Management’s Discussion and Analysis
and Financial Statements
December 31, 2011
ONEX AND ITS OPERATING BUSINESSES
Onex is a public company whose shares trade on the Toronto Stock Exchange under the symbol
OCX. Onex’ businesses have assets of $41 billion, generate annual revenues of $37 billion and
employ approximately 246,000 people worldwide.
ONEX
PARTNERS I
ONEX
PARTNERS II
ONEX
PARTNERS III
ONCAP II
ONCAP III
ONEX
REAL
ESTATE
PARTNERS
ONEX
CREDIT
PARTNERS
DIRECT
The investment in The Warranty Group is split almost equally between Onex Partners I and II.
The investment in ResCare is split almost equally between Onex Partners I and III.
The investment in Casino ABS is split approximately 80%/20% between ONCAP II and III, respectively.
Throughout this report, all amounts are in U.S. dollars unless otherwise indicated.
Table of Contents
5 Management’s Discussion and Analysis
152 Shareholder Information
76 Consolidated Financial Statements
CHAIRMAN’S LETTER
Dear Shareholders,
The current presidential primary season in the United States has brought more than usual attention to the private equity
industry and, of course, not all of it has been good. We can’t speak for the entire industry, but we’re very proud of
what we do here at Onex. We are and have been active owners and builders of some of the world’s greatest companies.
Our companies make products used by millions of people. When you go for a dental check-up, chances are good we’re
helping with the diagnosis, when you fly off for a holiday – you’re probably in a plane we helped build, and when your
children take the bus to school – the gears on the bus shift safely with one of our transmissions. We could go on and on.
Even though we own many businesses, we don’t just put money in stock certificates. We’re not passive inves-
tors or traders; that’s not our business. We are active owners working with talented and aligned leadership to turn a
good company into a great one. Oftentimes when we buy a business, it’s been part of another, larger entity and didn’t
get the capital or attention it deserved. With its management, we lay out a plan for improvement and growth (we’ve
never seen fortunes made with shrinking businesses). When we feel that our work is completed and our ownership
becomes more passive, we think about realizing on some of our value created. That’s what we do for you – our share-
holders – and for our limited partners, who have asked us to manage about $9 billion, most of it coming from public
employee pension plans.
The hardest part of our work is selling a company we love. We have wide ranging debates on the topic and
get views from the youngest investment professional and the most seasoned amongst us. This year we sold two
great companies: Husky International and Emergency Medical Services, generating total proceeds of $2.7 billion and
multiples of 2.9 and 7.8 times on invested capital, respectively. These were obviously great outcomes for the companies’
employee shareholders, Onex and our limited partners. We could have owned either business longer, but we felt that
our role as an active owner was largely complete, hence the decision to sell. We wish both companies much continued
success in the years to come.
In addition to the two sales above, we had some other highlights through the course of the year:
• We successfully completed the fundraising for ONCAP III, with capital commitments of C$800 million, including
C$520 million from our Limited Partners;
• ONCAP was very active in the mid-market private equity space, investing a total of $324 million in four operating
companies across a variety of sectors;
• Onex Partners’ and ONCAP’s private companies provided Onex with returns of 15 percent and 12 percent, respec-
tively, in 2011;
• Our businesses paid down approximately $1.3 billion of debt and distributed approximately $470 million;
• Taking advantage of stronger capital markets in the first half of the year, Onex’ operating businesses raised or
refinanced approximately $3.4 billion of debt; and
• Onex and Onex Partners III invested $871 million and acquired a controlling interest in JELD-WEN, one of the world’s
largest manufacturers of doors and windows.
We’re looking forward to 2012. We have $1.3 billion of cash and cash-like investments and $2.5 billion of uncalled
third-party capital. We hope to find our next great business, give it a capital structure suitable for growth and give its
employees and leadership team an opportunity to participate with us in value creation. That’s our business, and we’re
proud of it. On behalf of the Onex team and our 246,000 employees worldwide, thank you for your continued support.
[signed]
Gerald W. Schwartz
Chairman & CEO, Onex Corporation Chairman & CEO, Onex Corporation
Onex Corporation December 31, 2011 1
ONEX CORPORATION
Over 27 Years of Success
Founded in 1984, Onex is one of North America’s oldest and most successful private equity firms committed to
acquiring and building high-quality businesses. As an active owner, the Company has built more than 70 busi-
nesses, completing approximately 340 acquisitions with a total value of approximately $44 billion. Onex’ long-term
project returns have generated a multiple of invested capital of 3.3 times from its core private equity activities since
inception, resulting in a 29 percent compound IRR on realized, substantially realized and publicly traded invest-
ments. The Company is guided by an ownership culture focused on achieving strong absolute growth, with an
emphasis on capital preservation. With an experienced management team, significant financial resources and no
debt at the parent company, Onex is well-positioned to continue to acquire and build businesses.
Onex manages its proprietary capital as well as capital entrusted to it by third-party investors from around the
world, including public and private pension funds, sovereign wealth funds, banks, insurance companies, and
fund of funds managed by other asset managers.
Onex’ Capital
Onex manages its $4.5 billion of proprietary capital largely
through its two private equity platforms: Onex Partners
(for larger transactions) and ONCAP (for mid-market
transactions). The Company also invests through Onex
Real Estate Partners and Onex Credit Partners. Onex’
long-term goal is to grow its proprietary capital by at least
15 percent per annum, and to have that growth reflected
in its share price. Onex’ proprietary capital per share grew
by 8 percent over the last 12 months.
Third-party Capital
How Onex’ $4.5 billion of Capital is Deployed
at December 31, 2011
Large-cap Private Equity 57%
Private 48%
Public 9%
Cash and Near-cash Items 29%
Mid-market Private Equity 7%
Onex Credit Partners 3%
Onex Real Estate Partners 4%
In addition to the management of Onex’ proprietary capi-
Investments are valued at fair value as at December 31, 2011 with the exception
of an investment that is valued based on the last third-party investment.
tal, Onex is entrusted with third-party capital from institu-
tional investors around the world. The Company currently
manages $9.1 billion of invested and committed capital
on behalf of its investors and partners, of which 89 per-
cent relates to its private equity platform and the balance
to Onex Credit Partners. The management of third-party
capital provides two significant benefits to Onex. First,
Onex receives a committed stream of annual management
fees on $8.0 billion of third-party assets under manage-
ment, substantially offsetting ongoing operating expenses.
Second, Onex has the opportunity to share in the profits of
its third-party investors through the carried interest par-
ticipation. Carried interest, if realized, can significantly
enhance Onex’ investment returns.
2 Onex Corporation December 31, 2011
The Components of Onex’ $9.1 billion of Third-Party
Assets under Management at December 31, 2011
Onex Partners III 43%
Onex Partners II 24%
Onex Partners I 11%
Onex Credit Partners 11%
ONCAP 10%
Other 1%
Assets under management include capital managed on behalf of co-investors
and the management of Onex and ONCAP.
HOW WE ARE INVESTED
All amounts, unless otherwise noted, are in millions of U.S. dollars except per share data.
This How We Are Invested schedule, which is prepared quarterly and is included in the Company’s earnings
releases, details Onex’ $4.5 billion of proprietary capital and provides private company performance and pub-
lic company ownership information. This schedule includes values for Onex’ private companies based upon
estimated fair values and as such are non-GAAP measures. While it provides a snapshot of Onex’ net assets, this
schedule does not fully reflect the value of Onex’ asset management business as it includes only an estimate
of the unrealized carried interest due to Onex based upon the current values of the investments and allocates
no value to the management company income.
As at December 31, 2011
Private Equity
Onex Partners
Private Companies
Public Companies
Unrealized Carried Interest on Onex Partners Investments
ONCAP
Direct Investments
Private Companies
Public Companies
Alternative Assets
Onex Real Estate Partners
Onex Credit Partners
Other Investments
Cash and Near-Cash
Onex Corporation Debt
Proprietary Capital per Share (Canadian dollar equivalent – C$37.47)(9)
Proprietary Capital
$ 1,847 (1)
235 (2)
96 (3)
319 (4)
204 (5)
130 (2)
2,831
180 (6)
100 (7)
280
81
1,302 (8)
–
$ 4,494
$ 36.85(9)
Significant Public Companies
As at December 31, 2011
Onex Partners
Skilled Healthcare Group
Spirit AeroSystems
TMS International
Direct Investments – Celestica
Significant Private Companies
As at December 31, 2011
Onex Partners
Center for Diagnostic Imaging
The Warranty Group
Hawker Beechcraft
Carestream Health
Allison Transmission
RSI Home Products
Tropicana Las Vegas
Tomkins
ResCare
JELD-WEN(20)
Shares Subject to
Carried Interest
(millions)
Shares Held
by Onex
(millions)
Closing Price
per Share(10)
Market Value of
Onex’ Investment
10.7
11.9
13.2
–
3.5
6.0(12)
9.3
$ 5.46
$ 20.78
$ 9.88
17.8(12)
$ 7.33
$ 19 (11)
124 (11)
92 (11)
235
130
$ 365
Onex and its
Limited Partners
Ownership
LTM EBITDA(13)
Net Debt
Cumulative
Distributions
Onex’
Economic
Ownership
Original
Cost of Onex’
Investment
81%
92%
49%
95%
49%
50%
76%
56%
98%
59%(21)
$ 38
108(14)
n/a(15)
397
712
n/a
n/a(18)
727(19)
129
n/a
$ 102
n/a
n/a(15)
$ 67
203
11(16)
1,600
3,062
n/a
49
2,325
347
n/a
434
–
n/a
–
–
–
42
19%
29%
19%
37%
15%
20%
17%
14%
20%
20%(21)
$ 17
154
212 (17)
186
237
126
60
315
41
298
1,646
251
$ 1,897
Onex Corporation December 31, 2011 3
Direct Investments – Sitel Worldwide
68%
$ 129
$ 681
$ –
68%
H O W W E A R E I N V E S T E D
Notes to Tables
(1)
Based on the US$ fair value of the investments in Onex Partners’ financial statements.
(2)
Based on the December 31, 2011 market values.
(3)
Represents Onex’ share of the unrealized carried interest on public and private companies in the Onex Partners Funds.
(4)
Based on the C$ fair value of the investments in ONCAP’s financial statements and US$/C$ exchange rate of 1.0170.
(5)
Based on value of last third-party investment.
(6)
Based on the carrying value of Onex Real Estate Partners’ investments at December 31, 2011.
(7)
Based on the December 31, 2011 market values. Excludes approximately $312 million invested in a segregated Onex Credit Partners unleveraged senior secured loan
strategy fund, which is included with cash and near-cash items.
(8)
Includes approximately $312 million invested in a segregated Onex Credit Partners unleveraged senior secured loan strategy fund.
(9)
Calculated on a diluted basis.
(10) Closing prices on December 31, 2011.
(11)
Excludes Onex’ potential participation in the carried interest.
(12)
Excludes shares held in connection with the Management Investment Plan.
(13)
EBITDA is a non-GAAP measure and is based on the local GAAP of the individual operating companies. These adjustments may include non-cash costs of stock-based
compensation and retention plans, transition and restructuring expenses including severance payments, the impact of derivative instruments that no longer qualify for
hedge accounting, the impacts of purchase accounting and other similar amounts.
(14)
Amount presented for The Warranty Group is adjusted net earnings rather than EBITDA and includes a one-time $6 million valuation allowance release in the first quarter
of 2011. Net earnings on a U.S. GAAP basis, including the impacts of purchase accounting, were $105 million and include a one-time $6 million valuation allowance
release in the first quarter of 2011.
(15) This information will be provided once the company reports to its debt holders.
(16)
Represents interest received on the portion of the Senior Notes held by Onex, Onex Partners II and Onex management.
(17)
Includes investment in Senior Notes.
(18)
A comprehensive redevelopment underway at Tropicana Las Vegas caused a disruption to its operations, resulting in negative LTM EBITDA that is not reflective of a fully
operational hotel and casino.
(19)
LTM EBITDA excludes EBITDA from businesses divested as of December 31, 2011. Including EBITDA from these divested businesses would result in LTM EBITDA of
$774 million as of December 31, 2011.
(20)
In February 2012, Onex sold a portion of its original investment in JELD-WEN to certain limited partners and others at the same cost basis as Onex’ original investment.
Onex received proceeds of $79 million.
(21) On an as-converted basis.
4 Onex Corporation December 31, 2011
MANAGEMENT’S DISCUSSION AND ANALYSIS
Throughout this MD&A, all amounts are in U.S. dollars unless otherwise indicated.
The Management’s Discussion and Analysis (“MD&A”) provides a review of how Onex Corporation (“Onex”)
performed in 2011 and assesses future prospects. The financial condition and results of operations are
analyzed noting the significant factors that impacted the consolidated statements of earnings, consoli-
dated statements of comprehensive earnings, consolidated balance sheets and consolidated statements
of cash flows of Onex. As such, this MD&A should be read in conjunction with the audited annual consoli-
dated financial statements and notes thereto included in this report. The MD&A and the Onex consolidated
financial statements have been prepared to provide information about Onex on a consolidated basis and
should not be considered as providing sufficient information to make an investment or lending decision in
regard to any particular Onex operating company.
The following MD&A is the responsibility of management and is as of February 23, 2012. Prep-
aration of the MD&A includes the review of the disclosures on each business by senior managers of that
business and the review of the entire document by each officer of Onex and by the Onex Disclosure Com-
mit tee. The Board of Directors carries out its responsibility for the review of this disclosure through its Audit
and Corporate Governance Committee, comprised exclusively of independent directors. The Audit and
Corporate Governance Committee has reviewed and recommended approval of the MD&A by the Board
of Directors. The Board of Directors has approved this disclosure.
The MD&A is presented in the following sections:
6 Our Business, Our Objective and Our Strategies
Industry Segments
Financial Review
13
16
69 Outlook
70 Risk Management
Onex Corporation’s financial filings, including the 2011 MD&A and Financial Statements and interim quarterly reports,
Annual Information Form and Management Information Circular, are available on Onex’ website, www.onex.com, or on the
Canadian System for Electronic Document Analysis and Retrieval (“SEDAR”) at www.sedar.com.
References
Throughout this MD&A, references to the Onex Partners Groups represent Onex, the limited partners of the relevant
Onex Partners Fund, Onex management and, where applicable, certain other limited partners and ONCAP manage-
ment. References to the ONCAP Groups represent Onex, the limited partners of the relevant ONCAP Fund and the
management of Onex and ONCAP. For example, references to the Onex Partners II Group represent Onex, the limited
partners of Onex Partners II, Onex management and, where applicable, certain other limited partners and ONCAP
management.
Forward-Looking/Safe Harbour Statements
This MD&A may contain, without limitation, statements concerning possible or assumed future operations, performance or
results preceded by, followed by or that include words such as “believes”, “expects”, “potential”, “anticipates”, “estimates”,
“intends”, “plans” and words of similar connotation, which would constitute forward-looking statements. Forward-looking
statements are not guarantees. The reader should not place undue reliance on forward-looking statements and informa-
tion because they involve significant and diverse risks and uncertainties that may cause actual operations, performance
or results to be materially different from those indicated in these forward-looking statements. Onex is under no obligation
to update any forward-looking statements contained herein should material facts change due to new information, future
events or other factors. These cautionary statements expressly qualify all forward-looking statements in this MD&A.
Onex Corporation December 31, 2011 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 L Y S I S
OUR BUSINESS, OUR OBJECTIVE AND OUR STRATEGIES
OUR BUSINESS: For over 27 years, Onex has employed an active ownership approach in acquiring and build-
ing industry-leading businesses. Onex manages its own capital and that of third-party investors from around
the world, including public and private pension funds, sovereign wealth funds, banks, insurance companies,
and fund of funds managed by other asset managers. The Company has generated 3.3 times capital on realized,
substantially realized and publicly traded investments.
Active ownership approach
Throughout our history, we have developed a distinctive approach to acquiring, transforming and building
high-quality businesses. We are disciplined and focus on: (i) carve-outs of subsidiaries and mission-critical
supply divisions from multinational corporations; (ii) operational restructurings; and (iii) build-ups in a wide
variety of industries.
We acquire high-quality businesses while employing prudent financial leverage and maintaining pur-
chase price discipline. We focus on businesses with considerable cost-saving opportunities to generate EBITDA
growth as well as strong free-cash-flow characteristics to pay down debt. Our goal is to build market leaders and
ultimately create value for us and our investors.
Typically, Onex acquires a control position in its businesses, which enables it to exercise the rights of
ownership, particularly the ability to make strategic decisions. Onex does not get involved in the daily operating
decisions of the businesses.
Experienced team with significant depth
Onex’ team of professionals is led by nine Managing Directors with an average of 16 years of working at
the Company. Onex’ stability results from its ownership culture, rigorous recruiting standards and highly
collegial environment. The team is supported by professionals who are dedicated to the taxation, financial
control, audit, legal and reporting matters of Onex, its Funds and their operating businesses.
Substantial financial resources available for future growth
Onex is in excellent financial condition with no debt and over $1.3 billion of cash and near-cash items at
December 31, 2011. In addition, we have $2.5 billion of uncalled committed third-party capital in Onex Part-
ners III and ONCAP III available for investment in Onex-sponsored acquisitions.
Strong alignment of interests
We continue to believe that our success in building companies and our record of capital preservation and supe-
rior returns are direct results of the strong alignment of interests between Onex’ shareholders, our limited part-
ners and the Onex management team. In addition to Onex being the largest limited partner in every fund, Onex’
distinctive ownership culture requires each member of the management team to have a significant ownership
in Onex stock and to invest meaningfully in each operating company acquired. Onex’ management team:
• is the largest shareholder in Onex, with a combined holding of approximately 27 million shares or 23 percent;
• has a total cash investment in Onex’ current operating businesses of approximately $255 million; and
• is required to reinvest 25 percent of all gross carried interest and Management Investment Plan distributions
in Onex shares until they individually own at least one million shares and hold these shares until retirement.
6 Onex Corporation December 31, 2011
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 L Y S I S
OUR OBJECTIVE: Onex’ business objective is to create long-term value for shareholders and to have that value
reflected in our share price. Our strategies to deliver value to shareholders are concentrated on acquiring,
building and growing high-quality businesses and on third-party asset management. We believe that Onex
has the operating philosophy, human resources, financial resources, track record and structure to continue
to deliver on its objective. The discussion that follows outlines Onex’ strategies to achieve its objective and
analyzes how we performed against those strategies during 2011.
OUR STRATEGIES
Acquire, Build and Grow High-Quality Businesses
Our investing strategy focuses on our value-oriented and active ownership approach of acquiring and building
industry-leading businesses in partnership with talented management teams. We also maintain Onex as a
financially strong parent company to support our businesses.
2011 performance
1) Acquire attractive businesses
The acquisition market can be divided into four sourcing segments: public-to-private transactions; corporate
dispositions; recapitalizations, restructurings and bankruptcies; and secondary sales from private equity firms.
During 2011, Onex and ONCAP completed five acquisitions for a total investment of $1.2 billion, of which Onex’
share was $421 million. The JELD-WEN acquisition was a recapitalization, the Davis-Standard and Hopkins acqui-
sitions were secondary sales from private equity firms and the remaining ONCAP acquisitions originated from
corporate dispositions.
In early October 2011, Onex acquired a 57 percent as-converted equity ownership interest in JELD-WEN Holding,
inc. (“JELD-WEN”), one of the world’s largest manufacturers of interior and exterior doors, windows and related
products for use primarily in the residential and light commercial new construction and remodelling markets.
The Onex Partners III Group invested $871 million, of which Onex’ initial share was $298 million. Onex’ invest-
ment was reduced to $205 million after giving effect to the October 2011 partial repayment of the convertible
notes and the February 2012 sale to co-investors.
During 2011, ONCAP completed the following four acquisitions:
• Pinnacle Pellet, Inc. (“Pinnacle Renewable Energy Group”), a producer of wood pellets for markets around
the world. The ONCAP II Group has an approximate 60 percent equity ownership in Pinnacle Renewable
Energy Group.
• Crown Amusements Ltd. (“Casino ABS”), the largest casino operator in the Alberta, Canada market, with four
casinos. In May 2011, the ONCAP II Group initially purchased 100 percent of the equity ownership in Casino
ABS. As contemplated at the time of the original investment, the ONCAP III Group subsequently purchased
22 percent of the equity ownership in Casino ABS from the ONCAP II Group in December 2011 at the same
price per share. At December 31, 2011, the combined holdings of the ONCAP II Group and the ONCAP III Group
are close to 100 percent of the equity ownership in Casino ABS.
Onex Corporation December 31, 2011 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 L Y S I S
• Hopkins Manufacturing Corporation (“Hopkins”), a manufacturer, marketer and distributor of automotive
aftermarket products for sale to distributors and retailers primarily in North America. The ONCAP III Group
has an approximate 90 percent equity ownership in Hopkins.
• Davis-Standard Holdings, Inc. (“Davis-Standard”), a leading designer, manufacturer and supplier of highly
engineered extrusion and converting machinery systems. The ONCAP III Group has an approximate 90 percent
equity ownership in Davis-Standard.
A total of $324 million was invested in the ONCAP acquisitions completed during 2011, of which Onex’ share
was $123 million.
In November 2011, Onex notified its limited partners in Onex Partners III that it would be increasing its
commitment to $1.2 billion from $800 million as a result of its considerable cash position. The increased
commitment will apply to operating companies acquired by Onex Partners III after May 14, 2012.
2) Build our businesses into industry leaders
Today, most of Onex’ operating businesses are leaders in their respective industries. As the economic down-
turn that began in 2008 lingered globally in 2011, certain of our businesses continued to face difficult operating
environments and therefore remained focused on realigning their cost structures. The strong cash flow char-
acteristics of our operating businesses enabled a number of them to complete follow-on acquisitions in 2011.
Celestica, Center for Diagnostic Imaging, ResCare, Skilled Healthcare Group, TMS International and several of
the ONCAP companies completed acquisitions collectively valued at approximately $162 million. We believe
that our operating businesses have the management expertise, quality of products or services and financial
capital to continue as industry leaders.
By design, most of Onex’ operating businesses are conservatively capitalized. During 2011, Onex’ oper-
ating businesses collectively raised or refinanced a total of $3.4 billion of debt. In addition, our operating busi-
nesses collectively paid down approximately $1.3 billion of debt. As a result of these efforts, the percentage of
the operating businesses’ total debt maturing in 2013 and 2014 has decreased to 36 percent at December 31, 2011
from 48 percent at December 31, 2010.
As part of our original investment theses to create value, both Tomkins and JELD-WEN sold certain
non-core assets during 2011 with the proceeds used to reduce debt.
3) Grow the value of our businesses
Including realizations and distributions, Onex Partners’ and ONCAP’s private companies provided Onex with
returns of 15 percent and 12 percent, respectively, in 2011. Including the public companies, the value of all of our
operating businesses in the Onex Partners and ONCAP Funds, including distributions received, increased by
12 percent in 2011.
8 Onex Corporation December 31, 2011
M A N A G E M E N T ’ S D I S C U S S I O N A N D A N A L Y S I S
The table below shows the realizations and distributions during 2011 and the amounts received by all investors and
Onex’ share thereof:
Company
Fund
Transaction
Carestream Health
Onex Partners II
Dividend/Return of Capital
Spirit AeroSystems
Onex Partners I
Secondary Offering
Initial Public Offering/Repayment
TMS International
Onex Partners II
of Promissory Notes
Center for Diagnostic Imaging
Onex Partners I
Dividend/Return of Capital
Emergency Medical
Services Corporation
Onex Partners I
Sale of business
Husky International
Onex Partners I & II
Sale of business
JELD-WEN
Onex Partners III
Repayment of Convertible Notes
The Warranty Group
Onex Partners I & II
Dividend
Other
Total
Onex Partners II/ONCAP II
Dividend/Interest Income/Return of Capital
Total Amount
($ millions)
Onex’ Share
($ millions)
$ 200
$ 252
$ 68(a)
$ 67
$ 878(b)
$ 1,844
$ 42
$ 42
$ 79
$ 3,472
$ 78
$ 74
$ 26
$ 13
$ 342
$ 601
$ 14
$ 13
$ 22
$ 1,183
(a)
Represents the sale of a portion of the shares held by existing shareholders and the repayment of the Promissory Notes.
(b)
Represents the Onex Partners I Group only.
4) Maintain substantial financial strength
Onex’ financial strength comes from both its own capital, as well as that of its third-party limited partners in the
Onex Partners and ONCAP Funds. At December 31, 2011, Onex had:
i.
Approximately $1.3 billion of cash and near-cash items and no debt. Onex’ practice is to maintain a debt-
free parent company and not guarantee the debt of our operating businesses.
ii. $2.0 billion of third-party uncalled capital available for future Onex Partners III investments.
iii. $317 million of third-party uncalled capital in Onex Partners I and II, which is largely reserved for possible
future funding of acquisitions by any of Onex Partners I or II’s existing businesses and for management fees.
iv. C$469 million of third-party uncalled capital available for future ONCAP III investments.
v.
C$16 million of third-party uncalled capital in ONCAP II, which is largely reserved for possible future
funding of acquisitions by any of ONCAP II’s existing businesses and for management fees.
Asset Management: Manage and Grow Third-Party Capital
Onex’ management of third-party capital has grown significantly since Onex first began acquiring busi-
nesses in 1984. In its early years, Onex would primarily use its own capital to complete acquisitions and would
include third-party investors in the acquired businesses to diversify risk, cultivate strategic relationships
and facilitate larger acquisitions. The 1996 purchase of Celestica was the first acquisition structured with
the third-party investors providing a carried interest to Onex. Onex thus began to share in the profits of its
third-party investors.
Onex formalized its asset management business in 1999 when it raised its first fund, ONCAP L.P., for
mid-market transactions. In 2003, the first Onex Partners fund was raised for larger transactions. While Onex
expects to be the largest investor in each acquisition in order to deploy its own capital, the establishment of
Onex Partners and ONCAP enabled Onex to efficiently pursue a larger acquisition program. Since 1999, Onex
has raised $8.0 billion of third-party capital through the Onex Partners and ONCAP Funds.
Onex Corporation December 31, 2011 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 L Y S I S
Onex currently manages $9.1 billion of third-party capital, in addition to the $4.5 billion of Onex proprietary cap-
ital at work. The management of third-party capital provides two significant benefits to Onex. First, Onex earns
management fees on $8.0 billion of its third-party assets under management, which substantially offset Onex’
ongoing operating expenses. Second, Onex has the opportunity to share in the profits of its third-party investors
through the carried interest participation. This enables Onex to enhance the return on its investment.
($ millions)
Funds
Onex Partners
ONCAP(c)
Onex Credit Partners (d)
$ 7,075
C$ 956
$ 1,055
$ 8,473
C$ 312
$ 995
(a) All data presented at fair value.
Third-Party Capital Under Management(a)
Total
Fee Generating
Uncalled Commitments
2011(b)
2010(b)
Change
in Total
(16)%
206 %
6 %
2011
2010
2011(b)
2010 (b)
$ 6,093
$ 7,441
$ 2,334
$ 2,978
C$ 823
C$ 276
C$ 485
C$ 90
$ 1,055
$ 995
n/a
n/a
(b)
Includes committed amounts from the management of Onex and ONCAP and directors based on the assumption that all of the remaining limited
partners’ commitments are invested.
(c)
Includes third-party capital of ONCAP II and ONCAP III. The December 31, 2010 third-party capital is only that of ONCAP II.
(d) Onex Credit Partners is jointly controlled by Onex and management of Onex Credit Partners. Capital under management of Onex Credit Partners
represents 100 percent of its third-party capital.
2011 performance
1) Growth in third-party capital under management
The amount of third-party capital under management will fluctuate as new funds are raised and as existing
investments are realized. The amount of third-party capital under management decreased by approximately
$530 million during 2011 due primarily to the realizations and distributions during the year, as previously
discussed, partially offset by the third-party capital commitments to the new ONCAP fund.
• ONCAP completed fundraising for ONCAP III, its third mid-market private equity fund, with capital commit-
ments of C$800 million, excluding commitments from management of Onex and ONCAP. Third-party capital
commitments to the fund total C$520 million, representing an approximate 80 percent increase in the amount
of third-party capital raised relative to ONCAP II, and include commitments from both our long-standing part-
ners and new investors. As with each of our funds, Onex is the largest limited partner in ONCAP III.
• Onex Credit Partners, Onex’ credit investing platform, raised approximately $100 million of third-party capi-
tal through a treasury offering of OCP Credit Strategy Fund (TSX: OCS.UN) during 2011.
• In our large-cap private equity platform, Onex may raise additional third-party capital once Onex Partners III
is 75 percent invested. At December 31, 2011, Onex Partners III was 42 percent invested with $1.5 billion of
third-party capital at work.
10 Onex Corporation December 31, 2011
Onex currently manages $9.1 billion of third-party capital, in addition to the $4.5 billion of Onex proprietary cap-
ital at work. The management of third-party capital provides two significant benefits to Onex. First, Onex earns
2) Predictable and meaningful management fees; substantial carried interest earned
The management of third-party capital provides Onex with a predictable stream of annual management fees
management fees on $8.0 billion of its third-party assets under management, which substantially offset Onex’
that substantially offsets ongoing operating expenses. In addition, the General Partner’s carried interest in the
ongoing operating expenses. Second, Onex has the opportunity to share in the profits of its third-party investors
Funds generally provides Onex with 8 percent of the profits on a substantial portion of the third-party capital.
through the carried interest participation. This enables Onex to enhance the return on its investment.
At year-end, there was $4.3 billion of invested capital and a further $2.6 billion of uncalled committed capital
Third-Party Capital Under Management(a)
• Onex Partners, ONCAP and Onex Credit Partners earned a total of $110 million in management fees in 2011
Total
Fee Generating
Uncalled Commitments
(2010 – $102 million). Onex earned no transaction fees in 2011 (2010 – $16 million).
2011(b)
2010(b)
2011
2010
2011(b)
2010 (b)
• Onex received $65 million of carried interest in 2011 (2010 – nil) as a result of the realizations of EMSC,
subject to a carried interest in the Onex Partners and ONCAP Funds.
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 L Y S I S
Husky International, Spirit Aerosystems and TMS International. This amount was net of a voluntary reduc-
tion of $35 million, reflecting a review of the Funds’ other operating companies and a desire to avoid a future
claw-back.
• At December 31, 2011, there was approximately $32 million of unrealized carried interest on Onex Partners’
public companies, of which Onex’ share was $13 million. There is a further $229 million of unrealized carried
interest on Onex Partners’ and ONCAP’s private operating companies based on the December 31, 2011 fair
values, of which Onex’ share was $83 million. The actual amount of carried interest realized by Onex depends
on the ultimate performance of each Fund.
2011 performance
2011 performance
1) Growth in third-party capital under management
The amount of third-party capital under management will fluctuate as new funds are raised and as existing
investments are realized. The amount of third-party capital under management decreased by approximately
$530 million during 2011 due primarily to the realizations and distributions during the year, as previously
Private Equity Fund Performance
The table below summarizes the performance for the Onex Partners and ONCAP Funds from inception through
December 31, 2011. The gross internal rate of return (“Gross IRR”) shows the returns achieved on the investments
in the Funds including unrealized investments. The net internal rate of return (“Net IRR”) shows the returns
earned by the third-party limited partners in the Funds after the payment of performance fees, management fees
discussed, partially offset by the third-party capital commitments to the new ONCAP fund.
and expenses.
Funds
Onex Partners LP
Onex Partners II LP
Onex Partners III LP
ONCAP LP(5)
ONCAP II LP(5)
ONCAP III LP(5)
Performance Returns(1)
Gross IRR
(excluding unrealized)(2)
Gross IRR(3)
Net IRR
78%
26%
–
43%
57%
–
57%
14%
6%
43%
21%
11%
40 %
10 %
– (4)
33 %
11 %
– (4)
(1) Performance returns are a non-GAAP measure.
(2) Gross IRR (excluding unrealized) includes the returns on realized, substantially realized and publicly traded investments.
(3) Gross IRR includes the returns on unrealized, realized, substantially realized and publicly traded investments.
(4) The net IRR through December 31, 2011 is not presented as net cash flows to date are negative and, therefore, the net IRR is not meaningful.
(5) Returns are calculated in Canadian dollars, the functional currency of the Fund.
Onex Corporation December 31, 2011 11
($ millions)
Funds
Change
in Total
(16)%
206 %
6 %
Onex Partners
ONCAP(c)
Onex Credit Partners (d)
$ 7,075
C$ 956
$ 1,055
$ 8,473
C$ 312
$ 995
$ 6,093
$ 7,441
$ 2,334
$ 2,978
C$ 823
C$ 276
C$ 485
C$ 90
$ 1,055
$ 995
n/a
n/a
(a) All data presented at fair value.
partners’ commitments are invested.
(b)
Includes committed amounts from the management of Onex and ONCAP and directors based on the assumption that all of the remaining limited
(c)
Includes third-party capital of ONCAP II and ONCAP III. The December 31, 2010 third-party capital is only that of ONCAP II.
(d) Onex Credit Partners is jointly controlled by Onex and management of Onex Credit Partners. Capital under management of Onex Credit Partners
represents 100 percent of its third-party capital.
• ONCAP completed fundraising for ONCAP III, its third mid-market private equity fund, with capital commit-
ments of C$800 million, excluding commitments from management of Onex and ONCAP. Third-party capital
commitments to the fund total C$520 million, representing an approximate 80 percent increase in the amount
of third-party capital raised relative to ONCAP II, and include commitments from both our long-standing part-
ners and new investors. As with each of our funds, Onex is the largest limited partner in ONCAP III.
• Onex Credit Partners, Onex’ credit investing platform, raised approximately $100 million of third-party capi-
tal through a treasury offering of OCP Credit Strategy Fund (TSX: OCS.UN) during 2011.
• In our large-cap private equity platform, Onex may raise additional third-party capital once Onex Partners III
is 75 percent invested. At December 31, 2011, Onex Partners III was 42 percent invested with $1.5 billion of
third-party capital at work.
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 L Y S I S
Have Value Creation Reflected in Onex’ Share Price
We seek to have the value of our investing and asset management activities reflected in our share price. These
efforts are supported by a long-standing quarterly dividend and an active stock buyback program. During
2011, Onex repurchased 3,165,296 Subordinate Voting Shares under its Normal Course Issuer Bid at a total cost
of $105 million, or an average purchase price of C$33.27 per share. During the same period, $13 million was
returned to shareholders through dividends.
At December 31, 2011, Onex’ Subordinate Voting Shares closed at C$33.18, a 10 percent increase
from December 31, 2010. This compares to no change in the Standard & Poor’s 500 Index (“S&P 500”) and an
11 percent decrease in the S&P/TSX Composite Index (“TSX”).
The chart below shows the performance of Onex’ Subordinate Voting Shares during 2011 relative to the S&P 500
and TSX.
0
1
0
2
,
1
3
r
e
b
m
e
c
e
D
n
o
0
0
1
t
a
d
e
x
e
d
n
I
130
125
120
115
110
105
100
95
90
85
80
OCX
TSX
S&P 500
OCX
+10%
S&P 500
0%
TSX
–11%
31-Dec-10
31-Jan-11
28-Feb-11
31-Mar-11
30-Apr-11
31-May-11
30-Jun-11
31-Jul-11
31-Aug-11
30-Sep-11
31-Oct-11
30-Nov-11
31-Dec-11
12 Onex Corporation December 31, 2011
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 L Y S I S
INDUSTRY SEGMENTS
At December 31, 2011, Onex had eight reportable industry segments. A description of our oper-
ating businesses by industry segment, and the economic and voting ownerships of Onex, the parent
company, and its Limited Partners in those businesses, is presented below. We manage our busi-
nesses and measure performance based on each operating company’s individual results.
Industry
Segments
Companies
Electronics
Manufacturing
Services
Celestica Inc. (TSX/NYSE: CLS), a global provider of electronics manufacturing
services (website: www.celestica.com).
Onex shares held: 17.8 million
Onex &
Limited
Partners
Economic
Ownership
Onex’
Economic/
Voting
Ownership
8%(a)
8%(a)/71%
Aerostructures Spirit AeroSystems, Inc. (NYSE: SPR), the world’s largest independent designer
16%
4%(a)/64%
and manufacturer of aerostructures (website: www.spiritaero.com).
Onex shares held: 6.0 million
Onex Partners I shares subject to a carried interest: 11.9 million
Healthcare
Center for Diagnostic Imaging, Inc., a U.S. provider of diagnostic and therapeutic
radiology services (website: www.cdiradiology.com).
81%
19%/100%
Total Onex, Onex Partners I and Onex management investment at cost: $73 million,
before a $42 million return of capital
Onex portion at cost: $17 million, before a return of capital of $10 million
Onex Partners I portion subject to a carried interest: $53 million
Skilled Healthcare Group, Inc. (NYSE: SKH), an organization of skilled nursing
and assisted living facilities operators in the United States
(website: www.skilledhealth caregroup.com).
Onex shares held: 3.5 million
Onex Partners I shares subject to a carried interest: 10.7 million
40%
9%/89%
Carestream Health, Inc., a global provider of medical and dental imaging and
healthcare information technology solutions (website: www.carestream.com).
95%
37%/100%
Total Onex, Onex Partners II and Onex management investment at cost: $471 million,
before a $243 million return of capital
Onex portion at cost: $186 million, before a return of capital of $96 million
Onex Partners II portion subject to a carried interest: $266 million
Res-Care, Inc. , a leading U.S. provider of residential, training, educational and support
services for people with disabilities and special needs (website: www.rescare.com).
98%
20%/100%
Total Onex, Onex Partners I, Onex Partners III and Onex management investment
at cost: $204 million
Onex portion: $41 million
Onex Partners I portion subject to a carried interest: $61 million
Onex Partners III portion subject to a carried interest: $94 million
(a) Onex’ economic ownership percentage excludes shares held in connection with the Management Investment Plan.
Onex Corporation December 31, 2011 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 L Y S I S
Industry
Segments
Financial
Services
Customer
Care
Services
Metal
Services
Building
Products
Other
Businesses
• Aircraft &
Aftermarket
Companies
The Warranty Group, Inc., the world’s largest provider of extended warranty
contracts (web site: www.thewarrantygroup.com).
Total Onex, Onex Partners I, Onex Partners II and Onex management investment at cost:
$488 million
Onex portion: $154 million
Onex Partners I portion subject to a carried interest: $178 million
Onex Partners II portion subject to a carried interest: $137 million
Onex &
Limited
Partners
Economic
Ownership
Onex’
Economic/
Voting
Ownership
92%
29%/100%
SITEL Worldwide Corporation, a global provider of outsourced customer care
services (website: www.sitel.com).
68%
68%/88%
Onex investment at cost: $251 million
TMS International Corp. (NYSE: TMS), a leading provider of outsourced industrial
services to steel mills globally (website: www.tmsinternationalcorp.com).
60%
24%/85%
59%(a)
20%(a)/59%(a)
Onex shares held: 9.3 million
Onex Partners II shares subject to a carried interest: 13.2 million
JELD-WEN Holding, inc., one of the world’s largest manufacturers of interior
and exterior doors, windows and related products for use primarily in the
residential and light commercial new construction and remodelling markets
(website: www.jeld-wen.com).
Total Onex, Onex Partners III and Onex management investment at cost: $871 million,
before a $42 million return of capital on the convertible promissory notes
Onex portion at cost: $298 million, before a return of capital of $14 million
on the convertible promissory notes
Onex Partners III portion subject to a carried interest: $538 million
In February 2012, Onex sold a portion of its investment in JELD-WEN to certain
limited partners and management of Onex at the same cost basis as Onex’ original
investment. Onex received proceeds of $79 million. After giving effect to the sale
in February 2012 and the partial redemption in late October 2011, Onex’ investment
in JELD-WEN is $205 million.
Hawker Beechcraft Corporation(b), the largest privately owned designer
and manufacturer of business jet, turboprop and piston aircraft
(website: www.hawkerbeechcraft.com).
Total Onex, Onex Partners II and Onex management investment at cost: $537 million
Onex portion: $212 million
Onex Partners II portion subject to a carried interest: $303 million
49%
19%/–(b)
• Commercial
Vehicles
Allison Transmission, Inc. (b), the world leader in the design and manufacture
of automatic transmissions for on-highway trucks and buses, off-highway
equipment and military vehicles (website: www.allisontransmission.com).
49%
15%/–(b)
Total Onex, Onex Partners II, certain limited partners and Onex management
investment at cost: $763 million
Onex portion: $237 million
Onex Partners II portion subject to a carried interest: $339 million
(a) On an as-converted basis.
(b) Onex has certain contractual rights and protections, including the right to appoint members to the Board of Directors, in respect of these entities,
which are accounted for at fair value in Onex’ audited annual consolidated financial statements.
14 Onex Corporation December 31, 2011
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 L Y S I S
Industry
Segments
Other
Businesses
(cont’d)
• Industrial
Products
Companies
Tomkins Limited(a), an engineering and manufacturing company that produces
a variety of products for the industrial, automotive and building products
markets worldwide (website: www.tomkins.co.uk).
Total Onex, Onex Partners III, certain limited partners, Onex management and others
investment at cost: $1,219 million
Onex portion: $315 million
Onex Partners III and others portion subject to a carried interest: $688 million
Onex &
Limited
Partners
Economic
Ownership
Onex’
Economic/
Voting
Ownership
56%
14%/50%(a)
• Gaming
Tropicana Las Vegas, Inc., located directly on the Las Vegas Strip, is one of the
most storied casinos in Las Vegas (website: www.troplv.com).
76%
17%/76%
Total Onex, Onex Partners III and Onex management investment at cost: $279 million
Onex portion: $60 million
Onex Partners III portion subject to a carried interest: $196 million
• Cabinetry
Products
RSI Home Products, Inc. (a), a leading manufacturer of kitchen, bathroom and
home organization cabinetry sold through home centre retailers and distributors
(website: www.rsiholdingcorp.com).
50%
20%/50%(a)
Total Onex, Onex Partners II and Onex management investment at original cost:
$318 million
Onex portion: $126 million
Onex Partners II portion subject to a carried interest: $179 million
• Mid-market
Opportunities
ONCAP, private equity funds focused on acquiring and building the value of
mid-market companies based in North America (website: www.oncap.com).
ONCAP II
100%
46%/100%
ONCAP II actively manages investments in EnGlobe Corp., Mister Car Wash, CiCi’s
Pizza, Caliber Collision Centers, BSN SPORTS, Pinnacle Renewable Energy Group
and Casino ABS.
Total ONCAP II, Onex, Onex management and ONCAP management investment at cost:
$411 million (C$438 million)
Onex portion: $190 million (C$201 million)
ONCAP II portion: $186 million (C$200 million)
ONCAP III
100%
29%/100%
ONCAP III actively manages investments in Hopkins, Casino ABS and Davis-Standard.
Total ONCAP III, Onex, Onex management and ONCAP management investment
at cost: $173 million (C$174 million)
Onex portion : $50 million (C$51 million)
ONCAP III portion : $106 million (C$106 million)
• Real Estate Onex Real Estate Partners, a platform dedicated to acquiring and improving
88%
88%/100%
real estate assets in North America.
Onex investment in Onex Real Estate transactions at cost: $294 million
• Credit
Strategies
Onex Credit Partners specializes in managing credit-related investments, including
event-driven, long/short and market dislocation strategies.
–
60%(b)/50%(b)
Onex investment in Onex Credit Partners’ funds at market: $412 million, of which
$312 million is in a segregated Onex Credit Partners unleveraged senior secured loan
portfolio that purchases assets with greater liquidity.
(a) Onex has certain contractual rights and protections, including the right to appoint members to the Board of Directors, in respect of these entities,
which are accounted for at fair value in Onex’ audited annual consolidated financial statements.
(b) This represents Onex’ share of the Onex Credit Partners platform.
Onex Corporation December 31, 2011 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 L Y 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 flows for the fiscal year ended
December 31, 2011 compared to those for the year ended December 31, 2010 and, in selected
areas, to those for the year ended December 31, 2009. The operating results for the fiscal years
ended December 31, 2011 and 2010 have been reported in accordance with International Financial
Reporting Standards (“IFRS”) and are presented in U.S. dollars. The operating results for the fiscal
year ended December 31, 2009 were prepared in accordance with generally accepted accounting
principles in Canada (“Canadian GAAP”) and are presented in Canadian dollars. IFRS differs in a
number of areas from Canadian GAAP as described in the significant accounting policies on page 19
of this MD&A.
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
Note 35 to the consolidated financial statements
This section should be read in conjunction with Onex’
the transition from the previous Canadian GAAP to IFRS on
audited annual consolidated statements of earnings and
earnings and comprehensive earnings for the year ended
provides reconciliations and descriptions of the effect of
corresponding notes thereto.
Basis of presentation
The use of IFRS is required for most Canadian publicly
accountable enterprises for years beginning on or after
January 1, 2011. Accordingly, Onex’ consolidated finan-
cial statements have been prepared in accordance with
IFRS 1, First-time Adoption of IFRS, using accounting poli-
cies consistent with IFRS and its interpretations adopted
December 31, 2010. In addition, the change in equity is
shown with line-by-line reconciliations of the consolidated
balance sheets at January 1, 2010 and December 31, 2010.
Critical accounting policies and estimates
Significant accounting estimates
The preparation of these financial statements in confor-
mity with IFRS requires management to make estimates
and assumptions that affect the reported amounts of assets
by the International Accounting Standards Board (“IASB”).
and liabilities, disclosures of contingent assets and liabili-
In completing the transition to IFRS, the Company
ties and the reported amounts of revenues and expenses
assessed its functional currency under IFRS. It was deter-
for the periods of the consolidated financial statements.
mined that the U.S. dollar is the appropriate functional
Onex and its operating companies evaluate their estimates
currency for Onex’ financial reporting under IFRS. As such,
and assumptions on an ongoing basis and any revisions
the financial statements under IFRS have been reported on
are recognized in the affected periods. Included in Onex’
a U.S. dollar basis.
consolidated financial statements are estimates used in
In 2010 and prior periods, Onex’ consolidated
determining the allowance for doubtful accounts, inven-
financial statements were prepared in Canadian dol-
tory valuation, deferred tax assets and liabilities, intangi-
lars and in accordance with Canadian GAAP. IFRS differs
ble assets and goodwill, useful lives of property, plant and
in a number of areas from Canadian GAAP. In preparing
equipment and intangible assets, recoverability of devel-
these consolidated financial statements, management has
opment costs associated with new product programs, rev-
amended certain accounting, valuation and consolidation
enue recognition under contract accounting, income taxes,
methods previously applied in order to comply with IFRS,
including IFRS 1, First-time Adoption of IFRS. The com-
parative figures for 2010 were restated to comply with IFRS
policies and disclosures.
investments in associates, Limited Partners’ Interests,
stock-based compensation, pension and post-employment
benefits, losses and loss adjustment expenses reserves,
warranty provisions, restructuring provisions, legal contin-
gencies and other matters. Actual results could differ mate-
rially from those estimates and assumptions.
16 Onex Corporation December 31, 2011
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 L Y S I S
Judgements, assumptions and estimates are used
long-term nature of such investments. Valuation method-
in the determination of fair value for business combina-
ologies include discounted cash flows and observations of
tions, investments in associates, Limited Partners’ Interests
the trading multiples of public companies considered com-
and legal contingencies. The assessment of goodwill,
parable to the private companies being valued. The valu-
intangible assets and long-lived assets for impairment, the
ations take into consideration company-specific items, the
determination of contract accounting, income taxes and
lack of liquidity inherent in a non-public investment and
actuarial valuations of pension and other post-retirement
the fact that comparable public companies are not iden-
benefits also require the use of judgements, assumptions
tical to the companies being valued. Company-specific
and estimates. Due to the material nature of these factors,
items are considered because, in the absence of a com-
they are discussed here in greater detail.
mitted buyer and completion of due diligence procedures,
Business combinations
In a business combination, all identifiable assets, liabili-
there may be unknown company-specific items that may
affect value. A variety of additional factors are reviewed
by management, including, but not limited to, financing
ties and contingent liabilities acquired are recorded at the
and sales transactions with third parties, current oper-
date of acquisition at their respective fair values. One of
ating performance and future expectations of the particular
the most significant estimates relates to the determination
investment, changes in market outlook and the third-party
of the fair value of these assets and liabilities. Land, build-
financing environment. In determining changes to the fair
ings and equipment are usually independently appraised
value of investments, emphasis is placed on current com-
while short-term investments are valued at market prices.
pany performance and market conditions.
If any intangible assets are identified, depending on the
For publicly traded investments, the valuation is
type of intangible asset and the complexity of determin-
based on closing market prices less adjustments, if any, for
ing its fair value, an independent external valuation expert
regulatory and/or contractual sale restrictions.
may develop the fair value. These evaluations are linked
The changes to fair value of the investments in
closely to the assumptions made by management regard-
associates are reviewed on page 35 of this MD&A.
ing the future performance of the assets concerned and any
Included in the measurement of the Limited Part-
changes in the discount rate applied. Note 1 to the audited
ners’ Interests is a reduction for the estimated unrealized
annual consolidated financial statements provides addi-
carried interest as well as any contributions by and distri-
tional disclosure on business combinations.
butions to third-party limited partners in the Onex Partners
and ONCAP Funds. The changes to fair value of the Limited
Fair value of investments in associates
Partners’ Interests are reviewed on page 38 of this MD&A.
and Limited Partners’ Interests
Associates are defined under IFRS as those investments
Impairment tests of goodwill, intangible assets
in operating companies over which Onex has significant
influence, but not control. Under IFRS, these investments
and long-lived assets
Goodwill in an accounting context represents the excess
are designated, upon initial recognition, at fair value on
of the aggregate consideration paid and the amount of
the consolidated balance sheets. The fair value of invest-
any non-controlling interests in the acquired company
ments in associates is assessed at each reporting date
compared to the fair value of the identifiable net assets.
with changes in fair value recognized in the consolidated
Essentially all of the goodwill amount that appears on Onex’
statements of earnings. Similarly, the Limited Partners’
audited annual consolidated balance sheets at Decem-
Interests which represent the interests of third-party inves-
ber 31, 2011 and 2010 was recorded by the operating com-
tors in the Onex Partners and ONCAP Funds are recorded
panies. Goodwill is not amortized, but is assessed for
at fair value, which is significantly affected by the change
impairment at the cash generating unit (“CGU”) level (or
in the fair value of the underlying investments in the Onex
group of CGUs) annually, or sooner if events or changes in
Partners and ONCAP Funds.
circumstances or market conditions indicate that the car-
The valuation of non-public investments requires
rying amount could exceed fair value. The test for goodwill
significant judgement by Onex due to the absence of
impairment used by our operating companies is to assess
quoted market values, inherent lack of liquidity and the
the fair value of each CGU within an operating company and
Onex Corporation December 31, 2011 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 L Y S I S
determine if the goodwill associated with that CGU is less
be developed, the impact to recognized revenue and costs
than its carrying value. This assessment takes into consid-
may be significant if the estimates change. These estimates
eration several factors, including, but not limited to, future
involve assumptions of future events, including the quan-
cash flows and market conditions. If the fair value is deter-
tity and timing of deliveries and labour performance rates,
mined to be lower than the carrying value at an individual
as well as projections relative to material and overhead
CGU, then goodwill is considered to be impaired and an
costs. Contract estimates are re-evaluated periodically and
impairment charge must be recognized. Each operating
changes in estimates are reflected in the current period.
company has developed its own internal valuation model
Spirit AeroSystems also expects to derive future
to determine fair value. These models are subjective and
revenues from new programs for which the company may
require management of the particular operating company
be contracted to provide design and engineering services,
to exercise judgement in making assumptions about future
recurring production, or both. There are several risks
results, including revenues, operating expenses, capital
inherent to such new programs. In the design and engi-
expenditures and discount rates. The impairment test for
neering phase, as well as in recurring production, the com-
intangible assets and long-lived assets with limited lives is
pany may incur higher than expected costs. The ability to
similar to that of goodwill. Under IFRS, impairment charges
recover these excess costs from the customer will depend
for intangible assets and long-lived assets may subsequently
on several factors, including the company’s rights under its
be reversed if fair value is determined to be higher than car-
contracts for the new programs. The recognition of earn-
rying value. The reversal is limited, however, to restoring
ings and loss under these new contracts requires the com-
the carrying amount that would have been determined, net
pany to make significant assumptions regarding its future
of amortization, had no impairment loss been recognized
costs, ability to achieve cost reduction opportunities, as
in prior periods. Impairment losses for goodwill are not
well as the estimated number of units to be manufactured
reversed in future periods.
under the contract and other variables.
Impairment charges recorded by the operating
Revenues in the healthcare segment for Skilled
companies under IFRS may not impact the fair values of
Health care Group, Inc. (“Skilled Healthcare Group”) and
the operating companies used in determining the increase
Res-Care, Inc. (“ResCare”) are substantially derived from
or decrease in investments in associates, the change in
federal, state and local government agencies, including
carried interest and for calculating the Limited Partners’
Medicare and Medicaid programs. Laws and regulations
Interests liability.
under these programs are complex and compliance with
During 2011, certain of the operating companies
such laws and regulations is subject to ongoing and future
recorded charges for impairments of goodwill, intangible
government review and interpretation. Management of those
assets and long-lived assets. These charges are reviewed on
businesses believe that they are in compliance with applica-
page 38 of this MD&A and in note 24 to the audited annual
ble laws and regulations. Revenues generated through con-
consolidated financial statements.
tracts with government agencies require the use of estimates
as contracts may be terminated or adversely modified if bud-
Revenue recognition
The aerostructures segment recognizes revenue using the
getary appropriation to the particular government agency is
decreased. Contract estimates are re-evaluated periodically
contract method of accounting since a significant portion
and changes in estimates are reflected in the current period.
of Spirit AeroSystems, Inc.’s (“Spirit AeroSystems”) rev-
enues is under long-term volume-based contracts requir-
ing delivery of products over several years. Revenues from
Income taxes
Onex, including its operating companies, is subject to
each contract are recognized in accordance with the per-
changing tax laws in multiple jurisdictions. Significant
centage-of-completion method of accounting, using the
judgements are necessary in determining the worldwide
units-of-delivery method. As a result, contract account-
income tax liabilities. Although management of Onex and
ing uses various estimating techniques to project costs to
the operating companies believe they have made reason-
completion and estimates of recoveries asserted against
able estimates about the final outcome of tax uncertain-
the customer for changes in specifications. Due to the
ties, no assurance can be given that the outcome of these
significant length of time over which these estimates will
tax matters will be consistent with what is reflected in the
18 Onex Corporation December 31, 2011
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 L Y S I S
historical income tax provisions. Such differences could
related future expense in the audited annual consolidated
have an effect on the income tax liabilities and deferred tax
financial statements. Note 32 to the audited annual con-
liabilities in the period in which such determinations are
solidated financial statements provides details on the
made. At each balance sheet date, management of Onex
estimates used in accounting for pensions and post-retire-
and the operating companies assess whether the realization
ment benefits.
of future tax benefits is sufficiently probable to recognize
deferred tax assets. This assessment requires the exercise
of judgement on the part of management with respect to,
Significant accounting policies under IFRS
The following summarizes new accounting policies under
among other things, benefits that could be realized from
IFRS that have a significant impact on the preparation
available tax strategies and future taxable income, as well
of Onex’ consolidated financial statements compared
as other positive and negative factors. The recorded amount
to policies previously applied under Canadian GAAP at
of total deferred tax assets could be reduced if estimates of
Decem ber 31, 2010.
projected future taxable income and benefits from available
tax strategies are lowered, or if changes in current tax regu-
lations are enacted that impose restrictions on the timing
Limited Partners’ Interests
Onex has two private equity platforms: the Onex Partners
or extent of Onex’, or its operating companies’, ability to
and ONCAP Funds. These private equity funds provide a
utilize future tax benefits.
Legal contingencies
Onex, including its operating companies, becomes
substantial pool of committed capital from third-party lim-
ited partners which, in combination with Onex’ proprietary
capital, allows Onex to be flexible and timely in responding
to investment opportunities.
involved in various legal proceedings in the normal course
Onex’ consolidated balance sheet at December 31,
of operations. While we cannot predict the final outcome of
such legal proceedings, the outcome of these matters may
have a significant effect on Onex’ consolidated financial
position, results of operations or cash flows. The filing or
2011 includes a financial liability line item, Limited Partners’
Interests, as required by IAS 32, Financial Instruments:
Presen tation. This liability represents the fair value of the
third-party invested capital in the Onex Partners and ONCAP
disclosure of a suit or formal assertion of a claim does not
Funds. The Limited Partners’ Interests liability is affected by
automatically indicate that a provision may be appropriate.
the change in the fair value of the underlying investments in
Management, with the assistance of internal and external
the Onex Partners and ONCAP Funds, the impact of unre-
lawyers, regularly analyzes current information about these
alized carried interest, as well as by any contributions from
matters and provides provisions for probable contingent
and distributions to the third-party limited partners in those
losses, including the estimate of legal expenses to resolve
Funds. Previously under Canadian GAAP, third-party lim-
these matters.
ited partners’ capital was recognized on the same basis as
Onex’ capital – a percentage of the accounting earnings/loss
Employee benefits
Onex, the parent company, does not have a pension plan;
of the various investments. The third-party limited partners’
capital is now disclosed as a standalone liability line item in
however, certain of its consolidated operating companies
Onex’ consolidated balance sheets under IFRS compared to
do. Management of the consolidated operating compa-
previously being a component of non-controlling interests,
nies use actuarial valuations to account for their pension
outside of equity, under Canadian GAAP.
and other post-retirement benefits. These valuations rely
Onex’ consolidated statements of earnings are also
on statistical and other factors in order to anticipate future
affected by Limited Partners’ Interests under IFRS. First,
events. These factors include key actuarial assumptions
any adjustments to the fair value of the Limited Partners’
such as the discount rate, the expected return on plan
Interests liability arising primarily from the change in the
assets, expected salary increases and mortality rates. These
underlying values of the investments are recorded in Onex’
actuarial assumptions may differ significantly from actual
consolidated statements of earnings. For example, if the fair
developments due to changing market and economic con-
value of The Warranty Group, Inc. (“The Warranty Group”)
ditions and therefore may result in a significant change
increases, the Limited Partners’ Interests liability on the
in post-retirement employee benefit obligations and the
Onex Corporation December 31, 2011 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 L Y S I S
consolidated balance sheets is increased for their portion of
unrealized gains in each of the Onex Partners and ONCAP
the change in value and there is a corresponding charge to
Funds attributable to the management of Onex or ONCAP,
Limited Partners’ Interests in the consolidated statements
be recognized as a liability on Onex’ consolidated balance
of earnings, thus decreasing net earnings. A decrease in the
sheets, which reduces the Limited Partners’ Interests liabil-
fair value of the underlying investments has the opposite
ity. The corresponding increase/decrease of this liability is
effect. Second, net earnings attributable to Onex, the parent
recognized in Onex’ consolidated statements of earnings.
company, under IFRS now includes the share of earnings
The amount of unrealized carried interest attributable to
attributable to both Onex, the parent company, as well as
the management of Onex or ONCAP is calculated based
to its third-party limited partners in Onex’ controlled oper-
on the fair values of the underlying investments and the
ating companies. For example, Onex, the parent company,
overall unrealized gains in each respective Fund in accor-
holds a 29 percent economic ownership in The Warranty
dance with the limited partnership agreements. Previously
Group and, when considering the investment made by
under Canadian GAAP, Onex did not recognize unreal-
third-party limited partners, holds a combined 92 percent
ized carried interest attributable to the management of
economic ownership in The Warranty Group. Under IFRS,
Onex or ONCAP on its consolidated balance sheets. The
92 percent of The Warranty Group’s net earnings is attrib-
adoption of this new policy resulted in an approximate
utable to Onex, the parent company. Previously under
$85 million decline in opening equity and a correspond-
Canadian GAAP, net earnings attributable to Onex, the par-
ing increase to liabilities on Onex’ January 1, 2010 consoli-
ent company, included only 29 percent of The Warranty
dated opening balance sheet for the estimated unrealized
Group’s net earnings, while the third-party limited part-
carried interest due to management of Onex and ONCAP.
ners’ share of that business’ net earnings was recorded in
During 2011, Onex recorded a charge of $62 mil-
the non-controlling interests line in Onex’ consolidated
lion (2010 – $114 million) in the consolidated statements
statements of earnings, above net earnings.
of earnings related to the increase in net unrealized carried
The adoption of this new policy resulted in an
interest attributable to management. The charge recorded
approximate $1.1 billion decline in opening equity and a
in 2011 was due primarily to an increase in the fair value of
corresponding increase to liabilities on Onex’ January 1,
certain of the private investments in the Onex Partners and
2010 consolidated opening balance sheet to show the lia-
ONCAP Funds.
bility to third-party limited partners at fair value. During
The change in net unrealized carried interest attrib-
2011, a charge of $627 million (2010 – $831 million) was
utable to Onex, the parent company, is recognized through a
recorded for the increase in the fair value of the liability to
reduction in the charge for the Limited Partners’ Interests.
third-party limited partners. The factors con tributing to
Pre viously under Canadian GAAP, Onex did not recognize
the charge recorded in 2011 are discussed in detail under
unrealized carried interest attributable to Onex, the parent
Limited Partners’ Interests charge on page 38 of this report.
company, on its consolidated balance sheets until realized.
The adoption of this new policy resulted in an approximate
Unrealized carried interest
The General Partner of the Onex Partners and ONCAP Funds
$56 million increase in opening equity and a correspond-
ing decrease to the Limited Partners’ Interests liability on
is entitled to a portion (20 percent) of the realized net gains
Onex’ January 1, 2010 consolidated opening balance sheet.
of third-party limited partners in each Fund. This share of
For 2011, a recovery of $29 million (2010 – $76 million) was
the net gains is referred to as carried interest. Onex is enti-
recorded in the consolidated statements of earnings for
tled to 40 percent of the carried interest realized in the Onex
the increase in the value of the carried interest attribut-
Partners and ONCAP Funds. The Onex management team is
able to Onex, the parent company, due to an increase in the
entitled to the remaining 60 percent of the carried interest
fair value of certain of the private investments in the Onex
realized in the Onex Partners Funds and the ONCAP man-
Partners and ONCAP Funds.
agement team is entitled to the remaining 60 percent of the
During 2011, $249 million of carried interest was
carried interest realized in the ONCAP Funds.
generated by Onex and Onex management on the sales
IFRS requires that the unrealized carried interest,
of a portion of the shares of TMS International and Spirit
which represents the undistributable share of the overall
AeroSystems, as well as from the sales of EMSC and Husky
20 Onex Corporation December 31, 2011
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 L Y S I S
International. Onex decided to voluntarily reduce the car-
its third-party limited partners in the Onex Partners and
ried interest to be received by $88 million, bringing the
ONCAP Funds, in Onex’ controlled operating companies.
total carried interest received to $161 million, of which
For example, the non-controlling interests under IFRS
Onex’ share was $65 million. The reduction was made after
represent the ownership interests of public shareholders
a review of the remaining portfolio companies in Onex
of Spirit AeroSystems. Previously under Canadian GAAP,
Partners II and reflecting the desire to not distribute or collect
the non-controlling interests represented the owner-
carried interest that may be subject to a future claw-back.
ship interests of both the public shareholders of Spirit
Investments in associates
Associates are defined under IFRS as those investments
AeroSystems as well as those of the third-party limited part-
ners of Onex Partners.
Second, the non-controlling interests’ share of
in operating companies over which Onex has significant
net assets is classified as a component of equity and their
influence, but not control. Under IFRS these investments
share of earnings is recorded as an allocation after arriving
are designated, upon initial recognition, at fair value on
at net earnings. Previously under Canadian GAAP, the non-
the consolidated balance sheets, with changes in fair value
controlling interests’ share of net assets was recognized as
recognized in the consolidated statements of earnings. The
a separate line item in Onex’ consolidated balance sheets,
change in fair value of investments in associates represents
outside of equity, and their share of earnings was recorded
the interests of both Onex, the parent company, and its
as a separate line item in Onex’ consolidated statements of
third-party limited partners in those investments. There is
earnings, above net earnings.
a corresponding charge to the Limited Partners’ Interests
The adoption of this new standard under IFRS
line in the consolidated statements of earnings for the
resulted in an approximate $3.3 billion increase in open-
third-party limited partners’ share of that fair value change.
ing equity on Onex’ January 1, 2010 consolidated opening
During 2011 and 2010, Onex recorded at fair
balance sheet due to the reclassification of non-controlling
value its investments in associates, which include Allison
interests to equity.
