OncoCyte Annual Report 2015

Plain-text annual report

Management’s Discussion and Analysis and Financial Statements December 31, 2015 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 $36 billion, generate annual revenues of $22 billion and employ approximately 144,000 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. Onex has entered into an agreement to sell its investment in KraussMaffei. The transaction is expected to close during the first half of 2016 and is subject to customary closing conditions and regulatory approvals. Throughout this report, all amounts are in U.S. dollars unless otherwise indicated. Table of Contents 6 Management’s Discussion and Analysis 176 Shareholder Information 94 Consolidated Financial Statements CHAIRMAN’S LETTER Dear Shareholders, In our business, we are measured by the investments we make and their performance under our ownership. Over 32 years, we have built more than 85 operating companies. From our private equity activities, we have generated a gross multiple of capital invested of 2.8 times, resulting in a 28 percent gross IRR. Perhaps equally as important, if not more so, are the many opportunities we looked at but did not pursue. Some we may regret, but many we don’t. The beneﬁt of experience, success and some failures along the way has taught us what we are good at and what we should avoid. This past year – marred by steep commodity price declines and a shaken oil and gas sector – is a great reminder of why a consistent approach to investing is fundamental to longevity in this business. No doubt many investors prospered during the boom in extractive industries. We were not one of them, nor do we now suffer from the sector’s volatility. Our investing culture is deeply rooted in opportunities where we can effect change rather than rely on macro-economic or industry trends to create long-term value. That is why our team is comfortable being so heavily invested alongside you in everything we do. We had a productive year in 2015. We invested close to $2.5 billion through our private equity Funds, of which Onex’ direct share was more than $750 million. Europe was a particularly bright spot for us, with two acquisitions completed in the region. We also enjoyed robust growth in our credit platform with assets under management growing to $6.5 billion – a 30 percent increase versus the prior year. Here are some of the highlights: • Onex Partners invested $2.3 billion of capital in: – Survitec Group, a market-leading provider of marine and aerospace survival equipment, and its add-on investment in Survival Craft Inspectorate, a supplier of certiﬁed lifeboat-related safety equipment and services, both based in the United Kingdom; – SIG Combibloc Group, a global provider of aseptic packaging machines and cartons based in Switzerland; – Jack’s Family Restaurants, a regional quick-service restaurant operator based in the southern United States; – Schumacher Clinical Partners, and its subsequent add-on investment in Hospital Physician Partners, the third- and fourth-largest U.S. providers of outsourced emergency room and hospital clinical stafﬁng, respectively; • ONCAP invested approximately $160 million of capital in: – – Chatters Canada, the largest retailer of professional hair care products in Canada and one of the largest hair salon operators in the country; Ingersoll Tools Group, a global leader in the manufacturing of consumable components that are part of agricultural soil preparation and seeding equipment. It is also a leading provider of branded manual hand tools to the agricultural, construction and gardening end markets. – Mavis Discount Tire’s add-on acquisition of Somerset Tire Service, one of the largest tire chains in the United States; • The value of Onex’ interest in our private equity investments, including realizations and distributions, grew by 12 percent; • Our businesses raised or reﬁnanced approximately $1.9 billion of debt; • Total distributions to Onex and its partners of $1.4 billion, of which $655 million originated from debt raised or reﬁnanced; • Onex Credit continued to grow its collateralized loan obligation (“CLO”) pools with three offerings, totalling more than $2 billion; and • Onex Credit called its ﬁrst CLO, which generated an 18 percent net IRR on Onex’ investment over our three-year holding period. During the year, our share price increased 26 percent compared to an 11 percent decrease in the TSX. While our share price beneﬁted from the depreciation of the Canadian dollar relative to the U.S. dollar, Onex’ shares increased 5 percent in U.S. dollars versus a 1 percent decrease in the S&P 500. The ﬁnancial markets are off to a very poor start in 2016. Thankfully, another one of our unwavering strategies keeps us safe: maintenance of a very liquid, debt-free balance sheet. Today we have more than $2 billion of cash, nearly $3 billion of undrawn capital commitments and no debt. While we never really enjoy poor market conditions, with plenty of resources and a great team of professionals we feel well-positioned to beneﬁt from the current investment climate. From all of us at Onex, we thank you for your continued support. 176 Shareholder Information Gerald W. Schwartz Chairman & Chief Executive Ofﬁcer, Onex Corporation [signed] Onex Corporation December 31, 2015 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 talented management teams. At Onex Credit, Onex manages and invests in leveraged loans, collateralized loan obliga- tions (“CLOs”) and other credit securities. The Company has approximately $22.5 billion of assets under man- agement, including $6.0 billion of Onex’ capital. Onex is guided by an ownership culture focused on achieving strong absolute growth, with an emphasis on capital preservation. We have built more than 85 operating businesses, completing about 525 acquisitions with a total value of $61 billion. In private equity, Onex has generated a gross multiple of capital invested of 2.8 times from its private equity activities since inception, resulting in a 28 percent gross IRR on realized, substantially realized and pub- licly traded investments. Our credit business has grown considerably since 2007, driven primarily by the success of 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’ Capital At December 31, 2015, Onex’ $6.0 billion of capital 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 platform, Onex Credit. One of Onex’ long-term goals is to grow its capital per share by 15 percent per year, and to have that growth reﬂected in its share price. In the year ended December 31, 2015, Onex’ capital per share increased by 1 percent in U.S. dollars (20 percent in Canadian dollars) and our share price grew by 5 percent in U.S. dollars (26 percent in Canadian dollars). The growth in Onex’ capital was impacted by a meaningful portion of Onex’ capital being held in cash and near-cash items due to signiﬁcant realizations in 2014. During 2015 and through February 25, 2016, Onex invested approximately $940 million of its cash through its private equity and credit platforms. Over the past ﬁve years, Onex’ capital per share increased by 10 percent per year in U.S. dollars (17 percent per year in Canadian dollars). Onex’ $6.0 billion of Capital at December 31, 2015 Onex’ $6.0 billion of Capital at December 31, 2014 Large-Cap Private Equity 49% Large-Cap Private Equity 37% Private 45% Public 4% Private 33% Public 4% Cash and Near-Cash Items 36% Mid-Market Private Equity 6% Credit 6% Real Estate 3% Cash and Near-Cash Items 48% Mid-Market Private Equity 5% Credit 6% Real Estate 4% The How We Are Invested schedule details Onex’ $6.0 billion of capital at December 31, 2015 (December 31, 2014 – $6.0 billion). 2 Onex Corporation December 31, 2015 Other Investors’ Capital Onex manages $16.5 billion of invested and committed capital on behalf of investors from around the world. These investors include public and private pension funds, sovereign wealth funds, banks and insurance compa- nies. One of Onex’ long-term goals is to grow its fee-generating capital by 10 percent per year. In the year ended December 31, 2015, fee-generating capital under management grew by 10 percent to $14.8 billion. Over the past ﬁve years, fee-generating capital under management increased by 11 percent per year. The management of other investors’ capital provides two signiﬁcant beneﬁts. First, Onex is entitled to receive a committed stream of annual management fees on $14.8 billion of assets under management. Second, Onex has the opportunity to share in its investors’ proﬁts through the carried interest participation. Carried interest, if realized, can signiﬁcantly enhance Onex’ investment returns. In 2015, combined management fees and carried interest received more than offset ongoing operating expenses. Today, Onex has run-rate management fees of approximately $130 million for the next 12 months, consisting of $92 million from its private equity platforms and $38 million from Onex Credit. Onex’ $16.5 billion of Other Investors’ Capital at December 31, 2015 Onex’ $14.7 billion of Other Investors’ Capital at December 31, 2014 Onex Partners IV 28% Onex Partners IV 29% Onex Partners III 28% Onex Partners III 29% Onex Partners II 3% Onex Partners I 1% Onex Credit 35% ONCAP 5% Onex Partners II 5% Onex Partners I 3% Onex Credit 29% ONCAP 5% Assets under management include capital managed on behalf of co-investors and the management of Onex and ONCAP. Onex Corporation December 31, 2015 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 on estimated fair values prepared by management. The presentation of controlled investments in this manner is a non-GAAP measure. This fair value summary may be used by investors to com- pare to fair values they may prepare for 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 on the current values of the investments 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’ consolidated ﬁnancial statements prepared in accordance with IFRS for the year ended December 31, 2015 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 consolidated ﬁnancial statements has not been presented as it is impractical. 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(2) Credit(6) Real Estate(7) Other Investments Cash and Near-Cash(8) Debt(9) Onex’ Capital Onex’ Capital per Share (U.S. dollars)(10)(11) Onex’ Capital per Share (Canadian dollars)(10)(11) Onex’ Capital December 31, 2015 September 30, 2015 December 31, 2014 $ 2,520 12 178 381 20 198 3,309 346 172 518 7 2,138 – $ 5,972 $ 54.39 C$ 75.27 $ 2,500 21 160 370 20 231 3,302 432 192 624 7 2,054 – $ 5,987 $ 54.52 C$ 72.75 $ 1,748 30 115 292 100 210 2,495 366 242 608 24 2,877 – $ 6,004 $ 54.11 C$ 62.77 (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 $65 million (September 30, 2015 – $56 million; December 31, 2014 – $40 million). (2) Based on closing prices on December 31, 2015, September 30, 2015 and December 31, 2014. (3) Represents Onex’ share of the unrealized carried interest for Onex Partners Funds. (4) Based on the fair value of the investments in ONCAP’s financial statements net of the estimated management incentive programs on these investments of $16 million (September 30, 2015 – $15 million; December 31, 2014 – $9 million) and a US$/C$ exchange rate of 1.3840 (September 30, 2015 – 1.3345; December 31, 2014 – 1.1601). (5) Onex sold its investment in Sitel Worldwide during 2015. At December 31, 2015 and September 30, 2015, based on an estimated earn-out component. At December 31, 2014, based on the fair value. (6) Based on the market values of investments in Collateralized Loan Obligations (including warehouse facilities) of $225 million (September 30, 2015 – $305 million; December 31, 2014 – $237 million) and Onex Credit Funds of $121 million (September 30, 2015 – $127 million; December 31, 2014 – $129 million). Excludes $351 million (September 30, 2015 – $354 million; December 31, 2014 – $346 million) invested in an Onex Credit segregated unlevered senior secured loan strategy fund, which is included with cash and near-cash items. (7) Based on the fair values. During 2015, Onex had net realizations from Flushing Town Center of $72 million and sold two other real estate investments. (8) Includes $351 million (September 30, 2015 – $354 million; December 31, 2014 – $346 million) invested in an Onex Credit segregated unlevered senior secured loan strategy fund and $1.2 billion (September 30, 2015 – $1.1 billion; December 31, 2014 – nil) of investments managed by third-party investment managers. (9) Represents debt at Onex Corporation, the parent company. (10) Calculated on a fully diluted basis. Fully diluted shares were 117.6 million at December 31, 2015 (September 30, 2015 – 117.1 million; December 31, 2014 – 112.9 million). Fully diluted shares include all outstanding SVS and outstanding stock options that have met the minimum 25% price appreciation threshold. (11) The change in Onex’ Capital per Share is impacted by the fair value changes of Onex’ investments. Share repurchases and options exercised during the year will have an impact on the calculation of Onex’ Capital per Share 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, 2015 H O W W E A R E I N V E S T E D Public Companies As at December 31, 2015 Onex Partners – Genesis Healthcare(2) Direct Investments – Celestica(3) Signiﬁcant Private Companies As at December 31, 2015 Onex Partners AIT BBAM(6) Carestream Health Emerald Expositions Jack’s JELD-WEN Meridian Aviation ResCare Schumacher sgsco(15) SIG Survitec USI York 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) $ 3.47 $ 11.03 Onex’ and its Limited Partners’ Ownership LTM EBITDA(4) Net Debt Cumulative Distributions Onex’ Economic Ownership 40% 50% 91% 99% 95% 83%(12) 100% 98% 71% 93% 99% 99% 88% 88% n/a $ 123 360 147(8) 49(9) 313(13) n/a 143 103(8) 112(8) 1 436 £ 50(8) 346(8) 104(8) n/a (51)(7) $ 1,908 734 265(10) 1,174(13) n/a 552 521 572 1 2,583 275 £ 1,901 944 $ 42(5) 220 1,311 – – 432 85 235 – – – – 230 – 9% 13% 33%(3) 24% 28% 21%(12) 25% 20% 21% 23% 33% 22% 25% 29% Market Value of Onex’ Investment $ 12 198 $ 210 Original Cost of Onex’ Investment $ 45 47 186 119 79 (11) 217 (14) 19 41 93 66 405 (16) 76 (17) 170 173 $ 1,736 (1) Closing prices on December 31, 2015. (2) In February 2015, Skilled Healthcare Group, Inc. combined with Genesis HealthCare, LLC. The combined company operates under the Genesis Healthcare name and continues 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) Cumulative distributions for AIT include a purchase price adjustment of $4 million. (6) Ownership percentages, LTM EBITDA, net debt and cumulative distributions are presented for BBAM and do not reflect information for Onex’ investments in FLY Leasing Limited (NYSE: FLY). The Original Cost of Onex’ Investment includes $5 million invested in FLY Leasing Limited. (7) Net debt for BBAM represents unrestricted cash, reduced for accrued compensation liabilities. (8) LTM EBITDA is presented on a pro-forma basis to reflect the impact of acquired businesses. (9) LTM EBITDA is presented on a pro-forma basis to reflect the annualized rent impact of sale-leaseback transactions completed during 2015. (10) Net debt includes a $54 million promissory note held by the Onex Partners IV Group. In January 2016, Jack’s repaid an additional $23 million of the promissory note, including accrued interest. (11) Net of a $41 million return of principal on the promissory note through December 31, 2015. (12) Onex’ and its limited partners’ investment includes common and convertible preferred shares. The ownership percentage presents the convertible preferred shares on an as-converted basis. (13) LTM EBITDA and net debt are presented for JELD-WEN Holding, inc. (14) 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. (15) Previously presented as SGS International. (16) The investment in SIG was made in U.S. dollars. (17) The investments in Survitec were made in pounds sterling and converted to U.S. dollars using the prevailing exchange rate on the date of the investments. Onex Corporation December 31, 2015 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, 2015 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 consolidated ﬁnancial statements and notes thereto included in this report. The MD&A and the consolidated ﬁnancial statements have been prepared in accordance with International Financial Reporting Standards (“IFRS”) to provide information about Onex on a consolidated basis and should not be considered as providing sufﬁcient information to make an investment or lending decision in regard to any particular Onex operating business. Onex’ MD&A and the 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 25, 2016. 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 19 Industry Segments 23 Financial Review Onex Corporation’s ﬁnancial ﬁlings, including the 2015 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. References 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. 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, the Onex management team and, where applicable, certain other limited partners 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, 2015 M A N 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: We invest and manage our own capital and that of investors from around the world, including public and private pension funds, sovereign wealth funds, banks and insurance companies. Onex has gener- ated a gross multiple of capital invested of 2.8 times from its private equity activities since inception on realized, substantially realized and publicly traded investments. In our credit platform, we seek to generate strong risk- adjusted returns across market cycles. Investment approach Over more than three decades, we have developed a successful approach to investing. In private equity, we pur- sue 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) cost reduction and operational restructurings; (ii) platforms for add-on acquisitions; and (iii) carve-outs of subsidiaries and mission-critical supply divisions from multinational corporations. Historically, we have been relatively conservative with the use of ﬁnancial leverage, which has served Onex and its businesses well through many cycles. In addition, we typically acquire a control position, which allows us to drive important strategic decisions and effect change at our businesses. Onex does not get involved in the daily operating decisions of the businesses. In our credit platform, we practise value-oriented investing with bottom-up, fundamental and structural analy- sis. We generally invest in larger, more actively traded issues with a long-term view on expected outcomes. Our top-down approach to portfolio construction, risk control and liquidity management complements 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 with stable cash ﬂows and substantial asset values. Experienced team with signiﬁcant depth Onex is led by an Executive Committee comprised of the ﬁrm’s founder and CEO, Gerry Schwartz, and four Senior Managing Directors. Collectively, these executives have more than 135 years of investing experience and have worked at Onex for an average of 24 years. Onex’ stability results from its ownership culture, rigorous recruiting standards and highly collegial environment. Onex’ 82 investment professionals are each dedicated to a separate investment platform: Onex Part- ners (49), ONCAP (19) and Onex Credit (14). These investment teams are supported by more than 70 professionals dedicated to Onex’ corporate functions and its investment platforms. Onex Corporation December 31, 2015 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 Onex’ policy is to maintain a ﬁnancially strong parent company with funds available for new acquisitions and to support the growth of its businesses. 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. At December 31, 2015, Onex had substantial ﬁnancial resources available to support its investing strategy with: • approximately $2.1 billion of cash and near-cash items and no debt; • $2.8 billion of limited partners’ uncalled capital available for future Onex Partners IV investments; and • C$148 million of limited partners’ uncalled capital available for future ONCAP III investments. In June 2015, Onex’ increased commitment to Onex Partners IV became effective, increasing by $500 million to $1.7 billion. The increased commitment did not change Onex’ ownership of businesses acquired prior to June 3, 2015. The acquisition of Jack’s Family Restaurants (“Jack’s”) in July 2015 was the ﬁrst investment reﬂecting Onex’ increased commitment. Strong alignment of interests Critical to our success 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 in our credit platform, 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, 2015, the Onex management team: • was the largest shareholder in Onex, with a combined holding of approximately 24 million shares, or 22 per- cent of outstanding shares, and had invested in 0.7 million Deferred Share Units (“DSUs”); had a total cash investment in Onex’ current operating businesses of approximately $350 million; and had a total investment at market in Onex Credit strategies of approximately $275 million. • • As well, the Onex management team 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: Onex’ business objective is to create long-term value for shareholders and to have that value reﬂected in our share price. Our strategies to deliver this value are concentrated on (i) acquiring and building industry-leading businesses and (ii) managing and growing other investors’ capital in our private equity and credit platforms. We believe Onex has the investment philosophy, human resources, ﬁnancial resources and track record to continue to deliver on its objective. The discussion that follows outlines Onex’ strategies and reviews how we performed relative to those strategies in 2015. 8 Onex Corporation December 31, 2015 M A N 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 value of Onex’ private equity investments, including realizations and distributions, increased by 12 percent during 2015. One of Onex’ long-term goals is to grow its capital per share by 15 percent per year. Including the impact of cash, carried interest and other investments, Onex’ capital per share grew by 1 percent in U.S. dollars (20 percent in Canadian dollars) for the year ended December 31, 2015 to $54.39 (C$75.27) from $54.11 (C$62.77) at December 31, 2014. Over the past ﬁve years, Onex’ capital per share increased by 10 percent per year in U.S. dollars (17 percent per year in Canadian dollars). The table below presents in chronological order the private equity investments made during 2015 and Onex’ share thereof: Company Survitec SIG ITG Jack’s Chatters Fund Transaction Period Total Investment ($ millions) Onex’ Share ($ millions) Onex Partners IV Original and add-on investments Mar ’15 and Sep ’15 $ 336 $ 76 Onex Partners IV Original investment ONCAP III Original investment Onex Partners IV Original investment ONCAP III Original investment Mar ’15 Jun ’15 Jul ’15 Jul ’15 Schumacher Onex Partners IV Original and add-on investments Jul ’15 and Aug ’15 Mavis Discount Tire ONCAP III Add-on investment Aug ’15 Total 1,215(1) 70 415(2) 43(3) 323 48(4) 405 (1) 21 120 (2) 13(3) 93 25 (4) $ 2,450 $ 753 (1) The Onex Partners IV Group’s equity investment in SIG was comprised of $583 million through Onex Partners IV and $632 million as a co-investment from Onex and certain limited partners. Onex’ investment was comprised of $131 million through Onex Partners IV and $274 million as a co-investment. (2) The Onex Partners IV Group’s investment in Jack’s consisted of an equity investment of $220 million and a $195 million promissory note. Onex’ investment in Jack’s consisted of an equity investment of $63 million and $57 million of the promissory note. During 2015 and early 2016, Jack’s made repayments of the promissory note totalling $166 million, including accrued interest, with net proceeds from sale-leaseback transactions completed for certain of its fee-owned restaurant properties. Onex’ share of the repayments was $48 million. (3) The ONCAP III Group’s investment in Chatters was C$55 million ($43 million), of which Onex’ share was C$16 million ($13 million). (4) The ONCAP III Group’s add-on investment in Mavis Discount Tire was comprised of $27 million through ONCAP III and $21 million as a co-investment from Onex and certain limited partners. Onex’ investment was comprised of $8 million through ONCAP III and $17 million as a co-investment. Onex Corporation December 31, 2015 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 Acquiring businesses Despite a competitive acquisition environment in both North America and Europe, we had a very active year completing six new investments – Survitec Group Limited (“Survitec”), SIG Combibloc Group Holdings S.a.r.l. (“SIG”), Ingersoll Tools Group (“ITG”), Jack’s, Chatters Canada (“Chatters”) and Schumacher Clinical Partners (“Schumacher”). In March 2015, the Onex Partners IV Group acquired Survitec for £450 million ($670 million). Based in the United Kingdom, Survitec is a market-leading provider of mission-critical marine, defence and aerospace survival equipment. The Onex Partners IV Group invested $322 million, of which Onex’ share was $73 million, for substantially all of the equity. In September 2015, Survitec acquired Survival Craft Inspectorate Limited (“SCI”) for up to £45 million ($68 million). The purchase price consisted of £32 million ($49 million) paid on closing of the transaction and an additional amount of up to £13 million ($19 million) payable based on the future performance of SCI. Based in the United Kingdom, SCI is a supplier of certiﬁed lifeboat-related safety equipment and services. In connection with this transaction, the Onex Partners IV Group invested £9 million ($13 million) in Survitec, of which Onex’ share was £2 million ($3 million). In March 2015, the Onex Partners IV Group acquired SIG in a transaction valued at up to €4,040 million ($4,250 million). Based in Switzerland, SIG provides food and beverage producers with a comprehensive prod- uct portfolio of aseptic carton packaging ﬁlling systems, aseptic carton packaging sleeves, spouts and caps, as well as after-market support services. The purchase price consisted of €3,865 million ($4,067 million) paid on closing of the transaction and an additional amount of up to €175 million ($183 million) payable based on SIG’s ﬁnancial performance in 2015 and 2016. The Onex Partners IV Group’s equity investment in SIG was completed in U.S. dollars in the amount of $1,215 million for substantially all of the equity. Onex’ investment in SIG totalled $405 million and was comprised of $131 million through Onex Partners IV and $274 million as a co-investment. At December 31, 2015, SIG had revised its estimate of the additional amount to €125 million ($136 mil- lion), resulting in a recovery of €50 million ($55 million). The amount represented management’s best estimate of the fair value at December 31, 2015, which is subject to sensitivity associated with various factors, including foreign currency ﬂuctuations, as well as uncertainty regarding the treatment of certain items. In June 2015, the ONCAP III Group completed its investment in ITG. Based in Canada and Spain, ITG is a global leader in the manufacturing of consumable wear components that are embedded into agricultural soil preparation and seeding equipment implements. ITG is also a leading provider of branded manual hand tools to the agricul- tural, construction and gardening end markets in the United States, Iberia and Latin America. The ONCAP III Group invested $70 million for joint control of ITG, of which Onex’ share was $21 million. 10 Onex Corporation December 31, 2015 M A N 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 July 2015, the Onex Partners IV Group acquired Jack’s, a regional premium quick-service restaurant opera- tor based in the United States, for $640 million. The Onex Partners IV Group initially invested $415 million, of which Onex’ portion was $120 million. The Onex Partners IV Group’s initial investment in Jack’s consisted of an equity investment of $220 million (Onex’ share – $63 million) and a $195 million promissory note (Onex’ share – $57 million). During 2015 and early 2016, Jack’s made repayments of the promissory note totalling $166 million, including accrued interest, with net proceeds from sale-leaseback transactions completed for certain of its fee- owned restaurant properties. Onex’ share of the repayments was $48 million. In July 2015, the ONCAP III Group completed the acquisition of Chatters. Based in Canada, Chatters is a retailer and distributor of hair and beauty care products as well as an operator and franchisor of hair and beauty salons. The ONCAP III Group invested C$55 million ($43 million) in Chatters, of which Onex’ share was C$16 million ($13 million). In late July 2015, the Onex Partners IV Group acquired Schumacher for $690 million. Based in the United States, Schumacher is a leading provider of emergency and hospital medicine physician practice management services. The Onex Partners IV Group invested $219 million, of which Onex’ portion was $63 million. In August 2015, Schumacher acquired Hospital Physician Partners (“HPP”), a provider of emergency and hospital medicine physician practice management services in the United States, for $271 million. In connection with this transaction, the Onex Partners IV Group made an add-on investment in Schumacher of $105 million and the balance of the equity was funded by an investment from the management of HPP and Schumacher and other investors. Onex’ share of the add-on investment in Schumacher was $30 million. The remainder of the purchase price was ﬁnanced by Schumacher with proceeds from its amended senior secured facility and cash from Schumacher’s balance sheet. Building businesses During 2015 and up to February 25, 2016, 12 of our operating businesses, including Schumacher and Survitec, completed follow-on acquisitions for total consideration of approximately $700 million. In addition, in August 2015, Mavis Tire Supply LLC (“Mavis Discount Tire”) acquired Somerset Tire Service (“STS”), one of the largest tire chains in the United States. In conjunction with this transaction, the ONCAP III Group invested $48 million, comprised of $27 million from ONCAP III and $21 million as a co-investment from Onex and certain limited partners. Onex’ total add-on investment of $25 million in Mavis Discount Tire was com- prised of $8 million through ONCAP III and $17 million as a co-investment. Subsequent to the add-on invest- ment, the ONCAP III Group has a 46 percent economic interest in Mavis Discount Tire and Onex increased its economic ownership to 17 percent from 14 percent. Onex Corporation December 31, 2015 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 During 2015, the strength of our businesses, combined with the strength in the credit market during the ﬁrst half of the year, made it appropriate for a number of our operating businesses to collectively raise or reﬁnance a total of $1.9 billion of debt. This contributed to Onex and its partners receiving distributions from these oper- ating businesses of $655 million. During the same period, our existing operating businesses collectively paid down debt totalling approximately $310 million. The table below presents in chronological order the signiﬁcant proceeds received during 2015 and up to February 25, 2016 from realizations and cash distributions primarily from private equity activity: Company ResCare JELD-WEN Fund Transaction Onex Partners I & III Dividend Onex Partners III Dividend Period Mar ’15 Jul ’15 Onex Real Estate Partners Direct Investment Sale of investment Jul ’15 and Dec ’15 USI Onex Partners III Dividend Tropicana Las Vegas Onex Partners III Sale of business PURE Canadian Gaming ONCAP II & III Dividend Sitel Worldwide Direct Investment Sale of business Meridian Aviation Onex Partners III Distribution Aug ’15 Aug ’15 Aug ’15 Sep ’15 Oct ’15 Jack’s AIT BBAM Total Onex Partners IV Repayments of promissory note Various Onex Partners IV Distributions Onex Partners III Distributions Various Various (1) Information is not presented for investments still held by Onex. (2) Represents Onex’ share only. (3) Includes amounts received for a purchase price adjustment. Gross Multiple of Capital Invested(1) n/a n/a n/a n/a 0.7x n/a 0.2x n/a n/a n/a n/a Total Amount ($ millions) Onex’ Share ($ millions) $ 97 $ 20 359 128 181 230 18 33(2) 85 166 30(3) 52 89 112 51 50 8 33 21 48 7 (3) 13 $ 1,379 $ 452 In March 2015, Res-Care, Inc. (“ResCare”) entered into an incremental term loan facility of $105 million to fund a distribution to shareholders. The Onex Partners I and Onex Partners III Groups’ portion of the distribution to shareholders was $47 million and $50 million, respectively, of which Onex’ share was $20 million. The majority of the balance was distributed to the management of ResCare. In July 2015, JELD-WEN Holding, inc. (“JELD-WEN”) increased its existing term loan by $480 million to fund a distribution of $432 million to its shareholders and retained the balance to fund add-on acquisitions. The Onex Partners III Group’s portion of the distribution to shareholders was $359 million, of which Onex’ portion was $89 million. In July and December 2015, our real estate platform sold substantially all of the retail space and adjoining parking structures of Flushing Town Center, receiving net proceeds of $136 million, of which Onex’ share was $119 million. Included in the net proceeds is $8 million held in escrow, of which Onex’ share is $7 million. Onex Real Estate Partners continues to develop the second phase of condominiums at the project. 12 Onex Corporation December 31, 2015 M A N 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 August 2015, USI Insurance Services (“USI”) entered into an incremental senior secured term loan facility of $230 million, the proceeds of which were used primarily to fund a distribution of $230 million to shareholders. The Onex Partners III Group’s portion of the distribution to shareholders was $181 million, of which Onex’ por- tion was $51 million. The balance of the proceeds was primarily distributed to employees of USI. In August 2015, the Onex Partners III Group sold its investment in Tropicana Las Vegas, Inc. (“Tropicana Las Vegas”) for an enterprise value of $360 million. The Onex Partners III Group’s total net proceeds were $230 million compared to its investments of $320 million. The investment in Tropicana Las Vegas generated a gross multiple of invested capital of approximately 0.7 times. Onex’ portion of the total net proceeds was $50 million compared to its investments of $70 million. In August 2015, PURE Canadian Gaming Corp. (“PURE Canadian Gaming”) distributed C$25 million to share- holders, which was primarily backed by the company’s free cash ﬂow generated during the year. The ONCAP II and ONCAP III Groups’ portion of the distribution was C$23 million ($18 million), of which Onex’ portion was C$10 million ($8 million). In September 2015, Onex sold its entire investment in SITEL Worldwide Corporation (“Sitel Worldwide”) for an enterprise value of approximately $830 million. Onex’ proceeds were $53 million, which consisted of $33 million received in cash and an estimated earn-out component that may be received of approximately $20 million, compared to its investments of $320 million, resulting in a gross multiple of capital invested of 0.2 times. In October 2015, Meridian Aviation Partners Limited (“Meridian Aviation”) completed a distribution of $85 mil- lion to the Onex Partners III Group, of which Onex’ share was $21 million. The distribution was funded from cash on hand at Meridian Aviation, which was primarily from gains on investments in aircraft. During 2015, Advanced Integration Technology LP (“AIT”) completed distributions of $30 million, including a purchase price adjustment, to the Onex Partners IV Group, of which Onex’ share was $7 million. The distribu- tions were funded by the company’s free cash ﬂow generated during the year. In addition, during 2015, BBAM Limited Partnership (“BBAM”) completed distributions of $52 million to the Onex Partners III Group, of which Onex’ share was $13 million. The distributions were funded by the company’s free cash ﬂow generated during the year. In January 2016, the Onex Partners III Group entered into an agreement to sell KraussMaffei Group GmbH (“KraussMaffei”) for a cash enterprise value of approximately €925 million. Under the terms of the agree- ment, the Onex Partners III Group will receive net proceeds of approximately €670 million. Onex’ portion will be approximately €180 million, including estimated carried interest of €12 million and after the reduction for the amounts on account of the MIP. By early 2016, the Onex Partners III Group had hedged the foreign exchange exposure for substantially all of its estimated net proceeds. The transaction is expected to close during the ﬁrst half of 2016 and is subject to customary closing conditions and regulatory approvals. Onex Corporation December 31, 2015 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 Managing and growing other investors’ capital Onex’ management of other investors’ capital has grown signiﬁcantly since 1999 when it raised its ﬁrst ONCAP Fund for mid-market transactions. In 2003, the ﬁrst Onex Partners Fund was raised for larger transactions. Through December 31, 2015, Onex had raised $11.8 billion of limited partners’ capital through seven Onex Partners and ONCAP Funds. Our mid-market private equity fund, ONCAP III, has invested C$389 million of third-party capital in seven businesses. Onex is now in a position to raise ONCAP IV as ONCAP III is more than 75 percent invested as of December 31, 2015. In 2007, Onex began developing its credit platform by acquiring a 50 percent interest in an investment advisor focused on credit investing which, at that time, managed $300 million. The business has grown considerably and Onex has increased its ownership interest over the years. In 2012, Onex began investing capital in Onex Credit’s CLO platform to support its growth. In 2014, Onex Credit established a presence in London to focus on the placement of European CLOs and currently has a warehouse facility in place in anticipation of its ﬁrst one. To date, Onex Credit has closed 10 CLOs, with offerings of securities and loans totalling approximately $5.8 billion. At December 31, 2015, other investors’ capital under management related to these CLOs was $5.2 billion. In January 2015, Onex acquired control of the investment advisor and now has a 100 percent owner- ship interest for accounting purposes. Today, our credit business manages below investment-grade debt through several investment strategies comprising event-driven, long/short, long-only, stressed and distressed opportuni- ties, including two closed-end funds listed on the Toronto Stock Exchange (TSX: OCS-UN and OSL-UN), as well as a CLO platform. Through December 31, 2015, Onex Credit had raised $6.9 billion of other investors’ capital through its various strategies and is focused on growing its other strategies through various product lines and distribution channels. The management of other investors’ capital provides two signiﬁcant beneﬁts to Onex: (i) the Company earns management fees on $14.8 billion of assets under management and (ii) Onex has the opportunity to share in the proﬁts of its investors through the carried interest and incentive fee participation. This enables Onex to enhance the return from its investment activities. In 2015, combined management fees, carried interest and incentive fees received more than offset ongoing operating expenses. Onex Partners, ONCAP and Onex Credit earned a total of $141 million in management and transaction fees in 2015 (2014 – $99 million), and today Onex has run-rate management fees of approximately $130 million for the next 12 months. Onex Partners and ONCAP contribute $92 million to the run-rate management fees for the next 12 months. Onex does not earn any management fees on the $4.4 billion of capital it has invested or committed to the Onex Partners and ONCAP Funds. The additional run-rate fees that would be earned on this capital if it were subject to the same management fees as other investors is $35 million. Onex Credit contributes $38 million to the run-rate management fees for the next 12 months, which includes $3 million of management fees earned on Onex’ approximately $700 million of capital invested in Onex Credit. 14 Onex Corporation December 31, 2015 M A N 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 One of Onex’ long-term goals is to grow its fee-generating capital by 10 percent per year. During 2015, fee- generating capital under management grew by 10 percent to $14.8 billion primarily due to the completion of three CLOs by Onex Credit. Over the past ﬁve years, fee-generating capital under management increased by 11 percent per year. At December 31, 2015, Onex’ share of the unrealized carried interest on Onex Partners’ operating businesses was $178 million based on the fair values compared to $115 million at December 31, 2014. The amount of unrealized carried interest on Onex Partners’ businesses has increased since December 31, 2014 due to fair value increases of certain businesses during 2015. The actual amount of carried interest realized by Onex will depend on the ultimate performance of each fund. At December 31, 2015, Onex managed $16.5 billion of other investors’ capital, in addition to $6.0 billion of Onex’ capital. ($ millions) Total Fee-Generating Uncalled Commitments Other Investors’ Capital Under Management(1) December 31, 2015(2) December 31, 2014(2) Change in Total December 31, 2015 December 31, 2014 December 31, 2015(2) December 31, 2014 (2) Funds Onex Partners(3) ONCAP Onex Credit(4) $ 9,803 C$ 1,197 $ 5,869 $ 9,598 C$ 922 $ 4,342 2% 30% 35% $ 8,249 C$ 1,006 $ 5,869 $ 8,523 C$ 785 $ 4,342 $ 3,233 C$ 148 n/a $ 4,755 C$ 291 n/a (1) Invested amounts included in other investors’ capital under management are 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) The principal repayments of the promissory note by Jack’s, as described on page 28 of this MD&A, increased the uncalled commitments for Onex Partners Funds. (4) Onex obtained a controlling interest in Onex Credit in January 2015. At December 31, 2014, Onex Credit was jointly controlled by Onex. Capital under management of Onex Credit at December 31, 2015 and December 31, 2014 represents 100 percent of the other investors’ capital managed by Onex Credit. The amount of other investors’ capital under management will ﬂuctuate as new capital is raised and existing investments are realized. During 2015, this capital increased by $1.8 billion primarily due to: • $358 million co-invested by certain limited partners in SIG; • a net increase of $1.5 billion from Onex Credit primarily from the creation of CLO-8, CLO-9 and CLO-10, partially offset by the redemption of CLO-1; and • a net increase of approximately $1.2 billion from the fair value of Onex Partners and ONCAP investments. Partially offsetting these increases in other investors’ capital during 2015 were distributions to investors in the Onex Partners and ONCAP Funds of approximately $900 million and the impact of foreign exchange. Onex Corporation December 31, 2015 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 Performance Private equity The ability to raise new capital commitments is dependent on the fundraising environment generally and the track record Onex has achieved with the investment and management of prior funds. The following table summarizes the performance of the Onex Partners and ONCAP Funds from inception through December 31, 2015. 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. 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% 21% 10% 43% 31% 34% 38 % 14 % 13 % (7)% 33 % 22 % 23 % 3.9x 2.4x 1.8x 1.1x 4.1x 3.7x 2.1x 3.0x 2.0x 1.6x 0.9x 3.1x 2.6x 1.6x (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. (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. 16 Onex Corporation December 31, 2015 M A N 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 Credit Onex believes CLOs generate attractive risk-adjusted returns on capital. Through December 31, 2015, Onex had a net investment after dispositions and distributions of $331 million in remaining CLOs, including $21 million for a warehouse facility of a CLO. In June 2015, the Company redeemed its ﬁrst CLO, CLO-1. In aggregate, Onex received $53 million of proceeds and distributions related to CLO-1 compared to its original investment of $38 million, generating an 18 percent Net IRR. Market pricing for CLO equity is more volatile than the underlying leveraged loan market due to the leverage employed in a CLO and the relative illiquidity of CLO equity. CLO equity pricing may also be affected by changes in ﬁxed income market sentiment and in investors’ general appetites for risk. Volatility in the lever- aged loan market, particularly in the energy and commodities sectors, caused underlying loan prices in all sec- tors to decline during the second half of 2015, reducing the market value of our CLOs’ portfolios. As a result, Onex experienced an unrealized loss on its investments in CLOs of $94 million during 2015. All of Onex’ CLOs remain comfortably onside their various coverage tests, and Onex received $53 million of distributions from its CLO investments during the year. Onex’ share price performance 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 2015, Onex announced that it would be increasing its quarterly dividend by 25 percent to C$0.0625 per Subordinate Voting Share (“SVS”) beginning in July 2015. This increase follows similar increases in 2013 and 2014 and reﬂects Onex’ success and ongoing commitment to its shareholders. During 2015, $19 million was returned to shareholders through dividends and Onex repurchased 3,084,877 SVS at a total cost of $175 million (C$218 million), or an average purchase price of $56.83 per share (C$70.70). At December 31, 2015, Onex’ SVS closed at C$84.82, a 26 percent increase from December 31, 2014. This compares to an 11 percent decrease in the S&P/TSX Composite Index (“TSX”). Onex Corporation December 31, 2015 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 The chart below shows the performance of Onex’ SVS relative to the TSX. Onex Relative Performance (December 31, 2014 to December 31, 2015) OCX (CAD) TSX 4 1 0 2 , 1 3 r e b m e c e D n o 0 0 1 t a d e x e d n I 130 125 120 115 110 105 100 95 90 85 OCX +26% TSX –11% 31-Dec-14 28-Feb-15 30-Apr-15 30-Jun-15 31-Aug-15 31-Oct-15 31-Dec-15 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 2015, the value of Onex’ SVS increased by 5 percent in U.S. dollars compared to a 1 percent decrease in the Standard & Poor’s 500 Index (“S&P 500”). The chart below shows the performance of Onex’ SVS in U.S. dollars relative to the S&P 500. Onex Relative Performance (December 31, 2014 to December 31, 2015) OCX (USD) S&P 500 110 105 100 95 4 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 OCX +5% S&P 500 –1% 90 31-Dec-14 28-Feb-15 30-Apr-15 30-Jun-15 31-Aug-15 31-Oct-15 31-Dec-15 18 Onex Corporation December 31, 2015 M A N 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, 2015, Onex had eight reportable industry segments. In March 2015, the Onex Partners IV Group completed the acquisition of SIG, the results of which have been combined with SGS International, Inc. (“sgsco”) (formerly included in the other businesses segment) and presented as a new reportable industry segment, packaging products and services. In January 2016, Onex entered into an agreement to sell KraussMaffei. The operations of KraussMaffei have been presented as discontinued. Comparative disclosures 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 (www.celestica.com). Onex shares held: 17.9 million(a) Onex’ & Limited Partners’ Economic Ownership Onex’ Economic/ Voting Ownership 13%(a) 13%(a)/80% Healthcare Imaging Carestream Health, Inc., a global provider of medical and dental imaging and healthcare information technology solutions (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 Res-Care, Inc., a leading U.S. provider of residential, training, educational and support services for people with disabilities and special needs (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 Building Products 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 (www.jeld-wen.com). 83%(b) 21%(b)/83%(b) 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 Insurance Services USI Insurance Services, a leading U.S. provider of insurance brokerage services (www.usi.biz). 88% 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 (a) Excludes shares held in connection with the MIP. (b) 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 common and convertible preferred shares. Onex Corporation December 31, 2015 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 Insurance Services (cont’d) Companies York Risk Services Holding Corp., an integrated provider of insurance solutions to property, casualty and workers’ compensation specialty markets in the United States (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’ & Limited Partners’ Economic Ownership Onex’ Economic/ Voting Ownership 88% 29%/100% Packaging Products and Services SGS International, Inc., a global leader in providing marketing solutions, digital imaging and design-to-print graphic services to branded consumer products companies, retailers and the printers that service them (www.sgsco.com). 93% 23%/93% Total Onex, Onex Partners III and Onex management investment at original cost: $260 million Onex portion at cost: $66 million Onex Partners III portion subject to a carried interest: $183 million SIG Combibloc Group Holdings S.a.r.l., a world-leading provider of aseptic carton packaging solutions for beverages and liquid food (www.sig.biz). Total Onex, Onex Partners IV, certain limited partners, Onex management and others investment at original cost: $1,215 million Onex portion at cost: $405 million Onex Partners IV portion subject to a carried interest: $406 million 99% 33%/95% Onex Credit Strategies, a platform that is comprised of: 100%(a) 100%(a)/(b) Onex Credit Manager specializes in managing credit-related investments, including event-driven, long/short and market dislocation strategies. 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, including the warehouse facility for EURO CLO-1, at market value: $225 million Onex Credit Funds, investment funds providing unit holders with exposure to the performance of actively managed, diversiﬁed portfolios. Onex investment in Onex Credit Funds at market: $472 million, of which $351 million is invested in a segregated unlevered senior secured loan portfolio that purchases assets with greater liquidity and $121 million is invested in other Onex Credit Funds. Advanced Integration Technology LP, a leading provider of automation and tooling, maintenance services and aircraft components to the aerospace industry (www.aint.com). Total Onex, Onex Partners IV and Onex management investment at original cost: $204 million Onex portion at cost: $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 continuing ownership interest of Onex Credit’s chief executive officer is recorded as compensation expense in the consolidated financial statements. (b) Onex controls the Onex Credit asset management platform through contractual rights. (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’ consolidated financial statements. 20 Onex Corporation December 31, 2015 M A N 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 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 (www.bbam.com). Total Onex, Onex Partners III and Onex management investment at original cost: $185 million Onex portion at cost: $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. Onex’ & Limited Partners’ Economic Ownership Onex’ Economic/ Voting Ownership 50% 13%/50%(a) Meridian Aviation Partners Limited and afﬁliates, an aircraft investment company managed by BBAM and established by the Onex Partners III Group. 100% 25%/100% Total Onex, Onex Partners III and Onex management investment at original cost: $77 million Onex portion at cost: $19 million Onex Partners III portion subject to a carried interest: $54 million • Business Services/ Tradeshows Emerald Expositions, LLC, a leading operator of business-to-business tradeshows in the United States (www.emeraldexpositions.com). 99% 24%/99% Total Onex, Onex Partners III and Onex management investment at original cost: $490 million Onex portion at cost: $119 million Onex Partners III portion subject to a carried interest: $345 million • Restaurants Jack’s Family Restaurants, a regional premium quick-service restaurant operator (www.eatatjacks.com). 95% 28%/100% Total Onex, Onex Partners IV and Onex management investment at original cost: $251 million(b) Onex portion at cost: $72 million(b) Onex Partners IV portion subject to a carried interest: $139 million(b) • Hospital Management and Staffing Services Schumacher Clinical Partners, a leading U.S. provider of emergency and hospital medicine physician practice management services (www.schumacherclinical.com). 71% 21%/71% Total Onex, Onex Partners IV and Onex management investment at original cost: $323 million Onex portion at cost: $93 million Onex Partners IV portion subject to a carried interest: $205 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’ consolidated financial statements. (b) The original investment in Jack’s included a $195 million promissory note which was partially repaid during 2015 and early 2016 with net proceeds from sale-leaseback transactions. After giving effect to the repayments, the investment in Jack’s includes an amount outstanding under the promissory note of $31 million, of which Onex’ share was $9 million. Onex Corporation December 31, 2015 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 Industry Segments Other Businesses (cont’d) • Survival Equipment Companies Onex’ & Limited Partners’ Economic Ownership Onex’ Economic/ Voting Ownership Survitec Group Limited, a market-leading provider of mission-critical marine, defence and aerospace survival equipment (www.survitecgroup.com). 99% 22%/85% Total Onex, Onex Partners IV and Onex management investment at original cost: $336 million(a) Onex portion at cost: $76 million(a) Onex Partners IV portion subject to a carried interest: $234 million(a) • Healthcare Genesis Healthcare, Inc.(b) (NYSE: GEN), a leading provider of integrated long-term healthcare services in the United States (www.genesishcc.com). 10% 2%/10% • Plastics Processing Equipment (Discontinued Operation) Onex shares held: 3.5 million Onex Partners I shares subject to a carried interest: 10.7 million KraussMaffei Group GmbH(c), a leading manufacturer of plastic and rubber processing equipment (www.kraussmaffeigroup.com). 95% 24%/100% Total Onex, Onex Partners III and Onex management investment at original cost: $366 million(d) Onex portion at cost: $92 million(d) Onex Partners III portion subject to a carried interest: $257 million(d) • Mid-Market Opportunities ONCAP, private equity funds focused on acquiring and building the value of mid-market companies based in North America (www.oncap.com). ONCAP II 100% 46%(e)/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 Onex, ONCAP II, Onex management and ONCAP management unrealized investments at original cost: $258 million (C$269 million) Onex portion at cost: $120 million (C$124 million) ONCAP II limited partners: $115 million (C$120 million) ONCAP III 100% 29%/100% 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), Mavis Discount Tire (www.mavistire.com), ITG (www.ingersolltillage.com) and Chatters (www.chatters.ca). Total Onex, ONCAP III, Onex management, ONCAP management, certain limited partners and others unrealized investments at original cost: $523 million (C$583 million) Onex portion at cost: $165 million (C$186 million) ONCAP III limited partners: $307 million (C$340 million) Flushing Town Center, a three million-square-foot development located on approximately 14 acres in Flushing, New York. The project is being developed in two phases and will ultimately consist of 1,248 condominium units constructed above retail space and parking structures. During 2015, substantially all of the ﬁrst phase of the project was sold. Onex’ remaining investment in Flushing Town Center at cost: $201 million • Real Estate 88% 88%/100% (a) The investments in Survitec were made in pounds sterling and converted to U.S. dollars using the prevailing exchange rate on the date of the investments. (b) Skilled Healthcare Group, Inc. combined with Genesis HealthCare, LLC in February 2015 to form Genesis Healthcare. (c) In January 2016, the Onex Partners III Group entered into an agreement to sell KraussMaffei. (d) 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. (e) This represents Onex’ blended economic ownership in the ONCAP II investments. 22 Onex Corporation December 31, 2015 M A N 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, 2015 compared to those for the year ended December 31, 2014 and, in selected areas, to those for the year ended December 31, 2013. 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 Business combinations In a business combination, substantially all identiﬁable This section should be read in conjunction with Onex’ assets, liabilities and contingent liabilities acquired are consolidated statements of earnings and corresponding recorded at the date of acquisition at their respective fair notes thereto. Critical accounting policies and estimates 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 consolidated ﬁnancial statements. Onex and its operating companies evaluate their estimates and assumptions on an ongoing basis and any revisions are recognized in the affected periods. Included in Onex’ con- solidated ﬁnancial statements are estimates used in deter- mining the allowance for doubtful accounts, provisions for uncompensated care, inventory valuation, deferred tax assets and liabilities, intangible assets and goodwill, use- ful lives of property, plant and equipment and intangible 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- ment 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- ment by Onex and its operating companies. values. One of the most signiﬁcant estimates relates to the determination of the fair value of these assets and liabili- ties. Land, buildings and equipment are usually indepen- dently appraised while short-term investments are valued at market prices. If any intangible assets are identiﬁed, depending on the type of intangible asset and the complex- ity of determining its fair value, an independent external valuation expert may determine the fair value. These valu- ations are linked closely to the assumptions made by man- agement regarding the future performance of the assets concerned and any changes in the discount rate applied. Note 2 to the consolidated ﬁnancial statements provides additional disclosure on business combinations. Limited Partners’ Interests, carried interest and investments in joint ventures and associates The measurement of the Limited Partners’ Interests for the Onex Partners and ONCAP Funds, carried interest and investments in joint ventures and associates is signiﬁcantly impacted by the fair values of the investments held by the Onex Partners and ONCAP Funds. Joint ventures and associates are deﬁned under IFRS as those investments in operating businesses over which Onex has joint control or signiﬁcant inﬂuence, but not control. In accordance with IFRS, certain of these investments are designated, upon initial recognition, at fair value in the consolidated balance 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 earnings. Similarly, the Limited Partners’ Interests for the Onex Partners and ONCAP Funds represent the interests of limited partner investors, and carried interest, represent- ing the General Partner’s share of the net gains of the Onex Partners and ONCAP Funds, is recorded at fair value. The fair value is signiﬁcantly affected by the change in the fair value of the underlying investments in the Onex Partners and ONCAP Funds. Onex Corporation December 31, 2015 23 M A N A G E M E N T ’ S D I S C U S S I O N A N D A N A LY S I S The valuation of non-public investments requires the CLOs. Onex has determined that it is a principal of the signiﬁcant judgement by Onex due to the absence of CLOs with the power to affect the returns of its investment quoted market values, inherent lack of liquidity and the and, as a result, indirectly controls the CLOs. long-term nature of such investments. Valuation method- CLOs are further discussed in note 1 to the con- ologies include discounted cash ﬂows and observations of solidated ﬁnancial statements. the trading multiples of public companies considered com- parable to the private companies being valued. The valua- Impairment testing of goodwill, intangible assets tions take into consideration company-speciﬁc items, the lack of liquidity inherent in a non-public investment and and long-lived assets Goodwill in an accounting context represents the excess the fact that comparable public companies are not identi- of the aggregate consideration paid and the amount of any cal to the companies being valued. Such considerations are non-controlling interests in the acquired company com- necessary because, in the absence of a committed buyer pared to the fair value of the identiﬁable net assets acquired. and completion of due diligence procedures, there may be Substantially all of the goodwill amount that appears in company-speciﬁc items that are not fully known that may Onex’ consolidated balance sheets was recorded by the affect value. A variety of additional factors are reviewed operating companies. Goodwill is not amortized, but is by management, including, but not limited to, ﬁnancing assessed for impairment at the level of either an individual and sales transactions with third parties, current operat- cash generating unit (“CGU”) or a group of CGUs annually, ing performance and future expectations of the particular or sooner if events or changes in circumstances or market investment, changes in market outlook and the third-party conditions indicate that the carrying amount could exceed ﬁnancing environment. In determining changes to the fair fair value. The test for goodwill impairment used by our value of investments, emphasis is placed on current com- operating companies is to assess whether the fair value pany performance and market conditions. of each CGU within an operating company is less than its For publicly traded investments, the valuation is carrying value and then determine if the goodwill associ- based on closing market prices less adjustments, if any, for ated with that CGU is impaired. This assessment takes into regulatory and/or contractual sale restrictions. consideration several factors, including, but not limited to, The changes to fair value of the investments in future cash ﬂows and market conditions. If the fair value is joint ventures and associates are reviewed on page 40 of determined to be lower than the carrying value at an indi- this MD&A. vidual CGU, goodwill is then considered to be impaired and Included in the measurement of the Limited an impairment charge must be recognized. Each operating Partners’ Interests is an adjustment for the change in car- company has developed its own internal valuation model ried interest as well as any contributions by and distri- to determine fair value. These models are subjective and butions to limited partners in the Onex Partners and require management of the particular operating company ONCAP Funds. The changes to the fair value of the Limited to exercise judgement in making assumptions about future Partners’ Interests for the Onex Partners and ONCAP Funds results, including revenues, operating expenses, capital are reviewed on page 47 of this MD&A. expenditures and discount rates. In the year of acquisition, Consolidation of structured entities Onex indirectly controls and consolidates the operations of the fair value in excess of the carrying value at an operating company will typically be minimal as a result of the recent business combination accounting. The impairment test for the CLOs of Onex Credit. The CLOs are structured entities intangible assets and long-lived assets with limited lives is for which voting and similar rights are not the dominant similar to that for goodwill. Under IFRS, impairment charges factor in determining control of the CLOs. Onex has used for intangible assets and long-lived assets may subsequently judgement when assessing the many factors that determine be reversed if fair value is determined to be higher than car- control, including its exposure through investments in the rying value. The reversal is limited, however, to restoring most subordinate capital of the CLOs, its role in the forma- the carrying amount that would have been determined, net tion of the CLOs, the rights of other investors in the CLOs of amortization, had no impairment loss been recognized and its control (2014 – joint control) of the asset manager of in prior periods. Impairment losses for goodwill are not reversed in future periods. 24 Onex Corporation December 31, 2015 M A N 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 charges recorded by the operating businesses under IFRS may not impact the fair values of Income taxes Onex, including its operating companies, is subject to the operating businesses used in determining the increase changing tax laws and the interpretation of existing tax or decrease in investments in joint ventures and associates, laws in multiple jurisdictions. Signiﬁcant judgement is the change in carried interest and for calculating the Limited necessary in determining worldwide income tax liabilities. Partners’ Interests liability for the Onex Partners and ONCAP Although management of Onex and the operating com- Funds. Fair values of the operating businesses are assessed at panies believe that they have made reasonable estimates the enterprise level, while impairment charges are assessed about the ﬁnal outcome of tax uncertainties, no assurance at the level of an asset, a CGU or a group of CGUs. can be given that the outcome of these tax matters will be During 2015, certain of the operating companies consistent with what is reﬂected in the historical income recorded charges for impairments of goodwill, intangible tax provisions. Such differences could have an effect on assets and long-lived assets. These charges are reviewed on income tax liabilities and deferred tax liabilities in the page 46 of this MD&A and in note 24 to the consolidated period in which such determinations are made. At each ﬁnan cial statements. Revenue recognition Revenues for ResCare in the health and human services balance sheet date, management of Onex and the operat- ing companies assess whether the realization of future tax beneﬁts is sufﬁciently probable to recognize deferred tax assets. This assessment requires the exercise of judge- segment are substantially derived from U.S. federal, ment on the part of management with respect to, among state and local government agency programs, including other things, beneﬁts that could be realized from available Medicaid. Laws and regulations under these programs are tax strategies and future taxable income, as well as other complex and subject to interpretation. Management may positive and negative factors. The recorded amount of total be required to exercise judgement for the recognition of deferred tax assets could be reduced if estimates of pro- revenue under these programs. Management of ResCare jected future taxable income and beneﬁts from available believes that they are in compliance with all applicable tax strategies are lowered, or if changes in current tax regu- laws and regulations. Compliance with such laws and regu- lations are enacted that impose restrictions on the timing lations is subject to ongoing and future government review or extent of Onex’ or its operating companies’ ability to uti- and interpretation, including the possibility of processing lize future tax beneﬁts. claims at lower amounts upon audit, as well as signiﬁcant regulatory action including revenue adjustments, ﬁnes, penalties and exclusion from programs. Government agen- Legal contingencies Onex, including its operating companies, becomes involved cies may condition their contracts upon a sufﬁcient bud- in various legal proceedings in the normal course of opera- getary appropriation. If a government agency does not tions. While we cannot predict the ﬁnal outcome of such receive an appropriation sufﬁcient to cover its contrac- legal proceedings, the outcome of these matters may have tual obligations, it may terminate the contract or defer or a signiﬁcant effect on Onex’ consolidated ﬁnancial posi- reduce reimbursements to be received by the company. tion, results of operations or cash ﬂows. The ﬁling or dis- In addition, previously appropriated funds could also be closure of a suit or formal assertion of a claim does not reduced or eliminated through subsequent legislation. automatically indicate that a provision may be appropriate. Revenues for Schumacher in the other segment Management, with the assistance of internal and external are recognized net of an allowance for uncompensated lawyers, regularly analyzes current information about these care related to uninsured patients in the period during matters and provides provisions for probable contingent which the services are provided. The allowance for uncom- losses, including the estimate of legal expenses to resolve pensated care is estimated on the basis of historical experi- these matters. ence of collections associated with self-pay patients treated during the period. Onex Corporation December 31, 2015 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 Employee beneﬁts Onex, the parent company, does not have a pension plan; however, certain of its operating companies do. Man- agement of the operating companies use actuarial valua- Leases In January 2016, the IASB issued IFRS 16, Leases, which replaces IAS 17, Leases. The standard provides an updated deﬁnition of a lease contract, including guidance on the tions to account for their pension and other post-retirement combination and separation of contracts. The standard beneﬁts. These valuations rely on statistical and other fac- requires lessees to recognize a right-of-use asset and a tors in order to anticipate future events. These factors lease liability for substantially all lease contracts. The include key actuarial assumptions such as the discount rate, accounting for lessors is substantially unchanged from expected salary increases and mortality rates. These actuar- IAS 17. IFRS 16 is effective for annual periods beginning on ial assumptions may differ signiﬁcantly from actual devel- or after January 1, 2019, with earlier application permit- opments due to changing market and economic conditions, ted if IFRS 15 is also applied. Onex is currently evaluating and therefore may result in a signiﬁcant change in post- the impact of adopting this standard on its consolidated retirement employee beneﬁt obligations and the related ﬁnancial statements. future expense in the consolidated ﬁnancial statements. Note 31 to the consolidated ﬁnancial statements provides details on the estimates used in accounting for pensions and post-retirement beneﬁts. Recent accounting pronouncements Revenue from Contracts with Customers In May 2014, the International Accounting Standards Board (“IASB”) issued IFRS 15, Revenue from Contracts with Cus tomers, which provides a comprehensive ﬁve-step revenue recognition model for all contracts with customers. IFRS 15 requires management to exercise signiﬁcant judgement and make estimates that affect revenue recognition. IFRS 15 is effective for annual periods beginning on or after January 1, 2018, with earlier application permitted. Onex is currently evaluating the impact of adopting this standard on its con- solidated 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. Onex is currently evaluating the impact of adopting this standard on its consolidated ﬁnancial statements. 