OncoCyte Annual Report 2017

Plain-text annual report

Management’s Discussion and Analysis and Financial Statements December 31, 2017 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 $47 billion, generate annual revenues of $30 billion and employ approximately 162,000 people worldwide. Onex operates from ofﬁces located in Toronto, New York, New Jersey and London. ONEX PARTNERS ONCAP ONEX CREDIT ONEX REAL ESTATE DIRECT 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 9 Management’s Discussion and Analysis 90 Consolidated Financial Statements 86 Glossary IBC Shareholder Information CHAIRMAN’S LETTER Dear Shareholders, The global economy continued to improve throughout last year. We saw both public and private market valu- ations reach all-time highs. Record amounts ﬂowed into the private equity industry as investors continued to look to alternative asset classes outside of hedge funds for value creation. High valuation expectations, access to affordable debt and a strong IPO market have made for a challenging investing environment. We have remained disciplined in all types of markets by staying with the same strategy that has served us well for 34 years. 2017 was a particularly good year for Onex. We capitalized on market conditions to return $3.5 billion to Onex and our partners, most notably through the successful sale of USI Insurance Services, the initial public offering of both JELD-WEN and Emerald Expositions, two secondary offerings for JELD-WEN and a partial sale of BBAM. We also invested $1.3 billion in four businesses that ﬁt well with our investment strategies. We raised a record amount of capital in 2017, in large part due to the meaningful support from our limited part- ners around the world, with the recent $7.15 billion fundraise for Onex Partners V. As well, our credit platform grew by nearly 30% to almost $10 billion through four collateralized loan obligation issuances and capital raised for Onex Credit Lending Partners, our private credit strategy. All of this activity will contribute to the proﬁtability of our asset management business. Several of our businesses also took advantage of the current environment and raised or reﬁnanced approxi- mately $7.0 billion of debt throughout the year. They also paid down approximately $1.7 billion of debt and distributed approximately $245 million. Here are some of the highlights from 2017: • Onex Partners invested approximately $1 billion in two businesses: – Parkdean Resorts, the largest operator of caravan holiday parks in the United Kingdom; and – SMG, the leading global manager of convention centres, stadiums, arenas, theatres and other venues (closed January 2018); • We invested $156 million to acquire a secondary interest in Onex Partners IV; • ONCAP invested $220 million in two businesses: – IntraPac, a designer and manufacturer of specialty rigid packaging solutions; and – Laces Group, a designer, manufacturer and marketer of bath accessories and home fashion products; • The value of Onex’ interest in our private equity investments, including realizations and distributions, grew by 18%. We’ve always said a private equity investor should outperform public markets and generate strong returns throughout all economic cycles. As investors, we believe we are well-positioned for any investment climate that may come our way in 2018 and beyond. Our team has never been stronger and the ﬁnancial resources available to us have never been greater. Collectively, our team has $2.0 billion invested in our shares, operating companies and credit platform. We look forward to working on behalf of our shareholders to create value over the long term. 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, 2017 1 ONEX CORPORATION Who We Are and What We Do Onex is an investor ﬁrst and foremost, with $6.8 billion of shareholder capital primarily invested in or commit- ted to private equity and non-investment grade credit. We also manage $24.2 billion of invested and committed capital on behalf of fund investors from around the world, including public and private pension plans, sover- eign 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 585 acquisitions with a total value of $70 billion. Onex’ private equity investing has generated a gross multiple of capital invested of 2.8 times since inception, resulting in a 28% Gross IRR on realized, substantially realized and publicly traded investments. Credit Investing Established in 2007, our credit platform invests primarily in non-investment grade debt through its collateralized loan obligations, private debt fund and other credit strategies. We practise value-oriented investing, employ- ing a bottom-up, fundamental and structural analysis of the underlying borrowers. We seek to generate strong risk-adjusted and absolute returns across market cycles. With a disciplined approach to investing and a focus on capital preservation, Onex Credit now manages $9.6 billion. 2 Onex Corporation December 31, 2017 Onex Capital At December 31, 2017, Onex’ $6.8 billion of capital was primarily invested in or committed to its private equity and credit platforms. Onex’ $6.8 billion of Capital at December 31, 2017 Onex’ $6.3 billion of Capital at December 31, 2016 Large-Cap Private Equity 49% Large-Cap Private Equity 56% Cash and Near-Cash Items 29% Cash and Near-Cash Items 25% Middle-Market Private Equity 9% Credit 10% Real Estate and Other Investments 3% Middle-Market Private Equity 6% Credit 9% Real Estate and Other Investments 4% The How We Are Invested schedule details Onex’ $6.8 billion of capital at December 31, 2017 (December 31, 2016 – $6.3 billion). In the year ended December 31, 2017, Onex capital per share increased by 11% (4% in Canadian dollars) and our share price increased by 8% (1% in Canadian dollars). Over the past ﬁve years, Onex capital per share has increased by 10% per year (15% per year in Canadian dollars). Onex Corporation December 31, 2017 3 65 60 55 50 45 40 35 30 Nav per Share (USD) Onex Capital per Share (USD) (December 31, 2012 to December 31, 2017) $65 $60 $55 $50 $45 $40 $35 10% annual growth over the past five years Dec-2012 Dec-2013 Dec-2014 Dec-2015 Dec-2016 Dec-2017 Fund Investor Capital Onex manages $24.2 billion of invested and committed capital on behalf of investors from around the world. In November 2017, we successfully completed fundraising for Onex Partners V, reaching aggregate commitments of $7.15 billion, including Onex’ commitment of $2.0 billion, and exceeding our target size of $6.5 billion. Onex’ $24.2 billion of Fund Investor Capital at December 31, 2017 Onex’ $18.0 billion of Fund Investor Capital at December 31, 2016 Onex Partners 57% Onex Partners 54% Onex Credit 36% Onex Credit 37% ONCAP 7% ONCAP 9% Fund investor capital includes capital managed on behalf of co-investors and the Onex management team. 4 Onex Corporation December 31, 2017 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 manage- ment fees of $148 million, consisting of $98 million from private equity and $50 million from credit. During the 12 months ended December 31, 2017, combined management fees and carried interest received more than off- set operating expenses. Onex expects its run-rate management fees to increase when fees begin to accrue from Onex Partners V. For the 12 months ended December 31, 2017, fee-generating capital under management grew by 36% to $21.7 billion. The closing of Onex Partners V increased fee-generating capital under management for the 12 months ended December 31, 2017 by approximately $5.0 billion. Over the past ﬁve years, fee-generating capital under management has increased by 20% per year. Fee-Generating Capital Under Management (December 31, 2012 to December 31, 2017) Fee-Generating Capital Under Management 22 20 18 16 14 12 10 8 s n o i l l i B 20% annual growth over the past five years Dec-2012 Dec-2013 Dec-2014 Dec-2015 Dec-2016 Dec-2017 22 20 18 16 14 12 10 8 6 Onex Corporation December 31, 2017 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’ $6.8 billion of capital and provides private company perfor- mance and public company ownership information. This schedule includes values for Onex’ investments in controlled companies based on estimated fair values prepared by management. The estimated fair values for investments are presented net of management incentive programs. The presentation of controlled investments in this manner is a non-GAAP ﬁnancial measure. This schedule may be used by investors as a means of compari- son to the fair values they may prepare for Onex and Onex’ investments. While the schedule provides a snapshot of Onex’ assets, it does not fully reﬂect the value of Onex’ asset management business as it includes only an esti- mate of the unrealized carried interest due to Onex based on the current estimated fair values of the investments and allocates no value to future management company income. The presentation of Onex capital and capital per share information 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. This schedule also includes the LTM Adjusted EBITDA and Net Debt for signiﬁcant private companies, which are also non-GAAP ﬁnancial measures. The LTM Adjusted EBITDA is a ﬁnancial measure used by management in assessing the performance and value of a company, while Net Debt is a ﬁnancial measure used by management to monitor the ﬁnancial leverage of a company. Management believes these ﬁnancial measures are useful to investors in assessing the ﬁnancial strength and performance of signiﬁcant private companies in which Onex has invested. These ﬁnancial measures do not have standardized meanings prescribed under IFRS and are 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, 2017 are available on Onex’ website, www.onex.com, and on the Canadian System for Electronic Document Analysis and Retrieval at www.sedar.com. Reconciliations for the preceding non-GAAP ﬁnancial measures to information contained in the consolidated ﬁnancial statements have not been presented as it is impractical. 6 Onex Corporation December 31, 2017 H O W W E A R E I N V E S T E D Onex Capital December 31, 2017 September 30, 2017 December 31, 2016 $ 2,492 536 563 185 188 3,964 485 154 17 656 238 17 1,947 − $ 6,822 $ 64.79 C$ 81.28 $ 2,496 666 415 202 222 4,001 475 152 – 627 238 12 1,855 – $ 6,733 $ 63.88 C$ 79.72 $ 3,078 15 402 197 213 3,905 384 145 – 529 198 32 1,586 − $ 6,250 $ 58.56 C$ 78.63 As at Private Equity Onex Partners Private Companies(1)(2)(3) Public Companies(2)(3)(4) ONCAP(5) Unrealized Carried Interest(6) Direct Investment – Public Company(4) Credit Collateralized Loan Obligations(7) Onex Credit Funds(8) Onex Credit Lending Partners Real Estate Other Investments Cash and Near-Cash(8)(9)(10) Debt(11) Onex Capital Onex Capital per Share (U.S. dollars)(12)(13) Onex Capital per Share (Canadian dollars)(12)(13) (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 $40 million (September 30, 2017 – $39 million; December 31, 2016 – $77 million). (2) In January 2017, JELD-WEN completed an initial public offering of 28.75 million shares of its common stock (NYSE: JELD), including an over-allotment option, priced at $23.00 per share. In May 2017, JELD-WEN also completed a secondary offering of 16.1 million shares of its common stock, including an over-allotment option, priced at $30.75 per share. In November 2017, JELD-WEN completed an additional secondary offering of 14.4 million shares of its common stock, including an over-allotment option, priced at $33.75 per share. At December 31, 2016, JELD-WEN was included in the private companies of Onex Partners. (3) In April 2017, Emerald Expositions completed an initial public offering of approximately 17.8 million shares of its common stock (NYSE: EEX), including an over-allotment option, priced at $17.00 per share. At December 31, 2016, Emerald Expositions was included in the private companies of Onex Partners. (4) Based on closing prices on December 31, 2017, September 30, 2017 and December 31, 2016 and net of the estimated MIP liability on these investments of $49 million (September 30, 2017 – $51 million; December 31, 2016 – nil). (5) Based on the fair value of the investments in ONCAP, net of the estimated management incentive programs on these investments of $70 million (September 30, 2017 – $51 million; December 31, 2016 – $18 million). Since September 30, 2017, the estimated management incentive programs exclude Onex’ entitlement to carried interest in the ONCAP Funds. (6) Represents Onex’ share of the unrealized carried interest for Onex Partners and ONCAP Funds. Since September 30, 2017, the unrealized carried interest includes Onex’ entitlement to carried interest in the ONCAP Funds. (7) Includes warehouse facilities. (8) Onex Credit Funds excludes $181 million (September 30, 2017 – $180 million; December 31, 2016 – $376 million) invested in an Onex Credit segregated unlevered senior secured loan strategy fund, which has been included with Cash and Near-Cash items. During the first quarter of 2017, Onex redeemed $200 million from the Onex Credit segregated senior secured loan strategy fund for cash management purposes. (9) Includes $1.0 billion (September 30, 2017 – $930 million; December 31, 2016 – $483 million) of investments managed by third-party investment managers. (10) Includes $107 million (September 30, 2017 – $89 million; December 31, 2016 – $48 million) of management fees receivable from the limited partners of its private equity platforms. (11) Represents debt at Onex Corporation, the parent company. (12) Calculated on a fully diluted basis. Fully diluted shares were 112.1 million at December 31, 2017 (September 30, 2017 – 112.3 million; December 31, 2016 – 114.0 million). Fully diluted shares include all outstanding SVS as well as outstanding stock options where Onex’ share price exceeds the exercise price of the stock options and the stock options have a dilutive impact to Onex’ Capital per Share. (13) The change in Onex Capital per Share is impacted by the fair value changes of Onex’ investments. Shares repurchased and options exercised during the period will decrease or increase Onex Capital per Share to the extent that the price for share repurchases and option exercises was above or below Onex Capital per Share, respectively. Onex Corporation December 31, 2017 7 H O W W E A R E I N V E S T E D Public and Private Company Information Public Companies As at December 31, 2017 Onex Partners JELD-WEN(2) Emerald Expositions(3) Estimated Management Investment Plan Liability Shares Subject to Carried Interest (millions) Shares Held by Onex (millions) Closing Price per Share(1) Market Value of Onex’ Investment 20.3 37.9 8.1 13.0 $ 39.37 $ 20.34 $ 320 265 585 (49) 536 188 Direct Investments – Celestica(4) – 18.0 $ 10.48 Signiﬁcant Private Companies As at December 31, 2017 Onex Partners Onex’ and its Limited Partners’ Economic Ownership LTM Adjusted EBITDA(5) Net Debt Cumulative Distributions Onex’ Economic Ownership Original Cost of Onex’ Investment $ 724 AIT(6) BBAM(8) Carestream Health Clarivate Analytics(6) Jack’s(6) Meridian Aviation Parkdean Resorts(6)(12) ResCare Save-A-Lot(6) Schumacher(6) sgsco SIG(6) Survitec(6) WireCo(6) York 50% 35% 91% 72% 95% 100% 93% 98% 99% 68% 94% 99% 79% 71% 88% n/a $ 110 239(10) 310(11) 59 n/a £ 100 (13) 131 167 94(11) 110(11) 1 455 £ 68 91 106(11) $ n/a (36)(9) 956(10) £ 2,007 253 n/a 682(13) 394 641 610 589 1 2,525 406 £ 604 926 $ 248(7) 450 1,311 – 85 124 − 235 – – – – – − – 13% 9% 33%(4) 27% 31% 25% 28% 20% 32% 22% 24% 35% 21% 23% 29% $ 53 36 186 445 76 19 164 (14) 41 210 105 66 428 (15) 98 (14) 86 173 $ 2,186 (1) Closing prices on December 31, 2017. (2) 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 an over-allotment option. In May 2017, JELD-WEN completed a secondary offering. The Onex Partners III Group sold approximately 15.7 million shares in JELD-WEN in conjunction with the secondary offering, including the exercise of an over-allotment option. In November 2017, JELD-WEN completed an additional secondary offering, including the exercise of an over-allotment option. The Onex Partners III Group sold approximately 14.2 million shares in JELD-WEN in conjunction with the secondary offering, including the exercise of an over-allotment option. The Onex Partners III Group continues to hold 32.9 million shares of JELD-WEN for an economic and voting interest of 31%. Onex continues to hold approximately 8.1 million shares for an 8% economic interest in JELD-WEN. (3) In April 2017, Emerald Expositions completed an initial public offering. The Onex Partners III Group sold approximately 7.5 million shares in Emerald Expositions in conjunction with the initial public offering, including the exercise of an over-allotment option. The Onex Partners III Group continues to hold approximately 53.8 million shares of Emerald Expositions for an economic and voting interest of 74%. Onex continues to hold approximately 13.0 million shares for an 18% economic interest in Emerald Expositions. (4) Excludes shares held in connection with the MIP. (5) Adjusted EBITDA is a non-GAAP financial 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) Onex’ economic ownership and the original cost of Onex’ investment reflect the increase in Onex’ interest in Onex Partners IV. The original cost of Onex’ investment has been adjusted to include the additional cost of the companies at original cost. (7) Cumulative distributions for AIT include a purchase price adjustment of $4 million. (8) Ownership percentages, LTM Adjusted 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. In October 2017, the Company sold a portion of its investment in BBAM. The Onex Partners III Group’s economic interest in BBAM was reduced from 50% to 35% and Onex’ economic interest was reduced from 13% to 9%. The original cost of Onex’ investment reflects the partial disposition in October 2017. (9) Net debt for BBAM represents unrestricted cash, reduced for accrued compensation liabilities. (10) LTM EBITDA and Net Debt are presented on a pro-forma basis to reflect the sale of Carestream Health’s Dental Digital business in September 2017. (11) LTM Adjusted EBITDA is presented on a pro-forma basis to reflect the impact of acquired and/or divested businesses. (12) Figures are presented on a pro-forma basis to reflect the February 2018 partial repayment of a loan note held by the Onex Partners IV Group and the conversion of the remaining principal balance outstanding into additional equity of Parkdean Resorts. (13) LTM Adjusted EBITDA is presented on a pro-forma basis to reflect the annualized rent impact of sale-leaseback transactions. Net debt excludes capital lease obligations related to long dated sale-leaseback transactions. (14) The investments in Parkdean Resorts and Survitec were made primarily in pounds sterling and converted to U.S. dollars using the effective exchange rate on the date of the investments. (15) The investment in SIG was made in U.S. dollars. 8 Onex Corporation December 31, 2017 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, 2017 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 ﬁnancial results 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’ 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 22, 2018. 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: 11 Our Business, Our Objective and Our Strategies 22 Industry Segments 27 Financial Review 86 Glossary Onex Corporation’s ﬁnancial ﬁlings, including the 2017 MD&A and Consolidated Financial Statements and interim quarterly reporting, 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. Non-GAAP Financial Measures This MD&A contains non-GAAP ﬁnancial measures which have been calculated using methodologies that are not in accordance with IFRS. The presentation of ﬁnancial measures in this manner does not have a standardized meaning pre- scribed under IFRS and is therefore unlikely to be comparable to similar ﬁnancial measures presented by other companies. Management believes that these ﬁnancial measures provide helpful information to investors. Reconciliations for the non- GAAP ﬁnancial measures to information contained in the consolidated ﬁnancial statements have not been presented where it is impractical. Onex Corporation December 31, 2017 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 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 • “ONCAP III” – ONCAP III LP • “BBAM” – BBAM Limited Partnership • “ONCAP IV” – ONCAP IV LP • “Bradshaw” – Bradshaw International, Inc. • “Onex Partners I” – Onex Partners LP • “Carestream Health” – Carestream Health, Inc. • “Onex Partners II” – Onex Partners II LP • “Celestica” – Celestica Inc. • “Chatters” – Chatters Canada • “Cicis” – CiCi’s Holdings, Inc. • “Onex Partners III” – Onex Partners III LP • “Onex Partners IV” – Onex Partners IV LP • “Onex Partners V” – Onex Partners V LP • • • “Clarivate Analytics” – Clarivate Analytics • “Parkdean Resorts” – Parkdean Resorts “Davis-Standard” – Davis-Standard Holdings, Inc. • “Pinnacle Renewable Energy” – “Emerald Expositions” – Emerald Expositions Events, Inc. Pinnacle Renewable Holdings, Inc. • “EnGlobe” – EnGlobe Corp. • “PURE Canadian Gaming” – PURE Canadian • “Flushing Town Center” – Flushing Town Center Gaming Corp. • “FLY Leasing Limited” – FLY Leasing Limited • “ResCare” – Res-Care, Inc. • “Genesis Healthcare” – Genesis Healthcare, Inc. • “Save-A-Lot” – Save-A-Lot • • • “Hopkins” – Hopkins Manufacturing Corporation • “Schumacher” – Schumacher Clinical Partners “Incline Aviation Fund” – Incline Aviation Fund • “sgsco” – SGS International, LLC “IntraPac” – IntraPac International Corporation • “SIG” – SIG Combibloc Group Holdings S.à r.l. • “Jack’s” – Jack’s Family Restaurants • “Sitel Worldwide” – SITEL Worldwide Corporation • “JELD-WEN” – JELD-WEN Holding, Inc. • “SMG” – SMG Holdings Inc. • “KraussMaffei” – KraussMaffei Group GmbH • “Survitec” – Survitec Group Limited • “Laces” – Laces Group • “Tecta” – Tecta America Corporation • “Mavis Discount Tire” – Mavis Tire Supply LLC • “USI” – USI Insurance Services • “Meridian Aviation” – Meridian Aviation • “Venanpri Group” – Venanpri Group, formerly Partners Limited and afﬁliates • “ONCAP I” – ONCAP I L.P. • “ONCAP II” – ONCAP II L.P. Ingersoll Tools Group (“ITG”) • “WireCo” – WireCo WorldGroup • “York” – York Risk Services Holding Corp. A glossary of terms commonly used within the MD&A is included on page 86. 10 Onex Corporation December 31, 2017 M A N A G E M 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 2.8 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 Over more than three decades, we have developed a successful approach to investing. In our private equity platforms, 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 strategies. 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 145 years of investing experience and have worked at Onex for an average of 26 years. Onex’ stability results from its ownership culture, rigorous recruiting standards and highly collegial environment. Onex’ 100 investment professionals are each dedicated to a separate investment platform: Onex Part- ners (56), ONCAP (21) and Onex Credit (23). These investment teams are supported by approximately 85 profes- sionals dedicated to Onex’ corporate functions and its investment platforms. Onex Corporation December 31, 2017 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 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 fund investors. Today, Onex has substantial ﬁnancial resources available to support its investing strategy with: • approximately $1.8 billion of cash and near-cash items after completing the SMG investment, and no debt at the parent company; • $921 million of limited partner uncalled capital available for future Onex Partners IV investments after com- pleting the SMG investment; • $5.3 billion of limited partner uncalled capital available for future Onex Partners V investments; • $555 million of limited partner uncalled capital available for future ONCAP IV investments; and • $175 million of limited partner uncalled capital for Onex Credit Lending Partners. In November 2017, Onex successfully completed fundraising for Onex Partners V, reaching aggregate commit- ments of $7.15 billion and exceeding our target size of $6.5 billion. This includes Onex’ commitment of $2.0 bil- lion, Onex management’s minimum 2% commitment and capital from fund investors around the world. In addition, during 2017, Onex raised $314 million towards its $500 million fund size target for its ﬁrst Onex Credit Lending Partners fund (“OCLP I”). This includes a $100 million commitment from Onex and a $41 million commitment from the Onex management team. 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, 2017, the Onex management team: • was the largest shareholder in Onex, with a combined holding of approximately 16.7 million shares, or 16% of outstanding shares, and 0.7 million DSUs; • had a total cash investment in Onex’ current operating businesses of approximately $410 million; and • had a total investment at market in credit strategies of approximately $355 million. As well, members of the Onex management team are required to reinvest 25% of all Onex Partners carried inter- est and MIP distributions in Onex shares until they individually own at least one million shares and must hold these shares until retirement. 12 Onex Corporation December 31, 2017 M A N A G E M 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 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 build- ing 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, talent, 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 2017. 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. One of Onex’ long-term goals is to grow its capital per share by 15% per year. As of December 31, 2017, Onex’ capi- tal per share was $64.79 (C$81.28) (December 31, 2016 – $58.56 (C$78.63)). The following table outlines the increase in Onex’ capital per share and the return from Onex’ private equity investments as of December 31, 2017. Increase in value of Onex’ private equity investments in U.S. dollars(2) Increase in capital per share in U.S. dollars(3) Increase in capital per share in Canadian dollars(3) (1) Represents the annualized percentage increase. (2) Adjusted for realizations and distributions. (3) Includes the impact of cash, credit investments and other investments. Year ended December 31, 2017 Five years ended December 31, 2017 (1) 18% 11% 4% 20% 10% 15% The table below presents the signiﬁcant private equity investments made since January 1, 2017 and Onex’ share thereof: Company Fund Transaction Period Total Amount ($ millions) Onex’ Share ($ millions) Limited Partnership Interest Onex Partners IV Secondary purchase Sep ’17 and Oct ’17 n/a $ 156 Parkdean Resorts Onex Partners IV SMG IntraPac Laces Total Onex Partners IV ONCAP IV ONCAP IV Original investment Original investment Original investment Original investment Mar ’17 Jan ’18 Dec ’17 Dec ’17 $ 612(1) 429 118 102 166 (1) 139 46 40 $ 1,261 $ 547 (1) The Onex Partners IV Group’s equity investment in Parkdean Resorts was comprised of $417 million through Onex Partners IV and $195 million as a co-investment from Onex and certain limited partners. Onex’ original share of the investment was comprised of $123 million through Onex Partners IV and $43 million as a co-investment. Onex’ share of the investment became $139 million through Onex Partners IV and $43 million as a co-investment following the increase in Onex’ interest in Onex Partners IV, as described on page 34 of this MD&A. Onex Corporation December 31, 2017 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 Acquiring businesses In September 2017, Onex, the parent company, acquired an interest in Onex Partners IV from a limited partner for $354 million. In October 2017, Onex sold a portion of the acquired interest in Onex Partners IV to certain limited partners for $198 million, the same value at which Onex acquired the interest in September 2017. These transactions allowed Onex to immediately put $156 million to work in its existing operating companies and increased its participation in future Onex Partners IV investments from 29% to 33%. In March 2017, the Onex Partners IV Group acquired Parkdean Resorts, a leading operator of caravan holiday parks in the United Kingdom, for £1.35 billion. The Onex Partners IV Group invested $612 million (£500 million), com- prised of $417 million from Onex Partners IV and $195 million as a co-investment from Onex and certain limited partners, for an initial 91% economic interest. At the time of acquisition, Onex invested $166 million, comprised of $123 million through Onex Partners IV and $43 million as a co-investment, for an initial 25% economic inter- est. Subsequent to the increase in Onex’ interest in Onex Partners IV, Onex’ share of the investment increased to $182 million, comprised of $139 million through Onex Partners IV and $43 million as a co-investment. In January 2018, the Onex Partners IV Group completed the acquisition of SMG, a leading global manager of convention centres, stadiums, arenas, theatres, performing arts centres and other venues. The Onex Partners IV Group invested $429 million for a 99% economic interest in SMG. Onex’ share of the investment was $139 mil- lion for an economic interest of 32%. In December 2017, the ONCAP IV Group completed the acquisition of IntraPac, a designer and manufacturer of specialty rigid packaging solutions. The ONCAP IV Group invested a total of $118 million for a 98% economic interest in IntraPac. Onex’ share of the investment was $46 million for an economic interest of 38%. In December 2017, the ONCAP IV Group completed the acquisition of Laces, a designer, manufacturer and mar- keter of bath accessories and home fashion products. The ONCAP IV Group invested $102 million for an 82% economic interest in Laces. Onex’ share of the investment was $40 million for an economic interest of 32%. Today, we have approximately $9.6 billion of uncalled capital available to deploy for new private equity invest- ments, including $2.8 billion of Onex commitments. 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 2017, nine of our operating businesses completed 19 follow-on acquisitions for total consideration of $370 million. Our existing operating businesses also collectively raised or reﬁnanced a total of $7.0 billion of debt, in part due to strong credit markets during the year. In addition, our existing businesses paid down debt totalling approximately $1.7 billion, including $534 million with proceeds from the initial public offerings com- pleted by Emerald Expositions and JELD-WEN, and $758 million paid down by Carestream Health from the net sale proceeds of its Dental Digital business and from an additional transaction. Also, in June 2017, BBAM completed the ﬁnal closing of Incline Aviation Fund, an aircraft investment fund focused on investments in leased commercial jet aircraft. The aggregate capital committed to the fund at closing was $881 million, which includes Onex’ commitment of $50 million. 14 Onex Corporation December 31, 2017 M A N A G E M E N T ’ S D I S C U S S I O N A N D A N A LY S I S Realizing on value The table below presents the signiﬁcant proceeds received during 2017 and up to February 22, 2018 from real- izations and cash distributions primarily from private equity activity. Company USI JELD-WEN BBAM Fund Transaction Onex Partners III Sale of business Period May ’17 Total Amount ($ millions) Onex’ Share ($ millions) (1) $ 1,889 $ 563 Onex Partners III Initial and secondary offerings Jan ’17, May ’17 and Nov ’17 1,069 309 Onex Partners III Distributions and partial sale of business Emerald Expositions Onex Partners III Initial public offering and dividends Jack’s Onex Partners IV Distribution Parkdean Resorts Onex Partners IV Repayment of loan note Bradshaw ONCAP III Distribution PURE Canadian Gaming ONCAP II and III Distributions Onex Real Estate Direct investment Distributions Various Various Apr ’17 Feb ’18 Sep ’17 Jan ’17 and Dec ’17 Various 180 131 81 74 48 46 36 16 16 53 35 23 22 14 19 31 7 4 Pinnacle Renewable Energy ONCAP II Repayment of shareholder subordinated debt Feb ’18 Genesis Healthcare Onex Partners I Sale of shares Various Total $ 3,586 $ 1,080 (1) Onex’ share includes carried interest received by Onex and is reduced for amounts paid under the MIP and Onex’ net payment of carried interest for ONCAP investments, if applicable. In May 2017, the Onex Partners III Group sold its entire investment in USI for an enterprise value of $4.3 billion. The Onex Partners III Group invested a total of $610 million to acquire USI in December 2012 and has received net proceeds of $2.1 billion, including a prior distribution. Onex’ portion of the sale proceeds was $563 million, including carried interest of $65 million and after the reduction for amounts relating to the MIP. The investment in USI generated a Gross MOC of 3.4 times. 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 an 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 carried interest. In May 2017, JELD-WEN completed a secondary offering of 16.1 million shares of its common stock, in- cluding the exercise of an over-allotment option. The offering was priced at $30.75 per share for gross proceeds of $495 million. The Onex Partners III Group sold approximately 15.7 million shares in the transaction for net proceeds of $466 million. Onex’ portion of the net proceeds was $135 million, including carried interest. In November 2017, JELD-WEN completed a secondary offering of approximately 14.4 million shares of its common stock, including the exercise of an over-allotment option. The offering was priced at $33.75 per share for gross proceeds of $485 million. The Onex Partners III Group sold approximately 14.2 million shares in the transaction for net proceeds of $463 million. Onex’ portion of the net proceeds was $134 million, including carried interest. Onex Corporation December 31, 2017 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 The Onex Partners III Group continues to hold approximately 32.9 million shares of JELD-WEN for a 31% economic and voting interest. Onex continues to hold approximately 8.1 million shares for an 8% economic interest in JELD-WEN. Amounts received by Onex on account of the carried interest related to these transactions totalled $45 million and were included in the net proceeds to Onex. In October 2017, the Onex Partners III Group sold a portion of its investment in BBAM to GIC, the Government of Singapore’s sovereign wealth fund and among the world’s largest asset managers. As part of the transaction, the Onex Partners III Group’s economic interest in BBAM was reduced from 50% to 35% and Onex’ economic interest in BBAM was reduced from 13% to 9%. GIC’s involvement adds to BBAM’s resources and capabilities, particularly in Asia, and is of strategic value to BBAM as it builds on a ﬁrst-mover advantage as the world’s largest dedicated manager of leased aircraft. To date, BBAM-related investments have returned $463 million to the Onex Partners III Group, including the partial sale to GIC. Onex’ portion of these proceeds was $126 million, including carried interest. In April 2017, Emerald Expositions completed an initial public offering of approximately 17.8 million shares of its common stock (NYSE: EEX), including the exercise of an over-allotment option. The offering was priced at $17.00 per share for gross proceeds of $303 million. As part of the offering, Emerald Expositions issued approxi- mately 10.3 million treasury shares. The net proceeds from the treasury shares were used to repay $159 mil- lion of Emerald Expositions’ term loan. The Onex Partners III Group sold approximately 7.5 million shares in the transaction for net proceeds of $119 million. Onex’ portion of the net proceeds was $32 million, including $3 million of carried interest. The Onex Partners III Group continues to hold approximately 53.8 million shares of Emerald Expositions for a 74% economic and voting interest. Onex continues to hold approximately 13.0 million shares for an 18% economic interest in Emerald Expositions. In April 2017, Jack’s amended its existing credit facility to increase the size of its term loan to $275 million. The proceeds from the incremental borrowing, along with cash on hand, were used to fund a distribution of $85 mil- lion to shareholders. The Onex Partners IV Group received $81 million, of which Onex’ share was $23 million. In February 2018, Parkdean Resorts made a partial repayment of the loan note held by the Onex Partners IV Group, totalling £52 million ($74 million), including accrued interest, with net proceeds from a sale-leaseback transac- tion. Onex’ share of the repayment was £15 million ($22 million). In September 2017, Bradshaw distributed $53 million to shareholders. The ONCAP III Group’s portion of the dis- tribution to shareholders was $48 million, of which Onex’ portion was $14 million. The distribution was primar- ily funded by net proceeds from reﬁnancing the company’s credit facility. 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 2016. The ONCAP II and III Groups received C$15 million ($11 million), of which Onex’ portion was C$6 million ($5 million). In December 2017, PURE Canadian Gaming amended its existing credit facility and proceeds from the in- cremental borrowing, along with cash on hand, were used to fund a distribution of C$45 million to shareholders. The ONCAP II and III Groups received C$45 million ($35 million), of which Onex’ share was C$18 million ($14 million). 16 Onex Corporation December 31, 2017 M A N A G E M 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 2017, Flushing Town Center distributed $36 million of proceeds primarily from the sale of residential condominium units. Onex’ share of the distributions was $31 million. In February 2018, Pinnacle Renewable Energy completed an initial public offering of 13.3 million shares of its common stock (TSX: PL). The offering was priced at C$11.25 per share for gross proceeds of C$150 million. As part of the offering, Pinnacle Renewable Energy issued approximately 6.2 million treasury shares. The net pro- ceeds from treasury shares were used to repay C$29 million of existing shareholder subordinated debt with the balance to fund construction of production facilities and for other general corporate purposes. The ONCAP II Group received C$20 million ($16 million) for its share of the repayment of the existing shareholder subordinated debt, of which Onex’ share was C$9 million ($7 million). The ONCAP II Group did not sell any common shares as part of this transaction. During 2017, Onex sold its shares in Genesis Healthcare. The Onex Partners I Group received proceeds totalling $16 million, of which Onex’ share was $4 million. In September 2017, Carestream Health completed the sale of its Dental Digital business for an enterprise value of $810 million. Carestream Health received net proceeds of $859 million from the sale of Dental Digital along with net proceeds used from an additional transaction completed during the fourth quarter of 2017. Net pro- ceeds from the transactions were used to repay $758 million of the company’s term loans. Managing and growing fund investor capital In November 2017, Onex successfully completed fundraising for Onex Partners V, reaching aggregate commit- ments of $7.15 billion and exceeding our target size of $6.5 billion. This includes Onex’ commitment of $2.0 bil- lion, Onex management’s minimum 2% commitment and capital from fund investors around the world. Over the years, Onex has raised $17.8 billion of limited partner capital through nine Onex Partners and ONCAP Funds. In 2007, Onex acquired an interest in an investment adviser focused on credit investing which, at that time, managed $300 million. We have grown this business into our credit platform, which has raised $10.2 billion of fund investor capital and today manages $9.6 billion across various strategies, with a continued focus on growing its product lines and distribution channels. Onex Credit has closed 16 CLOs, with offerings of securities and loans totalling approximately $9.1 bil- lion, including approximately $740 million of Onex capital. At December 31, 2017, capital under management related to the remaining CLOs was $8.0 billion, including $485 million of Onex capital. Our credit business also 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). During 2017, Onex raised $314 million towards its $500 million fund size target for Onex Credit Lending Partners, including $100 million from Onex and a $41 million commitment from the Onex management team. This private credit fund focuses on providing credit to middle-market, upper middle-market and large private equity sponsor-owned portfolio companies and, selectively, other corporate borrowers predominantly in the United States and, selectively, in Canada and Europe. The strategy invests 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 Onex Corporation December 31, 2017 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 preservation. This platform employs a buy-and-hold approach to investing, with a goal of owning a diversiﬁed pool of investments. Onex Credit Lending Partners is a natural extension of Onex Credit’s business and leverages the ﬁrm’s infrastructure and knowledge of the loan market. The management of fund investor capital provides two signiﬁcant beneﬁts to Onex: (i) the Company earns man- agement fees on $21.7 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 enhances Onex’ return from its investment activities. Onex earned a total of $148 million in management fees during the year ended December 31, 2017 (2016 – $135 million), and today has run-rate management fees of $148 million. Onex expects future management fees and carried interest will offset operating expenses. Our private equity funds contribute $98 million to the run-rate management fees. Onex does not earn any management fees on the capital it has invested or committed to its private equity funds. Onex expects its run-rate management fees will increase when fees begin to accrue from Onex Partners V. Onex Credit contributes $50 million to the run-rate management fees, which includes $3 million of management fees earned on Onex’ capital invested in Onex Credit Lending Partners and Onex Credit Funds. At December 31, 2017, Onex’ share of the unrealized carried interest on Onex Partners and ONCAP’s operat- ing businesses based on their fair values was $185 million compared to $222 million at December 31, 2016. The unrealized carried interest decreased since December 31, 2016 due to $121 million of carried interest realized from the sale of USI and the partial sales of BBAM, Emerald Expositions and JELD-WEN, partially offset by an $84 million increase due to net fair value increases of certain businesses during 2017. The actual amount of carried interest realized by Onex will depend on the ultimate performance of each fund. At December 31, 2017, Onex managed $24.2 billion of fund investor capital, in addition to Onex’ capital. ($ millions) Total Fee-Generating Uncalled Commitments Fund Investor Capital Under Management(1)(2) December 31, 2017(3) December 31, 2016(3) Change in Total December 31, 2017 December 31, 2016 December 31, 2017(3) December 31, 2016 (3) Funds Onex Partners $ 13,787 $ 9,798 ONCAP(4) Onex Credit 1,788 8,644 1,548 6,637 Total $ 24,219 $ 17,983 41% 16% 30% 35% $ 11,666 $ 7,943 $ 6,787 $ 2,011 1,479 8,534 1,304 6,637 606 175 740 n/a $ 21,679 $ 15,884 $ 7,568 $ 2,751 (1) Capital under management is a non-GAAP financial measure. (2) Invested amounts included in fund investor capital under management are presented at fair value. (3) Uncalled commitments include capital available for future Onex-sponsored acquisitions, possible future funding of remaining businesses and future investments made by Onex Credit Lending Partners. 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, 2017 are reduced for management fees receivable of $107 million (December 31, 2016 – $48 million), which are included in Onex capital. (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, 2017 and December 31, 2016. 18 Onex Corporation December 31, 2017 M A N A G E M 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% per year. During 2017, fee-generating capital under management increased by 36% primarily due to our successful fund- raising for Onex Partners V, CLOs and Onex Credit Lending Partners, partially offset by the sale of USI, the par- tial sales of BBAM, Emerald Expositions and JELD-WEN, and the redemption of CLO-3. Over the past ﬁve years, fee-generating capital under management has increased by 20% per year. Performance Private equity The ability to raise new capital commitments is primarily dependent on the general fundraising environment and Onex’ investment track record with prior funds. The following table summarizes the performance of the Onex Partners and ONCAP Funds from inception through December 31, 2017. Funds Onex Partners I Onex Partners II Onex Partners III Onex Partners IV ONCAP I(4)(5) ONCAP II(4) ONCAP III(4) ONCAP IV Performance Returns(1)(2) Vintage Gross IRR Net IRR(3) Gross MOC Net MOC (3) 2003 2006 2009 2014 1999 2006 2011 2016 55% 17% 22% 8% 43% 30% 26% 49% 38% 13% 15% 2% 33% 21% 18% 10% 3.9x 2.3x 2.3x 1.2x 4.1x 3.9x 2.5x 1.2x 3.0x 1.9x 2.0x 1.0x 3.1x 2.7x 1.9x 1.0x (1) Performance returns are a non-GAAP financial measure. (2) Onex Partners V has been excluded from the table as no investments have been made through the fund as of December 31, 2017. (3) 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. (4) Returns are calculated in Canadian dollars, the functional currency of these ONCAP Funds. (5) ONCAP I has been fully realized. Onex Corporation December 31, 2017 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 Credit As of December 31, 2017, Onex had a net investment of $456 million in CLOs after dispositions and distributions. 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. Onex generated $46 million of income on a mark-to-market basis on its CLO investments during the year ended December 31, 2017 (2016 – $128 million). Investments in our two substantially realized CLOs gener- ated a Net IRR of approximately 15%. All of Onex’ CLOs remain onside with their various coverage tests. Onex received $59 million of distribu- tions from its CLO investments during 2017. Additionally, Onex received $10 million on the redemption of CLO-3 and $23 million on the sale of CLO investments. Onex remains a long-term investor in its CLOs. 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 2017, Onex increased its quarterly dividend by 9% to C$0.075 per SVS beginning in July 2017. This increase follows simi- lar increases in the previous four years and reﬂects Onex’ success and ongoing commitment to its shareholders. During 2017, $22 million was returned to shareholders through dividends and Onex repurchased 1,273,209 SVS at a total cost of $93 million (C$121 million), or an average purchase price of $72.81 (C$95.00) per share. At December 31, 2017, Onex’ SVS closed at C$92.19, a 1% increase from December 31, 2016. This compares to a 6% 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, 2016 to December 31, 2017) 120 115 110 105 100 6 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 95 31-Dec-16 ONEX (CAD) TSX TSX +6% ONEX +1% 28-Feb-17 30-Apr-17 30-Jun-17 31-Aug-17 31-Oct-17 31-Dec-17 20 Onex Corporation December 31, 2017 M A N A G E M 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 2017, the value of Onex’ SVS increased by 8% in U.S. dollars compared to a 19% 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, 2016 to December 31, 2017) 125 120 115 110 105 100 6 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 95 31-Dec-16 ONEX (USD) S&P S&P 500 +19% ONEX +8% 28-Feb-17 30-Apr-17 30-Jun-17 31-Aug-17 31-Oct-17 31-Dec-17 Onex Corporation December 31, 2017 21 M A N A G E M E N T ’ S D I S C U S S I O N A N D A N A LY S I S INDUSTRY SEGMENTS At December 31, 2017, Onex had nine reportable industry segments. In March 2017, the Onex Partners IV Group completed the acquisition of Parkdean Resorts, the results of which have been presented in the other businesses industry segment. In May 2017, Onex completed the sale of USI. The results of USI up to the date of sale in May 2017, which were previously included in the insurance services segment, are presented in the other businesses segment as a discontinued operation. In May 2017, the Onex Part- ners III Group sold shares of JELD-WEN resulting in a loss of control by the Company. The results of operations of JELD-WEN up to the date of sale in May 2017, which were previously included in the build- ing products segment, are presented in the other segment as a discontinued operation. In December 2017, the ONCAP IV Group completed the acquisitions of IntraPac and Laces, the results of which have been presented in the packaging products and services industry segment and the other businesses segment, respectively. Com parative disclosures have been restated to reflect these changes. A descrip- tion 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 became reportable. We manage our businesses and measure performance 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)/79% 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 Partners II Group 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 provider of residential, training, educational and support services for people with disabilities and special needs in the United States (www.rescare.com). 98% 20%/100% Total Onex Partners I and Onex Partners III Groups 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 Insurance Services York Risk Services Holding Corp., an integrated provider of insurance solutions to property, casualty and workers’ compensation specialty markets primarily in the United States (www.yorkrsg.com). 88% 29%/100% Total Onex Partners III Group investment at original cost: $521 million Onex portion at cost: $173 million Onex Partners III portion subject to a carried interest: $279 million (a) Excludes shares held in connection with the MIP. 22 Onex Corporation December 31, 2017 M A N A G E M 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 Packaging Products and Services Companies IntraPac International Corporation, a designer and manufacturer of specialty rigid packaging solutions (www.intrapacinternational.com). Total ONCAP IV Group investment at original cost: $118 million Onex portion at cost: $46 million ONCAP IV portion subject to a carried interest: $58 million 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). Total Onex Partners III Group investment at original cost: $260 million Onex portion at cost: $66 million Onex Partners III portion subject to a carried interest: $183 million Onex’ & Limited Partners’ Economic Ownership Onex’ Economic/ Voting Ownership 98% 38%/98% 94% 24%/94% 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% 35%(a)/94% Total Onex Partners IV Group investment at original cost: $1,215 million Onex portion at cost: $428 million(b) Onex Partners IV portion subject to a carried interest: $383 million(a) 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 pro- tection, domain brand protection and intellectual property management (www.clarivate.com). 72% 27%(a)/72% Total Onex Partners IV Group investment at original cost: $1,177 million Onex portion at cost: $445 million(b) Onex Partners IV portion subject to a carried interest: $418 million(a) Emerald Expositions Events, Inc. (NYSE: EEX), a leading operator of business- to-business trade shows in the United States (www.emeraldexpositions.com). 74%(c) 18%(c)/74%(c) Total Onex Partners III Group shares held: 53.8 million Onex shares held: 13.0 million Onex Partners III shares subject to a carried interest: 37.9 million Food Retail and Restaurants Jack’s Family Restaurants, a regional premium quick-service restaurant operator based in the United States (www.eatatjacks.com). 95% 31%(a)/100% Total Onex Partners IV Group investment at original cost: $234 million Onex portion at cost: $76 million(b) Onex Partners IV portion subject to a carried interest: $140 million(a) Save-A-Lot, one of the largest hard-discount grocery retailers for value-seeking shoppers in the United States (www.save-a-lot.com). 99% 32%(a)/99% Total Onex Partners IV Group investment at original cost: $660 million Onex portion at cost: $210 million(b) Onex Partners IV portion subject to a carried interest: $394 million(a) (a) Reflects the increase in Onex’ interest in Onex Partners IV as a result of the transactions completed in 2017, as described on page 34 of this MD&A. (b) Includes the increase in Onex’ interest in Onex Partners IV as a result of the transactions completed in 2017, as described on page 34 of this MD&A, and includes the additional cost of the companies at original cost. (c) Emerald Expositions completed an initial public offering in April 2017, as described on page 33 of this MD&A. Onex Corporation December 31, 2017 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 Credit Strategies Other Businesses • Aerospace Automation, Tooling and Components Onex’ & Limited Partners’ Economic Ownership Onex’ Economic/ Voting Ownership 100% 100%/(a) Companies 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 at market value: $485 million Onex Credit Funds, investment funds, other than the CLOs, providing exposure to the performance of actively managed, diversiﬁed portfolios. Onex investment in Onex Credit Funds at market value: $335 million, of which $181 million is invested in a segregated unlevered senior secured loan portfolio that purchases assets with greater liquidity and $154 million is invested in other Onex Credit Funds. Onex Credit Lending Partners, a private debt fund which focuses on providing credit to middle-market, upper middle-market and large private equity sponsor-owned portfolio companies and, selectively, other corporate borrowers predominantly in the United States and, selectively, in Canada and Europe. Onex investment in Onex Credit Lending Partners at market value: $17 million 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). Total Onex Partners IV Group investment at original cost: $204 million Onex portion at cost: $53 million(d) Onex Partners IV portion subject to a carried interest: $134 million(b) 50% 13%(b)/50%(c) • Aircraft Leasing & Management BBAM Limited Partnership, the world’s largest dedicated manager of leased aircraft (www.bbam.com). Total Onex Partners III Group remaining investment at original cost: $143 million 35%(e) 9%(e)/(c) Onex portion at cost: $36 million Onex Partners III portion subject to a carried interest: $101 million Included with the investment in BBAM Limited Partnership is an investment of $28 million made concurrently in FLY Leasing Limited (NYSE: FLY) by the Onex Partners III Group, of which Onex’ share was $7 million. (a) Onex controls the Onex Credit asset management platform through contractual rights. (b) Reflects the increase in Onex’ interest in Onex Partners IV as a result of the transactions completed in 2017, as described on page 34 of this MD&A. (c) Onex has certain contractual rights and protections, including the right to appoint members to the boards of directors, in respect of these entities, which are accounted for at fair value in Onex’ consolidated financial statements. (d) Includes the increase in Onex’ interest in Onex Partners IV as a result of the transactions completed in 2017, as described on page 34 of this MD&A, and includes the additional cost of the company at original cost. (e) In October 2017, the Onex Partners III Group sold a portion of its investment in BBAM, as described on page 34 of this MD&A. 24 Onex Corporation December 31, 2017 M A N A G E M 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 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 Partners III Group investment at original cost: $77 million Onex portion at cost: $19 million Onex Partners III portion subject to a carried interest: $54 million JELD-WEN Holding, Inc.(a) (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). Total Onex Partners III Group shares held: 32.9 million Onex shares held: 8.1 million Onex Partners III shares subject to a carried interest: 20.3 million 31% 8%/31%(b) Industry Segments Other Businesses (cont’d) • Aircraft Leasing & Management (cont’d) • Building Products • Holiday Parks Parkdean Resorts, a leading operator of caravan holiday parks in the 93%(f) 28%(c)(f)/80% United Kingdom (www.parkdeanresorts.co.uk). Total Onex Partners IV Group investment at original cost: $551 million(e)(f) Onex portion at cost: $164 million(d)(e)(f) Onex Partners IV portion subject to a carried interest: $233 million(c)(e)(f) • Hospital Management Services Schumacher Clinical Partners, a leading provider of emergency and hospital medicine physician practice management services in the United States (www.schumacherclinical.com). 68% 22%(c)/68% Total Onex Partners IV Group investment at original cost: $323 million Onex portion at cost: $105 million(d) Onex Partners IV portion subject to a carried interest: $193 million(c) • Survival Equipment Survitec Group Limited, a market-leading provider of mission-critical marine, defence and aerospace survival equipment (www.survitecgroup.com). 79% 21%(c)/68% Total Onex Partners IV Group investment at original cost: $371 million(e) Onex portion at cost: $98 million(d)(e) Onex Partners IV portion subject to a carried interest: $244 million(c)(e) (a) JELD-WEN completed an initial public offering in January 2017 and secondary offerings in May 2017 and November 2017, as described on page 31 of this MD&A. The investment in JELD-WEN is accounted for at fair value in the consolidated financial statements following the sale of shares in May 2017, as described on page 31 of this MD&A. (b) Onex has significant influence over JELD-WEN following the loss of control over the company in the second quarter of 2017, as described on page 31 of this MD&A. (c) Reflects the increase in Onex’ interest in Onex Partners IV as a result of the transactions completed in 2017, as described on page 34 of this MD&A. (d) Includes the increase in Onex’ interest in Onex Partners IV as a result of the transactions completed in 2017, as described on page 34 of this MD&A, and includes the additional cost of the companies at original cost. (e) The investments in Parkdean Resorts and Survitec were made primarily in pounds sterling and converted to U.S. dollars using the prevailing exchange rate on the dates of the investments. (f) Adjusted to reflect the conversion of the loan note held by the Onex Partners IV Group into additional equity of Parkdean Resorts in February 2018, as described on page 32 of this MD&A. Onex Corporation December 31, 2017 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 Other Businesses (cont’d) • Industrial Products Companies WireCo WorldGroup, a leading global manufacturer of mission-critical steel wire rope, synthetic rope, specialty wire and engineered products (www.wirecoworldgroup.com). Total Onex Partners IV Group investment at original cost: $270 million Onex portion at cost: $86 million(b) Onex Partners IV portion subject to a carried interest: $161 million(a) Onex’ & Limited Partners’ Economic Ownership Onex’ Economic/ Voting Ownership 71% 23%(a)/71% • Middle-Market Opportunities ONCAP, private equity funds focused on acquiring and building the value of mid-market companies based in North America (www.oncap.com). ONCAP II 100% 47%(c)/100% ONCAP II actively manages investments in EnGlobe (www.englobecorp.com), Pinnacle Renewable Energy (www.pinnaclepellet.com) and PURE Canadian Gaming (www. purecanadiangaming.com). Total ONCAP II Group 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), Venanpri Group (www.agrisolutionscorp.com), Chatters (www.chatters.ca) and Tecta (www.tectaamerica.com). Total ONCAP III Group 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% 39%/100% • Real Estate ONCAP IV actively manages investments in Tecta (www.tectaamerica.com) and Laces. ONCAP IV also actively manages an investment in IntraPac, which is included in the Packaging Products and Services industry segment. Total ONCAP IV Group unrealized investments at original cost: $164 million(d) Onex portion at cost: $65 million(d) ONCAP IV limited partners portion at cost: $83 million(d) 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 fair value: $238 million 88% 88%/100% (a) Reflects the increase in Onex’ interest in Onex Partners IV as a result of the transactions completed in 2017, as described on page 34 of this MD&A. (b) Includes the increase in Onex’ interest in Onex Partners IV as a result of the transactions completed in 2017, as described on page 34 of this MD&A, and includes the additional cost of the company at original cost. (c) This represents Onex’ blended economic ownership in the ONCAP II investments. (d) Excludes ONCAP IV’s investment in IntraPac. 26 Onex Corporation December 31, 2017 M A N A G E M 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, 2017 compared to those for the year ended December 31, 2016 and, in selected areas, to those for the year ended December 31, 2015. 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’ use of signiﬁcant judgement by Onex and its operating sion and other post-retirement beneﬁts also requires the consolidated statements of earnings and 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 consolidated ﬁnancial statements in conformity with IFRS requires management to make judgements, assumptions and esti- mates 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 statements. Onex and its operating companies evaluate their estimates and assumptions on an ongoing basis and any revisions are recognized in the affected periods. Included in Onex’ con- solidated ﬁnancial statements are estimates used in deter- mining the allowance for doubtful accounts, provisions for uncompensated care, inventory valuation, deferred tax assets and liabilities, allocation of purchase price consider- ation to intangible assets and goodwill, useful lives of prop- erty, 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 contin- gencies and other matters. Actual results could differ mate- rially 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. Fair value of investments and debt of credit strategies not quoted in an active market The fair value of investments and debt of the credit strate- gies not quoted in an active market may be determined by Onex Credit using reputable pricing sources (such as pric- ing agencies) or indicative prices from bond/debt market makers. Broker quotes as obtained from the pricing sources may be indicative and not executable or binding. The Company has exercised judgement and estimates on the quantity and quality of the pricing sources used. Where no market data is available, Onex Credit may value positions using models, which include the use of third-party pricing information and are usually based on valuation methods and techniques generally recognized as standard within the industry. Onex Corporation December 31, 2017 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 Models use observable data to the extent prac- by management, including, but not limited to, ﬁnancing ticable. However, areas such as credit risk (both own and and sales transactions with third parties, current operat- counterparty), volatilities and correlations may require ing performance and future expectations of the particular the Company to make estimates. Changes in assumptions investment, changes in market outlook and the third-party about these factors could affect the reported fair value of ﬁnancing environment. In determining changes to the fair ﬁnancial instruments. value of investments, emphasis is placed on current com- pany performance and market conditions. Limited Partners’ Interests, carried interest and For publicly traded investments, the valuation is investments in joint ventures and associates The measurement of the Limited Partners’ Interests for based on closing market prices less adjustments, if any, for regulatory and/or contractual sale restrictions. the Onex Partners and ONCAP Funds, carried interest and The changes to fair value of the investments in investments in joint ventures and associates is signiﬁcantly joint ventures and associates are reviewed on page 42 of impacted by the fair values of the investments held by this MD&A. the Onex Partners and ONCAP Funds. Joint ventures and Included in the measurement of the Limited Part- associates are deﬁned under IFRS as those investments in ners’ Interests is an adjustment for the change in carried operating businesses over which Onex has joint control or interest as well as any contributions by and distributions to signiﬁcant inﬂuence, but not control. In accordance with limited partners in the Onex Partners and ONCAP Funds. IFRS, certain of these investments are designated, upon The changes to the fair value of the Limited Partners’ initial recognition, at fair value in the consolidated balance Interests for the Onex Partners and ONCAP Funds are sheets. The fair value of investments in joint ventures and reviewed on page 46 of this MD&A. 