OncoCyte Annual Report 2014

Plain-text annual report

Management’s Discussion and Analysis and Financial Statements December 31, 2014 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 $29 billion, generate annual revenues of $21 billion and employ approximately 192,000 people worldwide. Onex operates from ofﬁces located in Toronto, New York and London. ONEX PARTNERS ONCAP ONEX CREDIT DIRECT ONEX REAL ESTATE PARTNERS Onex Partners includes investments made through Onex Partners I, II, III and IV. ONCAP includes investments made through ONCAP II and III. Skilled Healthcare Group combined with Genesis HealthCare in February 2015. Throughout this report, all amounts are in U.S. dollars unless otherwise indicated. Table of Contents 6 Management’s Discussion and Analysis 164 Shareholder Information 88 Audited Annual Consolidated Financial Statements CHAIRMAN’S LETTER Dear Shareholders, In 2014, we raised a record $5.7 billion from limited partners and other investors across our private equity and credit plat- forms, including the completion of fundraising for our flagship fund, Onex Partners IV. As well, Onex and our Limited Partners received a record $6.1 billion from realizations and distributions. Included in that amount are proceeds from three businesses we sold for 2.2 to 8.1 times our original capital invested. For most of the year conditions were ideal for realizations as both public equity and credit markets were quite strong. Ideal conditions, however, only help after you have built successful businesses others want to own. That building didn’t just hap- pen in 2014, but occurred over many years, resulting from the hard work of both our management and investment teams. We have begun the building process once again with four acquisitions announced or closed during the fourth quarter. It was tough to ﬁnd great opportunities in the market for much of 2014. Fortunately, credit markets began softening materially in the second half of the year. As well, we believe our most recent businesses have plenty of potential for add-on acquisitions and future growth, making our initial purchase price somewhat less relevant for a long-term investor like Onex. We also continue to invest in and build our team. Across the ﬁrm we promoted three new Managing Directors and hired 11 new investment professionals. We develop most of our own talent at Onex and believe this is one of the secrets of our long-term success. By the time someone is promoted to Managing Director they have likely been with us for about 10 years, seen more than one investment cycle and developed into an entrepreneur who shares Onex’ values and ethics, and also understands the risks and opportunities that together comprise a business we want to own. Over time, each of our Managing Directors will have the majority of their ﬁnancial net worth invested in Onex and our Funds. So as we reflect on 2014 and what we accomplished, we know it was the result of years of hard work by today’s team, our ownership culture and a consistent approach to investing. Here are some of the highlights: • Including realizations and distributions, the value of Onex’ interest in Onex Partners and ONCAP investments grew by 14 percent; • Onex Partners sold Gates and The Warranty Group as well as its remaining interests in Allison Transmission and Spirit AeroSystems for total proceeds of $5.4 billion; • ONCAP sold Mister Car Wash for total proceeds of $378 million, generating a multiple of invested capital of 8.1 times; • Onex Partners invested $521 million of equity to acquire York Risk Services, an integrated provider of insurance solutions to property, casualty and workers’ compensation specialty markets in the United States; • Onex Partners invested $204 million for an interest in Advanced Integration Technology, a leading provider of automation and tooling, maintenance services and aircraft components to the aerospace industry; • Onex Partners announced the acquisition of SIG Combibloc Group, the second-largest provider of aseptic beverage pack- aging in the world. Onex and certain of our limited partners as co-investors will invest $1.25 billion of equity; • ONCAP made an equity investment of $102 million for an interest in Mavis Discount Tire, a leading regional tire retailer operating in the light vehicle sector; • Our businesses raised or reﬁnanced approximately $3.4 billion of debt; • Our businesses made capital expenditures and add-on acquisitions of approximately $1.5 billion; • Onex Credit continued to grow its collateralized loan obligation pools with three CLO offerings, totalling $1.9 billion, and increasing its capital under management to $5.1 billion by year-end; and • We completed the fundraising for Onex Partners IV faster than anticipated, raising $5.2 billion, which surpassed our origi- nal $4.5 billion target. At Onex, we have only one mission – to invest wisely. As we begin our fourth decade, it gives us pause to acknowledge that many of our younger professionals weren’t born when we started Onex in 1984. We are conﬁdent they will come to hold the same values and principles that have kept us prospering through many economic and industry cycles. We will all invest together – enjoying some years of ideal conditions and worrying through some tough ones. From all of us at Onex, we thank you for your continued support. 164 Shareholder Information [signed] Gerald W. Schwartz Chairman & Chief Executive Ofﬁcer, Onex Corporation Onex Corporation December 31, 2014 1 ONEX CORPORATION More Than 30 Years of Successful Investing Founded in 1984, Onex is one of the oldest and most successful private equity ﬁrms. Through its Onex Partners and ONCAP private equity funds, Onex acquires and builds high-quality businesses in partnership with tal- ented management teams. At Onex Credit, Onex manages and invests in leveraged loans, collateralized loan obligations and other credit securities. The Company has approximately $20.7 billion of assets under man- agement, including $6.0 billion of Onex capital. The Company is guided by an ownership culture focused on achieving strong absolute growth, with an emphasis on capital preservation. In private equity, Onex has built more than 80 operating businesses, completing approximately 480 acquisitions with a total value of approximately $53 billion. Onex’ investment 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 compound IRR on realized, substantially realized and publicly traded investments. Our credit business has grown considerably since 2007, driven primarily by our success with our CLO platform. With an experienced management team, signiﬁcant ﬁnancial resources and no debt at the parent company, Onex is well-positioned to continue building our businesses. Onex manages its capital as well as capital entrusted to it by investors from around the world. These include public and private pension funds, sovereign wealth funds, banks and insurance companies. Onex’ Capital Onex’ capital of $6.0 billion at December 31, 2014 was primarily invested in or committed to its two private equity platforms – Onex Partners (for larger transactions) and ONCAP (for mid-market transactions) – and its credit plat- form, Onex Credit. One of Onex’ long-term goals is to grow its capital per share by 15 percent per annum, and to have that growth reflected in its share price. In the year ended December 31, 2014, Onex’ capital per share grew by 6 percent in U.S. dollars (16 percent in Canadian dollars) and our share price grew by 8 percent in U.S. dollars (18 percent in Canadian dollars). The growth in Onex’ capital was impacted by a signiﬁcant portion of Onex’ capital being held in cash and near-cash items due to signiﬁcant realizations in the past 12 months. Onex’ $6.0 billion of Capital at December 31, 2014 Onex’ $5.8 billion of Capital at December 31, 2013 Large-Cap Private Equity 37% Large-Cap Private Equity 56% Private 33% Public 4% Private 41% Public 15% Cash and Near-Cash Items 48% Mid-Market Private Equity 5% Onex Credit 6% Onex Real Estate Partners 4% Cash and Near-Cash Items 30% Mid-Market Private Equity 6% Onex Credit 5% Onex Real Estate Partners 3% The How We Are Invested schedule details Onex’ $6.0 billion of capital at December 31, 2014 (December 31, 2013 – $5.8 billion). 2 Onex Corporation December 31, 2014 Other Investors’ Capital In addition to the management of its own capital, Onex is entrusted with capital from institutional investors around the world. The Company manages $14.7 billion of invested and committed capital on behalf of its inves- tors, of which 71 percent relates to its private equity platforms and the balance to Onex Credit. One of Onex’ long- term goals is to grow its fee-generating capital by 10 percent per annum. In the year ended December 31, 2014, fee-generating capital under management grew by 13 percent driven by our success in raising Onex Partners IV and several CLO issuances. The management of this capital provides two signiﬁcant beneﬁts. First, Onex is enti- tled to receive a committed stream of annual management fees on $13.5 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 2014, combined management fees and carried interest received more than offset ongoing operating expenses. Onex’ $14.7 billion of Other Investors’ Capital at December 31, 2014 Onex’ $13.5 billion of Other Investors’ Capital at December 31, 2013 Onex Partners IV 29% Onex Partners IV 15% Onex Partners III 29% Onex Partners II 5% Onex Partners I 3% Onex Credit 29% ONCAP 5% Onex Partners III 35% Onex Partners II 14% Onex Partners I 9% Onex Credit 20% ONCAP 7% Assets under management include capital managed on behalf of co-investors and the management of Onex and ONCAP. Onex Corporation December 31, 2014 3 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’ $6.0 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 prepared by management. The presentation of con- trolled investments in this manner is a non-GAAP measure. This fair value summary may be used by investors to compare to fair values they may prepare on Onex and Onex’ investments. 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, 2014 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 December 31, 2014 December 31, 2013 As at Private Equity Onex Partners Private Companies(1) Public Companies(2) Unrealized Carried Interest(3) ONCAP(4) Direct Investments Private Companies(5) Public Companies Onex Credit(6) Onex Real Estate Partners(7) Other Investments Cash and Near-Cash(8) Debt(9) $ 1,748 30 115 292 100 210 2,495 366 242 608 24 2,877 – $ 6,004 $ 54.11 $ 2,026 627 202 337 153 186 3,531 260 144 404 103 1,741 – $ 5,779 $ 50.93 Onex’ Capital per Share (December 31, 2014 – C$62.77; December 31, 2013 – C$54.16)(10)(11) (1) Based on the fair value of the investments in Onex Partners’ financial statements net of the estimated Management Investment Plan (“MIP”) liability on these investments of $40 million (2013 – $64 million). (2) Based on the closing market values and net of the estimated MIP liability on public companies in the Onex Partners Funds of nil (2013 – $37 million). (3) Represents Onex’ share of the unrealized carried interest on public and private companies in the Onex Partners Funds. (4) Based on the C$ fair value of the investments in ONCAP’s financial statements net of management incentive programs on these investments of $9 million (2013 – $17 million) and a US$/C$ exchange rate of 1.1601 (2013 – 1.0636). (5) Based on the fair value. (6) Based on the market values of investments in Onex Credit Funds ($129 million) and Onex Credit Collateralized Loan Obligations and the warehouse facility for Onex Credit CLO-8 ($237 million). Excludes $346 million (2013 – $343 million) invested in a segregated Onex Credit unleveraged senior secured loan strategy fund, which is included with cash and near-cash items. (7) Based on the fair value. During 2014 Onex invested $95 million in Flushing Town Center. (8) Includes $346 million (2013 – $343 million) invested in a segregated Onex Credit unleveraged senior secured loan strategy fund. (9) Represents debt at Onex Corporation, the parent company. (10) Calculated on a fully diluted basis. Fully diluted shares were approximately 112.9 million at December 31, 2014 (December 31, 2013 – 115.9 million). Fully diluted shares include all outstanding Subordinate Voting Shares and outstanding Stock Options that have met the minimum 25% price appreciation threshold. (11) The change in Onex’ Capital per Share during the year ended December 31, 2014 is driven primarily by fair value changes of Onex’ investments. Share repurchases and options exercised during the period will also 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 Onex’ Capital per Share. 4 Onex Corporation December 31, 2014 H O W W E A R E I N V E S T E D Public Companies As at December 31, 2014 Onex Partners – Skilled Healthcare Group(2) Direct Investments – Celestica(3) Signiﬁcant Private Companies As at December 31, 2014 Onex Partners Carestream Health Tropicana Las Vegas ResCare JELD-WEN SGS International USI BBAM(9) KraussMaffei Emerald Expositions York AIT Public and Private Company Information Shares Subject to Carried Interest (millions) Shares Held by Onex (millions) 10.7 – 3.5 17.9 Closing Price per Share(1) $ 8.57 $ 11.74 Onex’ and its Limited Partners’ Ownership LTM EBITDA(4) Net Debt Cumulative Distributions Onex’ Economic Ownership 91% 82% 98% 81%(5) 93% 89% 50% 96% 99% 88% 40% $ 420 3 134 230(6) 115(8) 315(8) 75 1 117 131(8) 117(8) n/a $ 1,982 55 469 713(6) 560 1,740 1 (45)(10) 222 735 918 n/a $ 1,311 – 130 – – – 112(11) – – – n/a 33%(3) 18% 20% 20%(5) 23% 25% 13% 24% 24% 29% 9% Direct Investments – Sitel Worldwide 86%(13) $ 118 $ 752 $ – 86%(13) Market Value of Onex’ Investment $ 30 210 $ 240 Original Cost of Onex’ Investment $ 186 70 41 217 (7) 66 170 66 92 (12) 119 173 45 1,245 320 $ 1,565 (1) Closing prices on December 31, 2014. (2) In February 2015, Skilled Healthcare Group combined with Genesis HealthCare. The combined company will operate under the Genesis Healthcare name and will continue to be publicly traded (NYSE: GEN). (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) Onex’ and its limited partners’ investment includes convertible preferred shares. The ownership percentage is presented on an as-converted basis. (6) LTM EBITDA and net debt are presented for JELD-WEN Holding, inc. (7) Net of a $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. (8) LTM EBITDA for SGS International, USI, Emerald Expositions and York is presented on a pro-forma basis to reflect the impact of acquired businesses. (9) Ownership percentages, LTM EBITDA, net debt and cumulative distributions are presented for BBAM Limited Partnership and do not reflect information for Onex’ investments in Meridian Aviation Partners Limited or FLY Leasing Limited (NYSE: FLY). The Original Cost of Onex’ Investment includes $19 million invested in Meridian Aviation Partners Limited and $5 million invested in FLY Leasing Limited. (10) Net debt for BBAM represents unrestricted cash, reduced for accrued compensation liabilities. (11) Onex, Onex Partners III and Onex management received distributions of $52 million from BBAM. (12) 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. (13) The economic ownership interests of Sitel Worldwide are presented based on preferred shareholdings. Onex Corporation December 31, 2014 5 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”) consolidated ﬁnancial results for the year ended December 31, 2014 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 state- ments of earnings, consolidated statements of comprehensive earnings, consolidated balance sheets and consolidated statements of cash flows of Onex. As such, this MD&A should be read in conjunction with the audited annual consoli- dated ﬁnancial statements and notes thereto included in this report. The MD&A and the 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 infor- mation to make an investment or lending decision in regard to any particular 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 ﬁnancial statements. The following MD&A is the responsibility of management and is as of February 19, 2015. Preparation of the MD&A includes the review of the disclosures on each business by senior managers of that business and the review of the entire document by each ofﬁcer of Onex and by the Onex Disclosure 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: 7 Our Business, Our Objective and Our Strategies 18 Industry Segments 22 Financial Review 81 Outlook Onex Corporation’s ﬁnancial ﬁlings, including the 2014 MD&A and Consolidated 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. Throughout this MD&A, references to the Onex management team include the management of Onex, ONCAP and Onex Credit. References to management without the use of team include only the relevant group. For example, Onex manage- ment does not include management of ONCAP or Onex Credit. References Throughout this MD&A, references to the Onex Partners Groups represent Onex, the limited partners of the relevant Onex Partners Fund, the Onex management team and, where applicable, certain other limited partners as investors. References to the ONCAP Groups represent Onex, the limited partners of the relevant ONCAP Fund and Onex management team as investors. For example, references to the Onex Partners III Group represent Onex, the limited partners of Onex Partners III, the Onex management team and, where applicable, certain other limited partners as investors. 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. Except as may be required by Canadian securities law, 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. 6 Onex Corporation December 31, 2014 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 30-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 private pension funds, sovereign wealth funds, banks and insurance companies. The Company has generated a gross multiple of capital invested of 3.0 times from its core private equity activities since inception on realized, substantially realized and publicly traded investments. Investment approach Throughout our history, we have developed a successful approach to investing. In private equity, we pursue businesses with world-class 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 rather than macro-economic or industry trends. Speciﬁcally, we focus on (i) carve-outs of subsidiaries and mission-critical supply divisions from multinational corporations; (ii) cost reduction and operational restructurings; and (iii) platforms for add-on acquisitions. We have historically been conservative with the use of ﬁnancial leverage, which has served Onex and its busi- nesses well through many cycles. As well, we typically acquire a control position in our businesses, which allows us to drive important strategic decisions to accelerate growth and effect change. Onex does not get involved in the daily operating decisions of the businesses. At Onex Credit, we practise value-oriented investing with bottom-up, fundamental and structural analysis. We invest in larger, more actively traded issues and seek to have diversiﬁcation among industries, issuers and tranches. Our top-down approach to portfolio construction, risk control and liquidity management comple- ments our investment research. We maintain disciplined risk management with a focus on capital preservation across all strategies. We do so by selecting credits with seniority in the capital structure of companies, which have stable cash flows and sub- stantial asset values. Importantly, our credit investment process is repeatable and scalable across all our invest- ment strategies. Experienced team with signiﬁcant depth Onex is led by Gerry Schwartz, Chairman and CEO, and its Executive Committee comprised of Mr. Schwartz and four Senior Managing Directors. Collectively, these executives have more than 130 years of investing expe- rience and have worked at Onex for an average of 23 years. Onex’ stability results from its ownership culture, rigorous recruiting standards and highly collegial environment. Onex’ 76 investment professionals are each dedicated to a separate investment platform: Onex Part- ners (46), ONCAP (17) and Onex Credit (13). These investment teams are supported by more than 60 profes- sionals involved in the taxation, accounting, ﬁnancial reporting and control, legal and investor relations of Onex and its investment platforms. Onex Corporation December 31, 2014 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 Substantial ﬁnancial resources available for future growth It has been Onex’ policy to preserve a ﬁnancially strong parent company that has funds available for new acquisitions and to support the growth of its operating companies. 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, 2014, Onex had: i. Approximately $2.9 billion of cash and near-cash items and no debt. ii. $4.0 billion of limited partners’ uncalled capital available for future Onex Partners IV investments. iii. C$289 million of limited partners’ uncalled capital available for future ONCAP III investments. In May 2014, Onex successfully completed fundraising for Onex Partners IV, reaching aggregate commitments of $5.2 billion and exceeding the target of $4.5 billion. This includes Onex’ commitment of $1.2 billion and capi- tal from institutional investors around the world. In December 2014, Onex notiﬁed the limited partners of Onex Partners IV that it would be increasing its commitment by $500 million to $1.7 billion. The increased commitment will apply to new Onex Partners IV investments completed after June 3, 2015, and will not change Onex’ owner- ship of businesses acquired prior to that date. Strong alignment of interests An important part of our success in building industry-leading businesses and our investment track record is 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 private equity Fund and having meaningful investments through Onex Credit, the Company’s distinctive ownership culture requires the management team to have a signiﬁcant ownership in Onex shares and to invest meaningfully in each operating business acquired. At December 31, 2014, the 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; • has a total investment at market in Onex Credit strategies of approximately $240 million; and • is required to reinvest 25 percent of all Onex Partners 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 are con- centrated on (i) acquiring and building industry-leading businesses and (ii) managing and growing other investors’ capital in private equity and debt investing strategies. We believe 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 and reviews how we performed relative to those strategies in 2014. 8 Onex Corporation December 31, 2014 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 STRATEGIES: Acquiring and building industry-leading businesses The growth in Onex’ capital will be driven by the success of our private equity investments. Our private equity investing strategy focuses on an active ownership approach of acquiring and building industry-leading businesses in partnership with talented management teams. The acquisition environment was very competitive in both North America and Europe during 2014. We are pleased with our activity during the fourth quarter of 2014, which included three new investments – York Risk Services Holding Corp. (“York”), Mavis Tire Supply LLC (“Mavis Discount Tire”) and Advanced Integration Technology (“AIT”) – and several add-on acquisitions completed by our operating businesses. In addition, we recently announced our plans to acquire two businesses – SIG Combibloc Group AG (“SIG”) and Survitec Group Limited (“Survitec”) – both of which we expect to close during the ﬁrst quarter of 2015, subject to customary conditions and regulatory approvals. Acquiring businesses The table below presents in chronological order the total investments made primarily by the Onex Partners and ONCAP Groups during 2014 and up to February 19, 2015 and Onex’ share thereof: Company JELD-WEN Fund Transaction Onex Partners III Add-on investment Flushing Town Center Onex Real Estate Partners Add-on investment Sitel Worldwide Direct Investment Add-on investment Mavis Discount Tire ONCAP III York AIT Total Onex Partners III Onex Partners IV Equity invested Equity invested Equity invested Total Amount ($ millions) Onex’ Share ($ millions) $ $ $ $ $ $ 65 108 74 102 521(1) 204 $ 1,074 $ 16 $ 95 $ 69 $ 30 $ 173(1) $ 45 $ 428 (1) The Onex Partners III Group’s equity investment in York was comprised of $400 million from Onex Partners III and $121 million as a co-investment from Onex and certain limited partners. Onex’ investment was comprised of $96 million from Onex Partners III and $77 million as a co-investment. During 2014, the Onex Partners III Group had the opportunity to increase its ownership in JELD-WEN Holding, inc. (“JELD-WEN”) with a net investment of $65 million to acquire common stock of JELD-WEN from existing shareholders unrelated to Onex. The total number of shares of JELD-WEN common stock outstanding did not change as a result of this transaction. In May 2014, Onex Real Estate Partners made a $95 million equity investment in Flushing Town Center. Flushing Town Center concurrently entered into new credit facilities with third-party lenders consisting of a $195 million mortgage loan and $70 million of mezzanine loans. The proceeds from the new credit facilities, along with the equity investment from Onex Real Estate Partners, were used to repay the third-party lenders of the existing senior construction loan. In addition, Onex Real Estate Partners made further equity investments in Flushing Town Center total- ling $13 million during 2014. Onex Corporation December 31, 2014 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 During the second quarter of 2014, Onex increased its investment in SITEL Worldwide Corporation (“Sitel Worldwide”) to allow the company to reduce debt and fund near-term capital expenditures supporting growth and efﬁciency plans. Sitel Worldwide issued $75 million of preferred shares, of which Onex and Onex manage- ment’s portion was $74 million. In October 2014, the ONCAP III Group acquired a 46 percent economic interest in Mavis Discount Tire for an equity investment of $102 million. The company is a leading regional tire retailer operating in the tire and light vehicle service industry with over 150 retail locations. In October 2014, the Onex Partners III Group acquired York, an integrated provider of insurance solutions to property, casualty and workers’ compensation specialty markets in the United States, for $1.325 billion. The Onex Partners III Group’s equity investment in York was $521 million. In December 2014, Onex Partners IV acquired a 40 percent economic interest in AIT for $204 million. The com- pany is a leading provider of automation and tooling, maintenance services and aircraft components to the aerospace industry. In addition to these investments, Onex recently announced two new acquisitions: SIG and Survitec. In November 2014, Onex agreed to acquire SIG in a transaction valued at up to €3.75 billion. Based in Switzerland, SIG provides beverage and food producers with a comprehensive product portfolio of aseptic carton sleeves and closures, as well as the ﬁlling machines used to ﬁll, form and seal the sleeves. The equity investment in SIG is expected to be approximately $1.25 billion and will be comprised of $600 million from Onex Partners IV and $650 million from Onex and certain other limited partners. The transaction is expected to close during the ﬁrst quarter of 2015, subject to customary conditions and regulatory approvals. In January 2015, Onex agreed to acquire Survitec for £450 million ($680 million). Based in the United King- dom, Survitec is a market-leading provider of mission-critical marine, defence and aerospace survival equipment. The Onex Partners IV Group will make an investment of approximately $320 million for substantially all of the equity. The transaction is expected to close during the ﬁrst quarter of 2015, subject to customary conditions and regulatory approvals. Building businesses The strong cash flow characteristics of many of our operating businesses allowed a number of them to com- plete follow-on acquisitions in 2014. These investments are described in chronological order in the paragraphs that follow. 10 Onex Corporation December 31, 2014 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 January 2014, Emerald Expositions, LLC (“Emerald Expositions”) acquired George Little Management, LLC (“GLM”), an operator of business-to-business tradeshows in the United States. This acquisition is consistent with the investment thesis for Emerald Expositions: to grow the business through accretive add-on acquisitions of smaller exhibition businesses in existing and adjacent end markets. In conjunction with this acquisition, the Onex Partners III Group invested an additional $140 million in Emerald Expositions, of which Onex’ share was $34 million. In May 2014, USI Insurance Services (“USI”) acquired 40 insurance brokerage and consulting ofﬁces across the United States from Wells Fargo Insurance. The purchase price for the acquisition was $133 million, which was ﬁnanced by USI with a $125 million incremental term loan and cash from USI. In addition, in October 2014, USI acquired seven retail insurance brokerage locations across the United States from Willis North America Inc. The purchase price was $66 million, which was ﬁnanced with cash from USI. In June 2014, EnGlobe Corp. (“EnGlobe”) combined its business with LVM Inc., a leading Canadian geotech- nical, materials and environmental engineering ﬁrm. The transaction was ﬁnanced with third-party debt ﬁnancing and an equity investment from third-party investors. The ONCAP II Group owned 81 percent of the combined business following this transaction. In August 2014, Skilled Healthcare Group, Inc. (“Skilled Healthcare Group”) entered into an agreement to com- bine with Genesis HealthCare, LLC (“Genesis HealthCare”), a leading U.S. operator of long-term care facilities. The transaction was completed in February 2015. In accordance with the terms of the purchase and combination agreement, each share of Skilled Healthcare Group common stock issued and outstanding immediately prior to the closing of the transaction was converted into shares of the newly combined company. Skilled Healthcare Group shareholders own approximately 26 percent of the combined company, of which the Onex Partners I Group’s share of the economic ownership is 10 percent. The Onex Partners I Group’s voting ownership has been reduced to 10 percent from 86 percent before the combination. The combined company now operates under the Genesis Healthcare name and continues to be publicly traded (NYSE: GEN). In December 2014, York acquired MCMC, LLC (“MCMC”), a leading managed care services company, for $142 million. The acquisition was ﬁnanced by York with a $45 million senior unsecured notes offering, together with draws on its delayed draw term loan and revolving credit facility and a rollover equity contribution from management of MCMC. During 2014, a number of our existing operating businesses collectively raised or reﬁnanced a total of $3.4 bil- lion of debt. In addition, our existing operating businesses collectively paid down debt totalling approximately $395 million during the year ended December 31, 2014. Onex Corporation December 31, 2014 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 Realizing on value The strength of our businesses, combined with the strength in equity and credit markets, made it an appropriate time to realize on certain of our businesses. As a result, Onex and its partners received proceeds of $6.1 billion in 2014, which was a record year for realizations. The table below presents in chronological order the total proceeds received from realizations and cash distribu- tions made during 2014 and up to February 19, 2015 primarily from Onex private equity activity: Company Fund Transaction Allison Transmission Onex Partners II Share repurchases, secondary offerings and dividends Spirit AeroSystems Onex Partners I Share repurchase and secondary offerings ResCare Onex Partners I & III Dividend PURE Canadian Gaming ONCAP II & III Debt repayment and return of capital Tomkins Onex Partners III Sale of business Cypress Insurance Group Direct Investment Sale of business and dividends The Warranty Group Onex Partners I & II Sale of business Mister Car Wash ONCAP II Sale of business Onex Real Estate Partners Direct Investment Sale of investments BBAM Total Onex Partners III Distributions Gross Multiple of Capital Invested(1) Gross Return on Investment(1) Total Amount ($ millions) Onex’ Share ($ millions) (2) 3.2x 8.5x n/a n/a 2.2x 2.3x 3.1x 8.1x n/a n/a 21% $ 1,483 $ 461 201% n/a n/a 27% 17% 19% 36% n/a n/a $ $ $ 729 120 41 $ 2,043 $ 54 $ 1,126 $ $ $ 378 95(3) 28 $ $ $ $ $ $ $ $ $ 222 25 18 554 50 382 149 84(3) 7 $ 6,097 $ 1,952 (1) Calculation includes prior realizations. Information is not applicable for investments still held by Onex. (2) 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, if applicable. (3) Onex Real Estate Partners primarily consists of proceeds received on the sale of properties in the Urban Housing platform. From February 2014 through September 2014, the Onex Partners II Group sold its remaining shares of Allison Transmission Holdings, Inc. (“Allison Transmission”) through share repurchases and four secondary offerings completed by Allison Transmission. The offerings were priced at between $29.17 and $30.46 per share com- pared to Onex’ cash cost per share of $8.44. The Onex Partners II Group sold approximately 50 million shares for net proceeds of $1.5 billion, of which Onex’ share was $459 million, including carried interest of $38 million. Including prior realizations and dividends, the Onex Partners II Group received total net proceeds of $2.4 bil- lion compared to its original investment of $763 million, and Onex received total net proceeds of approximately $770 million compared to its original investment of $237 million. From March 2014 through August 2014, the Onex Partners I Group sold its remaining 22.4 million shares of Spirit AeroSystems, Inc. (“Spirit AeroSystems”) in three transactions: a secondary offering in March 2014 priced at $28.52 per share, a secondary offering and share repurchase in June 2014 priced at $32.31 per share and a second- ary offering in August 2014 priced at $35.67 per share. Onex’ cash cost for these shares was $3.33 per share. The Onex Partners I Group received net cash proceeds of $729 million from these transactions, of which Onex’ share 12 Onex Corporation December 31, 2014 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 was $222 million, including carried interest of $27 million. Including prior realizations, the Onex Partners I Group received total net proceeds of $3.2 billion compared to its original investment of $375 million and Onex received total net proceeds of approximately $1.0 billion compared to its original investment of $108 million. In April 2014, Res-Care Inc. (“ResCare”) entered into a new $650 million senior secured credit facility. The pro- ceeds from the new senior secured credit facility were used to repay ResCare’s former senior secured credit facility, fund a $130 million distribution to shareholders, pay fees and expenses associated with the transaction and for general corporate purposes. In July 2014, Onex, together with Canada Pension Plan Investment Board (“CPPIB”), sold Gates Corporation (“Gates”), the principal remaining business of Tomkins Limited (“Tomkins”), for an enterprise value of $5.4 bil- lion. Proceeds from the sale to the Onex Partners III Group were $2.0 billion. Onex’ share of the proceeds was $542 million, including carried interest of $54 million. In addition, residual assets of Tomkins were sold in the second half of 2014 for total proceeds to the Onex Partners III Group of $46 million. Including prior distributions from Tomkins, the Onex Partners III Group received total net proceeds of $2.7 billion compared to its original investment of $1.2 billion and Onex will have received total net proceeds of approximately $727 million, includ- ing prior distributions of $171 million, compared to its original investment of $315 million. In August 2014, Onex sold its investment in The Warranty Group Inc. (“The Warranty Group”) for an enterprise value of approximately $1.5 billion. The Onex Partners I and Onex Partners II Groups invested a total of $498 mil- lion to acquire The Warranty Group in November 2006 and have received total net proceeds of $1.529 billion, including prior distributions of $403 million. Onex’ portion of the sale proceeds was $382 million, including carried interest of $51 million. Including prior distributions, Onex received total net proceeds of $509 million compared to its original investment of $157 million. In August 2014, the ONCAP II Group sold Mister Car Wash. Onex received total net proceeds of approximately $168 million, including prior distributions of $15 million, compared to its original investment of $23 million. The value of Onex Partners’ and ONCAP’s operating businesses, including realizations and distributions, increased by 14 percent during 2014. One of Onex’ long-term goals is to grow its capital per share by 15 percent per annum. Including the impact of cash, carried interest and other investments, Onex’ capital per share grew by 6 percent in U.S. dollars (16 percent in Canadian dollars) for the year ended December 31, 2014 to $54.11 (C$62.77) from $50.93 (C$54.16) at December 31, 2013. In the ﬁve years ended December 31, 2014, Onex’ capital per share grew by an annual compound rate of 13 percent in U.S. dollars (15 percent in Canadian dollars). 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 Corporation December 31, 2014 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 Onex formalized its asset management business in 1999 when it raised its ﬁrst ONCAP fund 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. Through December 31, 2014, Onex had raised $11.8 billion of limited partners’ capital through a total of seven Onex Partners and ONCAP Funds. In 2007, Onex acquired a 50 percent interest in an investment advisor focused on credit investing which, at that time, managed $300 million. The business has grown considerably over the past seven years and Onex has increased its ownership interest over the years. At December 31, 2014, Onex had a 70 percent ownership interest. In January 2015, Onex acquired control of the investment advisor. Today, Onex Credit manages several invest- ment strategies focused on a variety of event-driven, long/short, stressed and distressed opportunities, including two closed-end funds listed on the Toronto Stock Exchange (TSX: OCS-UN and OSL-UN), as well as a collateral- ized loan obligation platform. Through December 31, 2014, Onex Credit had raised $5.0 billion of investor capital through its various strategies. The management of other investors’ capital provides two signiﬁcant beneﬁts to Onex: (i) the Company earns management fees on $13.5 billion of other investors’ assets under management and (ii) Onex has the oppor- tunity to share in the proﬁts of its other investors through the carried interest participation. This enables Onex to enhance the return on its investment activity. In 2014, combined management fees and carried interest received more than offset ongoing operating expenses. Onex Partners, ONCAP and Onex Credit earned a total of $99 mil- lion in management and transaction fees in 2014 (2013 – $112 million) and expect to earn a total of $135 million in management and transaction fees in 2015. At December 31, 2014, Onex managed $14.7 billion of other investors’ capital, in addition to $6.0 billion of Onex’ capital. Included in the other investors’ capital managed by Onex was approximately $4.0 billion of com- mitted capital for Onex Partners IV. ($ millions) Total Fee Generating Uncalled Commitments Other Investors’ Capital Under Management(1) December 31, 2014(2) December 31, 2013(2) Change in Total December 31, 2014 December 31, 2013 December 31, 2014(2) December 31, 2013 (2) Funds Onex Partners(3) $ 9,598 $ 9,801 ONCAP Onex Credit(4) C$ 922 C$ 970 $ 4,342 $ 2,744 (2)% (5)% 58 % $ 8,523 $ 8,464 $ 4,755 $ 2,720 C$ 785 C$ 837 C$ $ 4,342 $ 2,744 291 n/a C$ 389 n/a (1) All data is presented at fair value. (2) 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. (3) Includes $4.0 billion (December 31, 2013 – $1.9 billion) of committed capital from Onex Partners IV. (4) At December 31, 2014 and 2013, Onex Credit was jointly controlled by Onex. In January 2015, Onex obtained a controlling interest in Onex Credit. Capital under management of Onex Credit represents 100 percent of the other investors’ capital managed by Onex Credit. 14 Onex Corporation December 31, 2014 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 Growth in other investors’ capital under management The amount of other investors’ capital under management will fluctuate as new capital is raised and existing investments are realized. The amount of other investors’ capital under management increased by approxi- mately $1.2 billion during 2014 due primarily to: • • $2.3 billion of additional committed capital raised for Onex Partners IV during the ﬁrst half of 2014; an increase of $1.6 billion from Onex Credit primarily from the creation of three Collateralized Loan Obli- gations (“CLOs”) by Onex Credit; and • $1.3 billion of a net increase in the fair value of Onex Partners and ONCAP investments managed for the other investors. Partially offsetting these increases in other investors’ capital during 2014 were distributions to investors of $4.2 billion. Going forward, one of Onex’ long-term goals is to grow its fee-generating capital by 10 percent per annum. During the year ended December 31, 2014, fee-generating capital under management grew by 13 percent, or $1.5 billion. In 2012, Onex began investing capital in Onex Credit’s CLO platform to support its growth. In addition, Onex believes the Onex Credit CLOs generate attractive risk-adjusted returns on Onex capital. To date, Onex Credit has closed seven CLOs, with offerings of securities and loans totalling approximately $3.8 billion. At December 31, 2014, other investors’ capital under management related to these CLOs was $3.5 billion. Through December 31, 2014, Onex had invested $321 million in Onex Credit CLOs and the warehouse facility for its eighth CLO, with a net investment of $234 million after $87 million was realized through subsequent dispositions and distributions. Including the change in value of its remaining holdings, Onex’ investments in CLOs outstanding for at least one year have generated a 10 percent internal rate of return as of December 31, 2014. Onex expects to continue invest- ing in CLOs as Onex Credit grows this part of its business. At December 31, 2014, Onex’ share of the unrealized carried interest on Onex Partners’ and ONCAP’s operat- ing businesses was $115 million based on the fair values. The amount of unrealized carried interest on Onex Partners’ and ONCAP’s businesses has decreased since December 31, 2013 due primarily to $171 million of car- ried interest received by Onex in 2014. The actual amount of carried interest realized by Onex will depend on the ultimate performance of each Fund. Private equity fund performance The ability to raise new capital commitments is dependent upon general economic conditions and the track record or success Onex has achieved with the management and investment of prior funds. The following table summarizes the performance of the Onex Partners and ONCAP Funds from inception through December 31, 2014. The gross internal rate of return (“Gross IRR”) shows the investment returns achieved on the invest- ments 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 multiple of capital (“Gross MOC”) shows the Funds’ total value as a multiple of capital invested. 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. Onex Corporation December 31, 2014 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 Funds Onex Partners LP Onex Partners II LP Onex Partners III LP Onex Partners IV LP(3) ONCAP L.P.(4)(5) ONCAP II L.P.(4) ONCAP III LP(4) Performance Returns(1) Vintage Gross IRR Net IRR(2) Gross MOC Net MOC (2) 2003 2006 2009 2014 1999 2006 2011 55% 18% 19% – 43% 31% 26% 38% 14% 11% – 33% 22% 15% 4.0x 2.4x 1.5x 1.0x 4.1x 3.6x 1.7x 3.1x 2.0x 1.4x 0.7x 3.1x 2.6x 1.3x (1) Performance returns are a non-GAAP measure. (2) 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. (3) Performance reflects the short operating period of Onex Partners IV LP. Cash outflows occurred in August and December 2014 to fund management fees and expenses and the first investment was made in December 2014. The Gross IRR and Net IRR are not presented as they are not meaningful due to the short operating period of Onex Partners IV LP. (4) Returns are calculated in Canadian dollars, the functional currency of the ONCAP Funds. (5) ONCAP L.P. was dissolved effective October 31, 2012 as all investments had been realized. Have value creation reﬂected in Onex’ share price Our goal is 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. In May 2014, Onex announced that it would be increasing its quarterly dividend by 33 percent to C$0.05 per Subordinate Voting Share beginning in July 2014. This increase follows a 36 percent increase in the dividend rate in May 2013 and reflects Onex’ success and ongoing commitment to its shareholders. During 2014, $17 million was returned to shareholders through dividends and Onex repurchased 2,593,986 Subordinate Voting Shares at a total cost of $150 million (C$163 million), or an average purchase price of C$62.98 per share. At December 31, 2014, Onex’ Subordinate Voting Shares closed at C$67.46, an 18 percent increase from December 31, 2013. This compares to a 7 percent increase in the S&P/TSX Composite Index (“TSX”). 16 Onex Corporation December 31, 2014 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 chart below shows the performance of Onex’ Subordinate Voting Shares during 2014 relative to the TSX. Twelve Months’ Onex Relative Performance (December 31, 2013 to December 31, 2014) OCX TSX 3 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 125 120 115 110 105 100 95 90 OCX +18% TSX +7% 31-Dec-13 28-Feb-14 30-Apr-14 30-Jun-14 31-Aug-14 31-Oct-14 31-Dec-14 As a substantial portion of Onex’ investments are denominated in U.S. dollars, Onex’ Canadian dollar share price will also be impacted by the change in the exchange rate between the U.S. dollar and Canadian dollar. During 2014, Onex’ Subordinate Voting Shares increased by 8 percent in U.S. dollars as the U.S. dollar strengthened by 9 percent versus the Canadian dollar. This compares to an 11 percent increase in the Standard & Poor’s 500 Index (“S&P 500”). The chart below shows the performance of Onex’ Subordinate Voting Shares in U.S. dollars during 2014 relative to the S&P 500. Twelve Months’ Onex Relative Performance (December 31, 2013 to December 31, 2014) OCX (USD) S&P 500 3 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 125 120 115 110 105 100 95 90 S&P 500 +11% OCX +8% 31-Dec-13 28-Feb-14 30-Apr-14 30-Jun-14 31-Aug-14 31-Oct-14 31-Dec-14 Onex Corporation December 31, 2014 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 INDUSTRY SEGMENTS At December 31, 2014, Onex had eight reportable industry segments. In August 2014, Skilled Healthcare Group entered into an agreement to combine with Genesis HealthCare. The transaction was com- pleted in February 2015 and resulted in a loss of control by the Onex Partners I Group. The results of operations of Skilled Healthcare Group, which were previously included in the healthcare segment, are now presented in the other businesses segment as discontinued operations. As a result of trans- actions completed during 2014, the insurance services segment, consisting of USI and York, and the credit strategies segment, consisting of (i) Onex Credit Manager, (ii) Onex Credit Collateralized Loan Obligations and (iii) Onex Credit Funds, became reportable industry segments. In addition, Carestream Health, Inc. (“Carestream Health”) and ResCare, which were previously both included in the healthcare segment, are now recorded in the healthcare imaging segment and the health and human services segment, respectively. Comparative results have been restated to reflect these changes. A description of our operating businesses by industry segment, and the economic and voting ownerships of Onex, the parent company, and its limited partners in those businesses, is presented below and in the pages that follow. 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: 17.9 million(a) Onex’ & Limited Partners’ Economic Ownership Onex’ Economic/ Voting Ownership 10%(a) 10%(a)/75% Healthcare Imaging Carestream Health, Inc., a global provider of medical and dental imaging and healthcare information technology solutions (website: www.carestream.com). 91% 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 Health and Human Services Customer Care Services 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 at cost: $41 million Onex Partners I portion subject to a carried interest: $61 million Onex Partners III portion subject to a carried interest: $94 million SITEL Worldwide Corporation, a global provider of outsourced customer care services (website: www.sitel.com). 86%(b) 86%(b)/89% Onex investment at original cost: $320 million (a) Excludes shares held in connection with the MIP. (b) The economic ownership interests of Sitel Worldwide are presented based on preferred shareholdings. 18 Onex Corporation December 31, 2014 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 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: $985 million Onex portion at cost: $244 million Onex Partners III portion subject to a carried interest: $609 million Onex’ & Limited Partners’ Economic Ownership Onex’ Economic/ Voting Ownership 81%(a) 20%(a)/81%(a) Insurance Services USI Insurance Services, a leading U.S. provider of insurance brokerage services (website: www.usi.biz). 89% 25%/100% 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 York Risk Services Holding Corp., an integrated provider of insurance solutions to property, casualty and workers’ compensation specialty markets in the United States (website: www.yorkrsg.com). Total Onex, Onex Partners III, certain limited partners, Onex management and others investment at original cost: $521 million Onex portion at cost: $173 million Onex Partners III portion subject to a carried interest: $279 million Onex Credit Strategies, a platform that is comprised of: 88% 29%/100% Onex Credit Manager specializes in managing credit-related investments, including event-driven, long/short and market dislocation strategies. 70%(b) 70%(b)/50%(b) Onex Credit Collateralized Loan Obligations, leveraged structured vehicles that hold a widely diversiﬁed collateral asset portfolio that is funded through the issuance of long-term debt in a series of rated tranches of secured notes and equity. Total Onex investment in collateralized loan obligations and the warehouse facility for Onex Credit CLO-8 at market: $237 million Onex Credit Funds, investment funds providing unit holders with exposure to the performance of actively managed, diversiﬁed portfolios. Total Onex investment in Onex Credit Funds at market: $475 million Includes $346 million in a segregated Onex Credit unleveraged senior secured loan portfolio. Advanced Integration Technology, a leading provider of automation and tooling, maintenance services and aircraft components to the aerospace industry (website: www.aint.com). Total Onex, Onex Partners IV and Onex management investment at original cost: $204 million Onex portion: $45 million Onex Partners IV portion subject to a carried interest: $142 million 40% 9%/50%(c) Credit Strategies Other Businesses • Aerospace Automation, Tooling and Components (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 includes convertible preferred shares. (b) This represents Onex’ share of the Onex Credit asset management platform at December 31, 2014. In January 2015, Onex acquired control of the Onex Credit asset management platform. (c) 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. Onex Corporation December 31, 2014 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 Industry Segments Other Businesses (cont’d) • Aircraft Leasing & Management Companies Onex’ & Limited Partners’ Economic Ownership Onex’ Economic/ Voting Ownership Aircraft Leasing & Management, a global platform dedicated to leasing and managing commercial jet aircraft. The platform is comprised of: BBAM Limited Partnership, one of the world’s leading managers of commercial jet aircraft (website: www.bbam.com). 50% 13%/50%(a) 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 Included with the investment in BBAM Limited Partnership is an investment of $20 million made concurrently in FLY Leasing Limited (NYSE: FLY) by the Onex Partners III Group, of which Onex’ share was $5 million. Meridian Aviation Partners Limited and afﬁliates, an aircraft investment company established by the Onex Partners III Group. Total Onex, Onex Partners III and Onex management investment at original cost: $77 million Onex portion: $19 million Onex Partners III portion subject to a carried interest: $54 million 100% 25%/100% • Business Services/ Tradeshows • Plastics Processing Equipment • Business Services/ Packaging 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: $490 million Onex portion: $119 million Onex Partners III portion subject to a carried interest: $345 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(b) Onex portion: $92 million(b) Onex Partners III portion subject to a carried interest: $257 million(b) 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 (a) 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. (b) 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. 20 Onex Corporation December 31, 2014 M A N A G E M E N T ’ S D I S C U S S I O N A N D A N A LY S I S Onex’ & Limited Partners’ Economic Ownership Onex’ Economic/ Voting Ownership Companies 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% Industry Segments Other Businesses (cont’d) • Gaming 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 • Healthcare (Discontinued Operation) Skilled Healthcare Group, Inc.(a) (NYSE: SKH), an organization of skilled nursing and assisted living facilities operators in the United States (website: www.skilledhealthcaregroup.com). Onex shares held: 3.5 million(a) Onex Partners I shares subject to a carried interest: 10.7 million(a) • 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). 39%(a) 9%(a)/86%(a) ONCAP II 100% 46%(b)/100% ONCAP II actively manages investments in EnGlobe (www.englobecorp.com), CiCi’s Pizza (www.cicispizza.com), Pinnacle Renewable Energy Group (www.pinnaclepellet.com) and PURE Canadian Gaming (www.purecanadiangaming.com). Total ONCAP II, Onex, Onex management and ONCAP management unrealized investments at original cost: $264 million (C$271 million) Onex portion: $122 million (C$126 million) ONCAP II portion: $117 million (C$121 million) ONCAP III ONCAP III actively manages investments in Hopkins (www.hopkinsmfg.com), PURE Canadian Gaming (www.purecanadiangaming.com), Davis-Standard (www.davis-standard.com), Bradshaw (www.goodcook.com) and Mavis Discount Tire (www.mavistire.com). Total ONCAP III, Onex, Onex management and ONCAP management unrealized investments at original cost: $355 million (C$369 million) Onex portion : $104 million (C$108 million) ONCAP III portion : $217 million (C$225 million) 100% 29%/100% • Real Estate Flushing Town Center, a three million-square-foot development located on approximately 14 acres in Flushing, New York. 88% 88%/100% Onex’ remaining investment in Flushing Town Center at cost: $260 million (a) Skilled Healthcare Group combined with Genesis HealthCare in February 2015 to form Genesis Healthcare. Information at December 31, 2014 reflects ownership prior to the combination. Following the combination, the Onex Partners I Group has a 10 percent economic interest in Genesis Healthcare. Onex’ economic and voting interest in Genesis Healthcare is 2 percent and 10 percent, respectively. (b) This represents Onex’ blended economic ownership in the ONCAP II investments. Onex Corporation December 31, 2014 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 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, 2014 compared to those for the year ended December 31, 2013 and, in selected areas, to those for the year ended December 31, 2012. 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 Critical accounting policies and estimates This section should be read in conjunction with Onex’ audited annual consolidated statements of earnings and corresponding notes thereto. Changes in accounting policies Effective January 1, 2014, Onex has adopted the following new and revised standards, along with any consequential amendments. These changes were made in accordance with the applicable transitional provisions. 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 Interests in Other Entities, and IAS 27, Separate Financial Statements, to include an exception to the consolidation requirements for investment entities as deﬁned in the amendments issued by the IASB. Onex determined that the adoption of these amendments on January 1, 2014 did not result in any change in the consolidation status of any of its subsidiaries and investees. 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 by a government in accordance with legislation. IFRIC 21 clariﬁes that a levy is recognized as a liability when the obligating event that triggers payment, as speciﬁed in the legislation, has occurred. Onex adopted IFRIC 21 on January 1, 2014 and its effects on the audited annual con- solidated ﬁnancial statements were not signiﬁcant. Signiﬁcant accounting estimates and judgements 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 revenue 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 intangi- ble assets, revenue recognition under contract accounting, income taxes, the fair value of investments in joint ventures and associates, the fair value of Limited Partners’ Interests, stock-based compensation, pension and post-employment beneﬁts, warranty provisions, restructuring provisions, legal contingencies and other matters. Actual results could differ materially from those assumptions and estimates. Signiﬁcant judgements are used in the determi- nation of fair value for business combinations, Limited Partners’ Interests, carried interest and investments in joint ventures and associates. Onex has used signiﬁcant judge- ments when determining control of structured entities. The assessment of goodwill, intangible assets and long-lived assets for impairment, income taxes, legal contingencies and actuarial valuations of pension and other post-retire- ment beneﬁts also requires the use of signiﬁcant judge- ments by Onex and its operating companies. Due to the material nature of these factors, they are discussed here in greater detail. 22 Onex Corporation December 31, 2014 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, substantially all identiﬁable the trading multiples of public companies considered com- parable to the private companies being valued. The valua- assets, liabilities and contingent liabilities acquired are tions take into consideration company-speciﬁc items, the recorded at the date of acquisition at their respective fair lack of liquidity inherent in a non-public investment and values. One of the most signiﬁcant estimates relates to the the fact that comparable public companies are not identi- determination of the fair value of these assets and liabilities. cal to the companies being valued. Such considerations are Land, buildings and equipment are usually independently necessary because, in the absence of a committed buyer appraised while short-term investments are valued at mar- and completion of due diligence procedures, there may be ket prices. If any intangible assets are identiﬁed, depend- company-speciﬁc items that are not fully known that may ing on the type of intangible asset and the complexity of affect value. A variety of additional factors are reviewed determining its fair value, an independent external valu- by management, including, but not limited to, ﬁnancing ation expert may develop the fair value. These valuations and sales transactions with third parties, current operat- are linked closely to the assumptions made by management ing performance and future expectations of the particular regarding the future performance of the assets concerned investment, changes in market outlook and the third-party and any changes in the discount rate applied. Note 2 to the ﬁnancing environment. In determining changes to the fair audited annual consolidated ﬁnancial statements provides value of investments, emphasis is placed on current com- additional disclosure on business combinations. pany performance and market conditions. For publicly traded investments, the valuation is Limited Partners’ Interests, carried interest based on closing market prices less adjustments, if any, for and investments in joint ventures and associates The measurement of the Limited Partners’ Interests, carried regulatory and/or contractual sale restrictions. The changes to fair value of the investments in interest and investments in joint ventures and associates is joint ventures and associates are reviewed on page 40 of signiﬁcantly impacted by the fair values of the investments this MD&A. held by the Onex Partners and ONCAP Funds. Joint ventures Included in the measurement of the Limited Part- and associates are deﬁned under IFRS as those investments ners’ Interests is an adjustment for the change in carried in operating businesses over which Onex has joint control interest as well as any contributions by and distributions to or signiﬁcant influence, but not control. In accordance with limited partners in the Onex Partners and ONCAP Funds. IFRS, certain of these investments are designated, upon ini- The changes to the fair value of the Limited Partners’ tial recognition, at fair value in the consolidated balance Interests are reviewed on page 45 of this MD&A. sheets. The fair value of investments in joint ventures and associates is assessed at each reporting date with changes in fair value recognized in the consolidated statements of Consolidation of structured entities Onex indirectly controls and consolidates the operations earnings. Similarly, the Limited Partners’ Interests, repre- of the CLOs of Onex Credit. The CLOs are structured enti- senting the interests of limited partner investors in the Onex ties for which voting and similar rights are not the domi- Partners and ONCAP Funds, and carried interest, represent- nant factor in determining control of the CLOs. Onex has ing the General Partner’s share of the net gains of the Onex used judgement when assessing the many factors to deter- Partners and ONCAP Funds, are recorded at fair value. The mine control, including its exposure through investments fair value is signiﬁcantly affected by the change in the fair in the most subordinate capital of the CLOs, its role in the value of the underlying investments in the Onex Partners formation of the CLOs, the rights of other investors in the and ONCAP Funds. CLOs and its joint control of the asset manager of the CLOs The valuation of non-public investments requires as at December 31, 2014 and 2013. Onex has determined signiﬁcant judgement by Onex due to the absence of that it is a principal of the CLOs with the power to affect quoted market values, inherent lack of liquidity and the the returns of its investment and, as a result, indirectly long-term nature of such investments. Valuation method- controls the CLOs. ologies include discounted cash flows and observations of CLOs are further discussed in note 1 to the audited annual consolidated ﬁnancial statements. Onex Corporation December 31, 2014 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 Impairment testing of goodwill, intangible assets During 2014, certain of the operating companies and long-lived assets Goodwill in an accounting context represents the excess recorded charges for impairments of goodwill, intangible assets and long-lived assets. These charges are reviewed on of the aggregate consideration paid and the amount of any page 45 of this MD&A and in note 24 to the audited annual non-controlling interests in the acquired company com- consolidated ﬁnancial statements. pared to the fair value of the identiﬁable net assets acquired. Essentially all of the goodwill amount that appears in Onex’ Revenue recognition (Health and consolidated balance sheets was recorded by the operat- ing companies. Goodwill is not amortized, but is assessed Human Services segment) Revenues for ResCare in the health and human services seg- for impairment at the cash generating unit (“CGU”) level (or ment are substantially derived from U.S. federal, state and group of CGUs) annually, or sooner if events or changes in local government agency programs, including Medicaid. circumstances or market conditions indicate that the car- Laws and regulations under these programs are com- rying amount could exceed fair value. The test for goodwill plex and subject to interpretation. Management may be impairment used by our operating companies is to assess required to exercise judgement for the recognition of rev- whether the fair value of each CGU within an operating enue under these programs. Management of ResCare company is less than its carrying value and then determine believes that they are in compliance with all applicable laws if the goodwill associated with that CGU is impaired. This and regulations. Compliance with such laws and regula- assessment takes into consideration several factors, includ- tions is subject to ongoing and future government review ing, but not limited to, future cash flows and market con- and interpretation, including the possibility of processing ditions. If the fair value is determined to be lower than the claims at lower amounts upon audit, as well as signiﬁcant carrying value at an individual CGU, goodwill is then con- regulatory action including revenue adjustments, ﬁnes, sidered to be impaired and an impairment charge must penalties and exclusion from programs. Government agen- be recognized. Each operating company has developed its cies may condition their contracts upon a sufﬁcient bud- own internal valuation model to determine fair value. These getary appropriation. If a government agency does not models are subjective and require management of the par- receive an appropriation sufﬁcient to cover its contractual ticular operating company to exercise judgement in making obligations, it may terminate the contract or defer or reduce assumptions about future results, including revenues, oper- reimbursements to be received by the company. In addi- ating expenses, capital expenditures and discount rates. The tion, previously appropriated funds could also be reduced impairment test for intangible assets and long-lived assets or eliminated through subsequent legislation. with limited lives is similar to that for goodwill. Under IFRS, impairment charges for intangible assets and long-lived assets may subsequently be reversed if fair value is deter- Income taxes Onex, including its operating companies, is subject to mined to be higher than carrying value. The reversal is lim- changing tax laws and the interpretation of existing tax laws ited, however, to restoring the carrying amount that would in multiple jurisdictions. Signiﬁcant judgement is necessary have been determined, net of amortization, had no impair- in determining worldwide income tax liabilities. Although ment loss been recognized in prior periods. Impairment management of Onex and the operating companies believe losses for goodwill are not reversed in future periods. that they have made reasonable estimates about the ﬁnal Impairment charges recorded by the operating outcome of tax uncertainties, no assurance can be given businesses under IFRS may not impact the fair values of that the outcome of these tax matters will be consistent the operating businesses used in determining the increase with what is reflected in the historical income tax provi- or decrease in investments in joint ventures and associ- sions. Such differences could have an effect on the income ates, the change in carried interest and for calculating the tax liabilities and deferred tax liabilities in the period in Limited Partners’ Interests liability. Fair values of the oper- which such determinations are made. At each balance ating businesses are assessed at the enterprise level, while sheet date, management of Onex and the operating com- impairment charges are assessed at the asset or CGU level panies assess whether the realization of future tax beneﬁts (or group of CGUs). is sufﬁciently probable to recognize deferred tax assets. 24 Onex Corporation December 31, 2014 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 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 opera- tions. 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 posi- tion, results of operations or cash flows. The ﬁling or dis- closure of a suit or formal assertion of a claim does not automatically indicate that a provision may be appropriate. Management, with the assistance of internal and external lawyers, regularly analyzes current information about these matters and provides provisions for probable contingent losses, including the estimate of legal expenses to resolve these matters. Employee beneﬁts Onex, the parent company, does not have a pension plan; however, certain of its operating companies do. Management of the operating companies use actuarial val- uations to account for their pension and other post-retire- ment beneﬁts. These valuations rely on statistical and other factors in order to anticipate future events. These factors include key actuarial assumptions such as the discount rate, expected salary increases and mortality rates. These actuar- ial assumptions may differ signiﬁcantly from actual devel- opments due to changing market and economic conditions, and therefore may result in a signiﬁcant change in post- retirement employee beneﬁt obligations and the related future expense in the audited annual consolidated ﬁnancial statements. Note 31 to the audited annual consolidated ﬁnancial statements provides details on the estimates used in accounting for pensions and post-retirement beneﬁts. Revenue from Contracts with Customers In May 2014, the IASB issued IFRS 15, Revenue from Con tracts with Customers, which provides a comprehensive ﬁve-step revenue recognition model for all contracts with customers. IFRS 15 requires management to exercise sig- niﬁcant judgement and make estimates that affect revenue recognition. IFRS 15 is effective for annual periods begin- ning on or after January 1, 2017, with earlier application per- mitted. Onex is currently evaluating the impact of adopting this standard on its audited annual consolidated ﬁnancial statements. Financial Instruments In July 2014, the IASB issued a ﬁnal version of IFRS 9, Finan cial Instruments, which replaces IAS 39, Financial Instru ments: Recognition and Measurement, and supersedes all previous versions of the standard. The standard intro- duces a new model for the classiﬁcation and measurement of ﬁnancial assets and liabilities, a single expected credit loss model for the measurement of the impairment of ﬁnancial assets and a new model for hedge accounting that is aligned with a company’s risk management activities. IFRS 9 is effective for annual periods beginning on or after January 1, 2018, with earlier application permitted. The Company is currently evaluating the impact of adopting this standard on its audited annual consolidated ﬁnancial statements. Variability of results Onex’ audited annual consolidated operating results may vary substantially from quarter to quarter and year to year for a number of reasons, including some of the following: the current economic environment; acquisitions or dis- positions of businesses by Onex, the parent company; the change in value of stock-based compensation for both the parent company and its operating companies; changes in the market value of Onex’ publicly traded operating busi- nesses; changes in the fair value of Onex’ privately held operating businesses; changes in tax legislation or in the application of tax legislation; and activities at Onex’ oper- ating businesses. These activities may include the pur- chase or sale of businesses; fluctuations in customer demand, materials and employee-related costs; changes in the mix of products and services produced or deliv- ered; changes in the ﬁnancing of the business; changes in Onex Corporation December 31, 2014 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 contract accounting estimates; impairments of goodwill, Partners investments at fair value. Changes in fair value intangible assets or long-lived assets; litigation; charges up to the June 2014 secondary offering and share repur- to restructure operations; and natural disasters. Given the chase were recorded as increases or decreases in the value diversity of Onex’ operating businesses, the associated of investments in joint ventures and associates at fair value exposures, risks and contingencies may be many, varied while changes in fair value subsequent to the June 2014 and material. secondary offering and share repurchase were recorded in Signiﬁcant transactions Transactions in this section are presented in chronological order by investment. other items. In September 2014, Allison Transmission com- pleted a secondary offering of 5.4 million shares of com- mon stock. As part of the offering, the Onex Partners II Group sold its remaining 2.7 million shares of common Emerald Expositions’ acquisition of stock. The Onex Partners II Group received net proceeds George Little Management, LLC In January 2014, Emerald Expositions acquired GLM for of $82 million for its 2.7 million shares of common stock, of which Onex’ portion was $26 million, including car- cash consideration of $332 million. GLM is an operator of ried interest of $2 million and after the reduction for the business-to-business tradeshows in the United States. The amounts paid on account of the MIP. acquisition of GLM is consistent with Onex’ investment the- Onex’ investment in Allison Transmission was sis for Emerald Expositions: to grow the business through recorded at fair value in the audited annual consolidated accretive add-on acquisitions of smaller exhibition busi- balance sheets, with changes in fair value recognized in the nesses in existing and adjacent end markets. In conjunction audited annual consolidated statements of earnings. The with this acquisition, the Onex Partners III Group invested realized gain on the transactions completed during 2014 an additional $140 million in Emerald Expositions, of totalled $1.1 billion. The limited partners’ share of the real- which Onex’ share was $34 million. The balance of the pur- ized gain was $727 million and Onex’ share was $329 mil- chase price and transaction costs was funded by Emerald lion. Amounts received related to the carried interest Expositions through an increase to its credit facility. totalled $94 million, of which Onex’ portion was $38 mil- Sale of Allison Transmission From February through June 2014, Allison Transmission lion and Onex management’s portion was $56 million. Amounts paid on account of the MIP totalled $38 million, which represents amounts received for transactions com- completed secondary offerings to the public of 85.57 mil- pleted during 2014 as well as a share of the proceeds from lion shares of common stock and repurchased 8.43 million previous sales and dividends received by Onex. shares of common stock. As part of the offerings and share Including prior realizations and dividends, the repurchases, the Onex Partners II Group sold 47.0 million Onex Partners II Group received total net proceeds of shares of common stock. The offering was priced at between $2.4 billion compared to its original investment of $763 mil- $29.17 and $29.95 per share compared to Onex’ cash cost per lion. Onex received total net proceeds of approximately share of $8.44. The Onex Partners II Group received net pro- $770 million, including prior realizations, compared to its ceeds of $1.4 billion for its 47.0 million shares of common original investment of $237 million. stock. Onex’ portion of the net proceeds was $433 million, including carried interest of $36 million and after the reduc- tion for the amounts paid on account of the MIP. Sale of Spirit AeroSystems In March 2014, under a secondary public offering of Spirit After the June 2014 secondary offering and share AeroSystems, the Onex Partners I Group sold 6.0 mil- repurchase, the Onex Partners II Group continued to own lion shares of Spirit AeroSystems at a price of $28.52 per 2.7 million shares of common stock, or approximately share compared to Onex’ original cost of $3.33 per share. 