26 Onex Corporation December 31, 2015 Variability of results Onex’ consolidated operating results may vary substan- tially from quarter to quarter and year to year for a num- ber of reasons, including some of the following: the current economic environment; the impact of foreign exchange ﬂuctuation; acquisitions or dispositions of businesses by Onex, the parent company; the change in value of stock- based compensation for both the parent company and its operating businesses; changes in the market value of Onex’ publicly traded operating businesses; changes in the fair value of Onex’ privately held operating busi- nesses; changes in tax legislation or in the application of tax legislation; and activities at Onex’ operating businesses. These activities may include the purchase or sale of busi- nesses; ﬂuctuations in customer demand, materials and employee-related costs; changes in the mix of products and services produced or delivered; changes in the ﬁnancing of the business; changes in contract accounting estimates; impairments of goodwill, intangible assets or long-lived assets; litigation; charges to restructure operations; and natural disasters. Given the diversity of Onex’ operating businesses, the associated exposures, risks and contingen- cies may be many, varied and material. Investments held by the CLOs and the Onex Credit Funds as well as debt issued by the CLOs are recorded at fair value, with changes in fair value recognized in the con- solidated statements of earnings. Fair values are impacted by the leveraged loan market and credit risk (both own and counterparty), which may vary substantially from quarter to quarter and year to year. M A N 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 Signiﬁcant transactions Transactions in this section are presented in chronological transaction, the Onex Partners I Group had a 10 percent economic interest in the newly combined company com- order by investment. Onex Credit asset management platform In January 2015, Onex acquired control of the Onex Credit pared to a 39 percent economic ownership interest in Skilled Health care Group before the combination. Onex no longer controls Skilled Healthcare Group due to the loss of the mul tiple voting rights and, therefore, the operations of asset management platform for $32 million, which included Skilled Healthcare Group up to the date of transaction in non-cash consideration of $6 million associated with the February 2015 are presented as discontinued in the consol- issuance of 111,393 of Onex’ SVS. idated statements of earnings and cash ﬂows for the year The Onex Credit asset management platform was ended December 31, 2015, and December 31, 2014 has been previously jointly controlled with Onex Credit’s chief exec- utive oYcer, and Onex previously held a 70 percent eco- nomic interest in the business. restated to report the results of Skilled Healthcare Group as discontinued on a comparative basis. Onex recognized a non-cash gain of $68 mil- Onex Credit’s management team remains in place, with its chief executive oYcer continuing to participate in the performance of the Onex Credit asset management lion associated with measuring its interest in Skilled Healthcare Group at fair value at the date of the combina- tion. Subsequent to the February 2015 transaction date, platform. the Onex Partners I Group’s investment in the combined As a result of the above transaction, Onex con- company has been recorded as a long-term investment solidates the Onex Credit asset management platform and at fair value through earnings, with changes in fair value certain funds managed by Onex Credit in which Onex, the recorded in other income (expense). parent company, holds an investment. Onex’ previous inter- est in the Onex Credit asset management platform was equity-accounted and has been derecognized at fair value, Acquisition of Survitec In March 2015, the Onex Partners IV Group acquired resulting in the recognition of a non-cash gain of $38 mil- Survitec for £450 million ($670 million). Based in the United lion during the ﬁrst quarter of 2015. The consolidation of Kingdom, Survitec is a provider of mission-critical marine, the Onex Credit asset management platform and certain of defence and aerospace survival equipment. The Onex the funds managed by Onex Credit increased Onex’ consoli- Partners IV Group invested $322 million for substantially dated assets by $354 million and liabilities by $314 million at all of the equity, with the remainder of the equity owned by December 31, 2015 compared to December 31, 2014. Survitec’s management. Onex’ share of the equity invest- Skilled Healthcare Group combination agreement In February 2015, Skilled Healthcare Group, Inc. (“Skilled ment was $73 million. The balance of the purchase price was substantially ﬁnanced with debt ﬁnancing, without recourse to Onex Corporation. Healthcare Group”) combined with Genesis HealthCare, In September 2015, Survitec acquired SCI for up to LLC (“Genesis HealthCare”), a leading U.S. operator of £45 million ($68 million). The purchase price consisted of long-term care facilities. In accordance with the terms £32 million ($49 million) paid on closing of the transaction of the purchase and combination agreement, each share of and an additional amount of up to £13 million ($19 million) Skilled Healthcare Group common stock issued and out- payable based on the future performance of SCI. Based standing immediately prior to the closing of the combi na- in the United Kingdom, SCI is a supplier of certiﬁed life- tion was converted into one share of the newly combined boat-related safety equipment and services. In connection company. At the date of the combination, Skilled Healthcare with this transaction, the Onex Partners IV Group invested Group shareholders owned approximately 26 percent of £9 million ($13 million) in Survitec, of which Onex’ share the combined company and Genesis HealthCare share- was £2 million ($3 million). The remainder of the pur- holders owned the remaining approximately 74 percent chase price and transaction costs were funded by Survitec of the combined company. The combined company now through a draw on its acquisition facility and an incremen- operates under the Genesis Healthcare name and contin- tal term loan, without recourse to Onex Corporation. ues to be publicly traded (NYSE: GEN). At the date of the Onex Corporation December 31, 2015 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 Acquisition of SIG In March 2015, the Onex Partners IV Group completed the acquisition of SIG for a value of up to €4,040 million ($4,250 million). Based in Switzerland, SIG provides food and beverage producers with a comprehensive product portfolio of aseptic carton packaging ﬁlling systems, asep- tic carton packaging sleeves, spouts and caps, as well as after-market support services. The purchase price consisted of €3,865 million ($4,067 million) paid on closing of the transaction and an additional amount of up to €175 mil- lion ($183 million) payable based on SIG’s ﬁnancial per- the United States, Iberia and Latin America. The ONCAP III Group invested $70 million for joint control of ITG, of which Onex’ share was $21 million and a 13 percent eco- nomic interest. Acquisition of Jack’s In July 2015, the Onex Partners IV Group completed the acquisition of Jack’s for $640 million. Based in the United States, Jack’s is a regional premium quick-service restau- rant operator. The Onex Partners IV Group initially invested a total of $415 million in Jack’s, of which Onex’ portion was formance in 2015 and 2016. The Onex Partners IV Group’s $120 million. The remainder of the purchase price was sub- equity investment in SIG was completed in U.S. dollars stantially ﬁnanced with debt ﬁnancing, without recourse in the amount of $1,215 million for substantially all of the to Onex Corporation. The Onex Partners IV Group’s initial equity. The Onex Partners IV Group’s equity investment investment in Jack’s consisted of an equity investment of was comprised of $583 million through Onex Partners IV $220 million and a $195 million promissory note. Onex’ and $632 million as a co-investment from Onex and initial investment in Jack’s consisted of an equity invest- certain limited partners. Onex’ total investment in SIG was ment of $63 million and $57 million of the promissory note. $405 million and was comprised of $131 million through Onex Partners IV and $274 million as a co-investment. Onex’ portion of the investment reﬂects its increased com- mitment to the Onex Partners IV Fund. The balance of the purchase price was ﬁnanced with debt During the fourth quarter of 2015, Jack’s made ﬁnancing, without recourse to Onex Corporation. repayments of the promissory note totalling $143 mil- Management of SIG completed investments in lion, including accrued interest, with net proceeds from SIG during the second quarter of 2015, reducing the Onex sale-leaseback transactions completed for certain of its Partners IV Group’s economic interest in SIG to 99 percent, fee-owned restaurant properties. Onex’ share of the repay- of which Onex’ portion is 33 percent. ments was $41 million. At December 31, 2015, SIG had revised its esti- mate of the additional amount to €125 million ($136 mil- lion), resulting in a recovery of €50 million ($55 million). The amount represented management’s best estimate of In January 2016, Jack’s repaid an additional $23 million of the promissory note, including accrued interest, with net proceeds from a sale-leaseback trans- action completed for certain of its fee-owned restaurant the fair value at December 31, 2015, which is subject to sen- properties. Onex’ share of the repayment was $7 million. sitivity associated with various factors, including foreign After giving effect to the repayment, the amount outstand- currency ﬂuctuations, as well as uncertainty regarding the ing under the promissory note was $31 million, of which treatment of certain items. Onex’ share was $9 million. Investment in ITG In June 2015, the ONCAP III Group acquired a 45 percent Acquisition of Chatters In July 2015, the ONCAP III Group completed the acqui- economic interest in ITG. Based in Canada and Spain, ITG sition of Chatters. Based in Canada, Chatters is a retailer is a global leader in the manufacturing of consumable wear and distributor of hair and beauty care products as well as components that are embedded into agricultural soil prep- an operator and franchisor of hair and beauty salons. The aration and seeding equipment implements. ITG is also ONCAP III Group invested C$55 million ($43 million), of a leading provider of branded manual hand tools to the which Onex’ share was C$16 million ($13 million). agricultural, construction and gardening end markets in 28 Onex Corporation December 31, 2015 M A N 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 Partial realization of Flushing Town Center In July and December 2015, Onex Real Estate Partners sold Mavis Discount Tire’s acquisition of STS In August 2015, Mavis Discount Tire acquired STS, one of substantially all of the retail space and adjoining park- the largest tire chains in the United States. In conjunction ing structures of Flushing Town Center. Onex Real Estate with this transaction, the ONCAP III Group completed an Partners continues to develop the second phase of condo- add-on investment in Mavis Discount Tire. The ONCAP III miniums at the project. Onex Real Estate Partners received Group’s investment of $48 million was comprised of $27 mil- net proceeds of $136 million, of which Onex’ share was lion from ONCAP III and $21 million as a co-investment $119 million. Included in the net proceeds is $8 million held from Onex and certain limited partners. Onex’ total add- in escrow expected to be received during the ﬁrst half of on investment in Mavis Discount Tire of $25 million was 2016, of which Onex’ share is $7 million. Onex’ consolidated comprised of $8 million through ONCAP III and $17 million results include a pre-tax gain of $60 million in 2015, based as a co-investment. Subsequent to the add-on investment, on the excess of the proceeds over the carrying value of the the ONCAP III Group had a 46 percent economic interest in property sold. Onex’ share of the gain was $52 million. Mavis Discount Tire and Onex increased its economic own- The retail space and adjoining parking structures ership to 17 percent from 14 percent. of Flushing Town Center did not represent a major line of business, and as a result, the operating results up to the date of disposition have not been presented as a discon- Sale of Tropicana Las Vegas In August 2015, the Onex Partners III Group sold its invest- tinued operation. No amounts were paid on account of the ment in Tropicana Las Vegas for an enterprise value of MIP related to this transaction as the required performance $360 million. The Onex Partners III Group’s total net pro- targets have not been met at this time. ceeds were $230 million compared to its investments of $320 million. Onex’ share of the total net proceeds was Acquisition of Schumacher In late July 2015, the Onex Partners IV Group acquired $50 million compared to its investments of $70 mil- lion. Onex’ consolidated results include a pre-tax gain of Schumacher for $690 million. Schumacher is a leading $102 million based on the excess of the proceeds over the provider of emergency and hospital medicine physician carrying value of the investment. Onex’ share of the gain practice management services in the United States. The was $22 million. The gain on sale is entirely attributable to Onex Partners IV Group invested a total of $219 million in the equity holders of Onex Corporation, as the interest of Schumacher, of which Onex’ portion was $63 million. Onex’ the limited partners was recorded as a ﬁnancial liability at portion of the investment reﬂects its increased commitment fair value. No amounts were paid on account of the MIP for to the Onex Partners IV Fund. The remainder of the pur- this transaction as the required investment return hurdle chase price was ﬁnanced through a rollover of equity and for Onex was not met. In addition, no carried interest was cash contributed by existing shareholders and management, paid or received on this transaction. Until the realized cash and with proceeds of $385 million from its senior secured loss on Tropicana Las Vegas is fully offset, the carried in- credit facilities, without recourse to Onex Corporation. terest that would otherwise be distributed to Onex in re- In August 2015, Schumacher acquired HPP, a spect of a future realization in the Onex Partners III Fund is provider of emergency and hospital medicine physi- expected to be reduced by $7 million. The amount of car- cian practice management services in the United States, ried interest ultimately received from the Onex Partners III for $271 million. In connection with this transaction, the Fund will be based on the overall performance of the Fund. Onex Partners IV Group made an add-on investment in Tropicana Las Vegas did not represent a major line Schumacher of $105 million and the balance of the equity of business, and as a result, the operating results up to the was funded by an investment from the management of date of disposition have not been presented as a discontin- HPP and Schumacher and other investors. Onex’ share ued operation. of the add-on investment in Schumacher was $30 mil- lion. The remainder of the purchase price was ﬁnanced by Schumacher with proceeds from an increase to its amended senior secured facilities by $150 million and cash from Schumacher’s balance sheet. Onex Corporation December 31, 2015 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 Sale of Sitel Worldwide In September 2015, Onex completed the sale of Sitel World- In August 2015, USI amended its existing senior secured credit facility, as described on page 60 of this wide. The Company’s proceeds were $56 million, which MD&A, to fund a distribution of $230 million to sharehold- consisted of $35 million received in cash, and the Company ers. The Onex Partners III Group’s portion of the distribu- estimates it may receive an earn-out component of approxi- tion to shareholders was $181 million. Onex’ portion of the mately $21 million. Onex’ share of the proceeds was $33 mil- distribution was $51 million, of which $38 million related to lion received in cash and $20 million of the estimated earn- Onex’ investment through Onex Partners III and $13 million out component. This compares to Onex’ investments of related to Onex’ co-investment. The balance of the proceeds $320 million. Onex’ consolidated results include a gain of was primarily distributed to employees of USI. $365 million related to the sale, based on the excess of the In August 2015, PURE Canadian Gaming distrib- proceeds over the carrying value of the investment. The car- uted C$25 million to shareholders, which was primarily rying value of the investment was negative at the time of sale backed by the company’s free cash ﬂow generated during as a result of Onex’ portion of the accumulated losses from the year. The ONCAP II and ONCAP III Groups’ portion of the operations of Sitel Worldwide that offset Onex’ invest- the distribution to shareholders was C$23 million ($18 mil- ments. Onex’ share of the gain was $360 million. No amounts lion), of which Onex’ portion was C$10 million ($8 million). were paid on account of the MIP for this transaction as the In October 2015, Meridian Aviation completed a required investment return hurdle for Onex was not met. distribution of $85 million to the Onex Partners III Group, As a result of this sale, the operations of Sitel World - of which Onex’ share was $21 million. wide and the gain recorded on the sale have been presented During 2015, AIT completed distributions of as discontinued in the consolidated statements of earnings and $30 million, including a purchase price adjustment, to the cash ﬂows and prior period results have been restated to re- Onex Partners IV Group, of which Onex’ share was $7 mil- port Sitel Worldwide as discontinued on a comparative basis. lion. The distributions were funded by the company’s free Distributions from operating businesses During 2015 and up to February 25, 2016, Onex and its part- In addition, during 2015, BBAM completed distri bu- tions of $52 million to the Onex Partners III Group, of which ners received distributions from certain operating busi- Onex’ share was $13 million. The distributions were funded nesses of $988 million, including the repayment of the by the company’s free cash ﬂow generated during the year. cash ﬂow generated during the year. promissory note by Jack’s, as described on page 28 of this MD&A. Onex’ portion of the distributions was $257 million. The signiﬁcant distributions are described below. In March 2015, ResCare increased its term loan, as described on page 60 of this MD&A, to fund a distribution of $105 million to shareholders. The Onex Partners I and Onex Partners III Groups’ portion of the distribution was $47 million and $50 million, respectively, of which Onex’ share was $20 million. The remaining balance was primar- ily distributed to the management of ResCare. Pending sale of KraussMaffei In January 2016, the Onex Partners III Group entered into an agreement to sell KraussMaffei for a cash enterprise value of approximately €925 million. Under the terms of the agreement, the Onex Part ners III Group will receive net proceeds of approximately €670 million. Onex’ portion will be approximately €180 million, including estimated carried interest of €12 million and after the reduction for the amounts on account of the MIP. By early 2016, the Onex In July 2015, JELD-WEN increased its borrowings, Partners III Group had hedged the foreign exchange expo- as described on page 60 of this MD&A, partially to fund a sure for substantially all of its estimated net proceeds. The distribution of $432 million to shareholders. The Onex transaction is expected to close during the ﬁrst half of 2016 Partners III Group’s portion of the distribution to share- and is subject to customary closing conditions and regula- holders was $359 million. Onex’ portion of the distribu- tory approvals. tion was $89 million, of which $51 million related to Onex’ The operations of KraussMaffei have been pre- investment through Onex Partners III and $38 million sented as discontinued in the consolidated statements related to Onex’ co-investment. The remaining balance was of earnings and cash ﬂows and the prior year has been primarily distributed to third-party shareholders and the restated to report the results of KraussMaffei as discontin- management of JELD-WEN. ued on a comparative basis. 30 Onex Corporation December 31, 2015 M A N A G E M E N T ’ S D I S C U S S I O N A N D A N A LY S I S R E V I E W O F D E C E M B E R 3 1 , 2 0 1 5 C O N S O L I D A T E D F I N A N C I A L S T A T E M E N T S 2015) and Skilled Healthcare Group (up to February 2015). Discontinued operations for the year ended December 31, 2014 represent the results of operations of KraussMaffei, The discussions that follow identify those material factors Sitel Worldwide, Skilled Healthcare Group, The Warranty that affected Onex’ operating segments and Onex’ consoli- Group, Inc. (“The Warranty Group”) (up to August 2014) and dated results for the year ended December 31, 2015. We will Spirit AeroSystems, Inc. (“Spirit AeroSystems”) (up to June review the major line items to the consolidated ﬁnancial 2014). In addition, the packaging products and services seg- statements by segment. Discontinued operations for the ment consists of sgsco (previously included within the other year ended December 31, 2015 represent the results of opera- segment) and SIG. Comparative results have been restated tions of KraussMaffei, Sitel Worldwide (up to September to reﬂect these changes. Consolidated revenues and cost of sales Table 1 provides revenues and cost of sales by industry segment for the years ended December 31, 2015, 2014 and 2013. Revenues and Cost of Sales by Industry Segment TABLE 1 ($ millions) Year ended December 31 Revenues Cost of Sales 2015 2014 Change 2015 2014 Change Electronics Manufacturing Services $ 5,639 $ 5,631 Healthcare Imaging Health and Human Services Building Products Insurance Services(a) Packaging Products and Services(b) Credit Strategies(c) Other(d) Total 2,141 1,821 3,378 1,752 2,070 5 2,875 2,360 1,737 3,507 1,079 492 – 2,074 $ 19,681 $ 16,880 – % (9)% 5 % (4)% 62 % 321 % n/a 39 % 17 % $ 5,175 $ 5,158 1,223 1,382 2,636 – 1,362 – 1,804 1,369 1,307 2,840 – 317 – 1,172 $ 13,582 $ 12,163 – % (11)% 6 % (7)% n/a 330 % n/a 54 % 12 % Results are reported in accordance with IFRS. These results may differ from those reported by the individual operating companies. (a) The insurance services segment consists of USI and York. USI and York report their costs in operating expenses. York began to be consolidated in October 2014, when the business was acquired by the Onex Partners III Group. (b) The packaging products and services segment consists of SIG and sgsco. SIG began to be consolidated in March 2015, when the business was acquired by the Onex Partners IV Group. The results of sgsco were previously included within the other segment. (c) The credit strategies segment consists of (i) Onex Credit Manager, (ii) Onex Credit Collateralized Loan Obligations and (iii) Onex Credit Funds. Costs of the credit strategies segment are recorded in operating expenses. (d) 2015 other includes Flushing Town Center, Tropicana Las Vegas (up to August 2015), Meridian Aviation, Emerald Expositions, Survitec (since March 2015), Jack’s (since July 2015), Schumacher (since late July 2015), the operating companies of ONCAP II and ONCAP III (Chatters since July 2015) and the parent company. 2014 other includes Flushing Town Center, Tropicana Las Vegas, Meridian Aviation, Emerald Expositions, the operating companies of ONCAP II (Mister Car Wash up to August 2014) and ONCAP III and the parent company. Onex Corporation December 31, 2015 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 Revenues and Cost of Sales by Industry Segment TABLE 1 ($ millions) Revenues Cost of Sales Year ended December 31 2014 2013 Change 2014 2013 Change Electronics Manufacturing Services $ 5,631 $ 5,796 Healthcare Imaging Health and Human Services Building Products Insurance Services(a) Packaging Products and Services(b) Credit Strategies(c) Other(d) Total 2,360 1,737 3,507 1,079 492 – 2,074 2,429 1,617 3,457 769 465 – 2,448 $ 16,880 $ 16,981 (3)% (3)% 7 % 1 % 40 % 6 % n/a (15)% (1)% $ 5,158 $ 5,337 1,369 1,307 2,840 – 317 – 1,172 1,444 1,197 2,855 – 295 – 1,469 $ 12,163 $ 12,597 (3)% (5)% 9 % (1)% n/a 7 % n/a (20)% (3)% Results are reported in accordance with IFRS. These results may differ from those reported by the individual operating companies. (a) The insurance services segment consists of USI and York. USI and York report their costs in operating expenses. York began to be consolidated in October 2014, when the business was acquired by the Onex Partners III Group. (b) The packaging products and services segment consists of SIG and sgsco. SIG began to be consolidated in March 2015, when the business was acquired by the Onex Partners IV Group. The results of sgsco were previously included within the other segment. (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 the other segment. Costs of the credit strategies segment are recorded in operating expenses. (d) 2014 other includes Flushing Town Center, Tropicana Las Vegas, 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, 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. Electronics Manufacturing Services Celestica Inc. (“Celestica”) delivers innovative supply chain Celestica reported revenues of $5.6 billion for 2015. Although overall revenue was ﬂat compared to 2014, solutions globally to customers in the communications revenue increased in the storage and diversiﬁed end mar- (comprised of enterprise communications and telecommu- kets primarily due to new program wins. The diversiﬁed nications), consumer, diversi ﬁed (comprised of aerospace end market also beneﬁted from improved demand in the and defence, industrial, healthcare, energy and semicon- semiconductor business. Offsetting the revenue increases ductor equipment), servers and storage end markets. These were decreases in the consumer end market as Celestica solutions include design and development, engineering continued to de-emphasize certain lower-margin con- services, supply chain management, new product intro- sumer business. Revenues from the communication and ductions, component sourcing, electronics manufacturing, server end markets were relatively ﬂat compared to 2014. assembly and test, complex mechanical assembly, systems Cost of sales for 2015 at $5.2 billion was up slightly integration, precision machining, order fulﬁll ment, logistics from 2014 while gross proﬁt decreased by 2 percent to and aftermarket repair and return services. $464 million compared to 2014. Gross proﬁt was negatively impacted by higher than expected costs of ramping new programs as well as overall mix, which more than offset improvements in the semiconductor business. 32 Onex Corporation December 31, 2015 M A N 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 reported revenues of $5.6 billion for to lower x-ray traditional volume, as well as unfavourable 2014, down 3 percent, or $165 million, compared to 2013. equipment mix and lower prices in the Dental and Medical Revenues for 2014 decreased in the communications, serv- Digital segments. The revenue decrease was partially offset ers and consumer end markets. The revenue decrease in by higher dental digital equipment volume. the communications end market was driven by weaker Cost of sales was $1.2 billion during 2015, down demand from certain customers and program completions 11 percent, or $146 million, from 2014. The decrease was and the decrease in the server end market was driven by primarily due to favourable foreign exchange translation the insourcing of a server program by an existing customer of $49 million and lower costs for silver, which is a major and overall lower demand in this end market. Partially off- component in the production of ﬁlm. Gross proﬁt for setting the revenue decreases were increases in the storage 2015 decreased to $918 million from $991 million for 2014. and diversiﬁed end markets in 2014 primarily due to new Excluding the $89 million impact of unfavourable foreign program wins. exchange translation, gross proﬁt increased by $16 million Cost of sales for 2014 decreased 3 percent, or primarily due to higher dental digital equipment volume, $179 million, to $5.2 billion, while gross proﬁt increased lower silver costs and higher service volume and improved 3 percent to $473 million from 2013. Despite the revenue productivity in x-ray systems. The increase was partially decrease during 2014, gross proﬁt increased compared to offset by unfavourable equipment mix and lower prices, 2013 primarily due to improved program mix and a contin- which impacted revenues. ued focus on cost containment. Healthcare Imaging Carestream Health, Inc. (“Carestream Health”) provides Carestream Health reported revenues of $2.4 bil- lion during 2014, down 3 percent, or $69 million, from 2013. Excluding the $42 million impact of unfavourable foreign exchange translation on Carestream Health’s non- products and services for the capture, processing, view- U.S. revenues, Carestream Health reported a decrease in ing, sharing, printing and storing of images and informa- revenues of $27 million. The decrease in revenues was pri- tion for medical and dental applications. The company also marily due to lower volume in the computed radiography has a non-destructive testing business, which sells x-ray business, due to a faster than anticipated market decline ﬁlm and digital radiology products to the non-destructive and lower volume in the x-ray ﬁlm and dental traditional testing market. Carestream Health sells digital products, businesses as the medical imaging market continues to including computed radiography and digital radiography transition from ﬁlm to digital products. Lower prices and equipment, picture archiving and communication sys- unfavourable product mix in the digital radiography and tems, information management solutions, dental practice dental equipment businesses, driven by competitive mar- management software and services, as well as traditional ket actions and a shift toward lower-priced value tier solu- medical products, including x-ray ﬁlm, printers and media, tions, also contributed to the decrease in revenues. equipment, chemistry and services. Carestream Health has Cost of sales of $1.4 billion decreased $75 million, three reportable segments: Medical Film, Medical Digital or 5 percent, during 2014 compared to 2013. Cost of sales and Dental. decreased primarily due to lower costs for silver, which is a Carestream Health reported revenues of $2.1 bil- major component in the production of ﬁlm, and improved lion during 2015, down 9 percent, or $219 million, from 2014. manufacturing productivity. Gross proﬁt for 2014 increased Excluding the $138 million impact of unfavourable foreign to $991 million from $985 million for 2013 primarily due exchange translation on Carestream Health’s non-U.S. rev- to higher volume of digital products as well as lower com- enues, Carestream Health reported a decrease in revenues modity costs and improved manufacturing productivity. of $81 million. The decrease in revenues was primarily due Onex Corporation December 31, 2015 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 Health and Human Services ResCare has ﬁve reportable segments: Residential Services, Building Products JELD-WEN is a manufacturer of interior and exterior doors, ResCare HomeCare, Education and Training Services, Work- windows and related products for use primarily in the resi- force Services and Pharmacy Services. Residential Services dential and light commercial new construction and remod- includes the provision of services to individuals with devel- elling markets. The company’s revenues follow seasonal opmental or other disabilities in community home set- new construction and repair and remodelling industry pat- tings. ResCare HomeCare provides periodic in-home care terns. JELD-WEN manages its business through three geo- services to the elderly, as well as persons with disabilities. graphic segments: North America, Europe, and Australia Education and Training Services consists primarily of Job and Asia. Corps centres, alternative education and charter schools. JELD-WEN reported revenues of $3.4 billion dur- Workforce Services is comprised of domestic job train- ing 2015, a decrease of $129 million, or 4 percent, compared ing and placement programs that assist welfare recipients to 2014. The decrease in revenues was due to the strength- and disadvantaged job seekers in ﬁnding employment and ening of the U.S. dollar, which had a negative impact of improving their career prospects. Pharmacy Services is a $306 million on the translation of revenues of the compa- limited, closed-door pharmacy focused on serving individu- ny’s operations in Canada, Europe and Australia. On a local als with cognitive, intellectual and developmental disabili- currency basis, revenues in most of these regions increased ties. ResCare provides services to some 66,000 persons daily. compared to the prior year primarily due to increased vol- ResCare reported revenues of $1.8 billion during ume and pricing. Revenues in the company’s U.S. opera- 2015, an increase of $84 million, or 5 percent, compared to tions increased primarily due to pricing. 2014. Acquisitions contributed $57 million of the increase Cost of sales was $2.6 billion during 2015, a in revenues and the remainder of the increase was due decrease of $204 million, or 7 percent, compared to 2014. to organic growth in all segments, except Education and Excluding the $237 million impact of favourable foreign Training Services. exchange translation, cost of sales increased by $33 million. Cost of sales was $1.4 billion during 2015, up 6 per- Gross proﬁt for 2015 increased by 11 percent to $742 million cent, or $75 million, from 2014. The increase was primarily compared to 2014 primarily due to improved pricing and due to the increase in revenues during 2015, along with an productivity in North America, partially offset by $69 mil- increase in medical and wage costs. lion of unfavourable foreign exchange translation and the During the year ended December 31, 2014, ResCare inclusion of acquisitions completed in 2015. reported revenues of $1.7 billion, an increase of $120 mil- For the year ended Decem ber 31, 2014, revenues lion, or 7 percent, compared to 2013. The increase in rev- at JELD-WEN increased by 1 percent, or $50 million, to enues was due to acquisitions and organic growth in all $3.5 billion. The increase in revenues was primarily due segments, primarily the Residential Services, ResCare to improved pricing in North America as well as increased Home Care and Pharmacy Services segments. volume in Europe. Reported revenues in Australia and Asia Cost of sales increased 9 percent, or $110 million, remained largely unchanged from 2013; however, excluding to $1.3 billion primarily due to the increase in revenues the impact of unfavourable foreign exchange translation, during 2014, along with an increase in bad debt and the revenues in the segment increased by 6 percent over 2013. cost of inventory sold. 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 $602 million in the previous year primarily due to improved pricing in North America. 34 Onex Corporation December 31, 2015 M A N A G E M E N T ’ S D I S C U S S I O N A N D A N A LY S I S Insurance Services The insurance services segment consists of the operations of USI and York Risk Services Holding Corp. (“York”). The com- parative results for York are for the period from the date of acquisition by the Onex Partners III Group in October 2014 to December 31, 2014. Table 2 provides revenues by operating company in the insurance services segment for the years ended December 31, 2015, 2014 and 2013. USI and York record their costs in operating costs. Insurance Services Revenues TABLE 2 ($ millions) Year ended December 31 USI York(a) Total 2015 $ 1,037 715 $ 1,752 Revenues $ 2014 926 153 $ 1,079 Change 12% 367% 62% Revenues 2013 $ 769 – $ 769 2014 926 153 $ $ 1,079 Change 20% n/a 40% Results are reported in accordance with IFRS. These results may differ from those reported by the individual operating companies. (a) York began to be consolidated in October 2014, when the business was acquired by the Onex Partners III Group. York’s 2014 results are for the period from the date of acquisition in October 2014 to December 31, 2014. There are no comparative results for the year ended December 31, 2013. USI USI is a leading provider of insurance brokerage services. York York is an integrated provider of insurance solutions to USI’s revenues consist of commissions paid by insurance property, casualty and workers’ compensation specialty companies and fees paid directly by the company’s cli- markets in the United States. York offers employers and ents for the placement of property and casualty and indi- insurance carriers a range of services designed to help man- vidual and group health, life and disability insurance. USI age claims and limit losses incurred under various prop- also receives contingent and supplemental revenues paid erty and casualty insurance programs. Clients are typically by insurance carriers based on the overall proﬁt and/or billed for claims management services based on a fee per volume of business placed with an insurer. USI has two each claim handled, a ﬂat annual fee or a cost-plus model. reportable segments: Retail and Specialty. In addition to claims management, York offers a suite of USI reported revenues of $1.0 billion during 2015, integrated managed care services for injured workers. an increase of 12 percent, or $111 million, compared to York reported revenues of $715 million dur- 2014. The increase in revenues was primarily due to acqui- ing 2015. York began to be consolidated in October 2014, sitions and organic growth. when the business was acquired by the Onex Partners III During the year ended December 31, 2014, USI Group. Revenues of $153 million for 2014 represent results reported revenues of $926 million, an increase of 20 per- for the period from the October 2014 acquisition of York to cent, or $157 million, from 2013. The increase in revenues December 31, 2014. There are no comparative results for the during 2014 was primarily due to acquisitions and organic year ended December 31, 2013. growth. In addition, the accounting treatment of contin- gent commission revenues on the Onex Partners III Group’s late December 2012 acquisition of USI resulted in the rec- ognition of lower contingent commission revenues during 2013 compared to 2014. Onex Corporation December 31, 2015 35 M A N A G E M E N T ’ S D I S C U S S I O N A N D A N A LY S I S Packaging Products and Services The packaging products and services segment consists of the operations of sgsco and SIG. SIG was acquired by the Onex Partners IV Group in March 2015, as discussed on page 28 of this MD&A. The results of sgsco were previously included within the other segment. Table 3 provides revenues and cost of sales by operating company in the packaging products and services segment for the years ended December 31, 2015, 2014 and 2013. Packaging Products and Services Revenues and Cost of Sales TABLE 3 ($ millions) Year ended December 31 sgsco SIG(a) Total Revenues Cost of Sales 2015 $ 495 1,575 $ 2,070 2014 $ 492 – $ 492 Change 2015 1% n/a 321% $ 326 1,036 $ 1,362 2014 $ 317 – $ 317 Change 3% n/a 330% Results are reported in accordance with IFRS. These results may differ from those reported by the individual operating companies. (a) There are no comparative results for SIG, as the company began to be consolidated in March 2015, when the business was acquired by the Onex Partners IV Group. Packaging Products and Services Revenues and Cost of Sales TABLE 3 ($ millions) Year ended December 31 sgsco SIG(a) Total Revenues Cost of Sales 2014 $ 492 – $ 492 2013 $ 465 – $ 465 Change 2014 2013 Change 6% n/a 6% $ 317 – $ 317 $ 295 – $ 295 7% n/a 7% Results are reported in accordance with IFRS. These results may differ from those reported by the individual operating companies. (a) There are no comparative results for SIG, as the company began to be consolidated in March 2015, when the business was acquired by the Onex Partners IV Group. 36 Onex Corporation December 31, 2015 M A N 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 sgsco sgsco is a market leader in providing marketing solutions, SIG SIG is a world-leading provider of aseptic carton packag- digital imaging and design-to-print graphic services to ing solutions for beverages and liquid food. SIG supplies branded consumer products companies, retailers and the complete aseptic carton packaging systems, which include printers that service them. The company’s vertically inte- aseptic ﬁlling machines, aseptic cartons, spouts, caps and grated service platform includes creative development, closures and related aftermarket services. brand execution, image production and image carrier SIG’s functional currency is the euro. The reported services as well as an array of enterprise solutions, which revenues and cost of sales of SIG in U.S. dollars may not facilitate digital ﬁle management and ensure streamlined reﬂect the true nature of the operating results of the com- communication across the entire value chain. sgsco does pany due to the translation of those amounts and the asso- not focus on large-scale printing of product packaging. ciated ﬂuctuation of the euro and U.S. dollar exchange sgsco reported revenues of $495 million during rate. The discussion of SIG’s revenues and cost of sales is 2015, an increase of $3 million, or 1 percent, compared to in euros in order to reduce the impact of foreign currency 2014. The increase was primarily due to net organic sales translation on revenues and cost of sales. SIG has global growth and sales from recent acquisitions, partially offset operations and exposure to currency risk on the portion of by unfavourable foreign currency ﬂuctuations. its business that is not based on euros. Fluctuations in the Cost of sales at $326 million increased by 3 per- value of the euro relative to these other currencies can have cent, or $9 million, from 2014. The increase was due to the an impact on SIG’s reported results. incremental costs of goods sold from acquisitions com- bined with an increase in materials and outsourced sup- plier costs stemming from the increase in sales volume and During 2015, SIG reported revenues of €1.4 billion and cost of sales of €937 million, which represent results for the period from the March 2015 acquisition of SIG to the shift in product and geographic mix, wage inﬂation and December 31, 2015. Since SIG was acquired in March 2015, increased healthcare costs. there are no comparative results for 2014 or 2013. sgsco reported revenues of $492 million during 2014, an increase of $27 million, or 6 percent, from 2013. The increase was driven primarily by increased sales vol- Credit Strategies The credit strategies segment includes (i) Onex Credit ume to large consumer packaged goods companies and Manager, (ii) Onex Credit Collateralized Loan Obligations organic growth, as well as incremental sales generated and (iii) Onex Credit Funds. In January 2015, Onex began from businesses acquired during 2013. to consolidate the Onex Credit Manager and certain funds Cost of sales at $317 million increased 7 percent, managed by Onex Credit in which Onex, the parent com- or $22 million, in 2014 compared to 2013. The increase in pany, holds an investment as a result of the transaction cost of sales was primarily due to the increase in revenues described on page 27 of this MD&A. Gross revenues, includ- in addition to an increase in personnel costs, including ing management and incentive fees from Onex Credit healthcare, as well as investments in future growth oppor- Funds consolidated by Onex, earned by the credit strate- tunities, which increased labour and overhead costs. gies segment during the year ended December 31, 2015 were $35 million. Included in the gross revenues for the credit strategies segment is $3 million earned on investments in Onex Credit Funds held by Onex, the parent company, for the year ended December 31, 2015. Credit strategies segment revenue for 2015, net of management and incentive fees from Onex Credit Funds and CLOs consolidated by Onex, was $5 million. The credit strategies segment did not record any revenues for 2014 and 2013 as the Onex Credit Manager began to be consolidated in January 2015. Costs of the credit strategies segment are recorded in operating expenses. Onex Corporation December 31, 2015 37 M A N A G E M E N T ’ S D I S C U S S I O N A N D A N A LY S I S Other Businesses The other businesses segment consists of the revenues and (since July 2015), BSN SPORTS, Inc. (“BSN SPORTS”) (up to June 2013), Caliber Collision Centers (“Caliber Collision”) cost of sales of the ONCAP companies – EnGlobe Corp. (up to November 2013) and Mister Car Wash (up to August (“EnGlobe”), CiCi’s Holdings, Inc. (“CiCi’s Pizza”), Pinnacle 2014) – Emerald Expositions, LLC (“Emerald Expositions”) Pellet, Inc. (“Pinnacle Renewable Energy Group”), PURE (since June 2013), Survitec (since March 2015), Jack’s (since Cana dian Gaming, Hopkins Manufacturing Corporation July 2015), Schumacher (since late July 2015), Tropicana Las (“Hopkins”), Davis-Standard Holdings, Inc. (“Davis-Stan- Vegas (up to August 2015), Flushing Town Center, Meridian dard”), Bradshaw International, Inc. (“Bradshaw”), Chatters Aviation and the parent company. Table 4 provides revenues and cost of sales by operating company in the other businesses segment for the years ended December 31, 2015, 2014 and 2013. Other Businesses Revenues and Cost of Sales TABLE 4 ($ millions) Revenues Cost of Sales Year ended December 31 ONCAP companies(a) Emerald Expositions Jack’s(b) Schumacher(b) Survitec(b) Other(c) Total 2015 2014 Change 2015 2014 Change $ 1,581 307 168 408 294 117 $ 1,609 274 – – – 191 $ 2,875 $ 2,074 (2)% 12 % n/a n/a n/a (39)% 39 % $ 1,096 $ 1,065 83 134 327 159 5 82 – – – 25 $ 1,804 $ 1,172 3 % 1 % n/a n/a n/a (80)% 54 % Results are reported in accordance with IFRS. These results may differ from those reported by the individual operating companies. (a) 2015 ONCAP companies include EnGlobe, CiCi’s Pizza, Pinnacle Renewable Energy Group, PURE Canadian Gaming, Hopkins, Davis-Standard, Bradshaw and Chatters (since July 2015). 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). (b) Survitec was acquired by the Onex Partners IV Group in March 2015. Jack’s and Schumacher were acquired by the Onex Partners IV Group in the third quarter of 2015. (c) 2015 other includes Flushing Town Center, Tropicana Las Vegas (up to August 2015), Meridian Aviation and the parent company. 2014 other includes Tropicana Las Vegas, Flushing Town Center, Meridian Aviation and the parent company. Other Businesses Revenues and Cost of Sales TABLE 4 ($ millions) Revenues Cost of Sales Year ended December 31 2014 2013 Change 2014 2013 Change ONCAP companies(a) Emerald Expositions(b) Other(c) Total $ 1,609 $ 2,082 274 191 77 289 $ 2,074 $ 2,448 (23)% 256 % (34)% (15)% $ 1,065 $ 1,319 82 25 21 129 $ 1,172 $ 1,469 (19)% 290 % (81)% (20)% 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) Emerald Expositions was acquired by Onex Partners III Group in June 2013. (c) 2014 other includes Flushing Town Center, Tropicana Las Vegas, Meridian Aviation and the parent company. 2013 other includes Tropicana Las Vegas, Flushing Town Center, Meridian Aviation (since February 2013) and the parent company. 38 Onex Corporation December 31, 2015 M A N 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 2 percent, or $28 mil- Cost of sales of $83 million reported by Emerald Expositions during the year ended December 31, 2015 was lion, decrease in revenues for the year ended December 31, largely unchanged from 2014. Improvement in gross mar- 2015 compared to 2014, while cost of sales increased 3 per- gin was due to cost savings within the existing tradeshow cent, or $31 million. portfolio, as well as the discontinuation of several lower The decrease in revenues during the year ended margin events during 2015. December 31, 2015 was primarily due to the ONCAP II Emerald Expositions reported revenues of $274 mil- Group’s sale of Mister Car Wash in August 2014. The decrease lion (2013 – $77 million) and cost of sales of $82 million in revenues was partially offset by net increases at the (2013 – $21 million) for the year ended December 31, 2014. remaining ONCAP companies, which were primarily driven Revenues and cost of sales reported for the year ended by acquisitions completed by the companies, and the inclu- December 31, 2013 represent the operations since the sion of Chatters’ operating results from the date of acquisi- Onex Partners III Group’s June 2013 acquisition of Emerald tion in July 2015. The aggregate gross margin of the ONCAP Expositions. Excluding the impact of the mid-year acquisi- companies decreased in 2015 as a result of a greater propor- tion of Emerald Expositions, the increase in revenues and tion of product-based companies compared to 2014. cost of sales during 2014 was primarily due to the compa- The ONCAP companies reported a 23 percent, ny’s acquisition of George Little Management, LLC. or $473 million, decrease in revenues for the year ended Decem ber 31, 2014 compared to 2013, while cost of sales decreased 19 percent, or $254 million. The decrease in rev- Jack’s Jack’s is a regional premium quick-service restaurant enues and cost of sales during the year ended December 31, operator that offers Southern-inspired foods such as 2014 was primarily due to the ONCAP II Group’s sale of BSN made-from-scratch biscuits, burgers, fried chicken, plated SPORTS in June 2013, Caliber Collision in November 2013 and breakfasts, crinkle-cut fries and hand-dipped shakes. The Mister Car Wash in August 2014. The decrease in revenues company has over 130 free-standing corporate-operated and cost of sales was partially offset by increases at certain restaurants across Alabama, Georgia, Mississippi and of the remaining ONCAP companies, which were driven by Tennessee. The company also owns the distribution facility acquisitions completed by the companies. that handles most of Jack’s food and non-food supply chain and makes deliveries to the restaurants twice a week. Emerald Expositions Emerald Expositions is a leading operator of large busi- During 2015, Jack’s reported revenues of $168 mil- lion and cost of sales of $134 million, which represent results ness-to-business tradeshows in the United States across for the period from the July 2015 acquisition of Jack’s to 10 end markets. Emerald Expositions has two principal December 31, 2015. Since Jack’s was acquired in July 2015, sources of revenue: tradeshow revenue and revenue from there are no comparative results for 2014 and 2013. print and digital publications and select conferences. Tradeshow revenue is generated from selling exhibit space and sponsorship slots to exhibitors on a per-square-foot- age basis. Schumacher Schumacher is a leading provider of emergency and hos- pital medicine physician practice management services During 2015, revenues at Emerald Expositions in the United States. Schumacher provides a single source were $307 million, an increase of $33 million, or 12 per- of accountability in managing hospitalist and emergency cent, compared to 2014. The revenue increase was primar- departments. The company reduces the cost and admin- ily attributable to acquisitions completed during 2015 and 2014 that generated $24 million in additional revenues. The remaining increase was attributable to organic growth. istrative burden for hospital administrators by recruiting, staYng and compensating the clinicians, as well as manag- ing reimbursement and collections from third-party pay- ors, developing robust technology solutions and improving the operating and clinical performance of the emergency and hospitalist departments. Onex Corporation December 31, 2015 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 During 2015, Schumacher reported revenues of $408 million and cost of sales of $327 million, which repre- sent results for the period from the late July 2015 acquisition of Schumacher to December 31, 2015. Since Schumacher Interest expense of operating companies New investments are structured with the acquired com- pany having suYcient equity to enable it to self-ﬁnance a signiﬁcant portion of its acquisition cost with a prudent was acquired in late July 2015, there are no comparative amount of debt. The level of debt is commensurate with results for 2014 or 2013. Survitec Survitec is a market-leading provider of mission-criti- the operating company’s available cash ﬂow, including consideration of funds required to pursue growth oppor- tunities. It is the responsibility of the acquired operating company to service its own debt obligations. cal marine, defence and aerospace survival equipment. Consolidated interest expense for the year ended Survitec’s key products include inﬂatable lifesaving equip- December 31, 2015 was $878 million, up $209 million from ment designed to withstand harsh marine environments $669 million in 2014. The increase was primarily due to the and survival suits designed for extreme thermal and pres- inclusion of interest expense for: (i) Survitec, SIG, Chatters, sure conditions. Jack’s and Schumacher, which were acquired during 2015; Survitec’s functional currency is the pound ster- (ii) the debt associated with York, which was acquired in ling. The reported revenues and cost of sales of Survitec in October 2014; and (iii) the additional debt from Onex U.S. dollars may not reﬂect the true nature of the operat- Credit CLOs. ing results of the company due to the translation of those amounts and the associated ﬂuctuation of the pound sterling and U.S. dollar exchange rate. The discussion of Survitec’s revenues and cost of sales is in pounds sterling in Increase in value of investments in joint ventures and associates at fair value, net Investments in joint ventures and associates are deﬁned order to reduce the impact of foreign currency translation under IFRS as those investments in operating businesses on revenues and cost of sales. Survitec has global operations over which Onex has joint control or signiﬁcant inﬂuence, and exposure to currency risk on the portion of its business but not control. Certain of these investments are desig- that is not based on the pound sterling. Fluctuations in the nated, upon initial recognition, at fair value in the consoli- value of the pound sterling relative to these other currencies dated balance sheets. Both realized and unrealized gains can have an impact on Survitec’s reported results. and losses are recognized in the consolidated statements During 2015, Survitec reported revenues of £192 mil- of earnings as a result of increases or decreases in the lion and cost of sales of £104 million, which represent results fair value of investments in joint ventures and associates. for the period from the March 2015 acquisition of Survitec The investments that Onex determined to be investments to December 31, 2015. Since Survitec was acquired in March in joint ventures or associates and thus recorded at fair 2015, there are no comparative results for 2014 or 2013. value are AIT (since December 2014), Allison Transmission Holdings, Inc. (“Allison Transmission”) (up to June 2014), Other Other revenues and cost of sales decreased in the year BBAM, Cypress Insurance Group (up to July 2014), ITG (since June 2015), Mavis Discount Tire (since October 2014), ended December 31, 2015 from 2014 primarily due to the Tomkins Limited (“Tomkins”) (up to April 2014) and certain sale of Tropicana Las Vegas in August 2015. Onex Real Estate investments. Other revenues and cost of sales decreased in the During 2015, Onex recorded an increase in the fair year ended December 31, 2014 from 2013 primarily due value of investments in joint ventures and associates of to activity at Flushing Town Center. The sales of condo- $175 million compared to $412 million in 2014. The increase minium units in the ﬁrst phase of Flushing Town Center’s in 2015 was primarily due to improved operating perfor- development were substantially completed by the end of mance and the impact of acquisition cost synergies at cer- the ﬁrst quarter of 2014. tain of the investments. The increase in 2014 was primarily due to (i) the public share value of Allison Transmission for 40 Onex Corporation December 31, 2015 M A N 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 2014 share repurchases and secondary offerings being above the value of the investment at December 2013 and (ii) Other gains Table 6 provides a breakdown of other gains recognized the sale of Tomkins being completed at a value above the during the years ended December 31, 2015 and 2014. December 31, 2013 investment value. Of the total fair value increase recorded during Other Gains 2015, $128 million (2014 – $279 million) is attributable to the limited partners in the Onex Partners and ONCAP Funds, TABLE 6 ($ millions) 2015 2014 which contributes to the Limited Partners’ Interests charge Gain on sale of Tropicana Las Vegas $ 102 $ discussed on page 47 of this MD&A. Onex’ share of the total Gain on sale of Flushing Town Center fair value increase was $47 million (2014 – $133 million). Gain on the Onex Credit transaction Stock-based compensation expense Onex recorded a consolidated stock-based compensa- Gain on sale of B.C. Sugar residual property Gain on sale of Mister Car Wash Other 60 38 36 – 3 – – – – 317 – tion expense of $260 million during 2015 compared to Total other gains $ 239 $ 317 $228 million in 2014. Onex, the parent company, contributed $134 million (2014 – $142 million) of the expense primar- ily related to its stock options and MIP equity interests. In accordance with IFRS, the expense recorded on these plans is determined based on the fair value of the liability at the end 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- ily impacted by the change in the market value of Onex’ shares and the MIP equity interests affected primarily by the change in the fair value of Onex’ investments. The expense recorded by Onex, the parent company, on its stock options during 2015 was primarily due to the 26 percent increase in the market value of Onex’ shares to C$84.82 at December 31, 2015 from C$67.46 at December 31, 2014. Table 5 details the change in stock-based compensation of Onex, the parent company, and Onex operating companies for the years ended December 31, 2015 and 2014. Stock-Based Compensation Expense TABLE 5 ($ millions) 2015 2014 Change Onex, the parent company, Tropicana Las Vegas In August 2015, the Onex Partners III Group sold its invest- ment in Tropicana Las Vegas, as described in the signiﬁcant transactions section starting on page 27 of this MD&A. Onex’ consolidated results include a pre-tax gain of $102 million based on the excess of the proceeds over the carrying value of the investment. Onex’ share of the gain was $22 million. The gain on sale is entirely attributable to the equity holders of Onex Corporation, as the interest of the Limited Partners was recorded as a ﬁnancial liability at fair value. No amounts were paid on account of the MIP for this transaction as the required investment return hurdle for Onex was not met. In addition, no carried interest was paid or received on this transaction. Until the realized cash loss on Tropicana Las Vegas is fully offset, the carried interest that would other- wise be distributed to Onex in respect of a future realization in the Onex Partners III Fund is expected to be reduced by $7 million. The amount of carried interest ultimately received from the Onex Partners III Fund will be based on the overall performance of the fund. Tropicana Las Vegas did not represent a major line of business, and as a result, the operating results up to the date of disposition have not been presented as a discontin- stock options $ 102 $ 88 $ 14 ued operation. Onex, the parent company, MIP equity interests Onex operating companies 32 126 54 86 (22) 40 Total stock-based compensation $ 260 $ 228 $ 32 Onex Corporation December 31, 2015 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 Flushing Town Center In July and December 2015, Onex Real Estate Partners sold This gain included the portion attributable to Onex’ invest- ment, as well as that of the limited partners of ONCAP II. substantially all of the retail space and adjoining parking The effect of this was to recover the prior charges to Onex’ structures of Flushing Town Center, as described in the consolidated earnings for Mister Car Wash value increases signiﬁcant transactions section starting on page 27 of this allocated to the limited partners over the life of the invest- MD&A. Onex’ consolidated results included a pre-tax gain ment, which totalled $177 million. The balance of $140 mil- of $60 million based on the excess of the proceeds over the lion reﬂects the gain on Onex’ investment in Mister Car carrying value of the property sold. Onex’ share of the gain Wash. Management of ONCAP received $40 million in was $52 million. carried interest on the sale of Mister Car Wash. The impact The retail space and adjoining parking structures to Onex and management of Onex was a net payment of of Flushing Town Center did not represent a major line of $7 mil lion in carried interest. Management of Onex received business, and as a result, the operating results up to the $11 million on account of this transaction related to the MIP. date of disposition have not been presented as a discontin- Mister Car Wash did not represent a separate ued operation. major line of business and as a result has not been pre- Onex Credit transaction In January 2015, Onex acquired control of the Onex Credit asset management platform, as described in the signiﬁcant Other expense (income) Table 7 provides a breakdown of and the change in other transactions section starting on page 27 of this MD&A. expense (income) for the years ended December 31, 2015 sented as a discontinued operation. In connection with this transaction, Onex derecognized and 2014. its previous equity-accounted interest in the Onex Credit asset management platform at fair value on the date of Other Expense (Income) the transaction, resulting in a non-cash gain of $38 million recorded in the credit strategies segment during the ﬁrst quarter of 2015. TABLE 7 ($ millions) 2015 2014 Change Losses on investments and long-term debt in CLOs and B.C. Sugar residual property In January 2015, Onex sold a residual property from its Onex Credit Funds $ 195 $ 65 $ 130 Carried interest due to Onex former investment in B.C. Sugar for proceeds of $54 mil- and ONCAP management lion, recognizing a gain of $36 million. Onex’ share of the Transition, integration and other proceeds on the sale of the residual property was $33 mil- Transaction costs lion, net of amounts paid on account of the MIP, and Onex’ Decrease (increase) in value share of the gain was $23 million. Management of Onex of other Onex Partners earned $3 million on account of this transaction related to the MIP. Mister Car Wash In August 2014, the ONCAP II Group sold its interests in Mister Car Wash for net proceeds of $386 million, of which Onex’ share was $153 million, after deducting $11 million paid to management of Onex on account of the MIP. The investments Restructuring Foreign exchange loss Income on equity-accounted investments Change in fair value of contingent consideration Derivatives losses (gains) realized gain on the sale of Mister Car Wash was $317 mil- Other 130 110 81 71 64 52 (61) (76) (120) (11) 160 121 24 (46) 49 27 (22) (2) 16 (34) (30) (11) 57 117 15 25 (39) (74) (136) 23 lion based on the excess of the proceeds over the carrying Total other expense $ 435 $ 358 $ 77 value of the investment. The gain on the sale was entirely attributable to the equity holders of Onex Corporation. 42 Onex Corporation December 31, 2015 M A N 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 Losses on investments and long-term debt Transition, integration and other expenses for in CLOs and Onex Credit Funds Losses on investments in CLOs and Onex Credit Funds were 2015 were primarily due to the integration of acquisitions completed by Survitec and USI. Transition, integration and primarily unrealized and driven by volatility in the leveraged other expenses for 2014 were primarily due to Carestream loan market during 2015. Partially offsetting these losses Health, Emerald Expositions and USI. were gains on the long-term debt in the CLOs. Carried interest due to Onex and ONCAP management The General Partners of the Onex Partners and ONCAP Transaction costs Transaction costs are incurred by Onex and its operating companies to complete business acquisitions, and typically Funds are entitled to a carried interest of 20 percent on include advisory, legal and other professional and consult- the realized gains of the limited partners in each fund, as ing costs. determined in accordance with the limited partnership Transaction costs for 2015 were primarily due to agreements. Onex is allocated 40 percent of the carried the acquisitions of Chatters, Jack’s, Schumacher, SIG and interest realized in the Onex Partners Funds. Onex man- Survitec, as discussed in the signiﬁcant transactions sec- agement is allocated 60 percent of the carried interest real- tion starting on page 27 of this MD&A, in addition to acqui- ized in the Onex Partners Funds and ONCAP management sitions completed by the operating companies. Transaction is entitled to that portion of the carried interest realized costs for 2014 were primarily due to the acquisition of York, in the ONCAP Funds that equates to a 12 percent carried the investment in AIT and acquisitions completed by the interest on both limited partners’ and Onex’ capital. Onex’ operating companies. share of the carried interest change is recorded as an offset in the Limited Partners’ Interests amount in the consoli- Decrease (increase) in value of other dated statements of earnings. The carried interest due to management of Onex Onex Partners investments Other Onex Partners investments include investments and ONCAP represents the share of the overall net gains in which Onex has no or limited remaining strategic or in each of the Onex Partners and ONCAP Funds attribut- operating inﬂuence: Allison Transmission (from June to able to the management of Onex and ONCAP. The carried September 2014), FLY Leasing Limited, Genesis Healthcare interest is estimated based on the current fair values of the (since February 2015), Spirit AeroSystems (from June to underlying investments in the funds and the overall net August 2014) and Tomkins (since April 2014). For 2015, Onex gains in each respective fund determined in accordance reported a decrease in value of other Onex Partners invest- with the limited partnership agreements. The ultimate ments of $71 million (2014 – increase of $46 million). amount of carried interest earned will be based on the The decrease in value of other Onex Partners overall performance of each fund. During 2015, a charge of invest ments during the year ended December 31, 2015 was $130 million (2014 – $160 million) was recorded in the con- primarily due to the public share value of Genesis Health- solidated statements of earnings for an increase in man- care being below the value of the investment on the date of agement’s share of the carried interest primarily due to an combination with Skilled Healthcare Group. The increase increase in the fair value of certain of the investments in in value of other Onex Partners investments for 2014 was the Onex Partners and ONCAP Funds. primarily due to (i) the change in fair value of the shares of Transition, integration and other Transition, integration and other expenses are typically lic offering and share repurchase up until the August 2014 secondary public offering and (ii) the change in fair value to provide for the costs of transitioning the activities of an of the residual assets of Tomkins. Spirit AeroSystems held after the June 2014 secondary pub- operating company from a prior parent company upon acquisition and to integrate new acquisitions at the operat- ing companies. Onex Corporation December 31, 2015 43 M A N A G E M E N T ’ S D I S C U S S I O N A N D A N A LY S I S Table 8 provides a breakdown of the decrease (increase) Spirit AeroSystems in value of other Onex Partners investments for the years In June 2014, under a secondary public offering and share ended December 31, 2015 and 2014. repurchase of Spirit AeroSystems, Onex Partners I Group Decrease (Increase) in Value of Other Onex Partners Investments TABLE 8 ($ millions) Genesis Healthcare FLY Leasing Limited Tomkins Spirit AeroSystems Allison Transmission sold 8.0 million shares of Spirit AeroSystems, of which Onex’ portion was approximately 2.1 million shares. As a result of this transaction, Onex Partners I Group lost its controlling interest in Spirit AeroSystems, and the remain- ing interest held by Onex Partners I Group was recorded as a long-term investment at fair value, with changes in fair value recorded in other income (expense). In August 2014, under a secondary public offer- ing of Spirit AeroSystems, Onex Partners I Group sold its remaining 8.4 million shares of Spirit AeroSystems, of 2015 $ 72 (1) − − − $ 2014 − 5 (21) (29) (1) $ 71 $ (46) which Onex’ portion was approximately 2.2 million shares. Other income of $29 million recorded during 2014 repre- sents the change in fair value of the shares held after the June 2014 secondary public offering and share repurchase up until the August 2014 secondary public offering. Allison Transmission In 2014, Allison Transmission completed secondary offer- ings to the public of 85.6 million shares of common stock and repurchased 8.4 million shares of common stock. The secondary offerings included the full exercise of the over- allotment options. As part of the offerings and share repur- chases, Onex Partners II Group sold 47.0 million shares of common stock. After completion of the June 2014 secondary offer- ing and share repurchase, Onex Partners II Group contin- ued to own approximately 2 percent in the aggregate of Allison Transmission’s outstanding common stock. As a result, the Onex Partners II Group no longer had a signiﬁ- cant inﬂuence over Allison Transmission and the remain- ing investment in Allison Transmission was recorded within other long-term investments at fair value through earnings, with changes in fair value recorded in other income (expense), until the Onex Partners II Group sold its remaining interest in September 2014. Income recorded in other income (expense) of $1 million during 2014 represents the change in fair value of the shares held after the June 2014 secondary offering and share repurchase up until the September 2014 second- ary offering. Genesis Healthcare In February 2015, Skilled Healthcare Group combined with Genesis HealthCare, LLC, as described in the signiﬁcant transactions section starting on page 27 of this MD&A. As a result of the transaction, Onex no longer controls Skilled Healthcare Group and its investment in the combined company, Genesis Healthcare, is recorded as an other long-term investment at fair value through earnings, with changes in fair value recorded in other income (expense). Tomkins In April 2014, Onex, together with Canada Pension Plan Investment Board (“CPPIB”), entered into an agreement to sell Gates, Tomkins’ principal remaining business. As a result, at that time, Onex’ investment in Tomkins was recorded in assets held for sale and was recorded at fair value in the consolidated balance sheets, with changes in fair value recognized within other income (expense) in the consolidated statements of earnings. The sale was completed in July 2014 for an enter- prise value of $5.4 billion. Proceeds from the sale to Onex Partners III Group were $2.0 billion. Onex’ share of the proceeds was $542 million, including carried interest and after the reduction for distributions paid on account of the MIP. After the sale of Gates, Onex continued to own resid- ual assets of Tomkins. Through December 2015, Onex Part- ners III sold the residual assets for proceeds of $45 million. Income of $21 million recorded in other expense (income) during the year ended December 31, 2014 primar- ily represents the change in fair value of the residual assets of Tomkins. 44 Onex Corporation December 31, 2015 M A N A G E M E N T ’ S D I S C U S S I O N A N D A N A LY S I S Restructuring Restructuring charges are the costs incurred by the oper- Foreign exchange loss For the year ended December 31, 2015, Onex reported con- ating companies to realign organizational structures or solidated loss from foreign exchange of $52 million (2014 – restructure manufacturing capacity to obtain operating syn- $27 million). The foreign exchange loss during 2015 was pri- ergies critical to building the long-term value of those oper- marily due to losses recognized by SIG, Carestream Health ating companies. Table 9 provides a breakdown of and the and Survitec. For the year ended December 31, 2014, foreign change in restructuring charges (recoveries) by operating exchange loss was primarily due to losses recognized by company for the years ended December 31, 2015 and 2014. Care stream Health and JELD-WEN. Restructuring Charges (Recoveries) TABLE 9 ($ millions) Celestica JELD-WEN USI Carestream Health Other 2015 $ 24 17 16 3 4 2014 Change Change in fair value of contingent consideration Onex recorded a net recovery of $76 million (2014 – $2 mil- lion) during 2015 in relation to the estimated change in fair $ (2) $ 26 value of contingent consideration related to acquisitions 31 6 11 3 (14) 10 (8) 1 completed by Onex and its operating companies. The fair value of contingent consideration liabilities is typically based on the estimated future ﬁnan cial performance of the acquired businesses. Financial targets used in the estima- Total restructuring charges $ 64 $ 49 $ 15 tion process include certain deﬁned ﬁnancial targets and Celestica Celestica’s restructuring charges for 2015 primarily related to costs to consolidate certain sites and to reduce the work- force. During 2014, Celestica recorded a recovery of $2 mil- lion primarily due to a reversal of estimated contractual lease obligations. JELD-WEN JELD-WEN’s restructuring charges for 2015 primarily related to the closure of a facility and personnel restructuring. The charges recorded by JELD-WEN in 2014 primarily related to severance costs and the modiﬁ cation of a management incentive plan. USI USI’s restructuring charges for 2015 and 2014 primarily related to severance and lease abandonment costs. Carestream Health Carestream Health’s restructuring charges for 2014 related primarily to the establishment of a central functions loca- tion for its European operations. realized internal rates of return. The total estimated fair value of contingent con- sideration liabilities at December 31, 2015 was $318 million (2014 – $203 million). The increase in the total estimated fair value of contingent consideration liabilities at Decem- ber 31, 2015 was primarily due to the contingent consider- ation associated with the acquisition of SIG, as discussed on page 28 of this MD&A. At December 31, 2015, SIG had revised its estimate of the additional amount to €125 mil- lion ($136 million), resulting in a recovery of €50 million ($55 million) recognized in other income (expense) during 2015. The amount represented management’s best estimate of the fair value at December 31, 2015, which is subject to sensitivity associated with various factors, including for- eign currency ﬂuctuations, as well as uncertainty regarding the treatment of certain items. Derivatives losses (gains) For the year ended December 31, 2015, Onex reported con- solidated gains from derivatives of $120 million (2014 – losses of $16 million). The derivatives gains in 2015 primarily relate to mark-to-market gains at SIG, which was acquired in March 2015. Derivative gains and losses for the year ended December 31, 2014 primarily relate to Meridian Aviation. Onex Corporation December 31, 2015 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 Other For the year ended December 31, 2015, Onex reported con- ResCare Due to a decline in the recoverable amount of ResCare’s solidated other income of $11 million (2014 – $34 million). Other includes realized and unrealized gains (losses) on Onex Corporation investments in managed accounts and HomeCare segment, measured in accordance with IAS 36, Impairment of Assets, ResCare recorded a non-cash goodwill and intangible asset impairment of $51 million during 2015. gains on the sale of tax losses, as discussed below. The impairment was calculated primarily on a fair value In December 2015, Onex sold entities, the sole less costs to sell basis. The recoverable amount calculated assets of which were certain tax losses, as described on was approximately $140 million and was a Level 3 measure- page 85 of this MD&A. The cash received of $11 million ment in the fair value hierarchy as a result of signiﬁcant (2014 – $9 million) was recorded as a gain in other expense other unobservable inputs used in determining the recover- (income) during the fourth quarter. able amount. Impairment of goodwill, intangible assets and long-lived assets, net Table 10 provides a breakdown of the net impairment Celestica During 2015, Celestica recorded a non-cash impairment charge of $12 million to impair certain of its property, plant (recovery) of goodwill, intangible assets and long-lived and equipment. During 2014, Celestica recorded a non- assets by operating company for the years ended Decem- cash goodwill impairment charge related to its semicon- ber 31, 2015 and 2014. Impairment (Recovery) of Goodwill, Intangible Assets and Long-lived Assets, Net ductor business. Emerald Expositions During 2015 and 2014, Emerald Expositions recorded non- cash impairment charges primarily related to certain trade names and customer relationships. CiCi’s Pizza ONCAP II’s operating company, CiCi’s Pizza, recorded a non-cash goodwill impairment charge of $26 million dur- ing 2014. The impairment was primarily due to a decrease in projected future earnings and a reduction in the exit 2015 $ 51 12 6 – – 13 2014 $ − 41 15 26 (42) 9 $ 82 $ 49 multiple due to market risks. TABLE 10 ($ millions) ResCare Celestica Emerald Expositions CiCi’s Pizza Flushing Town Center Other, net(a) Total (a) 2015 other includes net impairments related to JELD-WEN, sgsco and SIG. Flushing Town Center 2014 other includes net impairments related to JELD-WEN and sgsco. During 2014, Flushing Town Center recorded a non-cash recovery of an impairment charge of $42 million associ- ated with its retail space and parking structures. During 2015, Flushing Town Center sold substantially all of its retail space and parking structures, as described on page 29 of this MD&A. 46 Onex Corporation December 31, 2015 M A N 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 Limited Partners’ Interests charge The Limited Partners’ Interests charge in Onex’ consoli- The Limited Partners’ Interests charge for the Onex Partners and ONCAP Funds is net of an increase of $192 mil- dated statements of earnings primarily represents the lion (2014 – $239 million) in carried interest for the year change in the fair value of the underlying investments in ended December 31, 2015. Onex’ share of the carried inter- the Onex Partners, ONCAP and Onex Credit Funds that is est change for 2015 was an increase of $64 million (2014 – allocated to the limited partners and recorded as Limited $84 million). The change in the amount of carried interest Partners’ Interests liability in Onex’ consolidated balance that has been netted against the Limited Partners’ Interests sheets. The Limited Partners’ Interests charge for the Onex for the Onex Partners and ONCAP Funds decreased during Partners and ONCAP Funds includes the fair value changes 2015 due to a lower increase in the fair value of certain of the of consolidated operating companies, investments in joint investments in the Onex Partners and ONCAP Funds. The ventures and associates and other investments that are ultimate amount of carried interest realized will be depen- held in the Onex Partners and ONCAP Funds. dent on the actual realizations for each fund in accordance During 2015, Onex recorded a charge of $882 mil- with the limited partnership agreements. lion (2014 – $1.1 billion) for Limited Partners’ Interests In January 2015, Onex acquired control of the for Onex Partners and ONCAP Funds. The increase in the Onex Credit asset management platform and began con- fair value of certain of the investments held in the Onex solidating the Onex Credit Funds in which Onex has an Partners and ONCAP Funds contributed signiﬁcantly to investment. The Limited Partners’ Interests liability for the the Limited Partners’ Interests charge for the Onex Partners Onex Credit Funds includes investments by those other and ONCAP Funds recorded in 2015. than Onex in the Onex Credit Funds consolidated by Onex. During the year ended December 31, 2015, Onex recorded a recovery of $26 million for Limited Partners’ Interests for the Onex Credit Funds. Onex Corporation December 31, 2015 47 M A N A G E M E N T ’ S D I S C U S S I O N A N D A N A LY S I S Loss from continuing operations Table 11 shows the earnings (loss) from continuing operations by industry segment for the years ended December 31, 2015, 2014 and 2013. Earnings (Loss) from Continuing Operations by Industry Segment TABLE 11 ($ millions) Earnings (loss) from continuing operations: Electronics Manufacturing Services Healthcare Imaging Health and Human Services Building Products Insurance Services(a) Packaging Products and Services(b) Credit Strategies(c) Other(d) Loss from continuing operations 2015 2014 2013 $ 67 $ 108 $ 118 (30) (1) (1) (79) 69 (50) (859) $ (884) 41 29 (123) (76) 14 (31) (754) $ (792) (86) 52 (85) (63) (5) 62 (508) $ (515) (a) The insurance services segment consists of USI and York. York began to be consolidated in October 2014, when the business was acquired by the Onex Partners III Group. (b) The packaging products and services segment consists of sgsco and SIG. sgsco was previously included within the other segment. SIG began to be consolidated in March 2015, when the business was acquired by the Onex Partners IV 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 the other segment. Onex Credit Manager and Onex Credit Funds began to be consolidated in January 2015, when Onex acquired control of the Onex Credit asset management platform. (d) 2015 other includes Flushing Town Center, Tropicana Las Vegas (up to August 2015), Meridian Aviation, Emerald Expositions, Survitec (since March 2015), Jack’s (since July 2015), Schumacher (since late July 2015), the operating companies of ONCAP II and ONCAP III (Chatters since July 2015) and the parent company. In addition, consolidated earnings include the changes in fair value of AIT, BBAM, Genesis Healthcare (since February 2015), ITG (since June 2015) and Mavis Discount Tire. 2014 other includes Flushing Town Center, Tropicana Las Vegas, Meridian Aviation, Emerald Expositions, the operating companies of ONCAP II (Mister Car Wash up to August 2014) and ONCAP III 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 Flushing Town Center, Tropicana Las Vegas, 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. 