Management’s Discussion and Analysis
and Financial Statements
December 31, 2013
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 $44 billion, generate annual revenues of $33 billion and
employ approximately 232,000 people worldwide. Onex operates from offices located in Toronto,
New York and London.
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 PURE Canadian Gaming, previously named 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
IBC Shareholder Information
82 Consolidated Financial Statements
CHAIRMAN’S LETTER
Dear Shareholders,
Onex will celebrate its 30th anniversary this year. When founded in 1984, we had a staff of three, $50 million from
a small group of investors and a simple strategy to find fundamentally good businesses to own, improve and build.
In those early days, Onex’ success hinged on the performance of just a small handful of businesses. Today, we span
the globe with sales of $33 billion and 232,000 employees. Through stock buy-backs and dividends we’ve returned
far more than has been invested by both private and public investors, yet our capital base today is $5.8 billion.
We also have the good fortune to be managing another $13.5 billion on behalf of limited partners from around the
world through Onex Partners, ONCAP and Onex Credit Partners.
Since 1984 we’ve seen three wars, three major financial crises, an unimaginable downfall of the North
American auto industry, the rise of China as an economic powerhouse – we could go on and on. We’ve survived it all
and prospered by sticking to our original strategy and by working hard to maintain the entrepreneurial spirit that
defines Onex. Being an entrepreneur means parting with something of known value in exchange for the risks and
rewards of something of unknown value. At Onex, we don’t just say it, we do it. Every time we invest capital on your
behalf and on behalf of our Limited Partners, the investment professionals of Onex and executives of the businesses
we own invest as well. This alignment is elemental to preserving capital, generating superior returns for everyone and
building future generations of entrepreneurs for Onex.
We had a good year in 2013. With strong credit and equity markets, Onex and our Limited Partners received
$2.9 billion from realizations and distributions. Our continuing challenge is finding more great businesses to own and
to grow while maintaining discipline around the prices we pay. Here are some of the highlights from the year:
• Onex Partners invested $350 million to acquire Emerald Expositions, a leading operator of large business-to-busi-
ness tradeshows in the United States;
• Total distributions relating to Onex Partners investments were $2.2 billion, included distributions received from
Carestream Health as a result of its refinancing, Allison Transmission’s secondary offerings, and the sales of RSI
Home Products and TMS International;
• ONCAP sold BSN SPORTS and Caliber Collision Centers for total proceeds of $660 million, generating multiples of
capital of approximately 4.3 times and 7.5 times, respectively;
• Including realizations and distributions, the value of Onex’ interest in Onex Partners’ and ONCAP private invest-
ments grew by 34 percent;
• Our businesses paid down approximately $1.1 billion of debt;
• Our businesses raised or refinanced approximately $8.9 billion of debt;
• Our businesses made capital expenditures and add-on acquisitions of approximately $1.1 billion;
• Onex Credit Partners continued to grow its collateralized loan obligation pools with two CLO offerings, totalling
$1 billion and increasing its capital under management to $3.3 billion by year-end; and
• Onex launched the fundraising for Onex Partners IV, raising a total of $3.1 billion in aggregate commitments toward
its $4.5 billion target.
Fortunately, the market recognized Onex value creation in 2013. For the year, our shares were up 37 percent relative
to a 30 percent increase for the S&P 500. As we’ve said before, you should expect a private equity investor like Onex to
continue to outperform public markets over the long term.
Looking ahead, we believe Onex is well positioned for continued growth. We have a stable, experienced team;
our entrepreneurial culture is engrained throughout the organization; our investments are performing well overall;
and we have the financial resources to grow. On behalf of the Onex team and our 232,000 employees worldwide,
we thank you for your ongoing support.
[signed]
Gerald W. Schwartz
Chairman & CEO, Onex Corporation
Onex Corporation December 31, 2013 1
ONEX CORPORATION
More Than 29 Years of Successful Investing
Founded in 1984, Onex is one of the oldest and most successful private equity firms with a long, established
track record and a disciplined, active-ownership approach to investing. Onex focuses on creating long-term
value by building industry-leading businesses in partnership with outstanding management teams. As an active
owner, the Company has built more than 75 businesses, completing approximately 440 acquisitions with a total
value of approximately $50 billion. Onex’ long-term project returns have generated a gross multiple of capital
invested of 3.0 times from its core private equity activities since inception, resulting in a 28 percent gross com-
pound IRR on realized, substantially realized and publicly traded investments. 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 capital as well as capital entrusted to it by other investors from around the world, including
public and private pension funds, sovereign wealth funds, banks, insurance companies and others.
Onex’ Capital
Onex manages its $5.8 billion of 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 Credit Partners
and Onex Real Estate Partners. Onex’ long-term goal is to
grow its capital per share by at least 15 percent per annum,
and to have that growth reflected in its share price. Over
the last 12 months, Onex’ capital per share grew by 23 per-
cent in U.S. dollars (31 percent in Canadian dollars) and
our share price grew by 37 percent in Canadian dollars.
Other Investors Capital
In addition to the management of Onex’ capital, Onex is
entrusted with capital from institutional investors around
the world. The Company manages $13.5 billion of invested
and committed capital on behalf of its investors, of which
80 percent relates to its private equity platforms and the
balance to Onex Credit Partners. The management of capi-
tal from other investors provides two significant benefits to
Onex. First, Onex receives a committed stream of annual
management fees on $12.0 billion of other investors’ assets
under management. Second, Onex has the opportunity
to share in the profits of its investors through the carried
interest participation. Carried interest, if realized, can
significantly enhance Onex’ investment returns. In 2013,
combined management fees and carried interest received
offset ongoing operating expenses. Onex’ management
fees will be further enhanced once fees are called from Onex
Partners IV.
2 Onex Corporation December 31, 2013
How Onex’ $5.8 billion of Capital is Deployed
at December 31, 2013
Large-Cap Private Equity 56%
Private 41%
Public 15%
Cash and Near-Cash Items 30%
Mid-Market Private Equity 6%
Onex Credit Partners 5%
Onex Real Estate Partners 3%
The How We Are Invested schedule details Onex’ $5.8 billion of capital.
The Components of Onex’ $13.5 billion of Other Investors’
Assets under Management at December 31, 2013
Onex Partners IV 15%
Onex Partners III 35%
Onex Partners II 14%
Onex Partners I 9%
Onex Credit Partners 20%
ONCAP 7%
Assets under management include capital managed on behalf of co-investors
and the management of Onex and ONCAP.
HOW WE ARE INVESTED
All dollar amounts, unless otherwise noted, are in millions of U.S. dollars.
This How We Are Invested schedule details Onex’ $5.8 billion of capital and provides private company perfor-
mance and public company ownership information. This schedule includes values for Onex’ investments in
controlled companies based upon estimated fair values and as such are non-GAAP measures. This fair value
summary is used by investors to compare to fair values they may prepare on Onex. While it provides a snapshot
of Onex’ 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 invest-
ments and allocates no value to the management company income. The presentation of Onex’ capital in this
manner does not have a standardized meaning prescribed under International Financial Reporting Standards
(“IFRS”) and is therefore unlikely to be comparable to similar measures presented by other companies. Onex’
audited annual consolidated financial statements prepared in accordance with IFRS for the year ended
December 31, 2013 are available on Onex’ website, www.onex.com, and on the Canadian System for Electronic
Document Analysis and Retrieval (“SEDAR”) at www.sedar.com. Reconciliation to information contained in the
audited annual consolidated financial statements has not been presented as it is impractical.
Onex Capital
2013
2012
As at December 31
Private Equity
Onex Partners
Private Companies(1)
Public Companies(2)
Unrealized Carried Interest on Onex Partners Investments(3)
ONCAP(4)
Direct Investments
Private Companies(5)
Public Companies(2)
Onex Real Estate Partners(6)
Onex Credit Partners(7)
Other Investments
Cash and Near-Cash(8)
Onex Corporation Debt
$ 2,026
627
202
337
153
186
3,531
144
260
404
103
1,741
–
$ 5,779
$ 50.93
$ 1,862
704
140
409
148
145
3,408
192
171
363
97
1,141
–
$ 5,009
$ 41.42
Onex Capital per Share (December 31, 2013 – C$54.16; December 31, 2012 – C$41.21)(9) (10)
(1)
(2)
Based on the US$ fair value of the investments in Onex Partners’ financial statements net of the estimated Management Investment Plan (“MIP”) liability on these
investments of $64 million (2012 – $39 million). RSI, which was sold in February 2013, was included in private companies of Onex Partners at December 31, 2012.
Based on the closing market values and net of the estimated MIP liability on these investments. TMS International, which was sold in October 2013, was included in public
companies of Onex Partners at December 31, 2012.
(3) Represents Onex’ share of the unrealized carried interest on public and private companies in the Onex Partners Funds.
(4)
Based on the C$ fair value of the investments in ONCAP’s financial statements net of management incentive programs on these investments of $17 million (2012 – $25 million)
and a US$/C$ exchange rate of 1.0636 (2012 – 0.9949). BSN SPORTS, which was sold in June 2013, and Caliber Collision, which was sold in November 2013, were included
in ONCAP at December 31, 2012.
(5) Based on the fair value.
(6) Based on the fair value of Onex Real Estate Partners’ investments.
(7)
Based on the market values of investments in Onex Credit Partners’ Funds and Onex Credit Partners Collateralized Loan Obligations, including the warehouse facility for
OCP CLO-5. Excludes $343 million (2012 – $328 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 $343 million (2012 – $328 million) invested in a segregated Onex Credit Partners’ unleveraged senior secured loan strategy fund.
(9)
Calculated on a fully diluted basis. Fully diluted shares were approximately 115.9 million at December 31, 2013 (December 31, 2012 – 126.1 million). Fully diluted shares
include (i) all outstanding Subordinate Voting Shares; and (ii) outstanding Stock Options that have met the minimum 25% price appreciation threshold.
(10)
The change in Onex Capital per Share during the year is driven primarily by fair value changes of Onex’ investments. Share repurchases and options exercised during the
year will have an impact on the calculation of Onex Capital per Share. The impact on Onex Capital per Share will be to the extent that the price for share repurchases
and option exercises is above or below the Onex Capital per Share.
Onex Corporation December 31, 2013 3
H O W W E A R E I N V E S T E D
Public and Private Company Information
$ 17
220
427
664
(37)
627
186
$ 813
$ 154
186
70
315
41
200 (10)
66
170 (12)
61
92 (16)
85
1,440
251
$ 1,691
Public Companies
As at December 31, 2013
Onex Partners
Skilled Healthcare Group(2)
Spirit AeroSystems(2)
Allison Transmission(2)
Estimated Management Investment Plan Liability
Shares Subject to
Carried Interest
(millions)
Shares Held
by Onex
(millions)
Closing Price
per Share
(1)
Market Value
of Onex’
Investment
10.7
11.9
22.1
3.5
6.5
15.5
$ 4.81
$ 34.08
$ 27.61
Direct Investments – Celestica
–
17.8(3)
$ 10.40
Significant Private Companies
As at December 31, 2013
Onex Partners
The Warranty Group
Carestream Health
Tropicana Las Vegas
Tomkins
ResCare
JELD-WEN
SGS International
USI
BBAM(13)
KraussMaffei
Emerald Expositions
Onex’ and its
Limited Partners’
Ownership
LTM EBITDA(4)
Net Debt
Cumulative
Distributions
Onex’
Economic
Ownership
Original
Cost of Onex’
Investment
91%
92%
82%
56%
98%
72%(8)
93%
92%
50%
96%
99%
$ 114(5)
436
(4)
559(6)
141
154(9)
111(11)
267(11)
86
1 103
93
$ 246(5)
2,150
51
1,428
350
654(9)
579
1,596
(33)(14)
1 226
605
$ 403
1,311
–
1,180(7)
–
–
–
–
49(15)
–
–
29%
33%(3)
18%
14%
20%
18%(8)
23%
26%
13%
24%
24%
Direct Investments – Sitel Worldwide
70%
$ 130
$ 743
$ –
70%
(1) Closing prices on December 31, 2013.
(2) Excludes Onex’ potential participation in the carried interest and includes shares related to the MIP.
(3) Excludes shares held in connection with the MIP.
(4)
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.
(5) Amount presented for The Warranty Group is net earnings rather than EBITDA and total debt rather than net debt.
(6) LTM EBITDA excludes EBITDA from businesses divested as of December 31, 2013.
(7) Onex, Onex Partners III, Onex management, certain limited partners and others received distributions of $663 million from Tomkins.
(8) Onex’ and its limited partners’ investment is in convertible preferred shares. The ownership percentage is presented on an as-converted basis.
(9) LTM EBITDA and net debt are presented for JELD-WEN Holding, inc.
(10)
Net of $27 million return of capital on the convertible promissory notes prior to the conversion into additional Series A Convertible Preferred Stock of JELD-WEN in April 2013.
(11) LTM EBITDA for SGS International and USI is presented on a pro-forma basis to reflect the impact of acquired businesses.
(12) Net of $84 million of the amount originally invested in USI sold by Onex to certain limited partners and others as a co-investment in March 2013.
(13)
Ownership percentages, LTM EBITDA, net debt and cumulative distributions are presented for BBAM Limited Partnership and do not reflect information for Onex’ investments
in FLY Leasing Limited (NYSE: FLY) or Meridian Aviation Partners Limited that were made in conjunction with the investment in BBAM. The Original Cost of Onex’ Investment
includes $5 million invested in FLY Leasing Limited and $14 million invested in Meridian Aviation Partners Limited.
(14) Net debt for BBAM represents unrestricted cash, reduced for accrued compensation liabilities.
(15) Onex, Onex Partners III and Onex management received distributions of $24 million from BBAM.
(16) The investments in KraussMaffei were made in euros and converted to U.S. dollars using the prevailing exchange rate on the date of the investments.
4 Onex Corporation December 31, 2013
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 Onex Corporation’s (“Onex”) con-
solidated financial results for 2013 and assesses factors that may affect future results. The financial condition
and results of operations are analyzed noting the significant factors that impacted the consolidated statements
of earnings, consolidated statements of comprehensive earnings, consolidated balance sheets and consoli-
dated statements of cash flows of Onex. As such, this MD&A should be read in conjunction with the audited
annual consolidated financial statements and notes thereto included in this report. The MD&A and the audited
annual consolidated financial statements have been prepared in accordance with International Financial
Reporting Standards (“IFRS”) 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 par-
ticular Onex operating business. Onex’ MD&A and the audited annual consolidated financial statements are
prepared in accordance with IFRS, the results of which may differ from the accounting principles applied by
the operating businesses in their statutory financial statements.
The following MD&A is the responsibility of management and is as of February 20, 2014. Prepara-
tion of the MD&A includes the review of the disclosures on each business by senior managers of that busi-
ness and the review of the entire document by each officer of Onex and by the Onex Disclosure Committee.
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
14 Industry Segments
18 Financial Review
75 Outlook
Onex Corporation’s financial filings, including the 2013 MD&A and Financial Statements and interim quarterly reports,
Annual Information Form and Management Information Circular, are available on Onex’ website, www.onex.com, and 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 management as inves-
tors. References to the ONCAP Groups represent Onex, the limited partners of the relevant ONCAP Fund and the management
of Onex and ONCAP as investors. 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, 2013 5
M A N A G E M E N T ’ S D I S C U S S I O N A N D A N A LY S I S
OUR BUSINESS, OUR OBJECTIVE AND OUR STRATEGIES
OUR BUSINESS: Over its 29-year history, Onex has employed an active approach to building industry-leading
businesses. Onex manages its own capital and that of investors from around the world, including public and pri-
vate pension funds, sovereign wealth funds, banks, insurance companies and others. The Company has generated
a gross multiple of capital invested of 3.0 times on realized, substantially realized and publicly traded investments.
Active ownership approach
Throughout our history, we have developed a successful approach to private equity investing. We pursue busi-
nesses with world-class core capabilities and strong free cash flow characteristics where we have identified an
opportunity, in partnership with company management, to effect change and build market leaders. As an active
owner, we are focused on execution theses rather than macro-economic or industry trends with the goal of
creating long-term value for Onex and our investors. Specifically, we focus on (i) carve-outs of subsidiaries and
mission-critical supply divisions from multinational corporations; (ii) cost reductions and operational restruc-
turings; and (iii) platforms for add-on acquisitions.
We have historically been conservative with the use of financial leverage, which has served Onex and its
businesses well through many cycles.
We typically acquire a control position in our businesses, which allows us to drive important strategic
decisions to accelerate growth and effect change in our operating businesses. Onex does not get involved in the
daily operating decisions of the businesses.
Experienced team with significant depth
Onex’ team of investment professionals is led by 12 Managing Directors who collectively have more than
205 years of private equity experience and have worked at Onex for an average of 14 years. Onex’ stability results
from its ownership culture, rigorous recruiting standards and highly collegial environment. The investment team
is supported by more than 40 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 approximately $1.7 billion of cash and near-cash items at
December 31, 2013.
At December 31, 2013, we had $479 million of uncalled committed limited partners’ capital for future acquisi-
tions by Onex Partners III and C$387 million for future acquisitions by ONCAP III. To date, Onex has raised
approximately $2.5 billion of capital commitments from limited partners for Onex Partners IV. Onex is tar-
geting $3.3 billion in limited partners’ capital commitments toward a $4.5 billion fund size, including Onex’
$1.2 billion commitment.
6 Onex Corporation December 31, 2013
M A N A G E M E N T ’ S D I S C U S S I O N A N D A N A LY S I S
Strong alignment of interests
We believe that an important part of our success in building industry-leading businesses and our investment
track record are direct results of the strong alignment of interests between Onex’ shareholders, our limited
partners and the Onex management team. In addition to Onex being the largest limited partner in each Fund,
the Company’s distinctive ownership culture requires each member of the Onex management team to have a
significant ownership in Onex shares and to invest meaningfully in each operating business acquired. Onex’
management team:
• is the largest shareholder in Onex, with a combined holding of approximately 23 million shares or 21 percent;
• has a total cash investment in Onex’ current operating businesses of approximately $270 million; and
• is required to reinvest 25 percent of all gross carried interest and Management Investment Plan (“MIP”)
distributions in Onex shares until they individually own at least one million shares and hold these shares
until retirement.
OUR OBJECTIVE FOR SHAREHOLDERS: Onex’ business objective is to create long-term value for share-
holders and to have that value reflected in our share price. Our strategies to deliver this value to shareholders
are concentrated on (i) acquiring and building industry-leading businesses; and (ii) managing and growing
other investors’ capital. We believe that Onex has the investment 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 2013.
OUR STRATEGIES:
Acquire and Build High-Quality Businesses
2013 performance
1) Acquiring great businesses
During 2013, Onex further developed its aircraft leasing and management platform. In February 2013, the Onex
Partners III Group established Meridian Aviation Partners Limited (“Meridian Aviation”), an aircraft investment
company based in Ireland. Aircraft purchased by Meridian Aviation will be leased to commercial airlines and
managed by BBAM Limited Partnership (“BBAM”), one of the world’s largest managers of commercial jet air-
craft and an Onex Partners III Group investment. The Onex Partners III Group initially invested $32 million in
Meridian Aviation, of which Onex’ share was $8 million. In July 2013, the Onex Partners III Group invested an
additional $25 million in Meridian Aviation, of which Onex’ share was $6 million. These investments are primar-
ily for deposits, fees and other expenses associated with the purchase of commercial passenger aircraft.
In June 2013, Onex completed the acquisition of Nielsen Expositions from its parent, an affiliate of Nielsen
Holdings N.V., for cash consideration of $950 million. The business, now operating as Emerald Expositions, LLC
(“Emerald Expositions”), is a leading operator of large business-to-business tradeshows in the United States across
nine end markets. The Onex Partners III Group initially invested $350 million, of which Onex’ share was $85 mil-
lion. In January 2014, Emerald Expositions completed the acquisition of George Little Management, LLC (“GLM”),
an operator of business-to-business tradeshows in the United States. In conjunction with this acquisition, the Onex
Partners III Group invested a further $140 million in Emerald Expositions, of which Onex’ share was $34 million.
Onex Corporation December 31, 2013 7
M A N A G E M E N T ’ S D I S C U S S I O N A N D A N A LY S I S
2) Building our businesses
The strong cash flow characteristics of many of our operating businesses enabled a number of them to complete
follow-on acquisitions in 2013 for total consideration of $231 million. ResCare, SGS International, The Warranty
Group, USI and a number of ONCAP’s companies each completed add-on acquisitions.
Onex conservatively capitalizes its businesses to allow them to grow both organically and through
acquisition. By applying prudent leverage, often accepting less debt than is available, Onex believes its oper-
ating companies are better equipped to withstand cyclical downturns or unforeseen events. During 2013, a
number of our operating businesses took advantage of strong credit markets, collectively raising or refinancing
a total of $8.9 billion of debt. During the second quarter of 2013, Carestream Health, Inc. (“Carestream Health”)
raised approximately $2.4 billion of funded debt, primarily to refinance existing debt and to fund a distribution
of $750 million to its shareholders. In addition, our operating businesses collectively paid down debt totalling
approximately $1.1 billion during 2013.
In October 2013, the Onex Partners II Group completed the sale of its remaining 23.4 million shares of TMS
International Corp. (“TMS International”) for $17.50 in cash per share. The Onex Partners II Group received net
proceeds of $410 million, of which Onex’ share was $172 million, including carried interest of $10 million.
We also had realizations and received distributions from certain operating businesses, including the pro-
ceeds from (i) the Onex Partners II Group’s sale in February 2013 of its 50 percent interest in RSI Home Products,
Inc. (“RSI”); (ii) the ONCAP II Group’s June 2013 sale of its investment in BSN SPORTS, Inc. (“BSN SPORTS”);
(iii) the Onex Partners II Group’s sales of a portion of its shares of Allison Transmission Holdings, Inc. (“Allison
Transmission”) in the company’s 2013 share repurchase and secondary offerings; and (iv) the ONCAP II Group’s
November 2013 sale of its investment in Caliber Collision Centers (“Caliber Collision”). The table below includes
total proceeds received from realizations and cash distributions made by the operating businesses in total to their
shareholders and Onex’ share thereof:
Company
Fund
Transaction
Total Amount
($ millions)
Onex’ Share
($ millions)
(1)
Allison Transmission
Onex Partners II
Share repurchase, secondary offerings
$ 613(2)
$ 203
BBAM
BSN SPORTS
Caliber Collision
and dividends
Onex Partners III
Distributions
ONCAP II
ONCAP II
Sale of business
Sale of business
Carestream Health
Onex Partners II
Dividend/Return of capital
PURE Canadian Gaming
ONCAP II & III
Debt repayment
RSI
Onex Partners II
Sale of business
The Warranty Group
Onex Partners I & II
Dividend/Return of capital
TMS International
Onex Partners II
Sale of business and dividends
Total
$ 24(3)
$ 227(4)
$ 433(4)
$ 750
$ 14
$ 323(2)
$ 65
$ 415(2)
$ 2,864
$ 6
$ 98
$ 173
$ 303
$ 6
$ 130
$ 20
$ 174
$ 1,113
(1)
Onex’ share includes carried interest received by Onex and is reduced for amounts paid under the MIP and Onex’ net payment of carried interest
in ONCAP II.
(2) Represents the Onex Partners II Group only.
(3) Represents the Onex Partners III Group only.
(4) Represents the ONCAP II Group only.
8 Onex Corporation December 31, 2013
M A N A G E M E N T ’ S D I S C U S S I O N A N D A N A LY S I S
Including realizations, distributions and the value growth on the remaining ownership, Onex Partners’ and
ONCAP’s private companies generated returns for Onex of 34 percent during 2013. Including the public compa-
nies, the value of all of our operating businesses in the Onex Partners and ONCAP Funds, including realizations,
distributions and the value growth on the remaining ownership, increased by 35 percent in 2013.
3) Maintaining substantial financial strength
Onex’ financial strength comes from both its own capital, as well as the capital commitments from its limited
partners in the Onex Partners and ONCAP Funds. Onex has substantial financial resources available to support
its investing strategy. At December 31, 2013, Onex had:
i.
Approximately $1.7 billion of cash and near-cash items and no debt.
ii. $479 million of limited partners’ uncalled capital available for future Onex Partners III investments and
C$387 million available for future ONCAP III investments.
iii. Approximately $1.9 billion of limited partners’ committed capital raised for Onex Partners IV, Onex’ most
recent large-cap private equity Fund. In February 2014, Onex raised approximately $600 million of addi-
tional limited partners’ committed capital for Onex Partners IV. Onex is targeting to raise $3.3 billion in lim-
ited partners’ capital commitments, with a target total fund size of $4.5 billion including Onex’ $1.2 billion
commitment.
Asset Management: Manage and Grow Other Investors’ Capital
Onex’ management of other investors’ capital has grown significantly since Onex first began acquiring businesses
in 1984. In its early years, Onex would primarily use its own capital to complete acquisitions and would include
other 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 other investors providing
a carried interest on their investment to Onex. Onex thus began to share in the profits of its other investors.
Onex formalized its asset management business in 1999 when it raised its first fund, ONCAP I, 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 invest its own capital, the establishment of Onex Partners
and ONCAP enabled Onex to efficiently pursue a larger acquisition program. As of December 31, 2013, Onex had
raised $9.9 billion of limited partners’ capital through the Onex Partners and ONCAP Funds. In addition, Onex
Credit Partners manages $2.7 billion of other investors’ capital dedicated to debt investment strategies.
At December 31, 2013, Onex managed $13.5 billion of other investors’ capital, in addition to $5.8 billion
of Onex’ capital. Included in the other investors’ capital managed by Onex was $1.9 billion of committed capital
for Onex Partners IV. In February 2014, Onex raised approximately $600 million of additional limited partners’
committed capital for Onex Partners IV. The management of other investors’ capital provides two significant
benefits to Onex: (i) the Company earns management fees on $12.0 billion of other investors’ assets under man-
agement; and (ii) Onex has the opportunity to share in the profits of its other investors through the carried inter-
est participation. This enables Onex to enhance the return on its investment. In 2013, combined management
fees and carried interest received offset ongoing operating expenses. Onex’ management fees will be further
enhanced once fees are called from Onex Partners IV.
Onex Corporation December 31, 2013 9
M A N A G E M E N T ’ S D I S C U S S I O N A N D A N A LY S I S
($ millions)
Total
Fee Generating
Uncalled Commitments
Other Investors’ Capital Under Management(a)
2013(b)
2012(b)
Funds
Onex Partners(c)
ONCAP
Onex Credit Partners (d)
$ 9,801
C$ 970
$ 2,744
$ 7,135
C$ 1,015
$ 1,826
Change
in Total
37 %
(4)%
50 %
(a) All data is presented at fair value.
2013
2012
2013(b)
2012
(b)
$ 8,464
$ 6,087
$ 2,720
C$ 837
C$ 872
C$ 389
$ 2,744
$ 1,826
n/a
$ 1,193
C$ 405
n/a
(b)
(c)
(d)
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.
Includes $1.9 billion of committed capital from closings of Onex Partners IV during the fourth quarter of 2013. In February 2014, Onex raised
approximately $600 million of additional limited partners’ committed capital for Onex Partners IV.
Onex Credit Partners is jointly controlled by Onex. Capital under management of Onex Credit Partners represents 100 percent of the other investors’
capital managed by Onex Credit Partners.
2013 performance
1) Growth in other investors’ capital under management
The amount of other investors’ capital under management will fluctuate as new Funds are raised and as existing
investments are realized. The amount of other investors’ capital under management increased by approximately
$3.5 billion during 2013 due primarily to:
• The increase in value of certain of the public and private investments held by the Funds. Partially offsetting the
increase were realizations and distributions during the year, as previously indicated;
• $1.9 billion of limited partners’ committed capital raised for Onex Partners IV during the fourth quarter of
2013 toward a target of $3.3 billion of limited partners’ committed capital; and
• An increase of $918 million from Onex Credit Partners’ other investors’ capital under management dur-
ing 2013 due primarily to the creation of its third and fourth Collateralized Loan Obligations (“CLO”). Onex
invested $24 million in Onex Credit Partners’ third CLO (“OCP CLO-3”) and $40 million in Onex Credit
Partners’ fourth CLO (“OCP CLO-4”).
In November 2013, Onex Credit Partners established a warehouse facility in connection with its fifth CLO (“OCP
CLO-5”). Onex purchased $10 million of subordinated notes to support the warehouse facility during 2013. In
February 2014, Onex purchased an additional $30 million of subordinated notes to increase the warehouse facil-
ity for OCP CLO-5.
In February 2014, Onex raised approximately $600 million of additional limited partners’ committed capital for
Onex Partners IV.
10 Onex Corporation December 31, 2013
M A N A G E M E N T ’ S D I S C U S S I O N A N D A N A LY S I S
2) Predictable and meaningful management fees; substantial carried interest earned
The management of other investors’ capital provides Onex with a predictable stream of annual management
fees that substantially offsets ongoing operating expenses. In addition, the General Partner’s carried interest in
the Funds provides Onex with 8 percent of the profits on a substantial portion of the other investors’ capital. At
December 31, 2013, there was $6.2 billion of invested capital and a further $3.0 billion of uncalled committed
capital that if invested would be subject to a carried interest in the Onex Partners and ONCAP Funds. In addition,
Onex Credit Partners is entitled to incentive fees on $2.4 billion of the other investors’ capital it manages.
• Onex Partners, ONCAP and Onex Credit Partners earned a total of $112 million in management and trans-
action fees in 2013 (2012 – $108 million). We expect to start drawing management fees for Onex Partners IV
sometime in 2014.
• Onex received $75 million of carried interest in 2013 (2012 – $3 million) as a result of (i) the realizations of RSI
and TMS International; (ii) the distributions received from Carestream Health; and (iii) the sales of a portion of
the shares of Allison Transmission.
• At December 31, 2013, there was approximately $135 million of unrealized carried interest on Onex Partners’
public companies, of which Onex’ share was $54 million. There was a further $410 million of unrealized car-
ried interest on Onex Partners’ and ONCAP’s private operating businesses based on the December 31, 2013
fair values, of which Onex’ share was $148 million. The actual amount of carried interest realized by Onex will
depend on the ultimate performance of each Fund. Including the impact of realized carried interest, Onex
generated $137 million of carried interest during 2013.
Onex Corporation December 31, 2013 11
M A N A G E M E N T ’ S D I S C U S S I O N A N D A N A LY S I S
2013 performance
Private Equity Fund Performance
The table below summarizes the performance of the Onex Partners and ONCAP Funds from inception through
December 31, 2013. The gross internal rate of return (“Gross IRR”) shows the project returns achieved on the
investments in the Funds. The net internal rate of return (“Net IRR”) shows the returns earned by limited
partners in the Funds after the deduction for carried interest, management fees and expenses. The gross mul-
tiple of capital (“Gross MOC”) shows the Funds’ total value as a multiple of cost basis. Net multiple of capital
(“Net MOC”) shows the multiple of capital invested for limited partners after the deduction for carried interest,
management fees and expenses.
Performance Returns(1)
Gross IRR
(excluding
Gross IRR
(including
Gross MOC
(excluding
Gross MOC
(including
unrealized)(2)
unrealized)(3)
Net IRR(4)
unrealized)(2)
unrealized)(3)
Net MOC
(4)
70%
14%
–(5)
43%
53%
–(5)
56%
18%
18%
43%
30%
24%
39%
14%
9%
33%
21%
11%
4.0x
1.9x
–(5)
4.1x
5.6x
–(5)
3.8x
2.3x
1.4x
4.1x
3.1x
1.5x
3.0x
1.9x
1.2x
3.1x
2.2x
1.2x
Funds
Onex Partners LP
Onex Partners II LP
Onex Partners III LP
ONCAP L.P.(6)(7)
ONCAP II L.P.(6)
ONCAP III LP(6)
(1) Performance returns are a non-GAAP measure.
(2)
(3)
(4)
Gross IRR (excluding unrealized) and Gross MOC (excluding unrealized) include the returns on realized, substantially realized and publicly
traded investments.
Gross IRR (including unrealized) and Gross MOC (including unrealized) include the returns on unrealized, realized, substantially realized and
publicly traded investments.
Net IRR and Net MOC are presented for limited partners in the Onex Partners and ONCAP Funds and exclude the capital contributions and
distributions attributable to Onex’ commitment as a limited partner in each Fund.
(5) Onex Partners III LP and ONCAP III LP do not have realized, substantially realized or publicly traded investments.
(6) Returns are calculated in Canadian dollars, the functional currency of the ONCAP Funds.
(7) ONCAP L.P. dissolved effective October 31, 2012 as all investments have been realized.
12 Onex Corporation December 31, 2013
M A N A G E M E N T ’ S D I S C U S S I O N A N D A N A LY S I S
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 2013,
$15 million was returned to shareholders through dividends and Onex repurchased 3,060,400 Subordinate
Voting Shares at a total cost of $153 million, or an average purchase price of C$51.81 per share. In May 2013,
Onex increased its quarterly dividend by 36 percent to C$0.0375 per Subordinate Voting Share beginning in
July 2013. The increase in the dividend reflects Onex’ success and ongoing commitment to its shareholders.
At December 31, 2013, Onex’ Subordinate Voting Shares closed at C$57.35, a 37 percent increase from
December 31, 2012. This compares to a 30 percent increase in the Standard & Poor’s 500 Index (“S&P 500”) and a
10 percent increase in the S&P/TSX Composite Index (“TSX”).
The chart below shows the performance of Onex’ Subordinate Voting Shares during 2013 relative to the S&P 500
and TSX.
Twelve Months’ Onex Relative Performance (December 31, 2012 to December 31, 2013)
OCX
TSX
S&P 500
2
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
140
135
130
125
120
115
110
105
100
95
90
OCX
+37%
S&P 500
+30%
TSX
+10%
31-Dec-12
31-Jan-13
28-Feb-13
31-Mar-13
30-Apr-13
31-May-13
30-Jun-13
31-Jul-13
31-Aug-13
30-Sep-13
31-Oct-13
30-Nov-13
31-Dec-13
Onex Corporation December 31, 2013 13
M A N A G E M E N T ’ S D I S C U S S I O N A N D A N A LY S I S
INDUSTRY SEGMENTS
At December 31, 2013, Onex had seven reportable industry segments. A description of our operating
businesses by industry segment, and the economic and voting ownerships of Onex, the parent com-
pany, and its limited partners in those businesses, is presented below. We manage our businesses
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(a)
Onex’ &
Limited
Partners’
Economic
Ownership
Onex’
Economic/
Voting
Ownership
10%(a)
10%(a)/75%
Aerostructures Spirit AeroSystems, Inc. (NYSE: SPR), the world’s largest independent designer
16%
4%(a)/63%
and manufacturer of aerostructures (website: www.spiritaero.com).
Onex shares held: 6.0 million(a)
Onex Partners I shares subject to a carried interest: 11.9 million
Healthcare
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).
39%
9%/86%
Onex shares held: 3.5 million
Onex Partners I shares subject to a carried interest: 10.7 million
Carestream Health, Inc., a global provider of medical and dental imaging and
healthcare information technology solutions (website: www.carestream.com).
92%
33%(a)/100%
Total Onex, Onex Partners II and Onex management investment
at original cost: $471 million
Onex portion at cost: $186 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 original 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
Insurance
Provider
The Warranty Group, Inc., one of the world’s largest providers of extended warranty
contracts (web site: www.thewarrantygroup.com).
91%
29%/100%
Total Onex, Onex Partners I, Onex Partners II and Onex management investment
at original 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
Customer
Care
Services
SITEL Worldwide Corporation, a global provider of outsourced customer care
services (website: www.sitel.com).
70%
70%/89%
Onex investment at original cost: $251 million
(a) Excludes shares held in connection with the MIP.
14 Onex Corporation December 31, 2013
M A N A G E M E N T ’ S D I S C U S S I O N A N D A N A LY S I S
Industry
Segments
Building
Products
Other
Businesses
• Commercial
Vehicles
• Aircraft
Leasing &
Management
Onex’ &
Limited
Partners’
Economic
Ownership
Onex’
Economic/
Voting
Ownership
72%(a)
18%(a)/72%(a)
Companies
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, certain limited partners, Onex management and
others investment at original cost: $921 million
Onex portion at cost: $227 million
Onex Partners III portion subject to a carried interest: $569 million
The Onex Partners III Group’s investment at original cost includes $750 million
of convertible preferred stock and $171 million of convertible promissory notes.
JELD-WEN made cumulative principal repayments of $110 million on the
convertible promissory notes. In April 2013, the remaining principal of the
convertible promissory notes in the amount of $61 million was converted
into convertible preferred stock of JELD-WEN.
Allison Transmission Holdings, Inc. (b) (NYSE: ALSN), the world leader in the design
and manufacture of fully-automatic transmissions for on-highway trucks and buses,
off-highway equipment and defence vehicles (website: www.allisontransmission.com).
27%
8%/–(b)
Onex shares held: 15.5 million
Onex Partners II shares subject to a carried interest: 22.1 million
Aircraft Leasing & Management, a global platform dedicated to leasing and
managing commercial jet aircraft. The platform is comprised of:
BBAM Limited Partnership(b), one of the world’s leading managers of commercial
jet aircraft (website: www.bbam.com).
50%
13%/50%(b)
Total Onex, Onex Partners III and Onex management investment
at original cost: $185 million
Onex portion: $47 million
Onex Partners III portion subject to a carried interest: $130 million
In conjunction with the investment in BBAM, the Onex Partners III Group invested
$20 million in the shares of FLY Leasing Limited (NYSE: FLY), of which Onex’ share
was $5 million.
Meridian Aviation Partners Limited, an aircraft investment company established
by the Onex Partners III Group.
100%
25%/100%
Total Onex, Onex Partners III and Onex management investment
at original cost: $57 million
Onex portion: $14 million
Onex Partners III portion subject to a carried interest: $40 million
(a) The economic ownership and voting interests of JELD-WEN are presented on an as-converted basis as the Onex Partners III Group’s investment
is in convertible preferred shares.
(b) Onex has certain contractual rights and protections, including the right to appoint members to the boards of directors, in respect of these entities,
which are accounted for at fair value in Onex’ audited annual consolidated financial statements.
Onex Corporation December 31, 2013 15
M A N A G E M E N T ’ S D I S C U S S I O N A N D A N A LY S I S
Industry
Segments
Other
Businesses
(cont’d)
• Business
Services/
Tradeshows
• Plastics
Processing
Equipment
• Business
Services/
Packaging
Companies
Onex’ &
Limited
Partners’
Economic
Ownership
Onex’
Economic/
Voting
Ownership
Emerald Expositions, LLC, a leading operator of business-to-business tradeshows
in the United States (website: www.emeraldexpositions.com).
99%
24%/99%
Total Onex, Onex Partners III and Onex management investment
at original cost: $350 million
Onex portion: $85 million
Onex Partners III portion subject to a carried interest: $247 million
In January 2014, the Onex Partners III Group invested an additional $140 million
in the equity of Emerald Expositions to fund its acquisition of GLM, of which
Onex’ share was $34 million.
KraussMaffei Group GmbH, a leading manufacturer of plastic and rubber processing
equipment (website: www.kraussmaffeigroup.com).
96%
24%/100%
Total Onex, Onex Partners III and Onex management investment
at original cost: $366 million(a)
Onex portion: $92 million(a)
Onex Partners III portion subject to a carried interest: $257 million(a)
The Onex Partners III Group’s investment at original cost includes $8 million of
accounts receivable that were converted into additional equity of the company
in July 2013. Onex’ share of the accounts receivable was $2 million.
SGS International, Inc., a global leader in design-to-print graphic services to the
consumer products packaging industry (website: www.sgsintl.com).
93%
23%/93%
Total Onex, Onex Partners III and Onex management investment
at original cost: $260 million
Onex portion: $66 million
Onex Partners III portion subject to a carried interest: $183 million
• Industrial
Products
Tomkins Limited(b), a global manufacturer of belts and hoses for the industrial
and automotive markets (website: www.tomkins.co.uk).
56%
14%/50%(b)
Total Onex, Onex Partners III, certain limited partners, Onex management and others
investment at original cost: $1,219 million
Onex portion at cost: $315 million
Onex Partners III and others portion subject to a carried interest: $688 million
• Gaming
Tropicana Las Vegas, Inc., a casino resort with 1,467 rooms, situated on 35 acres
and located directly on the Las Vegas strip (website: www.troplv.com).
82%
18%/82%
Total Onex, Onex Partners III and Onex management investment
at original cost: $319 million
Onex portion: $70 million
Onex Partners III portion subject to a carried interest: $225 million
(a) The investments in KraussMaffei were made in euros and converted to U.S. dollars using the prevailing exchange rate on the date of the investments.
(b) Onex has certain contractual rights and protections, including the right to appoint members to the board of directors, in respect of this entity,
which is accounted for at fair value in Onex’ audited annual consolidated financial statements.
16 Onex Corporation December 31, 2013
M A N A G E M E N T ’ S D I S C U S S I O N A N D A N A LY S I S
Industry
Segments
Companies
• Insurance
Brokerage
USI Insurance Services, a leading U.S. provider of insurance brokerage services
(website: www.usi.biz).
Total Onex, Onex Partners III, certain limited partners, Onex management and others
investment at original cost: $610 million
Onex portion at cost: $170 million
Onex Partners III portion subject to a carried interest: $358 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).
Onex’ &
Limited
Partners’
Economic
Ownership
Onex’
Economic/
Voting
Ownership
92%
26%/100%
ONCAP II
100%
46%(a)/100%
ONCAP II actively manages investments in EnGlobe, Mister Car Wash, CiCi’s Pizza,
Pinnacle Renewable Energy Group and PURE Canadian Gaming.
Total ONCAP II, Onex, Onex management and ONCAP management unrealized
investments at original cost: $315 million (C$332 million)
Onex portion: $145 million (C$152 million)
ONCAP II portion: $143 million (C$151 million)
ONCAP III
ONCAP III actively manages investments in Hopkins, PURE Canadian Gaming,
Davis-Standard and Bradshaw.
Total ONCAP III, Onex, Onex management and ONCAP management unrealized
investments at original cost: $253 million (C$253 million)
Onex portion : $74 million (C$74 million)
ONCAP III portion : $154 million (C$155 million)
100%
29%/100%
• Real Estate
Onex Real Estate Partners, a platform dedicated to acquiring and improving
real estate assets in North America.
88%
88%/100%
Onex’ remaining investment in Onex Real Estate Partners transactions
at cost: $301 million
• Credit
Strategies
Onex Credit Partners specializes in managing credit-related investments, including
event-driven, long/short and market dislocation strategies.
70%(b)
70%(b)/50%(b)
Onex investment in Onex Credit Partners at market: $603 million, of which $343 million
is invested in a segregated Onex Credit Partners unleveraged senior secured loan
portfolio that purchases assets with greater liquidity, $126 million is invested in
other Onex Credit Partners Funds and $134 million is invested in collateralized
loan obligations, including the warehouse facility for OCP CLO-5.
(a) This represents Onex’ blended economic ownership in the ONCAP II investments.
(b) This represents Onex’ share of the Onex Credit Partners asset management platform.
Onex Corporation December 31, 2013 17
M A N A G E M E N T ’ S D I S C U S S I O N A N D A N A LY S I S
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, 2013 compared to those for the year ended December 31, 2012 and, in selected
areas, to those for the year ended December 31, 2011.
C O N S O L I D A T E D O P E R A T I N G R E S U L T S
This section should be read in conjunction with Onex’
Disclosure of Interests in Other Entities
IFRS 12, Disclosure of Interests in Other Entities, requires
an entity to disclose information that enables users of
audited annual consolidated statements of earnings and
financial statements to evaluate the nature of, and risks
corresponding notes thereto.
Changes in accounting policies
Effective January 1, 2013, Onex has adopted the follow-
associated with, its interest in other entities and the effects
of those interests on its financial position, financial perfor-
mance and cash flows. Onex adopted IFRS 12 on January 1,
2013 in accordance with the IFRS 12 transition provisions.
ing new and revised accounting standards, along with any
The adoption of IFRS 12 resulted in additional disclosures
consequential amendments. These changes were made in
in the audited annual consolidated financial statements.
accordance with the applicable transitional provisions.
Consolidated Financial Statements
IFRS 10, Consolidated Financial Statements, replaces the
guidance on control and consolidation in IAS 27, Con
soli dated and Separate Financial Statements, and SIC-12,
Consolidation – Special Purpose Entities. IFRS 10 introduces
a single consolidation model for all entities based on con-
Fair Value Measurement
IFRS 13, Fair Value Measurement, provides a single frame-
work for measuring fair value and requires enhanced dis-
closures when fair value is used for measurement. IFRS 13
was adopted by Onex on a prospective basis. The adoption
of IFRS 13 did not require any adjustments to the valu-
ation techniques used by Onex to measure fair value and
trol, irrespective of the nature of the entities, and provides
did not result in any measurement adjustments as at
detailed guidance on applying the definition of con-
January 1, 2013. Enhanced disclosures are included in the
trol. The accounting requirements for consolidation have
audited annual consolidated financial statements.
remained largely consistent with IAS 27. Onex determined
that the adoption of IFRS 10 on January 1, 2013 did not
result in changes to the consolidation status of any of its
subsidiaries and investees.
Presentation of Financial Statements
The amendments to IAS 1, Presentation of Financial State
ments, require other comprehensive income to be grouped
by those items that will be reclassified subsequently to
Joint Arrangements, and Investments in Associates
earnings or loss and those that will not be reclassified.
and Joint Ventures
IFRS 11, Joint Arrangements, supersedes IAS 31, Interests
in Joint Ventures, and requires joint arrangements to be
classified either as joint operations or joint ventures,
Onex adopted the amendments on January 1, 2013 and
has reclassified comprehensive income items of the com-
parative period. These changes did not result in any
adjustments to other comprehensive income or total com-
depending on the contractual rights and obligations
prehensive income.
of each investor that jointly controls the arrangement.
An investment in a joint venture is accounted for using
the equity method as set out in IAS 28, Investments in
Associates and Joint Ventures (amended in 2011). The other
amendments to IAS 28 did not have an impact on Onex.
Onex has classified its joint arrangements and concluded
that the adoption of IFRS 11 did not result in any changes
to the accounting for its joint arrangements.
18 Onex Corporation December 31, 2013
Employee Future Benefits
IAS 19, Employee Future Benefits (amended in 2011), requires
the net defined benefit liability (assets) to be recognized on
the balance sheet without any deferral of actuarial gains
and losses and past service costs as previously allowed. Past
service costs are recognized in net earnings when incurred.
Expected returns on plan assets are no longer included in
post-employment benefits expense. Instead, post-employ-
ment benefits expense includes the net interest on the net
defined benefit liability (assets), calculated using a dis-
count rate based on market yields on high quality bonds.
Remeasurements consisting of actuarial gains and losses,
the actual return on plan assets (excluding the net interest
component) and any change in the asset ceiling are rec-
ognized in other comprehensive income. Onex continues
to immediately recognize in retained earnings all pension
adjustments recognized in other comprehensive income.
Onex also continues to recognize interest expense (income)
on net post-employment benefits liabilities (assets) in the
audited annual consolidated statements of earnings.
Onex adopted these amendments retrospectively
and adjusted its opening equity as at January 1, 2012 to
recognize previously unrecognized past service costs and
adjustments to the asset ceiling for post-employment plans.
The effects on the audited annual consolidated
financial statements of adopting the amendments to IAS 19
were not significant. Onex, the parent company, does not
provide pension, other retirement or post-retirement bene-
fits to its employees or to employees of any of the operating
companies. In addition, Onex, the parent company, does
not have any obligations and has not made any guarantees
with respect to the plans of the operating companies.
Impairment of Assets
Onex has early adopted the amendments to IAS 36, Impair
ment of Assets, effective January 1, 2013. These amendments
clarify and introduce additional disclosures about fair
value measurements when there has been an impairment
or impairment reversal. The disclosures required by IAS 36
after adoption of the amendments are included in the
audited annual consolidated financial statements.
M A N A G E M E N T ’ S D I S C U S S I O N A N D A N A LY S I S
Critical accounting policies and estimates
Significant accounting estimates
Onex prepares its consolidated financial statements in
accordance with IFRS. The preparation of the MD&A and
consolidated financial statements in conformity with IFRS
requires management to make judgements, assumptions
and estimates that affect the reported amounts of assets
and liabilities, disclosures of contingent assets and liabili-
ties and the reported amounts of revenues and expenses
for the periods of the audited annual consolidated financial
statements. Onex and its operating companies evalu-
ate their estimates and assumptions on an ongoing basis
and any revisions are recognized in the affected periods.
Included in Onex’ audited annual consolidated financial
statements are estimates used in determining the allow-
ance for doubtful accounts, inventory valuation, deferred
tax assets and liabilities, intangible assets and goodwill,
useful lives of property, plant and equipment and intan-
gible assets, recoverability of development costs associ-
ated with new product programs, revenue recognition
under contract accounting, income taxes, investments in
joint ventures and 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 assumptions and estimates.
Judgements, assumptions and estimates are
used in the determination of fair value for business com-
binations, Limited Partners’ Interests, carried interest and
investments in joint ventures and associates. The assess-
ment of goodwill, intangible assets and long-lived assets
for impairment, the determination of contract accounting,
income taxes, legal contingencies and actuarial valuations
of pension and other post-retirement benefits also require
the use of judgements, assumptions and estimates. Due to
the material nature of these factors, they are discussed here
in greater detail.
Onex Corporation December 31, 2013 19
M A N A G E M E N T ’ S D I S C U S S I O N A N D A N A LY S I S
Business combinations
In a business combination, all identifiable assets, liabili-
into consideration company-specific items, the lack of
liquidity inherent in a non-public investment and the fact
ties and contingent liabilities acquired are recorded at the
that comparable public companies are not identical to the
date of acquisition at their respective fair values. One of
companies being valued. Such considerations are necessary
the most significant estimates relates to the determination
because, in the absence of a committed buyer and comple-
of the fair value of these assets and liabilities. Land, build-
tion of due diligence procedures, there may be company-
ings and equipment are usually independently appraised
specific items that are not fully known that may affect value.
while short-term investments are valued at market prices.
A variety of additional factors are reviewed by management,
If any intangible assets are identified, depending on the
including, but not limited to, financing and sales transac-
type of intangible asset and the complexity of determin-
tions with third parties, current operating performance and
ing its fair value, an independent external valuation expert
future expectations of the particular investment, changes in
may develop the fair value. These evaluations are linked
market outlook and the third-party financing environment.
closely to the assumptions made by management regard-
In determining changes to the fair value of investments,
ing the future performance of the assets concerned and
emphasis is placed on current company performance and
any changes in the discount rate applied. Note 1 to the
market conditions.
audited annual consolidated financial statements provides
For publicly traded investments, the valuation is
additional disclosure on business combinations.
based on closing market prices less adjustments, if any, for
regulatory and/or contractual sale restrictions.
Limited Partners’ Interests, carried interest
The changes to fair value of the investments in
and investments in joint ventures and associates
The measurement of the Limited Partners’ Interests, carried
joint ventures and associates are reviewed on page 37 of
this MD&A.
interest and investments in joint ventures and associates is
Included in the measurement of the Limited Part-
significantly impacted by the fair values of the investments
ners’ Interests is an adjustment for the change in carried
held by the Onex Partners and ONCAP Funds. Joint ventures
interest as well as any contributions by and distributions to
and associates are defined under IFRS as those investments
limited partners in the Onex Partners and ONCAP Funds.
in operating businesses over which Onex has joint control
The changes to the fair value of the Limited Partners’
or significant influence, but not control. In accordance with
Interests are reviewed on page 42 of this MD&A.
IFRS, certain of these investments are designated, upon ini-
tial recognition, at fair value in the audited annual consoli-
Impairment testing of goodwill, intangible assets
dated balance sheets. The fair value of investments in joint
ventures and associates is assessed at each reporting date
and long-lived assets
Goodwill in an accounting context represents the excess
with changes in fair value recognized in the audited annual
of the aggregate consideration paid and the amount of
consolidated statements of earnings. Similarly, the Limited
any non-controlling interests in the acquired company
Partners’ Interests, representing the interests of limited part-
compared to the fair value of the identifiable net assets
ner investors in the Onex Partners and ONCAP Funds, and
acquired. Essentially all of the goodwill amount that
carried interest, representing the General Partner’s share of
appears in Onex’ audited annual consolidated balance
the net gains of the Onex Partners and ONCAP Funds, are
sheets was recorded by the operating companies. Goodwill
recorded at fair value. The fair value is significantly affected
is not amortized, but is assessed for impairment at the cash
by the change in the fair value of the underlying investments
generating unit (“CGU”) level (or group of CGUs) annually,
in the Onex Partners and ONCAP Funds.
or sooner if events or changes in circumstances or market
The valuation of non-public investments requires
conditions indicate that the carrying amount could exceed
significant judgement by Onex due to the absence of quoted
fair value. The test for goodwill impairment used by our
market values, inherent lack of liquidity and the long-term
operating companies is to assess whether the fair value of
nature of such investments. Valuation methodologies in-
each CGU within an operating company is less than its car-
clude discounted cash flows and observations of the trad-
rying value and determine if the goodwill associated with
ing multiples of public companies considered comparable
that CGU is impaired. This assessment takes into consid-
to the private companies being valued. The valuations take
eration several factors, including, but not limited to, future
20 Onex Corporation December 31, 2013
M A N A G E M E N T ’ S D I S C U S S I O N A N D A N A LY S I S
cash flows and market conditions. If the fair value is deter-
of time over which these estimates will be developed, the
mined to be lower than the carrying value at an individual
impact to recognized revenue and costs may be significant
CGU, then goodwill is considered to be impaired and an
if the estimates change. These estimates involve various
impairment charge must be recognized. Each operating
assumptions and projections relative to the outcome of
company has developed its own internal valuation model
future events, including the quantity and timing of deliver-
to determine fair value. These models are subjective and
ies, labour performance rates, projections relative to mate-
require management of the particular operating com-
rial and overhead costs, as well as expected “learning curve”
pany to exercise judgement in making assumptions about
cost reductions over the term of the contracts. Contract
future results, including revenues, operating expenses,
estimates are re-evaluated periodically and changes in esti-
capital expenditures and discount rates. The impairment
mates are reflected in the current period.
test for intangible assets and long-lived assets with limited
Spirit AeroSystems also expects to derive future
lives is similar to that for goodwill. Under IFRS, impair-
revenues from new programs for which the company may
ment charges for intangible assets and long-lived assets
be contracted to provide design and engineering services,
may subsequently be reversed if fair value is determined
recurring production or both. There are several risks inher-
to be higher than carrying value. The reversal is limited,
ent to such new programs. In the design and engineering
however, to restoring the carrying amount that would have
phase, the company may incur costs in excess of forecasts
been determined, net of amortization, had no impairment
due to several factors, including cost overruns, customer-
loss been recognized in prior periods. Impairment losses
directed change orders and delays in the overall program.
for goodwill are not reversed in future periods.
The company may also incur higher than expected recur-
Impairment charges recorded by the operating
ring production costs, which may be caused by a variety of
businesses under IFRS may not impact the fair values of
factors, including the future impact of engineering changes
the operating businesses used in determining the increase
(or other change orders) or an inability to secure con-
or decrease in investments in joint ventures and associ-
tracts with suppliers at projected cost levels. The ability to
ates, the change in carried interest and for calculating the
recover these excess costs from the customers will depend
Limited Partners’ Interests liability. Fair values of the oper-
on several factors, including the company’s rights under its
ating businesses are assessed at the enterprise level, while
contracts for the new programs. The recognition of earn-
impairment charges are assessed at the asset or CGU level
ings and loss under these new contracts requires the com-
(or group of CGUs).
pany to make significant assumptions regarding its future
During 2013, certain of the operating companies
costs, ability to achieve cost reduction opportunities, the
recorded charges for impairments of goodwill, intangible
estimated number of units to be manufactured under the
assets and long-lived assets. These charges are reviewed on
contracts and other variables.
page 42 of this MD&A and in note 25 to the audited annual
consolidated financial statements.
Revenue recognition (Healthcare segment)
Revenues in the healthcare segment for Skilled Healthcare
Construction contract accounting
Group, Inc. (“Skilled Healthcare Group”) and Res-Care, Inc.
(Aerostructures segment)
The aerostructures segment recognizes revenue using the
(“ResCare”) are substantially derived from U.S. federal,
state and local government agency programs, including
contract method of accounting since a significant portion
Medicare and Medicaid. Laws and regulations under these
of Spirit AeroSystems, Inc.’s (“Spirit AeroSystems”) rev-
programs are complex and compliance with such laws and
enues is under long-term volume-based contracts requir-
regulations is subject to ongoing and future government
ing delivery of products over several years. Revenues from
review and interpretation. Management may be required
each contract are recognized in accordance with the per-
to exercise judgement for the recognition of revenue under
centage-of-completion method of accounting, using the
these programs. Management of those businesses believes
units-of-delivery method. Contract accounting uses vari-
that they are in compliance with applicable laws and reg-
ous estimating techniques to project costs to completion
ulations. Revenues generated through contracts with gov-
and estimates of recoveries asserted against customers
ernment agencies require the use of estimates as contracts
for changes in specifications. Due to the significant length
may be terminated or adversely modified if budgetary
Onex Corporation December 31, 2013 21
M A N A G E M E N T ’ S D I S C U S S I O N A N D A N A LY S I S
appropriation to the particular government agency is de-
creased. Contract estimates are re-evaluated periodically
Employee benefits
Onex, the parent company, does not have a pension plan;
and changes in estimates are reflected in the current period.
however, certain of its operating companies do. Manage-
Income taxes
Onex, including its operating companies, is subject to
ment of the operating companies use actuarial valuations
to account for their pension and other post-retirement
benefits. These valuations rely on statistical and other
changing tax laws in multiple jurisdictions. Significant
factors in order to anticipate future events. These factors
judgements are necessary in determining worldwide income
include key actuarial assumptions such as the discount
tax liabilities. Although management of Onex and the oper-
rate, expected salary increases and mortality rates. These
ating companies believe that they have made reasonable
actuarial assumptions may differ significantly from actual
estimates about the final outcome of tax uncertainties, no
developments due to changing market and economic con-
assurance can be given that the outcome of these tax mat-
ditions, and therefore may result in a significant change
ters will be consistent with what is reflected in the historical
in post-retirement employee benefit obligations and the
income tax provisions. Such differences could have an effect
related future expense in the audited annual consolidated
on the income tax liabilities and deferred tax liabilities in
financial statements. Note 32 to the audited annual con-
the period in which such determinations are made. At each
solidated financial statements provides details on the
balance sheet date, management of Onex and the operating
estimates used in accounting for pensions and post-retire-
companies assess whether the realization of future tax bene-
ment benefits.
fits is sufficiently probable to recognize deferred tax assets.
This assessment requires the exercise of judgement on the
Recent Accounting Pronouncements
part of management with respect to, among other things,
benefits that could be realized from available tax strategies
and future taxable income, as well as other positive and
negative factors. The recorded amount of total deferred tax
assets could be reduced if estimates of projected future tax-
able income and benefits from available tax strategies are
lowered, or if changes in current tax regulations are enacted
that impose restrictions on the timing or extent of Onex’ or
its operating companies’ ability to utilize future tax benefits.
Legal contingencies
Onex, including its operating companies, becomes
involved in various legal proceedings in the normal course
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
disclosure of a suit or formal assertion of a claim does not
automatically indicate that a provision may be appropri-
ate. Management, with the assistance of internal and exter-
nal lawyers, regularly analyzes current information about
these matters and provides provisions for probable con-
tingent losses, including the estimate of legal expenses to
resolve these matters.
Investment Entity Amendments
In October 2012, the International Accounting Standards
Board (“IASB”) issued amendments to IFRS 10, Consoli dated
Financial Statements; IFRS 12, Disclosure of Inter ests in
Other Entities; and IAS 27, Separate Financial State ments, to
include an exception to the consolidation requirements for
investment entities as defined in the amendments issued by
the IASB. The amendments are effective for annual periods
beginning on or after January 1, 2014. The impact of adopt-
ing these amendments is not expected to have a significant
effect on Onex’ consolidated financial statements.
Financial Instruments
In November 2009, the IASB issued IFRS 9, Financial Instru
ments, the first phase of a replacement for existing standard
IAS 39, Financial Instruments: Recognition and Measure
ment. This standard introduces new requirements for the
classification and measurement of financial assets and
removes the need to separately account for certain embed-
ded derivatives. In December 2013, the IASB issued updates
to IFRS 9 to incorporate new hedge accounting require-
ments that increase the scope of items that can qualify as a
hedged item and change the requirements of hedge effec-
tiveness testing that must be met to use hedge accounting.
22 Onex Corporation December 31, 2013
M A N A G E M E N T ’ S D I S C U S S I O N A N D A N A LY S I S
The effective date for IFRS 9 has been deferred by the IASB.
Onex is currently evaluating the impact of adopting this
Significant transactions
The presentation of the transactions in this section is in
standard on its consolidated financial statements.
chronological order by investment.
Levies
In May 2013, the IASB issued Interpretation 21, Levies
(“IFRIC 21”), which provides guidance on accounting for
levies in accordance with IAS 37, Provisions. The interpre-
tation defines a levy as an outflow from an entity imposed
Sale of RSI
In February 2013, the Onex Partners II Group completed
the sale of its 50 percent interest in RSI. The Onex Part-
ners II Group received proceeds of $323 million on the sale,
of which Onex’ share was $130 million, including carried
by a government in accordance with legislation. IFRIC 21
interest of $3 million. The Company’s investment in RSI
clarifies that a levy is recognized as a liability when the obli-
was recorded at fair value in the audited annual consoli-
gating event that triggers payment, as specified in the legis-
dated balance sheets, with changes in fair value recognized
lation, has occurred. IFRIC 21 is effective for annual periods
in the audited annual consolidated statements of earn-
beginning on or after January 1, 2014. Onex is currently eval-
ings. The realized pre-tax gain on the sale of RSI, including
uating the impact of adopting this standard on its consoli-
prior distributions, was $153 million, of which Onex’ share
dated financial statements.
was $60 million. Onex recorded a non-cash tax provision
of $5 million on the sale, which was included in the provi-
Variability of results
Onex’ consolidated operating results may vary substantially
sion for income taxes in the audited annual consolidated
statements of earnings. Onex recognized a recovery of this
from year to year for a number of reasons, including some
tax provision during 2013 as part of an evaluation of recent
of the following: the current economic environment; acqui-
changes in tax law as described on page 43 of this MD&A.
sitions or dispositions of businesses by Onex, the parent
Management of Onex received carried interest of $5 mil-
company; the change in value of stock-based compensation
lion in connection with the sale. No amounts were paid on
for both the parent company and its operating compa-
account of the MIP as the required investment return hur-
nies; changes in the market value of Onex’ publicly traded
dle for Onex was not met.
operating businesses; changes in the fair value of Onex’
Including prior distributions, the Onex Part-
privately held operating businesses; changes in tax legisla-
ners II Group realized total proceeds of $471 million over
tion or in the application of tax legislation; and activities at
the life of this investment compared to its initial invest-
Onex’ operating companies. These activities may include
ment of $318 million.
the purchase or sale of businesses; fluctuations in customer
demand, materials and employee-related costs; changes
in the mix of products and services produced or delivered;
Meridian Aviation
In February 2013, the Onex Partners III Group established
changes in the financing of the business; changes in contract
Meridian Aviation, an aircraft investment company based
accounting estimates; impairments of goodwill, intangible
in Ireland. Aircraft purchased by Meridian Aviation will
assets or long-lived assets; litigation; charges to restructure
be leased to commercial airlines and managed by BBAM,
operations; and natural disasters. Given the diversity of
one of the world’s largest managers of commercial jet air-
Onex’ operating businesses, the associated exposures, risks
craft and an Onex Partners III Group investment. Meridian
and contingencies may be many, varied and material.
Aviation executed a purchase agreement in February 2013
for six commercial passenger aircraft for delivery between
April 2013 and May 2015, with a list price value of more than
$1.4 billion. Meridian Aviation executed leases in February
2013 with a major international commercial airline in
respect of these six aircraft. The Onex Partners III Group
has guaranteed certain payment obligations arising on
each aircraft delivery date.
Onex Corporation December 31, 2013 23
M A N A G E M E N T ’ S D I S C U S S I O N A N D A N A LY S I S
In February 2013, the Onex Partners III Group
Onex’ share of the remaining convertible promissory notes
invested $32 million in Meridian Aviation, of which Onex’
and accrued interest was $18 million. After giving effect to
share was $8 million. In July 2013, the Onex Partners III
the conversion, the Onex Partners III Group’s as-converted
Group invested an additional $25 million in Meridian
economic ownership increased to 71 percent, up from
Aviation, of which Onex’ share was $6 million. These
65 percent prior to the conversion. Onex’ economic owner-
investments are primarily for deposits, fees and other
ship increased to 17 percent at the time of the conversion,
expenses associated with the purchase of the six commer-
up from 16 percent prior to the conversion. In August 2013,
cial passenger aircraft. Meridian Aviation delivered the first
in connection with the conversion, Onex appointed two
commercial passenger aircraft to the lessee in April 2013.
additional members to the board of directors of JELD-WEN.
During the fourth quarter of 2013, Meridian
Aviation executed sale agreements for three of the six
commercial passenger aircraft under its existing pur-
Acquisition of Emerald Expositions
In June 2013, Onex completed the $950 million acquisi-
chase agreement, including the novation of the associ-
tion of Nielsen Expositions from its parent, an affiliate of
ated leases to the purchaser. The sale agreements are for
Nielsen Holdings N.V. Following the purchase, the business
two aircraft delivered in 2013 and one aircraft scheduled for
continued under the new name of Emerald Expositions.
delivery in 2014. Meridian Aviation recorded a net gain of
Emerald Expositions is a leading operator of large busi-
$32 million comprised of the sale of the two aircraft deliv-
ness-to-business tradeshows in the United States across
ered in 2013 and a fair value adjustment covering the
nine end markets. The Onex Partners III Group invested
remaining four aircraft scheduled for delivery to the com-
$350 million in the equity of Emerald Expositions for an
pany between 2014 and 2015. The debt financing under-
initial 100 percent ownership interest. Onex’ share of the
taken by Meridian Aviation with the delivery of the first
total equity was $85 million, for an initial 24 percent own-
commercial aircraft was repaid in full upon the sale.
ership interest. This company is consolidated and reported
USI
In March 2013, as contemplated at the time of the acqui-
from the time of its acquisition in the other segment of
Onex’ audited annual consolidated financial statements.