2 percent in the aggregate, of Allison Transmission’s out- The Onex Partners I Group received net cash proceeds of standing common stock, which did not represent a signiﬁ- $171 million. Onex, the parent company, sold approxi- cant influence over Allison Transmission. As a result, Onex mately 1.6 million shares in this offering for net proceeds of recorded its remaining investment within other Onex $52 million, including carried interest and after the reduc- tion for the amounts paid on account of the MIP. Spirit 26 Onex Corporation December 31, 2014 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 AeroSystems did not issue any new shares as part of this carrying value of the investment. The portion of the gain offering. Amounts received related to the carried interest associated with measuring the interest retained in Spirit totalled $16 million, of which Onex’ portion was $6 mil- AeroSystems at fair value was $159 million. The portion of lion and Onex management’s portion was $10 million. the gain associated with the shares sold in the June 2014 Management of Onex earned $4 million on account of this secondary offering and share repurchase was $151 million. transaction related to the MIP. The operations of Spirit AeroSystems up to June 4, 2014 and After the March 2014 secondary offering, the Onex the gain recorded on the sale are presented as discontin- Partners I Group continued to hold approximately 16 mil- ued in the December 31, 2014 audited annual consolidated lion shares of Spirit AeroSystems’ common stock, which statements of earnings and cash flows and the prior period represented a 55 percent voting interest in the com- results have been restated to report Spirit AeroSystems as pany. Since the secondary offering did not result in a loss discontinued on a comparative basis. The remaining inter- of voting control of Spirit AeroSystems at the time of the est held by the Onex Partners I Group was recorded as a transaction, it was recorded in the audited annual consoli- long-term investment at fair value through earnings, with dated ﬁnancial statements as a transfer of equity to non- changes in fair value recorded in other items. controlling interests, with the net cash proceeds received In August 2014, under a secondary public offer- in excess of the historical accounting carrying value of ing of Spirit AeroSystems, the Onex Partners I Group sold $102 million being recorded directly to retained earnings. its remaining 8.4 million shares of Spirit AeroSystems, of Of the net $102 million recorded directly to retained earn- which Onex’ portion was approximately 2.2 million shares. ings, $30 million represents Onex’ share, excluding the The offering was completed at a price of $35.67 per share, impact of the limited partners. or a multiple of 10.7 times Onex’ original cost of $3.33 per On June 4, 2014, under a secondary public offer- share in Spirit AeroSystems. The sale was completed for ing and share repurchase of Spirit AeroSystems, the Onex net proceeds of $300 million, of which Onex’ share was Partners I Group sold 8.0 million shares of Spirit Aero Sys- $91 million, including carried interest and after the reduc- tems, of which Onex’ portion was approximately 2.1 mil- tion for the amounts paid on account of the MIP. The lion shares. The offering was completed at a price of $32.31 change in fair value from the June transaction to the sale per share compared to Onex’ original cost of $3.33 per share in August of $29 million is recognized in other items in the in Spirit AeroSystems. The sale was completed for net pro- audited annual consolidated statements of earnings. ceeds of $258 million, of which Onex’ share was $79 million, Amounts received from the August 2014 secondary including carried interest and after the reduction for the offering related to the carried interest totalled $28 million, amounts paid on account of the MIP. of which Onex’ portion was $11 million and Onex man- Amounts received from the June 4, 2014 second- agement’s portion was $17 million. Management of Onex ary offering and share repurchase related to the carried earned $6 million on account of this transaction related interest totalled $24 million, of which Onex’ portion was to the MIP. $10 million and Onex management’s portion was $14 mil- Including prior realizations, the Onex Partners I lion. Management of Onex earned $6 million on account of Group received total net proceeds of $3.2 billion compared this transaction related to the MIP. to its original investment of $375 million. Onex received After the June 2014 offering, the Onex Partners I total net proceeds of approximately $1.0 billion, including Group continued to hold 8.4 million shares of Spirit Aero- prior realizations, compared to its original investment of Systems’ common stock, which represented a 6 percent $108 million. economic interest in the company. The reduction in owner- ship resulted in the Onex Partners I Group losing its multi- ple voting rights, which reduced its voting interest in Spirit Investment in common stock of JELD-WEN In March 2014, the Onex Partners III Group invested $66 mil- AeroSystems to 6 percent from 55 percent and resulted in a lion to acquire common stock of JELD-WEN from existing loss of control of Spirit AeroSystems by Onex. As a result, a shareholders unrelated to Onex. Onex’ share of that invest- gain of $310 million was recorded in Onex’ audited annual ment was $16 million. In August 2014, the Onex Partners III consolidated ﬁnancial statements based on the excess of Group sold a portion of the common stock purchased in the proceeds and interest retained at fair value over the March 2014 to certain members of JELD-WEN management Onex Corporation December 31, 2014 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 for $1 million, of which Onex’ share was less than $1 mil- Including prior distributions of $403 million, the lion. JELD-WEN did not receive any proceeds and the total Onex Partners I and Onex Partners II Groups received total number of shares of JELD-WEN common stock outstanding net proceeds of $1.529 billion compared to their original did not change as a result of these transactions. These trans- investment of $498 million. Onex received total net proceeds actions are recorded as a transfer of equity from the non- of $509 million, including prior distributions of $127 million, controlling interests within the audited annual consolidated compared to its original investment of $157 million. statements of equity. The excess of the carrying value of the transfer of equity over the net investment was recorded as an increase directly to retained earnings. As a result of these Sale of Tomkins In April 2014, Onex, together with CPPIB, entered into an transactions, the Onex Partners III Group’s as-converted agreement to sell Gates, Tomkins’ principal remaining busi- economic interest in JELD-WEN at the date of the trans- ness. The sale was completed in July 2014 for an enterprise action increased to 79 percent from 72 percent and Onex’ value of $5.4 billion. Proceeds from the sale to the Onex as-converted economic ownership increased to 20 percent Partners III Group were $2.0 billion. Onex’ share of the from 18 percent. Sale of The Warranty Group In March 2014, the Company entered into an agreement to proceeds was $542 million, including carried interest and after the reduction for the amounts on account of the MIP. Onex’ investment in Gates was recorded at fair value in the audited annual consolidated balance sheets, with changes sell The Warranty Group for an enterprise value of approxi- in fair value recognized in the audited annual consolidated mately $1.5 billion. The sale was completed in August 2014. statements of earnings. Included in these proceeds to the The Onex Partners I and Onex Partners II Groups received Onex Partners III Group was $27 million held in escrow net proceeds of $1.126 billion, resulting in a gain of $368 mil- primarily for working capital adjustments, of which Onex’ lion. Onex’ portion of the proceeds was $382 million, includ- share was $7 million. In September 2014, $30 million was ing carried interest of $51 million and after the reduction for received for amounts held in escrow and an additional the amounts paid on account of the MIP. Onex’ consolidated amount as a closing adjustment, of which Onex’ share was results include a gain of $368 million related to the sale $8 million, including carried interest and after the reduc- based on the excess of the proceeds over the carrying value tion for the amounts paid on account of the MIP. of the investment. The gain is entirely attributable to the After the sale of Gates, the Onex Partners III Group equity holders of Onex. This gain includes the portion attrib- continued to own residual assets of Tomkins. Through utable to Onex’ investment, as well as that of the limited December 2014, the Onex Partners III Group sold the resid- partners of Onex Partners I and Onex Partners II. The effect ual assets for proceeds of $46 million. Included in the pro- of this is to recover the prior charges to Onex’ consolidated ceeds amount is $7 million, which is expected to be received earnings for The Warranty Group value increases allocated in the ﬁrst half of 2015, of which Onex’ share is $2 million. to the limited partners over the life of the investment, which The realized gain on Tomkins, including a prior dis- totalled $252 million. The balance of $116 million reflects tribution, totalled $1.5 billion. The limited partners’ share the gain on Onex’ investment in The Warranty Group. As a of the realized gain was $1.1 billion and Onex’ share was result of this sale, the operations of The Warranty Group and $386 million. Amounts received on account of the car- the gain recorded on the sale are presented as discontinued ried interest related to the transactions during 2014 totalled in the audited annual consolidated statements of earnings $136 million, of which Onex’ portion was $54 million and and cash flows and prior period results have been restated to Onex management’s portion was $82 million. Management report The Warranty Group as discontinued on a compara- of Onex earned $28 million on account of these transactions tive basis. related to the MIP. Amounts received on account of the carried inter- Including prior distributions from Tomkins, the est related to this transaction totalled $127 million. Onex’ Onex Partners III Group will have received total proceeds of portion of the carried interest received was $51 million and $2.7 billion compared to its original investment of $1.2 bil- Onex management’s portion of the carried interest was lion. Onex will have received total proceeds of $727 million, $76 million. Management of Onex earned $23 million on including prior distributions of $171 million, compared to its account of this transaction related to the MIP. original investment of $315 million. 28 Onex Corporation December 31, 2014 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 distribution In April 2014, ResCare entered into a new $650 million Investment in Flushing Town Center In May 2014, Flushing Town Center entered into new credit senior secured credit facility, which is available through facilities with third-party lenders consisting of a $195 mil- April 2019. The senior secured credit facility consists of a lion mortgage loan and $70 million of mezzanine loans. The $250 million revolving credit facility, a $200 million term mortgage and mezzanine loans mature in June 2016 and loan and a $200 million delayed draw term loan. The pro- have three one-year extension options. The proceeds from ceeds from the new senior secured credit facility were used the new credit facilities, along with a $95 million equity to repay ResCare’s former senior secured credit facility, fund investment from Onex Real Estate Partners, were used to a $130 million distribution to shareholders, pay fees and repay the third-party lenders of the existing senior construc- expenses associated with the transaction and for general tion loan. Onex’ share of Onex Real Estate Partners’ equity corporate purposes. The Onex Partners I and Onex Part- investment was $84 million. At December 31, 2014, Onex ners III Groups’ portion of the distribution to shareholders Real Estate Partners continued to hold a total of $82 million, was $120 million, of which Onex’ portion was $25 million. including accrued interest, of the existing senior construc- USI’s acquisition of brokerage and consulting ofﬁces In May 2014, USI acquired 40 insurance brokerage and con- tion and mezzanine loans of Flushing Town Center, which are subordinate to the new credit facilities. In addition, Onex Real Estate Partners invested sulting ofﬁces across the United States from Wells Fargo $13 million in the equity of Flushing Town Center during Insurance. The purchase price for the acquisition was 2014 to support pre-development costs of three residential $133 million, which was ﬁnanced with a $125 million incre- buildings. Onex’ share of Onex Real Estate Partners’ equity mental term loan and cash from USI. investment was $11 million. In October 2014, USI acquired seven retail insur- ance brokerage locations across the United States from Willis North America Inc. The purchase price for the Sale of Mister Car Wash In August 2014, the ONCAP II Group completed the sale of acquisition was $66 million, which was ﬁnanced with cash Mister Car Wash. The ONCAP II Group received net pro- from USI. ceeds of $386 million, of which Onex’ share was $153 mil- In addition, USI completed 12 other acquisitions lion, after deducting $11 million paid to management of during 2014 for total consideration of $60 million, of which Onex on account of the MIP. Included in the net proceeds $19 million was deferred consideration. amount is $3 million held in escrow and for working capital adjustments, which was received early in the fourth quar- Investment in preferred shares of Sitel Worldwide During the second quarter of 2014, Onex increased its ter of 2014, and an $8 million tax refund, which is expected to be received by August 2015. Onex’ share of the amounts investment in Sitel Worldwide to enable the company held in escrow and for working capital adjustments and to reduce debt and fund near-term capital expenditures the tax refund is $5 million. The realized gain on the sale supporting growth and efﬁciency plans. Sitel Worldwide of Mister Car Wash was $317 million based on the excess of issued $75 million of mandatorily redeemable Class D pre- the proceeds over the carrying value of the investment. The ferred shares, of which Onex’ portion was $69 million. The gain on the sale was entirely attributable to the equity hold- mandatorily redeemable Class D preferred shares accrue ers of Onex. This gain included the portion attributable to annual dividends at a rate of 16 percent and are redeem- Onex’ investment, as well as that of the limited partners of able at the option of the holder on or before July 2018. As ONCAP II. The effect of this is to recover the prior charges a result of this transaction, Onex’ economic interest in to Onex’ consolidated earnings for Mister Car Wash value Sitel Worldwide based on preferred share ownership was increases allocated to the limited partners over the life of increased to 86 percent. the investment, which totalled $177 million. The balance of Onex Corporation December 31, 2014 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 $140 million reflects the gain on Onex’ investment in Mister Car Wash. Management of ONCAP received $40 million in York acquisition In October 2014, the Onex Partners III Group acquired York, carried interest on the sale of Mister Car Wash. The impact an integrated provider of insurance solutions to property, to Onex and management of Onex was a net payment of casualty and workers’ compensation specialty markets in $7 million in carried interest to management of ONCAP. the United States, for $1.325 billion. The Onex Partners III Management of Onex received $11 million on account of Group’s equity investment in York was $521 million and this transaction related to the MIP. Mister Car Wash did not was comprised of $400 million from Onex Partners III and represent a separate major line of business and as a result $121 million as a co-investment from Onex and certain lim- has not been presented as a discontinued operation. ited partners. Onex’ total investment in York is $173 million and is comprised of $96 million through Onex Partners III Skilled Healthcare Group combination agreement In August 2014, Skilled Healthcare Group entered into an and $77 million as a co-investment. The balance of the pur- chase price was substantially ﬁnanced with debt ﬁnancing, agreement to combine with Genesis HealthCare, a leading without recourse to Onex Corporation. York is included in U.S. operator of long-term care facilities. The transaction the insurance services segment. was completed in February 2015. In accordance with the In December 2014, York acquired MCMC, a leading terms of the purchase and combination agreement, each managed care services company, for $142 million. MCMC share of Skilled Healthcare Group common stock issued is a U.S.-based company offering a variety of managed care and outstanding immediately prior to the closing of the programs that offer assistance in the assessment, review and combination was converted into shares of the newly com- evaluation of medical claims. The acquisition of MCMC was bined company. Skilled Healthcare Group shareholders ﬁnanced by York with a $45 million senior unsecured notes own approximately 26 percent of the combined company offering together with draws on its delayed draw term loan and Genesis HealthCare shareholders own the remaining and revolving credit facility and a rollover equity contribu- 74 percent of the combined company. The combined com- tion from management of MCMC. pany now operates under the Genesis Healthcare name and continues to be publicly traded (NYSE: GEN). The Onex Partners I Group has a 10 percent economic interest Investment in Mavis Discount Tire In October 2014, the ONCAP III Group acquired a 46 percent in the newly combined company compared to a 39 per- economic interest in Mavis Discount Tire. Mavis Discount cent economic ownership interest in Skilled Healthcare Tire is a leading regional tire retailer operating in the tire Group before the combination. Onex lost its multiple vot- and light vehicle service industry with over 150 retail loca- ing rights, which reduced its voting interest to 10 percent tions. The ONCAP III Group’s preferred investment was from 86 percent before the combination. Onex no longer $102 million, of which Onex’ share was $30 million. The controls Skilled Healthcare Group following the loss of investment in Mavis Discount Tire has been designated the multiple voting rights and therefore, the operations of at fair value and is included in investments in joint ven- Skilled Healthcare Group are presented as discontinued in tures and associates in Onex’ audited annual consolidated the audited annual consolidated statements of earnings and ﬁnancial statements at December 31, 2014. cash flows, and the results for December 31, 2013 have been restated to report the results of Skilled Healthcare Group as discontinued on a comparative basis. As of the February 2015 transaction date, Onex’ investment in the combined company is recorded as a long-term investment at fair value through earnings, with changes in fair value recorded in other items. 30 Onex Corporation December 31, 2014 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 Investment in AIT In December 2014, the Onex Partners IV Group acquired Pending acquisition of Survitec In January 2015, Onex agreed to acquire Survitec for an a 40 percent economic interest in AIT, a leading provider enterprise value of £450 million ($680 million). Based in the of automation and tooling, maintenance services and air- United Kingdom, Survitec is a provider of mission-critical craft components to the aerospace industry. The Onex marine, defence and aerospace survival equipment. The Partners IV Group’s investment was $204 million, of which Onex Partners IV Group will make an investment of approx- Onex’ share was $45 million. The investment in AIT has imately $320 million for substantially all of the equity, with been designated at fair value and is included in invest- the remainder of the equity to be owned by Survitec’s man- ments in joint ventures and associates in Onex’ audited agement. The balance of the purchase price will be ﬁnanced annual consolidated ﬁnancial statements at December 31, with debt ﬁnancing, without recourse to Onex Corporation. 2014. Additionally, the Company entered into a put and call The acquisition is subject to customary conditions and reg- arrangement with the existing ownership of AIT to acquire ulatory approvals and is expected to close in the ﬁrst quar- an additional 10 percent economic interest at the same rel- ter of 2015. ative value as the original investment. Pending acquisition of SIG In November 2014, Onex agreed to acquire SIG in a trans- action valued at up to €3.75 billion. On closing of the transaction, €3,575 million will be paid, less amounts for certain retained liabilities, with an additional amount of up to €175 million payable based on the ﬁnancial perfor- mance of SIG in 2015 and 2016. Based in Switzerland, SIG Onex Credit asset management platform In January 2015, Onex acquired control of the Onex Credit asset management platform. The Onex Credit asset man- agement platform was previously jointly controlled with Onex Credit’s co-founder and chief executive ofﬁcer, and Onex previously held a 70 percent economic interest in the business. Onex Credit’s management team remains in place provides beverage and food producers with a comprehen- with its chief executive ofﬁcer continuing to participate sive product portfolio of aseptic carton sleeves and clo- in the performance of the Onex Credit asset management sures, as well as the ﬁlling machines used to ﬁll, form and platform. Onex will consolidate 100 percent of the Onex seal the sleeves. The equity investment in SIG is expected Credit asset management platform with a reduced alloca- to be approximately $1.25 billion and will be comprised of tion of the net earnings to Onex Credit’s chief executive $600 million from Onex Partners IV and $650 million from ofﬁcer to be recognized as compensation expense. Onex and certain other limited partners. The balance of As a result of the above transaction, beginning the purchase price will be ﬁnanced with debt ﬁnancing, with the ﬁrst quarter of 2015, the Company will now con- without recourse to Onex Corporation. The transaction is solidate the Onex Credit asset management platform and expected to close during the ﬁrst quarter of 2015, subject to certain funds managed by Onex Credit in which Onex, the customary conditions and regulatory approvals. parent company, holds an investment. The Company’s pre- vious interest in the Onex Credit asset management plat- form was equity-accounted and will be derecognized at fair value, resulting in the recognition of a non-cash gain dur- ing the ﬁrst quarter of 2015. The consolidation of the Onex Credit asset management platform and certain of the funds managed by Onex Credit will increase Onex’ consolidated assets and liabilities. Onex Corporation December 31, 2014 31 M A N A G E M E N T ’ S D I S C U S S I O N A N D A N A LY S I S R E V I E W O F D E C E M B E R 3 1 , 2 0 1 4 C O N S O L I D A T E D F I N A N C I A L S T A T E M E N T S Consolidated revenues and cost of sales Consolidated revenues for the year ended December 31, The discussions that follow identify those material factors that affected Onex’ operating segments and Onex’ con- solidated results for the year ended December 31, 2014. We T O TA L R E V E N U E S A N D C O S T O F S A L E S ($ millions) will review the major line items to the audited annual con- 19,793 19,824 and up 13 percent from $17.4 bil- lion in 2012. Consolidated cost of sales was $14.2 billion in 2014, 22000 a decrease of 3 percent from 2014 at $19.8 billion were relatively unchanged from 2013 solidated ﬁnancial statements by segment. The operations of The Warranty Group, Spirit AeroSystems and Skilled Healthcare Group for the year ended December 31, 2014 are presented as discontinued in the audited annual consoli- dated statements of earnings and cash flows. In addition, the comparative audited annual consolidated statements of earnings and cash flows have been restated to report the results of The Warranty Group, Spirit AeroSystems, Skilled Healthcare Group and TMS International Corp. (“TMS International”) as discontinued. 17,441 $14.6 billion in 2013 and up 5 per- 17600 14,208 14,630 13,501 cent from $13.5 billion in 2012. 13200 8800 4400 0 ’14 ’13 ’12 Revenues Cost of Sales Table 1 below reports revenues and cost of sales by industry segment for the years ended December 31, 2014, 2013 and 2012. The percentage change in revenues and cost of sales for those periods is also shown. The credit strategies segment, consist- ing of (i) Onex Credit Manager, (ii) Onex Credit Collateralized Loan Obligations and (iii) Onex Credit Funds, does not have revenues or cost of sales and as such, is not presented in this section of the MD&A. Revenues and Cost of Sales by Industry Segment for the Years Ended December 31, 2014 and 2013 TABLE 1 ($ millions) Year ended December 31 Revenues Cost of Sales 2014 2013 Change 2014 2013 Change Electronics Manufacturing Services $ 5,631 $ 5,796 Healthcare Imaging(a) Health and Human Services(a) Customer Care Services Building Products Insurance Services(b) Other(c) Total 2,360 1,737 1,440 3,507 1,079 4,039 2,429 1,617 1,438 3,457 769 4,318 (3)% (3)% 7 % – 1 % 40 % (6)% $ 5,158 $ 5,337 1,369 1,307 960 2,840 – 2,574 1,444 1,197 936 2,855 – 2,861 $ 19,793 $ 19,824 – $ 14,208 $ 14,630 (3)% (5)% 9 % 3 % (1)% – (10)% (3)% Results are reported in accordance with IFRS. These results may differ from those reported by the individual operating companies. (a) The healthcare imaging segment, consisting of Carestream Health, and the health and human services segment, consisting of ResCare, were previously included within the healthcare segment, which consisted of Carestream Health, ResCare and Skilled Healthcare Group. Skilled Healthcare Group is recorded as a discontinued operation for the years ended December 31, 2014 and 2013. (b) The insurance services segment consists of USI and York. USI and York report their costs in operating expenses. USI was previously included within other. There are no comparative results for York. York began to be consolidated in October 2014, when the business was acquired by the Onex Partners III Group. (c) 2014 other includes Flushing Town Center, Tropicana Las Vegas, SGS International, KraussMaffei, Meridian Aviation, Emerald Expositions, the operating companies of ONCAP II (Mister Car Wash up to August 2014) and ONCAP III and the parent company. 2013 other includes Flushing Town Center, Tropicana Las Vegas, SGS International, KraussMaffei, Meridian Aviation (since February 2013), 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 and the parent company. 32 Onex Corporation December 31, 2014 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 Revenues and Cost of Sales by Industry Segment for the Years Ended December 31, 2013 and 2012 TABLE 1 ($ millions) Revenues Cost of Sales Year ended December 31 2013 2012 Change 2013 2012 Electronics Manufacturing Services $ 5,796 $ 6,507 (11)% $ 5,337 $ 5,988 Healthcare Imaging(a) Health and Human Services(a) Customer Care Services Building Products Insurance Services(b) Other(c) Total 2,429 1,617 1,438 3,457 769 4,318 2,406 1,599 1,429 3,168 15 2,317 $ 19,824 $ 17,441 1 % 1 % 1 % 9 % n/a 86 % 14% 1,444 1,197 936 2,855 – 2,861 1,449 1,182 920 2,561 – 1,401 $ 14,630 $ 13,501 Change (11)% – 1 % 2 % 11 % n/a 104 % 8% Results are reported in accordance with IFRS. These results may differ from those reported by the individual operating companies. (a) The healthcare imaging segment, consisting of Carestream Health, and the health and human services segment, consisting of ResCare, were previously included within the healthcare segment, which consisted of Carestream Health, ResCare, Skilled Healthcare Group and Center for Diagnostic Imaging (up to July 2012). Skilled Healthcare Group is recorded as a discontinued operation for the years ended December 31, 2013 and 2012. Center for Diagnostic Imaging is included within the other segment for the year ended December 31, 2012. (b) The insurance services segment consists of USI and York. USI and York report their costs in operating expenses. USI was previously included within other. USI began to be consolidated in late December 2012, when the business was acquired by the Onex Partners III Group. There are no comparative results for York. York began to be consolidated in October 2014, when the business was acquired by the Onex Partners III Group. (c) 2013 other includes Flushing Town Center, Tropicana Las Vegas, SGS International, KraussMaffei, Meridian Aviation (since February 2013), 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 and the parent company. 2012 other includes Flushing Town Center, Tropicana Las Vegas, SGS International (since October 2012), Center for Diagnostic Imaging (up to July 2012), the operating companies of ONCAP II and ONCAP III and the parent company. Electronics Manufacturing Services Celestica Inc. (“Celestica”) delivers innovative supply Celestica reported revenues of $5.6 billion for 2014, down 3 percent, or $165 million, compared to 2013. chain solutions globally to customers in the communica- Revenues for 2014 decreased in the communications, serv- tions (comprised of enterprise communications and tele- ers and consumer end markets. The revenue decrease in communications), consumer, diversiﬁed (comprised of the communications end market was driven by weaker industrial, aerospace and defence, demand from certain customers and program completions E L E C T R O N I C S healthcare, solar, green technol- and the decrease in the server end market was driven by M A N U FA C T U R I N G S E R V I C E S ($ millions) 6,507 5,988 5,631 5,158 5,796 5,337 ogy, semiconductor equipment the insourcing of a server program by an existing customer and other), servers and storage 8000 and overall lower demand in this end market. Partially off- end markets. These solutions in- setting the revenue decreases were increases in the storage 6400 clude design and development, and diversiﬁed end markets in 2014 due primarily to new engineering services, supply chain program wins. 4800 management, new product intro- Cost of sales for 2014 decreased 3 percent, or ductions, component sourcing, $179 million, to $5.2 billion, while gross proﬁt increased 3200 electronics manufacturing, assem- 3 percent to $473 million from 2013. Despite the revenue bly and test, complex mechanical 1600 decrease during 2014, gross proﬁt increased compared to assembly, systems integration, 2013 due primarily to improved program mix and a contin- precision machining, order fulﬁll- 0 ued focus on cost containment. ’14 ’13 ’12 Revenues Cost of Sales ment, logistics and aftermarket During 2013, Celestica reported an 11 percent, repair and return services. or $711 million, decrease in revenues to $5.8 billion com- pared to 2012. The decrease in revenues from 2012 was due Onex Corporation December 31, 2014 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 primarily to the disengagement from a signiﬁcant cus- ily to lower volume in the computed radiography business, tomer in Celestica’s consumer end market in the second due to a faster than anticipated market decline and lower half of 2012. Excluding revenues from the signiﬁcant cus- volume in the x-ray ﬁlm and dental traditional businesses tomer, revenues for 2013 increased 1 percent compared as the medical imaging market continues to transition to 2012. Revenues increased from 2012 in the diversiﬁed, from ﬁlm to digital products. Lower prices and unfavour- communications and storage end markets. The revenue able product mix in the digital radiography and dental increase in the diversiﬁed end market was driven primarily equipment businesses, driven by competitive market by new program wins and an acquisition, which contrib- actions and a shift toward lower-priced value tier solutions, uted approximately one-third of the revenue increase in also contributed to the decrease in revenues. this end market. Revenues in Celestica’s communications Cost of sales of $1.4 billion decreased $75 million, end market increased compared to 2012, driven primarily or 5 percent, during 2014 compared to last year. Cost of sales by new program wins and, to a lesser extent, stronger cus- decreased due primarily to lower costs for silver, which is a tomer demand. Revenues in the storage end market for 2013 major component in the production of ﬁlm, and improved increased from 2012 due primarily to new program wins, off- manufacturing productivity. Gross proﬁt for 2014 increased set by weaker demand from one customer. These increases to $991 million from $985 million for 2013 due primarily to were partially offset by a decrease in revenues in Celestica’s higher volume of digital products as well as lower commod- server end market in 2013 due to the insourcing of a server ity costs and improved manufacturing productivity. program by one customer and overall lower demand. Carestream Health reported revenues of $2.4 bil- Cost of sales for 2013 had a similar decrease of lion during 2013, up 1 percent, or $23 million, from 2012. 11 percent, or $651 million, compared to 2012. Gross proﬁt Excluding the impact of $21 million of unfavourable foreign for 2013 decreased 12 percent, or $60 million, from 2012, in exchange translation on Care stream Health’s non-U.S. rev- line with the revenue decrease in 2013. enues, Carestream Health reported an in crease in revenues Healthcare Imaging Carestream Health provides products and services for the capture, processing, viewing, sharing, printing and storing of images and information for medical and dental applica- tions. The company also has a non-destructive testing busi- ness, which sells x-ray ﬁlm and digital radiology products to the non-destructive testing market. Carestream Health sells digital products, including computed radiography and digital radiography equipment, picture archiving and communication systems, information management solu- tions, dental practice management software and services, as well as traditional medical products, including x-ray ﬁlm, printers and media, equipment, chemistry and services. Carestream Health has three reportable segments: Medical Film, Medical Digi tal and Dental. H E A LT H C A R E I M A G I N G ($ millions) 2,360 2,429 2,406 1,369 1,444 1,449 ’14 ’13 ’12 Revenues Cost of Sales of $44 million. The increase in rev- enues was due primarily to higher volume in the contract manufactur- 2750 ing and x-ray systems businesses and higher prices in the traditional 2200 ﬁlm businesses. Partially offsetting the increase was lower volume in 1650 the traditional ﬁlm businesses due to the continuing transition from 1100 ﬁlm to digital processes in medical imaging and a shift to lower-priced 550 solutions in the digital equipment segments. 0 Cost of sales at $1.4 billion decreased $5 million during 2013 compared to 2012. Cost of sales Carestream Health reported revenues of $2.4 bil- decreased due primarily to lower costs for silver. Gross lion during 2014, down 3 percent, or $69 million, from 2013. proﬁt for 2013 increased to $985 million from $957 million Excluding the $42 million impact of unfavourable foreign in 2012 due primarily to higher volume of digital products exchange translation on Carestream Health’s non-U.S. rev- sold, higher prices for ﬁlm and lower commodity costs in enues, Carestream Health reported a decrease in revenues 2013 compared to 2012. of $27 million. The decrease in revenues was due primar- 34 Onex Corporation December 31, 2014 M A N A G E M E N T ’ S D I S C U S S I O N A N D A N A LY S I S Health and Human Services ResCare has ﬁve reportable segments: Residential Services, Customer Care Services Sitel Worldwide is a diversiﬁed provider of customer care ResCare HomeCare, Education and Training Services, outsourcing services. The company offers its clients a Workforce Services and Pharmacy Services. Residential wide array of services, including customer service, tech- Services includes the provision of services to individuals nical support, back ofﬁce support, and customer acqui- H E A LT H A N D H U M A N S E R V I C E S ($ millions) 1,737 with developmental or other dis- sition, retention and revenue generation services. The abilities in community home set- majority of Sitel Worldwide’s customer care services are tings. ResCare HomeCare provides 2000 inbound tele phonic services; however, the company pro- periodic in-home care services vides services through other communication channels, 1,617 1,599 to the elderly, as well as persons 1600 including social media, online chat, email and interac- 1,307 1,197 with disabilities. Education and tive voice response. Sitel Worldwide serves a broad range 1,182 Training Services consists primar- 1200 of industry end markets, including technology, ﬁnancial ily of Job Corps centres, alterna- services, wireless, retail and consumer products, telecom- tive education and charter schools. 800 munications, media and entertainment, energy and utili- Workforce Services is comprised of domestic job training and place- 400 C U S T O M E R C A R E S E R V I C E S ties, internet service providers, travel and transportation, insur- ment programs that assist welfare ($ millions) ance, healthcare and govern- recipients and disadvantaged job 0 1,440 1,438 1,429 ment. Sitel Worldwide’s operating 1500 seekers in ﬁnding employment and improving their career pros- pects. Pharmacy Services is a lim- results are affected by the demand for the products of its customers. 1200 960 936 920 For the year ended De- ’14 ’13 ’12 Revenues Cost of Sales ited, closed-door pharmacy focused on serving individuals with cognitive, intellectual and developmental disabilities. ResCare provides services to some 62,000 persons daily. During the year ended December 31, 2014, ResCare reported revenues of $1.7 billion, an increase of $120 million, or 7 percent, compared to 2013. The increase cember 31, 2014, revenues reported 900 by Sitel Worldwide of $1.4 bil- 600 lion were up slightly from 2013. Included in the revenue increase 300 was $10 million of unfavourable foreign exchange rates on Sitel 0 in revenues was due to acquisitions and organic growth in ’14 ’13 ’12 World wide’s non-U.S. revenues. all segments, primarily the Residential Services, ResCare HomeCare and Pharmacy Services segments. Cost of sales increased 9 percent, or $110 million, Revenues Cost of Sales Excluding the impact of foreign exchange, Sitel Worldwide reported an increase in revenues of $12 mil- to $1.3 billion due primarily to the increase in revenues dur- lion. The increase was due primarily to net growth with ing 2014, along with an increase in bad debt and the cost of new and existing customers. inventory sold. Cost of sales at $960 million increased 3 percent, or During 2013, ResCare reported revenues of $1.6 bil- $24 million, in 2014 compared to 2013, while gross margin lion, an increase of $18 million, or 1 percent, compared to decreased to $480 million from $502 million. The decrease 2012. The increase in revenues was due primarily to acqui- in gross margin was due to foreign exchange, as well as sitions and organic growth in the Residential Services, commercial and execution issues with certain customers. ResCare HomeCare and Pharmacy Services segments. Par- Sitel Worldwide reported revenues of $1.4 billion tially offsetting the revenue increase were decreases in the during 2013, an increase of $9 million, or 1 percent, com- Education and Training Services and Workforce Services pared to 2012. The increase in revenues was due primar- segments due to fewer referrals. ily to net growth with new and existing customers. Cost of Cost of sales had a similar increase of 1 percent, or sales at $936 million increased $16 million, or 2 percent, $15 million, to $1.2 billion due primarily to the increase in in 2013 compared to 2012 due to higher revenues, but at revenues during 2013. slightly lower margins due to a shift in customer mix. Onex Corporation December 31, 2014 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 Building Products JELD-WEN is a manufacturer of interior and exterior doors, Cost of sales was $2.9 billion for 2013, an increase of $294 million, or 11 percent, compared to 2012. The windows and related products for use primarily in the resi- increase in cost of sales during 2013 was driven by the dential and light commercial new construction and remod- increase in revenues, as well as additional costs resulting elling markets. The company’s revenues follow seasonal from the start-up of new operations and the ramping up of new construction and repair and remodelling industry pat- production to meet growing demand. Gross proﬁt for 2013 terns. JELD-WEN manages its business through three geo- decreased slightly to $602 million compared to $607 mil- graphic segments: North America, Europe, and Australia lion for 2012. and Asia. For the year ended December 31, 2014, revenues at JELD-WEN increased by 1 percent, or $50 million, to Insurance Services The insurance services segment consists of the opera- $3.5 billion. The increase in revenues was due primarily tions of USI and York. York was acquired by the Onex Part- to improved pricing in North America as well as increased volume in Europe. Reported revenues in Australia and Asia remained largely unchanged from 2013; however, excluding I N S U R A N C E S E R V I C E S ($ millions) the impact of unfavourable foreign exchange translation, 1,079 769 ners III Group in October 2014, as discussed on page 30 of this MD&A. During 2014, the insur- 1200 ance services segment reported a 40 percent, or $310 million, in- 960 crease in consolidated revenues compared to 2013. Reported 2012 720 revenues of $15 million represent results for the period from the 480 late December 2012 acquisition of USI to December 31, 2012. USI and 240 York record their costs in operating 15 ’12 expenses. 0 ’14 ’13 Revenues revenues in the segment increased by 6 percent over 2013. Cost of sales was $2.8 billion during 2014, a decrease of $15 million, or 1 percent, compared to 2013. Gross proﬁt for 2014 increased by $65 million, or 11 per- cent, to $667 million from $602 million last year due pri- marily to improved pricing in North America. For 2013, JELD-WEN reported revenues of $3.5 bil- lion, an increase of $289 million, or 9 percent, compared B U I L D I N G P R O D U C T S ($ millions) 3,507 3,457 to 2012. The increase in revenues was primarily attributable to the North American segment, where revenues increased by $312 mil- 3600 2,840 2,855 3,168 lion, as well as an increase in the 2,561 European segment. The increase 2880 in revenues in the North American segment was due primarily to 2160 increased demand from new cus- tomers and growth in the market, 1440 in addition to the acquisition of CraftMaster Manufacturing, Inc. 720 (“CMI”), which was acquired by JELD-WEN in October 2012 and 0 contributed $142 million of reve- nues in 2013. Partially offsetting the increase in revenues in the North ’14 ’13 ’12 Revenues Cost of Sales American and European segments was a decline in reve- nues in Australia. 36 Onex Corporation December 31, 2014 M A N A G E M E N T ’ S D I S C U S S I O N A N D A N A LY S I S Table 2 provides revenues by operating company in the insurance services segment for the years ended December 31, 2014, 2013 and 2012. The percentage change in revenues from the year ended December 31, 2013 to the year ended December 31, 2014 is also shown. Insurance Services Revenues for the Years Ended December 31, 2014, 2013 and 2012 TABLE 2 ($ millions) Year ended December 31 USI(a) York(b) Total $ 2014 926 153 $ 1,079 Revenues 2013 Change $ 769 – $ 769 20% n/a 40% 2012 $ 15 – $ 15 Results are reported in accordance with IFRS. These results may differ from those reported by the individual operating companies. (a) USI began to be consolidated in late December 2012, when the business was acquired by the Onex Partners III Group. (b) There are no comparative results for York. York began to be consolidated in October 2014, when the business was acquired by the Onex Partners III Group. USI USI is a leading provider of insurance brokerage services. billed for claims management services based on a fee per each claim handled, a flat annual fee or a cost-plus model. USI’s revenues consist of commissions paid by insurance In addition to claims management, York offers a suite of companies and fees paid directly by the company’s cli- integrated managed care services for injured workers. ents for the placement of property and casualty and indi- Reported 2014 revenues of $153 million represent vidual and group health, life and disability insurance. USI three months of operations from the October 2014 acquisi- also receives contingent and supplemental commissions tion of York. Since York was acquired in October 2014, there paid by insurance carriers based on the overall proﬁt and/ are no comparative results for the years ended December 31, or volume of business placed with an insurer. USI has two 2013 and 2012. reportable segments: Retail and Specialty. During the year ended December 31, 2014, USI reported revenues of $926 million, an increase of 20 per- Other Businesses The other businesses segment primarily consists of the rev- cent, or $157 million, from 2013. The increase in revenues enues and cost of sales of the ONCAP companies – EnGlobe, during 2014 was due primarily to acquisitions in addition CiCi’s Pizza, Pinnacle Pellet, Inc. (“Pinnacle Renewable to organic growth. In addition, the accounting treatment of Energy Group”), PURE Canadian Gaming Corp. (“PURE contingent commission revenues on the Onex Partners III Canadian Gaming”), Hopkins Manufacturing Corporation Group’s late December 2012 acquisition of USI resulted in (“Hopkins”), Davis-Standard Holdings, Inc. (“Davis-Stan- the recognition of lower contingent commission revenues dard”), Bradshaw International, Inc. (“Bradshaw”), BSN during 2013 compared to 2014. SPORTS, Inc. (“BSN SPORTS”) (up to June 2013), Caliber During the year ended December 31, 2013, USI Collision Centers (“Caliber Collision”) (up to November reported revenues of $769 million. Reported 2012 revenues 2013) and Mister Car Wash (up to August 2014) – Emerald of $15 million represent results for the period from the late Expositions (since June 2013), KraussMaffei Group December 2012 acquisition of USI to December 31, 2012. GmbH (“KraussMaffei”), SGS International, Inc. (“SGS York York is an integrated provider of insurance solutions to International”), Tropicana Las Vegas, Inc. (“Tropicana Las Vegas”), Flushing Town Center, Meridian Aviation Partners Limited (“Meridian Aviation”) and the parent company. property, casualty and workers’ compensation specialty BSN SPORTS was sold in June 2013, Caliber markets in the United States. York offers employers and Collision was sold in November 2013 and Mister Car Wash insurance carriers a range of services designed to help man- was sold in August 2014. These businesses did not represent age claims and limit losses incurred under various prop- separate major lines of business and, as a result, have not erty and casualty insurance programs. Clients are typically been presented as discontinued operations. Onex Corporation December 31, 2014 37 M A N A G E M E N T ’ S D I S C U S S I O N A N D A N A LY S I S Table 3 provides revenues and cost of sales by operating company in the other businesses segment for the years ended December 31, 2014, 2013 and 2012. The percentage change in revenues and cost of sales in those periods is also shown. Other Businesses Revenues and Cost of Sales for the Years Ended December 31, 2014 and 2013 TABLE 3 ($ millions) Year ended December 31 ONCAP companies(a) Emerald Expositions(b) KraussMaffei SGS International Tropicana Las Vegas Other(c) Total Revenues Cost of Sales 2014 2013 Change 2014 2013 Change $ 1,609 $ 2,082 274 1,473 492 110 81 77 1,405 465 97 192 $ 4,039 $ 4,318 (23)% 256 % 5 % 6 % 13 % (58)% (6)% $ 1,065 $ 1,319 82 1,085 317 7 18 21 1,097 295 7 122 $ 2,574 $ 2,861 (19)% 290 % (1)% 7 % – (85)% (10)% Results are reported in accordance with IFRS. These results may differ from those reported by the individual operating companies. (a) 2014 ONCAP companies include EnGlobe, CiCi’s Pizza, Pinnacle Renewable Energy Group, PURE Canadian Gaming, Hopkins, Davis-Standard, Bradshaw and Mister Car Wash (up to August 2014). 2013 ONCAP companies include EnGlobe, CiCi’s Pizza, Pinnacle Renewable Energy Group, PURE Canadian Gaming, Hopkins, Davis-Standard, Bradshaw, Mister Car Wash, BSN SPORTS (up to June 2013) and Caliber Collision (up to November 2013). (b) Revenues and cost of sales for Emerald Expositions for 2013 represent the operations from the June 2013 acquisition of Emerald Expositions. (c) 2014 other includes Flushing Town Center, Meridian Aviation and the parent company. 2013 other includes Flushing Town Center, Meridian Aviation (since February 2013) and the parent company. ($ millions) Revenues Cost of Sales Year ended December 31 2013 2012 Change 2013 2012 Change ONCAP companies(a) Emerald Expositions(b) KraussMaffei SGS International(c) Tropicana Las Vegas Other(d) Total $ 2,082 $ 1,944 77 1,405 465 97 192 – – 93 91 189 7% n/a n/a n/a 7% 2% $ 1,319 $ 1,246 21 1,097 295 7 122 – – 57 7 91 $ 4,318 $ 2,317 86% $ 2,861 $ 1,401 6% n/a n/a n/a – 34% 104% Results are reported in accordance with IFRS. These results may differ from those reported by the individual operating companies. (a) 2013 ONCAP companies include EnGlobe, CiCi’s Pizza, Pinnacle Renewable Energy Group, PURE Canadian Gaming, Hopkins, Davis-Standard, Bradshaw, Mister Car Wash, BSN SPORTS (up to June 2013) and Caliber Collision (up to November 2013). 2012 ONCAP companies include EnGlobe, CiCi’s Pizza, Pinnacle Renewable Energy Group, PURE Canadian Gaming, Hopkins, Davis-Standard, Bradshaw, Mister Car Wash, BSN SPORTS and Caliber Collision. (b) Revenues and cost of sales for Emerald Expositions for 2013 represent the operations from the June 2013 acquisition of Emerald Expositions. (c) Revenues and cost of sales for SGS International for 2012 represent the operations from the October 2012 acquisition of SGS International. (d) 2013 other includes Flushing Town Center, Meridian Aviation (since February 2013) and the parent company. 2012 other includes Flushing Town Center, Center for Diagnostic Imaging (up to July 2012) and the parent company. 38 Onex Corporation December 31, 2014 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 23 percent, or $473 mil- KraussMaffei KraussMaffei provides highly engineered solutions and lion, decrease in revenues for the year ended December 31, machines for the production of plastic and rubber prod- 2014 compared to 2013, while cost of sales had a decrease of ucts. The company provides products and solutions in the 19 percent, or $254 million. The decrease in revenues and injection molding, extrusion technology and reaction pro- cost of sales during the year ended December 31, 2014 was cess machinery segments and serves customers in a wide due primarily to the ONCAP II Group’s sale of BSN SPORTS range of industries. KraussMaffei’s revenues are derived in June 2013, Caliber Collision in November 2013 and from the sale of machines and aftermarket services. Mister Car Wash in August 2014. The decrease in revenues KraussMaffei’s functional currency is the euro. and cost of sales was partially offset by increases at certain The reported revenues and cost of sales of KraussMaffei in of the remaining ONCAP companies, which were driven by U.S. dollars may not reflect the true nature of the operat- acquisitions completed by the companies. ing results of the company due to the translation of those The ONCAP companies reported a 7 percent, amounts and the associated fluctuation of the euro and or $138 million, increase in revenues for the year ended U.S. dollar exchange rate. The discussion of KraussMaffei’s December 31, 2013 compared to 2012. Cost of sales con- revenues and cost of sales is in euros in order to eliminate tributed by the ONCAP companies was up 6 percent, or the impact of foreign currency translation on revenues and $73 million, for 2013. The growth in revenues and cost of cost of sales. sales was due primarily to the inclusion of the results of Bradshaw, acquired in December 2012, partially offset by a decrease in revenues and cost of sales due to the sales Revenues reported by KraussMaffei for 2014 increased by 5 percent, or €54 million, to €1.1 billion compared to 2013. The increase in revenues was due to of BSN SPORTS and Caliber Collision in June 2013 and improved sales in all segments and mainly related to November 2013, respectively. Emerald Expositions Emerald Expositions, acquired in June 2013, is a lead- ing operator of large business-to-business tradeshows in the United States across nine end markets. Emerald Expositions has two principal sources of revenue: trade- customers in the automotive and infrastructure indus- tries. During 2014, cost of sales decreased by 1 percent, or €8 million, to €818 million compared to €826 million in 2013. Excluding the impact of non-recurring purchase price accounting on 2013 results, cost of sales increased by €23 million in 2014. The increase in cost of sales was pri- marily attributable to higher revenues. show revenue and revenue from print and digital pub- There are no comparative results for 2012 since lications and select conferences. Tradeshow revenue is the revenues and cost of sales of KraussMaffei began to be generated from selling exhibit space and sponsorship slots consolidated in January 2013. to exhibitors on a per-square-footage basis. Emerald Expositions reported revenues of $274 million (2013 – $77 million) and cost of sales of $82 mil- SGS International SGS International offers design-to-print graphic services lion (2013 – $21 million) for the year ended December 31, to the consumer products packaging industry, providing 2014. Revenues and cost of sales reported for the year digital solutions for the capture, management, execution ended December 31, 2013 represent the operations since and distribution of graphics information. The majority of the Onex Partners III Group’s June 2013 acquisition of the company’s service offerings result in the delivery of an Emerald Expositions. Excluding the impact of the mid-year electronic image ﬁle, an engraved gravure cylinder or a acquisition of Emerald Expositions, the increase in rev- flexographic printing plate. enues and cost of sales during 2014 was due primarily to SGS International reported revenues of $492 mil- the company’s acquisition of GLM, as discussed on page 26 lion during 2014, an increase of $27 million, or 6 percent, of this MD&A. As Emerald Expositions was acquired by the from 2013. The increase was driven primarily by increased Onex Partners III Group in June 2013, there are no compar- sales volume to large consumer packaged goods compa- ative results for 2012. nies and organic growth, as well as incremental sales gen- erated from businesses acquired during 2013. Onex Corporation December 31, 2014 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 Cost of sales at $317 million increased 7 percent, For the year ended December 31, 2014, consoli- or $22 million, in 2014 compared to 2013. The increase in dated interest expense was $830 million, up $131 million cost of sales was due primarily to the increase in revenues from $699 million in 2013. The increase was due primarily in addition to an increase in personnel costs, including to the debt associated with Emerald Expositions, which was healthcare, as well as investments in future growth oppor- acquired in June 2013, the inclusion of interest expense of tunities, which increased labour and overhead costs. York, which was acquired in October 2014, additional debt Reported 2012 revenues of $93 million and from the closings of three Onex Credit CLOs and debt pre- cost of sales of $57 million represent the three months payment charges associated with ResCare’s December 2014 of operations from the October 2012 acquisition of SGS redemption of its senior subordinated notes and JELD- International. WEN’s October 2014 redemption of its senior secured notes. Tropicana Las Vegas Tropicana Las Vegas is a casino resort with 1,467 rooms, situated on 35 acres and located directly on the Las Vegas Increase in value of investments in joint ventures and associates at fair value, net Investments in joint ventures and associates are deﬁned Strip. During 2014, revenues increased by $13 million, or under IFRS as those investments in operating businesses 13 percent, to $110 million compared to 2013 and cost of over which Onex has joint control or signiﬁcant influence, sales remained largely unchanged at $7 million. Tropicana but not control. Certain of these investments are desig- Las Vegas records most of its costs in operating expenses. nated, upon initial recognition, at fair value in the audited The increase in revenues in 2014 was due primarily to a annual consolidated balance sheets. Both realized and higher hotel occupancy rate, which drove increases in unrealized gains and losses are recognized in the audited room, casino and food and beverage revenue. In addition, annual consolidated statements of earnings as a result an increase in average daily room rates also contributed to of increases or decreases in the fair value of investments the increase in room revenue. in joint ventures and associates. The investments that Tropicana Las Vegas reported an increase in rev- Onex determined to be investments in joint ventures or enues of $6 million, or 7 percent, to $97 million in 2013 associates and thus recorded at fair value are AIT (since compared to 2012, while cost of sales was unchanged dur- December 2014), Allison Transmission (up to June 2014), ing the year at $7 million. The increase in revenues dur- BBAM Limited Partnership (“BBAM”), Mavis Discount Tire ing 2013 was due primarily to an increase in average daily (since October 2014), RSI Home Products, Inc. (“RSI”) (up room rates. to February 2013), Tomkins (up to April 2014) and certain Onex Real Estate investments. Other Other revenues and cost of sales decreased in the year During 2014, Onex recorded an increase in fair value of investments in joint ventures and associates of ended December 31, 2014 from 2013 due primarily to activ- $412 million compared to a $1.1 billion increase in 2013. ity at Flushing Town Center. The sales of condominium The increase was due primarily to (i) the public share value units in the ﬁrst phase of Flushing Town Center’s develop- of Allison Transmission for the 2014 share repurchases and ment were substantially completed by the end of the ﬁrst secondary offerings, as discussed on page 26 of this MD&A, quarter of 2014. Interest expense of operating companies New investments are structured with the acquired com- being above the value of the investment at December 2013 and (ii) the sale of Tomkins, as discussed on page 28 of this MD&A, being completed at a value above the December 31, 2013 investment value. pany having sufﬁcient equity to enable it to self-ﬁnance Of the total fair value increase recorded during a signiﬁcant portion of its acquisition cost with a prudent the year ended December 31, 2014, $279 million (2013 – amount of debt. The level of debt is commensurate with $786 million) is attributable to the limited partners in the the operating company’s available cash flow, including Onex Partners Funds, which contributes to the Limited consideration of funds required to pursue growth oppor- Partners’ Interests charge discussed on page 45 of this tunities. It is the responsibility of the acquired operating MD&A. Onex’ share of the total fair value increase was company to service its own debt obligations. $133 million (2013 – $312 million). 40 Onex Corporation December 31, 2014 M A N A G E M E N T ’ S D I S C U S S I O N A N D A N A LY S I S Stock-based compensation expense Onex recorded a consolidated stock-based compensation Other gains During the year ended December 31, 2014, Onex recorded expense of $230 million during 2014 compared to $320 mil- other gains of $317 million on the August 2014 sale of Mister lion in 2013. Car Wash by the ONCAP II Group, as discussed on page 29 Onex, the parent company, contributed $142 mil- of this MD&A. lion (2013 – $215 million) of the expense primarily related For the year ended December 31, 2013, Onex to its stock options and MIP equity interests. In accordance recorded other gains of $561 million on the June 2013 sale with IFRS, the expense recorded on these plans is deter- of BSN SPORTS and the November 2013 sale of Caliber mined based on the fair value of the liability at the end Collision by the ONCAP II Group. of each reporting period. The fair value of the Onex stock options and MIP equity interests is determined using an option valuation model, with the stock options primar- BSN SPORTS In June 2013, the ONCAP II Group completed the sale of ily impacted by the change in the market value of Onex’ BSN SPORTS, receiving net proceeds of $236 million, of shares and the MIP equity interests affected primarily which Onex’ share was $114 million. The realized pre-tax by the change in the fair value of Onex’ investments. The gain on the sale of BSN SPORTS was $170 million based expense recorded by Onex, the parent company, on its on the excess of the proceeds over the carrying value of stock options during 2014 was due primarily to the 18 per- the investment. Onex’ share of the gain was $82 million. cent increase in the market value of Onex’ shares to C$67.46 The gain on the sale was entirely attributable to the equity at December 31, 2014 from C$57.35 at December 31, 2013. holders of Onex. This gain included the portion attrib- utable to Onex’ investment, as well as that of the limited Table 4 details the change in stock-based compensation by partners of ONCAP II. Management of ONCAP received Onex, the parent company, and Onex operating companies $20 million in carried interest on the sale of BSN SPORTS. for the years ended December 31, 2014 and 2013. The impact to Onex and management of Onex was a net Stock-Based Compensation Expense TABLE 4 ($ millions) 2014 2013 Change payment of $7 million in carried interest. Management of Onex received $6 million on account of this transaction related to the MIP. BSN SPORTS did not represent a sepa- rate major line of business and as a result has not been pre- Onex, the parent company, sented as a discontinued operation. stock options $ 88 $ 134 $ (46) During the fourth quarter of 2013, $6 million of Onex, the parent company, MIP equity interests Onex operating companies 54 88 81 105 (27) (17) of which Onex’ share was $3 million. These additional pro- ceeds were recognized as a gain during the fourth quarter of additional proceeds were received by the ONCAP II Group, Total $ 230 $ 320 $ (90) 2013, net of a $1 million reduction in the escrow receivable. Caliber Collision In November 2013, the ONCAP II Group completed the sale of Caliber Collision. The ONCAP II Group received net pro- ceeds of $437 million on the sale. Onex’ share of the net proceeds was $193 million. The realized gain on the sale of Caliber Collision was $386 million based on the excess of the proceeds over the carrying value of the investment. Onex’ share of the gain was $171 million. The gain on the sale was entirely attributable to the equity holders of Onex. This gain includes the portion attributable to Onex’ invest- ment, as well as that of the limited partners of ONCAP II. Onex Corporation December 31, 2014 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 The effect of this was to recover the charges to earnings on Caliber Collision allocated to the limited partners over Restructuring Restructuring expenses are considered to be costs incurred the life of the investment, which totalled $215 million. The by the operating companies to realign organizational balance of $171 million reflects the gain on Onex’ invest- structures or restructure manufacturing capacity to obtain ment in Caliber Collision. Management of ONCAP received operating synergies critical to building the long-term value $42 million in carried interest on the sale of Caliber Col- of those businesses. Table 6 provides a breakdown of and lision. The impact to Onex and management of Onex was the change in restructuring expenses by operating com- a net payment of $8 million in carried interest to ONCAP pany for the years ended December 31, 2014 and 2013. management. Management of Onex received $12 million on account of this transaction related to the MIP. Caliber Restructuring Expenses (Income) Collision did not represent a separate major line of busi- ness, and as a result has not been presented as a discontin- ued operation. Other items Onex recorded a charge for other items of $378 million (2013 – $435 million) in 2014. Table 5 provides a break- down of and the change in other items for the years ended December 31, 2014 and 2013. TABLE 6 ($ millions) JELD-WEN Sitel Worldwide Carestream Health Celestica Other Total 2014 $ 31 20 11 (2) 10 2013 Change $ 31 $ 14 10 28 8 – 6 1 (30) 2 $ 70 $ 91 $ (21) Other Items Expense (Income) TABLE 5 ($ millions) 2014 2013 Change Restructuring $ 70 $ 91 $ (21) Transition, integration and other Transaction costs Carried interest due to Onex and ONCAP management Change in fair value of contingent consideration Increase in value of other Onex Partners investments Foreign exchange loss Other Total 125 24 160 (1) (46) 38 8 73 23 262 108 (6) 20 (136) 52 1 (102) (109) (40) 18 144 $ 378 $ 435 $ (57) JELD-WEN During 2014, JELD-WEN reported restructuring expenses of $31 million (2013 – $31 million). The expenses recorded by JELD-WEN in 2014 primarily relate to severance costs and modiﬁcation of a management incentive plan. The expenses recorded by JELD-WEN in 2013 primarily related to costs associated with the closure of facilities. Sitel Worldwide During the year ended December 31, 2014, Sitel Worldwide reported restructuring expenses of $20 million (2013 – $14 million). The charges incurred in 2014 and 2013 primarily relate to expenses incurred to rationalize facility and labour costs, realign operations and resources to support growth plans, and shift the geographic mix of certain operations. Carestream Health Carestream Health reported restructuring expenses of $11 million during 2014 compared to $10 million in 2013. Carestream Health’s restructuring costs for 2014 related primarily to the establishment of a central functions loca- tion for its European operations. Carestream Health’s costs during 2013 related primarily to the reorganization of European sales and service functions and the relocation and closure of a ﬁlm ﬁnishing plant. 