisition.

c) Radian
In December 2003 Radian Communication Services Corporation

(“Radian”) acquired certain assets from ROHN Industries, Inc.

located in the United States. The total purchase price of $10 was

funded with cash borrowed by Radian from Onex.

Details of the 2003 acquisitions, which are all accounted for as

purchases, are as follows:

ONCAP(a)

ClientLogic(b)

Radian(c)

(12)

(61)

(7)

(9)

(24)

–

(39)

–

provider of data collection and inventory counting services,

headquartered in Ontario, Canada. The total purchase price was

$73. ONCAP invested $18 in the debt and $12 in the equity of WIS,

of which Onex’ share was $4 and $3, respectively. Onex has indi-

rect voting control of WIS.

b) ClientLogic
In December 2003 ClientLogic Corporation (“ClientLogic”) com-

pleted the acquisition of Service Zone Holdings, Inc. (“Service

Zone”), headquartered in Florida, United States. Service Zone is a

low-cost provider of high-quality call centre operations. The

2003 Acquisitions

Cash

Current assets

Goodwill

Intangible assets with limited life

Property, plant and equipment and other long-term assets

Current liabilities

Acquisition financing

Long-term liabilities

Non-controlling interests in net assets

Interest in net assets acquired

4 . I N V E N T O R I E S

Inventories comprised the following:

Year ended December 31

Raw materials

Work in progress

Finished goods

2004

941

238

268

2003

$ 1,034

181

277

$ 1,447

$ 1,492

80 Onex Corporation December 31, 2004 Report

N O T E S T O C O N S O L I D AT E D F I N A N C I A L S TAT E M E N T S

5 . P R O P E R T Y , P L A N T A N D E Q U I P M E N T

Property, plant and equipment comprised the following:

As at December 31

Land

Buildings

Machinery and equipment

Construction in progress

2004

Accumulated
Amortization

–

239

1,372

–

Cost

105

834

2,346

Net

105

595

974

Cost

120

893

2,272

2003

Accumulated
Amortization

–

251

1,327

–

Net

120

642

945

$ 3,320

$ 1,611

$ 1,709

$ 3,340

$ 1,578

$ 1,762

The above amounts include property, plant and equipment under capital leases of $148 (2003 – $125) and related accumulated amortization

of $83 (2003 – $64).

As at December 31, 2004, property, plant and equipment included $43 (2003 – $53) representing assets available for sale.

6 . I N V E S T M E N T S A N D O T H E R A S S E T S

Investments and other assets comprised the following:

As at December 31

Investments:

Private entities – at cost(a)
Public entities – at cost(b)

Marketable securities –

at market values

Equity-accounted investments(c)

Deferred charges

Derivative instruments (note 22(b))

Future income taxes (note 20)

Other

2004

2003

110

135

119

186

–

343

c) Included in equity-accounted investments is the June 2004
investment in ResCare. The company and Onex Partners completed

a $114 equity investment in ResCare for an approximate 28%

effective ownership interest. Onex’ portion of the investment was

approximately $27, representing a 7% ownership interest in

ResCare. ResCare provides residential, therapeutic, job training

and educational support to people with developmental or other

disabilities, to youth with special needs and to adults who are

experiencing barriers to employment.

7. I N TA N G I B L E A S S E T S

Intangible assets comprised the following:

As at December 31

2004

2003

762

613

Intellectual property with limited life,

net of accumulated amortization

a) The market value of the private entities is not readily determin-
able with a suﬃcient degree of precision.

b) The market value of the public entities as at December 31, 2004
was $148 (2003 – $69), which includes $128 for an investment

in Compagnie Générale de Géophysique (“CGG”) that was pur-

chased at a cost of $102 in November 2004. Approximately half of

the investment in CGG was sold in January 2005.

of $156 (2003 – $146)

Intangible assets with limited life,

net of accumulated amortization

of $214 (2003 – $175)

Intangible assets with indefinite life

292

216

369

302

Intellectual property primarily represents the costs of certain intel-

lectual property and process know-how obtained in acquisitions.

Intangible assets include trademarks, non-competition

agreements and contract rights acquired in the acquisition of

certain facilities.

Onex Corporation December 31, 2004 Report 81

N O T E S T O C O N S O L I D AT E D F I N A N C I A L S TAT E M E N T S

8 . L O N G - T E R M D E B T O F O P E R AT I N G C O M PA N I E S , W I T H O U T R E C O U R S E T O O N E X

Long-term debt of operating companies, without recourse to Onex, is as follows:

As at December 31

Celestica(a)

Cineplex Galaxy(b)

Magellan(c)

ClientLogic(d)

J.L. French Automotive(e)

7.875% subordinated notes due 2011
Liquid Yield Option Notes, due 2020

Revolving credit facility and term loans due 2006
Other

Credit facility due 2008
Senior, unsecured notes due 2008
Note payable, due 2005

Revolving credit facility due 2005
Other, including debt denominated in foreign currencies

Revolving credit facility and term loans due 2011 and 2012
Mandatorily redeemable preferred shares
Revolving credit facility and term loans due 2006 and 2007
11.5% subordinated notes due 2009
8% redeemable shares
Other

Performance Logistics Group (f)

Revolving credit facility due 2006
Term loan due 2006

Bostrom (g)

Trim Systems(h)

Radian(i)

Cosmetic Essence(j)

ONCAP companies (k)

Revolving credit facility and term loans due 2006
Other

Revolving credit facility and term loan due 2006
Subordinated secured notes due 2007
Other

Revolving credit facility and term loan due 2010
Subordinated secured notes due 2014

Term loans due 2008 to 2010
Subordinated notes due 2009 and 2010
Other

Other

Less: long-term debt held by the Company

Current portion of long-term debt of operating companies

2004

2003

601
149

750

126
3

129

102
289
59

450

142
96

238

490
209
–
35
–
33

767

–
–

–

–
–

–

–
–

–

31
16
10

152
72

224

187
57
3

247

–

(204)

2,658
(295)

–
273

273

110
4

114

–
–
–

–

139
100

239

–
–
507
227
78
39

851

16
58

86
16

102

53
10

32
15
–

–
–

–

94
21
4

119

(134)

1,749
(278)

Consolidated long-term debt of operating companies, without recourse to Onex

$ 2,363

$ 1,471

82 Onex Corporation December 31, 2004 Report

N O T E S T O C O N S O L I D AT E D F I N A N C I A L S TAT E M E N T S

Onex does not guarantee the debt of any of its operating companies,

No interest is payable on the LYONs and the issue price

nor are there any cross-guarantees between operating companies.

of the LYONs represented a yield to maturity of 3.75%. The princi-

The ﬁnancing arrangements for each operating company

pal component is accreted over the 20-year term through periodic

typically contain certain restrictive covenants, which may include

charges to interest expense. The LYONs are subordinated in right

limitations or prohibitions on additional indebtedness, payment

of payment to all existing and future senior indebtedness of the

of cash dividends, redemption of capital, capital spending, making

company and are convertible at any time, at the option of the

of investments and acquisitions, and sale of assets. In addition,

holder, unless previously redeemed or repurchased, into 5.6748

certain ﬁnancial covenants must be met by the operating compa-

subordinate voting shares for each one thousand dollars principal

nies which have outstanding indebtedness.

amount at maturity. The holders may require the company to

Future changes in business conditions of an operating

repurchase all or a portion of their LYONs on August 2, 2005,

company may result in non-compliance with certain covenants

August 1, 2010, and August 1, 2015; the company may also redeem

by the company. No adjustments to the carrying amount or classi-

the LYONs at any time on or after August 1, 2005 (and, under

ﬁcation of assets or liabilities of any operating company has been

certain circumstances, before that date). As a result of the August 2,

made in the consolidated ﬁnancial statements with respect to any

2005 holders option, the principal portion of the LYONs has been

possible non-compliance.

a) Celestica
In June 2004, Celestica amended its existing 364-day revolving

term credit facility from US$250 to US$600 and extended the

maturity from October 2004 to June 2007. Concurrent with this

classiﬁed as a current liability at the end of 2004. The company is

required to offer to repurchase the LYONs if there is a change in

control or a delisting event. The company may elect to settle its

repurchase obligation in cash or subordinate voting shares, or any

combination thereof.

amendment and extension, Celestica elected to terminate its

US$500 four-year revolving facility, which would have otherwise

b) Cineplex Galaxy
In November 2003, Cineplex Galaxy entered into credit facilities,

matured in June 2005. There were no borrowings under its

comprised of a $110 senior secured term facility that matures in

revolving term credit facility at December 31, 2004.

November 2006 as well as two senior secured revolving credit

In June 2004, Celestica also issued senior subordinated

facilities, one in the principal amount of $20 (the working capital

notes with an aggregate principal amount of US$500 and a ﬁxed

facility) and the other in the principal amount of $40 (the devel-

interest rate of 7.875% that are due in 2011. In connection with the

opment facility). As of December 31, 2004, $126 (2003 – $110) was

notes offering, Celestica entered into interest rate swap agree-

outstanding on the facilities. Both senior secured revolving credit

ments that swap the ﬁxed interest rate on the notes with a

facilities are three-year revolving term loans and are payable at

variable interest rate based on LIBOR plus a margin. The average

maturity. The senior secured term facility requires that the princi-

interest rate on the notes was 4.92% for the year. The notes may be

pal be paid at maturity. The facilities bear interest at the prime

redeemed by Celestica on July 1, 2008 or later at various premiums

business rate plus a margin, depending on certain ﬁnancial ratios.

above face value.

The average interest rate on the senior secured facilities was 5.7%

As discussed in note 1, the Company has adopted

in 2004 (2003 – 5.4%).

amendments to CICA Handbook Section 3860, “Financial

In December 2003 Cineplex Galaxy entered into an

Instruments – Presentation and Disclosure” which have resulted

interest rate swap to pay a ﬁxed interest rate of 4.29%. The swap is

in the reclassiﬁcation of the Liquid Yield Option Notes (LYONs)

for a term of three years and the initial principal outstanding was

issued by Celestica. The principal component is now included in

$44. The principal outstanding under the swap increased to $77

long-term debt. Previously, the principal and the option compo-

on August 26, 2004 and increases to $110 on May 26, 2005.

nents were included in non-controlling interests. At December 31,

Borrowings under the credit facilities are collateralized

2004, US$124 (2003 – US$211) was reclassiﬁed from non-controlling

by Cineplex Galaxy’s assets and are without recourse to Onex.

interests to long-term debt. The option component still included

in non-controlling interests is US$210. At December 31, 2004,

the principal amount due at maturity for the outstanding notes

is US$614.