In January 2014, Emerald Expositions completed
sition of USI Insurance Services (“USI”) in late December
the acquisition of George Little Management, LLC (“GLM”),
2012, $84 million of the amount originally invested by Onex
an operator of business-to-business tradeshows in the
as a co-investment in USI was sold, at Onex’ original cost,
United States, for $335 million. In conjunction with this
to certain limited partners and others as a co-investment.
transaction, the Onex Partners III Group invested an addi-
After giving effect to the co-investment sale, Onex’ invest-
tional $140 million in the equity of Emerald Expositions, of
ment in USI is $170 million, of which $128 million was
which Onex’ share was $34 million. The balance of the pur-
funded through Onex Partners III and $42 million repre-
chase price and transaction costs was funded by Emerald
sents the portion of the co-investment retained by Onex.
Expositions through an amendment to its credit facility, as
discussed on page 56 of this MD&A.
JELD-WEN note conversion
During the four months ended April 2013, JELD-WEN
Holding, inc. (“JELD-WEN”) repaid $52 million of its
Carestream Health distribution
In June 2013, Carestream Health entered into a new credit
convertible promissory notes and $8 million of accrued
facility. This new facility consists of a $1.85 billion first-
interest, all of which was held by the Onex Partners III
lien term loan that matures in June 2019, a $500 million
Group, primarily from the proceeds received on the sale
second-lien term loan that matures in December 2019
of certain non-core assets. Onex’ share of the repayments
and a $150 million revolving facility that matures in June
was $15 million.
2018. The proceeds from the new facility, along with cash
In April 2013, the remaining convertible promissory
on hand, were used to repay existing debt facilities, fund
notes and accrued interest totalling $72 million, all of which
distributions to shareholders totalling $750 million and
was held by the Onex Partners III Group, were converted
pay fees and expenses associated with the transaction.
into Series A Convertible Preferred Stock of JELD-WEN
The Onex Partners II Group’s share of Carestream Health’s
in accordance with the terms of the purchase agreement.
distributions to shareholders was $695 million. Onex’
24 Onex Corporation December 31, 2013
M A N A G E M E N T ’ S D I S C U S S I O N A N D A N A LY S I S
share of these distributions was $303 million, including
major line of business, and as a result has not been presented
carried interest of $50 million and after the reduction for
as a discontinued operation. At December 31, 2013, $15 mil-
the amounts on account of the MIP. Under the terms of the
lion remained receivable for escrow amounts and other
MIP, management of Onex participates in Onex’ realized
items, of which Onex’ share was $7 million.
gains from operating business investments once certain
During the fourth quarter of 2013, $6 million of
investment return hurdles have been met. Management
additional proceeds were received by ONCAP II, of which
of Onex earned $21 million on account of this transac-
Onex’ share was $3 million. These additional proceeds
tion related to the MIP. In addition, management of Onex
were recognized as a gain during the fourth quarter of 2013,
received $71 million in carried interest.
net of a $1 million reduction in the escrow receivable.
Sale of BSN SPORTS
In June 2013, the ONCAP II Group completed the sale of its
Sales of shares of Allison Transmission
In August 2013, Allison Transmission completed a second-
interests in BSN SPORTS. The ONCAP II Group received net
ary offering of 19.1 million shares of common stock and
proceeds of $236 million on the sale. Onex’ share of the net
repurchased 4.7 million shares of common stock, for a total
proceeds was $114 million. Included in the net proceeds
sale of 23.8 million shares of common stock. The second-
received on the sale, there were approximately $16 million of
ary offering includes the full exercise of the over-allotment
additional amounts held in escrow and other items that are
option. As part of the offering and share repurchase, the
expected to be received by June 2015, of which Onex’ share
Onex Partners II Group sold 11.9 million shares of common
was $8 million. During the fourth quarter of 2013, $1 mil-
stock. The Onex Partners II Group received net proceeds of
lion of the additional amounts held in escrow was received,
$252 million for its 11.9 million shares of common stock.
of which Onex’ share was less than $1 million. The real-
Onex’ portion of the net proceeds was $84 million, includ-
ized pre-tax gain on the sale of BSN SPORTS was $170 mil-
ing its portion of the carried interest.
lion, of which Onex’ share was $82 million. Onex recorded a
In November and December 2013, Allison Trans-
non-cash tax provision of $7 million on the sale, which was
mission completed secondary offerings of 27.5 million
included in the provision for income taxes in the audited
shares of common stock. The Onex Partners II Group sold
annual consolidated statements of earnings. Onex recog-
13.75 million shares of common stock for net proceeds
nized a recovery of this tax provision during 2013 as part of
of $333 million, of which Onex’ portion was $111 million,
an evaluation of recent changes in tax law as described on
including its portion of the carried interest.
page 43 of this MD&A. The gain on the sale is entirely attrib-
The realized gain on the 2013 transactions totalled
utable to the equity holders of Onex. This gain includes the
$369 million. The limited partners’ share of the realized
portion attributable to Onex’ investment, as well as that
gain was $255 million and Onex’s share was $114 million.
of the limited partners of ONCAP II. The effect of this is to
Amounts received related to the carried inter-
recover the charges to earnings on BSN SPORTS allocated
est on the 2013 transactions totalled $31 million, of which
to the limited partners over the life of the investment, which
Onex’ portion was $12 million and management’s portion
totalled $88 million. The balance of $75 million reflects
was $19 million. No amounts were paid on account of these
the after-tax gain on Onex’ investment in BSN SPORTS.
transactions related to the MIP as the required perfor-
Management of ONCAP received $18 million in carried inter-
mance targets for Onex had not been met at those times.
est on the sale of BSN SPORTS. The impact to Onex and man-
After completion of the secondary offerings and
agement of Onex was a net payment of $7 million in carried
share repurchase during 2013, the Onex Partners II Group
interest. Under the terms of the MIP, management of Onex
continues to own 49.7 million shares of common stock, or
participates in Onex’ realized gains from operating business
approximately 27 percent in the aggregate, of Allison Trans-
investments once certain conditions, including the required
mission’s outstanding common stock. As a result, the Onex
investment return hurdle, have been met. Management
Partners II Group will continue to record its investment at
of Onex received $6 million on account of this transaction
fair value through earnings.
related to the MIP. BSN SPORTS did not represent a separate
Onex Corporation December 31, 2013 25
M A N A G E M E N T ’ S D I S C U S S I O N A N D A N A LY S I S
Sale of TMS International
In October 2013, the Onex Partners II Group completed
to the equity holders of Onex. This gain includes the por-
tion attributable to Onex’ investment, as well as that of the
the sale of its remaining 23.4 million shares of TMS Inter-
limited partners of ONCAP II. The effect of this is to recover
national. The sale was part of an offer made for all out-
the charges to earnings on Caliber Collision allocated to
standing shares of TMS International and was completed
the limited partners over the life of the investment, which
at a price of $17.50 in cash per share. The cash cost of the
totalled $215 million. The balance of $171 million reflects
shares was $7.84. Proceeds to the Onex Partners II Group
the after-tax gain on Onex’ investment in Caliber Collision.
were $410 million, of which Onex’ share was $172 mil-
Management of ONCAP received $42 million in carried
lion, including its portion of the carried interest. Amounts
interest on the sale of Caliber Collision. The impact to Onex
received related to the carried interest totalled $25 million,
and management of Onex was a net payment of $8 million
of which Onex’ portion was $10 million and management’s
in carried interest. Under the terms of the MIP, management
portion was $15 million. No amounts were paid on account
of Onex participates in Onex’ realized gains from operating
of the MIP as the required investment return hurdle for
business investments once certain conditions, including
Onex was not met.
the required investment return hurdle, have been met.
Onex’ fourth quarter consolidated results include
Management of Onex received $12 million on account of
an after-tax gain of $242 million related to the sale, which
this transaction related to the MIP. Caliber Collision did not
is entirely attributable to the equity holders of Onex. This
represent a separate major line of business, and as a result
gain includes the portion attributable to Onex’ investment,
has not been presented as a discontinued operation.
as well as that of the limited partners of Onex Partners II.
The effect of this is to recover the charges to earnings on
TMS International allocated to the limited partners over the
R E V I E W O F D E C E M B E R 3 1 , 2 0 1 3
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
life of the remaining investment, which totalled $150 mil-
lion. The balance of $92 million reflects the after-tax gain
The discussions that follow identify those material factors
on Onex’ remaining investment in TMS International. The
that affected Onex’ operating segments and Onex’ consoli-
operations of TMS International have been presented as
dated results for 2013. We will review the major line items
discontinued in the audited annual consolidated state-
to the audited annual consolidated financial statements
ments of earnings and cash flows and the prior period has
by segment. The audited annual consolidated statements
been restated to report the results of TMS International as
of earnings and cash flows have been restated to report the
discontinued on a comparative basis.
results of TMS International as discontinued on a compar-
Including proceeds from TMS International’s ear-
ative basis.
lier initial public offering and prior distribution, the Onex
Partners II Group received proceeds totalling $504 million
on its investment of $249 million.
Consolidated revenues
and cost of sales
Consolidated revenues were
Sale of Caliber Collision
In November 2013, the ONCAP II Group completed the sale
$27.8 billion in 2013, up 12 per-
cent from $24.9 billion in 2012
of Caliber Collision. The ONCAP II Group received net pro-
and up 27 percent from $22.0 bil-
ceeds of $437 million on the sale. Onex’ share of the net
lion in 2011. Consolidated cost of
proceeds was $193 million. Included in the net proceeds
sales was $21.8 billion in 2013,
received on the sale, there are approximately $4 million of
an increase of 10 percent from
additional amounts held in escrow and for working capital
$19.9 billion in 2012 and up 27 per-
adjustments that are expected to be settled during 2014, of
cent from $17.3 billion in 2011.
which Onex’ share is $2 million. The realized gain on the sale
of Caliber Collision was $386 million, of which Onex’ share
was $171 million. The gain on the sale is entirely attributable
T O TA L R E V E N U E S
A N D C O S T O F S A L E S
($ millions)
27,809
24,917
21,843
21,981
19,908
17,258
’13
’12
’11
Revenues
Cost of Sales
31000
24800
18600
12400
6200
0
26 Onex Corporation December 31, 2013
M A N A G E M E N T ’ S D I S C U S S I O N A N D A N A LY S I S
Table 1 below reports revenues and cost of sales by industry segment for the years ended December 31, 2013, 2012 and 2011.
The percentage change in revenues and cost of sales for those periods is also shown.
Revenues and Cost of Sales by Industry Segment for the Years Ended December 31, 2013 and 2012
TABLE 1
($ millions)
Year ended December 31
Revenues
Cost of Sales
2013
2012(a)
Change
2013
2012(a)
Change
Electronics Manufacturing Services
$ 5,796
$ 6,507
(11)%
$ 5,337
$ 5,988
Aerostructures
Healthcare(b)
Insurance Provider
Customer Care Services
Building Products
Other (c)
Total
5,961
4,902
1,168
1,438
3,457
5,087
5,404
4,947
1,205
1,429
3,168
2,257
$ 27,809
$ 24,917
10 %
(1)%
(3)%
1 %
9 %
125 %
12 %
5,848
3,406
600
936
2,855
2,861
5,038
3,402
621
920
2,561
1,378
$ 21,843
$ 19,908
(11)%
16 %
–
(3)%
2 %
11 %
108 %
10 %
Results are reported in accordance with IFRS. These results may differ from those reported by the individual operating companies.
(a) 2012 results have been restated for the changes in accounting policies adopted on January 1, 2013, as described in note 1 to the audited annual consolidated
financial statements.
(b) 2012 includes reported results of CDI, which was sold in July 2012. CDI did not represent a separate major line of business and as a result has not been presented as
a discontinued operation.
(c)
2013 other includes Flushing Town Center, Tropicana Las Vegas, SGS International, USI, KraussMaffei, Meridian Aviation, Emerald Expositions, the operating companies
of ONCAP II (BSN SPORTS up to June 2013 and Caliber Collision up to November 2013) and ONCAP III and the parent company. 2012 other includes Flushing Town Center,
Tropicana Las Vegas, SGS International (since October 2012), USI (since late December 2012), the operating companies of ONCAP II and ONCAP III and the parent company.
Revenues and Cost of Sales by Industry Segment for the Years Ended December 31, 2012 and 2011
($ millions)
Revenues
Cost of Sales
Year ended December 31
2012(a)
2011(a)
Change
2012(a)
2011(a)
Change
Electronics Manufacturing Services
$ 6,507
$ 7,213
Aerostructures
Healthcare(b)
Insurance Provider
Customer Care Services
Building Products(c)
Other (d)
Total
5,404
4,947
1,205
1,429
3,168
2,257
4,864
5,030
1,184
1,416
774
1,500
$ 24,917
$ 21,981
(10)%
11 %
(2)%
2 %
1 %
309 %
50 %
13 %
$ 5,988
$ 6,645
5,038
3,402
621
920
2,561
1,378
4,124
3,446
579
921
660
883
$ 19,908
$ 17,258
(10)%
22 %
(1)%
7 %
–
288 %
56 %
15 %
Results are reported in accordance with IFRS. These results may differ from those reported by the individual operating companies.
(a) 2012 results have been restated for the changes in accounting policies adopted on January 1, 2013, as described in note 1 to the audited annual consolidated financial
statements. 2011 results have not been restated for the changes in accounting policies adopted on January 1, 2013, as described in note 1 to the audited annual consolidated
financial statements.
(b) Includes reported results of CDI, which was sold in July 2012. CDI did not represent a separate major line of business and as a result has not been presented as
a discontinued operation.
(c) Represents results of JELD-WEN from the date of acquisition in early October 2011.
(d) 2012 other includes Flushing Town Center, Tropicana Las Vegas, SGS International (since October 2012), USI (since late December 2012), the operating companies of
ONCAP II and ONCAP III and the parent company. 2011 other includes Flushing Town Center, Tropicana Las Vegas, the operating companies of ONCAP II and ONCAP III
and the parent company.
Onex Corporation December 31, 2013 27
M A N A G E M E N T ’ S D I S C U S S I O N A N D A N A LY S I S
Electronics Manufacturing Services
Celestica Inc. (“Celestica”) delivers innovative supply chain
During 2012, Celestica reported a 10 percent,
or $706 million, decrease in revenues to $6.5 billion from
solutions globally to customers in the communications
$7.2 billion in 2011. Approximately 90 percent of this rev-
(comprised of enterprise communications and telecommu-
enue decrease during 2012 was due to the disengagement
nications), consumer, diversified (comprised of industrial,
from a significant customer in Celestica’s consumer end
aerospace and defence, healthcare, solar, green technol-
market in the second half of 2012, as previously indicated.
ogy, semiconductor equipment and other) and enterprise
Excluding the revenues with this significant customer in
computing (comprised of servers and storage) end markets.
both 2012 and 2011, Celestica’s revenues for 2012 would
These solutions include design and development, engineer-
have decreased by 1 percent compared to 2011. Celestica’s
ing services, supply chain management, new product intro-
revenue from its communications and servers end market
ductions, component sourcing, electronics manufacturing,
also declined during the year, reflecting overall demand
assembly and test, complex mechanical assembly, systems
weakness. Partially offsetting those revenue decreases was
integration, precision machining, order fulfillment, logistics
an increase in revenues in Celestica’s diversified end mar-
and aftermarket repair and return services.
ket driven primarily by new program wins and acquisitions.
During 2013, Celestica reported an 11 percent,
Cost of sales had a similar decrease of 10 percent,
or $711 million, decrease in revenues to $5.8 billion. The
or $657 million, to $6.0 billion for 2012 (2011 – $6.6 billion).
decrease in revenues was due primarily to the disengage-
Gross profit for 2012 decreased 9 percent, or $49 million,
ment from a significant customer in Celestica’s consumer
from 2011 due primarily to the decrease in revenues.
end market in the second half of 2012. Excluding revenues
E L E C T R O N I C S
M A N U FA C T U R I N G S E R V I C E S
from the significant customer, rev-
enues for 2013 increased 1 percent
Aerostructures
Spirit AeroSystems, Inc. (“Spirit AeroSystems”) is an air-
($ millions)
compared to 2012. Revenues in
craft parts designer and manufacturer of commercial
7,213
6,645
6,507
5,988
5,796
5,337
8000
Celestica’s diver sified end market
aerostructures. Aerostructures are structural components,
increased 11 percent compared
6400
such as fuselages, propulsion systems and wing systems,
to 2012, driven primarily by new
for commercial, military and business jet aircraft. The com-
program wins and an acquisition,
4800
pany’s revenues are substantially derived from long-term
which contributed approximately
volume-based pricing contracts, primarily with The Boeing
one-third of the revenue increase
3200
in this end market. Rev e nues in
Celestica’s communications end
1600
market increased 8 percent com-
pared to 2012, driven primarily by
0
new program wins and, to a lesser
extent, stronger customer demand.
Celestica’s storage end market in-
A E R O S T R U C T U R E S
($ millions)
5,961
5,848
5,404
5,038
4,864
4,124
’13
’12
’11
Revenues
Cost of Sales
creased 1 percent due primarily to new program wins offset
by weaker demand from one customer. The increases were
partially offset by a decrease in revenues in Celestica’s server
end market due to the insourcing of a server program by one
customer and overall weaker demand.
Cost of sales had a similar decrease of 11 percent,
or $651 million, for 2013. Gross profit for 2013 decreased
12 percent, or $60 million, from 2012, in line with the rev-
enue decrease in 2013.
’13
’12
’11
Revenues
Cost of Sales
Company (“Boeing”) and Airbus
Group (“Airbus”).
Spirit AeroSystems re-
6500
ported revenues of $6.0 billion for
2013, up 10 percent, or $557 million,
5200
compared to 2012. The increase
in revenues was due primarily to
3900
higher production volume and ship
set deliveries to Boeing, Airbus and
2600
business jet programs. The increase
in revenues was partially offset by a
1300
decrease in non-recurring revenues
compared to 2012. Approximately
0
94 percent of 2013 revenues were
from Boeing and Airbus.
28 Onex Corporation December 31, 2013
M A N A G E M E N T ’ S D I S C U S S I O N A N D A N A LY S I S
Cost of sales increased 16 percent, or $810 million,
contributed $38 million and $21 million, respectively, to
to $5.8 billion for 2013 compared to 2012. The increase in
the increase in revenues compared to 2011. Approximately
cost of sales for 2013 was due primarily to the recognition
93 percent of 2012 revenues were from Boeing and Airbus.
of pre-tax forward-loss charges of $1.1 billion on certain
Cost of sales increased 22 percent, or $914 mil-
maturing programs during 2013 compared to forward-
lion, to $5.0 billion for 2012 compared to 2011. The increase
loss charges of $644 million recorded on several of Spirit
in cost of sales during the year was due to the recognition
AeroSystems’ programs during 2012. The effect of these
of pre-tax forward-loss charges of $644 million (2011 –
forward-loss charges on consolidated net earnings was an
$129 million) on several of Spirit AeroSystems’ programs.
after-tax charge of $712 million (2012 – $412 million). The
Excluding the impact of forward-loss charges, cost of sales
charges recognized during 2013 and 2012 were the result
increased during 2012 compared to 2011 due primarily to
of a combination of events on maturing programs that
the increases in production volume.
resulted in changes in estimates. Spirit AeroSystems’ long-
Cost of sales as a percentage of revenues was
term contract estimates are based on estimated revenues
93 percent during 2012 compared to 85 percent during
and related costs over the term of the contract. Contract
2011. The increase in cost of sales as a percentage of rev-
costs are estimated based on actual costs incurred to date
enues is due primarily to the increase in forward-loss
and an estimate of remaining costs over the life of the con-
charges recorded in 2012 compared to 2011.
tract, which can extend for multiple years. During the early
phases of development contracts, future cost estimates are
subject to significant variability, and are based on numer-
Healthcare
The healthcare segment revenues and cost of sales consist
ous assumptions and judgements and require manage-
of the operations of Skilled Healthcare Group, Carestream
ment to use its historical experience on similar programs
Health, Res Care and Center for Diagnostic Imaging, Inc.
until low-rate production is achieved, production pro-
(“CDI”) (up to July 2012).
cesses mature, supply chain partners are contracted and
unit costs stabilize, which typically results in assump-
tions that costs will improve over the life of the contract.
The level of change that was initially anticipated has been
exceeded as the company’s delivery schedules have been
delayed, engineering changes have continued and esti-
mates of achievable cost improvements have been revised.
The recognition of additional forward-loss charges in
future periods will depend upon several factors including
Spirit AeroSystems’ market forecast, its ability to success-
fully perform under revised design and manufacturing
plans, achievement of forecasted cost reductions as the
company enters into production, and its ability to success-
fully resolve claims and assertions with its customers and
supply chain partners. Excluding the impact of forward-
loss charges, cost of sales increased compared to last year
H E A LT H C A R E
($ millions)
4,902
4,947
5,030
During 2013, the health-
care segment reported a 1 percent,
or $45 million, decrease in consoli-
5500
dated revenues compared to last
year. Cost of sales at $3.4 billion
4400
was largely unchanged compared
3,406
3,402
3,446
to 2012.
3300
The healthcare segment
reported a 2 percent, or $83 mil-
2200
lion, decrease in consolidated rev-
enues in 2012 compared to 2011.
1100
Cost of sales decreased 1 percent,
or $44 million, in 2012 from 2011.
0
In July 2012, the Onex Partners I
Group’s investment in CDI was
sold. The exclusion of the results
’13
’12
’11
Revenues
Cost of Sales
due primarily to the increases in production volume.
of CDI from the date of sale is the primary reason for the
During 2012, Spirit AeroSystems’ revenues were
decline in revenues and cost of sales for the years ended
up 11 percent, or $540 million, from 2011. The increase in
December 31, 2013 and 2012. The sale of CDI has not been
revenues during 2012 included $480 million related to
presented as a discontinued operation since it did not rep-
higher production volume on several Boeing and business
resent a separate major line of business.
jet programs to meet customer delivery schedules. In addi-
tion, higher aftermarket volume and non-recurring revenue
Onex Corporation December 31, 2013 29
M A N A G E M E N T ’ S D I S C U S S I O N A N D A N A LY S I S
Table 2 provides revenues and cost of sales by operating company in the healthcare segment for the years ended Decem-
ber 31, 2013, 2012 and 2011. The percentage change in revenues and cost of sales for those periods is also shown.
Healthcare Revenues and Cost of Sales for the Years Ended December 31, 2013 and 2012
TABLE 2
($ millions)
Year ended December 31
Revenues
Cost of Sales
2013
2012(a)
Change
2013
2012(a)
Change
Skilled Healthcare Group
$ 856
$ 867
Carestream Health
ResCare
Center for Diagnostic Imaging(b)
2,429
1,617
–
2,406
1,599
75
Total
$ 4,902
$ 4,947
(1)%
1 %
1 %
n/a
(1)%
$ 765
$ 748
1,444
1,197
–
1,449
1,182
23
$ 3,406
$ 3,402
2%
–
1%
n/a
–
Results are reported in accordance with IFRS. These results may differ from those reported by the individual operating companies.
(a) 2012 results have been restated for the changes in accounting policies adopted on January 1, 2013, as described in note 1 to the audited annual consolidated
financial statements.
(b) CDI was sold in July 2012. CDI did not represent a separate major line of business and as a result has not been presented as a discontinued operation.
Healthcare Revenues and Cost of Sales for the Years Ended December 31, 2012 and 2011
($ millions)
Revenues
Cost of Sales
Year ended December 31
2012(a)
2011(a)
Change
2012(a)
2011(a)
Change
Skilled Healthcare Group
$ 867
$ 870
Carestream Health
ResCare
Center for Diagnostic Imaging(b)
2,406
1,599
75
2,427
1,584
149
Total
$ 4,947
$ 5,030
–
(1)%
1 %
(50)%
(2)%
$ 748
$ 716
1,449
1,182
23
1,496
1,189
45
$ 3,402
$ 3,446
4 %
(3)%
(1)%
(49)%
(1)%
Results are reported in accordance with IFRS. These results may differ from those reported by the individual operating companies.
(a) 2012 results have been restated for the changes in accounting policies adopted on January 1, 2013, as described in note 1 to the audited annual consolidated financial
statements. 2011 results have not been restated for the changes in accounting policies adopted on January 1, 2013, as described in note 1 to the audited annual consolidated
financial statements.
(b) CDI was sold in July 2012. CDI did not represent a separate major line of business and as a result has not been presented as a discontinued operation.
30 Onex Corporation December 31, 2013
M A N A G E M E N T ’ S D I S C U S S I O N A N D A N A LY S I S
Skilled Healthcare Group
Skilled Healthcare Group has three reportable revenue seg-
Carestream Health reported revenues of $2.4 bil-
lion during 2013, up 1 percent, or $23 million, from 2012.
ments: long-term care services, therapy services and hos-
Excluding the impact of $21 million of unfavourable foreign
pice and home health services. Long-term care services
exchange translation on Carestream Health’s non-U.S. rev-
include the operation of skilled nursing and assisted living
enues, Carestream Health reported an increase in revenues
facilities. Therapy services include the company’s rehabili-
of $44 million. The increase in revenues was due primarily
tation services.
to higher volume in the contract manufacturing and x-ray
Revenues reported by Skilled Healthcare Group
systems businesses and higher prices in the traditional film
for 2013 decreased 1 percent, or $11 million, to $856 mil-
businesses. Partially offsetting the increase was lower vol-
lion compared to 2012. The decrease in revenues during the
ume in the traditional film businesses due to the continuing
year was due primarily to a decline in average daily census
transition from film to digital processes in medical imag-
and patient mix in the long-term care services segment.
ing and a shift to lower-priced solutions in the digital equip-
Skilled Healthcare Group’s 2013 cost of sales at
ment segments.
$765 million increased 2 percent, or $17 million, compared
Cost of sales at $1.4 billion decreased $5 million
to 2012. The increase in cost of sales was driven primarily
during 2013 compared to last year. Cost of sales decreased
by an increase in general and professional liability insur-
due primarily to lower costs for silver, which is a major
ance, as well as an increase in bad debt expense.
component in the production of film. Gross profit for 2013
For the year ended December 31, 2012, revenues
increased to $985 million from $957 million in 2012 due
of $867 million were down slightly from 2011. The decrease
primarily to higher volume of digital products sold, higher
in revenues was due primarily to a reduction in Medicare
prices for film and lower commodity costs in 2013 com-
reimbursement rates in the long-term care services seg-
pared to 2012.
ment, which was partially offset by the net addition of new
Carestream Health reported revenues of $2.4 bil-
third-party contracts in the therapy services segment and
lion during 2012, down 1 percent, or $21 million, from
the impact of an acquisition and higher average daily cen-
2011. Included in the revenue decrease was $51 million of
sus in the hospice and home health services segment.
unfavourable foreign exchange translation on Carestream
Cost of sales reported by Skilled Healthcare Group
Health’s non-U.S. revenues compared to 2011. Excluding the
during 2012 increased 4 percent, or $32 million, compared
impact of foreign exchange, Carestream Health reported an
to $748 million in 2011. The increase in cost of sales related
increase in revenues of $33 million due primarily to higher
primarily to the impact of higher labour costs across all seg-
volume in the digital equipment segments and higher
ments, in addition to the impact of an acquisition in the
prices in the traditional film businesses, partially offset by
hospice and home health services segment.
lower volume in the traditional film businesses due to the
Carestream Health
Carestream Health provides products and services for the
continuing transition from film to digital processes in medi-
cal imaging and a shift to lower-priced solutions in digital
equipment segments.
capture, processing, viewing, sharing, printing and storing
During 2012, cost of sales at $1.4 billion decreased
of images and information for medical and dental applica-
3 percent, or $47 million, compared to 2011. Cost of sales
tions. The company also has a non-destructive testing busi-
decreased due primarily to lower costs for polyester and
ness, which sells x-ray film and digital radiology products
silver, which are major components in the production of
to the non-destructive testing market. Carestream Health
film. Gross profit for 2012 increased to $957 million from
sells digital products, including computed radiography and
$931 million in 2011 due primarily to higher volume of digi-
digital radiography equipment, picture archiving and com-
tal products sold, lower commodity costs and higher prices
munication systems, information management solutions,
for film in 2012 compared to 2011. Film price increases in
dental practice management software and services, as
2011 only partially offset the increase in the cost of raw
well as traditional medical products, including x-ray film,
materials during that period.
printers and media, equipment, chemistry and services.
Carestream Health has three reportable segments: Medical
Film, Medical Digital and Dental.
Onex Corporation December 31, 2013 31
M A N A G E M E N T ’ S D I S C U S S I O N A N D A N A LY S I S
ResCare
ResCare has five reportable segments: Residential Services,
Insurance Provider
The Warranty Group, Inc. (“The Warranty Group”) rev-
ResCare HomeCare, Education and Training Services,
enues consist of warranty revenues, insurance premiums
Workforce Services and Pharmacy Services. Residential
and administrative and marketing fees, and investment
Services includes the provision of services to individu-
income earned on warranties and service contracts for
als with developmental or other disabilities in commu-
manufacturers, retailers and distributors of consumer elec-
nity home settings. ResCare HomeCare provides periodic
tronics, appliances, homes and autos, as well as credit card
in-home care services to the elderly, as well as persons
enhancements and other specialty insurance programs
with disabilities. Education and Training Services con-
through a global organization. The Warranty Group’s cost
sists primarily of Job Corps centres, alternative educa-
of sales consists primarily of the change in reserves for
tion and charter schools. Workforce Services is comprised
future warranty and insurance claims, current claims pay-
of domestic job training and placement programs that
ments and underwriting profit-sharing payments.
assist welfare recipients and disadvantaged job seekers in
The Warranty Group reported revenues of $1.2 bil-
finding employment and improving their career prospects.
lion for 2013, a decrease of 3 percent, or $37 million, com-
Pharmacy Services is a limited, closed-door pharmacy
pared to 2012. The decrease in revenues was due primarily
focused on serving individuals with cognitive, intellectual
to lower earned revenues on the consumer products busi-
and developmental disabilities. ResCare provides services
ness in North America, lower earned revenues on the credi-
to some 61,000 persons daily.
tor and consumer products business in Europe as well as
During 2013, ResCare reported revenues of
lower overall investment income. The decrease in revenues
$1.6 billion, an increase of $18 million, or 1 percent, com-
was partially offset by higher U.S. and Europe auto earned
pared to 2012. The increase in revenues was due primar-
revenues and an increase in earned revenues on the con-
ily to acquisitions and organic growth in the Residential
sumer products business in the International segment.
Services, ResCare HomeCare and Pharmacy Services
segments. Partially offsetting the revenue increase were
decreases in the Education and Training Services and
I N S U R A N C E P R O V I D E R
($ millions)
Workforce Services segments due to fewer referrals.
1,168
1,205
1,184
Cost of sales had a similar increase of 1 percent,
or $15 million, to $1.2 billion due primarily to the increase
in revenues during 2013.
During the year ended December 31, 2012, rev-
enues increased 1 percent, or $15 million, to $1.6 billion
while cost of sales decreased slightly by 1 percent, or $7 mil-
lion, from 2011. Revenues increased in the residential ser-
vices and ResCare HomeCare segments due primarily to
acquisition growth, which was partially offset by a decline
in revenues in the Workforce Services segment resulting
from the loss of international contracts, lower referrals in
certain contracts and funding cuts.
600
621
579
’13
’12
’11
Revenues
Cost of Sales
Cost of sales was $600 mil-
lion during 2013, a decrease of
$21 million, or 3 percent, com-
1300
pared to 2012. The decrease was
driven primarily by favourable
1040
claims development on certain
programs in North America and
780
International, partially offset by
increased claims severity on a large
520
client in North America.
The Warranty Group re-
260
ported revenues for the year ended
December 31, 2012 of $1.2 bil-
0
lion, increasing 2 percent, or
$21 million, compared to 2011. The
increase in revenues was due pri-
marily to an increase in the consumer products business in
Asia and Latin America, which was partially offset by lower
earned premiums on the creditor business in Europe as
well as lower overall investment income.
32 Onex Corporation December 31, 2013
M A N A G E M E N T ’ S D I S C U S S I O N A N D A N A LY S I S
Cost of sales was $621 million during 2012, an
Sitel Worldwide reported revenues of $1.4 billion
increase of $42 million, or 7 percent. Cost of sales increased
and cost of sales of $920 million for 2012. Revenues were
as a percentage of earned revenue as a result of unfavour-
up 1 percent while cost of sales was largely unchanged.
able claims experience in certain international markets and
Included in revenues was $51 million of unfavourable for-
a change in product mix primarily related to the lower cred-
eign exchange translation on Sitel Worldwide’s non-U.S.
itor business in Europe. This change in product mix resulted
revenues compared to 2011. Excluding the impact of for-
in higher cost of sales due to lower commission products.
eign exchange, Sitel Worldwide reported an increase in
revenues of 5 percent, or $64 million. Revenue from new
Customer Care Services
SITEL Worldwide Corporation (“Sitel Worldwide”) is a
customers and net growth with existing customers con-
tributed $105 million to the revenue increase. Partially off-
diversified provider of customer care outsourcing ser-
setting the revenue growth was a decrease of $41 million
vices. The company offers its clients a wide array of ser-
related to attrition of existing programs. Excluding the
vices, including customer service, technical support,
impact of foreign exchange, Sitel Worldwide reported an
back office support, and customer acquisition, retention
increase in cost of sales of 3 percent, or $29 million, due
and revenue generation services. The majority of Sitel
primarily to the increase in revenues.
Worldwide’s customer care services are inbound tele-
phonic services; however, the company provides services
through other communication
Building Products
JELD-WEN is a manufacturer of interior and exterior doors,
C U S T O M E R C A R E S E R V I C E S
($ millions)
1,438
1,429
1,416
channels including social media,
windows and related products for use primarily in the resi-
online chat, email and interactive
dential and light commercial new construction and remod-
1500
voice response. Sitel Worldwide
elling markets. The company’s revenues follow seasonal
new construction and repair and remodelling industry
B U I L D I N G P R O D U C T S
business through three geographic
patterns. JELD-WEN manages its
936
920
921
serves a broad range of industry
1200
end markets, including technol-
ogy, financial services, wireless,
900
retail and consumer products,
telecommunications, media and
600
entertainment, energy and utili-
($ millions)
3,457
3,168
2,855
ties, internet service providers,
300
2,561
’13
’12
’11
Revenues
Cost of Sales
travel and transportation, insur-
ance, healthcare and govern-
0
ment. Sitel Worldwide’s operating
results are affected by the demand
for the products of its customers.
Sitel Worldwide reported revenues of $1.4 billion
during 2013, an increase of $9 million, or 1 percent, com-
pared to 2012. The increase in revenues was due primar-
ily to net growth with new and existing customers. Cost of
sales at $936 million increased $16 million, or 2 percent,
774
660
’13
’12
’11
Revenues
Cost of Sales
segments: North America, Europe,
3600
and Australia and Asia. JELD-WEN
was acquired by Onex in early
2880
October 2011.
For 2013, JELD-WEN re-
2160
ported revenues of $3.5 billion, an
increase of $289 million, or 9 per-
1440
cent, compared to 2012. The in-
crease in revenues was primarily
720
attributable to the North American
segment, where revenues increased
0
by $312 million, as well as an in-
crease in the European segment.
The increase in revenues in the
in 2013 compared to 2012 due to higher revenues, but at
North American segment was due primarily to the increased
slightly lower margins due to a shift in customer mix.
demand from new customers and growth in the market in
addition to the acquisition of CraftMaster Manufacturing,
Inc. (“CMI”), which was acquired by JELD-WEN in October
2012 and contributed $142 million of revenue in 2013.
Partially offsetting the increase in revenues in the North
American and European segments was a decline in revenues
in Australia.
Onex Corporation December 31, 2013 33
M A N A G E M E N T ’ S D I S C U S S I O N A N D A N A LY S I S
Cost of sales was $2.9 billion for 2013, an increase
of $294 million, or 11 percent, compared to 2012. The
Other Businesses
The other businesses segment primarily consists of
increase in cost of sales during 2013 was driven by the
the revenues and cost of sales of the ONCAP compa-
increase in revenues, as well as additional costs resulting
nies – EnGlobe Corp. (“EnGlobe”), Mister Car Wash,
from the start-up of new operations and the ramping up of
CiCi’s Pizza, Pinnacle Pellet, Inc. (“Pinnacle Renewable
production to meet growing demand. Gross profit for 2013
Energy Group”), PURE Canadian Gaming Corp. (“PURE
decreased slightly to $602 million compared to $607 mil-
Canadian Gaming”), previously named Casino ABS,
lion for 2012.
Hopkins Manufacturing Corporation (“Hopkins”), Davis-
The building products segment was a new report-
Standard Holdings, Inc. (“Davis-Standard”), Bradshaw
able segment in 2011 following Onex’ acquisition of JELD-
International, Inc. (“Bradshaw”), Caliber Collision (up
WEN in early October 2011. The 2012 results represent a full
to November 2013) and BSN SPORTS (up to June 2013) –
year of operations compared to three months of revenues
Emerald Expositions (since June 2013), KraussMaffei Group
and cost of sales reported for 2011.
GmbH (“KraussMaffei”), SGS International, Inc. (“SGS
For the year ended December 31, 2012, JELD-WEN
International”), Tropicana Las Vegas, Inc. (“Tropicana Las
reported revenues of $3.2 billion compared to revenues of
Vegas”), USI, Flushing Town Center, Meridian Aviation and
$774 million reported in the three-month period of Onex’
the parent company.
ownership in 2011. The North American segment contrib-
BSN Sports was sold in June 2013 and Caliber Col-
uted 53 percent to total 2012 revenues, Europe contributed
lision was sold in November 2013. These businesses did not
34 percent and Australasia contributed 13 percent.
represent separate major lines of business and, as a result,
Cost of sales for JELD-WEN were $2.6 billion in
have not been presented as discontinued operations.
2012 compared to $660 million for the three-month period
in 2011. Included in JELD-WEN’s 2011 cost of sales was a
one-time charge of $32 million originating from the acqui-
sition accounting step-up in value of inventory in the com-
pany’s balance sheet at the date of acquisition.
34 Onex Corporation December 31, 2013
M A N A G E M E N T ’ S D I S C U S S I O N A N D A N A LY S I S
Table 3 provides revenues and cost of sales by operating company in the other businesses segment for the years ended
December 31, 2013, 2012 and 2011. The percentage change in revenues and cost of sales in those periods is also shown.
Other Businesses Revenues and Cost of Sales for the Years Ended December 31, 2013 and 2012
TABLE 3
($ millions)
Year ended December 31
ONCAP companies(b)
Emerald Expositions(c)
KraussMaffei(c)
SGS International(c)
Tropicana Las Vegas
USI(c)
Other(d)
Total
Revenues
Cost of Sales
2012(a)
Change
2013
2012(a)
Change
2013
$ 2,082
77
1,405
465
97
769
192
$ 1,944
–
–
93
91
15
114
$ 5,087
$ 2,257
7%
n/a
n/a
n/a
7%
n/a
68%
125%
$ 1,319
$ 1,246
21
1,097
295
7
–
122
–
–
57
7
–
68
$ 2,861
$ 1,378
6%
n/a
n/a
n/a
–
n/a
79%
108%
Results are reported in accordance with IFRS. These results may differ from those reported by the individual operating companies.
(a)
2012 results have been restated for the changes in accounting policies adopted on January 1, 2013, as described in note 1 to the audited annual consolidated financial statements.
(b) 2013 ONCAP companies include EnGlobe, Mister Car Wash, CiCi’s Pizza, Pinnacle Renewable Energy Group, PURE Canadian Gaming, Hopkins, Davis-Standard, Bradshaw,
Caliber Collision (up to November 2013) and BSN SPORTS (up to June 2013). 2012 ONCAP companies include EnGlobe, Mister Car Wash, CiCi’s Pizza, Pinnacle Renewable
Energy Group, PURE Canadian Gaming, Hopkins, Davis-Standard, Caliber Collision and BSN SPORTS. The revenues and cost of sales of Bradshaw for the few days since
its late December 2012 acquisition date to December 31, 2012 were not significant to Onex and therefore not included in the 2012 results.
(c)
There are no comparative results for Emerald Expositions and KraussMaffei for 2012. Emerald Expositions began to be consolidated in June 2013, when the business was
acquired by the Onex Partners III Group. The revenues and cost of sales of KraussMaffei for the few days since its late December 2012 acquisition date to December 31, 2012
were not significant to Onex and therefore not included in the 2012 results. SGS International began to be consolidated in October 2012 and USI began to be consolidated in
late December 2012, when the businesses were acquired by the Onex Partners III Group.
(d) 2013 other includes Flushing Town Center, Meridian Aviation and the parent company. 2012 other includes Flushing Town Center and the parent company.
Other Businesses Revenues and Cost of Sales for the Years Ended December 31, 2012 and 2011
($ millions)
Revenues
Cost of Sales
Year ended December 31
ONCAP companies(b)
SGS International(c)
Tropicana Las Vegas
USI(c)
Other(d)
Total
2012(a)
2011(a)
Change
2012(a)
2011(a)
Change
$ 1,944
$ 1,344
93
91
15
114
–
85
–
71
$ 2,257
$ 1,500
45%
n/a
7%
n/a
61%
50%
$ 1,246
$ 835
57
7
–
68
–
8
–
40
$ 1,378
$ 883
49 %
n/a
(13)%
n/a
70 %
56 %
Results are reported in accordance with IFRS. These results may differ from those reported by the individual operating companies.
(a) 2012 results have been restated for the changes in accounting policies adopted on January 1, 2013, as described in note 1 to the audited annual consolidated financial
statements. 2011 results have not been restated for the changes in accounting policies adopted on January 1, 2013, as described in note 1 to the audited annual
consolidated financial statements.
(b) 2012 ONCAP companies include EnGlobe, Mister Car Wash, CiCi’s Pizza, Pinnacle Renewable Energy Group, PURE Canadian Gaming, Hopkins, Davis-Standard,
Caliber Collision and BSN SPORTS. The revenues and cost of sales of Bradshaw for the few days since its late December 2012 acquisition date to December 31, 2012
were not significant to Onex and therefore not included in the 2012 results. 2011 ONCAP companies include EnGlobe, Mister Car Wash, CiCi’s Pizza, Pinnacle Renewable
Energy Group (from its acquisition date in May 2011), PURE Canadian Gaming (from its acquisition date in May 2011), Hopkins (from its acquisition date in June 2011),
Caliber Collision and BSN SPORTS.
(c)
There are no reported results for SGS International and USI for the year ended December 31, 2011. SGS International began to be consolidated in October 2012 and USI
began to be consolidated in late December 2012, when the businesses were acquired by the Onex Partners III Group.
(d) 2012 and 2011 other includes Flushing Town Center and the parent company.
Onex Corporation December 31, 2013 35
M A N A G E M E N T ’ S D I S C U S S I O N A N D A N A LY S I S
ONCAP companies
The ONCAP companies reported a 7 percent, or $138 mil-
During the year ended December 31, 2013, Krauss-
Maffei contributed $1.4 billion in revenues and $1.1 billion
lion, increase in revenues for the year ended Decem-
in cost of sales. There are no comparative results for 2012
ber 31, 2013 compared to 2012. Cost of sales contributed
or 2011 since the revenues and cost of sales of KraussMaffei
by the ONCAP companies was up 6 percent, or $73 mil-
began to be consolidated in January 2013.
lion, for 2013. The growth in revenues and cost of sales was
due primarily to the inclusion of the results of Bradshaw,
acquired in December 2012, partially offset by a decrease
SGS International
SGS International offers design-to-print graphic services
in revenues and cost of sales due to the sale of BSN SPORTS
to the consumer products packaging industry, providing
in June 2013.
digital solutions for the capture, management, execution
The ONCAP companies reported a 45 percent,
and distribution of graphics information. The majority of
or $600 million, increase in revenues for 2012 compared
the company’s service offerings result in the delivery of an
to 2011. Cost of sales contributed by the ONCAP compa-
electronic image file, an engraved gravure cylinder or a
nies was up 49 percent, or $411 million, for 2012 compared
flexographic printing plate.
to 2011. The 2012 results include a full year of operations
SGS International reported revenues and cost of
for Pinnacle Renewable Energy Group, PURE Canadian
sales of $465 million and $295 million, respectively, dur-
Gaming, Hopkins and Davis-Standard, which were acquired
ing 2013. Reported 2012 revenues of $93 million and cost
by ONCAP during 2011.
of sales of $57 million represent the three months of oper-
ations from the October 2012 acquisition of SGS Inter-
Emerald Expositions
Emerald Expositions was acquired in June 2013 and is a lead-
national. As SGS International was acquired in October
2012, there are no comparative results for the year ended
ing operator of large business-to-business tradeshows in the
December 31, 2011.
United States across nine end markets. Emerald Expositions
has two principal sources of revenue: tradeshow revenue
and revenue from print and digital publications and select
Tropicana Las Vegas
Tropicana Las Vegas is a casino resort with 1,467 rooms,
conferences. Tradeshow revenue is generated from selling
situated on 35 acres and located directly on the Las Vegas
exhibit space and sponsorship slots to exhibitors on a per-
Strip. Tropicana Las Vegas’ revenues increased 7 percent,
square-footage basis.
or $6 million, to $97 million in 2013, while cost of sales was
Emerald Expositions reported revenues and cost
unchanged during the year at $7 million. Tropicana Las
of sales of $77 million and $21 million, respectively, for
Vegas records most of its costs in operating expenses. The
essentially six months of ownership to December 31, 2013.
increase in revenues during 2013 was due primarily to an
As Emerald Expositions was acquired by the Onex Partners
increase in average daily room rates.
III Group in June 2013, there are no comparative results for
Tropicana Las Vegas reported an increase in rev-
2012 or 2011.
enues of $6 million, or 7 percent, to $91 million in 2012
compared to 2011, while cost of sales decreased slightly
KraussMaffei
KraussMaffei, acquired in December 2012, provides highly
during the year to $7 million. The increase in revenues
during 2012 was due primarily to an increase in room and
engineered solutions and machines for the produc-
table game revenues, slightly offset by a decrease in food
tion of plastic and rubber products. The company pro-
and beverage revenue.
vides products and solutions in the injection molding,
extrusion technology and reaction process machinery
segments and serves customers in a wide range of indus-
tries. KraussMaffei’s revenues are derived from the sale of
machines and aftermarket services.
36 Onex Corporation December 31, 2013
M A N A G E M E N T ’ S D I S C U S S I O N A N D A N A LY S I S
USI
USI is a leading provider of insurance brokerage services.
The increase in interest expense during 2013 was partially
offset by a combined decrease of $25 million in interest
USI’s revenues consist of commissions paid by insurance
expense at ResCare and Spirit AeroSystems due primarily to
companies and fees paid directly by the company’s clients
refinancings completed during 2012.
on the placement of property and casualty and individual
and group health, life and disability insurance on behalf of
its clients, fees paid directly by the carrier, and in certain
cases by the client, for employee benefit-related services,
Increase in value of investments in
joint ventures and associates at fair value, net
Investments in joint ventures and associates are defined
and contingent and supplemental commissions paid based
under IFRS as those investments in operating businesses
on the overall profit and/or volume of business placed
over which Onex has joint control or significant influence,
with an insurer. USI has two reportable segments: Retail
but not control. Certain of these investments are designated,
Insurance Brokerage and Specialty.
upon initial recognition, at fair value in the audited annual
During the year ended December 31, 2013, USI
consolidated balance sheets. Both realized and unrealized
reported revenues of $769 million. Reported 2012 revenues
gains and losses are recognized in the audited annual con-
of $15 million represent results for the period from the late
solidated statements of earnings as a result of increases or
December 2012 acquisition of USI to December 31, 2012.
decreases in the fair value of investments in joint ventures
USI records its costs in operating expenses. As USI was
and associates. The investments that Onex determined
acquired in late December 2012, there are no comparative
to be investments in joint ventures or associates and thus
results for the year ended December 31, 2011.
recorded at fair value are Allison Transmission, BBAM, RSI
Interest expense of operating companies
New investments are structured with the acquired com-
(sold in February 2013), Tomkins Limited (“Tomkins”) and
certain Onex Real Estate investments.
Hawker Beechcraft Corporation (“Hawker Beech-
pany having sufficient equity to enable it to self-finance
craft”), previously a joint venture investment, filed for bank-
a significant portion of its acquisition cost with a prudent
ruptcy protection in the United States during the second
amount of debt. The level of debt is commensurate with
quarter of 2012. The company emerged from bankruptcy
the operating company’s available cash flow, including
protection in February 2013 and, under the terms of the
consideration of funds required to pursue growth oppor-
restructuring, the Onex Partners II Group holds a nominal
tunities. It is the responsibility of the acquired operating
equity interest in the company. As a result, during the first
company to service its own debt obligations.
quarter of 2013, the unrealized losses previously recognized
Consolidated interest expense was up $299 mil-
in investments in joint ventures and associates at fair value
lion, or 58 percent, to $813 million during the year ended
for the decline in value of Hawker Beechcraft were realized.
2013 compared to $514 million in 2012. The increase was
During 2013, Onex recorded an increase in fair
due primarily to:
value of investments in joint ventures and associates of
• The inclusion of a full year of interest expense for SGS
$1.1 billion (2012 – $863 million). The increase was due
International, USI, KraussMaffei and Bradshaw, each
primarily to (i) an increase in the public share value of
acquired during the fourth quarter of 2012, and six
Allison Transmission, including the 2013 share repurchase
months of interest expense for Emerald Expositions,
and secondary offering values being above the value of the
acquired in June 2013. These acquisitions collectively
investment at December 2012; (ii) proceeds received on
increased interest expense by $234 million in 2013.
the February 2013 sale of RSI being above the value of the
• A $49 million increase in interest expense recorded by
investment at December 31, 2012; (iii) strong operating per-
Carestream Health due to a higher outstanding debt
formance at certain of the investments; and (iv) debt repay-
balance related to its June 2013 debt refinancing, which
ment by some of the investments.
includes a $16 million debt prepayment charge associ-
Of the total fair value increase recorded during
ated with the refinancing.
the year ended December 31, 2013, $786 million (2012 –
$614 million) is attributable to the limited partners in the
Onex Partners Funds, which contributes to the Limited
Onex Corporation December 31, 2013 37
M A N A G E M E N T ’ S D I S C U S S I O N A N D A N A LY S I S
Partners’ Interests charge discussed on page 42 of this
MD&A. Onex’ share of the total fair value increase was
BSN SPORTS
In June 2013, the ONCAP II Group completed the sale of
$312 million (2012 – $249 million).
BSN SPORTS, receiving net proceeds of $236 million, of
which Onex’ share was $114 million. Included in the net
Stock-based compensation expense
Onex recorded a consolidated stock-based compensa-
proceeds received on the sale, there were approximately
$16 million of additional amounts held in escrow and other
tion expense of $349 million during 2013 compared to an
items which are expected to be received by June 2015. Onex’
expense of $239 million in 2012. Onex, the parent com-
share of the amounts held in escrow and other items was
pany, represented $215 million (2012 – $139 million) of the
$8 million. During the fourth quarter of 2013, $1 million
2013 expense primarily related to its stock options and
of the additional amounts held in escrow was received, of
MIP equity interests. In accordance with IFRS, the expense
which Onex’ share was less than $1 million. The realized
recorded on these plans is determined based on the fair
pre-tax gain on the sale of BSN SPORTS was $170 million,
value of the liability at the end of each reporting period. The
of which Onex’ share was $82 million. Onex recorded a
fair value of the Onex stock options and MIP equity inter-
non-cash tax provision of $7 million on the sale, which was
ests is determined using an option valuation model, with
included in the provision for income taxes in the audited
the stock options primarily impacted by the change in the
annual consolidated statements of earnings. Onex recog-
market value of Onex’ shares and the MIP equity interests
nized a recovery of this tax provision during 2013 as part of
affected primarily by the change in the fair value of Onex’
an evaluation of recent changes in tax law as described on
investments. The expense recorded by Onex, the parent
page 43 of this MD&A. The gain on the sale is entirely attrib-
company, on its stock options during 2013 was due primar-
utable to the equity holders of Onex. This gain includes the
ily to the 37 percent increase in the market value of Onex’
portion attributable to Onex’ investment, as well as that
shares to C$57.35 at December 31, 2013 from C$41.87 at
of the limited partners of ONCAP II. The effect of this is to
December 31, 2012.
recover the charges to earnings on BSN SPORTS allocated
to the limited partners over the life of the investment, which
Table 4 details the change in stock-based compensation by
totalled $88 million. The balance of $75 million reflects
Onex operating companies and Onex, the parent company,
the after-tax gain on Onex’ investment in BSN SPORTS.
for the years ended December 31, 2013 and 2012.
Management of ONCAP received $18 million in carried
Stock-Based Compensation Expense
interest on the sale of BSN SPORTS. The impact to Onex and
management of Onex was a net payment of $7 million in
carried interest. Under the terms of the MIP, management
TABLE 4
($ millions)
2013
2012
Change
of Onex participates in Onex’ realized gains from operat-
Onex, the parent company,
stock options
$ 134
$ 115
$ 19
Onex, the parent company,
MIP equity interests
Onex operating companies
81
134
24
100
57
34
Total
$ 349
$ 239
$ 110
Other gains
For the year ended December 31, 2013, Onex recorded
other gains of $561 million on the June 2013 sale of BSN
SPORTS and the November 2013 sale Caliber Collision by
the ONCAP II Group. During the year ended December 31,
2012, Onex recorded other gains of $59 million on the July
2012 sale of CDI by the Onex Partners I Group.
ing business investments once certain conditions, includ-
ing the required investment return hurdle, have been met.
Management of Onex received $6 million on account of
this transaction related to the MIP. BSN SPORTS did not
represent a separate major line of business, and as a result
has not been presented as a discontinued operation. At
December 31, 2013, $15 million remained receivable for
escrow amounts and other items, of which Onex’ share was
$7 million.
During the fourth quarter of 2013, $6 million of
additional proceeds were received by ONCAP II, of which
Onex’ share was $3 million. These additional proceeds
were recognized as a gain during the fourth quarter of 2013,
net of a $1 million reduction in the escrow receivable.
38 Onex Corporation December 31, 2013
M A N A G E M E N T ’ S D I S C U S S I O N A N D A N A LY S I S
Caliber Collision
In November 2013, the ONCAP II Group completed the sale
Other items
Onex recorded a charge for other items in 2013 of $449 mil-
of Caliber Collision. The ONCAP II Group received net pro-
lion (2012 – $46 million). Table 5 provides a breakdown of
ceeds of $437 million on the sale. Onex’ share of the net
and the change in other items for the years ended Decem-
proceeds was $193 million. Included in the net proceeds
ber 31, 2013 and 2012.
received on the sale, there are approximately $4 million of
additional amounts held in escrow and for working capital
Other Items Expense (Income)
adjustments that are expected to be settled during 2014, of
which Onex’ share is $2 million. The realized gain on the sale
TABLE 5
($ millions)
2013
2012
Change
of Caliber Collision was $386 million, of which Onex’ share
was $171 million. The gain on the sale is entirely attributable
to the equity holders of Onex. This gain includes the portion
attributable to Onex’ investment, as well as that of the lim-
ited partners of ONCAP II. The effect of this is to recover the
charges to earnings on Caliber Collision allocated to the lim-
Restructuring
$ 93
$ 103
$ (10)
Transition, integration
and other
Transaction costs
Carried interest due to
73
23
Onex and ONCAP management
262
27
46
91
ited partners over the life of the investment, which totalled
Change in fair value of
$215 million. The balance of $171 million reflects the gain
contingent consideration
104
(2)
on Onex’ investment in Caliber Collision. Management of
Spirit AeroSystems severe
ONCAP received $42 million in carried interest on the sale
of Caliber Collision. The impact to Onex and management
weather event
Meridian Aviation
of Onex was a net payment of $8 million in carried interest
Foreign exchange loss (gain)
46
(23)
171
106
176
(32)
25
(56)
to ONCAP management. Under the terms of the MIP, man-
agement of Onex participates in Onex’ realized gains from
operating business investments once certain conditions,
including the required investment return hurdle, have been
met. Management of Onex received $12 million on account
of this transaction related to the MIP. Caliber Collision did
not represent a separate major line of business, and as a
result has not been presented as a discontinued operation.
CDI
In July 2012, the Onex Partners I Group completed the sale
of CDI. Net proceeds to the Onex Partners I Group were
$91 million, of which Onex’ share was $24 million, including
carried interest of $3 million. Included in the net proceeds
amount was $9 million held in escrow and for working
capital adjustments, which is expected to be settled in 2014.
Onex’ share of the amounts held in escrow and for work-
ing capital adjustments was $2 million, excluding carried
interest. During the fourth quarter of 2012, less than $1 mil-
lion of the amount held for working capital adjustments
was settled. No amounts were paid on account of the MIP
as the required investment return hurdle for Onex was not
Other
Total
met. Onex’ 2012 audited annual consolidated financial
statements include a gain of $59 million, which was entirely
attributable to the equity holders of Onex.
Other
Total
30
(32)
18
(122)
(146)
–
(7)
(66)
$ 449
$ 46
$ 403
Restructuring
Restructuring expenses are considered to be costs incurred
by the operating companies to realign organizational
structures or restructure manufacturing capacity to obtain
operating synergies critical to building the long-term value
of those businesses. Table 6 provides a breakdown of and
the change in restructuring expenses by operating com-
pany for the years ended December 31, 2013 and 2012.
Restructuring Expenses
TABLE 6
($ millions)
JELD-WEN
Celestica
Sitel Worldwide
Carestream Health
2013
$ 31
28
14
10
10
2012
Change
$ 35
$ (4)
44
15
6
3
(16)
(1)
4
7
$ 93
$ 103
$ (10)
Onex Corporation December 31, 2013 39
M A N A G E M E N T ’ S D I S C U S S I O N A N D A N A LY S I S
JELD-WEN
JELD-WEN reported a decrease of $4 million in restructur-
Transition, integration and other
Transition, integration and other expenses are typically
ing expense in 2013. Restructuring charges of $31 million in
to provide for the costs of transitioning the activities of an
2013 relate primarily to costs associated with the closure of
operating company from a prior parent company upon
facilities. The charges recorded by JELD-WEN during 2012
acquisition and to integrate new acquisitions at the operat-
primarily relate to the realignment of administrative and
ing companies.
sales departments to reduce general and administrative
costs and the termination of certain contracts.
Celestica
In June 2012, Celestica announced that it would wind down
Transaction costs
Transaction costs are incurred by Onex and its operating
companies to complete business acquisitions, and typically
include advisory, legal and other professional and consult-
its manufacturing services for a significant consumer cus-
ing costs. Transaction costs for 2013 were primarily due to
tomer by the end of 2012. In connection with the wind-down
the acquisition of Emerald Expositions, as discussed on
and in order to reduce its overall cost structure and improve
page 24 of this MD&A, and acquisitions completed by the
its margin performance, Celestica announced restructuring
operating companies.
actions throughout its global network. At December 31, 2013,
Celestica had completed its planned restructuring actions.
Celestica recorded $28 million of restructuring charges
during 2013 in connection with these planned actions.
Carried interest due to
Onex and ONCAP management
The General Partners of the Onex Partners and ONCAP
During 2012, Celestica recorded $44 million of restructur-
Funds are entitled to a carried interest of 20 percent on
ing charges, which includes $16 million in non-cash charges
the realized gains of the limited partners in each Fund,
against property, plant and equipment recorded in connec-
as determined in accordance with the limited partner-
tion with the wind-down.
ship agreements. Onex is allocated 40 percent of the car-
ried interest realized in the Onex Partners Funds. The
Sitel Worldwide
During the year ended December 31, 2013, Sitel Worldwide
Onex management team is allocated 60 percent of the car-
ried interest realized in the Onex Partners Funds and the
reported restructuring expenses of $14 million (2012 –
ONCAP management team is entitled to that portion of the
$15 million). The charges incurred in 2013 and 2012 primarily
carried interest realized in the ONCAP Funds that equates
relate to expenses incurred to rationalize facility and labour
to a 12 percent carried interest on both limited partners’
costs, realign operations and resources to support growth
and Onex capital. Onex’ share of the carried interest is
plans, and shift the geographic mix of certain operations.
recorded as an offset in the Limited Partners’ Interests
Carestream Health
Carestream Health reported restructuring expenses of
amount in the audited annual consolidated statements
of earnings.
The carried interest due to management of Onex
$10 million during 2013 compared to $6 million in 2012.
and ONCAP represents the share of the overall net gains
Carestream Health’s costs related primarily to the reor-
in each of the Onex Partners and ONCAP Funds attribut-
ganization of European sales and service functions and
able to the management of Onex and ONCAP. The carried
the relocation and closure of a film finishing plant. The
interest is estimated based on the current fair values of
2012 charges related primarily to the sale of a portion of
the underlying investments in the Funds and the overall
Carestream Health’s Molecular Imaging business, which
net gains in each respective Fund determined in accor-
resulted in the shutdown of certain operations.
dance with the limited partnership agreements. The ulti-
mate amount of carried interest earned will be based on
the overall performance of each of Onex Partners I, II, III
40 Onex Corporation December 31, 2013
M A N A G E M E N T ’ S D I S C U S S I O N A N D A N A LY S I S
and IV and ONCAP II and III, independently. During 2013,
a charge of $262 million (2012 – $91 million) was recorded
Other
For the year ended December 31, 2013, Onex reported con-
in the audited annual consolidated statements of earnings
solidated other income of $122 million (2012 – $66 mil-
for an increase in management’s share of the carried inter-
lion). During 2013, in connection with the settlement of
est due primarily to an increase in the fair value of certain
class action lawsuits, Celestica recorded other income of
of the private and publicly traded investments in the Onex
$24 million for the receipt of recoveries of damages related
Partners and ONCAP Funds.
to certain purchases made by the company in prior periods.
In addition, other income recorded during 2013 includes
Change in fair value of contingent consideration
During 2013, Onex recorded net charges of $104 million
(i) $24 million of realized and unrealized gains on invest-
ments in securities held by the operating companies;
(2012 – net recovery of $2 million) in relation to the esti-
(ii) $15 million of gains from JELD-WEN’s sale of non-
mated change in fair value of contingent consideration
core assets; (iii) $14 million of other income from equity
related to acquisitions completed by Onex and its operat-
ing companies. The fair value of contingent consideration
accounted investments; and (iv) $9 million of gains on the
sale of tax losses, as discussed below.
liabilities is typically based on the estimated future financial
In February and November 2013, Onex sold enti-
performance of the acquired businesses. Financial targets
ties, the sole assets of which were certain tax losses, to
used in the estimation process include certain defined
companies controlled by Mr. Gerald W. Schwartz, who
financial targets and realized internal rates of return. The
is Onex’ controlling shareholder. Onex received $9 mil-
total estimated fair value of contingent consideration liabil-
lion (2012 – $16 million) in cash for tax losses of $89 mil-
ities at December 31, 2013 was $200 million (December 31,
lion (2012 – $166 million). The cash received of $9 million
2012 – $83 million).
was recorded as a gain in other items during 2013. Onex
has significant non-capital and capital losses available;
Spirit AeroSystems severe weather event
During 2013, Spirit AeroSystems incurred $30 million of
however, Onex does not expect to generate sufficient tax-
able income to fully utilize these losses in the foresee-
additional costs related to the April 2012 tornado that hit
able future. As such, no benefit was previously recognized
its Wichita, Kansas facility. In October 2012, Spirit Aero-
in the unaudited interim or audited annual consolidated
Systems agreed to a settlement with its insurers for all
financial statements for the tax losses. In connection with
claims related to the tornado for property damage, clean-
these transactions, Deloitte & Touche LLP, an independent
up, recovery costs and business interruption expenses,
accounting firm retained by Onex’ Audit and Corporate
net of any deductibles, recording a net gain of $146 million
Governance Committee, provided an opinion that the
during 2012. The settlement resolved all contingencies sur-
value received by Onex for the tax losses was fair. The
rounding the storm damage. Spirit AeroSystems will recog-
transactions were unanimously approved by Onex’ Audit
nize future costs as they are incurred.
and Corporate Governance Committee, all the members of
Meridian Aviation
During the fourth quarter of 2013, Meridian Aviation exe-
Other income for 2012 includes realized and unre-
alized gains of $25 million on investments in securities held
cuted sale agreements for three of the six commercial
by operating companies, a gain of $15 million recorded by
passenger aircraft under its existing purchase agreement,
Sitel Worldwide on a repurchase of preferred shares and
including the novation of the associated leases to the
$16 million of gains on the sale of tax losses.
which are independent directors.
purchaser. The sale agreements are for two aircraft deliv-
ered in 2013 and one aircraft scheduled for delivery in
2014. Meridian Aviation recorded a net gain of $32 million
comprised of the sale of the two aircraft delivered in 2013
and a fair value adjustment covering the remaining four
aircraft scheduled for delivery to the company between
2014 and 2015.
Onex Corporation December 31, 2013 41
M A N A G E M E N T ’ S D I S C U S S I O N A N D A N A LY S I S
Impairment of goodwill, intangible assets
and long-lived assets, net
Net impairment of goodwill, intangible assets and long-
CiCi’s Pizza
ONCAP II’s operating company, CiCi’s Pizza, recorded
non-cash goodwill and intangible impairment charges of
lived assets for 2013 totalled $319 million (2012 – $65 mil-
$33 million (2012 – $16 million) and $24 million (2012 – nil),
lion). Table 7 provides a breakdown of the net impairment
respectively, during the fourth quarter of 2013 due primar-
of goodwill, intangible assets and long-lived assets by
ily to a decrease in projected future earnings and a reduc-
operating company for the years ended December 31, 2013
tion in the exit multiple due to market risks.
and 2012.
Impairment of Goodwill, Intangible Assets
and Long-Lived Assets, Net
TABLE 7
($ millions)
Skilled Healthcare Group
Tropicana Las Vegas
CiCi’s Pizza
Flushing Town Center
Celestica
Other(a)
Total
2013
$ 95
91
57
43
–
33
2012
$ 12
–
16
–
18
19
$ 319
$ 65
(a) 2013 other includes impairments of $33 million related to EnGlobe, JELD-WEN,
Sitel Worldwide, The Warranty Group and USI. 2012 other includes impairments
of $19 million related to Carestream Health, JELD-WEN, Spirit AeroSystems,
The Warranty Group and BSN SPORTS (sold in June 2013).
Skilled Healthcare Group
Skilled Healthcare Group completed an impairment analysis
Flushing Town Center
During 2013, Flushing Town Center recorded non-cash
impairments of $43 million associated with its retail and
parking structures.
Celestica
Celestica did not record any impairment charges dur-
ing 2013 compared to charges of $18 million in 2012. The
charges recorded during 2012 primarily relate to good-
will associated with the healthcare business acquired by
Celestica in 2010.