Transmission, Hawker Beechcraft, RSI Home Products,
Tomkins, Cypress and certain Onex Real Estate Partners
investments. In addition, ResCare was recorded at fair
Cash-settled share-based compensation
Under IFRS, the liability for cash-settled share-based com-
value in the investments in associates up to mid-Novem-
pensation is measured at fair value as determined through
ber 2010, when Onex began to consolidate that business
the application of an option pricing model. The liability is
following Onex’ and Onex Partners III’s acquisition of the
re-measured each reporting period, with changes in fair
remaining interest in ResCare not previously owned by the
value recognized as the awards vest. Changes in the fair
Onex Partners I Group. Previously under Canadian GAAP,
value of vested awards are recognized immediately in the
these investments were accounted for using the equity-
consolidated statements of earnings. Previously under
accounting method.
Canadian GAAP, a liability for cash-settled share-based
The adoption of this new policy resulted in an
payments was accrued based on the intrinsic value of the
approximate $330 million increase in opening equity and
award, with changes recognized in the statement of earnings
a corresponding increase in long-term investments on
each period.
Onex’ January 1, 2010 consolidated opening balance sheet.
The new treatment of cash-settled share-based
During 2011, Onex recorded a $501 million increase in the
compensation under IFRS has also required Onex to record
value of investments in associates compared to an increase
all of its Management Investment Plan (“MIP”) options at
of $448 million in 2010.
Non-controlling interests
The definition of non-controlling interests in accordance
fair value. Previously under Canadian GAAP, only those
MIP options that had met the MIP performance hurdles
and were exercisable were accrued at their intrinsic value.
The adoption of this new policy resulted in an
with IFRS has two significant differences from that previ-
approximate $55 million decrease in opening equity and a
ously reported under Canadian GAAP.
corresponding increase in other non-current liabilities on
First, non-controlling interests represent the
Onex’ January 1, 2010 consolidated opening balance sheet.
ownership interests of shareholders, other than Onex and
Onex Corporation December 31, 2011 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 L Y S I S
Provisions
The balance sheet presentation for provisions in accor-
• IFRS 10, Consolidated Financial Statements, establishes
the principles for the preparation and presentation of
dance with IFRS is different from that previously reported
under Canadian GAAP. Under IFRS, Onex is required to
disclose the liability for provisions as two separate line
items on its consolidated balance sheets: Current portion
of provisions and Non-current portion of provisions. The
consolidated financial statements and replaces the cur-
rent guidance in IAS 27, Consolidated and Separate
Financial Statements, and SIC 12, Consolidation – Special
Purpose Entities. IFRS 10 introduces a single consolida-
tion model for all entities based on control, irrespective
significant provisions in Onex’ consolidated balance sheets
of the nature of the entity.
consist of self-insurance, legal, warranty and restructuring.
Previously under Canadian GAAP, these provisions were
recorded in accounts payable and accrued liabilities, other
current liabilities and other non-current liabilities.
• IFRS 11, Joint Arrangements, sets out the principles to
identify the type of joint arrangements and the account-
ing for those arrangements and replaces IAS 31, Interests
in Joint Ventures. The standard reduces the types of joint
arrangements and eliminates the use of proportionate
Note 1 to the audited annual consolidated financial state-
consolidation for joint ventures.
ments provides a discussion of the significant accounting
policies under IFRS.
Recent Accounting Pronouncements
Accounting for Costs Associated with Acquiring
or Renewing Insurance Contracts
In accordance with IFRS 4, Insurance Contracts, an entity is
permitted to change its accounting policies for insurance
• IFRS 12, Disclosure of Interests in Other Entities, provides
the disclosure requirements for entities reported under
IFRS 10 and IFRS 11 and replaces the disclosure require-
ments currently in IAS 28, Investments in Associates.
IFRS 12 requires disclosure of the nature, risks and
financial effects associated with the entity’s interests in
subsidiaries, associates, joint arrangements and uncon-
solidated structured entities.
contracts if the change provides more relevant informa-
tion to the users that is no less reliable. In October 2010,
• IAS 28, Investments in Associates and Joint Ventures, pre-
scribes the use of the equity method of accounting for
the Financial Accounting Standards Board (“FASB”) issued
investments in associates and joint ventures and applies
new guidance on the accounting for costs associated with
to all entities that are investors with joint control of, or
acquiring or renewing insurance contracts. The new guid-
significant influence over, an investee. IAS 28 continues
ance, which will impact the results of The Warranty Group,
to allow entities that meet certain requirements to desig-
amends the definition of the types of costs that can be cap-
nate its investments in associates at fair value upon ini-
italized in the acquisition of new insurance contracts and
tial recognition.
renewal of existing insurance contracts and places restric-
tions around the capitalization of acquisition costs. The
new guidance will be retroactively adopted by Onex begin-
ning in the first quarter of 2012. As a result of the appli-
cation of the new guidance, Onex expects to defer fewer
Fair Value Measurement
In May 2011, the IASB issued IFRS 13, Fair Value Measure-
ment, that provides a single framework for measuring fair
value and requires enhanced disclosures when fair value
costs and record lower amortization through operating
is used for measurement. The standard is effective in 2013.
expenses. Onex is currently evaluating the full impact of
Onex is currently evaluating the impact of adopting this
the new guidance on its consolidated financial statements.
standard on its consolidated financial statements.
Reporting Entity Standards
In May 2011, the IASB issued a set of new standards that
addresses the scope and accounting for the reporting
entity. The standards are effective in 2013. Onex is cur-
Employee Future Benefits
In June 2011, the IASB amended IAS 19, Employee Future
Benefits, to change the recognition, measurement and pre-
sentation of defined benefit pension expense and to pro-
rently evaluating the impact of adopting these standards
vide for additional disclosures for all employee benefits.
on its consolidated financial statements. The following is a
The amendment is effective in 2013. Onex is currently eval-
summary of the new requirements.
uating the impact of the amendment on its consolidated
financial statements.
22 Onex Corporation December 31, 2011
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 L Y S I S
Financial Statement Presentation
In June 2011, the IASB amended IAS 1, Presentation of
Financial Statements, that will require entities to separately
present items in other comprehensive earnings based on
Significant transactions
Sales of EMSC and Husky International
As a result of the sales of Emergency Medical Services
Corporation (“EMSC”) and Husky International Ltd. (“Husky
whether they may be recycled to the statement of earnings
International”) during the first half of 2011, Onex, the par-
in future periods. The amendment is effective in 2012. The
ent company, recorded an after-tax gain of $1.6 billion in
adoption of this amendment is not expected to have a sig-
2011. Under IFRS, gains realized on the sales of investments
nificant effect on Onex’ consolidated financial statements.
no longer controlled are entirely attributable to the equity
Financial Instruments
In November 2009, the IASB issued IFRS 9, Financial
Instruments, the first phase of a replacement for existing
standard IAS 39, Financial Instruments: Recognition and
Measurement. This standard introduces new requirements
for the classification and measurement of financial assets
holders of Onex, as the interests of the limited partners
were recorded as a financial liability at fair value. During the
holding period of the investments, the increase in the fair
value of the Limited Partners’ Interests related to EMSC and
Husky International resulted in an increase in the Limited
Partners’ Interests liability with a corresponding charge
in the consolidated statements of earnings. Upon disposi-
and removes the need to separately account for certain
tion, current and prior period charges associated with the
embedded derivatives. This standard is effective in 2015.
investments in EMSC and Husky International were recov-
Onex is currently evaluating the impact of adopting this
ered by Onex, the parent company, through the gain rec-
standard on its consolidated financial statements.
ognized on the sales. The net impact to Onex’, the parent
Variability of results
Onex’ consolidated operating results may vary substan-
company’s, retained earnings after the sales represents its
share of the net gain on its investments in EMSC and Husky
International.
tially from quarter to quarter and year to year for a num-
In May 2011, the Onex Partners I Group com-
ber of reasons, including some of the following: the current
pleted the sale of its remaining 13.7 million shares of EMSC
economic environment; acquisitions or dispositions of
for $64.00 per share. The Onex Partners I Group received
businesses by Onex, the parent company; the change in
net proceeds of $878 million, of which Onex’ share was
value of stock-based compensation for both the parent
$342 million, including carried interest of $32 million. The
company and its operating companies; changes in the mar-
sale was part of an offer made for all outstanding shares of
ket value of Onex’ publicly traded operating companies;
EMSC. The consolidated results for 2011 include a pre-tax
changes in the fair value of Onex’ privately held operating
gain of $600 million, which is entirely attributable to the
companies; changes in tax legislation or in the application
equity holders of Onex. This gain includes the portion attrib-
of tax legislation; and activities at Onex’ operating compa-
utable to Onex’ investment as well as that of the limited
nies. These activities may include the purchase or sale of
partners of Onex Partners I. The effect of this is to recover
businesses; fluctuations in customer demand, materials
the charges to earnings for the fair value increases and his-
and employee-related costs; changes in the mix of prod-
torical accounting earnings on EMSC allocated to the limited
ucts and services produced or delivered; changes in the
partners over the life of the remaining investment, which
financing of the business; changes in contract account-
totalled $375 million. The balance of $225 million reflects
ing estimates; impairments of goodwill, intangible assets
the pre-tax gain on Onex’ remaining investment in EMSC.
or long-lived assets; litigation; and charges to restructure
As a result of the sale, the operations of EMSC are presented
operations. Given the diversity of Onex’ operating busi-
as discontinued in the statements of earnings and cash flows
nesses, the associated exposures, risks and contingencies
and prior periods have been restated to report the results of
may be many and varied.
EMSC as discontinued on a comparative basis.
In June 2011, the Onex Partners I Group and
Onex Partners II Group along with Husky International
management completed the sale of Husky International
for $2.1 billion. The Onex Partners I Group and Onex Part-
ners II Group received net cash proceeds of $1.7 billion,
Onex Corporation December 31, 2011 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 L Y S I S
of which Onex’ share was $583 million, including car-
Sales of shares of Spirit AeroSystems
ried interest of $17 million. The carried interest realized
on Onex Partners II’s sale of Husky International was vol-
and TMS International
The Onex Partners I Group participated in the April 2011
untarily reduced by $88 million, which was made at the
secondary offering of Spirit AeroSystems by selling a por-
request of Onex (Onex’ share of the reduction was $35 mil-
tion of its shares. The Onex Partners II Group participated
lion). In addition to the cash proceeds received on the sale,
in the April 2011 initial public offering of TMS International
approximately $60 million of additional amounts held in
Corp. (“TMS International”) through the sale of a portion
escrow and other items were expected to be received (Onex’
of its shares. The details of these transactions are described
share was $19 million, excluding carried interest). During
in the paragraphs below. After giving effect to the sales,
the third quarter of 2011, $38 million of additional amounts
Onex continues to control Spirit AeroSystems and TMS
were received and the remaining expected escrow amounts
International. Under IFRS, sales of shares that do not
were reduced by $5 million to reflect Husky International’s
result in a loss of control of the investment are recorded as
estimate of the taxes owing in respect of taxable periods
a transfer of equity to non-controlling interests holders in
up to the closing date. Onex’ share of the additional
the consolidated statements of equity. The amount trans-
amounts received during the third quarter of 2011 was
ferred to non-controlling interests holders is equivalent
$18 million, including carried interest of $6 million. In
to Onex’ historical accounting carrying value attributable
accordance with the distribution policy set out in the
to the portion of the investment that was sold. The excess
Agreement of Limited Partnership, and as a result of the
of proceeds received over the historical accounting car-
voluntary reduction in the amount of carried interest col-
rying value is recorded directly to retained earnings as an
lected at the time of the sale of Husky International, Onex’
increase in equity and is not reflected in the consolidated
carried interest entitlement was 80 percent of the additional
statements of earnings.
amounts received by the limited partners of Onex Part-
In April 2011, Spirit AeroSystems completed a sec-
ners II. At December 31, 2011, $18 million remains receiv-
ondary offering of approximately 10 million shares of Class
able for escrow amounts (Onex’ share is $6 million, exclud-
A common stock at a price of $24.49 per share. The Onex
ing carried interest) and is expected to be received within
Partners I Group sold shares in this offering for total pro-
four years. As a result of the long-term nature of the
ceeds of $245 million. Spirit AeroSystems did not issue any
remaining receivable, the amount has been discounted to
new shares as part of this offering. Onex, the parent com-
its current value. This brings total proceeds from Husky
pany, sold 2.7 million of the shares in this offering for net
International to $1.8 billion, including the value of those
proceeds of $74 million, including carried interest. The sale
amounts which remain to be received, compared to the
price per share was a multiple of seven times Onex’ original
$622 million equity investment made by the Onex Part-
cost per share in Spirit AeroSystems.
ners I Group and Onex Partners II Group in 2007. Included
The Onex Partners I Group continues to hold
in Onex’ consolidated results for 2011 is an after-tax gain
22.4 million shares of Spirit AeroSystems’ common stock,
of $1.1 billion, which is entirely attributable to the equity
which represents a 16 percent ownership interest, and
holders of Onex. This gain includes the portion attribut-
continues to retain voting control of the company. Since
able to Onex’ investment as well as that of the limited part-
this transaction did not result in a loss of voting control of
ners of Onex Partners I and Onex Partners II. The effect of
Spirit AeroSystems, it has been recorded in the consolidated
this is to recover the charges to earnings for the fair value
financial statements as a transfer of equity to non-control-
increases and historical accounting earnings on Husky
ling interests holders, with the net cash proceeds received
International allocated to the limited partners over the life
in excess of the historical accounting carrying value of
of the investment, which totalled $726 million. The bal-
$109 million being recorded directly to retained earn-
ance of $361 million reflects the after-tax gain on Onex’
ings. The cash proceeds recorded directly to retained earn-
investment in Husky International. The operations of
ings from the sale of shares have been partially offset by a
Husky International have been reported as discontinued
$9 million deferred tax provision recorded by Onex, the par-
in the 2011 and 2010 consolidated statements of earnings,
ent company, on the transaction. Of the net $100 million
as well as in the consolidated statements of cash flows of
recorded directly to retained earnings, $23 million represents
2011 and 2010.
Onex’ share excluding the impact of the limited partners.
24 Onex Corporation December 31, 2011
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 L Y S I S
In April 2011, TMS International completed an
initial public offering of approximately 12.9 million shares
Tropicana Las Vegas third rights offering
In May 2011, Tropicana Las Vegas, Inc. (“Tropicana
of Class A common stock (NYSE: TMS), including the exer-
Las Vegas”) completed a third rights offering of $35 million,
cise of the over-allotment option. The offering was priced at
of which the Onex Partners III Group invested $29 million
$13.00 per share for gross proceeds of $167 million. As part
(Onex’ share was $6 million). This was completed through an
of the offering, TMS International issued approximately
issue of preferred shares that have similar terms to the 2009
10.9 million treasury shares while the Onex Partners II
and 2010 rights offerings, that accrue dividends at a rate of
Group sold approximately 1.9 million shares. The Onex
12.5 percent and that are convertible into common shares of
Partners II Group received total net proceeds of $23 million
Tropicana Las Vegas at a fixed ratio including accrued and
for its shares sold. Onex’ portion of the net proceeds was
unpaid dividends. After giving effect to the offering, the Onex
$9 million, including carried interest. TMS International
Partners III Group owns, on an as-converted basis, approxi-
used a portion of the proceeds from this offering to redeem
mately 76 percent of Tropicana Las Vegas, of which Onex’
in full its Series 2008 Promissory Notes, which were held pri-
share was 17 percent at December 31, 2011.
marily by the Onex Partners II Group. The Onex Partners II
Group received approximately $43 million for its Series 2008
Promissory Notes, including accrued interest of $6 million,
CDI distribution
In May 2011, Center for Diagnostic Imaging, Inc. (“CDI”)
for its share of the redemption, of which Onex’ share was
entered into a new credit agreement. The new agreement
$17 million, including carried interest.
included a $95 million term loan as well as a $25 million
The Onex Partners II Group continues to hold
revolving credit facility, both of which mature in May 2016.
23.4 million shares of TMS International’s common stock
The proceeds from the new term loan were used to repay the
for a 60 percent ownership interest. Since this transaction
amounts outstanding under the former term loan and revolv-
did not result in a loss of control of TMS International, the
ing credit facility and pay a distribution to shareholders. The
transaction has been recorded as a transfer of equity to
Onex Partners I Group’s share of the $67 million distribution
non-controlling interests holders in the consolidated finan-
paid was $54 million, of which Onex’ share was $13 million.
cial statements, with the cash proceeds received in excess
of the historical accounting carrying value of $19 million
recorded directly to retained earnings. Onex’ share, exclud-
Investment in JELD-WEN
In early October 2011, the Onex Partners III Group ac-
ing the impact of the limited partners, was $7 million.
quired a 57 percent as-converted equity ownership interest
in JELD-WEN. JELD-WEN is one of the world’s largest
Carestream Health distribution
In February 2011, Carestream Health Inc. (“Carestream
manufacturers of interior and exterior doors, windows
and related products for use primarily in the residential
Health”) entered into a new credit facility. This new facil-
and light commercial new construction and remodelling
ity included a $1.85 billion senior secured term loan that
markets. The investment in JELD-WEN totalled $871 mil-
matures in February 2017 and a $150 million senior revolv-
lion and was made up of $689 million from the Onex Part -
ing facility that matures in February 2016. The proceeds
ners III Group and $182 million from Onex and certain
from this new facility were used primarily to repay and ter-
other limited partners. The total investment in JELD-WEN
minate the previous credit facility. In conjunction with this
consists of $700 million of convertible preferred stock and
transaction, Carestream Health distributed $197 million
$171 million in convertible notes. The convertible notes
to the Onex Partners II Group, of which Onex’ share was
may be redeemed within 18 months with proceeds from
$78 million. During the third and fourth quarters of 2011,
the sale of certain non-core assets and, if not redeemed,
Carestream Health repurchased a total of $69 million of its
will convert into additional convertible preferred stock.
senior secured term loan for a cash cost of $61 million. As
Onex’ initial investment in JELD-WEN was $240 million for
a result, net pre-tax gains of $8 million were recognized in
convertible preferred stock for a 20 percent as-converted
other items during 2011.
equity ownership interest in JELD-WEN and $58 mil-
lion of the convertible notes. Of Onex’ total investment
of $298 million, Onex funded $124 million through Onex
Partners III and $174 million as a co-investor in JELD-WEN.
Onex Corporation December 31, 2011 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 L Y S I S
In October 2011, JELD-WEN redeemed $42 mil-
• Hopkins, a Kansas, United States headquartered manu-
lion of the convertible notes and interest accrued to the
facturer, marketer and distributor of automotive after-
redemption date, of which Onex’ share was $14 million.
market products for sale to distributors and retailers
In February 2012, $83 million of the amount in-
primarily in North America, in June 2011. The ONCAP III
vested in JELD-WEN by Onex was sold, at the same cost
Group has an approximate 90 percent equity ownership
basis as Onex’ original investment, to certain limited part-
in Hopkins.
ners and management of Onex as a co-investment. Onex
• Davis-Standard, headquartered in Connecticut, United
received proceeds of $79 million, reflecting the reduction in
States, a leading designer, manufacturer and supplier
the cost of Onex’ investment as a result of the redemption
of highly engineered extrusion and converting machin-
of a portion of the convertible notes in October 2011. Onex’
ery systems, in December 2011. The ONCAP III Group
investment in JELD-WEN, after giving effect to the sale in
has an approximate 90 percent equity ownership in
February 2012 and the partial redemption in October 2011,
Davis-Standard.
is $205 million.
Acquisitions by ONCAP
During 2011, ONCAP completed the following four
acquisitions:
• Pinnacle Renewable Energy Group, a British Columbia,
Canada based producer of wood pellets for markets
around the world, in early May 2011. The ONCAP II
A total of $324 million was invested in the ONCAP acqui-
sitions completed during 2011, of which Onex’ share was
$123 million.
R E V I E W O F D E C E M B E R 3 1 , 2 0 1 1
C O N S O L I D A T E D F I N A N C I A L S T A T E M E N T S
Group has an approximate 60 percent equity ownership
The discussions that follow identify those material factors
in Pinnacle Renewable Energy Group.
that affected Onex’ operating segments and Onex’ consoli-
• Casino ABS, the largest casino operator in the Alberta,
dated results for 2011. We will review the major line items
Canada market, with four casinos, in May 2011. In
to the consolidated financial statements by segment.
May 2011, the ONCAP II Group initially purchased
100 percent of the equity ownership in Casino ABS.
As contemplated at the time of the original investment,
Consolidated revenues and cost of sales
Consolidated revenues were up 25 percent, or $4.9 billion,
the ONCAP III Group subsequently purchased 22 per-
to $24.6 billion in 2011 compared to 2010. During 2011,
cent of the equity ownership in Casino ABS from the
consolidated cost of sales was up 27 percent, or $4.2 bil-
ONCAP II Group in December 2011 at the same price
lion, to $19.7 billion compared to last year. During 2009,
per share. At December 31, 2011, the combined hold-
consolidated revenues were C$20.8 billion and consoli-
ings of the ONCAP II Group and the ONCAP III Group
dated cost of sales was C$16.2 billion as reported in accor-
are close to 100 percent of the equity ownership in
dance with Canadian GAAP.
Casino ABS.
26 Onex Corporation December 31, 2011
M A N A G E M E N T ’ S D I S C U S S I O N A N D A N A L Y S I S
Table 1 below reports revenues and cost of sales by industry segment for the years ended December 31, 2011, 2010 and 2009.
The percentage change in revenues and cost of sales between December 31, 2011 and 2010 is also shown.
Revenues and Cost of Sales by Industry Segment for the Year Ended December 31
Revenues
Cost of Sales
TABLE 1
($ millions)
IFRS, U.S. Dollars
Year ended December 31
2011
2010
Electronics Manufacturing Services
$ 7,213
$ 6,526
Aerostructures
Healthcare
Financial Services
Customer Care Services
Metal Services
Building Products(a)
Other (b)
Total
4,864
5,030
1,184
1,416
2,661
774
1,500
4,170
3,498
1,163
1,340
2,030
–
1,007
Canadian
GAAP,
Canadian
Dollars
IFRS, U.S. Dollars
Change
(%)
2009
2011
2010
Change
(%)
11%
17%
44%
2%
6%
31%
–
49%
C$ 6,909
$ 6,645
$ 5,997
4,641
3,662
1,359
1,780
1,472
–
943
4,124
3,446
579
921
3,429
2,270
547
847
2,467
1,858
660
883
–
544
11%
20%
52%
6%
9%
33%
–
62%
Canadian
GAAP,
Canadian
Dollars
2009
C$ 6,319
3,946
2,236
656
1,140
1,329
–
531
$ 24,642
$ 19,734
25%
C$ 20,766
$ 19,725
$ 15,492
27%
C$ 16,157
2011 and 2010 results are reported in accordance with IFRS and presented in U.S. dollars. 2009 results are reported in accordance with Canadian GAAP and presented
in Canadian dollars. These results may differ from those reported by the individual operating companies.
(a) Represents three months of revenues and cost of sales from JELD-WEN’s early October 2011 acquisition date.
(b) 2011 other includes Flushing Town Center, Tropicana Las Vegas, the operating companies of ONCAP II and ONCAP III and the parent company. 2010 other includes
Flushing Town Center, Tropicana Las Vegas, the operating companies of ONCAP II and the parent company. 2009 other includes CEI (up to May 2009), Tropicana Las Vegas,
the operating companies of ONCAP II and the parent company.
Electronics Manufacturing Services
Celestica Inc. (“Celestica”) delivers innovative supply chain
solutions globally to original equipment manufacturers
and service providers in the communications (comprised
of enterprise communications and telecommunications),
consumer, computing (comprised of servers and storage),
E L E C T R O N I C S
tions contributed approximately
M A N U FA C T U R I N G S E R V I C E S
(IFRS, US$ millions)
7,213
6,645
6,526
5,997
one-third of the revenue increase
in the diversified end market.
8000
Partially offsetting these increases
was a 20 percent decline in rev-
6400
enues in Celestica’s telecommuni-
and diversified (comprised of industrial, aerospace and
cations end market.
4800
defence, healthcare, green technology, semiconductor
capital equipment and other) end markets. These solutions
include design, supply chain, manufacturing, engineering,
complex mechanical and systems integration, order fulfill-
ment, logistics and after-market services.
During 2011, Celestica reported an 11 percent, or
$687 million, increase in revenues to $7.2 billion from
’11
’10
Revenues
Cost of Sales
Cost of sales had a similar
increase during 2011 of 11 percent,
3200
or $648 million, to $6.6 billion from
1600
$6.0 billion in 2010. Gross profit for
the year ended December 31, 2011
0
increased 7 percent, or $39 mil-
lion, from 2010 due primarily to the
$6.5 billion in 2010. Celestica’s revenue growth in 2011
increase in revenues.
was in the following end markets: diversified (40 per-
During 2009, Celestica reported revenues of
cent); enterprise communications (18 percent); servers
C$6.9 billion and cost of sales of C$6.3 billion under
(14 percent) and consumer (11 percent). These increases
Canadian GAAP. Excluding the impact of foreign currency
were primarily from new program wins with existing and
translation to Canadian dollars, Celestica reported rev-
new customers, and acquisitions. Revenues from acquisi-
enues of $6.1 billion and cost of sales of $5.6 billion for the
Onex Corporation December 31, 2011 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 L Y S I S
year ended December 31, 2009. The lower revenues and
to 82 percent last year. The increase was due primarily to
cost of sales in 2009 were impacted by the slower economic
the charges for the forward losses on programs recorded
environment during that year.
Aerostructures
Spirit AeroSystems is an aircraft parts designer and man-
during 2011 along with increased revenues from the Boeing
787 program settlement as previously indicated, which was
at minimal margins.
Under Canadian GAAP, Spirit AeroSystems
ufacturer of commercial aerostructures. Aerostructures
reported revenues of C$4.6 billion and cost of sales of
are structural components, such as fuselages, propulsion
C$3.9 billion for the year ended December 31, 2009.
systems and wing systems, for commercial, military and
Excluding the impact of foreign currency translation to
business jet aircraft. The company’s revenues are substan-
Canadian dollars, Spirit AeroSystems reported revenues
tially derived from long-term volume-based pricing con-
and cost of sales of $4.1 billion and $3.5 billion, respec-
tracts, primarily with The Boeing Company (“Boeing”) and
tively, during 2009. Revenues increased during 2010 com-
Airbus. The long-term financial health of the commercial
pared to 2009 due primarily to an increase in ship set
airline industry has a direct and significant effect on Spirit
deliveries to Boeing.
AeroSystems’ commercial aircraft programs.
Spirit AeroSystems’ revenues increased 17 per-
cent, or $694 million, to $4.9 billion for the year ended
Healthcare
The healthcare segment revenues and cost of sales consist
December 31, 2011 from $4.2 billion in 2010. The increase
of the operations of Center for Diagnostic Imaging, Skilled
in revenues was due primarily to the recognition of
Healthcare Group, Carestream Health and ResCare. The
deferred revenue associated with the Boeing 787 con-
operations of EMSC are reported as discontinued as a result
tract amendment as well as higher production deliver-
of the sale of the business in May 2011.
ies and aftermarket volume, partially offset by a decrease
in non-recurring revenues. Total ship set deliveries
increased by 12 percent to 1,089 ship sets in 2011 com-
H E A LT H C A R E
(IFRS, US$ millions)
pared to 969 ship sets in the prior year. Approximately
5,030
96 percent of 2011 revenues were from Boeing and Airbus.
Cost of sales was up
The healthcare segment
reported a 44 percent, or $1.5 bil-
lion, increase in consolidated
revenues to $5.0 billion in 2011
5125
from $3.5 billion in 2010. Cost
of sales increased 52 percent, or
4100
A E R O S T R U C T U R E S
(IFRS, US$ millions)
20 percent, or $695 million, to
3,446
3,498
$1.2 billion, to $3.4 billion in 2011
$4.1 billion from $3.4 billion in
compared to $2.3 billion in 2010.
3075
4,864
2010. Much of the increase related
5000
2,270
During 2009, under Canadian
4,124
4,170
3,429
to the settlement with Boeing,
in which Spirit AeroSystems will
4000
proceed with capital and equip-
ment investments required to
3000
support additional production
under the 787 program. The set-
2000
tlement increased revenues, as
1000
GAAP, the healthcare segment
2050
reported consolidated revenues of
C$3.7 billion and cost of sales of
1025
C$2.2 billion. ResCare accounted
0
for much of the increase in the
healthcare segment since Onex
began consolidating the results of
’11
’10
Revenues
Cost of Sales
’11
’10
Revenues
Cost of Sales
previously discussed, but at mini-
ResCare on November 16, 2010, the date when Onex, Onex
mal margins. Also included in
0
Partners III and Onex management acquired the remain-
cost of sales for 2011 were pre-tax
ing interest in the business. Prior to that, ResCare was
charges totalling approximately
recorded at fair value in investments in associates. There
$129 million to recognize forward-
are no comparative results for ResCare for the year ended
losses on certain programs under development, partially
December 31, 2009 since Onex did not have a controlling
offset by favourable cumulative catch-up adjustments of
interest in the business at that time and equity accounted
estimated program costs of $14 million. Cost of sales as
for ResCare under Canadian GAAP.
a percentage of revenues was 85 percent for 2011 compared
28 Onex Corporation December 31, 2011
M A N A G E M E N T ’ S D I S C U S S I O N A N D A N A L Y S I S
Table 2 provides revenues and cost of sales by operating company in the healthcare segment for the years ended December 31,
2011, 2010 and 2009. The percentage change in revenues and cost of sales between December 31, 2011 and 2010 is also shown.
Healthcare Revenues and Cost of Sales for the Year Ended December 31
Revenues
Cost of Sales
TABLE 2
($ millions)
IFRS, U.S. Dollars
Year ended December 31
2011
2010
Center for Diagnostic Imaging
$ 149
$ 143
Skilled Healthcare Group
Carestream Health
ResCare(a)
Total
870
2,427
1,584
820
2,338
197
Canadian
GAAP,
Canadian
Dollars
IFRS, U.S. Dollars
Change
(%)
4%
6%
4%
704%
2009
2011
2010
C$ 160
$ 45
$ 45
868
2,634
–
716
1,496
1,189
676
1,375
174
Change
(%)
–
6%
9%
583%
Canadian
GAAP,
Canadian
Dollars
2009
C$ 52
728
1,456
–
$ 5,030
$ 3,498
44%
C$ 3,662
$ 3,446
$ 2,270
52%
C$ 2,236
2011 and 2010 results are reported in accordance with IFRS and presented in U.S. dollars. 2009 results are reported in accordance with Canadian GAAP and presented
in Canadian dollars. These results may differ from those reported by the individual operating companies.
(a) Onex began to consolidate the results of ResCare in mid-November 2010 when Onex, Onex Partners III and Onex management acquired the remaining interest in the
business. As a result, there are no reported results for ResCare for the year ended December 31, 2009.
Center for Diagnostic Imaging
CDI operates 60 diagnostic imaging centres in 12 markets
Skilled Healthcare Group
Skilled Healthcare Group has three reportable revenue seg-
in the United States, providing imaging services such as
ments: long-term care services, therapy services and hos-
magnetic resonance imaging (“MRI”), computed tomog-
pice and home health services. Long-term care services
raphy (“CT”), diagnostic and therapeutic injection proce-
include the operation of skilled nursing and assisted living
dures and other procedures such as PET/CT, conventional
facilities. Therapy services include the company’s rehabili-
x-ray, mammography and ultrasound.
tation services. Hospice and home health services include
During 2011, CDI reported a 4 percent, or $6 mil-
hospice and home health businesses.
lion, increase in revenues compared to last year, due primar-
During 2011, approximately 76 percent of Skilled
ily to higher revenues from existing centres and new centres.
Healthcare Group’s revenues were generated from skilled
Cost of sales was unchanged in 2011 compared to 2010.
nursing facilities, including integrated rehabilitation ther-
Revenues and cost of sales from CDI totalled
apy services at these facilities. Revenues from its skilled
C$160 million and C$52 million, respectively, for 2009
nursing facilities are generated from Medicare, Medicaid,
reported in accordance with Canadian GAAP. Excluding the
managed care providers, insurers, private pay and other
impact of foreign currency translation to Canadian dollars,
services, while revenues from its assisted living facilities are
CDI reported revenues of $141 million and cost of sales of
generated primarily from private pay sources, with a small
$46 million during 2009. The higher revenues recorded dur-
portion earned from Medicaid or other state-specific pro-
ing 2010 were due primarily to increases in revenues from
grams. To increase its revenues, Skilled Healthcare Group
existing centres and new centres compared to 2009.
focuses on acquiring new facilities, developing existing
facilities and improving its occupancy rate and skilled mix,
which is the percentage of its skilled nursing patient popu-
lation that typically require a greater level of care and ser-
vice and thus command higher fees.
Onex Corporation December 31, 2011 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 L Y S I S
During 2011, Skilled Healthcare Group’s revenues
Carestream Health reported a 4 percent, or
increased 6 percent, or $50 million, to $870 million com-
$89 million, increase in revenues in 2011 compared to
pared to 2010. Hospice and home health services revenues
2010. Included in the revenue increase was $67 million of
were up 61 percent, or $32 million, in 2011 due primarily to
favourable foreign exchange rates on Carestream Health’s
the inclusion of a full year of revenues from the Hospice/
non-U.S. revenues compared to 2010. Excluding the
Home Health acquisition in May 2010. Revenues from the
impact of foreign exchange, Carestream Health reported
therapy services segment increased 25 percent, or $19 mil-
an increase in revenues of $22 million. The increase was
lion, mainly due to negotiated rate increases and higher
due primarily to a $69 million increase in the Medical
Medicare billings. Revenues from the long-term care ser-
Digital segment and a $29 million revenue increase from
vices segment were largely unchanged during 2011. Cost of
Carestream Health’s non-destructive testing business,
sales increased 6 percent, or $40 million, in 2011 from 2010,
which were driven by a mix of higher prices and increased
much in line with the increase in revenues during the year.
product sales. Partially offsetting the increase was the
For the year ended December 31, 2009, Skilled
anticipated revenue decline in the Medical Film segment
Healthcare Group reported revenues of C$868 million
of $74 million due to the continuing transition from film to
and cost of sales of C$728 million under Canadian
digital processes in medical imaging.
GAAP. Excluding the impact of foreign currency trans-
During 2011, cost of sales was up 9 percent, or
lation to Canadian dollars, Skilled Healthcare Group
$121 million, compared to 2010. Cost of sales increased due
reported revenues and cost of sales of $760 million and
to higher costs for polyester and silver used in the produc-
$639 million, respectively, during 2009. The increase in
tion of film ($152 million), which were partially recovered
revenues during 2010 compared to 2009 resulted primar-
through selling price increases.
ily from higher weighted average rates from Medicare,
Gross profit for 2011 was $931 million compared
Medicaid and managed care pay services as well as from
to $963 million for 2010. The reduction was due to the in -
acquisitions completed in 2010. Cost of sales increased
crease in the cost of raw materials used in film produc-
during 2010 compared to 2009 primarily due to the
tion, primarily silver, partially offset by favourable foreign
increase in revenues associated with the acquisitions
exchange rates, productivity and price increases on film.
completed during 2010.
Carestream Health reported C$2.6 billion of rev-
enues and C$1.5 billion of cost of sales for the year ended
Carestream Health
Carestream Health provides products and services for the
December 31, 2009 in accordance with Canadian GAAP.
Excluding the impact of foreign currency translation to
capture, processing, viewing, sharing, printing and storing
Canadian dollars, Carestream Health reported revenues
of images and information for medical and dental appli-
and cost of sales of $2.3 billion and $1.3 billion, respectively,
cations. The company also has a non-destructive testing
during 2009. During 2010, Carestream Health reported an
business, which sells x-ray film and digital radiology prod-
increase in cost of sales compared to 2009 due to higher raw
ucts to the non-destructive testing market. Carestream
material costs for polyester and silver used in the production
Health sells digital products, including computed radiogra-
of film, partially offset by favourable foreign exchange and
phy and digital radiography equipment, picture archiving
productivity improvement.
and communication systems, information management
solutions, dental practice management software and ser-
vices, as well as traditional medical products, including
ResCare
ResCare is a human services company that provides resi-
x-ray film, printers and media, equipment, chemistry and
dential, therapeutic, job training and educational sup-
services. Carestream Health has three reportable segments:
port to people with developmental or other disabilities, to
Medical Film, Medical Digital and Dental.
elderly people who need in-home care assistance, to youth
with special needs and to adults who are experiencing
barriers to employment. ResCare offers services to some
57,000 persons daily.
30 Onex Corporation December 31, 2011
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 L Y S I S
During the year ended December 31, 2011, Res-
income. Cost of sales was up 6 percent, or $32 million, to
Care reported revenues of $1.6 billion and cost of sales of
$579 million in 2011 compared to 2010 due primarily to the
$1.2 billion. Onex began consolidating this business in
impact of the fourth quarter of 2010 reclassification of pol-
mid-November 2010, the date when Onex, Onex Part-
icy benefits as previously discussed. Excluding the impact
ners III and Onex management acquired the remain-
of the reclassification, cost of sales had a small increase due
ing interest in the business. ResCare prior to this date was
to a slight deterioration of the loss ratios on the European
accounted for at fair value on the consolidated balance
creditor business and certain other international markets.
sheets, with changes in fair value recognized in the consoli-
During 2009, The Warranty Group reported rev-
dated statements of earnings. As a result, revenues for 2010
enues and cost of sales of C$1.4 billion and C$656 million,
were $197 million and cost of sales was $174 million, rep-
respectively, in accordance with Canadian GAAP. Excluding
resenting the company’s results from mid-November 2010
the impact of foreign currency translation to Canadian dol-
to December 31, 2010. There are no comparative results
lars, The Warranty Group reported revenues of $1.2 billion
for 2009 since Onex did not have a controlling interest in
and cost of sales of $574 million. Revenues decreased dur-
the business at that time and equity accounted for ResCare
ing 2010 compared to 2009 due primarily to the one-time
under Canadian GAAP.
reduction to revenues related to the reclassification of cer-
tain policy benefits that had previously been expensed in
Financial Services
The Warranty Group’s revenues consist of warranty rev-
cost of sales, as discussed earlier. The reclassification also
contributed to the decrease in cost of sales during 2010
enues, insurance premiums and administrative and mar-
compared to 2009.
keting fees earned on warranties and service contracts for
manufacturers, retailers and distributors of consumer elec-
tronics, appliances, homes and autos, as well as credit card
Customer Care Services
SITEL Worldwide Corporation (“Sitel Worldwide”) is one
enhancements and travel and leisure programs through
of the world’s largest and most diversified providers of cus-
a global organization. The Warranty Group’s cost of sales
tomer care outsourcing services.
consists primarily of the change in reserves for future war-
C U S T O M E R C A R E S E R V I C E S
The company offers its clients a
ranty and insurance claims, current claims payments and
underwriting profit-sharing payments.
The Warranty Group re ported a 2 percent, or
$21 million, increase in revenues to $1.2 billion in 2011.
The revenue increase was due primarily to a $33 mil-
lion one-time reduction in revenues recorded during the
fourth quarter of 2010 related to the reclassification of
F I N A N C I A L S E R V I C E S
(IFRS, US$ millions)
certain policy benefits against
revenues which had previously
been expensed in cost of sales.
1,184
1,163
Excluding the impact of the 2010
1200
reduction, there was a small
decline in revenues due to lower
960
earned premiums on the con-
sumer products and third-party
720
579
547
(IFRS, US$ millions)
1,416
1,340
921
847
’11
’10
Revenues
Cost of Sales
wide array of services, including
customer service, technical sup-
1450
port and customer acquisition,
retention and revenue genera-
1160
tion services. The majority of Sitel
Worldwide’s customer care ser-
870
vices respond to inbound enquiries
and are delivered telephonically.
580
Sitel Worldwide serves a broad
range of industry end markets,
290
including financial
0
services,
technology, wireless, retail and
consumer products, telecommuni-
cations, media and entertainment,
energy and utilities, travel and transportation, internet ser-
administrator business in North
vice providers, insurance and healthcare. Sitel Worldwide’s
480
America and the creditor business
oper ating revenues are affected by the demand for the
in Europe. Partially offsetting the
240
products of its customers.
decrease was an increase in earned
During 2011, Sitel Worldwide’s revenues
’11
’10
Revenues
Cost of Sales
premiums on the consumer prod-
0
increased 6 percent, or $76 million, to $1.4 billion from
ucts business in Asia and Latin
2010. Revenue from new customers and net growth
America and higher investment
with existing customers contributed $106 million to the
Onex Corporation December 31, 2011 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 L Y S I S
revenue increase. In addition, revenue increased by
Revenues at TMS International were up 31 per-
$24 million due to currency translation of foreign-based
cent, or $631 million, to $2.7 billion during 2011 compared
revenue with the weakening of the U.S. dollar during
to $2.0 billion in 2010. The increase in steel production
the year. Partially offsetting the revenue growth was a
during 2011 drove an increase in market prices for scrap
decrease of $61 million related to attrition of existing pro-
and other raw materials, which contributed approximately
grams. Cost of sales increased 9 percent, or $74 million,
$559 million of revenue growth from the sale of raw materials
to $921 million in 2011 compared to $847 million in 2010
at TMS International’s raw materials procurement business.
due to higher revenues, but at slightly lower margins.
The higher levels of steel production also directly affected
Sitel Worldwide reported revenues of C$1.8 bil-
TMS International’s service revenues, which are typically
lion and cost of sales of C$1.1 billion during 2009 in accor-
charged to customers based on tonnes of steel produced. The
dance with Canadian GAAP. Excluding the impact of foreign
company reported an 18 percent, or $72 million, increase
currency translation to Canadian dollars, Sitel Worldwide
in service revenues in the year due primarily to $21 million of
reported revenues and cost of sales of $1.6 billion and
revenue from new sites and contracts as well as an increase
$999 million, respectively, during 2009. The decline in rev-
in revenue from its existing customers and contracts.
enues at Sitel Worldwide during 2010 was driven by lower
Cost of sales for the year ended December 31,
call volumes and revenues from its customers in addition to
2011 was up 33 percent, or $609 million, to $2.5 billion
certain customers bringing services back in-house and oth-
from $1.9 billion in 2010. Cost of sales for the raw mate-
ers shifting their business between customer care providers
rials business increased due to the same factors that con-
based on pricing concessions. The decrease in cost of sales
tributed to the increase in revenues as TMS International
over the same period resulted from the company adjusting
procured higher volumes of raw materials, but at higher
its cost structure to correspond with decreased activity.
prices. In the services business, site-level cost of sales
Metal Services
TMS International, formerly Tube City IMS Corporation,
increased approximately $18 million during 2011 due to
new sites and contracts for which certain site costs are
incurred in advance of generating revenue.
has two revenue categories: service revenue and revenue
During 2009, TMS International reported revenues
from the sale of materials. Service revenue is generated
of C$1.5 billion and cost of sales of C$1.3 billion, in accor-
from scrap management, scrap preparation, raw materials
dance with Canadian GAAP. Excluding the impact of foreign
M E TA L S E R V I C E S
(IFRS, US$ millions)
2,661
2,467
2,030
1,858
’11
’10
Revenues
Cost of Sales
optimization, metal recovery and
currency translation to Canadian dollars, TMS International
sales, materials handling or prod-
reported revenues and cost of sales of $1.3 billion and
uct handling, slag or co-product
$1.2 billion, respectively, during 2009. The lower revenues
processing, and metal recovery
2700
and cost of sales during 2009 were the result of a sharp
services and surface conditioning.
decline in the volume of steel produced worldwide during
Revenue from the sale of materials
2160
that year.
is mainly generated by the com-
pany’s raw materials procurement
1620
business, but also includes rev-
Building Products
The building products segment is a new reportable seg-
enue from two locations of TMS
1080
ment in 2011 following Onex’ acquisition of JELD-WEN in
International’s materials handling
early October 2011. JELD-WEN is one of the world’s largest
business. During 2011, improving
manufacturers of interior and exterior doors, windows and
540
economic conditions resulted in
0
related products for use primarily in the residential and
a significant increase in steel pro-
light commercial new construction and remodelling mar-
duction and capacity utilization
kets. JELD-WEN manages its business through three geo-
over 2010. North American steel
graphic segments: North America, Europe and Australasia.
production capacity utilization, a key statistic used to mea-
Reported 2011 revenues of $774 million repre-
sure steel production, averaged 75 percent in 2011, com-
sent three months of revenues from the early October 2011
pared to 70 percent in 2010.
32 Onex Corporation December 31, 2011
acquisition of JELD-WEN. The North American segment
contributed 49 percent to total revenue, Europe contributed
35 percent and Australasia contributed 16 percent.
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 L Y S I S
Cost of sales for JELD-WEN totalled $660 million for
the three-month period following Onex’ acquisition of the
Other Businesses
The other businesses segment primarily consists of the rev-
company. Included in JELD-WEN’s cost of sales was a one-
enues and cost of sales of Tropicana Las Vegas, the ONCAP
time charge of $32 million originating from the acquisition
companies – EnGlobe Corp. (“EnGlobe”), Mister Car Wash,
accounting step-up in value of inventory on the company’s
CiCi’s Pizza, Caliber Collision Centers (“Caliber Collision”),
balance sheet at the date of acquisition. Gross profit for the
BSN SPORTS, Inc. (“BSN SPORTS”), formerly Sport Supply
three-month period since JELD-WEN’s early October 2011
Group, Pinnacle Renewable Energy Group, Casino ABS and
acquisition date was $114 million. Excluding the impact of the
Hopkins – and Flushing Town Center. The revenues and
step-up in value of inventory, gross profit was $146 million.
cost of sales for Davis-Standard for the few days from its
Since JELD-WEN was acquired in early October
late December 2011 acquisition date to December 31, 2011
2011, there are no comparative results for the years ended
were not significant to Onex and therefore are not included
December 31, 2010 or 2009.
in the results of the ONCAP companies. The operations
of Husky International are reported as discontinued as a
result of the sale of the business in June 2011.
Table 3 provides revenues and cost of sales by operating company in the other businesses segment for the years ended
December 31, 2011, 2010 and 2009. The percentage change in revenues and cost of sales between December 31, 2011 and
2010 is also shown.
Other Businesses Revenues and Cost of Sales for the Year Ended December 31
Revenues
Cost of Sales
TABLE 3
($ millions)
IFRS, U.S. Dollars
Year ended December 31
2011
2010
ONCAP companies(a)
Tropicana Las Vegas(b)
Other(c)
Total
$ 1,344
$ 911
85
71
54
42
$ 1,500
$ 1,007
Canadian
GAAP,
Canadian
Dollars
IFRS, U.S. Dollars
2009
2011
2010
C$ 839
$ 835
$ 536
36
68
8
40
5
3
Change
(%)
56%
60%
1233%
Canadian
GAAP,
Canadian
Dollars
2009
C$ 483
4
44
C$ 943
$ 883
$ 544
62%
C$ 531
Change
(%)
48%
57%
69%
49%
2011 and 2010 results are reported in accordance with IFRS and presented in U.S. dollars. 2009 results are reported in accordance with Canadian GAAP and presented
in Canadian dollars. These results may differ from those reported by the individual operating companies.
(a) 2011 ONCAP companies include EnGlobe, Mister Car Wash, CiCi’s Pizza, Caliber Collision, BSN SPORTS, Pinnacle Renewable Energy Group, Casino ABS and Hopkins.
The financial results of Pinnacle Renewable Energy Group and Casino ABS are from their acquisition dates in May 2011 to December 31, 2011 and Hopkins from its
acquisition date in June 2011 to December 31, 2011. 2010 ONCAP companies include CSI (up to November 2010), EnGlobe, Mister Car Wash, CiCi’s Pizza, Caliber Collision
and BSN SPORTS (from its acquisition date in August 2010). 2009 ONCAP companies include CSI, EnGlobe, Mister Car Wash, CiCi’s Pizza and Caliber Collision.
(b) Tropicana Las Vegas’ 2009 financial results are from the date of acquisition on July 1, 2009 to December 31, 2009.
(c)
2011 and 2010 other includes Flushing Town Center and the parent company. 2009 other includes CEI (up to May 2009) and the parent company.
ONCAP companies
The ONCAP companies – EnGlobe, Mister Car Wash, CiCi’s
revenues during 2011 compared to 2010. During 2011, cost
of sales contributed by the ONCAP companies increased by
Pizza, Caliber Collision, BSN SPORTS, formerly Sport Supply
56 percent, or $299 million, from 2010. The growth in rev-
Group, Pinnacle Renewable Energy Group, Casino ABS and
enues and cost of sales was due primarily to the inclusion
Hopkins – reported a 48 percent, or $433 million, increase in
Onex Corporation December 31, 2011 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 L Y S I S
of the results of Pinnacle Renewable Energy Group and
Casino ABS, acquired in May 2011, and Hopkins, acquired in
Interest expense of operating companies
New acquisitions are structured with the acquired com-
June 2011. Partially offsetting the increases from the newly
pany having sufficient equity to enable it to self-finance
acquired companies was the sale of CSI Global Education
a significant portion of its acquisition cost with a prudent
Inc. (“CSI”) in November 2010. 2010 revenues and cost of
amount of debt. The level of debt is commensurate with
sales of CSI were $31 million and $4 million, respectively,
the operating company’s available cash flow, including
which represents its operations prior to the ONCAP II
consideration of funds required to pursue growth oppor-
Group’s sale of that business.
tunities. It is the responsibility of the acquired operating
The ONCAP companies reported revenues of
company to service its own debt obligations.
C$839 million and cost of sales of C$483 million during
Consolidated interest expense was up $146 mil-
2009 in accordance with Canadian GAAP. Excluding the
lion, or 43 percent, to $488 million in 2011 from $342 mil-
impact of foreign currency translation to Canadian dollars,
lion in 2010.
the ONCAP companies reported revenues and cost of sales
Carestream Health entered into a new credit
of $734 million and $423 million, respectively, during 2009.
facility in February 2011. This new facility included a
The increase in revenues and cost of sales during 2010
$1.85 billion senior secured term loan that matures in
compared to 2009 was due primarily to the inclusion of the
February 2017 and a $150 million senior revolving facil-
results of BSN SPORTS, acquired in August 2010.
ity that matures in February 2016. As a result of this new
Tropicana Las Vegas
Tropicana Las Vegas is one of the most storied casinos in
debt, Carestream Health recorded a $63 million increase in
interest expense in 2011 compared to 2010 due to higher
principal outstanding under the new facility as well as
Las Vegas, located directly on the Las Vegas Strip. Tropicana
$25 million of charges related to the refinancing.
Las Vegas’ revenues increased 57 percent, or $31 million,
Interest expense increased by $15 million due to
to $85 million in 2011, while cost of sales increased 60 per-
the inclusion of Pinnacle Renewable Energy Group, Casino
cent, or $3 million, during the year to $8 million. Tropicana
ABS and Hopkins, which were acquired by ONCAP during
Las Vegas records most of its costs in operating expenses.
the first half of 2011.
The increase in revenues and cost of sales during
Spirit AeroSystems reported an $18 million
2011 was due primarily to the completion in late 2010 and early
increase in interest expense in 2011 compared to 2010 due
2011 of the redevelopment projects undertaken, which resulted
primarily to the interest costs on the $300 million senior
in a more fully operational hotel and casino than in 2010.
notes issued in November 2010.
In 2009, Tropicana Las Vegas reported revenues of
ResCare contributed $42 million in interest ex-
C$36 million and cost of sales of C$4 million, from its July 1,
pense in 2011 compared to $3 million in 2010. The 2011
2009 acquisition date, under Canadian GAAP. Excluding the
amount represents a full year of expense whereas the 2010
impact of foreign currency translation to Canadian dollars,
amount represents the interest expense from Novem-
Tropicana Las Vegas reported revenues and cost of sales
ber 16, 2010, the date when Onex, Onex Partners III and
of $34 million and $3 million, respectively, during 2009.
Onex management acquired the remaining interest in the
The increase in revenues and cost of sales during 2010
business, to December 31, 2010.
compared to 2009 was due primarily to the inclusion of a
Interest expense contributed by JELD-WEN to-
full year of revenues and cost of sales in 2010 compared to
talled $17 million for the period from its acquisition in early
six months of revenues and cost of sales in 2009.
October 2011 to December 31, 2011.
Partially offsetting the increase was a $10 mil-
lion decline in interest expense recorded by Celestica
in 2011 compared to last year due primarily to the com-
pany’s repurchase of its outstanding 2013 senior subordi-
nated notes in the first quarter of 2010. In addition, interest
expense from TMS International decreased by $9 million
due to the company’s repayment of the remaining portion
of its subordinated notes during the second quarter of 2011.
34 Onex Corporation December 31, 2011
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 L Y S I S
Unrealized increase in value of investments
in associates at fair value, net
Associates are defined under IFRS as those investments in
Onex’ investments. The expense recorded by Onex, the par-
ent company, on its stock options during 2011 was due pri-
marily to the 10 percent increase in market value of Onex’
operating companies over which Onex has significant influ-
shares to C$33.18 at December 31, 2011 from C$30.23 at
ence, but not control. These investments are designated,
December 31, 2010. In 2010, there was a 28 percent increase
upon initial recognition, at fair value in the consolidated
in the market value of Onex’ shares, which drove the larger
balance sheets, with changes in fair value recognized in
expense amount in 2010.
the consolidated statements of earnings. The investments
that Onex determined to be associates and thus recorded at
Table 4 details the change in stock-based compensation by
fair value are Allison Transmission, Hawker Beechcraft, RSI
Onex operating companies and Onex, the parent company,
Home Products, Tomkins, certain Onex Real Estate Partners
for years ended December 31, 2011 and 2010.
investments and Cypress Insurance Group. In addition,
ResCare was recorded at fair value up to mid-November
Stock-based Compensation Expense
2010, when Onex began to consolidate that business follow-
ing Onex, Onex Partners III and Onex management’s acqui-
sition of the remaining interest in ResCare not previously
owned by the Onex Partners I Group.
During 2011, Onex recorded a $501 million unre-
alized increase in value of investments in associates at fair
value compared to a $448 million unrealized increase in fair
value in 2010. Improved operating performance at some
of the investments as well as debt repayment by certain of
those investments during 2011 contributed to the unreal-
TABLE 4
($ millions)
2011
2010
Change
($)
Onex the parent company,
stock options
$ 40
$ 83
$ (43)
Onex, the parent company,
MIP options
Onex operating companies
16
77
22
81
(6)
(4)
Total
$ 133
$ 186
$ (53)
ized increase in the fair value of investments in associates.
Of the total fair value increase recorded during the year,
Other gains, net
In November 2010, the ONCAP II Group sold its operat-
approximately $358 million (2010 – $305 million) is attrib-
ing company, CSI. The ONCAP II Group received net pro-
utable to the limited partners in the Onex Partners Funds,
ceeds of $123 million on this sale, of which Onex’ share was
which contributes to the Limited Partners’ Interests charge
$50 million. This sale brought total proceeds received by
discussed on page 38 of this MD&A.
the ONCAP II Group from CSI to $140 million compared to
the ONCAP II Group’s investment of $22 million. The pre-
Stock-based compensation expense
Onex recorded a consolidated stock-based compensa-
tax gain recorded on this sale in 2010 was approximately
$97 million. Onex’ share, excluding the impact of the lim-
tion expense of $133 million during 2011 compared to an
ited partners, was $48 million. There were no cash taxes
expense of $186 million in 2010. Onex, the parent company,
payable by Onex on the sale. Table 5 details the nature of
represented $56 million (2010 – $105 million) of the expense
the 2010 gains.
associated with its stock options and MIP options. In accor-
dance with IFRS, the expense recorded on these plans is
Other Gains, Net
determined based on the fair value of the liability at the end
of each reporting period. The fair value of the Onex stock
TABLE 5
($ millions)
options and MIP options is determined using an option val-
Gains on:
uation model with the stock options primarily impacted by
the change in the market value of Onex’ shares and the MIP
Sale of CSI
Other, net
options primarily affected by the change in the fair value of
Total
Total Gains
2011
Total Gains
2010
$ –
–
$ –
$ 97
2
$ 99
Onex Corporation December 31, 2011 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 L Y S I S
Other items
Onex recorded a $146 million charge for other items in
Celestica
Restructuring expenses at Celestica were lower by $22 mil-
2011 compared to $221 million in 2010. Table 6 provides a
lion in 2011. Many of the costs were recorded in connec-
breakdown of and the change in other items for the years
tion with Celestica’s restructuring plans to improve capacity
ended December 31, 2011 and 2010.
utilization by consolidating facilities and reducing its
Other Items Expense (Income)
workforce.
TABLE 6
($ millions)
Restructuring
Transition, integration
and other
Transaction costs
Skilled Healthcare Group
settlement charge
Unrealized carried interest
2011
$ 52
2010
$ 94
Change
($)
$ (42)
17
17
(4)
42
–
53
attributable to management
62
114
Gain on Flushing Town Center
debt extinguishment
Other
Total
–
2
(32)
(50)
$ 146
$ 221
$ (75)
Restructuring
Restructuring expenses are considered to be costs incurred
Carestream Health
Carestream Health reported a decrease of $11 million
in restructuring expenses in 2011. Carestream Health’s
costs related primarily to a realignment of its information
technology and service functions in its Medical Film and
Medical Digital segments.
JELD-WEN
JELD-WEN’s restructuring charge was primarily related to
a petition filed by the company’s Spanish subsidiary, dur-
ing the fourth quarter of 2011, with the Commercial Court
in Spain for a declaration of insolvency. During the fourth
quarter, the Commercial Court granted the insolvency peti-
tion and as a result, the net assets of the Spanish subsidiary
were derecognized as they were no longer controlled. The
restructuring charges primarily related to the net expense
of deconsolidating the net assets of that subsidiary.
(25)
17
(57)
(52)
32
52
by the operating companies to realign organizational struc-
tures or restructure manufacturing capacity to obtain oper-
Sitel Worldwide
Sitel Worldwide recorded a $23 million decline in restructur-
ating synergies critical to building the long-term value of
ing expenses in 2011 resulting primarily from 2010 expenses
those businesses. Table 7 provides a breakdown of and the
incurred to improve capacity utilization, including a reduc-
change in restructuring expenses by operating company
tion in workforce and the closure of certain facilities.
for the years ended December 31, 2011 and 2010.
Restructuring Expenses
TABLE 7
($ millions)
Celestica
Carestream Health
JELD-WEN
Sitel Worldwide
Other
Total
2011
$ 14
4
15
17
2
2010
$ 36
15
–
40
3
Change
($)
$ (22)
(11)
15
(23)
(1)
$ 52
$ 94
$ (42)
36 Onex Corporation December 31, 2011
Transaction costs
Transaction costs represent costs incurred by Onex and its
operating companies to complete business acquisitions,
and include costs such as advisory, legal and other profes-
sional and consulting costs. During 2011, Onex recorded
$17 million in transaction costs primarily related to the
acquisitions made by ONCAP during the year, as well as for
the acquisition of JELD-WEN in early October 2011.
Skilled Healthcare Group settlement
In July 2010, Skilled Healthcare Group announced that
a jury had returned a verdict against the company in a
California state court related to a complaint filed more
than four years earlier. During the third quarter of 2010,
Skilled Healthcare Group came to a settlement agree-
ment on this complaint and recorded $53 million of other
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 L Y S I S
expense. The settlement contains no admission or conces-
sion of wrongdoing by Skilled Healthcare Group. During
Other
Onex reported consolidated other expense of $2 million
2011, Skilled Healthcare Group recorded insurance recov-
during 2011 compared to consolidated other income of
eries of $4 million related to the settlement.
$50 million in 2010. Consolidated other expense includes a
provision of $27 million recorded by Carestream Health for
Unrealized carried interest attributable to management
The General Partner of the Onex Partners and ONCAP
an adverse ruling related to a complaint alleging competi-
tion law violations in Brazil by Carestream Health’s pre-
Funds is entitled to a carried interest (20 percent) on the
decessor. Carestream Health will appeal the ruling and
realized gains of third-party limited partners in each Fund.
vigorously pursue reversal of this ruling. Substantially off-
Onex is allocated 40 percent of the carried interest realized
setting the expense was income from the sale of tax losses
in the Onex Partners and ONCAP Funds. The Onex man-
($10 million), as discussed below, in addition to other
agement team is allocated 60 percent of the carried inter-
income recorded by The Warranty Group as a result of gains
est realized in the Onex Partners Funds and the ONCAP
in its investment portfolio ($9 million) and the release of cer-
management team is entitled to 60 percent of the carried
tain provisions previously recorded by Celestica ($7 million).
interest realized in the ONCAP Funds. Onex’ share of the
During 2011, Onex sold entities, the sole assets
unrealized carried interest is recorded as an offset in the
of which were certain tax losses, to a public company
Limited Partners’ Interests amount in the consolidated
controlled by Mr. Gerald W. Schwartz, who is also Onex’
statements of earnings.
controlling shareholder. Onex received approximately
The unrealized carried interest attributable to
C$5 million in cash and established receivables for
management represents the share of the overall unreal-
an additional C$5 million for Canadian tax losses of
ized gains in each of the Onex Partners and ONCAP Funds
C$100 million. The entire C$10 million was recorded as a
attributable to the management of Onex and ONCAP. The
gain in other items in 2011. Onex has significant Canadian
unrealized carried interest is calculated based on the cur-
non-capital and capital losses available; however, Onex
rent fair values of the underlying investments in the Funds
does not expect to generate sufficient taxable income to
and the overall net unrealized gains in each respective
fully utilize these losses in the foreseeable future. As such,
Fund determined in accordance with the limited part-
no benefit has been recognized in the consolidated finan-
nership agreements. During 2011, a charge of $62 million
cial statements for the tax losses. In connection with the
(2010 – $114 million) was recorded in the consolidated
transactions, Onex obtained tax rulings from the Canada
statements of earnings due primarily to an increase in the
Revenue Agency, and Deloitte & Touche LLP, an inde-
fair value of certain of the private investments in the Onex
pendent accounting firm retained by Onex’ Audit and
Partners and ONCAP Funds.
Gain on Flushing Town Center debt extinguishment
In December 2010, Flushing Town Center amended and
Corporate Governance Committee, provided opinions that
the values received by Onex for the tax losses were fair. The
transactions were unanimously approved by Onex’ Audit
and Corporate Governance Committee, all the members of
restated its senior construction loan and mezzanine
which are independent directors. Onex completed a similar
loan. In conjunction with these amendments, Onex pur-
transaction in 2010, receiving approximately C$8 million in
chased at a discount $56 million and $38 million principal
cash for Canadian tax losses of approximately C$70 million.
amounts of the senior construction loan and mezzanine
Included in other items in 2010 is C$8 million recorded by
loan, respectively, from third-party lenders. The loans were
Onex, the parent company, on the transaction.
purchased for a total cash cost of $62 million. As a result of
this transaction, the loans purchased by Onex were extin-
guished with the original third-party lenders. As a result,
Flushing Town Center recorded a net gain of $32 million on
the debt extinguishment.
Onex Corporation December 31, 2011 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 L Y S I S
Impairment of goodwill, intangible assets
and long-lived assets, net
Net impairment of goodwill, intangible assets and long-
The Warranty Group
During the fourth quarter of 2011, as a result of its annual
goodwill impairment test applied under IFRS, The War-
lived assets totalled $197 million in 2011 (2010 – $14 mil-
ranty Group recorded a goodwill impairment charge of
lion). Table 8 provides a breakdown of the net impairment
$40 million under IFRS related to its European operations.
of goodwill, intangible assets and long-lived assets by oper-
The impairment charge was due to a reduction in expected
ating company for the years ended December 31, 2011
future growth rates driven by the poor economic conditions
and 2010.
in Europe and its impact on expected future cash flows.
Impairment of Goodwill, Intangible Assets
and Long-lived Assets, Net
TABLE 8
($ millions)
Skilled Healthcare Group
JELD-WEN
The Warranty Group
Other(a)
Total
2011
$ 120
22
40
15
2010
$ –
–
2
12
$ 197
$ 14
Limited Partners’ Interests charge
The Limited Partners’ Interests charge in Onex’ consoli-
dated statements of earnings represents the change in
the fair value of the underlying investments in the Onex
Partners and ONCAP Funds that is recorded as Limited
Partners’ Interests liability on Onex’ consolidated balance
sheets. The value of the third-party capital in the Funds
is affected by the change in the fair value of the underly-
ing investments. The Limited Partners’ Interests charge
includes the fair value changes of both consolidated oper-
(a) 2011 other includes impairments of $17 million and impairment reversals
ating companies and investments in associates that are
held in the Onex Partners and ONCAP Funds.
During 2011, Onex recorded a $627 million charge
for Limited Partners’ Interests compared to a charge of
$831 million in 2010. The increase in the fair value of the
private investments in the Onex Partners and ONCAP
Funds was 17 percent (2010 – 34 percent), which contrib-
uted significantly to the Limited Partners’ Interests charge
recorded in 2011. Approximately $358 million (2010 –
$305 million) of the value growth in the Onex Partners pri-
vate investments was from the value increase in investments
in associates.
