OncoCyte Annual Report 2005

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FY2005 Annual Report · OncoCyte

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Management’s Discussion and Analysis
and Financial Statements

December 31, 2005

ONEX CORPORATION

Onex is a diversiﬁed company with 2005 annual revenues of $17 billion, assets of $15 billion and

138,000 employees worldwide.

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

tronics manufacturing services, aerostructures manufacturing, theatre exhibition, healthcare,

customer management services, automotive products, personal care products and commu-

nications 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 Management’s Discussion and Analysis

50 Consolidated Financial Statements

88 Summary Historical Financial Information

IBC Shareholder Information

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

This report includes Onex Corporation’s Management’s Discussion and

Analysis and Financial Statements for the year ended December 31, 2005.

We invite you to visit our website, www.onex.com, for your complete

and up-to-date source of information about Onex.

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.

See how Onex has

Find out about

our companies.

Learn about our operating

performed against key

principles and values,

and what we do.

market indices.

Learn about our

directors and corporate

governance practices.

MANAGEMENT ’S DISCUSSION AND ANALYSIS

The Management’s Discussion and Analysis (“MD&A”) of ﬁnancial condition and results

of operations analyzes signiﬁcant changes in the consolidated statements of earnings, con-

solidated 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 con-

solidated ﬁnancial statements and notes thereto on pages 50 to 87 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 infor-

mation to make an investment decision in regard to any particular Onex operating company.

The following MD&A is the responsibility of management and is as of February 16,

2006. The Board of Directors carries out its responsibility for review of this disclosure

through its Audit and Corporate Governance Committee, comprised exclusively of indepen-

dent directors. The Audit and Corporate Governance Committee reviews the disclosure and

recommends its approval by the Board of Directors.

The MD&A is presented in the following sections:

Onex Business Objective and Strategies
Industry Segments
Key Performance Indicators

3 Overview
3
5
6
7 Financial Review
8
12
30
37
42 Outlook
46 Risk Management

Significant Events in 2005
Consolidated Operating Results
Consolidated Financial Position
Liquidity and Capital Resources

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, including without limitations, those discussed on pages 8 through 12

of this MD&A. Onex is under no obligation to update any forward-looking statements contained herein should material facts change

due to new information, future events or other factors.

2 Onex Corporation December 31, 2005

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, aerostructures, theatre exhibition,
healthcare, customer management services, automotive products, personal care products and
communications infrastructure.

O N E X B U S I N E S S O B J E C T I V E

Onex’ business objective is to create long-term value for shareholders by acquiring and building industry-leading busi-

nesses and to have that value reﬂected in the Company’s share price.

O N E X S T R A T E G I E S

Onex achieves its long-term objective through various strategies, which include:

Industry leadership
Onex looks to acquire companies that have not only exhibited leadership or the potential for leadership within their own

industry but also, in our view, offer a clear opportunity to create value for shareholders. 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.

Diversiﬁcation of capital
Onex deliberately diversiﬁes its capital across a variety of companies and industries in order to limit its exposure to a

single business or industry. This strategy enables Onex to better weather the ebbs and ﬂows of economic and/or industry

business cycles.

Management ownership
Each member of Onex’ management team has a meaningful personal ﬁnancial interest in the Company and its operating

companies. Onex believes this personal commitment aligns Onex management’s personal objective with the Company’s

overall value creation objective. Onex management’s depth and breadth of experience in acquisitions, integration, strategy,

negotiations and ﬁnancing support the management teams of the operating companies in building the value of

their businesses.

In addition, Onex believes that management of the acquired companies should share in the risk and rewards of

ownership. Therefore, we look to partner with a strong and committed management team that is willing to make a sizeable

personal ﬁnancial commitment to its business.

During 2005, Onex’ management team and board of directors invested $55 million in the investments and acquisi-

tions completed by Onex in 2005.

Onex Corporation December 31, 2005 3

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

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, to support existing operating companies. At December 31, 2005,

Onex had approximately $1.5 billion of cash and near-cash items.

In addition, Onex has capital it can call upon through its private equity funds:

• Onex Partners LP (“Onex Partners”) is a $2.1 billion (US$1.7 billion) fund in which Onex has committed $480 million

(US$400 million). Onex controls the General Partner and Manager of Onex Partners; at December 31, 2005, the uncalled

committed capital available through Onex Partners from other limited partners was $478 million.

• ONCAP Funds – ONCAP LP (“ONCAP I”) is a $400 million private equity fund, and ONCAP II LP (“ONCAP II”) is a private

equity fund targeted at $500 million; the ONCAP funds are committed to acquiring and building value in small- to

medium-capitalization companies based in North America; ONCAP I’s investment commitment period expired

December 2004. Onex has committed to be approximately half of ONCAP II’s total commitments; Onex controls the

General Partner and Manager of ONCAP I and ONCAP II.

The above private equity funds are also a source of value creation for Onex through:

• Management fees – Onex receives a management fee from third-party investors in its private equity funds, Onex

Partners, as well as ONCAP I and ONCAP II; and

• Carried interests – Onex, as the General Partner of Onex Partners, ONCAP I and ONCAP II, also receives a carried

interest on the realized gains of the third-party limited partners.

Active ownership
Onex believes that if a business is good enough to buy, it is good enough to be vigorously developed. Onex management

works closely with the management teams of its operating companies to set strategies and assist in evaluating acquisitions

and in implementing ﬁnancing arrangements.

4 Onex Corporation December 31, 2005

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

I N D U S T R Y S E G M E N T S

At December 31, 2005, Onex had signiﬁcant ownership in businesses in the following industry segments:

Industry Segments

Companies

Electronics Manufacturing
Services

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

Aerostructures

Theatre Exhibition

Healthcare

Spirit AeroSystems, Inc., the world’s largest Tier 1 aerostructures manufacturer.

Cineplex Entertainment Limited Partnership, Canada’s largest ﬁlm exhibition company, oper-
ating 130 theatres with a total of 1,275 screens under the Cineplex Odeon, Famous Players,
Coliseum, Colossus, Galaxy and Silver City brands.

Emergency Medical Services Corporation, a leading provider of emergency medical services,
operating through American Medical Response, Inc. (“AMR”), a leading U.S. provider of ambulance
transport services, and EmCare Holdings Inc. (“EmCare”), a leading U.S. provider of outsourced
services for hospital emergency department physician stafﬁng and management.

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

Skilled Healthcare Group, Inc., an organization of leading skilled nursing and assisted living facil-
ity operators in the United States, speciﬁcally in California, Texas, Kansas and Nevada, whose skilled
nursing and rehabilitation subsidiaries focus on treating patients requiring a high level of skilled
nursing care and comprehensive rehabilitation services.

Res-Care, Inc., a leading U.S. provider of residential, training, educational and support services for
people with disabilities and special needs.

Customer Management
Services

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

Automotive Products

J.L. French Automotive Castings, Inc., an independent manufacturer of aluminum die-cast com-
ponents for North American and European automotive OEMs.

Other Businesses

• Mid-Cap Opportunities
• Personal Care Products
• Communications
Infrastructure

• Real Estate
• Public Market Investments

ONCAP, private equity funds focused on acquiring and building the value of small- and mid-cap
North American companies, which currently manages investments in CMC Electronics Inc., Western
Inventory Service Ltd., Canadian Securities Registration Systems Ltd. and CSI Global Education Inc.
(acquired in January 2006).

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; the company’s products include fragrances, crèmes, lotions and colour cosmetics.

Radian Communication Services Corporation, a North American wireless communications infra-
structure and network services company.

Onex Real Estate Partners LP, a partnership dedicated to acquiring and improving real estate
assets in North America.

Onex Public Markets Group, a limited partnership focused on investing in securities of publicly-
traded North American companies in a variety of industries in order to generate long-term capital
appreciation and dividends.

Onex Corporation December 31, 2005 5

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

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

A key strategy in acquiring an operating company is to do so in partnership with that company’s management team.

Onex believes that each operating company’s management team is most familiar with its industry and therefore is the

best manager of its business. While Onex management provides its support in areas such as strategy, acquisitions and

ﬁnancing, Onex does not get involved in the day-to-day activities of its businesses.

We believe the best way to monitor the performance of each of our businesses is to assess each company’s growth

in revenues and operating earnings (as deﬁned on page 20), as well as to track the progress toward achieving the annual

initiatives as developed in the operating budget for each business.

Onex believes that operating earnings, while a non-GAAP measure, provides a particularly relevant and consistent

basis for assessing each operating company’s performance because it eliminates interest charges, which are a function of

the particular ﬁnancing structure, as well as any unusual charges.

Revenues and operating earnings are both discussed in further detail in this MD&A on pages 12 and 20, respectively.

6 Onex Corporation December 31, 2005

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 the significant changes in Onex’ consolidated statements of earnings,
consolidated balance sheets and consolidated statements of cash flow for the fiscal year ended
December 31, 2005 compared to those for the year ended December 31, 2004 and in selected
areas to those for the year ended December 31, 2003.

Accounting policies and estimates
Onex prepares its ﬁnancial statements in accordance

revenues, operating expenses, capital expenditures and

discount rates. When an impairment test is undertaken,

with Canadian generally accepted accounting principles

the underlying assumptions are re-evaluated and could

(“GAAP”).

give rise to future impairment charges. Included in Onex’

The preparation of the ﬁnancial statements in

audited annual consolidated ﬁnancial statements for the

conformity with Canadian GAAP requires management to

year ended December 31, 2005 is a writedown of good-

make estimates and assumptions that affect the reported

will and intangible assets of $3 million and a $5 million

amounts of assets and liabilities, disclosures of contingent

writedown of long-lived assets related to Onex’ operating

assets and liabilities, and the reported amounts of rev-

companies. Notes 18 and 19 to the audited annual consoli-

enues and expenses for the period of the consolidated

dated ﬁnancial statements also provide information on

ﬁnancial statements. Signiﬁcant accounting policies and

these charges.

methods used in preparation of the ﬁnancial statements

are described in note 1 to the audited annual consolidated

Income tax valuation allowance

ﬁnancial statements. Onex and its operating companies

An income tax valuation allowance is recorded against

evaluate their estimates and assumptions on a regular

future income tax assets when it is more likely than not

basis, based on historical experience and other relevant

that some portion or all of the future income tax assets

factors. Included in Onex’ consolidated ﬁnancial state-

recognized will not be realized prior to their expiration.

ments are estimates used in determining allowance for

The reversal of future income tax liabilities, projected

doubtful accounts, inventory valuation, the useful lives

future taxable income, the character of income tax assets,

of property, plant and equipment and intangible assets,

tax planning strategies and changes in tax laws are some

revenue recognition under contract accounting, pension

of the factors taken into consideration when determining

and post-employment beneﬁts, restructuring costs and

the valuation allowance. A change to these factors could

other matters. Actual results could differ materially from

affect the estimated valuation allowance and income

those estimates and assumptions.

tax expense. Note 20 to the audited annual consolidated

The assessment of goodwill, intangible assets and

ﬁnancial statements provides additional disclosure on

long-lived assets for impairment, the determination of

income taxes.

income tax valuation allowances and contract accounting

require the use of judgments, assumptions and estimates.

Contract accounting

Due to the material nature of these factors, they are dis-

In the aerostructures segment, the contract method of

cussed here in greater detail.

accounting requires that revenues from each contract be

recognized in accordance with the percentage-of-comple-

Goodwill, intangible assets and long-lived assets

tion method of accounting. As a result, contract accounting

impairment tests

uses various estimating techniques to project costs to com-

The impairment tests of goodwill, intangible assets and

pletion and estimates of recoveries asserted against the cus-

long-lived assets involve consideration of future cash ﬂows

tomer for changes in speciﬁcations. These estimates involve

and fair values of individual assets, groups of assets or

assumptions of future events, including the quantity and

reporting units. The process of determining fair value and

timing of deliveries and labour performance and rates, as

future cash ﬂows is subjective and requires management

well as projections relative to material and overhead costs.

of the particular operating companies to exercise judgment

Contract estimates are re-evaluated periodically and changes

in making assumptions about future results, including

in estimates are reﬂected in the current and future periods.

Onex Corporation December 31, 2005 7

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 2005, Onex’ operating company Spirit

Financial instruments – presentation and disclosure

AeroSystems, Inc. (“Spirit AeroSystems”) recognized rev-

In December 2004, Onex adopted the amendment to the

enues under the contract method of accounting, using

Canadian Institute of Chartered Accountants Handbook

the units-of-delivery method. The company follows this

(“CICA Handbook”) Section 3860, “Financial Instruments –

method of accounting as a signiﬁcant portion of its rev-

Presentation and Disclosure”. The amendment required

enues are under long-term, volume-based pricing con-

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

tracts that require delivery of products over several years.

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

Investment company

equity to be presented as liabilities. Therefore, any secu-

rities issued by an enterprise that give the issuer unre-

During 2005, Onex formed OPMG LP (“OPMG” or “Onex

stricted rights to settle the principal amount in cash or

Public Markets Group”) to invest in public companies.

the equivalent value of its own equity instruments will

OPMG acquires non-controlling positions in these invest-

no longer be presented as equity. This amendment is

ments and thus, under the Canadian Institute of Chartered

applicable on a retroactive basis with restatement of prior

Accountants (“CICA”) Accounting Guideline 18, “Invest-

periods. As a result of adopting this standard, Onex

ment Companies”, the investments of OPMG are recorded

reclassiﬁed $149 million of the principal component of

at fair value and are included in investments and other

convertible debt issued by one of its operating companies

assets in Onex’ audited annual consolidated balance sheet.

from non-controlling interests liability to long-term debt

Included in income in Onex’ audited annual consolidated

as at December 31, 2004.

statement of earnings for the year ended December 31,

2005 is $10 million of net realized gains recorded by OPMG.

S I G N I F I C A N T E V E N T S I N 2 0 0 5

Development costs

A number of signiﬁcant events occurred during the year

Included in the deferred charges on Onex’ audited annual

that affected Onex’ consolidated results for 2005 and their

consolidated balance sheet are capitalized development

comparability to results for 2004. These events are dis-

costs of Spirit AeroSystems primarily associated with that

cussed below.

company’s product development on Boeing’s 787 aircraft.

These development costs will be amortized over the life of

Acquisition of Center for Diagnostic Imaging, Inc.

the contract for the products developed.

In early January 2005, Onex completed the acquisition of

New accounting policies
Consolidation of variable interest entities

Center for Diagnostic Imaging, Inc. (“CDI”), a leading

provider of diagnostic and therapeutic radiology services in

the United States. This transaction was valued at approxi-

The CICA issued Accounting Guideline 15, “Consolidation

mately $225 million, including $88 million of equity funded

of Variable Interest Entities”, which was applicable for

by Onex and Onex Partners LP (“Onex Partners”) for an

Onex beginning in January 2005. Variable interest entities

84 percent ownership interest. Of the total equity, Onex’

(“VIEs”) are entities that have insufﬁcient equity and/or

share was $21 million for a 20 percent ownership interest.

their equity investors lack one or more speciﬁed essential

CDI operates 35 diagnostic imaging centres in

characteristics of a controlling ﬁnancial interest. This

nine markets in the United States that provide services

guideline provides speciﬁc guidance for determining when

such as magnetic resonance imaging (“MRI”), computed

an entity is a VIE, and who, if anyone, should consolidate

tomography (“CT”), diagnostic and therapeutic injection

the VIE. The adoption of this guideline did not have a

procedures, as well as other procedures such as PET/CT,

material effect on the audited annual consolidated ﬁnan-

conventional x-ray, mammography and ultrasound. CDI’s

cial statements.

8 Onex Corporation December 31, 2005

operations have been consolidated and reported in the

healthcare segment from the date of acquisition. Note 3

to the audited annual consolidated ﬁnancial statements

provides additional information on this acquisition.

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

Sale of InsLogic Corporation

ﬁnancial statements provides additional information on

In early January 2005, Onex sold InsLogic Corporation

this acquisition.

(“InsLogic”) for net cash proceeds of $22 million. Onex
formed InsLogic in 1999 to provide technology-enabled pri-

EMSC initial public offering

vate-label insurance brokerage services. During the period

In mid-December 2005, EMSC completed an initial public

of its ownership, Onex invested a total of $52 million in both

offering of Class A common shares (NYSE: EMS), repre-

equity and debt. Due to the losses Onex recorded from

senting a 19.5 percent interest in the company, for net pro-

InsLogic in prior years, the business had a negative carrying

ceeds of US$102 million. After this offering, Onex, Onex

value for accounting purposes at the time of the sale. As

Partners and certain of its limited partners continued to

a result, Onex recorded an accounting gain of $73 million

hold 32.1 million Class A common shares of EMSC, repre-

for the year ended December 31, 2005. This gain has been

senting a 77 percent ownership interest in the company.

reported in earnings from discontinued operations in Onex’

Onex did not sell any of its interest in EMSC in the offering.

audited annual consolidated ﬁnancial statements for 2005.

A consolidated non-cash accounting dilution gain of $40 mil-

Sale of CGG investment

lion was recorded, of which Onex’ share was $15 million.

This reﬂects Onex’ share of the excess of the proceeds from

Onex sold all of its convertible subordinated bonds of

the offering over Onex’ carrying value for the portion of

Compagnie Générale de Géophysique (“CGG”) in three sep-

the business issued in the public offering.

arate transactions in the ﬁrst and second quarters of 2005.

Onex and Onex Partners received total proceeds of $145 mil-

Acquisition of Skilled Healthcare

lion, of which Onex’ share was approximately $34 million.

In late December 2005, Onex acquired Skilled Healthcare

As a result of this sale, a pre-tax gain of $41 million was

Group, Inc. (“Skilled Healthcare”) in a transaction valued

recorded in 2005, of which Onex’ share was $9 million. These

at approximately $745 million. Onex and Onex Partners

gains are reported in gains on sales of operating investments

invested $243 million for a 93 percent ownership interest.

in Onex’ audited annual consolidated statement of earnings

Onex’ share of this investment was $57 million for a

for the year ended December 31, 2005. The total value Onex

22 percent ownership interest. Skilled Healthcare’s subsid-

and Onex Partners received on CGG amounted to $146 mil-

iaries, operating a total of 68 skilled nursing and assisted

lion, including interest, compared to an investment of

living facilities in California, Texas, Kansas and Nevada,

approximately $102 million made in November 2004.

focus on treating patients who require a high level of

skilled nursing care and extensive rehabilitation therapy.

Purchase of U.S. healthcare companies

The company’s subsidiaries also provide rehabilitation

In February 2005, Onex completed the acquisition of

therapy services at its afﬁliated facilities and for third par-

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

ties. Skilled Healthcare has recently established a growing

Holdings Inc. (“EmCare”) in a transaction valued at approx-

subsidiary hospice care business.

imately $1 billion. Onex, Onex Partners and certain of

Skilled Healthcare’s results are reported in the

its limited partners invested $266 million of equity for a

healthcare segment in Onex’ audited annual consolidated

97 percent ownership interest. Onex’ portion of the equity

ﬁnancial statements. The company’s operating results for

was $100 million for an ownership interest of 36 percent.

the four days from the date of acquisition on December 27,

AMR is a leading U.S. provider of ambulance

2005 to December 31, 2005 were not signiﬁcant to Onex’

transport and emergency medical response services.

audited annual consolidated results and therefore, were

EmCare is a leading provider of outsourced services for

not consolidated in the audited annual statement of

hospital emergency department physician stafﬁng and

earnings for the year ended December 31, 2005. However,

management. Onex formed Emergency Medical Services

included in Onex’ consolidated balance sheet at Decem-

Corporation (“EMSC”) as the parent company of AMR

ber 31, 2005 are Skilled Healthcare’s assets of $925 million

and EmCare. EMSC’s operations have been consolidated

and reported in the healthcare segment from the date

of acquisition. Note 3 to the audited annual consolidated

and liabilities of $682 million. Note 3 to the audited annual
consolidated ﬁnancial statements provides additional
information on this acquisition.

Onex Corporation December 31, 2005 9

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

Settlement of Celestica exchangeable debentures
and forward sales agreements

Acquisition of Boeing’s Wichita-Tulsa commercial

aerostructures manufacturing operations

In February 2005, Onex redeemed its debentures that

In mid-June 2005, Onex completed the acquisition of The

were exchangeable for Celestica Inc. (“Celestica”) subordi-

Boeing Company’s (“Boeing”) commercial aerostructures

nate voting shares, recording a non-cash, pre-tax gain of

manufacturing operations in Kansas and Oklahoma in

$560 million as a result of the redemption. Onex received the

a transaction valued at $1.5 billion. Onex, Onex Partners

cash for these exchangeable debentures when it entered into

and a number of limited partners invested $464 million

these arrangements in 2000. The redemption was under-

of equity in Spirit AeroSystems, the newly formed com-

taken to eliminate Onex’ annual interest expense of $11 mil-

pany that acquired the Boeing assets. Onex’ portion of that

lion associated with the debentures. The aggregate principal

investment was $134 million for a 29 percent ownership

amount of the debentures was $729 million and, in accor-

interest. Spirit AeroSystems is now the world’s largest

dance with the terms of the debentures, Onex satisﬁed this

Tier 1 aerostructures manufacturer. The company oper-

obligation through the delivery of 9.2 million Celestica sub-

ates from 12 million square feet of facilities and offers

ordinate voting shares. The number of shares was based

industry-leading manufacturing and design expertise in a

upon the ﬁxed exchange rates provided for under the terms

broad range of products and services for aircraft original

of the debentures. Onex converted 9.2 million Celestica

multiple voting shares into Celestica subordinate voting

equipment manufacturers (“OEMs”) and operators. Spirit
AeroSystems operations have been consolidated and reported

shares to facilitate the redemption. The exchange was a non-

in a new reportable segment – Aerostructures – from the

cash transaction except for an early termination premium of

date of acquisition. Note 3 to the audited annual consoli-

$12 million that was netted against the recorded gain of

dated ﬁnancial statements provides additional informa-

these exchangeable debentures and accrued interest, both

tion on this acquisition.

of which were paid in cash.

In early June 2005, Onex settled its forward

Cineplex Entertainment acquires the

sales agreements relating to subordinate voting shares of

Famous Players theatre exhibition circuit

Celestica and recorded a pre-tax gain of $191 million on

In July 2005, Cineplex Galaxy Limited Partnership (“CGLP”)

the settlement based on the carrying value at the time of

acquired the Famous Players movie exhibition business

sale. Onex elected to settle the forward sales agreements

in a transaction valued at $473 million. Famous Players

by delivering 1.8 million Celestica subordinate voting

operated a total of 80 theatres with 785 screens across

shares, based upon the forward sale prices provided for

Canada. This acquisition was ﬁnanced through: (i) the pub-

under the terms of the agreements, which were entered

lic offering of $110 million of trust units of Cineplex Galaxy

into in 2000. Onex received $222 million in cash on the set-

Income Fund (“CGIF”), the entity through which the public

tlement of the forward sales agreements. These forward

invests in CGLP; (ii) the issuance of $105 million of convert-

sales agreements were closed out in order to eliminate the

ible debentures by CGIF; and (iii) third-party debt ﬁnancing.

annual spread cost of approximately $2 million associated

The issuance of additional trust units by CGIF diluted Onex’

with these agreements. Onex converted 214,314 Celestica

ownership in CGLP to 27 percent from 31 percent and

multiple voting shares into Celestica subordinate voting

resulted in a $53 million accounting dilution gain being

shares to facilitate the forward sales agreement settlement.

recorded, of which Onex’ share was $30 million.

Onex continues to hold 27.3 million multiple

In early October 2005, CGLP changed its name

voting shares of Celestica, excluding shares held in

to Cineplex Entertainment Limited Partnership (“Cineplex

connection with the Onex Management Investment Plan

Entertainment”) in recognition of the larger operations

investment rights, which represent equity and voting

resulting from the Famous Players acquisition. Now Canada’s

interests in Celestica of approximately 12 percent and

largest ﬁlm exhibition company, Cineplex Entertainment

78 percent, respectively.

10 Onex Corporation December 31, 2005

owns, operates or has an interest in 130 theatres with

1,275 screens. As part of the regulatory approvals to address

competition concerns for the Famous Players acquisition,

Cineplex Entertainment agreed to divest and not operate

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

a total of 34 theatres located in Ontario, Quebec and

The comparative 2004 results of Magellan have

Western Canada. As a result, Cineplex Entertainment

been reclassiﬁed to be presented as discontinued. Note 2

reported the operations of all 34 theatres as discontinued

to the audited annual consolidated ﬁnancial statements

operations in Onex’ audited annual consolidated ﬁnancial

discloses the assets and liabilities in the December 31,

statements. As of December 31, 2005, Cineplex Entertain-

2004 balance sheet that have been restated to be shown

ment had sold 27 of these theatres for gross proceeds of

as discontinued.

$83 million. The company continues to work toward selling

the remaining seven theatres. In addition, the company

CMC Electronics’ sale of its NovAtel shares

announced its intention to sell its interests in the Alliance

During 2005, ONCAP’s subsidiary, CMC Electronics Inc.

Atlantis brand theatres and therefore, also reported these

(“CMC Electronics”), sold all of its remaining shares of

theatres as discontinued in 2005. During 2005, Cineplex

NovAtel Inc. (“NovAtel”) for net proceeds of $153 million.

Entertainment sold two Alliance Atlantis brand theatres.

As a result of this sale, Onex recorded an after-tax gain of

The comparative 2004 results of the CGLP theatres

$45 million.

that have been or are intended to be sold, as well as the

The results of NovAtel have been presented as dis-

Alliance Atlantis brand theatres, have been reclassiﬁed to

continued operations in Onex’ audited annual consoli-

be presented as discontinued. Note 2 to the audited annual

dated ﬁnancial statements. The comparative 2004 full-year

consolidated ﬁnancial statements discloses the assets and

results of NovAtel have also been reclassiﬁed and pre-

liabilities in the December 31, 2005 and 2004 balance sheets

sented as discontinued. Note 2 to the audited annual con-

that have been restated to be shown as discontinued.

solidated ﬁnancial statements discloses the assets and

liabilities in the December 31, 2004 balance sheet that have

Sale of remaining Commercial Vehicle Group shares

been restated to be shown as discontinued.

In July 2005, Onex sold its remaining 4.2 million common

shares of Commercial Vehicle Group, Inc. (“CVG”) as

Futuremed initial public offering

part of that company’s public offering. Onex received

In early January 2006, ONCAP I’s subsidiary, Futuremed

$81 million in net proceeds and recorded a pre-tax gain of

Health Care Products L.P. (“Futuremed”), completed a

$79 million. As a result of this sale, CVG’s operations,

$120 million initial public offering. In the offering, ONCAP

including the gain, have been presented as discontinued

I sold all of its Futuremed shares. Including prior distribu-

operations in Onex’ audited annual consolidated ﬁnancial

tions, ONCAP I has received net proceeds of $99 million

statements for the year ended December 31, 2005 and

compared to its investment in Futuremed of $25 million

prior periods have been restated to report the comparative

made in February 2004. Onex’ share of those proceeds was

results of CVG on a discontinued basis. The total value

$31 million.

Onex has received on CVG was $166 million compared to

Onex has presented Futuremed’s results as discon-

an investment of $69 million.

Sale of Magellan Health Services

tinued operations in the audited annual consolidated ﬁnan-

cial statements for the year ended December 31, 2005, since

at the time of ﬁling Futuremed’s registration statement in

In three separate transactions in May, June and November

December 2005 management of ONCAP had determined

of 2005, Onex and Onex Partners sold all of their interests

that it would sell the majority of its holdings in Futuremed;

in Magellan Health Services, Inc. (“Magellan”) for total

the comparative fiscal 2004 results of Futuremed have also

proceeds of $302 million; Onex’ portion of the sale was

been reclassified to be presented as discontinued.

$81 million, including $10 million for Onex’ portion of the

Note 2 to the audited annual consolidated ﬁnancial

carried interest. As a result of this sale, Onex recorded a net

statements discloses the assets and liabilities in the Decem-

after-tax gain of $22 million. This gain, as well as the opera-

ber 31, 2005 and 2004 balance sheets that have been restated

tions up to the date of when Onex ceased to have control of

to be shown as discontinued.

Magellan in early May 2005, have been reported as discon-

tinued operations in Onex’ audited annual consolidated

ﬁnancial statements.

Onex Corporation December 31, 2005 11

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

Share repurchases under Onex’

Normal Course Issuer Bids

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

based compensation; and activities at Onex’ operating

Onex’ shareholders’ equity at December 31, 2005 has been

companies. These activities may include the purchase or

reduced for the effect of Onex’ repurchases of its Subor-

sale of businesses; ﬂuctuations in customer demand and

dinate Voting Shares under the Company’s Normal Course

materials and employee-related costs; changes in the mix

Issuer Bids. During 2005, Onex repurchased 939,200 Sub-

of products and services produced or delivered; and

ordinate Voting Shares at a total cost $18 million. This com-

charges to restructure operations. The discussion that fol-

pares to 9,143,100 Subordinate Voting Shares repurchased

lows identiﬁes some of the material factors that affected

at a total cost of $150 million in 2004.

Onex’ operating segments and Onex’ audited annual con-

Lower U.S. dollar to Canadian dollar exchange rate
Most of Onex’ operating companies are based in the United

The statement of earnings for the year ended

December 31, 2004 has been restated from that previously

States or report in U.S. dollars. As Onex reports its consoli-

reported in accordance with required accounting policies

dated ﬁnancial results in Canadian dollars, the movement

for discontinued operations of those businesses that were

of the U.S. dollar to the Canadian dollar exchange rate

intended to be or were sold in 2005. These include the

solidated results for the year ended December 31, 2005.

directly affects Onex’ audited annual consolidated state-

operations of:

ments of earnings and audited annual consolidated balance

• Magellan;

sheets. The U.S. dollar’s average value was 1.2114 Canadian

• CVG;

dollars for the year ended December 31, 2005 compared to

1.3013 Canadian dollars for the year ended December 31,

• CMC Electronics’ NovAtel subsidiary;
• Cineplex Entertainment’s theatres that are intended to be

2004. The lower U.S. dollar to Canadian dollar exchange

sold or have been sold; and

rate used to convert Onex’ U.S.-based operating companies’

• Futuremed.

results is a factor in the variance of the 2005 full-year con-

solidated results compared to 2004.

In addition, Onex, the parent company, holds a

Consolidated revenues
Consolidated revenues were

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

$16.6 billion in 2005, up 21 per-

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

cent from $13.6 billion in 2004

the current exchange rate has resulted in an exchange loss

and up 42 percent from $11.6 bil-

T O TA L

R E V E N U E S

($ millions)

16,559

of $31 million being recorded for the year ended Decem-

lion in 2003. A breakdown of the

ber 31, 2005. This compares to a loss of $124 million

percentage of total revenues by

13,639

11,639

recorded for 2004.

industry segment is provided in

the charts on the following page

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

for the years ended December 31,

2005, 2004 and 2003.

