Management’s Discussion and Analysis and Financial Statements December 31, 2016 ONEX AND ITS OPERATING BUSINESSES Onex is a public company whose shares trade on the Toronto Stock Exchange under the symbol ONEX. Onex’ businesses have assets of $44 billion, generate annual revenues of $29 billion and employ approximately 161,000 people worldwide. Onex operates from offices located in Toronto, New York, New Jersey 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, III and IV. Throughout this report, all amounts are in U.S. dollars unless otherwise indicated. Table of Contents 8 Management’s Discussion and Analysis 96 Consolidated Financial Statements 180 Shareholder Information CHAIRMAN’S LETTER Dear Shareholders, With the year just past we once again find ourselves in awe of the world’s capacity for surprises. We didn’t think the people of the United Kingdom would vote to leave the European Union and we didn’t think Donald Trump would be elected president of the United States. Fortunately, because we long ago learned humility as investors, we do not base our acquisitions and investments on an outlook of world events. We simply look for good busi- nesses we and our management teams can make better. Just as we have in the past, we will adapt to changes brought upon us by shifting political winds. As investors we crave certainty but seldom get it, so we must learn to prosper without it. With so much change in the air, our most fervent hope these days is that we never lose access to the smart, creative and driven young professionals we need for continued success. A quick scan of our phone direc- tory or walk through our offices and you would certainly conclude that many of our employees had grand- parents or parents born far from our borders. We didn’t hire them just for the sake of diversity. We hired them because they excelled academically and displayed the grit and drive we like to see at Onex. We need them because we compete with investors throughout the world in a battle for the best ideas and execution. Wouldn’t it be awful if they stopped coming to our shores and we couldn’t hire them? The political drama notwithstanding, we had a very busy year in 2016. In acquisitions totalling $6.1 bil- lion, we invested over $2.2 billion through our private equity funds, of which Onex’ direct share was more than $700 million. ONCAP raised $1.1 billion for ONCAP IV, an increase from C$800 million raised for ONCAP III, in a single close and in just over two months (for readers unfamiliar with private equity fundraising – that’s lightning fast!). Here are some other highlights: • We acquired four companies: – Clarivate Analytics, an owner and operator of a collection of leading subscription-based businesses focused on scientific and academic research, patent analytics, trademark protection and other intellectual property management; Save-A-Lot, one of the largest hard-discount grocery retailers for value-seeking shoppers in the United States; WireCo World Group, a global manufacturer of mission-critical steel wire rope, synthetic rope, specialty wire and engineered products; and Tecta America Corporation, a national commercial roofing company in the United States offering installa- tion, replacement and repair services; – – – • In December 2016, we agreed to acquire Parkdean Resorts, an operator of caravan holiday parks in the United Kingdom; • The value of Onex’ interest in our private equity investments, including realizations and distributions, grew by 7 percent. As more recently acquired businesses start to contribute to value creation, we expect to see stronger growth from our private equity investments; • We distributed close to $1.7 billion to Onex and our partners; and • Our credit platform grew its assets under management by 15 percent to $7.5 billion through continued CLO issuance and strong performance. As we settle into a new year, we are excited to start building value in our recent acquisitions. Collectively, the team invested approximately $130 million in these businesses and in total has $1.9 billion invested in our shares, operating companies and credit platform. Financial alignment between managers, shareholders and limited partners is a core value at Onex. We share with you the risks and rewards of everything we own. As investors, we know our capital is in safe hands. We hope you feel the same. From all of us at Onex, we thank you for your continued support. [signed] Gerald W. Schwartz Chairman and Chief Executive Officer, Onex Corporation Onex Corporation December 31, 2016 1 ONEX CORPORATION Who We Are and What We Do Onex is an investor first and foremost, with $6.3 billion of shareholder capital primarily invested in or commit- ted to private equity and non-investment grade credit. We also manage $18.0 billion for fund investors around the world, including public and private pension plans, sovereign wealth funds, banks, insurance companies and family offices, that have chosen to invest alongside us. With an experienced management team, significant financial resources and no debt at the parent com- pany, Onex is well-positioned to continue building shareholder value through its investing and asset manage- ment activities. Private Equity Investing Founded in 1984, Onex is one of the oldest and most successful private equity firms. We acquire and build high- quality businesses in partnership with talented management teams. Onex invests through its two private equity platforms: Onex Partners for larger transactions and ONCAP for middle-market transactions. We are focused on three primary investment strategies: (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. We have built more than 90 operating businesses, completing about 560 acquisitions with a total value of $68 billion. Onex’ private equity investing has generated a gross multiple of capital invested of 2.7 times since inception, resulting in a 28 percent gross IRR on realized, substantially realized and publicly traded investments. Credit Investing Our credit platform is focused on a variety of credit-oriented investment strategies. We invest primarily in non- investment grade debt. We practise value-oriented investing and employ a bottom-up, fundamental and struc- tural analysis of the underlying borrowers. In credit, we seek to generate strong risk-adjusted and absolute returns across market cycles. 2 Onex Corporation December 31, 2016 Onex Capital At December 31, 2016, Onex’ $6.3 billion of capital was primarily invested in or committed to its private equity and credit platforms. Onex’ $6.3 billion of Capital at December 31, 2016 Onex’ $6.0 billion of Capital at December 31, 2015 Large-Cap Private Equity 56% Large-Cap Private Equity 49% Cash and Near-Cash Items 25% Cash and Near-Cash Items 36% Middle-Market Private Equity 6% Credit 9% Real Estate and Other Investments 4% Middle-Market Private Equity 6% Credit 6% Real Estate and Other Investments 3% The How We Are Invested schedule details Onex’ $6.3 billion of capital at December 31, 2016 (December 31, 2015 – $6.0 billion). 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 our share price. In the year ended December 31, 2016, Onex capital per share increased by 8 percent in U.S. dollars (5 percent in Canadian dollars) and our share price increased by 11 percent in U.S. dollars (8 percent in Canadian dollars). Over the past five years, Onex capital per share has increased by 10 percent per year in U.S. dollars (16 percent per year in Canadian dollars). Onex Corporation December 31, 2016 3 Nav per Share (USD) Onex Capital per Share (USD) (December 31, 2011 to December 31, 2016) $60 $55 $50 $45 $40 $35 10% annual growth over the past five years 60 55 50 45 40 35 Dec-2011 Dec-2012 Dec-2013 Dec-2014 Dec-2015 Dec-2016 Fund Investor Capital Onex manages $18.0 billion of invested and committed capital on behalf of investors from around the world. In November 2016, we successfully completed fundraising for ONCAP IV, reaching aggregate commitments of $1.1 billion, including Onex’ commitment of $480 million, and exceeding our target size of $1.0 billion. Onex’ $18.0 billion of Fund Investor Capital at December 31, 2016 Onex’ $16.5 billion of Fund Investor Capital at December 31, 2015 Onex Partners 54% Onex Partners 60% Onex Credit 37% Onex Credit 35% ONCAP 9% ONCAP 5% Fund investor capital includes capital managed on behalf of co-investors and the Onex management team. 4 Onex Corporation December 31, 2016 Asset Management Onex’ management of fund investor capital provides two significant financial benefits: (i) a committed stream of annual management fees and (ii) the opportunity to share in fund investors’ profits. Onex has run-rate man- agement fees of $150 million for the next 12 months, consisting of $110 million from its private equity platforms, including the impact of ONCAP IV, and $40 million from its credit platform. We expect our asset managers’ net contribution will more than offset the cost of investing our shareholders’ capital. One of Onex’ long-term goals is to grow its fee-generating capital by 10 percent per year. For the year ended December 31, 2016, fee-generating capital under management grew by 7 percent to $15.9 billion. The closing of ONCAP IV contributed approximately $600 million to the increase in fee-generating capital under manage- ment. Onex also raised capital through Onex Credit’s CLO platform during the year. Over the past five years, fee- generating capital under management has increased by 15 percent per year. Fee-Generating Capital Under Management (USD) (December 31, 2011 to December 31, 2016) Fee-Generating Capital Under Management 16 15 14 13 12 11 10 9 8 s n o i l l i B 15% annual growth over the past five years 16.00000 15.46875 14.93750 14.40625 13.87500 13.34375 12.81250 12.28125 11.75000 11.21875 10.68750 10.15625 9.62500 9.09375 8.56250 8.03125 7.50000 Dec-2011 Dec-2012 Dec-2013 Dec-2014 Dec-2015 Dec-2016 Onex Corporation December 31, 2016 5 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’ $6.3 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 estimated fair values of the invest- ments and allocates no value to future 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, 2016 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 Investment – Public Company(2) Credit(5) Real Estate Other Investments Cash and Near-Cash(6)(7) Debt(8) Onex Capital Onex Capital per Share (U.S. dollars)(9)(10) Onex Capital per Share (Canadian dollars)(9)(10) Onex Capital December 31, 2016 September 30, 2016 December 31, 2015 $ 3,078 $ 2,502 $ 2,520 15 197 402 213 3,905 529 198 727 32 1,586 − 9 183 432 194 3,320 503 197 700 46 2,049 − $ 6,250 $ 58.56 C$ 78.63 $ 6,115 $ 57.37 C$ 75.26 12 178 381 198 3,289 346 172 518 27 2,138 – $ 5,972 $ 54.39 C$ 75.27 (1) Based on the fair value of the investments in Onex Partners net of the estimated Management Investment Plan (“MIP”) liability on these investments of $77 million (September 30, 2016 – $71 million; December 31, 2015 – $65 million). (2) Based on closing prices on December 31, 2016, September 30, 2016 and December 31, 2015. (3) Represents Onex’ share of the unrealized carried interest for Onex Partners Funds. (4) Based on the fair value of the investments in ONCAP net of the estimated management incentive programs on these investments of $18 million (September 30, 2016 – $17 million; December 31, 2015 – $16 million). (5) Based on the market values of investments in Collateralized Loan Obligations (including warehouse facilities) of $384 million (September 30, 2016 – $365 million; December 31, 2015 – $225 million) and Onex Credit Funds of $145 million (September 30, 2016 – $138 million; December 31, 2015 – $121 million). Excludes $376 million (September 30, 2016 – $370 million; December 31, 2015 – $351 million) invested in an Onex Credit segregated unlevered senior secured loan strategy fund, which is included with cash and near-cash items. (6) Includes $376 million (September 30, 2016 – $370 million; December 31, 2015 – $351 million) invested in an Onex Credit segregated unlevered senior secured loan strategy fund and $483 million (September 30, 2016 – $703 million; December 31, 2015 – $1.2 billion) of investments managed by third-party investment managers. (7) Includes $48 million (September 30, 2016 – $26 million; December 31, 2015 – nil) of management fees receivable from the limited partners of its private equity platforms. (8) Represents debt at Onex Corporation, the parent company. (9) Calculated on a fully diluted basis. Fully diluted shares were 114.0 million at December 31, 2016 (September 30, 2016 – 114.3 million; December 31, 2015 – 117.6 million). Fully diluted shares include all outstanding SVS and outstanding stock options where Onex’ share price exceeds the exercise price of the stock options. (10) The change in Onex Capital per Share is impacted by the fair value changes of Onex’ investments. Share repurchases and options exercised during the period 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. 6 Onex Corporation December 31, 2016 H O W W E A R E I N V E S T E D Public Companies As at December 31, 2016 Onex Partners – Genesis Healthcare Direct Investments – Celestica(2) Subsequent Listing – As at January 31, 2017 Onex Partners – JELD-WEN(4) Significant Private Companies As at December 31, 2016 Onex Partners AIT BBAM(8) Carestream Health Clarivate Analytics Emerald Expositions Jack’s Meridian Aviation ResCare Save-A-Lot Schumacher sgsco SIG Survitec USI WireCo York Public and Private Company Information Shares Subject to Carried Interest (millions) Shares Held by Onex (millions) 10.7 – 3.5 18.0 Closing Price per Share(1) $ 4.25 $ 11.85 Shares Subject to Carried Interest (millions) Shares Held by Onex (millions) Closing Price per Share(3) 38.8 15.5 $ 27.07 Onex’ and its Limited Partners’ Economic Ownership LTM EBITDA(5) Net Debt Cumulative Distributions Onex’ Economic Ownership 50%(6) 50% 91% 72% 99% 96%(11) 100% 98% 100% 68% 93% 99% 79% 89% 71% 88% n/a $ 103 336 315 159(10) 56(12) n/a 127 200 117(10) 116(10) 1 467 £ 73(10) 353(10) 96 105(10) n/a (40)(9) $ $ 1,858 1,965 698 186 n/a 446 710 652 564 1 2,692 368 £ 1,824 595 936 241(7) 326 1,311 – – – 124 235 – – – – – 230 – – 11%(6) 13% 33%(2) 26% 24% 28%(11) 25% 20% 28% 20% 23% 33% 18% 25% 20% 29% Market Value of Onex’ Investment $ $ 15 213 228 Market Value of Onex’ Investment $ $ 421 421 Original Cost of Onex’ Investment $ 45 49 186 419 119 67 (13) 19 41 186 93 66 405 (14) 84 (15) 170 76 173 $ 2,198 (1) Closing prices on December 31, 2016. (2) Excludes shares held in connection with the MIP. (3) Closing price on January 31, 2017. (4) In January 2017, JELD-WEN completed an initial public offering. The Onex Partners III Group received approximately 69.3 million shares in exchange for its common and convertible preferred shares in JELD-WEN, and sold approximately 6.5 million shares in JELD-WEN in conjunction with the initial public offering, including the exercise of the over-allotment option. The Onex Partners III Group continues to hold 62.8 million shares of JELD-WEN for an economic and voting interest of 60 percent. Onex continues to hold 15.5 million shares for a 15 percent economic interest in JELD-WEN. (5) EBITDA is a non-GAAP measure and is based on the local accounting standards 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. (6) In August 2016, AIT repurchased units from investors other than the Onex Partners IV Group. (7) Cumulative distributions for AIT include a purchase price adjustment of $4 million. (8) 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 $7 million invested in FLY Leasing Limited. (9) Net debt for BBAM represents unrestricted cash, reduced for accrued compensation liabilities. (10) LTM EBITDA is presented on a pro-forma basis to reflect the impact of acquired and divested businesses. (11) In June 2016, the balance of $14 million outstanding under the promissory note held by the Onex Partners IV Group was converted into additional equity of Jack’s. (12) LTM EBITDA is presented on a pro-forma basis to reflect the annualized rent impact of sale-leaseback transactions completed during 2015 and 2016. (13) Net of a $52 million return of principal on the promissory note during 2015 and 2016 prior to the conversion into additional equity of Jack’s in June 2016. (14) The investment in SIG was made in U.S. dollars. (15) The investments in Survitec were made primarily in pounds sterling and converted to U.S. dollars using the prevailing exchange rate on the date of the investments. In November 2016, Onex invested an additional $8 million in Survitec. Onex Corporation December 31, 2016 7 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, 2016 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 23, 2017. 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: 9 Glossary 13 Our Business, Our Objective and Our Strategies Industry Segments 24 29 Financial Review Onex Corporation’s financial filings, including the 2016 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. 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. 8 Onex Corporation December 31, 2016 M A N A G E M E N T ’ S D I S C U S S I O N A N D A N A LY S I S GLOSSARY The following is a list of commonly used terms in Onex’ MD&A and consolidated financial statements and their corresponding definitions. Assets under management is the sum of the fair value of invested assets and uncalled committed capital that Onex manages on behalf of fund investors, including Onex’ own capital. Carried interest is an allocation of part of a fund investor’s profits to Onex and its management team after real- izing a preferred return. CLO warehouse is a leveraged portfolio of credit investments that Onex establishes in anticipation of raising a new CLO. The leverage is typically provided by a financial institution that serves as the placement agent for the relevant CLO. The leverage provided by a financial institution may be in the form of a total return swap that transfers the credit and market risk of specified securities. Onex provides capital to support the CLO warehouse. Co-investment is a direct investment made by limited partners alongside the fund. Collateralized Loan Obligation (“CLO”) is a structured investment fund that invests in non-investment grade debt. Interests in these funds are sold in rated tranches that have rights to the CLO’s collateral and payment streams in descending order of priority. The yield to investors in each tranche decreases as the level of priority increases. Committed capital is the amount contractually committed by limited partners that a fund may call for invest- ments or to pay management fees and other expenses. Deferred Share Units (“DSUs”) are synthetic investments made by Directors and senior management of Onex, where the gain or loss mirrors the performance of the SVS. DSUs may be issued to Directors in lieu of director fees and to senior management in lieu of a portion of their annual short-term incentive compensation. Direct lending platform will focus on providing credit to middle-market and larger private equity and cor- porate borrowers predominantly in the United States and, selectively, in Canada and Europe. The strategy will invest the majority of its capital in senior secured loans of companies primarily in less cyclical and less capital- intensive industries, with a focus on capital preservation. The direct lending platform will employ a buy-and- hold approach to investing, with a goal of owning a diversified pool of investments. Discontinued operation is a component of Onex that has either been disposed of or is currently classified as held for sale, and represents either a major line of business or geographical area, a single coordinated plan to dispose of a separate line of business or geographical area, or a subsidiary acquired exclusively with a view to near-term resale. EBITDA is a non-GAAP measure and is based on the local accounting standards of the individual operating companies. The metric is based on earnings before interest, taxes, depreciation and amortization as well as other adjustments. Other adjustments can 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. Economic ownership is the percentage by which Onex economically participates in an operating company investment. Onex Corporation December 31, 2016 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 Fee-generating capital is the assets under management on which the Company earns management fees and/or carried interest or incentive fees. Fund investor capital is the invested and committed uncalled capital of third-party investors. General partner is a partner that determines most of the actions of a partnership and can legally bind the part- nership. The general partners of Onex-sponsored funds are Onex-controlled subsidiaries. Gross internal rate of return (“Gross IRR”) is the annualized percentage return achieved on an investment or fund, taking time into consideration. This measure does not reflect a limited partner’s return since it is calcu- lated without deducting carried interest, management fees and expenses. Gross multiple of capital (“Gross MOC”) is an investment’s or fund’s total value divided by the capital that has been invested. This measure does not reflect a limited partner’s multiple of capital since it is calculated without deducting carried interest, management fees and expenses. Hurdle or preferred return is the minimum return required from an investment or fund before payments under the MIP, carried interest or incentive fees. Incentive fees are performance fees generated on fund investors’ capital managed by Onex Credit. Certain incentive fees are subject to a hurdle or preferred return to investors in accordance with the terms of the relevant agreements. International Financial Reporting Standards (“IFRS”) is a set of standards adopted by Onex to deter- mine accounting policies for the consolidated financial statements that were formulated by the International Accounting Standards Board, and allows for comparability and consistency across businesses. As a publicly listed entity in Canada, Onex is required to report under IFRS. Joint ventures are a type of business arrangement in which two or more parties agree to share control over key decisions in order to reach a common objective, typically profit generation or cost reduction. Joint ventures held by Onex through its private equity funds are recorded at fair value. Leveraged loans refer to the non-investment grade senior secured debt of relatively highly leveraged borrowers. A leveraged loan is typically issued by a company in connection with it being acquired by a private equity or corporate investor. Limited partner is an investor whose liability is generally limited to the extent of their share of the partnership. Limited Partners’ Interests charge primarily represents the change in the fair value of the underlying invest- ments in the Onex Partners, ONCAP and Onex Credit Funds, net of carried interest, which is allocated to the limited partners and recorded as Limited Partners’ Interests liability. Limited Partners’ Interests liability represents the fair value of limited partners’ invested capital in the Onex Partners, ONCAP and Onex Credit Funds and is affected primarily by the change in the fair value of the underlying investments in those funds, the impact of the carried interest, as well as any contributions by and distributions to the limited partners in those funds. LTM EBITDA is EBITDA of a business over the last twelve months. 10 Onex Corporation December 31, 2016 M A N A G E M E N T ’ S D I S C U S S I O N A N D A N A LY S I S Management investment plan (“MIP”) is a plan that requires members of Onex’ management to invest in each of the operating businesses acquired or invested in by Onex. Management’s required cash investment is 1.5 percent of Onex’ interest in each acquisition or investment. Management is allocated 7.5 percent of Onex’ realized gain from an operating business investment, subject to Onex realizing the full return of its invest- ment plus a net 15 percent internal rate of return from the investment. The plan also has vesting requirements, certain limitations and voting requirements. Multiple Voting Shares of Onex are the controlling class of shares which entitle Mr. Gerald W. Schwartz to elect 60 percent of Onex’ Directors and to 60 percent of the total shareholder vote on most matters. The shares have no entitlement to distribution on wind-up or dissolution above their nominal paid-in value and do not partici- pate in dividends or earnings. Near-cash are investment holdings in readily marketable investments that can be converted to cash in an orderly market. In addition, near-cash includes management fees receivable from the limited partners of Onex’ private equity funds. Net internal rate of return (“Net IRR”) is the annualized percentage return earned by the limited partners of a fund, after the deduction of carried interest, management fees and expenses, taking time into consideration. Net multiple of capital (“Net MOC”) is the investment distributions and unrealized value, net of carried interest, to limited partners subject to carried interest and management fees in the funds, divided by the limited partners’ total contributions for investments, fees and expenses. Non-controlling interests represent the ownership interests in Onex’ controlled operating companies by shareholders other than Onex and the limited partners in the Onex Partners and ONCAP Funds. Normal Course Issuer Bid(s) (“NCIB”) is an annual program(s) approved by the Board of Directors that enables Onex to repurchase SVS for cancellation. ONEX is the share symbol for Onex Corporation on the Toronto Stock Exchange. Onex capital is the aggregate fair value of Onex Corporation’s investments, cash and near-cash assets, less debt (which is nil). The fair value of Onex Corporation’s investments includes the unrealized carried interest less the MIP liability based on the current fair values of the investments. Onex capital per share is Onex capital divided by the number of fully diluted shares. Onex Credit Funds are the funds managed by Onex Credit, which include two closed-end funds listed on the Toronto Stock Exchange (TSX: OCS-UN and OSL-UN). Onex controls and consolidates certain funds managed by Onex Credit in which Onex, the parent company, holds an investment. Private equity platform is our investing and asset management activities carried on through the Onex Partners and ONCAP Funds. Subordinate Voting Shares (“SVS”) are the non-controlling share capital of Onex. SVS shareholders are entitled to elect 40 percent of Onex’ Directors and to 40 percent of the total shareholder vote on most matters. These shares are the only class of stock that economically participates in Onex Corporation. The SVS trade on the Toronto Stock Exchange. Onex Corporation December 31, 2016 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 References References to the Company represent Onex Corporation. 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 management does not include management of ONCAP or Onex Credit. 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. Throughout the MD&A and consolidated financial statements, the following operating companies, joint ven- tures and associates, and their respective subsidiaries, will be referenced as follows: • “AIT” – Advanced Integration Technology LP • “BBAM” – BBAM Limited Partnership • “Bradshaw” – Bradshaw International, Inc. • “Carestream Health” – Carestream Health, Inc. • “Celestica” – Celestica Inc. • “Chatters” – Chatters Canada • “Cicis” – CiCi’s Holdings, Inc. • “Clarivate Analytics” – formerly the Intellectual Property and Science business of • Thomson Reuters “Davis-Standard” – Davis-Standard Holdings, Inc. “Emerald Expositions” – Emerald Expositions, LLC • • “EnGlobe” – EnGlobe Corp. • “Flushing Town Center” – Flushing Town Center • “FLY Leasing Limited” – FLY Leasing Limited • “Genesis Healthcare” – Genesis Healthcare, Inc. • “Hopkins” – Hopkins Manufacturing Corporation “Incline Aviation Fund” – Incline Aviation Fund • • “ITG” – Ingersoll Tools Group • “Jack’s” – Jack’s Family Restaurants • “JELD-WEN” – JELD-WEN Holding, Inc. • “KraussMaffei” – KraussMaffei Group GmbH • “Mavis Discount Tire” – Mavis Tire Supply LLC • “Meridian Aviation” – Meridian Aviation Partners Limited and affiliates 12 Onex Corporation December 31, 2016 • “ONCAP I” – ONCAP I L.P. • “ONCAP II” – ONCAP II L.P. • “ONCAP III” – ONCAP III LP • “ONCAP IV” – ONCAP IV LP • “Onex Partners I” – Onex Partners LP • “Onex Partners II” – Onex Partners II LP • “Onex Partners III” – Onex Partners III LP • “Onex Partners IV” – Onex Partners IV LP • “Parkdean Resorts” – Parkdean Resorts “Pinnacle Renewable Energy Group” – • Pinnacle Pellet, Inc. “PURE Canadian Gaming” – PURE Canadian Gaming Corp. • • “ResCare” – Res-Care, Inc. “Save-A-Lot” – Save-A-Lot • • “Schumacher” – Schumacher Clinical Partners • “sgsco” – SGS International, LLC • “SIG” – SIG Combibloc Group Holdings S.à r.l. • “Sitel Worldwide” – SITEL Worldwide Corporation “Skilled Healthcare Group” – Skilled Healthcare • Group, Inc. • “Survitec” – Survitec Group Limited • “Tecta” – Tecta America Corporation • “Tropicana Las Vegas” – Tropicana Las Vegas, Inc. • “USI” – USI Insurance Services • “WireCo” – WireCo WorldGroup • “York” – York Risk Services Holding Corp. M A N A G E M 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, insurance companies and family offices. Onex has generated a Gross MOC of 2.7 times from its private equity activities since inception on realized, substan- tially realized and publicly traded investments. In our credit platform, we seek to generate strong risk-adjusted and absolute returns across market cycles. Investment approach For more than three decades, we have developed a successful approach to investing. In our private equity plat- forms, we pursue businesses with world-class capabilities and strong free cash flow characteristics where we have identified an opportunity, in partnership with company management, to effect change and build mar- ket 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 acquisi- tions; 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 focus on non-investment grade debt. We practise value-oriented investing with bottom-up, fundamental and structural analysis. Stringent oversight of portfolio construction risk profile and liquidity management complements our approach to investment research. Our team maintains disciplined risk management, with a focus on capital preservation across all strate- gies. We seek to generate strong risk-adjusted and absolute returns across market cycles. 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 140 years of investing experience and have worked at Onex for an average of 25 years. Onex’ stability results from its ownership culture, rigorous recruiting standards and highly collegial environment. Onex’ 94 investment professionals are each dedicated to a separate investment platform: Onex Part- ners (55), ONCAP (19) and Onex Credit (20). These investment teams are supported by approximately 80 profes- sionals dedicated to Onex’ corporate functions and its investment platforms. 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 committed capital from its limited partners in the Onex Partners and ONCAP Funds. At December 31, 2016, Onex had substantial financial resources available to support its investing strategy with: • approximately $1.6 billion of cash and near-cash items, prior to the pending investment in Parkdean Resorts, and no debt at the parent company; • $1.7 billion of limited partner uncalled capital available for future Onex Partners IV investments, of which $301 million has been subsequently called for the pending acquisition of Parkdean Resorts; and $679 million of limited partner uncalled capital available for future ONCAP IV investments. • Onex Corporation December 31, 2016 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 In November 2016, we successfully completed fundraising for ONCAP IV, reaching aggregate commitments of $1.1 billion and exceeding our target size of $1.0 billion. This includes Onex’ commitment of $480 million and capital from fund investors around the world. 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, 2016, the Onex management team: • was the largest shareholder in Onex, with a combined holding of approximately 17.4 million shares, or 17 per- cent of outstanding shares, and had invested in 0.6 million DSUs; • had a total cash investment in Onex’ current operating businesses of approximately $440 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 MIP distributions in Onex shares until they individually own at least one million shares and must 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 fund investor 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 2016. OUR STRATEGIES Acquiring and building industry-leading businesses The growth in Onex capital is driven by the success of our private equity investments. Our private equity invest- ing strategy focuses on an active ownership approach to 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 7 percent during 2016. One of Onex’ long-term goals is to grow its capital per share by 15 percent per year. Including the impact of cash and other investments, Onex capital per share grew by 8 percent in U.S. dollars (4 percent in Canadian dollars) for the year ended December 31, 2016 to $58.56 (C$78.63). Over the past five years, Onex capital per share has increased by 10 percent per year in U.S. dollars (16 percent per year in Canadian dollars). 14 Onex Corporation December 31, 2016 M A N A G E M E N T ’ S D I S C U S S I O N A N D A N A LY S I S The table below presents the significant private equity investments made during 2016 and Onex’ share thereof: Company Fund Transaction Clarivate Analytics Onex Partners IV Save-A-Lot WireCo Tecta Survitec Total Onex Partners IV Onex Partners IV ONCAP III and IV Onex Partners IV Original investment Original investment Original investment Period Oct ’16 Dec ’16 Sep ’16 Original investment Aug and Dec ’16 Add-on investment Nov ’16 Total Amount ($ millions) Onex’ Share ($ millions) $ 1,177(1) $ 419 (1) 660 270 124(2) 35 186 76 43 (2) 8 $ 2,266 $ 732 (1) The Onex Partners IV Group’s equity investment in Clarivate Analytics was comprised of $700 million through Onex Partners IV and $477 million as a co-investment from Onex and certain limited partners. Onex’ investment was comprised of $197 million through Onex Partners IV and $222 million as a co-investment. (2) The ONCAP III Group’s equity investment in Tecta was initially comprised of an investment of $99 million through ONCAP III and an additional investment of $25 million by Onex. In December 2016, following the consent previously received from the Advisory Committee of ONCAP III, the General Partner of the ONCAP III Group syndicated $37 million of the investment in Tecta, representing 29 percent of the economic interest, to the ONCAP IV Group at the same cost as the original investment. The additional investment of $25 million made by Onex represented Onex’ pro-rata share of the portion of the investment that was transferred to the ONCAP IV Group. Subsequent to the syndication, Onex’ investment in Tecta consisted of $18 million through the ONCAP III Group and $25 million through the ONCAP IV Group. Acquiring businesses In October 2016, Onex, in partnership with Baring Private Equity Asia, completed the acquisition of the Intellectual Property and Science business from Thomson Reuters for $3.55 billion. The business, which now operates as Clarivate Analytics, owns and operates a collection of leading subscription-based businesses focused on scientific and academic research, patent analytics and regulatory standards, pharmaceutical and biotech intelligence, trademark protection, domain brand protection and intellectual property management. The equity investment was $1.6 billion for a 100 percent economic interest in Clarivate Analytics, of which $1.2 billion was made by the Onex Partners IV Group, including $477 million as a co-investment from Onex and certain limited partners, for a 72 percent economic interest. Onex’ share of the equity investment was $419 mil- lion, including $222 million as a co-investment, for a 26 percent economic interest. In December 2016, the Company completed the acquisition of Save-A-Lot for $1.4 billion. Save-A-Lot is one of the largest hard-discount grocery retailers for value-seeking shoppers in the United States. The Onex Partners IV Group invested $660 million for 100 percent of the economic interest in Save-A-Lot. Onex’ share of the invest- ment was $186 million for a 28 percent economic interest. In September 2016, the Onex Partners IV Group acquired control and an initial 72 percent economic interest through a recapitalization of WireCo, a leading global manufacturer of mission-critical steel wire rope, synthetic rope, specialty wire and engineered products, for $916 million. The Onex Partners IV Group invested $270 million in WireCo. Onex’ share of the investment was $76 million for an initial 20 percent economic interest. Onex Corporation December 31, 2016 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 In August 2016, the ONCAP III Group acquired Tecta. Based in the United States, Tecta is a leading national commercial roofing company offering installation, replacement and repair services. The equity investment in Tecta was $124 million for a 97 percent economic interest, and was initially comprised of an investment of $99 million by the ONCAP III Group and an additional investment of $25 million by Onex. In December 2016, the ONCAP III Group transferred $37 million of the investment in Tecta, representing 29 percent of the economic interest, to the ONCAP IV Group at the same cost as the original investment. Subse- quent to the syndication, Onex’ investment consisted of $18 million through the ONCAP III Group and $25 million through the ONCAP IV Group for a combined 33 percent economic interest. In addition, in December 2016, the Onex Partners IV Group agreed to acquire Parkdean Resorts, a leading opera- tor of caravan holiday parks in the United Kingdom, for £1.35 billion. The Onex Partners IV Group expects to make an investment of $627 million, comprised of $427 million from Onex Partners IV and $200 million as a co- investment from Onex and certain limited partners, for an economic interest of approximately 91 percent. Onex’ share of the investment is expected to be $170 million, comprised of $126 million through Onex Partners IV and $44 million as a co-investment, for an economic interest of approximately 25 percent. The transaction is expected to close during the first quarter of 2017, subject to customary conditions and regulatory approvals. Today, we have approximately $1.6 billion of cash and near-cash items and $2.4 billion of limited partner uncalled capital to deploy for new investments, prior to giving effect to the pending acquisition of Parkdean Resorts. As we continue to evaluate investment opportunities, our focus remains on identifying investments that will deliver long-term growth for our shareholders and partners. Building businesses During 2016, 14 of our operating businesses completed 29 follow-on acquisitions for total consideration of $685 million. This includes the June 2016 acquisition of ECI Healthcare Partners (“ECI”) by Schumacher for $140 million and the November 2016 acquisition of the safety-related business activities of Wilhelmsen Maritime Service (“Wilhelmsen Safety”) by Survitec for £164 million ($205 million). In connection with Survitec’s acquisition of Wilhelmsen Safety, the Onex Partners IV Group invested $35 million in Survitec, of which Onex’ share was $8 million. In addition, during 2016 our businesses paid down debt totalling approxi- mately $468 million. 16 Onex Corporation December 31, 2016 M A N A G E M 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 2016, the strength of our businesses, combined with the strength in the credit market for much of the year, made it appropriate for a number of our operating businesses to collectively raise or refinance a total of $4.3 billion of debt. This contributed to Onex and its partners receiving distributions of $505 million from these operating businesses. The table below presents the significant proceeds received during 2016 and up to February 23, 2017 from real- izations and cash distributions primarily from private equity activity: Gross Multiple of Capital Invested(1) Total Amount ($ millions) Onex’ Share ($ millions) (2) 2.1x $ 737(3) $ 191 (3) Period Apr ’16 Company Fund Transaction KraussMaffei JELD-WEN AIT Hopkins Cicis BBAM Jack’s Onex Partners III Sale of business Onex Partners III Distributions and initial public offering Aug ’16, Nov ’16 and Jan ‘17 Onex Partners IV Distributions ONCAP III ONCAP II Distribution Sale of business Onex Partners III Distributions Various Dec’ 16 Aug ’16 Various Onex Partners IV Repayments of promissory note Jan, Mar and Apr ’16 Meridian Aviation Onex Partners III Distribution Onex Real Estate Partners Direct investment Distributions PURE Canadian Gaming ONCAP II and III Distribution Jun ’16 Various Jan ‘17 n/a n/a n/a 1.4x n/a n/a n/a n/a n/a 491(4) 127 (4) 125 71 53(5) 50 40 39 37 11 27 21 23 (5) 13 12 12 33 5 Total $ 1,654 $ 464 (1) Calculation includes prior realizations and amounts expected to be received from escrow and working capital adjustments. Information is not presented for investments still held by Onex. (2) Onex’ share includes carried interest received by Onex and is reduced for amounts paid under the MIP and Onex’ net payment of carried interest for ONCAP investments, if applicable. (3) Excludes amounts held in escrow and the working capital adjustment receivable. Includes the impact of foreign exchange hedges. (4) Includes amounts received for a purchase price adjustment. (5) Excludes amounts held in escrow and amounts for any potential working capital adjustment. In April 2016, the Onex Partners III Group sold its entire investment in KraussMaffei for a cash enterprise value of €925 million ($1.0 billion). The Onex Partners III Group invested a total of €276 million ($358 million) to acquire KraussMaffei in December 2012 and has received net proceeds of €669 million ($753 million). Onex’ portion of the net proceeds was $195 million, including carried interest and after the reduction for amounts relating to the MIP. The net proceeds for the Onex Partners III Group and Onex included net realized losses from foreign exchange hedges of $13 million and $3 million, respectively. The investment in KraussMaffei generated a Gross MOC of 2.1 times, including the impact of foreign exchange hedges. Onex Corporation December 31, 2016 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 In January 2017, JELD-WEN completed an initial public offering of 28.75 million shares of its common stock (NYSE: JELD), including the exercise of the over-allotment option. The offering was priced at $23.00 per share for gross proceeds of $661 million. As part of the offering, JELD-WEN issued approximately 22.3 million treasury shares. The net proceeds from treasury shares were used to repay $375 million of JELD-WEN’s combined term loan with the balance for working capital and other general corporate purposes. The Onex Partners III Group sold approximately 6.5 million shares in the transaction for net proceeds of $140 million. Onex’ portion of the net proceeds was $40 million, including approximately $6 million of carried interest. Subsequent to the initial public offering, the Onex Partners III Group continues to hold 62.8 million shares of JELD-WEN for an eco- nomic and voting interest of 60 percent. Onex continues to hold 15.5 million shares for a 15 percent economic interest in JELD-WEN. In November 2016, JELD-WEN increased its term loan borrowings by $375 million and drew on the com- pany’s revolving credit facility to fund a distribution of $400 million to its shareholders. The Onex Partners III Group’s portion of the distribution to shareholders was $327 million, of which Onex’ portion was $81 million. In addition, in August 2016 JELD-WEN distributed a purchase price adjustment of $24 million to the Onex Partners III Group, of which Onex’ share was $6 million. In July 2016, AIT completed its inaugural financing, a $225 million term loan. The net proceeds from the term loan were used in August 2016 to repurchase units from investors other than the Onex Partners IV Group and to fund a distribution of $174 million. As a result of the unit repurchase, the Onex Partners IV Group’s economic interest in AIT increased to 50 percent, of which Onex’ share was an 11 percent economic interest. The Onex Partners IV Group’s share of the distribution was $107 million, of which Onex’ share was $24 million. In addition, during 2016, AIT distributed an additional $18 million to the Onex Partners IV Group, of which Onex’ share was $3 million. The additional distributions were funded by the company’s free cash flow. In December 2016, Hopkins entered into a new credit facility to fund an $80 million distribution to shareholders and repay its existing credit facilities. The ONCAP III Group’s share of the distribution was $71 million, of which Onex’ share was $21 million. In August 2016, the ONCAP II Group sold Cicis. Onex received total net proceeds of approximately $29 million compared to its original investment of $22 million. During 2016, BBAM distributed $50 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. During the first half of 2016, Jack’s made repayments of the promissory note held by the Onex Partners IV Group totalling $40 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 $12 million. In June 2016, the balance of $14 million outstanding under the promissory note, of which Onex’ share was $4 million, was converted into additional equity of Jack’s in accordance with the promissory note agreement. 18 Onex Corporation December 31, 2016 M A N A G E M 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 June 2016, Meridian Aviation distributed $39 million to the Onex Partners III Group, of which Onex’ share was $12 million, including carried interest of $2 million. The distribution was funded from cash on hand at Meridian Aviation, which was primarily from gains on investments in aircraft. During 2016, our real estate platform distributed $37 million of proceeds primarily from the sale of commercial units at Flushing Town Center. Onex’ share of the distributions was $33 million. The distributions by Flushing Town Center included $8 million related to the amounts held in escrow from the July 2015 sale of the retail space and adjoining parking garage of Flushing Town Center, of which Onex’ share was $7 million. In January 2017, PURE Canadian Gaming distributed C$15 million to shareholders, which was primarily funded by the company’s free cash flow generated during the year. The ONCAP II and III Groups’ portion of the distri- bution was C$15 million ($11 million), of which Onex’ portion was C$6 million ($5 million). Managing and growing fund investor capital Onex’ management of fund investor capital has grown significantly since 1999 when it raised its first ONCAP Fund for middle-market transactions. In 2003, the first Onex Partners Fund was raised for larger transactions. Over the years, Onex has raised $12.4 billion of limited partner capital through eight Onex Partners and ONCAP Funds. In November 2016, Onex successfully completed fundraising for ONCAP IV, reaching aggregate commit- ments of $1.1 billion and exceeding our target size of $1.0 billion. This includes Onex’ commitment of $480 mil- lion and capital from fund investors around the world. In 2007, Onex acquired a 50 percent interest in an investment advisor focused on credit investing which, at that time, managed $300 million. In January 2015, Onex acquired control of the investment advisor and now has a 100 percent ownership interest for accounting purposes. 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 ware- house facility in anticipation of its first placement. To date, Onex Credit has closed 12 CLOs, with offerings of se- curities and loans totalling approximately $6.9 billion. At December 31, 2016, capital under management related to these CLOs was $6.3 billion. Today, our credit business manages non-investment grade debt through several investment strategies comprising event-driven, long/short, long-only, par, stressed and distressed opportunities, including two closed- end funds listed on the Toronto Stock Exchange (TSX: OCS-UN and OSL-UN), as well as its CLO platform. Since inception, Onex Credit has raised $7.9 billion of fund investor capital through its various strategies and is focused on growing its other strategies through various product lines and distribution channels. In April 2016, Onex Credit announced plans to launch a direct lending platform which will focus on pro- viding credit to middle-market and larger private equity and corporate borrowers predominantly in the United States and, selectively, in Canada and Europe. The strategy will invest the majority of its capital in senior secured loans of companies primarily in less cyclical and less capital-intensive industries, with a focus on capital pres- ervation. The direct lending platform will employ a buy-and-hold approach to investing, with a goal of owning a diversified pool of investments. The direct lending platform is a natural extension of Onex Credit’s business and will leverage the firm’s infrastructure in and knowledge of the loan market. In addition, the platform will further contribute to Onex’ objective of growing fee-generating assets under management. Onex Corporation December 31, 2016 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 The management of fund investor capital provides two significant benefits to Onex: (i) the Company earns man- agement fees on $15.9 billion of fee-generating capital under management and (ii) Onex has the opportunity to share in the profits of its investors through carried interest and incentive fee participation. This enables Onex to enhance the return from its investment activities. Onex Partners, ONCAP and Onex Credit earned a total of $135 million in management and transaction fees in 2016 (2015 – $141 million), and today Onex has run-rate management fees of $150 million for the next 12 months. Onex expects management fees and carried interest will offset ongoing operating expenses. Our private equity funds contribute $110 million to the run-rate management fees for the next 12 months. Onex does not earn any management fees on the $5.0 billion of capital it has invested or committed to its private equity funds. Onex Credit contributes $40 million to the run-rate management fees for the next 12 months, which includes $3 million of management fees earned on Onex’ capital invested in Onex Credit Funds. At December 31, 2016, Onex’ share of the unrealized carried interest on Onex Partners’ operating businesses was $197 million based on their fair values compared to $178 million at December 31, 2015. The amount of unreal- ized carried interest on Onex Partners’ businesses has increased since December 31, 2015 due to net fair value increases of certain businesses during 2016, partially offset by $14 million of carried interest realized primarily on the sale of KraussMaffei. The actual amount of carried interest realized by Onex will depend on the ultimate per- formance of each fund. At December 31, 2016, Onex managed $18.0 billion of fund investor capital, in addition to $6.3 billion of Onex capital. ($ millions) Total Fee-Generating Uncalled Commitments Fund Investor Capital Under Management(1) December 31, 2016(2) December 31, 2015(2) Change in Total December 31, 2016 December 31, 2015 December 31, 2016(2) December 31, 2015 (2) Funds Onex Partners(3) $ 9,798 $ 9,803 ONCAP(4) Onex Credit 1,548 6,637 865 5,869 Total $ 17,983 $ 16,537 –% 79% 13% 9% $ 7,943 $ 8,249 $ 2,011 $ 3,233 1,304 6,637 727 5,869 740 n/a 107 n/a $ 15,884 $ 14,845 $ 2,751 $ 3,340 (1) Invested amounts included in fund investor capital under management are presented at fair value. (2) Uncalled commitments include capital available for future Onex-sponsored acquisitions and possible future funding of remaining businesses. Includes committed amounts from the Onex management team and directors based on the assumption that all of the remaining limited partners’ commitments are invested. Uncalled commitments at December 31, 2016 are reduced for management fees receivable of $48 million, which are included in Onex capital. Uncalled commitments for ONCAP III at December 31, 2016 include bridge financing for the investment in Tecta that was returned to limited partners in January 2017. (3) The principal repayments of the promissory note by Jack’s, as described on page 33 of this MD&A, increased the uncalled commitments for Onex Partners Funds. (4) Capital under management for ONCAP II and III is in Canadian dollars and has been converted to U.S. dollars using the exchange rate on December 31, 2016 and 2015. 20 Onex Corporation December 31, 2016 M A N A G E M E N T ’ S D I S C U S S I O N A N D A N A LY S I S Growth in fund investor capital under management The amount of fund investor capital under management will fluctuate as new capital is raised and existing investments are realized. One of Onex’ long-term goals is to grow its fee-generating capital by 10 percent per year. During 2016, fee-generating capital under management grew by 7 percent to $15.9 billion, driven by our success in raising ONCAP IV and two CLO issuances. Over the past five years, fee-generating capital under management has increased by 15 percent per year. In November 2016, Onex raised approximately $1.1 billion of capital commitments from limited partners for ONCAP IV, including Onex’ commitment of $480 million. We started earning management fees for ONCAP IV from the close date in early November 2016. During the initial fee period of ONCAP IV, Onex will receive annual management fees of 2.0 percent on capital committed by limited partners. 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 summa- rizes the performance of the Onex Partners and ONCAP Funds from inception through December 31, 2016. Funds Onex Partners I Onex Partners II Onex Partners III Onex Partners IV ONCAP I(3)(4) ONCAP II(3) ONCAP III(3) ONCAP IV(5) Performance Returns(1) Vintage Gross IRR Net IRR(2) Gross MOC Net MOC (2) 2003 2006 2009 2014 1999 2006 2011 2016 55% 17% 21% 12% 43% 30% 25% − 38% 14% 14% 1% 33% 21% 17% − 3.9x 2.3x 2.0x 1.1x 4.1x 3.8x 2.0x 1.0x 3.0x 1.9x 1.7x 1.0x 3.1x 2.6x 1.6x 0.9x (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) Returns are calculated in Canadian dollars, the functional currency of the select ONCAP Funds. (4) ONCAP I was dissolved effective October 31, 2012 as all investments had been realized. (5) Performance reflects the short operating period of ONCAP IV. Cash outflows occurred in December 2016 to fund the first investment made by the Fund. The Gross IRR and Net IRR are not presented as they are not meaningful due to the short operating period of ONCAP IV. Onex Corporation December 31, 2016 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 Credit As of December 31, 2016, Onex had a net investment of $382 million in CLOs after dispositions and distributions, including $32 million for a warehouse facility. Onex primarily invests in the equity tranches of CLOs. 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 investors’ general appetite for risk. During 2016, the leveraged loan market experienced a recovery resulting in an increase in the market value of Onex’ CLO positions. Onex experienced a net unrealized gain on its investments in CLOs of $128 million during 2016. Onex remains a long-term investor in its CLO investments and fluctuations in unrealized values may not be representative of ultimate returns. All of Onex’ CLOs remain onside their various coverage tests, and Onex received $73 million of distributions from its CLO investments during the year ended December 31, 2016. Share price Our goal is to have the value of our investing and asset management activities reflected in our share price. These efforts are supported by a long-standing quarterly dividend and an active stock buyback program. In May 2016, Onex increased its quarterly dividend by 10 percent to C$0.06875 per SVS beginning in July 2016. This increase fol- lows similar increases in the previous three years and reflects Onex’ success and ongoing commitment to its share- holders. During 2016, $21 million was returned to shareholders through dividends and Onex repurchased 3,114,397 SVS at a total cost of $184 million (C$249 million), or an average purchase price of $58.98 (C$80.14) per share. At December 31, 2016, Onex’ SVS closed at C$91.38, an 8 percent increase from December 31, 2015. This compares to an 18 percent increase in the S&P/TSX Composite Index (“TSX”). The chart below shows the performance of Onex’ SVS relative to the TSX. Onex Relative Performance (CAD) (December 31, 2015 to December 31, 2016) ONEX (CAD) TSX 5 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 120 115 110 105 100 95 90 85 TSX +18% ONEX +8% 31-Dec-15 29-Feb-16 30-Apr-16 30-Jun-16 31-Aug-16 31-Oct-16 31-Dec-16 22 Onex Corporation December 31, 2016 M A N A G E M E N T ’ S D I S C U S S I O N A N D A N A LY S I S 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 2016, the value of Onex’ SVS increased by 11 percent in U.S. dollars compared to a 10 percent increase 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 (USD) (December 31, 2015 to December 31, 2016) ONEX (USD) S&P 500 5 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 120 115 110 105 100 95 90 85 ONEX +11% S&P 500 +10% 31-Dec-15 29-Feb-16 30-Apr-16 30-Jun-16 31-Aug-16 31-Oct-16 31-Dec-16 Onex Corporation December 31, 2016 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 INDUSTRY SEGMENTS At December 31, 2016, Onex had 10 reportable industry segments. In April 2016, Onex completed the sale of KraussMaffei. The operations of KraussMaffei have been presented as discontinued for the years ended December 31, 2016 and 2015. In October 2016, the Onex Partners IV Group completed the acquisi- tion of Clarivate Analytics, the results of which have been combined with Emerald Expositions (previ- ously included in the other businesses segment) and presented as a new reportable industry segment, business and information services. In December 2016, the Onex Partners IV Group completed the acqui- sition of Save-A-Lot, the results of which have been combined with Jack’s (previously included in the other businesses segment) and presented as a new reportable industry segment, food retail and res- taurants. 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. The information by segment is presented in the chronological order in which the operating segments become reportable. We manage our businesses and measure perfor- mance based on each operating business’ 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: 18.0 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. (NYSE: JELD), 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). 84%(b) 21%(b)/84%(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 (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 included common and convertible preferred shares at December 31, 2016. In January 2017, JELD-WEN completed an initial public offering, as described on page 37 of this MD&A. Subsequent to the initial public offering, the Onex Partners III Group continues to hold 62.8 million shares of JELD- WEN for an economic and voting interest of 60 percent. Onex continues to hold 15.5 million shares for a 15 percent economic interest in JELD-WEN. 24 Onex Corporation December 31, 2016 M A N A G E M 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 Companies USI Insurance Services, a leading U.S. provider of insurance brokerage services (www.usi.com). 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 Onex’ & Limited Partners’ Economic Ownership Onex’ Economic/ Voting Ownership 89% 25%/100% 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). 88% 29%/100% 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 Packaging Products and Services SGS International, LLC, a global leader in providing fully integrated 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.à r.l., a world-leading provider of aseptic carton packaging solutions for beverages and liquid food (www.sig.biz). 99% 33%/95% 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 Business and Information Services Clarivate Analytics, owner and operator of a collection of leading subscription- based businesses focused on scientific and academic research, patent analytics and regulatory standards, pharmaceutical and biotech intelligence, trademark protection, domain brand protection and intellectual property management (www.clarivate.com). 72% 26%/72% Total Onex, Onex Partners IV, certain limited partners, Onex management and others investment at original cost: $1,177 million Onex portion at cost: $419 million Onex Partners IV portion subject to a carried interest: $444 million Emerald Expositions, LLC, a leading operator of business-to-business trade shows 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 Onex Corporation December 31, 2016 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 Industry Segments Companies Food Retail and Restaurants Jack’s Family Restaurants, a regional premium quick-service restaurant operator based in the United States (www.eatatjacks.com). Total Onex, Onex Partners IV and Onex management investment at original cost: $234 million(a) Onex portion at cost: $67 million(a) Onex Partners IV portion subject to a carried interest: $148 million(a) Onex’ & Limited Partners’ Economic Ownership Onex’ Economic/ Voting Ownership 96% 28%/100% Save-A-Lot, one of the largest hard-discount grocery retailers for value-seeking shoppers in the United States (www.save-a-lot.com). 100% 28%/100% Credit Strategies Other Businesses • Aerospace Automation, Tooling and Components Total Onex, Onex Partners IV and Onex management investment at original cost: $660 million Onex portion at cost: $186 million Onex Partners IV portion subject to a carried interest: $418 million Credit Strategies, a platform that is comprised of: Onex Credit Manager specializes in managing credit-related investments, including event-driven, long/short, long-only, par, stressed, distressed and market dislocation strategies. Onex Credit Collateralized Loan Obligations, leveraged structured vehicles that hold a widely diversified collateral asset portfolio 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: $384 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: $521 million, of which $376 million is invested in a segregated unlevered senior secured loan portfolio that purchases assets with greater liquidity and $145 million is invested in other Onex Credit Funds. 100% 100%/(b) Advanced Integration Technology LP, a leading provider of automation, factory integration and tooling dedicated to the global aerospace, defence and space launch industries (www.aint.com). 50%(c) 11%(c)/50%(d) 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 (a) The original investment in Jack’s included a $195 million promissory note, which was partially repaid during 2015 and 2016 with net proceeds from sale-leaseback transactions. In June 2016, the balance of $14 million outstanding under the promissory note was converted into additional equity of Jack’s. (b) Onex controls the Onex Credit asset management platform through contractual rights. (c) In August 2016, AIT repurchased units from investors other than the Onex Partners IV Group, as described on page 35 of this MD&A. (d) 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. 26 Onex Corporation December 31, 2016 Industry Segments Other Businesses (cont’d) • Aircraft Leasing & Management M A N A G E M E N T ’ S D I S C U S S I O N A N D A N A LY S I S Onex’ & Limited Partners’ Economic Ownership Onex’ Economic/ Voting Ownership Companies 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). 50% 13%/50%(a) Total Onex, Onex Partners III and Onex management investment at original cost: $193 million Onex portion at cost: $49 million Onex Partners III portion subject to a carried interest: $135 million Included with the investment in BBAM Limited Partnership is an investment of $28 mil- lion made concurrently in FLY Leasing Limited (NYSE: FLY) by the Onex Partners III Group, of which Onex’ share was $7 million. During the first quarter of 2016, the Onex Partners III Group invested $8 million in FLY Leasing Limited, of which Onex’ share was $2 million. 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 • Hospital Management Services Schumacher Clinical Partners, a leading U.S. provider of emergency and hospital medicine physician practice management services (www.schumacherclinical.com). 68% 20%/68% 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 • Survival Equipment Survitec Group Limited, a market-leading provider of mission-critical marine, defence and aerospace survival equipment (www.survitecgroup.com). 79% 18%/68% Total Onex, Onex Partners IV and Onex management investment at original cost: $371 million(b) Onex portion at cost: $84 million(b) Onex Partners IV portion subject to a carried interest: $258 million(b) • Industrial Products WireCo WorldGroup, a leading global manufacturer of mission-critical steel wire rope, synthetic rope, specialty wire and engineered products (www.wirecoworldgroup.com). 71% 20%/71% Total Onex, Onex Partners IV and Onex management investment at original cost: $270 million Onex portion at cost: $76 million Onex Partners IV portion subject to a carried interest: $171 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 investments in Survitec were made primarily in pounds sterling and converted to U.S. dollars using the prevailing exchange rate on the date of the investments. Onex Corporation December 31, 2016 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 Industry Segments Other Businesses (cont’d) • Healthcare Companies Onex’ & Limited Partners’ Economic Ownership Onex’ Economic/ Voting Ownership Genesis Healthcare, Inc. (NYSE: GEN), a leading provider of integrated long-term healthcare services in the United States (www.genesishcc.com). 10% 2%/10% Onex shares held: 3.5 million Onex Partners I shares subject to a carried interest: 10.7 million • Middle-Market Opportunities ONCAP, private equity funds focused on acquiring and building the value of middle-market companies based in North America (www.oncap.com). ONCAP II 100% 47%(a)/100% ONCAP II actively manages investments in EnGlobe (www.englobecorp.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: $212 million (C$218 million) Onex portion at cost: $100 million (C$102 million) ONCAP II limited partners portion at cost: $92 million (C$94 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), Chatters (www.chatters.ca) and Tecta (www.tectaamerica.com). Total Onex, ONCAP III, Onex management, ONCAP management, certain limited partners and others unrealized investments at original cost: $585 million (C$659 million) Onex portion at cost: $183 million (C$208 million) ONCAP III limited partners portion at cost: $347 million (C$390 million) ONCAP IV 100% 40%/100% • Real Estate ONCAP IV actively manages an investment in Tecta (www.tectaamerica.com). Total Onex, ONCAP IV, Onex management and ONCAP management unrealized investments at original cost: $62 million Onex portion at cost: $25 million ONCAP IV limited partners portion at cost: $31 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 approximately 1,200 condominium units constructed above retail space and parking structures. The first phase of the project has been substantially realized. Onex’ remaining investment in Flushing Town Center at cost: $169 million (a) This represents Onex’ blended economic ownership in the ONCAP II investments. 88% 88%/100% 28 Onex Corporation December 31, 2016 M A N A G E M 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, 2016 compared to those for the year ended December 31, 2015 and, in selected areas, to those for the year ended December 31, 2014. 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 taxes, legal contingencies and actuarial valuations of pen- This section should be read in conjunction with Onex’ con- use of significant judgement by Onex and its operating sion and other post-retirement benefits also requires the solidated statements of earnings and the corresponding companies. 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, liabilities and equity, disclosures of contingent assets and liabilities and the reported amounts of revenue and expenses for the periods of the consolidated financial state- ments. 