42 Onex Corporation December 31, 2014 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 Celestica In June 2012, Celestica announced that it would wind down share of the carried interest change is recorded as an off- set in the Limited Partners’ Interests amount in the audited its manufacturing services for a signiﬁcant consumer cus- annual consolidated statements of earnings. tomer by the end of 2012. In connection with the wind- The carried interest due to management of Onex down and in order to reduce its overall cost structure and and ONCAP represents the share of the overall net gains improve its margin performance, Celestica announced in each of the Onex Partners and ONCAP Funds attribut- restructuring actions throughout its global network. At able to the management of Onex and ONCAP. The carried December 31, 2013, Celestica had completed its planned interest is estimated based on the current fair values of restructuring actions. Celestica recorded $28 million of the underlying investments in the Funds and the overall restructuring charges during 2013 in connection with these net gains in each respective Fund determined in accor- planned actions. During 2014, Celestica recorded a recovery dance with the limited partnership agreements. The ulti- of $2 million primarily due to a reversal of estimated con- mate amount of carried interest earned will be based on tractual lease obligations. the overall performance of each of Onex Partners I, II, III and IV and ONCAP II and III, independently. During 2014, Transition, integration and other Transition, integration and other expenses are typically a charge of $160 million (2013 – $262 million) was recorded in the audited annual consolidated statements of earnings to provide for the costs of transitioning the activities of an for an increase in management’s share of the carried inter- operating company from a prior parent company upon est due primarily to an increase in the fair value of certain acquisition and to integrate new acquisitions at the operat- of the investments in the Onex Partners and ONCAP Funds. ing companies. Transition, integration and other expenses for 2014 were primarily due to USI, Emerald Expositions and Carestream Health. Transition, integration and other Change in fair value of contingent consideration Onex recorded a net recovery of $1 million (2013 – net expenses for 2013 were primarily due to USI, Carestream charge of $108 million) during 2014 in relation to the esti- Health and Davis-Standard. mated change in fair value of contingent consideration related to acquisitions completed by Onex and its operating Transaction costs Transaction costs are incurred by Onex and its operating companies. The fair value of contingent consideration liabil- ities is typically based on the estimated future ﬁnancial per- companies to complete business acquisitions, and typically formance of the acquired businesses. Financial targets used include advisory, legal and other professional and consult- in the estimation process include certain deﬁned ﬁnancial ing costs. Transaction costs for 2014 were primarily due to targets and realized internal rates of return. The total esti- the investments in York, Mavis Discount Tire and AIT, as mated fair value of contingent consideration liabilities at discussed in the signiﬁcant transactions section starting December 31, 2014 was $203 million (December 31, 2013 – on page 26 of this MD&A, in addition to acquisitions com- $200 million). pleted by the operating companies. Increase (decrease) in value of other Carried interest due to Onex and ONCAP management The General Partners of the Onex Partners and ONCAP Onex Partners investments For the year ended December 31, 2014, Onex reported an Funds are entitled to a carried interest of 20 percent on increase in value of other Onex Partners investments of the realized gains of the limited partners in each Fund, as $46 million (2013 – $6 million). The increase in value of determined in accordance with the limited partnership other Onex Partners investments includes realized and agreements. Onex is allocated 40 percent of the carried unrealized gains on Onex Partners’ investments in which interest realized in the Onex Partners Funds. Onex man- Onex had no or limited remaining strategic or operating agement is allocated 60 percent of the carried interest real- influence. For the years ended December 31, 2014 and 2013, ized in the Onex Partners Funds and ONCAP management these investments were: Spirit AeroSystems (from June to is entitled to that portion of the carried interest realized August 2014), Allison Transmission (from June to September in the ONCAP Funds that equates to a 12 percent carried 2014), Tomkins (from April to December 2014) and FLY interest on both limited partners’ and Onex’ capital. Onex’ Leasing Limited. Onex Corporation December 31, 2014 43 M A N A G E M E N T ’ S D I S C U S S I O N A N D A N A LY S I S Table 7 provides a breakdown of the increase (decrease) in Allison Transmission value of the other Onex Partners investments for the years In June 2014, the Onex Partners II Group sold shares of Alli- ended December 31, 2014 and 2013. son Transmission in a secondary offering and share repur- TABLE 7 ($ millions) Spirit AeroSystems Tomkins Allison Transmission FLY Leasing Limited 2014 $ 29 21 1 (5) 2013 $ – – – 6 $ 46 $ 6 Spirit AeroSystems In June 2014, the Onex Partners I Group sold a portion of its interest in Spirit AeroSystems resulting in a loss of control of Spirit AeroSystems, as described on page 26 of this MD&A. The remaining interest held by the Company was recorded as a long-term investment at fair value, with changes in fair value recorded in other items until the remaining interest was sold in August 2014. Income recorded in other items during the year ended December 31, 2014 of $29 million rep- resents the change in fair value of the shares held after the June 2014 secondary public offering and share repurchase up to the August 2014 secondary public offering. Tomkins In April 2014, Onex, together with CPPIB, entered into an agreement to sell Gates, Tomkins’ principal remaining business. As a result, Onex’ investment in Tomkins was recorded in assets held for sale. Changes in fair value prior to Onex’ investment in Tomkins being recorded in assets held for sale were recorded as increases or decreases in the value of investments in joint ventures and associates at fair value, while changes in fair value subsequent to the classiﬁcation as assets held for sale are recorded in other items. The sales of Gates and substantially all of the resid- ual assets of Tomkins were completed during the second half of 2014, as described on page 28 of this MD&A. Income of $21 million recorded in other items during the year ended December 31, 2014 primarily represents the change in fair value of the residual assets of Tomkins, which were substantially sold in the second half of 2014. chase, as described on page 26 of this MD&A. After the completion of the secondary offering and share repurchase, the Onex Partners II Group continued to own 2.7 million shares of common stock, or approximately 2 percent in the aggregate, of Allison Transmission’s outstanding common stock. The remaining interest held by the Onex Partners II Group was recorded as a long-term investment at fair value with changes in fair value recorded in other items until the remaining interest was sold in September 2014. Income recorded in other items during the year ended December 31, 2014 of $1 million represents the change in fair value of the shares held after the June 2014 secondary public offering and share repurchase up to the September 2014 secondary public offering. Other For the year ended December 31, 2014, Onex reported con- solidated other expense of $8 million (2013 – income of $136 million). During 2014, in connection with the rever- sal of a previous court ruling, Carestream Health recorded other income of $31 million for the reversal of legal pro- visions related to the matter. In addition, other expense recorded during 2014 includes (i) $65 million of realized and unrealized losses on investments in securities and long- term debt of the Onex Credit CLOs; (ii) $22 million of other income from equity-accounted investments; (iii) $9 million of gains on the sale of tax losses; and (iv) $9 million of other income from Celestica’s settlement of class action lawsuits, as described below. During 2013, in connection with the settlement of class action lawsuits, Celestica recorded other income of $24 million for the receipt of recoveries of damages related to certain purchases made by the company in prior periods. In addition, other income recorded during 2013 includes (i) $16 million of realized and unrealized gains on investments in securities and long-term debt of the Onex Credit CLOs; (ii) $15 million of gains from JELD-WEN’s sale of non-core assets; (iii) $12 million of other income from equity-accounted investments; (iv) $9 million of gains on the sale of tax losses; and (v) $32 million of net gains related to the sale of aircraft by Meridian Aviation. 44 Onex Corporation December 31, 2014 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 Impairment of goodwill, intangible assets and long-lived assets for the year ended December 31, 2014 totalled $51 mil- lion (2013 – $223 million). Table 8 provides a breakdown of 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 $91 million in the second the net impairment (recovery) of goodwill, intangible assets quarter of 2013. and long-lived assets by operating company for the years ended December 31, 2014 and 2013. TABLE 8 ($ millions) 2014 2013 Celestica CiCi’s Pizza Flushing Town Center Tropicana Las Vegas Other, net(a) $ 41 $ 26 (42) – 26 – 57 43 91 32 Limited Partners’ Interests charge The Limited Partners’ Interests charge in Onex’ audited annual consolidated statements of earnings primarily rep resents 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 Part ners’ Interests liability in Onex’ audited annual consoli- dated balance sheets. The Limited Partners’ Interests charge $ 51 $ 223 includes the fair value changes of consolidated operating companies, investments in joint ventures and associates (a) 2014 other includes net impairments of $26 million related to Emerald that are held in the Onex Partners and ONCAP Funds and Expositions, JELD-WEN, KrausMaffei, SGS International and Sitel Worldwide. 2013 other includes net impairments of $32 million related to EnGlobe, other Onex Partners investments. JELD-WEN, Sitel Worldwide and USI. Celestica During the fourth quarter of 2014, Celestica recorded a During 2014, Onex recorded a $1.1 billion charge (2013 – $1.9 billion) for Limited Partners’ Interests. The increase in the fair value of certain of the investments held in the Onex Partners and ONCAP Funds contrib- non-cash goodwill impairment charge of $41 million uted signiﬁcantly to the Limited Partners’ Interests charge related to its semicon ductor business. recorded in the year ended December 31, 2014. The Limited Partners’ Interests charge is net of a CiCi’s Pizza ONCAP II’s operating company, CiCi’s Pizza, recorded $239 million (2013 – $395 million) increase in carried inter- est for the year ended December 31, 2014. Onex’ share of a non-cash goodwill impairment charge of $26 million the carried interest change for 2014 was an increase of (2013 – goodwill and intangible asset impairment charges $84 million (2013 – $137 million). The amount of carried of $33 million and $24 million). The impairment was pri- interest that has been netted against the Limited Partners’ marily due to a decrease in projected future earnings and a Interests decreased during 2014 due to the realization of reduction in the exit multiple due to market risks. Flushing Town Center During 2014, Flushing Town Center recorded a non-cash investments during 2014. This decrease was partially offset by an increase in the fair value of certain of the investments in the Onex Partners and ONCAP Funds. The ultimate amount of carried interest realized will be dependent upon recovery of impairment charge of $42 million (2013 – the actual realizations for each Fund in accordance with impairments of $43 million) associated with its retail space the limited partnership agreements. and parking structures. Onex Corporation December 31, 2014 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 Income taxes Onex recorded a consolidated income tax expense of company, recorded a $526 million non-cash recovery of deferred income taxes, of which $480 million was included $79 million in 2014 compared to a recovery of $488 million in Onex’, the parent company’s, deferred income tax liabil- in 2013. During 2013, as a result of evaluating changes in ity at December 31, 2012 and $46 million represented the tax law for the treatment of surplus and upstream loans, provisions established during 2013. The recovery of income Onex, the parent company, determined that its previously taxes recorded during 2013, as discussed above, was par- recognized deferred tax provisions on gains realized from tially offset by non-cash tax provisions recorded by Onex, the disposition of foreign operating companies were tem- the parent company, on (i) 2013 distributions received from porary differences which were probable to not reverse in Carestream Health; (ii) the sale of BSN SPORTS in June the foreseeable future, consistent with the principles out- lined in IAS 12, Income Taxes. As a result, Onex, the parent 2013; and (iii) the sale of RSI in February 2013. Loss from continuing operations Onex reported a consolidated loss from continuing operations of $823 million in 2014 compared to a consolidated loss of $563 million in 2013 and $174 million in 2012. Table 9 shows the earnings (loss) from continuing operations by industry seg- ment for the years ended December 31, 2014, 2013 and 2012. Earnings (Loss) from Continuing Operations by Industry Segment TABLE 9 ($ millions) Earnings (loss) from continuing operations: Electronics Manufacturing Services Healthcare Imaging(a) Health and Human Services(a) Customer Care Services Building Products Insurance Services(b) Credit Strategies(c) Other(d) 2014 2013 2012 $ 108 $ 118 $ 118 41 29 (69) (123) (76) (31) (702) (86) 52 (21) (85) (63) 62 15 39 (20) (67) 3 45 (540) (307) Loss from Continuing Operations $ (823) $ (563) $ (174) (a) The healthcare imaging segment, consisting of Carestream Health, and the health and human services segment, consisting of ResCare, were previously included within the healthcare segment, which consisted of Carestream Health, ResCare, Skilled Healthcare Group and Center for Diagnostic Imaging (up to July 2012). Skilled Healthcare Group is recorded as a discontinued operation for the years ended December 31, 2014, 2013 and 2012. Center for Diagnostic Imaging is included within the other segment for the year ended December 31, 2012. (b) The insurance services segment consists of USI and York. USI was previously included within other. There are no comparative results for York. York began to be consolidated in October 2014, when the business was acquired by the Onex Partners III Group. (c) The credit strategies segment, consisting of (i) Onex Credit Manager, (ii) Onex Credit Collateralized Loan Obligations and (iii) Onex Credit Funds, was previously included within other. (d) 2014 other includes the consolidated earnings of Tropicana Las Vegas, SGS International, KraussMaffei, Meridian Aviation, Emerald Expositions, the operating companies of ONCAP II (Mister Car Wash sold in August 2014) and ONCAP III, Flushing Town Center and the parent company. In addition, consolidated earnings include the changes in fair value of AIT (since December 2014), Allison Transmission (up to September 2014), BBAM, Mavis Discount Tire (since October 2014), Tomkins (up to December 2014) and certain Onex Real Estate investments. 2013 other includes the consolidated earnings of Tropicana Las Vegas, SGS International, KraussMaffei, Meridian Aviation (since February 2013), Emerald Expositions (since June 2013), the operating companies of ONCAP II (BSN SPORTS sold in June 2013 and Caliber Collision sold in November 2013) and ONCAP III, Flushing Town Center 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), transaction costs of KraussMaffei, Center for Diagnostic Imaging (up to July 2012), the operating companies of ONCAP II and ONCAP III, Flushing Town Center and the parent company. In addition, consolidated earnings include the changes in fair value of Allison Transmission, BBAM, Hawker Beechcraft, RSI, Tomkins and certain Onex Real Estate investments. 46 Onex Corporation December 31, 2014 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 totalled $702 million in 2014 compared to $540 million in 2013 and $307 million in 2012. Table 10 shows the major components of the earnings (loss) from continuing operations recorded in the other segment for the years ended December 31, 2014, 2013 and 2012. TABLE 10 ($ millions) 2014 2013 2012 Earnings (loss) from continuing operations – other: Limited Partners’ Interests charge Stock-based compensation expense Unrealized carried interest due to Onex and ONCAP management Interest expense of operating companies Impairment of intangible assets and long-lived assets, net Other gains Non-cash recovery of deferred income taxes by Onex, the parent company Increase in value of investments in joint ventures and associates at fair value, net Other $ (1,069) $ (1,855) $ (929) (154) (160) (194) (3) 317 – 412 149 (272) (262) (180) (201) 561 480 1,098 91 (156) (91) (60) (17) 59 – 863 24 Loss from Continuing Operations – Other $ (702) $ (540) $ (307) Table 11 presents the earnings (loss) from continuing oper- ations attributable to equity holders of Onex Corporation Earnings (loss) from discontinued operations Discontinued operations for the years ended Decem- and non-controlling interests for the years ended Decem- ber 31, 2014, 2013 and 2012 includes the operations of The ber 31, 2014, 2013 and 2012. Warranty Group, Spirit AeroSystems and Skilled Healthcare Group. In addition, earnings from discontinued operations Earnings (Loss) from Continuing Operations for the years ended December 31, 2013 and 2012 includes TABLE 11 ($ millions) 2014 2013 2012 Earnings (loss) from continuing operations attributable to: Equity holders of Onex the operations of TMS International. After-tax earnings from discontinued operations were $982 million during 2014 compared to an after-tax loss from discontinued oper- ations of $250 million in 2013 and earnings from discontin- ued operations of $190 million in 2012. Onex’ portion of the Corporation $ (872) $ (590) $ (216) after-tax results from discontinued operations during 2014 Non-controlling interests 49 27 42 was earnings of $757 million ($6.87 per share) compared Loss from Continuing Operations $ (823) $ (563) $ (174) to $236 million ($2.08 per share) in 2013 and $88 million ($0.77 per share) in 2012. The non-controlling interests’ share of the earnings (loss) from continuing operations represents the share of earn- ings (loss) of shareholders, other than Onex and its limited partners in its Funds. For example, Celestica’s public share- holders’ share of the net earnings in the business would be reported in the non-controlling interests line. Onex Corporation December 31, 2014 47 M A N A G E M E N T ’ S D I S C U S S I O N A N D A N A LY S I S Table 12 presents after-tax earnings (loss), gain on sale, net of tax, and earnings (loss) from discontinued operations for the years ended December 31, 2014, 2013 and 2012. Discontinued Operations for the Year Ended December 31 TABLE 12 ($ millions) After-Tax Earnings (Loss) Gain on Sale, Net of Tax Earnings (Loss) from Discontinued Operations 2014 2013 2012 2014 2013 2012 2014 2013 2012 Earnings (loss) from discontinued operations: The Warranty Group Spirit AeroSystems Skilled Healthcare Group TMS International $ 49 $ 112 $ 109 $ 368 $ 250 5 – (540) (83) 19 45 10 26 310 – – $ – – – 242 Total $ 304 $ (492) $ 190 $ 678 $ 242 $ – – – – – $ 417 $ 112 $ 109 560 5 – (540) (83) 261 45 10 26 $ 982 $ (250) $ 190 The Warranty Group In August 2014, the Onex Partners I and Onex Partners II TMS International In October 2013, the Onex Partners II Group completed Groups sold their investments in The Warranty Group, as the sale of its remaining interest in TMS International as described on page 28 of this MD&A. Onex’ consolidated part of an offer made for all outstanding shares of TMS results include a gain of $368 million related to the sale International. Total cash proceeds to the Onex Partners II based on the excess of the proceeds over the carrying value Group from the sale were $410 million, of which Onex’ share of the investment. was $172 million, including carried interest. As a result of the sale, the operations of TMS International and the gain Spirit AeroSystems On June 4, 2014, the Onex Partners I Group sold 8.0 million recorded on the sale are presented as discontinued in the 2013 audited annual consolidated statements of earnings shares of Spirit AeroSystems, as discussed on page 26 of and cash flows, and the year ended December 31, 2012 has this MD&A. The June 2014 sale resulted in a loss of control been restated to report the results of TMS International as by Onex. A gain of $310 million associated with the loss of discontinued on a comparative basis. control was recorded based on the excess of the proceeds and the interest retained at fair value over the carrying Note 6 to the audited annual consolidated ﬁnancial state- value of the investment. ments provides additional information on earnings from discontinued operations. Skilled Healthcare Group In August 2014, Skilled Healthcare Group entered into an agreement to combine with Genesis HealthCare. The trans- action was completed in February 2015, as discussed on page 30 of this MD&A. Onex no longer controls the com- bined company following the loss of its multiple voting rights and therefore, the operations of Skilled Healthcare Group are presented as discontinued in the audited annual consolidated statements of earnings and cash flows, and the years ended December 31, 2013 and 2012 have been restated to report the results of Skilled Healthcare Group as discontinued on a comparative basis. 48 Onex Corporation December 31, 2014 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) For the year ended December 31, 2014, Onex recorded consolidated net earnings of $159 million compared to a consolidated net loss of $813 million in 2013 and consolidated net earnings of $16 million in 2012. Table 13 shows the net earnings (loss) by industry segment for the years ended December 31, 2014, 2013 and 2012. Consolidated Net Earnings (Loss) by Industry Segment TABLE 13 ($ millions) Net earnings (loss): Electronics Manufacturing Services Healthcare Imaging(a) Health and Human Services(a) Customer Care Services Building Products Insurance Services(b) Credit Strategies(c) Other(d) Earnings (loss) from discontinued operations Consolidated Net Earnings (Loss) 2014 2013 2012 $ 108 $ 118 $ 118 41 29 (69) (123) (76) (31) (702) 982 (86) 52 (21) (85) (63) 62 (540) (250) 15 39 (20) (67) 3 45 (307) 190 $ 159 $ (813) $ 16 (a) The healthcare imaging segment, consisting of Carestream Health, and the health and human services segment, consisting of ResCare, were previously included within the healthcare segment, which consisted of Carestream Health, ResCare, Skilled Healthcare Group and Center for Diagnostic Imaging (up to July 2012). Skilled Healthcare Group is recorded as a discontinued operation for the years ended December 31, 2014, 2013 and 2012. Center for Diagnostic Imaging is included within the other segment for the year ended December 31, 2012. (b) The insurance services segment consists of USI and York. USI was previously included within other. There are no comparative results for York. York began to be consolidated in October 2014, when the business was acquired by the Onex Partners III Group. (c) The credit strategies segment, consisting of (i) Onex Credit Manager, (ii) Onex Credit Collateralized Loan Obligations and (iii) Onex Credit Funds, was previously included within other. (d) 2014 other includes the consolidated earnings of Tropicana Las Vegas, SGS International, KraussMaffei, Meridian Aviation, Emerald Expositions, the operating companies of ONCAP II (Mister Car Wash sold in August 2014) and ONCAP III, Flushing Town Center and the parent company. In addition, consolidated earnings include the changes in fair value of AIT (since December 2014), Allison Transmission (up to September 2014), BBAM, Mavis Discount Tire (since October 2014), Tomkins (up to December 2014) and certain Onex Real Estate investments. 2013 other includes the consolidated earnings of Tropicana Las Vegas, SGS International, KraussMaffei, Meridian Aviation (since February 2013), Emerald Expositions (since June 2013), the operating companies of ONCAP II (BSN SPORTS sold in June 2013 and Caliber Collision sold in November 2013) and ONCAP III, Flushing Town Center 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), transaction costs of KraussMaffei, Center for Diagnostic Imaging (up to July 2012), the operating companies of ONCAP II and ONCAP III, Flushing Town Center and the parent company. In addition, consolidated earnings include the changes in fair value of Allison Transmission, BBAM, Hawker Beechcraft, RSI, Tomkins and certain Onex Real Estate investments. Onex Corporation December 31, 2014 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 Table 14 presents the net earnings (loss) attributable to Table 15 presents the net earnings (loss) per subordinate equity holders of Onex Corporation and non-controll- voting share of Onex Corporation. ing interests for the years ended December 31, 2014, 2013 and 2012. Net Earnings (Loss) TABLE 14 ($ millions) 2014 2013 2012 Net earnings (loss) attributable to: Equity holders of Onex Corporation $ (115) $ (354) $ (128) Non-controlling interests 274 (459) 144 Net Earnings (Loss) $ 159 $ (813) $ 16 Net Earnings (Loss) per Subordinate Voting Share TABLE 15 ($ per share) 2014 2013 2012 Basic and Diluted: Continuing operations $ (7.91) $ (5.20) $ (1.89) Discontinued operations 6.87 2.08 0.77 Net Loss $ (1.04) $ (3.12) $ (1.12) Other comprehensive earnings (loss) 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, remea surements for post-employment beneﬁt plans and foreign exchange gains or losses on foreign self-sustaining operations. During the year ended December 31, 2014, Onex reported an other comprehensive loss of $280 million com- pared to earnings of $78 million in 2013. The loss in 2014 was due primarily to unfavourable currency translation adjustments on foreign operations of $197 million (2013 – $29 million) and unfavourable remeasurements for post- employment beneﬁt plans of $81 million (2013 – favourable remeasurements of $102 million). 50 Onex Corporation December 31, 2014 M A N A G E M E N T ’ S D I S C U S S I O N A N D A N A LY S I S F O U R T H Q U A R T E R R E S U L T S Table 16 presents the statements of loss for the fourth quarters ended December 31, 2014 and 2013. Fourth Quarter Statements of Loss TABLE 16 ($ millions) Revenues Cost of sales (excluding amortization of property, plant and equipment, intangible assets and deferred charges) Operating expenses Interest income Amortization of property, plant and equipment Amortization of intangible assets and deferred charges Interest expense of operating companies 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 Recovery of income taxes Earnings (loss) from continuing operations Earnings (loss) from discontinued operations Net Loss for the Period 2014 2013 $ 5,213 $ 4,996 (3,628) (1,063) 40 (106) (135) (269) 22 (64) – (83) (83) (229) (385) 14 (371) 4 (3,643) (928) 32 (101) (124) (191) 534 (82) 391 (155) (91) (657) (19) 30 11 (234) $ (367) $ (223) Onex Corporation December 31, 2014 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 Table 17 provides a breakdown of the 2014 and 2013 fourth quarter revenues and cost of sales by industry segment. Revenues and Cost of Sales by Industry Segment for the Three Months Ended December 31 TABLE 17 ($ millions) Revenues Cost of Sales Three months ended December 31 2014 2013 Change 2014 2013 Change Electronics Manufacturing Services $ 1,424 $ 1,437 Healthcare Imaging(a) Health and Human Services(a) Customer Care Services Building Products Insurance Services(b) Other(c) Total 669 446 382 893 402 997 680 421 371 889 197 1,001 $ 5,213 $ 4,996 (1)% (2)% 6 % 3 % – 104 % – 4 % $ 1,303 $ 1,317 385 335 254 715 – 636 389 307 241 730 – 659 $ 3,628 $ 3,643 (1)% (1)% 9 % 5 % (2)% – (3)% – Results are reported in accordance with IFRS. These results may differ from those reported by the individual operating companies. (a) The healthcare imaging segment, consisting of Carestream Health, and the health and human services segment, consisting of ResCare, were previously included within the healthcare segment, which consisted of Carestream Health, ResCare and Skilled Healthcare Group. Skilled Healthcare Group is recorded as a discontinued operation for the years ended December 31, 2014 and 2013. (b) The insurance services segment consists of USI and York. USI and York report their costs in operating expenses. USI was previously included within other. There are no comparative results for York. York began to be consolidated in October 2014, when the business was acquired by the Onex Partners III Group. (c) 2014 other includes Flushing Town Center, Tropicana Las Vegas, SGS International, KraussMaffei, Meridian Aviation, Emerald Expositions, the operating companies of ONCAP II (Mister Car Wash up to August 2014) and ONCAP III and the parent company. 2013 other includes Flushing Town Center, Tropicana Las Vegas, SGS International, KraussMaffei, Meridian Aviation (since February 2013), 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 and the parent company. Fourth quarter consolidated revenues and cost of sales Consolidated revenues were up 4 percent, or $217 million, increased by $28 million, or 9 percent, compared to the same period of 2013 primarily due to the increase in reve- to $5.2 billion in the fourth quarter of 2014 compared to the nues, in addition to an increase in bad debt in the ResCare same quarter of 2013. Consolidated cost of sales at $3.6 bil- HomeCare segment. lion for the three months ended December 31, 2014 were Revenues in the insurance services segment, con- relatively unchanged compared to the same period of 2013. sisting of USI and York, increased by $205 million com- During the fourth quarter of 2014, revenues in the pared to the fourth quarter of 2013. The increase was due health and human services segment, consisting of ResCare, primarily to the inclusion of the revenues of York, acquired increased by $25 million, or 6 percent, compared to the by the Onex Partners III Group in October 2014. In addition, same quarter of 2013. The increase in revenues was due to revenues of USI increased by $52 million primarily due to acquisitions and organic growth in all segments, primar- organic growth and acquisitions. USI and York record their ily Residential Services, HomeCare and Pharmacy Services. costs in operating expenses. Cost of sales for the three months ended December 31, 2014 52 Onex Corporation December 31, 2014 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 interest expense Fourth quarter 2014 interest expense totalled $269 mil- Fourth quarter other items expense During the fourth quarter of 2014, Onex recorded an $83 mil- lion compared to $191 million during the fourth quarter of lion charge for other items compared to a charge of 2013. Fourth quarter interest expense increased by $78 mil- $155 million during the same quarter of 2013. The charge lion primarily due to the inclusion of interest expense of for carried interest due to management of Onex and York, acquired during the fourth quarter of 2014, and debt ONCAP contributed $37 million (2013 – $145 million) to the prepayment charges associated with ResCare’s December other items expense during the fourth quarter. The charge 2014 redemption of its senior subordinated notes and for carried interest was driven primarily by an increase JELD-WEN’s October 2014 redemption of its senior secured in the fair value of certain of the investments in the Onex notes. The increase was partially offset by the sales of Partners and ONCAP Funds during the fourth quarter Mister Car Wash in August 2014 and Caliber Collision in of 2014. The charge for other items was partially offset by November 2013. other income recorded during the fourth quarter of 2014, which includes $9 million of gains on the sale of tax losses, Fourth quarter increase in value of investments in as discussed below. joint ventures and associates at fair value, net The 2014 fourth quarter increase in value of investments in In December 2014, Onex sold entities, the sole assets of which were certain tax losses, to companies con- joint ventures and associates at fair value was $22 million trolled by Mr. Gerald W. Schwartz, who is Onex’ controlling compared to an increase of $534 million during 2013. The shareholder. Onex received $9 million (2013 – $9 million) in decrease in the income recorded in 2014 compared to 2013 cash for tax losses of $84 million (2013 – $89 million). The is primarily due to the sales of Allison Transmission and cash received of $9 million was recorded as a gain in other Tomkins during 2014, as discussed in the signiﬁcant trans- items during the fourth quarter. Onex has signiﬁcant non- actions section starting on page 26 of this MD&A. capital and capital losses available; however, Onex does not Fourth quarter stock-based compensation expense During the fourth quarter of 2014, Onex recorded a con- expect to generate sufﬁcient taxable income to fully utilize these losses in the foreseeable future. As such, no beneﬁt was previously recognized in the audited annual consoli- solidated stock-based compensation expense of $64 mil- dated ﬁnancial statements for the tax losses sold. In connec- lion compared to $82 million for the same quarter of 2013. tion with the 2014 and 2013 transactions, Deloitte & Touche Onex, the parent company, recorded a stock-based com- LLP, an independent accounting ﬁrm retained by Onex’ pensation expense of approximately $38 million in the Audit and Corporate Governance Committee, provided an fourth quarter of 2014 related to its stock options and MIP opinion that the value received by Onex for the tax losses equity interests. That expense was primarily due to the was fair. The transactions were unanimously approved by 8 percent increase in the market value of Onex’ shares in Onex’ Audit and Corporate Governance Committee, all the the fourth quarter. members of which are independent directors. Fourth quarter other gains Onex did not record any other gains during the fourth quarter of 2014. Onex recorded other gains of $391 million Fourth quarter impairment of goodwill, intangible assets and long-lived assets, net During the fourth quarter of 2014, there was $83 million of during the fourth quarter of 2013 from the sale of Caliber impairments of goodwill, intangible assets and long-lived Collision ($386 million) and additional proceeds received, assets recorded by Onex’ operating companies compared net of a $1 million reduction of escrow receivable, on the to $91 million during the same quarter of 2013. A discussion sale of BSN SPORTS ($5 million), as discussed on page 41 of these impairments by company is provided on page 45 of this MD&A. of this MD&A. Onex Corporation December 31, 2014 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 Fourth quarter Limited Partners’ Interests charge During the fourth quarter of 2014, Onex recorded a ment in York; (iii) the limited partners of ONCAP III for their investment in Mavis Discount Tire; (iv) the limited $229 million charge for Limited Partners’ Interests com- partners of Onex Partners IV for their investment in AIT; pared to a $657 million charge during 2013. The increase and (v) the limited partners of the Onex Partners Funds in the fair value of certain of the private investments in the for management fees and partnership expenses. Partially Onex Partners and ONCAP Funds contributed signiﬁcantly offsetting the cash from ﬁnancing activities were (i) cash to the Limited Partners’ Interests charge recorded during interest paid of $213 million; (ii) share repurchases of both quarters. The Limited Partners’ Interests is net of a $95 million by Onex, the parent company, and Onex’ oper- $56 million (2013 – $218 million) increase in carried interest ating companies; and (iii) distributions of $41 million to for the three months ended December 31, 2014. the limited partners of the Onex Partners Funds, primarily related to Tomkins. Fourth quarter earnings (loss) from Included in the $935 million of cash used in ﬁ nan- discontinued operations During the fourth quarter of 2014, Onex recorded earn- cing activities in the fourth quarter of 2013 was (i) distri- butions of $498 million to the limited partners of the Onex ings from discontinued operations of $4 million related to Partners Funds, primarily from the sale of TMS International Skilled Healthcare Group, as discussed on page 47 of this and amounts received from The Warranty Group and Allison MD&A. For the three months ended December 31, 2013, Transmission, and $208 million to the limited partners Onex recorded a loss from discontinued operations of of ONCAP II for their share of the proceeds on the sale of $234 million related to The Warranty Group, Spirit AeroSys- Caliber Collision; (ii) cash interest paid of $152 million; (iii) tems, Skilled Healthcare Group and TMS International. $123 million of cash used in ﬁnancing activities of discon- tinued operations; and (iv) share repurchases of $117 million Fourth quarter cash ﬂow Table 18 presents the major components of cash flow for by Onex, the parent company, and Onex’ operating compa- nies. Partially offsetting the cash used in ﬁnancing activi- the fourth quarter of 2014 and 2013. ties were $155 million of net debt issuances by the operating Major Cash Flow Components for the Three Months Ended December 31 ($ millions) TABLE 18 Three months ended December 31 Cash from operating activities Cash from (used in) financing activities 2014 275 730 $ $ 2013 $ 511 $ (935) Cash from (used in) investing activities $ (1,176) $ 828 Consolidated cash and cash equivalents held by continuing operations $ 3,764 $ 2,618 Cash from operating activities totalled $275 million in the fourth quarter of 2014 compared to $511 million in 2013. Cash from ﬁnancing activities was $730 mil- lion in the fourth quarter of 2014 compared to cash used in ﬁnancing activities of $935 million in 2013. Cash from ﬁnancing activities included $777 million of net debt issu- ances by the operating companies and contributions of $348 million from (i) the limited partners of Onex Part- ners III for their add-on investment in Meridian; (ii) certain limited partners of Onex Partners III for their co-invest- 54 Onex Corporation December 31, 2014 companies and contributions of $9 million from the lim- ited partners of (i) ONCAP II for their add-on investments in EnGlobe and Pinnacle Renewable Energy Group and (ii) the Onex Partners Funds for management fees and partner- ship expenses. Cash used in investing activities was $1.2 billion in the fourth quarter of 2014, primarily consisting of (i) $694 million used to fund acquisitions, of which $596 mil- lion related to the Onex Partners III Group’s acquisition of York and acquisitions completed by York during the quarter; (ii) net purchases of investments and securities of $511 mil- lion mainly by Onex Credit CLO-7; (iii) $309 million for investments in joint ventures and associates, of which $204 million related to the Onex Partners IV Group’s invest- ment in AIT and $105 million related to the ONCAP III Group’s investment in Mavis Discount Tire; and (iv) $96 mil- lion in purchases of property, plant and equipment by Onex’ operating companies. This was partially offset by $304 mil- lion from restricted cash related to the capital called from the limited partners of Onex Partners III in September 2014 for their investment in York. M A N A G E M E N T ’ S D I S C U S S I O N A N D A N A LY S I S Cash from investing activities in the fourth quarter Consolidated cash at December 31, 2014 totalled of 2013 includes cash proceeds of (i) $836 million received $3.8 billion. Onex, the parent company, accounted for on the sales of TMS International ($410 million) and Caliber ap proximately $2.5 billion of the cash on hand. Table 19 pro- Collision ($426 million); (ii) $333 million received on the vides a reconciliation of the change in cash at Onex, the par- sales of a portion of the shares of Allison Transmission; and ent company, from September 30, 2014 to December 31, 2014. (iii) $277 million of proceeds from the sale of property, plant and equipment, consisting primarily of proceeds on the Change in Cash at Onex, the Parent Company sale of two aircraft by Meridian Aviation. This was partially offset by (i) net purchases of investments and securities of TABLE 19 ($ millions) $256 million mainly by Onex Credit CLO-4; (ii) $180 mil- Cash on hand at September 30, 2014 $ 2,770 lion in purchases of property, plant and equipment by Onex’ Net Onex Real Estate activity, including operating companies; and (iii) $85 million of cash used for Flushing Town Center investing activities of discontinued operations, which repre- Net Onex Credit activity, including warehouse facility sents cash used for investing activities of TMS International associated with Onex Credit CLO-8 up to the date of its disposition in addition to cash used Investment in York for investing activities of The Warranty Group, Spirit Aero- Investment in AIT Systems and Skilled Healthcare Group. Investment in Mavis Discount Tire Add-on investment in Meridian Aviation Onex share repurchases Other, net, including dividends, management fees and operating costs 42 31 (173) (45) (30) (5) (32) (27) Cash on hand at December 31, 2014 $ 2,531 S U M M A R Y Q U A R T E R L Y I N F O R M A T I O N Table 20 summarizes Onex’ key consolidated ﬁnancial information for the last eight quarters. The ﬁnancial information has been restated for discontinued operations. TABLE 20 ($ millions except per share amounts) 2014 2013 Dec. Sept. June March Dec. Sept. June March Revenues $ 5,213 $ 5,003 $ 4,988 $ 4,589 $ 4,996 $ 5,129 $ 5,035 $ 4,664 Earnings (loss) from continuing operations $ (371) $ 23 $ (406) Net earnings (loss) $ (367) $ 388 $ 39 $ $ (69) $ 11 99 $ (223) $ $ 413 399 $ (627) $ (360) $ (718) $ (271) Net earnings (loss) attributable to: Equity holders of Onex Corporation $ (350) $ 364 $ (89) $ (40) $ 200 $ 366 $ (612) $ (308) Non-controlling Interests (17) 24 128 139 (423) 33 (106) 37 Net earnings (loss) $ (367) $ 388 $ 39 $ 99 $ (223) $ 399 $ (718) $ (271) Earnings (loss) per Subordinate Voting Share of Onex Corporation Earnings (loss) from continuing operations $ (3.21) $ (0.02) $ (3.93) $ (0.75) $ 0.15 $ 3.22 $ (5.49) $ (3.06) Earnings from discontinued operations 0.01 3.33 3.13 0.39 1.62 – 0.11 0.35 Net earnings (loss) $ (3.20) $ 3.31 $ (0.80) $ (0.36) $ 1.77 $ 3.22 $ (5.38) $ (2.71) 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 the varying business activities and cycles at Onex’ operating companies. Onex Corporation December 31, 2014 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 C O N S O L I D A T E D F I N A N C I A L P O S I T I O N consolidated assets was partially offset by the investments Consolidated assets Consolidated assets totalled $28.9 billion at December 31, in York, Mavis Discount Tire and AIT, in addition to acquisi- tions completed by Emerald Expositions, USI and EnGlobe and the inclusion of the investments held in the asset port- 2014 compared to $36.9 billion at December 31, 2013. Onex’ folios of three Onex Credit CLOs that closed during 2014. consolidated assets at December 31, 2014 decreased from Table 21 shows the consolidated assets by indus- December 31, 2013 due primarily to the sales of Allison try segment as at December 31, 2014, 2013 and 2012. The Trans mission, Tomkins, Mister Car Wash, Spirit AeroSys- industry segment’s percentage of consolidated assets held tems and The Warranty Group during 2014. The decrease in by continuing operations is also shown. Consolidated Assets by Industry Segment as at December 31 TABLE 21 ($ millions) 2014 Percentage breakdown 2013 Percentage breakdown 2012 Percentage breakdown Electronics Manufacturing Services $ 2,584 Healthcare Imaging(a) Health and Human Services(a) Customer Care Services Building Products Insurance Services(b) Credit Strategies(c) Other(d) Assets held by continuing operations Other – assets held by discontinued operations(e) 1,803 1,110 640 2,351 5,088 4,373 10,307 28,256 680 9% 6% 4% 2% 8% 18% 16% 37% 100% $ 2,639 10% $ 2,659 1,966 1,078 613 2,483 3,099 2,499 11,776 26,153 10,714 8% 4% 2% 9% 12% 10% 45% 100% 2,153 1,041 632 2,626 3,146 1,426 10,579 24,262 12,040 11% 9% 4% 3% 11% 13% 6% 43% 100% Total consolidated assets $ 28,936 $ 36,867 $ 36,302 (a) The healthcare imaging segment, consisting of Carestream Health, and the health and human services segment, consisting of ResCare, were previously included within the healthcare segment, which consisted of Carestream Health, ResCare, Skilled Healthcare Group and Center for Diagnostic Imaging (up to July 2012). Skilled Healthcare Group is recorded as a discontinued operation for the years ended December 31, 2014, 2013 and 2012. Center for Diagnostic Imaging is included within the other segment for the year ended December 31, 2012. (b) The insurance services segment consists of USI and York. USI was previously included within other. York began to be consolidated in October 2014, when the business was acquired by the Onex Partners III Group. (c) The credit strategies segment, consisting of (i) Onex Credit Manager, (ii) Onex Credit Collateralized Loan Obligations and (iii) Onex Credit Funds, was previously included within other. (d) December 2014 other includes the consolidated operations of Tropicana Las Vegas, SGS International, KraussMaffei, Emerald Expositions, the operating companies of ONCAP II and ONCAP III, Flushing Town Center, Meridian Aviation and the parent company. In addition, other includes the investments in AIT, BBAM, Mavis Discount Tire and certain Onex Real Estate Partners investments at fair value. December 2013 other includes the consolidated operations of Tropicana Las Vegas, SGS International, KraussMaffei, Emerald Expositions (since June 2013), the operating companies of ONCAP II and ONCAP III, Flushing Town Center, Meridian Aviation (since February 2013) 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, KraussMaffei, 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, BBAM, Hawker Beechcraft, RSI, Tomkins and certain Onex Real Estate Partners investments at fair value. (e) At December 31, 2014, the assets of Skilled Healthcare Group are included in the other segment as the company has been presented as a discontinued operation. At December 31, 2013, the assets of The Warranty Group, Spirit AeroSystems and Skilled Healthcare Group are included in the other segment as the companies have been presented as discontinued operations. At December 31, 2012, the assets of The Warranty Group, Spirit AeroSystems, Skilled Healthcare Group and TMS International are included in the other segment as the companies have been presented as discontinued operations. 56 Onex Corporation December 31, 2014 M A N A G E M E N T ’ S D I S C U S S I O N A N D A N A LY S I S Consolidated long-term debt, without recourse to Onex Corporation It has been Onex’ policy to preserve a ﬁnancially strong 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. parent company that has funds available for new acquisi- Total consolidated long-term debt (consisting of tions and to support the growth of its operating compa- the current and long-term portions of long-term debt, net nies. This policy means that all debt ﬁnancing is within of ﬁnancing charges) was $13.3 billion at December 31, the operating companies and each company is required to 2014 compared to $12.0 billion at December 31, 2013. Con- support its own debt without recourse to Onex Corporation solidated long-term debt does not include the debt of oper- or other Onex operating companies. ating businesses that are included in investments in joint The ﬁnancing arrangements of each operating ventures and associates as the investment in those busi- company typically contain certain restrictive covenants, nesses is accounted for at fair value and not consolidated. which may include limitations or prohibitions on addi- In addition, when operating companies are reported as dis- tional indebtedness, payment of cash dividends, redemp- continued operations, their long-term debt is excluded from tion of capital, capital spending, making of investments, consolidated long-term debt on a prospective basis. Prior and acquisitions and sales of assets. The ﬁnancing arrange- periods are not restated. For example, consolidated long- ments may also require the redemption of indebtedness in term debt at December 31, 2014 does not include the debt the event of a change of control of the operating company. of Skilled Healthcare Group; however, the debt of Skilled In addition, the operating companies that have outstand- Healthcare Group is included in consolidated long-term ing debt must meet certain ﬁnancial covenants. Changes debt at December 31, 2013 as the company was presented as in business conditions relevant to an operating company, a discontinued operation beginning in September 2014. Consolidated Long-Term Debt of Operating Companies, Without Recourse to Onex Corporation TABLE 22 ($ millions) Electronics Manufacturing Services Healthcare Imaging(a) Health and Human Services(a) Customer Care Services Building Products Insurance Services(b) Credit Strategies(c) Other(d)(e) Current portion of long-term debt of operating companies As at December 31, 2014 As at December 31, 2013 As at December 31, 2012 $ – 2,115 $ – 2,248 $ 55 1,735 455 750 804 2,644 3,431 3,083 13,282 (408) 353 740 661 1,605 1,723 4,640 11,970 (651) 364 725 547 1,626 801 4,617 10,470 (286) Total $ 12,874 $ 11,319 $ 10,184 (a) The healthcare imaging segment, consisting of Carestream Health, and the health and human services segment, consisting of ResCare, were previously included within the healthcare segment, which consisted of Carestream Health, ResCare and Skilled Healthcare Group. Skilled Healthcare Group is recorded as a discontinued operation for the years ended December 31, 2014 and 2013. (b) The insurance services segment consists of USI and York. USI was previously included within other. There are no comparative results for York. York began to be consolidated in October 2014, when the business was acquired by the Onex Partners III Group. (c) The credit strategies segment, consisting of (i) Onex Credit Manager, (ii) Onex Credit Collateralized Loan Obligations and (iii) Onex Credit Funds, was previously included within other. (d) At December 31, 2013, the long-term debt of The Warranty Group, Spirit AeroSystems and Skilled Healthcare Group are included in the other segment as the companies have been presented as discontinued operations. At December 31, 2012, the long-term debt of The Warranty Group, Spirit AeroSystems, Skilled Healthcare Group and TMS International are included in the other segment as the companies have been presented as discontinued operations. (e) December 31, 2014 other includes the consolidated operations of Tropicana Las Vegas, SGS International, KraussMaffei, Meridian Aviation, Emerald Expositions, the operating companies of ONCAP II and ONCAP III and Flushing Town Center. December 31, 2013 other includes the consolidated operations of Tropicana Las Vegas, SGS International, KraussMaffei, Meridian Aviation (since February 2013), Emerald Expositions (since June 2013), the operating companies of ONCAP II and ONCAP III and Flushing Town Center. December 31, 2012 other includes the consolidated operations of Tropicana Las Vegas, SGS International, KraussMaffei, the operating companies of ONCAP II and ONCAP III and Flushing Town Center. Onex Corporation December 31, 2014 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 Celestica (Electronics Manufacturing Services segment) In October 2014, Celestica amended its revolving credit facil- JELD-WEN (Building Products segment) In October 2014, JELD-WEN entered into new credit facili- ity to reduce the credit limit to $300 million and extend the ties consisting of a $775 million term loan and a $300 mil- maturity to October 2018. The revolving credit facility has lion revolving credit facility. The offering price of the term an accordion feature that allows the company to increase loan was 99 percent of par. Borrowings under the term loan the credit limit by an additional $150 million upon satisfac- bear interest at LIBOR (subject to a floor of 1 percent) plus tion of certain terms and conditions. At December 31, 2014 a margin of 4.25 percent. The term loan has no ﬁnancial and 2013, no amounts were outstanding under the revolv- maintenance covenants and matures in October 2021. ing credit facility. Celestica has issued $29 million (2013 – The revolving credit facility bears interest at LIBOR plus $30 million) of letters of credit under its revolving credit a margin of between 1.5 percent and 2 percent based on facility at December 31, 2014. ResCare (Health and Human Services segment) In April 2014, ResCare entered into a new $650 million the amount drawn under the revolving credit facility. There are no ﬁnancial maintenance covenants on the revolving credit facility unless the facility is 90 percent drawn. The revolving credit facility matures in October 2019. The pro- senior secured credit facility, which is available through ceeds from the credit facilities were primarily used to repay April 2019. The senior secured credit facility consists of a JELD-WEN’s former senior secured credit facility and to $250 million revolving credit facility, a $200 million term redeem all of the outstanding senior secured notes that loan and a $200 million delayed draw term loan. The senior bore interest at 12.25 percent. secured credit facility bears interest at LIBOR plus a margin As a result of the redemption of its senior secured of 2.25 percent. The term loan requires quarterly principal notes, JELD-WEN recognized a $50 million charge during repayments of $3 million beginning in September 2014. The the fourth quarter of 2014, which is included in interest required quarterly principal repayments increase through- expense in the consolidated statements of earnings. out the term until they reach $6 million in 2018. At December 31, 2014, the term loan with $775 mil- The proceeds from the new senior secured credit lion outstanding was recorded net of the unamortized dis- facility were used to repay ResCare’s former senior secured count of $7 million. JELD-WEN had no amounts outstanding credit facility, fund a $130 million distribution to sharehold- under its revolving credit facility at December 31, 2014. The ers, pay fees and expenses associated with the transaction amount available under the revolving credit facility was and for general corporate purposes. The Onex Partners I reduced by $39 million of letters of credit outstanding at and Onex Partners III Groups’ share of the distribution to December 31, 2014. shareholders was $120 million, of which Onex’ share was $25 million. In December 2010, ResCare issued $200 million of USI (Insurance Services segment) In May 2014, USI increased the senior secured term loan senior subordinated notes. The senior subordinated notes under its senior secured credit facility by $125 million. The bore interest at a rate of 10.75 percent and were repayable new term loan has the same terms as its existing senior at maturity in January 2019. In December 2014, ResCare secured term loan including a maturity date of December drew on its entire $200 million delayed draw term loan and 2019 and an interest rate of LIBOR (subject to a floor of a portion of its revolving credit facility to redeem all of the 1 percent) plus a margin of 3.25 percent or a base rate plus outstanding senior subordinated notes and pay accrued a margin of 2.25 percent. interest, fees, closing costs and other third-party expenses. The proceeds from the increased senior secured As a result of the redemption of its senior subordi- term loan were used to fund the company’s acquisition of nated notes, ResCare recognized a $15 million charge dur- 40 insurance brokerage and consulting ofﬁces across the ing the fourth quarter of 2014, which is included in interest United States from Wells Fargo Insurance. expense in the consolidated statements of earnings. At December 31, 2014, $1.1 billion and $20 mil- At December 31, 2014, $70 million and $392 mil- lion (2013 – $1.0 billion and nil) were outstanding under lion were outstanding under the revolving credit facility and the senior secured term loan and senior secured revolving term loans, respectively. The term loans are recorded net of credit facility, respectively. The senior secured term loan the unamortized discount of $1 million. is recorded net of the unamortized discount of $5 million 58 Onex Corporation December 31, 2014 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 – $5 million). In addition, USI had $1 million (2013 – The secured notes were offered in an aggregate $1 million) of letters of credit outstanding that were principal amount of $377 million, are due in April 2026 issued under its senior secured revolving credit facility at and bear interest at a rate of LIBOR plus a margin of 1 per- December 31, 2014. York (Insurance Services segment) In October 2014, York entered into a senior secured credit facility consisting of a $555 million ﬁrst-lien term loan, a $60 million delayed draw term loan and a $100 million cent to 5.25 percent, payable beginning in October 2014. At December 31, 2014, the fair value of the notes of Onex Credit CLO-5 was $359 million. Onex Credit CLO-6 (Credit Strategies segment) In June 2014, Onex Credit closed its sixth CLO (“Onex Credit revolving credit facility. Borrowings under the term loans CLO-6”). Onex Credit CLO-6 issued notes and a secured bear interest at LIBOR (subject to a floor of 1 percent) plus loan (together, the “Secured Obligations”), subordinated a margin of 3.75 percent. The term loans require quarterly notes and equity in a private placement transaction in amortization repayments, and can be repaid in whole or an aggregate amount of $1.0 billion. The subordinated in part without premium or penalty at any time before notes and equity are equally subordinated to the Secured maturity in October 2021. The revolving credit facility Obligations of Onex Credit CLO-6. Onex invested $83 mil- bears interest at LIBOR plus a margin of 3.75 percent and lion to acquire all of the equity of Onex Credit CLO-6 and matures in October 2019. At December 31, 2014, the term $7 million for all of the subordinated notes of Onex Credit loans with $613 million outstanding were recorded net of CLO-6. In July 2014, Onex sold its investment in the subordi- unamortized discounts of $4 million and $22 million was nated notes at the same cost basis as its original investment. outstanding under the revolving credit facility. The Secured Obligations were offered in an During the fourth quarter of 2014, York completed aggregate principal amount of $910 million, are due in July offerings of $315 million in aggregate principal amount of 2026 and bear interest at a rate of LIBOR plus a margin of 8.5 percent senior unsecured notes due in October 2022. 1.35 percent to 5.60 percent, payable beginning in Janu- Interest is payable semi-annually beginning in April 2015. ary 2015. The senior unsecured notes may be redeemed by the At December 31, 2014, the fair value of the Secured company at any time at various premiums above face Obligations and subordinated notes of Onex Credit CLO-6 value. At December 31, 2014, the senior unsecured notes was $892 million. with $315 million outstanding were recorded net of an embedded derivative of $13 million associated with the senior unsecured notes. Onex Credit CLO-7 (Credit Strategies segment) In November 2014, Onex Credit closed its seventh CLO (“Onex Credit CLO-7”). Onex Credit CLO-7 issued notes Onex Credit CLO-5 (Credit Strategies segment) In November 2013, Onex Credit established a warehouse and a secured loan (together, the “Secured Obligations”), subordinated notes and equity in a private placement facility in connection with its ﬁfth CLO (“Onex Credit transaction in an aggregate amount of $514 million. The CLO-5”). In November 2013 and February 2014, Onex pur- subordinated notes and equity are equally subordinated chased a total of $40 million of notes to support the ware- to the Secured Obligations of Onex Credit CLO-7. Onex house facility’s total return swap (“TRS”). The notes did not invested $32 million to acquire all of the equity of Onex have a stated rate of interest, but received excess available Credit CLO-7 and $9 million for all of the Class E notes of funds from the termination of the TRS upon the closing Onex Credit CLO-7. of Onex Credit CLO-5 in March 2014. Onex Credit CLO-5 The Secured Obligations were offered in an aggre- issued notes and equity in a private placement transac- gate principal amount of $472 million, are due in October tion in an aggregate amount of $420 million. Upon closing, 2026 and bear interest at a rate of LIBOR plus a margin of Onex received $40 million plus interest for the notes sup- 1.60 percent to 5.75 percent, payable beginning in April 2015. porting the warehouse facility and invested $43 million to At December 31, 2014, the fair value of the Secured acquire all of the equity of Onex Credit CLO-5, which is the Obligations and subordinated notes of Onex Credit CLO-7 most subordinated capital in Onex Credit CLO-5. was $461 million. Onex Corporation December 31, 2014 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 Emerald Expositions (Other segment) In January 2014, Emerald Expositions amended its credit Flushing Town Center (Other segment) In May 2014, Flushing Town Center entered into new credit facility to increase its term loan by $200 million to par- facilities with third-party lenders consisting of a $195 mil- tially fund its acquisition of GLM. The addition to the lion mortgage loan and $70 million of mezzanine loans. term loan continues to bear interest at LIBOR (subject to Borrowings under the mortgage loan bear interest at a floor of 1.25 percent) plus a margin of 4.25 percent and LIBOR (subject to a floor of 0.15 percent) plus 2.25 percent. requires quarterly repayments until maturity in June 2020. The mezzanine loans consist of two loans: (i) $20 million In July 2014, Emerald Expositions amended its bearing interest at LIBOR (subject to a floor of 0.15 percent) credit facility to reduce the rate at which borrowings under plus 6.25 percent (“mezzanine A loan”) and (ii) $50 million its term loan bear interest to LIBOR (subject to a floor of bearing interest at LIBOR (subject to a floor of 0.15 percent) 1.00 percent) plus a margin of 3.75 percent. The amend- plus 10.72 percent (“mezzanine B loan”). The mortgage and ment resulted in a total interest rate reduction of 0.75 per- mezzanine loans mature in June 2016 and have three one- cent on the company’s term loan. year extension options. At December 31, 2014, the term loan with $577 mil- At December 31, 2014, $195 million was outstand- lion (2013 – $428 million) outstanding was recorded net of ing under the mortgage loan, $20 million was outstanding the unamortized discount of $9 million (2013 – $4 million). under the mezzanine A loan and $50 million was outstand- ing under the mezzanine B loan. PURE Canadian Gaming (Other segment) In May 2014, PURE Canadian Gaming entered into a new The proceeds from the new credit facilities, along with a $95 million equity investment from Onex Real Estate credit facility consisting of a C$150 million term loan and Partners, were used to repay the third-party lenders of the a C$60 million revolving credit facility. Borrowings under existing senior construction loan. Onex’ share of Onex Real the credit facility bear interest at a bankers’ acceptance rate Estate Partners’ equity investment was $84 million. plus a margin of up to 3.75 percent, depending on PURE At December 31, 2014, Onex Real Estate Partners Canadian Gaming’s leverage ratio, until maturity in May continued to hold a total of $82 million, including accrued 2019. The net proceeds from the credit facility were used interest, of the existing senior construction and mezzanine to repay existing debt facilities, to repurchase $31 million loans of Flushing Town Center, which are subordinate to (C$34 million) of subordinate notes held primarily by the the new credit facilities. ONCAP II Group and the ONCAP III Group and to fund a $10 million (C$11 million) distribution to shareholders. The ONCAP II and III Groups’ share of the repurchase of Meridian Aviation (Other segment) In December 2014, Meridian Aviation entered into loan subordinated notes and the distribution to shareholders agreements in connection with the purchase of an air- was $41 million (C$45 million), of which Onex’ share was craft. The loan agreements consist of a $138 million senior $18 million (C$20 million). debt loan, a $42 million (¥4.9 billion) senior Yen loan and a At December 31, 2014, $129 million (C$150 million) $50 million revolving credit facility. The senior debt loan and and $10 million (C$12 million) were outstanding under the senior Yen loan mature in December 2026 and are secured term loan and revolving credit facility, respectively. by the aircraft. Borrowings under the revolving credit facility mature in April 2015 and are guaranteed and reimbursable by capital calls from the limited partners of Onex Part- ners III. At December 31, 2014, $138 million was outstand- ing under the senior debt loan, $41 million (¥4.9 billion) was outstanding under the senior Yen loan and $50 million was outstanding under the revolving credit facility. 