This section should be read in conjunction with Onex’

audited annual consolidated statements of earnings and

the corresponding notes thereto.

Variability of results
Onex’ audited 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

12 Onex Corporation December 31, 2005

U.S.
Canada
Europe
Other(a)

37%
14%
14%
35%

21%
20%
21%
38%

27%
22%
19%
32%

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

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

Segmented Total Consolidated Revenue Breakdown

20 0 5

20 0 4

2 0 03

a. 62%
b. 9%
c. 3%

d. 13%

e. 4%
f. 3%
x. 6%

a. 84%
c. 2%
e. 6%

f. 5%
x. 3%

a. 81%
c. 3%
e. 5%

f. 8%

x. 3%

a. Electronics Manufacturing Services
b. Aerostructures
c. Theatre Exhibition
d. Healthcare
e. Customer Management Services
f. Automotive Products
x. Other (1)

(1) 2005 other includes CEI, Radian, ONCAP, Onex Real Estate, Onex Public Markets Group and parent company. 2004 and 2003 includes Radian, ONCAP and parent company.

In addition, table 1 presents revenues by industry

functional currencies is useful in evaluating the perfor-

segment in Canadian dollars and in the functional cur-

mance of those businesses year-over-year since it eliminates

rencies of the companies for 2005, 2004 and 2003 and

the impact of foreign currency translation on revenues.

the percentage change in revenues for those periods. Onex

The discussion that follows will review the factors that

believes that reporting revenues in the operating companies’

affected the change in revenues by industry segment.

Changes in Revenues by Industry Segment

TABLE 1

($ millions)

Canadian Dollars

Functional Currency

2005

2004

Change (%)

2005

2004

Change (%)

Electronics Manufacturing Services

$ 10,257

$ 11,480

Aerostructures

Theatre Exhibition

Healthcare

Customer Management Services

Automotive Products

Other (a)

Total

1,436

491

2,126

715

584

950

–

318

–

730

691

420

$ 16,559

$ 13,639

(11)%

–

55 %

–

(2)%

(15)%

126 %

21 %

US$ 8,471

US$ 1,206

C$ 491

US$ 1,758

US$ 591

US$ 482

C$ 950

US$ 8,840

–

C$ 318

–

US$ 562

US$ 530

C$ 420

(4)%

–

55 %

–

5 %

(9)%

126 %

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 CEI, Radian, ONCAP, Onex Real Estate, Onex Public Markets Group and parent company.

($ millions)

Canadian Dollars

Functional Currency

2004

2003

Change (%)

2004

2003

Change (%)

Electronics Manufacturing Services

$ 11,480

$ 9,382

Theatre Exhibition

Customer Management Services

Automotive Products

Other (a)

Total

318

730

691

420

296

605

992

364

$ 13,639

$ 11,639

22 %

7 %

21 %

(30)%

15 %

17 %

US$ 8,840

C$ 318

US$ 562

US$ 530

420

US$ 6,735

C$ 296

US$ 433

US$ 706

C$ 364

31 %

7 %

30 %

(25)%

15 %

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 CEI, Radian, ONCAP and parent company.

Onex Corporation December 31, 2005 13

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 reported revenues of

$10.3 billion in 2005 (62 percent

of Onex’ total consolidated rev-

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

($ millions)

11,480

In addition, the Asia region, which increased revenues by

44 percent in 2004, beneﬁtted from its expanded manu-

facturing capabilities and the transfer of programs from

Celestica’s higher-cost operations.

enues in 2005), an 11 percent de-

10,257

9,382

cline from $11.5 billion in 2004

(84 percent of Onex’ total consol-

idated revenues in 2004). In the

company’s functional currency,

Celestica reported revenues of

US$8.5 billion in 2005, down

4 percent from US$8.8 billion in

2004. Revenues declined 18 per-

cent in the Americas and 17 per-

cent in Europe, while revenue

in Asia increased 14 percent.

The decline in the Americas and

Europe was due primarily to

lower volumes and the transfer

U.S.
Canada
Europe
Other(a)

13%
13%
18%
56%

17%
18%
21%
44%

21%
20%
19%
40%

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

Aerostructures
The aerostructures segment is a new

reportable segment in 2005 following Onex’

acquisition of Boeing’s commercial aero-

structures manufacturing operations in

mid-June 2005; the business now operates

as Spirit AeroSystems. Reported 2005 rev-

enues for Spirit AeroSystems from the time

of its acquisition totalled $1.4 billion in

2005 (9 percent of Onex’ total consolidated

revenues in 2005). In the company’s func-

tional currency, Spirit AeroSystems reported

revenues of US$1.2 billion. The company

designs and manufactures a broad range of

products and services for aircraft OEMs and

A E R O S T R U C T U R E S

($ millions)

1,436

U.S.
Canada
Europe
Other

100%
–
–
–

of programs to lower-cost geographies. Asia beneﬁtted

operators. Spirit AeroSystems currently has

from its expanded manufacturing capabilities, improved

long-term agreements to supply Boeing

demand, new customers and the transfer of programs

with a variety of components for its 737, 747,

from higher-cost geographies. Approximately one-third of

767, 777 and 787 aircraft platforms. These include fuselage

the revenue increase in Asia resulted from the transfer of

sections, struts, nacelles, nose sections and wing compo-

programs. Revenue from acquisitions was insigniﬁcant

nents, as well as after-market spares and repair support.

for the year.

For the year ended December 31, 2004, Celestica

reported revenues of $11.5 billion, a 22 percent increase

Theatre Exhibition
The theatre exhibition segment includes the operations of

from $9.4 billion in 2003 (81 percent of Onex’ total consoli-

Cineplex Entertainment and Cineplex Odeon Corporation,

dated revenues in 2003). Excluding the impact of foreign

which owns a small number of theatres and real estate

currency translation, the company reported revenues in

properties not included in Cineplex Entertainment. We

its functional currency of US$8.8 billion, up 31 percent

refer to Cineplex Entertainment and Cineplex Odeon

from US$6.7 billion in 2003. Revenues increased due to

Corporation collectively as Cineplex. Cineplex generates

improved base business volumes from some of Celestica’s

revenues primarily from box-ofﬁce and concession sales

top customers and new business wins, which collectively

that are affected by attendance levels and changes in the

accounted for a 17 percent increase in revenue. Revenues

average per patron admission and concession revenues.

from the acquisitions of Manufacturers’ Services Limited

Attendance levels are affected by the commercial appeal of

(“MSL”) in March 2004 and NEC Corporation’s operations

in the Philippines in April 2004 contributed a further

the ﬁlms released and the successful marketing and pro-
motion of those ﬁlms by the ﬁlm studios and distributors.

14 percent increase in revenues. All the company’s regions –

Theatres opened or closed and acquisitions or dispositions

the Americas, Europe and Asia – increased revenues year-

of theatres in the year will also affect revenues.

over-year as they beneﬁtted from new business wins from

existing and new customers and from acquisition revenue.

14 Onex Corporation December 31, 2005

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

Cineplex reported rev-

enues of $491 million for 2005

(3 percent of Onex’ total con-

solidated revenues in 2005), up

55 percent from revenues of

$318 million reported in 2004

(2 percent of Onex’ total con-

solidated revenues in 2004). The

acquisition of Famous Players in

July 2005 accounted for $183 mil-

lion of the total revenue growth
and new theatre openings in 2005

provided $7 million in box-ofﬁce

and concession revenues. Ex-

cluding acquisition growth from

Famous Players, box-ofﬁce rev-

enue decreased $13 million in

T H E AT R E

E X H I B I T I O N

($ millions)

491

Healthcare
The healthcare segment revenues include

the operations of Emergency Medical Ser-

H E A LT H C A R E

($ millions)

vices (“EMSC”), Center for Diagnostic

2,126

318

296

U.S.
Canada
Europe
Other

–
100%
–
–

Imaging (“CDI”) and Skilled Healthcare.

The healthcare segment reported consoli-

dated revenues of $2.1 billion in 2005

(13 percent of Onex’ total consolidated

revenues in 2005). There are no compara-

tive revenues for 2004 and 2003 since all of

the businesses in the healthcare segment

were acquired in 2005. Table 2 provides

revenues by operating company in the

healthcare segment for 2005 in both Cana-

dian dollars and the companies’ func-

tional currencies. ResCare is accounted for

by the equity method and thus the com-

U.S.
Canada
Europe
Other

100%
–
–
–

2005 as a result of lower attendance and a decline in aver-

pany’s revenues are not consolidated.

age box-ofﬁce revenue per patron. The lower average box-

ofﬁce revenue per patron was due to a shift in attendance

Healthcare Revenues(a)

mix to lower-priced admission categories; this resulted

primarily from the ﬁlms released in 2005 catering more to

TABLE 2

($ millions)

children and young adults at lower average ticket prices, as

well as the effect of selected price reductions implemented

in late 2004.

Emergency Medical Services

Center for Diagnostic Imaging

During 2004, Cineplex reported revenues of

$318 million, up 7 percent from $296 million in 2003

Total

Canadian
Dollars

Functional
Currency

2005

$ 2,002

US$ 1,656

124

US$ 102

$ 2,126

US$ 1,758

(3 percent of Onex’ total consolidated revenues in 2003).

The revenue growth was due primarily to additional rev-

Results are reported in accordance with Canadian generally accepted accounting

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

enues from the inclusions of new theatres ($19 million),

operating companies.

an improvement in average admission and concession

(a) Skilled Healthcare’s financial results for the four days from the date of

revenues per patron, partially offset by decreased atten-

dance levels.

acquisition on December 27, 2005 to December 31, 2005 were not significant

to Onex’ consolidated results. Accordingly, the company’s revenues for

those four days were not included in Onex’ consolidated audited statement

of earnings for the year ended December 31, 2005.

Onex Corporation December 31, 2005 15

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

Emergency Medical Services

four days from its December 27, 2005 acquisition date to

EMSC, acquired in February 2005, is a leading provider

December 31, 2005 were not signiﬁcant to Onex’ consoli-

of emergency medical services in the United States.

dated results. Accordingly, Skilled Healthcare’s revenues

The company operates its business under the AMR and

are not included in the healthcare segment of Onex’ con-

EmCare brands. AMR is a leading provider of ambulance

solidated revenues for the year ended December 31, 2005.

transport services in the United States. EmCare is a leading

provider of outsourced emergency department stafﬁng

and management services in the United States. During the

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

period of our ownership, the company reported revenues

of $715 million in 2005 (4 percent of Onex’ total consoli-

of $2.0 billion, or US$1.7 billion in the company’s func-

dated revenues in 2005), down slightly from $730 million

tional currency.

in 2004 (6 percent of Onex’ total

Of the total revenues reported in 2005, AMR gener-

consolidated revenues in 2004).

ated approximately US$1.1 billion of those revenues from

Excluding the impact of for-

emergency 911 ambulance transport services, non-emer-

eign currency translation, Client-

gency ambulance transport services, including critical care

Logic’s revenues grew 5 percent

transfer, wheelchair transports and other inter-facility

to US$591 million in 2005 from

transports. Revenues were also from the provision of

US$562 million in 2004. Cus-

training, dispatch centres and other services to com-

tomer contact management rev-

munities and public safety agencies. EmCare contributed

enue grew US$46 million due to

US$596 million in revenues from its hospital contracts for

the expansion of business from

emergency department stafﬁng, hospitalist and radiology

existing customers of US$34 mil-

services and other management services. Revenues for

lion, and US$44 million from

2005 exceeded our expectations, in part due to unplanned

new customers. Partially offset-

revenues stemming from the high level of relief efforts

ting this growth was the loss of

provided following hurricanes Katrina and Rita.

business from two customers

Center for Diagnostic Imaging

in the fourth quarter of 2004,

which provided US$32 million of

CDI, acquired in early January 2005, is a leading provider of

revenues in 2004. In addition, ful-

diagnostic and therapeutic radiology services in the United

ﬁllment and marketing services

States. Reported revenues for CDI totalled $124 million

revenues were lower by US$17 mil-

in 2005. Excluding the impact of foreign currency transla-

lion in 2005 compared to 2004.

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

($ millions)

715

730

605

U.S.
Canada
Europe
Other(a)

44%
10%
36%
10%

47%
10%
36%
7%

50%
8%
41%
1%

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

tion, CDI reported revenues of US$102 million in 2005.

For the year ended December 31, 2004, revenues

The company operates 35 diagnostic imaging centres in

for ClientLogic grew 21 percent to $730 million from $605

nine markets in the United States. CDI’s imaging services

million in 2003 (5 percent of Onex’ total consolidated rev-

include MRI, CT, diagnostic and therapeutic injection pro-

enues in 2003). In the company’s local currency and

cedures and other procedures such as PET/CT, conven-

Canadian GAAP, ClientLogic’s revenues grew 30 percent

tional x-ray, mammography and ultrasound.

to US$562 million in 2004 from US$433 million in

Skilled Healthcare

2003. ClientLogic’s acquisition of Service Zone, Inc. in late

December 2003 contributed US$75 million of the revenue

Skilled Healthcare is a leading operator of skilled nursing

growth in North America. In addition, net new business

and assisted living facilities in California, Texas, Kansas

wins with clients such as DirecTV and Bell Canada pro-

and Nevada, focused on treating patients who require

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

a high level of skilled nursing care and extensive rehabil-

in 2004 over 2003.

itation therapy. The company’s ﬁnancial results for the

16 Onex Corporation December 31, 2005

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. (“J.L. French Auto-

Other Businesses
Mid-Cap Opportunities

motive”) reported a 15 percent decline in revenues to

ONCAP’s companies – CMC Electronics, Western Inventory

$584 million in 2005 (3 percent of Onex’ total consolidated

Service Ltd. (“Western”) and Canadian Securities Regis-

revenues in 2005) from $691 million in 2004 (5 percent

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

of Onex’ total consolidated revenues in 2004). In the

of $501 million in 2005 (3 percent of Onex’ total consolidated

company’s functional currency, J.L. French Automotive’s

revenues in 2005), up $196 million from $305 million

revenues decreased 9 percent to

US$482 million in 2005 from

US$530 million in 2004. The com-

pany’s revenues were affected
by the overall production decline

in the North American car and

light truck markets by North

American automotive compa-

nies – General Motors, Ford and

DaimlerChrysler.

J.L. French Automotive

reported revenues of $691 million

in 2004, down 6 percent from

$732 million in 2003 (6 percent

of Onex’ total consolidated rev-

enues in 2003). Excluding the

impact of foreign currency trans-

lation, the company reported a

2 percent increase in revenues

to US$530 million in 2004 from

US$521 million in 2003. Approx-

imately US$5 million of the rev-

A U T O M O T I V E

P R O D U C T S

($ millions)

reported in 2004 (2 percent of Onex’ total consolidated

revenues in 2004). Much of the revenue growth for 2005

was due to the April 2005 acquisition by Western of Wash-

992(b)

ington Inventory Service Ltd. (“Washington”), a provider of

inventory counting services to retailers in the United States,

691

584

U.S.
Canada
Europe
Other(a)

76%
–
24%
–

82%
–
17%
1%

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

(b) Includes revenues of

Performance Logistics
Group of US$185 million.

Mexico, South America, Europe and Asia.

ONCAP’s companies reported combined revenues

of $305 million in 2004, up $69 million from $236 million

reported in 2003 (2 percent of Onex’ total consolidated

revenues in 2003). Substantially all of the revenue growth

for 2004 was due to the inclusion of revenues of CSRS from

its April 2004 acquisition date.

Personal Care Products

During 2005, Cosmetic Essence, Inc. (“CEI”) reported rev-

enues of $304 million (2 percent of Onex’ total consolidated

revenues in 2005). Excluding foreign currency translation,

CEI’s revenues totalled US$253 million in 2005. There are

no comparative revenues for 2004 since the company was

acquired in December 2004.

CEI is a provider of outsourced supply chain man-

agement services to the personal care products industry,

enue growth was due to stronger production on speciﬁc

including formulating, manufacturing, ﬁlling, packaging

Ford platforms and US$10 million from new business with

and distribution. The company recognized revenues from

new and existing customers. Partially offsetting these growth

several new customers and achieved increased revenues

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

from many existing customers in 2005; however, partially

lower production on speciﬁc platforms. In addition, J.L.

offsetting this growth was a reduction in orders from some

French Automotive’s European operations increased rev-

other existing customers as a result of them entering 2005

enues by US$16 million in 2004 due primarily to the beneﬁt

with excess inventory. In addition, CEI’s acquisition of

of favourable changes in foreign currency rates, partially

Hauer Custom Manufacturing, Inc. (“Hauer”) in April 2005

offset by changes in product mix.

contributed US$14 million of the total revenues in 2005.

The automotive products segment results for

Hauer manufactures, packages and distributes household

2004 and 2003 have been restated from those previously

and consumer products. The acquisition brings new cus-

reported due to the reclassiﬁcation of CVG’s operations to

tomers to CEI and enables the company to beneﬁt from the

discontinued following Onex’ sale of its remaining shares

application of Hauer’s high-speed equipment and excess

of CVG in July 2005.

capacity that CEI has adapted for the production of certain

of its products.

Onex Corporation December 31, 2005 17

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

Communications Infrastructure

investments are recorded at fair value and reported in

Radian Communication Services Corporation’s (“Radian”)

investments and other assets at December 31, 2005.

revenues totalled $134 million in 2005 (1 percent of Onex’

total consolidated revenues in 2005), up from $113 million

in 2004 (1 percent of Onex’ total consolidated revenues in

Consolidated cost of sales
Consolidated cost of sales was $14.5 billion in 2005 com-

2004) and from $108 million in 2003 (1 percent of Onex’

pared to $12.4 billion in 2004. A breakdown of the percen-

total consolidated revenues in 2003). During 2005, tele-

tage of total cost of sales by industry segment is provided

communications carriers began to implement a number of

in the charts below for the years ended December 31, 2005

capital spending programs, particularly in the U.S. market,

and 2004.

which contributed to much of the increase in revenues in

the year. In addition, Radian’s purchase of the operations

Segmented Total Consolidated Cost of Sales Breakdown

of ROHN Industries, which commenced production in

May 2004, incrementally added $14 million to revenues

in 2005 over 2004.

Public Market Investments

During 2005, Onex formed OPMG LP (“OPMG”), also

known as Onex Public Markets Group, to invest in securities

of publicly-traded North American companies in a variety

of industries with the objective of generating long-term

capital appreciation and dividends. Included in the “Other”

segment of Onex’ consolidated revenues was $10 million

of revenues generated by OPMG during 2005. These rev-

enues represent net realized gains of $10 million. OPMG’s

2 0 0 5

2 0 0 4

a. 66%
b. 9%
c. 3%

d. 12%

e. 3%
f. 3%
x. 4%

a. 88%

c. 2%
e. 4%
f. 4%
x. 2%

a. Electronics Manufacturing Services
b. Aerostructures
c. Theatre Exhibition
d. Healthcare

e. Customer Management Services
f. Automotive Products
x. Other (1)

(1) 2005 other includes CEI, Radian, ONCAP, Onex Real Estate, Onex Public Markets

Group and parent company. 2004 other includes Radian, ONCAP and parent company.

Table 3 provides a detailed breakdown of reported cost of sales by industry segment for 2005 and 2004 and the percentage

change in cost of sales from those periods in both Canadian dollars and the functional currencies of the companies.

Cost of sales is provided in the companies’ functional currencies to eliminate the impact of foreign exchange translation

on cost of sales. Table 4 provides additional details on cost of sales as a percentage of revenues by industry segment for

2005 and 2004.

Cost of Sales by Industry Segment

TABLE 3

($ millions)

Canadian Dollars

Functional Currency

2005

2004

Change (%)

2005

2004

Change (%)

Electronics Manufacturing Services

$ 9,537

$ 10,913

Aerostructures

Theatre Exhibition

Healthcare

Customer Management Services

Automotive Products

Other (a)

Total

1,232

392

1,808

444

484

627

–

241

–

458

551

286

$ 14,524

$ 12,449

(13)%

–

63 %

–

(3)%

(12)%

119 %

17 %

US$ 7,876

US$ 1,034

C$ 392

US$ 1,495

US$ 367

US$ 400

C$ 627

US$ 8,413

–

C$ 241

–

US$ 352

US$ 423

C$ 286

(6)%

–

63 %

–

4 %

(5)%

119 %

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 CEI, Radian, ONCAP, Onex Real Estate, Onex Public Markets Group and parent company.

18 Onex Corporation December 31, 2005

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

Cost of Sales as a Percentage of Revenues

by Industry Segment

Theatre Exhibition
Cineplex reported cost of sales of $392 million in 2005,

a 63 percent increase from $241 million reported in 2004.

TABLE 4

2005

2004

This compares to a 55 percent increase in revenues for the

Electronics Manufacturing Services

Aerostructures

Theatre Exhibition

Healthcare

Customer Management Services

Automotive Products

Other(a)

Total

93%

86%

80%

85%

62%

83%

66%

88%

95%

–

76%

–

63%

80%

68%

91%

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 CEI, Radian, ONCAP, Onex Real Estate, Onex Public Markets

Group and parent company.

Electronics Manufacturing Services
Celestica’s cost of sales was $9.5 billion in 2005 compared

to $10.9 billion in 2004. In the company’s functional cur-

rency, cost of sales declined 6 percent to US$7.9 billion in

2005 from US$8.4 billion in 2004, while revenues were

down 4 percent. Cost of sales as a percentage of revenues

was 93 percent in 2005 compared to 95 percent in 2004.

Celestica reported gross proﬁt in 2005 of US$595 million,

a 39 percent increase from US$427 million in 2004 due

primarily to cost reductions associated with the company’s

restructuring, operating efﬁciencies from lean manufac-

turing initiatives and from exiting businesses that had

same period. The operations from the Famous Players

acquisition added $151 million to cost of sales in 2005.

Cost of sales as a percentage of revenues was

80 percent in 2005 compared to 76 percent reported in

2004. Approximately 41 percent and 7 percent of the total

cost of sales were attributable to ﬁlm and concession costs,

respectively. During 2005, ﬁlm costs increased $51 million.

As a percentage of box-ofﬁce revenue, ﬁlm costs were

52 percent in 2005, equal to those of 2004. Cost of conces-

sions increased $10 million, due primarily to the $9 million

of costs associated with the Famous Players acquisition. As

a percentage of concession revenues, cost of concessions

was 20 percent in 2005, equal to that of 2004.

Healthcare
The healthcare segment reported cost of sales of $1.8 billion

in 2005. There is no comparative cost of sales for 2004

since the companies in the healthcare segment were

acquired in 2005. Table 5 provides cost of sales by operating

company in the healthcare segment for 2005 in both Cana-

dian dollars and the companies’ functional currencies.

Healthcare Cost of Sales(a)

TABLE 5

($ millions)

Canadian
Dollars

Functional
Currency

2005

been generating losses in prior years; these improvements

Emergency Medical Services

$ 1,766

US$ 1,461

were partially offset by the higher costs of transferring

Center for Diagnostic Imaging

US$ 34

programs between different manufacturing locations.

Total

$ 1,808

US$ 1,495

Aerostructures
During the period of Onex’ ownership in 2005, Spirit

AeroSystems reported cost of sales of $1.2 billion, or

US$1 billion in the company’s functional currency. Cost of

sales as a percentage of revenues was 86 percent, which

was better than anticipated despite the strike at Boeing

in August and September 2005, which reduced shipments

during that period and resulted in higher ﬁxed costs per

unit shipped.

Results are reported in accordance with Canadian generally accepted accounting

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

operating companies.

(a) Skilled Healthcare’s financial results from the date of acquisition on Decem-

ber 27, 2005 were not significant to Onex’ consolidated results. Accordingly,

the company’s cost of sales was not included in Onex’ consolidated audited

statement of earnings for the year ended December 31, 2005.

Onex Corporation December 31, 2005 19

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

Emergency Medical Services

EMSC reported cost of sales of $1.8 billion for the period

Other Businesses
Mid-Cap Opportunities

of our ownership from February 2005. In the company’s

ONCAP’s companies reported a combined cost of sales

functional currency, cost of sales for EMSC was US$1.5 bil-

of $286 million in 2005 compared to $186 million in 2004.

lion in 2005. Cost of sales of US$927 million was from

As was the case with revenues, essentially all of the

AMR’s emergency 911 and non-emergency ambulance

increase in cost of sales was associated with the inclusion

transport services and US$534 million of cost of sales was

of Washington, which was acquired in April 2005.

from EmCare’s hospital contracts for emergency depart-

ment stafﬁng, hospitalist and radiology services and other

Personal Care Products

management services.

Center for Diagnostic Imaging

CEI reported cost of sales of $229 million, or US$190 mil-

lion in the company’s functional currency in 2005. As

a percentage of revenues, cost of sales was 75 percent

Cost of sales for CDI was $42 million in 2005 for the

in 2005. During 2005, the company’s cost of sales was

ﬁrst year of ownership. Excluding the impact of foreign

adversely affected by a lower-margin mix of business,

currency translation, reported cost of sales for CDI was

costing pressures and higher overhead costs due to lower-

US$34 million in 2005. Cost of sales as a percentage of

than-planned sales volumes.

revenue was 33 percent in 2005.

Communications Infrastructure

Customer Management Services
ClientLogic reported cost of sales of $444 million in 2005,

Radian’s cost of sales was $113 million in 2005 compared to

$99 million in 2004. As a percentage of revenues, the com-

down $14 million from the cost of sales in 2004. In Client-

pany’s cost of sales was 84 percent in 2005 compared to

Logic’s functional currency, the company reported cost of

88 percent in 2004. Radian’s gross margin increased to

sales of US$367 million in 2005 compared to US$352 mil-

$21 million in 2005 from $14 million in 2004 due primarily

lion in 2004, an increase of 4 percent. This compares to an

to improved pricing in the U.S. market and the implemen-

increase of 5 percent in revenues for the same period.

tation of the initiatives identiﬁed in the turnaround plan

ClientLogic’s cost of sales as a percentage of revenues

developed in the third quarter of 2004; these initiatives

decreased to 62 percent in 2005 from 63 percent in 2004.

focused on reducing costs, improving job execution, ramp-

Automotive Products
J.L. French Automotive reported cost of sales of $484 mil-

lion in 2005, a 12 percent decrease from $551 million in

ing up production in the Oakville, Ontario and Peoria,

Illinois manufacturing facilities and improving the U.S.

revenue backlog.

2004; this compares to a 15 percent decline in revenues in

2005. In the company’s functional currency, cost of sales

Operating earnings
Operating earnings is deﬁned as EBIAT, or earnings before

decreased by US$23 million to US$400 million in 2005

interest expense, amortization of intangibles and deferred

from US$423 million in 2004. Cost of sales as a percentage
of revenues increased to 83 percent in 2005 from 80 percent

charges, acquisition and restructuring expenses, other

non-recurring items, income taxes, non-controlling inter-

in 2004 due primarily to higher aluminum and natural gas

ests and discontinued operations. Table 6 provides a rec-

prices in 2005 that could not be fully recovered in pricing

onciliation of the audited annual consolidated statements

to customers.

of earnings to operating earnings for the years ended

December 31, 2005 and 2004.

20 Onex Corporation December 31, 2005

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

Operating Earnings (Loss) Reconciliation

Consolidated operating earnings of $602 million

TABLE 6

($ millions)

2005

2004

were up $624 million in 2005 from an operating loss of

$22 million in 2004. Table 7 provides a breakdown and

Earnings before the undernoted items

$ 946

$ 425

change in operating earnings by industry segment for the

Amortization of property, plant

and equipment

Interest and other income

Equity-accounted investments

Foreign exchange loss

Stock-based compensation

(409)

145

(31)

(50)

(370)

102

(8)

(116)

(55)

Operating earnings (loss)

$ 602

$ (22)

Amortization of intangible assets

and deferred charges

Interest expense of operating companies

Derivative instruments

Gains on sales of operating investments, net

(96)

(332)

921

Acquisition, restructuring and other expenses

(266)

Debt prepayment

Writedown of goodwill and intangible assets

Writedown of long-lived assets

(6)

(3)

(5)

(72)

(195)

107

(204)

(8)

(393)

(94)

Earnings (loss) before income taxes,

non-controlling interests and

discontinued operations

$ 819

$ (852)

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.

years ended December 31, 2005 and 2004.

Operating Earnings (Loss) by Industry Segment

TABLE 7

($ millions)

2005

2004

Change ($)

Electronics Manufacturing

Services

Aerostructures

Theatre Exhibition

Healthcare

Customer Management Services

Automotive Products

Other (a)

Total

$ 258

$ 7

$ 251

136

–

(175)

(11)

136

(13)

(43)

233

$ 602

$ (22)

$ 624

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

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

individual operating companies.

(a)

Includes CEI, Radian, ONCAP, Onex Real Estate, Onex Public Markets Group and

parent company.

During 2005, operating earnings growth was driven by sev-

eral factors:

• Acquisitions – CEI ($19 million), acquired in early Decem-

ber 2004; CDI ($17 million), EMSC ($118 million) and

Spirit AeroSystems ($71 million), which were all acquired

in 2005;

• Higher operating earnings at Celestica ($251 million)

resulting from improved operating efﬁciencies from lean

manufacturing, reduced costs from restructuring activi-

ties and exited businesses;

• An increase in interest and other income of $43 mil-

lion, primarily from income realized on non-strategic

assets; and

• Lower foreign exchange losses of $85 million.

Partially offsetting these factors was a $43 million decline

in operating earnings at J.L. French Automotive as a result

of lower production volumes from North American OEMs.

Onex Corporation December 31, 2005 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

Stock-based compensation
During 2005, there was a $50 million stock-based compen-

statements provides a breakdown of foreign exchange

gains (loss) by industry segment.

sation expense due primarily to:

• a $28 million charge recorded by Celestica, which

included the cost associated with that company’s settle-

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

ment of approximately seven million out-of-money

panies with sufﬁcient equity in the company to enable it to

options for US$1 in cash per option;

self-ﬁnance a signiﬁcant portion of its acquisition cost

• an $11 million charge for stock-based compensation

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

recorded by Spirit AeroSystems;

commensurate with the operating company’s available

• an $8 million stock-based compensation charge recorded

cash ﬂow, including consideration of funds required to

by Cineplex Entertainment;

pursue growth opportunities. It is the responsibility of the

• a $2 million charge booked in the healthcare segment; and

acquired operating company to service its own debt obli-

• a $6 million expense reported by CMC Electronics.

gations. The debt of each operating company is without

recourse to Onex or to any other Onex operating company.