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 Consolidation of structured entities Onex indirectly controls and consolidates the operations of Onex Partners and ONCAP Funds represent the interests of the CLOs of Onex Credit. The CLOs are structured entities limited partner investors, and carried interest, represent- for which voting and similar rights are not the dominant ing the General Partner’s share of the net gains of the Onex factor in determining control of the CLOs. Onex has used Partners and ONCAP Funds, is recorded at fair value. The judgement when assessing the many factors that determine fair value is signiﬁcantly affected by the change in the fair control, including its exposure through investments in the value of the underlying investments in the Onex Partners most subordinate capital of the CLOs, its role in the forma- and ONCAP Funds. tion of the CLOs, the rights of other investors in the CLOs The valuation of non-public investments requires and its control of the asset manager of the CLOs. Onex has signiﬁcant judgement by Onex due to the absence of determined that it is a principal of the CLOs with the power quoted market values, inherent lack of liquidity and the to affect the returns of its investment and, as a result, indi- long-term nature of such investments. Valuation method- rectly controls the CLOs. ologies include discounted cash ﬂows and observations of CLOs are further discussed in note 1 to the con- the trading multiples of public companies considered com- solidated ﬁnancial statements. parable to the private companies being valued. The valua- tions take into consideration company-speciﬁc items, the Impairment testing of goodwill, intangible assets lack of liquidity inherent in a non-public investment and the fact that comparable public companies are not identi- and long-lived assets Goodwill in an accounting context represents the excess cal to the companies being valued. Such considerations are of the aggregate consideration paid and the amount of necessary because, in the absence of a committed buyer any non-controlling interests in the acquired company and completion of due diligence procedures, there may be compared to the fair value of the identiﬁable net assets company-speciﬁc items that are not fully known that may acquired. Substantially all of the goodwill amount that affect value. A variety of additional factors are reviewed appears in Onex’ consolidated balance sheets was recorded 28 Onex Corporation December 31, 2017 M A N A G E M E N T ’ S D I S C U S S I O N A N D A N A LY S I S by the operating companies. Goodwill is not amortized, but is assessed for impairment at the level of either an indi- Revenue recognition Revenues for ResCare in the health and human services seg- vidual cash generating unit (“CGU”) or a group of CGUs ment are substantially derived from U.S. federal, state and annually, or sooner if events or changes in circumstances or local government agency programs, including Medicaid market conditions indicate that the carrying amount could and Medicare. Laws and regulations under these programs exceed fair value. The test for goodwill impairment used by are complex and subject to interpretation. Management our operating companies is to assess whether the fair value may be required to exercise judgement for the recognition of each CGU within an operating company is less than its of revenue under these programs. Management of ResCare carrying value and then determine if the goodwill associ- believes that it is in compliance with all applicable laws ated with that CGU is impaired. This assessment takes into and regulations. Compliance with such laws and regula- consideration several factors, including, but not limited to, tions is subject to ongoing and future government review future cash ﬂows and market conditions. If the fair value is and interpretation, including the possibility of processing determined to be lower than the carrying value at an indi- claims at lower amounts upon audit, as well as signiﬁcant vidual CGU, goodwill is then considered to be impaired regulatory action, including revenue adjustments, ﬁnes, and an impairment charge must be recognized. Internal penalties and exclusion from programs. Government agen- valuation models are used to determine fair value. These cies may condition their contracts upon a sufﬁcient bud- models are subjective and require management of the par- getary appropriation. If a government agency does not ticular operating company to exercise judgement in making receive an appropriation sufﬁcient to cover its contractual assumptions about future results, including revenues, oper- obligations, it may terminate the contract or defer or reduce ating expenses, capital expenditures and discount rates. In reimbursements to be received by the company. In addi- the year of acquisition, the fair value in excess of the carry- tion, previously appropriated funds could also be reduced ing value at an operating company will typically be minimal or eliminated through subsequent legislation. as a result of the recent business combination accounting. Revenues for Schumacher in the other segment The impairment test for intangible assets and long-lived are recognized net of an allowance for uncompensated assets with limited lives is similar to that for goodwill. care related to uninsured patients in the period during Impairment charges for intangible assets and long-lived which services are provided. The allowance for uncompen- assets may subsequently be reversed if fair value is deter- sated care is estimated on the basis of historical experience mined to be higher than carrying value. The reversal is lim- of collections associated with self-pay patients treated dur- ited, however, to restoring the carrying amount that would ing the period. have been determined, net of amortization, had no impair- ment loss been recognized in prior periods. Impairment losses for goodwill are not reversed in future periods. Income taxes Onex, including its operating companies, is subject to Impairment charges recorded by the operating changing tax laws and the interpretation of existing tax businesses under IFRS may not impact the fair values of laws in multiple jurisdictions. Signiﬁcant judgement is the operating businesses used in determining the increase necessary in determining worldwide income tax liabilities. or decrease in investments in joint ventures and associates, Although management of Onex and the operating com- the change in carried interest and for calculating the Limited panies believe that they have made reasonable estimates Partners’ Interests liability for the Onex Partners and ONCAP about the ﬁnal outcome of tax uncertainties, no assurance Funds. Fair values of the operating businesses are assessed at can be given that the outcome of these tax matters will be the enterprise level, while impairment charges are assessed consistent with what is reﬂected in the historical income at the level of an asset, a CGU or a group of CGUs. tax provisions. Such differences could have an effect on During 2017, certain operating companies income tax liabilities and deferred tax liabilities in the recorded charges for impairments of goodwill, intangible period in which such determinations are made. At each assets and long-lived assets. These charges are reviewed on balance sheet date, management of Onex and the operat- page 46 of this MD&A and in note 27 to the consolidated ing companies assess whether the realization of future ﬁnancial statements. tax beneﬁts is sufﬁciently probable to recognize deferred Onex Corporation December 31, 2017 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 tax assets. This assessment requires the exercise of judge- beneﬁts. These valuations rely on statistical and other ment on the part of management with respect to, among factors in order to anticipate future events. These factors other things, beneﬁts that could be realized from available include key actuarial assumptions such as the discount tax strategies and future taxable income, as well as other rate, expected salary increases and mortality rates. These positive and negative factors. The recorded amount of total actuarial assumptions may differ signiﬁcantly from actual deferred tax assets could be reduced if estimates of pro- developments due to changing market and economic con- jected future taxable income and beneﬁts from available ditions, and therefore may result in a signiﬁcant change tax strategies are lowered, or if changes in current tax regu- in post-retirement employee beneﬁt obligations and the lations are enacted that impose restrictions on the timing related future expense in the consolidated ﬁnancial state- or extent of Onex’ or its operating companies’ ability to uti- ments. Note 33 to the consolidated ﬁnancial statements lize future tax beneﬁts. provides details on the estimates used in accounting for In December 2017, the United States of America’s pensions and post-retirement beneﬁts. Tax Cuts and Jobs Act (“U.S. Tax Reform”) was enacted with most provisions coming into effect as of January 1, 2018. Recent accounting pronouncements The legislative changes in the U.S. Tax Reform are exten- sive and the interpretation of several aspects of the U.S. Tax Reform is still unclear; however, Onex and the operat- ing companies have estimated and recorded income tax expenses and recoveries for all signiﬁcant known impacts during the fourth quarter of 2017. Onex and the operating companies will continue to assess the impact, if any, of the U.S. Tax Reform throughout 2018 as they become known due to changes in management’s interpretations and assumptions, as well as from additional regulatory guid- ance that may be issued. Legal contingencies Onex, including its operating companies, can become involved in various legal proceedings in the normal course of operations. While we cannot predict the ﬁnal outcomes of such legal proceedings, they may have a signiﬁcant effect on Onex’ consolidated ﬁnancial position, results of operations or cash ﬂows. The ﬁling or disclosure of a suit or formal assertion of a claim does not automatically indicate that a provision may be appropriate. Management, with the assistance of internal and external lawyers, regularly analyzes current information about these matters and pro- vides provisions for probable contingent losses, including the estimate of legal expenses to resolve these matters. Employee beneﬁts Onex, the parent company, does not provide a pension plan to the employees of the operating companies; how- ever, certain of its operating companies do. Management of the operating companies use actuarial valuations to account for their pension and other post-retirement 30 Onex Corporation December 31, 2017 IFRS 15 – Revenue from Contracts with Customers In May 2014, the IASB issued IFRS 15, Revenue from Con tracts with Customers, which provides a comprehensive ﬁve-step revenue recognition model for all contracts with customers. IFRS 15 requires management to exercise signiﬁ- cant judgement and make estimates that affect revenue recognition. IFRS 15 is effective for annual periods begin- ning on or after January 1, 2018, with earlier application permitted. The Company is completing the execution of its implementation plan and adopted IFRS 15 on Janu- ary 1, 2018 on a retrospective basis subject to permitted and elected practical expedients. Currently, the consolidated ﬁnancial results of the Company are not expected to be materially impacted as a result of adopting this standard. 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 introduces a new model for the classiﬁcation and measure- ment of ﬁnancial assets and liabilities, a single expected credit loss model for the measurement of the impairment of ﬁnancial assets and a new model for hedge accounting that is aligned with a company’s risk management activi- ties. IFRS 9 is effective for annual periods beginning on or after January 1, 2018, with earlier application permitted. The Company is completing the execution of its imple- mentation plan and adopted IFRS 9 on January 1, 2018 on a retrospective basis, and does not intend to restate prior period comparative information, with any changes to the M A N A G E M E N T ’ S D I S C U S S I O N A N D A N A LY S I S carrying amounts of assets and liabilities upon adoption ﬂuctuations in customer demand, materials and employee- being recognized in retained earnings at January 1, 2018. related costs; changes in the mix of products and services The Company does not expect a material impact to the produced or delivered; changes in the ﬁnancing of the busi- classi ﬁcation and measurement of ﬁnancial assets as a ness; changes in contract accounting estimates; impair- result of adopting this standard. The Company is continu- ments of goodwill, intangible assets or long-lived assets; ing to evaluate the impact of the accounting treatment litigation; decisions to restructure operations; and natural for amendments of ﬁnancial liabilities. Other than the disasters. Given the diversity of Onex’ operating businesses, accounting treatment for amendments of ﬁnancial liabili- the associated exposures, risks and contingencies may be ties, the Company does not expect a material impact to the many, varied and material. classiﬁcation and measurement of ﬁnancial liabilities as a Investments held by credit strategies, as well as result of adopting this standard. 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 combination and separation of contracts. The standard requires lessees to recognize a right-of-use asset and a lease liability for substantially all lease contracts. The account- debt issued by the CLOs, are recorded at fair value, with changes in fair value recognized in the consolidated state- ments of earnings. Fair values are impacted by the CLO mar- ket, leveraged loan market and credit risk (both own and counterparty), which may vary substantially from quarter to quarter and year to year. Signiﬁcant transactions Transactions in this section are presented in chronological ing for lessors is substantially unchanged from IAS 17. order by private equity and credit. IFRS 16 is effective for annual periods beginning on or after January 1, 2019, with earlier application permitted if IFRS 15 is also applied. The Company is in the process of execut- Initial and secondary offerings by JELD-WEN In January 2017, JELD-WEN completed an initial public ing its implementation plan and intends to adopt IFRS 16 offering of 28.75 million shares of its common stock (NYSE: on January 1, 2019 on a modiﬁed retrospective basis. The JELD), including the exercise of an over-allotment option. Company is currently evaluating the impact of adopting The offering was priced at $23.00 per share for gross pro- this standard on its consolidated ﬁnancial statements and ceeds of $661 million. As part of the offering, JELD-WEN currently expects a material recognition of right-of-use issued approximately 22.3 million treasury shares. The net assets and corresponding lease liabilities upon transition. proceeds from treasury shares were used to repay $375 mil- Variability of results Onex’ consolidated operating results may vary substantially lion 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 from quarter to quarter and year to year for a number of shares in the transaction for net proceeds of $140 million. reasons, including some of the following: the current eco- Onex’ portion of the net proceeds was $40 million, includ- nomic environment; the current political environment; the ing carried interest. impact of foreign exchange ﬂuctuations; acquisitions or dis- As a result of this transaction, the Onex Part- positions of businesses by Onex, the parent company; the ners III Group’s economic ownership was reduced to 60% change in value of stock-based compensation for both the and Onex’ economic ownership was reduced to 15%. Since parent company and its operating businesses; changes in the sale of shares by the Onex Partners III Group did not the fair value of Onex’ publicly traded operating businesses; result in a loss of control over JELD-WEN, the transaction changes in the fair value of Onex’ privately held operating was recorded as a transfer from equity holders of Onex businesses; changes in the fair value of credit securities; Corporation to non-controlling interests in the consoli- changes in tax legislation or in the application of tax legis- dated ﬁnancial statements, with the cash proceeds received lation; and activities at Onex’ operating businesses. These in excess of the historical accounting carrying value of activities may include the purchase or sale of businesses; $133 million being recorded directly to retained earnings. Onex Corporation December 31, 2017 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 The new shares issued by JELD-WEN in the initial realized as a result of this transaction as the Company’s public offering resulted in the dilution of the Company’s interest in JELD-WEN is recorded at fair value. ownership interest. As a result, the Company recorded a The Onex Partners III Group continues to hold transfer from the non-controlling interests in the consoli- approximately 32.9 million shares of JELD-WEN’s common dated statements of equity. This reﬂects Onex’ share of the stock for a 31% economic and voting interest. Onex con- increase in the book value of the net assets of JELD-WEN tinues to hold approximately 8.1 million shares for an 8% due to the issuance of additional common shares at a value economic interest. above the Company’s historical accounting carrying value Amounts received on account of the carried inter- of JELD-WEN. est related to these transactions totalled $113 million. Onex’ In May 2017, JELD-WEN completed a secondary share of the carried interest received was $45 million and offering of 16.1 million shares of its common stock, includ- was included in the net proceeds to Onex. Man agement’s ing the exercise of an over-allotment option. The offer- share of the carried interest was $68 million. No amounts ing was priced at $30.75 per share for gross proceeds of were paid on account of the MIP for these transactions as $495 million. No treasury shares were issued as part of the the required realized investment return hurdle for Onex offering. The Onex Partners III Group sold approximately was not met on realizations to date. 15.7 million shares in the transaction for net proceeds The operations of JELD-WEN up to May 2017 have of $466 million. Onex’ portion of the net proceeds was been presented as discontinued in the December 31, 2017 $135 million, including carried interest. consolidated statements of earnings and cash ﬂows, and A gain of $1.5 billion was recorded within discon- prior periods have been restated to report the results of tinued operations during the second quarter based on the JELD-WEN as discontinued on a comparative basis. JELD- excess of the net proceeds and the interest retained at fair WEN has been reclassiﬁed from the building products seg- value over the historical accounting carrying value of the ment to the other segment. investment. The gain on the sale was entirely attributable to the equity holders of Onex Corporation, as the interests of the Limited Partners were recorded as a ﬁnancial liability Acquisition of Parkdean Resorts In March 2017, the Onex Partners IV Group acquired Park- at fair value. The portion of the gain associated with rec- dean Resorts, an operator of caravan holiday parks in the ognizing the interest retained in JELD-WEN at fair value United Kingdom, for £1.35 billion. Excluding the impact was $1.1 billion. The portion of the gain associated with the of foreign exchange hedges, the Onex Partners IV Group’s shares sold in the secondary offering was $378 million. investment was $612 million (£500 million), comprised of As a result of this transaction, the Onex Partners III $417 million from Onex Partners IV and $195 million as a Group’s economic ownership was reduced to 45% and Onex’ co-investment from Onex and certain limited partners, for economic ownership was reduced to 11%, resulting in a loss an initial economic interest of 91%. The investment in Park - of control over JELD-WEN by the Company. The remaining dean Resorts consisted of equity of $520 million (£425 mil- interest held by the Company has been recorded as a long- lion) and a loan note of $92 million (£75 million). At the term investment at fair value with changes in fair value time of acquisition, Onex invested $166 million, comprised recognized in the consolidated statements of earnings. Non- of $123 million through Onex Partners IV and $43 mil- controlling interests of the Company decreased by $212 mil- lion as a co-investment, for an initial economic inter- lion as a result of no longer consolidating JELD-WEN. est of 25%. Subsequent to the increase in Onex’ interest in In November 2017, JELD-WEN completed a sec- Onex Partners IV, as described on page 34 of this MD&A, ondary offering of 14.4 million shares of its common stock, Onex’ share of the investment increased to $182 million, including the exercise of an over-allotment option. The comprised of $139 million through Onex Partners IV and offering was priced at $33.75 per share for gross proceeds $43 million as a co-investment. The remainder of the of $485 million. The Onex Partners III Group sold approxi- purchase price was ﬁnanced through a rollover of equity mately 14.2 million shares in the transaction for net pro- by management shareholders and debt ﬁnancing, with- ceeds of $463 million. Onex’ portion of the net proceeds out recourse to Onex Corporation. Parkdean Resorts is was $134 million, including carried interest. No gain was included within the other segment. 32 Onex Corporation December 31, 2017 M A N A G E M E N T ’ S D I S C U S S I O N A N D A N A LY S I S In February 2018, Parkdean Resorts made a partial Onex continues to hold approximately 13.0 million shares repayment of the loan note totalling £52 million ($74 mil- for an 18% economic interest. Since the sale of shares by lion), including accrued interest, with net proceeds from a the Onex Partners III Group did not result in a loss of con- sale-leaseback transaction completed for certain parks in trol of Emerald Expositions, the transaction was recorded August 2017. Onex’ share of the repayment was £15 million as a transfer from the equity holders of Onex Corporation ($22 million). The remaining principal balance of £25 mil- to non-controlling interests in the consolidated ﬁnancial lion ($31 million) outstanding under the loan note, of which statements, with the cash proceeds received in excess Onex’ share was £7 million ($9 million), was converted into of the historical accounting carrying value of $52 million additional equity of Parkdean Resorts in accordance with being recorded directly to retained earnings. the loan note agreement. Subsequent to the transaction, The issuance of new shares by Emerald Exposi- the Onex Partners IV Group has a 93% economic interest in tions as part of the initial public offering resulted in the Parkdean Resorts, of which Onex’ share is 28%. dilution of the Company’s ownership interest in Emerald Distribution from Jack’s In April 2017, Jack’s amended its existing credit facility to Expositions. The Company recorded a transfer from the non-controlling interests in the consolidated statements of equity. This reﬂected Onex’ share of the increase in the increase the size of its term loan to $275 million. The pro- book value of the net assets of Emerald Expositions due to ceeds from the incremental borrowing, along with cash the issuance of additional common shares at a value above on hand, were used to fund a distribution of $85 million the Company’s historical accounting carrying value of to shareholders. The share of the distribution for the Onex Emer ald Expositions. Partners IV Group was $81 million, of which Onex’ share was $23 million. Initial public offering by Emerald Expositions In April 2017, Emerald Expositions completed an initial Sale of USI In May 2017, the Onex Partners III Group sold its entire investment in USI for an enterprise value of $4.3 bil- lion. The Onex Partners III Group received net proceeds public offering of approximately 17.8 million shares of its of approximately $1.9 billion. Onex’ portion of the net common stock (NYSE: EEX), including the exercise of an proceeds was $563 million, including carried interest of over-allotment option. The offering was priced at $17.00 per $65 million and after the reduction for the amounts on share for gross proceeds of $303 million. As part of the offer- account of the MIP. ing, Emerald Expositions issued approximately 10.3 million The Onex Partners III Group invested a total of treasury shares. The net proceeds from the treasury shares $610 million to acquire USI in December 2012. The invest- were used to repay $159 million of Emerald Expo sitions’ ment in USI generated a Gross MOC of 3.4 times, including term loan. The Onex Partners III Group sold approximately a prior distribution. 7.5 million shares in the transaction for net proceeds of The sale resulted in a gain of $1.8 billion based on $119 million. Onex’ portion of the net proceeds was $32 mil- the excess of the net proceeds over the historical account- lion, including $3 million of carried interest. ing carrying value of the investment. The gain was entirely Amounts received on account of the carried inter- attributable to the equity holders of Onex Corporation, est related to this transaction totalled $7 million. Onex’ as the interests of the limited partners were recorded as a share of the carried interest received was $3 million and ﬁnancial liability at fair value. was included in the net proceeds to Onex. Management’s Amounts received on account of the carried inter- share of the carried interest was $4 million. No amounts est related to this transaction totalled $163 million. Onex’ were paid on account of the MIP for this transaction as the share of the carried interest received was $65 million and required realized investment return hurdle for Onex was was included in the net proceeds to Onex. Management’s not met on this realization. share of the carried interest was $98 million. Amounts paid The Onex Partners III Group continues to hold on account of the MIP totalled $30 million for this transac- approximately 53.8 million shares of Emerald Expositions’ tion and have been deducted from the net proceeds to Onex. common stock for a 74% economic and voting interest. Onex Corporation December 31, 2017 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 The operations of USI up to the date of sale in Onex’ uncalled committed capital to Onex Partners IV May 2017 have been presented as discontinued in the con- increased by $69 million for its share of the interest solidated statements of earnings and cash ﬂows, and prior acquired in the fund. periods have been restated to report the results of USI as discontinued on a comparative basis. The operations of USI have been reclassiﬁed from the insurance services seg- Partial sale of BBAM In October 2017, the Onex Partners III Group sold a portion ment to the other segment. Non-controlling interests of the of its investment in BBAM. The Onex Partners III Group’s Company decreased by $1 million as a result of no longer economic interest in BBAM was reduced from 50% to 35% consolidating USI. and Onex’ economic interest was reduced from 13% to 9%. Together with distributions completed by BBAM in 2017, Sale of Dental Digital business by Carestream Health In September 2017, Carestream Health completed the sale the Onex Partners III Group received $180 million, of which Onex’ share was $53 million, including carried interest of of its Dental Digital business for an enterprise value of $7 million. $810 million. Carestream Health received net proceeds Amounts received on account of the carried inter- of $859 million from the sale of its Dental Digital busi- est related to the partial sale totalled $18 million. Onex’ ness along with net proceeds used from an additional share of the carried interest received was $7 million and transaction completed during the fourth quarter of 2017. was included in the net proceeds to Onex. Management’s Net proceeds from these transactions were used to repay share of the carried interest was $11 million. No amounts $758 million of the company’s term loans. The sale of were paid on account of the MIP for this transaction as the the Dental Digital business, together with the additional required realized investment return hurdle for Onex was transaction, resulted in the recognition of a pre-tax gain of not met on this realization. $731 million, which has been recorded in other gains. To date, BBAM-related investments have returned Carestream Health’s Dental Digital business did $463 million to the Onex Partners III Group, including the not represent a separate major line of business of the Com- sale of a portion of the investment. Onex’ portion of these pany, and as a result, the operating results up to the date proceeds was $126 million, including carried interest. of disposition have not been presented as a discontinued operation. Onex Partners V In November 2017, Onex completed fundraising for Onex Onex Partners IV interest acquired by Onex In September 2017, Onex, the parent company, acquired Partners V, reaching aggregate commitments of $7.15 bil- lion, including Onex’ commitment of $2.0 billion and Onex an interest in Onex Partners IV from a limited partner for management’s minimum 2% commitment. $354 million. No gain or loss was recorded on this trans- action as the limited partners’ interests are recorded at fair value. Acquisition of IntraPac In December 2017, the ONCAP IV Group acquired IntraPac, In October 2017, Onex sold a portion of the a designer and manufacturer of specialty rigid packaging acquired interest in Onex Partners IV to certain limited solutions. The ONCAP IV Group invested a total of $118 mil- partners for $198 million, the same value at which Onex lion for a 98% economic interest in IntraPac. The ONCAP IV acquired the interest in September 2017. Onex will con- Group’s total investment included $10 million to fund a por- tinue to earn management fees and carried interest on the tion of the transaction costs and for working capital pur- interest sold to certain limited partners. The carried inter- poses. Onex’ share of the investment was $46 million for an est entitlement to Onex management was not impacted by economic interest of 38%. The remainder of the purchase this transaction, including carried interest on the portion price was primarily ﬁnanced through a rollover of equity retained by Onex. by management of IntraPac and debt ﬁnancing, without The net increase in Onex’ interest in Onex Part - recourse to Onex Corporation. IntraPac is included within ners IV resulted in an increase in Onex’ ownership percen- the packaging products and services segment. tage in investments completed by the fund. In addition, 34 Onex Corporation December 31, 2017 M A N A G E M E N T ’ S D I S C U S S I O N A N D A N A LY S I S Acquisition of Laces In December 2017, the ONCAP IV Group acquired Laces, a part of the offering, Pinnacle Renewable Energy issued approximately 6.2 million treasury shares. The net pro- designer, manufacturer and marketer of bath accessories ceeds from treasury shares were used to repay C$29 million and home fashion products. The ONCAP IV Group invested of existing shareholder subordinated debt with the balance a total of $102 million for an 82% economic interest in to fund construction of production facilities and for other Laces. The ONCAP IV Group’s total investment included general corporate purposes. The ONCAP II Group received $1 million to fund a portion of the transaction costs and C$20 million ($16 million) for its share of the repayment for working capital purposes. Onex’ share of the invest- of the existing shareholder subordinated debt, of which ment was $40 million for an economic interest of 32%. Onex’ share was C$9 million ($7 million). The ONCAP II The remainder of the Laces purchase price was primar- Group did not sell any common shares as part of this ily ﬁnanced through a rollover of equity by management transaction. of Laces and debt ﬁnancing, without recourse to Onex The ONCAP II Group continues to hold approxi- Corporation. Laces is included within the other segment. mately 14.1 million common shares of Pinnacle Renewable Acquisition of SMG In January 2018, the Onex Partners IV Group completed the Energy for an economic and voting interest of 43%. Onex continues to hold approximately 6.7 million common shares for an economic interest of 20%. acquisition of SMG, a leading global manager of conven- As a result of this transaction, the ONCAP II Group tion centres, stadiums, arenas, theatres, performing arts no longer controls Pinnacle Renewable Energy. The remain- centres and other venues. The Onex Partners IV Group’s ing interest held by the Company will be recorded as a long- investment was $429 million for an economic interest of term investment at fair value in the ﬁrst quarter of 2018, with 99%. Onex’ share of the investment was $139 million for an changes in fair value recognized in the consolidated state- economic interest of 32%. The remainder of the purchase ments of earnings. In addition, a gain will be recognized price was ﬁnanced through a rollover of equity by manage- based on the excess of the net proceeds and the interest ment of SMG and debt ﬁnancing, without recourse to Onex retained at fair value over the historical accounting carry- Corporation. ing value of the investment during the ﬁrst quarter of 2018. As part of the acquisition of SMG, the Onex Part- Pinnacle Renewable Energy does not represent a separate ners IV Group also acquired $44 million of SMG’s sec- major line of business, and as a result, the operating results ond lien debt, which bears interest at LIBOR plus a mar- up to the date of the loss of control will not be presented as a gin of 7.00% and matures in January 2026. To ﬁnance the discontinued operation in the ﬁrst quarter of 2018. investment in SMG’s second lien debt, the Onex Part- ners IV Group entered into a revolving credit facility in January 2018. The facility bears interest at LIBOR plus a Distributions from operating businesses During 2017, the Company received distributions of margin of 1.75%, matures in January 2021 and is reimburs- $281 million from certain operating businesses, of which able by capital calls upon the limited partners of Onex $107 million was Onex’ portion. These include distribu- Partners IV. Onex Corporation, the parent company, is only tions from BBAM and Jack’s, as previously described in this obligated to fund borrowings under the revolving credit MD&A. Other signiﬁcant distributions received by Onex facility based on its proportionate share of Onex Part- ners IV’s investment in SMG. Initial public offering by Pinnacle Renewable Energy In February 2018, Pin nacle Renewable Energy completed and its partners are described below. In January 2017, PURE Canadian Gaming distrib- uted C$15 million to shareholders. The ONCAP II and III Groups’ portion of the distribution to shareholders was C$15 million ($11 million), of which Onex’ portion was an initial public offering of approximately 13.3 million C$6 million ($5 million). In addition, in December 2017, common shares (TSX: PL). The offering was priced at PURE Canadian Gaming amended its existing credit facil- C$11.25 per share for gross proceeds of C$150 million. As ity, and proceeds from the incremental borrowing, along Onex Corporation December 31, 2017 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 with cash on hand, were used to fund a distribution of Closing of CLO-13 C$45 million to shareholders. The ONCAP II and III Groups’ In July 2017, Onex closed CLO-13, which was funded portion of the distribution was C$45 million ($35 million), through the issuance of collateralized loan instruments in of which Onex’ share was C$18 million ($14 million). a series of tranches of secured and subordinated notes and In September 2017, Bradshaw amended its exist- preference shares in a private placement transaction for an ing credit facility. A portion of the proceeds from the aggregate principal amount of $610 million. incremental borrowing were used to fund a distribution of On closing, Onex received $70 million plus inter- $53 million to shareholders. The ONCAP III Group’s por- est for the investment that supported the warehouse facil- tion of the distribution to shareholders was $48 million, of ity and invested $40 million for approximately 70% of the which Onex’ share was $14 million. most subordinated capital of CLO-13. Reinvestment can be Credit Strategies Extension of CLO-4 made in collateral by the CLO up to July 2022, or earlier, subject to certain provisions. In April 2017, Onex amended CLO-4, which extended the Closing of EURO CLO-2 reinvestment period of the CLO by four years to April 2021 In December 2017, Onex closed EURO CLO-2, which was and increased the size by $105 million to $600 million. Onex funded through the issuance of collateralized loan instru- invested an additional $13 million in the most subordinated ments in a series of tranches of secured and subordinated capital of CLO-4 in connection with the CLO-4 amendment. Closing of EURO CLO-1 In May 2017, Onex closed EURO CLO-1, which was funded through the issuance of collateralized loan instruments in a series of tranches of secured and subordinated notes in a private placement transaction for an aggregate principal amount of €361 million ($393 million). On closing, Onex received €55 million ($60 mil- lion) plus interest for the investment that supported the warehouse facility and invested €38 million ($42 million) for 100% of the most subordinated capital of EURO CLO-1. notes in a private placement transaction for an aggregate principal amount of €437 million ($514 million). On closing, Onex received €40 million ($47 mil- lion) plus interest for the investment that supported the warehouse facility and invested €39 million ($45 million) for 88% of the most subordinated capital of EURO CLO-2. Reinvestment can be made in collateral by the CLO up to January 2022, or earlier, subject to certain provisions. Closing of CLO-14 In December 2017, Onex closed CLO-14, which was funded through the issuance of collateralized loan instruments in Reinvestment can be made in collateral by the CLO up to a series of tranches of secured and subordinated notes and June 2021, or earlier, subject to certain provisions. preference shares in a private placement transaction for an Redemption of CLO-3 aggregate principal amount of $611 million. On closing, Onex received $60 million plus inter- In June 2017, the Company redeemed its third CLO denomi- est for the investment that supported the warehouse facil- nated in U.S. dollars. CLO-3 was established in March 2013 ity and invested $36 million for approximately 65% of the and its reinvestment period ended in January 2017. Upon most subordinated capital of CLO-14. Reinvestment can be the redemption of CLO-3, all secured notes were repaid, made in collateral by the CLO up to November 2022, or ear- including accrued interest, and the equity was settled lier, subject to certain provisions. for the residual proceeds in the CLO. In aggregate, Onex received $31 million of proceeds and distributions related Onex Credit Lending Partners to CLO-3 compared to its original investment of $24 million. During 2017, Onex raised $314 million towards its $500 mil- At redemption, CLO-3 transferred $13 million, lion fund size target for OCLP I, including $100 million from $109 million and $48 million in assets for fair value consid- Onex. The duration of the commitment period for OCLP I eration to CLO-4, CLO-13 and CLO-14, respectively. The fair will be for up to three years from the date of ﬁnal closing, values used for the transfer were reviewed by a third party. subject to extensions for up to an additional two years. 36 Onex Corporation December 31, 2017 M A N A G E M 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 2017, OCLP I made investments in the debt of middle-market, upper middle-market and large private equity sponsor-owned portfolio companies and, selectively, R E V I E W O F D E C E M B E R 3 1 , 2 0 1 7 C O N S O L I D A T E D F I N A N C I A L S T A T E M E N T S other corporate borrowers which were funded by borrow- The discussions that follow identify those material factors ings from OCLP I’s credit facilities, as described on page 59 that affected Onex’ operating segments and Onex’ consoli- of this MD&A, and a capital call of $55 million from inves- dated results for the year ended December 31, 2017. tors in December 2017, of which Onex’ share was $18 million. Discontinued operations for the year ended Onex consolidates the operations of OCLP I and December 31, 2017 represent the results of operations of records changes in the fair value of the asset portfolio JELD-WEN (up to May 2017) and USI (up to May 2017). through earnings. Distributions Dis continued operations for the year ended Decem- ber 31, 2016 represent the results of operations of JELD- WEN, KraussMaffei (up to April 2016) and USI, and include During 2017, Onex received $59 million of distributions a portion of the gain from the sale of Sitel Worldwide. from CLO investments. Additionally, Onex received $10 mil- lion on the redemption of CLO-3 and $23 million on the sale of CLO investments. Consolidated revenues and cost of sales Table 1 provides revenues and cost of sales by industry segment. Revenues and Cost of Sales by Industry Segment TABLE 1 ($ millions) Year ended December 31 Revenues Cost of Sales 2017 2016 Change 2017 2016 Change Electronics Manufacturing Services $ 6,111 $ 6,016 Healthcare Imaging Health and Human Services Insurance Services(a) Packaging Products and Services(b) Business and Information Services(c) Food Retail and Restaurants(d) Credit Strategies(e) Other(f) Total 1,862 1,767 775 2,391 1,262 4,724 4 5,601 1,990 1,785 745 2,414 525 689 4 3,637 $ 24,497 $ 17,805 2 % (6)% (1)% 4 % (1)% 140 % 586 % – 54 % 38 % $ 5,614 $ 5,510 1,068 1,340 – 1,525 517 3,984 – 3,873 1,127 1,358 – 1,541 180 578 – 2,614 $ 17,921 $ 12,908 2 % (5)% (1)% n/a (1)% 187 % 589 % n/a 48 % 39 % 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 York, which reports its costs in operating expenses. The insurance services segment previously included USI, which has been recorded within the other segment as a discontinued operation. (b) The packaging products and services segment consists of IntraPac, sgsco and SIG. IntraPac began to be consolidated in December 2017, after the business was acquired by the ONCAP 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, after 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. Save-A-Lot began to be consolidated in December 2016, after the business was 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, (iii) Onex Credit Funds and (iv) Onex Credit Lending Partners (since May 2017). Costs of the credit strategies segment are recorded in operating expenses. (f) 2017 other includes Flushing Town Center, Meridian Aviation, Parkdean Resorts (since March 2017), Schumacher, Survitec, WireCo, the operating companies of ONCAP II, III and IV (excluding IntraPac) and the parent company. 2016 other includes Flushing Town Center, Meridian Aviation, Schumacher, Survitec, WireCo (since September 2016), the operating companies of ONCAP II, III and IV and the parent company. Onex Corporation December 31, 2017 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 Revenues and Cost of Sales by Industry Segment TABLE 1 ($ millions) Revenues Cost of Sales Year ended December 31 2016 2015 Change 2016 2015 Change Electronics Manufacturing Services $ 6,016 $ 5,639 Healthcare Imaging Health and Human Services 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 1,785 745 2,414 525 689 4 3,637 2,141 1,821 715 2,070 307 168 5 2,400 $ 17,805 $ 15,266 7 % (7)% (2)% 4 % 17 % 71 % 310 % (20)% 52 % 17 % $ 5,510 $ 5,175 1,127 1,358 – 1,541 180 578 – 2,614 1,223 1,382 – 1,362 83 134 – 1,587 $ 12,908 $ 10,946 6 % (8)% (2)% n/a 13 % 117 % 331 % n/a 65 % 18 % 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 York, which reports its costs in operating expenses. The insurance services segment previously included USI, which has been recorded within the other segment as a discontinued operation. (b) The packaging products and services segment consists of sgsco and SIG. SIG began to be consolidated in March 2015, after 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, after 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, after 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, Schumacher, Survitec, WireCo (since September 2016), the operating companies of ONCAP II, III and IV and the parent company. 2015 other includes Flushing Town Center, Meridian Aviation, Schumacher (since late July 2015), Survitec (since March 2015), Tropicana Las Vegas (up to August 2015), the operating companies of ONCAP II and III and the parent company. 38 Onex Corporation December 31, 2017 M A N A G E M 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 end-to-end product lifecycle solutions Cost of sales for 2016 increased 6%, or $335 million, to $5.5 billion. Gross proﬁt increased by 9% to $506 mil- globally to customers in Advanced Technology Solutions lion compared to 2015. Gross proﬁt was positively impacted (previously the diversiﬁed and consumers end markets; by higher revenues and margin improvements in the comprised of aerospace and defence, industrial, smart Advanced Technology Solutions end market, including the energy, healthcare, semiconductor equipment and con- semiconductor and solar panel businesses, partially offset sumer businesses) and Connectivity and Cloud Solutions by changes in program mix. (consisting of communications (comprised of enterprise communications and telecommunications) and enterprise (comprised of servers and storage) end markets. These Healthcare Imaging Carestream Health provides products and services for the solutions include design and development, engineering capture, processing, viewing, sharing, printing and storing services, supply chain management, new product intro- of images and information for medical applications. The ductions, component sourcing, electronics manufacturing, company also has a non-destructive testing business, which assembly and test, complex mechanical assembly, systems sells x-ray ﬁlm and digital radiology products to the non- integration, precision machining, order fulﬁllment, logis- destructive testing market. Carestream Health sells digital tics and aftermarket repair and return services. products, including computed radiography and digital radi- Celestica’s revenues during 2017 were up 2%, or ography equipment, picture archiving and communication $95 million, and cost of sales increased by 2%, or $104 mil- systems, and information management solutions, as well as lion, compared to 2016. Gross proﬁt decreased by 2% to traditional medical products, including x-ray ﬁlm, printers $497 million compared to 2016. Revenue and cost of sales and media, equipment, chemistry and services. Carestream increased primarily due to demand strength in certain cus- Health has two segments: Film and Medical Digital. tomer programs and new program growth in the communi- Carestream Health’s revenues for 2017 decreased cations end market, particularly in the ﬁrst half of 2017, and by 6%, or $128 million, compared to 2016. Cost of sales for from its semiconductor business, which more than offset 2017 decreased by 5%, or $59 million, compared to 2016. decreases in revenue driven by its exit from the solar panel The decrease in revenues was primarily driven by the sale manufacturing business during 2017 and the completion of of the Dental Digital business, partially offset by higher vol- consumer programs in the second half of 2016. Gross proﬁt umes in Film. Gross proﬁt for 2017 decreased by $69 mil- was negatively impacted by unfavourable changes in mix, lion compared to 2016. This was primarily due to the sale of increased pricing pressures, most signiﬁcantly in the con- the Dental Digital business and unfavourable commodity nectivity and cloud solutions markets, and higher costs of costs, partially offset by cost productivity. ramping up new programs. These decreases were partially Carestream Health reported revenues of $2.0 bil- offset by lower provisions, as the prior year was impacted by lion during 2016, down 7%, or $151 million, from 2015. higher provisions related to its former solar panel business. Excluding the $54 million impact of unfavourable foreign Celestica reported revenues of $6.0 billion for exchange translation on Carestream Health’s non-U.S. reve- 2016, up 7%, or $377 million, compared to 2015. Revenue nues, Carestream Health reported a decrease in revenues of increased primarily due to strong demand from certain $97 million. The decrease in revenues was primarily driven customer programs and new program wins in the com- by lower volumes in ﬁlm and x-ray systems, partially offset munications end market, as well as new programs in its by higher volumes in dental digital equipment. Advanced Technology Solutions end market, which more than offset decreases in revenue primarily due to the com- pletion of programs with its largest consumer customer. Onex Corporation December 31, 2017 39 M A N A G E M E N T ’ S D I S C U S S I O N A N D A N A LY S I S Cost of sales was $1.1 billion during 2016, down 8%, or $96 million, compared to 2015. The decrease was Insurance Services York is an integrated provider of insurance solutions to primarily due to lower volumes in ﬁlm and x-ray systems, property, casualty and workers’ compensation specialty cost productivity in digital radiography and dental digital markets primarily in the United States. York offers employ- equipment, and favourable foreign exchange translation ers and insurance carriers a range of services designed to of $13 million. Gross proﬁt for 2016 decreased to $863 mil- help manage claims and limit losses incurred under vari- lion from $918 million for 2015. Excluding the $41 million ous property and casualty insurance programs. Clients are impact of unfavourable foreign exchange translation, gross typically billed for claims management services based on a proﬁt decreased by $14 million primarily due to the volume fee per each claim handled, a ﬂat annual fee or a cost-plus decline, which was partially offset by cost productivity. model. In addition to claims management, York offers a suite of integrated managed care services for injured workers. Health and Human Services ResCare has four segments: Residential Services, ResCare York’s revenues for 2017 increased by 4%, or $30 million, to $775 million compared to 2016. The increase HomeCare, Workforce Services and SpringHealth Inte- in revenues during 2017 was driven by acquisitions and grated Care. Residential Services includes the provision of organic growth. York records its cost of services in operat- services to individuals with developmental or other dis- ing costs. abilities in community home settings. ResCare HomeCare York reported revenues of $745 million during provides periodic in-home care services to the elderly, as 2016, an increase of 4%, or $30 million, compared to 2015. well as persons with disabilities. Workforce Services is pri- The increase in revenues during 2016 was primarily due to marily comprised of domestic job training and placement organic growth. programs that assist welfare recipients and disadvantaged job seekers in ﬁnding employment and improving their career prospects. Workforce Services also includes Job Packaging Products and Services The packaging products and services segment consists of Corps centres, alternative education and charter schools. the operations of IntraPac, sgsco and SIG. IntraPac was SpringHealth Integrated Care is comprised of Pharmacy acquired by the ONCAP IV Group in December 2017. Alternatives; SpringHealth Behavior Health & Integrated IntraPac is a designer and manufacturer of spe- Care; and Rest Assured. cialty rigid packaging solutions, including blow moulded During 2017, revenues and cost of sales both packaging products, injection moulded products and tubes. decreased by 1%, or $18 million, compared to 2016. Acqui- sgsco is a market leader in providing fully inte- si tions within the HomeCare and Residential Services seg- grated marketing solutions, digital imaging and design- ments were more than offset by the lower revenues and cost to-print graphic services to branded consumer products of sales from exiting the skilled line of business in the Home- companies, retailers and the printers that service them. Care segment. The company’s vertically integrated service platform During 2016, ResCare reported revenues of $1.8 bil- includes creative development, brand execution, image lion, a decrease of $36 million, or 2%, compared to 2015. The production and image carrier services as well as an array decrease in revenues was due to exiting the skilled line of of enterprise solutions, which facilitate digital ﬁle man- business in the HomeCare segment, substantially offset by agement and ensure streamlined communication across acquisitions within the HomeCare and Residential Services the entire value chain. sgsco does not focus on large-scale segments. printing of product packaging. Cost of sales decreased 2%, or $24 million, during SIG is a world-leading provider of aseptic carton 2016. The decrease in cost of sales was primarily due to exit- packaging solutions for beverages and liquid food. SIG sup- ing the skilled line of business in the HomeCare segment. plies complete aseptic carton packaging systems, which include aseptic ﬁlling machines, aseptic cartons, spouts and caps as well as related aftermarket services. 40 Onex Corporation December 31, 2017 M A N A G E M 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, 2017, the pack- aging products and services segment reported a decrease Food Retail and Restaurants The food retail and restaurants segment consists of the in revenues of 1%, or $23 million, and a decrease in cost of operations of Jack’s and Save-A-Lot. Save-A-Lot was sales of 1%, or $16 million, compared to 2016. The decrease acquired by the Onex Partners IV Group in December 2016. in revenue and cost of sales was primarily due to lower sales The results of Jack’s were previously included within the volumes at SIG. other segment. During the year ended December 31, 2016, the Jack’s is a regional premium quick-service restau- increase in revenues and cost of sales in the packaging rant operator that offers Southern-inspired foods such as products and services segment was primarily driven by the made-from-scratch biscuits, burgers, fried chicken, plated inclusion of SIG, which was acquired in March 2015. breakfasts, crinkle-cut fries and hand-dipped shakes. The Business and Information Services The business and information services segment con- company has over 145 free-standing corporate-operated restaurants across Alabama, Georgia, Mississippi and Tennessee. The company also owns the distribution facility sists of the operations of Clarivate Analytics and Emer- that handles most of Jack’s food and non-food supply chain ald Expositions. Clarivate Analytics was acquired by the and makes deliveries to the restaurants twice a week. Onex Partners IV Group in October 2016. The results of Save-A-Lot is a leading hard-discount grocery Emerald Expo sitions were previously included within the retailer for value-seeking shoppers in the United States. other segment. The company has a corporate and licenced store network Clarivate Analytics operates across multiple prod- of approximately 1,300 stores across 35 states. Save-A-Lot uct lines with both subscription-based and single deliver- offers a selection of grocery products that enables custom- able offerings focused on scientiﬁc and academic research, ers to complete a “full shop” in stores, including quality patent analytics and regulatory standards, pharmaceutical fresh produce, fresh meat cut in-store every day, targeted and biotech intelligence, trademark protection, domain national brand grocery items and a full selection of exclu- brand protection and intellectual property management. sive private label products. Emerald Expositions is a leading operator of large During the years ended December 31, 2017 and business-to-business trade shows in the United States across 2016, the increase in revenues and cost of sales in the food multiple industry sectors. Emerald Expositions has two retail and restaurants segment was driven by the inclusion principal sources of revenue: trade show and conference of Save-A-Lot, which was acquired in December 2016. revenue, and revenue from print and digital publications. Trade show revenue is largely generated from selling exhibit space to exhibitors on a per-square-foot basis and providing Credit Strategies The credit strategies segment consists of (i) Onex Credit additional sponsorship opportunities to those exhibitors. Manager, (ii) Onex Credit Collateralized Loan Obliga- During the years ended December 31, 2017 and tions, (iii) Onex Credit Funds and (iv) Onex Credit Lend- 2016, the increase in revenues and cost of sales in the busi- ing Partners. ness and information services segment was primarily Gross revenues earned by Onex Credit Manager driven by the inclusion of Clarivate Analytics, which was during 2017 were $45 million compared to $43 million in acquired in October 2016. 2016. For the year ended December 31, 2017, gross revenues included $3 million earned on investments in Onex Credit Funds held by Onex, the parent company, compared to $5 million in 2016. Credit strategies segment revenue for 2017, net of management and incentive fees from credit strategies which are eliminated upon consolidation, was $4 million, unchanged from 2016. Costs of the credit strate- gies segment are recorded in operating expenses. Onex Corporation December 31, 2017 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 Gross revenues earned by Onex Credit Manager during 2016 were $44 million, an increase of $9 million, or 26%, compared to 2015. For the year ended December 31, Interest expense of operating companies and credit strategies New investments are structured with the acquired com- 2016, gross revenues included $5 million earned on invest- pany having sufﬁcient equity to enable it to self-ﬁnance ments in Onex Credit Funds held by Onex, the parent com- a signiﬁcant portion of its acquisition cost with a prudent pany. Credit strategies segment revenue for 2016, net of amount of debt. The level of debt is commensurate with management and incentive fees from Onex Credit Funds the operating company’s available cash ﬂow, including and CLOs which are eliminated upon consolidation, was consideration of funds required to pursue growth oppor- $4 million, a decrease of $1 million from 2015, primar- tunities. It is the responsibility of the acquired operating ily due to lower average assets under management in the company to service its own debt obligations. Onex Credit Funds during 2016. Other Businesses The other businesses segment consists of the revenues and Consolidated interest expense for the year ended December 31, 2017 was $1.2 billion, up $330 million, or 37%, from 2016. The increase was primarily due to the inclusion of interest expense for: (i) Clarivate Analytics, Save-A-Lot cost of sales of Flushing Town Center, Meridian Aviation, and WireCo, which were acquired in the second half of 2016; Parkdean Resorts (since March 2017), Schumacher, Survitec, (ii) Parkdean Resorts, which was acquired in March 2017; WireCo (since September 2016), the ONCAP companies and (iii) the additional debt from CLOs. (excluding IntraPac, which is included in the packaging products and services segment) and the parent company. During 2017, revenues increased by 54%, or $2.0 bil- lion, to $5.6 billion compared to 2016. Cost of sales during Increase in value of investments in joint ventures and associates at fair value, net Investments in joint ventures and associates are deﬁned 2017 increased by 48%, or $1.3 billion, to $3.9 billion com- under IFRS as those investments in operating businesses pared to 2016. The increase in revenues and cost of sales was over which Onex has joint control or signiﬁcant inﬂuence, primarily driven by the inclusion of the results of Parkdean but not control. Certain of these investments are desig- Resorts, Tecta and WireCo, which were acquired in March nated, upon initial recognition, at fair value in the consoli- 2017, August 2016 and September 2016, respectively, par- dated balance sheets, with changes in fair value recognized tially offset by the sale of Cicis in August 2016. In addition, in the consolidated statements of earnings. Investments 2017 also beneﬁted from the acquisition of ECI Healthcare deemed to be investments in joint ventures or associates Partners (“ECI”) by Schumacher in June 2016 and higher and measured at fair value through earnings primarily revenues at Flushing Town Center from condominium sales comprise AIT, BBAM, JELD-WEN (since May 2017), Mavis from Phase 2 of the development. Discount Tire and Venanpri Group. During 2016, revenues increased by 52%, or $1.2 bil- During 2017, Onex recorded an increase in the lion, to $3.6 billion compared to 2015. Cost of sales during fair value of investments in joint ventures and associ- 2016 increased by 65%, or $1.0 billion, to $2.6 billion com- ates of $760 million compared to $180 million in 2016. The pared to 2015. The increase in revenues and cost of sales increase was primarily due to an increase in the public was primarily driven by the inclusion of the results of share price of JELD-WEN (since May 2017) and continued Chatters, Survitec, Schumacher, Tecta and WireCo, which free cash generation at certain of the investments. were acquired in July 2015, March 2015, July 2015, August Of the total fair value increase recorded during 2016 and September 2016, respectively, partially offset by 2017, $543 million (2016 – $135 million) is attributable to the the sale of Cicis and Tropicana Las Vegas in August 2016 and limited partners in the Onex Partners and ONCAP Funds, August 2015, respectively. which contributes to the Limited Partners’ Interests charge discussed on page 46 of this MD&A. Onex’ share of the total fair value increase was $217 million (2016 – $45 million). 42 Onex Corporation December 31, 2017 M A N A G E M E N T ’ S D I S C U S S I O N A N D A N A LY S I S Stock-based compensation expense Onex recorded a consolidated stock-based compensation Other gains Table 3 provides a breakdown of other gains. expense of $178 million during 2017 compared to $194 mil- lion in the same period in 2016. Stock option and MIP equity Other Gains interests of Onex, the parent company, represented an expense of $102 million (2016 – $118 million). In accordance with IFRS, the expense recorded for Onex’ stock options and MIP equity interests is determined based on the fair value of the liability at the end of each reporting period. The fair value of the Onex stock options and MIP equity interests is determined using an option val- uation model, with the stock options primarily impacted by the change in the market value of Onex’ shares and the MIP equity interests affected primarily by the change in the TABLE 3 Year ended December 31 ($ millions) Gain on sales by Carestream Health Gain on sale of Cicis Other Total other gains 2017 $ 731 – – 2016 $ − 28 8 $ 731 $ 36 Gain on sales by Carestream Health During 2017, Carestream Health completed the sale of its fair value of Onex’ investments. The expense recorded by Dental Digital business along with an additional transac- Onex, the parent company, on its stock options during 2017 tion, as described on page 34 of this MD&A. was primarily due to the vesting of stock options. Table 2 details the change in stock-based compensation of Gain on sale of Cicis In August 2016, the ONCAP II Group sold its investment in Onex, the parent company, and Onex’ operating companies. Cicis, as described in note 3(g) to the consolidated ﬁnan- cial statements. Stock-Based Compensation Expense TABLE 2 Year ended December 31 ($ millions) 2017 2016 Change Onex, the parent company, stock options $ 50 $ 97 $ (47) Onex, the parent company, MIP equity interests Onex operating companies(a) Total stock-based 52 76 21 76 31 – compensation $ 178 $ 194 $ (16) (a) Includes stock-based compensation on investments classified as liabilities that are remeasured at each reporting date. Onex Corporation December 31, 2017 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 Other expense (income) Table 4 provides a breakdown of and the change in other expense (income). Other Expense (Income) TABLE 4 Year ended December 31 ($ millions) 2017 2016 Change Transition, integration and other $ 186 $ 72 $ 114 Carried interest charge due to Onex and ONCAP management Restructuring Losses (gains) on investments and long-term debt in credit strategies, net Foreign exchange losses, net Transaction costs Change in fair value of other Onex Partners investments, net Derivatives losses (gains), net Change in fair value of contingent consideration, net Other 147 130 111 103 62 42 (22) (29) (23) 59 84 (222) 54 86 (11) 28 (39) (90) 88 46 333 49 (24) 53 (50) 10 67 Total other expense $ 707 $ 21 $ 686 Transition, integration and other Transition, integration and other expenses typically provide for the costs of establishing and transitioning an operating company from a prior parent company upon acquisition and to integrate new acquisitions at the operating compa- nies. In addition, expenses may relate to the disposition and 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 76 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 attribut- able 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 2017, a charge of $147 million (2016 – $59 million) was recorded in the consolidated statements of earnings for management’s share of carried interest primarily due to an increase in the fair value of certain of the investments in the Onex Partners and ONCAP Funds. The ultimate amount of carried interest realized by Onex will be based on the overall performance of each fund. Restructuring Restructuring expenses typically provide for the costs of facility consolidations and workforce reductions incurred at the operating companies. Table 5 provides a breakdown of and the change in restructuring charges by operating transition of business units at the operating companies. The company. costs may be incurred over several years as the establish- ment and transition of activities progress. Transition, integration and other expenses for 2017 and 2016 were primarily due to Clarivate Analytics and Care stream Health. Year ended December 31 ($ millions) TABLE 5 Save-A-Lot Celestica SIG ResCare Carestream Health Other 2017 $ 63 29 22 5 1 10 2016 $ – 32 20 11 20 1 Total restructuring charges $ 130 $ 84 44 Onex Corporation December 31, 2017 M A N A G E M E N T ’ S D I S C U S S I O N A N D A N A LY S I S Save-A-Lot Save-A-Lot’s restructuring charges during 2017 primar- Foreign exchange losses, net Net foreign exchange losses during 2017 were primarily due ily related to costs associated with the closure of certain to losses recognized by SIG. Foreign exchange losses dur- facilities. Celestica Celestica’s restructuring charges for 2017 primarily related ing 2016 were primarily due to Survitec and WireCo. Transaction costs Transaction costs are incurred by Onex and its operating to the organizational changes as a result of corporate ini- companies to complete business acquisitions, and typically tiatives. The charges recorded by Celestica in 2016 primar- include advisory, legal and other professional and consult- ily related to costs to exit its solar panel manufacturing ing costs. operations. SIG Transaction costs for 2017 were primarily due to the acquisition of Parkdean Resorts, in addition to acquisi- tions completed by the operating companies. Transaction SIG’s restructuring charges during 2017 primarily related costs for 2016 were primarily due to the acquisitions of to the reorganization of certain corporate functions. SIG’s Clarivate Analytics, Save-A-Lot, Tecta and WireCo, in addi- restructuring charges for 2016 primarily related to costs to tion to acquisitions completed by the operating companies. improve production processes and the establishment of a central support location. ResCare Derivatives losses (gains), net Net derivatives losses (gains) for 2017 and 2016 were pri- marily related to embedded derivatives associated with ResCare’s restructuring charge for 2017 and 2016 primarily debt agreements and foreign exchange hedges. related to exiting the skilled line of business in the Home- Care segment and severance costs. Carestream Health Change in fair value of contingent consideration During 2017, a net recovery of $29 million (2016 – $39 mil- lion) was recognized in relation to the change in estimated The charges recorded by Care stream Health in 2016 primar- fair value of contingent consideration related to acquisi- ily related to the reorganization of certain businesses and tions completed by the Company. The fair value of con- operations, including sales and services functions at the tingent consideration liabilities is typically based on the company. estimated future ﬁnancial performance of the acquired business. Financial targets used in the estimation process Losses (gains) on investments and long-term debt include certain deﬁned ﬁnancial targets and realized inter- in credit strategies, net Losses on investments and long-term debt in credit strate- nal rates of return. The total estimated fair value of contingent con- gies for 2017 were driven by unrealized losses on long-term sideration liabilities at December 31, 2017 was $27 million debt recorded at fair value in the CLOs, partially offset by (December 31, 2016 – $127 million). realized and unrealized gains on investments. During 2016, gains on investments in CLOs and Onex Credit Funds were primarily unrealized and driven by a recovery in the leveraged loan market during 2016. Partially offsetting these gains were losses on the long-term debt in the CLOs. Onex Corporation December 31, 2017 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 Impairment of goodwill, intangible assets and long-lived assets, net Table 6 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, 2017 and 2016. York During 2016, York recorded a non-cash goodwill impair- ment charge of $226 million, measured in accordance with IAS 36, Impairment of Assets, primarily due to a decrease in projected future earnings from its claims management business. The impairment charge was recorded in the insurance services segment. Impairment of Goodwill, Intangible Assets and Long-lived Assets, Net Note 27 to the consolidated ﬁnancial statements provides additional information on the impairment cal- TABLE 6 Year ended December 31 ($ millions) Schumacher Parkdean Resorts York Other, net Total culation. 2017 $ 106 $ 56 − 25 2016 − – 226 6 Limited Partners’ Interests charge The Limited Partners’ Interests charge in Onex’ consoli- dated statements of earnings primarily represents the change in the fair value of the underlying investments in the Onex Partners and ONCAP Funds and credit strategies $ 187 $ 232 that is allocated to the limited partners and recorded as Schumacher During 2017, Schumacher recorded a non-cash goodwill impairment charge of $106 million, measured in accor- dance with IAS 36, Impairment of Assets, primarily due to changes in customer mix related to the implementation Limited Partners’ Interests liability in Onex’ consolidated balance sheets. The Limited Partners’ Interests charge for the Onex Partners and ONCAP Funds includes the fair value changes of consolidated operating companies, investments in joint ventures and associates and other investments that are held in the Onex Partners and ONCAP of the Afford able Care Act. The impairment charge was Funds. The Limited Partners’ Interests charge for the credit recorded in the other segment. Parkdean Resorts During the fourth quarter of 2017, Parkdean Resorts recorded a non-cash goodwill impairment charge of $56 million, measured in accordance with IAS 36, Impairment of Assets, due to weaker than expected performance since acquisition, strategies includes the fair value changes of the underlying investments in the Onex Credit Lending Partners and Onex Credit Funds consolidated by Onex. During 2017, Onex recorded a charge of $1.3 bil- lion (2016 – $587 million) for Limited Partners’ Interests for the Onex Partners and ONCAP Funds. The net increase in the fair value of certain of the investments held in the Onex driven primarily by lower caravan sales. The impairment Partners and ONCAP Funds contributed to the Limited charge was recorded in the other segment. Partners’ Interests charge for the Onex Partners and ONCAP Funds recorded in 2017 and 2016. 