Limited Partners’ Interests charge
The Limited Partners’ Interests charge in Onex’ audited
annual consolidated statements of earnings primarily
represents the change in the fair value of the underlying
investments in the Onex Partners and ONCAP Funds that
is allocated to the limited partners and recorded as Limited
Partners’ Interests liability in Onex’ audited annual con-
during the third quarter of 2013 as a result of the ongoing
solidated balance sheets. The value of the limited partners’
shift of seniors from Medicare to Medicare Advantage, which
capital in the Funds is affected primarily by the change in
pays a lower per diem rate than Medicare, and its effect on
the fair value of the underlying investments. The Limited
expected future revenue growth rates in the long-term care
Partners’ Interests charge includes the fair value changes of
facilities, as well as future decreases in home health care
both consolidated operating companies and investments
reimbursement rates. As a result, the company revised its
in joint ventures and associates that are held in the Onex
estimates with respect to net revenues and gross margins,
Partners and ONCAP Funds.
which negatively impacted its cash flows forecasted for the
During 2013, Onex recorded a $1.9 billion charge
long-term care services segment and home health reporting
for Limited Partners’ Interests compared to a charge of
unit. Accordingly, Skilled Healthcare Group recorded non-
$929 million in 2012. The increase in the fair value of cer-
cash goodwill impairments of $93 million and a non-cash
tain of the private and publicly traded investments held
intangible asset impairment of $2 million during 2013.
Tropicana Las Vegas
Due to a decline in the recoverable amount of Tropicana
Las Vegas, measured in accordance with IAS 36, Impair ment
of Assets, Tropicana Las Vegas recorded non-cash long-lived
asset impairments of $91 million in the second quarter of 2013.
in the Onex Partners and ONCAP Funds contributed
significantly to the Limited Partners’ Interests charge
recorded in 2013.
The Limited Partners’ Interests charge is net of a
$395 million increase (2012 – $132 million) in carried inter-
est for the year ended December 31, 2013. Onex’ share of the
carried interest increase for 2013 was $137 million (2012 –
$47 million). The amount of carried interest that has been
netted against the Limited Partners’ Interests increased
42 Onex Corporation December 31, 2013
M A N A G E M E N T ’ S D I S C U S S I O N A N D A N A LY S I S
in 2013 due to the increase in the fair value of certain of
the private and publicly traded investments in the Onex
Loss from continuing operations
Onex reported a consolidated loss from continuing opera-
Partners and ONCAP Funds. The ultimate amount of carried
tions of $1.1 billion in 2013 compared to consolidated
interest realized will be dependent upon the actual realiza-
losses of $10 million in 2012 and $112 million in 2011.
tions for each Fund in accordance with the limited partner-
Table 8 shows the earnings (loss) from continuing opera-
ship agreements.
tions by industry segment for the years ended Decem-
Income taxes
Onex recorded a consolidated income tax recovery of
Earnings (Loss) from Continuing Operations
$333 million in 2013 compared to a tax provision of $76 mil-
by Industry Segment
lion in 2012. During the third quarter of 2013, as a result of
evaluating recent changes in tax law for the treatment of
TABLE 8
($ millions)
2013
2012(a)
2011 (a)
ber 31, 2013, 2012 and 2011.
surplus and upstream loans, Onex, the parent company,
Earnings (loss) from continuing
determined that its previously recognized deferred tax pro-
operations:
visions on gains realized from the disposition of foreign
Electronics Manufacturing
operating companies are temporary differences which are
Services
$ 118
$ 118
probable to not reverse in the foreseeable future, consis-
tent with the principles outlined in IAS 12, Income Taxes. As
a result, Onex, the parent company, recorded a $526 mil-
Aerostructures
Healthcare
Insurance Provider
lion non-cash recovery of deferred income taxes, of which
Customer Care Services
$480 million was included in Onex’, the parent company’s,
Building Products
deferred income tax liability at December 31, 2012 and
Other(c)
$46 million represents the provisions established and
Loss from Continuing
(540)
(117)
112
(21)
(85)
(541)
45
70(b)
109
(20)
(67)
(265)
$ 195
224
(112)(b)
60
(58)
(89)
(332)
reversed during 2013. The recovery of income taxes
recorded during 2013, as discussed above, was partially
Operations
$ (1,074)
$ (10)
$ (112)
offset by non-cash tax provisions recorded by Onex, the
(a) 2012 results have been restated for the changes in accounting policies adopted
parent company, on (i) the June and July 2013 distribu-
tions received from Carestream Health; (ii) the sale of BSN
on January 1, 2013, as described in note 1 to the audited annual consolidated
financial statements. 2011 results have not been restated for the changes in
accounting policies adopted on January 1, 2013, as described in note 1 to the
SPORTS in June 2013; and (iii) the sale of RSI in February
audited annual consolidated financial statements.
2013, in addition to a deferred tax provision recorded by
Spirit AeroSystems.
During the fourth quarter of 2013, Spirit AeroSys-
(b) Includes reported results of CDI, which was sold in July 2012. CDI did not
represent a separate major line of business and as a result has not been
presented as a discontinued operation.
(c)
2013 other includes the consolidated earnings of Tropicana Las Vegas,
tems reversed the recognition of nearly all of its net U.S.
SGS International, USI, KraussMaffei, Meridian Aviation, Emerald Expositions
deferred tax assets as at December 31, 2013. Spirit Aero Sys-
tems determined that, as a result of cumulative losses, it is no
longer probable that the company will earn sufficient future
taxable profits to utilize nearly all of the previously recog-
nized tax assets. As a result, included in Spirit AeroSystems’
tax provision is $296 million related to the reversal of its con-
solidated net U.S. deferred tax assets and $15 million related
to the reversal of deferred tax assets on its state income tax
credits and other items. In addition, Spirit AeroSystems rec-
ognized a provision of $32 million through other compre-
hensive earnings related to the reversal of nearly all of its
consolidated net U.S. deferred tax assets. Spirit AeroSystems
will continue to monitor its deferred tax position and may
recognize a portion of its U.S. deferred tax assets in future
periods as available evidence changes.
(since June 2013), the operating companies of ONCAP II (BSN SPORTS up
to June 2013 and Caliber Collision up to November 2013) and ONCAP III,
Flushing Town Center, OCP CLO-1 through OCP CLO-4, the warehouse
facility for OCP CLO-5 and the parent company. In addition, consolidated
earnings include the changes in fair value of Allison Transmission, BBAM,
RSI (up to February 2013), Tomkins and certain Onex Real Estate investments.
2012 other includes the consolidated earnings of Tropicana Las Vegas,
SGS International (since October 2012), USI (since late December 2012),
transaction costs of KraussMaffei, the operating companies of ONCAP II
and ONCAP III, Flushing Town Center, OCP CLO-1, OCP CLO-2 and the
parent company. In addition, other includes the changes in fair value of
Allison Transmission, BBAM, Hawker Beechcraft, RSI, Tomkins and certain
Onex Real Estate investments. 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, other includes
the changes in fair value of Allison Transmission, Hawker Beechcraft, RSI,
Tomkins and certain Onex Real Estate Partners investments.
Onex Corporation December 31, 2013 43
M A N A G E M E N T ’ S D I S C U S S I O N A N D A N A LY S I S
The loss from continuing operations in the other segment
Table 10 presents the earnings (loss) from continuing oper-
totalled $541 million in 2013 compared to a loss of $265 mil-
ations attributable to equity holders of Onex Corporation
lion in 2012 and a loss of $332 million in 2011. Table 9 shows
and non-controlling interests for the years ended Decem-
the major components of the earnings (loss) from continu-
ber 31, 2013, 2012 and 2011.
ing operations recorded in the other segment for the years
ended December 31, 2013, 2012 and 2011.
Earnings (Loss) from Continuing Operations
TABLE 9
($ millions)
2013
2012(a)
2011 (a)
TABLE 10
($ millions)
2013
2012(a)
2011 (a)
Loss (earnings) from continuing
operations – other:
Limited Partners’ Interests
Earnings (loss) from continuing
operations attributable to:
Equity holders of
charge
$ 1,855
$ 929
$ 627
Onex Corporation
$ (605)
$ (143)
$ (373 )
Stock-based compensation
Non-controlling interests
(469)
133
261
expense
293
156
Unrealized carried interest
due to Onex and ONCAP
management
Interest expense of operating
companies
Impairment of intangible assets
and long-lived assets
Increase in value of
investments in joint
ventures and associates
262
336
209
91
67
–
64
62
44
–
Loss from Continuing
Operations
$ (1,074)
$ (10)
$ (112)
(a) 2012 results have been restated for the changes in accounting policies adopted
on January 1, 2013, as described in note 1 to the audited annual consolidated
financial statements. 2011 results have not been restated for the changes in
accounting policies adopted on January 1, 2013, as described in note 1 to the
audited annual consolidated financial statements.
The non-controlling interests’ share of the earnings (loss)
from continuing operations represents the share of earn-
ings (loss) of shareholders, other than Onex and its limited
at fair value, net
Other gains
(1,098)
(561)
(863)
(59)
(501 )
–
partners in its Funds. For example, Spirit AeroSystems’ pub-
lic shareholders’ share of the net earnings (loss) in the busi-
Non-cash recovery of deferred
ness would be reported in the non-controlling interests line.
income taxes by Onex,
the parent company
Other
Loss from Continuing
Operations – Other
$ 541
$ 265
$ 332
(480)
(275)
–
(56)
–
36
Earnings from discontinued operations
Earnings from discontinued operations for the years ended
December 31, 2013, 2012 and 2011 includes the operations
of TMS International and the net gain recorded on dispo-
sition. In addition, earnings from discontinued opera-
(a) 2012 results have been restated for the changes in accounting policies adopted
tions for the year ended December 31, 2011 includes the
on January 1, 2013, as described in note 1 to the audited annual consolidated
financial statements. 2011 results have not been restated for the changes in
accounting policies adopted on January 1, 2013, as described in note 1 to the
audited annual consolidated financial statements.
operations of Emergency Medical Services Corporation
(“EMSC”) and Husky International Ltd. (“Husky Inter na-
tional”) and the net gains recorded on the disposition of
these companies. Onex recorded after-tax earnings from
discontinued operations of $261 million ($2.22 per share)
in 2013 compared to after-tax earnings from discontin-
ued operations of $26 million ($0.13 per share) in 2012 and
$1.7 billion ($14.48 per share) in 2011.
Note 3 to the audited annual consolidated financial
statements provides additional information on earnings
from discontinued operations.
44 Onex Corporation December 31, 2013
M A N A G E M E N T ’ S D I S C U S S I O N A N D A N A LY S I S
Table 11 presents the after-tax earnings, gain on sale, net of tax, and earnings from discontinued operations for the years
ended December 31, 2013, 2012 and 2011.
Earnings from Discontinued Operations
TABLE 11
($ millions)
After-Tax Earnings
Gain on Sale, Net of Tax
Earnings from
Discontinued Operations
2013
2012
2011
2013
2012
2011
2013
2012
2011
Earnings from discontinued
operations:
TMS International
$ 19
$ 26
$ 24
$ 242
$ –
$ –
$ 261
$ 26
$ 24
EMSC
Husky International
–
–
–
–
47
22
–
–
–
–
559
1,087
–
–
–
–
606
1,109
Total
$ 19
$ 26
$ 93
$ 242
$ –
$ 1,646
$ 261
$ 26
$ 1,739
TMS International
In October 2013, the Onex Partners II Group sold its remain-
the MIP. In addition to the cash proceeds received on the
sale, there was approximately $60 million of additional
ing interest in TMS International to a third party, as dis-
amounts held in escrow and other items, of which Onex’
cussed on page 26 of this MD&A.
EMSC
In May 2011, the Onex Partners I Group sold its remaining
share was $19 million, excluding carried interest. Onex,
the parent company, recorded a non-cash tax provision of
$49 million on the gain. During the third quarter of 2011,
$38 million of the additional amounts held in escrow was
13.7 million shares of EMSC for net proceeds of $878 mil-
received. Onex’ share of the amounts received during the
lion, of which Onex’ share was $342 million, including car-
third quarter of 2011 was $18 million, including carried
ried interest of $32 million and deducting distributions paid
interest of $6 million and deducting distributions paid on
on account of the MIP. Onex, the parent company, recorded
account of the MIP. The escrow amount was also reduced
a deferred tax provision of $41 million on the gain.
during the third quarter of 2011 by $5 million for taxes
owing in respect of taxable periods up to the closing date.
Husky International
In June 2011, the Onex Partners I Group and Onex Part-
In addition, Onex recorded a non-cash tax provision of
$1 million during the third quarter of 2011. At December 31,
ners II Group completed the sale of Husky International
2013, $18 million remains receivable for escrow amounts
and received net proceeds of $1.7 billion, of which Onex’
and other items, of which Onex’ share is $6 million,
share was $583 million, including carried interest of
ex cluding carried interest. The escrow amounts and other
$17 million and deducting distributions paid on account of
items are expected to be received in 2015.
Onex Corporation December 31, 2013 45
M A N A G E M E N T ’ S D I S C U S S I O N A N D A N A LY S I S
Consolidated net earnings (loss)
Onex recorded a consolidated net loss of $813 million in
Table 13 presents the net earnings (loss) attributable to equity
holders of Onex Corporation and non-controlling interests
2013 compared to consolidated net earnings of $16 mil-
for the years ended December 31, 2013, 2012 and 2011.
lion and $1.6 billion in 2012 and 2011, respectively. Table 12
shows the net earnings (loss) by industry segment for the
Net Earnings (Loss)
years ended December 31, 2013, 2012 and 2011.
TABLE 13
($ millions)
2013
2012(a)
2011 (a)
Consolidated Net Earnings (Loss) by Industry Segment
Net earnings (loss) attributable to:
TABLE 12
($ millions)
2013
2012(a)
2011 (a)
Net earnings (loss):
Electronics Manufacturing
Services
Aerostructures
Healthcare
Insurance Provider
Customer Care Services
Building Products
Other(c)
Earnings from discontinued
operations
Consolidated
$ 118
$ 118
$ 195
(540)
(117)
112
(21)
(85)
(541)
45
70(b)
109
(20)
(67)
(265)
224
(112 )(b)
60
(58)
(89)
(332)
261
26
1,739
Equity holders of
Onex Corporation
Non-controlling interests
$ (354)
(459)
$ (128)
$ 1,326
144
301
Net Earnings (Loss)
$ (813)
$ 16
$ 1,627
(a) 2012 results have been restated for the changes in accounting policies adopted
on January 1, 2013, as described in note 1 to the audited annual consolidated
financial statements. 2011 results have not been restated for the changes in
accounting policies adopted on January 1, 2013, as described in note 1 to the
audited annual consolidated financial statements.
Table 14 presents the net earnings (loss) per subordinate
voting share of Onex Corporation.
Net Earnings (Loss) per Subordinate Voting Share
Net Earnings (Loss)
$ (813)
$ 16
$ 1,627
TABLE 14
($ per share)
2013
2012(a)
2011 (a)
(a) 2012 results have been restated for the changes in accounting policies adopted
Basic and Diluted:
on January 1, 2013, as described in note 1 to the audited annual consolidated
financial statements. 2011 results have not been restated for the changes in
accounting policies adopted on January 1, 2013, as described in note 1 to the
audited annual consolidated financial statements.
(b) Includes reported results of CDI, which was sold in July 2012. CDI did not
represent a separate major line of business and as a result has not been
presented as a discontinued operation.
(c)
2013 other includes the consolidated earnings of Tropicana Las Vegas,
SGS International, USI, KraussMaffei, Meridian Aviation, Emerald Expositions
(since June 2013), the operating companies of ONCAP II (BSN SPORTS up
to June 2013 and Caliber Collision up to November 2013) and ONCAP III,
Flushing Town Center, OCP CLO-1 through OCP CLO-4, the warehouse
facility for OCP CLO-5 and the parent company. In addition, other includes
the changes in fair value of Allison Transmission, BBAM, RSI (sold in
February 2013), Tomkins and certain Onex Real Estate investments.
2012 other includes the consolidated earnings of Tropicana Las Vegas,
SGS International (since October 2012), USI (since late December 2012),
transaction costs of KraussMaffei, the operating companies of ONCAP II
and ONCAP III, Flushing Town Center, OCP CLO-1, OCP CLO-2 and the
parent company. In addition, other includes the changes in fair value of
Allison Transmission, BBAM, Hawker Beechcraft, RSI, Tomkins and certain
Onex Real Estate investments. 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, other includes
the changes in fair value of Allison Transmission, Hawker Beechcraft,
RSI, Tomkins and certain Onex Real Estate Partners investments.
46 Onex Corporation December 31, 2013
Continuing operations
$ (5.34)
$ (1.25)
$ (3.18)
Discontinued operations
2.22
0.13
14.48
Net Earnings (Loss)
$ (3.12)
$ (1.12)
$ 11.30
(a)
2012 results have been restated for the changes in accounting policies adopted
on January 1, 2013, as described in note 1 to the audited annual consolidated
financial statements. 2011 results have not been restated for the changes in
accounting policies adopted on January 1, 2013, as described in note 1 to the
audited annual consolidated financial statements.
Other comprehensive earnings
Other comprehensive earnings (loss) represents the unre-
alized gains or losses, all net of income taxes, related to
certain available-for-sale securities, cash flow hedges,
remeasurements for post-employment benefit plans and
foreign exchange gains or losses on foreign self-sustaining
operations. During 2013, Onex reported other comprehen-
sive earnings of $78 million (2012 – $4 million), after giving
effect to the impact of the adoption of new accounting poli-
cies, as discussed on page 18 of this MD&A. The comprehen-
sive earnings increase was due primarily to $174 million of
favourable remeasurements for post-employment benefit
plans (2012 – unfavourable of $69 million), partially offset
by $48 million of unfavourable currency translation adjust-
ments on foreign operations (2012 – $32 million favourable).
M A N A G E M E N T ’ S D I S C U S S I O N A N D A N A LY S I S
F O U R T H Q U A R T E R R E S U L T S
Table 15 presents the statements of loss for the fourth quarters ended December 31, 2013 and 2012.
Fourth Quarter Statements of Loss
TABLE 15
($ 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
Increase in value of investments in joint ventures and associates at fair value, net
Stock-based compensation expense
Other gains
Other items
Impairment 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
2013
2012 (a)
$ 6,986
$ 6,375
(5,665)
(1,092)
32
(137)
(138)
(221)
534
(91)
391
(159)
(91)
(657)
(308)
(152)
(460)
237
(4,876)
(876)
21
(137)
(87)
(134)
248
(76)
–
(108)
(38)
(364)
(52)
(37)
(89)
6
$ (223)
$ (83)
(a) 2012 results have been restated for the changes in accounting policies adopted on January 1, 2013, as described in note 1 to the audited annual consolidated financial statements.
Table 16 provides a breakdown of the 2013 and 2012 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 16
($ millions)
Revenues
Cost of Sales
Three months ended December 31
Electronics Manufacturing Services
Aerostructures
Healthcare
Insurance Provider
Customer Care Services
Building Products
Other (b)
Total
2013
$ 1,437
1,494
1,312
285
371
889
1,198
$ 6,986
2012(a)
Change
$ 1,496
1,432
1,299
306
370
817
655
$ 6,375
(4)%
4 %
1 %
(7)%
–
9 %
83 %
10 %
2013
$ 1,317
1,688
885
145
241
730
659
$ 1,377
1,181
873
160
241
656
388
$ 5,665
$ 4,876
(4)%
43 %
1 %
(9)%
–
11 %
70 %
16 %
2012(a)
Change
Results are reported in accordance with IFRS. These results may differ from those reported by the individual operating companies.
(a) 2012 results have been restated for the changes in accounting policies adopted on January 1, 2013, as described in note 1 to the audited annual consolidated financial statements.
(b) 2013 other includes the consolidated earnings of Tropicana Las Vegas, SGS International, USI, KraussMaffei, Meridian Aviation, Emerald Expositions, the operating
companies of ONCAP II (Caliber Collision up to November 2013) and ONCAP III, Flushing Town Center and the parent company. 2012 other includes the consolidated
earnings of Tropicana Las Vegas, SGS International (since October 2012), USI (since late December 2012), the operating companies of ONCAP II and ONCAP III,
Flushing Town Center and the parent company.
Onex Corporation December 31, 2013 47
M A N A G E M E N T ’ S D I S C U S S I O N A N D A N A LY S I S
Fourth quarter consolidated revenues
and cost of sales
Consolidated revenues were up 10 percent, or $611 million,
Partially offsetting the increases in revenues
and cost of sales during the fourth quarter of 2013 were
decreases at Celestica, included in the Electronics Manu-
to $7.0 billion in the fourth quarter of 2013 compared to the
fac turing Services segment, and The Warranty Group,
same quarter of 2012. Consolidated cost of sales increased
included in the Insurance Provider segment.
by $789 million, or 16 percent, to $5.7 billion for the three
Celestica’s revenues for the fourth quarter of
months ended December 31, 2013 compared to the same
2013 decreased by $59 million, or 4 percent, compared to
period last year.
the same period last year. The decrease in revenues was
Revenues and cost of sales at Spirit AeroSystems,
driven primarily by a decrease in the server end mar-
included in the Aerostructures segment, increased by
ket due to the insourcing of a program by a customer
$62 million and $507 million, respectively, during the fourth
and overall demand weakness as well as a decrease in the
quarter of 2013. The increase in revenues was due primarily
consumer end market due to program transitions. These
to production volume increases on Boeing and business jet
decreases were partially offset by increases in Celestica’s
programs to support customer delivery schedules. Cost of
communications, storage and diversified end markets
sales increased in line with revenues excluding the impact
due primarily to new program wins. Cost of sales for
of additional forward losses of $546 million recorded during
the fourth quarter of 2013 decreased by $60 million, or
the fourth quarter of 2013, partially offset by a $51 million
4 percent, in line with the revenue decrease.
favourable cumulative catch-up adjustment.
Revenues and cost of sales at The Warranty Group
JELD-WEN’s revenues, included in the Building
decreased by $21 million and $15 million, respectively, com-
Products segment, increased by $72 million compared to the
pared to the fourth quarter of 2012. The decrease in rev-
fourth quarter of 2012. The increase was primarily attribut-
enues was due to lower earned premiums and fees on the
able to growth in the North American and European seg-
consumer products business in North America, Asia and
ments which includes the impact of an additional month’s
Europe as well as lower earned premiums on the European
revenue from CMI in 2013. CMI was acquired in late October
creditor business. The decrease was partially offset by
2012. Partially offsetting the increase in revenues in the
higher U.S. and Europe auto earned revenues and higher
North American and European segments was a decline in
earned revenues on the consumer products business in
revenues in Australia. Cost of sales reported by JELD-WEN
Latin America. The decrease in cost of sales was driven
for the fourth quarter of 2013 increased by $74 million com-
primarily by lower earned revenues, favourable claims
pared to the same quarter of 2012. The increase in fourth
development on certain programs in North America and
quarter cost of sales was driven by a number of factors,
International, partially offset by increased claims severity
including the increase in revenues.
on a large client in North America.
Fourth quarter 2013 revenues and cost of sales
in the other segment increased by $543 million and
$271 million, respectively, compared to the same period
Fourth quarter interest expense
Fourth quarter 2013 interest expense totalled $221 million
last year. The increase was due primarily to the inclusion
compared to $134 million during the fourth quarter of 2012.
of the revenues and cost of sales of USI and KraussMaffei,
Fourth quarter interest expense increased by $87 million due
acquired by the Onex Partners III Group in late December
primarily to the inclusion of interest expense of companies
2012, Bradshaw, acquired by the ONCAP III Group in late
acquired in December 2012, including USI, KraussMaffei and
December 2012, and Emerald Expositions, acquired by the
Bradshaw, and the acquisition of Emerald Expositions in
Onex Partners III Group in June 2013. The increase was par-
June 2013.
tially offset by the decrease in revenues and cost of sales due
to the ONCAP II Group’s sales of BSN SPORTS in June 2013
and Caliber Collision in November 2013.
48 Onex Corporation December 31, 2013
M A N A G E M E N T ’ S D I S C U S S I O N A N D A N A LY S I S
Fourth quarter increase in value
of investments in joint ventures and
associates at fair value, net
The 2013 fourth quarter increase in value of investments
the fourth quarter of 2013. The charge for other items was
partially offset by other income recorded during the fourth
quarter of 2013, which includes $32 million of gains recorded
by Meridian Aviation and $9 million of gains on the sale of
in joint ventures and associates at fair value was $534 mil-
tax losses, as discussed below.
lion compared to an increase of $248 million during the
During the fourth quarter of 2013, Meridian
same period of 2012. The increase in fair value of invest-
Aviation executed sale agreements for three of the six
ments in associates is due primarily to (i) an increase in the
commercial passenger aircraft under its existing pur-
public share value of Allison Transmission, including the
chase agreement, including the novation of the associ-
November and December 2013 secondary offering values
ated leases to the purchaser. The sale agreements are for
being above the value of the investment at September 30,
two aircraft delivered in 2013 and one aircraft scheduled for
2013; and (ii) improved operating performance and debt
delivery in 2014. Meridian Aviation recorded a net gain of
repayment at certain of the investments.
$32 million comprised of the sale of the two aircraft deliv-
Fourth quarter stock-based
compensation expense
During the fourth quarter of 2013, Onex recorded a consoli-
ered in 2013 and a fair value adjustment covering the
remaining four aircraft scheduled for delivery to the com-
pany between 2014 and 2015.
In November 2013, Onex sold entities, the sole
dated stock-based compensation expense of $91 million
assets of which were certain tax losses, to companies con-
compared to $76 million for the same quarter of 2012. Onex,
trolled by Mr. Gerald W. Schwartz, who is Onex’ controlling
the parent company, recorded a stock-based compensation
shareholder. Onex received $9 million (2012 – $9 million) in
expense of approximately $40 million in the fourth quarter
cash for tax losses of $89 million (2012 – $93 million). The
of 2013 related to its stock options and MIP equity interests.
cash received of $9 million was recorded as a gain in other
That expense was primarily due to the 6 percent increase in
items during the fourth quarter. Onex has significant non-
the market value of Onex’ shares in the fourth quarter.
capital and capital losses available; however, Onex does not
Fourth quarter other gains
Onex recorded other gains of $391 million during the fourth
expect to generate sufficient taxable income to fully utilize
these losses in the foreseeable future. As such, no benefit
was previously recognized in the unaudited interim or
quarter of 2013 from the sale of Caliber Collision ($386 mil-
audited annual consolidated financial statements for the
lion) and additional proceeds received, net of a $1 million
tax losses. In connection with this transaction, Deloitte &
reduction of escrow receivable, on the sale of BSN SPORTS
Touche LLP, an independent accounting firm retained by
($5 million), as discussed on page 38 of this MD&A. Onex did
Onex’ Audit and Corporate Governance Committee, pro-
not record any other gains during the fourth quarter of 2012.
vided an opinion that the value received by Onex for the tax
Fourth quarter other items expense
During the fourth quarter of 2013, Onex recorded a
$159 million charge for other items compared to a charge
losses was fair. The transaction was unanimously approved
by Onex’ Audit and Corporate Governance Committee, all
the members of which are independent directors.
of $108 million during the same quarter of 2012. The charge
for the carried interest due to management of Onex and
ONCAP contributed $145 million (2012 – $35 million) to the
Fourth quarter impairment of goodwill,
intangible assets and long-lived assets, net
During the fourth quarter of 2013, there was $91 million of
other items expense during the fourth quarter. The increase
impairments of goodwill, intangible assets and long-lived
in the carried interest due to management of Onex and
assets recorded by Onex’ operating companies compared
ONCAP, and the corresponding charge, was driven primar-
to $38 million for the three months ended December 31,
ily by an increase in the fair value of certain of the private
2012. A discussion of these impairments by company is
investments in the Onex Partners and ONCAP Funds during
provided on page 42 of this MD&A.
Onex Corporation December 31, 2013 49
M A N A G E M E N T ’ S D I S C U S S I O N A N D A N A LY S I S
Fourth quarter Limited Partners’ Interests charge
During the fourth quarter of 2013, Onex recorded a
$208 million to the limited partners of ONCAP II for their
share of the proceeds on the sale of Caliber Collision; (ii)
$657 million charge for Limited Partners’ Interests com-
cash interest paid of $220 million; and (iii) share repur-
pared to a $364 million charge during the same period of
chases of $117 million by Onex, the parent company, and
2012. The increase in the fair value of certain of the private
Onex’ operating companies. Partially offsetting the cash
and public investments in the Onex Partners and ONCAP
used in financing activities was $103 million of net debt
Funds contributed significantly to the Limited Partners’
issuances by the operating companies and contributions of
Interests charge recorded during both quarters. The
$9 million from the limited partners of (i) ONCAP II for their
Limited Partners’ Interests is net of a $218 million (2012 –
add-on investments in EnGlobe and Pinnacle Renewable
$45 million) change in carried interest for the three months
Energy Group; and (ii) the Onex Partners Funds for manage-
ended December 31, 2013.
ment fees and partnership expenses.
Included in the $727 million of cash from financing
Fourth quarter earnings from
discontinued operations
During the fourth quarter of 2013, Onex recorded $237 mil-
activities in the fourth quarter of 2012 was $498 million of
net debt issuances by the operating companies and con-
tributions of $1.2 billion from the limited partners of (i)
lion (2012 – $6 million) of earnings from discontinued opera-
the Onex Partners III Group for their investments in SGS
tions related to the October 2013 sale of TMS Inter national,
International, USI, BBAM and KraussMaffei, in addition
as discussed on page 26 of this MD&A.
to their add-on investments in JELD-WEN and Tropicana
Fourth quarter cash flow
Table 17 presents the major components of cash flow for
Las Vegas; (ii) the Onex Partners Funds for management
fees and partnership expenses; and (iii) ONCAP III for their
investment in Bradshaw. Partially offsetting the cash from
the fourth quarters of 2013 and 2012.
financing activities were (i) distributions of $562 million
Major Cash Flow Components for
the Three Months Ended December 31
($ millions)
TABLE 17
Three months ended December 31
2013
2012
Cash from operating activities
$ 511
$ 784
Cash from (used in) financing activities
$ (935)
$ 727
Cash from (used) in investing activities
$ 828
$ (1,283)
Consolidated cash and cash equivalents
held by continuing operations
$ 3,191
$ 2,629
primarily to the limited partners of the Onex Partners Funds
of amounts received from Tomkins, The Warranty Group,
Carestream Health, Allison Transmission and JELD-WEN;
(ii) share repurchases of $195 million by Onex’ operating
companies, including Celestica’s substantial issuer bid; and
(iii) cash interest paid of $146 million.
Cash from investing activities in the fourth quarter
of 2013 includes cash proceeds of (i) $836 million received
on the sales of TMS International ($410 million) and Caliber
Collision ($426 million); (ii) $333 million received on the
sales of a portion of shares of Allison Transmission; and (iii)
$222 million of proceeds from the sale of property, plant
Cash from operating activities totalled $511 million in the
and equipment consisting primarily of proceeds on the
fourth quarter of 2013 compared to $784 million in 2012.
sale of two aircraft by Meridian Aviation. This was partially
Cash used in financing activities was $935 mil-
offset by (i) net purchases of investments and securities of
lion in the fourth quarter of 2013 compared to cash from
$198 million mainly by The Warranty Group and OCP CLO-4;
financing activities of $727 million in 2012. Cash used in
(ii) $260 million in purchases of property, plant and equip-
financing activities included (i) distributions of $498 million
ment by Onex’ operating companies; and (iii) $63 million of
to the limited partners of the Onex Partners Funds, primar-
ily from the sale of TMS International and amounts received
cash used for investing activities of discontinued operations,
which represents cash used for investing activities of TMS
from The Warranty Group and Allison Transmission, and
International up to the date of its disposition.
50 Onex Corporation December 31, 2013
M A N A G E M E N T ’ S D I S C U S S I O N A N D A N A LY S I S
Cash used in investing activities in the fourth
Change in Cash at Onex, the Parent Company
quarter of 2012 includes (i) $1.3 billion used to fund the
acquisitions of SGS International, USI, KraussMaffei,
TABLE 18
($ millions)
Bradshaw and the investment in BBAM; (ii) net purchases
Cash on hand at September 30, 2013
$ 1,046
of investments and securities of $297 million mainly by
Sale of Caliber Collision
The Warranty Group and OCP CLO-2; and (iii) $169 million
Sale of TMS International
in purchases of property, plant and equipment by Onex’
Sale of shares of Allison Transmission and dividends
operating companies. This was partially offset by distribu-
The Warranty Group distribution received
tions of $667 million received from Tomkins and Allison
Net Onex Credit Partners activity, including warehouse
Transmission.
facility associated with OCP CLO-5
Consolidated cash at December 31, 2013 totalled
Add-on investments in EnGlobe and Pinnacle Renewable
$3.2 billion. Onex, the parent company, accounted for ap prox-
Energy Group
imately $1.4 billion of the cash on hand. Table 18 provides a
Options exercised for cash
reconciliation of the change in cash at Onex, the parent com-
Onex share repurchases
pany, from September 30, 2013 to December 31, 2013.
Other, net, including dividends, management fees
and operating costs
Cash on hand at December 31, 2013
173
172
113
20
(6)
(6)
(16)
(89)
(9)
$ 1,398
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 19 summarizes Onex’ key consolidated financial information for the last eight quarters.
TABLE 19
($ millions except per share amounts)
2013
2012(a)
Dec.
Sept.
June
March
Dec.
Sept.
June
March
Revenues
$ 6,986
$ 7,133
$ 7,068
$ 6,622
$ 6,375
$ 6,139
$ 6,333
$ 6,070
Earnings (loss) from continuing operations
$ (460)
$ 391
$ (725)
$ (280)
$ (89)
$ 88
$ (182)
$ 173
Net earnings (loss)
$ (223)
$ 399
$ (718)
$ (271)
$ (83)
$ 98
$ (172)
$ 173
Net earnings (loss) attributable to
Equity holders of Onex Corporation
$ 200
$ 366
$ (612)
$ (308)
$ (158)
$ 173
$ (201)
$ 58
Non-controlling Interests
(423)
33
(106)
37
75
(75)
29
115
Net earnings (loss)
$ (223)
$ 399
$ (718)
$ (271)
$ (83)
$ 98
$ (172)
$ 173
Earnings (loss) per Subordinate Voting Share
of Onex Corporation
Earnings (loss) from continuing operations
$ (0.32)
$ 3.18
$ (5.42)
$ (2.76)
$ (1.41)
$ 1.45
$ (1.80)
$ 0.51
Earnings from discontinued operations
2.09
0.04
0.04
0.05
0.03
0.05
0.05
–
Net earnings (loss)
$ 1.77
$ 3.22
$ (5.38)
$ (2.71)
$ (1.38)
$ 1.50
$ (1.75)
$ 0.51
(a) 2012 results have been restated for the changes in accounting policies adopted on January 1, 2013, as described in note 1 to the audited annual consolidated financial statements.
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.
Onex Corporation December 31, 2013 51
M A N A G E M E N T ’ S D I S C U S S I O N A N D A N A LY S I S
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 these increases were:
Consolidated assets
Consolidated assets totalled $36.9 billion at December 31,
• the October 2013 sale by the Onex Partners II Group
of its remaining ownership in TMS International, which
decreased consolidated assets by $817 million, which is
2013 compared to $36.3 billion at December 31, 2012. Onex’
net of the $172 million of cash received by Onex;
consolidated assets at December 31, 2013 increased from
• the June 2013 sale of BSN SPORTS and the November
December 31, 2012 due primarily to:
2013 sale of Caliber Collision by the ONCAP II Group,
• the Onex Partners III Group’s acquisition in mid-June
which reduced consolidated assets by approximately
2013 of Emerald Expositions, which increased consoli-
$220 million, which is net of the $290 million of cash and
dated assets by approximately $1.1 billion, net of cash
escrow received by Onex;
invested by Onex, the parent company; and
• the sale by the Onex Partners II Group of its 50 percent
• the inclusion of the investments held in the asset portfo-
interest in RSI in February 2013, net of proceeds received
lios of OCP CLO-3, which closed in March 2013, and OCP
by Onex, the parent company; and
CLO-4, which closed in October 2013.
• the sales of a portion of shares of Allison Transmission in
that company’s share repurchase and secondary offerings
completed during the third and fourth quarters of 2013,
net of proceeds received by Onex, the parent company.
Asset Diversification by Industry Segment
CHART 1 (Unaudited) ($ millions)
E L E C T R O N I C S
A E R O S T R U C T U R E S
H E A LT H C A R E (a)
M A N U FA C T U R I N G
S E R V I C E S
I N S U R A N C E
P R O V I D E R
C U S T O M E R C A R E
S E R V I C E S
B U I L D I N G
P R O D U C T S
5,371
5,155
4,978
4,898
4,903
4,808
4,194
3,971
3,707
O T H E R (b)(c)
T O TA L
17,372
16,140
36,867
36,302
29,377
2,970
2,639
2,659
2,483
2,626 2,581
9,215
632
631
613
31 Dec
’13
31 Dec
’12
1 Jan
’12
31 Dec
’13
31 Dec
’12
1 Jan
’12
31 Dec
’13
31 Dec
’12
1 Jan
’12
31 Dec
’13
31 Dec
’12
1 Jan
’12
31 Dec
’13
31 Dec
’12
1 Jan
’12
31 Dec
’13
31 Dec
’12
1 Jan
’12
31 Dec
’13
31 Dec
’12
1 Jan
’12
31 Dec
’13
31 Dec
’12
1 Jan
’12
(a) January 1, 2012 includes the consolidated operations of CDI, which was sold in July 2012.
(b) The assets of TMS International are included in the other segment for January 1, 2012 and December 31, 2012 as TMS International has been presented as a
discontinued operation.
(c)
December 2013 other includes the consolidated operations of Tropicana Las Vegas, SGS International, USI, KraussMaffei, Meridian Aviation, Emerald Expositions, the operating
companies of ONCAP II and ONCAP III, Flushing Town Center, OCP CLO-1 through OCP CLO-4, the warehouse facility for OCP CLO-5 and the parent company. In addition,
other includes the investments in Allison Transmission, BBAM, Tomkins and certain Onex Real Estate Partners investments at fair value. December 2012 other includes the
consolidated operations of Tropicana Las Vegas, SGS International, USI, KraussMaffei, the operating companies of ONCAP II and ONCAP III, Flushing Town Center,
OCP CLO-1, OCP CLO-2 and the parent company. In addition, other includes the investments in Allison Transmission, BBAM, Hawker Beechcraft, RSI, Tomkins and certain
Onex Real Estate investments at fair value. January 2012 other includes the consolidated operations of Tropicana Las Vegas, the operating companies of ONCAP II and
ONCAP III, Flushing Town Center and the parent company. In addition, other includes the investments in Allison Transmission, Hawker Beechcraft, RSI, Tomkins and certain
Onex Real Estate investments at fair value.
52 Onex Corporation December 31, 2013
M A N A G E M E N T ’ S D I S C U S S I O N A N D A N A LY S I S
The pie charts below show the percentage breakdown of total consolidated assets by industry segment at December 31, 2013
and 2012 and January 1, 2012.
Segmented Total Consolidated Assets Breakdown
Dec 2013
Dec 2012
Jan 2012
a. 7%
b. 14%
c. 10%
d. 13%
e. 2%
f. 7%
g. 47%
a. 7%
b. 15%
c. 11%
d. 13%
e. 2%
f. 7%
g. 45%
a. Electronics Manufacturing Services
b. Aerostructures
c. Healthcare
d. Insurance Provider
e. Customer Care Services
f. Building Products
g. Other(1)
a. 10%
b. 17%
c. 14%
d. 17%
e. 2%
f. 9%
g. 31%
(1)
December 2013 other includes the consolidated operations of Tropicana Las Vegas, SGS International, USI, KraussMaffei, Meridian Aviation, Emerald Expositions,
the operating companies of ONCAP II and ONCAP III, Flushing Town Center, OCP CLO-1 through OCP CLO-4, the warehouse facility for OCP CLO-5 and the parent company.
In addition, other includes the investments in Allison Transmission, BBAM, Tomkins and certain Onex Real Estate Partners investments at fair value.
December 2012 other includes the consolidated operations of Tropicana Las Vegas, SGS International, USI, KraussMaffei, the operating companies of ONCAP II and
ONCAP III, Flushing Town Center, OCP CLO-1, OCP CLO-2 and the parent company. In addition, other includes the investments in Allison Transmission, BBAM,
Hawker Beechcraft, RSI, Tomkins and certain Onex Real Estate investments at fair value. January 2012 other includes the consolidated operations of Tropicana Las Vegas,
the operating companies of ONCAP II and ONCAP III, Flushing Town Center and the parent company. In addition, other includes the investments in Allison Transmission,
Hawker Beechcraft, RSI, Tomkins and certain Onex Real Estate investments at fair value.
Consolidated long-term debt,
without recourse to Onex Corporation
It has been Onex’ policy to preserve a financially strong
The financing arrangements of each operating
company typically contain certain restrictive covenants,
which may include limitations or prohibitions on addi-
parent company that has funds available for new acquisi-
tional indebtedness, payment of cash dividends, redemp-
tions and to support the growth of its operating compa-
tion of capital, capital spending, making of investments,
nies. This policy means that all debt financing is within
and acquisitions and sales of assets. The financing arrange-
the operating companies and each company is required to
ments may also require the redemption of indebtedness in
support its own debt without recourse to Onex Corporation
the event of a change of control of the operating company.
or other Onex operating companies.
In addition, the operating companies that have outstand-
ing debt must meet certain financial covenants. Changes
in business conditions relevant to an operating company,
including those resulting from changes in financial markets
and economic conditions generally, may result in non-com-
pliance with certain covenants by that operating company.
Onex Corporation December 31, 2013 53
M A N A G E M E N T ’ S D I S C U S S I O N A N D A N A LY S I S
Total consolidated long-term debt (consisting of
long-term debt by industry segment. Consolidated long-
the current and long-term portions of long-term debt, net
term debt does not include the debt of operating busi-
of financing charges) was $12.0 billion at December 31, 2013
nesses that are included in investments in joint ventures
compared to $10.5 billion at December 31, 2012 and $7.0 bil-
and associates as the net investment in those businesses is
lion at January 1, 2012. Table 20 summarizes consolidated
accounted for at fair value and not consolidated.
Consolidated Long-Term Debt of Operating Companies, Without Recourse to Onex Corporation
TABLE 20
($ millions)
Electronics Manufacturing Services
Aerostructures
Healthcare
Insurance Provider
Customer Care Services
Building Products
Other (a)
Current portion of long-term debt of operating companies
As at
December 31,
2013
As at
December 31,
2012
$ –
$ 55
1,128
3,009
255
740
661
6,177
11,970
(651)
1,133
2,540
258
725
547
5,212
10,470
(286)
As at
January 1,
2012
$ –
1,157
2,670
203
652
481
1,798
6,961
(482)
Total
$ 11,319
$ 10,184
$ 6,479
(a) December 31, 2013 other includes the consolidated operations of Tropicana Las Vegas, SGS International, USI, KraussMaffei, Meridian Aviation, Emerald Expositions, the
operating companies of ONCAP II and ONCAP III, Flushing Town Center and OCP CLO-1 through OCP CLO-4. December 31, 2012 other includes the consolidated operations
of Tropicana Las Vegas, SGS International, USI, KraussMaffei, the operating companies of ONCAP II and ONCAP III, Flushing Town Center, OCP CLO-1 and OCP CLO-2.
January 1, 2012 other includes the consolidated operations of Tropicana Las Vegas, the operating companies of ONCAP II and ONCAP III and Flushing Town Center.
Long-term debt of TMS International is included in the other segment for January 1, 2012 and December 31, 2012 as TMS International has been presented as a
discontinued operation.
Spirit AeroSystems (Aerostructures segment)
In August 2013, Spirit AeroSystems amended its credit
to maturity. The second-lien term loan bears interest at
LIBOR (subject to a floor of 1 percent) plus a margin of
agreement to suspend its existing debt covenant ratios until
8.5 percent and matures in December 2019. The offering price
December 2014. This was to accommodate the $448 million
was 98 percent of par to yield 10 percent to maturity. The
of forward-loss charges recognized during the second quar-
revolving facility bears interest at LIBOR (subject to a floor
ter of 2013. The amendment requires the company to meet
of 1 percent) plus a margin of 4 percent and matures in June
certain minimum liquidity and borrowing base covenants
2018. As a result of the refinancing, Carestream Health recog-
while the existing debt covenant ratios are suspended.
nized a charge in interest expense of $16 million in 2013. At
No other amendments were made to Spirit AeroSystems’
December 31, 2013, the first-lien term loan with $1.8 billion
credit agreement.
outstanding was recorded net of the unamortized discount
of $25 million. At December 31, 2013, the second-lien term
Carestream Health (Healthcare segment)
In June 2013, Carestream Health entered into a new credit
loan with $500 million outstanding was recorded net of the
unamortized discount of $9 million. At December 31, 2013,
facility. This new credit facility consists of a $1.85 billion
no amounts were outstanding under the revolving facility.
first-lien term loan, a $500 million second-lien term loan
The proceeds from the new credit facility, along
and a $150 million revolving facility. The first-lien term
with cash on hand, were used to repay existing debt facili-
loan bears interest at LIBOR (subject to a floor of 1 percent)
ties, fund a $750 million distribution to shareholders and
plus a margin of 4 percent and matures in June 2019. The
pay fees and expenses associated with the transaction, as
offering price was 98.5 percent of par to yield 5.4 percent
discussed on page 24 of this MD&A.
54 Onex Corporation December 31, 2013
M A N A G E M E N T ’ S D I S C U S S I O N A N D A N A LY S I S
Skilled Healthcare Group (Healthcare segment)
During 2013, Skilled Healthcare Group entered into insured
Preferred Stock of JELD-WEN in accordance with the terms
of the purchase agreement. Onex’ share of the remain-
loans from a department of the U.S. federal government.
ing convertible promissory notes and accrued interest was
The loans, in the amount of $88 million, bear interest at
$18 million. After giving effect to the conversion, the Onex
rates ranging from 3.39 percent to 4.55 percent, amortize
Partners III Group’s as-converted economic ownership
over 30 to 35 years and are secured by 10 of the company’s
increased to 71 percent, of which Onex’ share was 17 percent.
nursing facilities. At December 31, 2013, $87 million was
In June 2013, JELD-WEN amended its senior
outstanding under the insured loans.
secured credit facility to increase the size of its term loan
In December 2013, Skilled Healthcare Group en -
to $100 million from $30 million. The term loan bears inter-
tered into an additional credit facility. This new credit facil-
est at either the Eurodollar rate plus a margin of 3.5 per-
ity consists of a $62 million mortgage-backed term loan
cent or a base rate plus a margin of 2.5 percent, requires
and a $5 million asset-based revolving credit facility. The
quarterly amortization payments beginning in December
loans are secured by 10 of the company’s skilled nursing
2013 and matures in April 2016. Proceeds from the addition
facilities, bear interest at a rate based on LIBOR (subject to
to the term loan were primarily used to repay a portion of
a floor of 0.75%) plus a margin of 5.95 percent and mature
the outstanding balance under the revolving credit facil-
in December 2016. At December 31, 2013, $67 million was
ity. At December 31, 2013, $99 million and $70 million were
outstanding under the new credit facility.
outstanding under the term loan and revolving credit facil-
The proceeds from the insured loans and new credit
ity, respectively. The amount available under the revolving
facility were used to repay a portion of the term loan under
credit facility was reduced by $38 million of letters of credit
the existing senior secured credit facility and pay fees and
outstanding at December 31, 2013.
expenses associated with the transactions.
The Warranty Group (Insurance Provider segment)
In December 2013, The Warranty Group redeemed $65 mil-
Onex Credit Partners’ CLOs (Other segment)
In March 2012, Onex Credit Partners established its first
CLO. A CLO is a leveraged structured vehicle that holds a
lion of its redeemable preferred shares, including $34 mil-
widely diversified collateral asset portfolio and is funded
lion of accumulated and unpaid dividends. The Onex
through the issuance of collateralized loan instruments in a
Partners I Group and Onex Partners II Group received a
series of tranches of secured notes and equity. As of Decem-
total redemption of $63 million, of which Onex’ share was
ber 31, 2013, Onex Credit Partners had established four CLOs.
$20 million. Included in long-term debt at December 31,
The CLOs were funded through the issuance of secured
2013 was $380 million of redeemable preferred shares, of
notes and equity in private placement transactions in an
which $369 million was held by the Onex Partners I Group
aggregate amount of $1.9 billion, comprised of (i) $327 mil-
and Onex Partners II Group.
lion from OCP CLO-1, which closed in March 2012; (ii)
$521 million from OCP CLO-2, which closed in November
JELD-WEN (Building Products segment)
During the four months ended April 2013, the Onex
2012; (iii) $512 million from OCP CLO-3, which closed in
March 2013; and (iv) $514 million from OCP CLO-4, which
Partners III Group received payments from JELD-WEN
closed in October 2013.
totalling $60 million, including accrued interest, to repay
The secured notes bear interest at a rate of LIBOR
a portion of its convertible promissory notes (all of which
plus a margin and mature between March 2023 and
were held by the Onex Partners III Group). Onex’ share of
October 2025. The notes and equity of the Onex Credit
the repayments was $15 million. In April 2013, the remain-
Partners CLOs are designated at fair value through net
ing convertible promissory notes and accrued interest of
earnings upon initial recognition. At December 31, 2013,
$72 million, all of which were held by the Onex Partners III
the fair value of the notes and equity held by investors
Group, were converted into additional Series A Convertible
other than Onex was $1.7 billion.
Onex Corporation December 31, 2013 55
M A N A G E M E N T ’ S D I S C U S S I O N A N D A N A LY S I S
PURE Canadian Gaming (Other segment)
In March 2013, PURE Canadian Gaming, previously named
SGS International (Other segment)
In November 2013, SGS International amended the credit
Casino ABS, amended its credit facility agreement to increase
agreement governing its senior secured term loan and
the amount of its term loan by $70 million (C$71 million)
senior secured revolving credit facility to reduce the
to $167 million (C$170 million). Borrowings under the term
interest rate of its senior secured term loan. The amend-
loan bear interest at a rate of LIBOR plus a margin of up
ment reduces the rate at which borrowings bear interest
to 4 percent, depending on the company’s leverage ratio.
to LIBOR (subject to a floor of 1.00 percent) plus a margin
The net proceeds from the amended credit facility were used
of up to 3.25 percent or a base rate plus a margin of up to
to repay $54 million (C$55 million) of subordinated debt
2.25 percent, depending on the company’s leverage ratio.
that bore interest at 8.5 percent and to repurchase $14 mil-
Previously, borrowings under the senior secured term loan
lion (C$15 million) of subordinate notes held primarily
bore interest at LIBOR (subject to a floor of 1.25 percent)
by the ONCAP II Group and ONCAP III Group. Onex’ share
plus a margin of up to 3.75 percent or a base rate plus
of the repurchase of subordinated notes was $6 million
a margin of up to 2.75 percent, depending on the com-
(C$6 million).
Emerald Expositions (Other segment)
In June 2013, as part of the acquisition, Emerald Exposi-
pany’s leverage ratio. At December 31, 2013, $385 million
was outstanding under the senior secured term loan and
no amounts were outstanding under the senior secured
revolving credit facility. Based on the outstanding bal-
tions entered into a credit facility consisting of a $430 mil-
ances at December 31, 2013 and the current LIBOR rate,
lion term loan and a $90 million revolving facility. The
the amendment to the credit facility represents an annual
offering price of the term loan was 99 percent of par to yield
interest savings of approximately $2 million.
5.75 percent to maturity. Borrowings under the term loan
bear interest at LIBOR (subject to a floor of 1.25 percent)
plus a margin of 4.25 percent. The term loan requires quar-
USI (Other segment)
In December 2013, USI amended the credit agreement
terly repayments, but can be repaid in whole or in part
governing its senior secured term loan and senior secured
without premium or penalty any time before maturity in
revolving credit facility. The amendment reduces the rate at
June 2020. The revolving facility bears interest at LIBOR
which borrowings under the senior secured term loan bear
plus a margin of 4.25 percent and matures in June 2018.
interest to LIBOR plus a margin of 3.25 percent or a base
At December 31, 2013, the term loan with $428 million out-
rate plus a margin of 2.25 percent. In addition, the LIBOR
standing was recorded net of the unamortized discount of
floor was reduced to 1.00 percent for borrowings under the
$4 million and no amounts were outstanding under the
senior secured term loan. Previously, borrowings under
revolving facility.
the senior secured term loan bore interest at LIBOR plus a
In January 2014, Emerald Expositions amended its
margin of up to 4.00 percent or a base rate plus a margin
credit facility to increase its term loan by $200 million to
of up to 3.00 percent, depending on the company’s lever-
partially fund its acquisition of GLM. The addition to the
age ratio. Borrowings under the senior secured term loan
term loan continues to bear interest at the same rate as the
were previously subject to a LIBOR floor of 1.25 percent. At
existing term loan and requires quarterly repayments until
December 31, 2013, $1.0 billion was outstanding under the
maturity in June 2020.
senior secured term loan and no amounts were outstanding
In June 2013, as part of the acquisition, Emerald
under the senior secured revolving credit facility. The senior
Expositions issued $200 million in aggregate principal
secured term loan is recorded net of the unamortized dis-
amount of 9 percent senior notes due in June 2021. Interest
count of $5 million. Based on the outstanding balances at
is payable semi-annually beginning in December 2013. The
December 31, 2013 and the current LIBOR rate, the amend-
senior notes may be redeemed by the company at any time
ment to the credit facility represents an annual interest sav-
at various premiums above face value. At December 31,
ings of approximately $8 million.
2013, $200 million of the senior notes was outstanding.
56 Onex Corporation December 31, 2013
M A N A G E M E N T ’ S D I S C U S S I O N A N D A N A LY S I S
Table 21 details the aggregate debt maturities as at December 31, 2013 for Onex’ consolidated operating companies and invest-
ments in joint ventures and associates for each of the years up to 2019 and in total thereafter. As investments in joint ventures
and associates are included in the table, the total amount is in excess of the reported consolidated debt. As the following table
illustrates, most of the maturities occur in 2016 and thereafter.
Debt Maturity Amounts by Year
TABLE 21
($ millions)
2014
2015
2016
2017
2018
2019
Thereafter
Total
Consolidated operating companies(a)
$ 741
$ 329
$ 1,566
$ 1,155
$ 1,226
$ 3,766
$ 2,170
$ 10,953
Investments in joint ventures and associates
44
127
1,319
441
348
2,166
–
4,445
Total
$ 785
$ 456
$ 2,885
$ 1,596
$ 1,574
$ 5,932
$ 2,170
$ 15,398
(a) Includes debt amounts of subsidiaries held by Onex, the parent company, and are gross of financing fees. Excludes preferred shares of The Warranty Group recorded as long-
term debt under IFRS. Excludes debt of the Onex Credit Partners Collateralized Loan Obligations, which are collateralized by the asset portfolio held by each respective CLO.
In January 2013, Tomkins (included in the table above in
amendments included increasing the amount available
investments in joint ventures and associates) amended
under the revolving credit facility by $10 million to $410 mil-
approximately $1.4 billion of the credit facility that governs
lion, reducing the interest rate spread over LIBOR by
its term loans to reduce the interest rate spread and LIBOR
100 basis points and extending the maturity of the revolving
floor. Under the terms of the amendment, borrowings on
credit facility from August 2016 to January 2019.
the term loans currently bear interest at LIBOR (subject
to a floor of 1 percent) plus a margin of 2.75 percent. In
September 2013, Tomkins exercised a call option to redeem
Warranty reserves and unearned premiums
Warranty reserves and unearned premiums represent The
$115 million of the $445 million outstanding senior secured
Warranty Group’s gross warranty and property and casualty
second-lien notes at a redemption price of 103 percent of
reserves, as well as gross warranty unearned premiums. At
the principal amount plus accrued and unpaid interest.
December 31, 2013, gross warranty reserves and unearned
In February 2013, Allison Transmission (included
premiums (consisting of the current and non-current por-
in the table above in investments in joint ventures and
tions) totalled $3.1 billion, unchanged from the balance
associates) repriced its Term Loan B-2 ($793 million due in
at December 31, 2012. Gross warranty and property and
August 2017), reducing the interest rate spread over LIBOR
casualty reserves are approximately $530 million (2012 –
by 50 basis points, from 3.5 percent to 3 percent. In connec-
$616 million) of the total, which represent the estimated and
tion with the repricing, Allison Transmission’s Term Loan
incurred but not reported reserves on warranty contracts
B-1 ($411 million due in August 2014) was refinanced with
and property and casualty insurance policies. The Warranty
additional Term Loan B-2 borrowings, increasing the inter-
Group has ceded 100 percent of the property and casualty
est rate spread over LIBOR by 50 basis points, from 2.5 per-
reserves component of $310 million (2012 – $383 million) to
cent to 3 percent, and extending the maturing from August
third-party reinsurers, which therefore has created a ceded
2014 to August 2017. In August 2013, Allison Transmission
claims recoverable asset. The Warranty Group’s liability for
repriced its Term Loan B-3 ($1.1 billion due in August 2019),
gross warranty and property and casualty unearned pre-
reducing the interest rate spread over LIBOR by 50 basis
miums totalled $2.6 billion in 2013 (2012 – $2.5 billion). All
points, from 3.25 percent to 2.75 percent. In December 2013,
of the unearned premiums are related to warranty busi-
Allison Transmission converted $650 million of its Term
ness and represent the portion of the revenue received that
Loan B-2 (due in August 2017) to Term Loan B-3 (due in
has not yet been earned as revenue by The Warranty Group
August 2019). As a result, the interest rate spread over LIBOR
on extended warranty products sold through multiple dis-
decreased by 25 basis points, from 3 percent to 2.75 per-
tribution channels. Typically, there is a time delay between
cent; however a 1 percent floor was added to LIBOR. Allison
when the warranty contract starts to earn and the contract
Transmission also amended its revolving credit facility. The
effective date. The contracts generally commence earning
Onex Corporation December 31, 2013 57
M A N A G E M E N T ’ S D I S C U S S I O N A N D A N A LY S I S
after the original manufacturer’s warranty on a product
Partners III and others for their investment in the USI co-
expires. Note 14 to the audited annual consolidated financial
investment; (iii) the limited partners of ONCAP II for their
statements provides details of the gross warranty and prop-
add-on investments in EnGlobe and Pinnacle Renewable
erty and casualty reserves for loss and loss adjustment
Energy Group; and (iv) the limited partners of the Onex
expenses and warranty unearned premiums as at Decem-
Partners and ONCAP Funds for management fees and part-
ber 31, 2013 and 2012.
nership expenses.
Contributions totalled $1.3 billion for the year
Limited Partners’ Interests
Limited Partners’ Interests liability represents the fair
ended December 31, 2012 primarily from (i) the limited
partners of Onex Partners III for their investments in SGS
value of limited partners’ invested capital in the Onex
International, USI, BBAM and KraussMaffei, in addition
Partners and ONCAP Funds. The Limited Partners’
to their add-on investments in JELD-WEN and Tropicana
Interests liability is affected by the change in the fair value
of the underlying investments in the Onex Partners and
Las Vegas; (ii) the limited partners of ONCAP III for their
investment in Bradshaw; and (iii) certain limited partners
ONCAP Funds, the impact of the carried interest, as well as
of Onex Partners III and others for their investment in the
any contributions by and distributions to limited partners
JELD-WEN co-investment.
in those Funds.
During 2013, the Limited Partners’ Interests liabil-
At December 31, 2013, Limited Partners’ Interests
ity was reduced by $1.5 billion of distributions primarily to
liability totalled $7.0 billion compared to $6.2 billion at
the limited partners of Onex Partners I, Onex Partners II,
December 31, 2012.
Onex Partners III and ONCAP II. Onex Partners I distributed
$24 million to its limited partners for their share of the dis-
Table 22 shows the change in Limited Partners’ Interests
tribution from The Warranty Group. Onex Partners II distrib-
from January 1, 2012 to December 31, 2013.
uted $1.1 billion to its limited partners for their share of (i)
Limited Partners’ Interests
TABLE 22
($ millions)
Balance – January 1, 2012
Limited Partners’ Interests charge
Contributions by limited partners
Distributions paid to limited partners
Balance – December 31, 2012(1)
Limited Partners’ Interests charge
Contributions by limited partners
Distributions paid to limited partners
Balance – December 31, 2013
the proceeds on the October 2013 sale of TMS International,
as well as the dividends received during 2013; (ii) the pro-
ceeds on the February 2013 sale of RSI; (iii) the dividends
and return of capital from Carestream Health; (iv) the
proceeds on the sales of a portion of the shares of Allison
Transmission as well as the dividends received during 2013;
and (v) the distribution from The Warranty Group. Onex
$ 4,980
929
1,311
(977)
Partners III distributed $63 million to its limited partners
6,243
1,855
401
(1,540)
$ 6,959
and others primarily for their share of the principal repay-
ments and accrued interest on the convertible promissory
notes from JELD-WEN. Distributions of $307 million were
paid to the limited partners of ONCAP II for their share of
the proceeds on the June 2013 sale of BSN SPORTS and the
November 2013 sale of Caliber Collision.
(1)
The current portion of the Limited Partners’ Interests was $35 million at
During 2012, the Limited Partners’ Interests liabil-
December 31, 2012 and was included in accounts payable and accrued liabilities.
ity was reduced for $977 million of distributions primarily
The Limited Partners’ Interests liability increased by
$401 million for contributions made in 2013, which con-
sisted primarily of amounts received from (i) the lim-
ited partners of Onex Partners III for their investment in
Emerald Expositions; (ii) certain limited partners of Onex
to the limited partners of the Onex Partners Funds. Onex
Partners I distributed $105 million to its limited partners
for their share of (i) the June 2012 and December 2012 divi-
dends and returns of capital from The Warranty Group;
and (ii) the July 2012 sale of CDI. Onex Partners II distrib-
uted $349 million to its limited partners and others for
58 Onex Corporation December 31, 2013
M A N A G E M E N T ’ S D I S C U S S I O N A N D A N A LY S I S
their share of (i) the proceeds on the sale of a portion of
the shares of Allison Transmission as well as the dividends
Investments by shareholders other than Onex
Onex recorded an increase in consolidated equity of
received during 2012; and (ii) the dividends and returns of
$119 million during 2013 due to an increase in investments
capital received from Carestream Health and The Warranty
in operating companies by shareholders other than Onex
Group. Onex Partners III distributed $506 million to its lim-
ited partners and others for their share of (i) the December
2012 distribution from Tomkins; and (ii) partial principal
repayments including accrued interest on the convertible
promissory notes from JELD-WEN.
and stock-based compensation provided to employees at
the operating companies.
Repurchase of shares of operating companies
Onex recorded a decrease in equity of $109 million during
At December 31, 2013, total carried interest netted
2013 due to the repurchase of shares of operating compa-
against the Limited Partners’ Interests in Onex’ consoli-
nies. The decrease was due primarily to Celestica for its
dated balance sheet was $538 million, of which Onex’ share
purchases of shares in the open market throughout the
was $202 million.
year and share repurchases by Carestream Health.
The Limited Partners’ Interests charge recorded
for 2013 is discussed in detail on page 42 of this MD&A.
Non-controlling interests on sale of investments in
Equity
Total equity was $4.3 billion at December 31, 2013 com-
operating companies
Onex recorded a decrease in equity of $209 million during
2013 related primarily to the non-controlling interests of
pared to $5.4 billion at December 31, 2012, after giving
BSN SPORTS and TMS International, which were sold dur-
effect to the impact of the adoption of new accounting
ing 2013.
policies, as described in note 1 to the audited annual con-
solidated financial statements. Table 23 provides a recon-
ciliation of the change in equity from December 31, 2012 to
December 31, 2013.
Change in Equity
TABLE 23
($ millions)
Balance – December 31, 2012
Change in accounting policies(1)
Dividends declared
Shares repurchased and cancelled
Investments by shareholders other than Onex
Distributions to non-controlling interests
Repurchase of shares of operating companies
Non-controlling interests on sale of investments
in operating companies
Net loss for the period
Other comprehensive earnings for the period, net of tax
$ 5,441
8
(15)
(153)
119
(2)
(109)
(209)
(813)
78
Equity as at December 31, 2013
$ 4,345
(1)
Impact of the adoption of new accounting policies, as described in note 1 to the
audited annual consolidated financial statements.
Shares outstanding
At January 31, 2014, Onex had 111,048,755 Subordinate
Voting Shares issued and outstanding. Table 24 shows the
change in the number of Subordinate Voting Shares out-
standing from December 31, 2012 to January 31, 2014.
Change in Subordinate Voting Shares Outstanding
TABLE 24
Subordinate Voting Shares outstanding
at December 31, 2012
114,496,438
Shares repurchased under Onex’ Normal Course
Issuer Bids
Shares repurchased in a private transaction
Issue of shares – Dividend Reinvestment Plan
Subordinate Voting Shares outstanding
(2,457,600)
(1,000,000)
9,917
at January 31, 2014
111,048,755
Onex also has 100,000 Multiple Voting Shares outstand-
ing, which have a nominal paid-in value reflected in Onex’
audited annual consolidated financial statements. Note 18
to the audited annual consolidated financial statements pro-
vides additional information on Onex’ share capital. There
was no change in the Multiple Voting Shares outstanding
during 2013.
Onex Corporation December 31, 2013 59
M A N A G E M E N T ’ S D I S C U S S I O N A N D A N A LY S I S
Cash dividends
In May 2013, Onex increased its quarterly dividend by
At December 31, 2013, Onex had 7,867,175 options
outstanding to acquire Subordinate Voting Shares, of which
36 percent to C$0.0375 per Subordinate Voting Share begin-
2,907,441 options were vested and exercisable. Table 25 pro-
ning in the second quarter of 2013. During 2013, Onex
vides information on the activity during 2013 and 2012.
declared dividends of C$0.14 per Subordinate Voting
Share, which were paid quarterly at a rate of C$0.0275 per
Change in Stock Options Outstanding
Subordinate Voting Share for the first quarter of 2013 and at a
rate of C$0.0375 per Subordinate Voting Share for the remain-
ing quarters of 2013. The dividends are payable on or about
TABLE 25
January 31, April 30, July 31 and October 31 of each year.