This increase was partially offset by a decrease in the value

Consolidated interest expense increased $137 mil-

of Onex’ stock options and investment rights from their

lion to $332 million in 2005 from $195 million in 2004. The

value at December 31, 2004, which accounted for $5 mil-

acquisitions of CEI, CDI, EMSC and Spirit AeroSystems col-

lion. Note 27 to the audited annual consolidated ﬁnancial

lectively added $117 million in interest expense in 2005. In

statements provides a breakdown of stock-based compen-

addition, Celestica accounted for a $12 million increase in

sation by industry segment.

interest expense in 2005 over 2004 due primarily to the

In 2004, stock-based compensation was an

issuance in late June 2005 of US$250 million of senior

expense of $55 million. The 2004 expense for stock-based

subordinated notes due in 2013. Cineplex Entertainment

compensation was contributed primarily by the overall

also added $10 million in interest expense in 2005 over

increase in value of Onex’ stock options and investment

2004 due to the additional debt resulting from the acquisi-

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

tion of Famous Players, which included that company’s

and a $20 million expense recorded by Celestica.

issuance of $105 million of convertible debentures and

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

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

third-party ﬁnancing.

Table 8 details the change in consolidated interest

expense from 2004 to 2005.

dollar-denominated cash held at Onex, the parent company.

Change in Interest Expense

While changes in foreign currency exchange rates may apply

to multiple currencies, the primary impact of foreign cur-

TABLE 8

($ millions)

rency translation on Onex’ consolidated results is due to the

Reported interest expense for 2004

$ 195

conversion of the U.S. dollar to the Canadian dollar.

Additional interest expense in 2005 due to:

During 2005, the value of the U.S. dollar declined

Celestica’s senior subordinated debt due in 2013

to 1.163 Canadian dollars from 1.202 Canadian dollars in

Cineplex Entertainment’s additional debt

2004. A net foreign exchange loss of $31 million was re-

Acquisitions completed in 2005

corded in 2005 compared to a loss of $116 million in 2004

and a loss of $122 million reported in 2003. Onex, the parent

company, recorded $31 million of the foreign exchange loss

in 2005 as it holds a signiﬁcant portion of its cash in U.S.

dollars. This compares to a foreign exchange loss at the

parent company of $124 million in 2004 and $139 million in

2003. Note 27 to the audited annual consolidated ﬁnancial

CEI

EMSC

CDI

Spirit AeroSystems

Other

Interest expense reduction due to:

Other

Reported interest expense for 2005

(12)

$ 332

22 Onex Corporation December 31, 2005

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 increased 42 percent to $145 mil-

Gains on sales of operating investments
Onex recorded gains on sales of operating investments of

lion in 2005 from $102 million reported in 2004. Included

$921 million in 2005 compared to $107 million of such gains

in the 2005 other income was $35 million of income real-

in 2004. Table 9 details the nature of the gains recorded in

ized on the sale of non-strategic assets by Onex, the parent

2005 compared to 2004.

company, and $20 million of other income recorded by

Spirit AeroSystems.

Gains on Sales of Operating Investments

Equity-accounted investments
Onex reported earnings on equity-accounted investments

TABLE 9

($ millions)

2005

2004

Gains on:

of $1 million in 2005 compared to a loss of $8 million

Close of Celestica exchangeable debentures

$ 560

$ –

in 2004. The 2005 earnings from equity-accounted invest-

Close of Celestica forward sales agreements

191

ments represents Onex’ share in the net earnings of

Sale of CGG convertible bonds

Res-Care, Inc. (“ResCare”) and Cypress Property & Casualty

Issue of units by Cineplex Entertainment

Insurance Company (“Cypress”).

Gain on initial public offering of EMSC

The loss on equity-accounted investments reported

in 2004 reﬂects Onex’ share in the net earnings (loss) of

ResCare and Cypress. Cypress, a Florida homeowners

insurance company, accounted for $9 million of the loss

Performance Logistics Group

Issue of shares by Celestica

Sale of Tower Automotive

Other, net

–

on equity-accounted investments due to an unprece-

Total

dented number of hurricanes in Florida during 2004.

$ 921

$ 107

Partially offsetting this loss was Onex’ share of ResCare’s

net earnings, which contributed $1 million of earnings in

equity-accounted investments.

Derivative instruments
Onex, the parent company, had two derivative instruments

in place at December 31, 2004 – exchangeable debentures

and forward sales agreements related to shares of Celes-

tica held by Onex. Since these instruments did not qualify

for hedge accounting they were required to be marked-to-

market under Emerging Issues Committee Abstract 128,

“Accounting for Trading, Speculative or Non-Hedging

Derivative Financial Instruments”. In February and June

2005, Onex settled its Celestica exchangeable debentures

and forward sales agreements, respectively, with the total

delivery of approximately 11 million Celestica shares. Onex

recorded a $1 million beneﬁt to earnings in 2005 for the

short time in 2005 that it held these derivative instru-

ments. This compares to the $29 million beneﬁt recorded

to earnings in 2004 resulting from a decrease in the

exchangeable debentures liability and an increase in value

of the forward sales agreements as a result of the decrease

in market value of the underlying Celestica shares since

December 31, 2003.

Onex, the parent company, recorded a $560 million pre-

tax, non-cash gain on the early redemption of its Celestica

exchangeable debentures in February 2005 and a $191 mil-

lion pre-tax gain on the settlement of all of its outstanding

forward sales agreements in June 2005. For both of these

transactions, Onex closed out its obligation with the deliv-

ery of Celestica subordinate voting shares.

In the ﬁrst half of 2005, the Company recorded a

$41 million pre-tax gain on the sale of the CGG convertible

bonds, of which Onex’ portion was $9 million. A $53 million

accounting dilution gain was recorded, of which Onex’ por-

tion was $30 million, following the issuance of $110 million

of trust units by Cineplex Entertainment for the purchase of

the Famous Players movie business.

In December 2005, EMSC completed a US$113 mil-

lion initial public offering of common shares. While Onex

did not sell any of its shares in this offering, the Company

recorded a $40 million accounting dilution gain on the

issuance of shares by EMSC; Onex’ portion of that gain was

$15 million.

Included in the “Other” line of gains on sales of

operating investments was $32 million of gains realized

from Onex’ interest in Ripplewood, a U.S-based acqui-

sition fund; this compares to $23 million of such gains

recorded in 2004.

Onex Corporation December 31, 2005 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

The 2004 gains on sales of operating investments

Celestica accounted for $193 million of these expenses due

include a $58 million non-cash gain that resulted from

primarily to costs associated with the company’s previously

Performance Logistics Group, Inc’s (“PLG”) issuance of

announced restructuring programs. Many of the costs to

shares for its purchase of Leaseway Auto Carrier Group;

implement these restructuring plans can only be recorded as

this gain comprised a $22 million non-cash accounting

they are incurred and thus the costs may be spread over sev-

dilution gain and the reversal of $36 million of losses of

eral reporting periods. These plans, which include reducing

PLG previously recognized by Onex that were in excess

workforce, consolidating facilities and repositioning the

of other shareholders’ equity in PLG. Also included was a

number and location of production facilities, are primarily

$9 million accounting dilution gain recorded by Onex fol-

intended to align Celestica’s capacity with anticipated cus-

lowing the issuance of shares by Celestica for the purchase

tomer requirements for more production in lower-cost

of Manufacturers’ Services Limited in March 2004.

geographies, as well as to rationalize its manufacturing net-

Note 15 to the audited annual consolidated ﬁnan-

work to lower overall demand levels. Note 16 to the audited

cial statements provides additional details on the gains on

annual consolidated ﬁnancial statements details the nature

sales of operating investments.

of the acquisition, restructuring and other expenses, such as

employee termination costs, facility and exit costs and other

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

charges, by the year in which the activity was initiated.

During 2004, Celestica recorded $184 million of acquisition,

ered costs incurred to realign organizational structures or

restructuring and other expenses associated primarily with

restructure manufacturing capacity to obtain operational

these restructuring plans.

synergies critical to building the long-term value of Onex’

In addition, Spirit AeroSystems reported acqui-

operating companies. During 2005, acquisition, restruc-

sition, restructuring and other expenses of $42 million

turing and other expenses totalled $266 million, a 30 percent

related to the initial set-up of the business following the

increase from the $204 million reported in 2004. Table 10

purchase of the company’s operations from Boeing.

details acquisition, restructuring and other expenses by

Included in the “Other” line in table 10 was

operating company.

$4 million in acquisition, restructuring and other expenses

recorded by Radian associated with the company’s planned

Acquisition, Restructuring and Other Expenses

transfer of its Oakville, Ontario manufacturing operations

TABLE 10

($ millions)

Celestica

Spirit AeroSystems

Emergency Medical Services

ClientLogic

J.L. French Automotive

Other

Total

2005

$ 193

2004

$ 184

–

$ 266

$ 204

to its Peoria, Illinois facility, and the associated relocation

and workforce reduction costs.

Debt prepayment
Certain of Onex’ operating companies repurchase debt

to enhance ﬁnancial ﬂexibility or reduce future interest

costs. Debt prepayment costs totalled $6 million in 2005

compared to $8 million in 2004. Cineplex Entertainment

represented $4 million of these costs incurred resulting

from the issuance of units as part of its acquisition of

Famous Players.

24 Onex Corporation December 31, 2005

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

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

Included in the 2004 writedown of goodwill and

intangible assets was $388 million recorded by Celestica.

an annual review of the value of its recorded goodwill and

During the fourth quarter of 2004, Celestica performed its

intangible assets to assess the recoverability of these

annual goodwill impairment test and identiﬁed reporting

assets. An impairment in the value of goodwill and indeﬁ-

units, speciﬁcally in the Americas and Europe regions,

nite-lived intangibles is tested at the operating company

for which it determined the values to be impaired. These

by comparing the operating company’s carrying amount

reporting units were recorded on the company’s balance

of assets and intangible assets to their estimated fair value.

sheet at carrying values that were higher than their fair

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

values based on current estimated industry conditions

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

and customer demands for production in lower-cost geog-

companies are estimated using a combination of a market

raphies. As a result of this analysis, Celestica wrote down

approach and discounted cash ﬂows. The process of deter-

the goodwill and intangible assets associated with these

mining fair values is necessarily subjective and requires

regions in 2004.

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-

Writedown of long-lived assets
During 2005, there were $5 million of writedowns of long-

pany as well as appropriate discount rates.

lived assets compared to $94 million in 2004. Included in

During 2005, writedowns of goodwill and intangi-

the 2004 writedown of long-lived assets was $84 million

ble assets totalled $3 million compared to $393 million

recorded by Celestica relating to the company’s Americas

reported in the prior year. Table 11 presents these charges

and Europe operations. In addition, J.L. French Automo-

recorded by operating company, and note 18 to the

tive recorded $8 million of writedowns of long-lived assets

audited annual consolidated ﬁnancial statements provides

in 2004 associated with the restructuring of its United

additional disclosure on these writedowns of goodwill and

Kingdom operations. Note 19 to the audited annual con-

intangible assets.

Writedown of Goodwill and Intangible Assets

TABLE 11

($ millions)

Celestica

ClientLogic

Total

2005

$ 1

$ 3

2004

$ 388

$ 393

ClientLogic wrote down intangible assets by $2 million

in 2005 as a result of the early termination of its agreement

with one of its clients that purchased technology infra-

structure services. This compares to $5 million written off

by ClientLogic in 2004 associated with impaired customer

contracts. Values had been assigned to certain customer

contracts associated with businesses that have been

acquired by ClientLogic.

solidated ﬁnancial statements provides additional disclo-

sure on these writedowns of long-lived assets.

Income taxes
During 2005, the provision for income taxes was $72 mil-

lion compared to a provision of $278 million in 2004.

Included in the 2005 income tax provision was a $158 mil-

lion current income tax expense recorded by Onex, the

parent company, relating to the gain on the early settle-

ment of its Celestica exchangeable debentures and the

Celestica forward sales agreements. Offsetting this was a

recovery of income taxes resulting from the application of

previous years’ loss carryforwards for which a full valua-

tion allowance had previously been provided. Note 20 to

the audited annual consolidated ﬁnancial statements pro-

vides a reconciliation of the statutory income tax rates to

the Company’s effective tax rate and also provides an

analysis of the future income tax assets and liabilities.

Onex Corporation December 31, 2005 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

Non-controlling interests in losses (earnings)
of operating companies
In the audited annual consolidated statements of earnings,

necessary as the prior losses at these companies elimi-

nated the value contributed by other shareholders in these

companies. This compares to Onex recording income of

the non-controlling interests amounts represent the inter-

$38 million in 2004 relating to the recovery of prior year

ests of shareholders other than Onex in the net earnings or

losses absorbed on behalf of non-controlling shareholders

losses of Onex’ operating companies. During 2005, the

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

non-controlling interests amount in Onex’ operating com-

panies’ losses was $5 million compared to an $891 million

interest in net losses in 2004. Table 12 details the losses

Earnings (loss) from continuing operations
Onex’ consolidated earnings from continuing operations,

(earnings) by industry segment attributable to non-con-

including gains on sales of operating investments, was

trolling shareholders in our operating companies.

$752 million ($5.41 per share) in 2005 compared to a loss

Non-controlling Interests in Losses (Earnings)

share) reported in 2004 and a loss of $563 million ($3.67

from continuing operations of $239 million ($1.69 per

of Operating Companies

TABLE 12

($ millions)

Electronics Manufacturing Services

Aerostructures

Theatre Exhibition

Healthcare

Customer Management Services

Automotive Products

Other(a)

Total

2005

$ 53

(16)

(44)

(1)

–

(2)

2004

$ 857

–

(31)

–

$ 5

$ 891

(a)

Includes CEI, Radian, ONCAP, Onex Real Estate, Onex Public Markets Group and

parent company.

The change in the non-controlling interests amount was

due primarily to the lower losses at Celestica, which resulted

in a year-over-year change of $804 million. In addition, the

inclusion of EMSC’s earnings from the date of its acquisition

and the portion of those earnings that were attributable

to shareholders other than Onex and $32 million related pri-

marily to the interest of the other limited partners of Onex

Partners in the gain on CGG also contributed to the change

in non-controlling interests.

per share) reported in 2003. Table 13 details the earnings

(loss) from continuing operations by industry segment

before income taxes and non-controlling interests.

Earnings (Loss) from Continuing Operations

TABLE 13

($ millions)

2005

2004

2003

Earnings (loss) before income taxes

and non-controlling interests:

Electronics Manufacturing

Services

$ (39)

$ (752)

$ (311)

Aerostructures

Theatre Exhibition

Healthcare

(1)

(11)

Customer Management Services

(14)

Automotive Products

Other(a)

Provision for income taxes

Non-controlling interests of

(68)

905(b)

819

(72)

–

(2)

(49)

(77)

(852)

(278)

–

141

–

(71)

(419)

(112)

(772)

(57)

operating companies

891

266

Earnings (loss) from

continuing operations

$ 752

$ (239)

$ (563)

Partially offsetting these was the portion of Spirit

(a)

Includes CEI, Radian, ONCAP, Onex Real Estate, Onex Public Markets Group and

AeroSystems’ loss attributed to shareholders other than

parent company.

Onex and the pick-up for accounting purposes of losses

by Onex, the parent company, of other shareholders in

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

additional losses totalled $23 million in 2005. This was

(b)

Includes a $560 million pre-tax gain on the close out of the Celestica exchange-

able debentures and a $191 million pre-tax gain on the close out of the Celestica

forward sales agreements.

26 Onex Corporation December 31, 2005

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 from discontinued operations
Earnings from discontinued operations were $213 million

operations, also included in the 2004 earnings from discon-

tinued operations were the operations of Loews Cineplex,

($1.54 per share) in 2005 compared to earnings from dis-

Dura Automotive Systems, Inc. (“Dura Automotive”), Armtec

continued operations of $274 million ($1.94 per share) in

Limited (“Armtec”), CMC Electronics’ subsidiary, Cincinnati

2004. During 2005, the operations of CMC Electronics Inc.’s

Electronics, and InsLogic that were discontinued in 2004.

(“CMC Electronics”) NovAtel subsidiary, Magellan, CVG,

Table 14 provides a breakdown of earnings (loss) by com-

the operations of Cineplex Entertainment’s theatres that

pany, including the net after-tax gains on sales of operating

have been or are intended to be sold and Futuremed were

investments as well as Onex’ share of earnings (loss) of

reclassiﬁed as discontinued operations. In addition to these

those businesses that were discontinued in 2005 and 2004.

Earnings (Loss) from Discontinued Operations

TABLE 14

($ millions)

2005

Onex’ share
of earnings
(loss)

Gain, net
of tax

CMC Electronics’ sale of NovAtel

$ 45

$ –

Sale of InsLogic

Sale of Magellan

Sale of CVG

Cineplex Entertainment’s theatre divestitures

Sale of Futuremed

Sale of Dura Automotive

Sale of Loews Cineplex Group

CMC Electronics’ sale of Cincinnati Electronics

Sale of Armtec

Total

$ 45

(1)

–

Gain, net
of tax

–

135

2004

Onex’ share
of earnings
(loss)

$ (1)

(9)

–

Total

$ (1)

(9)

–

140

–

(1)

–

$ 210

$ 3

$ 213

$ 263

$ 11

$ 274

Included in the 2005 earnings from discontinued oper-

The 2004 earnings (loss) from discontinued oper-

ations were: a $45 million net after-tax gain recorded

ations primarily include: a $135 million net after-tax gain

on CMC Electronics’ sale of its NovAtel shares in 2005; a

from the sale of Loews Cineplex in July 2004; a $69 million

$73 million gain recorded by Onex on the sale of InsLogic

net after-tax gain on Onex’ partial sale of its CVG shares in

in January 2005, which comprised net cash proceeds of

August 2004; a $9 million net after-tax gain from the sale of

$22 million and the reversal of losses of InsLogic previ-

Armtec in August 2004 by ONCAP; and a $1 million net

ously recognized by Onex; a $22 million net after-tax gain

after-tax gain from the sale of Dura Automotive.

on the sale of Magellan; a $68 million net after-tax gain on

Onex’ sale of its remaining CVG shares in July 2005; and

a $2 million gain on Cineplex Entertainment’s theatre

Consolidated net earnings
Consolidated net earnings in 2005 were $965 million com-

divestitures. Note 2 to the audited annual consolidated

pared to $35 million in 2004 and a consolidated net loss of

ﬁnancial statements provides additional disclosure on

$332 million in 2003. Table 15 identiﬁes the net earnings

earnings from discontinued operations.

(loss) by industry segment as well as the contribution from

net after-tax gains on sales of operating investments and

discontinued operations.

Onex Corporation December 31, 2005 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

Consolidated Net Earnings (Loss)

Table 16 presents the earnings (loss) per share from

continuing operations, discontinued operations and net

TABLE 15

($ millions)

2005

2004

2003

earnings (loss).

Earnings (Loss) per Subordinate Voting Share

TABLE 16

($ per share)

2005

2004

2003

Basic and Diluted:

Continuing operations

Discontinued operations

Net earnings (loss)

$ 5.41

$ 1.54

$ 6.95

$ (1.69)

$ 1.94

$ 0.25

$ (3.67)

$ 1.51

$ (2.16)

Onex’ share of net earnings (loss):

Electronics Manufacturing

Services

$ (13)

$ (202)

$ (73)

Aerostructures

Theatre Exhibition

Healthcare

(6)

(3)

Customer Management Services

(17)

Automotive Products

Other(a)

(69)

(71)

Net after-tax gains on sales

–

(6)

(154)

–

(72)

(373)

(109)

of operating investments

921

107

Earnings (loss) from continuing

operations

Earnings from discontinued

operations

752

213

(239)

(563)

274

231

Consolidated net earnings (loss)

$ 965

$ 35

$ (332)

(a)

Includes CEI, Radian, ONCAP, Onex Real Estate, Onex Public Markets Group and

parent company.

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 17 summarizes Onex’ key consolidated ﬁnancial information for the last eight quarters. The summarized results

presented in this table may differ from those results previously reported in 2005 and 2004 as a result of operations that

have been discontinued and reclassiﬁed as discussed above.

TABLE 17

($ millions except per share amounts)

2005

2004

Dec.

Sept.

June

Mar.

Dec.

Sept.

June

Mar.

Revenues

$ 4,406

$ 4,360

$ 4,159

$ 3,634

$ 3,366

$ 3,373

$ 3,680

$ 3,220

Earnings (loss) from continuing operations

$ (8)

$ (71)

$ 222

$ 609

$ (263)

$ 69

$ (84)

$ 39

Net earnings (loss)

$ (8)

$ 13

$ 239

$ 721

$ (214)

$ 281

$ (69)

Earnings (loss) per Subordinate Voting Share

Basic and Diluted:

Continuing operations

Net earnings (loss)

$ (0.06)

$ (0.51)

$ 1.60

$ 4.38

$ (1.89)

$ 0.50

$ (0.59)

$ 0.27

$ (0.06)

$ 0.09

$ 1.72

$ 5.19

$ (1.54)

$ 2.02

$ (0.49)

$ 0.25

Onex’ quarterly consolidated ﬁnancial results do not fol-

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

low any speciﬁc trends due to acquisitions or dispositions

Canadian dollar; and varying business cycles at Onex’

of businesses by Onex, the parent company; the volatility

operating companies.

28 Onex Corporation December 31, 2005

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

Fourth quarter 2005 results
Table 18 below presents the statements of earnings for the

Consolidated revenues were $4.4 billion for the fourth

quarter of 2005, up 31 percent, or $1 billion from the

fourth quarters ended December 31, 2005 and 2004.

same quarter of 2004. Operating earnings also increased

Fourth Quarter Statements of Earnings

TABLE 18

($ millions)

2005

2004

$323 million to $198 million in the fourth quarter of 2005

from an operating loss of $125 million for the fourth quar-

ter of 2004. The acquisitions of CEI, CDI, EMSC and Spirit

AeroSystems collectively added $1.3 billion to revenues

$ 4,406

$ 3,366

and $110 million to operating earnings in the fourth

Revenues

Cost of sales

Selling, general and administrative expenses

(286)

(3,838)

(3,214)

(197)

Earnings (loss) before the undernoted items

$ 282

$ (45)

Amortization of property, plant

and equipment

Interest and other income

Equity-accounted investments

Foreign exchange loss

Stock-based compensation

(107)

–

(7)

(88)

(4)

(53)

(23)

quarter of 2005.

During the fourth quarter of 2005, EMSC com-

pleted an initial public offering of Class A common shares

(NYSE: EMS), representing a 19.5 percent interest in the

company, for net proceeds of US$102 million. As a result of

this offering, a consolidated non-cash accounting dilution

gain of $40 million was recorded, of which Onex’ share was

$15 million. Onex, Onex Partners and certain of its limited

partners continued to hold 32.1 million Class A common

shares of EMSC, representing an approximate 77 percent

Operating earnings (loss)

$ 198

$ (125)

ownership interest in the company.

Amortization of intangible assets

and deferred charges

Interest expense of operating companies

Derivative instruments

Gains on sales of operating investments, net

(28)

(95)

Acquisition, restructuring and other expenses

(112)

Debt prepayment

Writedown of goodwill and intangible assets

Writedown of long-lived assets

(2)

(1)

Earnings (loss) before income taxes,

non-controlling interests and

(18)

(78)

(9)

(59)

(2)

(388)

(92)

Partially offsetting the revenue and operating

growth were acquisition, restructuring and other expenses

of $65 million (2004 – $55 million) recorded by Celestica

and $30 million by Spirit AeroSystems.

In November 2005, Onex and Onex Partners sold

their remaining investment in Magellan for proceeds

of $126 million, of which Onex’ share was $34 million

(including $4 million for Onex’ portion of the carried

interest). Onex recorded a pre-tax gain of $52 million, of

which Onex’ share was $10 million; this gain was recorded

in the earnings from discontinued operations for the

discontinued operations

$ 11

$ (766)

fourth quarter of 2005.

Provision for income taxes

Non-controlling interests

(22)

(299)

802

Loss from continuing operations

$ (8)

$ (263)

Earnings from discontinued operations

–

Loss for the Period

$ (8)

$ (214)

Included in the 2004 fourth-quarter earnings was

a $388 million writedown of goodwill and intangible assets

recorded by Celestica. This 2004 charge is discussed in

detail on page 25 of this report under the full-year discus-

sion of writedowns of goodwill and intangible assets.

Onex Corporation December 31, 2005 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

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

Consolidated assets
Consolidated assets increased to $14.8 billion at Decem-

This section should be read in conjunction with the

ber 31, 2005 from $11.8 billion at December 31, 2004. The

audited annual consolidated balance sheets and the corre-

charts below show the percentage breakdown of total con-

sponding notes thereto.

solidated assets by industry segment as at December 31,

2005, 2004 and 2003.

Segmented Total Consolidated Assets Breakdown

20 0 5

20 0 4

2 0 03

a. 38%
b. 13%
c. 6%

d. 18%

e. 2%
f. 3%
x. 20%

a. 50%

c. 3%
e. 3%
f. 4%

x. 40%

a. 46%

c. 2%
e. 2%
f. 4%

x. 46%

a. Electronics Manufacturing Services
b. Aerostructures
c. Theatre Exhibition
d. Healthcare
e. Customer Management Services
f. Automotive Products
x. Other (1)

(1) 2005 other includes CEI, Radian, ONCAP, Onex Real Estate, Onex Public Markets Group, parent company and discontinued operations.

2004 other includes CEI, Radian, ONCAP, parent company and discontinued operations.
2003 other includes Radian, ONCAP, parent company and discontinued operations.

Much of the growth in consolidated assets resulted from:

Table 19 outlines the more signiﬁcant acquisitions

• the inclusion of $237 million of assets from CDI, acquired

completed by Onex and its operating companies in 2005,

in January 2005;

2004 and 2003. Note 3 to the audited annual consolidated

• $1.5 billion of assets from EMSC, acquired in Febru-

ﬁnancial statements provides additional disclosure on the

ary 2005;

acquisitions completed in 2005 and 2004.

• the June 2005 acquisition of Spirit AeroSystems, which

added $2.0 billion of assets; and

• $925 million of assets from the December 2005 acquisi-

tion of Skilled Healthcare.

30 Onex Corporation December 31, 2005

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

2005 Acquisitions

CDI – $251 million

EMSC – $1,516 million

Onex’ acquisition of Center for Diagnostic Imaging, Inc., a leading provider of diagnostic and
therapeutic radiology services in the United States headquartered in Minnesota, United States

Onex’ acquisition of American Medical Response, Inc., the leading U.S. provider of ambulance
transport services, and EmCare Holdings Inc., the leading provider of outsourced services for
hospital emergency department physician staffing and management headquartered in Colorado,
United States; these two acquired businesses formed Emergency Medical Services Corporation

Spirit AeroSystems – $1,591 million

Onex’ acquisition of Spirit AeroSystems, Inc., the world’s largest Tier 1 aerostructures manufac-
turer headquartered in Kansas, United States

Skilled Healthcare – $932 million

Onex’ acquisition of Skilled Healthcare Group, Inc., a leading operator of skilled nursing and
assisted living facilities in California, Texas, Kansas and Nevada, focused on treating patients
who require a high level of skilled nursing care and extensive rehabilitation therapy headquar-
tered in California, United States

Cineplex Entertainment – $622 million

Cineplex Entertainment’s purchase of the Famous Players movie business, a film exhibition
company operating 80 theatres with 785 screens across Canada

CEI – $25 million

ONCAP – $198 million

CEI’s acquisition of Hauer Custom Manufacturing, Inc., a leading manufacturer, packager and
distributor of household and consumer products headquartered in Pennsylvania, United States

ONCAP’s operating company, Western Inventory Service Ltd.’s acquisition of Washington
Inventory Service Ltd., a leading provider of inventory counting services in the United States
headquartered in California, United States

ONCAP’s operating company, Canadian Securities Registration Systems Ltd.’s purchase of
Corporate Research and Analysis Centre Ltd., a provider of corporate and legal searches in
Canada headquartered in Quebec, Canada

Onex Corporation December 31, 2005 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

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(1)

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.(1) – 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

CEI – $383 million

Onex’ acquisition of Cosmetic Essence, Inc., a leading provider of outsourced supply chain man-
agement services to the personal care products industry including formulating, manufacturing,
filling, packaging and distribution services headquartered in New Jersey, United States

(1) Magellan and Futuremed were recorded as discontinued operations as at December 31, 2005.

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

32 Onex Corporation December 31, 2005

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

Chart 1 shows Onex’ consolidated assets by industry and geographic segments.

Asset Diversiﬁcation by Industry and Geographic Segments

CHART 1 ($ millions)

E L E C T R O N I C S

A E R O -

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

S T R U C -

S E R V I C E S

T U R E S

T H E AT R E

E X H I B I T I O N

H E A LT H -

C U S T O M E R

C A R E

M A N A G E M E N T

A U T O M O T I V E

P R O D U C T S

S E R V I C E S

O T H E R (a)

T O TA L

6,645

1,966

860

2,753

338

521

6,758

14,845

14,621

5,925

5,637

303

260

452

410

11,809

368

359

4,761

2,959

U.S.
Canada
Europe
Other(b)

7%
13%
16%
64%

12%
10%
24%
54%

13%
18%
21%
48%

100%
–
–
–

–
100%
–
–

100%
–
–
–

54%
5%
29%
12%

36%
6%
44%
14%

46%
3%
44%
7%

62%
–
37%
1%

55%
–
45%
–

56%
2%
41%
1%

20%
80%
–
–

40%
60%
–
–

45%
29%
19%
7%

41%
27%
8%
24%

25%
33%
15%
27%

30%
24%
21%
25%

(a) Includes Radian, ONCAP, CEI, Onex Public Markets Group, Onex Real Estate and parent company. Includes discontinued operations of $1,566 million and $5,058 million

for 2004 and 2003, respectively.