During 2004, the company paid US$300 (2003 – US$224)

to repurchase LYONs with a principal amount at maturity of

US$540 (2003 – US$436). The gain/loss on the repurchase of

LYONs is apportioned between the principal and non-controlling

interests components, based on their relative fair values com-

pared to their carrying values.

c) Magellan
Magellan has a credit agreement that provides for a term loan

facility in an original aggregate principal amount of US$100, a

revolving loan facility providing up to US$50 and a credit-linked

facility for the issuance of letters of credit to Magellan in an

aggregate principal amount of up to US$50. Borrowings under the

credit agreement will mature on August 15, 2008 and certain

quarterly principal payments on the term loan facility are also

required. As of December 31, 2004, Magellan had US$85 outstanding

Onex Corporation December 31, 2004 Report 83

N O T E S T O C O N S O L I D AT E D F I N A N C I A L S TAT E M E N T S

under the term loan facility, had not drawn on the revolving loan

due 2012, with quarterly payments required beginning in 2005.

facility and had issued letters of credit in the amount of US$45.

The second lien facility is due 2012, with no principal payments

Magellan also has US$233 outstanding of Series A notes,

due until maturity. The facilities also become due six months

which mature on November 15, 2008, and are general senior unse-

prior to the maturity date of certain notes held by a separate

cured obligations of that company. Interest on the Series A notes

party, currently due 2008. The facilities also require prepayment

is payable semi-annually at a rate of 9.375% per year.

based on 75% of the excess cash ﬂow of ClientLogic. Borrowings

The company has issued US$7 of Series B notes, which

under the credit facility are collateralized by substantially all of

mature on November 15, 2008. The Series B notes were issued to

ClientLogic’s assets.

the holders of the general unsecured claims and to others for

At December 31, 2004 ClientLogic had US$52 (2003 –

services rendered during the ﬁnancial restructuring of Magellan.

US$54) in other debt instruments with varying terms. Included in

Interest on the Series B notes is payable semi-annually at a rate of

this amount is a demand note of US$38 (2003 – US$25) to Onex.

9.375% per year.

ClientLogic has US$27 (2003 – US$23) of loan notes

The Series A and Series B notes may be redeemed by the

outstanding denominated in pounds sterling which bear interest

company on November 15, 2005 or later at various premiums

at 6.5% and are repayable in June 2008. Interest compounds and is

above face value.

added to the notes. The amount of accrued interest at December 31,

Magellan also has outstanding an interest-bearing

2004 was US$5 (2003 – US$3).

note for US$49 to Aetna, Inc. (“Aetna”), which will mature on

ClientLogic has entered into an interest rate swap

December 31, 2005 as part of a behavioural health services

agreement that effectively ﬁxes the interest rate at 4.6% on US$70

contract. Under this agreement, the company will manage the

of borrowings under the revolving credit facility. The interest rate

behavioural healthcare of members of Aetna’s healthcare pro-

swap agreement expires in 2006.

grams through December 31, 2005. Aetna, having given notice

under the terms of the contract, will at that time purchase certain

assets of the company used solely in the management of the

behavioural healthcare of Aetna members (the “Aetna-dedicated

assets”). The purchase price of the dedicated assets may be offset

against any amounts owing under the Aetna note. The Aetna

note is secured by a second lien on substantially all of the assets

of Magellan.

e) J.L. French Automotive
In August 2004, J.L. French Automotive Castings, Inc. (“J.L. French

Automotive”) completed a series of reﬁnancing transactions,

which included issuing 75,871,089 shares of New Class A voting

common stock and 4,881,369 shares of New Class A non-voting

common stock to existing shareholders for total consideration

of US$1. Concurrently, the company’s former Class Q-1 and

Class Q-2 common shares were exchanged for 65,118 New Class A

d) ClientLogic
At December 31, 2004, ClientLogic had US$118 (2003 – US$107)

voting and 11,594 New Class A non-voting common shares. Also

issued was US$164 of preferred stock, US$49 of which was pur-

outstanding under the terms of a revolving credit facility, due in

chased by the company’s existing common shareholders. The

March 2005. The credit facility bore interest at the lender’s base

preferred stock is mandatorily redeemable in 2016 and accrues

rate or LIBOR plus a margin, depending on certain ﬁnancial

dividends at a rate of 17% per year increasing to 18.5% in 2007 and

ratios. For the year ended December 31, 2004, the borrowings

beyond. The stock is redeemable at the option of the company

outstanding had a weighted average interest rate of 4.4% (2003 –

prior to 2016 at a premium of 12% decreasing to 8% in 2009.

3.8%). Borrowings under the credit facility were collateralized by

Detachable warrants were also issued with the preferred stock to

substantially all of ClientLogic’s assets. As described below,

acquire 11,686,157 shares of New Class A voting common stock.

ClientLogic entered into a new credit facility in March 2005, and

The warrants are exercisable at $0.01 per share at pre-determined

accordingly, this debt has been recorded as long-term in the con-

allotments on each anniversary date up through the fourth

solidated ﬁnancial statements.

anniversary, but only in the event that all of the preferred

In March 2005, ClientLogic entered into a new credit

stock has not been redeemed in full. Total warrants issued and

agreement which provides up to US$157, consisting of a revolving

outstanding at December 31, 2004 were 16,555,389. In addition, the

facility of up to US$30, due 2010, a ﬁrst lien term facility of up

company entered into new senior secured credit facilities, which

to US$77 and a second lien term facility of up to US$50, both due

provide for total borrowings of US$465 maturing in 2011 and 2012.

in 2012. The proceeds from this facility were used to repay all

The proceeds from these new sources of ﬁnancing were

amounts owing under the former credit facility. The facilities bear

used to repurchase substantially all of the company’s 11.5% senior

interest at a rate of either LIBOR or the federal funds rate, plus

subordinated notes. Notes with a face value of US$146 were

an applicable margin. As a term of this facility, the demand note

repurchased for US$124, resulting in a gain on early extinguish-

of US$38 held by Onex, as described below, was converted to

ment of debt. At December 31, 2004, US$29 of the subordinate

mandatorily redeemable preferred shares. The ﬁrst lien facility is

notes remain outstanding. Also repaid was US$313 outstanding

84 Onex Corporation December 31, 2004 Report

N O T E S T O C O N S O L I D AT E D F I N A N C I A L S TAT E M E N T S

under the old senior credit facility, US$106 outstanding of second

credit facility and the term loan bear interest at LIBOR plus a

lien term loan, US$22 related to tender/call premiums and accrued

margin. The outstanding borrowings on the revolving credit facil-

interest. The company also paid US$15 of ﬁnancing and other

ity at December 31, 2003 were US$12 and on the term loan were

transaction costs. After considering the write-offs of previously

US$45. The weighted average interest rate on borrowings under

deferred ﬁnancing costs, these transactions resulted in a net loss

the credit agreement for 2003 was 4.9%. Quarterly repayments are

on the extinguishment of debt of US$5.

required on borrowings under the term loan. Borrowings under

The company’s former Class P shareholders surren-

the credit agreement are collateralized by substantially all of the

dered their outstanding shares in exchange for 80 New Class A

assets of PLG.

non-voting shares. The Class P shares were previously shown as

liability in these consolidated ﬁnancial statements. This contribu-

tion to the equity of the company by the non-controlling interests

has been reﬂected as an income item representing the funding of

the non-controlling interest of past losses. The recovery of losses

of other shareholders of J.L. French Automotive recorded in the

third quarter of 2004 totalled $43 and is included in non-controlling

interests in the consolidated ﬁnancial statements.

The company’s new senior secured credit facilities

consist of a US$70 revolving credit facility, a US$225 ﬁrst lien term

loan and a US$170 second lien term loan. The revolving credit

facility is due in 2011. The ﬁrst lien term loan matures in 2011 with

principal payments of US$2 annually until 2010. US$106 is due

in 2010 with the balance due in 2011. The second lien term loan

matures in 2012 with no principal payments until maturity.

Interest on the new senior secured credit facilities,

depending on the type and amount of the borrowings under these

facilities, can range from prime rate plus 3.5% to 6.0% per annum,

or the LIBOR rate plus 4.5%, or the Eurocurrency rate plus 7.0%

per annum. Interest payments are due quarterly. At December 31,

2004, US$13 was drawn on the revolving facility and the term

loans were drawn in full.

Borrowings under the new senior secured credit facili-

ties are secured and guaranteed by a ﬁrst priority lien on substan-

tially all of J.L. French Automotive’s assets, including a pledge of

all of the capital stock of each of the company’s directly-owned

domestic subsidiaries and 65% of the capital stock of directly-

owned foreign subsidiaries. An element of the credit facilities is

secured and guaranteed by a second priority lien on substantially

all of J.L. French Automotive’s assets.

The new senior secured credit facilities require the

company to maintain certain ﬁnancial ratios including mini-

mum interest coverage ratios and maximum leverage ratios, and

also limits capital expenditures and cash dividends, among

other restrictions.

f) Performance Logistics Group
PLG is no longer consolidated but is accounted for by the equity

method as a result of a merger transaction in March 2004 that

reduced Onex’ ownership interest (note 15(b)). In 2003, PLG,

under the terms of a credit agreement, had available a revolving

credit facility of US$30 and a term loan of US$85. Both the revolving

g) Bostrom
Bostrom Holdings, Inc. (“Bostrom”) is no longer consolidated but

is accounted for using the equity method following a public offer-

ing and the sale of some shares by Onex (note 15(a)).

At December 31, 2003, the company had a credit agree-

ment that provides Bostrom with the ability to denominate a por-

tion of its borrowings in currencies other than the U.S. dollar. At

December 31, 2003, total borrowings outstanding on the revolving

credit facility were US$23, of which US$8 were denominated

in pounds sterling. At December 31, 2003, the company had bor-

rowings outstanding on the term loan of US$43, of which US$10

were denominated in pounds sterling. The weighted average

interest rates on the revolving credit facility and term loans

ranged from 4.9% to 7.8% during 2003. Quarterly repayments are

required on borrowings under the term loans. The assets of

Bostrom collateralize borrowings under the credit agreement.

h) Trim Systems
Trim Systems, LLC (“Trim Systems”) was merged with Bostrom in

May 2004 and following the public offering described above, is no

longer consolidated but is accounted for using the equity method

(note 15).