Outstanding at January 1, 2012
Dividend Reinvestment Plan
Onex’ Dividend Reinvestment Plan enables Canadian
Granted
Surrendered
Expired
Number of
Options
14,036,498
1,025,000
(1,488,620)
(278,326)
shareholders to reinvest cash dividends to acquire new
Outstanding at December 31, 2012
13,294,552
Subordinate Voting Shares of Onex at a market-related price
Granted
at the time of reinvestment. During 2013, Onex issued 8,062
Surrendered
Subordinate Voting Shares at an average cost of C$48.33 per
Expired
3,402,000
(8,660,526)
(168,851)
Weighted
Average
Exercise Price
C$ 19.47
C$ 40.26
C$ 18.32
C$ 30.87
C$ 20.96
C$ 56.92
C$ 16.34
C$ 33.51
Subordinate Voting Share, creating a cash savings of less
than $1 million (less than C$1 million). During the period
from January 1, 2012 to December 31, 2012, Onex issued
6,183 Subordinate Voting Shares at an average cost of C$37.94
per Subordinate Voting Share, creating a cash savings of less
than $1 million (less than C$1 million).
Stock Option Plan
Onex, the parent company, has a Stock Option Plan in
place that provides for options and/or share apprecia-
tion rights to be granted to Onex directors, officers and
employees for the acquisition of Subordinate Voting Shares
of Onex, the parent company, for a term not exceeding
10 years. The options vest equally over five years with the
exception of 2,750,000 of the 3,402,000 options granted in
December 2013, which vest at a rate of 15 percent per year
during the first four years and 40 percent in the fifth year.
The price of the options issued is no less than the market
value of the Subordinate Voting Shares on the business day
preceding the day of the grant. Vested options are not exer-
cisable unless the average five-day market price of Onex
Subordinate Voting Shares is at least 25 percent greater
than the exercise price at the time of exercise.
Outstanding at December 31, 2013
7,867,175
C$ 41.34
During 2013, 8,660,526 options were surrendered at a
weighted average exercise price of C$16.34 for aggregate
cash consideration of $292 million (C$299 million) and
168,851 options expired. In addition, during 2013, 3,402,000
options were issued at an exercise price of C$56.92 per share,
all of which were issued during the fourth quarter of 2013.
In January 2014, Onex issued 3,950,000 options to
acquire Subordinate Voting Shares with an exercise price
of C$57.45 per share. The options vest at a rate of 15 percent
per year during the first four years and 40 percent in the
fifth year.
During 2012, 1,488,620 options were surrendered
at a weighted average exercise price of C$18.32 for aggre-
gate cash consideration of $30 million (C$30 million) and
278,326 options expired. In addition, during 2012, 1,025,000
options were issued, of which 50,000 options were issued
in the third quarter at an exercise price of C$38.50 and
975,000 options were issued during the fourth quarter at an
exercise price of C$40.35.
60 Onex Corporation December 31, 2013
M A N A G E M E N T ’ S D I S C U S S I O N A N D A N A LY S I S
Normal Course Issuer Bids
Onex had Normal Course Issuer Bids (the “Bids”) in place
and April 15, 2014. A copy of the Notice of Intention to make
the Normal Course Issuer Bid filed with the Toronto Stock
during 2013 that enable it to repurchase up to 10 percent
Exchange is available at no charge to shareholders by con-
of its public float of Subordinate Voting Shares during
tacting Onex.
the period of the relevant Bid. Onex believes that it is
Under the previous NCIB that expired on
advantageous to Onex and its shareholders to continue
April 15, 2013, Onex repurchased 1,526,865 Subordinate
to repurchase Onex’ Subordinate Voting Shares from time
Voting Shares at a total cost of $65 million (C$65 million),
to time when the Subordinate Voting Shares are trading at
or an average purchase price of C$42.35 per share. For the
prices that reflect a significant discount to their value as
year ended December 31, 2013, Onex repurchased 2,060,400
perceived by Onex.
Subordinate Voting Shares under its Normal Course Issuer
On April 16, 2013, Onex renewed its Normal
Bids for a total cost of $100 million (C$102 million), or an
Course Issuer Bid (“NCIB”) following the expiry of its previ-
average cost per share of C$49.53. In addition, Onex repur-
ous NCIB on April 15, 2013. Under the new NCIB, Onex is
chased 397,200 Subordinate Voting Shares under its Normal
permitted to purchase up to 10 percent of its public float of
Course Issuer Bid in January 2014 for a total cost of $21 mil-
Subordinate Voting Shares, or 8,874,849 Subordinate Voting
lion (C$23 million), or an average cost per share of C$57.01.
Shares. Onex may purchase up to 32,914 Subordinate
Under similar Bids, Onex repurchased 627,061 Subor dinate
Voting Shares during any trading day, being 25 percent
Voting Shares at a total cost of $24 million (C$24 million)
of its average daily trading volume for the six-month
during 2012.
period ended March 31, 2013. Onex may also purchase
In addition, Onex repurchased 1,000,000 of its
Subordinate Voting Shares from time to time under the
Sub ordinate Voting Shares in a private transaction for
Toronto Stock Exchange’s block purchase exemption, if
a cash cost of C$56.50 per Subordinate Voting Share or
available, under the new NCIB. The new NCIB commenced
$53 million (C$57 million) in November 2013, which repre-
on April 16, 2013 and will conclude on the earlier of the date
sented a slight discount to the trading price of Onex shares
on which purchases under the NCIB have been completed
at that date. The shares were held indirectly by Mr. Gerald
W. Schwartz, who is Onex’ controlling shareholder.
Included in table 26 below is a summary of Onex’ repurchases of Subordinate Voting Shares under its NCIB for the last 10 years.
TABLE 26
2004
2005
2006
2007
2008
2009
2010
2011
2012
2013(1)
Total
(1)
Includes 1,000,000 Subordinate Voting Shares repurchased in a private transaction.
Shares
Repurchased
Total Cost of Shares
Repurchased
(in C$ millions)
Average
Share Price
(in C$ per share)
9,143,100
939,200
9,176,300
3,357,000
3,481,381
1,784,600
2,040,750
3,165,296
627,061
3,060,400
C$ 150
C$ 16.37
18
203
113
101
41
52
105
24
159
18.93
22.17
33.81
28.89
23.04
25.44
33.27
38.59
51.81
36,775,088
C$ 966
C$ 26.25
Onex Corporation December 31, 2013 61
M A N A G E M E N T ’ S D I S C U S S I O N A N D A N A LY S I S
Deferred Share Unit Plans
During the second quarter of 2013, 30,537 Deferred Share
institution to hedge Onex’ exposure to changes in the mar-
ket value of its Subordinate Voting Shares associated with a
Units (“DSUs”) were issued to directors having an aggre-
portion of the outstanding Director DSUs.
gate value, at the date of grant, of $2 million in lieu of that
At December 31, 2013, there were 467,230 Man-
amount of cash compensation for directors’ fees (2012 –
age ment Deferred Share Units (“MDSUs”) outstanding.
40,000 DSUs at a cost of approximately $2 million). During
In January 2014, Onex issued 97,704 MDSUs to manage-
2013, an additional 11,969 DSUs (2012 – 14,366 DSUs) were
ment having an aggregate value, at the date of grant, of
issued to directors in lieu of cash directors’ fees and for divi-
$5 million (C$6 million) in lieu of that amount of cash com-
dends on outstanding DSUs. There were no DSUs redeemed
pensation for Onex’ 2013 fiscal year. Forward agreements
during 2013 or 2012. At December 31, 2013, there were
have been entered into to hedge Onex’ entire exposure to
543,260 Director DSUs outstanding. In 2012, Onex entered
changes in the value of the MDSUs.
into a forward agreement with a counterparty financial
MDSUs and DSUs must be held until leaving the employment of Onex or retirement from the Board. Table 27 reconciles the
changes in the DSUs and MDSUs outstanding at December 31, 2013 from January 1, 2012.
Change in Outstanding Deferred Share Units
TABLE 27
Outstanding at January 1, 2012
Granted
Exercised
Director DSU Plan
Management DSU Plan
Number of
DSUs
Weighted
Average Price
Number of
MDSUs
Weighted
Average Price
446,388
40,000
–
C$ 38.53
–
Additional units issued in lieu of compensation and cash dividends
14,366
C$ 39.08
Outstanding at December 31, 2012
Granted
Additional units issued in lieu of compensation and cash dividends
Outstanding at December 31, 2013
Hedged with a counterparty financial institution
Outstanding at December 31, 2013 – Unhedged
C$ 49.94
C$ 51.66
500,754
30,537
11,969
543,260
(250,829)
292,431
–
C$ 40.11
C$ 37.83
–
C$ 49.48
443,139
–
(113,534)
136,399
466,004
–
1,226
467,230
(467,230)
–
Management of capital
Onex considers the capital it manages to be the amounts it
Accordingly, maintaining adequate liquidity at the parent
company is important;
has in cash and cash equivalents and near-cash investments,
• achieve an appropriate return on capital invested com-
and the investments made by it in the operating businesses,
mensurate with the level of assumed risk;
Onex Real Estate Partners and Onex Credit Partners. Onex
• build the long-term value of its operating businesses;
also manages the capital from other investors invested in
• control the risk associated with capital invested in any
the Onex Partners, ONCAP and Onex Credit Partners Funds.
particular business or activity. All debt financing is within
Onex’ objectives in managing capital are to:
the operating businesses and each company is required
• preserve a financially strong parent company with appro-
to support its own debt. Onex Corporation does not guar-
priate liquidity and no, or a limited amount of, debt so
antee the debt of the operating businesses and there are
that funds are available to pursue new acquisitions and
no cross-guarantees of debt between the operating busi-
growth opportunities, as well as support expansion of
nesses; and
its existing businesses. Onex does not generally have
the ability to draw cash from its operating businesses.
62 Onex Corporation December 31, 2013
M A N A G E M E N T ’ S D I S C U S S I O N A N D A N A LY S I S
• have appropriate levels of committed limited partners’
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
capital available to invest along with Onex’ capital. This
allows Onex to respond quickly to opportunities and
This section should be read in conjunction with the
pursue acquisitions of businesses of a size it could not
audited annual consolidated statements of cash flows and
achieve using only its own capital. The management of
the corresponding notes thereto. Table 28 summarizes the
limited partners’ capital also provides management fees
major consolidated cash flow components for the years
to Onex and the ability to enhance Onex’ returns by earn-
ended December 31, 2013 and 2012.
ing a carried interest on the profits of limited partners.
Major Cash Flow Components
At December 31, 2013, Onex, the parent company, had
approximately $1.4 billion of cash on hand and $343 million
TABLE 28
($ millions)
2013
2012
of near-cash items at market value.
Cash from operating activities
$ 1,586
$ 2,043
Onex, the parent company, has a conservative
Cash from (used in) financing activities
$ (858)
$ 175
cash management policy that limits its cash investments
Cash used in investing activities
$ (192)
$ (2,015)
to short-term high-rated money market instruments. This
Consolidated cash and cash equivalents held
policy is driven toward maintaining liquidity and preserv-
by continuing operations
$ 3,191
$ 2,629
ing principal in all money market investments.
At December 31, 2013, Onex had access to $843 mil-
lion of uncalled committed limited partners’ capital for
Cash from operating activities
Table 29 provides a breakdown of cash from operating
acquisitions through Onex Partners III ($479 million) and
activities by cash generated from operations and changes
ONCAP III (C$387 million). In addition, Onex raised approxi-
in non-cash working capital items, other operating activi-
mately $1.9 billion of limited partners’ committed capi-
ties and warranty reserves and premiums for the years
tal for Onex Partners IV during the fourth quarter of 2013.
ended December 31, 2013 and 2012.
In February 2014, Onex raised approximately $600 million
of additional limited partners’ committed capital for Onex
Components of Cash from Operating Activities
Partners IV toward a target of $3.3 billion. The strategy for
risk management of capital did not change in 2013.
TABLE 29
($ millions)
2013
2012
Cash generated from operations
$ 934
$ 1,584
Non-controlling interests
Non-controlling interests in equity in Onex’ consolidated
Changes in non-cash working capital items:
Accounts receivable
balance sheets as at December 31, 2013 primarily represent
Inventories
the ownership interests of shareholders, other than Onex
Other current assets
and its limited partners in its Funds, in Onex’ controlled
Accounts payable, accrued liabilities
(123)
650
19
(39)
371
18
operating companies. The non-controlling interests balance
and other current liabilities
31
33
at December 31, 2013 decreased to $3.2 billion from $3.8 bil-
lion at December 31, 2012. The decrease was primarily due
to the non-controlling interests’ share of the net loss during
2013 of $459 million and a decrease of $209 million primar-
ily due to the sales of BSN SPORTS and TMS International.
Increase in cash and cash equivalents
due to changes in non-cash working
capital items
577
383
Decrease in other operating activities and change
in warranty reserves and premiums
(42)
(74)
The largest contributors to the non-controlling interests
Cash flows from operating activities of
balance come from ownership interests of public share-
holders of Celestica and Spirit AeroSystems. Additional
information is provided about the non-controlling interests
associated with Celestica and Spirit AeroSystems in note 19
to the audited annual consolidated financial statements.
discontinued operations
117
150
Cash from Operating Activities
$ 1,586
$ 2,043
Onex Corporation December 31, 2013 63
M A N A G E M E N T ’ S D I S C U S S I O N A N D A N A LY S I S
Cash generated from operations includes net earnings
Partially offsetting these were:
(loss) before interest and income taxes, adjusted for cash
• $1.3 billion of net new long-term debt primarily from
taxes paid and items not affecting cash and cash equiva-
the note issuance of OCP CLO-3 and OCP CLO-4 and
lents. Included in determining cash generated from oper-
the debt raised by Carestream Health during the second
ations during 2013 are payments totalling $292 million
quarter of 2013; and
by Onex, the parent company, for the exercise of stock
• $401 million of cash received primarily from the lim-
options, as discussed on page 60 of this MD&A.
ited partners of Onex Partners III for their investment in
The significant changes in non-cash working capital items
Partners III and others for their co-investment in USI and
for the year ended December 31, 2013 were:
the limited partners of the Onex Partners and ONCAP
• a $123 million increase in accounts receivable primarily
Funds for management fees and partnership expenses.
Emerald Expositions, certain limited partners of Onex
from Spirit AeroSystems due to higher revenues; and
• a $650 million decrease in inventories primarily at Spirit
For the year ended December 31, 2012, cash from financing
AeroSys tems due to the forward-loss charges recorded
activities was $175 million. Included in cash from financing
during 2013, and at Flushing Town Center, partially offset
activities for 2012 were:
by an increase in inventory at Celestica.
• Approximately $1.2 billion of cash received from the lim-
ited partners of the Onex Partners III Group primarily for
Cash from operating activities also included $117 million of
their investments in SGS International, USI, BBAM and
cash flows from operating activities of discontinued opera-
KraussMaffei in addition to their add-on investments in
tions, which represents the cash from operating activities
JELD-WEN and Tropicana Las Vegas;
of TMS International up to the date of its disposition.
• $75 million of cash received from the limited partners of
the ONCAP III Group for their investment in Bradshaw;
For the year ended December 31, 2012, the decrease in
and
inventory at (i) Spirit AeroSystems due primarily to the
• $825 million of net new long-term debt primarily from
forward-loss charges recorded by the company; and (ii)
the note issuances of OCP CLO-1 and OCP CLO-2.
Celestica due primarily to the disengagement from a
significant consumer customer contributed significantly to
Partially offsetting these was cash used in financing activi-
the changes in non-cash working capital items.
ties, which included (i) $977 million of distributions to the
limited partners of the Onex Partners Funds (as discussed
Cash from (used in) financing activities
Cash used in financing activities was $858 million for 2013
under Limited Partners’ Interests on page 58 of this MD&A);
(ii) $445 million of cash interest paid; (iii) $315 million of
compared to cash from financing activities of $175 million
cash used primarily by Celestica for purchases of its shares
for 2012. Cash used in financing activities for 2013 included:
in the open market; and (iv) $117 million of cash used for
• $1.5 billion of distributions primarily to the limited part-
financing activities of discontinued operations.
ners of Onex Partners II and ONCAP II (as discussed
under Limited Partners’ Interests on page 58 of this
MD&A);
Cash used in investing activities
Cash used in investing activities totalled $192 million for
• $697 million of cash interest paid;
2013 compared to $2.0 billion during 2012. Cash used in
• $153 million of cash used by Onex, the parent company,
investing activities consisted primarily of (i) net purchases
for purchases of its shares; and
of investments and securities of $1.1 billion mainly by
• $109 million of cash used primarily by Carestream Health
the OCP CLOs and The Warranty Group; (ii) $513 million
and Celestica for the repurchase of share capital.
used to fund acquisitions, of which $338 million related
to the Onex Partners III Group’s acquisition of Emerald
Expositions as outlined in note 2 to the audited annual con-
solidated financial statements; and (iii) $115 million of cash
used for investing activities of discontinued operations.
64 Onex Corporation December 31, 2013
M A N A G E M E N T ’ S D I S C U S S I O N A N D A N A LY S I S
Partially offsetting these were:
During 2013, Celestica invested $53 million in property,
• $1.1 billion received on the sales of TMS International
plant and equipment primarily to enhance its manufactur-
($410 million), BSN SPORTS ($224 million) and Caliber
ing capabilities in various geographies and to support new
Col li sion ($426 million);
customer programs.
• $908 million received on the sales of RSI ($323 mil-
Spirit AeroSystems invested $252 million in prop-
lion) and a portion of the shares of Allison Transmission
erty, plant and equipment, related primarily to purchases of
($585 million); and
tooling and machinery and equipment for the development
• $290 million of proceeds on the sale of property, plant
programs and to support increasing production rates for
and equipment consisting primarily of proceeds on the
several Boeing programs, as well as for repair costs incurred
sale of two aircraft by Meridian Aviation.
after the severe weather event, as discussed on page 41 of
this MD&A.
Cash used in investing activities totalled $2.0 billion for
JELD-WEN invested $80 million in property, plant
2012 and consisted primarily of (i) $1.4 billion used to fund
and equipment, including expenditures related to the con-
acquisitions primarily completed by Onex Partners III,
struction of a new fibre plant.
as outlined in note 2 to the audited annual consolidated
Cash used for the purchase of property, plant and
financial statements; (ii) net purchases of investments and
equipment in the other segment consisted primarily of cash
securities of $785 million mainly by the OCP CLOs and The
used by Meridian Aviation to purchase two aircraft, which
Warranty Group; and (iii) $165 million for the investment in
were subsequently sold during 2013.
BBAM by Onex Partners III. This was partially offset by cash
proceeds of $1.1 billion received on the sale of CDI ($71 mil-
lion), the sale of shares of Allison Transmission ($326 mil-
Consolidated cash resources
At December 31, 2013, consolidated cash held by continuing
lion) and the distribution paid by Tomkins ($663 million).
operations increased from December 31, 2012 to $3.2 billion
In addition, there was $835 million of cash used
from $2.7 billion. The major components at December 31,
for purchases of property, plant and equipment by Onex’
2013 were:
operating companies (2012 – $607 million). Table 30 details
• approximately $1.4 billion of cash on hand at Onex, the
the property, plant and equipment expenditures by indus-
parent company; and
try segment.
• approximately $545 million of cash at Celestica.
Cash Used for Property, Plant and Equipment
Onex believes that maintaining a strong financial position at
the parent company with appropriate liquidity enables the
Company to pursue new opportunities to create long-term
value and support Onex’ existing operating businesses. In
addition to the approximate $1.4 billion of cash at the par-
ent company at December 31, 2013, there was $343 million
of near-cash items that are invested in a segregated unlever-
aged fund managed by Onex Credit Partners.
Purchases by Industry Segment
TABLE 30
($ millions)
Electronics Manufacturing Services
Aerostructures
Healthcare
Insurance Provider
Customer Care Services
Building Products
Other(a)
Total
2013
$ 53
252
93
2
28
80
327
2012
$ 101
222
95
3
25
81
80
$ 835
$ 607
(a) 2013 other includes Tropicana Las Vegas, SGS International, USI, KraussMaffei,
Emerald Expositions, Meridian Aviation, the operating companies of ONCAP II
and ONCAP III and Flushing Town Center. 2012 other includes Tropicana
Las Vegas, SGS International, USI, KraussMaffei, the operating companies
of ONCAP II and ONCAP III and Flushing Town Center.
Onex Corporation December 31, 2013 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 LY S I S
Table 31 provides a reconciliation of the change in cash
Recent events
Emerald Expositions
In January 2014, Emerald Expositions completed the acquisi-
tion of George Little Management, LLC (“GLM”), an opera-
tor of business-to-business tradeshows in the United States.
In conjunction with this acquisition, the Onex Partners III
Group invested an additional $140 million in Emerald Expo-
sitions, of which Onex’ share was $34 million.
Onex Partners IV
In February 2014, Onex raised approximately $600 mil-
lion of additional limited partners’ committed capital for
Onex Partners IV. To date, Onex has raised $2.5 billion of
capital commitments from limited partners for Onex Part-
ners IV. Onex is targeting $3.3 billion in limited partners’
capital commitments toward a $4.5 billion fund size,
including Onex’ $1.2 billion commitment. Onex expects to
complete fundraising in 2014.
at Onex, the parent company, from December 31, 2012 to
December 31, 2013.
Change in Cash at Onex, the Parent Company
TABLE 31
(unaudited) ($ millions)
Cash on hand at December 31, 2012
$ 813
Carestream Health distribution received
Sale of shares of Allison Transmission and dividends
Sale of TMS International and dividends
Sale of Caliber Collision
Proceeds received on the sale of interest in RSI
Sale of BSN SPORTS
USI sale to co-investors
The Warranty Group distribution received
JELD-WEN note repayment including accrued interest
PURE Canadian Gaming debt repayment
BBAM distribution received
Investment in Emerald Expositions
Net Onex Credit Partners activity, including warehouse
facility associated with OCP CLO-5
Investments in Meridian Aviation
Options exercised for cash
Onex share repurchases
Other, net, including dividends, management fees
and operating costs
303
203
174
173
130
98
84
20
15
6
6
(85 )
(50)
(14)
(292)
(153)
(33 )
Cash on hand at December 31, 2013
$ 1,398
A D D I T I O N A L U S E S O F C A S H
Contractual obligations
Table 32 presents the contractual obligations of Onex and its operating companies as at December 31, 2013:
Contractual Obligations
TABLE 32
($ millions)
Total
Less than
1 year
1–3 years
4–5 years
After 5 years
Payments Due by Period
Long-term debt, without recourse to Onex(a)
$ 12,183
$ 651
$ 1,895
$ 2,217
$ 7,420
Finance and operating leases
Purchase obligations
1,775
725
371
433
523
271
293
21
588
–
Total contractual obligations
$ 14,683
$ 1,455
$ 2,689
$ 2,531
$ 8,008
(a) Excludes debt amounts of subsidiaries held by Onex, the parent company, and debt of investments in joint ventures and associates. Amounts are gross of financing fees.
66 Onex Corporation December 31, 2013
M A N A G E M E N T ’ S D I S C U S S I O N A N D A N A LY S I S
In addition to the obligations in table 32, certain of Onex’
consolidated operating companies have funding obligations
Onex’ commitment to the Funds
Onex, the parent company, is the largest limited partner
related to their defined benefit pension plans. The operating
in each of the Onex Partners and ONCAP Funds. Table 33
companies estimate that $37 million of contributions will
presents the commitment and uncalled committed capi-
be required in 2014 for their defined benefit pension plans.
tal of Onex, the parent company, in these Funds at Decem-
Onex, the parent company, does not provide pension, other
ber 31, 2013:
retirement or post-retirement benefits to its employees or to
employees of any of the operating companies. In addition,
Onex, the parent company, does not have any obligations
TABLE 33
($ millions)
Fund Size
and has not made any guarantees with respect to the plans
of the operating companies.
A breakdown of long-term debt by industry seg-
ment is provided in table 20 on page 54 of this MD&A. In
addition, notes 12 and 13 to the audited annual consolidated
financial statements provide further disclosure on long-
term debt and lease commitments. Our consolidated oper-
ating companies currently believe they have adequate cash
from operations, cash on hand and borrowings available to
Onex Partners I
Onex Partners II
Onex Partners III
Onex Partners IV(b)
ONCAP II
ONCAP III(c)
$ 1,655
$ 3,450
$ 4,700
$ 3,136
C$ 574
C$ 800
Onex’
Commitment
$ 400
$ 1,407
$ 1,200
$ 1,200
Onex’
Uncalled
Committed
Capital (a)
$ –
$ 158
$ 151
$ 1,200
C$ 252
C$ 2
C$ 252
C$ 163
(a) Onex’ uncalled committed capital is calculated based on the assumption
that all of the remaining limited partners’ commitments are invested.
(b) Represents committed capital raised during 2013 for Onex Partners IV
them to meet anticipated debt service requirements, capital
including the minimum committed amounts from the management of Onex.
expenditures and working capital needs. There is, however,
no assurance that our consolidated operating companies
will generate sufficient cash flow from operations or that
future borrowings will be available to enable them to grow
their business, service all indebtedness or make anticipated
capital expenditures.
Commitments
At December 31, 2013, Onex and its operating companies
had total commitments of $672 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 $337 million of the total commit-
ments in 2013 were for contingent liabilities in the form of
letters of credit, letters of guarantee, and surety and per-
formance bonds provided by certain operating companies
to various third parties, including bank guarantees. These
guarantees are without recourse to Onex.
The remainder of the commitments of $335 mil-
lion relate to the acquisition of GLM completed by Emerald
Expositions in January 2014. The $335 million purchase
price was funded by debt financing at Emerald Expositions
and $140 million invested in Emerald Expositions by the
Onex Partners III Group.
In February 2014, Onex raised approximately $600 million of additional
limited partners’ committed capital for Onex Partners IV.
(c)
Onex’ commitment has been reduced for the annual commitment for Onex
management’s participation.
Pension plans
Seven (2012 – eight) of Onex’ consolidated operating com-
panies have defined benefit pension plans, of which the
more significant plans are those of Spirit AeroSys tems,
Celestica, Carestream Health, JELD-WEN and KraussMaffei.
At December 31, 2013, the defined benefit pension plans of
the Onex consolidated operating companies had combined
assets of $2.2 billion (2012 – $2.2 billion) against combined
obligations of $2.3 billion (2012 – $2.5 billion), with a net
deficit of $33 million (2012 – $313 million). A surplus in any
plan is not available to offset deficiencies in the others.
Onex, the parent company, does not have a pen-
sion plan and has no obligation to the pension plans of its
operating companies.
Spirit AeroSystems has several U.S. defined benefit
pension plans that were frozen at the date of Onex’ acquisi-
tion of Spirit AeroSystems, with no future service benefits
being earned in these plans. Pension assets are placed in
a trust for the purpose of providing liquidity sufficient to
pay benefit obligations. Therefore, required and discretion-
ary contributions to those plans are not expected in 2014.
Onex Corporation December 31, 2013 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 LY S I S
In addition, Spirit AeroSystems has a U.K. defined benefit
A D D I T I O N A L S O U R C E S O F C A S H
pension plan that is fully funded. Effective December 31,
2013, the U.K. pension plan benefits were frozen due
to an amendment which closed the plan, resulting in a
Private equity Funds
Onex’ private equity Funds are an additional source of
net curtailment gain of $13 million. Spirit AeroSystems’
cash. They provide capital for Onex-sponsored acquisitions
defined benefit pension plans remained overfunded by
that are not related to Onex’ operating companies that
$250 million (2012 – $78 million) at December 31, 2013.
existed prior to the formation of the Funds. The Funds pro-
At December 31, 2013, Celestica’s defined benefit
vide a substantial pool of committed capital, which enables
pension plans were overfunded on a net basis by $15 mil-
Onex to be flexible and timely in responding to investment
lion (2012 – $14 million). Celestica’s pension funding policy
opportunities.
is to contribute amounts sufficient to meet minimum local
statutory funding requirements that are based on actu-
Table 34 provides a summary of the remaining commit-
arial calculations. The company may make additional dis-
ments available from limited partners for future Onex-
cretionary contributions based on actuarial assessments.
sponsored acquisitions in the Onex Partners and ONCAP
Celestica estimates $17 million of contributions for its
Funds as of December 31, 2013.
defined benefit pension plans in 2014 based on the most
recent actuarial valuations.
Private Equity Funds’ Uncalled Limited Partners’
Carestream Health’s defined benefit pension plans
Committed Capital
were in an underfunded position of $65 million (2012 –
$72 million) at December 31, 2013. The company’s pension
TABLE 34
($ millions)
plan assets are broadly diversified in equity and debt funds,
as well as other investments. Carestream Health expects to
contribute approximately $3 million in 2014 to its defined
benefit pension plans, and it does not believe that future
pension contributions will materially impact its liquidity.
At December 31, 2013, JELD-WEN’s defined ben-
e fit pension plans were in an underfunded position of
Onex Partners I
Onex Partners II
Onex Partners III
Onex Partners IV(b)
ONCAP II
ONCAP III(c)
Available Uncalled
Committed Capital
(excluding Onex)
$ 63
$ 242 (a)
$ 479 (a)
$ 1,936 (a)
C$ 2 (a)
C$ 387 (a)
$112 million (2012 – $206 million). The company’s pen-
(a) Includes committed amounts from the management of Onex and ONCAP
sion plan assets are broadly diversified in equity and debt
securities, as well as other investments. JELD-WEN esti-
and directors, calculated based on the assumption that all of the remaining
limited partners’ commitments are invested.
(b) Includes limited partners’ committed capital raised during 2013 for
mates that $13 million of contributions will be required
Onex Partners IV. In February 2014, Onex raised approximately $600 million
for its defined benefit pension plans in 2014.
KraussMaffei grants pensions to the majority
of its employees in Germany and to certain employees in
Switzerland and the United Kingdom. At December 31,
2013, KraussMaffei’s defined benefit pension plans had a
net pension liability of $109 million (2012 – $103 million).
KraussMaffei expects to contribute approximately $3 mil-
lion to its defined benefit pension plans in 2014.
of additional limited partners’ committed capital for Onex Partners IV.
(c)
Onex’ commitment has been reduced for the annual commitment for Onex
management’s participation.
The committed amounts by the limited partners are not
included in Onex’ consolidated cash and will be funded as
capital is called.
68 Onex Corporation December 31, 2013
M A N A G E M E N T ’ S D I S C U S S I O N A N D A N A LY S I S
During 2003, Onex raised its first large-cap Fund,
Changes to Onex’ commitment do not alter Onex’ own-
Onex Partners I, with $1.655 billion of committed capital,
ership of businesses acquired prior to the effective dates
including committed capital from Onex of $400 million.
of the changes. Onex Partners III has completed nine
Since 2003, Onex Partners I has completed 10 investments
investments or acquisitions, investing $2.8 billion of lim-
or acquisitions with $1.5 billion of equity, including Onex,
ited partners’ capital in those transactions. At December 31,
being invested. While Onex Partners I has concluded its
2013, Onex Partners III had $479 million of uncalled limited
investment period, the Fund still has uncalled limited part-
partners’ capital.
ners’ committed capital of $63 million for future funding of
During 2013, Onex commenced fundraising for
management fees. In January 2014, the date of termination
its fourth large-cap private equity fund, Onex Partners IV,
for Onex Partners I was extended to February 2015. Onex
which will provide capital for new Onex-sponsored acqui-
Partners I may be further extended with the approval of a
sitions. By December 31, 2013, Onex Partners IV had
majority in interest of the limited partners for up to two
$3.1 billion of committed capital, including committed capi-
additional one-year periods.
tal from Onex of $1.2 billion. In February 2014, Onex raised
During 2006, Onex raised its second large-cap
approximately $600 million of additional limited partners’
Fund, Onex Partners II, a $3.45 billion private equity fund,
committed capital for Onex Partners IV. Onex is targeting
including committed capital of $1.4 billion from Onex. Onex
$4.5 billion of committed capital for Onex Partners IV and
Partners II has completed seven investments or acquisitions,
expects the final closing to occur during 2014.
investing $2.9 billion of equity, including Onex, in those
During 2006, ONCAP raised its second mid-market
transactions. At December 31, 2013, Onex Partners II has
Fund, ONCAP II, a C$574 million private equity fund includ-
uncalled limited partners’ committed capital of $242 mil-
ing a commitment of C$252 million from Onex. ONCAP II
lion, which is largely reserved for possible future funding for
has completed eight acquisitions, investing C$262 mil-
any of Onex Partners II’s existing businesses and for man-
lion of limited partners’ capital. At December 31, 2013, this
agement fees.
Fund had uncalled committed limited partners’ capital of
During 2009, Onex completed fundraising for
C$2 million.
its third large-cap private equity fund, Onex Partners III,
During 2011, ONCAP completed fundraising for
a $4.7 billion private equity fund. Onex’ initial commit-
its third mid-market private equity fund, ONCAP III, a
ment to the fund was $1.0 billion, which could be either
C$800 million private equity fund with total limited part-
increased or decreased by $500 million with six months’
ners’ capital commitments of C$520 million, excluding
notice to the limited partners. On December 31, 2008, Onex
commitments from management of Onex and ONCAP.
notified its limited partners that it would be reducing its
ONCAP III has completed four investments or acquisi-
commitment to the Fund to approximately $500 million
tions, investing C$179 million of limited partners’ capital. At
effective July 1, 2009. Since July 2009, Onex has increased its
December 31, 2013, this Fund has uncalled committed lim-
commitment as follows:
ited partners’ capital of C$387 million available for future
• to $800 million for new acquisitions completed after
acquisitions and for management fees.
June 16, 2010 and up to May 14, 2012; and
• to $1.2 billion for new investments completed after
May 14, 2012.
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 manage-
ment’s interests with those of Onex’ shareholders and the
limited partner investors in Onex’ Funds.
Onex Corporation December 31, 2013 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 LY S I S
The various investment programs are described in detail in the following pages and certain key aspects are
summarized in table 35.
Investment Programs
TABLE 35
Management
Investment Plan
Minimum Stock
Price Appreciation/
Return Threshold
15%
Compounded
Return
Carried Interest
Participation –
Onex Partners
8%
Compounded
Return
Carried Interest
Participation –
ONCAP
8%
Compounded
Return
Stock Option Plan
25%
Price Appreciation
Associated Investment by Management
• personal “at risk” equity investment required
• 25% of gross proceeds on the 7.5% gain allocated under
the MIP to be reinvested in Subordinate Voting Shares or
Management DSUs until 1,000,000 shares and DSUs owned
• corresponds to participation in minimum 1% “at risk” Onex
management team equity investment for Onex Partners I
through III and 2% “at risk” Onex management team equity
investment for Onex Partners IV
• 25% of gross proceeds to be reinvested in Subordinate Voting
Shares or Management DSUs until 1,000,000 shares and
DSUs owned
Vesting
Vests equally
over 6 years
Onex Partners I
Fully vested
Onex Partners II
Fully vested
Onex Partners III
Will be fully vested in
December 2014
Onex Partners IV
Will vest equally over
6 years from the due date
of the first capital call for
Onex Partners IV
ONCAP II
Fully vested
• corresponds to participation in minimum 1% “at risk”
ONCAP management team equity investment
ONCAP III
Vests equally over 5 years
ending in July 2016
Vests equally over 5 years,
except for 2,750,000 options
which vest at a rate of
15 percent per year during
the first 4 years and
40 percent in the 5th year
• satisfaction of exercise price (market value at grant date)
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 Plan
n/a
n/a
• investment of elected portion of annual directors’ fees
in Director DSUs
• value reflects changes in Onex’ share price
• units not redeemable until retirement
• annual allocation of DSUs
70 Onex Corporation December 31, 2013
M A N A G E M E N T ’ S D I S C U S S I O N A N D A N A LY S I S
Management Investment Plan
Onex has a Management Investment Plan (the “MIP”)
completed in 2014. For ONCAP III, management of Onex
and ONCAP as well as directors have committed to invest
that requires its management members to invest in each
6 percent of the total capital invested by the Fund for new
of the operating businesses acquired or invested in by
investments completed in 2014.
Onex. Management’s required cash investment is 1.5 per-
The total amount invested in 2013 by management
cent of Onex’ interest in each acquisition or investment.
of Onex and ONCAP, and directors on acquisitions and
An amount invested in an Onex Partners acquisition under
investments completed through the Onex Partners III and
the Fund’s investment requirement (discussed below) also
ONCAP II Funds was $22 million (2012 – $67 million).
applies toward the 1.5 percent investment requirement
under the MIP.
In addition to the 1.5 percent participation, man-
Carried interest participation
The General Partners of the Onex Partners and ONCAP
agement is allocated 7.5 percent of Onex’ realized gain
Funds, which are controlled by Onex, are entitled to a car-
from an operating business investment, subject to certain
ried interest of 20 percent on the realized gains of the
conditions. In particular, Onex must realize in cash the full
limited partners in each Fund, subject to an 8 percent com-
return of its investment plus a net 15 percent internal rate
pound annual preferred return to those limited partners on
of return from the investment in order for management to
all amounts contributed in each particular Fund. Onex, as
be allocated the additional 7.5 percent of Onex’ gain. The
sponsor of the Onex Partners Funds, is entitled to 40 per-
plan has vesting requirements, certain limitations and vot-
cent of the carried interest realized in the Onex Partners
ing requirements.
Funds. The Onex management team is allocated 60 percent
During 2013, management invested $4 million
of the carried interest realized in the Onex Partners Funds.
(2012 – $13 million) under the MIP, including amounts
The ONCAP management team is entitled to that portion
invested under the minimum investment requirements
of the carried interest realized in the ONCAP Funds that
of the Onex Partners Funds to meet the 1.5 percent MIP
equates to a 12 percent carried interest on both limited
requirement. Management received $39 million under the
partners’ and Onex capital. Under the terms of the part-
MIP in 2013 (2012 – less than $1 million). Notes 1 and 31 to
nership agreements, Onex may receive carried interest as
the audited annual consolidated financial statements pro-
realizations occur. The ultimate amount of carried interest
vide additional details on the MIP.
Onex Partners and ONCAP Funds
The structure of the Onex Partners and ONCAP Funds
earned will be based on the overall performance of each of
Onex Partners I, II, III and IV, and ONCAP II and III, inde-
pendently, and includes typical catch-up and claw-back
provisions within each Fund, but not between Funds.
requires management of Onex or ONCAP to invest a mini-
During 2013, management of Onex received carried
mum of 1 percent in all acquisitions, with the exception of
interest totalling $110 million, comprised of (i) $5 million
Onex Partners IV, which requires the management of Onex
on the sale of RSI; (ii) $71 million on the distributions from
to invest a minimum of 2 percent in all acquisitions. Onex
Carestream Health; (iii) $19 million on the sales of a portion
Partners I completed its investment period in 2006 and
of the shares of Allison Transmission in that company’s share
Onex Partners II completed its investment period in 2011.
repurchase and secondary offerings; and (iv) $15 million
During 2013, Onex obtained approval for an extension of
on the sale of TMS International. During the same period,
the commitment period for Onex Partners III into 2014 to
management of ONCAP received carried interest of $60 mil-
enable further investing through that Fund. The commit-
lion on the sales of BSN SPORTS ($18 million) and Caliber
ment period for Onex Partners III would have otherwise
Collision ($42 million). The impact of the ONCAP transac-
expired in December 2013. Onex management and direc-
tions to Onex and management of Onex was a net payment
tors have committed to invest 6 percent of the total capi-
of $15 million in carried interest.
tal invested by Onex Partners III and 8 percent of the total
During 2012, management of Onex received $5 mil-
capital invested by Onex Partners IV for new investments
lion of carried interest on the sale of CDI.
Onex Corporation December 31, 2013 71
M A N A G E M E N T ’ S D I S C U S S I O N A N D A N A LY S I S
Table 36 shows the amount of carried interest received by
Onex, the parent company, by year.
Carried Interest
TABLE 36
($ millions)
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
Carried interest – 2012
Carried interest – 2013
Total
Carried
Interest
Received
$ 1
4
16
55
77
–
19
–
65
3
75
$ 315
During 2013, Onex, the parent company, realized carried
interest of $75 million, which was comprised of amounts
received on the following transactions: (i) $3 million on
the February 2013 sale of RSI; (ii) $50 million in connection
with the distributions received from Carestream Health in
June and July 2013; (iii) $12 million on the sales of a por-
tion of the shares of Allison Transmission in that company’s
share repurchase and secondary offerings; and (iv) $10 mil-
lion on the October 2013 sale of TMS International.
During 2012, Onex, the parent company, realized carried
interest of $3 million in connection with the sale of CDI by
Onex Partners I in July 2012.
At December 31, 2013, there was $54 million of unreal-
ized carried interest allocable to Onex based on the val-
ues of the public companies held at market value in the
Onex Partners Funds. In addition, Onex has the potential
to receive a further $148 million of carried interest on its
private businesses in the Onex Partners and ONCAP Funds
based on their fair values determined at December 31, 2013.
72 Onex Corporation December 31, 2013
Incentive fees
Onex Credit Partners is entitled to incentive fees on
$2.4 billion of other investors’ capital it manages. Incentive
fees range between 5 percent and 20 percent of the net
income of a fund or a share of the return above an invest-
ment return hurdle of a CLO. Certain incentive fees are
subject to a minimum preferred return to investors on all
amounts contributed in a particular fund. During the year
ended December 31, 2013, Onex Credit Partners earned
$10 million of incentive fees, of which Onex’ share as an
investor in Onex Credit Partners was $7 million.
Stock Option Plan
Onex, the parent company, has a Stock Option Plan in place
that provides for options and/or share appreciation rights
to be granted to Onex directors, officers and employees for
the acquisition of Subordinate Voting Shares of Onex, the
parent company, for a term not exceeding 10 years. The
options vest equally over five years, with the exception of
2,750,000 of the 3,402,000 options granted in December
2013, which vest at a rate of 15 percent per year during the
first four years and 40 percent in the fifth year. The price of
the options issued is at the market value of the Subordinate
Voting Shares on the business day preceding the day of the
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
time of exercise. Table 25 on page 60 of this MD&A provides
details of the change in the stock options outstanding at
December 31, 2013 and 2012.
Management Deferred Share Unit Plan
Effective December 2007, a Management Deferred Share
Unit Plan (“MDSU Plan”) was established as a further
means of encouraging personal and direct economic inter-
ests by the Company’s senior management in the perfor-
mance of the Subordinate Voting Shares. Under the MDSU
Plan, the members of the Company’s senior management
team are given the opportunity to designate all or a por-
tion of their annual compensation to acquire MDSUs based
on the market value of Onex shares at the time in lieu of
M A N A G E M E N T ’ S D I S C U S S I O N A N D A N A LY S I S
cash. MDSUs vest immediately but are redeemable by the
participant only after he or she has ceased to be an officer
Repurchase of shares
In November 2013, Onex repurchased 1,000,000 of its Sub-
or employee of the Company or an affiliate for a cash pay-
ordinate Voting Shares in a private transaction for a cash
ment equal to the then current market price of Subordinate
cost of C$56.50 per Subordinate Voting Share or $53 mil-
Voting Shares. Additional units are issued equivalent to the
lion (C$57 million), which represented a slight discount to
value of any cash dividends that would have been paid on
the trading price of Onex shares at that date. The shares
the Subordinate Voting Shares. To hedge Onex’ exposure to
were held indirectly by Mr. Gerald W. Schwartz, who is
changes in the trading price of Onex shares associated with
Onex’ controlling shareholder. The private transaction was
the MDSU Plan, the Company enters into forward agree-
approved by the Board of Directors of Onex.
ments with a counterparty financial institution for all grants
under the MDSU Plan. The costs of those arrangements are
borne entirely by participants in the MDSU Plan. MDSUs
Investment in Onex shares and acquisitions
In 2006, Onex adopted a program designed to further
are redeemable only for cash and no shares or other securi-
align the interests of the Company’s senior management
ties of Onex will be issued on the exercise, redemption or
and other investment professionals with those of Onex
other settlement thereof. Table 27 on page 62 of this MD&A
shareholders through increased share ownership. Under
provides details of the change in the MDSUs outstanding
this program, members of senior management of Onex
during 2013 and 2012.
Director Deferred Share Unit Plan
Onex, the parent company, established a Director Deferred
are required to invest at least 25 percent of all amounts
received on the 7.5 percent gain allocated under the MIP
and the carried interest in Onex Subordinate Voting Shares
and/or Management DSUs until they individually hold at
Share Unit Plan (“DSU Plan”) in 2004, which allows Onex
least 1,000,000 Onex Subordinate Voting Shares and/or
directors to apply directors’ fees to acquire DSUs based
Management DSUs. Under this program, during 2013 Onex
on the market value of Onex shares at the time. Grants of
management reinvested C$18 million (2012 – less than
DSUs may also be made to Onex directors from time to
C$1 million) in the purchase of Subordinate Voting Shares.
time. Holders of DSUs are entitled to receive for each DSU,
Members of management and the Board of
upon redemption, a cash payment equivalent to the mar-
Directors of Onex can invest limited amounts in part-
ket value of a Subordinate Voting Share at the redemption
nership with Onex in all acquisitions outside the Onex
date. The DSUs vest immediately, are only redeemable
Partners and ONCAP Funds at the same time and cost as
once the holder retires from the Board of Directors and
Onex and other outside investors. During 2013, $2 million
must be redeemed by the end of the year following the year
in investments (2012 – less than $1 million) were made by
of retirement. Additional units are issued equivalent to the
Onex management and Onex Board members.
value of any cash dividends that would have been paid on
the Subordinate Voting Shares. The Company has entered
into a forward agreement with a counterparty financial
Management fees
Onex receives management fees on limited partners’ capi-
institution to hedge the Company’s exposure to changes in
tal through its private equity platforms, Onex Partners and
the market value of Onex’ Subordinate Voting Shares asso-
ONCAP, and directly from certain of its operating busi-
ciated with a portion of the outstanding DSUs. Onex, the
nesses. In addition, Onex Credit Partners earns manage-
parent company, has recorded a liability for the future set-
ment fees on its investors’ capital.
tlement of DSUs at the balance sheet date by reference to
During the initial fee period of the Onex Partners
the value of underlying shares at that date. The liability is
and ONCAP Funds, Onex receives a management fee based
adjusted for the change in the market value of the under-
upon limited partners’ committed capital to each Fund. At
lying Subordinate Voting Shares, with the corresponding
December 31, 2013, the management fees of ONCAP III are
amount reflected in the audited annual consolidated state-
determined based on limited partners’ committed capital.
ments of earnings. Table 27 on page 62 of this MD&A pro-
Following the termination of the initial fee period,
vides details of the change in the DSUs outstanding during
Onex becomes entitled to a management fee on lim-
2013 and 2012.
ited partners’ invested capital. At December 31, 2013, the
Onex Corporation December 31, 2013 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 LY S I S
management fees of Onex Partners I, Onex Partners II,
Onex Partners III and ONCAP II are determined based upon
Tax loss transaction
During 2013, Onex sold entities, the sole assets of which were
each Fund’s limited partners’ invested capital. As realiza-
certain tax losses, to companies controlled by Mr. Gerald W.
tions occur in these Funds, the management fees calculated
Schwartz, who is also Onex’ controlling shareholder. As a
based on invested limited partners’ capital will decline.
result of these transactions, Onex recorded a gain of $9 mil-
In December 2013, the initial fee period for Onex
lion (2012 – $16 million) in other items in 2013. A discussion
Partners III expired and Onex’ entitlement to management
of these transactions is included on page 41 of this MD&A. In
fees changed from being based on committed capital to
connection with these transactions, Deloitte & Touche LLP,
being based on limited partners’ invested capital. In addi-
an independent accounting firm retained by Onex’ Audit
tion, Onex Partners III deferred its December 2013 capital
and Corporate Governance Committee, provided an opin-
call for management fees until early 2014. Management
ion that the value received by Onex for the tax losses was
fees to be called by Onex Partners III in early 2014 will be
fair. The transactions were unanimously approved by Onex’
$19 million lower than the last management fee call due to
Audit and Corporate Governance Committee, all the mem-
the impact of the end of the initial fee period.
bers of which are independent directors.
During the fourth quarter of 2013, Onex raised
$3.1 billion of total capital commitments for Onex Part-
ners IV, which includes Onex’ commitment of $1.2 billion.
Onex Partners IV is targeting $4.5 billion in total capital
commitments, including Onex’ commitment, and expects
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
to complete fundraising during 2014. We expect to start
The Chief Executive Officer and the Chief Financial Officer
drawing management fees for Onex Partners IV sometime
have designed, or caused to be designed under their super-
in 2014. During the initial fee period of Onex Partners IV,
vision, internal controls over financial reporting to provide
Onex will receive annual management fees based upon
reasonable assurance regarding the reliability of financial
1.75 percent of up to $3.0 billion of committed capital to
reporting and the preparation of financial statements for
Onex Partners IV by investors other than Onex and Onex
external purposes in accordance with IFRS. The Chief
management and 1.5 percent on capital committed by
Executive Officer and the Chief Financial Officer have also
investors other than Onex and Onex management in excess
designed, or caused to be designed under their supervi-
of $3.0 billion.
sion, disclosure controls and procedures to provide reason-
In March and October 2013, Onex Credit Partners
able assurance that information required to be disclosed
closed OCP CLO-3 and OCP CLO-4, respectively. In addition,
by the Company in its corporate filings has been recorded,
in November 2013, Onex Credit Partners established a ware-
processed, summarized and reported within the time peri-
house facility in connection with its fifth CLO, OCP CLO-5.
ods specified in securities legislation.
The increase in investors’ capital associated with these new
A control system, no matter how well conceived
CLOs will result in an increase in the management fees
and operated, can provide only reasonable, not absolute,
earned by Onex Credit Partners.
Debt of operating companies
Onex’ practice is not to guarantee the debt of its operat-
assurance that its objectives are met. Due to inherent limi-
tations in all such systems, no evaluations of controls can
provide absolute assurance that all control issues, if any,
within a company have been detected. Accordingly, our
ing companies, and there are no cross-guarantees between
internal controls over financial reporting and disclosure
operating companies. Onex may hold debt as part of
controls and procedures are effective in providing reason-
its investment in certain operating companies, which
able, not absolute, assurance that the objectives of our con-
amounted to $873 million at December 31, 2013 compared
trol systems have been met.
to $1.1 billion at December 31, 2012. Note 12 to the audited
annual consolidated financial statements provides infor-
mation on the debt of operating companies held by Onex.
74 Onex Corporation December 31, 2013
M A N A G E M E N T ’ S D I S C U S S I O N A N D A N A LY S I S
OUTLOOK
Onex’ reported quarterly and annual consolidated
which includes limited partner commitments of $3.3 billion
financial results may vary substantially from quarter to
and Onex’ $1.2 billion commitment, and expects to com-
quarter and year to year due to acquisitions and disposi-
plete fundraising in 2014.
tions of businesses, changes in the value of its publicly
A new fund will contribute to Onex’ stream of
traded and privately held operating companies and the
annual management fees once the fund begins invest-
effect of varying business cycles at its operating companies.
ing and provides the potential to earn carried interest on
Accordingly, it is difficult to predict the future consolidated
invested limited partner capital. Onex’ limited partner-
financial results for Onex. However, it is Onex’ objective to
ship agreements typically have a 10-year term and provide
complete acquisitions during 2014. New acquisitions where
a predictable flow of management fees from assets under
Onex has control would add to the consolidated revenues,
management. Fees for Onex Partners III stepped down to
assets and liabilities. Similarly, if a controlled business is
1 percent of invested capital in December 2013, marking
sold, consolidated revenues, assets and liabilities would
the end of its original five-year commitment period. We
be reduced. It is difficult to predict when new acquisitions
expect to start drawing management fees for Onex Part-
may occur or when businesses may be sold.
ners IV sometime in 2014.
Onex remains in a very strong financial position
We believe Onex is well-positioned for continued
to complete new investment opportunities as they arise. In
growth in 2014. We have a stable, experienced team; our
addition to our own cash, we have approximately $840 mil-
investing culture is ingrained throughout the organization;
lion of undrawn committed capital from limited partners in
our investments are performing well overall; and we have
Onex Partners III and ONCAP III. Fur thermore, to date, Onex
the financial resources to grow.
has raised approximately $2.5 billion of capital commit-
This printed report is by its nature current only
ments from limited partners for Onex Partners IV, its fourth
at the point in time when it is issued. We encourage you
private equity fund for larger transactions. Onex is target-
to visit our website: www.onex.com for updates on Onex’
ing a fund size of $4.5 billion in total capital commitments,
activities.
Onex Corporation December 31, 2013 75
M A N A G E M E N T ’ S D I S C U S S I O N A N D A N A LY S I S
RISK MANAGEMENT
This section describes the risks that we believe are mate-
Onex maintains an active involvement in its oper-
rial to Onex that could adversely affect Onex’ business,
ating businesses in the areas of strategic planning, financial
financial condition or results of operations. The risks
structures, and negotiations and acquisitions. In the early
described below are not the only risks that may impact our
stages of ownership, Onex may provide resources for busi-
business. Additional risks not currently known to us or that
ness and strategic planning and financial reporting while
we currently believe are immaterial may also have a mate-
an operating business builds these capabilities in-house.
rial 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 businesses 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 busi-
instances, we may also encourage an operating business
nesses 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’ operat-
strategies and policies to manage business risk at Onex and
ing businesses enables Onex to participate in the growth
its operating businesses are discussed in this section.
of a number of high-potential industries with varying busi-
ness 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 its
two industries. Similarly, the Company’s focus on build-
capital to a single acquisition and has equity partners with
ing industry leaders with extensive international opera-
whom it shares the risk of ownership. The Onex Partners
tions reduces the financial impact of downturns in specific
and ONCAP Funds streamline Onex’ process of sourcing
regions. Onex is well diversified among various industry
and drawing on commitments from such equity partners.
segments, with no single industry or business representing
An acquired company is not burdened with more
more than 10 percent of Onex capital. The table in note 34
debt than it can likely sustain, but rather is structured so
to the audited annual consolidated financial statements
that it has the financial and operating leeway to maximize
provides information on the geographic diversification of
long-term growth in value. Finally, Onex invests in financial
Onex’ consolidated revenues.
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.
76 Onex Corporation December 31, 2013
M A N A G E M E N T ’ S D I S C U S S I O N A N D A N A LY S I S
Operating liquidity
It is Onex’ view that one of the most important things Onex
over the past few years resulted in Hawker Beechcraft being
unable to meet certain of its financial obligations. During
can do to control risk is to maintain a strong parent com-
the second quarter of 2012, Hawker Beechcraft filed for
pany with an appropriate level of liquidity. Onex needs
bankruptcy protection in the United States. As a result, Onex
to be in a position to support its operating businesses
no longer exerted significant influence over the company.
when and if it is appropriate and reasonable for Onex, as
On February 15, 2013, Hawker Beechcraft exited bankruptcy
an equity owner with paramount duties to act in the best
protection. As part of the restructuring, Onex has a nominal
interests of Onex shareholders, to do so. Maintaining
equity interest in the company.
liquidity is important because Onex, as a holding company,
generally does not have guaranteed sources of meaningful
cash flow other than management fees. The approximate
Timeliness of investment commitments
Onex’ ability to create value for shareholders is dependent
$75 million in annualized management fees that are
in part on its ability to successfully complete large acquisi-
expected to be earned by Onex Partners, ONCAP and Onex
tions. Our preferred course is to complete acquisitions on
Credit Partners in 2014 will be used to offset the costs of
an exclusive basis. However, we also participate in large
running the parent company. Onex’ management fees
acquisitions through an auction or bidding process with
will be further enhanced once fees are called from Onex
multiple potential purchasers. Bidding is often very com-
Partners IV.
petitive for the large-scale acquisitions that are Onex’ pri-
A significant portion of the purchase price for
mary interest, and the ability to make knowledgeable,
new acquisitions is generally funded with debt provided
timely investment commitments is a key component in
by third-party lenders. This debt, sourced exclusively on
successful purchases. In such instances, the vendor often
the strength of the acquired company’s financial condition
establishes a relatively short time frame for Onex to respond
and prospects, is a debt of the acquired company at clos-
definitively. In order to improve the efficiency of Onex’
ing and is without recourse to Onex, the parent company,
internal processes on both auction and exclusive acqui-
or to its other operating companies or partnerships. The
sition processes, and so reduce the risk of missing out on
foremost consideration, however, in developing a financing
high-quality acquisition opportunities, Onex has commit-
structure for an acquisition is identifying the appropriate
ted pools of capital from limited partner investors with the
amount of equity to invest. In Onex’ view, this should be
Onex Partners and ONCAP Funds. As at December 31, 2013,
the amount of equity that maximizes the risk/reward equa-
Onex Partners III has $479 million of undrawn committed
tion for both shareholders and the acquired company. In
limited partners’ capital and ONCAP III has C$387 million
other words, it allows the acquired company to not only
of such undrawn capital.
manage its debt through reasonable business cycles but
Onex Partners IV raised $1.9 billion of commit-
also to have sufficient financial latitude for the business to
ted limited partners’ capital during the fourth quarter of
vigorously pursue its growth objectives.
2013. Onex Partners IV is targeting $3.3 billion in limited
While Onex seeks to optimize the risk/reward
partners’ capital commitments and expects to complete
equation in all acquisitions, there is the risk that the
fundraising during 2014. The ability to raise new capital
acquired company will not generate sufficient profitability
commitments is dependent upon general economic con-
or cash flow to service its debt requirements and/or meet
ditions and the track record or success Onex has achieved
related debt covenants or provide adequate financial
with the management and investment of prior funds. To
flexibility for growth. In such circumstances, additional
date, Onex has a strong track record of investing other
investment by the equity partners, including Onex, may be
investors’ capital and most investors in the original Onex
appropriate. In severe circumstances, the recovery of Onex’
Partners and ONCAP Funds did commit to invest in the
equity and any other investment in that operating com-
successor funds that have been established.
pany is at risk. The decline in the general aviation industry
Onex Corporation December 31, 2013 77
M A N A G E M E N T ’ S D I S C U S S I O N A N D A N A LY S I S
Capital commitment risk The limited partners
in the Onex Partners and ONCAP Funds comprise a rela-
Interest rate risk As previously noted, new invest-
ments generally include a meaningful amount of third-
tively small group of high-quality, primarily institutional,
party debt taken on by the acquired operating company.
investors. To date, each of these investors has met its com-
An important element in controlling risk is to manage, to
mitments on called capital, and Onex has received no
the extent reasonable, the impact of fluctuations in interest
indications that any investor will be unable to meet its
rates on the debt of the operating company.
commitments in the future. While Onex’ experience with
Onex’ operating companies generally seek to fix
its limited partners suggests that commitments will be
the interest on some of their term debt or otherwise mini-
honoured, there is always the risk that a limited partner
mize the effect of interest rate increases on a portion of
may not be able to meet its entire commitment over the life
their debt at the time of acquisition. This is achieved by
of the fund.
Financial risks
In the normal course of business, Onex and its operating
taking on debt at fixed interest rates or entering into inter-
est rate swap agreements or financial contracts to control
the level of interest rate fluctuation on variable rate debt.
At December 31, 2013, approximately 50 percent (2012 –
companies may face a variety of risks related to financial
38 percent) of Onex’ operating companies’ long-term debt
management. In dealing with these risks, it is a matter of
had a fixed interest rate or the interest rate was effectively
Company policy that neither Onex nor its operating com-
fixed by interest rate swap contracts. The risk inherent in
panies engage in speculative derivatives trading or other
such a strategy is that, should interest rates decline, the
speculative activities.
Default on known credit As previously noted,
new investments generally include a meaningful amount
benefit of such declines may not be obtainable or may only
be achieved at the cost of penalties to terminate existing
arrangements. There is also the risk that the counterparty
of third-party debt. Those lenders typically require that the
on an interest rate swap agreement may not be able to
acquired company meet ongoing tests of financial perfor-
meet its commitments. Guidelines are in place that specify
mance as defined by the terms of the lending agreement,
the nature of the financial institutions that operating com-
such as ratios of total debt to operating income (“EBITDA”)
panies can deal with on interest rate contracts.
and the ratio of EBITDA to interest costs. It is Onex’ prac-
The Onex Credit Partners’ CLOs are exposed to
tice to not burden acquired companies with levels of debt
interest rate risk on the debt issued by each CLO as sub-
that might put at risk their ability to generate sufficient
stantially all interest for debt issued by the CLOs is based
levels of profitability or cash flow to service their debts –
on a spread over a floating base rate. However, the interest
and so meet their related debt covenants – or which might
rate risk is largely offset within each CLO by holding invest-
hamper their flexibility to grow.
ments in debt securities, which receive interest based on a
Financing risk The continued volatility in the
global credit markets has created some unpredictability
spread over the same or similar floating base rate.
Onex, the parent company, has some exposure to
about whether businesses, even creditworthy businesses,
interest rate changes primarily through its cash and short-
will be able to obtain new loans. This represents a risk to
term investments, which are held in short-term deposits
the ongoing viability of many otherwise healthy businesses
and commercial paper. A 0.25 percent increase (0.25 per-
whose loans or operating lines of credit are up for renewal
cent decrease) in the interest rate, assuming no significant
in the short term. A significant portion of Onex’ operating
changes in the cash balance at the parent company, would
companies’ refinancing will take place in 2016 and there-
result in a minimal impact on annual interest income. In
after. Table 21 on page 57 of this MD&A provides the aggre-
addition, The Warranty Group, which holds substantially all
gate debt maturities for Onex’ consolidated operating
of its investments in interest-bearing securities, would also
companies and investments in joint ventures and associ-
have some exposure to interest rate changes. A 0.25 percent
ates for each of the years up to 2019 and in total thereafter.
increase in the interest rate would decrease the fair value
78 Onex Corporation December 31, 2013
M A N A G E M E N T ’ S D I S C U S S I O N A N D A N A LY S I S
of the investments held by The Warranty Group by $13 mil-
lion, with a corresponding decrease in other comprehen-
Insurance claims The Warranty Group under-
writes and administers extended warranties and credit
sive earnings. However, as the investments are reinvested, a
insurance on a wide variety of consumer goods, including
0.25 percent increase in the interest rate would increase the
automobiles, consumer electronics and major home appli-
annual interest income recorded by The Warranty Group by
ances. Unlike most property insurance risk, the risk asso-
$5 million.
Currency fluctuations The functional currency
of Onex, the parent company, and substantially all of
ciated with extended warranty claims is non-catastrophic
and short-lived, resulting in predictable loss trends. The
predictability of claims, which is enhanced by the large vol-
Onex’ operating companies is the U.S. dollar. A number of
ume of claims data in the company’s database, enables The
Onex’ operating companies conduct business outside of
Warranty Group to appropriately measure and price risk.
the United States and as a result are exposed to currency
risk on the portion of their business that is not based on
U.S. currency. Fluctuations in the value of the U.S. dollar
Commodity price risk
Certain Onex operating companies are vulnerable to price
relative to other currencies can have an impact on Onex’
fluctuations in major commodities. Individual operat-
reported results and consolidated financial position.
ing companies may use financial instruments to offset the
Onex’ operating companies may use currency derivatives
impact of anticipated changes in commodity prices related
in the normal course of business to hedge against adverse
to the conduct of their businesses. Aluminum, titanium
fluctuations in key operating currencies, but speculative
and raw materials such as carbon fibre used to manufac-
activity is not permitted.
ture composites represent the principal raw materials used
Onex and its operating companies have minimal
in Spirit AeroSystems’ manufacturing operations. Spirit
exposure to fluctuations in the value of the U.S. dollar rela-
AeroSystems has entered into long-term supply contracts
tive to the Canadian dollar.
with its key suppliers of raw materials, which limit the
Onex’ results are reported in U.S. dollars, and
company’s exposure to rising raw materials prices. Most of
fluctuations in the value of the U.S. dollar relative to other
the raw materials purchased are based on a fixed pricing or
currencies can have an impact on Onex’ reported results
at reduced rates through Boeing’s or Airbus’ high-volume
and consolidated financial position. During 2013, Onex’
purchase contracts.
equity balance reflected a $43 million decrease in the value
Silver is a significant commodity used in Care-
of Onex’ equity for the translation of its operating com-
stream Health’s manufacturing of x-ray film. The com-
panies with non-U.S. dollar functional currencies (2012 –
pany’s management continually monitors movement and
$34 million).
trends in the silver market and enters into collar and for-
Fair value changes The fair value measurements
for investments in joint ventures and associates, Limited
ward agreements when considered appropriate to mitigate
some of the risk of future price fluctuations for periods of
Partners’ Interests and carried interest are primarily driven
generally up to a year.
by the underlying fair value of the investments in the Onex
Partners and ONCAP Funds. A change to a reasonably pos-
sible alternative estimate and/or assumption used in the
Regulatory risk
Certain of Onex’ operating companies and investment
valuation of non-public investments in the Onex Partners
advisor affiliates may be subject to extensive governmen-
and ONCAP Funds could have a significant impact on the
tal regulations and oversight with respect to their business
fair values calculated for investments in joint ventures and
activities. The failure to comply with applicable regulations,
associates, Limited Partners’ Interests and carried interest,
obtain applicable regulatory approvals, or maintain those
which would impact both Onex’ financial condition and
approvals so obtained, may subject the applicable operat-
results of operations.
ing company to civil penalties, suspension or withdrawal
of any regulatory approval obtained, injunctions, operat-
ing restrictions and criminal prosecutions and penalties,
which could, individually or in the aggregate, have a mate-
rial adverse effect on Onex’ consolidated financial position.
Onex Corporation December 31, 2013 79
M A N A G E M E N T ’ S D I S C U S S I O N A N D A N A LY S I S
Integration of acquired companies
An important aspect of Onex’ strategy for value creation is
affected by the same event, or to the same extent, simulta-
neously. Ongoing pressure on government appropriations
to acquire what we consider to be “platform” companies.
is a normal aspect of business for these companies, and all
Such companies often have distinct competitive advan-
seek to minimize the effect of possible funding reductions
tages in products or services in their respective industries
through productivity improvements and other initiatives.
that provide a solid foundation for growth in scale and
value. In these instances, Onex works with company man-
agement to identify attractive add-on acquisitions that
Significant customers
Some of Onex’ major acquisitions have been divisions of
may enable the platform company to achieve its goals
large companies. As part of these purchases, the acquired
more quickly and successfully than by focusing solely on
company has often continued to supply its former owner
the development and/or diversification of its customer
through long-term supply arrangements. It has been Onex’
base, which is known as organic growth. Growth by acqui-
policy to encourage its operating companies to quickly
sition, however, may carry more risk than organic growth.
diversify their customer bases to the extent practical in
While as many of these risks as possible are considered
order to manage the risk associated with serving a single
in the acquisition planning, operating companies under-
major customer. Certain Onex operating companies have
taking these acquisitions also face such risks as unknown
major customers that represent more than 10 percent of
expenses related to the cost-effective amalgamation of
their annual revenues. Spirit AeroSystems has one cus-
operations, the retention of key personnel and custom-
tomer that represents approximately 18 percent of Onex’
ers, and the future value of goodwill, intangible assets and
consolidated revenues.
intellectual property. There are also risk factors associated
with the industry and the combined business in general.