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

Included in the December 31, 2005 consolidated assets in

• the C$0.039 decline in the value of the U.S. dollar relative

the “Other” segment are $140 million of investments made

to the Canadian dollar during 2005, as most of the opera-

by Onex Public Markets Group, an Onex company estab-

tions of Onex’ companies report in U.S. dollars.

lished in 2005 to invest in North American public securi-

ties, and Onex and Onex Partners’ $114 million investment

The December 31, 2004 assets have been restated from those

in ResCare (Onex’ portion was $27 million, representing a

originally presented to show the assets of Magellan, CMC

6 percent ownership interest). ResCare provides residen-

Electronics’ NovAtel subsidiary, the theatres of Cineplex

tial, therapeutic, job training and educational support

Entertainment that were or are to be sold and Futuremed

services to people with developmental or other disabili-

as discontinued.

ties, to youth with special needs and to adults who are

At December 31, 2004, total consolidated assets

experiencing barriers to employment.

declined by $2.8 billion to $11.8 billion from $14.6 billion

at December 31, 2003 due to the sales of Dura Automotive,

The asset growth from acquisitions and investments was

Loews Cineplex, Cincinnati Electronics and Armtec, which

partially offset by:

represented $4.8 billion of the total consolidated assets at

• the elimination of the assets of Magellan, which was no

December 31, 2003. Partially offsetting these declines in

longer consolidated at December 31, 2005 due to the

consolidated total assets were the inclusion of assets of

sale of Onex and Onex Partners’ interest in that business

Magellan, which added $1.5 billion of assets, Celestica’s

during 2005; Magellan represented $1.4 billion of the

purchase of MSL in mid-March 2004 and certain assets of

total consolidated assets at December 31, 2004; and

NEC Corporation, which added $0.7 billion in assets, and

$0.2 billion in assets from the acquisition of CEI in early

December 2004.

Onex Corporation December 31, 2005 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

Consolidated long-term debt,
without recourse to Onex
Onex, the parent company, has no debt. It has been Onex’

and Skilled Healthcare ($539 million), as well as Celes-

tica’s issuance of subordinated notes in June 2005 as dis-

cussed below.

policy to preserve a ﬁnancially strong parent company that

In March 2005, ClientLogic completed the reﬁ-

has funds available for new acquisitions and to support the

nancing of its outstanding credit facilities. The new ﬁ-

growth of its operating companies. This policy means that

nancing facility, which totals US$157 million, provides

all debt ﬁnancing is within our operating companies and

ClientLogic with improved liquidity, extends the maturity of

each company is required to support its own debt.

its debt to 2012 and enhances the ﬁnancial stability and

Total long-term debt (consisting of the current

ﬂexibility needed for the continued growth of the business.

portion of long-term debt and long-term debt) was $4.7 bil-

lion at December 31, 2005, $2.2 billion at December 31,

2004 and $1.6 billion at December 31, 2003. Table 20 sum-

In June 2005, Celestica issued senior subordinated
notes for US$250 million aggregate principal amount with
a ﬁxed interest rate of 7.625% due in 2013. The company

marizes consolidated long-term debt by industry segment.

used the net proceeds from this offering to repurchase its

outstanding LYONs in early August 2005.

Consolidated Long-term Debt, Without Recourse to Onex

J.L. French Automotive’s long-term debt of

$ 872

$ 750

$ 273

ments and projected that it would be out of compliance

TABLE 20

($ millions)

2005

2004

2003

Electronics Manufacturing

Services

Aerostructures

Theatre Exhibition

Healthcare

Customer Management Services

Automotive Products

Other(a)

839

346

1,196

206

783

446

–

129

–

192

721

382

–

114

–

206

876

130

4,688

2,174

1,599

Long-term debt of J.L. French

Automotive, reclassified

as current

(783)

Long-term debt of ClientLogic and

PLG, reclassified as current

–

Current portion of long-term debt

–

(256)

$783 million was classiﬁed as current debt on the audited

consolidated balance sheet as the company was not in

compliance with various covenants of certain debt agree-

during 2006. This classiﬁcation is consistent with that at

September 30, 2005 as management of J.L. French Auto-

motive at that time believed that there was a signiﬁcant

likelihood the company would not be able to achieve com-

pliance with all of its debt covenant requirements over the

next 12 months. This situation arose due to the difﬁcult and

unprecedented conditions affecting the automotive supply

sector during 2005. The debt of J.L. French Automotive is

without recourse to Onex. In February 2006, J.L. French

Automotive’s U.S. entities ﬁled for protection under Chap-

ter 11 of the U.S. Bankruptcy Code and its U.K. entity ﬁled

under Administration in the U.K. Due to the prior years’

losses that have been recorded for J.L. French Automotive,

of operating companies

(42)(b)

(206)

(22)(c)

the net carrying value of Onex’ investment in this company

Total

$ 3,863

$ 1,968

$ 1,321

(a)

Includes CEI, Radian and ONCAP.

(b) 2005 current portion of long-term debt excludes J.L. French Automotive.

in Onex’ audited annual consolidated ﬁnancial statements

is negative $607 million.

Other liabilities
Other liabilities increased to $1,115 million at Decem-

ber 31, 2005 from $1,093 million at December 31, 2004. The

The increase in long-term debt at December 31, 2005 from

increase in other liabilities in 2005 was due primarily to

2004 resulted primarily from acquisitions in which debt

other liabilities associated with the acquisitions of EMSC,

was included in the transaction: CDI ($91 million), EMSC

Spirit AeroSystems and Skilled Healthcare. Additionally,

($771 million), Spirit AeroSystems ($866 million), Cineplex

during 2005, Spirit AeroSystems increased its other liabili-

Entertainment’s purchase of Famous Players ($353 million)

ties by $233 million as a result of a cash advance received

34 Onex Corporation December 31, 2005

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

from Boeing relating to the 787 program development costs.

Cineplex Entertainment also added to other liabilities with

Shareholders’ equity
Shareholders’ equity increased to $1.2 billion at Decem-

its issuance of $105 million of convertible debentures used

ber 31, 2005 from $227 million at December 31, 2004 due

to fund the purchase of Famous Players.

primarily to $965 million of net earnings reported for the

Partially offsetting this increase was a reduction

year ended December 31, 2005. Table 22 provides a recon-

in other liabilities from Onex’ early close out of the

ciliation of the change in shareholders’ equity from Decem-

Celestica exchangeable debentures and settlement of the

ber 31, 2004 to December 31, 2005.

Celestica forward sales agreements in the ﬁrst and second

quarters of 2005, respectively. At December 31, 2004, other

Change in Shareholders’ Equity

liabilities included $730 million of deferred gains with

respect to these Celestica exchangeable debentures and

TABLE 22

($ millions)

forward sales agreements.

Shareholders’ equity as at December 31, 2004

$ 227

Non-controlling interests
The non-controlling interests liability on Onex’ audited

Shares repurchased and cancelled

Currency translation adjustment on

consolidated balance sheet as at December 31, 2005 pri-

self-sustaining foreign operations

marily represents the ownership interests of shareholders

Net earnings for 2005

Regular dividends declared

(15)

(18)

(7)

965

other than Onex in Onex’ consolidated operating compa-

nies. At December 31, 2005, the non-controlling interests

balance amounted to $3.6 billion compared to $3.4 billion

Shareholders’ equity as at December 31, 2005

$ 1,152

at December 31, 2004. Table 21 details the change in the

Onex’ audited consolidated statements of shareholders’

non-controlling interests balance from December 31, 2004

equity also show the changes to the components of

to December 31, 2005.

shareholders’ equity for the years ended December 31, 2005

Change in Non-controlling Interests

and 2004.

Shares outstanding

TABLE 21

($ millions)

At January 31, 2006, Onex had 137,629,696 Subordinate

Non-controlling interests as at December 31, 2004

$ 3,388

Voting Shares issued and outstanding. Dividends are paid

Non-controlling interests in net earnings

of operating companies in 2005

on the Subordinate Voting Shares. Table 23 shows the

change in the number of Subordinate Voting Shares out-

Investments by shareholders other than Onex in:

standing from December 31, 2004 to January 31, 2006.

Onex Partners

Acquisitions completed in 2005

Other, net

Distributions by operating companies

Repurchase of share capital by operating companies

Initial public offering of EMSC

Settlement of Celestica exchangeable debentures

and forward sales agreements

Foreign currency translation

707

155

(506)

(273)

118

155

(155)

Change in Subordinate Voting Shares Outstanding

TABLE 23

Subordinate Voting Shares outstanding

at December 31, 2004

Issue of shares – Dividend Reinvestment Plan

Shares repurchased and cancelled under

139,015,366

4,030

Onex’ Normal Course Issuer Bid

(1,389,700)

Non-controlling interests as at December 31, 2005

$ 3,643

Subordinate Voting Shares outstanding

at January 31, 2006

137,629,696

Onex Corporation December 31, 2005 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

Onex also has 100,000 Multiple Voting Shares outstanding,

The options vest equally over ﬁve years. The exercise price

which have a nominal paid-in value, and 176,078 Series 1

of the options is not less than the market value of the

Senior Preferred Shares, which have no paid-in amount

Subordinate Voting Shares on the business day preceding

reﬂected in Onex’ audited annual consolidated ﬁnancial

the day of the grant. The options are not exercisable unless

statements. Note 13 to the audited annual consolidated

the average ﬁve-day market price of Onex Subordinate

ﬁnancial statements provides additional information on

Voting Shares is 25 percent greater than the exercise price.

Onex’ share capital. There was no change in the Multiple

At December 31, 2005, Onex had 13,434,600 options out-

Voting Shares and Series 1 Preferred Shares outstanding

standing to acquire Subordinate Voting Shares, of which

during 2005.

Cash dividends

4,967,600 options were vested and 1,989,600 of those

vested options were exercisable. Table 24 provides a

detailed reconciliation of the options outstanding at

During 2005, Onex declared dividends of $0.11 per Sub-

December 31, 2005.

ordinate Voting Share to its shareholders, which were paid

quarterly at a rate of $0.0275 per Subordinate Voting Share.

Change in Stock Options Outstanding

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 2004 and 2003. The total

TABLE 24

payments for dividends have decreased with the repur-

chase of Subordinate Voting Shares under the Normal

Course Issuer Bids as discussed on the following page.

Outstanding at December 31, 2003

Granted

Exercised or surrendered

Expired

Number
of Options

12,259,000

10,205,000

(8,345,800)

(156,500)

Dividend Reinvestment Plan

Onex’ Dividend Reinvestment Plan (the “Plan”) enables

Outstanding at December 31, 2004

13,961,700

Canadian shareholders to reinvest cash dividends to

Granted

–

Weighted
Average
Exercise
Price

$ 9.66

$ 16.54

$ 7.78

$ 18.56

$ 15.71

$ –

acquire new Subordinate Voting Shares of Onex at a mar-

ket-related price at the time of reinvestment. During 2005,

Onex issued 2,865 Subordinate Voting Shares under the

Plan at an average cost of $19.692 per Subordinate Voting

Share, creating cash savings of less than $1 million. During

Exercised or surrendered

Expired

(110,600)

$ 8.10

(416,500)

$ 18.19

Outstanding at December 31, 2005

13,434,600

$ 15.69

2004, 72,166 Subordinate Voting Shares were issued under

During 2005, 110,600 options were exercised or surrendered

the Plan at an average cost of $15.08 per Subordinate

at an average exercise price of $8.10. All options were surren-

Voting Share, creating cash savings of approximately

$1 million. During 2003, Onex issued 317,599 Subordinate

dered for cash consideration aggregating $1 million and no
options were exercised for Subordinate Voting Shares of Onex.

Voting Shares under the Plan at an average cost of $14.343

This compares to 8,345,800 options exercised or surrendered

per Subordinate Voting Share, creating cash savings of

in 2004 and 596,600 options in 2003. Of the total options

approximately $5 million. In January 2006, Onex issued an

exercised, approximately 71,000 options were exercised for

additional 1,165 Subordinate Voting Shares under the Plan

Subordinate Voting Shares in 2004 and 55,000 in 2003 at a

at an average cost of $19.186 per Subordinate Voting Share.

total value of $1 million and $1 million, respectively.

Stock Option Plan

Deferred Share Unit Plan

Onex, the parent company, has a Stock Option Plan in

Onex, the parent company, established a Deferred Share

place that provides for options and/or share appreciation

Unit Plan (“DSU Plan”) in 2004, which allows Onex direc-

rights to be granted to Onex directors, ofﬁcers and

tors to apply directors’ fees to acquire Deferred Share

employees for the acquisition of Subordinate Voting

Units (“DSUs”) based on the market value of Onex shares

Shares of the Company for a term not exceeding 10 years.

at the time. Grants of DSUs may also be made to Onex

36 Onex Corporation December 31, 2005

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

directors from time to time. Holders of DSUs are entitled

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

to receive, for each DSU upon redemption, a cash pay-

ment equivalent to the market value of a Subordinate

This section should be read in conjunction with the

Voting Share at the redemption date. The DSUs vest imme-

audited annual consolidated statements of cash ﬂows and

diately, are only redeemable once the holder retires from

the corresponding notes thereto.

the board of directors and must be redeemed by the end of

Onex believes that maintaining a strong ﬁnancial

the year following the year of retirement. Additional units

position at the parent company with substantial liquidity

are issued equivalent to the value of any cash dividends

enables the Company to pursue new opportunities to cre-

that would have been paid on the Subordinate Voting

ate long-term value and support Onex’ existing operating

Shares. The Company has recorded a liability for the future

companies.

settlement of DSUs at the balance sheet date by reference

to the value of underlying shares at that date. On a quar-

Major Cash Flow Components

terly basis, the liability is adjusted up or down for the

change in the market value of the underlying Subordinate

TABLE 25

($ millions)

2005

2004

Voting Shares, with the corresponding amount reﬂected in

Cash from operating activities, excluding

the consolidated statements of earnings. During 2005, Onex

changes in non-cash net working

issued 76,301 DSUs to its directors (2004 – 40,000 DSUs

capital and other liabilities

$ 361

$ 196

were issued) with a cost of $1 million (2004 – $1 million)

Increase (decrease) in non-cash net

being recorded as stock-based compensation expense.

working capital, other liabilities

At December 31, 2005, Onex had 116,301 DSUs outstanding.

Normal Course Issuer Bids

Onex had Normal Course Issuer Bids (the “Bids”) in place

during 2005 that enables 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 share-

holders 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

discount to their intrinsic value. During 2005, Onex repur-

chased 939,200 Subordinate Voting Shares under the Bids

at a total cost of $18 million. Under similar Bids, Onex

repurchased 9,143,100 Subordinate Voting Shares at a total

cost of $150 million during 2004 and 11,586,100 Subor-

dinate Voting Shares at a total cost of $166 million in 2003.

During January 2006, Onex repurchased 450,500

Subordinate Voting Shares under the Bid at a total cost of

$9 million.

Currency translation adjustment

The currency translation component decreased share-

holders’ equity by $7 million in 2005 compared to an

increase of $68 million in 2004. Changes in the currency

translation adjustment primarily represent the cumulative

effect of changes in foreign currency rates on the value of

Onex’ ownership in U.S.-based operating companies from

their respective acquisition dates.

and discontinued operations

Cash from financing activities

Cash used in investing activities

450

563

(1,507)

(60)

608

(37)

Consolidated cash

$ 3,115

$ 3,310

Cash from operating activities
Cash from operating activities, excluding changes in

non-cash net working capital and other liabilities, totalled

$361 million in 2005 compared to cash from operations of

$196 million in 2004.

The increase in cash generated from operations

for the year ended December 31, 2005 compared to 2004

related primarily to the inclusion of EMSC and Spirit Aero-
Systems. A detailed discussion of the consolidated oper-
ating results can be found under the heading “Consolidated

Operating Results” beginning on page 12 of this MD&A.

The increase in other liabilities in 2005 was

due primarily to a $233 million cash advance received by

Spirit AeroSystems from Boeing relating to the funding

of development costs for the 787 program. The increase

in non-cash net working capital was primarily related

to improved working capital at Celestica in 2005 compared

to 2004, as well as the inclusion of Spirit AeroSystems.

The 2004 discontinued operations of cash from

operating activities was primarily the operations of Magellan.

Onex Corporation December 31, 2005 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

Cash from ﬁnancing activities
Cash from ﬁnancing activities was $563 million compared

investments in 2005. These proceeds primarily related to

the sale of the CGG convertible bonds for $145 million and

to cash from ﬁnancing activities of $608 million for 2004.

$222 million of cash received on the settlement of the

Included in 2005 cash from ﬁnancing activities were:

Celestica forward sales agreements.

• US$250 million of gross proceeds received by Celestica

During 2005, Onex’ operating companies spent

on its 7.625% senior subordinated notes offering that

$550 million on property, plant and equipment compared

was completed in June 2005;

to $308 million in 2004. Table 26 details property, plant

• cash received by Cineplex Entertainment on its issuance of

and equipment expenditures by industry segment.

convertible debentures of $105 million and the $110 mil-

lion unit issuance for its Famous Players acquisition in

Property, Plant and Equipment Expenditures

July 2005; and

• cash received of $707 million from the limited part-

TABLE 26

($ millions)

2005

2004

ners of Onex Partners primarily for the acquisition of

Electronics Manufacturing Services

EMSC, completed in February 2005; Spirit AeroSystems,

Aerostructures

acquired in mid-June 2005; and Skilled Healthcare,

Theatre Exhibition

acquired in late December 2005.

Healthcare

Partially offsetting these were:

• $273 million spent by Celestica to repurchase the equity

component of its LYONs;

• $332 million of cash paid by Onex Partners to limited

Customer Management Services

Automotive Products

Other(a)

Total

$ 185

169

$ 180

–

$ 550

$ 308

partners, other than Onex, on the sale of its CGG con-

(a)

Includes CEI, Radian, ONCAP, Onex Real Estate, Onex Public Markets Group and

vertible bonds and Magellan shares in 2005; and

parent company.

• $164 million of distributions primarily by CMC Elec-

tronics relating to the sales of its Cincinnati Electronics

division in 2004 and its NovAtel shares in 2005.

Included in the 2004 cash from ﬁnancing activities was

$150 million of cash used to repurchase shares by Onex,

the parent company; this compares to $18 million spent

in 2005.

Cash used in investing activities
Cash used in investing activities totalled $1,507 million

in 2005, an increase of $1,470 million from cash used of

$37 million in 2004. The increase in cash used in investing

activities was due primarily to acquisitions completed in

2005, which used cash of $1.5 billion compared to $301 mil-

lion of cash used for acquisitions in 2004. Note 3 to the

audited annual consolidated ﬁnancial statements discloses

the amount of cash invested in each acquisition completed

during 2005 and 2004. Table 19 also provides more details

of acquisitions completed in 2005, 2004 and 2003. Partially

offsetting the cash spent on acquisitions was $405 million

of cash received from proceeds on sales of operating

38 Onex Corporation December 31, 2005

Celestica recorded $185 million in property, plant and

equipment expenditures related primarily to the expansion

of manufacturing capabilities in lower-cost geographies

such as China, Romania, Thailand and Mexico. Spirit Aero-

Systems recorded $169 million in property, plant and equip-

ment expenditures primarily for purchases on its 787

program, computer hardware and software, as well as

tooling enhancements for its current programs. Cineplex

Entertainment recorded $33 million in capital expen-

ditures primarily for new theatre construction. EMSC

recorded $60 million in property, plant and equipment

expenditures relating primarily to the purchase of new

ambulances and medical equipment. CDI spent $22 million

in property, plant and equipment expenditures relating

primarily to MRI upgrades and operating lease buyouts.

ClientLogic recorded $18 million in capital expenditures

mainly for its near-shore and offshore call centre capacity

expansions in 2005, as well as technology and telephony

upgrades to improve call centre and fulﬁllment efﬁciencies.

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 discontinued operations in cash from invest-

The corporate investment commitments of $440 million

ing activities for 2005 were:

noted in table 27 primarily include Onex’ commitments to its

• $81 million of proceeds received by Onex on the sale of

real estate partnership, Onex Real Estate Partners LP (“Onex

its remaining shares of CVG;

Real Estate”), of US$200 million, as well as its commitment

• $86 million of proceeds received by Cineplex Enter-

to ONCAP II, a private equity fund focused on building

tainment on the sale of 29 theatres, 27 of which were

value with North American small and mid-sized companies.

sold in connection with the Famous Players acquisition

Cash for the investment commitments will be funded by

as described above; and

Onex as the investments are made.

• $153 million in proceeds received by CMC Electronics

Capital expenditure commitments are essentially

on the sale of its remaining NovAtel shares.

those of Onex’ operating companies. Those capital expen-

diture commitments were principally attributable to:

This compares to $644 million of cash from discontinued

• Spirit AeroSystems, which had $155 million of capital

operations, which related primarily to the proceeds received

commitments, principally for property, plant and equip-

on the sale of Loews Cineplex and CMC Electronics’ sale of

ment and tooling expenditures to support its contracts

its Cincinnati Electronics division.

with Boeing and other aircraft manufacturers;

• Cineplex Entertainment, which had capital commitments

Consolidated cash resources
At December 31, 2005, consolidated cash with continuing

of $35 million associated with the construction of new

theatre properties that will be completed and opened at

operations was $3.1 billion compared to $2.9 billion at

various times during the periods 2006–2007; and

December 31, 2004. Onex, the parent company, repre-

• Celestica, which had $26 million of capital commit-

sented approximately $1.5 billion of consolidated cash and

ments associated primarily with machinery and equip-

Celestica had approximately $1.1 billion of cash at Decem-

ment and facilities in our lower-cost geographies.

ber 31, 2005. At December 31, 2005, limited partners in

Onex Partners, other than Onex, had remaining commit-

Contingent liabilities in the form of letters of credit, letters

ments to provide $478 million of funding for future Onex-

of guarantee, and surety and performance bonds are pro-

sponsored acquisitions. The Company has a conservative

vided by certain operating companies to various third

cash management policy that limits investments to short-

parties and include certain bank guarantees. As at Decem-

term low-risk money-market products. No amounts of cash

ber 31, 2005, the commitments with respect to these guar-

from the limited partners of Onex Partners are included in

antees collectively totalled $153 million. These guarantees

are without recourse to Onex. In addition, certain oper-

ating companies have also made guarantees with respect

to employee share purchase loans.

consolidated cash.

Additional uses of cash
Commitments

As at December 31, 2005, Onex and its operating compa-

nies had total commitments as follows:

Commitments

TABLE 27

($ millions)

Corporate investments

Capital expenditures of operating companies

Operating companies letters of credit,

letters of guarantee and surety

and performance bonds

Total commitments

$ 440

246

153

$ 839

Onex Corporation December 31, 2005 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

Contractual obligations

Table 28 provides a breakdown of consolidated contractual obligations and the required future payments on those obliga-

tions at December 31, 2005 for the Onex operating companies.

Contractual Obligations

TABLE 28

($ 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

$ 4,688

2,303

$ 825

284

Total contractual obligations

$ 6,991

$ 1,109

$ 344

451

$ 795

$ 622

347

$ 969

$ 2,897

1,221

$ 4,118

A breakdown of long-term debt by industry segment is pro-

ONCAP is a private equity vehicle dedicated to

vided in table 20. Note 9 to the audited annual consolidated

investing and building value in small- to mid-sized North

ﬁnancial statements also provides detailed long-term debt

American companies. ONCAP raised its ﬁrst $400 million

disclosure by operating company. In addition, note 10 to the

fund, ONCAP I, in 1999, to which Onex committed $120 mil-

audited annual consolidated ﬁnancial statements provides

lion. This ﬁrst fund’s commitment period was completed in

further disclosure on capital and operating leases.

early 2005. In late 2005, ONCAP completed a ﬁrst close on a

Additional sources of cash
Private equity funds

second fund, ONCAP II, with $500 million of targeted capital

commitments, of which Onex has committed to be approxi-

mately half. Onex is the General Partner of ONCAP. ONCAP’s

Onex had additional sources of cash from two funds – Onex

investors, other than Onex, include a number of prominent

Partners and ONCAP II. Onex Partners is a $2.1 billion

Canadian institutions. During 2006, ONCAP will fund its

(US$1.7 billion) fund that provides capital to Onex-spon-

acquisitions through ONCAP II.

sored acquisitions not related to Onex’ operating com-

panies that existed prior to the formation of Onex Partners

or ONCAP I. Onex controls the General Partner and the

Related party transactions
Related party transactions are primarily investments by

Manager of Onex Partners and has pledged $480 million

the management of Onex and of the operating companies

(US$400 million) to Onex Partners. Onex Partners has a

in the equity of the operating companies acquired. Onex

diverse group of investors, including public and private

has a Management Incentive Plan (the “MIP”) in place

pension funds, banks, insurance companies and endow-

that requires its management members to invest in each of

ment funds from the United States, Canada, Europe and

the operating companies acquired by Onex. The funds

Asia. This substantial pool of committed funds enables

required for investments under the MIP are neither loaned

Onex to be more ﬂexible and timely in responding to

to the management members nor guaranteed by Onex or

investment opportunities. At December 31, 2005, Onex

the operating companies.

Partners, including Onex and other co-investors, had

During 2005, there were investments of $4 million

invested $1.1 billion in investments or acquisitions com-

under the MIP compared to $2 million in 2004. Manage-

pleted in 2005. The available uncalled committed capital of

ment members participated in the realizations Onex

Onex Partners, excluding Onex, totalled $478 million at

achieved on Magellan, CVG and CGG, receiving under

December 31, 2005.

40 Onex Corporation December 31, 2005

the MIP $11 million in 2005. This compares to $35 million

in realizations under the MIP relating to the sales of

Loews Cineplex and Armtec in 2004. Notes 1 and 24 to the

audited annual consolidated ﬁnancial statements provide

additional details on the MIP.

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

Members of management and the Board of

Onex does not guarantee the debt on behalf of its

Directors of Onex can invest limited amounts in partner-

operating companies, nor are there any cross-guarantees

ship with Onex in all acquisitions outside of Onex Partners

between operating companies. Onex will invest in the debt

at the same cost as Onex and other outside investors.

of its operating companies, which amounted to $206 mil-

During 2005, approximately $21 million in investments

lion at December 31, 2005 compared to $204 million at

were made by Onex management and Onex board mem-

December 31, 2004. Note 9 to the audited annual consoli-

bers; this compares to $9 million in investments made by

dated ﬁnancial statements provides information on the

management and the Onex board in 2004.

debt of operating companies held by Onex. Note 24 to the

The Onex Partners’ fund structure requires Onex

audited annual consolidated ﬁnancial statements describes

management to invest a minimum of 1 percent (US$16.5 mil-

related party transactions.

lion) in all acquisitions. Onex management and directors

have committed to invest an additional 3 percent of the

total capital invested by Onex Partners. This structure
applies to those acquisitions completed through Onex

Pending transactions at December 31, 2005
Acquisition of Town and Country Trust

In December 2005, Onex announced that a joint venture

Partners. The total amount invested in 2005 by Onex man-

investment vehicle formed by afﬁliates of Onex Real Estate

agement and directors on acquisitions and investments

and Morgan Stanley Real Estate had entered into an agree-

completed through Onex Partners was $30 million.

ment to acquire The Town and Country Trust (“TCT”)

During the investment period of Onex Partners

(NYSE: TCT) in an all-cash transaction totalling approx-

(up to six years), Onex will receive a management fee of

imately $1.5 billion, including the assumption of debt.

2 percent on the US$1.25 billion of committed capital pro-

The agreement is subject to approval by two-thirds of

vided by third-party investors. Thereafter, a 1 percent

TCT’s common shareholders and certain other customary

management fee is payable to Onex on invested capital.

closing conditions. Competing offers have subsequently

Onex Partners’ General Partner will also receive a carried

been made for TCT and it is not known at this time what

interest of 20 percent on the realized gains of the third-

the outcome of the process will be. TCT is a multi-family

party limited partners, subject to an 8 percent compound

real estate investment trust that owns and operates

annual preferred return to such limited partners on all

39 apartment communities with 13,330 apartment homes

amounts contributed to Onex Partners. This carried inter-

in the Mid-Atlantic States and Florida.

est will be based on the overall performance of Onex

Partners and includes typical catch-up and clawback

provisions. Consistent with market practice, Onex, as

Controls and procedures
The Chief Executive Ofﬁcer and Chief Financial Ofﬁcer

sponsor of Onex Partners, will be allocated 40 percent of

have evaluated our disclosure controls and disclosures as

the carried interest with 60 percent allocated to the Onex

at December 31, 2005 and have concluded that such con-

principals. During 2005, Onex received a carried interest of

trols and procedures are effective.

$11 million on the realized gains of Magellan and CGG,

which is deferred from inclusion in income for accounting

purposes until there is certainty that the targeted return

Other matters
Onex Corporation’s ﬁnancial ﬁlings, including its 2005

for the overall performance of Onex Partners has been

Annual Report and interim quarterly reports, Annual

achieved. Management of Onex received a carried interest

Information Form and Management Circular, are available

of $17 million on these realized gains.

on the Company’s website at www.onex.com or on the

Canadian System for Electronic Document Analysis and

Retrieval (“SEDAR”) at www.sedar.com.

Onex Corporation December 31, 2005 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

P A R E N T C O M P A N Y

OUTLOOK

Aerostructures
Spirit AeroSystems

Onex entered 2006 with a substantial amount of capital

Spirit AeroSystems, Inc. (“Spirit AeroSystems”) expects rev-

either available or committed for investment in attractive

enues to advance in 2006 based on a solid order backlog

businesses and other asset classes. These funds include

and higher production rates on key programs. The strong

$1.5 billion in cash and near-cash equivalents in Onex, the

order intake achieved during 2005 will lead to increased

parent company, and $478 million in remaining capital

production from 2006 through 2008, especially on Boeing’s

commitments from Onex Partners for investment in Onex-

737 Next Generation and 777 platforms. Moreover, Spirit

sponsored acquisitions. It is Onex’ objective to invest

AeroSystems will continue its efforts to win new mandates

a signiﬁcant portion of these funds during 2006. Despite

from other OEMs and to augment its business in after-

the very competitive nature of North American private

market spares and repair support.

equity markets, Onex believes it can continue to ﬁnd those

The company intends to seek further reductions in

unique situations to invest its capital to achieve appro-

costs through productivity improvements and global supply

priate returns and limit its downside risk.

sourcing. While capital management will remain a key

Onex has also created new vehicles for invest-

focus of management, capital expenditures will increase

ment that leverage its private equity experience and pro-

substantially in 2006 due to spending for the 787 platform,

vide new opportunities to invest its capital. In 2005, the

which is scheduled to go into production during 2007, and

Company launched OPMG with US$400 million in capital

the initial implementation of the new enterprise resource

for investment in publicly traded North American equi-

planning software.

ties. Onex also established Onex Real Estate Partners, a

Overall, Spirit AeroSystems has a very strong

US$200 million partnership with the objective of acquiring

foundation on which to grow. Not only is it the industry

and improving real estate assets in North America. These

leader in independent complex aerostructures manufac-

initiatives should provide attractive opportunities for Onex

turing, the management team is also creating a market-

to invest capital in 2006.

O P E R A T I N G C O M P A N I E S

Electronics Manufacturing Services
Celestica

driven mindset throughout the company that will enhance

its substantial competitive strengths.