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. 48 Onex Corporation December 31, 2015 M A N 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 shows the major components of the earnings (loss) from continuing operations recorded in the other segment for the years ended December 31, 2015, 2014 and 2013. Loss from Continuing Operations Recorded in the Other Segment TABLE 12 ($ millions) 2015 2014 2013 Loss (earnings) from continuing operations – other: Limited Partners’ Interests charge Interest expense of operating companies Stock-based compensation expense Unrealized carried interest due to Onex and ONCAP management Impairment (recovery) of goodwill, intangible assets and long-lived assets, net Other gains Increase in value of investments in joint ventures and associates at fair value, net Non-cash recovery of deferred income taxes by Onex, the parent company Other $ 882 145 143 130 6 (201) (175) − (71) $ 1,069 $ 1,855 104 151 160 (1) (317) (412) − – 89 270 262 201 (561) (1,098) (480) (30) Loss from continuing operations – Other $ 859 $ 754 $ 508 Table 13 presents the earnings (loss) from continuing oper- ations attributable to equity holders of Onex Corporation Earnings (loss) from discontinued operations The earnings (loss) from discontinued operations for 2015 and non-controlling interests for the years ended Decem- represent the results of operations of KraussMaffei, Sitel ber 31, 2015, 2014 and 2013. Worldwide (up to September 2015) and Skilled Healthcare Group (up to February 2015). Discontinued operations for Earnings (Loss) from Continuing Operations 2014 represent the results of operations of KraussMaffei, TABLE 13 ($ millions) 2015 2014 2013 Earnings (loss) from continuing operations attributable to: Equity holders of Onex Sitel Worldwide, Skilled Healthcare Group, The Warranty Group (up to August 2014) and Spirit AeroSystems (up to June 2014). Discontinued operations for 2013 represent the results of operations of KraussMaffei, Sitel Worldwide, Skilled Healthcare Group, The Warranty Group, Spirit Aero- Corporation $ (946) $ (859) $ (549) Systems and TMS International Corp. (“TMS Inter national”) Non-controlling interests 62 67 34 (up to October 2013). Loss from continuing operations $ (884) $ (792) $ (515) 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, 2015 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 after-tax earnings (loss), gain on sale, net of tax, and earnings (loss) from discontinued operations for the years ended December 31, 2015, 2014 and 2013. After-Tax Earnings (Loss) from Discontinued Operations TABLE 14 ($ millions) After-Tax Earnings (Loss) Gain on Sale, Net of Tax Earnings (Loss) from Discontinued Operations 2015 2014 2013 2015 2014 2013 2015 2014 2013 Earnings (loss) from discontinued operations: KraussMaffei Sitel Worldwide Skilled Healthcare Group The Warranty Group Spirit AeroSystems TMS International $ 5 $ 38 $ (27) $ − $ (61) (69) 2 − − – 5 49 250 – (21) (83) 112 (540) 19 365 68 − − – − − – 368 310 – $ − − – – – 242 $ 5 $ 38 $ (27) 304 70 − − – (69) 5 417 560 – (21) (83) 112 (540) 261 Total $ (54) $ 273 $ (540) $ 433 $ 678 $ 242 $ 379 $ 951 $ (298) Onex’ portion of the after-tax results from discontinued operations during 2015 was earnings of $373 million ($3.48 Sitel Worldwide In September 2015, Onex completed the sale of Sitel per share) compared to $744 million ($6.76 per share) in Worldwide, as described in the signiﬁcant transactions 2014 and $195 million ($1.43 per share) in 2013. section starting on page 27 of this MD&A. The Company’s KraussMaffei In January 2016, the Onex Partners III Group entered into an agreement to sell KraussMaffei for a cash enterprise value of approximately €925 million. Under the terms of the agreement, Onex Partners III Group will receive net proceeds of approximately €670 million. Onex’ portion will be approximately €180 million, including estimated carried interest of €12 million and after the reduction for amounts on account of the MIP. By early 2016, the Onex cash proceeds were $35 million, of which Onex’ share was $33 million. In addition, the Company estimates it may receive an earn-out component of approximately $21 mil- lion, of which Onex’ share is $20 million. Onex’ consoli- dated results include a gain of $365 million related to the sale based on the excess of the proceeds over the carrying value of the investment. The carrying value of the invest- ment was negative at the time of sale as a result of Onex’ portion of accumulated losses from the operations of Sitel Worldwide that offset Onex’ investments. Onex’ share of Partners III Group had hedged the foreign exchange expo- the gain was $360 million. sure for substantially all of its estimated net proceeds. The transaction is expected to close during the ﬁrst half of 2016 and is subject to customary closing conditions and regula- tory approvals. Skilled Healthcare Group In February 2015, Skilled Healthcare Group combined with Genesis HealthCare, a leading U.S. operator of long-term care facilities, as discussed in the signiﬁcant transactions section starting on page 27 of this MD&A. During the ﬁrst quarter of 2015, Onex recognized after-tax earnings from discontinued operations of $70 million, which included a non-cash gain of $68 million associated with measuring its interest in Genesis Healthcare at fair value at the date of the combination. 50 Onex Corporation December 31, 2015 M A N 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 Warranty Group In August 2014, the Onex Partners I and Onex Partners II In August 2014, under a secondary public offer- ing of Spirit AeroSystems, the Onex Partners I Group sold Groups sold their investments in The Warranty Group for its remaining 8.4 million shares of Spirit AeroSystems, of an enterprise value of approximately $1.5 billion. The Onex which Onex’ portion was approximately 2.2 million shares. Partners I and Onex Partners II Groups received net pro- Including prior realizations, the Onex Partners I ceeds of $1.1 billion, resulting in a gain of $368 million. Group received total net proceeds of $3.2 billion compared Onex’ portion of the proceeds was $382 million, including to its original investment of $375 million. Onex received carried interest of $51 million and after the reduction for total net proceeds of approximately $1.0 billion, including amounts paid on account of the MIP. prior realizations, compared to its original investment of Amounts received on account of the carried inter- $108 million. est related to this transaction totalled $127 million. Onex’ A gain of $310 million was recorded within discon- portion of the carried interest received was $51 million and tinued operations during the second quarter of 2014 based Onex management’s portion of the carried interest was on the excess of the proceeds and the interest retained at $76 million. Management of Onex earned $23 million on fair value over the carrying value of the investment. The account of this transaction related to the MIP. portion of the gain associated with measuring the interest Including prior distributions of $403 million, retained in Spirit AeroSystems at fair value was $159 mil- the Onex Partners I and Onex Partners II Groups received lion. The portion of the gain associated with the shares sold total net proceeds of $1.5 billion compared to their original was $151 million. investment of $498 million. Onex received total net proceeds of $509 million, including prior distributions of $127 million, compared to its original investment of $157 million. TMS International In October 2013, the Onex Partners II Group completed the sale of its remaining interest in TMS International as Spirit AeroSystems In June 2014, under a secondary public offering and share part of an offer made for all outstanding shares of TMS International. Total cash proceeds to the Onex Partners II repurchase of Spirit AeroSystems, the Onex Partners I Group from the sale were $410 million, of which Onex’ Group sold 8.0 million shares of Spirit AeroSystems, share was $172 million, including carried interest. of which Onex’ portion was approximately 2.1 million shares. As a result of this transaction, Onex lost its multi- Note 6 to the consolidated ﬁnancial statements provides ple voting rights, which reduced its voting interest in Spirit additional information on earnings from discontinued AeroSystems to 6 percent from 55 percent. This transac- operations. tion resulted in a loss of control of Spirit AeroSystems by the Company. The remaining interest held by the Company was recorded as a long-term investment at fair value, with changes in fair value recorded in other income (expense), as described on page 44 of this MD&A. Onex Corporation December 31, 2015 51 M A N A G E M E N T ’ S D I S C U S S I O N A N D A N A LY S I S Consolidated net earnings (loss) Table 15 shows the net earnings (loss) by industry segment for the years ended December 31, 2015, 2014 and 2013. Consolidated Net Earnings (Loss) by Industry Segment TABLE 15 ($ millions) Net earnings (loss): 2015 2014 2013 Electronics Manufacturing Services $ 67 $ 108 $ 118 Healthcare Imaging Health and Human Services Building Products Insurance Services(a) Packaging Products and Services(b) Credit Strategies(c) Other(d) Earnings (loss) from discontinued operations Consolidated net earnings (loss) (30) (1) (1) (79) 69 (50) (859) 379 41 29 (123) (76) 14 (31) (754) 951 (86) 52 (85) (63) (5) 62 (508) (298) $ (505) $ 159 $ (813) (a) The insurance services segment consists of USI and York. York began to be consolidated in October 2014, when the business was acquired by the Onex Partners III Group. (b) The packaging products and services segment consists of sgsco and SIG. sgsco was previously included within the other segment. SIG began to be consolidated in March 2015, when the business was acquired by the Onex Partners IV 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 the other segment. Onex Credit Manager and Onex Credit Funds began to be consolidated in January 2015, when Onex acquired control of the Onex Credit asset management platform. (d) 2015 other includes Flushing Town Center, Tropicana Las Vegas (up to August 2015), Meridian Aviation, Emerald Expositions, Survitec (since March 2015), Jack’s (since July 2015), Schumacher (since late July 2015), the operating companies of ONCAP II and ONCAP III (Chatters since July 2015) and the parent company. In addition, consolidated earnings include the changes in fair value of AIT, BBAM, Genesis Healthcare (since February 2015), ITG (since June 2015) and Mavis Discount Tire. 2014 other includes Flushing Town Center, Tropicana Las Vegas, Meridian Aviation, Emerald Expositions, the operating companies of ONCAP II (Mister Car Wash up to August 2014) and ONCAP III 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 Flushing Town Center, Tropicana Las Vegas, 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. 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. Table 16 presents the net earnings (loss) attributable to Table 17 presents the net earnings (loss) per SVS of Onex equity holders of Onex Corporation and non-controlling Corporation. interests for the years ended December 31, 2015, 2014 and 2013. Net Earnings (Loss) TABLE 16 ($ millions) 2015 2014 2013 Net earnings (loss) attributable to: Equity holders of Onex Corporation $ (573) $ (115) $ (354) Non-controlling interests 68 274 (459) Net earnings (loss) for the year $ (505) $ 159 $ (813) Net Earnings (Loss) per SVS of Onex Corporation TABLE 17 ($ per share) 2015 2014 2013 Basic and Diluted: Continuing operations $ (8.84) $ (7.80) $ (4.55) Discontinued operations 3.48 6.76 1.43 Net loss per SVS for the year $ (5.36) $ (1.04) $ (3.12) 52 Onex Corporation December 31, 2015 M A N A G E M E N T ’ S D I S C U S S I O N A N D A N A LY S I S Other comprehensive earnings (loss) Other comprehensive earnings (loss) represent the unreal- during 2015 was largely due to unfavourable currency trans- lation adjustments on foreign operations of $270 million ized gains or losses, all net of income taxes, related to cash (2014 – $144 million) and unfavourable change in fair value ﬂow hedges, remeasurements for post-employment beneﬁt of derivatives designated as hedges of $19 million (2014 – plans and foreign exchange gains or losses on foreign self- $13 million). Partially offsetting the unfavourable items were sustaining operations. During the year ended December 31, favourable remeasurements for post-employment beneﬁt 2015, Onex reported other comprehensive loss of $245 mil- plans of $34 million (2014 – unfavourable of $61 million). lion compared to $280 million in 2014. The loss recorded F O U R T H Q U A R T E R R E S U L T S Fourth quarter statements of loss Table 18 presents the statements of loss for the three months ended December 31, 2015 and 2014. Fourth Quarter Statements of Loss TABLE 18 ($ 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 expense Impairment of goodwill, intangible assets and long-lived assets, net Limited Partners’ Interests charge Loss before income taxes and discontinued operations Recovery of (provision for) income taxes Loss from continuing operations Earnings (loss) from discontinued operations Net Loss for the Period 2015 2014 $ 5,442 $ 4,444 (3,820) (1,050) (3,097) (916) 75 (126) (160) (241) 41 (88) 1 (105) (71) (191) (293) (24) (317) (19) 39 (92) (120) (223) 22 (64) − (78) (81) (229) (395) 8 (387) 20 $ (336) $ (367) Onex Corporation December 31, 2015 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 consolidated revenues and cost of sales Table 19 provides a breakdown of the 2015 and 2014 fourth quarter revenues and cost of sales by industry segment. Revenues and Cost of Sales by Industry Segment TABLE 19 ($ millions) Year ended December 31 Revenues Cost of Sales 2015 2014 Change 2015 2014 Change Electronics Manufacturing Services $ 1,515 $ 1,424 Healthcare Imaging Health and Human Services Building Products Insurance Services(a) Packaging Products and Services(b) Credit Strategies(c) Other(d) Total 602 463 888 431 642 1 900 669 446 893 402 124 – 486 $ 5,442 $ 4,444 6 % (10)% 4 % (1)% 7 % 418 % n/a 85 % 22 % $ 1,394 $ 1,303 323 349 697 − 423 − 634 385 335 715 – 82 – 277 $ 3,820 $ 3,097 7 % (16)% 4 % (3)% − 416 % − 129 % 23 % Results are reported in accordance with IFRS. These results may differ from those reported by the individual operating companies. (a) The insurance services segment consists of USI and York. USI and York report their costs in operating expenses. York began to be consolidated in October 2014, when the business was acquired by the Onex Partners III Group. (b) The packaging products and services segment consists of sgsco and SIG. sgsco was previously included within the other segment. SIG began to be consolidated in March 2015, when the business was acquired by the Onex Partners IV 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 the other segment. Onex Credit Manager and Onex Credit Funds began to be consolidated in January 2015, when Onex acquired control of the Onex Credit asset management platform. (d) 2015 other includes Flushing Town Center, Meridian Aviation, Emerald Expositions, Survitec, Jack’s, Schumacher, the operating companies of ONCAP II and ONCAP III and the parent company. 2014 other includes Flushing Town Center, Tropicana Las Vegas, Meridian Aviation, Emerald Expositions, the operating companies of ONCAP II and ONCAP III and the parent company. During the fourth quarter of 2015, revenues in the health- Revenues in the packaging products and services care imaging segment, consisting of Carestream Health, segment, consisting of sgsco and SIG, increased by $518 mil- decreased by $67 million, or 10 percent, compared to the lion compared to the fourth quarter of 2014. The increase same quarter of 2014. The decrease in revenues was pri- was primarily due to the inclusion of the revenues of SIG, marily due to unfavourable foreign exchange translation acquired by the Onex Partners IV Group in March 2015. on Carestream Health’s non-U.S. revenues, lower x-ray tra- Revenues in the other segment increased by ditional volume, as well as unfavourable equipment mix $414 million compared to the fourth quarter of 2014 pri- and lower prices in the Dental and Medical Digital seg- marily due to the inclusion of revenues from Survitec, ments. The revenue decrease was partially offset by higher Jack’s and Schumacher, which were acquired during 2015. dental digital equipment volume. Cost of sales for the three Partially offsetting the increase was the sale of Tropicana months ended December 31, 2015 decreased by $62 mil- Las Vegas in August 2015. lion, or 16 percent, compared to the same period of 2014 primarily due to favourable foreign exchange translation and lower costs for silver, which is a major component in the production of ﬁlm. 54 Onex Corporation December 31, 2015 M A N 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 2015 interest expense totalled $241 mil- shareholder. Onex received $11 million (2014 – $9 million) in cash for tax losses of $109 million (2014 – $84 million). lion compared to $223 million during the fourth quarter of The cash received was recorded as a gain in other expense 2014. Fourth quarter interest expense increased by $18 mil- (income) during the fourth quarter. Onex has signiﬁcant lion primarily due to the inclusion of interest expense for non-capital and capital losses available; however, Onex (i) Survitec, SIG, Chatters, Jack’s and Schumacher, which does not expect to generate sufﬁcient taxable income to were acquired during 2015, and (ii) the additional debt fully utilize these losses in the foreseeable future. As such, from CLOs. no beneﬁt was previously recognized in the consolidated ﬁnancial statements for the tax losses sold. In connection Fourth quarter increase in value of investments in with the 2015 and 2014 transactions, Deloitte & Touche LLP, joint ventures and associates at fair value, net The 2015 fourth quarter increase in value of investments in an independent accounting ﬁrm retained by Onex’ Audit and Corporate Governance Committee, provided an opin- joint ventures and associates at fair value was $41 million ion that the value received by Onex for the tax losses was compared to an increase of $22 million during 2014. The fair. The transactions were unanimously approved by Onex’ increase in income recorded in 2015 compared to 2014 was Audit and Corporate Governance Committee, all the mem- primarily due to improved operating performance at cer- bers of which are independent directors. tain of the investments. Fourth quarter impairment of goodwill, Fourth quarter stock-based compensation expense During the fourth quarter of 2015, Onex recorded a consoli- intangible assets and long-lived assets, net During the fourth quarter of 2015, $71 million of impair- dated stock-based compensation expense of $88 million ments of goodwill, intangible assets and long-lived assets compared to $64 million for the same quarter of 2014. Onex, were recorded by Onex’ operating companies compared to the parent company, recorded a stock-based compensa- $81 million during the same quarter of 2014. A discussion of tion expense of $57 million (2014 – $38 million) in the fourth these impairments by company is provided on page 46 of quarter of 2015 related to its stock options and MIP equity this MD&A. interests. That expense was primarily due to the 10 percent increase (2014 – 8 percent) in the market value of Onex’ shares in the fourth quarter. Fourth quarter Limited Partners’ Interests charge During the fourth quarter of 2015, Onex recorded a $191 million charge for Limited Partners’ Interests com- Fourth quarter other expense During the fourth quarter of 2015, Onex recorded other pared to a $229 million charge during 2014. The increase in the fair value of certain of the private investments in the expense of $105 million compared to $78 million during the Onex Partners and ONCAP Funds contributed signiﬁcantly same quarter of 2014. The charge for carried interest due to the Limited Partners’ Interests charge recorded during to management of Onex and ONCAP contributed $34 mil- both quarters. The Limited Partners’ Interests charge is lion (2014 – $37 million) to other expense during the fourth net of a $52 million (2014 – $56 million) increase in carried quarter. The charge for carried interest was driven primarily interest for the three months ended December 31, 2015. by an increase in the fair value of certain of the investments in the Onex Partners and ONCAP Funds during the fourth Fourth quarter earnings (loss) from quarters of 2015 and 2014. The charge for other expense was partially offset by other income recorded during the fourth discontinued operations During the fourth quarter of 2015, Onex recorded a loss from quarter of 2015, which includes $11 million (2014 – $9 mil- discontinued operations of $19 million related to Krauss- lion) of gains on the sale of tax losses, as discussed below. Maffei, as discussed on page 50 of this MD&A. For the three In December 2015, Onex sold entities, the sole months ended December 31, 2014, Onex recorded earn- assets of which were certain tax losses, to companies con- ings from discontinued operations of $20 million related to trolled by Mr. Gerald W. Schwartz, who is Onex’ controlling KraussMaffei, Sitel Worldwide and Skilled Healthcare Group. Onex Corporation December 31, 2015 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 Fourth quarter cash ﬂow Table 20 presents the major components of cash ﬂow for Cash used in investing activities was $268 million in the fourth quarter of 2015, primarily consisting of (i) $181 mil- the fourth quarters of 2015 and 2014. lion in purchases of property, plant and equipment; (ii) Major Cash Flow Components TABLE 20 ($ millions) 2015 Cash from operating activities Cash from (used in) financing activities $ 670 $ (290) $ $ $162 million used to fund acquisitions by the operating companies; (iii) $161 million of cash used by Onex, the parent company, for purchases of short- and long-term investments by third-party investment managers; and (iv) $70 million of net purchases of investments and securities by the CLOs and Onex Credit Funds. Partially offsetting 2014 275 730 Cash used in investing activities $ (268) $ (1,176) the cash used in investing activities were (i) $164 million of Consolidated cash and cash equivalents proceeds from the sale of property, plant and equipment; held by continuing operations $ 2,313 $ 3,662 and (ii) $76 million of cash interest received. Cash used in investing activities in the fourth quar- Cash used in ﬁnancing activities in the fourth quarter of ter of 2014 includes cash proceeds of (i) $694 million used to 2015 included (i) cash interest paid of $231 million; and fund acquisitions, of which $596 million related to the Onex (ii) distributions of $199 million to the limited partners of Partners III Group’s acquisition of York and acquisitions the Onex Partners Funds, primarily related to Meridian completed by York during the quarter; (ii) net purchases of Aviation and Jack’s. Partially offsetting the cash used in investments and securities of $438 million mainly by CLO-7; ﬁnancing activities was $145 million of net debt issuances (iii) $309 million for investments in joint ventures and asso- primarily by the CLOs. ciates, of which $204 million related to the Onex Partners IV Included in the $730 million of cash from ﬁnancing Group’s investment in AIT and $105 million related to the activities in the fourth quarter of 2014 was $789 million of ONCAP III Group’s investment in Mavis Discount Tire; and net debt issuances by the operating companies and con- (iv) $79 million in purchases of property, plant and equip- tributions of $348 million from (i) the limited partners of ment by the operating companies. This was partially offset Onex Partners III for their add-on investment in Meridian by $304 million from restricted cash related to the capi- Aviation; (ii) certain limited partners of Onex Partners III tal called from the limited partners of Onex Partners III in for their co-investment in York; (iii) the limited partners of September 2014 for their investment in York. ONCAP III for their investment in Mavis Discount Tire; (iv) the limited partners of Onex Partners IV for their investment in AIT; and (v) the limited partners of the Onex Partners Funds for management fees and partnership expenses. Partially offsetting the cash from ﬁnancing activities were (i) cash interest paid of $168 million; (ii) share repurchases of $105 million by Onex, the parent company, and Onex’ operating companies; and (iii) distributions of $41 million to the limited partners of the Onex Partners Funds, primarily related to Tomkins. 56 Onex Corporation December 31, 2015 M A N A G E M E N T ’ S D I S C U S S I O N A N D A N A LY S I S S U M M A R Y Q U A R T E R L Y I N F O R M A T I O N Table 21 summarizes Onex’ key consolidated ﬁnancial information for the last eight quarters. The ﬁnancial information has been restated for discontinued operations. Consolidated Quarterly Financial Information TABLE 21 ($ millions except per share amounts) 2015 2014 Dec. Sept. June March Dec. Sept. June March Revenues $ 5,442 $ 5,184 $ 4,926 $ 4,129 $ 4,444 $ 4,272 $ 4,277 $ 3,887 Earnings (loss) from continuing operations $ (317) $ (144) $ (271) $ (152) $ (387) Net earnings (loss) $ (336) $ 204 $ (289) $ (84) $ (367) $ $ 48 $ (398) 388 $ 39 $ $ (55) 99 Net earnings (loss) attributable to: Equity holders of Onex Corporation $ (346) $ 186 $ (306) $ (107) $ (350) $ 364 $ (89) $ (40) Non-controlling Interests 10 18 17 23 (17) 24 128 139 Net earnings (loss) $ (336) $ 204 $ (289) $ (84) $ (367) $ 388 $ 39 $ 99 Earnings (loss) per SVS of Onex Corporation Earnings (loss) from continuing operations $ (3.10) $ (1.39) $ (2.74) $ (1.63) $ (3.35) $ 0.17 $ (3.95) $ (0.67) Earnings (loss) from discontinued operations (0.17) 3.15 (0.12) 0.65 0.15 3.14 3.15 0.31 Net earnings (loss) $ (3.27) $ 1.76 $ (2.86) $ (0.98) $ (3.20) $ 3.31 $ (0.80) $ (0.36) 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, 2015 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 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 investments in ITG and Mavis Discount Tire; (iii) acquiring Consolidated assets Consolidated assets totalled $35.8 billion at December 31, control of the Onex Credit asset management platform; and (iv) the closings of CLO-8, CLO-9 and CLO-10. Partially offsetting the increase in consolidated 2015 compared to $28.9 billion at December 31, 2014. Onex’ assets was the redemption of CLO-1, the deconsolidation consolidated assets at December 31, 2015 increased from of Skilled Healthcare Group upon its combination with December 31, 2014 primarily due to: (i) the acquisitions of Genesis HealthCare, LLC, and the sales of Sitel Worldwide Survitec, SIG, Jack’s, Chatters and Schumacher; (ii) the and Tropicana Las Vegas in 2015. Table 22 shows the consolidated assets by industry segment as at December 31, 2015, 2014 and 2013. Consolidated Assets by Industry Segment TABLE 22 ($ millions) 2015 Percentage Breakdown 2014 Percentage Breakdown 2013 Percentage Breakdown Electronics Manufacturing Services $ 2,612 Healthcare Imaging Health and Human Services Building Products Insurance Services(a) Packaging Products and Services(b) Credit Strategies(c) Other(d) Assets held by continuing operations Other – assets held by discontinued operations(e) Total consolidated assets 1,609 1,034 2,374 5,034 6,366 6,284 9,169 34,482 1,328 $ 35,810 7% 5% 3% 7% 15% 18% 18% 27% 100% $ 2,584 10% $ 2,639 1,803 1,110 2,351 5,088 1,037 4,373 7,812 26,158 2,778 $ 28,936 7% 4% 9% 19% 4% 17% 30% 100% 1,966 1,078 2,483 3,099 1,060 2,499 9,049 23,873 12,994 $ 36,867 11% 8% 5% 10% 13% 4% 11% 38% 100% (a) The insurance services segment consists of USI and York. York began to be consolidated in October 2014, when the business was acquired by the Onex Partners III Group. (b) The packaging products and services segment consists of sgsco and SIG. sgsco was previously included within the other segment. SIG began to be consolidated in March 2015, when the business was acquired by the Onex Partners IV 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 the other segment. Onex Credit Manager and Onex Credit Funds began to be consolidated in January 2015, when Onex acquired control of the Onex Credit asset management platform. (d) 2015 other includes Flushing Town Center, Meridian Aviation, Emerald Expositions, Survitec, Jack’s, Schumacher, the operating companies of ONCAP II, ONCAP III and the parent company. In addition, other includes investments in AIT, BBAM, Genesis Healthcare, ITG and Mavis Discount Tire. 2014 other includes Flushing Town Center, Tropicana Las Vegas, Meridian Aviation, Emerald Expositions, the operating companies of ONCAP II and ONCAP III and the parent company. In addition, other includes investments in AIT, BBAM, Mavis Discount Tire and certain Onex Real Estate investments. 2013 other includes the consolidated earnings of Flushing Town Center, Tropicana Las Vegas, Meridian Aviation, Emerald Expositions, the operating companies of ONCAP II and ONCAP III and the parent company. In addition, other includes investments in Allison Transmission, BBAM, Tomkins and certain Onex Real Estate investments. (e) At December 31, 2015, the assets of KraussMaffei are included in the other segment as the company has been presented as a discontinued operation. At December 31, 2014, the assets of KraussMaffei, Sitel Worldwide and Skilled Healthcare Group are included in the other segment as the companies have been presented as discontinued operations. At December 31, 2013, the assets of KraussMaffei, Sitel Worldwide, Skilled Healthcare Group, The Warranty Group and Spirit AeroSystems are included in the other segment as the companies have been presented as discontinued operations. 58 Onex Corporation December 31, 2015 M A N 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 meet certain ﬁnancial covenants. Changes in business con- ditions relevant to an operating company, including those resulting from changes in ﬁnancial markets and economic parent company that has funds available for new acquisi- conditions generally, may result in non-compliance with tions and to support the growth of its operating compa- certain covenants by that operating company. nies. This policy means that all debt ﬁnancing is within Total consolidated long-term debt (consisting of the operating companies and each company is required to the current and long-term portions of long-term debt, net support its own debt without recourse to Onex Cor poration of ﬁnancing charges) was $18.1 billion at December 31, or other Onex operating companies. 2015 compared to $13.3 billion at December 31, 2014. Con- The ﬁnancing arrangements of each operating solidated long-term debt does not include the debt of oper- company typically contain certain restrictive covenants, ating businesses that are included in investments in joint which may include limitations or prohibitions on additional ventures and associates as investments in those businesses indebtedness, payment of cash dividends, redemption of are accounted for at fair value and are not consolidated. In capital, capital spending, making of investments, and acqui- addition, when operating companies are reported as discon- sitions and sales of assets. The ﬁnancing arrangements may tinued operations or as held for sale, their long-term debt is also require the redemption of indebtedness in the event of excluded from consolidated long-term debt on a prospective a change of control of the operating company. In addition, basis. Prior periods are not restated. the operating companies that have outstanding debt must Consolidated Long-Term Debt of Operating Companies, Without Recourse to Onex Corporation TABLE 23 ($ millions) Electronics Manufacturing Services Healthcare Imaging Health and Human Services Building Products Insurance Services(a) Packaging Products and Services(b) Credit Strategies(c) Other(d)(e) Current portion of long-term debt of operating companies 2015 2014 2013 $ 261 $ – $ – 1,999 525 1,257 2,866 3,487 4,899 2,760 18,054 (411) 2,115 455 804 2,644 568 3,431 3,265 13,282 (408) 2,248 353 661 1,605 575 1,723 4,805 11,970 (651) Total $ 17,643 $ 12,874 $ 11,319 (a) The insurance services segment consists of USI and York. York began to be consolidated in October 2014, when the business was acquired by the Onex Partners III Group. (b) The packaging products and services segment consists of sgsco and SIG. sgsco was previously included within the other segment. SIG began to be consolidated in March 2015, when the business was acquired by the Onex Partners IV 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) 2015 other includes Flushing Town Center, Meridian Aviation, Emerald Expositions, Survitec, Jack’s, Schumacher, the operating companies of ONCAP II, ONCAP III and the parent company. 2014 other includes Flushing Town Center, Tropicana Las Vegas, Meridian Aviation, Emerald Expositions, the operating companies of ONCAP II and ONCAP III and the parent company. 2013 other includes the consolidated earnings of Flushing Town Center, Tropicana Las Vegas, Meridian Aviation, Emerald Expositions, the operating companies of ONCAP II and ONCAP III and the parent company. (e) At December 31, 2014, the long-term debt of KraussMaffei and Sitel Worldwide is included in the other segment as the companies have been presented as discontinued operations. At December 31, 2013, the long-term debt of KraussMaffei, Sitel Worldwide, Skilled Healthcare Group, The Warranty Group and Spirit AeroSystems is included in the other segment as the companies have been presented as discontinued operations. Onex Corporation December 31, 2015 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 Celestica (Electronics Manufacturing Services segment) In June 2015, Celestica repurchased and cancelled approxi- JELD-WEN (Building Products segment) In July 2015, JELD-WEN increased its borrowings under its mately 26.3 million of its SVS, representing approximately existing credit facility with an incremental $480 million 15 percent of the total issued and outstanding Multiple term loan. JELD-WEN’s amended credit facility consists of Voting Shares and SVS of the company at December 31, $1,255 million of term loans and a $300 million revolving 2014. The purchase price per share was $13.30 for a total credit facility. The proceeds were used to fund a distribu- cost of $350 million. The transaction was ﬁnanced using a tion of $432 million to shareholders with the balance to be combination of the net proceeds of a newly issued $250 mil- used to fund future add-on acquisitions. The offering price lion term loan, $25 million drawn on the company’s exist- of the incremental term loan was 99.50 percent of par. The ing revolving credit facility and cash on hand. Celestica incremental term loan bears interest at LIBOR (subject to amended its existing revolving credit facility to add the a ﬂoor of 1.00 percent) plus a margin of up to 4.00 percent, term loan as a component under such facility and to extend depending on the company’s leverage ratio, and requires its maturity to May 2020. The term loan bears interest at quarterly principal repayments beginning in December LIBOR plus a margin of up to 3.00 percent, depending on 2015. The incremental term loan has no ﬁnancial main- the company’s leverage ratio. As a result of the repurchase, tenance covenants and matures in July 2022. The Onex Onex’ economic and voting interests at that time increased Partners III Group’s portion of the distribution to share- to 13 percent and 79 percent, respectively. holders was $359 million. Onex’ portion of the distribu- At December 31, 2015, $25 million (2014 – nil) tion was $89 million, of which $51 million related to Onex’ was outstanding under the revolving credit facility and investment through Onex Partners III and $38 million $238 million was outstanding under the term loan. Celes tica related to Onex’ co-investment. The remaining balance was had issued $27 million (2014 – $29 million) of letters of credit primarily distributed to third-party shareholders and man- under its revolving credit facility at December 31, 2015. agement of JELD-WEN. At December 31, 2015, the term loans with ResCare (Health and Human Services segment) In March 2015, ResCare increased its term loan by an addi- $1,246 million (2014 – $775 million) outstanding were recorded net of the unamortized discount of $9 million tional $105 million to fund a distribution to shareholders. (2014 – $7 million). JELD-WEN had no amounts outstanding The $105 million incremental term loan was combined under its revolving credit facility at December 31, 2015 and with an existing $200 million term loan and a $200 mil- 2014. The amount available under the revolving credit facil- lion delayed draw term loan. The newly combined term ity was reduced by $36 million (2014 – $39 million) of letters loan bears interest at LIBOR plus a margin of 2.75 percent of credit outstanding at December 31, 2015. and requires quarterly principal repayments of $6 million beginning in March 2015. The required quarterly principal repayments increase throughout the term until they reach USI (Insurance Services segment) In August 2015, USI amended its senior secured credit facil- $16 million in 2018. The entire facility matures in April 2019. ity to add an incremental $230 million senior secured term The Onex Partners I and Onex Partners III Groups’ portion of loan. The amended senior secured credit facility consists of the distribution was $47 million and $50 million, respectively, $1,380 million of senior secured term loans and a $150 mil- of which Onex’ share was $20 million. The remaining bal- lion senior secured revolving credit facility. The proceeds ance was primarily distributed to management of ResCare. were used primarily to fund a distribution of $230 million ResCare’s senior secured credit facility consists of to shareholders. The Company’s portion of the distribution a $250 million revolving credit facility and a $505 million to shareholders was $181 million. Onex’ portion of the dis- combined term loan. At December 31, 2015, $60 million tribution was $51 million, of which $38 million related to (2014 – $70 million) and $472 million (2014 – $392 million) Onex’ investment through Onex Partners III and $13 mil- were outstanding under the revolving credit facility and lion related to Onex’ co-investment. The balance of the combined term loan, respectively. The combined term loan proceeds was primarily distributed to employees of USI. is recorded net of the unamortized discount of $1 million The offering price of the incremental senior secured term (2014 – $1 million). loan was 99.03 percent of par. The terms and conditions of 60 Onex Corporation December 31, 2015 M A N 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 amendments in 2015, including interest rates and matu- rity date, are consistent with the existing senior secured term loan. At December 31, 2015, $1,346 million and nil (2014 – $1,129 million and $20 million) were outstanding under the senior secured term loans and senior secured revolving credit facility, respectively. The senior secured term loans are recorded net of the unamortized discount of $6 mil- ded derivatives of €72 million ($78 million), which were recognized at the inception of the term loans. There were no amounts drawn under the revolving credit facility at December 31, 2015. The amount available under the revolv- ing credit facility was reduced by €4 million ($4 million) due to an ancillary facility outstanding at December 31, 2015. In February 2015, SIG issued €675 million in aggregate principal amount of 7.75 percent senior notes in lion (2014 – $5 million). In addition, USI had $1 million connection with the acquisition. The amount raised was (2014 – $1 million) of letters of credit outstanding that were held in escrow until the closing of the acquisition. Interest issued under its senior secured revolving credit facility at is payable semi-annually beginning in August 2015. The December 31, 2015. SIG (Packaging Products and Services segment) In March 2015, SIG entered into a senior secured credit facil- ity consisting of a €1,050 million euro-denominated term loan, a $1,225 million U.S. dollar-denominated term loan and a multi-currency €300 million revolving credit facility. Borrowings under the term loans initially bore senior notes may be redeemed by the company at various premiums above face value at any time before February 2020 and mature in February 2023. At December 31, 2015, senior notes of €675 million ($733 million) were outstand- ing and were recorded together with an unamortized embedded derivative of €30 million ($33 million), which was recognized at the inception of the senior notes. interest at EURIBOR or LIBOR (subject to a ﬂoor of 1.00 per- cent) plus a margin of 4.25 percent. The term loans require CLO-8 (Credit Strategies segment) In April 2015, Onex closed CLO-8, its eighth CLO denomi- quarterly principal repayments, and can be repaid in whole nated in U.S. dollars. CLO-8 issued secured notes, subordi- or in part with a 1.00 percent premium up to and includ- nated notes and equity in a private placement transaction ing May 2016. Subsequent repayments can be made without in an aggregate amount of $764 million. The subordinated premium or penalty at any time before maturity in March notes and equity are the most subordinated capital of 2022. The revolving credit facility bears interest at EURIBOR CLO-8 and are equally subordinated to the secured notes. or LIBOR plus a margin of 4.00 percent and matures in Onex invested $54 million for 94 percent of the most subor- March 2021. dinated capital of CLO-8. In May 2015, SIG amended its senior secured credit The secured notes were offered in an aggregate facility to reduce the rate at which borrowings under its principal amount of approximately $705 million and are euro- and U.S. dollar-denominated term loans bear inter- due in April 2027 with interest payable beginning in October est to EURIBOR or LIBOR (subject to a ﬂoor of 1.00 percent) 2015. Secured notes of $685 million bear interest at a rate plus a margin of 3.25 percent. The amendment resulted of LIBOR plus a margin of 1.53 percent to 6.00 percent and in a total interest rate reduction of 100 basis points on the $20 million of secured notes bear interest at 4.00 percent. company’s term loans. As a result of the amendment, SIG incurred $26 million in fees during the second quarter of 2015, representing the payment of the soft call protection CLO-1 (Credit Strategies segment) In June 2015, Onex redeemed CLO-1, its ﬁrst CLO denomi- on the term loans and expenses associated with the amend- nated in U.S. dollars. CLO-1 was established in March 2012 ment. The fees will be amortized over the term of the senior and its reinvestment period ended in March 2015. Upon secured credit facility. At December 31, 2015, the euro- denominated term loan with €1,042 million ($1,128 million) outstanding was recorded net of an unamortized discount of €5 million ($5 million) and the U.S. dollar-denominated term loan with $1,216 million outstanding was recorded the redemption of CLO-1, all secured notes were repaid, including accrued interest, and the equity was settled for the residual proceeds in the CLO. Onex received $16 mil- lion for its remaining investment in the equity of CLO-1. In aggregate, Onex has received $53 million of proceeds net of an unamortized discount of $5 million. In addition, and distributions related to CLO-1 compared to its original the term loans are recorded net of unamortized embed- investment of $38 million. Onex Corporation December 31, 2015 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 CLO-9 (Credit Strategies segment) In July 2015, Onex closed CLO-9, its ninth CLO denomi- any time before maturity in March 2022. The revolving and acquisition facilities bear interest at LIBOR plus a margin nated in U.S. dollars. CLO-9 issued secured notes, subordi- of 4.00 percent and mature in March 2021. At December 31, nated notes and equity in a private placement transaction in an aggregate amount of $758 million. The subordinated notes and equity are the most subordinated capital of 2015, £140 million ($206 million) was outstanding under the pound sterling-denominated term loans, €175 million ($191 million) was outstanding under the euro-denominated CLO-9 and are equally subordinated to the secured notes. term loan, £5 million ($7 million) was outstanding under Onex invested $45 million for 75 percent of the most subor- the revolving facility and £14 million ($21 million) was out- dinated capital of CLO-9. standing under the acquisition facility. The amount avail- In October 2015, Onex invested an additional able under the revolving facility was reduced by £20 million $9 million in the most subordinated capital of CLO-9, ($29 million) of letters of guarantee outstanding at Decem- increasing its ownership to 93 percent of the most subordi- ber 31, 2015. nated capital. The secured notes were offered in an aggregate principal amount of approximately $697 million, are due Jack’s (Other segment) In July 2015, Jack’s entered into a senior secured credit facil- in July 2027 and bear interest at a rate of LIBOR plus a mar- ity consisting of a $230 million term loan and a $30 million gin of 1.50 percent to 6.40 percent, payable beginning in revolving credit facility. Borrowings under the term loan January 2016. bear interest at LIBOR (subject to a ﬂoor of 1.00 percent) plus a margin of 4.75 percent. The term loan requires quar- CLO-10 (Credit Strategies segment) In October 2015, Onex closed CLO-10, its tenth CLO denomi- terly principal repayments, and can be repaid in whole or in part at any time before maturity in July 2022. The revolv- nated in U.S. dollars. CLO-10 issued secured notes and ing credit facility bears interest at LIBOR plus a margin of equity in a private placement transaction in an aggregate 4.75 percent and matures in July 2020. amount of $512 million. The equity is the most subordinated At December 31, 2015, $230 million was outstand- capital of CLO-10. Onex invested $39 million for 100 percent ing under the term loan and no amounts were outstand- of the most subordinated capital and $8 million for 90 per- ing under the revolving credit facility. The term loan is cent of the most subordinated secured notes of CLO-10. recorded net of the unamortized discount of $3 million. The secured notes were offered in an aggregate In July 2015, Jack’s entered into a $195 million principal amount of approximately $470 million and are promissory note with the Onex Partners IV Group, as due in October 2027. Secured notes of $443 million bear described on page 28 of this MD&A. The promissory note interest at a rate of LIBOR plus a margin of 1.54 percent to bears interest at LIBOR plus a margin ranging from 2.00 per- 7.50 percent, and secured notes of $27 million bear interest cent to 3.50 percent and matures in June 2016. During 2015, at 4.15 percent. Jack’s repaid $143 million of the promissory note, includ- ing accrued interest, with net proceeds from sale-leaseback Survitec (Other segment) In March 2015, Survitec entered into a senior secured credit transactions completed for certain of its fee-owned restau- rant properties. Onex’ share of the repayment was $41 mil- facility consisting of a £125 million pound sterling-denom- inated term loan, a €175 million euro-denominated term loan, a £30 million revolving facility and a £30 million acqui- lion. At December 31, 2015, the amount outstanding under the promissory note was $54 million, of which Onex’ share was $16 million. sition facility. In September 2015, Survitec entered into an In January 2016, Jack’s repaid an additional incremental £15 million pound sterling-denominated term $23 million of the promissory note, including accrued loan in connection with the acquisition of SCI, as described interest, with net proceeds from a sale-leaseback trans- on page 27 of this MD&A. Borrowings under the pound ster- action completed for certain of its fee-owned restaurant ling- and euro-denominated term loans bear interest at properties. Onex’ share of the repayments was $7 million. LIBOR plus a margin of 4.75 percent and EURIBOR plus a After giving effect to the repayment, the amount outstand- margin of 4.25 percent, respectively. The term loans can be ing under the promissory note was $31 million, of which repaid in whole or in part without premium or penalty at Onex’ share was $9 million. 62 Onex Corporation December 31, 2015 M A N 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 Flushing Town Center (Other segment) In July 2015, Flushing Town Center entered into new credit In September 2015, Schumacher completed syndi- cation of its senior secured credit facilities, resulting in an facilities with third-party lenders consisting of a $152 mil- offering price of the ﬁrst lien term loan of 99.25 percent of lion mortgage loan and $288 million of mezzanine loans par. Borrowings under the ﬁrst lien term loan bear inter- in connection with the construction of the second phase est at LIBOR (subject to a ﬂoor of 1.00 percent) plus a mar- of condominiums at the project. Borrowings under the gin of up to 4.00 percent. The ﬁrst lien term loan matures mortgage loan bear interest at LIBOR (subject to a ﬂoor in July 2022 and requires quarterly principal repayments of 0.25 percent) plus a margin of 3.30 percent. The mezza- beginning in December 2015. Borrowings under the ﬁrst nine loans consist of a $138 million loan bearing interest lien revolving loan bear interest at LIBOR (subject to a ﬂoor at LIBOR (subject to a ﬂoor of 0.25 percent) plus a margin of zero percent) plus a margin of up to 4.00 percent and of 11.00 percent and a $150 million loan bearing interest at mature in July 2020. LIBOR (subject to a ﬂoor of 0.25 percent) plus a margin of The offering price of the second lien term loan 8.00 percent. The new credit facilities mature in July 2018 was 99.00 percent of par. Borrowings under the second and have two one-year extension options. lien term loan bear interest at LIBOR (subject to a ﬂoor of The credit facilities have customary ﬁnancial 1.00 percent) plus 8.50 percent. The second lien term loan maintenance covenants and include a guarantee which is is not subject to amortization and matures in July 2023. At limited to the required minimum net worth and liquidity Decem ber 31, 2015, $399 million and $135 million were out- reserves being maintained for the beneﬁt of the third-party standing under the ﬁrst and second lien term loans, respec- lenders. Draws from the credit facilities are made over time tively, and no amounts were outstanding under the ﬁrst lien as project construction costs are incurred. At December 31, revolving loan. 2015, no amounts were outstanding under the mortgage loan, and mezzanine loans of $77 million were outstanding. Meridian Aviation (Other segment) In January 2016, Meridian Aviation entered into a $100 mil- Schumacher (Other segment) In late July 2015, Schumacher entered into ﬁrst and sec- lion revolving credit facility. The revolving credit facility bears interest at LIBOR plus a margin of 1.50 percent and ond lien senior secured credit facilities. In August 2015, matures in January 2017. The borrowings under the revolv- Schumacher acquired HPP, as described on page 29 of this ing credit facility are guaranteed and reimbursable by capital MD&A. In connection with this transaction, Schumacher calls from the limited partners of Onex Partners III. amended its senior secured facilities to increase its ﬁrst lien term loan by $120 million to $400 million, its ﬁrst lien revolving loan by $25 million to $75 million and its second lien term loan by $30 million to $135 million. Table 24 details the aggregate debt maturities as at December 31, 2015 for Onex’ consolidated operating businesses for each of the years up to 2020 and in total thereafter. As the table includes debt of investments in joint ventures and associates and excludes debt of the CLOs, the total amount does not reconcile to reported consolidated debt. As the following table illus- trates, most of the maturities occur in 2019 and thereafter. Debt Maturity Amounts by Year TABLE 24 ($ millions) 2016 2017 2018 2019 2020 Thereafter Total Consolidated operating companies(a) $ 382 $ 277 $ 373 $ 4,369 $ 1,058 $ 7,015 $ 13,474 Investments in joint ventures and associates 21 12 13 14 461 38 559 Total $ 403 $ 289 $ 386 $ 4,383 $ 1,519 $ 7,053 $ 14,033 (a) Debt amounts are presented gross of financing fees. Excludes debt amounts of subsidiaries held by Onex, the parent company, debt of the credit strategies segment, and debt amounts of KraussMaffei, which is a discontinued operation. Onex Corporation December 31, 2015 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 Limited Partners’ Interests Limited Partners’ Interests liability represents the fair value In January 2015, Onex acquired control of the Onex Credit asset management platform and began consolidating the of limited partners’ invested capital in the Onex Partners, Onex Credit Funds in which Onex has an investment, as ONCAP and Onex Credit Funds and is affected primarily by discussed on page 27 of this MD&A. The Limited Partners’ the change in the fair value of the underlying investments Interests liability for Onex Credit Funds includes invest- in the Onex Partners, ONCAP and Onex Credit Funds, the ments by those other than Onex in the Onex Credit Funds impact of the carried interest, as well as any contributions consolidated by Onex. by and distributions to limited partners in those funds. Table 25 shows the change in Limited Partners’ Interests from December 31, 2013 to December 31, 2015. Limited Partners’ Interests TABLE 25 ($ millions) Balance – December 31, 2013 Limited Partners’ Interests charge Contributions by Limited Partners Distributions paid to Limited Partners Balance – December 31, 2014(a) Addition from the Onex Credit transaction Limited Partners’ Interests charge (recovery) Contributions by Limited Partners Distributions paid to Limited Partners Balance – December 31, 2015 Current portion of Limited Partners’ Interests(b) Onex Partners and ONCAP Funds Onex Credit Funds $ 6,959 $ 1,069 867 (3,719) 5,176 – 882 1,819 (888) 6,989 (598) – – – – – 368 (26) 6 (19) 329 – Total $ 6,959 1,069 867 (3,719) 5,176 368 856 1,825 (907) 7,318 (598) Non-current portion of Limited Partners’ Interests $ 6,391 $ 329 $ 6,720 (a) At December 31, 2014, the current portion of the Limited Partners’ Interests was $23 million and was included in the consolidated balance sheet. The current portion represented the limited partners’ share of proceeds on the sale of the residual assets of Tomkins. (b) At December 31, 2015, the current portion of the Limited Partners’ Interests was $598 million and was included in the consolidated balance sheet. The current portion primarily represented the limited partners’ share of a distribution from AIT, promissory note repayments by Jack’s and expected proceeds from the sale of KraussMaffei. 64 Onex Corporation December 31, 2015 M A N A G E M E N T ’ S D I S C U S S I O N A N D A N A LY S I S Table 26 shows contributions by limited partners of Onex Partners and ONCAP Funds for the years ended December 31, 2015 and 2014. Contributions by Limited Partners TABLE 26 ($ millions) Company SIG(i) Jack’s Survitec(ii)(iii) Schumacher(iii) ITG Chatters Mavis Discount Tire(i)(ii) Management fees, partnership expenses Fund Transaction Onex Partners IV Onex Partners IV Onex Partners IV Onex Partners IV ONCAP III ONCAP III ONCAP III Original investment Original investment Original and add-on investments Original and add-on investments Original investment Original investment Add-on investment and other Various Various Contributions by Limited Partners (i) Includes amounts from certain limited partners and others. (ii) Includes amounts to fund a foreign currency hedge for the investments. (iii) Includes amounts to fund initial and add-on investments. Contributions by Limited Partners TABLE 26 ($ millions) Company York(i) AIT Emerald Expositions Mavis Discount Tire(i) JELD-WEN(i) Meridian Aviation Fund Transaction Onex Partners III Onex Partners IV Onex Partners III ONCAP III Onex Partners III Onex Partners III Original investment Original investment Add-on investment Original investment Investment in common stock Add-on investment Management fees, partnership expenses and other Various Various Contributions by Limited Partners (i) Includes amounts from certain limited partners and others. $ 2015 810 295 270 230 49 30 25 110 $ 1,819 $ 2014 348 159 106 75 50 15 114 $ 867 Onex Corporation December 31, 2015 65 M A N A G E M E N T ’ S D I S C U S S I O N A N D A N A LY S I S Table 27 shows distributions made to limited partners of Onex Partners and ONCAP Funds for the years ended December 31, 2015 and 2014. Distributions to Limited Partners TABLE 27 ($ millions) Company JELD-WEN(i) Fund Transaction Onex Partners III Dividend Tropicana Las Vegas Onex Partners III Sale of business USI(i) ResCare Jack’s Meridian Aviation BBAM Tomkins(i) AIT(ii) PURE Canadian Gaming Other Distributions to Limited Partners Onex Partners III Onex Partners I & III Dividend Dividend Onex Partners IV Onex Partners III Onex Partners III Onex Partners III Onex Partners IV ONCAP II & III Various Repayments of promissory note Distributions Distributions Sale of residual assets Distributions Dividend Various (i) Includes amounts distributed to certain limited partners and others. (ii) Includes amounts received for a purchase price adjustment. Distributions to Limited Partners TABLE 27 ($ millions) Company Tomkins(i) Allison Transmission(i) The Warranty Group Spirit AeroSystems(i) Mister Car Wash ResCare Fund Transaction Onex Partners III Onex Partners II Sale of business Share repurchases, secondary offerings and dividend Onex Partners I & II Sale of business Onex Partners I Share repurchases and secondary offerings ONCAP II Sale of business Onex Partners I & III Dividend PURE Canadian Gaming ONCAP II & III Debt repayment and return of capital BBAM Other Onex Partners III Distributions Various Various Distributions to Limited Partners (i) Includes amounts distributed to certain limited partners and others. $ 2015 270 180 130 77 75 64 37 21 13 10 11 $ 888 2014 $ 1,361 927 646 451 178 95 23 20 18 $ 3,719 66 Onex Corporation December 31, 2015 M A N A G E M E N T ’ S D I S C U S S I O N A N D A N A LY S I S At December 31, 2015, total carried interest netted against the Limited Partners’ Interests for Onex Partners and Dividend policy In May 2015, Onex announced that it had increased its ONCAP Funds in Onex’ consolidated balance sheets was quarterly dividend by 25 percent to C$0.0625 per SVS $503 million (2014 – $315 million), of which Onex’ share beginning with the dividend declared by the Board of was $178 million (2014 – $115 million). Direc tors payable in July 2015. In May 2014, Onex increased The Limited Partners’ Interests charge recorded for its quarterly dividend by 33 percent to C$0.05 per SVS 2015 is discussed in detail on page 47 of this MD&A. beginning with the dividend declared by the Board of Equity Table 28 provides a reconciliation of the change in equity Registered shareholders can elect to receive divi- dend payments in U.S. dollars by submitting a completed from December 31, 2014 to December 31, 2015. Onex’ con- currency election form to CST Trust Company ﬁve business solidated statements of equity also show the changes to the days before the record date of the dividend. Non-registered components of equity for the year ended December 31, 2015. shareholders who wish to receive dividend payments in Directors in July 2014. Change in Equity TABLE 28 ($ millions) Balance – December 31, 2014 Dividends declared Issuance of shares Repurchase and cancellation of shares Investments in operating companies by shareholders other than Onex U.S. dollars should contact their broker to submit their cur- rency election. $ 2,498 (18) 6 Shares outstanding At December 31, 2015, Onex had 100,000 Multiple Voting Shares outstanding, which have a nominal paid-in value reﬂected in Onex’ consolidated ﬁnancial statements. Onex (175) also had 105,893,578 SVS issued and outstanding. Note 17 to the consolidated ﬁnancial statements provides additional 292 information on Onex’ share capital. There was no change Distributions to non-controlling interests and in the Multiple Voting Shares outstanding during 2015 or in other adjustments Repurchase of shares of operating companies Non-controlling interests on loss of control of investments in operating companies or sale of investments in operating companies Net loss for the year Other comprehensive loss for the year, net of tax (184) (435) (44) (505) (245) Change in SVS Outstanding TABLE 29 SVS outstanding at December 31, 2014 January 2016. Table 29 shows the change in the number of SVS outstanding from December 31, 2014 to January 31, 2016. Equity as at December 31, 2015 $ 1,190 Shares repurchased and cancelled Issuance of shares – Dividend Reinvestment Plan Issuance of shares – Onex Credit transaction(a) 108,858,066 (4,222,172) 11,166 111,393 SVS outstanding at January 31, 2016 104,758,453 (a) In January 2015, in connection with acquiring control of the Onex Credit asset management platform, as discussed on page 27 of this MD&A, Onex issued 111,393 of its SVS as part of the consideration in the transaction. Onex Corporation December 31, 2015 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 Shares repurchased and cancelled For the year ended December 31, 2015, Onex repurchased On April 16, 2015, Onex renewed its Normal Course Issuer Bid (“NCIB”) following the expiry of its previ- 3,084,877 SVS for a total cost of $175 million (C$218 mil- ous NCIB on April 15, 2015. Under the new NCIB, Onex is lion) or an average cost per share of $56.83 (C$70.70). The permitted to purchase up to 10 percent of its public ﬂoat shares repurchased were comprised of: (i) 2,809,877 SVS of SVS, or 8,407,536 SVS. Onex may purchase up to 30,385 repurchased under its Normal Course Issuer Bids (the SVS during any trading day, being 25 percent of its average “Bids”) for a total cost of $160 million (C$199 million) or an daily trading volume for the six months ended March 31, average cost per share of $56.99 (C$70.82); and (ii) 275,000 2015. Onex may also purchase SVS from time to time under SVS repurchased in private transactions for a total cost of the Toronto Stock Exchange’s block purchase exemption, if $15 million (C$19 million) or an average cost per share of available, or by way of private agreement pursuant to an $55.12 (C$69.50). issuer bid exemption order, if sought and received, under In January 2016, Onex repurchased 137,295 SVS the new NCIB. The new NCIB commenced on April 16, 2015 under its NCIB for a total cost of $8 million (C$11 million) and will conclude on the earlier of the date on which pur- or an average cost per share of $56.48 (C$81.78). In addition, chases under the NCIB have been completed and April 15, Onex repurchased 1,000,000 SVS in a private transaction at 2016. A copy of the Notice of Intention to make the NCIB C$84.12 per SVS or a total cost of $59 million (C$84 million), ﬁled with the Toronto Stock Exchange is available at no which represented a slight discount to the trading price of charge to shareholders by contacting Onex. Onex shares at that date. The shares were held indirectly by Under the previous NCIB that expired on April 15, Mr. Gerald W. Schwartz, Onex’ controlling shareholder. 2015, Onex repurchased 1,615,734 SVS at a total cost of The Bids enable Onex to repurchase up to 10 per- $92 million (C$109 million), or an average purchase price of cent of its public ﬂoat of SVS during the period of the rele- C$67.19 per share. vant Bid. Onex believes that it is advantageous to Onex and its shareholders to continue to repurchase Onex’ SVS from time to time when the SVS are trading at prices that reﬂect a signiﬁcant discount to their value as perceived by Onex. Table 30 shows a summary of Onex’ repurchases of SVS for the past 10 years. Onex’ Repurchases of SVS for the Past 10 Years TABLE 30 2006 2007 2008 2009 2010 2011 2012 2013(1) 2014(2) 2015(3) Total (1) Includes 1,000,000 SVS repurchased in a private transaction. (2) Includes 1,310,000 SVS repurchased in private transactions. (3) Includes 275,000 SVS repurchased in private transactions. 68 Onex Corporation December 31, 2015 Shares Repurchased Total Cost of Shares Repurchased (in C$ millions) Average Share Price (in C$ per share) 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 3,084,877 C$ 203 113 101 41 52 105 24 159 163 218 C$ 22.17 33.81 28.89 23.04 25.44 33.27 38.59 51.81 62.98 70.70 32,371,651 C$ 1,179 C$ 36.45 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 Issuance of shares – Dividend Reinvestment Plan Onex’ Dividend Reinvestment Plan enables Canadian share- holders to reinvest cash dividends to acquire new SVS of Non-controlling interests on loss of control or sale of investments in operating companies Under IFRS, non-controlling interests represent the own- Onex at a market-related price at the time of reinvestment. ership interests of shareholders, other than Onex and During the period from January 1, 2015 to January 31, 2016, its third-party limited partners in the Onex Partners and Onex issued 11,166 SVS at an average cost of C$74.46 per SVS, ONCAP Funds, in Onex’ controlled operating companies. creating a cash savings of $1 million (C$1 million). During Onex recorded a decrease in equity of $44 million during the year ended December 31, 2014, Onex issued 7,952 SVS at 2015 related to non-controlling interests on the loss of a an average cost of C$61.18 per SVS, creating a cash savings of controlling interest in Skilled Healthcare Group and on the less than $1 million (less than C$1 million). sale of Tropicana Las Vegas. The decrease was partially off- set by the increase in non-controlling interests related to Investments in operating companies by shareholders the sale of Sitel Worldwide. other than Onex Onex reported an increase in consolidated equity of Onex lost its controlling interest in Skilled Healthcare Group as a result of the purchase and combina- $304 million during 2015 primarily due to an increase tion transaction in February 2015, as described on page 27 in investments in operating companies by shareholders of this MD&A. The non-controlling interests attributable to other than Onex, including $132 million associated with Skilled Healthcare Group have been removed from equity Schumacher and its acquisitions. In addition, stock-based since the operations of Skilled Healthcare Group are no compensation provided to employees at the operating com- longer consolidated. panies contributed to the increase during 2015. In addition, following the sales of Tropicana Las Repurchase of shares of operating companies Onex reported a decrease in equity of $435 million during Vegas and Sitel Worldwide during 2015, the non-control- ling interests attributable to Tropicana Las Vegas and Sitel Worldwide have been removed from equity as the invest- 2015 primarily due to shares repurchased by Celestica and ments are no longer consolidated. The non-controlling JELD-WEN. interests in Sitel Worldwide were negative at the time of sale as a result of the non-controlling interests’ portion of the accumulated losses from the operations of Sitel Worldwide that offset their original investment. Onex Corporation December 31, 2015 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 Stock Option Plan Onex, the parent company, has a Stock Option Plan in In addition, in January 2015, in connection with acquiring control of the Onex Credit asset management plat- place that provides for options and/or share appreciation form as discussed on page 27 of this MD&A, Onex issued rights to be granted to Onex directors, ofﬁcers and employ- 60,000 options to Onex Credit’s chief executive ofﬁcer to ees for the acquisition of SVS of Onex, the parent company, acquire SVS. The options have an exercise price of C$68.57 for a term not exceeding 10 years. The options vest equally per share and vest at a rate of 20 percent per year from the over ﬁve years, with the exception of a total of 6,775,000 date of grant. The options are subject to the same terms and options, which vest at a rate of 15 percent per year dur- conditions as the Company’s existing Stock Option Plan; ing the ﬁrst four years and 40 percent in the ﬁfth year. The however, the options are also subject to an additional per- exercise price of the options issued is at the market value of formance threshold speciﬁc to the Onex Credit asset man- the SVS on the business day preceding the day of the grant. agement platform. Vested options are not exercisable unless the average ﬁve- During 2014, 4,928,500 options were issued at day market price of Onex SVS is at least 25 percent greater a weighted average exercise price of C$58.65 per share, than the exercise price at the time of exercise. of which 903,500 options were issued during the fourth At December 31, 2015, Onex had 12,628,033 options quarter of 2014. The options issued during 2014 vest at a outstanding to acquire SVS, of which 4,713,415 options were rate of 20 percent per year from the date of grant, with the vested and exercisable. exception of 4,025,000 options issued in January 2014 and December 2014 that vest at a rate of 15 percent per year Table 31 provides information on the activity during 2015 during the ﬁrst four years and 40 percent in the ﬁfth year. (377,483) C$ 19.47 options expired. (6,650) C$ 41.35 During 2015, 643,359 options were surrendered at a weighted average exercise price of C$28.22 for aggre- gate cash consideration of $24 million (C$32 million) and 105,150 options expired. 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 Director Deferred Share Unit Plan During the second quarter of 2015, an annual grant of 29,653 DSUs was issued to directors having an aggregate value, at the date of grant, of $2 million (C$2 million) in lieu of that amount of cash compensation for directors’ fees. At December 31, 2015, there were 626,481 Director DSUs out- standing. Onex has hedged 578,799 of the outstanding Director DSUs with a counterparty ﬁnancial institution. and 2014. Change in Stock Options Outstanding TABLE 31 Outstanding at December 31, 2013 Granted Surrendered Expired Granted Surrendered Expired Outstanding at December 31, 2014 12,411,542 Number of Options 7,867,175 4,928,500 Weighted Average Exercise Price C$ 41.34 C$ 58.65 965,000 C$ 48.88 C$ 80.85 (643,359) C$ 28.22 (105,150) C$ 49.50 Outstanding at December 31, 2015 12,628,033 C$ 52.37 Options issued during 2015 consisted of: (i) 10,000 options to acquire SVS with an exercise price of C$74.87 per share issued in March 2015; (ii) 10,000 options to acquire SVS with an exercise price of C$79.79 per share issued in September 2015; and (iii) 885,000 options to acquire SVS with an exercise price of C$81.76 per share issued in November 2015. The options vest at a rate of 20 percent per year from the date of grant. 