The Limited Partners’ Interests charge is net of a
$91 million increase (2010 – $190 million) in carried interest
for the year ended December 31, 2011. Onex’ share of the
carried interest increase was $29 million (2010 – $76 mil-
lion). The ultimate amount of carried interest realized will
be dependent upon the actual realizations for each Fund
in accordance with the partnership agreements.
of $2 million related to CDI, Sitel Worldwide, BSN SPORTS and CiCi’s Pizza.
2010 other includes Celestica and CiCi’s Pizza.
Skilled Healthcare Group
Skilled Healthcare Group completed an impairment anal-
ysis during the third quarter of 2011 as a result of a pre-
scribed reduction in future Medicare recovery rates, the
expected future growth rates for Medicare and changes
to rehabilitation therapy regulations that will negatively
impact Skilled Healthcare Group’s revenues and cost of
sales. As a result, the company revised its estimates with
respect to net revenues and gross margins, which nega-
tively impacted its cash flows forecasted for the long-term
care services and therapy services segments and accord-
ingly the company recorded non-cash goodwill and intan-
gible asset impairments of $117 million and $3 million,
respectively, during 2011.
JELD-WEN
During the fourth quarter of 2011, JELD-WEN recorded a
non-cash impairment charge of $22 million to reduce the
value of certain of its property, plant and equipment. The
charge resulted from a program initiated by JELD-WEN sub-
sequent to its acquisition by Onex to rationalize capacity
resources of the company.
38 Onex Corporation December 31, 2011
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 L Y S I S
Loss from continuing operations
Onex reported a consolidated loss from continuing operations of $86 million in 2011 compared to a loss from continuing
operations of $11 million in 2010. During 2009, Onex reported a consolidated loss from continuing operations of C$114 mil-
lion in accordance with Canadian GAAP. Table 9 shows the earnings (loss) from continuing operations by industry segment
for the years ended December 31, 2011, 2010 and 2009. Earnings (loss) from continuing operations under Canadian GAAP
exclude the non-controlling interests share. Table 11 on page 40 of this MD&A presents the allocation of earnings (loss) from
continuing operations attributable to Onex and the non-controlling interests.
Earnings (Loss) from Continuing Operations by Industry Segment
TABLE 9
($ millions)
Earnings (loss) from continuing operations:
Electronics Manufacturing Services
Aerostructures
Healthcare
Financial Services
Customer Care Services
Metal Services
Building Products(a)
Other(b)
Consolidated Loss from Continuing Operations
IFRS, U.S. Dollars
Canadian GAAP,
Canadian Dollars
2011
2010
2009
$ 195
224
(112)
62
(58)
24
(89)
(332)
$ (86)
$ 101
C$ 6
249
101
107
(50)
4
–
(523)
$ (11)
14
8
32
(126)
(31)
–
(17)
C$ (114)
(a) Represents three months of loss from continuing operations of JELD-WEN from its early October 2011 acquisition date.
(b) 2011 other includes the consolidated earnings of Tropicana Las Vegas, the operating companies of ONCAP II and ONCAP III, Flushing Town Center and the parent company.
In addition, consolidated earnings include the changes in fair value of Allison Transmission, Hawker Beechcraft, Tomkins, RSI and certain Onex Real Estate Partners
investments. 2010 other includes the consolidated earnings of Tropicana Las Vegas, the operating companies of ONCAP II, Flushing Town Center and the parent company.
In addition, consolidated earnings include the changes in fair value of Allison Transmission, Hawker Beechcraft, RSI, Tomkins and certain Onex Real Estate Partners
investments. 2009 other includes Cineplex Entertainment (up to March 2009), CEI (up to May 2009), Hawker Beechcraft, Allison Transmission, RSI, Tropicana Las Vegas,
the operating companies of ONCAP II, Onex Real Estate and the parent company.
The loss from continuing operations in the other segment
The Limited Partners’ Interests, unrealized carried inter-
totalled $332 million during 2011 (2010 – $523 million).
est attributable to management and increase in fair value
Table 10 shows the major components of the loss recorded
of investments in associates, which impacted the loss in
in the other segment for the years ended December 31, 2011
the other segment during 2011 and 2010, represent new
and 2010.
TABLE 10
($ millions)
2011
2010
Loss from continuing operations – Other:
accounting policies under IFRS as compared to Canadian
GAAP. The 2009 loss from continuing operations of C$17 mil-
lion reported in the other segment under Canadian GAAP
was primarily due to losses from equity-accounted invest-
Limited Partners’ Interests charge
$ 627
$ 831
ments, partially offset by the gain recorded on the sale of the
Stock-based compensation expense
Unrealized carried interest attributable
to management
Interest expense
Increase in fair value of investments
in associates
Other gains, net
Other
64
62
44
(501)
–
36
108
remaining units of Cineplex Entertainment.
114
19
(427)
(99)
(23)
Loss from continuing operations – Other
$ 332
$ 523
Onex Corporation December 31, 2011 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 L Y S I S
Table 11 presents the earnings (loss) from continuing oper-
ations attributable to equity holders of Onex Corporation
Income taxes
Onex reported a consolidated income tax provision of
and non-controlling interests for the years ended Decem-
$237 million during 2011 compared to a $239 million
ber 31, 2011 and 2010.
income tax provision last year. During 2011, Onex, the par-
ent company, utilized $50 million of previously unbenefited
Earnings (Loss) from Continuing Operations
losses, resulting in a recovery of income tax. The recovery
TABLE 11
($ millions)
2011
2010
was offset by a non-cash tax provision recorded by Onex,
the parent company, on the sale of Husky International,
Earnings (loss) from continuing operations
which is included in discontinued operations.
attributable to:
Equity holders of Onex Corporation
$ (355)
$ (282)
Non-controlling interests
269
271
Loss from continuing operations
$ (86)
$ (11)
The non-controlling interests’ share of the earnings (loss)
from continuing operations represents the share of earn-
ings of shareholders, other than Onex and its third-
party limited partners in its Funds. For example, Spirit
AeroSystems’ public shareholders’ share of the net earn-
ings in that business would be reported in the non-control-
ling interests.
Earnings from discontinued operations
Earnings from discontinued operations for the years ended
December 31, 2011, 2010 and 2009 represent the operations
of EMSC and Husky International and the net gain recorded
on the disposition of these companies. Onex recorded earn-
ings from discontinued operations of $1.7 billion ($14.33
per share) during 2011 compared to earnings from dis-
continued operations of $208 million ($0.96 per share) in
2010. During 2009, Onex recorded earnings from discontin-
ued operations of C$226 million (C$1.86 per share) under
Canadian GAAP.
Table 12 presents the after-tax earnings, gain on sale net of tax, and earnings from discontinued operations for the years
ended December 31, 2011, 2010 and 2009.
Discontinued Operations
After-tax Earnings
Gain on Sale net of tax
Earnings from
Discontinued Operations
TABLE 12
($ millions)
IFRS, U.S. Dollars
Canadian
GAAP,
Canadian
Dollars
IFRS, U.S. Dollars
Canadian
GAAP,
Canadian
Dollars
IFRS, U.S. Dollars
Canadian
GAAP,
Canadian
Dollars
EMSC
Husky International
Total
2011
$ 47
22
$ 69
2010
$ 132
76
$ 208
2009
2011
2010
2009
2011
2010
2009
C$ 28
$ 559
4
1,087
C$ 32
$ 1,646
$ –
–
$ –
C$ 194
$ 606
$ 132
C$ 222
–
1,109
76
4
C$ 194
$ 1,715
$ 208
C$ 226
40 Onex Corporation December 31, 2011
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 L Y S I S
EMSC
In May 2011, the Onex Partners I Group sold its remaining
Husky International
In June 2011, the Onex Partners I Group and Onex Part-
13.7 million shares of EMSC for net proceeds of $878 mil-
ners II Group completed the sale of Husky International,
lion, of which Onex’ share was $342 million, including car-
receiving net proceeds of $1.7 billion, of which Onex’ share
ried interest and deducting distributions paid on account
was $583 million, including carried interest and deduct-
of the MIP. The sale was part of an offer made for all out-
ing distributions paid on account of the MIP. The car-
standing shares of EMSC. Included in Onex’ consolidated
ried interest realized on Onex Partners II’s sale of Husky
results for the year ended December 31, 2011 is a pre-tax
International was voluntarily reduced by $88 million (Onex’
gain of $600 million from this sale, which is entirely attrib-
share of the reduction was $35 million) at the request of
utable to the equity holders of Onex. This gain includes the
Onex. In addition to the cash proceeds received on the sale,
portion attributable to Onex’ investment as well as that of
there was approximately $60 million of additional amounts
the limited partners of Onex Partners I. The effect of this is
held in escrow and other items (Onex’ share was $19 mil-
to recover the charges to earnings for the fair value increases
lion, excluding carried interest). During the third quar-
and historical accounting earnings on EMSC allocated to the
ter of 2011, $38 million of these additional amounts were
limited partners over the life of the remaining investment,
received, of which Onex’ share was $18 million, includ-
which totalled $375 million. The balance of $225 million
ing carried interest of $6 million and deducting distribu-
reflects the pre-tax gain on Onex’ remaining investment in
tions paid on account of the MIP. The escrow amount
EMSC. Onex, the parent company, has recorded a deferred
was also reduced by $5 million for taxes owing in respect
tax provision of $41 million on the gain.
of taxable periods up to the closing date. At December 31,
During 2009, the Onex Partners I Group par-
2011, $18 million remains receivable for escrow amounts
ticipated in two secondary public offerings completed by
and other items and is expected to be received within
EMSC. The Onex Partners I Group sold a total of 18.4 mil-
four years, of which Onex’ share is $6 million, exclud-
lion shares for net proceeds of C$827 million. Onex’ share
ing carried interest. Onex’ consolidated results include
of the net proceeds received was C$331 million. Under
a pre-tax gain of $1.1 billion, which is entirely attribut-
Canadian GAAP, Onex recorded pre-tax gains of C$595 mil-
able to the equity holders of Onex. This gain includes the
lion, of which Onex’ share was C$194 million, including
portion attributable to Onex’ investment as well as that
C$20 million of net carried interest on the gains realized by
of the limited partners of Onex Partners I and Onex Part-
the third-party limited partners of Onex Partners I.
ners II. The effect of this is to recover the charges to earnings
for the fair value increases and historical accounting earn-
ings on Husky International allocated to the limited partners
over the life of the investment, which totalled $726 million.
The balance of $361 million reflects the after-tax gain on
Onex’ investment in Husky International. Onex, the parent
company, has recorded a non-cash tax provision of $50 mil-
lion on the gain.
Note 3 to the consolidated financial statements provides
additional information on the earnings from discontinued
operations.
Onex Corporation December 31, 2011 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 L Y S I S
Consolidated net earnings
Onex recorded consolidated net earnings of $1.6 billion in 2011 compared to consolidated net earnings of $197 million in
2010. During 2009, Onex reported consolidated net earnings of C$112 million in accordance with Canadian GAAP. Table 13
shows the net earnings (loss) by industry segment for the years ended December 31, 2011, 2010 and 2009. Net earnings (loss)
under Canadian GAAP exclude the non-controlling interests share. Table 14 on page 43 of this MD&A presents the allocation
of net earnings (loss) attributable to Onex and the non-controlling interests.
Consolidated Net Earnings (Loss) by Industry Segment
TABLE 13
($ millions)
Net earnings (loss):
IFRS, U.S. Dollars
Canadian GAAP,
Canadian Dollars
2011
2010
2009
Electronics Manufacturing Services
$ 195
$ 101
C$ 6
Aerostructures
Healthcare
Financial Services
Customer Care Services
Metal Services
Building Products(a)
Other(b)
Earnings from discontinued operations
Consolidated Net Earnings
224
(112)
62
(58)
24
(89)
(332)
1,715
249
101
107
(50)
4
–
(523)
208
14
8
32
(126)
(31)
–
(17)
226
$ 1,629
$ 197
C$ 112
(a) Represents three months of net loss of JELD-WEN from its early October 2011 acquisition date.
(b) 2011 other includes the consolidated earnings of Tropicana Las Vegas, Husky International (up to June 2011), the operating companies of ONCAP II and ONCAP III,
Flushing Town Center and the parent company. In addition, consolidated earnings include the changes in fair value of Allison Transmission, Hawker Beechcraft, Tomkins,
RSI and certain Onex Real Estate Partners investments. 2010 other includes the consolidated earnings of Tropicana Las Vegas, Husky International, the operating
companies of ONCAP II, Flushing Town Center and the parent company. In addition, consolidated earnings include the changes in fair value of Allison Transmission,
Hawker Beechcraft, Tomkins, RSI and certain Onex Real Estate Partners investments. 2009 other includes Cineplex Entertainment (up to March 2009), CEI (up to May 2009),
Hawker Beechcraft, Allison Transmission, RSI, Tropicana Las Vegas, Husky International, the operating companies of ONCAP II, Onex Real Estate and the parent company.
42 Onex Corporation December 31, 2011
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 L Y S I S
Table 14 presents the net earnings (loss) attributable to
increase in the Limited Partners’ Interests liability with
equity holders of Onex Corporation and non-controlling
a corresponding charge in the consolidated statements
interests.
Net Earnings (Loss)
TABLE 14
($ millions)
2011
2010
Net earnings (loss) attributable to:
of earnings. Upon disposition, current and prior period
charges associated with the investments in EMSC and
Husky International were effectively recovered by Onex, the
parent company, through the gain recognized on the sales.
The net impact to Onex’, the parent company’s, retained
earnings after the sales represents its share of the net gains
Equity holders of Onex Corporation
$ 1,327
$ (167)
on its investments in EMSC and Husky International.
Non-controlling interests
302
364
Net Earnings
$ 1,629
$ 197
Table 15 presents the net earnings (loss) per Subordinate
Voting Share of Onex Corporation.
Onex’ reported net earnings (loss) attributable to equity
holders of Onex Corporation includes the share of earnings
(loss) of Onex, the parent company, and its limited part-
ners in its controlled operating companies. For example,
Onex’ consolidated 2011 net earnings include 92 percent
of the net earnings of The Warranty Group, which repre-
sents Onex’ and its limited partners’ ownership interest in
that business. Previously under Canadian GAAP, Onex’ net
earnings would have included 29 percent of The Warranty
Earnings (Loss) per Subordinate Voting Share
TABLE 15
($ per share)
2011
2010
2009
Basic and Diluted:
Continuing operations
$ (3.02)
$ (2.36)
C$ (0.94)
Discontinued operations
14.33
0.96
1.86
Net Earnings (Loss)
$ 11.31
$ (1.40)
C$ 0.92
Group’s net earnings, which represents only Onex’, the par-
ent company’s, ownership interest in The Warranty Group.
Other comprehensive loss
Other comprehensive earnings (loss) represents the accu-
The net earnings attributable to the equity hold-
mulated unrealized gains or losses, all net of income taxes,
ers of Onex Corporation for the year ended December 31,
related to certain available-for-sale securities, cash flow
2011 include an after-tax gain of $1.6 billion on the sales of
hedges and foreign exchange gains or losses on foreign
EMSC and Husky International. Under IFRS, gains realized
self-sustaining operations. During 2011, Onex reported an
on the sales of investments no longer controlled are entirely
other comprehensive loss of $132 million largely due to
attributable to the equity holders of Onex as the interests
unfavourable currency translation adjustments on foreign
of the limited partners were recorded as a financial liability
operations of $60 million and pension actuarial losses of
at fair value. During the holding period of the investments,
$59 million. This compared to an other comprehensive loss
the increase in the fair value of Limited Partners’ Interests
of $56 million during 2010.
related to EMSC and Husky International resulted in an
Onex Corporation December 31, 2011 43
M A N A G E M E N T ’ S D I S C U S S I O N A N D A N A L Y S I S
F O U R T H - Q U A R T E R R E S U L T S
Table 16 presents the statements of loss for the fourth quarters ended December 31, 2011 and 2010.
Fourth-Quarter Statements of Earnings (Loss)
TABLE 16
($ millions)
Revenues
Cost of sales (excluding amortization of property, plant and equipment, intangible assets
and deferred charges)
Operating expenses
Interest income
Amortization of property, plant and equipment
Amortization of intangible assets and deferred charges
Interest expense of operating companies
Unrealized increase in value of investments in associates at fair value, net
Foreign exchange gains (loss)
Stock-based compensation expense
Other gains, net
Other items
Impairments of goodwill, intangible assets and long-lived assets, net
Limited Partners’ Interests charge
Loss before income taxes and discontinued operations
Provision for income taxes
Loss from continuing operations
Earnings from discontinued operations
Net Loss for the Period
2011
2010
$ 6,758
$ 5,402
(5,377)
(4,268)
(841)
14
(142)
(89)
(137)
127
(5)
(43)
–
(30)
(71)
(196)
(32)
(80)
(112)
–
(618)
14
(104)
(76)
(91)
196
2
(58)
99
(111)
(14)
(410)
(37)
(61)
(98)
94
$ (112)
$ (4 )
44 Onex Corporation December 31, 2011
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 L Y S I S
Table 17 provides a breakdown of the 2011 and 2010 fourth-quarter revenues and cost of sales by industry segment.
Revenues and Cost of Sales by Industry Segment for the Three Months Ended December 31
TABLE 17
($ millions)
Revenues
Cost of Sales
2010
Change (%)
2010
Change (%)
Three months ended December 31
Electronics Manufacturing Services
Aerostructures
Healthcare
Financial Services
Customer Care Services
Metal Services
Building Products(a)
Other (b)
Total
2011
$ 1,753
1,219
1,334
284
364
619
774
411
$ 1,876
1,067
1,101
270
344
453
–
291
2011
$ 1,612
1,014
893
141
237
573
660
247
$ 1,732
870
747
115
216
412
–
176
(7)%
14 %
21 %
5 %
6 %
37 %
–
41 %
25 %
(7)%
17 %
20 %
23 %
10 %
39 %
–
40 %
26 %
$ 6,758
$ 5,402
$ 5,377
$ 4,268
Results are reported in accordance with IFRS. These results may differ from those reported by the individual operating companies.
(a) JELD-WEN acquired in early October 2011.
(b) 2011 other includes Flushing Town Center, Tropicana Las Vegas, the operating companies of ONCAP II and ONCAP III and the parent company. 2010 other includes
Flushing Town Center, Tropicana Las Vegas, the operating companies of ONCAP II and the parent company.
Fourth-quarter consolidated revenues
and cost of sales
Consolidated revenues were up 25 percent, or $1.4 billion,
JELD-WEN contributed revenues of $774 million
and cost of sales of $660 million from its acquisition date in
early October 2011.
to $6.8 billion in the fourth quarter of 2011 compared to
The inclusion of ONCAP’s acquisitions of Pinnacle
the same quarter of 2010. Consolidated cost of sales was up
Renewable Energy Group and Casino ABS, acquired in May
26 percent, or $1.1 billion, to $5.4 billion for the three
2011, and Hopkins, acquired in June 2011, added $93 mil-
months ended December 31, 2011 compared to the same
lion in revenues and $63 million in cost of sales in the other
period of last year.
segment during the fourth quarter.
Revenues and cost of sales at ResCare increased
Partially offsetting the increases in revenues
by $201 million and $122 million, respectively, during the
and cost of sales during the fourth quarter of 2011 were
fourth quarter of 2011, representing a full quarter of the
decreases in revenues and cost of sales at Celestica. Celes-
company’s results. The fourth quarter of 2010 included
tica reported a 7 percent, or $123 million, decrease in fourth-
results for ResCare beginning in mid-November 2010 when
quarter revenues in 2011 across all of its end markets, other
the company began to be consolidated subsequent to Onex,
than its consumer market, which was relatively flat, and
Onex Partners III and Onex management’s acquisition of the
increases in its diversified markets, due primarily to soft-
remaining interest in the business.
ening demand and uncertainty in the global markets. Cost
TMS International’s revenues increased by
of sales had a similar decrease of 7 percent, or $120 million,
$166 million compared to the fourth quarter last year. The
for the three months ended December 31, 2011.
increase was due primarily to an increase in steel produc-
tion during the fourth quarter of 2011 compared to the
same period last year, which drove higher market prices
for raw materials and increased service revenues. Cost of
sales had a similar increase of $161 million resulting from
the higher volumes and prices, which contributed to the
increase in revenues.
Onex Corporation December 31, 2011 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 L Y S I S
Fourth-quarter unrealized increase in value
of investments in associates at fair value, net
The 2011 fourth-quarter net unrealized increase in value
Fourth-quarter impairment of goodwill,
intangible assets and long-lived assets, net
During the fourth quarter of 2011, there was $71 million of
of investments in associates at fair value was $127 million
impairments of goodwill, intangible assets and long-lived
compared to an unrealized increase of $196 million during
assets recorded by Onex’ operating companies compared
the same period of 2010. Improved operating performance
to $14 million for the three months ended December 31,
as well as debt repayment at certain of the businesses in the
2010. During the fourth quarter of 2011, The Warranty
fourth quarter of 2011 provided the unrealized increase in
Group recorded a goodwill impairment charge of $40 mil-
the fair value of investments in associates.
lion related to its European operations. In addition, JELD-
Fourth-quarter stock-based
compensation expense
During the fourth quarter of 2011, Onex recorded a con-
WEN recorded an impairment charge of $22 million related
to certain of its property, plant and equipment as part of a
program to rationalize capacity resources of the company.
A discussion of these impairments by company is provided
solidated stock-based compensation expense of $43 million
on page 38 of this MD&A.
compared to $58 million for the same quarter of 2010. Onex,
the parent company, recorded a stock-based compensation
expense of approximately $21 million in the fourth quarter
Fourth-quarter Limited Partners’ Interests charge
During the fourth quarter of 2011, Onex recorded a
of 2011 related to its stock options and MIP options. That
$196 million charge for Limited Partners’ Interests com-
expense was primarily due to the 2 percent increase in the
pared to a $410 million charge during the same period
market value of Onex’ shares in the fourth quarter.
of 2010. The increase in the fair value of the investments
The increase in Onex’ share price to C$30.23 per
in the Onex Partners Funds during the fourth quarter
share at December 31, 2010 from C$28.91 per share at
of 2011 was 5 percent (2010 – 15 percent), which con-
September 30, 2010 contributed to the expense of $33 mil-
tributed significantly to the Limited Partners’ Interests’
lion recorded by Onex, the parent company, on its stock-
charge recorded during the quarter. The Limited Partners’
based compensation during the fourth quarter of 2010.
Interests is net of a $21 million (2010 – $179 million) in-
crease in net unrealized carried interest for the three
months ended December 31, 2011.
Fourth-quarter other items expense
During the fourth quarter of 2011, Onex recorded a
$30 million charge for other items compared to a charge of
$111 million during the same quarter in 2010. The charge
for the net unrealized carried interest attributable to man-
agement contributed $13 million (2010 – $108 million) to
the other items expense during the fourth quarter. The
increase in the unrealized carried interest attributable to
management, and the corresponding charge, was driven by
an increase in the fair value of certain of the public and pri-
vate investments in the Onex Partners and ONCAP Funds
during the fourth quarter of 2011.
46 Onex Corporation December 31, 2011
M A N A G E M E N T ’ S D I S C U S S I O N A N D A N A L Y S I S
Fourth-quarter cash flow
Table 18 presents the major components of cash flow for
on the sale of a portion of the investment in Tomkins to
certain limited partners and others. Partially offsetting the
the fourth quarter.
Major Cash Flow Components for
the Three Months Ended December 31
($ millions)
TABLE 18
Three months ended December 31
2011
2010
Cash from operating activities
Cash from (used in) financing activities
Cash used in investing activities
Consolidated cash and cash equivalents
$ 707
$ (306)
$ (140)
$ 872
$ 151
$ (473)
held by continuing operations
$ 2,448
$ 2,053
Cash from operating activities totalled $707 million in the
fourth quarter of 2011 compared to $872 million in 2010.
Cash from operating activities decreased during the fourth
quarter of 2011 compared to 2010 due to the fact that the
2010 results included cash from EMSC and Husky Inter-
national, which were sold during the second quarter of 2011.
Cash used in financing activities was $306 million
in the fourth quarter of 2011 compared to cash from financ-
ing activities of $151 million in 2010. Cash used in financ-
ing activities during the quarter included (i) cash interest
paid of $116 million; (ii) net debt repayments of $95 mil-
lion by the operating companies; (iii) share repurchases
of $97 million by Onex’ operating companies, primarily
JELD-WEN; (iv) distributions of $93 million primarily to the
limited partners of the Onex Partners Funds; and (v) share
repurchases by Onex, the parent company, of $48 million.
Partially offsetting the cash used in financing activities were
cash from financing activities were (i) $222 million of dis-
tributions primarily to the limited partners of ONCAP II,
other than Onex, from the sale of CSI in November 2010;
and (ii) $272 million of restricted cash representing the lim-
ited partners’ net share of distributions received during the
fourth quarter of 2010 from operating companies and the
return of interim financing from ResCare.
Cash used in investing activities totalled $140 mil-
lion in the fourth quarter of 2011 compared to $473 million
in 2010. During the fourth quarter, cash used in investing
activities was primarily made up of $207 million in pur-
chases of property, plant and equipment by Onex’ operating
companies.
Included in the $473 million of cash used in
investing activities during 2010 were (i) $271 million used
to fund acquisitions, primarily the acquisition of ResCare;
(ii) $200 million of cash used for the purchase of property,
plant and equipment by Onex’ operating companies; and
(iii) $91 million of cash used by discontinued operations.
Partially offsetting the cash used in investing activities was
$123 million of cash proceeds received by the ONCAP II
Group for the sale of CSI.
Consolidated cash at December 31, 2011 totalled
$2.4 billion. Onex, the parent company, accounted for
$990 million of the cash on hand. Table 19 provides a rec-
onciliation of the change in cash at Onex, the parent com-
pany, from September 30, 2011 to December 31, 2011.
Change in Cash at Onex, the Parent Company
contributions of $144 million from the limited partners of
TABLE 19
($ millions)
(i) the Onex Partners Funds for management fees and part-
nership expenses; and (ii) ONCAP III for their purchase of a
portion of the investment in Casino ABS from ONCAP II and
their investment in Davis-Standard.
Included in the $151 million of cash from financ-
ing activities in the fourth quarter of 2010 was $602 mil-
lion of cash received primarily from the limited partners of
Onex Partners III and other shareholders, other than Onex,
for the purchase and interim financing of the remaining
interest in ResCare in addition to the proceeds received
Cash on hand at September 30, 2011
Management fees received
JELD-WEN convertible notes repayment
The Warranty Group distribution received
Investment in Davis-Standard
Onex share repurchases
Other
Cash on hand at December 31, 2011
$ 994
$ 40
$ 14
$ 13
$ (30)
$ (48)
$ 7
$ 990
Onex Corporation December 31, 2011 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 L Y S I S
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 20 summarizes Onex’ key consolidated financial information for the last eight quarters.
TABLE 20
($ millions except per share amounts)
2011
2010
Dec.
Sept.
June
March
Dec.
Sept.
June
March
Revenues
$ 6,758
$ 6,008
$ 6,229
$ 5,647
$ 5,402
$ 4,788
$ 4,894
$ 4,650
Earnings (loss) from continuing operations
$ (112)
$ 190
$ 105
$ (269)
$ (98)
$ (21)
$ 143
$ (35)
Net earnings (loss)
$ (112)
$ 184
$ 1,761
$ (204)
$ (4)
$ 35
$ 174
$ (8)
Net earnings (loss) attributable to
Equity holders of Onex Corporation
$ (186)
$ 146
$ 1,666
$ (299)
$ (120)
$ (40)
$ 100
$ (107)
Non-controlling interests
Net earnings (loss)
74
38
95
95
116
75
74
99
$ (112)
$ 184
$ 1,761
$ (204)
$ (4)
$ 35
$ 174
$ (8)
Earnings (loss) per Subordinate Voting Share
of Onex Corporation
Earnings (loss) from continuing operations
$ (1.61)
$ 1.29
$ 0.15
$ (2.87)
$ (1.56)
$ (0.60)
$ 0.71
$ (0.93)
Earnings (loss) from discontinued operations
–
(0.04)
13.94
0.34
0.55
0.26
0.12
0.04
Net earnings (loss) per Subordinate Voting Share
of Onex Corporation
$ (1.61)
$ 1.25
$ 14.09
$ (2.53)
$ (1.01)
$ (0.34)
$ 0.83
$ (0.89)
Onex’ quarterly consolidated financial results do not follow any specific trends due to the acquisitions or dispositions of
businesses by Onex, the parent company, and varying business activities and cycles at Onex’ operating companies.
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
Partially offsetting the increases were:
This section should be read in conjunction with the
remaining ownership in EMSC, which decreased consoli-
audited annual consolidated balance sheets and the cor-
dated assets by approximately $1.5 billion, which is net
• the May 2011 sale by the Onex Partners I Group of its
responding notes thereto.
Consolidated assets
Consolidated assets totalled $29.4 billion at December 31,
of the $342 million of cash received by Onex; and
• the June 2011 sale of Husky International by the Onex
Partners I Group and Onex Partners II Group, which
reduced consolidated assets by approximately $795 mil-
2011 compared to $28.1 billion at December 31, 2010 and
lion, which is net of the $601 million of cash received
$24.0 billion at January 1, 2010. Onex’ consolidated assets
by Onex.
at December 31, 2011 increased from December 31, 2010
due to:
• the Onex Partners III Group’s acquisition of JELD-WEN
in early October 2011, which increased consolidated
assets by approximately $2.6 billion, net of cash invested
by Onex, the parent company; and
• the acquisitions completed by ONCAP during the year of
Pinnacle Renewable Energy Group, Casino ABS, Hopkins
and Davis-Standard, which contributed $1.1 billion to
consolidated assets, net of cash invested by Onex, the
parent company.
48 Onex Corporation December 31, 2011
Asset Diversification by Industry Segment
CHART 1 ($ millions)
E L E C T R O N I C S
A E R O -
H E A LT H C A R E
M A N U FA C T U R I N G
S T R U C T U R E S
S E R V I C E S
F I N A N C I A L
S E R V I C E S
C U S T O M E R
C A R E
S E R V I C E S
6,162
4,978
4,975
5,156
4,877
4,918
4,892
2,970
3,014
3,022
4,331
4,194
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 L Y S I S
M E TA L
S E R V I C E S
B U I L D I N G
P R O D U C T S (a)
O T H E R (b)
T O TA L
8,170
7,501
29,446
28,107
24,024
5,109
2,581
1,045
862
805
675
709
631
Dec
’11
Dec
’10
Jan
’10
Dec
’11
Dec
’10
Jan
’10
Dec
’11
Dec
’10
Jan
’10
Dec
’11
Dec
’10
Jan
’10
Dec
’11
Dec
’10
Jan
’10
Dec
’11
Dec
’10
Jan
’10
Dec
’11
Dec
’11
Dec
’10
Jan
’10
Dec
’11
Dec
’10
Jan
’10
(a) JELD-WEN acquired in early October 2011.
(b) 2011 other includes the consolidated operations of Flushing Town Center, the operating companies of ONCAP II and ONCAP III, Tropicana Las Vegas and the parent company.
In addition, the consolidated assets include the investments in Allison Transmission, Hawker Beechcraft, RSI, certain Onex Real Estate Partners investments and Tomkins at
fair value. 2010 other includes the consolidated operations of Flushing Town Center, Husky International, the operating companies of ONCAP II, Tropicana Las Vegas and the
parent company. In addition, the consolidated assets include the investments in Allison Transmission, Hawker Beechcraft, RSI, certain Onex Real Estate Partners investments
and Tomkins at fair value.
The pie charts below show the percentage breakdown of total consolidated assets by industry segment as at December 31,
2011 and 2010 and January 1, 2010.
Segmented Total Consolidated Assets Breakdown
Dec 2011
Dec 2010
Jan 2010
a. 10%
b. 17%
c. 14%
d. 17%
e. 2%
f. 3%
g. 9%
x. 28%
a. 11%
b. 18%
c. 22%
d. 17%
e. 2%
f. 3%
x. 27%
a. Electronics Manufacturing Services
b. Aerostructures
c. Healthcare
d. Financial Services
e. Customer Care Services
f. Metal Services
g. Building Products(1)
x. Other (2)
a. 13%
b. 18%
c. 22%
d. 20%
e. 3%
f. 3%
x. 21%
(1) JELD-WEN acquired in early October 2011.
(2) 2011 other includes the consolidated operations of Flushing Town Center, the operating companies of ONCAP II and ONCAP III, Tropicana Las Vegas and the parent company.
In addition, the consolidated assets include the investments in Allison Transmission, Hawker Beechcraft, RSI, certain Onex Real Estate Partners investments and Tomkins at
fair value. 2010 other includes the consolidated operations of Flushing Town Center, Husky International, the operating companies of ONCAP II, Tropicana Las Vegas and the
parent company. In addition, the consolidated assets include the investments in Allison Transmission, Hawker Beechcraft, RSI, certain Onex Real Estate Partners investments
and Tomkins at fair value.
Onex Corporation December 31, 2011 49
M A N A G E M E N T ’ S D I S C U S S I O N A N D A N A L Y S I S
Consolidated long-term debt,
without recourse to Onex Corporation
It has been Onex’ policy to preserve a financially strong
certain financial covenants. Changes in business condi-
tions relevant to an operating company, including those
resulting from changes in financial markets and economic
parent company that has funds available for new acquisi-
conditions generally, may result in non-compliance with
tions and to support the growth of its operating companies.
certain covenants by that operating company.
This policy means that all debt financing is within the oper-
Total consolidated long-term debt (consisting of
ating companies and each company is required to sup-
the current and long-term portions of long-term debt, net
port its own debt without recourse to Onex Corporation or
of financing charges) was $7.0 billion at December 31, 2011
other Onex operating companies.
compared to $6.6 billion at December 31, 2010 and $5.7 bil-
The financing arrangements of each operating
lion at January 1, 2010. Table 21 summarizes consolidated
company typically contain certain restrictive covenants,
long-term debt by industry segment. Consolidated long-
which may include limitations or prohibitions on addi-
term debt does not include the debt of operating compa-
tional indebtedness, payment of cash dividends, redemp-
nies that are included in investments in associates as the
tion of capital, capital spending, making of investments,
net investment in those businesses is accounted for at fair
and acquisitions and sales of assets. In addition, the oper-
value and not consolidated.
ating companies that have outstanding debt must meet
Consolidated Long-term Debt, Without Recourse to Onex Corporation
TABLE 21
($ millions)
Electronics Manufacturing Services
Aerostructures
Healthcare(a)
Financial Services
Customer Care Services
Metal Services
Building Products(b)
Other (c)
Current portion of long-term debt of operating companies
As at
December 31,
2011
As at
December 31,
2010
$ –
1,157
2,670
203
652
377
481
1,421
6,961
(482)
$ –
1,145
2,996
205
624
404
–
1,215
6,589
(243)
As at
January 1,
2010
$ 223
858
2,666
206
627
404
–
704
5,688
(404)
Total
$ 6,479
$ 6,346
$ 5,284
(a) 2010 and 2009 include EMSC.
(b) JELD-WEN acquired in early October 2011.
(c)
2011 other includes Radian, Flushing Town Center, Tropicana Las Vegas and the operating companies of ONCAP II and ONCAP III. 2010 other includes Husky International,
Radian, Flushing Town Center, Tropicana Las Vegas and the operating companies of ONCAP II.
Carestream Health (Healthcare segment)
In February 2011, Carestream Health entered into a new
to repay and terminate the previous credit facilities and
pay a $200 million distribution to shareholders. The Onex
credit facility. This new facility included a $1.85 billion
Partners II Group’s share of the $200 million distribution
senior secured term loan that matures in February 2017
was $197 million, of which Onex’ share was $78 million.
and a $150 million senior revolving facility that matures in
During the third and fourth quarters of 2011, Carestream
February 2016. The senior secured term loan and senior
Health repurchased a total of $69 million of its senior
revolving facility bear interest at LIBOR (subject to a floor
secured term loan for a cash cost of $61 million. As a result, a
of 1.5 percent) plus a margin of 3.5 percent or a base rate
net pre-tax gain of $8 million was recognized in other items
plus a margin of 2.5 percent. Substantially all of Carestream
during 2011. At December 31, 2011, $1.8 billion and nil were
Health’s assets are pledged as collateral under the term
outstanding under the senior secured term loan and senior
loan. The proceeds of the new facility were used primarily
revolving facility, respectively.
50 Onex Corporation December 31, 2011
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 L Y S I S
CDI (Healthcare segment)
In May 2011, CDI entered into a new credit agreement. The
JELD-WEN (Building Products segment)
The acquisition of JELD-WEN in October 2011 added
new agreement included a $95 million term loan as well
$637 million of debt. JELD-WEN’s debt is comprised of a
as a $25 million revolving credit facility, both maturing in
senior secured revolving credit facility that bears interest
May 2016. Both the term loan and revolving credit facility
at a base rate plus a margin of up to 4 percent and matures
bear interest at LIBOR plus a margin of up to 3.75 percent
in 2016 and senior secured notes that mature in 2017 and
depending on the company’s leverage ratio. The proceeds
bear interest at a rate of 12.25 percent. In addition, the
from the new term loan were used to repay the amounts
Onex Partners III Group invested in convertible promis-
outstanding under the former term loan and revolving
sory notes that mature in 2013 and bear interest at a rate of
credit facility and to pay a distribution to shareholders.
10 percent compounded annually. The convertible promis-
The Onex Partners I Group’s share of the $67 million CDI
sory notes will convert into Series A convertible preferred
distribution was $54 million, of which Onex’ share was
stock to the extent the notes plus accrued and unpaid
$13 million. At December 31, 2011, $93 million and nil
dividends remain unpaid at the maturity date. In October
were outstanding under the term loan and revolving credit
2011, JELD-WEN paid $42 million to repurchase a portion
facility, respectively.
Sitel Worldwide (Customer Care Services segment)
During the second quarter of 2011, Sitel Worldwide
of the convertible promissory notes and interest accrued
to the redemption date. At December 31, 2011, nil was out-
standing under the senior secured revolving credit facility,
$460 million of the senior secured notes were outstand-
amended its credit facility that governs its term loan and
ing and $132 million of the convertible promissory notes,
revolving credit facility. The amendments included extend-
including accrued interest, were outstanding.
ing the maturity date on $228 million, or 64 percent, of its
term loan from January 2014 to January 2017 and extend-
ing the maturity date on $31 million, or 36 percent, of com-
ONCAP III (Other segment)
In December 2011, ONCAP III entered into a new credit
mitments on its revolving credit facility from January 2013
facility. The new facility includes a C$50 million line of
to January 2016. Borrowings under the extended term loan
credit and a C$25 million deemed credit risk facility. Bor-
and revolving credit facility both bear interest at a rate of
rowings drawn on the line of credit bear interest at a
LIBOR plus a margin of up to 6.75 percent or prime plus a
base rate plus a margin of 2.5 percent or banker’s accep-
margin of 5.75 percent. The credit agreement also included
tance rate (LIBOR for U.S. dollar borrowings) plus a mar-
amendments to lessen restrictions on certain covenant
gin of 5.25 percent. The line of credit is available to finance
levels. At December 31, 2011, $353 million and $46 million
ONCAP III capital calls, bridge finance investments in
were outstanding under the term loan and revolving credit
ONCAP III operating companies, support foreign exchange
facility, respectively.
hedging of ONCAP III and finance other uses permitted by
ONCAP III’s limited partnership agreement. The deemed
TMS International (Metal Services segment)
In December 2011, TMS International entered into a new
credit risk facility is available to ONCAP III and its operat-
ing companies for foreign exchange transactions, includ-
senior secured asset-based revolving credit facility of up to
ing foreign exchange options, forwards and swaps. Onex
$350 million. The new revolving credit facility, which bears
Corporation, the ultimate parent company, is only obli-
interest at a base rate plus a margin of up to 2.25 percent and
gated to fund borrowings under the credit facility based on
matures in December 2016, replaces the company’s existing
its proportionate share as a limited partner in ONCAP III.
senior secured asset-based revolving credit facility, which
At December 31, 2011, the amount available under the
was set to mature in January 2013. At December 31, 2011, no
deemed risk facility was reduced to C$10 million as a result
amounts were outstanding under the senior secured asset-
of a foreign exchange contract entered into by ONCAP III,
based revolving credit facility and $16 million of letters of
and no amounts were outstanding under the line of credit.
credit, secured by the senior secured asset-based revolving
credit facility, were outstanding.
Note 12 to the audited annual consolidated financial state-
ments provides further disclosure of the long-term debt at
each of our operating companies.
Onex Corporation December 31, 2011 51
M A N A G E M E N T ’ S D I S C U S S I O N A N D A N A L Y S I S
Table 22 details the aggregate debt maturities for Onex’ consolidated operating companies and investments in associates
for each of the years up to 2017 and in total thereafter. As investments in associates are included in the table, the total
amount is in excess of the reported consolidated debt. As the following table illustrates, most of the maturities occur in 2014
and thereafter.
Debt Maturity Amounts by Year
TABLE 22
($ millions)
2012
2013
2014
2015
2016
2017
Thereafter
Total
Consolidated operating companies(a)
$ 508
$ 432
$ 1,137
$ 385
$ 1,386
$ 2,691
$ 1,062
$ 7,601
Investments in associates
152
332
4,004
1,197
1,444
145
1,506
8,780
Total
$ 660
$ 764
$ 5,141
$ 1,582
$ 2,830
$ 2,836
$ 2,568
$ 16,381
(a) Includes debt amounts of subsidiaries held by Onex, the parent company, and are gross of financing fees. Excludes preferred shares of Carestream Health and
The Warranty Group recorded as long-term debt under IFRS.
Consolidated long-term debt classified as current totalled
The Warranty Group’s liability for gross warranty
$482 million at December 31, 2011. The amounts due dur-
and property and casualty unearned premiums totalled
ing 2012 are, for the substantial portion, intended to be refi-
$2.4 billion in 2011 (2010 – $2.3 billion). All of the unearned
nanced over the course of the coming year in the normal
premiums are related to warranty business and represent
course of business.
the portion of the revenue received that has not yet been
During 2011, as a result of refinancing and debt
earned as revenue by The Warranty Group on extended
repayment by the operating companies, the percentage
warranty products sold through multiple distribution
of total debt maturing in 2013 and 2014 decreased to
channels. Typically, there is a time delay between when
36 percent at December 31, 2011 from 48 percent at
the warranty contract starts to earn and the contract effec-
December 31, 2010. The decrease was due primarily to the
tive date. The contracts generally commence earning after
refinancing completed by Carestream Health in February
the original manufacturer’s warranty on a product expires.
2011, as previously discussed.
Note 14 to the audited annual consolidated financial state-
ments provides details of the gross warranty and property
Warranty reserves and unearned premiums
Warranty reserves and unearned premiums represent The
and casualty reserves for loss and loss adjustment expenses
and warranty unearned premiums as at December 31, 2011
Warranty Group’s gross warranty and property and casualty
and 2010.
reserves, as well as gross warranty unearned premiums. At
December 31, 2011, gross warranty reserves and unearned
premiums (consisting of the current and non-current por-
Limited Partners’ Interests liability
Limited Partners’ Interests liability represents the fair
tions) totalled $3.1 billion, unchanged from the balance
value of third-party invested capital in the Onex Partners
at December 31, 2010. Gross warranty and property and
and ONCAP Funds. The Limited Partners’ Interests
casualty reserves are approximately $684 million (2010 –
liability is affected by the change in the fair value of the
$765 million) of the total, which represent the estimated and
underlying investments in the Onex Partners and ONCAP
incurred but not reported reserves on warranty contracts
Funds, the impact of the unrealized carried interest, as
and property and casualty insurance policies. The Warranty
well as increased for any contributions by the third-party
Group has ceded 100 percent of the property and casualty
limited partners for investments made and management
reserves component of $456 million (2010 – $553 million) to
fees, and reduced for distributions to third-party limited
third-party re-insurers, which therefore has created a ceded
partners from dividends, realizations and return of capital
claims recoverable asset.
in those Funds.
52 Onex Corporation December 31, 2011
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 L Y S I S
At December 31, 2011, Limited Partners’ Interests
Onex Partners II distributed approximately $1.1 bil-
liability totalled $5.0 billion compared to $5.7 billion at De-
lion to its limited partners for their portion of (i) the proceeds
cember 31, 2010. Table 23 shows the change in Limited Part-
on the sale of a portion of the shares in the TMS International
ners’ Interests from January 1, 2010 to December 31, 2011.
initial public offering and the repayment of the Series 2008
Limited Partners’ Interests
TABLE 23
($ millions)
Balance – January 1, 2010
Limited Partners’ Interests charge(1)
Contributions by Limited Partners
Distributions to Limited Partners
Balance – December 31, 2010
Limited Partners’ Interests charge(1)
Contributions by Limited Partners
Distributions to Limited Partners
Balance – December 31, 2011
(1) Net of carried interest.
5,650
627
932
(2,229)
$ 4,980
The Limited Partners’ Interests liability increased by
$932 million for contributions made during 2011, which
consisted primarily of amounts received from (i) the lim-
ited partners of ONCAP II for their investments in Pinnacle
Renewable Energy Group and Casino ABS; (ii) the limited
partners of ONCAP III for their investments in Hopkins,
Casino ABS and Davis-Standard; (iii) the limited partners
of Onex Partners III for their investments in Tropicana
Las Vegas and JELD-WEN; and (iv) the limited partners of
the Onex Partners and ONCAP Funds for management fees
and partnership expenses. Contributions for the year ended
December 31, 2010 were approximately $1.5 billion primar-
ily from the limited partners of Onex Partners III for their
investments in Tomkins, ResCare and Tropicana Las Vegas.
During 2011, the Limited Partners’ Interests liabil-
ity was reduced for $2.2 billion of distributions primarily to
the limited partners of the Onex Partners Funds.
Onex Partners I distributed $920 million to its lim-
ited partners for their portion of the proceeds from (i) the
EMSC sale ($469 million); (ii) the secondary offering of Spirit
AeroSystems ($152 million); (iii) the distribution from CDI
($42 million); (iv) the sale of Husky Inter national ($242 mil-
lion); and (v) the distribution from The Warranty Group
($15 million).
Promissory Notes ($37 million); (ii) the proceeds from the
sale of Husky International ($781 million); (iii) the distribu-
tion received by the Fund from Carestream Health in the first
quarter of 2011 ($119 million); (iv) the dividends and return
$ 3,708
831
1,451
of capital received from certain operating companies in late
2010 ($103 million), as discussed in Onex’ Decem ber 31, 2010
annual MD&A; and (v) the dividends and interest received
(340)
from certain operating companies in late 2011 ($31 million).
Onex Partners III distributed $218 million to its
limited partners for their portion of (i) a return of capital
received from ResCare ($190 million) and (ii) a partial prin-
cipal repayment including accrued interest on the convert-
ible promissory notes from JELD-WEN ($28 million).
ONCAP II distributed C$23 million to its limited
partners primarily for their portion of (i) the distribution
received from EnGlobe; and (ii) the proceeds on the sale of a
portion of Casino ABS to ONCAP III, as previously discussed.
The $340 million of distributions that reduced
the Limited Partners’ Interests liability for the year ended
December 31, 2010 were comprised primarily of the divi-
dend paid by Husky International, proceeds received on
the sale of a portion of Tomkins to co-investors, and pro-
ceeds received on ONCAP II’s sale of CSI Global Education.
At December 31, 2011, the total unrealized car-
ried interest netted against the Limited Partners’ Interests
on Onex’ consolidated balance sheet was $261 million, of
which Onex’ share was $96 million.
The Limited Partners’ Interests charge of $627 mil-
lion recorded during 2011 (2010 – $831 million) is discussed
in detail on page 38 of this MD&A.
Onex Corporation December 31, 2011 53
M A N A G E M E N T ’ S D I S C U S S I O N A N D A N A L Y S I S
Equity
Total equity was $5.7 billion at December 31, 2011 com-
of equity to non-controlling interests holders. The amount
transferred to non-controlling interests holders is equivalent
pared to $4.1 billion at December 31, 2010. Table 24
to Onex’ historical accounting carrying value attributable to
provides a reconciliation of the change in equity from
the portion of the investment that was sold. The excess of
December 31, 2010 to December 31, 2011.
proceeds received over the value of the transfer of equity to
Change in Equity
TABLE 24
($ millions)
Balance – December 31, 2010
Dividends declared
Purchase and cancellation of shares
Investments by shareholders other than Onex
Distributions to non-controlling interests
Repurchase of shares of operating companies
Sale of investments in operating companies under
continuing control
Non-controlling interests of discontinued operations
Net earnings for the period
Other comprehensive loss for 2011
Equity as at December 31, 2011
the non-controlling interests holders is recorded directly to
retained earnings as an increase in equity.
During the second quarter of 2011, the Onex
Partners I Group sold a portion of its ownership interest in
$ 4,142
Spirit AeroSystems’ secondary offering. This sale did not
(13)
(105)
661
(19)
(74)
259
(666)
1,629
(132)
result in a loss of control of Spirit AeroSystems by Onex.
Therefore, of the $245 million net proceeds received in this
offering, $136 million was transferred to non-controlling
interests, representing the historical accounting carrying
value attributable to the portion of the investment sold,
with the remaining $109 million of proceeds in excess of
the historical accounting carrying value recorded directly
in retained earnings. The excess proceeds recorded directly
to retained earnings from the sale of shares have been par-
tially offset by a $9 million deferred tax provision recorded
$ 5,682
by Onex, the parent company, on the transaction. Of the
Investments by shareholders other than Onex
Onex recorded an increase in equity of $661 million
during 2011 due to an increase in investments by share-
holders other than Onex. The increase was due primarily
to the acquisitions of Pinnacle Renewable Energy Group
by the ONCAP II Group and JELD-WEN by the Onex
Partners III Group, where the entire ownership in those
businesses was not acquired. Each of Pinnacle Renewable
Energy Group and JELD-WEN have investors who contin-
ued to have an ownership interest in the business following
the acquisition. These investors represent an approximate
40 percent equity ownership in each of the companies.
Also contributing to the increase in investments by share-
holders other than Onex was the investment by public
shareholders in TMS International on the issuance of new
common shares in the initial public offering.
Sale of investments in operating companies
under continuing control
During the year ended December 31, 2011, Onex recorded an
equity increase of $259 million as a result of the sale of invest-
ments in operating companies under continuing control.
Under IFRS, dispositions of investments that do not result in
a loss of control of the investment are recorded as a transfer
54 Onex Corporation December 31, 2011
net $100 million recorded directly to retained earnings,
$23 million represents Onex’ share excluding the impact of
the limited partners.
In April 2011, the Onex Partners II Group partici-
pated in the initial public offering of TMS International
by selling approximately 1.9 million shares. After giv-
ing effect to the offering, Onex continues to control TMS
International. Net proceeds received by the Onex Partners
II Group totalled $23 million, of which $4 million was trans-
ferred to non-controlling interests representing the histori-
cal accounting carrying value sold, with the difference of
$19 million being recorded directly to retained earnings.
Onex’ share, excluding the impact of the limited partners,
was $7 million.
Non-controlling interests of discontinued operations
Onex recorded a decrease in equity of $666 million dur-
ing 2011 related primarily to non-controlling interests in
EMSC. Under IFRS, non-controlling interests represent
the ownership interests of shareholders, other than Onex
and its third-party limited partners, in the Onex Partners
and ONCAP Funds, in Onex’ controlled operating compa-
nies. Prior to the sale of EMSC, the non-controlling inter-
ests balance included the ownership interests of EMSC’s
public shareholders. Due to the May 2011 sale by the Onex
Partners I Group of its remaining shares in EMSC, the
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 L Y S I S
non-controlling interests attributable to EMSC have been
removed from equity since the sale resulted in a loss of
Stock Option Plan
Onex, the parent company, has a Stock Option Plan in
control of the investment.
Shares outstanding
At January 31, 2012, Onex had 115,072,846 Subordinate
place that provides for options and/or share apprecia-
tion rights to be granted to Onex directors, officers and
employees for the acquisition of Subordinate Voting Shares
of Onex, the parent company, for a term not exceeding
Voting Shares issued and outstanding. Table 25 shows the
10 years. The options vest equally over five years with the
change in the number of Subordinate Voting Shares out-
exception of the 760,083 remaining options granted in
standing from December 31, 2010 to January 31, 2012.
December 2007, which vest over six years. The price of the
Change in Subordinate Voting Shares Outstanding
Voting Shares on the business day preceding the day of the
options issued is at the market value of the Subordinate
TABLE 25
Subordinate Voting Shares outstanding
grant. Vested options are not exercisable unless the average
five-day market price of Onex Subordinate Voting Shares
is at least 25 percent greater than the exercise price at the
at December 31, 2010
118,279,783
time of exercise.
Shares repurchased under Onex’ Normal Course
At December 31, 2011, Onex had 14,036,498 options
Issuer Bid
(3,210,892)
outstanding to acquire Subordinate Voting Shares, of which
Issue of shares – Dividend Reinvestment Plan
3,955
11,892,198 options were vested and 10,964,615 of those
Subordinate Voting Shares outstanding
at January 31, 2012
vested options were exercisable. Table 26 provides informa-
115,072,846
tion on the activity during 2011 and 2010.
Subordinate Voting Share, which were paid quarterly at a
Granted
Onex also has 100,000 Multiple Voting Shares outstanding,
which have a nominal paid-in value reflected in Onex’ con-
solidated financial statements. Note 18 to the audited annual
consolidated financial statements provides additional infor-
mation on Onex’ share capital. There was no change in the
Multiple Voting Shares outstanding during 2011.
Cash dividends
During 2011, Onex declared dividends totalling C$0.11 per
rate of C$0.0275 per Subordinate Voting Share. The divi-
dends 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 2010 and 2009. Total payments for
dividends have decreased with the repurchase of Subor-
dinate Voting Shares under the Normal Course Issuer Bids.
Dividend Reinvestment Plan
Onex’ Dividend Reinvestment Plan enables Canadian
shareholders to reinvest cash dividends to acquire new
Subordinate Voting Shares of Onex at a market-related
price at the time of reinvestment. During the period from
January 1, 2011 to December 31, 2011, Onex issued 2,829
Sub ordinate Voting Shares at an average cost of C$34.13
per Subordinate Voting Share, creating a cash savings of
less than C$1 million.
Change in Stock Options Outstanding
TABLE 26
Number of
Options
Weighted
Average
Exercise Price
Outstanding at December 31, 2009
13,450,050
Granted
Surrendered
Expired
625,000
(173,100)
(12,350)
Outstanding at December 31, 2010
13,889,600
Surrendered
Expired
695,000
(506,235)
(41,867)
C$ 18.33
C$ 29.29
C$ 18.98
C$ 26.69
C$ 18.80
C$ 33.54
C$ 20.00
C$ 25.29
Outstanding at December 31, 2011
14,036,498
C$ 19.47
During 2011, 506,235 options were surrendered at a
weighted average exercise price of C$20.00 for aggregate
cash consideration of C$8 million and 41,867 options
expired. In addition, during 2011, 695,000 options were
issued, of which 10,000 were issued in the second quarter
at an exercise price of C$37.31, 60,000 were issued dur-
ing the third quarter at an exercise price of C$37.37 and
625,000 were issued during the fourth quarter at an exer-
cise price of C$33.11.
Onex Corporation December 31, 2011 55
M A N A G E M E N T ’ S D I S C U S S I O N A N D A N A L Y S I S
During 2010, 625,000 options were granted with
Voting Shares. Onex may purchase up to 37,196 Subor-
an exercise price of C$29.29 and which vest over five years.
dinate Voting Shares during any trading day, being 25 per-
In addition, 173,100 options were surrendered in 2010 at
cent of its average daily trading volume for the six-month
a weighted average exercise price of C$18.98 for aggre-
period ended March 31, 2011. Onex may also purchase
gate cash consideration of C$2 million, and 12,350 options
Subordinate Voting Shares from time to time under the
expired.
Normal Course Issuer Bids
Onex had Normal Course Issuer Bids (the “Bids”) in place
Toronto Stock Exchange’s block purchase exemption, if
available, under the new NCIB. The new NCIB commenced
on April 14, 2011 and will conclude on the earlier of the
date on which purchases under the NCIB have been com-
during 2011 that enable it to repurchase up to 10 percent
pleted and April 13, 2012. A copy of the Notice of Intention
of its public float of Subordinate Voting Shares during the
to make the Normal Course Issuer Bid filed with the
period of the relevant Bid. Onex believes that it is advanta-
Toronto Stock Exchange is available at no charge to share-
geous to Onex and its shareholders to continue to repur-
holders by contacting Onex.
chase Onex’ Subordinate Voting Shares from time to time
During 2011, Onex repurchased 3,165,296 Sub-
when the Subordinate Voting Shares are trading at prices
ordinate Voting Shares under its Bid for a total cost of
that reflect a meaningful discount to their intrinsic value.
$105 million (C$105 million), or at an average cost per
On April 14, 2011, Onex renewed its Normal
share of C$33.27. Under similar Bids, Onex repurchased
Course Issuer Bid (“NCIB”) following the expiry of its previ-
2,040,750 Subordinate Voting Shares at a total cost of
ous NCIB on April 13, 2011. Under the new NCIB, Onex is
$50 million (C$52 million) or at an average cost per share of
permitted to purchase up to 10 percent of its public float
C$25.44 during 2010.
in its Subordinate Voting Shares, or 9,114,853 Subordinate
Included in Table 27 below is a summary of Onex’ repurchases of Subordinate Voting Shares under its Bids for the last 10 years.
Shares
Repurchased
1,587,100
11,586,100
9,143,100
939,200
9,176,300
3,357,000
3,481,381
1,784,600
2,040,750
3,165,296
Total Cost
of Shares
Repurchased
(in C$ millions)
Average
Share Price
(in C$ per share)
C$ 26
C$ 16.45
166
150
18
203
113
101
41
52
105
$ 14.36
$ 16.37
$ 18.93
$ 22.17
$ 33.81
$ 28.89
$ 23.04
$ 25.44
$ 33.27
46,260,827
C$ 975
C$ 21.09
TABLE 27
2002
2003
2004
2005
2006
2007
2008
2009
2010
2011
Total
56 Onex Corporation December 31, 2011
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 L Y S I S
Deferred Share Unit Plans
In January 2011, Onex issued 47,477 Management Deferred
$1 million (2010 – 40,000 DSUs at a cost of approximately
$1 million) in lieu of that amount of cash compensation
Share Units (“MDSUs”) to management having an aggre-
for directors’ fees. During 2011, an additional 15,728 DSUs
gate value, at the date of grant, of $2 million in lieu of that
(2010 – 20,346 DSUs) were issued to directors in lieu of cash
amount of cash compensation for the Company’s 2010 fis-
directors’ fees and for dividends on outstanding DSUs.
cal year. At December 31, 2011, there were 443,139 MDSUs
There were no DSUs redeemed during 2011 (2010 – 38,705
outstanding. In early 2012, 65,832 MDSUs were issued
DSUs redeemed for cash consideration of approximately
to management, having an aggregate value, at the date of
$1 million). At December 31, 2011, there were 446,388
grant, of $2 million in lieu of cash compensation for Onex’
director DSUs outstanding. MDSUs and DSUs must be
2011 fiscal year. Forward agreements were entered into
held until leaving the employment of Onex or retirement
with a counterparty financial institution to hedge Onex’
from the Board. Table 28 reconciles the changes in the
exposure to changes in the value of the MDSUs.
DSUs and MDSUs outstanding at December 31, 2011 from
During 2011, Onex granted 40,000 Deferred Share
December 31, 2009.
Units (“DSUs”) to its directors at a cost of approximately
Change in Outstanding Deferred Share Units
TABLE 28
Outstanding at December 31, 2009
Granted
Redeemed
Additional units issued in lieu of compensation and cash dividends
Outstanding at December 31, 2010
Granted
Additional units issued in lieu of compensation and cash dividends
Outstanding at December 31, 2011
Director DSU Plan
Management DSU Plan
Number of
DSUs
Weighted
Average Price
Number of
DSUs
Weighted
Average Price
369,019
40,000
(38,705)
20,346
390,660
40,000
15,728
446,388
C$ 28.40
C$ 26.38
C$ 28.38
C$ 36.57
C$ 34.11
272,880
–
–
121,394
394,274
–
–
C$ 24.59
–
–
48,865
C$ 31.14
443,139
Management of capital
Onex considers the capital it manages to be the amounts
• build the long-term value of its operating businesses;
• control the risk associated with capital invested in any
it has in cash and cash equivalents and near-cash invest-
particular business or activity. All debt financing is
ments, and the investments made by it in the operating
within the operating businesses and each company is
businesses, Onex Real Estate Partners and Onex Credit
required to support its own debt. Onex’ practice is not to
Partners. Onex also manages the third-party capital invested
guarantee the debt of the operating businesses and there
in the Onex Partners, ONCAP and Onex Credit Partners
are no cross-guarantees of debt between the operating
Funds. Onex’ objectives in managing capital are to:
businesses; and
• preserve a financially strong parent company with
• have appropriate levels of committed third-party capital
appropriate liquidity and no, or a limited amount of,
available to invest along with Onex’ capital. This enables
debt so that it has funds available to pursue new acqui-
Onex to respond quickly to opportunities and pursue
sitions and growth opportunities, as well as support the
acquisitions of businesses of a size it could not achieve
building of its existing businesses. Onex does not gener-
using only its own capital. The management of third-
ally have the ability to draw cash from its operating busi-
party capital also provides management fees to Onex and
nesses. Accordingly, maintaining adequate liquidity at
the ability to enhance Onex’ returns by earning a carried
the parent company is important;
interest on the profits of third-party participants.
• achieve an appropriate return on capital invested com-
mensurate with the level of risk taken on;
Onex Corporation December 31, 2011 57
M A N A G E M E N T ’ S D I S C U S S I O N A N D A N A L Y S I S
At December 31, 2011, Onex, the parent company, had
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
approximately $1.0 billion of cash on hand and $312 mil-
lion of near-cash items at market value.
This section should be read in conjunction with the
Onex, the parent company, has a conservative
audited annual consolidated statements of cash flows and
cash management policy that limits its cash investments
the corresponding notes thereto. Table 29 summarizes the
to short-term high-rated money market instruments. This
major consolidated cash flow components for the years
policy is driven toward maintaining liquidity and preserv-
ended December 31, 2011 and 2010.
ing principal in all money market investments.
At December 31, 2011, Onex had access to $2.8 bil-
Major Cash Flow Components
lion of uncalled committed third-party capital for acquisi-
tions primarily through Onex Partners III ($2.0 billion) and
TABLE 29
($ millions)
2011
2010
ONCAP III (C$469 million).
Cash from operating activities
$ 1,188
$ 1,536
The strategy for risk management of capital did
Cash from (used in) financing activities
$ (1,263)
$ 329
not change in 2011.
Non-controlling interests
Non-controlling interests in equity in Onex’ consolidated
balance sheet as at December 31, 2011 primarily represent
the ownership interests of shareholders, other than Onex
Cash used in investing activities
$ (12)
$ (2,343)
Consolidated cash and cash equivalents
held by continuing operations
$ 2,448
$ 2,053
Cash from operating activities
Table 30 provides a breakdown of cash from operating
and its third-party limited partners in its Funds, in Onex’
activities by cash generated from operations and changes
controlled operating companies. At December 31, 2011, the
in non-cash working capital items, other operating activi-
non-controlling interests balance increased to $3.9 billion
ties, warranty reserves and premiums and cash flows from
from $3.6 billion at December 31, 2010. The increase was
operating activities of discontinued operations for the
due primarily to:
years ended December 31, 2011 and 2010.
• $136 million related to the sale of a portion of the shares
of Spirit AeroSystems held by the Onex Partners I Group,
Components of Cash from (used in)
which resulted in the transfer of a portion of the owner-
Operating Activities
ship interests in the company to public shareholders;
• $157 million from the initial public offering of TMS
TABLE 30
($ millions)
2011
2010
International due to the issuance of new common shares
Cash generated from operations
$ 1,734
$ 1,703
by TMS International to public shareholders;
• $51 million due to the acquisition of Pinnacle Renewable
Energy Group during 2011;
• $327 million related to the early October 2011 acquisition
Changes in non-cash working capital items:
Accounts receivable
Inventories
Other current assets
1
(162)
3
(200)
(599)
(47)
of JELD-WEN; and
Accounts payable, accrued liabilities
• $231 million of comprehensive earnings attributable to
and other current liabilities
(457)
294
non-controlling interests.