Onex works with company management to understand
Environmental considerations
Onex has an environmental protection policy that has been
and attempt to mitigate such risks as much as possible.
adopted by its operating businesses subject to company-
Dependence on government funding
Since 2005, Onex has acquired businesses, or interests
specific modifications; many of the operating businesses
have also adopted supplemental policies appropriate to
their industries or businesses. Senior officers at each of the
in businesses, in various segments of the U.S. healthcare
operating businesses are ultimately responsible for ensuring
industry. Some of the revenues of these companies are par-
compliance with these policies. They are required to report
tially dependent on funding from federal, state and local
annually to their company’s board of directors and/or to
government agencies, especially those agencies respon-
Onex regarding compliance.
sible for U.S. federal Medicare and state Medicaid funding.
Environmental management by the operating
Budgetary pressures, as well as economic, industry, politi-
businesses is generally accomplished through the edu-
cal and other factors, could influence governments to not
cation of employees about environmental regulations
increase or, in some cases, to decrease appropriations for
and appropriate operating policies and procedures; site
the services that are offered by Onex’ operating subsidiaries,
inspections by environmental consultants; the addition of
which could reduce their revenues materially. Future reve-
proper equipment or modification of existing equipment
nues may be affected by changes in rate-setting structures,
to reduce or eliminate environmental hazards; remedia-
methodologies or interpretations that may be proposed
tion activities as required; and ongoing waste reduction
or are under consideration. While each of Onex’ operat-
and recycling programs, all as appropriate to the business.
ing companies in the U.S. healthcare industry is subject to
Environmental consultants may be engaged to advise on
reimbursement risk directly related to its particular business
current and upcoming environmental regulations that may
segment, it is unlikely that all of these companies would be
be applicable.
80 Onex Corporation December 31, 2013
M A N A G E M E N T ’ S D I S C U S S I O N A N D A N A LY S I S
Many of the operating businesses are involved
in the remediation of particular environmental situa-
Other contingencies
Onex and its operating companies are or may become par-
tions, such as soil contamination. In almost all cases,
ties to legal claims arising in the ordinary course of busi-
these situations have occurred prior to Onex’ acquisition
ness. The operating companies have recorded liability
of those businesses, and the estimated costs of remedial
provisions based upon their consideration and analysis
work and related activities are generally managed either
of their exposure in respect of such claims. Such provi-
through agreements with the vendor of the company or
sions are reflected, as appropriate, in Onex’ consolidated
through provisions established at the time of acquisition.
financial statements. Onex, the parent company, has not
Manufacturing activities carry the inherent risk that chang-
currently recorded any further liability provision and we
ing environmental regulations may identify additional situ-
do not believe that the resolution of known claims would
ations requiring capital expenditures or remedial work and
reasonably be expected to have a material adverse impact
associated costs to meet those regulations.
on Onex’ consolidated financial position. However, the final
Income taxes
The Company has investments in companies that oper-
outcome with respect to outstanding, pending or future
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
probable to reverse in the foreseeable future 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 appli-
cation of tax legislation may affect the provision for future
tax and the taxation of deferred amounts. During the third
quarter of 2013, as a result of evaluating recent changes in
tax law for the treatment of surplus and upstream loans,
Onex, the parent company, determined that its previously
recognized deferred tax provisions on gains realized from
the disposition of foreign operating companies are tempo-
rary differences that are probable to not reverse in the fore-
seeable future, consistent with the principles outlined in
IAS 12, Income Taxes. As a result, Onex, the parent com-
pany, recorded a $526 million non-cash recovery of
deferred income taxes, of which $480 million was included
in Onex’, the parent company’s, deferred income tax liabil-
ity at December 31, 2012 and $46 million represents the
provisions established and reversed during 2013.
Onex Corporation December 31, 2013 81
MANAGEMENT’S RESPONSIBILITY
MANAGEMENT’S RESPONSIBILITY
FOR FINANCIAL STATEMENTS
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.
The Board of Directors is responsible for reviewing and approving the consolidated financial statements and over-
seeing management’s performance of its financial reporting responsibilities. An Audit and Corporate Governance Committee
of four 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]
[signed]
[signed]
Donald W. Lewtas
Chief Financial Officer
February 20, 2014
Christine M. Donaldson
Vice President Finance
82 Onex Corporation December 31, 2013
INDEPENDENT AUDITOR’S REPORT
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
comprise the consolidated balance sheets as at December 31, 2013, December 31, 2012 and January 1, 2012, the consolidated
statements of earnings, comprehensive earnings, equity and cash flows for the years ended December 31, 2013 and 2012 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 ethical 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, 2013, December 31, 2012 and January 1, 2012 and their financial per-
formance and their cash flows for the years ended December 31, 2013 and 2012 in accordance with International Financial
Reporting Standards.
[signed]
[signed]
PricewaterhouseCoopers llp
Chartered Professional Accountants, Licensed Public Accountants
Toronto, Canada
February 20, 2014
Onex Corporation December 31, 2013 83
CONSOLIDATED BALANCE SHEETS
(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 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 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 (note 19)
Retained earnings and accumulated other comprehensive earnings
As at
December 31,
2013
As at
December 31,
2012
As at
January 1,
2012
$ 3,191
$ 2,656
$ 2,448
754
3,639
3,872
1,478
12,934
5,105
7,564
2,100
4,695
4,469
730
3,858
4,519
1,443
13,206
5,495
6,424
1,986
4,833
4,358
749
3,272
4,428
1,154
12,051
5,102
5,415
1,776
2,599
2,434
$ 36,867
$ 36,302
$ 29,377
$ 4,342
$ 4,549
$ 3,893
331
1,621
651
1,350
8,295
419
11,319
1,779
2,526
1,225
6,959
32,522
346
3,191
808
4,345
347
1,340
286
1,366
7,888
264
10,184
1,774
2,852
1,683
6,208
30,853
358
3,822
1,269
5,449
263
909
482
1,400
6,947
180
6,479
1,727
2,368
1,059
4,980
23,740
360
3,863
1,414
5,637
See accompanying notes to the consolidated financial statements, including the changes in accounting policies retroactively adopted on January 1, 2013, as described in note 1.
$ 36,867
$ 36,302
$ 29,377
Signed on behalf of the Board of Directors
[signed]
Director
[signed]
Director
84 Onex Corporation December 31, 2013
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 21)
Increase in value of investments in joint ventures and associates at fair value, net (note 8(a))
Stock-based compensation expense (note 22)
Other gains (note 23)
Other items (note 24)
Impairment of goodwill, intangible assets and long-lived assets, net (note 25)
Limited Partners’ Interests charge (note 17)
Earnings (loss) before income taxes and discontinued operations
Recovery of (provision for) income taxes (note 16)
Loss from continuing operations
Earnings from discontinued operations (note 3)
Net Earnings (Loss) 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 (Loss) for the Year
Net Earnings (Loss) per Subordinate Voting Share of Onex Corporation (note 26)
Basic and Diluted:
Continuing operations
Discontinued operations
Net Loss for the Year
2013
2012
$ 27,809
$ 24,917
(21,843)
(4,197)
(19,908)
(3,276)
106
(619)
(537)
(813)
1,098
(349)
561
(449)
(319)
(1,855)
(1,407)
333
(1,074)
261
60
(538)
(318)
(514)
863
(239)
59
(46)
(65)
(929)
66
(76)
(10)
26
$ (813)
$ 16
$ (605)
(469)
$ (1,074)
$ (143)
133
$ (10)
$ (354)
(459)
$ (813)
$ (128)
144
$ 16
$ (5.34)
2.22
$ (1.25)
0.13
$ (3.12)
$ (1.12)
See accompanying notes to the consolidated financial statements, including the changes in accounting policies retroactively adopted on January 1, 2013, as described in note 1.
Onex Corporation December 31, 2013 85
CONSOLIDATED STATEMENTS
OF COMPREHENSIVE EARNINGS
Year ended December 31 (in millions of U.S. dollars)
Net earnings (loss) for the year
Other comprehensive earnings (loss), net of tax
Items that may be reclassified to net earnings (loss):
Currency translation adjustments
Change in fair value of derivatives designated as hedges
Unrealized gains (loss) on available-for-sale financial assets
Items that will not be reclassified to net earnings (loss):
Remeasurements for post-employment benefit plans
Other comprehensive earnings from discontinued operations, net of tax (note 3)
Other comprehensive earnings, net of tax
Total Comprehensive Earnings (Loss) for the Year
Total Comprehensive Earnings (Loss) attributable to:
Equity holders of Onex Corporation
Non-controlling Interests
Total Comprehensive Earnings (Loss) for the Year
2013
$ (813)
2012
$ 16
(48)
(24)
(29)
(101)
174
5
78
32
24
15
71
(69)
2
4
$ (735)
$ 20
$ (336)
(399)
$ (735)
$ (127)
147
$ 20
See accompanying notes to the consolidated financial statements, including the changes in accounting policies retroactively adopted on January 1, 2013, as described in note 1.
86 Onex Corporation December 31, 2013
CONSOLIDATED STATEMENTS OF EQUITY
(in millions of U.S. dollars except per share data)
Balance – January 1, 2012
Change in accounting policy (note 1)
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(c)
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
Remeasurements for post-employment
benefit plans (note 32)
Other comprehensive earnings from
discontinued operations, net of tax (note 3)
Balance – December 31, 2012
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(c)
Non-controlling interests on sale of investments
in operating companies (notes 3 and 23)
Non-controlling interests on conversion of
promissory notes
Comprehensive Earnings (Loss)
Net 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 loss on available-for-sale
financial assets
Remeasurements for post-employment
benefit plans (note 32)
Other comprehensive earnings from
discontinued operations, net of tax (note 3)
Share
Capital
(note 18)
$ 360
–
–
(2)
–
–
–
–
–
–
–
–
–
$ 358
–
(12)
–
–
–
–
–
–
–
–
–
–
–
Retained
Earnings
$ 1,433
2
(13)
(22)
36
–
(19)
(128)
–
–
–
(37)
–
$ 1,252
(15)
(141)
–
–
–
–
31
(354)
–
–
–
87
–
Accumulated
Other
Comprehensive
Earnings
(Loss)
Total Equity
Attributable
to Equity
Holders of Onex
Corporation
$ (21)(b)
–
–
–
–
–
–
$ 1,772
2
(13)
(24)
36
–
(19)
Non-
controlling
Interests
$ 3,857
6
–
–
113
(5)
(296)
(128)
144
Total
Equity
$ 5,629
8
(13)
(24)
149
(5)
(315)
16
32
24
15
(69)
2
11
21
2
(32)
1
$ 3,822
–
–
119
(2)
(109)
$ 5,449
(15)
(153)
119
(2)
(109)
(209)
(31)
(459)
(12)
(13)
(4)
87
2
(209)
–
(813)
(48)
(24)
(29)
174
5
–
21
3
13
–
1
$ 17(d)
–
–
–
–
–
–
–
–
(36)
(11)
(25)
–
3
21
3
13
(37)
1
$ 1,627
(15)
(153)
–
–
–
–
31
(354)
(36)
(11)
(25)
87
3
Balance – December 31, 2013
$ 346
$ 860
$ (52)(e)
$ 1,154
$ 3,191
$ 4,345
(a) Dividends declared per Subordinate Voting Share during 2013 totalled C$0.14 (2012 – C$0.11). In 2013, shares issued under the dividend reinvestment plan amounted to less
than $1 (2012 – 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, 2012 consisted of currency translation adjustments of negative $63, unrealized losses on the effective
(c)
portion of cash flow hedges of $3 and unrealized gains on available-for-sale financial assets of $45. Accumulated Other Comprehensive Earnings (Loss) as at January 1, 2012
included $4 of net losses related to discontinued operations. Income taxes did not have a significant effect on these items.
Repurchase of shares of operating companies consisted primarily of shares repurchased by Celestica under its normal course issuer bid during 2012 and 2013, and its substan-
tial issuer bid completed during the fourth quarter of 2012. During 2013, Celestica repurchased approximately 4.1 million of its subordinate voting shares (2012 – 35.8 million)
for a cash cost of $44 (2012 − $289). In addition, during the fourth quarter of 2012, Sitel Worldwide repurchased common shares from a third-party investor for $1.
(d) Accumulated Other Comprehensive Earnings (Loss) as at December 31, 2012 consisted of currency translation adjustments of negative $41 and unrealized gains on available-
for-sale financial assets of $58. Accumulated Other Comprehensive Earnings (Loss) as at December 31, 2012 included $3 of net losses related to discontinued operations.
Income taxes did not have a significant effect on these items.
(e) Accumulated Other Comprehensive Earnings (Loss) as at December 31, 2013 consisted of currency translation adjustments of negative $74, unrealized losses on the effective
portion of cash flow hedges of $11 and unrealized gains on available-for-sale financial assets of $33. Income taxes did not have a significant effect on these items.
See accompanying notes to the consolidated financial statements, including the changes in accounting policies retroactively adopted on January 1, 2013, as described in note 1.
Onex Corporation December 31, 2013 87
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 (recovery of) income taxes (note 16)
Interest income
Interest expense of operating companies (note 21)
Net earnings (loss) 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, net
Increase in value of investments in joint ventures and associates at fair value, net (note 8(a))
Stock-based compensation expense
Other gains (note 23)
Impairment of goodwill, intangible assets and long-lived assets, net (note 25)
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
Increase in cash and cash equivalents due to changes in working capital items
Decrease in other operating activities
Increase 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
Distributions paid to non-controlling interests and Limited Partners (note 17)
Change in restricted cash for distribution to Limited Partners (note 17)
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 $14 (2012 – $275) (note 2)
Purchase of property, plant and equipment
Proceeds from sale of property, plant and equipment
Proceeds from sale of investment in joint ventures and associates at fair value (note 8(a))
Proceeds from sale of operating investment no longer controlled (notes 3 and 23)
Distributions received from investments in joint ventures and associates of Onex Partners (note 8(a))
Purchase of investments in joint venture of Onex Partners (note 8(a))
Cash interest and dividends received
Net purchases of investments and securities (note 8)
Decrease due to other investing activities
Cash flows used for investing activities of discontinued operations (note 3)
Increase 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 (note 3)
Cash and Cash Equivalents
Cash and cash equivalents held by discontinued operations (note 3)
Cash and Cash Equivalents Held by Continuing Operations
2013
2012
$ (1,074)
$ (10)
(333)
(106)
813
(700)
(234)
619
537
(25)
(1,098)
13
(561)
319
1,855
95
114
934
(123)
650
19
31
577
(115)
73
117
1,586
4,106
(2,834)
(697)
(14)
(153)
(109)
401
47
(1,542)
35
(70)
(28)
(858)
(513)
(835)
290
908
1,060
52
–
72
(1,062)
(49)
(115)
(192)
536
(1)
2,629
27
3,191
–
76
(60)
514
520
(294)
538
318
32
(863)
211
(59)
65
929
91
96
1,584
(39)
371
18
33
383
(96)
22
150
2,043
2,320
(1,495)
(445)
(12)
(24)
(315)
1,311
34
(982)
(35)
(65)
(117)
175
(1,393)
(607)
31
326
71
676
(165)
19
(785)
(73)
(115)
(2,015)
203
5
2,339
109
2,656
27
$ 3,191
$ 2,629
See accompanying notes to the consolidated financial statements, including the changes in accounting policies retroactively adopted on January 1, 2013, as described in note 1.
88 Onex Corporation December 31, 2013
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, insurance provider, customer care services, building prod-
ucts, commercial vehicles, aircraft leasing and management, business services/tradeshows, plastics processing equipment, business
services/packaging, industrial products, gaming and insurance brokerage. Additionally, the Company has investments in real estate,
credit strategies and mid-market private equity opportunities. Note 34 provides additional 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 and also indirectly holds 18% of the outstanding Subordinate Voting Shares of the corporation as at December 31, 2013.
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 20, 2014.
1. B A S I S O F P R E PA R AT I O N A N D S I G N I F I C A N T
C O N S O L I D AT I O N
A C C O U N T I N G P O L I C I E S
S TAT 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.
The U.S. dollar is the Company’s functional currency.
As such, the financial statements have been reported on a U.S.
dollar basis.
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”), Onex Partners III LP (“Onex Partners III”) and Onex
Partners IV LP (“Onex Partners IV”), 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). In addition,
Onex indirectly controls and consolidates the operations of the
collateralized loan obligations of Onex Credit Partners. The results
of operations of subsidiaries are included in the consolidated
financial statements from the date that control commences until
the date that control ceases. All significant intercompany balances
and transactions have been eliminated.
Certain investments in operating companies over which
the Company has joint control or significant influence, but not
control, are designated, upon initial recognition, at fair value
through earnings. As a result, these investments are recorded at
fair value in the consolidated balance sheets, with changes in fair
value recognized in the consolidated statements of earnings.
Onex Corporation December 31, 2013 89
N O T E S T O C O N S O L I D AT E D F I N A N C I A L S TAT E M E N T S
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, 2013
December 31, 2012
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
Skilled Healthcare Group, Inc. (“Skilled Healthcare Group”)
Spirit AeroSystems, Inc. (“Spirit AeroSystems”)
Investments made through Onex and Onex Partners II
Allison Transmission Holdings, Inc. (“Allison Transmission”)
Carestream Health, Inc. (“Carestream Health”)
RSI Home Products, Inc. (“RSI”)(b)
TMS International Corp. (“TMS International”)(c)
Investments made through Onex, Onex Partners I
and Onex Partners II
The Warranty Group, Inc. (“The Warranty Group”)
Investments made through Onex and Onex Partners III
BBAM Limited Partnership (“BBAM”)(d)
Emerald Expositions, LLC (“Emerald Expositions”)
JELD-WEN Holding, inc. (“JELD-WEN”)(e)
KraussMaffei Group GmbH (“KraussMaffei”)
SGS International, Inc. (“SGS International”)
Tomkins Limited (“Tomkins”)
Tropicana Las Vegas, Inc. (“Tropicana Las Vegas”)
USI Insurance Services (“USI”)(f)
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 Credit Partners(h)
Onex Real Estate Partners (“Onex Real Estate”)
11%
70%
9%
5%
8%
36%
(b)
(c)
29%
13%
24%
18%
24%
23%
14%
18%
26%
11%
70%
39%
16%
27%
92%
(b)
(c)
91%
50%
99%
72%
96%
93%
56%
82%
92%
75%
89%
86%
63%
(a)
100%
(b)
(c)
100%
50%(a)
99%
72%
100%
93%
50%(a)
82%
100%
20%
98%
100%
46%(g)
29%
70%
88%
100%
100%
70%
88%
100%
100%
50%
100%
10%
70%
9%
5%
13%
37%
20%
24%
29%
13%
–
16%
25%
24%
14%
18%
37%
20%
46%(g)
29%
70%
88%
10%
70%
39%
16%
41%
93%
50%
60%
91%
50%
–
64%
97%
94%
56%
83%
93%
98%
100%
100%
70%
88%
Voting
74%
89%
87%
63%
(a)
100%
50% (a)
90%
100%
50% (a)
–
64%
100%
94%
50% (a)
83%
100%
100%
100%
100%
50%
100%
(a) Onex exerts joint control or 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.
(b) RSI was sold during the first quarter of 2013, as described in note 8(a).
(c) TMS International was sold during the fourth quarter of 2013 and is presented as a discontinued operation, as described in note 3.
(d) In connection with the investment in BBAM, Onex established Meridian Aviation Partners Limited (“Meridian Aviation”) in February 2013. Onex’ and the Limited Partners’
economic interest in Meridian Aviation at December 31, 2013 was 100%, of which Onex’ economic ownership was 25%. Onex’ voting interest in Meridian Aviation was
100% at December 31, 2013.
(e) The economic ownership and voting interests of JELD-WEN are presented on an as-converted basis as the Company’s investment is in convertible preferred shares.
The allocation of net earnings and comprehensive earnings attributable to equity holders of Onex Corporation and non-controlling interests is calculated using an
as-converted economic ownership of 77% at December 31, 2013 (2012 – 71%) to reflect certain JELD-WEN shares that are recorded as liabilities at fair value.
In April 2013, all of the outstanding convertible promissory notes were converted into Series A Convertible Preferred Stock of JELD-WEN, as described in note 12(e).
(f)
In March 2013, Onex sold a portion of its original investment in USI to certain limited partners and others, as described in note 2.
(g) Represents Onex’ blended economic ownership in the ONCAP II investments.
(h) Represents Onex’ share of the Onex Credit Partners asset management platform.
The ownership percentages are before the effect of any potential dilution relating to the Management Investment Plans (the “MIP”), as
described in note 31(j). The allocation of net earnings and comprehensive earnings attributable to equity holders of Onex Corporation and
non-controlling interests is calculated 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.
90 Onex Corporation December 31, 2013
N O T E S T O C O N S O L I D AT E D F I N A N C I A L S TAT E M E N T S
C H A N G E S I N A C C O U N T I N G P O L I C I E S
the Company to measure fair value and did not result in any mea-
The Company has adopted the following new and revised stan-
surement adjustments as at January 1, 2013. Enhanced disclosures
dards, along with any consequential amendments, effective
are included in these consolidated financial statements.
January 1, 2013. These changes were made in accordance with the
applicable transitional provisions.
IAS 1 – Presentation of Financial Statements
IFRS 10 – Consolidated Financial Statements
Financial Statements, effective January 1, 2013. These amend ments
IFRS 10, Consolidated Financial Statements, replaces the guid-
required the Company to group other comprehensive income items
ance on control and consolidation in IAS 27, Consolidated and
by those that will be reclassified subsequently to earnings or loss
Separate Financial Statements, and SIC-12, Consolidation – Special
and those that will not be reclassified. The Company has reclassi-
Purpose Entities. IFRS 10 requires consolidation of an investee
fied comprehensive income items of the comparative period. These
only if the investor possesses power over the investee, has expo-
changes did not result in any adjustments to other comprehensive
The Company has adopted the amendments to IAS 1, Presenta tion of
sure to variable returns from its involvement with the investee
income or total comprehensive income.
and has the ability to use its power over the investee to affect its
returns. Detailed guidance is provided on applying the definition
IAS 19 – Employee Future Benefits
of control. The accounting requirements for consolidation have
IAS 19, Employee Future Benefits (amended in 2011), requires the
remained largely consistent with IAS 27. The Company deter-
net defined benefit liabilities (assets) to be recognized on the bal-
mined that the adoption of IFRS 10 on January 1, 2013 did not
ance sheet without any deferral of actuarial gains and losses and
result in any change in the consolidation status of any of its sub-
past service costs, as previously allowed. Past service costs are
sidiaries and investees.
IFRS 11 – Joint Arrangements and
IAS 28 – Investments in Associates and Joint Ventures
recognized in net earnings when incurred. Expected returns on
plan assets are no longer included in post-employment benefits
expense. Instead, post-employment benefits expense includes the
net interest on the net defined benefit liabilities (assets) calculated
IFRS 11, Joint Arrangements, supersedes IAS 31, Interests in Joint
using a discount rate based on market yields on high quality bonds.
Ventures, and requires joint arrangements to be classified either
Remeasurements consisting of actuarial gains and losses, the actual
as joint operations or joint ventures depending on the contrac-
return on plan assets (excluding the net interest component) and
tual rights and obligations of each investor that jointly controls
any change in the asset ceiling are recognized in other comprehen-
the arrangement. An investment in a joint venture is accounted
sive income. The Company continues to immediately recognize
for using the equity method as set out in IAS 28, Investments
in retained earnings all pension adjustments recognized in other
in Associates and Joint Ventures (amended in 2011). The other
comprehensive income. The Company also continues to recognize
amendments to IAS 28 did not affect the Company. The Company
interest expense (income) on net post-employment benefits liabili-
has classified its joint arrangements and concluded that the adop-
ties (assets) in the consolidated statements of earnings.
tion of IFRS 11 did not result in any changes in the accounting for
The Company adopted these amendments retroactively
its joint arrangements.
and adjusted its opening equity as at January 1, 2012 to recognize
previously unrecognized past service costs and adjustments to the
IFRS 12 – Disclosure of Interests in Other Entities
asset ceiling for post-employment plans.
IFRS 12, Disclosure of Interests in Other Entities, requires an entity
The effects on the consolidated financial statements of
to disclose information that enables users of financial statements
adopting the amendments to IAS 19 were not significant. Onex Cor-
to evaluate the nature of, and risks associated with, its interest
po ration, the ultimate parent company, does not provide pension,
in other entities and the effects of those interests on its financial
other retirement or post-retirement benefits to its employees or to
position, financial performance and cash flows. The Company
those of any of the operating companies and does not have any obli-
adopted IFRS 12 on January 1, 2013 in accordance with the IFRS 12
gations and has not made any guarantees with respect to the plans
transition provisions. Enhanced disclosures are included in these
of the operating companies.
consolidated financial statements.
IFRS 13 – Fair Value Measurement
The Company has early adopted the amendments to IAS 36, Impair
IFRS 13, Fair Value Measurement, provides a single framework for
ment of Assets, effective January 1, 2013. These amendments clarify
measuring fair value and requires enhanced disclosures when fair
and introduce additional disclosures about fair value measurements
value is used for measurement. The Company adopted IFRS 13 on
when there has been an impairment or impairment reversal. The
January 1, 2013 on a prospective basis. The adoption of IFRS 13 did
disclosures required by IAS 36 after adoption of the amendments
not require any adjustments to the valuation techniques used by
are included in these consolidated financial statements.
IAS 36 – Impairment of Assets
Onex Corporation December 31, 2013 91
N O T E S T O C O N S O L I D AT E D F I N A N C I A L S TAT E M E N T S
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
accounts receivable are transferred to an unrelated third party.
the currency of the primary economic environment in which it
The transfers are recorded as sales of accounts receivable, as the
operates. For such operations, monetary assets and liabilities
operating companies do not retain any financial or legal interest
denominated in foreign currencies are translated into U.S. dollars
in the sold accounts receivable. The accounts receivable are sold at
at the year-end exchange rates. Non-monetary assets and liabili-
their face value less a discount as provided in the agreements.
ties 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. The determination of net realizable value requires signifi-
currency denominated transactions. These exchange gains and
cant judgement, including consideration of factors such as
losses are recognized in earnings.
shrinkage, the aging of and future demand for inventory and con-
Assets and liabilities of foreign operations with non-U.S.
tractual arrangements with customers. To the extent that circum-
dollar functional currencies are translated into U.S. dollars using
stances have changed subsequently such that the net realizable
the year-end exchange rates. Revenue and expenses are translated
value has increased, previous writedowns are reversed and rec-
at the average exchange rates prevailing during the month of the
ognized in the consolidated statements of earnings in the period
transaction. Gains and losses arising from the translation of these
the reversal occurs. For inventories in the aerostructures segment,
foreign operations are deferred in the currency translation account
costs are attributed to units delivered under long-term contracts
included in equity.
Cash and cash equivalents
based on the estimated average cost of all units expected to be
produced. Certain inventories in the healthcare segment are
stated using an average cost method. For substantially all other
Cash and cash equivalents includes liquid investments such as
inventories, cost is determined on a first-in, first-out basis.
term deposits, money market instruments and commercial paper
Inventories include real estate assets of Flushing Town
with original maturities of less than three months. The invest-
Center that are available for sale. Real estate assets held-for-sale
ments are carried at cost plus accrued interest, which approxi-
are recorded at the lower of cost or net realizable value.
mates fair value.
Short-term investments
Property, plant and equipment is recorded at cost less accumu-
Short-term investments consist of liquid investments such as
lated amortization and provisions for impairment, if any. Cost
money market instruments and commercial paper with original
consists of expenditures directly attributable to the acquisition of
maturities of three months to a year. The investments are carried
the asset. The costs of construction of qualifying long-term assets
Property, plant and equipment
at fair value.
Accounts receivable
include capitalized interest, as applicable.
Land is not amortized. For substantially all remaining
property, plant and equipment, amortization is provided for on
Accounts receivable are recognized initially at fair value and sub-
a straight-line basis over the estimated useful lives of the assets
sequently measured at amortized cost using the effective inter-
as follows:
est method. A provision is recorded for impairment when there is
objective evidence (such as significant financial difficulties of the
Buildings
up to 45 years
debtor) that the Company will not be able to collect all amounts
Machinery and equipment
up to 20 years
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-
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
solidated statements of earnings. When a receivable is considered
permanently uncollectible, the receivable is written off against the
prospectively.
allowance account.
92 Onex Corporation December 31, 2013
N O T E S T O C O N S O L I D AT E D F I N A N C I A L S TAT E M E N T S
Investment property
Intangible assets
Investment property includes commercial property held to earn
Intangible assets, including intellectual property and software, are
rental income and property that is being constructed or devel-
recorded at their fair value at the date of acquisition of the related
oped for future use as investment property. Investment property is
operating company or cost if internally generated or purchased.
included with property, plant and equipment in the consolidated
Amortization is provided for intangible assets with limited life. For
balance sheets and recorded at cost less accumulated amortiza-
substantially all limited life intangible assets, amortization is pro-
tion and provisions for impairment, if any.
vided for on a straight-line basis over their estimated useful lives
The cost of investment property includes direct develop-
as follows:
ment costs, property transfer taxes and borrowing costs directly
attributable to the development of the property.
Trademarks and licenses
1 year to 30 years
The Company’s investment property consists of Flushing
Customer relationships
3 years to 30 years
Town Center’s retail space and parking structures. The fair value
of Flushing Town Center’s investment property at December 31,
2013 was $398 (2012 – $452), which is collateral for the outstanding
long-term debt of Flushing Town Center. The fair value of Flushing
Town Center’s investment property is a Level 3 measurement in the
fair value hierarchy and was calculated primarily by discounting
the expected net operating income using a discount and terminal
capitalization rate of 6.50%. For the year ended December 31, 2013,
property, plant and equipment additions included $5 (2012 − $4)
related to Flushing Town Center’s investment property.
Leases
Leases of property, plant and equipment where the Company, as
lessee, has substantially all the risks and rewards of ownership
are classified as finance leases. Finance leases are capitalized at
the lease’s commencement at the lower of the fair value of the
leased property or the present value of the minimum lease pay-
ments. Each lease payment is allocated between the liability and
finance charges so as to achieve a constant interest rate on the
balance outstanding. The corresponding lease obligations, net of
finance charges, are included in the consolidated balance sheets.
Property, plant and equipment acquired under finance leases is
depreciated over the shorter of the useful life of the asset and the
lease term.
Leases in which a significant portion of the risks and
rewards of ownership are retained by the lessor are classified
as operating leases. When the Company is the lessee, payments
made under operating leases (net of any incentives received from
the lessor) are recorded in the consolidated statements of earn-
ings on a straight-line basis over the period of the lease. Certain
of the operating companies lease out investment property and
property, plant and equipment under operating leases. When the
Company is the lessor, payments received under operating leas-
es (net of any incentives provided by the operating companies)
are recognized in the consolidated statements of earnings on a
straight-line basis over the period of the lease.
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 prospec-
tive basis.
Goodwill
Goodwill is initially measured as the excess of the aggregate of the
consideration transferred, the fair value of any contingent consid-
eration, the amount of any non-controlling interest 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 inter-
est in the acquired company compared to the net fair value of the
identifiable assets and liabilities acquired. Substantially all of the
goodwill and intangible asset amounts that appear in the consoli-
dated balance sheets are recorded by the operating companies. The
recoverability of goodwill is assessed annually or whenever events
or changes in circumstances indicate that the carrying amount may
not be recoverable. Judgement is required in determining whether
events or changes in circumstances during the year are indica-
tors that a review for impairment should be conducted prior to the
annual assessment. For the purposes of impairment testing, good-
will is allocated to the cash generating units (“CGUs”) of the busi-
ness whose acquisition gave rise to the goodwill. Impairment of
goodwill is tested at the level where goodwill is monitored for inter-
nal management purposes. Therefore, goodwill may be assessed for
impairment at the level of either an individual CGU or a group of
CGUs. The determination of CGUs and the level at which goodwill
is monitored requires judgement by management. The carrying
amount of a CGU or a group of CGUs is compared to its recover-
able amount, which is the higher of its value-in-use or fair value
less costs to sell, to determine if an impairment exists. Impairment
losses for goodwill are not reversed in future periods.
Onex Corporation December 31, 2013 93
N O T E S T O C O N S O L I D AT E D F I N A N C I A L S TAT E M E N T S
Impairment charges recorded by the operating compa-
nies under IFRS may not impact the fair values of the operating
companies used in determining the change in carried interest and
Other current liabilities
Profit-sharing provisions relating to the insurance
provider segment
for calculating the Limited Partners’ Interests liability. Fair values of
Certain arrangements with producers of warranty contracts
the operating companies are assessed at the enterprise level, while
include profit-sharing provisions whereby the underwriting
impairment charges are assessed at the level of either an individual
profits, after a fixed percentage allowance for the company and an
CGU or group of CGUs.
allowance for investment income, are remitted to the producers
on a retrospective basis. Unearned premiums and contract fees
Investments in joint ventures and associates
subject to retrospective commission agreements totalled $400 at
Joint ventures and associates are those entities over which the
December 31, 2013 (2012 − $400).
Company has joint control or significant influence, but not con-
trol. Certain investments in joint ventures and associates are des-
Financing charges
ignated, upon initial recognition, at fair value through earnings
Financing charges consist of costs incurred by the operating com-
in accordance with IAS 39, Financial Instruments: Recognition
panies relating to the issuance of debt and are amortized over the
and Measurement. As a result, the investments are recorded at
term of the related debt or as the debt is retired, if earlier. These
fair value in the consolidated balance sheets, with changes in fair
unamortized financing charges are netted against the carrying
value recognized in the consolidated statements of earnings.
value of the long-term debt, as described in note 12.
Impairment of long-lived assets
Losses and loss adjustment expenses reserves
Property, plant and equipment, investment property and intan-
Losses and loss adjustment expenses reserves relate to The
gible assets are reviewed for impairment annually or whenever
Warranty Group and represent the estimated ultimate net cost of
events or changes in circumstances suggest that the carrying
all reported and unreported losses incurred and unpaid through
amount of an asset may not be recoverable. Judgement is required
December 31, 2013. The Warranty Group does not discount losses
in determining whether events or changes in circumstances dur-
and loss adjustment expenses reserves. The reserves for unpaid
ing the year are indicators that a review for impairment should be
losses and loss adjustment expenses are estimated using individ-
conducted prior to the annual assessment. An impairment loss is
ual case-basis valuations and statistical analyses. Those estimates
recognized when the carrying value of an asset or CGU exceeds the
are subject to the effects of trends in loss severity and frequen-
recoverable amount. The recoverable amount of an asset or CGU is
cy and claims reporting patterns of the company’s third-party
the greater of its value-in-use or its fair value less costs to sell.
administrators. Although considerable variability is inherent in
Impairment losses for long-lived assets are reversed in
such estimates, management believes the reserves for losses and
future periods if the circumstances that led to the impairment
loss adjustment expenses are reasonable. The estimates are con-
no longer exist. The reversal is limited to restoring the carrying
tinually reviewed and adjusted as necessary as experience devel-
amount that would have been determined, net of amortization,
ops or new information becomes known; such adjustments are
had no impairment loss been recognized in prior periods.
included in current operations.
Other non-current assets
Acquisition costs relating to the insurance provider segment
Provisions
A provision is a liability of uncertain timing or amount and is gen-
Certain costs of the warranty business, principally commissions,
erally recognized when the Company has a present obligation as
underwriting and sales expenses that result directly from, and
a result of a past event, it is probable that payment will be made
are essential to, the acquisition of new business, are deferred
to settle the obligation and the payment can be reliably estimat-
and amortized as the related premiums and contract fees are
ed. Judgement is required to determine the extent of an obliga-
earned. The possibility of premium deficiencies and the related
tion and whether it is probable that a payment will be made. The
recoverability of deferred acquisition costs is evaluated annu-
Company’s significant provisions consist of the following:
ally. Management considers the effect of anticipated investment
income in its evaluation of premium deficiencies and the related
a) Self-insurance
recoverability of deferred acquisition costs. Deferred acquisition
Self-insurance provisions may be established for automobile, work-
costs are derecognized when related contracts are either settled
ers’ compensation, general liability, professional liability and other
or cancelled.
94 Onex Corporation December 31, 2013
claims. Provisions are established for claims based on an assess-
ment of actual claims and claims incurred but not reported. The
reserves may be established based on consultation with third-party
independent actuaries using actuarial principles and assumptions
N O T E S T O C O N S O L I D AT E D F I N A N C I A L S TAT E M E N T S
that consider a number of factors, including historical claim pay-
plan liabilities expected to arise from employee service in the cur-
ment patterns and changes in case reserves, and the assumed rate
rent period. The past service cost is the change in the benefit obli-
of inflation in healthcare costs and property damage repairs.
gation in respect of employee service in prior periods and which
b) Warranty
results from a plan amendment or curtailment. Past service costs
(or recoveries) from plan amendments are recognized immedi-
Certain operating companies offer warranties on the sale of prod-
ately in earnings, whether vested or unvested.
ucts or services. A provision is recorded to provide for future war-
Remeasurements, consisting of actuarial gains and loss-
ranty costs based on management’s best estimate of probable
es, the actual return on plan assets (excluding the net interest com-
claims under these warranties. The provision is based on the terms
ponent) and any change in the asset ceiling, are recognized in other
of the warranty, which vary by customer and product or service
comprehensive earnings. Remeasurements recognized in other
and historical experience. The appropriateness of the provision is
comprehensive earnings are directly recorded in retained earnings,
evaluated at the end of each reporting period. The warranty provi-
without recognition to the consolidated statements of earnings.
sions exclude reserves recognized by The Warranty Group for its
Defined contribution plan accounting is applied to multi-
warranty contracts.
c) Restructuring
employer defined benefit plans, for which the operating companies
have insufficient information to apply defined benefit accounting.
Note 32 provides further details on pension and non-
Restructuring provisions are recognized only when a detailed
pension post-retirement benefits.
formal plan for the restructuring – including the concerned busi-
ness or part of the business, the principal locations affected,
Limited Partners’ Interests
details regarding the employees affected, the restructuring’s tim-
The interests of the Limited Partners and other investors through
ing and the expenditures that will have to be undertaken – has
the Onex Partners and ONCAP Funds are recorded as a financial
been developed and the restructuring has either commenced or
liability in accordance with IAS 32, Financial Instruments:
the plan’s main features have already been publicly announced to
Presentation. The structure of the Onex Partners and ONCAP
those affected by it.
Funds as defined in the partnership agreements, specifically the
limited life of the Funds, requires presentation of the Limited
Note 11 provides further details on provisions recognized by
Partners’ Interests as a liability. The liability is recorded at fair
the Company.
value and is impacted by the change in fair value of the under-
lying investments in the Onex Partners and ONCAP Funds, the
Pension and non-pension post-retirement benefits
change in carried interest, as well as any contributions by and dis-
Onex, the parent company, does not provide pension, other retire-
tributions to Limited Partners in those Funds. Adjustments to the
ment or post-retirement benefits to its employees or to those of
fair value of the Limited Partners’ Interests are reflected through
any of the operating companies. The operating companies that
earnings, net of the change in carried interest.
have pension and non-pension post-retirement benefits accrue
Note 17 provides further details on Limited Partners’
their obligations under such employee benefit plans and related
Interests.
costs, net of plan assets. The costs of defined benefit pensions and
other post-retirement benefits earned by employees are accrued
Income taxes
in the period incurred and are actuarially determined using the
Income taxes are recorded using the asset and liability method of
projected unit credit method pro-rated on length of service, based
income tax allocation. Under this method, assets and liabilities
on management’s judgement and best estimates of assumptions
are recorded for the future income tax consequences attributable
for factors which impact the ultimate cost, including salary esca-
to differences between the financial statement carrying values of
lation, retirement ages of employees, the discount rate used in
assets and liabilities and their respective income tax bases, and on
measuring the liability and expected healthcare costs.
tax loss and tax credit carryforwards. Deferred tax assets are recog-
Plan assets are recorded at fair value at each reporting
nized only to the extent that it is probable that taxable profit will
date. Where a plan is in a surplus, the value of the net asset recog-
be available against which the deductible temporary differences
nized is restricted to the present value of any economic benefits
as well as tax loss and tax credit carryforwards can be utilized.
available in the form of refunds from the plan or reductions in
These deferred income tax assets and liabilities are recorded using
future contributions to the plan.
substantively enacted income tax rates. The effect of a change in
The cost of defined benefit plans recognized in the con-
income tax rates on these deferred income tax assets or liabili-
solidated statements of earnings comprises the net total of the
ties is included in income in the period in which the rate change
current service cost, the past service cost, gains or losses from
occurs. Certain of these differences are estimated based on current
settlements and the net interest expense or income. The current
tax legislation and the Company’s interpretation thereof.
service cost represents the increase in the present value of the
Onex Corporation December 31, 2013 95
N O T E S T O C O N S O L I D AT E D F I N A N C I A L S TAT E M E N T S
Income tax expense or recovery is based on the income
Aerostructures
earned or loss incurred in each tax jurisdiction and the enacted or
A significant portion of Spirit AeroSystems’ revenues is under
substantively enacted tax rate applicable to that income or loss.
long-term volume-based pricing contracts, requiring delivery of
Tax expense or recovery is recognized in the income statement,
products over several years. Revenue from these contracts is rec-
except to the extent that it relates to items recognized directly in
ognized under the contract method of accounting in accordance
equity, in which case the tax effect is also recognized in equity.
with IAS 11, Construction Contracts. Revenues and costs are recog-
Deferred tax liabilities for taxable temporary differences
nized on each contract by reference to the percentage-of-comple-
associated with investments in subsidiaries, joint ventures and
tion of the contract activity primarily using the units-of-delivery
associates are recognized, except when the Company is able to
method. The contract method of accounting involves the use of
control the timing of the reversal of temporary differences and it
various estimating techniques to project costs at completion and
is probable that the temporary differences will not reverse in the
includes estimates of recoveries asserted against customers for
foreseeable future.
changes in specifications. Due to the significant length of time
In the ordinary course of business, there are transac-
over which these estimates will be developed and applied, the
tions for which the ultimate tax outcome is uncertain. The final
impact to recognized revenues and costs may be significant if the
tax outcome of these matters may be different from the judge-
estimates change. These estimates involve various assumptions
ments and estimates originally made by the Company in deter-
and projections relative to the outcome of future events, including
mining its income tax provisions. The Company periodically
the quantity and timing of product deliveries based on contrac-
evaluates the positions taken with respect to situations in which
tual terms and market projections. Also included are assumptions
applicable tax rules and regulations are subject to interpreta-
relative to future labour performance and rates, projections rela-
tion. Provisions related to tax uncertainties are established where
tive to material and overhead costs and expected “learning curve”
appropriate based on the best estimate of the amount that will
cost reductions over the terms of the contracts.
ultimately be paid to or received from tax authorities. Accrued
Where the outcome of a contract cannot be reliably
interest and penalties relating to tax uncertainties are recorded in
estimated, all contract-related costs are expensed and revenues
current income tax expense.
are recognized only to the extent that those costs are recoverable.
Note 16 provides further details on income taxes.
When the outcome of such contracts becomes reliably estimable,
revenues are recognized prospectively.
Revenue recognition
The company periodically re-evaluates its contract esti-
Revenues are recognized net of estimated returns and allowances,
mates and reflects changes in estimates in the current period, and
trade discounts and volume rebates, where applicable. Where the
uses the cumulative catch-up method of accounting for revisions
Company is responsible for shipping and handling to customers,
to estimates of total revenue, total costs or extent of progress on
amounts charged for these services are recognized as revenue,
a contract.
and shipping and handling costs incurred are reported as a com-
During the year ended December 31, 2013, the com-
ponent of cost of sales in the consolidated statements of earnings.
pany recognized revenues of $5,736 (2012 – $5,178) for contracts
Electronics Manufacturing Services
accounted for under the contract method of accounting. Contracts
in progress at December 31, 2013 had recognized cumulative costs
Revenue from the electronics manufacturing services segment
of $33,638 (2012 – $28,071) and recognized cumulative earnings of
consists primarily of product sales and services. Revenue is rec-
$3,543 (2012 – $3,675). Additionally, these contracts had received
ognized when significant risks and rewards of ownership have
advances of $1,916 (2012 – $1,897) and retentions of nil (2012 – nil).
been transferred to the customer and receivables are reasonably
At December 31, 2013, the company was due $2,059 (2012 – $2,389)
assured of collection.
from customers for contract work and $29 (2012 – $1) was due to
For certain customers, warehousing services are pro-
customers for contract work.
vided in connection with manufacturing services. Contracts are
For revenues not recognized under the contract method
assessed to determine whether the manufacturing and warehous-
of accounting, Spirit AeroSystems recognizes revenues from the
ing services can be accounted for as separate units of accounting.
sale of products at the point of passage of title, which is generally
If the services do not constitute separate units of accounting, or
at the time of shipment. Revenues earned from providing main-
the manufacturing services do not meet all of the revenue rec-
tenance services, including any contracted research and devel-
ognition requirements, revenue recognition is deferred until the
opment, are recognized when the service is complete or other
products have been shipped to the customer.
substantive contractual milestones are attained. Milestone pay-
96 Onex Corporation December 31, 2013
ments are recognized as revenue when milestones are deemed to
be substantive and are achieved. Milestone payments collected in
advance that are subject to significant future performance obli-
gations are presented as advance payments or deferred revenue,
and are recognized as revenue when the milestone is achieved.
N O T E S T O C O N S O L I D AT E D F I N A N C I A L S TAT E M E N T S
Healthcare
agreements are calculated to result in premiums and contract fees
Revenue in the healthcare segment consists of Skilled Healthcare
being earned over the period at risk. Factors are developed based on
Group’s patient service revenue, Carestream Health’s product sales
historical analyses of claim payment patterns over the duration of
revenue, ResCare’s client service revenue and CDI’s patient service
the policies in force. All other unearned premiums and contract fees
and healthcare provider management service revenue (up to July
are determined on a pro rata basis.
2012). Service revenue is recognized at the time of service if rev-
Reinsurance premiums, commissions, losses and loss
enues and costs can be reliably measured and economic benefits
adjustment expenses are accounted for on bases consistent with
are expected to be received, and is recorded net of provisions
those used in accounting for the original policies issued and the
for contractual discounts and estimated uncompensated care.
terms of the reinsurance contracts. Premiums ceded to other
Revenue from product sales is recognized when the following cri-
companies have been reported as a reduction of revenue. Expense
teria are met: significant risks and rewards of ownership have been
reimbursement received in connection with reinsurance ceded
transferred; involvement in the capacity as an owner of the goods
has been accounted for as a reduction of the related acquisition
has ceased; revenue and costs incurred can be reliably measured;
costs. Reinsurance receivables and prepaid reinsurance premium
and economic benefits are expected to be realized.
amounts are reported as assets.
Insurance Provider
Customer Care Services
The insurance provider segment revenue consists of revenue
The customer care services segment generates revenue primarily
from The Warranty Group’s warranty contracts primarily in North
through the provision of a wide array of outsourced customer care
America and Europe. The company records revenue and associ-
management services, including customer service, technical sup-
ated unearned revenue on warranty contracts issued by North
port and customer acquisition, retention and revenue generation
American obligor companies at the net amount remitted by the
services. These services support its clients’ customers through
selling dealer or at retailer “dealer cost”. Cancellations of these
phone, e-mail, online chat, interactive voice response and social
contracts are typically processed through the selling dealer or
media channels and are generally charged by the minute or hour,
retailer, and the company refunds only the unamortized balance
per employee, per subscriber or user, or on a per item basis for
of the dealer cost. However, the company is primarily liable for
each transaction processed. Revenue is recognized to the extent
these contracts and must refund the full amount of customer retail
that it is probable that future economic benefits will be received
price if the selling dealer or retailer cannot or will not refund its
and revenue can be reliably measured. A portion of the revenue
portion. The amount the company has historically been required
is often subject to performance standards. Revenue subject to
to pay under such circumstances has been negligible.
monthly or longer performance standards is recognized when
The company records revenue and associated unearned
such performance standards are met.
revenue at the customer retail price on warranty contracts issued
The company is reimbursed by clients for certain pass-
by statutory insurance companies domiciled in Europe. The dif-
through out-of-pocket expenses, consisting primarily of telecom-
ference between the customer retail price and dealer cost is rec-
munication, employee performance incentive, and postage and
ognized as commission and deferred as a component of deferred
shipping costs. The reimbursement and related costs are reflected
acquisition costs.
in the accompanying consolidated statements of earnings as rev-
The company has dealer obligor and administrator obli-
enue and cost of services, respectively.
gor service contracts with the dealers or retailers to facilitate the
sale of extended warranty contracts. Dealer obligor service contracts
Building Products
result in sales of extended warranty contracts in which the dealer/
Revenue from the building products segment primarily consists
retailer is designated as the obligor. Administrator obligor service
of product sales. Revenue is recognized when significant risks
contracts result in sales of extended warranty contracts in which
and rewards of ownership have been transferred to the customer;
the company is designated as the obligor. For both dealer obligor
involvement in the capacity as an owner of the goods has ceased;
and administrator obligor, premium and/or contract fee revenue
revenue and costs incurred can be reliably measured; and receiv-
is recognized over the contractual exposure period of the contracts
ables are reasonably assured of collection. Incentive payments
or historical claim payment patterns. Unearned premiums and
to customers are recorded as a reduction of revenue over the
contract fees on single-premium insurance related to warranty
periods benefited.
Onex Corporation December 31, 2013 97
N O T E S T O C O N S O L I D AT E D F I N A N C I A L S TAT E M E N T S
Other
Research and development
Other segment revenues consist of product sales, services and
Research and development activities can be either (a) contracted
construction contracts:
or (b) self-initiated:
•
Revenue from product sales is recognized when the following
criteria are met: significant risks and rewards of ownership have
been transferred; involvement in the capacity as an owner of the
a) Costs for contracted research and development activities, car-
ried out in the scope of externally financed research and devel-
goods has ceased; revenue and costs incurred can be reliably
opment contracts, are expensed when the related revenues are
measured; and economic benefits are expected to be realized.
recorded.
Where product sales are subject to customer acceptance, rev-
enue is recognized at the earlier of receipt of customer accep-
tance or expiration of the acceptance period. Where product
b) Costs for self-initiated research and development activities
are assessed as to whether they qualify for recognition as inter-
sales require the Company to install the product at the customer
nally generated intangible assets. Apart from complying with
location and such installation is essential to the functionality of
the general requirements for initial measurement of an intan-
the product, revenue is recognized when the product has been
gible asset, qualification criteria are met only when technical as
delivered to and installed at the customer location.
well as commercial feasibility can be demonstrated and cost can
•
Revenue from services is recognized at the time of service,
be reliably measured. It must also be probable that the intan-
when revenues and costs can be reliably measured and eco-
gible asset will generate future economic benefits, be clearly
nomic benefits are expected to be received by the company.
identifiable and allocable to a specific product. Further to meet-
Where services performed are subject to customer acceptance,
ing these criteria, only such costs that relate solely to the develop-
revenue is recognized at the earlier of receipt of customer
ment phase of a self-initiated project are capitalized. Any costs
acceptance or expiration of the acceptance period.
that are classified as part of the research phase of a self-initiated
•
Revenues from construction contracts are recognized on
project are expensed as incurred. If the research phase cannot be
each contract by reference to the percentage-of-completion
clearly distinguished from the development phase, the respec-
of the contract activity primarily by comparing contract costs
tive project-related costs are treated as if they were incurred in
incurred to the estimated total contract costs. The contract
the research phase only. Capitalized development costs are gen-
method of accounting involves the use of various estimating
erally amortized over the estimated number of units produced.
techniques to project costs at completion and includes esti-
In cases where the number of units produced cannot be reliably
mates of ultimate profitability and final contract settlements.
estimated, capitalized development costs are amortized over the
Any expected loss from a construction contract is recognized in
estimated useful life of the internally generated intangible asset.
the period when the estimated total contract costs exceed the
Internally generated intangible assets are reviewed for impair-
estimated total contract revenue. Where the outcome of a con-
ment annually when the asset is not yet in use or when events or
struction contract cannot be reliably estimated, all contract-
changes in circumstances indicate that the carrying amount may
related costs are expensed and revenues are recognized only to
not be recoverable and the asset is in use.
the extent that those costs are recoverable. When the outcome
During 2013, $212 (2012 – $175) of research and develop-
of the construction of such contracts becomes reliably estima-
ment costs were expensed and $38 of development costs (2012 –
ble, revenues are recognized prospectively.
$12) were capitalized. Capitalized development costs relating to
the aerostructures segment are included in intangible assets.
For arrangements where the Company derives revenues from
multiple service or products elements, the recognition of reve-
Stock-based compensation
nues is separated based on the relative fair value of each element
The Company follows the fair value-based method of accounting,
separately identified in the arrangements.
which is applied to all stock-based compensation plans.
There are five types of stock-based compensation
Depending on the terms under which the operating companies
plans. The first is the Company’s Stock Option Plan (the “Plan”),
supply products, they may also be responsible for some or all of
described in note 18(e), which provides that in certain situations
the repair or replacement costs of defective products. The com-
the Company has the right, but not the obligation, to settle any
panies establish provisions for issues that are probable and esti-
exercisable option under the Plan by the payment of cash to the
mable in amounts management believes are adequate to cover
option holder. The Company has recorded a liability for the poten-
ultimate projected claim costs. The final amounts determined
tial future settlement of the vested options at the balance sheet
to be due related to these matters could differ significantly from
date by reference to the fair value of the liability. The liability is
recorded estimates.
98 Onex Corporation December 31, 2013
adjusted each reporting period for changes in the fair value of the
options with the corresponding amount reflected in the consoli-
dated statements of earnings.
N O T E S T O C O N S O L I D AT E D F I N A N C I A L S TAT E M E N T S
The second type of plan is the MIP, which is described
in the market value of the underlying shares, with the correspond-
in note 31(j). The MIP provides that exercisable investment rights
ing amount reflected in the consolidated statements of earnings.
may be settled by issuance of the underlying shares or, in cer-
To economically hedge the Company’s exposure to changes in the
tain situations, by a cash payment for the value of the investment
trading price of Onex shares associated with the Management DSU
rights. The Company has recorded a liability for the potential
Plan, the Company enters into forward agreements with a coun-
future settlement of the vested rights at the balance sheet date by
terparty financial institution for all grants under the Management
reference to the fair value of the liability. The liability is adjusted
DSU Plan. As such, the change in value of the forward agreements
each reporting period for changes in the fair value of the rights
will be recorded to offset the amounts recorded as stock-based
with the corresponding amount reflected in the consolidated
compensation under the Management DSU Plan. The administra-
statements of earnings.
tive costs of those arrangements are borne entirely by participants
The third type of plan is the Director Deferred Share
in the plan. Management DSUs are redeemable only for cash and
Unit Plan (“Director DSU Plan”). A Deferred Share Unit (“DSU”)
no shares or other securities of the Corporation will be issued on
entitles the holder to receive, upon redemption, a cash payment
the exercise, redemption or other settlement thereof. Details of
equivalent to the market value of a Subordinate Voting Share
the Management DSUs outstanding under the plan are provided
at the redemption date. The Director DSU Plan enables Onex
in note 18(d).
Directors to apply directors’ fees earned to acquire DSUs based
The fifth type of plan is employee stock option and
on the market value of Onex shares at the time. Grants of DSUs
other stock-based compensation plans in place for employees at
may also be made to Onex Directors from time to time. The DSUs
various operating companies, under which, on payment of the
vest immediately, are redeemable only when the holder retires
exercise price, stock of the particular operating company or cash
and must be redeemed within one year following the year of
is issued. The Company records a compensation expense for such
retirement. Additional units are issued for any cash dividends
options based on the fair value over the vesting period.
paid on the Subordinate Voting Shares. The Company has record-
ed a liability for the future settlement of the DSUs by reference
Carried interest
to the value of underlying Subordinate Voting Shares at the bal-
Onex, as the General Partner of the Onex Partners and ONCAP
ance sheet date. On a quarterly basis, the liability is adjusted for
Funds, is entitled to a portion (20%) of the realized net gains of
the change in the market value of the underlying shares, with the
the limited partners in each Fund. This share of the net gains is
corresponding amount reflected in the consolidated statements
referred to as carried interest. Onex is entitled to 40% of the car-
of earnings. To economically hedge a portion of the Company’s
ried interest realized in the Onex Partners Funds. The Onex man-
exposure to changes in the trading price of Onex shares, the
agement team is entitled to the remaining 60% of the carried
Company entered into a forward agreement for a portion of out-
interest realized in the Onex Partners Funds. The ONCAP manage-
standing Director DSUs with a counterparty financial institution.
ment team is entitled to that portion of the carried interest real-
The change in value of the forward agreement will be recorded
ized in the ONCAP Funds that equates to a 12% carried interest on
to partially offset the amounts recorded as stock-based com-
both limited partners’ and Onex capital.
pensation under the Director DSU Plan. Details of the Director
The unrealized carried interest of the Onex Partners
DSUs outstanding under the plan and the portion hedged by the
and ONCAP Funds is calculated based on the fair values of the
Company are provided in note 18(d).
underlying investments and the overall unrealized gains in each
The fourth type of plan is the Management Deferred
respective Fund in accordance with the limited partnership agree-
Share Unit Plan (“Management DSU Plan”). The Management
ments. The unrealized carried interest reduces the amount due
DSU Plan enables Onex management to apply all or a portion of
to the Limited Partners and will eventually be paid through the
their annual compensation earned to acquire DSUs based on the
realization of the Limited Partners’ share of the underlying Onex
market value of Onex shares at the time. The DSUs vest immedi-
Partners and ONCAP Fund investments. The change in net carried
ately and are redeemable only when the holder has ceased to be
interest attributable to Onex is recognized through the charge for
an officer or employee of the Company or an affiliate for a cash
the Limited Partners’ Interests. The unrealized carried interest of
payment equal to the then current market price of Subordinate
the Onex Partners and ONCAP Funds attributable to management
Voting Shares. Additional units are issued for any cash dividends
is recognized as a liability within other non-current liabilities. The
paid on the Subordinate Voting Shares. The Company has recorded
charge for the change in net carried interest attributable to man-
a liability for the future settlement of the DSUs by reference to the
agement is recorded within other items in the consolidated state-
value of underlying Subordinate Voting Shares at the balance sheet
ments of earnings.
date. On a quarterly basis, the liability is adjusted for the change
Onex Corporation December 31, 2013 99
N O T E S T O C O N S O L I D AT E D F I N A N C I A L S TAT E M E N T S
Financial assets and financial liabilities
c) Held-to-maturity investments
Financial assets and financial liabilities are initially recognized
Securities that have fixed or determinable payments and a fixed
at fair value and are subsequently accounted for based on their
maturity date, which the Company intends and has the ability to
classification as described below. Transaction costs in respect of an
hold to maturity, are classified as held-to-maturity and account-
asset or liability not recorded at fair value through net earnings are
ed for at amortized cost using the effective interest rate method.
added to the initial carrying amount. Gains and losses for financial
Investments classified as held-to-maturity are written down to
instruments recognized through net earnings are primarily rec-
fair value through earnings whenever it is necessary to reflect an
ognized in other items in the consolidated statements of earn-
impairment. Impairments are determined based on all relevant
ings. The classification of financial assets and financial liabilities
facts and circumstances for each investment and recognized
depends on the purpose for which the financial instruments were
when appropriate.
acquired and their characteristics. Except in very limited circum-
stances, the classification is not changed subsequent to initial rec-
d) Loans and receivables
ognition. Financial assets purchased and sold, where the contract
Financial assets that are non-derivative with fixed or determin-
requires the asset to be delivered within an established time frame,
able payments that are not quoted in an active market are classi-
are recognized on a trade-date basis.
fied as loans and receivables. These instruments are accounted for
at amortized cost using the effective interest rate method.
a) Fair value through net earnings
Financial assets and financial liabilities that are purchased and
e) Financial liabilities measured at amortized cost
incurred with the intention of generating earnings in the near
Financial liabilities not classified as fair value through net earn-
term are classified as fair value through net earnings. Other
ings or loans and receivables are accounted for at amortized cost
instruments may be designated as fair value through net earn-
using the effective interest rate method. Long-term debt has been
ings on initial recognition. The long-term debt of the Onex Credit
designated as a financial liability measured at amortized cost with
Partners Collateralized Loan Obligations (“OCP CLOs”) are desig-
the exception of long-term debt in the OCP CLOs, which have
nated at fair value through net earnings upon initial recognition
been designated to be recorded at fair value through net earnings.
to eliminate a measurement inconsistency, as the asset portfolio
of the OCP CLOs is recorded at fair value through net earnings.
Derivatives and hedge accounting
b) Available-for-sale
At the inception of a hedging relationship, the Company docu-
ments the relationship between the hedging instrument and the
Financial assets classified as available-for-sale are carried at fair
hedged item, its risk management objectives and its strategy for
value, with the changes in fair value recorded in other comprehen-
undertaking the hedge. The Company also requires a documented
sive earnings. Securities that are classified as available-for-sale and
assessment, both at hedge inception and on an ongoing basis, of
which do not have a quoted price in an active market are recorded
whether or not the derivatives that are used in the hedging transac-
at fair value, unless fair value is not reliably determinable, in which
tions are highly effective in offsetting the changes attributable to
case they are recorded at cost. Available-for-sale securities are writ-
the hedged risks in the fair values or cash flows of the hedged items.
ten down to fair value through earnings whenever it is necessary
Derivatives that are not designated as effective hedg-
to reflect an impairment. Gains and losses realized on disposal of
ing relationships continue to be accounted for at fair value with
available-for-sale securities, which are calculated on an average
changes in fair value being included in other items in the consoli-
cost basis, are recognized in earnings. Impairments are determined
dated statements of earnings.
based upon all relevant facts and circumstances for each invest-
When derivatives are designated as effective hedging
ment and recognized when appropriate. Foreign exchange gains
relationships, the Company classifies them either as: (a) hedges
and losses on available-for-sale assets are recognized immediately
of the change in fair value of recognized assets or liabilities or firm
in earnings.
commitments (fair value hedges); (b) hedges of the variability
in highly probable future cash flows attributable to a recognized
asset or liability or a forecasted transaction (cash flow hedges); or
(c) hedges of net investments in a foreign self-sustaining opera-
tion (net investment hedges).
100 Onex Corporation December 31, 2013
N O T E S T O C O N S O L I D AT E D F I N A N C I A L S TAT E M E N T S
a) Fair value hedges
Impairment of financial instruments
Changes in the fair value of derivatives that are designated and
The Company assesses at each reporting date whether there is
qualify as fair value hedging instruments are recorded in the con-
objective evidence that a financial asset or group of financial
solidated statements of earnings, along with changes in the fair
assets is impaired. Where an impairment exists for available-for-
value of the assets, liabilities or group thereof that are attributable
sale financial assets, the cumulative loss, measured as the differ-
to the hedged risk.
b) Cash flow hedges
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.
The Company is exposed to variability in future interest cash
flows on non-trading assets and liabilities that bear interest at
De-recognition of financial instruments
variable rates or are expected to be reinvested in the future.
A financial asset is de-recognized if substantially all risks and
The effective portion of changes in the fair value of deriv-
rewards of ownership and, in certain circumstances, control of the
atives that are designated and qualify as cash flow hedges is rec-
financial asset are transferred. A financial liability is de-recognized
ognized in other comprehensive earnings. Any gain or loss in fair
when it is extinguished, with any gain or loss on extinguishment
value relating to the ineffective portion is recognized immediately
to be recognized in other items in the consolidated statements
in the consolidated statements of earnings in other items.
of earnings.
Amounts accumulated in other comprehensive earnings
are reclassified in the consolidated statements of earnings in the
Government assistance
period in which the hedged item affects earnings. However, when
The operating companies may receive government assistance in
the forecasted transaction that is hedged results in the recogni-
the form of grants or investment tax credits for the acquisition of
tion of a non-financial asset or a non-financial liability, the gains
capital assets and other expenditures. Government assistance is
and losses previously deferred in other comprehensive earnings
recognized when there is reasonable assurance that the operating
are transferred from other comprehensive earnings and included
companies will realize the benefits. Government assistance relat-
in the initial measurement of the cost of the asset or liability.
ing to the acquisition of capital assets is deducted from the costs
When a hedging instrument expires or is sold, or when
of the related assets and amortization is calculated on the net
a hedge no longer meets the criteria for hedge accounting, any
amount. Other forms of government assistance relating to operat-
cumulative gain or loss existing in other comprehensive earnings
ing expenditures are recorded as a reduction of the expense at the
at that time remains in other comprehensive earnings until the
time the expense is incurred.
forecasted transaction is eventually recognized in the consoli-
dated statements of earnings. When a forecasted transaction is
Assets held-for-sale and discontinued operations
no longer expected to occur, the cumulative gain or loss that was
An asset is classified as held-for-sale if its carrying amount will be
reported in other comprehensive earnings is immediately trans-
recovered by the assets’ sale rather than by its continuing use in
ferred to the consolidated statements of earnings.
the business, the asset is available for immediate sale in its present
c) Net investment hedges
condition, and management is committed to, and has initiated, a
plan to sell the asset which, when initiated, is expected to result
Hedges of net investments in foreign operations are accounted for
in a completed sale within 12 months. An extension of the period
in a manner similar to cash flow hedges. Any gain or loss on the
required to complete the sale does not preclude the asset from
hedging instrument relating to the effective portion of the hedge
being classified as held-for-sale, provided the delay is for reasons
is recognized in other comprehensive earnings. The gain or loss
beyond the Company’s control and management remains commit-
relating to the ineffective portion is recognized immediately in
ted to its plan to sell the asset. Assets that are classified as held-
the consolidated statements of earnings in other items. Gains and
for-sale are measured at the lower of their carrying amount or fair
losses accumulated in other comprehensive earnings are included
value less costs to sell and are no longer depreciated. The determi-
in the consolidated statements of earnings upon the reduction or
nation of fair value less costs to sell involves judgement by manage-
disposal of the investment in the foreign operation.
ment to determine the probability and timing of disposition and
the amount of recoveries and costs.
A discontinued operation is a component of the Com-
pany that has either been disposed of, or satisfies the criteria to
be classified as held-for-sale, and represents a separate major line
of business or geographic area of operations, is part of a single
coordinated plan to dispose of a separate major line of business
or geographic area of operations, or is an operating company
acquired exclusively with a view to its disposal.