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’ consolidated financial statements are estimates used in determining the allowance for doubtful accounts, provisions for uncompensated care, inventory valuation, deferred tax assets and liabilities, allocation of purchase price consideration to 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 operating companies and structured entities. The assessment of goodwill, intan- gible assets and long-lived assets for impairment, income Business combinations In a business combination, substantially all identifiable assets, liabilities and contingent liabilities acquired are recorded at the date of acquisition at their respective fair 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 4 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 Corporation December 31, 2016 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 Onex Partners and ONCAP Funds represent the interests of limited partner investors, and carried interest, represent- Consolidation of structured entities Onex indirectly controls and consolidates the operations of ing the General Partner’s share of the net gains of the Onex the CLOs of Onex Credit. The CLOs are structured entities Partners and ONCAP Funds, is recorded at fair value. The for which voting and similar rights are not the dominant fair value is significantly affected by the change in the fair factor in determining control of the CLOs. Onex has used value of the underlying investments in the Onex Partners judgement when assessing the many factors that determine and ONCAP Funds. control, including its exposure through investments in the The valuation of non-public investments requires most subordinate capital of the CLOs, its role in the forma- significant judgement by Onex due to the absence of tion of the CLOs, the rights of other investors in the CLOs quoted market values, inherent lack of liquidity and the and its control of the asset manager of the CLOs. Onex has long-term nature of such investments. Valuation method- determined that it is a principal of the CLOs with the power ologies include discounted cash flows and observations of to affect the returns of its investment and, as a result, indi- the trading multiples of public companies considered com- rectly controls the CLOs. parable to the private companies being valued. The valua- CLOs are further discussed in note 1 to the con- tions take into consideration company-specific items, the solidated financial statements. lack of liquidity inherent in a non-public investment and the fact that comparable public companies are not identi- Impairment testing of goodwill, intangible assets cal to the companies being valued. Such considerations are necessary because, in the absence of a committed buyer and long-lived assets Goodwill in an accounting context represents the excess and completion of due diligence procedures, there may be of the aggregate consideration paid and the amount of company-specific items that are not fully known that may any non-controlling interests in the acquired company affect value. A variety of additional factors are reviewed compared to the fair value of the identifiable net assets by management, including, but not limited to, financing acquired. Substantially all of the goodwill amount that and sales transactions with third parties, current operat- appears in Onex’ consolidated balance sheets was recorded ing performance and future expectations of the particular by the operating companies. Goodwill is not amortized, investment, changes in market outlook and the third-party but is assessed for impairment at the level of either an indi- financing environment. In determining changes to the fair vidual cash generating unit (“CGU”) or a group of CGUs value of investments, emphasis is placed on current com- annually, or sooner if events or changes in circumstances or pany performance and market conditions. market conditions indicate that the carrying amount could For publicly traded investments, the valuation is exceed fair value. The test for goodwill impairment used by based on closing market prices less adjustments, if any, for our operating companies is to assess whether the fair value regulatory and/or contractual sale restrictions. of each CGU within an operating company is less than its The changes to fair value of the investments in carrying value and then determine if the goodwill associ- joint ventures and associates are reviewed on page 50 of ated with that CGU is impaired. This assessment takes into this MD&A. consideration several factors, including, but not limited to, Included in the measurement of the Limited Part- future cash flows and market conditions. If the fair value is ners’ Interests is an adjustment for the change in carried determined to be lower than the carrying value at an indi- interest as well as any contributions by and distributions to vidual CGU, goodwill is then considered to be impaired limited partners in the Onex Partners and ONCAP Funds. and an impairment charge must be recognized. Internal The changes to the fair value of the Limited Partners’ valuation models are used to determine fair value. These Interests for the Onex Partners and ONCAP Funds are models are subjective and require management of the par- reviewed on page 55 of this MD&A. ticular operating company to exercise judgement in mak- 30 Onex Corporation December 31, 2016 M A N A G E M E N T ’ S D I S C U S S I O N A N D A N A LY S I S ing assumptions about future results, including revenues, penalties and exclusion from programs. Government agen- operating expenses, capital expenditures and discount cies may condition their contracts upon a sufficient budget- rates. In the year of acquisition, the fair value in excess of ary appropriation. If a government agency does not receive the carrying value at an operating company will typically an appropriation sufficient to cover its contractual obliga- be minimal as a result of the recent business combina- tions, it may terminate the contract or defer or reduce reim- tion accounting. The impairment test for intangible assets bursements to be received by the company. In addition, and long-lived assets with limited lives is similar to that for previously appropriated funds could also be reduced or goodwill. Under IFRS, impairment charges for intangible eliminated through subsequent legislation. assets and long-lived assets may subsequently be reversed Revenues for Schumacher in the other segment if fair value is determined to be higher than carrying value. are recognized net of an allowance for uncompensated The reversal is limited, however, to restoring the carrying care related to uninsured patients in the period during amount that would have been determined, net of amorti- which the services are provided. The allowance for uncom- zation, had no impairment loss been recognized in prior pensated care is estimated on the basis of historical experi- periods. Impairment losses for goodwill are not reversed in ence of collections associated with self-pay patients treated future periods. during the period. Impairment charges recorded by the operating businesses under IFRS may not impact the fair values of the operating businesses used in determining the increase Income taxes Onex, including its operating companies, is subject to or decrease in investments in joint ventures and associates, changing tax laws and the interpretation of existing tax the change in carried interest and for calculating the Limited laws in multiple jurisdictions. Significant judgement is Partners’ Interests liability for the Onex Partners and ONCAP necessary in determining worldwide income tax liabilities. Funds. Fair values of the operating businesses are assessed at Although management of Onex and the operating com- the enterprise level, while impairment charges are assessed panies believe that they have made reasonable estimates at the level of an asset, a CGU or a group of CGUs. about the final outcome of tax uncertainties, no assurance During 2016, certain operating companies re- can be given that the outcome of these tax matters will be corded charges for impairments of goodwill, intangible consistent with what is reflected in the historical income assets and long-lived assets. These charges are reviewed on tax provisions. Such differences could have an effect on page 54 of this MD&A and in note 26 to the consolidated income tax liabilities and deferred tax liabilities in the financial statements. period in which such determinations are made. At each balance sheet date, management of Onex and the operat- Revenue recognition Revenues for ResCare in the health and human services seg- ing companies assess whether the realization of future tax benefits is sufficiently probable to recognize deferred ment are substantially derived from U.S. federal, state and tax assets. This assessment requires the exercise of judge- local government agency programs, including Medicaid ment on the part of management with respect to, among and Medicare. Laws and regulations under these programs other things, benefits that could be realized from available are complex and subject to interpretation. Management tax strategies and future taxable income, as well as other may be required to exercise judgement for the recognition positive and negative factors. The recorded amount of total of revenue under these programs. Management of ResCare deferred tax assets could be reduced if estimates of pro- believes that they are in compliance with all applicable laws jected future taxable income and benefits from available and regulations. Compliance with such laws and regula- tax strategies are lowered, or if changes in current tax regu- tions is subject to ongoing and future government review lations are enacted that impose restrictions on the timing and interpretation, including the possibility of processing or extent of Onex’ or its operating companies’ ability to uti- claims at lower amounts upon audit, as well as significant lize future tax benefits. regulatory action including revenue adjustments, fines, Onex Corporation December 31, 2016 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 Legal contingencies Onex, including its operating companies, becomes involved in various legal proceedings in the normal course of opera- tions. While we cannot predict the final outcomes of such legal proceedings, they may have a significant effect on IFRS 9 – Financial Instruments In July 2014, the IASB issued a final version of IFRS 9, Financial Instruments, which replaces IAS 39, Financial Instruments: Recognition and Measurement, and super- sedes all previous versions of the standard. The standard Onex’ consolidated financial position, results of operations introduces a new model for the classification and measure- or cash flows. The filing or disclosure of a suit or formal ment of financial assets and liabilities, a single expected assertion of a claim does not automatically indicate that a credit loss model for the measurement of the impairment provision may be appropriate. Management, with the assis- of financial assets and a new model for hedge accounting tance of internal and external lawyers, regularly analyzes that is aligned with a company’s risk management activi- current information about these matters and provides pro- ties. IFRS 9 is effective for annual periods beginning on or visions for probable contingent losses, including the esti- after January 1, 2018, with earlier application permitted. mate of legal expenses to resolve these matters. The Company is currently evaluating the impact of adopt- Employee benefits Onex, the parent company, does not have a pension plan; however, certain of its operating companies do. Manage- ment of the operating companies use actuarial valuations to account for their pension and other post-retirement ing this standard on its consolidated financial statements. IFRS 16 – 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 benefits. These valuations rely on statistical and other combination and separation of contracts. The standard factors in order to anticipate future events. These factors requires lessees to recognize a right-of-use asset and a include key actuarial assumptions such as the discount lease liability for substantially all lease contracts. The rate, expected salary increases and mortality rates. These accounting for lessors is substantially unchanged from actuarial assump tions may differ significantly from actual IAS 17. IFRS 16 is effective for annual periods beginning on developments due to changing market and economic con- or after January 1, 2019, with earlier application permitted ditions, and therefore may result in a significant change if IFRS 15 is also applied. The Company is currently evalu- in post-retirement employee benefit obligations and the ating the impact of adopting this standard on its consoli- related future expense in the consolidated financial state- dated financial statements. ments. Note 32 to the consolidated financial statements provides details on the estimates used in accounting for pensions and post-retirement benefits. Recent accounting pronouncements IFRS 15 – Revenue from Contracts with Customers In May 2014, the IASB issued IFRS 15, Revenue from Con tracts with Customers, which provides a comprehen- sive five-step revenue recognition model for all contracts with customers. IFRS 15 requires management to exercise significant judgement and make estimates that affect rev- enue recognition. IFRS 15 is effective for annual periods beginning on or after January 1, 2018, with earlier appli- cation permitted. The Company is currently evaluating the impact of adopting this standard on its consolidated financial statements. 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 fluctuations; 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 businesses; changes in the fair value of credit securities; changes in tax legis- lation or in the application of tax legislation; and activi- ties at Onex’ operating businesses. These activities may include the purchase or sale of businesses; fluctuations in customer demand, materials and employee-related costs; 32 Onex Corporation December 31, 2016 M A N A G E M E N T ’ S D I S C U S S I O N A N D A N A LY S I S changes in the mix of products and services produced or delivered; changes in the financing of the business; Closing of CLO-11 In January 2016, Onex established a warehouse facility in changes in contract accounting estimates; impairments of connection with its eleventh CLO denominated in U.S. dol- goodwill, intangible assets or long-lived assets; litigation; lars. Onex invested $60 million in subordinated notes to charges to restructure operations; and natural disasters. support the warehouse facility’s total return swap. Given the diversity of Onex’ operating businesses, the asso- In May 2016, Onex closed CLO-11, which was ciated exposures, risks and contingencies may be many, funded through the issuance of collateralized loan instru- varied and material. ments in a series of tranches of secured notes, secured Investments held by the CLOs and the Onex Credit loans and preference shares in a private placement trans- Funds as well as debt issued by the CLOs are recorded at action for an aggregate principal amount of $502 million. fair value, with changes in fair value recognized in the con- The secured notes and loans were offered in an aggregate solidated statements of earnings. Fair values are impacted principal amount of $457 million. by the leveraged loan market and credit risk (both own and Upon the closing of CLO-11, Onex received counterparty), which may vary substantially from quarter to $60 million plus interest for the investment that supported quarter and year to year. Significant transactions Transactions in this section are presented in chronological order by investment. the warehouse facility and invested $41 million for 100 per- cent of the most subordinated capital of CLO-11. The asset portfolio held by CLO-11 consists of cash and cash equiva- lents and corporate loans, and has been designated to be recorded at fair value. The reinvestment period of CLO-11, during which reinvestment can be made in collateral, ends Repayment of promissory note by Jack’s In connection with the acquisition of Jack’s in July 2015, in April 2018, or earlier, subject to certain provisions. The CLO-11 portfolio is pledged as collateral for the secured the Onex Partners IV Group’s initial investment included notes and loans. Onex consolidates the operations and a $195 million promissory note. During 2015, Jack’s made results of CLO-11. repayments of the promissory note totalling $143 mil- lion, including accrued interest, with net proceeds from sale-leaseback transactions completed for certain of its Investment in Incline Aviation Fund In February 2016, Onex, the parent company, committed fee-owned restaurant properties. Onex’ share of the repay- to investing $75 million in Incline Aviation Fund, an air- ments was $41 million. craft investment fund managed by BBAM and focused on During the first half of 2016, Jack’s made repay- investments in leased commercial jet aircraft. The aggre- ments of the promissory note totalling $40 million, gate capital committed to the fund at the initial closing was including accrued interest, with net proceeds from $200 million, which includes the commitment from Onex, sale-leaseback transactions completed for certain of its the parent company. The aggregate committed capital to the fee-owned restaurant properties. Onex’ share of the repay- fund at December 31, 2016 was $689 million and is expected ments was $12 million. to increase to the targeted $750 million at the final closing of In June 2016, the balance of $14 million outstand- the fund. ing under the promissory note, of which Onex’ share was During 2016, Onex, the parent company, invested $4 million, was converted into additional equity of Jack’s $13 million in Incline Aviation Fund, net of distributions and in accordance with the promissory note agreement. bridge financing which have been returned to Onex. Onex Subsequent to the transaction, the Onex Partners IV Group has joint control of Incline Aviation Fund. The investment has a 96 percent economic interest in Jack’s, of which Onex’ in Incline Aviation Fund has been recorded as a long-term share is 28 percent. investment at fair value through earnings. In February 2017, the amount committed by Onex to investing in Incline Aviation Fund was reduced to $50 mil- lion, as described on page 80 of this MD&A. Onex Corporation December 31, 2016 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 Sale of KraussMaffei In April 2016, the Onex Partners III Group sold its entire investment in KraussMaffei for a cash enterprise value of €925 million ($1.0 billion). Net proceeds from the sale were €717 million ($821 million), which included proceeds to the management of KraussMaffei. The Onex Partners III Group received net proceeds of €669 million ($753 million). Onex’ portion of the net proceeds was $195 million, including car- The operations of KraussMaffei have been pre- sented as discontinued in the consolidated statements of earnings and cash flows for the years ended December 31, 2016 and 2015. Sale of Univers Workplace Benefits by USI In May 2016, USI completed the sale of Custom Benefit Pro grams, Inc., also known as Univers Workplace Benefits ried interest and after the reduction for the amounts on (“Univers”), a provider of employee communication and account of the MIP. Net proceeds to the Onex Partners III benefits enrolment services for employers. USI received net Group and Onex included net realized losses from foreign cash proceeds of $166 million from the sale and recognized exchange hedges of $13 million and $3 million, respectively. The net proceeds include €9 million ($10 million) held in escrow, of which Onex’ share is €2 million ($2 million), and a working capital adjustment of €5 million ($6 million), of which Onex’ share is €2 million ($2 million). The escrow and working capital adjustment are expected to be received a pre-tax gain of $44 million, which has been included in other gains in the consolidated financial statements. Univers did not represent a major line of business for USI. In December 2016, USI applied $50 million of the net cash proceeds from the sale of Univers toward the pre- payment of its term loans. during 2017. The Onex Partners III Group invested a total of €276 million ($358 million) to acquire KraussMaffei in Decem ber 2012, including the impact of a foreign exchange Acquisition of ECI by Schumacher In June 2016, Schumacher acquired ECI, a provider of emergency and hospital medicine physician management hedge gain. The investment in KraussMaffei generated a services in the United States, for $140 million. In connec- Gross MOC of 2.1 times, including the impact of foreign tion with this transaction, Schumacher amended its senior exchange hedges. secured credit facilities to increase its first lien term loan The sale resulted in a gain of $500 million based by $130 million. The balance of the purchase price was on the excess of the proceeds over the carrying value of funded through a rollover of equity from management of the investment. Onex’ share of the gain was $467 million, ECI. Subsequent to the transaction, the Onex Partners IV which was entirely attributable to the equity holders of Group has a 68 percent economic interest in Schumacher, Onex Corporation, as the interests of the Limited Partners of which Onex’ portion is 20 percent. were recorded as a financial liability at fair value. Amounts received on account of the carried inter- est related to this transaction totalled $30 million. Consis- Closing of CLO-12 In July 2016, Onex established a warehouse facility in con- tent with the terms of Onex Partners, Onex was allocated nection with its twelfth CLO denominated in U.S. dollars. 40 percent of the carried interest, with 60 percent allo- Onex invested $60 million in preferred shares to support cated to management. Onex’ share of the carried interest the warehouse facility and a financial institution provided received was $12 million and was included in the net pro- a borrowing capacity of up to $240 million. ceeds to Onex. The carried interest that would have other- In October 2016, Onex closed CLO-12, which was wise been distributed to Onex was reduced by $7 million funded through the issuance of collateralized loan instru- as a result of the realized loss from the sale of Tropicana ments in a series of tranches of secured notes and pref- Las Vegas in August 2015. Management’s share of the car- erence shares in a private placement transaction for an ried interest was $18 million and has been similarly reduced aggregate principal amount of $558 million. The secured for the realized loss from the sale of Tropicana Las Vegas. notes were offered at an aggregate principal amount of Amounts paid on account of the MIP totalled $7 million for $501 million. this transaction and have been deducted from the net pro- Upon the closing of CLO-12, Onex received ceeds to Onex. $60 million plus interest for the investment that supported the warehouse facility and invested $56 million for 100 per- 34 Onex Corporation December 31, 2016 M A N A G E M E N T ’ S D I S C U S S I O N A N D A N A LY S I S cent of the most subordinated capital of CLO-12. The asset portfolio held by CLO-12 consists of cash and cash equiva- Acquisition of Tecta In August 2016, the ONCAP III Group completed the acqui- lents and corporate loans, and has been designated to be sition of Tecta. Based in the United States, Tecta is a leading recorded at fair value. The reinvestment period of CLO-12, national commercial roofing company offering installation, during which reinvestment can be made in collateral, replacement and repair services. The initial equity invest- ends in October 2020, or earlier, subject to certain provi- ment in Tecta was $124 million for a 97 percent economic sions. The CLO-12 portfolio is pledged as collateral for interest, and was comprised of an investment of $99 mil- the secured notes. Onex consolidates the operations and lion by the ONCAP III Group and an additional investment results of CLO-12. AIT unit repurchase and distributions In July 2016, AIT completed its inaugural financing, a of $25 million by Onex. Onex’ initial combined invest- ment was $54 million for a 42 percent economic interest. The remainder of the purchase price was financed with debt financing, without recourse to Onex Corporation, and $225 million term loan. The net proceeds were used in through a rollover of equity by management of Tecta. August 2016 to repurchase units from investors other than In December 2016, following the consent previously the Onex Partners IV Group and to fund a distribution of received from the Advisory Committee of ONCAP III, the $174 million. As a result of the unit repurchase, the Onex General Partner of the ONCAP III Group syndicated $37 mil- Partners IV Group’s economic interest in AIT increased to lion of the investment in Tecta, representing 29 percent of 50 percent, of which Onex’ share was an 11 percent eco- the economic interest, to the ONCAP IV Group at the same nomic interest. The Onex Partners IV Group’s share of the cost as the original investment. The additional investment distribution was $107 million, of which Onex’ share was of $25 million made by Onex represented Onex’ pro-rata $24 million. share of the portion of the investment that was transferred In addition, during 2016, AIT distributed an addi- to the ONCAP IV Group. Subsequent to the syndication, the tional $18 million to the Onex Partners IV Group, of which ONCAP III and IV Groups each held a $62 million invest- Onex’ share was $3 million. The additional distributions ment in Tecta. Onex’ investment consisted of $18 million were funded by the company’s free cash flow. through the ONCAP III Group and $25 million through Sale of Cicis Pizza In August 2016, the ONCAP II Group sold its investment in Cicis for net proceeds of $66 million, of which Onex’ share was $29 million. Included in the net proceeds is $13 million the ONCAP IV Group for a combined 33 percent economic interest. Tecta is included within the other segment. Acquisition of WireCo In September 2016, the Onex Partners IV Group acquired held in escrow, of which Onex’ share is $6 million. ONCAP control and an initial 72 percent economic interest through management received $1 million in carried interest on the a recapitalization of WireCo, a leading global manufacturer sale of Cicis. The impact to Onex and Onex management of mission-critical steel wire rope, synthetic rope, spe- was a net payment of less than $1 million in carried interest cialty wire and engineered products, for $916 million. The to ONCAP management. Onex Partners IV Group invested $270 million in WireCo, The Company recorded a pre-tax gain of $28 mil- of which Onex’ share was $76 million. The remainder of lion based on the excess of the proceeds over the carrying the recapitalization was financed with first and second value of the investment. Onex’ share of the pre-tax gain was lien debt financing, as described on page 66 of this MD&A. $12 million. The gain on the sale is entirely attributable to WireCo is included within the other segment. the equity holders of Onex Corporation, as the interests of the limited partners were recorded as a financial liability at fair value. Acquisition of Clarivate Analytics In October 2016, Onex, in partnership with Baring Private Cicis did not represent a separate major line of Equity Asia, completed the acquisition of the Intellectual business, and as a result, the operating results up to the Property and Science business from Thomson Reuters for date of disposition have not been presented as a discontin- $3.55 billion. The business, which now operates as Clarivate ued operation. Onex Corporation December 31, 2016 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 Analytics, owns and operates a collection of leading sub- scription-based businesses focused on scientific and aca- Acquisition of Wilhelmsen Safety by Survitec In November 2016, Survitec acquired the safety-related demic research, patent analytics and regulatory standards, business activities of Wilhelmsen Maritime Services (“Wil- pharmaceutical and biotech intelligence, trademark pro- helmsen Safety”) for £164 million ($205 million). In con- tection, domain brand protection and intellectual property nection with the transaction, the Onex Partners IV Group management. The equity investment was $1.6 billion for invested $35 million in Survitec, of which Onex’ share was a 100 percent economic interest in Clarivate Analytics, of $8 million. The remainder of the purchase price and trans- which $1.2 billion was made by the Onex Partners IV Group, action costs were funded through a rollover of equity by including $477 million as a co-investment from Onex and Wilhelmsen Maritime Services of $80 million and with certain limited partners, for a 72 percent economic inter- proceeds from Survitec’s senior secured credit facilities. est. Onex’ share of the equity investment was $419 million, Subsequent to the transaction, the Onex Partners IV Group including $222 million as a co-investment, for a 26 percent had a 79 percent economic interest in Survitec, of which economic interest. The remainder of the purchase price Onex’ share was an 18 percent economic interest. was financed with debt financing, without recourse to Onex Corporation. Clarivate Analytics is included within the busi- ness and information services segment. Distributions from JELD-WEN In November 2016, JELD-WEN amended its existing credit Acquisition of Save-A-Lot In December 2016, the Company acquired Save-A-Lot for $1.4 billion. Save-A-Lot is one of the largest hard-discount grocery retailers for value-seeking shoppers in the United States. The Onex Partners IV Group invested $660 million facility to borrow an incremental $375 million and to com- for 100 percent of the economic interest in Save-A-Lot, of bine the incremental borrowing with its existing term loans which Onex’ share was $186 million for a 28 percent eco- into a combined term loan of $1.6 billion, as described on nomic interest. Save-A-Lot is included within the food retail page 64 of this MD&A. The proceeds from the incremental and restaurants segment. borrowing, along with a draw on the company’s revolving credit facility, were used to fund a distribution of $400 mil- lion to shareholders. The Onex Partners III Group’s portion Pending acquisition of Parkdean Resorts In December 2016, the Onex Partners IV Group agreed to of the distribution was $327 million. Onex’ portion of the acquire Parkdean Resorts, a leading operator of caravan distribution was $81 million, of which $46 million related holiday parks in the United Kingdom, for £1.35 billion. The to Onex’ investment through Onex Partners III and $35 mil- Company expects to make an investment of $627 million, lion related to Onex’ co-investment. The remaining bal- comprised of $427 million from the Onex Part ners IV ance was primarily distributed to third-party shareholders Group and $200 million as a co-investment from Onex and management of JELD-WEN. and certain limited partners, for an economic interest of In addition, in August 2016 JELD-WEN distrib- approximately 91 percent. Onex’ share of the investment uted a purchase price adjustment of $24 million related to is expected to be $170 million, comprised of $126 million the initial investment in JELD-WEN in October 2011 to the through the Onex Partners IV Group and $44 million as a Onex Partners III Group. Onex’ share of the purchase price co-investment, for an economic interest of approximately adjustment was $6 million. 25 percent. In connection with this transaction, the Onex Partners IV Group has entered into an agreement to hedge ONCAP IV In November 2016, Onex completed fundraising for its commitment to pay the purchase price denominated in pounds sterling against fluctuations in value relative to the ONCAP IV, reaching aggregate commitments of $1.1 billion U.S. dollar. The transaction is expected to close during the and exceeding our target size of $1.0 billion. This includes first quarter of 2017, subject to customary conditions and Onex’ commitment of $480 million and capital from fund regulatory approvals. investors around the world. 36 Onex Corporation December 31, 2016 M A N A G E M E N T ’ S D I S C U S S I O N A N D A N A LY S I S Initial public offering by JELD-WEN In January 2017, JELD-WEN completed an initial public collateral for borrowings under the warehouse facility. The warehouse facility matures on the earlier of the closing of offering of 28.75 million shares of its common stock (NYSE: CLO-13 and February 2018. Onex is expected to consolidate JELD), including the exercise of the over-allotment option. the warehouse facility for CLO-13. The offering was priced at $23.00 per share for gross pro- ceeds of $661 million. As part of the offering, JELD-WEN issued approximately 22.3 million treasury shares. The net Distributions from operating businesses During 2016 and up to February 23, 2017, Onex and its part- proceeds from treasury shares were used to repay $375 mil- ners have received distributions of $730 million from cer- lion of JELD-WEN’s combined term loan with the balance tain operating businesses. Onex’ portion of the distributions for working capital and other general corporate purposes. was $210 million, including carried interest. The distribu- The Onex Partners III Group sold approximately 6.5 million tions include the repayment of the promissory note by Jack’s shares in the transaction for net proceeds of $140 million. and the distributions by AIT and JELD-WEN, as previously Onex’ portion of the net proceeds was $40 million, includ- described in this MD&A. The other significant distributions ing approximately $6 million of carried interest. received by Onex and its partners are described below. Amounts received on account of the carried inter- During 2016, BBAM distributed $50 million to the est related to this transaction totalled $14 million. Consis- Onex Partners III Group funded by the company’s free cash tent with the terms of Onex Partners, Onex was allocated flow. Onex’ share of the distributions was $13 million. 40 percent of the carried interest, with 60 percent allocated In June 2016, Meridian Aviation distributed $39 mil- to management. Onex’ share of the carried interest received lion to the Onex Partners III Group, of which Onex’ share was $6 million and was included in the net proceeds to was $12 million, including carried interest of $2 million. Onex. Management’s share of the carried interest was The distribution was funded from cash on hand at Meridian $8 million. No amounts were paid on account of the MIP for Aviation primarily from gains on investments in aircraft. this transaction as the required realized investment return During 2016, Onex Real Estate Partners distributed hurdle for Onex was not met at this time. $37 million of proceeds primarily from the sale of commer- The Onex Partners III Group continues to hold cial units at Flushing Town Center, of which Onex’ share approximately 62.8 million shares of JELD-WEN’s common was $33 million. The distributions by Flushing Town Center stock for a 60 percent economic interest, of which Onex’ include $8 million related to the amounts held in escrow share is approximately 15.5 million shares for a 15 percent from the July 2015 sale of the retail space and adjoining economic interest. Since this transaction did not result parking garage of Flushing Town Center, of which Onex’ in a loss of control of JELD-WEN, the transaction will be share was $7 million. recorded as a transfer of equity to non-controlling interests In December 2016, Hopkins entered into a new holders in the consolidated financial statements, with the credit facility. The net proceeds from the credit facility were cash proceeds received in excess of the historical accounting used to repay the existing credit facilities and to fund an carrying value being recorded directly to retained earnings. $80 million distribution to shareholders. The ONCAP III Group’s share of the distribution was $71 million, of which Warehouse facility of CLO-13 In February 2017, Onex established a warehouse facility in Onex’ share was $21 million. ONCAP management received $4 million in carried interest in January 2017 from the connection with its thirteenth CLO denominated in U.S. Hopkins distribution. The impact to Onex and Onex man- dollars. Onex invested $10 million in subordinated notes to agement was a net payment of less than $1 million in car- support the warehouse facility and a financial institution ried interest to ONCAP management. provided an initial borrowing capacity of up to $40 million. In January 2017, PURE Canadian Gaming distrib- The subordinated notes do not have a stated rate of inter- uted C$15 million to shareholders, which was primarily est, but will receive certain excess available funds after pay- funded by the company’s free cash flow generated during ment of principal, accrued interest and certain expenses the year. The ONCAP II and III Groups’ portion of the distri- upon closing of CLO-13. The asset portfolio consists of cash bution was C$15 million ($11 million), of which Onex’ por- and cash equivalents and corporate loans and is pledged as tion was C$6 million ($5 million). Onex Corporation December 31, 2016 37 M A N A G E M E N T ’ S D I S C U S S I O N A N D A N A LY S I S R E V I E W O F D E C E M B E R 3 1 , 2 0 1 6 C O N S O L I D A T E D F I N A N C I A L S T A T E M E N T S ended December 31, 2015 represent the results of operations of KraussMaffei, Sitel Worldwide (up to September 2015) and Skilled Healthcare Group (up to February 2015). The discussions that follow identify those material factors In addition, the business and information ser- that affected Onex’ operating segments and Onex’ consoli- vices segment consists of Clarivate Analytics and Emerald dated results for the year ended December 31, 2016. Expositions (previously included within the other seg- Earnings from discontinued operations for the year ment), and the food retail and restaurants segment ended December 31, 2016 represent the results of operations consists of Jack’s (previously included within the other of KraussMaffei and include a portion of the gain from the segment) and Save-A-Lot. Comparative segmented results sale of Sitel Worldwide. Discontinued operations for the year have been restated to reflect these changes. Consolidated revenues and cost of sales Table 1 provides revenues and cost of sales by industry segment. Revenues and Cost of Sales by Industry Segment TABLE 1 ($ millions) Year ended December 31 Revenues Cost of Sales 2016 2015 Change 2016 2015 Change Electronics Manufacturing Services $ 6,016 $ 5,639 Healthcare Imaging Health and Human Services Building Products Insurance Services(a) Packaging Products and Services(b) Business and Information Services(c) Food Retail and Restaurants(d) Credit Strategies(e) Other(f) Total 1,990 1,785 3,670 1,793 2,414 525 689 4 3,637 2,141 1,821 3,378 1,752 2,070 307 168 5 2,400 $ 22,523 $ 19,681 7 % (7)% (2)% 9 % 2 % 17 % 71 % 310 % (20)% 52 % 14 % $ 5,510 $ 5,175 1,127 1,358 2,788 – 1,541 180 578 – 2,614 1,223 1,382 2,636 – 1,362 83 134 – 1,587 $ 15,696 $ 13,582 6 % (8)% (2)% 6 % n/a 13 % 117 % 331 % n/a 65 % 16 % Results are reported in accordance with IFRS and 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. (b) The packaging products and services segment consists of sgsco and SIG. SIG began to be consolidated in March 2015, when the business was acquired by the Onex Partners IV Group. (c) The business and information services segment consists of Clarivate Analytics and Emerald Expositions. Clarivate Analytics began to be consolidated in October 2016, when the business was acquired by the Onex Partners IV Group. The results of Emerald Expositions were previously included within the other segment. (d) The food retail and restaurants segment consists of Jack’s and Save-A-Lot. Jack’s began to be consolidated in July 2015 and Save-A-Lot in December 2016, when the businesses were acquired by the Onex Partners IV Group. The results of Jack’s were previously included within the other segment. (e) 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. (f) 2016 other includes Flushing Town Center, Meridian Aviation, Survitec, Schumacher, WireCo (since September 2016), the operating companies of ONCAP II, III and IV and the parent company. 2015 other includes Flushing Town Center, Tropicana Las Vegas (up to August 2015), Meridian Aviation, Survitec (since March 2015), Schumacher (since late July 2015), the operating companies of ONCAP II and III and the parent company. 38 Onex Corporation December 31, 2016 M A N A G E M 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 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) Business and Information Services(c) Food Retail and Restaurants(d) Credit Strategies(e) Other(f) Total 2,141 1,821 3,378 1,752 2,070 307 168 5 2,400 2,360 1,737 3,507 1,079 492 274 − − 1,800 $ 19,681 $ 16,880 – % (9)% 5 % (4)% 62 % 321 % 12 % n/a n/a 33 % 17 % $ 5,175 $ 5,158 1,223 1,382 2,636 – 1,362 83 134 – 1,587 1,369 1,307 2,840 – 317 82 − – 1,090 $ 13,582 $ 12,163 – % (11)% 6 % (7)% n/a 330 % 1 % n/a n/a 46 % 12 % Results are reported in accordance with IFRS and 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. SIG began to be consolidated in March 2015, when the business was acquired by the Onex Partners IV Group. (c) The business and information services segment consists of Clarivate Analytics and Emerald Expositions. Clarivate Analytics began to be consolidated in October 2016, when the business was acquired by the Onex Partners IV Group. The results of Emerald Expositions were previously included within the other segment. (d) The food retail and restaurants segment consists of Jack’s and Save-A-Lot. Jack’s began to be consolidated in July 2015 and Save-A-Lot in December 2016, when the businesses were acquired by the Onex Partners IV Group. The results of Jack’s were previously included within the other segment. (e) 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. 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. (f) 2015 other includes Flushing Town Center, Tropicana Las Vegas (up to August 2015), Meridian Aviation, Survitec (since March 2015), Schumacher (since late July 2015), the operating companies of ONCAP II and III and the parent company. 2014 other includes Flushing Town Center, Tropicana Las Vegas, Meridian Aviation, the operating companies of ONCAP II and III and the parent company. Onex Corporation December 31, 2016 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 Electronics Manufacturing Services Celestica delivers innovative supply chain solutions glob- Cost of sales for 2015 at $5.2 billion was up slightly from 2014 while gross profit decreased by 2 percent to ally to customers in the communications (comprised of $464 million compared to 2014. Gross profit was negatively enterprise communications and telecommunications), con- impacted by higher than expected costs of ramping new sumer, diversified (comprised of aerospace and defence, programs as well as overall mix, which more than offset industrial, healthcare, energy and semiconductor equip- improvements in the semiconductor business. ment), servers and storage end markets. These solutions include design and development, engineering services, sup- ply chain management, new product introductions, com- Healthcare Imaging Carestream Health provides products and services for the ponent sourcing, electronics manufacturing, assembly and capture, processing, viewing, sharing, printing and storing test, complex mechanical assembly, systems integration, of images and information for medical and dental applica- precision machining, order fulfillment, logistics and after- tions. The company also has a non-destructive testing busi- market repair and return services. ness, which sells x-ray film and digital radiology products Celestica reported revenues of $6.0 billion for 2016, to the non-destructive testing market. Carestream Health up 7 percent, or $377 million, compared to 2015. Revenue sells digital products, including computed radiography increased primarily due to strong demand from certain and digital radiography equipment, picture archiving and customer programs and new program wins in the commu- communication systems, information management solu- nications end market as well as new programs in the stor- tions, dental practice management software and services, age and diversified end markets. Partially offsetting these as well as traditional medical products, including x-ray increases was a decrease in the consumer end market pri- film, printers and media, equipment, chemistry and ser- marily due to the completion of a program with the largest vices. Carestream Health has three segments: Medical Film, customer in this end market and a decrease in the servers Medical Digital and Dental. end market primarily due to customer demand softness. Carestream Health reported revenues of $2.0 bil- Cost of sales for 2016 increased 6 percent, or lion during 2016, down 7 percent, or $151 million, from 2015. $335 million, to $5.5 billion. Gross profit increased by Excluding the $54 million impact of unfavourable foreign 9 percent to $506 million compared to 2015. Gross profit exchange translation on Carestream Health’s non-U.S. rev- was positively impacted by higher revenues and margin im- enues, Carestream Health reported a decrease in revenues provements in the diversified end market, including the of $97 million. The decrease in revenues was primarily semiconductor and solar panel businesses, partially offset driven by lower volumes in film and x-ray systems, partially by changes in program mix. offset by higher volumes in dental digital equipment. Celestica reported revenues of $5.6 billion for Cost of sales was $1.1 billion during 2016, down 2015. Although overall revenue was flat compared to 2014, 8 percent, or $96 million, compared to 2015. The decrease revenue increased in the storage and diversified end mar- was primarily due to lower volumes in film and x-ray sys- kets primarily due to new program wins. The diversified tems, cost productivity in digital radiography and dental end market also benefited from improved demand in the digital equipment and favourable foreign exchange trans- semiconductor business. Offsetting the revenue increases lation of $13 million. Gross profit for 2016 decreased to were decreases in the consumer end market as Celestica $863 million from $918 million for 2015. Excluding the continued to de-emphasize certain lower-margin con- $41 million impact of unfavourable foreign exchange sumer business. Revenues from the communication and translation, gross profit decreased by $14 million primarily server end markets were relatively flat compared to 2014. due to the volume decline which was partially offset by cost productivity. 40 Onex Corporation December 31, 2016 M A N A G E M E N T ’ S D I S C U S S I O N A N D A N A LY S I S Carestream Health reported revenues of $2.1 bil- During 2016, ResCare reported revenues of $1.8 bil- lion during 2015, down 9 percent, or $219 million, from lion, a decrease of $36 million, or 2 percent, compared 2014. Excluding the $138 million impact of unfavourable to 2015. The decrease in revenues was due to exiting the foreign exchange translation on Carestream Health’s non- skilled line of business in the HomeCare segment, sub- U.S. revenues, Carestream Health reported a decrease in stantially offset by acquisitions within the HomeCare and revenues of $81 million. The decrease in revenues was pri- Residential Services segments. marily due to lower x-ray film volume, as well as unfavour- Cost of sales decreased 2 percent, or $24 million, able equipment mix and lower prices in the Dental and during 2016. The decrease in cost of sales was primarily Medical Digital segments. The revenue decrease was par- due to exiting the skilled line of business in the Home- tially offset by higher dental digital equipment volume. Care segment. Cost of sales was $1.2 billion during 2015, down ResCare reported revenues of $1.8 billion during 11 percent, or $146 million, from 2014. The decrease was 2015, an increase of $84 million, or 5 percent, compared to primarily due to favourable foreign exchange translation 2014. Acquisitions contributed $57 million of the increase of $49 million and lower costs for silver, which is a major in revenues and the remainder of the increase was due to component in the production of film. Gross profit for organic growth. 2015 decreased to $918 million from $991 million for 2014. Cost of sales was $1.4 billion during 2015, up 6 per- Excluding the $89 million impact of unfavourable foreign cent, or $75 million, from 2014. The increase was primarily exchange translation, gross profit increased by $16 million due to the increase in revenues during 2015, along with an primarily due to higher dental digital equipment volume, increase in medical and wage costs. lower silver costs and higher service volume and improved productivity in x-ray systems. The increase was partially offset by unfavourable equipment mix and lower prices, which impacted revenues. Building Products JELD-WEN is a manufacturer of interior and exterior doors, windows and related products for use primarily in the resi- dential and light commercial new construction and remod- Health and Human Services ResCare has four segments: Residential Services, ResCare elling markets. The company’s revenues follow seasonal new construction and repair and remodelling industry pat- HomeCare, Workforce Services and Pharmacy Services. terns. JELD-WEN manages its business through three geo- Residential Services includes the provision of services graphic segments: North America, Europe, and Australia to individuals with developmental or other disabilities in and Asia. community home settings. ResCare HomeCare provides For the year ended December 31, 2016, revenues periodic in-home care services to the elderly, as well as at JELD-WEN increased by 9 percent, or $292 million, persons with disabilities. Workforce Services is primarily to $3.7 billion. The increase in revenues was due to price comprised of domestic job training and placement pro- increases and acquisitions, offset by the strengthening of grams that assist welfare recipients and disadvantaged job the U.S. dollar, which had a negative impact of $38 million seekers in finding employment and improving their career on the translation of revenues from the company’s opera- prospects. Workforce Services also include Job Corps cen- tions in Canada, Europe and Australia. On a local currency tres, alternative education and charter schools. Pharmacy basis, revenues in most of these regions increased com- Services is a limited, closed-door pharmacy focused on pared to the prior year primarily due to the inclusion of serving individuals with cognitive, intellectual and devel- acquisitions completed in 2015 and 2016. opmental disabilities. ResCare provides services to some 62,000 persons daily. Onex Corporation December 31, 2016 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 Cost of sales was $2.8 billion during 2016, an pany’s operations in Canada, Europe and Australia. On a increase of $152 million, or 6 percent, compared to 2015. local currency basis, revenues in most of these regions Excluding the $34 million impact of favourable foreign increased compared to the prior year primarily due to exchange translation, cost of sales increased by $186 million. increased volume and pricing. Revenues in the company’s Gross profit for 2016 increased by 19 percent to $882 million U.S. operations increased primarily due to pricing. compared to 2015 primarily due to improved pricing and Cost of sales was $2.6 billion during 2015, a productivity in North America, and the inclusion of acquisi- decrease of $204 million, or 7 percent, compared to 2014. tions, partially offset by $4 million of unfavourable foreign Excluding the $237 million impact of favourable foreign exchange translation. exchange translation, cost of sales increased by $33 million. JELD-WEN reported revenues of $3.4 billion dur- Gross profit for 2015 increased by 11 percent to $742 million ing 2015, a decrease of $129 million, or 4 percent, compared compared to 2014 primarily due to improved pricing and to 2014. The decrease in revenues was due to the strength- productivity in North America, partially offset by $69 mil- ening of the U.S. dollar, which had a negative impact of lion of unfavourable foreign exchange translation, and the $306 million on the translation of revenues of the com- inclusion of acquisitions completed in 2015. Insurance Services The insurance services segment consists of the operations of USI and York. Table 2 provides revenues by operating company in the insurance services segment. USI and York record their costs in operating costs. Insurance Services Revenues TABLE 2 ($ millions) Year ended December 31 USI York(a) Total Revenues Revenues 2016 2015 Change $ 1,048 745 $ 1,793 $ 1,037 715 $ 1,752 1% 4% 2% 2015 $ 1,037 715 $ 1,752 2014 926 153 $ $ 1,079 Change 12% 367% 62% Results are reported in accordance with IFRS and 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. USI USI is a leading provider of insurance brokerage services. USI reported revenues of $1.0 billion during 2016, an increase of 1 percent, or $11 million, from 2015. The USI’s revenues consist of commissions paid by insurance increase in revenues during 2016 was primarily due to acqui- companies and fees paid directly by the company’s clients sitions and organic growth. for the placement of property and casualty and individual USI reported revenues of $1.0 billion during 2015, and group health, life and disability insurance. USI also an increase of 12 percent, or $111 million, compared to receives contingent and supplemental revenues paid by 2014. The increase in revenues was primarily due to acqui- insurance carriers based on the overall profit and/or vol- sitions and organic growth. ume of business placed with an insurer. USI has two seg- ments: Retail and Specialty. 42 Onex Corporation December 31, 2016 M A N A G E M E N T ’ S D I S C U S S I O N A N D A N A LY S I S York York is an integrated provider of insurance solutions to York reported revenues of $745 million during 2016, an increase of 4 percent, or $30 million, compared to property, casualty and workers’ compensation specialty 2015. The increase in revenues during 2016 was primarily markets in the United States. York offers employers and due to organic growth. insurance carriers a range of services designed to help man- York reported revenues of $715 million dur- age claims and limit losses incurred under various prop- ing 2015. York began to be consolidated in October 2014, erty and casualty insurance programs. Clients are typically when the business was acquired by the Onex Partners III billed for claims management services based on a fee per Group. Revenues of $153 million for 2014 represent results each claim handled, a flat annual fee or a cost-plus model. for the period from the October 2014 acquisition of York to In addition to claims management, York offers a suite of December 31, 2014. integrated managed care services for injured workers. Packaging Products and Services The packaging products and services segment consists of the operations of sgsco and SIG. SIG was acquired by the Onex Partners IV Group in March 2015. Table 3 provides revenues and cost of sales by operating company in the packaging prod- ucts and services segment. Packaging Products and Services Revenues and Cost of Sales TABLE 3 ($ millions) Year ended December 31 sgsco SIG(a) Total Revenues Cost of Sales 2016 2015 Change 2016 2015 Change $ 509 1,905 $ 2,414 $ 495 1,575 $ 2,070 3% 21% 17% $ 327 1,214 $ 1,541 $ 326 1,036 $ 1,362 – 17% 13% Results are reported in accordance with IFRS and may differ from those reported by the individual operating companies. (a) SIG was acquired in March 2015 by the Onex Partners IV Group. Revenues and cost of sales for 2015 represent the period from the date of acquisition to December 31, 2015. 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 2014 Change 1% n/a 321% $ 326 1,036 $ 1,362 $ 317 – $ 317 3% n/a 330% Results are reported in accordance with IFRS and may differ from those reported by the individual operating companies. (a) SIG was acquired in March 2015 by the Onex Partners IV Group. Revenues and cost of sales for 2015 represent the period from the date of acquisition to December 31, 2015. There are no comparative results for 2014. Onex Corporation December 31, 2016 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 sgsco sgsco is a market leader in providing fully integrated mar- SIG SIG is a world-leading provider of aseptic carton packag- keting solutions, digital imaging and design-to-print graphic ing solutions for beverages and liquid food. SIG supplies services to branded consumer products companies, retailers complete aseptic carton packaging systems, which include and the printers that service them. The company’s vertically aseptic filling machines, aseptic cartons, spouts, caps and integrated 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 $509 million during rate. The discussion of SIG’s revenues and cost of sales is 2016, an increase of $14 million, or 3 percent, compared to in euros in order to reduce the impact of foreign currency 2015. This increase was primarily due to acquisitions, par- translation on revenues and cost of sales. SIG has global tially offset by unfavourable foreign currency fluctuations. operations and exposure to currency risk on the portion of Cost of sales of $327 million was relatively flat compared its business that is not based on euros. Fluctuations in the with 2015 as a reduction in labour-related expenses at pre- value of the euro relative to other currencies can have an existing facilities and foreign currency fluctuations offset impact on SIG’s reported results. the incremental cost of sales from acquisitions. sgsco reported revenues of $495 million during 2015, an increase of $3 million, or 1 percent, compared to 2014. The increase was primarily due to net organic sales growth and sales from recent acquisitions, partially offset During 2016, SIG reported revenues of €1.7 bil- lion, an increase of 21 percent, or €299 million, compared to 2015. Cost of sales for 2016 increased 17 percent, or €161 million, to €1.1 billion compared to 2015. Excluding the impact of timing of the acquisition during the first by unfavourable foreign currency fluctuations. quarter of 2015, revenues were flat as higher sleeve sales Cost of sales at $326 million increased by 3 per- were offset by unfavourable foreign currency fluctuations. cent, or $9 million, from 2014. The increase was due to the Cost of sales remained flat as favourable foreign exchange incremental costs of goods sold from acquisitions com- fluctuations and lower production-related costs were offset bined with an increase in materials and outsourced sup- by higher sleeve sales. plier costs stemming from the increase in sales volume and the shift in product and geographic mix, wage inflation and increased healthcare costs. During 2015, SIG reported revenues of €1.4 billion and cost of sales of €937 million, which represent results for the period from the March 2015 acquisition of SIG to December 31, 2015. Since SIG was acquired in March 2015, there are no comparative results for 2014. 44 Onex Corporation December 31, 2016 M A N A G E M E N T ’ S D I S C U S S I O N A N D A N A LY S I S Business and Information Services The business and information services segment consists of the operations of Clarivate Analytics and Emerald Expositions. Clarivate Analytics was acquired by the Onex Partners IV Group in October 2016. The results of Emerald Expositions were previously included within the other segment. Table 4 provides revenues and cost of sales by operating company in the busi- ness and information services segment. Business and Information Services Revenues and Cost of Sales TABLE 4 ($ millions) Year ended December 31 Clarivate Analytics(a) Emerald Expositions Total Revenues Cost of Sales 2016 $ 202 323 $ 525 2015 $ − 307 $ 307 Change n/a 5% 71% 2016 $ 96 84 $ 180 2015 $ − 83 $ 83 Change n/a 1% 117% Results are reported in accordance with IFRS and may differ from those reported by the individual operating companies. (a) Clarivate Analytics was acquired in October 2016 by the Onex Partners IV Group. Revenues and cost of sales for 2016 represent the period from the date of acquisition to December 31, 2016. There are no comparative results for 2015. Business and Information Services Revenues and Cost of Sales TABLE 4 ($ millions) Year ended December 31 Clarivate Analytics(a) Emerald Expositions Total Revenues Cost of Sales 2015 $ − 307 $ 307 2014 $ − 274 $ 274 Change n/a 12% 12% 2015 $ − 83 $ 83 2014 $ − 82 $ 82 Change n/a 1% 1% Results are reported in accordance with IFRS and may differ from those reported by the individual operating companies. (a) Clarivate Analytics was acquired in October 2016 by the Onex Partners IV Group. There are no comparative results for 2015 and 2014. Clarivate Analytics Clarivate Analytics operates across multiple product lines Emerald Expositions Emerald Expositions is a leading operator of large business- with both subscription-based and single deliverable offer- to-business trade shows in the United States across multi- ings focused on scientific and academic research, patent ple industry sectors. Emerald Expositions has two principal analytics and regulatory standards, pharmaceutical and sources of revenue: trade show and conference revenue, biotech intelligence, trademark protection, domain brand and revenue from print and digital publications. Trade protection and intellectual property management. show revenue is largely generated from selling exhibit space During 2016, Clarivate Analytics reported revenues to exhibitors on a per-square-foot basis and providing addi- of $202 million and cost of sales of $96 million, which rep- tional sponsorship opportunities to those exhibitors. resent results for the period from the October 2016 acqui- During 2016, Emerald Expositions reported rev- sition of Clarivate Analytics to December 31, 2016. Since enues of $323 million, an increase of $16 million, or 5 per- Clarivate Analytics was acquired in October 2016, there are cent, compared to 2015. The revenue increase was primarily no comparative results for 2015 or 2014. due to organic growth and acquisitions. Cost of sales of $84 million during the year ended December 31, 2016 was relatively flat compared with 2015. Gross profit increased by $15 million, or 7 percent, to $239 million compared to 2015 primarily due to the growth in revenues. Onex Corporation December 31, 2016 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 During 2015, revenues at Emerald Expositions Cost of sales of $83 million reported by Emerald were $307 million, an increase of $33 million, or 12 per- Expositions during the year ended December 31, 2015 was cent, compared to 2014. The revenue increase was primar- largely unchanged from 2014. Improvement in gross mar- ily attributable to acquisitions completed during 2015 and gin was due to cost savings within the existing trade show 2014 that generated $24 million in additional revenues. The portfolio, as well as the discontinuation of several lower remaining increase was attributable to organic growth. margin events during 2015. Food Retail and Restaurants The food retail and restaurants segment consists of the operations of Jack’s and Save-A-Lot. Jack’s was acquired by the Onex Partners IV Group in July 2015 and was previously included within the other segment. Save-A-Lot was acquired by the Onex Partners IV Group in December 2016. Table 5 provides revenues and cost of sales by operating company in the food retail and restaurants segment. Food Retail and Restaurants Revenues and Cost of Sales TABLE 5 ($ millions) Year ended December 31 Jack’s(a) Save-A-Lot(b) Total Revenues Cost of Sales 2016 $ 365 324 $ 689 2015 $ 168 – $ 168 Change 117% n/a 310% 2016 $ 294 284 $ 578 2015 $ 134 – $ 134 Change 119% n/a 331% Results are reported in accordance with IFRS and may differ from those reported by the individual operating companies. (a) Jack’s was acquired in July 2015 by the Onex Partners IV Group. Revenues and cost of sales for 2015 represent the period from the date of acquisition to December 31, 2015. (b) Save-A-Lot was acquired in December 2016 by the Onex Partners IV Group. Revenues and cost of sales for 2016 represent the period from the date of acquisition to December 31, 2016. There are no comparative results for 2015. Food Retail and Restaurants Revenues and Cost of Sales TABLE 5 ($ millions) Year ended December 31 Jack’s(a) Save-A-Lot(b) Total Revenues Cost of Sales 2015 $ 168 – $ 168 2014 Change $ $ − – – n/a n/a n/a 2015 $ 134 – $ 134 2014 Change $ $ − – – n/a n/a n/a Results are reported in accordance with IFRS and may differ from those reported by the individual operating companies. (a) Jack’s was acquired in July 2015 by the Onex Partners IV Group. Revenues and cost of sales for 2015 represent the period from the date of acquisition to December 31, 2015. There are no comparative results for 2014. (b) Save-A-Lot was acquired in December 2016 by the Onex Partners IV Group. There are no comparative results for 2015 and 2014. 46 Onex Corporation December 31, 2016 M A N A G E M E N T ’ S D I S C U S S I O N A N D A N A LY S I S Jack’s Jack’s is a regional premium quick-service restaurant opera- Credit Strategies The credit strategies segment consists of (i) Onex Credit tor that offers Southern-inspired foods such as made-from- Manager, (ii) Onex Credit Collateralized Loan Obligations scratch biscuits, burgers, fried chicken, plated breakfasts, and (iii) Onex Credit Funds. crinkle-cut fries and hand-dipped shakes. The company has Gross revenues earned by Onex Credit Manager 140 free-standing corporate-operated restaurants across during 2016 were $44 million, an increase of $9 million, or Alabama, Georgia, Mississippi and Tennessee. The com- 26 percent, compared to 2015. For the year ended Decem- pany also owns the distribution facility that handles most of ber 31, 2016, gross revenues included $5 million earned on Jack’s food and non-food supply chain and makes deliveries investments in Onex Credit Funds held by Onex, the parent to the restaurants twice a week. company. Credit strategies segment revenue for 2016, net During 2016, Jack’s reported revenues of $365 mil- of management and incentive fees from Onex Credit Funds lion, an increase of $197 million, or 117 percent, compared and CLOs which are eliminated upon consolidation, was to 2015. Cost of sales for 2016 increased by $160 million, $4 million, a decrease of $1 million from 2015, primarily due or 119 percent, compared to 2015. Excluding the impact of to lower average net asset values in the funds during 2016. timing of the acquisition during the third quarter of 2015, Gross revenues earned by Onex Credit Manager revenues and cost of sales increased during 2016 primarily during 2015 were $35 million. For the year ended Decem- due to same store sales growth and new restaurant sales. ber 31, 2015, gross revenues included $3 million earned on During 2015, Jack’s reported revenues of $168 mil- investments in Onex Credit Funds held by Onex, the parent lion and cost of sales of $134 million, which represent company. Credit strategies segment revenue for 2015, net results for the period from the July 2015 acquisition of Jack’s of management and incentive fees from Onex Credit Funds to December 31, 2015. Since Jack’s was acquired in July 2015, and CLOs which are eliminated upon consolidation, was there are no comparative results for 2014. $5 million. The credit strategies segment did not record any Save-A-Lot Save-A-Lot is a leading hard-discount grocery retailer for revenues for 2014 as the Onex Credit Manager began to be consolidated in January 2015. Costs of the credit strategies segment are recorded value-seeking shoppers in the United States. The company in operating expenses. has a corporate and licenced store network of approxi- mately 1,400 stores across 37 states. Save-A-Lot offers a selection of grocery products that enables customers to Other Businesses The other businesses segment consists of the revenues and complete a “full shop” in stores, including quality fresh pro- cost of sales of the ONCAP companies – EnGlobe, Cicis duce, fresh meat cut in stores every day, targeted national (up to August 2016), Pinnacle Renewable Energy Group, brand grocery items and a full selection of exclusive private PURE Canadian Gaming, Hopkins, Davis-Standard, Brad- label products. shaw, Mister Car Wash (up to August 2014), Chatters (since During 2016, Save-A-Lot reported revenues of July 2015) and Tecta (since August 2016) – Survitec (since $324 million and cost of sales of $284 million, which repre- March 2015), Schumacher (since late July 2015), Tropicana sent results for the period from the December 2016 acquisi- Las Vegas (up to August 2015), WireCo (since September tion of Save-A-Lot to December 31, 2016. Since Save-A-Lot 2016), Flushing Town Center, Meridian Aviation and the par- was acquired in December 2016, there are no comparative ent company. results for 2015 and 2014. Onex Corporation December 31, 2016 47 M A N A G E M E N T ’ S D I S C U S S I O N A N D A N A LY S I S Table 6 provides revenues and cost of sales by operating company in the other businesses segment. Other Businesses Revenues and Cost of Sales TABLE 6 ($ millions) Revenues Cost of Sales Year ended December 31 ONCAP companies(a) Survitec(b) Schumacher(c) WireCo(d) Other(e) Total 2016 2015 Change 2016 2015 Change $ 1,800 $ 1,581 387 1,260 136 54 294 408 − 117 $ 3,637 $ 2,400 14 % 32 % 209 % n/a (54)% 52 % $ 1,225 $ 1,096 192 1,044 112 41 159 327 − 5 $ 2,614 $ 1,587 12% 21% 219% n/a 720% 65% Results are reported in accordance with IFRS and may differ from those reported by the individual operating companies. (a) ONCAP companies include EnGlobe, Cicis (up to August 2016), Pinnacle Renewable Energy Group, PURE Canadian Gaming, Hopkins, Davis-Standard, Bradshaw, Chatters (since July 2015) and Tecta (since August 2016). (b) Survitec was acquired by Onex Partners IV Group in March 2015. Revenues and cost of sales for 2015 represent the period from the date of acquisition to December 31, 2015. (c) Schumacher was acquired by the Onex Partners IV Group in late July 2015. Revenues and cost of sales for 2015 represent the period from the date of acquisition to December 31, 2015. (d) WireCo was acquired by the Onex Partners IV Group in September 2016. Revenues and cost of sales for 2016 represent the period from the date of acquisition to December 31, 2016. There are no comparative results for 2015. (e) 2016 other includes Flushing Town Center, Meridian Aviation and the parent company. 2015 other includes Flushing Town Center, Tropicana Las Vegas (up to August 2015), Meridian Aviation and the parent company. Other Businesses Revenues and Cost of Sales TABLE 6 ($ millions) Revenues Cost of Sales Year ended December 31 ONCAP companies(a) Survitec(b) Schumacher(c) Other(d) Total 2015 2014 Change 2015 2014 Change $ 1,581 $ 1,609 294 408 117 − − 191 $ 2,400 $ 1,800 (2)% n/a n/a (39)% 33 % $ 1,096 $ 1,065 159 327 5 − − 25 $ 1,587 $ 1,090 3 % n/a n/a (80)% 46 % Results are reported in accordance with IFRS and may differ from those reported by the individual operating companies. (a) ONCAP companies include EnGlobe, Cicis, Pinnacle Renewable Energy Group, PURE Canadian Gaming, Hopkins, Davis-Standard, Bradshaw, Mister Car Wash (up to August 2014) and Chatters (since July 2015). (b) Survitec was acquired by the Onex Partners IV Group in March 2015. Revenues and cost of sales for 2015 represent the period from the date of acquisition to December 31, 2015. There are no comparative results for 2014. (c) Schumacher was acquired by the Onex Partners IV Group in July 2015. Revenues and cost of sales for 2015 represent the period from the date of acquisition to December 31, 2015. There are no comparative results for 2014. (d) 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. 48 Onex Corporation December 31, 2016 M A N A G E M 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 14 percent, or $219 mil- and exposure to currency risk on the portion of its business that is not based on the pound sterling. Fluctuation in the lion, increase in revenues for the year ended December 31, value of the pound sterling relative to other currencies can 2016 compared to 2015, and cost of sales increased by have an impact on Survitec’s reported results. 12 percent, or $129 million. During 2016, Survitec reported revenues of £287 mil- The increase in revenue and cost of sales during lion, an increase of 49 percent, or £95 million, compared to 2016 was primarily driven by the inclusion of the operating 2015. Cost of sales increased 37 percent, or £38 million, to results of Chatters and Tecta, which were acquired in July £142 million during 2016 compared to 2015. Excluding the 2015 and August 2016, respectively, in addition to acquisi- impact of timing of the acquisition of the company during tions completed by the operating companies during 2015 the first quarter of 2015, the increase in revenues and cost and 2016. The increase in revenue and cost of sales was par- of sales was primarily due to organic growth in existing tially offset by the sale of Cicis in August 2016. The aggre- markets as well as additional revenues from acquisitions gate gross margin of the ONCAP companies increased in made by Survitec in 2015 and 2016. 2016 as a result of acquisitions and organic growth com- During 2015, Survitec reported revenues of pared to 2015. £192 million and cost of sales of £104 million, which rep- The ONCAP companies reported a 2 percent, resent results for the period from the March 2015 acquisi- or $28 million, decrease in revenues for the year ended tion of Survitec to December 31, 2015. Since Survitec was December 31, 2015 compared to 2014, while cost of sales acquired in March 2015, there are no comparative results increased 3 percent, or $31 million. for 2014. The decrease in revenues during the year ended December 31, 2015 was primarily due to the ONCAP II Group’s sale of Mister Car Wash in August 2014. The decrease Schumacher Schumacher is a leading provider of emergency and hos- in revenues was partially offset by net increases at the pital medicine physician practice management services remaining ONCAP companies, which were primarily driven in the United States. Schumacher provides a single source by acquisitions completed by the companies, and the inclu- of accountability in managing hospitalist and emergency sion of Chatters’ operating results from the date of acquisi- departments. The company reduces the cost and admin- tion in July 2015. The aggregate gross margin of the ONCAP istrative burden for hospital administrators by recruiting, companies decreased in 2015 as a result of a greater propor- staffing and compensating the clinicians, as well as manag- tion of product-based companies compared to 2014. ing reimbursement and collections from third-party pay- Survitec Survitec is a market-leading provider of mission-critical ors, developing robust technology solutions and improving the operating and clinical performance of the emergency and hospitalist departments. marine, defence and aerospace survival equipment. Survi- During 2016, Schumacher reported revenues of tec’s key products include inflatable lifesaving equipment $1.3 billion, an increase of $852 million, or 209 percent, designed to withstand harsh marine environments, fire sup- compared to 2015. Cost of sales for 2016 increased by pression systems for maritime vessels and survival suits $1.0 billion, or 219 percent, compared to 2015. Excluding designed for extreme thermal and pressure conditions. the impact of timing of the acquisition of the company in Survitec’s functional currency is the pound ster- late July 2015, the increase in revenues and cost of sales was ling. The reported revenues and cost of sales of Survitec in primarily due to acquisitions completed by Schumacher in U.S. dollars may not reflect the true nature of the operat- 2016 and 2015. ing results of the company due to the translation of those During 2015, Schumacher reported revenues of amounts and the associated fluctuation of the pound $408 million and cost of sales of $327 million, which repre- sterling and U.S. dollar exchange rate. The discussion of sent results for the period from the late July 2015 acquisition Survitec’s revenues and cost of sales is in pounds sterling in of Schumacher to December 31, 2015. Since Schu macher order to reduce the impact of foreign currency translation was acquired in late July 2015, there are no comparative on revenues and cost of sales. Survitec has global operations results for 2014. Onex Corporation December 31, 2016 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 WireCo WireCo is a leading global manufacturer of mission- critical steel wire rope, synthetic rope, specialty wire and Increase in value of investments in joint ventures and associates at fair value, net Investments in joint ventures and associates are defined engineered products. WireCo products are used in many under IFRS as those investments in operating businesses diverse industrial and commercial end markets, primarily over which Onex has joint control or significant influence, in North America, Europe and Brazil. but not control. Certain of these investments are desig- WireCo reported revenues of $136 million and nated, upon initial recognition, at fair value in the consoli- cost of sales of $112 million for the period from September dated balance sheets. Both realized and unrealized gains 2016 to December 31, 2016. Since WireCo was acquired in and losses are recognized in the consolidated statements September 2016, there are no comparative results for 2015 of earnings as a result of increases or decreases in the or 2014. fair value of investments in joint ventures and associates. Investments that Onex has determined to be investments Other Other revenues and cost of sales decreased in the year in joint ventures or associates and thus recorded at fair value primarily comprise AIT, BBAM, ITG (since June 2015) ended December 31, 2016 from 2015, and in the year ended and Mavis Discount Tire. December 31, 2015 from 2014, primarily due to the sale of During 2016, Onex recorded an increase in the fair Tropicana Las Vegas in August 2015. value of investments in joint ventures and associates of $180 million compared to $175 million in 2015. The increase Interest expense of operating companies New investments are structured with the acquired com- in 2016 was primarily due to continued free cash genera- tion at certain of the investments and the impact of AIT’s pany having sufficient equity to enable it to self-finance unit repurchase transaction, as described on page 35 of this a significant portion of its acquisition cost with a prudent MD&A. The increase in 2015 was primarily due to improved amount of debt. The level of debt is commensurate with operating performance and the impact of acquisition cost the operating company’s available cash flow, including synergies at certain of the investments. consideration of funds required to pursue growth oppor- Of the total fair value increase recorded during tunities. It is the responsibility of the acquired operating 2016, $135 million (2015 – $128 million) is attributable to the company to service its own debt obligations. limited partners in the Onex Partners and ONCAP Funds, Consolidated interest expense for the year ended which contributes to the Limited Partners’ Interests charge December 31, 2016 was $1.1 billion, up $211 million, or discussed on page 55 of this MD&A. Onex’ share of the total 24 percent, from 2015. The increase was primarily due to fair value increase was $45 million (2015 – $47 million). the inclusion of interest expense for: (i) Schumacher, Survitec and SIG, which were acquired in 2015; (ii) WireCo, Clarivate Analytics and Save-A-Lot, which were acquired in Stock-based compensation expense Onex recorded a consolidated stock-based compensation 2016; and (iii) the additional debt from CLOs. expense of $323 million during 2016 compared to $260 mil- lion in 2015. Onex, the parent company, represented an expense of $118 million (2015 – $134 million) related to its stock options and MIP equity interests. Onex’ operating companies represented an expense of $205 million (2015 – $126 million) related to stock-based compensation plans at the operating companies, including shares recognized as liabilities and remeasured to fair value at each period end. 50 Onex Corporation December 31, 2016 M A N A G E M 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 accordance with IFRS, the expense recorded for Onex’ stock options and MIP equity interests is determined Gain on sale of Univers by USI In May 2016, USI sold Univers, as described on page 34 of based on the fair value of the liability at the end of each this MD&A. reporting period. The fair value of the Onex stock options and MIP equity interests is determined using an option val- uation model, with the stock options primarily impacted Gain on sale of Cicis In August 2016, the ONCAP II Group sold its entire invest- by the change in the market value of Onex’ shares and the ment in Cicis, as described on page 35 of this MD&A. 