Partially offsetting the increase in the non-controlling
interests balance was a $642 million decrease related to the
sale of the remaining shares of EMSC during the year.
Decrease in cash due to changes in non-cash
working capital items
(615)
(552)
Decrease in other operating activities,
warranty reserves and premiums
(31)
(86)
Cash flows from operating activities
of discontinued operations
100
471
Cash from operating activities
$ 1,188
$ 1,536
58 Onex Corporation December 31, 2011
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 L Y S I S
Cash generated from operations includes net earnings
• $92 million of cash received from the limited partners
before interest and provision for income taxes adjusted
of ONCAP II and management of Onex and ONCAP for
for cash taxes paid and items not affecting cash and cash
their acquisitions of Pinnacle Renewable Energy Group
equivalents.
and Casino ABS.
The significant changes in non-cash working capital items
Included in cash from financing activities in 2010 was:
in 2011 were:
• $1.5 billion of cash received primarily from the limited
• a $457 million decrease in accounts payable, accrued lia-
partners of Onex Partners III, Onex management and
bilities and other current liabilities due in part to the Spirit
certain other limited partners for the investment in
AeroSystems settlement with Boeing on the 787 program,
Tomkins, the acquisition and interim financing of the
which allowed for the recognition of deferred revenue and
remaining interest in ResCare and the second Tropicana
customer advances at Spirit AeroSystems, as well as lower
Las Vegas rights offering.
inventory purchases at Celestica; and
• a $162 million increase in inventory driven primarily
Substantially offsetting this were:
by higher inventory balances at Spirit AeroSystems to
• $349 million of distributions primarily to the limited
support new programs.
partners of the Onex Partners Funds for the distributions
made by TMS International, Carestream Health, Husky
Cash from operating activities also included $100 million of
International and The Warranty Group;
cash flows from operating activities of discontinued opera-
• $298 million of cash interest paid;
tions, which represents the cash from operating activities
• a $272 million change in restricted cash representing the
of EMSC and Husky International which were sold during
limited partners’ net share of distributions received in
the second quarter of 2011.
Cash from (used in) financing activities
Cash used in financing activities was $1.3 billion in 2011
the fourth quarter of 2010 from certain operating com-
panies and the return of interim financing from ResCare;
• $232 million of cash used by Celestica to repurchase its
remaining 2013 senior subordinated notes; and
compared to cash from financing activities of $329 million in
• $167 million of cash used by Celestica for purchases of its
2010. The cash used in financing activities in the year ended
shares in the open market.
December 31, 2011 included $2.2 billion of distributions
primarily to the limited partners of the Onex Partners Funds
(as discussed under Limited Partners’ Interests liability on
Cash used in investing activities
Cash used in investing activities totalled $12 million in
page 52 of this report) and $411 million of cash interest paid.
2011 compared to $2.3 billion in 2010. Cash used in invest-
Partially offsetting these were:
ing activities was primarily due to (i) $1.2 billion used
to fund acquisitions primarily completed by Onex Part-
• $573 million of cash received from the limited partners of
ners III ($733 million), ONCAP ($291 million) and Celestica
Onex Partners III, Onex management and certain other
($81 million); and (ii) $286 million of other investing activi-
limited partners for the investment in JELD-WEN;
ties consisting primarily of an additional investment in
• a $272 million change in restricted cash that was distrib-
Onex Credit Partners of $150 million and a $91 million net
uted to the limited partners in early 2011;
change in securities and short-term investments at The
• $268 million of proceeds from the sales of a portion of
Warranty Group. This was partially offset by cash flows
the shares of Spirit AeroSystems and TMS International;
from discontinued operations of $2.0 billion related to the
• net new debt of $134 million primarily at CDI and Sitel
sales of EMSC and Husky International.
Worldwide;
During 2010, cash used in investing activities
• the receipt of $123 million from the limited partners of
totalled $2.3 billion and consisted primarily of (i) $474 mil-
ONCAP III and management of Onex and ONCAP for
lion used to fund acquisitions by Carestream Health,
their acquisitions of Hopkins, Casino ABS and Davis-
EMSC, Skilled Healthcare Group, Celestica, the ONCAP II
Standard; and
Group’s purchase of BSN SPORTS, as well as the acquisi-
tion and interim financing of ResCare, and the investment
Onex Corporation December 31, 2011 59
M A N A G E M E N T ’ S D I S C U S S I O N A N D A N A L Y S I S
in Flushing Town Center by Onex, and (ii) a cash investment
of $1.2 billion by the Onex Partners III Group in Tomkins.
Consolidated cash resources
At December 31, 2011, consolidated cash held by con-
These were partially offset by $123 million of net cash pro-
tinuing operations was $2.4 billion compared to $2.1 billion
ceeds received by ONCAP II for the sale of CSI.
at December 31, 2010. The major components of consoli-
In addition, there was $646 million of cash used
dated cash at December 31, 2011 were:
for purchases of property, plant and equipment by Onex’
• approximately $1.0 billion of cash on hand at Onex, the
operating companies (2010 – $660 million). Table 31 details
parent company; and
the property, plant and equipment expenditures by indus-
• approximately $660 million of cash at Celestica.
try segment.
Cash Used for Property, Plant and Equipment
tion at the parent company with appropriate liquidity
Onex believes that maintaining a strong financial posi-
Purchases by Industry Segment
TABLE 31
($ millions)
Electronics Manufacturing Services
Aerostructures
Healthcare
Financial Services
Customer Care Services
Metal Services
Building Products(a)
Other(b)
Total
(a) JELD-WEN acquired in October 2011.
enables the Company to pursue new opportunities to cre-
ate long-term value and support Onex’ existing operating
companies. In addition to the approximate $1.0 billion of
cash at the parent company at December 31, 2011, there
was approximately $310 million of near-cash items that
are invested in a segregated unleveraged fund managed by
Onex Credit Partners. Onex increased its investment in the
fund, whose investments are focused on liquid senior debt
securities, by $150 million during 2011. Table 32 provides
a reconciliation of the change in cash at Onex, the parent
2010
$ 61
261
103
9
21
40
–
165
company, from December 31, 2010 to December 31, 2011.
2011
$ 62
233
90
3
32
83
13
130
$ 646
$ 660
Change in Cash at Onex, the Parent Company
(b) 2011 other includes Flushing Town Center, Tropicana Las Vegas and the
TABLE 32
($ millions)
operating companies of ONCAP II and ONCAP III. 2010 other includes Flushing
Town Center, Tropicana Las Vegas and the operating companies of ONCAP II.
Cash on hand at December 31, 2010
$ 533
During 2011, Spirit AeroSystems invested $233 million in
property, plant and equipment and tooling costs to sup-
port the company’s programs with Boeing and Airbus.
Carestream Health invested $56 million in prop-
erty, plant and equipment primarily associated with
expenditures for equipment leased to others as well as
manufacturing and infrastructure improvements.
TMS International invested $83 million in property,
plant and equipment to maintain service levels for existing
customers and support growth for new customers.
Tropicana Las Vegas invested approximately $42 mil-
lion in 2011 primarily associated with the completion of the
refurbishment project for the resort.
Carestream Health distribution received
Proceeds on Husky International sale
Proceeds on EMSC sale
Proceeds on sale of Spirit AeroSystems shares
Proceeds on TMS International initial public offering
CDI distribution received
The Warranty Group distribution received
Investment in JELD-WEN, net
Additional investment in Onex Credit Partners Fund
ONCAP acquisitions
Onex share repurchases
Investments in Onex Real Estate Partners
Other, net, including dividends, management fees
and operating costs
Cash on hand at December 31, 2011
78
601
342
74
26
13
13
(284)
(150)
(123)
(105)
(32)
4
$ 990
60 Onex Corporation December 31, 2011
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 L Y S I S
A D D I T I O N A L U S E S O F C A S H
Contractual obligations
Table 33 presents the contractual obligations of Onex’ consolidated operating companies as at December 31, 2011:
Contractual Obligations
TABLE 33
($ millions)
Long-term debt, without recourse to Onex(1)
Finance and operating leases
Purchase obligations
Total contractual obligations
(1) Includes deferred financing fees.
Payments Due by Period
Less than
1 year
1–3 years
4–5 years
After 5 years
$ 482
$ 1,357
$ 1,769
$ 3,488
312
279
423
125
228
57
302
–
$ 1,073
$ 1,905
$ 2,054
$ 3,790
Total
$ 7,096
1,265
461
$ 8,822
In addition to the obligations in table 33, certain of Onex’
letters of credit, letters of guarantee, and surety and per-
consolidated operating companies have funding obliga-
formance bonds provided by certain operating companies
tions related to their defined benefit pension plans. The
to various third parties, including bank guarantees. These
operating companies estimate that $53 million of contri-
guarantees are without recourse to Onex.
butions will be required for their defined benefit pension
As part of the Carestream Health purchase from
plans in 2012.
Kodak in 2007, the acquisition agreement provides that if
A breakdown of long-term debt by industry seg-
Onex and Onex Partners II realize an internal rate of return
ment is provided in table 21 on page 50 of this MD&A. In
in excess of 25 percent on their investment in Carestream
addition, notes 12 and 13 to the audited annual consoli-
Health, Kodak will receive payment equal to 25 percent of
dated financial statements provide further disclosure on
the excess return up to $200 million. At December 31, 2011,
long-term debt and lease commitments. Our consolidated
a provision of $3 million (2010 – $3 million) has been rec-
operating companies currently believe they have adequate
ognized in Onex’ consolidated balance sheets.
cash from operations, cash on hand and borrowings avail-
able to them to meet anticipated debt service require-
ments, capital expenditures and working capital needs.
Onex’ commitment to the Funds
Onex, the parent company, is the largest limited partner
There is, however, no assurance that our consolidated
in the Onex Partners and ONCAP Funds. Table 34 presents
operating companies will generate sufficient cash flow
the commitment and uncalled committed capital of Onex,
from operations or that future borrowings will be available
the parent company, in these Funds at December 31, 2011:
to enable them to grow their business, service all indebted-
ness or make anticipated capital expenditures.
Commitments
At December 31, 2011, Onex and its operating companies
had total commitments of $260 million. Commitments by
Onex and its operating companies provided in the normal
course of business include commitments for corporate
investments and letters of credit, letters of guarantee and
surety and performance bonds.
Approximately $254 million of the total commit-
ments in 2011 were for contingent liabilities in the form of
TABLE 34
($ millions)
Fund Size
Onex’
Commitment
Uncalled
Committed
Capital
Onex Partners I
Onex Partners II
Onex Partners III(a)
ONCAP II
ONCAP III(b)
$ 1,655
$ 3,450
$ 4,700
C$ 574
C$ 800
$ 400
$ 1,407
$ 1,200
C$ 252
C$ 252
$ 22
$ 161
$ 643
C$ 14
C$ 197
(a) Onex’ commitment reflects the increased commitment announced in November
2011, which takes effect in May 2012.
(b) Onex’ commitment has been reduced for a portion of the annual commitment
for Onex management’s participation.
Onex Corporation December 31, 2011 61
M A N A G E M E N T ’ S D I S C U S S I O N A N D A N A L Y S I S
In November 2011, Onex announced that it would be
At December 31, 2011, Celestica’s defined ben-
increasing its commitment to Onex Partners III to $1.2 bil-
efit pension plans were in a net asset position of $10 mil-
lion from $800 million, bringing the total fund size to
lion. Celestica’s pension funding policy is to contribute
$4.7 billion. The increased commitment will apply to Onex
amounts sufficient to meet minimum local statutory fund-
Partners III investments completed after May 14, 2012, and
ing requirements that are based on actuarial calculations.
will not change Onex’ ownership of businesses acquired
The company may make additional discretionary contribu-
prior to that date.
tions taking into account actuarial assessments and other
factors. Celestica estimates $11 million of contributions for
Pension plans
Seven of Onex’ operating companies have defined ben-
its defined benefit pension plans in 2012 based on the most
recent actuarial valuations. A significant deterioration in the
efit pension plans, of which the more significant plans are
asset values could lead to higher than expected future con-
those of Spirit AeroSystems, Celestica, Carestream Health
tributions; however, Celestica does not expect this will have
and JELD-WEN. At December 31, 2011, the defined ben-
a material adverse impact on its cash flows or liquidity.
efit pension plans of the seven Onex operating companies
Carestream Health’s defined benefit pension
had combined assets of $1.8 billion against combined obli-
plans were in an unfunded position of approximately
gations of $2.0 billion, with a net deficit of $132 million.
$50 million at December 31, 2011. The company’s pension
A surplus in any plan is not available to offset deficiencies
plans are broadly diversified in equity and debt securities,
in others.
as well as other investments. Carestream Health expects to
Spirit AeroSystems has several U.S. defined benefit
contribute approximately $3 million in 2012 to its defined
pension plans that were frozen at the date of Onex’ acquisi-
benefit pension plans, and it does not believe that future
tion of Spirit AeroSystems, with no future service benefits
pension contributions will materially impact its liquidity.
being earned in these plans. Pension assets are placed in a
At December 31, 2011, JELD-WEN’s defined ben-
trust for the purpose of providing liquidity sufficient to pay
efit pension plans were in an unfunded position of approxi-
benefit obligations. Therefore, required and discretionary
mately $191 million. The company’s pension plans are
contributions to those plans are not expected in 2012. In
broadly diversified in equity and debt securities, as well as
addition, Spirit AeroSystems has a U.K. defined benefit pen-
other investments. JELD-WEN estimates that $28 million of
sion plan with expected contributions of $9 million in 2012.
contributions will be required for its defined benefit pen-
Spirit AeroSystems’ defined benefit pension plans remained
sion plans in 2012.
overfunded by approximately $119 million at Decem-
Onex, the parent company, does not have a pen-
ber 31, 2011.
sion plan and has no obligation to the pension plans of its
operating companies.
62 Onex Corporation December 31, 2011
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 L Y S I S
A D D I T I O N A L S O U R C E S O F C A S H
Onex Partners II has completed seven investments or
Private equity Funds
Onex has additional sources of cash from its private equity
acquisitions, investing $2.9 billion of equity, including
Onex, in those transactions. At December 31, 2011, Onex
Partners II has uncalled third-party committed capital of
Funds. Private equity Funds provide capital for Onex-
$244 million, which is largely reserved for possible future
sponsored acquisitions that are not related to Onex’ oper-
funding for any of Onex Partners II’s existing businesses
ating companies that existed prior to the formation of the
and for management fees.
Funds. The Funds provide a substantial pool of commit-
During 2009, Onex completed fundraising for its
ted capital, which enables Onex to be flexible and timely in
third large-cap private equity fund, Onex Partners III, a
responding to investment opportunities.
$4.7 billion private equity fund. Onex’ initial commitment
Table 35 provides a summary of the remaining
to the fund was $1.0 billion, which could be either increased
commitments available from third-party limited part-
or decreased by $500 million with six months’ notice to the
ners for future Onex-sponsored acquisitions in the Onex
third-party limited partners. On December 31, 2008, Onex
Partners and ONCAP Funds as of December 31, 2011.
notified its limited partners that it would be reducing its
Private Equity Funds Uncalled Third-party
effective July 1, 2009. Subsequent to the reduction in 2009,
commitment to the Fund to approximately $500 million
Committed Capital
TABLE 35
($ millions)
Onex Partners I
Onex Partners II
Onex Partners III
ONCAP II
ONCAP III
Available Uncalled
Committed Capital
(excluding Onex) (a)
$ 73
$ 244
$ 2,017
C$ 16
C$ 469
(a) Includes committed amounts from the management of Onex and ONCAP
and directors, calculated based on the assumption that all of the remaining
limited partners’ commitments are invested.
Onex’ commitment may be increased up to approximately
$1.5 billion, but cannot be decreased. Since July 2009, Onex
has increased its commitment as follows:
• to $800 million for new acquisitions completed after
June 16, 2010 and up to May 14, 2012
• to $1.2 billion for new investments completed after
May 14, 2012.
Changes to Onex’ commitment do not change Onex’ own-
ership of businesses acquired prior to the effective dates of
the changes. Onex Partners III has completed four invest-
ments or acquisitions, investing $1.5 billion of third-party
capital in those transactions.
The committed amounts by the third-party limited part-
During 2006, ONCAP raised its second mid-market
ners are not included in Onex’ consolidated cash and will
Fund, ONCAP II, a C$574 million private equity fund includ-
be drawn upon as acquisitions are made.
ing a commitment of C$252 million from Onex. ONCAP II
During 2003, Onex raised its first large-cap Fund,
has completed eight acquisitions, putting C$255 million of
Onex Partners I, with $1.655 billion of committed capital,
third-party capital to work. At December 31, 2011, this Fund
including committed capital from Onex of $400 million.
had uncalled committed third-party capital of C$16 million,
Since 2003, Onex Partners I has completed 10 investments
which is largely reserved for possible future funding for any
or acquisitions with $1.5 billion of equity, including Onex,
of ONCAP II’s existing businesses and for management fees.
being put to work. While Onex Partners I has concluded
During 2011, ONCAP completed fundraising
its investment period, the Fund still has uncalled third-
for its third mid-market private equity fund, ONCAP III,
party committed capital of $73 million, which is available
a C$800 million private equity fund with total third-party
for possible future funding of acquisitions by any of Onex
capital commitments of C$520 million, excluding commit-
Partners I’s existing businesses up to November 2012 and
ments from management of Onex and ONCAP. ONCAP III
for management fees.
has completed three investments or acquisitions, putting
During 2006, Onex raised its second large-cap
C$123 million of third-party capital to work. At Decem-
Fund, Onex Partners II, a $3.45 billion private equity fund,
ber 31, 2011, this Fund has uncalled committed third-party
including committed capital of $1.4 billion from Onex.
capital of C$469 million available for future acquisitions.
Onex Corporation December 31, 2011 63
M A N A G E M E N T ’ S D I S C U S S I O N A N D A N A L Y S I S
Related party transactions
Related party transactions are primarily investments by the management of Onex and of the operating companies in the
equity of the operating companies acquired. The investment programs are designed to align Onex management’s interests
with those of Onex’ shareholders and the third-party investors in Onex’ Funds.
The various investment programs are described in detail in the following pages and certain key aspects are summa-
rized in table 36.
Investment Programs
TABLE 36
Management
Investment
Plan
Carried
Interest
Minimum Stock
Price Appreciation/
Return Threshold
Vesting
Associated Investment by Management
15%
6 years
• personal “at risk” equity investment required
Compounded
(4 years prior to
• 25% of gross proceeds on the 7.5 percent gain allocated under the MIP to be
Return
November 2007)
reinvested in Subordinate Voting Shares or Management DSUs until 1,000,000
shares or DSUs owned
8%
Onex Partners I
• corresponds to participation in minimum 1% “at risk” management team
Compounded
4 years
equity investment
Participation
Return
Onex Partners II
• 25% of gross proceeds to be reinvested in Subordinate Voting Shares or
5 years
Management DSUs until 1,000,000 shares or DSUs owned
Onex Partners III
6 years
Stock Option
25%
5 years
• satisfaction of exercise price (market value at grant date)
Plan
Price Appreciation
(6 years for 2007)
Management
DSU Plan
n/a
n/a
• investment of elected portion of annual compensation in Management DSUs
• value reflects changes in Onex’ share price
• units not redeemable while employed
Director DSU
n/a
n/a
• investment of elected portion of annual directors’ fees in Director DSUs
Plan
• value reflects changes in Onex’ share price
• units not redeemable until retirement
• annual allocation of DSUs
Management Investment Plan
Onex has a Management Investment Plan (the “MIP”) that
return of its investment plus a net 15 percent internal rate
of return from the investment in order for management
requires its management members to invest in each of the
to be allocated the additional 7.5 percent of Onex’ gain.
operating companies acquired by Onex. Management’s
The plan has vesting requirements, certain limitations and
required cash investment is 1.5 percent of Onex’ interest in
voting requirements.
each acquisition. An amount invested in an Onex Partners
During 2011, management invested $9 million
acquisition under the Fund’s 1 percent investment require-
(2010 – $9 million) under the MIP, including amounts
ment (discussed below) also applies toward the 1.5 percent
invested under the Onex Partners and ONCAP 1 percent
investment requirement under the MIP.
investment requirement. Management received $56 million
In addition to the 1.5 percent participation, man-
under the MIP in 2011 (2010 – $4 million) associated with
agement is allocated 7.5 percent of Onex’ realized gain
the gains Onex achieved during the year. Notes 1 and 31 to
from an operating company investment, subject to cer-
the audited annual consolidated financial statements pro-
tain conditions. In particular, Onex must realize the full
vide additional details on the MIP.
64 Onex Corporation December 31, 2011
M A N A G E M E N T ’ S D I S C U S S I O N A N D A N A L Y S I S
Onex Partners and ONCAP Funds
The structure of the Onex Partners and ONCAP III Funds
requires the management of Onex or ONCAP to invest a
Table 37 shows the amount of carried interest received by
Onex, the parent company, by year.
minimum of 1 percent in all acquisitions. This structure
Carried Interest
applies to Onex Partners I, II and III and ONCAP III. Onex
Partners I completed its investment period in 2006. For
TABLE 37
($ millions)
Onex Partners II and III, Onex management and directors
have committed to invest 4 percent and 5 percent, respec-
tively, of the total capital invested by those Funds for the
commitment periods beginning in 2012. For ONCAP III,
management of Onex and ONCAP as well as directors have
committed to invest 6 percent of the total capital invested
by the Fund for the commitment period beginning in 2012.
The total amount invested in 2011 by Onex man-
agement and directors on acquisitions and investments
completed through the Onex Partners and ONCAP Funds
was $60 million (2010 – $36 million).
Carried interest – 2003
Carried interest – 2004
Carried interest – 2005
Carried interest – 2006
Carried interest – 2007
Carried interest – 2008
Carried interest – 2009
Carried interest – 2010
Carried interest – 2011
Total
Carried
Interest
Received
$ 1
4
16
55
77
–
19
–
65
$ 237
Carried interest participation
The General Partners of the Onex Partners Funds, which
are controlled by Onex, are entitled to a carried interest
(20 percent) on the realized gains of third-party limited
partners in each Fund, subject to an 8 percent compound
annual preferred return to those limited partners on all
amounts contributed in each particular Fund. Onex, as
sponsor of the Onex Partners Funds, is entitled to 40 per-
cent of the carried interest and the Onex management
team is entitled to 60 percent. Under the terms of the part-
nership agreements, Onex may receive carried interest as
realizations occur. The ultimate amount of carried inter-
est earned will be based on the overall performance of each
of Onex Partners I, II and III, independently, and includes
typical catch-up and claw-back provisions within each
Fund, but not between Funds.
During 2011, management of Onex received carried inter-
est of $96 million (2010 – nil).
During 2011, Onex, the parent company, realized carried
interest as follows:
• $9 million on the sale of a portion of the shares of Spirit
AeroSystems by Onex Partners I in the secondary offering
completed by the company during the second quarter;
• $32 million on the sale of the remaining shares of EMSC
by Onex Partners I;
• $1 million from Onex Partners II as a result of the initial
public offering of TMS International and the redemption
of TMS International’s Series 2008 Promissory Notes in
April 2011;
• $17 million during the second quarter of 2011, from
the sale of Husky International by the limited partners
of Onex Partners I ($14 million) and Onex Partners II
($3 million). The amount of carried interest earned by
Onex, the parent company, and the Onex management
team on the sale of Husky International by the limited
partners of Onex Partners II was voluntarily reduced by
$88 million (Onex’ share of the reduction was $35 mil-
lion) at the request of Onex. The reduction was made
after a review of the remaining portfolio companies in
Onex Partners II and reflecting the desire to not distribute
or collect carried interest that may be subject to a future
claw-back; and
Onex Corporation December 31, 2011 65
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 L Y S I S
• $6 million during the third quarter of 2011 from the
limited partners of Onex Partners I ($1 million) and
Management Deferred Share Unit Plan
Effective December 2007, a Management Deferred Share
Onex Partners II ($5 million) related to their receipt of
Unit Plan (“MDSU Plan”) was established as a further
a portion of the amounts held in escrow at the time of
means of encouraging personal and direct economic inter-
the sale of Husky International. In accordance with the
ests by the Company’s senior management in the perfor-
distribution policy set out in the Agreement of Limited
mance of the Subordinate Voting Shares. Under the MDSU
Partnership, and as a result of the voluntary reduction in
Plan, the members of the Company’s senior management
the amount of carried interest collected at the time of the
team are given the opportunity to designate all or a portion
sale of Husky International, Onex’ carried interest enti-
of their annual compensation to acquire MDSUs based
tlement was 80 percent of the escrow amounts received
on the market value of Onex shares at the time in lieu of
by the limited partners of Onex Partners II.
cash. MDSUs vest immediately but are redeemable by the
participant only after he or she has ceased to be an officer
During 2010, there was no carried interest received by
or employee of the Company or an affiliate for a cash pay-
Onex, the parent company.
ment equal to the then current market price of Subordinate
Voting Shares. Additional units are issued equivalent to the
At December 31, 2011, there was $13 million (2010 –
value of any cash dividends that would have been paid on
$49 million) of unrealized carried interest allocable to
the Subordinate Voting Shares. To hedge Onex’ exposure
Onex on the public companies held at market value in the
to changes in the trading price of Onex shares associated
Onex Partners Funds. In addition, Onex has the potential
with the MDSU Plan, the Company enters into forward
to earn a further $83 million (2010 – $84 million) of car-
agreements with a counterparty financial institution for all
ried interest on its private businesses in the Onex Partners
grants under the MDSU Plan. The costs of those arrange-
and ONCAP Funds based on their fair values determined
ments are borne entirely by participants in the MDSU
at December 31, 2011.
Plan. MDSUs are redeemable only for cash and no shares
or other securities of Onex will be issued on the exercise,
Stock Option Plan
Onex, the parent company, has a Stock Option Plan in place
redemption or other settlement thereof. Table 28 on page 57
of this MD&A provides details of the change in the MDSUs
that provides for options and/or share appreciation rights
outstanding during 2011 and 2010.
to be granted to Onex directors, officers and employees
for the acquisition of Subordinate Voting Shares of Onex,
the parent company, for a term not exceeding 10 years.
Director Deferred Share Unit Plan
Onex, the parent company, established a Director Deferred
The options vest equally over five years with the exception
Share Unit Plan (“DSU Plan”) in 2004, which allows Onex
of the options granted in December 2007, which vest over
directors to apply directors’ fees to acquire Deferred Share
six years. The price of the options issued is at the market
Units (“DSUs”) based on the market value of Onex shares
value of the Subordinate Voting Shares on the business day
at the time. Grants of DSUs may also be made to Onex
preceding the day of the grant. Vested options are not exer-
directors from time to time. Holders of DSUs are entitled
cisable unless the average five-day market price of Onex
to receive for each DSU, upon redemption, a cash payment
Subordinate Voting Shares is at least 25 percent greater
equivalent to the market value of a Subordinate Voting
than the exercise price at the time of exercise. Table 26 on
Share at the redemption date. The DSUs vest immediately,
page 55 of this MD&A provides details of the change in the
are only redeemable once the holder retires from the Board
stock options outstanding during 2011 and 2010.
of Directors and must be redeemed by the end of the year
following the year of retirement. Additional units are issued
equivalent to the value of any cash dividends that would
have been paid on the Subordinate Voting Shares. Onex,
the parent company, has recorded a liability for the future
settlement of DSUs at the balance sheet date by reference
to the value of underlying shares at that date. The liability is
adjusted up or down for the change in the market value of
66 Onex Corporation December 31, 2011
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 L Y S I S
the underlying Subordinate Voting Shares, with the corre-
Onex is now entitled to a management fee of
sponding amount reflected in the consolidated statements
1.75 percent on the committed capital of the third-party
of earnings. Table 28 on page 57 of this MD&A provides
limited partners of Onex Partners III. This management
details of the change in the DSUs outstanding during 2011
fee will be earned during the investment period of Onex
and 2010.
Investment in Onex shares and acquisitions
In 2006, Onex adopted a program designed to further
Partners III for a period of up to five years. Thereafter, a
1 percent management fee is payable to Onex based on
third-party invested capital.
ONCAP I has been fully realized and as a result,
align the interests of the Company’s senior management
Onex no longer earns a management fee from this Fund.
and other investment professionals with those of Onex
During the initial fee period for ONCAP II, Onex received
shareholders through increased share ownership. Under
a management fee of 2 percent on the committed capi-
this program, members of senior management of Onex
tal of the Fund provided by third-party investors. The
are required to invest at least 25 percent of all amounts
initial fee period for ONCAP II concluded in July 2011
received on the 7.5 percent gain allocated under the
when ONCAP established a successor Fund, ONCAP III,
MIP and the carried interest in Onex Subordinate Voting
and as a result, Onex is now entitled to a 2 percent man-
Shares and/or Management DSUs until they individually
agement fee on ONCAP II’s third-party invested capital.
hold at least 1,000,000 Onex Subordinate Voting Shares
The management fee on ONCAP II will decline over time
and/or Management DSUs. Under this program, during
as realizations on invested capital occur.
2011 Onex management reinvested C$18 million (2010 –
Onex is entitled to a management fee of 2 percent
less than C$1 million) in the purchase of Subordinate
on the committed capital of the third-party limited part-
Voting Shares.
ners of ONCAP III for a period of up to six years. Thereafter,
Members of management and the Board of Direc-
a 1.5 percent management fee is payable to Onex based on
tors of Onex can invest limited amounts in partnership
third-party invested capital.
with Onex in all acquisitions outside the Onex Partners and
Onex Credit Partners earns management fees
ONCAP Funds at the same time and cost as Onex and other
on third-party capital invested. The fees charged by Onex
outside investors. During 2011, approximately $5 million
Credit Partners are based on capital invested and vary by
in investments (2010 – $9 million) was made by Onex man-
investment product.
agement and Onex Board members.
As determined at the time of acquisition, the oper-
ating companies typically pay an annual management fee
Management fees
Onex receives management fees through its private equity
to Onex. Onex is entitled to its pro-rata share of the fees
received from the operating companies to the extent of its
platforms, Onex Partners and ONCAP, and directly from
interest as a limited partner in each company.
the operating businesses. In addition, Onex Credit Partners
Management fees earned by Onex Partners, ONCAP
earns management fees on its third-party capital.
and Onex Credit Partners totalled approximately $110 mil-
Onex Partners I completed its investment period
lion in 2011 (2010 – $102 million).
in 2006, and for the remainder of the life of this Fund, Onex
will receive a 1 percent annual management fee based on
third-party invested capital. During the investment period
Debt of operating companies
Onex’ practice is not to guarantee the debt of its oper ating
of Onex Partners II, Onex received a management fee of
companies, and there are no cross-guarantees between
2 percent on the committed capital of the Fund pro-
operating companies. Onex may hold debt as part of
vided by third-party investors. Toward the end of 2008,
its investment in certain operating companies, which
the initial fee period for Onex Partners II concluded when
amounted to $1.3 billion at December 31, 2011 compared
Onex began to receive a management fee from Onex
to $1.4 billion at December 31, 2010. Note 12 to the audited
Partners III. Onex, therefore, earns a 1 percent manage-
annual consolidated financial statements provides infor-
ment fee on Onex Partners II’s third-party invested capi-
mation on the debt of operating companies held by Onex.
tal. The management fee on Onex Partners I and II will
decline over time as realizations on invested capital occur.
Onex Corporation December 31, 2011 67
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 L Y S I S
Tax loss transactions
During 2011, Onex sold entities, the sole assets of which
within a company have been detected. Accordingly, our
disclosure controls and procedures and our internal con-
were certain tax losses, to a public company controlled by
trols over financial reporting are effective in providing rea-
Mr. Gerald W. Schwartz, who is also Onex’ controlling share-
sonable, not absolute, assurance that the objectives of our
holder. As a result of these transactions, Onex recorded
control systems have been met.
a gain of C$10 million in other items in 2011. A discussion
During 2010, Onex, the parent company, imple-
of these transactions is included on page 37 of this MD&A.
mented an information technology solution that accom-
In January 2012, Onex completed a similar trans-
modates accounting under IFRS for 2010 and going
action, receiving approximately C$2 million in cash for
forward. In addition, Onex documented its internal con-
Canadian tax losses of C$20 million. The entire C$2 million
trol processes surrounding IFRS reporting concurrently
will be recorded as a gain in other items in the first quar-
with the implementation in 2010. There were no signifi-
ter of 2012. In connection with this transaction, Deloitte &
cant changes in internal controls over financial reporting
Touche LLP, an independent accounting firm retained by
for the year ended December 31, 2011 that have materi-
Onex’ Audit and Corporate Governance Committee, pro-
ally affected, or are reasonably likely to materially affect,
vided an opinion that the value received by Onex for the
the reliability of financial reporting and the preparation of
tax losses was fair. The transactions were unanimously
financial statements in accordance with IFRS.
approved by Onex’ Audit and Corporate Governance Com-
mittee, all the members of which are independent directors.
D I S C L O S U R E C O N T R O L S A N D P R O C E D U R E S
A N D I N T E R N A L C O N T R O L S O V E R
F I N A N C I A L R E P O R T I N G
Limitation on scope of design
Management has limited the scope of the design of inter-
nal controls over financial reporting and disclosure con-
trols and procedures to exclude the controls, policies and
procedures of JELD-WEN, the results of which are included
in the 2011 consolidated financial statements of Onex, the
Except for the limitation in scope of the design of internal
parent company, since the acquisition date of October 3,
controls over financial reporting as noted below, the Chief
Executive Officer and the Chief Financial Officer have
designed, or caused to be designed under their supervi-
sion, internal controls over financial reporting to provide
2011. The scope limitation is in accordance with Section 3.3
of National Instrument 52-109, Certification of Disclosure in
Issuer’s Annual and Interim Filings, which allow an issuer
to limit its design of internal controls over financial report-
reasonable assurance regarding the reliability of finan-
ing and disclosure controls and procedures to exclude the
cial reporting and the preparation of financial statements
controls, policies and procedures of a company acquired not
for external purposes in accordance with IFRS. Except for
more than 365 days before the end of the financial period to
the limitation in scope of the design of disclosure controls
which the certificate relates. Table 38 shows a summary of
and procedures as noted below, the Chief Executive Officer
the financial information for JELD-WEN, which is included
and the Chief Financial Officer have also designed, or
in the December 31, 2011 audited annual consolidated
caused to be designed under their supervision, disclosure
financial statements of Onex, the parent company.
controls and procedures to provide reasonable assurance
that information required to be disclosed by the Company
Financial information for JELD-WEN
in its corporate filings has been recorded, processed, sum-
marized and reported within the time periods specified in
TABLE 38
(IFRS, U.S. $ millions)
securities legislation.
Revenue
A control system, no matter how well conceived
Net loss
and operated, can provide only reasonable, not absolute,
Current assets
assurance that its objectives are met. Due to inherent limi-
Non-current assets
tations in all such systems, no evaluations of controls can
Current liabilities
provide absolute assurance that all control issues, if any,
Non-current liabilities
2011
$ 774
$ (89)
$ 776
$ 1,805
$ 563
$ 1,097
68 Onex Corporation December 31, 2011
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 L Y S I S
OUTLOOK
2011 was another tumultuous year for both the equity and
of interesting opportunities has been Europe, where some
credit markets, reflecting ongoing global economic uncer-
companies are looking to divest of their U.S.-based sub-
tainty. All eyes were on the European Union as it faced its
sidiaries to generate cash. In addition to participating in
biggest challenge since it was formed 18 years ago. While it
auctions, our team is focused on originating proprietary
is clear that Europe has a long road ahead to fiscal stability,
investment opportunities like we did with both Tomkins
the full breadth and depth of the debt crisis is unknown.
and JELD-WEN. We are also interested in finding more
Despite the difficult economic environment,
industrial partners with deep expertise and relationships to
overall demand for our industrial businesses’ products
broaden our origination capabilities.
increased last year. Most of our operating companies
As we have done throughout our 27 year history,
grew earnings and generated strong free cash flow, allow-
we are looking for just a few great businesses to acquire
ing some to reduce debt levels and pay distributions. This
each year. Following an active year of realizations, we now
resulted in year-over-year mark-to-market returns to Onex
have over $1.3 billion in cash and near-cash items, which is
of 15 percent and 12 percent from our interests in the Onex
sufficient to meet Onex’ fund commitments. In that regard
Partners and ONCAP private operating companies, respec-
we increased our commitment to Onex Partners III to
tively, including distributions. Reflected in our valuations
$1.2 billion from $800 million with effect for acquisitions
is an appropriate mark for Hawker Beechcraft, which con-
after May 14, 2012. At this time we have approximately
tinues to suffer from the prolonged depressed state of the
$2.5 billion of uncalled committed capital from our third-
general aviation market, despite management’s efforts to
party Limited Partners for acquisitions through Onex Part-
aggressively reduce costs, improve its sales effectiveness
ners III and ONCAP III.
and conserve cash.
In addition to investing capital primarily through
While value is persistently being created in our
its two private equity platforms, Onex uses its cash to repur-
businesses, we regularly review our alternatives to capture
chase shares under the Normal Course Issuer Bid when we
this value. In 2011, when credit markets were strong and
believe the shares are trading at prices that reflect a mean-
the initial public offering (“IPO”) markets were open, Onex
ingful discount to our view of their value. We believe this
and its partners realized approximately $3.5 billion primar-
provides good value for our shareholders. During 2011,
ily through the sales of Husky International and Emergency
Onex repurchased approximately 3.2 million shares for
Medical Services as well as the IPO of TMS International.
C$105 million at an average price of C$33.27 per share.
When the markets are once again receptive to IPOs and
We continue to believe that our success in build-
appropriately valuing high-quality companies, we will con-
ing companies and our record of capital preservation and
sider additional offerings. Fortunately, we can be patient
superior growth – a 3.3 multiple on invested capital and a
given the strength of our operating companies’ balance
29 percent gross IRR – are direct results of the strong align-
sheets, and we are more than happy to continue owning
ment of interests between Onex’ shareholders, our limited
these businesses given their attractive cash-on-cash returns.
partners and the Onex management team. In addition to
We were disappointed that we were unable to
Onex being the largest limited partner in every fund, Onex’
complete one or two more acquisitions at the upper-end
distinctive ownership culture requires each member of
of the private equity market last year. Overall transaction
the management team to have a significant ownership in
volume was modest as corporate America, with solid bal-
Onex stock and to invest meaningfully in each operating
ance sheets and anemic growth, seemed reluctant to part
company acquired. At December 31, 2011, the team had
with even non-core subsidiaries until strategic alternatives
approximately $1.3 billion invested in Onex’ shares and
were available. Despite this challenging acquisition market,
its businesses.
we did complete an $871 million investment in JELD-WEN,
For over 27 years, we have employed an active
one of the world’s largest residential door and window
ownership approach in acquiring and building industry-
manufacturers, and ONCAP was very busy in the mid-mar-
leading businesses. We are excited about the potential of
ket space, acquiring four businesses in 2011.
our current portfolio of companies and remain focused
In the last few months, there has been a slight
on helping them to enhance their productivity and profit-
increase in merger and acquisition activity, which has
ability with the goal of creating long-term value for Onex
translated into more pipeline activity at Onex. One source
and its investors.
Onex Corporation December 31, 2011 69
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 L Y S I S
RISK MANAGEMENT
This section describes the risks that we believe are material
Onex maintains an active involvement in its oper-
to Onex that could adversely affect Onex’ business, finan-
ating companies in the areas of strategic planning, financial
cial condition or results of operations. The risks described
structures and negotiations and acquisitions. In the early
below are not the only risks that may impact our business.
stages of ownership, Onex may provide resources for busi-
Additional risks not currently known to us or that we cur-
ness and strategic planning and financial reporting while
rently believe are immaterial may also have a material
an operating company builds these capabilities in-house.
adverse effect on future business and operations.
In almost all cases, Onex ensures there is oversight of its
As managers, it is our responsibility to identify
investment through representation on the acquired com-
and manage business risk. As shareholders, we require an
pany’s board of directors. Onex does not get involved in the
appropriate return for the risk we accept.
day-to-day operations of acquired companies.
Operating companies are encouraged to reduce
Managing risk
Onex’ general approach to the management of risk is to
risk and/or expand opportunity by diversifying their cus-
tomer bases, broadening their geographic reach or product
apply common-sense business principles to the manage-
and service offerings and improving productivity. In certain
ment of the Company, the ownership of its operating com-
instances, we may also encourage an operating company
panies and the acquisition of new businesses. Each year,
to seek additional equity in the public markets in order to
detailed reviews are conducted of many opportunities to
continue its growth without eroding its balance sheet. One
purchase either new businesses or add-on acquisitions for
element of this approach may be to use new equity invest-
existing businesses. Onex’ primary interest is in acquiring
ment, when financial markets are favourable, to prepay
well-managed companies with a strong position in growing
existing debt and absorb related penalties. Some of the
industries. In addition, diversification among Onex’ oper-
strategies and policies to manage business risk at Onex and
ating companies enables Onex to participate in the growth
its operating companies are discussed in this section.
of a number of high-potential industries with varying
business cycles.
As a general rule, Onex attempts to arrange as
Business cycles
Diversification by industry and geography is a deliberate
many factors as practical to minimize risk without hamper-
strategy at Onex to reduce the risk inherent in business
ing its opportunity to maximize returns. When a purchase
cycles. Onex’ practice of owning companies in various
opportunity meets Onex’ criteria, for example, typically a
industries with differing business cycles reduces the risk
fair price is paid, though not necessarily the lowest price,
of holding a major portion of Onex’ assets in just one or
for a high-quality business. Onex does not commit all of
two industries. Similarly, the Company’s focus on build-
its capital to a single acquisition and does have equity
ing industry leaders with extensive international opera-
partners with whom it shares the risk of ownership. The
tions reduces the financial impact of downturns in specific
Onex Partners and ONCAP Funds streamline Onex’ pro-
regions. Onex is well diversified among various indus-
cess of sourcing and drawing on commitments from such
try segments, with no single industry or business repre-
equity partners.
senting more than 10 percent of its proprietary capital.
An acquired company is not burdened with more
The table in note 34 to the audited annual consolidated
debt than it can likely sustain, but rather is structured so
financial statements provides information on the geo-
that it has the financial and operating leeway to maximize
graphic diversification of Onex’ consolidated revenues.
long-term growth in value. Finally, Onex invests in finan-
cial partnership with management. This strategy not only
gives Onex the benefit of experienced managers but also is
designed to ensure that an operating company is run entre-
preneurially for the benefit of all shareholders.
70 Onex Corporation December 31, 2011
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 L Y S I S
Operating liquidity
It is Onex’ view that one of the most important things
Timeliness of investment commitments
Onex’ ability to create value for shareholders is depen-
Onex can do to control risk is to maintain a strong par-
dent in part on its ability to successfully complete large
ent company with an appropriate level of liquidity. Onex
acquisitions. Our preferred course is to complete acqui-
needs to be in a position to support its operating compa-
sitions on an exclusive basis. However, we also partici-
nies when and if it is appropriate and reasonable for Onex,
pate in large acquisitions through an auction or bidding
as an equity owner with paramount duties to act in the
process with multiple potential purchasers. Bidding
best interests of Onex shareholders, to do so. Maintaining
is often very competitive for the large-scale acquisi-
liquidity is important because Onex, as a holding company,
tions that are Onex’ primary interest, and the ability to
generally does not have guaranteed sources of meaning-
make knowledgeable, timely investment commitments
ful cash flow other than management fees. The approxi-
is a key component in successful purchases. In such
mate $112 million in annualized management fees that are
instances, the vendor often establishes a relatively short
expected to be earned by Onex Partners, ONCAP and Onex
timeframe for Onex to respond definitively. In order to
Credit Partners in 2012 will be used to offset the costs of
improve the efficiency of Onex’ internal processes on
running the parent company.
both auction and exclusive acquisition processes, and
A significant portion of the purchase price for
so reduce the risk of missing out on high quality acquisi-
new acquisitions is generally funded with debt provided by
tion opportunities, Onex has committed pools of capi-
third-party lenders. This debt, sourced exclusively on the
tal from third-party investors with the Onex Partners
strength of the acquired company’s financial condition
and ONCAP Funds. As at December 31, 2011, the Onex
and prospects, is a debt of the acquired company at clos-
Partners Funds have $2.3 billion of undrawn commit-
ing and is without recourse to Onex, the parent company,
ted third-party capital and the ONCAP Funds have
or to its other operating companies or partnerships. The
C$485 million of such undrawn capital.
foremost consideration, however, in developing a financ-
Once the investment period for Onex Partners III
ing structure for an acquisition is identifying the appropri-
has expired at the end of 2013, Onex will need to have raised
ate amount of equity to invest. In Onex’ view, this should
or be in the process of raising additional third-party capital
be the amount of equity that maximizes the risk/reward
to continue its program of investing new third-party capital
equation for both shareholders and the acquired company.
in large-scale acquisitions. The ability to raise new capital
In other words, it allows the acquired company to not only
commitments at that time will be dependent upon general
manage its debt through reasonable business cycles but
economic conditions and the track record or success Onex
also to have sufficient financial latitude for the business to
has achieved with the management and investment of prior
vigorously pursue its growth objectives.
funds. To date, Onex has a strong track record of investing
While Onex seeks to optimize the risk/reward
third-party capital and most investors in the original Onex
equation in all acquisitions, there is the risk that the
Partners and ONCAP Funds have committed to invest in
acquired company will not generate sufficient profitabil-
successor funds that have been established.
ity or cash flow to service its debt requirements and/or
meet related debt covenants or provide adequate financial
Capital commitment risk The limited partners
in the Onex Partners and ONCAP Funds comprise a rela-
flexibility for growth. In such circumstances, additional
tively small group of high-quality, primarily institutional,
investment by the equity partners, including Onex, may
investors. To date, each of these investors has met its
be appropriate. In severe circumstances, the recovery of
commitments on called capital, and Onex has received
Onex’ equity and any other investment in that operating
no indications that any investor will be unable to meet
company is at risk.
its commitments in the future. While Onex’ experience
with its limited partners suggests that commitments will
be honoured, there is always the possibility that a limited
partner may not be able to meet its entire commitment
over the life of the fund.
Onex Corporation December 31, 2011 71
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 L Y S I S
Financial risks
In the normal course of business, Onex and its operating
had a fixed interest rate or the interest rate was effectively
fixed by interest rate swap contracts. The risk inherent in
companies may face a variety of risks related to financial
such a strategy is that, should interest rates decline, the
management. In dealing with these risks, it is a matter of
benefit of such declines may not be obtainable or may only
Company policy that neither Onex nor its operating com-
be achieved at the cost of penalties to terminate existing
panies engage in speculative derivatives trading or other
arrangements. There is also the risk that the counterparty
speculative activities.
Default on known credit As previously noted,
new investments generally include a meaningful amount
on an interest rate swap agreement may not be able to
meet its commitments. Guidelines are in place that specify
the nature of the financial institutions that operating com-
of third-party debt. Those lenders typically require that the
panies can deal with on interest rate contracts.
acquired company meet ongoing tests of financial perfor-
Onex, the parent company, has some exposure to
mance as defined by the terms of the lending agreement,
interest rate changes primarily through its cash and short-
such as ratios of total debt to operating income (“EBITDA”)
term investments, which are held in short-term deposits
and the ratio of EBITDA to interest costs. It is Onex’ prac-
and commercial paper. A 0.25 percent increase (0.25 per-
tice to not burden acquired companies with levels of debt
cent decrease) in the interest rate, assuming no significant
that might put at risk their ability to generate sufficient
changes in the cash balance at the parent company, would
levels of profitability or cash flow to service their debts –
result in a minimal impact in annual interest income.
and so meet their related debt covenants – or which might
In addition, The Warranty Group, which holds substan-
hamper their flexibility to grow.
tially all of its investments in interest-bearing securities,
Financing risk The volatility in the global credit
markets has created some unpredictability about whether
would also have some exposure to interest rate changes.
A 0.25 percent increase in the interest rate would decrease
businesses, even creditworthy businesses, will be able
the fair value of the investments held by The Warranty
to obtain new loans. This represents a risk to the ongoing
Group by $12 million, with a corresponding decrease in
viability of many otherwise healthy businesses whose loans
other comprehensive earnings. However, as the invest-
or operating lines of credit are up for renewal in the short
ments are reinvested, a 0.25 percent increase in the interest
term. The major portion of Onex’ operating companies’ refi-
rate would increase the annual interest income recorded
nancing will take place in 2014 and thereafter. Table 22 on
by The Warranty Group by $5 million.
page 52 of this MD&A provides the aggregate debt maturi-
ties for Onex’ consolidated operating companies and invest-
Currency fluctuations The functional currency
of Onex, the parent company, and substantially all of
ments in associates for each of the years up to 2017 and in
Onex’ operating companies is the U.S. dollar. A number of
total thereafter.
Onex’ operating companies conduct business outside of
Interest rate risk As previously noted, new invest-
ments generally include a meaningful amount of third-
the United States and as a result are exposed to currency
risk on the portion of their business which is not based on
party debt taken on by the acquired operating company.
U.S. currency. Fluctuations in the value of the U.S. dollar
An important element in controlling risk is to manage, to
relative to other currencies can have an impact on Onex’
the extent reasonable, the impact of fluctuations in interest
reported results and consolidated financial position. Onex’
rates on the debt of the operating company.
operating companies may use currency derivatives in the
Onex’ operating companies generally seek to fix
normal course of business to hedge against adverse fluctu-
the interest on some of their term debt or otherwise mini-
ations in key operating currencies, but speculative activity
mize the effect of interest rate increases on a portion of
is not permitted.
their debt at the time of acquisition. This is achieved by
Onex holds cash and marketable securities in
taking on debt at fixed interest rates or entering into inter-
Canadian-dollar-denominated securities. The portion of
est rate swap agreements or financial contracts to control
securities held in Canadian dollars is based on Onex’
the level of interest rate fluctuation on variable rate debt.
view of funds it will require for future operating costs
At December 31, 2011, approximately 52 percent (2010 –
and investments in Canada. Onex does not speculate on
56 percent) of Onex’ operating companies’ long-term debt
the direction of exchange rates between the U.S. dollar and
72 Onex Corporation December 31, 2011
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 L Y S I S
the Canadian dollar when determining the balance of cash
AeroSystems has entered into long-term supply contracts
and marketable securities to hold in each currency. A
with its key suppliers of raw materials, which limit the
5 percent strengthening (5 percent weakening) of the U.S.
company’s exposure to rising raw materials prices. Most of
dollar relative to the Canadian dollar at December 31,
the raw materials purchased is based on a fixed pricing or
2011 would result in an $8 million decrease ($8 million
at reduced rates through Boeing’s or Airbus’ high-volume
increase) in net earnings of Onex, the parent company.
purchase contracts.
In addition, Celestica has exposure to the U.S. dollar/
Diesel fuel is a key commodity used in TMS Inter-
Canadian dollar foreign currency exchange rate. A 5 per-
national’s operations. The company consumes approxi-
cent strengthening (5 percent weakening) of the Canadian
mately 11 million gallons of diesel fuel annually. To
dollar against the U.S. dollar at December 31, 2011 would
help mitigate the risk of price fluctuations in fuel, TMS
result in a $6 million increase ($5 million decrease) in other
International incorporates into substantially all of its
comprehensive earnings of Celestica and an $11 million
contracts pricing escalators based on published price indi-
increase ($10 million decrease) in net earnings.
ces that would generally offset some portion of the fuel
Fair value changes The fair value measurements
for investments in associates, Limited Partners’ Interests
price changes.
Silver is a significant commodity used in Care-
and unrealized carried interest are primarily driven by
stream Health’s manufacturing of x-ray film. The com-
the underlying fair value of the investments in the Onex
pany’s management continually monitors movement and
Partners and ONCAP Funds. A change to a reasonably pos-
trends in the silver market and enters into collar and for-
sible alternative estimate and/or assumption used in the
ward agreements when considered appropriate to mitigate
valuation of non-public investments in the Onex Partners
some of the risk of future price fluctuations for periods
and ONCAP Funds could have a significant impact on the
generally up to a year.
fair values calculated for investments in associates, Limited
Partners’ Interests and unrealized carried interest, which
would impact both Onex’ financial condition and results
of operations.
Integration of acquired companies
An important aspect of Onex’ strategy for value creation is
to acquire what we consider to be “platform” companies.
Insurance claims The Warranty Group under-
writes and administers extended warranties and credit
Such companies often have distinct competitive advan-
tages in products or services in their respective indus-
insurance on a wide variety of consumer goods, including
tries that provide a solid foundation for growth in scale
automobiles, consumer electronics and major home appli-
and value. In these instances, Onex works with company
ances. Unlike most property insurance risk, the risk asso-
management to identify attractive add-on acquisitions
ciated with extended warranty claims is non-catastrophic
that may enable the platform company to achieve its goals
and short-lived, resulting in predictable loss trends. The
more quickly and successfully than by focusing solely on
predictability of claims, which is enhanced by the large
the development and/or diversification of its customer
volume of claims data in the company’s database, enables
base, which is known as organic growth. Growth by acqui-
The Warranty Group to appropriately measure and price risk.
sition, however, may carry more risk than organic growth.
While as many of these risks as possible are considered
Commodity price risk
Certain Onex operating companies are vulnerable to price
in the acquisition planning, operating companies under-
taking these acquisitions also face such risks as unknown
fluctuations in major commodities. Individual operat-
expenses related to the cost-effective amalgamation of
ing companies may use financial instruments to offset the
operations, the retention of key personnel and customers,
impact of anticipated changes in commodity prices related
the future value of goodwill, intangible assets and intel-
to the conduct of their businesses. Aluminum, titanium
lectual property. There are also risk factors associated with
and raw materials such as carbon fibre used to manufac-
the industry and combined business more generally. Onex
ture composites represent the principal raw materials used
works with company management to understand and
in Spirit AeroSystems’ manufacturing operations. Spirit
attempt to mitigate such risks as much as possible.
Onex Corporation December 31, 2011 73
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 L Y S I S
Dependence on government funding
Since 2005, Onex has acquired businesses, or interests
Significant customers
Some of Onex’ major acquisitions have been divisions of
in businesses, in various segments of the U.S. healthcare
large companies. As part of these purchases, the acquired
industry. Certain of the revenues of these companies are
company has often continued to supply its former owner
partially dependent on funding from federal, state and local
through long-term supply arrangements. It has been Onex’
government agencies, especially those agencies respon-
policy to encourage its operating companies to quickly
sible for U.S. federal Medicare and state Medicaid funding.
diversify their customer bases to the extent practical in
Budgetary pressures, as well as economic, industry, politi-
order to manage the risk associated with serving a single
cal and other factors, could influence governments to not
major customer.
increase or, in some cases, to decrease appropriations for
Certain Onex operating companies have major
the services that are offered by Onex’ operating subsidiaries,
customers that represent more than 10 percent of annual
which could reduce their revenues materially. Future reve-
revenues. Spirit AeroSystems primarily relies on two major
nues may be affected by changes in rate-setting structures,
customers, Boeing and Airbus. The table in note 30 to the
methodologies or interpretations that may be proposed
audited annual consolidated financial statements provides
or are under consideration. While each of Onex’ operat-
information on the concentration of business the consoli-
ing companies in the U.S. healthcare industry is subject to
dated operating companies have with major customers.
reimbursement risk directly related to its particular business
segment, it is unlikely that all of these companies would be
affected by the same event, or to the same extent, simulta-
Environmental considerations
Onex has an environmental protection policy that has been
neously. Ongoing pressure on government appropriations
adopted by its operating companies; many of these oper-
is a normal aspect of business for these companies, and all
ating companies have also adopted supplemental poli-
seek to minimize the effect of possible funding reductions
cies appropriate to these industries or businesses. Senior
through productivity improvements and other initiatives.
officers at each of these companies are ultimately respon-
It is not known what impact, if any, proposed healthcare
sible for ensuring compliance with these policies. They are
reform in the United States will have on the companies.
required to report annually to their company’s board of
directors and to Onex regarding compliance.
Environmental management by the operat-
ing companies is accomplished through the education of
employees about environmental regulations and appropri-
ate operating policies and procedures; site inspections by
environmental consultants; the addition of proper equip-
ment or modification of existing equipment to reduce or
eliminate environmental hazards; remediation activities as
required; and ongoing waste reduction and recycling pro-
grams. Environmental consultants are engaged to advise
on current and upcoming environmental regulations that
may be applicable.
74 Onex Corporation December 31, 2011
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 L Y S I S
Many of the operating companies are involved
in the remediation of particular environmental situations,
Other contingencies
Onex and its operating companies are or may become par-
such as soil contamination. In almost all cases, these situ-
ties to legal claims arising in the ordinary course of busi-
ations have occurred prior to Onex’ acquisition of those
ness. The operating companies have recorded liability
companies, and the estimated costs of remedial work and
provisions based upon their consideration and analysis of
related activities are managed either through agreements
their exposure in respect of such claims. Such provisions
with the vendor of the company or through provisions
are reflected, as appropriate, in Onex’ consolidated finan-
established at the time of acquisition. Manufacturing activ-
cial statements. Onex, the parent company, has not cur-
ities carry the inherent risk that changing environmental
rently recorded any further liability provision and we do
regulations may identify additional situations requiring
not believe that the resolution of known claims would rea-
capital expenditures or remedial work and associated costs
sonably be expected to have a material adverse impact on
to meet those regulations.
Onex’ consolidated financial position. However, the final
outcome with respect to outstanding, pending or future
Income taxes
The Company has investments in companies that oper-
actions cannot be predicted with certainty, and therefore
there can be no assurance that their resolution will not have
ate in a number of tax jurisdictions. Onex provides for the
an adverse effect on our consolidated financial position.
tax on undistributed earnings of its subsidiaries that are
not permanently reinvested based on the expected future
income tax rates that are substantively enacted at the time
of the income/gain recognition events. Changes to the
expected future income tax rate will affect the provision for
future tax, both in the current year and in respect of prior
year amounts that are still outstanding, either positively
or negatively, depending on whether rates decrease or
increase. Changes to tax legislation or the application of tax
legislation may affect the provision for future tax and the
taxation of deferred amounts.
Onex Corporation December 31, 2011 75
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 pro-
duced. The consolidated financial statements have been prepared in accordance with International Financial Reporting
Standards. The significant accounting policies which management believes are appropriate for the Company are described
in note 1 to the consolidated financial statements. Additionally, the Company’s transition from reporting under previous
Canadian generally accepted accounting principles to International Financial Reporting Standards is presented in note 35.
The Board of Directors is responsible for reviewing and approving the consolidated financial statements and oversee-
ing 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.
[signed]
[signed]
Donald W. Lewtas
Chief Financial Officer
February 23, 2012
Christine M. Donaldson
Vice President Finance
76 Onex Corporation December 31, 2011
INDEPENDENT AUDITOR’S REPORT
To the Shareholders of Onex Corporation:
We have audited the accompanying consolidated financial statements of Onex Corporation and its subsidiaries, which com-
prise the consolidated balance sheets as at December 31, 2011, December 31, 2010 and January 1, 2010, the consolidated
statements of earnings, comprehensive earnings, equity and cash flows for the years ended December 31, 2011 and 2010
and the related notes, which comprise a summary of significant accounting policies and other explanatory information.
Management’s responsibility for the consolidated financial statements
Management is responsible for the preparation and fair presentation of these consolidated financial statements in accor-
dance with International Financial Reporting Standards, and for such internal control as management determines is neces-
sary to enable the preparation of consolidated financial statements that are free from material misstatement, whether due
to fraud or error.
Auditor’s responsibility
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 comply with ethi-
cal requirements and plan and perform the audits to obtain reasonable assurance about whether the consolidated financial
statements are free from material misstatement.
An audit involves performing procedures to obtain audit evidence about the amounts and disclosures in the consoli-
dated financial statements. The procedures selected depend on the auditor’s judgment, including the assessment of the risks
of material misstatement of the consolidated financial statements, whether due to fraud or error. In making those risk assess-
ments, the auditor considers internal control relevant to the entity’s preparation and fair presentation of the consolidated
financial statements in order to design audit procedures that are appropriate in the circumstances, but not for the purpose of
expressing an opinion on the effectiveness of the entity’s internal control. An audit also includes evaluating the appropriate-
ness of accounting policies used and the reasonableness of accounting estimates made by management, as well as evaluating
the overall presentation of the consolidated financial statements.
We believe that the audit evidence we have obtained in our audits is sufficient and appropriate to provide a basis for
our audit opinion.
Opinion
In our opinion, the consolidated financial statements present fairly, in all material respects, the financial position of Onex
Corporation and its subsidiaries as at December 31, 2011, December 31, 2010 and January 1, 2010 and their financial per-
formance and their cash flows for the years ended December 31, 2011 and 2010 in accordance with International Financial
Reporting Standards.