Onex Corporation December 31, 2013 101
N O T E S T O C O N S O L I D AT E D F I N A N C I A L S TAT E M E N T S
Use of judgements and estimates
During 2013 and 2012, Onex invested capital in the Onex
The preparation of financial statements in conformity with
Credit Partners’ CLOs and warehouse facilities as described in
IFRS requires management to make judgements, estimates and
note 8(c) and 8(e). Onex intends to provide additional financial
assumptions that affect the reported amounts of assets and liabil-
collateral for the warehouse facility of Onex Credit Partners’ fifth
ities, the related disclosures of contingent assets and liabilities at
CLO, OCP CLO-5. The collateral to be provided for the warehouse
the date of the financial statements, and the reported amounts of
facility of OCP CLO-5 is expected to be substantially reinvested in
revenue and expenses during the reporting period. Actual results
the most subordinate capital of OCP CLO-5 upon closing.
could differ materially from those estimates and assumptions.
These estimates and underlying assumptions are reviewed on an
ongoing basis. Revisions to accounting estimates are recognized
Limited Partners’ Interests, carried interest
and investments in joint ventures and associates
in the period in which the estimate is revised if the revision affects
The measurement of the Limited Partners’ Interests, carried inter-
only that period, or in the period of the revision and future peri-
est and investments in joint ventures and associates is significantly
ods if the revision affects both current and future periods.
impacted by the fair values of the Company’s investments held
Areas that involve critical judgements, assumptions and
by the Onex Partners and ONCAP Funds. The fair values of these
estimates and that have a significant influence on the amounts
investments are assessed at each reporting date with changes
recognized in the consolidated financial statements are further
reflected in the measurement of the Limited Partners’ Interests, car-
described as follows:
Business combinations
ried interest and investments in joint ventures and associates.
The valuation of the non-public investments held by
the Onex Partners and ONCAP Funds requires significant judge-
In a business combination, all identifiable assets, liabilities and
ment by the Company due to the absence of quoted market val-
contingent liabilities acquired are recorded at the date of acqui-
ues, inherent lack of liquidity and the long-term nature of such
sition at their respective fair values. One of the most significant
assets. Valuation methodologies include observations of the trad-
areas of judgement and estimation relates to the determination
ing multiples of public companies considered comparable to the
of the fair value of these assets and liabilities, including the fair
private companies being valued and discounted cash flows. The
value of contingent consideration, if applicable. Land, buildings
valuations take into consideration company-specific items, the
and equipment are usually independently appraised while short-
lack of liquidity inherent in a non-public investment and the fact
term investments are valued at market prices. If any intangible
that comparable public companies are not identical to the com-
assets are identified, depending on the type of intangible asset
panies being valued. Considerations are necessary because, in the
and the complexity of determining its fair value, an indepen-
absence of a committed buyer and completion of due diligence
dent external valuation expert may develop the fair value, using
similar to that performed in an actual negotiated sale process,
appropriate valuation techniques, which are generally based on
there may be company-specific items that are not fully known that
a forecast of the total expected future net cash flows. These valua-
may affect value. In addition, a variety of additional factors are
tions are linked closely to the assumptions made by management
reviewed by management, including, but not limited to, financing
regarding the future performance of the assets concerned and any
and sales transactions with third parties, current operating per-
changes in the discount rate applied.
formance and future expectations of the particular investment,
In certain circumstances where estimates have been
changes in market outlook and the third-party financing envi-
made, the companies may obtain third-party valuations of certain
ronment. In determining changes to the valuations, emphasis is
assets, which could result in further refinement of the fair-value
placed on current company performance and market conditions.
allocation of certain purchase prices and accounting adjustments.
For publicly traded investments, the valuation is based on closing
market prices less adjustments, if any, for regulatory and/or con-
Consolidation of structured entities
tractual sale restrictions.
Onex indirectly controls and consolidates the operations of the col-
The Limited Partners’ Interests and carried interest are
lateralized loan obligations (“CLOs”) of Onex Credit Partners. The
measured with significant unobservable inputs (Level 3 of the
CLOs are structured entities for which voting and similar rights are
fair value hierarchy). Further information is provided in note 17.
not the dominant factor in determining control of the CLOs. Onex
Investments in joint ventures and associates designated at fair
has used judgement when assessing the many factors to determine
value are measured with significant unobservable inputs (Level 3 of
control, including its exposure through investments in the most
the fair value hierarchy), with the exception of Allison Transmission
subordinate capital of the CLOs, its role in the formation of the
(beginning March 2012), which is measured with significant other
CLOs, the rights of other investors in the CLOs and its joint control
observable inputs (Level 2 of the fair value hierarchy). Further
of the asset manager of the CLOs. Onex has determined that it is
information is provided in notes 8 and 28.
a principal of the CLOs with the power to affect the returns of its
investment and, as a result, indirectly controls the CLOs.
102 Onex Corporation December 31, 2013
N O T E S T O C O N S O L I D AT E D F I N A N C I A L S TAT E M E N T S
Goodwill impairment tests and recoverability of assets
cost reduction opportunities, as well as the estimated number of
The Company tests at least annually whether goodwill has suf-
units to be manufactured under the contract and other variables.
fered any impairment, in accordance with its accounting policies.
During 2013, Spirit AeroSystems recognized $1,133 (2012 –
The determination of the recoverable amount of a CGU (or group
$644) of pre-tax forward-loss charges.
of CGUs) to which goodwill is allocated involves the use of esti-
mates by management. The Company generally uses discounted
Revenue recognition
cash flow-based methods to determine these values. These dis-
Revenues for Skilled Healthcare Group and ResCare in the health-
counted cash flow calculations typically use five-year projections
care segment are substantially derived from U.S. federal, state
that are based on the operative plans approved by management.
and local government agency programs, including Medicare and
Cash flow projections take into account past experience and rep-
Medicaid. Laws and regulations under these programs are com-
resent management’s best estimate of future developments. Cash
plex and subject to interpretation. Management may be required
flows after the planning period are extrapolated using estimated
to exercise judgement for the recognition of revenue under these
growth rates. Key assumptions on which management has based
programs. Management of those businesses believes that they are
its determination of fair value less costs to sell and value-in-use
in compliance with all applicable laws and regulations. Compliance
include estimated growth rates, weighted average cost of capital
with such laws and regulations is subject to ongoing and future gov-
and tax rates. These estimates, including the methodology used,
ernment review and interpretation, including the possibility of pro-
can have a material impact on the respective values and ulti-
cessing claims at lower amounts upon audit, as well as significant
mately the amount of any goodwill impairment. Note 25 provides
regulatory action including revenue adjustments, fines, penalties
details on the significant estimates used in the calculation of the
and exclusion from programs. Government agencies may condi-
recoverable amounts for impairment testing. Likewise, whenever
tion their contracts upon a sufficient budgetary appropriation. If a
property, plant and equipment and other intangible assets are
government agency does not receive an appropriation sufficient to
tested for impairment, the determination of the assets’ recoverable
cover its contractual obligations, it may terminate the contract or
amount involves the use of estimates by management and can
defer or reduce reimbursements to be received by the Company. In
have a material impact on the respective values and ultimately the
addition, previously appropriated funds could also be reduced or
amount of any impairment.
eliminated through subsequent legislation.
Construction contract accounting
Income taxes
Spirit AeroSystems’ accounting for construction contracts in the
The Company, including the operating companies, operates and
aerostructures segment involves critical assumptions and esti-
earns income in numerous countries and is subject to changing
mates which have a significant influence on the amounts recog-
tax laws in multiple jurisdictions within these countries. Significant
nized in the consolidated financial statements. The revenue recog-
judgements are necessary in determining worldwide income tax
nition policy for the aerostructures segment provides a description
liabilities. Although management believes that it has made rea-
of the critical assumptions and estimates used by the company. A
sonable estimates about the final outcome of tax uncertainties, no
significant portion of future revenues in the aerostructures seg-
assurance can be given that the final outcome of these tax matters
ment is expected to be derived from new programs for which the
will be consistent with what is reflected in the historical income
company may be contracted to provide design and engineer-
tax provisions. Such differences could have an effect on income tax
ing services, recurring production, or both. There are several
liabilities and deferred tax liabilities in the period in which such
risks inherent in such new programs. In the design and engineer-
determinations are made. At each balance sheet date, the Company
ing phase, the company may incur costs in excess of our forecasts
assesses whether the realization of future tax benefits is sufficiently
due to several factors, including cost overruns, customer directed
probable to recognize deferred tax assets. This assessment requires
change orders and delays in the overall program. The company
the exercise of judgement on the part of management with respect
may also incur higher than expected recurring production costs,
to, among other things, benefits that could be realized from avail-
which may be caused by a variety of factors, including the future
able tax strategies and future taxable income, as well as other posi-
impact of engineering changes (or other change orders) or an
tive and negative factors. The recorded amount of total deferred
inability to secure contracts with suppliers at projected cost lev-
tax assets could be reduced if estimates of projected future taxable
els. The ability to recover these excess costs from customers will
income and benefits from available tax strategies are lowered, or if
depend on several factors, including the company’s rights under
changes in current tax regulations are enacted that impose restric-
its contracts for the new programs. The recognition of earnings and
tions on the timing or extent of the Company’s ability to utilize
losses under these new contracts requires the company to make
future tax benefits.
significant assumptions regarding its future costs, ability to achieve
Onex Corporation December 31, 2013 103
N O T E S T O C O N S O L I D AT E D F I N A N C I A L S TAT E M E N T S
The Company, including the operating companies, uses
ation model include the fair value of the underlying investments,
significant judgement when determining whether to recognize
the time to expected exit from each investment, a risk-free rate
deferred tax liabilities with respect to taxable temporary differ-
and an industry comparable historical volatility for each invest-
ences associated with investments in subsidiaries, joint ventures
ment. The fair value of the underlying investments includes criti-
and associates; in particular, whether the Company is able to con-
cal assumptions and estimates as described above for Limited
trol the timing of the reversal of the temporary differences and
Partners’ Interests, carried interest and investments in joint ven-
whether it is probable that the temporary differences will not
tures and associates.
reverse in the foreseeable future. Judgement includes consider-
ation of the Company’s future cash requirements in its numerous
Earnings per share
tax jurisdictions.
Legal provisions and contingencies
Basic earnings per share is based on the weighted average
number of Subordinate Voting Shares outstanding during the
year. Diluted earnings per share is calculated using the trea-
The Company and its operating companies in the normal course
sury stock method.
of operations become involved in various legal proceedings, as
described in note 31(b). While the Company cannot predict the
Dividend distributions
final outcome of such legal proceedings, the outcome of these
Dividend distributions to the shareholders of Onex Corporation
matters may have a material effect on the Company’s con-
are recognized as a liability in the consolidated balance sheets in
solidated financial position, results of operations or cash flows.
the period in which the dividends are declared and authorized by
Management regularly analyzes current information about these
the Board of Directors.
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
making the decision regarding the need for provisions, manage-
ment considers the degree of probability of an unfavourable out-
R E C E N T LY 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
Investment Entity Amendments
come and the ability to make a sufficiently reliable estimate of the
In October 2012, the IASB issued amendments to IFRS 10, Consoli
amount of loss. The filing of a suit or formal assertion of a claim or
dated Financial Statements, IFRS 12, Disclosure of Interests in Other
the disclosure of any such suit or assertion does not automatically
Entities and IAS 27, Separate Financial Statements, to include an
indicate that a provision may be appropriate.
exception to the consolidation requirements for investment enti-
Employee benefits
ties as defined in the amendments issued by the IASB. The amend-
ments are effective for annual periods beginning on or after
Onex, the parent company, does not provide pension, other retire-
January 1, 2014, with earlier application permitted. The impact of
ment or post-retirement benefits to its employees or to those of
adopting these amendments is not expected to have a significant
any of the operating companies. The operating companies that
effect on Onex’ consolidated financial statements.
have pension and non-pension post-retirement benefits account
for these benefits in accordance with actuarial valuations. These
IFRS 9 – Financial Instruments
valuations rely on statistical and other factors in order to antici-
In November 2009, the IASB issued IFRS 9, Financial Instruments,
pate future events. These factors include key actuarial assump-
which represents the first phase of its replacement of IAS 39, Finan
tions, including the discount rate, expected salary increases and
cial Instruments: Recognition and Measurement, and introduces
mortality rates. These actuarial assumptions may differ materi-
new requirements for the classification and measurement of finan-
ally from actual developments due to changing market and eco-
cial assets and removes the need to separately account for certain
nomic conditions and therefore may result in a significant change
embedded derivatives.
in post-retirement employee benefit obligations and the related
In December 2013, the IASB issued updates to IFRS 9 to
future expense. Note 32 provides details on the estimates used in
incorporate new hedge accounting requirements that increase the
accounting for pensions and post-retirement benefits.
scope of items that can qualify as a hedged item and change the
Stock-based compensation
use hedge accounting.
The Company’s stock-based compensation accounting for its MIP
The effective date for IFRS 9 has been deferred by the
options is completed using an internally developed valuation
IASB. The Company is currently evaluating the impact of adopting
model. The critical assumptions and estimates used in the valu-
this standard on its consolidated financial statements.
requirements of hedge effectiveness testing that must be met to
104 Onex Corporation December 31, 2013
N O T E S T O C O N S O L I D AT E D F I N A N C I A L S TAT E M E N T S
IFRIC 21 – Levies
and projected earnings multiples. The key inputs to the valua-
In May 2013, the IASB issued Interpretation 21, Levies (“IFRIC 21”),
tion techniques include assumptions related to future customer
which provides guidance on accounting for levies in accordance
demand, material and employee-related costs, changes in mix of
with IAS 37, Provisions. The interpretation defines a levy as an out-
products and services produced or delivered, and restructuring
flow from an entity imposed by a government in accordance with
programs. Any non-controlling interests in the acquired com-
legislation. IFRIC 21 clarifies that a levy is recognized as a liability
pany are measured either at fair value or at the non-controlling
when the obligating event that triggers payment, as specified in the
interests’ proportionate share of the identifiable assets and liabil-
legislation, has occurred. IFRIC 21 is effective for annual periods
ities of the acquired business. The excess of the aggregate of the
beginning on or after January 1, 2014. The Company is currently
consideration transferred, the amount of any non-controlling
evaluating the impact of adopting this standard on its consolidated
interests in the acquired company and, in a business combina-
financial statements.
2 . A C Q U I S I T I O N S
tion 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
During 2013 and 2012 several acquisitions, which were accounted
as incurred and related restructuring charges are expensed in the
for as business combinations, were completed either directly by
periods after the acquisition date. Costs incurred to issue debt
Onex or through subsidiaries of Onex. Any third-party borrowings
are deferred and recognized as described in note 1. Subsequent
in respect of these acquisitions are without recourse to Onex.
changes in the fair value of contingent consideration recorded as
Business combinations are accounted for using the
a liability at the acquisition date are recognized in earnings or loss.
acquisition method. The cost of an acquisition is measured as the
In certain circumstances where preliminary estimates
fair value of the assets given, equity instruments issued and lia-
have been made, the companies may obtain third-party valua-
bilities incurred or assumed at the date of exchange. Identifiable
tions of certain assets, which could result in further refinement of
assets acquired and liabilities and contingent liabilities assumed
the fair value allocation of certain purchase prices and accounting
in a business combination are measured initially at fair value at
adjustments. The results of operations for all acquired businesses
the date of acquisition, irrespective of the extent of any non-con-
are included in the consolidated statements of earnings, compre-
trolling interests. The fair value is determined using a combina-
hensive earnings and equity of the Company from their respective
tion of valuation techniques, including discounted cash flows
dates of acquisition.
2 013 A C Q U I S I T I O N S
Details of the purchase price allocation for the 2013 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
Emerald
Expositions(a)
USI(b)
$ 12
$ –
ONCAP(c)
$ 1
Other(d)
$ 1
57
271
191
633
3
1,167
(96)
(721)
16
35
–
33
2
86
(14)
(6)
12
11
–
46
26
96
(3)
(9)
5
35
2
38
2
83
(2)
–
Total
$ 14
90
352
193
750
33
1,432
(115)
(736)
Interest in net assets acquired
$ 350
$ 66
$ 84
$ 81
$ 581
a) In June 2013, the Company completed the acquisition of Nielsen
Expositions from its parent, an affiliate of Nielsen Holdings N.V.,
ownership interest, was made by Onex, Onex Partners III and Onex
management. Onex’ equity investment in Emerald Expositions
for total consideration of $950. The business, now operating as
was $85, for an initial 24% ownership interest.
Emerald Expositions, LLC, is a leading operator of large business-
to-business tradeshows in the United States across nine end mar-
kets. The Company’s equity investment of $350, for an initial 100%
b) During 2013, USI completed eight acquisitions located in the
United States for total consideration of $66, of which $23 was in
the form of certain deferred and/or contingent payments.
Onex Corporation December 31, 2013 105
N O T E S T O C O N S O L I D AT E D F I N A N C I A L S TAT E M E N T S
c) ONCAP includes acquisitions made by Hopkins Manu facturing
Corporation (“Hopkins”), Mister Car Wash, BSN SPORTS Inc.
Included in the acquisitions above were gross receivables due
from customers of $70, of which $1 of contractual cash flows are
(“BSN SPORTS”) (up to the date of disposition in June 2013) and
not expected to be recovered. The fair value of these receivables at
Caliber Collision Centers (“Caliber Collision”) (up to the date of
the dates of acquisition was determined to be $69.
disposition in November 2013) for total consideration of $84, of
which $8 was non-cash consideration and excludes non-cash bar-
Net earnings from the date of acquisition for these acquisitions to
gain purchase gains of $2.
December 31, 2013 were not significant to the Company’s results
d) Other includes acquisitions made by ResCare, SGS Interna-
tional and The Warranty Group for total consideration of $81, of
Goodwill arising from the acquisitions is attributable primarily to
which $20 was non-cash consideration and excludes a non-cash
non-contractual established customer bases of the acquired com-
bargain purchase gain of $1.
panies. Goodwill of the acquisitions that is expected to be deduct-
for the year ended December 31, 2013.
ible for tax purposes is $126.
2 012 A C Q U I S I T I O N S
Details of the purchase price allocation for the 2012 acquisitions are as follows:
Celestica(a)
International(b)
JELD-WEN(c)
USI(d)
KraussMaffei(e)
ONCAP(f)
Other(g)
Total
SGS
Cash and cash equivalents
$ 6
$ 10
$ 3
$ 102
$ 144
$ 10
$ –
$ 275
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
22
24
–
26
15
93
(4)
(12)
77
–
121
449
99
320
71
1,070
(53)
(714)
303
(14)
31
5
3
–
62
104
(12)
(10)
82
–
341
1,329
47
1,269
26
3,114
(404)
(1,998)
712
(48)
585
372
135
240
215
1,691
(591)
(732)
368
–
165
30
12
154
43
414
(75)
(164)
175
(7)
2
18
1
23
–
44
(1)
(2)
41
–
1,267
2,227
297
2,032
432
6,530
(1,140)
(3,632)
1,758
(69)
Interest in net assets acquired
$ 77
$ 289
$ 82
$ 664
$ 368
$ 168
$ 41
$ 1,689
a) In September 2012, Celestica completed the acquisition of D&H
Manufacturing Company. The company is a manufacturer of pre-
c) In October 2012, JELD-WEN completed the acquisition of Craft-
Master Manufacturing, Inc. (“CMI”). CMI is a manufacturer and
cision machined components and assemblies, primarily for the
marketer of doors, door facings, and exterior composite trim
semiconductor capital equipment market. The purchase price for
and panels. This acquisition expands JELD-WEN’s manufactur-
this acquisition was $71, net of cash acquired, which was financed
ing footprint in the United States and gives JELD-WEN access to
by Celestica.
b) In October 2012, the Company acquired a controlling interest
in SGS International, Inc. (“SGS International”). SGS International
new and proprietary technology, and increases its focus on envi-
ronmentally friendly wood composite exterior products. The pur-
chase price for this acquisition was $77, which excludes a non-
cash bargain purchase gain of $4. The purchase price was used
is a global leader in design-to-print graphic services to branded
to fund the purchase of shares and discharge approximately $67
consumer products companies, retailers and the printers that ser-
of CMI debt upon closing of the transaction. In conjunction with
vice them. The Company’s equity investment of $260, for an initial
this transaction, Onex, Onex Partners III, Onex management, cer-
95% ownership interest, was made by Onex, Onex Partners III and
tain limited partners and others invested $50 in JELD-WEN for
Onex management. Onex’ equity investment in SGS International
convertible preferred stock. Onex’ share of the investment in con-
was $66 for an initial 24% ownership interest.
vertible preferred stock was $12.
In addition, SGS International completed the acquisi-
In addition, JELD-WEN completed an acquisition in
tion of Stevenson Color, Inc. for a purchase price of $29, which
January 2012 for total consideration of $1.
was financed by SGS International.
106 Onex Corporation December 31, 2013
N O T E S T O C O N S O L I D AT E D F I N A N C I A L S TAT E M E N T S
d) In December 2012, the Company acquired a controlling interest
in USI Insurance Services (“USI”). USI is a leader in the insurance
Included in the acquisitions above were gross receivables due
from customers of $323, of which $5 of contractual cash flows are
brokerage market with a diversified mix of property and casual-
not expected to be recovered. The fair value of these receivables at
ty, employee benefits and retirement consulting. The Company’s
the dates of acquisition was determined to be $318.
total equity investment in USI was $636 for an initial 93% owner-
ship interest, which includes $510 from Onex Partners III and $126
Net earnings from the date of acquisition to December 31, 2012 for
from Onex as a co-investment. Onex’ total initial equity invest-
these acquisitions were not significant to the Company’s results
ment in USI was $254 for an initial 37% ownership interest.
for the year ended December 31, 2012.
In addition, USI completed three acquisitions in late
December 2012 for total consideration of $28, of which $10 was
The Company estimates it would have reported consolidated rev-
non-cash consideration.
enues of $30,137 and a net loss of $110 for the year ended Decem-
In March 2013, $84 of the amount originally invested
ber 31, 2012 if the acquisitions completed during 2012 had been
by Onex in USI was sold, at Onex’ original cost, to certain lim-
acquired on January 1, 2012. The estimates do not reflect the
ited partners and others as a co-investment. After giving effect
impact of operations subsequently classified as discontinued. The
to the co-investment sale, Onex’ total investment in USI is $170
estimated net loss reflects the im pact of amortization for intangi-
and is comprised of $128 through Onex Partners III and $42 as a
bles established upon acquisition.
co-investment.
e) In December 2012, the Company acquired a controlling inter-
est in KraussMaffei AG (“KraussMaffei”). KraussMaffei is a global
acquired workforce, non-contractual established customer bases
and technological knowledge of the acquired companies. Goodwill
leader in the design and manufacture of machinery and systems
of the acquisitions that was expected to be deductible for tax pur-
Goodwill of the acquisitions was attributable primarily to the
for the processing of plastics and rubber used in the injection
poses was $72.
molding, extrusion and reaction process segments. The Company’s
initial equity investment of $358, for an initial 97% ownership
3 . D I S C O N T I N U E D O P E R AT I O N S
interest, was made by Onex, Onex Partners III and Onex manage-
ment. Onex’ initial equity investment in KraussMaffei was $90 for
The following table shows revenue, expenses and net after-tax
an initial 25% ownership interest.
results from discontinued operations, which represents the results
In July 2013, $8 of accounts receivable held by Onex,
of TMS International Corp. (“TMS International”). The sales of
Onex Partners III and Onex management was converted to addi-
CDI in 2012 and BSN SPORTS and Caliber Collision in 2013, as
tional equity of KraussMaffei. Onex’ share of the additional equity
described in note 23, did not represent separate major lines of
was $2.
business, and as a result, have not been presented as discontinued
f) In December 2012, ONCAP III completed the acquisition of
Bradshaw International, Inc. (“Bradshaw”), a California, United
States headquartered designer, marketer and category manager
of branded and private label kitchen, cooking and cleaning prod-
ucts. Onex and ONCAP III have an approximate 92% ownership
in Bradshaw, of which Onex’ equity ownership is 28%. Onex and
ONCAP III’s total equity investment in Bradshaw was $80, of which
Onex’ share was $24.
In addition, ONCAP includes acquisitions made by
CiCi’s Pizza, Davis-Standard Holdings, Inc. (“Davis-Standard”),
operations.
Year ended December 31
2013
2012
Revenues
Expenses
Earnings before income taxes
Provision for income taxes
Gain, net of tax
$ 1,828
(1,797)
31
(12)
242
$ 2,526
(2,489)
37
(11 )
–
Net earnings for the year
$ 261
$ 26
Hopkins, Mister Car Wash, BSN SPORTS and Caliber Collision for
In October 2013, Onex, Onex Partners II and Onex management
total consideration of $83, which excludes a non-cash bargain
sold their remaining 23.4 million shares of TMS International, of
purchase gain of $5.
g) Other includes acquisitions made by Carestream Health, CDI
(up to the date of disposition in July 2012), ResCare and Skilled
which Onex’ portion was approximately 9.3 million shares. The
sale was part of an offer made for all outstanding shares of TMS
International. The sale was completed at a price of $17.50 cash per
share. Onex’ cash cost for these shares was $7.84 per share. Total
Healthcare Group for total consideration of $41, of which $2 was
cash proceeds received from the sale were $410, resulting in a pre-
non-cash consideration.
tax gain of $249. Onex recorded a non-cash tax provision of $7
Onex Corporation December 31, 2013 107
N O T E S T O C O N S O L I D AT E D F I N A N C I A L S TAT E M E N T S
on the gain. Onex’ share of the cash proceeds was $172, includ-
4 . C A S H A N D C A S H E Q U I VA L E N T S
ing carried interest. The gain on the sale is entirely attributable
to the equity holders of Onex Corporation, as the interests of the
Limited Partners were recorded as a financial liability at fair value.
Amounts received on account of the carried interest related to this
As at December 31
Cash and cash equivalents comprised the following:
transaction totalled $25. Consistent with market practice and the
Cash at bank and on hand
terms of the Onex Partners agreements, Onex is allocated 40%
of the carried interest with 60% allocated to management. Onex’
share of the carried interest received was $10 and is included in
Onex’ share of the cash proceeds. Management’s share of the car-
ried interest was $15. No amounts were paid on account of the MIP
for this transaction as the required investment hurdle for Onex
was not met. The operations of TMS International are presented as
Bank term deposits
Commercial paper
Money market funds
5 . I N V E N T O R I E S
discontinued in the consolidated statements of earnings and cash
Inventories comprised the following:
flows and the prior period has been restated to report the results of
TMS International as discontinued on a comparative basis.
As at December 31
The following table shows the summarized aggregate assets and
liabilities of discontinued operations:
Raw materials
Work in progress
Finished goods
December 31,
2012
January 1,
2012
Real estate held for sale
Cash and cash equivalents
$ 27
$ 109
2013
$ 1,165
276
1,184
566
2012
$ 1,212
284
714
446
$ 3,191
$ 2,656
2013
$ 1,150
2,168
539
15
2012
$ 1,155
2,625
608
131
$ 3,872
$ 4,519
Other current assets
Intangible assets
Goodwill
Property, plant and equipment
and other non-current assets
Current liabilities
Non-current liabilities
350
147
240
225
989
(310)
(377)
376
153
239
168
1,045
(330)
(446)
During the year ended December 31, 2013, $14,873 (2012 – $13,670)
of inventory was expensed in cost of sales. Note 11 provides
details on inventory provisions recorded by the Company.
6 . O T H E R C U R R E N T A S S E T S
Other current assets comprised the following:
Net assets of discontinued operations
$ 302
$ 269
As at December 31
2013
2012
The following table presents the summarized aggregate cash flows
from (used in) discontinued operations.
Current portion of ceded
claims recoverable held by
The Warranty Group (note 14)
$ 129
$ 146
Current portion of prepaid premiums of
The Warranty Group
Current portion of deferred costs of
The Warranty Group (note 9)
Income and value added taxes receivable
Prepaid expenses
Restricted cash
Other
424
128
169
144
139
345
392
123
91
205
159
327
$ 1,478
$ 1,443
Year ended December 31
Operating activities
Financing activities
Investing activities
Decrease in cash and cash equivalents
for the year
Decrease 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
2013
$ 117
(28)
(115)
(26)
(1)
27
–
410
$ 410
108 Onex Corporation December 31, 2013
2012
$ 150
(117)
(115)
(82)
–
109
27
–
$ 27
N O T E S T O C O N S O L I D AT E D F I N A N C I A L S TAT E M E N T S
7. 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:
Land
Buildings
Machinery and
Equipment
Construction
in Progress
At January 1, 2012
Cost
Accumulated amortization and impairments
Net book amount
Year ended December 31, 2012
Opening net book amount
Additions
Disposals
Amortization charge
Amortization charge (discontinued operations)
Acquisition of subsidiaries
Disposition of operating companies
Impairment charge(a)
Transfers from construction in progress
Foreign exchange
Other
Closing net book amount
At December 31, 2012
Cost
Accumulated amortization and impairments
Net book amount
Year ended December 31, 2013
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
Total
$ 7,653
(2,551)
$ 5,102
$ 5,102
757
(40)
(538)
(57)
365
(32)
(39)
–
17
(40)
$ 386
−
$ 386
$ 386
496
(1)
–
–
10
(1)
–
(567)
(4)
(5)
$ 599
(8)
$ 591
$ 2,445
(521)
$ 1,924
$ 4,223
(2,022)
$ 2,201
$ 591
$ 1,924
$ 2,201
75
(19)
(126)
(3)
85
(8)
(18)
94
12
(16)
182
(18)
(412)
(54)
233
(23)
(19)
473
6
(5)
4
(2)
–
–
37
–
(2)
–
3
(14)
$ 617
$ 627
(10)
$ 617
$ 2,000
$ 2,564
$ 314
$ 5,495
$ 2,601
(601)
$ 2,000
$ 4,746
(2,182)
$ 2,564
$ 314
–
$ 314
$ 8,288
(2,793)
$ 5,495
$ 617
$ 2,000
$ 2,564
$ 314
$ 5,495
1
(5)
–
–
3
(1)
(4)
–
(8)
(7)
47
(15)
(138)
(3)
6
(30)
(133)
99
(6)
(3)
325
(191)
(481)
(46)
17
(124)
(9)
377
(1)
–
493
(1)
–
–
3
(59)
–
(476)
(1)
(19)
866
(212)
(619)
(49)
29
(214)
(146)
–
(16)
(29)
Closing net book amount
$ 596
$ 1,824
$ 2,431
$ 254
$ 5,105
At December 31, 2013
Cost
Accumulated amortization and impairments
Net book amount
$ 609
(13)
$ 596
$ 2,544
(720)
$ 1,824
$ 4,732
(2,301)
$ 2,431
$ 254
–
$ 254
$ 8,139
(3,034)
$ 5,105
(a) Property, plant and equipment impairments of $16 related to Celestica have been included in other items (note 24) as part of Celestica’s restructuring charges in 2012.
Property, plant and equipment cost and accumulated amortization and impairments have been reduced for components retired during 2012
and 2013. At December 31, 2013, property, plant and equipment includes amounts under finance leases of $126 (2012 – $116) and related accumu-
lated amortization of $59 (2012 – $53). During 2013, borrowing costs of $12 (2012 – $20) were capitalized and are included in the cost of additions.
Onex Corporation December 31, 2013 109
N O T E S T O C O N S O L I D AT E D F I N A N C I A L S TAT E M E N T S
8 . LO 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 joint ventures and associates at fair value through earnings:
Onex Partners(a)
Other joint venture and associate investments(a)
Long-term investments held by The Warranty Group(b)
Onex Credit Partners’ investments in corporate loans(c)
Investment in Onex Credit Partners funds(d)
Other(e)
December 31,
2013
December 31,
2012
January 1,
2012
$ 3,369
$ 3,234
135
1,550
1,810
469
231
136
1,628
790
441
195
$ 3,234
128
1,501
–
412
140
$ 7,564
$ 6,424
$ 5,415
a) Investments in joint ventures and associates
of these investments in joint ventures and associates is assessed
Certain investments in joint ventures and associates, over which the
at each reporting date with changes to the values being recorded
Company has joint control or significant influence, but not control,
through earnings. Details of those investments designated at fair
are designated, upon initial recognition, at fair value. The fair value
value included in long-term investments are as follows:
Balance – January 1, 2012
Purchase of investments
Sale of investments
Distributions received
Increase in fair value of investments, net
Balance – December 31, 2012
Sale of investments
Distributions received
Increase in fair value of investments, net
Balance – December 31, 2013
Other Joint
Venture and
Associate
Investments
Total
Onex Partners
$ 3,234
$ 128
$ 3,362
165
(326)
(676)
837
7
–
(25)
26
172
(326)
(701)
863
$ 3,234
$ 136
$ 3,370
(908)
(52)
1,095
–
(4)
3
(908)
(56)
1,098
$ 3,369
$ 135
$ 3,504
Onex Partners includes investments in Allison Transmission,
Allison Transmission
BBAM, RSI (sold in February 2013) and Tomkins. Other joint ven-
In March 2012, Allison Transmission completed an initial public
tures and associates accounted for at fair value through earn-
offering of approximately 30.0 million shares of common stock
ings primarily include investments in certain Onex Real Estate
(NYSE: ALSN), including the exercise of the over-allotment option.
investments. Investments in joint ventures and associates des-
As part of the offering, Onex, Onex Partners II, Onex manage-
ignated at fair value are measured with significant unobservable
ment and certain limited partners sold approximately 15.0 mil-
inputs (Level 3 of the fair value hierarchy), with the exception of
lion shares, of which Onex’ portion was approximately 4.7 million
Allison Transmission (beginning March 2012), which is measured
shares. The sale was completed at a price of $23.00 cash per share.
with significant other observable inputs (Level 2 of the fair value
The cash cost for these shares was $8.44 per share. Net proceeds
hierarchy). The joint ventures and associates also have financing
of $326 were received by Onex, Onex Partners II, Onex manage-
arrangements that typically restrict their ability to transfer cash
ment and certain limited partners. Onex’ share of the net proceeds
and other assets to the Company.
110 Onex Corporation December 31, 2013
was $102. Onex’ investment in Allison Transmission is recorded
at fair value in the consolidated balance sheets, with changes in
fair value recognized in the consolidated statements of earnings.
The realized pre-tax gain on the portion of Allison Transmission
sold was $200. The Limited Partners’ share of the realized gain was
$138, while Onex’ share of the realized gain on the sale was $62.
N O T E S T O C O N S O L I D AT E D F I N A N C I A L S TAT E M E N T S
In addition, Onex recorded a non-cash tax provision of $8 on the
BBAM
realized gain. The tax provision was included in provision for
In December 2012, the Company acquired a 50% economic interest
income taxes in the consolidated statements of earnings. Onex
in BBAM Limited Partnership (“BBAM”). BBAM is one of the world’s
recognized a recovery of this tax provision during 2013 as part of
leading managers of commercial jet aircraft. The Company’s invest-
an evaluation of recent changes in tax law as described in note 16.
ment of $165 was made by Onex, Onex Partners III and Onex man-
Carried interest was not received for the portion sold since Onex
agement. Onex’ share of the investment was $42 for a 13% economic
voluntarily reduced the amount of carried interest received. The
interest. The investment in BBAM has been designated at fair value
carried interest that was voluntarily reduced was received on the
through earnings.
realizations in Onex Partners II during 2013. No amounts were paid
During 2013, BBAM completed distributions of $49.
on account of this transaction related to the MIP as the required
Onex, Onex Partners III and Onex management’s share of the dis-
performance targets had not been met at that time.
tributions was $24, of which Onex’ share was $6.
In conjunction with Allison Transmission’s initial pub-
lic offering in March 2012, a fee of $8 was received from Allison
Hawker Beechcraft
Transmission as consideration for the early termination of the ser-
The decline in the general aviation industry over the past few
vices agreement between Allison Transmission and Onex. The fee
years resulted in Hawker Beechcraft, previously a joint venture
is included in revenue in the consolidated statements of earnings.
investment, being unable to meet certain of its financial obliga-
Allison Transmission began paying quarterly dividends
tions. In the second quarter of 2012, Hawker Beechcraft filed for
beginning in 2012 following its initial public offering. The Com-
bankruptcy protection in the United States. During the first quar-
pany’s share of the dividends paid during 2013 was $28 (2012 – $13),
ter of 2013, Hawker Beechcraft exited bankruptcy protection. As
of which Onex’ share was $8 (2012 – $4).
part of the restructuring, Onex has a nominal equity interest in
In August 2013, Allison Transmission completed a sec-
the company.
ondary offering to the public of 19.1 million shares of common
stock and repurchased 4.7 million shares of common stock, for a
RSI
total sale of 23.8 million shares of common stock. The secondary
In February 2013, Onex, Onex Partners II and Onex management
offering includes the full exercise of the over-allotment option. As
completed the sale of their entire investment in RSI. The sale was
part of the offering and share repurchase, Onex, Onex Partners II,
completed for proceeds of $323, of which Onex’ share was $130,
Onex management and certain limited partners sold 11.9 million
including carried interest. Onex’ investment in RSI was recorded
shares of common stock. Onex, Onex Partners II, Onex manage-
at fair value in the consolidated balance sheets, with changes in
ment and certain limited partners received net proceeds of $252
fair value recognized in the consolidated statements of earnings.
for their 11.9 million shares of common stock, of which Onex’ por-
The realized pre-tax gain on the sale of RSI, including prior dis-
tion was $84, including carried interest. The realized gain on the
tributions, was $153. The Limited Partners’ share of the realized
portion of Allison Transmission sold by Onex, Onex Partners II,
gain was $93, while Onex’ share was $60. In addition, Onex initially
Onex management and certain limited partners was $152, of which
recorded a non-cash tax provision of $5 on the realized gain. The
Onex’ share was $47.
tax provision was included in provision for income taxes in the
In November and December 2013, Allison Transmission
consolidated statements of earnings. Onex recognized a recovery
completed secondary offerings to the public for a total of 27.5 mil-
of this tax provision during 2013 as part of an evaluation of recent
lion shares of common stock. Onex, Onex Partners II, Onex man-
changes in tax law as described in note 16. Amounts received on
agement and certain limited partners sold 13.75 million shares of
account of the carried interest related to this transaction totalled
common stock for net proceeds of $333, of which Onex’ portion
$8. Onex’ share of the carried interest received was $3 and is
was $111, including carried interest. The realized gains on the por-
included in Onex’ share of the cash proceeds. Management’s share
tion of Allison Transmission sold in November and December 2013
of the carried interest was $5, which was previously recorded as a
was $217, of which Onex’ share was $67.
liability within other non-current liabilities. No amounts were paid
Amounts received related to the carried interest on the
on account of the MIP for this transaction as the required invest-
2013 transactions totalled $31, of which Onex’ portion was $12 and
ment return hurdle for Onex was not met.
management’s portion was $19. No amounts were paid on account
of these transactions related to the MIP as the required perfor-
Tomkins
mance targets had not been met at those times.
In December 2012, Tomkins completed a distribution of $1,180
After completion of the secondary offerings and share
to its shareholders. The Company’s share of the distribution was
repurchases during 2013, Onex, Onex Partners II, Onex manage-
$663, of which Onex’ share was $171.
ment and certain limited partners continue to own 49.7 million
shares of common stock, or approximately 27% in the aggregate,
of Allison Transmission’s outstanding common stock.
Onex Corporation December 31, 2013 111
N O T E S T O C O N S O L I D AT E D F I N A N C I A L S TAT E M E N T S
Financial information of significant investments in joint ventures and associates
The tables below present certain balance sheet financial information for the Company’s significant investments in joint ventures and associates.
As at December 31
Current assets
Non-current assets
Current liabilities
Non-current liabilities
Allison Transmission(a)
Tomkins
2013
$ 607
4,206
4,813
387
2,987
3,374
2012
$ 490
4,376
4,866
378
3,131
3,509
2013
$ 1,686
3,260
4,946
599
2,315
2,914
2012
$ 1,580
3,504
5,084
590
2,550
3,140
Net Assets
$ 1,439
$ 1,357
$ 2,032
$ 1,944
Included in the balance sheet financial information above are the following items:
As at December 31
Cash and cash equivalents included in current assets
Current financial liabilities included in current liabilities
Non-current financial liabilities included in non-current liabilities
Allison Transmission(a)
Tomkins
2013
$ 185
302
2,684
2012
$ 80
303
2,855
2013
$ 338
337
1,713
2012
$ 431
339
1,843
The tables below present certain statements of earnings financial information for the Company’s significant investments in joint ventures
and associates.
Year ended December 31
Revenues
Total expenses (including recovery of (provision for) income taxes)
Earnings (loss) from continuing operations
Earnings from discontinued operations (net of tax)
Net Earnings
Other comprehensive earnings (loss)
Total Comprehensive Earnings
Allison Transmission(a)
Tomkins
2013
2012
2013
2012
$ 1,927
(1,762)
$ 2,142
(1,628)
$ 2,947
(2,811)
165
–
165
23
514
–
514
13
136
–
136
(37)
$ 2,923
(2,939)
(16)
764
748
15
$ 188
$ 527
$ 99
$ 763
Included in the statements of earnings financial information above are the following items:
Year ended December 31
2013
2012
2013
2012
Allison Transmission(a)
Tomkins
Amortization
Interest income
Interest expense
Recovery of (provision for) income taxes
$ 204
$ 253
$ 215
$ 269
1
134
(101)
1
152
298
18
143
37
6
286
25
(a) The financial information of Allison Transmission is prepared in accordance with accounting principles generally accepted in the United States.
112 Onex Corporation December 31, 2013
N O T E S T O C O N S O L I D AT E D F I N A N C I A L S TAT E M E N T S
b) Long-term investments held by The Warranty Group
The fair value of fixed-maturity securities owned by The Warranty
The table below presents the fair value of all investments in secu-
Group, by contractual maturity, is shown below:
rities held by The Warranty Group at December 31:
As at December 31
2013
2012
U.S. government and agencies
States and political subdivisions
Foreign governments
Corporate bonds
Mortgage-backed securities
Other
Current portion(1)
Non-current portion
2013
$ 102
127
451
660
351
77
$ 1,768
(218)
$ 1,550
2012
Years to maturity:
$ 136
One or less
After one through five
After five through ten
After ten
Mortgage-backed securities
Other
130
501
642
360
80
$ 1,849
(221)
$ 1,628
$ 218
$ 221
705
338
79
351
77
744
340
104
360
80
$ 1,768
$ 1,849
(1)
The current portion is included in short-term investments in the consolidated
balance sheets.
Fair values generally represent quoted market value prices for
securities traded in an active market or estimated using a valua-
tion technique.
Expected maturities may differ from contractual maturities
because borrowers may have the right to call or prepay obliga-
tions with or without call or prepayment penalties.
At December 31, 2013, certificates of deposit, money
market funds and available-for-sale fixed-maturity securities with
a carrying value of $74 (2012 – $47) were on deposit with various
insurance departments and regulators to satisfy various regula-
Management of The Warranty Group believes that unre-
tory requirements.
alized losses on individual 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 of The Warranty Group fur-
ther believes it has the intent and ability to hold these securities
until they fully recover in value. These determinations are based
upon an in-depth analysis of individual securities.
A portion of The Warranty Group’s investments in secu-
rities is invested in residential and commercial mortgage-backed
securities and other asset-backed securities. At December 31,
2013, the company had $351 invested in mortgage-backed securi-
ties and $77 in other asset-backed securities. The mortgage-backed
securities are constructed from pools of mortgages and may have
cash flow volatility as a result of changes in the rate at which pre-
c) Onex Credit Partners’ investments in corporate loans
In March 2012, Onex Credit Partners established its first col-
lateralized loan obligation (“CLO”). A CLO is a leveraged struc-
tured vehicle that holds a widely diversified collateral asset
portfolio and is funded through the issuance of collateralized loan
instruments in a series of tranches of secured notes and equity.
As of December 31, 2013, Onex Credit Partners had established four
CLOs (2012 – two CLOs), which were funded through the issuance
of secured notes and/or equity in private placement transactions
in an initial aggregate amount of $1,874 (2012 – $848), as described
in note 12(g). Onex’ total investment at original cost in the Onex
Credit Partners CLOs at December 31, 2013 was $122 (2012 – $58)
and has been made in the most subordinated capital of each
payments of principal occur with respect to the underlying loans.
respective CLO as follows:
Excluding limitations on access to lending and other extraordinary
economic conditions, prepayments of principal on the underly-
ing loans can be expected to accelerate with decreases in market
Closing Date
interest rates and diminish with increases in interest rates. All of
the company’s asset-backed securities are widely held and actively
traded in liquid markets. The maximum exposure to loss is limited
to the current investment.
OCP CLO-1
March 2012
OCP CLO-2
November 2012
OCP CLO-3
March 2013
OCP CLO-4
October 2013
As at
December 31,
2013
As at
December 31,
2012
$ 32
26
24
40
$ 122
$ 32
26
–
–
$ 58
During 2013, Onex received distributions from the CLOs of $13
(2012 – $3), excluding investment income earned during the ware-
house periods of the CLOs.
Onex Corporation December 31, 2013 113
N O T E S T O C O N S O L I D AT E D F I N A N C I A L S TAT E M E N T S
The asset portfolio held by the CLOs consists of cash
e) Onex Credit Partners CLO warehouse facility
and cash equivalents and corporate loans and has been des-
In November 2013, Onex Credit Partners established a warehouse
ignated to be recorded at fair value. The asset portfolio of each
facility in connection with its fifth CLO, OCP CLO-5. Onex pur-
CLO is pledged as collateral for its respective secured notes and/
chased $10 of subordinated notes to support the warehouse facil-
or equity. The CLOs have reinvestment periods ranging from 3 to 4
ity’s total return swap (“TRS”). The subordinated notes do not have
years, during which reinvestment can be made in collateral. Onex
a stated rate of interest, but will receive any excess available funds
is required to consolidate the operations and results of the Onex
from the termination of the TRS. The TRS terminates on the earlier
Credit Partners’ CLOs, as more fully described in note 1.
of the closing of OCP CLO-5 and November 13, 2014. Onex consoli-
At December 31, 2013, the asset portfolio of the Onex Credit
dates the warehouse facility for OCP CLO-5, and at December 31,
Partners CLOs included $1,810 (2012 – $790) of corporate loans
2013, the TRS was recorded at a fair value of $10 with the change in
as follows:
OCP CLO-1
OCP CLO-2
OCP CLO-3
OCP CLO-4
As at
December 31,
2013
As at
December 31,
2012
In February 2014, Onex purchased an additional $30 of
subordinated notes to increase the size of the TRS for OCP CLO-5.
fair value recognized through earnings.
$ 323
499
495
493
$ 320
470
–
–
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:
$ 1,810
$ 790
As at December 31
d) Investments in Onex Credit Partners funds
The investments in Onex Credit Partners funds are recorded at fair
value and classified as fair value through earnings. At December 31,
2013, Onex had $343 (2012 – $328) invested at fair value in a seg-
Deferred income taxes (note 16)
Defined benefit pensions (note 32)
Non-current portion of ceded
claims recoverable held by
The Warranty Group (note 14)
regated Onex Credit Partners unleveraged senior secured loan
Non-current portion of prepaid
strategy fund and $126 (2012 – $113) invested in other Onex
premiums of The Warranty Group
Credit Partners funds. Onex’ maximum exposure to losses from
Non-current portion of deferred costs
its investments in the Onex Credit Partners funds is limited to its
of The Warranty Group(a)
current investments. During 2013 and 2012, Onex did not provide
Other
any financial or other support to the Onex Credit Partners funds
and Onex has no contractual obligation to provide such support
2013
$ 308
301
2012
$ 447
120
241
556
171
523
300
544
150
425
$ 2,100
$ 1,986
in the future.
a) Deferred costs of The Warranty Group consist of certain costs
of acquiring warranty and credit business including commis-
sions, underwriting and sales expenses that result directly from,
and are essential to, the acquisition of new business. These
charges are deferred and amortized as the related premiums
and contract fees are earned. At December 31, 2013, $299 (2012 –
$273) of costs were deferred, of which $128 (2012 – $123) has been
recorded as current (note 6).
114 Onex Corporation December 31, 2013
N O T E S T O C O N S O L I D AT E D F I N A N C I A L S TAT E M E N T S
10 . G O O D W I L L A N D I N TA N G I B L E A S S E T S
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, 2012
Cost
$ 2,611
$ 658
$ 1,772
Accumulated amortization and impairments
(177)
(146)
(830)
Net book amount
$ 2,434
$ 512
$ 942
$ 668
(498)
$ 170
$ 1,189
(780)
$ 409
$ 573
$ 4,860
(7)
(2,261)
$ 566
$ 2,599
Year ended December 31, 2012
Opening net book amount
$ 2,434
$ 512
$ 942
$ 170
$ 409
$ 566
$ 2,599
Additions
Disposals
Amortization charge
Amortization charge (discontinued operations)
Acquisition of subsidiaries
Disposition of operating companies
Impairment charge
Foreign exchange
Other
–
(1)
–
–
2,032
(87)
(29)
9
–
–
–
(32)
–
401
(3)
–
4
9
–
(1)
(139)
(9)
2,032
–
(3)
2
(2)
63
–
(60)
(3)
31
–
(7)
1
4
12
(1)
(86)
–
57
(16)
(3)
1
(9)
–
–
–
–
3
–
–
1
(13)
75
(2)
(317)
(12)
2,524
(19)
(13)
9
(11)
Closing net book amount
$ 4,358
$ 891
$ 2,822
$ 199
$ 364
$ 557
$ 4,833
At December 31, 2012
Cost
$ 4,544
$ 1,066
$ 3,804
Accumulated amortization and impairments
(186)
(175)
(982)
Net book amount (1)
$ 4,358
$ 891
$ 2,822
$ 629
(430)
$ 199
$ 1,196
(832)
$ 364
$ 564
$ 7,259
(7)
(2,426)
$ 557
$ 4,833
Year ended December 31, 2013
Opening net book amount
$ 4,358
$
891
$ 2,822
$ 199
$ 364
$ 557
$ 4,833
Additions
Disposals
Amortization charge
Amortization charge (discontinued operations)
Acquisition of subsidiaries
Disposition of operating companies
Impairment charge
Foreign exchange
Other
–
–
–
–
750
(457)
(134)
(1)
(47)
2
–
(39)
–
194
(8)
(24)
(8)
50
–
–
(328)
(7)
341
(205)
(9)
4
56
66
(5)
(76)
(2)
4
(18)
(1)
(2)
3
22
(1)
(83)
–
6
(10)
(3)
–
(8)
–
–
–
–
–
(38)
(2)
(1)
(8)
90
(6)
(526)
(9)
545
(279)
(39)
(7)
93
Closing net book amount
$ 4,469
$ 1,058
$ 2,674
$ 168
$ 287
$ 508
$ 4,695
At December 31, 2013
Cost
$ 4,789
Accumulated amortization and impairments
(320)
$ 1,296
(238)
$ 3,891
(1,217)
Net book amount (1)
$ 4,469
$ 1,058
$ 2,674
$ 658
(490)
$ 168
$ 1,171
$ 511
$ 7,527
(884)
(3)
(2,832)
$ 287
$ 508
$ 4,695
(1)
At December 31, 2013, trademarks and licenses and customer relationships include amounts determined to have indefinite useful lives of $833 and nil
(2012 – $536 and $22), respectively.
Onex Corporation December 31, 2013 115
N O T E S T O C O N S O L I D AT E D F I N A N C I A L S TAT E M E N T S
Additions to goodwill and intangible assets primarily arose
Intellectual property primarily represents the costs of certain
through business combinations (note 2). Additions to intangible
intellectual property and process know-how obtained in acqui-
assets through internal development were $25 (2012 – $16) and
sitions. Intangible assets include trademarks, non-competition
those acquired separately were $65 (2012 – $59). Included in the
agreements, customer relationships, software, contract rights and
balance of intangible assets at December 31, 2013 were $176 (2012 –
expiration rights obtained in the acquisition of certain facilities.
$192) of internally generated intangible assets.
Certain intangible 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.
11. 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 – December 31, 2012
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, 2013
Accounts
Receivable
Provision(a)
Inventory
Provision(b)
$ 81
$ 69
51
(5)
(5)
(33)
–
88
(16)
(4)
(23)
3
Total
$ 150
139
(21)
(9)
(56)
3
$ 89
$ 117
$ 206
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.
116 Onex Corporation December 31, 2013
N O T E S T O C O N S O L I D AT E D F I N A N C I A L S TAT E M E N T S
A summary of provisions presented as liabilities in the consolidated balance sheets detailed by the components of charges and movements
is presented below.
Current portion of provisions
Non-current portion of provisions
Balance – December 31, 2012
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, 2013
Current portion of provisions
Non-current portion of provisions
Restructuring(c)
Self-Insurance(d)
Warranty(e)
Other(f)
$ 44
13
$ 57
95
(3)
–
–
(101)
–
–
$ 48
(42)
$ 6
$ 71
110
$ 181
237
(1)
–
(10)
(230)
–
(2)
$ 175
(85)
$ 90
$ 74
57
$ 131
102
(8)
–
–
(53)
–
34
$ 206
(81)
$ 125
$ 158
84
$ 242
173
(30)
29
(2)
(68)
5
(28)
$ 321
(123)
$ 198
Total
$ 347
264
$ 611
607
(42)
29
(12)
(452)
5
4
$ 750
(331)
$ 419
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 by the operating com-
panies for automobile, workers’ compensation, general liability,
operating companies.
professional liability and other claims. Provisions are established
The operating companies record restructuring provisions
for claims based upon an assessment of actual claims and claims
relating to employee terminations, contractual lease obligations
incurred but not reported. The reserves may be established based
and other exit costs when the liability is incurred. The recognition
on consultation with third-party independent actuaries using
of these provisions requires management to make certain judge-
actuarial principles and assumptions that consider a number of
ments regarding the nature, timing and amounts associated with
factors, including historical claim payment patterns and changes
the planned restructuring activities, including estimating sublease
in case reserves, and the assumed rate of inflation in healthcare
income and the net recovery from equipment to be disposed of.
costs and property damage repairs.
At the end of each reporting period, the operating companies eval-
uate the appropriateness of the remaining accrued balances. The
restructuring plans are expected to result in cash outflows for the
e) Warranty provisions are established by the operating compa-
nies for warranties offered on the sale of products or services.
operating companies between 2014 and 2018.
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.
2013
$ 23
22
3
$ 48
2012
$ 27
28
2
$ 57
f) Other includes contingent consideration, legal, transition and
integration, asset retirement and other provisions. Transition and
integration provisions are typically to provide for the costs of tran-
sitioning the activities of an operating company from a prior par-
ent company upon acquisition and to integrate new acquisitions
at the operating companies.
Onex Corporation December 31, 2013 117
N O T E S T O C O N S O L I D AT E D F I N A N C I A L S TAT E M E N T S
12 . LO N G - T E R M D E B T O F O P E R AT I N G C O M PA N I E S , W I T H O U T R E C O U R S E T O O N E X C O R P O R AT I O N
Long-term debt of operating companies, without recourse to Onex Corporation, is as follows:
As at December 31
Carestream Health(a)
Celestica(b)
Emerald Expositions(c)
Flushing Town Center(d)
JELD-WEN(e)
KraussMaffei(f)
Onex Credit Partners CLOs(g)
ResCare(h)
SGS International(i)
Sitel Worldwide(j)
Skilled Healthcare Group(k)
Spirit AeroSystems(l)
The Warranty Group(m)
TMS International(n)
Tropicana Las Vegas(o)
USI(p)
ONCAP companies(q)
Revolving credit facility and term loans due 2018 and 2019
Revolving facility and term loan due 2016 and 2017
Redeemable preferred shares
Revolving credit facility due 2015
Revolving credit facility and term loan due 2018 and 2020
Senior notes due 2021
Senior construction loan due 2014
Mezzanine loan due 2014
Senior secured notes due 2017
Senior secured revolving credit facility and term loan due 2016
Convertible promissory notes due 2013
Other
Senior secured notes due 2020
Other
Secured notes due 2023 to 2025
Senior secured revolving credit facility and term loan due 2017
Senior subordinated notes due 2019
Other
Senior secured revolving credit facility and term loan due 2017 and 2019
Senior notes due 2020
Revolving credit facility and term loan due 2016 and 2017
Senior unsecured notes due 2018
Senior secured notes due 2017
Mandatorily redeemable preferred shares
Revolving credit facility and term loan due 2015 and 2016
Insured loans due 2043 and 2048
Mortgage-backed revolving credit facility and term loan due 2016
Other
Revolving credit facility and term loan due 2017 and 2019
Senior subordinated notes due 2017
Senior subordinated notes due 2020
Other
Revolving credit facility and term loan due 2016
Redeemable preferred shares
Revolving borrowings and senior secured term loan
Other
Revolving credit facility due 2018
Senior secured revolving credit facility and term loan due 2017 and 2019
Senior notes due 2021
Other
Revolving credit facility and term loans due 2015 to 2018
Subordinated notes due 2014 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
118 Onex Corporation December 31, 2013
2013
$ 2,270
–
–
2,270
–
424
200
624
407
44
451
452
169
–
59
680
448
2
450
1,723
158
200
2
360
385
210
595
246
290
191
128
855
261
87
67
4
419
538
296
300
18
1,152
246
380
626
–
–
–
59
1,010
630
16
1,656
772
311
8
1,091
45
(873)
12,183
(213)
11,970
(651)
$ 11,319
2012
$ –
1,742
142
1,884
55
–
–
–
533
39
572
450
60
128
58
696
429
–
429
801
171
200
2
373
400
210
610
245
288
190
113
836
444
–
–
5
449
543
296
300
21
1,160
249
410
659
295
21
316
40
1,040
630
15
1,685
879
303
63
1,245
5
(1,120)
10,695
(225)
10,470
(286)
$ 10,184
N O T E S T O C O N S O L I D AT E D F I N A N C I A L S TAT E M E N T S
Onex Corporation does not guarantee the debt of its operating
In connection with the new credit facility, Carestream
companies, nor are there any cross-guarantees between operating
Health entered into a series of interest rate swap agreements that
companies.
swap the variable rate portion for fixed rates through December
The financing arrangements for each operating com-
2017. The agreements have an initial notional amount of $1,150,
pany typically contain certain restrictive covenants, which may
reducing to $920 during the term of the agreements.
include limitations or prohibitions on additional indebtedness,
At December 31, 2013, the first-lien term loan with
payment of cash dividends, redemption of capital, capital spend-
$1,804 outstanding was recorded net of the unamortized discount
ing, making of investments and acquisitions and sales of assets.
of $25. At December 31, 2013, the second-lien term loan with $500
The financing arrangements may also require the redemption of
outstanding was recorded net of the unamortized discount of $9.
indebtedness in the event of a change of control of an operating
At December 31, 2013, no amounts were outstanding under the
company. In addition, certain financial covenants must be met by
revolving facility.
those operating companies that have outstanding debt.
As a result of the refinancing, Carestream Health recog-
Future changes in business conditions of an operat-
nized debt prepayment charges of $16 in the second quarter of
ing company may result in non-compliance with certain cov-
2013, which are included in interest expense in the consolidated
enants by that company. No adjustments to the carrying amount
statements of earnings.
or classifi cation of assets or liabilities of any operating company
In February 2011, Carestream Health had entered into
have been made in the consolidated financial statements with
a credit facility. The credit facility consisted of a $1,850 term loan
respect to any possible non-compliance.
and a $150 revolving facility. The term loan and revolving facility
a) Carestream Health
bore interest at LIBOR (subject to a floor of 1.50%) plus a margin
of 3.50% or a base rate plus a margin of 2.50%.
In June 2013, Carestream Health entered into a new credit facility.
At December 31, 2012, $1,748 and nil were outstanding
The credit facility consists of a $1,850 first-lien term loan, a $500
under the term loan and revolving facility, respectively. The term
second-lien term loan and a $150 revolving facility. The first-lien
loan was recorded net of the unamortized discount of $6.
term loan bears interest at LIBOR (subject to a floor of 1.00%) plus
Included in long-term debt at December 31, 2012 was
a margin of 4.00% and matures in June 2019. The offering price
$142 of redeemable preferred shares, including accumulated and
was 98.50% of par to yield 5.40% to maturity. The second-lien
unpaid dividends, of which $139 was held by the Company. The
term loan bears interest at LIBOR (subject to a floor of 1.00%) plus
redeemable preferred shares accrued annual dividends at a rate
a margin of 8.50% and matures in December 2019. The offering
of 10%. During 2013, Carestream Health redeemed a total of $148
price was 98.00% of par to yield 10.00% to maturity. The first- and
(2012 – $127) for all of its remaining redeemable preferred shares,
second-lien term loans include optional redemption provisions
including $7 (2012 – $41) of accumulated and unpaid dividends.
at a range of redemption prices plus accrued and unpaid inter-
The redemption of redeemable preferred shares during 2013
est. The revolving facility bears interest at LIBOR (subject to a
formed part of Carestream Health’s $750 distribution to its share-
floor of 1.00%) plus a margin of 4.00% and matures in June 2018.
holders as described above.
Substantially all of Carestream Health’s assets are pledged as col-
lateral under the new credit facility.
b) Celestica
The proceeds from the new credit facility, along with
Celestica has a $400 revolving credit facility that matures in
cash on hand, were used to fully repay existing debt facilities, fund
January 2015. At December 31, 2013, Celestica had no amounts
a $750 distribution to shareholders and pay fees and expenses
outstanding (2012 – $55) under its revolving credit facility. In addi-
associated with the transaction. The Company’s share of the distri-
tion, Celestica issued $30 (2012 – $31) of letters of credit under its
bution was $695, of which Onex’ share was $303, including carried
revolving credit facility at December 31, 2013.
interest of $50 and after deducting distributions on account of the
The facility has restrictive covenants relating to debt
MIP. Onex initially recorded a non-cash tax provision of $38 on the
incurrence, the sales of assets and a change of control and also con-
distribution. Onex recognized a recovery of this tax provision dur-
tains financial covenants that require Celestica to maintain certain
ing 2013 as part of an evaluation of recent changes in tax law as
financial ratios. Celestica has pledged certain assets as security for
described in note 16.
borrowings under its revolving credit facility. Celestica also has
Amounts received on account of the carried interest
uncommitted bank overdraft facilities available for intraday and
related to this transaction totalled $121, of which Onex’ share was
overnight operating requirements that totalled $70 (2012 – $70) at
$50. Management’s share of the carried interest was $71. In addition,
December 31, 2013.
amounts on account of the MIP totalled $21 for this transaction.
Onex Corporation December 31, 2013 119
N O T E S T O C O N S O L I D AT E D F I N A N C I A L S TAT E M E N T S
c) Emerald Expositions
respectively. In addition, letters of credit of $5 (2012 – $5) were
In June 2013, Emerald Expositions entered into a credit facil-
outstanding, which partially reduce the amount available to be
ity consisting of a $430 term loan and a $90 revolving facility. The
drawn under the senior construction loan.
offering price of the term loan was 99.00% of par to yield 5.75% to
Substantially all of Flushing Town Center’s assets are
maturity. Borrowings under the term loan bear interest at LIBOR
pledged as collateral under the senior construction and mezza-
(subject to a floor of 1.25%) plus a margin of 4.25%. The term loan
nine loans.
requires quarterly repayments, but can be repaid in whole or in
part without premium or penalty any time before maturity in June
e) JELD-WEN
2020. The revolving facility bears interest at LIBOR plus a margin
In October 2011, JELD-WEN completed an offering of $460 in
of 4.25% and matures in June 2018. Substantially all of Emerald
aggregate principal amount of 12.25% senior secured notes due
Expositions’ assets are pledged as collateral under the credit
in 2017. JELD-WEN received net proceeds of $448 after original
facility. At December 31, 2013, the term loan with $428 outstand-
issue discounts. Interest on the senior secured notes is payable
ing was recorded net of the unamortized discount of $4 and no
semi-annually. The senior secured notes may be redeemed prior
amounts were outstanding under the revolving facility.
to maturity at various premiums above face value. The senior
In January 2014, Emerald Expositions amended its credit
secured notes are secured by a second priority lien on the col-
facility to increase its term loan by $200 to partially fund an acqui-
lateral securing the senior secured revolving credit facility, as
sition, as described in note 33. The addition to the term loan con-
described below. At December 31, 2013, the senior secured notes
tinues to bear interest at the same rate as the existing term loan
with $460 (2012 – $460) outstanding were recorded net of the
and requires quarterly repayments until maturity in June 2020.
unamortized discount of $8 (2012 – $10).
In June 2013, Emerald Expositions issued $200 in aggre-
In October 2011, JELD-WEN entered into a senior secured
gate principal amount of 9.00% senior notes due in June 2021.
credit agreement that initially consisted of a $300 revolving credit
Interest is payable semi-annually beginning in December 2013.
facility maturing in April 2016. The facility contains a $75 sublimit
The senior notes may be redeemed by the company at any time at
for the issuance of letters of credit and a $100 sublimit for borrow-
various premiums above face value. At December 31, 2013, senior
ings by a European subsidiary of JELD-WEN. Borrowings under
notes of $200 were outstanding.
d) Flushing Town Center
the facility bear interest at either the Eurodollar rate or a base rate
determined as the highest of the overnight Federal Funds rate plus
0.50%, the Eurodollar rate plus 1.00% or the prime rate. A margin
In December 2010, Flushing Town Center amended and restat-
is added to the Eurodollar and base rate that varies based on
ed its senior construction loan and mezzanine loan, increasing
JELD-WEN’s consolidated leverage ratio; base rate loan margins
the total amount available under the senior construction loan to
range from 1.50% to 3.00% and Eurodollar-based loan margins
$642, including $25 of letters of credit, and extending the maturity
range from 2.50% to 4.00%. In addition, JELD-WEN pays a commit-
to December 2013. The loans had two one-year extension options.
ment fee ranging from 0.45% to 0.75% on the unused portion of the
The loans bear interest at LIBOR plus a margin that ranges between
facility and a letter of credit fee ranging from 2.50% to 4.00% on the
1.55% and 3.65%. In conjunction with these amendments, the
face amount of outstanding letters of credit.
Company purchased $56 and $38 of the senior construction loan
In October 2012, JELD-WEN amended its senior secured
and mezzanine loan, respectively, from third-party lenders.
credit agreement to add a $30 term loan, which matures in April
In November 2011, Flushing Town Center amended its
2016. In June 2013, JELD-WEN further amended its senior secured
senior construction loan agreement whereby the Company con-
credit agreement to increase its term loan to $100 from $30. The
tributed an additional $14 in equity, of which $7 was in cash and
term loan bears interest at either the Eurodollar rate plus a mar-
$7 was in the form of a letter of credit that can be drawn upon
gin of up to 3.50% or a base rate plus a margin of up to 2.50% and
to fund project costs. In addition, the initial maturity of the loans
requires quarterly amortization payments beginning in December
was extended to June 2014 and the second extension option was
2013. Proceeds from the addition to the term loan were primar-
reduced from one year to six months. As at December 31, 2013, no
ily used to repay a portion of the outstanding balance under the
amount (2012 – $1) was available under the letter of credit.
revolving credit facility.