At December 31, 2003, Trim Systems had available a

revolving credit facility of US$16 and US$50 of term loans. There

were US$4 and US$37, respectively, in outstanding borrowings on

the revolving credit facility and term loans. Borrowings under

both the revolving credit facility and the term loans bear interest

at prime plus a margin. The weighted average interest rate on

the revolving credit facility and term loans in 2003 was 5.5%.

Borrowings under the credit agreements are due in June 2006.

Principal repayments are based on excess cash ﬂow and began in

April 2003; additional quarterly principal payments began in the

second quarter of 2004. Borrowings under the credit agreements are

collateralized by substantially all of Trim Systems’ assets.

The company has a US$7 ﬁve-year promissory note owed

to Onex. Interest is at prime plus 1.25%. The note is collateralized

by all of the assets of Trim Systems and is eliminated upon consol-

idation. At December 31, 2003, principal and interest amounted

to US$8.

Onex Corporation December 31, 2004 Report 85

N O T E S T O C O N S O L I D AT E D F I N A N C I A L S TAT E M E N T S

i) Radian
Radian’s credit agreement has a revolving credit facility of $20 and

available. The available facilities bear interest at various rates

based on prime, U.S. base or LIBOR plus a margin. During 2004

a term loan of $15. Borrowings under the credit agreement are due

interest rates ranged from 3.9% to 8.2% (2003 – 3.7% to 7.5%) on

in June 2006. Both the revolving credit facility and term loan bear

borrowings under the revolving credit and term facilities. Quar-

interest at short-term borrowing rates plus a margin. The out-

terly repayments of a portion of the term loans commenced

standing borrowings at December 31, 2004 on the revolving credit

in June 2002, while the remainder of the credit facilities are

facility and term loan were $16 and $15 (2003 – $17 and $15),

repayable between 2008 and 2010. Borrowings under these credit

respectively. The weighted average interest rate for borrowings

facilities at December 31, 2004 were $187 (2003 – $94). The

under the credit agreement was 6.9% in 2004 (2003 – 7.1%).

companies also have subordinated notes of $57 (2003 – $21), due

Borrowings under the credit agreement are collateralized by

in 2009 and 2010, that bear interest ranging from 10% to 18%

substantially all of the assets of Radian.

(2003 – 14.25%), of which the Company owns approximately $22

In October 2003 Radian issued $15 in subordinated

(2003 – $21).

secured convertible debentures to Onex. The debentures are

One of the companies has entered into an interest rate

convertible at any time, at the option of the holder or at Radian’s

swap agreement that effectively ﬁxes the ﬂoating rate on $23

option, under certain circumstances, into Class A multiple voting

(2003 – $21) of variable rate loans at 2.31% to 3.71% until 2008.

shares of Radian.

In December 2001 Radian entered into an interest rate

swap agreement that effectively converts $15 of variable rate loans

into ﬁxed rate obligations at 4.0%, plus applicable credit spread.

The agreement expired in December 2004.

j) Cosmetic Essence
In December 2004, CEI entered into credit agreements with

certain ﬁnancial institutions, which provide for a revolving line of

credit with maximum borrowings of US$25, maturing in 2010;

l) The annual minimum repayment requirements for the next
ﬁve years on consolidated long-term debt are as follows:

2005

2006

2007

2008

2009

295

233

116

508

a ﬁrst lien term loan with borrowings of US$97; and a second lien

9. L E A S E C O M M I T M E N T S

term loan with borrowings of US$29. The ﬁrst lien term loan is

repayable through quarterly instalments of principal and interest

to be made through December 2010. The second lien term loan

pays interest only until its maturity in December 2011. At Decem-

ber 31, 2004, CEI had US$129 outstanding under the agreements.

For the year:

The future minimum lease payments are as follows:

2005

2006

2007

2008

2009

Thereafter

Total future minimum lease payments

Less: imputed interest

Balance of obligations under capital

leases, without recourse to Onex

Less: current portion

Long-term obligations under capital

Capital
Leases

Operating
Leases

181

147

113

377

982

–

(5)

(26)

leases, without recourse to Onex

Essentially all of the lease commitments relate to the operating

Interest on the borrowings is based, at the option of CEI,

upon either a LIBOR rate or a base rate, plus an interest rate

margin. Substantially all of CEI’s assets are pledged as collateral

for the borrowings.

CEI also has a promissory note outstanding in the

amount of US$60, of which US$55 is owned by the Company. The

note is due in 2014, with interest of 9.55% per year, payable in

additional notes due in 2014.

k) ONCAP Companies
ONCAP’s investee companies include CMC Electronics, WIS,

Futuremed and CSRS. Each has debt that is included in Onex’

consolidated ﬁnancial statements. There are separate arrange-

ments for each of the investee companies with no cross-guarantees

between the companies or by Onex.

Under the terms of credit agreements, combined

companies.

revolving credit facilities of $11 and term borrowings of $200 are

86 Onex Corporation December 31, 2004 Report

N O T E S T O C O N S O L I D AT E D F I N A N C I A L S TAT E M E N T S

10 . E X C H A N G E A B L E D E B E N T U R E S

In 2000 Onex issued the following series of 25-year debentures exchangeable for subordinate voting shares of Celestica:

Maturity Date

March 15, 2025

July 15, 2025

September 15, 2025

October 30, 2025

Aggregate
Principal
Amount

366

113

176

Average
Interest
Rate

1.45%

1.72%

1.65%

1.60%

Exchange Rate
on Principal Amount
(number of shares
per $000)

15.133

13.333

8.515

9.042

The debentures are exchangeable, at the request of the holder,

The market value and deferred amount of the exchangeable deben-

into a ﬁxed number of subordinate voting shares of Celestica or, at

tures were as follows:

the option of the Company, it may deliver the cash equivalent

based on the market price of the shares at the time of exchange, or

As at December 31

2004

2003

a combination of shares and cash. Onex has pledged shares of

Carrying amount (cost)

729

Celestica to secure its obligations upon any exercise of the hold-

ers’ exchange right. The debentures are redeemable at any time by

the Company. Upon redemption Onex may, at its option, repay

Deferred amount, included

in other liabilities (note 11)

Change in fair value

the principal amount by delivering Celestica subordinate voting

Market value

shares based on the ﬁxed exchange rate or pay the cash equiva-

(549)

(24)

(549)

–

156

180

lent, or a combination of shares and cash. The total number of

Interest expense related to the exchangeable debentures amounted

Celestica subordinate voting shares pledged under the debentures

to $11 (2003 – $12) and was netted against interest and other income.

is 9,214,320.

Onex is required to pay interest at a ﬁxed rate for the

11. O T H E R L I A B I L I T I E S

ﬁrst interest period of each debenture issue, which is approxi-

mately six months, and at a ﬂoating rate semi-annually thereafter.

Other liabilities comprised the following:

The calculated interest rate varies in relation to ordinary Celestica

As at December 31

2004

2003

dividends paid, if any, during the preceding interest period and,

in the case of the March 2025 debentures, the average closing

Pension and non-pension post-retirement

benefits (note 25)

price of Celestica subordinate voting shares on The Toronto Stock

Exchangeable debentures (note 10)

Exchange for all trading days over the preceding interest period.

Stock-based compensation

The market value of the exchangeable debentures is

based on the market price, as at the balance sheet date, of the

underlying subordinate voting shares of Celestica. The deferred

amount represents previously deferred gains, prior to adoption of

AcG-13, as described in note 1.

In February 2005 the Company redeemed all of the out-

standing exchangeable debentures and satisﬁed the debenture

obligation through the delivery of 9,214,320 Celestica subordinate

voting shares.

117

549

181

191

122

549

–

160

Derivative instruments (note 22(b))
Other(1)

(1) Other includes acquisition and restructuring accruals as well as amounts

for anticipated liabilities arising from indemnifications.

$ 1,096

925

Onex Corporation December 31, 2004 Report 87

N O T E S T O C O N S O L I D AT E D F I N A N C I A L S TAT E M E N T S

12 . S H A R E C A P I TA L

a) The authorized share capital of the Company consists of:

i) 100,000 Multiple Voting Shares, which entitle their holders to

elect 60% of the Company’s Directors and carry such number of

votes in the aggregate as represents 60% of the aggregate votes

attached to all shares of the Company carrying voting rights. The

Multiple Voting Shares have no entitlement to a distribution on

winding-up or dissolution other than the payment of their nomi-

nal paid-up value.

ii) An unlimited number of Subordinate Voting Shares, which

carry one vote per share and as a class are entitled: to 40% of the

aggregate votes attached to all shares of the Company carrying

voting rights; to elect 40% of the Directors; and to appoint the

auditors. These shares are entitled, subject to the prior rights of

other classes, to distributions of the residual assets on winding-up

and to any declared but unpaid cash dividends. The shares are

entitled to receive cash dividends, dividends in kind and stock

dividends as and when declared by the Board of Directors.