[signed]
PricewaterhouseCoopers LLP
Chartered Accountants, Licensed Public Accountants
Toronto, Canada
February 23, 2012
Onex Corporation December 31, 2011 77
CONSOLIDATED BALANCE SHEETS
As at
December 31,
2011
As at
December 31,
2010
As at
January 1, 2010
$ 2,448
$ 2,532
$ 3,018
749
3,272
4,428
1,186
12,083
5,102
5,415
1,813
2,599
2,434
715
3,430
4,004
1,495
12,176
4,056
4,864
1,872
2,505
2,634
605
2,928
3,204
1,101
10,856
3,366
3,448
1,915
2,241
2,198
$ 29,446
$ 28,107
$ 24,024
$ 3,893
$ 3,964
$ 3,268
263
890
482
19
1,400
6,947
180
6,479
45
1,727
2,331
1,075
4,980
257
1,211
243
14
1,314
7,003
284
6,346
43
1,780
1,921
938
5,650
255
974
404
20
1,342
6,263
231
5,284
39
1,935
1,670
810
3,708
23,764
23,965
19,940
360
3,862
1,460
5,682
373
3,638
131
4,142
381
3,329
374
4,084
$ 29,446
$ 28,107
$ 24,024
(in millions of U.S. dollars)
Assets
Current assets
Cash and cash equivalents (note 4)
Short-term investments
Accounts receivable
Inventories (note 5)
Other current assets (note 6)
Property, plant and equipment (note 7)
Long-term investments (note 8)
Other non-current assets (note 9)
Intangible assets (note 10)
Goodwill (note 10)
Liabilities and Equity
Current liabilities
Accounts payable and accrued liabilities
Current portion of provisions (note 11)
Other current liabilities
Current portion of long-term debt of operating companies, without recourse
to Onex Corporation (note 12)
Current portion of obligations under finance leases, without recourse
to Onex Corporation (note 13)
Current portion of warranty reserves and unearned premiums (note 14)
Non-current portion of provisions (note 11)
Long-term debt of operating companies, without recourse
to Onex Corporation (note 12)
Non-current portion of obligations under finance leases, without recourse
to Onex Corporation (note 13)
Non-current portion of warranty reserves and unearned premiums (note 14)
Other non-current liabilities (note 15)
Deferred income taxes (note 16)
Limited Partners’ Interests (note 17)
Equity
Share capital (note 18)
Non-controlling interests
Retained earnings and accumulated other comprehensive earnings
Signed on behalf of the Board of Directors
[signed]
Director
[signed]
Director
78 Onex Corporation December 31, 2011
CONSOLIDATED STATEMENTS OF EARNINGS
Year ended December 31 (in millions of U.S. dollars except per share data)
Revenues
Cost of sales (excluding amortization of property, plant and equipment,
intangible assets and deferred charges)
Operating expenses
Interest income
Amortization of property, plant and equipment
Amortization of intangible assets and deferred charges
Interest expense of operating companies (note 20)
Unrealized increase in value of investments in associates at fair value, net (note 8)
Foreign exchange loss
Stock-based compensation expense (note 21)
Other gains, net (note 22)
Other items (note 23)
Impairment of goodwill, intangible assets and long-lived assets, net (note 24)
Limited Partners’ Interests charge (note 17)
Earnings before income taxes and discontinued operations
Provision for income taxes (note 16)
Loss from continuing operations
Earnings from discontinued operations (note 3)
Net Earnings for the Year
Earnings (Loss) from Continuing Operations attributable to:
Equity holders of Onex Corporation
Non-controlling Interests
Loss from Continuing Operations for the Year
Net Earnings (Loss) attributable to:
Equity holders of Onex Corporation
Non-controlling Interests
Net Earnings for the Year
Net Earnings (Loss) per Subordinate Voting Share of Onex Corporation (note 26)
Basic and Diluted:
Continuing operations
Discontinued operations
Net Earnings (Loss) for the Year
2011
2010
$ 24,642
$ 19,734
(19,725)
(2,921)
(15,492)
(2,306)
32
(462)
(311)
(488)
501
(14)
(133)
–
(146)
(197)
(627)
151
(237)
(86)
1,715
34
(403)
(284)
(342)
448
(8)
(186)
99
(221)
(14)
(831)
228
(239)
(11)
208
$ 1,629
$ 197
$ (355)
$ (282)
269
271
$ (86)
$ (11)
$ 1,327
$ (167)
302
364
$ 1,629
$ 197
$ (3.02)
$ (2.36)
14.33
0.96
$ 11.31
$ (1.40)
Onex Corporation December 31, 2011 79
CONSOLIDATED STATEMENTS
OF COMPREHENSIVE EARNINGS
Year ended December 31 (in millions of U.S. dollars)
Net earnings for the year
Other comprehensive earnings (loss), net of tax
Currency translation adjustments
Change in fair value of derivatives designated as hedges
Unrealized gains on available-for-sale financial assets
Pension actuarial loss and other
Other comprehensive earnings (loss) from discontinued operations, net of tax (note 3)
2011
$ 1,629
(60)
(7)
8
(59)
(14)
2010
$ 197
(17)
(4)
7
(47)
5
Total Comprehensive Earnings for the Year
$ 1,497
$ 141
Total Comprehensive Earnings (Loss) attributable to:
Equity holders of Onex Corporation
Non-controlling Interests
Total Comprehensive Earnings for the Year
$ 1,266
231
$ 1,497
$ (188)
329
$ 141
80 Onex Corporation December 31, 2011
CONSOLIDATED STATEMENTS OF EQUITY
(in millions of U.S. dollars except per share data)
Share
Capital
(note 18)
Retained
Earnings
Accumulated
Other
Comprehensive
Earnings
(Loss)
Total Equity
Attributable
to Equity
Holders of Onex
Corporation
Non-
controlling
Interests
Total
Equity
Balance – January 1, 2010
$ 381
$ 338
$ 36(b)
$ 755
$ 3,329
$ 4,084
Dividends declared(a)
Purchase and cancellation of shares (note 18)
Investments by shareholders other than Onex
Distributions to non-controlling interests
Repurchase of shares of operating companies
Comprehensive Earnings (Loss)
Net earnings (loss) for the year
Other comprehensive earnings (loss)
for the year, net of tax:
Currency translation adjustments
Change in fair value of derivatives
designated as hedges
Unrealized gains on available-for-sale
financial assets
Pension actuarial loss and other
–
(8)
–
–
–
–
–
–
–
–
(13)
(42)
–
–
–
(167)
–
–
–
(10)
–
–
–
–
–
–
(13)
(50)
–
–
–
–
–
160
(9)
(171)
(13)
(50)
160
(9)
(171)
(167)
364
197
(23)
(23)
(1)
(24)
3
6
3
3
6
(7)
5
1
8
7
(40)
(47)
Balance – December 31, 2010
$ 373
$ 106
$ 25(c)
$ 504
$ 3,638
$ 4,142
Dividends declared(a)
Purchase and cancellation of shares (note 18)
Investments by shareholders other than Onex
Distributions to non-controlling interests
Repurchase of shares of operating companies
Sale of investments in operating companies
under continuing control (note 25)
Non-controlling interests of discontinued
operations (note 3)
Comprehensive Earnings (Loss)
Net earnings for the year
Other comprehensive earnings (loss)
for the year, net of tax:
Currency translation adjustments
Change in fair value of derivatives
designated as hedges
Unrealized gains on available-for-sale
financial assets
Pension actuarial loss and other
−
(13)
−
−
−
−
−
(13)
(92)
24
–
(7)
151
–
–
1,327
−
−
−
–
–
–
–
(15)
–
–
–
–
–
–
–
–
(40)
(9)
4
(1)
(13)
(105)
24
–
(7)
151
–
–
–
637
(19)
(67)
108
(13)
(105)
661
(19)
(74)
259
(666)
(666)
1,327
302
1,629
(40)
(9)
4
(16)
(13)
(19)
3
(42)
(53)
(28)
7
(58)
Balance – December 31, 2011
$ 360
$ 1,481
$ (21)(d)
$ 1,820
$ 3,862
$ 5,682
(a) Dividends declared per Subordinate Voting Share during 2011 totalled C$0.11 (2010 – C$0.11). In 2011, shares issued under the dividend reinvestment plan amounted
to less than $1 (2010 – less than $1). There are no tax effects for Onex on the declaration or payment of dividends.
(b) Accumulated Other Comprehensive Earnings (Loss) as at January 1, 2010 consisted of unrealized gains on the effective portion of cash flow hedges of $4, unrealized gains
on available-for-sale financial assets of $35 and other of negative $3. Accumulated Other Comprehensive Earnings (Loss) at January 1, 2010 included $8 of net earnings
related to discontinued operations. Income taxes did not have a significant effect on these items.
(c) Accumulated Other Comprehensive Earnings (Loss) as at December 31, 2010 consisted of currency translation adjustments of negative $23, unrealized gains on the effective
portion of cash flow hedges of $7 and unrealized gains on available-for-sale financial assets of $41. Accumulated Other Comprehensive Earnings (Loss) as at December 31,
2010 included $13 of net earnings related to discontinued operations. Income taxes did not have a significant effect on these items.
(d) Accumulated Other Comprehensive Earnings (Loss) as at December 31, 2011 consisted of currency translation adjustments of negative $63, unrealized losses on the
effective portion of cash flow hedges of $2, unrealized gains on available-for-sale financial assets of $45 and other of negative $1. Income taxes did not have a significant
effect on these items.
Onex Corporation December 31, 2011 81
CONSOLIDATED STATEMENTS OF CASH FLOWS
Year ended December 31 (in millions of U.S. dollars)
Operating Activities
Loss for the year from continuing operations
Adjustments to loss from continuing operations:
Provision for income taxes
Interest income
Interest expense of operating companies
Net earnings before interest and provision for income taxes
Cash taxes paid
Items not affecting cash and cash equivalents:
Amortization of property, plant and equipment
Amortization of intangible assets and deferred charges
Amortization of deferred warranty costs
Unrealized increase in value of investments in associates at fair value, net (note 8a)
Stock-based compensation expense
Other gains, net (note 22)
Impairment of goodwill, intangible assets and long-lived assets, net (note 24)
Limited Partners’ Interests charge (note 17)
Change in provisions
Other
Changes in non-cash working capital items:
Accounts receivable
Inventories
Other current assets
Accounts payable, accrued liabilities and other current liabilities
Decrease in cash and cash equivalents due to changes in working capital items
Increase (decrease) in other operating activities
Increase (decrease) in warranty reserves and premiums
Cash flows from operating activities of discontinued operations (note 3)
Financing Activities
Issuance of long-term debt
Repayment of long-term debt
Cash interest paid
Cash dividends paid
Repurchase of share capital of Onex Corporation
Repurchase of share capital of operating companies
Financing provided by Limited Partners (note 17)
Issuance of share capital by operating companies
Proceeds from sales of operating investments under continuing control (note 25)
Distributions paid to non-controlling interests and Limited Partners
Change in restricted cash for distribution to Limited Partners
Decrease due to other financing activities
Cash flows used for financing activities of discontinued operations (note 3)
Investing Activities
Acquisition of operating companies, net of cash and cash equivalents in acquired companies of $191 (2010 – $55) (note 2)
Purchase of property, plant and equipment
Proceeds from other gains (note 22)
Cash interest and dividends received
Investment in Tomkins Limited
Increase (decrease) due to other investing activities
Cash flows from (used for) investing activities of discontinued operations (note 3)
Decrease in Cash and Cash Equivalents for the Year
Increase (decrease) in cash due to changes in foreign exchange rates
Cash and cash equivalents, beginning of the year – continuing operations
Cash and cash equivalents, beginning of the year – discontinued operations
Cash and Cash Equivalents
Cash and cash equivalents held by discontinued operations (note 3)
Cash and Cash Equivalents Held by Continuing Operations
82 Onex Corporation December 31, 2011
2011
2010
$ (86)
$ (11 )
237
(32)
488
607
(161)
462
311
47
(501)
62
–
197
627
89
(6)
239
(34)
342
536
(187)
403
284
72
(448)
174
(99)
14
831
114
9
1,734
1,703
1
(162)
3
(457)
(615)
(58)
27
100
1,188
594
(460)
(411)
(13)
(105)
(149)
932
151
268
(2,248)
272
(52)
(42)
(1,263)
(1,155)
(646)
–
45
–
(286)
2,030
(12)
(87)
3
2,053
479
2,448
–
(200)
(599)
(47)
294
(552)
6
(92)
471
1,536
2,180
(1,997)
(298)
(13)
(50)
(167)
1,451
25
–
(349)
(272)
(55)
(126)
329
(474)
(660)
123
11
(1,219)
81
(205)
(2,343)
(478)
(8)
2,582
436
2,532
479
$ 2,448
$ 2,053
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(in millions of U.S. dollars except per share data)
Onex Corporation and its subsidiaries (collectively, the “Company”) is a diversified company with operations in a range of industries
including electronics manufacturing services, aerostructures, healthcare, financial services, customer care services, metal services,
building products, gaming, cabinetry products, industrial products, commercial vehicles and aircraft and aftermarket. Additionally,
the Company has investments in real estate, credit strategies and mid-market private equity opportunities. Note 34 provides addi-
tional description of the Company’s operations on a segmented basis. Throughout these statements, the term “Onex” refers to Onex
Corporation, the ultimate parent company.
Onex Corporation is a Canadian corporation domiciled in Canada and is listed on the Toronto Stock Exchange under the symbol
OCX. Onex Corporation’s shares are traded in Canadian dollars. The registered address for Onex Corporation is 161 Bay Street,
Toronto, Ontario. Gerald W. Schwartz controls Onex Corporation by indirectly holding all of the outstanding Multiple Voting Shares
of the corporation.
All amounts are in millions of U.S. dollars unless otherwise noted.
The consolidated financial statements were authorized for issue by the Board of Directors on February 23, 2012.
1 . B A S I S O F P R E P A R A T I O N A N D S I G N I F I C A N T
In completing the transition to IFRS the Company con-
A C C O U N T I N G P O L I C I E S
S T A T E M E N T O F C O M P L I A N C E
The consolidated financial statements have been prepared in accor-
dance with International Financial Reporting Standards (“IFRS”)
and its interpretations adopted by the International Accounting
Standards Board (“IASB”). These consolidated financial statements
were prepared on a going concern basis, under the historical cost
convention, as modified by the revaluation of available-for-sale
financial assets, and financial assets and financial liabilities (includ-
ing derivative instruments) at fair value through total comprehen-
sive earnings.
In 2010 and prior periods, the Company’s consolidated
financial statements were prepared in accordance with accounting
principles generally accepted in Canada (“Canadian GAAP”). IFRS
differs in a number of areas from Canadian GAAP. In preparing these
consolidated financial statements, management has amended cer-
tain accounting, valuation and consolidation methods previously
applied to comply with IFRS, including IFRS 1, First-time Adoption of
IFRS. The comparative figures for 2010 were restated to reflect these
adjustments, including note disclosures at January 1, 2010 where the
effect of the transition from previous Canadian GAAP to IFRS was
significant. Note 35 contains reconciliations and descriptions of the
effect of the transition from the previous Canadian GAAP to IFRS
on earnings and comprehensive earnings for the year ended Decem-
ber 31, 2010. In addition, equity is reconciled with line-by-line rec-
onciliations of the consolidated balance sheets at January 1, 2010
and December 31, 2010.
ducted an evaluation of the primary and secondary factors to
assess its functional currency under IFRS. It was determined that
the U.S. dollar is the Company’s functional currency under IFRS.
As such, the financial statements under IFRS have been reported
on a U.S. dollar basis.
C O N S O L I D A T I O N
The consolidated financial statements represent the accounts of
Onex and its subsidiaries, including its controlled operating com-
panies. Onex also controls and consolidates the operations of
Onex Partners LP (“Onex Partners I”), Onex Partners II LP (“Onex
Partners II”) and Onex Partners III LP (“Onex Partners III”),
referred to collectively as “Onex Partners”, and ONCAP II L.P. and
ONCAP III LP, referred to collectively as “ONCAP” (as described
in note 31). The results of operations of subsidiaries are included
in the consolidated financial statements from the date that con-
trol commences until the date that control ceases. All significant
intercompany balances and transactions have been eliminated.
Investments in operating companies over which the
Company has significant influence, but not control, are designated,
upon initial recognition, at fair value through earnings. As a result,
the investments are recorded at fair value in the consolidated bal-
ance sheets, with changes in fair value recognized in the consoli-
dated statements of earnings.
Onex Corporation December 31, 2011 83
N O T E S T O C O N S O L I D A T E D F I N A N C I A L S T A T E M E N T S
The principal operating companies and Onex’ economic ownership, Onex and the Limited Partners’ economic ownership and voting
interests in these entities are as follows:
December 31, 2011
December 31, 2010
Onex and
Limited
Partners
Ownership
Onex
Ownership
Voting
Onex
Ownership
Onex and
Limited
Partners
Ownership
Investments made through Onex
Celestica Inc. (“Celestica”)
SITEL Worldwide Corporation (“Sitel Worldwide”)
Investments made through Onex and Onex Partners I
Center for Diagnostic Imaging, Inc. (“CDI”)
Emergency Medical Services Corporation (“EMSC”)(a)
Skilled Healthcare Group, Inc. (“Skilled Healthcare Group”)
Spirit AeroSystems, Inc. (“Spirit AeroSystems”)
Investments made through Onex and Onex Partners II
Allison Transmission, Inc. (“Allison Transmission”)
Carestream Health, Inc. (“Carestream Health”)
Hawker Beechcraft Corporation (“Hawker Beechcraft”)
RSI Home Products, Inc. (“RSI”)
TMS International Corp. (“TMS International”)
Investments made through Onex, Onex Partners I
and Onex Partners II
Husky International Ltd. (“Husky”)(a)
The Warranty Group, Inc. (“The Warranty Group”)
Investments made through Onex and Onex Partners III
JELD-WEN Holding, inc. (“JELD-WEN”)(c)
Tomkins Limited (“Tomkins”)
Tropicana Las Vegas, Inc. (“Tropicana Las Vegas”)
Investments made through Onex, Onex Partners I
and Onex Partners III
Res-Care, Inc. (“ResCare”)
Other investments
ONCAP II Fund (“ONCAP II”)
ONCAP III Fund (“ONCAP III”)
Onex Real Estate Partners (“Onex Real Estate”)
9%
68%
19%
–
9%
5%
15%
37%
19%
20%
24%
–
29%
20%
14%
17%
20%
46%
29%
88%
9%
68%
81%
–
40%
16%
49%
95%
49%
50%
60%
–
92%
59%
56%
76%
71%
88%
100%
–
89%
64%
(b)
100%
(b)
50%(b)
85%
–
100%
59%
50%(b)
76%
9%
68%
19%
12%
9%
7%
15%
38%
19%
20%
36%
36%
29%
–
14%
16%
9%
68%
81%
31%
40%
23%
49%
97%
49%
50%
91%
98%
92%
–
56%
74%
Voting
71%
88%
100%
82%
89%
74%
(b)
100%
(b)
50% (b)
100%
100%
100%
–
50% (b)
74%
98%
100%
20%
98%
100%
100%
100%
88%
100%
100%
100%
46%
–
86%
100%
–
86%
100%
–
100%
(a) EMSC and Husky were sold during the second quarter of 2011, as described in note 3.
(b) Onex exerts significant influence over these investments, which are designated at fair value through earnings, through its right to appoint members of the boards
of directors of these entities.
(c) Economic ownership and voting interests are presented on an as-converted basis. The allocation of net earnings and comprehensive earnings attributable to equity
holders of Onex Corporation and non-controlling interests is completed using an as-converted economic ownership of 68% to reflect certain JELD-WEN shares that are
recorded as liabilities at fair value.
The ownership percentages are before the effect of any potential dilution relating to the Management Investment Plans (the “MIP”), as
described in note 31(i). The allocation of net earnings and comprehensive earnings attributable to equity holders of Onex Corporation and
non-controlling interests is completed using the economic ownership of Onex and the Limited Partners.
The voting interests include shares that Onex has the right to vote through contractual arrangements or through multiple
voting rights attached to particular shares. In certain circumstances, the voting arrangements give Onex the right to elect the majority of
the boards of directors of the companies.
84 Onex Corporation December 31, 2011
N O T E S T O C O N S O L I D A T E D F I N A N C I A L S T A T E M E N T S
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
Operating companies may enter into agreements to sell
accounts receivable when considered appropriate, whereby the
The Company’s functional currency is the U.S. dollar, as it is the
accounts receivable are transferred to an unrelated third party.
currency of the primary economic environment in which it oper-
The transfers are recorded as sales of accounts receivable, as the
ates. For such operations, monetary assets and liabilities denomi-
operating companies do not retain any financial or legal interest
nated in foreign currencies are translated into U.S. dollars at the
in the sold accounts receivable. The accounts receivable are sold at
period-end exchange rates. Non-monetary assets and liabilities
their face value less a discount rate as provided in the agreements.
denominated in foreign currencies are translated at histori-
cal rates and revenue and expenses are translated at the average
Inventories
exchange rates prevailing during the month of the transaction.
Inventories are recorded at the lower of cost or net realizable
Exchange gains and losses also arise on the settlement of foreign-
value. To the extent economic circumstances have changed, pre-
currency denominated transactions. These exchange gains and
vious writedowns are reversed and recognized in the consolidated
losses are recognized in earnings.
statements of earnings in the period the reversal occurs. For
Assets and liabilities of foreign operations with non-U.S.
inventories in the aerostructures segment, costs are attributed to
dollar functional currencies are translated into U.S. dollars using
units delivered under long-term contracts based on the estimated
the period-end exchange rates. Revenue and expenses are trans-
average cost of all units expected to be produced. Certain inven-
lated at the average exchange rates prevailing during the month
tories in the healthcare and metal services segments are stated
of the transaction. Gains and losses arising from the translation of
using an average cost method. For substantially all other invento-
these foreign operations are deferred in the currency translation
ries, cost is determined on a first-in, first-out basis.
account included in equity.
Inventories include real estate assets that are available
for sale. Real estate assets held-for-sale are recorded at the lower
Cash and cash equivalents
of cost or net realizable value.
Cash and cash equivalents includes liquid investments such as
term deposits, money market instruments and commercial paper
Property, plant and equipment
with original maturities of less than three months. The invest-
Property, plant and equipment is recorded at cost less accumu-
ments are carried at cost plus accrued interest, which approximates
lated amortization and provisions for impairments, if any. Cost
fair value.
consists of expenditures directly attributable to the acquisition of
the asset. The costs of construction of qualifying long-term assets
Short-term investments
include capitalized interest, as applicable.
Short-term investments consist of liquid investments such as
Land is not amortized. For substantially all remaining
money market instruments and commercial paper with original
property, plant and equipment, amortization is provided for on
maturities of three months to a year. The investments are carried
a straight-line basis over the estimated useful lives of the assets
at fair value.
Accounts receivable
as follows:
Buildings
up to 50 years
Accounts receivable are recognized initially at fair value and sub-
Machinery and equipment
up to 20 years
sequently measured at amortized cost using the effective inter-
est method. A provision is recorded for impairment when there is
objective evidence (such as significant financial difficulties of the
debtor) that the Company will not be able to collect all amounts
due according to the original terms of the receivable. A provi-
sion expense is recorded as the difference between the carrying
value of the receivable and the present value of future cash flows
expected from the debtor, with an offsetting amount recorded as
an allowance, reducing the carrying value of the receivable. The
provision expense is included in operating expenses in the con-
solidated statements of earnings. When a receivable is considered
permanently uncollectible, the receivable is written off against the
allowance account.
Leasehold improvements
over the term of the lease
When components of an asset have a significantly different useful
life or residual value than the primary asset, the components are
amortized separately. Residual values, useful lives and methods
of amortization are reviewed at each fiscal year end and adjusted
prospectively.
Investment property
Investment property includes commercial property held to
earn rental income and property that is being constructed or
developed for future use as investment property. Investment
property is included with property, plant and equipment in the
consolidated balance sheets and recorded at cost less accumu-
lated amortization and provisions for impairments, if any.
Onex Corporation December 31, 2011 85
N O T E S T O C O N S O L I D A T E D F I N A N C I A L S T A T E M E N T S
The cost of investment property includes direct devel-
Goodwill
opment costs, property transfer taxes and borrowing costs direct-
Goodwill is initially measured as the excess of the aggregate of
ly attributable to the development of the property.
the consideration transferred, the fair value of any contingent
The Company’s investment property consists of
consideration, the amount of any non-controlling interest in
Flushing Town Center’s retail space and parking structures. The
the acquired company and, in a business combination achieved
fair value of Flushing Town Center’s investment property at
in stages, the fair value at the acquisition date of the Company’s
December 31, 2011 was approximately $437 (2010 – $470). The
previously held interest in the acquired company compared to
decrease in fair value of Flushing Town Center’s investment prop-
the net fair value of the acquiree’s identifiable assets and liabili-
erty during 2011 was primarily due to the sale of a portion of its
ties acquired. Substantially all of the goodwill and intangible
retail space. For the year ended December 31, 2011, property,
asset amounts that appear in the consolidated balance sheets
plant and equipment additions included $16 (2010 – $124) related
are recorded by the operating companies. The recoverability of
to Flushing Town Center’s investment property.
goodwill is assessed annually or whenever events or changes
Leases
in circumstances indicate that the carrying amount may not
be recoverable. Goodwill is allocated to cash generating units
Leases of property, plant and equipment where the Company has
(“CGUs”) of the acquisition that gave rise to the goodwill for the
substantially all the risks and rewards of ownership are classified
purposes of impairment testing. Impairment of goodwill is tested
as finance leases. Finance leases are capitalized at the lease’s
at the level where goodwill is monitored for internal management
commencement at the lower of the fair value of the leased prop-
purposes. Therefore, goodwill may be assessed for impairment
erty or the present value of the minimum lease payments.
at the level of either an individual CGU or a group of CGUs. The
Each lease payment is allocated between the liability
carrying amount of a CGU is compared to its recoverable amount,
and finance charges so as to achieve a constant interest rate on
which is the higher of its value-in-use or fair value less costs to
the balance outstanding. The corresponding lease obligations,
sell, to determine if an impairment exists. Impairment losses for
net of finance charges, are included in the consolidated balance
goodwill are not reversed in future periods.
sheets. Property, plant and equipment acquired under finance
Impairment charges recorded by the operating companies
leases is depreciated over the shorter of the useful life of the asset
under IFRS may not impact the fair values of the operating compa-
and the lease term.
nies used in determining the increase or decrease in investments
Leases in which a significant portion of the risks and
in associates, the change in carried interest and for calculating the
rewards of ownership are retained by the lessor are classified as
Limited Partners’ Interests liability.
operating leases. Payments made under operating leases (net of
any incentives received from the lessor) are recorded in the con-
Investments in associates
solidated statements of earnings on a straight-line basis over the
Associates are those entities over which the Company has
period of the lease.
Intangible assets
significant influence, but not control. Investments in associates
are designated, upon initial recognition, at fair value through earn-
ings in accordance with IAS 39, Financial Instruments: Recognition
Intangible assets, including intellectual property and software, are
and Measurement. As a result, the investments are recorded at fair
recorded at their fair value at the date of acquisition of the related
value in the consolidated balance sheets, with changes in fair value
operating company or cost if internally generated. Amortization is
recognized in the consolidated statements of earnings.
provided for intangible assets with limited life. For substantially
all limited life intangible assets, amortization is provided for on a
Impairment of long-lived assets
straight-line basis over their estimated useful lives as follows:
Property, plant and equipment and intangible assets are reviewed
Trademarks and licenses
1 year to 30 years
cumstances suggest that the carrying amount of an asset may not
for impairment annually or whenever events or changes in cir-
Customer relationships
3 years to 29 years
Computer software
Other
1 year to 10 years
1 year to 25 years
Intangible assets with indefinite useful lives are not amortized. The
assessment of indefinite life is reviewed annually. Changes in the
useful life from indefinite to finite are made on a prospective basis.
be recoverable. An impairment loss is recognized when the carry-
ing value of an asset or CGU exceeds the recoverable amount. The
recoverable amount of an asset or CGU is the greater of its value-
in-use or its fair value less costs to sell.
Impairment losses for long-lived assets are reversed in
future periods if the circumstances that led to the impairment
no longer exist. The reversal is limited to restoring the carrying
amount that would have been determined, net of amortization,
had no impairment loss been recognized in prior periods.
86 Onex Corporation December 31, 2011
N O T E S T O C O N S O L I D A T E D F I N A N C I A L S T A T E M E N T S
Other non-current assets
Acquisition costs relating to the financial services segment
to settle the obligation and the payment can be reliably estimated.
The Company’s significant provisions consist of the following:
Certain costs of the warranty business, principally commissions,
underwriting and sales expenses that vary with, and are pri-
a) Self-insurance
marily related to, the production of new business, are deferred
Self-insurance provisions are established for automobile, workers’
and amortized as the related premiums and contract fees are
compensation, general liability, professional liability and other
earned. The possibility of premium deficiencies and the related
claims. Provisions are established for claims based on an assess-
recoverability of deferred acquisition costs is evaluated annu-
ment of actual claims and claims incurred but not reported. The
ally. Management considers the effect of anticipated investment
reserves may be established based on consultation with third-par-
income in its evaluation of premium deficiencies and the related
ty independent actuaries using actuarial principles and assump-
recoverability of deferred acquisition costs. Deferred acquisition
tions that consider a number of factors, including historical claim
costs are derecognized when related contracts are either settled
payment patterns and changes in case reserves and the assumed
or cancelled.
rate of inflation in healthcare costs and property damage repairs.
Other current liabilities
Profit-sharing provisions relating to the
financial services segment
b) Warranty
Certain operating companies offer warranties on the sale of prod-
ucts or services. A provision is recorded to provide for future
Certain arrangements with producers of warranty contracts
warranty costs based on management’s best estimate of prob-
include profit-sharing provisions whereby the underwriting
able claims under these warranties. The provision is based on
profits, after a fixed percentage allowance for the company and an
the terms of the warranty, which vary by customer and product
allowance for investment income, are remitted to the producers
or service and historical experience. The appropriateness of the
on a retrospective basis. Unearned premiums and contract fees
provision is evaluated at each reporting period. The warranty pro-
subject to retrospective commission agreements totalled $400 at
visions exclude reserves recognized by The Warranty Group for its
December 31, 2011 (2010 – $500).
warranty contracts.
Financing charges
c) Restructuring
Financing charges consist of costs incurred by the operating com-
Restructuring provisions are recognized only when a detailed for-
panies relating to the issuance of debt and are amortized over the
mal plan for the restructuring – including the concerned business
term of the related debt or as the debt is retired, if earlier. These
or part of the business, the principal locations affected, details
financing charges are recorded against the carrying value of the
regarding the employees affected, the restructuring’s timing and
long-term debt, as described in note 12.
the expenditures that will have to be undertaken – has been devel-
Losses and loss adjustment expenses reserves
main features have already been publicly announced to those
oped and the restructuring has either commenced or the plan’s
Losses and loss adjustment expenses reserves relate to The
affected by it.
Warranty Group and represent the estimated ultimate net cost of
all reported and unreported losses incurred and unpaid through
Note 11 provides further details on provisions recognized by
December 31, 2011. The Warranty Group does not discount losses
the Company.
and loss adjustment expenses reserves. The reserves for unpaid
losses and loss adjustment expenses are estimated using individ-
Pension and non-pension post-retirement benefits
ual case-basis valuations and statistical analyses. Those estimates
The operating companies accrue their obligations under employ-
are subject to the effects of trends in loss severity and frequency
ee benefit plans and related costs, net of plan assets. The costs
and claims reporting patterns of the company’s third-party admin-
of defined benefit pensions and other post-retirement benefits
istrators. Although considerable variability is inherent in such
earned by employees are accrued in the period incurred and are
estimates, management believes the reserves for losses and loss
actuarially determined using the projected unit credit method
adjustment expenses are reasonable. The estimates are continu-
pro-rated on length of service, based on management’s best esti-
ally reviewed and adjusted as necessary as experience develops or
mates of items, including expected plan investment performance,
new information becomes known; such adjustments are included
salary escalation, retirement ages of employees, the discount rate
in current operations.
Provisions
used in measuring the liability and expected healthcare costs.
Plan assets are valued at fair value for the purposes of calculat-
ing expected returns on those assets. Past service costs from plan
A provision is a liability of uncertain timing or amount and is gen-
amendments are recognized immediately in earnings, unless the
erally recognized when the Company has a present obligation as
a result of a past event, it is probable that payment will be made
Onex Corporation December 31, 2011 87
N O T E S T O C O N S O L I D A T E D F I N A N C I A L S T A T E M E N T S
amendments have not vested, in which case they are deferred and
substantively enacted tax rate applicable to that income or loss.
amortized on a straight-line basis over the vesting period.
Tax expense or recovery is recognized in the income statement,
The value of any plan assets recognized is restricted to
except to the extent that it relates to items recognized directly in
the sum of any past service costs not yet recognized and the pres-
equity, in which case the tax effect is also recognized in equity.
ent value of any economic benefits available in the form of refunds
Deferred tax liabilities for taxable temporary differences
from the plan or reductions in future contributions to the plan.
associated with investments in subsidiaries, associates and joint
Actuarial gains (losses) arise from the difference between
ventures are recognized, except when the Company is able to
the actual long-term rate of return on plan assets and the expected
control the timing of the reversal of temporary differences and it
long-term rate of return on plan assets for a period or from changes
is probable that the temporary differences will not reverse in the
in actuarial assumptions used to determine the benefit obligation.
foreseeable future.
Actuarial gains (losses) are recognized in other comprehensive
In the ordinary course of business, there are transac-
earnings and directly recorded in retained earnings, without recog-
tions for which the ultimate tax outcome is uncertain. The final
nition to the consolidated statements of earnings.
tax outcome of these matters may be different from the estimates
Defined contribution plan accounting is applied to
originally made by the Company in determining its income tax
multi-employer defined benefit plans, for which the operating
provisions. The Company periodically evaluates the positions
companies have insufficient information to apply defined benefit
taken with respect to situations in which applicable tax rules and
accounting.
Limited Partners’ Interests
regulations are subject to interpretation. Provisions related to tax
uncertainties are established where appropriate based on the best
estimate of the amount that will ultimately be paid to or received
The interests of the Limited Partners and other investors through
from tax authorities. Accrued interest and penalties relating to tax
the Onex Partners and ONCAP Funds are recorded as a financial
uncertainties are recorded in current income tax expense.
liability in accordance with IAS 32, Financial Instruments: Presen-
tation. The structure of the Onex Partners and ONCAP Funds as
defined in the partnership agreements, specifically the limited
Revenue recognition
Electronics Manufacturing Services
life of the Funds, requires presentation of the Limited Partners’
Revenue from the electronics manufacturing services segment
Interests as a liability. The liability is recorded at fair value and
consists primarily of product sales and services. Revenue is recog-
is impacted by the change in fair value of the underlying invest-
nized upon delivery or when significant risks and rewards of own-
ments in the Onex Partners and ONCAP Funds, a reduction for
ership have been transferred to the customer and receivables are
unrealized carried interest as well as any contributions and dis-
reasonably assured of collection.
tributions in those Funds. Adjustments to the fair value of the
Limited Partners’ Interests are reflected through earnings and
Aerostructures
loss, net of the change in carried interest.
A significant portion of Spirit AeroSystems’ revenues is under
Income taxes
long-term volume-based pricing contracts, requiring delivery of
products over several years. Revenue from these contracts is recog-
Income taxes are recorded using the asset and liability method of
nized under the contract method of accounting in accordance with
income tax allocation. Under this method, assets and liabilities
IAS 11, Construction Contracts. Revenues and earnings are recog-
are recorded for the future income tax consequences attributable
nized on each contract by reference to the percentage-of-comple-
to differences between the financial statement carrying values of
tion of the contract activity primarily using the units-of-delivery
assets and liabilities and their respective income tax bases, and on
method. The contract method of accounting involves the use of
tax loss and tax credit carryforwards. Deferred tax assets are recog-
various estimating techniques to project costs at completion and
nized only to the extent that it is probable that taxable profit will
includes estimates of recoveries asserted against the customer for
be available against which the deductible temporary differences
changes in specifications. Due to the significant length of time over
as well as tax loss and tax credit carryforwards can be utilized.
which these estimates will be developed, the impact to recognized
These deferred income tax assets and liabilities are recorded using
revenues and costs may be significant if the estimates change.
substantively enacted income tax rates. The effect of a change in
These estimates involve various assumptions and projections rel-
income tax rates on these deferred income tax assets or liabili-
ative to the outcome of future events, including the quantity and
ties is included in income in the period in which the rate change
timing of product deliveries based on contractual terms and market
occurs. Certain of these differences are estimated based on the
projections. Also included are assumptions relative to future labour
current tax legislation and the Company’s interpretation thereof.
performance and rates, projections relative to material and over-
Income tax expense or recovery is based on the income
head costs and expected “learning curve” cost reductions over the
earned or loss incurred in each tax jurisdiction and the enacted or
term of the contract.
88 Onex Corporation December 31, 2011
N O T E S T O C O N S O L I D A T E D F I N A N C I A L S T A T E M E N T S
Where the outcome of a contract cannot be reliably
of the dealer cost. However, the company is primarily liable on
estimated, all contract related costs are expensed and revenues
these contracts and must refund the full amount of customer retail
are recognized only to the extent that those costs are recoverable.
price if the selling dealer or retailer cannot or will not refund its
When the outcome of such contracts becomes reliably estimat-
portion. The amount the company has historically been required
able, revenues are recognized prospectively.
to pay under such circumstances has been negligible. The poten-
The company periodically reevaluates its contract esti-
tially refundable excess of customer retail price over dealer cost at
mates and reflects changes in estimates in the current period, and
December 31, 2011 was $2,100 (2010 – $1,800).
uses the cumulative catch-up method of accounting for revisions
The company records revenue and associated unearned
in estimates of total revenue, total costs or extent of progress on
revenue at the customer retail price on warranty contracts issued
a contract.
by statutory insurance companies domiciled in Europe. The dif-
During the year ended December 31, 2011 the com-
ference between the customer retail price and dealer cost is rec-
pany recognized revenues of $4,684 (2010 – $4,039) for contracts
ognized as commission and deferred as a component of deferred
accounted under the contract method of accounting. Contracts
acquisition costs.
in progress at December 31, 2011 had incurred costs of $23,290
The company has dealer obligor and administrator obli-
(2010 – $19,012) and recognized earnings of $3,529 (2010 – $2,948).
gor service contracts with the dealers or retailers to facilitate the
Additionally, these contracts had received advances of $1,651
sale of extended warranty contracts. Dealer obligor service con-
(2010 – $1,563) and retentions of nil (2010 – nil). At December 31,
tracts result in sales of extended warranty contracts in which the
2011 the company was due $2,600 (2010 – $2,419) from custom-
dealer/retailer is designated as the obligor. Administrator obligor
ers for contract work and $5 (2010 – $5) was due to customers for
service contracts result in sales of extended warranty contracts in
contract work.
which the company is designated as the obligor. For both deal-
For revenues not recognized under the contract method
er obligor and administrator obligor, premium and/or contract
of accounting, Spirit AeroSystems recognizes revenues from the
fee revenue is recognized over the contractual exposure period
sale of products at the point of passage of title, which is generally
of the contracts or historical claim payment patterns. Unearned
at the time of shipment. Revenues earned from providing main-
premiums and contract fees on single-premium insurance relat-
tenance services, including any contracted research and devel-
ed to warranty agreements are calculated to result in premiums
opment, are recognized when the service is complete or other
and contract fees being earned over the period at risk. Factors are
contractual milestones are attained.
developed based on historical analyses of claim payment patterns
Healthcare
over the duration of the policies in force. All other unearned pre-
miums and contract fees are determined on a pro rata basis.
Revenue in the healthcare segment consists primarily of CDI’s
Reinsurance premiums, commissions, losses and loss
patient service and healthcare provider management service
adjustment expenses are accounted for on bases consistent with
revenue, Skilled Healthcare Group’s patient service revenue,
those used in accounting for the original policies issued and the
Carestream Health’s product sales revenue and ResCare’s client
terms of the reinsurance contracts. Premiums ceded to other
service revenue. Service revenue is recognized at the time of
companies have been reported as a reduction of revenue. Expense
service, if revenues and costs can be reliably measured and eco-
reimbursement received in connection with reinsurance ceded
nomic benefits are expected to be received, and is recorded net of
has been accounted for as a reduction of the related acquisition
provisions for contractual discounts and estimated uncompensat-
costs. Reinsurance receivables and prepaid reinsurance premium
ed care. Revenue from product sales is recognized when the fol-
amounts are reported as assets.
lowing criteria are met: significant risks and rewards of ownership
have been transferred; involvement in the capacity as an owner of
Customer Care Services
the goods has ceased; revenue and costs incurred can be reliably
The customer care services segment generates revenue primar-
measured; and economic benefits are expected to be realized.
ily through the provision of a wide array of outsourced customer
Financial Services
care management services, including customer service, techni-
cal support and customer acquisition, retention and revenue
The financial services segment revenue consists of revenue from
generation services. These services support its clients’ customers
The Warranty Group’s warranty contracts primarily in North
through phone, e-mail, online chat and interactive voice response
America and Europe. The company records revenue and associ-
and are generally charged by the minute or hour, per employee,
ated unearned revenue on warranty contracts issued by North
per subscriber or user, or on a per item basis for each transac-
American obligor companies at the net amount remitted by the
tion processed. Revenue is recognized to the extent that it is prob-
selling dealer or at retailer “dealer cost”. Cancellations of these
able that future economic benefits will be received and revenue
contracts are typically processed through the selling dealer or
can be reliably measured. A portion of the revenue is often subject
retailer, and the company refunds only the unamortized balance
Onex Corporation December 31, 2011 89
N O T E S T O C O N S O L I D A T E D F I N A N C I A L S T A T E M E N T S
to performance standards. Revenue subject to monthly or longer
services is recognized at the time of service, when revenues and
performance standards is recognized when such performance
costs can be reliably measured and economic benefits are expected
standards are met.
to be received by the company.
The company is reimbursed by clients for certain pass-
through out-of-pocket expenses, consisting primarily of tele-
Depending on the terms under which the operating companies
communication, employee performance incentive, and postage
supply product, they may also be responsible for some or all of
and shipping costs. The reimbursement and related costs are
the repair or replacement costs of defective products. The com-
reflected in the accompanying consolidated statements of earn-
panies establish provisions for issues that are probable and esti-
ings as revenue and cost of services, respectively.
mable in amounts management believes are adequate to cover
Metal Services
ultimate projected claim costs. The final amounts determined
to be due related to these matters could differ significantly from
The metal services segment generates revenue primarily through
recorded estimates.
raw materials procurement and slag processing, metal recovery
and metal sales.
Research and development
Revenue from raw materials procurement represents
Research and development activities can be either (a) contracted
sales to third parties whereby the company either purchases
or (b) self-initiated:
scrap iron and steel from a supplier and then immediately sells
the scrap to a customer, with shipment made directly from the
supplier to the third-party customer, or the company earns a con-
a) Costs for contracted research and development activities, car-
ried out in the scope of externally financed research and devel-
tractually determined fee for arranging scrap shipments for a cus-
opment contracts, are expensed when the related revenues are
tomer directly with a vendor. The company recognizes revenue
recorded.
from raw materials procurement sales when title and risk of loss
pass to the customer.
Revenue from slag processing, metal recovery and metal
b) Costs for self-initiated research and development activities
are assessed as to whether they qualify for recognition as inter-
sales is derived from the removal of slag from a furnace and pro-
nally generated intangible assets. Apart from complying with
cessing it to separate metallic material from other slag compo-
the general requirements for initial measurement of an intan-
nents. Metallic material is generally returned to the customer or
gible asset, qualification criteria are met only when technical as
sold to other end users and the non-metallic material is gener-
well as commercial feasibility can be demonstrated and cost can
ally sold to third parties. The company recognizes revenue from
be reliably measured. It must also be probable that the intan-
slag processing and metal recovery services when it performs the
gible asset will generate future economic benefits, be clearly
services and revenue from co-product sales when title and risk of
identifiable and allocable to a specific product. Further to meet-
loss pass to the customer.
Building Products
ing these criteria, only such costs that relate solely to the develop-
ment phase of a self-initiated project are capitalized. Any costs
that are classified as part of the research phase of a self-initiated
Revenue from the building products segment primarily consists
project are expensed as incurred. If the research phase cannot be
of product sales. Revenue is recognized when significant risks
clearly distinguished from the development phase, the respec-
and rewards of ownership have been transferred to the customer;
tive project-related costs are treated as if they were incurred in
involvement in the capacity as an owner of the goods has ceased;
the research phase only. Capitalized development costs are gen-
revenue and costs incurred can be reliably measured; and receiv-
erally amortized over the estimated number of units produced.
ables are reasonably assured of collection. Incentive payments
In cases where the number of units produced cannot be reliably
to customers are recorded as a reduction of revenue over the
estimated, capitalized development costs are amortized over the
periods benefited.
Other
estimated useful life of the internally generated intangible asset.
Internally generated intangible assets are reviewed for impair-
ment annually when the asset is not yet in use or when events or
Other segment revenues consist of product sales and services.
changes in circumstances indicate that the carrying amount may
Revenue from product sales is recognized when the following cri-
not be recoverable and the asset is in use.
teria are met: significant risks and rewards of ownership have been
During 2011, $162 (2010 – $182) in research and devel-
transferred; involvement in the capacity as an owner of the goods
opment costs were expensed and $22 of development costs
has ceased; revenue and costs incurred can be reliably measured;
(2010 – $22) were capitalized. Capitalized development costs relat-
and economic benefits are expected to be realized. Revenue from
ing to the aerostructures segment are included in intangible assets.
90 Onex Corporation December 31, 2011
N O T E S T O C O N S O L I D A T E D F I N A N C I A L S T A T E M E N T S
Stock-based compensation
paid on the Subordinate Voting Shares. The Company has recorded
The Company follows the fair value-based method of accounting,
a liability for the future settlement of the DSUs by reference to the
which is applied to all stock-based compensation plans.
value of underlying Subordinate Voting Shares at the balance sheet
There are five types of stock-based compensation plans.
date. On a quarterly basis, the liability is adjusted up or down for
The first is the Company’s Stock Option Plan (the “Plan”), described
the change in the market value of the underlying shares, with the
in note 18(e), which provides that in certain situations the Com-
corresponding amount reflected in the consolidated statements
pany has the right, but not the obligation, to settle any exercisable
of earnings. To hedge the Company’s exposure to changes in the
option under the Plan by the payment of cash to the option holder.
trading price of Onex shares associated with the Management DSU
The Company has recorded a liability for the potential future set-
Plan, the Company enters into forward agreements with a counter-
tlement of the vested options at the balance sheet date by refer-
party financial institution for all grants under the Management DSU
ence to the fair value of the liability. The liability is adjusted each
Plan. As such, the change in value of the forward agreements will be
reporting period for changes in the fair value of the options with
recorded to offset the amounts recorded as stock-based compensa-
the corresponding amount reflected in the consolidated state-
tion under the Management DSU Plan. The administrative costs of
ments of earnings.
those arrangements are borne entirely by participants in the plan.
The second type of plan is the MIP, which is described
Management DSUs are redeemable only for cash and no shares or
in note 31(i). The MIP provides that exercisable investment rights
other securities of the Corporation will be issued on the exercise,
may be settled by issuance of the underlying shares or, in cer-
redemption or other settlement thereof.
tain situations, by a cash payment for the value of the investment
The fifth type of plan is employee stock option and
rights. The Company has recorded a liability for the potential
other stock-based compensation plans in place for employees at
future settlement of the vested rights at the balance sheet date by
various operating companies, under which, on payment of the
reference to the fair value of the liability. The liability is adjusted
exercise price, stock of the particular operating company or cash
each reporting period for changes in the fair value of the rights
is issued. The Company records a compensation expense for such
with the corresponding amount reflected in the consolidated
options based on the fair value over the vesting period.
statements of earnings.
The third type of plan is the Director Deferred Share
Unrealized carried interest
Unit Plan. A Deferred Share Unit (“DSU”) entitles the holder to
Onex, as the General Partner of the Onex Partners and ONCAP
receive, upon redemption, a cash payment equivalent to the mar-
Funds, is entitled to a portion (20%) of the realized net gains of
ket value of a Subordinate Voting Share at the redemption date.
third-party limited partners in each Fund. This share of the net
The Director DSU Plan enables Onex directors to apply direc-
gains is referred to as carried interest. Onex is entitled to 40% of
tors’ fees earned to acquire DSUs based on the market value of
the carried interest realized in the Onex Partners and ONCAP
Onex shares at the time. Grants of DSUs may also be made to
Funds. The Onex management team is entitled to the remaining
Onex directors from time to time. The DSUs vest immediately, are
60% of the carried interest realized in the Onex Partners Funds
redeemable only when the holder retires and must be redeemed
and the ONCAP management team is entitled to the remaining
within one year following the year of retirement. Additional
60% of the carried interest realized in the ONCAP Funds.
units are issued for any cash dividends paid on the Subordinate
The unrealized carried interest of the Onex Partners and
Voting Shares. The Company has recorded a liability for the future
ONCAP Funds is calculated based on the fair values of the underly-
settlement of the DSUs by reference to the value of underlying
ing investments and the overall unrealized gains in each respec-
Subordinate Voting Shares at the balance sheet date. On a quar-
tive Fund in accordance with the limited partnership agreements.
terly basis, the liability is adjusted up or down for the change in
The unrealized carried interest reduces the amount due to the
the market value of the underlying shares, with the corresponding
Limited Partners and will eventually be paid through the realiza-
amount reflected in the consolidated statements of earnings.
tion of the Limited Partners’ share of the underlying Onex Partners
The fourth type of plan is the Management Deferred
and ONCAP Fund investments. The change in net unrealized car-
Share Unit Plan (“Management DSU Plan”). The Management
ried interest attributable to Onex is recognized through a reduced
DSU Plan enables Onex management to apply all or a portion of
charge for the Limited Partners’ Interests. The unrealized carried
their annual compensation earned to acquire DSUs based on the
interest of the Onex Partners and ONCAP Funds attributable to
market value of Onex shares at the time. The DSUs vest immedi-
management is recognized as a liability within other non-current
ately and are redeemable only when the holder has ceased to be
liabilities. The charge for the change in net unrealized carried
an officer or employee of the Company or an affiliate for a cash
interest attributable to management is recorded within other
payment equal to the then current market price of Subordinate
items in the consolidated statements of earnings.
Voting Shares. Additional units are issued for any cash dividends
Onex Corporation December 31, 2011 91
N O T E S T O C O N S O L I D A T E D F I N A N C I A L S T A T E M E N T S
Financial assets and financial liabilities
d) Loans and receivables
Financial assets and financial liabilities are initially recognized
Financial assets that are non-derivative with fixed or determinable
at fair value and are subsequently accounted for based on their
payments that are not quoted in an active market are classified
classification as described below. Transaction costs in respect of
as loans and receivables. These instruments are accounted for at
an asset or liability not recorded at fair value through net earn-
amortized cost using the effective interest rate method.
ings are added to the initial carrying amount. The classification
depends on the purpose for which the financial instruments were
e) Financial liabilities measured at amortized cost
acquired and their characteristics. Except in very limited circum-
Financial liabilities not classified as fair value through net earn-
stances, the classification is not changed subsequent to initial
ings or loans and receivables are accounted at amortized cost
recognition. Financial assets purchased and sold, where the con-
using the effective interest rate method. Long-term debt has been
tract requires the asset to be delivered within an established time
designated as a financial liability measured at amortized cost.
frame, are recognized on a trade-date basis.
Derivatives and hedge accounting
a) Fair value through net earnings
At the inception of a hedging relationship, the Company docu-
Financial assets and financial liabilities that are purchased and
ments the relationship between the hedging instrument and the
incurred with the intention of generating earnings in the near
hedged item, its risk management objectives and its strategy for
term are classified as fair value through net earnings. Other
undertaking the hedge. The Company also requires a documented
instruments may be designated as fair value through net earnings
assessment, both at hedge inception and on an ongoing basis, of
on initial recognition.
b) Available-for-sale
whether or not the derivatives that are used in the hedging transac-
tions are highly effective in offsetting the changes attributable to
the hedged risks in the fair values or cash flows of the hedged items.
Financial assets classified as available-for-sale are carried at fair
Derivatives that are not designated as effective hedg-
value, with the changes in fair value recorded in other comprehen-
ing relationships continue to be accounted for at fair value with
sive earnings. Securities that are classified as available-for-sale and
changes in fair value being included in other items in the consoli-
do not have a quoted price in an active market are recorded at fair
dated statements of earnings.
value, unless fair value is not reliably determinable, in which case
When derivatives are designated as effective hedging
they are recorded at cost. Available-for-sale securities are writ-
relationships, the Com pany classifies them either as: (a) hedges of
ten down to fair value through earnings whenever it is necessary
the change in fair value of recognized assets or liabilities or firm
to reflect an impairment. Gains and losses realized on disposal
commitments (fair value hedges); (b) hedges of the variability in
of available-for-sale securities, which are calculated on an aver-
highly probable future cash flows attributable to a recognized
age cost basis, are recognized in earnings. Impairments are deter-
asset or liability or a forecasted transaction (cash flow hedges); or
mined based upon all relevant facts and circumstances for each
(c) hedges of net investments in a foreign self-sustaining operation
investment and recognized when appropriate. Foreign exchange
(net investment hedges).
gains and losses on available-for-sale assets are recognized imme-
diately in earnings.
a) Fair value hedges
c) Held-to-maturity investments
The Company’s fair value hedges principally consist of inter-
est rate swaps that are used to protect against changes in the fair
Securities that have fixed or determinable payments and a fixed
value of fixed-rate long-term financial instruments due to move-
maturity date, which the Company intends and has the ability to
ments in market interest rates.
hold to maturity, are classified as held-to-maturity and account-
Changes in the fair value of derivatives that are desig-
ed for at amortized cost using the effective interest rate method.
nated and qualify as fair value hedging instruments are recorded
Investments classified as held-to-maturity are written down to
in the consolidated statements of earnings, along with changes
fair value through earnings whenever it is necessary to reflect an
in the fair value of the assets, liabilities or group thereof that are
impairment. Impairments are determined based on all relevant
attributable to the hedged risk.
facts and circumstances for each investment and recognized
when appropriate.
92 Onex Corporation December 31, 2011
N O T E S T O C O N S O L I D A T E D F I N A N C I A L S T A T E M E N T S
b) Cash flow hedges
De-recognition of financial instruments
The Company is exposed to variability in future interest cash
A financial asset is de-recognized if substantially all risks and
flows on non-trading assets and liabilities that bear interest at
rewards of ownership and, in certain circumstances, control of the
variable rates or are expected to be reinvested in the future.
financial asset are transferred. A financial liability is de-recognized
The effective portion of changes in the fair value of
when it is extinguished, with any gain or loss on extinguishment
derivatives that are designated and qualify as cash flow hedges is
to be recognized in other items in the consolidated statements
recognized in other comprehensive earnings. Any gain or loss in
of earnings.
fair value relating to the ineffective portion is recognized imme-
diately in the consolidated statements of earnings in other items.
Government assistance
Amounts accumulated in other comprehensive earnings
The operating companies may receive government assistance in
are reclassified in the consolidated statements of earnings in the
the form of grants or investment tax credits for the acquisition of
period in which the hedged item affects earnings. However, when
capital assets and other expenditures. Government assistance is
the forecasted transaction that is hedged results in the recogni-
recognized when there is reasonable assurance that the operating
tion of a non-financial asset or a non-financial liability, the gains
companies will realize the benefits. Government assistance relat-
and losses previously deferred in other comprehensive earnings
ing to the acquisition of capital assets is deducted from the costs
are transferred from other comprehensive earnings and included
of the related assets and amortization is calculated on the net
in the initial measurement of the cost of the asset or liability.
amount. Other forms of government assistance relating to oper-
When a hedging instrument expires or is sold, or when
ating expenditures are recorded as a reduction of the expense at
a hedge no longer meets the criteria for hedge accounting, any
the time the expense is incurred.
cumulative gain or loss existing in other comprehensive earnings
at that time remains in other comprehensive earnings until the
Assets held-for-sale and discontinued operations
forecasted transaction is eventually recognized in the consolidated
An asset is classified as held-for-sale if its carrying amount will be
statements of earnings. When a forecasted transaction is no longer
recovered by sale rather than by continuing use in the business, the
expected to occur, the cumulative gain or loss that was reported in
asset is available for immediate sale in its present condition, and
other comprehensive earnings is immediately transferred to the
management is committed to, and has initiated, a plan to sell the
consolidated statements of earnings.
asset which, when initiated, is expected to result in a completed
c) Net investment hedges
sale within 12 months. An extension of the period required to com-
plete the sale does not preclude the asset from being classified
Hedges of net investments in foreign operations are accounted for
as held-for-sale, provided the delay is for reasons beyond the
in a manner similar to cash flow hedges. Any gain or loss on the
Company’s control and management remains committed to its
hedging instrument relating to the effective portion of the hedge
plan to sell the asset. Assets that are classified as held-for-sale are
is recognized in other comprehensive earnings. The gain or loss
measured at the lower of their carrying amount or fair value less
relating to the ineffective portion is recognized immediately in
costs to sell and are no longer depreciated. At December 31, 2011,
the consolidated statements of earnings in other items. Gains and
assets classified as held-for-sale totalled $124, which primarily
losses accumulated in other comprehensive earnings are included
consisted of JELD-WEN’s non-core assets and operations that are
in the consolidated statements of earnings upon the reduction or
being sold as contemplated in the original transaction.
disposal of the investment in the foreign operation.
A discontinued operation is a component of the
Impairment of financial instruments
Company that has either been disposed of, or satisfies the criteria
to be classified as held-for-sale, and represents a separate major
The Company assesses at each reporting date whether there
line of business or geographic area of operations, is part of a sin-
is objective evidence that a financial asset or group of financial
gle coordinated plan to dispose of a separate major line of busi-
assets is impaired. Where an impairment exists for available-for-
ness or geographic area of operations, or is an operating company
sale financial assets, the cumulative loss, measured as the differ-
acquired exclusively with a view to its disposal.
ence between the acquisition cost and the current fair value, less
any impairment loss on that financial asset previously recognized
in earnings, is removed from equity and recognized in earnings.
Onex Corporation December 31, 2011 93
N O T E S T O C O N S O L I D A T E D F I N A N C I A L S T A T E M E N T S
Use of estimates
considered comparable to the private companies being valued
The preparation of financial statements in conformity with IFRS
and discounted cash flows. The valuations take into consideration
requires management to make estimates and assumptions that
company-specific items, the lack of liquidity inherent in a non-
affect the reported amounts of assets and liabilities, the related
public investment and the fact that comparable public companies
disclosures of contingent assets and liabilities at the date of the
are not identical to the companies being valued. Considerations
financial statements, and the reported amounts of revenue and
are necessary because, in the absence of a committed buyer and
expenses during the reporting period. Actual results could differ
completion of due diligence similar to that performed in an actu-
materially from those estimates and assumptions. These esti-
al negotiated sale process, there may be company-specific items
mates and underlying assumptions are reviewed on an ongoing
that are not fully known that may affect value. In addition, a vari-
basis. Revisions to accounting estimates are recognized in the
ety of additional factors are reviewed by management, including,
period in which the estimate is revised if the revision affects only
but not limited to, financing and sales transactions with third
that period, or in the period of the revision and future periods if
parties, current operating performance and future expectations
the revision affects both current and future periods.
of the particular investment, changes in market outlook and the
Subjects that involve critical assumptions and estimates
third-party financing environment. In determining changes to the
and that have a significant influence on the amounts recognized
valuations, emphasis is placed on current company performance
in the audited annual consolidated financial statements are fur-
and market conditions.
ther described as follows:
Business combinations
In a business combination, all identifiable assets, liabilities and
Investments in associates designated at fair value are
measured with significant unobservable inputs (level 3 of the fair
value hierarchy), with the exception of ResCare (prior to November
2010) and Hawker Beechcraft debt, which are measured with sig-
contingent liabilities acquired are recorded at the date of acqui-
nificant other observable inputs (level 2 of the fair value hierarchy).
sition at their respective fair values. One of the most significant
Further information is provided in notes 8 and 28.
estimates relates to the determination of the fair value of these
assets and liabilities. Land, buildings and equipment are usually
Goodwill impairment tests and recoverability of assets
independently appraised while short-term investments are valued
The Company tests at least annually whether goodwill has suf-
at market prices. If any intangible assets are identified, depending
fered any impairment, in accordance with its accounting policies.
on the type of intangible asset and the complexity of determining
The determination of the recoverable amount of a CGU (or group
its fair value, an independent external valuation expert may devel-
of CGUs) to which goodwill is allocated involves the use of esti-
op the fair value, using appropriate valuation techniques, which
mates by management. The Company generally uses discounted
are generally based on a forecast of the total expected future net
cash flow-based methods to determine these values. These dis-
cash flows. These valuations are linked closely to the assumptions
counted cash flow calculations typically use five-year projections
made by management regarding the future performance of the
that are based on the operative plans approved by management.
assets concerned and any changes in the discount rate applied.
Cash flow projections take into account past experience and rep-
In certain circumstances where estimates have been
resent management’s best estimate of future developments. Cash
made, the companies may obtain third-party valuations of certain
flows after the planning period are extrapolated using estimated
assets, which could result in further refinement of the fair-value
growth rates. Key assumptions on which management has based
allocation of certain purchase prices and accounting adjustments.
its determination of fair value less costs to sell and value-in-use
Investments in associates
include estimated growth rates, weighted average cost of capital
and tax rates. These estimates, including the methodology used,
Investments in operating companies over which the Company
can have a material impact on the respective values and ulti-
has significant influence, but not control, are recorded at fair
mately the amount of any goodwill impairment. Note 24 provides
value. The fair value of investments in associates is assessed at
details on the significant estimates used in the calculation of the
each reporting date with changes to the values being recorded
recoverable amounts for impairment testing. Likewise, whenever
through earnings. The valuation of these non-public invest-
property, plant and equipment and other intangible assets are
ments requires significant judgement by the Company due to the
tested for impairment, the determination of the assets’ recoverable
absence of quoted market values, inherent lack of liquidity and
amount involves the use of estimates by management and can
the long-term nature of such assets. Valuation methodologies
have a material impact on the respective values and ultimately the
include observations of the trading multiples of public companies
amount of any impairment.
94 Onex Corporation December 31, 2011
N O T E S T O C O N S O L I D A T E D F I N A N C I A L S T A T E M E N T S
Limited Partners’ Interests
inability to secure contracts with suppliers at projected cost
The interests of the Limited Partners and other investors through
levels. The ability to recover these excess costs from the cus-
the Onex Partners and ONCAP Funds are recorded at fair value,
tomer will depend on several factors, including the Company’s
which is significantly driven by estimates of the fair values of
rights under its contracts for the new programs. The recogni-
the Company’s investments held by the Onex Partners and
tion of earnings and loss under these new contracts requires the
ONCAP Funds. The valuation of non-public investments requires
Company to make significant assumptions regarding its future
significant judgement by the Company due to the absence of
costs, ability to achieve cost reduction opportunities, as well as
quoted market values, inherent lack of liquidity and the long-term
the estimated number of units to be manufactured under the
nature of such assets. Valuation methodologies include observa-
contract and other variables.
tions of the trading multiples of public companies considered com-
•
Revenues for Skilled Healthcare Group and ResCare in the
parable to the private companies being valued and discounted cash
healthcare segment are substantially derived from federal,
flows. The valuations take into consideration company-specific
state and local government agencies, including Medicare and
items, the lack of liquidity inherent in a non-public investment and
Medicaid programs. Laws and regulations under these pro-
the fact that comparable public companies are not identical to the
grams are complex and subject to interpretation. Management
companies being valued. Considerations are necessary because, in
of those businesses believes that they are in compliance with
the absence of a committed buyer and completion of due diligence
all applicable laws and regulations. Compliance with such laws
similar to that performed in an actual negotiated sale process, there
and regulations is subject to ongoing and future government
may be company-specific items that are not fully known that may
review and interpretation, including processing claims at lower
affect value. In addition, a variety of additional factors are reviewed
amounts upon audit as well as significant regulatory action
by management, including, but not limited to, financing and sales
including revenue adjustments, fines, penalties and exclusion
transactions with third parties, current operating performance and
from programs. Government agencies may condition their
future expectations of the particular investment, changes in market
contracts upon a sufficient budgetary appropriation. If a gov-
outlook and the third-party financing environment. In determining
ernment agency does not receive an appropriation sufficient
changes to the valuations, emphasis is placed on current company
to cover its contractual obligations, it may terminate the con-
performance and market conditions. For publicly traded invest-
tract or defer or reduce reimbursements to be received by the
ments, the valuation is based on closing market prices less adjust-
Company. In addition, previously appropriated funds could
ments, if any, for regulatory and/or contractual sale restrictions.
also be reduced or eliminated through subsequent legislation.
Included in the measurement of the Limited Partners’
Interests is a deduction for the estimated unrealized carried inter-
Income taxes
est of the Onex Partners and ONCAP Funds.
The Company, including the operating companies, operates and
The Limited Partners’ Interests are measured with sig-
earns income in numerous countries and is subject to chang-
nificant unobservable inputs (level 3 of the fair value hierarchy).
ing tax laws in multiple jurisdictions within these countries.
Further information is provided in note 17.
Significant judgements are necessary in determining the world-
Revenue recognition
wide income tax liabilities. Although management believes that
it has made reasonable estimates about the final outcome of tax
•
The Company’s accounting for construction contracts in the
uncertainties, no assurance can be given that the final outcome
aerostructures segment involves critical assumptions and esti-
of these tax matters will be consistent with what is reflected in the
mates which have a significant influence on the amounts rec-
historical income tax provisions. Such differences could have an
ognized in the audited annual consolidated financial state-
effect on the income tax liabilities and deferred tax liabilities in
ments. The revenue recognition policy for the aerostructures
the period in which such determinations are made. At each bal-
segment above provides a description of the critical assump-
ance sheet date, the Company assesses whether the realization of
tions and estimates used by the Company. A significant portion
future tax benefits is sufficiently probable to recognize deferred tax
of future revenues in the aerostructures segment is expected to
assets. This assessment requires the exercise of judgement on the
be derived from new programs for which the Company may be
part of management with respect to, among other things, benefits
contracted to provide design and engineering services, recur-
that could be realized from available tax strategies and future tax-
ring production, or both. There are several risks inherent in
able income, as well as other positive and negative factors. The
such new programs. In the design and engineering phase, the
recorded amount of total deferred tax assets could be reduced if
Company may incur costs in excess of our forecasts due to sev-
estimates of projected future taxable income and benefits from
eral factors, including cost overruns, customer directed change
available tax strategies are lowered, or if changes in current tax
orders and delays in the overall program. The Company may
regulations are enacted that impose restrictions on the timing or
also incur higher than expected recurring production costs,
extent of the Company’s ability to utilize future tax benefits.
which may be caused by a variety of factors, including the future
impact of engineering changes (or other change orders) or an
Onex Corporation December 31, 2011 95
N O T E S T O C O N S O L I D A T E D F I N A N C I A L S T A T E M E N T S
Legal contingencies
Dividend distributions
The Company and its operating companies in the normal course
Dividend distributions to the shareholders of Onex Corporation
of operations become involved in various legal proceedings, as
are recognized as a liability in the consolidated balance sheets in
described in note 31. While the Company cannot predict the
the period in which the dividends are declared and authorized by
final outcome of such legal proceedings, the outcome of these
the Board of Directors.
matters may have a material effect on the Company’s consoli-
dated financial position, results of operations or cash flows.
Management regularly analyzes current information about these
matters and provides provisions for probable contingent losses,
including the estimate of legal expenses to resolve the matters.
Internal and external lawyers are used for these assessments. In
R E C E N T L Y I S S U E D A C C O U N T I N G P R O N O U N C E M E N T S
Standards, amendments and interpretations
not yet adopted or effective
Accounting for Costs Associated with Acquiring
or Renewing Insurance Contracts
making the decision regarding the need for provisions, manage-
In accordance with IFRS 4, Insurance Contracts, an entity is per-
ment considers the degree of probability of an unfavourable out-
mitted to change its accounting policies for insurance contracts if,
come and the ability to make a sufficiently reliable estimate of the
and only if, the change makes the financial statements more rel-
amount of loss. The filing of a suit or formal assertion of a claim or
evant to the economic decision-making needs of users and no less
the disclosure of any such suit or assertion does not automatically
reliable, or more reliable and no less relevant to those needs. In
indicate that a provision may be appropriate.