46 Onex Corporation December 31, 2017 M A N A G E M 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 Limited Partners’ Interests charge for the Onex Partners and ONCAP Funds is net of an increase of Loss from continuing operations Onex recorded a loss from continuing operations of $215 million (2016 – $91 million) in carried interest for the $647 million during 2017 compared to $619 million in 2016. year ended December 31, 2017. Onex’ share of the change The loss from continuing operations attributable to equity in carried interest for 2017 was $84 million (2016 – $33 mil- holders of Onex Corporation was $715 million ($6.99 per lion). The change in the amount of carried interest that share) compared to $660 million ($6.36 per share) in 2016. has been netted against the Limited Partners’ Interests for For the year ended December 31, 2015, Onex recorded a the Onex Partners and ONCAP Funds increased during loss from continuing operations of $827 million. The loss 2017 due to a greater net increase in the fair value of cer- from continuing operations attributable to equity hold- tain of the investments in the Onex Partners and ONCAP ers of Onex Corporation was $896 million ($8.37 per share) Funds. The ultimate amount of carried interest realized will in 2015. Note 35 to the consolidated ﬁnancial statements be dependent on the actual realizations for each fund in shows the earnings (loss) from continuing operations by accordance with the limited partnership agreements. industry segment for the years ended December 31, 2017 During 2017, Onex recorded a charge of $20 million and 2016. (2016 – $60 million) for Limited Partners’ Interests for the Included in the loss from continuing operations credit strategies. for 2017 was a loss of $1.1 billion recorded in the other segment compared to $712 million recorded during 2016 Recovery of (provision for) income taxes For the year ended December 31, 2017, Onex reported an and $888 million recorded during 2015. Table 7 shows the major components of the loss from continuing operations income tax recovery of $84 million (2016 – $107 million pro- recorded in the other segment. vision). The change in the income tax recovery was primar- ily driven by a change in the tax rate applied to deferred tax assets and liabilities at Emerald Expositions, sgsco and York. Loss from Continuing Operations Recorded in the Other Segment TABLE 7 Year ended December 31 ($ millions) Loss from continuing operations – other: Limited Partners’ Interests charge Interest expense of operating companies Stock-based compensation expense Unrealized carried interest due to Onex and ONCAP management Impairment of goodwill, intangible assets and long-lived assets, net Other gains Increase in value of investments in joint ventures and associates at fair value, net Other 2017 2016 2015 $ 1,330 $ 587 $ 882 270 111 147 165 – (760) (160) 138 145 59 − (28) (180) (9) 84 138 130 − (201) (175) 30 Loss from continuing operations – other segment $ 1,103 $ 712 $ 888 Earnings from discontinued operations Onex recorded after-tax earnings from discontinued opera- $530 million ($5.11 per share) in 2016. Earnings from discon- tinued operations for 2017 represent the results of opera- tions of $3.0 billion during 2017 compared to $583 million tions of JELD-WEN and USI, including gains recognized as during 2016. The after-tax earnings from discontinued oper- a result of the Onex Partners III Group no longer control- ations attributable to equity holders of Onex Corporation ling JELD-WEN and the sale of USI. Carestream Health’s were $3.1 billion ($30.46 per share) during 2017 compared to sale of its Dental Digital business in 2017 did not represent Onex Corporation December 31, 2017 47 M A N A G E M E N T ’ S D I S C U S S I O N A N D A N A LY S I S a separate major line of business and as a result has not been presented as a discontinued operation. Earnings from Consolidated net earnings (loss) Table 8 presents the net earnings (loss) attributable to discontinued operations for 2016 represent the results of equity holders of Onex Corporation and non-controlling operations of JELD-WEN, KraussMaffei and USI, including interests. the gain from the sale of KraussMaffei and a portion of the gain from the sale of Sitel Worldwide. Note 8 to the consoli- Net Earnings (Loss) dated ﬁnancial statements provides earnings from discon- tinued operations and gain on sale, net of tax, for the years ended December 31, 2017 and 2016. JELD-WEN In May 2017, the Onex Partners III Group sold approxi- mately 15.7 million shares of JELD-WEN common stock in a secondary offering, as described on page 31 of this MD&A. As a result of this sale, the Onex Partners III TABLE 8 Year ended December 31 ($ millions) 2017 2016 2015 Net earnings (loss) attributable to: Equity holders of Onex Corporation $ 2,394 $ (130) $ (573) Non-controlling interests 1 94 68 Net earnings (loss) for the year $ 2,395 $ (36) $ (505) Group no longer controls JELD-WEN. The operations of Table 9 presents the net earnings (loss) per SVS of Onex JELD-WEN have been presented as discontinued in the Co rporation. consolidated statements of earnings and cash ﬂows and prior periods have been restated to report the results of JELD-WEN as discontinued on a comparative basis. USI In May 2017, the Onex Partners III Group sold its entire investment in USI, as described on page 33 of this MD&A. The operations of USI have been presented as discontin- ued in the consolidated statements of earnings and cash ﬂows and prior periods have been restated to report the results of USI as discontinued on a comparative basis. KraussMaffei In April 2016, the Onex Partners III Group sold its entire investment in KraussMaffei, as described in note 3(c) to the consolidated ﬁnancial statements. The operations of KraussMaffei have been presented as discontinued in the consolidated statements of earnings and cash ﬂows for the year ended December 31, 2016. 48 Onex Corporation December 31, 2017 Net Earnings (Loss) per SVS of Onex Corporation TABLE 9 Year ended December 31 ($ per share) 2017 2016 2015 Basic and Diluted: Continuing operations $ (6.99) $ (6.36) $ (8.37) Discontinued operations 30.46 5.11 3.01 Net earnings (loss) per SVS for the year $ 23.47 $ (1.25) $ (5.36) Note 35 to the consolidated ﬁnancial statements shows the consolidated net earnings (loss) by industry segment and the amounts attributable to the equity holders of Onex Corporation and non-controlling interests for the years ended December 31, 2017 and 2016. Other comprehensive earnings (loss) Other comprehensive earnings (loss) represent the unreal- ized gains or losses, all net of income taxes, related to cash ﬂow hedges, remeasurements for post-employment beneﬁt plans and foreign exchange gains or losses on foreign self- sustaining operations. During the year ended December 31, 2017, Onex reported other comprehensive earnings of $602 million compared to a loss of $11 million in 2016. The earnings recorded during 2017 were largely due to favour- able currency translation adjustments on foreign operations of $375 million (2016 – unfavourable adjustments of $37 mil- lion) and other comprehensive earnings from discontinued operations of $174 million (2016 – $8 million). M A N A G E M E N T ’ S D I S C U S S I O N A N D A N A LY S I S F O U R T H Q U A R T E R R E S U L T S Fourth quarter statements of earnings (loss) Table 10 presents the statements of earnings (loss) for the three months ended December 31, 2017 and 2016. Fourth Quarter Statements of Earnings (Loss) TABLE 10 ($ 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 recovery (expense) Other gains Other expense Recovery (impairment) of goodwill, intangible assets and long-lived assets, net Limited Partners’ Interests charge Earnings (loss) before income taxes and discontinued operations Recovery of (provision for) income taxes Earnings (loss) from continuing operations Earnings from discontinued operations Net Earnings (Loss) 2017 2016 $ 6,268 $ 5,347 (4,571) (1,090) 104 (163) (177) (330) 361 2 73 (178) (70) (186) 43 257 300 − (3,888) (916) 100 (131) (190) (277) 44 (105) − (12) 3 (193) (218) (28) (246) 94 $ 300 $ (152) Onex Corporation December 31, 2017 49 M A N A G E M E N T ’ S D I S C U S S I O N A N D A N A LY S I S Fourth quarter consolidated revenues and cost of sales Table 11 provides a breakdown of the 2017 and 2016 fourth quarter revenues and cost of sales by industry segment. Revenues and Cost of Sales by Industry Segment TABLE 11 ($ millions) Revenues Cost of Sales Three months ended December 31 2017 2016 Change 2017 2016 Change Electronics Manufacturing Services $ 1,554 $ 1,623 Healthcare Imaging Health and Human Services Insurance Services(a) Packaging Products and Services(b) Business and Information Services(c) Food Retail and Restaurants(d) Credit Strategies(e) Other(f) Total 470 436 201 717 284 1,139 1 1,466 578 438 188 673 232 420 1 1,194 $ 6,268 $ 5,347 (4)% (19)% – 7 % 7 % 22 % 171 % − 23 % 17 % $ 1,432 $ 1,489 266 336 – 447 118 961 – 1,011 320 332 − 416 105 362 − 864 $ 4,571 $ 3,888 (4)% (17)% 1 % n/a 7 % 12 % 165 % n/a 17 % 18 % 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 York, which reports its costs in operating expenses. The insurance services segment previously included USI, which has been recorded within the other segment as a discontinued operation. (b) The packaging products and services segment consists of IntraPac, sgsco and SIG. IntraPac began to be consolidated in December 2017, when the business was acquired by the ONCAP 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. 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, (iii) Onex Credit Funds and (iv) Onex Credit Lending Partners. Cost of the credit strategies segment are recorded in operating expenses. (f) 2017 other includes Flushing Town Center, Meridian Aviation, Survitec, Schumacher, WireCo, Parkdean Resorts, the operating companies of ONCAP II, III and IV (excluding IntraPac) and the parent company. 2016 other includes Flushing Town Center, Meridian Aviation, Survitec, Schumacher, WireCo, the operating companies of ONCAP II, III and IV and the parent company. During the fourth quarter of 2017, revenues and cost of Other segment revenues and cost of sales increased sales in the healthcare imaging segment, consisting of by $272 million and $147 million, respectively, compared to Carestream Health, decreased by $108 million and $54 mil- the fourth quarter of 2016. The increases were largely due lion, respectively, compared to the same quarter of 2016. to the inclusion of revenues and cost of sales of Parkdean The decrease was primarily due to Carestream Health’s Resorts, which was acquired by the Onex Partners IV Group sale of its Dental Digital business in September 2017, as in March 2017, and an increase in revenues and cost of sales described on page 34 of this MD&A. of Flushing Town Center primarily due to residential condo- Revenues and cost of sales in the food retail and minium sales from Phase 2 of the development. restaurants segment, consisting of Jack’s and Save-A-Lot, increased by $719 million and $599 million, respectively, compared to the fourth quarter of 2016. The increases were Fourth quarter interest expense Fourth quarter 2017 interest expense totalled $330 million primarily due to the inclusion of the results of Save-A- compared to $277 million during the fourth quarter of 2016. Lot, which was acquired by the Onex Partners IV Group in Fourth quarter interest expense increased by $53 million pri- December 2016. 50 Onex Corporation December 31, 2017 marily due to the inclusion of interest expense for Parkdean Resorts, which was acquired in March 2017, and the addi- tional debt from CLOs. M A N A G E M E N T ’ S D I S C U S S I O N A N D A N A LY S I S Increase in value of investments in joint ventures and associates at fair value, net During the fourth quarter of 2017, Onex recorded an increase Fourth quarter Limited Partners’ Interests charge During the fourth quarter of 2017, Onex recorded a $182 mil- lion charge for Limited Partners’ Interests compared to a in fair value of investments in joint ventures and associates $193 million charge during 2016. The increase in the fair of $361 million compared to $44 million in 2016. Page 42 of value of certain of the private investments in the Onex Part- this MD&A discusses the increase in value of investments in ners and ONCAP Funds contributed signiﬁcantly to the joint ventures and associates. Lim ited Partners’ Interests charge recorded during both quarters. The Limited Partners’ Interests charge is net of a Fourth quarter stock-based compensation $27 million (2016 – $42 million) increase in carried inter- recovery (expense) During the fourth quarter of 2017, Onex recorded a con- solidated stock-based compensation recovery of $2 million est in the Onex Partners and ONCAP Funds for the three months ended December 31, 2017. compared to an expense of $105 million for the same quar- ter of 2016. Onex, the parent company, recorded a stock- Fourth quarter recovery of (provision for) income taxes During the fourth quarter of 2017, Onex recorded a recovery based compensation recovery of $43 million in the fourth of income taxes of $257 million compared to a provision for quarter of 2017 (2016 – expense of $67 million) related to income taxes of $28 million in the fourth quarter of 2016. its stock options and MIP equity interests. The recovery The change in the income tax recovery was primarily driven was primarily due to a 4% decrease in the market value of by a change in the tax rate applied to deferred tax assets and Onex’ shares in the fourth quarter of 2017 compared to an liabilities at Emerald Expositions, sgsco and York. 8% increase in the fourth quarter of 2016. Fourth quarter other expense During the fourth quarter of 2017, Onex recorded other Fourth quarter earnings from discontinued operations During the fourth quarters of 2017 and 2016, Onex recorded earnings from discontinued operations of nil and $94 mil- expense of $178 million compared to $12 million during the lion, respectively. The earnings recognized in 2016 rep- same quarter of 2016. The increase in other expense for the resent the results of USI and JELD-WEN, as discussed on fourth quarter of 2017 was driven by losses on investments page 48 of this MD&A. and long-term debt in credit strategies of $23 million (2016 – recovery of $56 million), as well as a recovery of $5 million compared to $45 million in 2016 for the change in the esti- Fourth quarter cash ﬂow Table 12 presents the major components of cash ﬂow for mated fair value of contingent consideration related to the fourth quarters of 2017 and 2016. acquisitions completed by the Company. In addition, gains related to derivatives of $7 million compared to $42 million Major Cash Flow Components in the prior year contributed to the change in other expense. TABLE 12 ($ millions) Fourth quarter recovery (impairment) of goodwill, Cash from operating activities intangible assets and long-lived assets, net During the fourth quarter of 2017, $70 million of impair- Cash from financing activities Cash used in investing activities $ (217) $ (887) ments of goodwill, intangible assets and long-lived assets Consolidated cash and cash equivalents were recorded by Onex’ operating companies compared to held by continuing operations $ 3,376 $ 2,169 $3 million of net impairment recoveries during the same quarter of 2016. A discussion of these impairments by com- Cash from ﬁnancing activities in the fourth quarter of pany is provided on page 46 of this MD&A. 2017 included (i) $900 million of net debt issuances primar- ily for CLO-14 and EURO CLO-2; (ii) $198 million from the sale of the previously acquired interest in Onex Partners IV, as described on page 34 of this MD&A; and (iii) $133 mil- lion of contributions by limited partners primarily related Onex Corporation December 31, 2017 51 2017 664 559 $ $ 2016 809 427 $ $ M A N A G E M E N T ’ S D I S C U S S I O N A N D A N A LY S I S to the acquisition of IntraPac. Partially offsetting the cash and Laces by the ONCAP IV Group; and (iii) $226 million in from ﬁnancing activities were (i) distributions of $466 mil- purchases of property, plant and equipment. Partially off- lion paid primarily to the limited partners of the Onex setting the cash used in investing activities was $591 million Partners and ONCAP Funds; and (ii) cash interest paid of of proceeds primarily from the partial sale of JELD-WEN by $277 million. the Onex Partners III Group. Cash from ﬁnancing activities in the fourth quarter Cash used in investing activities was $887 mil- of 2016 included (i) $541 million of contributions by limited lion in the fourth quarter of 2016, primarily consisting of partners primarily related to the acquisition of Save-A-Lot; (i) $2.4 billion of cash used to fund acquisitions, of which (ii) $291 million of net debt issuances primarily for CLO-12; $2.2 billion related to the acquisitions of Clarivate Analytics and (iii) $219 million from ﬁnancing activities of discontin- and Save-A-Lot by the Onex Partners IV Group and certain ued operations. Partially offsetting the cash from ﬁnancing non-controlling interests; (ii) $162 million of cash used for activities were (i) distributions of $322 million paid primar- the settlement of contingent consideration provisions pri- ily to the limited partners of the Onex Partners and ONCAP marily by SIG; (iii) $157 million in purchases of property, Funds; and (ii) cash interest paid of $245 million. plant and equipment; and (iv) $100 million of net purchases Cash used in investing activities was $217 million in the ially offsetting the cash used in investing activities were (i) a fourth quarter of 2017, primarily consisting of (i) $426 mil- $1.6 billion change in restricted cash related to the acquisi- lion of net purchases of investments and securities by credit tion of Clarivate Analytics; and (ii) $212 million of proceeds strategies; (ii) $250 million of cash used to fund acquisi- primarily from the sale of investments managed by third- tions, which was primarily for the acquisitions of IntraPac party investment managers for Onex, the parent company. of investments and securities by credit strategies. Part- S U M M A R Y Q U A R T E R L Y I N F O R M A T I O N Table 13 summarizes Onex’ key consolidated ﬁnancial information for the last eight quarters. Historical ﬁnancial informa- tion has been restated for discontinued operations. Consolidated Quarterly Financial Information TABLE 13 ($ millions except per share amounts) 2017 2016 Revenues $ 6,268 $ 6,362 $ 6,198 $ 5,669 $ 5,347 $ 4,342 $ 4,190 $ 3,926 Dec. Sept. June March Dec. Sept. June March Earnings (loss) from continuing operations Net earnings (loss) Net earnings (loss) attributable to: $ $ 300 $ 363 $ (505) $ (805) $ (246) 300 $ 363 $ 2,669 $ (937) $ (152) $ $ (63) $ (179) $ (131) (76) $ 367 $ (175) Equity holders of Onex Corporation $ 273 $ 320 $ 2,713 $ (912) $ (135) $ (130) $ 322 $ (187) Non-controlling Interests 27 43 (44) (25) (17) 54 45 12 Net earnings (loss) $ 300 $ 363 $ 2,669 $ (937) $ (152) $ (76) $ 367 $ (175) Earnings (loss) per SVS of Onex Corporation Earnings (loss) from continuing operations $ 2.69 $ 3.14 $ (5.04) $ (7.70) $ (2.07) $ (1.11) $ (1.76) $ (1.42) Earnings (loss) from discontinued operations − − 31.65 (1.18) 0.76 (0.16) 4.88 (0.37) Net earnings (loss) $ 2.69 $ 3.14 $ 26.61 $ (8.88) $ (1.31) $ (1.27) $ 3.12 $ (1.79) 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 and credit strategies. 52 Onex Corporation December 31, 2017 M A N A G E M 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 $44.7 billion at December 31, 2017, compared to $42.9 billion at December 31, 2016. Onex’ con- solidated assets increased primarily due to the acquisitions of Parkdean Resorts, IntraPac and Laces, as well as the closing of CLOs. The increase was partially offset by the sale of USI, the loss of control by the Company of JELD-WEN and the redemp- tion of CLO-3. Table 14 shows consolidated assets by industry segment as at December 31, 2017, 2016 and 2015. The industry segment per- centages of consolidated assets held by continuing operations are also shown. Consolidated Assets by Industry Segment TABLE 14 ($ millions) 2017 Percentage Breakdown 2016 Percentage Breakdown 2015 Percentage Breakdown Electronics Manufacturing Services $ 2,945 Healthcare Imaging Health and Human Services Insurance Services(a) Packaging Products and Services(b) Business and Information Services(c) Food Retail and Restaurants(d) Credit Strategies(e) Other(f) Assets held by continuing operations Other – assets held by discontinued operations(g) 1,321 982 1,524 6,800 5,652 2,094 10,048 13,313 44,679 – Total consolidated assets $ 44,679 7% 3% 2% 3% 15% 13% 5% 22% 30% 100% $ 2,822 1,473 995 1,545 6,144 5,765 2,185 7,624 8,580 37,133 5,780 $ 42,913 8% 4% 3% 4% 17% 15% 6% 20% 23% 100% $ 2,612 1,609 1,034 1,778 6,366 1,526 532 6,284 7,111 28,852 6,958 $ 35,810 9% 5% 4% 6% 22% 5% 2% 22% 25% 100% (a) The insurance services segment now consists solely of York. The insurance services segment previously included USI, which has been recorded in the other segment as a discontinued operation. (b) The packaging products and services segment consists of IntraPac, sgsco and SIG. IntraPac began to be consolidated in December 2017, when the business was acquired by the ONCAP IV Group. (c) The business and information services segment consists of Clarivate Analytics and Emerald Expositions. The Company began consolidating Clarivate Analytics in October 2016, when the business was acquired by the Onex Partners IV Group. (d) The food retail and restaurants segment consists of Jack’s and Save-A-Lot. The Company began consolidating Save-A-Lot 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, (iii) Onex Credit Funds and (iv) Onex Credit Lending Partners. (f) 2017 other includes Flushing Town Center, Meridian Aviation, Survitec, Schumacher, WireCo, Parkdean Resorts, the operating companies of ONCAP II, III and IV (excluding IntraPac) and the parent company. 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. In addition, 2017, 2016 and 2015 other includes investments in AIT, BBAM, Genesis Healthcare (up to August 2017), JELD-WEN (since May 2017), Incline Aviation Fund, Mavis Discount Tire and Venanpri Group. (g) At December 31, 2016, the assets of JELD-WEN and USI are included in the other segment and have been presented as discontinued operations. At December 31, 2015, the assets of JELD-WEN, KraussMaffei and USI are included in the other segment and have been presented as discontinued operations. Onex Corporation December 31, 2017 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 Consolidated long-term debt, without recourse to Onex Corporation It has been Onex’ policy to preserve a ﬁnancially strong the event of a change of control of the operating company. In addition, the operating companies that have outstand- ing debt must meet certain ﬁnancial covenants. Changes parent company that has funds available for new acquisi- in business conditions relevant to an operating company, tions and to support the growth of its operating compa- including those resulting from changes in ﬁnancial markets nies. This policy means that all debt ﬁnancing is within and economic conditions generally, may result in non-com- the operating companies and each company is required to pliance with certain covenants by that operating company. support its own debt without recourse to Onex Corporation Consolidated long-term debt does not include the or other Onex operating companies. debt of operating businesses that are included in invest- The ﬁnancing arrangements of each operating ments in joint ventures and associates, as investments in company typically contain certain restrictive covenants, those businesses are accounted for at fair value and are not which may include limitations or prohibitions on addi- consolidated. In addition, when operating companies are tional indebtedness, payment of cash dividends, redemp- reported as discontinued operations or as held for sale, their tion of capital, capital spending, making of investments, long-term debt is excluded from consolidated long-term and acquisitions and sales of assets. The ﬁnancing arrange- debt on a prospective basis. Prior periods are not restated. ments may also require the redemption of indebtedness in 54 Onex Corporation December 31, 2017 M A N A G E M E N T ’ S D I S C U S S I O N A N D A N A LY S I S Total consolidated long-term debt (consisting of the current and long-term portions of long-term debt, net of ﬁnancing charges) was $22.0 billion at December 31, 2017 compared to $22.9 billion at December 31, 2016. Table 15 shows consolidated long-term debt by industry segment as at December 31, 2017, 2016 and 2015. Consolidated Long-Term Debt of Operating Companies, Without Recourse to Onex Corporation TABLE 15 As at December 31 ($ millions) Electronics Manufacturing Services Healthcare Imaging Health and Human Services 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 2017 2016 2015 $ 187 $ 226 $ 261 1,132 379 939 3,770 2,566 943 7,877 4,256 22,049 (333) 1,920 421 939 3,447 2,667 886 5,912 6,445 22,863 (407) 1,999 525 929 3,487 731 221 4,899 5,002 18,054 (411) Total $ 21,716 $ 22,456 $ 17,643 (a) The insurance services segment now consists solely of York. The insurance services segment previously included USI, which has been recorded in the other segment as a discontinued operation. (b) The packaging products and services segment consists of IntraPac, sgsco and SIG. SIG began to be consolidated in March 2015, when the business was acquired by the Onex Partners IV Group. IntraPac began to be consolidated in December 2017, when the business was acquired by the ONCAP 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, (iii) Onex Credit Funds and (iv) Onex Credit Lending Partners. 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. Onex Credit Lending Partners began to be consolidated in May 2017, when OCLP I was established. (f) 2017 other includes Flushing Town Center, Meridian Aviation, Survitec, Schumacher, WireCo, Parkdean Resorts, the operating companies of ONCAP II, III and IV (excluding IntraPac) and the parent company. 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. (g) At December 31, 2016, the long-term debt of JELD-WEN and USI are included in the other segment and have been presented as discontinued operations. At December 31, 2015, the long-term debt of JELD-WEN, KraussMaffei and USI are included in the other segment and have been presented as discontinued operations. The discussions that follow identify those signiﬁcant changes in industry segments that affected Onex’ consolidated long- term debt as at December 31, 2017. Note 14 to the consolidated ﬁnancial statements provides details of the long-term debt outstanding by operating company and by credit facility. Onex Corporation December 31, 2017 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 ONCAP IV (Other segment) In January 2017, ONCAP IV entered into a $100 million Parkdean Resorts (Other segment) The Onex Partners IV Group acquired Parkdean Resorts in credit facility. The credit facility is available to ﬁnance March 2017, as described on page 32 of this MD&A. In March ONCAP IV capital calls, bridge investments in ONCAP IV 2017, Parkdean Resorts entered into a senior secured credit operating companies and to ﬁnance other uses permitted facility consisting of a £575 million ﬁrst lien term loan, by ONCAP IV’s limited partnership agreement. The credit a £150 million second lien term loan and a £100 million facility includes a deemed credit risk maximum of $35 mil- revolving credit facility. Borrowings under the ﬁrst lien term lion available to ONCAP IV and its operating compa- loan bear interest at LIBOR (subject to a ﬂoor of 0.00%) plus nies for foreign exchange transactions, including foreign a margin of up to 4.25%, depending on the company’s lever- exchange options, forwards and swaps. Amounts under age ratio. The ﬁrst lien term loan matures in March 2024. the credit facility are available in Canadian and U.S. dol- Borrowings under the second lien term loan bear inter- lars. Borrowings drawn on the credit facility bear interest at est at LIBOR (subject to a ﬂoor of 1.00%) plus a margin of a base rate plus a margin of 1.00% or bankers’ acceptance 8.50%. The second lien term loan matures in March 2025. rate (subject to a ﬂoor of 0.00%) plus a margin of 3.75%. Borrowings under the revolving credit facility bear interest The base rate and bankers’ acceptance rate vary based at LIBOR (subject to a ﬂoor of 0.00%) plus a margin of up on the currency of the borrowings. Borrowings under the to 3.25%, depending on the company’s leverage ratio. The credit facility are due and payable upon demand; however, revolving credit facility matures in March 2023. ONCAP IV has 15 business days to complete a capital call At December 31, 2017, £575 million ($777 million) to the limited partners of ONCAP IV. Onex Corporation, was outstanding under the ﬁrst lien term loan, £150 million the parent company, is only obligated to fund borrowings ($203 million) was outstanding under the second lien term under the credit facility based on its proportionate share as loan and no amounts were outstanding under the revolving a limited partner in ONCAP IV. credit facility. At December 31, 2017, $64 million was outstand- ing under the credit facility, which was repaid in January Emerald Expositions (Business and Information 2018 following the capital call to the limited partners of ONCAP IV for the acquisition of Laces. JELD-WEN (Other segment) In February 2017, JELD-WEN repaid $375 million under Services segment) Emerald Expositions repaid $159 million under its term loan from the net proceeds from the sale of treasury shares in its April 2017 initial public offering, as described on page 33 of this MD&A. its combined term loan from a portion of its net proceeds In May 2017, Emerald Expositions amended and from the sale of treasury shares in its initial public offering, restated its existing credit facility to increase the size of its as described on page 31 of this MD&A. revolving credit facility by $50 million. In addition, the rate In March 2017, JELD-WEN amended its existing at which the company borrows under its new term loan credit facility to reduce the rate at which borrowings under and revolving credit facility was reduced to LIBOR plus a its combined term loan bear interest to LIBOR (subject to a margin of up to 3.00%, depending on the company’s lever- ﬂoor of 1.00%) plus a margin of up to 3.00%, depending on age ratio. The maturity dates for the term loan and revolv- the company’s leverage ratio. The amendment resulted in a ing credit facility were extended to May 2024 and May total interest rate reduction of 50 basis points. 2022, respectively. The amended and restated credit facil- JELD-WEN’s long-term debt is no longer recog- ity resulted in a current interest rate reduction of 75 basis nized in the consolidated balance sheet as the Company points and 150 basis points on the company’s prior term no longer controls JELD-WEN, as described on page 31 of loan and revolving credit facility, respectively. this MD&A. 56 Onex Corporation December 31, 2017 In November 2017, Emerald Expositions further amended its existing credit facility to reduce the rate at which borrowings under its term loan and revolving credit facility bear interest to LIBOR plus a margin of up to 2.75%. The amendment resulted in a total interest rate reduction of 25 basis points on the company’s term loan and revolv- ing credit facility. M A N A G E M 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, 2017, $562 million was outstand- ing under the term loan and no amounts were outstanding under the revolving credit facility. Jack’s (Food Retail and Restaurants segment) In April 2017, Jack’s amended its existing credit facil- SIG (Packaging Products and Services segment) In October 2017, SIG amended its senior secured credit facil- ity to reduce the rate at which borrowings under its euro- denominated term loan bear interest to EURIBOR (subject to a ﬂoor of 0.00%) plus a margin of 3.25%. The amendment resulted in a total interest rate reduction of 50 basis points ity to increase the size of its term loan to $275 million. In on the company’s euro-denominated term loan. addition, the rate at which the company borrows under At December 31, 2017, €1.0 billion ($1.2 billion) was the term loan was reduced to LIBOR (subject to a ﬂoor outstanding under the euro-denominated term loan. of 1.00%) plus a margin of up to 4.25%, depending on the company’s leverage ratio, and the maturity date was extended to April 2024. The rate at which the company sgsco (Packaging Products and Services segment) In December 2017, sgsco entered into a new secured credit borrows under the revolving credit facility was reduced to facility consisting of a $495 million ﬁrst lien term loan, LIBOR (subject to a ﬂoor of 0.00%) plus a margin of up to a $105 million second lien term loan and an $80 million 4.25%, depending on the company’s leverage ratio, and the delayed draw term loan. The delayed draw term loan was maturity date was extended to April 2022. The amendment fully drawn in February 2018 to partially ﬁnance an acqui- resulted in a current interest rate reduction of 50 basis sition completed by sgsco. In addition, sgsco amended its points on the company’s term loan and revolving credit revolving credit facility to increase the amount available facility. The proceeds from the incremental borrowing, under the facility to $75 million. The net proceeds from the along with cash on hand, were used to fund a distribution senior secured credit facility were used to repay the existing of $85 million to shareholders, as described on page 33 of debt facilities. this MD&A. At December 31, 2017, $495 million, $105 million In October 2017, Jack’s further amended its exist- and $6 million were outstanding under the ﬁrst lien term ing credit facility to reduce the rate at which borrowings loan, second lien term loan and revolving credit facil- under its term loan bear interest to LIBOR (subject to a ity, respectively. No amounts were outstanding under the ﬂoor of 1.00%) plus a margin of up to 4.00%, depending on delayed draw term loan at December 31, 2017. the company’s leverage ratio. The amendment resulted in a total interest rate reduction of 25 basis points on the com- pany’s term loan. Onex Partners V In December 2017 and January 2018, Onex Partners V At December 31, 2017, $256 million was outstand- entered into a $997 million revolving credit facility. The ing under the term loan and no amounts were outstanding limited partners of Onex Partners V could elect to partici- under the revolving credit facility. Carestream Health (Healthcare Imaging segment) In June 2017, Carestream Health amended its revolving pate in the credit facility at the time of their commitment. Of the aggregate commitments to Onex Partners V, 46% of the commitments were from limited partners that elected to participate in the credit facility. Onex, as a limited part- credit facility to extend the maturity date to June 2019 for ner of Onex Partners V, did not elect to participate in the $127 million of the facility. The remaining $23 million of the credit facility. The credit facility is available to ﬁnance Onex revolving credit facility will mature in June 2018. Partners V capital calls, bridge investments in Onex Part- During 2017, Carestream Health repaid $758 mil- ners V operating companies and to ﬁnance other uses per- lion of the company’s ﬁrst and second lien term loans from mitted by Onex Partners V’s limited partnership agreement. net proceeds from the sale of its Dental Digital business Borrowings under the credit facility are limited to the lesser along with net proceeds from an additional transaction, as of the amount available under the credit facility and the described on page 34 of this MD&A. maximum amount of obligations permitted under the part- At December 31, 2017, $770 million and $372 million nership agreement. Amounts under the credit facility are were outstanding under the ﬁrst and second lien term loans, available in U.S. dollars, Canadian dollars, euros, pounds respectively, and no amounts were outstanding under the sterling and other currencies as requested, subject to the revolving credit facility. approval of the lenders. Onex Corporation December 31, 2017 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 Borrowings drawn on the credit facility bear inter- CLO-3 est at an adjusted LIBOR rate, plus a margin of 1.50%, with In June 2017, Onex redeemed its third CLO denominated in respect to LIBOR rate loans and the reference rate in effect U.S. dollars, CLO-3, as described on page 36 of this MD&A. from day to day, plus a margin of 1.50%, for reference rate Upon the redemption of CLO-3, all secured notes were loans. In addition, a fee of 0.25% per annum accrues on the repaid, including accrued interest, and the equity was set- portion of the credit facility that is available but unused. tled for the residual proceeds in the CLO. The credit facility matures on the earlier of Decem ber 15, 2020, or upon the occurrence of certain CLO-13 events deﬁned in the agreement, with an option to extend In July 2017, Onex closed CLO-13, which was funded for an additional 364 days. Onex Partners IV (Other segment) In January 2018, the Onex Partners IV Group entered into through the issuance of collateralized loan instruments in a series of tranches of secured and subordinated notes and preference shares, as described on page 36 of this MD&A. The secured notes were offered in an aggregate princi- a revolving credit facility, as described on page 35 of this pal amount of $552 million and are due in July 2030. The MD&A. Onex Credit CLOs (Credit Strategies segment) EURO CLO-1 ﬂoating rate secured notes bear interest at a rate of LIBOR plus a margin of 1.26% to 6.63%. Interest on the secured notes is payable beginning in January 2018. The secured notes and preference shares of CLO-13 were designated at In May 2017, Onex closed EURO CLO-1, which was funded fair value through net earnings. through the issuance of collateralized loan instruments in a The secured notes are subject to redemption and series of tranches of secured notes and subordinated notes, prepayment provisions, including mandatory redemption, as described on page 36 of this MD&A. The secured notes were offered in an aggregate principal amount of €323 mil- lion ($351 million) and are due in June 2030. The ﬂoating if certain coverage tests are not met by CLO-13. Optional redemption of the secured notes is available beginning in July 2019. Optional repricing of certain secured obligations rate secured notes bear interest at a rate of EURIBOR plus is available subject to certain customary terms and condi- a margin of 0.9% to 7.15%. Interest on the secured notes was tions being met by CLO-13. payable beginning in December 2017. The secured notes The secured notes of CLO-13 are secured by, and and subordinated notes of EURO CLO-1 were designated at only have recourse to, the assets of CLO-13. fair value through net earnings. The secured notes are subject to redemption and EURO CLO-2 prepayment provisions, including mandatory redemption, if In December 2017, Onex closed EURO CLO-2, which was certain coverage tests are not met by EURO CLO-1. Optional funded through the issuance of collateralized loan instru- redemption of the secured notes is available beginning in ments in a series of tranches of secured notes and sub- June 2019. Optional reﬁnancing of certain secured obliga- ordinated notes, as described on page 36 of this MD&A. tions is available subject to certain customary terms and conditions being met by EURO CLO-1. The secured notes of EURO CLO-1 are secured by, The secured notes were offered in an aggregate princi- pal amount of €390 million ($459 million) and are due in January 2032. The ﬂoating rate secured notes bear inter- and only have recourse to, the assets of EURO CLO-1. est at a rate of EURIBOR plus a margin of 0.82% to 6.40%. Interest on the secured notes is payable beginning in July 2018. The secured notes and subordinated notes of EURO CLO-2 were designated at fair value through net earnings. The secured notes are subject to redemption and pre-payment provisions, including mandatory redemp- tion, if certain coverage tests are not met by EURO CLO-2. 58 Onex Corporation December 31, 2017 M A N A G E M E N T ’ S D I S C U S S I O N A N D A N A LY S I S Optional redemption of the secured notes is available Onex Credit Lending Partners beginning in January 2020. Optional reﬁnancing of certain secured obligations is available subject to certain custom- (Credit Strategies segment) OCLP I ary terms and conditions being met by EURO CLO-2. In June 2017, OCLP I entered into a $138 million revolv- The secured notes of EURO CLO-2 are secured by, ing credit facility. The revolving credit facility is avail- and only have recourse to, the assets of EURO CLO-2. able to ﬁnance capital calls and for other permitted uses. CLO-14 Borrowings drawn on the revolving credit facility bear interest at LIBOR (subject to a ﬂoor of 0.00%) plus a mar- In December 2017, Onex closed CLO-14, which was funded gin of 1.65%. The revolving credit facility matures in June through the issuance of collateralized loan instruments in 2020, subject to an option to extend the maturity date for a series of tranches of secured and subordinated notes and up to 364 days upon satisfaction of certain conditions. The preference shares, as described on page 36 of this MD&A. revolving credit facility is secured by, among other things, The secured notes were offered in an aggregate principal the uncalled capital committed by the limited partners of amount of $552 million and are due in November 2030. The OCLP I. Onex Corporation, the parent company, is only ﬂoating rate secured notes bear interest at a rate of LIBOR obligated to fund capital calls based on its proportionate plus a margin of 1.15% to 5.80%. Interest on the secured share as a limited partner in OCLP I. notes is payable beginning in May 2018. The secured and In August 2017, OCLP I entered into a $300 million subordinated notes and preference shares of CLO-14 were asset backed ﬁnancing facility. The asset backed ﬁnancing designated at fair value through net earnings. facility is available to ﬁnance investments in the asset The secured notes are subject to redemption and portfolio of OCLP I and for other permitted uses. Bor row- pre-payment provisions, including mandatory redemption, ings drawn on the asset backed ﬁnancing facility bear if certain coverage tests are not met by CLO-14. Optional interest at a base rate (subject to a ﬂoor of 0.00%) plus a redemption of the secured notes is available beginning in margin of up to 2.50%. The asset backed ﬁnancing facility November 2019. Optional repricing of certain secured obli- matures in August 2022. The asset backed ﬁnancing facil- gations is available subject to certain customary terms and ity is secured by, among other things, a portion of the asset conditions being met by CLO-14. portfolio of OCLP I. The secured notes of CLO-14 are secured by, and At December 31, 2017, $90 million and $219 million only have recourse to, the assets of CLO-14. were outstanding under the revolving credit facility and the asset backed ﬁnancing facility, respectively. Table 16 details the aggregate debt maturities as at December 31, 2017 for Onex’ operating businesses for each of the years up to 2022 and in total thereafter. As the table includes debt of investments in joint ventures and associates and excludes debt of the credit strategies segment, the total amount does not correspond to total reported consolidated debt. As the following table illustrates, signiﬁcant maturities occur in 2022 and thereafter. Debt Maturity Amounts by Year TABLE 16 ($ millions) 2018 2019 2020 2021 2022 Thereafter Total Consolidated operating companies(a) $ 333 $ 1,728 $ 409 $ 1,127 $ 4,615 $ 6,261 $ 14,473 Investments in joint ventures and associates(a)(b) 29 23 471 259 108 1,241 2,131 Total $ 362 $ 1,751 $ 880 $ 1,386 $ 4,723 $ 7,502 $ 16,604 (a) Debt amounts are presented gross of financing charges and exclude amounts invested by Onex, the parent company, in debt of the operating businesses. Additionally, debt amounts exclude debt of the credit strategies segment and debt amounts of discontinued operations. (b) Debt amounts of JELD-WEN have been presented in investments in joint ventures and associates due to the loss of control over the investment by the Company following the secondary offering completed in May 2017. Onex Corporation December 31, 2017 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 Limited Partners’ Interests Limited Partners’ Interests liability represents the fair value of limited partners’ invested capital in the Onex Partners, ONCAP, Onex Credit Lending Partners and Onex Credit Funds and is affected primarily by the change in the fair value of the underlying investments in the Onex Partners, ONCAP, Onex Credit Lending Partners and Onex Credit Funds, the impact of carried interest and incentive fees, as well as any contributions by and distributions to limited partners in those funds. Table 17 shows the change in Limited Partners’ Interests from December 31, 2015 to December 31, 2017. Limited Partners’ Interests TABLE 17 ($ millions) Balance – December 31, 2015 Limited Partners’ Interests charge Contributions by Limited Partners Distributions paid to Limited Partners Balance – December 31, 2016(b) Limited Partners’ Interests charge Contributions by Limited Partners Distributions paid to Limited Partners Limited Partnership commitments acquired by Onex, the parent company(c) Balance – December 31, 2017 Current portion of Limited Partners’ Interests(d) Onex Partners and ONCAP Funds Gross Limited Partners’ Interests Carried Interest Net Limited Partners’ Interests Credit Strategies Net Limited Partners’ Interests(a) Total $ 7,492 $ (503) $ 6,989 $ 329 $ 7,318 678 1,574 (1,084) 8,660 1,545 560 (2,582) (156) 8,027 (45) (91) − 38 (556) (215) − 307 − (464) 4 587 1,574 (1,046) 8,104 1,330 560 (2,275) (156) 7,563 (41) 60 19 (38) 370 20 113 (42) − 461 (18) 647 1,593 (1,084) 8,474 1,350 673 (2,317) (156) 8,024 (59) Non-current portion of Limited Partners’ Interests $ 7,982 $ (460) $ 7,522 $ 443 $ 7,965 (a) Net of incentive fees in credit strategies. (b) 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; (ii) the return of capital to the limited partners of the ONCAP III Group related to the syndication of a portion of the investment in Tecta to the ONCAP IV Group; and (iii) the remaining proceeds from the sale of KraussMaffei. (c) In 2017, Onex, the parent company, acquired an interest in Onex Partners IV, as described on page 34 of this MD&A. (d) At December 31, 2017, the current portion of the Limited Partners’ Interests was $59 million. The current portion consisted primarily of (i) the distribution received from PURE Canadian Gaming; (ii) residual escrow balances from the sale of certain investments; and (iii) redemptions received by certain Onex Credit Funds. The Limited Partners’ Interests charge is discussed in detail on page 46 of this MD&A. 60 Onex Corporation December 31, 2017 M A N A G E M E N T ’ S D I S C U S S I O N A N D A N A LY S I S Contributions by limited partners The Limited Partners’ Interests liability for the Onex Partners Equity Table 18 provides a reconciliation of the change in equity and ONCAP Funds increased by $560 million for contri- from December 31, 2016 to December 31, 2017. Onex’ con- butions made by the limited partners during 2017, which solidated statements of equity also show the changes to the related primarily to the acquisitions of Parkdean Resorts and components of equity for the year ended December 31, 2017. IntraPac. During the year ended December 31, 2016, the Change in Equity Limited Partners’ Interests liability for the Onex Partners and ONCAP Funds increased by $1.6 billion for contribu- TABLE 18 ($ millions) tions made during the period primarily for the acquisitions Balance – December 31, 2016 $ 1,351 of Clarivate Analytics, Save-A-Lot, WireCo and Tecta. Dividends declared Note 17 to the consolidated ﬁnancial statements Options exercised provides additional information on contributions made Repurchase and cancellation of shares by limited partners for the years ended December 31, 2017 Investments in operating companies by shareholders and 2016. other than Onex Distributions to non-controlling interests Distributions to limited partners The Limited Partners’ Interests liability for the Onex Partners Repurchase of shares of operating companies Sale of interests in operating company under and ONCAP Funds was reduced by $2.3 billion of distribu- continuing control tions during 2017, primarily from the net proceeds from the Non-controlling interests derecognized on sale of USI; the sale of shares in JELD-WEN’s public offer- sale of investments in operating companies ings; distributions and proceeds from the partial sale of Net earnings for the year BBAM; and the sale of shares in Emerald Expo sitions’ initial Other comprehensive earnings for the year, net of tax public offering. Equity as at December 31, 2017 (23) 1 (93) 807 (15) (54) 259 (213) 2,395 602 $ 5,017 During the year ended December 31, 2016, the Limited Partners’ Interests liability for the Onex Partners and ONCAP Funds was reduced by distributions of $1.0 billion primarily from the proceeds from the sale of KraussMaffei, repayments by Jack’s on its promissory note and distribu- tions from JELD-WEN, AIT and BBAM. Note 17 to the consolidated ﬁnancial statements provides additional information on distributions made to limited partners for the years ended December 31, 2017 and 2016. Dividend policy In May 2017, Onex announced that it had increased its quarterly dividend by 9% to C$0.075 per SVS beginning with the dividend declared by the Board of Directors payable in July 2017. Table 19 presents Onex’ dividend paid per share for the last twelve months ended December 31 during the past ﬁve years. The table reﬂects the increase in the dividend per share over this time. TABLE 19 ($ per share amounts) Last twelve months ended December 31: 2013 2014 2015 2016 2017 Dividend Paid Per Share C$ 0.13 C$ 0.18 C$ 0.23 C$ 0.26 C$ 0.29 Onex Corporation December 31, 2017 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 Shares outstanding At December 31, 2017, Onex had 100,000 Multiple Voting Shares outstanding, which have a nominal paid-in value reﬂected in Onex’ consolidated ﬁnancial statements. Onex also had 101,532,181 SVS issued and outstanding. Note 20 to the consolidated ﬁnancial statements provides additional information on Onex’ share capital. There was no change in the Multiple Voting Shares outstanding during 2017 or January 2018. Table 20 shows the change in the number of SVS outstanding from December 31, 2015 to January 31, 2018. TABLE 20 ($ millions except per share amounts) Number of SVS (USD) (CAD) (USD) (CAD) Average Price Per Share Total Cost 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 $ 78.25 $ 84.12 $ 125 $ 59 $ 165 $ 84 Dividend Reinvestment Plan 8,447 $ 61.30 $ 81.02 $ 1 $ 1 SVS outstanding at December 31, 2016 102,787,628 Shares repurchased and cancelled: Normal Course Issuer Bids Private transaction Issuance of shares: Options exercised Dividend Reinvestment Plan (666,923) (750,000) 10,181 9,505 $ 74.53 $ 71.24 $ 74.40 $ 73.60 $ 94.05 $ 94.98 $ 93.33 $ 95.16 $ 50 $ 53 $ $ 1 1 $ 63 $ 71 $ $ 1 1 SVS outstanding at January 31, 2018 101,390,391 Shares repurchased and cancelled The NCIB enables Onex to repurchase up to 10% of its pub- the new NCIB. The new NCIB commenced on April 18, 2017 and will conclude on the earlier of the date on which pur- lic ﬂoat of SVS during the period of the relevant Bid. Onex chases under the NCIB have been completed and April 17, believes that it is advantageous for Onex and its sharehold- 2018. A copy of the Notice of Intention to make the NCIB ers to continue to repurchase Onex’ SVS from time to time ﬁled with the Toronto Stock Exchange is available at no when the SVS are trading at prices that reﬂect a signiﬁcant charge to shareholders by contacting Onex. discount to their value as perceived by Onex. Under the previous NCIB that expired on April 17, On April 18, 2017, Onex renewed its NCIB following 2017, Onex repurchased 1,244,535 SVS at a total cost of the expiry of its previous NCIB on April 17, 2017. Under the $75 million (C$98 million) or an average purchase price of new NCIB, Onex is permitted to purchase up to 10% of its $60.53 (C$78.69) per share. In addition, during the same public ﬂoat of SVS, or 8,391,231 SVS. Onex may purchase up period, Onex repurchased 750,000 SVS in a private transac- to 26,619 SVS during any trading day, being 25% of its aver- tion at a total cost of $53 million (C$71 million) or an aver- age daily trading volume for the six months ended March 31, age purchase price of $71.24 (C$94.98) per share. 2017. Onex may also purchase SVS from time to time under The private transaction represents the repurchase the Toronto Stock Exchange’s block purchase exemption, of SVS that were held indirectly by Mr. Gerald W. Schwartz, if available, or by way of private agreement pursuant to an Onex’ controlling shareholder, as described on page 78 of issuer bid exemption order, if sought and received, under this MD&A. 62 Onex Corporation December 31, 2017 M A N A G E M E N T ’ S D I S C U S S I O N A N D A N A LY S I S Table 21 shows a summary of Onex’ repurchases of SVS for the past 10 years. Onex’ Repurchases of SVS for the Past 10 Years TABLE 21 2008 2009 2010 2011 2012 2013(1) 2014(2) 2015(3) 2016(4) 2017(5) Total (1) Includes 1,000,000 SVS repurchased in a private transaction. (2) Includes 1,310,000 SVS repurchased in private transactions. (3) Includes 275,000 SVS repurchased in private transactions. (4) Includes 1,000,000 SVS repurchased in a private transaction. (5) Includes 750,000 SVS repurchased in a private transaction. Shares Repurchased Total Cost of Shares Repurchased (in C$ millions) Average Share Price (in C$ per share) 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 1,273,209 C$ 101 C$ 28.89 41 52 105 24 159 163 218 249 121 23.04 25.44 33.27 38.59 51.81 62.98 70.70 80.14 95.00 24,225,957 C$ 1,233 C$ 50.92 Issuance of shares – Dividend Reinvestment Plan Onex’ Dividend Reinvestment Plan enables Canadian share- holders to reinvest cash dividends to acquire new SVS of Non-controlling interests derecognized on sale of investments in operating companies Onex recorded a decrease in equity of $213 million during Onex at a market-related price at the time of reinvestment. 2017 related to non-controlling interests in JELD-WEN and During the period from January 1, 2017 to January 31, 2018, USI. Under IFRS, non-controlling interests represent the Onex issued 9,505 SVS at an average cost of C$95.16 per SVS, ownership interests of shareholders, other than Onex and creating a cash savings of $1 million (C$1 million). its third-party limited partners in the Onex Partners and ONCAP Funds, in Onex’ controlled operating companies. Investments in operating companies by shareholders Prior to the May 2017 sale of shares in JELD-WEN, other than Onex Onex recorded an increase in equity of $807 million during the non-controlling interests balance included the owner- ship interests of JELD-WEN’s public shareholders. In May 2017 primarily due to the investment by public sharehold- 2017, the Onex Partners III Group sold shares of JELD-WEN ers in new common shares in the initial public offerings in a secondary offering, which resulted in a loss of control of of JELD-WEN and Emerald Expositions, as described on the investment. The non-controlling interests attributable pages 31 and 33 of this MD&A. to JELD-WEN have been derecognized from equity since the operations of JELD-WEN are no longer consolidated. Sale of interests in operating company under Prior to the sale of USI in May 2017, the non-con- continuing control Onex reported an increase in equity of $259 million dur- trolling interests balance included the ownership interests of management and employees of USI not recognized as ing 2017 due to the sale of shares by the Onex Partners III ﬁnancial liabilities. As a result of the sale, the non-control- Group in the initial public offerings of JELD-WEN and ling interests attributable to USI have been derecognized Emerald Expositions, as described on pages 31 and 33 of from equity. this MD&A. Onex Corporation December 31, 2017 63 M A N A G E M E N T ’ S D I S C U S S I O N A N D A N A LY S I S Stock Option Plan Onex, the parent company, has a Stock Option Plan in During 2017, 170,000 options to acquire SVS were issued with a weighted average exercise price of C$100.90 per place that provides for options and/or share appreciation share. The options vest at a rate of 20% per year from the rights to be granted to Onex directors, ofﬁcers and employ- date of grant. ees for the acquisition of SVS of Onex, the parent company, During 2016, 898,500 options to acquire SVS were for a term not exceeding 10 years. The options vest equally issued with a weighted average exercise price of C$93.40 over ﬁve years, with the exception of a total of 6,775,000 per share. The options vest at a rate of 20% per year from options, which vest at a rate of 15% per year during the ﬁrst the date of grant. four years and 40% in the ﬁfth year. The exercise price of During 2017, 597,641 options were surrendered at the options issued is at the market value of the SVS on the a weighted average exercise price of C$28.97 for aggregate business day preceding the day of the grant. Vested options cash consideration of $30 million (C$40 million), 13,250 are not exercisable unless the average ﬁve-day market price options were exercised at a weighted average exercise price of Onex SVS is at least 25% greater than the exercise price at of C$23.35 and 123,850 options expired. the time of exercise. During 2016, 509,700 options were surrendered at At December 31, 2017, Onex had 12,378,442 options a weighted average exercise price of C$31.97 for aggregate outstanding to acquire SVS, of which 6,701,092 options cash consideration of $21 million (C$28 million) and 73,650 were vested and exercisable. options expired. Table 22 provides information on the activity from Decem- 1,052,250 options to acquire SVS with an exercise price of ber 31, 2015 to December 31, 2017. C$92.15 per share. The options vest at a rate of 20% per year In addition, in January 2018, the Company issued from the date of grant. Change in Stock Options Outstanding TABLE 22 Number of Options Weighted Average Exercise Price Director Deferred Share Unit Plan During the second quarter of 2017, an annual grant of 27,720 (2016 – 27,712) Director DSUs was issued to directors Outstanding at December 31, 2015 12,628,033 C$ 52.37 having an aggregate value, at the date of grant, of $2 mil- Granted Surrendered Expired 898,500 C$ 93.40 lion (C$3 million) (2016 – $2 million (C$2 million)) in lieu (509,700) C$ 31.97 of that amount of cash compensation for directors’ fees. (73,650) C$ 59.44 At December 31, 2017, there were 704,036 (2016 – 665,871) Outstanding at December 31, 2016 12,943,183 C$ 55.98 Director DSUs outstanding. Onex has economically hedged Granted Surrendered Exercised Expired 170,000 C$ 100.90 582,373 (2016 – 580,648) of the outstanding Director DSUs (597,641) C$ 28.97 with a counterparty ﬁnancial institution. (13,250) C$ 23.35 (123,850) C$ 68.31 Outstanding at December 31, 2017 12,378,442 C$ 57.81 64 Onex Corporation December 31, 2017 M A N A G E M 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 DSUs to management In early 2018, Onex issued 74,646 DSUs to man- agement having an aggregate value, at the date of grant, of having an aggregate value, at the date of grant, of $3 mil- $5 million (C$7 million) in lieu of that amount of cash lion (C$4 million) in lieu of that amount of cash compen- compensation for Onex’ 2017 ﬁscal year. sation for Onex’ 2015 ﬁscal year. In early 2017, Onex issued Forward agreements were entered into with a 28,670 DSUs to management having an aggregate value, at counterparty ﬁnancial institution to economically hedge the date of grant, of $2 million (C$3 million) in lieu of that Onex’ exposure to changes in the value of all outstanding amount of cash compensation for Onex’ 2016 ﬁscal year. Management DSUs. At December 31, 2017, there were 665,921 (2016 – 635,326) Management DSUs outstanding. Director DSUs must be held until retirement from the Board and Management DSUs must be held until leaving the employ- ment of Onex. Table 23 reconciles the changes in the DSUs outstanding at December 31, 2017 from December 31, 2015. Change in Outstanding Deferred Share Units TABLE 23 Outstanding at December 31, 2015 Granted Exercised Additional units issued in lieu of compensation and cash dividends 11,678 C$ 83.18 Outstanding at December 31, 2016 Granted Additional units issued in lieu of compensation and cash dividends Outstanding at December 31, 2017 Hedged with a counterparty financial institution at December 31, 2017 Outstanding at December 31, 2017 – Unhedged 665,871 27,720 10,445 704,036 (582,373) 121,663 C$ 100.74 C$ 96.69 Director DSU Plan Management DSU Plan Number of DSUs Weighted Average Price Number of DSUs Weighted Average Price 626,481 27,712 – C$ 79.30 – 684,515 – (95,641) 46,452 635,326 – – C$ 80.77 C$ 85.18 – 30,595 C$ 88.00 665,921 (665,921) – Onex Corporation December 31, 2017 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 Management of capital Onex considers the capital it manages to be the amounts it Onex, the parent company, has a conservative cash management policy driven towards maintaining liquidity has invested in cash and cash equivalents, near-cash invest- and preserving principal in all its short-term investments. ments, short- and long-term investments managed by third- At December 31, 2017, the fair value of invest- party investment managers, and the investments made in ments, including cash yet to be deployed, managed by the operating businesses, credit strategies and other invest- third-party investment managers was $1.0 billion. The ments. Onex also manages capital from other investors in investments are managed in a mix of short-term and the Onex Partners and ONCAP Funds and credit strategies. long-term portfolios. Short-term investments consist of Onex’ objectives in managing capital are to: liquid investments and include money market instru- • preserve a ﬁnancially strong parent company with appro- ments and commercial paper with original maturities of priate liquidity and no, or a limited amount of, debt so three months to one year. Long-term investments consist that funds are available to pursue new acquisitions and of securities and include money market instruments, fed- growth opportunities, as well as support expansion of eral and municipal debt instruments, corporate obliga- its existing businesses. Onex does not generally have tions and structured products with maturities of one to ﬁve the ability to draw cash from its operating businesses. years. The short- and long-term investments have current Accordingly, maintaining adequate liquidity at the parent Standard & Poor’s ratings ranging from BBB to AAA. The company is important; portfolio concentration limits range from a maximum of • achieve an appropriate return on capital invested com- 10% for BBB investments to 100% for AAA investments. The mensurate with the level of assumed risk; investments are managed to maintain an overall weighted • build the long-term value of its operating businesses; average duration of two years or less. • control the risk associated with capital invested in any At December 31, 2017, Onex had access to uncalled particular business or activity. All debt ﬁnancing is within committed limited partner capital for investments through the operating businesses and each company is required Onex Partners IV ($921 million), Onex Partners V ($5.3 bil- to support its own debt. Onex Corporation does not lion), ONCAP IV ($555 million) and OCLP I ($175 mil- guarantee the debt of the operating businesses and there lion). The uncalled committed limited partner capital for are no cross-guarantees of debt between the operating ONCAP IV excludes capital related to the Laces acquisi- businesses; and tion, which was contributed by the limited partners of • have appropriate levels of committed limited partners’ ONCAP IV in January 2018. The uncalled committed limited capital available to invest along with Onex’ capital. This partner capital for Onex Partners IV excludes capital related allows Onex to respond quickly to opportunities and to the SMG acquisition, which was contributed by the lim- pursue acquisitions of businesses of a size it could not ited partners of Onex Partners IV in January 2018. achieve using only its own capital. The management of limited partners’ capital also provides management fees to Onex and the ability to enhance Onex’ returns by earn- Non-controlling interests Non-controlling interests in equity in Onex’ consolidated ing a carried interest on the proﬁts of limited partners. balance sheets as at December 31, 2017 primarily represent the ownership interests of shareholders, other than Onex At December 31, 2017, Onex, the parent company, had and its limited partners in the funds, in Onex’ controlled $628 million of cash and cash equivalents on hand and operating companies. The non-controlling interests bal- $1.3 billion of near-cash items at fair value. Near-cash ance at December 31, 2017 of $2.1 billion increased from items include short- and long-term investments managed $1.8 billion at December 31, 2016. The increase was pri- by third-party investment managers, as described below, marily due to the sale and issuance of treasury shares in $181 million invested in a segregated unlevered fund man- Emerald Expositions and JELD-WEN in their initial pub- aged by Onex Credit and $107 million in management fees lic offerings, partially offset by the derecognition of non- receivable from limited partners of its private equity plat- controlling interest from the loss of control over JELD-WEN forms. During the ﬁrst quarter of 2017, Onex, the parent and the sale of USI. company, redeemed $200 million from the Onex Credit seg- regated unlevered fund for cash management purposes. 