Onex renewed its Normal Course Issuer Bid in April

2004 for one year, permitting the Company to purchase on the

Toronto Stock Exchange up to 10% of the public ﬂoat of its

Subordinate Voting Shares. The 10% limit represents approximately

11 million shares. At December 31, 2004, 5,415,700 shares had been

repurchased and cancelled under this bid.

c) At December 31, 2004 the issued and outstanding share capital
consisted of 100,000 (2003 – 100,000) Multiple Voting Shares,

139,015,366 (2003 – 148,015,300) Subordinate Voting Shares and

176,078 (2003 – 176,078) Series 1 Senior Preferred Shares. The

Series 1 Senior Preferred Shares have no paid-in amount reﬂected

in these consolidated ﬁnancial statements and the Multiple

Voting Shares have nominal paid-in value.

d) The Company has a Deferred Share Unit Plan as described in
note 1. At December 31, 2004, there were 40,000 units outstanding

for which $1 has been recorded as compensation expense.

e) The Company has a Stock Option Plan (the “Plan”) under which
options and/or share appreciation rights for a term not exceeding

The Multiple Voting Shares and Subordinate Voting

10 years may be granted to Directors, ofﬁcers and employees for

Shares are subject to provisions whereby, if an event of change

the acquisition of Subordinate Voting Shares of the Company at a

occurs (such as Mr. Schwartz, Chairman and CEO, ceasing to

price not less than the market value of the shares on the business

hold, directly or indirectly, more than 5,000,000 Subordinate

day preceding the day of the grant. Under the Plan, no options or

Voting Shares or related events), the Multiple Voting Shares will

share appreciation rights may be exercised unless the average

thereupon be entitled to elect only 20% of the Directors and

market price of the Subordinate Voting Shares for the ﬁve prior

otherwise will cease to have any general voting rights. The Subor-

business days exceeds the exercise price of the options or the

dinate Voting Shares would then carry 100% of the general voting

share appreciation rights by at least 25% (the “exercisable price”).

rights and be entitled to elect 80% of the Directors.

iii) An unlimited number of Senior and Junior Preferred Shares

issuable in series. The Directors are empowered to ﬁx the rights to

be attached to each series. There is no consolidated paid-in value

for these shares.

b) During 2004, under the Dividend Reinvestment Plan, the
Company issued 72,166 (2003 – 317,599) Subordinate Voting Shares

at a total value of $1 (2003 – $5). As well, 71,000 (2003 – 55,000)

Subordinate Voting Shares were issued upon the exercise of stock

options of the Company at a value of less than $1 (2003 – $1).

The Company repurchased and cancelled under Normal

Course Issuer Bids 9,143,100 (2003 – 11,586,100) of its Subordinate

Voting Shares at a cash cost of $150 (2003 – $166) during 2004.

The excess of the purchase cost of these shares over the average

paid-in amount was $113 (2003 – $120), which was charged to

retained earnings.

At December 31, 2004, 15,632,000 (2003 – 15,703,000) Subordinate

Voting Shares were reserved for issuance under the Plan, against

which options representing 13,961,700 (2003 – 12,259,000) shares

were outstanding. The Plan provides that the number of options

issued may not exceed 10% of the shares outstanding at the time

the options are issued.

All options vest at a rate of 20% per year from the date of

grant. When an option is exercised, the employee has the right to

request that the Company repurchase the option for an amount

equal to the difference between the fair value of the stock under

the option and its exercise price. Upon receipt of such request, the

Company has the right to settle its obligation to the employee by

the payment of cash, the issuance of shares or a combination of

cash and shares.

88 Onex Corporation December 31, 2004 Report

N O T E S T O C O N S O L I D AT E D F I N A N C I A L S TAT E M E N T S

Details of options outstanding are as follows:

Outstanding at December 31, 2002

Granted

Exercised or surrendered

Expired

Outstanding at December 31, 2003

Granted

Exercised or surrendered

Expired

Outstanding at December 31, 2004

Number
of Options

Weighted Average
Exercise Price

12,250,600

710,000

(596,600)

(105,000)

12,259,000

10,205,000

(8,345,800)

(156,500)

13,961,700

9.34

$ 14.90

7.78

$ 18.45

9.66

$ 16.54

7.78

$ 18.56

$ 15.71

During 2004 the total cash consideration paid on options surrendered was $71 (2003 – $4). This amount represents the diﬀerence between
the market value of the Subordinate Voting Shares at the time of surrender and the exercise price, both as determined under the Plan.

Options outstanding at December 31, 2004 consisted of the following:

Number of
Options Outstanding

Exercise Price

Number of
Options Exercisable

Exercisable Price

Remaining Life
(years)

611,600

1,238,600

624,000

657,500

625,000

7,260,000

2,945,000

13,961,700

7.30

8.62

$ 20.23

$ 20.50

$ 14.90

$ 15.87

$ 18.18

611,600

1,238,600

–

125,000

–

1,975,200

9.13

$ 10.78

$ 25.29

$ 25.63

$ 18.63

$ 19.84

$ 22.73

3.1

3.3

5.0

7.5

8.1

9.1

9.9

13 . I N T E R E S T E X P E N S E O F O P E R AT I N G C O M PA N I E S

14 . S T O C K - B A S E D C O M P E N S AT I O N

Year ended December 31

2004

2003

Interest on long-term debt

of operating companies

Interest on obligations under capital

leases of operating companies

Other interest of operating companies

Effective January 1, 2004, the Company adopted revised CICA

Handbook Section 3870, “Stock-based Compensation and Other

Stock-based Payments”, as described in note 1.

221

164

For the operating companies that did not record the

effect of stock options through the consolidated statements of

earnings in 2003, the table below shows pro forma net loss and

loss per share adjusted for the effect of stock option plans at

Interest expense of operating companies

253

191

those operating companies.

Cash interest paid during the year amounted to $180 (2003 – $306).

Pro forma after the effect of operating
companies’ stock option plans

Pro forma net loss for continuing operations

Basic loss per share for continuing operations

Diluted loss per share for continuing operations

2003

(558)

$ (3.64)

Onex Corporation December 31, 2004 Report 89

N O T E S T O C O N S O L I D AT E D F I N A N C I A L S TAT E M E N T S

15 . G A I N S O N S H A R E S O F O P E R AT I N G

are now accounted for under the equity method. This gain is

C O M PA N I E S , N E T

During 2004 and 2003 Onex completed a number of unrelated

transactions by selling all or a portion of its ownership interests

in certain companies. The major transactions and the resulting

pre-tax gains are summarized and described as follows:

Year ended December 31

2004

2003

Gains (loss) on:

Issue of shares of Commercial

Vehicle Group(a)

Performance Logistics Group(b)
Issue of shares by Celestica(c)
Sale of Tower Automotive(d)

Gain on initial public offering of

Cineplex Galaxy Income Fund(e)

Sale of investment by Vencap(f)
Other, net(g)

–

118

(5)

comprised of a non-cash dilution gain of $22 and includes the

reversal of $36 of losses of PLG previously recognized by Onex

that were in excess of the other shareholders’ equity in PLG.

c) In March 2004, Celestica acquired MSL and issued approxi-
mately 14.1 million Celestica subordinate voting shares as part of

the consideration paid. Onex recorded a dilution gain of $9 as a

result of the reduction in Onex’ ownership through the share

issuance. Onex’ ownership after the dilution was approximately

18% and it retained voting control of Celestica.

d) In February 2004, Onex completed the sale of its remaining
interest in Tower Automotive, Inc. for net cash proceeds of $8.

e) In November 2003, an initial public offering was made of
Cineplex Galaxy Income Fund (“CGIF”) of 19.4 million units

priced at $10 per unit. The proceeds of this offering were used by

CGIF to invest in 41% of the limited partnership units of Cineplex

182

129

Galaxy Limited Partnership (the “Partnership”), which in turn

a) In August 2004, Commercial Vehicle Group, Inc. (“CVG”)
formed from the combination of Bostrom and Trim Systems, ﬁled

a registration statement with the U.S. Securities and Exchange

Commission for an initial public offering of common stock. A

$180 offering of shares (NASDAQ:CVGI) was completed in early

August. The offering included both a primary and a secondary

component. The primary sale of shares by CVG resulted in that

company receiving net proceeds of approximately $66, which it

used to reduce outstanding indebtedness and for general corpo-

rate purposes.

The secondary sale of shares was by Onex and certain

other shareholders, with Onex receiving approximately $54 in net

proceeds, resulting in a gain of $60 after considering previously

recorded losses. In addition, Onex received approximately $27 on

acquired substantially all of the assets of Cineplex Odeon from

Loews Cineplex and all of the shares of Galaxy Entertainment Inc.

(“Galaxy”), another Canadian exhibitor controlled by Onex.

Following the closing, the Company retained a 54% interest in the

Partnership. The gain includes both a realized gain arising from

the cash received and a dilution component.

f) During 2003, Vencap received proceeds of $20 on the disposition
of its remaining investments.

g) Included in 2004 was a gain of $23 from the interest in
Ripplewood.

16 . A C Q U I S I T I O N , R E S T R U C T U R I N G

A N D O T H E R E X P E N S E S

the repayment of debt held by Onex, which resulted in a gain of

Year ended December 31

$15. As a result of this offering and the sale of shares, Onex held

approximately 4.2 million shares of CVG. Onex, the largest share-

holder in CVG with an approximate 24% ownership interest, ceased

Celestica

Magellan

ClientLogic

to have a controlling ownership interest following this offering.

J.L. French Automotive

Other

2004

2003

184

128

–

211

151

b) In March 2004, PLG acquired Leaseway Auto Carrier Group, a
subsidiary of Penske Truck Leasing Co., L.P. Onex did not sell or

purchase any shares of PLG in this offering, and Onex’ ownership

interest in PLG was diluted from a controlling 50% interest to a

non-controlling 26% interest as a result of the additional shares

issued. Since Onex ceased to control PLG after the issuance of the

additional PLG shares, the investment was no longer consolidated

but was accounted for using the equity method. As a result of

the dilution of Onex’ investment in PLG, Onex has recorded a

non-cash gain of $58, reﬂecting the net liabilities of PLG, which

90 Onex Corporation December 31, 2004 Report

Costs incurred relate to the restructuring activities, implementa-

tion of business processes, infrastructure and information systems

for operations acquired.

The Company records restructuring charges relating to

employee terminations, contractual lease obligations and other

exit costs in accordance with CICA abstracts EIC-134 and EIC-135,

which the Company adopted for restructuring activities initiated

N O T E S T O C O N S O L I D AT E D F I N A N C I A L S TAT E M E N T S

after March 31, 2003. These standards require the Company to

In January and April 2004, Celestica recorded a restruc-

prospectively record restructuring charges only when the liability

turing charge in respect of facility consolidations and a reduction

is incurred. Prior to this, the Company recorded restructuring

in its workforce to better align capacity with customers’ require-

charges based on detailed plans approved and committed to by

ments. The charge includes employee termination costs, lease

management. The recognition of these charges requires manage-

and other contractual obligations, non-cash asset impairments

ment to make certain judgments regarding the nature, timing and

and facility exit costs. The Company expects to complete these

amounts associated with the planned restructuring activities,

actions by early 2005.

including estimating sublease income and the net recovery

In September 2004, Celestica sold certain assets relating

from equipment to be disposed of. At the end of each reporting

to its power operations for proceeds of $68 and recorded a gain

period, the Company evaluates the appropriateness of the

of $15. Included in the 2004 restructuring costs is $10 related to

remaining accrued balances. Restructuring activities relate to the

the disposition.

operating companies.