Flushing Town Center is in discussions with its lenders
Borrowings under the senior secured credit agreement
to refinance its loans prior to maturity in June 2014.
are secured by first priority liens on substantially all of the present
As at December 31, 2013, $409 and $46 (2012 – $541 and
and future assets of JELD-WEN and its subsidiary guarantors.
$45) of principal plus accrued interest were outstanding under the
At December 31, 2013, $70 (2012 – $30) was outstanding
senior construction and mezzanine loans, respectively, of which
under the revolving credit facility and $99 (2012 – $30) was out-
a total of $90 (2012 – $105) was held by the Company. The senior
standing under the term loan. The amount available under the
construction and mezzanine loans are recorded net of unamor-
revolving credit facility was reduced by $38 (2012 – $39) of letters
tized debt extinguishment gains of $2 and $2 (2012 − $8 and $6),
of credit outstanding at December 31, 2013.
120 Onex Corporation December 31, 2013
N O T E S T O C O N S O L I D AT E D F I N A N C I A L S TAT E M E N T S
JELD-WEN is required under the terms of the senior
g) Onex Credit Partners’ CLOs
secured credit agreement to maintain certain financial ratios. The
In March 2012, Onex Credit Partners established its first collateral-
agreement and the indenture governing the senior secured notes
ized loan obligation (“CLO”). A CLO is a leveraged structured vehi-
also contain certain additional requirements, including limi-
cle that holds a widely diversified collateral asset portfolio and is
tations or prohibitions on certain investments, payments, asset
funded through the issuance of collateralized loan instruments
sales and additional indebtedness.
in a series of tranches of secured notes and equity. As of Decem-
In October 2011, JELD-WEN issued convertible promis-
ber 31, 2013, Onex Credit Partners had established four CLOs
sory notes in the amount of $171, all of which were held by the
(2012 – two CLOs) which had secured notes and equity outstand-
Company. The notes bore interest at a rate of 10% compounded
ing in the aggregate amount of $1,870 (2012 – $848) as follows:
annually. At December 31, 2012, $128 was outstanding under the
convertible promissory notes, including accrued interest, all of
As at December 31
2013
2012
which was held by the Company. During 2013, JELD-WEN paid
$60 (2012 – $17), including accrued interest, to repurchase a por-
tion of the notes, all of which was paid to the Company. Onex’
share of the note repurchase, including accrued interest, was $15.
In April 2013, the remaining convertible promissory
notes and accrued interest of $72, all of which were held by the
Closing date
OCP CLO-1
March 2012
$ 327
OCP CLO-2
November 2012
OCP CLO-3
March 2013
OCP CLO-4
October 2013
Company, were converted into additional Series A Convertible
Onex’ investment
Preferred Stock of JELD-WEN in accordance with the terms of the
purchase agreement, of which Onex’ share was $18.
517
512
514
1,870
(122)
$ 1,748
$ 327
521
–
–
848
(58)
$ 790
f) KraussMaffei
In December 2012, KraussMaffei issued senior secured notes in
the aggregate principal amount of 2325. The senior secured notes
are due in December 2020 and bear interest at a fixed annual rate
of 8.75%. The senior secured notes may be redeemed by the com-
pany on or after December 2015 at various premiums above face
value. At December 31, 2013, $448 (2325) (2012 – $429 (2325)) was
outstanding under the senior secured notes.
In December 2012, KraussMaffei established a 275 revolv-
ing credit facility that matures in December 2017. The revolving
credit facility may be used for revolving loans of up to 225 as well as
for letters of credit. Revolving loans drawn on the facility bear inter-
est at LIBOR plus a margin of 5.00% or a base rate plus a margin of
4.00%. Letters of credit drawn on the facility bear interest at a fixed
rate of 5.125%. In addition, KraussMaffei pays a commitment fee of
0.50% on the unused portion of the revolving credit facility and cer-
tain fees for letters of credit issued.
During 2013, KraussMaffei increased the revolving cred-
it facility capacity by 225 to a total capacity of 2100.
No amounts were drawn under the revolving credit facil-
ity at December 31, 2013 and 2012. The amount available under the
revolving credit facility was reduced by $70 (251) (2012 – $59 (245))
of letters of credit outstanding at December 31, 2013.
Substantially all of KraussMaffei’s assets are pledged as
collateral under its senior secured notes and revolving credit facility.
The secured notes bear interest at a rate of LIBOR plus a margin
and mature between March 2023 and October 2025. The notes and
equity of the Onex Credit Partners CLOs are designated at fair value
through net earnings upon initial recognition. At December 31,
2013, the fair value of the notes and equity held by investors other
than Onex was $1,723 (2012 – $801).
The notes of Onex Credit Partners CLOs are secured by,
and only have recourse to, the assets of each respective CLO. The
notes are subject to redemption provisions, including mandatory
redemption if certain coverage tests are not met by each respec-
tive CLO. Optional redemption of the notes is available at certain
periods and optional repricing of the notes is available subject
to certain customary terms and conditions being met by each
respective CLO.
h) ResCare
In December 2010, ResCare issued $200 of senior subordinated
notes. The senior subordinated notes bear interest at a rate of
10.75% and are repayable at maturity in January 2019. At Decem-
ber 31, 2013, $200 (2012 – $200) was outstanding under the senior
subordinated notes.
In April 2012, ResCare entered into a new $375 senior
secured credit facility, which is available through to April 2017.
The senior secured credit facility consists of a $200 revolving
credit facility and a $175 term loan. The senior secured credit
facility bears interest at LIBOR plus a margin of 2.75%. The term
loan requires quarterly principal repayments of $2. The required
quarterly principal repayments increase throughout the term
until they reach $7 in 2015. Substantially all of ResCare’s assets are
pledged as collateral under the senior secured credit facility.
Onex Corporation December 31, 2013 121
N O T E S T O C O N S O L I D AT E D F I N A N C I A L S TAT E M E N T S
The proceeds from the new senior secured credit facil-
j) Sitel Worldwide
ity were used to repay ResCare’s former senior secured term loan,
Sitel Worldwide’s credit facility initially consisted of a $675 term
retire the former senior secured revolving credit facility and pay
loan maturing in January 2014 and an $85 revolving credit facility
fees and expenses associated with the transaction. At December 31,
maturing in January 2013. As a result of repayments and repur-
2013, nil and $158 (2012 – nil and $171) were outstanding under the
chases made in 2007 and 2008, no quarterly payments are due
revolving credit facility and term loan, respectively.
under the term loan until maturity. The term loan and revolving
As a result of the 2012 refinancing, ResCare recognized a
credit facility bore interest at a rate of LIBOR plus a margin of up
charge of $10 during the second quarter of 2012, which was included
to 5.5% or prime plus a margin of 4.5%.
in interest expense in the consolidated statements of earnings.
In May and June 2011, Sitel Worldwide amended its
i) SGS International
credit facility that governs its term loan and revolving credit facil-
ity. The amendments included extending the maturity date on
In October 2012, SGS International entered into a credit agree-
$228, or 64%, of its term loan from January 2014 to January 2017
ment that consisted of a $400 senior secured term loan and a $75
and extending the maturity on $31, or 36%, of commitments for
senior secured revolving credit facility. The senior secured term
its revolving credit facility from January 2013 to January 2016. In
loan matures in October 2019 and the senior secured revolving
the second quarter of 2012, Sitel Worldwide extended the matu-
credit facility matures in October 2017. Borrowings under the credit
rity date on $30, or 35%, of commitments for its revolving credit
agreement bear interest at LIBOR (subject to a floor of 1.25%) plus
facility from January 2013 to January 2016. Borrowings under the
a margin of up to 3.75% or a base rate plus a margin of up to 2.75%,
extended term loan and revolving credit facility bear interest at a
depending on the company’s leverage ratio. In November 2013,
rate of LIBOR plus a margin of up to 6.75% or prime plus a margin
SGS International amended its credit agreement to reduce the rate
of 5.75%. In addition, the credit agreement was amended to lessen
at which borrowings under its senior secured term loan bear inter-
restrictions with respect to certain covenant levels.
est to LIBOR (subject to a floor of 1.00%) plus a margin of up to
Borrowings under the credit facility are secured by sub-
3.25% or a base rate plus a margin of up to 2.25%, depending on
stantially all of Sitel Worldwide’s assets.
the company’s leverage ratio. In addition, SGS International pays
At December 31, 2013, $228 and $18 (2012 – $226 and $19)
a commitment fee of 0.50% on the unused portion of the senior
were outstanding under the term loan and revolving credit facility,
secured revolving credit facility and certain fees for letters of credit
respectively.
issued. The credit agreement requires mandatory prepayment of
Sitel Worldwide is required under the terms of the facil-
certain excess cash flows and cash proceeds.
ity to maintain certain financial ratio covenants. The facility also
Substantially all of SGS International’s assets are pledged
contains certain additional requirements, including limitations or
as collateral under the credit agreement.
prohibitions on additional indebtedness, payment of cash divi-
In connection with the credit agreement, SGS Interna-
dends, redemption of stock, capital spending, investments, acqui-
tional entered into an interest rate swap agreement that swapped
sitions and asset sales.
the variable rate portion for a fixed rate of 1.45% through Decem-
In March 2010, Sitel Worldwide completed an offering of
ber 2017. The agreement had an initial notional amount of $261,
$300 in aggregate principal amount of senior unsecured notes due
reducing to $74 during the term of the agreement. In November
in 2018. The notes bear interest at an annual rate of 11.50% with no
2013, SGS International settled its previous interest rate swap
principal payments due until maturity. Proceeds from the offer-
agreement and entered into a new agreement that swapped the
ing were used to repay a portion of the indebtedness outstanding
variable rate portion for a fixed rate of 1.37% through December
under the existing term loan and all of the outstanding balance
2017. The new interest rate swap agreement has an initial notional
under the revolving credit facility at that time. In conjunction
amount of $230, reducing to $74 during the term of the agreement.
with this repayment, the debt covenants of the credit facility were
At December 31, 2013, $385 and nil (2012 – $400 and nil)
amended to reduce the minimum adjusted EBITDA to interest
were outstanding under the senior secured term loan and senior
ratio requirement and to change the total debt to adjusted EBITDA
secured revolving credit facility, respectively.
covenant to a senior secured debt to adjusted EBITDA covenant. At
In October 2012, SGS International issued $210 in aggre-
December 31, 2013 and 2012, the 2018 senior unsecured notes with
gate principal amount of 8.375% senior notes due in October
$300 outstanding were recorded net of the unamortized discount
2020. Interest is payable semi-annually beginning in April 2013.
of $5 (2012 – $6) and embedded derivative of $5 (2012 – $6) associ-
The 2020 senior notes may be redeemed by the company at any
ated with the senior unsecured notes.
time at various premiums above face value. At December 31, 2013,
In April 2012, Sitel Worldwide completed an offering of
senior notes of $210 (2012 – $210) were outstanding.
$200 in aggregate principal amount of 11.00% senior secured notes
due in 2017. The offering price was 96.00% of par to yield 12.00%
122 Onex Corporation December 31, 2013
N O T E S T O C O N S O L I D AT E D F I N A N C I A L S TAT E M E N T S
to maturity. The senior secured notes include certain optional and
As a result of the amendment to its credit facility agree-
mandatory redemption provisions at a range of redemption prices
ment in 2012, Skilled Healthcare Group recognized a charge of $2
plus accrued and unpaid interest. The net proceeds were used to
during the second quarter of 2012, which was included in interest
repay all of the indebtedness outstanding under the non-extended
expense in the consolidated statements of earnings.
term loan due in 2014 and all of the outstanding balance under its
In June 2010, Skilled Healthcare Group entered into an
revolving credit facility. At December 31, 2013 and 2012, the 2017
interest rate cap agreement (which expired in December 2011) and
senior secured notes with $200 outstanding were recorded net of
an interest rate swap agreement. The interest rate swap agreement
the unamortized discount of $6 (2012 – $7) and embedded deriva-
was for a notional amount of $70 and swapped the variable rate
tive of $3 (2012 – $3) associated with the senior secured notes.
portion for a fixed rate of 2.3% from January 2012 to June 2013.
Included in long-term debt at December 31, 2013 was
During 2013, Skilled Healthcare Group entered into a
$67 (2012 – $60) of mandatorily redeemable Class B preferred
credit facility in connection with insured loans from a department
shares, of which $53 (2012 – $48) was held by Onex. The mandato-
of the U.S. federal government. The loans, in the amount of $88,
rily redeemable Class B preferred shares accrue annual dividends
bear interest at rates ranging from 3.39% to 4.55%, amortize over 30
at a rate of 12.00% and are redeemable at the option of the com-
to 35 years and are secured by 10 of the company’s nursing facilities.
pany on or before July 2018. Also included in long-term debt at
At December 31, 2013, $87 was outstanding under the insured loans.
December 31, 2013 was $61 (2012 – $53) of mandatorily redeem-
In December 2013, Skilled Healthcare Group entered
able Class C preferred shares, of which $48 (2012 – $42) was held
into a new credit facility. The new credit facility consists of a $62
by Onex. The mandatorily redeemable Class C preferred shares
mortgage-backed term loan and a $5 asset-based revolving credit
accrue annual dividends at a rate of 16.00% and are redeemable
facility. Borrowings under the new credit facility bear interest at
at the option of the company on or before July 2018. Outstanding
LIBOR (subject to a floor of 0.75%) plus a margin of 5.95%, mature
amounts related to preferred shares at December 31, 2013 and
in December 2016 and are secured by 10 of the company’s skilled
2012 include accrued dividends.
nursing facilities. At December 31, 2013, $62 and $5 were outstand-
ing under the mortgage-backed term loan and revolving credit
k) Skilled Healthcare Group
facility, respectively.
In April 2010, Skilled Healthcare Group completed the financing of
The proceeds from the insured loans and new credit
a credit facility comprised of a $330 term loan and a $100 revolv-
facility were used to repay a portion of the term loan under the
ing credit facility. The term loan was increased by an additional
existing credit facility and pay fees and expenses associated with
$30 to fund acquisitions completed in the second quarter of 2010.
the transactions.
The term loan bore interest at LIBOR (subject to a floor of 1.50%)
plus a margin of 3.75%, and required quarterly principal repay-
l) Spirit AeroSystems
ments of $1 until maturity in 2016. The revolving credit facility
In April 2012, Spirit AeroSystems entered into a new credit agree-
bore interest at LIBOR (subject to a floor of 1.50%) plus a margin
ment that consists of a $550 term loan and a $650 revolving credit
of 3.75%, and was repayable at maturity in 2015. In April 2012,
facility. The term loan bears interest at LIBOR (subject to a floor
Skilled Healthcare Group amended its credit facility agreement
of 0.75%) plus a margin of 3.00%. The margin over LIBOR may
to increase the term loan by an additional $100. The incremental
be decreased to 2.75% in 2013 if certain performance targets are
term loan bears interest at LIBOR (subject to a floor of 1.50%) plus
met. The term loan is due in 2019 and replaced the existing senior
a margin of 5.25%. As part of the refinancing, the interest rate on
secured term loan. The revolving credit facility bears interest
the existing term loan was amended to match the interest rate of
at LIBOR plus a margin of up to 2.50% depending on the com-
the incremental term loan. The amended term loan requires quar-
pany’s leverage ratio. The revolving credit facility is due in 2017
terly principal repayments of $2 until maturity in 2016. The inter-
and replaced the existing senior secured revolving credit facility.
est rate on the existing revolving credit facility was also amended
Substantially all of Spirit AeroSystems’ assets are pledged as col-
to LIBOR plus a margin of up to 4.50% or a base rate plus a mar-
lateral under the new credit agreement.
gin of up to 3.50%, depending on the company’s leverage ratio.
The proceeds from the new term loan, along with approx-
There is no longer a LIBOR floor on the revolving credit facility.
imately $9 of cash, were used to repay Spirit AeroSystems’ existing
Substantially all of Skilled Healthcare Group’s assets are pledged
senior secured term loan and to pay accrued interest, fees, clos-
as collateral under the term loan and revolving credit facility.
ing costs and other third-party expenses. At December 31, 2013, nil
At December 31, 2013, $244 and $18 (2012 – $412 and $35)
and $540 (2012 – nil and $546) was outstanding under the revolv-
were outstanding under the term loan and revolving credit facility,
ing credit facility and the term loan, respectively. The term loan was
respectively. The term loan was recorded net of the unamortized
recorded net of the unamortized discount of $2 (2012 – $3).
discount of $1 (2012 – $3).
Onex Corporation December 31, 2013 123
N O T E S T O C O N S O L I D AT E D F I N A N C I A L S TAT E M E N T S
As a result of the 2012 refinancing, Spirit AeroSystems
m) The Warranty Group
recognized a charge of $10 during the second quarter of 2012,
In June 2012, The Warranty Group entered into a new credit facil-
which was included in interest expense in the consolidated state-
ity that consists of a $250 term loan and a $25 revolving credit
ments of earnings.
facility, which are available through to June 2016. The term loan
In October 2012, Spirit AeroSystems amended its new
and revolving credit facility bear interest at LIBOR plus a margin
credit agreement to revise its debt covenant ratios such that it did
of up to 2.75% based on The Warranty Group’s credit rating. At
not have an event of default from the forward-loss charges recog-
December 31, 2013, the term loan and revolving credit facility bore
nized during the third quarter of 2012 under the company’s long-
interest at LIBOR plus a margin of 1.625% (2012 – 1.75%). The term
term volume-based pricing contracts. No other amendments were
loan will amortize in equal quarterly instalments in an amount
made to Spirit AeroSystems’ credit agreement.
equal to 1% per annum, with the balance payable on maturity.
In August 2013, Spirit AeroSystems amended its credit
Substantially all of The Warranty Group’s assets are pledged as
agreement to suspend its existing debt covenant ratios until
collateral under the credit facility. At December 31, 2013, $246 and
December 2014, such that it did not have an event of default from
nil (2012 – $249 and nil) were outstanding under the term loan
the forward-loss charges recognized during the second quarter of
and revolving credit facility, respectively.
2013 under the company’s long-term volume-based pricing con-
The proceeds from the new credit facility were used
tracts. The amendment requires the company to meet certain
primarily to repay the existing term loan, to pay accrued divi-
minimum liquidity and borrowing base covenants while the exist-
dends on The Warranty Group’s redeemable preferred shares
ing debt covenant ratios are suspended. No other amendments
and for partial redemption of the redeemable preferred shares
were made to Spirit AeroSystems’ credit agreement.
outstanding. In June 2012, The Warranty Group redeemed $85 of
In September 2009, Spirit AeroSystems completed an
its redeemable preferred shares, including $21 of accumulated
offering of $300 in aggregate principal amount of 7.50% senior
and unpaid dividends. The Company’s share of the redemption,
subordinated notes due in 2017. The offering price was 97.804%
including accrued and unpaid dividends, was $83, of which Onex’
of par to yield 7.875% to maturity. The net proceeds were used to
share was $26.
repay $200 in borrowings under its revolving credit facility existing
In December 2013 and 2012, The Warranty Group
at that time without any reduction of the lenders’ commitment,
redeemed $65 (2012 – $50) of its redeemable preferred shares,
with the remainder used for general corporate purposes. Interest is
including $34 (2012 – $18) of accumulated and unpaid dividends.
payable semi-annually beginning in April 2010. The 2017 senior
The Company’s share of the redemption, including accrued and
subordinated notes may be redeemed prior to maturity at vari-
unpaid dividends, was $63 (2012 – $49), of which Onex’ share was
ous premiums above face value. At December 31, 2013 and 2012,
$20 (2012 – $15).
the 2017 senior subordinated notes with $300 outstanding were
Included in long-term debt at December 31, 2013 is
recorded net of the unamortized discount of $4 (2012 – $4).
$380 (2012 – $410) of redeemable preferred shares, of which $369
In November 2010, Spirit AeroSystems completed an
(2012 – $399) was held by the Company. The redeemable preferred
offering of $300 in aggregate principal amount of 6.75% senior sub-
shares accrue annual dividends at a rate of 8% and are automati-
ordinated notes due in 2020. The net proceeds were used to repay
cally converted into common shares of The Warranty Group for
$150 in borrowings under its revolving credit facility existing at that
the initial liquidation amount plus accumulated and unpaid divi-
time, with the remainder to be used for general corporate purposes.
dends upon a liquidation or other triggering event.
Interest is payable semi-annually beginning in June 2011. The 2020
senior subordinated notes may be redeemed prior to maturity at
n) TMS International
various premiums above face value. At December 31, 2013 and 2012,
In December 2011, TMS International entered into a senior
$300 of senior subordinated notes due in 2020 were outstanding.
secured asset-based revolving credit facility with an aggregate
If a change in control of Spirit AeroSystems occurs, the
principal amount of up to $350. As at December 31, 2012, nil was
holders of the 2017 and 2020 senior subordinated notes have the
outstanding under the revolving credit facility. In addition, there
right to require Spirit AeroSystems to repurchase the senior sub-
were $17 of letters of credit outstanding secured by the revolving
ordinated notes at a price of 101% plus accrued and unpaid inter-
credit facility.
est. The 2017 and 2020 senior subordinated notes rank equal in
In March 2012, TMS International entered into a senior
right of payment and are subordinate to the credit facility.
secured term loan for an aggregate principal amount of $300. At
December 31, 2012, the senior secured term loan with $298 out-
standing was recorded net of the unamortized discount of $3.
In October 2013, the Company sold its remaining inter-
ests in TMS International, as described in note 3, and as a result,
the company has been presented as a discontinued operation.
124 Onex Corporation December 31, 2013
N O T E S T O C O N S O L I D AT E D F I N A N C I A L S TAT E M E N T S
o) Tropicana Las Vegas
Substantially all of USI’s assets are pledged as collateral
In March 2010, Tropicana Las Vegas entered into a credit agree-
under the senior secured credit facility. The senior secured credit
ment that consisted of a $50 revolving credit facility and a delayed
facility contains certain affirmative and negative covenants. The
draw $10 term loan. The revolving credit facility and term loan
amounts outstanding under the senior secured credit facility are
bore interest at a fixed annual rate of 4.00% and 6.00%, respec-
subject to mandatory prepayment under specified circumstances,
tively, and were scheduled to mature in March 2014. The term loan
including with excess cash flows and certain cash proceeds.
required repayment of the principal balance in equal monthly
At December 31, 2013, $1,015 and nil (2012 – $1,025 and
instalments beginning in January 2013.
$20) were outstanding under the senior secured term loan and
In July 2012, Tropicana Las Vegas amended its credit
senior secured revolving credit facility, respectively. The senior
agreement to establish an additional $5 revolving credit facil-
secured term loan is recorded net of the unamortized discount of $5
ity and modify certain financial and non-financial covenants.
(2012 – $5). In addition, USI had $1 (2012 – $1) of letters of credit out-
Borrowings under the additional revolving credit facility bear
standing that were issued under its senior secured revolving credit
interest at a fixed annual rate of 5.00% and were scheduled to
facility at December 31, 2013.
mature in March 2014.
In January 2013, in connection with the credit agreement,
In December 2012, Tropicana Las Vegas further amend-
USI entered into interest rate swap agreements that swapped the
ed and restated its credit agreement to transfer its $10 term loan
variable rate portion for a fixed rate of 1.30% on a notional amount
to its revolving credit facility, maintaining the current borrowing
of $200 through December 2013 and swaps the variable rate por-
base of $65. The term loan transferred to the revolving credit facil-
tion for a fixed rate of 1.715% on a notional amount of $525 through
ity bears interest at a fixed annual rate of 6.00%. In addition, the
December 2017.
amendment and restatement provides for an increase in interest
In December 2012, USI issued $630 in aggregate prin-
reserves, adjustments to financial covenants and the extension of
cipal amount of 7.75% senior notes due in January 2021. The 2021
all revolving credit facility borrowings to April 2018.
senior notes may be redeemed by the company prior to January
At December 31, 2013, $59 (2012 – $40) was outstanding
2016 at 100% of the principal amount plus a make whole premium
under the revolving credit facilities.
and accrued interest, and may be redeemed on or after January
Substantially all of Tropicana Las Vegas’ assets are
2016 at various redemption prices above face value plus accrued
pledged as collateral under the agreement.
interest. At December 31, 2013 and 2012, senior notes of $630
were outstanding.
p) USI
In December 2012, USI entered into a senior secured credit facil-
q) ONCAP operating companies
ity that consists of a $1,025 senior secured term loan and a $150
ONCAP’s operating companies consist of Bradshaw, CiCi’s Pizza,
senior secured revolving credit facility. The senior secured revolv-
Davis-Standard, EnGlobe, Hopkins, Mister Car Wash, Pinnacle
ing credit facility includes sublimits for letters of credit and swing
Renewable Energy Group, PURE Canadian Gaming, previously
line loans. The senior secured term loan matures in December
named Casino ABS, BSN SPORTS (up to the date of disposition in
2019 and the senior secured revolving credit facility matures in
June 2013) and Caliber Collision (up to the date of disposition in
December 2017.
November 2013). Each has debt that is included in the Company’s
Borrowings under the senior secured credit facility bear
consolidated financial statements. There are separate arrangements
interest at LIBOR plus a margin of up to 4.00% or a base rate plus
for each operating company with no cross-guarantees between the
a margin of up to 3.00%, depending on the company’s leverage
operating companies, ONCAP or Onex Corporation.
ratio. Borrowings under the senior secured term loan were sub-
Under the terms of the various credit agreements, com-
ject to a LIBOR floor of 1.25%. In December 2013, USI amended
bined term borrowings of $636 are outstanding and combined
its credit agreement to reduce the rate at which borrowings under
revolving credit facilities of $136 are outstanding. The available
the senior secured term loan bear interest to LIBOR plus a mar-
facilities bear interest at various rates based on a base floating
gin of 3.25% or a base rate plus a margin of 2.25%. In addition,
rate plus a margin. At December 31, 2013, effective interest rates
the LIBOR floor was reduced to 1.00% for borrowings under the
ranged from 2.60% to 6.25% on borrowings under the revolving
senior secured term loan. In addition, USI pays a quarterly com-
credit and term loan facilities. The term loans typically require
mitment fee of up to 0.50% per annum, depending on the com-
quarterly repayments and are due between 2015 and 2018. The
pany’s leverage ratio, on the unused portion of the senior secured
companies also have subordinated notes of $311 due between
revolving credit facility and certain fees for letters of credit issued.
2014 and 2021 that bear interest at rates ranging from 11.0% to
The senior secured term loan requires quarterly instalments of $3.
18.0%, of which the Company owns $269.
Onex Corporation December 31, 2013 125
N O T E S T O C O N S O L I D AT E D F I N A N C I A L S TAT E M E N T S
During 2013, PURE Canadian Gaming amended its cred-
13 . L E A S E S
it facility to increase the amount of its term loan by $70 (C$71).
The net proceeds from the amended credit facility were used to
repay $54 (C$55) of subordinated debt that bore interest at 8.50%
and to repurchase $14 (C$15) of subordinate notes held primar-
ily by the Company. Onex’ share of the repurchase of subordinate
notes was $6 (C$6).
Certain ONCAP operating 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, 2013 was $227, with portions expiring through to 2016.
Senior debt is generally secured by substantially all of
the assets of the respective operating 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 transactions,
a) The Company as lessee
Future minimum lease payments are as follows:
For the year:
2014
2015
2016
2017
2018
Thereafter
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
Finance
Leases
Operating
Leases
$ 24
$ 347
280
213
163
121
569
$ 1,693
19
11
6
3
19
$ 82
(17)
65
(19)
$ 46
including foreign exchange options, forwards and swaps. Borrow-
to Onex Corporation
ings drawn on the line of credit bear interest at a base rate plus a
margin of 2.50% or bankers’ acceptance rate (LIBOR for U.S. dol-
lar 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 limit-
ed partners of ONCAP III to fund the demand. Onex Corporation,
the ultimate parent company, is only obligated to fund borrow-
ings under the credit facility based on its proportionate share as a
limited partner in ONCAP III. At December 31, 2013 and 2012, the
amount available under the deemed risk facility was C$25. No
amounts were outstanding on the line of credit at December 31,
2013 and 2012.
The annual minimum repayment requirements for the next five
years on consolidated long-term debt are as follows:
2014
2015
2016
2017
2018
Thereafter
$ 651
329
1,566
1,106
1,111
7,420
$ 12,183
Substantially all of the lease commitments relate to the operating
companies. Obligations under finance leases, without recourse to
Onex Corporation, are included in other current and non-current
liabilities. Operating leases primarily relate to premises.
b) The Company as lessor
Certain of the operating companies lease out their investment
properties, machinery and/or equipment under operating leases.
Future minimum lease payments receivable from lessees under
non-cancellable operating leases are as follows:
For the year:
2014
2015
2016
2017
2018
Thereafter
$ 53
42
31
25
22
127
$ 300
Contingent rents recognized as an expense for lessees and as
income for lessors were not significant to the Company’s results
for the years ended December 31, 2013 and 2012.
126 Onex Corporation December 31, 2013
N O T E S T O C O N S O L I D AT E D F I N A N C I A L S TAT E M E N T S
14 . 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, 2013:
Property and
Casualty(a)
Warranty(b)
Total Reserves
Current portion of reserves, December 31, 2012
Non-current portion of reserves, December 31, 2012
Gross reserves for losses and LAE, December 31, 2012(1)
Less current portion of ceded claims recoverable(2) (note 6)
Less non-current portion of ceded claims recoverable(2) (note 9)
Net reserves for losses and LAE, December 31, 2012
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, 2013
Add current portion of ceded claims recoverable(2) (note 6)
Add non-current portion of ceded claims recoverable(2) (note 9)
Gross reserves for losses and LAE, December 31, 2013(1)
Current portion of reserves, December 31, 2013
$ 85
298
$ 383
(85)
(298)
–
$ –
–
–
$ –
70
240
310
(70)
$ 202
31
$ 233
(61)
(2)
170
$ 558
(567)
(1)
$ 160
59
1
220
(184)
Non-current portion of reserves, December 31, 2013
$ 240
$ 36
$ 287
329
$ 616
(146)
(300)
170
$ 558
(567)
(1)
$ 160
129
241
530
(254)
$ 276
(1)
Reserves for losses and LAE represent the estimated ultimate net cost of all reported and unreported losses incurred and unpaid through December 31, 2013 and 2012,
as described in note 1.
(2) Ceded claims recoverable represent the portion of reserves ceded to third-party reinsurers.
a) Property and casualty reserves represent estimated future
losses on property and casualty policies. The property and casu-
alty reserves and the corresponding ceded claims recoverable were
Unearned Premiums
The following table provides details of the unearned premiums:
acquired on the acquisition of The Warranty Group. The property
As at December 31
and 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 recov-
erable and warranty reserves are of a current nature.
Non-current portion of
unearned premiums
2013
2012
$ 2,599
(1,096)
$ 2,524
(1,079)
$ 1,503
$ 1,445
Onex Corporation December 31, 2013 127
N O T E S T O C O N S O L I D AT E D F I N A N C I A L S TAT E M E N T S
15 . 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
Partners and ONCAP Fund investments. During 2013, the unreal-
Other non-current liabilities comprised the following:
As at December 31
2013
Spirit AeroSystems advance payments(a)
$ 723
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)
300
343
448
284
87
341
2012
$ 834
284
251
577
429
111
366
$ 2,526
$ 2,852
ized carried interest liability increased for a charge for the change
in carried interest of $262, as described in note 24, partially offset by
carried interest paid on the distributions received from Carestream
Health (note 12), the sales of RSI (note 8(a)), TMS Inter national
(note 3), BSN SPORTS and Caliber Collision (note 23) and the par-
tial dispositions of Allison Transmission (note 8(a)). During 2012, the
unrealized carried interest liability was increased for the change in
carried interest of $91 (note 24), partially offset by the carried inter-
est paid on the sale of CDI (note 23).
c) At December 31, 2013, the stock-based compensation liability
consisted of $280 (2012 – $391) for the stock-based compensation
plans at the parent company and $4 (2012 – $38) for stock option
and other share-based compensation plans in place at the operat-
ing companies. Included in long-term investments (note 8) is $39
(2012 – $30) related to forward agreements to economically hedge
a) Spirit AeroSystems receives advance payments from third par-
ties in contemplation of the future performance of services, receipt
the Company’s exposure to changes in the trading price of Onex
shares associated with the Management DSU Plan and a portion
of goods, incurrence of expenditures, or for other assets to be pro-
of the Director DSU Plan.
vided under its contracts and which are repayable if such obli-
gations are not satisfied. Advance payments primarily relate to
Spirit AeroSystems’ 787 aircraft long-term supply agreement with
d) JELD-WEN’s employee stock ownership plan (“ESOP”) was
established to allow its employees to share in the success of the
The Boeing Company (“Boeing”). As at December 31, 2013, $1,148
company through the ESOP’s ownership of JELD-WEN stock. The
(2012 – $1,138) of advance payments had been made, of which $554
company may make discretionary contributions of cash or JELD-
has been recognized as revenue and $594 will be settled against
WEN shares to the ESOP on behalf of the employees. JELD-WEN
future sales of Spirit AeroSystems’ 787 aircraft units to Boeing. Of
consolidates the trust established to maintain the ESOP and there-
the payments, $82 has been recorded as a current liability.
fore reports the liability for the value of JELD-WEN stock and mis-
b) Unrealized carried interest due to management of Onex and
ONCAP through the Onex Partners and ONCAP Funds is recognized
cellaneous 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 partici-
as a non-current liability and reduces the Limited Partners’ Interests
pants. During 2013, JELD-WEN repurchased stock from the ESOP
liability, as described in note 17. The unrealized carried interest is
for a cash cost of $16 (2012 – $25).
calculated based on current fair values of the Funds’ investments
and the overall unrealized gains in each respective Fund in accor-
dance with the limited partnership agreements. The liability will be
e) Other includes amounts for liabilities arising from indemni-
fications, unearned insurance contract fees, embedded deriva-
increased or decreased based upon changes in the fair values and
tives on long-term debt, mark-to-market valuations of hedge
realizations of the underlying investments in the Onex Partners
contracts and the non-current portion of obligations under
and ONCAP Funds. The liability will ultimately be settled upon the
finance leases, without recourse to Onex Corporation (note 13).
realization of the Limited Partners’ share of the underlying Onex
128 Onex Corporation December 31, 2013
N O T E S T O C O N S O L I D AT E D F I N A N C I A L S TAT E M E N T S
16 . I N C O M E TA X E S
The reconciliation of statutory income tax rates to the Company’s effective tax rate is as follows:
Year ended December 31
Income tax provision (recovery) at statutory rates
Changes related to:
Income tax rate differential of operating companies
Book to tax differences on property, plant and equipment and intangibles
Non-taxable gains
Unbenefited tax losses
Realized gains not expected to be taxable in the foreseeable future
Foreign exchange
Limited Partners’ Interests
Other, including permanent differences
Recovery of (provision for) income taxes
Classified as:
Current
Deferred
Recovery of (provision for) income taxes
2013
2012
$ (329)
$ 17
468
36
(459)
410
(480)
(29)
84
(34)
(52)
12
(217)
42
–
20
270
(16 )
$ (333)
$ 76
$ 172
(505)
$ (333)
$ 305
(229 )
$ 76
During 2013, as a result of evaluating recent changes in tax law for
able future, consistent with the principles outlined in IAS 12, Income
the treatment of surplus and upstream loans, Onex determined
Taxes. As a result, Onex recorded a $526 recovery of deferred income
that its previously recognized deferred tax provisions on gains real-
taxes, of which $480 was included in the Company’s deferred
ized from the disposition of foreign operating companies are tem-
income tax liability at December 31, 2012 and $46 represented tax
porary differences which are probable to not reverse in the foresee-
provisions established and reversed during 2013.
The Company’s deferred income tax assets and liabilities, as presented in the consolidated balance sheets and in other non-current assets
(note 9), are presented after taking into consideration the offsetting of balances within the same tax jurisdiction. 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, 2012
Credited (charged) to net earnings
Credited (charged) directly to equity
Recognition of previously unrecognized benefits
Exchange differences
Acquisition of subsidiaries
Disposition of operating companies
Other adjustments
Balance – December 31, 2012
Credited (charged) to net earnings
Credited (charged) directly to equity
Exchange differences
Acquisition of subsidiaries
Disposition of operating companies
Other adjustments
Scientific
Research and
Development
$ 1
(2)
–
–
–
–
–
1
$ –
–
–
–
–
–
–
Provisions
$ 191
(7)
(2)
–
–
32
–
13
Deferred
Revenue
$ 151
180
–
–
7
–
–
7
$ 227
(34)
$ 345
(213)
2
1
–
(24)
4
–
(3)
(3)
–
–
49
1
–
(2)
44
–
41
$ 323
(14)
–
–
40
(2)
(9)
Balance – December 31, 2013
$ –
$ 176
$ 126
$ 338
Property,
Plant and
Equipment,
and Intangibles
Tax Losses
Other
Total
$ 190
$ 38
$ 162
$ 733
6
–
2
–
2
–
11
$ 59
18
–
2
–
(4)
(11)
$ 64
25
(2)
–
(1)
86
(3)
12
251
(3)
2
4
164
(3)
85
$ 279
$ 1,233
(75)
(318)
(1)
(7)
3
(5)
(4)
1
(7)
40
(35)
(20)
$ 190
$ 894
Onex Corporation December 31, 2013 129
N O T E S T O C O N S O L I D AT E D F I N A N C I A L S TAT E M E N T S
Deferred Tax Liabilities
Balance – January 1, 2012
Charged (credited) to net earnings
Charged (credited) directly to equity
Exchange differences
Acquisition of subsidiaries
Disposition of operating companies
Other adjustments
Balance – December 31, 2012
Credited to net earnings
Charged (credited) directly to equity
Exchange differences
Acquisition of subsidiaries
Disposition of operating companies
Other adjustments
Gains on Sales
of Operating
Companies
$ 523
(2)
(1)
–
–
–
–
$ 520
(490)
1
–
–
–
7
Pension and
Non-Pension
Post-Retirement
Benefits
$ 22
6
(21)
–
2
–
–
$ 9
(82)
82
–
–
–
–
Property, Plant
and Equipment,
and Intangibles
$ 745
21
–
1
758
(10)
47
$ 1,562
(211)
–
6
160
(123)
31
Foreign
Exchange
$ 142
(18)
–
–
–
–
3
Other
$ 97
32
9
12
80
–
21
Total
$ 1,529
39
(13)
13
840
(10)
71
$ 127
$ 251
$ 2,469
(11)
–
(10)
–
–
–
(29)
(17)
–
–
10
18
(823)
66
(4)
160
(113)
56
Balance – December 31, 2013
$ 38
$ 9
$ 1,425
$ 106
$ 233
$ 1,811
At December 31, 2013, Onex and its investment holding compa-
17. L I M I T E D PA R T N E R S ’ I N T E R E S T S
nies had $903 of non-capital loss carryforwards and $73 of capital
loss carryforwards.
Deferred income tax assets are recognized for tax loss car-
ryforwards to the extent that the realization of the related tax benefit
through future taxable income is probable. At December 31, 2013,
deductible temporary differences, unused tax losses and unused tax
credits for which no deferred tax asset has been recognized were
$6,723, of which $3,174 had no expiry, $304 was available to reduce
future income taxes between 2014 and 2020, inclusive, and $3,245
was available with expiration dates of 2021 through 2033.
At December 31, 2013, the aggregate amount of taxable
temporary differences not recognized in association with invest-
ments in subsidiaries, joint ventures and associates was $6,092.
130 Onex Corporation December 31, 2013
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, 2012
Limited Partners’ Interests charge(a)
Contributions by Limited Partners(b)
Distributions paid to Limited Partners(c)
Balance – December 31, 2012(d)
Limited Partners’ Interests charge(a)
Contributions by Limited Partners(b)
Distributions paid to Limited Partners(c)
Balance – December 31, 2013
Limited
Partners’
Interests
$ 4,980
929
1,311
(977)
$ 6,243
1,855
401
(1,540)
$ 6,959
a) The Limited Partners’ Interests charge was reduced for the
change in carried interest of $395 for the year ended December 31,
2013 (2012 − $132). Onex’ share of the change in carried interest
was $137 for the year ended December 31, 2013 (2012 − $47).
b) Management fees received from the Limited Partners were $45
for the year ended December 31, 2013 (2012 – $74). Management
fees received during 2013 were reduced by the deferral of a capi-
tal call for management fees from Onex Partners III until early
2014. As a result of the expiration of the initial fee period for Onex
Partners III in December 2013 the management fees to be received
for Onex Partners III in early 2014 will be $10. Contributions by
Limited Partners during 2013 consisted primarily of $58 for the
N O T E S T O C O N S O L I D AT E D F I N A N C I A L S TAT E M E N T S
USI co-investment sale and $265 for Onex Partners III’s invest-
of other classes, to distributions of the residual assets on winding
ment in Emerald Expositions (note 2). Contributions by the
up and to any declared but unpaid cash dividends. The shares are
Limited Part ners during 2012 were primarily for the acquisitions of
entitled to receive cash dividends, dividends in kind and stock div-
KraussMaffei, SGS International and USI by Onex Partners III, the
idends as and when declared by the Board of Directors.
investment in BBAM by Onex Partners III and the acquisition of
The Multiple Voting Shares and Subordinate Voting
Bradshaw by ONCAP III.
c) Distributions paid to Limited Partners during 2013 consisted
primarily of the proceeds on the realization of RSI (note 8(a)),
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
the sales of TMS International (note 3), BSN SPORTS and Caliber
will thereupon be entitled to elect only 20% of the Company’s
Collision (note 23), the partial dispositions of Allison Transmission
Directors and otherwise will cease to have any general voting
(note 8(a)) and distributions received from Allison Transmission,
rights. The Subordinate Voting Shares would then carry 100%
Carestream Health, JELD-WEN, PURE Canadian Gaming and The
of the general voting rights and be entitled to elect 80% of the
Warranty Group. Distributions paid to the Limited Partners dur-
Company’s Directors.
ing 2012 consisted primarily of the proceeds on the realized sale of
CDI (note 23), partial disposition of Allison Transmission (note 8),
iii) An unlimited number of Senior and Junior Preferred Shares
distributions received from Allison Transmission, Carestream
issuable in series. The Company’s Directors are empowered to fix
Health, Tomkins, The Warranty Group and JELD-WEN, and the
the rights to be attached to each series.
repurchase of subordinate notes by Mister Car Wash (note 12(q)).
d) At December 31, 2012, the current portion of the Limited Part-
ners’ Interest was $35 and was included in accounts payable and
b) At December 31, 2013, the issued and outstanding share capital
consisted of 100,000 Multiple Voting Shares (2012 – 100,000) and
111,444,100 Subordinate Voting Shares (2012 – 114,496,438). The
accrued liabilities in the consolidated balance sheet. The current
Multiple Voting Shares have a nominal paid-in value in these con-
portion at December 31, 2012 included $26 for the Limited Partners
solidated financial statements.
of Onex Partners III’s share of the repayment by JELD-WEN, in late
There were no issued and outstanding Senior and Junior
December 2012, of a portion of its convertible promissory notes,
Preferred shares at December 31, 2013 or 2012.
including accrued interest, and excess capital called for acquisi-
tions completed in late December 2012. In addition, the current
portion at December 31, 2012 included $9 for the Limited Partners
c) During 2013, under the Dividend Reinvestment Plan, the
Company issued 8,062 Subordinate Voting Shares (2012 – 6,183) at
of ONCAP III’s share of the gains on the settlement of foreign
an average cost of C$48.33 per share (2012 – C$37.94). In 2013 and
exchange contracts in late December 2012 and excess capital called
2012, no Subordinate Voting Shares were issued upon the exercise
for an acquisition completed in late December 2012. The restricted
of stock options.
cash for these distributions was included in other current assets in
Onex renewed its Normal Course Issuer Bid in April
the consolidated balance sheets at December 31, 2012.
2013 for one year, permitting the Company to purchase on
18 . S H A R E C A P I TA L
the Toronto Stock Exchange up to 10% of the public float of its
Subordinate Voting Shares. The 10% limit represents approxi-
mately 8.9 million shares.
a) The authorized share capital of the Company consists of:
During 2013, the Company repurchased and cancelled
i) 100,000 Multiple Voting Shares, which entitle their holders to
Voting Shares at a cash cost of $100 (C$102). In addition, the Com-
elect 60% of the Company’s Directors and carry such number of
pany repurchased 1,000,000 of its Subordinate Voting Shares in a
votes in the aggregate as represents 60% of the aggregate votes
private transaction for a cash cost of $53 (C$57). The excess of the
attached to all shares of the Company carrying voting rights. The
purchase cost of these shares over the average paid-in amount was
Multiple Voting Shares have no entitlement to a distribution on
$141 (C$146), which was charged to retained earnings. As at Decem-
winding up or dissolution other than the payment of their nomi-
ber 31, 2013, the Company has the capacity under the current Normal
under its Normal Course Issuer Bid 2,060,400 of its Subordinate
nal paid-in value.
Course Issuer Bid to purchase approximately 7.8 million shares.
During 2012, the Company repurchased and cancelled
ii) An unlimited number of Subordinate Voting Shares, which carry
under its Normal Course Issuer Bids 627,061 of its Subordinate
one vote per share and as a class are entitled to 40% of the aggre-
Voting Shares at a cash cost of $24 (C$24). The excess of the pur-
gate votes attached to all shares of the Company carrying voting
chase cost of these shares over the average paid-in amount was
rights, to elect 40% of the Company’s Directors, and to appoint
$22 (C$22), which was charged to retained earnings.
the auditors. These shares are entitled, subject to the prior rights
Onex Corporation December 31, 2013 131
N O T E S T O C O N S O L I D AT E D F I N A N C I A L S TAT E M E N T S
d) The Company has a Director DSU Plan and a Management DSU Plan, as described in note 1.
Details of DSUs outstanding under the plans are as follows:
Director DSU Plan
Management DSU Plan
Number of DSUs
Weighted
Average Price
Number of DSUs
Weighted
Average Price
Outstanding at January 1, 2012
Granted
Exercised
Additional units issued in lieu of compensation and cash dividends
Outstanding at December 31, 2012
Granted
Additional units issued in lieu of compensation and cash dividends
Outstanding at December 31, 2013
Hedged with a counterparty financial institution at December 31, 2013
Outstanding at December 31, 2013 – Unhedged
C$ 38.53
–
C$ 39.08
C$ 49.94
C$ 51.66
446,388
40,000
–
14,366
500,754
30,537
11,969
543,260
(250,829)
292,431
e) The Company has a Stock Option Plan (the “Plan”) under which
options and/or share appreciation rights for a term not exceeding
10 years may be granted to Directors, officers and employees for the
acquisition of Subordinate Voting Shares of the Company at a price
not less than the market value of the shares on the business 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 appre-
ciation rights by at least 25% (the “hurdle price”). At December 31,
2013, 15,612,000 Subordinate Voting Shares (2012 – 15,612,000) were
reserved for issuance under the Plan, against which options rep-
resenting 7,867,175 shares (2012 – 13,294,552) were outstanding, of
Outstanding at January 1, 2012
Granted
Surrendered
Expired
Outstanding at December 31, 2012
Granted
Surrendered
Expired
443,139
–
(113,534)
136,399
466,004
–
1,226
467,230
(467,230)
–
Number
of Options
14,036,498
1,025,000
(1,488,620)
(278,326)
13,294,552
3,402,000
(8,660,526)
(168,851)
–
C$ 40.11
C$ 37.83
–
C$ 49.48
Weighted
Average
Exercise Price
C$ 19.47
C$ 40.26
C$ 18.32
C$ 30.87
C$ 20.96
C$ 56.92
C$ 16.34
C$ 33.51
Outstanding at December 31, 2013
7,867,175
C$ 41.34
which 2,907,441 options were vested. The Plan provides that the
During 2013 and 2012, the total cash consideration paid on
number of options issued to certain individuals in aggregate may
options surrendered was $292 (C$299) and $30 (C$30), respec-
not exceed 10% of the shares outstanding at the time the options
tively. This amount represents the difference between the market
are issued.
value of the Subordinate Voting Shares at the time of surrender
Options granted vest at a rate of 20% per year from
and the exercise price, both as determined under the Plan. The
the date of grant with the exception of 2,750,000 of the 3,402,000
weighted average share price at the date of exercise was C$50.81
options granted in December 2013, which vest at a rate of 15% per
(2012 – C$38.32) per share.
year during the first four years and 40% in the fifth year. When an
option is exercised, the employee has the right to request that the
Company repurchase the option for an amount equal to the dif-
ference between the fair value of the stock under the option and
its exercise price. Upon receipt of such request, the Company has
the right to settle its obligation to the employee by the payment of
cash, the issuance of shares or a combination of cash and shares.
132 Onex Corporation December 31, 2013
N O T E S T O C O N S O L I D AT E D F I N A N C I A L S TAT E M E N T S
Options outstanding at December 31, 2013 consisted of the following:
Month and Year of Grant
Number of
Options Outstanding
Exercise Price
Number of
Options Exercisable
Hurdle Price
Remaining Life
(years)
November 2004
January 2006
December 2006
December 2007
December 2008
December 2009
December 2010
July 2011
December 2011
September 2012
December 2012
December 2013
342,250
115,000
240,000
583,165
543,370
601,240
480,600
60,000
531,750
50,000
917,800
3,402,000
7,867,175
C$ 18.18
C$ 19.25
C$ 29.22
C$ 35.20
C$ 15.95
C$ 23.35
C$ 29.29
C$ 37.37
C$ 33.11
C$ 38.50
C$ 40.35
C$ 56.92
342,250
115,000
226,000
549,831
511,370
447,540
286,400
24,000
211,650
10,000
183,400
–
2,907,441
C$ 22.73
C$ 24.07
C$ 36.53
C$ 44.00
C$ 19.94
C$ 29.19
C$ 36.62
C$ 46.72
C$ 41.39
C$ 48.13
C$ 50.44
C$ 71.15
0.9
2.1
2.9
3.9
4.9
5.9
6.9
7.5
7.9
8.7
8.9
9.9
In January 2014, the Company issued 3,950,000 options to acquire Subordinate Voting Shares with an exercise price of C$57.45 per share.
The options vest at a rate of 15% per year during the first four years and 40% in the fifth year.
19. N O N - C O N T R O L L I N G I N T E R E S T S
The Company’s material non-controlling interests are associated with Celestica and Spirit AeroSystems. There were no dividends paid by
Celestica or Spirit AeroSystems during 2013 or 2012. Summarized balance sheet information based on those amounts included in these
consolidated financial statements for Celestica and Spirit AeroSystems are as follows:
As at December 31
Non-controlling interest
Current assets
Non-current assets
Current liabilities
Non-current liabilities
Net assets
Accumulated non-controlling interests
Celestica
Spirit AeroSystems
2013
89%
$ 2,121
518
2,639
$ 1,109
128
1,237
$ 1,402
$ 1,250
2012
90%
$ 2,111
548
2,659
1,199
137
1,336
$ 1,323
$ 1,182
2013
84%
$ 3,030
2,125
5,155
$ 1,342
2,147
3,489
$ 1,666
$ 1,409
2012
84%
$ 3,329
2,042
5,371
1,045
2,221
3,266
$ 2,105
$ 1,776
Financial information on the statements of earnings for Celestica (electronics manufacturing services segment) and Spirit AeroSystems
(aerostructures segment) are presented in note 34. Summarized cash flows for Celestica and Spirit AeroSystems are as follows:
Year ended December 31
2013
2012
2013
Cash flows from operating activities
Cash flows used for financing activities
Cash flows used for investing activities
$ 153
$ 312
$ 319
(107)
(52)
(253)
(168)
(79)
(262)
2012
$ 611
(109)
(241)
Celestica
Spirit AeroSystems
Onex Corporation December 31, 2013 133
N O T E S T O C O N S O L I D AT E D F I N A N C I A L S TAT E M E N T S
2 0 . E X P E N S E S B Y N AT U R E
2 2 . S T O C K - B A S E D C O M P E N S AT I O N E X P E N S E
The nature of expenses in cost of sales and operating expenses,
Year ended December 31
which excludes amortization of property, plant and equipment,
intangible assets and deferred charges, consisted of the following:
Year ended December 31
2013
2012
Cost of inventory, raw materials
and consumables used
$ 14,831
$ 13,567
Employee benefit expense(1)
Repairs, maintenance and utilities
Benefits and claims incurred
by The Warranty Group on
warranty agreements
Operating lease payments
Amortization charges
Professional fees
Provisions
Transportation
Other expenses
6,822
784
600
389
157
547
251
566
5,746
636
621
328
173
443
144
440
1,093
$ 26,040
1,086
$ 23,184
(1)
Employee benefit expense excludes employee costs capitalized into inventory
and internally generated capital assets. Stock-based compensation is
Parent company(a)
Caliber Collision
Celestica
Spirit AeroSystems
USI
JELD-WEN
Other
2013
$ 215
50
29
22
21
(7)
19
2012
$ 139
15
36
16
–
17
16
$ 349
$ 239
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(j)). The expense is determined based on
the fair value of the liability at the end of each reporting period.
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, 2013 of C$57.35 (2012 –
C$41.87), exercise price of the options, remaining life of each option
issuance, volatility of each option issuance ranging from 15.78% to
15.98%, an average dividend yield of 0.26% and an average risk-free
disclosed separately in the consolidated statements of earnings.
rate of 2.41%. The volatility is measured as the historical volatility
based on the remaining life of each respective option issuance.
21. I N T E R E S T E X P E N S E O F O P E R AT I N G C O M PA N I E S
The fair values for the MIP options are determined
Year ended December 31
2013
2012
inputs into the model are the fair value of the underlying invest-
Interest on long-term debt of
ments, the time to expected exit from each investment, a risk-free
operating companies
$ 731
$ 443
rate of 1.95% and an industry comparable historical volatility for
using an internally developed valuation model. The significant
Interest on obligations under finance
leases of operating companies
Other interest expense of
operating companies(1)
3
79
3
68
$ 813
$ 514
(1) Other includes debt prepayment expense of $19 (2012 − $22) .
each investment.
134 Onex Corporation December 31, 2013
N O T E S T O C O N S O L I D AT E D F I N A N C I A L S TAT E M E N T S
2 3 . O T H E R G A I N S
Year ended December 31
Sale of Caliber Collision(a)
Sale of BSN SPORTS(b)
Sale of CDI(c)
a) Caliber Collision
2013
$ 386
175
–
$ 561
2012
$ –
–
59
$ 59
and as a result operating results up to the date of disposition have
not been presented as a discontinued operation. The cash pro-
ceeds recorded in the consolidated statement of cash flows for the
sale of BSN SPORTS were reduced for BSN SPORTS’ cash and cash
equivalents of $3 at the date of sale.
During the fourth quarter of 2013, $6 of additional pro-
ceeds were received by ONCAP II, of which Onex’ share was $3.
These additional proceeds were recognized as a gain during the
fourth quarter of 2013, net of a $1 reduction in the escrow receiv-
able. At December 31, 2013, $15 remains receivable for escrow and
In November 2013, ONCAP II sold its interests in Caliber Collision
working capital adjustments, of which Onex’ share was $7.
for net proceeds of $437, of which Onex’ share was $193. Included in
Under the terms of the MIP, management members par-
the net proceeds amount is $4 held in escrow and for working capi-
ticipated in the realizations the Company achieved on the sale
tal adjustments, which are expected to be settled during 2014. Onex’
of BSN SPORTS. Amounts paid on account of this transaction
share of the amounts held in escrow and for working capital adjust-
related to the MIP totalled $6. In addition, management of ONCAP
ments is $2. The Company recorded a gain of $386 on the transac-
received $18 in carried interest, which included a net payment of
tion, of which Onex’ gain was $171. The gain on the sale is entirely
$7 of carried interest by Onex and management of Onex.
attributable to the equity holders of Onex Corporation, as the inter-
est of the Limited Partners was recorded as a financial liability at fair
c) CDI
value. Caliber Collision did not represent a separate major line of
In July 2012, Onex, Onex Partners I and Onex management com-
business, and as a result operating results up to the date of disposi-
pleted the sale of their entire investment in CDI. The sale was
tion have not been presented as a discontinued operation. The cash
completed for net proceeds of $91, of which Onex’ share was $24,
proceeds recorded in the consolidated statement of cash flows for
including carried interest. Included in the net proceeds amount
the sale of Caliber Collision were reduced for Caliber Collision’s cash
was $9 held in escrow and for working capital adjustments, which
and cash equivalents of $7 at the date of sale.
is expected to be settled during 2014. Onex’ share of the amounts
Under the terms of the MIP, management members par-
held in escrow and for working capital adjustments is $2, exclud-
ticipated in the realizations the Company achieved on the sale
ing carried interest. The Company recorded a pre-tax gain of $59
of Caliber Collision. Amounts paid on account of this transac-
in the third quarter of 2012 on the transaction. In addition, Onex
tion related to the MIP totalled $12. In addition, management of
recorded a non-cash tax provision of $2 on the gain. Onex rec-
ONCAP received $42 in carried interest, which included a net pay-
ognized a recovery of this tax provision during 2013 as part of an
ment of $8 of carried interest by Onex and management of Onex.
evaluation of recent changes in tax law as described in note 16.
b) BSN SPORTS
The gain on the sale is entirely attributable to the equity holders
of Onex Corporation as the interest of the Limited Partners was
In June 2013, ONCAP II sold its interests in BSN SPORTS for net
recorded as a financial liability at fair value. The cash proceeds
proceeds of $236, of which Onex’ share was $114. Included in the
recorded in the consolidated statement of cash flows for the sale of
net proceeds amount is $16 held in escrow and for working capi-
CDI were reduced for CDI’s cash and cash equivalents of $11 at the
tal adjustments, which are expected to be settled by June 2015.
date of sale.
Onex’ share of the amounts held in escrow and for working capi-
At December 31, 2013, $9 remains receivable for escrow
tal adjustments is $8. During the fourth quarter of 2013, $1 of the
and working capital adjustments, of which Onex’ share was $2.
additional amounts held in escrow was received, of which Onex’
Amounts received on account of the carried interest
share was less than $1. The Company recorded a pre-tax gain of
related to this transaction totalled $8. Consistent with market
$170 on the transaction, of which Onex’ pre-tax gain was $82. In
practice and the terms of the Onex Partners agreements, Onex is
addition, Onex initially recorded a non-cash tax provision of $7
allocated 40% of the carried interest with 60% allocated to man-
on the gain. Onex recognized a recovery of this tax provision dur-
agement. Onex’ share of the carried interest received was $3 and
ing 2013 as part of an evaluation of recent changes in tax law as
is included in Onex’ share of the cash proceeds. Management’s
described in note 16. The gain on the sale is entirely attributable
share of the carried interest was $5, which was previously record-
to the equity holders of Onex Corporation, as the interest of the
ed as a liability within other non-current liabilities. No amounts
Limited Partners was recorded as a financial liability at fair value.
were paid on account of the MIP for this transaction as the
BSN SPORTS did not represent a separate major line of business,
required investment return hurdle for Onex was not met.
Onex Corporation December 31, 2013 135
N O T E S T O C O N S O L I D AT E D F I N A N C I A L S TAT E M E N T S
2 4 . O T H E R I T E M S
Year ended December 31
Restructuring(a)
Transition, integration and other(b)
Transaction costs(c)
Carried interest due to Onex and
ONCAP management(d)
Change in fair value of contingent
consideration(e)
Spirit AeroSystems severe weather event(f)
Meridian Aviation(g)
Foreign exchange loss (gain)
Other(h)
2013
$ 93
73
23
262
104
30
(32)
18
(122)
iv)
Carestream Health’s restructuring charges for 2013 related
primarily to the reorganization of its European sales and
service functions and the relocation and closure of a film
finishing plant. Carestream Health’s 2012 restructuring plans
were primarily related to the sale of a portion of its Molecular
Imaging business.
b) Transition, integration and other expenses are typically to pro-
vide 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.
c) Transaction costs are incurred by Onex and its operating com-
panies to complete business acquisitions, and typically include
2012
$ 103
27
46
91
(2 )
(146 )
–
(7)
(66)
a) Restructuring charges recorded at the operating companies were:
Emerald Expositions (note 2) and acquisitions completed by the
$ 449
$ 46
advisory, legal and other professional and consulting costs.
Transaction costs for 2013 were primarily due to the acquisition of
operating companies. Transaction costs for 2012 were primarily
2012
due to the acquisitions of SGS International, USI, KraussMaffei
and Bradshaw (note 2).
d) Carried interest reflects the change in the amount of carried
interest due to Onex and ONCAP management through the Onex
Partners and ONCAP Funds. Unrealized carried interest is calcu-
lated based on current fair values of the Funds’ investments and
the overall unrealized gains in each respective Fund in accor-
dance 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 ultimately be settled upon the realiza-
tion of the Limited Partners’ share of the underlying investments
in each respective Onex Partners and ONCAP Fund.
e) During the year ended December 31, 2013, a net charge of $104
(2012 – net recovery of $2) was recognized in relation to the esti-
mated change in fair value of contingent consideration related to
acquisitions completed by the Company. The fair value of contin-
gent consideration liabilities is typically based on the estimated
future financial performance of the acquired business. Financial
targets used in the estimation process include certain defined
financial targets and realized internal rates of return. The total
estimated fair value of contingent consideration liabilities at
December 31, 2013 was $200 (December 31, 2012 – $83).
Year ended December 31
JELD-WEN(i)
Celestica(ii)
Sitel Worldwide(iii)
Carestream Health(iv)
Other
2013
$ 31
28
14
10
10
$ 35
44
15
6
3
$ 93
$ 103
i)
JELD-WEN’s restructuring charge for 2013 was primarily related
to the closure of facilities. JELD-WEN’s restructuring charge for
2012 was primarily due to the realignment of administrative and
sales departments to reduce general and administrative costs
and the termination of certain contracts.
ii)
During the second quarter of 2012, Celestica announced
that it would wind down its manufacturing services for a
significant customer by the end of 2012. As a result, Celestica
incurred restructuring charges of $28 during 2013 (2012 – $44,
which included $16 of property, plant and equipment impair-
ments). Celestica’s restructuring plans primarily consist of
actions to consolidate facilities and reduce its workforce.
iii) 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.
136 Onex Corporation December 31, 2013
N O T E S T O C O N S O L I D AT E D F I N A N C I A L S TAT E M E N T S
f) On April 14, 2012, Spirit AeroSystems’ Wichita, Kansas facility
was hit by a tornado, which caused significant damage to several
In February and July 2013, Onex, Onex Partners III and
Onex management invested a total of $32 and $25, respectively,
buildings and disruption of utilities and resulted in a complete
in Meridian Aviation. Onex’ share of the investments in Meridian
suspension of production for eight days. Spirit AeroSystems’ pro-
Aviation was $8 and $6, respectively. These investments are pri-
duction equipment and work-in-process generally remained
marily for deposits, fees and other expenses associated with the
intact and the company resumed production on April 23, 2012,
purchase of the six commercial passenger aircraft.
although some inefficiencies continued thereafter as a result of
In April 2013, the first commercial passenger aircraft
the damage and repair efforts.
was delivered by Meridian Aviation to the lessee. Debt financing
In October 2012, Spirit AeroSystems agreed to a settle-
was obtained by Meridian Aviation to finance the purchase of
ment of $235 with its insurers for all claims related to the tornado
the aircraft.
for property damage, clean-up, recovery costs and business inter-
During the fourth quarter of 2013, Meridian Aviation
ruption expenses, net of any deductibles. The settlement resolves
executed sale agreements for three of the six commercial pas-
all contingencies surrounding the storm damage proceeds and,
senger aircraft under its existing purchase agreement, including
as a result of the settlement, Spirit AeroSystems recorded a net
the novation of the associated leases to the purchaser. The sale
gain of $146 during 2012. This gain is net of costs incurred dur-
agreements were for two aircraft delivered in 2013 and one aircraft
ing 2012. Future costs will be recorded as they are incurred. Spirit
scheduled for delivery in 2014. Meridian Aviation recorded a net
AeroSystems’ current estimates of the future charges will likely
gain of $32 comprised of the sale of the two aircraft delivered in
change as the various repair and build-back options are evalu-
2013 and a fair value adjustment covering the remaining four air-
ated. While Spirit AeroSystems believes that most past and future
craft scheduled for delivery to the company. The debt financing
costs relating to the tornado will be covered by the insurance set-
undertaken by Meridian Aviation with the delivery of the first
tlement, there can be no assurance that the insurance proceeds
commercial aircraft was fully repaid upon completion of the sale
will completely cover all costs that may be incurred. Under the
transaction.
terms of the settlement agreement, Spirit AeroSystems assumes
all risk related to the effects of the tornado on the company; how-
ever, the risk is believed to be minimal as full production resumed
h) Other for the years ended December 31, 2013 and 2012 includes:
(i) net realized and unrealized gains of $24 (2012 – $25) recorded
on April 23, 2012 with some logistical inefficiency.
on investments in securities held by the operating companies; (ii)
During 2013, Spirit AeroSystems incurred $30 of addi-
gains of $9 (2012 – $16) on the sale of tax losses (as described in
tional costs related to the April 2012 tornado that hit its Wichita,
note 31(o)); (iii) $15 of gains from JELD-WEN on the sale of non-
Kansas facility.
core assets; (iv) $14 of other income from equity-accounted invest-
ments; and (v) non-cash bargain purchase gains of $3 (2012 – $9)
g) In February 2013, Onex and Onex Partners III established
Meridian Aviation Partners Limited (“Meridian Aviation”), an air-
related to acquisitions (as described in note 2). During 2013, in
connection with the settlement of class action lawsuits, Celestica
craft investment company based in Ireland. Aircraft purchased by
recorded other income of $24 for the receipt of damages related to
Meridian Aviation will be leased to commercial airlines and man-
certain purchases made by the company in prior periods. In addi-
aged by BBAM, one of the world’s largest managers of commercial
tion, other for the year ended December 31, 2012 includes a gain of
jet aircraft and an Onex and Onex Partners III investment. Meridian
$15 on the repurchase of preferred shares by Sitel Worldwide.
Aviation executed a purchase agreement in February 2013 for six
commercial passenger aircraft for delivery between April 2013 and
May 2015, with a list price value of more than $1,400. Meridian
Aviation executed leases in February 2013 with a major interna-
tional commercial airline in respect of these six aircraft. An Onex
Partners III affiliate has guaranteed certain payment obligations
arising on each aircraft delivery date.