70 Onex Corporation December 31, 2015 M A N 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 In early 2015, Onex issued 116,037 Management Deferred In early 2016, Onex issued 44,333 MDSUs to man- agement having an aggregate value, at the date of grant, of Share Units (“MDSUs”) to management having an aggre- $3 million (C$4 million) in lieu of that amount of cash com- gate value, at the date of grant, of $7 million (C$8 million) pensation for Onex’ 2015 ﬁscal year. in lieu of that amount of cash compensation for Onex’ 2014 Forward agreements were entered into with a ﬁscal year. At December 31, 2015, there were 684,515 (2014 – counterparty ﬁnancial institution to hedge Onex’ exposure 566,494) MDSUs outstanding. to changes in the value of all the outstanding MDSUs. DSUs and MDSUs must be held until leaving the employment of Onex or retirement from the Board. Table 32 reconciles the changes in the DSUs and MDSUs outstanding at December 31, 2015 from December 31, 2013. Change in Outstanding Deferred Share Units TABLE 32 Outstanding at December 31, 2013 Granted Additional units issued in lieu of compensation and cash dividends Outstanding at December 31, 2014 Granted Additional units issued in lieu of compensation and cash dividends Outstanding at December 31, 2015 Hedged with a counterparty financial institution at December 31, 2015 Outstanding at December 31, 2015 – Unhedged Director DSU Plan Management DSU Plan Number of DSUs Weighted Average Price Number of MDSUs Weighted Average Price C$ 63.00 C$ 64.01 C$ 69.01 C$ 75.80 543,260 29,537 11,710 584,507 29,653 12,321 626,481 (578,799) 47,682 467,230 – – 99,264 C$ 58.40 – C$ 68.73 566,494 – 118,021 684,515 (684,515) – Management of capital Onex considers the capital it manages to be the amounts it • build the long-term value of its operating businesses; • control the risk associated with capital invested in any has in cash and cash equivalents, near-cash investments, particular business or activity. All debt ﬁnancing is within short- and long-term investments managed by third-party the operating businesses and each company is required investment managers and the investments made in the to support its own debt. Onex Corporation does not operating businesses and Onex Credit. Onex also manages guarantee the debt of the operating businesses and there capital from other investors in the Onex Partners, ONCAP are no cross-guarantees of debt between the operating and Onex Credit Funds. Onex’ objectives in managing capi- businesses; and tal are to: • have appropriate levels of committed limited partners’ • preserve a ﬁnancially strong parent company with capital available to invest along with Onex’ capital. This appropriate liquidity and no, or a limited amount of, allows Onex to respond quickly to opportunities and debt so that funds are available to pursue new acqui- pursue acquisitions of businesses of a size it could not sitions and growth opportunities, as well as support achieve using only its own capital. The management of expansion of its existing businesses. Onex does not gen- limited partners’ capital also provides management fees erally have the ability to draw cash from its operating to Onex and the ability to enhance Onex’ returns by earn- businesses. Accordingly, maintaining adequate liquidity ing a carried interest on the proﬁts of limited partners. at the parent company is important; • achieve an appropriate return on capital invested com- mensurate with the level of assumed risk; Onex Corporation December 31, 2015 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 At December 31, 2015, Onex, the parent company, had $588 million of cash on hand and $1.5 billion of near-cash Non-controlling interests Non-controlling interests in equity in Onex’ consolidated items at market value. Near-cash items include short- and balance sheets as at December 31, 2015 primarily represent long-term investments managed by third-party invest- the ownership interests of shareholders, other than Onex ment managers, as described below, as well as $351 mil- and its limited partners in the funds, in Onex’ controlled lion invested in a segregated unlevered fund managed by operating companies. The non-controlling interests balance Onex Credit. at December 31, 2015 decreased to $1.4 billion from $1.7 bil- Onex, the parent company, has a conservative cash lion at December 31, 2014. The decrease was primarily due management policy driven toward maintaining liquidity to: (i) the repurchase of shares of operating companies, and preserving principal in all its investments. primarily at Celestica and JELD-WEN; (ii) the loss of Onex’ Beginning in the second quarter of 2015, Onex, the controlling interest in Skilled Healthcare Group as a result parent company, transferred cash and cash equivalents to of the purchase and combination transaction in February accounts managed by third-party investment managers in 2015, as described on page 27 of this MD&A; and (iii) the order to increase the return on this capital while maintain- sale of Tropicana Las Vegas, as described on page 29 of this ing appropriate liquidity. At December 31, 2015, the fair value MD&A. The decrease was partially offset by non-controlling of investments, including cash yet to be deployed, managed interests associated with the acquisition of Schumacher and by third-party investment managers was $1.2 billion. The the non-controlling interests related to Sitel Worldwide, investments are managed in a mix of short-term and long- which were negative at the time of sale as a result of non- term portfolios. Short-term investments consist of liquid controlling interests’ portion of accumulated losses from investments including money market instruments and com- the operations of Sitel Worldwide that more than offset their mercial paper with original maturities of three months to investments. Additional information about non-controlling a year. Long-term investments consist of securities includ- interests is provided in note 18 to the consolidated ﬁnancial ing money market instruments, federal and municipal debt statements. instruments, corporate obligations and structured products with maturities of one to ﬁve years. The investments are 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 managed to maintain an overall weighted average duration of two years or less. At December 31, 2015, Onex had access to $3.0 bil- Major cash ﬂow components This section should be read in conjunction with the con- lion of uncalled committed limited partners’ capital for solidated statements of cash ﬂows and the corresponding acquisitions through Onex Partners IV ($2.8 billion) and notes thereto. Table 33 summarizes the major consolidated ONCAP III (C$148 million). cash ﬂow components for the years ended December 31, 2015 and 2014. Major Cash Flow Components TABLE 33 ($ millions) 2015 2014 Cash from operating activities $ 1,880 $ 989 Cash from (used in) financing activities $ 1,652 $ (1,624) Cash from (used in) investing activities $ (4,837) $ 1,236 Consolidated cash and cash equivalents held by continuing operations $ 2,313 $ 3,662 72 Onex Corporation December 31, 2015 M A N 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 operating activities Table 34 provides a breakdown of cash from operating Cash from operating activities for the year ended Decem- ber 31, 2015 also included $219 million (2014 – $465 million) activities by cash generated from operations, changes in of cash ﬂows from the operating activities of discontinued non-cash working capital items, other operating activities operations. Discontinued operations for the year ended and operating activities of discontinued operations for the December 31, 2015 represent the operations of KraussMaffei, years ended December 31, 2015 and 2014. Sitel World wide and Skilled Health care Group. Discontinued Components of Cash from Operating Activities resent the operations of KraussMaffei, Sitel Worldwide, operations for the year ended December 31, 2014 rep- Skilled Healthcare Group, The Warranty Group and Spirit TABLE 34 ($ millions) 2015 2014 AeroSystems. Cash generated from operations $ 1,754 $ 930 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 non-cash working capital items Decrease in other operating activities Cash flows from operating activities of (152) (121) (120) Cash from (used in) ﬁnancing activities Cash from ﬁnancing activities was $1.7 billion for 2015 compared to cash used in ﬁnancing activities of $1.6 billion for 2014. Cash from ﬁnancing activities for 2015 included: • $2.4 billion of net new long-term debt primarily from the 41 closings of CLO-8, CLO-9 and CLO-10 and an increase in (23) 92 3 (52) 20 (113) (352) (54) outstanding debt at Celestica, JELD-WEN, Schumacher and USI. This was partially offset by debt repayments made by Carestream Health, Jack’s and Meridian Avia- tion; and • $1.8 billion of contributions received primarily from the discontinued operations 219 465 limited partners of Onex Partners IV and ONCAP III, as Cash from operating activities $ 1,880 $ 989 discussed under the Limited Partners’ Interests on page 65 of this MD&A. Cash generated from operations includes net loss from continuing operations before interest and income taxes, adjusted for cash taxes paid and items not affecting cash and cash equivalents. The signiﬁcant changes in non-cash work- ing capital items for the year ended December 31, 2015 were: • a $92 million decrease in inventory, primarily at Meri- dian Aviation, due to the sale of an aircraft, partially off- set by increases in inventory at Celestica and Flushing Town Center; and • a $52 million decrease in accounts payable, accrued liabilities and other current liabilities primarily at Schu- macher and Survitec. Partially offsetting these were: • $1.0 billion of distributions primarily to the limited part- ners of the Onex Partners and ONCAP Funds, as dis- cussed under the Limited Partners’ Interests on page 66 of this MD&A, and distributions to third-party share- holders of JELD-WEN and USI; • $776 million of cash interest paid; • $435 million of cash used for share repurchases primarily by Celestica and JELD-WEN; • $175 million of cash used by Onex, the parent company, for purchases of its shares; and • $123 million of cash used in ﬁnancing discontinued operations. Onex Corporation December 31, 2015 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 For the year ended December 31, 2014, cash used in ﬁnan- Partially offsetting these were: cing activities was $1.6 billion and included: • $525 million of proceeds from the sale of property, plant • $3.7 billion of distributions primarily to the limited part- and equipment consisting primarily of $190 million ners of the Onex Partners and ONCAP Funds, as dis- of proceeds from the sale of two aircraft by Meridian cussed under the Limited Partners’ Interests on page 66 Aviation, $143 million of net proceeds received by Jack’s of this MD&A; • $596 million of cash interest paid; from the sale-leaseback transaction completed for cer- tain of its fee-owned restaurant properties, $128 million • $297 million of cash used in ﬁnancing activities of dis- of proceeds from the sale of substantially all of the retail continued operations, including an increase of restricted space and adjoining parking structures of Flushing Town cash by Spirit AeroSystems for its share repurchase of Center and $54 million of proceeds from the sale of the $129 million; B.C. Sugar residual property; • $167 million of cash used primarily by Celestica for pur- • $264 million of proceeds from the sale of investments in chases of its shares; Sitel Worldwide and Tropicana Las Vegas; • $150 million of cash used by Onex, the parent company, • $257 million of cash interest received; and for purchases of its shares under its Bids; and • $82 million of distributions received from BBAM and AIT. • $65 million invested to acquire common stock of JELD- WEN from existing shareholders. Cash from investing activities totalled $1.2 billion for the Partially offsetting these were: year ended December 31, 2014 and consisted primarily of: • $5.7 billion of cash proceeds received primarily from the • $2.4 billion of net new long-term debt primarily from sale of Tomkins ($2.0 billion), the sales of Allison Trans- the note issuances by CLO-5, CLO-6 and CLO-7 and debt mission shares ($1.5 billion), the sale of The Warranty raised by Emerald Expositions, JELD-WEN, Meridian Group ($1.1 billion), the sales of Spirit AeroSys tems Avia tion and USI; shares ($729 million) and the sale of Mister Car Wash • $867 million of cash received primarily from the lim- ($375 million); ited partners of Onex Partners III, Onex Partners IV and • $213 million of proceeds received from the sale of prop- ONCAP III, as discussed under the Limited Partners’ erty, plant and equipment consisting primarily of pro- Interests on page 65 of this MD&A; and ceeds from the sale of two aircraft by Meridian Aviation; • $171 million of cash received from the Onex Partners I and Group’s March 2014 sale of shares of Spirit AeroSystems. • $122 million of cash interest received. Cash from (used in) investing activities Cash used in investing activities totalled $4.8 billion for Partially offsetting these were: • $2.0 billion of net purchases of investments and securi- the year ended December 31, 2015 compared to cash from ties mainly by the CLOs; investing activities of $1.2 billion during 2014. Cash used in • $1.3 billion used to fund acquisitions, of which $596 mil- investing activities during 2015 primarily consisted of: lion related to the Onex Partners III Group’s acquisition • $2.5 billion of cash used to fund investments in oper- of York and acquisitions completed by York during the ating companies, which primarily related to the Onex fourth quarter of 2014; Partners IV Group’s investments in Jack’s, Schumacher, • $765 million of cash used in investing activities of dis- SIG and Survitec; continued operations; and • $1.5 billion of net purchases of investments and securi- • $309 million for investments in joint ventures, of which ties by the CLOs and Onex Credit Funds; $204 million related to the Onex Partners IV Group’s in- • $1.2 billion of cash used by Onex, the parent company, vestment in AIT and $105 million related to the ONCAP III for purchases of short- and long-term investments by Group’s investment in Mavis Discount Tire. third-party investment managers; and • $120 million for the ONCAP III Group’s joint venture investments in ITG and Mavis Discount Tire. 74 Onex Corporation December 31, 2015 M A N 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, there was $704 million (2014 – $467 million) of During 2015, cash used for property, plant and equipment cash used for purchases of property, plant and equipment purchases primarily consisted of: by Onex’ operating companies during 2015. Table 35 details • $58 million invested by Celestica primarily to enhance the property, plant and equipment expenditures by indus- manufacturing capabilities and to support new customer try segment. programs; Cash used for property, plant and equipment purchases Table 35 provides a breakdown of cash used for the pur- • $52 million invested by Carestream Health primarily to support growth initiatives, invest in rental capital and for recurring maintenance; chases of property, plant and equipment by industry seg- • $74 million invested by JELD-WEN primarily for improve- ment for the years ended December 31, 2015 and 2014. ments and upgrades for its production machinery; Cash Used for Property, Plant and Equipment Purchases by Industry Segment TABLE 35 ($ millions) 2015 2014 • $147 million invested by SIG primarily for maintenance and upgrades to existing facilities and the construction of new facilities; and • cash used for the purchase of property, plant and equip- ment in the other segment consisting primarily of cash Electronics Manufacturing Services $ 58 $ 58 used by Meridian Aviation to purchase two aircraft. Healthcare Imaging Health and Human Services Building Products Insurance Services(a) Packaging Products and Services(b) Credit Strategies(c) Other(d) Total 52 21 74 24 157 – 318 66 23 69 11 21 – 219 Consolidated cash resources At December 31, 2015, consolidated cash held by continu- ing operations decreased to $2.3 billion from $3.8 billion at December 31, 2014. The major component at Decem- ber 31, 2015 was $588 million of cash on hand at Onex, the parent company (December 31, 2014 – $2.5 billion). In addi- $ 704 $ 467 tion to cash at the parent company, Onex had $1.5 billion of (a) The insurance services segment consists of USI and York. York began to be consolidated in October 2014, when the business was acquired by the Onex Partners III Group. (b) The packaging products and services segment consists of sgsco and SIG. sgsco near-cash items at December 31, 2015 (December 31, 2014 – $346 million). Near-cash items at December 31, 2015 include short- and long-term investments managed by third-party investment managers, as described on page 72 of this was previously included within the other segment. SIG began to be consolidated MD&A, as well as $351 million invested in a segregated unle- in March 2015, when the business was acquired by the Onex Partners IV Group. vered fund managed by Onex Credit. (c) The credit strategies segment, consisting of (i) Onex Credit Manager, (ii) Onex Credit Collateralized Loan Obligations and (iii) Onex Credit Funds, was previously included within other. (d) 2015 other includes Flushing Town Center, Tropicana Las Vegas (up to August 2015), Meridian Aviation, Emerald Expositions, Survitec (since March 2015), Jack’s (since July 2015), Schumacher (since late July 2015), the operating companies of ONCAP II and ONCAP III (Chatters since July 2015) and the parent company. 2014 other includes Flushing Town Center, Tropicana Las Vegas, Meridian Aviation, Emerald Expositions, the operating companies of ONCAP II (Mister Car Wash up to August 2014) and ONCAP III and the parent company. Onex Corporation December 31, 2015 75 M A N A G E M E N T ’ S D I S C U S S I O N A N D A N A LY S I S Cash and near-cash at Onex, the parent company Table 36 provides a reconciliation of the change in cash and near-cash at Onex, the parent company, from December 31, 2014 to December 31, 2015. Change in Cash and Near-Cash at Onex, the Parent Company TABLE 36 ($ millions) Cash and near-cash on hand at December 31, 2014(a) Private equity realizations: JELD-WEN dividend USI dividend Sale of Tropicana Las Vegas Jack’s promissory note repayment Sale of B.C. Sugar residual property Sale of Sitel Worldwide Meridian Aviation distribution ResCare dividend BBAM distributions PURE Canadian Gaming dividend AIT distributions Private equity investments: Investment in SIG Investment in Jack’s Investments in Schumacher Investments in Survitec Add-on investment in Mavis Discount Tire Investment in ITG Investment in Chatters Investment in Onex Credit asset management platform Net Onex Credit activity, including investments in warehouse facilities Net Onex Real Estate activity, including sale of property in Flushing Town Center Onex share repurchases Other, net, including dividends, management fees and operating costs(b) Cash and near-cash on hand at December 31, 2015(c) 89 51 50 41 33 33 21 20 13 8 7 (405) (120) (93) (76) (25) (21) (13) Amount $ 2,877 366 (753) (26) (72) 97 (175) (176) $ 2,138 (a) Includes $346 million invested in a segregated Onex Credit unlevered senior secured loan strategy fund. (b) Other includes the impact of incentive compensation payments paid in 2015 related to 2015 and 2014, timing of management fees received and unfavourable foreign exchange on cash. (c) Includes $1.2 billion of short- and long-term investments managed by third-party investment managers and $351 million invested in a segregated Onex Credit unlevered senior secured loan strategy fund. Subsequent to December 31, 2015, Onex, the parent company, received cash of $7 million from Jack’s in repayment of the promissory note, as described on page 28 of this MD&A. In January 2016, Onex, the parent company, repurchased in a pri- vate transaction 1,000,000 SVS that were held indirectly by Mr. Gerald W. Schwartz, Onex’ controlling shareholder, for a total cost of $59 million (C$84 million). 76 Onex Corporation December 31, 2015 M A N A G E M E N T ’ S D I S C U S S I O N A N D A N A LY S I S A D D I T I O N A L U S E S O F C A S H Contractual obligations Table 37 presents the contractual obligations of Onex and its operating companies as at December 31, 2015. Contractual Obligations TABLE 37 ($ millions) Payments Due by Period Total Less than 1 year 1–3 years 4–5 years After 5 years Long-term debt, without recourse to Onex(a) $ 18,373 $ 411 $ Finance and operating leases Purchase obligations 1,287 133 298 101 650 416 22 $ 5,427 $ 11,885 225 3 348 7 Total contractual obligations $ 19,793 $ 810 $ 1,088 $ 5,655 $ 12,240 (a) Excludes debt amounts of subsidiaries held by Onex, the parent company, debt of investments in joint ventures and associates, and debt amounts of KraussMaffei, which is a discontinued operation. Amounts are gross of financing charges. In addition to the obligations in table 37, certain of Onex’ consolidated operating companies have funding obliga- Commitments At December 31, 2015, Onex and its operating companies tions related to their deﬁned beneﬁt pension plans. The had total commitments of $494 million. Commitments by operating companies estimate that $49 million of contri- Onex and its operating companies provided in the normal butions will be required in 2016 for their deﬁned beneﬁt course of business include commitments for corporate pension plans. Onex, the parent company, does not provide investments, capital assets and letters of credit, letters of pension, other retirement or post-retirement beneﬁts to its guarantee and surety and performance bonds. employees or to employees of any of the operating compa- Approximately $361 million of the total commit- nies. In addition, Onex, the parent company, does not have ments in 2015 were for contingent liabilities in the form of any obligations and has not made any guarantees with letters of credit, letters of guarantee and surety and per- respect to the plans of the operating companies. formance bonds provided by certain operating companies A breakdown of long-term debt by industry seg- to various third parties, including bank guarantees. These ment is provided in table 23 on page 59 of this MD&A. In guarantees are without recourse to Onex. addition, notes 12 and 13 to the consolidated ﬁnancial In addition, in February 2016, Onex, the parent statements provide further disclosure on long-term debt company, committed to investing $75 million in Incline and lease commitments. Our consolidated operating com- Aviation Fund, an aircraft investment fund to be managed panies currently believe they have adequate cash from by BBAM and focused on investments in contractually operations, cash on hand and borrowings available to them leased commercial jet aircraft. to meet anticipated debt service requirements, capital expenditures and working capital needs. There is, however, no assurance that our consolidated operating companies will generate sufﬁcient cash ﬂow from operations or that future borrowings will be available to enable them to grow their business, service all indebtedness or make antici- pated capital expenditures. Onex Corporation December 31, 2015 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 Onex’ commitment to the Funds Onex, the parent company, is the largest limited partner against combined obligations of $1.6 billion (2014 – $1.2 bil- lion), with a net deﬁcit of $151 million (2014 – $339 million). in each of the Onex Partners and ONCAP Funds. Table 38 A surplus in any plan is not available to offset deﬁciencies presents the commitment and the uncalled committed cap- in others. ital of Onex, the parent company, in these funds at Decem- Onex, the parent company, does not have a pen- ber 31, 2015. sion plan and has no obligation to the pension plans of its Commitment and Uncalled Committed Capital of Onex, the Parent Company, at December 31, 2015 TABLE 38 ($ millions) Fund Size Onex Partners I Onex Partners II Onex Partners III Onex Partners IV(c)(d) ONCAP II ONCAP III(e) $ 1,655 $ 3,450 $ 4,700 $ 5,660 C$ C$ 574 800 Onex’ Commitment $ 400 $ 1,407 $ 1,200 $ 1,700 C$ C$ 252 252 Onex’ Uncalled Committed Capital(a) $ $ $ 20 (b) 158 (b) 123 $ 1,116 C$ C$ 1 (b) 62 (a) Onex’ uncalled committed capital is calculated based on the assumption that all of the remaining limited partners’ commitments are invested. (b) Uncalled committed capital for Onex Partners I and II, and ONCAP II, is available only for possible future funding of partnership expenses. (c) The principal repayments of the promissory note by Jack’s, as described on page 28 of this MD&A, increased the uncalled commitments for Onex Partners Funds. (d) Onex increased its commitment to $1,700 million for new Onex Partners IV investments completed after June 3, 2015. (e) Onex’ commitment has been reduced for the annual commitment for Onex management’s participation. operating companies. At December 31, 2015, Celestica’s deﬁned beneﬁt pension plans were overfunded on a net basis by $38 mil- lion (2014 – $39 million). Celestica’s pension funding policy is to contribute amounts sufﬁcient to meet minimum local statutory funding requirements that are based on actu- arial calculations. The company may make additional dis- cretionary contributions based on actuarial assessments. Celestica estimates $13 million of contributions will be required for its deﬁned beneﬁt pension plans in 2016 based on the most recent actuarial valuations. Carestream Health’s deﬁned beneﬁt pension plans were in an underfunded position of approximately $72 mil- lion at December 31, 2015 (2014 – $83 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 2016 to its deﬁned beneﬁt pension plans, and it does not believe that future pension contributions will materially impact its liquidity. At December 31, 2015, JELD-WEN’s deﬁned beneﬁt pension plans were in an underfunded position of approxi- mately $117 million (2014 – $153 million). The company’s In June 2015, Onex’ increased commitment to Onex pension plan assets are broadly diversiﬁed in equity and Partners IV became effective, increasing by $500 mil- debt securities, as well as other investments. JELD-WEN lion to $1.7 billion. The increased commitment did not estimates that $10 million of contributions will be required change Onex’ ownership of businesses acquired prior to for its deﬁned beneﬁt pension plans in 2016. June 3, 2015. The Onex Partners IV Group’s acquisition of At December 31, 2015, SIG’s deﬁned beneﬁt pen- Jack’s in July 2015 was the ﬁrst investment reﬂecting Onex’ sion plans were in an overfunded position of approxi- increased commitment. Pension plans Six of Onex’ operating companies have deﬁned beneﬁt pen- mately $9 million. The company’s pension plan assets are broadly diversiﬁed in equity and debt investment funds, as well as other investments. SIG estimates that $5 million of contributions will be required for its deﬁned beneﬁt pen- sion plans, of which the more signiﬁcant plans are those of sion plans in 2016. Celestica, Carestream Health, JELD-WEN, SIG and Survitec. At December 31, 2015, Survitec’s deﬁned beneﬁt KraussMaffei, which is a discontinued operation, has pension plans were in an underfunded position of approxi- deﬁned beneﬁt pension plans which are included in the 2014 mately $8 million. The company’s pension plan assets are comparative information. At December 31, 2015, the deﬁned broadly diversiﬁed in equity and debt securities, as well beneﬁt pension plans of the six Onex operating companies as other investments. Survitec estimates that $2 million of had combined assets of $1.4 billion (2014 – $872 million) contributions will be required for its deﬁned beneﬁt pen- sion plans in 2016. 78 Onex Corporation December 31, 2015 M A N A G E M E N T ’ S D I S C U S S I O N A N D A N A LY S I S A D D I T I O N A L S O U R C E S O F C A S H The committed amounts from the limited partners are not included in Onex’ consolidated cash and will be funded as Private equity funds Onex’ private equity funds provide capital for Onex- capital is called. sponsored acquisitions that are not related to Onex’ oper- During 2003, Onex raised its ﬁrst large-cap fund, Onex ating companies that existed prior to the formation of the Partners I, with $1.655 billion of committed capital, funds. The funds provide a substantial pool of committed including committed capital from Onex of $400 mil- capital, which enables Onex to be ﬂexible and timely in lion. Since 2003, Onex Partners I has completed 10 invest- responding to investment opportunities. ments, investing $1.5 billion, including Onex. While Onex Partners I has concluded its investment period, the fund Table 39 provides a summary of the remaining commit- still has uncalled limited partners’ committed capital of ments available from limited partners at December 31, $65 million for possible future funding of partnership 2015. The remaining commitments for Onex Partners IV expenses. In January 2015, with the approval of a major- and ONCAP III will be used for future Onex-sponsored ity in interest of the limited partners, the term of Onex acquisitions. The remaining commitments from lim- Partners I was extended to February 4, 2016. In connection ited partners of Onex Partners I and Onex Partners II are with this extension, the management fee was reduced to for future funding of management fees and partnership 1 percent of net funded commitments relating to Onex Part- expenses. The remaining commitments from limited part- ners I’s investment in ResCare only. In January 2016, with ners of Onex Partners III and ONCAP II are for possible the approval of a majority in interest of the limited part- future funding for remaining businesses in each respective ners, the term of Onex Partners I was further extended to fund and for future funding of management fees and part- February 4, 2017. As a result of this extension, manage- nership expenses. ment fees will no longer be earned for Onex Partners I as of February 4, 2016. During 2006, Onex raised its second large-cap fund, Onex Partners II, a $3.45 billion private equity fund, including committed capital of $1.4 billion from Onex. Onex Partners II has completed seven investments, investing $2.9 billion, including Onex. While Onex Partners II has concluded its investment period, the fund still has uncalled limited part- ners’ committed capital of $241 million for possible future funding for Onex Partners II’s partnership expenses. Private Equity Funds’ Uncalled Limited Partners’ Committed Capital TABLE 39 ($ millions) Onex Partners I Onex Partners II Onex Partners III Onex Partners IV ONCAP II ONCAP III Available Uncalled Committed Capital (excluding Onex) (a) $ $ $ 65 (b) 241 (b) 388 $ 2,845 (c) C$ C$ 2 (b) 148 (a) Includes committed amounts from the management of Onex and ONCAP and directors, calculated based on the assumption that all of the remaining limited partners’ commitments are invested. (b) Uncalled committed capital for Onex Partners I and II, and ONCAP II, is available only for possible future funding of partnership expenses. (c) The principal repayments of the promissory note by Jack’s, as described on page 28 of this MD&A, increased the uncalled commitments for Onex Partners Funds. Onex Corporation December 31, 2015 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 During 2009, Onex completed fundraising for its third During 2006, Onex raised its second mid-market fund, large-cap private equity fund, Onex Partners III, a $4.7 bil- ONCAP II, a C$574 million private equity fund includ- lion private equity fund. Onex’ commitment to Onex ing a commitment of C$252 million from Onex. ONCAP II Partners III has been $1.2 billion for new investments com- has completed eight investments, investing C$483 mil- pleted since May 15, 2012. Onex Partners III has completed lion, including Onex. At December 31, 2015, this fund had 10 investments, investing $4.2 billion, including Onex. The uncalled committed limited partners’ capital of C$2 mil- amount invested includes capitalized costs. While Onex lion for possible future funding for ONCAP II’s partnership Partners III has concluded its investment period, the fund expenses. still has uncalled limited partners’ committed capital of $388 million for possible future funding for any of Onex During 2011, Onex raised its third mid-market private Partners III’s remaining businesses and for management equity fund, ONCAP III, an C$800 million private equity fees and partnership expenses. fund, including committed capital of C$252 million from Onex. ONCAP III has completed seven investments, invest- During 2014, Onex completed fundraising for its fourth ing C$552 million, including Onex. At December 31, 2015, large-cap private equity fund, Onex Partners IV, a $5.2 bil- this fund has uncalled committed limited partners’ capital lion private equity fund. Onex’ initial commitment to the of C$148 million available for future investments and for fund was $1.2 billion. In June 2015, Onex increased its com- management fees and partnership expenses. mitment to the fund by $500 million to $1.7 billion. The increased commitment was applied to new Onex Part- ners IV investments completed after June 3, 2015 and did not change Onex’ ownership of businesses acquired prior to that date. The investment in Jack’s, in July 2015, was the ﬁrst investment to reﬂect Onex’ increased commitment. At December 31, 2015, Onex Partners IV had completed ﬁve investments, investing $1.7 billion, including Onex. The amount invested includes capitalized costs and $54 million of bridge ﬁnancing. At December 31, 2015, Onex Partners IV had $2.8 billion of uncalled limited partners’ capital avail- able for future investments and for management fees and partnership expenses. 80 Onex Corporation December 31, 2015 M A N 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 L A T E D P A R T Y T R A N S A C T I O N S Investment programs Investment programs are designed to align the Onex management team’s interests with those of Onex’ shareholders and the limited partner investors in Onex’ Funds. The various investment programs are described in detail in the following pages and certain key aspects are summa- rized in table 40. TABLE 40 Management Investment Plan(i) Minimum Stock Price Appreciation/ Return Threshold 15% Compounded Return Carried Interest Participation – Onex Partners(ii) 8% Compounded Return Carried Interest Participation – ONCAP(ii) 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 SVS 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 Onex Partners IV • 25% of gross proceeds to be reinvested in SVS 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(iii) 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(iv) n/a Director DSU Plan(v) 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, 2015 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 (i) Management Investment Plan management is entitled to that portion of the carried inter- Onex has a MIP that requires its management members est realized in the ONCAP Funds that equates to a 12 per- to invest in each of the operating businesses acquired or cent carried interest on both limited partners’ and Onex’ invested in by Onex. Management’s required cash invest- capital. Under the terms of the partnership agreements, the ment is 1.5 percent of Onex’ interest in each acquisition General Partners may receive carried interest as realizations or investment. An amount invested in an Onex Partners occur. The ultimate amount of carried interest earned will acquisition under the fund’s investment requirement (dis- be based on the overall performance of each fund, indepen- cussed below) also applies toward the 1.5 percent invest- dently, and includes typical catch-up and claw-back provi- ment requirement under the MIP. sions within each fund, but not between funds. In addition to the 1.5 percent participation, man- agement is allocated 7.5 percent of Onex’ realized gain from Table 41 shows the amount of net carried interest received an operating business investment, subject to certain con- by Onex, the parent company, up to December 31, 2015. ditions. In particular, Onex must realize the full return of its investment plus a net 15 percent internal rate of return Carried Interest from the investment in order for management to be allo- cated the additional 7.5 percent of Onex’ gain. The plan TABLE 41 ($ millions) has vesting requirements, certain limitations and voting requirements. During 2015, management invested $18 million (2014 – $13 million) under the MIP, including amounts invested under the minimum investment requirements of the Onex Partners Funds to meet the 1.5 percent MIP requirement. Management received $4 million under the MIP in 2015 (2014 – $117 million). Notes 1 and 30 to the consolidated ﬁnancial statements provide additional details 2010 and prior years 2011 2012 2013 2014 2015 Total Carried Interest Received $ 172 65 3 75 171 1 $ 487 on the MIP. During 2015, Onex, the parent company, received carried In addition, management of ONCAP has an incen- interest totalling $1 million associated with residual pro- tive program related to Onex’ co-investment in ONCAP ceeds on investments sold in 2014. Onex has the potential operating companies. (ii) Carried interest participation to receive $178 million of carried interest on its businesses in the Onex Partners Funds based on their fair values deter- mined at December 31, 2015. The amount of potential car- The General Partners of the Onex Partners and ONCAP ried interest that Onex may receive takes into consideration Funds, which are controlled by Onex, are entitled to a car- the realized cash loss on Tropicana Las Vegas that occurred ried interest of 20 percent on the realized gains of the during the third quarter of 2015. Until fully offset, this real- limited partners in each fund, subject to an 8 percent com- ized cash loss is expected to result in a $7 million reduction pound annual preferred return to those limited partners on in the carried interest that would otherwise be distrib- all amounts contributed in each particular fund. Onex, as uted to Onex in respect of a future realization in the Onex sponsor of the Onex Partners Funds, is entitled to 40 per- Partners III Fund. The amount of carried interest ultimately cent of the carried interest realized in the Onex Partners received from the Onex Partners III Fund will be based on Funds. Onex management is allocated 60 percent of the car- the overall performance of the Fund. ried interest realized in the Onex Partners Funds. ONCAP 82 Onex Corporation December 31, 2015 M A N 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 year ended December 31, 2014, Onex, (iii) Stock Option Plan the parent company, realized carried interest of $171 mil- Onex, the parent company, has a Stock Option Plan in place lion primarily comprised of amounts received on the fol- that provides for options and/or share appreciation rights lowing transactions: (i) $38 million on the sale of shares of to be granted to Onex directors, ofﬁcers and employees for Allison Transmission in that company’s share repurchases the acquisition of SVS of Onex, the parent company, for a and secondary offerings; (ii) $27 million on the sale of term not exceeding 10 years. The options vest equally over shares of Spirit AeroSystems in that company’s secondary ﬁve years, with the exception of a total of 6,775,000 options, offerings and share repurchase; (iii) $54 million of carried which vest at a rate of 15 percent per year during the ﬁrst interest related to the sale of Tomkins; and (iv) $51 million four years and 40 percent in the ﬁfth year. The price of the related to the sale of The Warranty Group. options issued is at the market value of the SVS on the busi- ness day preceding the day of the grant. Vested options are During the year ended December 31, 2015, management of not exercisable unless the average ﬁve-day market price Onex and ONCAP received carried interest totalling $3 mil- of Onex SVS is at least 25 percent greater than the exercise lion associated with residual proceeds on investments sold price at the time of exercise. Table 31 on page 70 of this prior to 2015. Management of Onex and ONCAP has the MD&A provides details of the change in the stock options potential to receive $331 million of carried interest on busi- outstanding at December 31, 2015 and 2014. nesses in the Onex Partners and ONCAP Funds based on their values determined at December 31, 2015. The amount (iv) Management Deferred Share Unit Plan of potential carried interest that Onex may receive takes Effective December 2007, a Management Deferred Share into consideration the realized cash loss on Tropicana Unit Plan (“MDSU Plan”) was established as a further Las Vegas that occurred during the third quarter of 2015. means of encouraging personal and direct economic inter- During the year ended December 31, 2014, manage- ests by the Company’s senior management in the perfor- ment of Onex received carried interest totalling $256 mil- mance of the SVS. Under the MDSU Plan, the members lion primarily comprised of (i) $56 million on the sale of of the Company’s senior management team are given the shares of Allison Transmission in that company’s share opportunity to designate all or a portion of their annual repurchases and secondary offerings; (ii) $41 million on compensation to acquire MDSUs based on the market the sale of shares of Spirit AeroSystems in that company’s value of Onex shares at the time in lieu of cash. MDSUs vest secondary offerings and share repurchase; (iii) $82 million immediately but are redeemable by the participant only of carried interest related to the sale of Tomkins; and after he or she has ceased to be an ofﬁcer or employee of (iv) $76 million related to the sale of The Warranty Group. the Company or an afﬁliate for a cash payment equal to During 2014, management of ONCAP received carried inter- the then current market price of SVS. Additional units are est of $43 million, primarily from the sale of Mister Car issued equivalent to the value of any cash dividends that Wash. The impact of this ONCAP transaction to Onex and would have been paid on the SVS. To hedge Onex’ expo- management of Onex was a net payment of $7 million in sure to changes in the trading price of Onex shares associ- carried interest. ated with the MDSU Plan, the Company enters into forward agreements with a counterparty ﬁnancial institution for all grants under the MDSU Plan. The costs of those arrange- ments are borne entirely by participants in the MDSU Plan. MDSUs are redeemable only for cash and no shares or other securities of Onex will be issued on the exercise, redemp- tion or other settlement thereof. Table 32 on page 71 of this MD&A provides details of the change in the MDSUs out- standing during 2015 and 2014. Onex Corporation December 31, 2015 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 (v) Director Deferred Share Unit Plan The Onex management team and directors have Onex, the parent company, established a Director Deferred committed to invest 8 percent of the total capital invested Share Unit Plan (“DSU Plan”) in 2004, which allows Onex by Onex Partners IV for new investments completed in directors to apply directors’ fees to acquire DSUs based on 2016, including the minimum “at risk” equity investment. the market value of Onex shares at the time. Grants of DSUs The Onex management team and directors invest in any may also be made to Onex directors from time to time. add-on investments in existing businesses pro-rata with Holders of DSUs are entitled to receive for each DSU, upon their initial investment in the relevant business. redemption, a cash payment equivalent to the market value The total amount invested in 2015 by the Onex of an SVS at the redemption date. The DSUs vest immedi- management team and directors in acquisitions and ately, are only redeemable once the holder retires from the investments completed through the Onex Partners and Board of Directors and must be redeemed by the end of the ONCAP Funds was $142 million (2014 – $60 million). year following the year of retirement. Additional units are In addition, the Onex management team may issued equivalent to the value of any cash dividends that in vest in Onex Credit strategies. At December 31, 2015, would have been paid on the SVS. To hedge Onex’ exposure in vest ments at market held by the Onex management team to changes in the trading price of Onex shares associated in Onex Credit strategies were approximately $275 million with the Director DSU Plan, the Company has entered into (2014 – approximately $240 million). forward agreements with a counterparty ﬁnancial institu- tion for a portion of the grants under the Director DSU Plan. Table 32 on page 71 of this MD&A provides details of the Investment in Onex shares and acquisitions In 2006, Onex adopted a program designed to further align change in the DSUs outstanding during 2015 and 2014. the interests of the Company’s senior management and Onex management team investments in Onex’ Funds The Onex management team invests meaningfully in each other investment professionals with those of Onex share- holders through increased share ownership. Under this pro- gram, members of senior management of Onex are required to invest at least 25 percent of all amounts received on the operating business acquired by the Onex Partners and 7.5 percent gain allocated under the MIP and the Onex ONCAP Funds and in strategies managed by Onex Credit. Partners’ carried interest in Onex SVS and/or Management The structure of the Onex Partners and ONCAP DSUs until they individually hold at least 1,000,000 Onex Funds requires the management of Onex Partners and SVS and/or Management DSUs. Under this program, dur- ONCAP Funds to invest a minimum of 1 percent in all ing 2015 Onex management reinvested C$1 million (2014 – acquisitions, with the exception of Onex Partners IV, which C$55 million) in the purchase of SVS. requires a minimum of 2 percent investment in all acqui- Members of management and the Board of sitions. This investment represents the minimum “at risk” Directors of Onex can invest limited amounts in part- equity investment on which the management of Onex nership with Onex in all acquisitions outside the Onex and ONCAP earn carried interest, as described on page 82 Partners and ONCAP Funds, including co-investment of this MD&A. opportunities, at the same time and cost as Onex and other outside investors. During 2015, $5 million (2014 – $10 mil- lion) in investments were made by the Onex management team and directors. 84 Onex Corporation December 31, 2015 M A N 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 Repurchase of shares In January 2016, Onex repurchased in a private transaction Management fees Onex receives management fees on limited partners’ capi- 1,000,000 of its SVS that were held indirectly by Mr. Gerald tal through its private equity platforms, Onex Partners and W. Schwartz, Onex’ controlling shareholder. The private ONCAP Funds, from Onex Credit Funds and CLOs and transaction was approved by the Board of Directors of the directly from certain of its operating businesses. As Onex Company. The shares were repurchased at C$84.12 per SVS, consolidates the Onex Partners, ONCAP and certain Onex or a total cost of $59 million (C$84 million), which repre- Credit Funds and CLOs, the management fees received in sents a slight discount to the trading price of Onex shares respect of limited partners’ capital represent related party at that date. transactions. In July 2014, Onex repurchased in a private trans- During the initial fee period of the Onex Partners action 1,000,000 of its SVS that were held indirectly by Mr. and ONCAP Funds, Onex receives a management fee based Gerald W. Schwartz. The private transaction was approved on limited partners’ committed capital to each fund. At by the Board of Directors of the Company. The shares were December 31, 2015, the management fees of Onex Part- repurchased at C$65.99 per SVS, or a total cost of $62 mil- ners IV and ONCAP III are determined based on limited lion (C$66 million), which represents a slight discount to partners’ committed capital. the trading price of Onex shares at that date. Following the termination of the initial fee period, Tax loss transaction During 2015, Onex sold entities, the sole assets of which Onex becomes entitled to a management fee based on limited partners’ invested capital. At December 31, 2015, the management fees of Onex Partners I, II and III and were certain tax losses, to companies controlled by Mr. ONCAP II are determined based on their limited partners’ Gerald W. Schwartz, who is also Onex’ controlling share- invested capital. As realizations occur in these funds, the holder. As a result of this transaction, Onex recorded a gain management fees calculated based on invested limited of $11 million (2014 – $9 million) in other expense (income) partners’ capital will decline. in 2015. A discussion of these transactions is included on In January 2015, with the approval of a majority in page 55 of this MD&A. In connection with these transac- interest of the limited partners, the term of Onex Partners I tions, Deloitte & Touche LLP, an independent accounting was extended to February 4, 2016. In connection with this ﬁrm retained by Onex’ Audit and Corporate Governance extension, the management fee was further reduced to Committee, provided an opinion that the value received 1 percent of net funded commitments relating to Onex Part- by Onex for the tax losses was fair. The transactions were ners I’s investment in ResCare. In January 2016, with the unanimously approved by Onex’ Audit and Corporate Gov- approval of a majority in interest of the limited partners, the er nance Committee, all the members of which are inde- term of Onex Partners I was further extended to February 4, pendent directors. 2017. As a result of this extension, management fees will no In addition, during 2014 Onex utilized certain longer be earned for Onex Partners I as of February 4, 2016. tax losses associated with distributions of carried interest Onex Credit earns management fees on $5.9 billion to management of Onex, for which Onex received cash of of other investors’ capital invested in a variety of investment $4 million. strategies focused on event-driven, long/short, stressed and distressed opportunities as well as its CLOs. The manage- ment fees range from 0.50 percent to 2.00 percent on the capital invested in Onex Credit Funds and 0.50 percent on the capital invested in its CLOs. Onex Corporation December 31, 2015 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 Incentive fees Onex Credit is entitled to incentive fees on $5.6 billion of Related party transaction with Celestica In July 2015, Celestica entered into an agreement of pur- other investors’ capital it manages. Incentive fees range chase and sale to sell certain of its real property to a spe- between 5 percent and 20 percent. Certain incentive fees cial-purpose entity to be formed by a consortium of three (including incentive fees on CLOs) are subject to a hurdle real estate developers (the “Property Purchaser”) for or minimum preferred return to investors. Onex acquired approximately $99 million (C$137 million), exclusive of control of the Onex Credit asset management platform in taxes and subject to adjustment. The proceeds to Celestica January 2015. As such, beginning in January 2015, incentive consist of a C$15 million deposit that was received upon fees earned by Onex Credit are entirely attributable to Onex execution of the agreement, C$54 million upon closing and for accounting purposes. C$68 million in the form of an interest-free, ﬁrst-ranking During the year ended December 31, 2015, Onex mortgage having a term of two years from the closing date. Credit earned $1 million of incentive fees, of which Onex’ The transaction is subject to various conditions, includ- share as an owner of Onex Credit was $1 million. ing municipal approvals, and is expected to close within Debt of operating companies Onex’ practice is not to guarantee the debt of its operat- approximately two years from the execution date of the purchase and sale agreement. Approximately 30 percent of the interests in ing companies, and there are no cross-guarantees between the Property Purchaser are to be held by a private entity operating companies. Onex may hold debt as part of in which Mr. Gerald W. Schwartz, who is Onex’ control- its investment in certain operating companies, which ling shareholder and a director of Celestica, has a material amounted to $395 million at December 31, 2015 compared interest. Mr. Schwartz also has a non-voting interest in an to $584 million at December 31, 2014. Note 12 to the con- entity which is to have an approximate 25 percent inter- solidated ﬁnancial statements provides information on the est in the Property Purchaser. Celestica formed a Special debt of operating companies held by Onex. Committee, consisting solely of independent directors, to review and supervise the competitive bidding process. The bid of the Property Purchaser was approved by Celestica’s board of directors, at a meeting at which Mr. Schwartz was not present, based on the unanimous recommendation of the Special Committee. Onex, the parent company, is not participating in this transaction. 86 Onex Corporation December 31, 2015 M A N 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 The Chief Executive OYcer and the Chief Financial OYcer have designed, or caused to be designed under their super- Limitation on scope of design Management has limited the scope of the design of internal controls over ﬁnancial reporting and disclosure controls and procedures to exclude the controls, policies and procedures of SIG (acquired in March 2015) and Schumacher (acquired in late July 2015), the operating results of which are included vision, internal controls over ﬁnancial reporting to provide in the December 31, 2015 consolidated ﬁnancial statements reasonable assurance regarding the reliability of ﬁnancial reporting and the preparation of ﬁnancial statements for external purposes in accordance with IFRS. The Chief Executive OYcer and the Chief Financial OYcer have also designed, or caused to be designed under their supervi- of Onex. The scope limitation is in accordance with Sec- tion 3.3 of National Instrument 52-109, Certification of Dis closure 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 procedures to exclude sion, disclosure controls and procedures to provide reason- the controls, policies and procedures of a company acquired able assurance that information required to be disclosed not more than 365 days before the end of the ﬁnancial by the Company in its corporate ﬁlings has been recorded, period to which the certiﬁcate relates. processed, summarized and reported within the time peri- ods speciﬁed in securities legislation. Table 42 shows a summary of the ﬁnancial information A control system, no matter how well conceived for SIG and Schumacher, which is included in the Decem- and operated, can provide only reasonable, not absolute, ber 31, 2015 consolidated ﬁnancial statements of Onex. assurance that its objectives are met. Due to inherent limi- tations in all such systems, no evaluations of controls can TABLE 42 ($ millions) SIG Schumacher provide absolute assurance that all control issues, if any, Year ended December 31, 2015 within a company have been detected. Accordingly, our 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- trol systems have been met. Revenue Net earnings (loss) As at December 31, 2015 Current assets Non-current assets Current liabilities Non-current liabilities $ 1,575 $ 67 $ 408 $ (1) $ 717 $ 4,605 $ 653 $ 3,510 $ 223 $ 953 $ 127 $ 594 Onex Corporation December 31, 2015 87 M A N 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 ham- strategy at Onex to reduce the risk inherent in business pering its opportunity to maximize returns. When an cycles. Onex’ practice of owning companies in various acquisition opportunity meets Onex’ criteria, for example, industries with differing business cycles reduces the risk typically a fair price is paid for a high-quality business. of holding a major portion of Onex’ assets in just one or Onex does not commit all of its capital to a single acquisi- two industries. Similarly, the Company’s focus on build- tion and has equity partners with whom it shares the risk of ing industry leaders with extensive international opera- ownership. The Onex Partners and ONCAP Funds stream- tions reduces the ﬁnancial impact of downturns in speciﬁc line Onex’ process of sourcing and drawing on commit- regions. Onex is well-diversiﬁed among various industry ments from such equity partners. segments, with no single industry or business represent- An acquired company is not burdened with more ing more than 9 percent of its capital. The table in note 33 debt than it can likely sustain, but rather is structured so to the consolidated ﬁnancial statements provides infor- that it has the ﬁnancial and operating leeway to maxi- mation on the geographic diversiﬁcation of Onex’ consoli- mize long-term growth in value. Finally, Onex invests in dated 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. 88 Onex Corporation December 31, 2015 M A N 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 to be tions. Our preferred course is to complete acquisitions on an in a position to support its operating businesses when and exclusive basis. However, we also participate in large acqui- if it is appropriate and reasonable for Onex, as an equity sitions through investment bank-led auction processes with owner with paramount duties to act in the best interests of multiple potential purchasers. These processes are often Onex shareholders, to do so. Maintaining liquidity is impor- very competitive for the large-scale acquisitions that are tant because Onex, as a holding company, generally does Onex’ primary interest, and the ability to make knowledge- not have guaranteed sources of meaningful cash ﬂow other able, timely investment commitments is a key component than management fees. The approximate $130 million in in successful purchases. In such instances, the vendor often annualized management fees that are expected to be earned establishes a relatively short time frame for Onex to respond by Onex Partners, ONCAP and Onex Credit in 2016 will be deﬁnitively. In order to improve the efﬁciency of Onex’ used to offset the costs of running the parent company. internal processes on both auction and exclusive acquisi- A signiﬁcant portion of the purchase price for tion processes, and so reduce the risk of missing out on new acquisitions is generally funded with debt provided high-quality acquisition opportunities, Onex has committed by third-party lenders. This debt, sourced exclusively on pools of capital from limited partner investors with the Onex the strength of the acquired company’s ﬁnancial condition Partners and ONCAP Funds. As at December 31, 2015, Onex and prospects, is debt of the acquired company at closing Partners IV has $2.8 billion of undrawn committed limited and is without recourse to Onex, the parent company, or partners’ capital and ONCAP III has C$148 million of such to its other operating companies or partnerships. The fore- undrawn capital. most consideration, however, in developing a ﬁnancing At December 31, 2015, ONCAP III is more than structure for an acquisition is identifying the appropriate 75 percent invested and Onex is now in a position to raise a amount of equity to invest. In Onex’ view, this should be subsequent fund to continue its program of investing new the amount of equity that maximizes the risk/reward equa- third-party capital in large-scale acquisitions. The ability tion for both shareholders and the acquired company. In to raise new capital commitments is dependent on gen- other words, it allows the acquired company to not only eral economic conditions and the track record or success manage its debt through reasonable business cycles but Onex has achieved with the management and investment also to have sufﬁcient ﬁnancial latitude for the business to of prior funds. To date, Onex has a strong track record of vigorously pursue its growth objectives. investing other investors’ capital and most investors in the While Onex seeks to optimize the risk/reward original Onex Partners and ONCAP Funds have committed equation in all acquisitions, there is the risk that the to invest in 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, 2015 89 M A N 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 taking on debt at ﬁxed interest rates or entering into inter- est rate swap agreements or ﬁnancial contracts to control companies may face a variety of risks related to ﬁnancial the level of interest rate ﬂuctuation on variable rate debt. At management. In dealing with these risks, it is a matter of December 31, 2015, excluding Onex Credit CLOs, approxi- Company policy that neither Onex nor its operating com- mately 45 percent (2014 – 50 percent) of Onex’ operating panies engage in speculative derivatives trading or other companies’ long-term debt had a ﬁxed interest rate or the speculative activities. interest rate was effectively ﬁxed by interest rate swap con- Default on known credit As previously noted, tracts. The risk inherent in such a strategy is that, should new investments generally include a meaningful amount interest rates decline, the beneﬁt of such declines may not of third-party debt. Those lenders typically require that the be obtainable or may only be achieved at the cost of penal- acquired company meet ongoing tests of ﬁnancial perfor- ties to terminate existing arrangements. There is also the mance as deﬁned by the terms of the lending agreement, risk that the counterparty on an interest rate swap agree- such as ratios of total debt to operating income (“EBITDA”) ment may not be able to meet its commitments. Guidelines and the ratio of EBITDA to interest costs. It is Onex’ practice are in place that specify the nature of the ﬁnancial institu- to not burden acquired companies with levels of debt that tions that operating companies can deal with on interest might put at risk their ability to generate sufﬁcient levels of rate contracts. proﬁtability or cash ﬂow to service their debts – and so meet The Onex Credit CLOs are exposed to interest rate their related debt covenants – or which might hamper their risk on the debt issued by each CLO as substantially all ﬂexibility to grow. interest for debt issued by the CLOs is based on a spread Financing risk The continued volatility in the over a ﬂoating base rate. However, the interest rate risk is global credit markets has created some unpredictability largely offset within each CLO by holding investments in about whether businesses will be able to obtain new loans. debt securities which receive interest based on a spread This represents a risk to the ongoing viability of many oth- over the same or similar ﬂoating base rate. erwise healthy businesses whose loans or operating lines Onex, the parent company, has exposure to inter- of credit are up for renewal in the short term. A signiﬁcant est rate risk primarily through its short- and long-term portion of Onex’ operating companies’ reﬁ nancings will investments managed by third-party investment manag- take place in 2019 and thereafter. Table 24 on page 63 of this ers. As interest rates change, the fair values of ﬁxed income MD&A provides the aggregate debt maturities for Onex’ investments are inversely impacted. Investments with consolidated operating companies and investments in joint shorter durations are less impacted by changes in interest ventures and associates for each of the years up to 2021 and rates compared to investments with longer durations. At in total thereafter. December 31, 2015, Onex’ short- and long-term investments Interest rate risk An important element in con- included $1.0 billion of ﬁxed income securities measured at trolling risk is to manage, to the extent reasonable, the fair value, which are subject to interest rate risk. These secu- impact of ﬂuctuations in interest rates on the debt of the rities had a weighted average duration of 1.5 years. Other operating company. factors, including general economic conditions and politi- Onex’ operating companies generally seek to ﬁx cal conditions, may also affect the value of ﬁxed income the interest on some of their term debt or otherwise mini- securities. These risks are monitored on an ongoing basis mize the effect of interest rate increases on a portion of and the short- and long-term investments may be reposi- their debt at the time of acquisition. This is achieved by tioned in response to changes in market conditions. 90 Onex Corporation December 31, 2015 M A N 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 currency of Onex, the parent company, and a majority of Onex’ oper- Commodity price risk Certain Onex operating companies are vulnerable to price ating companies, is the U.S. dollar. Onex’ investments ﬂuctuations in major commodities. Individual operat- in operating companies that have a functional currency ing companies may use ﬁnancial instruments to offset the other than the U.S. dollar or companies with global opera- impact of anticipated changes in commodity prices related tions increase Onex’ exposure to changes in many currency to the conduct of their businesses. exchange rates. In addition, a number of the operating com- In particular, silver is a signiﬁcant commodity panies conduct business outside the United States and as a used in Carestream Health’s manufacturing of x-ray ﬁlm. result are exposed to currency risk on the portion of their The company’s management continually monitors move- business which is not based on U.S. currency. Fluctuations ments and trends in the silver market and enters into collar in the value of the U.S. dollar relative to these other cur- and forward agreements when considered appropriate to rencies impact Onex’ reported results and consolidated mitigate some of the risk of future price ﬂuctuations, gen- ﬁnancial position. Onex’ operating companies may use cur- erally for periods of up to a year. rency derivatives in the normal course of business to hedge Additionally, resin and aluminum are signiﬁcant against adverse ﬂuctuations in key operating currencies, commodities used by SIG. The company generally pur- but speculative activity is not permitted. Additionally, where chases commodities at spot market prices and actively uses possible, Onex and its operating companies aim to reduce derivative instruments to hedge the exposure in relation the exposure to foreign currency ﬂuctuations through natu- to the cost of resin (and its components) and aluminum. ral hedges by transacting in local currencies. Due to this approach, the company has been able to ﬁx the Onex and its operating companies have minimal prices one year forward for approximately 90 percent of its exposure to ﬂuctuations in the value of the U.S. dollar rela- expected resin and aluminum purchases, which substan- tive to the Canadian dollar. tially minimizes exposure to the price ﬂuctuations of the Onex’ results are reported in U.S. dollars, and ﬂuc- commodities over that period. tuations in the value of the U.S. dollar relative to other cur- rencies will have an impact on Onex’ reported results and consolidated ﬁnancial position. During 2015, Onex’ equity Regulatory risk Certain of Onex’ operating companies may be subject balance reﬂected a $268 million decrease in the value of to extensive government regulations and oversight with Onex’ equity for the translation of its operations with non- respect to their business activities. Failure to comply U.S. dollar functional currencies (2014 – $150 million). with applicable regulations, obtain applicable regulatory Fair value changes The fair value measurements approvals or maintain those approvals may subject the for investments in joint ventures and associates, Limited applicable operating company to civil penalties, suspen- Partners’ Interests and carried interest are primarily driven sion or withdrawal of any regulatory approval obtained, by the underlying fair value of the investments in the Onex injunctions, operating restrictions and criminal prosecu- Partners and ONCAP Funds. A change to a reasonably pos- tions and penalties, which could, individually or in the sible alternative estimate and/or assumption used in the aggregate, have a material adverse effect on Onex’ consoli- valuation of non-public investments in the Onex Partners dated ﬁnancial position. 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, 2015 91 M A N 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 advantages company has often continued to supply its former owner in products or services in their respective industries that through long-term supply arrangements. It has been Onex’ provide a solid foundation for growth in scale and value. In policy to encourage its operating companies to quickly these instances, Onex works with company management diversify their customer bases to the extent practical in to identify attractive add-on acquisitions that may enable order to manage the risk associated with serving a single the platform company to achieve its goals more quickly and major customer. Certain Onex operating companies have successfully than by focusing solely on the development major customers that represent more than 10 percent of and/or diversiﬁcation of its customer base, which is known their annual revenues. None of the major customers of the as organic growth. Growth by acquisition, however, may operating companies represents more than 10 percent of carry more risk than organic growth. While as many of these Onex’ consolidated revenues. risks as possible are considered in the acquisition planning, operating companies undertaking these acquisitions also face such risks as unknown expenses related to the cost- Environmental considerations Onex has an environmental protection policy that has been effective amalgamation of operations, the retention of key adopted by its operating businesses subject to company- personnel and customers, and the future value of goodwill, speciﬁc modiﬁcations; many of the operating businesses intangible assets and intellectual property. There are also have also adopted supplemental policies appropriate to risk factors associated with the industry and the combined their industries or businesses. Senior ofﬁcers at each of the business more generally. Onex works with company man- operating businesses are ultimately responsible for ensur- agement to understand and attempt to mitigate such risks ing compliance with these policies. They are required to 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 federal, employees about environmental regulations and appropri- state and local government agencies, especially those agen- ate operating policies and procedures; site inspections by cies responsible for state Medicaid and Medicare funding. environmental consultants; the addition of proper equip- Budgetary pressures, as well as economic, industry, politi- ment or modiﬁcation of existing equipment to reduce or cal and other factors, could inﬂuence governments to not eliminate environmental hazards; remediation activities as increase or, in some cases, to decrease appropriations for required; and ongoing waste reduction and recycling pro- the services that are offered by Onex’ operating subsidiar- grams. Environmental consultants are engaged to advise ies, which could reduce their revenues materially. Future on current and upcoming environmental regulations that revenues may be affected by changes in rate-setting struc- may be applicable. tures, methodologies or interpretations that may be pro- Many of the operating businesses are involved in posed or are under consideration. Ongoing pressure on the remediation of particular environmental situations, government appropriations is a normal aspect of business such as soil contamination. In almost all cases, these situ- for companies in the U.S. healthcare industry. Productivity ations have occurred prior to Onex’ acquisition of those improvements and other initiatives are utilized to minimize businesses, and the estimated costs of remedial work and the effect of possible funding reductions. related activities are managed either through agreements with the vendor of the company or through provisions established at the time of acquisition. Manufacturing activ- ities carry the inherent risk that changing environmental regulations may identify additional situations requiring capital expenditures or remedial work and associated costs to meet those regulations. 92 Onex Corporation December 31, 2015 M A N 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 The Company has investments in companies that oper- Other contingencies Onex and its operating companies are or may become par- ate in a number of tax jurisdictions. Onex provides for the ties to legal claims arising in the ordinary course of busi- tax on undistributed earnings of its subsidiaries that are ness. The operating companies have recorded liability probable to reverse in the foreseeable future based on the provisions based on their consideration and analysis of expected future income tax rates that are substantively their exposure in respect of such claims. Such provisions are enacted at the time of the income/gain recognition events. reﬂected, as appropriate, in Onex’ consolidated ﬁnancial Changes to the expected future income tax rate will affect statements. Onex, the parent company, has not currently the provision for future taxes, both in the current year and recorded any further liability provision and we do not in respect of prior year amounts that are still outstand- believe that the resolution of known claims would rea- ing, either positively or negatively, depending on whether sonably be expected to have a material adverse impact on rates decrease or increase. Changes to tax legislation or the Onex’ consolidated ﬁnancial position. However, the ﬁnal application of tax legislation may affect the provision for outcome with respect to outstanding, pending or future future taxes and the taxation of deferred amounts. actions cannot be predicted with certainty, and therefore there can be no assurance that their resolution will not have an adverse effect on our consolidated ﬁnancial position. Onex Corporation December 31, 2015 93 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 inter- nal controls, audit process and ﬁnancial reporting with management and with the external auditors. The Audit and Cor po- rate Governance Committee reports to the Directors prior to the approval of the audited consolidated ﬁnancial statements for publication. PricewaterhouseCoopers LLP, the Company’s external auditors, who are appointed by the holders of Subordinate Voting Shares, audited the consolidated ﬁnancial statements in accordance with Canadian generally accepted auditing standards to enable them to express to the shareholders their opinion on the consolidated ﬁnancial statements. Their report is set out on the following page. [signed] [signed] [signed] [signed] Christopher A. Govan Chief Financial Oﬃcer February 25, 2016 Christine M. Donaldson Managing Director – Finance 94 Onex Corporation December 31, 2015 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 com- prise the consolidated balance sheets as at December 31, 2015 and December 31, 2014, and the consolidated statements of earnings, comprehensive earnings, equity and cash ﬂows for the years ended December 31, 2015 and December 31, 2014, 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, 2015 and December 31, 2014 and their ﬁnancial performance and their cash ﬂows for the years ended December 31, 2015 and December 31, 2014 in accordance with International Financial Reporting Standards. [signed] [signed] PricewaterhouseCoopers llp Chartered Professional Accountants, Licensed Public Accountants Toronto, Canada February 25, 2016 Onex Corporation December 31, 2015 95 CONSOLIDATED BALANCE SHEETS As at December 31, 2015 As at December 31, 2014 $ 2,313 $ 3,764 206 2,933 1,982 920 1,328 9,682 3,265 7,863 795 6,528 7,677 – 3,085 2,013 803 680 10,345 2,902 5,026 666 5,069 4,928 $ 35,810 $ 28,936 $ 3,404 $ 3,330 334 976 411 598 1,011 6,734 368 17,643 1,704 1,451 6,720 34,620 333 1,353 (496) 1,190 273 965 408 23 545 5,544 324 12,874 1,302 1,241 5,153 26,438 336 1,692 470 2,498 $ 35,810 $ 28,936 (in millions of U.S. dollars) Assets Current assets Cash and cash equivalents (note 3) Short-term investments (note 3) 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 Limited Partners’ Interests (note 14) 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) Other non-current liabilities (note 15) Deferred income taxes (note 16) Limited Partners’ Interests (note 14) Equity Share capital (note 17) Non-controlling interests (note 18) Retained earnings and accumulated other comprehensive earnings (loss) See accompanying notes to the consolidated financial statements. Signed on behalf of the Board of Directors [signed] Director [signed] Director 96 Onex Corporation December 31, 2015 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 expense (note 23) Impairment of goodwill, intangible assets and long-lived assets, net (note 24) Limited Partners’ Interests charge (note 14) Loss before income taxes and discontinued operations Provision for income taxes (note 16) Loss from continuing operations Earnings 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 per Subordinate Voting Share for the Year See accompanying notes to the consolidated financial statements. 