In late January 2006, Spirit AeroSystems agreed to

acquire BAE Systems’ aerostructures business with opera-

tions in Prestwick, Scotland and Samlesbury, England in

a transaction valued at $162 million. BAE Systems’ aero-

Celestica Inc. (“Celestica”) entered 2006 with a strong book

structures business produces wing and other structural

of new business wins. These wins will add additional end-

components, primarily for Airbus airplanes, which include

market diversiﬁcation to Celestica’s customer base in end

the A320 family, the A380, the A330 and the A340. Once

markets such as consumer electronics and aerospace. Con-

acquired, the new business will be known as Spirit Aero-

tinuing improvements in the company’s sales organization

Systems (Europe) Ltd. This acquisition will enhance Spirit

and processes will remain a key priority in the coming year.

AeroSystems’ manufacturing operations, add important

Celestica expects to take approximately US$115 mil-

new customers and further the company’s leadership in

lion in pre-tax restructuring charges in 2006 as it com-

the global industry. Spirit AeroSystems will ﬁnance the

pletes the program announced in early 2005. Management

entire acquisition, which is expected to close in the ﬁrst

will seek to improve operating margins beyond the

quarter of 2006.

levels achieved in 2005 by completing its shift in manu-

facturing capacity to low-cost geographies and continuing

to drive greater manufacturing efﬁciency throughout

its organization.

42 Onex Corporation December 31, 2005

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 Entertainment

ensure the health and safety of their citizens and patients.

With its strong value proposition and market leadership,

The announced slate of new ﬁlms, which includes Mission

EMSC is very well positioned to take advantage of these

Impossible 3, The DaVinci Code, Pirates of the Caribbean II

trends. EMSC management will also explore opportunities

and the new Pixar animated feature, Cars, is expected to

to provide additional services, such as radiologist or hos-

lead to more robust box-ofﬁce performance at Cineplex

pitalist stafﬁng and management, to its existing base of

Entertainment Limited Partnership (“Cineplex Entertain-

hospital customers.

ment”) theatres during 2006. Late in 2005, the business

converted all of the acquired Famous Players theatres to

Center for Diagnostic Imaging

the Cineplex Galaxy model of theatre-based pricing, a

Center for Diagnostic Imaging, Inc. (“CDI”) expects an

realignment that is expected to add incrementally to total

improvement in performance during 2006 as startup cen-

box-ofﬁce revenues during 2006.

tres opened in St. Louis and Chicago in 2005 are expected

The acquisition of Famous Players delayed the

to add to earnings. The company’s successful negotiation

launch of a new loyalty program that had been planned for

of a hospital partnership agreement in Kansas City and

2005. During the ﬁrst half of 2006, Cineplex Entertainment

the addition of an experienced radiologist in Seattle are

expects to launch a new integrated website and link its

expected to improve CDI’s results in those previously

point-of-sale systems to create Canada’s leading online

underperforming markets. The company also intends to

entertainment portal and loyalty program.

open up to six centres during the year in both new and

Healthcare
Emergency Medical Services

existing markets, which are expected to fuel growth over

the longer term.

CDI management believes that several industry

Emergency Medical Services Corporation (“EMSC”) will

trends will also continue to evolve in its favour. The aging

continue to focus on organic growth in 2006. EMSC

of the U.S. population and the disproportionate consump-

management plans to integrate the sales and marketing

tion of radiology services by the elderly should continue to

operations of AMR and EmCare to improve the effective-

drive demand for diagnostic imaging services. Demand is

ness and efﬁciency of those areas, to broaden its product

offering to serve the “episodic” patient and to expand its

also expected to be fuelled by the increasing use of diag-
nostic imaging for preventative screening and the increased

public/private 911 partnerships with ﬁre departments.

acceptance of non-invasive diagnostic procedures like the

EMSC management also expects to explore selective

virtual colonoscopy. The company expects unit pricing to

acquisitions in markets adjacent to current operations.

decline over time as government and private payors seek

A focus on seeking further reductions in oper-

to reduce imaging outlays.

ating costs will remain a priority. EMSC intends to share

administrative services between AMR and EmCare and to

Skilled Healthcare

consolidate billing and collection centres. These initiatives

Management of Skilled Healthcare Group, Inc. (“Skilled

are expected to add to proﬁtability during 2006.

Healthcare”) is optimistic that recent systemic modiﬁ-

Longer term, Onex believes that EMSC has an

cations to Medicare per diem rates for skilled nursing

excellent opportunity for substantial value creation. The

facilities will add to total revenues in the coming year.

use of both ambulance transport and emergency depart-

New Medicare rates took effect January 1, 2006, reﬁning

ments is expected to increase steadily with the aging of the

14 rehabilitation-intensive categories of care and adding

U.S. population, as it has over the past several years. More-

nine categories for acute care patients. Nearly 20 percent

over, it is anticipated that the trend to outsource emergency

of Skilled Healthcare’s patient-days, and 55 percent of its

medical services to private providers will continue as

revenues, are derived from Medicare patients, a signiﬁcant

communities and hospitals increasingly focus on providing

percentage of whom will likely be affected by new reim-

reliable, cost-efﬁcient emergency medical services to

bursement classiﬁcations. Management also believes the

Onex Corporation December 31, 2005 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

effect of a full year of recent Medicaid rate increases in

In December 2005, one of ClientLogic’s clients

several of the states in which it operates will have a posi-

announced its plans to terminate a portion of its contract

tive impact in 2006. Management expects these rate

with the company with the transition being completed

increases, as well as operational improvements in several

during the ﬁrst half of 2006. This termination will reduce

of the company’s facilities, to result in increased operating

annual revenues by approximately US$75 million. In spite

income during 2006.

of the loss of revenues under this contract, ClientLogic

Skilled Healthcare intends to enhance its organic

expects improved ﬁnancial performance associated with

growth through tuck-in acquisitions in existing markets, as

revenues from new customers in 2006 as well as higher

well as through larger strategic acquisitions in new mar-

average margins from improved customer mix and oper-

kets in the western United States, if opportunities can be

ating performance.

found at attractive valuations. The company will also con-

tinue to promote the rapid growth of its rehabilitation

services with third-party facility operators. Skilled Health-

Automotive Products
J.L. French Automotive

care’s rehabilitation division currently manages 145 con-

In February 2006, J.L. French Automotive Castings, Inc.’s

tracts, 56 of which are for afﬁliated facilities, and employs

(“J.L. French Automotive”) U.S. entities ﬁled under Chap-

more than 670 full-time equivalent therapists. Manage-

ter 11 for bankruptcy protection in the United States, and

ment also intends to expand the company’s new hospice

its U.K. entity under Administration in the U.K. This ﬁling

care business into the Los Angeles area early in 2006 and

was necessary as the company was in default on a num-

possibly into other markets later in the year.

ber of its obligations to lenders. J.L. French Automotive

ResCare

has reached an agreement with certain of its lenders on a

proposed ﬁnancial restructuring. The proposed agreement

Res-Care, Inc. (“ResCare”) is one of the United States’

would signiﬁcantly reduce J.L. French Automotive’s debt

leading special needs providers. The long-term social and

levels, as well as position the company to increase its

demographic factors that have driven the growth of the

investment in its core business. J.L. French Automotive

company should continue to provide a solid foundation for

plans to continue to operate as usual with debtor-in-

growth in revenues and earnings in the years ahead. Among

possession ﬁnancing while under bankruptcy protection.

these factors are aging family caregivers of the develop-

It is currently anticipated that Onex will have little

mentally disabled, growing waiting lists for services and the

or no ownership interest in J.L. French Automotive as a

trend to privatization of state-run services. As a result, there

result of the bankruptcy restructuring process. Accord-

is a large demand for services and high occupancy rates

ingly, in the ﬁrst quarter of 2006 Onex will likely record for

in existing homes. This is making the provision of periodic

accounting purposes a disposition or abandonment of its

in-home services – a small but growing core capability of

interest in J.L. French Automotive. This would result in

ResCare – an attractive option for state governments.

an accounting gain being recorded of $607 million due

Customer Management Services
ClientLogic

to J.L. French Automotive’s recorded losses exceeding

Onex’ investment. Onex’ previously reported results would

be adjusted to show J.L. French Automotive as a discontin-

ClientLogic Corporation (“ClientLogic”) began 2006 with

ued operation and no further operations are likely to be

a very robust pipeline of new business. Management

included for 2006.

intends to add scale by opening three new customer

contact facilities as well as expanding another call centre

Performance Logistics Group

during 2006. This will provide additional capacity in

In January 2006, Performance Logistics Group, Inc. (“PLG”)

domestic near-shore and offshore markets. Management

ﬁled for bankruptcy protection under Chapter 11 of the

also expects to strengthen its technology solutions for

Bankruptcy Code in the United States. Onex ceased to

clients in order to provide a more comprehensive package

have voting control of PLG in 2004, and had been carrying

of value-added solutions.

44 Onex Corporation December 31, 2005

its investment at a cost of nil. As a result of the bankruptcy

proceedings, Onex does not expect any future value from

this investment.

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
Mid-Cap Opportunities

ONCAP

Communications Infrastructure

Radian

Radian Communication Services Corporation (“Radian”)

With an expanded team of nine professionals, ONCAP

entered 2006 with a more efﬁcient operating base, positive

intends to look at a greater number of potential invest-

industry dynamics and a good order book in each of its

ments during 2006. The team’s excellent results with its ﬁrst

segments. In January 2006, Radian announced its inten-

fund have helped it establish a strong reputation as a good

tion to close the Canadian manufacturing operations and

partner for management teams and a responsive, creative

move those operations to Peoria, Illinois. This move is

acquirer for sellers and their advisors. Overall, it is expected

anticipated to be completed by the end of the ﬁrst quarter

that ONCAP’s pace of acquisitions will increase as it ﬁnds

of 2006 and should result in improved utilization and

attractive candidates for ONCAP II LP (“ONCAP II”), which

lower operating costs. Proceeds from the planned sale

has $500 million of targeted committed capital for new,

of the Canadian properties will be used to reduce bank

standalone investments in small- and mid-cap companies.

indebtedness. Management expects improved revenues

ONCAP expects its current operating companies

and proﬁtability based on its awarded contracts from the

to continue to grow in 2006. Under the terms of the ﬁrst

installation of large towers in Jakarta during the ﬁrst half of

fund, ONCAP I, these companies and ONCAP may pursue

the year. Capital spending has improved in the wireless

add-on acquisitions that will add to their ability to create

infrastructure business in the United States as larger con-

value. New acquisitions by ONCAP II are also expected to

solidated carriers vie for market share by upgrading speed

add to total revenues. In early January 2006, ONCAP com-

and data transmission on their networks. The West Coast is

pleted the ﬁrst purchase for its second fund. ONCAP II

a focal point for this work, a region in which Radian has its

acquired CSI Global Education Inc. (“CSI”), Canada’s

strongest presence. With operational issues now largely

leader in interactive investment education for the securi-

resolved and a good order book in hand, Radian believes

ties and ﬁnancial services industries. ONCAP II invested

that its U.S. broadcast business will make a positive con-

$25 million in this transaction, of which Onex’ share was

tribution in 2006 as broadcasters work to meet the FCC

$14 million.

Personal Care Products

Cosmetic Essence

mandate to convert from analog to digital transmission.

Overall, Radian management expects strong revenues over

the next 12 months, accompanied by an improvement in

operating earnings.

Cosmetic Essence, Inc. (“CEI”) began 2006 with a very

robust research and development pipeline. Projects in

active development and testing represented a 30 percent

increase over a year earlier. CEI expects that new product

introductions from its research and development activities

will be a strong impetus to revenue growth in 2006. Growth

from major customers is also expected to remain strong.

At the end of 2005, CEI management was imple-

menting a variety of initiatives to reduce its cost structure.

Head count and ﬁxed overheads are being reduced and

information systems upgraded to provide more visibility

to CEI’s increasingly complex business. During 2006, CEI

will also implement high-return capital projects that will

reduce labour content and improve the company’s cost

structure. CEI’s management is conﬁdent that it can suc-

cessfully grow the business in 2006 while improving its

overall proﬁtability.

Onex Corporation December 31, 2005 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

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

for business and strategic planning, and ﬁnancial reporting,

while an operating company builds these capabilities

apply common-sense business principles to the manage-

in-house. In almost all cases, Onex ensures there is over-

ment of the Company, the ownership of its operating com-

sight of its investment through representation on the

panies and the acquisition of new businesses. Each year

acquired company’s board of directors.

detailed reviews are conducted of many opportunities to

Operating companies are encouraged to reduce

purchase either new businesses or add-on acquisitions for

risk and/or expand opportunity by diversifying their cus-

existing businesses. Onex’ primary interest is in acquiring

tomer bases, broadening their geographic reach or prod-

well-managed companies with a strong position in growing

uct and service offerings, and improving productivity.

industries. In addition, diversiﬁcation among Onex’ oper-

In certain instances, we may also encourage an operating

ating companies enables Onex to participate in the growth

company to seek additional equity in the public markets in

of a number of high-potential industries with varying busi-

order to continue its growth without eroding its balance

ness cycles.

sheet. One element of this approach may be to use new

As a general rule, Onex attempts to arrange

equity investment, when ﬁnancial markets are favourable,

as many factors as practical to minimize risk without

to prepay existing debt and absorb related penalties.

hampering its opportunity to maximize returns. When a

Speciﬁc strategies and policies to manage busi-

purchase candidate meets Onex’ criteria, for example, typ-

ness risk at Onex and its operating companies are dis-

ically a fair price is paid, though not necessarily the lowest

cussed below.

price, for a high-quality business. Onex does not commit

all of its capital to a single acquisition and will have equity

partners with whom it can share the risk of ownership,

Business cycles
Diversiﬁcation by industry and geography is a deliberate

especially on large-scale transactions. Onex Partners LP

strategy at Onex to reduce the risk inherent in business

and the proposed Onex Partners II LP funds streamline

cycles. Onex’ practice of owning companies in various indus-

Onex’ process of sourcing and ﬁnalizing commitments

tries with differing business cycles reduces the risk of holding

from such equity partners.

a major portion of Onex’ assets in just one or two industries.

An acquired company is not burdened with more

Similarly, the Company’s focus on building industry leaders

debt than it can likely sustain, but rather structured so that

with extensive international operations reduces the ﬁnancial

it has the ﬁnancial and operating leeway to create as much

impact of downturns in speciﬁc regions.

long-term growth in value as possible. Finally, Onex buys

in ﬁnancial partnership with management. This strategy

not only gives Onex the beneﬁt of experienced managers

Operating liquidity
It is our view that one of the most important things Onex

but also ensures that an operating company is run entre-

can do to control risk is to maintain a strong parent com-

preneurially for the beneﬁt of all shareholders.

pany with an appropriate level of liquidity. Onex needs to

Onex maintains an active involvement in its

be in a position to support its operating companies when,

operating companies in the areas of strategic planning,

and if, appropriate. Maintaining liquidity is important

ﬁnancial structures and negotiations, and acquisitions. In

because Onex, as a holding company, generally does not

the early stages of ownership, Onex may provide resources

have guaranteed sources of meaningful cash ﬂow.

46 Onex Corporation December 31, 2005

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 completing acquisitions, it is generally Onex’

Onex and major institutional co-investors. During 2004 and

policy to ﬁnance a large portion of the purchase price with

2005, we successfully deployed a substantial portion of this

debt provided by third-party lenders. This debt is assumed

capital in a variety of attractive businesses.

by the company acquired and is without recourse to Onex,

the parent company, or its other operating companies or

partnerships. The foremost consideration, however, in

Financial and commodity risks
In the normal course of business activities, Onex and its

developing a ﬁnancing structure for an acquisition is iden-

operating companies may face a variety of risks related to

tifying the appropriate amount of equity to invest. In

ﬁnancial management. Individual operating companies may

Onex’ view, this is the amount of equity which maximizes

also use ﬁnancial instruments to offset the impact of antici-

the risk/reward equation for both shareholders and the

pated changes in commodity prices related to the conduct of

acquired company. In other words, it allows the acquired

their businesses. In all cases, it is a matter of Company pol-

company not only to manage its debt but also to have

icy that neither Onex nor its operating companies engage in

signiﬁcant ﬁnancial latitude for the business to vigorously

derivatives trading or other speculative activities.

pursue its growth objectives.

Interest rate risk As noted above, Onex generally

While Onex seeks to maximize the risk/reward

ﬁnances a signiﬁcant portion of its acquisitions with debt

equation in all acquisitions, there is the risk that the

taken on by the acquired operating company. An impor-

acquired company will not generate sufﬁcient proﬁtability

tant element in controlling risk is to manage, to the extent

or cash ﬂow to service its debt requirements and/or

possible, the impact of ﬂuctuations in interest rates on the

related debt covenants or provide adequate ﬁnancial

debt of the operating company.

ﬂexibility for growth. In such circumstances, additional

It has generally been Onex’ policy to ﬁx the inter-

investment by the equity partners, including Onex, may

est on some or all of the term debt or otherwise minimize

be required. In severe circumstances, the recovery of

the effect of interest rate increases on a substantial por-

Onex’ equity and any other investment in that operating

tion of the debt of its operating companies at the time of

company is at risk.

Timeliness of investment commitments
Onex’ ability to create value for shareholders is dependent in

acquisition. This is achieved by taking on debt at ﬁxed

interest rates and entering into interest rate swap agree-

ments or ﬁnancial contracts to control the level of interest

rate ﬂuctuation.

part on our ability to successfully complete large acquisi-

The risk inherent in such a strategy is that, should

tions. Our preferred course is to complete acquisitions on an

interest rates decline, the beneﬁt of such declines may not

exclusive basis. However, we also participate in large acqui-

be obtainable or may only be achieved at the cost of penal-

sitions through an auction or bidding process with multiple

ties to terminate existing arrangements. There is also the

potential purchasers. Bidding is often very competitive for

risk that the counterparty on an interest rate swap agree-

the large-scale acquisitions that are Onex’ primary interest,

ment may not be able to meet its commitments. Guide-

and the ability to make knowledgeable, timely investment

lines are in place that specify the nature of the ﬁnancial

commitments is a key component in successful purchases.

institutions that operating companies can deal with on

In such instances, the vendor often establishes a relatively

interest rate contracts.

short time frame for Onex to respond deﬁnitely.

Currency ﬂuctuations The majority of the activi-

In order to improve the efﬁciency of Onex’ internal

ties of Onex’ operating companies were conducted outside

processes on both auction and exclusive acquisition

Canada during 2005. As discussed, approximately 37 per-

processes, and so reduce the risk of missing out on high-

cent of consolidated revenues and 41 percent of consoli-

quality acquisition opportunities, during 2003 we created

dated assets were in the United States. Approximately

Onex Partners LP, a $2.1 billion pool of capital raised from

49 percent of consolidated revenues were from outside

Onex Corporation December 31, 2005 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

North America; however, a substantial portion of that

business is actually based on U.S. currency. This makes the

Integration of acquired companies
An important aspect of Onex’ strategy for value creation is

value of the Canadian dollar relative to the U.S. dollar the

to acquire what we consider to be “platform” companies.

primary currency relationship affecting Onex’ operating

Such companies typically have distinct competitive advan-

results. Onex’ operating companies may use currency

tages in products or services in their respective industries

derivatives in the normal course of business to hedge

that provide a solid foundation for growth in scale

against adverse ﬂuctuations in key operating currencies

and value. In these instances, Onex works with company

but, as noted above, speculative activity is not permitted.

management to identify and purchase attractive add-on

Onex’ results are reported in Canadian dollars, and

acquisitions that would enable the platform company to

ﬂuctuations in the value of the Canadian dollar relative to

achieve its goals for growth more quickly than by focusing

other currencies can have an impact on Onex’ reported

solely on the development and/or diversiﬁcation of its

results and consolidated ﬁnancial position. During 2005,

customer base, which is known as organic growth. Growth

the net increase in shareholders’ equity reﬂected a $7 mil-

by acquisition, however, carries more risk than organic

lion decrease in the value of Onex’ net equity in those oper-

growth. While as many of these risks as possible are con-

ating companies that operate in U.S. currency.

sidered in the acquisition planning, in Onex’ experience

Onex holds a substantial amount of cash and

our operating companies also face risks such as unknown

marketable securities in U.S.-dollar-denominated securi-

expenses related to the cost-effective amalgamation of

ties. The portion of securities held in U.S. dollars is based

operations, the retention of key personnel and customers,

on Onex’ view of funds it will require for future invest-

the future value of goodwill paid as part of the acquisition

ments in the United States. Onex does not speculate on the

price and the future value of the acquired assets and intel-

direction of exchange rates between the Canadian dollar

lectual property. Onex works with company management

and the U.S. dollar when determining the balance of cash

to understand and potentially mitigate such risks as much

and marketable securities to hold in each currency, nor

as possible.

does it use foreign exchange contracts to protect itself

against translation loss.

Commodity prices Certain of Onex’ operating

Dependence on government funding
During the past two years, Onex has acquired businesses,

companies are vulnerable to price ﬂuctuations in major

or interests in businesses, in various segments of the U.S.

commodities. The most signiﬁcant of these is Celestica,

healthcare industry. The revenues of these companies are

which purchases a substantial volume of electronic com-

partially dependent on funding from federal, state and

ponents that could be viewed as commodity in nature and

local government agencies, especially those responsible

subject to ﬂuctuations in price. Celestica manages its

for federal Medicare and state Medicaid funding. Bud-

exposure in this area by purchasing components only for

getary pressures, as well as economic, industry, political

speciﬁc customer contracts and by having those sale con-

and other factors, could inﬂuence governments to not

tracts include terms or pricing provisions that pass any

increase and, in some cases, to decrease appropriations

product cost ﬂuctuations on to the customer.

for the services offered by Onex operating subsidiaries,

which could reduce their revenues materially. Future

revenues may be affected by changes in rate-setting struc-

tures, methodologies or interpretations that may be pro-

posed or are under consideration.

48 Onex Corporation December 31, 2005

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

While each of Onex’ operating companies in the

U.S. healthcare industry is subject to reimbursement risk

Environmental considerations
Onex has an environmental protection policy that has

directly related to its particular business segment, it is

been adopted by its operating companies. Senior ofﬁcers

unlikely that all of these companies would be affected by

of each of these companies are ultimately responsible for

the same event, or to the same extent, simultaneously.

ensuring compliance with this policy. They are required to

Ongoing pressure on government appropriations is a nor-

report annually to their company’s board of directors and

mal aspect of business for these companies, and all seek

to Onex regarding compliance with this policy.

to minimize the effect of possible funding reductions

Environmental management by the operating

through productivity improvements and other initiatives.

companies is accomplished through: the education of

employees about environmental regulations and appropri-

Signiﬁcant customers
Onex has acquired major operating companies and

ate operating policies and procedures; site inspections by

environmental consultants; the addition of proper equip-

divisions of large companies. As part of these purchases,

ment or modiﬁcation of existing equipment to reduce or

the acquired company has often continued to supply its

eliminate environmental hazards; remediation activities as

former owner through long-term supply arrangements.

required; and ongoing waste reduction and recycling pro-

It has been Onex’ policy to encourage its operating com-

grams. Environmental consultants are engaged to advise on

panies to quickly diversify their customer bases to the

current and upcoming environmental regulations that may

extent practicable in order to manage the risk associated

be applicable.

with serving a single major customer. Celestica primarily

Most of the operating companies are involved in

relied on one major customer at the time of its acquisition

the remediation of particular environmental situations

by Onex; the company now has a broadly diversiﬁed global

such as soil contamination. In almost all cases, these situ-

base of signiﬁcant customers.

ations have occurred prior to Onex’ acquisition of those

Certain Onex operating companies have major

companies. The estimated costs of remedial work and

customers that represent more than 10 percent of annual

related activities are to be provided for either under agree-

revenues. Spirit AeroSystems primarily relies on one

ment by the vendor of the company or through provisions

major customer, Boeing, at the time of its acquisition by

established at the time of acquisition. Manufacturing

Onex. The table in note 23 to the audited annual consoli-

activities carry the inherent risk that changing environ-

dated ﬁnancial statements provides information on the

mental regulations may identify additional situations

concentration of business the operating companies have

requiring capital expenditures or remedial work, and asso-

with major customers.

ciated costs to meet those regulations.

Onex Corporation December 31, 2005 49

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.

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

February 16, 2006

Donald W. Lewtas

Vice-President Finance

50 Onex Corporation December 31, 2005

AUDITORS’ REPORT

To the Shareholders of Onex Corporation:

We have audited the consolidated balance sheets of Onex Corporation as at December 31, 2005 and 2004 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, 2005 and 2004 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

February 16, 2006

Onex Corporation December 31, 2005 51

CONSOLIDATED BALANCE SHEETS

As at December 31 (in millions of dollars)

2005

2004

Assets

Current assets

Cash and short-term investments

$ 3,115

$ 2,866

2,170

1,992

465

7,760

2,690

1,279

519

2,540

1,577

1,437

441

708

7,029

1,542

659

271

1,450

858

$ 14,845

$ 11,809

3,305

2,603

850

4,164

3,863

–

1,115

767

10,050

3,643

1,152

227

482

3,325

1,968

156

1,093

691

938

8,194

3,388

227

$ 14,845

$ 11,809

Accounts receivable

Inventories (note 5)

Other current assets

Current assets held by discontinued operations (note 2)

Property, plant and equipment (note 6)

Investments and other assets (note 7)

Intangible assets (note 8)

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 9)

Obligations under capital leases of operating companies, without

recourse to Onex (note 10)

Exchangeable debentures (note 11)

Other liabilities (note 12)

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 10 and 24.

Signed on behalf of the Board of Directors

Director

52 Onex Corporation December 31, 2005

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 14)

Interest and other income

Equity-accounted investments

Foreign exchange loss

Stock-based compensation

Derivative instruments

Gains on sales of operating investments, net (note 15)

Acquisition, restructuring and other expenses (note 16)

Debt prepayment (note 17)

Writedown of goodwill and intangible assets (note 18)

Writedown of long-lived assets (note 19)

Earnings (Loss) before income taxes, non-controlling interests

and discontinued operations

Provision for income taxes (note 20)

Non-controlling interests

Earnings (Loss) from continuing operations

Earnings from discontinued operations (note 2)

2005

$ 16,559

(14,524)

(1,089)

946

(409)

(96)

(332)

145

(31)

(50)

921

(266)

(6)

(3)

(5)

819

(72)

752

213

2004

$ 13,639

(12,449)

(765)

425

(370)

(72)

(195)

102

(8)

(116)

(55)

107

(204)

(8)

(393)

(94)

(852)

(278)

891

(239)

274

Net Earnings for the Year

965

Net Earnings (Loss) per Subordinate Voting Share (note 21)

Basic and Diluted:

Continuing operations

Discontinued operations

Net earnings

5.41

1.54

6.95

(1.69)

1.94

0.25

Onex Corporation December 31, 2005 53

CONSOLIDATED STATEMENTS OF SHAREHOLDERS’ EQUITY

(in millions of dollars except per share data)

Balance – December 31, 2003

Dividends declared(a)

Issue of shares – dividend reinvestment plan

Purchase and cancellation of shares

Currency translation adjustment

Net earnings for the year

Balance – December 31, 2004

Dividends declared(a)

Issue of shares – dividend reinvestment plan(b)

Purchase and cancellation of shares

Currency translation adjustment

Net earnings for the year

Share
Capital
(note 13)

Retained
Earnings
(Deficit)

Cumulative
Translation
Adjustment

Total
Shareholders’
Equity

$ 618

$ (195)

$ (135)

$ 288

–

(37)

–

582

–

(4)

–

(15)

–

(113)

–

(288)

(15)

–

(14)

–

965

–

(67)

–

(7)

–

(15)

(150)

227

(15)

–

(18)

(7)

965

Balance – December 31, 2005

$ 578

$ 648

(74)

$ 1,152

(a) Dividends declared per Subordinate Voting Share during 2005 totalled $0.11 (2004 – $0.11).

(b)

In 2005, shares issued under the dividend reinvestment plan amounted to less than $1.

54 Onex Corporation December 31, 2005

CONSOLIDATED STATEMENTS OF CASH FLOWS

Year ended December 31 (in millions of dollars)

2005

2004

Operating Activities
Net earnings (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-cash component of restructuring
Non-controlling interests
Future income taxes (note 20)
Stock-based compensation
Derivative instruments
Gains on sales of operating investments, 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 (decrease) in cash due to changes in working capital items
Discontinued 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
Distributions by operating companies
Repurchase of share capital by operating companies
Increase (decrease) due to other financing activities
Discontinued operations

Investing Activities
Acquisition of operating companies, net of cash in acquired

companies of $263 (2004 – $35) (note 3)
Purchase of property, plant and equipment
Proceeds from sales of operating investments
Decrease due to other investing activities
Discontinued operations

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(a)

Cash and Short-term Investments – End of the Year(a)

(a)

Includes cash from discontinued operations of $444 at December 31, 2004 (note 2).

752

$ (239)

409
96
3
5
18
(5)
(14)
50
(4)
(921)
(28)

361
300

(59)
(54)
34
229

150
–

811

1,360
(1,041)
(15)
(18)
962
(506)
(273)
94
–

563

(1,490)
(550)
405
(73)
201

(1,507)

(133)

(62)
3,310

$ 3,115

370
72
393
94
45
(891)
244
55
(29)
(107)
189

196
49

(325)
68
(205)
(31)

(493)
384

136

2,369
(1,511)
(14)
(150)
464
–
(405)
(42)
(103)

608

(301)
(308)
60
(132)
644

(37)

707

(197)
2,800

$ 3,310

Onex Corporation December 31, 2005 55

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”). All
amounts are in Canadian dollars unless otherwise noted.

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 represent the accounts of the

Company and its subsidiaries, including its controlled operating

companies. All signiﬁcant intercompany balances and transactions

have been eliminated.

The Canadian Institute of Chartered Accountants (“CICA”)

issued Accounting Guideline 15, “Consolidation of Variable Interest

Entities”, which was applicable for Onex beginning in January 2005.

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

equity and/or their equity investors lack one or more speciﬁed

essential characteristics 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 adoption of this guideline did not have a material

effect on these audited annual consolidated ﬁnancial statements.

The principal operating companies and the Company’s

ownership and voting interests in these entities are as follows:

December 31, 2005

December 31, 2004

Ownership

Voting

Ownership

Voting

Celestica
Cineplex Entertainment(a)
ClientLogic

J.L. French Automotive

Radian

Cosmetic Essence

Center for Diagnostic

Imaging

Emergency Medical Services

Spirit AeroSystems

Skilled Healthcare

ONCAP

Magellan

13%

27%

68%

77%

90%

22%

20%

29%

22%

30%

–

79%

100%

89%

100%

97%

100%

–

18%

31%

68%

77%

89%

21%

–

84%

100%

88%

100%

–

The voting interest includes shares that Onex has the

right to vote through contractual arrangements or through multi-

ple voting rights attached to particular shares. In certain circum-

stances, the voting arrangements give Onex the right to elect the

majority of the board of directors.