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 2016 Tropicana Las Vegas In August 2015, the Onex Partners III Group sold its entire was primarily due to the 8 percent increase in the market investment in Tropicana Las Vegas for an enterprise value value of Onex’ shares to C$91.38 at December 31, 2016 from of $360 million. Onex Partners III and certain limited part- C$84.82 at December 31, 2015. ners received net proceeds of $230 million, of which Onex’ share was $50 million. Onex’ consolidated results include Table 7 details the change in stock-based compensation of a pre-tax gain of $102 million based on the excess of the Onex, the parent company, and Onex’ operating companies. proceeds over the carrying value of the investment. Onex’ share of the pre-tax gain was $22 million. 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. As a result of the loss realized on Tropicana Las Vegas, the carried interest that would have otherwise been distributed to Onex in respect of future realizations in the Onex Partners III Fund was reduced by $7 million, as described on page 34 of this MD&A. The amount of car- ried interest ultimately received from the Onex Partners III Fund will be based on the overall performance of the Fund. Tropicana Las Vegas did not represent a major line of business, and as a result, the operating results up to the date of disposition have not been presented as a discontin- ued operation. Stock-Based Compensation Expense TABLE 7 Year ended December 31 ($ millions) 2016 2015 Change Onex, the parent company, stock options $ 97 $ 102 $ (5) Onex, the parent company, MIP equity interests Onex operating companies 21 205 32 126 (11) 79 Total stock-based compensation $ 323 $ 260 $ 63 Other gains Table 8 provides a breakdown of other gains (loss). Other Gains TABLE 8 Year ended December 31 ($ millions) Gain on sale of Univers by USI Gain on sale of Cicis Gain on sale of Tropicana Las Vegas Gain on sale of Flushing Town Center Gain on the Onex Credit transaction Gain on sale of B.C. Sugar residual property Other Total other gains 2016 $ 44 28 − − − − 8 $ 2015 − − 102 60 38 36 3 $ 80 $ 239 Onex Corporation December 31, 2016 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 Flushing Town Center In July and December 2015, Onex Real Estate Partners sold B.C. Sugar residual property In January 2015, Onex sold a residual property from its for- substantially all of the retail space and adjoining park- mer investment in B.C. Sugar for proceeds of $54 million, ing structures of Flushing Town Center. Onex Real Estate recognizing a pre-tax gain of $36 million. Onex’ share of the Partners continues to develop the second phase of condo- proceeds on the sale of the residual property was $33 mil- miniums at the project. Onex Real Estate Partners received lion, net of amounts paid on account of the MIP, and Onex’ net proceeds of $136 million, of which Onex’ share was share of the pre-tax gain was $23 million. Management $119 million. Included in the net proceeds was $8 mil- of Onex earned $3 million on account of this transaction lion held in escrow, of which Onex’ share was $7 mil- related to the MIP. lion. Amounts held in escrow were received during 2016, as described on page 37 of this MD&A. No amounts were paid on account of the MIP related to this transaction as Other expense (income) Table 9 provides a breakdown of and the change in other the required performance targets have not been met at this expense (income). time. Onex Real Estate Partners recorded a pre-tax gain of $60 million on the transaction, of which Onex’ share was Other Expense (Income) $52 million. The retail space and adjoining parking structures TABLE 9 Year ended December 31 ($ millions) 2016 2015 Change 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 discontin- ued operation. Onex Credit transaction In January 2015, Onex acquired control of the Onex Credit asset management platform for $32 million, which included non-cash consideration of $6 million associated with the issuance of 111,393 of Onex’ SVS. The acquisition of con- trol of the Onex Credit asset management platform was accounted for based on an implied fair value of $119 mil- lion for the business. The Company’s previous interest in the Onex Credit asset management platform was equity- Transition, integration and other $ 126 $ 110 $ 16 Restructuring Transaction costs Carried interest charge due to Onex and ONCAP management Foreign exchange loss Derivatives losses (gains) Change in value of other Onex Partners investments Change in fair value of contingent consideration Losses (gains) on investments and long-term debt in CLOs and Onex Credit Funds 100 90 59 57 31 (11) (39) (221) (105) 64 81 130 52 (120) 71 (76) 195 (72) 36 9 (71) 5 151 (82) 37 (416) (33) accounted with a carrying value of $49 million and was Other derecognized at fair value, resulting in the recognition of a pre-tax non-cash gain of $38 million during the first quar- ter of 2015. As a result of the above transaction, the Company consolidates the Onex Credit asset management platform and certain funds managed by Onex Credit in which Onex, the parent company, holds an investment. 52 Onex Corporation December 31, 2016 Total other expense $ 87 $ 435 $ (348) Transition, integration and other Transition, integration and other expenses are typically to provide for the costs of establishing or transitioning from a prior parent company the activities of an operating com- pany upon acquisition and to integrate new acquisitions at the operating companies. The costs may be incurred over several years as the establishment and transition of activi- ties progress. Transition, integration and other expenses for 2016 were primarily due to Carestream Health, Clarivate Analy- tics, Save-A-Lot and USI. Transition, integration and other expenses for 2015 were primarily due to Survitec and USI. M A N A G E M 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 expenses typically provide for the costs of facil- Transaction costs Transaction costs are incurred by Onex and its operating ity consolidations and workforce reductions incurred at the companies to complete business acquisitions, and typically operating companies. Table 10 provides a breakdown of and include advisory, legal and other professional and consult- the change in restructuring charges by operating company. ing costs. Year ended December 31 ($ millions) TABLE 10 Celestica Carestream Health SIG JELD-WEN ResCare USI Other 2016 $ 32 20 20 11 11 5 1 2015 $ 24 3 2 17 1 16 1 Total restructuring charges $ 100 $ 64 Celestica Celestica’s restructuring charges for 2016 primarily related to costs to exit its solar panel manufacturing operations. The charges recorded by Celestica in 2015 primarily related to costs to consolidate certain sites and to reduce the workforce. Carestream Health Carestream Health’s restructuring charges in 2016 primar- ily related to the reorganization of certain businesses and operations, including sales and services functions at the company. Carestream Health’s restructuring charges for 2015 primarily related to the establishment of a central functions location for its European operations. SIG SIG’s restructuring charges for 2016 primarily related to costs to improve production processes and the establish- ment of a central support location. JELD-WEN JELD-WEN’s restructuring charges for 2016 and 2015 pri- marily related to the closure of facilities and personnel restructuring. ResCare ResCare’s restructuring charges for 2016 primarily relate to exiting the skilled line of business in the HomeCare seg- ment and severance costs. USI USI’s restructuring charges for 2016 and 2015 primarily related to severance and lease abandonment costs. Transaction costs for 2016 were primarily due to the acquisitions of Clarivate Analytics, Save-A-Lot, Tecta and WireCo, in addition to acquisitions completed by the oper- ating companies. Transaction costs for 2015 were primarily due to the acquisitions of Chatters, Jack’s, Schumacher, SIG and Survitec, in addition to acquisitions completed by the operating companies. Carried interest charge due to Onex and ONCAP management The General Partners of the Onex Partners and ONCAP Funds are entitled to a carried interest on the realized gains of the limited partners in each fund, as determined in accordance with the limited partnership agreements, and as described on page 85 of this MD&A. Onex’ share of the carried interest change is recorded as an offset in the Limited Partners’ Interests amount in the consolidated statements of earnings. The carried interest due to management of Onex and ONCAP represents the share of the overall net gains in each of the Onex Partners and ONCAP Funds attributable to the management of Onex and ONCAP. The carried interest is estimated based on the current fair values of the underlying investments in the funds and the overall net gains in each respective fund determined in accordance with the limited partnership agreements. During 2016, a charge of $59 mil- lion (2015 – $130 million) was recorded in the consolidated statements of earnings for management’s share of carried interest primarily due to an increase in the fair value of cer- tain of the investments in the Onex Partners and ONCAP Funds. The ultimate amount of carried interest earned will be based on the overall performance of each fund. Foreign exchange loss The foreign exchange loss during 2016 was primarily due to Survitec and WireCo. The foreign exchange loss during 2015 was primarily due to losses recognized by SIG, Carestream Health and Survitec. Onex Corporation December 31, 2016 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 Derivatives losses (gains) Derivatives losses and gains for the years ended Decem- The total estimated fair value of contingent con- sid eration liabilities at December 31, 2016 was $127 million ber 31, 2016 and 2015 were primarily related to embedded (Decem ber 31, 2015 – $318 million). The amount represents derivatives associated with debt agreements and foreign management’s best estimate of the fair value at Decem- exchange hedges. Change in value of other Onex Partners investments Other Onex Partners investments include investments ber 31, 2016, which is subject to sensitivity associated with various factors, including foreign currency fluc tu ations, as well as uncertainty regarding the treatment of certain items. in which Onex has no or limited remaining strategic or Losses (gains) on investments and long-term debt operating influence: FLY Leasing Limited and Genesis Healthcare (since February 2015). For 2016, Onex reported in CLOs and Onex Credit Funds Gains on investments in CLOs and Onex Credit Funds were an increase in value of other Onex Partners investments of primarily unrealized and driven by a recovery in the lev- $11 million (2015 – decrease of $71 million). The increase in eraged loan market during 2016. Partially offsetting these value of other Onex Partners investments during the year gains were losses on the long-term debt in the CLOs. ended December 31, 2016 was due to an increase in the During 2015, losses on investments in CLOs and public share price of Genesis Healthcare. Onex Credit Funds were primarily unrealized and driven by The decrease in value of other Onex Partners volatility in the leveraged loan market. Partially offsetting investments during the year ended December 31, 2015 these losses were gains on the long-term debt in the CLOs. was primarily due to the public share value of Genesis Healthcare being below the value of the investment on the date of combination with Skilled Healthcare Group. Change in fair value of contingent consideration The fair value of contingent consideration liabilities is Impairment of goodwill, intangible assets and long-lived assets, net Table 11 provides a breakdown of the net impairment of goodwill, intangible assets and long-lived assets by oper- ating company for the years ended December 31, 2016 typically based on the estimated future financial perfor- and 2015. mance of the acquired businesses. Financial targets used in the estimation process typically include certain defined financial targets and realized internal rates of return. Onex recorded a recovery of $39 million (2015 – $76 million) during 2016 in relation to the estimated change in fair value of contingent consideration related to acquisitions completed by Onex and its operating com- panies. Partially offsetting the recovery for the year ended December 31, 2016 was the final determination of the addi- tional consideration payable based on SIG’s financial per- formance in 2015. The final determination resulted in an additional consideration of $162 million (€150 million) being paid by SIG based on its 2015 financial performance. The majority of the additional consideration had been accrued Impairment of Goodwill, Intangible Assets and Long-lived Assets, Net Year ended December 31 ($ millions) TABLE 11 York Emerald Expositions ResCare Celestica Other, net(a) Total 2016 $ 226 4 – – 4 2015 $ − 6 51 12 13 $ 234 $ 82 (a) 2016 other included net impairments related to Carestream Health and JELD-WEN. 2015 other included net impairments related to JELD-WEN, by SIG at December 31, 2015. sgsco and SIG. 54 Onex Corporation December 31, 2016 M A N A G E M E N T ’ S D I S C U S S I O N A N D A N A LY S I S York During the second quarter of 2016, York recorded a non-cash goodwill impairment charge of $226 million, measured in accordance with IAS 36, Impairment of Assets, primarily due to a decrease in projected future earnings from its claims During 2016, Onex recorded a charge of $587 mil- lion (2015 – $882 million) for Limited Partners’ Interests for Onex Partners and ONCAP Funds. The net increase in the fair value of certain of the investments held in the Onex Partners and ONCAP Funds contributed to the Limited management business. Note 26 to the consolidated financial Partners’ Interests charge for the Onex Partners and statements provides additional information on the impair- ONCAP Funds recorded in 2016. ment calculation. Emerald Expositions During 2016 and 2015, Emerald Expositions recorded non- The Limited Partners’ Interests charge for the Onex Partners and ONCAP Funds is net of an increase of $91 million (2015 – $192 million) in carried interest for the year ended December 31, 2016. Onex’ share of the change cash impairment charges primarily related to certain trade in carried interest for 2016 was $33 million (2015 – $64 mil- names and customer relationships. lion). The change in the amount of carried interest that ResCare Due to a decline in the recoverable amount of ResCare’s has been netted against the Limited Partners’ Interests for the Onex Partners and ONCAP Funds decreased during 2016 due to a smaller net increase in the fair value of cer- 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. tain of the investments in the Onex Partners and ONCAP Funds. The ultimate amount of carried interest realized will be dependent on the actual realizations for each fund in Note 26 to the consolidated financial statements provides accordance with the limited partnership agreements. additional information on the impairment calculation. During 2016, Onex recorded a charge of $60 mil- Celestica During 2015, Celestica recorded a non-cash impairment charge of $12 million to impair certain of its property, plant and equipment. lion (2015 – recovery of $26 million) for Limited Partners’ Interests for the Onex Credit Funds. Provision for income taxes For the year ended December 31, 2016, Onex reported an income tax provision of $46 million (2015 – $116 million). Limited Partners’ Interests charge The Limited Partners’ Interests charge in Onex’ consoli- The decrease from the provision recognized in 2015 pri- marily relates to deferred tax recoveries recorded by JELD- dated statements of earnings primarily represents the WEN, partially offset by the provision for income tax rec- change in the fair value of the underlying investments in ognized by USI on the sale of Univers, as described on the Onex Partners, ONCAP and Onex Credit Funds that is page 34 of this MD&A. allocated to the limited partners and recorded as Limited Partners’ Interests liability in Onex’ consolidated balance sheets. The Limited Partners’ Interests charge for the Onex Loss from continuing operations For the year ended December 31, 2016, Onex recorded a loss Partners and ONCAP Funds includes the fair value changes from continuing operations of $514 million compared to of consolidated operating companies, investments in joint $884 million in 2015. The loss from continuing operations ventures and associates and other investments that are attributable to equity holders of Onex Corporation was held in the Onex Partners and ONCAP Funds. The Limited $577 million ($5.56 per share) compared to $946 million Partners’ Interests charge for the Onex Credit Funds ($8.84 per share) in 2015. For the year ended December 31, includes the fair value changes of the underlying invest- 2014, Onex recorded a loss from continuing operations of ments in the Onex Credit Funds consolidated by Onex. $792 million. The loss from continuing operations attribut- able to equity holders of Onex Corporation was $859 mil- lion ($7.80 per share) in 2014. Note 34 to the consolidated financial statements shows the earnings (loss) from con- tinuing operations by industry segment for the years ended Decem ber 31, 2016 and 2015. Onex Corporation December 31, 2016 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 Included in the loss from continuing operations for 2016 was a loss of $712 million recorded in the other segment compared to $888 million recorded during 2015 and $737 million recorded during 2014. Table 12 shows the major components of the loss from continuing operations recorded in the other segment. Loss from Continuing Operations Recorded in the Other Segment TABLE 12 Year ended December 31 ($ millions) 2016 2015 2014 Loss (earnings) from continuing operations – other: Limited Partners’ Interests charge Interest expense of operating companies Stock-based compensation expense Unrealized carried interest charge due to Onex and ONCAP management Other gains Increase in value of investments in joint ventures and associates at fair value, net Other $ 587 $ 882 $ 1,069 138 145 59 (28) (180) (9) 84 138 130 (201) (175) 30 47 145 160 (317) (412) 45 Loss from continuing operations – other segment $ 712 $ 888 $ 737 Earnings from discontinued operations Earnings from discontinued operations for 2016 were Sitel Worldwide In September 2015, the Company sold its entire investment $478 million and represented the results of operations of in Sitel Worldwide. The Company’s cash proceeds were KraussMaffei, and include a portion of the gain from the $35 million, of which Onex’ share was $33 million. In addi- sale of Sitel Worldwide. Earnings from discontinued oper- tion, the Company had estimated it could receive an earn- ations for 2015 were $379 million and represented the out component of approximately $21 million, of which results of operations of KraussMaffei, Sitel Worldwide (up Onex’ share would be $20 million. No amounts were paid to September 2015) and Skilled Healthcare Group (up to on account of the MIP for this transaction as the required February 2015). investment return hurdle for Onex was not met. The after-tax earnings from discontinued opera- A gain of $365 million was recorded within discon- tions attributable to equity holders of Onex Corporation tinued operations during the third quarter of 2015 based were $447 million ($4.31 per share) during 2016 compared on the excess of the proceeds over the carrying value of the to $373 million ($3.48 per share) in 2015. Note 8 to the con- investment. The carrying value of the investment was neg- solidated financial statements provides earnings from dis- ative at the time of sale as a result of the Company’s por- continued operations and gain on sale, net of tax, for the tion of the accumulated losses from the operations of Sitel years ended December 31, 2016 and 2015. Worldwide that offset the Company’s original investments. KraussMaffei In April 2016, the Onex Partners III Group sold its entire In June 2016, the Company signed an agreement to settle the earn-out component from the sale. As a result, the investment in KraussMaffei, as described on page 34 of Company expects to receive payments totalling $36 million Onex’ share of the gain was $360 million. this MD&A. 56 Onex Corporation December 31, 2016 over a period of six years. Onex’ share of the earn-out com- ponent is expected to be $33 million. A gain of $23 million was recorded within discontinued operations during the second quarter of 2016, of which Onex’ share was $21 mil- lion. The gain reflects the present value of the future pay- ments under the agreement. During the third quarter of 2016, the Company received $3 million of the scheduled pay- ments under the earn-out settlement agreement, of which Onex’ share was $3 million. M A N A G E M E N T ’ S D I S C U S S I O N A N D A N A LY S I S Skilled Healthcare Group In February 2015, Skilled Healthcare Group combined with Genesis HealthCare, LLC, a leading U.S. operator of long- Table 14 presents the net earnings (loss) per SVS of Onex Corporation. term care facilities. The combined company now operates Net Earnings (Loss) per SVS of Onex Corporation under the Genesis Healthcare name and continues to be publicly traded (NYSE: GEN). The Company lost its mul- tiple voting rights, which reduced its voting ownership to 10 percent from 86 percent before the combination. Onex no longer controls Skilled Healthcare Group due to the loss of the multiple voting rights and, therefore, the operations of Skilled Healthcare Group up to the date of the transac- tion in February 2015 are presented as discontinued. TABLE 14 Year ended December 31 ($ per share) 2016 2015 2014 Basic and Diluted: Continuing operations $ (5.56) $ (8.84) $ (7.80) Discontinued operations 4.31 3.48 6.76 Net loss per SVS for the year $ (1.25) $ (5.36) $ (1.04) Earnings from discontinued operations of $70 mil- Note 34 to the consolidated financial statements shows lion for the year ended December 31, 2015 included the the consolidated net earnings (loss) by industry segment recognition of a non-cash gain of $68 million associ- and the amounts attributable to the equity holders of Onex ated with measuring the Company’s interest in Skilled Corporation and non-controlling interests for the years Healthcare Group at fair value at the date of the combina- ended December 31, 2016 and 2015. tion. Subsequent to the February 2015 transaction date, the Company’s investment in the combined company has been recorded as an other long-term investment at fair value Other comprehensive loss Other comprehensive loss represents the unrealized gains or through earnings, with changes in fair value recorded in losses, all net of income taxes, related to cash flow hedges, other expense (income). available-for-sale financial assets, remeasurements for post- employment benefit plans and foreign exchange gains or Consolidated net earnings (loss) Table 13 presents the net earnings (loss) attributable to losses on the translation to presentation currency. During the year ended December 31, 2016, Onex reported an other equity holders of Onex Corporation and non-controlling comprehensive loss of $11 million compared to $245 mil- interests. Net Earnings (Loss) lion in 2015. The loss recorded during 2016 was largely due to unfavourable currency translation adjustments of $69 million (2015 – $270 million), partially offset by other comprehensive earnings from discontinued operations of TABLE 13 Year ended December 31 ($ millions) 2016 2015 2014 $42 million (2015 – $8 million). Net earnings (loss) attributable to: Equity holders of Onex Corporation $ (130) $ (573) $ (115) Non-controlling interests 94 68 274 Net earnings (loss) for the year $ (36) $ (505) $ 159 Onex Corporation December 31, 2016 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 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 15 presents the statements of earnings (loss) for the three months ended December 31, 2016 and 2015. Fourth Quarter Statements of Loss TABLE 15 ($ millions) Revenues Cost of sales (excluding amortization of property, plant and equipment, intangible assets and deferred charges) Operating expenses Interest income Amortization of property, plant and equipment Amortization of intangible assets and deferred charges Interest expense of operating companies Increase in value of investments in joint ventures and associates at fair value, net Stock-based compensation expense Other gains Other expense Recovery (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 Loss from discontinued operations Net Loss for the Period 2016 2015 $ 6,572 $ 5,442 (4,629) (1,244) (3,820) (1,050) 100 (161) (234) (333) 44 (126) – (7) 2 (193) (209) 57 (152) – 75 (126) (160 ) (241) 41 (88 ) 1 (105) (71) (191) (293) (24) (317) (19) $ (152) $ (336) 58 Onex Corporation December 31, 2016 M A N A G E M 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 16 provides a breakdown of the 2016 and 2015 fourth quarter revenues and cost of sales by industry segment. Revenues and Cost of Sales by Industry Segment TABLE 16 ($ millions) Revenues Cost of Sales Three months ended December 31 2016 2015 Change 2016 2015 Change Electronics Manufacturing Services $ 1,623 $ 1,515 Healthcare Imaging Health and Human Services Building Products Insurance Services(a) Packaging Products and Services(b) Business and Information Services(c) Food Retail and Restaurants(d) Credit Strategies(e) Other(f) Total 578 438 973 440 673 232 420 1 1,194 602 463 888 431 642 26 84 1 790 $ 6,572 $ 5,442 7 % (4)% (5)% 10 % 2 % 5 % 792 % 400 % – 51 % 21 % $ 1,489 $ 1,394 320 332 741 – 416 105 362 – 864 323 349 697 − 423 7 68 – 559 $ 4,629 $ 3,820 7 % (1)% (5)% 6 % − (2)% 1,400 % 432 % − 55 % 21 % 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. (b) The packaging products and services segment consists of sgsco and SIG. (c) The business and information services segment consists of Clarivate Analytics and Emerald Expositions. Clarivate Analytics began to be consolidated in October 2016, when the business was acquired by the Onex Partners IV Group. Emerald Expositions was previously included within the other segment. (d) The food retail and restaurants segment consists of Jack’s and Save-A-Lot. Jack’s was previously included within the other segment. Save-A-Lot began to be consolidated in December 2016, when the business was acquired by the Onex Partners IV Group. (e) The credit strategies segment consists of (i) Onex Credit Manager, (ii) Onex Credit Collateralized Loan Obligations and (iii) Onex Credit Funds. (f) 2016 other includes Flushing Town Center, Meridian Aviation, Survitec, Schumacher, WireCo, the operating companies of ONCAP II, III and IV and the parent company. 2015 other includes Flushing Town Center, Meridian Aviation, Survitec, Schumacher, the operating companies of ONCAP II and III and the parent company. Revenues and cost of sales in the business and informa- tion services segment, consisting of Clarivate Analytics Fourth quarter interest expense Fourth quarter 2016 interest expense totalled $333 million and Emerald Expositions, increased by $206 million and compared to $241 million during the fourth quarter of 2015. $98 million, respectively, compared to the fourth quarter of Fourth quarter interest expense increased by $92 million 2015. The increase was primarily due to the inclusion of the primarily due to the inclusion of interest expense for Clari- revenues of Clarivate Analytics, which was acquired by the vate Analytics, Save-A-Lot, Tecta and WireCo, which were Onex Partners IV Group in October 2016. acquired during 2016, and the additional debt from CLOs. Revenues and cost of sales in the food retail and restaurants segment, consisting of Jack’s and Save-A-Lot, increased by $336 million and $294 million, respectively, Fourth quarter stock-based compensation expense During the fourth quarter of 2016, Onex recorded a consoli- compared to the fourth quarter of 2015. The increase was dated stock-based compensation expense of $126 million primarily due to the inclusion of the revenues of Save-A-Lot, compared to $88 million for the same quarter of 2015. Onex, acquired by the Onex Partners IV Group in December 2016. the parent company, recorded a stock-based compensa- tion expense of $67 million (2015 – $57 million) in the fourth quarter of 2016 related to its stock options and MIP equity interests. That expense was primarily due to an 8 percent increase (2015 – 10 percent) in the market value of Onex’ shares in the fourth quarter. Onex Corporation December 31, 2016 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 Fourth quarter other expense During the fourth quarter of 2016, Onex recorded other Fourth quarter Limited Partners’ Interests charge During the fourth quarter of 2016, Onex recorded a $193 mil- expense of $7 million compared to $105 million during the lion charge for Limited Partners’ Interests compared to same quarter of 2015. The charge for carried interest due a $191 million charge during 2015. The increase in the fair to management of Onex and ONCAP contributed $27 mil- value of certain of the private investments in the Onex lion (2015 – $34 million) to other expense during the fourth Partners and ONCAP Funds contributed significantly to the quarter. The charge for carried interest was driven primar- Limited Partners’ Interests charge recorded during both ily by an increase in the fair value of certain of the invest- quarters. The Limited Partners’ Interests charge is net of a ments in the Onex Partners and ONCAP Funds during $42 million (2015 – $52 million) increase in carried interest the fourth quarters of 2016 and 2015. The charge for other for the three months ended December 31, 2016. expense was partially offset by other income recorded dur- ing the fourth quarter of 2016, which includes $14 million (2015 – $11 million) of gains on the sale of tax losses, as dis- Fourth quarter recovery of (provision for) income taxes During the fourth quarter of 2016, Onex recorded a recov- cussed below. ery of income taxes of $57 million compared to a provision In November 2016, Onex sold entities, the sole for income taxes of $24 million in the fourth quarter of assets of which were certain tax losses, to companies con- 2015. The recovery of income taxes in the fourth quarter of trolled by Mr. Gerald W. Schwartz, who is Onex’ controlling 2016 was primarily due to a recovery recognized by JELD- shareholder. Onex received $14 million (2015 – $11 million) WEN associated with the recognition of previously unrec- in cash for tax losses of $142 million (2015 – $109 million). ognized deferred tax assets. The cash received was recorded as a gain in other expense (income) during the fourth quarter. Onex has significant Fourth quarter earnings (loss) from non-capital and capital losses available; however, Onex does not expect to generate sufficient taxable income to fully uti- discontinued operations During the fourth quarter of 2016 and 2015, Onex recorded lize these losses in the foreseeable future. As such, no benefit losses from discontinued operations of nil and $19 million, was previously recognized in the consolidated financial respectively. The loss recognized in 2015 represents the results statements for the tax losses sold. In connection with the of KraussMaffei, as discussed on page 56 of this MD&A. 2016 and 2015 transactions, Deloitte LLP, an independent accounting firm retained by Onex’ Audit and Corporate Governance Committee, provided an opinion that the value Fourth quarter cash flow Table 17 presents the major components of cash flow for received by Onex for the tax losses was fair from a financial the fourth quarters of 2016 and 2015. point of view. The transactions were unanimously approved by Onex’ Audit and Corporate Governance Committee, all Major Cash Flow Components the members of which are independent directors. TABLE 17 ($ millions) Fourth quarter recovery (impairment) of goodwill, Cash from operating activities intangible assets and long-lived assets, net During the fourth quarter of 2016, $2 million of net impair- Cash from (used in) financing activities Cash used in investing activities $ (887) $ (268) ment recoveries from goodwill, intangible assets and long- Consolidated cash and cash equivalents lived assets were recorded by Onex’ operating companies held by continuing operations $ 2,371 $ 2,313 compared to $71 million of impairments during the same quarter of 2015. A discussion of these impairments by com- Cash from financing activities in the fourth quarter of pany is provided on page 54 of this MD&A. 2016 included (i) $589 million of net debt issuances pri- marily for CLO-12 and JELD-WEN; and (ii) $541 million of contributions by limited partners primarily related to the acquisition of Save-A-Lot. Partially offsetting the cash from finan cing activities were (i) distributions of $359 million 60 Onex Corporation December 31, 2016 2016 809 427 $ $ 2015 $ 670 $ (290) M A N A G E M E N T ’ S D I S C U S S I O N A N D A N A LY S I S paid to non-controlling interests and to the limited part- by SIG; and (iv) $100 million of net purchases of investments ners of the Onex Partners and ONCAP Funds; and (ii) cash and securities by the CLOs and Onex Credit Funds. Partially interest paid of $298 million. offsetting the cash used in investing activities were (i) a Cash used in financing activities in the fourth quar- $1.6 billion change in restricted cash related to the acquisi- ter of 2015 included (i) cash interest paid of $231 million; tion of Clarivate Analytics; and (ii) $287 million of proceeds and (ii) distributions of $199 million to the limited partners primarily from the sale of investments managed by third- of the Onex Partners Funds primarily related to Meridian party investment managers for Onex, the parent company. Aviation and Jack’s. Partially offsetting the cash used in Cash used in investing activities was $268 mil- financing activities was $145 million of net debt issuances lion in the fourth quarter of 2015, primarily consisting of primarily for CLO-10. (i) $181 million in purchases of property, plant and equip- ment; (ii) $162 million used to fund acquisitions by the Cash used in investing activities was $887 million in the operating companies; (iii) $161 million of cash used by fourth quarter of 2016, primarily consisting of (i) $2.4 bil- Onex, the parent company, for net purchases of short- and lion of cash used to fund acquisitions, of which $2.2 billion long-term investments managed by third-party investment related to the acquisitions of Clarivate Analytics and Save- managers; and (iv) $70 million of net purchases of invest- A-Lot by the Onex Partners IV Group and certain non-con- ments and securities by the CLOs and Onex Credit Funds. trolling interests; (ii) $175 million in purchases of property, Partially offsetting the cash used in investing activities was plant and equipment; (iii) $162 million of cash used for the $164 million of proceeds from the sale of property, plant settlement of contingent consideration provisions primarily and equipment. S U M M A R Y Q U A R T E R L Y I N F O R M A T I O N Table 18 summarizes Onex’ key consolidated financial information for the last eight quarters. The financial information has been restated for discontinued operations. Consolidated Quarterly Financial Information TABLE 18 ($ millions except per share amounts) 2016 2015 Revenues $ 6,572 $ 5,528 $ 5,425 $ 4,998 $ 5,442 $ 5,184 $ 4,926 $ 4,129 Dec. Sept. June March Dec. Sept. June March Loss from continuing operations Net earnings (loss) Net earnings (loss) attributable to: $ (152) $ (152) $ $ (82) $ (109) $ (171) $ (317) $ (144) $ (271) $ (152) (76) $ 367 $ (175) $ (336) $ 204 $ (289) $ (84) Equity holders of Onex Corporation $ (135) $ (130) $ 322 $ (187) $ (346) $ 186 $ (306) $ (107) Non-controlling Interests (17) 54 45 12 10 18 17 23 Net earnings (loss) $ (152) $ (76) $ 367 $ (175) $ (336) $ 204 $ (289) $ (84) Earnings (loss) per SVS of Onex Corporation Loss from continuing operations $ (1.31) $ (1.33) $ (1.16) $ (1.76) $ (3.10) $ (1.39) $ (2.74) $ (1.63) Earnings (loss) from discontinued operations – 0.06 4.28 (0.03) (0.17) 3.15 (0.12) 0.65 Net earnings (loss) $ (1.31) $ (1.27) $ 3.12 $ (1.79) $ (3.27) $ 1.76 $ (2.86) $ (0.98) 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, 2016 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 C O N S O L I D A T E D F I N A N C I A L P O S I T I O N Consolidated assets Consolidated assets totalled $42.9 billion at December 31, 2016 compared to $35.8 billion at December 31, 2015. Onex’ consoli- dated assets at December 31, 2016 increased from December 31, 2015 primarily due to the acquisitions of Clarivate Analytics, Save-A-Lot, Tecta and WireCo and the closings of two CLOs. Partially offsetting the increase in consolidated assets was a decrease due to the sales of Cicis in August 2016 and KraussMaffei in April 2016. Table 19 shows consolidated assets by industry segment as at December 31, 2016, 2015 and 2014. The industry segment per- centages of consolidated assets held by continuing operations are also shown. Consolidated Assets by Industry Segment TABLE 19 ($ millions) 2016 Percentage Breakdown 2015 Percentage Breakdown 2014 Percentage Breakdown Electronics Manufacturing Services $ 2,822 Healthcare Imaging Health and Human Services Building Products Insurance Services(a) Packaging Products and Services(b) Business and Information Services(c) Food Retail and Restaurants(d) Credit Strategies(e) Other(f) 1,473 995 2,669 4,656 6,144 5,765 2,185 7,624 8,580 7% 3% 2% 6% 11% 14% 14% 5% 18% 20% Assets held by continuing operations 42,913 100% Other – assets held by discontinued operations(g) – Total consolidated assets $ 42,913 (a) The insurance services segment consists of USI and York. $ 2,612 1,609 1,034 2,374 5,034 6,366 1,526 532 6,284 7,111 34,482 1,328 $ 35,810 7% 5% 3% 7% 15% 18% 4% 2% 18% 21% 100% $ 2,584 1,803 1,110 2,351 5,088 1,037 1,514 − 4,373 6,298 26,158 2,778 $ 28,936 10% 7% 4% 9% 19% 4% 6% n/a 17% 24% 100% (b) The packaging products and services segment consists of sgsco and SIG. SIG began to be consolidated in March 2015, when the business was acquired by the Onex Partners IV Group. (c) The business and information services segment consists of Clarivate Analytics and Emerald Expositions. Clarivate Analytics began to be consolidated in October 2016, when the business was acquired by the Onex Partners IV Group. Emerald Expositions was previously included within the other segment. (d) The food retail and restaurants segment consists of Jack’s and Save-A-Lot. Jack’s was previously included within the other segment and began to be consolidated in July 2015, when the business was acquired by the Onex Partners IV Group. Save-A-Lot began to be consolidated in December 2016, when the business was acquired by the Onex Partners IV Group. (e) The credit strategies segment consists of (i) Onex Credit Manager, (ii) Onex Credit Collateralized Loan Obligations and (iii) Onex Credit Funds. 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. (f) 2016 other includes Flushing Town Center, Meridian Aviation, Survitec, Schumacher, WireCo, the operating companies of ONCAP II, III and IV and the parent company. In addition, 2016 other includes investments in AIT, BBAM, Genesis Healthcare, Incline Aviation Fund, ITG and Mavis Discount Tire. 2015 other includes Flushing Town Center, Meridian Aviation, Survitec, Schumacher, the operating companies of ONCAP II and III and the parent company. In addition, 2015 other includes investments in AIT, BBAM, Genesis Healthcare, ITG and Mavis Discount Tire. 2014 other includes Flushing Town Center, Tropicana Las Vegas, Meridian Aviation, the operating companies of ONCAP II and III and the parent company. In addition, 2014 other includes investments in AIT, BBAM, Mavis Discount Tire and certain Onex Real Estate investments. (g) At December 31, 2015, the assets of KraussMaffei were included in the other segment as the company was presented as a discontinued operation. At December 31, 2014, the assets of KraussMaffei, Sitel Worldwide and Skilled Healthcare Group were included in the other segment as the companies were presented as discontinued operations. 62 Onex Corporation December 31, 2016 M A N A G E M 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 Consolidated long-term debt does not include the debt of operating businesses that are included in invest- ments in joint ventures and associates, as investments in parent company that has funds available for new acquisi- those businesses are accounted for at fair value and are not tions and to support the growth of its operating compa- consolidated. In addition, when operating companies are nies. This policy means that all debt financing is within reported as discontinued operations or as held for sale, their the operating companies and each company is required to long-term debt is excluded from consolidated long-term support its own debt without recourse to Onex Corporation debt on a prospective basis. Prior periods are not restated. or other Onex operating companies. Total consolidated long-term debt (consisting of The financing arrangements of each operating the current and long-term portions of long-term debt, net company typically contain certain restrictive covenants, of financing charges) was $22.9 billion at December 31, 2016 which may include limitations or prohibitions on additional compared to $18.1 billion at December 31, 2015. Table 20 indebtedness, payment of cash dividends, redemption of shows consolidated long-term debt by industry segment as capital, capital spending, making of investments, and acqui- at December 31, 2016, 2015 and 2014. sitions and sales of assets. The financing arrangements may also require the redemption of indebtedness in the event of a change of control of the operating company. In addition, the operating companies that have outstanding debt must meet certain financial covenants. Changes in business con- ditions relevant to an operating company, including those resulting from changes in financial markets and economic conditions generally, may result in non-compliance with certain covenants by that operating company. Onex Corporation December 31, 2016 63 M A N A G E M E N T ’ S D I S C U S S I O N A N D A N A LY S I S Consolidated Long-Term Debt of Operating Companies, Without Recourse to Onex Corporation TABLE 20 As at December 31 ($ millions) Electronics Manufacturing Services Healthcare Imaging Health and Human Services Building Products Insurance Services(a) Packaging Products and Services(b) Business and Information Services(c) Food Retail and Restaurants(d) Credit Strategies(e) Other(f)(g) Current portion of long-term debt of operating companies 2016 2015 2014 $ 226 $ 261 $ – 1,920 421 1,615 2,824 3,447 2,667 886 5,912 2,945 22,863 (407) 1,999 525 1,257 2,866 3,487 731 221 4,899 1,808 18,054 (411) 2,115 455 804 2,644 568 754 − 3,431 2,511 13,282 (408) Total $ 22,456 $ 17,643 $ 12,874 (a) The insurance services segment consists of USI and York. (b) The packaging products and services segment consists of sgsco and SIG. SIG began to be consolidated in March 2015, when the business was acquired by the Onex Partners IV Group. (c) The business and information services segment consists of Clarivate Analytics and Emerald Expositions. Clarivate Analytics began to be consolidated in October 2016, when the business was acquired by the Onex Partners IV Group. Emerald Expositions was previously included within the other segment. (d) The food retail and restaurants segment consists of Jack’s and Save-A-Lot. Jack’s was previously included within the other segment and began to be consolidated in July 2015, when the business was acquired by the Onex Partners IV Group. Save-A-Lot began to be consolidated in December 2016, when the business was acquired by the Onex Partners IV Group. (e) The credit strategies segment consists of (i) Onex Credit Manager, (ii) Onex Credit Collateralized Loan Obligations and (iii) Onex Credit Funds. 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. (f) 2016 other includes Flushing Town Center, Meridian Aviation, Survitec, Schumacher, WireCo, the operating companies of ONCAP II, III and IV and the parent company. 2015 other includes Flushing Town Center, Meridian Aviation, Survitec, Schumacher, the operating companies of ONCAP II and III and the parent company. 2014 other includes Flushing Town Center, Tropicana Las Vegas, Meridian Aviation, the operating companies of ONCAP II and III and the parent company. (g) At December 31, 2015, the long-term debt of KraussMaffei is included in the other segment as the company has been presented as a discontinued operation. 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. The discussions that follow identify those signifi cant changes in industry segments that affected Onex’ consolidated long- term debt as at December 31, 2016. Note 14 to the consolidated financial statements provides details of the long-term debt outstanding by operating company and by credit facility. JELD-WEN (Building Products segment) In November 2016, JELD-WEN amended its existing credit of this MD&A. The combined term loan bears interest at LIBOR (subject to a floor of 1.00 percent) plus a margin of up facility to borrow an incremental $375 million and to com- to 3.75 percent, depending on the company’s leverage ratio. bine the incremental borrowing with its existing term loans The combined term loan matures in July 2022. into a combined term loan of $1.6 billion. The proceeds from In February 2017, JELD-WEN repaid $375 million the incremental borrowing, along with a draw on the com- under its combined term loan from a portion of its net pro- pany’s revolving credit facility, were used to fund a distribu- ceeds from the sale of shares in its initial public offering, as tion of $400 million to shareholders, as described on page 36 described on page 37 of this MD&A. 64 Onex Corporation December 31, 2016 M A N A G E M E N T ’ S D I S C U S S I O N A N D A N A LY S I S SIG (Packaging Products and Services segment) In September 2016, SIG amended its senior secured credit facility to reduce the rate at which borrowings under its Emerald Expositions (Business and Information Services segment) In October 2016, Emerald Expositions amended its exist- euro-denominated term loan bear interest to EURIBOR ing credit facility to increase its term loan by $200 million (subject to a floor of 0.00 percent) plus a margin of 3.75 per- and the revolving credit facility by $10 million. The net pro- cent and reduce the rate at which borrowings under its U.S. ceeds from the incremental term loan and cash on hand dollar-denominated term loan bear interest to LIBOR (sub- were used to redeem the company’s senior notes with a ject to a floor of 1.00 percent) plus a margin of 3.00 percent. principal amount of $200 million at a redemption price of The amendment resulted in a total interest rate reduction 104.5 percent of the principal amount plus accrued and of 50 basis points and 25 basis points on the euro- and U.S. unpaid interest. The senior notes bore interest at 9.00 per- dollar-denominated term loans, respectively. In addition, cent and were due in June 2021. The borrowings under the SIG reduced the rate at which borrowings under its multi- amended term loan bear interest at LIBOR (subject to a floor currency revolving credit facility bear interest to EURIBOR of 1.00 percent) plus a margin of 3.75 percent and mature in or LIBOR plus a margin of up to 3.00 percent, resulting in a June 2020. The amended revolving credit facility bears inter- 100 basis point reduction, and reduced the commitments available under the facility from €300 million to €260 mil- lion. As a result of the amendment, SIG incurred $3 million est at LIBOR plus a margin of up to 4.50 percent, depending on the company’s leverage ratio, and matures in June 2018. The amendment and redemption resulted in in fees during the third quarter of 2016 that will be amor- a total interest rate reduction of 425 basis points on the tized over the term of the senior secured credit facility. $200 million principal amount of the senior notes. In connection with the credit facility, the com- Clarivate Analytics (Business and Information pany has entered into an interest rate swap agreement with Services segment) Onex, in partnership with Baring Private Equity Asia, acquired Clarivate Analytics in October 2016, as described a notional amount of $100 million that swaps the variable rate portion for fixed rates through December 2018. on page 35 of this MD&A. In October 2016, Clarivate Ana- lytics entered into a senior secured credit facility consist- Jack’s (Food Retail and Restaurants segment) During the first six months of 2016, Jack’s repaid $40 mil- ing of a $1.55 billion first lien term loan and a $175 million lion of the promissory note held by the Onex Partners IV revolving credit facility. Borrowings under the term loan Group, including accrued interest, as discussed on page 33 bear interest at LIBOR (subject to a floor of 1.00 percent) of this MD&A. plus a margin of 3.75 percent. The term loan can be repaid In June 2016, the balance outstanding under the in whole or in part without premium or penalty at any time promissory note was converted into additional equity of before maturity in October 2023. The revolving credit facility Jack’s, as described on page 33 of this MD&A. bears interest at LIBOR plus a margin of up to 3.25 percent, depending on the company’s leverage ratio, and matures in October 2021. Save-A-Lot (Food Retail and Restaurants segment) The Onex Partners IV Group acquired Save-A-Lot in In addition to the above senior secured credit Decem ber 2016, as described on page 36 of this MD&A. In facility, Clarivate Analytics has issued senior unsecured December 2016, Save-A-Lot entered into a senior secured notes with an aggregate principal amount of $500 million. credit facility consisting of a $740 million term loan and The senior unsecured notes bear interest at 7.875 percent a $250 million revolving credit facility. Borrowings under and mature in October 2024. The senior unsecured notes the term loan bear interest at LIBOR (subject to a floor may be redeemed by the company at any time at various of 1.00 percent) plus a margin of 6.00 percent. The term premiums above face value. loan can be repaid in whole or in part without premium or penalty at any time before maturity in December 2023. Borrowings under the revolving credit facility bear interest at LIBOR plus an interest rate margin of up to 2.00 percent. The revolving credit facility matures in December 2021. Onex Corporation December 31, 2016 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 Meridian Aviation (Other segment) In January 2016, Meridian Aviation entered into a $100 mil- lion revolving credit facility. The revolving credit facility bears interest at LIBOR plus a margin of 1.50 percent. In Survitec (Other segment) In November 2016, Survitec entered into an incremental €133 million euro-denominated term loan and increased the revolving facility by £20 million in connection with the December 2016, the maturity of the revolving credit facility acquisition of Wilhelmsen Safety, as described on page 36 was amended to November 2017. The borrowings under the of this MD&A. The borrowings under the incremental term revolving credit facility are guaranteed and reimbursable loan bear interest at EURIBOR plus a margin of 4.25 percent by capital calls from the Onex Partners III Group. and mature in March 2022, consistent with the terms and Schumacher (Other segment) In connection with the June 2016 acquisition of ECI, as described on page 34 of this MD&A, Schumacher amended its senior secured facilities to increase its first lien term loan by $130 million. WireCo (Other segment) The Onex Partners IV Group acquired WireCo in September conditions of its existing euro-denominated term loan. The increase to the revolving credit facility was under the same terms and conditions as the existing revolving credit facility. ONCAP IV (Other segment) In January 2017, ONCAP IV entered into a $100 million credit facility. The credit facility is available to finance ONCAP IV capital calls, bridge investments in ONCAP IV operating companies and finance other uses permit- 2016, as described on page 35 of this MD&A. In September ted by ONCAP IV’s limited partnership agreement. The 2016, WireCo entered into a senior secured credit facility credit facility includes a deemed credit risk maximum of consisting of a $460 million first lien term loan, a $135 mil- $35 million available to ONCAP IV and its operating com- lion second lien term loan and a $100 million revolving panies for foreign exchange transactions, including foreign credit facility. Borrowings under the first lien term loan exchange options, forwards and swaps. Amounts under bear interest at LIBOR (subject to a floor of 1.00 percent) the credit facility are available in Cana dian and U.S. dol- plus a margin of 5.50 percent. Borrowings under the sec- lars. Borrowings drawn on the credit facility bear interest ond lien term loan bear interest at LIBOR (subject to a floor at a base rate plus a margin of 1.00 percent or bankers’ of 1.00 percent) plus a margin of 9.00 percent. Borrowings acceptance rate (subject to a floor of 0.00 percent) plus a under the revolving credit facility bear interest at LIBOR margin of 3.75 percent. The base rate and bankers’ accep- (subject to a floor of 0.00 percent) plus a margin of up to tance rate vary based on the currency of the borrowings. 2.25 percent. The first and second lien term loans mature Borrowings under the credit facility are due and payable in September 2023 and September 2024, respectively. The upon demand; however, ONCAP IV has 15 business days to revolving credit facility matures in September 2021. complete a capital call to the limited partners of ONCAP IV. Onex Corporation, the parent company, is only obligated to fund borrowings under the credit facility based on its proportionate share as a limited partner in ONCAP IV. 66 Onex Corporation December 31, 2016 M A N A G E M E N T ’ S D I S C U S S I O N A N D A N A LY S I S Table 21 details the aggregate debt maturities as at Decem ber 31, 2016 for Onex’ operating businesses for each of the years up to 2021 and in total thereafter. As the table includes debt of investments in joint ventures and associates and excludes debt of the CLOs and any warehouse facilities, the total amount does not reconcile to reported consolidated debt. As the following table illustrates, most of the maturities occur in 2019 and thereafter. Debt Maturity Amounts by Year TABLE 21 ($ millions) 2017 2018 2019 2020 2021 Thereafter Total Consolidated operating companies(a) $ 350 $ 582 $ 4,149 $ 1,355 $ 1,595 $ 9,301 $ 17,332 Investments in joint ventures and associates(a) 15 14 15 454 281 – 779 Total $ 365 $ 596 $ 4,164 $ 1,809 $ 1,876 $ 9,301 $ 18,111 (a) Debt amounts are presented gross of financing charges. Excludes amounts invested by Onex, the parent company, in debt of the operating businesses, debt of the credit strategies segment and debt of Incline Aviation Fund. Limited Partners’ Interests Limited Partners’ Interests liability represents the fair value of limited partners’ invested capital in the Onex Partners, ONCAP and Onex Credit Funds and is affected primarily by the change in the fair value of the underlying investments in the Onex Partners, ONCAP and Onex Credit Funds, the impact of the carried interest, as well as any contributions by and distri- butions to limited partners in those funds. Table 22 shows the change in Limited Partners’ Interests from December 31, 2014 to December 31, 2016. Limited Partners’ Interests TABLE 22 ($ millions) Balance – December 31, 2014 Addition from the Onex Credit transaction(a) Limited Partners’ Interests charge (recovery) Contributions by Limited Partners Distributions paid to Limited Partners Balance – December 31, 2015(b) Limited Partners’ Interests charge Contributions by Limited Partners Distributions paid to Limited Partners Balance – December 31, 2016 Current portion of Limited Partners’ Interests(c) Onex Partners and ONCAP Funds Onex Credit Funds Total $ 5,176 $ – $ 5,176 – 882 1,819 (888) 6,989 587 1,574 (1,046) 8,104 (89) 368 (26) 6 (19) 329 60 19 (38) 370 – 368 856 1,825 (907) 7,318 647 1,593 (1,084) 8,474 (89) Non-current portion of Limited Partners’ Interests $ 8,015 $ 370 $ 8,385 (a) In January 2015, Onex began consolidating the Onex Credit Funds in which Onex has an investment. The Limited Partners’ Interests liability for Onex Credit Funds includes investments by those other than Onex in the Onex Credit Funds consolidated by Onex. (b) At December 31, 2015, the current portion of the Limited Partners’ Interests was $598 million. 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. (c) At December 31, 2016, the current portion of the Limited Partners’ Interests was $89 million. The current portion consisted primarily of the limited partners’ share of (i) the distribution received from Hopkins Manufacturing; (ii) the return of capital to the limited partners of ONCAP III related to the syndication of a portion of the investment in Tecta to the ONCAP IV Group; and (iii) the remaining KraussMaffei proceeds to be distributed during 2017. The Limited Partners’ Interests charge is discussed in detail on page 55 of this MD&A. Onex Corporation December 31, 2016 67 M A N A G E M E N T ’ S D I S C U S S I O N A N D A N A LY S I S Table 23 shows contributions by limited partners for Onex Partners and ONCAP Funds for the years ended December 31, 2016 and 2015. Contributions by Limited Partners TABLE 23 ($ millions) Company Clarivate Analytics(i) Save-A-Lot WireCo Tecta(ii) Survitec Fund Transaction Onex Partners IV Onex Partners IV Onex Partners IV ONCAP III and IV Onex Partners IV Original investment Original investment Original investment Original investment Add-on investment Management fees, partnership expenses and other Various Various Contributions by Limited Partners (i) Includes amounts from certain limited partners and others. $ 2016 758 474 194 107 27 14 $ 1,574 (ii) Includes contributions of $26 million returned to the limited partners of ONCAP III in January 2017 from the syndication of a portion of the Tecta investment to ONCAP IV, as described on page 35 of this MD&A. Contributions by Limited Partners TABLE 23 ($ millions) Company SIG(i) Jack’s Survitec(ii) Schumacher 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. $ 2015 810 295 270 230 49 30 25 110 $ 1,819 68 Onex Corporation December 31, 2016 M A N A G E M 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 24 shows distributions made to limited partners for Onex Partners and ONCAP Funds for the years ended December 31, 2016 and 2015. Distributions to Limited Partners TABLE 24 ($ millions) Company KraussMaffei JELD-WEN(i)(ii) AIT Jack’s BBAM Cicis Meridian Aviation Other Fund Transaction Onex Partners III Onex Partners III Onex Partners IV Onex Partners IV Sale of business Distributions Distributions Repayment of promissory note Onex Partners III Distributions ONCAP II Sale of business Onex Partners III Distribution Various Various Distributions to Limited Partners (i) Includes amounts distributed to certain limited partners and others. (ii) Includes amounts received for a purchase price adjustment. Distributions to Limited Partners TABLE 24 ($ millions) Company JELD-WEN(i) Tropicana Las Vegas USI(i) ResCare Jack’s Meridian Aviation BBAM Tomkins(i) AIT(ii) PURE Canadian Gaming Other Distributions to Limited Partners Fund Transaction Onex Partners III Distribution Onex Partners III Onex Partners III Sale of business Distribution Onex Partners I and III Distribution Onex Partners IV Onex Partners III Onex Partners III Onex Partners III Onex Partners IV ONCAP II and III Various Repayments of promissory note Distributions Distributions Sale of residual assets Distributions Distribution Various 2016 $ 519 264 104 55 37 28 24 15 $ 1,046 $ 2015 270 180 130 77 75 64 37 21 13 10 11 $ 888 (i) Includes amounts distributed to certain limited partners and others. (ii) Includes amounts received for a purchase price adjustment. At December 31, 2016, total carried interest netted against the Limited Partners’ Interests for Onex Partners and ONCAP Funds in Onex’ consolidated balance sheets was $556 million (2015 – $503 million), of which Onex’ share was $197 million (2015 – $178 million). Onex Corporation December 31, 2016 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 Equity Table 25 provides a reconciliation of the change in equity Dividend policy In May 2016, Onex announced that it had increased its quar- from December 31, 2015 to December 31, 2016. Onex’ con- terly dividend by 10 percent to C$0.06875 per SVS beginning solidated statements of equity also show the changes to the with the dividend declared by the Board of Directors pay- components of equity for the year ended December 31, 2016. able in July 2016. In May 2015, Onex announced that it had Change in Equity TABLE 25 ($ millions) Balance – December 31, 2015 Dividends declared Repurchase and cancellation of shares Investments in operating companies by shareholders other than Onex Transfer of non-controlling interests to liabilities Distributions to non-controlling interests Repurchase of shares of operating companies Non-controlling interests on sale of an investment in an operating company Net loss for the year Other comprehensive loss for the year, net of tax increased its quarterly dividend by 25 percent to C$0.0625 per SVS beginning with the dividend declared by the Board of Directors payable in July 2015. $ 1,190 dend payments in U.S. dollars by submitting a completed Registered shareholders can elect to receive divi- (21) (184) 708 (97) (104) (59) (35) (36) (11) currency election form to CST Trust Company five business days before the record date of the dividend. Non-registered shareholders who wish to receive dividend payments in U.S. dollars should contact their broker to submit their currency election. Table 26 presents Onex’ dividend paid per share for the last twelve months ended December 31 during the past five years. The table reflects the increase in the dividend per share over this time. Equity as at December 31, 2016 $ 1,351 TABLE 26 ($ per share amounts) Last twelve months ended December 31: 2012 2013 2014 2015 2016 Dividend Paid Per Share C$ 0.11 C$ 0.13 C$ 0.18 C$ 0.23 C$ 0.26 Shares outstanding At December 31, 2016, Onex had 100,000 Multiple Voting Shares outstanding, which have a nominal paid-in value reflected in Onex’ consolidated financial statements. Onex also had 102,787,628 SVS issued and outstanding. Note 19 to the consolidated financial statements provides additional information on Onex’ share capital. There was no change in the Multiple Voting Shares outstanding during 2016 or in January 2017. 70 Onex Corporation December 31, 2016 M A N A G E M 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 the change in the number of SVS outstanding from December 31, 2014 to January 31, 2017. TABLE 27 ($ millions except per share amounts) Number of SVS (USD) (CAD) (USD) (CAD) Average Price Per Share Total Cost SVS outstanding at December 31, 2014 108,858,066 Shares repurchased and cancelled: Normal Course Issuer Bids Private transactions Issuance of shares: Dividend Reinvestment Plan Onex Credit transaction (2,809,877) (275,000) $ 56.99 $ 55.12 C$ 70.82 C$ 69.50 $ 160 $ 15 C$ 199 C$ 19 8,996 111,393 $ 57.67 C$ 72.36 $ 1 C$ 1 SVS outstanding at December 31, 2015 105,893,578 Shares repurchased and cancelled: Normal Course Issuer Bids Private transaction Issuance of shares: (2,114,397) (1,000,000) $ 59.04 $ 58.85 C$ 78.25 C$ 84.12 $ 125 $ 59 C$ 165 C$ 84 Dividend Reinvestment Plan 10,426 $ 62.24 C$ 82.52 $ 1 C$ 1 SVS outstanding at January 31, 2017 102,789,607 Shares repurchased and cancelled The private transactions include the repurchase of SVS that March 31, 2016. Onex may also purchase SVS from time to time under the Toronto Stock Exchange’s block purchase were held indirectly by Mr. Gerald W. Schwartz, Onex’ con- exemption, if available, or by way of private agreement trolling shareholder, as described on page 87 of this MD&A. pursuant to an issuer bid exemption order, if sought and The NCIBs enable Onex to repurchase up to received, under the new NCIB. The new NCIB commenced 10 percent of its public float of SVS during the period of on April 18, 2016 and will conclude on the earlier of the date the relevant NCIB. Onex believes that it is advantageous to on which purchases under the NCIB have been completed Onex and its shareholders to continue to repurchase Onex’ and April 17, 2017. A copy of the Notice of Intention to make SVS from time to time when the SVS are trading at prices the NCIB filed with the Toronto Stock Exchange is available that reflect a significant discount to their value as per- at no charge to shareholders by contacting Onex. ceived by Onex. Under the previous NCIB that expired on April 15, On April 18, 2016, Onex renewed its NCIB following 2016, Onex repurchased 2,963,425 SVS at a total cost of the expiry of its previous NCIB on April 15, 2016. Under the $170 million (C$217 million) or an average purchase price new NCIB, Onex is permitted to purchase up to 10 percent of of $57.39 (C$73.21) per share. In addition, during the same its public float of SVS, or 8,506,537 SVS. Onex may purchase period, Onex repurchased 1,275,000 SVS in private transac- up to 33,816 SVS during any trading day, being 25 percent of tions at a total cost of $74 million (C$103 million) or an aver- its average daily trading volume for the six months ended age purchase price of $58.04 (C$80.97) per share. Onex Corporation December 31, 2016 71 M A N A G E M E N T ’ S D I S C U S S I O N A N D A N A LY S I S Table 28 shows a summary of Onex’ repurchases of SVS for the past 10 years. Onex’ Repurchases of SVS for the Past 10 Years TABLE 28 2007 2008 2009 2010 2011 2012 2013(1) 2014(2) 2015(3) 2016(4) Total Shares Repurchased Total Cost of Shares Repurchased (in C$ millions) Average Share Price (in C$ per share) 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 3,114,397 C$ 113 101 41 52 105 24 159 163 218 249 C$ 33.81 28.89 23.04 25.44 33.27 38.59 51.81 62.98 70.70 80.14 26,309,748 C$ 1,225 C$ 46.61 (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. (4) Includes 1,000,000 SVS repurchased in a private transaction. Issuance of shares – Dividend Reinvestment Plan Onex’ Dividend Reinvestment Plan enables Canadian share- Transfer of non-controlling interests to liabilities Onex reported a decrease in consolidated equity of holders to reinvest cash dividends to acquire new SVS of $97 million for the transfer of certain shares and options Onex at a market-related price at the time of reinvestment. held by operating company management to liabilities. The During the period from January 1, 2016 to January 31, 2017, shares and options held by certain operating company Onex issued 10,426 SVS at an average cost of C$82.52 per management contain terms and conditions that require SVS, creating a cash savings of less than $1 million (less than liability classi fication and fair value remeasurement at C$1 million). each period end. Investments in operating companies by shareholders other than Onex Onex reported an increase in consolidated equity of Distributions to non-controlling interests Onex reported a decrease in equity of $104 million dur- ing 2016 primarily due to distributions to non-controlling $708 million during 2016 due to investments in operat- interests from the sale of KraussMaffei and a distribution ing companies by shareholders other than Onex, primar- by JELD-WEN. ily for: (i) the investment by Baring Private Equity Asia in Clarivate Analytics upon Onex acquiring control of Clarivate Analytics, as described on page 35 of this MD&A; (ii) the Repurchase of shares of operating companies Onex reported a decrease in equity of $59 million during value of existing shareholders of WireCo upon Onex acquir- 2016 primarily due to shares repurchased by Celestica. ing control of WireCo, as described on page 35 of this MD&A; and (iii) the rollover equity investment in Schumacher by management of ECI, as described on page 34 of this MD&A. 72 Onex Corporation December 31, 2016 M A N A G E M 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 Options issued during 2015 consisted of: (i) 10,000 options to acquire SVS with an exercise price of C$74.87 per place that provides for options and/or share appreciation share issued in March 2015; (ii) 10,000 options to acquire rights to be granted to Onex directors, officers and employ- SVS with an exercise price of C$79.79 per share issued ees for the acquisition of SVS of Onex, the parent company, in September 2015; and (iii) 885,000 options to acquire for a term not exceeding 10 years. The options vest equally SVS with an exercise price of C$81.76 per share issued in over five years, with the exception of a total of 6,775,000 November 2015. The options vest at a rate of 20 percent per options, which vest at a rate of 15 percent per year dur- year from the date of grant. ing the first four years and 40 percent in the fifth year. The In addition, in January 2015, in connection with exercise price of the options issued is at the market value of acquiring control of the Onex Credit asset management the SVS on the business day preceding the day of the grant. platform, Onex issued 60,000 options to Onex Credit’s chief Vested options are not exercisable unless the average five- executive officer to acquire SVS. The options have an exer- day market price of Onex SVS is at least 25 percent greater cise price of C$68.57 per share and vest at a rate of 20 per- than the exercise price at the time of exercise. cent per year from the date of grant. The options are subject At December 31, 2016, Onex had 12,943,183 options to the same terms and conditions as the Company’s existing outstanding to acquire SVS, of which 5,815,598 options were Stock Option Plan; however, the options are also subject to vested and exercisable. an additional performance threshold specific to the Onex Credit asset management platform. Table 29 provides information on the activity from Decem- During 2016, 509,700 options were surrendered at ber 31, 2014 to December 31, 2016. a weighted average exercise price of C$31.97 for aggregate cash consideration of $21 million (C$28 million) and Change in Stock Options Outstanding 73,650 options expired. TABLE 29 Number of Options Weighted Average Exercise Price 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$32 million) and Outstanding at December 31, 2014 12,411,542 965,000 C$ 48.88 C$ 80.85 105,150 options expired. Granted Surrendered Expired Granted Surrendered Expired Outstanding at December 31, 2015 12,628,033 (643,359) C$ 28.22 (105,150) C$ 49.50 Director Deferred Share Unit Plan During the second quarter of 2016, an annual grant of 27,712 898,500 C$ 52.37 C$ 93.40 (2015 – 29,653) DSUs was issued to directors having an aggregate value, at the date of grant, of $2 million (C$2 mil- (509,700) C$ 31.97 lion) (2015 – $2 million (C$2 million)) in lieu of that amount (73,650) C$ 59.44 of cash compensation for directors’ fees. At December 31, Outstanding at December 31, 2016 12,943,183 C$ 55.98 2016, there were 665,871 (2015 – 626,481) Director DSUs out- Options issued during 2016 consisted of: (i) 30,000 options to acquire SVS with an exercise price of C$77.83 per share issued in May 2016; and (ii) 868,500 options to acquire SVS with an exercise price of C$93.94 per share issued in December 2016. The options vest at a rate of 20 percent per year from the date of grant. standing. Onex has economically hedged 580,648 (2015 – 578,799) of the outstanding Director DSUs with a counter- party financial institution. Onex Corporation December 31, 2016 73 M A N A G E M E N T ’ S D I S C U S S I O N A N D A N A LY S I S Management Deferred Share Unit Plan In early 2016, Onex issued 44,333 Management DSUs At December 31, 2016, there were 635,326 (2015 – 684,515) MDSUs outstanding. (“MDSUs”) to management having an aggregate value, at In early 2017, Onex issued 28,671 Management the date of grant, of $3 million (C$4 million) in lieu of that DSUs (“MDSUs”) to management having an aggregate value, amount of cash compensation for Onex’ 2015 fiscal year. at the date of grant, of $2 million (C$3 million) in lieu of that In early 2015, Onex issued 116,037 MDSUs to management amount of cash compensation for Onex’ 2016 fiscal year. having an aggregate value, at the date of grant, of $7 mil- Forward agreements were entered into with a lion (C$8 million) in lieu of that amount of cash compensa- counterparty financial institution to economically hedge tion for Onex’ 2014 fiscal year. Onex’ exposure to changes in the value of all outstand- ing MDSUs. DSUs and MDSUs must be held until leaving the employment of Onex or retirement from the Board. Table 30 reconciles the changes in the DSUs and MDSUs outstanding at December 31, 2016 from December 31, 2014. Change in Outstanding Deferred Share Units TABLE 30 Outstanding at December 31, 2014 Granted Additional units issued in lieu of compensation and cash dividends Outstanding at December 31, 2015 Granted Exercised Director DSU Plan Management DSU Plan Number of DSUs Weighted Average Price Number of MDSUs Weighted Average Price 584,507 29,653 12,321 626,481 27,712 – C$ 69.01 C$ 75.80 C$ 79.30 – – C$ 68.73 – C$ 80.77 C$ 85.18 566,494 – 118,021 684,515 – (95,641) 46,452 635,326 (635,326) – Additional units issued in lieu of compensation and cash dividends 11,678 C$ 83.18 Outstanding at December 31, 2016 Hedged with a counterparty financial institution at December 31, 2016 Outstanding at December 31, 2016 – Unhedged 665,871 (580,648) 85,223 Management of capital Onex considers the capital it manages to be the amounts it • achieve an appropriate return on capital invested com- mensurate with the level of assumed risk; has in cash and cash equivalents, near-cash investments, • build the long-term value of its operating businesses; short- and long-term investments managed by third-party • control the risk associated with capital invested in any investment managers, and the investments made in the particular business or activity. All debt financing is within operating businesses and credit strategies. Onex also man- the operating businesses and each company is required ages capital from other investors in the Onex Partners, to support its own debt. Onex Corporation does not ONCAP and Onex Credit Funds. Onex’ objectives in man- guarantee the debt of the operating businesses and there aging capital are to: are no cross-guarantees of debt between the operating • preserve a financially strong parent company with businesses; and appropriate liquidity and no, or a limited amount of, • have appropriate levels of committed limited partners’ debt so that funds are available to pursue new acqui- capital available to invest along with Onex’ capital. This sitions and growth opportunities, as well as support allows Onex to respond quickly to opportunities and expansion of its existing businesses. Onex does not gen- pursue acquisitions of businesses of a size it could not erally have the ability to draw cash from its operating achieve using only its own capital. The management of businesses. Accordingly, maintaining adequate liquidity limited partners’ capital also provides management fees at the parent company is important; to Onex and the ability to enhance Onex’ returns by earn- ing a carried interest on the profits of limited partners. 