2015 2014 $ 19,681 $ 16,880 (13,582) (3,967) (12,163) (3,152) 264 (483) (584) (878) 175 (260) 239 (435) (82) (856) (768) (116) (884) 379 140 (356) (432) (669) 412 (228) 317 (358) (49) (1,069) (727) (65) (792) 951 $ (505) $ 159 $ (946) 62 $ (884) $ (573) 68 $ (505) $ $ $ $ (859) 67 (792) (115) 274 159 $ (8.84) $ (7.80) 3.48 6.76 $ (5.36) $ (1.04) Onex Corporation December 31, 2015 97 CONSOLIDATED STATEMENTS OF COMPREHENSIVE EARNINGS Year ended December 31 (in millions of U.S. dollars) Net earnings (loss) for the year Other comprehensive earnings (loss), net of tax Items that may be reclassified to net earnings (loss): Currency translation adjustments Change in fair value of derivatives designated as hedges Unrealized gains on available-for-sale financial assets Items that will not be reclassified to net earnings (loss): Remeasurements for post-employment benefit plans Other comprehensive earnings (loss) from discontinued operations, net of tax (note 6) Other comprehensive 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. 2015 $ (505) (270) (19) 2 (287) 34 8 (245) $ (750) $ (808) 58 $ (750) 2014 $ 159 (144 ) (13 ) – (157) (61) (62) (280) $ (121) $ (366) 245 $ (121) 98 Onex Corporation December 31, 2015 CONSOLIDATED STATEMENTS OF EQUITY Accumulated Other Comprehensive Earnings (Loss) Total Equity Attributable to Equity Holders of Onex Corporation Share Capital (note 17) $ 346 – (10) Retained Earnings $ 860 (18) (140) (in millions of U.S. dollars except per share data) Balance – December 31, 2013 Dividends declared(a) Purchase and cancellation of shares (note 17) Investments in operating companies by shareholders other than Onex Distributions to non-controlling interests Repurchase of shares of operating companies(c) Sale of interests in operating company under continuing control (note 26) Investments in operating companies under continuing control (notes 2 and 12) Non-controlling interests on loss of control or 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 loss from discontinued operations, net of tax (note 6) – – – – – – – – – – – Balance – December 31, 2014 Dividends declared(a) Issuance of shares (note 2) Purchase and cancellation of shares (note 17) Investments in operating companies by shareholders $ 336 1 6 (10) other than Onex Distributions to non-controlling interests and other adjustments Repurchase of shares of operating companies(c) Non-controlling interests on loss of control or 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 Unrealized gains on available-for-sale financial assets Remeasurements for post-employment benefit plans (note 31) Other comprehensive earnings (loss) from discontinued operations, net of tax (note 6) – – – – – – – – – – Non- controlling Interests $ 3,191 – – 254 (11) (207) 69 (88) Total Equity $ 4,345 (18) (150) 275 (11) (167) 171 (65) $ 1,154 (18) (150) 21 – 40 102 23 – (1,761) (1,761) (115) 274 159 $ (52)(b) – – – – – – – – – (122) (122) (22) (144) (11) – (37) $ (222)(d) – – – – – – – – (262) (13) 2 – (4) (11) (62) (56) $ 806 (18) 6 (175) (2) 1 (6) $ 1,692 – – – (13) (61) (62) $ 2,498 (18) 6 (175) 30 23 (27) – (573) (262) (13) 2 36 2 262 (207) (408) (44) 68 (8) (6) – (2) 6 292 (184) (435) (44) (505) (270) (19) 2 34 8 $ (499)(e) $ (163) $ 1,353 $ 1,190 21 – 40 102 23 – (115) – – (62) (19) $ 692 (19) – (165) 30 23 (27) – (573) – – – 36 6 3 Balance – December 31, 2015 $ 333 $ (a) Dividends declared per Subordinate Voting Share during 2015 totalled C$0.2375 (2014 – C$0.1875). In 2015, shares issued under the dividend reinvestment plan amounted to $1 (2014 – 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, 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 $10 of net losses related to discontinued operations. Income taxes did not have a significant effect on these items. Repurchase of shares of operating companies during 2014 consisted primarily of shares repurchased by Celestica. Repurchase of shares of operating companies during 2015 consisted primarily of shares repurchased by Celestica and JELD-WEN. (c) (d) 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 included $47 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, 2015 consisted of currency translation adjustments of negative $466, unrealized losses on the effective portion of cash flow hedges of $35 and unrealized gains on available-for-sale financial assets of $2. Accumulated Other Comprehensive Earnings (Loss) as at December 31, 2015 included $51 of net losses 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, 2015 99 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 earnings (loss) from continuing operations: Provision for income taxes (note 16) Interest income Interest expense of operating companies (note 20) Loss before interest and provision for income taxes Cash taxes paid Items not affecting cash and cash equivalents: Amortization of property, plant and equipment (note 7) 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 Foreign exchange loss Other gains (note 22) Impairment of goodwill, intangible assets and long-lived assets, net (note 24) Limited Partners’ Interests charge (note 14) Change in carried interest 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 non-cash 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 14) 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 14) 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 $437 (2014 – $46) (note 2) Purchase of property, plant and equipment Proceeds from sale of property, plant and equipment Proceeds from sale of investments in joint ventures and associates at fair value and other investments (notes 8(a) 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 for CLOs and Onex Credit Funds (note 8) Net purchases of investments and securities at parent company (note 8) Increase (decrease) due to other investing activities Cash flows used in investing activities of discontinued operations (note 6) Increase (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 – 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. 100 Onex Corporation December 31, 2015 2015 2014 $ (884) $ (792) 116 (264) 878 (154) (241) 483 584 (175) 231 50 (239) 82 856 127 (51) 201 1,754 (23) 92 3 (52) 20 (113) 219 1,880 4,219 (1,791) (776) (19) (175) (435) 1,825 39 – – (1,030) (82) (123) 1,652 (2,452) (704) 525 20 264 82 (120) 257 (1,518) (1,197) 87 (81) (4,837) (1,305) (37) 3,662 106 2,426 113 65 (140) 669 (198) (119) 356 432 (412) 96 7 (317) 49 1,069 (138) 90 15 930 (152) (121) (120) 41 (352) (54) 465 989 4,525 (2,099) (596) (17) (150) (167) 867 17 171 (65) (3,730 ) (83) (297) (1,624) (1,315) (467) 213 3,960 1,759 43 (309) 122 (1,951) – (54) (765) 1,236 601 (24) 2,469 722 3,768 106 $ 2,313 $ 3,662 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 indus- tries including electronics manufacturing services, healthcare imaging, health and human services, building products, insurance services, packaging products and services, credit strategies, aerospace automation, tooling and components, aircraft leasing and management, business services/tradeshows, restaurants, hospital management services, survival equipment and plastics processing equipment. Additionally, the Company has investments in mid-market private equity opportunities and real estate. Note 33 provides additional discussion 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, 2015. 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 25, 2016. 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 addi- tion, Onex controls and consolidates the operations of the Onex Credit asset management platform, certain funds managed by Onex Credit in which Onex, the parent company, holds an invest- ment and collateralized loan obligations (“CLOs”) of Onex Credit, referred to collectively as “Onex Credit”. The results of operations of subsidiaries are included in the consolidated ﬁnancial state- ments from the date that control commences until the date that control ceases. All signiﬁcant intercompany balances and transac- tions 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, 2015 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 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, 2015 December 31, 2014 Investments made through Onex Celestica Inc. (“Celestica”)(a) SITEL Worldwide Corporation (“Sitel Worldwide”)(b) Investments made through Onex and Onex Partners I Genesis Healthcare, Inc. (“Genesis Healthcare”)(c) Investments made through Onex and Onex Partners II Carestream Health, Inc. (“Carestream Health”) Investments made through Onex and Onex Partners III BBAM Limited Partnership (“BBAM”) Emerald Expositions, LLC (“Emerald Expositions”) JELD-WEN Holding, inc. (“JELD-WEN”)(e) KraussMaffei Group GmbH (“KraussMaffei”)(f) Meridian Aviation Partners Limited and affiliates (“Meridian Aviation”) SGS International, Inc. (“sgsco”) Tropicana Las Vegas, Inc. (“Tropicana Las Vegas”)(g) USI Insurance Services (“USI”) York Risk Services Holding Corp. (“York”) 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”) Jack’s Family Restaurants (“Jack’s”)(h) Schumacher Clinical Partners (“Schumacher”)(h) SIG Combibloc Group Holdings S.a.r.l. (“SIG”)(h) Survitec Group Limited (“Survitec”)(h) Investments made through Onex Real Estate Partners Flushing Town Center Other investments ONCAP II Fund (“ONCAP II”) ONCAP III Fund (“ONCAP III”) Onex Credit(j) Onex’ and Limited Partners’ Ownership Onex’ Ownership Onex’ and Limited Partners’ Ownership 13% − Voting 80% − 10% 10% Onex’ Ownership 13% − 2% 36% 91% 100% 13% 24% 21% 24% 25% 23% − 25% 29% 50% 99% 83% 95% 100% 93% − 88% 88% 50%(d) 99% 83% 100% 100% 93% − 100% 100% 11% 86% 9% 36% 13% 24% 20% 24% 25% 23% 18% 25% 29% 20% 98% 100% 20% 9% 28% 21% 33% 22% 88% 46%(i) 29% 100% 40% 95% 71% 99% 99% 50%(d) 100% 71% 95% 85% 88% 100% 100% 100% 100% 100% 100% (k) 9% – – – – 88% 46%(i) 29% 70% Voting 75% 89% 86% 100% 50% (d) 99% 81% 100% 100% 93% 82% 100% 100% 100% 50% (d) – – – – 100% 100% 100% 50% 11% 86% 39% 91% 50% 99% 81% 96% 100% 93% 82% 89% 88% 98% 40% – – – – 88% 100% 100% 70% (a) During 2015, Celestica repurchased and cancelled approximately 32.4 million (2014 – 8.5 million) of its Subordinate Voting Shares, as described in note 12(b). (b) Sitel Worldwide was sold during the third quarter of 2015, as described in note 6(b). 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 was calculated using a common share economic ownership of 70%. (c) In February 2015, Skilled Healthcare Group, Inc. (“Skilled Healthcare Group”) combined with Genesis HealthCare, LLC, as described in note 6(c). As of the transaction date, the Company no longer had control or significant influence over the combined company and, as a result, its investment was recorded as an other long-term investment at fair value through earnings, with changes in fair value recorded in other income (expense). (d) 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. (e) The economic ownership and voting interests of JELD-WEN are presented on an as-converted basis as the Company’s investment is in common and convertible preferred shares. The allocation of net earnings (loss) and comprehensive earnings (loss) attributable to equity holders of Onex Corporation and non-controlling interests is calculated using an as-converted economic ownership of 88% at December 31, 2015 (December 31, 2014 – 86%) to reflect certain JELD-WEN shares that are recorded as liabilities at fair value. (f) KraussMaffei has been recorded as a discontinued operation, as described in note 6(a). (g) Tropicana Las Vegas was sold during the third quarter of 2015, as described in note 22(a). (h) Jack’s, Schumacher, SIG and Survitec were acquired during 2015, as described in note 2. (i) Represents Onex’ blended economic ownership in the ONCAP II investments. (j) 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 2(f). The continuing ownership interest of Onex Credit’s chief executive officer is recorded as compensation expense in the consolidated financial statements. (k) Onex controls the Onex Credit asset management platform through contractual rights. 102 Onex Corporation December 31, 2015 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 Accounts receivable dilution relating to the Management Investment Plan (the “MIP”), Accounts receivable are recognized initially at fair value and sub- as described in note 30(k). The allocation of net earnings and sequently measured at amortized cost using the effective inter- comprehensive earnings attributable to equity holders of Onex est method. A provision is recorded for impairment when there is Corporation and non-controlling interests is calculated using the objective evidence (such as signiﬁcant ﬁnancial difﬁculties of the economic ownership of Onex and the limited partners. debtor) that the Company will not be able to collect all amounts The voting interests include shares that Onex has the due according to the original terms of the receivable. A provi- right to vote through contractual arrangements or through mul- sion expense is recorded as the difference between the carrying tiple voting rights attached to particular shares. In certain circum- value of the receivable and the present value of future cash ﬂows stances, the voting arrangements give Onex the right to elect the expected from the debtor, with an offsetting amount recorded as majority of the boards of directors of the companies. Onex may also an allowance, reducing the carrying value of the receivable. The control a company through contractual rights. provision expense is included in operating expenses in the con- 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 solidated statements of earnings. When a receivable is considered permanently uncollectible, the receivable is written off against the allowance account. The Company’s functional currency is the U.S. dollar, as it is Operating companies may enter into agreements to sell the currency of the primary economic environment in which it accounts receivable when considered appropriate, whereby the operates. For such operations, monetary assets and liabilities accounts receivable are transferred to an unrelated third party. The denominated in foreign currencies are translated into U.S. dollars transfers are recorded as sales of accounts receivable, as the oper- at the year-end exchange rates. Non-monetary assets and liabili- ating companies do not retain any ﬁnancial or legal interest in the ties denominated in foreign currencies are translated at histori- accounts receivable that are sold. The accounts receivable are sold cal rates and revenue and expenses are translated at the average at their face value less a discount as provided for in the agreements. exchange rates prevailing during the month of the transaction. Exchange gains and losses also arise on the settlement of foreign- Inventories currency denominated transactions. These exchange gains and Inventories are recorded at the lower of cost or net realizable value. losses are recognized in earnings. The determination of net realizable value requires signiﬁcant Assets and liabilities of foreign operations with non-U.S. judgement, including consideration of factors such as shrinkage, dollar functional currencies are translated into U.S. dollars using the aging of and future demand for inventory and contractual the year-end exchange rates. Revenue and expenses are translated arrangements with customers. To the extent that circumstances at the average exchange rates prevailing during the month of the have changed subsequently such that the net realizable value has transaction. Gains and losses arising from the translation of these increased, previous writedowns are reversed and recognized in the foreign operations are deferred in the currency translation account consolidated statements of earnings in the period during which the included in equity. Cash and cash equivalents reversal occurs. Certain inventories in the healthcare imaging seg- ment are stated using an average cost method. For substantially all other inventories, cost is determined on a ﬁrst-in, ﬁrst-out basis. Cash and cash equivalents includes liquid investments such as term deposits, money market instruments and commercial paper Property, plant and equipment with original maturities of less than three months. The invest- Property, plant and equipment is recorded at cost less accumu- ments are carried at cost plus accrued interest, which approxi- lated amortization and provisions for impairment, if any. Cost mates fair value. consists of expenditures directly attributable to the acquisition of the asset. The costs of construction of qualifying long-term assets Short-term investments include capitalized interest, as applicable. Short-term investments consist of liquid investments that include Subsequent expenditures for maintenance and repairs money market instruments and commercial paper with origi- are expensed as incurred, while costs related to betterments and nal maturities of three months to one year. The investments are improvements that extend the useful lives of property and equip- carried at fair value. ment are capitalized. Onex Corporation December 31, 2015 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 Land is not amortized. For substantially all remaining ﬁnance charges, are included in the consolidated balance sheets. property, plant and equipment, amortization is provided for on Property, plant and equipment acquired under ﬁnance leases is a straight-line basis over the estimated useful lives of the assets depreciated over the shorter of the useful life of the asset and the as follows: lease term. Buildings up to 50 years Machinery and equipment up to 22 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. Investment property Investment property includes commercial property held to earn rental income and property that is being constructed or devel- oped for future use as investment property. Investment property is included with property, plant and equipment in the consolidated balance sheets and recorded at cost less accumulated amortiza- tion and provisions for impairment, if any. The cost of investment property includes direct develop- ment costs, property transfer taxes and borrowing costs directly attributable to the development of the property. At December 31, 2014, the Company’s investment prop- 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 les- sor) are recorded in the consolidated statements of earnings on a straight-line basis over the period of the lease. Certain of the oper- ating companies lease their property, plant and equipment under operating leases to third parties. When the Company is the lessor, payments received under operating leases (net of any incentives provided by the operating companies) are recognized in the con- solidated statements of earnings on a straight-line basis over the period of the lease. Intangible assets Intangible assets, including intellectual property and software, are recorded at their fair value at the date of acquisition of the related operating company or at cost if internally generated or purchased. Amortization is provided for intangible assets with limited life. For substantially all limited life intangible assets, amortization is pro- vided for on a straight-line basis over their estimated useful lives as follows: erty consisted of Flushing Town Center’s retail space and parking structures, which were substantially sold during 2015. The fair value Trademarks and licenses Customer relationships of Flushing Town Center’s investment property at December 31, Computer software 2014 was $385, which was pledged as collateral for the outstand- Other ing third-party long-term debt of Flushing Town Center. The fair 1 year to 30 years 3 years to 30 years 1 year to 10 years 1 year to 25 years value of Flushing Town Center’s investment property at Decem- Intangible assets with indeﬁnite useful lives are not amortized. The ber 31, 2014 was a Level 3 measurement in the fair value hierarchy assessment of indeﬁnite life is reviewed annually. Changes in the and was calculated primarily by discounting the expected net oper- useful life from indeﬁnite to ﬁnite are made on a prospective basis. ating income using a discount rate of 6.50% and terminal capitaliza- tion rate of 5.75%. For the year ended December 31, 2015, property, Goodwill plant and equipment additions included $3 (2014 − $8) related to Goodwill is initially measured as the excess of the aggregate of the Flushing Town Center’s investment property. At Decem ber 31, 2015, consideration transferred, the fair value of any contingent consid- the Company had an insigniﬁcant amount of investment property. eration, the amount of any non-controlling interest in the acquired Leases company and, in a business combination achieved in stages, the fair value at the acquisition date of the Company’s previously held Leases of property, plant and equipment where the Company, as interest in the acquired company compared to the net fair value lessee, has substantially all the risks and rewards of ownership of the identiﬁable assets and liabilities acquired. Substantially all are classiﬁed as ﬁnance leases. Finance leases are capitalized at of the goodwill and intangible asset amounts that appear in the the lease’s commencement at the lower of the fair value of the consolidated balance sheets are recorded by the operating com- leased property or the present value of the minimum lease pay- panies. The recoverability of goodwill is assessed annually or ments. Each lease payment is allocated between the liability and whenever events or changes in circumstances indicate that the ﬁnance charges so as to achieve a constant interest rate on the carrying amount may not be recoverable. Judgement is required balance outstanding. The corresponding lease obligations, net of in determining whether events or changes in circumstances 104 Onex Corporation December 31, 2015 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 the year are indicators that a review for impairment should Financing charges be conducted prior to the annual assessment. For the purposes of Financing charges consist of costs incurred by the operating com- impairment testing, goodwill is allocated to the cash generating panies relating to the issuance of term borrowings and revolving units (“CGUs”) of the business whose acquisition gave rise to the credit facilities. Transaction costs related to the term borrowings are goodwill. Impairment of goodwill is tested at the level where good- amortized over the term of the related debt or as the debt is retired, will is monitored for internal management purposes. Therefore, if earlier. These unamortized ﬁnancing charges are netted against goodwill will be assessed for impairment at the level of either an the carrying value of the long-term debt, as described in note 12. individual CGU or a group of CGUs. The determination of CGUs Costs incurred to establish revolving credit facilities are and the level at which goodwill is monitored requires judgement recognized as an other non-current asset and are amortized on by management. The carrying amount of a CGU or a group of a straight-line basis over the term of the facility; however, to the CGUs is compared to its recoverable amount, which is the higher extent that the Company expects to draw on the facility, the costs of its value-in-use or fair value less costs to sell, to determine if an are deferred until the amounts are drawn on the facility and are impairment exists. Impairment losses for goodwill are not reversed then amortized over the remaining term of the facility. in future periods. Impairment charges recorded by the operating compa- Provisions nies under IFRS may not impact the fair values of the operating A provision is a liability of uncertain timing or amount and is gen- companies used in determining the change in carried interest and erally recognized when the Company has a present obligation as a for calculating the Limited Partners’ Interests liability. Fair values of result of a past event, it is probable that payment will be made to the operating companies are assessed at the enterprise level, while settle the obligation and the payment can be reliably estimated. impairment charges are assessed at the level of either an individual Judgement is required to determine the extent of an obligation and CGU or group of CGUs. whether it is probable that payment will be made. The Company’s Investments in joint ventures and associates Joint ventures and associates are those entities over which the a) Contingent consideration signiﬁcant provisions consist of the following: Company has joint control or signiﬁcant inﬂuence, but not con- Contingent consideration is established for business acquisitions trol. Certain investments in joint ventures and associates are des- where the Company has the obligation to transfer additional assets ignated, upon initial recognition, at fair value through earnings or equity interests to the former owners if speciﬁed future events in accordance with IAS 39, Financial Instruments: Recognition occur or conditions are met. The fair value of contingent consider- and Measurement. As a result, the investments are recorded at ation liabilities is typically based on the estimated future ﬁnancial fair value in the consolidated balance sheets, with changes in fair performance of the acquired business. Financial targets used in value recognized in the consolidated statements of earnings. the estimation process include certain deﬁned ﬁnancial targets Impairment of long-lived assets and realized internal rates of return. Contingent consideration is classiﬁed as a liability when the obligation requires settlement in Property, plant and equipment, investment property and intan- cash or other assets, and is classiﬁed as equity when the obligation gible assets are reviewed for impairment annually or whenever requires settlement in own equity instruments. events or changes in circumstances suggest that the carrying amount of an asset may not be recoverable. Judgement is required b) Self-insurance in determining whether events or changes in circumstances dur- Self-insurance provisions may be established for automobile, ing the year are indicators that a review for impairment should be workers’ compensation, healthcare coverage, general liability, conducted prior to the annual assessment. An impairment loss is professional liability and other claims. Provisions are established recognized when the carrying value of an asset or CGU exceeds the for claims based on an assessment of actual claims and claims recoverable amount. The recoverable amount of an asset or CGU is incurred but not reported. The reserves may be established based the greater of its value-in-use or its fair value less costs to sell. on consultation with third-party independent actuaries using Impairment losses for long-lived assets are reversed in actuarial principles and assumptions that consider a number of future periods if the circumstances that led to the impairment factors, including historical claim payment patterns and changes no longer exist. The reversal is limited to restoring the carrying in case reserves, and the assumed rate of inﬂation in healthcare amount that would have been determined, net of amortization, costs and property damage repairs. had no impairment loss been recognized in prior periods. Onex Corporation December 31, 2015 105 N O T E S T O C O N S O L I D AT E D F I N A N C I A L S TAT E M E N T S c) Warranty (or recoveries) from plan amendments are recognized immedi- Certain operating companies offer warranties on the sale of prod- ately in earnings, whether vested or unvested. ucts or services. A provision is recorded to provide for future Remeasurements, consisting of actuarial gains or losses, warranty costs based on management’s best estimate of proba- the actual return on plan assets (excluding the net interest com- ble claims under these warranties. The provision is based on the ponent) and any change in the asset ceiling, are recognized in terms of the warranty, which vary by customer and product or ser- other comprehensive earnings. Remeasurements recognized in vice, and historical experience. The appropriateness of the provi- other comprehensive earnings are directly recorded in retained sion is evaluated at the end of each reporting period. earnings, without recognition in the consolidated statements d) Restructuring Note 31 provides further details on pension and non- of earnings. Restructuring provisions are recognized only when a detailed pension post-retirement beneﬁts. formal plan for the restructuring – including the business or part of the business concerned, the principal locations affected, Limited Partners’ Interests details regarding the employees affected, the restructuring’s tim- The interests of the limited partners and other investors through ing and the expenditures that will have to be undertaken – has the Onex Partners, ONCAP and Onex Credit Funds are record- been developed and the restructuring has either commenced or ed as a ﬁnancial liability in accordance with IAS 32, Financial the plan’s main features have already been publicly announced to Instruments: Presentation. The structure of the Onex Partners, those affected by it. ONCAP and Onex Credit Funds as deﬁned in the partnership agreements, speciﬁcally the limited life of the Onex Partners and Note 11 provides further details on provisions recognized by the ONCAP Funds and the redemption provisions of the Onex Credit Company. Funds, requires presentation of the limited partners’ interests as a liability. The liability is recorded at fair value and is primar- Pension and non-pension post-retirement benefits ily impacted by the change in fair value of the underlying invest- Onex, the parent company, does not provide pension, other retire- ments in the Onex Partners, ONCAP and Onex Credit Funds, ment or post-retirement beneﬁts to its employees or to those of the change in carried interest on investments held by the Onex any of the operating companies. The operating companies that Partners and ONCAP funds, the changes in incentive fees on offer pension and non-pension post-retirement beneﬁts accrue investments held by the Onex Credit Funds, as well as any contri- their obligations under such employee beneﬁt plans and related butions by and distributions to limited partners in those Funds. costs, net of plan assets. The costs of deﬁned beneﬁt pensions and Adjustments to the fair value of the Limited Partners’ Interests are other post-retirement beneﬁts earned by employees are accrued reﬂected through earnings, net of the change in carried interest in the period incurred and are actuarially determined using the and incentive fees. projected unit credit method pro-rated on length of service, based Note 14 provides further details on Limited Partners’ on management’s judgement and best estimates of assumptions Interests. for factors which impact the ultimate cost, including salary esca- lation, the retirement ages of employees, the discount rate used in Income taxes measuring the liability and expected healthcare costs. Income taxes are recorded using the asset and liability method of Plan assets are recorded at fair value at each reporting income tax allocation. Under this method, assets and liabilities date. Where a plan is in a surplus, the value of the net asset recog- are recorded for the future income tax consequences attributable nized is restricted to the present value of any economic beneﬁts to differences between the ﬁnancial statement carrying values of available in the form of refunds from the plan or reductions in assets and liabilities and their respective income tax bases, and on future contributions to the plan. tax loss and tax credit carryforwards. Deferred tax assets are recog- The cost of deﬁned beneﬁt plans recognized in the con- nized only to the extent that it is probable that taxable proﬁt will solidated statements of earnings comprises the net total of the be available against which the deductible temporary differences current service cost, the past service cost, gains or losses from as well as tax loss and tax credit carryforwards can be utilized. settlements and the net interest expense or income. The current These deferred income tax assets and liabilities are recorded using service cost represents the increase in the present value of the substantively enacted income tax rates. The effect of a change in plan liabilities expected to arise from employee service in the cur- income tax rates on these deferred income tax assets or liabili- rent period. The past service cost is the change in the beneﬁt obli- ties is included in income in the period in which the rate change gation in respect of employee service in prior periods and which occurs. Certain of these differences are estimated based on current results from a plan amendment or curtailment. Past service costs tax legislation and the Company’s interpretation thereof. 106 Onex Corporation December 31, 2015 N O T E S T O C O N S O L I D AT E D F I N A N C I A L S TAT E M E N T S Income tax expense or recovery is based on the income Healthcare Imaging earned or loss incurred in each tax jurisdiction and the enacted or Revenue from the healthcare imaging segment consists primar- substantively enacted tax rate applicable to that income or loss. ily of product sales and services. Revenue from product sales is Tax expense or recovery is recognized in the income statement, recognized when the following criteria are met: signiﬁcant risks except to the extent that it relates to items recognized directly in and rewards of ownership have been transferred; involvement in equity, in which case the tax effect is also recognized in equity. the capacity as an owner of the goods has ceased; revenue and Deferred tax liabilities for taxable temporary differences costs incurred can be reliably measured; and economic beneﬁts associated with investments in subsidiaries, joint ventures and are expected to be realized. Revenue is recorded net of provisions associates are recognized, except when the Company is able to for estimated customer returns, rebates and other similar allow- control the timing of the reversal of temporary differences and it ances. Services revenue is recognized at the time of service if rev- is probable that the temporary differences will not reverse in the enues and costs can be reliably measured and economic beneﬁts foreseeable future. are expected to be received. In the ordinary course of business, there are transac- tions for which the ultimate tax outcome is uncertain. The ﬁnal Health and Human Services tax outcome of these matters may be different from the judge- Revenue from the health and human services segment consists ments and estimates originally made by the Company in deter- primarily of services. Services revenue is recognized at the time of mining its income tax provisions. The Company periodically service if revenues and costs can be reliably measured and eco- evaluates the positions taken with respect to situations in which nomic beneﬁts are expected to be received, and is recorded net of applicable tax rules and regulations are subject to interpreta- provisions for examination of expenses by agencies administering tion. Provisions related to tax uncertainties are established where contracts and services. appropriate based on the best estimate of the amount that will ultimately be paid to or received from tax authorities. Accrued Building Products interest and penalties relating to tax uncertainties are recorded in Revenue from the building products segment primarily consists current income tax expense. of product sales. Revenue is recognized when signiﬁcant risks Note 16 provides further details on income taxes. and rewards of ownership have been transferred to the customer; Revenue recognition involvement in the capacity as an owner of the goods has ceased; revenue and costs incurred can be reliably measured; and receiv- Revenues are recognized net of estimated returns and allowances, ables are reasonably assured of collection. Incentive payments to trade discounts and volume rebates, where applicable. Where the customers are recorded as a reduction of revenue over the periods Company is responsible for shipping and handling to customers, beneﬁted. amounts charged for these services are recognized as revenue, and shipping and handling costs incurred are reported as a com- Insurance Services ponent of cost of sales in the consolidated statements of earnings. Revenue from the insurance services segment primarily consists Electronics Manufacturing Services of commission, fee and service revenues. Commission revenues on premiums billed and collected directly by insurance compa- Revenue from the electronics manufacturing services segment nies are recognized after the policy effective date and when the consists primarily of product sales and services. Revenue is rec- company has sufﬁcient information to reasonably determine ognized when signiﬁcant risks and rewards of ownership have that the amount is owed. Commission revenues on policies billed been transferred to the customer and receivables are reasonably and collected by the company are recognized on the later of the assured of collection. billing or the policy effective date. Commission revenues related For certain customers, warehousing services are pro- to instalment premiums are recognized on the effective date of vided in connection with manufacturing services. Contracts are each instalment. Fees may be charged for policy placement in assessed to determine whether the manufacturing and warehous- lieu of commissions, which are recognized in the same manner ing services can be accounted for as separate units of accounting. as commission revenues. Fee revenues from claims management If the services do not constitute separate units of accounting, or are recognized as claims are processed using an estimate of ser- the manufacturing services do not meet all of the revenue rec- vices provided and costs incurred. Fee revenues are also earned ognition requirements, revenue recognition is deferred until the from other risk management, administrative and consulting ser- products have been shipped to the customer. vices, which are provided over a period of time. These fees are Onex Corporation December 31, 2015 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 recognized when the fees and costs can be reliably measured and Other economic beneﬁts are expected to be received by the company. Other segment revenues consist of product sales, services and Revenues from managed care, specialized loss adjusting services construction contracts: and ﬁeld investigations are recognized at the time of service if • Revenue from product sales is recognized when the following revenues and costs can be reliably measured and economic criteria are met: signiﬁcant risks and rewards of ownership have beneﬁts are expected to be received. Service revenues from ﬁxed been transferred; involvement in the capacity as an owner of the price contracts are recognized on each contract proportionately goods has ceased; revenue and costs incurred can be reliably over the life of the contract. Packaging Products and Services measured; and economic beneﬁts are expected to be realized. Where product sales are subject to customer acceptance, rev- enue is recognized at the earlier of receipt of customer accep- Revenue from the packaging products and services segment pri- tance or expiration of the acceptance period. Where product marily consists of sales of goods and services. Revenue is mea- sales require the company to install the product at the customer sured as the fair value of the consideration received or receivable location and such installation is essential to the functionality of net of returns and allowances, trade discounts, volume rebates the product, revenue is recognized when the product has been and other customer incentives. Revenue from the sale of goods is delivered to and installed at the customer location. recognized when signiﬁcant risks and rewards of ownership have • Revenue from services is recognized at the time of service, been substantially transferred to the buyer, recovery of the con- when revenues and costs can be reliably measured and eco- sideration is probable, the associated costs and possible return nomic beneﬁts are expected to be received by the company, of goods can be reliably estimated, and there is no continuing and is recorded net of provisions for contractual discounts and management involvement with the goods. Transfer of risks and estimated uncompensated care. Where services performed are rewards of ownership vary depending on the individual terms of subject to customer acceptance, revenue is recognized at the the contract of sale and occur either upon shipment of the goods earlier of receipt of customer acceptance or expiration of the or upon receipt of the goods and/or their deployment or installa- acceptance period. tion at a customer location. Revenue is recognized by reference to • Revenue from construction contracts is recognized on each the stage of completion of the transaction at the end of the report- contract by reference to the percentage-of-completion of the ing period, when the outcome of a transaction involving render- contract activity primarily by comparing contract costs incurred ing of services can be reliably estimated. Credit Strategies to the estimated total contract costs. The contract method of accounting involves the use of various estimating techniques to project costs at completion and includes estimates of ulti- The credit strategies segment consists of (i) Onex Credit Manager, mate proﬁtability and ﬁnal contract settlements. Any expected (ii) Onex Credit Collateralized Loan Obligations and (iii) Onex loss from a construction contract is recognized in the period Credit Funds. In January 2015, Onex began to consolidate the when the estimated total contract costs exceed the estimated Onex Credit Manager and certain funds managed by Onex Credit total contract revenue. Where the outcome of a construction in which Onex, the parent company, holds an investment as a contract cannot be reliably estimated, all contract-related costs result of the transaction described in note 2(f ). Revenue from the are expensed and revenue is recognized only to the extent that credit strategies segment consists of management and incentive those costs are recoverable. When the outcome of the construc- fees earned on capital managed by Onex Credit. Revenue is rec- tion of such contracts becomes reliably estimable, revenue is ognized when earned in accordance with the terms of the relevant recognized prospectively. investment management agreements. The consolidated revenues exclude management and For arrangements where the operating companies derive reve- incentive fees earned from investments in Onex Credit Funds and nues from multiple service or products elements, the recognition CLOs consolidated by Onex. The credit strategies segment did not of revenues is separated based on the relative fair value of each record any revenues for the year ended December 31, 2014, as the element separately identiﬁed in the arrangements. Onex Credit Manager began to be consolidated in January 2015. Depending on the terms under which the operating companies supply products, they may also be responsible for some or all of the repair or replacement costs of defective products. The com- panies establish provisions for issues that are probable and esti- mable in amounts management believes are adequate to cover the ultimate projected claim costs. The ﬁnal amounts determined to be due related to these matters could differ signiﬁcantly from recorded estimates. 108 Onex Corporation December 31, 2015 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 Research and development The second type of plan is the MIP, which is described Research and development activities can be either (a) contracted in note 30(k). The MIP provides that exercisable investment rights or (b) self-initiated: may be settled by issuance of the underlying shares or, in cer- tain situations, by a cash payment for the value of the investment a) Costs for contracted research and development activities, car- ried out within the scope of externally ﬁnanced research and rights. The Company has recorded a liability for the potential future settlement of the vested rights at the balance sheet date by development contracts, are expensed when the related revenues reference to the fair value of the liability. The liability is adjusted are recorded. b) Costs for self-initiated research and development activities are assessed to determine if they qualify for recognition as inter- each reporting period for changes in the fair value of the rights, with the corresponding amount reﬂected in the consolidated statements of earnings. The third type of plan is the Director Deferred Share nally generated intangible assets. Apart from complying with Unit Plan (“Director DSU Plan”). A Deferred Share Unit (“DSU”) the general requirements for initial measurement of an intan- entitles the holder to receive, upon redemption, a cash payment gible asset, qualiﬁcation criteria are met only when technical as equivalent to the market value of a Subordinate Voting Share well as commercial feasibility can be demonstrated and cost can (“SVS”) at the redemption date. The Director DSU Plan enables be reliably measured. It must also be probable that the intan- Onex Directors to apply directors’ fees earned to acquire DSUs gible asset will generate future economic beneﬁts, be clearly based on the market value of Onex shares at the time. Grants of identiﬁable and allocable to a speciﬁc product. Further to meet- DSUs may also be made to Onex Directors from time to time. ing these criteria, only such costs that relate solely to the develop- The DSUs vest immediately, are redeemable only when the hold- ment phase of a self-initiated project are capitalized. Any costs er retires and must be redeemed within one year following the that are classiﬁed as part of the research phase of a self-initiated year of retirement. Additional units are issued for any cash divi- project are expensed as incurred. If the research phase cannot be dends paid on the SVS. The Company has recorded a liability for clearly distinguished from the development phase, the respec- the future settlement of the DSUs by reference to the value of the tive project-related costs are treated as if they were incurred in underlying SVS at the balance sheet date. On a quarterly basis, the research phase only. Capitalized development costs are gen- the liability is adjusted for the change in the market value of the erally amortized over the estimated number of units produced. underlying shares, with the corresponding amount reﬂected in In cases where the number of units produced cannot be reliably the consolidated statements of earnings. To economically hedge estimated, capitalized development costs are amortized over the a portion of the Company’s exposure to changes in the trading estimated useful life of the internally generated intangible asset. price of Onex shares, the Company enters into forward agree- Internally generated intangible assets are reviewed for impair- ments with a counterparty ﬁnancial institution. The change in ment annually when the asset is not yet in use or when events or value of the forward agreements will be recorded to substantially changes in circumstances indicate that the carrying amount may offset the amounts recorded as stock-based compensation under not be recoverable and the asset is in use. the Director DSU Plan. Details of the Director DSUs outstanding During 2015, $254 (2014 – $198) of research and develop- under the plan and the amount hedged by the Company are pro- ment costs were expensed and $16 (2014 – $23) of development vided in note 17(d). costs were capitalized. Stock-based compensation The fourth type of plan is the Management Deferred Share Unit Plan (“Management DSU Plan”). The Management DSU Plan enables Onex management to apply all or a portion of The Company follows the fair value-based method of accounting, their annual compensation earned to acquire DSUs based on the which is applied to all stock-based compensation plans. market value of Onex shares at the time. The DSUs vest immedi- There are ﬁve types of stock-based compensation ately and are redeemable only when the holder has ceased to be plans. The ﬁrst is the Company’s Stock Option Plan (the “Plan”), an ofﬁcer or employee of the Company or an afﬁliate for a cash described in note 17(e), which provides that in certain situations payment equal to the then current market price of SVS. Additional the Company has the right, but not the obligation, to settle any units are issued for any cash dividends paid on the SVS. The exercisable option under the Plan by the payment of cash to the Company has recorded a liability for the future settlement of the option holder. The Company has recorded a liability for the poten- DSUs by reference to the value of the underlying SVS at the bal- tial future settlement of the vested options at the balance sheet ance sheet date. On a quarterly basis, the liability is adjusted for date by reference to the fair value of the liability. The liability is the change in the market value of the underlying shares, with the adjusted each reporting period for changes in the fair value of the corresponding amount reﬂected in the consolidated statements options, with the corresponding amount reﬂected in the consoli- of earnings. To economically hedge the Company’s exposure to dated statements of earnings. Onex Corporation December 31, 2015 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 changes in the trading price of Onex shares associated with the Incentive fees Management DSU Plan, the Company enters into forward agree- Onex Credit is entitled to incentive fees on other investors’ capital it ments with a counterparty ﬁnancial institution for all grants manages. Incentive fees range between 5% and 20%. Certain incen- under the Management DSU Plan. As such, the change in value tive fees (including incentive fees on CLOs) are subject to a hurdle of the forward agreements will be recorded to offset the amounts or a minimum preferred return to investors. Onex acquired con- recorded as stock-based compensation under the Management trol of the Onex Credit asset management platform in January 2015. DSU Plan. The administrative costs of those arrangements are As such, beginning in January 2015, incentive fees earned by Onex borne entirely by participants in the plan. Management DSUs are Credit are entirely attributable to Onex for accounting purposes. redeemable only for cash and no shares or other securities of the Corporation will be issued on the exercise, redemption or other Financial assets and financial liabilities settlement thereof. Details of the Management DSUs outstanding Financial assets and ﬁnancial liabilities are initially recognized under the plan are provided in note 17(d). at fair value and are subsequently accounted for based on their The ﬁfth type of plan is employee stock option and classiﬁcation, as described below. Transaction costs in respect of other stock-based compensation plans in place for employees at an asset or liability not recorded at fair value through net earn- various operating companies, under which, on payment of the ings are added to the initial carrying amount. Gains and losses for exercise price, stock of the particular operating company or cash ﬁnancial instruments recognized through net earnings are pri- is issued. The Company records a compensation expense for such marily recognized in other income (expense) in the consolidated options based on the fair value over the vesting period. statements of earnings. The classiﬁcation of ﬁnancial assets and Carried interest ﬁnancial liabilities depends on the purpose for which the ﬁnancial instruments were acquired and their characteristics. Except in very Onex, as the General Partner of the Onex Partners and ONCAP limited circumstances, the classiﬁcation is not changed subse- Funds, is entitled to a portion (20%) of the realized net gains of quent to initial recognition. Financial assets purchased and sold, the limited partners in each Fund. This share of the net gains is where the contract requires the asset to be delivered within an referred to as carried interest. Onex is entitled to 40% of the carried established time frame, are recognized on a trade-date basis. interest realized in the Onex Partners Funds. Onex management is entitled to the remaining 60% of the carried interest realized in a) Fair value through net earnings the Onex Partners Funds. ONCAP management is entitled to that Financial assets and ﬁnancial liabilities that are purchased and portion of the carried interest realized in the ONCAP Funds that incurred with the intention of generating earnings in the near term equates to a 12% carried interest on both limited partners’ and are classiﬁed as fair value through net earnings. Other instruments Onex capital. may be designated as fair value through net earnings on initial rec- The unrealized carried interest of the Onex Partners ognition. The short- and long-term investments managed by third- and ONCAP Funds is calculated based on the fair values of the party investment managers, as described in note 8(e), have been underlying investments and the overall unrealized gains in each recognized at fair value through net earnings. The long-term debt respective Fund in accordance with the limited partnership agree- of the CLOs is designated at fair value through net earnings upon ments. The unrealized carried interest reduces the amount due initial recognition to eliminate a measurement inconsistency, to the limited partners and will eventually be paid through the as the asset portfolio of the CLOs is recorded at fair value through realization of the limited partners’ share of the underlying Onex net earnings. Partners and ONCAP Fund investments. The change in net carried interest attributable to Onex is recognized through the charge for b) Available-for-sale the Limited Partners’ Interests. The unrealized carried interest of Financial assets classiﬁed as available-for-sale are carried at fair the Onex Partners and ONCAP Funds attributable to management value, with the changes in fair value recorded in other comprehen- is recognized as a liability within other non-current liabilities. The sive earnings. Securities that are classiﬁed as available-for-sale and charge for the change in net carried interest attributable to man- which do not have a quoted price in an active market are record- agement is recorded within other income (expense) in the con- ed at fair value, unless fair value is not reliably determinable, in solidated statements of earnings. which case they are recorded at cost. Available-for-sale securities are written down to fair value through earnings whenever it is necessary to reﬂect an impairment. Gains and losses realized on disposal of available-for-sale securities, which are calculated on an average cost basis, are recognized in earnings. Impairments are 110 Onex Corporation December 31, 2015 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 determined based on all relevant facts and circumstances for each a) Fair value hedges investment and recognized when appropriate. Foreign exchange Changes in the fair value of derivatives that are designated and gains and losses on available-for-sale assets are recognized imme- qualify as fair value hedging instruments are recorded in the con- diately in earnings. solidated statements of earnings, along with changes in the fair value of the assets, liabilities or group thereof that are attributable c) Held-to-maturity investments to the hedged risk. Securities that have ﬁxed or determinable payments and a ﬁxed maturity date, which the Company intends and has the ability to b) Cash flow hedges hold to maturity, are classiﬁed as held-to-maturity and account- The Company is exposed to variability in future interest cash ed for at amortized cost using the effective interest rate method. ﬂows on non-trading assets and liabilities that bear interest at Investments classiﬁed as held-to-maturity are written down to variable rates or are expected to be reinvested in the future. fair value through earnings whenever it is necessary to reﬂect an The effective portion of changes in the fair value of impairment. Impairments are determined based on all relevant derivatives that are designated and qualify as cash ﬂow hedges is facts and circumstances for each investment and recognized recognized in other comprehensive earnings. Any gain or loss in when appropriate. fair value relating to the ineffective portion is recognized immedi- ately in the consolidated statements of earnings in other income d) Loans and receivables (expense). Financial assets that are non-derivative with ﬁxed or deter- Amounts accumulated in other comprehensive earnings minable payments that are not quoted in an active market are reclassiﬁed in the consolidated statements of earnings in the are classiﬁed as loans and receivables. These instruments are period in which the hedged item affects earnings. However, when accounted for at amortized cost using the effective interest rate the forecasted transaction that is hedged results in the recogni- method. tion of a non-ﬁnancial asset or a non-ﬁnancial liability, the gains and losses previously deferred in other comprehensive earnings e) Financial liabilities measured at amortized cost are transferred from other comprehensive earnings and included Financial liabilities not classiﬁed as fair value through net earn- in the initial measurement of the cost of the asset or liability. ings or loans and receivables are accounted for at amortized When a hedging instrument expires or is sold, or when cost using the effective interest rate method. Long-term debt has a hedge no longer meets the criteria for hedge accounting, any been designated as a ﬁnancial liability measured at amortized cumulative gain or loss existing in other comprehensive earnings cost with the exception of long-term debt in the CLOs, which has at that time remains in other comprehensive earnings until the been designated to be recorded at fair value through net earnings. forecasted transaction is eventually recognized in the consoli- Derivatives and hedge accounting dated statements of earnings. When a forecasted transaction is no longer expected to occur, the cumulative gain or loss that was At the inception of a hedging relationship, the Company docu- reported in other comprehensive earnings is immediately trans- ments the relationship between the hedging instrument and the ferred to the consolidated statements of earnings. hedged item, its risk management objectives and its strategy for undertaking the hedge. The Company also requires a documented c) Net investment hedges assessment, both at hedge inception and on an ongoing basis, of Hedges of net investments in foreign operations are accounted for whether or not the derivatives that are used in the hedging transac- in a manner similar to cash ﬂow hedges. Any gain or loss on the tions are highly effective in offsetting the changes attributable to hedging instrument relating to the effective portion of the hedge the hedged risks in the fair values or cash ﬂows of the hedged items. is recognized in other comprehensive earnings. The gain or loss Derivatives that are not designated as effective hedg- relating to the ineffective portion is recognized immediately in the ing relationships continue to be accounted for at fair value, with consolidated statements of earnings in other income (expense). changes in fair value being included in other income (expense) in Gains and losses accumulated in other comprehensive earnings the consolidated statements of earnings. are included in the consolidated statements of earnings upon the When derivatives are designated as effective hedging reduction or disposal of the investment in the foreign operation. relationships, the Company classiﬁes them either as: (a) hedges of the change in fair value of recognized assets or liabilities or ﬁrm commitments (fair value hedges); (b) hedges of the variability in highly probable future cash ﬂows attributable to a recognized asset or liability or a forecasted transaction (cash ﬂow hedges); or (c) hedges of net investments in a foreign self-sustaining opera- tion (net investment hedges). Onex Corporation December 31, 2015 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 Impairment of financial instruments Dividend distributions The Company assesses at each reporting date whether there is Dividend distributions to the shareholders of Onex Corporation objective evidence that a ﬁnancial asset or group of ﬁnancial are recognized as a liability in the consolidated balance sheets in assets is impaired. Where an impairment exists for available-for- the period in which the dividends are declared and authorized by sale ﬁnancial assets, the cumulative loss, measured as the differ- the Board of Directors. ence between the acquisition cost and the current fair value, less any impairment loss on that ﬁnancial asset previously recognized Use of judgements and estimates in earnings, is removed from equity and recognized in earnings. The preparation of ﬁnancial statements in conformity with Derecognition of financial instruments IFRS requires management to make judgements, estimates and assumptions that affect the reported amounts of assets and liabil- A ﬁnancial asset is derecognized if substantially all risks and ities, the related disclosures of contingent assets and liabilities at rewards of ownership and, in certain circumstances, control of the the date of the ﬁnancial statements, and the reported amounts of ﬁnancial asset are transferred. A ﬁnancial liability is derecognized revenue and expenses during the reporting period. Actual results when it is extinguished, with any gain or loss on extinguishment to could differ materially from those estimates and assumptions. be recognized in other income (expense) in the consolidated state- These estimates and underlying assumptions are reviewed on an ments of earnings. ongoing basis. Revisions to accounting estimates are recognized in the period in which the estimate is revised if the revision affects Assets held for sale and discontinued operations only that period, or in the period of the revision and future peri- An asset is classiﬁed as held for sale if its carrying amount will be ods if the revision affects both current and future periods. recovered by the asset’s sale rather than by its continuing use in Areas that involve critical judgements, assumptions and the business, the asset is available for immediate sale in its pres- estimates and that have a signiﬁcant inﬂuence on the amounts ent condition and management is committed to, and has initiated, recognized in the consolidated ﬁnancial statements are further a plan to sell the asset which, when initiated, is expected to result described as follows: in a completed sale within 12 months. An extension of the period required to complete the sale does not preclude the asset from Business combinations being classiﬁed as held for sale, provided the delay is for reasons In a business combination, substantially all identiﬁable assets, beyond the Company’s control and management remains com- liabilities and contingent liabilities acquired are recorded at the mitted to its plan to sell the asset. Assets that are classiﬁed as held date of acquisition at their respective fair values. One of the most for sale are measured at the lower of their carrying amount or fair signiﬁcant areas of judgement and estimation relates to the deter- value less costs to sell and are no longer depreciated. The determi- mination of the fair value of these assets and liabilities, includ- nation of fair value less costs to sell involves judgement by manage- ing the fair value of contingent consideration, if applicable. Land, ment to determine the probability and timing of disposition and buildings and equipment are usually independently appraised the amount of recoveries and costs. while short- and long-term investments are valued at market A discontinued operation is a component of the Com- prices. If any intangible assets are identiﬁed, depending on the pany that has either been disposed of, or satisﬁes the criteria to type of intangible asset and the complexity of determining its be classiﬁed as held for sale, and represents a separate major line fair value, an independent external valuation expert may devel- of business or geographic area of operations, is part of a single op the fair value, using appropriate valuation techniques, which coordinated plan to dispose of a separate major line of business are generally based on a forecast of the total expected future net or geographic area of operations, or is an operating company cash ﬂows. These valuations are linked closely to the assumptions acquired exclusively with a view to its disposal. made by management regarding the future performance of the Earnings per share assets concerned and any changes in the discount rate applied. In certain circumstances where estimates have been Basic earnings per share is based on the weighted average num- made, the companies may obtain third-party valuations of certain ber of SVS outstanding during the year. Diluted earnings per share assets, which could result in further reﬁnement of the fair-value is calculated using the treasury stock method. allocation of certain purchase prices and accounting adjustments. 112 Onex Corporation December 31, 2015 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 Consolidation of structured entities The valuation of the non-public investments held by Onex indirectly controls and consolidates the operations of the the Onex Partners and ONCAP Funds requires signiﬁcant judge- CLOs of Onex Credit. The CLOs are structured entities for which ment by the Company due to the absence of quoted market val- voting and similar rights are not the dominant factor in determin- ues, inherent lack of liquidity and the long-term nature of such ing control. Onex has used judgement when assessing the many assets. Valuation methodologies include observations of the trad- factors to determine control, including its exposure through invest- ing multiples of public companies considered comparable to the ments in the most subordinate capital of the CLOs, its role in the private companies being valued and discounted cash ﬂows. The formation of the CLOs, the rights of other investors in the CLOs valuations take into consideration company-speciﬁc items, the and control (2014 – joint control) of the asset manager of the CLOs. lack of liquidity inherent in a non-public investment and the fact Onex has determined that it is a principal of the CLOs with the that comparable public companies are not identical to the com- power to affect the returns of its investment and, as a result, indi- panies being valued. Considerations are necessary because, in the rectly controls the CLOs. absence of a committed buyer and completion of due diligence During 2015 and 2014, Onex invested capital in and similar to that performed in an actual negotiated sale process, received distributions and proceeds from the CLOs and warehouse there may be company-speciﬁc items that are not fully known facilities, as described in note 8(c). Onex intends to provide addi- that may affect value. In addition, a variety of additional factors is tional ﬁnancial collateral for CLO warehouse facilities. The collat- reviewed by management, including, but not limited to, ﬁnancing eral to be provided for the warehouse facilities is expected to be and sales transactions with third parties, current operating per- substantially reinvested in the most subordinated notes and equity formance and future expectations of the particular investment, of the CLOs upon closing. Fair value of investments and debt of CLOs not quoted in an active market changes in market outlook and the third-party ﬁnancing envi- ronment. In determining changes to the valuations, emphasis is placed on current company performance and market conditions. For publicly traded investments, the valuation is based on closing The fair value of investments and debt of CLOs not quoted in an market prices less adjustments, if any, for regulatory and/or con- active market may be determined by Onex Credit using reputa- tractual sale restrictions. ble pricing sources (such as pricing agencies) or indicative prices The Limited Partners’ Interests and carried interest are from bond/debt market makers. Broker quotes as obtained from measured with signiﬁcant unobservable inputs (Level 3 of the the pricing sources may be indicative and not executable or bind- fair value hierarchy). Further information is provided in note 14. ing. The Company has exercised judgement and estimates on the Investments in joint ventures and associates designated at fair quantity and quality of pricing sources used. Where no market value are measured with signiﬁcant unobservable inputs (Level 3 data is available, Onex Credit may value positions using models, of the fair value hierarchy). Further information is provided in which include the use of third-party pricing information and are notes 8 and 28. usually based on valuation methods and techniques generally recognized as standard within the industry. Goodwill impairment tests and recoverability of assets Models use observable data, to the extent practicable. The Company tests at least annually whether goodwill has suf- However, areas such as credit risk (both own and counterparty), fered any impairment, in accordance with its accounting policies. volatilities and correlations may require the Company to make The determination of the recoverable amount of a CGU (or group of estimates. Changes in assumptions about these factors could CGUs) to which goodwill is allocated involves the use of estimates affect the reported fair value of ﬁnancial instruments. by management. The Company generally uses discounted cash Limited Partners’ Interests, carried interest and investments in joint ventures and associates ﬂow-based methods to determine these values. These discounted cash ﬂow calculations typically use ﬁve-year projections that are based on the operative plans approved by management. Cash ﬂow The measurement of the Limited Partners’ Interests, carried inter- projections take into account past experience and represent man- est and investments in joint ventures and associates at fair value agement’s best estimate of future developments. Cash ﬂows after through earnings is signiﬁcantly impacted by the fair values of the the planning period are extrapolated using estimated growth rates. Company’s investments held by the Onex Partners and ONCAP Key assumptions on which management has based its determina- Funds. The fair values of these investments are assessed at each tion of fair value less costs to sell and value-in-use include esti- reporting date, with changes reﬂected in the measurement of the mated growth rates, weighted average cost of capital and tax rates. Limited Partners’ Interests, carried interest and investments in These estimates, including the methodology used, can have a mate- joint ventures and associates at fair value through earnings. rial impact on the respective values and ultimately the amount of any goodwill impairment. In the year of acquisition, the fair value in excess of the carrying value at an operating company will typically Onex Corporation December 31, 2015 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 be minimal as a result of the recent business combination account- management with respect to, among other things, beneﬁts that ing. Note 24 provides details on the signiﬁcant estimates used in could be realized from available tax strategies and future taxable the calculation of the recoverable amounts for impairment testing. income, as well as other positive and negative factors. The recorded Likewise, whenever property, plant and equipment and other intan- amount of total deferred tax assets could be reduced if estimates gible assets are tested for impairment, the determination of the of projected future taxable income and beneﬁts from available assets’ recoverable amount involves the use of estimates by man- tax strategies are lowered, or if changes in current tax regulations agement and can have a material impact on the respective values are enacted that impose restrictions on the timing or extent of the and ultimately the amount of any impairment. Company’s ability to utilize future tax beneﬁts. Revenue recognition The Company, including the operating companies, uses signiﬁcant judgement when determining whether to recognize • Revenues for ResCare in the health and human services seg- deferred tax liabilities with respect to taxable temporary differ- ment are substantially derived from U.S. federal, state and ences associated with investments in subsidiaries, joint ventures local government agency programs, including Medicaid and and associates; in particular, whether the Company is able to con- Medicare. Laws and regulations under these programs are trol the timing of the reversal of the temporary differences and complex and subject to interpretation. Management may be whether it is probable that the temporary differences will not required to exercise judgement for the recognition of revenue reverse in the foreseeable future. Judgement includes consider- under these programs. Management of ResCare believes that ation of the Company’s future cash requirements in its numerous they are in compliance with all applicable laws and regula- tax jurisdictions. tions. Compliance with such laws and regulations is subject to ongoing and future government review and interpretation, Legal provisions and contingencies including the possibility of processing claims at lower amounts The Company and its operating companies in the normal course upon audit, as well as signiﬁcant regulatory action including of operations become involved in various legal proceedings, revenue adjustments, ﬁnes, penalties and exclusion from pro- as described in note 30(b). While the Company cannot predict grams. Government agencies may condition their contracts the ﬁnal outcome of such legal proceedings, the outcome of upon a sufﬁcient budgetary appropriation. If a government these matters may have a material effect on the Company’s con- agency does not receive an appropriation sufﬁcient to cover its solidated ﬁnancial position, results of operations or cash ﬂows. contractual obligations, it may terminate the contract or defer Management regularly analyzes current information about these or reduce reimbursements to be received by the Company. In matters and provides provisions for probable contingent losses, addition, previously appropriated funds could also be reduced including the estimate of legal expenses to resolve the matters. or eliminated through subsequent legislation. Internal and external lawyers are used for these assessments. In • Revenues for Schumacher in the other segment are recognized making the decision regarding the need for provisions, manage- net of an allowance for uncompensated care related to uninsured ment considers the degree of probability of an unfavourable out- patients in the period during which the services are provided. come and the ability to make a sufﬁciently reliable estimate of the The allowance for uncompensated care is estimated on the basis amount of loss. The ﬁling of a suit or formal assertion of a claim or of historical experience of collections associated with self-pay the disclosure of any such suit or assertion does not automatically patients treated during the period. indicate that a provision may be appropriate. Income taxes Employee benefits The Company, including the operating companies, operates and Onex, the parent company, does not provide pension, other retire- earns income in numerous countries and is subject to changing ment or post-retirement beneﬁts to its employees or to those of tax laws or application of tax laws in multiple jurisdictions within any of the operating companies. The operating companies that these countries. Signiﬁcant judgement is necessary in determining offer pension and non-pension post-retirement beneﬁts account worldwide income tax liabilities. Although management believes for these beneﬁts in accordance with actuarial valuations. These that it has made reasonable estimates about the ﬁnal outcome of valuations rely on statistical and other factors in order to antici- tax uncertainties, no assurance can be given that the ﬁnal outcome pate future events. These factors include key actuarial assump- of these tax matters will be consistent with what is reﬂected in the tions, including the discount rate, expected salary increases and historical income tax provisions. Such differences could have an mortality rates. These actuarial assumptions may differ materi- effect on income tax liabilities and deferred tax liabilities in the ally from actual developments due to changing market and eco- period in which such determinations are made. At each balance nomic conditions and therefore may result in a signiﬁcant change sheet date, the Company assesses whether the realization of future in post-retirement employee beneﬁt obligations and the related tax beneﬁts is sufﬁciently probable to recognize deferred tax assets. future expense. Note 31 provides details on the estimates used in This assessment requires the exercise of judgement on the part of accounting for pensions and post-retirement beneﬁts. 