66 Onex Corporation December 31, 2017 M A N A G E M E N T ’ S D I S C U S S I O N A N D A N A LY S I S 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 Cash generated from operations includes the net loss from Major cash ﬂow components This section should be read in conjunction with the con- continuing operations before interest and income taxes, adjusted for cash taxes paid and items not affecting cash and cash equivalents. The signiﬁcant changes in non-cash work- solidated statements of cash ﬂows and the corresponding ing capital items for the year ended December 31, 2017 were: notes thereto. Table 24 summarizes the major consolidated • a $92 million decrease in other current assets primarily cash ﬂow components for the years ended December 31, at Save-A-Lot, SIG and Flushing Town Center; and 2017 and 2016. • a $122 million increase in accounts payable, accrued lia- bilities and other current liabilities primarily at Celes tica Major Cash Flow Components and SIG. TABLE 24 ($ millions) 2017 2016 The signiﬁcant changes in non-cash working capital items Cash from operating activities $ 1,875 $ 1,912 for the year ended December 31, 2016 were: Cash from (used in) financing activities $ (1,590) $ 850 • a $380 million increase in accounts receivable primarily Cash from (used in) investing activities $ 683 $ (2,801) at Celestica and Clarivate Analytics; Consolidated cash and cash equivalents held by continuing operations $ 3,376 $ 2,169 • a $187 million increase in inventory primarily at Celes- tica and Flushing Town Center, partially offset by de- creases in inventory at Save-A-Lot, SIG and WireCo; and Cash from operating activities Table 25 provides a breakdown of cash from operating • a $548 million increase in accounts payable, accrued lia- bilities and other current liabilities primarily at Celestica, activities by cash generated from operations and changes Clarivate Analytics and SIG. in non-cash working capital items, other operating activi- ties and operating activities of discontinued operations for Cash from operating activities for the year ended Decem- the years ended December 31, 2017 and 2016. Components of Cash from Operating Activities TABLE 25 ($ millions) 2017 2016 ber 31, 2017 also included $10 million (2016 – $466 million) of cash ﬂows from the operating activities of discontinued operations. Discontinued operations for the year ended December 31, 2017 represent the operations of JELD-WEN (up to May 2017) and USI (up to May 2017). Discontinued Cash generated from operations $ 1,674 $ 1,510 operations for the year ended December 31, 2016 represent the operations of JELD-WEN, KraussMaffei (up to April 2016) and USI, and include a portion of the gain from the sale of Sitel Worldwide. Changes in non-cash working capital items: Accounts receivable Inventories Other current assets (45) 18 92 (380) (187) (59) Accounts payable, accrued liabilities and other current liabilities 122 548 Increase (decrease) in cash and cash equivalents due to changes in non-cash working capital items Increase in other operating activities Cash from operating activities of discontinued operations 187 4 10 (78) 14 466 Cash from operating activities $ 1,875 $ 1,912 Onex Corporation December 31, 2017 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 Cash from (used in) ﬁnancing activities Cash used in ﬁnancing activities was $1.6 billion for 2017 Cash from ﬁnancing activities for the year ended Decem- ber 31, 2016 included: compared to cash from ﬁnancing activities of $850 mil- • $1.6 billion of contributions received primarily from the lion for 2016. Cash used in ﬁnancing activities for the year limited partners of the Onex Partners and ONCAP Funds, ended December 31, 2017 included: as discussed under the Limited Partners’ Interests on • $2.3 billion of distributions primarily to the limited part- page 61 of this MD&A; ners of the Onex Partners and ONCAP Funds, as dis- • $973 million of net new long-term debt primarily from cussed under the Limited Partners’ Interests on page 61 the closings of CLO-11 and CLO-12 and increases in of this MD&A; outstanding debt at Flushing Town Center, Hopkins, • $1.1 billion of cash interest paid; and Schumacher and Survitec. This was partially offset by • $156 million of net cash used by Onex, the parent com- debt repayments made by CLO-2, Carestream Health, pany, to acquire an interest in Onex Partners IV from a Jack’s, ResCare and SIG; limited partner, as described on page 34 of this MD&A. • $458 million received from Baring Private Equity Asia for Partially offsetting these were: • $33 million from ﬁnancing activities of discontinued the October 2016 investment in Clarivate Analytics; and • $771 million of net new long-term debt primarily from operations. the closing of new CLOs. This was partially offset by debt repayments made by Carestream Health, Emerald Partially offsetting these were: Expositions and Flushing Town Center; • $1.2 billion of distributions primarily to the limited part- • $673 million of contributions received primarily from ners of the Onex Partners and ONCAP Funds, as dis- the limited partners of the Onex Partners and ONCAP cussed under the Limited Partners’ Interests on page 61 Funds, as discussed under the Limited Partners’ Interests of this MD&A, and distributions primarily to third-party on page 61 of this MD&A; shareholders of JELD-WEN and KraussMaffei; • $259 million of proceeds from the Onex Partners III • $780 million of cash interest paid; Group’s sale of a portion of its shares in Emerald Expo- • $184 million of cash used by Onex, the parent company, sitions and JELD-WEN’s initial public offering; for purchases of its shares; and • $198 million from the issuance of share capital primarily • $59 million of cash used for share repurchases primarily due to Emerald Expositions’ issuance of treasury shares by Celestica. in its initial public offering, as discussed on page 33 of this MD&A; and • $26 million from ﬁnancing activities of discontinued operations. Cash from (used in) investing activities Cash from investing activities totalled $683 million for the year ended December 31, 2017 compared to cash used in investing activities of $2.8 billion during 2016. Cash from investing activities during the year ended December 31, 2017 primarily consisted of: • $3.2 billion from the sale of companies and businesses no longer controlled, primarily representing the sale of USI, the sale of common stock of JELD-WEN in its May secondary offering and the sale by Carestream Health of its Dental Digital business; 68 Onex Corporation December 31, 2017 M A N A G E M E N T ’ S D I S C U S S I O N A N D A N A LY S I S • $591 million from the sale of investments in joint ven- Partially offsetting these were: tures and associates, primarily representing the sale of • $858 million of proceeds from the sale of companies and common stock of JELD-WEN in its November secondary businesses no longer controlled, primarily from the sale offering; of KraussMaffei; • $367 million of cash interest received primarily by the • $666 million of proceeds primarily from the sale of CLOs in credit strategies; and investments managed by third-party investment manag- • $71 million of distributions received from investments in ers for Onex, the parent company; joint ventures and associates primarily from BBAM. • $325 million of cash interest received primarily by the CLOs; and Partially offsetting these were: • $206 million of distributions received from investments • $974 million used to fund acquisitions primarily related in joint ventures and associates primarily from AIT to the Onex Partners IV Group’s investment in Parkdean and BBAM. Resorts and the ONCAP IV Group’s investments in IntraPac and Laces; • $944 million of net purchases of investments and securi- ties by the credit strategies; Consolidated cash resources At December 31, 2017, consolidated cash held by continu- ing operations increased to $3.4 billion from $2.2 billion at • $722 million used for the purchase of property, plant December 31, 2016. The major component at December 31, and equipment primarily at Carestream Health, Celes- 2017 was $628 million of cash on hand at Onex, the par- tica, Parkdean Resorts, Pinnacle Renewable Energy, SIG ent company (December 31, 2016 – $679 million). In addi- and Survitec; tion to cash at the parent company, Onex had $1.3 billion of • $691 million of net purchases of investments and securi- near-cash items at December 31, 2017 (December 31, 2016 – ties primarily by Onex, the parent company, from third- $907 million). Near-cash items at December 31, 2017 include party investment managers; and short- and long-term investments managed by third-party • $240 million used in investing activities of discontinued investment managers, as described on page 66 of this operations. MD&A, $181 million (December 31, 2016 – $376 million) invested in a segregated unlevered fund managed by Onex Cash used in investing activities for the year ended Decem- Credit and $107 million (December 31, 2016 – $48 million) ber 31, 2016 included: in management fees receivable from limited partners of its • $2.9 billion used to fund investments in operating com- private equity platforms. During the ﬁrst quarter of 2017, panies, which primarily related to the Onex Partners IV Onex redeemed $200 million from the Onex Credit segre- Group’s investments in Clarivate Analytics, Save-A- gated unlevered fund for cash management purposes. Lot and WireCo and the ONCAP Funds’ investment in Tecta, in addition to acquisitions completed by operating companies; • $1.0 billion of net purchases of investments and securi- ties by the CLOs and Onex Credit Funds; • $481 million used for the purchase of property, plant and equipment primarily at Carestream Health, Celestica and SIG; and • $255 million of cash used in investing activities of dis- continued operations. Onex Corporation December 31, 2017 69 M A N A G E M E N T ’ S D I S C U S S I O N A N D A N A LY S I S Cash and near-cash at Onex, the parent company Table 26 provides a reconciliation of the change in cash and near-cash at Onex, the parent company, from December 31, 2016 to December 31, 2017. Change in Cash and Near-Cash at Onex, the Parent Company TABLE 26 ($ millions) Cash and near-cash on hand at December 31, 2016(a) Private equity realizations: USI sale JELD-WEN initial and secondary offerings BBAM distributions and partial sale of business Emerald Expositions initial public offering and dividends Jack’s distribution PURE Canadian Gaming distributions Bradshaw distribution KraussMaffei residual proceeds Genesis Healthcare sale of shares Other Flushing Town Center distributions Private equity investments: Acquisition of Parkdean Resorts Interest acquired in Onex Partners IV Acquisition of IntraPac Acquisition of Laces Net distributions from Incline Aviation Fund Net credit strategies investment activity, including warehouse facilities Onex share repurchases, options exercised and dividends Net other, including capital expenditures, management fees, operating costs and treasury income(b) Cash and near-cash on hand at December 31, 2017(a)(b) 563 309 53 35 23 19 14 5 4 6 (166) (156) (46) (40) Amount $ 1,586 1,031 31 (408) 9 (73) (145) (84) $ 1,947 (a) Includes $1.0 billion (December 31, 2016 – $483 million) of short- and long-term investments managed by third-party investment managers, $181 million (December 31, 2016 – $376 million) invested in a segregated Onex Credit unlevered senior secured loan strategy fund and $107 million (December 31, 2016 – $48 million) of management fees receivable. During the first quarter of 2017, Onex redeemed $200 million from the Onex Credit segregated unlevered fund for cash management purposes. (b) Other includes the impact of favourable foreign exchange on cash. Subsequent to December 31, 2017, Onex, the parent company, received cash of C$9 million ($7 million) for its share of the repayment of existing shareholder subordinated debt with Pinnacle Renewable Energy, as described on page 35 of this MD&A, and £15 million ($22 million) for its share of the partial repayment of an existing loan note by Parkdean Resorts, as described on page 32 of this MD&A. During January 2018, Onex, the parent company, invested $139 million related to the acquisition of SMG, as described on page 35 of this MD&A. 70 Onex Corporation December 31, 2017 M A N A G E M E N T ’ S D I S C U S S I O N A N D A N A LY S I S A D D I T I O N A L U S E S O F C A S H Contractual obligations Table 27 presents the contractual obligations of Onex and its operating companies as at December 31, 2017. Contractual Obligations TABLE 27 ($ millions) Payments Due by Period Total Less than 1 year Long-term debt, without recourse to Onex(a) $ 22,357 Finance and operating leases Purchase obligations Total contractual obligations 3,429 160 $ 25,946 $ 333 381 145 $ 859 1–3 years $ 2,228 550 14 4–5 years After 5 years $ 5,960 $ 13,836 319 1 2,179 – $ 2,792 $ 6,280 $ 16,015 (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 27, certain of Onex’ consolidated operating companies have funding obliga- Commitments At December 31, 2017, Onex and its operating companies tions related to their deﬁned beneﬁt pension plans. The had total commitments of $1.4 billion. Commitments by operating companies estimate that $11 million of contribu- Onex and its operating companies provided in the normal tions will be required in 2018 for their deﬁned beneﬁt pen- course of business include commitments for corporate sion 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 guarantee and surety and performance bonds. employees of any of the operating companies. In addition, Approximately $279 million of the total commit- Onex, the parent company, does not have any obligations ments in 2017 were for contingent liabilities in the form and has not made any guarantees with respect to the plans of letters of credit, letters of guarantee and surety and of the operating companies. performance bonds provided by certain operating com- A breakdown of long-term debt by industry seg- panies to various third parties, including bank guaran- ment is provided in table 15 on page 55 of this MD&A. In tees. These guarantees are without recourse to Onex, the addition, notes 14 and 15 to the consolidated ﬁnancial parent company. statements provide further disclosure on long-term debt In February 2016, Onex, the parent company, com- and lease commitments. Our consolidated operating com- mitted $75 million to Incline Aviation Fund, an aircraft panies currently believe they have adequate cash from investment fund managed by BBAM and focused on invest- operations, cash on hand and borrowings available to them ments in contractually leased commercial jet aircraft. In to meet anticipated debt service requirements, capital February 2017, Mr. Gerald W. Schwartz, who is Onex’ con- expenditures and working capital needs. There is, however, trolling shareholder, assumed $25 million of Onex’ commit- no assurance that our consolidated operating companies ment, reducing the amount committed by Onex to investing will generate sufﬁcient cash ﬂow from operations or that in Incline Aviation Fund to $50 million. At Decem ber 31, future borrowings will be available to enable them to grow 2017, Onex had uncalled commitments of $45 million (2016 – their business, service all indebtedness or make antici- $60 million) to Incline Aviation Fund. pated capital expenditures. Onex, the parent company, committed $100 mil- lion to OCLP I. At December 31, 2017, Onex’ uncalled com- mitted capital to OCLP I was $82 million. Onex Corporation December 31, 2017 71 M A N A G E M E N T ’ S D I S C U S S I O N A N D A N A LY S I S In addition, commitments at December 31, 2017 include $1.0 billion related to an acquisition completed in January 2018. Pension plans At December 31, 2017, six (2016 – six) of Onex’ operating companies have deﬁned beneﬁt pension plans, including Carestream Health, Celes tica and SIG. At December 31, Onex’ commitment to the Funds Onex, the parent company, is the largest limited partner 2017, the deﬁned beneﬁt pension plans at these operating companies had combined assets of $1.3 billion (2016 – in each of the Onex Partners and ONCAP Funds. Table 28 $1.4 billion) against combined obligations of $1.3 billion presents the commitment and the uncalled committed cap- (2016 – $1.6 billion), with a net deﬁcit of $52 million (2016 – ital of Onex, the parent company, in these funds at Decem- $167 million). A surplus in any plan is not available to offset ber 31, 2017. deﬁciencies in others. Commitment and Uncalled Committed Capital of Onex, the Parent Company, at December 31, 2017 the pension plans of its operating companies. The operating companies with signiﬁcant deﬁned beneﬁt pension plans Onex, the parent company, has no obligation to TABLE 28 ($ millions) Fund Size Onex Partners I Onex Partners II Onex Partners III Onex Partners IV Onex Partners V ONCAP II ONCAP III ONCAP IV $ 1,655 $ 3,450 $ 4,700 $ 5,660 $ 7,150 C$ C$ 574 800 $ 1,107 Onex’ Commitment $ 400 $ 1,407 $ 1,200 $ 1,700(c) Onex’ Uncalled Committed Capital(a) $ $ $ $ 20 (b) 158 (b) 112 461(d) are described below. At December 31, 2017, Carestream Health’s deﬁned beneﬁt pension plans were in an underfunded position of approximately $89 million (2016 – $83 million). The com- pany’s pension plan assets are broadly diversiﬁed in equity and debt investment funds, as well as other investments. Carestream Health expects to contribute approximately $1 million in 2018 to its deﬁned beneﬁt pension plans, and $ 2,000 $ 2,000 it does not believe that future pension contributions will C$ C$ $ 252 252 480 C$ C$ 1 (b) 36 materially impact its liquidity. At December 31, 2017, Celestica’s deﬁned beneﬁt $ 367(e) pension plans were overfunded on a net basis by $40 mil- (a) Onex’ uncalled committed capital is calculated based on the assumption that all of the remaining limited partners’ commitments are invested. (b) Uncalled committed capital for Onex Partners I and II and ONCAP II is available only for possible future funding of partnership expenses. lion (2016 – $52 million). Celestica’s pension funding policy is to contribute amounts sufﬁcient to meet minimum local statutory funding requirements that are based on actuarial calculations. The company may make additional discretion- (c) Onex’ commitment does not include the additional commitment which was ary contributions based on actuarial assessments. Celestica acquired by Onex, as described on page 34 of this MD&A. (d) Onex’ uncalled committed capital includes the remaining uncalled committed capital related to the interest in Onex Partners IV which was acquired by Onex, as described on page 34 of this MD&A. The remaining uncalled committed capital balance is adjusted for the acquisition of SMG, which closed in January 2018. (e) Excludes uncalled committed capital related to the Laces acquisition. estimates $2 million of contributions will be required for its deﬁned beneﬁt pension plans in 2018 based on the most recent actuarial valuations. At December 31, 2017, SIG’s deﬁned beneﬁt pen- sion plans were in an overfunded position of approximately $30 million (2016 – $10 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 $6 million of contributions will be required for its deﬁned beneﬁt pension plans in 2018. 72 Onex Corporation December 31, 2017 M A N A G E M E N T ’ S D I S C U S S I O N A N D A N A LY S I S A D D I T I O N A L S O U R C E S O F C A S H The committed amounts from the limited partners are not Private equity funds Onex’ private equity funds provide capital for Onex- included in Onex’ consolidated cash and cash equivalents and are funded as capital is called. sponsored acquisitions that are not related to Onex’ oper- During 2003, Onex raised its ﬁrst large-cap fund, Onex Part- ating companies that existed prior to the formation of the ners I, with $1.655 billion of committed capital, including funds. The funds provide a substantial pool of committed committed capital of $400 million from Onex. Since 2003, capital, which enables Onex to be ﬂexible and timely in Onex Partners I has completed 10 investments, investing responding to investment opportunities. $1.5 billion, including Onex. While Onex Partners I has con- cluded its investment period, the fund still has uncalled Table 29 provides a summary of the remaining commit- lim ited partners’ committed capital of $64 million for pos- ments available from limited partners at December 31, sible future funding of partnership expenses. As a result of 2017. The remaining commitments for Onex Partners IV, pre viously approved extensions, the term of Onex Partners I Onex Partners V and ONCAP IV will be used for future was extended to February 4, 2019 and management fees are Onex-sponsored acquisitions. The remaining commit- no longer being earned from Onex Partners I as of Febru- ments from limited partners of Onex Partners I and II are ary 4, 2016. for future funding of partnership expenses. The remaining commitments from limited partners of ONCAP II are for During 2006, Onex raised its second large-cap fund, Onex possible future funding of management fees and partner- Partners II, a $3.45 billion private equity fund, including ship expenses. The remaining commitments from limited committed capital of $1.4 billion from Onex. Onex Part- partners of Onex Partners III and ONCAP III are for possible ners II has completed seven investments, investing $2.9 bil- future funding of remaining businesses and future funding lion, including Onex. While Onex Partners II has concluded its investment period, at December 31, 2017, the fund still has uncalled limited partners’ committed capital of $241 mil- lion for possible future funding for Onex Partners II’s partnership expenses. In July 2016, the term of Onex Part- ners II was extended to August 1, 2017. In July 2017, the term of Onex Partners II was further extended for a second year to August 1, 2018. of management fees and partnership expenses. Private Equity Funds’ Uncalled Limited Partners’ Committed Capital at December 31, 2017 TABLE 29 ($ millions) Onex Partners I Onex Partners II Onex Partners III Onex Partners IV Onex Partners V ONCAP II ONCAP III ONCAP IV Available Uncalled Committed Capital (excluding Onex) (a) $ $ $ $ 64 241 353 921 (b) $ 5,313 C$ C$ 2 86 $ 555 (c) (a) Includes committed amounts from the management of Onex and ONCAP and directors, calculated based on the assumption that all of the remaining limited partners’ commitments are invested. (b) Adjusted for the acquisition of SMG, which closed in January 2018. (c) Excludes uncalled committed capital related to the Laces acquisition, which was contributed by the Limited Partners of ONCAP IV in January 2018. Onex Corporation December 31, 2017 73 M A N A G E M E N T ’ S D I S C U S S I O N A N D A N A LY S I S During 2009, Onex completed fundraising for its third large- uncalled committed limited partners’ capital of C$2 million cap private equity fund, Onex Partners III, a $4.7 billion pri- for possible future funding for ONCAP II’s management vate equity fund. Onex’ commitment to Onex Partners III fees and partnership expenses. As a result of previously has been $1.2 billion for new investments completed since approved extensions, the term of ONCAP II was extended to May 15, 2012. Onex Partners III has completed 10 invest- November 22, 2018. 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, 2017, equity fund, ONCAP III, a C$800 million private equity the fund had uncalled limited partners’ committed capital fund, including committed capital of C$252 million from of $353 million for possible future funding for one 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, 2017, 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 $5.7 bil- ONCAP III’s remaining businesses and for management fees lion private equity fund. Onex’ commitment to Onex Part- and partnership expenses. ners IV was $1.7 billion since June 3, 2015. During 2017, Onex acquired an additional interest of $220 million in Onex In November 2016, Onex raised its fourth mid-market pri- Partners IV from a limited partner, as described on page 34 vate equity fund, ONCAP IV, reaching aggregate commit- of this MD&A. At December 31, 2017, Onex Partners IV had ments of $1.1 billion, including Onex’ commitment of completed nine investments, investing $3.8 billion, includ- $480 million. ONCAP IV has completed three investments, ing Onex. The amount invested includes capitalized costs. investing $282 million, including Onex. At December 31, At December 31, 2017, Onex Partners IV had $1.2 billion of 2017, ONCAP IV had uncalled limited partners’ commit- uncalled limited partners’ committed capital available for ted capital of $555 million available for future investments future investments and for management fees and partner- and for management fees and partnership expenses, which ship expenses. Onex Partners IV uncalled committed limited excludes $62 million of capital related to the Laces acquisi- partner capital subsequently decreased to $921 million fol- tion, which was contributed in January 2018. lowing completion of the SMG acquisition in January 2018. During 2017, Onex completed fundraising for its ﬁfth Onex Credit Lending Partners Onex’ private debt fund provides a pool of committed capi- large-cap private equity fund, Onex Partners V, a $7.15 bil- tal for investments in senior secured loans and other loan lion private equity fund. Onex’ commitment to the fund is investments in middle-market, upper middle-market and $2.0 billion. As of December 31, 2017, Onex Partners V has large private equity sponsor-owned portfolio companies not completed any investments. and, selectively, other corporate borrowers predominantly in the United States and, selectively, in Canada and Europe. During 2006, Onex raised its second mid-market fund, During 2017, Onex raised $314 million for OCLP I, ONCAP II, a C$574 million private equity fund, including including $100 million from Onex. At December 31, 2017, a commitment of C$252 million from Onex. ONCAP II has OCLP I had uncalled limited partners’ committed capital of completed eight investments, investing C$483 million, $175 million available for future investments, management including Onex. At December 31, 2017, this fund had fees and partnership expenses. 74 Onex Corporation December 31, 2017 M A N A G E M 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 30. TABLE 30 Management Investment Plan(i) Carried Interest Participation – Onex Partners(ii) Hurdle/ Performance Return 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 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 Onex Partners V Vests equally over 6 years, from the date the fund begins to accrue management fees 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 V • 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 Onex Corporation December 31, 2017 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 (i) Management Investment Plan Table 31 shows the amount of net carried interest received Onex has a MIP that requires its management members by Onex, the parent company, over the past ﬁve years up to to invest in each of the operating businesses acquired or December 31, 2017. invested in by Onex. Management’s required cash invest- ment is 1.5% of Onex’ interest in each acquisition or Carried Interest investment. An amount invested in an Onex Partners acquisition under the fund’s investment requirement (dis- TABLE 31 ($ millions) cussed below) also applies towards the 1.5% investment requirement under the MIP. In addition to the 1.5% participation, manage- ment is allocated 7.5% of Onex’ realized gain from an operating business investment, subject to certain condi- tions. In particular, Onex must realize the full return of its investment plus a net 15% internal rate of return from the investment in order for management to be allocated the 2013 2014 2015 2016 2017 Total Carried Interest Received $ 75 171 1 14 121 $ 382 additional 7.5% of Onex’ gain. The plan has vesting require- During 2017, Onex, the parent company, received carried ments, certain limitations and voting requirements. interest totalling $121 million primarily from the sale of During 2017, management received $34 million USI and partial sales of BBAM, Emerald Expositions and under the MIP (2016 – $7 million). Notes 1 and 32(d) to the JELD-WEN. Onex has the potential to receive $185 million consolidated ﬁnancial statements provide additional details of carried interest on its businesses in the Onex Partners on the MIP. and ONCAP Funds based on their fair values as determined In addition, management of ONCAP has an incen- at December 31, 2017. tive program related to Onex’ co-investment in ONCAP During the year ended December 31, 2016, Onex, operating companies. (ii) Carried interest participation the parent company, received carried interest of $14 mil- lion primarily related to the sale of KraussMaffei. The General Partners of the Onex Partners and ONCAP During the year ended December 31, 2017, management Funds, which are controlled by Onex, are entitled to a car- of Onex and ONCAP received carried interest totalling ried interest of 20% on the realized net gains of the limited $186 million primarily from the sale of USI and partial partners in each fund, subject to an 8% compound annual sales of BBAM, Emerald Expositions and JELD-WEN. Man- preferred return to those limited partners on all amounts agement of Onex and ONCAP have the potential to receive contributed in each particular fund. Onex is entitled to 40% $327 million of carried interest on businesses in the Onex of the carried interest realized in the Onex Partners and Partners and ONCAP Funds based on their values as deter- ONCAP Funds. Onex management is allocated 60% of the mined at December 31, 2017. carried interest realized in the Onex Partners Funds and During the year ended December 31, 2016, man- ONCAP management is allocated 60% of the carried inter- agement of Onex and ONCAP received carried inter- est realized in the ONCAP Funds and an equivalent carried est totalling $24 million primarily related to the sale of interest on Onex’ capital. Once the ONCAP IV investors KraussMaffei. achieve a return of two times their aggregate capital contri- butions, carried interest participation increases from 20% to 25% of the realized net gains in ONCAP IV. Under the terms of the partnership agreements, the General Partners may receive carried interest as realizations occur. The ulti- mate amount of carried interest earned will be based on the overall performance of each fund, independently, and includes typical catch-up and claw-back provisions within each fund, but not between funds. 76 Onex Corporation December 31, 2017 M A N A G E M E N T ’ S D I S C U S S I O N A N D A N A LY S I S (iii) Stock Option Plan (v) Director Deferred Share Unit Plan Onex, the parent company, has a Stock Option Plan in Onex, the parent company, established a Director DSU Plan place that provides for options and/or share appreciation in 2004, which allows Onex directors to apply directors’ fees rights to be granted to Onex directors, ofﬁcers and employ- to acquire DSUs based on the market value of Onex shares ees for the acquisition of SVS of Onex, the parent company, at the time. Grants of DSUs may also be made to Onex for a term not exceeding 10 years. The options vest equally directors from time to time. Holders of DSUs are entitled to over ﬁve years, with the exception of a total of 6,775,000 receive for each DSU, upon redemption, a cash payment options, which vest at a rate of 15% per year during the equivalent to the market value of an SVS at the redemption ﬁrst four years and 40% in the ﬁfth year. The price of the date. The DSUs vest immediately, are only redeemable once options issued is at the market value of the SVS on the busi- the holder retires from the Board of Directors and must be ness day preceding the day of the grant. Vested options are redeemed by the end of the year following the year of retire- not exercisable unless the average ﬁve-day market price of ment. Additional units are issued equivalent to the value of Onex SVS is at least 25% greater than the exercise price at any cash dividends that would have been paid on the SVS. the time of exercise. Table 22 on page 64 of this MD&A pro- To hedge Onex’ exposure to changes in the trading price vides details of the change in the stock options outstanding of Onex shares associated with the Director DSU Plan, the at December 31, 2017 and 2016. Company has entered into forward agreements with a coun- terparty ﬁnancial institution representing over 80% of the (iv) Management Deferred Share Unit Plan grants under the Director DSU Plan. Table 23 on page 65 of Effective December 2007, a Management DSU was estab- this MD&A provides details of the change in the DSUs out- lished as a further means of encouraging personal and standing during 2017 and 2016. direct economic interests by the Company’s senior man- agement in the performance of the SVS. Under the Man- agement DSU Plan, the members of the Company’s senior Onex management team investments in Onex’ Funds The Onex management team invests meaningfully in each management team are given the opportunity to designate operating business acquired by the Onex Partners and all or a portion of their annual compensation to acquire ONCAP Funds and in strategies managed by Onex Credit. DSUs based on the market value of Onex shares at the time The structure of the Onex Partners and ONCAP in lieu of cash. Management DSUs vest immediately but Funds requires the management of Onex Partners and are redeemable by the participant only after he or she has ONCAP Funds to invest a minimum of 1% in all acquisitions, ceased to be an ofﬁcer or employee of the Company or an with the exception of Onex Partners IV, Onex Partners V and afﬁliate for a cash payment equal to the then current mar- ONCAP IV, which require a minimum 2% investment in all ket price of SVS. Additional units are issued equivalent to the acquisitions. This investment includes the minimum “at value of any cash dividends that would have been paid on risk” equity investment on which the management of Onex the SVS. To hedge Onex’ exposure to changes in the trading and ONCAP earn carried interest, as described on page 76 of price of Onex shares associated with the Management DSU this MD&A. Plan, the Company enters into forward agreements with a The Onex management team and directors have counterparty ﬁnancial institution for all grants under the committed to invest 6% of the total capital invested by Onex Management DSU Plan. The costs of those arrangements are Partners IV and V for new investments completed in 2018, borne entirely by participants in the Management DSU Plan. including the minimum “at risk” equity investment. The DSUs are redeemable only for cash and no shares or other Onex management team and directors have committed to securities of Onex will be issued on the exercise, redemp- invest 10% of the total capital invested by ONCAP IV for new tion or other settlement thereof. Table 23 on page 65 of this investments completed in 2018, including the minimum MD&A provides details of the change in the DSUs outstand- “at risk” equity investment. The Onex management team ing during 2017 and 2016. and directors invest in any add-on investments in existing businesses pro-rata with their initial investment in the rel- evant business. Onex Corporation December 31, 2017 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 The total amount invested in 2017 by the Onex management team and directors in acquisitions and Tax loss transaction During 2017 and 2016, Onex sold entities, the sole assets of investments completed through the Onex Partners and which were certain tax losses, to companies controlled by ONCAP Funds was $41 million (2016 – $142 million). Mr. Gerald W. Schwartz, who is Onex’ controlling share- In addition, the Onex management team may holder. Onex received $5 million (2016 – $14 million) in invest in Onex Credit strategies. At December 31, 2017, cash for tax losses of $48 million (2016 – $142 million). investments at market held by the Onex management team The cash received was recorded as a gain in other expense in Onex Credit strategies were approximately $355 million (income). Onex has signiﬁcant non-capital and capital (2016 – approximately $275 million). losses available; however, Onex does not expect to gener- ate sufﬁcient taxable income to fully utilize these losses in Investment in Onex shares and other investments In 2006, Onex adopted a program designed to further the foreseeable future. As such, no beneﬁt was previously recognized in the consolidated ﬁnancial statements for the align the interests of the Company’s senior management tax losses sold. In connection with the 2017 and 2016 trans- and other investment professionals with those of Onex actions, an independent accounting ﬁrm retained by Onex’ shareholders through increased share ownership. Under Audit and Corporate Governance Committee provided an this program, members of senior management of Onex opinion that the value received by Onex for the tax losses are required to invest at least 25% of all amounts received was fair from a ﬁnancial point of view. The transactions on the 7.5% gain allocated under the MIP and the Onex were unanimously approved by Onex’ Audit and Corporate Partners’ carried interest in Onex SVS and/or Management Governance Committee, all the members of which are DSUs until they individually hold at least 1,000,000 Onex independent directors. SVS and/or Management DSUs. Under this program, dur- ing 2017 Onex management reinvested C$33 million (2016 – C$5 million) to acquire Onex SVS and management DSUs. Incline Aviation Fund In February 2017, Mr. Gerald W. Schwartz assumed $25 mil- Members of management and the Board of Direc- lion of Onex’ commitment to Incline Aviation Fund, reduc- tors of Onex can invest limited amounts in partnership ing the amount committed by Onex to $50 million. At with Onex in all acquisitions outside the Onex Partners and December 31, 2017, Onex’ uncalled commitment to Incline ONCAP Funds, including co-investment opportunities, at Aviation Fund was $45 million. the same time and cost as Onex and other outside investors. In addition to Mr. Schwartz’s commitment, man- During 2017, $1 million (2016 – less than $1 million) in invest- agement of Onex has committed approximately $15 million ments were made by the Onex management team and direc- to Incline Aviation Fund. tors in the Incline Aviation Fund. Repurchase of shares In March 2017, Onex repurchased in a private transaction Management fees Onex receives management fees on limited partner capi- tal through its private equity platforms (Onex Partners and 750,000 (January 2016 – 1,000,000) of its SVS that were held ONCAP Funds), its credit platform (Onex Credit Funds, indirectly by Mr. Gerald W. Schwartz, who is Onex’ control- CLOs and Onex Credit Lending Partners) and directly ling shareholder. The private transaction was approved by from certain of its operating businesses. As Onex consoli- the disinterested directors of the Board of Directors of the dates the Onex Partners, ONCAP and Onex Credit Lending Company. The shares were repurchased at C$94.98 (2016 – Partners Funds, CLOs and certain Onex Credit Funds, the C$84.12) per SVS, or a total cost of $53 million (C$71 million) management fees received in respect of limited partner (2016 – $59 million (C$84 million)), which represents a slight capital represent related party transactions. discount to the trading price of Onex shares at that date. 78 Onex Corporation December 31, 2017 M A N A G E M 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 initial fee period of the Onex Part- ners and ONCAP Funds, Onex receives a management fee based on limited partners’ committed capital to each fund. At Decem ber 31, 2017, the management fees of Onex Part- 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 ners IV and ONCAP IV are determined based on limited The Chief Executive Ofﬁcer and the Chief Financial Ofﬁcer partners’ committed capital. The management fees for Onex have designed, or caused to be designed under their super- Partners V had not begun to accrue at December 31, 2017. vision, internal controls over ﬁnancial reporting to provide Following the termination of the initial fee period, reasonable assurance regarding the reliability of ﬁnancial Onex becomes entitled to a management fee based on reporting and the preparation of ﬁnancial statements for limited partners’ net funded commitments. At Decem- external purposes in accordance with IFRS. The Chief ber 31, 2017, the management fees of Onex Partners III and Executive Ofﬁcer and the Chief Financial Ofﬁcer have also ONCAP II and III are determined based on their limited designed, or caused to be designed under their supervi- partners’ net funded commitments. As realizations occur sion, disclosure controls and procedures to provide reason- in these funds, the management fees calculated based on able assurance that information required to be disclosed limited partners’ net funded commitments will decline. by the Company in its corporate ﬁlings has been recorded, Onex has elected to defer cash receipt of manage- processed, summarized and reported within the time peri- ment fees from limited partners of certain private equity ods speciﬁed in securities legislation. funds until the later stages of each fund’s life. At Decem- A control system, no matter how well conceived ber 31, 2017, $107 million (December 31, 2016 – $48 million) and operated, can provide only reasonable, not absolute, of management fees were receivable from the limited part- assurance that its objectives are met. Due to inherent limi- ners of the private equity funds. tations in all such systems, no evaluations of controls can Onex Credit earns management fees on $8.5 bil- provide absolute assurance that all control issues, if any, lion of fund investor capital as of December 31, 2017. The within a company have been detected. Accordingly, our management fees currently range from 0.50% to 1.50% of internal controls over ﬁnancial reporting and disclosure the net asset value or 0.55% of the gross invested assets in controls and procedures are effective in providing reason- Onex Credit Funds; up to 0.50% on the capital invested in able, not absolute, assurance that the objectives of our con- its CLOs; and up to 1.25% of funded commitments, as well trol systems have been met. as up to 0.50% of unfunded commitments in Onex Credit Lending Partners. Incentive fees Onex Credit is entitled to incentive fees on $8.3 billion of fund investor capital that it manages as of December 31, 2017. Incentive fees range between 5% and 20%. Certain incentive fees are subject to a hurdle or minimum pre- ferred return to investors. Onex Corporation December 31, 2017 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 RISK MANAGEMENT This section describes the risks that we believe are mate- Onex maintains an active involvement in its oper- rial to Onex that could adversely affect Onex’ business, ating businesses in the areas of strategic planning, ﬁnancial ﬁnancial condition or results of operations. The risks structures, and negotiations and acquisitions. In the early described below are not the only risks that may impact our stages of ownership, Onex may provide resources for busi- business. Additional risks not currently known to us or that ness and strategic planning and ﬁnancial reporting while we currently believe are immaterial may also have a mate- an operating business builds these capabilities in-house. rial adverse effect on future business and operations. In almost all cases, Onex ensures there is oversight of its As managers, it is our responsibility to identify investment through representation on the acquired com- and manage business risk. As shareholders, we require an pany’s board of directors. Onex does not get involved in the appropriate return for the risk we accept. day-to-day operations of acquired companies. Operating businesses are encouraged to reduce Managing risk Onex’ general approach to the management of risk is to risk and/or expand opportunity by diversifying their cus- tomer bases, broadening their geographic reach or product apply common-sense business principles to the manage- and service offerings, and improving productivity. In certain ment of the Company, the ownership of its operating busi- instances, we may also encourage an operating business nesses and the acquisition of new businesses. Each year, to seek additional equity in the public markets in order to detailed reviews are conducted of many opportunities to continue its growth without eroding its balance sheet. One purchase either new businesses or add-on acquisitions for element of this approach may be to use new equity invest- existing businesses. Onex’ primary interest is in acquiring ment, when ﬁnancial markets are favourable, to prepay well-managed companies with a strong position in growing existing debt and absorb related penalties. Some of the industries. In addition, diversiﬁcation among Onex’ operat- strategies and policies to manage business risk at Onex and ing businesses enables Onex to participate in the growth its operating businesses are discussed in this section. of a number of high-potential industries with varying busi- ness cycles. As a general rule, Onex attempts to arrange as Business cycles Diversiﬁcation by industry and geography is a deliber- many factors as practical to minimize risk without ham- ate strategy at Onex to reduce the risk inherent in busi- pering its opportunity to maximize returns. When an ness 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 12% of its capital. The table in note 35 to the con- debt than it can likely sustain, but rather is structured so solidated ﬁnancial statements provides information on the that it has the ﬁnancial and operating leeway to maxi- geographic diversiﬁcation of Onex’ consolidated revenues. mize long-term growth in value. Finally, Onex invests in 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. 80 Onex Corporation December 31, 2017 M A N A G E M E N T ’ S D I S C U S S I O N A N D A N A LY S I S Operating liquidity It is Onex’ view that one of the most important things Onex Timeliness of investment commitments Onex’ ability to create value for shareholders is dependent can do to control risk is to maintain a strong parent com- in part on its ability to successfully complete large acquisi- pany with an appropriate level of liquidity. Onex needs tions. Our preferred course is to complete acquisitions on an to be in a position to support its operating businesses exclusive basis. However, we also participate in large acqui- when and if it is appropriate and reasonable for Onex, as sitions through investment bank-led auction processes with an equity owner with paramount duties to act in the best multiple potential purchasers. These processes are often interests of Onex shareholders, to do so. Maintaining very competitive for the large-scale acquisitions that are sufﬁcient liquidity is important because Onex, as a hold- Onex’ primary interest, and the ability to make knowledge- ing company, generally does not have guaranteed sources able, timely investment commitments is a key component of meaningful cash ﬂow other than management fees. in successful purchases. In such instances, the vendor often The $148 million in run-rate management fees that are establishes a relatively short time frame for Onex to respond expected to be earned in 2018 will be used to substantially deﬁnitively. In order to improve the efﬁciency of Onex’ offset the costs of running the parent company. internal processes on both auction and exclusive acquisi- A signiﬁcant portion of the purchase price for tion processes, and so reduce the risk of missing out on new acquisitions is generally funded with debt provided high-quality acquisition opportunities, Onex has committed by third-party lenders. This debt, sourced exclusively on pools of capital from limited partner investors with the Onex the strength of the acquired company’s ﬁnancial condition Partners and ONCAP Funds. As at December 31, 2017, Onex and prospects, is debt of the acquired company at closing Partners IV, Onex Partners V and ONCAP IV had $1.2 bil- and is without recourse to Onex, the parent company, or lion, $5.3 billion and $555 million, respectively, of uncalled to its other operating companies or partnerships. The fore- committed limited partners’ capital. The uncalled commit- most consideration, however, in developing a ﬁnancing ted limited partner capital for ONCAP IV excludes capital structure for an acquisition is identifying the appropriate related to the Laces acquisition, which was contributed by amount of equity to invest. In Onex’ view, this should be the Limited Partners of ONCAP IV in January 2018. Onex the amount of equity that maximizes the risk/reward equa- Partners IV uncalled committed limited partner capital sub- tion for both shareholders and the acquired company. In sequently decreased by $290 million following completion other words, it allows the acquired company to not only of the SMG acquisition. manage its debt through reasonable business cycles but During 2017, Onex Partners V raised $7.15 billion also to have sufﬁcient ﬁnancial latitude for the business to of committed limited partners’ capital, including Onex’ vigorously pursue its growth objectives. $2.0 billion commitment. The ability to raise new capital While Onex seeks to optimize the risk/reward commitments is dependent on the fundraising environ- equation in all acquisitions, there is the risk that the ment generally and the track record Onex has achieved acquired company will not generate sufﬁcient proﬁtability with the investment and management of prior funds. To or cash ﬂow to service its debt requirements and/or meet date, Onex has a strong track record of investing other related debt covenants or provide adequate ﬁnancial investors’ capital and many investors in the original Onex ﬂexibility for growth. In such circumstances, additional Partners and ONCAP Funds have committed to invest in investment by the equity partners, including Onex, may be the successor funds that have been established. appropriate. In severe circumstances, the recovery of Onex’ equity and any other investment in that operating com- pany is at risk. Onex Corporation December 31, 2017 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 Capital commitment risk The limited part- Interest rate risk An important element in con- ners in the Onex Partners and ONCAP Funds comprise a trolling risk is to manage, to the extent reasonable, the relatively small group of high-quality, primarily institu- impact of ﬂuctuations in interest rates on the debt of the tional, investors. To date, each of these investors has met operating company. its commitments on called capital, and Onex has received Onex’ operating companies generally seek to ﬁx no indications that any investor will be unable to meet its the interest on some of their term debt or otherwise mini- commitments in the future. While Onex’ experience with mize the effect of interest rate increases on a portion of their its limited partners suggests that commitments will be debt at the time of acquisition. This is achieved by taking honoured, there is always the risk that a limited partner on debt at ﬁxed interest rates or entering into interest rate may not be able to meet its entire commitment over the life swap agreements or ﬁnancial contracts to control the level of the fund. Financial risks In the normal course of business, Onex and its operating of interest rate ﬂuctuation on variable rate debt. At Decem- ber 31, 2017, excluding credit strategies, approximately 38% of Onex’ operating companies’ long-term debt had a ﬁxed interest rate or the interest rate was effectively ﬁxed by inter- companies may face a variety of risks related to ﬁnancial est rate swap contracts. The risk inherent in such a strat- management. In dealing with these risks, it is a matter of egy is that, should interest rates decline, the beneﬁt of such Company policy that neither Onex nor its operating com- decline may not be obtainable or may only be achieved at panies engage in speculative derivatives trading or other the cost of penalties to terminate existing arrangements. speculative activities. There is also the risk that the counterparty on an interest Default on known credit As previously noted, rate swap agreement may not be able to meet its commit- new investments generally include a meaningful amount ments. Guidelines are in place that specify the nature of the of third-party debt. Those lenders typically require that the ﬁnancial institutions that operating companies can deal acquired company meet ongoing tests of ﬁnancial perfor- with on interest rate contracts. mance as deﬁned by the terms of the lending agreement, Onex Credit Lending Partners and the CLOs are such as ratios of total debt to operating income (or EBITDA) exposed to interest rate risk on the debt issued by each fund and the ratio of operating income (or EBITDA) to interest as substantially all interest for debt issued by the funds is costs. It is Onex’ practice to not burden acquired companies based on a spread over a ﬂoating base rate. However, the with levels of debt that might put at risk their ability to gen- interest rate risk is largely offset within each fund by holding erate sufﬁcient levels of proﬁtability or cash ﬂow to service investments in debt securities which receive interest based their debts – and thereby meet their related debt covenants – on a spread over the same or similar ﬂoating base rate. or which might hamper their ﬂexibility to grow. Onex, the parent company, has exposure to inter- Financing risk The continued volatility in the est rate risk primarily through its short- and long-term global credit markets has created some unpredictability investments managed by third-party investment manag- about whether businesses will be able to obtain new loans. ers. As interest rates change, the fair values of ﬁxed income This represents a risk to the ongoing viability of many oth- investments are inversely impacted. Investments with erwise healthy businesses whose loans or operating lines shorter durations are less impacted by changes in interest of credit are up for renewal in the short term. A signiﬁcant rates compared to investments with longer durations. At portion of Onex’ operating companies’ reﬁnancings will December 31, 2017, Onex’ short- and long-term investments take place in 2022 and thereafter. Table 16 on page 59 of included $833 million of ﬁxed income securities measured this MD&A provides the aggregate debt maturities for at fair value, which are subject to interest rate risk. These Onex’ consolidated operating companies and investments securities had a weighted average duration of 1.4 years. in joint ventures and associates for each of the years up to Other factors, including general economic and political 2022 and in total thereafter. 82 Onex Corporation December 31, 2017 conditions, may also affect the value of ﬁxed income secu- rities. These risks are monitored on an ongoing basis and the short- and long-term investments may be repositioned in response to changes in market conditions. M A N A G E M E N T ’ S D I S C U S S I O N A N D A N A LY S I S Currency fluctuations The functional currency of Onex, the parent company, and a majority of Onex’ oper- Commodity price risk Certain Onex operating companies are vulnerable to price ating companies, is the U.S. dollar. Onex’ investments in ﬂuctuations in major commodities. Individual operat- operating companies that have a functional currency other ing companies may use ﬁnancial instruments to offset the than the U.S. dollar or companies with global operations impact of anticipated changes in commodity prices related increase Onex’ exposure to changes in many currency to the conduct of their businesses. exchange rates. In addition, a number of the operating In particular, silver is a signiﬁcant commodity companies conduct business outside the United States and used in Carestream Health’s manufacturing of x-ray ﬁlm. as a result are exposed to currency risk on the portion of The company’s management continually monitors move- business that is not based on the U.S. dollar. Fluctuations ments and trends in the silver market and enters into collar in the value of the U.S. dollar relative to these other cur- and forward agreements when considered appropriate to rencies impact Onex’ reported results and consolidated mitigate some of the risk of future price ﬂuctuations, gen- ﬁnancial position. Onex’ operating companies may use erally for periods of up to a year. currency derivatives in the normal course of business to Additionally, resin and aluminum are signiﬁcant hedge against adverse ﬂuctuations in key operating curren- commodities used by SIG. The company generally pur- cies, but speculative activity is not permitted. Additionally, chases commodities at spot market prices and actively where possible, Onex and its operating companies aim uses derivative instruments to hedge the exposure in rela- to reduce the exposure to foreign currency ﬂuctuations tion to the cost of resin (and its components) and alumi- through natural hedges by transacting in local currencies. num. Due to this approach, the company has been able to Onex’ results are reported in U.S. dollars, and ﬁx the prices one year forward for approximately 80% of its ﬂuctuations in the value of the U.S. dollar relative to other expected resin and aluminum purchases, which substan- currencies will have an impact on Onex’ reported results tially minimizes the exposure to the price ﬂuctuations of and consolidated ﬁnancial position. During 2017, Onex’ the commodities over that period. equity balance reﬂected a $393 million increase in the value Rod, polymers and synthetic ﬁbres are signiﬁcant of Onex’ equity for the translation of its operations with commodities used by WireCo in its manufacturing opera- non-U.S. dollar functional currencies (2016 – $2 million). tions, in addition to certain energy sources, principally Fair value changes The fair value measurements electricity, natural gas and propane. The company moni- for investments in joint ventures and associates, Limited tors the cost of raw materials and, where possible, passes Partners’ Interests and carried interest are primarily driven along price increases and decreases accordingly. The com- by the underlying fair value of the investments in the Onex pany does not enter into commodity contracts to manage Partners and ONCAP Funds. A change to a reasonably pos- the exposure on forecasted purchases of raw materials. sible alternative estimate and/or assumption used in the valuation of non-public investments in the Onex Partners and ONCAP Funds could have a signiﬁcant impact on the Regulatory risk Certain of Onex’ operating companies and investment fair values calculated for investments in joint ventures and advisor afﬁliates may be subject to extensive government associates, Limited Partners’ Interests and carried interest, regulations and oversight with respect to their business which would impact both Onex’ ﬁnancial condition and activities. Failure to comply with applicable regulations, results of operations. obtain applicable regulatory approvals or maintain those approvals may subject the applicable operating company to civil penalties, suspension or withdrawal of any regula- tory approval obtained, injunctions, operating restrictions 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, 2017 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 Integration of acquired companies An important aspect of Onex’ strategy for value creation is Political uncertainty Recent and pending political events in a number of coun- to acquire what we consider to be “platform” companies. tries have resulted in increased uncertainty on aspects of Such companies often have distinct competitive advantages the business, operations or ﬁnancial affairs of some of the in products or services in their respective industries that businesses in which Onex is invested. The impact of those provide a solid foundation for growth in scale and value. In events and ongoing or future developments cannot be these instances, Onex works with company management known or quantiﬁed at this time and may or may not have to identify attractive add-on acquisitions that may enable a material 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% of their risk factors associated with the industry and the combined annual revenues. None of the major customers of the oper- business more generally. Onex works with company man- ating companies represents more than 10% of Onex’ con- agement to understand and attempt to mitigate such risks solidated 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 policy that has been adopted by its operating businesses subject to company-speciﬁc industry are partially dependent on funding from federal, modiﬁcations; many of the operating businesses have also state and local government agencies, especially those agen- adopted supplemental policies appropriate to their indus- cies responsible for state Medicaid and Medicare funding. tries or businesses. Senior ofﬁcers at each of the operating Budgetary pressures, as well as economic, industry, politi- businesses are ultimately responsible for ensuring compli- cal and other factors, could inﬂuence governments to not ance with these policies. They are required to report annu- increase or, in some cases, to decrease appropriations for ally to their company’s board of directors and/or to Onex the services that are offered by Onex’ operating subsidiar- regarding compliance. ies, which could reduce their revenues materially. Future Environmental management by the operating revenues may be affected by changes in rate-setting struc- businesses is typically accomplished through the edu- tures, methodologies or interpretations that may be pro- cation of employees about environmental regulations posed or are under consideration. Ongoing pressure on and appropriate operating policies and procedures; site government appropriations is a normal aspect of business inspections by environmental consultants; the addition of for companies in the U.S. healthcare industry. Productivity proper equipment or modiﬁcation of existing equipment improvements and other initiatives are utilized to minimize to reduce or eliminate environmental hazards; remediation the effect of possible funding reductions. activities as required; and ongoing waste reduction and recycling programs. Environmental consultants may be engaged to advise on current and upcoming environmen- tal regulations that may be applicable. 84 Onex Corporation December 31, 2017 M A N A G E M E N T ’ S D I S C U S S I O N A N D A N A LY S I S Certain operating businesses are involved in the remediation of particular environmental situations, such Other contingencies Onex and its operating companies are or may become par- as soil contamination. In almost all cases, these situa- ties to legal, product liability and warranty claims arising tions have occurred prior to Onex’ acquisition of those in the ordinary course of business. The operating com- businesses, and the estimated costs of remedial work and panies have recorded liability provisions based on their related activities are managed either through agreements consideration and analysis of their exposure in respect of with the vendor of the company or through provisions such claims. Such provisions are reﬂected, as appropriate, established at the time of acquisition. Manufacturing activ- in Onex’ consolidated ﬁnancial statements. Onex, the par- ities carry the inherent risk that changing environmental ent company, has not currently recorded any further lia- regulations may identify additional situations requiring bility provision and we do not believe that the resolution capital expenditures or remedial work and associated costs of known claims would reasonably be expected to have a to meet those regulations. material adverse impact on Onex’ consolidated ﬁnancial position. However, the ﬁnal outcome with respect to out- Income taxes The Company has investments in companies that oper- standing, pending or future actions cannot be predicted with certainty, and therefore there can be no assurance that ate in a number of tax jurisdictions. Onex provides for the their resolution will not have an adverse effect on our con- tax on undistributed earnings of its subsidiaries that are solidated 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, 2017 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 GLOSSARY The following is a list of commonly used terms in Onex’ MD&A and consolidated financial statements and their corresponding definitions. Adjusted EBITDA is a non-GAAP ﬁnancial measure and is based on the local accounting standards of the indi- vidual operating companies. The metric is based on earnings before interest, taxes, depreciation and amortiza- tion 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. 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 uncalled committed capital in excess of cash and cash equivalents. 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. 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 of operations, a single coordi- nated plan to dispose of a separate line of business or geographical area of operations, or a subsidiary acquired exclusively with a view to near-term resale. Economic ownership is the percentage by which Onex economically participates in an operating company investment. 86 Onex Corporation December 31, 2017 M A N A G E M 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 receives 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, taxes 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, taxes and expenses. Hurdle or preferred return is the minimum return required from an investment or fund before entitlement to 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 rel- evant 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 borrow- ers. 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 credit strategies funds, net of carried interest, which is allocated to the limited partners and recorded as Limited Partners’ Interests liability. Onex Corporation December 31, 2017 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 Limited Partners’ Interests liability represents the fair value of limited partners’ invested capital in the Onex Partners, ONCAP and credit strategies 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 Adjusted EBITDA is Adjusted EBITDA of a business over the last twelve months. 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% of Onex’ interest in each acquisition or investment. Management is allocated 7.5% of Onex’ realized gain from an operating business investment, subject to Onex realizing the full return of its investment plus a net 15% internal rate of return on 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% of Onex’ Directors and to 60% of the total shareholder vote on most matters. The shares have no enti- tlement to distribution on wind-up or dissolution above their nominal paid-in value and do not participate 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 Debt is a non-GAAP ﬁnancial measure and is based on the local accounting standards of the individual operating companies. The metric is based on the principal balance of debt and ﬁnance or capital lease obliga- tions of the individual operating companies, net of cash, and subject to certain adjustments. 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, taxes and expenses, taking time into con- sideration. Net multiple of capital (“Net MOC”) is the investment distributions and unrealized value, net of carried inter- est and taxes, 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” or the “Bids”) 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. 88 Onex Corporation December 31, 2017 M A N A G E M 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 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 actively managed, diversiﬁed portfolio investment funds of 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. Onex Credit Lending Partners is a private debt fund which provides credit to middle-market, upper middle- market and large private equity sponsor-owned portfolio companies and, selectively, other corporate borrowers predominantly in the United States and, selectively, in Canada and Europe. The strategy invests 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 fund employs a buy-and-hold approach to investing, with a goal of owning a diversiﬁed pool of investments. Private equity platform refers to 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% of Onex’ Directors and to 40% 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, 2017 89 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 22, 2018 Derek C. Mackay Vice President, Finance 90 Onex Corporation December 31, 2017 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, 2017 and December 31, 2016, and the consolidated statements of earnings, comprehensive earnings, equity and cash ﬂows for the years ended December 31, 2017 and December 31, 2016, 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, 2017 and December 31, 2016 and their ﬁnancial performance and their cash ﬂows for the years ended December 31, 2017 and December 31, 2016 in accordance with International Financial Reporting Standards. [signed] [signed] PricewaterhouseCoopers llp Chartered Professional Accountants, Licensed Public Accountants Toronto, Canada February 22, 2018 Onex Corporation December 31, 2017 91 CONSOLIDATED BALANCE SHEETS As at December 31, 2017 As at December 31, 2016 $ 3,376 $ 2,371 258 3,306 2,506 862 10,308 5,326 12,114 821 7,887 8,223 154 3,868 2,731 1,190 10,314 4,275 8,672 1,192 9,286 9,174 $ 44,679 $ 42,913 $ 4,453 $ 4,324 235 1,416 333 59 6,496 243 21,716 2,051 1,191 7,965 39,662 321 2,128 2,568 5,017 305 1,550 407 89 6,675 340 22,456 2,169 1,537 8,385 41,562 324 1,841 (814) 1,351 $ 44,679 $ 42,913 (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) 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 and credit strategies, without recourse to Onex Corporation (note 14) Current portion of Limited Partners’ Interests (note 17) Non-current portion of provisions (note 13) Long-term debt of operating companies and credit strategies, without recourse to Onex Corporation (note 14) Other non-current liabilities (note 18) Deferred income taxes (note 19) Limited Partners’ Interests (note 17) Equity Share capital (note 20) Non-controlling interests (note 21) Retained earnings (deficit) and accumulated other comprehensive earnings (loss) See accompanying notes to the consolidated financial statements. Signed on behalf of the Board of Directors [signed] Director [signed] Director 92 Onex Corporation December 31, 2017 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) (note 22) Operating expenses (note 22) Interest income Amortization of property, plant and equipment (note 9) Amortization of intangible assets and deferred charges Interest expense of operating companies and credit strategies (note 23) Increase in value of investments in joint ventures and associates at fair value, net (note 10) Stock-based compensation expense (note 24) Other gains (note 25) Other expense (note 26) Impairment of goodwill, intangible assets and long-lived assets, net (note 27) Limited Partners’ Interests charge (note 17) Loss before income taxes and discontinued operations Recovery of (provision for) income taxes (note 19) Loss from continuing operations Earnings from discontinued operations (note 8) Net Earnings (Loss) for the Year Loss from Continuing Operations attributable to: Equity holders of Onex Corporation Non-controlling Interests Loss from Continuing Operations for the Year Net Earnings (Loss) attributable to: Equity holders of Onex Corporation Non-controlling Interests Net Earnings (Loss) for the Year Net Earnings (Loss) per Subordinate Voting Share of Onex Corporation (note 28) Basic and Diluted: Continuing operations Discontinued operations Net Earnings (Loss) per Subordinate Voting Share for the Year See accompanying notes to the consolidated financial statements. 