October 2010, the Financial Accounting Standards Board (“FASB”)
Employee benefits
issued new guidance on the accounting for costs associated
with acquiring or renewing insurance contracts. The new guid-
Onex, the parent company, does not provide pension, other
ance, which will impact The Warranty Group’s results, modifies
retirement or post-retirement benefits to its employees or to
the definition of the types of costs incurred that can be capital-
those of any of the operating companies. The operating compa-
ized in the acquisition of new and renewal insurance contracts
nies account for pension and other post-retirement benefits in
and restricts the capitalization of acquisition costs to those that
accordance with actuarial valuations. These valuations rely on
are related directly to the successful acquisition of new or renewal
statistical and other factors in order to anticipate future events.
insurance contracts. The Company will be retroactively adopting
These factors include key actuarial assumptions, including
the new guidance as an accounting policy change on January 1,
the discount rate, expected return on plan assets, expected sal-
2012. As a result of this change in accounting policy, the Company
ary increases and mortality rates. These actuarial assumptions
expects to defer fewer costs and record lower amortization. The
may differ materially from actual developments due to changing
Company is currently evaluating the full effects of implementing
market and economic conditions and therefore may result in a
the new policy.
significant change in post-retirement employee benefit obliga-
tions and the related future expense. Note 32 provides details on
Reporting Entity Standards
the estimates used in accounting for pensions and post-retire-
In May 2011, the IASB issued a group of five new standards that
ment benefits.
Stock-based compensation
addresses the scope and accounting for the reporting entity.
The new standards consist of amendments to IAS 27, which was
renamed Separate Financial Statements, amendments to IAS 28,
The Company’s stock-based compensation accounting for its
which was renamed Investments in Associates and Joint Ventures,
MIP options is completed using an internally developed valuation
IFRS 10 – Consolidated Financial Statements, IFRS 11 – Joint
model. The critical assumptions and estimates used in the valu-
Arrangements and IFRS 12 – Disclosure of Interests in Other Entities.
ation model include the fair value of the underlying investments,
These five new standards are effective for annual periods begin-
the time to expected exit from each investment, a risk-free rate
ning on or after January 1, 2013. The Company is currently evalu-
and an industry comparable historical volatility for each invest-
ating the impact of adopting these standards on its consolidated
ment. The fair value of the underlying investments includes criti-
financial statements. A description of the significant changes and
cal assumptions and estimates as described above for investments
new requirements is included below.
in associates and Limited Partners’ Interests.
• IFRS 10 establishes the principles for the presentation and
Earnings per share
preparation of consolidated financial statements when an
entity controls one or more other entities. IFRS 10 introduces
Basic earnings per share is based on the weighted average number
a single consolidation model for all entities based on control,
of Subordinate Voting Shares outstanding during the year. Diluted
irrespective of the nature of the entity. IFRS 10 supersedes all
earnings per share is calculated using the treasury stock method.
of the guidance in IAS 27, Consolidated and Separate Financial
Statements and Standing Interpretations Committee 12,
Consolidation – Special Purpose Entities.
96 Onex Corporation December 31, 2011
N O T E S T O C O N S O L I D A T E D F I N A N C I A L S T A T E M E N T S
• IFRS 11 establishes the principles for determining the type of
IFRS 9 – Financial Instruments
joint arrangements and the accounting for those arrangements in
In November 2009, the IASB issued IFRS 9, Financial Instruments,
accordance with that type of joint arrangement. IFRS 11 reduces
which represents the first phase of its replacement of IAS 39,
the types of joint arrangements and eliminates use of the propor-
Financial Instruments: Recognition and Measurement, and intro-
tionate consolidation method for joint ventures. IFRS 11 super-
duces new requirements for the classification and measurement
sedes all of the guidance in IAS 31, Interests in Joint Ventures.
of financial assets and removes the need to separately account
• IFRS 12 provides the disclosure requirements for entities
for certain embedded derivatives. IFRS 9 is effective for annual
reported under IFRS 10 and IFRS 11 and replaces the disclosure
periods beginning on or after January 1, 2015. The Company is
requirements currently in IAS 28, Investments in Associates.
currently evaluating the impact of adopting this standard on its
IFRS 12 requires the disclosure of the nature, risks and financial
consolidated financial statements.
effects associated with the entity’s interests in subsidiaries,
associates, joint arrangements and unconsolidated structured
2 . A C Q U I S I T I O N S
entities.
• IAS 28 prescribes the use of the equity method for investments
in associates and joint ventures. IAS 28 applies to all entities
that are investors with joint control of, or significant influence
over, an investee. However, IAS 28 retains the ability of the
Company to designate its investments in associates, upon ini-
tial recognition, at fair value through earnings.
IFRS 13 – Fair Value Measurement
In May 2011, the IASB issued IFRS 13, Fair Value Measurement,
which provides a single framework for measuring fair value and
requires enhanced disclosures when fair value is used for mea-
surement. IFRS 13 is effective for annual periods beginning on or
after January 1, 2013. The Company is currently evaluating the
impact of adopting this standard on its consolidated financial
statements.
IAS 19 – Employee Future Benefits
In June 2011, the IASB issued an amendment to IAS 19, Employee
Future Benefits, which changes the recognition, measurement and
presentation of defined benefit pension expense and provides for
additional disclosures of all employee benefits. The amendments
to IAS 19 are effective for annual periods beginning on or after
January 1, 2013. The Company is currently evaluating the impact
of adopting this standard on its consolidated financial statements.
IAS 1 – Presentation of Financial Statements
In June 2011, the IASB issued an amendment to IAS 1, Presen-
tation of Financial Statements, which requires entities to sepa-
rately present items in other comprehensive earnings based on
whether they may be recycled to earnings or loss in future peri-
ods. The amendment to IAS 1 is effective for annual periods
beginning on or after July 1, 2012. The impact of adopting this
standard is not expected to have a significant effect on the con-
solidated financial statements.
During 2011 and 2010 several acquisitions, which were accounted
for as business combinations, were completed either directly by
Onex or through subsidiaries of Onex. Any third-party borrowings
in respect of these acquisitions are without recourse to Onex.
Business combinations are accounted for using the pur-
chase method. The cost of an acquisition is measured as the fair
value of the assets given, equity instruments issued and liabilities
incurred or assumed at the date of exchange. Identifiable assets
acquired and liabilities and contingent liabilities assumed in a
business combination are measured initially at fair values at the
date of acquisition, irrespective of the extent of any non-control-
ling interests. Any non-controlling interests in the acquired com-
pany are measured either at fair value or at the non-controlling
interest’s proportionate share of the identifiable assets and liabili-
ties of the acquired business. The fair values are determined using
a combination of valuation techniques, including discounted cash
flows and projected earnings multiples, and allocated to the assets
and liabilities accordingly. The key inputs to the model include
assumptions related to the future customer demand, material and
employee-related costs, changes in mix of product and services
produced or delivered and restructuring programs. The excess
of the aggregate of the consideration transferred, the amount of
any non-controlling interests in the acquired company and, in a
business combination achieved in stages, the fair value at the
acquisition date of the Company’s previously held interest in the
acquired company compared to the fair value of the identifiable
net assets acquired is recorded as goodwill. Acquisition-related
costs are expensed as incurred and related restructuring charges
are expensed in the periods after the acquisition date. Subsequent
changes in the fair value of contingent consideration recorded as
a liability at the acquisition date are recognized in earnings or loss.
In certain circumstances where estimates have been
made, the companies are obtaining third-party valuations of cer-
tain assets, which could result in further refinement of the fair-
value allocation of certain purchase prices and accounting adjust-
ments. The results of operations for all acquired businesses are
included in the consolidated statements of earnings, comprehen-
sive earnings and equity of the Company from their respective
dates of acquisition.
Onex Corporation December 31, 2011 97
N O T E S T O C O N S O L I D A T E D F I N A N C I A L S T A T E M E N T S
2 0 1 1 A C Q U I S I T I O N S
Details of the purchase price and allocation for the 2011 acquisitions are as follows:
Cash and cash equivalents
Other current assets
Intangible assets with limited life
Intangible assets with indefinite life
Goodwill
Property, plant and equipment and other non-current assets
Current liabilities
Non-current liabilities
Non-controlling interests in net assets
ONCAP(a)
Celestica(b)
JELD-WEN(c)
$ 52
$ 1
$ 138
196
262
188
278
267
1,243
(211)
(824)(1)
208
(64)
50
13
–
34
1
99
(17)
–
82
–
859
114
256
119
1,384
2,870
(661)
(1,182)(2)
1,027
(327)
Other(d)
$ –
3
6
1
41
9
60
(1)
–
59
–
Total
$ 191
1,108
395
445
472
1,661
4,272
(890)
(2,006)
1,376
(391)
Interest in net assets acquired
$ 144
$ 82
$ 700
$ 59
$ 985
(1) Included in non-current liabilities of ONCAP is $201 of acquisition financing provided by ONCAP, of which Onex’ share was $85.
(2) Included in non-current liabilities of JELD-WEN is $171 of acquisition financing provided by the Company, of which Onex’ share was $58.
a) In May 2011, ONCAP II completed the acquisition of a major-
ity of the issued and outstanding shares of Pinnacle Pellet, Inc.
In December 2011, ONCAP III completed the acqui-
sition of Davis-Standard Holdings, Inc. (“Davis-Standard”), a
(“Pinnacle Renewable Energy Group”). Pinnacle Renewable
Connecticut, United States headquartered designer, manufac-
Energy Group is a British Columbia, Canada headquartered pro-
turer and supplier of highly engineered extrusion and converting
ducer of wood pellets for markets around the world. Onex and
machinery systems. Onex and ONCAP III have an approximate
ONCAP II have an approximate 60% equity ownership in Pinnacle
90% ownership in Davis-Standard, of which Onex’ equity owner-
Renewable Energy Group, of which Onex’ equity ownership is 29%.
ship is 26%.
In May 2011, ONCAP II completed the acquisition of
Onex, ONCAP II, ONCAP III and management of Onex
Crown Amusements Ltd. (“Casino ABS”). Casino ABS is the largest
and ONCAP invested a total of $324 in these investments, of
casino operator in the Alberta, Canada market, with four casinos.
which Onex’ investment was $123.
In December 2011, ONCAP III purchased approximately 22% of
In addition, ONCAP includes acquisitions made by
Casino ABS from ONCAP II at the same cost basis as ONCAP II’s
Caliber Collision Centers (“Caliber Collision”), Hopkins, Mister
original investment. Onex, ONCAP II and ONCAP III have close
Car Wash and BSN SPORTS, formerly Sport Supply Group, Inc.
to 100% of the equity ownership in Casino ABS, of which Onex’
(“Sport Supply Group”). The purchase price for these acquisitions
equity ownership is 44%.
was $21, of which $2 was non-cash consideration.
In June 2011, ONCAP III completed the acquisition
of Hopkins Manufacturing Corporation (“Hopkins”), a Kansas,
United States headquartered manufacturer, marketer and dis-
b) In June 2011, Celestica completed the acquisition of Brooks
Automation’s semiconductor equipment contract manufactur-
tributor of automotive aftermarket products for sale to distribu-
ing operations. These operations specialize in manufacturing
tors and retailers primarily in North America. Onex and ONCAP III
complex mechanical equipment and providing systems integra-
have an approximate 90% equity ownership in Hopkins, of which
tion services for semiconductor equipment manufacturers. The
Onex’ equity ownership is 26%.
purchase price for this acquisition was $82, which was financed
by Celestica.
98 Onex Corporation December 31, 2011
N O T E S T O C O N S O L I D A T E D F I N A N C I A L S T A T E M E N T S
c) In early October 2011, the Company acquired a controlling
interest in JELD-WEN Holding, inc. (“JELD-WEN”). JELD-WEN is
In February 2012, Onex sold a total of $83 of its original
investment in JELD-WEN to certain limited partners and others at
one of the world’s largest manufacturers of interior and exterior
the same cost basis as Onex’ original investment. Onex received
doors, windows and related products for use primarily in the resi-
proceeds of $79, reflecting the cost reduction from JELD-WEN’s
dential and light commercial new construction and remodelling
convertible notes redemption in October 2011. Onex’ investment
markets. The Company’s investment in JELD-WEN consisted of
in JELD-WEN was reduced to $173 of convertible preferred stock
$700 of convertible preferred stock for a 57% as-converted equity
for a 15% as-converted equity ownership interest and $32 of con-
ownership interest and $171 for convertible notes. The convert-
vertible notes.
ible notes can be redeemed within 18 months with proceeds from
the sale of certain non-core assets and, if not redeemed, will con-
vert into additional convertible preferred stock. The Company’s
d) Other includes acquisitions made by CDI, ResCare, Skilled
Healthcare Group and TMS International for total consideration
investment of $871 was made by Onex, Onex Partners III, Onex
of $59, of which $50 was financed with cash by the respective
management and others. Onex’ initial investment in JELD-WEN
operating companies and $9 was non-cash consideration.
was $240 for convertible preferred stock for a 20% as-converted
equity ownership interest and $58 of convertible notes.
Included in the acquisitions above were gross receivables due
In October 2011, JELD-WEN redeemed $42 of the con-
from customers of $543, of which $27 of contractual cash flows
vertible notes and interest accrued to the redemption date, of
are not expected to be recovered. The fair value of these receiv-
which Onex’ share was $14.
ables was determined to be $516.
Details of the net loss since the date of acquisition for the significant 2011 acquisitions are as follows:
Revenues
Expenses
Net loss
ONCAP
JELD-WEN
Total
$ 243
257
$ (14)
$ 774
863
$ (89)
$ 1,017
1,120
$ (103)
The Company estimates it would have reported consolidated rev-
In addition to the acquisitions described above, in April 2010 and
enues of $27,495 and net earnings of $1,524 for the year ended
May 2011, Tropicana Las Vegas completed preferred share rights
December 31, 2011, if the acquisitions completed during 2011 had
offerings of $50 and $35, respectively. Onex, Onex Partners III and
been acquired on January 1, 2011.
Onex management invested $45 and $29 in the April 2010 and
May 2011 preferred rights offerings, of which Onex’ share was
Goodwill of the acquisitions is attributable primarily to the
$10 and $6, respectively. The preferred shares under both offer-
acquired workforce, non-contractual established customer
ings have terms similar to the 2009 preferred share offering, accrue
bases and technological knowledge of the acquired companies.
dividends at an annual rate of 12.5% and are convertible into
Goodwill of the acquisitions that is expected to be deductible for
common shares of Tropicana Las Vegas at a fixed ratio including
tax purposes is $50.
accrued and unpaid dividends. After giving effect to the addition-
al investments, Onex, Onex Partners III and Onex management’s
ownership, on an as-converted basis, at December 31, 2011 was
76% (2010 – 74%), of which Onex’ share was 17% (2010 – 16%).
Onex Corporation December 31, 2011 99
N O T E S T O C O N S O L I D A T E D F I N A N C I A L S T A T E M E N T S
2 0 1 0 A C Q U I S I T I O N S
Details of the purchase price and allocation for the 2010 acquisitions are as follows:
Flushing
Town
Center(a)
Skilled
Healthcare
Group(b)
ONCAP II(c)
Carestream
Health(d)
ResCare(e)
EMSC(f)
Other(g)
Total
Cash and cash equivalents
Other current assets
Intangible assets with limited life
Intangible assets with indefinite life
Goodwill
Property, plant and equipment
and other non-current assets
Current liabilities
Non-current liabilities
Non-controlling interests in net assets
Interest previously held
$ 23
125
–
–
–
331
479
(27)
(443)
9
–
–
$ –
$ 13
$ 4
$ 15
$ –
$ –
$ 55
–
–
5
57
1
63
–
–
63
–
–
84
29
54
89
9
278
(51)
(128)
99
(36)
–
11
37
–
63
–
115
(5)
(1)
109
–
–
296
112
227
234
106
990
(190)
(555)(1)
245
(5)
(113)
9
67
2
74
2
154
(22)
(15)
117
–
–
13
16
–
14
1
44
(17)
(11)
16
–
–
538
261
288
531
450
2,123
(312)
(1,153)
658
(41)
(113)
Interest in net assets acquired
$ 9
$ 63
$ 63
$ 109
$ 127
$ 117
$ 16
$ 504
(1)
Included in non-current liabilities of ResCare is $159 of interim acquisition financing provided by Onex and Onex Partners III, which was repaid during the
fourth quarter of 2010.
a) In the first quarter of 2010, a subsidiary of Onex became the
managing partner of Flushing Town Center, a mixed-use develop-
d) In September 2010, Carestream Health completed the acqui-
sition of Quantum Medical Imaging, LLC (“Quantum Medical
ment located in New York City. As a result, Onex began consoli-
Imaging”). Quantum Medical Imaging is a manufacturer of digital
dating its interest in the first quarter of 2010.
and conventional x-ray systems used by hospitals, imaging centres
b) In May 2010, Skilled Healthcare Group completed the acquisi-
tions of substantially all the assets of five Medicare-certified hos-
pice companies and four Medicare-certified home health compa-
and health clinics. In addition, Carestream Health completed one
other acquisition during 2010. The total purchase price of these
acquisitions was $109, which was financed by Carestream Health.
nies in the United States, operating in Arizona, Idaho, Montana
and Nevada. The total purchase price of these acquisitions was
e) In mid-November 2010, Onex and Onex Partners III acquired
all of the outstanding common shares of ResCare not previ-
$63, which was financed by Skilled Healthcare Group, of which $17
ously owned by Onex and its affiliates. Onex, Onex Partners III
was in the form of certain deferred and/or contingent payments.
and Onex management’s equity investment was $120, of which
Onex’ share was $22. Including Onex and Onex Partners I’s 2004
c) In August 2010, ONCAP II completed the acquisition of Sport
Supply Group. Sport Supply Group is a leading marketer, manu-
investments in ResCare, the combined investment of Onex, Onex
Partners I, Onex Partners III and Onex management was $204, of
facturer and distributor of proprietary and third-party sporting
which Onex’ share was $41.
goods equipment and branded team uniforms to the institutional
As a result of this transaction, Onex and its affiliates
and team sports market in the United States. Onex and ONCAP II
control ResCare and began consolidating ResCare in the fourth
purchased a 62% equity ownership in Sport Supply Group. Onex
quarter of 2010.
and ONCAP II’s total equity investment in Sport Supply Group
In addition, ResCare completed an acquisition in
was $56, of which Onex’ share was $29. During 2011, Sport Supply
December 2010 for total consideration of $7.
Group began operating as BSN SPORTS.
In addition, ONCAP II includes acquisitions made by
Caliber Collision, Mister Car Wash and BSN SPORTS. The pur-
f) During 2010, EMSC completed seven acquisitions located in the
United States for total consideration of $117. The Company sold
chase price for these acquisitions was $7.
its remaining interests in EMSC during the second quarter of 2011
and no longer consolidates EMSC.
100 Onex Corporation December 31, 2011
N O T E S T O C O N S O L I D A T E D F I N A N C I A L S T A T E M E N T S
g) Other includes acquisitions made by Celestica and TMS
International.
Net earnings since the date of the acquisitions were not
significant to the Company’s results for the year ended Decem-
ber 31, 2010.
Included in the acquisitions above were gross receivables due
Goodwill of the acquisitions is attributable primarily to
from customers of $356, of which $25 of contractual cash flows are
the acquired workforce and non-contractual established custom-
not expected to be recovered. The fair value of these receivables
er bases of the acquired companies. Goodwill of the acquisitions
was determined to be $331.
that was expected to be deductible for tax purposes was $301.
3 . D I S C O N T I N U E D O P E R A T I O N S
The following tables show revenue, expenses and net after-tax results from discontinued operations.
Year ended December 31, 2011
Revenue
Expenses
EMSC(a)
Husky(b)
$ 1,018
508
$ 1,526
$ 942
470
$ 1,412
Year ended December 31, 2010
Revenue
Expenses
EMSC(a)
Husky(b)
$ 2,860
1,095
$ 3,955
$ 2,648
994
$ 3,642
Pre-tax
Earnings
$ 76
38
$ 114
Pre-tax
Earnings
$ 212
101
$ 313
Tax Provision
Gain
Net of Tax
Earnings for
the Year
$ 29
16
$ 45
$ 559
1,087
$ 1,646
$ 606
1,109
$ 1,715
Tax Provision
Gain
Net of Tax
Earnings for
the Year
$ 80
25
$ 105
$ –
–
$ –
$ 132
76
$ 208
a) In May 2011, Onex, Onex Partners I, Onex management and
certain limited partners sold their remaining 13.7 million shares
b) In June 2011, Onex, Onex Partners I, Onex Partners II and Onex
management completed the sale of their entire investment in
of EMSC, of which Onex’ portion was approximately 4.8 million
Husky. The sale was completed for net cash proceeds of $1,652,
shares. The sale was part of an offer made for all outstanding
of which Onex’ share was $583, including carried interest and
shares of EMSC. The sale was completed at a price of $64.00 cash
deducting distributions paid on account of the MIP. In addition to
per share. Onex’ cash cost for these shares was $6.67 per share.
the net cash proceeds, additional amounts of $60 held in escrow
Total cash proceeds received from the sale were $878,
and receivable from Husky were recognized on the sale, of which
resulting in a pre-tax gain of $600. Onex recorded a deferred tax
Onex’ share was $19, excluding carried interest. The proceeds
provision of $41 on the gain. Onex’ share of the cash proceeds was
held in escrow are for the closing working capital, tax indemni-
$342, including carried interest and deducting distributions paid
ties and other adjustments and have been recorded at fair value.
on account of the MIP. The gain on the sale is entirely attributable
As a result, a pre-tax gain of $1,142 was recognized on the sale of
to the equity holders of Onex Corporation as the interests of the
Husky. In addition, Onex recorded a non-cash tax provision of
Limited Partners were recorded as a financial liability at fair value.
$49 on the gain. The gain on the sale is entirely attributable to the
Amounts received on account of the carried interest
equity holders of Onex Corporation, as the interests of the Limited
related to this transaction totalled $80. Consistent with market
Partners were recorded as a financial liability at fair value.
practice and the terms of the Onex Partners agreements, Onex is
During the third quarter of 2011, $38 of the additional
allocated 40% of the carried interest with 60% allocated to man-
amounts held in escrow and receivable from Husky were received
agement. Onex’ share of the carried interest received was $32 and
by the Company, of which Onex’ share was $18, including carried
is included in Onex’ share of the cash proceeds. Management’s
interest and deducting distributions paid on account of the MIP.
share of the carried interest was $48. In addition, amounts paid on
As a result of a change in estimated amounts held in escrow to
account of the MIP totalled $20 for this transaction.
be received by the Company, a pre-tax loss of $5 was recorded
during the third quarter of 2011. In addition, Onex recorded
a non-cash tax provision of $1 during the third quarter of 2011.
Onex Corporation December 31, 2011 101
N O T E S T O C O N S O L I D A T E D F I N A N C I A L S T A T E M E N T S
At December 31, 2011, $18 was held in escrow for tax indemnities
The following table shows the summarized aggregate assets and
and other expenses, of which Onex’ share was $6 excluding carried
liabilities of discontinued operations:
interest, and is expected to be received in approximately four years.
Amounts received during 2011 on account of the car-
ried interest related to this transaction totalled $57. Consistent
December 31,
2010
January 1,
2010
with market practice and the terms of the Onex Partners agree-
Cash and cash equivalents
$ 479
$ 436
ments, Onex is allocated 40% of the carried interest with 60%
allocated to management. Onex’ share of the carried interest
received was $23 and is included in Onex’ share of the cash pro-
ceeds. Management’s share of the carried interest was $34. The
amount of carried interest received on this transaction was volun-
tarily reduced by $88 (Onex’ share of the reduction was $35) at the
request of Onex. The carried interest that was voluntarily reduced
may be received on a future realization in Onex Partners II.
Other current assets
Intangible assets
Goodwill
Property, plant and equipment
and other non-current assets
Current liabilities
Non-current liabilities
946
460
514
733
3,132
(716)
(992)
896
395
502
758
2,987
(635)
(1,069)
In addition, amounts paid during 2011 on account of the MIP
Net assets of discontinued operations
$ 1,424
$ 1,283
totalled $31 for this transaction.
The following table presents the summarized aggregate cash flows from discontinued operations:
Year ended December 31, 2010
Operating activities
Financing activities
Investing activities
Increase (decrease) in cash and cash equivalents for the year
Increase in cash and cash equivalents due to changes in foreign exchange rates
Distribution paid to Husky shareholders
Cash and cash equivalents, beginning of the year
Cash and cash equivalents, end of the year
Year ended December 31, 2011
Operating activities
Financing activities
Investing activities
Decrease in cash and cash equivalents for the year
Increase in cash and cash equivalents due to changes in foreign exchange rates
Cash and cash equivalents, beginning of the year
Cash and cash equivalents, end of the year
Proceeds from sales of operating companies no longer controlled
EMSC
$ 214
(69)
(158)
(13)
–
–
300
Husky
Total
$ 257
$ 471
(57)
(47)
153
3
(100)
136
(126)
(205)
140
3
(100)
436
$ 287
$ 192
$ 479
EMSC
$ 76
8
(371)
(287)
–
287
–
878
$ 878
Husky
Total
$ 24
$ 100
(50)
(167)
(193)
1
192
–
(42)
(538)
(480)
1
479
–
1,690
$ 1,690
2,568
$ 2,568
102 Onex Corporation December 31, 2011
N O T E S T O C O N S O L I D A T E D F I N A N C I A L S T A T E M E N T S
4 . C A S H A N D C A S H E Q U I V A L E N T S
6 . O T H E R C U R R E N T A S S E T S
Cash and cash equivalents comprised the following:
Other current assets comprised the following:
As at December 31
Cash at bank and on hand
Bank term deposits
Commercial paper
Money market funds
2011
$ 1,050
411
845
142
446
425
578
2010
As at December 31
2011
2010
$ 1,083
Current portion of ceded
claims recoverable held by
The Warranty Group (note 14)
$ 154
$ 209
$ 2,448
$ 2,532 (i)
Current portion of prepaid premiums
of The Warranty Group
Current portion of deferred costs of
(i) Cash and cash equivalents at December 31, 2010 includes $479 related to
The Warranty Group (note 9)
Prepaid expenses
Other(a)
362
162
154
354
277
177
126
706
$ 1,186
$ 1,495
discontinued operations.
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
Real estate held for sale
2011
$ 1,231
2,546
455
196
2010
$ 1,002
2,324
474
204
$ 4,428
$ 4,004
During the year ended December 31, 2011, $14,042 (2010 –
$11,976) of inventory was expensed in cost of sales. Note 11 pro-
vides details on inventory provisions recorded by the Company.
(a) Other at December 31, 2010 includes $272 of restricted cash
that was distributed to the limited partners of the Onex Partners’
Funds in January 2011. The restricted cash represented the limited
partners’ net share of distributions received in the fourth quarter
of 2010.
Onex Corporation December 31, 2011 103
N O T E S T O C O N S O L I D A T E D F I N A N C I A L S T A T E M E N T S
7 . 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:
At January 1, 2010
Cost
Accumulated amortization and impairments
Net book amount
Year ended December 31, 2010
Opening net book amount
Additions
Disposals
Amortization charge
Amortization and impairment charges (discontinued operations)
Acquisition of subsidiaries
Impairment charge
Transfers from construction in progress
Foreign exchange
Other
Closing net book amount
At December 31, 2010
Cost
Accumulated amortization and impairments
Net book amount
Year ended December 31, 2011
Opening net book amount
Additions
Disposals
Amortization charge
Amortization charge (discontinued operations)
Acquisition of subsidiaries
Disposition of operating companies
Impairment charge
Transfers from construction in progress
Foreign exchange
Other
Land
Buildings
Machinery and
Equipment
Construction
in Progress
$ 387
(8)
$ 379
$ 1,358
(380)
$ 978
$ 3,379
(1,804)
$ 1,575
$ 379
$ 978
$ 1,575
2
(1)
–
–
39
–
39
–
5
35
(20)
(86)
(15)
87
(5)
535
(5)
12
163
(21)
(317)
(68)
31
(1)
412
(9)
5
$ 434
–
$ 434
$ 434
598
(2)
–
−
256
–
(986)
−
7
Total
$ 5,558
(2,192)
$ 3,366
$ 3,366
798
(44)
(403)
(83)
413
(6)
–
(14)
29
$ 463
$ 1,516
$ 1,770
$ 307
$ 4,056
$ 471
(8)
$ 463
$ 1,987
(471)
$ 1,516
$ 3,811
(2,041)
$ 1,770
$ 307
–
$ 307
$ 6,576
(2,520 )
$ 4,056
$ 463
$ 1,516
$ 1,770
$ 307
$ 4,056
1
(4)
–
–
160
(30)
–
–
2
(1)
50
(44)
(105)
(4)
687
(226)
(9)
97
(5)
(33)
203
(8)
(357)
(17)
541
(225)
(14)
314
(6)
–
420
(1)
–
–
95
(22)
–
(411)
(1)
(1)
674
(57)
(462)
(21)
1,483
(503)
(23)
–
(10)
(35)
Closing net book amount
$ 591
$ 1,924
$ 2,201
$ 386
$ 5,102
At December 31, 2011
Cost
Accumulated amortization and impairments
Net book amount
$ 599
(8)
$ 591
$ 2,445
(521)
$ 1,924
$ 4,223
(2,022)
$ 2,201
$ 386
–
$ 386
$ 7,653
(2,551)
$ 5,102
Property, plant and equipment cost and accumulated amortization and impairments have been reduced for components retired during
2010 and 2011. At December 31, 2011 property, plant and equipment includes amounts under finance leases of $104 (2010 – $92) and
related accumulated amortization of $48 (2010 – $43). During 2011, borrowing costs of $13 (2010 – $34) were capitalized and are included
in the cost of additions.
104 Onex Corporation December 31, 2011
N O T E S T O C O N S O L I D A T E D F I N A N C I A L S T A T E M E N T S
8 . L O N G - T E R M I N V E S T M E N T S
Long-term investments comprised the following:
Investments in associates at fair value through earnings:
Onex Partners(a)
Other associate investments(a)
EMSC insurance collateral(b)
Long-term investments held by The Warranty Group(c)
Investment in Onex Credit Partners funds(d)
Other
December 31,
2011
December 31,
2010
January 1,
2010
$ 3,234
$ 2,771
$ 1,264
128
–
1,501
412
140
106
139
1,475
255
118
133
158
1,548
218
127
$ 5,415
$ 4,864
$ 3,448
a) Investments in associates, over which the Company has significant influence, but not control, are designated, upon initial recogni-
tion, at fair value. The fair value of investments in associates is assessed at each reporting date with changes to the values being recorded
through earnings. Details of those investments designated at fair value included in long-term investments are as follows:
Balance – January 1, 2010
Purchase of investments
Distributions received
Unrealized increase (decrease) in investments, net
Interest income
Other adjustments(i)
Balance – December 31, 2010
Purchase of investments
Distributions received
Unrealized increase in investments, net
Interest income
Balance – December 31, 2011
Onex Partners
Other Associate
Investments
Total
$ 1,264
$ 133
$ 1,397
1,271
(121)
461
7
(111)
4
(18)
(13)
–
–
1,275
(139)
448
7
(111)
$ 2,771
$ 106
$ 2,877
–
(38)
494
7
29
(14)
7
–
29
(52)
501
7
$ 3,234
$ 128
$ 3,362
(i)
In the fourth quarter of 2010, Onex and Onex Partners III acquired all of the outstanding common shares of ResCare not previously owned by Onex or its affiliates.
As a result of this transaction, Onex and its affiliates controlled and began consolidating the results of ResCare in the fourth quarter of 2010.
Onex Partners includes investments in Allison Transmission,
In September 2010, the Company, together with the
Hawker Beechcraft, ResCare (prior to November 2010), RSI and
Canada Pension Plan Investment Board (“CPPIB”), acquired
Tomkins (since September 2010). Other associates accounted
Tomkins plc. The newly acquired business is operating as Tomkins
at fair value through earnings include investments in Cypress
Limited (“Tomkins”). Tomkins is a global engineering and manufac-
Insurance Group (“Cypress”) and certain real estate investments.
turing group that produces a variety of products for the industrial,
Investments in associates designated at fair value are measured
automotive and building products markets across North America,
with significant unobservable inputs (level 3 of the fair value hier-
Europe and Asia. The equity investment of $2,125 was initially
archy), with the exception of ResCare (prior to November 2010)
split equally between the Company and CPPIB. Management of
and Hawker Beechcraft debt, which are measured with significant
Tomkins also became investors in the business. During the fourth
other observable inputs (level 2 of the fair value hierarchy). The
quarter of 2010, the Company and CPPIB equally sold a total of
associates also have financing arrangements that typically restrict
$314 of their investment to certain limited partners and others. The
their ability to transfer cash and other assets to the Company.
Tomkins investment held by certain limited partners and others
Onex Corporation December 31, 2011 105
N O T E S T O C O N S O L I D A T E D F I N A N C I A L S T A T E M E N T S
is in an entity controlled by the Company and therefore included in
Expected maturities may differ from contractual maturities
the investment of Tomkins. The Company’s investment of $1,219
because borrowers may have the right to call or prepay obliga-
was made by Onex, Onex Partners III, certain limited partners, Onex
tions with or without call or prepayment penalties.
management and others. Onex’ net investment in the acquisition
At December 31, 2011, certificates of deposit, money
was $315 for a 14% equity ownership interest.
market funds and available-for-sale fixed-maturity securities with
b) The Company sold its remaining interests in EMSC during the
second quarter of 2011 and no longer consolidates EMSC.
a carrying value of $38 (2010 – $38) were on deposit with various
insurance departments and regulators to satisfy various regula-
tory requirements.
c) The table below presents the fair value of all investments in
securities held by The Warranty Group at December 31:
d) The investments in Onex Credit Partners Funds are recorded at
fair value and classified as fair value through earnings. In August
2011
2010
Credit Partners unleveraged senior secured loan strategy fund.
2011, Onex invested an additional $150 in a segregated Onex
U.S. government and agencies
$ 92
$ 72
States and political subdivisions
Foreign governments
Corporate bonds
Mortgage-backed securities
Other
Current portion(1)
Long-term portion
129
451
652
359
63
$ 1,746
(245)
$ 1,501
60
429
756
362
64
$ 1,743
(268)
$ 1,475
(1)
The current portion is included in short-term investments in the
consolidated balance sheets.
Management believes that unrealized losses on indi-
vidual securities that are not recognized as impairments are the
result of normal price fluctuations due to market conditions and
are not an indication of objective evidence of an impairment loss.
Management further believes it has the intent and ability to hold
these securities until they fully recover in value. These determina-
tions are based upon an in-depth analysis of individual securities.
The fair value of fixed-maturity securities owned by The Warranty
Group, by contractual maturity, is shown below:
9 . O T H E R N O N - C U R R E N T A S S E T S
Other non-current assets comprised the following:
As at December 31
Deferred income taxes (note 16)
Defined benefit pensions (note 32)
Non-current portion of ceded
claims recoverable held by
The Warranty Group (note 14)
Non-current portion of prepaid
premiums of The Warranty Group
2011
$ 256
159
2010
$ 346
186
358
474
207
359
391
418
233
298
$ 1,813
$ 1,872
a) Deferred costs of The Warranty Group consist of certain costs
of acquiring warranty and credit business including commissions,
underwriting and sales expenses that vary with, and are primar-
ily related to, the production of new business. These charges are
deferred and amortized as the related premiums and contract
fees are earned. At December 31, 2011, $369 (2010 – $410) of costs
were deferred, of which $162 (2010 – $177) has been recorded as
current (note 6). The Company’s accounting for deferred costs of
acquiring warranty and credit business will change on January 1,
Fair values generally represent quoted market value prices for
Non-current portion of deferred costs
securities traded in an active market or estimated using a valu-
of The Warranty Group(a)
ation technique.
Other
As at December 31
Years to maturity:
One or less
After one through five
After five through ten
After ten
Mortgage-backed securities
Other
2011
2010
2012, as described in note 1.
$ 245
$ 268
655
310
114
359
63
667
294
88
362
64
$ 1,746
$ 1,743
106 Onex Corporation December 31, 2011
N O T E S T O C O N S O L I D A T E D F I N A N C I A L S T A T E M E N T S
1 0 . G O O D W I L L A N D I N T A N G I B L E A S S E T S
Goodwill and intangible assets comprised the following:
Goodwill
Trademarks
and Licenses
Customer
Relationships
Computer
Software
Other
Intangible
Assets with
Limited Life
Other
Intangible
Assets with
Indefinite Life
Total
Intangible
Assets
At January 1, 2010
Cost
$ 2,209
Accumulated amortization and impairments
(11)
Net book amount (1)
$ 2,198
Year ended December 31, 2010
$ 332
(95)
$ 237
$ 1,581
(568)
$ 1,013
$ 569
(398)
$ 171
$ 1,542
(801)
$ 741
$ 79
$ 4,103
–
(1,862)
$ 79
$ 2,241
Opening net book amount
$ 2,198
$ 237
$ 1,013
$ 171
$ 741
$ 79
$ 2,241
Additions
Disposals
Amortization charge
Amortization charge (discontinued operations)
Acquisition of subsidiaries
Impairment charge
Foreign exchange
Other
–
(3)
–
−
531
–
(5)
(87)
–
–
(22)
−
75
(5)
–
–
–
–
(133)
(11)
93
–
(5)
–
65
–
(58)
(4)
25
(3)
1
–
38
(3)
(65)
(43)
77
–
−
(29)
–
–
–
−
279
–
1
(9)
103
(3)
(278)
(58)
549
(8)
(3)
(38)
Closing net book amount
$ 2,634
$ 285
$ 957
$ 197
$ 716
$ 350
$ 2,505
At December 31, 2010
Cost
$ 2,645
Accumulated amortization and impairments
(11)
Net book amount (1)
$ 2,634
Year ended December 31, 2011
$ 407
(122)
$ 285
$ 1,668
(711)
$ 957
$ 658
(461)
$ 197
$ 1,645
(929)
$ 716
$ 350
$ 4,728
–
(2,223)
$ 350
$ 2,505
Opening net book amount
$ 2,634
$ 285
$ 957
$ 197
$ 716
$ 350
$ 2,505
Additions
Disposals
Amortization charge
Amortization charge (discontinued operations)
Acquisition of subsidiaries
Disposition of operating companies
Impairment charge, net(2)
Foreign exchange
Other
–
–
–
–
472
(514)
(166)
(7)
15
–
–
(26)
–
264
(5)
2
(6)
(2)
–
–
(143)
(3)
203
(67)
–
(1)
(4)
48
(1)
(59)
(1)
8
(20)
–
(2)
–
22
–
(80)
(12)
108
(325)
–
–
(20)
–
–
–
–
257
(27)
(10)
(1)
(3)
70
(1)
(308)
(16)
840
(444)
(8)
(10)
(29)
Closing net book amount
$ 2,434
$ 512
$ 942
$ 170
$ 409
$ 566
$ 2,599
At December 31, 2011
Cost
$ 2,611
Accumulated amortization and impairments
(177)
Net book amount (1)
$ 2,434
$ 658
(146)
$ 512
$ 1,772
(830)
$ 942
$ 668
(498)
$ 170
$ 1,189
(780)
$ 409
$ 573
$ 4,860
(7)
(2,261)
$ 566
$ 2,599
(1) Trademarks and licenses and customer relationships include amounts determined to have indefinite useful lives.
(2) Impairment charge for 2011 is net of impairment reversals of $2.
Onex Corporation December 31, 2011 107
N O T E S T O C O N S O L I D A T E D F I N A N C I A L S T A T E M E N T S
Additions to goodwill and intangible assets were primarily
Intellectual property primarily represents the costs of certain
acquired through business combinations (note 2). Additions to
intellectual property and process know-how obtained in acqui-
intangible assets through internal development were $25 (2010 –
sitions. Intangible assets include trademarks, non-competition
$52) and those acquired separately were $45 (2010 – $51). Included
agreements, customer relationships, software and contract rights
in the balance of intangible assets at December 31, 2011 were $170
obtained in the acquisition of certain facilities. Certain intan-
(2010 – $209) of internally generated intangible assets.
gible assets are determined to have indefinite useful lives when
the Company has determined there is no foreseeable limit to the
period over which the intangible assets are expected to generate
net cash inflows.
1 1 . P R O V I S I O N S
A summary of provisions presented contra to assets in the consolidated balance sheets detailed by the components of charges and move-
ments is presented below.
Balance – January 1, 2011
Charged (credited) to statement of earnings:
Additional provisions
Unused amounts reversed during the year
Disposition of operating companies
Amounts used during the year
Other adjustments
Balance – December 31, 2011
Accounts
Receivable
Provision(a)
Inventory
Provision(b)
$ 71
$ 91
30
(6)
(4)
(24)
4
49
(13)
(42)
(26)
–
Total
$ 162
79
(19)
(46)
(50)
4
$ 71
$ 59
$ 130
a) Accounts receivable provisions are established by the operat-
ing companies when there is objective evidence that the company
b) Inventory provisions are established by the operating compa-
nies for any excess, obsolete or slow-moving items.
will not be able to collect all amounts due according to the origi-
nal terms of the receivable. When a receivable is considered per-
manently uncollectible, the receivable is written off against the
allowance account.
108 Onex Corporation December 31, 2011
N O T E S T O C O N S O L I D A T E D F I N A N C I A L S T A T E M E N T S
A summary of provisions presented as liabilities in the consolidated balance sheets detailed by the components of charges and movements
is presented below.
Balance – December 31, 2010
$ 63
$ 349
$ 78
$ 51
Restructuring(c)
Self-Insurance(d)
Warranty(e)
Other(f)
Charged (credited) to statement of earnings:
Additional provisions
Unused amounts reversed during the year
Acquisition of subsidiaries
Disposition of operating companies
Amounts used during the year
Increase in provisions due to passage of time
and changes in discount rates
Other adjustments
Balance – December 31, 2011
Current portion of provisions
Non-current portion of provisions
44
(2)
–
(2)
(64)
1
–
$ 40
35
$ 5
137
(1)
23
(208)
(120)
1
–
$ 181
74
$ 107
53
(5)
49
(31)
(48)
1
–
$ 97
53
$ 44
45
(8)
47
–
(16)
–
6
$ 125
101
$ 24
Total
$ 541
279
(16)
119
(241)
(248)
3
6
$ 443
263
$ 180
c) Restructuring provisions are typically to provide for the costs of
facility consolidations and workforce reductions incurred at the
d) Self-insurance provisions are established for automobile,
workers’ compensation, general liability, professional liability and
operating companies.
other claims. Provisions are established for claims based upon
The operating companies record restructuring provi-
an assessment of actual claims and claims incurred but not
sions relating to employee terminations, contractual lease obliga-
reported. The reserves may be established based on consultation
tions and other exit costs when the liability is incurred. The recog-
with third-party independent actuaries using actuarial principles
nition of these provisions requires management to make certain
and assumptions that consider a number of factors, including his-
judgements regarding the nature, timing and amounts associated
torical claim payment patterns and changes in case reserves and
with the planned restructuring activities, including estimating
the assumed rate of inflation in health care costs and property
sublease income and the net recovery from equipment to be dis-
damage repairs.
posed of. At the end of each reporting period, the operating com-
panies evaluate the appropriateness of the remaining accrued
balances. The restructuring plans are expected to result in cash
e) Warranty provisions are established by the operating com-
panies for warranties offered on the sale of products or services.
outflows for the operating companies between 2012 and 2015.
Warranty provisions are established to provide for future warranty
The closing balance of restructuring provisions consisted of the
under these warranties. The warranty provisions exclude reserves
costs based on management’s best estimate of probable claims
following:
As at December 31
Employee termination costs
Lease and other contractual obligations
Facility exit costs and other
recognized by The Warranty Group for its warranty contracts.
2011
$ 23
15
2
$ 40
2010
$ 35
26
2
$ 63
f) Other includes legal, transition and integration, asset retirement
and other provisions. Transition and integration provisions are
typically to provide for the costs of transitioning the activities of an
operating company from a prior parent company upon acquisition
and to integrate new acquisitions at the operating companies.
Onex Corporation December 31, 2011 109
N O T E S T O C O N S O L I D A T E D F I N A N C I A L S T A T E M E N T S
1 2 . L O N G - T E R M D E B T O F O P E R A T I N G C O M P A 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 C O R P O R A T I O N
Long-term debt of operating companies, without recourse to Onex Corporation, is as follows:
As at December 31
Carestream Health(a)
Senior revolving facility and senior secured term loan due 2016 and 2017
Senior secured first lien term loan due 2013
Senior secured second lien term loan due 2013
Redeemable preferred shares
Other
Celestica(b)
Center for Diagnostic Imaging(c)
Emergency Medical Services(d)
Revolving credit facility due 2015
Revolving credit facility and term loan due 2016
Revolving credit facility and term loan due 2013
Other
Revolving credit facility and term loan due 2015
Other
Flushing Town Center(e)
Senior construction loan due 2014
Mezzanine loan due 2014
Husky(f)
JELD-WEN(g)
ResCare(h)
Sitel Worldwide(i)
Skilled Healthcare Group(j)
Spirit AeroSystems(k)
The Warranty Group(l)
TMS International(m)
Tropicana Las Vegas(n)
ONCAP companies(o)
Revolving credit facility and term loan due 2014
Senior secured notes due 2017
Senior secured revolving credit facility due 2016
Convertible promissory notes due 2013
Other
Senior secured revolving credit facility and term loan due 2015 and 2016
Senior unsecured notes due 2013
Senior subordinated notes due 2019
Other
Revolving credit facility and term loans due 2013–2016 and 2014–2017
Senior unsecured notes due 2018
Mandatorily redeemable preferred shares
Revolving credit facility and term loan due 2015 and 2016
Subordinated notes due 2014
Other
Revolving credit facility and term loan due 2014 and 2013–2016
Senior subordinated notes due 2017
Senior subordinated notes due 2020
Other
Term loan due 2012
Redeemable preferred shares
Revolving borrowings and senior secured term loan due 2016 and 2014
Senior subordinated notes due 2015
Subordinated notes due 2020
Redeemable preferred shares
Other
Revolving credit facility and term loan due 2014
Revolving credit facility and term loans due 2012 to 2016
Subordinated notes due 2012 to 2021
Other
Other
Less: long-term debt held by the Company
Long-term debt, December 31
Less: financing charges
Current portion of long-term debt of operating companies, without recourse to Onex Corporation
Consolidated long-term debt of operating companies, without recourse to Onex Corporation
110 Onex Corporation December 31, 2011
2011
$ 1,759
–
–
247
3
2,009
–
93
–
1
94
–
–
–
579
33
612
–
448
–
132
57
637
165
–
200
4
369
399
232
113
744
342
130
3
475
562
295
300
29
2010
$ –
1,218
440
420
8
2,086
–
–
33
1
34
420
1
421
541
25
566
364
–
–
–
–
–
167
30
200
9
406
353
253
100
706
381
130
9
520
566
294
300
19
1,186
1,179
190
506
696
157
223
–
–
7
387
60
737
281
57
1,075
6
(1,254)
7,096
(135)
6,961
(482)
$ 6,479
192
506
698
159
223
43
297
1
723
27
316
59
6
381
11
(1,390)
6,732
(143)
6,589
(243)
$ 6,346
N O T E S T O C O N S O L I D A T E D F I N A N C I A L S T A T E M E N T S
Onex Corporation does not guarantee the debt of its operating
In August, October and December 2011, Carestream
companies, nor are there any cross-guarantees between operating
Health purchased $35, $4 and $30 of its senior secured term loan
companies.
for a cash cost of $30, $4 and $27, respectively. Carestream Health
The financing arrangements for each operating com-
recognized net pre-tax gains of $5 in the third quarter of 2011 and
pany typically contain certain restrictive covenants, which may
$3 in the fourth quarter of 2011 on the repurchases of its senior
include limitations or prohibitions on additional indebtedness,
secured term loan, which are included in other items in the con-
payment of cash dividends, redemption of capital, capital spend-
solidated statement of earnings.
ing, making of investments and acquisitions and sales of assets.
At December 31, 2011, $1,767 and nil were outstanding
In addition, certain financial covenants must be met by the oper-
under the senior secured term loan and senior revolving facility,
ating companies that have outstanding debt.
respectively. The senior secured term loan is recorded net of the
Future changes in business conditions of an operat-
unamortized discount of $8.
ing company may result in non-compliance with certain cov-
Substantially all of Carestream Health’s assets are
enants by the company. No adjustments to the carrying amount
pledged as collateral under the term loan.
or classification of assets or liabilities of any operating company
In connection with the term loan, Carestream Health
have been made in the consolidated financial statements with
had an interest rate swap agreement with a notional amount
respect to any possible non-compliance.
totalling $800 that swapped the variable rate portion for a fixed
a) Carestream Health
rate of 1.55%. The agreement expired in December 2011.
Included in long-term debt at December 31, 2011 is $247
In April 2007, Carestream Health entered into senior secured first
(2010 – $420) of redeemable preferred shares, including accumu-
and second lien term loans with an aggregate principal amount of
lated and unpaid dividends, of which $242 (2010 – $413) was held
$1,510 and $440, respectively. Additionally, as part of the first lien
by the Company. The redeemable preferred shares accrue annual
term loan, Carestream Health obtained a senior revolving credit
dividends at a rate of 10% and are automatically converted into
facility with available funds of up to $150. The first and second
common shares of Carestream Health for the initial liquidation
lien term loans bore interest at LIBOR plus a margin of 2.00% and
amount plus accumulated and unpaid dividends upon a liqui-
5.25%, respectively, or at a base rate plus a margin of 1.00% and
dation or other triggering event. During the first quarter of 2011,
4.25%, respectively. The senior revolving credit facility bore inter-
Carestream Health redeemed $200 of its redeemable preferred
est at LIBOR or a base rate plus a margin of up to 1.75%, payable
shares, including $7 of accumulated and unpaid dividends. The
quarterly. At December 31, 2010, $1,218 and $440 were outstand-
Company’s share of the redemption was $197, of which Onex’
ing under the senior secured first and second lien term loans,
share was $78.
respectively, and nil was outstanding under the senior revolving
credit facility.
b) Celestica
In February 2011, Carestream Health entered into a
In March 2010, Celestica redeemed all of its outstanding 7.625%
new credit facility. The credit facility consists of a $1,850 senior
notes due in 2013. Celestica paid $232 to repurchase its notes with
secured term loan and a $150 senior revolving facility. The senior
a carrying value of $223. Celestica recognized a charge of $9 in
secured term loan matures in February 2017 and the senior
the first quarter of 2010 on the repurchase of the 2013 notes,
revolving facility matures in February 2016. The senior secured
which was included in interest expense in the consolidated state-
term loan and senior revolving facility bear interest at LIBOR
ment of earnings.
(subject to a floor of 1.50%) plus a margin of 3.50% or a base rate
At December 31, 2010, Celestica had a $200 revolving
plus a margin of 2.50%. Interest is payable on the interest rollover
credit facility, which was due to mature in April 2011. In January
dates for LIBOR borrowings and quarterly for base rate borrow-
2011, Celestica renewed its revolving credit facility on gener-
ings. The senior secured term loan requires quarterly instalment
ally similar terms and conditions, increased its size from $200
payments of $5.
to $400 and extended its maturity to January 2015. No amounts
The proceeds from the new facility were used primar-
were drawn on the facility at December 31, 2011 and 2010. At
ily to repay the senior secured first and second lien term loans of
December 31, 2011, Celestica had $27 of letters of credit outstand-
Carestream Health.
ing that were issued under its facility.
As a result of the refinancing, Carestream Health recog-
The facility has restrictive covenants relating to debt
nized charges of $25 in the first quarter of 2011, which are included
incurrence, the sales of assets and a change of control and also
in interest expense in the consolidated statement of earnings.
contains financial covenants that require Celestica to maintain
certain financial ratios. Celestica also has uncommitted bank
overdraft facilities available for intraday and overnight operating
requirements that totalled $70 at December 31, 2011.
Onex Corporation December 31, 2011 111
N O T E S T O C O N S O L I D A T E D F I N A N C I A L S T A T E M E N T S
c) Center for Diagnostic Imaging
e) Flushing Town Center
In July 2009, CDI entered into a credit agreement consisting
In December 2010, Flushing Town Center amended and restated its
of a $55 term loan and a $15 revolving credit facility. Both the
senior construction loan and mezzanine loan, increasing the total
term loan and revolving credit facility bore interest at LIBOR
amount available under the construction loan to $642, including
plus a margin of 4.25%, and were originally due in July 2013. At
$25 of letters of credit, and extending the maturity to December
December 31, 2010, $33 was outstanding under the term loan and
2013. The loans have two one-year extension options. The loans
nil was outstanding under the revolving credit facility.
bear interest at LIBOR plus a margin that ranges between 1.55%
In May 2011, CDI entered into a new credit agreement.
and 3.65%. In conjunction with these amendments, the Company
The new agreement consists of a $95 term loan and a $25 revolv-
purchased $56 and $38 of the senior construction loan and mezza-
ing credit facility. Both the term loan and revolving credit facility
nine loan, respectively, from third-party lenders.
bear interest at LIBOR plus a margin of up to 3.75% depending on
In November 2011, Flushing Town Center amended its
the company’s leverage ratio and mature in May 2016. The term
senior construction loan agreement whereby the Company con-
loan requires quarterly principal repayments of $2 beginning
tributed an additional $14 in equity, of which $7 was in cash and
in December 2011. The required quarterly principal payments
$7 was in the form of a letter of credit that can be drawn upon to
increase throughout the term until they reach $3 in December
fund project costs. In addition, the initial maturity of the loans
2015. Substantially all of the assets of CDI’s wholly owned subsid-
was extended to June 2014 and the second extension was reduced
iaries are pledged as collateral under the term loan and revolving
by six months. As at December 31, 2011 $3 was available under
credit facility.
the letter of credit.
The proceeds from the new term loan were used to
As at December 31, 2011, $592 and $43 (2010 – $560
repay the amounts outstanding under the former term loan and
and $38) of principal plus accrued interest were outstanding
revolving credit facility and pay a $67 distribution to shareholders.
under the senior construction and mezzanine loans, respectively,
The Company’s share of the distribution was $54, of which Onex’
of which a total of $102 (2010 – $94) was held by the Company.
share was $13. At December 31, 2011, $93 and nil were outstand-
The senior construction and mezzanine loans are recorded net of
ing under the term loan and revolving credit facility, respectively.
unamortized debt extinguishment gains of $13 and $10 (2010 –
CDI entered into interest rate swap agreements that
$19 and $13), respectively. In addition, letters of credit of $7 were
effectively fix the interest rate on a portion of the borrowings
outstanding, which partially reduce the amount available to be
under the credit agreement. In November 2009, CDI entered into
drawn under the senior construction loan.
a two-year interest rate cap agreement for a notional amount of
Substantially all of Flushing Town Center’s assets are
$27 in order to hedge its exposure to fluctuations in the three-
pledged as collateral under the senior construction and mezza-
month LIBOR rates above 3.5%. The cap agreement began in
nine loans.
April 2010 and terminates in September 2012. In June 2011, CDI
entered into an additional four-year interest rate cap agreement
f) Husky
for a notional amount of $48 in order to hedge its exposure to
At December 31, 2010, the long-term debt of Husky consisted of
fluctuations in the three-month LIBOR rates above 3.5%. The cap
a $520 committed, secured credit agreement comprised of a $410
agreement terminates in June 2015.
term loan and a $110 revolving credit facility. At December 31, 2010,
$364 and nil were outstanding under the term loan and revolving
d) Emergency Medical Services
credit facility, respectively.
In April 2010, EMSC completed the financing of new senior
The credit agreement had restrictions on the incur-
secured credit facilities consisting of a $425 term loan and a $150
rence of new debt, the sales of assets, capital expenditures and the
revolving credit facility. The proceeds from the new facilities were
maintenance of certain financial ratios. Substantially all of Husky’s
used to repay the company’s existing facilities consisting of a $200
assets were pledged as collateral under the credit agreement.
senior secured term loan and $250 senior subordinated notes.
In June 2011, the Company sold its entire investment in
At December 31, 2010, $420 and nil were outstanding
Husky and no longer consolidates Husky.
under the term loan and revolving credit facility, respectively.
Substantially all of EMSC’s domestic assets were
pledged as collateral under the senior secured credit facilities.
In May 2011, the Company sold its remaining interests
in EMSC and no longer consolidates EMSC.
112 Onex Corporation December 31, 2011
N O T E S T O C O N S O L I D A T E D F I N A N C I A L S T A T E M E N T S
g) JELD-WEN
h) ResCare
In October 2011, JELD-WEN completed an offering of $460 in
In December 2010, ResCare amended and restated its senior
aggregate principal amount of 12.25% senior secured notes due in
secured revolving credit facility to extend the maturity of its senior
2017. JELD-WEN received net proceeds of $448 after original issue
secured revolving credit facility from July 2013 to December 2015
discounts. Interest on the senior secured notes is payable semi-
as well as maintain the size of the facility at $275 through July 2013
annually. The notes may be redeemed prior to maturity at various
before stepping down to $240 through December 2015. Borrowings
premiums above face value. The notes are secured by a second
under the senior secured revolving credit facility bear interest at
priority lien on the collateral securing the senior secured revolv-
LIBOR plus a margin of 4.00%. At December 31, 2010 and 2011,
ing credit facility, as described below. At December 31, 2011, the
nil was outstanding under the senior secured revolving credit
senior secured notes with $460 outstanding were recorded net of
facility. The amount available under the facility is reduced by $60
the unamortized discount of $12.
of standby letters of credit outstanding at December 31, 2011.
In October 2011, JELD-WEN entered into a new $300
In December 2010, ResCare completed the financing of
senior secured revolving credit facility, maturing in April 2016.
a $170 senior secured term loan and $200 of senior subordinated
The facility contains a $75 sublimit for the issuance of letters of
notes. The proceeds were used to repay a portion of ResCare’s
credit and a $100 sublimit for borrowings by a European sub-
existing indebtedness of $150 of senior unsecured notes, com-
sidiary of JELD-WEN. Borrowings under the facility bear inter-
plete the acquisition of all the publicly held shares of ResCare and
est at either the Eurodollar rate or a base rate determined as
for general corporate purposes. ResCare repaid the remainder of
the highest of the overnight Federal Funds rate plus 0.50%, the
its $150 senior unsecured notes in January 2011.
Eurodollar rate plus 1.00% or the prime rate. A margin is added
The senior secured term loan bears interest at LIBOR
to the Eurodollar and base rate that varies based on JELD-WEN’s
(subject to a floor of 1.75%) plus a margin of 5.50%, with the princi-
consolidated leverage ratio; base rate loan margins range from
pal balance due in December 2016. The senior subordinated notes
1.50% to 3.00% and Eurodollar-based loan margins range from
bear interest at a rate of 10.75% and are repayable at maturity in
2.50% to 4.00%. In addition, JELD-WEN pays a commitment fee
January 2019.
ranging from 0.45% to 0.75% on the unused portion of the facility
At December 31, 2011, $168 and $200 (2010 – $170 and
and a letter of credit fee ranging from 2.50% to 4.00% on the face
$200) were outstanding under the senior secured term loan and
amount of outstanding letters of credit.
senior subordinated notes, respectively. The senior secured term
Borrowings under the senior secured revolving credit
loan is recorded net of the unamortized discount of $3 (2010 – $3).
facility are secured by first priority liens on substantially all of
ResCare has additional capacity of $175 available under
the present and future assets of JELD-WEN and its subsidiary
its debt agreements to increase its senior secured term loan or the
guarantors.
senior secured revolving credit facility, subject to certain limita-
At December 31, 2011, nil was outstanding under the
tions and conditions. ResCare is required under its debt agree-
senior secured revolving credit facility. The amount available is
ments to maintain certain financial covenants, and substantially
reduced by $35 of letters of credit outstanding at December 31, 2011.
all of ResCare’s assets are pledged as collateral under its debt
JELD-WEN is required under the terms of the senior
agreements.
secured revolving credit facility to maintain certain financial
ratios. The facility and the indenture governing the senior secured
i) Sitel Worldwide
notes also contain certain additional requirements, including lim-
In December 2008, Sitel Worldwide amended its credit facil-
itations or prohibitions on certain investments, payments, asset
ity. The amendment included increases to the applicable interest
sales and additional indebtedness.
rates and changes to the financial covenants.
In October 2011, JELD-WEN issued convertible prom-
Sitel Worldwide’s credit facility, as amended, consists of
issory notes in the amount of $171, all of which are held by the
a $675 term loan maturing in January 2014 and an $85 revolving
Company. The notes are due in 2013 and bear interest at a rate
credit facility maturing in January 2013. As a result of repayments
of 10% compounded annually. The notes are automatically con-
and repurchases made in 2007 and 2008, no quarterly payments
verted into Series A Convertible Preferred Stock of JELD-WEN for
are due under the term loan until maturity. The term loan and
the outstanding principal amount plus accrued and unpaid divi-
revolving credit facility bear interest at a rate of LIBOR plus a mar-
dends to the extent the notes remain unpaid at the maturity date.
gin of up to 5.5% or prime plus a margin of 4.5%.
Subsequently, JELD-WEN paid $42, including accrued interest,
In May and June 2011, Sitel Worldwide amended its
to repurchase a portion of the notes, all of which was paid to the
credit facility that governs its term loan and revolving credit facil-
Company. At December 31, 2011, $132 was outstanding under the
ity. The amendments included extending the maturity date on
convertible promissory notes, including accrued interest, all of
$228, or 64%, of its term loan from January 2014 to January 2017
which was held by the Company.
Onex Corporation December 31, 2011 113
N O T E S T O C O N S O L I D A T E D F I N A N C I A L S T A T E M E N T S
and extending the maturity on $31, or 36%, of commitments for
j) Skilled Healthcare Group
its revolving credit facility from January 2013 to January 2016.
In December 2005, Skilled Healthcare Group issued unsecured
Borrowings under the extended term loan and revolving credit
senior subordinated notes in the amount of $200 due in 2014. In
facility bear interest at a rate of LIBOR plus a margin of up to 6.75%
June 2007, using proceeds from its May 2007 initial public offer-
or prime plus a margin of 5.75%. In addition, the credit agreement
ing, Skilled Healthcare Group redeemed $70 of the notes. The
was amended to lessen restrictions with respect to certain cove-
notes bear interest at a rate of 11.0% per annum and are redeem-
nant levels.
able at the option of the company at various premiums above face
Borrowings under the facility are secured by substan-
value beginning in 2009. At December 31, 2011, $130 (2010 – $130)
tially all of Sitel Worldwide’s assets.
was outstanding under the notes.
At December 31, 2011, $353 and $46 (2010 – $353 and
In April 2010, Skilled Healthcare Group completed the
nil) were outstanding under the term loan and revolving credit
financing of a new $330 term loan and $100 revolving credit facil-
facility, respectively.
ity. The term loan bears interest at LIBOR (subject to a floor of
Sitel Worldwide is required under the terms of the facil-
1.50%) plus a margin of 3.75%, and requires quarterly principal
ity to maintain certain financial ratio covenants. The facility also
repayments of $1 until maturity in 2016. The revolving credit
contains certain additional requirements, including limitations or
facility bears interest at LIBOR (subject to a floor of 1.50%) plus
prohibitions on additional indebtedness, payment of cash divi-
a margin of 3.75%, and is repayable at maturity in 2015. The term
dends, redemption of stock, capital spending, investments, acqui-
loan was increased by an additional $30 to fund acquisitions com-
sitions and asset sales.
pleted in the second quarter of 2010. Substantially all of Skilled
In March 2010, Sitel Worldwide completed an offering
Healthcare Group’s assets are pledged as collateral under the
of $300 in aggregate principal amount of senior unsecured notes
term loan and revolving credit facility.
due in 2018. The notes bear interest at an annual rate of 11.50%
The proceeds from the new term loan were used to
with no principal payments due until maturity. Proceeds from
repay the amounts outstanding under the former term loan and
the offering were used to repay a portion of the indebtedness out-
revolving credit facility. Skilled Healthcare Group recognized a
standing under the existing term loan and all of the outstanding
loss of $7 on the repurchase of the term loan and revolving credit
balance under the revolving credit facility. In conjunction with this
facility, which is included in interest expense in the consolidated
repayment, the debt covenants of the credit facility were amended
statements of earnings.
to reduce the minimum adjusted EBITDA to interest ratio require-
At December 31, 2011, $342 and nil (2010 – $355 and
ment and to change the total debt to adjusted EBITDA covenant
$26) were outstanding under the term loan and revolving credit
to a senior secured debt to adjusted EBITDA covenant. At Decem-
facility, respectively.
ber 31, 2011, the 2018 senior notes with $300 outstanding were
In June 2010, Skilled Healthcare Group entered into an
recorded net of the unamortized discount of $6 (2010 – $7) and
interest rate cap agreement and an interest rate swap agreement.
embedded derivative of $62 (2010 – $40) associated with the senior
The interest rate cap agreement was for a notional amount of $70
unsecured notes. The embedded derivative is included in other
in order to hedge exposure to fluctuations in the one-month LIBOR
long-term liabilities in the consolidated balance sheets.
rates above 2.0% from July 2010 to December 2011. The interest
Included in long-term debt at December 31, 2011 is $65
rate swap agreement is for a notional amount of $70 and swaps the
(2010 – $58) of mandatorily redeemable Class B preferred shares, of
variable rate portion for a fixed rate of 2.3% from January 2012 to
which $43 (2010 – $38) was held by Onex. The mandatorily redeem-
June 2013.
able Class B preferred shares accrue annual dividends at a rate of
12% and are redeemable at the option of the holder on or before
k) Spirit AeroSystems
July 2018. Also included in long-term debt at December 31, 2011
In June 2005, Spirit AeroSystems executed an $875 credit agree-
is $48 (2010 – $42) of mandatorily redeemable Class C preferred
ment that consists of a $700 senior secured term loan and a $175
shares, of which $36 (2010 – $31) was held by Onex. The mandatori-
senior secured revolving credit facility. In November 2006, Spirit
ly redeemable Class C preferred shares accrue annual dividends at
AeroSystems used a portion of the proceeds from its initial pub-
a rate of 16% and are redeemable at the option of the holder on or
lic offering to permanently repay $100 of the senior secured term
before July 2018. Outstanding amounts related to preferred shares
loan and amended its credit agreement. In March 2008, Spirit
at December 31, 2010 and 2011 include accrued dividends.