In January 2005, Celestica announced that it will incur

In January 2003, Celestica recorded a restructuring

a pre-tax restructuring charge of between US$225 and US$275 to

charge in respect of facility consolidations and a reduction in its

be recorded over the next 15 months, of which approximately 80%

workforce as a result of the broad slowdown in technology

will be cash costs.

end-markets experienced by its customers. Also included were

charges in respect of restructuring activities initiated in prior

The tables below provide a summary of restructuring activities

years. The charge includes employee termination costs, lease and

undertaken by the operating companies detailing the compo-

other contractual obligations, non-cash asset impairments and

nents of the charges and movement in accrued liabilities. This

facility exit and other costs.

summary is presented by the year in which the restructuring

activities were ﬁrst initiated.

Years prior to 2003

Employee
Termination
Costs

Lease and Other
Contractual
Obligations

Facility Exit Cost
and Other

Total estimated expected costs

Cumulative costs expensed to date

Expense for the year ended

December 31, 2004

Reconciliation of accrued liability

Closing balance – December 31, 2003

Cash payments

Charges

Closing balance – December 31, 2004

293

(16)

–

163

(35)

(6)

–

(a)

(b)

Includes Celestica $833, J.L. French Automotive $9, ClientLogic $1 and Radian $3.

Initiated in 2003

Employee
Termination
Costs

Lease and Other
Contractual
Obligations

Facility Exit Cost
and Other

Total estimated expected costs

Cumulative costs expensed to date

Expense for the year ended

December 31, 2004

Reconciliation of accrued liability

Closing balance – December 31, 2003

Cash payments

Charges

Closing balance – December 31, 2004

(40)

(3)

(a)

(b)

Includes Celestica $95, J.L. French Automotive $7, ClientLogic $9 and Magellan $6.

Includes Celestica $95, J.L. French Automotive $6, ClientLogic $9 and Magellan $6.

(3)

Non-cash
Charge

338

Non-cash
Charge

(1)

Total

846(a)
846(b)

(57)

Total

117(a)
116(b)

(46)

Onex Corporation December 31, 2004 Report 91

N O T E S T O C O N S O L I D AT E D F I N A N C I A L S TAT E M E N T S

Initiated in 2004

Employee
Termination
Costs

Lease and Other
Contractual
Obligations

Facility Exit Cost
and Other

Total estimated expected costs

Cumulative costs expensed to date

Expense for the year ended

December 31, 2004

Reconciliation of accrued liability

Cash payments

Charges

149

117

(107)

117

Closing balance – December 31, 2004

(6)

(a)

(b)

Includes Celestica $207, ClientLogic $3, Radian $4 and CMC Electronics $2.

Includes Celestica $176, ClientLogic $3, Radian $4 and CMC Electronics $2.

(5)

Total

Employee
Termination
Costs

Lease and Other
Contractual
Obligations

Facility Exit Cost
and Other

Total estimated expected costs

Cumulative costs expensed to date

Expense for the year ended

December 31, 2004

Reconciliation of accrued liability

Closing balance – December 31, 2003

Cash payments

Charges

534

502

127

(163)

127

Closing balance – December 31, 2004

182

(44)

(14)

Non-cash
Charge

392

Total

221(a)
189(b)

189

(118)

145

Total

$ 1,184

1,151

211

156

(221)

166

101

92 Onex Corporation December 31, 2004 Report

N O T E S T O C O N S O L I D AT E D F I N A N C I A L S TAT E M E N T S

17. D E B T P R E PAY M E N T C O S T S

c) In 2003, the impairment tests at PLG resulted in a writedown
of $142 in goodwill as a result of the competitive nature of

Year ended December 31

J.L. French Automotive

Celestica

Other

2004

2003

the industry.

–

18 . W R I T E D O W N O F G O O D W I L L A N D

I N TA N G I B L E A S S E T S

Year ended December 31

2004

2003

Celestica(a)
J.L. French Automotive(b)
Performance Logistics Group(c)
Radian(d)
ClientLogic(e)

388

–

214

142

d) In 2003, Radian performed impairment tests that resulted
in a writedown of $8 in goodwill due to the slowdown in the

telecommunications sector arising from tighter capital markets

and capital-spending restrictions by wireless service providers.

During 2004, Radian did not have any recorded goodwill or

intangible assets.

e) During 2004, ClientLogic performed its annual impairment
tests of goodwill and intangible assets and determined that a

writedown of $5 in intangible assets was required due to the loss

of certain client contracts. In 2003, the impairment tests resulted

in a writedown of $5 in intangible assets due to a component of

the existing client contracts being impaired.

393

402

19. W R I T E D O W N O F L O N G - L I V E D A S S E T S

Year ended December 31

2004

2003

a) During the fourth quarter of 2004, Celestica performed its
annual impairment tests of goodwill and intangible assets and

determined that writedowns of $351 in goodwill and $37 in other

Celestica(a)
J.L. French Automotive(b)

intangibles was required. The majority of the writedowns were

Other

due to restructuring plans and the continued transfer of major

customer programs from higher cost to lower cost geographies

whereby these actions reduced the forecasted revenue and net

cash ﬂows for many sites. In 2003, the impairment tests resulted

in writedowns of $24 in intellectual property and $9 in other

intangibles due to prolonged declines in the computing and

communications end-markets that affected the fair value of the

reporting units.

b) During the third quarter of 2004, J.L. French Automotive
performed its annual impairment tests of goodwill and intangi-

ble assets and determined that no writedowns were required. In

2003, the impairment tests resulted in a writedown of $214 in

goodwill due to lower than anticipated production volumes and

a relocation of certain assets within the reporting units.

a) In 2004, Celestica recorded an impairment of $84 (2003 – $75)
against property, plant and equipment. In 2003, $18 of the impair-

ment related to the buyout of a leased facility.

b) In 2004, J.L. French Automotive implemented restructuring
plans for its U.K. operations which resulted in an impairment of

$8 against property, plant and equipment. In 2003, J.L. French

Automotive recorded an impairment of $10 against property,

plant and equipment, of which $7 related to a Mexican facility

that was not producing an acceptable proﬁt margin, and it was

decided that the business would be resourced to another supplier.

Onex Corporation December 31, 2004 Report 93

N O T E S T O C O N S O L I D AT E D F I N A N C I A L S TAT E M E N T S

2 0 . I N C O M E TA X E S

The reconciliation of statutory income tax rates to the Company’s eﬀective tax rate is as follows:

Year ended December 31

Income tax recovery at statutory rates

Increase (decrease) related to:

Increase in valuation allowance(1)

Amortization of non-deductible items

Income tax rate differential of operating companies

Non-taxable accounting gains

Other, including permanent differences

Provision for income taxes

Classified as:

Current

Future

Provision for income taxes

2004

214

(434)

(126)

(58)

2003

273

(261)

(59)

(26)

$ (347)

(67)

(95)

(252)

$ (347)

(59)

(8)

(67)

(1) During the fourth quarter of 2004, the valuation allowance increased, in large part due to Celestica establishing a valuation allowance of $302 related to future income tax

assets previously recorded in respect of net operating loss carryforwards and certain other deductible temporary differences from its U.S. and European operations.

The Company’s future income tax assets and liabilities comprised the following:

As at December 31

Future income tax assets:

Net operating losses carried forward

Net capital losses carried forward

Accounting provisions not currently deductible

Scientific research deductions and credits

Property, plant and equipment, intangible and other assets

Share issue costs of operating companies

Acquisition and integration costs

Pension and non-pension post-retirement benefits

Other

Less: valuation allowance

Future income tax liabilities:

Property, plant and equipment, intangible and other assets

Pension and non-pension post-retirement benefits

Gains on shares of operating companies

Other

2004

2003

$ 1,031

661

172

117

(1,411)

(52)

(20)

(617)

(2)

(691)

–

207

338

(95)

(835)

406

(144)

(9)

(505)

(637)

Future income tax liabilities, net

$ (606)

$ (231)

Classified as:

Current asset

Long-term asset

Long-term liability

Future income tax liabilities, net

94 Onex Corporation December 31, 2004 Report

(691)

$ (606)

343

(637)

$ (231)

N O T E S T O C O N S O L I D AT E D F I N A N C I A L S TAT E M E N T S

The Company and its investment-holding operating companies have tax-loss carryforwards of approximately $695 available to reduce

future income taxes to the year 2014.

At December 31, 2004, certain operating companies in Canada and the United States had tax-loss carryforwards available to

reduce future income taxes of those companies in the amount of $2,983, of which $528 had no expiry, $594 were available to reduce

future taxes between 2005 and 2009, inclusive, and $1,861 were available to reduce future taxes over a 15-year period beginning in 2010.

Cash taxes paid during the year amounted to $30 (2003 – $62).

21. N E T E A R N I N G S ( L O S S ) P E R S U B O R D I N AT E V O T I N G S H A R E

The weighted average number of Subordinate Voting Shares for the purpose of the earnings (loss) per share calculations is as follows:

Year ended December 31

Weighted average number of shares (in millions):

Basic

Diluted

2 2 . F I N A N C I A L I N S T R U M E N T S

2004

2003

142

154

a) Fair values of ﬁnancial instruments
The estimated fair values of ﬁnancial instruments as at December 31, 2004 and 2003 are based on relevant market prices and information

available at those dates. The carrying values of cash and short-term investments, accounts receivable, accounts payable and accrued liabili-

ties approximate the fair values of these ﬁnancial instruments. Financial instruments with carrying values different from their fair values

that have not been disclosed elsewhere in these consolidated ﬁnancial statements include the following:

As at December 31

2004

2003

Financial liabilities:

Long-term debt (i)

Foreign currency contracts

Interest rate swap agreements

Carrying
Amount

$ 2,512

–

Fair Value/
(Unwind Costs)

Carrying
Amount

Fair Value/
(Unwind Costs)

$ 2,536

(44)

(25)

$ 1,198

–

$ 1,152

(51)

(6)

(i) The fair value of long-term debt is based on quoted market prices for the financial instruments and for others of similar rating and risk. Certain components of long-term

debt primarily comprise term loans and other credit facilities with interest and repayment terms that are not significantly different from current market rates. Accordingly,

the carrying values approximate estimated fair values.

b) Forward sale agreements
The Company entered into the following forward sale agreements relating to subordinate voting shares of Celestica. Shares of Celestica

have been pledged as collateral for these forward sale agreements and it is contemplated that they will be used to satisfy the agreements.