114 Onex Corporation December 31, 2015 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 Stock-based compensation 2 . A C Q U I S I T I O N S The Company’s stock-based compensation accounting for its MIP options is completed using an internally developed valuation During 2015 and 2014 several acquisitions, which were accounted model. The critical assumptions and estimates used in the valua- for as business combinations, were completed either directly by tion model include the fair value of the underlying investments, the Onex or through subsidiaries of Onex. Any third-party borrowings time to expected exit from each investment, a risk-free rate and an in respect of these acquisitions are without recourse to Onex. industry comparable historical volatility for each investment. The Business combinations are accounted for using the acqui- fair value of the underlying investments includes critical assump- sition method. The cost of an acquisition is measured as the fair tions and estimates as described for Limited Partners’ Interests, value of the assets given, equity instruments issued and liabilities carried interest and investments in joint ventures and associates. incurred or assumed at the date of exchange. Identiﬁable assets 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 acquired and liabilities and contingent liabilities assumed in a busi- ness combination are measured initially at fair value at the date of acquisition, irrespective of the extent of any non-controlling inter- ests. The fair value is determined using a combination of valuation techniques, including discounted cash ﬂows and projected earn- In May 2014, the IASB issued IFRS 15, Revenue from Contracts ings multiples. The key inputs to the valuation techniques include with Customers, which provides a comprehensive ﬁve-step rev- assumptions related to future customer demand, material and enue recognition model for all contracts with customers. IFRS 15 employee-related costs, changes in mix of products and services requires management to exercise sig niﬁcant judgement and make produced or delivered, and restructuring programs. Any non-con- estimates that affect revenue recognition. IFRS 15 is effective for trolling interests in the acquired company are measured either at annual periods beginning on or after January 1, 2018, with ear- fair value or at the non-controlling interests’ proportionate share lier application permitted. The Company is currently evaluating of the identiﬁable assets and liabilities of the acquired business. the impact of adopting this standard on its consolidated ﬁnancial The excess of the aggregate of the consideration transferred, the statements. IFRS 9 – Financial Instruments amount of any non-controlling interests in the acquired company and, in a business combination achieved in stages, the fair value at the acquisition date of the Company’s previously held interest in the In July 2014, the IASB issued a ﬁnal version of IFRS 9, Financial acquired company compared to the fair value of the identiﬁable net Instruments, which replaces IAS 39, Financial Instruments: Recog assets acquired, is recorded as goodwill. Acquisition-related costs nition and Measurement, and supersedes all previous versions are expensed as incurred and related restructuring charges are of the standard. The standard introduces a new model for the expensed in the periods after the acquisition date. Costs incurred classiﬁcation and measurement of ﬁnancial assets and liabilities, to issue debt are deferred and recognized as described in note 1. a single expected credit loss model for the measurement of the Subsequent changes in the fair value of contingent consideration impairment of ﬁnancial assets and a new model for hedge account- recorded as a liability at the acquisition date are recognized in con- ing that is aligned with a company’s risk management activities. solidated earnings or loss. IFRS 9 is effective for annual periods beginning on or after Janu- In certain circumstances where preliminary estimates ary 1, 2018, with earlier application permitted. The Company is have been made, the companies may obtain third-party valua- currently evaluating the impact of adopting this standard on its tions of certain assets, which could result in further reﬁnement of consolidated ﬁnancial statements. IFRS 16 – Leases the fair value allocation of certain purchase prices and accounting adjustments. The results of operations for all acquired businesses are included in the consolidated statements of earnings, compre- In January 2016, the IASB issued IFRS 16, Leases, which replaces hensive earnings and equity of the Company from their respective IAS 17, Leases. The standard provides an updated deﬁnition of a dates of acquisition. lease contract, including guidance on the combination and separa- tion of contracts. The standard requires lessees to recognize a right- of-use asset and a lease liability for substantially all lease contracts. The accounting for lessors is substantially unchanged from IAS 17. IFRS 16 is effective for annual periods beginning on or after Janu- ary 1, 2019, with earlier application permitted if IFRS 15 is also applied. The Company is currently evaluating the impact of adopt- ing this standard on its consolidated ﬁnancial statements. Onex Corporation December 31, 2015 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 2 015 A C Q U I S I T I O N S Details of the purchase price and allocation to the assets and liabilities acquired, net of debt ﬁnancing, are as follows: Survitec(a) SIG(b) Jack’s(c) Schumacher(d) ONCAP(e) Onex Credit(f) Other(g) Total Cash and cash equivalents $ 42 $ Other current assets Long-term investments Intangible assets with limited life Intangible assets with indefinite life Goodwill Property, plant and equipment and other non-current assets Current liabilities Other non-current liabilities Limited Partners’ Interests Non-controlling interests in net assets 167 – 373 – 294 66 942 (112) (452) – 378 (1) 144 445 227 1,102 336 1,780 1,300 5,334 (640) (3,479) – 1,215 – $ 11 $ 202 – 12 175 202 62 664 (214)(1) (220) – 230 (10) 74 191 19 232 – 681 64 1,261 (168) (490) – 603 (125) $ 4 50 – 15 35 33 17 154 (23) (48) – 83 (10) $ 158 $ 20 751 43 – 62 – 1,034 (43) (29) (368) 594 – 4 53 – 157 12 174 16 416 (49) (25) – 342 – $ 437 1,128 997 1,934 558 3,226 1,525 9,805 (1,249) (4,743) (368) 3,445 (146) Interest in net assets acquired $ 377 $ 1,215 $ 220 $ 478 $ 73 $ 594 $ 342 $ 3,299 (1) Included in current liabilities of Jack’s was $195 of acquisition financing provided by the Company, of which Onex’ share was $57. a) In March 2015, the Company acquired Survitec Group Limited (“Survitec”) for £450 ($670). Based in the United Kingdom, Survitec is a provider of mission-critical marine, defence and aerospace survival equipment. Onex Partners IV invested $322 for substan- b) In March 2015, the Company completed the acquisition of SIG Combibloc Group Holdings S.a.r.l. (“SIG”) for a value of up to €4,040 ($4,250). Based in Switzerland, SIG provides food and beverage producers with a comprehensive product portfolio of tially all of the equity, with the remainder of the equity owned by aseptic carton packaging ﬁlling systems, aseptic carton packaging Survitec’s management. Onex’ share of the equity investment was $73. The balance of the purchase price was substantially ﬁnanced with debt ﬁnancing, without recourse to Onex Corporation. The Company had an initial 99% economic interest, of which Onex’ portion was 22%. Survitec is included within the other segment. In September 2015, Survitec acquired Survival Craft sleeves, spouts and caps, as well as after-market support services. The purchase price consisted of €3,865 ($4,067) paid on closing of the transaction and an additional amount of up to €175 ($183) payable based on SIG’s ﬁnancial performance in 2015 and 2016. The purchase price includes the recognition of €175 ($183) of the additional amount. The Company’s equity investment in SIG was Inspec torate Limited (“SCI”) for up to £45 ($68). The purchase price completed in U.S. dollars in the amount of $1,215 for substantially consisted of £32 ($49) paid on closing of the transaction and an all of the equity. The Company’s equity investment was comprised additional amount of up to £13 ($19) payable based on the future of $583 from Onex Partners IV and $632 as a co-investment from performance of SCI. Based in the United Kingdom, SCI is a sup- Onex and certain limited partners. Onex’ total investment in SIG plier of certiﬁed lifeboat-related safety equipment and services. was $405 and was comprised of $131 through Onex Partners IV In connection with this transaction, Onex Partners IV invested £9 and $274 as a co-investment. The balance of the purchase price ($13) in Survitec, of which Onex’ share was £2 ($3). The remainder was ﬁnanced with debt ﬁnancing, without recourse to Onex of the purchase price and transaction costs was funded by Survitec Corporation, as described in note 12(m). At the date of the acqui- through a draw on its acquisition facility and an incremental term sition, the Company had a 100% economic interest, of which loan, as described in note 12(o). Onex’ portion was 33%. SIG is included in the packaging products In addition, Survitec completed two other acquisitions and services segment with sgsco. during 2015 for total consideration of $6. Management of SIG completed investments in SIG dur- ing the second quarter of 2015, reducing the Company’s economic interest in SIG at December 31, 2015 to 99%, of which Onex’ por- tion was 33%. 116 Onex Corporation December 31, 2015 N O T E S T O C O N S O L I D AT E D F I N A N C I A L S TAT E M E N T S At December 31, 2015, SIG had revised its estimate of the additional amount to €125 ($136), resulting in a recovery of €50 ($55) recognized in other income (expense). The amount repre- In August 2015, Schumacher acquired Hospital Physi cian Partners (“HPP”), a provider of emergency and hospital medicine physician practice management services in the United States, for sented management’s best estimate of the fair value at Decem- $271. In connection with this transaction, Onex Partners IV made ber 31, 2015, which is subject to sensitivity associated with various an add-on investment in Schumacher of $105 and the balance of factors, including foreign currency ﬂuctuations, as well as uncer- the equity was funded by an investment from the management of tainty regarding the treatment of certain items. HPP and Schumacher and other investors. The remainder of the c) In July 2015, the Company completed the acquisition of Jack’s Family Restaurants (“Jack’s”) for $640. Based in the United States, an increase of $150 to its senior secured facilities, as described in note 12(k), and cash from Schumacher’s balance sheet. Onex’ Jack’s is a regional premium quick-service restaurant operator. share of the add-on investment in Schumacher was $30. The add- Onex Partners IV initially invested a total of $415 in Jack’s, of which on investment increased the Company’s economic interest in Onex’ portion was $120. The remainder of the purchase price Schumacher to 71%, of which Onex’ portion was 21%. purchase price was ﬁnanced by Schumacher with proceeds from was substantially ﬁnanced with debt ﬁnancing, without recourse to Onex Corporation. The Company’s initial investment in Jack’s consisted of an equity investment of $220 and a $195 promissory e) In July 2015, ONCAP III completed the acquisition of Chatters Canada (“Chatters”). Based in Canada, Chatters is a retailer and note, as described in note 12(f ). Onex’ initial investment in Jack’s distributor of hair and beauty care products as well as an operator consisted of an equity investment of $63 and $57 of the promis- and franchisor of hair and beauty salons. The Company’s equity sory note. The Company had an initial 95% economic interest in investment of C$55 ($43) was made by ONCAP III, of which Onex’ Jack’s, of which Onex’ portion was 27%. Jack’s is included within portion was C$16 ($13). The Company had an initial 81% economic the other segment. interest in Chatters, of which Onex’ portion was 24%. Chatters is During the fourth quarter of 2015, Jack’s made repay- included within the other segment. ments of the promissory note totalling $143, including accrued In addition, ONCAP includes acquisitions made by interest, with net proceeds from sale-leaseback transactions com- CiCi’s Holdings, Inc. (“CiCi’s Pizza”), Bradshaw International, Inc. pleted for certain of its fee-owned restaurant properties. Onex’ (“Bradshaw”), Davis-Standard Holdings, Inc. and Hopkins Manu- share of the repayments was $41. facturing Corporation (“Hopkins”) for total consideration of $30. In January 2016, Jack’s repaid an additional $23 of the promissory note, including accrued interest, with net proceeds from a sale-leaseback transaction completed for certain of its fee- f) The purchase price and allocation to the assets and liabilities acquired for Onex Credit include the acquisition of control of the owned restaurant properties. Onex’ share of the repayment was Onex Credit asset management platform and the resulting con- $7. After giving effect to the repayment, the amount outstanding solidation of certain Onex Credit Funds. In January 2015, Onex under the promissory note was $31, of which Onex’ share was $9. acquired control of the Onex Credit asset management platform for $32, which included non-cash consideration of $6 associated d) In late July 2015, the Company acquired Schumacher Clinical Partners (“Schumacher”) for $690. Schumacher is a leading pro- with the issuance of 111,393 of Onex’ SVS. The acquisition of con- trol of the Onex Credit asset management platform was account- vider of emergency and hospital medicine physician practice man- ed for based on an implied fair value of $119 for the business. The agement services in the United States. Onex Partners IV invested a Company’s previous interest in the Onex Credit asset manage- total of $219 in Schumacher, of which Onex’ portion was $63. The ment platform was equity-accounted with a carrying value of $49 remainder of the purchase price was ﬁnanced through a rollover of and was derecognized at fair value, resulting in the recognition of equity and cash contributed by other investors, and with proceeds a non-cash gain of $38 during the ﬁrst quarter of 2015. of $385 from its senior secured facilities, without recourse to Onex The Onex Credit asset management platform was previ- Corporation. The Company had an initial 65% economic interest ously jointly controlled with Onex Credit’s chief executive ofﬁcer, in Schumacher, of which Onex’ portion was 19%. Schumacher is and Onex previously held a 70% economic interest in the busi- included within the other segment. ness. 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 con- solidates 100% of the Onex Credit asset management platform, with a reduced allocation of the net earnings to Onex Credit’s chief executive ofﬁcer recognized as compensation expense. Onex Corporation December 31, 2015 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 As a result of the above transaction, the Company con- Included in the acquisitions above were gross receivables due solidates the Onex Credit asset management platform and cer- from customers of $443, of which $31 of contractual cash ﬂows is tain funds managed by Onex Credit in which Onex, the parent not expected to be recovered. The fair value of these receivables at company, holds an investment. The Company’s previous inter- the dates of acquisition was determined to be $412. est in the Onex Credit Funds was recorded at a fair value of $475 and is included in the net assets acquired for the purchase price Revenue and net earnings from the date of acquisition to Decem- allocation at the same amount. The interests of other investors ber 31, 2015 for these acquisitions were $2,764 and $45, respectively. in the Onex Credit Funds consolidated by Onex are presented as Limited Partners’ Interests for the Onex Credit Funds at fair value, The Company estimates it would have reported consolidated reve- as described in note 14. The addition to the Limited Partners’ nues of approximately $20,900 and net loss of approximately $545 Interests included approximately $200 of investments held by the for the year ended December 31, 2015 if the acquisitions completed Onex and Onex Credit management teams. during 2015 had been acquired on January 1, 2015. g) Other includes acquisitions made by Emerald Expositions, JELD-WEN, ResCare, sgsco, USI and York for total consideration of Goodwill of the acquisitions is attributable primarily to the skills and competence of the acquired workforce and non-contractual $342, of which $37 was non-cash consideration. established customer bases and industry relationships of the acquired companies. Goodwill of the acquisitions that is expected to be deductible for tax purposes is $181. 2 014 A C Q U I S I T I O N S Details of the purchase price and allocation to the assets and liabilities acquired, net of debt ﬁnancing, were 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(h) USI(i) ONCAP(j) York(k) $ – 16 82 76 200 1 375 (40) (3) 332 – $ − 29 160 − 86 2 277 (18) – 259 – $ 1 55 39 1 39 12 147 (18) (3) 126 – $ 45 157 616 148 833 30 1,829 (121) (991) 717 (71) Other(l) $ – – 14 – 10 1 25 – − 25 – Total $ 46 257 911 225 1,168 46 2,653 (197) (997) 1,459 (71) Interest in net assets acquired $ 332 $ 259 $ 126 $ 646 $ 25 $ 1,388 h) In January 2014, Emerald Expositions completed the acquisition of George Little Management, LLC (“GLM”) for cash consideration i) In May 2014, USI completed the acquisition of 40 insurance brokerage and consulting ofﬁces across the United States from of $332. GLM is an operator of business-to-business tradeshows Wells Fargo Insurance. The purchase price for the acquisition was in the United States. In conjunction with the transaction, Onex $133, which was ﬁnanced with a $125 incremental term loan, as Partners III invested $140 in Emerald Expositions, of which Onex’ described in note 12(q), and cash from USI. share was $34. The remainder of the purchase price and transac- In October 2014, USI completed the acquisition of seven tion costs were funded by Emerald Expositions through an amend- retail insurance brokerage locations across the United States from ment to its credit facility, as described in note 12(d). Willis North America Inc. The purchase price for the acquisition was $66, which was ﬁnanced with cash from USI. In addition, USI completed 12 other acquisitions dur- ing 2014 for total consideration of $60, of which $19 was non-cash consideration. 118 Onex Corporation December 31, 2015 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) In June 2014, EnGlobe Corp. (“EnGlobe”), an ONCAP II operating company that provides integrated environmental services, com- l) Other includes acquisitions made by Carestream Health and ResCare for total consideration of $25, which was funded by the pleted the acquisition of LVM Inc., a leading Canadian geotechni- respective companies. cal, materials and environmental engineering ﬁrm. The purchase price for the acquisition was $104, which was ﬁnanced with debt Included in the acquisitions above were gross receivables due from ﬁnancing and an equity investment from non-controlling interests. customers of $206, of which $8 of contractual cash ﬂows are not The purchase price included deferred consideration of $3. expected to be recovered. The fair value of these receivables at the In addition, ONCAP included acquisitions made by dates of acquisition was determined to be $198. Bradshaw, CiCi’s Pizza and Mister Car Wash (up to the date of dis- position in August 2014) for total consideration of $22. Revenue and net earnings from the date of acquisition to December 31, 2014 for these acquisitions were $507 and $54, k) In October 2014, the Company completed the acquisition of York, an integrated provider of insurance solutions to property, respectively. casualty and workers’ compensation specialty markets in the Goodwill of the acquisitions was attributable primarily to the skills United States, for $1,325. The Company’s equity investment in and competence of the acquired workforce and non-contractual York was $521 and was comprised of $400 from Onex Partners III established customer bases of the acquired companies. Goodwill and $121 as a co-investment from Onex and certain limited part- of the acquisitions that was expected to be deductible for tax pur- ners. Onex’ total investment in York was $173 and was comprised poses was $463. of $96 through Onex Partners III and $77 as a co-investment. The balance of the purchase price was substantially ﬁnanced with In addition to the acquisitions described above, in March 2014, debt ﬁnancing, without recourse to Onex Corporation. York is Onex Partners III invested $66 to acquire common stock of JELD- included in the insurance services segment with USI. WEN from existing shareholders, of which Onex’ investment was In December 2014, York acquired MCMC, LLC (“MCMC”), $16. In August 2014, Onex Partners III sold a portion of the common a leading managed care services company, for $142. MCMC is a stock purchased in March 2014 to certain members of JELD-WEN U.S.-based company offering a variety of managed care programs management for $1, of which Onex’ share was less than $1. JELD- that offer assistance in the assessment, review and evaluation of WEN did not receive any proceeds and the total number of shares medical claims. In connection with this transaction, York com- of common stock outstanding did not change as a result of these pleted an offering of $45 in aggregate principal amount of its 8.50% transactions. These transactions are recorded as a net transfer of senior unsecured notes due in October 2022. The acquisition of equity from the non-controlling interests within the consolidated MCMC was ﬁnanced by York with the senior unsecured notes offer- statements of equity. The excess of the carrying value of the transfer ing together with a delayed draw on its term loan and revolving of equity over the net investment of $16 was recorded as an increase credit facility, as described in note 12(r), and a $38 rollover equity directly to retained earnings. As a result of these transactions, Onex contribution from certain equity and option holders of MCMC. Partners III’s as-converted economic interest in JELD-WEN at the In addition, York completed one other acquisition dur- date of the transaction increased by 7% and Onex’ as-converted ing the fourth quarter of 2014 for total consideration of $21, of economic ownership increased by 2%. which $5 was deferred consideration. In December 2014, Onex Partners III invested $20 in Meridian Aviation, an aircraft investment company based in Ireland, of which Onex’ investment was $5. The investment was made to support additional aircraft investments being made by Meridian Aviation. Onex Partners III continues to have a 100% economic interest in Meridian Aviation. Onex Corporation December 31, 2015 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 3 . C A S H A N D C A S H E Q U I VA L E N T S 4 . I N V E N T O R I E S Cash and cash equivalents comprised the following: Inventories comprised the following: As at December 31 2015 2014 As at December 31 Cash at bank and on hand $ 1,458 $ 984 Raw materials Money market funds Commercial paper Bank term deposits 457 311 87 1,296 1,319 165 Work in progress Finished goods Real estate held for sale $ 2015 952 250 588 192 $ 2014 836 415 743 19 Total cash and cash equivalents $ 2,313 $ 3,764 Total inventories $ 1,982 $ 2,013 Beginning in the second quarter of 2015, Onex, the parent com- During the year ended December 31, 2015, $8,476 (2014 – $7,757) of pany, transferred a portion of its cash and cash equivalents inventory was expensed in cost of sales. Note 11(b) provides details to accounts managed by third-party investment managers, as on inventory provisions recorded by the Company. described in note 8(e). At December 31, 2015, the fair value of investments managed by third-party investment managers was 5 . O T H E R C U R R E N T A S S E T S $1,188, of which $204 was included in short-term investments and $984 was included in long-term investments. Other current assets comprised the following: As at December 31 Restricted cash Prepaid expenses Other receivables Income and value-added taxes receivable Other $ 2015 196 144 135 123 322 $ 2014 174 171 73 123 262 Total other current assets $ 920 $ 803 120 Onex Corporation December 31, 2015 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 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 revenues, expenses and net after-tax results from discontinued operations. The sale of Tropicana Las Vegas in August 2015, the partial sales of Flushing Town Center during 2015, and the sale of Mister Car Wash in August 2014, all as described in note 22, did not represent separate major lines of business, and as a result, have not been presented as discontinued operations. Skilled Healthcare Group(c) $ 69 (67) 2 – 68 70 Spirit AeroSystems(e) $ 2,945 (2,677) 268 (18) 310 Total $ 2,423 (2,448) (25) (29) 433 $ 379 Total $ 7,339 (7,015) 324 (51) 678 Year ended December 31, 2015 KraussMaffei(a) Revenues Expenses Earnings (loss) before income taxes Provision for income taxes Gain, net of tax Net earnings for the year $ 1,345 (1,321) 24 (19) − 5 $ Sitel Worldwide(b) $ 1,009 (1,060) (51) (10) 365 $ 304 $ Year ended December 31, 2014 KraussMaffei(a) Revenues Expenses Earnings (loss) before income taxes Recovery of (provision for) income taxes Gain, net of tax $ 1,473 (1,431) 42 (4) − Sitel Worldwide(b) $ 1,440 (1,499) (59) (10) − Skilled Healthcare Group(c) The Warranty Group(d) $ 833 $ 648 (831) 2 3 – 5 (577) 71 (22) 368 417 $ Net earnings (loss) for the year $ 38 $ (69) $ $ 560 $ 951 a) KraussMaffei b) Sitel Worldwide In January 2016, the Company entered into an agreement to sell KraussMaffei for a cash enterprise value of approximately €925. Under the terms of the agreement, the Company will receive net proceeds of approximately €670. Onex’ portion will be approxi- mately €180, including estimated carried interest of €12 and after the reduction for amounts on account of the MIP. By early 2016, the In September 2015, the Company sold its entire investment in Sitel Worldwide. The Company’s cash proceeds were $35, of which Onex’ share was $33. In addition, the Company estimates it may receive an earn-out component of approximately $21, of which Onex’ share would be $20. No amounts were paid on account of the MIP for this transaction as the required investment return Company had hedged the foreign exchange exposure for substan- hurdle for Onex was not met. tially all of its estimated net proceeds. The transaction is expected A gain of $365 was recorded within discontinued opera- to close during the ﬁrst half of 2016 and is subject to customary tions during the third quarter of 2015 based on the excess of the closing conditions and regulatory approvals. The operations of proceeds over the carrying value of the investment. The carrying KraussMaffei have been presented as discontinued in the consoli- value of the investment was negative at the time of sale as a result dated statements of earnings and cash ﬂows and the prior year has of the Company’s portion of the accumulated losses from the been restated to report the results of KraussMaffei as discontinued operations of Sitel Worldwide that offset the Company’s original on a comparative basis. investments. Onex’ share of the gain was $360. The operations of Sitel Worldwide up to the date of dis- position are presented as discontinued in the consolidated state- ments of earnings and cash ﬂows and the prior year has been restated to report the results of Sitel Worldwide as discontinued on a comparative basis. Onex Corporation December 31, 2015 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 c) Skilled Healthcare Group Amounts received on account of the carried interest In February 2015, Skilled Healthcare Group combined with Genesis related to this transaction totalled $127. Consistent with the terms HealthCare, LLC, a leading U.S. operator of long-term care facili- of Onex Partners, Onex was allocated 40% of the carried interest ties. Under the terms of the purchase and combination transaction, with 60% allocated to management. Onex’ share of the carried each share of Skilled Healthcare Group common stock issued and interest received was $51 and was included in the net proceeds outstanding immediately prior to the closing of the combination to Onex. Management’s share of the carried interest was $76. was converted into one share of the newly combined company. The Amounts paid on account of the MIP totalled $23 for this transac- combined company now operates under the Genesis Healthcare tion and have been deducted from the net proceeds to Onex. name and continues to be publicly traded (NYSE: GEN). At the The operations of The Warranty Group were presented date of the transaction, Skilled Healthcare Group shareholders as discontinued in the consolidated statements of earnings and owned approximately 26% of the combined company and Genesis cash ﬂows for the year ended December 31, 2014. HealthCare shareholders owned the remaining approximately 74% of the combined company. At the date of the transaction, Onex e) Spirit AeroSystems Partners I had a 10% economic interest in the newly combined com- In June 2014, under a secondary public offering and share repur- pany compared to a 39% economic interest in Skilled Healthcare chase of Spirit AeroSystems, Inc. (“Spirit AeroSystems”), Onex Group before the combination. The Company lost its multiple vot- Partners I and certain limited partners sold 8.0 million shares of ing rights, which reduced its voting ownership to 10% from 86% Spirit AeroSystems, of which Onex’ portion was approximately before the combination. Onex no longer controls Skilled Healthcare 2.1 million shares. The offering was completed at a price of $32.31 Group due to the loss of the multiple voting rights and, therefore, per share. Onex’ cash cost for these shares was $3.33 per share. The the operations of Skilled Healthcare Group up to the date of the sale was completed for net proceeds of $258, of which Onex’ share transaction in February 2015 are presented as discontinued in the was $79, including carried interest of $10 and after the reduction for consolidated statements of earnings and cash ﬂows and the prior distributions paid on account of the MIP. year has been restated to report the results of Skilled Healthcare As a result of this transaction, the Company lost its Group as discontinued on a comparative basis. multiple voting rights, which reduced its voting interest in Spirit Earnings from discontinued operations of $70 for the AeroSystems to 6% from 55%. This transaction resulted in a loss of year ended December 31, 2015 include the recognition of a non- control of Spirit AeroSystems by the Company. cash gain of $68 associated with measuring the Company’s inter- A gain of $310 was recorded within discontinued oper- est in Skilled Healthcare Group at fair value at the date of the ations during the second quarter of 2014 based on the excess of combination. Subsequent to the February 2015 transaction date, the proceeds and the interest retained at fair value over the car- the Company’s investment in the combined company is recorded rying value of the investment. The portion of the gain associated as an other long-term investment at fair value through earnings, with measuring the interest retained in Spirit AeroSystems at fair with changes in fair value recorded in other income (expense). value was $159. The portion of the gain associated with the shares sold was $151. d) The Warranty Group Amounts received on account of the carried interest In August 2014, the Company sold its entire investment in The related to the June 4, 2014 transaction totalled $24. Consistent Warranty Group, Inc. (“The Warranty Group”) for an enterprise with the terms of the Onex Partners agreements, Onex was allo- value of approximately $1,500. Onex Partners I and Onex Part- cated 40% of the carried interest with 60% allocated to manage- ners II received net proceeds of $1,126, resulting in a gain of $368 ment. Onex’ share of the carried interest received was $10 and based on the excess of the proceeds over the carrying value of the was included in the net proceeds to Onex. Management’s share of investment. Onex’ portion of the net proceeds was $382, includ- the carried interest was $14. Amounts paid on account of the MIP ing carried interest of $51 and after the reduction for amounts on totalled $6 for this transaction and have been deducted from the account of the MIP. The gain on the sale was entirely attributable net proceeds to Onex. to the equity holders of Onex Corporation, as the interests of the limited partners were recorded as a ﬁnancial liability at fair value. 122 Onex Corporation December 31, 2015 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 August 2014, under a secondary public offering of Spirit AeroSystems, Onex Partners I and certain limited partners sold their remaining 8.4 million shares of Spirit AeroSystems, of which Onex’ portion was approximately 2.2 million shares. The operations of Spirit AeroSystems were presented as discontinued in the consolidated statements of earnings and cash ﬂows for the year ended December 31, 2014. The following tables show the summarized assets and liabilities of discontinued operations at December 31, 2015 and 2014. The balances as at December 31, 2015 represent only those of Krauss- Maffei as Sitel Worldwide was sold in 2015, Onex no longer con- trols Skilled Healthcare Group, and The Warranty Group and Spirit AeroSystems were sold in 2014. The balances as at December 31, 2014 represent those of KraussMaffei, Sitel Worldwide and Skilled Healthcare Group as The Warranty Group and Spirit AeroSys tems were sold in 2014. Cash and cash equivalents Other current assets Long-term investments Intangible assets Goodwill Property, plant and equipment and other non-current assets Current liabilities Non-current liabilities As at December 31, 2015 KraussMaffei Cash and cash equivalents Other current assets Intangible assets Goodwill Property, plant and equipment and other non-current assets Current liabilities Non-current liabilities Net assets of discontinued operations As at December 31, 2014 KraussMaffei Sitel Worldwide Skilled Healthcare Group $ 93 560 − 388 220 197 1,458 (525) (607) $ 9 $ 4 330 – 62 118 121 640 (197) (799) 140 5 20 141 370 680 (115) (430) $ 113 499 327 202 187 1,328 (485) (526) $ 317 Total $ 106 1,030 5 470 479 688 2,778 (837) (1,836) Net assets (liabilities) of discontinued operations $ 326 $ (356) $ 135 $ 105 Onex Corporation December 31, 2015 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 The following tables present the summarized aggregate cash ﬂows from (used in) discontinued operations of KraussMaffei, Sitel Worldwide (up to September 2015), Skilled Healthcare Group (up to February 2015), The Warranty Group (up to August 2014) and Spirit AeroSystems (up to June 2014). For the year ended December 31, 2015 Operating activities Financing activities Investing activities Increase (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, 2014 KraussMaffei Sitel Worldwide Operating activities Financing activities Investing activities Increase (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 $ 70 (78) (25) (33) (16) 142 93 − $ 93 $ 45 1 (44) 2 – 7 9 − 9 $ KraussMaffei Sitel Worldwide Skilled Healthcare Group $ 132 $ 82 $ (64) (40) 28 (8) 93 113 − $ 113 $ (59) (32) (9) – 9 – 35 35 $ 5 – (9) (4) – 4 – – – Skilled Healthcare Group The Warranty Group Spirit AeroSystems $ 53 $ 103 $ 194 (42) (11) – – 4 4 – 4 $ (4) (247) (148) – 148 – 1,126 $ 1,126 (174) (438) (418) (3) 421 – 258 $ 258 Total $ 219 (123) (81) 15 (8) 106 113 35 $ 148 Total $ 465 (297) (765) (597) (19) 722 106 1,384 $ 1,490 124 Onex Corporation December 31, 2015 N O T E S T O C O N S O L I D AT E D F I N A N C I A L S TAT E M E N T S 7. P R O P E R T Y , P L A N T A N D E Q U I P M E N T Property, plant and equipment comprised the following: Land Buildings Machinery and Equipment Construction in Progress At 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) Impairment charge (discontinued operations) Transfer to inventories Transfers from construction in progress Foreign exchange Other $ 609 (13) $ 596 $ 2,544 (720) $ 1,824 $ 4,732 (2,301) $ 2,431 $ 596 $ 1,824 $ 2,431 – (3) − − – (22) (63) 3 (1) (39) − (18) 2 42 (21) (78) (34) 6 (340) (192) 34 − (29) 35 (48) 5 322 (198) (278) (104) 24 (1,124) (33) (2) (1) – 138 (47) (10) Closing net book amount $ 455 $ 1,204 $ 1,118 Total $ 8,139 (3,034) $ 5,105 $ 5,105 553 (223) (356) (138) 31 (1,617) (297) 35 (2) (68) − (118) (3) $ 2,902 $ 5,045 (2,143) $ 2,902 $ 254 – $ 254 $ 254 189 (1) − − 1 (131) (9) − − – (173) (5) – $ 125 $ 125 − $ 125 At December 31, 2014 Cost Accumulated amortization and impairments Net book amount Year ended December 31, 2015 Opening net book amount Additions Disposals Amortization charge Amortization charge (discontinued operations) Acquisition of subsidiaries Disposition of operating companies Transfer to discontinued operations Impairment charge Impairment charge (discontinued operations) Transfers from construction in progress Foreign exchange Other $ 464 (9) $ 455 $ 1,707 (503) $ 1,204 $ 2,749 (1,631) $ 1,118 $ 455 $ 1,204 $ 1,118 $ 125 $ 2,902 – (46) − − 51 (199) (27) (4) – − (14) 2 58 (299) (91) (9) 250 (45) (41) (3) – 26 (41) 1 460 (198) (392) (34) 839 (31) (82) (16) (1) 255 (80) 5 278 (16) − − 114 (5) (9) (1) – (281) (11) – 796 (559) (483) (43) 1,254 (280) (159) (24) (1) − (146) 8 Closing net book amount $ 218 $ 1,010 $ 1,843 $ 194 $ 3,265 At December 31, 2015 Cost Accumulated amortization and impairments Net book amount $ 231 (13) $ 218 $ 1,432 (422) $ 1,010 $ 3,456 (1,613) $ 1,843 $ 195 (1) $ 194 $ 5,314 (2,049) $ 3,265 Onex Corporation December 31, 2015 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 Property, plant and equipment cost and accumulated amortization Details of changes in investments designated at fair value included and impairments have been reduced for components retired dur- in long-term investments are as follows: $ 3,504 309 (3,561) (43) (81) 412 540 120 (20) (82) 175 ing 2015 and 2014. At December 31, 2015, property, plant and equip- ment includes amounts under ﬁnance leases of $101 (2014 – $96) and related accumulated amortization of $48 (2014 – $57). During 2015, Balance – December 31, 2013 borrowing costs of $5 (2014 – $6) were capitalized and are included in Purchase of investments 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: December 31, 2015 December 31, 2014 Investments in joint ventures and associates – at fair value through earnings(a) $ 733 $ 540 Investments in joint ventures and associates – equity-accounted(b) 297 148 Sale of investments Distributions received Transfer to other Onex Partners investments Increase in fair value of investments, net Balance – December 31, 2014 Purchase of investments Sale of investments Distributions received Increase in fair value of investments, net Balance – December 31, 2015 $ 733 Corporate loans held by CLOs and warehouse facilities(c) Long-term investments held by Onex Credit Funds(d) Onex Corporation investments in managed accounts(e) Onex Corporation investments in Onex Credit Funds(f) Other Total AIT 4,992 3,683 In December 2014, the Company acquired a 40% economic interest 675 984 – 182 – – 475 180 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 Partners IV, of which Onex’ share was $45 for a 9% economic interest. The invest- ment in AIT has been designated at fair value through earnings. Additionally, the Company entered into a put and call arrange- ment with the existing ownership of AIT to acquire an additional $ 7,863 $ 5,026 10% economic interest at the same relative value as the Company’s original investment. a) Investments in joint ventures and associates – at fair value through earnings During 2015, AIT completed total distributions of $42, including a purchase price adjustment, of which Onex Partners IV’s Certain investments in joint ventures and associates over which share was $30. Onex’ share of the AIT distributions was $7. There the Company has joint control or signiﬁcant inﬂuence, but not were no distributions completed in 2014 since the late December control, are designated, upon initial recognition, at fair value. The 2014 investment in AIT by Onex Partners IV. 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 the ﬁrst six months of 2014, Allison Transmission complet- Investments in joint ventures and associates include ed secondary offerings to the public of 85.6 million shares of com- investments in AIT (since December 2014), Allison Transmission mon stock and repurchased 8.4 million shares of common stock. Holdings, Inc. (“Allison Transmission”) (up to June 2014), BBAM, The secondary offerings included the full exercise of the over-allot- Cypress Insurance Group (up to July 2014), Ingersoll Tools Group ment options. As part of the offerings and share repurchases, Onex (“ITG”) (since June 2015), Mavis Tire Supply LLC (“Mavis Discount Partners II sold 47.0 million shares of common stock for net pro- Tire”) (since October 2014), Tomkins Limited (“Tomkins”) (up to ceeds of $1,394, of which Onex’ portion was $433, including carried April 2014) and certain Onex Real Estate investments. Investments interest and after the reduction for distributions paid on account of in joint ventures and associates designated at fair value are mea- the MIP. Amounts received related to the carried interest on the 2014 sured with signiﬁcant unobservable inputs (Level 3 of the fair value transactions totalled $89, of which Onex’ portion was $36 and man- hierarchy). The joint ventures and associates also typically have agement’s portion was $53. Amounts paid on account of the MIP ﬁnancing arrangements that restrict their ability to transfer cash totalled $36, which included a share of the proceeds from previous and other assets to the Company. sales and dividends received by Onex. 126 Onex Corporation December 31, 2015 N O T E S T O C O N S O L I D AT E D F I N A N C I A L S TAT E M E N T S After completion of the June 2014 secondary offering Mavis Discount Tire and share repurchase, Onex Partners II continued to own 2.7 mil- In October 2014, the Company acquired a 46% economic interest lion shares of common stock, or approximately 2% in the aggre- in Mavis Discount Tire. Mavis Discount Tire is a leading regional gate, of Allison Transmission’s outstanding common stock. As a tire retailer operating in the tire and light vehicle service indus- result, the Company no longer had the right to appoint members try. The Company’s preferred investment of $102 was made by to Allison Transmission’s board of directors and no longer had a ONCAP III. Onex’ share of the preferred investment was $30 for a signiﬁcant inﬂuence over Allison Transmission. The Company 14% economic interest. In addition, in connection with this trans- then recorded its investment in Allison Transmission within action, the Company’s consolidated results include an additional other long-term investments at fair value through earnings, with $3 equity investment by a third-party investor. changes in fair value recorded in other income (expense), until In August 2015, Mavis Discount Tire acquired Somerset the Company sold its remaining interest in Allison Transmission Tire Service, Inc., one of the largest tire chains in the United States. in September 2014, as described in note 23(e). In conjunction with this transaction, the Company invested addi- The realized gains on the portion of Allison Transmis- tional capital in Mavis Discount Tire. The Company’s investment sion sold by Onex Partners II during 2014, including the Septem- was $48 and was comprised of $27 from ONCAP III and $21 as a ber 2014 sale, totalled $1,056, of which Onex’ share was $329. co-investment from Onex and certain limited partners. Onex’ BBAM total add-on investment in Mavis Discount Tire was $25 and was comprised of $8 through ONCAP III and $17 as a co-investment. During 2015, BBAM completed total distributions of $108 (2014 – In addition, in connection with this transaction, the Company’s $63), of which Onex Partners III’s share was $52 (2014 – $28). Onex’ consolidated results include an additional $2 equity investment by share of the BBAM distributions was $13 (2014 – $7). a third-party investor. Subsequent to the add-on investment, the Company had a 46% economic interest in Mavis Discount Tire, of Cypress Insurance Group and Onex Real Estate which Onex’ portion was a 17% economic interest. During 2014, the Company received proceeds of $46 on the sale of Cypress Insurance Group, of which Onex’ share was $43, and $95 Tomkins on the sale of certain Onex Real Estate investments. The sale of In April 2014, Onex, together with Canada Pension Plan Onex Real Estate investments during 2014 primarily consisted of Investment Board (“CPPIB”), entered into an agreement to sell properties sold in the Urban Housing platform. Gates Corporation (“Gates”), the principal remaining business of ITG Tomkins. As a result, at that time, Onex’ investment in Tomkins was recorded in assets held for sale and was recorded at fair value In June 2015, the Company acquired a 45% economic inter- in the consolidated balance sheets, with changes in fair value est in ITG. Based in Canada and Spain, ITG is a global leader in recognized within other income (expense) in the consolidated the manufacturing of consumable wear components that are statements of earnings, as described in note 23(e). The sale was embedded into agricultural soil preparation and seeding equip- completed in July 2014 for an enterprise value of $5,400. Proceeds ment implements. ITG is also a leading provider of branded man- from the sale to Onex Partners III were $2,001. Onex’ share of ual hand tools to the agricultural, construction and gardening the proceeds was $542, including carried interest and after the end markets in the United States, Iberia and Latin America. The reduction for distributions paid on account of the MIP. Included Company’s investment of $70 for joint control of ITG was made in these proceeds was $27 held in escrow primarily for working by ONCAP III. Onex’ share of the investment was $21 and a 13% capital adjustments, of which Onex’ share was $7. In September economic interest. 2014, $30 was received for amounts held in escrow and an addi- tional 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 residual assets of Tomkins. Through December 2015, Onex Partners III sold the residual assets for proceeds of $45. Onex Corporation December 31, 2015 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 The realized gain on Tomkins, including a prior distribu- The asset portfolio held by the CLOs consists of cash tion, was $1,494, of which Onex’ share was $386. Amounts received and cash equivalents and corporate loans and has been desig- on account of the carried interest totalled $138, including carried nated to be recorded at fair value. The asset portfolio of each CLO interest received on residual assets in 2015. In accordance with the is pledged as collateral for its respective secured notes, subordi- terms of Onex Partners, Onex is allocated 40% of the carried inter- nated notes and/or equity. The CLOs have reinvestment periods est with 60% allocated to management. Onex’ share of the carried ranging from three to four years, during which reinvestment can interest received was $55 and is included in the proceeds to Onex. be made in collateral. Onex is required to consolidate the opera- Management’s share of the carried interest was $83. Amounts paid tions and results of the CLOs, as described in note 1. on account of the MIP totalled $29 for these transactions and have At December 31, 2015 and 2014, the asset portfolio of the been deducted from the proceeds to Onex. CLOs and warehouse facilities comprised the following: Closing Date March 2012 November 2012 March 2013 October 2013 March 2014 June 2014 November 2014 April 2015 July 2015 October 2015 CLO-1(i) CLO-2 CLO-3 CLO-4 CLO-5 CLO-6 CLO-7 CLO-8 CLO-9 CLO-10 Warehouse facilities Total (i) CLO-1 As at December 31, 2015 As at December 31, 2014 $ − 457 461 456 373 881 451 694 694 472 53 $ 319 491 488 484 389 937 488 − − − 87 $ 4,992 $ 3,683 In June 2015, the Company redeemed its ﬁrst CLO denominated in U.S. dollars. CLO-1 was established in March 2012 and its reinvest- ment period ended in March 2015. Upon the redemption of CLO-1, all secured notes were repaid, including accrued interest, and the equity was settled for the residual proceeds in the CLO. Onex received $16 for its remaining investment in the equity of CLO-1. In aggregate, Onex has received $53 of proceeds and distributions related to CLO-1 compared to its original investment of $38. b) Investments in joint ventures and associates – equity-accounted Certain investments in joint ventures and associates over which the Company has joint control or signiﬁcant inﬂuence, but not control, are initially recognized at cost, and the carrying amount of the investment is adjusted to recognize the Company’s share of the proﬁt or loss in the investment, from the date that joint control or signiﬁcant inﬂuence commences until the date that joint control or signiﬁcant inﬂuence ceases. The Company’s share of the proﬁt or loss is recognized in other income (expense) and any distribu- tions received reduce the carrying amount of the investment. At December 31, 2015, the balance consisted primarily of investments in joint ventures and associates held by JELD-WEN, Meridian Aviation and SIG. At December 31, 2014, the balance con- sisted primarily of investments in joint ventures and associates held by JELD-WEN and Meridian Aviation. c) Corporate loans held by CLOs and warehouse facilities A CLO is a leveraged structured vehicle that holds a widely diversiﬁed collateral asset portfolio and is funded through the issuance of collateralized loan instruments in a series of tranches of secured notes, subordinated notes and equity. As of Decem- ber 31, 2015, Onex Credit had established ten CLOs (2014 – seven CLOs), which were funded through the issuance of secured notes, subordinated notes and/or equity in private placement transac- tions in an initial aggregate amount of $5,843 (2014 – $3,810), as described in note 12(c). Onex’ remaining total investment at origi- nal cost in the CLOs at December 31, 2015 was $405 (2014 – $268) and has been made in the most subordinated capital of each respective CLO. During 2015, Onex received distributions from the CLOs of $53 (2014 – $24), excluding investment income earned during the warehouse periods of the CLOs and proceeds from the redemption of CLO-1. 128 Onex Corporation December 31, 2015 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 Warehouse facilities EURO CLO-1 e) Onex Corporation investments in managed accounts Beginning in the second quarter of 2015, Onex, the parent com- In March 2015, Onex established a warehouse facility in anticipation pany, transferred a portion of its cash and cash equivalents to of its ﬁrst CLO denominated in euros, EURO CLO-1. Onex purchased €20 ($21) of subordinated notes to support the warehouse facility and a ﬁnancial institution provided an initial borrowing capacity of up to €47 ($50). The subordinated notes do not have a stated rate of interest, but will receive certain excess available funds after pay- accounts managed by third-party investment managers. At Decem- ber 31, 2015, the fair value of investments managed by third-party investment managers was $1,188, of which $204 was included in short-term investments and $984 was included in long-term invest- ments. Long-term investments consist of securities that include ment of principal, accrued interest and certain expenses upon the money market instruments, federal and municipal debt instru- closing of EURO CLO-1. The warehouse facility matures on the ear- ments, corporate obligations and structured products with maturi- lier of the closing of EURO CLO-1 and September 2016. Onex consol- ties of one year to ﬁve years. Short-term investments consist of idates the warehouse facility for EURO CLO-1, and at December 31, 2015, the asset portfolio included €50 ($53) of corporate loans. liquid investments that include money market instruments and commercial paper with original maturities of three months to one CLO-11 In January 2016, Onex established a warehouse facility in connec- year. The investments are managed to maintain an overall weighted average duration of two years or less. tion with its eleventh CLO denominated in U.S. dollars. Onex pur- f) Onex Corporation investments in Onex Credit Funds chased $10 of subordinated notes to support the warehouse facil- In January 2015, the Company acquired control over the Onex ity’s total return swap (“TRS”). The subordinated notes do not have Credit asset management platform, as discussed in note 2(f ). As a stated rate of interest, but will receive any excess available funds a result, the funds managed by Onex Credit in which Onex, the from the termination of the TRS. The TRS terminates on the earlier parent company, held an investment are now consolidated in the of the closing of CLO-11 and January 2017. consolidated ﬁnancial statements. CLO-8 9. O T H E R N O N - C U R R E N T A S S E T S At December 31, 2014, warehouse facilities consisted of CLO-8, which held $87 of corporate loans in its asset portfolio. CLO-8 Other non-current assets comprised the following: closed in April 2015, with Onex investing $54 for 94% of the most subordinated capital of CLO-8. At December 31, 2015, the asset port- As at December 31 folio of CLO-8 consisted of $694 of corporate loans. d) Long-term investments held by Onex Credit Funds Long-term investments held by Onex Credit Funds began to be consolidated in January 2015, when the Company acquired con- trol over the Onex Credit asset management platform, as dis- cussed in note 2(f ). The investments held by Onex Credit Funds are recorded at fair value and classiﬁed as fair value through earn- ings. At December 31, 2015, Onex’ share of the net investment in the Funds was $472 (2014 – $475). Defined benefit pensions (note 31) Deferred income taxes (note 16) Restricted cash Derivatives Other Total 2015 $ 177 158 138 108 214 2014 $ 64 215 60 14 313 $ 795 $ 666 Onex Corporation December 31, 2015 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 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, 2013 Cost $ 4,789 $ 1,296 $ 3,891 Accumulated amortization and impairments (320) (238) (1,217) $ 658 (490) $ 1,171 (884) $ 511 (3) $ 7,527 (2,832) Net book amount $ 4,469 $ 1,058 $ 2,674 $ 168 $ 287 $ 508 $ 4,695 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 charge Foreign exchange Other $ 4,469 $ 1,058 $ 2,674 $ 168 $ 287 $ 508 $ 4,695 − − − − 1,168 (433) (141) (70) (63) (2) – (1) (15) (12) 243 (23) (14) (11) (45) (1) − − (310) (30) 763 (17) – (3) (38) 7 55 (1) (41) (21) 108 (52) (1) – (4) – 18 – (49) (17) 22 (124) (1) – (5) (1) − − − − − – (4) – (1) – 73 (2) (415) (80) 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) $ 674 (463) $ 500 (370) $ 503 – $ 7,621 (2,552) Net book amount (1) $ 4,928 $ 1,179 $ 3,046 $ 211 $ 130 $ 503 $ 5,069 Year ended December 31, 2015 Opening net book amount $ 4,928 $ 1,179 $ 3,046 $ 211 $ 130 $ 503 $ 5,069 Additions Disposals Amortization charge Amortization charge (discontinued operations) Acquisition of subsidiaries Disposition of operating companies Transfer to discontinued operations Impairment charge Foreign exchange Other − (13) − − 3,226 (118) (202) (45) (97) (2) – – (19) (10) 710 (36) (164) (3) (50) – 3 (9) (410) (22) 1,146 (1) (132) (5) (56) – 74 (2) (51) (7) 46 (12) (6) (2) (2) (8) 12 (1) (86) (10) 590 (2) (25) – 5 3 − − − − − – – (3) (2) 6 89 (12) (566) (49) 2,492 (51) (327) (13) (105) 1 Closing net book amount $ 7,677 $ 1,607 $ 3,560 $ 241 $ 616 $ 504 $ 6,528 At December 31, 2015 Cost $ 7,851 Accumulated amortization and impairments (174) $ 1,879 (272) $ 5,249 (1,689) $ 705 (464) $ 1,054 (438) $ 504 – $ 9,391 (2,863) Net book amount (1) $ 7,677 $ 1,607 $ 3,560 $ 241 $ 616 $ 504 $ 6,528 (1) At December 31, 2015, trademarks and licenses include amounts determined to have indefinite useful lives of $1,339 (2014 – $977). 130 Onex Corporation December 31, 2015 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 $24 (2014 – $25) and sitions. Intangible assets include trademarks, non-competition those acquired separately were $65 (2014 – $48). Included in the agreements, customer relationships, software, contract rights and balance of intangible assets at December 31, 2015 were $109 (2014 – expiration rights obtained in the acquisition of certain facilities. $45) 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, 2014 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, 2015 Accounts Receivable Provision(a) Inventory Provision(b) $ 84 $ 118 40 (10) (3) (10) (20) (6) 47 (21) – (62) (11) (4) Total $ 202 87 (31) (3) (72) (31) (10) $ 75 $ 67 $ 142 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. Onex Corporation December 31, 2015 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 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, 2014 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, 2015 Current portion of provisions Non-current portion of provisions Contingent Consideration(c) Restructuring(d) Insurance(e) Warranty(f) Other(g) Self- $ 36 167 $ 203 10 (86) 213 – – (21) 5 (6) $ 318 (137) $ 181 $ 26 6 $ 32 68 (4) 15 (4) (2) (62) (2) – $ 41 (35) $ 6 $ 47 53 $ 100 227 (1) 62 – – (165) (46) (1) $ 176 (70) $ 106 $ 71 56 $ 127 81 (9) 14 – (49) (74) − (6) $ 84 (50) $ 34 $ 93 42 $ 135 55 (14) 17 (8) (4) (101) – 3 $ 83 (42) $ 41 Total $ 273 324 $ 597 441 (114) 321 (12) (55) (423) (43) (10) $ 702 (334) $ 368 c) The provision for contingent consideration relates to acqui- sitions completed by the Company. At December 31, 2015, the e) Self-insurance provisions are established by the operating companies for automobile, workers’ compensation, healthcare estimated fair value of contingent consideration liability was pri- coverage, general liability, professional liability and other claims. marily related to the contingent consideration associated with Care- Provisions are established for claims based on an assessment of stream Health and the acquisition of SIG, as discussed in note 2(b). actual claims and claims incurred but not reported. The reserves d) Restructuring provisions are typically to provide for the costs of facility consolidations and workforce reductions incurred at the operating companies. may be established based on consultation with third-party inde- pendent actuaries using actuarial principles and assumptions that consider a number of factors, including historical claim payment patterns and changes in case reserves, and the assumed rate of The operating companies record restructuring provisions inﬂation in healthcare costs and property damage repairs. relating to employee terminations, contractual lease obligations and other exit costs when the liability is incurred. The recognition of these provisions requires management to make certain judge- f) Warranty provisions are established by the operating compa- nies for warranties offered on the sale of products or services. ments regarding the nature, timing and amounts associated with Warranty provisions are established to provide for future warranty the planned restructuring activities, including estimating sublease costs based on management’s best estimate of probable claims income and the net recovery from equipment to be disposed of. At under these warranties. 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 g) Other includes legal, transition and integration, asset retirement and other provisions. Transition and integration provisions are operating companies between 2016 and 2021. typically to provide for the costs of transitioning the activities of an operating company from a prior parent company upon acquisition The closing balance of restructuring provisions comprised the and to integrate new acquisitions at the operating companies. following: As at December 31 Employee termination costs Lease and other contractual obligations Facility exit costs and other Total restructuring provisions 2015 $ 34 4 3 $ 41 2014 $ 23 8 1 $ 32 132 Onex Corporation December 31, 2015 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, comprised the following: As at December 31 Carestream Health(a) Celestica(b) CLOs and warehouse facilities(c) Emerald Expositions(d) Flushing Town Center(e) Jack’s(f) JELD-WEN(g) KraussMaffei(h) Meridian Aviation(i) ResCare(j) Schumacher(k) sgsco(l) SIG(m) Sitel Worldwide(n) Survitec(o) Tropicana Las Vegas(p) USI(q) York(r) Revolving credit facility and term loans due 2018 and 2019 Revolving credit facility and term loan due 2020 Secured notes and subordinated notes due 2023 and 2027 Revolving credit facility and term loan due 2018 and 2020 Senior notes due 2021 Mezzanine loans due 2018 Senior construction loan due 2020 Mortgage loan due 2016 Mezzanine A and B loans due 2016 Mezzanine loan due 2016 Senior secured revolving credit facility and term loan due 2020 and 2022 Promissory note due 2016 Revolving credit facility and term loans due 2019 to 2022 Other Senior secured notes due 2020 Other Revolving credit facility due 2015 Senior debt loan and senior Yen loan due 2026 Senior secured revolving credit facility and term loan due 2019 Other Senior secured revolving credit facility and term loans due 2020 to 2023 Other Senior secured revolving credit facility and term loan due 2017 and 2019 Senior notes due 2020 Senior secured revolving credit facility and term loans due 2021 and 2022 Senior notes due 2023 Revolving credit facility and term loan due 2016 and 2017 Senior unsecured notes due 2018 Senior secured notes due 2017 Mandatorily redeemable preferred shares Senior secured revolving and acquisition facilities and term loans due 2021 and 2022 Revolving credit facilities due 2018 Senior secured revolving credit facility and term loans 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 ONCAP operating companies(s) Revolving credit facilities and term loans due 2016 to 2020 Subordinated notes due 2017 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 2015 $ 2,012 263 4,899 543 200 743 77 47 – – – 124 227 54 281 1,237 38 1,275 − − − − − – 531 2 533 534 6 540 385 210 595 2,256 766 3,022 − − − − − 425 – 1,340 630 9 1,979 650 302 952 783 329 9 1,121 4 (395) 18,373 (319) 18,054 (411) $ 17,643 2014 $ 2,133 – 3,431 568 200 768 − 46 195 70 36 347 – – – 768 48 816 354 2 356 50 179 229 461 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 Onex Corporation December 31, 2015 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 Onex Corporation does not guarantee the debt of its operating In connection with the credit facility, the company has companies, nor are there any cross-guarantees between operating entered into a series of interest rate swap agreements that swap companies. the variable rate portion for ﬁxed rates through December 2017. The ﬁnancing arrangements for each operating com- The agreements have an initial notional amount of $1,010, reduc- pany typically contain certain restrictive covenants, which may ing to $920 during the term of the agreements. include limitations or prohibitions on additional indebtedness, At December 31, 2015, the ﬁrst lien term loan with $1,553 payment of cash dividends, redemption of capital, capital spend- (2014 – $1,673) outstanding was recorded net of the unamortized ing, making of investments and acquisitions and sales of assets. discount of $15 (2014 – $19). At December 31, 2015, the second lien The ﬁnancing arrangements may also require the redemption of term loan with $480 (2014 – $487) outstanding was recorded net indebtedness in the event of a change of control of an operating of the unamortized discount of $6 (2014 – $8). At December 31, company. In addition, certain ﬁnancial covenants must be met by 2015 and 2014, no amounts were outstanding under the revolving those operating companies that have outstanding debt. credit facility. Future changes in business conditions of an operating company may result in non-compliance with certain covenants by b) Celestica that company. No adjustments to the carrying amount or classi ﬁ- Celestica had a $400 revolving credit facility that was scheduled cation of assets or liabilities of any operating company have been to mature in January 2015. In October 2014, Celestica amended made in the consolidated ﬁnancial statements with respect to any its revolving credit facility to reduce the credit limit to $300 and possible non-compliance. extend the maturity from January 2015 to October 2018. The revolv- ing credit facility has an accordion feature that allows the com- The annual minimum repayment requirements for the next ﬁve pany to increase the credit limit by an additional $150 upon satis- years and thereafter on consolidated long-term debt are as follows: faction of certain terms and conditions. The facility has restrictive 2016 2017 2018 2019 2020 Thereafter Total a) Carestream Health $ 411 277 373 4,369 1,058 11,885 $ 18,373 covenants, including those relating to debt incurrence, the sale of assets and a change of control, and also contains ﬁnancial cove- nants that require Celestica to maintain certain ﬁnancial ratios. Celestica has pledged certain assets as security for borrowings under its revolving credit facility. Celestica also has uncommitted bank overdraft facilities available for intraday and overnight operating requirements that totalled $70 (2014 – $70) at December 31, 2015. In June 2015, Celestica repurchased and cancelled approximately 26.3 million of its SVS, representing approximately 15% of the total issued and outstanding Multiple Voting Shares Carestream Health’s long-term debt consists of a $1,850 ﬁrst- and SVS of the company at December 31, 2014. The purchase price lien term loan, a $500 second lien term loan and a $150 revolv- per share was $13.30 for a total cost of $350. The transaction was ing credit facility. The ﬁrst lien term loan bears interest at LIBOR ﬁnanced using a combination of the net proceeds of a newly issued (subject to a ﬂoor of 1.00%) plus a margin of 4.00% and matures $250 term loan, $25 drawn on the company’s existing revolving in June 2019. The offering price was 98.50% of par. The second credit facility and cash on hand. Celestica amended its existing lien term loan bears interest at LIBOR (subject to a ﬂoor of 1.00%) revolving credit facility to add the term loan as a component under plus a margin of 8.50% and matures in December 2019. The offer- such facility and to extend its maturity to May 2020. The term loan ing price was 98.00% of par. The ﬁrst and second lien term loans bears interest at LIBOR plus a margin of up to 3.00%, depending on include optional redemption provisions at a range of redemp- the company’s leverage ratio. As a result of the repurchase, Onex’ tion prices plus accrued and unpaid interest. The revolving credit economic and voting interests at that time increased to 13% and facility bears interest at LIBOR (subject to a ﬂoor of 1.00%) plus a 79%, respectively. margin of 4.00% or an alternative base rate plus a margin of 3.00% At December 31, 2015, $25 (2014 – nil) was outstanding and matures in June 2018. Substantially all of Carestream Health’s under the revolving credit facility and $238 was outstanding under assets are pledged as collateral under the credit facility. the term loan. Celestica had issued $27 (2014 – $29) of letters of credit under its revolving credit facility at December 31, 2015. 134 Onex Corporation December 31, 2015 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) CLOs and warehouse facilities d) Emerald Expositions A CLO is a leveraged structured vehicle that holds a widely diver- Emerald Expositions’ credit facility consisted of a $430 term loan siﬁed collateral asset portfolio and is funded through the issuance and a $90 revolving credit facility. The offering price of the term of collateralized loan instruments in a series of tranches of secured loan was 99.00% of par. Borrowings under the term loan bore notes, subordinated notes and equity. As of December 31, 2015, Onex interest at LIBOR (subject to a ﬂoor of 1.25%) plus a margin of Credit had established ten CLOs (2014 – seven CLOs), which had 4.25%. The term loan requires quarterly repayments, but can be secured notes, subordinated notes and equity outstanding in the repaid in whole or in part without premium or penalty at any time aggregate amount of $5,511 (2014 – $3,806) as follows: before maturity in June 2020. The revolving credit facility bears CLO-1 CLO-2 CLO-3 CLO-4 CLO-5 CLO-6 CLO-7 CLO-8 CLO-9 Closing Date March 2012 November 2012 March 2013 October 2013 March 2014 June 2014 November 2014 April 2015 July 2015 CLO-10 October 2015 Onex’ investment at notional amounts As at December 31, 2015 As at December 31, 2014 $ – 515 512 514 420 1,002 514 764 758 512 5,511 (418) $ 327 517 512 514 420 1,002 514 – – – 3,806 (271) Total $ 5,093 $ 3,535 interest at LIBOR plus a margin of 4.25% and matures in June 2018. Substantially all of Emerald Expositions’ assets are pledged as collateral under the credit facility. In January 2014, Emerald Expositions amended its credit facility to increase its term loan by $200 to partially fund an acquisition, as described in note 2(h). In July 2014, Emerald Expositions further amended its credit facility to reduce the rate at which borrowings under its term loan bear interest to LIBOR (subject to a ﬂoor of 1.00%) plus a margin of 3.75%. The amendment resulted in a total interest rate reduction of 0.75% on the company’s term loan. At December 31, 2015, the term loan with $550 (2014 – $577) outstanding, net of the unamortized discount of $7 (2014 – $9), and no amounts (2014 – nil) were outstanding under the revolving credit facility. In addition to the above credit facility, Emerald Expo- sitions has senior notes with an aggregate principal amount of $200. The senior notes bear interest at 9.00% and mature in June The secured notes and subordinated notes bear interest at a rate 2021. Interest is payable semi-annually. The senior notes may be of LIBOR plus a margin and mature between November 2023 and redeemed by the company at any time at various premiums above October 2027. The secured notes, subordinated notes and equity of face value. the CLOs are designated at fair value through net earnings upon ini- At December 31, 2015, senior notes of $200 (2014 – $200) tial recognition. At December 31, 2015, the fair value of the secured were outstanding. notes, subordinated notes and equity held by investors other than Onex was $4,870 (2014 – $3,431). e) Flushing Town Center The notes of CLOs are secured by, and only have recourse Flushing Town Center’s long-term debt initially consisted of its to, the assets of each respective CLO. The notes are subject to senior construction loan and mezzanine loans associated with the redemption provisions, including mandatory redemption if cer- construction of the retail space, parking structures and the ﬁrst tain coverage tests are not met by each respective CLO. Optional phase of condominiums at the project. The loans bore interest at redemption of the notes is available at certain periods and option- LIBOR plus a margin that ranged between 1.55% and 3.65%. al repricing of the notes is available subject to certain customary In May 2014, Flushing Town Center entered into new terms and conditions being met by each respective CLO. credit facilities with third-party lenders, consisting of a $195 mort- In March 2015, Onex established a warehouse facility in gage loan and $70 of mezzanine loans. Borrowings under the mort- anticipation of its ﬁrst CLO denominated in euros, EURO CLO-1. Onex purchased €20 ($21) of subordinated notes to support the warehouse facility and a ﬁnancial institution provided an initial borrowing capacity of up to €47 ($50), as described in note 8(c). At December 31, 2015, €27 ($29) was outstanding under the ware- house facility for EURO CLO-1. gage loan bore interest at LIBOR (subject to a ﬂoor of 0.15%) plus 2.25%. The mezzanine loans consisted of two loans: (i) $20 bear- ing interest at LIBOR (subject to a ﬂoor of 0.15%) plus 6.25% (“mez- zanine A loan”) and (ii) $50 bearing interest at LIBOR (subject to a ﬂoor of 0.15%) plus 10.72% (“mezzanine B loan”). The mortgage and mezzanine loans were due in June 2016 and had three one-year In June 2015, the Company redeemed its ﬁrst CLO extension options. The majority of Flushing Town Center’s assets, denominated in U.S. dollars, as described in note 8(c). with the exception of land that was under pre-development, were Onex Corporation December 31, 2015 135 N O T E S T O C O N S O L I D AT E D F I N A N C I A L S TAT E M E N T S pledged as collateral under the credit facilities. The proceeds from f) Jack’s the new credit facilities, along with a $95 equity investment by the Onex Partners IV acquired Jack’s in July 2015, as described in Company, were used to repay the third-party lenders of the com- note 2(c). In July 2015, Jack’s entered into a senior secured credit pany’s existing senior construction loan. Onex’ share of the equity facility consisting of a $230 term loan and a $30 revolving credit investment was $84. facility. Borrowings under the term loan bear interest at LIBOR At December 31, 2014, $195 was outstanding under the (subject to a ﬂoor of 1.00%) plus a margin of 4.75%. The term mortgage loan, $20 was outstanding under the mezzanine A loan loan requires quarterly principal repayments, and can be repaid and $50 was outstanding under the mezzanine B loan. in whole or in part at any time before maturity in July 2022. The In July 2015, Onex Real Estate Partners sold substantially revolving credit facility bears interest at LIBOR plus a margin of all of the retail space and adjoining parking structures of Flushing 4.75% and matures in July 2020. Town Center, as described in note 22(b). In connection with this At December 31, 2015, $230 was outstanding under the transaction, the buyer in the transaction assumed the company’s term loan and no amounts were outstanding under the revolving liabilities under its mortgage and mezzanine loans. credit facility. The term loan is recorded net of the unamortized In July 2015, Flushing Town Center entered into new discount of $3. credit facilities with third-party lenders, consisting of a $152 mort- Substantially all of Jack’s assets, excluding speciﬁed gage loan and $288 of mezzanine loans, in connection with the real property owned by Jack’s, are pledged as collateral under the construction of the second phase of condominiums at the project. senior secured credit facility. Borrowings under the mortgage loan bear interest at LIBOR (sub- In July 2015, Jack’s entered into a $195 promissory note ject to a ﬂoor of 0.25%) plus a margin of 3.30%. The mezzanine with Onex Partners IV, as described in note 2(c). The promissory loans consist of a $138 loan bearing interest at LIBOR (subject to note bears interest at LIBOR plus a margin ranging from 2.00% to a ﬂoor of 0.25%) plus a margin of 11.00% and a $150 loan bear- 3.50% and matures in June 2016. ing interest at LIBOR (subject to a ﬂoor of 0.25%) plus a margin During 2015, Jack’s repaid $143 of the promissory note, of 8.00%. The new credit facilities mature in July 2018 and have including accrued interest, with net proceeds from sale-leaseback two one-year extension options. The credit facilities have custom- transactions completed for certain of its fee-owned restaurant ary ﬁnancial maintenance covenants and include a guarantee properties. Onex’ share of the repayment was $41. At December 31, which is limited to the required minimum net worth and liquidity 2015, the amount outstanding under the promissory note was $54, reserves being maintained for the beneﬁt of the third-party lend- of which Onex’ share was $16. ers. Draws from the credit facilities are made over time as project In January 2016, Jack’s repaid an additional $23 of the construction costs are incurred. promissory note, including accrued interest, with net proceeds At December 31, 2015, no amounts were outstand- from a sale-leaseback transaction completed for certain of its fee- ing under the mortgage loan and mezzanine loans of $77 were owned restaurant properties. Onex’ share of the repayment was $7. outstanding. After giving effect to the repayment, the amount outstanding under The second phase of condominiums being constructed the promissory note was $31, of which Onex’ share was $9. at Flushing Town Center is pledged as collateral under the new credit facilities. In addition, at December 31, 2015, the company’s long- term debt included $47 (2014 – $46) and nil (2014 – $36) of prin- cipal plus accrued interest outstanding under the existing senior construction loan and mezzanine loans, respectively, all of which were held by the Company. 