AeroSystems amended the agreement to increase the amount
available under the senior secured revolving credit facility to $650
and add a provision allowing additional indebtedness of up to
$300. In June 2009, Spirit AeroSystems further amended its credit
agreement to extend the maturity of the senior secured revolv-
ing credit facility from June 2010 to June 2012 as well as increase
the size of the facility to $729 from $650 through June 2010 before
114 Onex Corporation December 31, 2011
N O T E S T O C O N S O L I D A T E D F I N A N C I A L S T A T E M E N T S
stepping down to $409 through June 2012. In October 2010, Spirit
If a change in control of Spirit AeroSystems occurs, the
AeroSystems amended its credit agreement to extend the matu-
holders of the 2017 and 2020 senior notes have the right to require
rity of the revolving credit facility from June 2012 to September
Spirit AeroSystems to repurchase the senior notes at a price of
2014 as well as increase the amount available under the facility
101% plus accrued and unpaid interest. The 2017 and 2020 senior
to $650 from $409. In addition, Spirit AeroSystems extended the
notes rank equal in right of payment and are subordinate to the
maturity date with respect to $437 of its term loan to September
senior secured credit facility.
2016 (“Term B-2”), with $130 of the term loan remaining due in
September 2013 (“Term B-1”). At December 31, 2011, $129, $433
l) The Warranty Group
and nil (2010 – $129, $437 and nil) were outstanding under Term
In November 2006, The Warranty Group entered into a $225
B-1, Term B-2 and the revolving credit facility, respectively. In
credit agreement consisting of a $200 term loan and up to $25
addition, letters of credit of $20 were outstanding, which par-
of revolving credit loans and swing line loans. The amounts out-
tially reduce the amount available to be drawn under the senior
standing on the credit agreement bear interest at LIBOR plus a
secured revolving credit facility. Term B-1 requires equal quarter-
margin based on The Warranty Group’s credit rating. The term
ly principal instalments of $32 beginning in December 2012. Term
loan requires annual payments of $2, with the balance due in
B-2 requires equal quarterly principal instalments of $1, with the
2012. The revolving credit and swing line loans matured in 2011.
balance due upon maturity. The revolving credit facility requires
At December 31, 2011, $190 (2010 – $192) was outstanding on the
the principal to be repaid at maturity.
term loan.
Borrowings under the agreement bear interest based on
The debt is subject to various terms and conditions,
LIBOR plus an interest rate margin of up to 4.0%, payable quarter-
which include The Warranty Group maintaining a minimum
ly. In connection with the term loan, Spirit AeroSystems initially
credit rating and certain financial ratios relating to minimum
entered into interest rate swap agreements on $400 of the term
capitalization levels.
loan. The agreements, which matured in July 2011, swapped the
Included in long-term debt at December 31, 2011 is
floating interest rate portion with a fixed interest rate that ranged
$506 (2010 – $506) of redeemable preferred shares, including
between 3.2% and 4.3%. In July 2011, Spirit AeroSystems entered
accumulated and unpaid dividends, of which $493 (2010 – $493)
into interest rate swap agreements on $325 of the term loan. The
was held by the Company. The redeemable preferred shares
agreements, which mature between 2013 and 2014, swap the
accrue annual dividends at a rate of 8% and are automatically
floating interest rate portion with a fixed interest rate that ranges
converted into common shares of The Warranty Group for the ini-
between 0.7% and 1.4%.
tial liquidation amount plus accumulated and unpaid dividends
Substantially all of Spirit AeroSystems’ assets are
upon a liquidation or other triggering event.
pledged as collateral under the credit agreement.
In September 2009, Spirit AeroSystems completed an
m) TMS International
offering of $300 in aggregate principal amount of 7.5% senior sub-
In January 2007, TMS International entered into a senior secured
ordinated notes due in 2017. The offering price was 97.804% of
asset-based revolving credit facility with an aggregate principal
par to yield 7.875% to maturity. The net proceeds were used to
amount of up to $165, which bore interest at a base rate plus a
repay $200 in borrowings under its existing revolving credit facil-
margin of up to 2.50% and was available through to January 2013.
ity without any reduction of the lenders’ commitment, with the
As at December 31, 2010, nil was outstanding under this revolv-
remainder used for general corporate purposes. Interest is pay-
ing credit facility. In December 2011, TMS International termi-
able semi-annually beginning in April 2010. The 2017 senior notes
nated its 2007 senior secured asset-based revolving credit facility
may be redeemed prior to maturity at various premiums above
and entered into a new senior secured asset-based revolving credit
face value. At December 31, 2011, the 2017 senior notes with $300
facility with an aggregate principal amount of up to $350. The new
outstanding were recorded net of the unamortized discount of $5
revolving credit facility bears interest at a base rate plus a margin
(2010 – $6).
of up to 2.25%. The maximum availability under the new revolv-
In November 2010, Spirit AeroSystems completed an
ing credit facility is based on specified percentages of eligible
offering of $300 in aggregate principal amount of 6.75% senior
accounts receivable, inventory and equipment. The new revolv-
subordinated notes due in 2020. The net proceeds were used to
ing credit facility is available through to December 2016; however,
repay $150 in borrowings under its existing revolving credit facil-
it is subject to “springing maturities” if TMS International does
ity without any reduction of the lenders’ commitment, with the
not refinance its senior secured term loan and its senior sub-
remainder to be used for general corporate purposes. Interest is
ordinated notes, with the maturity occurring three months prior
payable semi-annually beginning in June 2011. The 2020 senior
to the scheduled maturities of these instruments. As at Decem-
notes may be redeemed prior to maturity at various premiums
ber 31, 2011, nil was outstanding under the new revolving credit
above face value. At December 31, 2010 and 2011, $300 of senior
facility. In addition, there were $16 of letters of credit outstanding
notes due in 2020 were outstanding.
Onex Corporation December 31, 2011 115
N O T E S T O C O N S O L I D A T E D F I N A N C I A L S T A T E M E N T S
secured by the new revolving credit facility. The obligations under
2010, TMS International amended the agreement governing the
the new revolving credit facility are secured on a first-priority lien
subordinated notes to reduce the interest rate to 8.0%, effective
basis by TMS International’s accounts receivable, inventory and
January 1, 2011. Cash interest payments were required beginning
cash proceeds therefrom and on a second-priority lien basis by
in 2014. TMS International could prepay the notes, in whole or
substantially all of TMS International’s other property and assets,
in part, without premium penalty or discount at any time. In March
subject to certain exceptions and permitted liens.
2010, TMS International paid $23, including accrued interest
In January 2007, TMS International entered into a
of $9, to repurchase a portion of its notes due in 2020, of which
senior secured term loan credit facility with an aggregate princi-
$23, including accrued interest of $9 was paid to the Company. At
pal amount of $165 and a senior secured synthetic letter of cred-
December 31, 2010, $43 was outstanding, including accrued inter-
it facility of $20, which bear interest at a base rate plus a margin
est, of which $41 was held by the Company. In April 2011, using
of up to 2.25%. The senior secured term loan facility and sen-
proceeds from its initial public offering, TMS International paid
ior secured synthetic letter of credit facility are repayable quar-
$44, including accrued interest of $6, to repurchase the remaining
terly, with annual payments of $2, and mature in January 2014.
portion of its notes due in 2020, of which $43, including accrued
The facilities require TMS International to prepay outstanding
interest of $6, was paid to the Company.
amounts under certain conditions. At December 31, 2011, $157
Included in long-term debt at December 31, 2010 was
(2010 – $159) was outstanding under the term loan and there
$297 of redeemable preferred shares, including accumulated and
were $12 (2010 – $18) of letters of credit outstanding relating to
unpaid dividends, of which $270 was held by the Company. The
the synthetic letter of credit facility. The obligations under the
redeemable preferred shares accrued annual dividends at a rate
senior secured term loan facility and senior secured synthetic let-
of 8% and were automatically convertible into common shares of
ter of credit facility are secured on a first-priority lien basis by all
TMS International for the initial liquidation amount plus accu-
of TMS International’s property and assets (other than accounts
mulated and unpaid dividends upon a liquidation or other trig-
receivable and inventory and cash proceeds therefrom) and on a
gering event. In April 2011, the initial public offering of TMS
second-priority lien basis on all of TMS International’s accounts
International resulted in the automatic conversion of the initial
receivable and inventory and cash proceeds therefrom, subject to
liquidation amount plus accumulated and unpaid dividends of
certain exceptions and permitted liens.
the redeemable preferred shares into common shares of TMS
In connection with the senior secured term loan credit
International based on the common share price in the initial
facility, TMS International entered into interest rate swap agree-
public offering.
ments that swap the variable rate portion of the interest for a fixed
rate of 2.2% on a notional amount of $40 and 2.3% on a notional
amount of $40. The agreements mature in March 2012.
n) Tropicana Las Vegas
In March 2010, Tropicana Las Vegas entered into a credit agree-
In addition, TMS International has $225 of unsecured
ment that consists of a $50 revolving credit facility and a delayed
senior subordinated notes outstanding issued in 2007. The notes
draw $10 term loan. The revolving credit facility and term loan
bear interest at a rate of 9.75% and mature in February 2015. The
bear interest at a fixed annual rate of 4.00% and 6.00%, respective-
notes are redeemable at the option of the company at various
ly, and mature in March 2014. The term loan requires repayment
premiums above face value, beginning in 2011. At December 31,
of the principal balance in equal monthly instalments beginning
2011, notes of $223 (2010 – $223) were outstanding.
in January 2013. At December 31, 2011, $50 and $10 (2010 – $27
In December 2008 and the first quarter of 2009, TMS
and nil) were outstanding under the revolving credit facility and
International issued subordinated notes in the amount of $51, of
the term loan, respectively.
which $49 were held by the Company. The notes were due in 2020
Substantially all of Tropicana Las Vegas’ assets are
and bore interest at a rate of 15.0% in the first year, 17.5% in the
pledged as collateral under the agreement.
second year and 20.0% in the third year and beyond. In December
116 Onex Corporation December 31, 2011
N O T E S T O C O N S O L I D A T E D F I N A N C I A L S T A T E M E N T S
o) ONCAP companies
The annual minimum repayment requirements for the next five
ONCAP’s investee companies consist of EnGlobe, CiCi’s Pizza,
years on consolidated long-term debt are as follows:
Mister Car Wash, Caliber Collision, BSN SPORTS and the fol-
lowing companies that were acquired during 2011: Pinnacle
Renewable Energy Group, Casino ABS, Hopkins and Davis-
Standard. Each has debt that is included in the Company’s con-
solidated financial statements. There are separate arrangements
for each of the investee companies with no cross-guarantees
between the companies, ONCAP or Onex Corporation.
2012
2013
2014
2015
2016
Under the terms of the various credit agreements, com-
Thereafter
bined term borrowings of $655 are outstanding and combined
revolving credit facilities of $82 are outstanding. The available
facilities bear interest at various rates based on a base floating
rate plus a margin. At December 31, 2011, effective interest rates
ranged from 2.3% to 7.4% on borrowings under the revolving
1 3 . L E A S E C O M M I T M E N T S
credit and term loan facilities. The term loans have quarterly
Future minimum lease payments are as follows:
$ 482
294
1,063
382
1,387
3,488
$ 7,096
repayments and are due between 2012 and 2016. The companies
also have subordinated notes of $281 due between 2012 and 2021
that bear interest at rates ranging from 10.0% to 17.0%, of which
the Company owns $237.
Certain ONCAP investee companies have entered into
interest rate swap agreements to fix a portion of their interest
expense. The total notional amount of these swap agreements
at December 31, 2011 was $152, with portions expiring through
to 2014.
For the year:
2012
2013
2014
2015
2016
Senior debt is generally secured by substantially all of
Thereafter
the assets of the respective company.
In December 2011, ONCAP III entered into a C$75 credit
facility that consists of a C$50 line of credit and a C$25 deemed
credit risk facility. The line of credit is available to finance ONCAP
III capital calls, bridge finance investments in ONCAP III operating
companies, support foreign exchange hedging of ONCAP III and
finance other uses permitted by ONCAP III’s limited partnership
agreement. The deemed credit risk facility is available to ONCAP
III and its operating companies for foreign exchange transac-
tions, including foreign exchange options, forwards and swaps.
Borrowings drawn on the line of credit bear interest at a base rate
plus a margin of 2.50% or banker’s acceptance rate (LIBOR for
U.S. dollar borrowings) plus a margin of 5.25%. Borrowings under
the credit facility are due and payable upon demand; however,
ONCAP III shall have 15 business days to complete a capital call
to the limited partners of ONCAP III to fund the demand. Onex
Corporation, the ultimate parent company, is only obligated to
fund borrowings under the credit facility based on its proportion-
ate share as a limited partner in ONCAP III. At December 31, 2011,
the amount available under the deemed risk facility was reduced
to C$10 as a result of a foreign exchange contract entered into by
ONCAP III, and no amounts were outstanding on the line of credit.
Finance
Leases
Operating
Leases
$ 22
$ 290
225
169
128
89
290
$ 1,191
18
11
8
3
12
$ 74
(10)
64
(19)
Total future minimum lease payments
Less: imputed interest
Balance of obligations under finance
leases, without recourse to
Onex Corporation
Less: current portion
Non-current obligations under
finance leases, without recourse
to Onex Corporation
$ 45
Substantially all of the lease commitments relate to the operating
companies. Operating leases primarily relate to premises.
Onex Corporation December 31, 2011 117
N O T E S T O C O N S O L I D A T E D F I N A N C I A L S T A T E M E N T S
1 4 . W A R R A N T Y R E S E R V E S A N D U N E A R N E D P R E M I U M S
The following describes the reserves and unearned premiums liabilities of The Warranty Group.
Reserves
The following table provides a reconciliation of The Warranty Group’s beginning and ending reserves for losses and loss adjustment
expenses (“LAE”), net of ceded claims recoverable for the year ended December 31, 2011:
Current portion of reserves, December 31, 2010
Non-current portion of reserves, December 31, 2010
Gross reserves for losses and LAE, December 31, 2010(2)
Less current portion of ceded claims recoverable(1) (note 6)
Less non-current portion of ceded claims recoverable(1) (note 9)
Net reserves for losses and LAE, December 31, 2010
Benefits to policy holders incurred, net of reinsured amounts
Payments for benefits to policy holders, net of reinsured amounts
Other, including changes due to foreign exchange
Net reserves for losses and LAE, December 31, 2011
Add current portion of ceded claims recoverable(1) (note 6)
Add non-current portion of ceded claims recoverable(1) (note 9)
Gross reserves for losses and LAE, December 31, 2011(2)
Current portion of reserves, December 31, 2011
Property and
Casualty(a)
Warranty(b)
Total Reserves
$ 165
388
$ 553
(165)
(388)
–
$ –
–
–
$ 177
35
$ 212
(44)
(3)
165
$ 550
(540)
(3)
$ –
$ 172
100
356
456
(100)
54
2
228
(202)
$ 342
423
$ 765
(209)
(391)
165
$ 550
(540 )
(3 )
$ 172
154
358
684
(302 )
Non-current portion of reserves, December 31, 2011
$ 356
$ 26
$ 382
(1)
Ceded claims recoverable represent the portion of reserves ceded to third-party reinsurers.
(2) Reserves for losses and LAE represent the estimated ultimate net cost of all reported and unreported losses incurred and unpaid through December 31,
as described in note 1.
a) Property and casualty reserves represent estimated future loss-
es on property and casualty policies. The property and casualty
reserves and the corresponding ceded claims recoverable were
Unearned Premiums
The following table provides details of the unearned premiums.
acquired on acquisition of The Warranty Group. The property and
As at December 31
casualty business is being run off and new business is not being
Unearned premiums
booked. The reserves are 100% ceded to third-party reinsurers.
Current portion of unearned premiums
b) Warranty reserves represent estimated ultimate net cost of war-
ranty policies written by The Warranty Group. Due to the nature
of the warranty reserves, substantially all of the ceded claims
recoverable and warranty reserves are of a current nature.
Non-current portion of
unearned premiums
2011
2010
$ 2,443
(1,098)
$ 2,329
(972)
$ 1,345
$ 1,357
118 Onex Corporation December 31, 2011
N O T E S T O C O N S O L I D A T E D F I N A N C I A L S T A T E M E N T S
1 5 . O T H E R N O N - C U R R E N T L I A B I L I T I E S
Other non-current liabilities comprised the following:
As at December 31
Boeing advance(a)
Deferred revenue and other deferred items
Unrealized carried interest due to Onex
and ONCAP management(b)
Defined benefit pensions and non-pension
post-retirement benefits (note 32)
Stock-based compensation(c)
JELD-WEN employee stock
ownership plan(d)
Other(e)
2011
$ 628
253
165
477
290
121
397
2010
$ 614
250
199
272
290
−
296
$ 2,331
$ 1,921
a) Pursuant to Spirit AeroSystems’ 787 aircraft long-term supply
agreement with The Boeing Company (“Boeing”), Boeing made
advance payments to Spirit AeroSystems. During the second
quarter of 2011, Spirit Aero Systems finalized a memorandum of
agreement with Boeing related to the 787 long-term supply agree-
ment, which resulted in the recognition of deferred revenues
b) Unrealized carried interest due to management of Onex and
ONCAP through the Onex Partners and ONCAP Funds is rec-
ognized as a non-current liability and reduces the Limited
Partners’ Interests liability, as described in note 17. The unreal-
ized carried interest is calculated based on current fair values of
the Funds’ investments and the overall unrealized gains in each
respective Fund in accordance with the limited partnership
agreements. The liability will be increased or decreased based
upon changes in the fair values and realizations of the under-
lying investments in the Onex Partners and ONCAP Funds.
The liability will ultimately be recovered upon the realization
of the Limited Partners’ share of the underlying Onex Partners
and ONCAP Fund investments. During 2011, the unrealized car-
ried interest liability was reduced for carried interest paid on
the sales of EMSC and Husky (note 3) and the partial disposi-
tions of Spirit AeroSystems and TMS International (note 25),
partially offset by a charge for the change in carried interest of $62,
as described in note 23.
c) At December 31, 2011, the stock-based compensation liability
consisted of $275 (2010 – $281) for the stock-based compensation
plans at the parent company and $15 (2010 – $9) for stock option
and other share-based compensation plans in place at the operat-
and the development of an annual price adjustment process
ing companies.
with Boeing. As at December 31, 2011, $1,136 (2010 – $1,131) of
advance payments had been made, of which $507 has been rec-
ognized as revenue and $629 will be settled against future sales of
Spirit AeroSystems’ 787 aircraft units to Boeing. Of the payments,
$1 has been recorded as a current liability.
d) JELD-WEN’s employee stock ownership plan (“ESOP”) was
established to allow its employees to share in the success of the
company through the ESOP’s ownership of JELD-WEN stock.
The company may make discretionary contributions of cash or
JELD-WEN shares to the ESOP on behalf of the employees. JELD-
WEN consolidates the trust established to maintain the ESOP and
therefore reports the liability for the value of JELD-WEN stock and
miscellaneous other net assets held by the ESOP for the benefit of
the employees. The company will periodically repurchase JELD-
WEN shares owned by the ESOP to fund distributions to ESOP
participants. During the fourth quarter of 2011, JELD-WEN repur-
chased stock from the ESOP for a cash cost of $31.
e) Other includes amounts for liabilities arising from indemni-
fications, unearned insurance contract fees, embedded deriva-
tives on long-term debt and mark-to-market valuations of
hedge contracts.
Onex Corporation December 31, 2011 119
N O T E S T O C O N S O L I D A T E D F I N A N C I A L S T A T E M E N T S
1 6 . I N C O M E T A 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 provision at statutory rates
Changes related to:
Amounts capitalized for book not deductible for tax
Income tax rate differential of operating companies
Book to tax differences on property, plant and equipment and intangibles
Non-taxable gains
Unbenefited tax losses
Foreign exchange
Limited Partners’ Interests
Other, including permanent differences
Provision for income taxes
Classified as:
Current
Deferred
Provision for income taxes
2011
$ 42
20
(20)
65
(135)
96
(31)
150
50
2010
$ 94
17
(164)
(9)
(149)
67
26
258
99
$ 237
$ 239
$ 167
70
$ 237
$ 175
64
$ 239
The Company’s deferred income tax assets and liabilities, without taking into consideration the offsetting of balances within the same
tax jurisdiction, comprised the following:
Deferred Tax Assets
Balance – January 1, 2010
Credited (charged) to net earnings
Credited (charged) to net earnings
(discontinued operations)
Credited (charged) directly to equity
Recognition of previously unrecognized benefits
Exchange differences
Acquisition of subsidiaries
Other adjustments
Scientific
Research and
Development
$ 14
–
6
–
–
–
–
–
Provisions
$ 234
(7)
Deferred
Revenue
$ 163
(41)
(17)
1
–
–
26
2
–
–
–
–
1
–
Tax Losses
$ 213
(4)
(2)
–
14
–
1
13
Balance – December 31, 2010
$ 20
$ 239
Credited (charged) to net earnings
Credited directly to equity
Recognition of previously unrecognized benefits
Exchange differences
Acquisition of subsidiaries
Disposition of operating companies
Other adjustments
–
–
–
–
–
(20)
1
35
2
1
(1)
6
(90)
(1)
$ 123
27
$ 235
(18)
–
–
1
1
–
(1)
–
–
(9)
23
(45)
5
Property,
Plant and
Equipment,
and Intangibles
Other
Total
$ 54
(14)
$ 178
34
$ 856
(32)
(1)
–
1
–
1
(3)
$ 38
1
–
–
(1)
–
–
–
21
(9)
–
2
22
(18)
7
(8)
15
2
51
(6)
$ 230
(103)
$ 885
(58)
–
–
(1)
29
(26)
33
2
1
(11)
59
(181)
37
Balance – December 31, 2011
$ 1
$ 191
$ 151
$ 191
$ 38
$ 162
$ 734
120 Onex Corporation December 31, 2011
N O T E S T O C O N S O L I D A T E D F I N A N C I A L S T A T E M E N T S
Gains on Sales
of Operating
Companies
Pension and
Non-Pension
Post-Retirement
Benefits
Property, Plant
and Equipment,
and Intangibles
Deferred Tax Liabilities
Balance – January 1, 2010
Charged (credited) to net earnings
Charged (credited) to net earnings
(discontinued operations)
Charged (credited) directly to equity
Exchange differences
Acquisition of subsidiaries
Other adjustments
Balance – December 31, 2010
Charged (credited) to net earnings
Charged to net earnings (discontinued operations)
Charged (credited) directly to equity
Exchange differences
Acquisition of subsidiaries
Disposition of operating companies
Other adjustments
$ 465
(6)
–
–
–
–
–
$ 459
55
–
9
–
–
–
–
$ 57
11
–
(10)
–
–
–
$ 443
35
22
–
1
151
5
Foreign
Exchange
$ 138
(4)
–
–
4
–
–
Other
$ 152
11
(6)
6
(3)
10
(5)
Total
$ 1,255
47
16
(4)
2
161
–
$ 58
$ 657
$ 138
$ 165
$ 1,477
(33)
–
(30)
–
–
–
27
(30)
40
–
2
253
(175)
(2)
21
–
–
(10)
–
–
(7)
–
–
9
(6)
16
(67)
4
13
40
(12)
(14)
269
(242)
22
Balance – December 31, 2011
$ 523
$ 22
$ 745
$ 142
$ 121
$ 1,553
At December 31, 2011, Onex and its investment holding compa-
1 7 . L I M I T E D P A R T N E R S ’ I N T E R E S T S
nies have $603 of non-capital loss carryforwards and $3 of capital
loss carryforwards.
Deferred income tax assets are recognized for tax loss
carryforwards to the extent that the realization of the related tax
benefit through future taxable income is probable. Unrecognized
deferred income tax assets at December 31, 2011 were $1,045 in
respect of losses amounting to $3,259 that can be carried forward
and applied against future taxable income.
At December 31, 2011 the aggregate amount of taxable
temporary differences not recognized in association with invest-
ments in subsidiaries and associates was $614.
The investments in the Onex Partners and ONCAP Funds by
those other than Onex are presented within the Limited Partners’
Interests. Details of those interests are as follows:
Balance – January 1, 2010
Limited Partners’ Interests charge(a)
Contributions by Limited Partners(b)
Distributions paid to Limited Partners(c)
Balance – December 31, 2010
Limited Partners’ Interests charge(a)
Contributions by Limited Partners(b)
Distributions paid to Limited Partners(c)
Balance – December 31, 2011
Limited
Partners’
Interests
$ 3,708
831
1,451
(340)
$ 5,650
627
932
(2,229)
$ 4,980
a) Limited Partners’ Interests charge was reduced for the change
in the carried interest of $91 for the year ended December 31, 2011
(2010 – $190). Onex’ share of the change in the carried interest was
$29 for the year ended December 31, 2011 (2010 – $76).
Onex Corporation December 31, 2011 121
N O T E S T O C O N S O L I D A T E D F I N A N C I A L S T A T E M E N T S
b) Management fees received from the Limited Partners were
$106 for the year ended December 31, 2011 (2010 – $43). Con-
iii) An unlimited number of Senior and Junior Preferred Shares
issuable in series. The Directors are empowered to fix the rights to
tributions by Limited Partners during 2011 were primarily for the
be attached to each series.
acquisition of JELD-WEN by Onex Partners III and the acquisi-
tions of Pinnacle Renewable Energy Group, Casino ABS, Hopkins
and Davis-Standard by ONCAP II and ONCAP III. Contributions
b) At December 31, 2011, the issued and outstanding share capi-
tal consisted of 100,000 Multiple Voting Shares (2010 – 100,000)
by Limited Partners during 2010 were primarily for the acquisition
and 115,117,316 Subordinate Voting Shares (2010 – 118,279,783).
of Tomkins and the acquisition of the portion of ResCare that was
During the fourth quarter of 2010, the Company cancelled the
previously not owned by Onex or its affiliates.
issued and outstanding Series 1 Senior Preferred Shares. There
c) Distributions paid to Limited Partners for 2011 primarily
consisted of the proceeds paid on the sales of EMSC and Husky
shares at December 31, 2011 or 2010. The Multiple Voting Shares
have a nominal paid-in value in these consolidated financial
(note 3) and the partial dispositions of Spirit AeroSystems and
statements.
were no issued and outstanding Senior and Junior Preferred
TMS International (note 25). In addition, distributions paid to
the Limited Partners for 2011 and 2010 includes distributions
received from Carestream Health, The Warranty Group and other
operating companies.
c) During 2011, under the Dividend Reinvestment Plan, the
Company issued 2,829 Subordinate Voting Shares (2010 – 3,088)
at an average cost of C$34.13 per share (2010 – C$27.68). In 2011
and 2010, no Subordinate Voting Shares were issued upon the
1 8 . S H A R E C A P I T A L
exercise of stock options.
Onex renewed its Normal Course Issuer Bid in April
2011 for one year, permitting the Company to purchase on the
Toronto Stock Exchange up to 10% of the public float of its Sub-
ordinate Voting Shares. The 10% limit represents approximately
9.1 million shares.
During 2011, the Company repurchased and cancelled
under its Normal Course Issuer Bid 3,165,296 of its Subordinate
Voting Shares at a cash cost of $105 (C$105). The excess of the
purchase cost of these shares over the average paid-in amount
was $92 (C$92), which was charged to retained earnings. As at
December 31, 2011, the Company has the capacity under the cur-
rent Normal Course Issuer Bid to purchase approximately 5.9 mil-
lion shares.
During 2010, the Company repurchased and cancelled
under its Normal Course Issuer Bids 2,040,750 of its Subordinate
Voting Shares at a cash cost of $50 (C$52). The excess of the pur-
chase cost of these shares over the average paid-in amount was
$42 (C$44), which was charged to retained earnings.
d) The Company has a Director Deferred Share Unit Plan (“Di-
rector DSU Plan”) and a Management Deferred Share Unit Plan
(“Management DSU Plan”), as described in note 1.
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-in 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.
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 thereupon 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.
122 Onex Corporation December 31, 2011
N O T E S T O C O N S O L I D A T E D F I N A N C I A L S T A T E M E N T S
Details of DSUs outstanding under the plans are as follows:
Outstanding at January 1, 2010
Granted
Redeemed
Additional units issued in lieu of compensation and cash dividends
Outstanding at December 31, 2010
Granted
Additional units issued in lieu of compensation and cash dividends
Outstanding at December 31, 2011
e) The Company has a Stock Option Plan (the “Plan”) under which
options and/or share appreciation rights for a term not exceed-
ing 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 day preceding the day of the grant. Under the Plan, no
options or share appreciation rights may be exercised unless the
average market price of the Subordinate Voting Shares for the five
prior business days exceeds the exercise price of the options or the
share appreciation rights by at least 25% (the “hurdle price”). At
December 31, 2011, 15,612,000 Subordinate Voting Shares (2010
– 15,612,000) were reserved for issuance under the Plan, against
which options representing 14,036,498 shares (2010 – 13,889,600)
were outstanding, of which 11,892,198 options were vested. The
Plan provides that the number of options issued to certain indi-
Director DSU Plan
Management DSU Plan
Number of DSUs
Weighted
Average Price
Number of DSUs
Weighted
Average Price
369,019
40,000
(38,705)
20,346
390,660
40,000
15,728
446,388
C$ 28.40
C$ 26.38
C$ 28.38
C$ 36.57
C$ 34.11
272,880
–
–
121,394
394,274
–
48,865
443,139
–
–
C$ 24.59
–
C$ 31.14
Details of options outstanding are as follows:
Number
of Options
Weighted
Average
Exercise Price
Outstanding at January 1, 2010
13,450,050
Granted
Surrendered
Expired
625,000
(173,100)
(12,350)
Outstanding at December 31, 2010
13,889,600
Granted
Surrendered
Expired
695,000
(506,235)
(41,867)
Outstanding at December 31, 2011
14,036,498
C$ 18.33
C$ 29.29
C$ 18.98
C$ 26.69
C$ 18.80
C$ 33.54
C$ 20.00
C$ 25.29
C$ 19.47
viduals in aggregate may not exceed 10% of the shares outstanding
During 2011 and 2010, the total cash consideration paid on
at the time the options are issued.
options surrendered was $8 (C$8) and $2 (C$2), respectively. This
Options granted vest at a rate of 20% per year from the
amount represents the difference between the market value of the
date of grant with the exception of the 760,083 remaining options
Subordinate Voting Shares at the time of surrender and the exer-
granted in December 2007, which vest at a rate of 16.7% per year.
cise price, both as determined under the Plan.
When an option is exercised, the employee has the right to request
that the Company repurchase the option for an amount equal to
the difference between the fair value of the stock under the option
and its exercise price. Upon receipt of such request, the Company
has the right to settle its obligation to the employee by the payment
of cash, the issuance of shares or a combination of cash and shares.
Onex Corporation December 31, 2011 123
N O T E S T O C O N S O L I D A T E D F I N A N C I A L S T A T E M E N T S
Options outstanding at December 31, 2011 consisted of the following:
Number of Outstanding Options
Exercise Price
Number of Exercisable Options
Hurdle Price
Remaining Life
(years)
155,500
505,000
7,260,000
2,248,625
115,000
280,000
20,000
760,083
672,290
702,500
622,500
10,000
60,000
625,000
14,036,498
C$ 20.50
C$ 14.90
C$ 15.87
C$ 18.18
C$ 19.25
C$ 29.22
C$ 33.40
C$ 35.20
C$ 15.95
C$ 23.35
C$ 29.29
C$ 37.31
C$ 37.37
C$ 33.11
155,500
505,000
7,260,000
2,248,625
115,000
–
–
–
399,790
280,700
−
−
−
−
10,964,615
C$ 25.63
C$ 18.63
C$ 19.84
C$ 22.73
C$ 24.07
C$ 36.53
C$ 41.75
C$ 44.00
C$ 19.94
C$ 29.19
C$ 36.62
C$ 46.64
C$ 46.72
C$ 41.39
0.5
1.1
2.2
2.9
4.1
4.9
5.3
5.9
6.9
7.9
8.9
9.4
9.5
9.9
1 9 . E X P E N S E S B Y N A T U R E
2 0 . I N T E R E S T E X P E N S E O F O P E R A T I N G C O M P A N I E S
Year ended December 31
2011
2010
Interest on long-term debt of
operating companies
Interest on obligations under finance
leases of operating companies
Other interest expense of
operating companies(1)
$ 434
$ 311
3
51
3
28
$ 488
$ 342
(1) Other includes debt prepayment expense of $28 (2010 − $16) .
The nature of expenses in cost of sales and operating expenses,
excluding amortization of property, plant and equipment, intan-
gible assets and deferred charges, consisted of the following:
Year ended December 31
2011
2010
Cost of inventory, raw materials
and consumables used
$ 13,962
$ 11,263
Employee benefit expense(1)
Repairs, maintenance and utilities
Benefits incurred by The Warranty Group
on warranty agreements
Operating lease payments
Amortization charges
Professional fees
Provisions
Transportation
Other expenses
5,153
648
579
292
194
328
130
383
977
3,762
592
547
209
208
143
61
186
827
$ 22,646
$ 17,798
(1) Employee benefit expense excludes employee costs capitalized into inventory
and internally generated capital assets. Stock-based compensation is
disclosed separately in the consolidated statements of earnings.
124 Onex Corporation December 31, 2011
N O T E S T O C O N S O L I D A T E D F I N A N C I A L S T A T E M E N T S
2 1 . S T O C K - B A S E D C O M P E N S A T I O N E X P E N S E
2 3 . O T H E R I T E M S
Year ended December 31
Parent company(a)
Celestica
Spirit AeroSystems
Other
2011
$ 56
44
14
19
$ 133
$ 186
a) Parent company stock-based compensation primarily relates to
Onex’ stock option plan (as described in note 18(e)) and the MIP
(as described in note 31(i)). The expense is determined based on
Other(g)
the fair value of the liability at the end of each reporting period.
2010
Year ended December 31
$ 105
Restructuring(a)
42
31
8
Transition, integration and other(b)
Transaction costs(c)
Skilled Healthcare Group
settlement charge(d)
Unrealized carried interest due to
Onex and ONCAP management(e)
Gain on Flushing Town Center
debt extinguishment(f)
2011
$ 52
17
17
(4)
62
–
2
2010
$ 94
42
−
53
114
(32)
(50)
$ 146
$ 221
The fair value for Onex’ stock option plan is determined
using an option valuation model. The significant inputs into
the model were the share price at December 31, 2011 of C$33.18
(2010 – C$30.23), exercise price of the options, volatility of each
option issuance ranging from 23.70% to 25.56%, an average divi-
dend yield of 0.33% and an average risk-free rate of 1.67%. The vola-
tility is measured as the historical volatility based on the remaining
life of each respective option issuance.
The fair values for the MIP options are determined
using an internally developed valuation model. The significant
inputs into the model are the fair value of the underlying invest-
ments, the time to expected exit from each investment, a risk-free
rate of 1.27% and an industry comparable historical volatility for
each investment.
2 2 . O T H E R G A I N S , N E T
Year ended December 31
Gains on:
Sale of CSI(a)
Other, net
2011
$ –
–
$ –
2010
$ 97
2
$ 99
a) CSI
In November 2010, ONCAP II sold its interests in CSI Global
Education, Inc. (“CSI”) for net proceeds of $123 (C$126), of
which Onex’ share was $50 (C$50). Included in the proceeds was
the repayment of $37 (C$37) of subordinated notes held by the
Company. The Company recorded a pre-tax gain of $97 on the
transaction. There were no cash taxes paid as a result of the gain.
Under the terms of the MIP, as described in note 31(i),
management members participated in the realizations the
Company achieved on the sale of CSI. Amounts paid on account of
this transaction related to the MIP totalled C$4.
In addition, management of ONCAP II received C$13 in
carried interest.
a) Restructuring charges recorded at the operating companies were:
Year ended December 31
Celestica(i)
Carestream Health(ii)
JELD-WEN(iii)
Sitel Worldwide(iv)
Other
2011
$ 14
4
15
17
2
2010
$ 36
15
–
40
3
$ 52
$ 94
i)
Celestica’s restructuring plans primarily consist of actions to
consolidate facilities and reduce its workforce.
ii) Carestream Health’s restructuring plans are primarily related to
a realignment of its information technology and service func-
tions in its Medical Film and Medical Digital segments.
iii) JELD-WEN’s restructuring charge was primarily related to a
petition filed by the company’s Spanish subsidiary during the
fourth quarter of 2011 with the Commercial Court in Spain
for a declaration of insolvency. During the fourth quarter,
the Commercial Court granted the insolvency petition and as
a result, the net assets of the Spanish subsidiary were derec-
ognized as they were no longer controlled. The restructuring
charges primarily related to the net expense of deconsolidating
the net assets of that subsidiary.
iv)
Sitel Worldwide’s restructuring plans are to rationalize facility
and labour costs, realign operations and resources to support
growth plans and shift the geographic mix of certain resources.
b) Transition, integration and other expenses are typically to
provide for the costs of transitioning activities of an operating
company from a prior parent company upon acquisition and to
integrate new acquisitions at the operating companies.
Onex Corporation December 31, 2011 125
N O T E S T O C O N S O L I D A T E D F I N A N C I A L S T A T E M E N T S
c) Transaction costs are incurred by Onex and its operating com-
panies to complete business acquisitions, and typically include
2 4 . I M P A I R M E N T O F G O O D W I L L , I N T A N G I B L E
A S S E T S A N D L O N G - L I V E D A S S E T S , N E T
advisory, legal and other professional and consulting costs.
d) In July 2010, Skilled Healthcare Group announced that a jury
had returned a verdict against the company in a California state
court related to a complaint filed more than four years earlier.
Year ended December 31
Skilled Healthcare Group(a)
JELD-WEN(b)
The Warranty Group(c)
During the third quarter of 2010, Skilled Healthcare Group came
Other(d)
2011
$ 120
22
40
15
$ 197
2010
$ −
−
2
12
$ 14
to a settlement agreement on this complaint and recorded $53 in
other expenses. The settlement contained no admission or con-
cession of wrongdoing by Skilled Healthcare Group. During 2011,
Skilled Healthcare Group recorded insurance recoveries of $4
related to the settlement.
e) Unrealized carried interest reflects the change in the amount
of carried interest due to Onex and ONCAP management through
the Onex Partners and ONCAP Funds. The unrealized carried
interest is calculated based on current fair values of the Funds’
investments and the overall unrealized gains in each respective
Fund in accordance with the limited partnership agreements.
The unrealized carried interest liability is recorded in other non-
current liabilities and reduces the amount due to the Limited
Partners, as described in note 17. The liability will be recovered
upon the realization of the Limited Partners’ share of the under-
lying Onex Partners and ONCAP Fund investments. During the
second and third quarters of 2011 the unrealized carried inter-
est liability was reduced for carried interest paid on the sales of
EMSC and Husky (note 3) and the partial dispositions of Spirit
AeroSystems and TMS International (note 25).
f) In December 2010, Flushing Town Center amended and restat-
ed its senior construction loan and mezzanine loan, as described
in note 12. In conjunction with these amendments, the Company
purchased $56 and $38 of the senior construction loan and mez-
zanine loan, respectively, from third-party lenders. The loans
were purchased for a total cash cost of $62. As a result of the
transaction, the loans purchased by the Company were extin-
guished with the original third-party lenders. Flushing Town
Center recorded a net gain of $32 on the debt extinguishment.
g) Other for the years ended December 31, 2011 and 2010 includes
realized gains recorded by The Warranty Group on its investment
portfolio. In addition, other for the year ended December 31,
2011 includes a charge of $27 recorded by Carestream Health for
an adverse ruling related to a complaint alleging competition
law violations in Brazil by Carestream Health’s predecessor.
Carestream Health will appeal the ruling and vigorously pursue
reversal of this ruling.
126 Onex Corporation December 31, 2011
a) Due to a reduction in expected future recovery rates for
Medicare, expected future growth rates for Medicare and changes
to rehabilitation therapy regulations and their effect on expected
cash flows, Skilled Healthcare Group recorded non-cash goodwill
and intangible asset impairments of $117 and $3, respectively, in
the third quarter of 2011. The impairments were calculated on
a value-in-use basis using discount rates of 9.5% and 12.5%.
b) During the fourth quarter of 2011, JELD-WEN recorded a non-
cash impairment charge of $22 to impair certain of its property,
plant and equipment, primarily as part of a program to rationalize
capacity resources of the company.
c) In the fourth quarter of 2011, as a result of its annual good-
will impairment test, The Warranty Group recorded a non-cash
impairment charge of $40 related to its European operations. The
impairment charge was due to a reduction in expected future
growth rates driven by the poor economic conditions in Europe
and their effect on expected future cash flows.
d) Other in 2011 includes impairments of $17 and impairment
reversals of $2 related to CDI, Sitel Worldwide, BSN SPORTS and
CiCi’s Pizza. Other in 2010 includes Celestica and CiCi’s Pizza.
Substantially all of the Company’s goodwill and intangible assets
with indefinite useful lives use the value-in-use method to mea-
sure the recoverable amount. The carrying value of goodwill and
intangible assets with indefinite useful lives is allocated on a seg-
mented basis in note 34.
In measuring the recoverable amounts for goodwill and intangi-
ble assets at December 31, 2011, significant estimates include the
growth rate and discount rate, which ranged from 1.0% to 8.5%
and 9.5% to 20.0%, respectively.
N O T E S T O C O N S O L I D A T E D F I N A N C I A L S T A T E M E N T S
2 5 . D I S P O S I T I O N S O F O P E R A T I N G C O M P A N I E S
Amounts received on account of the carried interest
U N D E R C O N T I N U I N G C O N T R O L
During 2011, Onex completed a number of transactions by sell-
ing a portion of its ownership interests in certain companies.
Since these transactions did not result in a loss of control by the
Company, they have been recorded as a transfer of equity to non-
controlling interests holders. The excess of proceeds over the
value of the transfer of equity to the non-controlling interest hold-
ers was recorded directly to retained earnings. The major transac-
tions not resulting in a loss of control and the resulting impact on
retained earnings are summarized and described as follows:
Year ended December 31
2011
2010
Excess of cash proceeds recorded
directly to retained earnings:
Spirit AeroSystems(a)
TMS International(b)
$ 100
51
$ 151
$ –
–
$ –
a) In April 2011, under a secondary public offering of Spirit
AeroSystems, Onex, Onex Partners I, Onex management and
related to this transaction totalled $22. Consistent with market
practice and the terms of the Onex Partners agreements, Onex is
allocated 40% of the carried interest with 60% allocated to man-
agement. Onex’ share of the carried interest received was $9 and
is included in the net proceeds. Management’s share of the car-
ried interest was $13. In addition, amounts paid on account of the
MIP totalled $5 for this transaction.
As a result of this transaction, Onex, Onex Partners I,
Onex management and certain limited partners’ economic inter-
est in Spirit AeroSystems was reduced to 16%, of which Onex’ eco-
nomic ownership is 5%. Onex continues to control and consoli-
date Spirit AeroSystems.
b) In April 2011, TMS International completed an initial public
offering of approximately 12.9 million shares of Class A common
stock (NYSE: TMS), including the exercise of the over-allotment
option. As part of the offering, Onex, Onex Partners II and Onex
management sold approximately 1.9 million shares. Net proceeds
of $23 were received by Onex, Onex Partners II and Onex manage-
ment, resulting in a transfer of the historical accounting carrying
value of $4 to non-controlling interests in the consolidated state-
certain limited partners sold approximately 10 million shares of
ments of equity. The net cash proceeds in excess of the historical
Spirit AeroSystems, of which Onex’ portion was approximately
accounting carrying value of $19 were recorded directly to retained
2.7 million shares. The offering was completed at a price of $24.49
earnings. Onex’ share of the net proceeds was $9, including carried
per share. Onex’ cash cost for these shares was $3.33 per share.
interest received on the share sale.
Total net cash proceeds received from the sale were
Proceeds of the initial public offering received by TMS
$245, resulting in a transfer of the historical accounting carry-
International were used to redeem its subordinated notes for $44
ing value of $136 to non-controlling interests in the consolidated
and for general corporate purposes. Onex, Onex Partners II and
statements of equity. The net cash proceeds in excess of the his-
Onex management received $43, including accrued interest of
torical accounting carrying value of $109 were recorded directly
$6, for their share of the redemption of the subordinated notes.
to retained earnings. In addition, Onex recorded a deferred tax
Onex’ share of the redemption of the subordinated notes was $17,
provision of $9 directly to retained earnings. Onex’ share of the
including carried interest received on the redemption of the sub-
net proceeds was $74, including carried interest and deducting
ordinated notes.
distributions paid on account of the MIP.
Onex Corporation December 31, 2011 127
N O T E S T O C O N S O L I D A T E D F I N A N C I A L S T A T E M E N T S
Amounts received on account of the carried inter-
26. NET EARNINGS PER SUBORDINATE VOTING SHARE
est related to these transactions totalled $2. Onex’ share of the
carried interest received was $1 and is included in the net pro-
ceeds for the share sale and the redemption of the subordinat-
ed notes. Management’s share of the carried interest was $1.
No amounts were paid on account of this transaction
The weighted average number of Subordinate Voting Shares for
the purpose of the earnings per share calculations was as follows:
Year ended December 31
2011
2010
related to the MIP as the required performance targets have not
Weighted average number of shares
outstanding (in millions):
Basic
Diluted
117
117
119
119
been met at this time.
As part of its initial public offering, TMS International
issued approximately 10.9 million new common shares. As a
result of the dilution of the Company’s ownership interest in TMS
International from the issuance, a transfer from the non-control-
ling interests of $32 was recorded in the consolidated statement of
equity. This reflects Onex’ share of the increase in the book value
of the net assets of TMS International due to the issuance of addi-
tional common shares at a value above the Company’s account-
ing carrying value of TMS International.
As a result of the dilutive transaction discussed above
and the sale of shares by Onex, Onex Partners II and Onex man-
agement, Onex and the Limited Partners’ economic ownership
interest in TMS International was reduced to 60%, of which Onex’
share is 24%. Onex continues to control and consolidate TMS
International.
128 Onex Corporation December 31, 2011
N O T E S T O C O N S O L I D A T E D F I N A N C I A L S T A T E M E N T S
2 7 . F I N A N C I A L I N S T R U M E N T S
Financial assets and liabilities reported at December 31, 2010 include EMSC and Husky, which were sold during the second quarter of 2011.
Financial assets held by the Company, presented by financial statement line item, were as follows:
Fair Value
through Net Earnings
Recognized
Designated
Available-
for-Sale
Held-to-
Maturity
Loans and
Receivables
Derivatives
Used for
Hedging
Total
December 31, 2011
Assets as per balance sheet
Cash and cash equivalents
Short-term investments
Accounts receivable
Other current assets
Long-term investments
Other non-current assets
$ –
$ 2,448
$ –
$ –
$ –
$ –
$ 2,448
372
–
3
3,795
1
68
–
32
–
–
309
–
–
1,501
–
–
–
–
22
–
–
3,212
77
–
101
–
–
8
14
–
749
3,212
120
5,332
102
Total
$ 4,171
$ 2,548
$ 1,810
$ 22(a)
$ 3,390(b)
$ 22
$ 11,963
December 31, 2010
Assets as per balance sheet
Cash and cash equivalents
Short-term investments
Accounts receivable
Other current assets
Long-term investments
Other non-current assets
Fair Value
through Net Earnings
Recognized
Designated
Available-
for-Sale
Held-to-
Maturity
Loans and
Receivables
Derivatives
Used for
Hedging
Total
$ –
398
–
1
3,172
1
$ 2,532
–
–
294
31
–
$ –
317
–
6
1,584
–
$ –
$ –
$ –
$ 2,532
–
–
1
18
–
–
3,401
57
–
26
–
–
45
12
16
715
3,401
404
4,817
43
Total
$ 3,572
$ 2,857
$ 1,907
$ 19(a)
$ 3,484(b)
$ 73
$ 11,912
(a) Fair value of held-to-maturity assets, which are measured at amortized cost at December 31, 2011, was $22 (2010 – $19).
(b) The carrying value of loans and receivables approximates their fair value.
Financial liabilities held by the Company, presented by financial statement line item, were as follows:
Fair Value
through Net Earnings
Recognized
Designated
Financial
Liabilities at
Amortized Cost
Derivatives Used
for Hedging
Total
December 31, 2011
Liabilities as per balance sheet
Accounts payable and accrued liabilities
$ –
$ –
$ 3,665
$ 17
$ 3,682
Provisions
Other current liabilities
Long-term debt
Obligations under finance leases
Other non-current liabilities
Limited Partners’ Interests
Total
–
31
–
–
359
–
–
1
–
–
9
4,980
54
260
7,096
64
69
–
–
15
–
–
12
–
54
307
7,096
64
449
4,980
$ 390
$ 4,990
$ 11,208
$ 44
$ 16,632
Onex Corporation December 31, 2011 129
N O T E S T O C O N S O L I D A T E D F I N A N C I A L S T A T E M E N T S
Fair Value
through Net Earnings
Recognized
Designated
Financial
Liabilities at
Amortized Cost
Derivatives Used
for Hedging
Total
December 31, 2010
Liabilities as per balance sheet
Accounts payable and accrued liabilities
$ 20
$ –
$ 3,585
$ 1
$ 3,606
Provisions
Other current liabilities
Long-term debt
Obligations under finance leases
Other non-current liabilities
Limited Partners’ Interests
Total
–
1
–
–
240
–
$ 261
–
–
–
–
–
5,650
$ 5,650
33
155
6,732
57
44
–
–
46
–
–
16
–
33
202
6,732
57
300
5,650
$ 10,606
$ 63
$ 16,580
The gains (losses) recognized by the Company related to financial assets and liabilities were as follows:
Year ended December 31
2011
2010
Fair Value through Net Earnings
Available-for-Sale
Fair value adjustments
Interest income
Impairments
Held-to-Maturity
Interest income
Interest expense and other
Loans and Receivables
Provisions and other
Liabilities at Amortized Cost
Interest expense of operating companies
Derivatives used for Hedging
Total gains (losses) recognized
Earnings (Loss)
Comprehensive
Earnings (Loss)
(1)
Earnings (Loss)
Comprehensive
Earnings
(1)
$ (182)(a)
$ –
$ (462)(a)
$ –
96
(1)
2
(1)
5
(488)
14
$ (555)
11
–
–
–
–
–
–
(39)
$ (28)
−
108
(6)
2
–
(7)
(342)
14
$ (693)
10
–
–
–
–
–
9
$ 19
(1) Amounts recognized in comprehensive earnings (loss) are presented gross of the income tax effect.
(a) Primarily consists of Limited Partners’ Interests charge of
$627 (2010 – $831), carried interest charge of $62 (2010 – $114) and
unrealized increase of investments in associates at fair value of $501
(2010 – $448).
130 Onex Corporation December 31, 2011
N O T E S T O C O N S O L I D A T E D F I N A N C I A L S T A T E M E N T S
2 8 . F A I R V A L U E M E A S U R E M E N T S
Fair values of financial instruments
The estimated fair values of financial instruments as at Decem-
ber 31, 2011 and 2010 are based on relevant market prices
and information available at those dates. The carrying values of
cash and cash equivalents, short-term investments, accounts
receivable, accounts payable and accrued liabilities approximate
the fair values of these financial instruments due to the short
maturity of these instruments. The fair value of consolidated long-
term debt measured at amortized cost at December 31, 2011 was
$6,822 (2010 – $6,593).
Financial instruments measured at fair value are allocated within
the fair value hierarchy based upon the lowest level of input that
is significant to the fair value measurement. The three levels of
the fair value hierarchy are as follows:
• Quoted prices in active markets for identical assets (“Level 1”);
• Significant other observable inputs (“Level 2”); and
• Significant other unobservable inputs (“Level 3”).
The allocation of financial assets in the fair value hierarchy, excluding cash and cash equivalents, at December 31, 2011 is as follows:
Financial assets at fair value through earnings
Trading securities
Investments in associates
Other
Available-for-sale financial assets
Investments in debt
Investments in equities
Other
Level 1
Level 2
Level 3
Total
$ –
$ 51
–
329
–
64
–
15
529
1,663
–
83
$ –
3,347
–
–
–
–
$ 51
3,362
858
1,663
64
83
Total financial assets at fair value
$ 393
$ 2,341
$ 3,347
$ 6,081
The allocation of financial assets in the fair value hierarchy, excluding cash and cash equivalents, at December 31, 2010 is as follows:
Financial assets at fair value through earnings
Trading securities
Investments in associates
Other
Available-for-sale financial assets
Investments in debt
Investments in equities
Other
Level 1
Level 2
Level 3
Total
$ –
–
364
103(a)
50
5
$ 33
65
623
1,743
6
–
$ –
2,812
–
–
–
–
$ 33
2,877
987
1,846
56
5
Total financial assets at fair value
$ 522
$ 2,470
$ 2,812
$ 5,804
(a) Balance represents EMSC’s investments in debt. EMSC was sold in the second quarter of 2011.
Onex Corporation December 31, 2011 131
N O T E S T O C O N S O L I D A T E D F I N A N C I A L S T A T E M E N T S
The allocation of financial liabilities in the fair value hierarchy at December 31, 2011 is as follows:
Financial liabilities at fair value through net earnings
Limited Partners’ Interests
Unrealized carried interest due to Onex and ONCAP management
Derivatives
Other
Total financial liabilities at fair value
Level 1
Level 2
Level 3
Total
$ –
–
–
–
$ –
$ –
$ 4,980
$ 4,980
–
–
12
165
62
161
165
62
173
$ 12
$ 5,368
$ 5,380
The allocation of financial liabilities in the fair value hierarchy at December 31, 2010 is as follows:
Financial liabilities at fair value through net earnings
Limited Partners’ Interests
Unrealized carried interest due to Onex and ONCAP management
Derivatives
Other
Total financial liabilities at fair value
Level 1
Level 2
Level 3
Total
$ –
–
–
–
$ –
$ –
$ 5,650
$ 5,650
–
–
2
199
40
20
199
40
22
$ 2
$ 5,909
$ 5,911
Details of financial assets and liabilities measured at fair value with significant unobservable inputs (Level 3), excluding investments in
associates designated at fair value through earnings (note 8) and Limited Partners’ Interests designated at fair value (note 17), are as follows:
Financial Assets at
Fair Value through
Net Earnings
Available-
for-Sale
Financial Assets
Financial
Liabilities at
Fair Value through
Net Earnings
$ –
–
–
–
$ –
–
–
–
–
$ –
$ –
$ 2
–
–
(2)
$ –
–
–
–
–
$ 85
139
35
–
$ 259
84
(20)
181
(116)
$ –
$ 388
$ –
$ (84)
Balance – January 1, 2010
Total gains or losses
In net earnings
Additions
Settlements
Balance – December 31, 2010
Total gains or losses
In net earnings
Disposition of operating companies
Additions from business combinations
Settlements
Balance – December 31, 2011
Unrealized gains (losses) in net earnings for assets and liabilities
held at the end of the reporting period
132 Onex Corporation December 31, 2011
N O T E S T O C O N S O L I D A T E D F I N A N C I A L S T A T E M E N T S
The fair value measurements for investments in associates, Limited
Partners Interests and unrealized carried interest are primar-
ily driven by the underlying fair value of the investments in the
Onex Partners and ONCAP Funds. A change to reasonably pos-
sible alternative estimates and assumptions used in the valua-
tion of non-public investments in the Onex Partners and ONCAP
Funds (as described in note 1) may have a significant impact on
the fair values calculated for these financial assets and liabilities.
A change in the valuation of the underlying investments may have
multiple impacts to Onex’ consolidated financial statements and
those impacts are dependent on the method of accounting used for
that investment, the Fund(s) within which that investment is held
and the progress of that investment in meeting the Management
Investment Plan exercise hurdles. For example, an increase in the
fair value of an investment in an associate would have the following
impacts on Onex’ consolidated financial statements:
i) an increase in the unrealized value of investments in associ-
ates at fair value in the consolidated statements of earnings
with a corresponding increase in long-term investments in
the consolidated balance sheets;
ii) a charge would be recorded for the Limited Partners’ share of
the fair value increase for the investment in associates on the
Limited Partners’ Interests line in the consolidated statements
of earnings with a corresponding increase to the Limited
Partners’ Interests in the consolidated balance sheets;
iii) a change in the calculation of unrealized carried interest in
the respective Fund that holds the investment in associate,
resulting in a recovery being recorded in the Limited Partners’
Interests line in the consolidated statements of earnings with
a corresponding decrease to the Limited Partners’ Interests in
the consolidated balance sheets;
iv)
a charge would be recorded for the change in unrealized car-
ried interest due to Onex and ONCAP management on the
other items line in the consolidated statements of earnings
with a corresponding increase to the other non-current liabil-
ities in the consolidated balance sheets; and
2 9 . F I N A N C I A L I N S T R U M E N T R I S K S
A N D C A P I T A L D I S C L O S U R E S
Credit risk
Credit risk is the risk that the counterparty to a financial instru-
ment will fail to perform its obligation and cause the Company to
incur a loss.
Substantially all of the cash, cash equivalents and
short-term investments consist of investments in debt securities.
In addition, the long-term investments of The Warranty Group
included in the investments line in the consolidated balance
sheets, consist primarily of investments in debt securities. The
investments in debt securities are subject to credit risk. A descrip-
tion of the investments held by The Warranty Group is included
in note 8.
At December 31, 2011, Onex Corporation, the ultimate
parent company, held approximately $990 of cash and cash equiva-
lents in short-term high-rated money market instruments. In addi-
tion, Celestica had approximately $660 of cash and cash equiva-
lents. Celestica’s current portfolio consists of bank deposits and
certain money market funds that hold primarily U.S. government
securities. The majority of Celestica’s and Onex Corporation’s,
the ultimate parent company’s, cash and cash equivalents is held
with financial institutions, each of which has a current Standard &
Poor’s rating of A-1 or above.
Accounts receivable are also subject to credit risk. At December 31,
2011, the aging of consolidated accounts receivable was as follows:
Current
1-30 days past due
31-60 days past due
>60 days past due
Accounts
Receivable
$ 2,610
323
100
239
$ 3,272
v) a change in the fair value of the vested investment rights held
under the Management Investment Plan, resulting in a charge
Liquidity risk
being recorded on the stock-based compensation line in the
consolidated statements of earnings and a corresponding
increase to other non-current liabilities in the consolidated
balance sheets.
Liquidity risk is the risk that Onex and its operating companies
will have insufficient funds on hand to meet their respective
obligations as they come due. The operating companies operate
autonomously and generally have restrictions on cash distribu-
tions to shareholders under their financing agreements. Onex
needs to be in a position to support its operating companies when
and if it is appropriate and reasonable for Onex, as an equity
owner with paramount duties to act in the best interests of Onex’
shareholders. Maintaining sufficient liquidity at Onex is impor-
tant because Onex, as a holding company, generally does not have
guaranteed sources of meaningful cash flow.
Onex Corporation December 31, 2011 133
N O T E S T O C O N S O L I D A T E D F I N A N C I A L S T A T E M E N T S
In completing acquisitions, it is generally Onex’ policy to
Interest rates
finance a significant portion of the purchase price with debt pro-
The Company is exposed to changes in future cash flows as a
vided by third-party lenders. This debt, sourced exclusively on the
result of changes in the interest rate environment. The parent
strength of the acquired companies’ financial condition and pros-
company is exposed to interest rate changes primarily through
pects, is assumed by the acquired company at closing and is with-
its cash and cash equivalents, which are held in short-term term
out recourse to Onex Corporation, the ultimate parent company,
deposits and commercial paper. Assuming no significant changes
or to its other operating companies or partnerships. The foremost
in cash balances held by the parent company from those at
consideration, however, in developing a financing structure for
December 31, 2011, a 0.25% increase (0.25% decrease) in the
an acquisition is identifying the appropriate amount of equity to
interest rate (including the Canadian and U.S. prime rates) would
invest. In Onex’ view, this should be the amount of equity that
result in a minimal impact on annual interest income. As all of the
maximizes the risk/reward equation for both shareholders and the
Canadian dollar cash and cash equivalents at the parent company
acquired company.
are designated as fair value through net earnings, there would be
Accounts payable for the operating companies are pri-
no effect on other comprehensive earnings.
marily due within 90 days. The repayment schedules for long-
The operating companies’ results are also affected by
term debt and finance leases of the operating companies have
changes in interest rates. A change in the interest rate (includ-
been disclosed in notes 12 and 13. Onex Corporation, the ultimate
ing the LIBOR and U.S. prime interest rate) would result in a
parent company, has no debt and has not guaranteed the debt of
change in interest expense being recorded due to the variable-
the operating companies.
Market risk
rate portion of the long-term debt of the operating companies.
At December 31, 2011, approximately 52% (2010 – 56%) of the
operating companies’ long-term debt had a fixed interest rate or
Market risk is the risk that the future cash flows of a financial
the interest rate was effectively fixed by interest rate swap con-
instrument will fluctuate due to changes in market prices. The
tracts. The long-term debt of the operating companies is without
Company is primarily exposed to fluctuations in the foreign cur-
recourse to Onex Corporation, the ultimate parent company.
rency exchange rate between the Canadian and U.S. dollars and
In addition, The Warranty Group holds substantially
fluctuations in the LIBOR and U.S. prime interest rate.
all of its investments in interest bearing securities, as described
Foreign currency exchange rates
in note 8. A 0.25% increase in the interest rate would decrease
the fair value of the investments held by $12 and result in a cor-
Onex’ operating companies operate autonomously as self-sustain-
responding decrease to other comprehensive earnings of The
ing companies. In addition, the functional currency of substan-
Warranty Group. However, as the investments are reinvested,
tially all of Onex’ operating companies is the U.S. dollar. As invest-
a 0.25% increase in the interest rate would increase the annual
ments in self-sustaining subsidiaries are excluded from the financial
interest income recorded by The Warranty Group by $5.
instrument disclosure, the Company’s exposure on financial instru-
ments to the Canadian/U.S. dollar foreign currency exchange rate is
Commodity risk
primarily at the parent company, through the holding of Canadian-
Certain of Onex’ operating companies have exposure to commod-
dollar-denominated cash and cash equivalents. A 5% strengthen-
ities. In particular, aluminum, titanium and raw materials such
ing (5% weakening) of the Canadian dollar against the U.S. dollar at
as carbon fibres used to manufacture composites are the princi-
December 31, 2011 would result in an $8 increase ($8 decrease) in
pal raw materials for Spirit AeroSystems’ manufacturing opera-
net earnings. As all of the Canadian-dollar-denominated cash and
tions. To limit its exposure to rising raw materials prices, Spirit
cash equivalents at the parent company are designated as fair value
AeroSystems has entered into long-term supply contracts directly
through net earnings, there would be no effect on other compre-
with its key suppliers of raw materials and collective raw materials
hensive earnings.
sourcing contracts arranged through certain of its customers.
In addition, Celestica has significant exposure to the
In addition, diesel fuel is a key commodity used in TMS
U.S. dollar/Canadian dollar foreign currency exchange rate. A 5%
International’s operations. To help mitigate the risk of changes in
strengthening (5% weakening) of the Canadian dollar against the
fuel prices, substantially all of its contracts contain pricing escala-
U.S. dollar at December 31, 2011 would result in a $6 increase ($5
tors based on published commodity or inflation price indices.
decrease) in the other comprehensive earnings of Celestica and
Silver is a significant commodity used in Carestream
an $11 increase ($10 decrease) in net earnings.