60 Onex Corporation December 31, 2014 M A N A G E M E N T ’ S D I S C U S S I O N A N D A N A LY S I S Table 23 details the aggregate debt maturities at December 31, 2014 for Onex’ consolidated operating businesses for each of the years up to 2020 and in total thereafter. As investments in joint ventures and associates are also included in the table, the total amount is in excess of the reported consolidated debt. As the following table illustrates, most of the maturities occur in 2019 and thereafter. Debt Maturity Amounts by Year TABLE 23 ($ millions) 2015 2016 2017 2018 2019 2020 Thereafter Total Consolidated operating companies(a) $ 408 $ 642 $ 695 $ 952 $ 4,088 $ 1,426 $ 2,407 $ 10,618 Investments in joint ventures and associates 2 2 2 2 2 212 – 222 Total $ 410 $ 644 $ 697 $ 954 $ 4,090 $ 1,638 $ 2,407 $ 10,840 (a) Includes debt amounts of subsidiaries held by Onex, the parent company, and are gross of financing fees. Excludes debt of the Onex Credit CLOs, which are collateralized by the asset portfolio held by each respective CLO, and debt amounts of Skilled Healthcare Group, which is a discontinued operation. Limited Partners’ Interests Limited Partners’ Interests liability represents the fair value The current portion of the Limited Partners’ Interests was $23 million at December 31, 2014 and represented the of limited partners’ invested capital in the Onex Partners Limited Partners’ share of proceeds on the sale of the resid- and ONCAP Funds. The Limited Partners’ Interests liability ual assets of Tomkins. is affected by the change in the fair value of the underlying The Limited Partners’ Interests liability increased investments in the Onex Partners and ONCAP Funds, the by $867 million for contributions made in 2014, which con- impact of the carried interest, as well as any contributions sisted primarily of amounts received from (i) the limited by and distributions to limited partners in those Funds. partners of Onex Partners III for their acquisition of York, At December 31, 2014, Limited Partners’ Interests their add-on investment in Emerald Expositions, their liability totalled $5.2 billion, a decrease of $1.8 billion from investment in common stock of JELD-WEN and their add- the balance at December 31, 2013. on investment in Meridian Aviation; (ii) the limited part- ners of Onex Partners IV for their investment in AIT; (iii) Table 24 shows the change in Limited Partners’ Interests the limited partners of ONCAP III for their investment in from December 31, 2012 to December 31, 2014. Mavis Discount Tire; and (iv) the limited partners of the Onex Partners and ONCAP Funds for management fees Limited Partners’ Interests and partnership expenses. TABLE 24 ($ millions) Balance – December 31, 2012 Limited Partners’ Interests charge Contributions by Limited Partners Distributions paid to Limited Partners Balance – December 31, 2013 Limited Partners’ Interests charge Contributions by Limited Partners Contributions totalled $401 million for the year ended December 31, 2013 primarily from (i) the lim- $ 6,243 ited partners of Onex Partners III for their investment in 1,855 401 (1,540) 6,959 1,069 867 Emerald Expositions; (ii) certain limited partners of Onex Partners III and others for their investment in the USI co- investment; (iii) the limited partners of ONCAP II for their add-on investments in EnGlobe and Pinnacle Renewable Energy Group; and (iv) the limited partners of the Onex Partners and ONCAP Funds for management fees and part- Distributions paid to Limited Partners (3,719) nership expenses. Balance – December 31, 2014 Current portion of Limited Partners’ Interests 5,176 (23) $ 5,153 During 2014, the Limited Partners’ Interests lia- bility was reduced by $3.7 billion of distributions. The Onex Partners I Group distributed $857 million to its lim- ited partners primarily for their share of the sales of Spirit AeroSystems and The Warranty Group and the distribution Onex Corporation December 31, 2014 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 received from ResCare. The Onex Partners II Group distrib- uted $1.2 billion to its limited partners primarily for their Equity Total equity was $2.5 billion at December 31, 2014 compared share of the proceeds on the sales of Allison Transmission to $4.3 billion at December 31, 2013. Table 25 provides a rec- and The Warranty Group and dividends received from onciliation of the change in equity from December 31, 2013 Allison Transmission. The Onex Partners III Group distrib- to December 31, 2014. Onex’ audited annual consolidated uted $1.4 billion to its limited partners for their share of the statements of equity also show the changes to the com- distributions received from ResCare and BBAM and their ponents of equity for the years ended December 31, 2014 share of the proceeds on the sale of Tomkins. The ONCAP II and 2013. Group and ONCAP III Group distributed a total of $23 mil- lion to their limited partners for their share of the distribu- Change in Equity tion received from PURE Canadian Gaming. In addition, the ONCAP II Group distributed $178 million to its limited part- TABLE 25 ($ millions) ners for the proceeds on the sale of Mister Car Wash. Balance – December 31, 2013 $ 4,345 During the year ended December 31, 2013, the Dividends declared Limited Partners’ Interests liability was reduced by $1.5 bil- Shares repurchased and cancelled lion of distributions primarily to the limited partners of Investments by shareholders other than Onex Onex Partners I, Onex Partners II, Onex Partners III and Distributions to non-controlling interests ONCAP II. Onex Partners I distributed $24 million to its Repurchase of shares of operating companies limited partners for their share of the distribution from The Sale of interests in operating company under Warranty Group. Onex Partners II distributed $1.1 billion continuing control to its limited partners for their share of (i) the proceeds on Investment in operating company under continuing control the October 2013 sale of TMS International, as well as the Non-controlling interests on sale of investment dividends received during 2013; (ii) the proceeds on the February 2013 sale of RSI; (iii) the dividends and return of in operating company Net earnings for the period capital from Carestream Health; (iv) the proceeds on the Other comprehensive loss for the period, net of tax partial sale of shares of Allison Transmission, as well as the Equity as at December 31, 2014 (18) (150) 275 (11) (167) 171 (65) (1,761) 159 (280) $ 2,498 dividends received during 2013; and (v) the distribution from The Warranty Group. Onex Partners III distributed $63 million to its limited partners and others primarily for their share of the principal repayments and accrued inter- est on the convertible promissory notes of JELD-WEN. Distributions of $307 million were paid to the limited part- ners 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. At December 31, 2014, total carried interest net- ted against the Limited Partners’ Interests in Onex’ audited annual consolidated balance sheets was $315 million, of which Onex’ share was $115 million. Investments by shareholders other than Onex Onex recorded an increase in consolidated equity of $275 million during 2014 due to an increase in investments in operating companies by shareholders other than Onex, including $71 million associated with York and its acquisi- tions. In addition, stock-based compensation provided to employees at the operating companies contributed to the increase during 2014. Repurchase of shares of operating companies Onex reported a decrease in equity of $167 million during 2014 due primarily to Celestica’s repurchase of its shares in The Limited Partners’ Interests charge recorded the open market. for 2014 is discussed in detail on page 45 of this MD&A. Sale of interests in operating company under continuing control During the ﬁrst quarter of 2014, Onex recorded an equity increase of $171 million as a result of the Onex Partners I Group’s March 2014 sale of a portion of its ownership inter- est in Spirit AeroSystems. This sale did not result in a loss 62 Onex Corporation December 31, 2014 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 control of Spirit AeroSystems by Onex at the time of the Onex also has 100,000 Multiple Voting Shares outstand- transaction. Therefore, of the $171 million of net proceeds ing, which have a nominal paid-in value reflected in Onex’ received in this offering, $69 million was transferred to audited annual consolidated ﬁnancial statements. Note 17 the non-controlling interests, representing the historical to the audited annual consolidated ﬁnancial statements accounting carrying value attributable to the portion of the provides additional information on Onex’ share capital. investment sold, with the remaining $102 million of pro- There was no change in the Multiple Voting Shares out- ceeds in excess of the historical accounting carrying value standing during 2014. recorded directly to retained earnings. The amount trans- In January 2015, in connection with acquiring con- ferred to the non-controlling interests was removed from trol of the Onex Credit asset management platform as dis- equity in June 2014 when the Onex Partners I Group sold cussed on page 31 of this MD&A, Onex issued 111,393 of its shares of Spirit AeroSystems, as discussed below. Subordinate Voting Shares as part of the consideration in the transaction. Non-controlling interests on sale of investment in operating company Onex recorded a decrease in equity of $1.8 billion dur- Dividend policy In May 2014, Onex increased its quarterly dividend by ing 2014 related primarily to non-controlling interests in 33 percent to C$0.05 per Subordinate Voting Share begin- Spirit AeroSystems. Under IFRS, non-controlling interests ning with the dividend declared by the Board of Directors represent the ownership interests of shareholders, other in July 2014. In May 2013, Onex increased its quarterly divi- than Onex and its third-party limited partners in the Onex dend by 36 percent to C$0.0375 per Subordinate Voting Partners and ONCAP Funds, in Onex’ controlled operat- Share beginning in July 2013. Registered shareholders can ing companies. Prior to the June 2014 sale of shares of elect to receive dividend payments in U.S. dollars by sub- Spirit AeroSystems, the non-controlling interests balance mitting a completed currency election form to CST Trust included the ownership interests of Spirit AeroSystems’ Company ﬁve business days before the record date of the public shareholders. The June 2014 sale of shares of Spirit dividend. Non-registered shareholders who wish to receive AeroSystems by the Onex Partners I Group resulted in a loss dividend payments in U.S. dollars should contact their of control of the investment. The non-controlling interests broker to submit their currency election. attributable to Spirit AeroSystems have been removed from equity since the operations of Spirit AeroSys tems are no longer consolidated. Dividend Reinvestment Plan Onex’ Dividend Reinvestment Plan enables Canadian shareholders to reinvest cash dividends to acquire new Shares outstanding At December 31, 2014, Onex had 108,858,066 Subordinate Subordinate Voting Shares of Onex at a market-related price at the time of reinvestment. During 2014, Onex issued 7,952 Voting Shares issued and outstanding. Table 26 shows the Subordinate Voting Shares at an average cost of C$61.18 per change in the number of Subordinate Voting Shares out- Subordinate Voting Share, creating a cash savings of less standing from December 31, 2013 to January 31, 2015. than $1 million (less than C$1 million). During the year Change in Subordinate Voting Shares Outstanding Voting Shares at an average cost of C$48.33 per Subordinate ended December 31, 2013, Onex issued 8,062 Subordinate TABLE 26 Subordinate Voting Shares outstanding at December 31, 2013 111,444,100 Shares repurchased under Onex’ Normal Course Issuer Bids Issuance of shares – Dividend Reinvestment Plan Issuance of shares – Onex Credit transaction Subordinate Voting Shares outstanding (3,026,686) 10,053 111,393 at January 31, 2015 108,538,860 Voting Share, creating a cash savings of less than $1 million (less than C$1 million). Onex Corporation December 31, 2014 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 Stock Option Plan Onex, the parent company, has a Stock Option Plan in place During 2013, 8,660,526 options were surren- dered at a weighted average exercise price of C$16.34 for that provides for options and/or share appreciation rights aggregate cash consideration of $292 million (C$299 mil- to be granted to Onex directors, ofﬁcers and employees for lion) and 168,851 options expired. In addition, during the acquisition of Subordinate Voting Shares of Onex, the 2013, 3,402,000 options were issued at an exercise price parent company, for a term not exceeding 10 years. The of C$56.92 per share, all of which were issued during the options vest equally over ﬁve years, with the exception of fourth quarter of 2013. a total of 6,775,000 options, which vest at a rate of 15 per- In January 2015, in connection with acquiring cent per year during the ﬁrst four years and 40 percent in control of the Onex Credit asset management platform as the ﬁfth year. The exercise price of the options issued is at discussed on page 31 of this MD&A, Onex issued 60,000 the market value of the Subordinate Voting Shares on the options to acquire Subordinate Voting Shares to Onex business day preceding the day of the grant. Vested options Credit’s chief executive ofﬁcer. The options have an exercise are not exercisable unless the average ﬁve-day market price price of C$68.57 per share and vest at a rate of 20 percent of Onex Subordinate Voting Shares is at least 25 percent per year from the date of grant. The options are subject to greater than the exercise price at the time of exercise. the same terms and conditions as the Company’s existing At December 31, 2014, Onex had 12,411,542 options Stock Option Plan; however, the options are also subject to outstanding to acquire Subordinate Voting Shares, of which an additional performance threshold speciﬁc to the Onex 3,082,791 options were vested and exercisable. Table 27 pro- Credit asset management platform. vides information on the activity during 2014 and 2013. Change in Stock Options Outstanding TABLE 27 Number of Options Weighted Average Exercise Price Outstanding at December 31, 2012 13,294,552 3,402,000 C$ 20.96 C$ 56.92 Granted Surrendered Expired Normal Course Issuer Bids Onex had Normal Course Issuer Bids (the “Bids”) in place during 2014 that enable it to repurchase up to 10 percent of its public float of Subordinate Voting Shares during the period of the relevant Bid. Onex believes that it is advanta- geous to Onex and its shareholders to continue to repur- chase Onex’ Subordinate Voting Shares from time to time (8,660,526) C$ 16.34 when the Subordinate Voting Shares are trading at prices (168,851) C$ 33.51 that reflect a signiﬁcant discount to their value as per- Outstanding at December 31, 2013 Granted Surrendered Expired 7,867,175 4,928,500 C$ 41.34 C$ 58.65 (377,483) C$ 19.47 (6,650) C$ 41.35 Outstanding at December 31, 2014 12,411,542 C$ 48.88 During 2014, 377,483 options were surrendered at a weighted average exercise price of C$19.47 for aggregate cash consideration of $15 million (C$16 million) and 6,650 options expired. In addition, during 2014, 4,928,500 options were issued at a weighted average exercise price of C$58.65 per share, of which 903,500 options were issued during the fourth quarter of 2014. The options issued during 2014 vest at a rate of 20 percent per year from the date of grant, with the exception of 4,025,000 options issued in January 2014 and December 2014 that vest at a rate of 15 percent per year during the ﬁrst four years and 40 percent in the ﬁfth year. ceived by Onex. On April 16, 2014, Onex renewed its Normal Course Issuer Bid (“NCIB”) following the expiry of its previ- ous NCIB on April 15, 2014. Under the new NCIB, Onex is permitted to purchase up to 10 percent of its public float of Subordinate Voting Shares, or 8,620,038 Subordinate Voting Shares. Onex may purchase up to 31,274 Subordinate Voting Shares during any trading day, being 25 percent of its aver- age daily trading volume for the six-month period ended March 31, 2014. Onex may also purchase Subordinate Voting Shares from time to time under the Toronto Stock Exchange’s block purchase exemption, if available, under the new NCIB. The new NCIB commenced on April 16, 2014 and will conclude on the earlier of the date on which pur- chases under the NCIB have been completed and April 15, 2015. A copy of the Notice of Intention to make the NCIB ﬁled with the Toronto Stock Exchange is available at no charge to shareholders by contacting Onex. 64 Onex Corporation December 31, 2014 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 November 2014, Onex announced that it had cost per share of C$69.93. Under similar Bids, Onex repur- received an order from the Ontario Securities Commission chased 2,060,400 Subordinate Voting Shares at a total cost permitting it to make private agreement purchases of of $100 million (C$102 million) during 2013. Onex’ Subordinate Voting Shares from an arm’s length Included in the shares repurchased under the third-party seller. Any purchases of Subordinate Voting NCIB during the year ended December 31, 2014 was Onex’ Shares made pursuant to the order will be at a discount July 2014 repurchase of 1,000,000 of its Subordinate Voting to the prevailing market price and may be made in one or Shares in a private transaction for a cash cost of C$65.99 more tranches. The purchases must otherwise comply with per Subordinate Voting Share, or $62 million (C$66 million), the terms of the order, including that only one such pur- which represented a slight discount to the trading price chase is permitted per calendar week, the purchases can- of Onex shares at that date. The shares were held indir- not occur after the expiry of Onex’ NCIB on April 15, 2015, ectly by Mr. Gerald W. Schwartz, who is Onex’ controlling and the total number of shares which may be purchased shareholder. under the order is limited to 2,873,346, being one-third of In November 2013, Onex repurchased 1,000,000 of the total number of Subordinate Voting Shares that other- its Subordinate Voting Shares in a private transaction for wise could have been purchased under the NCIB. a cash cost of C$56.50 per Subordinate Voting Share, or Under the previous NCIB that expired on April 15, $53 million (C$57 million), which represented a slight dis- 2014, Onex repurchased 1,567,614 Subordinate Voting Shares count to the trading price of Onex shares at that date. The at a total cost of $82 million (C$86 million), or an aver- shares were held indirectly by Mr. Gerald W. Schwartz. age purchase price of C$54.92 per share. For the year These shares are excluded from the shares repurchased ended December 31, 2014, Onex repurchased 2,593,986 under the NCIB during the year ended December 31, 2013. Subordinate Voting Shares under its Bids for a total cost The shares repurchased in a private transaction of $150 million (C$163 million), or an average cost per during the year ended December 31, 2014 are included in share of C$62.98. In addition, Onex repurchased 432,700 the shares repurchased under the NCIB due to a change in Subordinate Voting Shares under its NCIB in January 2015 regulation. for a total cost of $24 million (C$30 million), or an average Included in table 28 below is a summary of Onex’ repurchases of Subordinate Voting Shares under its NCIB for the last 10 years. TABLE 28 2005 2006 2007 2008 2009 2010 2011 2012 2013(1) 2014 Total (1) Includes 1,000,000 Subordinate Voting Shares repurchased in a private transaction. Shares Repurchased Total Cost of Shares Repurchased (in C$ millions) Average Share Price (in C$ per share) 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 2,593,986 C$ 18 C$ 18.93 203 113 101 41 52 105 24 159 163 22.17 33.81 28.89 23.04 25.44 33.27 38.59 51.81 62.98 30,225,974 C$ 979 C$ 32.40 Onex Corporation December 31, 2014 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 Director Deferred Share Unit Plan During the second quarter of 2014, an annual grant of 29,537 Management Deferred Share Unit Plan In early 2014, Onex issued 97,704 Management Deferred Deferred Share Units (“DSUs”) was issued to directors hav- Share Units (“MDSUs”) to management having an aggre- ing an aggregate value, at the date of grant, of $2 million gate value, at the date of grant, of $5 million (C$6 million) (C$2 million) in lieu of that amount of cash compensation in lieu of that amount of cash compensation for Onex’ 2013 for directors’ fees (2013 – 30,537 DSUs at a cost of approxi- ﬁscal year. During 2014, an additional 1,560 MDSUs (2013 – mately $2 million (C$2 million)). During 2014, an additional 1,226) were issued to management in lieu of cash dividends 11,710 DSUs (2013 – 11,969 DSUs) were issued to directors in on outstanding MDSUs. At December 31, 2014, there were lieu of cash directors’ fees and for dividends on outstand- 566,494 (2013 – 467,230) MDSUs outstanding. In early 2015, ing DSUs. At December 31, 2014, there were 584,507 (2013 – Onex issued 116,037 MDSUs to management having an 543,260) Director DSUs outstanding. In June 2014, Onex aggregate value, at the date of grant, of $7 million (C$8 mil- entered into a forward agreement with a counterparty lion) in lieu of that amount of cash compensation for Onex’ ﬁnancial institution to hedge Onex’ exposure to changes in 2014 ﬁscal year. Forward agreements were entered into with the market value of its Subordinate Voting Shares associated a counterparty ﬁnancial institution to hedge Onex’ exposure with 325,000 of the outstanding Director DSUs for a cash to changes in the value of all the outstanding MDSUs. payment of $20 million (C$21 million), or C$65.97 per share. Including a prior forward agreement, Onex has hedged sub- DSUs and MDSUs must be held until leaving the employ- stantially all of the outstanding Director DSUs with a coun- ment of Onex or retirement from the Board. Table 29 recon- terparty ﬁnancial institution. ciles the changes in the DSUs and MDSUs outstanding at December 31, 2014 from December 31, 2012. Change in Outstanding Deferred Share Units TABLE 29 Outstanding at December 31, 2012 Granted Additional units issued in lieu of compensation and cash dividends Outstanding at December 31, 2013 Granted Additional units issued in lieu of compensation and cash dividends Outstanding at December 31, 2014 Hedged with a counterparty financial institution Outstanding at December 31, 2014 – Unhedged Director DSU Plan Management DSU Plan Number of DSUs Weighted Average Price Number of MDSUs Weighted Average Price 500,754 30,537 11,969 543,260 29,537 11,710 584,507 (577,051) 7,456 C$ C$ 49.94 51.66 C$ 63.00 C$ 64.01 466,004 – 1,226 467,230 – – C$ 49.48 – 99,264 C$ 58.40 566,494 (566,494) – Management of capital Onex considers the capital it manages to be the amounts • preserve a ﬁnancially strong parent company with appropriate liquidity and no, or a limited amount of, it has in cash and cash equivalents and near-cash invest- debt so that funds are available to pursue new acqui- ments, and the investments made by it in the operating sitions and growth opportunities, as well as support businesses, Onex Real Estate Partners and Onex Credit. expansion of its existing businesses. Onex does not gen- Onex also manages the capital from other investors in erally have the ability to draw cash from its operating the Onex Partners, ONCAP and Onex Credit Funds. Onex’ businesses. Accordingly, maintaining adequate liquidity objectives in managing capital are to: at the parent company is important; • achieve an appropriate return on capital invested com- mensurate with the level of assumed risk; • build the long-term value of its operating businesses; 66 Onex Corporation December 31, 2014 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 • control the risk associated with capital invested in any 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 particular business or activity. All debt ﬁnancing is within the operating businesses and each company is required This section should be read in conjunction with the to support its own debt. Onex Corporation does not audited annual consolidated statements of cash flows and guarantee the debt of the operating businesses and there the corresponding notes thereto. Table 30 summarizes the are no cross-guarantees of debt between the operating major consolidated cash flow components for the years businesses; and ended December 31, 2014 and 2013. • have appropriate levels of committed limited partners’ capital available to invest along with Onex’ capital. This Major Cash Flow Components allows Onex to respond quickly to opportunities and pursue acquisitions of businesses of a size it could not TABLE 30 ($ millions) 2014 2013 achieve using only its own capital. The management of Cash from operating activities $ 989 $ 1,586 limited partners’ capital also provides management fees Cash used in financing activities $ (1,624) $ (858) to Onex and the ability to enhance Onex’ returns by earn- Cash from (used in) investing activities $ 1,236 $ (192) ing a carried interest on the proﬁts of limited partners. Consolidated cash and cash equivalents held by continuing operations $ 3,764 $ 2,618 At December 31, 2014, Onex, the parent company, had approximately $2.5 billion of cash on hand and $346 mil- lion of near-cash items at market value. Cash from operating activities Table 31 provides a breakdown of cash from operating Onex, the parent company, has a conservative activities by cash generated from operations and changes cash management policy that limits its cash investments in non-cash working capital items, other operating activi- to short-term high-rated money market instruments. This ties and operating activities of discontinued operations for policy is driven toward maintaining liquidity and preserv- the years ended December 31, 2014 and 2013. ing principal in all money market investments. At December 31, 2014, Onex had access to $4.3 bil- Components of Cash from Operating Activities lion of uncalled committed limited partners’ capital for acquisitions through Onex Partners IV ($4.0 billion) and TABLE 31 ($ millions) 2014 2013 ONCAP III (C$289 million). The strategy for risk manage- Cash generated from operations $ 1,140 $ 920 ment of capital did not change in 2014. Changes in non-cash working capital items: Non-controlling interests Non-controlling interests in equity in Onex’ audited annual Accounts receivable Inventories Other current assets consolidated balance sheets as at December 31, 2014 primar- Accounts payable, accrued liabilities ily represent the ownership interests of shareholders, other and other current liabilities than Onex and its limited partners in its Funds, in Onex’ Increase (decrease) in cash and cash controlled operating companies. The non-controlling inter- equivalents due to changes in non-cash ests balance at December 31, 2014 decreased to $1.7 billion working capital items from $3.2 billion at December 31, 2013. The decrease was Decrease in other operating activities primarily due to the Onex Partners I Group’s June 2014 sale Cash flows from operating activities of (238) (146) (122) 60 (446) (55) 29 51 22 (2) 100 (99) of shares of Spirit AeroSystems, which resulted in Onex no discontinued operations 350 665 longer consolidating Spirit AeroSystems as it lost control of the investment, and accordingly decreased the non-con- trolling interests balance by $1.7 billion. The decrease in non-controlling interests was partially offset by the non- controlling interests’ share of net earnings of $274 million in 2014. Additional information about non-controlling interests is provided in note 18 to the audited annual consolidated ﬁnancial statements. Cash from Operating Activities $ 989 $ 1,586 Cash generated from operations includes net loss before interest and income taxes, adjusted for cash taxes paid and items not affecting cash and cash equivalents. Onex Corporation December 31, 2014 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 The signiﬁcant changes in non-cash working capital items Partially offsetting these were: for the year ended December 31, 2014 were: • $2.5 billion of net new long-term debt primarily from the • a $238 million increase in accounts receivable primarily note issuances by three new Onex Credit CLOs and debt at Celestica, KraussMaffei, Sitel Worldwide and USI; raised by Emerald Expositions, JELD-WEN, Meridian • a $146 million increase in inventories primarily at Meri- Aviation and USI; dian Aviation due to the purchase of an aircraft, partially • $867 million of cash received primarily from the lim- offset by a decrease in inventory at Celestica; and ited partners of Onex Partners III, Onex Partners IV and • a $122 million increase in other current assets primarily at ONCAP III, as discussed under the Limited Partners’ Inter- USI due to an increase in restricted cash. ests on page 61 of this MD&A; and • $171 million of cash received from the Onex Partners I Cash from operating activities for the year ended De cem- Group’s March 2014 sale of shares of Spirit AeroSystems. ber 31, 2014 also included $350 million (2013 – $665 million) of cash flows from the operating activities of discontinued For the year ended December 31, 2013, cash used in operations. Discontinued operations for the year ended ﬁnancing activities was $858 million. Included in cash used December 31, 2014 represent the operations of The Warranty in ﬁnancing activities for 2013 were: Group, Spirit AeroSystems and Skilled Healthcare Group. • $1.5 billion of distributions primarily to the limited part- Discontinued operations for the year ended December 31, ners of Onex Partners II and ONCAP II, as discussed under 2013 represent the operations of The Warranty Group, the Limited Partners’ Interests on page 61 of this MD&A; Spirit AeroSystems, Skilled Healthcare Group and TMS • $564 million of cash interest paid; International. • $256 million of cash used in ﬁnancing activities of dis- continued operations; Cash used in ﬁnancing activities Cash used in ﬁnancing activities was $1.6 billion for 2014 • $153 million of cash used by Onex, the parent company, for purchases of its shares; and compared to $858 million for 2013. Cash used in ﬁnancing • $109 million of cash used primarily by Carestream Health activities for 2014 included: and Celestica for the repurchase of share capital. • $3.7 billion of distributions primarily to the limited part- ners of the Onex Partners Funds and ONCAP II, as dis- Partially offsetting these were: cussed under the Limited Partners’ Interests on page 61 • $1.4 billion of net new long-term debt primarily from of this MD&A; • $720 million of cash interest paid; the note issuance of Onex Credit CLO-3 and Onex Credit CLO-4 and the debt raised by Carestream Health during • $220 million of cash used in ﬁnancing activities of dis- the second quarter of 2013; and continued operations primarily related to an increase • $401 million of cash received primarily from the lim- of restricted cash by Spirit AeroSystems for its share ited partners of Onex Partners III for their investment in repurchase; Emerald Expositions, certain limited partners of Onex • $165 million of cash used by Celestica for purchases of its Partners III and others for their co-investment in USI and shares in the open market; the limited partners of the Onex Partners and ONCAP • $150 million of cash used by Onex, the parent company, Funds for management fees and partnership expenses. for purchases of its shares under its Bids; and • $65 million invested to acquire common stock of JELD- WEN from existing shareholders. 68 Onex Corporation December 31, 2014 M A N A G E M E N T ’ S D I S C U S S I O N A N D A N A LY S I S Cash from (used in) investing activities Cash from investing activities totalled $1.2 billion for the Partially offsetting these were: • $1.1 billion received primarily on the sales of TMS Inter- year ended December 31, 2014 compared to cash used in national ($410 million), BSN SPORTS ($224 million) and investing activities of $192 million during 2013. Cash from Caliber Collision ($426 million); investing activities primarily consisted of: • $908 million received on the sales of RSI ($323 mil- • $5.7 billion of cash proceeds received primarily from the lion) and a portion of the shares of Allison Transmission sale of Tomkins ($2.0 billion), the sales of Allison Trans- ($585 million); and mis sion shares ($1.5 billion), the sale of The Warranty • $277 million of proceeds on the sale of property, plant Group ($1.1 billion), the sales of Spirit AeroSys tems and equipment consisting primarily of proceeds on the shares ($729 million) and the sale of Mister Car Wash sale of two aircraft by Meridian Aviation. ($375 million); • $226 million of proceeds received from the sale of prop- In addition, there was $526 million (2013 – $568 million) of erty, plant and equipment consisting primarily of pro- cash used for purchases of property, plant and equipment ceeds on the sale of two aircraft by Meridian Aviation; and by Onex’ operating companies during 2014. Table 32 details • $125 million of cash interest received. the property, plant and equipment expenditures by indus- try segment. Partially offsetting these were: • $2.0 billion of net purchases of investments and securi- ties mainly by the Onex Credit CLOs; Cash Used for Property, Plant and Equipment Purchases by Industry Segment • $1.3 billion used to fund acquisitions, of which $596 mil- lion related to the Onex Partners III Group’s acquisition TABLE 32 ($ millions) 2014 2013 of York and acquisitions completed by York during the Electronics Manufacturing Services $ 58 $ 53 fourth quarter of 2014; Healthcare Imaging(a) • $696 million of cash used in investing activities of dis- Health and Human Services(a) continued operations; and • $309 million for investments in joint ventures, of which $204 million related to the Onex Partners IV Group’s in- vestment in AIT and $105 million related to the ONCAP III Group’s investment in Mavis Discount Tire. Cash used in investing activities totalled $192 million for the year ended December 31, 2013 and consisted primarily of: • $1.0 billion of net purchases of investments and securi- ties mainly by the Onex Credit CLOs; • $513 million used primarily to fund acquisitions, of which $338 million related to the Onex Partners III Group’s acquisition of Emerald Expositions by the Onex Partners III Group; and Customer Care Services Building Products Insurance Services(b) Credit Strategies(c) Other(d) Total 66 23 29 69 11 – 63 17 28 80 7 – 270 320 $ 526 $ 568 (a) The healthcare imaging segment, consisting of Carestream Health, and the health and human services segment, consisting of ResCare, were previously included within the healthcare segment, which consisted of Carestream Health, ResCare and Skilled Healthcare Group. Skilled Healthcare Group is recorded as a discontinued operation for the years ended December 31, 2014 and 2013. (b) The insurance services segment consists of USI and York. USI was previously included within other. York began to be consolidated in October 2014, when the business was acquired by the Onex Partners III Group. (c) The credit strategies segment, consisting of (i) Onex Credit Manager, • $437 million of cash used in investing activities of dis- (ii) Onex Credit Collateralized Loan Obligations and (iii) Onex Credit Funds, continued operations. was previously included within other. (d) 2014 other includes Tropicana Las Vegas, SGS International, KraussMaffei, Meridian Aviation, Emerald Expositions, the operating companies of ONCAP II and ONCAP III and Flushing Town Center. 2013 other includes Tropicana Las Vegas, SGS International, KraussMaffei, Meridian Aviation (since February 2013), Emerald Expositions (since June 2013), the operating companies of ONCAP II and ONCAP III and Flushing Town Center. Onex Corporation December 31, 2014 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 During 2014, Celestica invested $58 million in property, Table 33 provides a reconciliation of the change in cash plant and equipment, primarily to enhance manufacturing at Onex, the parent company, from December 31, 2013 to capabilities and to support new customer programs. December 31, 2014. Carestream Health invested $66 million in prop- erty, plant and equipment primarily to support growth ini- Change in Cash at Onex, the Parent Company tiatives and invest in rental capital. JELD-WEN invested $69 million in property, plant TABLE 33 ($ millions) and equipment, primarily for improvements and upgrades Cash on hand at December 31, 2013 $ 1,398 for its production machinery. Sale of Tomkins Cash used for the purchase of property, plant and Sale of shares of Allison Transmission and dividends equipment in the other segment consisted primarily of Sale of The Warranty Group cash used by Meridian Aviation to purchase two aircraft. Sale of shares of Spirit AeroSystems Sale of Mister Car Wash Consolidated cash resources At December 31, 2014, consolidated cash held by continu- Sale of Cypress Insurance Group and dividend Net Onex Real Estate activity, including investment ing operations increased to $3.8 billion from $2.6 billion at in Flushing Town Center December 31, 2013. The major components at December 31, ResCare dividend 554 461 382 222 149 50 29 25 18 7 (173) (113) (69) (45) (34) (30) (16) (5) (150) (129) PURE Canadian Gaming distribution received BBAM distributions received Investment in York Net Onex Credit activity, including investment in Onex Credit CLO-8 warehouse facility Investment in preferred shares of Sitel Worldwide Investment in AIT Add-on investment in Emerald Expositions Investment in Mavis Discount Tire Investment in common stock of JELD-WEN Add-on investment in Meridian Aviation Onex share repurchases Other, net, including dividends, management fees and operating costs Cash on hand at December 31, 2014 $ 2,531 2014 were: • approximately $2.5 billion of cash on hand at Onex, the parent company (December 31, 2013 – $1.4 billion); and • approximately $565 million of cash at Celestica (Decem- ber 31, 2013 – $545 million). 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 busi- nesses. In addition to the approximate $2.5 billion of cash at the parent company at December 31, 2014, there was $346 million (2013 – $343 million) of near-cash items that are invested in a segregated unleveraged fund managed by Onex Credit. 70 Onex Corporation December 31, 2014 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 Recent events and pending transactions The acquisition is subject to customary conditions and reg- Pending acquisition of SIG In November 2014, Onex agreed to acquire SIG in a trans- action valued at up to €3.75 billion. On closing of the transaction, €3,575 million will be paid, less amounts for certain retained liabilities, with an additional amount of up to €175 million payable based on the ﬁnancial perfor- mance of SIG in 2015 and 2016. Based in Switzer land, SIG provides beverage and food producers with a comprehen- sive product portfolio of aseptic carton sleeves and clo- sures, as well as the ﬁlling machines used to ﬁll, form and seal the sleeves. The equity investment in SIG is expected to be approximately $1.25 billion and will be comprised of $600 million from Onex Partners IV and $650 million from Onex and certain other limited partners. The balance of the purchase price will be ﬁnanced with debt ﬁnancing, without recourse to Onex Corporation. The transaction is expected to close during the ﬁrst quarter of 2015, subject to customary conditions and regulatory approvals. Pending acquisition of Survitec In January 2015, Onex agreed to acquire Survitec for an enterprise value of £450 million ($680 million). Based in the United Kingdom, Survitec is a provider of mission-critical marine, defence and aerospace survival equipment. The Onex Partners IV Group will make an investment of approx- imately $320 million for substantially all of the equity, with the remainder of the equity owned by Survitec’s manage- ment. The balance of the purchase price will be ﬁnanced with debt ﬁnancing, without recourse to Onex Corporation. A D D I T I O N A L U S E S O F C A S H ulatory approvals and is expected to close in the ﬁrst quar- ter of 2015. Onex Credit asset management platform In January 2015, Onex acquired control of the Onex Credit asset management platform. The Onex Credit asset man- agement platform was previously jointly controlled with Onex Credit’s co-founder and chief executive ofﬁcer, and Onex previously held a 70 percent economic interest in the business. Onex Credit’s management team remains in place with its chief executive ofﬁcer continuing to participate in the performance of the Onex Credit asset management platform. Onex will consolidate 100 percent of the Onex Credit asset management platform with a reduced alloca- tion of the net earnings to Onex Credit’s chief executive ofﬁcer to be recognized as compensation expense. As a result of the above transaction, beginning with the ﬁrst quarter of 2015, the Company will now con- solidate the Onex Credit asset management platform and certain funds managed by Onex Credit in which Onex, the parent company, holds an investment. The Company’s pre- vious interest in the Onex Credit asset management plat- form was equity-accounted and will be derecognized at fair value, resulting in the recognition of a non-cash gain dur- ing the ﬁrst quarter of 2015. The consolidation of the Onex Credit asset management platform and certain of the funds managed by Onex Credit will increase Onex’ consolidated assets and liabilities. Contractual obligations Table 34 presents the contractual obligations of Onex and its operating companies as at December 31, 2014: Contractual Obligations TABLE 34 ($ millions) Payments Due by Period Total Less than 1 year Long-term debt, without recourse to Onex(a) $ 13,465 Finance and operating leases Purchase obligations Total contractual obligations 1,091 296 $ 14,852 $ 408 317 270 $ 995 1–3 years $ 1,202 415 24 4–5 years After 5 years $ 4,740 $ 7,115 201 2 158 – $ 1,641 $ 4,943 $ 7,273 (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 charges. Onex Corporation December 31, 2014 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 In addition to the obligations in table 34, certain of Onex’ be comprised of $600 million from Onex Partners IV and consolidated operating companies have funding obliga- $650 million from Onex and certain other limited partners. tions related to their deﬁned beneﬁt pension plans. The The balance of the purchase price will be ﬁnanced with operating companies estimate that $36 million of contri- debt ﬁnancing, without recourse to Onex Corporation. butions will be required in 2015 for their deﬁned beneﬁt The transaction is expected to close during the ﬁrst quar- pension plans. Onex, the parent company, does not provide ter of 2015, subject to customary conditions and regula- pension, other retirement or post-retirement beneﬁts to its tory approvals. employees or to employees of any of the operating compa- nies. In addition, Onex, the parent company, does not have any obligations and has not made any guarantees with Onex’ commitment to the Funds Onex, the parent company, is the largest limited partner respect to the plans of the operating companies. in each of the Onex Partners and ONCAP Funds. Table 35 A breakdown of long-term debt by industry seg- presents the commitment and the uncalled committed ment is provided in table 22 on page 57 of this MD&A. In capital of Onex, the parent company, in these Funds at addition, notes 12 and 13 to the audited annual consoli- December 31, 2014: dated ﬁnancial statements provide further disclosure on long-term debt and lease commitments. Our consolidated operating companies currently believe they have adequate cash from operations, cash on hand and borrowings avail- TABLE 35 ($ millions) able to them to meet anticipated debt service require- ments, capital expenditures and working capital needs. Onex Partners I Onex Partners II There is, however, no assurance that our consolidated Onex Partners III operating companies will generate sufﬁcient cash flow Onex Partners IV(b) from operations or that future borrowings will be available ONCAP II to enable them to grow their business, service all indebted- ONCAP III(c) Fund Size Onex’ Commitment $ 1,655 $ 3,450 $ 4,700 $ 5,150 C$ C$ 574 800 $ 400 $ 1,407 $ 1,200 $ 1,200 C$ C$ 252 252 Onex’ Uncalled Committed Capital (a) – 158 128 $ $ $ 1,135 C$ C$ 2 122 ness or make anticipated capital expenditures. Commitments At December 31, 2014, Onex and its operating companies (a) Onex’ uncalled committed capital is calculated based on the assumption that all of the remaining limited partners’ commitments are invested. (b) Onex’ commitment will be increased to $1,700 for new Onex Partners IV investments completed after June 3, 2015. had total commitments of $4.9 billion. Commitments by (c) Onex’ commitment has been reduced for the annual commitment for Onex 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 $317 million of the total commit- ments in 2014 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. In addition, commitments at December 31, 2014 include $4.5 billion related to the pending acquisition of SIG, as discussed on page 31. On closing of the trans- action, €3,575 million will be paid, less amounts for cer- tain retained liabilities, with an additional amount of up to €175 million payable based on the ﬁnancial perfor- mance of SIG in 2015 and 2016. The equity investment in SIG is expected to be approximately $1.25 billion and will 72 Onex Corporation December 31, 2014 management’s participation. In December 2014, Onex notiﬁed the limited partners of Onex Partners IV that it would be increasing its commit- ment by $500 million to $1.7 billion. The increased com- mitment will apply to new Onex Partners IV investments completed after June 3, 2015, and will not change Onex’ ownership of businesses acquired prior to that date. Pension plans Six of Onex’ operating companies have deﬁned beneﬁt pension plans, of which the more signiﬁcant plans are those of Celestica, Carestream Health, JELD-WEN and KraussMaffei. Spirit AeroSystems, which was sold in August 2014, as discussed on page 26 of this MD&A, had a deﬁned beneﬁt pension plan which is included in the 2013 com- parative information. At December 31, 2014, the deﬁned beneﬁt pension plans of the six Onex operating companies 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 had combined assets of $872 million (2013 – $2.2 billion) A D D I T I O N A L S O U R C E S O F C A S H against combined obligations of $1.2 billion (2013 – $2.3 bil- lion), with a net deﬁcit of $339 million (2013 – $33 million). A surplus in any plan is not available to offset deﬁciencies in others. Private equity Funds Onex’ private equity Funds provide capital for Onex- sponsored acquisitions that are not related to Onex’ oper- Onex, the parent company, does not have a pen- ating companies that existed prior to the formation of the sion plan and has no obligation to the pension plans of its Funds. The Funds provide a substantial pool of committed operating companies. capital, which enables Onex to be flexible and timely in At December 31, 2014, Celestica’s deﬁned beneﬁt responding to investment opportunities. pension plans were overfunded on a net basis by $39 mil- lion (2013 – $15 million). Celestica’s pension funding policy Table 36 provides a summary of the remaining commit- is to contribute amounts sufﬁcient to meet minimum local ments available from limited partners primarily for future statutory funding requirements that are based on actu- Onex-sponsored acquisitions in the Onex Partners and arial calculations. The company may make additional dis- ONCAP Funds as of December 31, 2014. Private Equity Funds’ Uncalled Limited Partners’ Committed Capital cretionary contributions based on actuarial assessments. Celestica estimates $14 million of contributions will be required for its deﬁned beneﬁt pension plans in 2015 based on the most recent actuarial valuations. Carestream Health’s deﬁned beneﬁt pension plans were in an underfunded position of approximately $83 mil- TABLE 36 ($ millions) lion at December 31, 2014 (2013 – $65 million). The com- pany’s pension plan assets are broadly diversiﬁed in equity and debt investment funds, as well as other investments. Carestream Health expects to contribute approximately $2 million in 2015 to its deﬁned beneﬁt pension plans, and it does not believe that future pension contributions will Onex Partners I Onex Partners II Onex Partners III Onex Partners IV ONCAP II ONCAP III materially impact its liquidity. Available Uncalled Committed Capital (excluding Onex) $ $ $ 62 241 (a) 404 (a) $ 4,048 (a) C$ C$ 2 (a) 289 (a) At December 31, 2014, JELD-WEN’s deﬁned beneﬁt (a) Includes committed amounts from the management of Onex and ONCAP and directors, calculated based on the assumption that all of the remaining limited pension plans were in an underfunded position of approxi- partners’ commitments are invested. mately $153 million (2013 – $112 million). The company’s pension plan assets are broadly diversiﬁed in equity and The committed amounts from the limited partners are not debt securities, as well as other investments. JELD-WEN included in Onex’ consolidated cash and will be funded as estimates that $14 million of contributions will be required capital is called. for its deﬁned beneﬁt pension plans in 2015. During 2003, Onex raised its ﬁrst large-cap Fund, KraussMaffei grants pensions to the majority Onex Partners I, with $1.655 billion of committed capital, of its employees in Germany and to certain employees in including committed capital from Onex of $400 million. Switzerland and the United Kingdom. At December 31, Since 2003, Onex Partners I has completed 10 investments 2014, KraussMaffei’s deﬁned beneﬁt pension plans had or acquisitions, investing $1.5 billion, including Onex. While a net pension liability of approximately $123 million (€102 million) compared to $109 million (€79 million) at December 31, 2013. KraussMaffei expects to contribute approximately $4 million (€4 million) to its deﬁned beneﬁt pension plans in 2015. Onex Partners I has concluded its investment period, the Fund still has uncalled limited partners’ committed capital of $62 million for future funding of management fees and partnership expenses. Onex Corporation December 31, 2014 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 During 2006, Onex raised its second large-cap notiﬁed its limited partners that it would be increasing its Fund, Onex Partners II, a $3.45 billion private equity fund, commitment to the Fund by $500 million to $1.7 billion. including committed capital of $1.4 billion from Onex. The increased commitment will apply to new Onex Part- Onex Partners II has completed seven investments or ners IV investments completed after June 3, 2015, and will acquisitions, investing $2.9 billion, including Onex. While not change Onex’ ownership of businesses acquired prior Onex Partners II has concluded its investment period, the to that date. At December 31, 2014, Onex Partners IV had Fund still has uncalled limited partners’ committed capi- completed one investment, investing $208 million, includ- tal of $241 million for possible future funding for Onex ing Onex. The amount invested includes capitalized costs. Partners II’s remaining business and for management fees At December 31, 2014, Onex Partners IV had $4.0 billion of and partnership expenses. uncalled limited partners’ capital available for future acqui- During 2009, Onex completed fundraising for its sitions and for management fees and partnership expenses. third large-cap private equity fund, Onex Partners III, a During 2006, Onex raised its second mid-mar- $4.7 billion private equity fund. Onex’ initial commit- ket Fund, ONCAP II, a C$574 million private equity fund ment to the fund was $1.0 billion, which could be either including a commitment of C$252 million from Onex. increased or decreased by $500 million with six months’ ONCAP II has completed eight acquisitions, investing notice to the limited partners. Onex’ commitment to Onex C$483 million, including Onex. At December 31, 2014, Partners III was as follows: this Fund had uncalled committed limited partners’ capi- • $500 million for new acquisitions completed from July 1, tal of C$2 million, which is largely reserved for possible 2009 to June 15, 2010; future funding for any of ONCAP II’s remaining businesses. • $800 million for new acquisitions completed from June 16, During 2011, Onex completed fundraising for 2010 to May 14, 2012; and its third mid-market private equity fund, ONCAP III, an • $1.2 billion for new investments completed since C$800 million private equity fund, including committed May 15, 2012. capital of C$252 million from Onex. ONCAP III has com- pleted ﬁve investments or acquisitions, investing C$369 mil- Changes to Onex’ commitment did not alter Onex’ owner- lion, including Onex. At Decem ber 31, 2014, this Fund has ship of businesses acquired prior to the effective dates of the uncalled committed limited partners’ capital of C$289 mil- changes. Onex Partners III has completed 10 investments or lion available for future acquisitions and for management acquisitions, investing $4.2 billion, including Onex. While fees and partnership expenses. Onex Partners III has concluded its investment period, the Fund still has uncalled limited partners’ committed capital of $404 million for possible future funding for any of Onex Related party transactions Related party transactions are primarily investments by the Partners III’s remaining businesses and for management Onex management team and of the operating companies fees and partnership expenses. in the equity of the operating companies acquired. The In May 2014, Onex completed fundraising for its investment programs are designed to align the Onex man- fourth large-cap private equity fund, Onex Partners IV, a agement team’s interests with those of Onex’ shareholders $5.2 billion private equity fund. Onex’ initial commit- and the limited partner investors in Onex’ Funds. ment to the fund was $1.2 billion. In December 2014, Onex 74 Onex Corporation December 31, 2014 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 37. Investment Programs TABLE 37 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 Vesting Associated Investment by Management Vests equally over 6 years Onex Partners I Fully vested Onex Partners II Fully vested Onex Partners III Fully vested Onex Partners IV Vests equally over 6 years ending in August 2020 ONCAP II Fully vested ONCAP III Vests equally over 5 years ending in July 2016 • 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 “at risk” Onex Partners management equity investment for Onex Partners I through IV • 25% of gross proceeds to be reinvested in Subordinate Voting Shares or Management DSUs until 1,000,000 shares and DSUs owned • corresponds to participation in minimum “at risk” ONCAP management equity investment Stock Option Plan 25% Price Appreciation Vests equally over 5 years, except for 6,775,000 options which vest at a rate of 15% per year during the first four years and 40% in the fifth year • satisfaction of exercise price (market value at grant date) Management DSU Plan n/a Director DSU Plan n/a 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 • investment of elected portion of annual directors’ fees in Director DSUs • value reflects changes in Onex’ share price • units not redeemable until retirement Onex Corporation December 31, 2014 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 Management Investment Plan Onex has a Management Investment Plan (the “MIP”) capital invested by the Fund for new investments com- pleted in 2015. Management of Onex and ONCAP as well as that requires its management members to invest in each directors invest in any add-on investments in existing busi- of the operating businesses acquired or invested in by nesses pro-rata with their initial investment in the relevant Onex. Management’s required cash investment is 1.5 per- business. cent of Onex’ interest in each acquisition or investment. The total amount invested in 2014 by manage- An amount invested in an Onex Partners acquisition under ment of Onex and ONCAP and directors on acquisitions the Fund’s investment requirement (discussed below) also and investments completed through the Onex Partners and applies toward the 1.5 percent investment requirement ONCAP Funds was $60 million (2013 – $22 million). under the MIP. In addition to the 1.5 percent participation, man- agement is allocated 7.5 percent of Onex’ realized gain from Carried interest participation The General Partners of the Onex Partners and ONCAP an operating business investment, subject to certain con- Funds, which are controlled by Onex, are entitled to a car- ditions. In particular, Onex must realize the full return of ried interest of 20 percent on the realized gains of the its investment plus a net 15 percent internal rate of return limited partners in each Fund, subject to an 8 percent com- from the investment in order for management to be allo- pound annual preferred return to those limited partners on cated the additional 7.5 percent of Onex’ gain. The plan all amounts contributed in each particular Fund. Onex, as has vesting requirements, certain limitations and voting sponsor of the Onex Partners Funds, is entitled to 40 percent requirements. of the carried interest realized in the Onex Partners Funds. During 2014, management invested $13 mil- Onex management is allocated 60 percent of the carried lion (2013 – $4 million) under the MIP, including amounts interest realized in the Onex Partners Funds. ONCAP man- invested under the minimum investment requirements agement is entitled to that portion of the carried interest of the Onex Partners Funds to meet the 1.5 percent MIP realized in the ONCAP Funds that equates to a 12 percent requirement. Management received $117 million under carried interest on both limited partners’ and Onex’ capital. the MIP in 2014 (2013 – $39 million). Notes 1 and 30 to the Under the terms of the partnership agreements, Onex may audited annual consolidated ﬁnancial statements provide receive carried interest as realizations occur. The ultimate additional details on the MIP. Onex Partners and ONCAP Funds The structure of the Onex Partners and ONCAP Funds amount of carried interest earned will be based on the over- all performance of each Fund, independently, and includes typical catch-up and claw-back provisions within each Fund, but not between Funds. requires the management of Onex or ONCAP to invest a During the year ended December 31, 2014, man- minimum of 1 percent in all acquisitions, with the excep- agement of Onex received carried interest totalling tion of Onex Partners IV, which requires the management $256 million, primarily comprised of (i) $56 million on the of Onex to invest a minimum of 2 percent in all acquisi- sale of shares of Allison Transmission in that company’s tions. Onex Partners I completed its investment period in share repurchases and secondary offerings; (ii) $41 mil- 2006 and Onex Partners II completed its investment period lion on the sale of shares of Spirit AeroSystems in that in 2011. During 2013, Onex obtained approval for an exten- company’s secondary offerings and share repurchase; sion of the commitment period for Onex Partners III into (iii) $82 million of carried interest related to the sale of 2014 to enable further investing through that Fund. The Tomkins; and (iv) $76 million related to the sale of The commitment period for Onex Partners III would have other- Warranty Group. During 2014, management of ONCAP wise expired in December 2013. Onex Partners III’s acquisi- received carried interest of $43 million, primarily from the tion of York in October 2014 was the ﬁnal new investment in sale of Mister Car Wash. The impact of this ONCAP transac- that Fund. The Onex management team and directors have tion to Onex and management of Onex was a net payment committed to invest 8 percent of the total capital invested of $7 million in carried interest. by Onex Partners IV for new investments completed in 2015. Management of Onex and ONCAP has the poten- For ONCAP III, management of Onex and ONCAP as well tial to receive $204 million of carried interest on businesses as directors have committed to invest 6 percent of the total in the Onex Partners and ONCAP Funds based on their 76 Onex Corporation December 31, 2014 values determined at December 31, 2014. 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 2013, management of Onex received carried Onex has the potential to receive $115 million of interest totalling $110 million comprised of: (i) $5 million carried interest on its businesses in the Onex Partners and on the sale of RSI; (ii) $71 million on the distributions from ONCAP Funds based on their fair values determined at Carestream Health; (iii) $19 million on the sale of a portion December 31, 2014. of the shares of Allison Transmission in that company’s share During the year ended December 31, 2013, Onex, repurchase and secondary offerings; and (iv) $15 million the parent company, realized carried interest of $75 mil- on the sale of TMS International. During the same period, lion, which was comprised of amounts received on the management of ONCAP received carried interest of $60 mil- following transactions: (i) $3 million on the February 2013 lion on the sales of BSN SPORTS ($18 million) and Caliber sale of RSI; (ii) $50 million in connection with the distri- Collision ($42 million). The impact of the ONCAP transac- butions received from Carestream Health in June and July tions to Onex and management of Onex was a net payment 2013; (iii) $12 million on the sale of a portion of the shares of $15 million in carried interest. of Allison Transmission in that company’s share repur- chase and secondary offerings; and (iv) $10 million on the Table 38 shows the amount of net carried interest re- October 2013 sale of TMS International. ceived by Onex, the parent company, by year up to Decem- ber 31, 2014. Carried Interest TABLE 38 ($ 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 Carried interest – 2014 Total Carried Interest Received $ 1 4 16 55 77 – 19 – 65 3 75 171 $ 486 During 2014, Onex, the parent company, realized carried interest of $171 million, which was primarily comprised of amounts received on the following transactions: (i) $38 million on the sale of shares of Allison Transmis sion in that company’s share repurchases and secondary offerings; (ii) $27 million on the sale of shares of Spirit AeroSystems in that company’s secondary offerings and share repur- chase; (iii) $54 million of carried interest related to the sale of Tomkins; and (iv) $51 million related to the sale of The Warranty Group. Incentive fees Onex Credit is entitled to incentive fees on $4.0 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 investment 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, 2014, Onex Credit earned $1 million (2013 – $10 million) of incentive fees, of which Onex’ share as an owner of Onex Credit was $1 million (2013 – $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 a total of 6,775,000 options, 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 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. Table 27 on page 64 of this MD&A provides details of the change in the stock options outstanding at December 31, 2014 and 2013. Onex Corporation December 31, 2014 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 Management Deferred Share Unit Plan Effective December 2007, a Management Deferred Share for substantially all grants under the Director DSU Plan. Table 29 on page 66 of this MD&A provides details of the Unit Plan (“MDSU Plan”) was established as a further change in the DSUs outstanding during 2014 and 2013. 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 Investment in Onex shares and acquisitions In 2006, Onex adopted a program designed to further Plan, the members of the Company’s senior management align the interests of the Company’s senior management team are given the opportunity to designate all or a por- and other investment professionals with those of Onex tion of their annual compensation to acquire MDSUs based shareholders through increased share ownership. Under on the market value of Onex shares at the time in lieu of this program, members of senior management of Onex cash. MDSUs vest immediately but are redeemable by the are required to invest at least 25 percent of all amounts participant only after he or she has ceased to be an ofﬁcer received on the 7.5 percent gain allocated under the MIP or employee of the Company or an afﬁliate for a cash pay- and the Onex Partners’ carried interest in Onex Subor- ment equal to the then current market price of Subordinate dinate Voting Shares and/or Management DSUs until Voting Shares. Additional units are issued equivalent to the they individually hold at least 1,000,000 Onex Subordinate value of any cash dividends that would have been paid on Voting Shares and/or Management DSUs. Under this pro- the Subordinate Voting Shares. To hedge Onex’ exposure to gram, during 2014, Onex management reinvested C$55 mil- changes in the trading price of Onex shares associated with lion (2013 – C$18 million) in the purchase of Subordinate the MDSU Plan, the Company enters into forward agree- Voting Shares. ments with a counterparty ﬁnancial institution for all grants Members of management and the Board of Direc- under the MDSU Plan. The costs of those arrangements are tors of Onex can invest limited amounts in partnership borne entirely by participants in the MDSU Plan. MDSUs with Onex in all acquisitions outside the Onex Partners are redeemable only for cash and no shares or other securi- and ONCAP Funds, including co-investment opportuni- ties of Onex will be issued on the exercise, redemption or ties, at the same time and cost as Onex and other outside other settlement thereof. Table 29 on page 66 of this MD&A investors. During 2014, $10 million (2013 – $2 million) in provides details of the change in the MDSUs outstanding investments were made by the Onex management team during 2014 and 2013. and directors. Director Deferred Share Unit Plan Onex, the parent company, established a Director Deferred Repurchase of shares In July 2014, Onex repurchased in a private transaction Share Unit Plan (“DSU Plan”) in 2004, which allows Onex 1,000,000 of its Subordinate Voting Shares that were held directors to apply directors’ fees to acquire DSUs based indirectly by Mr. Gerald W. Schwartz, who is Onex’ control- on the market value of Onex shares at the time. Grants of ling shareholder. The private transaction was approved by DSUs may also be made to Onex directors from time to the Board of Directors of the Company. The shares were time. Holders of DSUs are entitled to receive for each DSU, repurchased at a cash cost of C$65.99 per Subordinate upon redemption, a cash payment equivalent to the mar- Voting Share, or $62 million (C$66 million), which repre- ket value of a Subordinate Voting Share at the redemption sents a slight discount to the trading price of Onex shares date. The DSUs vest immediately, are only redeemable at that date. once the holder retires from the Board of Directors and In November 2013, Onex repurchased 1,000,000 of must be redeemed by the end of the year following the year its Subordinate Voting Shares in a private transaction for of retirement. Additional units are issued equivalent to the a cash cost of C$56.50 per Subordinate Voting Share, or value of any cash dividends that would have been paid $53 million (C$57 million), which represented a slight on the Subordinate Voting Shares. To hedge Onex’ exposure discount to the trading price of Onex shares. The shares to changes in the trading price of Onex shares associated were held indirectly by Mr. Gerald W. Schwartz. The pri- with the Director DSU Plan, the Company enters into for- vate transaction was approved by the Board of Directors of ward agreements with a counterparty ﬁnancial institution the Company. 78 Onex Corporation December 31, 2014 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 Tax loss transaction During 2014, Onex sold entities, the sole assets of which were In December 2013, the initial fee period for Onex Partners III expired and Onex’ entitlement to management certain tax losses, to companies controlled by Mr. Gerald fees changed from being based on committed capital to W. Schwartz, who is also Onex’ controlling shareholder. As being based on limited partners’ invested capital. a result of this transaction, Onex recorded a gain of $9 mil- In May 2014, Onex successfully completed fund- lion (2013 – $9 million) in other items in 2014. A discussion raising for Onex Partners IV, reaching aggregate commit- of these transactions is included on page 53 of this MD&A. In ments of $5.2 billion. Onex began to receive management connection with these transactions, Deloitte & Touche LLP, fees from Onex Partners IV in August 2014 once it was an independent accounting ﬁrm retained by Onex’ Audit determined that York would be the ﬁnal new investment and Corporate Governance Committee, provided an opin- made by Onex Partners III. During the initial fee period of ion that the value received by Onex for the tax losses was Onex Partners IV, Onex will receive annual management fair. The transactions were unanimously approved by Onex’ fees of 1.7 percent on $3.8 billion of capital committed by Audit and Corporate Governance Com mit tee, all the mem- limited partners. bers of which are independent directors. During 2014, Onex Credit closed Onex Credit In addition, during 2014 and 2013 Onex utilized CLO-5, Onex Credit CLO-6 and Onex Credit CLO-7. The certain tax losses associated with distributions of carried increase in investors’ capital associated with these new interest to management of Onex, for which Onex received CLOs will result in an increase in the management fees cash of $4 million (2013 – $2 million). earned by Onex Credit. Management fees Onex receives management fees on limited partners’ capi- tal through its private equity platforms, Onex Partners For the year ended December 31, 2014, Onex, ONCAP and Onex Credit earned management fees of $99 million. and ONCAP, and directly from certain of its operating businesses. As Onex consolidates the Onex Partners and Debt of operating companies Onex’ practice is not to guarantee the debt of its operat- ONCAP Funds, the management fees received in respect ing companies, and there are no cross-guarantees between of limited partners’ capital represent related party transac- operating companies. Onex may hold debt as part of tions. In addition, Onex Credit receives management fees its investment in certain operating companies, which on its investors’ capital. amounted to $584 million at December 31, 2014 compared During the initial fee period of the Onex Partners to $873 million at December 31, 2013. Note 12 to the audited and ONCAP Funds, Onex receives a management fee based annual consolidated ﬁnancial statements provides infor- upon limited partners’ committed capital to each Fund. mation on the debt of operating companies held by Onex. At December 31, 2014, the management fees of Onex Part- ners IV and ONCAP III are determined based on limited partners’ committed capital. Following the termination of the initial fee period, Onex becomes entitled to a management fee based upon limited partners’ invested capital. At December 31, 2014, the management fees of Onex Partners I, II, III and ONCAP II are determined based upon their limited partners’ invested capital. As realizations occur in these Funds, the manage- ment fees calculated based on invested limited partners’ capital will decline. Onex Corporation December 31, 2014 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 D I S C L O S U R E C O N T R O L S A N D P R O C E D U R E S A N D I N T E R N A L C O N T R O L S O V E R F I N A N C I A L R E P O R T I N G Limitation on scope of design Management has limited the scope of the design of inter- nal controls over ﬁnancial reporting and disclosure controls and procedures to exclude the controls, policies and pro- The Chief Executive Ofﬁcer and the Chief Financial Ofﬁcer cedures of York, which was acquired in October 2014 and have designed, or caused to be designed under their super- the operating results of which are included in the Decem - vision, internal controls over ﬁnancial reporting to provide ber 31, 2014 audited annual consolidated ﬁnancial state- reasonable assurance regarding the reliability of ﬁnancial ments of Onex, the parent company. The scope limitation is reporting and the preparation of ﬁnancial statements for external purposes in accordance with IFRS. The Chief Executive Ofﬁcer and the Chief Financial Ofﬁcer have also designed, or caused to be designed under their supervi- in accordance with Section 3.3 of National Instrument 52-109, Certiﬁcation of Disclosure in Issuer’s Annual and Interim Filings, which allows an issuer to limit its design of internal controls over ﬁnancial reporting and disclosure controls and sion, disclosure controls and procedures to provide reason- procedures to exclude the controls, policies and procedures able assurance that information required to be disclosed of a company acquired not more than 365 days before the by the Company in its corporate ﬁlings has been recorded, end of the ﬁnancial period to which the certiﬁcate relates. processed, summarized and reported within the time peri- ods speciﬁed in securities legislation. Table 39 shows a summary of the ﬁnancial information for A control system, no matter how well conceived York, which is included in the December 31, 2014 audited and operated, can provide only reasonable, not absolute, annual consolidated ﬁnancial statements of Onex, the par- assurance that its objectives are met. Due to inherent limi- ent company. tations in all such systems, no evaluations of controls can provide absolute assurance that all control issues, if any, TABLE 39 ($ millions) within a company have been detected. Accordingly, our Period ended December 31, 2014 internal controls over ﬁnancial reporting and disclosure controls and procedures are effective in providing reason- able, not absolute, assurance that the objectives of our con- Revenue Net loss trol systems have been met. As at December 31, 2014 Current assets Non-current assets Current liabilities Non-current liabilities York $ $ 153 (15) $ 177 $ 1,620 $ 116 $ 1,104 80 Onex Corporation December 31, 2014 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 2014 was a busy year for Onex, with the ﬁrst three quarters of Our credit investing platform, Onex Credit, is also the year being a record period for realizations and acquisi- expanding its presence overseas with the opening of an tion activity gaining momentum during the fourth quarter. ofﬁce in London to focus on the placement of European Onex and its partners realized proceeds of $6.1 bil- CLOs. While the timing of the next CLO offering will depend lion by the end of the year, primarily on the sales of The on market conditions, the current team and infrastructure Warranty Group, Spirit AeroSystems, Allison Trans mission, have the capability to place a number of offerings each year. Tomkins and Mister Car Wash. We had acquired and built During 2014, Onex Credit completed three CLO offerings these businesses over the past ﬁve to 10 years and given the and began to warehouse assets for its next CLO, bringing development stage of these businesses, the strong equity other investors assets under management related to CLOs markets and a favourable ﬁnancing environment made it to $3.5 billion at December 31, 2014. an opportune time to realize on these businesses. During Onex remains in a very strong ﬁnancial position to our ownership, these investments have generated aggre- capitalize on new investment opportunities as they arise. gate proceeds of $10.3 billion for Onex and our partners In addition to our $2.9 billion of cash and near-cash items, compared to a combined invested capital of $2.9 billion. we have approximately $4.3 billion of undrawn committed We were very pleased to have partnered with the manage- capital from our limited partners in Onex Partners IV and ment teams of these businesses to build value through ONCAP III. Combined, we have the resources to pursue just operational improvement and growth. We wish all of these about any attractive opportunity. companies continued success in the years to come. We believe Onex is well-positioned for continued During the fourth quarter of 2014, we completed growth in 2015. We have a stable, experienced team, our three investments – York Risk Services Holding Corp. investing culture is ingrained throughout the organization, (“York”), Mavis Discount Tire and AIT – investing a total our investments are performing well overall and we have of $827 million, including $248 million from Onex. During the ﬁnancial resources to grow. this period, Onex shifted from investing through Onex Onex’ reported quarterly and annual consolidated Partners III to Onex Partners IV for larger transactions as ﬁnancial results may vary substantially from quarter to York represented the ﬁnal new investment in Onex Part- quarter and year to year due to acquisitions and disposi- ners III and AIT marked Onex Partners IV’s ﬁrst investment. tions of businesses, changes in the value of its publicly In addition to the investments completed dur- traded and privately held operating companies and the ing the year, Onex recently announced two acquisitions in effect of varying business cycles at its operating businesses. Europe that are expected to close in the ﬁrst quarter of 2015. Accordingly, it is very difﬁcult to predict future consoli- We ﬁrst opened our ofﬁce in London in September 2012 dated ﬁnancial results of Onex. with the view of better positioning us for European acquisi- The substantial majority of Onex’ assets are based tions. We are pleased our local presence in Europe helped to upon the U.S. dollar. Accordingly, the overall value of Onex secure deals with SIG and Survitec. In November 2014, Onex expressed in Canadian dollars will fluctuate based upon entered into an agreement to acquire SIG in a transaction valued at up to €3.75 billion. SIG is a global manufacturer of aseptic carton sleeves and closures, as well as the ﬁlling the relative value of the Canadian dollar to the U.S. dollar. This printed report is by its nature current only at the point in time when it is issued. We encourage readers machines used to ﬁll, form and seal the sleeves. In January to visit our website, www.onex.com, for updates on Onex’ 2015, Onex entered into an agreement to acquire Survitec for activities. £450 million ($680 million). Survitec is a market-leading pro- vider of mission-critical marine, defence and aerospace sur- vival equipment. With the continued economic difﬁculties in Europe, we believe there remain great investment oppor- tunities for investors like us. Onex Corporation December 31, 2014 81 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 an acquisi- cycles. Onex’ practice of owning companies in various tion opportunity meets Onex’ criteria, for example, typically industries with differing business cycles reduces the risk a fair price is paid for a high-quality business. Onex does of holding a major portion of Onex’ assets in just one or not commit all of its capital to a single acquisition and has two industries. Similarly, the Company’s focus on build- equity partners with whom it shares the risk of ownership. ing industry leaders with extensive international opera- The Onex Partners and ONCAP Funds streamline Onex’ tions reduces the ﬁnancial impact of downturns in speciﬁc process of sourcing and drawing on commitments from regions. Onex is well-diversiﬁed among various industry such equity partners. segments, with no single industry or business represent- An acquired company is not burdened with more ing more than 8 percent of its capital. The table in note 33 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 maxi- provides information on the geographic diversiﬁcation of mize long-term growth in value. Finally, Onex invests in Onex’ consolidated revenues. ﬁnancial partnership with management. This strategy not only gives Onex the beneﬁt of experienced managers but is also designed to ensure that an operating company is run entrepreneurially for the beneﬁt of all shareholders. 