136 Onex Corporation December 31, 2015 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 g) JELD-WEN In connection with the senior secured credit facility, JELD-WEN’s senior secured credit facility consisted of a $300 the company has entered into a series of interest rate swap agree- revolving credit facility and a $100 term loan maturing in April ments that swap the variable rate portion for ﬁxed rates through 2016. The revolving credit facility bore interest at either the September 2019. The agreements have an initial notional amount Eurodollar rate or a base rate determined as the higher of the of $273, increasing to $972 during the term of the agreements. overnight Federal Funds rate plus 0.50%, the Eurodollar rate plus At December 31, 2015, term loans with $1,246 (2014 – 1.00% or the prime rate. A margin was added to the Eurodollar $775) outstanding were recorded net of the unamortized discount and base rate that varied based on JELD-WEN’s consolidated of $9 (2014 – $7). JELD-WEN had no amounts outstanding under its leverage ratio; base rate loan margins ranged from 1.50% to 3.00% revolving credit facility at December 31, 2015 and 2014. The amount and Eurodollar-based loan margins ranged from 2.50% to 4.00%. available under the revolving credit facility was reduced by $36 In addition, JELD-WEN paid a commitment fee ranging from (2014 – $39) of letters of credit outstanding at December 31, 2015. 0.45% to 0.75% on the unused portion of the facility and a letter Substantially all of JELD-WEN’s North American assets of credit fee ranging from 2.50% to 4.00% on the face amount of are pledged as collateral under the credit facility. outstanding letters of credit. The term loan bore interest at the In addition, in October 2014, the company redeemed Eurodollar rate plus a margin of up to 3.50% or a base rate plus a its senior secured notes with proceeds from its new credit facility. margin of up to 2.50%, and required quarterly amortization pay- The senior secured notes had an aggregate principal amount of ments. Borrowings under the senior secured credit facility were $460. The senior secured notes bore interest at 12.25% and were secured by ﬁrst priority liens on substantially all of the present due in October 2017. and future assets of JELD-WEN and its subsidiary guarantors. As a result of the redemption of its senior secured notes, In October 2014, JELD-WEN entered into a new credit JELD-WEN recognized a charge of $50 during 2014, which is includ- facility consisting of a $775 term loan and a $300 revolving cred- ed in interest expense in the consolidated statements of earnings. it facility. The offering price of the term loan was 99.00% of par. Borrowings under the term loan bear interest at LIBOR (subject h) KraussMaffei 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 KraussMaffei’s senior secured notes have an aggregate prin- cipal amount of €325. The senior secured notes bear interest at a ﬁxed annual rate of 8.75% and mature in December 2020. The of between 1.50% and 2.00% based on the amount drawn under senior secured notes may be redeemed by the company on or 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. The after December 2015 at various premiums above face value. At December 31, 2015, €260 ($282) (2014 – €293 ($354)) was out- standing under the senior secured notes. proceeds from the credit facilities were primarily used to repay JELD-WEN’s former senior secured credit facility and to redeem all of the outstanding senior secured notes. In July 2015, JELD-WEN increased its borrowings under its existing credit facility with an incremental $480 term loan. The proceeds were used to fund a distribution of $432 to shareholders with the balance to be used to fund future add-on acquisitions. The offering price of the incremental term loan was 99.50% of par. The In addition, the company has a revolving credit facility with a €100 credit limit which matures in December 2017. Prior to an amendment in October 2014, the revolving credit facility could be used for revolving cash advances of up to €25 as well as for letters of guarantee and credit. Subsequent to the amendment in October 2014, the revolving credit facility can be used for revolv- ing cash advances of up to €50 as well as for letters of guarantee and credit. Revolving loans drawn on the facility bear interest at incremental term loan bears interest at LIBOR (subject to a ﬂoor of LIBOR or EURIBOR plus a margin of 5.00% or an alternate base 1.00%) plus a margin of up to 4.00%, depending on the company’s rate plus a margin of 4.00%. Letters of guarantee and credit drawn ratio, and requires quarterly principal repayments beginning in on the facility bear interest at a ﬁxed rate of 5.125%. In addition, December 2015. The incremental term loan has no ﬁnancial main- KraussMaffei pays a commitment fee of 0.50% on the unused por- tenance covenants and matures in July 2022. The Company’s por- tion of the revolving credit facility and certain fees for letters of tion of the distribution to shareholders was $359. Onex’ portion of guarantee and credit issued. the distribution was $89, of which $51 related to Onex’ investment through Onex Partners III and $38 related to Onex’ co-investment. The remaining balance was primarily distributed to third-party shareholders and management of JELD-WEN. At December 31, 2015, €1 ($1) (2014 – nil) was outstanding under the revolving credit facility. The amount available under the revolving credit facility was reduced by €34 ($36) (2014 – €49 ($60)) of letters of guarantee and credit outstanding at Decem ber 31, 2015. Substantially all of KraussMaffei’s assets are pledged as collateral under its senior secured notes and revolving credit facility. Onex Corporation December 31, 2015 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 In January 2016, the Company entered into an agreement to sell j) ResCare KraussMaffei, as described in note 6(a). As a result, the opera- ResCare’s senior secured credit facility initially consisted of a $200 tions of KraussMaffei have been presented as discontinued in the revolving credit facility and a $175 term loan, which was due in consolidated statements of earnings and cash ﬂows for the year April 2017. The senior secured credit facility bore interest at LIBOR ended December 31, 2015, and the prior year has been restated to plus a margin of 2.75%. The term loan required quarterly prin- report the results of KraussMaffei as discontinued on a compara- cipal repayments of $2. The required quarterly principal repay- tive basis. The consolidated long-term debt excludes long-term ments increased throughout the term until they reached $7 in debt of KraussMaffei, which has been included in liabilities held 2015. Substantially all of ResCare’s assets were pledged as collat- by discontinued operations in the consolidated balance sheets as eral under the senior secured credit facility. at December 31, 2015. i) Meridian Aviation In April 2014, ResCare entered into a new $650 senior secured credit facility, which matures in April 2019. The senior secured credit facility consists of a $250 revolving credit facility, In December 2014, Meridian Aviation entered into loan agree- a $200 term loan and a $200 delayed draw term loan. The senior ments in connection with the purchase of an aircraft, which was secured credit facility bears interest at LIBOR plus a margin of included in inventory at December 31, 2014 as the aircraft was 2.25%. The term loan requires quarterly principal repayments of under contract to be sold in the ﬁrst quarter of 2015. The loan $3 beginning in September 2014. The required quarterly princi- agreements consisted of a $138 senior debt loan, a $42 (¥4,937) pal repayments increase throughout the term until they reach $6 senior Yen loan and a $50 revolving credit facility. The senior debt in 2018. The proceeds from the new senior secured credit facility loan and senior Yen loan were due in December 2026 and were were used to repay ResCare’s former senior secured credit facility, secured by the aircraft. Borrowings under the revolving credit fund a $130 distribution to shareholders, pay fees and expenses facility matured in April 2015 and were guaranteed and reimburs- associated with the transaction and for general corporate purpos- able by capital calls from the limited partners of Onex Partners III. es. The Company’s portion of the distribution to shareholders was At December 31, 2014, $138 was outstanding under the $120, of which Onex’ portion was $25. senior debt loan, $41 (¥4,937) was outstanding under the senior In March 2015, ResCare increased its term loan by an Yen loan and $50 was outstanding under the revolving credit facil- additional $105 to fund a distribution to shareholders. The $105 ity. During 2015, Meridian Aviation sold the aircraft and repaid incremental term loan was combined with the existing $200 term all borrowings under the senior debt loan, senior Yen loan and loan and $200 delayed draw term loan. The newly combined term revolving credit facility. loan bears interest at LIBOR plus a margin of 2.75% and requires In January 2016, Meridian Aviation entered into a $100 quarterly principal repayments of $6 beginning in March 2015. revolving credit facility. The revolving credit facility bears interest The required quarterly principal repayments increase throughout at LIBOR plus a margin of 1.5% and matures in January 2017. The the term until they reach $16 in 2018. The entire facility matures borrowings under the revolving credit facility are guaranteed and in April 2019. The Company’s portion of the distribution to share- reimbursable by capital calls from the limited partners of Onex holders was $97, of which Onex’ portion was $20. The remaining Partners III. balance was primarily distributed to management of ResCare. At December 31, 2015, $60 (2014 – $70) and $472 (2014 – $392) were outstanding under the revolving credit facility and the combined term loan, respectively. The combined term loan is recorded net of the unamortized discount of $1 (2014 – $1). Substantially all of ResCare’s assets are pledged as col- lateral under the senior secured credit facility. 138 Onex Corporation December 31, 2015 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, ResCare drew on its entire $200 delayed draw l) sgsco term loan and a portion of its revolving credit facility to redeem sgsco’s credit agreement consists of a $400 senior secured term all of the outstanding senior subordinated notes and pay accrued loan and a $75 senior secured revolving credit facility. The senior interest, fees, closing costs and other third-party expenses. The secured term loan matures in October 2019 and the senior secured company’s senior subordinated notes had an aggregate principal revolving credit facility matures in October 2017. Borrowings amount of $200. The senior secured notes bore interest at 10.75% under the credit agreement bear interest at LIBOR (subject to a and were due in January 2019. As a result of the redemption of its ﬂoor of 1.00%) plus a margin of up to 3.25% or a base rate plus senior subordinated notes, ResCare recognized a charge of $15 a margin of up to 2.25%, depending on the company’s leverage during the fourth quarter of 2014, which is included in interest ratio. In addition, sgsco pays a commitment fee of 0.50% on the expense in the consolidated statements of earnings. unused portion of the senior secured revolving credit facility k) Schumacher and certain fees for letters of credit issued. The credit agreement requires mandatory prepayment of certain excess cash ﬂows and Onex Partners IV acquired Schumacher in late July 2015, as cash proceeds. described in note 2(d). In late July 2015, Schumacher entered into In connection with the credit agreement, sgsco entered ﬁrst and second lien senior secured credit facilities. In connection into an interest rate swap agreement that swapped the variable with the August 2015 acquisition of HPP (note 2(d)), Schumacher rate portion for a ﬁxed rate through December 2017. The new amended its senior secured facilities to increase its ﬁrst lien term interest rate swap agreement has an initial notional amount of loan by $120 to $400, its ﬁrst lien revolving loan by $25 to $75 and $230, reducing to $74 during the term of the agreement. its second lien term loan by $30 to $135. In November 2015, in connection with an acquisition, In September 2015, Schumacher completed syndica- sgsco borrowed an additional $15 under the same terms and con- tion of its senior secured credit facilities, resulting in an offering ditions as its existing senior secured term loan. This additional price of the ﬁrst lien term loan of 99.25% of par. Borrowings under borrowing resulted in an amendment to the senior secured term the ﬁrst lien term loan bear interest at LIBOR (subject to a ﬂoor loan reducing the principal amount to $385, representing the bal- of 1.00%) plus a margin of up to 4.00%. The ﬁrst lien term loan ance outstanding at the time. matures in July 2022 and requires quarterly principal repayments At December 31, 2015, $385 and nil (2014 – $375 and nil) beginning in December 2015. Borrowings under the ﬁrst lien were outstanding under the senior secured term loan and senior revolving loan bear interest at LIBOR (subject to a ﬂoor of zero %) secured revolving credit facility, respectively. plus a margin of up to 4.00% and mature in July 2020. The offering Substantially all of sgsco’s assets are pledged as collat- price of the second lien term loan was 99.00% of par. Borrowings eral under the credit agreement. under the second lien term loan bear interest at LIBOR (subject to In addition, sgsco has senior notes with an aggregate a ﬂoor of 1.00%) plus 8.50%. The second lien term loan is not sub- principal amount of $210. The senior notes bear interest at 8.38% ject to amortization and matures in July 2023. and mature in October 2020. Interest is payable semi-annually. At December 31, 2015, $399 and $135 were outstanding The senior notes may be redeemed by the company at any time at under the ﬁrst and second lien term loans, respectively, and no various premiums above face value. amounts were outstanding under the ﬁrst lien revolving loan. At December 31, 2015, senior notes of $210 (2014 – $210) Borrowings under the senior secured facility are secured were outstanding. by liens on substantially all of Schumacher’s assets. Onex Corporation December 31, 2015 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 m) SIG Approximately 80% of SIG’s assets are pledged as collat- Onex Partners IV and certain limited partners acquired SIG in eral under the senior secured credit facility and senior notes. March 2015, as described in note 2(b). In March 2015, SIG entered into a senior secured credit facility consisting of a €1,050 euro- denominated term loan, a $1,225 U.S. dollar-denominated term loan and a multi-currency €300 revolving credit facil- ity. Borrowings under the term loans initially bore interest at n) Sitel Worldwide Sitel Worldwide’s credit facility consisted of a $675 term loan maturing in January 2017 and a $61 revolving credit facility matur- ing in January 2016. Borrowings under the term loan and revolving EURIBOR or LIBOR (subject to a ﬂoor of 1.00%) plus a margin of credit facility bore interest at a rate of LIBOR plus a margin of up 4.25%. The term loans require quarterly principal repayments and to 7.25% or prime plus a margin of 6.25%. At December 31, 2014, can be repaid in whole or in part with a 1.00% premium up to and $223 and $32 were outstanding under the term loan and revolving including May 2016. Subsequent repayments can be made without credit facility, respectively. premium or penalty at any time before maturity in March 2022. The company’s senior unsecured notes had an aggre- The revolving credit facility bears interest at EURIBOR or LIBOR gate principal amount of $300. The senior unsecured notes bore plus a margin of 4.00% and matures in March 2021. interest at 11.50% and were due in April 2018. At December 31, In May 2015, SIG amended its senior secured credit 2014, the senior unsecured notes with $300 outstanding were facility to reduce the rate at which borrowings under its euro- and recorded net of the unamortized discount of $4 and embedded U.S. dollar-denominated term loans bear interest to EURIBOR or derivative of $4 associated with the senior unsecured notes. LIBOR (subject to a ﬂoor of 1.00%) plus a margin of 3.25%. The The company’s senior secured notes had an aggregate amendment resulted in a total interest rate reduction of 100 basis principal amount of $200. The senior secured notes bore interest points on the company’s term loans. As a result of the amend- at 11.00% and were due in April 2017. At December 31, 2014, the ment, SIG incurred $26 in fees during the second quarter of 2015, senior secured notes with $200 outstanding were recorded net of representing the payment of the soft call protection on the term the unamortized discount of $5 and the embedded derivative of loans and expenses associated with the amendment. The fees will $2 associated with the senior secured notes. be amortized over the term of the senior secured credit facility. Included in long-term debt at December 31, 2014 were In connection with the senior secured credit facility, $228 of mandatorily redeemable Class B, C and D preferred shares, the company has entered into a series of interest rate swap agree- of which $195 was held by Onex. The mandatorily redeemable ments that swap the variable rate portion for ﬁxed rates through December 2019. The agreements have notional amounts of €505 for the euro-denominated term loan and $690 for the U.S. dollar- preferred shares accrued annual dividends at a rate of 12.00% to 16.00% and were redeemable at the option of the company on or before July 2018. Outstanding amounts related to preferred shares denominated term loan. at December 31, 2014 included accrued dividends. At December 31, 2015, the euro-denominated term loan with €1,042 ($1,128) outstanding was recorded net of an unam- ortized discount of €5 ($5) and the U.S. dollar-denominated term loan with $1,216 outstanding was recorded net of an unam- ortized discount of $5. In addition, the term loans are recorded net of unamortized embedded derivatives of €72 ($78), which were recognized at the inception of the term loans. There were no amounts drawn under the revolving credit facility at December 31, 2015. The amount available under the revolving credit facility was reduced by €4 ($4) due to an ancillary facility outstanding at December 31, 2015. In February 2015, SIG issued €675 in aggregate princi- pal amount of 7.75% senior notes in connection with the acquisi- The Company no longer consolidates Sitel Worldwide as a result of the September 2015 sale, as described in note 6(b). o) Survitec Onex Partners IV acquired Survitec in March 2015, as described in note 2(a). In March 2015, Survitec entered into a senior secured credit facility consisting of a £125 pound sterling-denominated term loan, a €175 euro-denominated term loan, a £30 revolving facility and a £30 acquisition facility. In September 2015, Survitec entered into an incremen- tal £15 pound sterling-denominated term loan in connection with the acquisition of SCI, as described in note 2(a). Borrowings under the pound sterling- and euro-denominated term loans bear inter- tion. The amount raised was held in escrow until the closing of the est at LIBOR plus a margin of 4.75% and EURIBOR plus a margin acquisition. Interest is payable semi-annually beginning in August of 4.25%, respectively. The term loans can be repaid in whole or in 2015. The senior notes may be redeemed by the company at vari- part without premium or penalty at any time before maturity in ous premiums above face value at any time before February 2020 March 2022. The revolving and acquisition facilities bear interest and mature in February 2023. At December 31, 2015, senior notes of €675 ($733) were outstanding and were recorded together with an unamortized embedded derivative of €30 ($33), which was rec- ognized at the inception of the senior notes. 140 Onex Corporation December 31, 2015 at LIBOR plus a margin of 4.00% and mature in March 2021. 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 connection with the senior secured credit facility, In August 2015, USI further amended its senior secured the company has entered into a series of interest rate swap agree- credit facility to add an incremental $230 senior secured term ments that swap the variable rate portion for ﬁxed rates for 85% loan. The proceeds were used primarily to fund a distribution of the initial principal amounts of the pound sterling- and euro- of $230 to shareholders. The Company’s portion of the distribu- denominated term loans through June 2019, decreasing to 50% of tion to shareholders was $181. Onex’ portion of the distribution the initial principal amounts through June 2020. was $51, of which $38 related to Onex’ investment through Onex At December 31, 2015, £140 ($206) was outstanding under the pound sterling-denominated term loans, €175 ($191) was outstanding under the euro-denominated term loan, £5 ($7) Partners III and $13 related to Onex’ co-investment. The balance of the proceeds was primarily distributed to employees of USI. The offering price of the incremental senior secured term loan was outstanding under the revolving facility and £14 ($21) was was 99.03% of par. The terms and conditions of the amendments outstanding under the acquisition facility. The amount available in 2014 and 2015, including interest rates and maturity date, are under the revolving facility was reduced by £20 ($29) of letters of consistent with the existing senior secured term loan. The senior guarantee outstanding at December 31, 2015. secured term loans require quarterly instalments of $3. Substantially all of Survitec’s assets are pledged as col- In connection with the credit agreement, USI entered lateral under the senior secured credit facility. into an interest rate swap agreement that swapped the variable rate portion for a ﬁxed rate on a notional amount of $525 through p) Tropicana Las Vegas December 2017. Tropicana Las Vegas’ credit agreement consisted of a $50 revolv- At December 31, 2015, $1,346 and nil (2014 – $1,129 and ing credit facility that bore interest at a ﬁxed annual rate of 4.00%, $20) were outstanding under the senior secured term loans and a $5 revolving credit facility that bore interest at a ﬁxed annual senior secured revolving credit facility, respectively. The senior rate of 5.00% and a $10 revolving credit facility that bore interest secured term loans are recorded net of the unamortized discount at a ﬁxed annual rate of 6.00%. The borrowings under the credit of $6 (2014 – $5). In addition, USI had $1 of letters of credit (2014 – facility were due in April 2018. $1) outstanding that were issued under its senior secured revolving At December 31, 2014, $62 was outstanding under the credit facility at December 31, 2015. revolving credit facilities. The amounts outstanding under the senior secured The Company no longer consolidates Tropicana Las credit facility are subject to mandatory prepayment under speci- Vegas as a result of the August 2015 sale, as described in note 22(a). ﬁed circumstances, including with excess cash ﬂows and certain q) USI cash proceeds. Substantially all of USI’s assets are pledged as col- lateral under the senior secured credit facility. USI’s senior secured credit facility initially consisted of a $1,025 In addition, USI has 7.75% senior notes with an aggre- senior secured term loan and a $150 senior secured revolving credit gate principal amount of $630 which are due in January 2021. The facility. The senior secured revolving credit facility includes sublim- senior notes may be redeemed by the company prior to January its for letters of credit and swing line loans. The senior secured term 2016 at 100% of the principal amount plus a make whole premium loan matures in December 2019 and the senior secured revolving and accrued interest, and may be redeemed on or after January credit facility matures in December 2017. The borrowings under the 2016 at various redemption prices above face value plus accrued senior secured term loan bear interest at LIBOR (subject to a ﬂoor interest. At December 31, 2015 and 2014, senior notes of $630 were of 1.00%) plus a margin of 3.25% or a base rate plus a margin of outstanding. 2.25%. USI pays a quarterly commitment fee of 0.38% per annum on the unused portion of the senior secured revolving credit facility r) York and certain fees for letters of credit issued. Onex Partners III acquired York in October 2014, as described in In May 2014, USI increased the senior secured term loan note 2(k). In October 2014, York entered into a senior secured cred- under its senior secured credit facility by $125. The new term loan it facility consisting of a $555 ﬁrst lien term loan, a $60 delayed has the same terms as its existing senior secured term loan. The draw term loan and a $100 revolving facility. Borrowings under proceeds from the increased senior secured term loan were used the term loans bear interest at LIBOR (subject to a ﬂoor of 1.00%) to fund a portion of the acquisition of 40 insurance brokerage plus a margin of 3.75%. The term loans require quarterly amorti- and consulting ofﬁces across the United States from Wells Fargo zation repayments, and can be repaid in whole or in part without Insurance, as described in note 2(i). premium or penalty at any time before maturity in October 2021. The revolving facility bears interest at LIBOR plus a margin of up to 3.75%, depending on the company’s leverage ratio, and matures Onex Corporation December 31, 2015 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 in October 2019. In connection with the credit facility, York entered Included in the debt amounts for the ONCAP consolidated oper- into an interest rate swap agreement that swaps the variable rate ating companies is the debt of PURE Canadian Gaming. In May portion for a ﬁxed rate on a notional amount of $300 from January 2014, PURE Canadian Gaming entered into a new credit facility 2017 through December 2019. consisting of a C$150 term loan and a C$60 revolving credit facil- At December 31, 2015, the term loans with $607 (2014 – ity. Borrowings under the credit facility bear interest at a bankers’ $613) outstanding were recorded net of unamortized discounts acceptance rate plus a margin of up to 3.75%, depending on PURE of $4 (2014 – $4) and $47 (2014 – $22) was outstanding under the Canadian Gaming’s leverage ratio, until maturity in May 2019. The revolving facility. net proceeds from the credit facility were used to repay existing Substantially all of York’s assets are pledged as collateral debt facilities, to repurchase $31 (C$34) of subordinate notes held under the senior secured credit facility. primarily by the Company and to fund a $10 (C$11) distribution to In addition to the above senior secured credit facil- shareholders. The Company’s share of the repurchase of subordi- ity, York has $315 in aggregate principal amount of 8.50% senior nate notes and the distribution to shareholders was $41 (C$45), of unsecured notes due in October 2022. Interest is payable semi- which Onex’ share was $18 (C$20). annually beginning in April 2015. The senior unsecured notes may In August 2015, PURE Canadian Gaming drew on its be redeemed by the company at any time at various premiums existing revolving credit facility to fund a distribution of C$25 to above face value. At December 31, 2015, the senior unsecured shareholders. The Company’s portion of the distribution was C$23 notes with $315 (2014 – $315) outstanding were recorded net of an ($18), of which Onex’ portion was C$10 ($8). embedded derivative of $13 (2014 – $13) associated with the senior At December 31, 2015, $100 (C$138) (2014 – $129 (C$150)) unsecured notes. and $11 (C$16) (2014 – $10 (C$12)) were outstanding under PURE Cana dian Gaming’s term loan and revolving credit facility, s) ONCAP operating companies respectively. ONCAP’s consolidated operating companies consist of Bradshaw, Chatters (acquired in July 2015), CiCi’s Pizza, Davis-Standard, In December 2011, ONCAP III entered into a C$75 credit facility EnGlobe, Hopkins, Pinnacle Pellet, Inc. and PURE Canadian that consists of a C$50 line of credit and a C$25 deemed credit risk Gaming Corp. (“PURE Canadian Gaming”). Each has debt that facility. The line of credit is available to ﬁnance ONCAP III capital is included in the Company’s consolidated ﬁnancial statements. calls, bridge ﬁnance investments in ONCAP III operating compa- There are separate arrangements for each operating company nies, support foreign exchange hedging of ONCAP III and ﬁnance with no cross-guarantees between the operating companies, other uses permitted by ONCAP III’s limited partnership agree- ONCAP or Onex Corporation. ment. The deemed credit risk facility is available to ONCAP III and Under the terms of the various credit agreements, com- its operating companies for foreign exchange transactions, includ- bined term borrowings of $665 are outstanding and combined ing foreign exchange options, forwards and swaps. Borrowings revolving credit facilities of $118 are outstanding. The available drawn on the line of credit bear interest at a base rate plus a mar- facilities bear interest at various rates based on a base ﬂoating gin of 2.50% or bankers’ acceptance rate (LIBOR for U.S. dollar rate plus a margin. At December 31, 2015, effective interest rates borrowings) plus a margin of 5.25%. Borrowings under the credit ranged from 3.02% to 6.50% on borrowings under the revolving facility are due and payable upon demand; however, ONCAP III credit and term loan facilities. The term loans typically require shall have 15 business days to complete a capital call to the lim- quarterly repayments and are due between 2016 and 2020. The ited partners of ONCAP III to fund the demand. Onex Corporation, companies also have subordinated notes of $329 due between the ultimate parent company, is only obligated to fund borrowings 2017 and 2024 that bear interest at rates ranging from 10.00% to under the credit facility based on its proportionate share as a lim- 18.00%, of which the Company owns $294. ited partner in ONCAP III. Certain ONCAP operating companies have entered into At December 31, 2015, the amount available under the interest rate swap agreements to ﬁx a portion of their interest deemed risk facility was C$3 (2014 – C$25). No amounts were out- expense. The total notional amount of these swap agreements at December 31, 2015 was $167 with portions expiring through 2016. Senior debt is generally secured by substantially all of standing on the line of credit at December 31, 2015 and 2014. At December 31, 2015, there were letters of credit issued for $10 (€10) (2014 – $12 (€10)) under the line of credit. the assets of the respective operating company. 142 Onex Corporation December 31, 2015 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 13 . L E A S E S b) The Company as lessor a) The Company as lessee Future minimum lease payments are as follows: Finance Leases Operating Leases 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: 2016 2017 2018 2019 2020 Thereafter Total future minimum lease payments Less: imputed interest Balance of obligations under finance leases, without recourse to Onex Corporation Less: current portion Non-current obligations under finance leases, without recourse $ 19 $ 279 223 167 121 89 342 $ 1,221 14 12 10 5 6 $ 66 (9) 57 (16) to Onex Corporation $ 41 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 lease expense for the year ended December 31, 2015 was $295 (2014 – $262) and primarily related to premises. For the year: 2016 2017 2018 2019 2020 Thereafter $ 80 65 23 12 8 3 Total minimum lease payments receivable $ 191 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, 2015 and 2014. Onex Corporation December 31, 2015 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 14 . 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, ONCAP and Onex Credit Funds by those other than Onex are presented within the Limited Partners’ Interests. Details of the Limited Partners’ Interests are as follows: Balance – December 31, 2013 Limited Partners’ Interests charge(b) Contributions by Limited Partners(c) Distributions paid to Limited Partners(d) Balance – December 31, 2014(e) Addition from the Onex Credit transaction(a) Limited Partners’ Interests charge (recovery)(b) Contributions by Limited Partners(c) Distributions paid to Limited Partners(d) Balance – December 31, 2015 Current portion of Limited Partners’ Interests(e) Onex Partners and ONCAP Funds Onex Credit Funds(a) $ 6,959 $ 1,069 867 (3,719) 5,176 – 882 1,819 (888) 6,989 (598) – – – – – 368 (26) 6 (19) 329 – Total $ 6,959 1,069 867 (3,719) 5,176 368 856 1,825 (907) 7,318 (598) Non-current portion of Limited Partners’ Interests $ 6,391 $ 329 $ 6,720 a) In January 2015, Onex acquired control of the Onex Credit asset management platform, as described in note 2(f ). In connection b) The gross Limited Partners’ Interests charge for Onex Partners and ONCAP Funds is primarily due to net fair value increases of the with this transaction, the Company recorded an addition of $368 to underlying investments in the Onex Partners and ONCAP Funds. Limited Partners’ Interests, representing investments by those other For the year ended December 31, 2015, the gross Limited Partners’ than Onex in the Onex Credit Funds that the Company began con- Interests charge for the Onex Partners and ONCAP Funds of $1,074 solidating in January 2015. (2014 – $1,308) was reduced for the change in carried interest of $192 (2014 – $239). Onex’ share of the change in carried interest was $64 for the year ended December 31, 2015 (2014 – $84). 144 Onex Corporation December 31, 2015 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) The following tables show contributions by limited partners of the Onex Partners and ONCAP Funds. Company SIG(i) Jack’s Survitec(ii)(iii) Schumacher(iii) ITG Chatters Mavis Discount Tire(i)(ii) Management fees, partnership expenses Fund Transaction Onex Partners IV Original investment Onex Partners IV Original investment Onex Partners IV Original and add-on investments Onex Partners IV Original and add-on investments ONCAP III ONCAP III ONCAP III Original investment Original investment Add-on investment and other Various Various Contributions by Limited Partners (i) Includes amounts from certain limited partners and others. (ii) Includes amounts to fund a foreign currency hedge for the investments. (iii) Includes amounts to fund initial and add-on investments. Company York(i) AIT Emerald Expositions Mavis Discount Tire(i) JELD-WEN(i) Meridian Aviation Fund Transaction Onex Partners III Original investment Onex Partners IV Original investment Onex Partners III Add-on investment ONCAP III Original investment Onex Partners III Investment in common stock Onex Partners III Add-on investment Management fees, partnership expenses and other Various Various Contributions by Limited Partners (i) Includes amounts from certain limited partners and others. d) The following tables show distributions made to limited partners of the Onex Partners and ONCAP Funds. Company JELD-WEN(i) Fund Transaction Onex Partners III Dividend Tropicana Las Vegas Onex Partners III Sale of business USI(i) ResCare Jack’s Meridian Aviation BBAM Tomkins(i) AIT(ii) PURE Canadian Gaming Other Distributions to Limited Partners Onex Partners III Dividend Onex Partners I & III Dividend Onex Partners IV Repayment of promissory note Onex Partners III Onex Partners III Distributions Distributions Onex Partners III Sale of residual assets Onex Partners IV Distributions ONCAP II & III Various Dividend Various (i) Includes amounts distributed to certain limited partners and others. (ii) Includes amounts received for a purchase price adjustment. Year ended December 31, 2015 $ 810 295 270 230 49 30 25 110 $ 1,819 Year ended December 31, 2014 $ 348 159 106 75 50 15 114 $ 867 Year ended December 31, 2015 $ 270 180 130 77 75 64 37 21 13 10 11 $ 888 Onex Corporation December 31, 2015 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 Company Tomkins(i) Allison Transmission(i) The Warranty Group Spirit AeroSystems(i) Mister Car Wash ResCare Fund Transaction Onex Partners III Sale of business Onex Partners II Share repurchases, secondary offerings and dividend Onex Partners I & II Sale of business Onex Partners I Share repurchases and secondary offerings ONCAP II Sale of business Onex Partners I & III Dividend PURE Canadian Gaming ONCAP II & III Debt repayment and return of capital BBAM Other Distributions to Limited Partners Onex Partners III Distributions Various Various (i) Includes amounts distributed to certain limited partners and others. Year ended December 31, 2014 $ 1,361 927 646 451 178 95 23 20 18 $ 3,719 e) At December 31, 2015, the current portion of the Limited Partners’ Interests was $598, and consisted primarily of the lim- a) At December 31, 2015, the stock-based compensation liability consisted of $417 (2014 – $299) for the stock-based compensation ited partners’ share of a distribution from AIT, promissory note plans at the parent company and $17 (2014 – $14) for stock option repayments by Jack’s and expected proceeds from the sale of and other share-based compensation plans in place at the oper- KraussMaffei, as described in note 6(a). ating companies. At December 31, 2015, $7 of the parent company At December 31, 2014, the current portion of the Limited stock-based compensation liability is recorded in other current Partners’ Interests was $23, and consisted of the limited partners’ liabilities. Included in long-term investments (note 8) is $77 (2014 – share of the proceeds on the sale of the residual assets of Tomkins, $66) related to forward agreements to economically hedge the as described in note 8(a). 15 . O T H E R N O N - C U R R E N T L I A B I L I T I E S Other non-current liabilities comprised the following: As at December 31 2015 2014 Company’s exposure to changes in the trading price of Onex shares associated with the Management and Director DSU Plans. b) Unrealized carried interest due to management of Onex and ONCAP through the Onex Partners and ONCAP Funds is recog- nized as a non-current liability and reduces the Limited Partners Interests’ liability, as described in note 14. The unrealized carried Stock-based compensation(a) $ 427 $ 313 interest is calculated based on current fair values of the Funds’ Defined benefit pensions and non-pension post-retirement benefits (note 31) Unrealized carried interest due to Onex and ONCAP management(b) Deferred revenue and other deferred items JELD-WEN employee stock ownership plan(c) Other(d) 387 311 126 125 328 460 204 63 87 175 Total other non-current liabilities $ 1,704 $ 1,302 investments and the overall unrealized gains in each respective Fund in accordance with the limited partnership agreements. The liability will be increased or decreased based on changes in the fair values and realizations of the underlying investments in the Onex Partners and ONCAP Funds. The liability will ultimately be settled upon the realization of the limited partners’ share of the underly- ing Onex Partners and ONCAP Fund investments. During 2015, the unrealized carried interest liabil- ity increased primarily due to an increase in the fair value of cer- tain of the investments in the Onex Partners and ONCAP Funds. During 2014, the unrealized carried interest liability decreased for carried interest paid on the sale of shares of Allison Transmission (notes 8(a) and 23(e)) and Spirit Aero Systems (notes 6(e), 23(e) and 26), the sale of the Gates division and residual assets of Tomkins (notes 8(a) and 23(e)), and the sale of The Warranty Group (note 6(d)), partially offset by a charge for the change in carried interest of $160, as described in note 23(b). 146 Onex Corporation December 31, 2015 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) JELD-WEN’s employee stock ownership plan (“ESOP”) was established prior to Onex’ acquisition of JELD-WEN to allow its d) Other includes amounts for liabilities arising from indemni- ﬁcations, unearned insurance contract fees, embedded derivatives employees to share in the success of the company through the on long-term debt, mark-to-market valuations of hedge contracts ESOP’s ownership of JELD-WEN stock. The company may make and the non-current portion of obligations under ﬁnance leases, discretionary contributions of cash or JELD-WEN shares to the without recourse to Onex Corporation (note 13). ESOP on behalf of employees. JELD-WEN consolidates the trust established to maintain the ESOP and therefore reports the liabil- ity for the value of JELD-WEN stock and miscellaneous other net assets held by the ESOP for the beneﬁt of employees. The com- pany will periodically repurchase JELD-WEN shares owned by the ESOP to fund distributions to ESOP participants. During 2015, JELD-WEN repurchased stock from the ESOP for a cash cost of $12 (2014 – $15). 16 . I N C O M E TA X E S The reconciliation of statutory income tax rates to the Company’s effective tax rate is as follows: Year ended December 31 Income tax 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 Foreign exchange Limited Partners’ Interests Other, including permanent differences Provision for income taxes Classified as: Current Deferred Provision for income taxes 2015 $ (204) 211 (47) 75 (10) 6 32 53 2014 $ (192 ) 541 (241) 1 (10 ) (12) 13 (35) $ 116 $ 65 $ 228 (112) $ 116 $ 137 (72) $ 65 Onex Corporation December 31, 2015 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 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, 2013 Credited (charged) to net earnings Credited (charged) to net earnings (discontinued operations) Credited directly to equity Exchange differences Acquisition of subsidiaries Disposition of operating companies Transfer to discontinued operations Other adjustments Balance – December 31, 2014 Credited (charged) to net earnings Credited (charged) to net earnings (discontinued operations) Credited (charged) directly to equity Exchange differences Acquisition of subsidiaries Disposition of operating companies Transfer to discontinued operations Other adjustments Balance – December 31, 2015 Deferred Income Tax Liabilities Balance – December 31, 2013 Charged (credited) to net earnings Charged (credited) to net earnings (discontinued operations) Exchange differences Acquisition of subsidiaries Disposition of operating companies Transfer to discontinued operations Other adjustments Balance – December 31, 2014 Charged (credited) to net earnings Charged (credited) to net earnings (discontinued operations) Exchange differences Acquisition of subsidiaries Disposition of operating companies Transfer to discontinued operations Other adjustments Scientific Research and Development $ − (1) – − − − − − 2 1 (1) – − − − − – 1 1 $ $ Provisions Deferred Revenue Tax Losses $ 176 $ 126 $ 338 – – 11 (3) 6 (3) (22) (24) (1) – − – 1 (116) − − $ 141 $ 10 (4) 3 (3) (4) 5 (3) (31) (1) 3 – − (1) 8 – – (3) (1) (2) − (9) 23 (8) – 8 $ 349 4 (15) − (14) 16 (20) (18) (22) Property, Plant and Equipment, and Intangibles $ 64 (12) 4 − (1) − − − (10) $ 45 11 – − (3) 20 (12) – (4) Other Total $ 190 $ 894 7 4 3 (2) 8 (17) (4) 1 (8) 6 14 (15) 38 (144) (26) (23) $ 190 101 $ 736 114 9 3 (14) 106 (8) (49) 12 (3) – (36) 155 (43) (98) (17 ) $ 103 $ 17 $ 280 $ 57 $ 350 $ 808 Gains on Sales of Operating Companies $ 38 2 – − − − − − Pension and Non-Pension Post-Retirement Benefits $ 9 – (1) − − (8) − 24 $ 40 $ 24 4 – − − − – − 1 – (1) 21 (1) – – Property, Plant and Equipment, and Intangibles $ 1,425 (31) (12) (14) 225 (55) (13) (23) Foreign Exchange $ 106 (37) – (9) − − – − Other Total $ 233 $ 1,811 (14) 15 2 − (57) (5) (38) (80) 2 (21) 225 (120) (18) (37) $ 1,502 (36) $ 60 (21) $ 136 54 $ 1,762 2 (13) (29) 592 (12) (110) (72) – (7) − − – − 6 (6) 34 (6) (66) 7 (7) (43) 647 (19) (176) (65) Balance – December 31, 2015 $ 44 $ 44 $ 1,822 $ 32 $ 159 $ 2,101 148 Onex Corporation December 31, 2015 N O T E S T O C O N S O L I D AT E D F I N A N C I A L S TAT E M E N T S At December 31, 2015, Onex and its investment holding compa- iii) An unlimited number of Senior and Junior Preferred Shares nies had $1,072 of non-capital loss carryforwards and $79 of capi- issuable in series. The Company’s Directors are empowered to ﬁx tal loss carryforwards. the rights to be attached to each series. 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- b) At December 31, 2015, the issued and outstanding share capital consisted of 100,000 Multiple Voting Shares (December 31, 2014 – ber 31, 2015, deductible temporary differences, unused tax losses 100,000) and 105,893,578 SVS (December 31, 2014 – 108,858,066). and unused tax credits for which no deferred tax asset has been The Multiple Voting Shares have a nominal paid-in value in these recognized were $5,697 (2014 – $5,494), of which $1,613 (2014 – consolidated ﬁnancial statements. $1,879) had no expiry, $458 (2014 – $412) was available to reduce There were no issued and outstanding Senior and Junior future income taxes between 2016 and 2022 (2014 – 2015 and 2021), Preferred shares at December 31, 2015 or December 31, 2014. inclusive, and $3,626 (2014 – $3,203) was available with expiration In January 2015, in connection with acquiring control dates of 2023 through 2035 (2014 – 2022 through 2034). of the Onex Credit asset management platform, as described in At December 31, 2015, the aggregate amount of taxable note 2(f ), Onex issued 111,393 of its SVS as part of the consider- temporary differences not recognized in association with invest- ation in the transaction. ments in subsidiaries, joint ventures and associates was $3,974 The Company increased its quarterly dividend by 25% (2014 – $3,754). 17. S H A R E C A P I TA L to C$0.0625 per SVS beginning with the dividend declared by the Board of Directors in May 2015. The Company increased its quarterly dividend by 33% to C$0.05 per Subordinate Voting Share beginning with the dividend declared by the Board of Directors in a) The authorized share capital of the Company consists of: May 2014. i) 100,000 Multiple Voting Shares, which entitle their holders to elect 60% of the Company’s Directors and carry such number of c) During 2015, under the Dividend Reinvestment Plan, the Com- pany issued 8,996 SVS (2014 – 7,952) at an average cost of C$72.36 votes in the aggregate as represents 60% of the aggregate votes per share (2014 – C$61.18). In 2015 and 2014, no SVS were issued attached to all shares of the Company carrying voting rights. The upon the exercise of stock options. Multiple Voting Shares have no entitlement to a distribution on Onex renewed its Normal Course Issuer Bid in April 2015 winding up or dissolution other than the payment of their nomi- for one year, permitting the Company to purchase on the Toronto nal paid-in value. Stock Exchange up to 10% of the public ﬂoat of its SVS. The 10% limit represents approximately 8.4 million shares. ii) An unlimited number of SVS, which carry one vote per share During 2015, the Company repurchased and cancelled and as a class are entitled to 40% of the aggregate votes attached 3,084,877 of its SVS at a cash cost of $175 (C$218). The excess of to all shares of the Company carrying voting rights to elect 40% of the purchase cost of these shares over the average paid-in amount the Company’s Directors and to appoint the auditors. These shares was $165 (C$205), which was charged to retained earnings. The are entitled, subject to the prior rights of other classes, to distri- shares repurchased were comprised of: (i) 2,809,877 SVS repur- butions of the residual assets on winding up and to any declared chased under the Normal Course Issuer Bids for a total cost of but unpaid cash dividends. The shares are entitled to receive cash $160 (C$199) or an average cost per share of $56.99 (C$70.82); and dividends, dividends in kind and stock dividends as and when (ii) 275,000 SVS repurchased in private transactions for a total cost declared by the Board of Directors. of $15 (C$19) or an average cost per share of $55.12 (C$69.50). As at The Multiple Voting Shares and SVS are subject to provi- December 31, 2015, the Company has the capacity under the cur- sions whereby, if an event of change occurs (such as Mr. Schwartz, rent Normal Course Issuer Bid to purchase approximately 6.1 mil- Chairman and CEO, ceasing to hold, directly or indirectly, more lion shares. than 5,000,000 SVS or related events), the Multiple Voting Shares During 2014, the Company repurchased and cancelled will thereupon be entitled to elect only 20% of the Company’s 2,593,986 of its SVS at a cash cost of $150 (C$163). The excess of Directors and otherwise will cease to have any general voting the purchase cost of these shares over the average paid-in amount rights. The SVS would then carry 100% of the general voting rights was $140 (C$153), which was charged to retained earnings. The and be entitled to elect 80% of the Company’s Directors. shares repurchased were comprised of: (i) 1,283,986 SVS repur- chased under the Normal Course Issuer Bids for a total cost of $72 (C$78) or an average cost per share of $55.61 (C$61.17); and (ii) 1,310,000 SVS repurchased in private transactions for a total cost of $78 (C$85) or an average cost per share of $59.70 (C$64.74). Onex Corporation December 31, 2015 149 N O T E S T O C O N S O L I D AT E D F I N A N C I A L S TAT E M E N T S The private transactions include the repurchase of 1,000,000 In January 2016, Onex repurchased in a private transac- SVS that were held indirectly by Mr. Gerald W. Schwartz, Onex’ tion 1,000,000 of its SVS that were held indirectly by Mr. Gerald W. controlling shareholder. This private transaction is described in Schwartz, Onex’ controlling shareholder. This private transaction note 30(r). is described in note 30(r). d) The Company has a Director DSU Plan and a Management DSU Plan, as described in note 1. Details of DSUs outstanding under the plans are as follows: Outstanding at December 31, 2013 Granted Additional units issued in lieu of compensation and cash dividends Outstanding at December 31, 2014 Granted Additional units issued in lieu of compensation and cash dividends Outstanding at December 31, 2015 Hedged with a counterparty financial institution at December 31, 2015 Outstanding at December 31, 2015 – Unhedged Director DSU Plan Management DSU Plan Number of DSUs Weighted Average Price Number of DSUs Weighted Average Price C$ 63.00 C$ 64.01 C$ 69.01 C$ 75.80 543,260 29,537 11,710 584,507 29,653 12,321 626,481 (578,799) 47,682 – C$ 58.40 – C$ 68.73 467,230 − 99,264 566,494 − 118,021 684,515 (684,515) – e) The Company has a Stock Option Plan (the “Plan”) under which options and/or share appreciation rights for a term not exceed- In addition to the options outstanding under the Plan, the Company has issued 60,000 options to Onex Credit’s chief ing 10 years may be granted to Directors, ofﬁcers and employees executive ofﬁcer in connection with acquiring control of the Onex for the acquisition of SVS of the Company at a price not less than Credit asset management platform, as described in note 2(f ). The the market value of the shares on the business day preceding the options vest at a rate of 20% per year from the grant date. The day of the grant. Under the Plan, no options or share appreciation options are subject to the same terms and conditions as the Com- rights may be exercised unless the average market price of the SVS pany’s existing Plan; however, the options are also subject to an for the ﬁve previous business days exceeds the exercise price of the additional performance threshold speciﬁc to the Onex Credit asset options or the share appreciation rights by at least 25% (the “hur- management platform. dle price”). At December 31, 2015, 15,612,000 SVS (2014 – 15,612,000) were reserved for issuance under the Plan, against which options representing 12,568,033 shares (2014 – 12,411,542) were outstand- ing, of which 4,713,415 options were vested. The Plan provides that the number of options issued to certain individuals in aggregate may not exceed 10% of the shares outstanding at the time the options are issued. 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 ﬁfth year. When an option is exercised, the employee has the right to request that the Company repurchase the option for an amount equal to the difference between the fair value of the stock under the option and its exercise price. Upon receipt of such request, the Outstanding at December 31, 2013 Granted Surrendered Expired Number of Options 7,867,175 4,928,500 (377,483) (6,650) Outstanding at December 31, 2014 12,411,542 Granted Surrendered Expired 965,000 (643,359) (105,150) Outstanding at December 31, 2015 12,628,033 Weighted Average Exercise Price C$ 41.34 C$ 58.65 C$ 19.47 C$ 41.35 C$ 48.88 C$ 80.85 C$ 28.22 C$ 49.50 C$ 52.37 Company has the right to settle its obligation to the employee by During 2015 and 2014, the total cash consideration paid on the payment of cash, the issuance of shares or a combination of options surrendered was $24 (C$32) and $15 (C$16), respectively. cash and shares. 150 Onex Corporation December 31, 2015 This amount represents the difference between the market value of the SVS at the time of surrender and the exercise price, both as determined under the Plan. The weighted average share price at the date of exercise was C$77.31 per share (2014 – C$62.92). N O T E S T O C O N S O L I D AT E D F I N A N C I A L S TAT E M E N T S Options outstanding at December 31, 2015 consisted of the following: Month and Year of Grant Number of Options Outstanding Exercise Price Number of Options Exercisable Hurdle Price Remaining Life (years) December 2006 December 2007 December 2008 December 2009 December 2010 July 2011 December 2011 September 2012 December 2012 December 2013 January 2014 September 2014 December 2014 January 2015 March 2015 September 2015 November 2015 Total 85,000 458,333 451,860 556,640 455,650 12,000 478,400 50,000 863,950 3,344,900 3,950,000 75,000 881,300 60,000 10,000 10,000 885,000 12,628,033 C$ 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 C$ 68.57 C$ 74.87 C$ 79.79 C$ 81.76 85,000 441,665 435,860 532,640 455,650 – 380,200 30,000 514,650 1,059,900 592,500 15,000 170,350 − − − − 4,713,415 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 C$ 85.72 C$ 93.59 C$ 99.74 C$ 102.20 0.9 1.9 2.9 3.9 4.9 5.5 5.9 6.7 6.9 7.9 8.1 8.7 8.9 9.1 9.2 9.7 9.9 18 . N O N - C O N T R O L L I N G I N T E R E S T S Financial information on the statements of earnings for Celestica (electronics manufacturing services segment) is presented in The Company’s material non-controlling interests at Decem- note 33. Summarized cash ﬂows for Celestica are as follows: ber 31, 2015 and 2014 were associated with Celestica. There were no dividends paid by Celestica during 2015 or 2014. Summarized balance sheet information based on those amounts included in Year ended December 31 Cash flows from operating activities Cash flows used for financing activities Cash flows used for investing activities these consolidated ﬁnancial statements for Celestica 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 2015 87% $ 2,124 488 2,612 $ 1,133 388 1,521 $ 1,091 $ 945 2014 89% $ 2,104 480 2,584 $ 1,054 134 1,188 $ 1,396 $ 1,237 Celestica 2015 $ 196 (141) (75) 2014 $ 242 (161) (60) Onex Corporation December 31, 2015 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 19. E X P E N S E S B Y N AT U R E The nature of expenses in cost of sales and operating expenses, which excludes amortization of property, plant and equipment, intangible assets and deferred charges, consisted of the following: Year ended December 31 2015 2014 Cost of inventory, raw materials and consumables used Employee benefit expense(1) Professional fees Repairs, maintenance and utilities Transportation Operating lease payments Provisions Other expenses $ 8,550 5,453 $ 7,753 4,819 795 570 541 295 196 1,149 414 500 519 262 141 907 Total cost of sales and operating expenses $ 17,549 $ 15,315 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(k). The expense is determined based on the fair value of the liability at the end of each reporting period. The fair value for Onex’ stock option plan is determined using an option valuation model. The signiﬁcant inputs into the model were the share price at December 31, 2015 of C$84.82 (2014 – C$67.46), exercise price of the options, remaining life of each option issuance, volatility of each option issuance ranging from 18.90% to 19.68%, an average dividend yield of 0.43% and an average risk-free rate of 1.45%. The volatility is measured as the historical volatility based on the remaining life of each respective option issuance. The fair values for the MIP options are determined using an internally developed valuation model. The signiﬁcant inputs into the model are the fair value of the underlying invest- ments, the time to expected exit from each investment, a risk-free rate of 0.73% and an industry comparable historical volatility for (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. each investment. 2 2 . OTHER GAINS 2 0 . INTEREST EXPENSE OF OPERATING COMPANIES Year ended December 31 Year ended December 31 2015 2014 Gain on sale of Tropicana Las Vegas(a) Gain on sale of Flushing Town Center(b) Gain on the Onex Credit transaction(c) Interest on obligations under finance leases Gain on sale of Mister Car Wash(e) $ 819 $ 571 Gain on sale of B.C. Sugar residual property(d) Interest on long-term debt of operating companies of operating companies Other interest expense of operating companies(1) Total Interest Expense of Operating Companies 3 56 2 96 Other Total other gains $ 878 $ 669 2015 $ 102 60 38 36 – 3 $ 239 $ 2014 – – – – 317 – $ 317 (1) Other includes debt prepayment expense of $5 (2014 − $69). 21. STOCK-BASED COMPENSATION EXPENSE Year ended December 31 Parent company(a) JELD-WEN Celestica USI Other 2015 $ 134 54 38 14 20 2014 $ 142 20 28 22 16 a) In August 2015, Onex Partners III sold its entire investment in Tropicana Las Vegas for an enterprise value of $360. Onex Part- ners III and certain limited partners received net proceeds of $230, of which Onex’ share was $50. The Company recorded a pre- tax gain of $102 based on the excess of the proceeds over the car- rying value of the investment. Onex’ share of the gain was $22. The gain on sale was entirely attributable to the equity holders of Onex Corporation, as the interest of the limited partners was recorded as a ﬁnancial liability at fair value. No amounts were paid on account of the MIP for this transaction as the required investment return hurdle for Onex was not met. In addition, no carried interest was paid or received on this transaction. Until Total stock-based compensation expense $ 260 $ 228 the realized cash loss on Tropicana Las Vegas is fully offset, the carried interest that would otherwise be distributed to Onex in respect of a future realization in the Onex Partners III Fund is expected to be reduced by $7. The amount of carried interest ulti- mately received from the Onex Partners III Fund will be based on the overall performance of the Fund. 152 Onex Corporation December 31, 2015 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 Tropicana Las Vegas did not represent a major line of Mister Car Wash did not represent a separate major line business, and as a result, the operating results up to the date of of business, and as a result operating results up to the date of dis- disposition have not been presented as a discontinued opera- position have not been presented as a discontinued operation. tion. The cash proceeds recorded in the consolidated statements The cash proceeds recorded in the consolidated statements of of cash ﬂows for the sale of Tropicana Las Vegas were reduced for cash ﬂows for the sale of Mister Car Wash were reduced for Mister Tropicana Las Vegas’ cash and cash equivalents of $1 at the date Car Wash’s cash and cash equivalents of $3 at the date of sale. of sale. b) In July and December 2015, Onex Real Estate Partners sold sub- stantially all of the retail space and adjoining parking structures of Flushing Town Center. Onex Real Estate Partners continues to develop the second phase of condominiums at the project. Onex Year ended December 31 2015 2014 Losses on investments and long-term debt in CLOs and Onex Credit Funds(a) $ 195 $ 65 2 3 . O T H E R E X P E N S E ( I N C O M E ) Real Estate Partners received net proceeds of $136, of which Onex’ Carried interest due to Onex and share was $119. Included in the net proceeds is $8 held in escrow ONCAP management(b) expected to be received during the ﬁrst half of 2016, of which Transition, integration and other(c) Onex’ share is $7. Onex Real Estate Partners recorded a pre-tax Transaction costs(d) gain of $60 on the transaction, of which Onex’ share was $52. The retail space and adjoining parking structures of Flushing Town Center did not represent a major line of business, and as a result, the operating results up to the date of disposition have not been presented as a discontinued operation. No amounts were paid on account of the MIP related to this transaction as the required performance targets have not been met at this time. c) In January 2015, Onex acquired control of the Onex Credit asset management platform, as described in note 2(f ). In connection with this transaction, Onex recorded a non-cash gain of $38 dur- ing the ﬁrst quarter of 2015. d) In January 2015, Onex sold a residual property from its former investment in B.C. Sugar for proceeds of $54, recognizing a gain of $36. Onex’ share of the proceeds on the sale of the residual property was $33, net of amounts paid on account of the MIP, and Onex’ share of the gain was $23. Management of Onex earned $3 on account of the MIP related to this transaction. e) 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 net proceeds is $8, which was received during 2015. The Company recorded a gain of $317 based on the excess of the pro- ceeds over the carrying value of the investment. Onex’ share of the gain was $140. The gain on the sale is entirely attributable to the equity holders of Onex Corporation, as the interests of the lim- ited partners were recorded as a ﬁnancial liability at fair value. Amounts paid on account of this transaction related to the MIP totalled $11. In addition, management of ONCAP received $40 in carried interest, which included a net payment of $7 of carried interest by Onex and management of Onex. Decrease (increase) in value of other Onex Partners investments(e) Restructuring(f) Foreign exchange loss(g) Income on equity-accounted investments Change in fair value of contingent consideration(h) Derivatives losses (gains)(i) Other(j) 130 110 81 71 64 52 (61) (76) (120) (11) 160 121 24 (46) 49 27 (22) (2) 16 (34) Total other expense $ 435 $ 358 a) Losses on investments in CLOs and Onex Credit Funds were primarily unrealized and driven by volatility in the leveraged loan market during 2015. Partially offsetting these losses were gains on the long-term debt in the CLOs. b) 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 liabili- ties and reduces the Limited Partners’ Interests, as described in note 14. The liability will ultimately be settled upon the realiza- tion of the limited partners’ share of the underlying investments in each respective Onex Partners and ONCAP Fund. Onex Corporation December 31, 2015 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 c) Transition, integration and other expenses are typically to pro- vide for the costs of transitioning the activities of an operating ii) In April 2014, Onex, together with CPPIB, entered into an agree- ment to sell Gates, Tomkins’ principal remaining business. As a company from a previous parent company upon acquisition and result, at that time, Onex’ investment in Tomkins was recorded to integrate new acquisitions at the operating companies. in assets held for sale and was recorded at fair value in the con- Transition, integration and other expenses for 2015 solidated balance sheets, with changes in fair value recognized were primarily due to the integration of acquisitions completed within other income (expense) in the consolidated statements by Survitec and USI. Transition, integration and other expens- of earnings. The sale of Gates was completed in July 2014 and es for 2014 were primarily due to Carestream Health, Emerald Onex subsequently sold the residual assets of Tomkins during Expositions and USI. d) Transaction costs are incurred by Onex and its operating com- panies to complete business acquisitions, and typically include 2014 and 2015, as described in note 8(a). Income recorded in other income (expense) of $21 for the year ended December 31, 2014 primarily represents the change in fair value of the residual assets of Tomkins. advisory, legal and other professional and consulting costs. iii) In June 2014, Onex Partners I sold its controlling interest in Transaction costs for 2015 were primarily due to the acquisitions Spirit AeroSystems, as described in note 6(e). The remaining of Chatters, Jack’s, Schumacher, SIG and Survitec, as described interest held by the Company was recorded as a long-term in note 2, in addition to acquisitions completed by the operating investment at fair value, with changes in fair value recorded companies. Transaction costs for 2014 were primarily due to the in other income (expense). In August 2014, under a secondary acquisition of York, the investment in AIT and acquisitions com- public offering of Spirit AeroSystems, Onex Partners I sold its pleted by the operating companies. e) Includes realized and unrealized (gains) losses on other Onex Part ners investments in which Onex has no or limited remain- remaining 8.4 million shares of Spirit Aero Sys tems, of which Onex’ portion was approximately 2.2 million shares. The offer- ing was completed at a price of $35.67 per share, or a multi- ple of 10.7 times Onex’ original cost of $3.33 per share in Spirit ing strategic or operating inﬂuence. During 2015, the other Onex AeroSystems. The sale was completed for net proceeds of $300, Partners investments consisted of FLY Leasing Limited and Gene- of which Onex’ share was $91, including carried interest and sis Healthcare (since February 2015). During 2014, the Other Part- after the reduction for the amounts paid on account of the MIP. ners investments consisted of Allison Transmission (from June to Income recorded in other income (expense) of $29 during 2014 September 2014), FLY Leasing Limited, Spirit AeroSystems (from represents the change in fair value of the shares held after the June to August 2014) and Tomkins (from April 2014). June 2014 secondary public offering and share repurchase up Year ended December 31 Genesis Healthcare(i) FLY Leasing Limited Tomkins(ii) Spirit AeroSystems(iii) Allison Transmission(iv) Total 2015 $ 72 (1) – – – 2014 $ – 5 (21) (29) (1) $ 71 $ (46 ) until the August 2014 secondary public offering. Amounts received from the August 2014 secondary offering related to the carried interest totalled $28. In accor- dance with the terms of Onex Partners, Onex is allocated 40% of the carried interest with 60% allocated to management. Onex’ share of the carried interest received was $11 and is included in the net proceeds to Onex. Management’s share of the carried interest was $17. Amounts paid on account of the MIP totalled $6 for this transaction and have been deducted from the net proceeds to Onex. i) In February 2015, Skilled Healthcare Group combined with iv) In June 2014, Onex Partners II sold shares of Allison Trans- Genesis HealthCare, LLC, a leading U.S. operator of long-term care facilities, as described in note 6(c). As a result of the transac- tion, Onex no longer controls Skilled Healthcare Group due to the loss of the multiple voting rights, and the Company’s invest- ment in the combined company, Genesis Healthcare, is recorded in other long-term investments at fair value through earnings, with changes in fair value recorded in other income (expense). mission in a secondary offering and share repurchase, as described in note 8(a). After completion of the secondary offering and share repurchase, Onex Partners II continued to own 2.7 million shares of common stock, or approximately 2% in the aggregate, of Allison Transmission’s outstanding com- mon stock. The remaining interest held by the Company was recorded as a long-term investment at fair value, as described in note 8(a), with changes in fair value recorded in other income (expense). 154 Onex Corporation December 31, 2015 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 September 2014, Allison Transmission completed a secondary offering of 5.4 million shares of common stock. g) For the year ended December 31, 2015, foreign exchange loss was primarily due to losses recognized by SIG, Carestream Health As part of the offering, Onex Partners II sold the remaining and Survitec. For the year ended December 31, 2014, foreign 2.7 million shares of common stock. Onex Partners II exchange loss was primarily due to losses recognized by Care- received net proceeds of $82 for its 2.7 million shares of com- stream Health and JELD-WEN. mon stock, of which Onex’ portion was $26, including car- ried interest and after the reduction for the amounts paid on account of the MIP. Income recorded in other income h) During 2015, a net recovery of $76 (2014 – $2) was recognized in relation to the estimated change in fair value of contingent consid- (expense) of $1 during 2014 represents the change in fair eration related to acquisitions completed by the Company. The fair value of the shares held after the June 2014 secondary pub- value of contingent consideration liabilities is typically based on lic offering and share repurchase up until the September 2014 the estimated future ﬁnancial performance of the acquired busi- secondary public offering. Amounts received related to the ness. Financial targets used in the estimation process include cer- carried interest totalled $5, of which Onex’ portion was $2 and tain deﬁned ﬁnancial targets and realized internal rates of return. management’s portion was $3. Amounts paid on account of The total estimated fair value of contingent consideration liabili- the MIP totalled $2 for this transaction and have been deduct- ties at December 31, 2015 was $318 (December 31, 2014 – $203). ed from the net proceeds to Onex. The increase in the total estimated fair value of contingent con- f) Restructuring charges (recoveries) recorded at the operating com- panies were: Year ended December 31 Celestica(i) JELD-WEN(ii) USI(iii) Carestream Health(iv) Other $ 2015 24 17 16 3 4 2014 $ (2) 31 6 11 3 sideration liability at December 31, 2015 was primarily due to the contingent consideration associated with the acquisition of SIG, as described in note 2(b). At December 31, 2015, SIG had revised its estimate of the additional amount to €125 ($136), resulting in a recovery of €50 ($55) recognized in other income (expense). i) Derivatives gains and losses for the year ended December 31, 2015 primarily relate to mark-to-market gains at SIG, which was acquired in March 2015. Derivatives gains and losses for the year ended December 31, 2014 primarily related to Meridian Aviation. Total restructuring charges $ 64 $ 49 i) Celestica’s restructuring charges for 2015 primarily related to j) Other includes realized and unrealized gains (losses) on Onex Corporation investments in managed accounts and gains on the costs to consolidate certain sites and to reduce the workforce. sale of tax losses, as described in note 30(p). During 2014, Celestica recorded a recovery of $2 primarily due to a reversal of estimated contractual lease obligations. ii) JELD-WEN’s restructuring charges for 2015 primarily related to the closure of a facility and personnel restructuring. The charges recorded by JELD-WEN in 2014 primarily related to severance costs and the modiﬁcation of a management incen- tive plan. iii) USI’s restructuring charges for 2015 and 2014 primarily related to severance and lease abandonment costs. iv) Carestream Health’s restructuring charges for 2014 primarily related to the establishment of a central functions location for its European operations. Onex Corporation December 31, 2015 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 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 ResCare(a) Celestica(b) Emerald Expositions(c) CiCi’s Pizza(d) Flushing Town Center(e) Other, net(f) Total In measuring the recoverable amounts for goodwill and intan- gible assets at December 31, 2015, signiﬁcant estimates include the growth rate and discount rate, which ranged from 0% to 14.3% and 8.3% to 16.5% (2014 – 0.0% to 16.3% and 8.3% to 17.5%), respectively. 