Onex Corporation December 31, 2013 137
N O T E S T O C O N S O L I D AT E D F I N A N C I A L S TAT E M E N T S
2 5 . I M PA I R M E N T O F G O O D W I L L , I N TA N G I B L E
A S S E T S A N D LO N G - L I V E D A S S E T S , N E T
Year ended December 31
Skilled Healthcare Group(a)
Tropicana Las Vegas(b)
CiCi’s Pizza(c)
Flushing Town Center(d)
Celestica(e)
Other, net(f)
2013
$ 95
91
57
43
–
33
$ 319
2012
$ 12
–
16
–
18
19
$ 65
a) During 2013, Skilled Healthcare Group recorded non-cash
goodwill impairments of $93 and a non-cash intangible asset
impairment of $2 due to the expected future revenue growth
impacts on its long-term care facilities from the ongoing shift of
seniors from Medicare to Medicare Advantage, which pays a lower
per diem rate than Medicare, and future decreases in home health
care reimbursement rates. The impairments were calculated on
a value-in-use basis using discount rates ranging from 9.0% to
12.0%. The recoverable amounts calculated for the long-term care
and home health care groups of CGUs were $77 and nil, respec-
c) During the fourth quarters of 2013 and 2012, CiCi’s Pizza recorded
non-cash goodwill and intangible asset impairment charges of
$33 (2012 – $16) and $24 (2012 – nil), respectively. The impairments
were primarily due to a decrease in projected future earnings and a
reduction in the exit multiple due to market risks.
d) During 2013, Flushing Town Center recorded non-cash impair-
ments of $43 associated with its retail space and parking structures.
e) In the fourth quarter of 2012, Celestica recorded non-cash im-
pairments of $18 as a result of its annual impairment testing of
goodwill, intangible assets and property, plant and equipment.
f) Other in 2013 includes net impairments of $33 related to
EnGlobe, JELD-WEN, Sitel Worldwide, The Warranty Group
and USI. Other in 2012 includes impairments of $19 related to
Carestream Health, JELD-WEN, Spirit AeroSystems, The Warranty
Group and BSN SPORTS.
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-
tively. The recoverable amounts were Level 3 measurements in the
mented basis in note 34.
fair value hierarchy as a result of significant other unobservable
inputs used in determining the recoverable amounts.
During 2012, Skilled Healthcare Group recorded a non-
cash impairment charge of $12 to impair certain of its property,
plant and equipment. The recoverable amount was a Level 3 mea-
surement in the fair value hierarchy as a result of significant other
unobservable inputs used in determining the recoverable amount.
b) Due to a decline in the recoverable amount of Tropicana
Las Vegas, measured in accordance with IAS 36, Impairment of
Assets, Tropicana Las Vegas recorded non-cash long-lived asset
impairments of $91 during 2013. The impairments were calculated
In measuring the recoverable amounts for goodwill and intan-
gible assets at December 31, 2013, significant estimates include the
growth rate and discount rate, which ranged from 0.0% to 10.3% and
8.4% to 20.0% (2012 – 0% to 8.1% and 8.8% to 18.0%), respectively.
26. NET EARNINGS PER SUBORDINATE VOTING SHARE
The weighted average number of Subordinate Voting Shares for
the purpose of the earnings per share calculations was as follows:
Year ended December 31
2013
2012
on a fair value less costs to sell basis using market comparable
Weighted average number of shares
transactions. The recoverable amount calculated was $245 and
outstanding (in millions):
was a Level 3 measurement in the fair value hierarchy as a result
of significant other unobservable inputs used determining the
Basic
Diluted
113
113
115
115
recoverable amount.
138 Onex Corporation December 31, 2013
N O T E S T O C O N S O L I D AT E D F I N A N C I A L S TAT E M E N T S
2 7. F I N A N C I A L I N S T R U M E N T S
Financial assets held by the Company, presented by financial statement line item, were as follows:
December 31, 2013
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
$ –
$ 3,191
$ –
$ –
$ –
$ –
$ 3,191
361
–
1
4,030
53
68
–
146
1,814
69
325
–
–
1,550
1
–
–
–
32
–
–
3,619
136
–
130
–
–
7
49
2
754
3,619
290
7,475
255
Total
$ 4,445
$ 5,288
$ 1,876
$ 32(a)
$ 3,885(b)
$ 58
$ 15,584
Fair Value
through Net Earnings
Recognized
Designated
Available-
for-Sale
Held-to-
Maturity
Loans and
Receivables
Derivatives
Used for
Hedging
Total
December 31, 2012
Assets as per balance sheet
Cash and cash equivalents
$ –
$ 2,656
$ –
$ –
$ –
$ –
$ 2,656
Short-term investments
Accounts receivable
Other current assets
Long-term investments
Other non-current assets
Total
349
–
–
3,855
–
78
–
160
793
31
303
–
–
1,628
1
–
–
1
22
–
–
3,838
130
–
153
–
–
17
30
–
730
3,838
308
6,328
185
$ 4,204
$ 3,718
$ 1,932
$ 23(a)
$ 4,121(b)
$ 47
$ 14,045
(a) Fair value of held-to-maturity assets, which are measured at amortized cost at December 31, 2013, was $32 (2012 – $23).
(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, 2013
Liabilities as per balance sheet
Accounts payable and accrued liabilities
$ –
$ –
$ 4,014
$ 19
$ 4,033
Provisions
Other current liabilities
Long-term debt(a)
Obligations under finance leases
Other non-current liabilities
Limited Partners’ Interests
Total
(a) Long-term debt is presented gross of financing charges.
187
21
–
–
451
–
$ 659
–
–
1,723
–
4
6,959
$ 8,686
30
349
10,460
65
86
–
–
14
–
–
32
–
217
384
12,183
65
573
6,959
$ 15,004
$ 65
$ 24,414
Onex Corporation December 31, 2013 139
N O T E S T O C O N S O L I D AT E D F I N A N C I A L S TAT E M E N T S
Fair Value
through Net Earnings
Recognized
Designated
Financial
Liabilities at
Amortized Cost
Derivatives Used
for Hedging
Total
December 31, 2012
Liabilities as per balance sheet
Accounts payable and accrued liabilities
$ –
$ –
$ 4,352
$ 2
$ 4,354
Provisions
Other current liabilities
Long-term debt(a)
Obligations under finance leases
Other non-current liabilities
Limited Partners’ Interests
Total
(a) Long-term debt is presented gross of financing charges.
–
32
–
–
393
–
–
9
801
–
3
6,243
37
281
9,894
67
69
–
–
10
–
–
11
–
37
332
10,695
67
476
6,243
$ 425
$ 7,056
$ 14,700
$ 23
$ 22,204
Long-term debt recorded at fair value through net earnings at December 31, 2013 of $1,723 (2012 – $801) has contractual amounts due on
maturity of $1,748 (2012 – $816).
The gains (losses) recognized by the Company related to financial assets and liabilities were as follows:
Year ended December 31
2013
2012
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
Financial Liabilities at Amortized Cost
Interest expense of operating companies
Derivatives Used for Hedging
Total gains (losses) recognized
Earnings (Loss)
Comprehensive
Earnings(1)
Earnings (Loss)
Comprehensive
Earnings (Loss) (1)
$ (976)(a)
n/a
$ (95)(a)
n/a
75
(1)
1
–
(12)
(813)
(31)
$ (43)
n/a
n/a
n/a
n/a
n/a
n/a
(23)
$ (1,757)
$ (66)
n/a
84
–
1
–
(11)
(514)
4
$ (531)
n/a
$ 23
n/a
n/a
n/a
n/a
n/a
n/a
23
$ 46
(1) Amounts recognized in comprehensive earnings (loss) are presented gross of the income tax effect.
a) Primarily consists of Limited Partners’ Interests charge of $1,855 (2012 – $929), carried interest charge of $262 (2012 – $91) and increase
in value of investments in joint ventures and associates at fair value of $1,098 (2012 – $863).
140 Onex Corporation December 31, 2013
N O T E S T O C O N S O L I D AT E D F I N A N C I A L S TAT E M E N T S
2 8 . FA I R VA 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, 2013 and 2012 are based on relevant market prices and
information available at those dates. The carrying values of cash
and cash equivalents, short-term investments, accounts receiv-
able, 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
at December 31, 2013 was $12,478 (2012 – $10,905). The fair value
of consolidated long-term debt measured at amortized cost is a
Level 2 measurement in the fair value hierarchy and is calculated
by discounting the expected future cash flows using an observ-
able discount rate for instruments of similar maturity and credit
risk. For certain operating companies, an adjustment is made by
management for that operating company’s credit risk, resulting in
a Level 3 measurement in the fair value hierarchy.
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. Transfers between
the three levels of the fair value hierarchy are recognized on the
date of the event or change in circumstances that caused the
transfer. There were no significant transfers between the three
levels of the fair value hierarchy during 2013 and 2012. 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, 2013 was as follows:
Financial assets at fair value through earnings
Investments in debt
Investments in equities
Investments in joint ventures and associates
Other
Available-for-sale financial assets
Investments in debt
Investments in equities
Total financial assets at fair value
Level 1
Level 2
Level 3
Total
$ –
$ 2,335
$ –
$ 2,335
23
–
520
–
107
38
1,262
122
1,769
–
–
2,242
–
–
–
61
3,504
642
1,769
107
$ 650
$ 5,526
$ 2,242
$ 8,418
The allocation of financial assets in the fair value hierarchy, excluding cash and cash equivalents, at December 31, 2012 was as follows:
Financial assets at fair value through earnings
Investments in debt
Investments in equities
Investments in joint ventures and associates
Other
Available-for-sale financial assets
Investments in debt
Investments in equities
Other
Level 1
Level 2
Level 3
Total
$ –
$ 1,254
$ –
$ 1,254
15
–
516
–
82
–
33
1,447
78
1,739
–
111
–
1,923
–
–
–
–
48
3,370
594
1,739
82
111
Total financial assets at fair value
$ 613
$ 4,662
$ 1,923
$ 7,198
Onex Corporation December 31, 2013 141
N O T E S T O C O N S O L I D AT E D F I N A N C I A L S TAT E M E N T S
The allocation of financial liabilities in the fair value hierarchy at December 31, 2013 was as follows:
Financial liabilities at fair value through net earnings
Limited Partners’ Interests
Unrealized carried interest due to Onex and ONCAP management
Onex Credit Partners’ long-term debt
Other
Total financial liabilities at fair value
Level 1
Level 2
Level 3
Total
$ –
–
–
9
$ 9
$ –
–
–
9
$ 9
$ 6,959
$ 6,959
343
1,723
302
343
1,723
320
$ 9,327
$ 9,345
The allocation of financial liabilities in the fair value hierarchy at December 31, 2012 was as follows:
Level 1
Level 2
Level 3
Total
Financial liabilities at fair value through net earnings
Limited Partners’ Interests
$ –
$ –
$ 6,243
$ 6,243
Unrealized carried interest due to Onex and ONCAP management
Onex Credit Partners’ long-term debt
Other
–
–
3
–
–
18
251
801
165
251
801
186
Total financial liabilities at fair value
$ 3
$ 18
$ 7,460
$ 7,481
Details of financial assets and liabilities measured at fair value
Financial assets and liabilities measured at fair value with sig-
with significant unobservable inputs (Level 3), excluding invest-
nifi cant unobservable inputs (Level 3) are recognized in the
ments in joint ventures and associates designated at fair value
consolidated statements of earnings in the following line items:
through earnings (note 8(a)) and Limited Partners’ Interests desig-
(i) interest expense of operating companies; (ii) increase in value
nated at fair value (note 17), are as follows:
of investments in joint ventures and associates at fair value, net;
Balance – January 1, 2012
Total losses in net earnings
Transfer out of Level 3
Additions
Settlements
Balance – December 31, 2012
Total losses in net earnings
Transfer out of Level 3
Additions
Acquisition of subsidiaries
Settlements
Other
Balance – December 31, 2013
Financial Liabilities
at Fair Value through
Net Earnings
$ 388
102
(54)
809
(28)
$ 1,217
339
(7)
1,002
29
(215)
3
$ 2,368
Unrealized losses in net earnings (loss) for liabilities
held at the end of the reporting period
$ 339
(iii) other items; and (iv) Limited Partners’ Interests charge.
The valuation of investments in joint ventures and associates
measured at fair value with significant other observable inputs
(Level 2) of the fair value hierarchy are substantially based on the
quoted market price for the underlying security, less a discount to
reflect restrictions on a market participant’s ability to freely trade
the security. The valuation of investments in debt securities mea-
sured at fair value with significant other observable inputs (Level 2)
is generally determined by obtaining quoted market prices or dealer
quotes for identical or similar instruments in inactive markets, or
other inputs that are observable or can be corroborated by observ-
able market data.
The valuation of financial assets and liabilities mea-
sured at fair value with significant unobservable inputs (Level 3)
is reassessed quarterly utilizing available market data to deter-
mine if the fair value should be adjusted. The valuation of invest-
ments in the Onex Partners and ONCAP Funds is reviewed and
approved by the General Partner of the respective Funds each
quarter. The General Partners of the Onex Partners and ONCAP
Funds are indirectly controlled by Onex Corporation.
142 Onex Corporation December 31, 2013
N O T E S T O C O N S O L I D AT E D F I N A N C I A L S TAT E M E N T S
The fair value measurements for investments in joint
Valuation methodologies may include observations of the trad-
ventures and associates, Limited Partners’ Interests and unreal-
ing multiples of public companies considered comparable to the
ized carried interest are primarily driven by the underlying fair
private companies being valued and discounted cash flows. The
value of the investments in the Onex Partners and ONCAP Funds.
following table presents the significant unobservable inputs used
A change to reasonably possible alternative estimates and assump-
to value the Company’s private securities that impact the valua-
tions used in the valuation of non-public investments in the Onex
tion of (i) investments in joint ventures and associates; (ii) unre-
Partners and ONCAP Funds (as described in note 1) may have a
alized carried interest liability due to Onex and ONCAP manage-
significant impact on the fair values calculated for these financial
ment; (iii) stock-based compensation liability for the MIP; and
assets and liabilities. A change in the valuation of the underlying
(iv) Limited Partners’ Interests at December 31, 2013.
investments may have multiple impacts on 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 MIP exercise hurdles. For example, an increase in
the fair value of an investment in an associate would have the fol-
lowing impacts on Onex’ consolidated financial statements:
i)
an increase in the unrealized value of investments in joint
ventures and associates at fair value in the consolidated state-
Valuation Technique
Significant
Unobservable Inputs
Inputs
Market comparable
EBITDA multiple
6.0x–12.5x
companies
Discounted cash flow
Weighted average
11.6%–18.0%
cost of capital
Exit multiple
4.6x–9.1x
ments of earnings with a corresponding increase in long-term
In addition, the Company has one investment that is valued based
investments in the consolidated balance sheets;
on a multiple of book value.
ii)
a charge would be recorded for the Limited Partners’ share
of the fair value increase of the investment in associate on
the Limited Partners’ Interests line in the consolidated state-
ments of earnings with a corresponding increase to the Limited
Partners’ Interests in the consolidated balance sheets;
Generally, EBITDA represents maintainable operating earnings,
which considers adjustments including those for the deduction
of financing costs, taxes, non-cash amortization, non-recurring
items and the impact of any discontinued activities. EBITDA is a
iii) a change in the calculation of unrealized carried interest in
measurement that is not defined under IFRS.
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 other non-current liabilities
in the consolidated balance sheets; and
v)
a change in the fair value of the vested investment rights
held under the MIP, resulting in a charge being recorded on
the stock-based compensation line in the consolidated state-
ments of earnings and a corresponding increase to other non-
current liabilities in the consolidated balance sheets.
The long-term debt recorded at fair value in the OCP CLOs is rec-
ognized at fair value using third-party pricing information with-
out adjustment by the Company. The valuation methodology is
based on a projection of the future cash flows expected to be real-
ized from the underlying collateral of the OCP CLOs. During 2013,
the Company recorded a loss of $5 (2012 – $7 gain) attributable to
changes in the credit risk of the long-term debt in the OCP CLOs.
Onex Corporation December 31, 2013 143
N O T E S T O C O N S O L I D AT E D F I N A N C I A L S TAT E M E N T S
2 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 TA L D I S C LO 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 and
OCP CLOs included in the long-term investments line in the con-
solidated balance sheets consist primarily of investments in debt
securities. The investments in debt securities are subject to credit
risk. A description of the investments held by The Warranty Group
and OCP CLOs is included in note 8.
At December 31, 2013, Onex Corporation, the ultimate
parent company, held approximately $1,400 of cash and cash
equivalents in short-term high-rated money market instruments.
In addition, Celestica had approximately $545 of cash and cash
equivalents. Celestica’s current portfolio consists of bank deposits
and certain money market funds that hold primarily U.S. govern-
ment 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,
2013, the aging of consolidated accounts receivable was as follows:
Current
1–30 days past due
31–60 days past due
>60 days past due
Liquidity risk
Accounts
Receivable
$ 2,806
373
89
371
$ 3,639
In completing acquisitions, it is generally Onex’ policy to
finance a significant portion of the purchase price with debt pro-
vided by third-party lenders. This debt, sourced exclusively on the
strength of the acquired companies’ financial condition and pros-
pects, is assumed by the acquired company at closing and is with-
out recourse to Onex Corporation, the ultimate parent company,
or to its other operating companies or partnerships. The foremost
consideration, however, in developing a financing structure for
an acquisition is identifying the appropriate amount of equity
to invest. In Onex’ view, this should be the amount of equity that
maximizes the risk/reward equation for both shareholders and the
acquired company.
Accounts payable for the operating companies are pri-
marily due within 90 days. The repayment schedules for long-
term debt and finance leases of the operating companies have
been disclosed in notes 12 and 13. Onex Corporation, the ultimate
parent company, has no debt and does not guarantee the debt of
the operating companies.
Market risk
Market risk is the risk that the future cash flows of a financial
instrument will fluctuate due to changes in market prices. The
Company is primarily exposed to fluctuations in the foreign cur-
rency exchange rate between the Canadian and U.S. dollars and
fluctuations in LIBOR and the U.S. prime interest rate.
Foreign currency exchange rates
Onex’ operating companies operate autonomously as self-sustain-
ing companies. The functional currency of substantially all of Onex’
operating companies is the U.S. dollar. However, certain operat-
ing companies conduct business outside the United States and as
a result are exposed to currency risk on the portion of business that
is not based on the U.S. dollar. To manage foreign currency risk, cer-
tain operating companies use forward contracts to hedge all or a
portion of forecasted revenues and/or costs outside of their func-
tional currencies. The Company’s exposure on financial instruments
to the Canadian/U.S. dollar foreign currency exchange rate is pri-
marily at the parent company, through the holding of Canadian-
Liquidity risk is the risk that Onex and its operating companies
dollar-denominated cash and cash equivalents. A 5% strengthen-
will have insufficient funds on hand to meet their respective
ing (5% weakening) of the Canadian dollar against the U.S. dollar
obligations as they come due. The operating companies operate
at December 31, 2013 would result in a $2 increase ($2 decrease) in
autonomously and generally have restrictions on cash distribu-
net earnings. As all of the Canadian-dollar-denominated cash and
tions to shareholders under their financing agreements. Onex
cash equivalents at the parent company are designated as fair value
needs to be in a position to support its operating companies
through net earnings, there would be no effect on other compre-
when and if it is appropriate and reasonable for Onex as an equity
hensive earnings.
owner with paramount duties to act in the best interests of Onex
In addition, Celestica has exposure to the U.S. dollar/
shareholders. Maintaining sufficient liquidity at Onex is impor-
Canadian dollar foreign currency exchange rate. A 5% strengthen-
tant because Onex, as a holding company, generally does not have
ing (5% weakening) of the Canadian dollar against the U.S. dollar
guaranteed sources of meaningful cash flow.
at December 31, 2013 would result in a $5 increase ($4 decrease)
in other comprehensive earnings of Celestica and a $3 increase
($3 decrease) in net earnings.
144 Onex Corporation December 31, 2013
N O T E S T O C O N S O L I D AT E D F I N A N C I A L S TAT E M E N T S
Interest rates
Regulatory risk
The Company is exposed to changes in future cash flows as a
Certain of Onex’ operating companies and investment advisor
result of changes in the interest rate environment. The parent
affiliates may be subject to extensive governmental regulations
company is exposed to interest rate changes primarily through
and oversight with respect to their business activities. The failure
its cash and cash equivalents, which are held in short-term term
to comply with applicable regulations, obtain applicable regulato-
deposits and commercial paper. Assuming no significant chang-
ry approvals or maintain those approvals so obtained may subject
es in cash balances held by the parent company from those at
the applicable operating company to civil penalties, suspension
December 31, 2013, a 0.25% increase (0.25% decrease) in the inter-
or withdrawal of any regulatory approval obtained, injunctions,
est rate (including the Canadian and U.S. prime rates) would
operating restrictions and criminal prosecutions and penalties,
result in a minimal impact on annual interest income. As all of the
which could, individually or in the aggregate, have a material
Canadian dollar cash and cash equivalents at the parent company
adverse effect on Onex’ consolidated financial position.
are designated as fair value through net earnings, there would be
no effect on other comprehensive earnings.
Capital disclosures
The operating companies’ results are also affected by
Onex considers the capital it manages to be the amounts it has
changes in interest rates. A change in the interest rate (includ-
in cash, cash equivalents and short-term investments, the invest-
ing the LIBOR and U.S. prime interest rate) would result in a
ments made by it in the operating companies, Onex Real Estate and
change in interest expense being recorded due to the variable-
Onex Credit Partners. Onex also manages the capital of other inves-
rate portion of the long-term debt of the operating companies.
tors in the Onex Partners, ONCAP and Onex Credit Partners Funds.
At December 31, 2013, approximately 50% (2012 – 38%) of the
operating companies’ long-term debt had a fixed interest rate or
Onex’ objectives in managing capital are to:
the interest rate was effectively fixed by interest rate swap con-
• preserve a financially strong parent company with substantial
tracts. The long-term debt of the operating companies is without
liquidity and no, or a limited amount of, debt so that funds are
recourse to Onex Corporation, the ultimate parent company.
available to pursue new acquisitions and growth opportunities
In addition, The Warranty Group holds substantially
as well as support expansion of its existing businesses. Onex
all of its investments in interest-bearing securities, as described
does not generally have the ability to draw cash from its operat-
in note 8(b). A 0.25% increase in the interest rate would decrease
ing companies. Accordingly, maintaining adequate liquidity at
the fair value of the investments held by $13 and result in a cor-
the parent company is important;
responding decrease to other comprehensive earnings of The
• achieve an appropriate return on capital commensurate with
Warranty Group. However, as the investments are reinvested,
the level of assumed risk;
a 0.25% increase in the interest rate would increase the annual
• build the long-term value of its operating companies;
interest income recorded by The Warranty Group by $5.
• control the risk associated with capital invested in any particu-
Commodity risk
lar business or activity. All debt financing is within the operating
companies and each operating company is required to support
Certain of Onex’ operating companies have exposure to commod-
its own debt. Onex does not normally guarantee the debt of the
ities. In particular, aluminum, titanium and raw materials such
operating companies and there are no cross-guarantees of debt
as carbon fibre used to manufacture composites are the princi-
between the operating companies; and
pal raw materials for Spirit AeroSystems’ manufacturing opera-
• have appropriate levels of committed limited partner and other
tions. To limit its exposure to rising raw materials prices, Spirit
investors capital available to invest along with Onex’ capital.
AeroSystems has entered into long-term supply contracts directly
This allows Onex to respond quickly to opportunities and pur-
with its key suppliers of raw materials and collective raw materials
sue acquisitions of businesses it could not achieve using only
sourcing contracts arranged through certain of its customers.
its own capital. The management of limited partner and other
In addition, silver is a significant commodity used in
investors capital also provides management fees to Onex and
Carestream Health’s manufacturing of x-ray film. The company’s
the ability to enhance Onex’ returns by earning a carried inter-
management continually monitors movements and trends in the
est on the profits of limited partners.
silver market and enters into collar and forward agreements when
considered appropriate to mitigate some of the risk of future price
At December 31, 2013, Onex, the parent company, had $1,400 of
fluctuations, generally for periods of up to a year.
cash and cash equivalents on hand and $343 of near-cash items in
a segregated unleveraged fund managed by Onex Credit Partners.
Onex, the parent company, has a conservative cash management
policy that limits its cash investments to short-term high-rated
money market products.
Onex Corporation December 31, 2013 145
N O T E S T O C O N S O L I D AT E D F I N A N C I A L S TAT E M E N T S
At December 31, 2013, Onex had access to $3,023 of
uncalled committed limited partner capital for acquisitions
b) Onex and its operating companies are or may become par-
ties to legal, product liability and warranty claims arising from
through the Onex Partners and ONCAP Funds, including $1,936
the ordinary course of business. Certain operating companies, as
of capital commitments raised for Onex Partners IV during 2013.
conditions of acquisition agreements, have agreed to accept cer-
The strategy for risk management of capital has not changed
nies. The operating companies have recorded provisions based
significantly since December 31, 2012.
on their consideration and analysis of their exposure in respect
tain pre-acquisition liability claims against the acquired compa-
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 AT I N G C O M PA N I E S A N D
C O N C E N T R AT I O N O F C R E D I T R I S K
A number of operating companies, by the nature of their busi-
nesses, individually serve major customers that account for a large
portion of their revenues. During 2013 and 2012, one customer in
the aerostructures segment represented approximately 18% (2012 –
18%) of the Company’s consolidated revenues. Accounts receivable
from the significant customer at December 31, 2013 totalled $146
(2012 – $119).
31. C O M M I T M E N T S , C O N T I N G E N C I E S A N D
R E L AT E D PA R T Y T R A N S A C T I O N S
a) Contingent liabilities in the form of letters of credit, letters
of guarantee and surety and performance bonds are primar-
ily provided by certain operating companies to various third par-
ties and include certain bank guarantees. At December 31, 2013,
the amounts potentially payable in respect of these guarantees
totalled $337. In addition, an Onex Partners III affiliate has guar-
anteed certain payment obligations arising on each aircraft deliv-
ery date for Meridian Aviation, as described in note 24(g).
The Company, which includes the operating companies,
has total commitments as at December 31, 2013 of approximately
$335 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 companies,
has commitments with respect to real estate operating leases,
which are disclosed in note 13.
The aggregate commitments for capital assets at
December 31, 2013 amounted to $725 with the majority expected
to be incurred between 2014 and 2016.
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 therefore
there can be no assurance that their resolution will not have an
adverse effect on Onex’ consolidated financial position.
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, 2013, $1,475 (2012 – $1,475) has been
invested of the $1,655 of total capital committed. Onex has invest-
ed $346 (2012 – $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, 2013 was $20 (2012 – $20).
There were no additional amounts invested by Onex management
and Directors in Onex Partners I investments during 2013 and 2012.
146 Onex Corporation December 31, 2013
N O T E S T O C O N S O L I D AT E D F I N A N C I A L S TAT E M E N T S
Prior to November 2006, Onex received annual manage-
interest achieved by Onex on gains could be recovered from Onex if
ment fees based on 2% of the capital committed to Onex Partners I
subsequent Onex Partners II investments do not exceed the overall
by investors other than Onex and Onex management. The annual
target return level of 8%. Consistent with market practice and Onex
management fee was reduced to 1% of the net funded commitments
Partners I, Onex, as sponsor of Onex Partners II, is allocated 40%
at the end of the initial fee period in November 2006, when Onex
of the carried interest with 60% allocated to Onex management.
established a successor fund, Onex Partners II. Carried interest is
Carried interest received from Onex Partners II has fully vested
received on the overall gains achieved by Onex Partners I investors,
for Onex management. For the year ended December 31, 2013,
other than Onex and Onex management, to the extent of 20% of the
$75 (2012 – nil) has been received by Onex as carried interest while
gains, provided that those investors have achieved a minimum 8%
Onex management received $110 (2012 – nil) with respect to the car-
return on their investment in Onex Partners I over the life of Onex
ried interest.
Partners I. The investment by Onex Partners I investors for this pur-
pose takes into consideration management fees and other amounts
paid by Onex Partners I investors.
f) In December 2009, Onex completed the closing of Onex
Partners III with funding commitments totalling approxi-
Consistent with market practice, Onex, as sponsor
mately $4,300. Onex Partners III provides committed capital
of Onex Partners I, is allocated 40% of the carried interest with
for Onex-sponsored acquisitions not related to Onex’ operating
60% allocated to Onex management. Carried interest received
companies at December 31, 2003 or to ONCAP, Onex Partners I
from Onex Partners I has fully vested for Onex management. For
or Onex Partners II. As at December 31, 2013, approximately
the year ended December 31, 2013, no amounts were received as
$3,596 (2012 – $3,189) has been invested, of which Onex’ share
carried interest related to Onex Partners I. During 2012, $3 was
was $783 (2012 – $684). Onex had a $1,000 commitment for the
received by Onex as carried interest while Onex management
period from January 1, 2009 to June 30, 2009. On December 31,
received $5 with respect to the carried interest.
2008, Onex gave notice to the investors of Onex Partners III that
Onex’ commitment would be decreasing to $500 effective July 1,
e) In August 2006, Onex completed the closing of Onex Part-
ners II with funding commitments totalling $3,450. Onex Part-
2009. In December 2009, Onex notified the investors of Onex Part-
ners III that it would be increasing its commitment to $800 effec-
ners II provided committed capital for Onex-sponsored acquisi-
tive June 16, 2010. In November 2011, Onex notified the investors
tions not related to Onex’ operating companies at December
of Onex Partners III that it would be increasing its commitment to
31, 2003 or to ONCAP or Onex Partners I. As at December 31,
$1,200 effective May 15, 2012. Onex controls the General Partner
2013, $2,944 (2012 – $2,944) has been invested of the $3,450 of
and Manager of Onex Partners III. Onex management has com-
total capital committed. Onex has funded $1,164 (2012 – $1,164)
mitted, as a group, to invest a minimum of 1% of Onex Partners
of its $1,407 commitment. Onex controls the General Partner
III, which may be adjusted annually up to a maximum of 6%. At
and Manager of Onex Partners II. The total amount invested in
December 31, 2013, Onex management and Directors had com-
Onex Partners II’s remaining investments by Onex management
mitted 6% (2012 – 5%). The total amount invested in Onex
and Directors at December 31, 2013 was $51 (2012 – $72). There
Partners III’s investments by Onex management and Directors
were no additional amounts invested by Onex management and
at December 31, 2013 was $140 (2012 – $119), of which $21 (2012 –
Directors in Onex Partners II investments during 2013 and 2012.
$60) was invested in the year ended December 31, 2013.
Prior to November 2008, Onex received annual man-
Prior to December 2013, Onex received annual man-
agement fees based on 2% of the capital committed to Onex Part-
agement fees based on 1.75% of the capital committed to Onex
ners II by investors other than Onex and Onex management. The
Partners III by investors other than Onex and Onex manage-
annual management fee was reduced to 1% of the net funded com-
ment. The annual management fee was reduced to 1% of the
mitments at the end of the initial fee period in November 2008,
net funded commitments at the end of the initial fee period in
when Onex established a successor fund, Onex Partners III. Carried
December 2013. Onex has obtained approval for an extension of
interest is received on the overall gains achieved by Onex Partners II
the commitment period for Onex Partners III into 2014 to enable
investors, other than Onex and Onex management, to the extent of
further amounts to be invested through the Fund. Carried inter-
20% of the gains, provided that those investors have achieved a min-
est is received on the overall gains achieved by Onex Partners III
imum 8% return on their investment in Onex Partners II over the life
investors, other than Onex and Onex management, to the extent
of Onex Partners II. The investment by Onex Partners II investors for
of 20% of the gains, provided that those investors have achieved a
this purpose takes into consideration management fees and other
minimum 8% return on their investment in Onex Partners III over
amounts paid by Onex Partners II investors.
the life of Onex Partners III. The investment by Onex Partners III
The returns to Onex Partners II investors, other than
investors for this purpose takes into consideration management
Onex and Onex management, are based upon all investments made
fees and other amounts paid by Onex Partners III investors.
through Onex Partners II, with the result that the initial carried
Onex Corporation December 31, 2013 147
N O T E S T O C O N S O L I D AT E D F I N A N C I A L S TAT E M E N T S
The returns to Onex Partners III investors, other than
the overall target return level of 8%. Consistent with market
Onex and Onex management, are based upon all investments
practice and Onex Partners I, Onex Partners II and Onex Partners III,
made through Onex Partners III, with the result that the initial car-
Onex, as sponsor of Onex Partners IV, will be allocated 40% of the
ried interest achieved by Onex on gains could be recovered from
carried interest with 60% allocated to Onex management. Carried
Onex if subsequent Onex Partners III investments do not exceed
interest received from Onex Partners IV will vest equally over
the overall target return level of 8%. Consistent with market prac-
6 years from the effective date of Onex Partners IV, which will
tice and Onex Partners I and Onex Partners II, Onex, as sponsor
be 6 years from the due date of the first capital call for Onex Part-
of Onex Partners III, will be allocated 40% of the carried interest
ners IV. As at December 31, 2013, no amount had been received as
with 60% allocated to Onex management. Carried interest received
carried interest related to Onex Partners IV.
from Onex Partners III will be fully vested for Onex management
in December 2014. As at December 31, 2013, no amount had been
received as carried interest related to Onex Partners III.
h) In May 2006, ONCAP completed the closing of ONCAP II with
funding commitments totalling C$574. ONCAP II provided com-
mitted capital for ONCAP-sponsored acquisitions of small and
g) During the fourth quarter of 2013, Onex completed certain
closings of Onex Partners IV with funding commitments totalling
medium-sized businesses requiring between C$20 and C$75
of initial equity capital. As at December 31, 2013, C$483 (2012 –
approximately $3,136 at December 31, 2013, including Onex’ com-
C$470) has been invested of the approximately C$574 of total
mitment of $1,200. Onex Partners IV is to provide committed capi-
capital committed. Onex has invested C$221 (2012 – C$215) of
tal for future Onex-sponsored acquisitions not related to Onex’
its C$252 commitment. Onex controls the General Partner and
operating companies at December 31, 2003, or to ONCAP, Onex
Manager of ONCAP II. The total amount invested in ONCAP II’s
Partners I, Onex Partners II or Onex Partners III. As at Decem-
remaining investments by management of Onex and ONCAP and
ber 31, 2013, no amounts had been funded. Onex controls the
Directors at December 31, 2013 was C$29 (2012 – C$39), of which
General Partner and Man ager of Onex Partners IV. Onex man-
$1 (2012 – nil) was invested in the year ended December 31, 2013.
agement has committed, as a group, to invest a minimum of
Prior to July 2011, ONCAP received annual management
2% of Onex Partners IV, which may be adjusted annually up to a
fees based on 2% of the capital committed to ONCAP II by investors
maximum of 8%. At December 31, 2013, Onex management and
other than Onex and management of Onex and ONCAP. The annual
Directors had committed 8%.
management fee was reduced to 2% of the investment amount at
During the initial fee period of Onex Partners IV, Onex
the end of the initial fee period in July 2011, when ONCAP estab-
will receive annual management fees based upon 1.75% of up to
lished a successor fund, ONCAP III. Carried interest is received on
$3,000 on capital committed to Onex Partners IV by investors other
the overall gains achieved by ONCAP II investors other than man-
than Onex and Onex management and 1.5% on capital committed
agement of ONCAP, to the extent of 20% of the gains, provided
to Onex Partners IV by investors other than Onex and Onex man-
that those investors have achieved a minimum 8% return on their
agement in excess of $3,000. At December 31, 2013, no management
investment in ONCAP II over the life of ONCAP II. The investment
fees had been called from Onex Partners IV. The annual manage-
by ONCAP II investors for this purpose takes into consideration
ment fee is reduced to 1% of the net funded commitments at the
management fees and other amounts paid by ONCAP II investors.
earlier of the end of the commitment period or if Onex establishes
The returns to ONCAP II investors, other than manage-
a successor fund. Carried interest is received on the overall gains
ment of Onex and ONCAP, are based upon all investments made
achieved by Onex Partners IV investors, other than Onex and Onex
through ONCAP II, with the result that the initial carried interests
management, to the extent of 20% of the gains, provided that those
achieved by ONCAP on gains could be recovered if subsequent
investors have achieved a minimum 8% return on their investment
ONCAP II investments do not exceed the overall target return level
in Onex Partners IV over the life of Onex Partners IV. The invest-
of 8%. The ONCAP management team is entitled to that portion of
ment by Onex Partners IV investors for this purpose takes into con-
the carried interest realized in the ONCAP Funds that equates to
sideration management fees and other amounts paid by Onex Part-
a 12 percent carried interest on both limited partners’ and Onex
ners IV investors.
capital. Carried interest received from ONCAP II has fully vested
The returns to Onex Partners IV investors, other than
for ONCAP management. For the year ended December 31, 2013,
Onex and Onex management, are based upon all investments
ONCAP management received $60 (C$63) with respect to the car-
made through Onex Partners IV, with the result that the initial car-
ried interest. No amounts of carried interest were received by
ried interest achieved by Onex on gains could be recovered from
ONCAP management for the year ended December 31, 2012.
Onex if subsequent Onex Partners IV investments do not exceed
148 Onex Corporation December 31, 2013
N O T E S T O C O N S O L I D AT E D F I N A N C I A L S TAT E M E N T S
i) In September 2011, ONCAP completed the closing of ONCAP
III with funding commitments totalling C$800, excluding com-
mitments from management of Onex and ONCAP. ONCAP III
provides committed capital for ONCAP-sponsored acquisitions
same price. Amounts invested under the minimum investment
requirement in Onex Partners’ transactions are allocated to meet
the 1.5% Onex investment requirement under the MIP. The invest-
ment rights to acquire the remaining 5⁄6ths vest equally over six
of small and medium-sized businesses requiring less than $125
years with the investment rights vesting in full if the Company
of initial equity capital. As at December 31, 2013, C$253 (2012 –
disposes of all of an investment before the seventh year.
C$253) has been invested of the approximately C$800 of total cap-
Under the MIP, the investment rights related to a par-
ital committed. Onex has invested C$74 (2012 – C$74) of its C$252
ticular acquisition are exercisable only if the Company realizes in
commitment. Onex controls the General Partner and Manager
cash the full return of its investment and earns a minimum 15%
of ONCAP III. ONCAP management has committed, as a group,
per annum compound rate of return for that investment after giv-
to invest a minimum of 1% of ONCAP III. The commitment from
ing effect to the investment rights.
management of Onex and ONCAP and Directors may be increased
Under the terms of the MIP, the total amount paid by
by an additional 5% of ONCAP III. At December 31, 2013, man-
management members in 2013, including amounts invested under
agement of ONCAP and Onex and Directors had committed to 6%
the minimum investment requirements of the Onex Partners and
(2012 – 6%). The total amount invested in ONCAP III’s remaining
ONCAP Funds to meet the 1.5% MIP requirement, was $4 (2012 –
investments by management of Onex and ONCAP and Directors
$13). Investment rights exercisable at the same price for 7.5% of the
at December 31, 2013 was C$24 (2012 – C$24), of which nil (2012 –
Company’s interest in acquisitions were issued at the same time.
C$7) was invested in the year ended December 31, 2013.
Realizations under the MIP distributed in 2013 were $39 (2012 –
ONCAP receives annual management fees based on
less than $1).
2% of the capital committed to ONCAP III by investors other than
Onex and management of Onex and ONCAP. The annual manage-
ment fee is reduced to 1.5% of the net funded commitments at the
k) Members of management and the Board of Directors of the
Company invested $2 in 2013 (2012 – $1) in Onex’ investments
earlier of the end of the commitment period or if ONCAP estab-
made outside of Onex Partners and ONCAP at the same cost as
lishes a successor fund. Carried interest is received on the overall
Onex and other outside investors. Those investments by manage-
gains achieved by ONCAP III investors, other than management of
ment and the Directors are subject to voting control by Onex.
ONCAP, to the extent of 20% of the gains, provided that those inves-
tors have achieved a minimum 8% return on their investment in
ONCAP III over the life of ONCAP III. The investment by ONCAP
l) Each member of Onex management is required to reinvest 25%
of the proceeds received related to their share of the MIP invest-
III investors for this purpose takes into consideration management
ment rights and carried interest to acquire Onex shares in the
fees and other amounts paid by ONCAP III investors.
market until the management member owns one million Onex
The returns to ONCAP III investors, other than manage-
Subordinate Voting Shares and/or management DSUs. During
ment of Onex and ONCAP, are based upon all investments made
2013, Onex management reinvested C$18 (2012 – less than C$1) to
through ONCAP III, with the result that the initial carried interests
acquire Onex shares.
achieved by ONCAP on gains could be recovered if subsequent
ONCAP III investments do not exceed the overall target return
level of 8%. The ONCAP management team is entitled to that por-
m) Certain operating companies have made loans to certain direc-
tors or officers of the individual operating companies, typically for
tion of the carried interest that equates to a 12% carried interest on
the purpose of acquiring shares in those operating companies. The
both limited partners and Onex capital. Carried interest received
total value of the loans outstanding as at December 31, 2013 was
from ONCAP III will vest equally over 5 years ending in July 2016
$37 (2012 – $36).
for ONCAP management. As at December 31, 2013, no amount had
been received as carried interest related to ONCAP III.
n) Onex Corporation, the ultimate parent company, receives fees
from certain operating companies for services provided. The fees
j) Under the terms of the MIP, management members of the
Company invest in all of the operating entities acquired or invested
from consolidated operating companies are eliminated in these
consolidated financial statements. During 2013, fees of $2 (2012 –
in by the Company.
$2) were received from non-consolidated operating companies
The aggregate investment by management members
and included with revenues in these consolidated financial state-
under the MIP is limited to 9% of Onex’ interest in each acquisi-
tion. The form of the investment is a cash purchase for 1⁄6th (1.5%)
of the MIP’s share of the aggregate investment, and investment
rights for the remaining 5⁄ 6ths (7.5%) of the MIP’s share at the
ments. In addition, during 2012 a fee of $8 was received from
Allison Transmission as consideration for the early termination of
the services agreement between Allison Transmission and Onex,
as discussed in note 8(a).
Onex Corporation December 31, 2013 149
N O T E S T O C O N S O L I D AT E D F I N A N C I A L S TAT E M E N T S
o) During 2013 and 2012, Onex entered into the sale of entities, the
sole assets of which were certain tax losses, to companies con-
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
trolled by Mr. Gerald W. Schwartz, who is Onex’ controlling share-
holder. Onex has significant non-capital and capital losses avail-
able; however. Onex does not expect to generate sufficient taxable
income to fully utilize these losses in the foreseeable future. As
such, no benefit has been recognized in the consolidated financial
statements for these losses. In connection with these transactions,
Deloitte & Touche LLP, an independent accounting firm retained
by Onex’ Audit and Corporate Governance Committee, provided
opinions that the values received by Onex for the tax losses were
fair. Onex’ Audit and Corporate Governance Committee, all the
members of which are independent Directors, unanimously
approved the transactions. The following transactions were com-
pleted during 2013 and 2012:
•
In 2013, Onex received $9 in cash for tax losses of $89. The entire
$9 was recorded as a gain and included in other items in the
consolidated statements of earnings.
•
In 2012, Onex received $16 in cash for tax losses of $166. The
entire $16 was recorded as a gain and included in other items in
the consolidated statements of earnings.
p) In November 2013, Onex repurchased in a private transaction
1,000,000 of its Subordinate Voting Shares that were held indirectly
by Mr. Gerald W. Schwartz, who is Onex’ controlling shareholder.
The private transaction was approved by the Board of Directors of
the Company. The shares were repurchased at a cash cost of C$56.50
per Subordinate Voting Share or $53 (C$57), which represents a
slight discount to the trading price of Onex shares at that date.
q) The Company’s key management consists of the senior execu-
tives of Onex, ONCAP and its significant operating companies.
Also included are the Directors of Onex Corporation. Aggregate
payments to the Company’s key management were as follows:
Year ended December 31
2013
Short-term employee benefits and costs
$ 154
Post-employment benefits
Other long-term benefits
Termination benefits
Share-based payments(i)
1
1
3
441
$ 600
2012
$ 115
2
–
6
66
$ 189
(i)
Share-based payments include $288 paid on the exercise of Onex stock options
(note 18), $88 of carried interest paid to Onex management (note 31(e)) and
The operating companies have a number of defined benefit and
defined contribution plans providing pension, other retirement
and post-employment benefits to certain of their employees. The
non-pension post-retirement benefits include retirement and
termination benefits, health, dental and group life. The plans at
the operating companies are independent and surpluses within
certain plans cannot be used to offset deficits in other plans. The
benefit payments from the plans are typically made from trustee-
administered funds; however, there are certain unfunded plans
primarily related to non-pension post-retirement benefits that
are funded as the benefit payment obligations are required. Onex
Corporation, the ultimate parent company, does not provide pen-
sion, other retirement or post-retirement benefits to its employees
and does not have any obligations and has not made any guaran-
tees with respect to the plans of the operating companies.
The plans are exposed to market risks, such as changes in
interest rates, inflation and fluctuations in investment values. The
plan liabilities are calculated using a discount rate set with refer-
ence to corporate bond yields; if the plan assets fail to achieve this
yield, this will create or further a plan deficit. A decrease in cor-
porate bond yields would have the effect of increasing the benefit
obligations; however this would be partially offset by a fair value
increase in the value of debt securities held in the plans’ assets. For
certain plans, the benefit obligations are linked to inflation, and
higher inflation will result in a greater benefit obligation.
The plans are also exposed to non-financial risks such as
the membership’s mortality and demographic changes, as well as
regulatory changes. An increase in the life expectancy will result in
an increase in the benefit obligations.
The total costs during 2013 for defined contribution pen-
sion plans and multi-employer plans were $132 (2012 – $114).
Accrued benefit obligations and the fair value of the
plan assets for accounting purposes are measured at Decem-
ber 31 of each year. The most recent actuarial valuations of the
largest pension plans for funding purposes was in 2013, and the
next required valuations will be as of 2014. The Company estimates
that in 2014 the minimum funding requirement for the defined
benefit pension plans will be $37.
In 2013, 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
$32 of amounts paid under the MIP to management of Onex (note 31(j)). During
contributed to their defined contribution plans, were $264 (2012 –
2013, Onex, the parent company, received carried interest of $75 (note 31(e)).
$196). Included in the total was $35 (2012 – $28) contributed to
multi-employer plans.
150 Onex Corporation December 31, 2013
N O T E S T O C O N S O L I D AT E D F I N A N C I A L S TAT E M E N T S
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
2013
2012
2013
2012
2013
2012
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 (gain) loss from demographic assumptions
Actuarial (gain) loss from financial assumptions
Foreign currency exchange rate changes
Acquisitions
Dispositions
Plan amendments
Settlements/curtailments
Reclassification of plans
Other
Closing benefit obligations
Plan assets:
Opening plan assets
Interest income
Actual return on plan assets in excess
of interest income
Contributions by employer
Contributions by plan participants
Benefits paid
Foreign currency exchange rate changes
Acquisitions
Dispositions
Settlements/curtailments
Reclassification of plans
Other
Closing plan assets
$ 1,590
$ 1,351
$ 876
$ 601
$ 173
$ 179
13
66
3
(50)
–
(154)
(6)
–
–
(13)
–
124
–
9
64
–
(27)
22
134
17
–
–
–
–
19
1
13
26
–
(22)
1
(74)
4
–
(28)
(2)
–
(124)
7
11
25
–
(23)
(3)
77
5
210
–
(7)
–
(19)
(1)
5
6
–
(8)
(2)
(16)
(5)
–
(6)
2
–
–
(7)
7
8
–
(19)
(34)
15
2
–
–
16
(1)
–
–
$ 1,573
$ 1,590
$ 677
$ 876
$ 142
$ 173
$ 1,710
$ 1,510
$ 443
$ 311
$ –
$ –
72
10
18
3
(50)
(10)
–
–
–
119
2
72
97
26
–
(27)
19
1
–
–
15
(3)
$ 1,874
$ 1,710
11
23
32
–
(22)
(1)
–
(20)
(1)
(119)
(3)
$ 343
11
23
35
–
(23)
2
108
–
(7)
(15)
(2)
–
–
12
–
(8)
–
–
–
(4)
–
1
–
–
19
–
(19)
–
–
–
–
–
–
$ 443
$ 1
$ –
Onex Corporation December 31, 2013 151
N O T E S T O C O N S O L I D AT E D F I N A N C I A L S TAT E M E N T S
Asset Category
Quoted Market Prices:
Equity investment funds
Debt investment funds
Other investment funds
Equity securities
Debt securities
Non-Quoted Market Prices:
Equity investment funds
Other investment funds
Equity securities
Debt securities
Real estate
Other
Percentage of Plan Assets
2013
7%
16%
1%
8%
6%
–
1%
20%
36%
2%
3%
2012
8%
19%
–
8%
2%
1%
1%
20%
36%
2%
3%
100%
100%
Equity securities do not include direct investments in the shares of the Company or its subsidiaries, but may be invested indirectly as a
result of the inclusion of the Company’s and its subsidiaries’ shares in certain market investment funds.
The funded status of the plans of the operating 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
2013
2012
2013
2012
2013
2012
Deferred benefit amount:
Plan assets, at fair value
Accrued benefit obligation
$ 1,874
(1,573)
$ 1,710
(1,590)
Deferred benefit amount – asset (liability)
$ 301
$ 120
$ 343
(677)
$ (334)
$ 443
(876)
$ (433)
$ 1
(142)
$ (141)
$ –
(173)
$ (173)
The deferred benefit asset of $301 (2012 – $120) is included in the Company’s consolidated balance sheets within other non-current assets
(note 9). The total deferred benefit liabilities of $475 (2012 – $606) are included in the Company’s consolidated balance sheets within
other non-current liabilities (note 15) and other current liabilities. Of the total deferred benefit liabilities, $27 (2012 – $29) was recorded as
a current liability.
152 Onex Corporation December 31, 2013
N O T E S T O C O N S O L I D AT E D F I N A N C I A L S TAT E M E N T S
The following assumptions were used to account for the plans:
Pension Benefits
Non-Pension
Post-Retirement Benefits
Year ended December 31
2013
2012
2013
2012
Accrued benefit obligation
Weighted average discount rate(a)
Weighted average rate of compensation increase
2.1%–4.9%
0.3%–4.1%
2.4%–4.6%
0.3%–6.6%
1.3%–4.9%
0.0%–4.6%
1.2%–4.4%
0.0%–4.4%
(a) Weighted average discount rate includes inflation, where applicable to a benefit plan.
Assumed healthcare cost trend rates
Initial healthcare cost rate
Cost trend rate declines to
Year that the rate reaches the rate it is assumed to remain at
2013
6.7%–8.5%
4.5%
2030
2012
6.9%–9.0%
4.5%–5.0%
Between 2020 and 2030
The assumptions underlying the discount rates, rates of compensation increase and healthcare cost trend rates have a significant effect on
the amounts reported for the pension and post-retirement benefit plans. A 1% change in these assumed rates would increase (decrease)
the benefit obligations at December 31, 2013 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, 2013
1% Increase
1% Decrease
1% Increase
1% Decrease
1% Increase
1% Decrease
Discount rate
Rate of compensation increase
Healthcare cost trend rate
$ (245)
$ 3
n/a
$ 297
$ (5)
n/a
$ (84)
$ 19
n/a
$ 102
$ (17)
n/a
$ (13)
$ 1
$ 14
$ 16
$ (1)
$ (12)
The sensitivity analysis above is based on changing one assump-
a) Emerald Expositions
tion while holding all other assumptions constant. In practice, this
In January 2014, Emerald Expositions completed the acquisi-
is unlikely to occur, and changes in certain assumptions may be
tion of George Little Management, LLC (“GLM”) for $335 in cash
correlated. When calculating the sensitivity of the defined bene-
consideration. GLM is an operator of business-to-business trade-
fit obligation to changes in significant actuarial assumptions, the
shows in the United States. In conjunction with the transaction,
same method used for calculating the benefit obligation liabilities
Onex, Onex Partners III and Onex management invested $140 in
in the consolidated financial statements has been applied.
Emerald Expositions, of which Onex’ share was $34. The remain-
3 3 . S U B S E Q U E N T E V E N T S
Onex and certain operating companies have entered into agree-
ments to acquire or make investments in other businesses. These
transactions are 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.
der of the purchase price and transaction costs were funded by
Emerald Expositions through an amendment to its credit facility, as
described in note 12.
b) Onex Partners IV
In February 2014, Onex completed an additional closing of Onex
Partners IV with funding commitments totalling approximately
$600. After completion of this closing and including the closings
of Onex Partners IV completed during 2013, the total funding com-
mitments for Onex Partners IV were approximately $3,700, which
includes Onex’ commitment of $1,200.
Onex Corporation December 31, 2013 153
N O T E S T O C O N S O L I D AT E D F I N A N C I A L S TAT E M E N T S
3 4 . I N F O R M AT I O N B Y I N D U S T R Y
A N D G E O G R A P H I C S E G M E N T
Onex’ reportable segments operate through autonomous compa-
nies and strategic partnerships. Reportable segments have been
determined based on the industries and different products and
services offered.
The Company had seven reportable segments in 2013
and 2012: electronics manufacturing services; aerostructures;
healthcare; insurance provider; customer care services; build-
ing products; and other. The electronics manufacturing services
segment consists of Celestica, which provides supply chain solu-
tions, including manufacturing services to electronics original
equipment manufacturers and service providers. The aerostruc-
tures segment consists of Spirit AeroSystems, which is an aircraft
parts designer and manufacturer of commercial aerostructures.
The healthcare segment consists of Carestream Health, a leading
global provider of medical imaging and healthcare information
technology solutions; CDI (sold in July 2012); ResCare, a leading
U.S. provider of residential training, education and support ser-
vices for people with disabilities and special needs; and Skilled
Healthcare Group, which operates skilled nursing and assisted
living facilities in the United States. The insurance provider seg-
ment consists of The Warranty Group, which underwrites and
administers extended warranties on a variety of consumer goods
and also provides consumer credit and other specialty insurance
products. The customer care services segment consists of Sitel
Worldwide, which provides customer care outsourcing services
for a broad range of industry end markets. The building products
segment consists of JELD-WEN, one of the world’s largest manu-
facturers of interior and exterior doors, windows and related prod-
ucts for use primarily in the residential and light commercial new
construction and remodelling markets. Other includes Allison
Transmission, a leading designer and manufacturer of fully-auto-
matic transmissions for on-highway trucks and buses, off-highway
equipment and defence vehicles worldwide; BBAM (acquired in
December 2012), a manager of commercial jet aircraft; Emerald
Expositions (acquired in June 2013), a leading operator of busi-
ness-to-business tradeshows in the United States; KraussMaffei
(acquired in December 2012), a global leader in the design and
manufacture of machinery and systems for the processing of plas-
tics and rubber; Meridian Aviation Partners Limited (established
in February 2013), an aircraft investment company established by
Onex Partners III; RSI (sold in February 2013); SGS International
(acquired in October 2012), a global leader in design-to-print
graphic services to the consumer products packaging industry;
Tomkins, a global manufacturer of belts and hoses for the indus-
trial and automotive markets; Tropicana Las Vegas, one of the most
storied casinos in Las Vegas; USI (acquired in December 2012), a
leading U.S. provider of insurance brokerage services; as well
as Onex Real Estate, the operating companies of ONCAP II (BSN
SPORTS up to June 2013 and Caliber Collision up to November
2013) and ONCAP III, the collateralized loan obligations of Onex
Credit Partners and the parent company. In addition, the other seg-
ment includes TMS International, which has been presented as a
discontinued operation.
Allison Transmission, BBAM, RSI (sold in February 2013),
Tomkins and certain Onex Real Estate investments are recorded at
fair value through net earnings, as described in note 1.
154 Onex Corporation December 31, 2013
N O T E S T O C O N S O L I D AT E D F I N A N C I A L S TAT E M E N T S
2013 Industry Segments
Revenues
$ 5,796
$ 5,961
$ 4,902
$ 1,168
$ 1,438
$ 3,457
$ 5,087
$ 27,809
Electronics
Manufacturing
Services
Aero-
structures
Healthcare
Insurance
Provider
Customer
Care
Services
Building
Products
Consolidated
Total
Other
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
Increase in value of investments in joint ventures
and associates at fair value, net
Stock-based compensation (expense) recovery
Other gains
Other items
Impairment of goodwill, intangible assets
and long-lived assets, net
Limited Partners’ Interests charge
Earnings (loss) before income taxes
and discontinued operations
Recovery of (provision for) income taxes
Earnings (loss) from continuing operations
Earnings from discontinued operations(a)
(5,337)
(221)
1
(60)
(12)
(3)
–
(29)
–
(4)
–
–
131
(13)
118
–
(5,848)
(243)
–
(162)
(3,406)
(836)
2
(119)
(28)
(70)
–
(22)
–
(27)
–
–
(439)
(101)
(540)
–
(148)
(222)
–
(8)
–
(143)
(95)
–
(73)
(44)
(117)
–
(600)
(380)
–
(3)
(12)
(6)
–
(4)
–
9
(1)
–
171
(59)
112
–
(936)
(372)
1
(28)
(2,855)
(449)
2
(112)
(23)
(97)
–
–
–
(17)
(1)
–
(35)
14
(21)
–
(18)
(79)
–
7
–
(9)
(13)
–
(69)
(16)
(85)
–
(2,861)
(1,696)
100
(135)
(296)
(336)
1,098
(293)
561
(258)
(209)
(1,855)
(1,093)
552
(541)
261
(21,843)
(4,197)
106
(619)
(537)
(813)
1,098
(349)
561
(449)
(319)
(1,855)
(1,407)
333
(1,074)
261
Net earnings (loss) for the year
$ 118
$ (540)
$ (117)
$ 112
$ (21)
$ (85)
$ (280)
$ (813 )
Total assets
Long-term debt(b)
Property, plant and equipment additions
Intangible assets with indefinite life
Goodwill additions from acquisitions
Goodwill
Net earnings (loss) attributable to:
$ 2,639
$ –
$ 45
$ –
$ –
$ 60
$ 1,128
$ 269
$ –
$ –
$ 3
$ 5,155
$ 3,707
$ 3,009
$ 4,898
$ 255
$ 613
$ 740
$ 2,483
$ 17,372
$ 661
$ 6,177
$ 102
$ 2
$ 33
$ 89
$ 326
$ 36,867
$ 11,970
$ 866
$ 253
$ 16
$ 36
$ 259
$ 777
$ 1,341
$ 20
$ 3
$ –
$ –
$ 727
$ 750
$ 784
$ 306
$ 118
$ 109
$ 3,089
$ 4,469
Equity holders of Onex Corporation
$ 12
$ (84)
$ (69)
$ 101
$ (15)
$ (66)
$ (233)
$ (354)
Non-controlling interests
Net earnings (loss) for the year
106
(456)
(48)
11
(6)
(19)
(47)
(459)
$ 118
$ (540)
$ (117)
$ 112
$ (21)
$ (85)
$ (280)
$ (813 )
(a) Represents the after-tax results of TMS International, as described in note 3.
(b) Long-term debt includes current portion, excludes finance leases and is net of financing charges.
Onex Corporation December 31, 2013 155
N O T E S T O C O N S O L I D AT E D F I N A N C I A L S TAT E M E N T S
2012 Industry Segments
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
Increase in value of investments in joint ventures
and associates at fair value, net
Stock-based compensation expense
Other gains
Other items
Impairment of goodwill, intangible assets
and long-lived assets
Limited Partners’ Interests charge
Earnings (loss) before income taxes
and discontinued operations
Recovery of (provision for) income taxes
Earnings (loss) from continuing operations
Earnings from discontinued operations(a)
Electronics
Manufacturing
Services
Aero-
structures
Healthcare
Insurance
Provider
Customer
Care
Services
Building
Products
Other
Consoli-
dated
Total
$ 6,507
$ 5,404
$ 4,947
$ 1,205
$ 1,429
$ 3,168
$ 2,257
$ 24,917
(5,988)
(226)
1
(70)
(11)
(5)
–
(36)
–
(42)
(18)
–
(5,038)
(228)
–
(130)
(29)
(83)
–
(16)
–
150
(2)
–
112
6
118
–
28
17
45
–
(3,402)
(885)
3
(128)
(160)
(191)
–
(11)
–
(42)
(17)
–
114
(44)
70
–
(621)
(402)
–
(4)
(15)
(5)
–
(2)
–
11
(4)
–
(920)
(368)
1
(29)
(25)
(100)
–
(1)
–
(4)
–
–
(2,561)
(449)
3
(101)
(19)
(63)
–
(17)
–
(33)
(7)
–
(1,378)
(718)
(19,908)
(3,276)
52
(76)
(59)
(67)
863
(156)
59
(86)
(17)
(929)
60
(538)
(318)
(514)
863
(239)
59
(46)
(65)
(929)
163
(54)
109
–
(17)
(3)
(20)
–
(79)
12
(255)
(10)
66
(76)
(67)
(265)
(10)
–
26
26
Net earnings (loss) for the year
$ 118
$ 45
$ 70
$ 109
$ (20)
$ (67)
$ (239)
$ 16
Total assets(b)
Long-term debt(b) (c)
$ 2,659
$ 5,371
$ 3,971
$ 4,903
$ 632
$ 2,626
$ 16,140
$ 36,302
$ 55
$ 1,133
$ 2,540
$ 258
$ 725
$ 547
$ 5,212
$ 10,470
Property, plant and equipment additions(b)
$ 98
$ 225
$ 120
$ 4
$ 23
$ 91
$ 196
$ 757
Intangible assets with indefinite life
$ –
$ –
$ 256
$ 16
$ 36
$ 259
$ 548
$ 1,115
Goodwill additions from acquisitions
$ 26
$ –
$ 23
$ –
$ –
$ –
$ 1,983
$ 2,032
Goodwill(b)
$ 60
$ 3
$ 852
$ 304
$ 118
$ 113
$ 2,908
$ 4,358
Net earnings (loss) attributable to:
Equity holders of Onex Corporation
$ 13
$ 7
$ 18
$ 62
$ (14)
$ (47)
$ (167)
$ (128)
Non-controlling interests
105
38
52
47
(6)
(20)
(72)
144
Net earnings (loss) for the year
$ 118
$ 45
$ 70
$ 109
$ (20)
$ (67)
$ (239)
$ 16
(a) Represents the after-tax results of TMS International, as described in note 3.
(b) Total assets, long-term debt, property, plant and equipment additions and goodwill in the other segment include discontinued operations.
(c) Long-term debt includes current portion, excludes finance leases and is net of financing charges.
Geographic Segments
2013
2012
Canada
U.S.
Europe
Asia and
Oceania
Other(1)
Total
Canada
U.S.
Europe
Asia and
Oceania
Other(1)
Total
$ 998 $ 16,844
$ 5,148
$ 3,609
$ 1,210 $ 27,809
$ 1,340
$ 14,496
$ 4,372
$ 3,701
$ 1,008
$ 24,917
$ 378 $ 3,443
$ 763
$ 466
$ 55 $ 5,105
$ 358
$ 3,730
$ 838
$ 456
$ 113
$ 5,495
Revenue(2)
Property, plant
and equipment
Intangible assets
$ 286 $ 3,694
$ 593
$ 49
$ 73 $ 4,695
$ 322
$ 3,733
$ 696
$ 63
$ 19
$ 4,833
Goodwill
$ 198 $ 3,600
$ 489
$ 146
$ 36 $ 4,469
$ 224
$ 3,429
$ 518
$ 153
$ 34
$ 4,358
(1) Other consists primarily of operations in Central and South America, Mexico and Africa.
(2) Revenues are attributed to geographic areas based on the destinations of the products and/or services.
156 Onex Corporation December 31, 2013
SHAREHOLDER INFORMATION
Year-end Closing Share Price
As at December 31 (in Canadian dollars)
2013
2012
2011
2010
2009
Toronto Stock Exchange
$ 57.35
$ 41.87
$ 33.18
$ 30.23
$ 23.60
Shares
Registrar and Transfer Agent
The Subordinate Voting Shares of
CST Trust Company
the Company are listed and traded
P.O. Box 700
on the Toronto Stock Exchange.
Postal Station B
Website:
www.onex.com
Auditors
Share Symbol
OCX
Dividends
Montreal, Quebec H3B 3K3
PricewaterhouseCoopers llp
(416) 682-3860
Chartered Professional Accountants
or call toll-free throughout Canada
and the United States
1-800-387-0825
Duplicate Communication
Registered holders of Onex Corporation
shares may receive more than one copy
Dividends on the Subordinate Voting
www.canstockta.com
Shares are payable quarterly on or
or inquiries@canstockta.com
of shareholder mailings. Every effort
about January 31, April 30, July 31 and
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
2013 the indicated dividend rate for
certificates or dividend cheques
names and/or addresses, multiple
each Subordinate Voting Share was
should be directed to the Registrar
mailings result. Shareholders who
C$0.15 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
We encourage individuals to receive Onex’
be made to combine the accounts for
provides shareholders of record who are
shareholder communications electroni-
mailing purposes.
resident in Canada a means to reinvest
cally. You can submit your request online
cash dividends in new Subordinate Voting
by visiting CST Trust Company’s website
Shares Held in Nominee Name
Shares of Onex Corporation at a market-
www.canstockta.com/electronicdelivery
To ensure that shareholders whose
related price and without payment of
or contacting them at 1-800-387-0825.
shares are not held in their name receive
brokerage commissions. To participate,
all Company reports and releases
registered shareholders should contact
Investor Relations Contact
on a timely basis, a direct mailing list
Onex’ share registrar, CST Trust Company.
Requests for copies of this report,
is maintained by the Company. If you
Non-registered shareholders who wish
other annual reports, quarterly reports
would like your name added to this list,
to participate should contact their
and other corporate communications
please forward your request to Investor
investment dealer or broker.
should be directed to:
Relations at Onex.
Corporate Governance Policies
A presentation of Onex’ corporate
governance policies is included in the
Investor Relations
Onex Corporation
161 Bay Street
P.O. Box 700
Annual Meeting of Shareholders
Onex Corporation’s Annual Meeting of
Shareholders will be held on May 15,
Management Information Circular
Toronto, Ontario M5J 2S1
2014 at 10:00 a.m. (Eastern Daylight Time)
that is mailed to all shareholders and
is available on Onex’ website.
(416) 362-7711
investor@onex.com
at Toronto Region Board of Trade,
77 Adelaide Street West, Toronto, Ontario.
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