82 Onex Corporation December 31, 2014 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 Timeliness of investment commitments Onex’ ability to create value for shareholders is dependent can do to control risk is to maintain a strong parent com- in part on its ability to successfully complete large acquisi- pany with an appropriate level of liquidity. Onex needs tions. Our preferred course is to complete acquisitions on an to be in a position to support its operating businesses exclusive basis. However, we also participate in large acqui- when and if it is appropriate and reasonable for Onex, as sitions through investment bank-led auction processes with an equity owner with paramount duties to act in the best multiple potential purchasers. These processes are often interests of Onex shareholders, to do so. Maintaining very competitive for the large-scale acquisitions that are liquidity is important because Onex, as a holding company, Onex’ primary interest, and the ability to make knowledge- generally does not have guaranteed sources of meaningful able, timely investment commitments is a key component cash flow other than management fees. The approximate in successful purchases. In such instances, the vendor often $135 million in annualized management fees that are establishes a relatively short time frame for Onex to respond expected to be earned by Onex Partners, ONCAP and Onex deﬁnitively. In order to improve the efﬁciency of Onex’ Credit in 2015 will be used to offset the costs of running the internal processes on both auction and exclusive acquisi- parent company. tion processes, and so reduce the risk of missing out on A signiﬁcant portion of the purchase price for high-quality acquisition opportunities, Onex has committed new acquisitions is generally funded with debt provided pools of capital from limited partner investors with the Onex by third-party lenders. This debt, sourced exclusively on Partners and ONCAP Funds. As at December 31, 2014, Onex the strength of the acquired company’s ﬁnancial condition Partners IV has $4.0 billion of undrawn committed limited and prospects, is a debt of the acquired company at clos- partners’ capital and ONCAP III has C$289 million of such ing and is without recourse to Onex, the parent company, undrawn capital. or to its other operating companies or partnerships. The Once the investment period for ONCAP III has foremost consideration, however, in developing a ﬁnancing expired in 2017, Onex will need to have raised or be in the structure for an acquisition is identifying the appropriate process of raising additional other investors’ capital to con- amount of equity to invest. In Onex’ view, this should be tinue its program of investing new other investors’ capital the amount of equity that maximizes the risk/reward equa- in mid-market investments. The ability to raise new capital tion for both shareholders and the acquired company. In commitments is dependent upon general economic con- other words, it allows the acquired company to not only ditions and the track record or success Onex has achieved manage its debt through reasonable business cycles but with the management and investment of prior funds. To also to have sufﬁcient ﬁnancial latitude for the business to date, Onex has a strong track record of investing other vigorously pursue its growth objectives. investors’ capital and most investors in the original Onex While Onex seeks to optimize the risk/reward Partners and ONCAP Funds did commit to invest in the equation in all acquisitions, there is the risk that the successor funds that have been established. acquired company will not generate sufﬁcient proﬁtability Capital commitment risk The limited part- or cash flow to service its debt requirements and/or meet ners in the Onex Partners and ONCAP Funds comprise a related debt covenants or provide adequate ﬁnancial relatively small group of high-quality, primarily institu- flexibility for growth. In such circumstances, additional tional, investors. To date, each of these investors has met investment by the equity partners, including Onex, may be its commitments on called capital, and Onex has received appropriate. In severe circumstances, the recovery of Onex’ no indications that any investor will be unable to meet its equity and any other investment in that operating com- commitments in the future. While Onex’ experience with pany is at risk. its limited partners suggests that commitments will be honoured, there is always the risk that a limited partner may not be able to meet its entire commitment over the life of the fund. Onex Corporation December 31, 2014 83 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 risks In the normal course of business, Onex and its operating Onex’ operating companies generally seek to ﬁx the interest on some of their term debt or otherwise mini- companies may face a variety of risks related to ﬁnancial mize the effect of interest rate increases on a portion of management. In dealing with these risks, it is a matter of their debt at the time of acquisition. This is achieved by Company policy that neither Onex nor its operating com- taking on debt at ﬁxed interest rates or entering into inter- panies engage in speculative derivatives trading or other est rate swap agreements or ﬁnancial contracts to control speculative activities. the level of interest rate fluctuation on variable rate debt. At Default on known credit As previously noted, December 31, 2014, excluding Onex Credit CLOs, approxi- new investments generally include a meaningful amount mately 50 percent (2013 – 50 percent) of Onex’ operating of third-party debt. Those lenders typically require that the companies’ long-term debt had a ﬁxed interest rate or the acquired company meet ongoing tests of ﬁnancial perfor- interest rate was effectively ﬁxed by interest rate swap con- mance as deﬁned by the terms of the lending agreement, tracts. The risk inherent in such a strategy is that, should such as ratios of total debt to operating income (“EBITDA”) interest rates decline, the beneﬁt of such declines may not and the ratio of EBITDA to interest costs. It is Onex’ prac- be obtainable or may only be achieved at the cost of penal- tice to not burden acquired companies with levels of debt ties to terminate existing arrangements. There is also the that might put at risk their ability to generate sufﬁcient risk that the counterparty on an interest rate swap agree- levels of proﬁtability or cash flow to service their debts – ment may not be able to meet its commitments. Guidelines and so meet their related debt covenants – or which might are in place that specify the nature of the ﬁnancial institu- hamper their flexibility to grow. tions that operating companies can deal with on interest Financing risk The continued volatility in the rate contracts. global credit markets has created some unpredictability The Onex Credit CLOs are exposed to interest rate about whether businesses will be able to obtain new loans. risk on the debt issued by each CLO as substantially all This represents a risk to the ongoing viability of many oth- interest for debt issued by the CLOs is based on a spread erwise healthy businesses whose loans or operating lines over a floating base rate. However, the interest rate risk is of credit are up for renewal in the short term. A signiﬁcant largely offset within each CLO by holding investments in portion of Onex’ operating companies’ reﬁnancings will debt securities which receive interest based on a spread take place in 2019 and thereafter. Table 23 on page 61 of over the same or similar floating base rate. this MD&A provides the aggregate debt maturities for Onex, the parent company, has some exposure to Onex’ consolidated operating companies and investments interest rate changes primarily through its cash and short- in joint ventures and associates for each of the years up to term investments, which are held in short-term deposits 2020 and in total thereafter. and commercial paper. A 0.25 percent increase (0.25 per- Interest rate risk An important element in con- cent decrease) in the interest rate, assuming no signiﬁcant trolling risk is to manage, to the extent reasonable, the changes in the cash balance at the parent company, would impact of fluctuations in interest rates on the debt of the result in a minimal impact in annual interest income. operating company. 84 Onex Corporation December 31, 2014 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 Currency ﬂuctuations The functional cur- rency of Onex, the parent company, and a majority of Commodity price risk Certain Onex operating companies are vulnerable to price Onex’ operating companies, is the U.S. dollar. A number fluctuations in major commodities. Individual operat- of Onex’ operating companies conduct business outside ing companies may use ﬁnancial instruments to offset the the United States and as a result are exposed to currency impact of anticipated changes in commodity prices related risk on the portion of their business which is not based to the conduct of their businesses. Silver is a signiﬁcant on U.S. currency. In addition, the acquisition of operat- commodity used in Carestream Health’s manufactur- ing companies with global operations increases the expo- ing of x-ray ﬁlm. The company’s management continually sure to changes in many other currency exchange rates. monitors movements and trends in the silver market and Fluctuations in the value of the U.S. dollar relative to these enters into collar and forward agreements when consid- other currencies can have an impact on Onex’ reported ered appropriate to mitigate some of the risk of future price results and consolidated ﬁnancial position. Onex’ operat- fluctuations for periods generally up to a year. ing companies may use currency derivatives in the normal course of business to hedge against adverse fluctuations in key operating currencies, but speculative activity is not Regulatory risk Certain of Onex’ operating companies may be subject permitted. to extensive government regulations and oversight with Onex and its operating companies have minimal respect to their business activities. The failure to comply exposure to fluctuations in the value of the U.S. dollar rela- with applicable regulations, obtain applicable regulatory tive to the Canadian dollar. approvals, or maintain those approvals so obtained, may Onex’ results are reported in U.S. dollars, and subject the applicable operating company to civil penal- fluctuations in the value of the U.S. dollar relative to ties, suspension or withdrawal of any regulatory approval other currencies can have an impact on Onex’ reported obtained, injunctions, operating restrictions and criminal results and consolidated ﬁnancial position. During 2014, prosecutions and penalties, which could, individually or in Onex’ equity balance reflected a $150 million decrease in the aggregate, have a material adverse effect on Onex’ con- the value of Onex’ equity for the translation of its operat- solidated ﬁnancial position. ing companies with non-U.S. dollar functional currencies (2013 – $43 million). Fair value changes The fair value measurements for investments in joint ventures and associates, Limited Partners’ Interests and carried interest are primarily driven 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 valuation of non-public investments in the Onex Partners and ONCAP Funds could have a signiﬁcant impact on the fair values calculated for investments in joint ventures and associates, Limited Partners’ Interests and carried interest, which would impact both Onex’ ﬁnancial condition and results of operations. Onex Corporation December 31, 2014 85 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 Signiﬁcant customers Some of Onex’ major acquisitions have been divisions of to acquire what we consider to be “platform” companies. large companies. As part of these purchases, the acquired Such companies often have distinct competitive advan- company has often continued to supply its former owner tages in products or services in their respective industries through long-term supply arrangements. It has been Onex’ that provide a solid foundation for growth in scale and policy to encourage its operating companies to quickly value. In these instances, Onex works with company man- diversify their customer bases to the extent practical in agement to identify attractive add-on acquisitions that order to manage the risk associated with serving a single may enable the platform company to achieve its goals major customer. Certain Onex operating companies have more quickly and successfully than by focusing solely on major customers that represent more than 10 percent of the development and/or diversiﬁcation of its customer their annual revenues. None of the major customers of the base, which is known as organic growth. Growth by acqui- operating companies represents more than 10 percent of sition, however, may carry more risk than organic growth. Onex’ consolidated revenues. While as many of these risks as possible are considered in the acquisition planning, operating companies under- taking these acquisitions also face such risks as unknown Environmental considerations Onex has an environmental protection policy that has been expenses related to the cost-effective amalgamation of adopted by its operating businesses subject to company- operations, the retention of key personnel and customers, speciﬁc modiﬁcations; many of the operating businesses the future value of goodwill, intangible assets and intellec- have also adopted supplemental policies appropriate to tual property. There are also risk factors associated with the their industries or businesses. Senior ofﬁcers at each of the industry and the combined business more generally. Onex operating businesses are ultimately responsible for ensur- works with company management to understand and ing compliance with these policies. They are required to attempt to mitigate such risks as much as possible. report annually to their company’s board of directors and/ or to Onex regarding compliance. Dependence on government funding Some of the revenues of businesses in the U.S. healthcare Environmental management by the operat- ing businesses is accomplished through the education of industry are partially dependent on funding from fed- employees about environmental regulations and appropri- eral, state and local government agencies, especially those ate operating policies and procedures; site inspections by agencies responsible for state Medicaid funding. Budgetary environmental consultants; the addition of proper equip- pressures, as well as economic, industry, political and other ment or modiﬁcation of existing equipment to reduce or factors, could influence governments to not increase or, in eliminate environmental hazards; remediation activities as some cases, to decrease appropriations for the services that required; and ongoing waste reduction and recycling pro- are offered by Onex’ operating subsidiaries, which could grams. Environmental consultants are engaged to advise reduce their revenues materially. Future revenues may be on current and upcoming environmental regulations that affected by changes in rate-setting structures, methodolo- may be applicable. gies or interpretations that may be proposed or are under consideration. Ongoing pressure on government appropri- ations is a normal aspect of business for companies in the U.S. healthcare industry. Productivity improvements and other initiatives are utilized to minimize the effect of pos- sible funding reductions. 86 Onex Corporation December 31, 2014 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 situations, Other contingencies Onex and its operating companies are or may become par- such as soil contamination. In almost all cases, these situ- ties to legal claims arising in the ordinary course of busi- ations have occurred prior to Onex’ acquisition of those ness. The operating companies have recorded liability businesses, and the estimated costs of remedial work and provisions based upon their consideration and analysis of related activities are managed either through agreements their exposure in respect of such claims. Such provisions with the vendor of the company or through provisions are reflected, as appropriate, in Onex’ audited annual con- established at the time of acquisition. Manufacturing activ- solidated ﬁnancial statements. Onex, the parent company, ities carry the inherent risk that changing environmental has not currently recorded any further liability provision regulations may identify additional situations requiring and we do not believe that the resolution of known claims capital expenditures or remedial work and associated costs would reasonably be expected to have a material adverse to meet those regulations. Income taxes The Company has investments in companies that oper- 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 resolu- ate in a number of tax jurisdictions. Onex provides for the tion will not have an adverse effect on our consolidated tax on undistributed earnings of its subsidiaries that are ﬁnancial position. 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 taxes, both in the current year and in respect of prior year amounts that are still outstand- ing, either positively or negatively, depending on whether rates decrease or increase. Changes to tax legislation or the application of tax legislation may affect the provision for future taxes and the taxation of deferred amounts. Onex Corporation December 31, 2014 87 MANAGEMENT’S RESPONSIBILITY FOR CONSOLIDATED 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 consolidated 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 oversee- ing 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 state- ments 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 19, 2015 Christine M. Donaldson Vice President Finance 88 Onex Corporation December 31, 2014 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, 2014 and 2013, the consolidated statements of earnings, com- prehensive earnings, equity and cash ﬂows for the years ended December 31, 2014 and 2013 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, 2014 and 2013 and their ﬁnancial performance and their cash ﬂows for the years ended December 31, 2014 and 2013 in accordance with International Financial Reporting Standards. [signed] [signed] PricewaterhouseCoopers llp Chartered Professional Accountants, Licensed Public Accountants Toronto, Canada February 19, 2015 Onex Corporation December 31, 2014 89 CONSOLIDATED BALANCE SHEETS As at December 31, 2014 As at December 31, 2013 $ 3,764 $ 3,191 – 3,085 2,013 803 680 10,345 2,902 5,026 666 5,069 4,928 754 3,639 3,872 1,478 – 12,934 5,105 7,564 2,100 4,695 4,469 $ 28,936 $ 36,867 $ 3,353 $ 4,342 273 965 408 – 545 5,544 324 12,874 – 1,302 1,241 5,153 26,438 336 1,692 470 2,498 331 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 $ 28,936 $ 36,867 (in millions of U.S. dollars) Assets Current assets Cash and cash equivalents (note 3) Short-term investments (note 6) Accounts receivable Inventories (note 4) Other current assets (note 5) Assets held by discontinued operations (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 6) Liabilities held by discontinued operations (note 6) 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 6) Other non-current liabilities (note 14) Deferred income taxes (note 15) Limited Partners’ Interests (note 16) Equity Share capital (note 17) Non-controlling interests (note 18) Retained earnings and accumulated other comprehensive earnings See accompanying notes to the consolidated financial statements. Signed on behalf of the Board of Directors [signed] Director [signed] Director 90 Onex Corporation December 31, 2014 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 (note 7) Amortization of intangible assets and deferred charges Interest expense of operating companies (note 20) Increase in value of investments in joint ventures and associates at fair value, net (note 8(a)) Stock-based compensation expense (note 21) Other gains (note 22) Other items (note 23) Impairment of goodwill, intangible assets and long-lived assets, net (note 24) Limited Partners’ Interests charge (note 16) Loss before income taxes and discontinued operations Recovery of (provision for) income taxes (note 15) Loss from continuing operations Earnings (loss) from discontinued operations (note 6) 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 25) Basic and Diluted: Continuing operations Discontinued operations Net Loss for the Year See accompanying notes to the consolidated financial statements. 2014 2013 $ 19,793 $ 19,824 (14,208) (3,737) (14,630) (3,553) 142 (410) (495) (830) 412 (230) 317 (378) (51) (1,069) (744) (79) (823) 982 106 (429) (496) (699) 1,098 (320) 561 (435) (223) (1,855) (1,051) 488 (563) (250) $ 159 $ (813) $ (872) $ (590) 49 27 $ (823) $ (563) $ (115) 274 $ 159 $ (354) (459) $ (813) $ (7.91) 6.87 $ (1.04) $ (5.20) 2.08 $ (3.12) Onex Corporation December 31, 2014 91 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 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 6) Other comprehensive earnings (loss), net of tax Total Comprehensive Loss for the Year Total Comprehensive Earnings (Loss) attributable to: Equity holders of Onex Corporation Non-controlling Interests Total Comprehensive Loss for the Year See accompanying notes to the consolidated financial statements. 2014 $ 159 2013 $ (813) (197) (13) (210) (81) 11 (280) (29) (26) (55) 102 31 78 $ (121) $ (735) $ (366) 245 $ (121) $ (336) (399) $ (735) 92 Onex Corporation December 31, 2014 CONSOLIDATED STATEMENTS OF EQUITY (in millions of U.S. dollars except per share data) Balance – December 31, 2012 Dividends declared(a) Purchase and cancellation of shares (note 17) 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 6 and 22) 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 Remeasurements for post-employment benefit plans (note 31) Other comprehensive earnings (loss) from discontinued operations, net of tax (note 6) Balance – December 31, 2013 Dividends declared(a) Purchase and cancellation of shares (note 17) Investments by shareholders other than Onex Distributions to non-controlling interests Repurchase of shares of operating companies(c) Sale of interests in operating companies under continuing control (note 26) Investments in operating companies under continuing control (notes 2 and 12) Non-controlling interests on sale of investments in operating companies (notes 6 and 22) 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 Remeasurements for post-employment benefit plans (note 31) Other comprehensive earnings (loss) from discontinued operations, net of tax (note 6) Share Capital (note 17) $ 358 – (12) – – – – – – – – – – $ 346 – (10) – – – – – – – – – – – Retained Earnings $ 1,252 (15) (141) – – – – 31 (354) – – 76 11 $ 860 (18) (140) 21 – 40 102 23 – (115) – – (81) – Accumulated Other Comprehensive Earnings (Loss) Total Equity Attributable to Equity Holders of Onex Corporation Non- controlling Interests $ 3,822 – – 119 (2) (109) (209) (31) (459) (12) (14) 26 60 $ 3,191 – – 254 (11) (207) 69 (88) Total Equity $ 5,449 (15) (153) 119 (2) (109) (209) – (813) (29) (26) 102 31 $ 4,345 (18) (150) 275 (11) (167) 171 (65) (1,761) (1,761) $ 1,627 (15) (153) – – – – 31 (354) (17) (12) 76 29 $ 1,154 (18) (150) 21 – 40 102 23 – (115) 274 159 (171) (26) (197) (11) (81) 12 (2) – (1) (13) (81) 11 $ 17(b) – – – – – – – – (17) (12) – (40) $ (52)(d) – – – – – – – – – (171) (11) – 12 Balance – December 31, 2014 $ 336 $ 692 $ (222)(e) $ 806 $ 1,692 $ 2,498 (a) Dividends declared per Subordinate Voting Share during 2014 totalled C$0.1875 (2013 – C$0.14). In 2014, shares issued under the dividend reinvestment plan amounted to less than $1 (2013 – 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 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 $28 of net earnings related to discontinued operations. Income taxes did not have a significant effect on these items. (c) Repurchase of shares of operating companies consisted primarily of shares repurchased by Celestica under its normal course issuer bid. (d) 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. Accumulated Other Comprehensive Earnings (Loss) as at December 31, 2013 included $12 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, 2014 consisted of currency translation adjustments of negative $200 and unrealized losses on the effective portion of cash flow hedges of $22. Accumulated Other Comprehensive Earnings (Loss) as at December 31, 2014 did not include any amounts related to discontinued operations. Income taxes did not have a significant effect on these items. See accompanying notes to the consolidated financial statements. Onex Corporation December 31, 2014 93 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 15) Interest income Interest expense of operating companies (note 20) Net loss before interest and provision for (recovery of) 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 Increase in value of investments in joint ventures and associates at fair value, net (note 8(a)) Stock-based compensation Other gains (note 22) Impairment of goodwill, intangible assets and long-lived assets, net (note 24) Limited Partners’ Interests charge (note 16) 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 (decrease) in cash and cash equivalents due to changes in working capital items Decrease in other operating activities Cash flows from operating activities of discontinued operations (note 6) 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 16) Issuance of share capital by operating companies Proceeds from sale of interests in operating company under continuing control (note 26) Purchase of shares of operating company under continuing control (note 2) Distributions paid to non-controlling interests and Limited Partners (note 16) Change in restricted cash for distribution to Limited Partners Decrease due to other ﬁnancing activities Cash flows used in financing activities of discontinued operations (note 6) Investing Activities Acquisitions, net of cash and cash equivalents in acquired companies of $46 (2013 – $14) (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 and other investments (notes 8 and 23) Proceeds from sales of operating investments no longer controlled (notes 6 and 22) Distributions received from investments in joint ventures and associates (note 8) Purchase of investments in joint ventures of Onex Partners and ONCAP (note 8) Cash interest received Net purchases of investments and securities (note 8) Increase (decrease) due to other investing activities Cash flows used for investing activities of discontinued operations (note 6) Increase in Cash and Cash Equivalents for the Year 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 6) Cash and Cash Equivalents Cash and cash equivalents held by discontinued operations (note 6) Cash and Cash Equivalents Held by Continuing Operations See accompanying notes to the consolidated financial statements. 94 Onex Corporation December 31, 2014 2014 2013 $ (823) $ (563) 79 (142) 830 (56) (147) 410 495 (412) 98 (317) 51 1,069 86 (137) 1,140 (238) (146) (122) 60 (446) (55) 350 989 4,611 (2,142) (720) (17) (150) (167) 867 19 171 (65) (3,730) – (81) (220) (1,624) (1,315) (526) 226 3,960 1,759 43 (309) 125 (2,036) 5 (696) 1,236 601 (24) 2,618 573 3,768 4 (488) (106) 699 (458 ) (100) 429 496 (1,098) (16 ) (561) 223 1,855 25 125 920 29 51 22 (2) 100 (99) 665 1,586 3,956 (2,601) (564) (14) (153) (109) 401 47 – – (1,542) 35 (58) (256 ) (858 ) (513) (568) 277 908 1,060 56 − 72 (1,021) (26) (437) (192) 536 (1) 2,056 600 3,191 573 $ 3,764 $ 2,618 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, healthcare imaging, health and human services, customer care services, building products, insurance services, credit strategies, aerospace automation, tooling and components, aircraft leasing and management, business services/tradeshows, plastics processing equipment, business services/packaging and gaming. Additionally, the Company has investments in mid-market private equity opportunities and real estate. Note 33 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, 2014. 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 19, 2015. 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 Onex’ 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 30). In addition, Onex indirectly controls and consolidates the operations of the collateralized loan obligations of Onex Credit. The results of opera- tions 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, 2014 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 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, 2014 December 31, 2013 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”)(a) Investments made through Onex and Onex Partners I Skilled Healthcare Group, Inc. (“Skilled Healthcare Group”)(b)(c) Spirit AeroSystems, Inc. (“Spirit AeroSystems”)(c) Investments made through Onex and Onex Partners II Allison Transmission Holdings, Inc. (“Allison Transmission”)(d) Carestream Health, Inc. (“Carestream Health”) Investments made through Onex, Onex Partners I and Onex Partners II The Warranty Group, Inc. (“The Warranty Group”)(c) Investments made through Onex and Onex Partners III BBAM Limited Partnership (“BBAM”) Emerald Expositions, LLC (“Emerald Expositions”) JELD-WEN Holding, inc. (“JELD-WEN”)(f) KraussMaffei Group GmbH (“KraussMaffei”) Meridian Aviation Partners Limited and affiliates (“Meridian Aviation”) SGS International, Inc. (“SGS International”) Tomkins Limited (“Tomkins”)(g) Tropicana Las Vegas, Inc. (“Tropicana Las Vegas”) USI Insurance Services (“USI”) York Risk Services Holding Corp. (“York”)(h) Investments made through Onex, Onex Partners I and Onex Partners III Res-Care, Inc. (“ResCare”) Investments made through Onex and Onex Partners IV Advanced Integration Technology LP (“AIT”)(i) Investments made through Onex Real Estate Partners Flushing Town Center Other investments ONCAP II Fund (“ONCAP II”) ONCAP III Fund (“ONCAP III”) Onex Credit(k) 11% 86% 9% – – 36% – 13% 24% 20% 24% 25% 23% – 18% 25% 29% 20% 9% 88% 46%(j) 29% 70% 11% 86% 39% – – 91% 75% 89% 86% – – 100% – – 50% 99% 81% 96% 100% 93% – 82% 89% 88% 50%(e) 99% 81% 100% 100% 93% – 82% 100% 100% 98% 100% 40% 88% 100% 100% 70% 50%(e) 100% 100% 100% 50% 11% 70% 9% 5% 8% 36% 29% 13% 24% 18% 24% 25% 23% 14% 18% 26% – 20% – 88% 46%(j) 29% 70% Voting 75% 89% 86% 63% (e) 100% 100% 50% (e) 99% 72% 100% 100% 93% 50% (e) 82% 100% – 11% 70% 39% 16% 27% 92% 91% 50% 99% 72% 96% 100% 93% 56% 82% 92% – 98% 100% – – 88% 100% 100% 100% 70% 100% 100% 50% (a) Onex made an investment in mandatorily redeemable Class D preferred shares of Sitel Worldwide during the second quarter of 2014, as described in note 12. The economic ownership interests of Sitel Worldwide at December 31, 2014 are presented based on preferred share holdings. The allocation of net earnings and comprehensive earnings attributable to equity holders of Onex Corporation and non-controlling interests is calculated using a common share economic ownership of 70% at December 31, 2014 (2013 – 70%). (b) In February 2015, Skilled Healthcare Group combined with Genesis HealthCare, LLC (“Genesis HealthCare”), as described in note 6. (c) Skilled Healthcare Group, Spirit AeroSystems and The Warranty Group are recorded as discontinued operations, as described in note 6. (d) Onex sold its investment in Allison Transmission during 2014, as described in note 8 and note 23. (e) 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. (f) The economic ownership and voting interests of JELD-WEN are presented on an as-converted basis as a portion of 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 86% at December 31, 2014 (2013 – 77%) to reflect certain JELD-WEN shares that are recorded as liabilities at fair value. Onex, Onex Partners III, Onex management and others made an investment to acquire common stock of JELD-WEN from existing shareholders during the first quarter of 2014, as described in note 2. (g) Tomkins was sold during the second half of 2014, as described in note 8. (h) York was acquired during the fourth quarter of 2014, as described in note 2. (i) The investment in AIT was made late in the fourth quarter of 2014, as described in note 8. Represents Onex’ blended economic ownership in the ONCAP II investments. (j) (k) Represents Onex’ share of the Onex Credit asset management platform. In January 2015, Onex acquired control of the Onex Credit asset management platform, as described in note 32. 96 Onex Corporation December 31, 2014 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 ownership percentages are before the effect of any potential dilution relating to the Management Investment Plan (the “MIP”), 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 as described in note 30(j). The allocation of net earnings and The Company’s functional currency is the U.S. dollar, as it is comprehensive earnings attributable to equity holders of Onex the currency of the primary economic environment in which it Corporation and non-controlling interests is calculated using the operates. For such operations, monetary assets and liabilities economic ownership of Onex and the Limited Partners. denominated in foreign currencies are translated into U.S. dollars The voting interests include shares that Onex has the at the year-end exchange rates. Non-monetary assets and liabili- right to vote through contractual arrangements or through mul- ties denominated in foreign currencies are translated at histori- tiple voting rights attached to particular shares. In certain circum- cal rates and revenue and expenses are translated at the average stances, the voting arrangements give Onex the right to elect the exchange rates prevailing during the month of the transaction. majority of the boards of directors of the companies. Exchange gains and losses also arise on the settlement of foreign- 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 losses are recognized in earnings. The Company has adopted the following new and revised stan- Assets and liabilities of foreign operations with non-U.S. dards, along with any consequential amendments, effective dollar functional currencies are translated into U.S. dollars using January 1, 2014. These changes were made in accordance with the the year-end exchange rates. Revenue and expenses are translated currency denominated transactions. These exchange gains and applicable transitional provisions. Investment Entity Amendments at the average exchange rates prevailing during the month of the transaction. Gains and losses arising from the translation of these foreign operations are deferred in the currency translation account In October 2012, the IASB issued amendments to IFRS 10, Con included in equity. solidated Financial Statements, IFRS 12, Disclosure of Interests in Other Entities, and IAS 27, Separate Financial Statements, to Cash and cash equivalents include an exception to the consolidation requirements for invest- Cash and cash equivalents includes liquid investments such as ment entities as deﬁned in the amendments issued by the IASB. term deposits, money market instruments and commercial paper The Company determined that the adoption of these amendments with original maturities of less than three months. The invest- on January 1, 2014 did not result in any change in the consolidation ments are carried at cost plus accrued interest, which approxi- status of any of its subsidiaries and investees. mates fair value. IFRIC 21 – Levies Short-term investments In May 2013, the IASB issued Interpretation 21, Levies (“IFRIC 21”), Short-term investments consist of liquid investments such as which provides guidance on accounting for levies in accordance money market instruments and commercial paper with original with IAS 37, Provisions. The interpretation deﬁnes a levy as an maturities of three months to a year. The investments are carried outﬂow from an entity imposed by a government in accordance at fair value. The balance at December 31, 2013 related to short- with legislation. IFRIC 21 clariﬁes that a levy is recognized as a term investments held by The Warranty Group, which was sold in liability when the obligating event that triggers payment, as August 2014, as described in note 6. speciﬁed in the legislation, has occurred. The Company adopted this standard on January 1, 2014. The effects on the consolidated Accounts receivable ﬁnancial statements of adopting IFRIC 21 were not signiﬁcant. Accounts receivable are recognized initially at fair value and sub- sequently measured at amortized cost using the effective inter- est method. A provision is recorded for impairment when there is objective evidence (such as signiﬁcant ﬁnancial difﬁculties of the debtor) that the Company will not be able to collect all amounts due according to the original terms of the receivable. A provi- sion expense is recorded as the difference between the carrying value of the receivable and the present value of future cash ﬂows expected from the debtor, with an offsetting amount recorded as an allowance, reducing the carrying value of the receivable. The provision expense is included in operating expenses in the con- solidated statements of earnings. When a receivable is considered permanently uncollectible, the receivable is written off against the allowance account. Onex Corporation December 31, 2014 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 Operating companies may enter into agreements to sell Investment property accounts receivable when considered appropriate, whereby the Investment property includes commercial property held to earn accounts receivable are transferred to an unrelated third party. The rental income and property that is being constructed or devel- transfers are recorded as sales of accounts receivable, as the oper- oped for future use as investment property. Investment property is ating companies do not retain any ﬁnancial or legal interest in the included with property, plant and equipment in the consolidated sold accounts receivable. The accounts receivable are sold at their balance sheets and recorded at cost less accumulated amortiza- face value less a discount as provided in the agreements. tion and provisions for impairment, if any. Inventories The cost of investment property includes direct develop- ment costs, property transfer taxes and borrowing costs directly Inventories are recorded at the lower of cost or net realiz- attributable to the development of the property. able value. The determination of net realizable value requires The Company’s investment property consists of Flushing signiﬁcant judgement, including consideration of factors such as Town Center’s retail space and parking structures. The fair value shrinkage, the aging of and future demand for inventory and con- of Flushing Town Center’s investment property at December 31, tractual arrangements with customers. To the extent that circum- 2014 was $385 (2013 – $398), which is pledged as collateral for the stances have changed subsequently such that the net realizable outstanding third-party long-term debt of Flushing Town Center. value has increased, previous writedowns are reversed and rec- Flushing Town Center’s investment property at December 31, 2013 ognized in the consolidated statements of earnings in the period included land that is currently under pre-development and is the reversal occurs. Certain inventories in the healthcare imaging not included within investment property at December 31, 2014 or segment are stated using an average cost method. For substan- included as amounts pledged as collateral for the outstanding tially all other inventories, cost is determined on a ﬁrst-in, ﬁrst- third-party long-term debt. The fair value of Flushing Town Center’s out basis. Property, plant and equipment investment property is a Level 3 measurement in the fair value hier- archy and was calculated primarily by discounting the expected net operating income using a discount rate of 6.50% and terminal capi- Property, plant and equipment is recorded at cost less accumu- talization rate of 5.75%. For the year ended December 31, 2014, prop- lated amortization and provisions for impairment, if any. Cost erty, plant and equipment additions included $8 (2013 − $5) related consists of expenditures directly attributable to the acquisition of to Flushing Town Center’s investment property. the asset. The costs of construction of qualifying long-term assets include capitalized interest, as applicable. Leases Land is not amortized. For substantially all remaining Leases of property, plant and equipment where the Company, as property, plant and equipment, amortization is provided for on lessee, has substantially all the risks and rewards of ownership a straight-line basis over the estimated useful lives of the assets are classiﬁed as ﬁnance leases. Finance leases are capitalized at as follows: Buildings up to 45 years Machinery and equipment up to 20 years Leasehold improvements over the term of the lease When components of an asset have a signiﬁcantly different useful life or residual value than the primary asset, the components are amortized separately. Residual values, useful lives and methods of amortization are reviewed at each ﬁscal year end and adjusted prospectively. 98 Onex Corporation December 31, 2014 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 earnings 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 leases (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. 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 Intangible assets Investments in joint ventures and associates Intangible assets, including intellectual property and software, are Joint ventures and associates are those entities over which the recorded at their fair value at the date of acquisition of the related Company has joint control or signiﬁcant inﬂuence, but not con- operating company or at cost if internally generated or purchased. trol. Certain investments in joint ventures and associates are des- Amortization is provided for intangible assets with limited life. For ignated, upon initial recognition, at fair value through earnings substantially all limited life intangible assets, amortization is pro- in accordance with IAS 39, Financial Instruments: Recognition vided for on a straight-line basis over their estimated useful lives and Measurement. As a result, the investments are recorded at as follows: Trademarks and licenses Customer relationships Computer software Other 1 year to 30 years 3 years to 30 years 1 year to 10 years 1 year to 25 years Intangible assets with indeﬁnite useful lives are not amortized. The assessment of indeﬁnite life is reviewed annually. Changes in the useful life from indeﬁnite to ﬁnite are made on a prospective basis. 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 wheth- er events or changes in circumstances during the year are indica- tors that a review for impairment should be conducted prior to the fair value in the consolidated balance sheets, with changes in fair value recognized in the consolidated statements of earnings. Impairment of long-lived assets Property, plant and equipment, investment property and intan- gible assets are reviewed for impairment annually or whenever events or changes in circumstances suggest that the carrying amount of an asset may not be recoverable. Judgement is required in determining whether events or changes in circumstances dur- ing the year are indicators that a review for impairment should be conducted prior to the annual assessment. An impairment loss is recognized when the carrying value of an asset or CGU exceeds the recoverable amount. The recoverable amount of an asset or CGU is the greater of its value-in-use or its fair value less costs to sell. Impairment losses for long-lived assets are reversed in future periods if the circumstances that led to the impairment no longer exist. The reversal is limited to restoring the carrying amount that would have been determined, net of amortization, had no impairment loss been recognized in prior periods. Financing charges Financing charges consist of costs incurred by the operating com- panies relating to the issuance of debt and are amortized over the term of the related debt or as the debt is retired, if earlier. These unamortized ﬁnancing charges are netted against the carrying value of the long-term debt, as described in note 12. annual assessment. For the purposes of impairment testing, good- will is allocated to the cash generating units (“CGUs”) of the busi- Provisions 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 will 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- A provision is a liability of uncertain timing or amount and is gen- erally recognized when the Company has a present obligation as a result of a past event, it is probable that payment will be made to settle the obligation and the payment can be reliably estimated. Judgement is required to determine the extent of an obligation and whether it is probable that payment will be made. The Company’s signiﬁcant provisions consist of the following: 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 a) Self-insurance losses for goodwill are not reversed in future periods. 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 for calculating the Limited Partners’ Interests liability. Fair values of the operating companies are assessed at the enterprise level, while impairment charges are assessed at the level of either an individual CGU or group of CGUs. Self-insurance provisions may be established for automobile, work- ers’ compensation, general liability, professional liability and other 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 Onex Corporation December 31, 2014 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 that consider a number of factors, including historical claim pay- The cost of deﬁned beneﬁt plans recognized in the con- ment patterns and changes in case reserves, and the assumed rate solidated statements of earnings comprises the net total of the cur- of inﬂation in healthcare costs and property damage repairs. rent service cost, the past service cost, gains or losses from settle- b) Warranty ments and the net interest expense or income. The current service cost represents the increase in the present value of the plan liabil- Certain operating companies offer warranties on the sale of prod- ities expected to arise from employee service in the current peri- ucts or services. A provision is recorded to provide for future war- od. The past service cost is the change in the beneﬁt obligation in ranty costs based on management’s best estimate of probable respect of employee service in prior periods and which results from claims under these warranties. The provision is based on the terms a plan amendment or curtailment. Past service costs (or recoveries) of the warranty, which vary by customer and product or service, from plan amendments are recognized immediately in earnings, and historical experience. The appropriateness of the provision is whether vested or unvested. evaluated at the end of each reporting period. Remeasurements, consisting of actuarial gains or losses, c) Restructuring the actual return on plan assets (excluding the net interest compo- nent) and any change in the asset ceiling, are recognized in other Restructuring provisions are recognized only when a detailed comprehensive earnings. Remeasurements recognized in other formal plan for the restructuring – including the business or comprehensive earnings are directly recorded in retained earnings, part of the business concerned, the principal locations affected, without recognition in the consolidated statements of earnings. details regarding the employees affected, the restructuring’s tim- Deﬁned contribution plan accounting is applied to multi- ing and the expenditures that will have to be undertaken – has employer deﬁned beneﬁt plans, for which the operating companies been developed and the restructuring has either commenced or have insufﬁcient information to apply deﬁned beneﬁt accounting. the plan’s main features have already been publicly announced to Note 31 provides further details on pension and non- those affected by it. pension post-retirement beneﬁts. Note 11 provides further details on provisions recognized by Limited Partners’ Interests the Company. The interests of the Limited Partners and other investors through the Onex Partners and ONCAP Funds are recorded as a ﬁnancial Pension and non-pension post-retirement benefits liability in accordance with IAS 32, Financial Instruments: Onex, the parent company, does not provide pension, other retire- Presentation. The structure of the Onex Partners and ONCAP ment or post-retirement beneﬁts to its employees or to those of Funds as deﬁned in the partnership agreements, speciﬁcally the any of the operating companies. The operating companies that limited life of the Funds, requires presentation of the Limited have pension and non-pension post-retirement beneﬁts accrue Partners’ Interests as a liability. The liability is recorded at fair their obligations under such employee beneﬁt plans and related value and is impacted by the change in fair value of the under- costs, net of plan assets. The costs of deﬁned beneﬁt pensions and lying investments in the Onex Partners and ONCAP Funds, the other post-retirement beneﬁts earned by employees are accrued change in carried interest, as well as any contributions by and dis- in the period incurred and are actuarially determined using the tributions to Limited Partners in those Funds. Adjustments to the projected unit credit method pro-rated on length of service, based fair value of the Limited Partners’ Interests are reﬂected through on management’s judgement and best estimates of assumptions earnings, net of the change in carried interest. for factors which impact the ultimate cost, including salary esca- Note 16 provides further details on Limited Partners’ lation, retirement ages of employees, the discount rate used in Interests. measuring the liability and expected healthcare costs. Plan assets are recorded at fair value at each reporting Income taxes date. Where a plan is in a surplus, the value of the net asset recog- Income taxes are recorded using the asset and liability method of nized is restricted to the present value of any economic beneﬁts income tax allocation. Under this method, assets and liabilities available in the form of refunds from the plan or reductions in are recorded for the future income tax consequences attributable future contributions to the plan. 100 Onex Corporation December 31, 2014 to differences between the ﬁnancial statement carrying values of assets and liabilities and their respective income tax bases, and on tax loss and tax credit carryforwards. Deferred tax assets are recog- nized only to the extent that it is probable that taxable proﬁt will be available against which the deductible temporary differences as well as tax loss and tax credit carryforwards can be utilized. 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 These deferred income tax assets and liabilities are recorded using If the services do not constitute separate units of accounting, or substantively enacted income tax rates. The effect of a change in the manufacturing services do not meet all of the revenue rec- income tax rates on these deferred income tax assets or liabili- ognition requirements, revenue recognition is deferred until the ties is included in income in the period in which the rate change products have been shipped to the customer. occurs. Certain of these differences are estimated based on current tax legislation and the Company’s interpretation thereof. Healthcare Imaging Income tax expense or recovery is based on the income Revenue from the healthcare imaging segment consists primar- earned or loss incurred in each tax jurisdiction and the enacted or ily of product sales and services. Revenue from product sales is substantively enacted tax rate applicable to that income or loss. recognized when the following criteria are met: signiﬁcant risks Tax expense or recovery is recognized in the income statement, and rewards of ownership have been transferred; involvement in except to the extent that it relates to items recognized directly in the capacity as an owner of the goods has ceased; revenue and equity, in which case the tax effect is also recognized in equity. costs incurred can be reliably measured; and economic beneﬁts Deferred tax liabilities for taxable temporary differences are expected to be realized. Revenue is recorded net of provisions associated with investments in subsidiaries, joint ventures and for estimated customer returns, rebates and other similar allow- associates are recognized, except when the Company is able to ances. Service revenue is recognized at the time of service if rev- control the timing of the reversal of temporary differences and it enues and costs can be reliably measured and economic beneﬁts is probable that the temporary differences will not reverse in the are expected to be received. foreseeable future. In the ordinary course of business, there are transac- Health and Human Services tions for which the ultimate tax outcome is uncertain. The ﬁnal Revenue from the health and human services segment consists tax outcome of these matters may be different from the judge- primarily of services. Service revenue is recognized at the time of ments and estimates originally made by the Company in deter- service if revenues and costs can be reliably measured and eco- mining its income tax provisions. The Company periodically nomic beneﬁts are expected to be received, and is recorded net of evaluates the positions taken with respect to situations in which provisions for examination of expenses by agencies administering applicable tax rules and regulations are subject to interpreta- contracts and services. tion. Provisions related to tax uncertainties are established where appropriate based on the best estimate of the amount that will Customer Care Services ultimately be paid to or received from tax authorities. Accrued The customer care services segment generates revenue primarily interest and penalties relating to tax uncertainties are recorded in through the provision of a wide array of outsourced customer care current income tax expense. management services, including customer service, technical sup- Note 15 provides further details on income taxes. port and customer acquisition, retention and revenue generation Revenue recognition services. These services support its clients’ customers through phone, e-mail, online chat, interactive voice response and social Revenues are recognized net of estimated returns and allowances, media channels and are generally charged by the minute or hour, trade discounts and volume rebates, where applicable. Where the per employee, per subscriber or user, or on a per item basis for Company is responsible for shipping and handling to customers, each transaction processed. Revenue is recognized to the extent amounts charged for these services are recognized as revenue, that it is probable that future economic beneﬁts will be received and shipping and handling costs incurred are reported as a com- and revenue can be reliably measured. A portion of the revenue ponent of cost of sales in the consolidated statements of earnings. is often subject to performance standards. Revenue subject to monthly or longer performance standards is recognized when Electronics Manufacturing Services such performance standards are met. Revenue from the electronics manufacturing services segment The company is reimbursed by clients for certain pass- consists primarily of product sales and services. Revenue is rec- through out-of-pocket expenses, consisting primarily of telecom- ognized when signiﬁcant risks and rewards of ownership have munication, employee performance incentive, and postage and been transferred to the customer and receivables are reasonably shipping costs. The reimbursement and related costs are reﬂected assured of collection. in the accompanying consolidated statements of earnings as rev- For certain customers, warehousing services are pro- enue and cost of services, respectively. vided in connection with manufacturing services. Contracts are assessed to determine whether the manufacturing and warehous- ing services can be accounted for as separate units of accounting. Onex Corporation December 31, 2014 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 Building Products • Revenue from services is recognized at the time of service, Revenue from the building products segment primarily consists when revenues and costs can be reliably measured and eco- of product sales. Revenue is recognized when signiﬁcant risks nomic beneﬁts are expected to be received by the company. and rewards of ownership have been transferred to the customer; Where services performed are subject to customer acceptance, involvement in the capacity as an owner of the goods has ceased; revenue is recognized at the earlier of receipt of customer revenue and costs incurred can be reliably measured; and receiv- acceptance or expiration of the acceptance period. ables are reasonably assured of collection. Incentive payments to • Revenue from construction contracts is recognized on each customers are recorded as a reduction of revenue over the periods contract by reference to the percentage-of-completion of beneﬁted. Insurance Services the contract activity primarily by comparing contract costs incurred to the estimated total contract costs. The contract method of accounting involves the use of various estimating Revenue from the insurance services segment primarily consists techniques to project costs at completion and includes esti- of commission, fee and service revenues. Commission revenues mates of ultimate proﬁtability and ﬁnal contract settlements. on premiums billed and collected directly by insurance compa- Any expected loss from a construction contract is recognized in nies are recognized after the policy effective date and when the the period when the estimated total contract costs exceed the company has sufﬁcient information to reasonably determine that estimated total contract revenue. Where the outcome of a con- the amount is owed. Commission revenues on policies billed and struction contract cannot be reliably estimated, all contract- collected by the company are recognized on the later of the bill- related costs are expensed and revenue is recognized only to ing or the policy effective date. Commission revenues related to the extent that those costs are recoverable. When the outcome instalment premiums are recognized on the effective date of each of the construction of such contracts becomes reliably estima- instalment. Fee revenues are charged for policy placement in lieu ble, revenue is recognized prospectively. of commissions, which are recognized in the same manner as commission revenues. Fee revenues from claims management are For arrangements where the operating companies derive reve- recognized as claims are processed using an estimate of services nues from multiple service or products elements, the recognition provided and costs incurred. Fee revenues are also earned from of revenues is separated based on the relative fair value of each other risk management, administrative and consulting services, element separately identiﬁed in the arrangements. which are provided over a period of time. These fee revenues are recognized when revenues and costs can be reliably measured Depending on the terms under which the operating companies and economic beneﬁts are expected to be received by the com- supply products, they may also be responsible for some or all of pany. Revenues from managed care, specialized loss adjusting the repair or replacement costs of defective products. The com- services and ﬁeld investigations are recognized at the time of ser- panies establish provisions for issues that are probable and esti- vice if revenues and costs can be reliably measured and economic mable in amounts management believes are adequate to cover beneﬁts are expected to be received. Service revenues from ﬁxed the ultimate projected claim costs. The ﬁnal amounts determined price contracts are recognized on each contract in accordance to be due related to these matters could differ signiﬁcantly from with the percentage-of-completion method of accounting. recorded estimates. 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 to determine if 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 102 Onex Corporation December 31, 2014 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 be reliably measured. It must also be probable that the intan- at the redemption date. The Director DSU Plan enables Onex gible asset will generate future economic beneﬁts, be clearly Directors to apply directors’ fees earned to acquire DSUs based on identiﬁable and allocable to a speciﬁc product. Further to meet- the market value of Onex shares at the time. Grants of DSUs may ing these criteria, only such costs that relate solely to the develop- also be made to Onex Directors from time to time. The DSUs vest ment phase of a self-initiated project are capitalized. Any costs immediately, are redeemable only when the holder retires and that are classiﬁed as part of the research phase of a self-initiated must be redeemed within one year following the year of retire- project are expensed as incurred. If the research phase cannot be ment. Additional units are issued for any cash dividends paid clearly distinguished from the development phase, the respec- on the Subordinate Voting Shares. The Company has recorded tive project-related costs are treated as if they were incurred in a liability for the future settlement of the DSUs by reference to the research phase only. Capitalized development costs are gen- the value of the underlying Subordinate Voting Shares at the bal- erally amortized over the estimated number of units produced. ance sheet date. On a quarterly basis, the liability is adjusted for In cases where the number of units produced cannot be reliably the change in the market value of the underlying shares, with estimated, capitalized development costs are amortized over the the corresponding amount reﬂected in the consolidated state- estimated useful life of the internally generated intangible asset. ments of earnings. To economically hedge substantially all of Internally generated intangible assets are reviewed for impair- the Company’s exposure to changes in the trading price of Onex ment annually when the asset is not yet in use or when events or shares, the Company entered into forward agreements for out- changes in circumstances indicate that the carrying amount may standing Director DSUs with a counterparty ﬁnancial institution. not be recoverable and the asset is in use. The change in value of the forward agreements will be recorded During 2014, $198 (2013 – $177) of research and devel- to substantially offset the amounts recorded as stock-based com- opment costs was expensed and $23 (2013 – $38) of development pensation under the Director DSU Plan. Details of the Director costs was capitalized. DSUs outstanding under the plan and the amount hedged by the Company are provided in note 17(d). Stock-based compensation The fourth type of plan is the Management Deferred The Company follows the fair value-based method of accounting, Share Unit Plan (“Management DSU Plan”). The Management which is applied to all stock-based compensation plans. DSU Plan enables Onex management to apply all or a portion of There are ﬁve types of stock-based compensation their annual compensation earned to acquire DSUs based on the plans. The ﬁrst is the Company’s Stock Option Plan (the “Plan”), market value of Onex shares at the time. The DSUs vest immedi- described in note 17(e), which provides that in certain situa- ately and are redeemable only when the holder has ceased to be tions the Company has the right, but not the obligation, to settle an ofﬁcer or employee of the Company or an afﬁliate for a cash any exercisable option under the Plan by the payment of cash to payment equal to the then current market price of Subordinate the option holder. The Company has recorded a liability for the Voting Shares. Additional units are issued for any cash dividends potential future settlement of the vested options at the balance paid on the Subordinate Voting Shares. The Company has record- sheet date by reference to the fair value of the liability. The liabil- ed a liability for the future settlement of the DSUs by reference to ity is adjusted each reporting period for changes in the fair value the value of the underlying Subordinate Voting Shares at the bal- of the options with the corresponding amount reﬂected in the ance sheet date. On a quarterly basis, the liability is adjusted for consolidated statements of earnings. the change in the market value of the underlying shares, with the The second type of plan is the MIP, which is described corresponding amount reﬂected in the consolidated statements in note 30(j). The MIP provides that exercisable investment rights of earnings. To economically hedge the Company’s exposure to may be settled by issuance of the underlying shares or, in cer- changes in the trading price of Onex shares associated with the tain situations, by a cash payment for the value of the investment Management DSU Plan, the Company enters into forward agree- rights. The Company has recorded a liability for the potential ments with a counterparty ﬁnancial institution for all grants future settlement of the vested rights at the balance sheet date by under the Management DSU Plan. As such, the change in value reference to the fair value of the liability. The liability is adjusted of the forward agreements will be recorded to offset the amounts each reporting period for changes in the fair value of the rights recorded as stock-based compensation under the Management with the corresponding amount reﬂected in the consolidated DSU Plan. The administrative costs of those arrangements are statements of earnings. borne entirely by participants in the plan. Management DSUs are The third type of plan is the Director Deferred Share redeemable only for cash and no shares or other securities of the Unit Plan (“Director DSU Plan”). A Deferred Share Unit (“DSU”) Corporation will be issued on the exercise, redemption or other entitles the holder to receive, upon redemption, a cash payment settlement thereof. Details of the Management DSUs outstanding equivalent to the market value of a Subordinate Voting Share under the plan are provided in note 17(d). Onex Corporation December 31, 2014 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 ﬁfth type of plan is employee stock option and a) Fair value through net earnings other stock-based compensation plans in place for employees at Financial assets and ﬁnancial liabilities that are purchased and various operating companies, under which, on payment of the incurred with the intention of generating earnings in the near term exercise price, stock of the particular operating company or cash are classiﬁed as fair value through net earnings. Other instruments is issued. The Company records a compensation expense for such may be designated as fair value through net earnings on initial options based on the fair value over the vesting period. recognition. The long-term debt of the Onex Credit Collateralized Carried interest Loan Obligations (“Onex Credit CLOs”) are designated at fair value through net earnings upon initial recognition to eliminate a mea- Onex, as the General Partner of the Onex Partners and ONCAP surement inconsistency, as the asset portfolio of the Onex Credit Funds, is entitled to a portion (20%) of the realized net gains of CLOs is recorded at fair value through net earnings. the Limited Partners in each Fund. This share of the net gains is referred to as carried interest. Onex is entitled to 40% of the carried b) Available-for-sale interest realized in the Onex Partners Funds. Onex management Financial assets classiﬁed as available-for-sale are carried at fair is entitled to the remaining 60% of the carried interest realized in value, with the changes in fair value recorded in other comprehen- the Onex Partners Funds. ONCAP management is entitled to that sive earnings. Securities that are classiﬁed as available-for-sale and portion of the carried interest realized in the ONCAP Funds that which do not have a quoted price in an active market are recorded equates to a 12% carried interest on both Limited Partners’ and at fair value, unless fair value is not reliably determinable, in which Onex capital. case they are recorded at cost. Available-for-sale securities are writ- The unrealized carried interest of the Onex Partners ten down to fair value through earnings whenever it is necessary and ONCAP Funds is calculated based on the fair values of the to reﬂect an impairment. Gains and losses realized on disposal of underlying investments and the overall unrealized gains in each available-for-sale securities, which are calculated on an average respective Fund in accordance with the limited partnership agree- cost basis, are recognized in earnings. Impairments are determined ments. The unrealized carried interest reduces the amount due based upon all relevant facts and circumstances for each invest- to the Limited Partners and will eventually be paid through the ment and recognized when appropriate. Foreign exchange gains realization of the Limited Partners’ share of the underlying Onex and losses on available-for-sale assets are recognized immediately Partners and ONCAP Fund investments. The change in net carried in earnings. interest attributable to Onex is recognized through the charge for the Limited Partners’ Interests. The unrealized carried interest of c) Held-to-maturity investments the Onex Partners and ONCAP Funds attributable to management Securities that have ﬁxed or determinable payments and a ﬁxed is recognized as a liability within other non-current liabilities. The maturity date, which the Company intends and has the ability to charge for the change in net carried interest attributable to man- hold to maturity, are classiﬁed as held-to-maturity and account- agement is recorded within other items in the consolidated state- ed for at amortized cost using the effective interest rate method. ments of earnings. Financial assets and financial liabilities Investments classiﬁed as held-to-maturity are written down to fair value through earnings whenever it is necessary to reﬂect an impairment. Impairments are determined based on all relevant Financial assets and ﬁnancial liabilities are initially recognized facts and circumstances for each investment and recognized at fair value and are subsequently accounted for based on their when appropriate. classiﬁcation as described below. Transaction costs in respect of an asset or liability not recorded at fair value through net earnings are d) Loans and receivables added to the initial carrying amount. Gains and losses for ﬁnancial Financial assets that are non-derivative with ﬁxed or deter- instruments recognized through net earnings are primarily rec- minable payments that are not quoted in an active market ognized in other items in the consolidated statements of earn- are classiﬁed as loans and receivables. These instruments are ings. The classiﬁcation of ﬁnancial assets and ﬁnancial liabilities accounted for at amortized cost using the effective interest rate depends on the purpose for which the ﬁnancial instruments were method. acquired and their characteristics. Except in very limited circum- stances, the classiﬁcation is not changed subsequent to initial rec- e) Financial liabilities measured at amortized cost ognition. Financial assets purchased and sold, where the contract Financial liabilities not classiﬁed as fair value through net earnings requires the asset to be delivered within an established time frame, or loans and receivables are accounted for at amortized cost using are recognized on a trade-date basis. the effective interest rate method. Long-term debt has been desig- nated as a ﬁnancial liability measured at amortized cost with the exception of long-term debt in the Onex Credit CLOs, which has been designated to be recorded at fair value through net earnings. 104 Onex Corporation December 31, 2014 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 Derivatives and hedge accounting forecasted transaction is eventually recognized in the consoli- At the inception of a hedging relationship, the Company docu- dated statements of earnings. When a forecasted transaction is ments the relationship between the hedging instrument and the no longer expected to occur, the cumulative gain or loss that was hedged item, its risk management objectives and its strategy for reported in other comprehensive earnings is immediately trans- undertaking the hedge. The Company also requires a documented ferred to the consolidated statements of earnings. assessment, both at hedge inception and on an ongoing basis, of whether or not the derivatives that are used in the hedging transac- c) Net investment hedges tions are highly effective in offsetting the changes attributable to Hedges of net investments in foreign operations are accounted for the hedged risks in the fair values or cash ﬂows of the hedged items. in a manner similar to cash ﬂow hedges. Any gain or loss on the Derivatives that are not designated as effective hedg- hedging instrument relating to the effective portion of the hedge ing relationships continue to be accounted for at fair value, with is recognized in other comprehensive earnings. The gain or loss changes in fair value being included in other items in the consoli- relating to the ineffective portion is recognized immediately in dated statements of earnings. the consolidated statements of earnings in other items. Gains and When derivatives are designated as effective hedging losses accumulated in other comprehensive earnings are included relationships, the Company classiﬁes them either as: (a) hedges in the consolidated statements of earnings upon the reduction or of the change in fair value of recognized assets or liabilities or ﬁrm disposal of the investment in the foreign operation. commitments (fair value hedges); (b) hedges of the variability in highly probable future cash ﬂows attributable to a recognized Impairment of financial instruments asset or liability or a forecasted transaction (cash ﬂow hedges); or The Company assesses at each reporting date whether there is (c) hedges of net investments in a foreign self-sustaining opera- objective evidence that a ﬁnancial asset or group of ﬁnancial tion (net investment hedges). a) Fair value hedges assets is impaired. Where an impairment exists for available-for- sale ﬁnancial assets, the cumulative loss, measured as the differ- ence between the acquisition cost and the current fair value, less Changes in the fair value of derivatives that are designated and any impairment loss on that ﬁnancial asset previously recognized qualify as fair value hedging instruments are recorded in the con- in earnings, is removed from equity and recognized in earnings. solidated statements of earnings, along with changes in the fair value of the assets, liabilities or group thereof that are attributable De-recognition of financial instruments to the hedged risk. b) Cash flow hedges A ﬁnancial asset is de-recognized if substantially all risks and rewards of ownership and, in certain circumstances, control of the ﬁnancial asset are transferred. A ﬁnancial liability is de-recognized The Company is exposed to variability in future interest cash when it is extinguished, with any gain or loss on extinguishment ﬂows on non-trading assets and liabilities that bear interest at to be recognized in other items in the consolidated statements variable rates or are expected to be reinvested in the future. of earnings. The effective portion of changes in the fair value of deriv- atives that are designated and qualify as cash ﬂow hedges is rec- Assets held-for-sale and discontinued operations ognized in other comprehensive earnings. Any gain or loss in fair An asset is classiﬁed as held-for-sale if its carrying amount will be value relating to the ineffective portion is recognized immediately recovered by the asset’s sale rather than by its continuing use in in the consolidated statements of earnings in other items. the business, the asset is available for immediate sale in its present Amounts accumulated in other comprehensive earnings condition, and management is committed to, and has initiated, a are reclassiﬁed in the consolidated statements of earnings in the plan to sell the asset which, when initiated, is expected to result period in which the hedged item affects earnings. However, when in a completed sale within 12 months. An extension of the period the forecasted transaction that is hedged results in the recogni- required to complete the sale does not preclude the asset from tion of a non-ﬁnancial asset or a non-ﬁnancial liability, the gains being classiﬁed as held-for-sale, provided the delay is for reasons and losses previously deferred in other comprehensive earnings beyond the Company’s control and management remains commit- are transferred from other comprehensive earnings and included ted to its plan to sell the asset. Assets that are classiﬁed as held- in the initial measurement of the cost of the asset or liability. for-sale are measured at the lower of their carrying amount or fair When a hedging instrument expires or is sold, or when value less costs to sell and are no longer depreciated. The determi- a hedge no longer meets the criteria for hedge accounting, any nation of fair value less costs to sell involves judgement by manage- cumulative gain or loss existing in other comprehensive earnings ment to determine the probability and timing of disposition and at that time remains in other comprehensive earnings until the the amount of recoveries and costs. Onex Corporation December 31, 2014 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 A discontinued operation is a component of the Consolidation of structured entities Company that has either been disposed of, or satisﬁes the criteria Onex indirectly controls and consolidates the operations of the col- to be classiﬁed as held-for-sale, and represents a separate major lateralized loan obligations (“CLOs”) of Onex Credit. The CLOs are line of business or geographic area of operations, is part of a sin- structured entities for which voting and similar rights are not the gle coordinated plan to dispose of a separate major line of busi- dominant factor in determining control of the CLOs. Onex has used ness or geographic area of operations, or is an operating company judgement when assessing the many factors to determine control, acquired exclusively with a view to its disposal. including its exposure through investments in the most subordi- Use of judgements and estimates nate capital of the CLOs, its role in the formation of the CLOs, the rights of other investors in the CLOs and its joint control of the The preparation of ﬁnancial statements in conformity with asset manager of the CLOs at December 31, 2014 and 2013. Onex IFRS requires management to make judgements, estimates and has determined that it is a principal of the CLOs with the power to assumptions that affect the reported amounts of assets and liabil- affect the returns of its investment and, as a result, indirectly con- ities, the related disclosures of contingent assets and liabilities at trols the CLOs. the date of the ﬁnancial statements, and the reported amounts of During 2014 and 2013, Onex invested capital in the Onex revenue and expenses during the reporting period. Actual results Credit CLOs and warehouse facilities as described in note 8(c) and could differ materially from those estimates and assumptions. 