74 Onex Corporation December 31, 2016 M A N A G E M 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, 2016, Onex, the parent company, had $679 million of cash on hand and $907 million of near- Non-controlling interests Non-controlling interests in equity in Onex’ consolidated cash items at fair value. Near-cash items include short- and balance sheets as at December 31, 2016 primarily represent long-term investments managed by third-party investment the ownership interests of shareholders, other than Onex managers, as described below, $376 million invested in a and its limited partners in the funds, in Onex’ controlled segregated unlevered fund managed by Onex Credit and operating companies. The non-controlling interests balance $48 million in management fees receivable from limited at December 31, 2016 of $1.8 billion increased from $1.4 bil- partners of its private equity platforms. Onex, the parent lion at December 31, 2015. The increase was primarily due to company, expects to invest $170 million in the acquisition (i) the investment by Baring Private Equity Asia in Clarivate of Parkdean Resorts, as described on page 36 of this MD&A. Analytics upon Onex acquiring control of Clarivate Analy- Onex, the parent company, has a conservative cash tics, as described on page 35 of this MD&A; (ii) the value management policy driven toward maintaining liquidity of existing shareholders of WireCo upon Onex acquiring and preserving principal in all its investments. control of WireCo, as described on page 35 of this MD&A; Beginning in the second quarter of 2015, Onex, the and (iii) the rollover equity investment in Schumacher by parent company, transferred cash and cash equivalents to management of ECI, as described on page 34 of this MD&A. accounts managed by third-party investment managers in order to increase the return on this capital while maintain- 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 ing appropriate liquidity. At December 31, 2016, the fair value of investments, including cash yet to be deployed, managed by third-party investment managers was $483 million. The Major cash flow components This section should be read in conjunction with the con- investments are managed in a mix of short-term and long- solidated statements of cash flows and the corresponding term portfolios. Short-term investments consist of liquid notes thereto. Table 31 summarizes the major consolidated investments and include money market instruments and cash flow components for the years ended December 31, commercial paper with original maturities of three months 2016 and 2015. to one year. Long-term investments consist of securities and include money market instruments, federal and munici- Major Cash Flow Components pal debt instruments, corporate obligations and structured products with maturities of one to five years. The short- and TABLE 31 ($ millions) 2016 2015 long-term investments have current Standard & Poor’s rat- Cash from operating activities ings ranging from BBB to AAA. The portfolio concentration Cash from financing activities limits range from a maximum of 10 percent for BBB invest- Cash used in investing activities $ 1,912 $ 1,880 $ 850 $ 1,652 $(2,801) $ (4,837) ments to 100 percent for AAA investments. The investments Consolidated cash and cash equivalents are managed to maintain an overall weighted average dura- held by continuing operations $ 2,371 $ 2,313 tion of two years or less. At December 31, 2016, Onex had access to $2.4 bil- lion of uncalled committed limited partner capital for acqui- sitions through Onex Partners IV ($1.7 billion) and ONCAP IV ($679 million). Onex Partners IV uncalled committed limited partner capital has subsequently decreased by $301 million for the capital called for the pending acquisi- tion of Park dean Resorts. Onex Corporation December 31, 2016 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 from operating activities Table 32 provides a breakdown of cash from operating The significant changes in non-cash working capital items for the year ended December 31, 2015 were: activities by cash generated from operations and changes • a $92 million decrease in inventory primarily at Merid- in non-cash working capital items, other operating activi- ian Aviation due to the sale of an aircraft, partially offset ties and operating activities of discontinued operations for by increases in inventory at Celestica and Flushing Town the years ended December 31, 2016 and 2015. Center; and Components of Cash from Operating Activities liabilities and other current liabilities primarily at Schu- • a $52 million decrease in accounts payable, accrued TABLE 32 ($ millions) 2016 2015 macher and Survitec. Cash generated from operations $ 2,005 $ 1,754 Cash from operating activities for the year ended Decem- Changes in non-cash working capital items: Accounts receivable Inventories Other current assets Accounts payable, accrued liabilities (447) (172) (42) (23) 92 3 ber 31, 2016 also included $38 million (2015 – $219 million) of cash flows from the operating activities of discontinued operations. Discontinued operations for the year ended December 31, 2016 represent the operations of KraussMaffei and include a portion of the gain from the sale of Sitel and other current liabilities 577 (52) Worldwide. Discontinued operations for the year ended Increase (decrease) in cash and cash equivalents due to changes in non-cash working capital items Decrease in other operating activities Cash from operating activities of (84) (47) 20 (113) discontinued operations 38 219 Cash from operating activities $ 1,912 $ 1,880 Cash generated from operations includes net earnings (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 working capital items for the year ended Decem ber 31, 2016 were: • a $447 million increase in accounts receivable primarily at Celestica, Clarivate Analytics and JELD-WEN; • a $172 million increase in inventory primarily at Celes- tica and Flushing Town Center, partially offset by de- creases in inventory at JELD-WEN, Save-A-Lot, SIG and WireCo; and • a $577 million increase in accounts payable, accrued lia- bilities and other current liabilities primarily at Celestica, Clarivate Analytics and SIG. December 31, 2015 represent the operations of KraussMaffei, Sitel Worldwide (up to September 2015) and Skilled Health- care Group (up to February 2015). Cash from financing activities Cash from financing activities was $850 million for 2016 compared to cash from financing activities of $1.7 billion for 2015. Cash from financing activities for the year ended December 31, 2016 included: • $1.6 billion of contributions received primarily from the limited partners of the Onex Partners and ONCAP Funds, as discussed under the Limited Partners’ Interest on page 67 of this MD&A; • $1.3 billion of net new long-term debt primarily from the closings of CLO-11 and CLO-12 and increases in out- standing debt at Flushing Town Center, Hopkins, JELD- WEN, Schumacher and Survitec. This was partially offset by debt repayments made by CLO-2, Carestream Health, Jack’s, ResCare, SIG and USI; and • $458 million received from Baring Private Equity Asia for the October 2016 investment in Clarivate Analytics, as described on page 35 of this MD&A. 76 Onex Corporation December 31, 2016 M A N A G E M E N T ’ S D I S C U S S I O N A N D A N A LY S I S Partially offsetting these were: • $1.2 billion of distributions primarily to the limited part- Cash used in investing activities Cash used in investing activities totalled $2.8 billion for the ners of the Onex Partners and ONCAP Funds, as dis- year ended December 31, 2016 compared to cash used in cussed under the Limited Partners’ Interests on page 67 investing activities of $4.8 billion during 2015. Cash used in of this MD&A, and distributions primarily to third-party investing activities during 2016 primarily consisted of: shareholders of JELD-WEN and KraussMaffei; • $3.1 billion used to fund investments in operating • $1.0 billion of cash interest paid; companies, which primarily related to the Onex Part- • $184 million of cash used by Onex, the parent company, ners IV Group’s investments in Clarivate Analy tics, Save- for purchases of its shares; and A-Lot and WireCo and the ONCAP Funds’ investment in • $59 million of cash used for share repurchases primarily Tecta, in addition to acquisitions completed by operating by Celestica. companies; • $1.0 billion of net purchases of investments and securi- For the year ended December 31, 2015, cash from financing ties by the CLOs and Onex Credit Funds; activities was $1.7 billion and included: • $569 million used for the purchase of property, plant and • $2.4 billion of net new long-term debt primarily from the equipment primarily at: (i) Carestream Health for capital closings of CLO-8, CLO-9 and CLO-10 and an increase in purchases for operating lease rental units and informa- outstanding debt at Celestica, JELD-WEN, Schumacher tion technology infrastructure maintenance; (ii) Celestica and USI. This was partially offset by debt repayments to enhance manufacturing capabilities and to support made by Carestream Health, Jack’s and Meridian Avia tion; new customer programs; (iii) JELD-WEN for improve- and ments and upgrades for its production machinery; and • $1.8 billion of contributions received primarily from (iv) SIG for main tenance and upgrades to existing facili- the limited partners of the Onex Partners and ONCAP ties and the con struction of new facilities and equipment; Funds, as discussed under the Limited Partners’ Interests • $163 million of cash used for the settlement of contin- on page 67 of this MD&A. gent consideration provisions primarily by SIG; and • $155 million of cash used in investing activities of discon- Partially offsetting these were: tinued operations. • $1.0 billion of distributions primarily to the limited part- ners of the Onex Partners and ONCAP Funds, as dis- Partially offsetting these were: cussed under the Limited Partners’ Interests on page 67 • $1.0 billion of proceeds from the sale of companies and of this MD&A, and distributions primarily to third-party businesses no longer controlled, primarily from the sale shareholders of JELD-WEN and USI; • $776 million of cash interest paid; of KraussMaffei; • $666 million of proceeds primarily from the sale of invest- • $435 million of cash used for share repurchases primarily ments managed by third-party investment managers for by Celestica and JELD-WEN; Onex, the parent company; • $175 million of cash used by Onex, the parent company, • $325 million of cash interest received primarily by the for purchases of its shares; and CLOs; and • $123 million of cash used in financing activities of discon- • $206 million of distributions received from invest- tinued operations. ments in joint ventures and associates, primarily from AIT and BBAM. Onex Corporation December 31, 2016 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 Cash used in investing activities totalled $4.8 billion for the Partially offsetting these were: year ended December 31, 2015 and consisted primarily of: • $525 million of proceeds from the sale of property, plant • $2.5 billion of cash used to fund investments in operat- and equipment consisting primarily of $190 million ing companies, which primarily related to the Onex Part- of proceeds from the sale of two aircraft by Meridian ners IV Group’s investments in Jack’s, Schumacher, SIG Aviation, $143 million of net proceeds received by Jack’s and Survitec; from the sale-leaseback transaction completed for cer- • $1.5 billion of net purchases of investments and securi- tain of its fee-owned restaurant properties, $128 million ties by the CLOs and Onex Credit Funds; of proceeds from the sale of substantially all of the retail • $1.2 billion of cash used by Onex, the parent company, space and adjoining parking structures of Flushing Town for purchases of short- and long-term investments by Center and $54 million of proceeds from the sale of the third-party investment managers; B.C. Sugar residual property; • $704 million of cash used for purchases of property, plant • $264 million of proceeds from the sale of investments in and equipment primarily at: (i) SIG for maintenance Sitel Worldwide and Tropicana Las Vegas; and upgrades to existing facilities and the construc- • $257 million of cash interest received; and tion of new facilities; (ii) JELD-WEN for improvements • $82 million of distributions received from AIT and BBAM. and upgrades for its production machinery; and (iii) Celestica to enhance manufacturing capabilities and to support new customer programs; and Consolidated cash resources At December 31, 2016, consolidated cash held by continu- • $120 million for the ONCAP III Group’s joint venture ing operations increased to $2.4 billion from $2.3 billion investments in ITG and Mavis Discount Tire. at December 31, 2015. The major component at Decem- ber 31, 2016 was $679 million of cash on hand at Onex, the parent company (2015 – $588 million). In addition to cash at the parent company, Onex had $907 million of near-cash items at December 31, 2016 (2015 – $1.5 billion). Near-cash items at December 31, 2016 include short- and long-term investments managed by third-party invest- ment managers, as described on page 74 of this MD&A, $376 million (2015 – $351 million) invested in a segregated unlevered fund managed by Onex Credit and $48 million in management fees receivable from limited partners of its private equity platforms. 78 Onex Corporation December 31, 2016 M A N A G E M E N T ’ S D I S C U S S I O N A N D A N A LY S I S Cash and near-cash at Onex, the parent company Table 33 provides a reconciliation of the change in cash and near-cash at Onex, the parent company, from December 31, 2015 to December 31, 2016. Change in Cash and Near-Cash at Onex, the Parent Company TABLE 33 ($ millions) Cash and near-cash on hand at December 31, 2015(a) Private equity realizations: KraussMaffei sale JELD-WEN distributions AIT distributions Cicis sale Hopkins distribution BBAM distributions Jack’s repayments of promissory note Meridian Aviation distribution Total private equity realizations Flushing Town Center distributions Private equity investments: Acquisition of Clarivate Analytics Acquisition of Save-A-Lot Acquisition of WireCo Acquisition of Tecta Add-on investment in Survitec Total private equity investments Net investment in Incline Aviation Fund Net Onex Credit activity, including investments in warehouse facilities Onex share repurchases Other, net, including dividends, management fees, operating costs and treasury income(b) Cash and near-cash on hand at December 31, 2016(a) 191 87 27 23 21 13 12 12 (419) (186) (76) (43) (8) Amount $ 2,138 386 33 (732) (13) (15) (184) (27) $ 1,586 (a) Includes $483 million (December 31, 2015 – $1.2 billion) of short- and long-term investments managed by third-party investment managers, $376 million (December 31, 2015 – $351 million) invested in a segregated Onex Credit unlevered senior secured loan strategy fund and $48 million (December 31, 2015 – nil) of management fees receivable. (b) Other includes the impact of unfavourable foreign exchange on cash. Subsequent to December 31, 2016, Onex, the parent company, received cash of $40 million, including approximately $6 million of carried interest, from the initial public offering by JELD-WEN, as described on page 37 of this MD&A, and received $5 mil- lion from the PURE Canadian Gaming distribution, as described on page 37 of this MD&A. During the first quarter of 2017, Onex, the parent company, expects to invest $170 million in the acquisition of Parkdean Resorts, as described on page 36 of this MD&A. Onex Corporation December 31, 2016 79 M A N A G E M E N T ’ S D I S C U S S I O N A N D A N A LY S I S A D D I T I O N A L U S E S O F C A S H Contractual obligations Table 34 presents the contractual obligations of Onex and its operating companies as at December 31, 2016. Contractual Obligations TABLE 34 ($ millions) Payments Due by Period Total Less than 1 year Long-term debt, without recourse to Onex(a) $ 23,244 Finance and operating leases Purchase obligations Total contractual obligations 1,873 124 $ 25,241 $ 407 403 98 $ 908 1–3 years $ 4,730 560 25 4–5 years After 5 years $ 2,950 $ 15,157 332 1 578 – $ 5,315 $ 3,283 $ 15,735 (a) Excludes debt amounts of subsidiaries held by Onex, the parent company, and debt of investments in joint ventures and associates. Amounts are gross of financing charges. In addition to the obligations in table 34, certain of Onex’ consolidated operating companies have funding obliga- Commitments At December 31, 2016, Onex and its operating companies tions related to their defined benefit pension plans. The had total commitments of $439 million. Commitments by operating companies estimate that $10 million of contri- Onex and its operating companies provided in the normal butions will be required in 2017 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 $315 million of the total commit- nies. In addition, Onex, the parent company, does not have ments in 2016 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 perfor- respect to the plans of the operating companies. mance bonds provided by certain operating companies to A breakdown of long-term debt by industry seg- various third parties, including bank guarantees. These guar- ment is provided in table 20 on page 64 of this MD&A. In antees are without recourse to Onex, the parent company. addition, notes 14 and 15 to the consolidated financial In February 2016, Onex, the parent company, com- statements provide further disclosure on long-term debt mitted to investing $75 million in Incline Aviation Fund, and lease commitments. Our consolidated operating com- an aircraft investment fund to be managed by BBAM and panies currently believe they have adequate cash from focused on investments in contractually leased commer- operations, cash on hand and borrowings available to them cial jet aircraft. At December 31, 2016, Onex had uncalled to meet anticipated debt service requirements, capital commitments of $60 million to Incline Aviation Fund. In expenditures and working capital needs. There is, however, February 2017, Mr. Gerald W. Schwartz, who is Onex’ con- no assurance that our consolidated operating companies trolling shareholder, assumed $25 million of Onex’ com- will generate sufficient cash flow from operations or that mitment, reducing the amount committed by Onex to future borrowings will be available to enable them to grow investing in Incline Aviation Fund to $50 million. their business, service all indebtedness or make antici- In addition, commitments at December 31, 2016 pated capital expenditures. include $1.7 billion (£1.4 billion) related to the pending acquisition of Park dean Resorts, as discussed on page 36 of this MD&A. 80 Onex Corporation December 31, 2016 M A N A G E M E N T ’ S D I S C U S S I O N A N D A N A LY S I S Onex’ commitment to the Funds Onex, the parent company, is the largest limited partner Pension plans Six (2015 – five) of Onex’ operating companies have defined in each of the Onex Partners and ONCAP Funds. Table 35 benefit pension plans, including Carestream Health, Celes- presents the commitment and the uncalled committed tica, Clarivate Analytics, JELD-WEN, SIG and Survitec. At capital of Onex, the parent company, in these funds at Decem ber 31, 2016, the defined benefit pension plans at December 31, 2016. Commitment and Uncalled Committed Capital of Onex, the Parent Company, at December 31, 2016 TABLE 35 ($ millions) Fund Size Onex’ Commitment Onex’ Uncalled Committed Capital(a) Onex Partners I Onex Partners II Onex Partners III Onex Partners IV ONCAP II ONCAP III(d) ONCAP IV $ 1,655 $ 3,450 $ 4,700 $ 5,660 C$ C$ 574 800 $ 1,107 $ 400 $ 1,407 $ 1,200 $ 1,700 C$ C$ $ 252 252 480 $ 20 (b) $ 158 (b) $ 121 $ 657(c) C$ 1 (b) C$ 36 $ 455 (a) Onex’ uncalled committed capital is calculated based on the assumption that all of the remaining limited partners’ commitments are invested. these operating companies had combined assets of $1.4 bil- lion (2015 – $1.4 billion) against combined obligations of $1.6 billion (2015 – $1.6 billion), with a net deficit of $167 mil- lion (2015 – $151 million). A surplus in any plan is not avail- able to offset deficiencies in others. Onex, the parent company, does not have a pen- sion plan and has no obligation to the pension plans of its operating companies. The operating companies with sig- nifi cant defined benefit pension plans are described below. At December 31, 2016, Carestream Health’s defined benefit pension plans were in an underfunded position of approximately $83 million (2015 – $72 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 $1 million in 2017 to its defined benefit pension plans, and it does not believe that future pension contributions will (b) Uncalled committed capital for Onex Partners I and II and ONCAP II is available materially impact its liquidity. only for possible future funding of partnership expenses. (c) The principal repayments of the promissory note by Jack’s, as described on page 33 of this MD&A, increased the uncalled commitments for the Onex Partners Funds. (d) Onex’ commitment has been reduced for the annual commitment for Onex management’s participation. At December 31, 2016, Celestica’s defined benefit pension plans were overfunded on a net basis by $52 mil- lion (2015 – $38 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 $2 million of contributions will be required for its defined benefit pension plans in 2017 based on the most recent actuarial valuations. Onex Corporation December 31, 2016 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 At December 31, 2016, JELD-WEN’s defined benefit pension plans were in an underfunded position of approxi- mately $127 million (2015 – $117 million). The company’s pension plan assets are broadly diversified in equity and debt securities, as well as other investments. JELD-WEN TABLE 36 ($ millions) estimates that no contributions will be required for its defined benefit pension plans in 2017. Onex Partners I Onex Partners II At December 31, 2016, SIG’s defined benefit pen- Onex Partners III sion plans were in an overfunded position of approximately Onex Partners IV $10 million (2015 – $9 million). The company’s pension plan assets are broadly diversified in equity and debt invest- ment funds, as well as other investments. SIG estimates that $5 million of contributions will be required for its defined benefit pension plans in 2017. ONCAP II ONCAP III ONCAP IV Private Equity Funds’ Uncalled Limited Partners’ Committed Capital, at December 31, 2016 Available Uncalled Committed Capital (excluding Onex) (a) $ $ $ 65 (b) 241 (b) 382 $ 1,674 (c) C$ C$ 2 (d) 86 (e) $ 679 (a) Includes committed amounts from the management of Onex and ONCAP and directors, calculated based on the assumption that all of the remaining At December 31, 2016, Survitec’s defined benefit limited partners’ commitments are invested. pension plans were in an underfunded position of approxi- (b) Uncalled committed capital for Onex Partners I and II is available only for mately $10 million (2015 – $8 million). The company’s pen- sion plan assets are broadly diversified in equity and debt securities, as well as other investments. Survitec estimates that $1 million of contributions will be required for its defined benefit pension plans in 2017. A D D I T I O N A L S O U R C E S O F C A S H Private equity funds Onex’ private equity funds provide capital for Onex- sponsored acquisitions that are not related to Onex’ oper- ating companies that existed prior to the formation of the funds. The funds provide a substantial pool of committed capital, which enables Onex to be flexible and timely in responding to investment opportunities. Table 36 provides a summary of the remaining commit- ments available from limited partners at December 31, 2016. The remaining commitments for Onex Partners IV and ONCAP IV will be used for future Onex-sponsored acquisi- tions. The remaining commitments from limited partners of Onex Partners I and II are for future funding of partner- ship expenses. The remaining commitments from limited partners of ONCAP II are for possible future funding of management fees and partnership expenses. The remain- ing commitments from limited partners of Onex Partners III and ONCAP III are for possible future funding of remain- ing businesses and future funding of management fees and partnership expenses. 82 Onex Corporation December 31, 2016 possible future funding of partnership expenses. (c) The principal repayments of the promissory note by Jack’s, as described on page 33 of this MD&A, increased the uncalled commitments for the Onex Partners Funds. (d) Uncalled committed capital for ONCAP II is available only for possible future funding of management fees and partnership expenses. (e) Uncalled committed capital for ONCAP III includes bridge financing for the investment in Tecta that was returned to limited partners in January 2017. The committed amounts from the limited partners are not included in Onex’ consolidated cash and are funded as capital is called. During 2003, Onex raised its first large-cap fund, Onex Part- ners I, with $1.655 billion of committed capital, including committed capital of $400 million from Onex. Since 2003, Onex Partners I has completed 10 investments, invest- ing $1.5 billion, including Onex. While Onex Partners I has concluded its investment period, the fund still has uncalled limited partners’ committed capital of $65 million for pos- sible future funding of partnership expenses. In January 2015, with the approval of a majority in interest of the lim- ited partners, the term of Onex Partners I was extended to February 4, 2016. In connection with this extension, the management fee was reduced to 1 percent of net funded commitments relating to Onex Partners I’s investment in ResCare only. Further, in January 2016, with the approval of a majority in interest of the limited partners, the term of Onex Partners I was extended to February 4, 2017, and in January 2017 the term was extended to February 4, 2019. As a result of the extension in January 2016, management fees will no longer be earned for Onex Partners I as of February 4, 2016. M A N A G E M E N T ’ S D I S C U S S I O N A N D A N A LY S I S During 2006, Onex raised its second large-cap fund, Onex and for management fees and partnership expenses. Onex Partners II, a $3.45 billion private equity fund, including Partners IV uncalled committed limited partner capital has committed capital of $1.4 billion from Onex. Onex Part- subsequently decreased by $301 million for the capital ners II has completed seven investments, investing $2.9 bil- called for the pending acquisition of Parkdean Resorts. lion, including Onex. While Onex Partners II has concluded its investment period, at December 31, 2016, the fund still has During 2006, Onex raised its second mid-market fund, uncalled limited partners’ committed capital of $241 mil- ONCAP II, a C$574 million private equity fund, includ- lion for possible future funding for Onex Partners II’s part- ing a commitment of C$252 million from Onex. ONCAP II nership expenses. In July 2016, the term of Onex Partners II has completed eight investments, investing C$483 mil- was extended to August 1, 2017. lion, including Onex. At December 31, 2016, this fund had uncalled committed limited partners’ capital of C$2 mil- During 2009, Onex completed fundraising for its third large- lion for possible future funding for ONCAP II’s management cap private equity fund, Onex Partners III, a $4.7 billion pri- fees and partnership expenses. In May 2015, the term of vate equity fund. Onex’ commitment to Onex Partners III ONCAP II was extended for one year to November 22, 2016. has been $1.2 billion for new investments completed since In October 2016, the term of the Partnership was further May 15, 2012. Onex Partners III has completed 10 invest- extended for a second year to November 22, 2017. ments, investing $4.2 billion, including Onex. The amount invested includes capitalized costs. While Onex Partners III During 2011, Onex raised its third mid-market private has concluded its investment period, at December 31, 2016, equity fund, ONCAP III, an C$800 million private equity the fund had uncalled limited partners’ committed capital fund, including committed capital of C$252 million from of $382 million for possible future funding for any of Onex Onex. ONCAP III has completed eight investments, invest- Partners III’s remaining businesses and for management ing C$632 million, including Onex. While ONCAP III has fees and partnership expenses. concluded its investment period, at December 31, 2016, the fund had uncalled limited partners’ committed capital During 2014, Onex completed fundraising for its fourth of C$86 million for possible future funding for any of large-cap private equity fund, Onex Partners IV, a $5.2 bil- ONCAP III’s remaining businesses and for management lion private equity fund. Onex’ initial commitment to the fees and partnership expenses. Uncalled committed capi- fund was $1.2 billion. In June 2015, Onex increased its com- tal at December 31, 2016 includes bridge financing for the mitment to the fund by $500 million to $1.7 billion. The investment in Tecta that was returned to limited partners in increased commitment was applied to new Onex Part- January 2017. ners IV investments completed after June 3, 2015 and did not change Onex’ ownership of businesses acquired prior In November 2016, Onex raised its fourth mid-market pri- to that date. The investment in Jack’s, in July 2015, was the vate equity fund, ONCAP IV, reaching aggregate commit- first investment to reflect Onex’ increased commitment. At ments of $1.1 billion, including Onex’ commitment of December 31, 2016, Onex Partners IV had completed eight $480 million. ONCAP IV has completed one investment, investments, investing $3.4 billion, including Onex. The investing $62 million, including Onex. At December 31, amount invested includes capitalized costs. At December 31, 2016, ONCAP IV had uncalled limited partners’ committed 2016, Onex Partners IV had $1.7 billion of uncalled limited capital of $679 million available for future investments and partners’ committed capital available for future investments for management fees and partnership expenses. Onex Corporation December 31, 2016 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 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 37. TABLE 37 Management Investment Plan(i) Carried Interest Participation – Onex Partners(ii) Minimum Stock Price Appreciation/ Return Threshold 15% Compound Return 8% Compound Return Carried Interest Participation – ONCAP(ii) 8% Compound Return Stock Option Plan(iii) 25% Price Appreciation Management DSU Plan(iv) n/a Director DSU Plan(v) n/a 84 Onex Corporation December 31, 2016 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 Fully vested ONCAP IV Vests equally over 5 years ending in November 2021 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 • 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 • satisfaction of exercise price (market value at grant date) 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 M A N A G E M 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 25 percent of the realized net gains of the limited partners Onex has an MIP that requires its management members in ONCAP IV, equating to a 15 percent carried interest for to invest in each of the operating businesses acquired or ONCAP management 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 realiza- or investment. An amount invested in an Onex Partners tions occur. The ultimate amount of carried interest earned acquisition under the fund’s investment requirement (dis- will be based on the overall performance of each fund, cussed below) also applies toward the 1.5 percent invest- independently, and includes typical catch-up and claw- ment requirement under the MIP. back provisions 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 38 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, 2016. 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 38 ($ millions) has vesting requirements, certain limitations and voting requirements. During 2016, management received $7 million under the MIP (2015 – $4 million). Notes 1 and 31 to the consolidated financial statements provide additional details on the MIP. In addition, management of ONCAP has an incen- tive program related to Onex’ co-investment in ONCAP operating companies. 2011 and prior years 2012 2013 2014 2015 2016 Total Carried Interest Received $ 237 3 75 171 1 14 $ 501 (ii) Carried interest participation During 2016, Onex, the parent company, received carried interest totalling $14 million primarily related to the sale of The General Partners of the Onex Partners and ONCAP KraussMaffei. Onex has the potential to receive $197 mil- Funds, which are controlled by Onex, are entitled to a lion of carried interest on its businesses in the Onex carried interest of 20 percent on the realized net gains of Partners Funds based on their fair values determined at the limited partners in each fund, subject to an 8 percent Decem ber 31, 2016. compound annual preferred return to those limited part- During the year ended December 31, 2015, Onex, the ners on all amounts contributed in each particular fund. parent company, realized carried interest of $1 million asso- Onex, as sponsor of the Onex Partners Funds, is entitled ciated with residual proceeds on investments sold in 2015. to 40 percent of the carried interest realized in the Onex Partners Funds. Onex management is allocated 60 percent During the year ended December 31, 2016, management of the carried interest realized in the Onex Partners Funds. of Onex and ONCAP received carried interest totalling ONCAP management is entitled to that portion of the car- $24 million primarily related to the sale of KraussMaffei. ried interest realized in the ONCAP Funds that equates Management of Onex and ONCAP has the potential to to a 12 percent carried interest on both limited partners’ receive $366 million of carried interest on businesses in and Onex’ capital. Once the ONCAP IV investors achieve a the Onex Partners and ONCAP Funds based on their values return of two times their aggregate capital contributions, determined at December 31, 2016. carried interest participation increases from 20 percent to Onex Corporation December 31, 2016 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 During the year ended December 31, 2015, man- MDSUs are redeemable only for cash and no shares or other agement of Onex and ONCAP received carried interest securities of Onex will be issued on the exercise, redemp- totalling $3 million associated with residual proceeds on tion or other settlement thereof. Table 30 on page 74 of this investments sold prior to 2015. MD&A provides details of the change in the MDSUs out- standing during 2016 and 2015. (iii) Stock Option Plan Onex, the parent company, has a Stock Option Plan in place (v) Director Deferred Share Unit Plan that provides for options and/or share appreciation rights Onex, the parent company, established a Director Deferred to be granted to Onex directors, officers and employees for Share Unit Plan (“DSU Plan”) in 2004, which allows Onex the acquisition of SVS of Onex, the parent company, for a directors to apply directors’ fees to acquire DSUs based on term not exceeding 10 years. The options vest equally over the market value of Onex shares at the time. Grants of DSUs five years, with the exception of a total of 6,775,000 options, may also be made to Onex directors from time to time. which vest at a rate of 15 percent per year during the first Holders of DSUs are entitled to receive for each DSU, upon four years and 40 percent in the fifth year. The price of the redemption, a cash payment equivalent to the market value options issued is at the market value of the SVS on the busi- of an SVS at the redemption date. The DSUs vest immedi- ness day preceding the day of the grant. Vested options ately, are only redeemable once the holder retires from the are not exercisable unless the average five-day market Board of Directors and must be redeemed by the end of the price of Onex SVS is at least 25 percent greater than the year following the year of retirement. Additional units are exercise price at the time of exercise. Table 29 on page 73 issued equivalent to the value of any cash dividends that of this MD&A provides details of the change in the stock would have been paid on the SVS. To hedge Onex’ exposure options outstanding at December 31, 2016 and 2015. to changes in the trading price of Onex shares associated (iv) Management Deferred Share Unit Plan forward agreements with a counterparty financial institu- Effective December 2007, a Management Deferred Share tion for a portion of the grants under the Director DSU Plan. Unit Plan (“MDSU Plan”) was established as a further Table 30 on page 74 of this MD&A provides details of the means of encouraging personal and direct economic inter- change in the DSUs outstanding during 2016 and 2015. with the Director DSU Plan, the Company has entered into ests by the Company’s senior management in the perfor- mance of the SVS. Under the MDSU Plan, the members of the Company’s senior management team are given the Onex management team investments in Onex’ Funds The Onex management team invests meaningfully in each opportunity to designate all or a portion of their annual operating business acquired by the Onex Partners and compensation to acquire MDSUs based on the market ONCAP Funds and in strategies managed by Onex Credit. value of Onex shares at the time in lieu of cash. MDSUs vest The structure of the Onex Partners and ONCAP immediately but are redeemable by the participant only Funds requires the management of Onex Partners and after he or she has ceased to be an officer or employee of ONCAP Funds to invest a minimum of 1 percent in all the Company or an affiliate for a cash payment equal to acquisitions, with the exception of Onex Partners IV and the then current market price of SVS. Additional units are ONCAP IV, which require a minimum 2 percent invest- issued equivalent to the value of any cash dividends that ment in all acquisitions. This investment represents the would have been paid on the SVS. To hedge Onex’ expo- minimum “at risk” equity investment on which the man- sure to changes in the trading price of Onex shares associ- agement of Onex and ONCAP earn carried interest, as ated with the MDSU Plan, the Company enters into forward described on page 85 of this MD&A. 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. 86 Onex Corporation December 31, 2016 M A N A G E M 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 Onex management team and directors have committed to invest 4 percent of the total capital invested Repurchase of shares In January 2016, Onex repurchased in a private transaction by Onex Partners IV for new investments completed in 2017, 1,000,000 of its SVS that were held indirectly by Mr. Gerald including the minimum “at risk” equity investment. The W. Schwartz, Onex’ controlling shareholder. The private Onex management team and directors have committed to transaction was approved by the disinterested directors of invest 10 percent of the total capital invested by ONCAP IV the Board of Directors of the Company. The shares were for new investments completed in 2017, including the mini- repurchased at C$84.12 per SVS, or a total cost of $59 mil- mum “at risk” equity investment. The Onex management lion (C$84 million), which represents a slight discount to team and directors invest in any add-on investments in the trading price of Onex shares at that date. existing businesses pro-rata with their initial investment in the relevant business. The total amount invested in 2016 by the Onex Tax loss transaction During 2016, Onex sold entities, the sole assets of which were management team and directors in acquisitions and certain tax losses, to companies controlled by Mr. Gerald W. investments completed through the Onex Partners and Schwartz, who is also Onex’ controlling shareholder. As a ONCAP Funds was $142 million (2015 – $142 million). result of this transaction, Onex recorded a gain of $14 mil- In addition, the Onex management team may lion (2015 – $11 million) in other expense (income) in 2016. invest in Onex Credit strategies. At December 31, 2016, A discussion of these transactions is included on page 60 investments at market held by the Onex management team of this MD&A. In connection with these transactions, in Onex Credit strategies were approximately $275 million Deloitte LLP, an independent accounting firm retained by (2015 – approximately $275 million). Onex’ Audit and Corporate Governance Com mittee, pro- vided an opinion that the value received by Onex for the Investment in Onex shares and other investments In 2006, Onex adopted a program designed to further align tax losses was fair from a financial point of view. The trans- actions were unanimously approved by Onex’ Audit and the interests of the Company’s senior management and Corporate Governance Committee, all the members of other investment professionals with those of Onex share- which are independent directors. 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 Management fees Onex receives management fees on limited partner capi- 7.5 percent gain allocated under the MIP and the Onex tal through its private equity platforms, Onex Partners and Partners’ carried interest in Onex SVS and/or Management ONCAP Funds, from Onex Credit Funds and CLOs and DSUs until they individually hold at least 1,000,000 Onex directly from certain of its operating businesses. As Onex SVS and/or Management DSUs. Under this program, dur- consolidates the Onex Partners, ONCAP, CLOs and cer- ing 2016 Onex management reinvested C$5 million (2015 – tain Onex Credit Funds, the management fees received in C$1 million) in the purchase of SVS. respect of limited partner capital represent related party Members of management and the Board of Direc- transactions. tors of Onex can invest limited amounts in partnership During the initial fee period of the Onex Partners with Onex in all acquisitions outside the Onex Partners and and ONCAP Funds, Onex receives a management fee based ONCAP Funds, including co-investment opportunities, at on limited partners’ committed capital to each fund. At the same time and cost as Onex and other outside inves- December 31, 2016, the management fees of Onex Part- tors. During 2016, less than $1 million (2015 – $5 million) ners IV and ONCAP IV are determined based on limited in investments were made by the Onex management team partners’ committed capital. and directors in Incline Aviation Fund and Onex Real Estate Partners’ investments. Onex Corporation December 31, 2016 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 Following the termination of the initial fee period, Onex becomes entitled to a management fee based on lim- Debt of operating companies Onex’ practice is not to guarantee the debt of its operat- ited partners’ net funded commitments. In August 2016, the ing companies, and there are no cross-guarantees between commitment period of ONCAP III ended with the invest- operating companies. Onex may hold debt as part of ment in Tecta, and as a result, Onex’ entitlement to man- its investment in certain operating companies, which agement fees changed from being based on 2.00 percent of amounted to $319 million at December 31, 2016 compared committed capital to being based on 1.50 percent of limited to $395 million at December 31, 2015. Note 14 to the con- partner net funded commitments. At December 31, 2016, solidated financial statements provides information on the the management fees of Onex Partners III and ONCAP II debt of operating companies held by Onex. and III are determined based on their limited partners’ net funded commitments. As realizations occur in these funds, the management fees calculated based on limited partners’ Related party transaction with Celestica In July 2015, Celestica entered into an agreement of pur- net funded commitments will decline. chase and sale to sell certain of its real property to a special- In November 2016, Onex raised $1.1 billion of purpose entity to be formed by a consortium of three real capital commitments from limited partners for ONCAP IV, estate developers (the “Property Purchaser”) for approxi- including Onex’ commitment of $480 million. Onex earns mately $101 million (C$137 million), exclusive of taxes and annual management fees of 2.0 percent on capital com- subject to adjustment. The proceeds to Celestica consist of mitted by limited partners of ONCAP IV, starting in early a C$15 million deposit that was received upon execution of November 2016. the agreement, C$54 million upon closing and C$68 million During 2016, Onex elected to defer further cash in the form of an interest-free, first-ranking mortgage hav- receipt of management fees from limited partners of its ing a term of two years from the closing date. The transac- private equity funds until the later stages of each fund’s tion is subject to various conditions, including municipal life. At December 31, 2016, $48 million of management fees approvals, and is currently expected to close within approx- were receivable from the limited partners of the private imately two years from the execution date of the purchase equity funds. and sale agreement. Onex Credit earns management fees on $6.6 bil- Approximately 30 percent of the interests in the lion of fund investor capital as of December 31, 2016, which Property Purchaser are to be held by a private entity in is invested in a variety of investment strategies focused on which Mr. Gerald W. Schwartz, who is Onex’ controlling event-driven, long/short, long-only, par, stressed and dis- shareholder and a director of Celestica (until December 31, tressed opportunities as well as its CLOs. The management 2016), has a material interest. Mr. Schwartz also has a non- fees range from 0.50 percent to 2.00 percent on the capital voting interest in an entity which is to have an approximate invested in Onex Credit Funds and up to 0.50 percent on 25 percent interest in the Property Purchaser. Celestica the capital invested in its CLOs. formed a Special Committee, consisting solely of indepen- dent directors, to review and supervise the competitive Incentive fees Onex Credit is entitled to incentive fees on $6.4 billion of bidding process. The bid of the Property Purchaser was approved by Celestica’s board of directors, at a meeting at fund investor capital it manages as of December 31, 2016, which Mr. Schwartz was not present, based on the unani- where applicable. Incentive fees range between 5 percent mous recommendation of the Special Committee. Onex, the and 20 percent. Certain incentive fees (including incen- parent company, is not participating in this transaction. tive fees on CLOs) are subject to a hurdle or minimum preferred return to investors. Onex acquired control of the Onex Credit asset management platform in January 2015. As such, beginning in January 2015, incentive fees earned by Onex Credit are entirely attributable to Onex for accounting purposes. 88 Onex Corporation December 31, 2016 M A N A G E M E N T ’ S D I S C U S S I O N A N D A N A LY S I S D I S C L O S U R E C O N T R O L S A N D P R O C E D U R E S A N D I N T E R N A L C O N T R O L S O V E R F I N A N C I A L R E P O R T I N G Limitation on scope of design Management has limited the scope of the design of internal controls over financial reporting and disclosure controls and procedures to exclude the controls, policies and procedures The Chief Executive Officer and the Chief Financial Officer of Clarivate Analytics (acquired in October 2016) and Save- have designed, or caused to be designed under their super- A-Lot (acquired in December 2016), the operating results of vision, internal controls over financial reporting to provide which are included in the December 31, 2016 consolidated reasonable assurance regarding the reliability of financial financial statements of Onex. The scope limitation is in reporting and the preparation of financial statements for external purposes in accordance with IFRS. The Chief Executive Officer and the Chief Financial Officer have also designed, or caused to be designed under their supervi- accordance with Section 3.3 of National Instrument 52-109, Certification of Disclosure in Issuer’s Annual and Interim Filings, which allows an issuer to limit its design of internal controls over financial reporting and disclosure controls and sion, disclosure controls and procedures to provide reason- procedures to exclude the controls, policies and procedures able assurance that information required to be disclosed of a company acquired not more than 365 days before the by the Company in its corporate filings has been recorded, end of the financial period to which the certificate relates. processed, summarized and reported within the time peri- ods specified in securities legislation. Table 39 shows a summary of the financial information A control system, no matter how well conceived for Clarivate Analytics and Save-A-Lot, which is included and operated, can provide only reasonable, not absolute, in the December 31, 2016 consolidated financial statements assurance that its objectives are met. Due to inherent limi- of Onex. tations in all such systems, no evaluations of controls can provide absolute assurance that all control issues, if any, within a company have been detected. Accordingly, our TABLE 39 ($ millions) Clarivate Analytics Save-A-Lot internal controls over financial reporting and disclosure Year ended December 31, 2016 controls and procedures are effective in providing reason- able, not absolute, assurance that the objectives of our Revenue Net loss control systems have been met. As at December 31, 2016 Current assets Non-current assets Current liabilities Non-current liabilities $ $ 202 137 $ $ 324 19 $ 531 $ 3,676 $ 636 $ 2,076 $ 439 $ 1,256 $ $ 323 731 Onex Corporation December 31, 2016 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 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 to nesses and the acquisition of new businesses. Each year, seek additional equity in the public markets in order to con- detailed reviews are conducted of many opportunities to tinue its growth without eroding its balance sheet. One ele- purchase either new businesses or add-on acquisitions for ment of this approach may be to use new equity investment, existing businesses. Onex’ primary interest is in acquiring when financial markets are favourable, to prepay existing well-managed companies with a strong position in growing debt and absorb related penalties. Some of the strategies industries. In addition, diversification among Onex’ operat- and policies to manage business risk at Onex and its operat- ing businesses enables Onex to participate in the growth ing 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 representing An acquired company is not burdened with more more than 11 percent of its capital. The table in note 34 to debt than it can likely sustain, but rather is structured so the consolidated financial statements provides informa- that it has the financial and operating leeway to maxi- tion 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. 90 Onex Corporation December 31, 2016 M A N A G E M 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 in a position to support its operating businesses when and an exclusive basis. However, we also participate in large if it is appropriate and reasonable for Onex, as an equity acquisitions through investment bank-led auction processes owner with paramount duties to act in the best interests of with multiple potential purchasers. These processes are Onex shareholders, to do so. Maintaining sufficient liquidity often very competitive for the large-scale acquisitions that is important because Onex, as a holding company, generally are Onex’ primary interest, and the ability to make knowl- does not have guaranteed sources of meaningful cash flow edgeable, timely investment commitments is a key compo- other than management fees. The $150 million in run-rate nent in successful purchases. In such instances, the vendor management fees that are expected to be earned by Onex often establishes a relatively short time frame for Onex to Partners, ONCAP and Onex Credit in 2017 will be used to respond definitively. In order to improve the efficiency of substantially offset the costs of running the parent company. Onex’ internal processes on both auction and exclusive A significant portion of the purchase price for acquisition processes, and so reduce the risk of missing out new acquisitions is generally funded with debt provided on high-quality acquisition opportunities, Onex has com- by third-party lenders. This debt, sourced exclusively on mitted pools of capital from limited partner investors with the strength of the acquired company’s financial condition the Onex Partners and ONCAP Funds. As at December 31, and prospects, is debt of the acquired company at closing 2016, Onex Partners IV had $1.7 billion of undrawn commit- and is without recourse to Onex, the parent company, or ted limited partners’ capital and ONCAP IV had $679 million to its other operating companies or partnerships. The fore- of such undrawn capital. Onex Partners IV uncalled commit- most consideration, however, in developing a financing ted limited partner capital has subsequently decreased by structure for an acquisition is identifying the appropriate $301 million for the capital called for the pending acquisi- amount of equity to invest. In Onex’ view, this should be tion of Parkdean Resorts. the amount of equity that maximizes the risk/reward equa- In November 2016, ONCAP IV raised $1.1 billion of tion for both shareholders and the acquired company. In committed limited partners’ capital, exceeding the $1.0 bil- other words, it allows the acquired company to not only lion target. The ability to raise new capital commitments is manage its debt through reasonable business cycles but dependent on the fundraising environment generally and also to have sufficient financial latitude for the business to the track record Onex has achieved with the investment vigorously pursue its growth objectives. and management of prior funds. To date, Onex has a strong While Onex seeks to optimize the risk/reward track record of investing other investors’ capital and most equation in all acquisitions, there is the risk that the investors in the original Onex Partners and ONCAP Funds acquired company will not generate sufficient profitability have committed to invest in the successor funds that have or cash flow to service its debt requirements and/or meet been established. related debt covenants or provide adequate financial Capital commitment risk The limited part- flexibility for growth. In such circumstances, additional ners in the Onex Partners and ONCAP Funds comprise a investment by the equity partners, including Onex, may be relatively small group of high-quality, primarily institu- appropriate. In severe circumstances, the recovery of Onex’ tional, investors. To date, each of these investors has met equity and any other investment in that operating com- its commitments on called capital, and Onex has received pany is at risk. no indications that any investor will be unable to meet its commitments in the future. While Onex’ experience with 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, 2016 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 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, 2016, excluding Onex Credit CLOs, approxi- Company policy that neither Onex nor its operating com- mately 42 percent (2015 – 45 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 decline 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 (or EBITDA) ment may not be able to meet its commitments. Guidelines and the ratio of operating income (or EBITDA) to interest are in place that specify the nature of the financial institu- costs. It is Onex’ practice to not burden acquired companies tions that operating companies can deal with on interest with levels of debt that might put at risk their ability to gen- rate contracts. erate sufficient levels of profitability or cash flow to service The Onex Credit CLOs are exposed to interest rate their debts – and thereby meet their related debt covenants – risk on the debt issued by each CLO as substantially all or which might hamper their 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’ refinancings will investments managed by third-party investment manag- take place in 2019 and thereafter. Table 21 on page 67 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, 2016, Onex’ short- and long-term investments Interest rate risk An important element in con- included $348 million of fixed income securities measured trolling risk is to manage, to the extent reasonable, the at fair value, which are subject to interest rate risk. These impact of fluctuations in interest rates on the debt of the securities had a weighted average duration of 1.3 years. operating company. Other factors, including general economic and political Onex’ operating companies generally seek to fix conditions, may also affect the value of fixed income securi- the interest on some of their term debt or otherwise mini- ties. These risks are monitored on an ongoing basis and the mize the effect of interest rate increases on a portion of short- and long-term investments may be repositioned in their debt at the time of acquisition. This is achieved by response to changes in market conditions. 92 Onex Corporation December 31, 2016 M A N A G E M 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’ operat- Commodity price risk Certain Onex operating companies are vulnerable to price ing companies, is the U.S. dollar. Onex’ investments in oper- fluctuations in major commodities. Individual operat- ating companies that have a functional currency other than ing companies may use financial instruments to offset the the U.S. dollar or companies with global operations increase impact of anticipated changes in commodity prices related Onex’ exposure to changes in many currency exchange to the conduct of their businesses. rates. In addition, a number of the operating companies In particular, silver is a significant commodity conduct business outside the United States and as a result used in Carestream Health’s manufacturing of x-ray film. are exposed to currency risk on the portion of business that The company’s management continually monitors move- is not based on the U.S. dollar. Fluctuations in the value ments and trends in the silver market and enters into collar of the U.S. dollar relative to these other currencies impact and forward agreements when considered appropriate to Onex’ reported results and consolidated financial position. mitigate some of the risk of future price fluctuations, gen- Onex’ operating companies may use currency derivatives erally for periods of up to a year. in the normal course of business to hedge against adverse Additionally, resin and aluminum are significant fluctuations in key operating currencies, but speculative commodities used by SIG. The company generally pur- activity is not permitted. Additionally, where possible, Onex chases commodities at spot market prices and actively uses and its operating companies aim to reduce the exposure derivative instruments to hedge the exposure in relation to foreign currency fluctuations through natural hedges by to the cost of resin (and its components) and aluminum. 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 the exposure to the price fluctuations of Onex’ results are reported in U.S. dollars, and the commodities over that period. fluctuations in the value of the U.S. dollar relative to other Rod, polymers and synthetic fibres are significant currencies will have an impact on Onex’ reported results commodities used by WireCo in its manufacturing opera- and consolidated financial position. During 2016, Onex’ tions, in addition to certain energy sources, principally equity balance reflected a $2 million increase in the value electricity, natural gas and propane. The company moni- of Onex’ equity for the translation of its operations with tors the cost of raw materials and passes along price non-U.S. dollar functional currencies (2015 – decrease of increases and decreases accordingly. The company does $268 million). not enter into commodity contracts to manage the expo- Fair value changes The fair value measurements sure on forecasted purchases of raw materials. for investments in joint ventures and associates, Limited Partners’ Interests and carried interest are primarily driven by the underlying fair value of the investments in the Onex Regulatory risk Certain of Onex’ operating companies and investment Partners and ONCAP Funds. A change to a reasonably pos- advisor affiliates may be subject to extensive government sible alternative estimate and/or assumption used in the regulations and oversight with respect to their business valuation of non-public investments in the Onex Partners activities. Failure to comply with applicable regulations, and ONCAP Funds could have a significant impact on the obtain applicable regulatory approvals or maintain those fair values calculated for investments in joint ventures and approvals may subject the applicable operating company associates, Limited Partners’ Interests and carried interest, to civil penalties, suspension or withdrawal of any regula- which would impact both Onex’ financial condition and tory approval obtained, injunctions, operating restrictions results of operations. and criminal prosecutions and penalties, which could, individually or in the aggregate, have a material adverse effect on Onex’ consolidated financial position. Onex Corporation December 31, 2016 93 M A N A G E M 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 Political uncertainty Recent global political events in a number of countries have to acquire what we consider to be “platform” companies. resulted in increased uncertainty on aspects of the busi- Such companies often have distinct competitive advantages ness, operations or financial affairs of some of the busi- in products or services in their respective industries that nesses in which Onex is invested. The impact of those events provide a solid foundation for growth in scale and value. In and ongoing or future developments cannot be known or these instances, Onex works with company management quantified at this time and may or may not have a material to identify attractive add-on acquisitions that may enable effect on Onex’ consolidated financial position. the platform company to achieve its goals more quickly and successfully than by focusing solely on the development and/or diversification of its customer base, which is known Significant customers Some of Onex’ major acquisitions have been divisions of as organic growth. Growth by acquisition, however, may large companies. As part of these purchases, the acquired carry more risk than organic growth. While as many of these company has often continued to supply its former owner risks as possible are considered in the acquisition planning, through long-term supply arrangements. It has been Onex’ operating companies undertaking these acquisitions also policy to encourage its operating companies to quickly face such risks as unknown expenses related to the cost- diversify their customer bases to the extent practical in effective amalgamation of operations, the retention of key order to manage the risk associated with serving a single personnel and customers, and the future value of goodwill, major customer. Certain Onex operating companies have intangible assets and intellectual property. There are also major customers that represent more than 10 percent of risk factors associated with the industry and the combined their annual revenues. None of the major customers of the business more generally. Onex works with company man- operating companies represents more than 10 percent of agement to understand and attempt to mitigate such risks Onex’ consolidated revenues. as much as possible. Dependence on government funding Some of the revenues of businesses in the U.S. healthcare Environmental considerations Onex has an environmental protection policy that has been adopted by its operating businesses subject to company- industry are partially dependent on funding from federal, specific modifications; many of the operating businesses state and local government agencies, especially those agen- have also adopted supplemental policies appropriate to cies responsible for state Medicaid and Medicare funding. their industries or businesses. Senior officers at each of the Budgetary pressures, as well as economic, industry, politi- operating businesses are ultimately responsible for ensur- cal and other factors, could influence governments to not ing compliance with these policies. They are required to increase or, in some cases, to decrease appropriations for report annually to their company’s board of directors and/ the services that are offered by Onex’ operating subsidiar- or to Onex regarding compliance. ies, which could reduce their revenues materially. Future Environmental management by the operat- revenues may be affected by changes in rate-setting struc- ing businesses is accomplished through the education of tures, methodologies or interpretations that may be pro- employees about environmental regulations and appropri- posed or are under consideration. Ongoing pressure on ate operating policies and procedures; site inspections by government appropriations is a normal aspect of business environmental consultants; the addition of proper equip- for companies in the U.S. healthcare industry. Productivity ment or modification of existing equipment to reduce or improvements and other initiatives are utilized to minimize eliminate environmental hazards; remediation activities as the effect of possible funding reductions. required; and ongoing waste reduction and recycling pro- grams. Environmental consultants are engaged to advise on current and upcoming environmental regulations that may be applicable. 94 Onex Corporation December 31, 2016 M A N A G E M E N T ’ S D I S C U S S I O N A N D A N A LY S I S Many of the operating businesses are involved in the remediation of particular environmental situations, Other contingencies Onex and its operating companies are or may become par- such as soil contamination. In almost all cases, these situ- ties to legal, product liability and warranty claims arising ations have occurred prior to Onex’ acquisition of those in the ordinary course of business. The operating compa- businesses, and the estimated costs of remedial work and nies have recorded liability provisions based on their con- related activities are managed either through agreements sideration and analysis of their exposure in respect of such with the vendor of the company or through provisions claims. Such provisions are reflected, as appropriate, in established at the time of acquisition. Manufacturing activ- Onex’ consolidated financial statements. Onex, the parent ities carry the inherent risk that changing environmental company, has not currently recorded any further liability regulations may identify additional situations requiring provision and we do not believe that the resolution of known capital expenditures or remedial work and associated costs claims would reasonably be expected to have a material to meet those regulations. Income taxes The Company has investments in companies that oper- adverse impact on Onex’ consolidated financial position. However, the final outcome with respect to outstanding, pending or future actions cannot be predicted with cer- tainty, and therefore there can be no assurance that their ate in a number of tax jurisdictions. Onex provides for the resolution will not have an adverse effect on our consoli- tax on undistributed earnings of its subsidiaries that are dated financial position. probable to reverse in the foreseeable future based on the expected future income tax rates that are substantively enacted at the time of the income/gain recognition events. Changes to the expected future income tax rate will affect the provision for future taxes, both in the current year and in respect of prior year amounts that are still outstand- ing, either positively or negatively, depending on whether rates decrease or increase. Changes to tax legislation or the application of tax legislation may affect the provision for future taxes and the taxation of deferred amounts. Onex Corporation December 31, 2016 95 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 of Directors. The Audit and Corporate Governance Committee reviews the consolidated financial statements, adequacy of internal controls, audit process and financial reporting with management and with the external auditors. The Audit and Corporate Governance Committee reports to the Board of 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 stan- dards 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 23, 2017 Christine M. Donaldson Managing Director – Finance 96 Onex Corporation December 31, 2016 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, 2016 and December 31, 2015, and the consolidated statements of earnings, comprehensive earnings, equity and cash flows for the years ended December 31, 2016 and December 31, 2015, 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, 2016 and December 31, 2015 and their financial performance and their cash flows for the years ended December 31, 2016 and December 31, 2015 in accordance with International Financial Reporting Standards. [signed] [signed] PricewaterhouseCoopers llp Chartered Professional Accountants, Licensed Public Accountants Toronto, Canada February 23, 2017 Onex Corporation December 31, 2016 97 CONSOLIDATED BALANCE SHEETS As at December 31, 2016 As at December 31, 2015 $ 2,371 $ 2,313 154 3,868 2,731 1,190 − 10,314 4,275 8,672 1,192 9,286 9,174 206 2,933 1,982 920 1,328 9,682 3,265 7,863 795 6,528 7,677 $ 42,913 $ 35,810 $ 4,324 $ 3,404 305 1,550 407 89 − 6,675 340 22,456 2,169 1,537 8,385 41,562 324 1,841 (814) 1,351 334 976 411 598 1,011 6,734 368 17,643 1,704 1,451 6,720 34,620 333 1,353 (496) 1,190 $ 42,913 $ 35,810 (in millions of U.S. dollars) Assets Current assets Cash and cash equivalents (note 5) Short-term investments (note 5) Accounts receivable Inventories (note 6) Other current assets (note 7) Assets held by discontinued operations (note 8) Property, plant and equipment (note 9) Long-term investments (note 10) Other non-current assets (note 11) Intangible assets (note 12) Goodwill (note 12) Liabilities and Equity Current liabilities Accounts payable and accrued liabilities Current portion of provisions (note 13) Other current liabilities Current portion of long-term debt of operating companies, without recourse to Onex Corporation (note 14) Current portion of Limited Partners’ Interests (note 16) Liabilities held by discontinued operations (note 8) Non-current portion of provisions (note 13) Long-term debt of operating companies, without recourse to Onex Corporation (note 14) Other non-current liabilities (note 17) Deferred income taxes (note 18) Limited Partners’ Interests (note 16) Equity Share capital (note 19) Non-controlling interests (note 20) Retained earnings (deficit) and accumulated other comprehensive loss See accompanying notes to the consolidated financial statements. Signed on behalf of the Board of Directors [signed] Director [signed] Director 98 Onex Corporation December 31, 2016 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 9) Amortization of intangible assets and deferred charges Interest expense of operating companies (note 22) Increase in value of investments in joint ventures and associates at fair value, net (note 10(c)) Stock-based compensation expense (note 23) Other gains (note 24) Other expense (note 25) Impairment of goodwill, intangible assets and long-lived assets, net (note 26) Limited Partners’ Interests charge (note 16) Loss before income taxes and discontinued operations Provision for income taxes (note 18) Loss from continuing operations Earnings from discontinued operations (note 8) Net 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 Loss for the Year Net Earnings (Loss) per Subordinate Voting Share of Onex Corporation (note 27) Basic and Diluted: Continuing operations Discontinued operations Net Loss per Subordinate Voting Share for the Year See accompanying notes to the consolidated financial statements. 