Health’s manufacturing of x-ray film. The company’s manage-
ment continually monitors movement and trends in the silver
market and enters into collar and forward agreements when con-
sidered appropriate to mitigate some of the risk of future price
fluctuations, generally for periods of up to a year.
134 Onex Corporation December 31, 2011
N O T E S T O C O N S O L I D A T E D F I N A N C I A L S T A T E M E N T S
Capital disclosures
• have appropriate levels of committed third-party capital avail-
Onex considers the capital it manages to be the amounts it has
able to invest along with Onex’ capital. This enables Onex to
in cash, cash equivalents and short-term investments, the invest-
respond quickly to opportunities and pursue acquisitions of
ments made by it in the operating companies, Onex Real Estate
businesses it could not achieve using only its own capital. The
and Onex Credit Partners. Onex also manages the third-party
management of third-party capital also provides management
capital invested in the Onex Partners, ONCAP and Onex Credit
fees to Onex and the ability to enhance Onex’ returns by earn-
Partners Funds.
ing a carried interest on the profits of third-party participants.
Onex’ objectives in managing capital are to:
At December 31, 2011, Onex, the parent company, had approxi-
• preserve a financially strong parent company with substantial
mately $990 of cash and cash equivalents on hand and $312 of
liquidity and no, or a limited amount of, debt so that it can have
near-cash items in a segregated unleveraged fund managed by
funds available to pursue new acquisitions and growth oppor-
Onex Credit Partners. Onex, the parent company, has a conser-
tunities as well as support the growth of its existing business-
vative cash management policy that limits its cash investments
es. Onex does not generally have the ability to draw cash from
to short-term high-rated money market products. At Decem-
its operating companies. Accordingly, maintaining adequate
ber 31, 2011, Onex had access to $2,811 of uncalled committed
liquidity at the parent company is important;
third-party capital for acquisitions through the Onex Partners and
• achieve an appropriate return on capital commensurate with
ONCAP Funds.
the level of risk taken on;
• build the long-term value of its operating companies;
The strategy for risk management of capital has not changed
• control the risk associated with capital invested in any particular
significantly since December 31, 2010.
business or activity. All debt financing is within the operating
companies and each operating company is required to support
its own debt. Onex does not normally guarantee the debt of the
operating companies and there are no cross-guarantees of debt
between the operating companies; and
3 0 . S I G N I F I C A N T C U S T O M E R S O F O P E R A T I N G C O M P A N I E S A N D C O N C E N T R A T 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
Caliber Collision
CDI
Celestica
Hopkins
JELD-WEN
Pinnacle Renewable Energy Group
Skilled Healthcare Group
Spirit AeroSystems
TMS International
The Warranty Group
2011
2010
Number of
Significant
Customers
Percentage
of Revenues
Number of
Significant
Customers
Percentage
of Revenues
4
1
2
1
1
2
2
2
2
1
52%
12%
30%
19%
17%
93%
67%
96%
39%
12%
4
1
1
−
−
−
2
2
1
1
52%
12%
20%
−
−
−
69%
94%
32%
12%
Accounts receivable from the above significant customers at December 31, 2011 totalled $514 (2010 – $330).
Onex Corporation December 31, 2011 135
N O T E S T O C O N S O L I D A T E D F I N A N C I A L S T A T E M E N T S
3 1 . 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 A T E D P A 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 primarily pro-
vided by certain operating companies to various third parties
and include certain bank guarantees. At December 31, 2011,
the amounts potentially payable in respect of these guarantees
totalled $254.
The Company, which includes the operating compa-
nies, has total commitments of approximately $6 with respect to
corporate investments.
The Company, which includes the operating companies,
has also provided certain indemnifications, including those related
to businesses that have been sold. The maximum amounts from
many of these indemnifications cannot be reasonably estimated at
this time. However, in certain circumstances, the Company and its
operating companies have recourse against other parties to miti-
gate the risk of loss from these indemnifications.
The Company, which includes the operating compa-
nies, has commitments with respect to real estate operating leas-
es, which are disclosed in note 13.
The aggregate commitments for capital assets at Decem-
ber 31, 2011 amounted to $461 and are expected to be incurred
between 2012 and 2016.
b) Onex and its operating companies are or may become parties
to legal claims, product liability and warranty claims arising from
the ordinary course of business. Certain operating companies, as
conditions of acquisition agreements, have agreed to accept cer-
tain pre-acquisition liability claims against the acquired compa-
nies. The operating companies have recorded provisions based
on their consideration and analysis of their exposure in respect
of such claims. Such provisions are reflected, as appropriate, in
Onex’ consolidated financial statements (refer to note 11). Onex
Corporation, the ultimate parent company, has not currently
recorded any further provision and does not believe that the reso-
lution of known claims would reasonably be expected to have a
material adverse impact on Onex’ consolidated financial position.
However, the final outcome with respect to outstanding, pending
or future actions cannot be predicted with certainty, and there-
fore there can be no assurance that their resolution will not have
an adverse effect on Onex’ consolidated financial position.
136 Onex Corporation December 31, 2011
c) The operating companies are subject to laws and regulations
concerning the environment and to the risk of environmen-
tal liability inherent in activities relating to their past and pres-
ent operations. As conditions of acquisition agreements, certain
operating companies have agreed to accept certain pre-acquisi-
tion liability claims on the acquired companies after obtaining
indemnification from prior owners.
The Company and its operating companies also have
insurance to cover costs incurred for certain environmental mat-
ters. Although the effect on operating results and liquidity, if any,
cannot be reasonably estimated, management of Onex and the
operating companies believe, based on current information, that
these environmental matters should not have a material adverse
effect on the Company’s consolidated financial condition.
d) In February 2004, Onex completed the closing of Onex Part-
ners I with funding commitments totalling $1,655. Onex Partners I
provided committed capital for Onex-sponsored acquisitions not
related to Onex’ operating companies at December 31, 2003 or to
ONCAP. As at December 31, 2011, $1,475 (2010 – $1,475) has been
invested of the $1,655 of total capital committed. Onex has invest-
ed $346 (2010 – $346) of its $400 commitment. Onex controls the
General Partner and Manager of Onex Partners I. The total amount
invested in Onex Partners I’s remaining investments by Onex man-
agement and directors at December 31, 2011 was $23 (2010 – $33).
Prior to November 2006, Onex received annual man-
agement fees based on 2% of the capital committed to Onex
Partners I by investors other than Onex and Onex management.
The annual management fee was reduced to 1% of the net fund-
ed commitments at the end of the initial fee period in November
2006, when Onex established a successor fund, Onex Partners II.
Carried interest is received on the overall gains achieved by
Onex Partners I investors, other than Onex and Onex manage-
ment, to the extent of 20% of the gains, provided that those inves-
tors have achieved a minimum 8% return on their investment
in Onex Partners I over the life of Onex Partners I. The invest-
ment by Onex Partners I investors for this purpose takes into con-
sideration management fees and other amounts paid in by Onex
Partners I investors.
The returns to Onex Partners I investors, other than
Onex and Onex management, are based upon all investments
made through Onex Partners I, with the result that the initial car-
ried interests achieved by Onex on gains could be recovered from
Onex if subsequent Onex Partners I investments do not exceed
the overall target return level of 8%. Consistent with market prac-
tice, Onex, as sponsor of Onex Partners I, is allocated 40% of the
carried interest with 60% allocated to Onex management. For the
year ended December 31, 2011, $55 (2010 – nil) has been received
by Onex as carried interest while Onex management received $82
(2010 – nil) with respect to the carried interest.
N O T E S T O C O N S O L I D A T E D F I N A N C I A L S T A T E M E N T S
e) In August 2006, Onex completed the closing of Onex Partners
II with funding commitments totalling $3,450. Onex Partners II
2008, Onex gave notice to the investors of Onex Partners III that
Onex’ commitment would be decreasing to $500 effective July
provided committed capital for Onex-sponsored acquisitions not
1, 2009. In December 2009, Onex notified the investors of Onex
related to Onex’ operating companies at December 31, 2003 or to
Partners III that it would be increasing its commitment to $800
ONCAP or Onex Partners I. As at December 31, 2011, $2,944 (2010 –
effective June 16, 2010. In November 2011, Onex notified the
$2,944) has been invested of the $3,450 of total capital committed.
investors of Onex Partners III that it would be increasing its com-
Onex has funded $1,164 (2010 – $1,164) of its $1,407 commitment.
mitment to $1,200 effective May 15, 2012. This commitment may
Onex controls the General Partner and Manager of Onex Partners
be increased to approximately $1,500 at the option of Onex, but
II. Onex management has committed, as a group, to invest a mini-
may not be decreased. Onex controls the General Partner and
mum of 1% of Onex Partners II, which may be adjusted annually
Manager of Onex Partners III. Onex management has committed,
up to a maximum of 4%. As at December 31, 2011, Onex manage-
as a group, to invest a minimum of 1% of Onex Partners III, which
ment and directors had committed approximately 4% (2010 – 3%).
may be adjusted annually up to a maximum of 6%. At Decem-
The total amount invested in Onex Partners II’s remaining invest-
ber 31, 2011, Onex management and directors had committed
ments by Onex management and directors at December 31, 2011
5% (2010 – 4%). The total amount invested in Onex Partners III’s
was $98, of which nil (2010 – $2) was invested in the year ended
investments by Onex management and directors at December 31,
December 31, 2011.
2011 was $59, of which $26 (2010 – $28) was invested in the year
Prior to November 2008 Onex received annual man-
ended December 31, 2011.
agement fees based on 2% of the capital committed to Onex
Onex receives annual management fees based on 1.75%
Partners II by investors other than Onex and Onex manage-
of the capital committed to Onex Partners III by investors other
ment. The annual management fee was reduced to 1% of the
than Onex and Onex management. The annual management fee
net funded commitments at the end of the initial fee period in
is reduced to 1% of the net funded commitments at the earlier of
November 2008, when Onex established a successor fund, Onex
the end of the commitment period or if Onex establishes a succes-
Partners III. Carried interest is received on the overall gains
sor fund. Carried interest is received on the overall gains achieved
achieved by Onex Partners II investors, other than Onex and
by Onex Partners III investors, other than Onex and Onex man-
Onex management, to the extent of 20% of the gains, provided
agement, to the extent of 20% of the gains, provided that those
that those investors have achieved a minimum 8% return on their
investors have achieved a minimum 8% return on their invest-
investment in Onex Partners II over the life of Onex Partners II.
ment in Onex Partners III over the life of Onex Partners III. The
The investment by Onex Partners II investors for this purpose
investment by Onex Partners III investors for this purpose takes
takes into consideration management fees and other amounts
into consideration management fees and other amounts paid by
paid by Onex Partners II investors.
Onex Partners III investors.
The returns to Onex Partners II investors, other than
The returns to Onex Partners III investors, other than
Onex and Onex management, are based upon all investments
Onex and Onex management, are based upon all investments
made through Onex Partners II, with the result that the initial car-
made through Onex Partners III, with the result that the initial
ried interests achieved by Onex on gains could be recovered from
carried interests achieved by Onex on gains could be recovered
Onex if subsequent Onex Partners II investments do not exceed
from Onex if subsequent Onex Partners III investments do not
the overall target return level of 8%. Consistent with market prac-
exceed the overall target return level of 8%. Consistent with mar-
tice and Onex Partners I, Onex, as sponsor of Onex Partners II, is
ket practice and Onex Partners I and Onex Partners II, Onex, as
allocated 40% of the carried interest with 60% allocated to Onex
sponsor of Onex Partners III, will be allocated 40% of the carried
management. For the year ended December 31, 2011, $10 (2010 –
interest with 60% allocated to Onex management. As at Decem-
nil) has been received by Onex as carried interest while Onex man-
ber 31, 2011, no amount has been received as carried interest
agement received $14 (2010 – nil) with respect to the carried interest.
related to Onex Partners III.
f) In December 2009, Onex completed the closing of Onex
Partners III with funding commitments totalling approximately
g) In May 2006, ONCAP completed the closing of ONCAP II
with funding commitments totalling C$574. ONCAP II provided
$4,300. Onex Partners III provides committed capital for Onex-
committed capital for ONCAP-sponsored acquisitions of
sponsored acquisitions not related to Onex’ operating com-
small and medium-sized businesses requiring between C$20 and
panies at December 31, 2003 or to ONCAP, Onex Partners I
C$75 of initial equity capital. As at December 31, 2011, C$470
or Onex Partners II. As at December 31, 2011, approximately
(2010 – C$323) has been invested of the approximately C$574 of
$1,794 (2010 – $1,074) has been invested, of which Onex’ share
total capital committed. Onex has invested C$215 (2010 – C$145)
was $336 (2010 – $205). Onex had a $1,000 commitment for the
of its C$252 commitment. Onex controls the General Partner and
period from January 1, 2009 to June 30, 2009. On December 31,
Manager of ONCAP II. The total amount invested in ONCAP II’s
Onex Corporation December 31, 2011 137
N O T E S T O C O N S O L I D A T E D F I N A N C I A L S T A T E M E N T S
remaining investments by management of Onex and ONCAP and
The returns to ONCAP III investors, other than Onex
directors at December 31, 2011 was C$39, of which C$17 (2010 –
and management of Onex and ONCAP, are based upon all invest-
C$6) was invested in the year ended December 31, 2011.
ments made through ONCAP III, with the result that the initial
Prior to July 2011, ONCAP received annual manage-
carried interests achieved by ONCAP on gains could be recovered
ment fees based on 2% of the capital committed to ONCAP II by
if subsequent ONCAP III investments do not exceed the overall
investors other than Onex and management of Onex and ONCAP.
target return level of 8%. Consistent with market practice, Onex,
The annual management fee was reduced to 2% of the net funded
as sponsor of ONCAP III, is allocated 40% of the carried interest
commitments at the end of the initial fee period in July 2011,
with 60% allocated to ONCAP management. As at December 31,
when ONCAP established a successor fund, ONCAP III. Carried
2011, no amount has been received as carried interest related to
interest is received on the overall gains achieved by ONCAP II
ONCAP III.
investors other than management of Onex and ONCAP, to the
extent of 20% of the gains, provided that those investors have
achieved a minimum 8% return on their investment in ONCAP II
i) Under the terms of the MIP, management members of
the Company invest in all of the operating entities acquired by
over the life of ONCAP II. The investment by ONCAP II investors
the Company.
for this purpose takes into consideration management fees and
The aggregate investment by management members
other amounts paid in by ONCAP II investors.
The returns to ONCAP II investors, other than manage-
under the MIP is limited to 9% of Onex’ interest in each acqui-
sition. The form of the investment is a cash purchase for 1⁄ 6th
ment of Onex and ONCAP, are based upon all investments made
through ONCAP II, with the result that the initial carried interests
(1.5%) of the MIP’s share of the aggregate investment, and invest-
ment rights for the remaining 5⁄6ths (7.5%) of the MIP’s share at
achieved by ONCAP on gains could be recovered if subsequent
the same price. Amounts invested under the minimum invest-
ONCAP II investments do not exceed the overall target return
ment requirement in Onex Partners’ transactions are allocated
level of 8%. Consistent with market practice, Onex, as sponsor of
to meet the 1.5% Onex investment requirement under the MIP.
ONCAP II, is allocated 40% of the carried interest with 60% allo-
cated to ONCAP management. For the year ended December 31,
For investments made prior to November 7, 2007, the investment
rights to acquire the remaining 5⁄6ths vest equally over four years
2011, ONCAP management received nil (2010 – C$13) with respect
with the investment rights vesting in full if the Company disposes
to the carried interest.
of 90% or more of an investment before the fifth year.
The MIP was amended in 2007. For investments made
h) In September 2011, ONCAP completed the closing of
ONCAP III with funding commitments totalling C$800, excluding
subsequent to November 7, 2007, the vesting period for the
investment rights to acquire the remaining 5⁄6ths increased from
commitments from management of Onex and ONCAP. ONCAP III
four to six years, with the investment rights vesting in full if the
provides committed capital for ONCAP-sponsored acquisitions of
Company disposes of all of an investment before the seventh year.
small and medium-sized businesses requiring between C$50 and
Under the MIP and amended MIP, the investment rights related
C$100 of initial equity capital. As at December 31, 2011, C$174 has
to a particular acquisition are exercisable only if the Company
been invested of the approximately C$800 of total capital com-
earns a minimum 15% per annum compound rate of return for
mitted. Onex has invested C$51 of its C$252 commitment. Onex
that acquisition after giving effect to the investment rights.
controls the General Partner and Manager of ONCAP III. The total
Under the terms of the MIP, the total amount paid
amount invested in ONCAP III’s remaining investments by man-
by management members in 2011, including amounts invested
agement of Onex and ONCAP and directors at December 31, 2011
under minimum investment requirements of the Onex Partners
was C$17.
and ONCAP Funds to meet the 1.5% MIP requirement, was $9
ONCAP receives annual management fees based on 2%
(2010 – $9). Investment rights exercisable at the same price for
of the capital committed to ONCAP III by investors other than Onex
7.5% (2010 – 7.5%) of the Company’s interest in acquisitions were
and management of Onex and ONCAP. The annual management
issued at the same time. Realizations under the MIP distributed in
fee is reduced to 1.5% of the net funded commitments at the ear-
2011 were $56 (2010 – $4).
lier of the end of the commitment period or if ONCAP establishes
a successor fund. A carried interest is received on the overall gains
achieved by ONCAP III investors, other than Onex and management
j) Members of management and the Board of Directors of the Com-
pany invested $5 in 2011 (2010 – $9) in Onex’ investments made
of Onex and ONCAP, to the extent of 20% of the gains, provided that
outside of Onex Partners and ONCAP at the same cost as Onex and
those investors have achieved a minimum 8% return on their invest-
other outside investors. Those investments by management and
ment in ONCAP III over the life of ONCAP III. The investment by
the Board of Directors are subject to voting control by Onex.
ONCAP III investors for this purpose takes into consideration man-
agement fees and other amounts paid in by ONCAP III investors.
138 Onex Corporation December 31, 2011
N O T E S T O C O N S O L I D A T E D F I N A N C I A L S T A T E M E N T S
k) Each member of Onex management is required to reinvest 25% of
the proceeds received related to their share of the MIP investment
Committee, provided opinions that the values received by
Onex for the tax losses were fair. Onex’ Audit and Corporate
rights and carried interest to acquire Onex shares in the market
Governance Committee, all the members of which are indepen-
until the management member owns one million Onex Subordinate
dent directors, unanimously approved the transactions. The fol-
Voting Shares and/or management DSUs. During 2011, Onex man-
lowing transactions were completed during 2011 and 2010:
agement reinvested approximately C$18 (2010 – less than C$1) to
•
In 2011, Onex received $5 (C$5) in cash and will receive $5 (C$5)
acquire Onex shares.
l) Certain operating companies have made loans to certain direc-
tors or officers of the individual operating companies typically for
on or before March 31, 2012 for Canadian tax losses of C$100.
The entire $10 (C$10) was recorded as a gain and included in
other items in the consolidated statements of earnings.
•
In April 2010, Onex received $7 (C$8) in cash for Canadian
the purpose of acquiring shares in those operating companies.
tax losses of C$70. The entire $7 (C$8) was recorded as a gain
The total value of the loans outstanding as at December 31, 2011
and was included in other items in the consolidated statements
was $35 (2010 – $9).
of earnings.
m) In connection with the 2007 purchase of Carestream Health
from Eastman Kodak Company (“Kodak”), if, upon the disposi-
In January 2012, Onex received $2 (C$2) in cash for Canadian tax
losses of C$20 sold to a company controlled by Mr. Gerald W.
tion of Carestream Health, Onex and Onex Partners realize an
Schwartz, who is Onex’ controlling shareholder. The entire $2
internal rate of return on their initial $471 investment in excess of
(C$2) will be recorded as a gain in the first quarter of 2012 in the
25%, Kodak is entitled to 25% of the excess return, up to $200. At
consolidated statements of earnings. In connection with this
December 31, 2011, Onex and Onex Partners had received distri-
transaction, Deloitte & Touche LLP, an independent account-
butions of $427 (2010 – $231) from Carestream Health and recog-
ing firm retained by Onex’ Audit and Corporate Governance
nized a provision at fair value of $3 (2010 – $3).
Committee, provided an opinion that the value received by Onex
n) Onex Corporation, the ultimate parent company, receives fees
from certain operating companies for services provided. The
fees from consolidated operating companies are eliminated in
these consolidated financial statements. During 2011, fees of $4
(2010 – $28) were received from non-consolidated operating com-
for the tax losses was fair. Onex’ Audit and Corporate Governance
Committee, all the members of which are independent directors,
unanimously approved the transaction.
p) The Company’s key management consists of the senior execu-
tives of Onex and its significant operating companies. Also includ-
panies and included with revenues in these consolidated financial
ed are the directors of Onex Corporation. Aggregate payments to
statements.
the Company’s key management were as follows:
o) During 2011 and 2010, Onex entered into the sale of entities,
whose sole assets were certain tax losses, to a public company
controlled by Mr. Gerald W. Schwartz, who is Onex’ controlling
shareholder. Onex has significant Canadian non-capital and
capital losses available; however, Onex does not expect to gen-
erate sufficient taxable income to fully utilize these losses in the
foreseeable future. As such, no benefit has been recognized in
Year ended December 31
2011
Short-term employee benefits and costs
$ 126
Post-employment benefits
Termination benefits
Share-based payments(1)
2
3
174
$ 305
2010
$ 98
1
–
38
$ 137
the consolidated financial statements. In connection with these
(1)
Share-based payments includes carried interest paid to Onex management
transactions, Onex obtained tax rulings from the Canada Revenue
Agency and Deloitte & Touche LLP, an independent account-
ing firm retained by Onex’ Audit and Corporate Governance
as described in note 31(d), (e) and (f) and payments under the MIP as described
in note 31(i).
Onex Corporation December 31, 2011 139
N O T E S T O C O N S O L I D A T E D F I N A N C I A L S T A T E M E N T S
3 2 . 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 ter-
mination benefits, health, dental and group life. The plans at the
operating companies are independent and surpluses within cer-
tain plans cannot be used to offset deficits. Onex Corporation, the
ultimate parent company, does not provide pension, other retire-
ment or post-retirement benefits to its employees or to those of
any of the operating companies.
Accrued benefit obligations and the fair value of the
plan assets for accounting purposes are measured at December 31
of each year. The most recent actuarial valuations of the largest
pension plans for funding purposes was 2008 to 2011, and the
next required valuations will be as of 2011 to 2013. The Company
estimates that in 2012 the minimum funding requirement for the
defined benefit pension plans will be $53.
In 2011, total cash payments for employee future
benefits, consisting of cash contributed by the operating com-
panies 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 $169 (2010 –
$162). Included in the total was $30 (2010 – $31) contributed to
The total costs during 2011 for defined contribution
pension plans and multi-employer plans were $113 (2010 – $110).
multi-employer plans.
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
2011
2010
2011
2010
2011
2010
Pension Plans
in which Assets Exceed
Accumulated Benefits
Pension Plans
in which Accumulated
Benefits Exceed Assets
Non-Pension
Post-Retirement Benefits
Accrued benefit obligations:
Opening benefit obligations
Current service cost
Interest cost
Contributions by plan participants
Benefits paid
Actuarial loss in year
Foreign currency exchange rate changes
Acquisitions
Dispositions
Plan amendments
Settlements/curtailments
Reclassification of plans
Other
$ 944
$ 792
$ 398
$ 410
$ 165
$ 139
7
64
–
(24)
146
(4)
–
–
–
–
218
–
6
50
–
(13)
75
5
1
–
–
–
28
–
10
12
1
(11)
18
(3)
403
–
(2)
(4)
(218)
(2)
9
19
1
(21)
29
(4)
–
–
(1)
(15)
(28)
(1)
6
8
–
(6)
12
(2)
2
(6)
–
–
–
–
6
9
–
(4)
13
4
–
–
–
(2)
–
–
Closing benefit obligations
$ 1,351
$ 944
$ 602
$ 398
$ 179
$ 165
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
Settlements/curtailments
Reclassification of plans
Other
Closing plan assets
140 Onex Corporation December 31, 2011
$ 1,130
$ 978
$ 298
$ 314
$ –
$ –
170
35
–
(24)
(6)
–
–
206
(1)
121
12
–
(13)
5
–
–
27
–
1
18
1
(11)
–
206
(3)
(206)
7
25
26
1
(21)
(5)
–
(14)
(27)
(1)
–
6
–
(6)
–
–
–
–
–
–
4
–
(4)
–
–
–
–
–
$ 1,510
$ 1,130
$ 311
$ 298
$ –
$ –
Asset Category
Equity securities
Debt securities
Real estate
Other
N O T E S T O C O N S O L I D A T E D F I N A N C I A L S T A T E M E N T S
Percentage of Plan Assets
2011
37%
59%
1%
3%
100%
2010
35%
60%
2%
3%
100%
Equity securities do not include direct investments in the shares
The expected return on plan assets is determined by considering
of the Company or its subsidiaries but may be invested indirectly
the expected returns available on the assets underlying the cur-
as a result of the inclusion of the Company’s and its subsidiaries’
rent investment policies of each pension plan. Expected yields on
shares in certain market investment funds.
debt securities are based on gross redemption yields as at the bal-
ance sheet date. Expected returns on equity and real estate invest-
ments reflect long-term real rates of return experienced in the
respective markets.
The funded status of the plans of the operating subsidiary companies was as follows:
Pension Plans
in which Assets Exceed
Accumulated Benefits
Pension Plans
in which Accumulated
Benefits Exceed Assets
Non-Pension
Post-Retirement Benefits
As at December 31
2011
2010
2011
2010
2011
2010
Deferred benefit amount:
Plan assets, at fair value
Accrued benefit obligation
Plan surplus (deficit):
Unrecognized transitional obligation
and past service costs
$ 1,510
(1,351)
$ 159
$ 1,130
(944)
$ 186
$ 311
(602)
$ (291)
$ 298
(398)
$ (100)
$ –
(179)
$ (179)
$ –
(165)
$ (165)
–
–
–
–
(7)
(7)
Deferred benefit amount – asset (liability)
$ 159
$ 186
$ (291)
$ (100)
$ (186)
$ (172)
The deferred benefit asset is included in the Company’s consolidated balance sheets under “Other non-current assets” (note 9). The
deferred benefit liabilities are included in the Company’s consolidated balance sheets under “Other non-current liabilities” (note 15).
Onex Corporation December 31, 2011 141
N O T E S T O C O N S O L I D A T E D F I N A N C I A L S T A T E M E N T S
The net expense (earnings) for the plans, excluding discontinued operations, is outlined below:
Pension Plans
in which Assets Exceed
Accumulated Benefits
Pension Plans
in which Accumulated
Benefits Exceed Assets
Non-Pension
Post-Retirement Benefits
Year ended December 31
2011
2010
2011
2010
2011
2010
Net periodic expense (earnings):
Current service cost
Interest cost
Actual return on plan assets
Difference between expected return and actual return
on plan assets for period
Plan amendments (curtailment/settlement gain)
Difference between amortization of past service costs
for period and actual plan amendments for period
$ 7
64
(170)
83
–
–
$ 6
50
(121)
48
–
–
$ 10
12
(1)
(5)
–
–
$ 9
19
(25)
9
(1)
–
Net periodic expense (earnings)
$ (16)
$ (17)
$ 16
$ 11
$ 6
$ 6
8
–
–
–
(1)
$ 13
8
–
–
(2)
(1)
$ 11
The net periodic expense (earnings) for pension plans and non-pension post-retirement benefits are included in cost of sales and operating
expenses in the income statement.
The following assumptions were used to account for the plans:
Year ended December 31
Accrued benefit obligation
Weighted average discount rate
Weighted average rate of compensation increase
Benefit cost
Weighted average discount rate
Weighted average expected long-term rate of return on plan assets
Weighted average rate of compensation increase
Assumed healthcare cost trend rates
Initial healthcare cost rate
Cost trend rate declines to
Pension Benefits
Non-Pension
Post-Retirement Benefits
2011
2010
2011
2010
3.0%–5.4%
0.0%–4.2%
4.7%–5.7%
0.0%–4.3%
3.0%–5.1%
0.0%–4.7%
5.0%–5.7%
0.0%–4.7%
3.0%–5.7%
4.5%–8.0%
0.0%–4.3%
4.8%–6.3%
4.3%–8.0%
0.0%–4.3%
2011
7.1%–9.5%
4.5%–5.0%
3.0%–5.7%
5.8%–6.5%
n/a
n/a
0.0%–4.7%
0.0%–4.7%
2010
7.2%–9.5%
4.5%–5.0%
Year that the rate reaches the rate it is assumed to remain at
Between 2014 and 2030
Between 2014 and 2030
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
1% Increase
1% Decrease
2011
$ 1
$ 19
2010
$ 2
$ 18
2011
$ (1)
$ (16)
2010
$ (2)
$ (16 )
142 Onex Corporation December 31, 2011
N O T E S T O C O N S O L I D A T E D F I N A N C I A L S T A T E M E N T S
3 3 . S U B S E Q U E N T E V E N T S
Onex and certain operating companies may enter into agree-
ments to acquire or make investments in other businesses. These
transactions are typically subject to a number of conditions, many
of which are beyond the control of Onex or the operating compa-
nies. The effect of these planned transactions, if completed, may
be significant to the consolidated financial position of Onex.
3 4 . I N F O R M A T 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
Onex’ reportable segments operate through autonomous com-
panies and strategic partnerships. Each reportable segment offers
different products and services and is managed separately.
The Company had eight reportable segments in 2011
(2010 – seven): electronics manufacturing services; aerostruc-
tures; healthcare; financial services; customer care services; metal
services; building products (2011 only); and other. The electronics
manufacturing services segment consists of Celestica, which pro-
vides supply chain solutions, including manufacturing services to
electronics original equipment manufacturers and service pro-
viders. The aerostructures segment consists of Spirit AeroSystems,
which manufactures aerostructures. The healthcare segment con-
sists of EMSC (sold in May 2011), a leading provider of ambulance
transport services and outsourced hospital emergency depart-
ment physician staffing and management services in the United
States; Carestream Health, a leading global provider of medical
imaging and healthcare information technology solutions; CDI,
which owns and operates diagnostic imaging centres in the
United States; Skilled Healthcare Group, which operates skilled
nursing and assisted living facilities in the United States; and
ResCare, a leading U.S. provider of residential training, educa-
tion and support services for people with disabilities and special
needs. The financial services segment consists of The Warranty
Group, which underwrites and administers extended warran-
ties on a variety of consumer goods and also provides consumer
credit and other specialty insurance products primarily through
automobile dealers. The customer care services segment consists
of Sitel Worldwide, which provides services for telecommunica-
tions, consumer goods, retail, technology, transportation, finance
and utility companies. The metal services segment consists of TMS
International, a leading provider of outsourced services to steel
mills. The building products segment consists of JELD-WEN, one
of the world’s largest manufacturers of interior and exterior doors,
windows and related products for use primarily in the residential
and light commercial new construction and remodelling markets.
Other includes Husky (sold in June 2011), one of the world’s larg-
est suppliers of injection molding equipment and services to the
plastics industry; Tropicana Las Vegas, one of the most storied
casinos in Las Vegas; Allison Transmission, a leading designer and
manufacturer of automatic transmissions for on-highway trucks
and buses, off-highway equipment and military vehicles world-
wide; Hawker Beechcraft, a leading manufacturer of business jet,
turboprop and piston aircraft; RSI, a leading manufacturer of cabi-
netry for the residential marketplace in North America; Tomkins,
an industrial company that operates a number of businesses
serving the general industrial, automotive and building prod-
ucts markets; as well as Onex Real Estate, the operating compa-
nies of ONCAP II and ONCAP III and the parent company. Allison
Transmission, Hawker Beechcraft, ResCare (prior to November
2010), RSI and Tomkins are recorded at fair value through net
earnings, as described in note 1.
Onex Corporation December 31, 2011 143
N O T E S T O C O N S O L I D A T E D F I N A N C I A L S T A T E M E N T S
2011 Industry Segments
Electronics
Manufacturing
Services
Aerostruc-
tures
Healthcare
Financial
Services
Customer
Care
Services
Metal
Services
Building
Products
Other
Consoli-
dated
Total
Revenues
$ 7,213
$ 4,864
$ 5,030
$ 1,184
$ 1,416
$ 2,661
$ 774
$ 1,500
$ 24,642
Cost of sales (excluding amortization
of property, plant and equipment,
intangible assets and
deferred charges)
Operating expenses
Interest income
Amortization of property, plant
(6,645)
(234)
1
(4,124)
(178)
–
(3,446)
(918)
4
(579)
(429)
–
(921)
(377)
–
and equipment
(64)
(107)
(126)
(5)
Amortization of intangible assets
and deferred charges
Interest expense of operating
(14)
(41)
(168)
(18)
companies
(6)
(77)
(221)
(4)
Unrealized increase in value of
investments in associates at
fair value, net
Foreign exchange gains (loss)
Stock-based compensation expense
Other items
Impairment of goodwill, intangible
assets and long-lived assets, net
Limited Partners’ Interests charge
Earnings (loss) before income taxes
–
(1)
(44)
(7)
–
–
–
(2)
(14)
3
–
–
–
(10)
(9)
(32)
(129)
–
–
–
–
9
(40)
–
(34)
(28)
(85)
–
(2)
–
(18)
–
–
(2,467)
(59)
–
(47)
(13)
(34)
–
1
(2)
–
–
–
(660)
(118)
1
(883)
(608)
26
(19,725)
(2,921)
32
(25)
(54)
(462)
(5)
(24)
(311)
(17)
(44)
(488)
–
(2)
–
(17)
(22)
–
501
2
(64)
(84)
(6)
(627)
501
(14)
(133)
(146)
(197)
(627)
and discontinued operations
$ 199
$ 324
$ (25)
$ 118
$ (49)
$ 40
$ (91)
$ (365)
$ 151
Recovery of (provision for)
income taxes
Earnings (loss) from continuing
operations
Earnings from discontinued
operations
Net earnings (loss) for the year
Total assets
Long-term debt(a)
Property, plant and equipment
additions
Intangible assets with indefinite life
Goodwill additions from acquisitions
Goodwill
Net earnings (loss) attributable to:
Equity holders of Onex Corporation
Non-controlling interests
Net earnings (loss) for the year
(4)
(100)
(87)
(56)
(9)
(16)
2
33
(237)
195
–
195
224
–
224
(112)
606
494
62
–
62
(58)
–
(58)
24
–
24
(89)
(332)
(86)
–
(89)
1,109
777
1,715
1,629
$ 2,970
$ –
$ 4,978
$ 1,157
$ 4,194
$ 2,670
$ 4,877
$ 203
$ 631
$ 652
$ 1,045
$ 377
$ 2,581
$ 481
$ 8,170
$ 29,446
$ 1,421
$ 6,961
$ 60
$ –
$ 34
$ 48
$ 275
$ –
$ –
$ 3
$ 96
$ 258
$ 41
$ 911
$ 3
$ 16
$ –
$ 304
$ 32
$ 36
$ –
$ 118
$ 75
$ –
$ –
$ 239
$ 13
$ 257
$ 119
$ 120
$ 120
$ 674
$ 376
$ 943
$ 278
$ 472
$ 691
$ 2,434
$ 17
$ 178
$ 195
$ 35
$ 189
$ 224
$ 512
$ 59
$ (39)
$ 17
$ (60)
$ 786
$ 1,327
$ (18)
$ 3
$ (19)
$ 7
$ (29)
$ (9)
$ 302
$ 494
$ 62
$ (58)
$ 24
$ (89)
$ 777
$ 1,629
(a) Long-term debt includes current portion, excludes finance leases and is net of financing charges.
144 Onex Corporation December 31, 2011
N O T E S T O C O N S O L I D A T E D F I N A N C I A L S T A T E M E N T S
2010 Industry Segments
Revenues
$ 6,526
$ 4,170
$ 3,498
$ 1,163
$ 1,340
$ 2,030
$ 1,007
$ 19,734
Electronics
Manufacturing
Services
Aerostruc-
tures
Healthcare
Financial
Services
Customer
Care
Services
Metal
Services
Other
Consoli-
dated
Total
Cost of sales (excluding amortization of property,
plant and equipment, intangible assets
and deferred charges)
Operating expenses
Interest income
Amortization of property, plant and equipment
Amortization of intangible assets
and deferred charges
Interest expense of operating companies
Unrealized increase in value of investments
in associates at fair value, net
Foreign exchange gains (loss)
Stock-based compensation expense
Other gains, net
Other items
Impairment of goodwill, intangible assets
and long-lived assets
Limited Partners’ Interests charge
Earnings (loss) before income taxes
(5,997)
(216)
(3,429)
(181)
–
(71)
(16)
(16)
–
(4)
(42)
–
(36)
(9)
–
–
(95)
(25)
(59)
–
(5)
(31)
–
2
–
–
(2,270)
(629)
3
(116)
(167)
(122)
21
(5)
(5)
–
(68)
–
–
(547)
(435)
–
(5)
(24)
(4)
–
–
–
–
21
(2)
–
(847)
(363)
1
(34)
(25)
(79)
–
(5)
–
–
(43)
–
–
(1,858)
(53)
–
(49)
(12)
(43)
–
–
–
–
–
–
–
(544)
(429)
30
(33)
(15)
(19)
427
11
(108)
99
(97)
(3)
(831)
(15,492)
(2,306)
34
(403)
(284)
(342)
448
(8)
(186)
99
(221)
(14)
(831)
and discontinued operations
$ 119
$ 347
$ 140
$ 167
$ (55)
$ 15
$ (505)
$ 228
Recovery of (provision for) income taxes
Earnings (loss) from continuing operations
Earnings from discontinued operations
Net earnings (loss) for the year
Total assets
Long-term debt(a)
Property, plant and equipment additions
Intangible assets with indefinite life
Goodwill additions from acquisitions
Goodwill
Net earnings (loss) attributable to:
Equity holders of Onex Corporation
Non-controlling interests
Net earnings (loss) for the year
(18)
101
–
101
$ 3,014
$ –
$ 63
$ –
$ 14
$ 15
(98)
249
–
249
$ 4,975
$ 1,145
$ 284
$ –
$ –
$ 3
(39)
101
132
233
$ 6,162
$ 2,996
$ 141
$ 266
$ 428
$ 1,403
(60)
107
–
107
$ 4,918
$ 205
$ 3
$ 16
$ –
$ 344
5
(50)
–
(50)
$ 675
$ 624
$ 22
$ 36
$ –
$ 118
(11)
4
–
4
$ 862
$ 404
$ 41
$ –
$ –
$ 240
(18)
(523)
76
(447)
(239)
(11)
208
197
$ 7,501
$ 28,107
$ 1,215
$ 6,589
$ 244
$ 798
$ 179
$ 497
$ 89
$ 531
$ 511
$ 2,634
$ 9
$ 92
$ 101
$ 57
$ 192
$ 249
$ 136
$ 97
$ 233
$ 101
$ 6
$ 107
$ (34)
$ 6
$ (442)
$ (167)
$ (16)
$ (2)
$ (5)
$ 364
$ (50)
$ 4
$ (447)
$ 197
(a) Long-term debt includes current portion, excludes finance leases and is net of financing charges.
Geographic Segments
2011
2010
Canada
U.S.
Europe
Asia and
Oceania
Other
Total
Canada
U.S.
Europe
Asia and
Oceania
Other
Total
$ 1,264 $ 15,323
$ 4,181
$ 2,968
$ 906 $ 24,642
$ 1,598
$ 11,687
$ 3,153
$ 2,589
$ 707
$ 19,734
Revenue(1)
Property, plant
and equipment
$ 345 $ 3,539
$ 694
$ 408
$ 116 $ 5,102
$ 241
$ 3,023
$ 379
$ 283
$ 130
$ 4,056
Intangible assets
$ 238 $ 2,028
$ 223
$ 94
$ 16 $ 2,599
$ 317
$ 1,871
$ 243
$ 58
$ 16
$ 2,505
Goodwill
$ 184 $ 1,790
$ 279
$ 148
$ 33 $ 2,434
$ 125
$ 2,105
$ 282
$ 93
$ 29
$ 2,634
(1) Revenues are attributed to geographic areas based on the destinations of the products and/or services.
Other consists primarily of operations in Central and South America, and Mexico.
Onex Corporation December 31, 2011 145
N O T E S T O C O N S O L I D A T E D F I N A N C I A L S T A T E M E N T S
3 5 . T R A N S I T I O N T O I F R S
The Company’s consolidated financial statements for the
year ending December 31, 2011 are the first annual financial
statements that comply with IFRS, including the application of
IFRS 1, First-time adoption of IFRS. IFRS 1 requires that compar-
ative financial information be provided for the first date at which
the Company has applied IFRS, which was January 1, 2010 (the
“Transition Date”). IFRS 1 also requires first-time adopters to
retrospectively apply all effective IFRS standards as of the report-
ing date. However, it also provides for certain optional exemp-
tions and certain mandatory exceptions for the first-time adop-
tion of IFRS.
In completing the transition to IFRS the Company
conducted an evaluation of the primary and secondary factors
used to assess its functional currency under IFRS. It was deter-
mined that the U.S. dollar is the Company’s functional cur-
rency under IFRS. Accordingly, the financial statements under
IFRS have been reported on a U.S. dollar basis.
Initial elections upon adoption
Set forth below are the applicable IFRS 1 exemptions and excep-
tions applied in the conversion from Canadian GAAP (as report-
ed at December 31, 2010 and prior consolidated financial state-
ments) to IFRS.
IFRS Exemption Options
Business combinations – IFRS 1 allows for the guidance under
IFRS 3 (revised), Business Combinations, to be applied either
retrospectively or prospectively. Onex has elected to adopt
IFRS 3 (revised) prospectively. Accordingly, all business com-
binations on or after January 1, 2010 will be accounted for in
accordance with IFRS 3 (revised).
Employee benefits – IFRS 1 provides the option to retro-
spectively apply either the corridor approach under IAS 19,
Employee Benefits, for the recognition of actuarial gains and
losses, or recognize all cumulative gains and losses deferred
under Canadian GAAP in opening retained earnings at the tran-
sition date. Onex will elect to recognize all cumulative actuarial
gains and losses that existed at the transition date in opening
retained earnings for all of its employee benefit plans at the
operating companies.
Cumulative translation differences – IAS 21, The Effects of Changes
in Foreign Exchange Rates, requires an entity to determine the
translation differences in accordance with IFRS from the date on
which a subsidiary was formed or acquired. IFRS 1 allows cumula-
tive translation differences for all foreign operations to be deemed
zero at the date of transition to IFRS, with future gains or losses on
subsequent disposal of any foreign operations to exclude transla-
tion differences arising from periods prior to the date of transition
to IFRS. Onex deemed all cumulative translation differences to be
zero on transition to IFRS.
Borrowing costs – IAS 23, Borrowing Costs, requires an entity
to capitalize the borrowing costs related to all qualifying assets.
Onex has elected to adopt IAS 23 prospectively. Accordingly, bor-
rowing costs related to qualifying assets on or after January 1,
2010 will be capitalized.
Leases – International Financial Reporting Interpretations
Committee (“IFRIC”) 4, Determining whether an Arrangement
contains a Lease, requires a company to assess all arrangements
to determine if they are, or contain, a lease. Onex will elect to use
the IFRS 1 exemption such that IFRIC 4 need only be applied to
those arrangements that had not previously been assessed under
similar Canadian GAAP requirements.
IFRS Mandatory Exceptions
Hedge accounting – IFRS 1 requires hedge accounting to be
applied prospectively from the transition date to transactions that
satisfy the hedge accounting criteria at that date in accordance with
IAS 39, Financial Instruments: Recognition and Mea surement. Only
hedging relationships that satisfy the hedge accounting criteria as
of the transition date will be reflected as hedges in Onex’ results
under IFRS. Any derivatives not meeting the IAS 39 criteria for
hedge accounting will be recorded at fair value in the consolidated
balance sheets as a non-hedging derivative financial instrument.
Estimates – Hindsight is not used to create or revise estimates.
The estimates previously made by the Company under Canadian
GAAP will not be revised for the application of IFRS except
where necessary to reflect any differences in accounting policies
between IFRS and Canadian GAAP.
146 Onex Corporation December 31, 2011
N O T E S T O C O N S O L I D A T E D F I N A N C I A L S T A T E M E N T S
R E C O N C I L I A T I O N O F F I N A N C I A L S T A T E M E N T S T O I F R S
The following are reconciliations of the financial statements previously presented under Canadian GAAP to the financial statements
prepared under IFRS. The reconciliations do not reflect adjustments for operating company investments subsequently disposed of or
classified as discontinued operations.
Reconciliation of Consolidated Balance Sheet as at January 1, 2010
(in millions of dollars)
Assets
Current assets
Cash and cash equivalents
Short-term investments
Accounts receivable
Inventories
Other current assets
Property, plant and equipment
Long-term investments
Other non-current assets
Intangible assets
Goodwill
Liabilities and Equity
Current liabilities
December 31,
2009
Canadian GAAP
(C$)
Adjustments
to U.S. Dollar
Functional
Currency
December 31,
2009
Canadian GAAP
(US$)
IFRS
Adjustments
IFRS
Adjustment
References
January 1, 2010
IFRS (US$)
$ 3,206
$ (156)
$ 3,050
$ (32)
$ 3,018
636
3,062
3,085
1,384
11,373
3,623
3,255
2,696
2,086
2,312
(31)
(149)
(150)
(67)
(553)
(184)
(158)
(132)
(101)
(112)
605
2,913
2,935
1,317
10,820
3,439
3,097
2,564
1,985
2,200
–
15
269
(216)
36
(73)
351
(649)
256
(2)
(a)
(b)
(b)
(c)
(a,b,d)
(e)
605
2,928
3,204
1,101
10,856
3,366
3,448
1,915
2,241
2,198
$ 25,345
$ (1,240)
$ 24,105
$ (81)
$ 24,024
Accounts payable and accrued liabilities
$ 3,819
$ (185)
$ 3,634
$ (366)
Current portion of provisions
Other current liabilities
Current portion of long-term debt, without recourse
to Onex Corporation
Current portion of obligations under finance leases,
without recourse to Onex Corporation
Current portion of warranty reserves and
unearned premiums
Non-current portion of provisions
Long-term debt of operating companies, without
–
992
425
21
1,410
6,667
–
–
(48)
(21)
(1)
(68)
(323)
–
–
944
404
20
1,342
6,344
–
recourse to Onex Corporation
5,505
(267)
5,238
Non-current portion of obligations under finance
leases, without recourse to Onex Corporation
41
(2)
39
Non-current portion of warranty reserves and
unearned premiums
Other non-current liabilities
Deferred income taxes
Non-controlling interests
Limited Partners’ Interests
Equity
Share capital
Non-controlling interests
Retained earnings and accumulated other
comprehensive earnings
2,034
1,832
1,237
6,370
–
(99)
(91)
(180)
(309)
–
1,935
1,741
1,057
6,061
–
23,686
(1,271)
22,415
508
–
1,151
1,659
(127)
–
158
31
381
–
1,309
1,690
$ 25,345
$ (1,240)
$ 24,105
255
30
–
–
–
(81)
231
46
–
–
(71)
(247)
(6,061)
3,708
(2,475)
–
3,329
(935)
2,394
$ (81)
(f)
(f)
(f)
(f)
(f,g)
(h)
(h)
(h)
(i)
$ 3,268
255
974
404
20
1,342
6,263
231
5,284
39
1,935
1,670
810
–
3,708
19,940
381
3,329
374
4,084
$ 24,024
Onex Corporation December 31, 2011 147
N O T E S T O C O N S O L I D A T E D F I N A N C I A L S T A T E M E N T S
Reconciliation of Consolidated Balance Sheet as at December 31, 2010
(in millions of dollars)
Assets
Current assets
Cash and cash equivalents
Short-term investments
Accounts receivable
Inventories
Other current assets
Property, plant and equipment
Long-term investments
Other non-current assets
Intangible assets
Goodwill
Liabilities and Equity
Current liabilities
December 31,
2010
Canadian GAAP
(C$)
Adjustments
to U.S. Dollar
Functional
Currency
December 31,
2010
Canadian GAAP
(US$)
IFRS
Adjustments
IFRS
Adjustment
References
December 31,
2010
IFRS (US$)
$ 2,518
$ 14
$ 2,532
$ –
$ 2,532
711
3,397
3,614
1,695
11,935
4,101
3,754
2,436
2,233
2,619
4
19
20
8
65
11
20
14
12
14
715
3,416
3,634
1,703
12,000
4,112
3,774
2,450
2,245
2,633
–
14
370
(208)
176
(56)
1,090
(578)
260
1
(a)
(b)
(b)
(c)
(a,b,d)
(e)
715
3,430
4,004
1,495
12,176
4,056
4,864
1,872
2,505
2,634
$ 27,078
$ 136
$ 27,214
$ 893
$ 28,107
Accounts payable and accrued liabilities
$ 4,307
$ 24
$ 4,331
$ (367)
Current portion of provisions
Other current liabilities
Current portion of long-term debt, without recourse
to Onex Corporation
Current portion of obligations under finance leases,
without recourse to Onex Corporation
Current portion of warranty reserves and
unearned premiums
Non-current portion of provisions
Long-term debt of operating companies, without
recourse to Onex Corporation
Non-current portion of obligations under finance
leases, without recourse to Onex Corporation
Non-current portion of warranty reserves and
unearned premiums
Other non-current liabilities
Deferred income taxes
Non-controlling interests
Limited Partners’ Interests
Equity
Share capital
Non-controlling interests
Retained earnings and accumulated other
comprehensive earnings
–
1,165
242
13
1,306
7,033
–
6,309
42
1,770
1,871
1,089
7,483
–
25,597
500
–
981
1,481
–
6
1
–
7
38
–
34
–
9
6
(144)
41
–
(16)
(127)
–
279
152
–
1,171
243
13
1,313
7,071
–
6,343
42
1,779
1,877
945
7,524
–
25,581
373
–
1,260
1,633
$ 27,078
$ 136
$ 27,214
257
40
–
1
1
(68)
284
3
1
1
44
(7)
(7,524)
5,650
(1,616)
–
3,638
(1,129)
2,509
$ 893
(f)
(f)
(f)
(f)
(f,g)
(h)
(h)
(h)
(i)
$ 3,964
257
1,211
243
14
1,314
7,003
284
6,346
43
1,780
1,921
938
–
5,650
23,965
373
3,638
131
4,142
$ 28,107
148 Onex Corporation December 31, 2011
N O T E S T O C O N S O L I D A T E D F I N A N C I A L S T A T E M E N T S
Reconciliation of Statement of Net Earnings (Loss)
for the Year Ended December 31, 2010
Reconciliation of Consolidated Statement of Comprehensive
Earnings for the Year Ended December 31, 2010
(in millions of dollars
except per share data)
Net Loss under Canadian GAAP
Adjustments to U.S. dollar
functional currency
Net Earnings under Canadian GAAP
Revenue recognition
Unrealized increase in value of investments
in associates at fair value, net
Stock-based compensation
Other items:
Unrealized carried interest
attributable to management
Restructuring provisions
Non-controlling interests
Limited Partners’ Interests
Income taxes
Gain on sale of CSI
Other, net
IFRS
Adjustment
References
(b)
(c)
(g)
(g)
(j)
(h)
(h)
(k)
(l)
IFRS
Adjustment
References
(in millions of dollars)
C$ (51)
Comprehensive earnings under
Canadian GAAP
63
Adjustments to U.S. dollar
US$ 12
functional currency
64
Comprehensive earnings under
Canadian GAAP
Adjustments to Net Earnings, net of tax
Non-controlling interests
Foreign currency translation adjustments
Actuarial loss and other
(h)
(m)
(n)
699
(28)
(114)
13
363
(831)
Total comprehensive earnings (loss)
9
11
(1)
attributable to:
Equity holders of Onex Corporation
Non-controlling interests
Net Earnings under IFRS
US$ 197
C$ (113)
136
US$ 23
185
5
(8)
(64)
$ (188)
329
$ 141
Comprehensive earnings under IFRS
US$ 141
Net earnings (loss) attributable to:
Equity holders of Onex Corporation
Non-controlling interests
Net loss per Subordinate Voting Share
of Onex Corporation
Basic and Diluted:
Net loss
$ (167)
364
$ 197
The transition from Canadian GAAP to IFRS reporting resulted in
certain balances being reclassified for presentation purposes in
the consolidated balance sheets. Adjustments to the Company’s
consolidated balance sheets, excluding reclassifications, and con-
solidated statements of comprehensive earnings in the transition
from Canadian GAAP to IFRS reporting consisted of the following:
a) Where products are provided free of charge to customers in
connection with a commitment to provide an identifiable future
$ (1.40)
benefit, IFRS requires that the product be recognized as a receiv-
able at fair value, while Canadian GAAP required recognition as
a long-term asset at cost. As such, on transition to IFRS the prod-
ucts were recognized at fair value and a component was classified
as a current account receivable from other non-current assets
under Canadian GAAP presentation.
Onex Corporation December 31, 2011 149
N O T E S T O C O N S O L I D A T E D F I N A N C I A L S T A T E M E N T S
b) Under IFRS, Spirit AeroSystems recognizes revenue relating
to its long-term volume-based pricing contracts under IAS 11,
e) On transition to IFRS an impairment was recognized by Spirit
AeroSystems for its deferred development costs. The impairment
Construction Contracts. In accordance with IAS 11, revenue and
was due to the consideration of its deferred development charges
costs are recognized with consideration for the entire life of the
as an intangible asset under IFRS and consequently the different
contracts, while under Canadian GAAP certain components of
impairment testing requirements.
contracts were considered separately for revenue and cost rec-
ognition. The difference in the method of recognizing revenue
and costs associated with the long-term contracts resulted in a
f) In accordance with IFRS, provisions related to restructuring,
warranty, asset retirement obligations, legal, self-insurance and
reduction of inventory and a corresponding decrease in retained
other have been presented separately in the consolidated balance
earnings under IFRS. In addition, costs associated with the long-
sheets. Under Canadian GAAP, provisions were recorded within
term supply contracts resulted in a reduction of cost of goods sold
accounts payable and accrued liabilities, other current liabilities
under IFRS. The deferred tax impact related to this adjustment
and other non-current liabilities.
was reflected in other non-current assets.
In accordance with IFRS, pre-production costs associ-
ated with long-term volume-based pricing contracts at Spirit
g) Adjustments to other non-current liabilities for employee
future benefits related primarily to the recognition of cumula-
AeroSystems have been classified as inventory from other non-
tive actuarial gains and losses on transition to IFRS, as described
current assets.
above, and unamortized past service costs that were recognized
During the third quarter of 2010, Onex, the parent com-
on transition to IFRS.
pany, received fees from Tomkins for services rendered in con-
In accordance with IFRS, the liability for cash-settled
junction with the acquisition of Tomkins. Under Canadian GAAP,
share-based payments is accrued at fair value by applying an
these fees were eliminated as Tomkins was accounted for using
option pricing model while Canadian GAAP permitted recogni-
the equity-accounted method.
c) For certain investments over which the Company has the abil-
ity to exert significant influence, but not control, IFRS allows the
tion at the intrinsic value of the payments. As such, the liability
for cash-settled share-based payments was adjusted to reflect the
fair value of these awards. In addition, the liability for share-based
payments was adjusted to reflect the use of the graded vesting
investments to be designated for recognition at fair value. The
basis as required under IFRS, while Canadian GAAP permitted the
Company has designated to record at fair value its significant
pooling of share-based instruments and recognition on a straight-
influence investments in Allison Transmission, Hawker Beech-
line basis.
craft, RSI, ResCare (prior to November 2010), Tomkins, Cypress
Other non-current liabilities also includes an adjust-
and Onex Real Estate. The transition from the equity accounting
ment to recognize the unrealized carried interest in the Onex
method under Canadian GAAP to fair value under IFRS resulted in
Partners and ONCAP Funds. The unrealized carried interest is
a net increase of the investments’ carrying value and adjustments
calculated based on the fair values of the underlying invest-
to fair value since the transition to IFRS.
ments and the overall unrealized gains in each respective Fund in
d) A portion of the deferred development charges related to Spirit
AeroSystems previously recorded within other non-current assets
ity reflects the portion due to Onex management. The portion of
unrealized carried interest due to Onex is recognized through a
has been classified as an intangible asset for IFRS reporting.
reduced charge for the Limited Partners’ Interests. The unrealized
Onex has elected to recognize all cumulative actuarial
carried interest liability reduces the amount due to the Limited
gains and losses for employee future benefit plans deferred under
Partners and will eventually be paid through the realization of
Canadian GAAP in opening retained earnings at the date of transi-
the Limited Partners’ share of the underlying Onex Partners and
accordance with the limited partnership agreements. The liabil-
tion to IFRS. A reduction (increase) to deferred benefit assets (liabil-
ONCAP Fund investments.
ities), net of the associated deferred tax impact, was recognized for
this transitional adjustment. Subsequently, under IFRS, Onex has
elected to recognize all actuarial gains and losses immediately in a
h) Under IFRS, the interests of the Limited Partners and other
investors through the Onex Partners and ONCAP Funds are
separate statement of other comprehensive earnings and directly
required to be recorded as a financial liability. The liability is
to retained earnings, without recognition to the income statement.
recorded at fair value and reflects the discounted future estimated
cash flows to settle the liability. As changes in the future estimated
cash flows occur, the liability is adjusted through earnings to the
fair value of the underlying investments in the Onex Partners and
ONCAP Funds.
150 Onex Corporation December 31, 2011
N O T E S T O C O N S O L I D A T E D F I N A N C I A L S T A T E M E N T S
The remaining third-party interests in the Company’s
consolidated investments are considered to be non-controlling
l) Under IFRS, the gain recognized for the sale of CSI by
ONCAP II was increased for the recovery of the Limited Partners’
interests and are presented as a component of equity under IFRS.
share of negative accounting retained earnings associated with
In addition to the equity classification, the non-controlling interests
the investment in CSI. Additionally, the gain was not reduced for
were adjusted for their share of the change in opening net assets,
the amounts paid on account of the MIP as Onex accrues a liabil-
including accumulated other comprehensive income (loss) items.
ity for the MIP under IFRS.
i) The adjustment to retained earnings and accumulated other
comprehensive earnings reflects Onex’ share of the change in
attributable to the equity holders of Onex Corporation, as interests
of the Limited Partners were recorded as a financial liability at fair
net assets for the respective periods. The significant adjustments
value under IFRS. Under Canadian GAAP, the Limited Partners’
to retained earnings include the impact of accounting for the
share was recognized as non-controlling interests.
The gain on the sale of CSI of $97 under IFRS is entirely
Limited Partners’ Interests, investments in associates, unrealized
carried interest and stock-based compensation. A reconciliation
of retained earnings and accumulated other comprehensive earn-
ings at January 1, 2010 is as follows:
m) An assessment of the functional currency under IFRS complet-
ed by the operating companies resulted in certain foreign enti-
ties having a different functional currency from that determined
under Canadian GAAP. The result is that the foreign entities were
Retained earnings and accumulated other comprehensive
earnings under Canadian GAAP
Significant adjustments:
Limited Partners’ Interests
Unrealized carried interest due to Onex
and ONCAP management
Investments in associates recorded at fair value
Stock-based compensation
Other, net
January 1, 2010
considered to be foreign operations under IFRS and resulted in
recognition of a foreign currency translation adjustment in other
$ 1,309
comprehensive income under IFRS. In addition, the currency
translation adjustments include the non-controlling interests’
(1,100)
share and the allocation to the non-controlling interests is made
in the consolidated statements of equity.
(85)
330
(55)
(25)
n) Actuarial gains (losses) for employee future benefit plans are
recorded directly to other comprehensive earnings (loss) without
recognition in the consolidated statement of earnings under IFRS.
Retained earnings and accumulated other comprehensive
Onex’ policy under Canadian GAAP was to recognize actuarial
earnings under IFRS
$ 374
gains and losses in the statement of earnings that exceeded 10%
j) The recognition of restructuring accruals related to termination
benefits under IFRS are recognized when an entity is committed,
without realistic possibility of withdrawal, to the termination,
while Canadian GAAP required recognition when the termination
was probable. As a result of this recognition distinction, an adjust-
ment was made to recognize fewer restructuring provisions under
IFRS, which will be recognized at a later date under IFRS.
k) The adjustment for income taxes relates to the difference in
the method of determining the deferred tax impact for foreign
jurisdictions between Canadian GAAP and IFRS. Canadian GAAP
required the deferred tax impact to be calculated based on the
tax currency, while IFRS requires the calculation to be based on
the foreign entity’s functional currency. This difference was also
impacted by a change in the functional currency of certain foreign
entities at the operating companies under IFRS.
of the greater of the benefit obligation or the fair market value of
plan assets on a straight-line basis over the average remaining
service period of active employees.
IFRS cash flow adjustments
The consolidated statements of cash flows under IFRS have been
adjusted from Canadian GAAP to conform with the presentation
requirements of IFRS and Onex’ functional currency of the U.S.
dollar under IFRS.
Certain items specific to IFRS within the consolidated
statements of earnings have been adjusted as non-cash items in
the consolidated statements of cash flows. These non-cash adjust-
ments include the following: unrealized increase of investments
in associates at fair value, Limited Partners’ Interests and change
in provisions. Additionally, the Canadian GAAP adjustment in
the consolidated statements of cash flows for the non-controlling
interests’ share of net earnings is not required as the allocation
of net earnings is made in the consolidated statements of equity
under IFRS.
Onex Corporation December 31, 2011 151
SHAREHOLDER INFORMATION
Year-end Closing Share Price
As at December 31 (in Canadian dollars)
2011
2010
2009
2008
2007
Toronto Stock Exchange
$ 33.18
$ 30.23
$ 23.60
$ 18.19
$ 34.99
Shares
Registrar and Transfer Agent
The Subordinate Voting Shares of
CIBC Mellon Trust Company(1)
the Company are listed and traded
on the Toronto Stock Exchange.
P.O. Box 700
Postal Station B
Website:
www.onex.com
Auditors
Montreal, Quebec H3B 3K3
PricewaterhouseCoopers LLP
Share Symbol
OCX
Dividends
Dividends on the Subordinate Voting
Shares are payable quarterly on or
about January 31, April 30, July 31 and
(416) 682-3860
or call toll-free throughout
Canada and the United States
1-800-387-0825
www.canstockta.com
or inquiries@canstockta.com (e-mail)
Chartered Accountants
Duplicate Communication
Registered holders of Onex Corporation
shares may receive more than one copy
of shareholder mailings. Every effort
is made to avoid duplication, but when
October 31 of each year. At December 31,
All questions about accounts, stock
shares are registered under different
2011 the indicated dividend rate for each
certificates or dividend cheques
names and/or addresses, multiple
Subordinate Voting Share was C$0.11
should be directed to the Registrar
mailings result. Shareholders who
per annum.
and Transfer Agent.
Shareholder Dividend
Reinvestment Plan
Electronic Communication
with Shareholders
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
The Dividend Reinvestment Plan provides
We encourage individuals to receive
be made to combine the accounts for
shareholders of record who are resident
Onex’ shareholder communications
mailing purposes.
in Canada a means to reinvest cash divi-
electronically. You can submit your
dends in new Subordinate Voting Shares
request online by visiting CIBC Mellon
Shares Held in Nominee Name
of Onex Corporation at a market-related
Trust Company’s(1) website at
To ensure that shareholders whose
price and without payment of brokerage
www.canstockta.com/electronicdelivery
shares are not held in their name receive
commissions. To participate, registered
or contacting them at 1-800-387-0825.
all Company reports and releases
shareholders should contact Onex’ share
on a timely basis, a direct mailing list
registrar, CIBC Mellon Trust Company.(1)
(1) Canadian Stock Transfer Company Inc.
is maintained by the Company. If you
Non-registered shareholders who wish
to participate should contact their
investment 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.
acts as the Administrative Agent for
CIBC Mellon Trust Company.
Investor Relations Contact
Requests for copies of this report,
quarterly reports, other annual reports
and other corporate communications
should be directed to:
Investor Relations
Onex Corporation
161 Bay Street
P.O. Box 700
Toronto, Ontario M5J 2S1
(416) 362-7711
investor@onex.com
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 May 10, 2012
at 10:00 a.m. (Eastern Daylight Time)
at Hazelton Hotel, 118 Yorkville Avenue,
Toronto, Ontario.
Typesetting by Moveable Inc.
www.moveable.com
Printed in Canada
152 Onex Corporation December 31, 2011