8(e). Onex intends to provide additional ﬁnancial collateral for These estimates and underlying assumptions are reviewed on an the warehouse facility of Onex Credit’s eighth CLO, Onex Credit ongoing basis. Revisions to accounting estimates are recognized CLO-8. The collateral to be provided for the warehouse facility of in the period in which the estimate is revised if the revision affects Onex Credit CLO-8 is expected to be substantially reinvested in only that period, or in the period of the revision and future peri- the most subordinate capital of Onex Credit CLO-8 upon closing. ods if the revision affects both current and future periods. Areas that involve critical judgements, assumptions and estimates and that have a signiﬁcant inﬂuence on the amounts Fair value of investments and debt of CLOs not quoted in an active market recognized in the consolidated ﬁnancial statements are further The fair value of investments and debt of CLOs not quoted in an described as follows: Business combinations active market may be determined by Onex Credit using reputa- ble pricing sources (such as pricing agencies) or indicative prices from bond/debt market makers. Broker quotes as obtained from In a business combination, substantially all identiﬁable assets, the pricing sources may be indicative and not executable or bind- liabilities and contingent liabilities acquired are recorded at the ing. The company would exercise judgement and estimates on the date of acquisition at their respective fair values. One of the most quantity and quality of pricing sources used. Where no market signiﬁcant areas of judgement and estimation relates to the deter- data is available, Onex Credit may value positions using models, mination of the fair value of these assets and liabilities, includ- which are usually based on valuation methods and techniques ing the fair value of contingent consideration, if applicable. Land, generally recognized as standard within the industry. buildings and equipment are usually independently appraised Models use observable data, to the extent practicable. while short-term investments are valued at market prices. If any However, areas such as credit risk (both own and counterparty), intangible assets are identiﬁed, depending on the type of intan- volatilities and correlations may require the company to make gible asset and the complexity of determining its fair value, an estimates. Changes in assumptions about these factors could independent external valuation expert may develop the fair affect the reported fair value of ﬁnancial instruments. value, using appropriate valuation techniques, which are gener- ally based on a forecast of the total expected future net cash ﬂows. These valuations are linked closely to the assumptions made by management regarding the future performance of the assets concerned and any changes in the discount rate applied. In certain circumstances where estimates have been made, the companies may obtain third-party valuations of certain assets, which could result in further reﬁnement of the fair-value allocation of certain purchase prices and accounting adjustments. 106 Onex Corporation December 31, 2014 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 Limited Partners’ Interests, carried interest and investments in joint ventures and associates that are based on the operative plans approved by management. Cash ﬂow projections take into account past experience and rep- The measurement of the Limited Partners’ Interests, carried inter- resent management’s best estimate of future developments. Cash est and investments in joint ventures and associates is signiﬁcantly ﬂows after the planning period are extrapolated using estimated impacted by the fair values of the Company’s investments held growth rates. Key assumptions on which management has based by the Onex Partners and ONCAP Funds. The fair values of these its determination of fair value less costs to sell and value-in-use investments are assessed at each reporting date with changes include estimated growth rates, weighted average cost of capital reﬂected in the measurement of the Limited Partners’ Interests, car- and tax rates. These estimates, including the methodology used, ried interest and investments in joint ventures and associates. can have a material impact on the respective values and ulti- The valuation of the non-public investments held by mately the amount of any goodwill impairment. Note 24 provides the Onex Partners and ONCAP Funds requires signiﬁcant judge- details on the signiﬁcant estimates used in the calculation of the ment by the Company due to the absence of quoted market val- recoverable amounts for impairment testing. Likewise, whenever ues, inherent lack of liquidity and the long-term nature of such property, plant and equipment and other intangible assets are assets. Valuation methodologies include observations of the trad- tested for impairment, the determination of the assets’ recoverable ing multiples of public companies considered comparable to the amount involves the use of estimates by management and can private companies being valued and discounted cash ﬂows. The have a material impact on the respective values and ultimately the valuations take into consideration company-speciﬁc items, the amount of any impairment. lack of liquidity inherent in a non-public investment and the fact that comparable public companies are not identical to the com- Revenue recognition panies being valued. Considerations are necessary because, in the Revenues for ResCare in the health and human services segment absence of a committed buyer and completion of due diligence are substantially derived from U.S. federal, state and local gov- similar to that performed in an actual negotiated sale process, ernment agency programs, including Medicaid. Laws and regula- there may be company-speciﬁc items that are not fully known that tions under these programs are complex and subject to interpreta- may affect value. In addition, a variety of additional factors are tion. Management may be required to exercise judgement for the reviewed by management, including, but not limited to, ﬁnancing recognition of revenue under these programs. Management of and sales transactions with third parties, current operating per- ResCare believes that they are in compliance with all applicable formance and future expectations of the particular investment, laws and regulations. Compliance with such laws and regulations changes in market outlook and the third-party ﬁnancing envi- is subject to ongoing and future government review and inter- ronment. In determining changes to the valuations, emphasis is pretation, including the possibility of processing claims at lower placed on current company performance and market conditions. amounts upon audit, as well as signiﬁcant regulatory action includ- For publicly traded investments, the valuation is based on closing ing revenue adjustments, ﬁnes, penalties and exclusion from pro- market prices less adjustments, if any, for regulatory and/or con- grams. Government agencies may condition their contracts upon tractual sale restrictions. a sufﬁcient budgetary appropriation. If a government agency does The Limited Partners’ Interests and carried inter- not receive an appropriation sufﬁcient to cover its contractual est are measured with signiﬁcant unobservable inputs (Level 3 obligations, it may terminate the contract or defer or reduce reim- of the fair value hierarchy). Further information is provided in bursements to be received by the Company. In addition, previously note 16. Investments in joint ventures and associates designated appropriated funds could also be reduced or eliminated through at fair value are measured with signiﬁcant unobservable inputs subsequent legislation. (Level 3 of the fair value hierarchy), with the exception of Allison Transmission, which was measured with signiﬁcant other observ- Income taxes able inputs (Level 2 of the fair value hierarchy). Further informa- The Company, including the operating companies, operates and tion is provided in notes 8 and 28. earns income in numerous countries and is subject to changing tax laws or application of tax laws in multiple jurisdictions within Goodwill impairment tests and recoverability of assets these countries. Signiﬁcant judgement is necessary in determining The Company tests at least annually whether goodwill has suf- worldwide income tax liabilities. Although management believes fered any impairment, in accordance with its accounting policies. that it has made reasonable estimates about the ﬁnal outcome of The determination of the recoverable amount of a CGU (or group tax uncertainties, no assurance can be given that the ﬁnal outcome of CGUs) to which goodwill is allocated involves the use of esti- of these tax matters will be consistent with what is reﬂected in the mates by management. The Company generally uses discounted historical income tax provisions. Such differences could have an cash ﬂow-based methods to determine these values. These dis- effect on income tax liabilities and deferred tax liabilities in the counted cash ﬂow calculations typically use ﬁve-year projections period in which such determinations are made. At each balance Onex Corporation December 31, 2014 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 sheet date, the Company assesses whether the realization of future valuations rely on statistical and other factors in order to antici- tax beneﬁts is sufﬁciently probable to recognize deferred tax assets. pate future events. These factors include key actuarial assump- This assessment requires the exercise of judgement on the part of tions, including the discount rate, expected salary increases and management with respect to, among other things, beneﬁts that mortality rates. These actuarial assumptions may differ materi- could be realized from available tax strategies and future taxable ally from actual developments due to changing market and eco- income, as well as other positive and negative factors. The recorded nomic conditions and therefore may result in a signiﬁcant change amount of total deferred tax assets could be reduced if estimates in post-retirement employee beneﬁt obligations and the related of projected future taxable income and beneﬁts from available future expense. Note 31 provides details on the estimates used in tax strategies are lowered, or if changes in current tax regulations accounting for pensions and post-retirement beneﬁts. are enacted that impose restrictions on the timing or extent of the Company’s ability to utilize future tax beneﬁts. Stock-based compensation The Company, including the operating companies, uses The Company’s stock-based compensation accounting for its MIP signiﬁcant judgement when determining whether to recognize options is completed using an internally developed valuation deferred tax liabilities with respect to taxable temporary differ- model. The critical assumptions and estimates used in the valuation ences associated with investments in subsidiaries, joint ventures model include the fair value of the underlying investments, the time and associates; in particular, whether the Company is able to con- to expected exit from each investment, a risk-free rate and an indus- trol the timing of the reversal of the temporary differences and try comparable historical volatility for each investment. The fair whether it is probable that the temporary differences will not value of the underlying investments includes critical assumptions reverse in the foreseeable future. Judgement includes consider- and estimates as described above for Limited Partners’ Interests, ation of the Company’s future cash requirements in its numerous carried interest and investments in joint ventures and associates. tax jurisdictions. Legal provisions and contingencies Basic earnings per share is based on the weighted average The Company and its operating companies in the normal course number of Subordinate Voting Shares outstanding during the of operations become involved in various legal proceedings, year. Diluted earnings per share is calculated using the trea- Earnings per share as described in note 30(b). While the Company cannot predict sury stock method. the ﬁnal outcome of such legal proceedings, the outcome of these matters may have a material effect on the Company’s con- Dividend distributions solidated ﬁnancial position, results of operations or cash ﬂows. Dividend distributions to the shareholders of Onex Corporation Management regularly analyzes current information about these are recognized as a liability in the consolidated balance sheets in matters and provides provisions for probable contingent losses, the period in which the dividends are declared and authorized by including the estimate of legal expenses to resolve the matters. the Board of Directors. 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- come and the ability to make a sufﬁciently reliable estimate of the amount of loss. The ﬁling of a suit or formal assertion of a claim or 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 IFRS 15 – Revenue from Contracts with Customers the disclosure of any such suit or assertion does not automatically In May 2014, the IASB issued IFRS 15, Revenue from Contracts indicate that a provision may be appropriate. with Customers, which provides a comprehensive ﬁve-step rev- Employee benefits enue recognition model for all contracts with customers. IFRS 15 requires management to exercise sig niﬁcant judgement and make Onex, the parent company, does not provide pension, other retire- estimates that affect revenue recognition. IFRS 15 is effective for ment or post-retirement beneﬁts to its employees or to those of annual periods beginning on or after January 1, 2017, with earlier any of the operating companies. The operating companies that application permitted. The Company is currently evaluating the have pension and non-pension post-retirement beneﬁts account impact of adopting this standard on its consolidated ﬁnancial for these beneﬁts in accordance with actuarial valuations. These statements. 108 Onex Corporation December 31, 2014 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 IFRS 9 – Financial Instruments techniques, including discounted cash ﬂows and projected earn- In July 2014, the IASB issued a ﬁnal version of IFRS 9, Financial ings multiples. The key inputs to the valuation techniques include Instruments, which replaces IAS 39, Financial Instruments: Recog assumptions related to future customer demand, material and nition and Measurement, and supersedes all previous versions employee-related costs, changes in mix of products and services of the standard. The standard introduces a new model for the produced or delivered, and restructuring programs. Any non-con- classiﬁcation and measurement of ﬁnancial assets and liabilities, trolling interests in the acquired company are measured either at a single expected credit loss model for the measurement of the fair value or at the non-controlling interests’ proportionate share impairment of ﬁnancial assets and a new model for hedge account- of the identiﬁable assets and liabilities of the acquired business. ing that is aligned with a company’s risk management activities. The excess of the aggregate of the consideration transferred, the IFRS 9 is effective for annual periods beginning on or after Janu- amount of any non-controlling interests in the acquired company ary 1, 2018, with earlier application permitted. The Company is and, in a business combination achieved in stages, the fair value at currently evaluating the impact of adopting this standard on its the acquisition date of the Company’s previously held interest in the consolidated ﬁnancial statements. 2 . A C Q U I S I T I O N S acquired company compared to the fair value of the identiﬁable net assets acquired, is recorded as goodwill. Acquisition-related costs are expensed as incurred and related restructuring charges are expensed in the periods after the acquisition date. Costs incurred During 2014 and 2013 several acquisitions, which were accounted to issue debt are deferred and recognized as described in note 1. for as business combinations, were completed either directly by Subsequent changes in the fair value of contingent consideration Onex or through subsidiaries of Onex. Any third-party borrowings recorded as a liability at the acquisition date are recognized in con- in respect of these acquisitions are without recourse to Onex. solidated earnings or loss. Business combinations are accounted for using the acqui- In certain circumstances where preliminary estimates sition method. The cost of an acquisition is measured as the fair have been made, the companies may obtain third-party valua- value of the assets given, equity instruments issued and liabilities tions of certain assets, which could result in further reﬁnement of incurred or assumed at the date of exchange. Identiﬁable assets the fair value allocation of certain purchase prices and accounting acquired and liabilities and contingent liabilities assumed in a busi- adjustments. The results of operations for all acquired businesses ness combination are measured initially at fair value at the date of are included in the consolidated statements of earnings, compre- acquisition, irrespective of the extent of any non-controlling inter- hensive earnings and equity of the Company from their respective ests. The fair value is determined using a combination of valuation dates of acquisition. 2 014 A C Q U I S I T I O N S Details of the purchase price allocation for the 2014 acquisitions are as follows: Cash and cash equivalents Other current assets Intangible assets with limited life Intangible assets with indefinite life Goodwill Property, plant and equipment and other non-current assets Current liabilities Non-current liabilities Non-controlling interests in net assets Emerald Expositions(a) USI(b) ONCAP(c) York(d) Other(e) Total $ – $ – $ 1 $ 45 $ – $ 46 16 82 76 200 1 375 (40) (3) 332 – 29 160 – 86 2 277 (18) – 259 – 55 39 1 39 12 147 (18) (3) 126 – 157 616 148 833 30 1,829 (121) (991) 717 (71) – 14 – 10 1 25 – – 25 – 257 911 225 1,168 46 2,653 (197) (997) 1,459 (71) Interest in net assets acquired $ 332 $ 259 $ 126 $ 646 $ 25 $ 1,388 Onex Corporation December 31, 2014 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 a) In January 2014, Emerald Expositions completed the acquisi- tion of George Little Management, LLC (“GLM”) for cash consid- In December 2014, York acquired MCMC, LLC (“MCMC”), a leading managed care services company, for $142. MCMC is a eration of $332. GLM is an operator of business-to-business trade- U.S.-based company offering a variety of managed care programs shows in the United States. In conjunction with the transaction, that offer assistance in the assessment, review and evaluation of Onex, Onex Partners III and Onex management invested $140 in medical claims. In connection with this transaction, York com- Emerald Expositions, of which Onex’ share was $34. The remain- pleted an offering of $45 in aggregate principal amount of its 8.50% der of the purchase price and transaction costs were funded by senior unsecured notes due in October 2022. The acquisition of Emerald Expositions through an amendment to its credit facility, MCMC was ﬁnanced by York with the senior unsecured notes offer- as described in note 12(c). b) In May 2014, USI completed the acquisition of 40 insurance brokerage and consulting ofﬁces across the United States from ing together with a delayed draw on its term loan and revolving credit facility and a $38 rollover equity contribution from certain equity and option holders of MCMC. In addition, York completed one other acquisition dur- Wells Fargo Insurance. The purchase price for the acquisition was ing the fourth quarter of 2014 for total consideration of $21, of $133, which was ﬁnanced with a $125 incremental term loan, as which $5 was deferred consideration. described in note 12(p), and cash from USI. In October 2014, USI completed the acquisition of seven retail insurance brokerage locations across the United States from e) Other includes acquisitions made by Carestream Health and ResCare for total consideration of $25, which was funded by the Willis North America Inc. The purchase price for the acquisition respective companies. was $66, which was ﬁnanced with cash from USI. In addition, USI completed 12 other acquisitions dur- Included in the acquisitions above were gross receivables due ing 2014 for total consideration of $60, of which $19 was non-cash from customers of $206, of which $8 of contractual cash ﬂows are consideration. not expected to be recovered. The fair value of these receivables at the dates of acquisition was determined to be $198. c) In June 2014, EnGlobe Corp. (“EnGlobe”), an ONCAP II oper- ating company that provides integrated environmental services, Revenue and net earnings from the date of acquisition to Decem- completed the acquisition of LVM Inc., a leading Canadian geo- ber 31, 2014 for these acquisitions were $507 and $54, respectively. technical, materials and environmental engineering ﬁrm. The pur- chase price for the acquisition was $104, which was ﬁnanced with Goodwill of the acquisitions is attributable primarily to the debt ﬁnancing and an equity investment from non-controlling acquired workforce and non-contractual established customer interests. The purchase price includes deferred consideration of bases of the acquired companies. Goodwill of the acquisitions $3. ONCAP II owned 81% of EnGlobe following this transaction. that is expected to be deductible for tax purposes is $463. In addition, ONCAP includes acquisitions made by Bradshaw International, Inc., CiCi’s Pizza and Mister Car Wash In addition to the acquisitions described above, in March 2014, (up to the date of disposition in August 2014) for total consider- Onex, Onex Partners III, Onex management and others invested ation of $22. $66 to acquire common stock of JELD-WEN from existing share- holders, of which Onex’ investment was $16. In August 2014, Onex, d) In October 2014, the Company completed the acquisition of York, an integrated provider of insurance solutions to proper- Onex Partners III, Onex management and others sold a portion of the common stock purchased in March 2014 to certain members of ty, casualty and workers’ compensation specialty markets in the JELD-WEN management for $1, of which Onex’ share was less than United States, for $1,325. The Company’s equity investment in York $1. JELD-WEN did not receive any proceeds and the total number of was $521 and was comprised of $400 from Onex, Onex Partners III shares of common stock outstanding did not change as a result of and Onex Management and $121 as a co-investment from Onex these transactions. These transactions are recorded as a net transfer and certain limited partners. Onex’ total investment in York is of equity from the non-controlling interests within the consolidated $173 and is comprised of $96 through Onex Partners III and $77 statements of equity. The excess of the carrying value of the transfer as a co-investment. The balance of the purchase price was sub- of equity over the net investment of $16 was recorded as an increase stantially ﬁnanced with debt ﬁnancing, without recourse to Onex directly to retained earnings. As a result of these transactions, Onex’, Corporation. At December 31, 2014, the Company had an 88% Onex Partners III’s, Onex management’s and others’ as-converted ownership interest, of which Onex’ ownership was 29%. York is economic interest in JELD-WEN at the date of the transaction included in the insurance services segment with USI. increased to 79% from 72% and Onex’ as-converted economic own- ership increased to 20% from 18%. 110 Onex Corporation December 31, 2014 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 December 2014, Onex, Onex Partners III and Onex manage- being made by Meridian Aviation. Onex, Onex Partners III and ment invested $20 in Meridian Aviation, an aircraft investment Onex management continue to have a 100% economic interest in company based in Ireland, of which Onex’ investment was $5. The Meridian Aviation. investment was made to support additional aircraft investments 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) Total $ 1 $ 14 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) – 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., Included in the acquisitions above were gross receivables due from customers of $70, of which $1 of contractual cash ﬂows are for total consideration of $950. The business, now operating as not expected to be recovered. The fair value of these receivables at Emerald Expositions, LLC, is a leading operator of large business- the dates of acquisition was determined to be $69. to-business tradeshows in the United States across nine end mar- kets. The Company’s equity investment of $350, for an initial 100% Net earnings from the date of acquisition for these acquisitions to ownership interest, was made by Onex, Onex Partners III and Onex December 31, 2013 were not signiﬁcant to the Company’s results management. Onex’ equity investment in Emerald Expositions for the year ended December 31, 2013. was $85, for an initial 24% ownership interest. b) During 2013, USI completed eight acquisitions located in the United States for total consideration of $66, of which $23 was in ily to non-contractual established customer bases of the acquired companies. Goodwill of the acquisitions that was expected to be the form of certain deferred and/or contingent payments. deductible for tax purposes was $126. Goodwill arising from the acquisitions was attributable primar- c) ONCAP includes acquisitions made by Hopkins Manufacturing Corporation (“Hopkins”), Mister Car Wash, BSN SPORTS Inc. In addition to the acquisitions described above, in February 2013, Onex and Onex Partners III established Meridian Aviation. Aircraft (“BSN SPORTS”) (up to the date of disposition in June 2013) and purchased by Meridian Aviation will be leased to commercial air- Caliber Collision Centers (“Caliber Collision”) (up to the date of lines and managed by BBAM, one of the world’s largest manag- disposition in November 2013) for total consideration of $84, of ers of commercial jet aircraft and an Onex and Onex Partners III which $8 was deferred consideration and excludes non-cash investment. In February and July 2013, Onex, Onex Partners III and bargain purchase gains of $2. Onex management invested a total of $32 and $25, respectively, in Meridian Aviation. Onex’ share of the investments in Meridian d) Other includes acquisitions made by ResCare, SGS Inter- national and The Warranty Group for total consideration of $81, Aviation was $8 and $6, respectively. These investments were pri- marily for deposits, fees and other expenses associated with the of which $20 was deferred consideration and excludes a non-cash purchase of commercial passenger aircraft. bargain purchase gain of $1. Onex Corporation December 31, 2014 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 3 . C A S H A N D C A S H E Q U I VA L E N T S 5 . O T H E R C U R R E N T A S S E T S Cash and cash equivalents comprised the following: Other current assets comprised the following: As at December 31 2014 2013 As at December 31 Cash at bank and on hand $ 984 $ 1,165 Income and value added taxes receivable Bank term deposits Commercial paper Money market funds 4 . I N V E N T O R I E S 165 1,319 1,296 276 1,184 566 $ 3,764 $ 3,191 Prepaid expenses Restricted cash Current portion of ceded claims recoverable held by The Warranty Group(a) Current portion of prepaid premiums of The Warranty Group(a) Current portion of deferred costs of The Warranty Group(a) Inventories comprised the following: Other 2014 $ 123 171 174 – – – 335 $ 803 2013 $ 169 144 139 129 424 128 345 $ 1,478 (a) The Warranty Group was sold in August 2014 and is presented as a discontinued operation, as described in note 6. As at December 31 Raw materials Work in progress Finished goods Real estate held for sale 2014 $ 836 415 743 19 2013 $ 1,150 2,168 539 15 $ 2,013 $ 3,872 During the year ended December 31, 2014, $8,539 (2013 – $9,024) of inventory was expensed in cost of sales. Note 11(b) provides details on inventory provisions recorded by the Company. 6 . D I S C O N T I N U E D O P E R AT I O N S The following tables show revenue, expenses and net after-tax results from discontinued operations. The sale of Mister Car Wash in August 2014 and the 2013 sales of BSN SPORTS and Caliber Collision did not represent separate major lines of business, and as a result, have not been presented as discontinued operations. Year ended December 31, 2014 Revenues Expenses Earnings before income taxes Recovery of (provision for) income taxes Gain, net of tax Net earnings for the year The Warranty Group(a) $ 648 (577) 71 (22) 368 Spirit AeroSystems(b) $ 2,945 (2,677) 268 (18) 310 Skilled Healthcare Group(c) $ 833 (831) 2 3 – Total $ 4,426 (4,085) 341 (37) 678 $ 417 $ 560 $ 5 $ 982 112 Onex Corporation December 31, 2014 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 Year ended December 31, 2013 Revenues Expenses Earnings (loss) before income taxes Recovery of (provision for) income taxes Gain, net of tax The Warranty Group(a) $ 1,168 (997) 171 (59) – Spirit AeroSystems(b) Skilled Healthcare Group(c) TMS International(d) $ 5,961 (6,400) (439) (101) – $ 856 (944) (88) 5 – $ 1,828 (1,797) 31 (12) 242 Total $ 9,813 (10,138) (325) (167) 242 Net earnings (loss) for the year $ 112 $ (540) $ (83) $ 261 $ (250) a) The Warranty Group b) Spirit AeroSystems In August 2014, the Company sold its entire investment in The On June 4, 2014, under a secondary public offering and share Warranty Group for an enterprise value of approximately $1,500. repurchase of Spirit AeroSystems, Onex, Onex Partners I, Onex Onex, Onex Partners I, Onex Partners II and Onex management management and certain limited partners sold 8.0 million shares received net proceeds of $1,126, resulting in a gain of $368 based of Spirit AeroSystems, of which Onex’ portion was approximately on the excess of the proceeds over the carrying value of the 2.1 million shares. The offering was completed at a price of $32.31 investment. Onex’ portion of the net proceeds was $382, includ- per share. Onex’ cash cost for these shares was $3.33 per share. ing carried interest of $51 and after the reduction for amounts on The sale was completed for net proceeds of $258, of which Onex’ account of the MIP. The gain on the sale is entirely attributable share was $79, including carried interest of $10 and after the to the equity holders of Onex Corporation, as the interests of the reduction for distributions paid on account of the MIP. Limited Partners were recorded as a ﬁnancial liability at fair value. As a result of this transaction, Onex, Onex Partners I, Amounts received on account of the carried inter- Onex management and certain limited partners’ economic inter- est related to this transaction totalled $127. Consistent with the est in Spirit AeroSystems was reduced to 6% from 11%. Onex’ terms of Onex Partners, Onex is allocated 40% of the carried inter- economic ownership was reduced to 2% from 3%. The Company est with 60% allocated to management. Onex’ share of the car- lost its multiple voting rights, which reduced its voting interest ried interest received was $51 and is included in the net proceeds in Spirit AeroSystems to 6% from 55%. This transaction resulted to Onex. Management’s share of the carried interest was $76. in a loss of control of Spirit AeroSystems by the Company. The Amounts paid on account of the MIP totalled $23 for this transac- remaining interest held by the Company was recorded as a long- tion and have been deducted from the net proceeds to Onex. term investment at fair value, with changes in fair value recorded The operations of The Warranty Group up to the date in other items, before being sold in August 2014, as discussed in of disposition are presented as discontinued in the consolidated note 23(f ). Non-controlling interests of the Company decreased statements of earnings and cash ﬂows and the prior year has been by $1,690 as a result of no longer consolidating Spirit AeroSystems. restated to report the results of The Warranty Group as discontin- A gain of $310 was recorded within discontinued opera- ued on a comparative basis. Short-term investments and warranty tions during the second quarter of 2014 based on the excess of the reserves and unearned premiums at December 31, 2013 related to proceeds and the interest retained at fair value over the carrying The Warranty Group. value of the investment. The portion of the gain associated with measuring the interest retained in Spirit AeroSystems at fair value was $159. The portion of the gain associated with the shares sold was $151. Onex Corporation December 31, 2014 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 Amounts received on account of the carried interest the consolidated statements of earnings and cash ﬂows for the year related to the June 4, 2014 transaction totalled $24. Consistent with ended December 31, 2014, and the prior year has been restated to the terms of the Onex Partners agreements, Onex is allocated 40% of report the results of Skilled Healthcare Group as discontinued on the carried interest with 60% allocated to management. Onex’ share a comparative basis. As of the February 2015 transaction date, the of the carried interest received was $10 and is included in the net Company’s investment in the combined company is recorded as a proceeds to Onex. Management’s share of the carried interest was long-term investment at fair value through earnings, with changes $14. Amounts paid on account of the MIP totalled $6 for this trans- in fair value recorded in other items. action and have been deducted from the net proceeds to Onex. The operations of Spirit AeroSystems up to June 4, 2014 d) TMS International are presented as discontinued in the December 31, 2014 consoli- In October 2013, Onex, Onex Partners II and Onex management dated statements of earnings and cash ﬂows and the prior year sold their remaining 23.4 million shares of TMS International, of has been restated to report the results of Spirit AeroSystems as which Onex’ portion was approximately 9.3 million shares. The discontinued on a comparative basis. sale was part of an offer made for all outstanding shares of TMS c) Skilled Healthcare Group 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. In August 2014, Skilled Healthcare Group entered into an agree- Total cash proceeds received from the sale were $410, resulting in ment to combine with Genesis HealthCare, LLC (“Genesis Health- a pre-tax gain of $249. Onex recorded a non-cash tax provision of Care”), a leading U.S. operator of long-term care facilities. The $7 on the gain. Onex’ share of the cash proceeds was $172, includ- transaction was completed in February 2015. Under the terms of ing carried interest. The gain on the sale was entirely attributable the purchase and combination agreement, each share of Skilled to the equity holders of Onex Corporation, as the interests of the Healthcare Group common stock issued and outstanding imme- Limited Partners were recorded as a ﬁnancial liability at fair value. diately prior to the closing of the combination was converted into Non-controlling interests of the Company decreased by $156 as a shares of the newly combined company. Skilled Healthcare Group result of no longer consolidating TMS International. shareholders own approximately 26% of the combined company Amounts received on account of the carried interest and Genesis HealthCare shareholders own the remaining approx- related to this transaction totalled $25. Consistent with the terms imately 74% of the combined company. The combined company of the Onex Partners agreements, Onex is allocated 40% of the now operates under the Genesis Healthcare name and continues carried interest with 60% allocated to management. Onex’ share to be publicly traded (NYSE: GEN). Onex, Onex Partners I and Onex of the carried interest received was $10 and is included in Onex’ management have a 10% economic interest in the newly combined share of the cash proceeds. Management’s share of the carried company compared to 39% owned in Skilled Healthcare Group interest was $15. No amounts were paid on account of the MIP for before the combination. The Company lost its multiple voting this transaction as the required investment return hurdle for Onex rights, which reduced its voting ownership to 10% from 86% before was not met. As a result, the operations up to the date of disposi- the combination. Onex no longer controls Skilled Healthcare Group tion are presented as discontinued in the consolidated statements with the loss of the multiple voting rights and therefore, the opera- of earnings and cash ﬂows. tions of Skilled Healthcare Group are presented as discontinued in 114 Onex Corporation December 31, 2014 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 table shows the summarized assets and liabilities of discontinued operations. The balances represent those of The Warranty Group, Spirit AeroSystems and Skilled Healthcare Group as TMS International was sold in October 2013. December 31, 2014 December 31, 2013 Cash and cash equivalents Other current assets Long-term investments Intangible assets Goodwill Property, plant and equipment and other non-current assets Current portion of warranty reserves and unearned premiums Other current liabilities Non-current portion of warranty reserves and unearned premiums Other non-current liabilities Net assets of discontinued operations Skilled Healthcare Group $ 4 140 5 20 141 370 680 – (115) – (430) $ 135 The Warranty Group $ 148 1,701 1,578 61 306 1,104 4,898 (1,350) (471) (1,779) (541) $ 757 Spirit AeroSystems $ 421 2,609 4 159 3 1,958 5,154 – (1,342) – (2,147) Skilled Healthcare Group Total $ 4 $ 573 128 6 20 142 362 662 – (98) – (441) 4,438 1,588 240 451 3,424 10,714 (1,350) (1,911) (1,779) (3,129) $ 1,665 $ 123 $ 2,545 The following tables present the summarized aggregate cash ﬂows from (used in) discontinued operations of The Warranty Group (up to August 2014), Skilled Healthcare Group, Spirit AeroSystems (up to June 4, 2014) and TMS International (up to October 2013). For the year ended December 31, 2014 Operating activities Financing activities Investing activities Decrease in cash and cash equivalents for the year Decrease in cash 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 For the year ended December 31, 2013 Operating activities Financing activities Investing activities Increase (decrease) in cash and cash equivalents for the year Increase (decrease) in cash due to changes in foreign exchange rates Cash and cash equivalents, beginning of the year Cash and cash equivalents, end of the year Proceeds from sales of operating companies no longer controlled The Warranty Group $ 103 (4) (247) (148) – 148 – 1,126 $ 1,126 The Warranty Group Spirit AeroSystems $ 149 $ 319 (72) (59) 18 – 130 148 – $ 148 (79) (262) (22) 2 441 421 – Spirit AeroSystems Skilled Healthcare Group Total $ 194 $ 53 $ 350 (174) (438) (418) (3) 421 – 258 $ 258 Skilled Healthcare Group $ 80 (77) (1) 2 – 2 4 – (42) (11) – – 4 4 (220) (696) (566) (3) 573 4 – $ 4 1,384 $ 1,388 TMS International Total $ 117 $ 665 (28) (115) (26) (1) 27 – 410 $ 410 (256) (437) (28) 1 600 573 410 $ 983 $ 421 $ 4 Onex Corporation December 31, 2014 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 7. P R O P E R T Y , P L A N T A N D E Q U I P M E N T Property, plant and equipment comprised the following: At 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 Closing net book amount At December 31, 2013 Cost Accumulated amortization and impairments Net book amount Year ended December 31, 2014 Opening net book amount Additions Disposals Amortization charge Amortization charge (discontinued operations) Acquisition of subsidiaries Disposition of operating companies Transfer to discontinued operations Impairment recovery (charge) Transfer to inventories Transfers from construction in progress Foreign exchange Other Land Buildings Machinery and Equipment Construction in Progress $ 627 (10) $ 617 $ 2,601 (601) $ 2,000 $ 4,746 (2,182) $ 2,564 $ 617 $ 2,000 $ 2,564 1 (5) − − 3 (1) (4) − (8) (7) 47 (15) (102) (39) 6 (30) (133) 99 (6) (3) 325 (191) (327) (200) 17 (124) (9) 377 (1) − $ 314 – $ 314 $ 314 493 (1) − − 3 (59) − (476) (1) (19) Total $ 8,288 (2,793) $ 5,495 $ 5,495 866 (212) (429) (239) 29 (214) (146) − (16) (29) $ 596 $ 1,824 $ 2,431 $ 254 $ 5,105 $ 609 (13) $ 596 $ 2,544 (720) $ 1,824 $ 4,732 (2,301) $ 2,431 $ 596 $ 1,824 $ 2,431 – (3) − – – (22) (63) 2 (39) – (18) 2 42 (21) (91) (21) 6 (340) (192) 34 (29) 35 (48) 5 322 (198) (319) (63) 24 (1,124) (33) (3) – 138 (47) (10) $ 254 – $ 254 $ 254 189 (1) – – 1 (131) (9) – – (173) (5) – $ 8,139 (3,034) $ 5,105 $ 5,105 553 (223) (410) (84) 31 (1,617) (297) 33 (68) − (118) (3) Closing net book amount $ 455 $ 1,204 $ 1,118 $ 125 $ 2,902 At December 31, 2014 Cost Accumulated amortization and impairments Net book amount $ 464 (9) $ 455 $ 1,707 (503) $ 1,204 $ 2,749 (1,631) $ 1,118 $ 125 – $ 125 $ 5,045 (2,143) $ 2,902 116 Onex Corporation December 31, 2014 N O T E S T O C O N S O L I D AT E D F I N A N C I A L S TAT E M E N T S Property, plant and equipment cost and accumulated amortization Details of those investments designated at fair value included in and impairments have been reduced for components retired dur- long-term investments are as follows: ing 2013 and 2014. At December 31, 2014, property, plant and equip- ment includes amounts under ﬁnance leases of $96 (2013 – $126) and related accumulated amortization of $57 (2013 – $59). During 2014, borrowing costs of $6 (2013 – $12) were capitalized and are included in the cost of additions. 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 December 31, 2014 December 31, 2013 Balance – December 31, 2012 Sale of investments Distributions received Increase in fair value of investments, net Balance – December 31, 2013 Purchase of investments Sale of investments Distributions received Transfer to other Onex Partners investments (note 23) Increase in fair value of investments, net at fair value through earnings(a) $ 540 $ 3,504 Balance – December 31, 2014 Total $ 3,370 (908) (56) 1,098 $ 3,504 309 (3,561) (43) (81) 412 $ 540 Long-term investments held by The Warranty Group(b) Onex Credit CLOs’ investments in corporate loans(c) Investment in Onex Credit funds(d) Other(e) – 1,550 AIT 3,596 475 415 1,810 469 231 In December 2014, the Company acquired a 40% economic interest in AIT, a leading provider of automation and tooling, maintenance services and aircraft components to the aerospace industry. The Company’s investment of $204 was made by Onex, Onex Partners IV $ 5,026 $ 7,564 and Onex management. Onex’ share of the investment was $45 for a a) Investments in joint ventures and associates 9% economic interest. The investment in AIT has been designated at fair value through earnings. Additionally, the Company entered Certain investments in joint ventures and associates over which into a put and call arrangement with the existing ownership of AIT the Company has joint control or signiﬁcant inﬂuence, but not to acquire an additional 10% economic interest at the same relative control, are designated, upon initial recognition, at fair value. The value as the Company’s original investment. fair value of these investments in joint ventures and associates is assessed at each reporting date with changes to the values being Allison Transmission recorded through earnings. During 2013, Allison Transmission completed secondary offerings Investments in joint ventures and associates include to the public of 46.6 million shares of common stock and repur- investments in AIT (since December 2014), Allison Transmission (up chased 4.7 million shares of common stock. The secondary offer- to June 2014), BBAM, Mavis Tire Supply LLC (“Mavis Discount Tire”) ings included the full exercise of the over-allotment options. As part (since October 2014), RSI (up to February 2013) and Tomkins (up to of the offering and share repurchase, Onex, Onex Partners II, Onex April 2014), and certain Onex Real Estate investments. Investments management and certain limited partners sold 25.7 million shares in joint ventures and associates designated at fair value are mea- of common stock. Onex, Onex Partners II, Onex management and sured with signiﬁcant unobservable inputs (Level 3 of the fair value certain limited partners received net proceeds of $585, of which hierarchy), with the exception of Allison Transmission, which was Onex’ portion was $195, including carried interest. The realized gain measured with signiﬁcant other observable inputs (Level 2 of the on the portion of Allison Transmission sold by Onex, Onex Part- fair value hierarchy). The joint ventures and associates also have ners II, Onex management and certain limited partners was $369, ﬁnancing arrangements that typically restrict their ability to transfer of which Onex’ share was $114. Amounts received related to the car- cash and other assets to the Company. ried interest on the 2013 transactions totalled $31, of which Onex’ portion was $12 and management’s portion was $19. No amounts were paid on account of these transactions related to the MIP as the required performance targets had not been met at those times. Onex Corporation December 31, 2014 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 In February 2014, Allison Transmission completed a sec- After completion of the June 2014 secondary offer- ondary offering to the public of 25.32 million shares of common ing and share repurchase, Onex, Onex Partners II, Onex manage- stock and repurchased 3.43 million shares of common stock. The ment and certain limited partners continued to own 2.7 million secondary offering included the full exercise of the over-allotment shares of common stock, or approximately 2% in the aggregate, of option. As part of the secondary offering and share repurchase, Allison Transmission’s outstanding common stock. As a result, the Onex, Onex Partners II, Onex management and certain limited Company no longer had the right to appoint members to Allison partners sold 14.4 million shares of common stock. Onex, Onex Transmission’s board of directors and no longer had a signiﬁcant Partners II, Onex management and certain limited partners inﬂuence over Allison Transmission. The Company then record- received net proceeds of $419 for their 14.4 million shares of com- ed its investment in Allison Transmission within other long-term mon stock, of which Onex’ portion was $141, including carried investments at fair value through earnings, with changes in fair interest. Amounts received related to the carried interest totalled value recorded in other items, until the Company sold its remain- $26, of which Onex’ portion was $11 and management’s portion ing interest in Allison Transmission in September 2014, as described was $15. No amounts were paid on account of this transaction in note 23(f ). related to the MIP as the required performance targets had not The realized gains on the portion of Allison Transmission been met at that time. sold by Onex, Onex Partners II, Onex management and certain In April 2014, Allison Transmission completed a second- limited partners during 2014, including the September 2014 sale ary offering to the public of 25.0 million shares of common stock. as described in note 23(f ), totalled $1,056, of which Onex’ share As part of the offering, Onex, Onex Partners II, Onex management was $329. and certain limited partners sold 12.5 million shares of common stock. Onex, Onex Partners II, Onex management and certain BBAM limited partners received net proceeds of $372 for their 12.5 mil- During 2014, BBAM completed total distributions of $63 (2013 – lion shares of common stock, of which Onex’ portion was $125, $49), of which Onex, Onex Partners III and Onex management’s including carried interest. Amounts received related to the carried share of the distributions was $28 (2013 – $24). Onex’ share of the interest totalled $24, of which Onex’ portion was $10 and manage- BBAM distributions was $7 (2013 – $6). ment’s portion was $14. No amounts were paid on account of this transaction related to the MIP as the required performance tar- Cypress Insurance Group and Onex Real Estate gets had not been met at that time. During 2014, the Company received proceeds of $46 on the sale In June 2014, Allison Transmission completed a second- of Cypress Insurance Group, of which Onex’ share was $43, and ary offering to the public of 35.25 million shares of common stock $95 on the sale of certain Onex Real Estate investments. The sale and repurchased 5.0 million shares of common stock. The sec- of Onex Real Estate investments during 2014 primarily consisted of ondary offering included the full exercise of the over-allotment properties sold in the Urban Housing platform. option. As part of the secondary offering and share repurchase, Onex, Onex Partners II, Onex management and certain limited Mavis Discount Tire partners sold 20.1 million shares of common stock. Onex, Onex In October 2014, the Company acquired a 46% economic interest in Partners II, Onex management and certain limited partners Mavis Discount Tire. Mavis Discount Tire is a leading regional tire received net proceeds of $603 for their 20.1 million shares of com- retailer operating in the tire and light vehicle service industry with mon stock, of which Onex’ portion was $167, including carried over 150 retail locations. The Company’s preferred investment of interest and after the reduction for distributions paid on account $102 was made by Onex, ONCAP III, Onex management and ONCAP of the MIP. Amounts received related to the carried interest management. Onex’ share of the preferred investment was $30 for a totalled $39, of which Onex’ portion was $15 and management’s 14% economic interest. The investment in Mavis Discount Tire has portion was $24. Amounts paid on account of the MIP totalled been designated at fair value through earnings. $36, which represents amounts received for this transaction as In addition, the consolidated ﬁnancial statements well as a share of the proceeds from previous sales and dividends include a $3 equity investment in Mavis Discount Tire by a third- received by Onex. party investor. 118 Onex Corporation December 31, 2014 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 RSI Onex Partners, Onex is allocated 40% of the carried interest with In February 2013, Onex, Onex Partners II and Onex management 60% allocated to management. Onex’ share of the carried inter- completed the sale of their entire investment in RSI. The sale was est received was $54 and is included in the proceeds to Onex. completed for proceeds of $323, of which Onex’ share was $130, Management’s share of the carried interest was $82. Amounts paid including carried interest. Onex’ investment in RSI was recorded on account of the MIP totalled $28 for these transactions and have at fair value in the consolidated balance sheets, with changes in been deducted from the proceeds to Onex. fair value recognized in the consolidated statements of earnings. The realized pre-tax gain on the sale of RSI, including prior dis- b) Long-term investments held by The Warranty Group tributions, was $153. The Limited Partners’ share of the realized The Warranty Group was sold in August 2014 and is presented as a gain was $93, while Onex’ share was $60. In addition, Onex initially discontinued operation, as described in note 6. recorded a non-cash tax provision of $5 on the realized gain. The tax provision was included in the provision for income taxes in the c) Onex Credit’s investments in corporate loans consolidated statements of earnings. Onex recognized a recovery In March 2012, Onex Credit established its ﬁrst collateralized loan of this tax provision during 2013 as part of an evaluation of changes obligation (“CLO”). A CLO is a leveraged structured vehicle that in tax law as described in note 15. Amounts received on account holds a widely diversiﬁed collateral asset portfolio and is funded of the carried interest related to this transaction totalled $8. Onex’ through the issuance of collateralized loan instruments in a series share of the carried interest received was $3 and was included in of tranches of secured notes and equity. As of December 31, 2014, Onex’ share of the cash proceeds. Management’s share of the car- Onex Credit had established seven CLOs (2013 – four CLOs), which ried interest was $5, which was previously recorded as a liabil- were funded through the issuance of secured notes and/or equity ity within other non-current liabilities. No amounts were paid on in private placement transactions in an initial aggregate amount account of the MIP for this transaction as the required investment of $3,810 (2013 – $1,874), as described in note 12(h). Onex’ remain- return hurdle for Onex was not met. Tomkins ing total investment at original cost in the Onex Credit CLOs at December 31, 2014 was $268 (2013 – $122) and has been made in the most subordinated capital of each respective CLO. During 2014, In April 2014, Onex, together with Canada Pension Plan Invest- Onex received distributions from the CLOs of $24 (2013 – $13), ment Board (“CPPIB”), entered into an agreement to sell Gates excluding investment income earned during the warehouse periods Cor poration (“Gates”), Tomkins’ principal remaining business. As of the CLOs. a result, at that time, Onex’ investment in Tomkins was recorded The asset portfolio held by the CLOs consists of cash in assets held for sale and was recorded at fair value in the con- and cash equivalents and corporate loans and has been designat- solidated balance sheets, with changes in fair value recognized ed to be recorded at fair value. The asset portfolio of each CLO is within other items in the consolidated statements of earnings, as pledged as collateral for its respective secured notes and/or equity. described in note 23(f ). The sale was completed in July 2014 for an The CLOs have reinvestment periods ranging from three to four enterprise value of $5,400. Proceeds from the sale to Onex, Onex years, during which reinvestment can be made in collateral. Onex Partners III, certain limited partners, Onex management and others is required to consolidate the operations and results of the Onex were $2,001. Onex’ share of the proceeds was $542, including carried Credit CLOs, as more fully described in note 1. interest and after the reduction for distributions paid on account At December 31, 2014, the asset portfolio of the Onex of the MIP. Included in these proceeds was $27 held in escrow pri- Credit CLOs included $3,596 (2013 – $1,810) of corporate loans marily for working capital adjustments, of which Onex’ share was as follows: $7. In September 2014, $30 was received for amounts held in escrow and an additional amount as a closing adjustment, of which Onex’ share was $8, including carried interest and after the reduction for amounts paid on account of the MIP. After the sale of Gates, Onex continued to own residu- al assets of Tomkins. Through December 2014, Onex, Onex Part- ners III, certain limited partners, Onex management and others sold the residual assets for proceeds of $46. Included in the pro- ceeds amount is $7 which is expected to be received in the ﬁrst half of 2015, of which Onex’ share is $2. The realized gain on Tomkins, including a prior dis- tribution, was $1,494, of which Onex’ share was $386. Amounts received on account of the carried interest related to the transac- tions during 2014 totalled $136. In accordance with the terms of CLO-1 CLO-2 CLO-3 CLO-4 CLO-5 CLO-6 CLO-7 Closing Date March 2012 November 2012 March 2013 October 2013 March 2014 June 2014 November 2014 As at December 31, 2014 As at December 31, 2013 $ 319 $ 323 491 488 484 389 937 488 499 495 493 – – – $ 3,596 $ 1,810 Onex Corporation December 31, 2014 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 d) Investments in Onex Credit funds 9. O T H E R N O N - C U R R E N T A S S E T S The investments in Onex Credit funds are recorded at fair value and classiﬁed as fair value through earnings. At December 31, 2014, Other non-current assets comprised the following: Onex had $346 (2013 – $343) invested at fair value in a segregated Onex Credit unleveraged senior secured loan strategy fund and As at December 31 $129 (2013 – $126) invested in other Onex Credit funds. Onex’ maxi- mum exposure to losses from its investments in the Onex Credit Deferred income taxes (note 15) Defined benefit pensions (note 31) funds is limited to its current investments. During 2014 and 2013, Restricted cash Non-current portion of ceded claims recoverable held by The Warranty Group(a) Non-current portion of prepaid premiums of The Warranty Group(a) Non-current portion of deferred costs of The Warranty Group(a) Other 2014 $ 215 64 60 – – – 327 $ 666 2013 $ 308 301 40 241 556 171 483 $ 2,100 (a) The Warranty Group was sold in August 2014 and is presented as a discontinued operation, as described in note 6. Onex did not provide any other support to the Onex Credit funds and Onex has no contractual obligation to provide such support in the future. e) Other Other includes a warehouse facility established by Onex Credit in December 2014 in connection with its eighth CLO (“Onex Credit CLO-8”). Onex purchased $20 of subordinated notes to support the warehouse facility and a ﬁnancial institution provided an ini- tial borrowing capacity of up to $100, as described in note 12(h). The subordinated notes do not have a stated rate of interest, but will receive any excess available funds after payment of principal, accrued interest and certain expenses upon closing of Onex Credit CLO-8. Onex consolidates the warehouse facility for Onex Credit CLO-8, and at December 31, 2014, the asset portfolio included $87 of corporate loans. 120 Onex Corporation December 31, 2014 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 December 31, 2012 Cost $ 4,544 $ 1,066 $ 3,804 Accumulated amortization and impairments (186) (175) (982) Net book amount $ 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 Impairment charge (discontinued operations) Foreign exchange Other − − − − 750 (457) (41) (93) (1) (47) 2 − (39) – 194 (8) (24) – (8) 50 − − (318) (17) 341 (205) (9) – 4 56 66 (5) (50) (28) 4 (18) – (1) (2) 3 22 (1) (78) (5) 6 (10) (3) – − (8) − − − − − (38) – (2) (1) (8) 90 (6) (485) (50) 545 (279) (36) (3) (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 (884) $ 287 $ 511 $ 7,527 (3) (2,832) $ 508 $ 4,695 Year ended December 31, 2014 Opening net book amount $ 4,469 $ 1,058 $ 2,674 $ 168 $ 287 $ 508 $ 4,695 Additions Disposals Amortization charge Amortization charge (discontinued operations) Acquisition of subsidiaries Disposition of operating companies Transfer to discontinued operations Impairment charge Foreign exchange Other − − − − 1,168 (433) (141) (70) (63) (2) – (1) (27) − 243 (23) (14) (11) (45) (1) – − (337) (3) 763 (17) – (3) (38) 7 55 (1) (50) (12) 108 (52) (1) – (4) – 18 – (64) (2) 22 (124) (1) – (5) (1) − − − − − – (4) – (1) – 73 (2) (478) (17) 1,136 (216) (20) (14) (93) 5 Closing net book amount $ 4,928 $ 1,179 $ 3,046 $ 211 $ 130 $ 503 $ 5,069 At December 31, 2014 Cost $ 5,069 Accumulated amortization and impairments (141) $ 1,455 (276) $ 4,489 (1,443) Net book amount (1) $ 4,928 $ 1,179 $ 3,046 $ 674 (463) $ 211 $ 500 (370) $ 130 $ 503 $ 7,621 – (2,552) $ 503 $ 5,069 (1) At December 31, 2014, trademarks and licenses include amounts determined to have indefinite useful lives of $977 (2013 – $833). Onex Corporation December 31, 2014 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 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 (2013 – $25) and sitions. Intangible assets include trademarks, non-competition those acquired separately were $48 (2013 – $65). Included in the agreements, customer relationships, software, contract rights and balance of intangible assets at December 31, 2014 were $45 (2013 – expiration rights obtained in the acquisition of certain facilities. $176) 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, 2013 Charged (credited) to statements of earnings: Additional provisions Unused amounts reversed during the year Disposition of operating companies Transfer to discontinued operations Amounts used during the year Other adjustments Balance – December 31, 2014 Accounts Receivable Provision(a) Inventory Provision(b) $ 89 $ 117 49 (12) (3) (17) (18) (4) 53 (18) (18) – (10) (6) Total $ 206 102 (30) (21) (17) (28) (10) $ 84 $ 118 $ 202 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. 122 Onex Corporation December 31, 2014 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, 2013 Charged (credited) to statements of earnings: Additional provisions Unused amounts reversed during the year Acquisition of subsidiaries Disposition of operating companies Transfer to discontinued operations Amounts used during the year Increase in provisions due to passage of time and changes in discount rates Other adjustments Balance – December 31, 2014 Current portion of provisions Non-current portion of provisions Restructuring(c) Self-Insurance(d) Warranty(e) Other(f) $ 42 6 $ 48 74 (4) − (1) – (85) − − $ 32 (26) $ 6 $ 85 90 $ 175 195 (1) 2 (43) (41) (186) − (1) $ 100 (47) $ 53 $ 81 125 $ 206 77 (15) − (69) – (64) − (8) $ 127 (71) $ 56 $ 123 198 $ 321 117 (46) 35 (5) (4) (78) 7 (9) $ 338 (129) $ 209 Total $ 331 419 $ 750 463 (66) 37 (118) (45) (413) 7 (18) $ 597 (273) $ 324 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. At costs and property damage repairs. the end of each reporting period, the operating companies evalu- ate 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 2015 and 2019. Warranty provisions are established to provide for future warranty costs based on management’s best estimate of probable claims The closing balance of restructuring provisions consisted of the under these warranties. following: As at December 31 Employee termination costs Lease and other contractual obligations Facility exit costs and other 2014 $ 23 8 1 $ 32 f) Other includes contingent consideration (note 23(e)), legal, transition and integration, asset retirement and other provisions. Transition and integration provisions are typically to provide for the costs of transitioning the activities of an operating company from a prior parent company upon acquisition and to integrate new acquisitions at the operating companies. 2013 $ 23 22 3 $ 48 Onex Corporation December 31, 2014 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 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) Meridian Aviation(g) Onex Credit CLOs(h) ResCare(i) SGS International(j) Sitel Worldwide(k) Skilled Healthcare Group(l) Spirit AeroSystems(m) The Warranty Group(n) Tropicana Las Vegas(o) USI(p) York(q) ONCAP companies(r) Revolving credit facility and term loans due 2018 and 2019 Revolving credit facility due 2018 Revolving credit facility and term loan due 2018 and 2020 Senior notes due 2021 Mortgage loan due 2016 Mezzanine A and B loans due 2016 Senior construction loan due 2016 Mezzanine loan due 2016 Revolving credit facility and term loan due 2019 and 2021 Senior secured notes due 2017 Senior secured revolving credit facility and term loan due 2016 Other Senior secured notes due 2020 Other Revolving credit facility due 2015 Senior debt loan and senior Yen loan due 2026 Secured notes due 2023 and 2026 Senior secured revolving credit facility and term loans due 2019 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 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 credit facilities due 2018 Senior secured revolving credit facility and term loan due 2017 and 2019 Senior notes due 2021 Other Senior secured revolving credit facility and term loans due 2019 and 2021 Senior unsecured notes due 2022 Revolving credit facilities and term loans due 2016 to 2019 Subordinated notes due 2018 to 2024 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 124 Onex Corporation December 31, 2014 2014 $ 2,133 – 568 200 768 195 70 46 36 347 768 – – 48 816 354 2 356 50 179 229 3,431 461 – – 1 462 375 210 585 255 292 193 228 968 – – – – – – – – – – – – – 62 1,144 630 11 1,785 631 302 933 788 372 9 1,169 5 (584) 13,465 (183) 13,282 (408) $ 12,874 2013 $ 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 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 Amounts received on account of the carried interest companies, nor are there any cross-guarantees between operating related to this transaction totalled $121, of which Onex’ share was companies. $50. Management’s share of the carried interest was $71. In addition, The ﬁnancing arrangements for each operating com- amounts on account of the MIP totalled $21 for this transaction. pany typically contain certain restrictive covenants, which may In connection with the new credit facility, Carestream include limitations or prohibitions on additional indebtedness, Health entered into a series of interest rate swap agreements that payment of cash dividends, redemption of capital, capital spend- swap the variable rate portion for ﬁxed rates through December ing, making of investments and acquisitions and sales of assets. 2017. The agreements have an initial notional amount of $1,070, The ﬁnancing arrangements may also require the redemption of reducing to $920 during the term of the agreements. indebtedness in the event of a change of control of an operating At December 31, 2014, the ﬁrst-lien term loan with $1,673 company. In addition, certain ﬁnancial covenants must be met by (2013 – $1,804) outstanding was recorded net of the unamortized those operating companies that have outstanding debt. discount of $19 (2013 – $25). At December 31, 2014, the second-lien Future changes in business conditions of an operat- term loan with $487 (2013 – $500) outstanding was recorded net of ing company may result in non-compliance with certain cov- the unamortized discount of $8 (2013 – $9). At Decem ber 31, 2014 enants by that company. No adjustments to the carrying amount and 2013, no amounts were outstanding under the revolving facility. or classiﬁcation of assets or liabilities of any operating company As a result of the reﬁnancing in 2013, Carestream Health have been made in the consolidated ﬁnancial statements with recognized debt prepayment charges of $16 in the second quarter respect to any possible non-compliance. of 2013, which were included in interest expense in the consoli- a) Carestream Health In June 2013, Carestream Health entered into a new credit facil- b) Celestica dated statements of earnings. ity. The credit facility consists of a $1,850 ﬁrst-lien term loan, a Celestica had a $400 revolving credit facility that was scheduled $500 second-lien term loan and a $150 revolving facility. The ﬁrst- to mature in January 2015. In October 2014, Celestica amended lien term loan bears interest at LIBOR (subject to a ﬂoor of 1.00%) its revolving credit facility to reduce the credit limit to $300 and plus a margin of 4.00% and matures in June 2019. The offering extend the maturity to October 2018. The revolving credit facil- price was 98.50% of par. The second-lien term loan bears interest ity has an accordion feature that allows the company to increase at LIBOR (subject to a ﬂoor of 1.00%) plus a margin of 8.50% and the credit limit by an additional $150 upon satisfaction of certain matures in December 2019. The offering price was 98.00% of par. terms and conditions. At December 31, 2014 and 2013, no amounts The ﬁrst- and second-lien term loans include optional redemp- were outstanding under the revolving credit facility. Celestica has tion provisions at a range of redemption prices plus accrued and issued $29 (2013 – $30) of letters of credit under its revolving credit unpaid interest. The revolving facility bears interest at LIBOR facility at December 31, 2014. (subject to a ﬂoor of 1.00%) plus a margin of 4.00% or an alterna- The facility has restrictive covenants, including those tive base rate plus a margin of 3.00% and matures in June 2018. relating to debt incurrence, the sale of assets and a change of con- Substantially all of Carestream Health’s assets are pledged as trol and also contains ﬁnancial covenants that require Celestica collateral under the new credit facility. to maintain certain ﬁnancial ratios. Celestica has pledged certain The proceeds from the new credit facility, along with assets as security for borrowings under its revolving credit facility. cash on hand, were used to fully repay existing debt facilities, fund Celestica also has uncommitted bank overdraft facilities available a $750 distribution to shareholders and pay fees and expenses for intraday and overnight operating requirements that totalled $70 associated with the transaction. The Company’s share of the distri- (2013 – $70) at December 31, 2014. bution was $695, of which Onex’ share was $303, including carried interest of $50 and after deducting distributions on account of the MIP. Onex initially recorded a non-cash tax provision of $38 on the distribution. Onex recognized a recovery of this tax provision dur- ing 2013 as part of an evaluation of changes in tax law, as described in note 15. Onex Corporation December 31, 2014 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 c) Emerald Expositions At December 31, 2013, $409 and $46 of principal plus In June 2013, Emerald Expositions entered into a credit facil- accrued interest were outstanding under the senior construction ity consisting of a $430 term loan and a $90 revolving facility. The and mezzanine loans, respectively, of which a total of $90 was held offering price of the term loan was 99.00% of par. Borrowings by the Company. The senior construction and mezzanine loans under the term loan bear interest at LIBOR (subject to a ﬂoor of were recorded net of unamortized debt extinguishment gains of 1.25%) plus a margin of 4.25%. The term loan requires quarterly $2 and $2, respectively. In addition, at December 31, 2013 letters of repayments, but can be repaid in whole or in part without pre- credit of $5 were outstanding, which partially reduced the amount mium or penalty at any time before maturity in June 2020. The available to be drawn under the senior construction loan. revolving facility bears interest at LIBOR plus a margin of 4.25% In May 2014, Flushing Town Center entered into new and matures in June 2018. Substantially all of Emerald Expositions’ credit facilities with third-party lenders consisting of a $195 mort- assets are pledged as collateral under the credit facility. gage loan and $70 of mezzanine loans. Borrowings under the mort- In January 2014, Emerald Expositions amended its credit gage loan bear interest at LIBOR (subject to a ﬂoor of 0.15%) plus facility to increase its term loan by $200 to partially fund an acqui- 2.25%. The mezzanine loans consist of two loans: (i) $20 bearing sition, as described in note 2. The addition to the term loan contin- interest at LIBOR (subject to a ﬂoor of 0.15%) plus 6.25% (“mez- ues to bear interest at the same rate as the existing term loan and zanine A loan”) and (ii) $50 bearing interest at LIBOR (subject to a requires quarterly repayments until maturity in June 2020. ﬂoor of 0.15%) plus 10.72% (“mezzanine B loan”). During 2014, the In July 2014, Emerald Expositions amended its credit company entered into interest rate caps to limit the variable rate facility to reduce the rate at which borrowings under its term loan portion of the mortgage loan and mezzanine loans. The interest bear interest to LIBOR (subject to a ﬂoor of 1.00%) plus a margin of rate cap agreements limit the increase in LIBOR for the mortgage 3.75%. The amendment resulted in a total interest rate reduction of loan and mezzanine loans to 2% per annum through June 2016. 