Effective January 1, 2004, the Company adopted AcG-13. Accordingly, previously deferred gains, which are included in other

liabilities (note 11), and which at January 1, 2004 amounted to $181, will continue to be deferred until such time as the contracts are

closed. The fair value of the forward agreements is included in investments and other assets (note 6). Changes in market value of the

forward contracts since the date of adoption are recorded in the statement of earnings under “Derivative Instruments”.

Inception Date

August 2000

November 2000

Maturity Date

August 2025

November 2025

Number of
Celestica Shares

Reference Price
per Share

472,840

1,284,627

$ 111.24

$ 128.47

2004
Fair Value

142

2003
Fair Value

138

The reference price approximated the market value of a Celestica subordinate voting share at the time the forward sale agreement was

entered into. The reference prices under the contracts increase over time.

The fair value represents the difference between the reference price under the contract and the market price of a Celestica share

as at December 31, 2004 and 2003 for the number of shares under the contract.

Onex Corporation December 31, 2004 Report 95

N O T E S T O C O N S O L I D AT E D F I N A N C I A L S TAT E M E N T S

2 3 . S I G N I F I CA N T C U S TO M E R S O F O P E R AT I N G C O M PA N I E S A N D C O N C E N T R AT I O N O F C R E D I T R I S K

A number of operating companies, by the nature of their businesses, individually serve major customers that account for a large portion of

their revenues. For each of these operating companies, the table below shows the number of signiﬁcant customers and the percentage

of revenues they represent.

Year ended December 31

Celestica

Magellan

ClientLogic

J.L. French Automotive

Performance Logistics Group

Bostrom

Trim Systems

Radian

Cosmetic Essence

2004

Number of
Significant
Customers

Percentage
of Revenues

2003

Number of
Significant
Customers

Percentage
of Revenues

–

26%

35%

22%

83%

–

13%

59%

–

44%

–

24%

81%

83%

11%

88%

14%

–

Accounts receivable from the above signiﬁcant customers at December 31, 2004 and 2003 totalled $244 and $337, respectively.

2 4 . C O M M I T M E N T S , C O N T I N G E N C I E S

A N D R E L AT E D PA R T Y T R A N S A C T I O N S

a) Contingent liabilities in the form of letters of credit, letters of
guarantee, and surety and performance bonds are provided by

certain operating companies to various third parties and include

certain bank guarantees. At December 31, 2004, the amounts

payable in respect of these guarantees totalled $95. Certain oper-

ating companies have guarantees with respect to employee share

purchase loans that amounted to $3 at December 31, 2004. These

guarantees are without recourse to Onex.

The Company has commitments in the total amount of

approximately $161 in respect of corporate investments, including

those discussed in note 26.

b) The Company and its operating companies may become par-
ties to legal claims, product liability and warranty claims arising

in the ordinary course of business. Certain operating companies,

as conditions of acquisition agreements, have agreed to accept

certain pre-acquisition liability claims against the acquired com-

panies. The operating companies have recorded liability provi-

sions for the estimated amounts that may become payable for

such claims to the extent that they are not covered by insurance

or recoverable from other parties. It is management’s opinion that

the resolution of known claims should not have a material

adverse impact on the consolidated ﬁnancial position of Onex.

However, there can be no assurance that unforeseen circum-

stances will not result in signiﬁcant costs.

The Company and its operating companies have also

provided certain indemniﬁcations, including those related to

c) The operating companies are subject to laws and regulations
concerning the environment and to the risk of environmental

businesses that have been sold. The maximum amounts from

liability inherent in activities relating to their past and present

many of these indemniﬁcations cannot be reasonably estimated

operations. As conditions of acquisition agreements, certain oper-

at this time. However, in certain circumstances, the Company and

ating companies have agreed to accept certain pre-acquisition

its operating companies have recourse against other parties to

liability claims on the acquired companies after obtaining indem-

mitigate the risk of loss from these indemniﬁcations.

niﬁcation from prior owners.

The Company and its operating companies have

The Company and its operating companies also have

commitments in respect of real estate operating leases, which

insurance to cover costs incurred for certain environmental mat-

are disclosed in note 9. Onex and its operating companies have

ters. Although the effect on operating results and liquidity, if any,

aggregate capital commitments of $58 as at December 31, 2004.

cannot be reasonably estimated, management of Onex and the

operating companies believe, based on current information, that

these environmental matters should not have a material adverse

effect on the Company’s consolidated ﬁnancial condition.

96 Onex Corporation December 31, 2004 Report

N O T E S T O C O N S O L I D AT E D F I N A N C I A L S TAT E M E N T S

d) In February 2004, Onex completed the closing of Onex Partners
LP (the “Fund”), with funding commitments totalling US$1.7 bil-

e) Under the terms of the MIP approved in June 1996, manage-
ment members of the Company invest in all of the operating

lion. The Fund is to provide committed capital for future

entities acquired by the Company.

Onex-sponsored acquisitions not related to Onex’ operating

The aggregate investment by management members

companies at December 31, 2003, or to ONCAP. Onex has provided

a commitment of US$400 million of the total US$1.7 billion of

capital committed to the Fund. Onex controls the General Partner

and Manager of the Fund. Onex management has committed, as a

group, to invest a minimum of 1% of the Fund, which may be

adjusted annually up to a maximum of 4%. As at December 31,

under the MIP is limited to 9% of Onex’ interest in each acquisi-
tion. The form of the investment is a cash purchase for 1⁄₆th (1.5%)
of the MIP’s share of the aggregate investment, and investment
rights for the remaining ⁵⁄₆th (7.5%) of the MIP’s share at the same
price. The investment rights to acquire the remaining ⁵⁄₆th vest
equally over four years. If the Company disposes of 90% or more

2004, management had committed 4%. The total amount invested

of an investment before the ﬁfth year, the investment rights vest

in Fund investments by Onex management for the year ended

in full. The investment rights related to a particular acquisition

December 31, 2004 was $21.

are exercisable only if the Company earns a minimum 15% per

Onex receives annual management fees based upon 2% of

annum compound rate of return for that acquisition after giving

the capital committed to the Fund by investors other than Onex

effect to the investment rights.

and Onex management. The annual management fee is reduced

Under the terms of the MIP, the total amount paid for

to 1% of the net funded capital at the earlier of the end of the

the interest in the investments in 2004 was $2 (2003 – less

commitment period, when the funds are fully invested, or if Onex

than $1). Investment rights exercisable at the same price for 7.5%

establishes a successor fund. Onex is entitled to receive a carried

(2003 – 7.5%) of the Company’s interest in acquisitions were

interest on the overall gains achieved by Fund investors, other

issued at the same time. Realizations under the MIP including the

than Onex, to the extent of 20% of the gains, provided that the

value of units distributed were $35 in 2004 and $6 in 2003.

Fund investors have achieved a minimum 8% return on their

investment in the Fund. The investment by Fund investors for this

purpose takes into consideration management fees and other

amounts paid in by the Fund investors.

The returns to the Fund investors, other than Onex and

Onex management, are based upon all investments made through

the Fund, with the result that initial carried interests achieved by

Onex on gains could be recovered from Onex if subsequent Fund

investments do not exceed the overall target return level of 8%.

Consistent with market practice, Onex, as sponsor of the Fund,

will be allocated 40% of the carried interest with 60% allocated to

the management. Onex defers all gains associated with the carried

interest until such time as the Fund is closed. As at December 31,

2004, no amount had been received as carried interest.

f) Members of management and the Board of Directors of the
Company invested $9 in 2004 (2003 – less than $1) in Onex’ acqui-

sitions at the same cost as Onex and other outside investors.

Those investments by management and the Board are subject to

voting control by Onex.

g) Certain operating companies have made loans to certain direc-
tors or ofﬁcers of the individual operating companies primarily

for the purpose of acquiring shares in those operating companies.

The total value of the loans outstanding as at December 31,

2004 was $13. None of these loans is to directors or ofﬁcers of

the Company.

Onex Corporation December 31, 2004 Report 97

N O T E S T O C O N S O L I D AT E D F I N A N C I A L S TAT E M E N T S

2 5 . P E N S I O N A N D N O N - P E N S I O N P O S T - R E T I R E M E N T B E N E F I T S

The operating companies have a number of deﬁned beneﬁt and deﬁned contribution plans providing pension, other retirement and

post-employment beneﬁts to certain of their employees. The non-pension post-retirement beneﬁts include retirement and termination

beneﬁts, health, dental and group life.

The total costs during 2004 for deﬁned contribution pension plans were $35 (2003 – $33).

The Company measures its accrued beneﬁt obligations and the fair value of the plan assets for accounting purposes as at

December 31 of each year for the largest plans. The most recent actuarial valuation of these pension plans for funding purposes was as of

April and December 2002, and the next required valuation will be as of April and December 2005.

Total cash payments for employee future beneﬁts for 2004, consisting of cash contributed by the operating companies to their

funded pension plans, cash payments directly to beneﬁciaries for their unfunded other beneﬁt plans, and cash contributed to their

deﬁned contribution plans, were $68 (2003 – $86).