2017 2016 $ 24,497 $ 17,805 (17,921) (4,220) 376 (642) (678) (1,212) 760 (178) 731 (707) (187) (1,350) (731) 84 (647) 3,042 (12,908) (3,033) 349 (447) (518) (882) 180 (194) 36 (21) (232) (647) (512) (107) (619) 583 $ 2,395 $ (36) $ (715) $ (660) 68 41 $ (647) $ (619) $ 2,394 1 $ 2,395 $ $ (130) 94 (36) $ (6.99) $ (6.36) 30.46 5.11 $ 23.47 $ (1.25) Onex Corporation December 31, 2017 93 CONSOLIDATED STATEMENTS OF COMPREHENSIVE EARNINGS Year ended December 31 (in millions of U.S. dollars) Net earnings (loss) for the year Other comprehensive earnings (loss), net of tax Items that may be reclassified to net earnings (loss): Currency translation adjustments Change in fair value of derivatives designated as hedges Unrealized gains on available-for-sale financial assets Items that will not be reclassified to net earnings (loss): Remeasurements for post-employment benefit plans Other comprehensive earnings from discontinued operations, net of tax (note 8) Other comprehensive earnings (loss) for the year, net of tax 2017 $ 2,395 2016 $ (36) 375 45 2 422 6 174 602 (37) 5 – (32) 13 8 (11) Total Comprehensive Earnings (Loss) for the Year $ 2,997 $ (47) Total Comprehensive Earnings (Loss) attributable to: Equity holders of Onex Corporation Non-controlling Interests Total Comprehensive Earnings (Loss) for the Year See accompanying notes to the consolidated financial statements. $ 2,951 46 $ 2,997 $ (154) 107 $ (47) 94 Onex Corporation December 31, 2017 CONSOLIDATED STATEMENTS OF EQUITY (in millions of U.S. dollars except per share data) Balance – December 31, 2015 Dividends declared(b) Repurchase and cancellation of shares (note 20) Investments in operating companies by shareholders other than Onex(c) Transfer of non-controlling interests to liabilities Distributions to non-controlling interests(d) Repurchase of shares of operating companies(e) Non-controlling interests derecognized on sale of an investment in an operating company (note 8) 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 33) Other comprehensive earnings (loss) from discontinued operations, net of tax (note 8) Balance – December 31, 2016 Dividends declared(b) Options exercised Repurchase and cancellation of shares (note 20) Investments in operating companies by shareholders other than Onex(g) Distributions to non-controlling interests Repurchase of shares of operating companies(e) Sale of interests in operating companies under continuing control(h) Non-controlling interests derecognized on sale of investments in operating companies (note 8) 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 33) Other comprehensive earnings from discontinued operations, net of tax (note 8) Balance – December 31, 2017 Share Capital (note 20) $ 333 – (9) Retained Earnings (Deficit) $ 3 (21) (175) – – – – – – – – – 87 (55) – – – (130) – – (1) – $ 324 – 1 (4) (13) $ (305) (23) – (89) – – – – – – – – – – 358 – – 185 – 2,394 – – – 22 Accumulated Other Comprehensive Earnings (Loss) Total Equity Attributable to Equity Holders of Onex Corporation $ (499)(a) – – – – – – – – (28) (3) – 21 $ (509)(f) – – – – – – – – – 352 28 1 – $ (163) (21) (184) 87 (55) – – – (130) (28) (3) (1) 8 $ (490) (23) 1 (93) 358 – – 185 – 2,394 352 28 1 22 Non- controlling Interests $ 1,353 – – Total Equity $ 1,190 (21) (184) 621 (42) (104) (59) (35) 94 (9) 8 14 – $ 1,841 – – – 449 (15) (54) 74 708 (97) (104) (59) (35) (36) (37) 5 13 8 $ 1,351 (23) 1 (93) 807 (15) (54) 259 (213) (213) 1 23 17 1 (16) 2,395 375 45 2 6 – $ 321 1 $ 2,543 153 $ 25(i) 154 $ 2,889 20 $ 2,128 174 $ 5,017 (a) 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 $175 of net losses related to discontinued operations. Income taxes did not have a significant effect on these items. (b) Dividends declared per Subordinate Voting Share during 2017 totalled C$0.29375 (2016 – C$0.26875). In 2017, shares issued under the dividend reinvestment plan amounted (c) to less than $1 (2016 – less than $1). There are no tax effects for Onex on the declaration or payment of dividends. Investments in operating companies by shareholders other than Onex primarily represented the September 2016 contribution by Baring Private Equity Asia of $458 for the October 2016 investment in Clarivate Analytics and the value of existing shareholders of WireCo upon Onex acquiring control of WireCo. (d) Includes $37 of distributions paid to non-controlling interests of JELD-WEN. (e) Repurchase of shares of operating companies during 2017 and 2016 consisted primarily of shares repurchased by Celestica. (f) 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. Accumulated Other Comprehensive Earnings (Loss) as at December 31, 2016 included $153 of net losses related to discontinued operations. Income taxes did not have a significant effect on these items. (g) Investments in operating companies by shareholders other than Onex included the issuance of new shares by JELD-WEN and Emerald Expositions in their initial public offerings and a transfer of the historical accounting carrying values associated with those ownership interests. (h) Sale of interests in operating companies under continuing control represents the proceeds received in excess of the historical accounting carrying value of the investments (i) sold in the initial public offerings of JELD-WEN and Emerald Expositions, as described in notes 2(a) and 2(d), respectively. Accumulated Other Comprehensive Earnings (Loss) as at December 31, 2017 consisted of currency translation adjustments of positive $33, unrealized losses on the effective portion of cash flow hedges of $11 and unrealized gains on available-for-sale financial assets of $3. Income taxes did not have a significant effect on these items. See accompanying notes to the consolidated financial statements. Onex Corporation December 31, 2017 95 CONSOLIDATED STATEMENTS OF CASH FLOWS Year ended December 31 (in millions of U.S. dollars) Operating Activities Loss for the year from continuing operations Adjustments to loss from continuing operations: Provision for (recovery of) income taxes Interest income Interest expense of operating companies and credit strategies Earnings before interest and provision for (recovery of) income taxes Cash taxes paid Items not affecting cash and cash equivalents: Amortization of property, plant and equipment (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) Stock-based compensation expense Other gains (note 25) Foreign exchange loss Impairment of goodwill, intangible assets and long-lived assets, net (note 27) Limited Partners’ Interests charge (note 17) 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 Increase 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 17) Issuance of share capital by operating companies Proceeds from sale of interests in operating companies under continuing control (note 2) Proceeds from sale-leaseback transaction Contributions by non-controlling interests for investment in operating company Distributions paid to non-controlling interests and Limited Partners (note 17) Limited Partnership interest acquired by Onex, the parent company (note 2) Increase (decrease) due to other financing activities Cash flows from financing activities of discontinued operations (note 8) Investing Activities Acquisitions, net of cash and cash equivalents in acquired companies of $75 (2016 – $140) (note 4) Purchase of property, plant and equipment Proceeds from sale of property, plant and equipment Proceeds from sales of operating companies and businesses no longer controlled (note 2) Proceeds from sale of investments in joint ventures and associates (note 10) Distributions received from investments in joint ventures and associates (note 10) Purchase of investments in joint ventures and associates (note 10) Payment of contingent consideration Cash interest received Net purchases of investments and securities for credit strategies (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) 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 – continuing operations Cash and cash equivalents, beginning of the year – 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. 96 Onex Corporation December 31, 2017 2017 2016 $ (647) $ (619) (84) (376) 1,212 105 (248) 642 678 (760) 120 (731) 74 187 1,350 (39) 42 254 1,674 (45) 18 92 122 187 4 10 1,875 8,053 (7,282) (1,064) (22) (93) (54) 673 198 259 91 – (2,332) (156) 113 26 (1,590) (974) (722) 22 3,214 591 71 (6) (28) 367 (944) (691) 23 (240) 683 968 37 2,169 202 3,376 – 107 (349) 882 21 (152) 447 518 (180) 166 (36) 35 232 647 35 103 (326) 1,510 (380) (187) (59) 548 (78) 14 466 1,912 2,700 (1,727) (780) (20) (184) (59) 1,593 9 – – 458 (1,151) – (22) 33 850 (2,902) (481) 64 858 – 206 (44) (163) 325 (1,007) 666 (68) (255) (2,801) (39) (16) 2,115 311 2,371 202 $ 3,376 $ 2,169 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, insurance services, packaging products and services, business and information services, food retail and restaurants, aerospace automation, tooling and components, aircraft leasing and management, building products, holiday parks, hospital management services, survival equipment and industrial prod- ucts, and in various middle-market private equity opportunities. Additionally, the Company has investments in credit strategies and real estate. Note 35 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. Mr. Gerald W. Schwartz controls Onex Corporation by indirectly holding all of the outstanding Multiple Voting Shares of the corporation and also indirectly holds 12% of the outstanding Subordinate Voting Shares of the corporation as at December 31, 2017. 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 22, 2018. 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 controls and consolidates the operations of the Onex Credit asset 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 management platform, certain funds managed by Onex Credit (“Onex Credit Funds”) in which Onex, the parent company, holds investments, collateralized loan obligations (“CLOs”) of Onex The consolidated ﬁnancial statements have been prepared in accor- Credit and Onex Credit Lending Partners, referred to collectively as dance with International Financial Reporting Standards (“IFRS”) “Onex Credit” or “credit strategies”. and its interpretations adopted by the International Accounting The results of operations of subsidiaries are included in Standards Board (“IASB”). These consolidated ﬁnancial statements the consolidated ﬁnancial statements from the date that control were prepared on a going concern basis, under the historical cost commences until the date that control ceases. All signiﬁcant inter- convention, as modiﬁed by the revaluation of available-for-sale company balances and transactions have been eliminated. ﬁnancial assets, and ﬁnancial assets and ﬁnancial liabilities (includ- Certain investments in operating companies over which ing derivative instruments) at fair value through total comprehen- the Company has joint control or signiﬁcant inﬂuence, but not sive earnings. control, are designated, upon initial recognition, at fair value The U.S. dollar is Onex’ functional currency. As such, through earnings. As a result, these investments are recorded at the ﬁnancial statements have been reported on a U.S. dollar basis. fair value in the consolidated balance sheets, with changes in fair C O N S O L I D AT I O N value recognized in the consolidated statements of earnings. References to the Onex management team include the The consolidated ﬁnancial statements represent the accounts management of Onex, ONCAP and Onex Credit. References to of Onex and its subsidiaries, including its controlled operat- management without the use of team include only the relevant ing companies. Onex also controls and consolidates the opera- group. References to the Onex Partners Groups represent Onex, tions of Onex Partners LP (“Onex Partners I”), Onex Partners II LP the limited partners of the relevant Onex Partners Fund, the Onex (“Onex Partners II”), Onex Partners III LP (“Onex Partners III”), management team and, where applicable, certain other limited Onex Partners IV LP (“Onex Partners IV”) and Onex Partners V LP partners as investors. References to the ONCAP Groups represent (“Onex Partners V”), referred to collectively as “Onex Partners”, Onex, the limited partners of the relevant ONCAP Fund, the Onex and ONCAP II L.P., ONCAP III LP and ONCAP IV LP, referred to col- management team and, where applicable, certain other limited lectively as “ONCAP”, as described in note 32. In addition, Onex partners as investors. Onex Corporation December 31, 2017 97 N O T E S T O C O N S O L I D AT E D F I N A N C I A L S TAT E M E N T S 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, 2017 December 31, 2016 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”)(a) Investments made through Onex and Onex Partners II Carestream Health, Inc. (“Carestream Health”) Investments made through Onex and Onex Partners III BBAM Limited Partnership (“BBAM”)(b) Emerald Expositions Events, Inc. (“Emerald Expositions”)(d) JELD-WEN Holding, Inc. (“JELD-WEN”)(e) Meridian Aviation Partners Limited and affiliates (“Meridian Aviation”) SGS International, LLC (“sgsco”) USI Insurance Services (“USI”)(f) 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”) Clarivate Analytics Jack’s Family Restaurants (“Jack’s”) Parkdean Resorts(h) Save-A-Lot Schumacher Clinical Partners (“Schumacher”) SIG Combibloc Group Holdings S.à r.l. (“SIG”) Survitec Group Limited (“Survitec”) WireCo WorldGroup (“WireCo”) Investments made through Onex Real Estate Flushing Town Center Other investments ONCAP II Fund (“ONCAP II”) ONCAP III Fund (“ONCAP III”) ONCAP IV Fund (“ONCAP IV”) 13% – 36% 9% 18% 8% 25% 24% – 29% 13% 79% – – 91% 100% 35% 74% 31% 100% 94% – 88% (c) 74% 31%(c) 100% 94% – 100% 20% 98% 100% 13%(g) 27%(g) 31%(g) 28%(g)(i) 32%(g) 22%(g) 35%(g) 21%(g) 23%(g) 88% 47%(j) 29% 39% 50% 72% 95% 93%(i) 99% 68% 99% 79% 71% 50%(c) 72% 100% 80% 99% 68% 94% 68% 71% 88% 100% 100% 100% 100% 100% 100% 100% 13% 2% 36% 13% 24% 21% 25% 23% 25% 29% 20% 11% 26% 28% – 28% 20% 33% 18% 20% 88% 47%(j) 29% 40% Onex’ and Limited Partners’ Ownership 13% 10% Voting 80% 10% 91% 100% 50% 99% 84% 100% 93% 89% 88% 50% (c) 99% 84% 100% 93% 100% 100% 98% 100% 50% 72% 96% – 100% 68% 99% 79% 71% 50% (c) 72% 100% – 100% 68% 95% 68% 71% 88% 100% 100% 100% 100% 100% 100% 100% (a) Onex sold its remaining investment in Genesis Healthcare during 2017. (b) In October 2017, the Company sold a portion of its investment in BBAM, as described in note 2(h). (c) Onex exerts joint control or significant influence over these investments, which are designated at fair value through earnings, through its right to appoint members to the boards of directors of these entities. Onex has significant influence over JELD-WEN following the loss of control in the second quarter of 2017, as described in note 2(a). (d) Emerald Expositions completed an initial public offering in April 2017, as described in note 2(d). (e) In January 2017, JELD-WEN completed an initial public offering in which all convertible preferred shares were converted to common stock, as described in note 2(a). JELD-WEN also completed secondary offerings in May 2017 and November 2017, as described in note 2(a), and is recorded as a discontinued operation. The economic ownership and voting interests of JELD-WEN at December 31, 2016 are presented on an as-converted basis as the Company’s investment was 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 at December 31, 2016 was calculated using an as-converted economic ownership of 88% to reflect certain JELD-WEN shares that were recorded as liabilities at fair value. (f) USI was sold in May 2017 and is recorded as a discontinued operation, as described in note 2(e). The allocation of net earnings (loss) and comprehensive earnings (loss) attributable to equity holders of Onex Corporation and non-controlling interests at December 31, 2016 was calculated using an economic ownership of 99% to reflect certain USI shares that were previously recorded as liabilities at fair value. (g) During 2017, Onex, the parent company, acquired an interest in Onex Partners IV from a limited partner, as described in note 2(g). (h) Parkdean Resorts was acquired in March 2017, as described in note 2(b). (i) Ownership interests at December 31, 2017 reflect the conversion of the loan note held by the Onex Partners IV Group into additional equity in Parkdean Resorts in February 2018, as described in note 2(b). (j) Represents Onex’ blended economic ownership in the ONCAP II investments. 98 Onex Corporation December 31, 2017 N O T E S T O C O N S 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 32(d). The allocation of net earnings (loss) sequently measured at amortized cost using the effective inter- and comprehensive earnings (loss) attributable to equity holders est method. A provision is recorded for impairment when there is of Onex Corporation and non-controlling interests is calculated objective evidence (such as signiﬁcant ﬁnancial difﬁculties of the using 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 relevant period of the trans- action. Exchange gains and losses also arise on the settlement Inventories of foreign-currency denominated transactions. These exchange Inventories are recorded at the lower of cost or net realizable value. gains and losses are recognized in earnings. The determination of net realizable value requires signiﬁcant Assets and liabilities of foreign operations with non-U.S. judgement, including consideration of factors such as 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 relevant period subsequently change such that the net realizable value increases, of the transaction. Gains and losses arising from the translation of previous writedowns are reversed and recognized in the consoli- these foreign operations are deferred in the currency translation dated statements of earnings in the period during which the rever- account included in equity. Cash and cash equivalents sal occurs. Certain inventories in the food retail and restaurants, healthcare imaging and packaging products and services segments are stated using an average cost method. For substantially all other Cash and cash equivalents include liquid investments such as inventories, cost is 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, 2017 99 N O T E S T O C O N S O L I D AT E D F I N A N C I A L S TAT E M E N T S Substantially all land is not amortized. For substantially Intangible assets all remaining property, plant and equipment, amortization is pro- Intangible assets, including intellectual property and software, are vided for on a straight-line basis over the estimated useful lives of recorded at their fair value at the date of acquisition of the related the assets 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 up to 25 years up to 25 years up to 20 years up 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. a 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 are 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, for 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 panies. The recoverability of goodwill is assessed annually or a straight-line basis over the period of the lease. Certain operat- whenever events or changes in circumstances indicate that the ing 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. 100 Onex Corporation December 31, 2017 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- Costs incurred to establish revolving credit facilities are nies under IFRS may not impact the fair values of the operating recognized as an other current or non-current asset and are amor- companies used in determining the change in carried interest and tized on a straight-line basis over the term of the facility; however, for calculating the Limited Partners’ Interests liability. Fair values of to the extent that the Company expects to draw on the facility, the the operating companies are assessed at the enterprise level, while costs are deferred until the amounts are drawn on the facility and impairment charges are assessed at the level of either an individual are then amortized over the remaining term of the facility. CGU or group of CGUs. Provisions Impairment of long-lived assets A provision is a liability of uncertain timing or amount and is gen- Property, plant and equipment, investment property and intan- erally recognized when the Company has a present obligation as a gible assets are reviewed for impairment annually or whenever result of a past event, it is probable that payment will be made to events or changes in circumstances suggest that the carrying settle the obligation and the payment can be reliably estimated. amount of an asset may not be recoverable. Judgement is required Judgement is required to determine the extent of an obligation and in determining whether events or changes in circumstances dur- whether it is probable that payment will be made. The Company’s ing the year are indicators that a review for impairment should be signiﬁcant provisions consist of the following: conducted prior to the annual assessment. An impairment loss is recognized when the carrying value of an asset or CGU exceeds the a) Self-insurance recoverable amount. The recoverable amount of an asset or CGU is Self-insurance provisions may be established for automobile, the greater of its value-in-use or its fair value less costs to sell. workers’ compensation, healthcare coverage, general liability, Impairment losses for long-lived assets are reversed professional liability and other claims. Provisions are established in future periods if the circumstances that led to the impairment for claims based on an assessment of actual claims and claims no longer exist. The reversal is limited to restoring the carrying incurred but not reported. The reserves may be established based amount that would have been determined, net of amortization, had on consultation with independent third-party actuaries using no impairment loss been recognized in prior periods. actuarial principles and assumptions that consider a number of Investments in joint ventures and associates in case reserves, and the assumed rate of inﬂation in healthcare Joint ventures and associates are those entities over which the costs and property damage repairs. factors, including historical claim payment patterns and changes Company has joint control or signiﬁcant inﬂuence, but not con- trol. Certain investments in joint ventures and associates are des- b) Warranty ignated, upon initial recognition, at fair value through earnings Certain operating companies offer warranties on the sale of prod- in accordance with IAS 39, Financial Instruments: Recognition ucts or services. A provision is recorded to provide for future and Measurement. As a result, the investments are recorded at warranty costs based on management’s best estimate of proba- fair value in the consolidated balance sheets, with changes in fair ble claims under these warranties. The provision is based on the value recognized in the consolidated statements of earnings. terms of the warranty, which vary by customer and product or ser- Certain investments in joint ventures and associates are vice, and historical experience. The appropriateness of the provi- initially recognized at cost, and the carrying amount of the invest- sion is evaluated at the end of each reporting period. ment is adjusted to recognize the Company’s share of the proﬁt or loss in the investment, from the date that joint control or signiﬁcant c) Restructuring inﬂuence commences until the date that joint control or signiﬁcant Restructuring provisions are recognized only when a detailed inﬂuence ceases, in accordance with IAS 28, Investments in Asso formal plan for the restructuring – including the business or ciates and Joint Ventures. The Company’s share of the proﬁt or loss part of the business concerned, the principal locations affected, is recognized in other income (expense) and any distributions details regarding the employees affected, the restructuring’s tim- received reduce the carrying amount of the investment. ing and the expenditures that will have to be undertaken – has Financing charges been developed and the restructuring has either commenced or the plan’s main features have already been publicly announced to Financing charges consist of costs incurred by the operating com- those affected by it. panies relating to the issuance of term borrowings and revolving credit facilities. Transaction costs relating to the term borrow- Note 13 provides further details on provisions recognized by the ings are amortized over the term of the related debt or as the debt Company. is retired, if earlier. These unamortized ﬁnancing charges are net- ted against the carrying value of the long-term debt, as described in note 14. Onex Corporation December 31, 2017 101 N O T E S T O C O N S O L I D AT E D F I N A N C I A L S TAT E M E N T S Pension and non-pension post-retirement benefits Limited Partners’ Interests Onex, the parent company, did not provide pension, other retire- The interests of the limited partners and other investors through ment or post-retirement beneﬁts to the employees of the operating the Onex Partners, ONCAP, Onex Credit Lending Partners and Onex companies during the years ended December 31, 2017 and 2016. The Credit Funds are recorded as ﬁnancial liabilities in accordance with operating companies that offer pension and non-pension post- IAS 32, Financial Instru ments: Presentation. The structure of the retirement beneﬁts accrue their obligations under such employ- Onex Partners, ONCAP and Onex Credit Lending Partners Funds, ee beneﬁt plans and related costs, net of plan assets. The costs of and Onex Credit Funds as deﬁned in the governing agreements, deﬁned beneﬁt pensions and other post-retirement beneﬁts earned speciﬁcally the limited life of the Onex Partners, ONCAP and Onex by employees are accrued in the period incurred and are actuari- Credit Lending Partners Funds, and the redemption provisions of ally determined using the projected unit credit method pro-rated the Onex Credit Funds, requires presentation of the limited part- on length of service, based on management’s judgement and best ners’ interests as a liability. The liability is recorded at fair value estimates of assumptions for factors which impact the ultimate cost, and is primarily impacted by the change in fair value of the under- including salary escalation, the retirement ages of employees, the lying investments in the Onex Partners, ONCAP and Onex Credit discount rate used in measuring the liability and expected health- Lending Partners Funds, and Onex Credit Funds, the change in car- care costs. ried interest on investments held by the Onex Partners and ONCAP Plan assets are recorded at fair value at each reporting Funds, the change in incentive fees on investments held by Onex date. Where a plan is in a surplus, the value of the net asset recog- Credit Lending Partners and Onex Credit Funds, as well as any con- nized is restricted to the present value of any economic beneﬁts tributions by and distributions to limited partners in those Funds. available in the form of refunds from the plan or reductions in Adjustments to the fair value of the Limited Partners’ Interests are future contributions to the plan. reﬂected through earnings, net of the change in carried interest and The cost of deﬁned beneﬁt plans recognized in the con- incentive fees. solidated statements of earnings comprises the net total of the Note 17 provides further details on Limited Partners’ current service cost, the past service cost, gains or losses from Interests. settlements and the net interest expense or income. The current service cost represents the increase in the present value of the plan Income taxes liabilities expected to arise from employee service in the current Income taxes are recorded using the asset and liability method of period. The past service cost is the change in the beneﬁt obligation income tax allocation. Under this method, assets and liabilities in respect of employee service in prior periods and which results are recorded for the future income tax consequences attributable from a plan amendment or curtailment. Past service costs (or to differences between the ﬁnancial statement carrying values of recoveries) from plan amendments are recognized immediately in assets and liabilities and their respective income tax bases, and on earnings, whether vested or unvested. tax loss and tax credit carryforwards. Deferred tax assets are recog- Remeasurements, consisting of actuarial gains or losses, nized only to the extent that it is probable that taxable proﬁt will the actual return on plan assets (excluding the net interest compo- be available against which the deductible temporary differences nent) and any change in the asset ceiling, are recognized in other as well as tax loss and tax credit carryforwards can be utilized. comprehensive earnings. Remeasurements recognized in other These deferred income tax assets and liabilities are recorded using comprehensive earnings are directly recorded in retained earnings, substantively enacted income tax rates. The effect of a change in without recognition in the consolidated statements of earnings. income tax rates on these deferred income tax assets or liabili- Deﬁned contribution plan accounting is applied to multi- ties is included in income in the period in which the rate change employer deﬁned beneﬁt plans, for which the operating companies occurs. Certain of these differences are estimated based on current have insufﬁcient information to apply deﬁned beneﬁt accounting. tax legislation and the Company’s interpretation thereof. Note 33 provides further details on pension and non- Income tax expense or recovery is based on the income pension post-retirement beneﬁts. 102 Onex Corporation December 31, 2017 earned or loss incurred in each tax jurisdiction and the enacted or substantively enacted tax rate applicable to that income or loss. Tax expense or recovery is recognized in the income statement, except to the extent that it relates to items recognized directly in equity, in which case the tax effect is also recognized in equity. Deferred tax liabilities for taxable temporary differences associated with investments in subsidiaries, joint ventures and associates are recognized, except when the Company is able to control the timing of the reversal of temporary differences and it is probable that the temporary differences will not reverse in the foreseeable future. N O T E S T O C O N S 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 ordinary course of business, there are transac- Health and Human Services tions for which the ultimate tax outcome is uncertain. The ﬁnal tax Revenue from the health and human services segment consists outcome of these matters may be different from the judgements primarily of services. Services revenue is recognized at the time of and estimates originally made by the Company in determining service if revenues and costs can be reliably measured and eco- its income tax provisions. The Company periodically evaluates nomic beneﬁts are expected to be received, and is recorded net of the positions taken with respect to situations in which applicable provisions for examination of expenses by agencies administering tax rules and regulations are subject to interpretation. Provisions contracts and services. related to tax uncertainties are established where appropriate based on the best estimate of the amount that will ultimately be Insurance Services paid to or received from tax authorities. Accrued interest and pen- Revenue from the insurance services segment primarily consists alties relating to tax uncertainties are recorded in current income of fee and service revenues. Fee revenues from claims manage- tax expense, in ac cor dance with IAS 12, Income Taxes. ment are recognized as claims are processed using an estimate of Note 19 provides further details on income taxes. services provided and costs incurred. Service revenues from man- Revenue recognition aged care, specialized loss adjusting and ﬁeld investigations are recognized at the time of service if revenues and costs can be reli- Revenues are recognized net of estimated returns and allowances, ably measured and economic beneﬁts are expected to be received. trade discounts and volume rebates, where applicable. Where the Service revenues from ﬁxed price contracts are recognized on each Company is responsible for shipping and handling to customers, contract proportionately over the life of the contract. amounts charged for these services are recognized as revenue, and shipping and handling costs incurred are reported as a com- Packaging Products and Services ponent of cost of sales in the consolidated statements of earnings. Revenue from the packaging products and services segment pri- Electronics Manufacturing Services marily consists of sales of goods and services. Revenue is mea- sured as the fair value of the consideration received or receivable Revenue from the electronics manufacturing services segment net of returns and allowances, trade discounts, volume rebates consists primarily of product sales and services. Revenue is rec- and other customer incentives. Revenue from the sale of goods is ognized when signiﬁcant risks and rewards of ownership have recognized when signiﬁcant risks and rewards of ownership have been transferred to the customer and receivables are reasonably been substantially transferred to the buyer, recovery of the con- assured of collection. sideration is probable, the associated costs and possible return For certain customers, warehousing services are pro- of goods can be reliably estimated, and there is no continuing vided in connection with manufacturing services. Contracts are management involvement with the goods. Transfer of risks and assessed to determine whether the manufacturing and warehous- rewards of ownership vary depending on the individual terms of ing services can be accounted for as separate units of accounting. the contract of sale and occur either upon shipment of the goods If the services do not constitute separate units of accounting, or or upon receipt of the goods and/or their deployment or installa- the manufacturing services do not meet all of the revenue rec- tion at a customer location. Revenue is recognized by reference to ognition requirements, revenue recognition is deferred until the the stage of completion of the transaction at the end of the report- products have been shipped to the customer. ing period, when the outcome of a transaction involving render- ing of services can be reliably estimated. Healthcare Imaging Revenue from the healthcare imaging segment consists primar- Business and Information Services ily of product sales and services. Revenue from product sales is Revenue from the business and information services segment recognized when the following criteria are met: signiﬁcant risks primarily consists of sales of subscription services and staging of and rewards of ownership have been transferred; involvement in trade shows and conference events. Revenue from subscription the capacity as an owner of the goods has ceased; revenue and arrangements is recognized on a straight-line basis over the term costs incurred can be reliably measured; and economic beneﬁts of the subscription if revenues and costs can be reliably measured are expected to be realized. Revenue is recorded net of provisions and economic beneﬁts are expected to be received. Usage fees in for estimated customer returns, rebates and other similar allow- excess of the base subscription fee are recognized as services are ances. Services revenue is recognized at the time of service if rev- delivered. Revenue from staging of trade shows and conference enues and costs can be reliably measured and economic beneﬁts events is recognized when the events are staged if revenues and are expected to be received. costs can be reliably measured and economic beneﬁts are expected to be received. Onex Corporation December 31, 2017 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 Food Retail and Restaurants based on the number of units produced. The contract method Revenue from the food retail and restaurants segment primar- of accounting involves the use of various estimating techniques ily consists of product sales and distribution services. Revenue is to project costs at completion and includes estimates of ulti- recognized when signiﬁcant risks and rewards of ownership have mate proﬁtability and ﬁnal contract settlements. Any expected been transferred to the customer and the collection of receivables loss from a contract is recognized in the period where the esti- is reasonably assured. Credit Strategies mated 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 The credit strategies segment consists of (i) Onex Credit Manager, is recognized only to the extent that those costs are recoverable. (ii) Onex Credit Collateralized Loan Obligations, (iii) Onex Credit When the outcome of such contracts becomes reliably estima- Funds and (iv) Onex Credit Lending Partners. Revenue from the ble, revenue is recognized prospectively. credit strategies segment primarily consists of management and incentive fees earned on capital managed by Onex Credit. For arrangements where the operating companies derive reve- Revenue is recognized when earned in accordance with the terms nues from multiple service or product elements, the recognition of the relevant investment management agreements. of revenues is based on the individual relative fair value of each The consolidated revenues exclude management and element separately identiﬁed in the arrangements. incentive fees earned from Onex’ investments in OCLP I, Onex Credit Funds and CLOs consolidated by Onex. Depending on the terms under which the operating companies Other supply products, they may also be responsible for some or all of the repair or replacement costs of defective products. The com- Other segment revenues consist of product sales, services and panies establish provisions for issues that are probable and esti- construction contracts: mable in amounts management believes are adequate to cover • Revenue from product sales is recognized when the following the ultimate projected claim costs. The ﬁnal amounts determined criteria are met: signiﬁcant risks and rewards of ownership have to be due related to these matters could differ signiﬁcantly from been transferred; involvement in the capacity as an owner of the recorded estimates. goods has ceased; revenue and costs incurred can be reliably measured; and economic beneﬁts are expected to be realized. Research and development Where product sales are subject to customer acceptance, rev- Research and development activities can be either (a) contracted enue is recognized at the earlier of receipt of customer accep- or (b) self-initiated: tance or expiration of the acceptance period. Where product sales require the company to install the product at the customer location and such installation is essential to the functionality of a) Costs for contracted research and development activities, car- ried out within the scope of externally ﬁnanced research and the product, revenue is recognized when the product has been development contracts, are expensed when the related revenues delivered to and installed at the customer location. are recorded. • Revenue from services is recognized at the time of service, when revenues and costs can be reliably measured and eco- nomic beneﬁts are expected to be received by the company, b) Costs for self-initiated research and development activities are assessed to determine if they qualify for recognition as internally and is recorded net of provisions for contractual discounts and generated intangible assets. Apart from complying with the gen- estimated uncompensated care. Where services performed are eral requirements for initial measurement of an intangible asset, subject to customer acceptance, revenue is recognized at the qualiﬁcation criteria are met only when technical as well as com- earlier of receipt of customer acceptance or expiration of the mercial feasibility can be demonstrated and the cost can be reli- acceptance period. ably measured. It must also be probable that the intangible asset • Revenue from construction and other long-term contracts is will generate future economic beneﬁts, be clearly identiﬁable and recognized on each contract by reference to the percentage- allocable to a speciﬁc product. Further to meeting these criteria, of-completion of the contract activity, primarily by comparing only such costs that relate solely to the development phase of a contract costs incurred to the estimated total contract costs or self-initiated project are capitalized. Any costs that are classiﬁed as 104 Onex Corporation December 31, 2017 N O T E S T O C O N S O L I D AT E D F I N A N C I A L S TAT E M E N T S part of the research phase of a self-initiated project are expensed must be redeemed within one year following the year of retire- as incurred. If the research phase cannot be clearly distinguished ment. Additional units are issued for any cash dividends paid on from the development phase, the respective project-related costs the SVS. The Company has recorded a liability for the future set- are treated as if they were incurred in the research phase only. tlement of the DSUs by reference to the value of the underlying Capitalized development costs are generally amortized over the SVS at the balance sheet date. On a quarterly basis, the liability estimated number of units produced. In cases where the number of is adjusted for the change in the market value of the underlying units produced cannot be reliably estimated, capitalized develop- shares, with the corresponding amount reﬂected in the consoli- ment costs are amortized over the estimated useful life of the inter- dated statements of earnings. To economically hedge a portion of nally generated intangible asset. Internally generated intangible the Company’s exposure to changes in the trading price of Onex assets are reviewed for impairment annually when the asset is not shares, the Company enters into forward agreements with a yet in use or when events or changes in circumstances indicate that counterparty ﬁnancial institution. The change in value of the for- the carrying amount may not be recoverable and the asset is in use. ward agreements will be recorded to partially offset the amounts During 2017, $213 (2016 – $223) of research and develop- recorded as stock-based compensation under the Director DSU ment costs were expensed and $44 (2016 – $10) of development Plan. Details of the Director DSUs outstanding under the plan and costs were capitalized. Stock-based compensation the amount hedged by the Company are provided in note 20(d). The fourth type of plan is the Management Deferred Share Unit Plan (“Management DSU Plan”). The Management The Company follows the fair value-based method of accounting, DSU Plan enables Onex management to apply all or a portion of which is applied to all stock-based compensation plans. their annual compensation earned to acquire DSUs based on the There are ﬁve types of stock-based compensation market value of Onex shares at the time in lieu of cash. The DSUs plans. The ﬁrst is the Company’s Stock Option Plan (the “Plan”), vest immediately and are redeemable only when the holder has described in note 20(e), which provides that in certain situations ceased to be an ofﬁcer or employee of the Company or an afﬁliate the Company has the right, but not the obligation, to settle any for a cash payment equal to the then current market price of SVS. exercisable option under the Plan by the payment of cash to the Additional units are issued for any cash dividends paid on the SVS. option holder. The Company has recorded a liability for the poten- The Company has recorded a liability for the future settlement of tial future settlement of the vested options at the balance sheet the DSUs by reference to the value of the underlying SVS at the date by reference to the fair value of the liability. The liability is balance sheet date. On a quarterly basis, the liability is adjusted adjusted each reporting period for changes in the fair value of the for the change in the market value of the underlying shares, with options, with the corresponding amount reﬂected in the consoli- the corresponding amount reﬂected in the consolidated state- dated statements of earnings. ments of earnings. To economically hedge the Company’s expo- The second type of plan is the MIP, which is described sure to changes in the trading price of Onex shares associated with in note 32(d). The MIP provides that exercisable investment rights the Management DSU Plan, the Company enters into forward may be settled by issuance of the underlying shares or, in cer- agreements with a counterparty ﬁnancial institution for all grants tain situations, by a cash payment for the value of the investment under the Management DSU Plan. As such, the change in value rights. The Company has recorded a liability for the potential of the forward agreements will be recorded to offset the amounts future settlement of the vested rights at the balance sheet date by recorded as stock-based compensation under the Management reference to the fair value of the liability. The liability is adjusted DSU Plan. The administrative costs of those arrangements are each reporting period for changes in the fair value of the rights, borne entirely by participants in the plan. Management DSUs are with the corresponding amount reﬂected in the consolidated redeemable only for cash and no shares or other securities of the statements of earnings. Corporation will be issued on the exercise, redemption or other The third type of plan is the Director Deferred Share Unit settlement thereof. Details of the Management DSUs outstanding Plan (“Director DSU Plan”). A Deferred Share Unit (“DSU”) entitles under the plan are provided in note 20(d). the holder to receive, upon redemption, a cash payment equiva- The ﬁfth type of plan is the employee stock option and lent to the market value of a Subordinate Voting Share (“SVS”) other stock-based compensation plans in place for employees at at the redemption date. The Director DSU Plan enables Onex various operating companies, under which, on payment of the Directors to apply directors’ fees earned to acquire DSUs based exercise price, stock of the particular operating company or cash on the market value of Onex shares at the time. Grants of DSUs is issued. The Company records a compensation expense for such may also be made to Onex Directors from time to time. The DSUs options based on the fair value over the vesting period. vest immediately, are redeemable only when the holder retires and Onex Corporation December 31, 2017 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 Carried interest 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 and established time frame, are recognized on a trade-date basis. ONCAP Funds. Onex management is entitled to the remaining 60% of the carried interest realized in the Onex Partners Funds a) Fair value through net earnings and ONCAP management is entitled to 60% of the carried interest Financial assets and ﬁnancial liabilities that are purchased and realized in the ONCAP Funds and an equivalent carried interest on incurred with the intention of generating earnings in the near term Onex capital. Once the ONCAP IV investors achieve a return of two are classiﬁed as fair value through net earnings. Other instruments times their aggregate capital contributions, carried interest par- may be designated as fair value through net earnings on initial ticipation increases from 20% to 25% of the realized net gains in recognition. Short- and long-term investments managed by third- ONCAP IV. party investment managers, as described in note 10(c), have been The unrealized carried interest of the Onex Partners and recognized at fair value through net earnings. The long-term debt ONCAP Funds is calculated based on the fair values of the under- of the CLOs is designated at fair value through net earnings upon lying investments and the overall unrealized gains in each respec- initial recognition to eliminate a measurement inconsistency, tive Fund, in accordance with the limited partnership agreements. as the asset portfolio of the CLOs is recorded at fair value through The unrealized carried interest reduces the amount due to the net earnings. limited partners and will eventually be paid through the realiza- tion of the limited partners’ share of the underlying Onex Partners b) Available-for-sale and ONCAP Fund investments. The change in net carried interest Financial assets classiﬁed as available-for-sale are carried at fair attributable to Onex is recognized as a reduction to the charge or value, with the changes in fair value recorded in other comprehen- recovery for the Limited Partners’ Interests. The unrealized car- sive earnings. Securities that are classiﬁed as available-for-sale and ried interest of the Onex Partners and ONCAP Funds attributable which do not have a quoted price in an active market are record- to management is recognized as a liability primarily within other ed at fair value, unless fair value is not reliably determinable, in current and non-current liabilities. The charge for the change which case they are recorded at cost. Available-for-sale securities in net carried interest attributable to management is recorded are written down to fair value through earnings whenever it is within other income (expense) in the consolidated statements necessary to reﬂect an impairment. Gains and losses realized on of earnings and reduces the charge or recovery for the Limited disposal of available-for-sale securities, which are calculated on Partners’ Interests. Incentive fees an average cost basis, are recognized in earnings. Impairments are determined based on all relevant facts and circumstances for each investment and recognized when appropriate. Foreign exchange Onex Credit is entitled to incentive fees on fund investors capital it gains and losses on available-for-sale assets are recognized imme- manages. Incentive fees range between 5% and 20%, where appli- diately in earnings. cable. Certain incentive fees (including incentive fees on CLOs) are subject to a hurdle or a minimum preferred return to investors. c) Held-to-maturity investments Financial assets and financial liabilities Securities that have ﬁxed or determinable payments and a ﬁxed maturity date, which the Company intends and has the ability to Financial assets and ﬁnancial liabilities are initially recognized hold to maturity, are classiﬁed as held-to-maturity and accounted at fair value and are subsequently accounted for based on their for at amortized cost using the effective interest rate method. classiﬁcation, as described below. Transaction costs in respect of Investments classiﬁed as held-to-maturity are written down to an asset or liability not recorded at fair value through net earn- fair value through earnings whenever it is necessary to reﬂect an ings are added to the initial carrying amount. Gains and losses for impairment. Impairments are determined based on all relevant ﬁnancial instruments recognized through net earnings are pri- facts and circumstances for each investment and recognized when marily recognized in other income (expense) in the consolidated appropriate. 106 Onex Corporation December 31, 2017 N O T E S T O C O N S 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) Loans and receivables The effective portion of changes in the fair value of deriv- Financial assets that are non-derivative with ﬁxed or determinable atives that are designated and qualify as cash ﬂow hedges is recog- payments that are not quoted in an active market are classiﬁed nized in other comprehensive earnings. Any gain or loss in fair value as loans and receivables. These instruments are accounted for at relating to the ineffective portion is recognized immediately in the amortized cost using the effective interest rate method. consolidated statements of earnings in other income (expense). Amounts accumulated in other comprehensive earnings e) Financial liabilities measured at amortized cost are reclassiﬁed in the consolidated statements of earnings in the Financial liabilities not classiﬁed as fair value through net earn- period in which the hedged item affects earnings. However, when ings or loans and receivables are accounted for at amortized cost the forecasted transaction that is hedged results in the recogni- using the effective interest rate method. Long-term debt has been tion of a non-ﬁnancial asset or a non-ﬁnancial liability, the gains designated as a ﬁnancial liability measured at amortized cost with and losses previously deferred in other comprehensive earnings the exception of long-term debt in the CLOs, which has been des- are transferred from other comprehensive earnings and included ignated to be recorded at fair value through net earnings. in the initial measurement of the cost of the asset or liability. Derivatives and hedge accounting a hedge no longer meets the criteria for hedge accounting, any At the inception of a hedging relationship, the Company docu- cumulative gain or loss existing in other comprehensive earnings ments the relationship between the hedging instrument and the at that time remains in other comprehensive earnings until the hedged item, its risk management objectives and its strategy for forecasted transaction is recognized in the consolidated state- undertaking the hedge. The Company also requires a documented ments of earnings. When a forecasted transaction is no longer assessment, both at hedge inception and on an ongoing basis, of expected to occur, the cumulative gain or loss that was reported in whether or not the derivatives that are used in the hedging transac- other comprehensive earnings is immediately transferred to the When a hedging instrument expires or is sold, or when tions are highly effective in offsetting the changes attributable to consolidated statements of earnings. the hedged risks in the fair values or cash ﬂows of the hedged items. Derivatives that are not designated as effective hedg- c) Net investment hedges ing relationships continue to be accounted for at fair value, with Hedges of net investments in foreign operations are accounted for changes in fair value being included in other income (expense) in in a manner similar to cash ﬂow hedges. Any gain or loss on the the consolidated statements of earnings. hedging instrument relating to the effective portion of the hedge When derivatives are designated as effective hedging is recognized in other comprehensive earnings. The gain or loss relationships, the Company classiﬁes them either as: (a) hedges relating to the ineffective portion is recognized immediately in the of the change in fair value of recognized assets or liabilities or ﬁrm consolidated statements of earnings in other income (expense). commitments (fair value hedges); (b) hedges of the variability Gains and losses accumulated in other comprehensive earnings in highly probable future cash ﬂows attributable to a recognized are included in the consolidated statements of earnings upon the asset or liability or a forecasted transaction (cash ﬂow hedges); or reduction or disposal of the investment in the foreign operation. (c) hedges of net investments in a foreign self-sustaining opera- tion (net investment hedges). Contingent consideration a) Fair value hedges Contingent consideration is established for business acquisi- tions where the Company has the obligation to transfer additional Changes in the fair value of derivatives that are designated and assets or equity interests to the former owners if speciﬁed future qualify as fair value hedging instruments are recorded in the con- events occur or conditions are met. The fair value of contingent solidated statements of earnings along with changes in the fair consideration liabilities is typically based on the estimated future value of the assets, liabilities or group thereof that are attributable ﬁnancial performance of the acquired business. Financial targets to the hedged risk. b) Cash flow hedges used in the estimation process include certain deﬁned ﬁnancial targets and realized internal rates of return. Contingent consid- eration is classiﬁed as a liability when the obligation requires set- The Company is exposed to variability in future interest cash tlement in cash or other assets, and is classiﬁed as equity when ﬂows on non-trading assets and liabilities that bear interest at the obligation requires settlement in own equity instruments. variable rates or are expected to be reinvested in the future. Contingent consideration that is classiﬁed as a liability is included in the provisions ﬁnancial statement line item. Onex Corporation December 31, 2017 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 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 the 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. Consolidation of structured entities Earnings per share Onex indirectly controls and consolidates the operations of the Basic earnings per share is based on the weighted average num- CLOs of Onex Credit. The CLOs are structured entities for which ber of SVS outstanding during the year. Diluted earnings per share voting and similar rights are not the dominant factor in determin- is calculated using the treasury stock method. ing control. Onex has used judgement when assessing the many Dividend distributions factors to determine control, including its exposure through invest- ments in the most subordinate capital of the CLOs, its role in the Dividend distributions to the shareholders of Onex Corporation formation of the CLOs, the rights of other investors in the CLOs and are recognized as a liability in the consolidated balance sheets in control of the asset manager of the CLOs. Onex has determined that the period in which the dividends are declared and authorized by it is a principal of the CLOs with the power to affect the returns of the Board of Directors. its investment and, as a result, indirectly controls the CLOs. 108 Onex Corporation December 31, 2017 N O T E S T O C O N S O L I D AT E D F I N A N C I A L S TAT E M E N T S During 2017 and 2016, Onex invested capital in and valued. Considerations are necessary because, in the absence received distributions and proceeds from the CLOs and warehouse of a committed buyer and completion of due diligence similar to facilities, as described in notes 2(n) and 3(p). Onex intends to pro- that performed in an actual negotiated sale process, there may be vide additional ﬁnancial collateral for CLO warehouse facilities. The company-speciﬁc items that are not fully known that may affect collateral to be provided for the warehouse facilities is expected value. In addition, a variety of other factors are reviewed by man- to be substantially reinvested in the most subordinated notes and agement, including, but not limited to, ﬁnancing and sales transac- equity of the CLOs upon closing. Fair value of investments and debt of credit strategies not quoted in an active market tions with third parties, current operating performance and future expectations of the particular investment, changes in market out- look and the third-party ﬁnancing environment. In determining changes to the valuations, emphasis is placed on current company The fair value of investments and debt of the CLOs and Onex performance and market conditions. For publicly traded invest- Credit Lending Partners not quoted in an active market may be ments, the valuation is based on closing market prices less adjust- determined by Onex Credit using reputable pricing sources (such ments, if any, for regulatory and/or contractual sale restrictions. as pricing agencies) or indicative prices from bond/debt market The Limited Partners’ Interests and carried interest are makers. Broker quotes as obtained from the pricing sources may measured with signiﬁcant unobservable inputs (Level 3 of the be indicative and not executable or binding. The Company has fair value hierarchy). Further information is provided in note 17. exercised judgement and estimates on the quantity and quality of Investments in joint ventures and associates designated at fair the pricing sources used. Where no market data is available, Onex value are also substantially measured with signiﬁcant unobserv- Credit may value positions using models, which include the use able inputs (Level 3 of the fair value hierarchy). Further informa- of third-party pricing information and are usually based on valu- tion is provided in notes 10 and 30. ation methods and techniques generally recognized as standard within the industry. Goodwill impairment tests and recoverability of assets Models use observable data to the extent practicable. The Company tests at least annually whether goodwill has suf- However, areas such as credit risk (both own and counterparty), fered any impairment, in accordance with its accounting policies. volatilities and correlations may require the Company to make The determination of the recoverable amount of a CGU (or group of estimates. Changes in assumptions about these factors could CGUs) to which goodwill is allocated involves the use of estimates affect the reported fair value of ﬁnancial instruments. by management. The Company generally uses discounted cash Limited Partners’ Interests, carried interest and investments in joint ventures and associates at fair value through earnings ﬂow-based methods to determine these values. These discounted cash ﬂow calculations typically use ﬁve-year projections that are based on the operating plans approved by management. Cash ﬂow projections take into account past experience and represent man- The measurement of the Limited Partners’ Interests, carried inter- agement’s best estimate of future developments. Cash ﬂows after est and investments in joint ventures and associates at fair value the planning period are extrapolated using estimated growth rates. through earnings is signiﬁcantly impacted by the fair values of the Key assumptions on which management has based its determina- Company’s investments held by the Onex Partners and ONCAP tion of fair value less costs to sell and value-in-use include esti- Funds. The fair values of these investments are assessed at each mated growth rates, weighted average cost of capital and tax rates. reporting date, with changes reﬂected in the measurement of the These estimates, including the methodology used, can have a mate- Limited Partners’ Interests, carried interest and investments in rial impact on the respective values and ultimately the amount of joint ventures and associates at fair value through earnings. any goodwill impairment. In the year of acquisition, the fair value in The valuation of the non-public investments held by the excess of the carrying value at an operating company will typically Onex Partners and ONCAP Funds requires signiﬁcant judgement by be minimal as a result of the recent business combination account- the Company due to the absence of quoted market values, inher- ing. Note 27 provides details on the signiﬁcant estimates used in ent lack of liquidity and the use of long-term projections. Valuation the calculation of the recoverable amounts for impairment testing. methodologies primarily include observations of the trading mul- Likewise, whenever property, plant and equipment and other intan- tiples of public companies considered comparable to the private gible assets are tested for impairment, the determination of the companies being valued and discounted cash ﬂows. The valuations assets’ recoverable amount involves the use of estimates by man- take into consideration company-speciﬁc items, the lack of liquid- agement and can have a material impact on the respective values ity inherent in a non-public investment and the fact that compa- and ultimately the amount of any impairment. rable public companies are not identical to the companies being Onex Corporation December 31, 2017 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 Revenue recognition The Company, including the operating companies, uses • Revenues for ResCare in the health and human services seg- signiﬁcant judgement when determining whether to recognize ment are substantially derived from U.S. federal, state and deferred tax liabilities with respect to taxable temporary differ- local government agency programs, including Medicaid and ences associated with investments in subsidiaries, joint ventures Medicare. Laws and regulations under these programs are and associates, in particular, whether the Company is able to con- complex and subject to interpretation. Management may be trol the timing of the reversal of the temporary differences and required to exercise judgement for the recognition of revenue whether it is probable that the temporary differences will not under these programs. Management of ResCare believes that reverse in the foreseeable future. Judgement includes consider- they are in compliance with all applicable laws and regula- ation of the Company’s future cash requirements in its numerous tions. Compliance with such laws and regulations is subject tax jurisdictions. to ongoing and future government review and interpretation, In December 2017, the United States of America’s Tax including the possibility of processing claims at lower amounts Cuts and Jobs Act (“U.S. Tax Reform”) was enacted with most upon audit, as well as signiﬁcant regulatory action, including provisions coming into effect as of January 1, 2018. The legisla- revenue adjustments, ﬁnes, penalties and exclusion from pro- tive changes in the U.S. Tax Reform are extensive and the inter- grams. Government agencies may condition their contracts pretation of several aspects of the U.S. Tax Reform is still unclear; upon a sufﬁcient budgetary appropriation. If a government however, Onex and the operating companies have estimated and agency does not receive an appropriation sufﬁcient to cover its recorded income tax expenses and recoveries for all signiﬁcant contractual obligations, it may terminate the contract or defer known impacts during the fourth quarter of 2017. Onex and the or reduce reimbursements to be received by the company. In operating companies will continue to assess the impact, if any, of addition, previously appropriated funds could also be reduced the U.S. Tax Reform throughout 2018 as they become known due or eliminated through subsequent legislation. to changes in management’s interpretations and assumptions, as • Revenues for Schumacher in the other segment are recognized well as from additional regulatory guidance that may be issued. net of an allowance for uncompensated care related to uninsured patients in the period during which the services are provided. Legal provisions and contingencies The allowance for uncompensated care is estimated on the basis The Company and its operating companies in the normal course of historical experience of collections associated with self-pay of operations can become involved in various legal proceed- patients treated during the period. Income taxes ings, as described in note 32(b). While the Company cannot pre- dict the ﬁnal outcome of such legal proceedings, the outcome of these matters may have a material effect on the Company’s con- The Company, including the operating companies, operates and solidated ﬁnancial position, results of operations or cash ﬂows. earns income in numerous countries and is subject to changing Management regularly analyzes current information about these tax laws or application of tax laws in multiple jurisdictions within matters and provides provisions for probable contingent losses, these countries. Signiﬁcant judgement is necessary in determining including the estimate of legal expenses to resolve the matters. worldwide income tax liabilities. Although management believes Internal and external counsel are used for these assessments. In that it has made reasonable estimates about the ﬁnal outcome of making the decision regarding the need for provisions, manage- tax uncertainties, no assurance can be given that the ﬁnal outcome ment considers the degree of probability of an unfavourable out- of these tax matters will be consistent with what is reﬂected in the come and the ability to make a sufﬁciently reliable estimate of the historical income tax provisions. Such differences could have an amount of loss. The ﬁling of a suit or formal assertion of a claim or effect on income tax liabilities and deferred tax liabilities in the the disclosure of any such suit or assertion does not automatically period in which such determinations are made. At each balance indicate that a provision may be appropriate. sheet date, the Company assesses whether the realization of future tax beneﬁts is sufﬁciently probable to recognize deferred tax assets. Employee benefits This assessment requires the exercise of judgement on the part of Onex, the parent company, does not provide pension, other retire- management with respect to, among other things, beneﬁts that ment or post-retirement beneﬁts to any employees of the operat- could be realized from available tax strategies and future taxable ing companies. The operating companies that offer pension and income, as well as other positive and negative factors. The recorded non-pension post-retirement beneﬁts account for these beneﬁts in amount of total deferred tax assets could be reduced if estimates accordance with actuarial valuations. These valuations rely on sta- of projected future taxable income and beneﬁts from available tistical and other factors in order to anticipate future events. These tax strategies are lowered, or if changes in current tax regulations factors include key actuarial assumptions, including the discount are enacted that impose restrictions on the timing or extent of the rate, expected salary increases and mortality rates. These actuar- Company’s ability to utilize future tax beneﬁts. ial assumptions may differ materially from actual developments 110 Onex Corporation December 31, 2017 N O T E S T O C O N S O L I D AT E D F I N A N C I A L S TAT E M E N T S due to changing market and economic conditions, and therefore upon adoption being recognized in retained earnings at Janu- may result in a signiﬁcant change in post-retirement employee ary 1, 2018. The Company does not expect a material impact to the beneﬁt obligations and the related future expense. Note 33 pro- classiﬁcation and measurement of ﬁnancial assets as a result of vides details on the estimates used in accounting for pensions and adopting this standard. The Company is continuing to evaluate the post-retirement beneﬁts. Stock-based compensation impact of the accounting treatment for amendments of ﬁnancial liabilities. Other than the accounting treatment for amendments of ﬁnancial liabilities, the Company does not expect a material The Company’s stock-based compensation accounting for its MIP impact to the classiﬁcation and measurement of ﬁnancial liabili- options is completed using an internally developed valuation ties as a result of adopting this standard. model. The critical assumptions and estimates used in the valua- tion model include the fair value of the underlying investments, the IFRS 16 – Leases time to expected exit from each investment, a risk-free rate and an In January 2016, the IASB issued IFRS 16, Leases, which replaces industry comparable historical volatility for each investment. The IAS 17, Leases. The standard provides an updated deﬁnition of a fair value of the underlying investments includes critical assump- lease contract, including guidance on the combination and sepa- tions and estimates, as described for Limited Partners’ Interests, ration of contracts. The standard requires lessees to recognize a carried interest and investments in joint ventures and associates. right-of-use asset and a lease liability for substantially all lease con- 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 tracts. The accounting for lessors is substantially unchanged from IAS 17. IFRS 16 is effective for annual periods beginning on or after January 1, 2019, with earlier application permitted if IFRS 15 is also applied. The Company is in the process of executing its implemen- tation plan and intends to adopt IFRS 16 on January 1, 2019 on a In May 2014, the IASB issued IFRS 15, Revenue from Contracts modiﬁed retrospective basis. The Company is currently evaluating with Customers, which provides a comprehensive ﬁve-step rev- the impact of adopting this standard on its consolidated ﬁnancial enue recognition model for all contracts with customers. IFRS 15 statements and currently expects a material recognition of right-of- requires management to exercise signiﬁcant judgement and make use assets and corresponding lease liabilities upon transition. estimates that affect revenue recognition. IFRS 15 is effective for annual periods beginning on or after January 1, 2018, with earlier application permitted. The Company is completing the execution 2 . S I G N I F I C A N T T R A N S A C T I O N S of its implementation plan and adopted IFRS 15 on January 1, 2018 a) Initial and secondary offerings by JELD-WEN on a retrospective basis subject to permitted and elected practi- In January 2017, JELD-WEN completed an initial public offering of cal expedients. Currently, the consolidated ﬁnancial results of the 28.75 million shares of its common stock (NYSE: JELD), including Company are not expected to be materially impacted as a result of the exercise of an over-allotment option. The offering was priced at adopting this standard. IFRS 9 – Financial Instruments $23.00 per share for gross proceeds of $661. 