0.75% on the company’s term loan. The mortgage and mezzanine loans mature in June 2016 and have At December 31, 2014, the term loan with $577 (2013 – three one-year extension options. The majority of Flushing Town $428) outstanding was recorded net of the unamortized discount Center’s assets, with the exception of land that is currently under of $9 (2013 – $4) and no amounts (2013 – nil) were outstanding pre-development, are pledged as collateral under the new credit under the revolving facility. facilities. At December 31, 2014, $195 was outstanding under the In June 2013, Emerald Expositions issued $200 in aggre- mortgage loan, $20 was outstanding under the mezzanine A loan gate principal amount of 9.00% senior notes due in June 2021. and $50 was outstanding under the mezzanine B loan. Interest is payable semi-annually beginning in December 2013. The proceeds from the new credit facilities, along with a The senior notes may be redeemed by the company at any time at $95 equity investment from the Company, were used to repay the various premiums above face value. At December 31, 2014, senior third-party lenders of the existing senior construction loan. Onex’ notes of $200 (2013 – $200) were outstanding. share of the equity investment was $84. At December 31, 2014, $46 d) Flushing Town Center and $36 of principal plus accrued interest were outstanding under the existing senior construction and mezzanine loans, respectively, In December 2010, Flushing Town Center amended and restated all of which was held by the Company. The existing senior construc- its senior construction loan and mezzanine loan, increasing the tion and mezzanine loans are subordinate to the new credit facilities. total amount available under the senior construction loan to $642, including $25 of letters of credit, and extending the maturity to e) JELD-WEN December 2013. The loans had two one-year extension options. The In October 2011, JELD-WEN entered into a senior secured credit loans bore interest at LIBOR plus a margin that ranged between agreement that initially consisted of a $300 revolving credit facil- 1.55% and 3.65%. In conjunction with these amendments, the Com- ity maturing in April 2016. The facility contained a $75 sublimit for pany purchased $56 and $38 of the senior construction loan and the issuance of letters of credit and a $100 sublimit for borrow- mezzanine loan, respectively, from third-party lenders. ings by a European subsidiary of JELD-WEN. Borrowings under In November 2011, Flushing Town Center amended its the facility bore interest at either the Eurodollar rate or a base senior construction loan agreement, whereby the Company con- rate determined as the highest of the overnight Federal Funds tributed an additional $14 in equity, of which $7 was in cash and rate plus 0.50%, the Eurodollar rate plus 1.00% or the prime rate. $7 was in the form of a letter of credit that could be drawn upon A margin was added to the Eurodollar and base rate that varied to fund project costs. In addition, the initial maturity of the loans based on JELD-WEN’s consolidated leverage ratio; base rate loan was extended to June 2014 and the second extension option was margins ranged from 1.50% to 3.00% and Eurodollar-based loan reduced from one year to six months. margins ranged from 2.50% to 4.00%. In addition, JELD-WEN paid a commitment fee ranging from 0.45% to 0.75% on the unused portion of the facility and a letter of credit fee ranging from 2.50% to 4.00% on the face amount of outstanding letters of credit. 126 Onex Corporation December 31, 2014 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 October 2012, JELD-WEN amended its senior secured In October 2011, JELD-WEN issued convertible prom- credit agreement to add a $30 term loan, which was scheduled to issory notes in the amount of $171, all of which were held by the mature in April 2016. In June 2013, JELD-WEN further amended Company. The notes bore interest at a rate of 10% compounded its senior secured credit agreement to increase its term loan to annually. During 2013, JELD-WEN paid $60, including accrued $100 from $30. The term loan bore interest at the Eurodollar rate interest, to repurchase a portion of the notes, all of which was plus a margin of up to 3.50% or a base rate plus a margin of up to paid to the Company. Onex’ share of the note repurchase, includ- 2.50%, and required quarterly amortization payments beginning ing accrued interest, was $15. In April 2013, the remaining con- in December 2013. Proceeds from the addition to the term loan vertible promissory notes and accrued interest of $72, all of which were primarily used to repay a portion of the outstanding balance were held by the Company, were converted into additional Series under the revolving credit facility. A Convertible Preferred Stock of JELD-WEN in accordance with the Borrowings under the senior secured credit agreement terms of the purchase agreement, of which Onex’ share was $18. were secured by ﬁrst priority liens on substantially all of the pres- ent and future assets of JELD-WEN and its subsidiary guarantors. f) KraussMaffei At December 31, 2013, $70 was outstanding under the revolving credit facility and $99 was outstanding under the term loan. The amount available under the revolving credit facility was 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 reduced by $38 of letters of credit outstanding at December 31, 2013. of 8.75%. The senior secured notes may be redeemed by the com- In October 2014, JELD-WEN entered into new credit facilities consisting of a $775 term loan and a $300 revolving credit facility. The offering price of the term loan was 99.00% of par. Borrowings under the term loan bear interest at LIBOR (sub- ject to a ﬂoor of 1.00%) plus a margin of 4.25%. The term loan has no ﬁnancial maintenance covenants and matures in October 2021. The revolving credit facility bears interest at LIBOR plus a margin of between 1.50% and 2.00% based on the amount drawn under the revolving credit facility. There are no ﬁnancial maintenance covenants on the revolving credit facility unless the facility is 90% drawn. The revolving credit facility matures in October 2019. Substantially all of JELD-WEN’s North American assets are pledged pany on or after December 2015 at various premiums above face value. At December 31, 2014, $354 (2293) (2013 – $448 (2325)) was outstanding under the senior secured notes. In December 2012, KraussMaffei established a 275 revolv- ing credit facility that matures in December 2017. During 2013, KraussMaffei increased the revolving credit facility capacity by 225 to a total capacity of 2100. Prior to an amendment in October 2014, the revolving credit facility could be used for revolving cash advances of up to 225 as well as for letters of guarantee and credit. Subsequent to the amendment in October 2014, the revolving credit facility could be used for revolving cash advances of up to 250 as well as for letters of guarantee and credit. Revolving loans drawn as collateral under the credit facilities. The proceeds from the credit on the facility bear interest at LIBOR or EURIBOR plus a margin of facilities were primarily used to repay JELD-WEN’s former senior 5.00% or an alternate base rate plus a margin of 4.00%. Letters of secured credit facility and to redeem all of the outstanding senior guarantee and credit drawn on the facility bear interest at a ﬁxed secured notes that bore interest at 12.25%. At December 31, 2014, the rate of 5.125%. In addition, KraussMaffei pays a commitment fee term loan with $775 outstanding was recorded net of the unamor- of 0.50% on the unused portion of the revolving credit facility and tized discount of $7. JELD-WEN had no amounts outstanding under certain fees for letters of guarantee and credit issued. its revolving credit facility at December 31, 2014. The amount avail- No amounts were drawn under the revolving credit facil- able under the revolving credit facility was reduced by $39 of letters of credit outstanding at December 31, 2014. In October 2011, JELD-WEN completed an offering ity at December 31, 2014 and 2013. The amount available under the revolving credit facility was reduced by $60 (249) (2013 – $70 (251)) of letters of guarantee and credit outstanding at December 31, 2014. of $460 in aggregate principal amount of 12.25% senior secured Substantially all of KraussMaffei’s assets are pledged as notes due in 2017. JELD-WEN received net proceeds of $448 after collateral under its senior secured notes and revolving credit facility. original issue discounts. Interest on the senior secured notes was payable semi-annually and the senior secured notes were g) Meridian Aviation secured by a second priority lien on the collateral securing the In December 2014, Meridian Aviation entered into loan agree- senior secured revolving credit facility. The senior secured notes ments in connection with the purchase of an aircraft, which is were redeemed in October 2014. At December 31, 2013, the senior included in inventory at December 31, 2014 as the aircraft is under secured notes with $460 outstanding were recorded net of the contract to be sold in the ﬁrst quarter of 2015. The loan agreements unamortized discount of $8. consist of a $138 senior debt loan, a $42 (¥4,937) senior Yen loan As a result of the redemption of its senior secured notes, and a $50 revolving credit facility. The senior debt loan and senior JELD-WEN recognized a charge of $50 during the fourth quar- Yen loan mature in December 2026 and are secured by the aircraft. ter of 2014, which is included in interest expense in the consoli- Borrowings under the revolving credit facility mature in April 2015 dated statements of earnings. Onex Corporation December 31, 2014 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 and are guaranteed and reimbursable by capital calls from the the closing of Onex Credit CLO-8. The warehouse facility matures Limited Partners of Onex Partners III. At December 31, 2014, $138 on the earlier of the closing of Onex Credit CLO-8 and December was outstanding under the senior debt loan, $41 (¥4,937) was out- 2015. In January 2015, Onex purchased an additional $40 of subor- standing under the senior Yen loan and $50 was outstanding under dinated notes to increase the borrowing capacity of the warehouse the revolving credit facility. facility up to $300 for Onex Credit CLO-8. h) Onex Credit’s CLOs i) ResCare In March 2012, Onex Credit established its ﬁrst collateralized loan In April 2012, ResCare entered into a $375 senior secured credit obligation (“CLO”). A CLO is a leveraged structured vehicle that facility, which is available through April 2017. The senior secured holds a widely diversiﬁed collateral asset portfolio and is fund- credit facility consisted of a $200 revolving credit facility and ed through the issuance of collateralized loan instruments in a a $175 term loan. The senior secured credit facility bore interest series of tranches of secured notes and equity. As of December 31, at LIBOR plus a margin of 2.75%. The term loan required quar- 2014, Onex Credit had established seven CLOs (2013 – four CLOs) terly principal repayments of $2. The required quarterly principal which had secured notes and equity outstanding in the aggregate repayments increased throughout the term until they reach $7 in amount of $3,806 (2013 – $1,870) as follows: 2015. Substantially all of ResCare’s assets were pledged as collat- CLO-1 CLO-2 CLO-3 CLO-4 CLO-5 CLO-6 CLO-7 Closing Date March 2012 November 2012 March 2013 October 2013 March 2014 June 2014 November 2014 Onex’ investment As at December 31, 2014 As at December 31, 2013 $ 327 $ 327 517 512 514 420 1,002 514 3,806 (271) 517 512 514 – – – 1,870 (122) $ 3,535 $ 1,748 The secured notes bear interest at a rate of LIBOR plus a margin and mature between March 2023 and October 2026. The notes and equity of the Onex Credit CLOs are designated at fair value through net earnings upon initial recognition. At December 31, 2014, the fair value of the notes and equity held by investors other than Onex was $3,431 (2013 – $1,723). The notes of Onex Credit CLOs are secured by, and only have recourse to, the assets of each respective CLO. The notes are subject to redemption provisions, including mandatory redemp- tion if certain coverage tests are not met by each respective CLO. Optional redemption of the notes is available at certain periods and optional repricing of the notes is available subject to certain cus- tomary terms and conditions being met by each respective CLO. In addition, Onex Credit established a warehouse facility in December 2014 in connection with its eighth CLO. Onex pur- chased $20 of subordinated notes to support the warehouse facil- ity and a ﬁnancial institution provided an initial borrowing capac- ity of up to $100. The subordinated notes do not have a stated rate of interest, but will receive any excess available funds after pay- ment of principal, accrued interest and certain expenses upon 128 Onex Corporation December 31, 2014 eral under the senior secured credit facility. At December 31, 2013, nil and $158 were outstanding under the revolving credit facility and term loan, respectively. In April 2014, ResCare entered into a new $650 senior secured credit facility, which is available through April 2019. The senior secured credit facility consists of a $250 revolving credit facility, a $200 term loan and a $200 delayed draw term loan. The senior secured credit facility bears interest at LIBOR plus a margin of 2.25%. The term loan requires quarterly principal repayments of $3 beginning in September 2014. The required quarterly prin- cipal repayments increase throughout the term until they reach $6 in 2018. Substantially all of ResCare’s assets are pledged as col- lateral under the senior secured credit facility. The proceeds from the new senior secured credit facil- ity were used to repay ResCare’s former senior secured credit facil- ity, fund a $130 distribution to shareholders, pay fees and expenses associated with the transaction and for general corporate purposes. The Company’s portion of the distribution to shareholders was $120, of which Onex’ portion was $25. In December 2010, ResCare issued $200 of senior sub- ordinated notes. The senior subordinated notes bore interest at a rate of 10.75% and were repayable at maturity in January 2019. At December 31, 2013, $200 was outstanding under the senior sub- ordinated notes. In December 2014, ResCare drew on its entire $200 delayed draw term loan and a portion of its revolving credit facility to redeem all of the outstanding senior subordinated notes and pay accrued interest, fees, closing costs and other third-party expenses. As a result of the redemption of its senior subordinated notes, ResCare recognized a charge of $15 during the fourth quar- ter of 2014, which is included in interest expense in the consoli- dated statements of earnings. At December 31, 2014, $70 and $392 were outstanding under the revolving credit facility and term loans, respectively. The term loans are recorded net of the unamortized discount of $1. 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 j) SGS International k) Sitel Worldwide In October 2012, SGS International entered into a credit agree- Sitel Worldwide’s credit facility initially consisted of a $675 term loan ment that consisted of a $400 senior secured term loan and a $75 maturing in January 2014 and an $85 revolving credit facility matur- senior secured revolving credit facility. The senior secured term ing in January 2013. As a result of repayments and repurchases made loan matures in October 2019 and the senior secured revolving in 2007 and 2008, no quarterly payments are due under the term credit facility matures in October 2017. Borrowings under the credit loan until maturity. In 2011 and 2012, Sitel Worldwide amended the agreement bore interest at LIBOR (subject to a ﬂoor of 1.25%) plus credit facility that governs its term loan and revolving credit facility. a margin of up to 3.75% or a base rate plus a margin of up to 2.75%, The amendments included extending the maturity date of its term depending on the company’s leverage ratio. In November 2013, loan from January 2014 to January 2017 and extending the maturity SGS International amended its credit agreement to reduce the rate on $61 of commitments for its revolving credit facility from January at which borrowings under its senior secured term loan bear inter- 2013 to January 2016. In January 2013, the non-extended portion of est to LIBOR (subject to a ﬂoor of 1.00%) plus a margin of up to the revolving credit facility expired, which reduced the borrowing 3.25% or a base rate plus a margin of up to 2.25%, depending on capacity under the revolving credit facility to $61. Borrowings under the company’s leverage ratio. In addition, SGS International pays the extended term loan and revolving credit facility bear interest at a commitment fee of 0.50% on the unused portion of the senior a rate of LIBOR plus a margin of up to 7.25% or prime plus a margin secured revolving credit facility and certain fees for letters of credit of 6.25%. In addition, the credit agreement was amended to lessen issued. The credit agreement requires mandatory prepayment of restrictions with respect to certain covenant levels. At December 31, certain excess cash ﬂows and cash proceeds. 2014, $223 and $32 (2013 – $228 and $18) were outstanding under Substantially all of SGS International’s assets are pledged the term loan and revolving credit facility, respectively. as collateral under the credit agreement. Sitel Worldwide is required under the terms of the facil- In connection with the credit agreement, SGS Inter- ity to maintain certain ﬁnancial ratio covenants. The facility also national entered into an interest rate swap agreement that swapped contains certain additional requirements, including limitations or the variable rate portion for a ﬁxed rate of 1.45% through December prohibitions on additional indebtedness, payment of cash divi- 2017. The agreement had an initial notional amount of $261, reduc- dends, redemption of stock, capital spending, investments, acqui- ing to $74 during the term of the agreement. In November 2013, sitions and asset sales. SGS International settled its previous interest rate swap agreement In March 2010, Sitel Worldwide completed an offering of and entered into a new agreement that swapped the variable rate $300 in aggregate principal amount of senior unsecured notes due portion for a ﬁxed rate of 1.37% through December 2017. The new in 2018. The notes bear interest at an annual rate of 11.50% with no interest rate swap agreement has an initial notional amount of $230, principal payments due until maturity. Proceeds from the offer- reducing to $74 during the term of the agreement. ing were used to repay a portion of the indebtedness outstanding At December 31, 2014, $375 and nil (2013 – $385 and nil) under the existing term loan and all of the outstanding balance were outstanding under the senior secured term loan and senior under the revolving credit facility at that time. In conjunction secured revolving credit facility, respectively. with this repayment, the debt covenants of the credit facility were In October 2012, SGS International issued $210 in aggre- amended to reduce the minimum adjusted EBITDA to interest gate principal amount of 8.375% senior notes due in October 2020. ratio requirement and to change the total debt to adjusted EBITDA Interest is payable semi-annually beginning in April 2013. The covenant to a senior secured debt to adjusted EBITDA covenant. At 2020 senior notes may be redeemed by the company at any time at December 31, 2014 and 2013, the 2018 senior unsecured notes with various premiums above face value. At December 31, 2014, senior $300 outstanding were recorded net of the unamortized discount notes of $210 (2013 – $210) were outstanding. of $4 (2013 – $5) and embedded derivative of $4 (2013 – $5) associ- ated with the senior unsecured notes. In April 2012, Sitel Worldwide completed an offering of $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% to maturity. The senior secured notes include certain optional and mandatory redemption provisions at a range of redemption prices plus accrued and unpaid interest. The net proceeds were used to repay all of the indebtedness outstanding under the non-extended term loan due in 2014 and all of the outstanding balance under its Onex Corporation December 31, 2014 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 revolving credit facility. At December 31, 2014 and 2013, the 2017 Substantially all of Skilled Healthcare Group’s assets, senior secured notes with $200 outstanding were recorded net of except the skilled nursing facilities securing the insured loans the unamortized discount of $5 (2013 – $6) and embedded deriva- from a department of the U.S. federal government, are pledged as tive of $2 (2013 – $3) associated with the senior secured notes. collateral under the term loan and revolving credit facility. Borrowings under the credit facility and senior secured At December 31, 2014, $242 and $16 (2013 – $244 and notes are secured by substantially all of Sitel Worldwide’s assets. $18) were outstanding under the term loan and revolving credit Included in long-term debt at December 31, 2014 was facility, respectively. The term loan was recorded net of the unam- $75 (2013 – $67) of mandatorily redeemable Class B preferred ortized discount of $1 (2013 – $1). shares, of which $60 (2013 – $53) was held by Onex. The mandato- During 2013, Skilled Healthcare Group entered into rily redeemable Class B preferred shares accrue annual dividends a credit facility in connection with insured loans from a depart- at a rate of 12.00% and are redeemable at the option of the com- ment of the U.S. federal government. The loans, in the amount of pany on or before July 2018. Also included in long-term debt at $88, bear interest at rates ranging from 3.39% to 4.55%, amortize December 31, 2014 was $71 (2013 – $61) of mandatorily redeem- over 30 to 35 years and are secured by 10 of the company’s nursing able Class C preferred shares, of which $56 (2013 – $48) was held facilities. At December 31, 2014, $86 (2013 – $87) was outstanding by Onex. The mandatorily redeemable Class C preferred shares under the insured loans. accrue annual dividends at a rate of 16.00% and are redeemable at In December 2013, Skilled Healthcare Group entered the option of the company on or before July 2018. into a new credit facility. The new credit facility consists of a $62 During the second quarter of 2014, Sitel Worldwide mortgage-backed term loan and a $5 asset-based revolving credit completed an issuance of $75 of mandatorily redeemable Class D facility. Borrowings under the new credit facility bear interest at preferred shares, of which Onex’ share was $69. The mandatorily LIBOR (subject to a ﬂoor of 0.75%) plus a margin of 5.95%, mature redeemable Class D preferred shares accrue annual dividends at in December 2016 and are secured by 10 of the company’s skilled a rate of 16% and are redeemable at the option of the holder on or nursing facilities. At December 31, 2014, $61 and $4 (2013 – $62 before July 2018. As a result of this transaction, Onex’ economic and $5) were outstanding under the mortgage-backed term loan interest in Sitel Worldwide based on preferred share ownership and revolving credit facility, respectively. was increased to 86%. Included in long-term debt at Decem- The proceeds from the insured loans and new credit ber 31, 2014 was $82 of mandatorily redeemable Class D preferred facility were used to repay a portion of the term loan under the shares, of which $75 was held by Onex. existing credit facility and pay fees and expenses associated with Outstanding amounts related to preferred shares at the transactions. December 31, 2014 and 2013 include accrued dividends. In August 2014, Skilled Healthcare Group entered into l) Skilled Healthcare Group a purchase and combination agreement to combine with Genesis HealthCare, a leading U.S. operator of long-term care facilities, as In April 2010, Skilled Healthcare Group completed the ﬁnancing of discussed in note 6. The combination was completed in February a credit facility comprised of a $330 term loan and a $100 revolv- 2015. Onex no longer controls Skilled Healthcare Group after the ing credit facility. The term loan was increased by an additional completion of the combination and as such, the operations of $30 to fund acquisitions completed in the second quarter of 2010. Skilled Healthcare Group are presented as discontinued in the In April 2012, Skilled Healthcare Group amended its credit facility consolidated statements of earnings and cash ﬂows for the year agreement to increase the term loan by an additional $100. The ended December 31, 2014, and the prior year has been restated amended term loan bore interest at LIBOR (subject to a ﬂoor of to report the results of Skilled Healthcare Group as discontinued 1.50%) plus a margin of 5.25%, and required quarterly principal on a comparative basis. As a result, consolidated long-term debt repayments of $2 until maturity in 2016. The amended revolving at December 31, 2014 does not include long-term debt of Skilled credit facility bore interest at LIBOR plus a margin of up to 4.50% Healthcare Group. or a base rate plus a margin of up to 3.50%, depending on the company’s leverage ratio, and was repayable at maturity in 2015. In June 2014, Skilled Healthcare Group amended its credit facility agreement to increase the margin on its term loan to 5.50% from 5.25% and to extend the maturity date of the revolving credit facil- ity to 2016. 130 Onex Corporation December 31, 2014 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 m) Spirit AeroSystems p) USI In April 2012, Spirit AeroSystems entered into a credit agreement In December 2012, USI entered into a senior secured credit facil- that consisted of a $550 term loan and a $650 revolving credit facil- ity consisting of a $1,025 senior secured term loan and a $150 ity. At December 31, 2013, nil and $540 were outstanding under the senior secured revolving credit facility. The senior secured revolv- revolving credit facility and the term loan, respectively. The term ing credit facility includes sublimits for letters of credit and swing loan was recorded net of the unamortized discount of $2. line loans. The senior secured term loan matures in December In September 2009, Spirit AeroSystems completed an 2019 and the senior secured revolving credit facility matures in offering of $300 in aggregate principal amount of 7.50% senior December 2017. subordinated notes due in 2017. At December 31, 2013, the 2017 In December 2013, USI amended its credit agreement senior subordinated notes with $300 outstanding were recorded to reduce the margin by 0.50% and the applicable ﬂoor by 0.25%. net of the unamortized discount of $4. In November 2010, Spirit Subsequent to the amendment, borrowings under the senior AeroSystems completed an offering of $300 in aggregate princi- secured term loan bear interest at LIBOR (subject to a ﬂoor of pal amount of 6.75% senior subordinated notes due in 2020. At 1.00%) plus a margin of 3.25% or a base rate plus a margin of 2.25%. December 31, 2013, $300 of senior subordinated notes due in 2020 USI pays a quarterly commitment fee of 0.38% per annum on the was outstanding. unused portion of the senior secured revolving credit facility and The Company no longer consolidates Spirit AeroSys- certain fees for letters of credit issued. The senior secured term tems as a result of the June 2014 sale, as described in note 6. loan requires quarterly instalments of $3. n) The Warranty Group In May 2014, USI increased the senior secured term loan under its senior secured credit facility by $125. The new term loan In June 2012, The Warranty Group entered into a credit facility has the same terms as its existing senior secured term loan. that consisted of a $250 term loan and a $25 revolving credit facil- The proceeds from the increased senior secured term ity. At December 31, 2013, $246 and nil were outstanding under the loan were used to fund a portion of the acquisition of 40 insurance term loan and revolving credit facility, respectively. brokerage and consulting ofﬁces across the United States from Included in long-term debt at December 31, 2013 was Wells Fargo Insurance, as described in note 2. $380 of redeemable preferred shares, of which $369 was held by Substantially all of USI’s assets are pledged as collateral the Company. under the senior secured credit facility. The senior secured credit The Company no longer consolidates The Warranty facility contains certain afﬁrmative and negative covenants. The Group as a result of the August 2014 sale, as described in note 6. amounts outstanding under the senior secured credit facility are o) Tropicana Las Vegas subject to mandatory prepayment under speciﬁed circumstances, including with excess cash ﬂows and certain cash proceeds. In December 2012, Tropicana Las Vegas amended and restated its At December 31, 2014, $1,129 and $20 (2013 – $1,015 and $65 credit agreement. The amended and restated credit agree- nil) were outstanding under the senior secured term loan and ment consists of a $50 revolving credit facility that bears interest senior secured revolving credit facility, respectively. The senior at a ﬁxed annual rate of 4.00%, a $5 revolving credit facility that secured term loan is recorded net of the unamortized discount of $5 bears interest at a ﬁxed annual rate of 5.00% and a $10 revolving (2013 – $5). In addition, USI had $1 (2013 – $1) of letters of credit out- credit facility that bears interest at a ﬁxed annual rate of 6.00%. standing that were issued under its senior secured revolving credit In addition, the amendment and restatement provides for an facility at December 31, 2014. increase in interest reserves, adjustments to ﬁnancial covenants In January 2013, in connection with the credit agree- and the extension of all revolving credit facility borrowings to ment, USI entered into interest rate swap agreements that April 2018. Substantially all of Tropicana Las Vegas’ assets are swapped the variable rate portion for a ﬁxed rate of 1.30% on a pledged as collateral under the agreement. notional amount of $200 through December 2013 and swapped At December 31, 2014, $62 (2013 – $59) was outstanding the variable rate portion for a ﬁxed rate of 1.72% on a notional under the revolving credit facilities. amount of $525 through December 2017. Onex Corporation December 31, 2014 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 In December 2012, USI issued $630 in aggregate princi- r) ONCAP operating companies pal amount of 7.75% senior notes due in January 2021. The 2021 ONCAP’s consolidated operating companies consist of Bradshaw, senior notes may be redeemed by the company prior to January CiCi’s Pizza, Davis-Standard, EnGlobe, Hopkins, Pinnacle Renew- 2016 at 100% of the principal amount plus a make whole premium able Energy Group, PURE Canadian Gaming and Mister Car Wash and accrued interest, and may be redeemed on or after January (up to the date of disposition in August 2014). Each has debt that 2016 at various redemption prices above face value plus accrued is included in the Company’s consolidated ﬁnancial statements. interest. At December 31, 2014 and 2013, senior notes of $630 were There are separate arrangements for each operating company outstanding. q) York with no cross-guarantees between the operating companies, ONCAP or Onex Corporation. Under the terms of the various credit agreements, com- Onex, Onex Partners III and Onex management acquired York in bined term borrowings of $685 are outstanding and combined October 2014, as described in note 2. In October 2014, York entered revolving credit facilities of $103 are outstanding. The available into a senior secured credit facility consisting of a $555 ﬁrst-lien facilities bear interest at various rates based on a base ﬂoating rate term loan, a $60 delayed draw term loan and a $100 revolving facil- plus a margin. At December 31, 2014, effective interest rates ranged ity. Borrowings under the term loans bear interest at LIBOR (subject from 3.16% to 6.25% on borrowings under the revolving credit and to a ﬂoor of 1.00%) plus a margin of 3.75%. The term loans require term loan facilities. The term loans typically require quarterly quarterly amortization repayments, and can be repaid in whole or repayments and are due between 2016 and 2019. The companies in part without premium or penalty at any time before maturity also have subordinated notes of $372 due between 2018 and 2024 in October 2021. The revolving facility bears interest at LIBOR plus that bear interest at rates ranging from 10.0% to 18.0%, of which a margin of 3.75% and matures in October 2019. Substantially all the Company owns $297. of York’s assets are pledged as collateral under the senior secured Included in the debt amounts for the ONCAP consoli- credit facility. At December 31, 2014, the term loans with $613 out- dated operating companies is the debt of PURE Canadian Gaming. standing were recorded net of unamortized discounts of $4 and $22 During 2013, PURE Canadian Gaming amended its credit facility to was outstanding under the revolving facility. increase the amount of its term loan by $70 (C$71). The net proceeds During the fourth quarter of 2014, York completed offer- from the amended credit facility were used to repay $54 (C$55) of ings of $315 in aggregate principal amount of 8.50% senior unse- subordinated debt that bore interest at 8.50% and to repurchase $14 cured notes due in October 2022. Interest is payable semi-annu- (C$15) of subordinate notes held primarily by the Company. Onex’ ally beginning in April 2015. The senior unsecured notes may be share of the repurchase of subordinate notes was $6 (C$6). redeemed by the company at any time at various premiums above In May 2014, PURE Canadian Gaming entered into face value. At December 31, 2014, the senior unsecured notes with a new credit facility consisting of a C$150 term loan and a C$60 $315 outstanding were recorded net of an embedded derivative of revolving credit facility. Borrowings under the credit facility bear $13 associated with the senior unsecured notes. interest at a bankers’ acceptance rate plus a margin of up to 3.75%, depending on PURE Canadian Gaming’s leverage ratio, until maturity in May 2019. The net proceeds from the credit facil- ity were used to repay existing debt facilities, to repurchase $31 (C$34) of subordinate notes held primarily by the Company and to fund a $10 (C$11) distribution to shareholders. The Company’s share of the repurchase of subordinate notes and the distribu- tion to shareholders was $41 (C$45), of which Onex’ share was $18 (C$20). At December 31, 2014, $129 (C$150) and $10 (C$12) were outstanding under the term loan and revolving credit facility, respectively. 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, 2014 was $216, with portions expiring through 2016. Senior debt is generally secured by substantially all of the assets of the respective operating company. 132 Onex Corporation December 31, 2014 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 December 2011, ONCAP III entered into a C$75 13 . L E A S E S 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 lim- ited partnership agreement. The deemed credit risk facility is available to ONCAP III and its operating companies for foreign exchange transactions, including foreign exchange options, for- wards and swaps. Borrowings drawn on the line of credit bear interest at a base rate plus a margin of 2.50% or bankers’ accep- tance rate (LIBOR for U.S. dollar borrowings) plus a margin of 5.25%. Borrowings under the credit facility are due and payable upon demand; however, ONCAP III shall have 15 business days to complete a capital call to the Limited Partners of ONCAP III to fund the demand. Onex Corporation, the ultimate parent company, is only obligated to fund borrowings under the credit a) The Company as lessee Future minimum lease payments are as follows: For the year: 2015 2016 2017 2018 2019 Thereafter Total future minimum lease payments Less: imputed interest Balance of obligations under finance leases, without recourse to Finance Leases Operating Leases $ 297 223 171 118 77 151 $ 1,037 $ 20 14 7 4 2 7 $ 54 (9) 45 (18) facility based on its proportionate share as a Limited Partner in ONCAP III. At December 31, 2014, the amount available under the Onex Corporation Less: current portion deemed risk facility was C$25 (2013 – C$25). No amounts were outstanding on the line of credit at December 31, 2014 and 2013. At December 31, 2014, there were letters of credit issued for $12 (€10) (2013 – nil) under the line of credit. Non-current obligations under finance leases, without recourse to Onex Corporation $ 27 The annual minimum repayment requirements for the next ﬁve years and thereafter on consolidated long-term debt are as follows: 2015 2016 2017 2018 2019 Thereafter $ 408 560 642 733 4,007 7,115 $ 13,465 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: 2015 2016 2017 2018 2019 Thereafter $ 78 67 56 48 46 287 $ 582 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, 2014 and 2013. Onex Corporation December 31, 2014 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 14 . 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 underlying Onex Partners and ONCAP Fund investments. During Other non-current liabilities comprised the following: As at December 31 2014 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 31) Stock-based compensation(c) JELD-WEN employee stock ownership plan(d) Other(e) 63 204 460 313 87 175 300 343 448 284 87 341 $ 1,302 $ 2,526 2014, the unrealized carried interest liability decreased for carried interest paid on the sale of shares of Allison Transmission (note 8) and Spirit AeroSystems (notes 6 and 23), the sale of the Gates divi- sion and residual assets of Tomkins (note 8), and the sale of The Warranty Group (note 6), partially offset by a charge for the change in carried interest of $160, as described in note 23. During 2013, the unrealized carried interest liability increased for a charge for the change in carried interest of $262 (note 23), partially offset by carried interest paid on the distributions received from Care- stream Health (note 12), the sales of RSI (note 8), TMS International (note 6), BSN SPORTS and Caliber Collision (note 22), and the par- tial dispositions of Allison Transmission (note 8). c) At December 31, 2014, the stock-based compensation liability consisted of $299 (2013 – $280) for the stock-based compensation plans at the parent company and $14 (2013 – $4) for stock option a) Spirit AeroSystems receives advance payments from third par- ties in contemplation of the future performance of services, receipt and other share-based compensation plans in place at the operat- ing companies. Included in long-term investments (note 8) is $66 of goods, incurrence of expenditures or for other assets to be pro- (2013 – $39) related to forward agreements to economically hedge vided under its contracts and which are repayable if such obliga- the Company’s exposure to changes in the trading price of Onex tions are not satisﬁed. Advance payments primarily relate to Spirit shares associated with the Management and Director DSU Plans. AeroSystems’ 787 aircraft long-term supply agreement with The Boeing Company (“Boeing”). As at December 31, 2013, $1,148 of advance payments had been made, of which $554 has been rec- d) JELD-WEN’s employee stock ownership plan (“ESOP”) was established prior to Onex’ acquisition of JELD-WEN to allow its ognized as revenue and $594 will be settled against future sales of employees to share in the success of the company through the Spirit AeroSystems’ 787 aircraft units to Boeing. Of the payments, ESOP’s ownership of JELD-WEN stock. The company may make $82 was recorded as a current liability. The Company no longer discretionary contributions of cash or JELD-WEN shares to the consolidates Spirit AeroSystems as a result of the June 2014 sale, as ESOP on behalf of employees. JELD-WEN consolidates the trust described in note 6. established to maintain the ESOP and therefore reports the liabil- ity for the value of JELD-WEN stock and miscellaneous other net b) Unrealized carried interest due to management of Onex and ONCAP through the Onex Partners and ONCAP Funds is recog- assets held by the ESOP for the beneﬁt of employees. The company will periodically repurchase JELD-WEN shares owned by the ESOP nized as a non-current liability and reduces the Limited Partners to fund distributions to ESOP participants. During 2014, JELD-WEN Interests’ liability, as described in note 16. The unrealized carried repurchased stock from the ESOP for a cash cost of $15 (2013 – $16). interest is calculated based on current fair values of the Funds’ investments and the overall unrealized gains in each respective Fund in accordance with the limited partnership agreements. The e) Other indemniﬁcations, unearned insurance contract fees, embed- includes amounts for liabilities arising from liability will be increased or decreased based upon changes in ded derivatives on long-term debt, mark-to-market valuations of the fair values and realizations of the underlying investments in hedge contracts and the non-current portion of obligations under the Onex Partners and ONCAP Funds. The liability will ultimately ﬁnance leases, without recourse to Onex Corporation (note 13). be settled upon the realization of the Limited Partners’ share of the 134 Onex Corporation December 31, 2014 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 . I N C O M E TA X E S The reconciliation of statutory income tax rates to the Company’s effective tax rate is as follows: Year ended December 31 Income tax recovery at statutory rate Changes related to: Income tax rate differential of operating companies Non-taxable gains Unbenefited tax losses Utilization of tax loss carryforwards not previously benefited Realized gains not expected to be taxable in the foreseeable future Foreign exchange Limited Partners’ Interests Other, including permanent differences Provision for (recovery of) income taxes Classified as: Current Deferred Provision for (recovery of) income taxes 2014 2013 $ (197) $ (226 ) 533 (238) 8 (21) – (12) 13 (7) 525 (459) 137 (23 ) (480) (29) 84 (17) $ 79 $ (488 ) $ 155 (76) $ 79 $ 135 (623 ) $ (488 ) During 2013, as a result of evaluating changes in tax law for the seeable future, consistent with the principles outlined in IAS 12, treatment of surplus and upstream loans, Onex determined that Income Taxes. As a result, Onex recorded a $526 non-cash recovery its previously recognized deferred tax provisions on gains realized of deferred income taxes during 2013, of which $480 was included from the disposition of foreign operating companies were tempo- in the Company’s deferred tax liability at December 31, 2012 and $46 rary differences which were probable to not reverse in the fore- represented tax 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 for each respective operat- ing company. Deferred income tax assets and liabilities, without taking into consideration the offsetting of balances within the same tax jurisdiction, comprised the following: Deferred Income Tax Assets 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 Balance – December 31, 2013 Credited (charged) to net earnings Credited (charged) directly to equity Exchange differences Acquisition of subsidiaries Disposition of operating companies Transfer to discontinued operations Other adjustments Scientific Research and Development $ – – – – – – – $ – (1) – – – – – 2 Provisions $ 227 (34) 2 1 − (24) 4 Deferred Revenue $ 345 (213) − (3) (3) − − Tax Losses $ 323 (14) − − 40 (2) (9) Property, Plant and Equipment, and Intangibles $ 59 18 − 2 − (4) (11) Other Total $ 279 $ 1,233 (75) (318) (1) (7) 3 (5) (4) 1 (7) 40 (35) (20) $ 176 $ 126 $ 338 $ 64 $ 190 $ 894 – 11 (3) 6 (3) (22) (24) (1) − – 1 (116) – − (3) − (9) 23 (8) – 8 (8) − (1) − – – (10) $ 45 11 3 (2) 8 (17) (4) 1 (2) 14 (15) 38 (144) (26) (23) $ 190 $ 736 Onex Corporation December 31, 2014 135 Balance – December 31, 2014 $ 1 $ 141 $ 10 $ 349 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 Income Tax Liabilities 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 Pension and Non-Pension Post-Retirement Benefits Property, Plant and Equipment, and Intangibles $ 520 (490) 1 – – – 7 $ 9 (82) 82 − − − − $ 1,562 (211) − 6 160 (123) 31 Foreign Exchange $ 127 (11) − (10) − − − Other $ 251 Total $ 2,469 (29) (17) − − 10 18 (823) 66 (4) 160 (113) 56 Balance – December 31, 2013 $ 38 $ 9 $ 1,425 $ 106 $ 233 $ 1,811 Charged (credited) to net earnings Exchange differences Acquisition of subsidiaries Disposition of operating companies Transfer to discontinued operations Other adjustments 2 – – – – – (1) − − (8) – 24 (43) (14) 225 (55) (13) (23) (37) (9) − − – − 1 2 − (57) (5) (38) (78) (21) 225 (120) (18) (37) Balance – December 31, 2014 $ 40 $ 24 $ 1,502 $ 60 $ 136 $ 1,762 At December 31, 2014, Onex and its investment holding compa- 16 . L I M I T E D PA R T N E R S ’ I N T E R E S T S 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: nies had $960 of non-capital loss carryforwards and $79 of capital loss carryforwards. Deferred income tax assets are recognized for tax loss carryforwards to the extent that the realization of the related tax beneﬁt through future taxable income is probable. At Decem- ber 31, 2014, deductible temporary differences, unused tax losses and unused tax credits for which no deferred tax asset has been recognized were $5,494 (2013 – $6,723), of which $1,879 (2013 – $3,174) had no expiry, $412 (2013 – $304) was available to reduce future income taxes between 2015 and 2021 (2013 – 2014 and 2020), inclusive, and $3,203 (2013 – $3,245) was available with expiration dates of 2022 through 2034 (2013 – 2021 through 2033). At December 31, 2014, the aggregate amount of taxable Balance – December 31, 2012 Limited Partners’ Interests charge(a) Contributions by Limited Partners(b) Distributions paid to Limited Partners(c) Balance – December 31, 2013 Limited Partners’ Interests charge(a) Contributions by Limited Partners(b) temporary differences not recognized in association with invest- Distributions paid to Limited Partners(c) ments in subsidiaries, joint ventures and associates was $3,754 (2013 – $6,092). Balance – December 31, 2014 Current portion of Limited Partners’ Interests(d) 136 Onex Corporation December 31, 2014 Limited Partners’ Interests $ 6,243 1,855 401 (1,540) $ 6,959 1,069 867 (3,719) $ 5,176 (23) $ 5,153 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 a) The gross Limited Partners’ Interests charge is primarily due to net fair value increases of the underlying investments in the Onex ii) An unlimited number of Subordinate Voting Shares, which carry one vote per share and as a class are entitled to 40% of the aggre- Partners and ONCAP Funds. The gross Limited Partners’ Interests gate votes attached to all shares of the Company carrying voting charge of $1,308 (2013 – $2,250) was reduced for the change in car- rights, to elect 40% of the Company’s Directors, and to appoint ried interest of $239 for the year ended December 31, 2014 (2013 − the auditors. These shares are entitled, subject to the prior rights $395). Onex’ share of the change in carried interest was $84 for the of other classes, to distributions of the residual assets on winding year ended December 31, 2014 (2013 − $137). up and to any declared but unpaid cash dividends. The shares are b) Contributions by Limited Partners during 2014 include $50 for the Onex Partners III investment in common stock of JELD-WEN, $106 entitled to receive cash dividends, dividends in kind and stock div- idends as and when declared by the Board of Directors. The Multiple Voting Shares and Subordinate Voting for the Onex Partners III add-on investment in Emerald Expositions, Shares are subject to provisions whereby, if an event of change $348 for the Onex Partners III investment in York and $15 for the occurs (such as Mr. Schwartz, Chairman and CEO, ceasing to Onex Partners III add-on investment in Meridian Aviation, each hold, directly or indirectly, more than 5,000,000 Subordinate as described in note 2, in addition to $75 for the ONCAP III invest- Voting Shares or related events), the Multiple Voting Shares ment in Mavis Discount Tire (note 8), $159 for the Onex Partners IV will thereupon be entitled to elect only 20% of the Company’s investment in AIT (note 8) and management fees and partnership Directors and otherwise will cease to have any general voting expenses from the Limited Partners of the Onex Partners and ONCAP rights. The Subordinate Voting Shares would then carry 100% Funds. Contributions by Limited Partners during 2013 consisted of the general voting rights and be entitled to elect 80% of the primarily of $58 for the USI co-investment sale and $265 for Onex Company’s Directors. Partners III’s investment in Emerald Expositions (note 2). c) Distributions paid to Limited Partners during 2014 consisted primarily of the proceeds on the dispositions of Allison Transmis- sion (notes 8 and 23), Tomkins (note 8), Mister Car Wash (note 22), iii) An unlimited number of Senior and Junior Preferred Shares issuable in series. The Company’s Directors are empowered to ﬁx the rights to be attached to each series. Spirit AeroSystems (notes 6, 23 and 26) and The Warranty Group (note 6) and distributions received from BBAM, ResCare and PURE b) At December 31, 2014, the issued and outstanding share capital consisted of 100,000 Multiple Voting Shares (2013 – 100,000) and Canadian Gaming. Distributions paid to Limited Partners dur- 108,858,066 Subordinate Voting Shares (2013 – 111,444,100). The ing 2013 consisted primarily of the proceeds on the realization of Multiple Voting Shares have a nominal paid-in value in these con- RSI (note 8), the sales of TMS International (note 6), BSN SPORTS solidated ﬁnancial statements. and Caliber Collision (note 22), the partial dispositions of Allison There were no issued and outstanding Senior and Junior Transmission (note 8), and distributions received from Allison Preferred shares at December 31, 2014 or 2013. Transmission, Carestream Health, JELD-WEN, PURE Canadian The Company increased its quarterly dividend by 33% Gaming and The Warranty Group. d) At December 31, 2014, the current portion of the Limited Part- ners’ Interest was $23 and was included in accounts payable and to C$0.05 per Subordinate Voting Share beginning with the divi- dend declared by the Board of Directors in May 2014. In May 2013, the Company increased its quarterly dividend by 36% to C$0.0375 per Subordinate Voting Share beginning in July 2013. accrued liabilities in the consolidated balance sheets. The current In January 2015, in connection with acquiring control portion at December 31, 2014 represented the Limited Partners’ of the Onex Credit asset management platform as described in share of proceeds on the sale of the residual assets of Tomkins, as note 32, Onex issued 111,393 of its Subordinate Voting Shares as described in note 8(a). part of the consideration in the transaction. 17. S H A R E C A P I TA L c) During 2014, under the Dividend Reinvestment Plan, the Company issued 7,952 Subordinate Voting Shares (2013 – 8,062) at a) The authorized share capital of the Company consists of: an average cost of C$61.18 per share (2013 – C$48.33). In 2014 and i) 100,000 Multiple Voting Shares, which entitle their holders to of stock options. elect 60% of the Company’s Directors and carry such number of Onex renewed its Normal Course Issuer Bid in April votes in the aggregate as represents 60% of the aggregate votes 2014 for one year, permitting the Company to purchase on attached to all shares of the Company carrying voting rights. The the Toronto Stock Exchange up to 10% of the public ﬂoat of its Multiple Voting Shares have no entitlement to a distribution on Subordinate Voting Shares. The 10% limit represents approxi- winding up or dissolution other than the payment of their nomi- mately 8.6 million shares. 2013, no Subordinate Voting Shares were issued upon the exercise nal paid-in value. Onex Corporation December 31, 2014 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 During 2014, the Company repurchased and cancelled During 2013, the Company repurchased and cancelled under its Normal Course Issuer Bids 2,593,986 of its Subordinate 3,060,400 of its Subordinate Voting Shares at a cash cost of $153 Voting Shares at a cash cost of $150 (C$163). The excess of the pur- (C$159). The excess of the purchase cost of these shares over the chase cost of these shares over the average paid-in amount was average paid-in amount was $141 (C$146), which was charged to $140 (C$153), which was charged to retained earnings. Included retained earnings. Included in the total amount repurchased and in the Normal Course Issuer Bid repurchases for 2014 was a pri- cancelled during 2013 was a private transaction in November 2013 vate transaction in July 2014 in which the Company repurchased in which the Company repurchased 1,000,000 of its Subordinate 1,000,000 of its Subordinate Voting Shares that were held indirectly Voting Shares that were held indirectly by Mr. Gerald W. Schwartz, by Mr. Gerald W. Schwartz, who is Onex’ controlling shareholder. as described in note 30(p). The November 2013 private transaction The transaction is described in note 30(p). As at December 31, 2014, is excluded from the Normal Course Issuer Bid repurchases for 2013. the Company has the capacity under the current Normal Course Issuer Bid to purchase approximately 6.5 million shares. d) The Company has a Director DSU Plan and a Management DSU Plan, as described in note 1. Details of DSUs outstanding under the plans are as follows: Outstanding at December 31, 2012 Granted Additional units issued in lieu of compensation and cash dividends Outstanding at December 31, 2013 Granted Additional units issued in lieu of compensation and cash dividends Outstanding at December 31, 2014 Hedged with a counterparty financial institution at December 31, 2014 Outstanding at December 31, 2014 – Unhedged Director DSU Plan Management DSU Plan Number of DSUs Weighted Average Price Number of DSUs Weighted Average Price C$ 49.94 C$ 51.66 C$ 63.00 C$ 64.01 500,754 30,537 11,969 543,260 29,537 11,710 584,507 (577,051) 7,456 – C$ 49.48 – C$ 58.40 466,004 – 1,226 467,230 – 99,264 566,494 (566,494) – e) The Company has a Stock Option Plan (the “Plan”) under which options and/or share appreciation rights for a term not exceeding ﬁfth year. When an option is exercised, the employee has the right to request that the Company repurchase the option for an amount 10 years may be granted to Directors, ofﬁcers and employees for equal to the difference between the fair value of the stock under the acquisition of Subordinate Voting Shares of the Company at a the option and its exercise price. Upon receipt of such request, the price not less than the market value of the shares on the business Company has the right to settle its obligation to the employee by day preceding the day of the grant. Under the Plan, no options the payment of cash, the issuance of shares or a combination of or share appreciation rights may be exercised unless the average cash and shares. market price of the Subordinate Voting Shares for the ﬁve previ- ous business days exceeds the exercise price of the options or the share appreciation rights by at least 25% (the “hurdle price”). At December 31, 2014, 15,612,000 Subordinate Voting Shares (2013 – 15,612,000) were reserved for issuance under the Plan, against which options representing 12,411,542 shares (2013 – 7,867,175) were outstanding, of which 3,625,291 options were vested. The Plan provides that the number of options issued to certain indi- viduals in aggregate may not exceed 10% of the shares outstanding at the time the options are issued. Options granted vest at a rate of 20% per year from the date of grant with the exception of 6,775,000 options, which vest at a rate of 15% per year during the ﬁrst four years and 40% in the Number of Options Weighted Average Exercise Price Outstanding at December 31, 2012 13,294,552 Granted Surrendered Expired Outstanding at December 31, 2013 Granted Surrendered Expired 3,402,000 (8,660,526) (168,851) 7,867,175 4,928,500 (377,483) (6,650) Outstanding at December 31, 2014 12,411,542 C$ 20.96 C$ 56.92 C$ 16.34 C$ 33.51 C$ 41.34 C$ 58.65 C$ 19.47 C$ 41.35 C$ 48.88 138 Onex Corporation December 31, 2014 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 2014 and 2013, the total cash consideration paid on and the exercise price, both as determined under the Plan. The options surrendered was $15 (C$16) and $292 (C$299), respec- weighted average share price at the date of exercise was C$62.92 tively. This amount represents the difference between the market (2013 – C$50.81) per share. value of the Subordinate Voting Shares at the time of surrender Options outstanding at December 31, 2014 consisted of the following: Month and Year of Grant Number of Options Outstanding Exercise Price Number of Options Exercisable Hurdle Price Remaining Life (years) January 2006 December 2006 December 2007 December 2008 December 2009 December 2010 July 2011 December 2011 September 2012 December 2012 December 2013 January 2014 September 2014 December 2014 115,000 230,000 568,082 542,270 599,140 478,450 60,000 525,700 50,000 914,400 3,400,000 3,950,000 75,000 903,500 12,411,542 C$ 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 C$ 57.45 C$ 62.93 C$ 63.53 115,000 223,000 543,081 518,270 567,140 381,550 36,000 314,100 20,000 364,650 – – – – 3,082,791 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 C$ 71.82 C$ 78.67 C$ 79.42 1.1 1.9 2.9 3.9 4.9 5.9 6.5 6.9 7.7 7.9 8.9 9.1 9.7 9.9 In January 2015, in connection with acquiring control of the Onex Credit asset management platform as described in note 32, the Company issued 60,000 options to Onex Credit’s chief executive ofﬁcer to acquire Subordinate Voting Shares with an exercise price of C$68.57 per share. The options vest at a rate of 20% per year from the grant date. The options are subject to the same terms and conditions as the Company’s existing Stock Option Plan; however, the options are also subject to an additional performance threshold speciﬁc to the Onex Credit asset management platform. 18 . N O N - C O N T R O L L I N G I N T E R E S T S 2013. On June 4, 2014, the Company sold its controlling interest The Company’s material non-controlling interests at Decem- ber 31, 2014 were associated with Celestica. At December 31, 2013, the Company’s material non-controlling interests were associ- ated with Celestica and Spirit AeroSystems. There were no divi- dends paid by Celestica or Spirit AeroSystems during 2014 or in Spirit AeroSystems under a secondary offering and share repurchase, as described in note 6. As a result, the operations of Spirit AeroSystems up to June 4, 2014 are presented as discon- tinued. Summarized balance sheet information based on those amounts included in these consolidated ﬁnancial statements for Celestica and Spirit AeroSystems is 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 2014 89% $ 2,104 480 2,584 $ 1,054 134 1,188 $ 1,396 $ 1,237 Spirit AeroSystems 2013 84% 2013 89% $ 2,121 $ 3,030 518 2,639 2,124 5,154 $ 1,109 $ 1,342 128 1,237 $ 1,402 $ 1,250 2,147 3,489 $ 1,665 $ 1,409 Onex Corporation December 31, 2014 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 Financial information on the statements of earnings for Celestica (electronics manufacturing services segment) is presented in note 33. Financial information on the statements of earnings for Spirit AeroSystems is presented in note 6. Summarized cash ﬂows for Celestica and Spirit AeroSystems are as follows: Year ended December 31 Cash flows from operating activities Cash flows used for financing activities Cash flows used for investing activities Celestica Spirit AeroSystems 2014 $ 242 (161) (60) 2013 $ 153 (107) (52) 2013 $ 319 (79) (262) 2013 $ 215 29 21 (7) 50 12 2014 $ 142 28 22 20 – 18 19. E X P E N S E S B Y N AT U R E 21. 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 2014 2013 Cost of inventory, raw materials and consumables used Employee benefit expense(1) Repairs, maintenance and utilities Transportation Professional fees Operating lease payments Provisions Other expenses $ 8,538 6,292 $ 8,971 6,066 626 538 439 341 185 986 631 566 390 358 209 992 Parent company(a) Celestica USI JELD-WEN Caliber Collision Other $ 230 $ 320 a) Parent company stock-based compensation primarily relates to Onex’ stock option plan, as described in note 17(e) and the MIP, as described in note 30(j). The expense is determined based on the fair value of the liability at the end of each reporting period. $ 17,945 $ 18,183 The fair value for Onex’ stock option plan is determined (1) Employee beneﬁt expense excludes employee costs capitalized into inventory and internally generated capital assets. Stock-based compensation is disclosed separately in the consolidated statements of earnings. 2 0 . INTEREST EXPENSE OF OPERATING COMPANIES using an option valuation model. The signiﬁcant inputs into the model were the share price at December 31, 2014 of C$67.46 (2013 – C$57.35), exercise price of the options, remaining life of each option issuance, volatility of each option issuance ranging from 16.03% to 16.19%, an average dividend yield of 0.42% and an average risk-free rate of 1.90%. The volatility is measured as the historical volatility Year ended December 31 2014 2013 based on the remaining life of each respective option issuance. Interest on long-term debt of operating companies $ 697 $ 630 Interest on obligations under finance leases of operating companies Other interest expense of operating companies(1) 4 129 $ 830 3 66 $ 699 (1) Other includes debt prepayment expense of $69 (2013 − $19) . The fair values for the MIP options are determined using an internally developed valuation model. The signiﬁcant inputs into the model are the fair value of the underlying invest- ments, the time to expected exit from each investment, a risk-free rate of 1.34% and an industry comparable historical volatility for each investment. 140 Onex Corporation December 31, 2014 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 2 . O T H E R G A I N S Year ended December 31 Sale of Mister Car Wash(a) Sale of Caliber Collision(b) Sale of BSN SPORTS(c) a) Mister Car Wash 2014 $ 317 – – $ 317 Collision did not represent a separate major line of business, and as a result operating results up to the date of disposition have not been 2013 presented as a discontinued operation. The cash proceeds recorded $ – 386 175 $ 561 in the consolidated statements of cash ﬂows for the sale of Caliber Collision were reduced for Caliber Collision’s cash and cash equiva- lents of $7 at the date of sale. Amounts paid on account of this transaction relat- ed to the MIP totalled $12. In addition, management of ONCAP received $42 in carried interest, which included a net payment of $8 of carried interest by Onex and Onex management. In August 2014, ONCAP II sold its interests in Mister Car Wash for net proceeds of $386, of which Onex’ share was $153. Included in the c) BSN SPORTS net proceeds amount was $3 held in escrow and for working capital In June 2013, ONCAP II sold its interests in BSN SPORTS for net adjustments, which was received early in the fourth quarter of 2014, proceeds of $236, of which Onex’ share was $114. Included in the and an $8 tax refund, which is expected to be received by August net proceeds amount is $16 held in escrow and for working capital 2015. Onex’ share of the amounts held in escrow and for working adjustments, which are expected to be settled by June 2015. Onex’ capital adjustments and the tax refund is $5. The Company recorded share of the amounts held in escrow and for working capital adjust- a gain of $317 based on the excess of the proceeds over the carry- ments is $8. During the fourth quarter of 2013, $1 of the additional ing value of the investment. Onex’ share of the gain was $140. The amounts held in escrow was received, of which Onex’ share was gain on the sale is entirely attributable to the equity holders of Onex less than $1. The Company recorded a pre-tax gain of $170 based Corporation, as the interests of the Limited Partners were record- on the excess of the proceeds over the carrying value of the invest- ed as a ﬁnancial liability at fair value. Mister Car Wash did not rep- ment. Onex’ share of the pre-tax gain was $82. In addition, Onex resent a separate major line of business, and as a result operating initially recorded a non-cash tax provision of $7 on the gain. Onex results up to the date of disposition have not been presented as a recognized a recovery of this tax provision during 2013 as part of an discontinued operation. The cash proceeds recorded in the consoli- evaluation of changes in tax law, as described in note 15. The gain dated statements of cash ﬂows for the sale of Mister Car Wash were on the sale is entirely attributable to the equity holders of Onex reduced for Mister Car Wash’s cash and cash equivalents of $3 at the Corporation, as the interest of the Limited Partners was recorded date of sale. as a ﬁnancial liability at fair value. BSN SPORTS did not represent Amounts paid on account of this transaction related to a separate major line of business, and as a result operating results the MIP totalled $11. In addition, management of ONCAP received up to the date of disposition have not been presented as a discon- $40 in carried interest, which included a net payment of $7 of car- tinued operation. The cash proceeds recorded in the consolidated ried interest by Onex and Onex management. statements of cash ﬂows for the sale of BSN SPORTS were reduced b) Caliber Collision for BSN SPORTS’ cash and cash equivalents of $3 at the date of sale. During the fourth quarter of 2013, $6 of additional pro- In November 2013, ONCAP II sold its interests in Caliber Collision ceeds was received by ONCAP II, of which Onex’ share was $3. for net proceeds of $437, of which Onex’ share was $193. Included These additional proceeds were recognized as a gain during the in the net proceeds amount is $4 held in escrow and for working fourth quarter of 2013, net of a $1 reduction in the escrow receiv- capital adjustments, which was received during 2014. Onex’ share of able. At December 31, 2014, $3 (2013 – $15) remained receivable for the amounts held in escrow and for working capital adjustments is escrow, of which Onex’ share was $1 (2013 – $7). $2. The Company recorded a gain of $386 based on the excess of the Amounts paid on account of this transaction related to proceeds over the carrying value of the investment. Onex’ share of the MIP totalled $6. In addition, management of ONCAP received the gain was $171. The gain on the sale is entirely attributable to the $20 in carried interest, which included a net payment of $7 of car- equity holders of Onex Corporation, as the interest of the Limited ried interest by Onex and Onex management. Partners was recorded as a ﬁnancial liability at fair value. Caliber Onex Corporation December 31, 2014 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 2 3 . 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) Increase in value of other Onex Partners investments(f) Foreign exchange loss Other(g) 2014 $ 70 125 24 160 (1) (46) 38 8 2013 $ 91 73 23 b) Transition, integration and other expenses are typically to provide for the costs of transitioning the activities of an operat- ing company from a previous parent company upon acquisition and to integrate new acquisitions at the operating companies. Transition, integration and other expenses for 2014 were pri- marily due to USI, Emerald Expositions and Carestream Health. Transition, integration and other expenses for 2013 were primarily 262 due to USI, Carestream Health and Davis-Standard Holdings, Inc. 108 (6) 20 (136) c) Transaction costs are incurred by Onex and its operating com- panies to complete business acquisitions, and typically include advisory, legal and other professional and consulting costs. Transaction costs for 2014 were primarily due to the acquisitions of York, Mavis Discount Tire and AIT in addition to acquisitions $ 378 $ 435 completed by the operating companies. Transaction costs for a) Restructuring charges (recoveries) recorded at the operating companies were: Year ended December 31 JELD-WEN(i) Sitel Worldwide(ii) Carestream Health(iii) Celestica(iv) Other 2014 $ 31 20 11 (2) 10 2013 $ 31 14 10 28 8 $ 70 $ 91 2013 were primarily due to the acquisition of Emerald Expositions (note 2) and acquisitions completed by the operating companies. 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 16. The liability will ultimately be settled upon the realiza- tion of the Limited Partners’ share of the underlying investments i) During 2014, JELD-WEN reported restructuring charges of $31 in each respective Onex Partners and ONCAP Fund. (2013 – $31). The charges recorded by JELD-WEN in 2014 pri- marily relate to severance costs and modiﬁcation of a man- agement incentive plan. The charges recorded by JELD-WEN e) During the year ended December 31, 2014, a net recovery of $1 (2013 – net charge of $108) was recognized in relation to the in 2013 primarily related to costs associated with the closure estimated change in fair value of contingent consideration relat- of facilities. ed to acquisitions completed by the Company. The fair value of ii) Sitel Worldwide’s restructuring plans are to rationalize facility contingent consideration liabilities is typically based on the esti- and labour costs, realign operations and resources to support mated future ﬁnancial performance of the acquired business. growth plans and shift the geographic mix of certain resources. Financial targets used in the estimation process include certain iii) Carestream Health’s restructuring charges for 2014 related deﬁned ﬁnancial targets and realized internal rates of return. The primarily to the establishment of a central functions location total estimated fair value of contingent consideration liabilities at for its European operations. Restructuring charges for 2013 December 31, 2014 was $203 (2013 – $200). related primarily to the reorganization of its European sales and service functions and the relocation and closure of a ﬁlm ﬁnishing plant. iv) During 2012, Celestica announced that it would wind down its manufacturing services for a signiﬁcant customer. As a result, Celestica incurred restructuring charges of $28 during 2013 to consolidate facilities and reduce its workforce. During 2014, Celestica recorded a recovery of $2 primarily due to a reversal of estimated contractual lease obligations. 