For the deﬁned beneﬁt pension plans and non-pension post-retirement plans, the estimated present value of accrued beneﬁt

obligations and the estimated market value of the net assets available to provide these beneﬁts were as follows:

As at December 31

Accrued benefit obligations:

Opening benefit obligations

Current service cost

Interest cost

Contributions by plan participants

Benefits paid

Actuarial losses in year

Foreign currency exchange rate changes

Acquisitions during the year

Discontinued operations in 2003

Discontinued operations in 2004 (note 2)

Non-controlled entities (note 15)

Plan amendments

Settlements/curtailments

Reclassification of plans

Other changes

Closing benefit obligations

Plan assets:

Opening plan assets

Actual return on plan assets

Contributions by employer

Contributions by plan participants

Benefits paid

Foreign currency exchange rate changes

Acquisitions during the year

Discontinued operations in 2003

Discontinued operations in 2004 (note 2)

Non-controlled entities (note 15)

Settlement/termination payments

Reclassification of plans

Pension Plans in
which Assets Exceed
Accumulated Benefits

Pension Plans in
which Accumulated
Benefits Exceed Assets

Non-Pension
Post-Retirement
Benefits

2004

2003

2004

2003

2004

2003

$ 144

$ 235

$ 637

$ 744

$ 164

$ 191

–

(9)

(2)

–

(3)

–

(20)

–

(9)

–

(112)

(1)

–

(18)

(3)

–

(174)

(41)

–

(12)

(16)

(34)

–

(72)

(10)

–

(9)

(16)

–

(18)

(2)

–

(48)

–

(17)

–

(20)

(4)

–

(14)

(2)

–

(2)

(13)

–

$ 131

$ 144

$ 476

$ 637

$ 105

$ 164

$ 152

$ 238

$ 459

$ 452

–

(9)

(3)

–

(8)

–

(3)

–

(9)

–

(94)

(1)

–

(18)

–

(113)

(31)

(12)

(16)

(21)

–

(40)

(3)

–

(6)

–

(18)

(20)

–

Closing plan assets

$ 147

$ 152

$ 350

$ 459

98 Onex Corporation December 31, 2004 Report

N O T E S T O C O N S O L I D AT E D F I N A N C I A L S TAT E M E N T S

Asset category

Equity securities

Debt securities

Real estate

Other

Percentage of Plan Assets

2004

50%

45%

100%

2003

50%

42%

100%

Equity securities do not include direct investments in the shares of the Company and its subsidiaries but may be invested indirectly as

a result of the inclusion of the Company’s and its subsidiaries’ shares in certain market investment funds.

The funded status of the plans of the operating subsidiary companies was as follows:

As at December 31

Deferred benefit amount:

Plan assets, at fair value

Accrued benefit obligation

Plan surplus (deficit):

Unamortized past service costs

Unamortized net gain or loss

Reclassification of plans

Discontinued operations in 2004 (note 2)

Pension Plans in
which Assets Exceed
Accumulated Benefits

Pension Plans in
which Accumulated
Benefits Exceed Assets

Non-Pension
Post-Retirement
Benefits

2004

2003(1)

2004

2003(2)

2004

2003(3)

$ 147

(131)

$ 152

(144)

$ 350

(476)

$ 459

(637)

–

(105)

–

(164)

–

$ (126)

$ (178)

$ (105)

$ (164)

(5)

125

(22)

–

(9)

101

–

Deferred benefit amount – asset (liability)

$ (28)

$ (40)

$ (89)

$ (137)

(1) The ending balance includes discontinued operations of $5.

(2) The ending balance includes discontinued operations of ($15).

(3) The ending balance includes discontinued operations of ($40).

The deferred beneﬁt asset is included in the Company’s balance sheet under “Investments and other assets”. The deferred beneﬁt liabili-

ties are included in the Company’s balance sheet under “Other liabilities”.

Onex Corporation December 31, 2004 Report 99

N O T E S T O C O N S O L I D AT E D F I N A N C I A L S TAT E M E N T S

The net expense for the plans, excluding discontinued operations, is outlined below:

Year ended December 31

Net periodic costs:

Current service cost

Interest cost

Actual return on plan assets

Pension Plans in
which Assets Exceed
Accumulated Benefits

Pension Plans in
which Accumulated
Benefits Exceed Assets

Non-Pension
Post-Retirement
Benefits

2004

2003

2004

2003

2004

2003

(14)

(28)

(36)

(12)

(18)

–

(5)

(17)

–

(8)

(15)

–

Difference between expected return and actual return

on plan assets for period

Actuarial loss

Difference between actuarial loss recognized for period

and actual actuarial loss on the accrued benefit

obligation for period

(9)

(2)

Plan amendments (curtailment/settlement (gain) loss)

Difference between amortization of past service costs for period

and actual plan amendments for period

Settlement benefits

Other

Net periodic costs

–

(18)

(12)

–

The following assumptions were used to account for the plans:

Year ended December 31

Pension Benefits

Non-Pension
Post-Retirement Benefits

Accrued benefit obligation

Weighted average discount rate

5.20%–6.50%

5.00%–6.50%

5.75%–6.10%

6.00%–6.75%

2004

2003

2004

2003

Weighted average rate of

compensation increase

Benefit cost

Weighted average discount rate

Weighted average expected long-term

0.00%–3.75%

0.00%–4.00%

5.20%–6.50%

5.50%–6.75%

rate of return on plan assets

6.40%–8.00%

7.00%–8.00%

Weighted average rate of

compensation increase

0.00%–4.80%

4.00%

6.40%

n/a

4.00%

6.90%

n/a

5.00%

Assumed healthcare cost trend rates

Initial healthcare cost rate

Cost trend rate declines to

Year that the rate reaches the rate it is assumed to remain at

2004

2003

6.60%–10.00%

3.25%–5.00%

5.75%–13.00%

3.59%–5.00%

Between 2008 and 2011

100 Onex Corporation December 31, 2004 Report

N O T E S T O C O N S O L I D AT E D F I N A N C I A L S TAT E M E N T S

Assumed healthcare cost trend rates have a signiﬁcant eﬀect on the amounts reported for post-retirement medical beneﬁt plans. A 1% change
in the assumed healthcare cost trend rate would have the following eﬀects:

Year ended December 31

Effect on total of service and interest

cost components

Effect on the post-retirement

benefit obligation

2004

1% Increase

2003

1% Decrease

2004

2003

(2)

$ (11)

(2)

$ (11)

In 2004 curtailments and plan settlement gains and losses were incurred by Celestica due to facilities rationalization. These gains and losses

are included in restructuring charges in note 16.

2 6 . S U B S E Q U E N T E V E N T S

Onex and certain operating companies have entered into agree-

ments to acquire or make investments in other businesses. These

transactions are subject to a number of conditions, many of which

are beyond the control of Onex or the operating companies. The

effect of these planned transactions, in addition to those described

below, if completed, may be signiﬁcant to the consolidated ﬁnan-

cial position of Onex.

In January 2005, the Company completed the acquisi-

tion of CDI in a transaction valued at $225. CDI owns and oper-

ates diagnostic imaging centres in nine markets in the United

States. The total equity investment was $88 for an 84% equity

ownership interest. This was provided by Onex and Onex Partners.

Onex’ net investment in this acquisition was $21 for a 20% equity

ownership at the time of acquisition. Onex has effective voting

control of CDI through Onex Partners.

In January 2005, Onex established Onex Real Estate

Partners LP, a fund dedicated to acquiring and improving real

estate assets in North America. Onex has initially committed

US$200 million to the fund, which is expected to increase in size

over time with the involvement of institutional investors. Onex’

commitment will be funded as acquisitions are completed.

In February 2005, the Company redeemed all of the

outstanding exchangeable debentures and satisﬁed the debenture

obligation through the delivery of 9,214,320 Celestica subordinate

voting shares.

In February 2005, the Company completed the acquisi-

tion of American Medical Response (“AMR”) and EmCare Holdings

Inc. (“EmCare”) in a transaction valued at approximately $1,000.

AMR is the largest provider of ambulance transport services in the

United States. EmCare is the leading provider of outsourced hos-

pital emergency department physician stafﬁng and management

services in the United States. The total equity investment was

approximately $270 for a 97% equity ownership interest. This was

provided by Onex and Onex Partners. Onex’ net investment in this

acquisition was $100 for a 37% equity ownership at the time of

acquisition. Onex has effective voting control of AMR and EmCare

through Onex Partners.

In February 2005, the Company entered into an agree-

ment to acquire the Wichita/Tulsa Division of Boeing Commercial

Airplanes in a transaction valued at approximately $1,500. The

purchase will include Boeing’s commercial airplane manufactur-

ing facilities in Wichita, Kansas and Tulsa and McAlester,

Oklahoma. The business will operate under a new company that

will enter into long-term agreements with Boeing to supply com-

ponents on all of Boeing’s existing 737, 767, 747, and 777 platforms,

as well as the new 787 platform. The Division currently employs

approximately 9,000 people and represented approximately

$2,500 in annual costs for 2004. The new company will also seek

new business from other customers. The equity investment is

expected to be $465 made through Onex Partners LP and certain

of its limited partners, including Onex. Onex’ share is expected to

be at least $116. Closing of the transaction is subject to the satis-

factory completion of a number of conditions and is expected to

be completed in the second quarter.

Onex Corporation December 31, 2004 Report 101

N O T E S T O C O N S O L I D AT E D F I N A N C I A L S TAT E M E N T S

2 7. I N F O R M AT I O N B Y I N D U S T R Y A N D

healthcare and insurance services in the United States; and the

G E O G R A P H I C S E G M E N T

Onex’ reportable segments operate through autonomous com-

panies and strategic partnerships. Each reportable segment

offers different products and services and is managed separately.

The Company had six reportable segments in 2004

and ﬁve in 2003: electronics manufacturing services; theatre

exhibition; healthcare; customer management services; automo-

tive products; and other. The electronics manufacturing services

segment consists of Celestica, which provides manufacturing

services for electronics OEMs. The theatre exhibition segment

consists of Cineplex Odeon, CGIF and CGLP. The healthcare seg-

ment consists of Magellan, a provider of managed behavioural

equity accounted investment in ResCare, a provider of support

services to people with special needs. The customer management

services segment consists of ClientLogic, which provides services

for telecommunications, consumer goods, retail, technology,

transportation, ﬁnance and utility companies. The automotive

products segment consists of J.L. French Automotive, a leading

manufacturer of high-pressure aluminum die-cast parts in both

2004 and 2003; Bostrom, a manufacturer of seats for the heavy

truck, construction and agricultural vehicle markets; and Trim

Systems, which produces heavy truck interior trim systems in

2003. Bostrom and Trim Systems were equity accounted for 2004.

2004 Industry segments

Revenues

Cost of sales

Selling, general and administrative expenses

(10,913)

(358)

Earnings (loss) before the undernoted items

209

Amortization of property, plant and equipment

Amortization of intangible assets and deferred charges

Interest expense of operating companies

Interest and other income

Equity accounted investments

Foreign exchange gains (loss)

Stock-based compensation

Derivative instruments

Gains on shares of operating companies, net

Acquisition, restructuring and other expenses

Debt prepayment costs

Writedown of goodwill and intangible assets

Writedown of long-lived assets

Earnings (loss) before income taxes, non-controlling

(223)

(45)

(56)

–

(8)

(20)

–

(184)

(2)

(388)

(84)

Provision for income taxes

Non-controlling interests in operating companies

Loss from continuing operations

Earnings from discontinued operations

Net earnings

Total assets(b)

Long-term debt (c)

Property, plant and equipment additions

Goodwill additions

(a)

Includes Radian, CEI, ONCAP and parent company.