2016 2015 $ 22,523 $ 19,681 (15,696) (4,268) 351 (565) (693) (1,089) 180 (323) 80 (87) (234) (647) (468) (46) (514) 478 (13,582) (3,967) 264 (483) (584) (878) 175 (260) 239 (435) (82) (856) (768) (116) (884) 379 $ (36) $ (505) $ (577) 63 $ (514) $ (130) 94 $ (36) $ $ $ $ (946) 62 (884) (573) 68 (505) $ (5.56) $ (8.84) 4.31 3.48 $ (1.25) $ (5.36) Onex Corporation December 31, 2016 99 CONSOLIDATED STATEMENTS OF COMPREHENSIVE EARNINGS Year ended December 31 (in millions of U.S. dollars) Net 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 from discontinued operations, net of tax (note 8) 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. 2016 $ (36) (69) 5 – (64) 11 42 (11) $ (47) $ (154) 107 $ (47) 2015 $ (505) (270) (19) 2 (287) 34 8 (245) $ (750) $ (808) 58 $ (750) 100 Onex Corporation December 31, 2016 CONSOLIDATED STATEMENTS OF EQUITY (in millions of U.S. dollars except per share data) Balance – December 31, 2014 Dividends declared(a) Issuance of shares (note 19) Repurchase and cancellation of shares (note 19) Investments in operating companies by shareholders 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 8 and 24) Comprehensive Earnings (Loss) Net earnings (loss) for the year Other comprehensive earnings (loss) for the year, net of tax: Currency translation adjustments Change in fair value of derivatives designated as hedges Unrealized gains on available-for-sale financial assets Remeasurements for post-employment benefit plans (note 32) Other comprehensive earnings (loss) from discontinued operations, net of tax (note 8) Share Capital (note 19) $ 336 1 6 (10) Retained Earnings (Deficit) $ 692 (19) – (165) – – – – – – – – – – 30 23 (27) – (573) – – – 36 6 Balance – December 31, 2015 Dividends declared(a) Repurchase and cancellation of shares (note 19) Investments in operating companies by shareholders $ 333 – (9) $ 3 (21) (175) other than Onex Transfer of non-controlling interests to liabilities Distributions to non-controlling interests Repurchase of shares of operating companies(c) Non-controlling interests on sale of an investment in an operating company (notes 8 and 24) 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 32) Other comprehensive earnings (loss) from discontinued operations, net of tax (note 8) – – – – – – – – – – 87 (55) – – – (130) – – (3) (11) Accumulated Other Comprehensive Earnings (Loss) Total Equity Attributable to Equity Holders of Onex Corporation Non- controlling Interests $ 1,692 – – – Total Equity $ 2,498 (18) 6 (175) 262 (207) (408) (44) 68 (8) (6) – (2) 6 292 (184) (435) (44) (505) (270) (19) 2 34 8 $ 806 (18) 6 (175) 30 23 (27) – (573) (262) (13) 2 36 2 $ (163) (21) (184) $ 1,353 – – $ 1,190 (21) (184) 87 (55) – – – (130) (58) (3) (3) 40 621 (42) (104) (59) (35) 94 (11) 8 14 2 708 (97) (104) (59) (35) (36) (69) 5 11 42 $ (222)(b) – – – – – – – – (262) (13) 2 – (4) $ (499)(d) – – – – – – – – (58) (3) – 51 Balance – December 31, 2016 $ 324 $ (305) $ (509)(e) $ (490) $ 1,841 $ 1,351 (a) Dividends declared per Subordinate Voting Share during 2016 totalled C$0.26875 (2015 – C$0.2375). In 2016, shares issued under the dividend reinvestment plan amounted to less than $1 (2015 – $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, 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. (c) Repurchase of shares of operating companies during 2015 consisted primarily of shares repurchased by Celestica and JELD-WEN. Repurchase of shares during 2016 consisted primarily of shares repurchased by Celestica. (d) 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. (e) Accumulated Other Comprehensive Earnings (Loss) as at December 31, 2016 consisted of currency translation adjustments of negative $473, unrealized losses on the effective portion of cash flow hedges of $38 and unrealized gains on available-for-sale financial assets of $2. Income taxes did not have a significant effect on these items. See accompanying notes to the consolidated financial statements. Onex Corporation December 31, 2016 101 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 from continuing operations: Provision for income taxes (note 18) Interest income Interest expense of operating companies (note 22) Earnings (loss) before interest and provision for income taxes Cash taxes paid Items not affecting cash and cash equivalents: Amortization of property, plant and equipment (note 9) Amortization of intangible assets and deferred charges Increase in value of investments in joint ventures and associates at fair value, net (note 10(c)) Stock-based compensation expense Other gains (note 24) Foreign exchange loss Impairment of goodwill, intangible assets and long-lived assets, net (note 26) Limited Partners’ Interests charge (note 16) 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 8) 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 Contributions by Limited Partners (note 16) Issuance of share capital by operating companies Contribution by non-controlling interests for investment in operating company (note 4) Distributions paid to non-controlling interests and Limited Partners (note 16) Decrease due to other financing activities Cash flows from (used in) financing activities of discontinued operations (note 8) Investing Activities Acquisitions, net of cash and cash equivalents in acquired companies of $141 (2015 – $437) (note 4) 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 (note 10) Proceeds from sales of operating companies and businesses no longer controlled (notes 8 and 24) Distributions received from investments in joint ventures and associates (note 10) Purchase of investment in joint venture (note 10) Payment of contingent considerations Cash interest received Net purchases of investments and securities for CLOs and Onex Credit Funds (note 10) Net sales (purchases) of investments and securities at parent company and operating companies (note 10) Increase (decrease) due to other investing activities Cash flows used in investing activities of discontinued operations (note 8) 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 period – continuing operations Cash and cash equivalents, beginning of the period – discontinued operations (note 8) Cash and Cash Equivalents Cash and cash equivalents held by discontinued operations (note 8) Cash and Cash Equivalents Held by Continuing Operations See accompanying notes to the consolidated financial statements. 102 Onex Corporation December 31, 2016 2016 2015 $ (514) $ (884) 46 (351) 1,089 270 (284) 565 693 (180) 217 (80) 34 234 647 35 119 (265) 2,005 (447) (172) (42) 577 (84) (47) 38 1,912 3,075 (1,812) (964) (20) (184) (59) 1,593 10 458 (1,188) (61) 2 850 (3,089) (569) 72 – 1,024 206 (44) (163) 325 (1,007) 666 (67) (155) (2,801) (39) (16) 2,313 113 2,371 – 116 (264) 878 (154 ) (241) 483 584 (175) 231 (239) 50 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) (6) 257 (1,518) (1,197) 93 (81) (4,837) (1,305) (37) 3,662 106 2,426 113 $ 2,371 $ 2,313 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (in millions of U.S. dollars except per share data) Onex Corporation and its subsidiaries (collectively, the “Company”) is a diversified company with operations in a range of industries including electronics manufacturing services, healthcare imaging, health and human services, building products, insurance services, packaging products and services, business and information services, food retail and restaurants, aerospace automation, tooling and components, aircraft leasing and management, hospital management services, survival equipment and industrial products, and in various middle-market private equity opportunities. Additionally, the Company has investments in credit strategies and real estate. Note 34 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 ONEX. 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 corpo- ration and also indirectly holds 13% of the outstanding Subordinate Voting Shares of the corporation as at December 31, 2016. All amounts are in millions of U.S. dollars unless otherwise noted. The consolidated financial statements were authorized for issue by the Board of Directors on February 23, 2017. 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 operat- ing companies. Onex also controls and consolidates the opera- tions 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 collec- tively as “Onex Partners”, and ONCAP II L.P., ONCAP III LP and ONCAP IV LP, referred to collectively as “ONCAP” (as described in note 31). In addition, Onex controls and consolidates the opera- tions of the Onex Credit asset management platform, certain funds managed by Onex Credit (“Onex Credit Funds”) in which Onex, the parent company, holds an investment and collateralized loan obli- gations (“CLOs”) of Onex Credit, referred to collectively as “Onex Credit”. The results of operations of subsidiaries are included in the consolidated financial statements from the date that control commences until the date that control ceases. All significant inter- company balances and transactions have been eliminated. Certain investments in operating companies over which the Company has joint control or significant influence, but not control, are designated, upon initial recognition, at fair value through earnings. As a result, these investments are recorded at fair value in the consolidated balance sheets, with changes in fair value recognized in the consolidated statements of earnings. Onex Corporation December 31, 2016 103 N O T E S T O C O N S O L I D AT E D F I N A N C I A L S TAT E M E N T S The 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, 2016 December 31, 2015 Onex’ and Limited Partners’ Ownership Onex’ Ownership Voting Onex’ Ownership Investments made through Onex Celestica Inc. (“Celestica”) Investments made through Onex and Onex Partners I Genesis Healthcare, Inc. (“Genesis Healthcare”) Investments made through Onex and Onex Partners II 13% 2% 13% 80% 10% 10% Carestream Health, Inc. (“Carestream Health”) 36% 91% 100% Investments made through Onex and Onex Partners III BBAM Limited Partnership (“BBAM”) Emerald Expositions, LLC (“Emerald Expositions”) JELD-WEN Holding, Inc. (“JELD-WEN”)(b) KraussMaffei Group GmbH (“KraussMaffei”)(c) Meridian Aviation Partners Limited and affiliates (“Meridian Aviation”) SGS International, LLC (“sgsco”) USI Insurance Services (“USI”)(d) 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”)(e) Clarivate Analytics(f) Jack’s Family Restaurants (“Jack’s”)(g) Save-A-Lot(h) Schumacher Clinical Partners (“Schumacher”) SIG Combibloc Group Holdings S.à r.l. (“SIG”) Survitec Group Limited (“Survitec”) WireCo WorldGroup (“WireCo”)(i) Investments made through Onex Real Estate Partners Flushing Town Center Other investments ONCAP II Fund (“ONCAP II”) ONCAP III Fund (“ONCAP III”) ONCAP IV Fund (“ONCAP IV”) 13% 24% 21% – 25% 23% 25% 29% 50% 99% 84% – 100% 93% 89% 88% 50%(a) 99% 84% – 100% 93% 100% 100% 20% 98% 100% 11% 26% 28% 28% 20% 33% 18% 20% 88% 47%(j) 29% 40% 50% 72% 96% 100% 68% 99% 79% 71% 50%(a) 72% 100% 100% 68% 95% 68% 71% 88% 100% 100% 100% 100% 100% 100% 100% 13% 2% 36% 13% 24% 21% 24% 25% 23% 25% 29% 20% 9% – 28% – 21% 33% 22% – 88% 46%(j) 29% – Onex’ and Limited Partners’ Ownership 13% 10% Voting 80% 10% 91% 100% 50% 99% 83% 95% 100% 93% 88% 88% 50% (a) 99% 83% 100% 100% 93% 100% 100% 98% 100% 40% – 95% – 71% 99% 99% – 50% (a) – 100% – 71% 95% 85% – 88% 100% 100% 100% – 100% 100% – (a) Onex exerts joint control or significant influence over these investments, which are designated at fair value through earnings, through its right to appoint members of the boards of directors of these entities. (b) 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, 2016 (December 31, 2015 – 88%) to reflect certain JELD-WEN shares that are recorded as liabilities at fair value. In January 2017, JELD-WEN completed an initial public offering, as described in note 2(r). Subsequent to the initial public offering, Onex Partners III and certain limited partner co-investors, including Onex, continue to hold a 60% economic and voting interest in JELD-WEN, of which Onex’ share is a 15% economic interest. (c) KraussMaffei was sold in April 2016, as described in note 2(d). (d) 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 economic ownership of 99% at December 31, 2016 to reflect certain USI shares that are recorded as liabilities at fair value. (e) In August 2016, AIT repurchased units from investors other than Onex Partners IV, as described in note 2(h). (f) Clarivate Analytics was acquired in October 2016, as described in note 2(l). (g) In June 2016, the balance outstanding under the promissory note held by Onex Partners IV was converted into additional equity of Jack’s, as described in note 2(a). (h) Save-A-Lot was acquired in December 2016, as described in note 2(p). (i) WireCo was acquired in September 2016, as described in note 2(k). (j) Represents Onex’ blended economic ownership in the ONCAP II investments. 104 Onex Corporation December 31, 2016 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 31(d). 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 losses are recognized in earnings. value. The determination of net realizable value requires signifi- Assets and liabilities of foreign operations with non-U.S. cant judgement, including consideration of factors such as shrink- dollar functional currencies are translated into U.S. dollars using age, 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 included in equity. Cash and cash equivalents the reversal occurs. Certain inventories in the healthcare imaging and packaging products and services segments are stated using an average cost method. For substantially all other inventories, cost is Cash and cash equivalents include liquid investments such as determined on a first-in, first-out basis. term deposits, money market instruments and commercial paper with original maturities of less than three months. The invest- Property, plant and equipment ments are carried at cost plus accrued interest, which approxi- Property, plant and equipment is recorded at cost less accumu- mates fair value. Short-term investments lated amortization and provisions for impairment, if any. Cost consists of expenditures directly attributable to the acquisition of the asset. The costs of construction of qualifying long-term assets Short-term investments consist of liquid investments that include include capitalized interest, as applicable. money market instruments and commercial paper with original Subsequent expenditures for maintenance and repairs maturities of three months to one year. The investments are carried are expensed as incurred, while costs related to betterments and at fair value. improvements that extend the useful lives of property and equip- ment are capitalized. Onex Corporation December 31, 2016 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 Land is not amortized. For substantially all remaining Intangible assets property, plant and equipment, amortization is provided for on Intangible assets, including intellectual property and software, are a straight-line basis over the estimated useful lives of the assets recorded at their fair value at the date of acquisition of the related as follows: Buildings Machinery and equipment up to 50 years up to 22 years 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 Leasehold improvements up to the term of the lease as follows: When components of an asset have a significantly different useful life or residual value than the primary asset, the components are Trademarks and licenses Customer relationships amortized separately. Residual values, useful lives and methods Computer software of amortization are reviewed at each fiscal year end and adjusted Other 1 year to 30 years 2 years to 30 years 1 year to 20 years 1 year to 50 years prospectively. Leases Other intangibles with limited life include information databases and content collections of Clarivate Analytics with useful lives of Leases of property, plant and equipment where the Company, as 13 years to 20 years. lessee, has substantially all the risks and rewards of ownership Intangible assets with indefinite useful lives are not are classified as finance leases. Finance leases are capitalized at amortized. The assessment of indefinite life is reviewed annually. the lease’s commencement at the lower of the fair value of the Changes in the useful life from indefinite to finite are made on a leased property or the present value of the minimum lease pay- prospective basis. ments. Each lease payment is allocated between the liability and finance charges so as to achieve a constant interest rate on the Goodwill balance outstanding. The corresponding lease obligations, net of Goodwill is initially measured as the excess of the aggregate of the finance charges, are included in the consolidated balance sheets. consideration transferred, the fair value of any contingent consid- Property, plant and equipment acquired under finance leases is eration, the amount of any non-controlling interest in the acquired depreciated over the shorter of the useful life of the asset and the company and, in a business combination achieved in stages, the lease term. fair value at the acquisition date of the Company’s previously held Leases in which a significant portion of the risks and interest in the acquired company compared to the net fair value rewards of ownership are retained by the lessor are classified as of the identifiable assets and liabilities acquired. Substantially all operating leases. When the Company is the lessee, payments made of the goodwill and intangible asset amounts that appear in the under operating leases (net of any incentives received from the les- consolidated balance sheets are recorded by the operating com- sor) are recorded in the consolidated statements of earnings on a panies. The recoverability of goodwill is assessed annually or straight-line basis over the period of the lease. Certain of the oper- whenever events or changes in circumstances indicate that the ating companies lease their property, plant and equipment under carrying amount may not be recoverable. Judgement is required operating leases to third parties. When the Company is the lessor, in determining whether events or changes in circumstances dur- payments received under operating leases (net of any incentives ing the year are indicators that a review for impairment should provided by the operating companies) are recognized in the con- be conducted prior to the annual assessment. For the purposes of solidated statements of earnings on a straight-line basis over the impairment testing, goodwill is allocated to the cash generating period of the lease. 106 Onex Corporation December 31, 2016 units (“CGUs”) of the business whose acquisition gave rise to the goodwill. Impairment of goodwill is tested at the level where good- will is monitored for internal management purposes. Therefore, goodwill will be assessed for impairment at the level of either an individual CGU or a group of CGUs. The determination of CGUs and the level at which goodwill is monitored requires judgement by management. The carrying amount of a CGU or a group of CGUs is compared to its recoverable amount, which is the higher of its value-in-use or fair value less costs to sell, to determine if an impairment exists. Impairment losses for goodwill are not reversed in future periods. N O T E S T O C O N S O L I D AT E D F I N A N C I A L S TAT E M E N T S Impairment charges recorded by the operating compa- Financing charges nies under IFRS may not impact the fair values of the operating Financing charges consist of costs incurred by the operating com- companies used in determining the change in carried interest and panies relating to the issuance of term borrowings and revolving for calculating the Limited Partners’ Interests liability. Fair values of credit facilities. Transaction costs related to the term borrowings are the operating companies are assessed at the enterprise level, while amortized over the term of the related debt or as the debt is retired, impairment charges are assessed at the level of either an individual if earlier. These unamortized financing charges are netted against CGU or group of CGUs. Impairment of long-lived assets the carrying value of the long-term debt, as described in note 14. Costs incurred to establish revolving credit facilities are recognized as an other non-current asset and are amortized on Property, plant and equipment, investment property and intan- a straight-line basis over the term of the facility; however, to the gible assets are reviewed for impairment annually or whenever extent that the Company expects to draw on the facility, the costs events or changes in circumstances suggest that the carrying are deferred until the amounts are drawn on the facility and are amount of an asset may not be recoverable. Judgement is required then amortized over the remaining term of the facility. in determining whether events or changes in circumstances dur- ing the year are indicators that a review for impairment should be Provisions conducted prior to the annual assessment. An impairment loss is A provision is a liability of uncertain timing or amount and is gen- recognized when the carrying value of an asset or CGU exceeds the erally recognized when the Company has a present obligation as a recoverable amount. The recoverable amount of an asset or CGU is result of a past event, it is probable that payment will be made to the greater of its value-in-use or its fair value less costs to sell. settle the obligation and the payment can be reliably estimated. Impairment losses for long-lived assets are reversed Judgement is required to determine the extent of an obligation and in future periods if the circumstances that led to the impairment whether it is probable that payment will be made. The Company’s no longer exist. The reversal is limited to restoring the carrying significant provisions consist of the following: amount that would have been determined, net of amortization, had no impairment loss been recognized in prior periods. a) Contingent consideration Contingent consideration is established for business acquisitions Investments in joint ventures and associates where the Company has the obligation to transfer additional assets Joint ventures and associates are those entities over which the or equity interests to the former owners if specified future events Company has joint control or significant influence, but not con- occur or conditions are met. The fair value of contingent consider- trol. Certain investments in joint ventures and associates are des- ation liabilities is typically based on the estimated future financial ignated, upon initial recognition, at fair value through earnings performance of the acquired business. Financial targets used in in accordance with IAS 39, Financial Instruments: Recognition the estimation process include certain defined financial targets and Measurement. As a result, the investments are recorded at and realized internal rates of return. Contingent consideration is fair value in the consolidated balance sheets, with changes in fair classified as a liability when the obligation requires settlement in value recognized in the consolidated statements of earnings. cash or other assets, and is classified as equity when the obligation Certain investments in joint ventures and associates are requires settlement in own equity instruments. initially recognized at cost, and the carrying amount of the invest- ment is adjusted to recognize the Company’s share of the profit or b) Self-insurance loss in the investment, from the date that joint control or significant Self-insurance provisions may be established for automobile, influence commences until the date that joint control or significant workers’ compensation, healthcare coverage, general liability, influence ceases, in accordance with IAS 39, Financial Instruments: professional liability and other claims. Provisions are established Recognition and Measurement. The Company’s share of the profit or for claims based on an assessment of actual claims and claims loss is recognized in other income (expense) and any distributions incurred but not reported. The reserves may be established based received reduce the carrying amount of the investment. on consultation with third-party independent 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 inflation in healthcare costs and property damage repairs. Onex Corporation December 31, 2016 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 c) Warranty results from a plan amendment or curtailment. Past service costs Certain operating companies offer warranties on the sale of prod- (or recoveries) from plan amendments are recognized immedi- ucts or services. A provision is recorded to provide for future ately in earnings, whether vested or unvested. warranty costs based on management’s best estimate of proba- Remeasurements, consisting of actuarial gains or losses, ble claims under these warranties. The provision is based on the the actual return on plan assets (excluding the net interest compo- terms of the warranty, which vary by customer and product or ser- nent) and any change in the asset ceiling, are recognized in other vice, and historical experience. The appropriateness of the provi- comprehensive earnings. Remeasurements recognized in other sion is evaluated at the end of each reporting period. comprehensive earnings are directly recorded in retained earnings, d) Restructuring without recognition in the consolidated statements of earnings. Defined contribution plan accounting is applied to Restructuring provisions are recognized only when a detailed multi-employer defined benefit plans, for which the operating formal plan for the restructuring – including the business or companies have insufficient information to apply defined benefit part of the business concerned, the principal locations affected, accounting. details regarding the employees affected, the restructuring’s tim- Note 32 provides further details on pension and non- ing and the expenditures that will have to be undertaken – has pension post-retirement benefits. been developed and the restructuring has either commenced or the plan’s main features have already been publicly announced to Limited Partners’ Interests those affected by it. The interests of the limited partners and other investors through the Onex Partners, ONCAP and Onex Credit Funds are record- Note 13 provides further details on provisions recognized by the ed as financial liabilities in accordance with IAS 32, Financial Company. Instruments: Presentation. The structure of the Onex Partners, ONCAP and Onex Credit Funds as defined in the partnership agree- Pension and non-pension post-retirement benefits ments, specifically the limited life of the Onex Partners and ONCAP Onex, the parent company, did not provide pension, other retire- Funds and the redemption provisions of the Onex Credit Funds, ment or post-retirement benefits to its employees or to those of any requires presentation of the limited partners’ interests as a liabil- of the operating companies during the years ended December 31, ity. The liability is recorded at fair value and is primarily impacted 2016 and 2015. The operating companies that offer pension and non- by the change in fair value of the underlying investments in the pension post-retirement benefits accrue their obligations under Onex Partners, ONCAP and Onex Credit Funds, the change in car- such employee benefit plans and related costs, net of plan assets. ried interest on investments held by the Onex Partners and ONCAP The costs of defined benefit pensions and other post-retirement Funds, the change in incentive fees on investments held by the benefits earned by employees are accrued in the period incurred Onex Credit Funds, as well as any contributions by and distribu- and are actuarially determined using the projected unit credit meth- tions to limited partners in those Funds. Adjustments to the fair od pro-rated on length of service, based on management’s judge- value of the Limited Partners’ Interests are reflected through earn- ment and best estimates of assumptions for factors which impact ings, net of the change in carried interest and incentive fees. the ultimate cost, including salary escalation, the retirement ages Note 16 provides further details on Limited Partners’ of employees, the discount rate used in measuring the liability and Interests. expected healthcare costs. Plan assets are recorded at fair value at each reporting Income taxes date. Where a plan is in a surplus, the value of the net asset recog- Income taxes are recorded using the asset and liability method of nized is restricted to the present value of any economic benefits income tax allocation. Under this method, assets and liabilities available in the form of refunds from the plan or reductions in are recorded for the future income tax consequences attributable future contributions to the plan. to differences between the financial statement carrying values of The cost of defined benefit plans recognized in the con- assets and liabilities and their respective income tax bases, and on solidated statements of earnings comprises the net total of the tax loss and tax credit carryforwards. Deferred tax assets are recog- current service cost, the past service cost, gains or losses from nized only to the extent that it is probable that taxable profit will settlements and the net interest expense or income. The current be available against which the deductible temporary differences service cost represents the increase in the present value of the as well as tax loss and tax credit carryforwards can be utilized. plan liabilities expected to arise from employee service in the cur- These deferred income tax assets and liabilities are recorded using rent period. The past service cost is the change in the benefit obli- substantively enacted income tax rates. The effect of a change in gation in respect of employee service in prior periods and which income tax rates on these deferred income tax assets or liabilities is 108 Onex Corporation December 31, 2016 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 included in income in the period in which the rate change occurs. Healthcare Imaging Certain of these differences are estimated based on current tax leg- Revenue from the healthcare imaging segment consists primar- islation and the Company’s interpretation thereof. ily of product sales and services. Revenue from product sales is Income tax expense or recovery is based on the income recognized when the following criteria are met: significant risks earned or loss incurred in each tax jurisdiction and the enacted or and rewards of ownership have been transferred; involvement in substantively enacted tax rate applicable to that income or loss. the capacity as an owner of the goods has ceased; revenue and Tax expense or recovery is recognized in the income statement, costs incurred can be reliably measured; and economic benefits except to the extent that it relates to items recognized directly in are expected to be realized. Revenue is recorded net of provisions equity, in which case the tax effect is also recognized in equity. for estimated customer returns, rebates and other similar allow- Deferred tax liabilities for taxable temporary differences ances. Services revenue is recognized at the time of service if rev- associated with investments in subsidiaries, joint ventures and enues and costs can be reliably measured and economic benefits associates are recognized, except when the Company is able to are expected to be received. control the timing of the reversal of temporary differences and it is probable that the temporary differences will not reverse in the Health and Human Services foreseeable future. Revenue from the health and human services segment consists In the ordinary course of business, there are transac- primarily of services. Services revenue is recognized at the time of tions for which the ultimate tax outcome is uncertain. The final service if revenues and costs can be reliably measured and eco- tax outcome of these matters may be different from the judge- nomic benefits are expected to be received, and is recorded net of ments and estimates originally made by the Company in deter- provisions for examination of expenses by agencies administering mining its income tax provisions. The Company periodically contracts and services. evaluates the positions taken with respect to situations in which applicable tax rules and regulations are subject to interpreta- Building Products tion. Provisions related to tax uncertainties are established where Revenue from the building products segment primarily consists appropriate based on the best estimate of the amount that will of product sales. Revenue is recognized when significant risks ultimately be paid to or received from tax authorities. Accrued and rewards of ownership have been transferred to the customer; interest and penalties relating to tax uncertainties are recorded in involvement in the capacity as an owner of the goods has ceased; current income tax expense. revenue and costs incurred can be reliably measured; and receiv- Note 18 provides further details on income taxes. ables are reasonably assured of collection. Incentive payments to customers are recorded as a reduction of revenue over the periods Revenue recognition benefited. Revenues are recognized net of estimated returns and allowances, trade discounts and volume rebates, where applicable. Where the Insurance Services Company is responsible for shipping and handling to customers, Revenue from the insurance services segment primarily consists amounts charged for these services are recognized as revenue, of commission, fee and service revenues. Commission revenues and shipping and handling costs incurred are reported as a com- on premiums billed and collected directly by insurance compa- ponent of cost of sales in the consolidated statements of earnings. nies are recognized after the policy effective date and when the Electronics Manufacturing Services company has sufficient information to reasonably determine that the amount is owed. Commission revenues on policies billed Revenue from the electronics manufacturing services segment and collected by the company are recognized on the later of the consists primarily of product sales and services. Revenue is rec- billing or the policy effective date. Commission revenues related ognized when significant risks and rewards of ownership have to instalment premiums are recognized on the effective date of been transferred to the customer and receivables are reasonably each instalment. Fees may be charged for policy placement in assured of collection. lieu of commissions, which are recognized in the same manner For certain customers, warehousing services are pro- as commission revenues. Fee revenues from claims management vided in connection with manufacturing services. Contracts are are recognized as claims are processed using an estimate of ser- assessed to determine whether the manufacturing and warehous- vices provided and costs incurred. Fee revenues are also earned ing services can be accounted for as separate units of accounting. from other risk management, administrative and consulting ser- If the services do not constitute separate units of accounting, or vices, which are provided over a period of time. These fees are the manufacturing services do not meet all of the revenue rec- recognized when the fees and costs can be reliably measured and ognition requirements, revenue recognition is deferred until the economic benefits are expected to be received by the company. products have been shipped to the customer. Onex Corporation December 31, 2016 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 Revenues from managed care, specialized loss adjusting servic- Credit Strategies es and field investigations are recognized at the time of service The credit strategies segment consists of (i) Onex Credit Manager, if revenues and costs can be reliably measured and economic (ii) Onex Credit Collateralized Loan Obligations and (iii) Onex benefits are expected to be received. Service revenues from fixed Credit Funds. In January 2015, Onex began to consolidate the price contracts are recognized on each contract proportionately Onex Credit Manager and certain funds managed by Onex Credit over the life of the contract. Packaging Products and Services in which Onex, the parent company, holds an investment as a result of the transaction described in note 3(a). Revenue from the credit strategies segment primarily consists of management Revenue from the packaging products and services segment pri- and incentive fees earned on capital managed by Onex Credit. marily consists of sales of goods and services. Revenue is mea- Revenue is recognized when earned in accordance with the terms sured as the fair value of the consideration received or receivable of the relevant investment management agreements. net of returns and allowances, trade discounts, volume rebates The consolidated revenues exclude management and and other customer incentives. Revenue from the sale of goods is incentive fees earned from investments in Onex Credit Funds and recognized when significant risks and rewards of ownership have CLOs consolidated by Onex. been substantially transferred to the buyer, recovery of the con- sideration is probable, the associated costs and possible return Other of goods can be reliably estimated, and there is no continuing Other segment revenues consist of product sales, services and management involvement with the goods. Transfer of risks and construction contracts: rewards of ownership vary depending on the individual terms of • Revenue from product sales is recognized when the following the contract of sale and occur either upon shipment of the goods criteria are met: significant risks and rewards of ownership have or upon receipt of the goods and/or their deployment or installa- been transferred; involvement in the capacity as an owner of the tion at a customer location. Revenue is recognized by reference to goods has ceased; revenue and costs incurred can be reliably the stage of completion of the transaction at the end of the report- measured; and economic benefits are expected to be realized. ing period, when the outcome of a transaction involving render- Where product sales are subject to customer acceptance, rev- ing of services can be reliably estimated. enue is recognized at the earlier of receipt of customer accep- Business and Information Services tance or expiration of the acceptance period. Where product sales require the company to install the product at the customer Revenue from the business and information services segment location and such installation is essential to the functionality of primarily consists of sales of subscription services and staging of the product, revenue is recognized when the product has been trade shows and conference events. Revenue from subscription delivered to and installed at the customer location. arrangements is recognized on a straight-line basis over the term • Revenue from services is recognized at the time of service, of the subscription if revenues and costs can be reliably measured when revenues and costs can be reliably measured and eco- and economic benefits are expected to be received. Usage fees in nomic benefits are expected to be received by the company, excess of the base subscription fee are recognized as services are and is recorded net of provisions for contractual discounts and delivered. Revenue from staging of trade shows and conference estimated uncompensated care. Where services performed are events is recognized when the events are staged if revenues and subject to customer acceptance, revenue is recognized at the costs can be reliably measured and economic benefits are expected earlier of receipt of customer acceptance or expiration of the to be received. acceptance period. Food Retail and Restaurants • Revenue from construction and other long-term contracts is recognized on each contract by reference to the percentage- Revenue from the food retail and restaurants segment primar- of-completion of the contract activity primarily by comparing ily consists of product sales and distribution services. Revenue is contract costs incurred to the estimated total contract costs or recognized when significant risks and rewards of ownership have based on the number of units produced. The contract method of been transferred to the customer and the collection of receivables accounting involves the use of various estimating techniques to is reasonably assured. 110 Onex Corporation December 31, 2016 project costs at completion and includes estimates of ultimate profitability and final contract settlements. Any expected loss from a contract is recognized in the period where the estimated total contract costs exceed the estimated total contract revenue. Where the outcome of a contract cannot be reliably estimated, all contract-related costs are expensed and revenue is recognized only to the extent that those costs are recoverable. When the out- come of such contracts becomes reliably estimable, revenue is recognized prospectively. 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 arrangements where the operating companies derive reve- Stock-based compensation nues from multiple service or product elements, the recognition The Company follows the fair value-based method of accounting, of revenues is based on the individual relative fair value of each which is applied to all stock-based compensation plans. element separately identified in the arrangements. There are five types of stock-based compensation plans. The first is the Company’s Stock Option Plan (the “Plan”), Depending on the terms under which the operating companies described in note 19(e), which provides that in certain situations supply products, they may also be responsible for some or all of the Company has the right, but not the obligation, to settle any the repair or replacement costs of defective products. The com- exercisable option under the Plan by the payment of cash to the panies establish provisions for issues that are probable and esti- option holder. The Company has recorded a liability for the poten- mable in amounts management believes are adequate to cover tial future settlement of the vested options at the balance sheet the ultimate projected claim costs. The final amounts determined date by reference to the fair value of the liability. The liability is to be due related to these matters could differ significantly from adjusted each reporting period for changes in the fair value of the recorded estimates. options, with the corresponding amount reflected in the consoli- dated statements of earnings. 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 31(d). 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 internally 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 generated intangible assets. Apart from complying with the gen- Unit Plan (“Director DSU Plan”). A Deferred Share Unit (“DSU”) eral requirements for initial measurement of an intangible asset, entitles the holder to receive, upon redemption, a cash payment qualification criteria are met only when technical as well as com- equivalent to the market value of a Subordinate Voting Share mercial feasibility can be demonstrated and the cost can be reliably (“SVS”) at the redemption date. The Director DSU Plan enables measured. It must also be probable that the intangible asset will Onex Directors to apply directors’ fees earned to acquire DSUs generate future economic benefits, be clearly identifiable and allo- based on the market value of Onex shares at the time. Grants of cable to a specific product. Further to meeting these criteria, only DSUs may also be made to Onex Directors from time to time. such costs that relate solely to the development phase of a self- The DSUs vest immediately, are redeemable only when the hold- initiated project are capitalized. Any costs that are classified as er retires and must be redeemed within one year following the part of the research phase of a self-initiated project are expensed year of retirement. Additional units are issued for any cash divi- as incurred. If the research phase cannot be clearly distinguished dends paid on the SVS. The Company has recorded a liability for from the development phase, the respective project-related costs the future settlement of the DSUs by reference to the value of the are treated as if they were incurred in the research phase only. underlying SVS at the balance sheet date. On a quarterly basis, Capitalized development costs are generally amortized over the the liability is adjusted for the change in the market value of the estimated number of units produced. In cases where the number of underlying shares, with the corresponding amount reflected in units produced cannot be reliably estimated, capitalized develop- the consolidated statements of earnings. To economically hedge ment costs are amortized over the estimated useful life of the inter- a portion of the Company’s exposure to changes in the trading nally generated intangible asset. Internally generated intangible price of Onex shares, the Company enters into forward agree- assets are reviewed for impairment annually when the asset is not ments with a counterparty financial institution. The change in yet in use or when events or changes in circumstances indicate that value of the forward agreements will be recorded to partially off- the carrying amount may not be recoverable and the asset is in use. set the amounts recorded as stock-based compensation under During 2016, $223 (2015 – $254) of research and develop- the Director DSU Plan. Details of the Director DSUs outstanding ment costs were expensed and $10 (2015 – $16) of development under the plan and the amount hedged by the Company are pro- costs were capitalized. vided in note 19(d). Onex Corporation December 31, 2016 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 The fourth type of plan is the Management Deferred The unrealized carried interest of the Onex Partners Share Unit Plan (“Management DSU Plan”). The Management and ONCAP Funds is calculated based on the fair values of the DSU Plan enables Onex management to apply all or a portion of underlying investments and the overall unrealized gains in each their annual compensation earned to acquire DSUs based on the respective Fund in accordance with the limited partnership agree- market value of Onex shares at the time. The DSUs vest immedi- ments. The unrealized carried interest reduces the amount due ately and are redeemable only when the holder has ceased to be to the limited partners and will eventually be paid through the an officer or employee of the Company or an affiliate for a cash realization of the limited partners’ share of the underlying Onex payment equal to the then current market price of SVS. Additional Partners and ONCAP Fund investments. The change in net carried units are issued for any cash dividends paid on the SVS. The interest attributable to Onex is recognized through the charge for Company has recorded a liability for the future settlement of the the Limited Partners’ Interests. The unrealized carried interest of DSUs by reference to the value of the underlying SVS at the bal- the Onex Partners and ONCAP Funds attributable to management ance sheet date. On a quarterly basis, the liability is adjusted for is recognized as a liability within other non-current liabilities. The the change in the market value of the underlying shares, with the charge for the change in net carried interest attributable to man- corresponding amount reflected in the consolidated statements agement is recorded within other income (expense) in the con- of earnings. To economically hedge the Company’s exposure to solidated statements of earnings. changes in the trading price of Onex shares associated with the Management DSU Plan, the Company enters into forward agree- Incentive fees ments with a counterparty financial institution for all grants Onex Credit is entitled to incentive fees on other investors’ capital under the Management DSU Plan. As such, the change in value it manages. Incentive fees range between 5% and 20%, where appli- of the forward agreements will be recorded to offset the amounts cable. Certain incentive fees (including incentive fees on CLOs) recorded as stock-based compensation under the Management are subject to a hurdle or a minimum preferred return to investors. DSU Plan. The administrative costs of those arrangements are Onex acquired control of the Onex Credit asset management plat- borne entirely by participants in the plan. Management DSUs are form in January 2015. As such, beginning in January 2015, incen- redeemable only for cash and no shares or other securities of the tive fees earned by Onex Credit are entirely attributable to Onex for Corporation will be issued on the exercise, redemption or other accounting purposes. settlement thereof. Details of the Management DSUs outstanding under the plan are provided in note 19(d). Financial assets and financial liabilities The fifth type of plan is employee stock option and Financial assets and financial liabilities are initially recognized other stock-based compensation plans in place for employees at at fair value and are subsequently accounted for based on their various operating companies, under which, on payment of the classification, as described below. Transaction costs in respect of exercise price, stock of the particular operating company or cash an asset or liability not recorded at fair value through net earn- is issued. The Company records a compensation expense for such ings are added to the initial carrying amount. Gains and losses for options based on the fair value over the vesting period. financial instruments recognized through net earnings are pri- Carried interest marily recognized in other income (expense) in the consolidated statements of earnings. The classification of financial assets and Onex, as the General Partner of the Onex Partners and ONCAP financial liabilities depends on the purpose for which the financial Funds, is entitled to 20% of the realized net gains of the lim- instruments were acquired and their characteristics. Except in very ited partners in each Fund, provided the limited partners have limited circumstances, the classification is not changed subse- achieved a minimum 8% return on their investment. This share quent to initial recognition. Financial assets purchased and sold, of the net gains is referred to as carried interest. Onex is entitled where the contract requires the asset to be delivered within an to 40% of the carried interest realized in the Onex Partners Funds. established time frame, are recognized on a trade-date basis. Onex management is entitled to the remaining 60% of the carried interest realized in the Onex Partners Funds. ONCAP manage- a) Fair value through net earnings ment is entitled to that portion of the carried interest realized in Financial assets and financial liabilities that are purchased and the ONCAP Funds that equates to a 12% carried interest on both incurred with the intention of generating earnings in the near term limited partners’ and Onex’ capital. Once the ONCAP IV investors are classified as fair value through net earnings. Other instruments achieve a return of two times their aggregate capital contributions, may be designated as fair value through net earnings on initial rec- carried interest participation increases from 20% to 25% of the ognition. The short- and long-term investments managed by third- realized gains of the limited partners in ONCAP IV, equating to a party investment managers, as described in note 10(d), have been 15% carried interest for ONCAP management on both limited part- recognized at fair value through net earnings. The long-term debt of ners’ and Onex’ capital. 112 Onex Corporation December 31, 2016 the CLOs is designated at fair value through net earnings upon initial recognition to eliminate a measurement inconsistency, as the asset portfolio of the CLOs is recorded at fair value through net earnings. N O T E S T O C O N S O L I D AT E D F I N A N C I A L S TAT E M E N T S b) Available-for-sale Derivatives that are not designated as effective hedg- Financial assets classified as available-for-sale are carried at fair ing relationships continue to be accounted for at fair value, with value, with the changes in fair value recorded in other comprehen- changes in fair value being included in other income (expense) in sive earnings. Securities that are classified as available-for-sale and the consolidated statements of earnings. which do not have a quoted price in an active market are recorded When derivatives are designated as effective hedging at fair value, unless fair value is not reliably determinable, in which relationships, the Company classifies them either as: (a) hedges case they are recorded at cost. Available-for-sale securities are writ- of the change in fair value of recognized assets or liabilities or firm ten down to fair value through earnings whenever it is necessary commitments (fair value hedges); (b) hedges of the variability to reflect an impairment. Gains and losses realized on disposal of in highly probable future cash flows attributable to a recognized available-for-sale securities, which are calculated on an average asset or liability or a forecasted transaction (cash flow hedges); or cost basis, are recognized in earnings. Impairments are determined (c) hedges of net investments in a foreign self-sustaining opera- based on all relevant facts and circumstances for each invest- tion (net investment hedges). ment and recognized when appropriate. Foreign exchange gains and losses on available-for-sale assets are recognized immediately a) Fair value hedges in earnings. c) Held-to-maturity investments Changes in the fair value of derivatives that are designated and qualify as fair value hedging instruments are recorded in the con- solidated statements of earnings, along with changes in the fair Securities that have fixed or determinable payments and a fixed value of the assets, liabilities or group thereof that are attributable maturity date, which the Company intends and has the ability to to the hedged risk. hold to maturity, are classified as held-to-maturity and account- ed for at amortized cost using the effective interest rate method. b) Cash flow hedges Investments classified as held-to-maturity are written down to The Company is exposed to variability in future interest cash fair value through earnings whenever it is necessary to reflect an flows on non-trading assets and liabilities that bear interest at impairment. Impairments are determined based on all relevant variable rates or are expected to be reinvested in the future. facts and circumstances for each investment and recognized The effective portion of changes in the fair value of deriv- when appropriate. d) Loans and receivables atives that are designated and qualify as cash flow hedges is recog- nized in other comprehensive earnings. Any gain or loss in fair value relating to the ineffective portion is recognized immediately in the Financial assets that are non-derivative with fixed or determinable consolidated statements of earnings in other income (expense). payments that are not quoted in an active market are classified Amounts accumulated in other comprehensive earnings as loans and receivables. These instruments are accounted for at are reclassified in the consolidated statements of earnings in the amortized cost using the effective interest rate method. period in which the hedged item affects earnings. However, when the forecasted transaction that is hedged results in the recogni- e) Financial liabilities measured at amortized cost tion of a non-financial asset or a non-financial liability, the gains Financial liabilities not classified as fair value through net earn- and losses previously deferred in other comprehensive earnings ings or loans and receivables are accounted for at amortized are transferred from other comprehensive earnings and included cost using the effective interest rate method. Long-term debt has in the initial measurement of the cost of the asset or liability. been designated as a financial liability measured at amortized When a hedging instrument expires or is sold, or when cost with the exception of long-term debt in the CLOs, which has a hedge no longer meets the criteria for hedge accounting, any been designated to be recorded at fair value through net earnings. cumulative gain or loss existing in other comprehensive earnings Derivatives and hedge accounting at that time remains in other comprehensive earnings until the forecasted transaction is recognized in the consolidated state- At the inception of a hedging relationship, the Company docu- ments of earnings. When a forecasted transaction is no longer ments the relationship between the hedging instrument and the expected to occur, the cumulative gain or loss that was reported in hedged item, its risk management objectives and its strategy for other comprehensive earnings is immediately transferred to the undertaking the hedge. The Company also requires a documented consolidated statements of earnings. assessment, both at hedge inception and on an ongoing basis, of whether or not the derivatives that are used in the hedging transac- tions are highly effective in offsetting the changes attributable to the hedged risks in the fair values or cash flows of the hedged items. Onex Corporation December 31, 2016 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 c) Net investment hedges Earnings per share Hedges of net investments in foreign operations are accounted for Basic earnings per share is based on the weighted average num- in a manner similar to cash flow hedges. Any gain or loss on the ber of SVS outstanding during the year. Diluted earnings per share hedging instrument relating to the effective portion of the hedge is calculated using the treasury stock method. is recognized in other comprehensive earnings. The gain or loss relating to the ineffective portion is recognized immediately in the Dividend distributions consolidated statements of earnings in other income (expense). Dividend distributions to the shareholders of Onex Corporation Gains and losses accumulated in other comprehensive earnings are recognized as a liability in the consolidated balance sheets in are included in the consolidated statements of earnings upon the the period in which the dividends are declared and authorized by reduction or disposal of the investment in the foreign operation. the Board of Directors. Impairment of financial instruments Use of judgements and estimates The Company assesses at each reporting date whether there is The preparation of financial statements in conformity with IFRS objective evidence that a financial asset or group of financial requires management to make judgements, estimates and assump- assets is impaired. Where an impairment exists for available-for- tions that affect the reported amounts of assets, liabilities and equi- sale financial assets, the cumulative loss, measured as the differ- ty, the related disclosures of contingent assets and liabilities at the ence between the acquisition cost and the current fair value, less date of the financial statements, and the reported amounts of reve- any impairment loss on that financial asset previously recognized nue and expenses during the reporting period. Actual results could in earnings, is removed from equity and recognized in earnings. differ materially from those estimates and assumptions. These Derecognition of financial instruments estimates and underlying assumptions are reviewed on an ongo- ing basis. Revisions to accounting estimates are recognized in the A financial asset is derecognized if substantially all risks and period in which the estimate is revised if the revision affects only rewards of ownership and, in certain circumstances, control of the that period, or in the period of the revision and future periods if the financial asset are transferred. A financial liability is derecognized revision affects both current and future periods. when it is extinguished, with any gain or loss on extinguishment to Areas that involve critical judgements, assumptions and be recognized in other income (expense) in the consolidated state- estimates and that have a significant influence on the amounts ments of earnings. recognized in the consolidated financial statements are further Assets held for sale and discontinued operations An asset is classified as held for sale if its carrying amount will be Business combinations described as follows: recovered by the asset’s sale rather than by its continuing use in In a business combination, substantially all identifiable assets, the business, the asset is available for immediate sale in its pres- liabilities and contingent liabilities acquired are recorded at the ent condition and management is committed to, and has initi- date of acquisition at their respective fair values. One of the most ated, a plan to sell the asset which, when initiated, is expected to significant areas of judgement and estimation relates to the deter- result in a completed sale within 12 months. An extension of the mination of the fair value of these assets and liabilities, including period required to complete the sale does not preclude the asset the fair value of contingent consideration, if applicable. Land, build- from being classified as held for sale, provided the delay is for rea- ings and equipment are usually independently appraised while sons beyond the Company’s control and management remains short- and long-term investments are valued at market prices. If any committed to its plan to sell the asset. Assets that are classified as intangible assets are identified, depending on the type of intangible held for sale are measured at the lower of their carrying amount asset and the complexity of determining its fair value, an indepen- or fair value less costs to sell and are no longer depreciated. The dent external valuation expert may determine the fair value, using determination of fair value less costs to sell involves judgement by appropriate valuation techniques, which are generally based on a management to determine the probability and timing of disposi- forecast of the total expected future net cash flows. These valuations tion and the amount of recoveries and costs. are linked closely to the assumptions made by management regard- A discontinued operation is a component of the ing the future performance of the assets concerned and any changes Company that has either been disposed of, or satisfies the criteria in the discount rate applied. to be classified as held for sale, and represents a separate major In certain circumstances where estimates have been line of business or geographic area of operations, is part of a sin- made, the companies may obtain third-party valuations of certain gle coordinated plan to dispose of a separate major line of busi- assets, which could result in further refinement of the fair-value ness or geographic area of operations, or is an operating company allocation of certain purchase prices and accounting adjustments. acquired exclusively with a view to its disposal. 114 Onex Corporation December 31, 2016 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 use of long-term projections. ing control. Onex has used judgement when assessing the many Valuation methodologies include observations of the trading mul- factors to determine control, including its exposure through invest- tiples of public companies considered comparable to the private ments in the most subordinate capital of the CLOs, its role in the companies being valued and discounted cash flows. The valuations formation of the CLOs, the rights of other investors in the CLOs and take into consideration company-specific items, the lack of liquid- control of the asset manager of the CLOs. Onex has determined that ity inherent in a non-public investment and the fact that compa- it is a principal of the CLOs with the power to affect the returns of rable public companies are not identical to the companies being its investment and, as a result, indirectly controls the CLOs. valued. Considerations are necessary because, in the absence During 2016 and 2015, Onex invested capital in and of a committed buyer and completion of due diligence similar to received distributions and proceeds from the CLOs and warehouse that performed in an actual negotiated sale process, there may be facilities, as described in note 10(a). Onex intends to provide addi- company-specific items that are not fully known that may affect tional financial collateral for CLO warehouse facilities. The collat- value. In addition, a variety of additional factors is reviewed by eral to be provided for the warehouse facilities is expected to be management, including, but not limited to, financing and sales substantially reinvested in the most subordinated notes and equity transactions with third parties, current operating performance and of the CLOs upon closing. Fair value of investments and debt of CLOs not quoted in an active market future expectations of the particular investment, changes in market outlook and the third-party financing environment. In determining changes to the valuations, emphasis is placed on current company performance and market conditions. For publicly traded invest- The fair value of investments and debt of CLOs not quoted in an ments, the valuation is based on closing market prices less adjust- active market may be determined by Onex Credit using reputa- ments, if any, for regulatory and/or contractual 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 fair the pricing sources may be indicative and not executable or bind- value hierarchy). Further information is provided in note 16. Invest- ing. The Company has exercised judgement and estimates on the ments in joint ventures and associates designated at fair value are quantity and quality of the pricing sources used. Where no market measured with significant unobservable inputs (Level 3 of the fair data is available, Onex Credit may value positions using models, value hierarchy). Further information is provided in notes 10 and 29. which include the use of third-party pricing information and are usually based on valuation methods and techniques generally Goodwill impairment tests and recoverability of assets recognized as standard within the industry. The Company tests at least annually whether goodwill has suf- Models use observable data, to the extent practicable. fered any impairment, in accordance with its accounting policies. However, areas such as credit risk (both own and counterparty), The determination of the recoverable amount of a CGU (or group volatilities and correlations may require the Company to make of CGUs) to which goodwill is allocated involves the use of esti- estimates. Changes in assumptions about these factors could mates by management. The Company generally uses discounted affect the reported fair value of financial instruments. cash flow-based methods to determine these values. These dis- Limited Partners’ Interests, carried interest and investments in joint ventures and associates counted cash flow calculations typically use five-year projections that are based on the operative plans approved by management. Cash flow projections take into account past experience and rep- The measurement of the Limited Partners’ Interests, carried inter- resent management’s best estimate of future developments. Cash est and investments in joint ventures and associates at fair value flows after the planning period are extrapolated using estimated through earnings is significantly impacted by the fair values of the growth rates. Key assumptions on which management has based Company’s investments held by the Onex Partners and ONCAP its determination of fair value less costs to sell and value-in-use Funds. The fair values of these investments are assessed at each include estimated growth rates, weighted average cost of capital reporting date, with changes reflected in the measurement of the and tax rates. These estimates, including the methodology used, Limited Partners’ Interests, carried interest and investments in can have a material impact on the respective values and ultimate- joint ventures and associates at fair value through earnings. ly the amount of any goodwill impairment. In the year of acquisi- tion, the fair value in excess of the carrying value at an operating Onex Corporation December 31, 2016 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 company will typically be minimal as a result of the recent business sheet date, the Company assesses whether the realization of future combination accounting. Note 26 provides details on the signifi cant tax benefits is sufficiently probable to recognize deferred tax assets. estimates used in the calculation of the recoverable amounts for This assessment requires the exercise of judgement on the part of impairment testing. Likewise, whenever property, plant and equip- management with respect to, among other things, benefits that ment and other intangible assets are tested for impairment, the could be realized from available tax strategies and future taxable determination of the assets’ recoverable amount involves the use income, as well as other positive and negative factors. The recorded of estimates by management and can have a material impact on the amount of total deferred tax assets could be reduced if estimates respective values and ultimately the amount of any impairment. of projected future taxable income and benefits from available Revenue recognition tax strategies are lowered, or if changes in current tax regulations are enacted that impose restrictions on the timing or extent of the • Revenues for ResCare in the health and human services seg- Company’s ability to utilize future tax benefits. ment are substantially derived from U.S. federal, state and The Company, including the operating companies, uses local government agency programs, including Medicaid and significant judgement when determining whether to recognize Medicare. Laws and regulations under these programs are deferred tax liabilities with respect to taxable temporary differ- complex and subject to interpretation. Management may be ences associated with investments in subsidiaries, joint ventures required to exercise judgement for the recognition of revenue and associates; in particular, whether the Company is able to con- under these programs. Management of ResCare believes that trol the timing of the reversal of the temporary differences and they are in compliance with all applicable laws and regula- whether it is probable that the temporary differences will not tions. Compliance with such laws and regulations is subject reverse in the foreseeable future. Judgement includes consider- to ongoing and future government review and interpretation, ation of the Company’s future cash requirements in its numerous including the possibility of processing claims at lower amounts tax jurisdictions. upon audit, as well as significant regulatory action including revenue adjustments, fines, penalties and exclusion from pro- Legal provisions and contingencies grams. Government agencies may condition their contracts The Company and its operating companies in the normal course upon a sufficient budgetary appropriation. If a government of operations become involved in various legal proceedings, as agency does not receive an appropriation sufficient to cover its described in note 31(b). While the Company cannot predict the contractual obligations, it may terminate the contract or defer final outcome of such legal proceedings, the outcome of these or reduce reimbursements to be received by the company. In matters may have a material effect on the Company’s con- addition, previously appropriated funds could also be reduced solidated financial position, results of operations or cash flows. or eliminated through subsequent legislation. Management regularly analyzes current information about these • Revenues for Schumacher in the other segment are recognized matters and provides provisions for probable contingent losses, net of an allowance for uncompensated care related to uninsured including the estimate of legal expenses to resolve the matters. patients in the period during which the services are provided. Internal and external counsel are used for these assessments. In The allowance for uncompensated care is estimated on the basis making the decision regarding the need for provisions, manage- of historical experience of collections associated with self-pay ment considers the degree of probability of an unfavourable out- patients treated during the period. Income taxes come and the ability to make a sufficiently reliable estimate of the amount of loss. The filing of a suit or formal assertion of a claim or the disclosure of any such suit or assertion does not automatically The Company, including the operating companies, operates and indicate that a provision may be appropriate. earns income in numerous countries and is subject to changing tax laws or application of tax laws in multiple jurisdictions within Employee benefits these countries. Significant judgement is necessary in determining Onex, the parent company, does not provide pension, other retire- worldwide income tax liabilities. Although management believes ment or post-retirement benefits to its employees or to those of that it has made reasonable estimates about the final outcome of any of the operating companies. The operating companies that tax uncertainties, no assurance can be given that the final outcome offer pension and non-pension post-retirement benefits account of these tax matters will be consistent with what is reflected in the for these benefits in accordance with actuarial valuations. These historical income tax provisions. Such differences could have an valuations rely on statistical and other factors in order to antici- effect on income tax liabilities and deferred tax liabilities in the pate future events. These factors include key actuarial assump- period in which such determinations are made. At each balance tions, including the discount rate, expected salary increases and 116 Onex Corporation December 31, 2016 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 mortality rates. These actuarial assumptions may differ materi- IFRS 16 – Leases ally from actual developments due to changing market and eco- In January 2016, the IASB issued IFRS 16, Leases, which replaces nomic conditions and therefore may result in a significant change IAS 17, Leases. The standard provides an updated definition of a in post-retirement employee benefit obligations and the related lease contract, including guidance on the combination and separa- future expense. Note 32 provides details on the estimates used in tion of contracts. The standard requires lessees to recognize a right- accounting for pensions and post-retirement benefits. of-use asset and a lease liability for substantially all lease contracts. Stock-based compensation The accounting for lessors is substantially unchanged from IAS 17. IFRS 16 is effective for annual periods beginning on or after Janu- The Company’s stock-based compensation accounting for its MIP ary 1, 2019, with earlier application permitted if IFRS 15 is also options is completed using an internally developed valuation applied. The Company is currently evaluating the impact of adopt- model. The critical assumptions and estimates used in the valua- ing this standard on its consolidated financial statements. tion model include the fair value of the underlying investments, the time to expected exit from each investment, a risk-free rate and an 2 . 