142 Onex Corporation December 31, 2014 f) Includes realized and unrealized gains (losses) on other Onex Partners investments in which Onex had no or limited remaining strategic or operating inﬂuence: Spirit AeroSystems (from June to August 2014), Allison Transmission (from June to September 2014), Tomkins (April to December 2014) and FLY Leasing Limited. Year ended December 31 Spirit AeroSystems(i) Tomkins(ii) Allison Transmission(iii) Fly Leasing Limited 2014 $ 29 21 1 (5) $ 46 2013 $ – – – 6 $ 6 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 June 2014, Onex, Onex Partners I, Onex management and iii) In June 2014, Onex, Onex Partners II, Onex management and certain limited partners sold their controlling interest in Spirit certain limited partners sold shares of Allison Transmission AeroSystems, as described in note 6. The remaining inter- in a secondary offering and share repurchase, as described in est held by the Company was recorded as a long-term invest- note 8. After completion of the secondary offering and share ment at fair value (note 8), with changes in fair value recorded repurchase, Onex, Onex Partners II, Onex management and in other items. In August 2014, under a secondary public offer- certain limited partners continued to own 2.7 million shares ing of Spirit AeroSystems, Onex, Onex Partners I, Onex man- of common stock, or approximately 2% in the aggregate, agement and certain limited partners sold their remaining of Allison Transmission’s outstanding common stock. The 8.4 million shares of Spirit AeroSystems, of which Onex’ portion remaining interest held by the Company was recorded as a was approximately 2.2 million shares. The offering was com- long-term investment at fair value, as described in note 8, with pleted at a price of $35.67 per share, or a multiple of 10.7 times changes in fair value recorded in other items. Onex’ original cost of $3.33 per share in Spirit AeroSys tems. The In September 2014, Allison Transmission completed sale was completed for net proceeds of $300, of which Onex’ a secondary offering of 5.4 million shares of common stock. As share was $91, including carried interest and after the reduction part of the offering, Onex, Onex Partners II, Onex management for the amounts paid on account of the MIP. Income recorded and certain limited partners sold their remaining 2.7 million in other items of $29 during 2014 represents the change in fair shares of common stock. Onex, Onex Partners II, Onex man- value of the shares held after the June 2014 secondary public agement and certain limited partners received net proceeds offering and share repurchase up until the August 2014 second- of $82 for their 2.7 million shares of common stock, of which ary public offering. Onex’ portion was $26, including carried interest and after Amounts received from the August 2014 secondary the reduction for the amounts paid on account of the MIP. offering related to the carried interest totalled $28. In accor- Income recorded in other items of $1 during 2014 represents dance with the terms of Onex Partners, Onex is allocated 40% the change in fair value of the shares held after the June 2014 of the carried interest with 60% allocated to management. secondary public offering and share repurchase up until the Onex’ share of the carried interest received was $11 and is September 2014 secondary public offering. Amounts received included in the net proceeds to Onex. Management’s share of related to the carried interest totalled $5, of which Onex’ por- the carried interest was $17. Amounts paid on account of the tion was $2 and management’s portion was $3. Amounts paid MIP totalled $6 for this transaction and have been deducted on account of the MIP totalled $2 for this transaction and have from the net proceeds to Onex. been deducted from the net proceeds to Onex. ii) In April 2014, Onex, together with CPPIB, entered into an agreement to sell Gates, Tomkins’ principal remaining busi- ness. As a result, at that time, Onex’ investment in Tomkins g) Other for the years ended December 31, 2014 and 2013 includes: (i) net realized and unrealized losses of $65 (2013 – gains of $16) was recorded in assets held for sale and was recorded at fair recorded on investments in securities and long-term debt of the value in the consolidated balance sheets, with changes in Onex Credit CLOs; (ii) gains of $9 (2013 – $9) on the sale of tax fair value recognized within other items in the consolidated losses, as described in note 30(o); and (iii) $22 (2013 – $12) of other statements of earnings. The sale of Gates was completed in income from equity-accounted investments. During 2014, in con- July 2014 and Onex subsequently sold the residual assets of nection with the reversal of a previous court ruling, Carestream Tomkins during 2014, as described in note 8. Income recorded Health recorded other income of $31 for the reversal of legal pro- in other items of $21 for the year ended December 31, 2014 pri- visions related to the matter. During 2014 and 2013, in connection marily represents the change in fair value of the residual assets with the settlement of class action lawsuits, Celestica recorded other of Tomkins. income of $9 (2013 – $24) for the receipt of damages related to cer- tain purchases made by the company in prior periods. In addition, during 2013, JELD-WEN recorded gains of $15 on the sale of non- core assets and Meridian Aviation recorded a net gain of $32 related to the sale of aircraft. Onex Corporation December 31, 2014 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 4 . 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 Celestica(a) CiCi’s Pizza(b) Flushing Town Center(c) Tropicana Las Vegas(d) Other, net(e) 2014 $ 41 26 (42) – 26 2013 $ – 57 43 91 32 $ 51 $ 223 25. 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 2014 2013 Weighted average number of shares outstanding (in millions): Basic Diluted 110 110 113 113 a) During the fourth quarter of 2014, Celestica recorded a non- cash goodwill impairment charge of $41 related to its semicon- ductor business. b) During the fourth quarter of 2014, CiCi’s Pizza recorded a non- cash goodwill impairment charge of $26 (2013 – goodwill and intan- 26. SALE OF INTERESTS IN OPERATING COMPANY UNDER CONTINUING CONTROL In March 2014, under a secondary public offering of Spirit AeroSys- tems, Onex, Onex Partners I, Onex management and certain limit- ed partners sold 6.0 million shares of Spirit AeroSystems, of which Onex’ portion was approximately 1.6 million shares. The offering gible asset impairment charges of $33 and $24). The impairments was completed at a price of $28.52 per share. Onex’ cash cost for were primarily due to a decrease in projected future earnings and a these shares was $3.33 per share. Since this transaction did not reduction in the exit multiple due to market risks. c) During 2014, Flushing Town Center recorded a non-cash recovery of an impairment charge of $42 (2013 – impairment charge of $43) associated with its retail space and parking structures. result in a loss of control by the Company at the time of the trans- action, it has been recorded as a transfer of equity to non-control- ling interests. Total cash proceeds received from the sale were $171, resulting in a transfer of the historical accounting carrying value of $69 to the non-controlling interests in the consolidated statements d) Due to a decline in the recoverable amount of Tropicana Las Vegas, measured in accordance with IAS 36, Impair ment of of equity. The net cash proceeds in excess of the historical account- ing carrying value of $102 were recorded directly to retained earn- Assets, Tropicana Las Vegas recorded non-cash long-lived asset ings. Onex’ share of the net proceeds was $52, including carried impairment charges of $91 during 2013. The impairments were interest and after the reduction for distributions paid on account calculated on a fair value less costs to sell basis using market of the MIP. comparable transactions. The recoverable amount calculated was Amounts received on account of the carried inter- $245 and was a Level 3 measurement in the fair value hierarchy est related to this transaction totalled $16. In accordance with the as a result of signiﬁcant other unobservable inputs used in deter- terms of Onex Partners, Onex is allocated 40% of the carried inter- mining the recoverable amount. e) Other in 2014 includes net impairments of $26 related to Emerald Expositions, JELD-WEN, KraussMaffei, SGS International est with 60% allocated to management. Onex’ share of the carried interest received was $6 and is included in the net proceeds to Onex. Management’s share of the carried interest was $10. Amounts paid on account of the MIP totalled $4 for this transaction and have and Sitel Worldwide. Other in 2013 includes net impairments of $32 been deducted from the net proceeds to Onex. related to EnGlobe, JELD-WEN, Sitel Worldwide and USI. As a result of this transaction, Onex, Onex Partners I, Substantially all of the Company’s goodwill and intangible assets est in Spirit AeroSystems was reduced to 11% from 16%. Onex’ with indeﬁnite useful lives use the value-in-use method to mea- economic ownership was reduced to 3% from 5%. Onex contin- sure the recoverable amount. The carrying value of goodwill and ued to control and consolidate Spirit AeroSystems until the June intangible assets with indeﬁnite useful lives is allocated on a seg- 2014 secondary offering and share repurchase, as described in Onex management and certain limited partners’ economic inter- mented basis in note 33. note 6(b). In August 2014, under a secondary public offering of Spirit AeroSystems, Onex, Onex Partners I, Onex management In measuring the recoverable amounts for goodwill and intan- and certain limited partners sold their remaining shares of Spirit gible assets at December 31, 2014, signiﬁcant estimates include the AeroSystems, as described in note 23(f ). growth rate and discount rate, which ranged from 0.0% to 16.3% and 8.1% to 19.0% (2013 – 0.0% to 10.3% and 8.4% to 20.0%), respectively. 144 Onex Corporation December 31, 2014 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: Fair Value through Net Earnings Recognized Designated Available- for-Sale Held-to- Maturity Loans and Receivables Derivatives Used for Hedging Total December 31, 2014 Assets as per balance sheet Cash and cash equivalents $ − $ 3,764 $ − $ − Accounts receivable Other current assets Long-term investments Other non-current assets Financial assets held by discontinued operations − 6 1,123 38 – − 180 3,687 61 37 − – – – – − – – – – $ − 3,083 123 – 67 128 $ − $ 3,764 − 6 67 2 – 3,083 315 4,877 168 165 Total $ 1,167 $ 7,729 $ – $ – $ 3,401(a) $ 75 $ 12,372 (a) The carrying value of loans and receivables approximates their fair value. Fair Value through Net Earnings Recognized Designated Available- for-Sale Held-to- Maturity Loans and Receivables Derivatives Used for Hedging Total December 31, 2013 Assets as per balance sheet Cash and cash equivalents $ − $ 3,191 $ − $ − $ − $ – $ 3,191 Short-term investments Accounts receivable Other current assets Long-term investments Other non-current assets Total 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 $ 4,445 $ 5,288 $ 1,876 $ 32(a) $ 3,885(b) $ 58 $ 15,584 (a) Fair value of held-to-maturity assets, which is measured at amortized cost at December 31, 2013, was $32. (b) The carrying value of loans and receivables approximates their fair value. Onex Corporation December 31, 2014 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 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, 2014 Liabilities as per balance sheet Accounts payable and accrued liabilities $ − $ 23 $ 2,872 $ 18 $ 2,913 Provisions Other current liabilities Long-term debt(a) Obligations under finance leases Other non-current liabilities Limited Partners’ Interests Financial liabilities held by discontinued operations 191 16 − − 331 − – − − 3,431 − 4 5,153 – 12 192 10,034 45 8 − 66 − 25 − − 26 − – 203 233 13,465 45 369 5,153 66 Total $ 538 $ 8,611 $ 13,229 $ 69 $ 22,447 (a) Long-term debt is presented gross of financing charges. 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 Long-term debt recorded at fair value through net earnings at December 31, 2014 of $3,431 (2013 – $1,723) has contractual amounts due on maturity of $3,535 (2013 – $1,748). 146 Onex Corporation December 31, 2014 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 gains (losses) recognized by the Company related to ﬁnancial assets and liabilities were as follows: Year ended December 31 2014 2013 Fair Value through Net Earnings Available-for-Sale Fair value adjustments Interest income Impairments Loans and Receivables Provisions and other Financial Liabilities at Amortized Cost Interest expense of operating companies Derivatives Used for Hedging Total losses recognized Earnings (Loss) Comprehensive Earnings(1) Earnings (Loss) Comprehensive Earnings (Loss) (1) $ (857)(a) $ n/a $ (1,001)(a) $ n/a n/a – – (16) (830) (36) – n/a n/a n/a n/a (25) n/a – (1) 1 (699) (31) $ (1,739) $ (25) $ (1,731) – n/a n/a n/a n/a (23) $ (23) (1) Amounts recognized in comprehensive earnings (loss) are presented gross of the income tax effect. a) Primarily consists of Limited Partners’ Interests charge of $1,069 (2013 – $1,855), carried interest charge of $160 (2013 – $262) and increase in value of investments in joint ventures and associates at fair value of $412 (2013 – $1,098). 2 8 . FA I R VA L U E M E A S U R E M E N T S For certain operating companies, an adjustment is made by man- agement for that operating company’s credit risk, resulting in a Fair values of ﬁnancial instruments Level 3 measurement in the fair value hierarchy. The estimated fair values of ﬁnancial instruments as at Decem- ber 31, 2014 and 2013 are based on relevant market prices and Financial instruments measured at fair value are allocated within information available at those dates. The carrying values of cash the fair value hierarchy based upon the lowest level of input that and cash equivalents, short-term investments, accounts receiv- is signiﬁcant to the fair value measurement. Transfers between able, accounts payable and accrued liabilities approximate the fair the three levels of the fair value hierarchy are recognized on the values of these ﬁnancial instruments due to the short maturity of date of the event or change in circumstances that caused the these instruments. The fair value of consolidated long-term debt transfer. There were no signiﬁcant transfers between the three at December 31, 2014 was $13,340 (2013 – $12,478) compared to a levels of the fair value hierarchy during 2014 and 2013. The three carrying value of $13,282 (2013 – $11,970). The fair value of con- levels of the fair value hierarchy are as follows: solidated long-term debt measured at amortized cost is a Level 2 • Quoted prices in active markets for identical assets (“Level 1”); measurement in the fair value hierarchy and is calculated by • Signiﬁcant other observable inputs (“Level 2”); and discounting the expected future cash ﬂows using an observable • Signiﬁcant other unobservable inputs (“Level 3”). discount rate for instruments of similar maturity and credit risk. Onex Corporation December 31, 2014 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 allocation of ﬁnancial assets measured at fair value in the fair value hierarchy, excluding cash and cash equivalents, at December 31, 2014 was as follows: Financial assets at fair value through earnings Onex Credit CLOs’ investments in corporate loans Investments in debt Investments in equities Investments in joint ventures and associates Other Level 1 Level 2 Level 3 Total $ – – 22 – 267 $ 3,596 633 30 – 40 $ – – – 540 – $ 3,596 633 52 540 307 Total financial assets at fair value $ 289 $ 4,299 $ 540 $ 5,128 The allocation of ﬁnancial assets measured at fair value in the fair value hierarchy, excluding cash and cash equivalents, at December 31, 2013 was as follows: Financial assets at fair value through earnings Onex Credit CLOs’ investments in corporate loans Investments in debt Investments in equities Investments in joint ventures and associates Other Available-for-sale financial assets Investments in debt Investments in equities Level 1 Level 2 Level 3 Total $ − − 23 − 520 – 107 $ 1,810 525 38 1,262 122 1,769 – $ − − − 2,242 − – – $ 1,810 525 61 3,504 642 1,769 107 Total financial assets at fair value $ 650 $ 5,526 $ 2,242 $ 8,418 The allocation of ﬁnancial liabilities measured at fair value in the fair value hierarchy at December 31, 2014 was as follows: Financial liabilities at fair value through earnings Limited Partners’ Interests Unrealized carried interest due to Onex and ONCAP management Onex Credit’s long-term debt Contingent consideration and other Total financial liabilities at fair value Level 1 Level 2 Level 3 Total $ – $ – $ 5,176 $ 5,176 – – 12 – – 8 204 3,431 318 204 3,431 338 $ 12 $ 8 $ 9,129 $ 9,149 The allocation of ﬁnancial liabilities measured at fair value in the fair value hierarchy at December 31, 2013 was as follows: Level 1 Level 2 Level 3 Total Financial liabilities at fair value through earnings Limited Partners’ Interests $ – $ – $ 6,959 $ 6,959 Unrealized carried interest due to Onex and ONCAP management Onex Credit’s long-term debt Contingent consideration and other Total financial liabilities at fair value – – 9 – – 9 343 1,723 302 343 1,723 320 $ 9 $ 9 $ 9,327 $ 9,345 148 Onex Corporation December 31, 2014 N O T E S T O C O N S O L I D AT E D F I N A N C I A L S TAT E M E N T S Details of ﬁnancial assets and liabilities measured at fair value with signiﬁcant unobservable inputs (Level 3), excluding investments in joint ventures and associates designated at fair value through earnings (note 8(a)) and Limited Partners’ Interests designated at fair value (note 16), are as follows: Balance – December 31, 2012 Total (gain) loss in net earnings Transfer out of Level 3 Additions Acquisition of subsidiaries Settlements Other Balance – December 31, 2013 Total (gain) loss in net earnings Additions Acquisition of subsidiaries Settlements Other Onex Credit’s Long-Term Debt $ 801 (5) – 932 – (5) – $ 1,723 (28) 1,736 – – – Other Financial Liabilities at Fair Value through Net Earnings $ 416 344 (7) 70 29 (210) 3 Total $ 1,217 339 (7) 1,002 29 (215) 3 $ 645 $ 2,368 177 2 27 (334) 5 149 1,738 27 (334) 5 Balance – December 31, 2014 $ 3,431 $ 522 $ 3,953 Unrealized losses in net earnings (loss) for liabilities held at the end of the reporting period $ (28) $ 177 $ 149 Financial assets and liabilities measured at fair value with The valuation of ﬁnancial assets and liabilities mea- signiﬁcant unobservable inputs (Level 3) are recognized in the sured at fair value with signiﬁcant unobservable inputs (Level 3) consolidated statements of earnings in the following line items: is determined quarterly utilizing available market data. The valu- (i) interest expense of operating companies; (ii) increase in value ation of investments in the Onex Partners and ONCAP Funds is of investments in joint ventures and associates at fair value, net; reviewed and approved by the General Partner of the respective (iii) other items; and (iv) Limited Partners’ Interests charge. Funds each quarter. The General Partners of the Onex Partners and ONCAP Funds are indirectly controlled by Onex Corporation. The valuation of investments in joint ventures and associates The fair value measurements for investments in joint measured at fair value with signiﬁcant other observable inputs ventures and associates, Limited Partners’ Interests and unrealized (Level 2) of the fair value hierarchy is substantially based on the carried interest are primarily driven by the underlying fair value of quoted market price for the underlying security, less a discount to the investments in the Onex Partners and ONCAP Funds. A change reﬂect restrictions on a market participant’s ability to freely trade to reasonably possible alternative estimates and assumptions used the security. The valuation of investments in debt securities mea- in the valuation of non-public investments in the Onex Partners sured at fair value with signiﬁcant other observable inputs (Level 2) and ONCAP Funds may have a signiﬁcant impact on the fair val- is generally determined by obtaining quoted market prices or dealer ues calculated for these ﬁnancial assets and liabilities. A change quotes for identical or similar instruments in inactive markets, or in the valuation of the underlying investments may have multiple other inputs that are observable or can be corroborated by observ- impacts on Onex’ consolidated ﬁnancial statements and those able market data. impacts are dependent on the method of accounting used for that Onex Corporation December 31, 2014 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 investment, the Fund(s) within which that investment is held and iv) a charge would be recorded for the change in unrealized car- the progress of that investment in meeting the MIP exercise hur- ried interest due to Onex and ONCAP management on the dles. For example, an increase in the fair value of an investment in other items line in the consolidated statements of earnings an associate would have the following impacts on Onex’ consoli- with a corresponding increase to other non-current liabilities dated ﬁnancial statements: in the consolidated balance sheets; and i) an increase in the unrealized value of investments in joint v) a change in the fair value of the vested investment rights ventures and associates at fair value in the consolidated state- held under the MIP, resulting in a charge being recorded on ments of earnings with a corresponding increase in long-term the stock-based compensation line in the consolidated state- investments in the consolidated balance sheets; ments of earnings and a corresponding increase to other non- ii) a charge would be recorded for the Limited Partners’ share current liabilities in the consolidated balance sheets. of the fair value increase of the investment in associate on the Limited Partners’ Interests line in the consolidated state- Valuation methodologies may include observations of the trading ments of earnings with a corresponding increase to the Limited multiples of public companies considered comparable to the pri- Partners’ Interests in the consolidated balance sheets; vate companies being valued and discounted cash ﬂows. The fol- iii) a change in the calculation of unrealized carried interest in lowing table presents the signiﬁcant unobservable inputs used to the respective Fund that holds the investment in associate, value the Company’s private securities that impact the valuation of resulting in a recovery being recorded in the Limited Partners’ (i) investments in joint ventures and associates; (ii) unrealized car- Interests line in the consolidated statements of earnings with ried interest liability due to Onex and ONCAP management; (iii) a corresponding decrease to the Limited Partners’ Interests in stock-based compensation liability for the MIP; and (iv) Limited the consolidated balance sheets; Partners’ Interests. Valuation Technique Market comparable companies Significant Unobservable Inputs EBITDA multiple Inputs at December 31, 2014 Inputs at December 31, 2013 6.5x–12.0x 6.0x–12.5x Discounted cash flow Weighted average cost of capital 11.9%–18.0% Exit multiple 4.3x–10.0x 11.6%–18.0% 4.6x–9.1x In addition, the Company has two investments that are valued using market comparable transactions. Generally, EBITDA represents maintainable operating earnings, The long-term debt recorded at fair value in the Onex Credit CLOs which considers adjustments including those for the deduction is recognized at fair value using third-party pricing information of ﬁnancing costs, taxes, non-cash amortization, non-recurring without adjustment by the Company. The valuation methodology items and the impact of any discontinued activities. EBITDA is a is based on a projection of the future cash ﬂows expected to be measurement that is not deﬁned under IFRS. realized from the underlying collateral of the Onex Credit CLOs. During 2014, the Company recorded a gain of $12 (2013 – $5) attributable to changes in the credit risk of the long-term debt in the Onex Credit CLOs. 150 Onex Corporation December 31, 2014 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 and cash equivalents con- sist of investments in debt securities. In addition, the long-term investments of Onex Credit CLOs included in the long-term investments line in the consolidated balance sheets consist pri- marily of investments in debt securities. The investments in debt securities are subject to credit risk. A description of the invest- ments held by the Onex Credit CLOs is included in note 8. At December 31, 2014, Onex Corporation, the ultimate parent company, held $2,531 of cash and cash equivalents in short- term high-rated money market instruments. In addition, Celestica had $565 of cash and cash equivalents. Celestica’s current port- folio consists of bank deposits and certain money market funds that hold primarily U.S. government securities. The majority of Celestica’s and Onex Corporation’s, the ultimate parent company’s, cash and cash equivalents is held with ﬁnancial institutions, each of which has a current Standard & Poor’s rating of A-1 or above. Accounts receivable are also subject to credit risk. At December 31, 2014, 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 $ 2,285 447 139 214 $ 3,085 Liquidity risk is the risk that Onex and its operating companies will have insufﬁcient funds on hand to meet their respective obligations as they come due. The operating companies operate autonomously and generally have restrictions on cash distribu- tions to shareholders under their ﬁnancing agreements. Onex needs to be in a position to support its operating companies when and if it is appropriate and reasonable for Onex as an equity owner with paramount duties to act in the best interests of Onex 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, certain operating companies use forward contracts to hedge all or a portion of forecasted revenues and/or costs outside 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- dollar-denominated cash and cash equivalents. A 5% strengthen- ing (5% weakening) of the Canadian dollar against the U.S. dollar at December 31, 2014 would result in a $3 increase ($3 decrease) in net earnings. As all of the Canadian-dollar-denominated cash and cash equivalents at the parent company are designated as fair value through net earnings, there would be no effect on other compre- shareholders. Maintaining sufﬁcient liquidity at Onex is impor- hensive earnings. tant because Onex, as a holding company, generally does not have guaranteed sources of meaningful cash ﬂow. In addition, Celestica has exposure to the U.S. dollar/ Canadian dollar foreign currency exchange rate. A 5% strengthen- ing (5% weakening) of the Canadian dollar against the U.S. dollar at December 31, 2014 would result in a $5 increase ($5 decrease) in other comprehensive earnings of Celestica and a $2 increase ($2 decrease) in net earnings. Onex Corporation December 31, 2014 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 Interest rates Capital disclosures The Company is exposed to changes in future cash ﬂows as a Onex considers the capital it manages to be the amounts it has result of changes in the interest rate environment. The parent in cash, cash equivalents and short-term investments, the invest- company is exposed to interest rate changes primarily through ments made by it in the operating companies, Onex Real Estate and its cash and cash equivalents, which are held in short-term term Onex Credit. Onex also manages the capital of other investors in deposits and commercial paper. Assuming no signiﬁcant chang- the Onex Partners, ONCAP and Onex Credit Funds. es in cash balances held by the parent company from those at December 31, 2014, a 0.25% increase (0.25% decrease) in the inter- Onex’ objectives in managing capital are to: est rate (including the Canadian and U.S. prime rates) would • preserve a ﬁnancially strong parent company with substantial result in a minimal impact on annual interest income. As all of the liquidity and no, or a limited amount of, debt so that funds are Canadian dollar cash and cash equivalents at the parent company available to pursue new acquisitions and growth opportunities are designated as fair value through net earnings, there would be as well as support expansion of its existing businesses. Onex no effect on other comprehensive earnings. does not generally have the ability to draw cash from its operat- The operating companies’ results are also affected by ing companies. Accordingly, maintaining adequate liquidity at changes in interest rates. A change in the interest rate (including the parent company is important; the LIBOR, EURIBOR and U.S. prime interest rate) would result in • achieve an appropriate return on capital commensurate with a change in interest expense being recorded due to the variable- the level of assumed risk; rate portion of the long-term debt of the operating companies. At • build the long-term value of its operating companies; December 31, 2014, excluding Onex Credit CLOs, approximately • control the risk associated with capital invested in any particu- 50% (2013 – 50%) of the operating companies’ long-term debt had lar business or activity. All debt ﬁnancing is within the operating a ﬁxed interest rate or an interest rate that was effectively ﬁxed by companies and each operating company is required to support interest rate swap contracts. The long-term debt of the operating its own debt. Onex does not normally guarantee the debt of the companies is without recourse to Onex Corporation, the ultimate operating companies and there are no cross-guarantees of debt parent company. Commodity risk between the operating companies; and • have appropriate levels of committed Limited Partner and other investors capital available to invest along with Onex’ cap- Certain of Onex’ operating companies have exposure to com- ital. This allows Onex to respond quickly to opportunities and modities. In particular, silver is a signiﬁcant commodity used in pursue acquisitions of businesses it could not achieve using Carestream Health’s manufacturing of x-ray ﬁlm. The company’s only its own capital. The management of Limited Partner and management continually monitors movements and trends in the other investors’ capital also provides management fees to Onex silver market and enters into collar and forward agreements when and the ability to enhance Onex’ returns by earning a carried considered appropriate to mitigate some of the risk of future price interest on the proﬁts of Limited Partners. ﬂuctuations, generally for periods of up to a year. Regulatory risk At December 31, 2014, Onex, the parent company, had $2,531 of cash and cash equivalents on hand and $346 of near-cash items Certain of Onex’ operating companies and investment advi- in a segregated unleveraged fund managed by Onex Credit. Onex, sor afﬁliates may be subject to extensive government regulations the parent company, has a conservative cash management policy and oversight with respect to their business activities. Failure that limits its cash investments to short-term high-rated money to comply with applicable regulations, obtain applicable regula- market products. tory approvals or maintain those approvals may subject the applica- At December 31, 2014, Onex had access to $4,945 of ble operating company to civil penalties, suspension or withdrawal uncalled committed limited partner capital for acquisitions of any regulatory approval obtained, injunctions, operating restric- through the Onex Partners and ONCAP Funds. tions and criminal prosecutions and penalties, which could, indi- vidually or in the aggregate, have a material adverse effect on Onex’ The strategy for risk management of capital has not changed consolidated ﬁnancial position. signiﬁcantly since December 31, 2013. 152 Onex Corporation December 31, 2014 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 0 . 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 The aggregate commitments for capital assets at R E L AT E D PA R T Y T R A N S A C T I O N S December 31, 2014 amounted to $296 with the majority expected 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, 2014, the amounts potentially payable in respect of these guarantees totalled $317. In addition, an Onex Partners III afﬁliate has guaran- teed certain payment obligations arising on the delivery date for certain aircraft under contract to purchase by Meridian Aviation. The Company, which includes the operating companies and the Limited Partners of the Onex Partners and ONCAP Funds, has a total commitment as at December 31, 2014 of approximately $4,600 with respect to corporate investments. The total commit- ment for corporate investments at December 31, 2014 included the acquisition of SIG Combibloc Group AG (“SIG”). The Company entered into an agreement to acquire SIG for a value of up to €3,750 ($4,538) in November 2014. On closing of the transaction, €3,575 ($4,326), less amounts for certain retained liabilities, will be paid, with an additional amount of up to €175 ($212) payable based on the ﬁnancial performance of SIG in 2015 and 2016. The Company is exposed to foreign currency risk as ﬂuctuations in the foreign currency exchange rate between the Euro and U.S. dollar will impact the purchase price in U.S. dollars. Based in Switzerland, SIG provides beverage and food producers with a comprehensive product portfolio of aseptic carton sleeves and closures, as well as the ﬁlling machines used to ﬁll, form and seal the sleeves. The equity investment of approximately $1,250 will be made by Onex, Onex Partners IV and Onex management, certain limited partners as co-investors, including Onex, and SIG’s management team. Onex’ share of the equity investment will be approximately $400. The remainder of the purchase price will be ﬁnanced with debt ﬁnancing, without recourse to Onex Corporation. Additionally, in January 2015, the Company entered into an agreement to acquire Survitec Group Limited (“Survitec”) for £450 ($680). The transaction is expected to close in the ﬁrst quarter of 2015, as described in note 32. The Company is exposed to foreign currency risk as ﬂuctuations in the foreign currency exchange rate between the British Pound and U.S. dollar will impact the purchase price in U.S. dollars. 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. to be incurred between 2015 and 2016. b) Onex and its operating companies are or may become parties to legal, product liability and warranty claims arising from the ordinary course of business. Certain operating companies, as con- ditions of acquisition agreements, have agreed to accept certain pre-acquisition liability claims against the acquired companies. The operating companies have recorded provisions based on their consideration and analysis of their exposure in respect of such claims. Such provisions are reﬂected, as appropriate, in Onex’ consolidated ﬁnancial statements, as described in 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 previous 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 would not reasonably be expected to 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 commitments totalling $1,655. Onex Partners I provid- ed committed capital for Onex-sponsored acquisitions not related to Onex’ operating companies at December 31, 2003 or to ONCAP. As at December 31, 2014, $1,475 (2013 – $1,475) has been in- vested of the $1,655 of total capital committed. Onex has invested $346 (2013 – $346) of its $400 commitment. Onex controls the Gen eral Partner and Manager of Onex Partners I. The total amount invested at cost in Onex Partners I’s remaining investments by Onex management and Directors at December 31, 2014 was $11 (2013 – $20). There were no additional amounts invested by Onex management and Directors in Onex Partners I investments during 2014 and 2013. Onex Corporation December 31, 2014 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 Prior to November 2006, Onex received annual manage- The returns to Onex Partners II investors, other than ment fees based on 2% of the capital committed to Onex Partners I Onex and Onex management, are based upon all investments by investors other than Onex and Onex management. The annual made through Onex Partners II, with the result that the initial car- management fee was reduced to 1% of the net funded commit- ried interest achieved by Onex on gains could be recovered from ments at the end of the initial fee period in November 2006, when Onex if subsequent Onex Partners II investments do not exceed the Onex established a successor Onex Partners fund, Onex Partners II. overall target return level of 8%. Consistent with Onex Partners I, Carried interest is received on the overall gains achieved by Onex Onex, as sponsor of Onex Partners II, is allocated 40% of the carried Partners I investors, other than Onex and Onex management, to interest with 60% allocated to Onex management. Carried interest the extent of 20% of the gains, provided that those investors have received from Onex Partners II has fully vested for Onex manage- achieved a minimum 8% return on their investment in Onex ment. For the year ended December 31, 2014, $60 (2013 – $75) has Partners I over the life of Onex Partners I. The investment by Onex been received by Onex as carried interest while Onex management Partners I investors for this purpose takes into consideration man- received $90 (2013 – $110) with respect to the carried interest. agement fees and other amounts paid by Onex Partners I investors. Onex, as sponsor of Onex Partners I, is allocated 40% of the carried interest with 60% allocated to Onex management. f) In December 2009, Onex completed the closing of Onex Part- ners III with commitments totalling $4,300. Onex Partners III pro- Carried interest received from Onex Partners I has fully vested vided committed capital for Onex-sponsored acquisitions not for Onex management. For the year ended December 31, 2014, related to Onex’ operating companies at Decem ber 31, 2003 or to $57 was received by Onex as carried interest while Onex man- ONCAP, Onex Partners I or Onex Partners II. As at December 31, agement received $85 with respect to the carried interest. During 2014, $4,207 (2013 – $3,596) has been invested, of which Onex’ share 2013, no amounts were received as carried interest related to Onex was $927 (2013 – $783). Onex had a $1,000 commitment for the peri- Partners I. e) In August 2006, Onex completed the closing of Onex Part- ners II with commitments totalling $3,450. Onex Partners II pro- od from January 1, 2009 to June 30, 2009, a $500 commitment for the period from July 1, 2009 to June 15, 2010, an $800 commitment for the period from June 16, 2010 to May 14, 2012 and a $1,200 com- mitment since May 15, 2012. Onex controls the General Partner and vided committed capital for Onex-sponsored acquisitions not Manager of Onex Partners III. The total amount invested at cost in related to Onex’ operating companies at December 31, 2003 or to Onex Partners III’s remaining investments by Onex management ONCAP or Onex Partners I. As at December 31, 2014, $2,944 (2013 – and Directors at December 31, 2014 was $149 (2013 – $140), of which $2,944) has been invested of the $3,450 of total capital committed. $34 (2013 – $21) was invested in the year ended December 31, 2014. Onex has invested $1,164 (2013 – $1,164) of its $1,407 commitment. Prior to December 2013, Onex received annual manage- Onex controls the General Partner and Manager of Onex Part- ment fees based on 1.75% of the capital committed to Onex Part- ners II. The total amount invested at cost in Onex Partners II’s ners III by investors other than Onex and Onex management. The remaining investments by Onex management and Directors at annual management fee was reduced to 1% of the net funded com- December 31, 2014 was $18 (2013 – $51). There were no addition- mitments at the end of the initial fee period in December 2013. Onex al amounts invested by Onex management and Directors in Onex obtained approval for an extension of the commitment period for Partners II investments during 2014 and 2013. Onex Partners III into 2014 to enable further amounts to be invest- Prior to November 2008, Onex received annual man- ed through the Fund. The October 2014 investment in York was the agement fees based on 2% of the capital committed to Onex Part- ﬁnal new investment made by Onex Partners III. Carried interest is ners II by investors other than Onex and Onex management. The received on the overall gains achieved by Onex Partners III inves- annual management fee was reduced to 1% of the net funded com- tors, other than Onex and Onex management, to the extent of 20% mitments at the end of the initial fee period in November 2008, of the gains, provided that those investors have achieved a mini- when Onex established a successor Onex Partners fund, Onex mum 8% return on their investment in Onex Partners III over the Partners III. Carried interest is received on the overall gains achieved life of Onex Partners III. The investment by Onex Partners III inves- by Onex Partners II investors, other than Onex and Onex manage- tors for this purpose takes into consideration management fees and ment, to the extent of 20% of the gains, provided that those investors other amounts paid by Onex Partners III investors. have achieved a minimum 8% return on their investment in Onex The returns to Onex Partners III investors, other than Partners II over the life of Onex Partners II. The investment by Onex Onex and Onex management, are based upon all investments Partners II investors for this purpose takes into consideration man- made through Onex Partners III, with the result that the initial car- agement fees and other amounts paid by Onex Partners II investors. ried interest achieved by Onex on gains could be recovered from Onex if subsequent Onex Partners III investments do not exceed the overall target return level of 8%. Consistent with Onex Part- ners I and Onex Partners II, Onex, as sponsor of Onex Partners III, will be allocated 40% of the carried interest with 60% allocated 154 Onex Corporation December 31, 2014 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 Onex management. Carried interest received from Onex Part- ners III has fully vested for Onex management. For the year ended h) In May 2006, Onex completed the closing of ONCAP II with commitments totalling C$574. ONCAP II provided committed December 31, 2014, $54 was received by Onex as carried interest capital for acquisitions of small and medium-sized businesses while Onex management received $82 with respect to the carried requiring between C$20 and C$75 of initial equity capital. As at interest. During 2013, no amounts were received as carried interest December 31, 2014, C$483 (2013 – C$483) has been invested of the related to Onex Partners III. C$574 of total capital committed. Onex has invested C$221 (2013 – C$221) of its C$252 commitment. Onex controls the General Part- g) In May 2014, Onex completed the closing of Onex Partners IV with commitments totalling $5,150. Onex Partners IV is to provide ner and Manager of ONCAP II. The total amount invested at cost in ONCAP II’s remaining investments by management of Onex committed capital for future Onex-sponsored acquisitions not and ONCAP and Directors at December 31, 2014 was C$25 (2013 – related to Onex’ operating companies at December 31, 2003 or to C$29). There were no additional amounts invested by manage- ONCAP, Onex Partners I, Onex Partners II or Onex Partners III. As at ment of Onex and ONCAP and Directors in ONCAP II investments December 31, 2014, $208 has been invested, including capitalized during 2014 (2013 – $1). costs, of which Onex’ share was $46. Onex has a $1,200 commit- Prior to July 2011, Onex received annual management ment for the period from the date of the ﬁrst closing to June 2, 2015. fees based on 2% of the capital committed to ONCAP II by inves- In December 2014, Onex gave notice to the investors of Onex tors other than Onex and management of Onex and ONCAP. The Partners IV that Onex’ commitment would be increasing to $1,700 annual management fee was reduced to 2% of the net investment effective June 3, 2015. Onex controls the General Partner and amount at the end of the initial fee period in July 2011, when Onex Manager of Onex Partners IV. Onex management has committed, established a successor ONCAP fund, ONCAP III. Carried interest as a group, to invest a minimum of 2% of Onex Partners IV, which is received on the overall gains achieved by ONCAP II investors, may be adjusted annually up to a maximum of 8%. At December 31, other than management of ONCAP, to the extent of 20% of the 2014, Onex management and Directors had committed 8%. The total gains, provided that those investors have achieved a minimum 8% amount invested in Onex Partners IV’s investments by Onex man- return on their investment in ONCAP II over the life of ONCAP II. agement and Directors at December 31, 2014 was $16, all of which The investment by ONCAP II investors for this purpose takes was invested in the year ended December 31, 2014. into consideration management fees and other amounts paid by Onex began to receive management fees from Onex ONCAP II investors. Partners IV in August 2014. During the initial fee period of Onex The returns to ONCAP II investors, other than manage- Partners IV, Onex receives annual management fees based on ment of ONCAP, are based upon all investments made through 1.7% of capital committed to Onex Partners IV by investors other ONCAP II, with the result that the initial carried interests achieved than Onex and Onex management. The annual management fee is by ONCAP on gains could be recovered if subsequent ONCAP II reduced to 1% of the net funded commitments at the earlier of the investments do not exceed the overall target return level of 8%. end of the commitment period or if Onex establishes a successor The ONCAP management team is entitled to that portion of the Onex Partners fund. Carried interest is received on the overall gains carried interest realized in the ONCAP Funds that equates to achieved by Onex Partners IV investors, other than Onex and Onex a 12% carried interest on both Limited Partners’ and Onex capi- management, to the extent of 20% of the gains, provided that those tal. Carried interest received from ONCAP II has fully vested for investors have achieved a minimum 8% return on their investment ONCAP management. For the year ended December 31, 2014, in Onex Partners IV over the life of Onex Partners IV. The invest- ONCAP management received $43 (C$46) (2013 – $60 (C$63)) with ment by Onex Partners IV investors for this purpose takes into con- respect to the carried interest. sideration management fees and other amounts paid by Onex Part- ners IV investors. The returns to Onex Partners IV investors, other than i) In September 2011, Onex completed the closing of ONCAP III with commitments totalling C$800, excluding commitments from Onex and Onex management, are based upon all investments management of Onex and ONCAP. ONCAP III provides commit- made through Onex Partners IV, with the result that the initial car- ted capital for acquisitions of small and medium-sized businesses ried interest achieved by Onex on gains could be recovered from requiring less than $125 of initial equity capital. As at Decem- Onex if subsequent Onex Partners IV investments do not exceed ber 31, 2014, C$369 (2013 – C$253) has been invested of the C$800 the overall target return level of 8%. Consistent with Onex Part- of total capital committed. Onex has invested C$108 (2013 – C$74) ners I, Onex Partners II and Onex Partners III, Onex, as sponsor of its C$252 commitment. Onex controls the General Partner and of Onex Partners IV, will be allocated 40% of the carried interest Manager of ONCAP III. ONCAP management has committed, as a with 60% allocated to Onex management. Carried interest received group, to invest a minimum of 1% of ONCAP III. The commitment from Onex Partners IV will vest equally over six years from August from management of Onex and ONCAP and Directors may be 2014. As at December 31, 2014, no amount had been received as increased by an additional 5% of ONCAP III. At December 31, 2014, carried interest related to Onex Partners IV. Onex Corporation December 31, 2014 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 management of Onex and ONCAP and Directors had committed Under the terms of the MIP, the total amount paid by 6% (2013 – 6%). The total amount invested at cost in ONCAP III’s management members in 2014, including amounts invested investments by management of Onex and ONCAP and Directors at under the minimum investment requirement of the Onex Part ners December 31, 2014 was C$35 (2013 – C$24), of which C$11 (2013 – and ONCAP Funds to meet the 1.5% MIP requirement, was $13 nil) was invested in the year ended December 31, 2014. (2013 – $4). Investment rights exercisable at the same price for Onex receives annual management fees based on 2% of 7.5% of the Company’s interest in acquisitions were issued at the the capital committed to ONCAP III by investors other than Onex same time. Realizations under the MIP distributed in 2014 were and management of Onex and ONCAP. The annual management $117 (2013 – $39). fee is reduced to 1.5% of the net funded commitments at the ear- lier of the end of the commitment period or if Onex establishes a successor ONCAP fund. Carried interest is received on the overall k) Members of management and the Board of Directors of the Company invested $10 in 2014 (2013 – $2) in Onex’ investments gains achieved by ONCAP III investors, other than management made outside of Onex Partners and ONCAP at the same cost as of ONCAP, to the extent of 20% of the gains, provided that those Onex and other outside investors. Those investments by manage- investors have achieved a minimum 8% return on their invest- ment and Directors are subject to voting control by Onex. ment in ONCAP III over the life of ONCAP III. The investment by ONCAP III investors for this purpose takes into consideration man- agement fees and other amounts paid by ONCAP III investors. l) Each member of Onex management is required to reinvest 25% of the proceeds received related to their share of the MIP invest- The returns to ONCAP III investors, other than manage- ment rights and carried interest to acquire Onex Subordinate ment of ONCAP, are based upon all investments made through Voting Shares and/or management DSUs in the market until the ONCAP III, with the result that the initial carried interest achieved management member owns one million Onex Subordinate Voting by ONCAP on gains could be recovered if subsequent ONCAP III Shares and/or management DSUs. During 2014, Onex manage- investments do not exceed the overall target return level of 8%. ment reinvested C$55 (2013 – C$18) to acquire Onex Subordinate The ONCAP management team is entitled to that portion of the Voting Shares and/or management DSUs. carried interest that equates to a 12% carried interest on both limited partners and Onex capital. Carried interest received from ONCAP III will vest equally over ﬁve years ending in July 2016 for m) Certain operating companies have made loans to certain direc- tors or ofﬁcers of the individual operating companies, typically for ONCAP management. As at December 31, 2014, no amount had the purpose of acquiring shares in those operating companies. The been received as carried interest related to ONCAP III. total value of the loans outstanding as at December 31, 2014 was $25 (2013 – $37). j) Under the terms of the MIP, management members of the Company invest in all of the operating entities acquired or invested in by the Company. n) Onex Corporation, the ultimate parent company, receives fees from certain operating companies for services provided. The fees The aggregate investment by management members from consolidated operating companies are eliminated in these 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%) consolidated ﬁnancial statements. During 2014, fees of $1 (2013 – $2) were received from non-consolidated operating companies and 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 included with revenues in these consolidated ﬁnancial statements. same price. Amounts invested under the minimum investment requirement in Onex Partners’ transactions are allocated to meet o) During 2014 and 2013, Onex entered into the sale of entities, the sole assets of which were certain tax losses, to companies con- the 1.5% Onex investment requirement under the MIP. The invest- ment rights to acquire the remaining 5⁄6ths vest equally over six trolled by Mr. Gerald W. Schwartz, who is Onex’ controlling share- holder. Onex has signiﬁcant non-capital and capital losses avail- years with the investment rights vesting in full if the Company able; however, Onex does not expect to generate sufﬁcient taxable disposes of all of an investment before the seventh year. Under income to fully utilize these losses in the foreseeable future. As the MIP, the investment rights related to a particular acquisition such, no beneﬁt has been recognized in the consolidated ﬁnancial are exercisable only if the Company realizes in cash the full return statements for these losses. In connection with these transactions, of its investment and earns a minimum 15% per annum com- Deloitte & Touche LLP, an independent accounting ﬁrm retained pound rate of return for that investment after giving effect to the by Onex’ Audit and Corporate Governance Committee, provided investment rights. opinions that the values received by Onex for the tax losses were fair. Onex’ Audit and Corporate Governance Committee, all the 156 Onex Corporation December 31, 2014 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 members of which are independent Directors, unanimously approved the transactions. The following transactions were com- 31. 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 pleted during 2014 and 2013: • In 2014, Onex received $9 in cash for tax losses of $84. The entire $9 was recorded as a gain and included in other items in the consolidated statements of earnings. • 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 addition, during 2014 and 2013 Onex utilized certain tax losses associated with distributions of carried interest to management of Onex, for which Onex received cash of $4 (2013 – $2). p) In July 2014, 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$65.99 per Subordinate Voting Share or $62 (C$66), which repre- sents a slight discount to the trading price of Onex shares at that date. The private share repurchase is included in the number of shares repurchased and cancelled under the NCIB during 2014, as described in note 17(c). In November 2013, Onex repurchased in a private trans- action 1,000,000 of its Subordinate Voting Shares that were held indirectly by Mr. Gerald W. Schwartz. 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 operating companies. Also included are the Directors of Onex Corporation. Carried interest and MIP payments to former senior executives of Onex and ONCAP are excluded from the aggregate payments below. Aggregate payments to the Company’s key management were as follows: Year ended December 31 2014 Short-term employee benefits and costs $ 175 Post-employment benefits Other long-term benefits Termination benefits Share-based payments(i) 1 1 3 378 $ 558 2013 $ 142 1 1 3 434 $ 581 (i) Share-based payments include $13 (2013 – $288) paid on the exercise of Onex stock options (note 17), $231 (2013 – $88) of carried interest paid to Onex management and $103 (2013 – $32) of amounts paid under the MIP to management and Onex (note 30(j)). During 2014, Onex, the parent company, received carried interest of $171 (2013 – $75) (note 30(e)). 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 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 chang- es in interest rates, inﬂation and ﬂuctuations in investment val- ues. The plan liabilities are calculated using a discount rate set with reference to corporate bond yields; if the plan assets fail to achieve this yield, this will create or further a plan deﬁcit. A decrease in corporate bond yields would have the effect of increasing the beneﬁt obligations; however, this would be par- tially 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 2014 for deﬁned contribution pension plans and multi-employer plans were $57 (2013 – $62). Accrued beneﬁt obligations and the fair value of 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 2014, and the next required valuations will be as of 2015. The Company esti- mates that in 2015 the minimum funding requirement for the deﬁned beneﬁt pension plans will be $36. In 2014, total cash payments for employee future beneﬁts, consisting of cash contributed by the operating companies to their funded pension plans, cash payments directly to beneﬁciaries for their unfunded other beneﬁt plans and cash contributed to their deﬁned contribution plans, were $154 (2013 – $264). Included in the total was $11 (2013 – $35) contributed to multi-employer plans. Onex Corporation December 31, 2014 157 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 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: 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 2014 2013 2014 2013 2014 2013 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 Disposition of operating companies Plan amendments Reclassification of plans Other $ 1,573 $ 1,590 $ 677 $ 876 $ 142 $ 173 2 20 3 (23) (7) 67 (24) (1,027) (148) – (6) 13 66 3 (50) − (154) (6) − (13) 124 − 14 28 – (26) 17 118 (22) (3) (3) – (19) 13 26 − (22) 1 (74) 4 (28) (2) (124) 7 2 3 – (4) (1) 9 (5) (73) – – 1 5 6 − (8) (2) (16) (5) (6) 2 − (7) Closing benefit obligations $ 430 $ 1,573 $ 781 $ 677 $ 74 $ 142 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 Disposition of operating companies Settlements/curtailments Reclassification of plans Other Closing plan assets $ 1,874 $ 1,710 $ 343 22 75 17 3 (23) (29) (1,279) (154) – (10) 72 10 18 3 (50) (10) − − 119 2 16 24 27 – (19) (6) (2) (5) – (2) $ 443 11 23 32 − (22) (1) (20) (1) (119) (3) $ 1 $ − – – 4 – (4) – – (1) – 1 − − 12 − (8) − − (4) − 1 $ 496 $ 1,874 $ 376 $ 343 $ 1 $ 1 158 Onex Corporation December 31, 2014 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 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 Percentage of Plan Assets 2014 19% 37% 2% 17% 13% 1% 3% – – 2% 6% 2013 7% 16% 1% 8% 6% − 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: As at December 31 2014 2013 2014 2013 2014 2013 Pension Plans in which Assets Exceed Accumulated Benefits Pension Plans in which Accumulated Benefits Exceed Assets Non-Pension Post-Retirement Benefits Deferred benefit amount: Plan assets, at fair value Accrued benefit obligation Plan surplus (deficit) Valuation allowance $ 496 (430) 66 (2) $ 1,874 (1,573) 301 – $ 376 $ 343 $ 1 $ 1 (781) (405) – (677) (334) – (74) (73) – (142) (141) – Deferred benefit amount – asset (liability) $ 64 $ 301 $ (405) $ (334) $ (73) $ (141) The deferred beneﬁt asset of $64 (2013 – $301) is included in the Company’s consolidated balance sheets within other non-current assets (note 9). The total deferred beneﬁt liabilities of $478 (2013 – $475) are included in the Company’s consolidated balance sheets within other non-current liabilities (note 14) and other current liabilities. Of the total deferred beneﬁt liabilities, $18 (2013 – $27) was recorded as a cur- rent liability. The following assumptions were used to account for the plans: Year ended December 31 2014 2013 2014 2013 Accrued benefit obligation Weighted average discount rate(a) Weighted average rate of compensation increase 1.0%–8.5% 0.5%–7.0% 2.1%–4.9% 0.3%–4.1% 0.1%–3.9% 2.0%–4.6% 1.3%–4.9% 0.0%–4.6% Pension Benefits Non-Pension Post-Retirement Benefits (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 2014 6.2% 4.5% 2030 2013 6.7%–8.5% 4.5% 2030 Onex Corporation December 31, 2014 159 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 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 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, 2014 1% Increase 1% Decrease 1% Increase 1% Decrease 1% Increase 1% Decrease Discount rate Rate of compensation increase Healthcare cost trend rate $ (69) $ 5 n/a $ 92 $ (4) n/a $ (106) $ 23 n/a $ 132 $ (20) n/a $ (10) $ 2 $ 9 $ 12 $ (1) $ (8) 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- b) Onex Credit Asset Management Platform tion while holding all other assumptions constant. In practice, this In January 2015, Onex acquired control of the Onex Credit asset is unlikely to occur, and changes in certain assumptions may be management platform. The Onex Credit asset management plat- correlated. When calculating the sensitivity of the deﬁned bene- form was previously jointly controlled with Onex Credit’s co- ﬁt obligation to changes in signiﬁcant actuarial assumptions, the founder and chief executive ofﬁcer, and Onex previously held a same method used for calculating the beneﬁt obligation liabilities 70% economic interest in the business. in the consolidated ﬁnancial statements has been applied. Onex Credit’s management team remains in place with its chief executive ofﬁcer continuing to participate in the perfor- mance of the Onex Credit asset management platform. Onex will consolidate 100% of the Onex credit management platform with a reduced allocation of the net earnings to Onex Credit’s chief exec- utive ofﬁcer to be recognized as compensation expense. As a result of the above transaction, beginning with the ﬁrst quarter of 2015, the Company will now consolidate the Onex Credit asset management platform and certain funds managed by Onex Credit in which Onex, the parent company, holds an invest- ment. The Company’s previous interest in the Onex Credit asset management platform was equity-accounted and will be derecog- nized at fair value, resulting in the recognition of a non-cash gain during the ﬁrst quarter of 2015. The consolidation of the Onex Credit asset management platform and certain of the funds managed by Onex Credit will increase Onex’ consolidated assets and liabilities. 3 2 . 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. a) Survitec In January 2015, the Company entered into an agreement to acquire Survitec for an enterprise value of £450 ($680). Based in the United Kingdom, Survitec is a provider of mission-critical marine, defence and aerospace survival equipment. Onex, Onex Partners IV and Onex management will make an investment of approximately $320 for substantially all of the equity, with the remainder of the equity to be owned by Survitec’s management. Onex’ share of the equity investment will be approximately $70. The balance of the purchase price will be ﬁnanced with debt ﬁnancing, without recourse to Onex Corporation. The acquisition is subject to customary conditions and regulatory approvals and is expected to close in the ﬁrst quarter of 2015. 160 Onex Corporation December 31, 2014 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 3 . 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 eight reportable segments in 2014 (2013 – seven). As a result of transactions completed during 2014, the insurance services segment, consisting of USI and York, and the credit strategies segment, consisting of (i) Onex Credit Manager, (ii) Onex Credit Collateralized Loan Obligations and (iii) Onex Credit Funds, became reportable industry segments. In addition, Carestream Health and ResCare, which were previously both included in the healthcare segment, are now recorded in the healthcare imaging segment and the health and human services segment, respectively. Comparative results have been restated to reﬂect these changes. The Company’s reportable segments at December 31, 2014 consist of: electronics manufacturing services; healthcare imaging; health and human services; customer care services; build- ing products; insurance services; credit strategies and other. The electronics manufacturing services segment consists of Celestica, which provides supply chain solutions, including manufactur- ing services to electronics original equipment manufacturers and service providers. The healthcare imaging segment consists of Carestream Health, a leading global provider of medical imaging and healthcare information technology solutions. The health and human services segment consists of ResCare, a leading U.S. pro- vider of residential training, education and support services for people with disabilities and special needs. The customer care ser- vices 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 manufacturers of interior and exterior doors, win- dows and related products for use primarily in the residential and light commercial new construction and remodelling markets. The insurance services segment consists of USI, a leading U.S. provider of insurance brokerage services, and York, an integrated provider of insurance solutions to property, casualty and workers’ compen- sation specialty markets in the United States. The credit strate- gies segment consists of (i) Onex Credit Manager, (ii) Onex Credit Collateralized Loan Obligations and (iii) Onex Credit Funds. Other includes AIT (since December 2014), a leading provider of automa- tion and tooling, maintenance services and aircraft components to the aerospace industry, Allison Transmission (sold in September 2014), a leading designer and manufacturer of fully-automatic trans- missions for on-highway trucks and buses, off-highway equipment and defence vehicles worldwide; BBAM, a manager of commercial jet aircraft; Emerald Expositions (acquired in June 2013), a leading operator of business-to-business tradeshows in the United States; KraussMaffei, a global leader in the design and manufacture of machinery and systems for the processing of plastics 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, a global leader in design-to-print graphic services to the consumer products pack- aging industry; Tomkins (sold in July 2014), a global manufac- turer of belts and hoses for the industrial and automotive markets; Tropicana Las Vegas, one of the most storied casinos in Las Vegas; as well as Onex Real Estate, the operating companies of ONCAP II (Mister Car Wash up to August 2014, BSN SPORTS up to June 2013 and Caliber Collision up to November 2013) and ONCAP III (Mavis Discount Tire since October 2014) and the parent company. In addition, the other segment includes The War ranty Group, Spirit AeroSystems, Skilled Healthcare Group and TMS International, which have been presented as discontinued operations. AIT (investment made in December 2014), Allison Trans - mission (sold in September 2014), BBAM, Mavis Discount Tire (investment made in October 2014), RSI (sold in February 2013), Tomkins (sold in July 2014) and certain Onex Real Estate invest- ments are recorded at fair value through net earnings, as described in note 1. A number of operating companies, by the nature of their businesses, individually serve major customers that account for a large portion of their revenues. During 2014 and 2013, no custom- ers represented more than 10% of the Company’s consolidated revenues. Onex Corporation December 31, 2014 161 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 2014 Industry Segments Electronics Manufacturing Services Healthcare Imaging Health and Human Services Customer Care Services Building Products Insurance Services Credit Strategies Consolidated Total Other Revenues $ 5,631 $ 2,360 $ 1,737 $ 1,440 $ 3,507 $ 1,079 $ – $ 4,039 $ 19,793 Cost of sales (excluding amortization of property, plant and equipment, intangible assets and deferred charges) Operating expenses Interest income Amortization of property, plant (5,158) (210) 1 (1,369) (572) 4 (1,307) (297) – (960) (355) 1 (2,840) (466) 2 – (772) – – (37) 131 (2,574) (1,028) 3 (14,208) (3,737) 142 and equipment (58) (67) Amortization of intangible assets and deferred charges Interest expense of operating (11) (118) (24) (13) (29) (111) (9) (18) (17) (159) – – (112) (410) (159) (495) companies (4) (148) (47) (112) (123) (133) (69) (194) (830) 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 Earnings (loss) before income taxes and discontinued operations Recovery of (provision for) income taxes Earnings (loss) from continuing operations Earnings from discontinued operations(a) – (28) – 3 (41) – 125 (17) 108 – – (4) – (5) – – 81 (40) 41 − – (2) – (7) – – 40 (11) 29 − – – – (25) (1) – (59) (10) (69) − – (20) – (37) (6) – (111) (12) (123) − – (22) – (98) – – (114) 38 (76) − – – – (56) 412 (154) 317 (153) 412 (230) 317 (378) – – (3) (1,069) (51 ) (1,069) (31) – (31) − (675) (27) (702) 982 (744 ) (79) (823) 982 Net earnings (loss) for the year Total assets(b) Long-term debt(c) $ 108 $ 41 $ 29 $ (69) $ (123) $ (76) $ (31) $ 280 $ 159 $ 2,584 $ 1,803 $ 1,110 $ 640 $ 2,351 $ 5,088 $ 4,373 $ 10,987 $ 28,936 $ – $ 2,115 $ 455 $ 750 $ 804 $ 2,644 $ 3,431 $ 3,083 $ 13,282 Property, plant and equipment additions $ 61 $ 66 $ 34 $ 33 $ 74 $ 11 $ – $ 274 $ 553 Intangible assets with indefinite life $ – $ 8 $ 227 $ 36 $ 259 $ 196 $ – $ 754 $ 1,480 Goodwill additions from acquisitions $ – $ – $ 10 $ – $ – $ 919 $ – $ 239 $ 1,168 Goodwill $ 19 $ 329 $ 318 $ 118 $ 103 $ 2,210 $ – $ 1,831 $ 4,928 Net earnings (loss) attributable to: Equity holders of Onex Corporation $ 12 $ 37 $ 28 $ (49) $ (105) $ (68) $ (31) $ 61 $ (115 ) Non-controlling interests 96 4 1 (20) (18) (8) – 219 274 Net earnings (loss) for the year $ 108 $ 41 $ 29 $ (69) $ (123) $ (76) $ (31) $ 280 $ 159 (a) Represents the after-tax results of The Warranty Group, Spirit AeroSystems and Skilled Healthcare Group, as described in note 6. (b) The other segment includes Skilled Healthcare Group, which is a discontinued operation, as described in note 6. (c) Long-term debt includes current portion, excludes finance leases and is net of financing charges. 162 Onex Corporation December 31, 2014 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 Electronics Manufacturing Services Healthcare Imaging Health and Human Services Customer Care Services Building Products Insurance Services Credit Strategies Other Consoli- dated Total Revenues $ 5,796 $ 2,429 $ 1,617 $ 1,438 $ 3,457 $ 769 $ − $ 4,318 $ 19,824 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 (5,337) (221) 1 (60) (12) (3) (1,444) (536) 2 (70) (136) (152) 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 Loss from discontinued operations(a) (29) − (4) − − 131 (13) 118 − (3) − (148) − − (58) (28) (86) − (1,197) (279) − (936) (372) 1 (24) (11) (32) − (2) − 1 − − 73 (21) 52 − (28) (23) (97) − − − (17) (1) − (35) 14 (21) − (2,855) (449) 2 (112) (18) (79) − 7 − (9) (13) − (69) (16) (85) − − (539) − (7) (138) (115) − (21) − (39) (8) − (98) 35 (63) − − (19) 94 (2,861) (1,138) 6 (14,630) (3,553) 106 − (128) (429) − (41) (158) (180) (496) (699) − − − 28 − − 62 − 62 − 1,098 1,098 (272) 561 (247) (201) (1,855) (1,057) 517 (540) (250) (320) 561 (435) (223) (1,855) (1,051) 488 (563) (250) Net earnings (loss) for the year $ 118 $ (86) $ 52 $ (21) $ (85) $ (63) $ 62 $ (790) $ (813) Total assets(b) Long-term debt(b) (c) $ 2,639 $ 1,966 $ 1,078 $ 613 $ 2,483 $ 3,099 $ 2,499 $ 22,490 $ 36,867 $ − $ 2,248 $ 353 $ 740 $ 661 $ 1,605 $ 1,723 $ 4,640 $ 11,970 Property, plant and equipment additions(b) $ 45 $ 63 $ 26 $ 33 $ 89 $ 5 $ – $ 605 $ 866 Intangible assets with indefinite life(b) $ − $ 8 $ 227 $ 36 $ 259 $ 48 $ – $ 763 $ 1,341 Goodwill additions from acquisitions(b) $ − $ – $ 20 $ − $ − $ 33 $ – $ 697 $ 750 Goodwill(b) $ 60 $ 334 $ 308 $ 118 $ 109 $ 1,308 $ – $ 2,232 $ 4,469 Net earnings (loss) attributable to: Equity holders of Onex Corporation $ 12 $ (87) $ 50 $ (15) $ (66) $ (58) $ 62 $ (252) $ (354) Non-controlling interests 106 1 2 (6) (19) (5) − (538) (459) Net earnings (loss) for the year $ 118 $ (86) $ 52 $ (21) $ (85) $ (63) $ 62 $ (790) $ (813) (a) Represents the after-tax results of The Warranty Group, Spirit AeroSystems, Skilled Healthcare Group and TMS International, as described in note 6. (b) The other segment includes The Warranty Group, Spirit AeroSystems and Skilled Healthcare Group, which are discontinued operations, as described in note 6. (c) Long-term debt includes current portion, excludes finance leases and is net of financing charges. Geographic Segments 2014 2013 Canada U.S. Europe Asia and Oceania Other(1) Total Canada U.S. Europe Asia and Oceania Other(1) Total $ 984 $ 10,223 $ 4,164 $ 3,289 $ 1,133 $ 19,793 $ 970 $ 10,249 $ 4,237 $ 3,323 $ 1,045 $ 19,824 $ 334 $ 1,565 $ 540 $ 418 $ 45 $ 2,902 $ 378 $ 3,443 $ 763 $ 466 $ 55 $ 5,105 Revenue(2) Property, plant and equipment Intangible assets $ 282 $ 4,279 $ 467 $ 34 $ 7 $ 5,069 $ 286 $ 3,694 $ 593 $ 49 $ 73 $ 4,695 Goodwill $ 212 $ 4,285 $ 311 $ 96 $ 24 $ 4,928 $ 198 $ 3,600 $ 489 $ 146 $ 36 $ 4,469 (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. Onex Corporation December 31, 2014 163 SHAREHOLDER INFORMATION Year-end Closing Share Price As at December 31 (in Canadian dollars) Toronto Stock Exchange 2014 $ 67.46 2013 2012 2011 2010 $ 57.35 $ 41.87 $ 33.18 $ 30.23 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 about or inquiries@canstockta.com of shareholder mailings. Every eﬀort January 31, April 30, July 31 and October 31 is made to avoid duplication, but when of each year. At December 31, 2014 the indi- All questions about accounts, stock shares are registered under diﬀerent cated dividend rate for each Subordinate certiﬁcates or dividend cheques names and/or addresses, multiple Voting Share was C$0.20 per annum. should be directed to the Registrar mailings result. Shareholders who Registered shareholders can elect to receive and Transfer Agent. dividend payments in U.S. dollars by sub- mitting a completed currency election form to CST Trust Company ﬁve business days 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 before the record date of the dividend. We encourage individuals to receive Onex’ be made to combine the accounts for Non-registered shareholders who wish to shareholder communications electroni- mailing purposes. receive dividend payments in U.S. dollars cally. You can submit your request online should contact their broker to submit by visiting CST Trust Company’s website Shares Held in Nominee Name their currency election. www.canstockta.com/electronicdelivery To ensure that shareholders whose Shareholder Dividend Reinvestment Plan or contacting them at 1-800-387-0825. shares are not held in their name receive Investor Relations Contact all Company reports and releases on a timely basis, a direct mailing list The Dividend Reinvestment Plan Requests for copies of this report, is maintained by the Company. If you provides shareholders of record who are other annual reports, quarterly reports would like your name added to this list, resident in Canada a means to reinvest and other corporate communications please forward your request to Investor cash dividends in new Subordinate Voting should be directed to: Relations at Onex. Shares of Onex Corporation at a market- Investor Relations related price and without payment of Onex Corporation brokerage commissions. To participate, 161 Bay Street registered shareholders should contact P.O. Box 700 Annual Meeting of Shareholders Onex Corporation’s Annual Meeting of Shareholders will be held on May 14, 2015 Onex’ share registrar, CST Trust Company. Toronto, Ontario M5J 2S1 at 10:00 a.m. (Eastern Daylight Time) at Non-registered shareholders who wish to participate should contact their (416) 362-7711 investor@onex.com investment dealer or broker. Corporate Governance Policies A presentation of Onex’ corporate governance policies is included in the Management Information Circular that is mailed to all shareholders and is available on Onex’ website. 164 Onex Corporation December 31, 2014 the Hockey Hall of Fame, 30 Yonge Street, Toronto, Ontario. Typesetting by Moveable Inc. www.moveable.com Printed in Canada

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