(b) Other includes discontinued operations described in note 2.

102 Onex Corporation December 31, 2004 Report

Electronics
Manufacturing
Services

Theatre
Exhibition

Healthcare

Customer
Management
Services

Automotive
Products

Other (a)

Consolidated
Total

$ 11,480

356

$ 2,199

730

932

547

$ 16,244

(271)

(18)

(25)

–

(8)

–

(1,762)

(137)

300

(38)

(18)

(48)

–

(35)

–

(7)

–

(458)

(196)

(41)

(15)

(19)

–

(1)

–

(5)

–

(5)

(2)

(743)

(39)

150

(65)

–

(101)

–

(14)

–

(7)

(5)

–

(8)

(363)

(205)

(21)

(24)

(16)

(21)

(9)

(114)

(34)

182

(8)

(1)

–

(14,510)

(953)

781

(416)

(94)

(253)

111

(8)

(116)

(104)

182

(211)

(8)

(393)

(94)

(594)

(347)

781

(160)

195

$ 5,925

750

180

298

368

$ 1,537

129

–

450

576

303

192

–

452

$ 3,224

$ 11,809

721

–

416

328

2,658

348

1,202

interests and discontinued operations

(752)

163

(2)

(46)

N O T E S T O C O N S O L I D AT E D F I N A N C I A L S TAT E M E N T S

2003 Industry segments

Revenues

Cost of sales

Selling, general and administrative expenses

Earnings before the undernoted items

Amortization of property, plant and equipment

Amortization of intangible assets and deferred charges

Interest expense of operating companies

Interest and other income

Foreign exchange gains (loss)

Stock-based compensation

Gains on shares of operating companies, net

Acquisition, restructuring and other expenses

Debt prepayment costs

Writedown of goodwill and intangible assets

Writedown of long-lived assets

Earnings (loss) before income taxes, non-controlling

Electronics
Manufacturing
Services

Customer
Theatre Management
Services

Exhibition

Automotive
Products

Other (a)

Consolidated
Total

9,382

(8,831)

(332)

219

(240)

(68)

(36)

–

(128)

(2)

(33)

(75)

336

(259)

(19)

(23)

–

(3)

–

113

(2)

–

605

(399)

(187)

(44)

(16)

–

(2)

–

(8)

–

(5)

(3)

1,394

(1,077)

(126)

191

(80)

–

(128)

–

(10)

(9)

(356)

(10)

402

(293)

(102)

(20)

(7)

(8)

(141)

(3)

–

(8)

–

$ 12,119

(10,859)

(766)

494

(407)

(91)

(191)

(122)

129

(151)

(11)

(402)

(88)

interests and discontinued operations

(311)

147

(71)

(401)

(109)

(745)

Provision for income taxes

Non-controlling interests in operating companies

Loss from continuing operations

Earnings from discontinued operations

Net loss

Total assets(b)

Long-term debt (c)

Property, plant and equipment additions

Goodwill additions

(a)

Includes Radian, ONCAP and parent company.

(b) Other includes discontinued operations described in note 2.

Geographic segments

(67)

256

(556)

224

(332)

6,645

273

234

–

359

114

–

338

206

779

1,026

–

6,500

$ 14,621

130

1,749

387

2004

2003

Canada

U.S.

Europe

Other

Total

Canada

U.S.

Europe

Other

Total

Revenue

$ 2,909

$ 5,344

$ 2,838

$ 5,153

$ 16,244

2,635

3,412

2,311

3,761

$ 12,119

Property, plant

and equipment

Intangible assets

Goodwill

514

113

201

497

196

700

343

355

$ 1,709

369

–

$ 1,037

$ 1,938

534

248

465

139

130

394

369

1,067

1,762

302

1,473

Revenues are attributed to geographic areas based on the locations of manufacturing facilities for the electronics manufacturing services

and automotive products segments; and of operating facilities for the customer management services and theatre exhibition segments.

Other includes primarily operations in Mexico, Central and South America, as well as Asia and Australia. Signiﬁcant customers

of operating companies are discussed in note 23.

Onex Corporation December 31, 2004 Report 103

SUMMARY HISTORICAL FINANCIAL INFORMATION

The following is a summary of key consolidated ﬁnancial information of the Company for the past ﬁve ﬁscal years:

Year ended December 31 (in millions of dollars except per share data)

2004

2003

2002

2001

2000

Revenues
Cost of sales
Selling, general and administrative expenses

Earnings before the undernoted items
Amortization of property, plant and equipment
Amortization of goodwill, intangible assets

and deferred charges

Interest expense of operating companies
Interest and other income
Equity accounted investments
Foreign exchange gains (loss)
Stock-based compensation
Derivative instruments
Gains on shares of operating companies, net
Acquisition, restructuring and other expenses
Debt prepayment costs
Writedown of goodwill and intangible assets
Writedown of long-lived assets

Earnings (loss) before income taxes, non-controlling

interests and discontinued operations

Recovery (provision) for income taxes
Non-controlling interests of operating companies

Earnings (loss) from continuing operations
Earnings (loss) from discontinued operations (a)

$ 16,244

$ 12,119

$ 15,911

$ 18,352

$ 16,376

(14,510)

(10,859)

(953)

781

(416)

(94)

(253)

111

(8)

(116)

(104)

182

(211)

(8)

(393)

(94)

(594)

(347)

781

(160)

195

(766)

494

(407)

(91)

(191)

–

(122)

–

129

(151)

(11)

(402)

(88)

(745)

(67)

256

(556)

224

(14,004)

(889)

(16,200)

(1,030)

1,018

1,122

(510)

(172)

(151)

–

142

–

(673)

(25)

(425)

–

(688)

560

(63)

(82)

(454)

(293)

(194)

121

–

164

(434)

–

(427)

–

(379)

230

(140)

938

(14,664)

(861)

851

(275)

(227)

(161)

115

–

209

(36)

(3)

(22)

–

461

(109)

(201)

151

Net earnings (loss) for the year

(332)

(145)

798

188

Total assets

Shareholders’ equity

Dividends declared per Subordinate Voting Share
Earnings (loss) per Subordinate Voting Share:

Continuing operations
Net earnings (loss)
Fully diluted

$ 11,809

$ 14,621

$ 19,890

$ 20,870

$ 19,719

227

0.11

(1.12)

0.25

293

0.11

(3.62)

(2.16)

1,044

0.11

(0.39)

(0.90)

2,219

0.11

(0.87)

4.95

1,431

0.11

0.93

1.15

1.07

(a) The earnings from discontinued operations from 2000 to 2001 include the sale of Sky Chefs. The earnings from discontinued operations from 2000 to 2003 include the sale

of Lantic Sugar/Rogers Sugar and MAGNATRAX. The earnings from discontinued operations from 2000 to 2004 include the sale of Dura Automotive, Loews Cineplex Group,

Cincinnati Electronics, Armtec and InsLogic. Previously reported consolidated revenues and earnings figures for the years 2000 to 2003 have been restated to classify the

results of the above entities as discontinued operations.

Year-end closing share price

As at December 31

The Toronto Stock Exchange

2004

2003

2002

2001

2000

19.75

14.69

16.00

22.45

21.90

104 Onex Corporation December 31, 2004 Report

SHAREHOLDER INFORMATION

Shares
The Subordinate Voting Shares of the

Registrar and Transfer Agent
CIBC Mellon Trust Company

Company are listed and traded on

P.O. Box 7010

The Toronto Stock Exchange.

Share symbol
OCX.SV

Adelaide Street Postal Station

Toronto, Ontario M5C 2W9

(416) 643-5500

or call toll-free throughout

Duplicate communication
Registered holders of Onex Corporation

shares may receive more than one copy
of shareholder mailings. Every eﬀort
is made to avoid duplication, but when
shares are registered under diﬀerent
names and/or addresses, multiple

Dividends
Dividends on the Subordinate Voting

Shares are payable quarterly on or

about January 31, April 30, July 31 and

October 31 of each year. At December 31,

2004 the indicated dividend rate

for each Subordinate Voting Share

was $0.11 per annum.

Shareholder Dividend
Reinvestment Plan
The Dividend Reinvestment Plan provides

shareholders of record who are resident

in Canada a means to reinvest cash divi-

dends in new Subordinate Voting Shares

of Onex Corporation at a market-related

price and without payment of brokerage

commissions. To participate, registered

shareholders should contact Onex’ share

registrar, CIBC Mellon Trust Company.

Non-registered shareholders who wish

to participate should contact their invest-

ment dealer or broker.

Corporate governance policies
A presentation of Onex’ corporate

governance policies is included in

the Management Information Circular

that is mailed to all shareholders

and is available on Onex’ website.

Canada and the United States

mailings result. Shareholders who

1-800-387-0825

www.cibcmellon.ca
or inquiries@cibcmellon.ca (e-mail)

All questions about accounts, stock

certiﬁcates or dividend cheques

should be directed to the Registrar and

Transfer Agent.

Investor information
Requests for copies of this report,

quarterly reports and other corporate

communications should be directed to:

Investor Relations

Onex Corporation

161 Bay Street

P.O. Box 700

Toronto, Ontario M5J 2S1

E-mail:
info@onex.com

Website:
www.onex.com

Auditors
PricewaterhouseCoopers llp,
Toronto, Canada

Chartered Accountants

receive but do not require more than

one mailing for the same ownership are

requested to write to the Registrar and

Transfer Agent and arrangements will

be made to combine the accounts for

mailing purposes.

Shares held in nominee name
To ensure that shareholders whose

shares are not held in their name receive

all Company reports and releases

on a timely basis, a direct mailing list

is maintained by the Company. If you

would like your name added to this list,

please forward your request to Investor

Relations at Onex.

Annual meeting of shareholders
Onex Corporation’s Annual Meeting

of Shareholders will be held on

Thursday, May 12, 2005 at 10:00 a.m.

(Eastern Daylight Time) at Cineplex

Odeon Queensway Cinemas,

1025 The Queensway, Etobicoke, Ontario.

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Typesetting and copyediting by
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www.moveable.com

Printed in Canada