In addition to the above, investments over which Onex

exercises signiﬁcant inﬂuence but does not control at Decem-

ber 31, 2005 are accounted for by the equity method and include

Res-Care, Inc. (“ResCare”) and Cypress Property & Casualty Insur-

ance Company.

Joint ventures, which are not variable interest entities,

are accounted for using the proportionate consolidation method.

The consolidated ﬁnancial statements include revenues of $8

(2004 – $6), net assets of $1 (2004 – nil) and net earnings before

income taxes of nil (2004 – nil) with respect to joint ventures.

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
Foreign currency translation

The Company’s operations conducted in foreign currencies, other

than those operations that are associated with investment-holding

subsidiaries, are considered to be self-sustaining operations. Assets

and liabilities of self-sustaining operations conducted in 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 operations conducted in

foreign currencies are shown as a separate component of share-

holders’ equity.

The Company, including investment-holding subsidiaries,

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.

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 approxi-

mates market value.

30%

100%

50%

Inventories

(a) Voting is with respect to Cineplex Entertainment Limited Partnership.

The ownership percentages are before the effect of any potential

dilution relating to the Management Investment Plans (the “MIP”)

as described in note 24(e).

Inventories are recorded at the lower of cost and replacement cost

for raw materials, and at the lower of cost and net realizable value

for work in progress and ﬁnished goods. For inventories in the

aerostructures segment, raw materials are stated based on the

average cost method. For substantially all other inventories, cost

is determined on a ﬁrst-in, ﬁrst-out basis.

56 Onex Corporation December 31, 2005

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

Property, plant and equipment

Property, plant and equipment are recorded at cost less accumu-

Investments and other assets
Investment company

lated amortization and provision for impairments, if any. For

In 2005, the Company formed OPMG LP (“Onex Public Markets

substantially all property, plant and equipment, amortization

Group” or “OPMG”) to invest in public companies without the

is provided for on a straight-line basis over the estimated useful

intent of obtaining inﬂuence over its investees. OPMG is consid-

lives of the assets: 18 to 40 years for buildings and up to 20 years

ered an Investment Company under Accounting Guideline 18,

for machinery and equipment. The cost of plant and equipment

“Investment Companies”. As a result, the investments of OPMG

is reduced by applicable investment tax credits more likely than

are recorded at fair value and are included in investments and

not to be realized.

other assets in the audited annual consolidated balance sheets.

Leasehold improvements are amortized over the terms

For the year ended December 31, 2005, included in income is $10

of the leases.

of net realized gains and nil net unrealized gains.

Leases that transfer substantially all the risks and beneﬁts

The Company does not control or have signiﬁcant inﬂu-

of ownership are recorded as capital leases. Buildings and equip-

ence over any of OPMG’s investments.

ment under capital leases are amortized over the shorter of the term

of the lease or the estimated useful life of the asset. Amortization of

Deferred charges

assets under capital leases is on a straight-line basis.

Costs incurred to develop computer software
for internal use

Deferred charges, which primarily represent 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, if earlier. Also included in deferred charges are capitalized

The Company capitalizes the costs incurred during the application

development costs.

development stage, which include costs to design the software

conﬁguration and interfaces, coding, installation and testing.

Costs incurred during the preliminary project stage, along with

post-implementation stages of internal use computer software,

are expensed as incurred. For the year ended December 31, 2005,

the Company capitalized computer software costs of $31. Amorti-

zation has not begun as of December 31, 2005 as the computer

software has not been placed in service.

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 projected

undiscounted future net cash ﬂows expected from its use and dis-

posal, and is measured as the amount by which the carrying

amount of the asset exceeds its fair value.

Assets must be classiﬁed as either held for use or available-

for-sale. Impairment losses for assets held for use are measured

based on fair value, which is measured by discounted cash ﬂows.

Available-for-sale assets are carried at the lower of carrying value

and expected proceeds less direct costs to sell.

Other long-term investments

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 a provision

is recorded.

Goodwill and intangible assets

Goodwill represents the cost of investments in operating com-

panies in excess of the fair value of the net identiﬁable assets

acquired. Essentially all of the goodwill and intangible asset

amounts that appear on the audited annual consolidated balance

sheets were recorded by the operating companies. The recov-

erability of goodwill and intangible assets with indeﬁnite lives

is assessed annually or whenever events or changes in circum-

stances indicate that the carrying amount may not be recoverable.

Impairment of goodwill is tested at the reporting unit level by

comparing the carrying value of the reporting unit to its fair value.

When the carrying value exceeds the fair value, an impairment

exists and is measured by comparing the carrying amount of

goodwill to its fair value determined in a manner similar to a pur-

chase price allocation. Impairment of indeﬁnite-life intangible

assets is determined by comparing their carrying values to their

fair values.

Intangible assets, including intellectual property, are

recorded at their allocated cost at the date of acquisition of the

related operating company. Amortization is provided for intangible

assets with limited life, including intellectual property, on a straight-

line basis over their estimated useful lives, which range from ﬁve

to 25 years. The weighted average period of amortization at Decem-

ber 31, 2005 was approximately seven years (2004 – 11 years).

Onex Corporation December 31, 2005 57

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

1. B A S I S O F P R E PA R AT I O N A N D

given vehicle’s production cycle. Once such agreements are

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 ( c o n t ’d )

entered into by the company, fulﬁllment of the customers’ pur-

Pension and non-pension post-retirement benefits

The operating companies accrue their obligations under employee

beneﬁt plans and related costs, net of plan assets. The costs of

deﬁned beneﬁt pensions and other retirement beneﬁts earned by

employees are accrued in the period incurred and are actuarially

determined using the projected beneﬁt method pro-rated on service,

based on management’s best estimates of items, including expected

plan investment performance, salary escalation, retirement ages of

employees and expected healthcare costs. Plan assets are valued at

fair value for the purposes of calculating expected returns on those

assets. Past service costs from plan amendments are deferred and

amortized on a straight-line basis over the average remaining ser-

vice 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 the beneﬁt

obligation and the fair value of plan assets are amortized over the

average remaining service period of active employees.

The average remaining service period of active employees

covered by the signiﬁcant pension plans is 11 years (2004 – 11 years)

and for those active employees covered by the other signiﬁcant

post-retirement beneﬁt plans is 18 years (2004 – 19 years).

Income taxes

Income taxes are recorded using the asset and liability method of

income tax allocation. Under this method, assets and liabilities are

recorded for the future income tax consequences attributable to dif-

ferences 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 dif-

ferences are estimated based on the current tax legislation and the

Company’s interpretation thereof. The Company records a valuation

allowance when it is more likely than not that all of the future tax

assets will not be realized prior to their expiration.

Revenue recognition

Revenues are principally comprised of product sales and ser-

vice revenues.

Revenue from product sales, primarily in the electronics

manufacturing services and automotive products segments, is

recognized upon shipment, when title passes to the customer.

Companies in the automotive segment enter into agreements to

manufacture products for their customers at the beginning of a

58 Onex Corporation December 31, 2005

chasing 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 manufacture such

products. In such situations, the operating company records a

liability for the estimated future amount of the losses. Such losses

are recognized at the time that the loss is probable and reasonably

estimable and are recorded at the minimum amount necessary to

fulﬁll the company’s obligation to the customer.

Revenue from product sales in the aerostructures seg-

ment is primarily recognized under the contract method of

accounting. Revenue and proﬁts are recognized on each contract

in accordance with the percentage-of-completion method of

accounting, using the units-of-delivery method. The number of

units is determined using a multi-year estimate; for the third

quarter an annual period was used. The effect of this change in

estimate in the fourth quarter was $25. The contract method of

accounting involves the use of various estimating techniques to

project costs to completion and includes estimates of recoveries

asserted against the customer for changes in speciﬁcations. These

estimates involve various assumptions and projections relative to

the outcome of future events, including the quantity and timing

of product deliveries. Also included are assumptions relative to

future labour performance and rates, and projections relative to

material and overhead costs. These assumptions involve various

levels of expected performance improvements.

Contract estimates are re-evaluated periodically and

changes in estimates are reﬂected in the current and future periods.

The cumulative catch-up method of accounting is used for revi-

sions in estimates of total revenue, total costs or extent of progress

on a contract. A signiﬁcant portion of revenue in the aerostructures

segment is under long-term volume-based pricing contracts,

requiring delivery of products over several years.

Depending on the terms under which the operating

companies supply product, they may also be responsible for some

or all of the repair or replacement costs of defective products.

The companies establish reserves for issues that are probable and

estimable in amounts management believes are adequate to cover

ultimate projected claim costs. The ﬁnal amounts determined to

be due related to these matters could differ signiﬁcantly from

recorded estimates.

In the electronics manufacturing services segment,

Celestica has contractual arrangements with certain customers

that require the customer to purchase certain inventory that

Celestica has acquired to fulﬁll forecasted manufacturing demand

provided by that customer. Celestica accounts for purchased

material returns to such customers as reductions in inventory and

does not record revenue on these transactions.

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

Revenue from services is primarily in the customer

to the market value of a subordinate voting share at the redemp-

management services, theatre exhibition and healthcare seg-

tion date. The DSU Plan enables Onex directors to apply directors’

ments. Service revenue is recognized primarily as services are

fees earned to acquire DSUs based on the market value of Onex

performed and is net of contractual discounts. For the theatre

shares at the time. Grants of DSUs may also be made to Onex

exhibition segment, revenue is recognized when admission and

directors from time to time. The DSUs vest immediately, are

concession sales occur at the theatres.

redeemable only when the holder retires and must be redeemed

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. During 2005, $60 (2004 – $46) in

research and development costs were expensed and $56 of devel-

opment costs (2004 – nil) were capitalized. Capitalized develop-

ment costs related to the aerostructures segment are included in

deferred charges, and will be amortized over the anticipated

number of production units to which such costs relate.

Stock-based compensation

The Company follows guidance in the Canadian Institute of Char-

tered Accountants Handbook (“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.

There are four types of stock-based compensation

plans. The ﬁrst is the Company’s Stock Option Plan (the “Plan”)

described in note 13(e), which provides that in certain situations

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, 2005 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 audited annual consolidated statement

of earnings.

The fourth type is employee stock option plans in place

for employees at various operating companies, under which, on

payment of the exercise price, stock of the particular operating

company is issued. The Company records a compensation expense

for such options based on the fair value over the vesting period.

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.

the Company has the right, but not the obligation, to settle any

Hedging relationships

exercisable option under the Plan by the payment of cash to

Effective January 1, 2004, the Company adopted Accounting

the option holder. The Company has recorded a liability for the

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

potential future settlement of the value of vested options at the

Relationships”, which addresses the identiﬁcation, designation,

balance sheet date by reference to the value of Onex shares at that

documentation and effectiveness of hedging relationships for the

date. On a quarterly basis, the liability is adjusted up or down for

purpose of applying hedge accounting. AcG-13 also establishes

the change in the market value of the underlying shares, with the

certain conditions for applying hedge accounting and deals with

corresponding amount reﬂected in the audited annual consoli-

discontinuance of hedge accounting. The Company also adopted

dated statements of earnings.

Emerging Issues Committee Abstract 128 (“EIC-128”), “Accounting

The second type of plan is the MIP, which is described in

for Trading, Speculative or Non-Hedging Derivative Financial

note 24(e). The MIP provides that exercisable investment rights

Instruments”. This EIC abstract requires that any derivative ﬁnan-

may be settled by issuance of the underlying shares or, in certain

cial instrument that is not designated as a compliant hedge under

situations, by a cash payment for the value of the investment

AcG-13 be measured at fair value, with changes in fair value

rights. Under the MIP, once the targets have been achieved for the

recorded in current year income.

exercise of investment rights, a liability is recorded for the value of

Under this pronouncement, the Company’s hedge rela-

the investment rights under the MIP by reference to the value of

tionships for its exchangeable debentures and forward sales con-

underlying investments, with a corresponding compensation

tracts no longer qualiﬁed for hedge accounting and thus, on a

expense recorded in the audited annual consolidated statements

prospective basis, the changes in fair values of these instruments

of earnings, classiﬁed as either discontinued operations or gains

from January 1, 2004 have been reﬂected in the audited annual con-

on sales of operating investments for realized investments.

solidated statements of earnings under “Derivative instruments”.

The third type of plan, which began in 2004, is the

Previously deferred gains on these instruments, which at January 1,

Deferred Share Unit Plan. A Deferred Share Unit (“DSU”) entitles

2004 amounted to $549 for the exchangeable debentures and $181

the holder to receive, upon redemption, a cash payment equivalent

for the forward sales contracts, were deferred until the instruments

were settled in June 2005 and February 2005, respectively.

Onex Corporation December 31, 2005 59

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

1. B A S I S O F P R E PA R AT I O N A N D

and losses on hedged forecast transactions are recognized in

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 ( c o n t ’d )

earnings immediately when the hedge is no longer effective or the

Derivative financial instruments

forecasted transactions are no longer expected.

The Company’s operating companies use foreign currency con-

Financial instruments – presentation and disclosure

tracts and interest rate swap agreements as derivative ﬁnancial

In December 2004, the Company adopted the amendment to CICA

instruments to manage risks from ﬂuctuations in exchange rates

Handbook Section 3860, “Financial Instruments – Presentation and

and interest rates. When determined to be compliant hedges

Disclosure”. The amendment requires obligations of a ﬁxed amount

under AcG-13, the carrying value of the ﬁnancial instruments are

that may be settled, at the issuer’s option, by a variable number of

not adjusted to reﬂect their current market value. The current

the issuer’s own equity to be presented as liabilities. Any securities

market values of these instruments are disclosed in note 22.

issued by an enterprise that give the issuer unrestricted rights

The Company and its operating companies formally

to settle the principal amount in cash or the equivalent value of

document relationships between hedging instruments and hedged

its own equity instruments are no longer presented as equity.

items, as well as the risk management objective and strategy for

This standard was applicable on a retroactive basis with restate-

undertaking various hedge transactions. This process includes

ment of prior periods. As a result of adopting this standard, as at

linking all derivatives to speciﬁc assets and liabilities on the bal-

December 31, 2004 the Company reclassiﬁed $149 of the principal

ance sheet or to speciﬁc ﬁrm commitments or forecasted trans-

component of convertible debt held by one of its operating compa-

actions. The Company also formally assesses, both at the hedge’s

nies from non-controlling interests liability to long-term debt.

inception and at the end of each quarter, whether the derivatives

that are used in hedged transactions are highly effective in off-

Use of estimates

setting changes in the cash ﬂows of hedged items.

The preparation of consolidated ﬁnancial statements in conformity

Gains and losses on hedges of ﬁrm commitments are

with Canadian generally accepted accounting principles requires

included in the cost of the hedged transaction when they occur.

Gains and losses on hedges of forecasted transactions are recognized

in earnings in the same period and on the same line item as the

underlying hedged transaction. Foreign exchange translation gains

and losses on forward contracts used to hedge foreign currency-

denominated amounts are accrued on the audited annual consoli-

dated balance sheets as current assets or current liabilities and are

management of Onex and its operating companies to make esti-

mates and assumptions that affect the reported amounts of assets

and liabilities, the disclosure of contingent assets and liabilities

at the date of the audited annual consolidated ﬁnancial state-

ments 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

recognized currently in the audited annual consolidated statements

segment. Actual results could differ from such estimates.

of earnings, offsetting the respective translation gains or losses on

the foreign currency-denominated amounts. The forward premium

or discount is amortized over the term of the forward contract. Gains

Comparative amounts

Certain amounts presented in the prior year have been reclassi-

ﬁed to conform to the presentation adopted in the current year.

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 revenue and net after-tax results from discontinued operations.

CMC Electronics(a)

InsLogic(b)

Magellan(c)

Commercial Vehicle Group(d)

Cineplex Entertainment(e)

Futuremed(f)

Dura Automotive

Loews Cineplex Group

Armtec

2005

2004

Revenue

–

744

–

129

2,199

241

635

702

2005

Onex’ Share
of Earnings
(Loss)

Gain, Net
of Tax

–

$ –

–

(1)

–

Total

(1)

–

Gain, Net
of Tax

–

135

2004

Onex’ Share
of Earnings
(Loss)

(9)

–

Total

(9)

–

140

$ 885

$ 4,085

$ 210

$ 3

$ 213

$ 263

$ 11

$ 274

60 Onex Corporation December 31, 2005

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

a) During 2005, CMC Electronics Inc. (“CMC Electronics”) sold its
interest in NovAtel Inc. (“NovAtel”) for net proceeds of $153. Onex’

e) In July 2005, Cineplex Entertainment Limited Partnership
(“Cineplex Entertainment”), formerly known as Cineplex Galaxy

accounting gain on the disposition was $45, before a tax provision

Limited Partnership, completed the acquisition of the Famous

of nil. Also included in CMC Electronics’ results from discontinued

Players movie exhibition business, as described in note 3. In con-

operations is the December 2004 sale of Cincinnati Electronics.

nection with the acquisition, Cineplex Entertainment entered into

Under the terms of the MIP, as described in note 24(e),

a consent agreement with the Commissioner of Competition that

management members, including ONCAP LP (“ONCAP I”) man-

required the divestiture of 34 theatres. In addition, Cineplex

agement, participated in the realizations the Company achieved

Entertainment intends to sell the remainder of its Alliance Atlantis

on its sale of CMC Electronics’ Cincinnati Electronics business

brand theatres. The results of operations for those theatres have

unit in 2004 and NovAtel in 2005. Amounts accrued to be paid on

been reclassiﬁed as discontinued operations. During 2005, Cine-

account of these transactions related to the MIP totalled $6 and

plex Entertainment sold 29 theatres (including 27 theatres sold

have been deducted from earnings from discontinued operations.

pursuant to the consent agreement referred to above) for proceeds

b) In January 2005, the Company sold its interest in InsLogic
Corporation (“InsLogic”) for net proceeds of $22 against a cost of

of $86. The pre- and post-tax accounting gain on the disposition

was $15, of which Onex’ share was $2.

$52. The accounting gain on the disposition of $73, before a tax

provision of nil, was comprised of the proceeds as well as the

f) In December 2005, Futuremed Healthcare Products L.P. (“Future-
med”), an ONCAP operating company, ﬁled a registration state-

reversal of losses of InsLogic previously recognized by the Com-

ment with the Ontario Securities Commission for an initial public

pany. There was no MIP distribution regarding InsLogic as the

offering of income trust units. The offering was completed

required performance targets were not achieved.

in January 2006 with 92% of ONCAP I’s ownership being sold

c) In May and June 2005, Onex and Onex Partners LP (“Onex
Partners”) sold 56% of their investment in shares of Magellan

Health Services, Inc. (“Magellan”) through a secondary offering of

and the remaining portion sold in February 2006. Through the

offering, ONCAP I received net proceeds of $71, of which Onex’

share was $23.

common stock. Proceeds received were $176, of which Onex’

The results of operations for the businesses described above have

share was $47, including $6 for Onex’ portion of the carried inter-

been reclassiﬁed in the audited annual consolidated statements

est. The pre-tax gain was $83, of which Onex’ share was $20,

of earnings and audited annual consolidated statements of cash

before a tax provision of $5. As a result of these transactions,

ﬂows for the years ended December 31, 2005 and 2004 as discon-

Onex’ and Onex Partners’ equity ownership in Magellan was

tinued operations. The amounts for operations now discontinued

reduced to 11% and the Company began recording its remaining

that were included in the December 31, 2005 and December 31,

investment at cost.

2004 audited annual consolidated balance sheets are as follows:

In November 2005, Onex and Onex Partners sold their

remaining investment in Magellan for proceeds of $126, of which

As at December 31, 2005

Cineplex
Entertainment

Futuremed

Total

Onex’ share was $34, including $4 for Onex’ portion of the carried

interest. The pre-tax gain was $52, of which Onex’ share was $10,

before a tax provision of $3.

Amounts paid on account of these transactions related

Current assets held by

discontinued operations

$ 1

$ 17

$ 18

Long-lived assets held by

discontinued operations

–

(8)

to the MIP totalled $3 and have been deducted from earnings

Current liabilities held by

from discontinued operations. Amounts received on account of

discontinued operations

these transactions related to the carried interest as described in

Long-term liabilities held by

note 24(d) totalled $24, of which Onex’ portion was $10 and man-

discontinued operations

(3)

(61)

(64)

agement’s portion was $14.

Net assets of discontinued

operations

$ 1

$ 2

$ 3

d) In July 2005, Onex sold its remaining investment in Commer-
cial Vehicle Group, Inc. (“CVG”) as part of a public offering by CVG

for net proceeds of $81. The pre-tax gain was $79 before a tax pro-

vision of $11. Due to the sale occurring within one year of Onex’

August 2004 initial disposition of CVG shares, CVG’s results of

operations have been reclassiﬁed as discontinued operations.

Amounts paid on account of these transactions related to the MIP,

as described in note 24(e), totalled $7 and have been deducted

from earnings from discontinued operations.

Onex Corporation December 31, 2005 61

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 ( c o n t ’d )

As at December 31, 2004

Cash

Accounts receivable

Other current assets

Current assets held by discontinued operations

Property, plant and equipment

Goodwill

Intangibles and other assets

Long-lived assets held by discontinued operations

Accounts payable and accrued liabilities

Current portion of long-term debt and obligations

under capital leases, without recourse to Onex

Current liabilities held by discontinued operations

Long-term debt and obligations under capital leases

Other liabilities

Non-controlling interests and cumulative translation adjustment

Long-term liabilities held by discontinued operations

InsLogic

CMC
Electronics

Magellan

Cineplex
Enter-
tainment(a)

Futuremed

Total

–

(5)

–

(5)

(52)

–

(52)

–

(11)

–

(11)

–

(16)

$ 421

162

649

147

472

155

774

(363)

(90)

(453)

(366)

(3)

(462)

(831)

–

(9)

(4)

(13)

(31)

–

(8)

(39)

$ 444

174

708

169

488

201

858

(388)

(94)

(482)

(449)

(3)

(486)

(938)

Net assets (liabilities) of discontinued operations

$ (53)

$ 139

$ 146

(a)

Includes only those theatres that have been or are intended to be divested.

3 . C O R P O R AT E I N V E S T M E N T S

During 2005 and 2004 several acquisitions 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 5 A C Q U I S I T I O N S
a) In January 2005, the Company completed the acquisition of
Center for Diagnostic Imaging, Inc. (“CDI”). CDI owns and oper-

ates diagnostic imaging centres in nine markets in the United

States. The total equity investment of $88 for an 84% equity own-

ership interest was made by Onex and Onex Partners. Onex’ net

investment in this acquisition was $21 for a 20% equity ownership

equity ownership interest was made by Onex and Onex Partners.

Onex’ net investment in this acquisition was $100 for a 36% equity

ownership at the time of acquisition. Onex has effective voting

control of EMSC through Onex Partners.

c) In April 2005, Cosmetic Essence, Inc. (“CEI”) completed the
acquisition of Hauer Custom Manufacturing, Inc. (“Hauer”). Hauer

is a full-service manufacturer of household products. The total

purchase price of the acquisition was $23, which was ﬁnanced

with $23 of borrowings, which are without recourse to Onex.

d) In June 2005, the Company completed the acquisition of the
Wichita-Tulsa Division of The Boeing Company (“Boeing”). The

at the time of acquisition. Onex has effective voting control of CDI

purchase included Boeing’s commercial aerostructures manu-

through Onex Partners.

b) In February 2005, the Company completed the acquisition of
American Medical Response, Inc. (“AMR”) and EmCare Holdings

Inc. (“EmCare”). AMR is a leading provider of ambulance trans-

port services in the United States. EmCare is a leading provider of

outsourced hospital emergency department physician stafﬁng

and management services in the United States. The combined

entity now operates under Emergency Medical Services Corpo-

ration (“EMSC”). The total equity investment of $266 for a 97%

62 Onex Corporation December 31, 2005

facturing facilities in Wichita, Kansas and Tulsa and McAlester,

Oklahoma. The business, now operating as Spirit AeroSystems,

Inc. (“Spirit AeroSystems”), has entered into long-term agree-

ments with Boeing to supply components for all of Boeing’s

existing 737, 747, 767 and 777 platforms, as well as the new 787

platform. Spirit AeroSystems will also seek business from cus-

tomers other than Boeing. The total equity investment of $464 for

a 100% equity ownership interest was made by Onex and Onex

Partners. Onex’ net investment in this acquisition was $134 for

a 29% equity ownership at the time of acquisition. Onex has effec-

tive voting control of Spirit AeroSystems through Onex Partners.

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

e) In July 2005, Cineplex Entertainment completed the acquisition
of the Famous Players movie exhibition business in a transaction

g) During 2005, two of ONCAP’s operating companies, Western
Inventory Service Ltd. (“WIS”) and Canadian Securities Regis-

valued at $473. To provide ﬁnancing for the acquisition, various

tration Systems Ltd. (“CSRS”) completed acquisitions. In April

debt and equity transactions were entered into, as described

2005, WIS acquired Washington Inventory Service (“Washington”),

in note 9(b). In connection with the acquisition, Onex received

a leading provider of inventory counting services in the United

248,447 units as a transaction fee but did not sell or purchase any

States. After the acquisition, WIS and Washington merged to form

additional units in the equity offering. As a result, Onex’ owner-

the second largest inventory counting service provider in the

ship interest in Cineplex Entertainment was diluted to 27% from

world. In May 2005, CSRS acquired Corporate Research and

31% and Onex recorded a dilution gain, as described in note 15.

Analysis Centre Ltd., a provider of corporate and legal searches in

Onex will continue to control and consolidate Cineplex Enter-

Canada. The total purchase price of these acquisitions was $144

tainment subsequent to the transaction.

and was ﬁnanced with $143 of borrowings, which are without

In connection with the acquisition, Cineplex Entertain-

recourse to Onex or ONCAP, and $1 of equity. Onex’ net invest-

ment entered into a consent agreement with the Commissioner of

ment in these acquisitions was less than $1.

Competition to divest itself of 34 theatres. Accordingly, the ﬁnan-

cial results for those theatres have been included in discontinued

operations, as described in note 2.

During the fourth quarter of 2005, Cineplex Entertain-

ment entered into a Media Sales Governing Agreement, which

allowed for the termination and windup of Famous Players Media

Inc. and the acquisition of three Famous Players branded enter-

tainment magazines in a transaction valued at $1.

f) In December 2005, the Company completed the acquisition
of Skilled Healthcare Group, Inc. (“Skilled Healthcare”). Skilled

Healthcare operates skilled nursing and assisted living facilities

in California, Texas, Kansas and Nevada. The total equity invest-

ment of $243 for a 93% equity ownership was made by Onex and

Onex Partners. Onex’ share of the investment in this acquisition

was $57 for a 22% equity ownership at the time of acquisition.

Onex has effective voting control of Skilled Healthcare through

Onex Partners.

Details of the 2005 acquisitions are as follows:

h) Other includes acquisitions completed by CDI and Celestica
Inc. (“Celestica”).

The purchase prices of the acquisitions described above were

allocated to the net assets acquired based on their relative fair

values at the date of acquisition. In certain circumstances where

estimates have been made, the companies are obtaining third-

party valuations of certain assets, which could result in further

reﬁnement of the fair-value allocation of certain purchase prices.

The results of operations for all acquired businesses are included

in the audited annual consolidated statement of earnings of the

Company from their respective dates of acquisition.

2005 Acquisitions

CDI(a)

EMSC(b)

CEI(c)

AeroSystems(d)

Entertainment(e)

Healthcare(f)

ONCAP(g)

Other(h)

Spirit

Cineplex

Skilled

Cash

Current assets

Intangible assets with limited life

Intangible assets with indefinite life

Goodwill

Property, plant and equipment

and other long-term assets

Current liabilities

Acquisition financing

Long-term liabilities(1)

Non-controlling interests

in net assets

111

251

(28)

–

(117)

106

(18)

609

111

311

466

1,516

(304)

–

(940)

272

(6)

Interest in net assets acquired

$ 266

–

(2)

(23)

–

(1)

Included in liabilities is $2,268 raised in connection with the original acquisitions.

$ 168

642

–

743

1,591

(140)

–

(987)

464

–

198

317

622

(87)

(353)

(61)

121

(113)

451

345

932

(69)

–

(602)

261

(18)

$ 464

$ 243

–

113

198

(26)

(143)

(28)

–

(4)

–

(1)

–

Onex Corporation December 31, 2005 63

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

3 . C O R P O R AT E I N V E S T M E N T S ( c o n t ’d )

facilities. CSRS, headquartered in British Columbia, Canada, is a

2 0 0 4 A C Q U I S I T I O N S
a) In January 2004, the Company completed an investment in
Magellan. Headquartered in Connecticut, United States, Magellan

is a behavioural managed healthcare organization in the United

States. The total equity investment was $131 for a 24% ownership

interest. This was provided through Onex and Onex Partners.

Onex’ net investment was $30 for a 6% equity ownership. Onex

had effective voting control of Magellan through Onex Partners.

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

national provider of Personal Property Security Act registration

and search services in Canada. The total purchase price of the

acquisitions of $208 was ﬁnanced with $133 of borrowings, which

are without recourse to Onex or ONCAP, and $75 of equity. Onex’

net investment in these acquisitions was $17. Onex had indirect

voting control of Futuremed and continues to have indirect

voting control of CSRS.

d) In December 2004, the Company completed the acquisition
of CEI. CEI, headquartered in New Jersey, United States, is a

provider of outsourced supply chain management services to the

personal care industry. The investment 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.

Celestica. The value of the shares was determined based on the

The purchase prices of the acquisitions were allocated to the net

average market price of the shares for a reasonable period before

assets acquired based on their relative fair values at the dates of

and after the date on which the terms of the acquisition were

acquisition. In certain circumstances where estimates had been

agreed to and announced. In April 2004, Celestica paid approx-

made, there were no material adjustments as a result of further

imately $10 in cash to acquire certain assets located in the

reﬁnement of the fair-value allocation of certain purchase prices.

Philippines from NEC Corporation.

c) During 2004, ONCAP completed the acquisitions of Futuremed
and CSRS. Futuremed, headquartered in Ontario, Canada, is a

supplier of medical supplies and equipment to long-term care

The results of operations for all acquired operations are included

in the audited annual consolidated statements of earnings of the

Company from their respective dates of acquisition.

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)(1)

Celestica(b)

ONCAP(c)(1)

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

(1) Magellan and Futuremed, a subsidiary of ONCAP, were recorded as discontinued operations as at December 31, 2005, as described in note 2.