2 016 S I G N I F I C A N T T R A N S A C T I O N S industry comparable historical volatility for each investment. The fair value of the underlying investments includes critical assump- tions and estimates, as described for Limited Partners’ Interests, carried interest and investments in joint ventures and associates. 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 In May 2014, the IASB issued IFRS 15, Revenue from Contracts with Customers, which provides a comprehensive five-step revenue rec- ognition 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 peri- ods beginning on or after January 1, 2018, with earlier application permitted. The Company is currently evaluating the impact of adopting this standard on its consolidated financial statements. IFRS 9 – Financial Instruments In July 2014, the IASB issued a final version of IFRS 9, Financial Instruments, which replaces IAS 39, Financial Instruments: Recog nition and Measurement, and supersedes all previous versions of the standard. The standard introduces a new model for the classi- fication 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 account- ing that is aligned with a company’s risk management activities. IFRS 9 is effective for annual periods beginning on or after Janu- ary 1, 2018, with earlier application permitted. The Company is currently evaluating the impact of adopting this standard on its consolidated financial statements. a) Repayment of promissory notes by Jack’s In connection with the acquisition of Jack’s in July 2015, as dis- cussed in note 3(f ), the Company’s initial investment included a $195 promissory note held by Onex Partners IV. During 2015, Jack’s made repayments of the promissory note, as discussed in note 3(f ). During the first half of 2016, Jack’s made repayments of the promissory note totalling $40, 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 $12. In June 2016, the balance of $14 outstanding under the promissory note, of which Onex’ share was $4, was converted into additional equity of Jack’s in accordance with the promissory note agreement. Subsequent to the transaction, Onex Partners IV has a 96% economic interest in Jack’s, of which Onex’ share is 28%. b) CLO-11 In January 2016, Onex established a warehouse facility in con- nection with its eleventh CLO denominated in U.S. dollars. Onex invested $60 in subordinated notes to support the warehouse facility’s total return swap. In May 2016, Onex closed CLO-11, which was funded through the issuance of collateralized loan instruments in a series of tranches of secured notes, secured loans and preference shares in a private placement transaction for an aggregate principal amount of $502. The secured notes and loans were offered in an aggregate principal amount of $457. Upon the closing of CLO-11, Onex received $60 plus interest for the investment that supported the warehouse facil- ity and invested $41 for 100% of the most subordinated capital of CLO-11. The asset portfolio held by CLO-11 consists of cash and cash equivalents and corporate loans, and has been designated to be recorded at fair value. The reinvestment period of CLO-11, dur- ing which reinvestment can be made in collateral, ends in April 2018, or earlier, subject to certain provisions. The CLO-11 portfolio is pledged as collateral for the secured notes and loans. Onex con- solidates the operations and results of CLO-11. Onex Corporation December 31, 2016 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 c) Investment in Incline Aviation Fund by Onex, e) Sale of Univers by USI the parent company In May 2016, USI completed the sale of Custom Benefit Programs, In February 2016, Onex, the parent company, committed to invest- Inc., also known as Univers Workplace Benefits (“Univers”), a pro- ing $75 in Incline Aviation Fund, an aircraft investment fund man- vider of employee communication and benefits enrolment ser- aged by BBAM and focused on investments in leased commercial vices for employers. USI received net cash proceeds of $166 from jet aircraft. the sale and recognized a pre-tax gain of $44, which has been During 2016, Onex, the parent company, invested $13 in recorded in other gains. Univers did not represent a major line of Incline Aviation Fund, net of distributions and bridge financing business for USI. which have been returned to Onex. The Company has joint con- In December 2016, USI applied $50 of the net cash trol of Incline Aviation Fund. The investment in Incline Aviation proceeds from the sale of Univers toward the prepayment of its Fund has been recorded as a long-term investment at fair value term loans. through earnings, as described in note 10. In February 2017, the amount committed by Onex to f) Acquisition of ECI by Schumacher investing in Incline Aviation Fund was reduced to $50, as described In June 2016, Schumacher acquired ECI Healthcare Partners in note 31(a). d) Sale of KraussMaffei (“ECI”), a provider of emergency and hospital medicine physi- cian management services in the United States, for $140. In con- nection with this transaction, Schumacher amended its senior In April 2016, the Company sold its entire investment in Krauss- secured credit facilities to increase its first lien term loan by $130, Maffei for a cash enterprise value of €925 ($1,000). Net proceeds from the sale were €717 ($821), which included proceeds to the management of KraussMaffei. Onex Partners III received net pro- ceeds of €669 ($753). Onex’ portion of the net proceeds was $195, including carried interest and after the reduction for amounts on as discussed in note 14(l). The balance of the purchase price was funded through a rollover of equity from management of ECI of $21. The adjusted purchase price recognized at the date of clos- ing was $136, as well as additional non-cash consideration of $6. Subsequent to the transaction, Onex Partners IV has a 68% eco- account of the MIP. Net proceeds to Onex Partners III and Onex nomic interest in Schumacher, of which Onex’ portion is 20%. included net realized losses from foreign exchange hedges of $13 and $3, respectively. The net proceeds include €9 ($10) held in escrow, of which Onex’ share is €2 ($2), and a working capital adjustment of €5 ($6), of which Onex’ share is €2 ($2). The escrow and working capital adjustment are expected to be received dur- g) CLO-12 In July 2016, Onex established a warehouse facility in connection with its twelfth CLO denominated in U.S. dollars. Onex invested $60 in preferred shares to support the warehouse facility and a ing 2017. The sale resulted in a gain of $500 based on the excess financial institution provided borrowing capacity of up to $240. of the proceeds over the carrying value of the investment. Onex’ In October 2016, Onex closed CLO-12, which was fund- share of the gain was $467, which was entirely attributable to the ed through the issuance of collateralized loan instruments in a equity holders of Onex Corporation, as the interests of the Limited series of tranches of secured notes and preference shares in a pri- Partners were recorded as a financial liability at fair value. vate placement transaction for an aggregate principal amount of Amounts received on account of the carried interest $558. The secured notes were offered at an aggregate principal related to this transaction totalled $30. Consistent with the terms amount of $501. of Onex Partners, Onex was allocated 40% of the carried interest, Upon the closing of CLO-12, Onex received $60 plus with 60% allocated to management. Onex’ share of the carried interest for the investment that supported the warehouse facil- interest received was $12 and was included in the net proceeds ity and invested $56 for 100% of the most subordinated capital of to Onex. The carried interest that would have otherwise been dis- CLO-12. The asset portfolio held by CLO-12 consists of cash and tributed to Onex was reduced by $7 as a result of the realized loss cash equivalents and corporate loans, and has been designated from the sale of Tropicana Las Vegas, Inc. (“Tropicana Las Vegas”) to be recorded at fair value. The reinvestment period of CLO-12, in August 2015. Management’s share of the carried interest was $18 during which reinvestment can be made in collateral, ends in and has been similarly reduced as a result of the realized loss from October 2020, or earlier, subject to certain provisions. The CLO-12 the sale of Tropicana Las Vegas. Amounts paid on account of the portfolio is pledged as collateral for the secured notes. Onex con- MIP totalled $7 for this transaction and have been deducted from solidates the operations and results of CLO-12. the net proceeds to Onex. The operations of KraussMaffei have been presented as discontinued in the consolidated statements of earnings and cash flows for the years ended December 31, 2016 and 2015, as presented in note 8. 118 Onex Corporation December 31, 2016 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 h) AIT unit repurchase and distributions same cost as the original investment. The additional investment of In July 2016, AIT entered into a new credit facility consisting of $25 made by Onex represented Onex’ pro-rata share of the portion a $225 term loan. The net proceeds from the credit facility were of the investment that was transferred to ONCAP IV. Subsequent used in August 2016 to repurchase units from investors other than to the syndication, ONCAP III and IV each held a $62 investment Onex Partners IV and to fund a distribution of $174. As a result in Tecta. Onex’ investment in Tecta consisted of $18 through of the unit repurchase, Onex Partners IV’s economic interest in ONCAP III and $25 through ONCAP IV for a combined 33% eco- AIT increased to 50%, of which Onex’ share was an 11% economic nomic interest. Tecta is included within the other segment. interest. Onex Partners IV’s share of the distribution was $107, of which Onex’ share was $24. k) Acquisition of WireCo In addition, during 2016, AIT distributed an additional In September 2016, Onex Partners IV acquired control and an initial $18 to Onex Partners IV, of which Onex’ share was $3. The addi- 72% economic interest through a recapitalization of WireCo, a lead- tional distributions were funded by the company’s free cash flow. ing global manufacturer of mission-critical steel wire rope, syn- i) Sale of Cicis thetic rope, specialty wire and engineered products, for $916. Onex Partners IV invested $270 in WireCo, of which Onex’ share was $76. In August 2016, ONCAP II sold its investment in CiCi’s Holdings, The remainder of the recapitalization was financed with first and Inc. (“Cicis”) for net proceeds of $66, of which Onex’ share was second lien debt financing, as described in note 14(q). WireCo is $29. Included in the net proceeds is $13 held in escrow, of which included within the other segment. Onex’ share is $6. ONCAP management received $1 in carried interest on the sale of Cicis. The impact to Onex and Onex man- l) Acquisition of Clarivate Analytics agement was a net payment of less than $1 in carried interest to In October 2016, Onex, in partnership with Baring Private Equity ONCAP management. Asia, completed the acquisition of the Intellectual Property and The Company recorded a pre-tax gain of $28 based on Science business from Thomson Reuters for $3,550. The busi- the excess of the proceeds over the carrying value of the invest- ness, which now operates as Clarivate Analytics, owns and oper- ment. Onex’ share of the pre-tax gain was $12. The gain on the sale ates a collection of leading subscription-based businesses focused is entirely attributable to the equity holders of Onex Corporation, on scientific and academic research, patent analytics and regula- as the interests of the limited partners were recorded as a finan- tory standards, pharmaceutical and biotech intelligence, trademark cial liability at fair value. protection, domain brand protection and intellectual property Cicis did not represent a separate major line of busi- management. The equity investment was $1,635 for a 100% eco- ness, and as a result, the operating results up to the date of dispo- nomic interest in Clarivate Analytics. The Company’s equity invest- sition have not been presented as a discontinued operation. The ment of $1,177 was comprised of $700 from Onex Partners IV and cash proceeds recorded in the consolidated statements of cash $477 as a co-investment from Onex and certain limited partners, flows for the sale of Cicis were reduced for Cicis’ cash and cash for a 72% economic interest. Onex’ share of the equity investment equivalents of $13 at the date of sale. was $419, and was comprised of $197 through Onex Partners IV and j) Acquisition of Tecta $222 as a co-investment, for a 26% economic interest. The remain- der of the purchase price was financed with debt financing, with- In August 2016, ONCAP III completed the acquisition of Tecta out recourse to Onex Corporation. Clarivate Analytics is included Amer ica Corporation (“Tecta”). Based in the United States, Tecta within the business and information services segment. is a leading national commercial roofing company offering instal- lation, replacement and repair services. The equity investment m) Distributions from JELD-WEN in Tecta was $124, for a 97% economic interest, and was initially In November 2016, JELD-WEN amended its existing credit facil- comprised of an investment of $99 by ONCAP III and an addi- ity to borrow an incremental $375, as described in note 14(h). The tional investment of $25 by Onex. Onex’ combined investment proceeds from the incremental borrowing, along with a draw on was $54, for a 42% economic interest. The remainder of the pur- the company’s revolving credit facility, were used to fund a distri- chase price was financed with debt financing, without recourse to bution of $400 to shareholders. Onex Partners III’s and certain lim- Onex Corporation, and through a rollover of equity by manage- ited partner co-investors’ share, including Onex, of the distribu- ment of Tecta. tion was $327. Onex’ portion of the distribution was $81, of which In December 2016, following the consent previously $46 related to Onex’ investment through Onex Partners III and $35 received from the Advisory Committee of ONCAP III, the General related to Onex’ co-investment. The remaining balance was pri- Partner of ONCAP III syndicated $37 of the investment in Tecta, marily distributed to third-party shareholders and management of representing 29% of the economic interest, to ONCAP IV at the JELD-WEN. Onex Corporation December 31, 2016 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 In addition, in August 2016 JELD-WEN distributed a pur- r) Initial public offering by JELD-WEN chase price adjustment of $24 related to the initial investment in In January 2017, JELD-WEN completed an initial public offering of JELD-WEN in October 2011 to Onex Partners III and certain lim- 28.75 million shares of its common stock (NYSE: JELD), including ited partner co-investors, including Onex. Onex’ share of the pur- the exercise of the over-allotment option. The offering was priced chase price adjustment was $6. n) ONCAP IV at $23.00 per share for gross proceeds of $661. As part of the offer- ing, JELD-WEN issued approximately 22.3 million treasury shares. The net proceeds from treasury shares were used to repay $375 In November 2016, Onex completed fundraising for ONCAP IV, of JELD-WEN’s combined term loan with the balance for working reaching aggregate commitments of $1,107, including Onex’ com- capital and other general corporate purposes. Onex Partners III mitment of $480, as described in note 31(k). and certain limited partner co-investors, including Onex, sold approximately 6.5 million shares in the transaction for net pro- o) Acquisition of Wilhelmsen Safety by Survitec ceeds of $140. Onex’ portion of the net proceeds was $40, includ- In November 2016, Survitec completed the acquisition of the safety- ing approximately $6 of carried interest. related business activities of Wilhelmsen Maritime Services (“Wil- Amounts received on account of the carried interest helmsen Safety”) for £164 ($205). The adjusted purchase price related to this transaction totalled $14. Consistent with the terms recognized at the date of closing was £161 ($200). In connection of Onex Partners, Onex was allocated 40% of the carried interest, with the transaction, Onex Partners IV invested $35 in Survitec, of with 60% allocated to management. Onex’ share of the carried inter- which Onex’ share was $8. The remainder of the purchase price est received was $6 and was included in the net proceeds to Onex. and transaction costs was funded through a rollover of equity by Management’s share of the carried interest was $8. No amounts Wilhelmsen Maritime Services of $80 and with proceeds from were paid on account of the MIP for this transaction as the required Survitec’s existing senior secured credit facilities. Subsequent to realized investment return hurdle for Onex was not met at this time. the transaction, Onex Part ners IV had a 79% economic interest in Onex Partners III and certain limited partner co-inves- Survitec, of which Onex’ share was an 18% economic interest. tors, including Onex, continue to hold approximately 62.8 million p) Acquisition of Save-A-Lot shares of JELD-WEN’s common stock for a 60% economic interest, of which Onex’ share is approximately 15.5 million shares for a 15% In December 2016, the Company completed the acquisition of economic interest. Since this transaction did not result in a loss of the Save-A-Lot business (“Save-A-Lot”) from SUPERVALU INC. control of JELD-WEN, the transaction will be recorded as a transfer for $1,365. Save-A-Lot is one of the largest hard-discount grocery of equity to non-controlling interests holders in the consolidated retailers for value-seeking shoppers in the United States. Onex financial statements, with the cash proceeds received in excess of Partners IV invested $660 for a 100% economic interest in Save- the historical accounting carrying value being recorded directly to A-Lot, of which Onex’ share was $186 for a 28% economic interest. retained earnings. The balance of the purchase price was substantially financed with debt financing, without recourse to Onex Corporation. Save-A-Lot s) Warehouse facility of CLO-13 is included within the food retail and restaurants segment. In February 2017, Onex established a warehouse facility in con- nection with its thirteenth CLO denominated in U.S. dollars. Onex q) Pending acquisition of Parkdean Resorts invested $10 in subordinated notes to support the warehouse facil- In December 2016, Onex Partners IV agreed to acquire Parkdean ity and a financial institution provided an initial borrowing capac- Resorts, a leading operator of caravan holiday parks in the United ity of up to $40. The subordinated notes do not have a stated rate Kingdom, for £1,350. The Company expects to make an invest- of interest, but will receive certain excess available funds after ment of $627, comprised of $427 from Onex Partners IV and $200 payment of principal, accrued interest and certain expenses upon as a co-investment from Onex and certain limited partners, for an closing of CLO-13. The asset portfolio consists of cash and cash economic interest of approximately 91%. Onex’ share of the invest- equivalents and corporate loans and is pledged as collateral for ment is expected to be $170, comprised of $126 through Onex borrowings under the warehouse facility. The warehouse facility Partners IV and $44 as a co-investment, for an economic interest matures on the earlier of the closing of CLO-13 and February 2018. of approximately 25%. In connection with this transaction, Onex Onex is expected to consolidate the warehouse facility for CLO-13. Partners IV and certain limited partner co-investors, including Onex, have entered into agreements to hedge the commitment to pay the purchase price denominated in pounds sterling against fluctuations in value relative to the U.S. dollar. The transaction is expected to close during the first quarter of 2017, subject to customary conditions and regulatory approvals. 120 Onex Corporation December 31, 2016 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 t) Distributions from operating businesses for the business. The Company’s previous interest in the Onex From January 1, 2016 through February 23, 2017, the Company Credit asset management platform was equity-accounted with a received distributions of $730 from certain operating businesses, carrying value of $49 and was derecognized at fair value, resulting of which $719 was received during the twelve months ended in the recognition of a non-cash gain of $38 during the first quar- Decem ber 31, 2016. Onex’ portion of the distributions, including ter of 2015. carried interest, was $210, of which $205 was received during the The Onex Credit asset management platform was previ- twelve months ended Decem ber 31, 2016. The distributions include ously jointly controlled with Onex Credit’s chief executive officer, the repayments of the promissory note by Jack’s and the distribu- and Onex previously held a 70% economic interest in the busi- tions by AIT and JELD-WEN, as previously described in note 2. ness. Onex Credit’s management team remains in place with its The other significant distributions received by the Company are chief executive officer continuing to participate in the perfor- described below. mance of the Onex Credit asset management platform. Onex con- During the year ended December 31, 2016, BBAM dis- solidates 100% of the Onex Credit asset management platform, tributed $50 to Onex Partners III, of which Onex’ share was $13. with a reduced allocation of the net earnings to Onex Credit’s The distributions were funded by the company’s free cash flow. chief executive officer recognized as compensation expense. In June 2016, Meridian Aviation distributed $39 to As a result of the above transaction, the Company con- Onex Partners III, of which Onex’ share was $12, including car- solidates the Onex Credit asset management platform and certain ried interest of $2. The distribution was funded from cash on hand funds managed by Onex Credit in which Onex, the parent company, at Meridian Aviation, which was primarily from gains on invest- holds an investment. The Company’s previous interest in the Onex ments in aircraft. Credit Funds was recorded at a fair value of $475 and is included in During the year ended December 31, 2016, Flushing Town the net assets acquired for the purchase price allocation at the same Center distributed $37 of proceeds primarily from the sale of com- amount. The interests of other investors in the Onex Credit Funds mercial units, of which Onex’ share was $33. The distributions by consolidated by Onex are presented as Limited Partners’ Interests Flushing Town Center included $8 related to the amounts held in for the Onex Credit Funds at fair value. The addition to the Limited escrow from the July 2015 sale of the retail space and adjoining park- Partners’ Interests included approximately $200 of investments held ing garage of Flushing Town Center, of which Onex’ share was $7. by the Onex and Onex Credit management teams. In December 2016, Hopkins Manufacturing Corporation (“Hopkins”) entered into a new credit facility. The net proceeds b) Skilled Healthcare Group combination agreement from the credit facility were used to repay the existing credit In February 2015, Skilled Healthcare Group, Inc. (“Skilled Health- facilities and to fund an $80 distribution to shareholders. The care Group”) combined with Genesis HealthCare, LLC, a leading Company’s share of the distribution was $71, of which Onex’ share U.S. operator of long-term care facilities. The combined company was $21. ONCAP management received $4 in carried interest in now operates under the Genesis Healthcare name and continues January 2017 from the Hopkins distribution. The impact to Onex to be publicly traded (NYSE: GEN). The Company lost its multi- and Onex management was a net payment of less than $1 in carried ple voting rights, which reduced its voting ownership to 10% from interest to ONCAP management. 86% before the combination. Onex no longer controls Skilled In January 2017, PURE Canadian Gaming Corp. (“PURE Healthcare Group due to the loss of the multiple voting rights and, Canadian Gaming”) distributed C$15 to shareholders. ONCAP II therefore, the operations of Skilled Healthcare Group up to the and III’s portion of the distribution to shareholders was C$15 ($11), date of the transaction in February 2015 are presented as discon- of which Onex’ portion was C$6 ($5). tinued in the consolidated statements of earnings and cash flows. Earnings from discontinued operations of $70 for 3 . 2 015 S I G N I F I C A N T T R A N S A C T I O N S the year ended December 31, 2015 included the recognition of a a) Onex Credit asset management platform In January 2015, Onex acquired control of the Onex Credit asset management platform for $32, which included non-cash consid- eration of $6 associated with the issuance of 111,393 of Onex’ SVS. The acquisition of control of the Onex Credit asset management platform was accounted for based on an implied fair value of $119 non-cash gain of $68 associated with measuring the Company’s interest in Skilled Healthcare Group at fair value at the date of the combination. Subsequent to the February 2015 transaction date, the Company’s investment in the combined company has been recorded as an other long-term investment at fair value through earnings, with changes in fair value recorded in other income (expense). Onex Corporation December 31, 2016 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) Acquisition of Survitec Management of SIG completed investments in SIG In March 2015, the Company acquired Survitec for £450 ($670). during the second quarter of 2015, reducing the Company’s eco- Based in the United Kingdom, Survitec is a provider of mission- nomic interest in SIG at December 31, 2015 to 99%, of which Onex’ critical marine, defence and aerospace survival equipment. Onex portion was 33%. Partners IV invested $322 for substantially all of the equity, with At December 31, 2015, SIG had revised its estimate of the the remainder of the equity owned by Survitec’s management. Onex’ share of the equity investment was $73. The balance of the additional amount to €125 ($136), resulting in a recovery of €50 ($55) recognized in other income (expense). purchase price was substantially financed with debt financing, During 2016, SIG further revised its estimate of the addi- without recourse to Onex Corporation. The Company initially tional amount, as described in note 25(h). The additional amount acquired a 99% economic interest, of which Onex’ portion was based on the company’s financial performance in 2015 was paid 22%. Survitec is included within the other segment. during 2016. At December 31, 2016, the estimate of the additional In September 2015, Survitec acquired Survival Craft Inspec torate Limited (“SCI”) for up to £45 ($68). The purchase amount related to SIG’s financial performance in 2016 was €7 ($8). The amount represents management’s best estimate of the fair price consisted of £32 ($49) paid on closing of the transaction value at December 31, 2016, which is subject to sensitivity associ- and an additional amount of up to £13 ($19) payable based on ated with various factors, including foreign currency fluctuations, the future performance of SCI. Based in the United Kingdom, SCI as well as uncertainty regarding the treatment of certain items. is a supplier of certified lifeboat-related safety equipment and services. In connection with this transaction, Onex Partners IV e) Investment in ITG invested £9 ($13) in Survitec, of which Onex’ share was £2 ($3). In June 2015, the Company acquired a 45% economic interest in The remainder of the purchase price and transaction costs were Ingersoll Tools Group (“ITG”). Based in Canada and Spain, ITG is funded by Survitec through a draw on its acquisition facility and a global leader in the manufacturing of consumable wear com- an incremental term loan. d) Acquisition of SIG ponents that are embedded into agricultural soil preparation and seeding equipment implements. ITG is also a leading provider of branded manual hand tools to the agricultural, construction In March 2015, the Company completed the acquisition of SIG for and gardening end markets in the United States, Iberia and Latin a value of up to €4,040 ($4,250). Based in Switzerland, SIG pro- vides food and beverage producers with a comprehensive prod- America. The Company’s investment of $70 for joint control of ITG was made by ONCAP III. Onex’ share of the investment was $21 uct portfolio of aseptic carton packaging filling systems, aseptic and a 13% economic interest. carton packaging 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 included the recognition of €175 ($183) of the additional amount. The Company’s equity investment in SIG was completed in U.S. dollars in the amount f) Acquisition of Jack’s In July 2015, the Company completed the acquisition of Jack’s for $640. Based in the United States, Jack’s is a regional premi- um quick-service restaurant operator. Onex Partners IV initially invested a total of $415 in Jack’s, of which Onex’ portion was $120. The remainder of the purchase price was substantially financed of $1,215 for substantially all of the equity. The Company’s equi- with debt financing, without recourse to Onex Corporation. The ty investment was comprised of $583 from Onex Partners IV and Company’s initial investment in Jack’s consisted of an equity $632 as a co-investment from Onex and certain limited partners. investment of $220 and a $195 promissory note. Onex’ initial Onex’ total investment in SIG was $405 and was comprised of investment in Jack’s consisted of an equity investment of $63 and $131 through Onex Partners IV and $274 as a co-investment. The $57 of the promissory note. The Company initially acquired a 95% balance of the purchase price was financed with debt financing, economic interest in Jack’s, of which Onex’ portion was 27%. Jack’s without recourse to Onex Corporation. At the date of the acquisi- is included within the food retail and restaurants segment. tion, the Company had a 100% economic interest, of which Onex’ During the fourth quarter of 2015, Jack’s made repay- portion was 33%. SIG is included in the packaging products and ments of the promissory note totalling $143, including accrued services segment with sgsco. interest, with net proceeds from sale-leaseback transactions com- pleted for certain of its fee-owned restaurant properties. Onex’ share of the repayments was $41. During 2016, Jack’s made additional repayments of the promissory note, as described in note 2(a). 122 Onex Corporation December 31, 2016 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) Acquisition of Chatters the purchase price was financed by Schumacher with proceeds In July 2015, ONCAP III completed the acquisition of Chatters from an increase of $150 to its senior secured credit facilities and Canada (“Chatters”). Based in Canada, Chatters is a retailer and cash from Schumacher’s balance sheet. Onex’ share of the add- distributor of hair and beauty care products as well as an operator on investment in Schumacher was $30. The add-on investment and franchisor of hair and beauty salons. The Company’s equity increased the Company’s economic interest in Schumacher at that investment of C$55 ($43) was made by ONCAP III, of which Onex’ time to 71%, of which Onex’ portion was 21%. portion was C$16 ($13). The Company initially acquired an 81% economic interest in Chatters, of which Onex’ portion was 24%. j) Acquisition of STS by Mavis Discount Tire Chatters is included within the other segment. In August 2015, Mavis Tire Supply, LLC (“Mavis Discount Tire”) acquired Somerset Tire Service, Inc. (“STS”), one of the largest tire h) Partial realization of Flushing Town Center retailers in the United States. In conjunction with this transaction, In July and December 2015, Onex Real Estate Partners sold sub- the Company invested additional capital in Mavis Discount Tire. stantially all of the retail space and adjoining parking structures The Company’s investment was $48 and was comprised of $27 from of Flushing Town Center. Onex Real Estate Partners continues to ONCAP III and $21 as a co-investment from Onex and certain lim- develop the second phase of condominiums at the project. Onex ited partners. Onex’ total add-on investment in Mavis Discount Real Estate Partners received net proceeds of $136, of which Tire was $25 and was comprised of $8 through ONCAP III and $17 Onex’ share was $119. Included in the net proceeds was $8 held as a co-investment. In addition, in connection with this transac- in escrow, of which Onex’ share was $7. Amounts held in escrow tion, the Company’s consolidated results include an additional $2 were received during 2016, as described in note 2(t). No amounts equity investment by a third-party investor. Subsequent to the add- were paid on account of the MIP related to this transaction as the on investment, the Company had a 46% economic interest in Mavis required performance targets had not been met at that time. Onex Discount Tire, of which Onex’ portion was a 17% economic interest. Real Estate Partners recorded a pre-tax gain of $60 on the transac- tion, of which Onex’ share was $52. k) Sale of Tropicana Las Vegas The retail space and adjoining parking structures of In August 2015, Onex Partners III sold its entire investment in Flushing Town Center did not represent a major line of business, Tropicana Las Vegas for an enterprise value of $360. Onex Part- and as a result, the operating results up to the date of disposition ners III and certain limited partners received net proceeds of $230, have not been presented as a discontinued operation. of which Onex’ share was $50. The Company recorded a pre-tax i) Acquisition of Schumacher gain of $102 based on the excess of the proceeds over the carry- ing value of the investment. Onex’ share of the gain was $22. The In late July 2015, the Company acquired Schumacher for $690. gain on sale was entirely attributable to the equity holders of Onex Schumacher is a leading provider of emergency and hospital Corporation, as the interest of the limited partners was recorded as medicine physician practice management services in the United a financial liability at fair value. No amounts were paid on account States. Onex Partners IV invested a total of $219 in Schumacher, of the MIP for this transaction as the required investment return of which Onex’ portion was $63. The remainder of the purchase hurdle for Onex was not met. In addition, no carried interest was price was financed through a rollover of equity and cash con- paid or received on this transaction. As a result of the loss real- tributed by other investors, and with proceeds of $385 from its ized on Tropicana Las Vegas, the carried interest that would have senior secured facilities, without recourse to Onex Corporation. otherwise been distributed to Onex in respect of future realizations The Company initially acquired a 65% economic interest in Schu- in the Onex Partners III Fund was reduced by $7, as described in macher, of which Onex’ portion was 19%. Schumacher is included note 2(d). The amount of carried interest ultimately received from within the other segment. the Onex Partners III Fund will be based on the overall perfor- In August 2015, Schumacher acquired Hospital Physi cian mance of the Fund. Partners (“HPP”), a provider of emergency and hospital medicine Tropicana Las Vegas did not represent a major line of physician practice management services in the United States, for business, and as a result, the operating results up to the date of $271. In connection with this transaction, Onex Partners IV made disposition have not been presented as a discontinued operation. an add-on investment in Schumacher of $105 and the balance of The cash proceeds recorded in the consolidated statements of cash the equity was funded by an investment from the management flows for the sale of Tropicana Las Vegas were reduced for Tropicana of HPP and Schumacher and other investors. The remainder of Las Vegas’ cash and cash equivalents of $1 at the date of sale. Onex Corporation December 31, 2016 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 l) Sale of Sitel Worldwide In August 2015, USI amended its existing senior secured In September 2015, the Company sold its entire investment in credit facility, as described in note 14(p), to fund a distribution SITEL Worldwide Corporation (“Sitel Worldwide”). The Company’s of $230 to shareholders. Onex Partners III’s share of the distribu- cash proceeds were $35, of which Onex’ share was $33. In addition, tion was $181. Onex’ share of the distribution was $51, of which the Company had estimated it could receive an earn-out compo- $38 related to Onex’ investment through Onex Partners III and $13 nent of approximately $21, of which Onex’ share would be $20. No related to Onex’ co-investment. The balance of the proceeds was amounts were paid on account of the MIP for this transaction as primarily distributed to employees of USI. the required investment return hurdle for Onex was not met. In August 2015, PURE Canadian Gaming distributed C$25 A gain of $365 was recorded within discontinued opera- to shareholders, which was primarily funded by the company’s free tions during the third quarter of 2015 based on the excess of the cash flow generated during the year. ONCAP II and III’s share of the proceeds over the carrying value of the investment. The carrying distribution to shareholders was C$23 ($18), of which Onex’ share value of the investment was negative at the time of sale as a result was C$10 ($8). of the Company’s portion of the accumulated losses from the In October 2015, Meridian Aviation completed a distri- operations of Sitel Worldwide that offset the Company’s original bution of $85 to Onex Partners III, of which Onex’ share was $21. investments. Onex’ share of the gain was $360. During 2015, AIT completed distributions of $30, includ- In June 2016, the Company signed an agreement to set- ing a purchase price adjustment, to Onex Partners IV, of which tle the earn-out component from the sale. As a result, the Com- Onex’ share was $7. The distributions were funded by the com- pany expects to receive payments totalling $36 over a period of six pany’s free cash flow generated during the year. years. Onex’ share of the earn-out component is expected to be During 2015, BBAM completed distributions of $52 $33. A gain of $23 was recorded within discontinued operations to Onex Partners III, of which Onex’ share was $13. The distri- during the second quarter of 2016, of which Onex’ share was $21. butions were funded by the company’s free cash flow generated The gain reflects the present value of the future payments under during the year. the agreement. During 2016, the Company received $3 of the scheduled payments under the earn-out settlement agreement, of 4 . A C Q U I S I T I O N S which Onex’ share was $3. The operations of Sitel Worldwide up to the date of dis- position have been presented as discontinued in the consolidated statements of earnings and cash flows. m) Distributions from operating businesses During 2015, Onex and its partners received distributions from certain operating businesses of $988, including the repayment of the promissory note by Jack’s, as described in note 3(f ). Onex’ por- tion of the distributions was $257. The significant distributions are described below. In March 2015, ResCare increased its term loan, as described in note 14(j), to fund a distribution of $105 to share- holders. Onex Partners I and Onex Partners III’s portion of the dis- tribution was $47 and $50, respectively, of which Onex’ share was $20. The remaining balance was primarily distributed to the man- agement of ResCare. In July 2015, JELD-WEN increased its borrowings, as described in note 14(h), partially to fund a distribution of $432 to shareholders. Onex Partners III’s share of the distribution was $359. Onex’ share of 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 the management of JELD-WEN. During 2016 and 2015 several acquisitions, which were accounted for as business combinations, were completed either directly by Onex or through subsidiaries of Onex. Any third-party borrowings in respect of these acquisitions are without recourse to Onex. Business combinations are accounted for using the acquisition method. The cost of an acquisition is measured as the fair value of the assets given, equity instruments issued and lia- bilities incurred or assumed at the date of exchange. Identifiable assets acquired and liabilities and contingent liabilities assumed in a business combination are measured initially at fair value at the date of acquisition, irrespective of the extent of any non- controlling interests. The fair value is determined using a combi- nation of valuation techniques, including discounted cash flows and projected earnings multiples. The key inputs to the valua- tion techniques include assumptions related to future customer demand, material and employee-related costs, changes in mix of products and services produced or delivered, and restructuring programs. Any non-controlling interests in the acquired com- pany are measured either at fair value or at the non-controlling interests’ proportionate share of the identifiable assets and liabili- ties of the acquired business. The excess of the aggregate of the consideration transferred, the amount of any non-controlling interests in the acquired company and, in a business combina- tion achieved in stages, the fair value at the acquisition date of the Company’s previously held interest in the acquired company 124 Onex Corporation December 31, 2016 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 compared to the fair value of the identifiable net assets acquired In certain circumstances where preliminary estimates are recorded as goodwill. Acquisition-related costs are expensed have been made, the companies may obtain third-party valua- as incurred and related restructuring charges are expensed in the tions of certain assets, which could result in further refinement of periods after the acquisition date. Costs incurred to issue debt the fair value allocation of certain purchase prices and accounting are deferred and recognized, as described in note 1. Subsequent adjustments. The results of operations for all acquired businesses changes in the fair value of contingent consideration recorded as are included in the consolidated statements of earnings, compre- a liability at the acquisition date are recognized in consolidated hensive earnings and equity of the Company from their respective earnings or loss. dates of acquisition. 2 016 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: Schumacher(a) WireCo(b) Clarivate Analytics(c) Survitec(d) Save-A-Lot(e) JELD-WEN(f) USI(g) ONCAP(h) Other(i) Total Cash and cash equivalents $ Other current assets Intangible assets with limited life Intangible assets with indefinite life Goodwill Property, plant and equipment and other non-current assets Current liabilities Non-current liabilities Non-controlling interests in net assets 3 63 47 – 68 30 211 (28) (41) 142 $ 27 $ 324 46 299 59 $ 16 $ 30 $ 1 $ 186 2,204 112 112 160 170 1,273 367 1,176 (110) (680) 386 73 4,065 (348) (2,082) 1,635 – 70 21 278 (49) (29) 200 426 312 261 23 647 1,699 (306) (733) 660 27 48 – 16 16 108 (19) (2) 87 – 13 64 – 57 1 135 (14) – 121 $ 18 $ 138 65 3 188 21 433 (100) (171) 162 – 26 20 8 66 7 127 (10) (16) 101 $ 141 1,375 3,058 554 1,921 1,183 8,232 (984) (3,754) 3,494 – (116) (458) – – – – (4) – (578) Interests in net assets acquired $ 142 $ 270 $ 1,177 $ 200 $ 660 $ 87 $ 121 $ 158 $ 101 $ 2,916 a) In June 2016, Schumacher acquired ECI, as described in note 2(f ). g) USI completed nine acquisitions for total consideration of $121, of which $20 was non-cash consideration. b) In September 2016, the Company acquired WireCo, as described in note 2(k). h) ONCAP includes the acquisition of Tecta, as described in note 2(j). In addition, ONCAP includes acquisitions made by Brad- c) In October 2016, the Company acquired Clarivate Analytics, as described in note 2(l). Cash consideration paid for Clarivate shaw Inter national, Inc. (“Bradshaw”), Chatters, Cicis, EnGlobe Corp. and Tecta for total consideration of $34, of which $1 was Analytics includes the $458 contribution from Baring Private non-cash consideration. Equity Asia. d) In November 2016, Survitec acquired Wilhelmsen Safety, as described in note 2(o). i) Other includes acquisitions made by Carestream Health, Celes- tica, Emerald Expo si tions, Res Care and sgsco for total consider- ation of $101, of which $16 was non-cash consideration. e) In December 2016, the Company acquired Save-A-Lot, as Included in the acquisitions above were gross receivables of $595 described in note 2(p). f) JELD-WEN completed two acquisitions for total consider- ation of $87. due from customers, of which contractual cash flows of $16 are not expected to be recovered. The fair value of these receivables at the dates of acquisition was determined to be $579. Revenue and net losses from the date of acquisition for these acqui- sitions to December 31, 2016 were $1,226 and $164, respectively. Onex Corporation December 31, 2016 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 The Company estimates it would have reported consolidated rev- Goodwill of the acquisitions was attributable primarily to the enues of approximately $28,400 and a net loss of approximately skills and competence of the acquired workforce, non-contractual $275 for the year ended December 31, 2016 if acquisitions com- established customer bases and technological knowledge of the pleted during 2016 had occurred on January 1, 2016. acquired companies. Goodwill of the acquisitions that is expected to be deductible for tax purposes was $1,150. 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 are as follows: Survitec(j) SIG(k) Jack’s(l) Schumacher(m) ONCAP(n) Onex Credit(o) Other(p) 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) Interests 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. j) In March 2015, the Company acquired Survitec, as described in note 3(c). In September 2015, Survitec acquired SCI, as described o) The purchase price and allocation to the assets and liabilities acquired for Onex Credit include the acquisition of control of the in note 3(c). In addition, Survitec completed two other acquisitions Onex Credit asset management platform and the resulting con- during 2015 for total consideration of $6. solidation of certain Onex Credit Funds, as described in note 3(a). k) In March 2015, the Company completed the acquisition of SIG, as described in note 3(d). p) Other includes acquisitions made by Emerald Expositions, JELD-WEN, ResCare, sgsco, USI and York for total consideration of $342, of which $37 was non-cash consideration. Included in the 2015 acquisitions above were gross receivables of $443 due from customers, of which $31 of contractual cash flows were not expected to be recovered. The fair value of these receivables at the dates of acquisition was determined to be $412. Revenue and net earnings from the date of acquisition to December 31, 2015 for these acquisitions were $2,764 and $45, respectively. l) In July 2015, the Company completed the acquisition of Jack’s, as described in note 3(f ). m) In late July 2015, the Company acquired Schumacher, as described in note 3(i). In addition, in August 2015, Schumacher acquired HPP, as described in note 3(i). n) In July 2015, ONCAP III completed the acquisition of Chatters, as described in note 3(g). In addition, ONCAP includes acquisi- tions made by Cicis, Bradshaw, Davis-Standard Holdings, Inc. (“Davis-Standard”) and Hopkins Manufacturing Corporation (“Hopkins”) for total consideration of $30. 126 Onex Corporation December 31, 2016 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 estimates it would have reported consolidated rev- 6 . I N V E N T O R I E S enues of approximately $20,900 and a net loss of approximately $545 for the year ended December 31, 2015 if the acquisitions com- pleted during 2015 had occurred on January 1, 2015. Inventories comprised the following: As at December 31 2016 Goodwill of the 2015 acquisitions was attributable primarily to the skills and competence of the acquired workforce and non-con- tractual established customer bases and industry relationships of Raw materials Work in progress Finished goods the acquired companies. Goodwill of the 2015 acquisitions that Real estate held for sale $ 1,031 $ 280 1,066 354 2015 952 250 588 192 was expected to be deductible for tax purposes was $181. Total inventories $ 2,731 $ 1,982 5 . C A S H A N D C A S H E Q U I VA L E N T S Cash and cash equivalents comprised the following: As at December 31 2016 2015 Cash at bank and on hand $ 1,537 $ 1,458 Money market funds Commercial paper Bank term deposits and other 557 163 114 457 311 87 Total cash and cash equivalents $ 2,371 $ 2,313 Beginning in the second quarter of 2015, Onex, the parent company, transferred a portion of its cash and cash equivalents to accounts managed by third-party investment managers, as described in note 30. At December 31, 2016, the fair value of investments man- aged by third-party investment managers was $472 (2015 – $1,188), of which $147 (2015 – $204) was included in short-term investments and $325 (2015 – $984) was included in long-term investments. 8 . D I S C O N T I N U E D O P E R AT I O N S During the year ended December 31, 2016, $9,352 (2015 – $8,476) of inventory was expensed in cost of sales. Note 13(b) provides details on inventory provisions recorded by the Company. 7. O T H E R C U R R E N T A S S E T S Other current assets comprised the following: As at December 31 Restricted cash Prepaid expenses Other receivables Income and value-added taxes receivable Other $ 2016 314 250 179 143 304 $ 2015 196 144 135 123 322 Total other current assets $ 1,190 $ 920 The following tables show revenues, expenses and net after-tax results from discontinued operations. The sales of Cicis in August 2016 and Tropicana Las Vegas in August 2015 and the partial sales of Flushing Town Center during 2015, as described in notes 2 and 3, did not repre- sent separate major lines of business, and as a result, have not been presented as discontinued operations. Year ended December 31 2016 Sitel KraussMaffei(a) Worldwide(b) Total KraussMaffei(a) 2015 Sitel Worldwide(b) Skilled Healthcare Group(c) Revenues Expenses Earnings (loss) before income taxes Provision for income taxes Gain, net of tax $ 420 $ (461) (41) (4) 500 – – – – 23 Net earnings for the year $ 455 $ 23 $ 478 $ $ 420 $ 1,345 $ 1,009 $ (461) (41) (4) 523 (1,321) (1,060) 24 (19) − 5 (51) (10) 365 304 $ $ Total $ 2,423 (2,448) (25) (29) 433 379 $ 69 (67) 2 – 68 70 Onex Corporation December 31, 2016 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 a) KraussMaffei The following table shows the summarized assets and liabili- The operations of KraussMaffei have been presented as discontinued ties of discontinued operations. The balances as at December 31, in the consolidated statements of earnings and cash flows for the 2015 represent only those of KraussMaffei, as Sitel Worldwide and years ended December 31, 2016 and 2015, as described in note 2(d). Skilled Healthcare Group were sold in 2015. There were no assets or liabilities of discontinued operations at December 31, 2016, as b) Sitel Worldwide KraussMaffei was sold in April 2016. The operations of Sitel Worldwide have been presented as discon- tinued in the consolidated statements of earnings and cash flows As at December 31, 2015 KraussMaffei for the years ended December 31, 2016 and 2015, as described in note 3(l). c) Skilled Healthcare Group In February 2015, Skilled Healthcare Group combined with Genesis HealthCare, LLC, as described in note 3(b). As a result of the trans- action, Onex no longer controls Skilled Healthcare Group due to the loss of the multiple voting rights and, therefore, the operations of Skilled Health care Group up to the date of the transaction in February 2015 are presented as discontinued in the consolidated statements of earnings and cash flows. 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 $ 113 499 327 202 187 1,328 (485) (526) $ 317 The following table presents the summarized aggregate cash flows from (used in) discontinued operations of KraussMaffei (up to April 2016), Sitel Worldwide (up to September 2015) and Skilled Healthcare Group (up to February 2015). Year ended December 31 2016 KraussMaffei Sitel Worldwide 2015 Sitel Total KraussMaffei Worldwide Skilled Healthcare Group Operating activities Financing activities Investing activities Increase (decrease) in cash and cash equivalents for the year Increase (decrease) in cash due to changes in foreign exchange rates Cash and cash equivalents, beginning of the year Cash and cash equivalents, end of the year Proceeds from sales of operating companies no longer controlled $ 38 2 (155) (115) 2 113 – 805 $ 805 $ – $ 38 $ 132 $ 82 $ – – – – – – 3 $ 3 2 (155) (115) 2 113 – 808 $ 808 (64) (40) 28 (8) 93 113 − $ 113 (59) (32) (9) – 9 – 35 $ 35 $ 5 – (9) (4) – 4 – – – Total $ 219 (123) (81) 15 (8) 106 113 35 $ 148 128 Onex Corporation December 31, 2016 N O T E S T O C O N S O L I D AT E D F I N A N C I A L S TAT E M E N T S 9. P R O P E R T Y , P L A N T A N D E Q U I P M E N T Property, plant and equipment comprised the following: At December 31, 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 Closing net book amount At December 31, 2015 Cost Accumulated amortization and impairments Net book amount Year ended December 31, 2016 Opening net book amount Additions Disposals Amortization charge Acquisition of subsidiaries Disposition of operating companies Impairment charge Transfers from construction in progress Foreign exchange Other Land Buildings Machinery and Equipment Construction in Progress $ 464 (9) $ 455 $ 1,707 (503) $ 1,204 $ 2,749 (1,631) $ 1,118 $ 125 – $ 125 Total $ 5,045 (2,143) $ 2,902 $ 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 $ 218 $ 1,010 $ 1,843 $ 194 $ 3,265 $ 231 (13) $ 218 $ 1,432 (422) $ 1,010 $ 3,456 (1,613) $ 1,843 $ 218 $ 1,010 $ 1,843 5 (6) – 62 (1) – – (2) – 58 (17) (99) 474 (5) (1) 39 (6) – 207 (33) (466) 479 (4) (3) 257 (11) (5) $ 195 (1) $ 194 $ 194 342 (1) – 44 (1) – (296) – – $ 5,314 (2,049) $ 3,265 $ 3,265 612 (57) (565) 1,059 (11) (4) – (19) (5) Closing net book amount $ 276 $ 1,453 $ 2,264 $ 282 $ 4,275 At December 31, 2016 Cost Accumulated amortization and impairments Net book amount $ 289 (13) $ 276 $ 1,959 (506) $ 1,453 $ 4,233 (1,969) $ 2,264 $ 283 (1) $ 282 $ 6,764 (2,489) $ 4,275 Property, plant and equipment cost and accumulated amortization and impairments have been reduced for components retired during 2016 and 2015. At December 31, 2016, property, plant and equipment includes amounts under finance leases of $177 (2015 – $101) and related accumulated amortization of $69 (2015 – $48). During 2016, borrowing costs of $4 (2015 – $5) were capitalized and are included in the cost of additions. Onex Corporation December 31, 2016 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 . LO N G - T E R M I N V E S T M E N T S At December 31, 2016 and 2015, the asset portfolio of the CLOs and Long-term investments comprised the following: warehouse facilities comprised the following: As at December 31 2016 2015 Corporate loans held by CLOs and warehouse facilities(a) $ 6,217 $ 4,992 Long-term investments held by Onex Credit Funds(b) Investments in joint ventures and associates – at fair value through earnings(c) Onex Corporation investments in managed accounts(d) Investments in joint ventures and associates – equity-accounted(e) Other Total 808 751 325 318 253 675 733 984 297 182 $ 8,672 $ 7,863 CLO-2(i) CLO-3 CLO-4 CLO-5 CLO-6 CLO-7 CLO-8 CLO-9 CLO-10 CLO-11(ii) CLO-12(ii) Warehouse facilities(iii) Closing Date As at December 31, 2016 As at December 31, 2015 November 2012 $ March 2013 October 2013 March 2014 June 2014 November 2014 April 2015 July 2015 October 2015 May 2016 October 2016 380 471 477 386 919 475 732 718 496 490 543 130 $ 457 461 456 373 881 451 694 694 472 − − 53 a) Corporate loans held by CLOs and warehouse facilities Total $ 6,217 $ 4,992 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 tranch- (i) In November 2016, Onex priced a refinancing of CLO-2 and extended the reinvestment period of the remaining capital in CLO-2 es of secured notes and loans, subordinated notes and equity. As by two years to November 2018. of December 31, 2016, Onex Credit had eleven CLOs (2015 – nine CLOs) under management, which were funded through the issu- ance of secured notes and loans, subordinated notes and/or equity in private placement transactions in an initial aggregate amount of $6,576 (2015 – $5,516), as described in note 14(d). Onex’ remaining net investment in the CLOs at December 31, 2016 was $350 (2015 – $405) and has been made in the most subordinated capital of each respective CLO. During 2016, Onex received distri- butions from the CLOs of $73 (2015 – $53), excluding investment income earned during the warehouse periods of the CLOs and proceeds from redemptions. The asset portfolio held by the CLOs consists of cash and (ii) During 2016, Onex closed CLO-11 and CLO-12, as described in note 2(b) and (g), respectively. (iii) At December 31, 2016 and 2015, the warehouse facilities con- sisted of EURO CLO-1, the first CLO denominated in euros, which was established in March 2015. During 2015, Onex purchased €20 ($21) of subordinated notes to support the warehouse facility. During 2016, Onex purchased an additional €10 ($11) of subordi- nated notes and a financial institution has provided borrowing capacity of up to €103 ($109). The subordinated notes do not have a stated rate of interest, but will receive certain excess available cash equivalents and corporate loans that have been designated to funds after payment of principal, accrued interest and certain be recorded at fair value. The asset portfolio of each CLO is pledged expenses upon the closing of EURO CLO-1. The warehouse facility as collateral for its respective senior secured notes and loans. The matures on the earlier of the closing of EURO CLO-1 and March CLOs have initial reinvestment periods ranging from two to four 2017. Onex consolidates the warehouse facility for EURO CLO-1, years, during which reinvestment can be made in collateral. Onex and at December 31, 2016, the fair value of the asset portfolio is required to consolidate the operations and results of the CLOs, as included €123 ($130) (2015 – €50 ($53)) of corporate loans. described in note 1. 130 Onex Corporation December 31, 2016 In February 2017, Onex purchased an additional €10 ($11) of subordinated notes to support an increase in the warehouse facility’s borrowing capacity. In addition, in June 2015, the Company redeemed its first CLO denominated in U.S. dollars. CLO-1 was established in March 2012 and its reinvestment 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 pro- ceeds in the CLO. Onex received $16 for its remaining investment 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 the equity of CLO-1. In aggregate, Onex has received $53 of pro- Incline Aviation Fund ceeds and distributions related to CLO-1 compared to its original During 2016, Onex, the parent company, invested $13 in Incline investment of $38. Avia tion Fund, net of distributions and bridge financing, as de- b) Long-term investments held by Onex Credit Funds Investments held by Onex Credit Funds are recorded at fair value ITG scribed in note 2(c). and classified as fair value through earnings. At December 31, In June 2015, the Company acquired a 45% economic interest in 2016, Onex’ share of the net investment in the Onex Credit Funds ITG, as described in note 3(e). was $521 (2015 – $472). c) Investments in joint ventures and associates – In August 2015, Mavis Discount Tire acquired STS, as described in Mavis Discount Tire at fair value through earnings note 3(j). Investments in joint ventures and associates designated at fair value through earnings primarily include investments in AIT, d) Onex Corporation investments in managed accounts BBAM, ITG (since June 2015) and Mavis Discount Tire. The fair Long-term investments consist of securities that include money value measurements for these investments include significant market instruments, federal and municipal debt instruments, cor- unobservable inputs (Level 3 of the fair value hierarchy). The joint porate obligations and structured products with maturities of one ventures and associates also typically have financing arrange- year to five years. Short-term investments consist of liquid invest- ments that restrict their ability to transfer cash and other assets to ments that include money market instruments and commercial the Company. Details of changes in investments designated at fair value included in long-term investments are as follows: Balance – December 31, 2014 Purchase of investments Sale of investments Distributions received Increase in fair value of investments, net Balance – December 31, 2015 Purchase of investments Distributions received Increase in fair value of investments, net Balance – December 31, 2016 $ 540 120 (20) (82) 175 733 44 (206) 180 $ 751 paper with original maturities of three months to one year. The investments are managed to maintain an overall weighted average duration of two years or less. At December 31, 2016, the fair value of investments managed by third-party investment managers was $472 (2015 – $1,188), of which $147 (2015 – $204) was included in short-term investments and $325 (2015 – $984) was included in long-term investments. The decrease in the fair value of the invest- ments managed by third-party investment managers reflects net redemptions of $732 related to acquisitions completed by Onex during 2016. e) Investments in joint ventures and associates – equity-accounted At December 31, 2016 and 2015, investments in equity-accounted joint ventures and associates primarily included investments held by JELD-WEN, Meridian Aviation and SIG. AIT During 2016, AIT completed total distributions of $199, of which Onex Partners IV’s share was $125 and Onex’ share was $27, as described in note 2(h). 11. O T H E R N O N - C U R R E N T A S S E T S Other non-current assets comprised the following: During 2015, AIT completed total distributions of $42, As at December 31 including a purchase price adjustment, of which Onex Partners IV’s Deferred income taxes (note 18) $ share was $30. Onex’ share of the AIT distributions was $7. Defined benefit pensions (note 32) BBAM During 2016, BBAM completed total distributions of $106 (2015 – $108), of which Onex Partners III’s share was $50 (2015 – $52) and Onex’ share was $13 (2015 – $13), as described in note 2(t). Restricted cash Derivatives Other Total 2016 418 198 168 103 305 2015 $ 158 177 138 108 214 $ 1,192 $ 795 Onex Corporation December 31, 2016 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 12 . 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: As at December 31, 2014 Cost Goodwill $ 5,069 Accumulated amortization and impairments (141) Trademarks and Licenses Customer Relationships Computer Software Other Intangible Assets with Limited Life(i) Other Intangible Assets with Indefinite Life Total Intangible Assets $ 1,455 (276) $ 4,489 (1,443) $ 674 (463) $ 500 (370) $ 503 $ 7,621 – (2,552) Net book amount $ 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 As at December 31, 2015 Cost $ 7,851 $ 1,879 $ 5,249 $ 705 $ 1,054 $ 504 $ 9,391 Accumulated amortization and impairments (174) (272) (1,689) (464) (438) – (2,863) Net book amount(ii) $ 7,677 $ 1,607 $ 3,560 $ 241 $ 616 $ 504 $ 6,528 Year ended December 31, 2016 Opening net book amount $ 7,677 $ 1,607 $ 3,560 $ 241 $ 616 $ 504 $ 6,528 Additions Disposals Amortization charge Acquisition of subsidiaries(i) Disposition of operating companies Impairment charge Foreign exchange Other − (72) − 1,921 (49) (226) (86) 9 – (5) (24) 600 (80) (2) (16) – – (43) (459) 979 (28) (2) (36) (3) 73 (2) (78) 209 (1) – (1) 1 7 – (121) 1,824 – – (37) 3 2 (2) – – – – – – 82 (52) (682) 3,612 (109) (4) (90) 1 Closing net book amount $ 9,174 $ 2,080 $ 3,968 $ 442 $ 2,292 $ 504 $ 9,286 As at December 31, 2016 Cost $ 9,500 $ 2,336 $ 6,058 $ 996 $ 2,835 $ 504 $ 12,729 Accumulated amortization and impairments (326) (256) (2,090) (554) (543) – (3,443) Net book amount(ii) $ 9,174 $ 2,080 $ 3,968 $ 442 $ 2,292 $ 504 $ 9,286 (i) Acquisition of subsidiaries includes other intangible assets with limited life including information databases and content collections totalling $1,720 which arose from the acquisition of Clarivate Analytics, as described in note 2(l). At December 31, 2016, the information databases and content collections had a cost of $1,720 and accumulated amortization of $26. (ii) At December 31, 2016, trademarks and licenses included amounts determined to have indefinite useful lives of $1,797 (2015 – $1,339). 132 Onex Corporation December 31, 2016 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 Goodwill primarily represents the costs of certain intellec- through business combinations (note 4). Additions to intangible tual property and process know-how obtained in acquisitions. assets through internal development were $31 (2015 – $24) and Intangible assets include trademarks, non-competition agree- those acquired separately were $51 (2015 – $65). Included in the ments, customer relationships, software, information databases, balance of intangible assets at December 31, 2016 were $317 (2015 – content collections, contract rights and expiration rights obtained $109) of internally generated intangible assets. in the acquisition of certain facilities. 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. 13 . 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, 2015 Charged (credited) to statements of earnings: Additional provisions Unused amounts reversed during the year Amounts used during the year Other adjustments Balance – December 31, 2016 Accounts Receivable Provision(a) Inventory Provision(b) $ 75 $ 67 46 (13) (31) (1) 56 (12) (20) 1 Total $ 142 102 (25) (51) – $ 76 $ 92 $ 168 a) Accounts receivable provisions are established by the operat- ing companies when there is objective evidence that the company 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. b) Inventory provisions are established by the operating compa- nies for any excess, obsolete or slow-moving items. 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, 2015 Charged (credited) to statements of earnings: Additional provisions Unused amounts reversed during the year Acquisition of subsidiaries Amounts used during the year Increase in provisions due to passage of time and changes in discount rates Other adjustments Balance – December 31, 2016 Current portion of provisions Non-current portion of provisions Contingent Consideration(c) Restructuring(d) Insurance(e) Warranty(f) Other(g) Self- $ 137 181 $ 318 54 (94) 31 (180) 5 (7) $ 127 (41) $ 86 $ 35 6 $ 41 82 (3) 2 (73) – 1 $ 50 (37) $ 13 $ 70 106 $ 176 251 (1) 86 (239) – (1) $ 272 (113) $ 159 $ 50 34 $ 84 62 (11) 2 (50) − (1) $ 86 (53) $ 33 $ 42 41 $ 83 58 (10) 14 (32) − (3) $ 110 (61) $ 49 Total $ 334 368 $ 702 507 (119) 135 (574) 5 (11) $ 645 (305) $ 340 Onex Corporation December 31, 2016 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 c) The provision for contingent consideration relates to acquisitions completed by the Company. At December 31, 2016, the estimated g) Other includes legal, transition and integration, asset retirement and other provisions. Transition and integration provisions are fair value of contingent consideration liability was primarily related typically to provide for the costs of transitioning the activities of an to the contingent consideration associated with Carestream Health operating company from a prior parent company upon acquisition and USI. During 2016, SIG settled the portion of the contingent con- and to integrate new acquisitions at the operating companies. 14 . 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) Clarivate Analytics(c) CLOs and warehouse facilities(d) Emerald Expositions(e) Flushing Town Center(f) Jack’s(g) JELD-WEN(h) Meridian Aviation(i) ResCare(j) Save-A-Lot(k) Schumacher(l) sgsco(m) SIG(n) Survitec(o) USI(p) WireCo(q) York(r) 2015 $ 34 4 3 $ 41 ONCAP operating companies(s) Other Less: long-term debt of operating companies held by the Company Long-term debt, December 31 Less: financing charges 2016 2015 $ 1,930 $ 2,012 228 2,030 5,912 707 308 193 1,640 22 421 718 664 584 2,973 515 1,918 609 958 1,229 4 (319) 23,244 (381) 22,863 263 − 4,899 743 124 281 1,275 − 533 − 540 595 3,022 425 1,979 − 952 1,121 4 (395) 18,373 (319) 18,054 Current portion of long-term debt of operating companies (407) (411) Consolidated long-term debt of operating companies $ 22,456 $ 17,643 Onex Corporation does not guarantee the debt of its operating companies, nor are there any cross-guarantees between operating companies. Onex Corporation may hold debt as part of its invest- ment in certain operating companies. sideration related to the company’s financial performance in 2015, as described in note 3(d). d) Restructuring provisions are typically to provide for the costs of facility consolidations and workforce reductions incurred at the operating companies. The operating companies record restructuring provisions 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- ments regarding the nature, timing and amounts associated with the planned restructuring activities, including estimating sublease income and the net recovery from equipment to be disposed of. At 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 operating companies between 2017 and 2024. The closing balance of restructuring provisions comprised the following: As at December 31 Employee termination costs Lease and other contractual obligations Facility exit costs and other Total restructuring provisions 2016 $ 40 7 3 $ 50 e) Self-insurance provisions are established by the operating companies for automobile, workers’ compensation, healthcare coverage, general liability, professional liability and other claims. Provisions are established for claims based on an assessment of actual claims and claims incurred but not reported. The reserves 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 inflation in healthcare costs and property damage repairs. f) Warranty provisions are established by the operating compa- nies for warranties offered on the sale of products or services. Warranty provisions are established to provide for future warranty costs based on management’s best estimate of probable claims under these warranties. 