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 of JELD- In July 2014, the IASB issued a ﬁnal version of IFRS 9, Financial WEN’s combined term loan, with the balance for working capital Instru ments, which replaces IAS 39, Financial Instruments: Recog and other general corporate purposes. The Onex Partners III Group nition and Measurement, and supersedes all previous versions sold approximately 6.5 million shares in the transaction for net pro- of the standard. The standard introduces a new model for the ceeds of $140. Onex’ portion of the net proceeds was $40, including classiﬁcation and measurement of ﬁnancial assets and liabili- carried interest. ties, a single expected credit loss model for the measurement of As a result of this transaction, the Onex Partners III the impairment of ﬁnancial assets and a new model for hedge Group’s economic ownership was reduced to 60% and Onex’ eco- accounting that is aligned with a company’s risk management nomic ownership was reduced to 15%. Since the sale of shares by activities. IFRS 9 is effective for annual periods beginning on or the Onex Partners III Group did not result in a loss of control over after January 1, 2018, with earlier application permitted. The Com- JELD-WEN, the transaction was recorded as a transfer from the pany is completing the execution of its implementation plan and equity holders of Onex Corporation to non-controlling interests adopted IFRS 9 on January 1, 2018 on a retrospective basis, and in the consolidated ﬁnancial statements, with the cash proceeds does not intend to restate prior period comparative information, received in excess of the historical accounting carrying value of with any changes to the carrying amounts of assets and liabilities $133 being recorded directly to retained earnings. Onex Corporation December 31, 2017 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 new shares issued by JELD-WEN in the initial pub- Amounts received on account of the carried interest lic offering resulted in the dilution of the Company’s ownership related to these transactions totalled $113. Onex’ share of the car- interest in JELD-WEN. As a result, the Company recorded a trans- ried interest received was $45 and was included in the net pro- fer from the non-controlling interests in the consolidated state- ceeds to Onex. Management’s share of the carried interest was ments of equity. This reﬂects Onex’ share of the increase in the $68. No amounts were paid on account of the MIP for these trans- book value of the net assets of JELD-WEN due to the issuance of actions as the required realized investment return hurdle for Onex additional common shares at a value above the Company’s his- was not met on realizations to date. torical accounting carrying value of JELD-WEN. The operations of JELD-WEN up to May 2017 are pre- In May 2017, JELD-WEN completed a secondary offering sented as discontinued in the December 31, 2017 consolidated of 16.1 million shares of its common stock, including the exercise statements of earnings and cash ﬂows and the prior period has of an over-allotment option. The offering was priced at $30.75 per been restated to report the results of JELD-WEN as discontinued share for gross proceeds of $495. No treasury shares were issued on a comparative basis. JELD-WEN has been reclassiﬁed from the as part of the offering. The Onex Partners III Group sold approxi- building products segment to the other segment. mately 15.7 million shares in the transaction for net proceeds of $466. Onex’ portion of the net proceeds was $135, including b) Acquisition of Parkdean Resorts carried interest. In March 2017, the Onex Partners IV Group acquired Parkdean A gain of $1,514 was recorded within discontinued oper- Resorts, an operator of caravan holiday parks in the United ations during the second quarter, based on the excess of the net Kingdom, for £1,350. Excluding the impact of foreign exchange proceeds and the interest retained at fair value over the historical hedges, the Onex Partners IV Group’s investment was $612 (£500), accounting carrying value of the investment. The gain on the sale comprised of $417 from Onex Partners IV and $195 as a co- was entirely attributable to the equity holders of Onex Corporation, investment from Onex and certain limited partners, for an initial as the interests of the Limited Partners were recorded as a ﬁnancial economic interest of 91%. The investment in Parkdean Resorts liability at fair value. The portion of the gain associated with mea- consisted of equity of $520 (£425) and a loan note of $92 (£75). suring the interest retained in JELD-WEN at fair value was $1,136. At the time of acquisition, Onex invested $166, comprised of $123 The portion of the gain associated with the shares sold in the sec- through Onex Partners IV and $43 as a co-investment, for an ini- ondary offering was $378. tial economic interest of 25%. Subsequent to the increase in Onex’ As a result of this transaction, the Onex Partners III interest in Onex Partners IV, as described in note 2(g), Onex’ share Group’s economic ownership was reduced to 45% and Onex’ eco- of the investment increased to $182, comprised of $139 through nomic ownership was reduced to 11%, resulting in a loss of con- Onex Partners IV and $43 as a co-investment. The remainder of trol over JELD-WEN by the Company. The remaining interest held the purchase price was ﬁnanced through a rollover of equity by by the Company has been recorded as a long-term investment at management shareholders and debt ﬁnancing, without recourse fair value (note 10(b)), with changes in fair value recognized in the to Onex Corporation. Parkdean Resorts is in cluded within the consolidated statements of earnings. Non-controlling interests of other segment. the Company decreased by $212 as a result of no longer consoli- In February 2018, Parkdean Resorts made a partial repay- dating JELD-WEN. ment of the loan note totalling £52 ($74), including accrued inter- In November 2017, JELD-WEN completed a secondary est, with net proceeds from a sale-leaseback transaction completed offering of approximately 14.4 million shares of its common stock, for certain parks in August 2017. Onex’ share of the repayment was including the exercise of an over-allotment option. The offering was £15 ($22). The remaining principal balance of £25 ($31) outstanding priced at $33.75 per share for gross proceeds of $485. No treasury under the loan note, of which Onex’ share was £7 ($9), was convert- shares were issued as part of the offering. The Onex Partners III ed into additional equity of Parkdean Resorts in accordance with Group sold approximately 14.2 million shares in the transaction for the loan note agreement. Subsequent to the transaction, the Onex net proceeds of $463. Onex’ portion of the net proceeds was $134, Partners IV Group has a 93% economic interest in Parkdean Resorts, including carried interest. No gain was realized as a result of this of which Onex’ share is 28%. transaction as the Company’s interest in JELD-WEN is recorded at fair value. c) Distribution from Jack’s The Onex Partners III Group continues to hold approxi- In April 2017, Jack’s amended its existing credit facility to increase mately 32.9 million shares of JELD-WEN’s common stock for a 31% the size of its term loan to $275, as described in note 14(h). The economic and voting interest. Onex continues to hold approxi- proceeds from the incremental borrowing, along with cash on mately 8.1 million shares for an 8% economic interest. hand, were used to fund a distribution of $85 to shareholders. The Onex Partners IV Group’s portion of the distribution was $81, of which Onex’ share was $23. 112 Onex Corporation December 31, 2017 N O T E S T O C O N S 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) Initial public offering by Emerald Expositions Amounts received on account of the carried interest In April 2017, Emerald Expositions completed an initial public related to this transaction totalled $163. Onex’ share of the carried offering of approximately 17.8 million shares of its common stock interest received was $65 and was included in the net proceeds (NYSE: EEX), including the exercise of an over-allotment option. to Onex. Management’s share of the carried interest was $98. The offering was priced at $17.00 per share for gross proceeds of Amounts paid on account of the MIP totalled $30 for this transac- $303. As part of the offering, Emerald Expositions issued approxi- tion and have been deducted from the net proceeds to Onex. mately 10.3 million treasury shares. The net proceeds from the The operations of USI up to the date of sale have been treasury shares were used to repay $159 of Emerald Expositions’ presented as discontinued in the consolidated statements of term loan. The Onex Partners III Group sold approximately 7.5 mil- earnings and cash ﬂows and the prior period has been restated lion shares in the transaction for net proceeds of $119. Onex’ por- to report the results of USI as discontinued on a comparative tion of the net proceeds was $32, including $3 of carried interest. basis, as described in note 8. The operations of USI have been Amounts received on account of the carried interest reclassiﬁed from the insurance services segment to the other seg- related to this transaction totalled $7. Onex’ share of the carried ment. Non-controlling interests of the Company decreased by $1 interest received was $3 and was included in the net proceeds as a result of no longer consolidating USI. to Onex. Management’s share of the carried interest was $4. No amounts were paid on account of the MIP for this transaction as f) Sale of Dental Digital business by Carestream Health the required realized investment return hurdle for Onex was not In September 2017, Carestream Health completed the sale of its met on this realization. Dental Digital business for an enterprise value of $810. Carestream The Onex Partners III Group continues to hold approxi- Health received net proceeds of $859 from the sale of its Dental mately 53.8 million shares of Emerald Expositions’ common stock Digital business along with net proceeds received from an addi- for a 74% economic and voting interest. Onex continues to hold tional transaction completed during the fourth quarter of 2017. approximately 13.0 million shares for an 18% economic interest. Net proceeds from these transactions were used to repay $758 of Since the sale of shares by the Onex Partners III Group did not the company’s term loans. The sale of the Dental Digital business, result in a loss of control over Emerald Expositions, the transac- together with the additional transaction, resulted in the recognition tion was recorded as a transfer from the equity holders of Onex of a pre-tax gain of $731, which has been recorded in other gains. Corporation to non-controlling interests in the consolidated Carestream Health’s Dental Digital business did not rep- ﬁnancial statements, with the cash proceeds received in excess resent a separate major line of business of the Company, and as a of the historical accounting carrying value of $52 being recorded result, the operating results up to the date of disposition have not directly to retained earnings. been presented as a discontinued operation. The issuance of new shares by Emerald Expositions as part of the initial public offering resulted in the dilution of g) Onex Partners IV interest acquired by Onex the Company’s ownership interest in Emerald Expositions. The In September 2017, Onex, the parent company, acquired an inter- Company recorded a transfer from the non-controlling interests est in Onex Partners IV from a limited partner for $354. No gain in the consolidated statements of equity. This reﬂected Onex’ or loss was recorded on this transaction as the limited partners’ share of the increase in the book value of the net assets of Emerald interests are recorded at fair value. Expositions due to the issuance of additional common shares at a In October 2017, Onex sold a portion of the acquired value above the Company’s historical accounting carrying value of interest in Onex Partners IV to certain limited partners for $198, Emerald Expositions. e) Sale of USI the same value at which Onex acquired the interest in September 2017. Onex will continue to earn management fees and carried interest on the interest sold to certain limited partners. The carried In May 2017, the Onex Partners III Group sold its entire invest- interest entitlement to Onex management was not impacted by ment in USI for an enterprise value of $4,316. The Onex Partners III this transaction, including carried interest on the portion retained Group received net proceeds of $1,889, resulting in a gain of $1,797 by Onex. based on the excess of the net proceeds over the historical account- The net increase in Onex’ interest in Onex Partners IV ing carrying value of the investment. Onex’ portion of the net resulted in an increase in Onex’ ownership percentage in invest- proceeds was $563, including carried interest of $65 and after the ments completed by the fund. In addition, Onex’ uncalled com- reduction for amounts on account of the MIP. The gain on the sale mitted capital to Onex Partners IV increased by $69 for its share of was entirely attributable to the equity holders of Onex Corporation, the interest acquired in the fund. as the interests of the limited partners were recorded as a ﬁnancial liability at fair value. Onex Corporation December 31, 2017 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 h) Partial sale of BBAM l) Acquisition of SMG In October 2017, the Onex Partners III Group sold a portion of its In January 2018, the Onex Partners IV Group completed the acqui- investment in BBAM. The Onex Partners III Group’s economic sition of SMG Holdings Inc. (“SMG”), a global manager of conven- interest in BBAM was reduced from 50% to 35% and Onex’ eco- tion centres, stadiums, arenas, theatres, performing arts centres nomic interest was reduced from 13% to 9%. Together with distri- and other venues. The Onex Partners IV Group’s total investment butions completed by BBAM in 2017, the Onex Partners III Group was $429 for an economic interest of 99%. Onex’ share of the received $180, of which Onex’ share was $53, including carried investment was $139 for an economic interest of 32%. The remain- interest of $7. der of the purchase price was ﬁnanced through a rollover of equity Amounts received on account of the carried interest by management of SMG and debt ﬁnancing, without recourse to related to the partial sale totalled $18. Onex’ share of the carried Onex Corporation. interest received was $7 and was included in the net proceeds As part of the acquisition of SMG, the Onex Partners IV to Onex. Management’s share of the carried interest was $11. No Group also acquired $44 of SMG’s second lien debt, which bears amounts were paid on account of the MIP for this transaction as interest at LIBOR plus a margin of 7.00% and matures in January the required realized investment return hurdle for Onex was not 2026. To ﬁnance the investment in SMG’s second lien debt, the met on this realization. i) Onex Partners V Onex Partners IV Group entered into a revolving credit facility in January 2018. The facility bears interest at LIBOR plus a mar- gin of 1.75%, matures in January 2021 and is reimbursable by In November 2017, Onex completed fundraising for Onex Part- capital calls upon the limited partners of Onex Partners IV. Onex ners V, reaching aggregate commitments of $7,150, including Corporation, the parent company, is only obligated to fund bor- Onex’ commitment of $2,000 and Onex management’s minimum rowings under the revolving credit facility based on its propor- 2% commitment. tionate share of Onex Partners IV’s investment in SMG. j) Acquisition of IntraPac m) Initial public offering by Pinnacle Renewable Energy In December 2017, the ONCAP IV Group acquired IntraPac Inter- In February 2018, Pinnacle Renewable Holdings, Inc. (“Pinnacle national Corporation (“IntraPac”), a designer and manufacturer Renewable Energy”) completed an initial public offering of of specialty rigid packaging solutions. The ONCAP IV Group’s approximately 13.3 million common shares (TSX: PL). The offer- total investment was $118 for an economic interest of 98%. The ing was priced at C$11.25 per share for gross proceeds of C$150. ONCAP IV Group’s total investment included $10 to fund a por- As part of the offering, Pinnacle Renewable Energy issued approx- tion of the transaction costs and for working capital purposes. imately 6.2 million treasury shares. The net proceeds from trea- Onex’ share of the investment was $46 for an economic interest of sury shares were used to repay C$29 of existing shareholder 38%. The remainder of the purchase price was primarily ﬁnanced subordinated debt with the balance to fund construction of pro- through a rollover of equity by management of IntraPac and debt duction facilities and for other general corporate purposes. The ﬁnancing, without recourse to Onex Corporation. IntraPac is ONCAP II Group received C$20 ($16) for its share of the repay- included within the packaging products and services segment. ment of the existing shareholder subordinated debt, of which Onex’ share was C$9 ($7). The ONCAP II Group did not sell any k) Acquisition of Laces common shares as part of this transaction. In December 2017, the ONCAP IV Group acquired Laces Group The ONCAP II Group continues to hold approximately (“Laces”), a designer, manufacturer and marketer of bath acces- 14.1 million common shares of Pinnacle Renewable Energy for sories and home fashion products. The ONCAP IV Group’s an economic and voting interest of 43%. Onex continues to hold total investment was $102 for an economic interest of 82%. The approximately 6.7 million common shares for an economic inter- ONCAP IV Group’s total investment included $1 to fund a por- est of 20%. tion of the transaction costs and for working capital purposes. As a result of this transaction, the ONCAP II Group no Onex’ share of the investment was $40 for an economic interest longer controls Pinnacle Renewable Energy. The remaining interest of 32%. The remainder of the Laces purchase price was primarily held by the Company will be recorded as a long-term investment ﬁnanced through a rollover of equity by management of Laces and at fair value in the ﬁrst quarter of 2018, with changes in fair value debt ﬁnancing, without recourse to Onex Corporation. Laces is recognized in the consolidated statements of earnings. In addition, included within the other segment. a gain will be recognized based on the excess of the net proceeds 114 Onex Corporation December 31, 2017 N O T E S T O C O N S O L I D AT E D F I N A N C I A L S TAT E M E N T S and the interest retained at fair value over the historical account- Redemption of CLO-3 ing carrying value of the investment during the ﬁrst quarter of 2018. In June 2017, the Company redeemed its third CLO denominated Pinnacle Renewable Energy does not represent a separate major in U.S. dollars. CLO-3 was established in March 2013 and its rein- line of business, and as a result, the operating results up to the date vestment period ended in January 2017. Upon the redemption of of the loss of control will not be presented as a discontinued opera- CLO-3, all secured notes were repaid, including accrued interest, tion in the ﬁrst quarter of 2018. and the equity was settled for the residual proceeds in the CLO. In aggregate, Onex received $31 of proceeds and distributions n) Distributions from operating businesses related to CLO-3 compared to its original investment of $24. During 2017, the Company received distributions of $281 from At redemption, CLO-3 transferred $13, $109 and $48 in certain operating businesses. Onex’ portion of the distributions, assets for fair value consideration to CLO-4, CLO-13 and CLO-14, including carried interest, was $107. This includes distributions respectively. The fair values used for the transfer were reviewed by from BBAM and Jack’s, as previously described in note 2(h) and a third party. 2(c), respectively. Other signiﬁcant distributions received by the Company are described below. Closing of CLO-13 In January 2017, PURE Canadian Gaming Corp. (“PURE In July 2017, Onex closed CLO-13, which was funded through the Canadian Gaming”) distributed C$15 to shareholders. The ONCAP II issuance of collateralized loan instruments in a series of tranches of and III Groups’ portion of the distribution to shareholders was C$15 secured and subordinated notes and preference shares in a private ($11), of which Onex’ portion was C$6 ($5). In addition, in December placement transaction for an aggregate principal amount of $610. 2017, PURE Canadian Gaming amended its existing credit facility, On closing, Onex received $70 plus interest for the and proceeds from the incremental borrowing, along with cash on investment that supported the warehouse facility and invested hand, were used to fund a distribution of C$45 to shareholders. The $40 for approximately 70% of the most subordinated capital of ONCAP II and III Groups’ portion of the distribution was C$45 ($35), CLO-13. Reinvestment can be made in collateral by the CLO up to of which Onex’ share was C$18 ($14). July 2022, or earlier, subject to certain provisions. In September 2017, Bradshaw International, Inc. (“Bradshaw”) amended its existing credit facility. A portion of the Closing of EURO CLO-2 proceeds from the incremental borrowing were used to fund a In December 2017, Onex closed EURO CLO-2, which was distribution of $53 to shareholders. The ONCAP III Group’s por- funded through the issuance of collateralized loan instruments tion of the distribution to shareholders was $48, of which Onex’ in a series of tranches of secured and subordinated notes in a share was $14. o) Credit Strategies Extension of CLO-4 In April 2017, Onex amended CLO-4, which extended the reinvest- private placement transaction for an aggregate principal amount of €437 ($514). On closing, Onex received €40 ($47) plus interest for the investment that supported the warehouse facility and invested €39 ($45) for 88% of the most subordinated capital of EURO CLO-2. ment period of the CLO by four years to April 2021 and increased Reinvestment can be made in collateral by the CLO up to January the size by $105 to $600. Onex invested an additional $13 in the 2022, or earlier, subject to certain provisions. most subordinated capital of CLO-4 in connection with the CLO-4 amendment. Closing of EURO CLO-1 Closing of CLO-14 In December 2017, Onex closed CLO-14, which was funded through the issuance of collateralized loan instruments in a series of In May 2017, Onex closed EURO CLO-1, which was funded through tranches of secured and subordinated notes and preference shares the issuance of collateralized loan instruments in a series of in a private placement transaction for an aggregate principal tranches of secured and subordinated notes in a private placement amount of $611. transaction for an aggregate principal amount of €361 ($393). On closing, Onex received $60 plus interest for the On closing, Onex received €55 ($60) plus interest for the investment that supported the warehouse facility and invested €38 ($42) for 100% of the most subordinated capital of EURO CLO-1. investment that supported the warehouse facility and invested $36 for approximately 65% of the most subordinated capital of CLO-14. Reinvestment can be made in collateral by the CLO up to Reinvestment can be made in collateral by the CLO up to June 2021, November 2022, or earlier, subject to certain provisions. or earlier, subject to certain provisions. Onex Corporation December 31, 2017 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 Onex Credit Lending Partners c) Sale of KraussMaffei During 2017, Onex raised $314 towards its $500 fund size target for In April 2016, the Company sold its entire investment in the ﬁrst fund in Onex Credit Lending Partners (“OCLP I”), includ- KraussMaffei Group GmbH (“KraussMaffei”) for a cash enterprise ing $100 from Onex. The duration of the commitment period for OCLP I will be for up to three years from the date of ﬁnal closing, subject to extensions of up to an additional two years. During 2017, OCLP I made investments in the debt of value of €925 ($1,000). Net proceeds from the sale were €717 ($821), which included proceeds to the management of KraussMaffei. The Onex Partners III Group received net proceeds of €669 ($753). Onex’ portion of the net proceeds was $195, including carried middle-market, upper middle-market and large private equity interest and after the reduction for amounts on account of the MIP. sponsor-owned portfolio companies and, selectively, other corpo- Net proceeds to the Onex Partners III Group and Onex included rate borrowers which were funded by borrowings from OCLP I’s net realized losses from foreign exchange hedges of $13 and $3, credit facilities, as described in note 14(e), and a capital call of $55 from investors in December 2017, of which Onex’ share was $18. Onex consolidates the operations of OCLP I and records changes in the fair value of the asset portfolio through earnings. Distributions respectively. The net proceeds included €9 ($10) held in escrow, of which Onex’ share was €2 ($2), and a working capital adjust- ment of €5 ($6), of which Onex’ share was €2 ($2). Amounts held in escrow and the working capital adjustment were received dur- ing 2017. The sale resulted in a gain of $500 based on the excess of the proceeds over the carrying value of the investment. Onex’ During 2017, Onex received $59 of distributions from CLO invest- share of the gain was $467, which was entirely attributable to the ments. Additionally, Onex received $10 on the redemption of CLO-3 equity holders of Onex Corporation, as the interests of the Limited and $23 on the sale of CLO investments. Partners were recorded as a ﬁnancial liability at fair value. Amounts received on account of the carried interest 3 . 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 related to this transaction totalled $30. Consistent with the terms of Onex Partners, Onex was allocated 40% of the carried interest, with 60% allocated to management. Onex’ share of the carried interest received was $12 and was included in the net proceeds to Onex. The carried interest that would have otherwise been dis- tributed to Onex was reduced by $7 as a result of the realized loss from the sale of Tropicana Las Vegas, Inc. (“Tropicana Las Vegas”) in August 2015. Management’s share of the carried interest was $18 and was similarly reduced as a result of the realized loss from the sale of Tropicana Las Vegas. Amounts paid on account of the MIP totalled $7 for this transaction and have been deducted from 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 year ended December 31, 2016. d) Sale of Univers Workplace Benefits by USI In May 2016, USI completed the sale of Custom Beneﬁt Programs, Inc., also known as Univers Workplace Beneﬁts (“Univers”), a provider of employee communication and beneﬁts enrolment ser- vices for employers. USI received net cash proceeds of $166 from the sale and recognized a pre-tax gain of $44, which was recorded within discontinued operations. In December 2016, USI applied $50 of the net cash proceeds from the sale of Univers towards the prepayment of its term loans. a) Repayment of promissory notes by Jack’s In connection with the acquisition of Jack’s in July 2015, the Company’s initial investment included a $195 promissory note held by the Onex Partners IV Group. During 2015, Jack’s made repay- ments of the promissory note. 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. Sub sequent to the transaction, the Onex Partners IV Group had a 96% economic interest in Jack’s, of which Onex’ share was 28%. b) Investment in Incline Aviation Fund by Onex, the parent company In February 2016, Onex, the parent company, committed $75 in Incline Aviation Fund, an aircraft investment fund managed by BBAM and focused on investments in leased commercial jet aircraft. During 2016, Onex, the parent company, invested $13 in Incline Aviation Fund, net of distributions and bridge ﬁnancing which have been returned to Onex. The Company has joint con- trol of Incline Aviation Fund. The investment in Incline Aviation Fund has been recorded as a long-term investment at fair value through earnings. In February 2017, the amount committed by Onex to Incline Aviation Fund was reduced to $50. 116 Onex Corporation December 31, 2017 N O T E S T O C O N S 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) Acquisition of ECI by Schumacher h) Acquisition of Tecta In June 2016, Schumacher acquired ECI Healthcare Partners In August 2016, the ONCAP III Group completed the acquisi- (“ECI”), a provider of emergency and hospital medicine physician tion of Tecta America Corporation (“Tecta”). Based in the United management services in the United States, for $140. In connection States, Tecta is a leading national commercial rooﬁng company with this transaction, Schumacher amended its senior secured offering installation, replacement and repair services. The equity credit facilities to increase its ﬁrst lien term loan by $130. The bal- investment in Tecta was $124, for a 97% economic interest, and ance of the purchase price was funded through a rollover of equity was initially comprised of an investment of $99 by ONCAP III from management of ECI of $21. The adjusted purchase price rec- and an additional investment of $25 by Onex. Onex’ combined ognized at the date of closing was $136, as well as additional non- investment was $54 for a 42% economic interest. The remainder cash consideration of $6. of the purchase price was ﬁnanced with debt ﬁnancing, without recourse to Onex Corporation, and through a rollover of equity by f) AIT unit repurchase and distributions management of Tecta. In July 2016, AIT entered into a new credit facility consisting of In December 2016, following the consent previously a $225 term loan. The net proceeds from the credit facility were received from the Advisory Committee of ONCAP III, the General used in August 2016 to repurchase units from investors other than Partner of ONCAP III syndicated $37 of the investment in Tecta, Onex Partners IV and to fund a distribution of $174. As a result of representing 29% of the economic interest, to ONCAP IV at the the unit repurchase, the Onex Partners IV Group’s economic inter- same cost as the original investment. The additional investment of est in AIT increased to 50%, of which Onex’ share was 11%. The $25 made by Onex represented Onex’ pro-rata share of the portion Onex Partners IV Group’s share of the distribution was $107, of of the investment that was transferred to ONCAP IV. Subsequent which Onex’ share was $24. to the syndication, ONCAP III and IV each held a $62 investment In addition, during 2016, AIT distributed an additional in Tecta. Onex’ investment in Tecta consisted of $18 through $18 to the Onex Partners IV Group, of which Onex’ share was $3. ONCAP III and $25 through ONCAP IV for a combined 33% eco- The additional distributions were funded by the company’s free nomic interest. Tecta is included within the other segment. cash ﬂow. g) Sale of Cicis i) Acquisition of WireCo In September 2016, the Onex Partners IV Group acquired control In August 2016, the ONCAP II Group sold its investment in and an initial 72% economic interest through a recapitalization CiCi’s Holdings, Inc. (“Cicis”) for net proceeds of $66, of which of WireCo, a leading global manufacturer of mission-critical steel Onex’ share was $29. Included in the net proceeds was $13 held wire rope, synthetic rope, specialty wire and engineered products, in escrow, of which Onex’ share was $6. ONCAP management for $916. The Onex Partners IV Group invested $270 in WireCo, of received $1 in carried interest on the sale of Cicis. During 2017, which Onex’ share was $76. Subsequent to the increase in Onex’ escrow of $7 was received, of which Onex’ share was $3. The interest in Onex Partners IV, as described in note 2(g), Onex’ share impact to Onex and Onex management was a net payment of less of the investment increased to $86. The remainder of the recapi- than $1 in carried interest to ONCAP management. talization was ﬁnanced with ﬁrst and second lien debt ﬁnancing. The Company recorded a pre-tax gain of $28 based on WireCo is included within the other segment. the excess of the proceeds over the carrying value of the invest- ment. Onex’ share of the pre-tax gain was $12. The gain on the j) Acquisition of Clarivate Analytics sale was entirely attributable to the equity holders of Onex Cor- In October 2016, Onex, in partnership with Baring Private Equity poration, as the interests of the limited partners were recorded as Asia, completed the acquisition of the Intellectual Property and a ﬁnan cial liability at fair value. Science business from Thomson Reuters for $3,550. The business, Cicis did not represent a separate major line of busi- which now operates as Clarivate Analytics, owns and operates a ness, and as a result, the operating results up to the date of dispo- collection of leading subscription-based businesses focused on sition have not been presented as a discontinued operation. The scientiﬁc and academic research, patent analytics and regulatory cash proceeds recorded in the consolidated statements of cash standards, pharmaceutical and biotech intelligence, trademark pro- ﬂows for the sale of Cicis were reduced for Cicis’ cash and cash tection, domain brand protection and intellectual property man- equivalents of $13 at the date of sale. agement. The equity investment was $1,635 for a 100% economic interest in Clarivate Analytics. The Company’s equity investment of $1,177 was comprised of $700 from the Onex Partners IV Group and $477 as a co-investment from Onex and certain limited partners for Onex Corporation December 31, 2017 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 a 72% economic interest. At the time of acquisition, Onex’ share of n) Acquisition of Save-A-Lot the equity investment was $419, comprised of $197 through Onex In December 2016, the Company completed the acquisition of the Partners IV and $222 as a co-investment, for a 26% economic inter- Save-A-Lot business from SUPERVALU INC. for $1,365. Save-A- est. Subsequent to the increase in Onex’ interest in Onex Partners IV, Lot is one of the largest hard-discount grocery retailers for value- as described in note 2(g), Onex’ share of the investment increased to seeking shoppers in the United States. The Onex Partners IV Group $445, comprised of $223 through Onex Partners IV and $222 as a co- invested $660 for a 100% economic interest in Save-A-Lot, of which investment, for a 27% economic interest. The remainder of the pur- Onex’ share was $186 for a 28% economic interest. Subsequent chase price was ﬁnanced with debt ﬁnancing, without recourse to to the increase in Onex’ interest in Onex Partners IV, as described Onex Corporation. Clarivate Analytics is included within the busi- in note 2(g), Onex’ share of the investment increased to $210 for ness and information services segment. a 32% economic interest. The balance of the purchase price was k) Distributions from JELD-WEN substantially ﬁnanced with debt ﬁnancing, without recourse to Onex Corporation. Save-A-Lot is included within the food retail In November 2016, JELD-WEN amended its existing credit facil- and restaurants segment. ity to borrow an incremental $375. The proceeds from the incre- mental borrowing, along with a draw on the company’s revolving o) Distributions from operating businesses credit facility, were used to fund a distribution of $400 to share- In 2016, the Company received distributions of $719 from certain holders. The Onex Partners III Group’s share of the distribution operating businesses. Onex’ portion of the distributions, includ- was $327. Onex’ portion of the distribution was $81, of which $46 ing carried interest, was $205. The distributions include the repay- related to Onex’ investment through Onex Partners III and $35 ments of the promissory note by Jack’s, as previously described in related to Onex’ co-investment. The remaining balance was pri- note 3(a), and the distributions by AIT and JELD-WEN, as previously marily distributed to third-party shareholders and management described in notes 3(f ) and 3(k), respectively. The other signiﬁcant of JELD-WEN. distributions received by the Company are described below. In addition, in August 2016 JELD-WEN distributed a pur- During the year ended December 31, 2016, BBAM distrib- chase price adjustment of $24 related to the initial investment in uted $50 to the Onex Partners III Group, of which Onex’ share was JELD-WEN in October 2011 to the Onex Partners III Group. Onex’ $13. The distributions were funded by the company’s free cash ﬂow. share of the purchase price adjustment was $6. In June 2016, Meridian Aviation distributed $39 to l) ONCAP IV Onex Partners III, of which Onex’ share was $12, including car- ried interest of $2. The distribution was funded from cash on hand In November 2016, Onex completed fundraising for ONCAP IV, at Meridian Aviation, which was primarily from gains on invest- reaching aggregate commitments of $1,107, including Onex’ com- ments in aircraft. mitment of $480. During the year ended December 31, 2016, Flushing Town Center distributed $37 of proceeds primarily from the sale m) Acquisition of Wilhelmsen Safety by Survitec of commercial units, of which Onex’ share was $33. The distribu- In November 2016, Survitec completed the acquisition of the safe- tions by Flushing Town Center included $8 related to the amounts ty-related business activities of Wilhelmsen Maritime Services held in escrow from the July 2015 sale of the retail space and (“Wilhelmsen Safety”) for £164 ($205). The adjusted purchase price adjoining parking garage of Flushing Town Center, of which Onex’ recognized at the date of closing was £161 ($200). In connection share was $7. with the transaction, the Onex Partners IV Group invested $35 in In December 2016, Hopkins Manufacturing Corporation Survitec, of which Onex’ share was $8. Subsequent to the increase (“Hopkins”) entered into a new credit facility. The net proceeds in Onex’ interest in Onex Partners IV, as described in note 2(g), from the credit facility were used to repay the existing credit Onex’ share of the investment increased to $9. The remainder of facilities and to fund an $80 distribution to shareholders. The the purchase price and transaction costs was funded through a roll- Company’s share of the distribution was $71, of which Onex’ share over of equity by Wilhelmsen Safety of $80 and with proceeds from was $21. ONCAP management received $4 in carried interest from Survitec’s existing senior secured credit facilities. Subsequent to the the Hopkins distribution. transaction, the Onex Partners IV Group had a 79% economic inter- est in Survitec, of which Onex’ share was an 18% economic interest. 118 Onex Corporation December 31, 2017 p) Credit Strategies Closing of 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. Reinvestment can be made in collateral by the CLO up to April 2018, or earlier, subject to certain provisions. Closing of 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 ﬁnancial institution provided borrowing capacity of up to $240. In October 2016, Onex closed CLO-12, which was fund- ed through the issuance of collateralized loan instruments in a series of tranches of secured notes and preference shares in a pri- vate placement transaction for an aggregate principal amount of $558. The secured notes were offered at an aggregate principal amount of $501. Upon the closing of CLO-12, Onex received $60 plus interest for the investment that supported the warehouse facil- ity and invested $56 for 100% of the most subordinated capital of CLO-12. Reinvestment can be made in collateral by the CLO up to October 2020, or earlier, subject to certain provisions. Distributions During 2016, Onex received $73 of distributions from its CLO investments. N O T E S T O C O N S O L I D AT E D F I N A N C I A L S TAT E M E N T S 4 . A C Q U I S I T I O N S During 2017 and 2016 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, for 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 compared to the fair value of the identiﬁable net assets acquired is recorded as goodwill. Acquisition-related costs are expensed as incurred and related restructuring charges are expensed in the periods after the acquisition date. Costs incurred to issue debt are deferred and recognized as described in note 1. Subsequent changes in the fair value of contingent consideration recorded as a liability at the acquisition date are recognized in consolidated earnings or loss. In certain circumstances where preliminary estimates have been made, the companies may obtain third-party valua- tions of certain assets, which could result in further reﬁnement of the fair value allocation of certain purchase prices and accounting adjustments. The results of operations for all acquired businesses are included in the consolidated statements of earnings, compre- hensive earnings and equity of the Company from their respective dates of acquisition. Onex Corporation December 31, 2017 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 2 017 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, excluding acquisitions completed by discontinued oper- ations and net of debt ﬁnancing, are as follows: Cash and cash equivalents Other current assets Intangible assets with limited life Intangible assets with indefinite life Goodwill Property, plant and equipment and other non-current assets Current liabilities Non-current liabilities Non-controlling interests in net assets Parkdean Resorts(a) Emerald Expositions(b) $ 61 $ 59 42 – 289 1,611 2,062 (300)(1) (1,192)(2) 570 (50) – 6 22 20 62 – 110 (14) – 96 – ONCAP(c) $ 13 Other(d) $ 1 $ 179 374 – 205 72 843 (97) (395) 351 (23) 1 13 – 12 – 27 (1) – 26 – Total 75 245 451 20 568 1,683 3,042 (412) (1,587) 1,043 (73) Interests in net assets acquired $ 520 $ 96 $ 328 $ 26 $ 970 (1) Included in current liabilities of Parkdean Resorts is $92 of acquisition financing. (2) Excluded from non-current liabilities of Parkdean Resorts is $570 of preference shares issued upon acquisition, which are classiﬁed as long-term ﬁnancial liabilities. The Onex Partners IV Group’s share of the preference shares is $520. a) In March 2017, the Company acquired Parkdean Resorts, as described in note 2(b). Included in the acquisitions above are gross receivables due from customers of $102, of which all contractual cash ﬂows are expected b) Emerald Expositions completed four acquisitions for total con- sideration of $96, of which $4 was non-cash consideration. c) ONCAP includes the acquisitions of IntraPac and Laces, as described in note 2(j) and 2(k), respectively. In addition, ONCAP to be recovered. The fair value of these receivables at the dates of acquisition was determined to be $102. Revenue and net losses from the date of acquisition for these acquisitions to December 31, 2017 were $608 and $53, respectively. includes acquisitions made by Bradshaw, Chatters Canada The Company estimates it would have reported consolidated rev- (“Chatters”), Davis-Standard Holdings, Inc. (“Davis-Standard”), enues of approximately $24,900 and net earnings of approximately Hopkins and Tecta for total consideration of $119. $2,370 for the year ended December 31, 2017 if acquisitions com- d) Other includes acquisitions made by Clarivate Analytics, Res- Care, sgsco and York for total consideration of $26, of which $9 was non-cash consideration. pleted during 2017 had been acquired on January 1, 2017. Goodwill of the acquisitions was attributable primarily to the skills and competence of the acquired workforce, non-contractual established customer bases and technological knowledge of the acquired companies. Goodwill of the acquisitions that is expected to be deductible for tax purposes is $79. 120 Onex Corporation December 31, 2017 N O T E S T O C O N S O L I D AT E D F I N A N C I A L S TAT E M E N T S 2 016 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 $ 16 $ 59 186 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 30 426 312 261 23 647 1,699 (306) (733) 660 $ 1 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 3(e). b) In September 2016, the Company acquired WireCo, as described in note 3(i). h) ONCAP includes the acquisition of Tecta, as described in note 3(h). In addition, ONCAP includes acquisitions made by Bradshaw, Chatters, Cicis, EnGlobe Corp. and Tecta for total con- sideration of $34, of which $1 was non-cash consideration. c) In October 2016, the Company acquired Clarivate Analytics, as described in note 3(j). Cash consideration paid for Clarivate i) Other includes acquisitions made by Carestream Health, Celestica, Emerald Expositions, ResCare and sgsco for total con- Analytics includes the $458 contribution from Baring Private sideration of $101, of which $16 was non-cash consideration. Equity Asia. d) In November 2016, Survitec acquired Wilhelmsen Safety, as described in note 3(m). e) In December 2016, the Company acquired Save-A-Lot, as described in note 3(n). f) During 2016, JELD-WEN completed two acquisitions for total consideration of $87. JELD-WEN is recorded as a discontinued operation, as described in note 2(a). g) During 2016, USI completed nine acquisitions for total consid- eration of $121, of which $20 was non-cash consideration. USI was Included in the acquisitions above were gross receivables of $595 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. The Company estimates it would have reported consolidated rev- enues of approximately $28,400 and a net loss of approximately $275 for the year ended December 31, 2016 if acquisitions com- pleted during 2016 had occurred on January 1, 2016. sold in May 2017 and is recorded as a discontinued operation, as Goodwill of the acquisitions was attributable primarily to the described in note 2(e). skills and competence of the acquired workforce, non-contractual established customer bases and technological knowledge of the acquired companies. Goodwill of the acquisitions that is expected to be deductible for tax purposes was $1,150. Onex Corporation December 31, 2017 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 5 . C A S H A N D C A S H E Q U I VA L E N T S 6 . I N V E N T O R I E S Cash and cash equivalents comprised the following: Inventories comprised the following: As at December 31 Cash at bank and on hand Money market funds Commercial paper Bank term deposits and other 2017 $ 1,416 1,614 84 262 2016 As at December 31 $ 1,537 Raw materials 557 163 114 Work in progress Finished goods Real estate held for sale $ 2017 994 307 1,039 166 2016 $ 1,031 280 1,066 354 Total cash and cash equivalents $ 3,376 $ 2,371 Total inventories $ 2,506 $ 2,731 At December 31, 2017, the fair value of investments managed by During the year ended December 31, 2017, $11,835 (2016 – $7,882) of third-party investment managers was $1,021 (2016 – $472), of which inventory was expensed in cost of sales. Note 13(b) provides details $247 (2016 – $147) was included in short-term investments and $774 on inventory provisions recorded by the Company. (2016 – $325) was included in long-term investments. 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 Prepaid expenses Restricted cash Income and value-added taxes receivable Other receivables Other $ 2017 223 149 127 109 254 $ 2016 250 314 143 179 304 Total other current assets $ 862 $ 1,190 122 Onex Corporation December 31, 2017 N O T E S T O C O N S O L I D AT E D F I N A N C I A L S TAT E M E N T S 8 . D I S C O N T I N U E D O P E R AT I O N S The following tables show revenues, expenses and net after-tax results from discontinued operations. Carestream Health’s sale of its Dental Digital business in September 2017 did not represent a separate major line of business and as a result has not been presented as a discontin- ued operation. The sale of Cicis in August 2016, as described in note 3(g), did not represent a separate major line of business and as a result has not been presented as a discontinued operation. Year ended December 31 2017 2016 USI(a) JELD-WEN(b) Total USI(a) JELD-WEN(b) KraussMaffei(c) Worldwide(d) Total Sitel Revenues Expenses Earnings (loss) before income taxes Recovery of (provision for) income taxes Gain, net of tax $ 400 $ 1,393 $ 1,793 $ 1,048 $ 3,670 (510) (110) 13 1,797 (1,580) (2,090) (1,112) (3,562) (187) 15 1,514 (297) 28 3,311 (64) (31) − 108 92 − $ 420 (461) (41) (4) 500 Net earnings (loss) for the year $ 1,700 $ 1,342 $ 3,042 $ (95) $ 200 $ 455 $ – $ 5,138 – – – 23 $ 23 (5,135) 3 57 523 $ 583 a) USI c) KraussMaffei The operations of USI have been presented as discontinued in the The operations of KraussMaffei have been presented as discontin- consolidated statements of earnings and cash ﬂows for the years ued in the consolidated statements of earnings and cash ﬂows for ended December 31, 2017 and 2016, as described in note 2(e). the year ended December 31, 2016, as described in note 3(c). b) JELD-WEN The operations of JELD-WEN have been presented as discontin- ued in the consolidated statements of earnings and cash ﬂows for the years ended December 31, 2017 and 2016, as described in note 2(a). d) Sitel Worldwide In June 2016, the Company signed an agreement to settle the earn- out component from the sale of Sitel Worldwide that occurred in September 2015. A gain of $23 was recorded within discontinued operations during the second quarter of 2016, of which Onex’ share was $21. The gain reﬂected the present value of the expected future payments under the agreement. Onex Corporation December 31, 2017 123 N O T E S T O C O N S O L I D AT E D F I N A N C I A L S TAT E M E N T S The following table shows the summarized assets and liabilities of discontinued operations. The balances as at December 31, 2016 represent only those of USI and JELD-WEN, as KraussMaffei was sold in April 2016 and Sitel Worldwide was sold in September 2015. There were no assets or liabilities of discontinued operations at December 31, 2017, as USI was sold in May 2017 and the Company ceased to consolidate JELD-WEN after losing control in May 2017. As at December 31, 2016 Cash and cash equivalents Other current assets Intangible assets Goodwill Property, plant and equipment and other non-current assets Current liabilities Non-current liabilities $ USI 99 512 1,040 1,400 60 3,111 (589) (2,358) JELD-WEN Total $ 103 810 390 146 1,220 2,669 (528) (2,063) $ 202 1,322 1,430 1,546 1,280 5,780 (1,117) (4,421) Net assets of discontinued operations $ 164 $ 78 $ 242 The following tables present the summarized aggregate cash ﬂows from (used in) discontinued operations of USI (up to May 2017), JELD-WEN (up to May 2017) and KraussMaffei (up to April 2016). Year ended December 31, 2017 Operating activities Financing activities Investing activities Decrease in cash and cash equivalents for the year Increase 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 USI JELD-WEN $ 109 $ (99) $ (53) (155) (99) – 99 – 1,889 $ 1,889 79 (85) (105) 2 103 – 466 Total 10 26 (240) (204) 2 202 – 2,355 $ 466 $ 2,355 Year ended December 31, 2016 USI JELD-WEN KraussMaffei Sitel Worldwide Total 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 dividends paid to Onex and included in cash flows from financing activities Cash and cash equivalents, beginning of the year Cash and cash equivalents, end of the year Proceeds from sale of operating company no longer controlled $ 171 (208) 52 15 – – 84 99 – $ 257 $ 239 (152) 344 (4) (351) 114 103 – $ 38 2 (155) (115) 2 – 113 – 805 $ 99 $ 103 $ 805 $ – – – – – – – – 3 3 $ 466 33 (255) 244 (2) (351) 311 202 808 $ 1,010 124 Onex Corporation December 31, 2017 N O T E S T O C O N S 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, 2015 Cost Accumulated amortization and impairments Net book amount Year ended December 31, 2016 Opening net book amount Additions Disposals Amortization charge Amortization charge (discontinued operations) Acquisition of subsidiaries Disposition of subsidiary Impairment charge Impairment charge (discontinued operations) Transfers from construction in progress Foreign exchange Other Closing net book amount At December 31, 2016 Cost Accumulated amortization and impairments Net book amount Year ended December 31, 2017 Opening net book amount Additions Disposals Amortization charge Amortization charge (discontinued operations) Acquisition of subsidiaries Disposition of subsidiaries Operating company no longer under control Impairment charge(i) Transfers from construction in progress Foreign exchange Other Land Buildings Machinery and Equipment Construction in Progress $ 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) (72) (27) 474 (5) – (1) 39 (6) − 207 (33) (375) (91) 479 (4) (2) (1) 257 (11) (5) $ 195 (1) $ 194 $ 194 342 (1) − − 44 (1) − − (296) − – Total $ 5,314 (2,049) $ 3,265 $ 3,265 612 (57) (447) (118) 1,059 (11) (2) (2) − (19) (5) $ 276 $ 1,453 $ 2,264 $ 282 $ 4,275 $ 289 (13) $ 276 $ 1,959 (506) $ 1,453 $ 4,233 (1,969) $ 2,264 $ 276 $ 1,453 $ 2,264 3 (4) (1) − 1,079 – (100) − − 119 − 79 (14) (127) (11) 363 (7) (370) (13) 51 73 2 307 (31) (514) (35) 209 (32) (368) (23) 224 101 (11) $ 283 (1) $ 282 $ 282 363 (6) − − 27 (1) (26) (1) (275) 20 1 $ 6,764 (2,489) $ 4,275 $ 4,275 752 (55) (642) (46) 1,678 (40) (864) (37) − 313 (8) Closing net book amount $ 1,372 $ 1,479 $ 2,091 $ 384 $ 5,326 At December 31, 2017 Cost Accumulated amortization and impairments Net book amount $ 1,385 (13) $ 1,372 $ 1,985 (506) $ 1,479 $ 4,123 (2,032) $ 2,091 $ 385 (1) $ 384 $ 7,878 (2,552) $ 5,326 (i) Property, plant and equipment impairments of $32 related to Save-A-Lot have been included in other expense (note 26) as part of Save-A-Lot’s restructuring charges in 2017. Property, plant and equipment cost and accumulated amortization and impairments have been reduced for components retired during 2017 and 2016. At December 31, 2017, property, plant and equipment includes amounts under ﬁnance leases of $726 (2016 – $177) and related accumu- lated amortization of $49 (2016 – $69). During 2017, borrowing costs of $2 (2016 – $4) were capitalized and are included in the cost of additions. Onex Corporation December 31, 2017 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 10 . LO N G - T E R M I N V E S T M E N T S At December 31, 2017 and 2016, the asset portfolio of the CLOs and Long-term investments comprised the following: warehouse facilities comprised the following: As at December 31 2017 2016 Long-term investments held by credit strategies(a) $ 8,491 $ 7,025 Investments in joint ventures and associates – at fair value through earnings(b) 2,252 Onex Corporation investments in managed accounts(c) Investments in joint ventures and associates – equity-accounted(d) Other Total 774 380 217 751 325 318 253 $ 12,114 $ 8,672 a) Long-term investments held by credit strategies Long-term investments held by credit strategies include invest- ments made in CLOs, Onex Credit Funds and Onex Credit Lend- ing Partners. At December 31, 2017, Onex’ remaining investment in the CLOs, net of distributions and partial dispositions, was $456 (2016 – Closing Date As at December 31, 2017 As at December 31, 2016 November 2012 $ 359 $ March 2013 October 2013 March 2014 June 2014 November 2014 April 2015 July 2015 October 2015 May 2016 October 2016 July 2017 December 2017 May 2017 December 2017 – 581 361 935 477 724 721 490 484 541 592 473 425 349 – 380 471 477 386 919 475 732 718 496 490 543 − − − − 130 CLO-2 CLO-3 CLO-4 CLO-5 CLO-6 CLO-7 CLO-8 CLO-9 CLO-10 CLO-11 CLO-12 CLO-13 CLO-14 EURO CLO-1 EURO CLO-2 Warehouse facilities $350) and has been made in the most subordinated capital of each Total respective CLO. During 2017, Onex received $59 (2016 – $73) of dis- $ 7,512 $ 6,217 tributions from CLO investments, excluding investment income At December 31, 2017, investments of $609 (2016 – $808) held by earned during the warehouse periods of the CLOs. Additionally, Onex Credit Funds are recorded at fair value and classiﬁed as Onex received $10 on the redemption of CLO-3 and $23 on the par- fair value through earnings. At December 31, 2017, Onex’ share of tial sale of CLO investments. There were no CLO redemptions or the net investments in Onex Credit Funds was $335 (2016 – $521). partial sales of investments in 2016. During 2017, Onex redeemed $200 from the Onex Credit segregated The asset portfolio held by the CLOs consists of cash and senior secured loan strategy fund for cash management purposes. cash equivalents and corporate loans that have been designated to Investments held by Onex Credit Lending Partners are be recorded at fair value. The asset portfolio of each CLO is pledged recorded at fair value and classiﬁed as fair value through earn- as collateral for its respective senior secured notes and loans. The ings. At December 31, 2017, the total value of investments held by CLOs have initial reinvestment periods ranging from two to ﬁve Onex Credit Lending Partners was $370. years, during which reinvestment can be made in collateral. Onex During the year ended December 31, 2017, Onex com- is required to consolidate the operations and results of the CLOs, pleted various transactions which impacted the balance of long- as described in note 1. term investments held by credit strategies. These transactions are described in note 2(o) and include the closings of four CLOs and OCLP I, as well as the redemption of CLO-3. 126 Onex Corporation December 31, 2017 N O T E S T O C O N S 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) Investments in joint ventures and associates – JELD-WEN at fair value through earnings In May 2017, the Onex Partners III Group sold approximately Investments in joint ventures and associates designated at fair 15.7 million shares of JELD-WEN in a secondary offering which value through earnings primarily include investments in AIT, resulted in the loss of control of JELD-WEN by the Company, as BBAM, JELD-WEN (since May 2017), Mavis Tire Supply LLC described in note 2(a). The remaining interest in JELD-WEN held (“Mavis Discount Tire”) and Venanpri Group, formerly Ingersoll by the Com pany has been recorded as a long-term investment at Tools Group. With the exception of JELD-WEN, the fair value mea- fair value, with changes in fair value recorded through earnings. surements for these investments include signiﬁcant unobservable The following tables provide summarized ﬁnancial infor- inputs (Level 3 of the fair value hierarchy). The fair value measure- mation for JELD-WEN as of September 30, 2017 and are prepared ment for the investment in JELD-WEN includes signiﬁcant other in accordance with accounting principles generally accepted in the observable inputs (Level 2 of the fair value hierarchy), as a market- United States. Financial information for the year ended Decem- ability factor is applied to JELD-WEN’s publicly traded share price. ber 31, 2017 was not available as of February 22, 2018. The joint ventures and associates typically have ﬁnancing arrange- ments that restrict their ability to transfer cash and other assets to the Company. Details of changes in investments recognized at fair value included in long-term investments are as follows: Balance – December 31, 2015 Purchase of investments Distributions received Increase in fair value of investments, net Balance – December 31, 2016 Purchase of investments Transfer of investment in JELD-WEN no longer under control Distributions received Sale of investments Increase in fair value of investments, net $ 733 44 (206) 180 $ 751 6 1,397 (71) (591) 760 As at September 30 Current assets Non-current assets Current liabilities Non-current liabilities Net Assets JELD-WEN 2017 $ 1,180 1,785 2,965 610 1,470 2,080 $ 885 Included in the balance sheet ﬁnancial information above are the following items: As at September 30 Cash and cash equivalents included in current assets Financial liabilities included in current liabilities JELD-WEN 2017 219 295 $ $ Balance – December 31, 2017 $ 2,252 Financial liabilities included in non-current liabilities $ 1,236 Nine months ended September 30 Revenues Total expenses (including provision for income taxes) Net earnings Other comprehensive earnings Total Comprehensive Earnings JELD-WEN 2017 $ 2,788 (2,683) 105 91 $ 196 Onex Corporation December 31, 2017 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 Included in the preceding statement of earnings ﬁnancial infor- d) Investments in joint ventures and associates – mation are the following items: equity-accounted JELD-WEN At December 31, 2017 and 2016, the balances consisted primarily Nine months ended September 30 Amortization Interest income Interest expense Provision for income taxes 2017 $ 81 – $ 62 $ 33 of investments in joint ventures and associates held by Meridian Aviation and SIG. 