The cost of acquisitions made during the year includes restruc-

liabilities include $138 and $3, respectively (2004 – $96 and $2), for

turing and integration costs of $15 (2004 – $25). As at December 31,

these and earlier acquisitions.

2005, accounts payable and accrued liabilities and other long-term

64 Onex Corporation December 31, 2005

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

4 . J . L . F R E N C H A U T O M O T I V E

The difﬁcult conditions affecting the North American automotive

supply sector have rendered J.L. French Automotive Castings, Inc.

The following amounts for J.L. French Automotive are

included in the December 31, 2005 and December 31, 2004 con-

solidated balance sheets:

(“J.L. French Automotive”) unable to meet the ﬁnancial require-

As at December 31

2005

2004

ments under certain of its lending agreements. Management of

Cash and short-term investments

J.L. French Automotive has been working with the senior debt

Accounts receivable

holders and other creditor groups to arrange a restructuring of

Inventories

J.L. French Automotive’s debts. In February 2006, J.L. French Auto-

Other current assets

motive ﬁled for protection under Chapter 11 of the Bankruptcy

Code in the United States. It is contemplated that Onex will have

a minimal to no ownership interest in and will cease to control

J.L. French Automotive following the restructuring. The debt of

J.L. French Automotive has been recorded as current and Onex

does not guarantee any of the debt or liabilities of J.L. French

Property, plant and equipment

Investments and other assets

Intangible assets

Accounts payable and accrued liabilities

Current debt, without recourse to Onex

Obligations under capital leases

Long-term debt, without recourse to Onex

Automotive. No adjustments, other than those described above,

Other liabilities

have been made to the carrying amount of the assets or liabilities

Cumulative translation adjustment

263

(71)

(783)

(19)

–

(13)

(129)

302

(105)

(22)

(28)

(698)

(10)

(123)

of J.L. French Automotive in the audited annual consolidated

Net liabilities

$ (607)

(535)

balance sheets.

The net book value of the investment in J.L. French

Automotive recorded in the audited annual consolidated ﬁnancial

statements as at December 31, 2005 is negative $607. If Onex’

equity ownership in J.L. French Automotive were disposed of or

abandoned in its entirety for no value, Onex would recognize an

accounting gain of $607.

For statements of earnings information regarding J.L. French

Automotive, see note 27, “Information by Industry and Geo-

graphic Segment” under the segment “Automotive Products”.

5 . I N V E N T O R I E S

Inventories comprised the following:

As at December 31

Raw materials

Work in progress

Finished goods

2005

$ 1,033

689

270

2004

939

236

262

$ 1,992

$ 1,437

6 . 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

2005

Land

Buildings

Machinery and equipment

Construction in progress

Cost

Accumulated
Amortization

Net

137

1,278

2,888

256

–

236

1,633

–

137

1,042

1,255

256

2004

Accumulated
Amortization

–

236

1,323

–

Cost

104

825

2,143

Net

104

589

820

$ 4,559

$ 1,869

$ 2,690

$ 3,101

$ 1,559

$ 1,542

The above amounts include property, plant and equipment under capital leases of $346 (2004 – $137) and related accumulated amortization

of $103 (2004 – $80).

As at December 31, 2005, property, plant and equipment included $17 (2004 – $43) of assets held for sale.

Onex Corporation December 31, 2005 65

e) In connection with the acquisition of Spirit AeroSystems from
Boeing, Boeing will make quarterly payments to Spirit Aero-

Systems beginning in March 2007 through December 2009. The

fair value of the receivable was recorded as a long-term asset on

the opening balance sheet. The fair value is being accreted to the

principal amount over the term of the agreement. The carrying

value of the receivable as at December 31, 2005 was $247.

8 . I N TA N G I B L E A S S E T S

Intangible assets comprised the following:

As at December 31

2005

2004

Intellectual property with limited life,

net of accumulated amortization

of $165 (2004 – $156)

Intangible assets with limited life,

net of accumulated amortization

of $230 (2004 – $193)

Intangible assets with indefinite life

417

194

519

271

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 obtained in the acquisition of

certain facilities.

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

7. 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)
Marketable securities – at cost(b)

Public entities held by OPMG –

at market(c)

Equity-accounted investments(d)

Deferred charges

Derivative instruments (note 22(b))

Future income taxes (note 20)
Boeing receivable(e)

Other

2005

2004

123

140

136

221

–

235

247

136

111

–

135

186

–

$ 1,279

659

a) The market value of the private entities is not readily deter-
minable with a sufﬁcient degree of precision.

b) The market value of the investments held by the Company as at
December 31, 2005 was $118 and $149 at December 31, 2004. The

December 31, 2004 market value included $128 for an investment

in Compagnie Générale de Géophysique (“CGG”) that was pur-

chased at a cost of $102 in November 2004. The investment in

CGG was sold in 2005.

c) As at December 31, 2005, marketable securities held by OPMG
include $13 of unrealized gains and $13 of unrealized losses.

d) Included in equity-accounted investments is the investment
in ResCare. In June 2004, the Company and Onex Partners com-

pleted a $114 equity investment in ResCare for a 28% effective

ownership interest. Onex’ portion of the investment was approx-

imately $27, representing an initial 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.

66 Onex Corporation December 31, 2005

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

9. 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 Entertainment(b)

7.875% subordinated notes due 2011
7.625% subordinated notes due 2013
Liquid Yield Option™ notes, due 2020

Revolving credit facility and term loans due 2009
Revolving credit facility and term loans due 2006
Galaxy Entertainment notes due 2028
Other

ClientLogic(c)

Revolving credit facility due 2005
Revolving credit facility and term loans due 2010 and 2012
Other, including debt denominated in foreign currencies

J.L. French Automotive(d)

Revolving credit facility and term loans due 2011 and 2012
Mandatorily redeemable preferred shares
11.5% subordinated notes due 2009
Other

Radian(e)

Revolving credit facility and term loan due 2007
Subordinated secured debentures due 2007
Other

Cosmetic Essence(f)

Revolving credit facility and term loans due 2010 and 2011
Subordinated secured notes due 2014

Center for Diagnostic Imaging(g)

Revolving credit facility and term loan due 2010

Emergency Medical Services(h)

Revolving credit facility and term loan due 2011 and 2012
Subordinated secured notes due 2015

Spirit AeroSystems(i)

Revolving credit facility and term loan due 2010 and 2011
Other

Skilled Healthcare(j)

ONCAP companies (k)

Revolving credit facility and term loan due 2010
11.0% subordinated notes due 2014
Other

Term loans due 2006 to 2011
Subordinated notes due 2009 and 2010
Other

Less: long-term debt held by the Company

Current portion of long-term debt of operating companies

2005

2004

581
291
–

872

244
–
100
2

346

–
159
99

258

535
239
33
20

827

32
16
–

155
77

232

289
291

580

810
29

839

301
231
3

535

224
51
1

276

(206)

4,688
(825)

601
–
149

750

–
126
–
3

129

142
–
96

238

490
209
35
33

767

31
16
10

152
72

224

–

–
–

–

–
–

–

–
–
–

–

166
46
1

213

(204)

2,174
(206)

Consolidated long-term debt of operating companies, without recourse to Onex

$ 3,863

$ 1,968

Onex Corporation December 31, 2005 67

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

9. 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 ,

Class C LP Units through the issuance of 6,835,000 units and the

W I T H O U T R E C O U R S E T O O N E X ( c o n t ’d )

issuance of $105 convertible extendible unsecured subordinated

Onex does not guarantee the debt of its operating companies, nor

are there any cross-guarantees between operating companies.

The ﬁnancing arrangements for each operating company

typically contain certain restrictive covenants, which may include

limitations or prohibitions on additional indebtedness, payment of

cash dividends, redemption of capital, capital spending, making of

investments and acquisitions and sale of assets. In addition, certain

ﬁnancial covenants must be met by the operating companies which

have outstanding debt.

Future changes in business conditions of an operating

company may result in non-compliance with certain covenants

by the company. No adjustments to the carrying amount or classi-

ﬁcation of assets or liabilities of any operating company has been

made in the audited annual consolidated ﬁnancial statements

with respect to any possible non-compliance.

a) Celestica

In June 2004, Celestica amended its credit facility to US$600 and

extended the maturity from October 2004 to June 2007. There were

no borrowings outstanding under this facility at December 31,

2005. The facility has restrictive covenants relating to debt incur-

rence and sale of assets and also contains ﬁnancial covenants that

require Celestica to maintain certain ﬁnancial ratios. Based on the

required minimum ﬁnancial ratios, at December 31, 2005, Celestica

was limited to approximately US$250 of available debt incurrence.

In June 2004, Celestica issued senior subordinated notes

due 2011 with an aggregate principal amount of US$500, and a

ﬁxed interest rate of 7.875%. In connection with the 2011 notes

offering, Celestica entered into interest rate swap agreements that

swap the ﬁxed interest rate on the notes with a variable interest

rate based on LIBOR plus a margin. The average interest rate on

the notes was 6.4% for 2005 (2004 – 4.9%). The 2011 notes may be

redeemed on July 1, 2008 or later at various premiums above face

value. A portion of the proceeds was used in the second quarter of

2004 to repurchase Liquid Yield OptionTM notes (“LYONs”).

In June 2005, Celestica issued senior subordinated notes

due 2013 with an aggregate principal amount of US$250 and a

ﬁxed interest rate of 7.625%. The 2013 notes may be redeemed on

July 1, 2009 or later at various premiums above face value. A por-

tion of the proceeds was used in the third quarter of 2005 to

repurchase the remaining LYONs.

b) Cineplex Entertainment

To fund the July 2005 acquisition of Famous Players, Cineplex

Entertainment issued indirectly to Cineplex Galaxy Income Fund

(“CGIF”) 6,835,000 Class A LP Units for gross proceeds of approxi-

mately $110 and 5,600,000 Class C LP Units for gross proceeds of

$105. CGIF ﬁnanced the acquisition of the Class A LP Units and

68 Onex Corporation December 31, 2005

debentures. The above resulted in Onex no longer consolidating

CGIF but continuing to consolidate Cineplex Entertainment.

Galaxy Entertainment Inc., a subsidiary of Cineplex

Entertainment, has notes outstanding in the amount of $100,

which are due indirectly to CGIF. The notes bear interest at a rate

of 14%, are payable monthly with principal due November 2028

and are subordinate to the amended credit facilities described

below. As a result of Onex no longer consolidating CGIF, these

notes, which were previously eliminated on consolidation, are

now reﬂected as long-term debt.

The new Class C LP Units issued by Cineplex Enter-

tainment are redeemable by CGIF under certain conditions and as

such they have characteristics of both debt and equity. As a result,

an amount of $98 is classiﬁed as a liability and is included in other

liabilities. An amount of $9 is recorded in non-controlling interest.

In connection with the acquisition, Cineplex Enter-

tainment entered into an amended and restated credit agreement

with a syndicate of lenders pursuant to which it has available:

(i) a 364-day $50 extendible senior secured revolving credit facility;

(ii) a four-year $315 senior secured non-revolving term credit

facility; and (iii) a four-year $60 senior secured revolving credit

facility. The amended credit facilities bear interest at a ﬂoating

rate based on the prime business rate, or bankers’ acceptance

rate, plus an applicable margin. As at December 31, 2005, nil and

$9 were outstanding on the 364-day and four-year revolving facili-

ties and $235 was outstanding on the term facility.

Effective July 22, 2005, Cineplex Entertainment entered

into interest rate swap agreements to pay interest at a ﬁxed rate of

3.8% per annum, plus an applicable margin, and receive a ﬂoating

rate. The swaps have terms of four years and an aggregate principal

amount outstanding of $200.

c) ClientLogic

At December 31, 2004, ClientLogic Corporation (“ClientLogic”)

had US$118 outstanding under the terms of a revolving credit facil-

ity due in March 2005. In March 2005, ClientLogic entered into a

new credit agreement that provides up to US$157, consisting of a

ﬁrst lien revolving facility of up to US$30, due 2010, a ﬁrst lien term

facility of up to US$77 and a second lien term facility of up to

US$50, both due in 2012. At December 31, 2005, amounts out-

standing under these facilities were US$11, US$77 and US$50,

respectively. The proceeds from this facility were used to repay all

amounts owing under the former credit facility. The facilities bear

interest at a rate of either LIBOR or the federal funds rate, plus an

applicable margin. As a term of this facility, the demand note of

US$38 held by Onex, as described below, was converted to manda-

torily redeemable preferred shares. The ﬁrst lien facility is due

March 2012, with quarterly payments required beginning in 2005.

The second lien facility is due September 2012, with no principal

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

payments due until maturity. ClientLogic is also required to pre-

Interest on the senior secured credit facilities, depending

pay certain amounts under the ﬁrst and second lien facilities

on the type and amount of the borrowings under these facilities, can

should ClientLogic initiate speciﬁed transactions, including the

range from prime rate plus 3.5% to 6.0% per annum, the LIBOR rate

issuance of equity, sale of certain assets, additional debt issuance

plus 4.5% or the Eurocurrency rate plus 7.0% per annum. Interest

or the maturity of certain notes held by a separate party, if not

payments are due quarterly.

otherwise extended. Borrowings under the credit facility are collat-

Borrowings under the credit facilities are secured and

eralized by substantially all of ClientLogic’s assets.

guaranteed by a ﬁrst priority lien on substantially all of J.L.

At December 31, 2005 ClientLogic had US$59 (2004 –

French Automotive’s assets, including a pledge of all of the capital

US$52) in other debt instruments with varying terms. Included in

stock of each of the company’s directly owned domestic sub-

this amount are mandatorily redeemable preferred shares held

sidiaries and 65% of the capital stock of directly owned foreign

by Onex of US$51, which were converted from a demand note of

subsidiaries. An element of the credit facilities is secured and

US$38 in 2005.

guaranteed by a second priority lien on substantially all of J.L.

ClientLogic has US$25 (2004 – US$27) of loan notes

French Automotive’s assets.

outstanding denominated in pounds sterling which bear interest

Also outstanding at December 31, 2005 was US$29 (2004 –

at 6.5% and are repayable in June 2008. Interest compounds and

US$29) of subordinate notes originally due 2009.

is added to the notes. The amount of accrued interest at Decem-

ber 31, 2005 was US$5 (2004 – US$5).

e) Radian

ClientLogic has entered into an interest rate swap

agreement that effectively ﬁxes the interest rate on US$70 of

borrowings under the credit facility. The interest rate swap agree-

ment expires in 2006.

d) J.L. French Automotive

Radian’s credit agreement has a revolving credit facility of $20 and

a term loan of $15. Borrowings under the credit agreement are due

in June 2007. Both the revolving credit facility and term loan bear

interest at short-term borrowing rates plus a margin. The out-

standing borrowings at December 31, 2005 on the revolving credit

facility and term loan were $17 and $15 (2004 – $16 and $15),

As described in note 4, J.L. French Automotive ﬁled for bank-

respectively. The weighted average interest rate for borrowings

ruptcy protection in February 2006. As a result, as at December 31,

under the credit agreement was 7.0% in 2005 (2004 – 6.9%). Bor-

2005, the debt of J.L. French Automotive is classiﬁed as current

rowings under the credit agreement are collateralized by substan-

as the company has not met its requirements under its lending

tially all of the assets of Radian.

agreements. The debt of J.L. French Automotive is without

In October 2003, Radian issued $15 in subordinated

recourse to Onex.

secured convertible debentures to Onex. The debentures are con-

In August 2004, J.L. French Automotive completed a

vertible at any time at the option of the holder or at Radian’s

series of reﬁnancing transactions. As part of the reﬁnancing, the

option, under certain circumstances, into Class A multiple voting

company’s former Class P shareholders surrendered their out-

shares of Radian. The debentures bear interest at a rate of 7% per

standing shares in exchange for Class A non-voting shares. The

annum and mature in 2007.

Class P shares were previously shown as liability in these audited

annual consolidated ﬁnancial statements. This contribution to

the equity of the company by the non-controlling interests has

been reﬂected in 2004 as an income item representing the

funding of the non-controlling interest of past losses. The recov-

ery of losses of other shareholders of J.L. French Automotive

recorded in 2004 totalled $43 and is included in non-controlling

interests in the audited annual consolidated ﬁnancial statements.

Also issued was US$164 of mandatorily redeemable preferred

stock, US$38 of which was purchased by the Company.

In connection with the 2004 reﬁnancing, J.L. French

Automotive entered into new senior secured credit facilities, which

provide for total borrowings of US$465. Under their original terms,

the facilities were due in 2011 and 2012. At December 31, 2005,

US$67 (2004 – US$13) was drawn on the revolving facility, US$223

(2004 – US$225) was outstanding on the ﬁrst lien term loan

and US$170 (2004 – US$170) was outstanding on the second lien

term loan.

f) 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;

a ﬁrst lien term loan with borrowings of US$99; and a second lien

term loan with borrowings of US$34. 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, 2005, CEI had US$133 (2004 – US$129) outstanding under

the agreements.

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.

Onex Corporation December 31, 2005 69

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

9. 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 ,

US$500 of the term loan. The agreements, which range from three

W I T H O U T R E C O U R S E T O O N E X ( c o n t ’d )

to ﬁve years, swap the ﬂoating interest rate with a ﬁxed interest

CEI also has a promissory note outstanding in the

amount of US$66 (2004 – US$60), of which US$61 (2004 – US$55)

is held by the Company. The note is due in 2014, with interest of

9.55% per year, payable in additional notes due in 2014.

g) Center for Diagnostic Imaging

In January 2005, a US$95 credit agreement was executed by

CDI. This agreement consists of a US$75 term loan with principal

payments due through 2010 and interest at LIBOR plus 3.5%,

secured by the assets of CDI. At December 31, 2005, US$69 was

outstanding under the term loan. In addition, the credit agreement

provides for up to US$20 of revolving credit loans. At December 31,

2005, there were no funds outstanding under the revolving line.

Future borrowings against this revolving line bear interest at

LIBOR plus 2.5% to 3.5%, depending on CDI’s leverage ratio.

h) Emergency Medical Services

In February 2005, EMSC issued US$250 of senior subordinated

notes and executed a US$450 credit agreement. The senior subor-

dinated notes have a ﬁxed interest rate of 10%, payable semi-

annually, and mature in February 2015.

The credit agreement consists of a US$350 senior

secured term loan and a US$100 senior secured revolving credit

facility. The senior secured term loan matures in February 2012

and requires quarterly principal repayments. The revolving facili-

ty requires the principal to be repaid at maturity in February 2011.

Interest is determined by reference to a leverage ratio and can

range from prime plus 1.0% to 2.0% and LIBOR plus 2.0% to 3.0%.

As at December 31, 2005, US$248 and nil were outstanding under

the senior secured term loan and the senior secured revolving

credit facility, respectively.

Substantially all of EMSC’s assets are pledged as collat-

eral under the credit agreement.

i) Spirit AeroSystems

In June 2005, Spirit AeroSystems executed a US$875 credit agree-

ment that consists of a US$700 senior secured term loan and a

US$175 senior secured revolving credit facility. The senior secured

term loan requires quarterly principal instalments of US$2, with the

balance due in four equal quarterly instalments of US$165 in 2011.

The revolving facility requires the principal to be repaid at maturity

in June 2010. As at December 31, 2005, US$697 and nil were out-

standing under the term loan and revolving facility, respectively.

The borrowings under the agreement bear interest

based on LIBOR or a base rate plus an interest rate margin of up

to 2.75%, payable quarterly. In connection with the term loan,

Spirit AeroSystems entered into interest rate swap agreements on

70 Onex Corporation December 31, 2005

rate that ranges between 4.2% and 4.4%.

Substantially all of Spirit AeroSystems’ assets are pledged

as collateral under the credit agreement.

In connection with the acquisition, the seller, Boeing,

has provided Spirit AeroSystems with a line of credit of up to

US$150. The line of credit bears interest at a rate of LIBOR plus

6.0% and is subordinate to the borrowings under the credit agree-

ment. The line may be drawn upon any time up to December 31,

2008 and any such borrowings would mature in June 2013. As at

December 31, 2005, no amounts were outstanding under this line

of credit.

j) Skilled Healthcare

In December 2005, Skilled Healthcare issued unsecured senior

subordinated notes in the amount of US$200 due in 2014. The

notes bear interest at a rate of 11.0% per annum and are

redeemable at the option of the company at various premiums

above face value beginning in 2009. At December 31, 2005, US$199

was outstanding under the notes.

Skilled Healthcare’s ﬁrst lien credit agreement consists

of a US$260 term loan and a US$75 revolving loan. The term loan

is due in 2010, with annual principal instalments of 1% of the

balance. Both the term loan and the revolving loan bear interest

at the prime rate or LIBOR, plus a margin. At December 31,

2005, US$259 and nil were outstanding under the term loan and

revolving loan, respectively. The ﬁrst lien credit agreement is

secured by the real property of Skilled Healthcare.

k) ONCAP companies

ONCAP’s investee companies include CMC Electronics, WIS, and

CSRS. Each has debt that is included in Onex’ audited annual con-

solidated ﬁnancial statements. There are separate arrangements

for each of the investee companies with no cross-guarantees

between the companies or by Onex.

Under the terms of credit agreements, combined

revolving credit facilities of $24 and term borrowings of $250

are available. The available facilities bear interest at various rates

based on prime, U.S. base or LIBOR plus a margin. During 2005,

interest rates ranged from 4.6% to 10.7% (2004 – 3.9% to 8.2%) on

borrowings under the revolving credit and term facilities.

Quarterly repayments of a portion of the term loans commenced

in June 2002, while the remainder of the credit facilities are

repayable between 2009 and 2011. Borrowings under these credit

facilities at December 31, 2005 were $224 (2004 – $166). The

companies also have subordinated notes of $51 (2004 – $46), due

in 2009 and 2010, that bear interest ranging from 16% to 18%

(2004 – 16% to 18%), of which the Company owns approximately

$25 (2004 – $22).

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

One of the companies has entered into an interest rate

11. E X C H A N G E A B L E D E B E N T U R E S

swap agreement that effectively ﬁxes the ﬂoating rate on $60

(2004 – $23) of variable rate loans over periods ranging from three

to ﬁve years.

In 2000 Onex issued 25-year debentures exchangeable for subor-

dinate voting shares of Celestica. The debentures had an aggre-

gate principal amount of $729, average interest rate of 1.6% and

The annual minimum repayment requirements for the next

an average exchange rate on the principal amount of 12.64 shares

ﬁve years on consolidated long-term debt are as follows:

per thousand dollars. In February 2005, Onex redeemed all of the

2006

2007

2008

2009

2010

Thereafter

10 . L E A S E C O M M I T M E N T S

The future minimum lease payments are as follows:

825

254

289

333

2,897

outstanding exchangeable debentures through the delivery of

9,214,320 Celestica subordinate voting shares. As a result of the

redemption, Onex recorded a gain, as described in note 15.

The debentures were exchangeable, at the request of

the holder, into a ﬁxed number of subordinate voting shares of

Celestica or, at the option of the Company, it could deliver the

cash equivalent based on the market price of the shares at

$ 4,688

the time of exchange, or a combination of shares and cash. The

debentures were redeemable at any time by the Company. Upon

redemption Onex could, at its option, repay the principal amount

by delivering Celestica subordinate voting shares based on the

ﬁxed exchange rate or pay the cash equivalent, or a combination

Capital
Leases

Operating
Leases

of shares and cash.

The market value and deferred amount of the exchangeable deben-

For the year:

2006

2007

2008

2009

2010

Thereafter

255

219

194

170

157

1,177

Total future minimum lease payments

131

$ 2,172

Less: imputed interest

Balance of obligations under capital

leases, without recourse to Onex

Less: current portion

Long-term obligations under capital

(29)

102

(25)

leases, without recourse to Onex

Essentially all of the lease commitments relate to the operating

companies.

tures were as follows:

As at December 31

Carrying amount (cost)

Deferred amount, included

in other liabilities (note 12)

Change in fair value

Market value

2004

729

(549)

(24)

156

The market value of the exchangeable debentures at December 31,

2004 was 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.

Interest expense related to the exchangeable debentures

amounted to $1 (2004 – $11) and was netted against interest and

other income.

Onex Corporation December 31, 2005 71

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 . O T H E R L I A B I L I T I E S

Other liabilities comprised the following:

As at December 31

Reserves(a)

Deferred revenue and other deferred items
Boeing advance(b)

Convertible debentures (note 9(b))

Pension and non-pension post-retirement

benefits (note 25)

Stock-based compensation

Exchangeable debentures (note 11)

Derivative instruments (note 22(b))
Other(c)

2005

2004

210

159

233

220

–

142

–

117

549

181

151

$ 1,115

$ 1,093

a) Reserves consist primarily of US$144 established by EMSC
for automobile, workers compensation, general liability and pro-

fessional liability. This includes the use of an offshore captive

insurance program.

b) Pursuant to the 787 long-term supply agreement, Boeing will
make advance payments to Spirit AeroSystems. As at December 31,

2005, US$200 in such advance payments had been made and

will be settled against future sales of Spirit AeroSystems’ 787 units

to Boeing.

c) Other includes acquisition and restructuring accruals as well as
amounts for anticipated liabilities arising from indemniﬁcations.

13 . 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.

72 Onex Corporation December 31, 2005

The Multiple Voting Shares and Subordinate Voting

Shares are subject to provisions whereby, if an event of change

occurs (such as Mr. Schwartz, Chairman and CEO, ceasing to hold,

directly or indirectly, more than 5,000,000 Subordinate Voting

Shares or related events), the Multiple Voting Shares will there-

upon be entitled to elect only 20% of the Directors and otherwise

will cease to have any general voting rights. The Subordinate

Voting Shares would then carry 100% of the general voting 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 2005, under the Dividend Reinvestment Plan, the
Company issued 2,865 (2004 – 72,166) Subordinate Voting Shares

at a total value of less than $1 (2004 – $1). In 2005, no Subordinate

Voting Shares were issued upon the exercise of stock options. In

2004, 71,000 Subordinate Voting Shares were issued upon the

exercise of stock options of the Company at a value of less than $1.

The Company repurchased and cancelled under Normal

Course Issuer Bids 939,200 (2004 – 9,143,100) of its Subordinate

Voting Shares at a cash cost of $18 during 2005 (2004 – $150).

The excess of the purchase cost of these shares over the average

paid-in amount was $14 (2004 – $113), which was charged to

retained earnings.

Onex renewed its Normal Course Issuer Bid in April

2005 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 approxi-

mately 11 million shares.

c) At December 31, 2005 the issued and outstanding share capital
consisted of 100,000 (2004 – 100,000) Multiple Voting Shares,

138,079,031 (2004 – 139,015,366) Subordinate Voting Shares and

176,078 (2004 – 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, 2005, there were 116,301 (2004 – 40,000)

units outstanding, for which $1 (2004 – $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

10 years may be granted to Directors, ofﬁcers and employees for

the acquisition of Subordinate Voting Shares of the Company at a

price not less than the market value of the shares on the business

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

day preceding the day of the grant. Under the Plan, no options or

All options vest at a rate of 20% per year from the date of

share appreciation rights may be exercised unless the average

grant. When an option is exercised, the employee has the right to

market price of the Subordinate Voting Shares for the ﬁve prior

request that the Company repurchase the option for an amount

business days exceeds the exercise price of the options or the

equal to the difference between the fair value of the stock under

share appreciation rights by at least 25% (the “exercisable price”).

the option and its exercise price. Upon receipt of such request, the

At December 31, 2005, 15,632,000 (2004 – 15,632,000) Subordinate

Company has the right to settle its obligation to the employee by

Voting Shares were reserved for issuance under the Plan, against

the payment of cash, the issuance of shares or a combination of

which options representing 13,434,600 (2004 – 13,961,700) shares

cash and shares.

were outstanding. The Plan provides that the number of options

issued to certain individuals in aggregate may not exceed 10% of

the shares outstanding at the time the options are issued.

Details of options outstanding are as follows:

Outstanding at December 31, 2003

Granted

Exercised or surrendered

Expired

Outstanding at December 31, 2004

Granted

Exercised or surrendered

Expired

Outstanding at December 31, 2005

Number
of Options

Weighted Average
Exercise Price

12,259,000

10,205,000

(8,345,800)

(156,500)

13,961,700

–

(110,600)

(416,500)

13,434,600

9.66

$ 16.54

7.78

$ 18.56

$ 15.71

–

8.10

$ 18.19

$ 15.69

During 2005, the total cash consideration paid on options surrendered was $1 (2004 – $71). 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.

In January 2006, the Company issued 140,000 options at an exercise price of $19.25 per share.

Options outstanding at December 31, 2005 consisted of the following:

Number of
Options Outstanding

Exercise Price

Number of
Options Exercisable

Exercisable Price

Remaining Life
(years)

568,000

1,171,600

624,000

655,000

625,000

7,260,000

2,531,000

13,434,600

7.30

8.62

$ 20.23

$ 20.50

$ 14.90

$ 15.87

$ 18.18

568,000

1,171,600

–

250,000

–

1,989,600

9.13

$ 10.78

$ 25.29

$ 25.63

$ 18.63

$ 19.84

$ 22.73

2.1

2.3

4.0

6.5

7.1

8.2

8.9

Onex Corporation December 31, 2005 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

14 . 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

Year ended December 31

2005

2004

Interest on long-term debt

of operating companies

Interest on obligations under capital

leases of operating companies

Other interest of operating companies

311

168

Interest expense of operating companies

332

195

Cash interest paid during the year amounted to $221 (2004 – $180).

15 . G A I N S O N S A L E S O F O P E R AT I N G

C O M PA N I E S , N E T

During 2005 and 2004, 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:

b) In June 2005, the Company settled all of its outstanding forward
sales agreements through the delivery of approximately 1.8 mil-

lion Celestica subordinate voting shares, for which it received pro-

ceeds of $222. In connection with the delivery, the Company con-

verted approximately 0.2 million of the Celestica multiple voting

shares it held into Celestica subordinate voting shares. As a result

of the settlement, the Company’s equity ownership in Celestica

was reduced to 13% from 14%; however, the Company continues

to have voting control of Celestica. The Company recognized a

gain of $191 on the redemption, which consists of a previously

deferred gain of $181 and the difference between book value and

market value at the time of settlement. The forward sales agree-

ments were originally entered into in 2000.

c) During 2005, through three separate transactions, Onex and
Onex Partners sold their investment in bonds of CGG for proceeds

of $145, of which Onex’ share was $34. Onex’ share of the pre-tax

gain was $9.

Amounts paid on account of these transactions related

to the MIP, as described in note 24(e), totalled $1, and have been

2005

2004

deducted from the gain.