134 Onex Corporation December 31, 2016 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 financing arrangements for each operating com- The annual minimum repayment requirements for the next five pany typically contain certain restrictive covenants, which may years and thereafter on consolidated long-term debt are as follows: include limitations or prohibitions on additional indebtedness, payment of cash dividends, redemption of capital, capital spend- ing, making of investments and acquisitions and sales of assets. The financing arrangements may also require the redemption of indebtedness in the event of a change of control of an operating company. In addition, certain financial covenants must be met by those operating companies that have outstanding debt. Future changes in business conditions of an operating company may result in non-compliance with certain covenants by that company. No adjustments to the carrying amount or classification of assets or liabilities of any operating company have been made in the consolidated financial statements with respect to any pos- 2017 2018 2019 2020 2021 Thereafter Total sible non-compliance. a) Carestream Health $ 407 582 4,149 1,355 1,595 15,156 $ 23,244 As at December 31 Size of facility Interest rate First lien term loan(i) Second lien term loan(i) Revolving credit facility(ii) Long-term debt Unamortized discount $ 1,850 LIBOR + 4.00% 500 150 LIBOR + 8.50% LIBOR + 4.00% Long-term debt, net of unamortized discount Floor or cap on interest rate Floor 1.00% Floor 1.00% Floor 1.00% Maturity Jun 2019 Dec 2019 Jun 2018 Gross principal outstanding 2016 2015 $ 1,464 $ 1,553 480 – 1,944 (14) 480 – 2,033 (21) $ 1,930 $ 2,012 Substantially all of Carestream Health’s assets are pledged as collateral under the credit facility. (i) First and second lien term loans include optional redemption provisions at a range of redemption prices plus accrued and unpaid interest. (ii) Interest rate at an alternative base plus a margin of 3.00% may apply. In connection with the credit facility, the company has entered into a series of interest rate swap agreements that swap the variable rate portion for fixed rates through December 2017. The agreements have an initial notional amount of $960, reducing to $920 during the term of the agreements. Onex Corporation December 31, 2016 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 b) Celestica As at December 31 Size of facility Interest rate Term loan(i)(ii) Revolving credit facility(i)(iii) Long-term debt (i) As amended in June 2015. $ 250 300 LIBOR + up to 3.00% LIBOR + up to 2.4% Maturity May 2020 May 2020 Gross principal outstanding 2016 2015 $ 213 15 $ 228 $ 238 25 $ 263 (ii) Margin varies depending on the company’s leverage ratio. (iii) The revolving credit facility has an accordion feature that allows the company to increase the credit limit by an additional $150 upon satisfaction of certain terms and conditions. Celestica has pledged certain assets as security for borrowings under its revolving credit facility. In June 2015, Celestica repurchased and cancelled approximately extend its maturity from October 2018 to May 2020. As a result of 26.3 million of its SVS, representing approximately 15% of the total the repurchase, Onex’ economic and voting interests at that time issued and outstanding Multiple Voting Shares and SVS of the increased to 13% and 79%, respectively. company at December 31, 2014. The purchase price per share was Celestica also has uncommitted bank overdraft facilities $13.30 for a total cost of $350. The transaction was financed using a available for intraday and overnight operating requirements that combination of the net proceeds of a newly issued $250 term loan, totalled $70 (2015 – $70) at December 31, 2016. $25 drawn on the company’s existing revolving credit facility and At December 31, 2016, Celestica had issued $26 (2015 – cash on hand. Celestica amended its existing revolving credit facil- $27) of letters of credit under its revolving credit facility. ity to add the term loan as a component under such facility and to c) Clarivate Analytics As at December 31 Size of facility Interest rate Floor or cap on interest rate First lien term loan(i) Revolving credit facility(ii) Senior unsecured notes(iii) Long-term debt Unamortized discount Embedded derivative $ 1,550 LIBOR + 3.75% Floor 1.00% 175 500 LIBOR + up to 3.25% 7.875% n/a n/a Long-term debt, net of unamortized discount Substantially all of Clarivate Analytics’ assets are pledged as collateral under the senior secured credit facility. (i) The term loan can be repaid in whole or in part without premium or penalty at any time prior to maturity. (ii) Margin varies depending on the company’s leverage ratio. Maturity Oct 2023 Oct 2021 Oct 2024 Gross principal outstanding 2016 $ 1,546 – 500 2,046 (8 ) (8) $ 2,030 (iii) Interest on the senior unsecured notes is payable semi-annually beginning in April 2017. The senior unsecured notes may be redeemed by the company at any time at various premiums above face value. Onex, in partnership with Baring Private Equity Asia, acquired Clarivate Analytics in October 2016, as described in note 2(l). In October 2016, Clarivate Analytics entered into a senior secured credit facility, which consisted of a first lien term loan and a revolving credit facility, and issued senior unsecured notes. 136 Onex Corporation December 31, 2016 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) CLOs and warehouse facilities The secured notes and loans and subordinated notes bear interest A CLO is a leveraged structured vehicle that holds a widely at a rate of LIBOR plus a margin and mature between November diversified collateral asset portfolio and is funded through the 2023 and October 2028. The secured notes and loans, subordinated issuance of collateralized loan instruments in a series of tranch- notes and equity of the CLOs are designated at fair value through es of secured notes and loans, subordinated notes and equity. As net earnings upon initial recognition. At December 31, 2016, the of December 31, 2016, Onex Credit had eleven CLOs (2015 – nine fair value of the secured notes, subordinated notes and equity held CLOs) under management, which had secured notes and loans, by investors other than Onex was $5,855 (2015 – $4,870). subordinated notes and equity outstanding as follows: The notes and loans of CLOs are secured by, and only Closing date As at December 31, 2016 As at December 31, 2015 November 2012 $ March 2013 October 2013 March 2014 June 2014 November 2014 April 2015 July 2015 October 2015 May 2016 October 2016 412 512 514 420 $ 515 512 514 420 1,002 1,002 514 764 758 512 502 558 514 764 758 512 − − CLO-2 CLO-3 CLO-4 CLO-5 CLO-6 CLO-7 CLO-8 CLO-9 CLO-10 CLO-11 CLO-12 Onex’ investment at notional amounts Total 6,468 (513) 5,511 (418) $ 5,955 $ 5,093 have recourse to, the assets of each respective CLO. The notes and loans are subject to redemption provisions, including mandatory redemption if certain coverage tests are not met by each respec- tive CLO. Optional redemption of the notes is available at certain periods and optional repricing of the notes is available subject to certain customary terms and conditions being met by each respective CLO. In March 2015, Onex established a warehouse facility in anticipation of its first CLO denominated in euros, EURO CLO-1. During 2015 and 2016, Onex purchased €20 ($21) and €10 ($11), respectively, of subordinated notes to support the warehouse facil- ity and a financial institution provided borrowing capacity of up to €103 ($109), as described in note 10. At December 31, 2016, €54 ($57) (2015 – €27 ($29)) was outstanding under the warehouse facil- ity for EURO CLO-1. In February 2017, Onex purchased an addi- tional €10 ($11) of subordinated notes to support an increase in the warehouse facility’s borrowing capacity. In May 2016, Onex closed CLO-11, which was funded through the issuance of collateralized loan instruments in a series of tranches of secured notes, secured loans and preference shares, as described in note 2(b). In October 2016, Onex closed CLO-12, which was funded through the issuance of collateralized loan instruments in a series of tranches of secured notes and preference shares, as described in note 2(g). In November 2016, Onex priced a refinancing of CLO-2, as described in note 10(a). Onex Corporation December 31, 2016 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 e) Emerald Expositions As at December 31 Size of facility Interest rate Floor or cap on interest rate Term loan(i)(ii) Revolving credit facility(i)(iii) Senior notes(iv) Long-term debt Unamortized discount $830 100 200 LIBOR + 3.75% Floor 1.00% LIBOR + up to 4.50% 9.00% n/a n/a Maturity Jun 2020 Jun 2018 Jun 2021 Gross principal outstanding 2016 $ 713 – – 713 (6) 2015 $ 550 – 200 750 (7) Long-term debt, net of unamortized discount $ 707 $ 743 Substantially all of Emerald Expositions’ assets are pledged as collateral under the credit facility. (i) As amended in October 2016. (ii) The term loan can be repaid in whole or in part without premium or penalty at any time before maturity. (iii) Margin varies based on the company’s leverage ratio. (iv) Fully repaid in October 2016. Emerald Expositions’ credit facility consisted of a term loan and a The amendment and redemption resulted in a total interest rate revolving credit facility. reduction of 425 basis points on the $200 principal amount of the In October 2016, Emerald Expositions amended its exist- senior notes. ing credit facility to increase its term loan by $200 and the revolving In connection with the credit facility, the company has credit facility by $10. The net proceeds from the incremental term entered into an interest rate swap agreement with a notional loan and cash on hand were used to redeem the company’s senior amount of $100 that swaps the variable rate portion for fixed rates notes with a principal amount of $200 at a redemption price of through December 2018. 104.5% of the principal amount plus accrued and unpaid interest. f) Flushing Town Center As at December 31 Size of facility Interest rate Mortgage loan(i) Mezzanine loan(i) Mezzanine loan(i) Senior construction loan(ii) Long-term debt Long-term debt held by the Company Long-term debt, net of debt held by the Company Floor or cap on interest rate Floor 0.25% Floor 0.25% $ 152 LIBOR + 3.30% LIBOR + 8.00% 150 138 47 LIBOR + 11.00% Floor 0.25% 2.66% n/a Maturity Jul 2018 Jul 2018 Jul 2018 Jul 2020 Gross principal outstanding 2016 $ – 130 130 48 308 (48) $ 260 $ 2015 – – 77 47 124 (47) $ 77 (i) The company has the option to extend the maturity by two one-year terms. (ii) The credit facility is held by the Company. The gross principal outstanding includes interest accrued on the facilities. In July 2015, Onex Real Estate Partners sold substantially all of the The credit facilities have customary financial maintenance cov- retail space and adjoining parking structures of Flushing Town enants and include a guarantee which is limited to the required Center, as described in note 3(h). In connection with this trans- minimum net worth and liquidity reserves being maintained for action, the buyer assumed the company’s liabilities related to its the benefit of the third-party lenders. Draws from the credit facili- credit facilities. ties are made over time as project construction costs are incurred. In July 2015, Flushing Town Center entered into new The second phase of condominiums being constructed credit facilities with third-party lenders, consisting of a $152 mort- at Flushing Town Center is pledged as collateral under the new gage loan and $288 of mezzanine loans, in connection with the credit facilities. construction of the second phase of condominiums at the project. 138 Onex Corporation December 31, 2016 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) Jack’s As at December 31 Size of facility Interest rate Floor or cap on interest rate Term loan(i) Revolving credit facility Promissory note Long-term debt Unamortized discount $ 230 LIBOR + 4.75% Floor 1.00% 30 195 LIBOR + 4.75% LIBOR + 2.00% to 3.50% n/a n/a Long-term debt, net of unamortized discount Long-term debt held by the Company Maturity Jul 2022 Jul 2020 Jun 2016 Gross principal outstanding 2016 2015 $ 195 $ 230 – – 195 (2) 193 − – 54 284 (3) 281 (54) Long-term debt, net of unamortized discount and debt held by the Company $ 193 $ 227 Substantially all of Jack’s assets, excluding specified real property owned by Jack’s, are pledged as collateral under the senior secured credit facility. (i) The term loan can be repaid in whole or in part at any time before maturity. Onex Partners IV acquired Jack’s in July 2015, as described in and in June 2016, the balance outstanding under the promissory note 3(f ). In July 2015, Jack’s entered into a senior secured credit note was converted into additional equity of Jack’s, as described facility consisting of a term loan and a revolving credit facility. in note 2(a). In July 2015, Jack’s entered into a $195 promissory note In connection with the credit facility, the company has with Onex Partners IV, as described in note 3(f ). During 2015 and entered into an interest rate swap agreement with a notional 2016, Jack’s repaid $143 and $40 of the promissory note, respectively, amount of $102 at December 31, 2016 that swaps the variable rate portion for fixed rates through June 2020. h) JELD-WEN As at December 31 Size of facility Interest rate Floor or cap on interest rate Term loan(i)(ii) Revolving credit facility(iii) Other Long-term debt Unamortized discount $ 1,612 LIBOR + up to 3.75% Floor 1.00% 300 n/a LIBOR + up to 2.00% n/a n/a n/a Long-term debt, net of unamortized discount Substantially all of JELD-WEN’s North American assets are pledged as collateral under the credit facility. (i) As amended in November 2016. (ii) Margin is determined based on the company’s leverage ratio. (iii) Margin is determined based on the amount available under the revolving credit facility. Maturity Jul 2022 Oct 2019 n/a Gross principal outstanding 2016 2015 $ 1,612 $ 1,246 – 36 1,648 (8) – 38 1,284 (9) $ 1,640 $ 1,275 In July 2015, JELD-WEN increased its borrowings under its exist- borrowing, along with a draw on the company’s revolving credit ing credit facility with an incremental $480 term loan. The pro- facility, were used to fund a distribution of $400 to shareholders, ceeds were used to fund a distribution of $432 to shareholders as described in note 2(m). The term loan has no financial mainte- with the balance to be used to fund future add-on acquisitions, as nance covenants. There are no financial maintenance covenants described in note 3(m). The incremental term loan bore interest at on the revolving credit facility, subject to the company meeting LIBOR (subject to a floor of 1.00%) plus a margin of up to 4.00%, certain liquidity metrics. depending on the company’s ratio, and required quarterly prin- At December 31, 2016, the amount available under the cipal repayments beginning in December 2015. The incremental revolving credit facility was reduced by $37 (2015 – $36) of letters term loan had a maturity date in July 2022. of credit outstanding. In November 2016, JELD-WEN further amended its In February 2017, JELD-WEN repaid $375 under its com- existing credit facility to borrow an incremental $375 and to com- bined term loan from a portion of its net proceeds from the sale of bine the incremental borrowing with its existing term loans into a shares in its initial public offering, as described in note 2(r). combined term loan of $1,612. The proceeds from the incremental Onex Corporation December 31, 2016 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 In connection with the senior secured credit facility, the company has entered into a series of interest rate swap agreements that swap the variable rate portion for fixed rates through September 2019. The agreements have a notional amount of $914 at December 31, 2016. i) Meridian Aviation As at December 31 Size of facility Interest rate Revolving credit facility(i) $ 100 LIBOR + 1.50% Maturity Nov 2017 Long-term debt (i) As amended in December 2016. Gross principal outstanding 2016 $ 22 $ 22 2015 $ $ – – During 2015, Meridian Aviation sold an aircraft which was financed by the then-existing credit facilities. The balance outstanding under the credit facilities was repaid with the proceeds from the sale. In January 2016, Meridian Aviation entered into a $100 revolving credit facility. The borrowings under the revolving credit facility are guaranteed and reimbursable by capital calls from the limited partners, including Onex, of Onex Partners III. j) ResCare As at December 31 Size of facility Interest rate Term loan(i) Revolving credit facility Other Long-term debt Unamortized discount $ 505 250 n/a LIBOR + 2.75% LIBOR + 2.75% n/a Maturity Apr 2019 Apr 2019 n/a Gross principal outstanding 2016 $ 425 – 1 426 (5) 2015 $ 472 60 2 534 (1) Long-term debt, net of unamortized discount $ 421 $ 533 Substantially all of ResCare’s assets are pledged as collateral under the senior secured credit facility. (i) As amended in March 2015 and February 2016. ResCare’s senior secured credit facility initially consisted of a $250 revolving credit facility, a $200 term loan and a $200 delayed draw term loan. The senior secured credit facility bore interest at LIBOR plus a margin of 2.25%. The term loan was set to mature in April 2019. In March 2015, ResCare increased its term loan by an additional $105 to fund a distribution to shareholders, as described in note 3(m). The $105 incremental term loan was combined with the existing $200 term loan and $200 delayed draw term loan. k) Save-A-Lot As at December 31 Size of facility Interest rate Floor or cap on interest rate Term loan(i) Revolving credit facility(ii) Long-term debt Unamortized discount $ 740 250 LIBOR + 6.00% Floor 1.00% LIBOR + up to 2.00% n/a Long-term debt, net of unamortized discount Substantially all of Save-A-Lot’s assets are pledged as collateral under the senior secured credit facility. (i) The term loan can be repaid in whole or in part without premium or penalty at any time prior to maturity. (ii) Margin is determined based on the amount available under the revolving credit facility. Maturity Dec 2023 Dec 2021 Gross principal outstanding 2016 $ 740 – 740 (22) $ 718 Onex Partners IV acquired Save-A-Lot in December 2016, as described in note 2(p). In December 2016, Save-A-Lot entered into a senior secured credit facility consisting of a $740 term loan and a $250 revolving facility. 140 Onex Corporation December 31, 2016 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) Schumacher As at December 31 Size of facility Interest rate Floor or cap on interest rate First lien term loan(i) First lien revolving loan(ii) Second lien term loan(ii) Other Long-term debt $ 530 LIBOR + 4.00% Floor 1.00% 75 135 n/a LIBOR + up to 4.00% Floor 0.00% LIBOR + 8.50% Floor 1.00% n/a n/a Substantially all of Schumacher’s assets are pledged as collateral under the senior secured credit facility. (i) As amended in June 2016. (ii) As amended in September 2015. Maturity Jul 2022 Jul 2020 Jul 2023 n/a Gross principal outstanding 2016 $ 524 – 135 5 2015 $ 399 – 135 6 $ 664 $ 540 Onex Partners IV acquired Schumacher in late July 2015, as In September 2015, Schumacher completed syndication described in note 3(i). In late July 2015, Schumacher entered into of its senior secured credit facilities. first and second lien senior secured credit facilities. In connection In connection with the June 2016 acquisition of ECI, as with the August 2015 acquisition of HPP (note 3(i)), Schumacher discussed in note 2(f ), Schumacher amended its senior secured amended its senior secured facilities to increase its first lien term facilities to increase its first lien term loan by $130. loan by $120 to $400, its first lien revolving loan by $25 to $75 and its second lien term loan by $30 to $135. m) sgsco As at December 31 Size of facility Interest rate Floor or cap on interest rate Term loan(i) Revolving credit facility(ii) Senior notes(iii) Long-term debt Unamortized discount $ 385 LIBOR + up to 3.25% Floor 1.00% 60 210 LIBOR + up to 3.75% Floor 0.00% 8.38% n/a Maturity Oct 2019 Oct 2019 Oct 2020 Gross principal outstanding 2016 $ 380 – 205 585 (1) 2015 $ 385 – 210 595 – Long-term debt, net of unamortized discount $ 584 $ 595 Substantially all of sgsco’s assets are pledged as collateral under the credit agreement. (i) As amended in December 2015. (ii) As amended in November 2016. (iii) Senior notes may be redeemed by the company at any time at various premiums above face value. sgsco’s credit agreement initially consisted of a $400 senior In November 2016, sgsco amended its revolving credit secured term loan and $75 senior secured revolving credit facility. facility to reduce the amount available under the facility by $15 The credit agreement requires mandatory prepayment of certain and extend the maturity date to October 2019. excess cash flows and cash proceeds. In connection with the credit agreement, sgsco has In December 2015, in connection with an acquisition, entered into an interest rate swap agreement that swaps the vari- sgsco borrowed an additional $15 under the same terms and con- able rate portion for a fixed rate through December 2017. The ditions as its existing senior secured term loan. interest rate swap agreement has an initial notional amount of $230, reducing to $74 during the term of the agreement. Onex Corporation December 31, 2016 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 n) SIG As at December 31 Size of facility Interest rate Term loan Term loan Revolving credit facility Senior notes Long-term debt Unamortized discount 2 1,050 $ 1,225 2 260 2 675 EURIBOR + 3.75% LIBOR + 3.00% EURIBOR or LIBOR + up to 3.00% 7.75% Unamortized embedded derivatives(i) Long-term debt, net of unamortized discount and embedded derivatives Floor or cap on interest rate Floor 0.00% Floor 1.00% n/a n/a Maturity Mar 2022 Mar 2022 Mar 2021 Feb 2023 Approximately 70% of SIG’s assets are pledged as collateral under the senior secured credit facility and senior notes. (i) Unamortized embedded derivatives relate to the term loans and senior notes. Gross principal outstanding 2016 2015 $ 1,090 4 1,032 $ 1,128 2 1,042 1,169 1,108 1,216 1,117 – 712 – 675 – 733 2,971 2,815 3,077 (9) 11 (8) 9 (10) (45) − 675 2,834 (10) (41) $ 2,973 4 2,816 $ 3,022 2 2,783 Onex Partners IV and certain limited partners acquired SIG in which borrowings under its U.S. dollar-denominated term loan March 2015, as described in note 3(d). In March 2015, SIG entered bear interest to LIBOR (subject to a floor of 1.00%) plus a margin into a senior secured credit facility consisting of a €1,050 euro- denominated term loan, a $1,225 U.S. dollar-denominated term of 3.00%. The amendment resulted in a total interest rate reduction of 50 basis points and 25 basis points on the euro- and U.S. dollar- loan and a multi-currency €300 revolving credit facility. Borrowings under the term loans initially bore interest at EURIBOR or LIBOR denominated term loans, respectively. In addition, SIG reduced the rate at which borrowings under its multi-currency revolving (subject to a floor of 1.00%) plus a margin of 4.25%. The term loans credit facility bear interest to EURIBOR or LIBOR plus a margin of can be repaid in whole or in part without premium or penalty at up to 3.00%, resulting in a 100 basis point reduction, and reduced any time before maturity. In May 2015, SIG amended its senior secured credit the commitments available under the facility from €300 to €260. As a result of the amendment, SIG incurred $3 in fees during the third facility to reduce the rate at which borrowings under its euro- and quarter of 2016 that will be amortized over the term of the senior U.S. dollar-denominated term loans bear interest to EURIBOR or secured credit facility. LIBOR (subject to a floor of 1.00%) plus a margin of 3.25%. The In connection with the senior secured credit facility, amendment resulted in a total interest rate reduction of 100 basis the company has entered into a series of interest rate swap agree- points on the company’s term loans. As a result of the amend- ments that swap the variable rate portion for fixed rates through ment, SIG incurred $26 in fees during the second quarter of 2015, representing the payment of the soft call protection on the term December 2019. The agreements have notional amounts of €545 for the euro-denominated term loan and $650 for the U.S. dollar- loans and expenses associated with the amendment. The fees will denominated term loan. be amortized over the term of the senior secured credit facility. In September 2016, SIG amended its senior secured cred- In February 2015, SIG issued €675 in aggregate principal amount of senior notes in connection with the acquisition. The it facility to further reduce the rate at which borrowings under its senior notes may be redeemed by the company at various premi- euro-denominated term loan bear interest to EURIBOR (subject ums above face value at any time before February 2020. to a floor of 0.00%) plus a margin of 3.75% and reduce the rate at 142 Onex Corporation December 31, 2016 N O T E S T O C O N S O L I D AT E D F I N A N C I A L S TAT E M E N T S o) Survitec As at December 31 Size of facility Interest rate Term loan(i) Term loan(ii) Term loan(i)(ii) Revolving credit facility Acquisition facility Term loan(i) Long-term debt £ 125 2 175 2 133 £ £ £ 50 30 15 LIBOR + 4.75% EURIBOR + 4.25% EURIBOR + 4.25% LIBOR + 4.00% LIBOR + 4.00% LIBOR + 4.75% Maturity Mar 2022 Mar 2022 Mar 2022 Mar 2021 Mar 2021 Mar 2022 Substantially all of Survitec’s assets are pledged as collateral under the senior secured credit facility. (i) The term loans can be repaid in whole or in part without premium or penalty at any time before maturity. (ii) At December 31, 2016, 2308 (2015 – 2175) was outstanding under the euro-denominated term loans. Gross principal outstanding 2016 2015 $ 154 £ 125 $ 184 184 140 – 18 19 149 113 – 15 15 191 − 7 21 22 £ 125 129 − 5 14 15 $ 515 £ 417 $ 425 £ 288 Onex Partners IV acquired Survitec in March 2015, as described In connection with the senior secured credit facility, in note 3(c). In March 2015, Survitec entered into a senior secured the company has entered into a series of interest rate swap agree- credit facility consisting of a £125 pound sterling-denominated ments that swap the variable rate portion for fixed rates for £106 term loan, a €175 euro-denominated term loan, a £30 revolving facility and a £30 acquisition facility. In September 2015, Survitec and €149 of the initial principal amounts of the pound sterling- and euro-denominated term loans, respectively, through June entered into an incremental £15 pound sterling-denominated 2019, decreasing to 50% of the initial principal amounts through term loan in connection with the acquisition of SCI, as described June 2020. in note 3(c). The amount available under the revolving facility was In November 2016, Survitec entered into an incremen- reduced by £20 ($24) (2015 – £20 ($29)) of letters of guarantee out- tal €133 euro-denominated term loan and increased the revolving facility by £20 in connection with the acquisition of Wilhelmsen standing at December 31, 2016. Safety, as described in note 2(o). p) USI As at December 31 Size of facility Interest rate Floor or cap on interest rate Term loans(i) Revolving credit facility Senior notes(ii) Notes payable Long-term debt Unamortized discount $ 1,380 LIBOR + 3.25% Floor 1.00% 150 630 n/a LIBOR + 3.75% 7.75% 4.00% n/a n/a n/a Maturity Dec 2019 Dec 2017 Jan 2021 n/a Gross principal outstanding 2016 2015 $ 1,282 $ 1,346 – 630 11 1,923 (5) – 630 9 1,985 (6) Long-term debt, net of unamortized discount $ 1,918 $ 1,979 The amounts outstanding under the senior secured credit facility are subject to mandatory prepayment under specified circumstances, including with excess cash flows and certain cash proceeds. Substantially all of USI’s assets are pledged as collateral under the senior secured credit facility. (i) As amended in August 2015. (ii) The senior notes may be redeemed by the company at various redemption prices above face value plus accrued interest. Onex Corporation December 31, 2016 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 In August 2015, USI amended its senior secured credit facility to In connection with the credit agreement, USI has entered add an incremental $230 senior secured term loan. The proceeds into an interest rate swap agreement that swapped the variable were used primarily to fund a distribution of $230 to sharehold- rate portion for a fixed rate on a notional amount of $525 through ers. The Company’s portion of the distribution to shareholders was December 2017. $181. Onex’ portion of the distribution was $51, of which $38 related In December 2016, USI applied $50 of the net cash pro- to Onex’ investment through Onex Partners III and $13 related to ceeds received from the sale of Univers, as described in note 2(e), Onex’ co-investment. The balance of the proceeds was primarily toward the prepayment of its term loans. distributed to employees of USI. The terms and conditions of the At December 31, 2016, USI had $1 of letters of credit amendment, including interest rates and maturity date, were con- (2015 – $1) outstanding that were issued under its senior secured sistent with the existing senior secured term loan. revolving credit facility. q) WireCo As at December 31 Size of facility Interest rate First lien term loan Second lien term loan Revolving credit facility Long-term debt Unamortized discount $ 460 135 100 Long-term debt, net of unamortized discount Floor or cap on interest rate Floor 1.00% Floor 1.00% LIBOR + 5.50% LIBOR + 9.00% LIBOR + up to 2.25% Floor 0.00% Maturity Sep 2023 Sep 2024 Sep 2021 Gross principal outstanding 2016 $ 459 135 22 616 (7) $ 609 Substantially all of WireCo’s assets are pledged as collateral under the senior secured credit facility. Onex Partners IV acquired WireCo in September 2016, as described in note 2(k). In September 2016, WireCo entered into a senior secured credit facility consisting of a $460 first lien term loan, a $135 second lien term loan and a $100 revolving credit facility. The amount avail- able under the revolving credit facility was reduced by $13 of letters of credit outstanding at December 31, 2016. r) York As at December 31 Size of facility Interest rate Floor or cap on interest rate Maturity 2016 2015 Gross principal outstanding First lien and delayed draw term loans(i) Revolving credit facility(ii) Senior unsecured notes(iii) Long-term debt Unamortized discount Unamortized embedded derivatives $ 615 LIBOR + 3.75% Floor 1.00% 100 315 LIBOR + up to 3.75% 8.50% n/a n/a Oct 2021 Oct 2019 Oct 2022 $ 601 $ 607 56 315 972 (3) (11) 47 315 969 (4) (13) Long-term debt, net of unamortized discount and embedded derivatives $ 958 $ 952 Substantially all of York’s assets are pledged as collateral under the senior secured credit facility. (i) The term loans can be repaid in whole or in part without premium or penalty at any time before maturity. (ii) Margin varies depending on the company’s leverage ratio. (iii) The senior unsecured notes may be redeemed by the company at any time at various premiums above face value. In connection with the credit facility, York entered into an interest rate swap agreement that swaps the variable rate portion for a fixed rate on a notional amount of $300 from January 2017 through December 2019. 144 Onex Corporation December 31, 2016 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) ONCAP operating companies ONCAP’s consolidated operating companies consist of Bradshaw, Chatters (acquired in July 2015), Cicis (up to August 2016), Davis- Standard, EnGlobe, Hopkins, Pinnacle Pellet, Inc., PURE Canadian Gaming and Tecta (acquired in August 2016). Each has debt that is included in the Company’s consolidated financial statements. There are separate arrangements for each operating company with no cross-guarantees between the operating companies, ONCAP or Onex Corporation. Under the terms of the various credit agreements, combined borrowings at December 31, 2016 were as follows: As at December 31 Term borrowings Revolving credit facilities Subordinated notes Other Long-term debt Long-term debt held by the Company Effective interest rates(i) Maturity 2016 2015 Gross principal outstanding 3.52% to 6.13% 2019 to 2021 $ 890 $ 665 4.39% to 6.25% 2017 to 2021 10.00% to 18.00% 2019 to 2024 n/a n/a 22 316 1 1,229 (271) 118 329 9 1,121 (294) Long-term debt, net of unamortized discount and debt held by the Company $ 958 $ 827 Senior debt is generally secured by substantially all of the assets of the respective operating company. (i) Represents the effective interest rates as at December 31, 2016. The term borrowings and revolving credit facilities bear interest at various rates based on a base floating rate plus a margin. The subordinated notes bear interest at various fixed rates. Certain ONCAP operating companies have entered into interest rate swap agreements to fix a portion of their interest expense. The total notional amount of these swap agreements at December 31, 2016 was $23 with portions expiring through 2018. In December 2011, ONCAP III entered into a C$75 credit facility In January 2017, ONCAP IV entered into a $100 credit that consists of a C$50 line of credit and a C$25 deemed credit risk facility. The credit facility is available to finance ONCAP IV capital facility. In September 2016, ONCAP III discharged the C$50 line of calls, bridge investments in ONCAP IV operating companies and credit facility and increased the deemed credit risk facility to C$36. finance other uses permitted by ONCAP IV’s limited partnership The deemed credit risk facility is available to ONCAP III and its agreement. The credit facility includes a deemed credit risk maxi- operating companies for foreign exchange transactions, including mum of $35 available to ONCAP IV and its operating companies foreign exchange options, forwards and swaps. Borrowings under for foreign exchange transactions, including foreign exchange the credit facility are limited to the lesser of the amount available options, forwards and swaps. Amounts under the credit facility are under the deemed credit facility, 80% of the aggregate amount of available in Canadian and U.S. dollars. Borrowings drawn on the uncalled capital in the fund and the maximum amount of obli- credit facility bear interest at a base rate plus a margin of 1.00% or gations permitted under the partnership agreement. Borrowings bankers’ acceptance rate (subject to a floor of 0.00%) plus a margin under the credit facility are due and payable upon demand; how- of 3.75%. The base rate and bankers’ acceptance rate vary based on ever, ONCAP III has 15 business days to complete a capital call the currency of the borrowings. Borrowings under the credit facil- to the limited partners of ONCAP III to fund the demand. Onex ity are due and payable upon demand; however, ONCAP IV has Corporation, the ultimate parent company, is only obligated to 15 business days to complete a capital call to the limited partners fund borrowings under the credit facility based on its proportion- of ONCAP IV. Onex Corporation, the parent company, is only obli- ate share as a limited partner in ONCAP III. gated to fund borrowings under the credit facility based on its pro- At December 31, 2016, the amount available under the portionate share as a limited partner in ONCAP IV. deemed risk facility was C$21 (2015 – C$3). At December 31, 2015, the letters of credit issued under the line of credit were $10 (€10). Onex Corporation December 31, 2016 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 15 . L E A S E S a) The Company as lessee Future minimum lease payments are as follows: Finance Leases Operating Leases For the year: 2017 2018 2019 2020 2021 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 $ 36 $ 367 296 234 180 140 560 17 13 8 4 18 $ 96 (19) 77 (32) to Onex Corporation $ 45 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, 2016 was $351 (2015 – $295) and primarily related to premises. b) The Company as lessor Certain of the operating companies lease out their investment properties, machinery and/or equipment under operating leases. Future minimum lease payments receivable from lessees under non-cancellable operating leases are as follows: $ 1,777 For the year: 2017 2018 2019 2020 2021 Thereafter $ 83 69 35 27 17 14 Total minimum lease payments receivable $ 245 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, 2016 and 2015. 16 . L I M I T E D PA R T N E R S ’ I N T E R E S T S The investments in the Onex Partners, 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, 2014 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(e) Limited Partners’ Interests charge(b) Contributions by Limited Partners(c) Distributions paid to Limited Partners(d) Balance – December 31, 2016 Current portion of Limited Partners’ Interests(e) Onex Partners and ONCAP Funds Onex Credit Funds(a) Total $ 5,176 $ – $ 5,176 – 882 1,819 (888) 6,989 587 1,574 (1,046) 8,104 (89) 368 (26) 6 (19) 329 60 19 (38) 370 – 368 856 1,825 (907) 7,318 647 1,593 (1,084) 8,474 (89) Non-current portion of Limited Partners’ Interests $ 8,015 $ 370 $ 8,385 146 Onex Corporation December 31, 2016 N O T E S T O C O N S O L I D AT E D F I N A N C I A L S TAT E M E N T S a) In January 2015, Onex acquired control of the Onex Credit asset management platform, as described in note 3(a). In connection b) The gross Limited Partners’ Interests charge for the 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, 2016, 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 $678 solidating in January 2015. (2015 – $1,074) was reduced for the change in carried interest of $91 (2015 – $192). Onex’ share of the change in carried interest was $33 for the year ended December 31, 2016 (2015 – $64). c) The following tables show contributions by limited partners of the Onex Partners and ONCAP Funds. Company Clarivate Analytics(i) Save-A-Lot WireCo Tecta(ii) Survitec Fund Transaction Onex Partners IV Original investment Onex Partners IV Original investment Onex Partners IV Original investment ONCAP III and IV Original investment Onex Partners IV Add-on investment Management fees, partnership expenses and other Various Various Contributions by Limited Partners (i) Includes amounts from certain limited partners and others. Year ended December 31, 2016 $ 758 474 194 107 27 14 $ 1,574 (ii) Includes contributions of $26 returned to the limited partners of ONCAP III in January 2017 from the syndication of a portion of the Tecta investment to ONCAP IV, as described in note 2(j). Company SIG(i) Jack’s Survitec(ii) Schumacher ITG Chatters Mavis Discount Tire(i)(ii) 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 Management fees, partnership expenses 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. Year ended December 31, 2015 $ 810 295 270 230 49 30 25 110 $ 1,819 Onex Corporation December 31, 2016 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 d) The following tables show distributions made to limited partners of the Onex Partners and ONCAP Funds. Company KraussMaffei JELD-WEN(i)(ii) AIT Jack’s BBAM Cicis Meridian Aviation Other Fund Transaction Onex Partners III Sale of business Onex Partners III Distributions Onex Partners IV Distributions Onex Partners IV Repayment of promissory note Onex Partners III Distributions ONCAP II Sale of business Onex Partners III Distribution Various Various Distributions to Limited Partners (i) Includes amounts distributed to certain limited partners and others. (ii) Includes amounts received for a purchase price adjustment. Company JELD-WEN(i) Tropicana Las Vegas USI(i) ResCare Jack’s Meridian Aviation BBAM Tomkins(i) AIT(ii) PURE Canadian Gaming Other Distributions to Limited Partners Fund Transaction Onex Partners III Distribution Onex Partners III Sale of business Onex Partners III Distribution Onex Partners I and III Distribution Onex Partners IV Repayment of promissory note Onex Partners III Distributions Onex Partners III Distributions Onex Partners III Sale of residual assets Onex Partners IV Distributions ONCAP II and III Distribution Various Various (i) Includes amounts distributed to certain limited partners and others. (ii) Includes amounts received for a purchase price adjustment. Year ended December 31, 2016 $ 519 264 104 55 37 28 24 15 $ 1,046 Year ended December 31, 2015 $ 270 180 130 77 75 64 37 21 13 10 11 $ 888 148 Onex Corporation December 31, 2016 N O T E S T O C O N S O L I D AT E D F I N A N C I A L S TAT E M E N T S e) At December 31, 2016, the current portion of the Limited Part- ners’ Interests was $89, and consisted primarily of the limited b) Unrealized carried interest due to management of Onex and ONCAP through the Onex Partners and ONCAP Funds is recog- partners’ share of (i) the distribution received from Hopkins; nized as a non-current liability and reduces the Limited Partners (ii) the return of capital to the limited partners of ONCAP III re- Interests’ liability, as described in note 16. The unrealized carried lated to the syndication of a portion of the investment in Tecta to interest is calculated based on current fair values of the Funds’ ONCAP IV; and (iii) the remaining KraussMaffei proceeds to be dis- investments and the overall unrealized gains in each respective tributed during 2017. Fund in accordance with the limited partnership agreements. The At December 31, 2015, the current portion of the Limited liability will be increased or decreased based on changes in the fair Partners’ Interests was $598, and consisted primarily of the lim- values and realizations of the underlying investments in the Onex ited partners’ share of a distribution from AIT, promissory note Partners and ONCAP Funds. The liability will ultimately be settled repayments by Jack’s and expected proceeds from the sale of upon the realization of the limited partners’ share of the underly- KraussMaffei. ing Onex Partners and ONCAP Fund investments. 17. 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 liability increased primarily due to an increase in the fair value of Other non-current liabilities comprised the following: certain of the investments in the Onex Partners and ONCAP Funds, partially offset by realized carried interest. During 2016 and 2015, the unrealized carried interest As at December 31 2016 2015 Stock-based compensation(a) $ 719 $ 427 Defined benefit pensions and non-pension post-retirement benefits (note 32) 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) 445 358 176 107 364 387 311 126 125 328 Total other non-current liabilities $ 2,169 $ 1,704 a) At December 31, 2016, the stock-based compensation liabil- ity consisted of $514 (2015 – $417) for the stock-based compensa- c) JELD-WEN’s employee stock ownership plan (“ESOP”) was established prior to Onex’ acquisition of JELD-WEN to allow its employees to share in the success of the company through the ESOP’s ownership of JELD-WEN stock. The company may make discretionary contributions of cash or JELD-WEN shares to the ESOP on behalf of 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 company will periodically repurchase JELD-WEN shares owned by the ESOP to fund distributions to ESOP participants. During 2016, JELD-WEN did not repurchase stock from the ESOP. During 2015, JELD-WEN repurchased stock from the ESOP for a cash cost of $12. tion plans at the parent company and $214 (2015 – $17) for stock Following JELD-WEN’s January 2017 initial public offer- option and other share-based compensation plans in place at the ing, as described in note 2(r), the ESOP value will be substantially operating companies. At December 31, 2016, $9 (2015 – $7) related based on JELD-WEN’s public share price and the ESOP may sell to the parent company stock-based compensation liability was shares of JELD-WEN’s common stock to fund cash distributions recorded in other current liabilities. Included in long-term invest- under the ESOP. ments (note 10) is $83 (2015 – $77) related to forward agreements to economically hedge the Company’s exposure to changes in the trading price of Onex shares associated with the Management and Director DSU Plans. d) Other includes amounts for liabilities arising from indem- nifi cations, unearned insurance contract fees, embedded deriva- tives on long-term debt, mark-to-market valuations of hedge contracts, shareholder loan notes and the non-current portion of obligations under finance leases, without recourse to Onex Cor- poration (note 15). Onex Corporation December 31, 2016 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 18 . 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 Recognition and 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 2016 $ (126) 2015 $ (204 ) 274 (153) 190 (158) 8 15 (4) 211 (47 ) 75 (10) 6 32 53 $ 46 $ 116 $ 340 (294) $ 46 $ 228 (112) $ 116 The Company’s deferred income tax assets and liabilities, as presented in the consolidated balance sheets and in other non-current assets (note 11), are presented after taking into consideration the offsetting of balances within the same tax jurisdiction for each respective oper- ating 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, 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 Scientific Research and Development $ 1 (1) − − − − − − 1 Provisions Deferred Revenue Tax Losses $ 141 $ 10 $ 349 (4) 3 (3) (4) 5 (3) (31) (1) 3 − – (1) 8 – – (3) 4 (15) − (14) 16 (20) (18) (22) Balance – December 31, 2015 $ 1 $ 103 $ 17 $ 280 Credited (charged) to net earnings Credited (charged) directly to equity Recognition of previously unrecognized benefits Exchange differences Acquisition of subsidiaries Other adjustments – – – – – – 42 – – (1) 8 – – – – (1) 1 – 26 (14) – 2 23 – Property, Plant and Equipment, and Intangibles $ 45 11 − − (3) 20 (12) − (4) $ 57 132 – – 3 42 2 Other $ 190 101 Total 736 114 $ 9 3 (14) 106 (8) (49) 12 $ 350 $ 308 8 166 5 37 (2) (3) − (36) 155 (43) (98) (17 ) 808 508 (6) 166 8 111 – Balance – December 31, 2016 $ 1 $ 152 $ 17 $ 317 $ 236 $ 872 $ 1,595 150 Onex Corporation December 31, 2016 N O T E S T O C O N S O L I D AT E D F I N A N C I A L S TAT E M E N T S Deferred Income Tax Liabilities Gains on Sales of Operating Companies Pension and Non-Pension Post-Retirement Benefits Property, Plant and Equipment, and Intangibles Balance – December 31, 2014 $ 40 $ 24 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, 2015 Charged (credited) to net earnings Credited directly to equity Exchange differences Acquisition of subsidiaries Disposition of operating companies Other adjustments 4 − − − − − − $ 44 (2) – – – – – 1 − (1) 21 (1) − − $ 44 (2) (10) – – – (1) $ 1,502 (36) (13) (29) 592 (12) (110) (72) $ 1,822 252 (10) 13 282 (40) (21) Foreign Exchange $ 60 (21) − (7) − − − − $ 32 (4) – – – – – Other Total $ 136 $ 1,762 54 6 (6) 34 (6) (66) 7 2 (7) (43) 647 (19) (176) (65) $ 159 $ 2,101 136 (2) 5 24 – (7) 380 (22) 18 306 (40) (29) Balance – December 31, 2016 $ 42 $ 31 $ 2,298 $ 28 $ 315 $ 2,714 At December 31, 2016, Onex and its investment holding compa- 19. S H A R E C A P I TA L nies had $1,177 of non-capital loss carryforwards and $92 of capi- tal loss carryforwards. Deferred income tax assets are recognized for tax loss car- ryforwards to the extent that the realization of the related tax benefit through future taxable income is probable. At December 31, 2016, deductible temporary differences, unused tax losses and unused tax credits for which no deferred tax asset has been recognized were $6,253 (2015 – $5,697), of which $1,783 (2015 – $1,613) had no expi- ry, $609 (2015 – $458) was available to reduce future income taxes between 2017 and 2023 (2015 – 2016 and 2022), inclusive, and $3,861 (2015 – $3,626) was available with expiration dates of 2024 through 2036 (2015 – 2023 through 2035). At December 31, 2016, the aggregate amount of taxable temporary differences not recognized in association with invest- ments in subsidiaries, joint ventures and associates was $4,246 (2015 – $3,974). a) The authorized share capital of the Company consists of: i) 100,000 Multiple Voting Shares, which entitle their holders to elect 60% of the Company’s Directors and carry such number of votes in the aggregate as represents 60% of the aggregate votes attached to all shares of the Company carrying voting rights. The Multiple Voting Shares have no entitlement to a distribution on winding up or dissolution other than the payment of their nomi- nal paid-in value. ii) An unlimited number of SVS, which carry one vote per share and as a class are entitled to 40% of the aggregate votes attached to all shares of the Company carrying voting rights to elect 40% of the Company’s Directors and to appoint the auditors. These shares are entitled, subject to the prior rights of other classes, to distri- butions of the residual assets on winding up and to any declared but unpaid cash dividends. The shares are entitled to receive cash dividends, dividends in kind and stock dividends as and when declared by the Board of Directors. Onex Corporation December 31, 2016 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 The Multiple Voting Shares and SVS are subject to provi- sions whereby, if an event of change occurs (such as Mr. Schwartz, c) During 2016, under the Dividend Reinvestment Plan, the Com- pany issued 8,447 SVS (2015 – 8,996) at an average cost of C$81.02 Chairman and CEO, ceasing to hold, directly or indirectly, more per share (2015 – C$72.36). In 2016 and 2015, no SVS were issued than 5,000,000 SVS or related events), the Multiple Voting Shares upon the exercise of stock options. will thereupon be entitled to elect only 20% of the Company’s Onex renewed its Normal Course Issuer Bid in April 2016 Directors and otherwise will cease to have any general voting for one year, permitting the Company to purchase on the Toronto rights. The SVS would then carry 100% of the general voting rights Stock Exchange up to 10% of the public float of its SVS. The 10% and be entitled to elect 80% of the Company’s Directors. limit represents approximately 8.5 million shares. During 2016, the Company repurchased and cancelled iii) An unlimited number of Senior and Junior Preferred Shares 3,114,397 of its SVS at a cost of $184 (C$249). The excess of the pur- issuable in series. The Company’s Directors are empowered to fix chase cost of these shares over the average paid-in amount was $175 the rights to be attached to each series. (C$237), which was charged to retained earnings. The shares repur- chased were comprised of: (i) 2,114,397 SVS repurchased under the b) At December 31, 2016, the issued and outstanding share capital consisted of 100,000 Multiple Voting Shares (December 31, 2015 – Normal Course Issuer Bids for a total cost of $125 (C$165) or an aver- age cost per share of $59.04 (C$78.25); and (ii) 1,000,000 SVS repur- 100,000) and 102,787,628 SVS (December 31, 2015 – 105,893,578). The chased in a private transaction for a total cost of $59 (C$84) or an Multiple Voting Shares have a nominal paid-in value in these con- average cost per share of $58.85 (C$84.12). As at December 31, 2016, solidated financial statements. the Company had the capacity under the current Normal Course There were no issued and outstanding Senior and Junior Issuer Bid to repurchase approximately 7.3 million shares. Preferred shares at December 31, 2016 or December 31, 2015. During 2015, the Company repurchased and cancelled In January 2015, in connection with acquiring control of 3,084,877 of its SVS at a cost of $175 (C$218). The excess of the the Onex Credit asset management platform, Onex issued 111,393 purchase cost of these shares over the average paid-in amount of its SVS as part of the consideration in the transaction. was $165 (C$205), which was charged to retained earnings. The The Company increased its quarterly dividend by 10% to shares repurchased were comprised of: (i) 2,809,877 SVS repur- C$0.06875 per SVS beginning with the dividend declared by the chased under the Normal Course Issuer Bids for a total cost of Board of Directors in May 2016. Previously, the Company increased $160 (C$199) or an average cost per share of $56.99 (C$70.82); and its quarterly dividend by 25% to C$0.0625 per SVS beginning with (ii) 275,000 SVS repurchased in private transactions for a total cost the dividend declared by the Board of Directors in May 2015. of $15 (C$19) or an average cost per share of $55.12 (C$69.50). d) The Company has a Director DSU Plan and a Management DSU Plan, as described in note 1. Details of DSUs outstanding under the plans are as follows: Outstanding at December 31, 2014 Granted Additional units issued in lieu of compensation and cash dividends Outstanding at December 31, 2015 Granted Exercised Additional units issued in lieu of compensation and cash dividends Outstanding at December 31, 2016 Hedged with a counterparty financial institution at December 31, 2016 Outstanding at December 31, 2016 – Unhedged Director DSU Plan Management DSU Plan Number of DSUs Weighted Average Price Number of DSUs Weighted Average Price C$ 69.01 C$ 75.80 C$ 79.30 – C$ 83.18 584,507 29,653 12,321 626,481 27,712 – 11,678 665,871 (580,648) 85,223 − C$ 68.73 − C$ 80.77 C$ 85.18 566,494 − 118,021 684,515 − (95,641) 46,452 635,326 (635,326) – 152 Onex Corporation December 31, 2016 N O T E S T O C O N S O L I D AT E D F I N A N C I A L S TAT E M E N T S e) The Company has a Plan under which options and/or share appreciation rights for a term not exceeding 10 years may be In addition to the options outstanding under the Plan, in January 2015, the Company issued 60,000 options to Onex Credit’s granted to Directors, officers and employees for the acquisition chief executive officer in connection with acquiring control of the of SVS of the Company at a price not less than the market value Onex Credit asset management platform, as described in note 3(a). of the shares on the business day preceding the day of the grant. The options vest at a rate of 20% per year from the grant date. Under the Plan, no options or share appreciation rights may be The options are subject to the same terms and conditions as the exercised unless the average market price of the SVS for the five Company’s existing Plan; however, the options are also subject to an previous business days exceeds the exercise price of the options or additional performance threshold specific to the Onex Credit asset the share appreciation rights by at least 25% (the “hurdle price”). management platform. At December 31, 2016, 15,612,000 SVS (2015 – 15,612,000) were reserved for issuance under the Plan, against which options rep- The details of the options outstanding were as follows: resenting 12,883,183 shares (2015 – 12,568,033) were outstanding, of which 5,994,148 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 Company has the right to settle its obligation to the employee by the payment of cash, the issuance of shares or a combination of cash and shares. Number of Options Weighted Average Exercise Price 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 Granted Surrendered Expired 898,500 (509,700) (73,650) Outstanding at December 31, 2016 12,943,183 C$ 48.88 C$ 80.85 C$ 28.22 C$ 49.50 C$ 52.37 C$ 93.40 C$ 31.97 C$ 59.44 C$55.98 During 2016 and 2015, the total cash consideration paid on options surrendered was $21 (C$28) and $24 (C$32), respectively. 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$87.44 per share (2015 – C$77.31). Onex Corporation December 31, 2016 153 N O T E S T O C O N S O L I D AT E D F I N A N C I A L S TAT E M E N T S Options outstanding at December 31, 2016 consisted of the following: Month and Year of Grant Number of Options Outstanding Exercise Price Number of Options Exercisable Hurdle Price Remaining Life (years) December 2007 December 2008 December 2009 December 2010 December 2011 September 2012 December 2012 December 2013 January 2014 September 2014 December 2014 January 2015 March 2015 September 2015 November 2015 May 2016 December 2016 Total 204,583 390,450 528,450 430,950 465,200 50,000 834,400 3,313,500 3,950,000 75,000 849,400 60,000 10,000 10,000 872,750 30,000 868,500 C$ 35.20 C$ 15.95 C$ 23.35 C$ 29.29 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 C$ 77.83 C$ 93.94 196,248 382,450 512,450 430,950 465,200 40,000 666,900 1,574,800 1,185,000 30,000 331,600 – – – – – − C$ 44.00 C$ 19.94 C$ 29.19 C$ 36.62 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 C$ 97.29 C$ 117.43 12,943,183 5,815,598 0.9 1.9 2.9 3.9 4.9 5.7 5.9 6.9 7.1 7.7 7.9 8.1 8.2 8.7 8.9 9.3 9.9 2 0 . N O N - C O N T R O L L I N G I N T E R E S T S As at December 31, 2016 Clarivate Analytics The Company’s material non-controlling interests at Decem- ber 31, 2016 and 2015 were associated with Celestica and Clarivate Analytics (acquired in October 2016). There were no dividends paid by Celestica during 2016 or 2015 or Clarivate Analytics dur- ing 2016. Summarized balance sheet information based on those amounts included in these consolidated financial statements for Celestica and Clarivate Analytics is as follows: Non-controlling interest Current assets Non-current assets Current liabilities Non-current liabilities Celestica Net assets 28% $ 531 3,676 4,207 $ 636 2,076 2,712 $ 1,495 $ 419 Accumulated non-controlling interests Financial information on the statements of earnings for Celestica (electronics manufacturing services segment) is presented in note 34. Summarized income statement information for Clarivate Analytics since acquisition in October 2016 is as follows: Year ended December 31, 2016 Clarivate Analytics Revenue Net loss $ $ 202 137 As at December 31 Non-controlling interest Current assets Non-current assets Current liabilities Non-current liabilities Net assets Accumulated non-controlling interests 2016 87% $ 2,346 476 2,822 $ 1,246 338 1,584 $ 1,238 $ 1,071 2015 87% $ 2,124 488 2,612 $ 1,133 388 1,521 $ 1,091 $ 945 154 Onex Corporation December 31, 2016 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 Summarized cash flows for Celestica and Clarivate Analy tics (since 2 2 . INTEREST EXPENSE OF OPERATING COMPANIES acquisition in October 2016) are as follows: Year ended December 31 2016 2015 Celestica Interest on long-term debt of Year ended December 31 Cash flows from operating activities Cash flows used in financing activities Cash flows used in investing activities 2016 $ 173 (97) (64) 2015 $ 196 (141) (75) Year ended December 31, 2016 Clarivate Analytics Cash flows from operating activities Cash flows used in financing activities Cash flows used in investing activities $ 76 (22) (18) operating companies $ 976 $ 819 Interest on obligations under finance leases of operating companies Other interest expense of operating companies(i) Total Interest Expense of Operating Companies 4 109 3 56 $ 1,089 $ 878 (i) Other includes debt prepayment expense of $16 (2015 − $5). 2 3 . STOCK-BASED COMPENSATION EXPENSE 21. E X P E N S E S B Y N AT U R E Year ended December 31 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 2016 2015 Cost of inventory, raw materials and consumables used $ 9,517 Employee benefit expense(i) Professional fees Repairs, maintenance and utilities Transportation Operating lease payments Provisions Other expenses 5,988 1,432 608 545 351 245 1,278 Total cost of sales and operating expenses $ 19,964 $ 8,550 5,453 795 570 541 295 196 1,149 $ 17,549 (i) 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. Parent company(a) $ USI JELD-WEN Celestica Other 2016 118 92 37 33 43 $ 2015 134 14 54 38 20 Total stock-based compensation expense $ 323 $ 260 a) Parent company stock-based compensation primarily relates to Onex’ stock option plan, as described in note 19, and the MIP, as described in note 31(d). The expense is determined based on the fair value of the liability at the end of each reporting period. The fair value of Onex’ stock option plan is determined using an option valuation model. The significant inputs into the model were the share price at December 31, 2016 of C$91.38 (2015 – C$84.82), the exercise price of the options, the remaining life of each option issuance, the volatility of each option issuance ranging from 18.26% to 18.66%, an average dividend yield of 0.41% and an average risk-free rate of 1.60%. The volatility is measured as the historical volatility based on the remaining life of each respec- tive option issuance. The fair values of the MIP options are determined using an internally developed valuation model. The significant inputs into the model are the fair value of the underlying investments, the time to expected exit from each investment, a risk-free rate of 1.11% and an industry comparable historical volatility for each investment. Onex Corporation December 31, 2016 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 24 . OTHER GAINS Year ended December 31 Gain on sale of Univers by USI(a) Gain on sale of Cicis(b) Gain on sale of Tropicana Las Vegas(c) Gain on sale of Flushing Town Center(d) Gain on the Onex Credit transaction(e) Gain on sale of B.C. Sugar residual property(f) Other(g) Total other gains 2 5 . O T H E R E X P E N S E ( I N C O M E ) 2016 $ 44 28 – – – – 8 2015 Year ended December 31 $ − − Transition, integration and other(a) Restructuring(b) 102 Transaction costs(c) 60 38 36 3 Carried interest charge due to Onex and ONCAP management(d) Foreign exchange loss(e) Derivatives losses (gains)(f) $ 80 $ 239 Change in value of other Onex Partners a) In May 2016, USI completed the sale of Univers, as described in note 2(e). b) In August 2016, ONCAP II sold its entire investment in Cicis, as described in note 2(i). c) In August 2015, Onex Partners III sold its entire investment in Tropicana Las Vegas, as described in note 3(k). investments(g) Change in fair value of contingent consideration(h) Losses (gains) on investments and long-term debt in CLOs and Onex Credit Funds(i) Other(j) Total other expense 2016 $ 126 100 90 59 57 31 (11) (39) (221) (105) $ 87 2015 $ 110 64 81 130 52 (120) 71 (76) 195 (72) $ 435 a) Transition, integration and other expenses typically provide for the costs of establishing and transitioning from a prior parent d) In July and December 2015, Onex Real Estate Partners sold sub- stantially all of the retail space and adjoining parking structures of company the activities of an operating company upon acquisition and to integrate new acquisitions at the operating companies. The Flushing Town Center, as described in note 3(h). costs may be incurred over several years as the establishment and e) In January 2015, Onex acquired control of the Onex Credit asset management platform, as described in note 3(a). In connection Transition, integration and other expenses for 2016 were primarily due to Carestream Health, Clarivate Analytics, Save-A- with this transaction, Onex recorded a non-cash gain of $38 dur- Lot and USI. Transition, integration and other expenses for 2015 ing the first quarter of 2015. were primarily due to Survitec and USI. transition of activities progress. f) In January 2015, Onex sold a residual property from its former investment in B.C. Sugar for proceeds of $54, recognizing a pre- b) Restructuring expenses typically provide for the costs of facility consolidations and workforce reductions incurred at the operat- tax gain of $36. Onex’ share of the proceeds on the sale of the ing companies. residual property was $33, net of amounts paid on account of the MIP, and Onex’ share of the pre-tax gain was $23. Management of Restructuring charges recorded at the operating companies were: Onex earned $3 on account of the MIP related to this transaction. Year ended December 31 g) Other includes gains from the sale of certain non-core busi- nesses by the operating companies. Net proceeds from these Celestica(i) Carestream Health(ii) transactions during 2016 were $10. SIG(iii) JELD-WEN(iv) ResCare(v) USI(vi) Other 2016 $ 32 20 20 11 11 5 1 2015 $ 24 3 2 17 1 16 1 Total restructuring charges $ 100 $ 64 156 Onex Corporation December 31, 2016 N O T E S T O C O N S O L I D AT E D F I N A N C I A L S TAT E M E N T S i) Celestica’s restructuring charges for 2016 primarily related to costs to exit its solar panel manufacturing operations. The e) For the year ended December 31, 2016, foreign exchange loss was primarily due to Survitec and WireCo. For the year ended charges recorded by Celestica in 2015 primarily related to costs December 31, 2015, foreign exchange loss was primarily due to loss- to consolidate certain sites and to reduce the workforce. es recognized by SIG, Carestream Health and Survitec. ii) The charges recorded by Carestream Health in 2016 primarily related to the reorganization of certain businesses and opera- tions, including sales and services functions at the company. Carestream Health’s restructuring charges for 2015 primarily related to the establishment of a central functions location for its European operations. iii) SIG’s restructuring charges for 2016 primarily related to costs to improve production processes and the establishment of a central support location. iv) JELD-WEN’s restructuring charges for 2016 and 2015 primarily f) Derivatives losses and gains for the years ended December 31, 2016 and 2015 primarily relate to embedded derivatives associated with debt agreements and foreign exchange hedges. g) Includes realized and unrealized (gains) losses on other Onex Partners investments in which Onex has no or limited remaining strategic or operating influence. During 2016 and 2015, the other Onex Partners investments consisted of FLY Leasing Limited and Genesis Healthcare (since February 2015). related to the closure of facilities and personnel restructuring. Year ended December 31 v) ResCare’s restructuring charges for 2016 primarily relate to exiting the skilled line of business in the HomeCare segment and severance costs. vi) USI’s restructuring charges for 2016 and 2015 primarily related to severance and lease abandonment costs. c) Transaction costs are incurred by Onex and its operating com- panies to complete business acquisitions, and typically include advisory, legal and other professional and consulting costs. Transaction costs for 2016 were primarily due to the acquisi- tions of Clarivate Analytics, Save-A-Lot, Tecta and WireCo, in addition to acquisitions completed by the operating companies. Transaction costs for 2015 were primarily due to the acquisitions of Chatters, Jack’s, Schumacher, SIG and Survitec, in addition to acquisitions completed by the operating companies. d) Carried interest charge 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 calculated based on the current fair values of the Funds’ invest- ments and the overall unrealized gains in each respective Fund in accordance with the limited partnership agreements. The unre- alized carried interest liability is recorded in other non-current liabilities and reduces the Limited Partners’ Interests, as described in note 16. 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. During 2016, a charge of $59 (2015 – $130) was record- ed in the consolidated statements of earnings for an increase in management’s share of the carried interest primarily due to an increase in the fair value of certain of the investments in the Onex Partners and ONCAP Funds. Genesis Healthcare(i) FLY Leasing Limited Total 2016 $ (11) – $ (11) 2015 $ 72 (1) $ 71 i) In February 2015, Skilled Healthcare Group combined with Genesis HealthCare, LLC, a leading U.S. operator of long-term care facilities, as described in note 8(c). As a result of the trans- action, Onex no longer controls Skilled Healthcare Group, and the Company’s investment 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 expense (income). h) During 2016, a net recovery of $39 (2015 – $76) was recognized in relation to the change in estimated fair value of contingent consid- eration related to acquisitions completed by the Company. The fair value of contingent consideration liabilities is typically based on the estimated future financial performance of the acquired busi- ness. Financial targets used in the estimation process include cer- tain defined financial targets and realized internal rates of return. Partially offsetting the recovery for the year ended December 31, 2016 was the final determination of the additional consideration payable based on SIG’s financial performance in 2015. The final determination resulted in an additional consideration of $162 (€150) being paid by SIG based on its 2015 financial performance. The majority of the additional consideration had been accrued by SIG at December 31, 2015. The total estimated fair value of contingent consideration liabilities at December 31, 2016 was $127 (December 31, 2015 – $318). Onex Corporation December 31, 2016 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 i) During 2016, gains on investments in CLOs and Onex Credit Funds were primarily unrealized and driven by a recovery in the c) Due to a decline in the recoverable amount of ResCare’s Home- Care segment, measured in accordance with IAS 36, Impair ment leveraged loan market. of Assets, ResCare recorded a non-cash goodwill and intangible During 2015, losses on investments in CLOs and Onex asset impairment of $51 during 2015. The impairment was calcu- Credit Funds were primarily unrealized and driven by volatility lated primarily on a fair value less costs to sell basis. The recover- in the leveraged loan market. Partially offsetting these losses were able amount calculated was approximately $140 and was a Level 3 gains on the long-term debt in the CLOs. measurement in the fair value hierarchy as a result of significant j) Other includes income from equity-accounted investments and realized and unrealized gains (losses) on Onex Corporation invest- ments in managed accounts. 26 . 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 York(a) Emerald Expositions(b) ResCare(c) Celestica(d) Other, net(e) Total 2016 $ 226 4 – – 4 2015 $ – 6 51 12 13 $ 234 $ 82 a) During the second quarter of 2016, York recorded a non-cash goodwill impairment charge of $226, measured in accordance with IAS 36, Impairment of Assets, primarily due to a decrease in pro- jected future earnings from its claims management business. The impairment was calculated on a fair value less costs to sell basis using the discounted cash flow method at a discount rate of 9.8%. The recoverable amount was a Level 3 measurement in the fair value hierarchy as a result of significant unobservable inputs used other unobservable inputs used in determining the recoverable amount. The impairment charge has been recorded in the health and human services segment. d) During 2015, Celestica recorded a non-cash impairment charge of $12 to impair certain of its property, plant and equipment. e) Other in 2016 included net impairments related to Carestream Health and JELD-WEN. Other in 2015 included net impairments related to JELD-WEN, sgsco and SIG. Substantially all of the Company’s goodwill and intangible assets with indefinite useful lives use the value-in-use method to mea- sure the recoverable amount. The carrying value of goodwill and intangible assets with indefinite useful lives is allocated on a seg- mented basis in note 34. In measuring the recoverable amounts for goodwill and intan- gible assets at December 31, 2016, significant estimates include the growth rate and discount rate, which ranged from 0.5% to 10.2% and 9.3% to 16.4% (2015 – 0% to 14.3% and 8.3% to 16.5%), respectively. 27. NET EARNINGS (LOSS) PER SUBORDINATE VOTING SHARE in determining the recoverable amount. The impairment charge The weighted average number of SVS for the purpose of the earn- has been recorded in the insurance services segment. ings (loss) per share calculations was as follows: b) During 2016 and 2015, Emerald Expositions recorded non-cash impairment charges primarily related to certain trade names and customer relationships. Year ended December 31 2016 2015 Weighted average number of shares outstanding (in millions): Basic Diluted 104 104 107 107 158 Onex Corporation December 31, 2016 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 . F I N A N C I A L I N S T R U M E N T S Financial assets held by the Company, presented by financial statement line item, were as follows: Fair Value through Net Earnings Recognized Designated Available- for-Sale Loans and Receivables Derivatives Used for Hedging December 31, 2016 Assets as per balance sheet Cash and cash equivalents Short-term investments Accounts receivable Other current assets Long-term investments Other non-current assets Total $ − 147 – 9 1,979 94 $ 2,371 $ – – 314 6,221 197 $ 2,229 $ 9,103 $ − 7 – – 71 – 78 Total $ 2,371 154 3,868 628 8,354 394 $ − – 3,868 292 – 94 $ − – – 13 83 9 $ 4,254(i) $ 105 $ 15,769 (i) The carrying value of loans and receivables approximates their fair value. 