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: c) Onex Corporation investments in managed accounts As at December 31 Long-term investments consisted of securities that include money market instruments, federal and municipal debt instruments, corporate obligations and structured products with maturities of one year to ﬁve years. Short-term investments consisted of liquid investments that include money market instruments and com- mercial paper with original maturities of three months to one year. The investments are managed to maintain an overall weight- ed average duration of two years or less. At December 31, 2017, the fair value of investments managed by third-party investment managers was $1,021 (2016 – $472), of which $247 (2016 – $147) was included in short-term investments and $774 (2016 – $325) was included in long-term investments. Defined benefit pensions (note 33) Deferred income taxes (note 19) Derivatives Restricted cash Other Total 2017 $ 220 163 115 62 261 $ 2016 198 418 103 168 305 $ 821 $ 1,192 128 Onex Corporation December 31, 2017 N O T E S T O C O N S 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: Goodwill Trademarks and Licenses Customer Relationships Computer Software Other Intangible Assets with Limited Life(i) Other Intangible Assets with Indefinite Life Total Intangible Assets 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 $ 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 Amortization charge (discontinued operations) Acquisition of subsidiaries Disposition of subsidiary Impairment charge Foreign exchange Other − (72) − − 1,921 (49) (226) (86) 9 – (5) (22) (2) 600 (80) (2) (16) – – (43) (301) (158) 979 (28) (2) (36) (3) 73 (2) (70) (8) 209 (1) – (1) 1 7 – (114) (7) 1,824 – – (37) 3 2 (2) − – − – – – – 82 (52) (507) (175) 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 Year ended December 31, 2017 Opening net book amount $ 9,174 $ 2,080 $ 3,968 $ 442 $ 2,292 $ 504 $ 9,286 Additions Disposals Amortization charge Amortization charge (discontinued operations) Acquisition of subsidiaries Disposition of subsidiaries Operating company no longer under control Impairment charge(iii) Foreign exchange Other − – − – 568 (1,516) (146) (168) 265 46 1 – (22) (2) 84 (43) (74) (4) 43 – 4 – (353) (52) 354 (943) (36) (8) 90 – 84 (5) 10 – (112) (188) (4) 1 (3) (11) (1) 1 (1) (2) 32 (16) (2) (4) 45 (4) – – – – – – (259) (1) 1 1 99 (5) (675) (60) 471 (1,005) (382) (18) 180 (4) Closing net book amount $ 8,223 $ 2,063 $ 3,024 $ 391 $ 2,163 $ 246 $ 7,887 As at December 31, 2017 Cost $ 8,719 $ 2,167 $ 4,911 $ 1,020 $ 2,892 $ 246 $ 11,236 Accumulated amortization and impairments (496) (104) (1,887) (629) (729) – (3,349) Net book amount(ii) $ 8,223 $ 2,063 $ 3,024 $ 391 $ 2,163 $ 246 $ 7,887 (i) At December 31, 2017, the information databases and content collections had a cost of $1,733 (2016 – $1,720) and accumulated amortization of $130 (2016 – $26). (ii) At December 31, 2017, trademarks and licenses included amounts determined to have indefinite useful lives of $1,811 (2016 – $1,797). (iii) Intangible asset impairments of $4 related to Save-A-Lot have been included in other expense (note 26) as part of Save-A-Lot’s restructuring charges in 2017. Onex Corporation December 31, 2017 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 Additions to goodwill and intangible assets primarily arose through Goodwill primarily represents the costs of certain intellectual business combinations (note 4). Additions to intangible assets property and process know-how obtained in acquisitions. Intan- through internal development were $63 (2016 – $31) and those gible assets include trademarks, non-competition agreements, acquired separately were $36 (2016 – $51). Included in the net book customer relationships, software, information databases, con- value of intangible assets at December 31, 2017 were $187 (2016 – tent collections, contract rights and expiration rights obtained in $148) of internally generated intangible assets. 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 movements is presented below. Balance – December 31, 2016 Charged (credited) to statements of earnings: Additional provisions Unused amounts reversed during the year Disposition of subsidiaries Operating company no longer under control Amounts used during the year Other adjustments Balance – December 31, 2017 Accounts Receivable Provision(a) Inventory Provision(b) $ 76 $ 92 65 (5) (4) (4) (16) 2 26 (1) (3) (16) (13) – Total $ 168 91 (6) (7) (20) (29) 2 $ 114 $ 85 $ 199 a) Accounts receivable provisions are established by the operating companies when there is objective evidence that the company will not be able to collect all amounts due according to the original terms of the receivable. When a receivable is considered permanently uncol- lectible, the receivable is written off against the allowance account. b) Inventory provisions are established by the operating companies 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, 2016 Charged (credited) to statements of earnings: Additional provisions Unused amounts reversed during the year Acquisition of subsidiaries Amounts used during the year Disposition of subsidiaries Operating company no longer under control Increase in provisions due to passage of time and changes in discount rates Other adjustments Balance – December 31, 2017 Current portion of provisions Non-current portion of provisions 130 Onex Corporation December 31, 2017 Contingent Consideration(c) Restructuring(d) Insurance(e) Warranty(f) Other(g) Self- $ 41 86 $ 127 4 (33) 16 (40) (50) – 1 2 $ 27 (8) $ 19 $ 37 13 $ 50 95 (1) – (72) (3) (5) − 6 $ 70 (50) $ 20 $ 113 159 $ 272 227 – – (224) (5) (26) − (1) $ 243 (100) $ 143 $ 53 33 $ 86 45 (9) – (35) – (38) − (3) $ 46 (36) $ 10 $ 61 49 $ 110 31 (13) 1 (19) (7) (13) − 2 $ 92 (41) $ 51 Total $ 305 340 $ 645 402 (56) 17 (390) (65) (82) 1 6 $ 478 (235) $ 243 N O T E S T O C O N S 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, 2017, the estimated fair g) Other includes legal, transition and integration, asset retirement and other provisions. Transition and integration provisions are value of contingent consideration liability was primarily related to typically to provide for the costs of transitioning the activities of an the contingent consideration associated with Carestream Health, operating company from a prior parent company upon acquisition Clarivate Analytics and Schumacher. and to integrate new acquisitions at the operating companies. 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 2018 and 2027. 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 2017 $ 51 15 4 $ 70 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 independent third- party 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. 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 A N D C R E D I T S T R AT E G 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 and credit strategies, without recourse to Onex Corporation, comprised the following: As at December 31 Carestream Health(a) Celestica(b) Clarivate Analytics(c) Credit Strategies – CLOs(d) Credit Strategies – Lending Partners(e) Emerald Expositions(f) Flushing Town Center(g) Jack’s(h) JELD-WEN(i) Meridian Aviation(j) Parkdean Resorts(k) ResCare(l) Save-A-Lot(m) Schumacher(n) sgsco(o) SIG(p) Survitec(q) USI(r) WireCo(s) York(t) ONCAP operating companies(u) Other(v) Long-term debt Less: financing charges 2017 2016 $ 1,136 $ 1,930 187 2,062 7,575 309 559 – 253 − 82 1,042 381 714 659 604 3,144 593 − 620 956 1,412 69 22,357 (308) 22,049 228 2,030 5,912 − 707 260 193 1,640 22 − 426 718 664 584 2,973 515 1,918 609 958 958 4 23,249 (386) 22,863 Current portion of long-term debt of operating companies (333) (407) Consolidated long-term debt of operating companies $ 21,716 $ 22,456 Warranty provisions are established to provide for future warranty Onex Corporation does not guarantee the debt of its operating costs based on management’s best estimate of probable claims companies, nor are there any cross-guarantees between operating under these warranties. companies. Onex Corporation may hold debt as part of its invest- ment in certain operating companies, which is eliminated in the tables that follow. Onex Corporation December 31, 2017 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 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- 2018 2019 2020 2021 2022 Thereafter Total sible non-compliance. a) Carestream Health As at December 31 Size of facility Interest rate Floor or cap on interest rate First lien term loan(i) Second lien term loan(i) Revolving credit facility(ii)(iii) Long-term debt Unamortized discount $ 1,850 LIBOR + 4.00% Floor 1.00% LIBOR + 8.50% Floor 1.00% 500 150 LIBOR + 4.00% Floor 1.00% Jun 2018 and Jun 2019(iv) Maturity Jun 2019 Dec 2019 $ 333 1,728 500 1,127 4,833 13,836 $ 22,357 Gross principal outstanding $ 2017 770 372 – 1,142 (6) 2016 $ 1,464 480 – 1,944 (14) Long-term debt, net of unamortized discount $ 1,136 $ 1,930 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 rate plus a margin of 3.00% may apply. (iii) As amended in June 2017. (iv) $23 of the revolving credit facility matures in June 2018 and $127 matures in June 2019. In June 2017, Carestream Health amended its revolving credit facility to extend the maturity date to June 2019 for $127 of the facility. The remaining $23 of the revolving credit facility will mature in June 2018. During 2017, Carestream Health repaid $758 of the company’s ﬁrst and second lien term loans from net proceeds from the sale of its Dental Digital business along with net proceeds from an additional transaction, as described in note 2(f ). b) Celestica As at December 31 Size of facility Interest rate Term loan(i) Revolving credit facility(ii) Long-term debt $ 250 300 LIBOR + up to 3.00% LIBOR + up to 2.4% Maturity May 2020 May 2020 Gross principal outstanding 2017 2016 $ 187 – $ 187 $ 213 15 $ 228 (i) Margin varies depending on the company’s leverage ratio. (ii) 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. Celestica also has uncommitted bank overdraft facilities available for intraday and overnight operating requirements that totalled $74 (2016 – $70) at December 31, 2017. 132 Onex Corporation December 31, 2017 N O T E S T O C O N S 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) 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 + 3.25% Floor 1.00% 175 500 LIBOR + up to 3.25% 7.875% n/a n/a Maturity Oct 2023 Oct 2021 Oct 2024 Gross principal outstanding 2017 2016 $ 1,531 $ 1,546 30 500 2,061 (5) 6 − 500 2,046 (8) (8 ) Long-term debt, net of unamortized discount $ 2,062 $ 2,030 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. (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. During 2017, Clarivate Analytics amended its existing senior secured credit facility to reduce the rate at which borrowings under its ﬁrst lien term loan bear interest to LIBOR (subject to a ﬂoor of 1.00%) plus a margin of 3.25%. The amendments resulted in a total interest rate reduction of 50 basis points on the company’s ﬁrst lien term loan. In connection with the existing senior secured credit facility, the company has entered into a series of interest rate swap agree- ments totalling $300 that swap the variable rate portion of the ﬁrst lien term loan for ﬁxed rates through March 2021. d) Credit Strategies – CLOs The secured notes and loans and subordinated notes bear interest As of December 31, 2017, the CLOs had notional secured notes and at a rate of LIBOR plus a margin and mature between November loans, subordinated notes and equity outstanding as follows: 2025 and January 2032. The secured notes and loans, subordinated Closing date As at December 31, 2017 As at December 31, 2016 November 2012 $ 417 $ CLO-2 CLO-3 CLO-4 CLO-5 CLO-6 CLO-7 CLO-8 CLO-9 CLO-10 CLO-11 CLO-12 CLO-13 CLO-14 EURO CLO-1 EURO CLO-2 March 2013 October 2013 March 2014 June 2014 November 2014 April 2015 July 2015 October 2015 May 2016 October 2016 July 2017 December 2017 May 2017 December 2017 – 623 420 417 512 514 420 1,025 1,002 514 764 758 512 502 558 610 611 433 524 514 764 758 512 502 558 − − − − Onex’ investment at notional amounts Total 8,271 (694) 6,473 (518) $ 7,577 $ 5,955 notes and equity of the CLOs are designated at fair value through net earnings upon initial recognition. At December 31, 2017, the fair value of the secured notes, subordinated notes and equity held by investors other than Onex was $7,575 (2016 – $5,855). In addi- tion, CLO warehouse facilities had nil outstanding at December 31, 2017 (2016 – $57). The notes and loans of CLOs are secured by, and only 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 respec- tive CLO. EURO CLO-1 In May 2017, Onex closed EURO CLO-1, which was funded through the issuance of collateralized loan instruments in a series of tranches of secured notes and subordinated notes, as described in note 2(o). The secured notes were offered in an aggregate principal amount of €323 ($351) and are due in June 2030. The ﬂoating rate secured notes bear interest at a rate of EURIBOR plus a margin of 0.9% to 7.15%. Interest on the secured notes was payable beginning in December 2017. The secured notes and subordinated notes of EURO CLO-1 were designated at fair value through net earnings. Onex Corporation December 31, 2017 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 The secured notes are subject to redemption and pre- The secured notes of EURO CLO-2 are secured by, and payment provisions, including mandatory redemption, if certain only have recourse to, the assets of EURO CLO-2. coverage tests are not met by EURO CLO-1. Optional redemption of the secured notes is available beginning in June 2019. Optional CLO-14 reﬁnancing of certain secured obligations is available subject to In December 2017, Onex closed CLO-14, which was funded through certain customary terms and conditions being met by EURO CLO-1. the issuance of collateralized loan instruments in a series of tranches The secured notes of EURO CLO-1 are secured by, and of secured and subordinated notes and preference shares, as only have recourse to, the assets of EURO CLO-1. described in note 2(o). The secured notes were offered in an aggre- CLO-3 gate principal amount of $552 and are due in November 2030. The ﬂoating rate secured notes bear interest at a rate of LIBOR plus a In June 2017, Onex redeemed its third CLO denominated in U.S. margin of 1.15% to 5.80%. Interest on the secured notes is payable dollars, CLO-3, as described in note 2(o). Upon the redemption of beginning in May 2018. The secured and subordinated notes and CLO-3, all secured notes were repaid, including accrued interest, preference shares of CLO-14 were designated at fair value through and the equity was settled for the residual proceeds in the CLO. net earnings. CLO-13 The secured notes are subject to redemption and pre- payment provisions, including mandatory redemption, if certain In July 2017, Onex closed CLO-13, which was funded through the coverage tests are not met by CLO-14. Optional redemption of the issuance of collateralized loan instruments in a series of tranches secured notes is available beginning in November 2019. Optional of secured and subordinated notes and preference shares, as repricing of certain secured obligations is available subject to cer- described in note 2(o). The secured notes were offered in an aggre- tain customary terms and conditions being met by CLO-14. gate principal amount of $552 and are due in July 2030. The ﬂoating The secured notes of CLO-14 are secured by, and only rate secured notes bear interest at a rate of LIBOR plus a margin of have recourse to, the assets of CLO-14. 1.26% to 6.63%. Interest on the secured notes is payable beginning in January 2018. The secured notes and preference shares of CLO-13 were designated at fair value through net earnings. e) Credit Strategies – Lending Partners OCLP I The secured notes are subject to redemption and pre- In June 2017, OCLP I entered into a $138 revolving credit facility. payment provisions, including mandatory redemption, if certain The revolving credit facility is available to ﬁnance capital calls and coverage tests are not met by CLO-13. Optional redemption of the for other permitted uses. Borrowings drawn on the revolving credit secured notes is available beginning in July 2019. Optional repric- facility bear interest at LIBOR (subject to a ﬂoor of 0.00%) plus a ing of certain secured obligations is available subject to certain margin of 1.65%. The revolving credit facility matures in June 2020, customary terms and conditions being met by CLO-13. subject to an option to extend the maturity date for up to 364 days The secured notes of CLO-13 are secured by, and only upon satisfaction of certain conditions. The revolving credit facil- have recourse to, the assets of CLO-13. ity is secured by, among other things, the uncalled capital com- EURO CLO-2 mitted by the limited partners of OCLP I. Onex Corporation, the parent company, is only obligated to fund capital calls based on its In December 2017, Onex closed EURO CLO-2, which was funded proportionate share as a limited partner in OCLP I. through the issuance of collateralized loan instruments in a series In August 2017, OCLP I entered into a $300 asset backed of tranches of secured notes and subordinated notes, as described ﬁnancing facility. The asset backed ﬁnancing facility is avail- in note 2(o). The secured notes were offered in an aggregate princi- able to ﬁnance investments in the asset portfolio of OCLP I and pal amount of €390 ($459) and are due in January 2032. The ﬂoating rate secured notes bear interest at a rate of EURIBOR plus a margin for other permitted uses. Borrowings drawn on the asset backed ﬁnancing facility bear interest at a base rate (subject to a ﬂoor of of 0.82% to 6.40%. Interest on the secured notes is payable begin- 0.00%) plus a margin of up to 2.50%. The asset backed ﬁnancing ning in July 2018. The secured notes and subordinated notes of facility matures in August 2022. The asset backed ﬁnancing facil- EURO CLO-2 were designated at fair value through net earnings. ity is secured by, among other things, a portion of the asset port- The secured notes are subject to redemption and pre- folio of OCLP I. payment provisions, including mandatory redemption, if certain At December 31, 2017, $90 and $219 were outstanding coverage tests are not met by EURO CLO-2. Optional redemp- under the revolving credit facility and the asset backed ﬁnancing tion of the secured notes is available beginning in January 2020. facility, respectively. Optional reﬁnancing of certain secured obligations is available subject to certain customary terms and conditions being met by EURO CLO-2. 134 Onex Corporation December 31, 2017 N O T E S T O C O N S O L I D AT E D F I N A N C I A L S TAT E M E N T S f) Emerald Expositions As at December 31 Size of facility Interest rate Floor or cap on interest rate Term loan(i)(ii) $ 565 LIBOR + up to 2.75% Revolving credit facility(i)(iii) 150 LIBOR + up to 2.75% n/a n/a Maturity May 2024 May 2022 Long-term debt Unamortized discount Gross principal outstanding 2017 $ 562 – 562 (3) 2016 $ 713 – 713 (6) Long-term debt, net of unamortized discount $ 559 $ 707 Substantially all of Emerald Expositions’ assets are pledged as collateral under the credit facility. (i) As amended and restated in May 2017 and further amended in November 2017. (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. Emerald Expositions repaid $159 under its term loan from the net In November 2017, Emerald Expositions further amend- proceeds from the sale of treasury shares in its April 2017 initial ed its existing credit facility to reduce the rate at which borrow- public offering, as described in note 2(d). ings under its term loan and revolving credit facility bear interest In May 2017, Emerald Expositions amended and restated to LIBOR plus a margin of up to 2.75%. The amendment resulted its existing credit facility to increase the size of its revolving credit in a total interest rate reduction of 25 basis points on the com- facility by $50. In addition, the rate at which the company borrows pany’s term loan and revolving credit facility. under its new term loan and revolving credit facility was reduced to In connection with the credit facility, the company has LIBOR plus a margin of up to 3.00%, depending on the company’s entered into an interest rate swap agreement with a notional leverage ratio. The maturity dates for the new term loan and revolv- amount of $100 that swaps the variable rate portion for a ﬁxed ing credit facility were extended to May 2024 and May 2022, respec- rate through December 2018. tively. The amended and restated credit facility resulted in a current interest rate reduction of 75 basis points and 150 basis points on the company’s prior term loan and revolving credit facility, respectively. g) Flushing Town Center As at December 31 Size of facility Interest rate Mezzanine loan(i) Mezzanine loan(i) Long-term debt $ 150 138 LIBOR + 8.00% LIBOR + 11.00% Floor or cap on interest rate Floor 0.25% Floor 0.25% Maturity n/a n/a Gross principal outstanding 2017 $ $ − − – 2016 $ 130 130 $ 260 (i) The second phase of condominiums constructed at Flushing Town Center was pledged as collateral under these credit facilities. During 2017, Flushing Town Center repaid its mezzanine loans from proceeds from the sale of residential condominium units. Onex Corporation December 31, 2017 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 h) Jack’s As at December 31 Size of facility Interest rate Term loan(i)(ii) $ 275 LIBOR + up to 4.00% Revolving credit facility(iii) 30 LIBOR + up to 4.25% Floor or cap on interest rate Floor 1.00% Floor 0.00% Maturity Apr 2024 Apr 2022 Long-term debt Unamortized discount Gross principal outstanding 2017 $ 256 − 256 (3) 2016 $ 195 − 195 (2 ) Long-term debt, net of unamortized discount $ 253 $ 193 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. (ii) As amended in April 2017 and October 2017. (iii) As amended in April 2017. In April 2017, Jack’s amended its existing credit facility to increase i) JELD-WEN the size of its term loan to $275. In addition, the rate at which the At December 31, 2016, $1,612 was outstanding under JELD-WEN’s company borrows under the term loan was reduced to LIBOR term loan, which was recorded net of an unamortized discount of (subject to a ﬂoor of 1.00%) plus a margin of up to 4.25%, depend- $8. In addition, JELD-WEN had other borrowings of $36 at Decem- ing on the company’s leverage ratio, and the maturity date was ber 31, 2016. extended to April 2024. The rate at which the company borrows In February 2017, JELD-WEN repaid $375 under its com- under the revolving credit facility was reduced to LIBOR (subject bined term loan from a portion of its net proceeds from the sale of to a ﬂoor of 0.00%) plus a margin of up to 4.25%, depending on treasury shares in its initial public offering, as described in note 2(a). the company’s leverage ratio, and the maturity date was extend- In March 2017, JELD-WEN amended its existing credit ed to April 2022. The amendment resulted in a current interest facility to reduce the rate at which borrowings under its combined rate reduction of 50 basis points on the company’s term loan and term loan bear interest to LIBOR (subject to a ﬂoor of 1.00%) plus revolving credit facility. The proceeds from the incremental bor- a margin of up to 3.00%, depending on the company’s leverage rowing, along with cash on hand, were used to fund a distribution ratio. The amendment resulted in a total interest rate reduction of of $85 to shareholders, as described in note 2(c). 50 basis points. In October 2017, Jack’s further amended its existing credit JELD-WEN’s long-term debt is no longer recognized on facility to reduce the rate at which borrowings under its term loan the consolidated balance sheet as the Company no longer controls bear interest to LIBOR (subject to a ﬂoor of 1.00%) plus a margin JELD-WEN, as described in note 2(a). of up to 4.00%, depending on the company’s leverage ratio. The amendment resulted in a total interest rate reduction of 25 basis points on the company’s term loan. In connection with the credit facility, the company has entered into an interest rate swap agreement with a notional amount of $92 that swaps the variable rate portion for a ﬁxed rate through June 2020. 136 Onex Corporation December 31, 2017 N O T E S T O C O N S O L I D AT E D F I N A N C I A L S TAT E M E N T S j) Meridian Aviation As at December 31 Size of facility Interest rate Revolving credit facility(i) $ 150 LIBOR + 1.50% Maturity Nov 2019 Long-term debt (i) As amended in November 2017. Gross principal outstanding 2017 82 82 $ $ 2016 $ $ 22 22 In November 2017, Meridian Aviation amended its revolving credit facility to increase the amount available under the facility to $150 and to extend the maturity date to November 2019. k) Parkdean Resorts As at December 31 Size of facility Interest rate Floor or cap on interest rate Maturity Gross principal outstanding 2017 First lien term loan Second lien term loan Revolving credit facility Preference shares Other Long-term debt £ 575 LIBOR + up to 4.25% Floor 0.00% March 2024 $ 777 £ 575 150 100 n/a n/a LIBOR + 8.50% Floor 1.00% March 2025 LIBOR + up to 3.25% n/a n/a n/a n/a n/a March 2023 n/a n/a 203 – 47 15 150 – 35 11 $ 1,042 £ 771 Substantially all of Parkdean Resorts’ assets are pledged as collateral under the senior secured credit facility. The Onex Partners IV Group acquired Parkdean Resorts in March 2017, as described in note 2(b). In March 2017, Parkdean Resorts entered into a secured credit facility consisting of a £575 ﬁrst lien term loan, a £150 second lien term loan and a £100 revolving credit facility. In connection with the secured credit facility, the company has entered into two interest rate swap agreements with notional amounts totalling £500 that swap the variable rate portion of the ﬁrst lien term loan for ﬁxed rates through May 2021. l) ResCare As at December 31 Size of facility Interest rate Term loan(i) Revolving credit facility Other Long-term debt $ 505 250 n/a LIBOR + up to 2.75% LIBOR + up to 2.75% n/a Maturity Apr 2019 Apr 2019 n/a Substantially all of ResCare’s assets are pledged as collateral under the senior secured credit facility. (i) As amended in February 2016. Gross principal outstanding 2017 2016 $ 381 $ 425 – – − 1 $ 381 $ 426 Onex Corporation December 31, 2017 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 m) 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 Maturity Dec 2023 Dec 2021 Gross principal outstanding 2017 $ 733 – 733 (19) 2016 $ 740 − 740 (22) Long-term debt, net of unamortized discount $ 714 $ 718 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. In connection with the existing senior secured credit facility, the company has entered into an interest rate cap agreement with a notional amount of $445 that sets a ceiling for the base rate of the term loan through March 2018. n) 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 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) Interest rate at an alternative base rate plus a margin of 3.00% may apply. Maturity Jul 2022 Jul 2020 Jul 2023 n/a Gross principal outstanding 2017 $ 519 − 135 5 2016 $ 524 − 135 5 $ 659 $ 664 In connection with the existing senior secured credit facility, the company has entered into an interest rate cap agreement with a notional amount of $400 that sets a ceiling for the base rate of the ﬁrst lien term loan through December 2019. o) sgsco As at December 31 Size of facility Interest rate Floor or cap on interest rate Maturity 2017 2016 Gross principal outstanding First lien and delayed draw term loans $ 575 LIBOR + up to 3.50% Floor 0.00% Second lien term loan Revolving credit facility(i) Term loan Senior notes Long-term debt Unamortized discount 105 75 n/a n/a LIBOR + up to 7.50% Floor 0.00% LIBOR + up to 3.50% Floor 0.00% LIBOR + up to 3.25% Floor 1.00% 8.38% n/a Dec 2022 Dec 2023 Mar 2022 n/a n/a $ 495 105 6 − − 606 (2) $ − − − 380 205 585 (1) Long-term debt, net of unamortized discount $ 604 $ 584 Substantially all of sgsco’s assets are pledged as collateral under the credit agreement. (i) As amended in December 2017. In December 2017, sgsco entered into a new secured credit facility consisting of a $495 ﬁrst lien term loan, a $105 second lien term loan and an $80 delayed draw term loan. The delayed draw term loan was fully drawn in February 2018 to partially ﬁnance an acquisition completed by sgsco. In addition, sgsco amended its revolving credit facility to increase the amount available under the facility to $75. The net proceeds from the senior secured credit facility were used to repay the existing debt facilities. 138 Onex Corporation December 31, 2017 N O T E S T O C O N S O L I D AT E D F I N A N C I A L S TAT E M E N T S p) 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 + 3.25% 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 2017 2016 $ 1,225 4 1,021 $ 1,090 2 1,032 1,102 918 1,169 1,108 − 810 − 675 − 712 − 675 3,137 2,614 2,971 2,815 (7) 14 (6) 12 (9) 11 (8 ) 9 $ 3,144 4 2,620 $ 2,973 2 2,816 In October 2017, SIG amended its senior secured credit facility In connection with the senior secured credit facility, to reduce the rate at which borrowings under its euro-denomi- the company has entered into a series of interest rate swap agree- nated term loan bear interest to EURIBOR (subject to a ﬂoor of ments that swap the variable rate portion for ﬁxed rates through 0.00%) plus a margin of 3.25%. The amendment resulted in a total interest rate reduction of 50 basis points on the company’s euro- December 2019. The agreements have notional amounts of €525 for the euro-denominated term loan and $610 for the U.S. dollar- denominated term loan. denominated term loan. q) 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 Gross principal outstanding 2017 2016 $ 169 £ 125 $ 210 159 15 20 20 155 118 11 15 15 154 184 140 – 18 19 £ 125 149 113 − 15 15 $ 593 £ 439 $ 515 £ 417 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, 2017, 2308 (2016 – 2308) was outstanding under the euro-denominated term loans. In connection with the senior secured credit facility, the compa- r) USI ny has entered into a series of interest rate swap agreements that At December 31, 2016, USI had $1,282 outstanding under its term swap the variable rate portion for ﬁxed rates through June 2020. loans, $630 outstanding under its senior notes, $11 outstanding The agreements have notional amounts of £106 for the pound ster- under its notes payable and no amounts outstanding under its ling-denominated term loan and €149 for the euro-denominated term loan, decreasing to £63 for the pound sterling-denominated term loan and €88 for the euro-denominated term loan from June 2019 through June 2020. revolving credit facility. These amounts were recorded net of an amortized discount of $5. In May 2017, the Onex Partners III Group sold its entire investment in USI, as described in note 2(e). Onex Corporation December 31, 2017 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 s) WireCo As at December 31 Size of facility Interest rate First lien term loan Second lien term loan Revolving credit facility Other Long-term debt Unamortized discount Floor or cap on interest rate Floor 1.00% Floor 1.00% $ 460 LIBOR + 5.50% LIBOR + 9.00% 135 100 n/a LIBOR + up to 2.25% Floor 0.00% n/a n/a Maturity Sep 2023 Sep 2024 Sep 2021 n/a Gross principal outstanding 2017 $ 454 135 29 7 625 (5) 2016 $ 459 135 22 – 616 (7) Long-term debt, net of unamortized discount $ 620 $ 609 Substantially all of WireCo’s assets are pledged as collateral under the senior secured credit facility. t) York As at December 31 Size of facility Interest rate Floor or cap on interest rate Maturity 2017 2016 Gross principal outstanding First lien and delayed draw term loans(i)(ii) Revolving credit facility(iii) Senior unsecured notes(iv) Long-term debt Unamortized discount Unamortized embedded derivatives $ 665 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 $ 645 $ 601 8 315 968 (3) (9) 56 315 972 (3 ) (11 ) Long-term debt, net of unamortized discount and embedded derivatives $ 956 $ 958 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) As amended in March 2017. (iii) Margin varies depending on the company’s leverage ratio. (iv) The senior unsecured notes may be redeemed by the company at any time at various premiums at or above face value. In March 2017, York amended its existing credit facility to increase the size of its ﬁrst lien term loan to $665. All proceeds of the incremental term loan were used to repay the existing revolving credit facility. In connection with the existing senior secured credit facility, the company has entered into two interest rate swap agreements with notional amounts totalling $300 that swap the variable rate portion of the ﬁrst lien term loan for ﬁxed rates through December 2019. 140 Onex Corporation December 31, 2017 N O T E S T O C O N S O L I D AT E D F I N A N C I A L S TAT E M E N T S u) ONCAP operating companies ONCAP’s consolidated operating companies consist of Bradshaw, Chatters, Davis-Standard, EnGlobe, Hopkins, IntraPac (acquired in December 2017), Laces (acquired in December 2017), Pinnacle Renewable Energy, PURE Canadian Gaming and Tecta. 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 Cor poration. Under the terms of the various credit agreements, combined borrowings at December 31, 2017 were as follows: As at December 31 Term borrowings Revolving credit facilities Subordinated notes Other Long-term debt Gross principal outstanding Effective interest rates(i) Maturity 2017 4.61% to 7.46% 2020 to 2023 $ 1,317 4.61% to 7.25% 2020 to 2023 12.00% to 18.00% 2021 to 2022 n/a n/a 57 37 1 2016 $ 890 22 45 1 $ 1,412 $ 958 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, 2017. 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. v) Other ONCAP III of $35 available to ONCAP IV and its operating companies for for- eign exchange transactions, including foreign exchange options, In December 2011, ONCAP III entered into a C$75 credit facility forwards and swaps. Amounts under the credit facility are avail- that consists of a C$50 line of credit and a C$25 deemed credit risk able in Canadian and U.S. dollars. Borrowings drawn on the credit facility. In September 2016, ONCAP III discharged the C$50 line of facility bear interest at a base rate plus a margin of 1.00% or bank- credit facility and increased the deemed credit risk facility to C$36. ers’ acceptance rate (subject to a ﬂoor of 0.00%) plus a margin of The deemed credit risk facility is available to ONCAP III and its 3.75%. The base rate and bankers’ acceptance rate vary based on operating companies for foreign exchange transactions, including the currency of the borrowings. Borrowings under the credit facil- foreign exchange options, forwards and swaps. Borrowings under ity are due and payable upon demand; however, ONCAP IV has the credit facility are limited to the lesser of the amount available 15 business days to complete a capital call to the limited partners under the deemed credit facility, 80% of the aggregate amount of of ONCAP IV. Onex Corporation, the parent company, is only obli- uncalled capital in the fund and the maximum amount of obli- gated to fund borrowings under the credit facility based on its gations permitted under the partnership agreement. Borrowings proportionate share as a limited partner in ONCAP IV. under the credit facility are due and payable upon demand; how- At December 31, 2017, $64 was outstanding under the ever, ONCAP III has 15 business days to complete a capital call credit facility, which was repaid in January 2018 following the to the limited partners of ONCAP III to fund the demand. Onex capital call to the limited partners of ONCAP IV for the acquisition Corporation, the ultimate parent company, is only obligated to of Laces. fund borrowings under the credit facility based on its proportion- ate share as a limited partner in ONCAP III. Onex Partners V At December 31, 2017, the amount available under the In December 2017 and January 2018, Onex Partners V entered deemed risk facility was C$29 (2016 – C$21). into a $997 revolving credit facility. The limited partners of Onex ONCAP IV Partners V could elect to participate in the credit facility at the time of their commitment. Of the aggregate commitments to In January 2017, ONCAP IV entered into a $100 credit facility. The Onex Partners V, 46% of the commitments were from limited part- credit facility is available to ﬁnance ONCAP IV capital calls, bridge ners that elected to participate in the credit facility. Onex, as a investments in ONCAP IV operating companies and to ﬁnance limited partner of Onex Partners V, did not elect to participate in other uses permitted by ONCAP IV’s limited partnership agree- the credit facility. The credit facility is available to ﬁnance Onex ment. The credit facility includes a deemed credit risk maximum Partners V capital calls, bridge investments in Onex Partners V Onex Corporation December 31, 2017 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 operating companies and to ﬁnance other uses permitted by Onex Substantially all of the lease commitments relate to the operating Partners V’s limited partnership agreement. Borrowings under companies. Obligations under ﬁnance leases, without recourse to the credit facility are limited to the lesser of the amount available Onex Corporation, are included in other current and non-current under the credit facility and the maximum amount of obligations liabilities. Operating lease expense for the year ended Decem- permitted under the partnership agreement. Amounts under the ber 31, 2017 was $377 (2016 – $288) and primarily related to prem- credit facility are available in U.S. dollars, Canadian dollars, euros, ises. Finance leases include minimum lease payments under pounds sterling and other currencies as requested, subject to the Parkdean Resorts’ long-dated sale-leaseback transactions. approval of the lenders. Borrowings drawn on the credit facility bear interest at b) The Company as lessor an adjusted LIBOR rate, plus a margin of 1.50%, with respect to Certain of the operating companies lease out their investment LIBOR rate loans and the reference rate in effect from day to day, properties, machinery and/or equipment under operating leases. plus a margin of 1.50%, for reference rate loans. In addition, a fee Future minimum lease payments receivable from lessees under of 0.25% per annum accrues on the portion of the credit facility non-cancellable operating leases are as follows: that is available but unused. The credit facility matures on the earlier of December 15, 2020, or upon the occurrence of certain events deﬁned in the agree- For the year: ment, with an option to extend for an additional 364 days. Onex Partners IV In January 2018, Onex Partners IV entered into a revolving credit facility, as described in note 2(l). 2018 2019 2020 2021 2022 Thereafter $ 87 73 42 24 18 16 15 . L E A S E S a) The Company as lessee Future minimum lease payments are as follows: Finance Leases Operating Leases $ 335 274 217 160 124 613 $ 1,723 For the year: 2018 2019 2020 2021 2022 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 $ 46 32 27 21 14 1,566 $ 1,706 (1,314) 392 (32) to Onex Corporation (note 18) $ 360 Total minimum lease payments receivable $ 260 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, 2017 and 2016. 16 . L I A B I L I T I E S A N D A S S E T S A R I S I N G F R O M F I N A N C I N G A C T I V I T I E S The following tables provide an analysis of liabilities and assets arising from ﬁnancing activities. As at December 31 2017 Principal balance of debt and finance leases outstanding $ 22,800 Hedging instruments Accrued and imputed interest Financing charges Original issue discount on debt Embedded derivatives Cumulative change in fair value Net financing obligations (87) 140 (328) (58) 9 (2) $ 22,474 142 Onex Corporation December 31, 2017 N O T E S T O C O N S O L I D AT E D F I N A N C I A L S TAT E M E N T S Balance – January 1, 2017 Issuance of new debt Finance lease additions Hedging asset additions Sale-leaseback under finance leases Issuance of obligations associated with acquisitions Repayment of existing debt on refinancing Settlement of obligations associated with dispositions Obligations of operating company no longer controlled Repayment of non-revolving obligations Net draw of revolving credit facilities Original issue discounts and payment of financing charges Cash interest received (paid) Interest accrued Amortization of original issue discounts and financing charges Change in fair value Foreign exchange Other Long-term debt $ 22,955 7,583 – – – 1,220 (5,704) (1,907) (1,613) (1,488) 409 (47) (1,026) 1,121 119 73 427 47 Finance leases $ 77 – 21 – 91 200 – – (3) (22) – – (13) 11 – – 21 9 Gross financing obligations $ 23,032 7,583 21 – 91 1,420 (5,704) (1,907) (1,616) (1,510) 409 (47) (1,039) 1,132 119 73 448 56 Hedging assets $ 1 – – 1 – – – (1) 7 – – – 7 (3) – 65 7 3 Net financing obligations $ 23,031 7,583 21 (1) 91 1,420 (5,704) (1,906) (1,623) (1,510) 409 (47) (1,046) 1,135 119 8 441 53 Balance – December 31, 2017 $ 22,169 $ 392 $ 22,561 $ 87 $ 22,474 17. 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, Onex Credit Lending Partners and Onex Credit Funds by those other than Onex are pre- sented within Limited Partners’ Interests. Details of the change in Limited Partners’ Interests are as follows: Balance – December 31, 2015 Limited Partners’ Interests charge(a) Contributions by Limited Partners(b) Distributions paid to Limited Partners(c) Balance – December 31, 2016(d) Limited Partners’ Interests charge(a) Contributions by Limited Partners(b) Distributions paid to Limited Partners(c) Limited partnership interest acquired by Onex, the parent company(e) Balance – December 31, 2017 Current portion of Limited Partners’ Interests(d) Gross Limited Partners’ Interests Onex Partners and ONCAP Funds Carried Interest Net Limited Partners’ Interests Credit Strategies Net Limited Partners’ Interests(i) Total $ 7,492 $ (503) $ 6,989 $ 329 $ 7,318 678 1,574 (1,084) 8,660 1,545 560 (2,582) (156) 8,027 (45) (91) – 38 (556) (215) – 307 – (464) 4 587 1,574 (1,046) 8,104 1,330 560 (2,275) (156) 7,563 (41) 60 19 (38) 370 20 113 (42) – 461 (18) 647 1,593 (1,084) 8,474 1,350 673 (2,317) (156) 8,024 (59) Non-current portion of Limited Partners’ Interests $ 7,982 $ (460) $ 7,522 $ 443 $ 7,965 (i) Net of incentive fees in the credit strategies. a) The gross Limited Partners’ Interests charge for the Onex Partners and ONCAP Funds is primarily due to net fair value increases of the underlying investments in the Onex Partners and ONCAP Funds. Onex’ share of the change in carried interest was $84 for the year ended December 31, 2017 (2016 – $33). Onex Corporation December 31, 2017 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 b) The following tables show contributions by limited partners of the Onex Partners and ONCAP Funds. Company Parkdean Resorts(i) IntraPac Management fees, partnership expenses and other Contributions by Limited Partners (i) Includes amounts from certain limited partners and others. Fund Transaction Onex Partners IV ONCAP IV Various Original investment Original investment Various 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. Year ended December 31, 2017 $ 446 72 42 $ 560 Year ended December 31, 2016 $ 758 474 194 107 27 14 $ 1,574 (ii) Includes contributions returned to the limited partners of ONCAP III in January 2017 from the syndication of a portion of the Tecta investment to ONCAP IV. c) The following tables show distributions made to limited partners of the Onex Partners and ONCAP Funds. Company USI(i) JELD-WEN(i) BBAM Emerald Expositions Jack’s Hopkins Bradshaw Tecta(ii) Genesis Healthcare PURE Canadian Gaming Other Distributions to Limited Partners Fund Transaction Onex Partners III Onex Partners III Onex Partners III Onex Partners III Onex Partners IV ONCAP III ONCAP III ONCAP III Onex Partners I ONCAP II & III Various Sale of business Initial and secondary offerings Distributions and partial sale of business Initial public offering and dividends Distribution Distribution Distribution Syndication Sale of shares Distribution Various Year ended December 31, 2017 $ 1,198 691 109 92 58 41 34 24 13 6 9 $ 2,275 (i) Includes amounts distributed to certain limited partners and others. (ii) Represents contributions returned to the limited partners of ONCAP III from the syndication of a portion of the Tecta investment to ONCAP IV in 2016. Fund Transaction Year ended December 31, 2016 Company KraussMaffei JELD-WEN(i)(ii) AIT Jack’s BBAM Cicis Meridian Aviation Other Distributions to Limited Partners (i) Includes amounts distributed to certain limited partners and others. (ii) Includes amounts received for a purchase price adjustment. 144 Onex Corporation December 31, 2017 Onex Partners III Onex Partners III Onex Partners IV Onex Partners IV Onex Partners III ONCAP II Onex Partners III Various Sale of business Distributions Distributions Repayment of promissory note Distributions Sale of business Distribution Various $ 519 264 104 55 37 28 24 15 $ 1,046 N O T E S T O C O N S 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) At December 31, 2017, the current portion of the Limited Partners’ Interests was $59, and consisted primarily of (i) the distribution a) At December 31, 2017, the stock-based compensation liabil- ity consisted of $584 (2016 – $514) for the stock-based compensa- received from PURE Canadian Gaming; (ii) residual escrow bal- tion plans at the parent company and nil (2016 – $214) for stock ances from the sale of certain investments; and (iii) redemptions option and other share-based compensation plans in place at the received by certain Onex Credit Funds. operating companies. At December 31, 2017, $10 (2016 – $9) related At December 31, 2016, the current portion of the Limited to the parent company stock-based compensation liability was Partners’ Interests was $89, and consisted primarily of the limit- recorded in other current liabilities. Included in long-term invest- ed partners’ share of (i) the distribution received from Hopkins; ments (note 10) is $92 (2016 – $83) related to forward agreements (ii) the return of capital to the limited partners of the ONCAP III to economically hedge the Company’s exposure to changes in the Group related to the syndication of a portion of the investment trading price of Onex shares associated with the Management and in Tecta to the ONCAP IV Group; and (iii) the remaining proceeds Director DSU Plans. from the sale of KraussMaffei. e) During 2017, Onex, the parent company, acquired an interest in b) Unrealized carried interest due to management of Onex and ONCAP through the Onex Partners and ONCAP Funds is recog- Onex Partners IV, as described in note 2(g). nized primarily as a non-current liability and reduces the Limited 18 . 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 2017, $3 (2016 – nil) of unrealized carried interest was recorded Partners Interests’ liability, as described in note 17. At December 31, Other non-current liabilities comprised the following: As at December 31 Stock-based compensation(a) Defined benefit pensions and non-pension post-retirement benefits (note 33) Obligations under capital leases (note 15) 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) 2017 $ 574 364 360 324 170 – 259 in other current liabilities. The unrealized carried interest is cal- culated based on current fair values of the Funds’ investments and the overall unrealized gains in each respective Fund in accor- dance with the limited partnership agreements. The liability will 2016 $ 719 be increased or decreased based on changes in the fair values and 445 45 358 176 107 319 realizations of the underlying investments in the Onex Partners and ONCAP Funds. The liability will ultimately be settled upon the realization of the limited partners’ share of the underlying Onex Partners and ONCAP Fund investments. During 2017 and 2016, the unrealized carried interest lia- bility decreased primarily due to the payment of realized carried interest on signiﬁcant transactions, as described in note 2, partially offset by an increase in the fair value of certain of the investments Total other non-current liabilities $ 2,051 $ 2,169 in the Onex Partners and ONCAP Funds. c) JELD-WEN’s employee stock ownership plan liability is no longer recognized on the consolidated balance sheet as the Company no longer controls JELD-WEN, as described in note 2(a). d) Other includes amounts for liabilities arising from indemniﬁ- cations, embedded derivatives on long-term debt, mark-to-market valuations of hedge contracts and shareholder loan notes. Onex Corporation December 31, 2017 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 19. 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 (recovery of) income taxes Classified as: Current Deferred Provision for (recovery of) income taxes 2017 $ (194) 130 (261) 298 (44) (5) 29 (37) 2016 $ (136 ) 257 (153 ) 189 (5) 8 15 (68) $ (84) $ 107 $ 265 (349) $ (84) $ 217 (110) $ 107 Included in the recovery of deferred income taxes is a net recovery of $192 (2016 – nil) related to changes to the income tax rates applicable on certain deferred income tax assets and liabilities. 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, 2015 Credited (charged) to net earnings Credited (charged) to net earnings (discontinued operations) Credited (charged) directly to equity Recognition of previously unrecognized benefits (discontinued operations) Exchange differences Acquisition of subsidiaries Other adjustments Balance – December 31, 2016 Credited (charged) to net earnings Charged directly to equity Recognition of previously unrecognized benefits Exchange differences Acquisition of subsidiaries Disposition of subsidiaries Operating company no longer controlled Scientific Research and Development $ 1 − − − − − − – Provisions $ 103 42 Deferred Revenue $ 17 4 Tax Losses $ 280 28 – − − (1) 8 − (4) − − (1) 1 − (2) (14) − 2 23 − Property, Plant and Equipment, and Intangibles Other Total $ 57 $ 350 $ 808 (9) (42) 141 − − 3 42 2 350 8 166 5 37 (2) 23 485 (6) 166 8 111 − $ 1 $ 152 $ 17 $ 317 $ 236 $ 872 $ 1,595 – – – 2 – – – (1) (2) − 4 (6) – – 6 − − 1 – – – (46) (2) 5 7 10 – (82) (5) − 2 4 (26) – (151) 17 (5) – 5 (4) (118) (534) (29) (9) 7 23 (26) (118) (767) Balance – December 31, 2017 $ 3 $ 147 $ 24 $ 209 $ 60 $ 233 $ 676 146 Onex Corporation December 31, 2017 N O T E S T O C O N S O L I D AT E D F I N A N C I A L S TAT E M E N T S Deferred Income Tax Liabilities Balance – December 31, 2015 Credited to net earnings Charged to net earnings (discontinued operations) Credited directly to equity Exchange differences Acquisition of subsidiaries Disposition of subsidiaries Other adjustments Balance – December 31, 2016 Charged (credited) to net earnings Charged directly to equity Exchange differences Acquisition of subsidiaries Disposition of subsidiaries Operating company no longer controlled Other adjustments Gains on Sales of Operating Companies $ 44 (2) − − − − − − $ 42 (30) − (1) − − − – Pension and Non-Pension Post-Retirement Benefits $ 44 (2) – (10) − − − (1) $ 31 (1) 4 2 − − – – Property, Plant and Equipment, and Intangibles $ 1,822 (49) 301 (10) (8) 282 (40) – $ 2,298 (368) – 68 216 (277) (468) 1 Foreign Exchange $ 32 (4) – − − − − − Other Total $ 159 $ 2,101 (30) 166 (2) 5 24 − (7) (87) 467 (22) (3) 306 (40) (8) $ 28 $ 315 $ 2,714 (2) − – (1) − − – 30 – 12 2 − (198) 1 (371) 4 81 217 (277) (666) 2 Balance – December 31, 2017 $ 11 $ 36 $ 1,470 $ 25 $ 162 $ 1,704 At December 31, 2017, Onex and its investment holding companies 2 0 . S H A R E C A P I TA L had $1,356 of non-capital loss carryforwards and $104 of capital loss carryforwards. Deferred income tax assets are recognized for tax loss carryforwards to the extent that the realization of the related tax beneﬁt through future taxable income is probable. At Decem- ber 31, 2017, deductible temporary differences, unused tax losses and unused tax credits for which no deferred tax asset has been recognized were $5,381 (2016 – $6,253), of which $2,238 (2016 – $1,783) had no expiry, $468 (2016 – $609) was available to reduce future income taxes between 2018 and 2024 (2016 – 2017 and 2023), inclusive, and $2,675 (2016 – $3,861) was available with expiration dates of 2025 through 2037 (2016 – 2024 through 2036). At December 31, 2017, the aggregate amount of taxable temporary differences not recognized in association with invest- ments in subsidiaries, joint ventures and associates was $5,072 (2016 – $4,246). 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. The Multiple Voting Shares and SVS are subject to provi- sions whereby, if an event of change occurs (such as Mr. Schwartz, Chairman and CEO, ceasing to hold, directly or indirectly, more than 5,000,000 SVS or related events), the Multiple Voting Shares will thereupon be entitled to elect only 20% of the Company’s Directors and otherwise will cease to have any general voting rights. The SVS would then carry 100% of the general voting rights and be entitled to elect 80% of the Company’s Directors. Onex Corporation December 31, 2017 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 iii) An unlimited number of Senior and Junior Preferred Shares During 2017, the Company repurchased and cancelled issuable in series. The Company’s Directors are empowered to ﬁx 1,273,209 of its SVS at a cost of $93 (C$121). The excess of the the rights to be attached to each series. purchase cost of these shares over the average paid-in amount was $89 (C$116), which was charged to retained earnings. The b) At December 31, 2017, the issued and outstanding share capital consisted of 100,000 Multiple Voting Shares (December 31, 2016 – shares repurchased were comprised of: (i) 523,209 SVS repur- chased under the Normal Course Issuer Bids for a total cost of 100,000) and 101,532,181 SVS (December 31, 2016 – 102,787,628). The $39 (C$50) or an average cost per share of $75.06 (C$95.03); and Multiple Voting Shares have a nominal paid-in value in these con- (ii) 750,000 SVS repurchased in a private transaction for a total solidated ﬁnancial statements. cost of $53 (C$71) or an average cost per share of $71.24 (C$94.98). There were no issued and outstanding Senior and Junior As at December 31, 2017, the Company had the capacity under the Preferred shares at December 31, 2017 or December 31, 2016. current Normal Course Issuer Bid to repurchase approximately The Company increased its quarterly dividend by 9% 7,936,070 shares. to C$0.075 per SVS beginning with the dividend declared by the During 2016, the Company repurchased and cancelled Board of Directors in May 2017. Previously, the Company increased 3,114,397 of its SVS at a cost of $184 (C$249). The excess of the pur- its quarterly dividend by 10% to C$0.06875 per SVS beginning with chase cost of these shares over the average paid-in amount was the dividend declared by the Board of Directors in May 2016. $175 (C$237), which was charged to retained earnings. The shares c) During 2017, under the Dividend Reinvestment Plan, the Company issued 7,581 SVS (2016 – 8,447) at an average cost of under the Normal Course Issuer Bids for a total cost of $125 (C$165) or an average cost per share of $59.04 (C$78.25); and (ii) C$96.23 per share (2016 – C$81.02). During 2017, 10,181 SVS (2016 – 1,000,000 SVS repurchased in a private transaction for a total cost nil) were issued upon the exercise of stock options at an average of $59 (C$84) or an average cost per share of $58.85 (C$84.12). repurchased were comprised of: (i) 2,114,397 SVS repurchased cost of C$93.33 per share. Onex renewed its Normal Course Issuer Bid in April 2017 for one year, permitting the Company to purchase on the Toronto Stock Exchange up to 10% of the public ﬂoat of its SVS. The 10% limit represents approximately 8.4 million shares. d) The Company has a Director DSU Plan and a Management DSU Plan, as described in note 1. Details of DSUs outstanding under the plans are as follows: Outstanding at December 31, 2015 Granted Exercised Additional units issued in lieu of compensation and cash dividends Outstanding at December 31, 2016 Granted Additional units issued in lieu of compensation and cash dividends Outstanding at December 31, 2017 Hedged with a counterparty financial institution at December 31, 2017 Outstanding at December 31, 2017 – Unhedged Director DSU Plan Management DSU Plan Number of DSUs Weighted Average Price Number of DSUs Weighted Average Price C$ 79.30 – C$ 83.18 C$ 100.74 C$ 96.69 626,481 27,712 – 11,678 665,871 27,720 10,445 704,036 (582,373) 121,663 684,515 − (95,641) 46,452 635,326 − 30,595 665,921 (665,921) – − C$ 80.77 C$ 85.18 − C$ 88.00 148 Onex Corporation December 31, 2017 N O T E S T O C O N S 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 grant- In addition to the options outstanding under the Plan, in January 2015, the Company issued 60,000 options to Onex Credit’s ed to Directors, ofﬁcers and employees for the acquisition of SVS of chief executive ofﬁcer in connection with acquiring control of the the Company at a price not less than the market value of the shares Onex Credit asset management platform. The options vest at a on the business day preceding the day of the grant. Under the Plan, rate of 20% per year from the grant date. The options are subject no options or share appreciation rights may be exercised unless the to the same terms and conditions as the Company’s existing Plan; average market price of the SVS for the ﬁve previous business days however, the options are also subject to an additional performance exceeds the exercise price of the options or the share appreciation threshold speciﬁc to the Onex Credit asset management platform. rights by at least 25% (the “hurdle price”). At December 31, 2017, 15,598,750 SVS (2016 – 15,612,000) were reserved for issuance under The details of the options outstanding were as follows: the Plan, against which options representing 12,318,442 shares (2016 – 12,883,183) were outstanding, of which 7,251,092 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, 2015 12,628,033 Granted Surrendered Expired 898,500 (509,700) (73,650) Outstanding at December 31, 2016 12,943,183 Granted Surrendered Exercised Expired 170,000 (597,641) (13,250) (123,850) C$ 52.37 C$ 93.40 C$ 31.97 C$ 59.44 C$ 55.98 C$ 100.90 C$ 28.97 C$ 23.35 C$ 68.31 Outstanding at December 31, 2017 12,378,442 C$ 57.81 During 2017 and 2016, the total cash consideration paid on options surrendered was $30 (C$40) and $21 (C$28), 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$95.54 per share (2016 – C$87.44). Options outstanding at December 31, 2017 consisted of the following: Exercise Prices C$ 15.95 – C$ 29.99 C$ 30.00 – C$ 49.99 C$ 50.00 – C$ 69.99 C$ 70.00 – C$ 89.99 C$ 90.00 – C$ 101.62 Total Number of Options Outstanding Number of Options Exercisable 1,051,142 1,276,200 8,148,750 868,350 1,034,000 12,378,442 1,043,142 1,276,200 4,381,750 – – 6,701,092 Hurdle Prices C$ 19.94 – C$ 36.61 C$ 41.39 – C$ 50.44 C$ 71.15 – C$ 79.41 C$ 93.59 – C$ 102.20 C$ 117.43 – C$ 127.03 Weighted Average Remaining Life (years) 2.2 4.6 6.1 7.9 9.0 In addition, in January 2018, the Company issued 1,052,250 options to acquire SVS with an exercise price of C$92.15 per share. The options vest at a rate of 20% per year from the date of grant. Onex Corporation December 31, 2017 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 21. N O N - C O N T R O L L I N G I N T E R E S T S The Company’s material non-controlling interests at December 31, 2017 and 2016 were associated with Celestica and Clarivate Analytics. There were no dividends paid by Celestica or Clarivate Analytics during 2017 or 2016. Summarized balance sheet information based on those amounts included in these consolidated ﬁnancial statements for Celestica and Clarivate Analytics is as follows: As at December 31 Non-controlling interest Current assets Non-current assets Current liabilities Non-current liabilities Net assets Accumulated non-controlling interests Celestica Clarivate Analytics 2017 87% 2016 87% $ 2,456 $ 2,346 489 2,945 476 2,822 $ 1,267 $ 1,246 327 1,594 $ 1,351 $ 1,171 338 1,584 $ 1,238 $ 1,071 2017 28% $ 459 3,576 4,035 $ 670 2,067 2,737 $ 1,298 $ 369 2016 28% $ 531 3,676 4,207 $ 636 2,076 2,712 $ 1,495 $ 419 Financial information in the statements of earnings for Celestica (electronics manufacturing services segment) is presented in note 35. Summarized income statement information for Clarivate Analytics for the years ended December 31, 2017 and 2016 (since acquisition in October 2016) is as follows: Year ended December 31 Revenue Net loss Clarivate Analytics 2017 920 242 $ 2016 202 137 $ Summarized cash ﬂows for Celestica and Clarivate Analy tics (since acquisition in October 2016) are as follows: Year ended December 31 2017 2016 2017 2016 Cash flows from operating activities Cash flows used in financing activities Cash flows used in investing activities $ 127 $ 173 $ 111 $ 76 (80) (89) (97) (64) (94) (42) (22) (18) Celestica Clarivate Analytics 150 Onex Corporation December 31, 2017 N O T E S T O C O N S O L I D AT E D F I N A N C I A L S TAT E M E N T S 2 2 . E X P E N S E S B Y N AT U R E 24 . STOCK-BASED COMPENSATION EXPENSE The nature of expenses in cost of sales and operating expenses, Year ended December 31 which excludes amortization of property, plant and equipment, intangible assets and deferred charges, consisted of the following: Year ended December 31 2017 2016 Cost of inventory, raw materials and consumables used $ 11,871 $ 8,010 Employee benefit expense(i) Professional fees Repairs, maintenance and utilities Transportation Operating lease payments Provisions Other expenses 5,595 1,447 698 476 377 186 1,491 4,368 1,374 489 333 288 134 945 Total cost of sales and operating expenses $ 22,141 $ 15,941 and internally generated capital assets. Stock-based compensation is disclosed separately in the consolidated statements of earnings. 2 3 . INTEREST EXPENSE OF OPERATING COMPANIES AND CREDIT STRATEGIES Year ended December 31 2017 2016 Interest on long-term debt of operating companies and credit strategies $ 1,053 $ 794 Parent company(a) Celestica Clarivate Analytics Other 2017 $ 102 30 18 28 2016 $ 118 33 – 43 Total stock-based compensation expense $ 178 $ 194 a) Parent company stock-based compensation primarily relates to Onex’ stock option plan, as described in note 20, and the MIP, as described in note 32(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, 2017 of C$92.19 (2016 – C$91.38), the exercise price of the options, the remaining ranging from 15.35% to 15.46%, an average dividend yield of 0.45% and an average risk-free rate of 2.28%. 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 1.86% and an industry comparable historical volatility for each (i) Employee beneﬁt expense excludes employee costs capitalized into inventory life of each option issuance, the volatility of each option issuance Interest on obligations under finance leases of operating companies Other financing charges(i) Total interest expense of operating companies and credit strategies 11 148 4 84 investment. 2 5 . OTHER GAINS Year ended December 31 $ 1,212 $ 882 Gain on sales by Carestream Health(a) (i) Other includes debt prepayment expense of $20 (2016 − $16). Gain on sale of Cicis(b) Other(c) Total other gains 2017 $ 731 – – $ 731 $ 2016 – 28 8 $ 36 a) During 2017, Carestream Health completed the sale of its Dental Digital business along with an additional transaction, as described in note 2(f ). b) In August 2016, the ONCAP II Group sold its investment in Cicis, as described in note 3(g). c) Other includes gains from the sale of certain non-core busi- nesses by the operating companies. Net proceeds from these transactions during 2016 were $10. Onex Corporation December 31, 2017 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 26 . O T H E R E X P E N S E ( I N C O M E ) Year ended December 31 Transition, integration and other(a) Carried interest charge due to Onex and ONCAP management(b) Restructuring(c) Losses (gains) on investments and long-term debt in credit strategies, net(d) Foreign exchange losses, net(e) Transaction costs(f) Change in fair value of other Onex Partners investments, net Derivatives losses (gains), net(g) Change in fair value of contingent consideration, net(h) Other 147 130 111 103 62 42 (22) (29) (23) 59 84 (222) 54 86 (11) 28 (39) (90) Total other expense $ 707 $ 21 a) Transition, integration and other expenses typically provide for the costs of establishing and transitioning from a prior parent company the activities of an operating company upon acquisition c) Restructuring expenses typically provide for the costs of facility consolidations and workforce reductions incurred at the operat- 2017 $ 186 2016 $ 72 ing companies. Restructuring charges recorded at the operating companies were: Year ended December 31 Save-A-Lot(i) Celestica(ii) SIG(iii) ResCare(iv) Carestream Health(v) Other 2017 $ 63 29 22 5 1 10 2016 $ − 32 20 11 20 1 $ 130 $ 84 i) Save-A-Lot’s restructuring charges during 2017 primarily relat- ed to costs associated with the closure of certain facilities. ii) Celestica’s restructuring charges for 2017 primarily related to the organizational changes as a result of corporate initiatives. The charges recorded by Celestica in 2016 primarily related to costs to exit its solar panel manufacturing operations. and to integrate new acquisitions at the operating companies. In iii) SIG’s restructuring charges during 2017 primarily related to addition, expenses may relate to the disposition and transition the reorganization of certain corporate functions. SIG’s restruc- of business units at the operating companies. The costs may be turing charges for 2016 primarily related to costs to improve incurred over several years as the establishment and transition of production processes and the establishment of a central sup- activities progress. port location. Transition, integration and other expenses for 2017 and 2016 were primarily due to Clarivate Analytics and Care- iv) ResCare’s restructuring charge for 2017 and 2016 primarily related to exiting the skilled line of business in the HomeCare stream Health. b) 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 unreal- ized carried interest liability is recorded primarily in other non- current liabilities and reduces the Limited Partners’ Interests, as described in note 17. The liability will ultimately be settled upon the realization of the underlying investments in each respective Onex Partners and ONCAP Fund. During 2017, a charge of $147 (2016 – $59) 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. segment and severance costs. v) 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. d) Losses on investments and long-term debt in credit strategies during 2017 were primarily driven by unrealized losses on long- term debt recorded at fair value in the CLOs, partially offset by realized and unrealized gains on investments. During 2016, gains on investments and long-term debt in credit strategies were primarily unrealized and driven by a recovery in the leveraged loan market. e) For the year ended December 31, 2017, foreign exchange losses were primarily due to losses recognized by SIG. For the year ended December 31, 2016, foreign exchange losses were primarily due to Survitec and WireCo. 152 Onex Corporation December 31, 2017 N O T E S T O C O N S O L I D AT E D F I N A N C I A L S TAT E M E N T S f) Transaction costs are incurred by Onex and its operating com- panies to complete business acquisitions, and typically include b) During the fourth quarter of 2017, Parkdean Resorts recorded a non-cash goodwill impairment charge of $56, measured in accor- advisory, legal and other professional and consulting costs. dance with IAS 36, Impairment of Assets, due to weaker than Transaction costs for 2017 were primarily due to the expected performance since acquisition, driven primarily by lower acquisition of Parkdean Resorts and the acquisitions completed caravan sales. The impairment was calculated on a fair value less by the operating companies. Transaction costs for 2016 were pri- costs to sell basis. The recoverable amount was a Level 3 measure- marily due to the acquisitions of Clarivate Analytics, Save-A-Lot, ment in the fair value hierarchy as a result of signiﬁcant unob- Tecta and WireCo, in addition to acquisitions completed by the servable inputs used in determining the recoverable amount. The operating companies. impairment charge was recorded in the other segment. g) Derivatives losses and gains for the years ended December 31, 2017 and 2016 primarily related to embedded derivatives associ- c) During 2016, York recorded a non-cash goodwill impairment charge of $226, measured in accordance with IAS 36, Impairment ated with debt agreements and foreign exchange hedges. of Assets, primarily due to a decrease in projected future earnings from its claims management business. The impairment was cal- h) During 2017, a net recovery of $29 (2016 – $39) was recognized in relation to the change in estimated fair value of contingent consid- culated on a fair value less costs to sell basis using the discounted cash ﬂow method using a discount rate of 9.8%. The recoverable eration related to acquisitions completed by the Company. The fair amount was a Level 3 measurement in the fair value hierarchy as value of contingent consideration liabilities is typically based on a result of signiﬁcant unobservable inputs used in determining the estimated future ﬁnancial performance of the acquired busi- the recoverable amount. The impairment charge was recorded in ness. Financial targets used in the estimation process include cer- the insurance services segment. tain deﬁned ﬁnancial targets and realized internal rates of return. The total estimated fair value of contingent consid- eration liabilities at December 31, 2017 was $27 (December 31, 2016 – $127). d) Other in 2017 included net impairments related to Emerald Expo- sitions, Jack’s and ResCare. Other in 2016 included impairment charges related to Carestream Health and Emerald Expositions. 2 7. 