25. NET EARNINGS (LOSS) PER SUBORDINATE VOTING SHARE The weighted average number of SVS for the purpose of the earn- ings (loss) per share calculations was as follows: 2014 $ – 41 15 26 (42) 9 2015 $ 51 12 6 – – 13 $ 82 $ 49 Year ended December 31 2015 2014 a) Due to a decline in the recoverable amount of ResCare’s Home- Care segment, measured in accordance with IAS 36, Impairment of Assets, ResCare recorded a non-cash goodwill and intangible asset impairment of $51 during 2015. The impairment was calculated primarily on a fair value less costs to sell basis. The recoverable amount calculated was approximately $140 and was a Level 3 mea- surement in the fair value hierarchy as a result of signiﬁcant other unobservable inputs used in determining the recoverable amount. b) During 2015, Celestica recorded a non-cash impairment charge of $12 to impair certain of its property, plant and equipment. During 2014, Celestica recorded a non-cash goodwill impairment charge related to its semiconductor business. c) During 2015 and 2014, Emerald Expositions recorded non-cash impairment charges primarily related to certain trade names and customer relationships. d) During 2014, CiCi’s Pizza recorded a non-cash goodwill impair- ment charge primarily due to a decrease in projected future earn- ings and a reduction in the exit multiple due to market risks. e) During 2014, Flushing Town Center recorded a non-cash recov- ery of an impairment charge associated with its retail space and parking structures. During 2015, Flushing Town Center sold sub- stantially all of its retail space and parking structures, as described in note 22(b). f) Other in 2015 includes net impairments related to JELD-WEN, sgsco and SIG. Other in 2014 includes net impairments related to JELD-WEN and sgsco. Substantially all of the Company’s goodwill and intangible assets with indeﬁnite useful lives use the value-in-use method to mea- sure the recoverable amount. The carrying value of goodwill and intangible assets with indeﬁnite useful lives is allocated on a seg- mented basis in note 33. 156 Onex Corporation December 31, 2015 Weighted average number of shares outstanding (in millions): Basic Diluted 107 107 110 110 26. SALE OF INTERESTS IN OPERATING COMPANY UNDER CONTINUING CONTROL In March 2014, under a secondary public offering of Spirit AeroSys- tems, Onex Partners I sold 6.0 million shares of Spirit AeroSystems, of which Onex’ portion was approximately 1.6 million shares. The offering was completed at a price of $28.52 per share. Onex’ cash cost for these shares was $3.33 per share. Since this transaction did not result in a loss of control by the Company at the time of the transaction, it was 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 of equity. The net cash proceeds in excess of the historical account- ing carrying value of $102 were recorded directly to retained earn- ings. Onex’ share of the net proceeds was $52, including carried interest and after the reduction for distributions paid on account of the MIP. Amounts received on account of the carried inter- est related to this transaction totalled $16. In accordance with the terms of Onex Partners, Onex is allocated 40% of the carried inter- 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 been deducted from the net proceeds to Onex. As a result of this transaction, Onex Partners I’s economic interest in Spirit AeroSystems was reduced to 11% from 16%. Onex’ economic ownership was reduced to 3% from 5%. Onex continued to control and consolidate Spirit AeroSystems until the June 2014 secondary offering and share repurchase. In August 2014, under a secondary public offering of Spirit AeroSystems, Onex Partners I sold the remaining shares of Spirit AeroSystems. N O T E S T O C O N S O L I D AT E D F I N A N C I A L S TAT E M E N T S 2 7. F I N A N C I A L I N S T R U M E N T S Financial assets held by the Company, presented by ﬁnancial statement line item, were as follows: December 31, 2015 Assets as per balance sheet Cash and cash equivalents Short-term investments Accounts receivable Other current assets Long-term investments Other non-current assets Financial assets held by discontinued operations Fair Value through Net Earnings Recognized Designated Available- for-Sale Loans and Receivables Derivatives Used for Hedging $ – 203 – 18 2,471 86 19 $ 2,313 $ – – 196 4,996 162 113 – 3 – – 22 – – $ – – 2,933 239 – 78 205 $ – – – 39 78 – 1 Total $ 2,313 206 2,933 492 7,567 326 338 Total $ 2,797 $ 7,780 $ 25 $ 3,455(a) $ 118 $ 14,175 (a) The carrying value of loans and receivables approximates their fair value. December 31, 2014 Assets as per balance sheet Cash and cash equivalents Accounts receivable Other current assets Long-term investments Other non-current assets Financial assets held by discontinued operations Fair Value through Net Earnings Recognized Designated Loans and Receivables Derivatives Used for Hedging $ – – 6 1,123 38 – $ 3,764 $ – $ – 180 3,687 61 37 3,083 123 – 67 128 – – 6 67 2 – Total $ 3,764 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. 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, 2015 Liabilities as per balance sheet Accounts payable and accrued liabilities $ − $ 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 316 69 − − 547 − – – − − 4,870 − 4 7,318 – $ 3,218 $ 31 $ 3,249 40 259 13,503 57 50 − 425 − 32 − − 33 − 4 356 360 18,373 57 634 7,318 429 Total $ 932 $ 12,192 $ 17,552 $ 100 $ 30,776 (a) Long-term debt is presented gross of financing charges. Onex Corporation December 31, 2015 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 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 $ – $ 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 5,176 – $ 2,872 $ 18 $ 2,890 12 192 10,034 45 8 – 477 – 25 – – 26 – – 203 233 13,465 45 369 5,176 477 Total $ 538 $ 8,611 $ 13,640 $ 69 $ 22,858 (a) Long-term debt is presented gross of financing charges. Long-term debt recorded at fair value through net earnings at December 31, 2015 of $4,870 (2014 – $3,431) has contractual amounts due on maturity of $5,093 (2014 – $3,535). The gains (losses) recognized by the Company related to ﬁnancial assets and liabilities were as follows: Year ended December 31 2015 2014 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 Other Derivatives used for hedging Total gains (losses) recognized Earnings (Loss) Comprehensive Earnings (Loss)(1) Earnings (Loss) Comprehensive Earnings (Loss) (1) $ (774)(a) $ n/a $ (861)(a) $ n/a n/a – – (15) (878) 3 (30) 1 n/a n/a n/a n/a n/a (56) n/a – – (25) (669) – (19) – n/a n/a n/a n/a n/a (25) $ (1,694) $ (55) $ (1,574) $ (25) (1) Amounts recognized in comprehensive earnings (loss) are presented gross of the income tax effect. a) Primarily consists of a Limited Partners’ Interests charge of $856 (2014 – $1,069), a carried interest charge of $130 (2014 – $160) and an increase in value of investments in joint ventures and associates at fair value of $175 (2014 – $412). 158 Onex Corporation December 31, 2015 N O T E S T O C O N S O L I D AT E D F I N A N C I A L S TAT E M E N T S 2 8 . FA I R VA L U E M E A S U R E M E N T S credit risk. For certain operating companies, an adjustment is made by management for that operating company’s credit risk, resulting in Fair values of ﬁnancial instruments a Level 3 measurement in the fair value hierarchy. The estimated fair values of ﬁnancial instruments as at Decem- ber 31, 2015 and December 31, 2014 are based on relevant market Financial instruments measured at fair value are allocated within prices and information available at those dates. The carrying val- the fair value hierarchy based on the lowest level of input that is ues of cash and cash equivalents, short-term investments, accounts signiﬁcant to the fair value measurement. Transfers between the receivable, accounts payable and accrued liabilities approximate the three levels of the fair value hierarchy are recognized on the date fair values of these ﬁnancial instruments due to the short maturity of of the event or change in circumstances that caused the transfer. these instruments. The fair value of consolidated long-term debt at There were no signiﬁcant transfers between the three levels of the December 31, 2015 was $17,930 (December 31, 2014 – $13,340) com- fair value hierarchy during 2015. The three levels of the fair value pared to a carrying value of $18,054 (December 31, 2014 – $13,282). hierarchy are as follows: The fair value of consolidated long-term debt measured at amor- • Quoted prices in active markets for identical assets (“Level 1”); tized cost is a Level 2 measurement in the fair value hierarchy and • Signiﬁcant other observable inputs (“Level 2”); and is calculated by discounting the expected future cash ﬂows using • Signiﬁcant other unobservable inputs (“Level 3”). an observable discount rate for instruments of similar maturity and The allocation of ﬁnancial assets in the fair value hierarchy, excluding cash and cash equivalents, at December 31, 2015 was as follows: Financial assets at fair value through earnings Corporate loans held by CLOs and warehouse facilities Investments in debt Investments in equities Investments in joint ventures and associates Other Available-for-sale financial assets Investments in equities Total financial assets at fair value Level 1 Level 2 Level 3 Total $ – – 14 – 334 8 $ 4,992 1,846 83 – 148 17 $ – 1 – 733 – – $ 4,992 1,847 97 733 482 25 $ 356 $ 7,086 $ 734 $ 8,176 The allocation of ﬁnancial assets in the fair value hierarchy, excluding cash and cash equivalents, at December 31, 2014 was as follows: Financial assets at fair value through earnings Corporate loans held by CLOs and warehouse facilities Investments in debt Investments in equities Investments in joint ventures and associates Other Total financial assets at fair value Level 1 Level 2 Level 3 Total $ − − 22 − 267 $ 289 $ 3,683 $ 546 30 – 40 − − − 540 − $ 3,683 546 52 540 307 $ 4,299 $ 540 $ 5,128 Onex Corporation December 31, 2015 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 allocation of ﬁnancial liabilities in the fair value hierarchy at December 31, 2015 was as follows: Level 1 Level 2 Level 3 Total Financial liabilities at fair value through earnings Limited Partners’ Interests for Onex Partners and ONCAP Funds $ – $ Limited Partners’ Interests for Onex Credit Funds Unrealized carried interest due to Onex and ONCAP management Long-term debt of CLOs Contingent consideration and other Total financial liabilities at fair value – – – 12 $ 12 – – – – 158 $ 158 $ 6,989 $ 6,989 329 331 4,870 435 329 331 4,870 605 $ 12,954 $ 13,124 The allocation of ﬁnancial liabilities in the fair value hierarchy at December 31, 2014 was as follows: Financial liabilities at fair value through earnings Limited Partners’ Interests for Onex Partners and ONCAP Funds Unrealized carried interest due to Onex and ONCAP management Long-term debt of CLOs Contingent consideration and other Total financial liabilities at fair value Level 1 Level 2 Level 3 Total $ − − − 12 $ 12 $ $ − − − 8 8 $ 5,176 $ 5,176 204 3,431 318 204 3,431 338 $ 9,129 $ 9,149 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 14), are as follows: Balance – December 31, 2013 Change in fair value recognized in net earnings Additions Acquisition of subsidiaries Settlements Other Balance – December 31, 2014 Change in fair value recognized in net earnings Transfer to Level 3 Additions Acquisition of subsidiaries Settlements Other Balance – December 31, 2015 Financial Assets at Fair Value through Net Earnings Long-Term Debt of CLOs $ – – – – – – – (1) 4 50 – (51) (1) $ 1,723 (28) 1,736 – – – 3,431 (110) – 1,857 – (308) – Other Financial Liabilities at Fair Value through Net Earnings $ 645 177 2 27 (334) 5 522 56 – – 213 (35) 10 $ 1 $ 4,870 $ 766 Unrealized change in fair value for assets and liabilities held at the end of the reporting period $ (1) $ (109) $ 56 160 Onex Corporation December 31, 2015 N O T E S T O C O N S O L I D AT E D F I N A N C I A L S TAT E M E N T S Financial assets and liabilities measured at fair value with ment in meeting the MIP exercise hurdles. For example, an increase signiﬁcant unobservable inputs (Level 3) are recognized in the in the fair value of an investment in an associate would have the fol- consolidated statements of earnings in the following line items: (i) lowing impacts on Onex’ consolidated ﬁnancial statements: interest expense of operating companies; (ii) increase in value of i) an increase in the unrealized value of investments in joint investments in joint ventures and associates at fair value, net; (iii) ventures and associates at fair value in the consolidated state- other income (expense); and (iv) Limited Partners’ Interests charge. ments of earnings, with a corresponding increase in long- term investments in the consolidated balance sheets; The valuation of investments in debt securities measured at fair ii) a charge would be recorded for the limited partners’ share of value with signiﬁcant other observable inputs (Level 2) is generally the fair value increase of the investment in associate on the determined by obtaining quoted market prices or dealer quotes Limited Partners’ Interests line in the consolidated statements for identical or similar instruments in inactive markets, or other of earnings, with a corresponding increase to the Limited inputs that are observable or can be corroborated by observable Partners’ Interests in the consolidated balance sheets; market data. iii) a change in the calculation of unrealized carried interest in The valuation of ﬁnancial assets and liabilities mea- the respective Fund that holds the investment in associate, sured at fair value with signiﬁcant unobservable inputs (Level 3) resulting in a recovery being recorded in the Limited Partners’ is determined quarterly utilizing available market data. The valu- Interests line in the consolidated statements of earnings, with ation of investments in the Onex Partners and ONCAP Funds is a corresponding decrease to the Limited Partners’ Interests in reviewed and approved by the General Partner of the respective the consolidated balance sheets; Funds each quarter. The General Partners of the Onex Partners iv) a charge would be recorded for the change in unrealized car- and ONCAP Funds are indirectly controlled by Onex Corporation. ried interest due to Onex and ONCAP management on the The fair value measurement of the Limited Partners’ other income (expense) line in the consolidated statements of Interests for the Onex Credit Funds is primarily driven by the earnings, with a corresponding increase to other non-current underlying fair value of the investments in the Onex Credit Funds. liabilities in the consolidated balance sheets; and The investment strategies of the Onex Credit Funds are focused v) a change in the fair value of the vested investment rights on a variety of event-driven, long/short, stressed and distressed held under the MIP, resulting in a charge being recorded on opportunities. the stock-based compensation line in the consolidated state- The fair value measurements for investments in joint ments of earnings, with a corresponding increase to other ventures and associates, Limited Partners’ Interests for the Onex non-current liabilities in the consolidated balance sheets. Partners and ONCAP Funds and unrealized carried interest are primarily driven by the underlying fair value of the investments Valuation methodologies may include observations of the trading in the Onex Partners and ONCAP Funds. A change to reasonably multiples of public companies considered comparable to the pri- possible alternative estimates and assumptions used in the valu- vate companies being valued and discounted cash ﬂows. The fol- ation of non-public investments in the Onex Partners and ONCAP lowing table presents the signiﬁcant unobservable inputs used to Funds may have a signiﬁcant impact on the fair values calculated value the Company’s private securities that impact the valuation of for these ﬁnancial assets and liabilities. A change in the valuation (i) investments in joint ventures and associates; (ii) unrealized car- of the underlying investments may have multiple impacts on Onex’ ried interest liability due to Onex and ONCAP management; (iii) consolidated ﬁnancial statements and those impacts are dependent stock-based compensation liability for the MIP; and (iv) Limited on the method of accounting used for that investment, the Fund(s) Partners’ Interests. within which that investment is held and the progress of that invest- Valuation Technique Significant Unobservable Inputs Inputs at December 31, 2015 Inputs at December 31, 2014 Market comparable companies EBITDA multiple Discounted cash flow Weighted average cost of capital Exit multiple 6.5x–10.5x 11.1%–18.0% 6.5x–10.5x 6.5x–12.0x 11.9%–18.0% 4.3x–10.0x Onex Corporation December 31, 2015 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 In addition, the Company has an investment which is valued based Accounts receivable are also subject to credit risk. At December 31, on estimated sales proceeds at December 31, 2015 as well as an 2015, the aging of consolidated accounts receivable was as follows: investment which is valued using market comparable transactions at December 31, 2015. At December 31, 2014, the Company had two invest- ments which were valued using market comparable transactions, one of which was sold during 2015. Generally, EBITDA represents maintainable operating earnings, which considers adjustments including those for ﬁnancing costs, taxes, non-cash amortization, non-recurring items and the impact Current 1–30 days past due 31–60 days past due >60 days past due Total Accounts Receivable $ 2,162 406 125 240 $ 2,933 of any discontinued activities. EBITDA is a measurement that is Liquidity risk not deﬁned under IFRS. Liquidity risk is the risk that Onex and its operating companies will have insufﬁcient funds on hand to meet their respective The long-term debt recorded at fair value in the CLOs is recognized obligations as they come due. The operating companies operate at fair value using third-party pricing information without adjust- autonomously and generally have restrictions on cash distribu- ment by the Company. The valuation methodology is based on a tions to shareholders under their ﬁnancing agreements. Onex projection of the future cash ﬂows expected to be realized from needs to be in a position to support its operating companies when the underlying collateral of the CLOs. During 2015, the Company and if it is appropriate and reasonable for Onex, as an equity recorded a gain of $110 (2014 – $28) attributable to changes in the owner with paramount duties to act in the best interests of Onex credit risk of the long-term debt in the CLOs. 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 CLOs included in the long-term investments line in the consolidated balance sheets consist primarily of invest- ments in debt securities. The investments in debt securities are subject to credit risk. A description of the investments held by the CLOs is included in note 8(c). At December 31, 2015, Onex, the parent company, had $588 of cash on hand and $1,550 of near-cash items at market value. Cash and cash equivalents are held with ﬁnancial institu- tions having a current Standard & Poor’s rating of A-1+ or above. Near-cash items include short- and long-term investments man- aged by third-party investment managers, as described below, as well as $351 invested in a segregated unlevered fund managed by Onex Credit. The short- and long-term investments have current Standard & Poor’s ratings ranging from BBB to AAA. The portfolio concentration limits range from a maximum of 10% for BBB invest- ments to 100% for AAA investments. shareholders, to do so. Maintaining sufﬁcient liquidity at Onex is important because Onex, as a holding company, generally does not have guaranteed sources of meaningful cash ﬂow. In completing acquisitions, it is generally Onex’ policy to ﬁnance a signiﬁcant portion of the purchase price with debt provided by third-party lenders. This debt, sourced exclusively on the strength of the acquired companies’ ﬁnancial condition and prospects, is debt of 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 fore- most 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 Com pany is primarily exposed to ﬂuctuations in the foreign cur- rency exchange rate between the Canadian and U.S. dollars and ﬂuctuations in LIBOR, EURIBOR and the U.S. prime interest rate. 162 Onex Corporation December 31, 2015 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 Foreign currency exchange rates rate or an interest rate that was effectively ﬁxed by interest rate swap Onex’ operating companies operate autonomously as self-sus- contracts. The long-term debt of the operating companies is without taining companies. The functional currency of the majority of recourse to Onex Corporation, the ultimate parent company. Onex’ operating companies is the U.S. dollar. However, certain operating companies conduct business outside the United States Commodity risk and as a result are exposed to currency risk on the portion of busi- Certain of Onex’ operating companies have exposure to com- ness that is not based on the U.S. dollar. To manage foreign cur- modities. In particular, silver is a signiﬁcant commodity used in rency risk, certain operating companies use forward contracts to Carestream Health’s manufacturing of x-ray ﬁlm. The company’s hedge all or a portion of forecasted revenues and/or costs outside management continually monitors movements and trends in the their functional currencies. Additionally, where possible, Onex silver market and enters into collar and forward agreements when and its operating companies aim to reduce the exposure to for- considered appropriate to mitigate some of the risk of future price eign currency ﬂuctuations through natural hedges by transacting ﬂuctuations, generally for periods of up to a year. in local currencies. Additionally, resin and aluminum are signiﬁcant com- Onex and its operating companies have minimal expo- modities used by SIG. The company generally purchases commod- sure to ﬂuctuations in the value of the U.S. dollar relative to the ities at spot market prices and actively uses derivative instruments Canadian dollar. Interest rates to hedge the exposure in relation to the cost of resin (and its com- ponents) and aluminum. Due to this approach, the company has been able to ﬁx the prices one year forward for approximately 90% The Company is exposed to changes in future cash ﬂows as a result of its expected resin and aluminum purchases, which substantially of changes in the interest rate environment. The parent company minimizes the exposure to the price ﬂuctuations of the commodi- is exposed to interest rate changes primarily through its cash and ties over that period. cash equivalents, which are held in short-term term deposits and commercial paper. Assuming no signiﬁcant changes in cash bal- Regulatory risk ances held by the parent company from those at December 31, Certain of Onex’ operating companies and investment advisor 2015, a 0.25% increase (0.25% decrease) in the interest rate (includ- afﬁliates may be subject to extensive government regulations and ing the Canadian and U.S. prime rates) would result in a minimal oversight with respect to their business activities. Failure to comply impact on annual interest income. As all of the Canadian dollar with applicable regulations, obtain applicable regulatory approvals, cash and cash equivalents at the parent company are designated or maintain those approvals may subject the applicable operating as fair value through net earnings, there would be no effect on company to civil penalties, suspension or withdrawal of any regu- other comprehensive earnings. latory approval obtained, injunctions, operating restrictions and Onex, the parent company, has exposure to interest rate criminal prosecutions and penalties, which could, individually or in risk primarily through its short- and long-term investments man- the aggregate, have a material adverse effect on Onex’ consolidated aged by third-party investment managers. As interest rates change, ﬁnancial position. the fair values of ﬁxed income investments are inversely impacted. Investments with shorter durations are less impacted by changes Capital disclosures in interest rates compared to investments with longer durations. Onex considers the capital it manages to be the amounts it has in At December 31, 2015, Onex’ short- and long-term investments cash and cash equivalents, near-cash investments, short- and long- included $1,002 of ﬁxed income securities measured at fair value, term investments managed by third-party investment managers which are subject to interest rate risk. These securities had an aver- and the investments made in the operating businesses and Onex age duration of 1.5 years. Other factors, including general econom- Credit. Onex also manages the capital of other investors in the ic conditions and political conditions, may also affect the value of Onex Partners, ONCAP and Onex Credit Funds. Onex’ objectives in ﬁxed income securities. These risks are monitored on an ongoing managing capital are to: basis and the short- and long-term investments may be reposi- • preserve a ﬁnancially strong parent company with appropriate tioned in response to changes in market conditions. liquidity and no, or a limited amount of, debt so that funds are The operating companies’ results are also affected by available to pursue new acquisitions and growth opportunities changes in interest rates. A change in the interest rate (including as well as support expansion of its existing businesses. Onex gen- the LIBOR, EURIBOR and U.S. prime interest rate) would result in erally does not have the ability to draw cash from its operating a change in interest expense being recorded due to the variable- businesses. Accordingly, maintaining adequate liquidity at the rate portion of the long-term debt of the operating companies. parent company is important; At December 31, 2015, excluding CLOs, approximately 45% (2014 – • achieve an appropriate return on capital invested commensu- 50%) of the operating companies’ long-term debt had a ﬁxed interest rate with the level of assumed risk; Onex Corporation December 31, 2015 163 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 • build the long-term value of its operating businesses; The Company, which includes the operating companies, • control the risk associated with capital invested in any particu- has also provided certain indemniﬁcations, including those related lar business or activity. All debt ﬁnancing is within the operating to businesses that have been sold. The maximum amounts from companies and each operating company is required to support many of these indemniﬁcations cannot be reasonably estimated at its own debt. Onex Corporation does not guarantee the debt of this time. However, in certain circumstances, the Company and its the operating businesses and there are no cross-guarantees of operating companies have recourse against other parties to miti- debt between the operating businesses; and gate the risk of loss from these indemniﬁcations. • have appropriate levels of committed limited partners’ capital The Company, which includes the operating companies, available to invest along with Onex’ capital. This allows Onex to has commitments with respect to real estate operating leases, respond quickly to opportunities and pursue acquisitions of busi- which are disclosed in note 13. nesses of a size it could not achieve using only its own capital. The aggregate commitments for capital assets at The management of limited partners’ capital also provides man- December 31, 2015 amounted to $133, with the majority expected agement fees to Onex and the ability to enhance Onex’ returns by to be incurred between 2016 and 2017. earning a carried interest on the proﬁts of limited partners. Beginning in the second quarter of 2015, Onex, the parent com- b) Onex and its operating companies are or may become parties to legal, product liability and warranty claims arising from the ordi- pany, transferred a portion of its cash and cash equivalents to nary course of business. Certain operating companies, as condi- accounts managed by third-party investment managers in order tions of acquisition agreements, have agreed to accept certain pre- to increase the return on this capital while maintaining appropri- acquisition liability claims against the acquired companies. The ate liquidity. At December 31, 2015, the fair value of investments, operating companies have recorded provisions based on their con- including cash yet to be deployed, managed by third-party invest- sideration and analysis of their exposure in respect of such claims. ment managers was $1,199. The investments are managed in a mix Such provisions are reﬂected, as appropriate, in Onex’ consolidated of short-term and long-term portfolios. Short-term investments ﬁnancial statements, as described in note 11. Onex Corporation, the consist of liquid investments including money market instruments ultimate parent company, has not currently recorded any further and commercial paper with original maturities of three months to provision and does not believe that the resolution of known claims one year. Long-term investments consist of securities that include would reasonably be expected to have a material adverse impact money market instruments, federal and municipal debt instru- on Onex’ consolidated ﬁnancial position. However, the ﬁnal out- ments, corporate obligations and structured products with matu- come with respect to outstanding, pending or future actions cannot rities of one year to ﬁve years. The investments are managed to be predicted with certainty, and therefore there can be no assur- maintain an overall weighted average duration of two years or less. ance that their resolution will not have an adverse effect on Onex’ At December 31, 2015, Onex had access to $2,845 of consolidated ﬁnancial position. uncalled committed limited partners’ capital for acquisitions through Onex Partners IV and C$148 of uncalled committed lim- ited partners’ capital for acquisitions through ONCAP III. c) The operating companies are subject to laws and regulations concerning the environment and to the risk of environmental lia- bility inherent in activities relating to their past and present opera- The strategy for risk management of capital has not changed tions. As conditions of acquisition agreements, certain operating signiﬁcantly since December 31, 2014. companies have agreed to accept certain pre-acquisition liability claims on the acquired companies after obtaining indemniﬁcation 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 from previous owners. R E L AT E D PA R T Y T R A N S A C T I O N S a) Contingent liabilities in the form of letters of credit, letters of guarantee and surety and performance bonds are primar- ily provided by certain operating companies to various third par- ties and include certain bank guarantees. At December 31, 2015, the amounts potentially payable in respect of these guarantees totalled $361. In addition, in February 2016, Onex, the parent company, committed to investing $75 in Incline Aviation Fund, an aircraft investment fund to be managed by BBAM and focused on invest- ments in contractually leased commercial jet aircraft. 164 Onex Corporation December 31, 2015 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. N O T E S T O C O N S O L I D AT E D F I N A N C I A L S TAT E M E N T S d) In February 2004, Onex completed the closing of Onex Part- ners I with commitments totalling $1,655. Onex Partners I provided e) In August 2006, Onex completed the closing of Onex Partners II with commitments totalling $3,450. Onex Partners II provided com- committed capital for Onex-sponsored acquisitions not related mitted capital for Onex-sponsored acquisitions not related to Onex’ to Onex’ operating companies at December 31, 2003 or to ONCAP. operating companies at December 31, 2003 or to ONCAP or Onex As at December 31, 2015, $1,475 (2014 – $1,475) has been invested Partners I. As at December 31, 2015, $2,944 (2014 – $2,944) has been of the $1,655 of total capital committed. Onex has invested $346 invested of the $3,450 of total capital committed. Onex has invested (2014 – $346) of its $400 commitment. Onex controls the General $1,164 (2014 – $1,164) of its $1,407 commitment. Onex controls the Partner and Manager of Onex Partners I. The total amount invested General Partner and Manager of Onex Partners II. The total amount at cost in Onex Partners I’s remaining investments by Onex man- invested at cost in Onex Partners II’s remaining investment by Onex agement and Directors at December 31, 2015 was $11 (2014 – $11). management and Directors at December 31, 2015 was $18 (2014 – There were no additional amounts invested by Onex management $18). There were no additional amounts invested by Onex manage- and Directors in Onex Partners I investments during 2015 or 2014. ment and Directors in Onex Partners II investments during 2015 Prior to November 2006, Onex received annual manage- and 2014. ment fees based on 2% of the capital committed to Onex Partners I Prior to November 2008, Onex received annual man- by investors other than Onex and Onex management. The annual agement fees based on 2% of the capital committed to Onex management fee was reduced to 1% of the net funded commit- Partners II by investors other than Onex and Onex management. ments at the end of the initial fee period in November 2006, when The annual management fee was reduced to 1% of the net fund- Onex established a successor Onex Partners fund, Onex Partners II. ed commitments at the end of the initial fee period in November In January 2015, with the approval of a majority in interest of the 2008, when Onex established a successor Onex Partners fund, limited partners, the term of Onex Partners I was extended to Feb- Onex Partners III. Carried interest is received on the overall gains ru ary 4, 2016. In connection with this extension, the management achieved by Onex Partners II investors, other than Onex and Onex fee was further reduced to 1% of net funded commitments relating management, to the extent of 20% of the gains, provided that to Onex Partners I’s investment in ResCare. In January 2016, with the those investors have achieved a minimum 8% return on their approval of a majority in interest of the limited partners, the term of investment in Onex Partners II over the life of Onex Partners II. Onex Partners I was further extended to February 4, 2017. As a result The investment by Onex Partners II investors for this purpose of this extension, management fees will no longer be earned for takes into consideration management fees and other amounts Onex Partners I as of February 4, 2016. Carried interest is received on paid by Onex Partners II investors. the overall gains achieved by Onex Partners I investors, other than Consistent with Onex Partners I, Onex, as sponsor of Onex and Onex management, to the extent of 20% of the gains, pro- Onex Partners II, is allocated 40% of the carried interest with 60% vided that those investors have achieved a minimum 8% return on allocated to Onex management. Carried interest received from their investment in Onex Partners I over the life of Onex Partners I. Onex Partners II has fully vested for Onex management. During The investment by Onex Partners I investors for this purpose takes 2015, no amounts were received as carried interest related to into consideration management fees and other amounts paid by Onex Partners II. For the year ended December 31, 2014, $60 was Onex Partners I investors. received by Onex as carried interest while Onex management Onex, as sponsor of Onex Partners I, is allocated 40% received $90 with respect to the carried interest. of the carried interest with 60% allocated to Onex management. Carried interest received from Onex Partners I has fully vested for Onex management. For the year ended December 31, 2015, less f) In December 2009, Onex completed the closing of Onex Part- ners III with commitments totalling $4,300. Onex Partners III pro- than $1 (2014 – $57) was received by Onex as carried interest while vided committed capital for Onex-sponsored acquisitions not Onex management received less than $1 (2014 – $85) with respect related to Onex’ operating companies at December 31, 2003 or to to the carried interest. ONCAP, Onex Partners I or Onex Partners II. As at December 31, 2015, $4,207 (2014 – $4,207) has been invested, including capital- ized costs, of which Onex’ share was $927 (2014 – $927). Onex’ com- mitment to Onex Partners III has been $1,200 since May 15, 2012. Onex controls the General Partner and Manager of Onex Part- ners III. The total amount invested at cost in Onex Partners III’s remaining investments by Onex management and Directors at Decem ber 31, 2015 was $141 (2014 – $149). During 2015, there were no additional amounts invested by Onex management and Direc- tors in Onex Partners III (2014 – additional investments of $34). Onex Corporation December 31, 2015 165 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 December 2013, Onex received annual man- Onex began to receive management fees from Onex agement fees based on 1.75% of the capital committed to Onex Partners IV in August 2014. During the initial fee period of Onex Partners III by investors other than Onex and Onex management. Partners IV, Onex receives annual management fees based on The annual management fee was reduced to 1% of the net funded 1.7% of capital committed to Onex Partners IV by investors other commitments at the end of the initial fee period in December 2013. than Onex and Onex management. The annual management fee Onex obtained approval for an extension of the commitment peri- is reduced to 1% of the net funded commitments at the earlier of od for Onex Partners III into 2014 to enable further amounts to be the end of the commitment period or if Onex establishes a succes- invested through the Fund. The October 2014 investment in York sor Onex Partners fund. Carried interest is received on the over- was the ﬁnal new investment made by Onex Partners III. Carried all gains achieved by Onex Partners IV investors, other than Onex interest is received on the overall gains achieved by Onex Part- and Onex management, to the extent of 20% of the gains, provid- ners III investors, other than Onex and Onex management, to ed that those investors have achieved a minimum 8% return on the extent of 20% of the gains, provided that those investors have their investment in Onex Partners IV over the life of Onex Part- achieved a minimum 8% return on their investment in Onex ners IV. The investment by Onex Partners IV investors for this Partners III over the life of Onex Partners III. The investment by purpose takes into consideration management fees and other Onex Partners III investors for this purpose takes into consider- amounts paid by Onex Partners IV investors. ation management fees and other amounts paid by Onex Part- The returns to Onex Partners IV investors, other than ners III investors. Onex and Onex management, are based on all investments made The returns to Onex Partners III investors, other than through Onex Partners IV, with the result that the initial carried Onex and Onex management, are based on all investments interest achieved by Onex on gains could be recovered from Onex made through Onex Partners III, with the result that the initial if subsequent Onex Partners IV investments do not exceed the carried interest achieved by Onex on gains could be recovered overall target return level of 8%. Consistent with Onex Partners I, from Onex if subsequent Onex Partners III investments do not Onex Partners II and Onex Partners III, Onex, as sponsor of Onex exceed the overall target return level of 8%. Consistent with Onex Partners IV, will be allocated 40% of the carried interest with 60% Partners I and Onex Partners II, Onex, as sponsor of Onex Part- allocated to Onex management. Carried interest received from ners III, will be allocated 40% of the carried interest with 60% allo- Onex Partners IV for Onex management will vest equally over cated to Onex management. Carried interest received from Onex six years from August 2014. As at December 31, 2015 and 2014, Partners III has fully vested for Onex management. For the year no amount had been received as carried interest related to Onex ended December 31, 2015, $1 (2014 – $54) was received by Onex as Partners IV. carried interest while Onex management received $1 (2014 – $82) with respect to the carried interest. h) In May 2006, Onex completed the closing of ONCAP II with commitments totalling C$574. ONCAP II provided committed g) In May 2014, Onex completed the closing of Onex Partners IV with commitments totalling $5,150. Onex Partners IV is to provide capital for acquisitions of small and medium-sized businesses requiring between C$20 and C$75 of initial equity capital. As at committed capital for future Onex-sponsored acquisitions not December 31, 2015, C$483 (2014 – C$483) has been invested of the related to Onex’ operating companies at December 31, 2003 or C$574 of total capital committed. Onex has invested C$221 (2014 – to ONCAP, Onex Partners I, Onex Partners II or Onex Partners III. C$221) of its C$252 commitment. Onex controls the General Onex had a $1,200 commitment for the period from the date of the Partner and Manager of ONCAP II. The total amount invested at ﬁrst closing to June 2, 2015, and a $1,700 commitment since June 3, cost in ONCAP II’s remaining investments by management of Onex 2015. As at December 31, 2015, $1,736 (2014 – $208) has been invest- and ONCAP and Directors at December 31, 2015 was C$25 (2014 – ed, including capitalized costs and $54 of bridge ﬁnancing, of C$25). There were no additional amounts invested by management which Onex’ share was $428 (2014 – $46), including $15 of bridge of Onex and ONCAP and Directors in ONCAP II investments during ﬁnancing. Onex controls the General Partner and Manager of 2015 and 2014. Onex Part ners IV. Onex management has committed, as a group, Prior to July 2011, Onex received annual management to invest a minimum of 2% of Onex Partners IV, which may be fees based on 2% of the capital committed to ONCAP II by inves- adjusted annually up to a maximum of 8%. At December 31, 2015, tors other than Onex and management of Onex and ONCAP. The Onex management and Directors had committed 8%. The total annual management fee was reduced to 2% of the net investment amount invested in Onex Partners IV’s investments by Onex man- amount at the end of the initial fee period in July 2011, when Onex agement and Directors at December 31, 2015 was $129 (2014 – $16), established a successor ONCAP fund, ONCAP III. Carried interest including $4 of bridge ﬁnancing, of which $113 (2014 – $16) was is received on the overall gains achieved by ONCAP II investors, invested in the year ended December 31, 2015. other than management of ONCAP, to the extent of 20% of the gains, 166 Onex Corporation December 31, 2015 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 provided that those investors have achieved a minimum 8% The returns to ONCAP III investors, other than man- return on their investment in ONCAP II over the life of ONCAP II. agement of ONCAP, are based on all investments made through The investment by ONCAP II investors for this purpose takes ONCAP III, with the result that the initial carried interest achieved into consideration management fees and other amounts paid by by ONCAP on gains could be recovered if subsequent ONCAP III ONCAP II investors. investments do not exceed the overall target return level of 8%. The returns to ONCAP II investors, other than man- The ONCAP management team is entitled to that portion of the agement of ONCAP, are based on all investments made through carried interest that equates to a 12% carried interest on both ONCAP II, with the result that the initial carried interests achieved limited partners and Onex capital. Carried interest received from by ONCAP on gains could be recovered if subsequent ONCAP II ONCAP III will vest equally over ﬁve years ending in July 2016 investments do not exceed the overall target return level of 8%. for ONCAP management. As at December 31, 2015 and 2014, no The ONCAP management team is entitled to that portion of the amount had been received as carried interest related to ONCAP III. carried interest realized in the ONCAP Funds that equates to a 12% carried interest on both limited partners’ and Onex capi- tal. Carried interest received from ONCAP II has fully vested for j) In addition to the investments in Onex Partners and ONCAP Funds, the Onex management team may invest in strategies man- ONCAP management. For the year ended December 31, 2015, aged by Onex Credit. At December 31, 2015, investments at mar- ONCAP management received $2 (C$2) (2014 – $43 (C$46)) with ket held by the Onex management team in Onex Credit strategies respect to the carried interest. were approximately $275 (2014 – approximately $240). i) In September 2011, Onex completed the closing of ONCAP III with commitments totalling C$800, excluding commitments from k) Under the terms of the MIP, management members of the Com pany invest in all of the operating entities acquired or invest- management of Onex and ONCAP. ONCAP III provides commit- ed in by the Company. ted capital for acquisitions of small and medium-sized business- The aggregate investment by management members es requiring less than $125 of initial equity capital. As at Decem- ber 31, 2015, C$552 (2014 – C$369) has been invested of the C$800 of total capital committed. Onex has invested C$163 (2014 – C$108) of its C$252 commitment. Onex controls the General Partner and under the MIP is limited to 9% of Onex’ interest in each acquisition. The form of the investment is a cash purchase for 1⁄6th (1.5%) of the MIP’s share of the aggregate investment, and investment rights for the remaining 5⁄6ths (7.5%) of the MIP’s share at the same price. Manager of ONCAP III. ONCAP management has committed, as a Amounts invested under the minimum investment requirement in group, to invest a minimum of 1% of ONCAP III. The commitment Onex Partners’ transactions are allocated to meet the 1.5% Onex from management of Onex and ONCAP and Directors may be increased by an additional 5% of ONCAP III. At December 31, 2015, investment requirement under the MIP. The investment rights to acquire the remaining 5⁄ 6ths vest equally over six years with the management of Onex and ONCAP and Directors had committed investment rights vesting in full if the Company disposes of all of 6% (2014 – 6%). The total amount invested at cost in ONCAP III’s an investment before the seventh year. Under the MIP, the invest- investments by management of Onex and ONCAP and Directors at ment rights related to a particular acquisition are exercisable only December 31, 2015 was C$52 (2014 – C$35), of which C$17 (2014 – if the Company realizes in cash the full return of its investment and C$11) was invested in the year ended December 31, 2015. earns a minimum 15% per annum compound rate of return for that Onex receives annual management fees based on 2% of investment after giving effect to the investment rights. the capital committed to ONCAP III by investors other than Onex Under the terms of the MIP, the total amount paid by and management of Onex and ONCAP. The annual management management members in 2015, including amounts invested fee is reduced to 1.5% of the net funded commitments at the ear- under the minimum investment requirement of the Onex Partners lier of the end of the commitment period or if Onex establishes a and ONCAP Funds to meet the 1.5% MIP requirement, was $18 successor ONCAP fund. Carried interest is received on the overall (2014 – $13). Investment rights exercisable at the same price for gains achieved by ONCAP III investors, other than management 7.5% of the Company’s interest in acquisitions were issued at the of ONCAP, to the extent of 20% of the gains, provided that those same time. Realizations under the MIP distributed in 2015 were $4 investors have achieved a minimum 8% return on their invest- (2014 – $117). ment in ONCAP III over the life of ONCAP III. The investment by In addition, management of ONCAP has an incentive ONCAP III investors for this purpose takes into consideration program related to Onex’ co-investment in ONCAP operating management fees and other amounts paid by ONCAP III investors. companies. Onex Corporation December 31, 2015 167 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 l) Members of management and the Board of Directors of the Company invested $5 in 2015 (2014 – $10) in Onex’ investments q) During 2015 and 2014, Onex entered into the sale of entities, the sole assets of which were certain tax losses, to companies controlled made outside of Onex Partners and ONCAP at the same cost as by Mr. Gerald W. Schwartz, who is Onex’ controlling shareholder. Onex and other outside investors. Those investments by manage- Onex has signiﬁcant non-capital and capital losses available; how- ment and Directors are subject to voting control by Onex. ever, Onex does not expect to generate sufﬁcient taxable income m) Each member of Onex management is required to reinvest 25% of the proceeds received related to their share of the MIP invest- beneﬁt has been recognized in the consolidated ﬁnancial state- ments for these losses. In connection with these transactions, ment rights and carried interest to acquire Onex SVS and/or man- Deloitte & Touche LLP, an independent accounting ﬁrm retained by agement DSUs in the market until the management member owns Onex’ Audit and Corporate Governance Committee, provided opin- one million Onex SVS and/or management DSUs. During 2015, ions that the values received by Onex for the tax losses were fair. Onex management reinvested C$1 (2014 – C$55) to acquire Onex Onex’ Audit and Corporate Governance Committee, all the mem- to fully utilize these losses in the foreseeable future. As such, no SVS and/or management DSUs. n) Certain operating companies have made loans to certain direc- tors or ofﬁcers of the individual operating companies, typically for bers of which are independent Directors, unanimously approved the transactions. The following transactions were completed during 2015 and 2014: • In 2015, Onex received $11 in cash for tax losses of $109. The the purpose of acquiring shares in those operating companies. The entire $11 was recorded as a gain and included in other income total value of the loans outstanding as at December 31, 2015 was $6 (expense) in the consolidated statements of earnings. (2014 – $25). o) Onex Corporation, the ultimate parent company, receives fees from certain operating companies for services provided. The fees • In 2014, Onex received $9 in cash for tax losses of $84. The entire $9 was recorded as a gain and included in other income (expense) in the consolidated statements of earnings. from consolidated operating companies are eliminated in these In addition, during 2014 Onex utilized certain tax losses associated consolidated ﬁnancial statements. During 2015, no fees (2014 – $1) with distributions of carried interest to management of Onex, for were received from non-consolidated operating companies and which Onex received cash of $4. included with revenues in these consolidated ﬁnancial statements. p) Onex Credit earns management fees on other investors’ capi- tal invested in Onex Credit Funds and CLOs. Management fees r) In January 2016, Onex repurchased in a private transaction 1,000,000 of its SVS that were held indirectly by Mr. Gerald W. Schwartz, Onex’ controlling shareholder. The private transac- earned on the capital invested by Onex, the parent company, are tion was approved by the Board of Directors of the Company. The eliminated in the consolidated ﬁnancial statements. shares were repurchased at C$84.12 per SVS, or a total cash cost of In addition, Onex Credit is entitled to incentive fees on $59 (C$84), which represents a slight discount to the trading price other investors’ capital invested in Onex Credit Funds and CLOs. of Onex shares at that date. Incentive fees range between 5% and 20%. Certain incentive fees In July 2014, Onex repurchased in a private transac- (including incentive fees on CLOs) are subject to a hurdle or mini- tion 1,000,000 of its SVS that were held indirectly by Mr. Gerald W. mum preferred return to investors. Schwartz. The private transaction was approved by the Board of During the year ended December 31, 2015, gross manage- Directors of the Company. The shares were repurchased at C$65.99 ment and incentive fees earned by the credit strategies segment, per SVS or a total cash cost of $62 (C$66), which represents a slight including management and incentive fees from Onex Credit Funds discount to the trading price of Onex shares at that date. and CLOs consolidated by Onex, were $34 and $1, respectively. The management and incentive fees from Onex Credit Funds and CLOs consolidated by Onex, the parent company, were $29 and $1, respectively. Credit strategies segment revenues for 2015, net of management and incentive fees from Onex Credit Funds and CLOs consolidated by Onex, were $5. The credit strategies segment did not record any revenues for the year ended December 31, 2014 as the Onex Credit Manager began to be consolidated in January 2015. 168 Onex Corporation December 31, 2015 N O T E S T O C O N S O L I D AT E D F I N A N C I A L S TAT E M E N T S s) The Company’s key management consists of the senior execu- tives of Onex, ONCAP, Onex Credit and its operating companies. 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 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 Short-term employee benefits and costs Post-employment benefits Other long-term benefits Termination benefits Share-based payments(i) Total 2015 $ 137 1 1 6 113 $ 258 2014 $ 169 1 – 3 377 $ 550 (i) Share-based payments include $16 (2014 – $13) paid on the exercise of Onex stock options (note 17), $1 (2014 – $231) of carried interest paid to Onex management and $3 (2014 – $103) of amounts paid under the MIP to management and Onex (note 30(k)). During 2015, Onex, the parent company, received carried interest of $1 (2014 – $171) (note 30(e)). t) In January 2015, Onex acquired control of the Onex Credit asset management platform, which was previously jointly controlled with Onex Credit’s chief executive ofﬁcer, as described in note 2(f ). u) In July 2015, Celestica entered into an agreement of purchase and sale to sell certain of its real property to a special-purpose entity to be formed by a consortium of three real estate developers (the “Property Purchaser”) for approximately $99 (C$137), exclu- sive of taxes and subject to adjustment. The proceeds to Celestica consist of a C$15 deposit that was received upon execution of the agreement, C$54 upon closing and C$68 in the form of an inter- est-free, ﬁrst-ranking mortgage having a term of two years from the closing date. The transaction is subject to various conditions, including municipal approvals, and is expected to close within approximately two years from the execution date of the purchase and sale agreement. Approximately 30% of the interests in the Property Purchaser are to be held by a private entity in which Mr. Gerald W. Schwartz, who is Onex’ controlling shareholder and a direc- tor of Celestica, has a material interest. Mr. Schwartz also has a non-voting interest in an entity which is to have an approximate 25% interest in the Property Purchaser. Celestica formed a Special Committee, consisting solely of independent directors, to review and supervise the competitive bidding process. The bid of the Property Purchaser was approved by Celestica’s board of directors, at a meeting at which Mr. Schwartz was not present, based on the unanimous recommendation of the Special Committee. Onex is not participating in this transaction. 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 2015 for deﬁned contribution pension plans and multi-employer plans were $89 (2014 – $55). Accrued beneﬁt obligations and the fair value of plan assets for accounting purposes are measured at December 31 of each year. The most recent actuarial valuations of the largest pension plans for funding purposes were in 2015, and the next required valuations will be in 2016. The Company estimates that in 2016 the minimum funding requirement for the deﬁned beneﬁt pension plans will be $32. In 2015, total cash payments for employee future bene ﬁts, 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 $137 (2014 – $154). Included in the total was $8 (2014 – $11) contributed to multi-employer plans. Onex Corporation December 31, 2015 169 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 2015 2014 2015 2014 2015 2014 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 Acquisition of operating companies Transfer to discontinued operations Disposition of operating companies Plan amendments Other $ 430 $ 1,573 $ 781 $ 677 $ 74 $ 142 8 18 4 (46) 6 (7) (20) 581 (93) – (10) 5 2 20 3 (23) (7) 67 (24) – – (1,027) (148) (6) 12 26 – (25) (15) (61) (30) 135 (111) (12) (3) (1) 14 28 – (26) 17 118 (22) – – (3) (3) (19) 2 3 – (3) – (2) (11) – – – – – 2 3 – (4) (1 ) 9 (5) – – (73 ) – 1 Closing benefit obligations $ 876 $ 430 $ 696 $ 781 $ 63 $ 74 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 Acquisition of operating companies Transfer to discontinued operations Disposition of operating companies Settlements/curtailments Other Closing plan assets $ 496 $ 1,874 21 (11) 16 4 (46) (18) 710 (94) – (11) (6) 22 75 17 3 (23) (29) – – (1,279) (154) (10) $ 376 14 (18) 27 – (23) (6) 7 (5) (5) (2) (5) $ 343 $ 1 $ 16 24 27 – (19) (6) – – (2) (5) (2) – – 2 – (3) – – – – – – $ 1,061 $ 496 $ 360 $ 376 $ – $ 1 – – 4 – (4) – – – – (1 ) 1 1 170 Onex Corporation December 31, 2015 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 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 2015 18% 39% 1% 12% 11% – 13% 1% 5% 2014 19% 37% 2% 17% 13% 1% 3% 2% 6% 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 Deferred benefit amount: Plan assets, at fair value Accrued benefit obligation Plan surplus (deficit) Valuation allowance Pension Plans in which Assets Exceed Accumulated Benefits Pension Plans in which Accumulated Benefits Exceed Assets Non-Pension Post-Retirement Benefits 2015 2014 2015 2014 2015 2014 $ 1,061 (876) 185 (8) $ 496 (430) 66 (2) $ 360 $ 376 $ – $ 1 (696) (336) – (781) (405) – (63) (63) – (74) (73) – Deferred benefit amount – asset (liability) $ 177 $ 64 $ (336) $ (405) $ (63) $ (73) The deferred beneﬁt asset of $177 (2014 – $64) is included in the Company’s consolidated balance sheets within other non-current assets (note 9). The total deferred beneﬁt liabilities of $399 (2014 – $478) are included in the Company’s consolidated balance sheets within other non-current liabilities (note 15) and other current liabilities. Of the total deferred beneﬁt liabilities, $12 (2014 – $18) was recorded as a cur- rent liability. The following assumptions were used to account for the plans: Year ended December 31 2015 2014 2015 2014 Accrued benefit obligation Weighted average discount rate(a) Weighted average rate of compensation increase 0.5%−4.2% 1.4%−3.9% 1.0%−8.5% 0.5%−7.0% 0.7%−4.1% 2.0%−4.6% 0.1%−3.9% 2.0%−4.6% (a) Weighted average discount rate includes inflation, where applicable to a benefit plan. Pension Benefits Non-Pension Post-Retirement Benefits Onex Corporation December 31, 2015 171 N O T E S T O C O N S O L I D AT E D F I N A N C I A L S TAT E M E N T S Assumed healthcare cost trend rates Initial healthcare cost rate Cost trend rate declines to Year that the rate reaches the rate it is assumed to remain at 2015 6.2% 4.5% 2030 2014 6.2% 4.5% 2030 The assumptions underlying the discount rates, rates of compensation increase and healthcare cost trend rates have a signiﬁcant effect on the amounts reported for the pension and post-retirement beneﬁt plans. A 1% change in these assumed rates would increase (decrease) the beneﬁt obligations 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, 2015 1% Increase 1% Decrease 1% Increase 1% Decrease 1% Increase 1% Decrease Discount rate Rate of compensation increase Healthcare cost trend rate $ (78) $ 6 n/a $ 102 $ (5) n/a $ (115) $ 23 n/a $ 139 $ (21) n/a $ (8) $ $ 1 8 $ 10 $ (1) $ (6) 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) The sensitivity analysis above is based on changing one assump- 3 2 . S U B S E Q U E N T E V E N T S tion while holding all other assumptions constant. In practice, this is unlikely to occur, and changes in certain assumptions may be correlated. When calculating the sensitivity of the deﬁned beneﬁt obligation to changes in signiﬁcant actuarial assumptions, the same method used for calculating the beneﬁt obligation liabilities in the consolidated ﬁnancial statements has been applied. Certain operating companies have entered into agreements to acquire or make investments in other businesses. These trans- actions are typically subject to a number of conditions, many of which are beyond the control of Onex or the operating companies. 172 Onex Corporation December 31, 2015 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 2015 (2014 – eight). As a result of transactions completed in 2015, SIG and sgsco are reported in the packaging products and services segment, which is a reportable segment. In addition, the results of operations of Sitel Worldwide, which were previously included in the customer care services segment, are presented in the other businesses segment as a discontinued operation. Comparative disclosures have been restated to reﬂect these changes. The Company’s reportable segments at December 31, 2015 consist of: electronics manufacturing services; healthcare imaging; health and human services; building products; insur- ance services; packaging products and services; credit strategies and other. The electronics manufacturing services segment con- sists of Celestica, which provides supply chain solutions, including manufacturing services to electronics original equipment manu- facturers and service providers. The healthcare imaging segment consists of Carestream Health, a leading global provider of medi- cal imaging and healthcare information technology solutions. The health and human services segment consists of ResCare, a leading U.S. provider of residential training, education and support ser- vices for people with disabilities and special needs. The building products segment consists of JELD-WEN, one of the world’s larg- est manufacturers of interior and exterior doors, windows and related products for use primarily in the residential and light com- mercial new construction and remodelling markets. The insur- ance 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’ compensa- tion specialty markets in the United States. The packaging prod- ucts and services segment consists of SIG (since March 2015), a world-leading provider of aseptic carton packaging solutions for beverages and liquid food, and sgsco, a market leader in providing marketing solutions, digital imaging and design-to-print graphic services to branded consumer products companies, retailers and the printers that service them. The credit strategies segment con- sists 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 automation and tooling, maintenance services and aircraft components to the aerospace industry; BBAM, a manager of commercial jet aircraft; Emerald Expositions, a leading operator of business-to-business tradeshows in the United States; Jack’s (since July 2015), a regional premium quick-service restaurant operator based in the United States; Meridian Aviation, an aircraft investment company estab- lished by Onex Partners III; Tomkins (sold in July 2014), a global manufacturer of belts and hoses for the industrial and automo- tive markets; Schumacher (since July 2015), a leading provider of emergency and hospital medicine physician practice manage- ment services; Survitec (since March 2015), a market-leading pro- vider of mission-critical marine, defence and aerospace survival equipment; Tropicana Las Vegas (sold in August 2015), 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) and ONCAP III (Mavis Discount Tire since October 2014, ITG since June 2015 and Chatters since July 2015) and the parent com- pany. In addition, the other segment includes KraussMaffei, Sitel Worldwide, Skilled Healthcare Group, The Warranty Group and Spirit AeroSystems, which have been presented as discontinued operations. AIT (investment made in December 2014), Allison Transmission (sold in September 2014), BBAM, ITG (investment made in June 2015), Mavis Discount Tire (investment made in October 2014), Tomkins (sold in July 2014) and certain Onex Real Estate investments are recorded at fair value through net earn- ings, 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 2015 and 2014, no custom- ers represented more than 10% of the Company’s consolidated revenues. Onex Corporation December 31, 2015 173 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 2015 Industry Segments Electronics Manufacturing Services Healthcare Imaging Health and Human Services Building Products Insurance Services Packaging Products and Services Credit Strategies Consolidated Total Other Revenues $ 5,639 $ 2,141 $ 1,821 $ 3,378 $ 1,752 $ 2,070 $ 5 $ 2,875 $ 19,681 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 income (expense) Impairment of goodwill, intangible assets and long-lived assets, net Limited Partners’ Interests (charge) recovery Earnings (loss) before income taxes and discontinued operations Recovery of (provision for) income taxes Earnings (loss) from continuing operations Earnings from discontinued operations(a) Net earnings (loss) for the year Total assets(b) Long-term debt(b)(c) Property, plant and equipment additions(b) Intangible assets with indefinite life(b) Goodwill additions from acquisitions(b) Goodwill(b) Net earnings (loss) attributable to: Equity holders of Onex Corporation Non-controlling interests Net earnings (loss) for the year (5,175) (206) 1 (1,223) (578) 2 (1,382) (2,636) – (320) (476) (1,381) – 2 – (1,362) (239) 2 – (1,804) (50) 249 (717) 8 (13,582) (3,967) 264 (59) (63) (29) (102) (17) (144) – (69) (483) (9) (7) (100) (142) (194) (185) (128) (194) (5) (118) (121) (145) (15) (22) – (1) – (4) (51) – (3) 2 (1) – (12) (65) – (54) – (23) (10) – 2 (3) (1) – – (17) – (82) – – (124) 45 (79) – – (38) – (25) (12) – 109 (42) 67 – 67 $ – (5) – (16) – – 16 (46) (30) – (584) (878) 175 (260) 239 (435) (82) (856) (768) (116) (884) 379 – (2) – – – 38 107 (195) (3) – 107 (38) 69 – 69 – 26 (50) – (50) – 175 (143) 201 (197) (6) (882) (825) (34) (859) 379 $ (30) $ (1) $ (1) $ (79) $ $ (50) $ (480) $ (505) $ 2,612 $ 1,609 $ 1,034 $ 2,374 $ 5,034 $ 6,366 $ 6,284 $ 10,497 $ 35,810 $ $ $ $ $ $ $ 261 81 – – 19 9 58 67 $ 1,999 $ $ $ $ $ $ 56 8 – 327 (25) (5) (30) $ $ $ $ $ $ $ 525 $ 1,257 $ 2,866 $ 3,487 $ 4,899 $ 2,760 $ 18,054 36 224 10 282 $ $ $ $ 76 259 43 138 $ $ $ 24 196 34 $ 2,246 $ $ 164 429 $ 1,809 $ 2,102 (1) $ (1) $ – – (1) $ (1) $ (71) (8) (79) $ $ 69 – 69 $ $ $ $ $ $ – $ – $ 359 727 $ 796 $ 1,843 62 $ 1,268 $ 3,226 62 $ 2,501 $ 7,677 (50) $ (503) – 23 (50) $ (480) $ $ (573) 68 (505) (a) Represents the after-tax results of KraussMaffei, Sitel Worldwide and Skilled Healthcare Group, as described in note 6. (b) The other segment includes KraussMaffei, 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. 174 Onex Corporation December 31, 2015 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 Building Products Insurance Services Packaging Products and Services Credit Strategies Consolidated Total Other Revenues $ 5,631 $ 2,360 $ 1,737 $ 3,507 $ 1,079 $ 492 $ − $ 2,074 $ 16,880 Cost of sales (excluding amortization of property, plant and equipment, intangible assets and deferred charges) (5,158) (1,307) (2,840) 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 income (expense) Recovery (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) Net earnings (loss) for the year Total assets(b) Long-term debt(b)(c) Property, plant and equipment additions(b) Intangible assets with indefinite life(b) Goodwill additions from acquisitions(b) Goodwill(b) Net earnings (loss) attributable to: Equity holders of Onex Corporation Non-controlling interests (210) 1 (58) (11) (4) – (28) – 3 (41) – 125 (17) 108 – $ 108 $ (1,369) (572) 4 (67) (118) (148) – (4) – (5) – – 81 (40) 41 – 41 (297) – (24) (13) (47) – (2) – (7) – – 40 (11) 29 – 29 $ $ $ $ $ $ $ − 61 − − 19 12 96 $ 2,115 $ $ $ $ $ $ 66 8 − 329 37 4 41 $ $ $ $ $ $ $ 455 34 227 10 318 28 1 29 Net earnings (loss) for the year $ 108 (466) 2 (111) (17) (123) – (20) – (37) (6) – (111) (12) (123) – – (772) – (9) (159) (133) – (22) – (98) – – (114) 38 (76) – $ (123) $ (76) $ 804 74 259 $ 2,644 $ 11 $ 196 − $ 919 $ $ $ $ $ 103 $ 2,210 $ 329 $ 1,037 $ 568 $ $ $ 24 95 – $ (105) (18) $ (123) $ $ (68) (8) (76) $ $ 13 1 14 (317) (70) – (14) (35) (41) – (1) – 7 (3) – 18 (4) 14 – 14 – (37) 131 – − (69) – – − (56) – − (31) – (31) – $ (31) $ (1,172) (728) 2 (73) (79) (104) 412 (151) 317 (165) (12,163) (3,152) 140 (356) (432) (669) 412 (228) 317 (358) 1 (1,069) (49) (1,069) (735) (19) (754) 951 197 (727 ) (65) (792) 951 159 $ $ 4,373 $ 10,590 $ 28,936 $ 3,431 $ 3,265 $ 13,282 $ $ $ $ $ $ − − − − $ $ $ 283 695 239 $ 553 $ 1,480 $ 1,168 $ 1,620 $ 4,928 (31) – (31) $ $ (1) 198 197 $ $ (115) 274 159 $ 2,584 $ 1,803 $ 1,110 $ 2,351 $ 5,088 (a) Represents the after-tax results of KraussMaffei, Sitel Worldwide, Skilled Healthcare Group, Spirit AeroSystems and The Warranty Group, as described in note 6. (b) The other segment includes KraussMaffei, Sitel Worldwide and Skilled Healthcare Group, which were 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 2015 2014 Canada U.S. Europe Asia and Oceania Other(1) Total Canada U.S. Europe Asia and Oceania Other(1) Total $ 934 $ 10,934 $ 3,405 $ 3,192 $ 1,216 $ 19,681 $ 914 $ 9,517 $ 2,865 $ 2,808 $ 776 $ 16,880 $ 303 $ 1,140 $ 814 $ 765 $ 243 $ 3,265 $ 334 $ 1,565 Intangible assets(3) $ 257 $ 4,533 $ 1,445 $ 221 Goodwill(3) $ 199 $ 5,473 $ 1,420 $ 517 $ $ 72 $ 6,528 $ 282 $ 4,279 68 $ 7,677 $ 212 $ 4,285 $ $ $ 540 467 311 $ $ $ 418 $ 45 $ 2,902 34 96 $ 7 $ 5,069 $ 24 $ 4,928 (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. Revenues for 2014 are restated to reflect discontinued operations. (3) Amounts for 2015 exclude KraussMaffei, which is a discontinued operation. Amounts for 2014 exclude Skilled Healthcare Group, which is a discontinued operation. Onex Corporation December 31, 2015 175 Revenue(2) Property, plant and equipment(3) SHAREHOLDER INFORMATION Year-End Closing Share Price As at December 31 (in Canadian dollars) Toronto Stock Exchange 2015 $ 84.82 2014 2013 2012 2011 $ 67.46 $ 57.35 $ 41.87 $ 33.18 Shares Corporate Governance Policies Website The Subordinate Voting Shares of A presentation of Onex’ corporate www.onex.com the Company are listed and traded governance policies is included in the on the Toronto Stock Exchange. Management Information Circular Auditors Share Symbol OCX Dividends that is mailed to all shareholders and PricewaterhouseCoopers llp is available on Onex’ website. Chartered Professional Accountants Registrar and Transfer Agent Duplicate Communication Dividends on the Subordinate Voting P.O. Box 700 Shares are payable quarterly on or about Postal Station B CST Trust Company Registered holders of Onex Corporation shares may receive more than one copy of shareholder mailings. Every eﬀort January 31, April 30, July 31 and October 31 Montreal, Quebec H3B 3K3 is made to avoid duplication, but when of each year. At December 31, 2015 the (416) 682-3860 shares are registered under diﬀerent indicated dividend rate for each or call toll-free throughout Canada names and/or addresses, multiple Subordinate Voting Share was C$0.25 per and the United States annum. Registered shareholders can elect 1-800-387-0825 mailings result. Shareholders who receive but do not require more than to receive dividend payments in U.S. www.canstockta.com one mailing for the same ownership are dollars by submitting a completed currency or inquiries@canstockta.com requested to write to the Registrar and election form to CST Trust Company ﬁve Transfer Agent and arrangements will business days before the record date of the All questions about accounts, stock be made to combine the accounts for dividend. Non-registered shareholders certiﬁcates or dividend cheques mailing purposes. who wish to receive dividend payments in should be directed to the Registrar U.S. dollars should contact their broker and Transfer Agent. to submit their currency election. Shareholder Dividend Reinvestment Plan Electronic Communication with Shareholders Shares Held in Nominee Name To ensure that shareholders whose shares are not held in their name receive all Company reports and releases We encourage individuals to receive Onex’ on a timely basis, a direct mailing list The Dividend Reinvestment Plan shareholder communications electroni- is maintained by the Company. If you provides shareholders of record who are cally. You can submit your request online would like your name added to this list, resident in Canada a means to reinvest by visiting CST Trust Company’s website please forward your request to Investor cash dividends in new Subordinate Voting www.canstockta.com/electronicdelivery Relations at Onex. Shares of Onex Corporation at a market- or contacting them at 1-800-387-0825. related price and without payment of Annual Meeting of Shareholders brokerage commissions. To participate, Investor Relations Contact Onex Corporation’s Annual Meeting of registered shareholders should contact Requests for copies of this report, Shareholders will be held on May 12, 2016 Onex’ share registrar, CST Trust Company. other annual reports, quarterly reports at 10:00 a.m. (Eastern Daylight Time) at Non-registered shareholders who wish and other corporate communications the Hockey Hall of Fame, 30 Yonge Street, to participate should contact their should be directed to: Toronto, Ontario. investment dealer or broker. Investor Relations Onex Corporation 161 Bay Street P.O. Box 700 Toronto, Ontario M5J 2S1 (416) 362-7711 investor@onex.com Typesetting by Moveable Inc. www.moveable.com Printed in Canada 176 Onex Corporation December 31, 2015

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