Year ended December 31

Gains on:

Close of exchangeable debentures

on Celestica shares(a)

560

Close of forward sales agreements

on Celestica shares(b)

Sale of CGG convertible bonds(c)
Issue of units by Cineplex Entertainment(d)
Issue of shares by EMSC(e)
Performance Logistics Group(f)
Issue of shares by Celestica(g)
Sale of Tower Automotive(h)
Other, net(i)

191

–

921

107

a) In February 2005, the Company redeemed all of its outstanding
exchangeable debentures and satisﬁed the debenture obligation

Amounts related to the carried interest, as described in

note 24(d), totalled $4, of which Onex’ portion was deferred.

d) In July 2005, in connection with Cineplex Entertainment’s
acquisition of Famous Players, Cineplex Entertainment issued

additional units to provide a portion of the ﬁnancing. Onex’ own-

ership interest was diluted from 31% to 27% as a result of the

issuance of additional units by Cineplex Entertainment to

unitholders other than Onex. As a result of the dilution of the

Company’s investment in Cineplex Entertainment, a non-cash

dilution gain of $53 was recorded, of which Onex’ share was $30.

This reﬂects Onex’ share of the increase in the book value of the

net assets of Cineplex Entertainment due to the issue of addi-

tional units. Onex did not sell or purchase any additional units in

the unit offering.

through the delivery of 9,214,320 Celestica subordinate voting

shares. In connection with the delivery, the Company converted

e) In December 2005, EMSC completed a US$113 initial public
offering of common stock (NYSE: EMS). The offering resulted in

approximately 9,214,320 of the Celestica multiple voting shares

EMSC receiving net proceeds of approximately US$102, which

it held into Celestica subordinate voting shares. As a result of

were used to reduce outstanding indebtedness and for general

the redemption, the Company’s equity ownership in Celestica

corporate purposes. Onex did not receive any proceeds from the

was reduced to 14% from 18%; however, the Company continued

transaction. As a result of the offering, Onex’ economic ownership

to have voting control over Celestica. The Company recognized

in EMSC decreased from 36% to 29%. As part of the transaction,

a gain of $560 on the redemption, which consists of a previously

Onex converted its shares held into Multiple Voting shares and its

deferred gain of $549 and the difference between book value

voting interest decreased from 100% to 97%.

and market value at the time of redemption. The cash for these

As a result of the dilution of the Company’s economic

exchangeable debentures was received by the Company when it

interest, a non-cash dilution gain of $40 was recorded, of which

originally entered into these arrangements in 2000.

Onex’ share was $15. This reﬂects Onex’ share of the excess of

the proceeds from the offering over minority interests’ share of

the net assets.

74 Onex Corporation December 31, 2005

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

f) In March 2004, Performance Logistics Group, Inc. (“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 in PLG was diluted from

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

Year ended December 31

2005

2004

a controlling 50% interest to a non-controlling 26% interest as a

Celestica

193

184

–

266

204

result of the additional shares issued. Since Onex ceased to con-

trol 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, in 2004 Onex recorded a non-cash gain of $58,

reﬂecting the net liabilities of PLG, which are now accounted for

under the equity method. This gain is comprised of a non-cash

dilution gain of $22 and the reversal of $36 of losses of PLG previ-

Spirit AeroSystems

ClientLogic

J.L. French Automotive

Other

Costs incurred relate to the restructuring activities, implementa-

tion of business processes, infrastructure and information systems

ously recognized by Onex that were in excess of the other share-

for operations acquired.

holders’ equity in PLG.

g) In March 2004, Celestica acquired MSL and issued approxi-
mately 14.1 million Celestica subordinate voting shares as part of

The operating companies record restructuring charges

relating to employee terminations, contractual lease obligations

and other exit costs when the liability is incurred. The recognition

of these charges requires management to make certain judgments

the consideration paid. Onex recorded a dilution gain of $9 as a

regarding the nature, timing and amounts associated with the

result of the reduction in Onex’ ownership through the share

planned restructuring activities, including estimating sublease

issuance. Onex’ ownership after the dilution was 18% and it

income and the net recovery from equipment to be disposed of.

retained voting control of Celestica.

h) In February 2004, Onex completed the sale of its remaining
interest in Tower Automotive, Inc. for net cash proceeds of $8.

i) Included in 2005 was a gain of $32 (2004 – $23) from the interest
in Ripplewood, a U.S.-based acquisition fund.

At the end of each reporting period, the operating companies

evaluate the appropriateness of the remaining accrued balances.

In January 2005, Celestica announced plans to further

improve capacity utilization and accelerate margin improve-

ments. These restructuring actions will include facility closures

and a reduction in workforce, primarily targeting our higher-cost

geographies where end-market demand has not recovered to the

levels management requires to achieve sustainable proﬁtability.

The tables below provide a summary of restructuring activities undertaken by the operating companies detailing the components of the

charges and movement in accrued liabilities. This summary is presented by the year in which the restructuring activities were initiated.

Years prior to 2004

Total estimated expected costs

Cumulative costs expensed to date

Expense (recovery) for the year ended

December 31, 2005

Reconciliation of accrued liability

Closing balance – December 31, 2004

Cash payments

Charges

Other adjustments

Closing balance – December 31, 2005

Employee
Termination
Costs

338

(6)

(3)

(6)

–

Lease and Other
Contractual
Obligations

Facility Exit Cost
and Other

160

(14)

(2)

–

Non-cash
Charge

339

–

Total

874(a)
874(a)

(19)

(2)

(a)

Includes Celestica $847, J.L. French Automotive $18, ClientLogic $5 and Radian $4.

Onex Corporation December 31, 2005 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

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 ( c o n t ’d )

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, 2005

Reconciliation of accrued liability

Closing balance – December 31, 2004

Cash payments

Charges

Other adjustments

139

138

(37)

(2)

Closing balance – December 31, 2005

(2)

(1)

(a)

(b)

Includes Celestica $197, J.L. French Automotive $7, ClientLogic $3, Radian $4 and CMC $3.

Includes Celestica $197, J.L. French Automotive $7, ClientLogic $3, Radian $4 and CMC $2.

(6)

(1)

Initiated in 2005

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, 2005

Reconciliation of accrued liability

Cash payments

Charges

255

150

(95)

150

Closing balance – December 31, 2005

(1)

(39)

(a)

(b)

Includes Celestica $287, Spirit AeroSystems $43, ClientLogic $8, Radian $7, WIS $5, EMSC $2, CMC $1 and Other $3.

Includes Celestica $167, Spirit AeroSystems $43, ClientLogic $8, Radian $4, WIS $5, EMSC $2, CMC $1 and Other $3.

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, 2005

Reconciliation of accrued liability

Closing balance – December 31, 2004

Cash payments

Charges

Other adjustments

732

626

162

(135)

162

(2)

199

192

(17)

(3)

112

105

(47)

(1)

Non-cash
Charge

401

397

Total

214(a)
213(b)

(45)

(4)

Total

356(a)
233(b)

233

(135)

224

Total

$ 1,444

1,320

266

110

(199)

248

(6)

Closing balance – December 31, 2005

153

76 Onex Corporation December 31, 2005

17. D E B T P R E PAY M E N T

Year ended December 31

Cineplex Entertainment

J.L. French Automotive

Celestica

Other

2005

2004

–

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

2005

2004

Celestica(a)
ClientLogic(b)

388

Other

393

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

to lower-cost geographies whereby these actions reduced the

forecasted revenue and net cash ﬂows for many facilities.

b) In 2005, ClientLogic performed its annual impairment tests of
goodwill and intangible assets and determined that a writedown

of $2 was required as a result of its early termination of the tech-

nology infrastructure services agreement with British Telecom.

In 2004, the impairment tests resulted in a writedown of $5 in

intangible assets due to the loss of certain client contracts.

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

Celestica(a)
J.L. French Automotive(b)

2005

2004

–

a) During the fourth quarter, Celestica performed its annual
impairment tests of goodwill and intangible assets and deter-

a) In 2005, Celestica recorded an impairment of $1 (2004 – $84)
against property, plant and equipment.

mined that writedowns of nil (2004 – $351) in goodwill and $1

(2004 – $37) in other intangibles was required. The majority of

the writedowns in 2004 were due to restructuring plans and the

continued transfer of major customer programs from higher-cost

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.

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 (provision) at statutory rates

Increase (decrease) related to:

Decrease (increase) in valuation allowance(1)

Amortization of non-deductible items

Income tax rate differential of operating investments

Non-taxable accounting gains

Other, including permanent differences

Provision for income taxes

Classified as:

Current

Future

Provision for income taxes

2005

$ (295)

(1)

185

(106)

2004

308

(435)

(126)

(48)

(9)

(72)

$ (278)

(86)

(72)

(34)

(244)

$ (278)

(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.

Onex Corporation December 31, 2005 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

2 0 . I N C O M E TA X E S ( c o n t ’d )

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 investments

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 sales of operating investments

Other

2005

2004

986

$ 1,031

–

250

–

(1,172)

287

(106)

(22)

(639)

–

(767)

172

117

(1,428)

(52)

(20)

(617)

(2)

(691)

Future income tax liabilities, net

$ (480)

$ (623)

Classified as:

Current asset

Long-term asset

Long-term liability

Future income tax liabilities, net

235

(767)

$ (480)

(691)

$ (623)

The Company and its investment-holding companies have tax-loss carryforwards of $267 available to reduce future income taxes to the

year 2014.

At December 31, 2005, 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 $3,010, of which $592 had no expiry, $846 were available to reduce

future taxes between 2006 and 2010, inclusive, and $1,572 were available with expiration dates of 2011 through 2025.

Cash taxes paid during the year amounted to $114 (2004 – $30).

78 Onex Corporation December 31, 2005

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

21. N E T E A R N I N G 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 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

a) Fair values of ﬁnancial instruments

2005

139

2004

142

The estimated fair values of ﬁnancial instruments as at December 31, 2005 and 2004 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

liabilities 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

2005

2004

Financial liabilities:

Long-term debt (i)

Foreign currency contracts

Interest rate swap agreements

Carrying
Amount

$ 3,863

–

Fair Value/
(Unwind Costs)

Carrying
Amount

Fair Value/
(Unwind Costs)

$ 3,873

(7)

$ 1,968

–

$ 1,968

(44)

(25)

(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 sales agreements

In 2000, the Company entered into the following forward sales agreements relating to subordinate voting shares of Celestica. In June 2005,

the Company settled the forward sales agreements and recorded a gain, as described in note 15. As at December 31, 2004, the fair value of

the forward sales agreements was included in investments and other assets (note 7). Changes in market value of the forward contracts up

to the date of settlement have been recorded in the audited annual consolidated 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

December 31, 2004
Fair Value

472,840

1,284,627

$ 111.24

$ 128.47

142

The reference price approximated the market value of a Celestica subordinate voting share at the time the forward sales agreements were

entered into. The reference prices under the contracts have increased 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 for the number of shares under the contract.

Onex Corporation December 31, 2005 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 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

ClientLogic

J.L. French Automotive

Radian

CEI

CDI

EMSC

Spirit AeroSystems

2005

Number of
Significant
Customers

Percentage
of Revenues

2004

Number of
Significant
Customers

Percentage
of Revenues

26%

22%

82%

10%

49%

12%

73%

99%

–

26%

22%

83%

13%

59%

–

Accounts receivable from the above signiﬁcant customers at December 31, 2005 and 2004 totalled $860 and $236, 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, 2005, the amounts

payable in respect of these guarantees totalled $153. Certain oper-

ating companies have guarantees with respect to employee share

purchase loans that amounted to $2 at December 31, 2005. These

guarantees are without recourse to Onex.

The Company has commitments in the total amount of

approximately $440 in respect of corporate investments, including

the commitments to Onex Real Estate Partners LP and ONCAP II

as indicated in note 26.

The Company and its operating companies have also

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.

c) The operating companies are subject to laws and regulations
concerning the environment and to the risk of environmental

provided certain indemniﬁcations, including those related to

liability inherent in activities relating to their past and present

businesses that have been sold. The maximum amounts from

operations. As conditions of acquisition agreements, certain oper-

many of these indemniﬁcations cannot be reasonably estimated

ating companies have agreed to accept certain pre-acquisition

at this time. However, in certain circumstances, the Company and

liability claims on the acquired companies after obtaining indem-

its operating companies have recourse against other parties to

niﬁcation from prior owners.

mitigate the risk of loss from these indemniﬁcations.

The Company and its operating companies also have

The Company and its operating companies have com-

insurance to cover costs incurred for certain environmental mat-

mitments in respect of real estate operating leases, which are

ters. Although the effect on operating results and liquidity, if any,

disclosed in note 10. The aggregate capital commitments as at

cannot be reasonably estimated, management of Onex and the

December 31, 2005 amounted to $246.

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.

80 Onex Corporation December 31, 2005

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
with funding commitments totalling approximately $2,100.

e) Under the terms of the MIP approved in June 1996, manage-
ment members of the Company invest in all of the operating entities

Onex Partners is to provide committed capital for future Onex-

acquired by the Company.

sponsored acquisitions not related to Onex’ operating companies

The aggregate investment by management members

at December 31, 2003 or to ONCAP. As at December 31, 2005,

approximately $1,400 has been invested of the total approxi-

mately $2,100 of capital committed. Onex has funded $316 of

its $480 commitment. Onex controls the General Partner and

Manager of Onex Partners. Onex management has committed, as

a group, to invest a minimum of 1% of Onex Partners, which may

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

be adjusted annually up to a maximum of 4%. As at December 31,

of an investment before the ﬁfth year, the investment rights vest

2005, management and directors had committed 4%. The total

in full. The investment rights related to a particular acquisition

amount invested in Onex Partners investments by Onex manage-

are exercisable only if the Company earns a minimum 15% per

ment and directors for the year ended December 31, 2005 was $30.

annum compound rate of return for that acquisition after giving

Onex receives annual management fees based upon 2%

effect to the investment rights.

of the capital committed to Onex Partners by investors other than

Under the terms of the MIP, the total amount paid by

Onex and Onex management. The annual management fee is

management members for the interest in the investments in 2005

reduced to 1% of the net funded capital at the earlier of the end of

was $4 (2004 – $2). Investment rights exercisable at the same price

the commitment period, when the funds are fully invested, or if

for 7.5% (2004 – 7.5%) of the Company’s interest in acquisitions

Onex establishes a successor fund. Onex is entitled to receive a

were issued at the same time. Realizations under the MIP including

carried interest on the overall gains achieved by Onex Partners

the value of units distributed were $11 in 2005 and $35 in 2004.

investors other than Onex to the extent of 20% of the gains, pro-

vided that Onex Partners investors have achieved a minimum 8%

return on their investment in Onex Partners over the life of Onex

Partners. The investment by Onex Partners investors for this pur-

pose takes into consideration management fees and other

amounts paid in by Onex Partners investors.

The returns to Onex Partners investors other than Onex

and Onex management are based upon all investments made

through Onex Partners, with the result that initial carried interests

achieved by Onex on gains could be recovered from Onex if

subsequent Onex Partners investments do not exceed the overall

target return level of 8%. Consistent with market practice, Onex,

as sponsor of Onex Partners, 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 Onex

Partners is closed. For the year ended December 31, 2005, $11 has

been received by Onex as carried interest and deferred while

management received $17 with respect to the carried interest.

f) Members of management and the Board of Directors of the
Company invested $21 in 2005 (2004 – $9) in Onex’ acquisitions at

the same cost as Onex and other outside investors. Those invest-

ments 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, 2005

was $12.

h) Onex and its operating companies are subject to tax audits by
local taxing authorities. In connection with ongoing tax audits

relating to Celestica, taxing authorities have asserted that Celes-

tica’s United States subsidiaries owe a signiﬁcant amount of tax,

interest and penalties arising from inter-company transactions

all within Celestica’s various operations. Celestica’s management

has evaluated the assessment and believes they have substantial

defences to the asserted deﬁciencies and have adequately accrued

for any likely potential losses. However, there can be no assur-

ance as to the ﬁnal resolution of these asserted deﬁciencies and

any resulting proceedings, and if these audits and proceedings

were determined adversely to Celestica the amounts Celestica

may be required to pay could be material.

Onex Corporation December 31, 2005 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

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 2005 for deﬁned contribution pension plans were $61 (2004 – $30).

The Company measures its accrued beneﬁt obligations and the fair value of the plan assets for accounting purposes at or

around December 31 of each year for the largest plans. The most recent actuarial valuation of these pension plans for funding purposes

was as of June 2005 and December 2005, and the next required valuation will be as of January 2006.

In 2005, total cash payments for employee future beneﬁts, 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 $79 (2004 – $63).

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 (gain) loss in year

Foreign currency exchange rate changes

Acquisitions during the year

Discontinued operations

Plan amendments

Settlements/curtailments

Settlement benefits

Reclassification of plans

Other

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

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

2005

2004

2005

2004

2005

2004

$ 131

$ 144

476

$ 637

$ 105

$ 164

–

(11)

–

(9)

(2)

–

(3)

–

(20)

–

(26)

(12)

(48)

734

–

(3)

(7)

–

(18)

(3)

(215)

–

(12)

–

(11)

(4)

–

(13)

–

(18)

(2)

–

(48)

–

(17)

–

$ 160

$ 131

$ 1,175

$ 476

$ 149

$ 105

$ 147

$ 152

350

$ 459

–

(11)

–

(9)

(3)

–

(8)

–

(3)

(26)

(40)

653

–

(8)

(18)

–

(144)

(12)

–

(11)

(18)

–

Closing plan assets

$ 169

$ 147

$ 1,046

$ 350

82 Onex Corporation December 31, 2005

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

2005

58%

39%

–

100%

2004

50%

45%

100%

Equity securities do not include direct investments in the shares of the Company or 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

Other unrecognized amounts

Reclassification of plans

Pension Plans in
which Assets Exceed
Accumulated Benefits

Pension Plans in
which Accumulated
Benefits Exceed Assets

Non-Pension
Post-Retirement
Benefits

2005

2004

2005

2004

2005

2004

$ 169

(160)

$ 147

$ 1,046

(131)

(1,175)

$ 350

(476)

–

(149)

–

(105)

–

$ (129)

$ (126)

$ (149)

$ (105)

(1)

(5)

(11)

(5)

125

–

(22)

(12)

–

Deferred benefit amount – asset (liability)

(91)

$ (28)

$ (129)

$ (89)

The deferred beneﬁt asset is included in the Company’s balance sheet under “Investments and other assets”. The deferred beneﬁt liabilities

are included in the Company’s audited annual consolidated balance sheets under “Other liabilities”.

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

Difference between expected return and actual return

on plan assets for period

Actuarial (gain) loss

Difference between actuarial loss (gain) recognized for period

and actual actuarial loss (gain) on the accrued benefit

obligation for period

(19)

(9)

Plan amendments (curtailment/settlement (gain) loss)

Difference between amortization of past service costs for period

and actual plan amendments for period

Settlement benefits

Net periodic costs

–

Pension Plans in
which Assets Exceed
Accumulated Benefits

Pension Plans in
which Accumulated
Benefits Exceed Assets

Non-Pension
Post-Retirement
Benefits

2005

2004

2005

2004

2005

2004

(17)

(14)

(87)

(12)

(2)

(28)

(18)

(12)

–

(20)

–

(5)

(17)

–

Onex Corporation December 31, 2005 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

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 ( c o n t ’d )

The following assumptions were used to account for the plans:

Year ended December 31

Pension Benefits

Non-Pension
Post-Retirement Benefits

2005

2004

2005

2004

Accrued benefit obligation

Weighted average discount rate

4.23%–6.00%

5.20%–6.50%

5.25%–5.75%

5.75%–6.10%

Weighted average rate of

compensation increase

Benefit cost

Weighted average discount rate

Weighted average expected long-term

0.00%–4.80%

0.00%–3.75%

0.00%–3.50%

4.23%–6.25%

5.20%–6.50%

5.25%–6.10%

rate of return on plan assets

5.00%–9.25%

6.40%–8.00%

n/a

Weighted average rate of

compensation increase

0.00%–4.80%

0.00%–4.00%

4.00%

6.40%

n/a

4.00%

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

2005

2004

8.00%–10.00%

3.25%–5.00%

6.60%–10.00%

3.25%–5.00%

Between 2008 and 2011

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

2005

1% Increase

2004

1% Decrease

2005

2004

(1)

$ (15)

(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.

84 Onex Corporation December 31, 2005

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 6 . S U B S E Q U E N T E V 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

Onex and certain operating companies have entered into agree-

G E O G R A P H I C S E G M E N T

ments to acquire or make investments in other businesses. These

Onex’ reportable segments operate through autonomous compa-

transactions are subject to a number of conditions, many of which

nies and strategic partnerships. Each reportable segment offers

are beyond the control of Onex or the operating companies. The

different products and services and is managed separately.

effect of these planned transactions, in addition to those described

The Company had seven reportable segments in 2005 and

below, if completed, may be signiﬁcant to the consolidated ﬁnan-

ﬁve in 2004: electronics manufacturing services; aerostructures;

cial position of Onex.

healthcare; theatre exhibition; customer management services;

In late 2005, ONCAP completed its ﬁrst closing of capital

automotive products; and other. The electronics manufacturing

commitments for its second fund, ONCAP II LP (“ONCAP II”).

services segment consists of Celestica, which provides manufac-

It is planned that ONCAP II will have total committed capital of

turing services for electronics original equipment manufacturers

approximately $500, of which Onex’ portion would be approxi-

(“OEMs”). The aerostructures segment consists of Spirit AeroSys-

mately half. The investment parameters and objectives remain

tems, which manufactures aerostructures. The healthcare segment

essentially unchanged from those of the ﬁrst fund. In January

consists of EMSC, a leading provider of ambulance transport ser-

2006, ONCAP II acquired CSI Global Education Inc., Canada’s

vices and outsourced hospital emergency department physician

leader in ﬁnancial services education, for an equity investment of

stafﬁng and management services in the United States; CDI, which

$25, of which Onex’ initial share was $14.

owns and operates diagnostic imaging centres in the United States;

In late January 2006, Spirit AeroSystems agreed to

and Skilled Healthcare, which operates skilled nursing and assisted

acquire BAE Systems’ aerostructures business with operations in

living facilities in United States. The theatre exhibition segment

Scotland and England in a transaction valued at $162. BAE Sys-

consists of Cineplex Odeon, and Cineplex Entertainment. The cus-

tems’ aerostructures business produces wing and other structural

tomer management services segment consists of ClientLogic,

components, primarily for Airbus airplanes. Spirit AeroSystems

which provides services for telecommunications, consumer goods,

will ﬁnance the entire acquisition, which is expected to close in

retail, technology, transportation, ﬁnance and utility companies.

the ﬁrst quarter of 2006.

The automotive products segment consists of J.L. French Auto-

motive, a leading manufacturer of high-pressure aluminum die-cast

parts. Other includes Radian, CEI, Onex Real Estate, OPMG, ONCAP,

ONCAP II and the parent company.

Onex Corporation December 31, 2005 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

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 G E O G R A P H I C S E G M E N T ( c o n t ’d )

2005 Industry segments

Electronics
Manufacturing
Services

Aero-
structures

Healthcare

Customer
Theatre Management
Services

Exhibition

Automotive
Products

Other

Consolidated
Total

$ 10,257

$ 1,436

$ 2,126

491

715

584

950

$ 16,559

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

Equity-accounted investments

Foreign exchange gains (loss)

Stock-based compensation

Derivative instruments

Gains on sales of operating investments, net

(9,537)

(313)

407

(146)

(34)

(68)

–

(28)

–

Acquisition, restructuring and other expenses

(193)

Debt prepayment

Writedown of goodwill and intangible assets

Writedown of long-lived assets

–

(1)

Earnings (loss) before income taxes,

non-controlling interests and

(1,232)

(123)

(19)

(2)

(28)

–

(11)

–

(42)

–

(1,808)

(111)

207

(72)

(19)

(66)

–

(2)

–

(2)

–

(392)

(28)

(41)

(3)

(25)

–

(8)

–

(4)

–

(4)

(444)

(205)

(37)

(12)

(22)

–

(2)

–

(9)

–

(2)

–

(484)

(22)

(55)

–

(83)

–

(8)

–

(627)

(287)

(14,524)

(1,089)

946

(39)

(409)

(26)

(40)

–

(30)

(1)

921

(12)

–

(96)

(332)

145

(31)

(50)

921

(266)

(6)

(3)

(5)

discontinued operations

(39)

(1)

(11)

(14)

(68)

905

819

Provision for income taxes

Non-controlling interests in

operating companies

Earnings from continuing operations

Earnings from discontinued operations

Net earnings

Total assets(a)

Long-term debt (b)

Property, plant and equipment additions

Goodwill additions

(72)

752

213

965

$ 5,637

$ 1,966

$ 2,753

872

185

839

$ 1,196

169

–

873

860

346

198

260

206

–

410

$ 2,959

$ 14,845

783

–

446

$ 4,688

550

113

$ 1,186

(a) Theatre exhibition and other include discontinued operations as described in note 2.

(b) Long-term debt includes current portion and excludes capital leases.

86 Onex Corporation December 31, 2005

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

2004 Industry segments

Revenues

Cost of sales

Selling, general and administrative expenses

Earnings (loss) 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

Equity-accounted investments

Foreign exchange gains (loss)

Stock-based compensation

Derivative instruments

Gains on sales of operating investments, net

Acquisition, restructuring and other expenses

Debt prepayment

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

$ 11,480

(10,913)

(358)

209

(223)

(45)

(56)

–

(8)

(20)

–

(184)

(2)

(388)

(84)

318

(241)

(18)

(24)

–

(8)

–

730

(458)

(196)

(41)

(15)

(19)

–

(1)

–

(5)

–

(5)

(2)

691

(551)

(18)

122

(59)

–

(95)

–

(7)

(5)

–

(8)

Other

420

(286)

(175)

(41)

(23)

(12)

(17)

(8)

(114)

(34)

107

(8)

(1)

–

Consolidated
Total

$ 13,639

(12,449)

(765)

425

(370)

(72)

(195)

102

(8)

(116)

(55)

107

(204)

(8)

(393)

(94)

interests and discontinued operations

(752)

(2)

(49)

(77)

(852)

Provision for income taxes

Non-controlling interests of operating companies

Loss from continuing operations

Earnings from discontinued operations

Net earnings

Total assets(a)

Long-term debt (b)

Property, plant and equipment additions

Goodwill additions

(a) Theatre exhibition and other include discontinued operations described in note 2.

(b) Long-term debt includes current portion and excludes capital leases.

Geographic segments

(278)

891

(239)

274

5,925

750

180

298

368

129

–

303

192

–

452

721

–

4,761

$ 11,809

382

267

2,174

308

565

2005

2004

Canada

U.S.

Europe

Other

Total

Canada

U.S.

Europe

Other

Total

Revenue

$ 2,370

$ 6,163

$ 2,219

$ 5,807

$ 16,559

2,793

2,855

2,838

5,153

$ 13,639

Property, plant

and equipment

Intangible assets

Goodwill

639

$ 1,441

186

305

399

$ 1,187

277

–

333

$ 2,690

519

954

$ 2,540

496

178

349

143

223

343

–

354

1,049

1,542

271

1,450

Revenues are attributed to geographic areas based on the locations of manufacturing facilities for the electronics manufacturing services,

aerostructures and automotive products segments; and of operating facilities for the healthcare, 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, 2005 87

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)

2005

2004

2003

2002

2001

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 sales of operating investments, net
Acquisition, restructuring and other expenses
Debt prepayment
Writedown of goodwill and intangible assets
Writedown of long-lived assets

Earnings (loss) before income taxes, non-controlling

interests and discontinued operations

Recovery of (provision for) income taxes
Non-controlling interests of operating companies

Earnings (loss) from continuing operations
Earnings (loss) from discontinued operations (a)

Net earnings (loss) for the year

Total assets

Shareholders’ equity

Dividends declared per Subordinate Voting Share
Earnings (loss) per Subordinate Voting Share:

Continuing operations
Net earnings (loss)
Fully diluted

$ 16,559

$ 13,639

$ 11,639

$ 15,356

$ 17,895

(14,524)

(1,089)

946

(409)

(96)

(332)

145

(31)

(50)

921

(266)

(6)

(3)

(5)

819

(72)

752

213

965

(12,449)

(10,488)

(13,562)

(765)

425

(370)

(72)

(195)

102

(8)

(116)

(55)

107

(204)

(8)

(393)

(94)

(852)

(278)

891

(239)

274

(716)

435

(393)

(91)

(173)

–

(122)

–

129

(151)

(11)

(402)

(88)

(772)

(57)

266

(563)

231

(838)

956

(495)

(171)

(132)

–

142

–

(673)

(25)

(425)

–

(715)

568

(74)

(71)

(15,833)

(986)

1,076

(440)

(286)

(173)

121

–

164

(433)

–

(427)

–

(382)

234

(131)

929

(332)

(145)

798

$ 14,845

$ 11,809

$ 14,621

$ 19,890

$ 20,870

1,152

0.11

5.41

6.95

227

0.11

(1.69)

0.25

293

0.11

(3.67)

(2.16)

1,044

0.11

(0.46)

(0.90)

2,219

0.11

(0.81)

4.95

(a) The earnings from discontinued operations for 2001 include the sale of Sky Chefs. The earnings from discontinued operations from 2001 to 2003 include the sale of Lantic

Sugar/Rogers Sugar and MAGNATRAX. The earnings from discontinued operations from 2001 to 2004 include the sale of Dura Automotive, Loews Cineplex Group, Armtec

and InsLogic. The earnings from discontinued operations from 2001 to 2005 include the sale of CVG and the discontinued operations of CMC. The earnings from discontin-

ued operations from 2002 to 2005 include the discontinued operations of Cineplex. The earnings from discontinued operations from 2004 to 2005 include the sale of

Magellan. Previously reported consolidated revenues and earnings figures for 2001 to 2004 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

88 Onex Corporation December 31, 2005

2005

2004

2003

2002

2001

18.92

19.75

14.69

16.00

22.45

SHAREHOLDER INFORMATION

Registrar and Transfer Agent

Duplicate communication

The Subordinate Voting Shares of the

CIBC Mellon Trust Company

Registered holders of Onex Corporation

Company are listed and traded on

P.O. Box 7010

The Toronto Stock Exchange.

Share symbol

OCX.SV

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,

2005 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.

Adelaide Street Postal Station

Toronto, Ontario M5C 2W9

(416) 643-5500

or call toll-free throughout

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

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
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 11, 2006 at 10:00 a.m.

(Eastern Daylight Time) at Cineplex

Odeon Queensway Cinemas,

1025 The Queensway, Etobicoke, Ontario.

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Ove Design & Communications Ltd.
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Typesetting and copyediting by
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