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 $ − 204 – 18 2,471 86 19 $ 2,313 $ − $ − − 196 4,996 162 113 2 − − 22 − − − − 2,933 239 − 78 205 $ − − − 39 77 − 1 Total $ 2,313 206 2,933 492 7,566 326 338 Total $ 2,798 $ 7,780 $ 24 $ 3,455(i) $ 117 $ 14,174 (i) The carrying value of loans and receivables approximates their fair value. Onex Corporation December 31, 2016 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 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 December 31, 2016 Liabilities as per balance sheet Accounts payable and accrued liabilities $ − $ Provisions Other current liabilities Long-term debt(i) Obligations under finance leases Other non-current liabilities Limited Partners’ Interests Total (i) Long-term debt is presented gross of financing charges. Total $ 4,089 135 393 23,244 77 710 8,474 117 43 – – 550 – − – 21 5,855 – 30 8,474 $ 4,089 $ 18 270 17,389 77 113 – − – 59 – – 17 – $ 710 $ 14,380 $ 21,956 $ 76 $ 37,122 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(i) 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 (i) Long-term debt is presented gross of financing charges. Long-term debt recorded at fair value through net earnings at December 31, 2016 of $5,855 (2015 – $4,870) has contractual amounts due on maturity of $5,953 (2015 – $5,093). 160 Onex Corporation December 31, 2016 N O T E S T O C O N S O L I D AT E D F I N A N C I A L S TAT E M E N T S The gains (losses) recognized by the Company related to financial assets and liabilities were as follows: Year ended December 31 2016 2015 Fair value through net earnings (loss) $ (174)(a) $ n/a $ (774)(a) $ n/a Earnings (Loss) Comprehensive Earnings (Loss)(i) Earnings (Loss) Comprehensive Earnings (Loss) (i) 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 losses recognized n/a 1 – (32) (1,089) 1 16 – n/a n/a n/a n/a n/a (9) n/a – – (15) (878) 3 (30) 1 n/a n/a n/a n/a n/a (56) $ (1,277) $ (9) $ (1,694) $ (55) (i) Amounts recognized in comprehensive earnings (loss) are presented gross of the income tax effect. a) Primarily consists of a Limited Partners’ Interests charge of $647 (2015 – $856), a carried interest charge of $59 (2015 – $130) and an increase in value of investments in joint ventures and associates at fair value of $180 (2015 – $175). Financial instruments measured at fair value are allocated within the fair value hierarchy based on the lowest level of input that is significant to the fair value measurement. Transfers between the three levels of the fair value hierarchy are recognized on the date of the event or change in circumstances that caused the transfer. There were no significant transfers between the three levels of the fair value hierarchy during 2016. The three levels of the fair value hierarchy are as follows: • Quoted prices in active markets for identical assets (“Level 1”); • Significant other observable inputs (“Level 2”); and • Significant other unobservable inputs (“Level 3”). 2 9. FA I R VA L U E M E A S U R E M E N T S Fair values of financial instruments The estimated fair values of financial instruments as at Decem- ber 31, 2016 and December 31, 2015 are based on relevant market prices and information available at those dates. The carrying val- ues of cash and cash equivalents, short-term investments, accounts receivable, accounts payable and accrued liabilities approximate the fair values of these financial instruments due to the short maturity of these instruments. The fair value of consolidated long- term debt at December 31, 2016 was $23,176 (December 31, 2015 – $17,930) compared to a carrying value of $23,863 (December 31, 2015 – $18,054). The fair value of consolidated long-term debt mea- sured at amortized cost is substantially a Level 2 measurement in the fair value hierarchy and is calculated by discounting the expected future cash flows using an observable discount rate for instruments of similar maturity and credit risk. For certain operat- ing companies, an adjustment is made by management for that operating company’s own credit risk, resulting in a Level 3 mea- surement in the fair value hierarchy. Onex Corporation December 31, 2016 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 The allocation of financial assets in the fair value hierarchy, excluding cash and cash equivalents, at December 31, 2016, was as follows: Level 1 Level 2 Level 3 Total Financial assets at fair value through net earnings Corporate loans held by CLOs and warehouse facilities $ Investments in debt Investments in equities Investments in joint ventures and associates Restricted cash and other Available-for-sale financial assets Investments in debt Investments in equities Total financial assets at fair value − – 23 – 482 – 22 $ 6,217 1,255 $ 96 – 136 56 – − – – 751 1 – – $ 6,217 1,255 119 751 619 56 22 $ 527 $ 7,760 $ 752 $ 9,039 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 net earnings Corporate loans held by CLOs and warehouse facilities Investments in debt Investments in equities Investments in joint ventures and associates Restricted cash and 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 liabilities in the fair value hierarchy at December 31, 2016 was as follows: Level 1 Level 2 Level 3 Total Financial liabilities at fair value through net 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 − − − − 22 $ − − − − 134 $ 8,104 $ 8,104 370 366 5,855 239 370 366 5,855 395 $ 22 $ 134 $ 14,934 $ 15,090 The allocation of financial liabilities in the fair value hierarchy at December 31, 2015 was as follows: Financial liabilities at fair value through net 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 Level 1 Level 2 Level 3 Total $ $ − − − − 12 12 $ − − − − 158 $ 6,989 $ 6,989 329 331 4,870 435 329 331 4,870 605 $ 158 $ 12,954 $ 13,124 162 Onex Corporation December 31, 2016 N O T E S T O C O N S O L I D AT E D F I N A N C I A L S TAT E M E N T S Details of financial assets and liabilities measured at fair value with significant unobservable inputs (Level 3), excluding investments in joint ventures and associates designated at fair value through earnings (note 10(b)) and Limited Partners’ Interests designated at fair value (note 16), are as follows: 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 Change in fair value recognized in net earnings Transfer to Level 3 Additions Acquisition of subsidiaries Settlements Other Balance – December 31, 2016 Financial Assets at Fair Value through Net Earnings Long-Term Debt of CLOs Other Financial Liabilities at Fair Value through Net Earnings $ – $ 3,431 $ 522 (1) 4 50 – (51) (1) 1 – – 61 – (61) – (110) – 1,857 – (308) – 4,870 133 – 1,571 – (719) – $ 1 $ 5,855 56 – – 213 (35) 10 766 9 – – 38 (214) 6 $ 605 Unrealized change in fair value of assets and liabilities held at the end of the reporting period $ – $ 122 $ 13 Financial assets and liabilities measured at fair value with The fair value measurement of the Limited Partners’ significant unobservable inputs (Level 3) are recognized in the Interests for the Onex Credit Funds is primarily driven by the consolidated statements of earnings in the following line items: underlying fair value of the investments in the Onex Credit Funds. (i) interest expense of operating companies; (ii) increase in value The investment strategies of the Onex Credit Funds are focused of investments in joint ventures and associates at fair value, net; on a variety of event-driven, long/short, long-only, par, stressed (iii) other income (expense); and (iv) Limited Partners’ Interests and distressed opportunities. recovery (charge). The fair value measurements for investments in joint ventures and associates, Limited Partners’ Interests for the Onex The valuation of investments in debt securities measured at fair Partners and ONCAP Funds and unrealized carried interest are value with significant other observable inputs (Level 2) is generally primarily driven by the underlying fair value of the investments determined by obtaining quoted market prices or dealer quotes in the Onex Partners and ONCAP Funds. A change to reasonably for identical or similar instruments in inactive markets, or other possible alternative estimates and assumptions used in the valu- inputs that are observable or can be corroborated by observable ation of non-public investments in the Onex Partners and ONCAP market data. Funds may have a significant impact on the fair values calculated The valuation of financial assets and liabilities mea- for these financial assets and liabilities. A change in the valuation sured at fair value with significant unobservable inputs (Level 3) of the underlying investments may have multiple impacts on Onex’ is determined quarterly utilizing company-specific considerations consolidated financial statements and those impacts are dependent and available market data of comparable public companies. The on the method of accounting used for that investment, the Fund(s) valuation of investments in the Onex Partners and ONCAP Funds within which that investment is held and the progress of that invest- is reviewed and approved by the General Partner of the respec- ment in meeting the MIP exercise hurdles. For example, an increase tive Fund each quarter. The General Partners of the Onex Partners in the fair value of an investment in an associate would have the fol- and ONCAP Funds are indirectly controlled by Onex Corporation. lowing impacts on Onex’ consolidated financial statements: i) an increase in the unrealized value of investments in joint ventures and associates at fair value in the consolidated state- ments of earnings, with a corresponding increase in long- term investments in the consolidated balance sheets; Onex Corporation December 31, 2016 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 ii) a charge would be recorded for the limited partners’ share of iv) a charge would be recorded for the change in unrealized car- the fair value increase of the investment in associate on the ried interest due to Onex and ONCAP management on the Limited Partners’ Interests line in the consolidated statements other income (expense) line in the consolidated statements of of earnings, with a corresponding increase to the Limited earnings, with a corresponding increase to other non-current Partners’ Interests in the consolidated balance sheets; liabilities in the consolidated balance sheets; and iii) a change in the calculation of unrealized carried interest in v) a change in the fair value of the vested investment rights the respective Fund that holds the investment in associate, held under the MIP, resulting in a charge being recorded on resulting in a recovery being recorded in the Limited Partners’ the stock-based compensation line in the consolidated state- Interests line in the consolidated statements of earnings, with ments of earnings, with a corresponding increase to other a corresponding decrease to the Limited Partners’ Interests in non-current liabilities in the consolidated balance sheets. the consolidated balance sheets; Valuation methodologies may include observations of the trading multiples of public companies considered comparable to the private companies being valued and discounted cash flows. The following table presents the significant unobservable inputs used to value the Company’s private securities that impact the valuation of (i) investments in joint ventures and associates; (ii) unrealized carried interest liability due to Onex and ONCAP management; (iii) stock-based compensation liability for the MIP; and (iv) Limited Partners’ Interests. Valuation Technique Significant Unobservable Inputs Inputs at December 31, 2016 Inputs at December 31, 2015 Market comparable companies EBITDA multiple Discounted cash flow Weighted average cost of capital Exit multiple 7.5x–13.0x 9.8%–18.0% 6.0x–11.0x 6.5x–10.5x 11.1%–18.0% 6.5x–10.5x In addition, at December 31, 2016 and December 31, 2015, the Com- pany has an investment that was valued using market compara- 3 0 . 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 ble transactions. At December 31, 2015, the Company also had an investment whose value was based on estimated sale proceeds. Credit risk Generally, EBITDA represents earnings before interest, taxes, depreciation and amortization as well as other adjustments. Other adjustments can include non-cash costs of stock-based compensation and retention plans, transition and restructuring expenses including severance payments, the impact of deriva- tive instruments that no longer qualify for hedge accounting, the impacts of purchase accounting and other similar amounts. EBITDA is a measurement that is not defined under IFRS. The long-term debt issued by the CLOs is recognized at fair value using third-party pricing models without adjustment by the Company. The valuation methodology is based on a projection of the future cash flows expected to be realized from the underlying collateral of the CLOs. During 2016, the Company recorded a loss of $122 (2015 – gain of $110) attributable to changes in the credit risk of the long-term debt held by the CLOs. 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 10(a). At December 31, 2016, Onex, the parent company, had $679 of cash on hand and $907 of near-cash items at market value. Cash and cash equivalents are held with financial institutions hav- ing a current Standard & Poor’s rating of A-1+ or above. Near-cash items include short- and long-term investments managed by third- party investment managers, as described below, $376 invested in a segregated unlevered fund managed by Onex Credit and $48 in management fees receivable from limited partners of its private equity platforms. The short- and long-term investments have cur- rent Standard & Poor’s ratings ranging from BBB to AAA. The port- folio concentration limits range from a maximum of 10% for BBB investments to 100% for AAA investments. 164 Onex Corporation December 31, 2016 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 Accounts receivable are also subject to credit risk. At December 31, Market risk 2016, the aging of consolidated accounts receivable was as follows: Market risk is the risk that the future cash flows of a financial Accounts Receivable Company is primarily exposed to fluctuations in the foreign cur- instrument will fluctuate due to changes in market prices. The Current 1–30 days past due 31–60 days past due >60 days past due Total Liquidity risk $ 2,856 543 143 326 $ 3,868 Liquidity risk is the risk that Onex and its operating companies will have insufficient funds on hand to meet their respective obligations as they come due. The operating companies operate autonomously and generally have restrictions on cash distribu- tions to shareholders under their financing agreements. Onex needs to be in a position to support its operating companies when and if it is appropriate and reasonable for Onex, as an equity rency exchange rate between the Canadian and U.S. dollars and fluctuations in LIBOR, EURIBOR and the U.S. prime interest rate. Foreign currency exchange rates Onex’ operating companies operate autonomously as self-sus- taining companies. The functional currency of the majority of Onex’ operating companies is the U.S. dollar. However, certain operating companies conduct business outside the United States and as a result are exposed to currency risk on the portion of busi- ness that is not based on the U.S. dollar. To manage foreign cur- rency risk, certain operating companies use forward contracts to hedge all or a portion of forecasted revenues and/or costs outside their functional currencies. Additionally, where possible, Onex and its operating companies aim to reduce the exposure to for- eign currency fluctuations through natural hedges by transacting owner with paramount duties to act in the best interests of Onex in local currencies. shareholders, to do so. Maintaining sufficient liquidity at Onex is important because Onex, as a holding company, generally does Interest rates not have guaranteed sources of meaningful cash flow. The Company is exposed to changes in future cash flows as a result In completing acquisitions, it is generally Onex’ policy of changes in the interest rate environment. The parent company 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 company’s financial condition and prospects, is debt of the acquired company at closing and is with- is exposed to interest rate changes primarily through its cash and cash equivalents, which are held in short-term term deposits and commercial paper. Assuming no significant changes in cash bal- ances held by the parent company from those at December 31, out recourse to Onex Corporation, the ultimate parent company, 2016, a 0.25% increase (0.25% decrease) in the interest rate (includ- 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 ing the Canadian and U.S. prime rates) would result in a minimal impact on annual interest income. As all of the Canadian dollar cash and cash equivalents at the parent company are designated as fair value through net earnings, there would be no effect on maximizes the risk/reward equation for both shareholders and the other comprehensive earnings. acquired company. Onex, the parent company, has exposure to interest Accounts payable for the operating companies are pri- rate risk primarily through its short- and long-term investments marily due within 90 days. The repayment schedules for long- term debt and finance leases of the operating companies have been disclosed in notes 14 and 15. Onex Corporation, the ultimate parent company, has no debt and does not guarantee the debt of the operating companies. managed by third-party investment managers. As interest rates change, the fair values of fixed income investments are inversely impacted. Investments with shorter durations are less impacted by changes in interest rates compared to investments with lon- ger durations. At December 31, 2016, Onex’ short- and long-term investments included $348 of fixed income securities measured at fair value, which are subject to interest rate risk. These securi- ties had a weighted average duration of 1.3 years. Other factors, including general economic conditions and political conditions, may also affect the value of fixed income securities. These risks are monitored on an ongoing basis and the short- and long-term investments may be repositioned in response to changes in mar- ket conditions. Onex Corporation December 31, 2016 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 The operating companies’ results are also affected by Capital disclosures changes in interest rates. A change in the interest rate (including Onex considers the capital it manages to be the amounts it has in the LIBOR, EURIBOR and U.S. prime interest rate) would result cash and cash equivalents, near-cash investments, short- and long- in a change in interest expense being recorded due to the vari- term investments managed by third-party investment managers able-rate portion of the long-term debt of the operating compa- and the investments made in the operating businesses, Onex Credit nies. At December 31, 2016, excluding CLOs, approximately 42% and other investments. Onex also manages the capital of other (2015 – 45%) of the operating companies’ long-term debt had a investors in the Onex Partners, ONCAP and Onex Credit Funds. fixed interest rate or an interest rate that was effectively fixed by Onex’ objectives in managing capital are to: interest rate swap contracts. The long-term debt of the operating • preserve a financially strong parent company with appropriate companies is without recourse to Onex Corporation, the ultimate liquidity and no, or a limited amount of, debt so that funds are parent company. Commodity risk available to pursue new acquisitions and growth opportunities as well as support expansion of its existing businesses. Onex gen- erally does not have the ability to draw cash from its operating Certain of Onex’ operating companies have exposure to com- businesses. Accordingly, maintaining adequate liquidity at the modities. In particular, silver is a significant commodity used in parent company is important; Carestream Health’s manufacturing of x-ray film. The company’s • achieve an appropriate return on capital invested commensu- management continually monitors movements and trends in the rate with the level of assumed risk; silver market and enters into collar and forward agreements when • build the long-term value of its operating businesses; considered appropriate to mitigate some of the risk of future price • control the risk associated with capital invested in any particu- fluctuations, generally for periods of up to a year. lar business or activity. All debt financing is within the operating Resin and aluminum are significant commodities used companies and each operating company is required to support by SIG. The company generally purchases commodities at spot its own debt. Onex Corporation does not guarantee the debt of market prices and actively uses derivative instruments to hedge the operating businesses and there are no cross-guarantees of the exposure in relation to the cost of resin (and its components) debt between the operating businesses; and and aluminum. Due to this approach, the company has been • have appropriate levels of committed limited partners’ capital able to fix the prices one year forward for approximately 90% of available to invest along with Onex’ capital. This allows Onex to its expected resin and aluminum purchases, which substantially respond quickly to opportunities and pursue acquisitions of busi- minimizes the exposure to the price fluctuations of the commodi- nesses of a size it could not achieve using only its own capital. ties over that period. The management of limited partners’ capital also provides man- Rod, polymers and synthetic fibres are significant com- agement fees to Onex and the ability to enhance Onex’ returns by modities used by WireCo in its manufacturing operations, in earning a carried interest on the profits of limited partners. addition to certain energy sources, principally electricity, natural gas and propane. The company monitors the cost of raw materi- Beginning in the second quarter of 2015, Onex, the parent com- als and passes along price increases and decreases accordingly. pany, transferred a portion of its cash and cash equivalents to The company does not enter into commodity contracts to man- accounts managed by third-party investment managers in order age the exposure on forecasted purchases of raw materials. to increase the return on this capital while maintaining appropri- Regulatory risk ate liquidity. At December 31, 2016, the fair value of investments, including cash yet to be deployed, managed by third-party invest- Certain of Onex’ operating companies and investment advisor ment managers was $483. The investments are managed in a mix of affiliates may be subject to extensive government regulations and short- and long-term portfolios. Short-term investments consist of oversight with respect to their business activities. Failure to comply liquid investments including money market instruments and com- with applicable regulations, obtain applicable regulatory approvals mercial paper with original maturities of three months to one year. or maintain those approvals may subject the applicable operating Long-term investments consist of securities that include money company to civil penalties, suspension or withdrawal of any regu- market instruments, federal and municipal debt instruments, cor- latory approval obtained, injunctions, operating restrictions and porate obligations and structured products with maturities of one criminal prosecutions and penalties, which could, individually or in year to five years. The investments are managed to maintain an the aggregate, have a material adverse effect on Onex’ consolidated overall weighted average duration of two years or less. financial position. 166 Onex Corporation December 31, 2016 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, 2016, Onex had access to $1,674 of b) Legal contingencies uncalled committed limited partners’ capital for acquisitions Onex and its operating companies are or may become parties to through Onex Partners IV and $679 of uncalled committed limited legal, product liability and warranty claims arising in the ordinary partners’ capital for acquisitions through ONCAP IV. The uncalled course of business. Certain operating companies, as conditions of committed limited partners’ capital for Onex Partners IV has sub- acquisition agreements, have agreed to accept certain pre-acquisi- sequently decreased by $301 for the capital called for the pending tion liability claims against the acquired companies. The operating acquisition of Parkdean Resorts. companies have recorded provisions based on their consideration and analysis of their exposure in respect of such claims. Such provi- The strategy for risk management of capital has not changed sions are reflected, as appropriate, in Onex’ consolidated financial significantly since December 31, 2015. statements, as described in note 13. Onex Corporation, the ultimate parent company, has not currently recorded any further provision 31. C O M M I T M E N T S , C O N T I N G E N C I E S A N D and does not believe that the resolution of known claims would R E L AT E D PA R T Y T R A N S A C T I O N S a) Letters of credit, letters of guarantee and other commitments Contingent liabilities in the form of letters of credit, letters of guarantee and surety and performance bonds are primarily pro- vided by certain operating companies to various third parties and include certain bank guarantees. At December 31, 2016, the amounts potentially payable in respect of these guarantees totalled $315. 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 investments in con- tractually leased commercial jet aircraft. At December 31, 2016, Onex had a remaining commitment of $60 to Incline Aviation Fund. In February 2017, Mr. Gerald W. Schwartz, who is Onex’ controlling shareholder, assumed $25 of Onex’ commitment, reducing the amount committed by Onex to investing in Incline Aviation Fund to $50. In addition, commitments at December 31, 2016 include $1,665 (£1,350) related to the pending acquisition of Parkdean Resorts, as discussed in note 2(q). reasonably be expected to have a material adverse impact on Onex’ consolidated financial position. However, the final outcome with respect to outstanding, pending or future actions cannot be predict- ed with certainty, and therefore there can be no assurance that their resolution will not have an adverse effect on Onex’ consolidated financial position. c) Environmental contingencies The operating companies are subject to laws and regulations concerning the environment and to the risk of environmen- tal liability inherent in activities relating to their past and pres- ent operations. As conditions of acquisition agreements, certain operating companies have agreed to accept certain pre-acquisi- tion liability claims on the acquired companies after obtaining indemnification from previous owners. The Company and its operating companies also have insurance to cover costs incurred for certain environmental mat- ters. Although the effect on operating results and liquidity, if any, cannot be reasonably estimated, management of Onex and the operating companies believe, based on current information, that these environmental matters would not reasonably be expected to have a material adverse effect on the Company’s consolidated The Company, which includes the operating companies, financial condition. has also provided certain indemnifications, including those related to businesses that have been sold. The maximum amounts from many of these indemnifications cannot be reasonably estimated at this time. However, in certain circumstances, the Company and its operating companies have recourse against other parties to miti- gate the risk of loss from these indemnifications. The Company, which includes the operating companies, has commitments with respect to real estate operating leases, which are disclosed in note 15. The aggregate commitments for capital assets at Decem - ber 31, 2016 amounted to $124, with the majority expected to be incurred between 2017 and 2018. Onex Corporation December 31, 2016 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 d) Management Investment Plan Further, in January 2016, with the approval of a majority in interest Under the terms of the MIP, management members of the Com- of the limited partners, the term of Onex Partners I was extended pany invest in all of the operating entities acquired or invested in to February 4, 2017, and in January 2017 the term was extended by the Company. to February 4, 2019. As a result of the extension in January 2016, The aggregate investment by management members management fees were no longer earned for Onex Partners I as of under the MIP is limited to 9% of Onex’ interest in each acquisi- tion. The form of the investment is a cash purchase for 1⁄6th (1.5%) February 4, 2016. Carried interest is received on the overall gains achieved by Onex Partners I investors, other than Onex and Onex 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 management, to the extent of 20% of the gains, provided that those investors have achieved a minimum 8% return on their investment same price. Amounts invested under the minimum investment in Onex Partners I over the life of Onex Partners I. The investment requirement in Onex Partners’ transactions are allocated to meet by Onex Partners I investors for this purpose takes into consid- the 1.5% Onex investment requirement under the MIP. The invest- ment rights to acquire the remaining 5⁄6ths vest equally over six eration management fees and other amounts paid by Onex Part- ners I investors. years with the investment rights vesting in full if the Company Onex, as sponsor of Onex Partners I, is allocated 40% disposes of all of an investment before the seventh year. Under of the carried interest with 60% allocated to Onex management. the MIP, the investment rights related to a particular acquisition Carried interest received from Onex Partners I has fully vested are exercisable only if the Company realizes in cash the full return for Onex management. For the year ended December 31, 2016, no of its investment and earns a minimum 15% internal rate of return amounts (2015 – less than $1) were received by Onex as carried for the investment after giving effect to the investment rights. interest while Onex management received no amounts (2015 − less Realizations under the MIP distributed in 2016 were $7 than $1) with respect to the carried interest. (2015 – $4). In addition, management of ONCAP has an incentive f) Commitments to Onex Partners II program related to Onex’ co-investment in ONCAP operating In August 2006, Onex completed the closing of Onex Partners II companies. with commitments totalling $3,450. Onex Partners II provided com- mitted capital for Onex-sponsored acquisitions not related to Onex’ e) Commitments to Onex Partners I In February 2004, Onex completed the closing of Onex Partners I operating companies at December 31, 2003 or to ONCAP or Onex Partners I. As at December 31, 2016, $2,944 (2015 – $2,944) has been with commitments totalling $1,655. Onex Partners I provided com- invested of the $3,450 of total capital committed. Onex has invested mitted capital for Onex-sponsored acquisitions not related to Onex’ $1,164 (2015 – $1,164) of its $1,407 commitment. Onex controls the operating companies at December 31, 2003 or to ONCAP. As at General Partner and Manager of Onex Partners II. The total amount December 31, 2016, $1,475 (2015 – $1,475) has been invested of the invested at cost in Onex Partners II’s remaining investment by Onex $1,655 of total capital committed. Onex has invested $346 (2015 – management and Directors at December 31, 2016 was $18 (2015 – $346) of its $400 commitment. Onex controls the General Partner $18). There were no additional amounts invested by Onex manage- and Manager of Onex Partners I. The total amount invested at cost ment and Directors in Onex Partners II investments during 2016 in Onex Partners I’s remaining investments by Onex management and 2015. and Directors at December 31, 2016 was $11 (2015 – $11). There Prior to November 2008, Onex received annual man- were no additional amounts invested by Onex management and agement fees based on 2% of the capital committed to Onex Part- Directors in Onex Partners I investments during 2016 or 2015. ners II by investors other than Onex and Onex management. The Prior to November 2006, Onex received annual man- annual management fee was reduced to 1% of the net funded com- agement fees based on 2% of the capital committed to Onex Part- mitments at the end of the initial fee period in November 2008, ners I by investors other than Onex and Onex management. The when Onex established a successor Onex Partners fund, Onex annual management fee was reduced to 1% of the net funded Partners III. In July 2016, the term of Onex Partners II was extended commitments at the end of the initial fee period in November to August 1, 2017. Carried interest is received on the overall gains 2006, when Onex established a successor Onex Partners fund, achieved by Onex Partners II investors, other than Onex and Onex Onex Partners II. In January 2015, with the approval of a major- management, to the extent of 20% of the gains, provided that those ity in interest of the limited partners, the term of Onex Partners I investors have achieved a minimum 8% return on their investment was extended to February 4, 2016. In connection with this exten- in Onex Partners II over the life of Onex Partners II. The investment sion, the management fee was further reduced to 1% of net funded by Onex Partners II investors for this purpose takes into consid- commitments relating to Onex Partners I’s investment in ResCare. eration management fees and other amounts paid by Onex Part- ners II investors. 168 Onex Corporation December 31, 2016 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 Consistent with Onex Partners I, Onex, as sponsor of Onex Partners II, is allocated 40% of the carried interest with h) Commitments to Onex Partners IV In May 2014, Onex completed the closing of Onex Partners IV 60% allocated to Onex management. Carried interest received with commitments totalling $5,150. Onex Partners IV is to pro- from Onex Partners II has fully vested for Onex management. For vide committed capital for future Onex-sponsored acquisitions the year ended December 31, 2016, less than $1 (2015 – nil) was not related to Onex’ operating companies at December 31, 2003 received by Onex as carried interest while Onex management or to ONCAP or previous Onex Partners Funds. The term of Onex received less than $1 (2015 – nil) with respect to carried interest. Partners IV, unless further extended, ends in May 2024. Onex had a $1,200 commitment for the period from the date of the first clos- g) Commitments to Onex Partners III In December 2009, Onex completed the closing of Onex Part- ing to June 2, 2015, and a $1,700 commitment since June 3, 2015. As at December 31, 2016, $3,362 (2015 – $1,736) has been invested, ners III with commitments totalling $4,300. Onex Partners III pro- including capitalized costs, of which Onex’ share was $884 (2015 – vided committed capital for Onex-sponsored acquisitions not $428). Onex controls the General Partner and Manager of Onex related to Onex’ operating companies at December 31, 2003 or to Partners IV. Onex management has committed, as a group, to ONCAP or previous Onex Partners Funds. The term of Onex Part- invest a minimum of 2% of Onex Partners IV, which may be adjust- ners III, unless further extended, ends in April 2019. As at Decem- ed annually up to a maximum of 8%. At December 31, 2016, Onex ber 31, 2016, $4,215 (2015 – $4,207) has been invested, including management and Directors had committed 4%. The total amount capitalized costs, of which Onex’ share was $929 (2015 – $927). Onex’ invested in Onex Partners IV’s investments by Onex management commitment to Onex Partners III has been $1,200 since May 15, and Directors at December 31, 2016 was $259 (2015 – $129, includ- 2012. Onex controls the General Partner and Manager of Onex Part- ing $4 of bridge financing), of which $130 (2015 – $113) was invest- ners III. The total amount invested at cost in Onex Partners III’s ed in the year ended December 31, 2016, after taking into account remaining investments by Onex management and Directors at bridge financing repayments of $3. December 31, 2016 was $126 (2015 – $141), of which less than $1 Onex began to earn management fees from Onex (2015 – nil) was invested in the year ended December 31, 2016. Partners IV in August 2014. During the initial fee period of Onex Prior to December 2013, Onex received annual manage- Partners IV, Onex receives annual management fees based on ment fees based on 1.75% of the capital committed to Onex Part- 1.7% of capital committed to Onex Partners IV by investors other ners III by investors other than Onex and Onex management. The than Onex and Onex management. The annual management fee annual management fee was reduced to 1% of the net funded com- is reduced to 1% of the net funded commitments at the earlier of mitments at the end of the initial fee period in December 2013. Onex the end of the commitment period or if Onex establishes a succes- obtained approval for an extension of the commitment period for sor Onex Partners fund. Carried interest is received on the over- Onex Partners III into 2014 to enable further amounts to be invest- all gains achieved by Onex Partners IV investors, other than Onex ed through the Fund. The October 2014 investment in York was the and Onex management, to the extent of 20% of the gains, provided final new investment made by Onex Partners III. Carried interest is that those investors have achieved a minimum 8% return on their received on the overall gains achieved by Onex Partners III inves- investment in Onex Partners IV over the life of Onex Partners IV. tors, other than Onex and Onex management, to the extent of 20% The investment by Onex Partners IV investors for this purpose of the gains, provided that those investors have achieved a mini- takes into consideration management fees and other amounts mum 8% return on their investment in Onex Partners III over the paid by Onex Partners IV investors. life of Onex Partners III. The investment by Onex Partners III inves- The returns to Onex Partners IV investors, other than tors for this purpose takes into consideration management fees and Onex and Onex management, are based on all investments made other amounts paid by Onex Partners III investors. through Onex Partners IV, with the result that the initial carried The returns to Onex Partners III investors, other than interest achieved by Onex on gains could be recovered from Onex Onex and Onex management, are based on all investments made if subsequent Onex Partners IV investments do not exceed the through Onex Partners III, with the result that the initial carried overall target return level of 8%. Consistent with previous Onex interest achieved by Onex on gains could be recovered from Onex Partners Funds, Onex, as sponsor of Onex Partners IV, will be if subsequent Onex Partners III investments do not exceed the allocated 40% of the carried interest with 60% allocated to Onex overall target return level of 8%. Consistent with previous Onex management. Carried interest received from Onex Partners IV for Partners Funds, Onex, as sponsor of Onex Partners III, will be allo- Onex management will vest equally over six years from August cated 40% of the carried interest with 60% allocated to Onex man- 2014. As at December 31, 2016 and 2015, no amounts had been agement. Carried interest received from Onex Partners III has fully received as carried interest related to Onex Partners IV. vested for Onex management. For the year ended December 31, 2016, $14 (2015 – $1) was received by Onex as carried interest while Onex management received $22 (2015 – $1) with respect to the carried interest. Onex Corporation December 31, 2016 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 i) Commitments to ONCAP II j) Commitments to ONCAP III In May 2006, Onex completed the closing of ONCAP II with com- In September 2011, Onex completed the closing of ONCAP III with mitments totalling C$574. ONCAP II provided committed capital commitments totalling C$800, excluding commitments from man- for acquisitions of small and medium-sized businesses requir- agement of Onex and ONCAP. ONCAP III provides committed cap- ing between C$20 and C$75 of initial equity capital. As at Decem- ital for acquisitions of small and medium-sized businesses requir- ber 31, 2016, C$483 (2015 – C$483) has been invested of the C$574 ing less than $125 of initial equity capital. The term of ONCAP III, of total capital committed. Onex has invested C$221 (2015 – C$221) unless further extended, ends in July 2021. As at December 31, of its C$252 commitment. Onex controls the General Partner 2016, C$632 (2015 – C$552) has been invested of the total capital and Manager of ONCAP II. The total amount invested at cost in committed. Onex has invested C$186 (2015 – C$163) of its C$252 ONCAP II’s remaining investments by management of Onex and commitment. Onex controls the General Partner and Manager ONCAP and Directors at December 31, 2016 was C$22 (2015 – of ONCAP III. The total amount invested at cost in ONCAP III’s C$25). There were no additional amounts invested by manage- investments by management of Onex and ONCAP and Directors ment of Onex and ONCAP and Directors in ONCAP II investments at December 31, 2016 was C$60 (2015 – C$52), of which C$8 (2015 – during 2016 and 2015. C$17) was invested in the year ended December 31, 2016. Prior to July 2011, Onex received annual management Prior to August 2016, Onex received annual management fees based on 2% of the capital committed to ONCAP II by inves- fees based on 2% of the capital committed to ONCAP III by inves- tors other than Onex and management of Onex and ONCAP. tors other than Onex and management of Onex and ONCAP. The The annual management fee was reduced to 2% of the net invest- annual management fee was reduced to 1.5% of the net funded ment amount at the end of the initial fee period in July 2011, when commitments at the end of the commitment period marked by Onex established a successor ONCAP fund, ONCAP III. In May the August 2016 investment in Tecta. Carried interest is received 2015, in accordance with the Partnership Agreement with con- on the overall gains achieved by ONCAP III investors, other than sent of the Advisory Committee, the term of the Partnership was management of ONCAP, to the extent of 20% of the gains, provided extended for one year to November 22, 2016. In October 2016, the that those investors have achieved a minimum 8% return on their term of the Partnership was further extended for a second year investment in ONCAP III over the life of ONCAP III. The investment to November 22, 2017. Carried interest is received on the overall by ONCAP III investors for this purpose takes into consideration gains achieved by ONCAP II investors, other than management management fees and other amounts paid by ONCAP III investors. of ONCAP, to the extent of 20% of the gains, provided that those The returns to ONCAP III investors, other than man- investors have achieved a minimum 8% return on their invest- agement of ONCAP, are based on all investments made through ment in ONCAP II over the life of ONCAP II. The investment by ONCAP III, with the result that the initial carried interest achieved ONCAP II investors for this purpose takes into consideration man- by ONCAP on gains could be recovered if subsequent ONCAP III agement fees and other amounts paid by 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 by ONCAP on gains could be recovered if subsequent ONCAP II from ONCAP III has fully vested for ONCAP management. As at investments do not exceed the overall target return level of 8%. December 31, 2016 and 2015, no amount had been received as The ONCAP management team is entitled to that portion of the 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 ONCAP management. For the year ended December 31, 2016, ONCAP management received $1 (C$2) (2015 – $2 (C$2)) with respect to the carried interest. 170 Onex Corporation December 31, 2016 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 k) Commitments to ONCAP IV l) Management investment in Onex Credit In November 2016, Onex completed the closing of ONCAP IV The Onex management team may invest in strategies managed with commitments totalling $1,107. ONCAP IV provides com- by Onex Credit. At December 31, 2016, investments at market held mitted capital for acquisitions of small and medium-sized busi- by the Onex management team in Onex Credit strategies were nesses requiring less than $200 of initial equity capital. The term approximately $275 (2015 – approximately $275). of ONCAP IV, unless further extended, ends in December 2028. As at December 31, 2016, $62 has been invested of the total capital m) Management and Directors’ investment in committed. Onex has invested $25 of its $480 commitment. Onex Incline Aviation Fund controls the General Partner and Manager of ONCAP IV. ONCAP In December 2016, the Onex management team committed to management has committed, as a group, to invest a minimum of investing $10 in Incline Aviation Fund. At December 31, 2016, the 2% of ONCAP IV. The commitment from management of Onex and total amount invested in Incline Aviation Fund at cost, including ONCAP and Directors may be increased up to a maximum of 10% of the amounts invested under the minimum investment require- ONCAP IV. At December 31, 2016, management of Onex and ONCAP ment of the MIP, was less than $1. and Directors have committed 10% to ONCAP IV. The total amount In February 2017, the Onex management team increased invested at cost in ONCAP IV’s investments by management of its commitment to invest in Incline Aviation Fund to $30, which Onex and ONCAP and Directors at December 31, 2016 was $6. includes the $25 commitment by Mr. Gerald W. Schwartz, as de- Beginning in November 2016, Onex is entitled to receive scribed in note 31(a). annual management fees based on 2% of the capital commit- ted to ONCAP IV by investors other than Onex and management n) Management and Directors’ investment in of Onex and ONCAP. The annual management fee is reduced to Onex Real Estate Partners 1.5% of the net funded commitments at the earlier of the end of Members of management and the Board of Directors of the the commitment period or if Onex establishes a successor ONCAP Company invested nil in 2016 (2015 – $5) in Onex Real Estate Part- fund. Carried interest is received on the overall gains achieved ners’ investments. Onex Real Estate Partners’ investments by man- by ONCAP IV investors, other than management of ONCAP, to agement and Directors are subject to voting control by Onex. the extent of 20% of the gains, provided that those investors have achieved a minimum 8% return on their investment in ONCAP IV o) Management reinvestment of MIP and carried interest over the life of ONCAP IV. Once the ONCAP IV investors achieve a Members of Onex management are required to reinvest 25% of return of two times their aggregate capital contributions, carried the proceeds received related to their share of the MIP investment interest participation increases to 25% of the overall gains. The rights and carried interest to acquire Onex SVS and/or manage- investment by ONCAP IV investors for this purpose takes into con- ment DSUs in the market until they individually own at least one sideration management fees and other amounts paid by ONCAP IV million Onex SVS and/or management DSUs. During 2016, Onex investors. management reinvested C$5 (2015 – C$1) to acquire Onex SVS and/ The returns to ONCAP IV investors, other than man- or management DSUs. agement of ONCAP, are based on all investments made through ONCAP IV, with the result that the initial carried interest achieved p) Loans to operating company directors or officers by ONCAP on gains could be recovered if subsequent ONCAP IV Certain operating companies have made loans to certain directors investments do not exceed the lesser of the overall target return or officers of the individual operating companies, typically for the level of 8% and two times their aggregate capital contributions. The purpose of acquiring shares in those operating companies. The ONCAP management team is entitled to that portion of the carried total value of the loans outstanding as at December 31, 2016 was $3 interest that equates to a 12% or 15% carried interest on both limited (2015 – $6). partners and Onex capital. Carried interest received from ONCAP IV will vest equally over five years ending in November 2021 for ONCAP management. As at December 31, 2016, no amount had been received as carried interest related to ONCAP IV. Onex Corporation December 31, 2016 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 q) Onex Credit management fees s) Share repurchase transaction with a related party Onex Credit earns management fees on other investors’ capi- In January 2016, Onex repurchased in a private transaction tal invested in Onex Credit Funds and CLOs. Management fees 1,000,000 of its SVS that were held indirectly by Mr. Gerald W. earned on the capital invested by Onex, the parent company, are Schwartz, Onex’ controlling shareholder. The private transac- eliminated in the consolidated financial statements. tion was approved by the disinterested directors of the Board of In addition, Onex Credit is entitled to incentive fees on Directors of the Company. The shares were repurchased at a cash other investors’ capital invested in Onex Credit Funds and CLOs. cost of $58.85 (C$84.12) per share or a total cost of $59 (C$84), Incentive fees range between 5% and 20%. Certain incentive fees which represents a slight discount to the trading price of Onex (including incentive fees on CLOs) are subject to a hurdle or mini- shares at that date. mum preferred return to investors. During the year ended December 31, 2016, gross man- t) Remuneration to key management agement and incentive fees earned by the credit strategies seg- The Company’s key management consists of the senior executives ment, including management and incentive fees from Onex Credit of Onex, ONCAP, Onex Credit and its operating companies. Also Funds and CLOs consolidated by Onex, were $40 and $4 (2015 – included are the Directors of Onex Corporation. Carried interest $34 and $1), respectively. The management and incentive fees and MIP payments to former senior executives of Onex and ONCAP from Onex Credit Funds and CLOs consolidated by Onex, the par- are excluded from the aggregate payments below. Aggregate pay- ent company, were $35 and $4 (2015 – $29 and $1), respectively. ments to the Company’s key management were as follows: Credit strategies segment revenues for 2016, net of management and incentive fees from Onex Credit Funds and CLOs consolidated Year ended December 31 by Onex, were $4 (2015 – $5). Short-term employee benefits and costs r) Tax loss transactions with a related party During 2016 and 2015, Onex entered into the sale of entities, the sole assets of which were certain tax losses, to companies con- Post-employment benefits Other long-term benefits Termination benefits Share-based payments(i) trolled by Mr. Gerald W. Schwartz, who is Onex’ controlling share- holder. Onex has significant non-capital and capital losses avail- Total 2016 $ 149 1 1 5 94 $ 250 2015 $ 137 1 1 6 113 $ 258 able; however, Onex does not expect to generate sufficient taxable (i) Share-based payments include $18 (2015 – $16) paid on the exercise of Onex stock income to fully utilize these losses in the foreseeable future. As such, no benefit has been recognized in the consolidated financial statements for these losses. In connection with these transactions, Deloitte LLP, an independent accounting firm retained by Onex’ Audit and Corporate Governance Committee, provided opinions that the values received by Onex for the tax losses were fair from a financial point of view. Onex’ Audit and Corporate Governance Committee, all the members of which are independent Directors, unanimously approved the transactions. The following transac- tions were completed during 2016 and 2015: • In 2016, Onex received $14 in cash for tax losses of $142. The entire $14 was recorded as a gain and included in other income (expense) in the consolidated statements of earnings. • In 2015, Onex received $11 in cash for tax losses of $109. The entire $11 was recorded as a gain and included in other income (expense) in the consolidated statements of earnings. options (note 19), $19 (2015 – $1) of carried interest paid to Onex management and $6 (2015 – $3) of amounts paid under the MIP to management and Onex. During 2016, Onex, the parent company, received carried interest of $14 (2015 – $1). u) Acquisition of control of the Onex Credit asset management platform 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 3(a). 172 Onex Corporation December 31, 2016 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 v) Other related party transactions The plans are exposed to market risks, such as changes in In July 2015, Celestica entered into an agreement of purchase and interest rates, inflation and fluctuations in investment values. The sale to sell certain of its real property to a special-purpose entity plan liabilities are calculated using a discount rate set with refer- to be formed by a consortium of three real estate developers (the ence to corporate bond yields; if the plan assets fail to achieve this “Property Purchaser”) for approximately $101 (C$137), exclusive of yield, this will create or further a plan deficit. A decrease in cor- taxes and subject to adjustment. The proceeds to Celestica consist porate bond yields would have the effect of increasing the benefit of a C$15 deposit that was received upon execution of the agree- obligations; however, this would be partially offset by a fair value ment, C$54 upon closing and C$68 in the form of an interest- increase in the value of debt securities held in the plans’ assets. For free, first-ranking mortgage having a term of two years from the certain plans, the benefit obligations are linked to inflation, and closing date. The transaction is subject to various conditions, higher inflation will result in a greater benefit obligation. including municipal approvals, and is currently expected to close The plans are also exposed to non-financial risks such within approximately two years from the execution date of the as the membership’s mortality and demographic changes, as well purchase and sale agreement. as regulatory changes. An increase in the life expectancy will Approximately 30% of the interests in the Property result in an increase in the benefit obligations. Purchaser are to be held by a private entity in which Mr. Gerald The total costs during 2016 for defined contribution W. Schwartz, who is Onex’ controlling shareholder and a direc- pension plans and multi-employer plans were $115 (2015 – $89). tor of Celestica (until December 31, 2016), has a material interest. Accrued benefit obligations and the fair value of plan Mr. Schwartz also has a non-voting interest in an entity which is assets for accounting purposes are measured at December 31 to have an approximate 25% interest in the Property Purchaser. of each year. The most recent actuarial valuations of the largest Celestica formed a Special Committee, consisting solely of inde- pension plans for funding purposes were in 2016, and the next pendent directors, to review and supervise the competitive bid- required valuations will be in 2017. The Company estimates that ding process. The bid of the Property Purchaser was approved by in 2017 the minimum funding requirement for the defined benefit Celestica’s board of directors, at a meeting at which Mr. Schwartz pension plans will be $10. was not present, based on the unanimous recommendation of the In 2016, total cash payments for employee future benefits, Special Committee. Onex, the parent company, is not participat- consisting of cash contributed by the operating companies to their ing in this transaction. 3 2 . P E N S I O N A N D N O N - P E N S I O N P O S T - R E T I R E M E N T B E N E F I T S funded pension plans, cash payments directly to beneficiaries for their unfunded other benefit plans and cash contributed to their defined contribution plans, were $153 (2015 – $137). Included in the total was $18 (2015 – $8) contributed to multi-employer plans. 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. Onex Corporation December 31, 2016 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 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 2016 2015 2016 2015 2016 2015 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 $ 876 $ 430 $ 696 $ 781 $ 63 $ 74 8 16 2 (56) (6) 99 (78) – − – – (13) 8 18 4 (46) 6 (7) (20) 581 (93) – (10) 5 12 24 – (28) (1) 36 (7) 8 − – (6) 3 12 26 – (25) (15) (61) (30) 135 (111) (12) (3) (1) 3 3 – (4) (6) 6 1 1 – – – 7 2 3 – (3) – (2) (11) – – – – – Closing benefit obligations $ 848 $ 876 $ 737 $ 696 $ 74 $ 63 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 $ 1,061 $ 496 $ 360 19 114 7 2 (56) (93) – − – – (1) 21 (11) 16 4 (46) (18) 710 (94) – (11) (6) 14 9 14 – (27) – – − – (2) (3) $ 376 14 (18) 27 – (23) (6) 7 (5) (5) (2) (5) $ − $ – – 2 – (2) – – – – – – $ 1,053 $ 1,061 $ 365 $ 360 $ – $ 1 – – 2 – (3) – – – – – – – 174 Onex Corporation December 31, 2016 Asset Category Quoted Market Prices: Equity investment funds Debt investment funds Other investment funds Equity securities Debt securities Non-Quoted Market Prices: 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 2016 2015 17% 38% 2% 10% 11% 14% – 8% 100% 18% 39% 1% 12% 11% 13% 1% 5% 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 2016 2015 2016 2015 2016 2015 $ 1,053 $ 1,061 $ 365 $ 360 $ – $ – (848) 205 (7) (876) 185 (8) (737) (372) – (696) (336) – (74) (74) – (63) (63) – Deferred benefit amount – asset (liability) $ 198 $ 177 $ (372) $ (336) $ (74) $ (63) The deferred benefit asset of $198 (2015 – $177) is included in the Company’s consolidated balance sheets within other non-current assets (note 11). The total deferred benefit liabilities of $446 (2015 – $399) are included in the Company’s consolidated balance sheets within other non-current liabilities (note 17) and other current liabilities. Of the total deferred benefit liabilities, $1 (2015 – $12) was recorded as a current liability. The following assumptions were used to account for the plans: Year ended December 31 Accrued benefit obligation Weighted average discount rate(i) Weighted average rate of compensation increase (i) Weighted average discount rate includes inflation, where applicable to a benefit plan. Assumed healthcare cost trend rates Initial healthcare cost rate Cost trend rate declines to Year that the rate reaches the rate it is assumed to remain at Pension Benefits Non-Pension Post-Retirement Benefits 2016 2015 2016 2015 0.5%−6.3% 1.4%−3.9% 0.5%−4.2% 1.4%−3.9% 0.2%−3.9% 1.7%−4.6% 0.7%−4.1% 2.0%−4.6% 2016 5.9% 4.5% 2030 2015 6.2% 4.5% 2030 Onex Corporation December 31, 2016 175 N O T E S T O C O N S O L I D AT E D F I N A N C I A L S TAT E M E N T S The assumptions underlying the discount rates, rates of compensation increase and healthcare cost trend rates have a significant effect on the amounts reported for the pension and post-retirement benefit plans. A 1% change in these assumed rates would increase (decrease) the benefit obligations as follows: Pension Plans in which Assets Exceed Accumulated Benefits Pension Plans in which Accumulated Benefits Exceed Assets Non-Pension Post-Retirement Benefits As at December 31, 2016 1% Increase 1% Decrease 1% Increase 1% Decrease 1% Increase 1% Decrease Discount rate Rate of compensation increase Healthcare cost trend rate $ (70) $ 5 n/a $ 93 $ (4) n/a $ (95) $ 15 n/a $ 109 $ (9) n/a $ (8) $ 2 $ 7 $ 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, 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) The sensitivity analysis above is based on changing one assumption 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. 3 3 . S U B S E Q U E N T E V E N T S a) ONCAP IV credit facility 3 4 . I N F O R M AT I O N B Y I N D U S T R Y A N D G E O G R A P H I C S E G M E N T In January 2017, ONCAP IV entered into a $100 credit facility, as Onex’ reportable segments operate through autonomous compa- described in note 14(s). b) Initial public offering by JELD-WEN nies and strategic partnerships. Operating companies are aggre- gated into one reportable segment based on the nature of the products and services, production process, customer base, distri- In January 2017, JELD-WEN completed an initial public offering, bution model and regulatory environment at the operating com- as described in note 2(r). panies, as well as key financial metrics such as gross margin and c) Warehouse facility of CLO-13 The Company had 10 reportable segments in 2016 In February 2017, Onex established a warehouse facility in con- (2015 – eight). As a result of transactions completed in 2016, Clari- nection with its thirteenth CLO denominated in U.S. dollars, as vate Analytics and Emerald Expositions are reported in the busi- projected long-term revenue growth. described in note 2(s). ness and information services segment and Save-A-Lot and Jack’s are reported in the food retail and restaurants segment, which are reportable segments. Emerald Expositions and Jack’s were previ- ously included within the other segment, and as a result compara- tive disclosures have been restated to reflect these changes. 176 Onex Corporation December 31, 2016 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 information by segment is presented in the chronological order in which the operating segments become reportable. The Company’s reportable segments at December 31, 2016 consisted of: Electronics Manufacturing Services Healthcare Imaging Health and Human Services Building Products Insurance Services Packaging Products and Services Business and Information Services Food Retail and Restaurants Credit Strategies Other • Celestica, a global provider of electronics manufacturing services. • • • • • • • • • • • • • • • • • • • • • • • Carestream Health, a global provider of medical and dental imaging and healthcare information technology solutions. ResCare, a leading U.S. provider of residential, training, educational and support services for people with disabilities and special needs. JELD-WEN, one of the world’s largest manufacturers of interior and exterior doors, windows and related products for use primarily in the residential and light commercial new construction and remodelling markets. USI, a leading U.S. provider of insurance brokerage services. York, an integrated provider of insurance solutions to property, casualty and workers’ compensation specialty markets in the United States. sgsco, a global leader in providing fully integrated marketing solutions, digital imaging and design-to-print graphic services to branded consumer products companies, retailers and the printers that service them. SIG, (since March 2015), a world-leading provider of aseptic carton packaging solutions for beverages and liquid food. Clarivate Analytics (since October 2016), owner and operator of a collection of leading subscription-based businesses focused on scientific and academic research, patent analytics and regulatory standards, pharmaceutical and biotech intelligence, trademark protection, domain brand protection and intellectual property management. Emerald Expositions, a leading operator of business-to-business trade shows in the United States. Jack’s (since July 2015), a regional premium quick-service restaurant operator based in the United States. Save-A-Lot (since December 2016), one of the largest hard-discount grocery retailers for value-seeking shoppers in the United States. Onex Credit Manager specializes in managing credit-related investments, including event-driven, long/short, long-only, par, stressed, distressed and market dislocation strategies. Onex Credit Collateralized Loan Obligations, leveraged structured vehicles that hold a widely diversified collateral asset portfolio funded through the issuance of long-term debt in a series of rated tranches of secured notes and equity. Onex Credit Funds, investment funds providing unit holders with exposure to the performance of actively managed, diversified portfolios. Meridian Aviation, an aircraft investment company managed by BBAM and established by Onex Partners III. Schumacher (since July 2015), a leading U.S. provider of emergency and hospital medicine physician practice management services. Survitec (since March 2015), a market-leading provider of mission-critical marine, defence and aerospace survival equipment. WireCo (since September 2016), a leading global manufacturer of mission-critical steel wire rope, synthetic rope, specialty wire and engineered products. Tropicana Las Vegas (up to August 2015), one of the most storied casinos in Las Vegas. Operating companies of ONCAP II: EnGlobe, Cicis (up to August 2016), Pinnacle Renewable Energy Group and PURE Canadian Gaming. Operating companies of ONCAP III: Hopkins, PURE Canadian Gaming, Davis-Standard, Bradshaw, Mavis Discount Tire, ITG (since June 2015), Chatters (since July 2015) and Tecta (since August 2016). Operating companies of ONCAP IV: Tecta (since August 2016). Joint ventures and associates at fair value: • • • • AIT, a leading provider of automation, factory integration and tooling dedicated to the global aerospace, defence and space launch industries. BBAM, one of the world’s leading managers of commercial jet aircraft. Incline Aviation Fund (since February 2016), an aircraft investment fund managed by BBAM and focused on investments in leased commercial jet aircraft. ITG (since June 2015), a global leader in the manufacturing of consumable wear components that are embedded into agricultural soil preparation and seeding equipment implements. • Mavis Discount Tire, a leading regional tire retailer operating in the tire and light vehicle service industry. • Onex Real Estate: • Flushing Town Center, a three million-square-foot development located on approximately 14 acres in Flushing, New York. • Onex Corporation, the parent company. • Discontinued operations: KraussMaffei (up to April 2016), Sitel Worldwide (up to September 2015) and Skilled Healthcare Group (up to February 2015). 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 2016 and 2015, no customers represented more than 10% of the Company’s consolidated revenues. Onex Corporation December 31, 2016 177 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 2016 Industry Segments Electronics Manufacturing Services Healthcare Imaging Health and Human Services Building Products Insurance Services Packaging Products and Services Business and Information Services Food Retail and Restaurants Credit Strategies Other Consolidated Total $ 6,016 $ 1,990 $ 1,785 $ 3,670 $ 1,793 $ 2,414 $ 525 $ 689 $ 4 $ 3,637 $ 22,523 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 income (expense) 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 Long-term debt(b) Property, plant and equipment additions Intangible assets with indefinite life Goodwill additions from acquisitions Goodwill Net earnings (loss) attributable to: Equity holders of Onex Corporation Non-controlling interests Net earnings (loss) for the year (5,510) (211) 15 (1,127) (527) 2 (1,358) (310) – (2,788) (527) 1 – (1,363) 1 (1,541) (296) 1 (180) (176) – (2) (108) (19) (190) (203) (149) (104) (194) (218) (92) (64) (74) (148) – (5) – 24 (2) – 69 (30) (16) (23) – (3) 8 (10) – – 43 (30) (15) (14) (81) – (37) – (6) (2) – 108 92 (66) (10) (11) – (33) – (29) – – 161 (25) 136 – (95) 44 (57) (226) – (319) (8) – (1) – (23) – – (3) (41) (44) – (3) – (70) (4) – (106) (7) (113) 39 200 (327) – $ 136 $ 2,822 226 $ – $ 39 $ 1,473 $ 1,920 $ $ $ $ $ $ 77 – 4 23 18 118 136 $ $ $ $ $ $ 58 8 15 338 42 (3) 39 $ $ $ $ $ $ $ $ $ 28 – 28 995 421 28 222 1 283 27 1 28 – $ 200 $ 2,669 $ 1,615 – $ (327) $ 4,656 $ 2,824 – $ (44) $ 6,144 $ 3,447 – $ (113) $ 5,765 $ 2,667 $ $ $ $ $ $ 77 259 16 146 177 23 200 $ $ 25 191 $ $ 222 422 $ $ 2 441 57 $ $ 2,016 5 $ $ 2,077 $ 1,313 $ 2,203 $ $ (298) (29) (327) $ $ (44) – (44) $ $ (75) (38) (113) (578) (60) – (15) (3) (20) – (1) – (18) – – – (38) 313 – (5) (2,614) (760) 18 (71) (115) (15,696) (4,268) 351 (565) (693) (164) (138) (1,089) – – – 222 – (60) 180 (145) 28 (120) – (587) 180 (323) 80 (87) (234) (647) (6) 272 (687) (468) 13 7 – 7 2,185 886 26 436 23 225 6 1 7 $ $ $ $ $ $ $ $ $ – (25) (46) 272 (712) (514) – $ 272 $ 7,624 $ 5,912 478 $ (234) $ 8,580 $ 2,945 478 $ (36) $ 42,913 $ 22,863 $ $ $ $ $ $ – – – 62 $ $ 97 $ 612 322 $ 2,301 487 $ $ 1,801 $ 1,921 $ 9,174 272 – 272 $ $ (255) 21 (234) $ $ (130) 94 (36) (a) Represents the after-tax results of KraussMaffei and Sitel Worldwide, as described in note 8. (b) Long-term debt includes current portion, excludes finance leases and is net of financing charges. 178 Onex Corporation December 31, 2016 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 Business and Information Services Food Retail and Restaurants Credit Strategies Other Consolidated Total $ 5,639 $ 2,141 $ 1,821 $ 3,378 $ 1,752 $ 2,070 $ 307 $ 168 $ 5 $ 2,400 $ 19,681 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 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) (320) – (2,636) (476) 2 – (1,381) – (1,362) (239) 2 (1,587) (629) 8 (13,582) (3,967) 264 (59) (9) (7) – (38) – (25) (12) – 109 (42) 67 (63) (100) (142) – (5) – (16) – – 16 (46) (30) (29) (15) (22) – (1) – (4) (51) – (3) 2 (1) (102) (12) (65) – (54) – (23) (10) – 2 (3) (1) – $ 67 $ 2,612 261 $ – $ (30) $ 1,609 $ 1,999 – $ (1) $ 1,034 525 $ – (1) $ $ 2,374 $ 1,257 76 259 43 138 $ $ $ $ $ $ 81 – – 19 9 58 67 $ $ $ $ $ $ 56 8 – 327 (25) (5) (30) $ $ $ $ $ $ 36 224 10 282 (1) – (1) $ $ $ $ $ $ (17) (194) (185) – (17) – (82) – – (144) (128) (194) – (2) – 107 (3) – (124) 107 45 (79) – $ (79) $ 5,034 $ 2,866 $ $ 24 196 (38) 69 – $ 69 $ 6,366 $ 3,487 $ $ 164 429 $ 34 $ 2,246 $ 1,809 $ 2,102 (83) (82) − (1) (37) (51) – (5) – (8) (6) – 34 (13) 21 (134) (6) − (4) (1) – (50) 249 – (5) (10) (118) (64) (83) (84) 175 (138) 201 (184) − (882) – – 38 (195) – 26 (50) (867) – (21) (50) (888) – − – (5) − – 8 − 8 – $ 21 $ 1,526 731 $ – $ 8 $ 532 $ 221 – $ (50) $ 6,284 $ 4,899 379 $ (509) $ 8,439 $ 1,808 – – 62 62 $ $ 352 287 $ 1,008 $ 1,409 $ $ $ $ $ $ 1 $ 6 265 58 890 21 – 21 $ 175 $ 202 $ 202 $ $ 8 – 8 $ $ $ $ $ $ (483) (584) (878) 175 (260) 239 (435) (82) (856) (768) (116) (884) 379 $ (505) $ 35,810 $ 18,054 $ 796 $ 1,843 $ 3,226 $ 7,677 (1) – (1) $ $ (71) (8) (79) $ $ 69 – 69 (50) – (50) $ (532) 23 $ (509) $ $ (573) 68 (505) (a) Represents the after-tax results of KraussMaffei, Sitel Worldwide and Skilled Healthcare Group, as described in note 8. (b) The other segment includes KraussMaffei, which was a discontinued operation, as described in note 8(a). (c) Long-term debt includes current portion, excludes finance leases and is net of financing charges. Geographic Segments 2016 2015 Canada U.S. Europe Asia and Oceania Other(a) Total Canada U.S. Europe Asia and Oceania Other(a) Total $ 973 $ 12,904 $ 3,781 $ 3,460 $ 1,405 $ 22,523 $ 934 $ 10,934 $ 3,405 $ 3,192 $ 1,216 $ 19,681 $ 316 $ 1,845 $ 961 $ 792 $ 361 $ 4,275 $ 303 $ 1,140 $ 814 $ 287 $ 5,029 $ 3,603 $ 239 $ 128 $ 9,286 $ 257 $ 4,533 $ 1,445 $ 210 $ 5,572 $ 2,685 $ 570 $ 137 $ 9,174 $ 199 $ 5,473 $ 1,420 $ $ $ 765 221 517 $ $ $ 243 $ 3,265 72 68 $ 6,528 $ 7,677 Revenue(b)(c) Property, plant and equipment(c) Intangible assets(c) Goodwill(c) (a) Other consists primarily of operations in Central and South America, Mexico and Africa. (b) Revenues are attributed to geographic areas based on the destinations of the products and/or services. (c) Amounts for 2015 exclude KraussMaffei, which was a discontinued operation, as described in note 8(a). Onex Corporation December 31, 2016 179 SHAREHOLDER INFORMATION Year-End Closing Share Price As at December 31 (in Canadian dollars) 2016 2015 2014 2013 2012 Toronto Stock Exchange $ 91.38 $ 84.82 $ 67.46 $ 57.35 $ 41.87 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 ONEX 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 Shares P.O. Box 700 are payable quarterly on or about January 31, Postal Station B CST Trust Company Registered holders of Onex Corporation shares may receive more than one copy of shareholder mailings. Every effort April 30, July 31 and October 31 of each Montreal, Quebec H3B 3K3 is made to avoid duplication, but when year. At December 31, 2016 the indicated (416) 682-3860 shares are registered under different dividend rate for each Subordinate Voting or call toll-free throughout Canada names and/or addresses, multiple Share was C$0.275 per annum. Registered and the United States shareholders can elect to receive dividend 1-800-387-0825 mailings result. Shareholders who receive but do not require more than payments in U.S. dollars by submitting www.canstockta.com one mailing for the same ownership are a completed currency election form to or inquiries@canstockta.com requested to write to the Registrar and CST Trust Company five business days Transfer Agent and arrangements will before the record date of the dividend. All questions about accounts, stock be made to combine the accounts for Non-registered shareholders who wish to certificates or dividend cheques mailing purposes. receive dividend payments in U.S. dollars should be directed to the Registrar should contact their broker to submit and Transfer Agent. Electronic Communications 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 their currency election. Shareholder Dividend Reinvestment Plan 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 11, 2017 Onex’ share registrar, CST Trust Company. other quarterly reports, annual 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 180 Onex Corporation December 31, 2016