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 Schumacher(a) Parkdean Resorts(b) York(c) Other, net(d) Total 2017 $ 106 56 – 25 $ 2016 – – 226 6 $ 187 $ 232 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- ment basis in note 35. In measuring the recoverable amounts for goodwill and intangible assets at December 31, 2017, signiﬁcant estimates include the growth rate and discount rate, which range from 0.5% to 20.0% and 9.5% to 17.0% (2016 – 0.5% to 10.2% and 9.3% to 16.4%), respectively. a) During 2017, Schumacher recorded a non-cash goodwill impair- ment charge of $106, measured in accordance with IAS 36, Impair ment of Assets, primarily due to changes in customer mix related 28. NET EARNINGS (LOSS) PER SUBORDINATE VOTING SHARE to the implementation of the Affordable Care Act. The impairment The weighted average number of SVS for the purpose of the earn- was calculated on a fair value less costs to sell basis. The recover- ings (loss) per share calculations was as follows: able amount was a Level 3 measurement in the fair value hierarchy as a result of signiﬁcant unobservable inputs used in determining the recoverable amount. The impairment charge was recorded in the other segment. Year ended December 31 2017 2016 Weighted average number of shares outstanding (in millions): Basic Diluted 102 102 104 104 Onex Corporation December 31, 2017 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 2 9. F I N A N C I A L I N S T R U M E N T S Financial assets held by the Company, presented by ﬁnancial statement line item, were as follows: December 31, 2017 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 Fair Value through Net Earnings Recognized Designated Available- for-Sale Loans and Receivables Derivatives Used for Hedging $ – 247 – 2 4,039 110 $ 3,376 $ – $ – – 150 7,516 67 11 – – 77 – – – 3,306 171 10 115 $ – – – 31 92 7 Total $ 3,376 258 3,306 354 11,734 299 $ 4,398 $ 11,109 $ 88 $ 3,602(i) $ 130 $ 19,327 (i) The carrying value of loans and receivables approximates their fair value. 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 Fair Value through Net Earnings Recognized Designated Available- for-Sale Loans and Receivables Derivatives Used for Hedging $ – 147 – 9 1,979 94 $ 2,371 $ – $ – – 314 6,221 197 7 – – 71 – – – 3,868 292 – 94 $ – – – 13 83 9 Total $ 2,371 154 3,868 628 8,354 394 $ 2,229 $ 9,103 $ 78 $ 4,254(i) $ 105 $ 15,769 (i) The carrying value of loans and receivables approximates their fair value. 154 Onex Corporation December 31, 2017 N O T E S T O C O N S 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: December 31, 2017 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. Fair Value through Net Earnings Recognized Designated Financial Liabilities at Amortized Cost Derivatives Used for Hedging Total $ – 26 11 – – 386 – $ – – 19 7,575 – 11 8,024 $ 4,388 $ – $ 4,388 18 127 14,782 392 135 – – 10 – – 14 – 44 167 22,357 392 546 8,024 $ 423 $ 15,629 $ 19,842 $ 24 $ 35,918 Fair Value through Net Earnings Recognized Designated Financial Liabilities at Amortized Cost Derivatives Used for Hedging Total 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. 117 43 – – 550 – – – 21 5,855 – 30 8,474 $ 4,089 $ – $ 4,089 18 270 17,394 77 113 – – 59 – – 17 – 135 393 23,249 77 710 8,474 $ 710 $ 14,380 $ 21,961 $ 76 $ 37,127 Long-term debt recorded at fair value through net earnings at December 31, 2017 of $7,575 (2016 – $5,855) has contractual amounts due on maturity of $7,577 (2016 – $5,953). Onex Corporation December 31, 2017 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 The gains (losses) recognized by the Company related to ﬁnancial assets and liabilities were as follows: Year ended December 31 2017 2016 Fair value through net earnings (loss) $ (722)(a) $ n/a $ (157)(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 and credit strategies Other Derivatives used for hedging Total gains (losses) recognized n/a 2 – (69) (1,212) – 9 4 n/a n/a n/a n/a n/a 58 n/a 1 – (30) (882) 1 20 – n/a n/a n/a n/a n/a (9) $ (1,992) $ 62 $ 1,047 $ (9) (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 $1,350 (2016 – $647), a carried interest charge of $147 (2016 – $59) and an increase in value of investments in joint ventures and associates at fair value of $760 (2016 – $180). 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 trans- fer. During the ﬁrst quarter of 2017, the liability for JELD-WEN’s employee stock ownership plan was transferred from a Level 3 measurement to a Level 1 measurement as a result of JELD-WEN’s initial public offering. The Company ceased to consolidate JELD- WEN, including the liability for JELD-WEN’s employee stock ownership plan, after losing control of JELD-WEN in May 2017, as described in note 2(a). There were no additional signiﬁcant trans- fers between the three levels of the fair value hierarchy during 2017 and 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”). 3 0 . 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, 2017 and December 31, 2016 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, 2017 was $22,258 (December 31, 2016 – $23,176) compared to a carrying value of $22,049 (December 31, 2016 – $23,863). The fair value of consolidated long-term debt that is measured at amortized cost is substantially a Level 2 measure- ment 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 oper- ating companies, an adjustment is made by management for that operating company’s own credit risk, resulting in a Level 3 measure- ment in the fair value hierarchy. The long-term debt issued by the CLOs is recognized at fair value using third-party pricing models without adjustment by the Company and is a Level 3 measurement in the fair value hierarchy. The valuation methodology is based on a projection of the future cash ﬂows expected to be realized from the underlying collateral of the CLOs. 156 Onex Corporation December 31, 2017 N O T E S T O C O N S 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, 2017 was as follows: Financial assets at fair value through net earnings 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 Other Level 1 Level 2 Level 3 Total $ – 28 – 216 3 27 – $ 9,446 $ 55 1,230 92 57 – 1 16 4 1,022 22 – – – $ 9,462 87 2,252 330 60 27 1 Total financial assets at fair value $ 274 $ 10,881 $ 1,064 $ 12,219 The allocation of ﬁnancial assets in the fair value hierarchy, excluding cash and cash equivalents, at December 31, 2016 was as follows: Financial assets at fair value through net earnings 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 Level 1 Level 2 Level 3 Total $ – 23 – 482 – 22 $ 7,472 $ 96 – 136 56 – – – 751 1 – – $ 7,472 119 751 619 56 22 $ 527 $ 7,760 $ 752 $ 9,039 The allocation of ﬁnancial liabilities in the fair value hierarchy at December 31, 2017 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 credit strategies Unrealized carried interest due to Onex and ONCAP management Long-term debt of credit strategies Contingent consideration and other Total financial liabilities at fair value – – – – 23 $ 23 $ $ – – – – 48 48 $ 7,563 $ 7,563 461 327 7,575 55 461 327 7,575 126 $ 15,981 $ 16,052 The allocation of ﬁnancial liabilities in the fair value hierarchy at December 31, 2016 was as follows: Financial liabilities at fair value through net earnings Limited Partners’ Interests for Onex Partners and ONCAP Funds Limited Partners’ Interests for credit strategies Unrealized carried interest due to Onex and ONCAP management Long-term debt of credit strategies Contingent consideration and other Total financial liabilities at fair value Level 1 Level 2 Level 3 Total $ $ – – – – 22 22 $ $ – – – – 134 134 $ 8,104 $ 8,104 370 366 5,855 239 370 366 5,855 395 $ 14,934 $ 15,090 Onex Corporation December 31, 2017 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 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 17), are as follows: Financial Assets at Fair Value through Net Earnings Long-Term Debt of Credit Strategies at Fair Value through Net Earnings Other Financial Liabilities at Fair Value through Net Earnings Balance – December 31, 2015 Change in fair value recognized in net earnings Additions Acquisition of subsidiaries Settlements Other Balance – December 31, 2016 Change in fair value recognized in net earnings Transfer to (from) Level 3 Additions Acquisition of subsidiaries Settlements Disposition of subsidiaries Foreign exchange Other Balance – December 31, 2017 $ 1 – 61 – (61) – 1 12 4 76 – (63) – – 12 $ 4,870 $ 766 133 1,571 – (719) – 5,855 97 – 6,357 – (4,785) – 51 – 9 – 38 (214) 6 605 127 (86) 5 14 (214) (58) 1 (12) $ 42 $ 7,575 $ 382 Unrealized change in fair value of assets and liabilities held at the end of the reporting period $ 10 $ 53 $ 125 Financial assets and liabilities measured at fair value with The valuation of ﬁnancial assets and liabilities mea- signiﬁcant unobservable inputs (Level 3) are recognized in the sured at fair value with signiﬁcant unobservable inputs (Level 3) consolidated statements of earnings in the following line items: is determined quarterly utilizing company-speciﬁc considerations (i) interest expense of operating companies and credit strategies; and available market data of comparable public companies. The (ii) increase in value of investments in joint ventures and associ- valuation of investments in the Onex Partners and ONCAP Funds ates at fair value, net; (iii) other income (expense); and (iv) Limited is reviewed and approved by the General Partner of the respec- Partners’ Interests recovery (charge). tive Fund each quarter. The General Partners of the Onex Partners The valuation of investments in debt securities measured at fair The fair value measurement of the Limited Partners’ value with signiﬁcant other observable inputs (Level 2) is generally Interests for the credit strategies is primarily driven by the under- determined by obtaining quoted market prices or dealer quotes lying fair value of the investments in the credit strategies. The for identical or similar instruments in inactive markets, or other investment strategies of the credit strategies are focused on a vari- inputs that are observable or can be corroborated by observable ety of event-driven, long/short, long-only, par, stressed and dis- market data. tressed opportunities. and ONCAP Funds are indirectly controlled by Onex Corporation. 158 Onex Corporation December 31, 2017 N O T E S T O C O N S O L I D AT E D F I N A N C I A L S TAT E M E N T S The fair value measurements for investments in joint iii) a change in the calculation of unrealized carried interest in the ventures and associates, Limited Partners’ Interests for the Onex respective Fund that holds the investment in associate may Partners and ONCAP Funds and unrealized carried interest are result in a recovery being recorded in the Limited Partners’ primarily driven by the underlying fair value of the investments Interests line in the consolidated statements of earnings, with in the Onex Partners and ONCAP Funds. A change to reasonably a corresponding decrease to the Limited Partners’ Interests in possible alternative estimates and assumptions used in the valu- the consolidated balance sheets; ation of non-public investments in the Onex Partners and ONCAP iv) a charge may be recorded for the change in unrealized carried Funds may have a signiﬁcant impact on the fair values calculated interest due to Onex and ONCAP management on the other for these ﬁnancial assets and liabilities. A change in the valuation income (expense) line in the consolidated statements of earn- of the underlying investments may have multiple impacts on Onex’ ings, with a corresponding increase to other current or non- consolidated ﬁnancial statements and those impacts are dependent current liabilities in the consolidated balance sheets; and on the method of accounting used for that investment, the fund(s) v) a change in the fair value of the vested investment rights held within which that investment is held and the progress of that invest- under the MIP may result in a charge being recorded on the ment in meeting the MIP exercise hurdles. For example, an increase stock-based compensation line in the consolidated statements in the fair value of an investment in an associate would have the fol- of earnings, with a corresponding increase to other current or lowing impacts on Onex’ consolidated ﬁnancial statements: non-current liabilities in the consolidated balance sheets. i) an increase in the unrealized value of investments in joint ventures and associates at fair value in the consolidated state- Valuation methodologies may include observations of the trading ments of earnings, with a corresponding increase in long- multiples of public companies considered comparable to the pri- term investments in the consolidated balance sheets; vate companies being valued and discounted cash ﬂows. The fol- ii) a charge would be recorded for the limited partners’ share of lowing table presents the signiﬁcant unobservable inputs used to the fair value increase of the investment in associate on the value the Company’s private securities that impact the valuation of Limited Partners’ Interests line in the consolidated statements (i) investments in joint ventures and associates; (ii) unrealized car- of earnings, with a corresponding increase to the Limited ried interest liability due to Onex and ONCAP management; (iii) Partners’ Interests in the consolidated balance sheets; stock-based compensation liability for the MIP; and (iv) Limited Partners’ Interests. Valuation Technique Significant Unobservable Inputs Inputs at December 31, 2017 Inputs at December 31, 2016 Market comparable companies Adjusted EBITDA multiple Discounted cash flow Weighted average cost of capital Exit multiple 7.5x – 11.3x 10.6% – 15.2% 6.5x – 12.5x 7.5x – 13.0x 9.8% – 18.0% 6.0x – 11.0x In addition, at December 31, 2017 and December 31, 2016, the The long-term debt issued by the CLOs is recognized at fair value Company has an investment that was valued using market compa- using third-party pricing models without adjustments by the rable transactions. Company. The valuation methodology is based on a projection of the future cash ﬂows expected to be realized from the underlying Generally, adjusted EBITDA represents earnings before interest, collateral of the CLOs. During 2017, the Company recorded a loss taxes, depreciation and amortization as well as other adjustments. of $53 (2016 – $122) attributable to changes in the credit risk of the Other adjustments can include non-cash costs of stock-based long-term debt of the CLOs at December 31, 2017. 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. Adjusted EBITDA is a measurement that is not deﬁned under IFRS. Onex Corporation December 31, 2017 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 31. F I N A N C I A L I N S T R U M E N T R I S K S A N D C A P I TA L D I S C LO S U R E S Credit risk Credit risk is the risk that the counterparty to a ﬁnancial instru- ment will fail to perform its obligation and cause the Company to incur a loss. Substantially all of the cash and cash equivalents consist of investments in debt securities. In addition, the long-term invest- ments of CLOs and Onex Credit Lending Partners are included in the long-term investments line in the consolidated balance sheets consist primarily of investments in debt securities. The investments in debt securities are subject to credit risk. A description of the investments held by the CLOs and Onex Credit Lending Partners is included in note 10(a). At December 31, 2017, Onex, the parent company, had $628 of cash on hand and $1,319 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, $181 invested in a segregated unlevered fund managed by Onex Credit and $107 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. Accounts receivable are also subject to credit risk. At December 31, 2017, the aging of consolidated accounts receivable was as follows: Liquidity risk Liquidity risk is the risk that Onex and its operating companies will have insufﬁcient funds on hand to meet their respective obligations as they come due. The operating companies operate autonomously and generally have restrictions on cash distribu- tions to shareholders under their ﬁnancing agreements. Onex needs to be in a position to support its operating companies when and if it is appropriate and reasonable for Onex, as an equity owner with paramount duties to act in the best interests of Onex shareholders, to do so. Maintaining sufﬁcient liquidity at Onex is important because Onex, as a holding company, generally does not have guaranteed sources of meaningful cash ﬂow. In completing acquisitions, it is generally Onex’ policy to ﬁnance a signiﬁcant portion of the purchase price with debt provided by third-party lenders. This debt, sourced exclusively on the strength of the acquired company’s ﬁnancial condition and prospects, is debt of the acquired company at closing and is with- out recourse to Onex Corporation, the ultimate parent company, or to its other operating companies or partnerships. The foremost consideration, however, in developing a ﬁnancing structure for an acquisition is identifying the appropriate amount of equity to invest. In Onex’ view, this should be the amount of equity that maximizes the risk/reward equation for both shareholders and the acquired company. Accounts payable for the operating companies are pri- marily due within 90 days. The repayment schedules for long- term debt and ﬁnance leases of the operating companies are disclosed in notes 14 and 15. Onex Corporation, the ultimate par- ent company, has no debt and does not guarantee the debt of the operating companies. Current 1–30 days past due 31–60 days past due >60 days past due Total Accounts Receivable Market risk $ 2,493 Market risk is the risk that the future cash ﬂows of a ﬁnancial 386 124 303 instrument will ﬂuctuate due to changes in market prices. The Company is primarily exposed to ﬂuctuations in the foreign cur- rency exchange rates associated with the Canadian and U.S. dollars, $ 3,306 the pound sterling and the euro, as well as ﬂuctuations in LIBOR, EURIBOR and the U.S. prime interest rate. Foreign currency exchange rates Onex’ operating companies operate autonomously as self-sustain- ing companies. The functional currency of the majority of Onex’ operating companies is the U.S. dollar. However, certain operat- ing companies conduct business outside the United States and as a result are exposed to currency risk on the portion of business that is not based on the U.S. dollar. To manage foreign currency risk, certain operating companies use forward contracts to hedge all or a portion of forecasted revenues and/or costs outside their functional currencies. Additionally, where possible, Onex and its operating companies aim to reduce the exposure to foreign cur- rency ﬂuctuations through natural hedges by transacting in local currencies. 160 Onex Corporation December 31, 2017 N O T E S T O C O N S O L I D AT E D F I N A N C I A L S TAT E M E N T S Interest rates Resin and aluminum are signiﬁcant commodities used The Company is exposed to changes in future cash ﬂows as a result by SIG. The company generally purchases commodities at spot of changes in the interest rate environment. The parent company market prices and actively uses derivative instruments to hedge is exposed to interest rate changes primarily through its cash and the exposure in relation to the cost of resin (and its components) cash equivalents, which are held in short-term term deposits and and aluminum. Due to this approach, the company has been commercial paper. Assuming no signiﬁcant changes in cash bal- able to ﬁx the prices one year forward for approximately 80% of ances held by the parent company from those at December 31, its expected resin and aluminum purchases, which substantially 2017, a 0.25% increase (0.25% decrease) in the interest rate (includ- minimizes the exposure to the price ﬂuctuations of the commodi- ing the Canadian and U.S. prime rates) would result in a minimal ties over that period. impact on annual interest income. As all of the Canadian dollar Rod, polymers and synthetic ﬁbres are signiﬁcant com- cash and cash equivalents at the parent company are designated modities used by WireCo in its manufacturing operations, in addi- as fair value through net earnings, there would be no effect on tion to certain energy sources, principally electricity, natural gas other comprehensive earnings. and propane. The company monitors the cost of raw materials Onex, the parent company, has exposure to interest rate and passes along price increases and decreases accordingly. The risk primarily through its short- and long-term investments man- company does not enter into commodity contracts to manage the aged by third-party investment managers. As interest rates change, exposure on forecasted purchases of raw materials. the fair values of ﬁxed income investments are inversely impacted. Investments with shorter durations are less impacted by changes Regulatory risk in interest rates compared to investments with longer durations. Certain of Onex’ operating companies and investment advisor At December 31, 2017, Onex’ short- and long-term investments afﬁliates may be subject to extensive government regulations and included $833 of ﬁxed income securities measured at fair value, oversight with respect to their business activities. Failure to comply which are subject to interest rate risk. These securities had a weight- with applicable regulations, obtain applicable regulatory approvals ed average duration of 1.4 years. Other factors, including general or maintain those approvals may subject the applicable operating economic conditions and political conditions, may also affect the company to civil penalties, suspension or withdrawal of any regu- value of ﬁxed income securities. These risks are monitored on an latory approval obtained, injunctions, operating restrictions and ongoing basis and the short- and long-term investments may be criminal prosecutions and penalties, which could, individually or in repositioned in response to changes in market conditions. the aggregate, have a material adverse effect on Onex’ consolidated The operating companies’ results are also affected by ﬁnancial position. changes in interest rates. A change in the interest rate (including the LIBOR, EURIBOR and U.S. prime interest rate) may result in Capital disclosures a change in interest expense being recorded due to the variable- Onex considers the capital it manages to be the amounts it has rate portion of the long-term debt of the operating companies. in cash and cash equivalents, near-cash investments, short- and At December 31, 2017, excluding credit strategies, approximately long-term investments managed by third-party investment manag- 38% (2016 – 42%) of the operating companies’ long-term debt had ers and the investments made in the operating businesses, credit a ﬁxed interest rate or an interest rate that was effectively ﬁxed by strategies and other investments. Onex also manages the capital of interest rate swap contracts. The long-term debt of the operating other investors in the Onex Partners, ONCAP and credit strategies. companies is without recourse to Onex Corporation, the ultimate Onex’ objectives in managing capital are to: parent company. Commodity risk • preserve a ﬁnancially strong parent company with appropriate liquidity and no, or a limited amount of, debt so that funds are available to pursue new acquisitions and growth opportunities Certain of Onex’ operating companies have exposure to com- as well as support expansion of its existing businesses. Onex gen- modities. In particular, silver is a signiﬁcant commodity used in erally does not have the ability to draw cash from its operating Carestream Health’s manufacturing of x-ray ﬁlm. The company’s businesses. Accordingly, maintaining adequate liquidity at the management continually monitors movements and trends in the parent company is important; silver market and enters into collar and forward agreements when • achieve an appropriate return on capital invested commensu- considered appropriate to mitigate some of the risk of future price rate with the level of assumed risk; ﬂuctuations, generally for periods of up to a year. • build the long-term value of its operating businesses; Onex Corporation December 31, 2017 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 • control the risk associated with capital invested in any particu- 3 2 . C O M M I T M E N T S A N D R E L AT E D lar business or activity. All debt ﬁnancing is within the operating PA R T Y T R A N S A C T I O N S companies and each operating company is required to support its own debt. Onex Corporation does not guarantee the debt of the operating businesses and there are no cross-guarantees of debt between the operating businesses; and • have appropriate levels of committed limited partners’ capital available to invest along with Onex’ capital. This allows Onex to respond quickly to opportunities and pursue acquisitions of busi- nesses of a size it could not achieve using only its own capital. The management of limited partners’ capital also provides man- agement fees to Onex and the ability to enhance Onex’ returns by earning a carried interest on the proﬁts of limited partners. A portion of Onex, the parent company’s, cash and cash equiva- lents is managed by third-party investment managers. At Decem- ber 31, 2017, the fair value of investments, including cash yet to be deployed, managed by third-party investment managers was $1,031. The investments are managed in a mix of short- and long-term portfolios. Short-term investments consist of liquid investments including money market instruments and commercial paper with original maturities of three months to one year. Long-term invest- ments consist of securities that include money market instruments, federal and municipal debt instruments, corporate obligations and structured products with maturities of one year to ﬁve years. The investments are managed to maintain an overall weighted average duration of two years or less. At December 31, 2017, Onex had access to uncalled com- mitted limited partner capital for acquisitions through Onex Part- ners IV ($921), Onex Partners V ($5,313) and ONCAP IV ($555). The uncalled committed limited partner capital for ONCAP IV excludes capital related to the Laces acquisition, which was contributed by the limited partners of ONCAP IV in January 2018. The uncalled committed limited partner capital for Onex Partners IV excludes capital related to the SMG acquisition, which was contributed by the limited partners of Onex Partners IV in January 2018. The strategy for risk management of capital has not changed signiﬁcantly since December 31, 2016. 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, 2017, the amounts potentially payable in respect of these guarantees totalled $279. At December 31, 2016, Onex had a commitment of $75 to Incline Aviation Fund. In February 2017, Mr. Gerald W. Schwartz assumed $25 of Onex’ commitment to Incline Aviation Fund, reducing the amount committed by Onex to $50. At December 31, 2017, Onex’ uncalled commitment to Incline Aviation Fund was $45 (2016 – $60). In addition, commitments at December 31, 2017 include $1,000 related to an acquisition completed in January 2018. The Company, which includes the operating companies, has also provided certain indemniﬁcations, including those related to businesses that have been sold. The maximum amounts from many of these indemniﬁcations cannot be reasonably estimated at this time. However, in certain circumstances, the Company and its operating companies have recourse against other parties to miti- gate the risk of loss from these indemniﬁcations. The Company, which includes the operating companies, has commitments with respect to operating leases, which are dis- closed in note 15. The aggregate commitments for capital assets at December 31, 2017 amounted to $160, with the majority expected to be incurred between 2018 and 2019. 162 Onex Corporation December 31, 2017 N O T E S T O C O N S 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) Legal contingencies requirement in Onex Partners’ transactions are allocated to meet Onex and its operating companies are or may become parties to legal, product liability and warranty claims arising in the ordinary the 1.5% Onex investment requirement under the MIP. The invest- ment rights to acquire the remaining 5⁄6ths vest equally over six course of business. Certain operating companies, as conditions of years with the investment rights vesting in full if the Company acquisition agreements, have agreed to accept certain pre-acquisi- disposes of all of an investment before the seventh year. Under tion liability claims against the acquired companies. The operating the MIP, the investment rights related to a particular acquisition companies have recorded provisions based on their consideration are exercisable only if the Company realizes in cash the full return and analysis of their exposure in respect of such claims. Such provi- of its investment and earns a minimum 15% internal rate of return sions are reﬂected, as appropriate, in Onex’ consolidated ﬁnancial for the investment after giving effect to the investment rights. statements, as described in note 13. Onex Corporation, the ultimate Realizations under the MIP distributed in 2017 were $34 parent company, has not currently recorded any further provision (2016 – $7). and does not believe that the resolution of known claims would In addition, management of ONCAP has an incentive reasonably be expected to have a material adverse impact on Onex’ program related to Onex’ co-investment in ONCAP operating consolidated ﬁnancial position. However, the ﬁnal outcome with companies. respect to outstanding, pending or future actions cannot be pre- dicted with certainty, and therefore there can be no assurance that their resolution will not have an adverse effect on Onex’ consoli- dated ﬁnancial position. c) Environmental contingencies e) Commitments to Onex Partners I In February 2004, Onex completed the closing of Onex Partners I with commitments totalling $1,655. Onex Partners I provided com- mitted capital for Onex-sponsored acquisitions not related to Onex’ operating companies at December 31, 2003 or to ONCAP. As at The operating companies are subject to laws and regulations December 31, 2017, $1,475 (2016 – $1,475) has been invested of the concerning the environment and to the risk of environmen- $1,655 of total capital committed. Onex has invested $346 (2016 – tal liability inherent in activities relating to their past and pres- $346) of its $400 commitment. Onex controls the General Partner ent operations. As conditions of acquisition agreements, certain and Manager of Onex Partners I. The total amount invested at operating companies have agreed to accept certain pre-acquisi- cost in Onex Partners I’s remaining investments by Onex manage- tion liability claims on the acquired companies after obtaining ment and Directors at December 31, 2017 was $3 (2016 – $11). There indemniﬁcation from previous owners. were no additional amounts invested by Onex management and The Company and its operating companies also have Directors in Onex Partners I investments during 2017 or 2016. insurance to cover costs incurred for certain environmental mat- Prior to November 2006, Onex received annual manage- ters. Although the effect on operating results and liquidity, if any, ment fees based on 2% of the capital committed to Onex Part- cannot be reasonably estimated, management of Onex and the ners I by investors other than Onex and Onex management. The operating companies believe, based on current information, that annual management fee was reduced to 1% of the net funded com- these environmental matters would not reasonably be expected mitments at the end of the initial fee period in November 2006, to have a material adverse effect on the Company’s consolidated when Onex established a successor Onex Partners fund, Onex ﬁnancial condition. d) Management Investment Plan Partners II. As a result of previously approved extensions, the term of Onex Partners I was extended to February 4, 2019 and manage- ment fees are no longer being earned for Onex Partners I as of Under the terms of the MIP, management members of the Com- February 4, 2016. Carried interest is received on the overall gains pany invest in all of the operating entities acquired or invested in achieved by Onex Partners I investors, other than Onex and Onex by the Company. management, to the extent of 20% of the gains, provided that those The aggregate investment by management members investors have achieved a minimum 8% return on their investment under the MIP is limited to 9% of Onex’ interest in each acquisi- tion. The form of the investment is a cash purchase for 1⁄6th (1.5%) of the MIP’s share of the aggregate investment, and investment rights for the remaining 5⁄ 6ths (7.5%) of the MIP’s share at the same price. Amounts invested under the minimum investment in Onex Partners I over the life of Onex Partners I. The investment by Onex Partners I investors for this purpose takes into consid- eration management fees and other amounts paid by Onex Part- ners I investors. Onex Corporation December 31, 2017 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 Onex is allocated 40% of the carried interest with 60% allocated to Onex management. Carried interest received from g) Commitments to Onex Partners III In December 2009, Onex completed the closing of Onex Part- Onex Partners I has fully vested for Onex management. For the years ners III with commitments totalling $4,700 as of December 31, ended December 31, 2017 and 2016, no amounts were received by 2017. Onex Partners III provided committed capital for Onex- Onex or Onex management with respect to the carried interest. sponsored acquisitions not related to Onex’ operating companies f) Commitments to Onex Partners II at December 31, 2003 or to ONCAP or previous Onex Partners Funds. In October 2017, the term of Onex Partners III was extended In August 2006, Onex completed the closing of Onex Partners II to April 29, 2020. As at December 31, 2017, $4,215 (2016 – $4,215) has with commitments totalling $3,450. Onex Partners II provided com- been invested, including capitalized costs, of which Onex’ share mitted capital for Onex-sponsored acquisitions not related to Onex’ was $929 (2016 – $929). Onex’ commitment to Onex Partners III has operating companies at December 31, 2003 or to ONCAP or Onex been $1,200 since May 15, 2012. Onex controls the General Partner Partners I. As at December 31, 2017, $2,944 (2016 – $2,944) has been and Manager of Onex Partners III. The total amount invested invested of the $3,450 of total capital committed. Onex has invested at cost in Onex Partners III’s remaining investments by Onex $1,164 (2016 – $1,164) of its $1,407 commitment. Onex controls the management and Directors at December 31, 2017 was $104 (2016 – General Partner and Manager of Onex Partners II. The total amount $126). There were no additional amounts invested by Onex man- invested at cost in Onex Partners II’s remaining investment by Onex agement or Directors in Onex Partners III investments during 2017 management and Directors at December 31, 2017 was $18 (2016 – (2016 – less than $1). $18). There were no additional amounts invested by Onex manage- Prior to December 2013, Onex received annual man- ment and Directors in Onex Partners II investments during 2017 agement fees based on 1.75% of the capital committed to Onex and 2016. Partners III by investors other than Onex and Onex management. Prior to November 2008, Onex received annual man- The annual management fee was reduced to 1% of the net fund- agement fees based on 2% of the capital committed to Onex Part- ed commitments at the end of the initial fee period in December ners II by investors other than Onex and Onex management. The 2013. Onex obtained approval for an extension of the commitment annual management fee was reduced to 1% of the net funded com- period for Onex Partners III into 2014 to enable further amounts mitments at the end of the initial fee period in November 2008, to be invested through the Fund. The October 2014 investment when Onex established a successor Onex Partners fund, Onex in York was the ﬁnal new investment made by Onex Partners III. Partners III. In July 2016, the term of Onex Partners II was extended Carried interest is received on the overall gains achieved by Onex to August 1, 2017 and in July 2017 the term was extended to August 1, Partners III investors, other than Onex and Onex management, 2018. Carried interest is received on the overall gains achieved by to the extent of 20% of the gains, provided that those investors Onex Partners II investors, other than Onex and Onex manage- have achieved a minimum 8% return on their investment in Onex ment, to the extent of 20% of the gains, provided that those investors Partners III over the life of Onex Partners III. The investment by have achieved a minimum 8% return on their investment in Onex Onex Partners III investors for this purpose takes into consider- Partners II over the life of Onex Partners II. The investment by Onex ation management fees and other amounts paid by Onex Part- Partners II investors for this purpose takes into consideration man- ners III investors. agement fees and other amounts paid by Onex Partners II investors. The returns to Onex Partners III investors, other than Consistent with Onex Partners I, Onex is allocated 40% Onex and Onex management, are based on all investments made of the carried interest with 60% allocated to Onex management. through Onex Partners III, with the result that the initial carried Carried interest received from Onex Partners II has fully vested interest achieved by Onex on gains could be recovered from Onex for Onex management. During 2017, no amounts were received if subsequent Onex Partners III investments do not exceed the as carried interest related to Onex Partners II. For the year ended overall target return level of 8%. Consistent with previous Onex December 31, 2016, less than $1 was received by Onex as car- Partners Funds, Onex will be allocated 40% of the carried interest ried interest while Onex management received less than $1 with with 60% allocated to Onex management. Carried interest received respect to carried interest. from Onex Partners III has fully vested for Onex management. For the year ended December 31, 2017, $121 (2016 – $14) was received by Onex as carried interest while Onex management received $181 (2016 – $22) with respect to the carried interest. 164 Onex Corporation December 31, 2017 N O T E S T O C O N S 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) Commitments to Onex Partners IV In May 2014, Onex completed the closing of Onex Partners IV with i) Commitments to Onex Partners V In November 2017, Onex completed the closing of Onex Partners V commitments totalling $5,660 as of December 31, 2017. Onex Part- with commitments totalling $7,150, including Onex’ commitment ners IV is to provide committed capital for future Onex-sponsored of $2,000. Onex Partners V is to provide committed capital for acquisitions not related to Onex’ operating companies at Decem- future Onex-sponsored acquisitions not related to Onex’ oper- ber 31, 2003 or to ONCAP or previous Onex Partners Funds. The ating companies at December 31, 2003 or to ONCAP or previous term of Onex Partners IV, unless further extended, ends in May 2024. Onex Partners Funds. The term of Onex Partners V, unless further Onex had a $1,200 commitment for the period from the date of the extended, ends 12 years from the earlier of the date of the ﬁrst ﬁrst closing to June 2, 2015, and a $1,700 commitment from June 3, capital call, the date of the closing of the ﬁrst operating com- 2015 to September 29, 2017, when Onex acquired an additional inter- pany investment or the date upon which the commitment period est of $220 in Onex Partners IV from a limited partner, as described of Onex Partners IV ends. Onex controls the General Partner and in note 2(g). As at December 31, 2017, $3,789 (2016 – $3,362) has been Manager of Onex Partners V. Onex management has committed, invested, including capitalized costs and $64 of bridge ﬁnancing, as a group, to invest a minimum of 2% of Onex Partners V, which of which Onex’ share was $1,152 (2016 – $884), including capital- may be adjusted annually up to a maximum of 10%. At Decem- ized acquisition costs and bridge ﬁnancing of $21. Adjusting for the ber 31, 2017, Onex management and Directors had committed 6%. additional interest acquired in Onex Partners IV during 2017, Onex’ As at December 31, 2017, no amount of the total committed capital share of the amount invested, including capitalized costs, increases has been invested. to $1,011 as of December 31, 2016. Onex controls the General Part- When management fees begin to accrue, Onex is entitled ner and Manager of Onex Partners IV. Onex management has to receive annual management fees based on 1.7% of the capital committed, as a group, to invest a minimum of 2% of Onex Part- committed to Onex Partners V by investors other than Onex and ners IV, which may be adjusted annually up to a maximum of 8%. At management of Onex and ONCAP. The annual management fee is December 31, 2017, Onex management and Directors had commit- reduced to 1% of the net funded commitments at the earlier of the ted 6%. The total amount invested in Onex Partners IV’s investments end of the commitment period or if Onex establishes a successor by Onex management and Directors at December 31, 2017 was $277 Onex Partners fund. Following the tenth anniversary of the date (2016 – $259), of which $18 (2016 – $130) was invested in the year upon which management fees begin to accrue, the management ended December 31, 2017, including bridge ﬁnancing of $3. fee is reduced to 0.5% of the net funded commitments. Following Onex is entitled to receive annual management fees the eleventh anniversary of the date upon which management based on 1.7% of the capital committed to Onex Partners IV by fees begin to accrue, no management fee will be payable unless investors other than Onex and Onex management. The annual approved in accordance with the terms of the partnership agree- management fee is reduced to 1% of the net funded commit- ment. Carried interest is received on the overall gains achieved by ments at the earlier of the end of the commitment period or when Onex Partners V investors, other than Onex and Onex management, management fees begin to accrue for a successor Onex Partners to the extent of 20% of the gains, provided that those investors Fund. Carried interest is received on the overall gains achieved by have achieved a minimum 8% return on their investment in Onex Onex Partners IV investors, other than Onex and Onex manage- Partners V over the life of Onex Partners V. The investment by Onex ment, to the extent of 20% of the gains, provided that those inves- Partners V investors for this purpose takes into consideration man- tors have achieved a minimum 8% return on their investment in agement fees and other amounts paid by Onex Partners V investors. Onex Partners IV over the life of Onex Partners IV. The investment The returns to Onex Partners V investors, other than by Onex Partners IV investors for this purpose takes into consid- Onex and Onex management, are based on all investments made eration management fees and other amounts paid by Onex Part- through Onex Partners V, with the result that the initial car- ners IV investors. ried interest achieved by Onex on gains could be recovered from The returns to Onex Partners IV investors, other than Onex if subsequent Onex Partners V investments do not exceed Onex and Onex management, are based on all investments made the overall target return level of 8%. Consistent with previous through Onex Partners IV, with the result that the initial carried Onex Partners Funds, Onex will be allocated 40% of the carried interest achieved by Onex on gains could be recovered from Onex interest with 60% allocated to Onex management. Carried inter- if subsequent Onex Partners IV investments do not exceed the est received from Onex Partners V for Onex management will vest overall target return level of 8%. Consistent with previous Onex equally over six years, beginning on the date the fund begins to Partners Funds, Onex will be allocated 40% of the carried interest accrue management fees. As at December 31, 2017, no amounts with 60% allocated to Onex management. Carried interest received had been received as carried interest related to Onex Partners V. from Onex Partners IV for Onex management will vest equally over six years from August 2014. As at December 31, 2017 and 2016, no amounts had been received as carried interest related to Onex Partners IV. Onex Corporation December 31, 2017 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 j) Commitments to ONCAP II k) 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 requiring agement of Onex and ONCAP. ONCAP III provides committed cap- 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, 2017, C$483 (2016 – 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 (2016 – unless further extended, ends in July 2021. As at December 31, C$221) of its C$252 commitment. Onex controls the General 2017, C$632 (2016 – C$632) has been invested of the total capital Partner and Manager of ONCAP II. The total amount invested committed. Onex has invested C$186 (2016 – C$186) of its C$252 at cost in ONCAP II’s remaining investments by management of commitment. Onex controls the General Partner and Manager Onex and ONCAP and Directors at December 31, 2017 was C$22 of ONCAP III. The total amount invested at cost in ONCAP III’s (2016 – C$22). There were no additional amounts invested by investments by management of Onex and ONCAP and Directors management of Onex and ONCAP and Directors in ONCAP II at December 31, 2017 was C$60 (2016 – C$60), none of which was investments during 2017 and 2016. invested in the year ended December 31, 2017 (2016 – C$8). 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. The tors other than Onex and management of Onex and ONCAP. The annual management fee was reduced to 2% of the net investment annual management fee was reduced to 1.5% of the net funded amount at the end of the initial fee period in July 2011, when Onex commitments at the end of the commitment period marked by established a successor ONCAP fund, ONCAP III. As a result of pre- the August 2016 investment in Tecta. Carried interest is received viously approved extensions, the term of ONCAP II was extended on the overall gains achieved by ONCAP III investors, other than to November 22, 2018. Carried interest is received on the overall management of ONCAP, to the extent of 20% of the gains, provided gains achieved by ONCAP II investors, other than management of that those investors have achieved a minimum 8% return on their ONCAP, to the extent of 20% of the gains, provided that those inves- investment in ONCAP III over the life of ONCAP III. The invest- tors have achieved a minimum 8% return on their investment in ment by ONCAP III investors for this purpose takes into consid- ONCAP II over the life of ONCAP II. The investment by ONCAP II eration management fees and other amounts paid by ONCAP III investors for this purpose takes into consideration management investors. fees and other amounts paid by ONCAP II investors. The returns to ONCAP III investors, other than man- The returns to ONCAP II investors, other than man- agement of ONCAP, are based on all investments made through agement of ONCAP, are based on all investments made through ONCAP III, with the result that the initial carried interest achieved ONCAP II, with the result that the initial carried interests achieved by ONCAP on gains could be recovered if subsequent ONCAP III by ONCAP on gains could be recovered if subsequent ONCAP II investments do not exceed the overall target return level of 8%. investments do not exceed the overall target return level of 8%. Onex is allocated 40% of the carried interest realized on lim- Onex is allocated 40% of the carried interest realized on lim- ited partners’ capital in ONCAP III. ONCAP management is allo- ited partners’ capital in ONCAP II. ONCAP management is allo- cated 60% of the carried interest on limited partners’ and Onex cated 60% of the carried interest on limited partners’ and Onex capital. Carried interest received from ONCAP III has fully vested capital. Carried interest received from ONCAP II has fully vested for ONCAP management. For the year ended December 31, 2017, for ONCAP management. For the year ended December 31, 2017, ONCAP management received $4 (C$6) (2016 – nil) with respect to ONCAP management received $1 (C$1) (2016 – $1 (C$2)) with the carried interest. respect to the carried interest. 166 Onex Corporation December 31, 2017 N O T E S T O C O N S 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) Commitments to ONCAP IV m) OCLP I In November 2016, Onex completed the closing of ONCAP IV with During 2017, Onex raised $314 for OCLP I, including $100 from commitments totalling $1,107. ONCAP IV provides committed cap- Onex, as described in note 2(o). At December 31, 2017, Onex has ital for acquisitions of small and medium-sized businesses requir- remaining uncalled committed capital of $82 to OCLP I. Onex ing less than $200 of initial equity capital. The term of ONCAP IV, controls the General Partner and Manager of OCLP I. unless further extended, ends in December 2028. As at Decem- ber 31, 2017, $282 (2016 – $62) has been invested of the total capital n) Management investment in Onex Credit committed. Onex has invested $111 (2016 – $25) of its $480 com- The Onex management team may invest in strategies managed mitment. Onex controls the General Partner and Manager of by Onex Credit. At December 31, 2017, investments at market held ONCAP IV. ONCAP management has committed, as a group, to by the Onex management team in Onex Credit strategies were invest a minimum of 2% of ONCAP IV. The commitment from approximately $355 (2016 – $275). management of Onex and ONCAP and Directors may be increased up to a maximum of 10% of ONCAP IV. At December 31, 2017, man- o) Management and Directors’ investment in agement of Onex and ONCAP and Directors have committed 10% Incline Aviation Fund to ONCAP IV. The total amount invested at cost in ONCAP IV’s In December 2016, the Onex management team committed $10 to investments by management of Onex and ONCAP and Directors at Incline Aviation Fund. December 31, 2017 was $29 (2016 – $6), of which $23 was invested In February 2017, the Onex management team increased in the year ended December 31, 2017 (2016 – $6). its commitment to invest in Incline Aviation fund by $30, which Beginning in November 2016, Onex is entitled to receive includes the $25 commitment by Mr. Gerald W. Schwartz, as de- annual management fees based on 2% of the capital committed scribed in note 32(a). to ONCAP IV by investors other than Onex and management of At December 31, 2017, the total amount invested by Onex and ONCAP. The annual management fee is reduced to 1.5% the Onex management team in Incline Aviation Fund at cost, of the net funded commitments at the earlier of the end of the including the amounts invested under the minimum investment commitment period or if Onex establishes a successor ONCAP requirement of the MIP, was $2 (2016 – less than $1). fund. Carried interest is received on the overall gains achieved by ONCAP IV investors, other than management of ONCAP, to p) Management reinvestment of MIP and carried interest the extent of 20% of the gains, provided that those investors have Members of Onex management are required to reinvest 25% achieved a minimum 8% return on their investment in ONCAP IV of the proceeds received related to their share of the MIP invest- over the life of ONCAP IV. Once the ONCAP IV investors achieve ment rights and carried interest to acquire Onex SVS in the market a return of two times their aggregate capital contributions, car- and/or management DSUs until they individually own at least ried interest participation increases to 25% of the overall gains. one million Onex SVS and/or management DSUs. During 2017, The investment by ONCAP IV investors for this purpose takes Onex management reinvested C$33 (2016 – C$5) to acquire Onex into consideration management fees and other amounts paid by SVS and/or management DSUs. ONCAP IV investors. The returns to ONCAP IV investors, other than man- q) Loans to operating company directors or officers agement of ONCAP, are based on all investments made through Certain operating companies have made loans to certain directors ONCAP IV, with the result that the initial carried interest achieved or ofﬁcers of the individual operating companies, typically for the by ONCAP on gains could be recovered if subsequent ONCAP IV purpose of acquiring shares in those operating companies. The investments do not exceed the lesser of the overall target return total value of the loans outstanding as at December 31, 2017 was $1 level of 8% and two times their aggregate capital contributions. (2016 – $3). Onex is allocated 40% of the carried interest realized on limited partners’ capital in ONCAP IV. ONCAP management is allocated 60% of the carried interest on limited 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, 2017 and 2016 no amount had been received as carried interest related to ONCAP IV. Onex Corporation December 31, 2017 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 r) Onex Credit management fees t) Private share repurchase Onex Credit earns management fees on other investors’ capital. In March 2017, Onex repurchased in a private transaction 750,000 Management fees earned on the capital invested by Onex, the (January 2016 – 1,000,000) of its SVS that were held indirectly by parent company, are eliminated in the consolidated ﬁnancial Mr. Gerald W. Schwartz. The private transaction was approved statements. by the disinterested directors of the Board of Directors of the In addition, Onex Credit is entitled to incentive fees on Company. The shares were repurchased at a cash cost of $71.24 certain other investors’ capital. Incentive fees range between 5% (C$94.98) (2016 – $58.85 (C$84.12)) per share or a total cost of $53 and 20%. Certain incentive fees (including incentive fees on CLOs) (C$71) (2016 – $59 (C$84)), which represents a slight discount to are subject to a hurdle or minimum preferred return to investors. the trading price of Onex shares at that date. During the year ended December 31, 2017, gross manage- ment and incentive fees earned by the credit strategies segment, u) Remuneration to key management including management and incentive fees from Onex Credit Funds The Company’s key management consists of the senior executives and CLOs consolidated by Onex, were $43 and $2 (2016 – $39 and of Onex, ONCAP, Onex Credit and its operating companies. Also $4), respectively. The management and incentive fees from Onex included are the Directors of Onex Corporation. Carried interest Credit Funds and CLOs consolidated by Onex, the parent company, and MIP payments to former senior executives of Onex and ONCAP were $39 and $2 (2016 – $35 and $4), respectively. Credit strategies are excluded from the aggregate payments below. Aggregate pay- segment revenues for 2017, net of management and incentive fees ments to the Company’s key management were as follows: from Onex Credit Funds, Onex Credit Lending Partners and CLOs consolidated by Onex, were $4 (2016 – $4). Year ended December 31 s) Tax loss transactions with a related party During 2017 and 2016, Onex entered into the sale of entities, the sole assets of which were certain tax losses, to companies con- trolled by Mr. Gerald W. Schwartz, who is Onex’ controlling share- holder. Onex has signiﬁcant non-capital and capital losses avail- able; however, Onex does not expect to generate sufﬁcient taxable Post-employment benefits Other long-term benefits Termination benefits Share-based payments(i) Total Short-term employee benefits and costs 2017 $ 167 2 – 6 236 $ 411 2016 $ 149 1 1 5 94 $ 250 income to fully utilize these losses in the foreseeable future. As (i) Share-based payments include $24 (2016 – $18) paid on the exercise of Onex stock options (note 20), $148 (2016 – $19) of carried interest paid to Onex management and $26 (2016 – $6) of amounts paid under the MIP to Onex management. During 2017, Onex, the parent company, received carried interest of $121 (2016 – $14). such, no beneﬁt has been recognized in the consolidated ﬁnancial statements for these losses. In connection with these transactions, an independent accounting ﬁrm retained by Onex’ Audit and Corporate Governance Committee provided opinions that the val- ues 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 transactions were com- pleted during 2017 and 2016: • In 2017, Onex received $5 in cash for tax losses of $48. The entire $5 was recorded as a gain and included in other income (expense) in the consolidated statements of earnings. • 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. 168 Onex Corporation December 31, 2017 N O T E S T O C O N S 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 plans are also exposed to non-ﬁnancial risks such as the membership’s mortality and demographic changes, as well as regulatory changes. An increase in the life expectancy will result in an increase in the beneﬁt obligations. The total costs during 2017 for deﬁned contribution pension plans and multi-employer plans were $84 (2016 – $115). Accrued beneﬁt obligations and the fair value of plan assets for accounting purposes are measured at December 31 of each year. The most recent actuarial valuations of the largest pension plans for funding purposes were in 2017, and the next required valuations will be in 2018. The Company estimates that in 2018 the minimum funding requirement for the deﬁned beneﬁt pension plans will be $11. In 2017, total cash payments for employee future beneﬁts, consisting of cash contributed by the operating com- panies to their funded pension plans, cash payments directly to beneﬁciaries for their unfunded other beneﬁt plans and cash contributed to their deﬁned contribution plans, were $108 (2016 – $153). Included in the total was $6 (2016 – $18) contributed to multi-employer plans. 3 3 . P E N S I O N A N D N O N - P E N S I O N P O S T - R E T I R E M E N T B E N E F I T S The operating companies have a number of deﬁned beneﬁt and deﬁned contribution plans providing pension, other retirement and post-employment beneﬁts to certain of their employees. The non-pension post-retirement beneﬁts include retirement and 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 the employ- ees of the operating companies. The plans are exposed to market risks, such as changes in interest rates, inﬂation and ﬂuctuations in investment values. The plan liabilities are calculated using a discount rate set with refer- ence to corporate bond yields; if the plan assets fail to achieve this yield, this will create or further a plan deﬁcit. A decrease in cor- porate bond yields would have the effect of increasing the beneﬁt obligations; however, this would be partially offset by a fair value increase in the value of debt securities held in the plans’ assets. For certain plans, the beneﬁt obligations are linked to inﬂation, and higher inﬂation will result in a greater beneﬁt obligation. Onex Corporation December 31, 2017 169 N O T E S T O C O N S O L I D AT E D F I N A N C I A L S TAT E M E N T S For deﬁned beneﬁt pension plans and non-pension post-retirement plans, the estimated present value of accrued beneﬁt obligations and the estimated market value of the net assets available to provide these beneﬁts were as follows: Pension Plans in which Assets Exceed Accumulated Benefits Pension Plans in which Accumulated Benefits Exceed Assets Non-Pension Post-Retirement Benefits As at December 31 2017 2016 2017 2016 2017 2016 Accrued benefit obligations: Opening benefit obligations Current service cost Interest cost Contributions by plan participants Benefits paid Actuarial (gain) loss from demographic assumptions Actuarial loss from financial assumptions Foreign currency exchange rate changes Acquisition of subsidiaries Disposition of subsidiaries Operating company no longer under control Plan amendments Other $ 848 $ 876 $ 737 $ 696 $ 74 $ 63 7 12 2 (42) 13 2 58 – – (12) (12) 1 8 16 2 (56) (6) 99 (78) – – – – (13) 9 7 – (13) – 1 34 106 (14) (425) (6) 14 12 24 – (28) (1) 36 (7) 8 – – (6) 3 2 3 – (4) – 3 5 – – – (2) 3 3 3 – (4) (6) 6 1 1 – – – 7 Closing benefit obligations $ 877 $ 848 $ 450 $ 737 $ 84 $ 74 Plan assets: Opening plan assets Interest income Actual return on plan assets in excess of interest income Contributions by employer Contributions by plan participants Benefits paid Foreign currency exchange rate changes Acquisition of subsidiaries Disposition of subsidiaries Operating company no longer under control Settlements/curtailments Other Closing plan assets $ 1,053 $ 1,061 $ 365 15 34 2 2 (42) 70 – – (14) (12) (2) 19 114 7 2 (56) (93) – – – – (1) 2 2 11 – (12) 7 87 (1) (296) (1) 5 $ 360 14 9 14 – (27) – – – – (2) (3) $ – $ – – 2 – (2) – – – – (2) 2 $ 1,106 $ 1,053 $ 169 $ 365 $ – $ − – – 2 – (2) – – – – – – – 170 Onex Corporation December 31, 2017 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 2017 17% 41% – 2% 5% 14% 2% 19% 100% 2016 17% 38% 2% 10% 11% 14% – 8% 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 2017 2016 2017 2016 2017 2016 $ 1,106 $ 1,053 $ 169 $ 365 $ – $ – (877) 229 (9) (848) 205 (7) (450) (281) – (737) (372) – (84) (84) – (74) (74) – Deferred benefit amount – asset (liability) $ 220 $ 198 $ (281) $ (372) $ (84) $ (74) The deferred beneﬁt asset of $220 (2016 – $198) is included in the Company’s consolidated balance sheets within other non-current assets (note 11). The total deferred beneﬁt liabilities of $365 (2016 – $446) are included in the Company’s consolidated balance sheets within other non-current liabilities (note 18) and other current liabilities. Of the total deferred beneﬁt liabilities, $1 (2016 – $1) was recorded as a current liability. Onex Corporation December 31, 2017 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 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 2017 2016 2017 2016 0.6%−3.5% 1.0%−4.0% 0.5%−6.3% 1.4%−3.9% 3.6% 4.6% 0.2%−3.9% 1.7%−4.6% 2017 5.8% 4.5% 2030 2016 5.9% 4.5% 2030 The assumptions underlying the discount rates, rates of compensation increase and healthcare cost trend rates have a signiﬁcant effect on the amounts reported for the pension and post-retirement beneﬁt plans. A 1% change in these assumed rates would increase (decrease) the beneﬁt obligations as follows: Pension Plans in which Assets Exceed Accumulated Benefits Pension Plans in which Accumulated Benefits Exceed Assets Non-Pension Post-Retirement Benefits As at December 31, 2017 1% Increase 1% Decrease 1% Increase 1% Decrease 1% Increase 1% Decrease Discount rate Rate of compensation increase Healthcare cost trend rate $ (73) $ 4 n/a $ 99 $ (3) n/a $ (57) $ 16 n/a $ 64 $ (16) n/a $ (9) $ 2 $ 9 $ 12 $ (2) $ (7) 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) 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. 172 Onex Corporation December 31, 2017 N O T E S T O C O N S O L I D AT E D F I N A N C I A L S TAT E M E N T S 3 4 . S U B S E Q U E N T E V E N T S a) Acquisition of SMG 3 5 . 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 S In January 2018, the Onex Partners IV Group completed the acqui- Onex’ reportable segments operate through autonomous compa- sition of SMG, as described in note 2(l). nies and strategic partnerships. Operating companies are aggre- b) Initial public offering by Pinnacle Renewable Energy products and services, production process, customer base, distri- In February 2018, Pinnacle Renewable Energy completed an initial bution model and regulatory environment at the operating com- public offering, as described in note 2(m). panies, as well as key ﬁnancial metrics such as gross margin and gated into one reportable segment based on the nature of the c) Repayment of loan note by Parkdean Resorts The Company had nine reportable segments in 2017 In February 2018, Parkdean Resorts repaid a portion of the loan (2016 – ten). In May 2017, the Onex Partners III Group sold its note held by the Onex Partners IV Group, with the remaining bal- entire investment in USI, as described in note 2(e). The results of ance being converted into additional equity of Parkdean Resorts, operations of USI, which were previously included in the insur- projected long-term revenue growth. as described in note 2(b). ance services segment, are presented in the other segment as a discontinued operation. In addition, in May 2017, the Onex Partners III Group sold approximately 15.7 million shares of JELD- WEN, resulting in a loss of control by the Company, as described in note 2(a). The results of operations of JELD-WEN up to the sale in May 2017, which were previously included in the building prod- ucts segment, are presented in the other segment as a discontin- ued operation. The remaining interest in JELD-WEN held by the Company has been recorded as a long-term investment at fair value through earnings at December 31, 2017. Comparative results have been restated to reﬂect these changes. Onex Corporation December 31, 2017 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 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, 2017 consisted of: Electronics Manufacturing Services Healthcare Imaging Health and Human Services 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 provider of residential, training, educational and support services for people with disabilities and special needs in the United States. York, an integrated provider of insurance solutions to property, casualty and workers’ compensation specialty markets primarily 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, a world-leading provider of aseptic carton packaging solutions for beverages and liquid food. • IntraPac (since December 2017), a designer and manufacturer of specialty rigid packaging solutions. • • • • • • • • • • • • • • • • 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, 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, other than the CLOs, providing exposure to the performance of actively managed, diversiﬁed portfolios. Onex Credit Lending Partners, a private debt fund which focuses on providing credit to middle-market, upper middle-market and large private equity sponsor-owned portfolio companies and, selectively, other corporate borrowers predominantly in the United States and, selectively, in Canada and Europe. Meridian Aviation, an aircraft investment company managed by BBAM and established by Onex Partners III. Schumacher, a leading provider of emergency and hospital medicine physician practice management services in the United States. Survitec, a market-leading provider of mission-critical marine, defence and aerospace survival equipment. Parkdean Resorts (since March 2017), a leading operator of caravan holiday parks in the United Kingdom. WireCo (since September 2016), a leading global manufacturer of mission-critical steel wire rope, synthetic rope, specialty wire and engineered products. Operating companies of ONCAP II: EnGlobe, Cicis (up to August 2016), Pinnacle Renewable Energy and PURE Canadian Gaming. Operating companies of ONCAP III: Hopkins, PURE Canadian Gaming, Davis-Standard, Bradshaw, Mavis Discount Tire, Venanpri Group, Chatters and Tecta (since August 2016). Operating companies of ONCAP IV: Tecta (since August 2016) and Laces (since December 2017). The other segment excludes IntraPac, which is included in the packaging products and services operating segment. • 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, the world’s largest dedicated manager of leased aircraft. Incline Aviation Fund (since February 2016), an aircraft investment fund managed by BBAM and focused on investments in leased commercial jet aircraft. Venanpri Group, 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. • JELDWEN, 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. • 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: USI (up to May 2017), JELD-WEN (up to May 2017) and KraussMaffei (up to April 2016). 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 2017 and 2016, no customers represented more than 10% of the Company’s consolidated revenues. 174 Onex Corporation December 31, 2017 N O T E S T O C O N S O L I D AT E D F I N A N C I A L S TAT E M E N T S 2017 Industry Segments Electronics Manufacturing Services Healthcare Imaging Health and Human Services Insurance Services Packaging Products and Services Business and Information Services Food Retail and Restaurants Credit Strategies Other Consolidated Total 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 and credit strategies Increase in value of investments in joint ventures and associates at fair value, net Stock-based compensation expense Other gains Other expense Impairment of goodwill, intangible assets and long-lived assets, net Limited Partners’ Interests charge 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) Net earnings (loss) attributable to: Equity holders of Onex Corporation Non-controlling interests Net earnings (loss) $ 6,111 $ 1,862 $ 1,767 $ 775 $ 2,391 $ 1,262 $ 4,724 $ 4 $ 5,601 $ 24,497 (5,614) (209) 2 (68) (9) (12) – (30) – (39) – – 132 (27) 105 – 105 14 91 105 $ $ $ (1,068) (507) 2 (62) (47) (145) – (4) 731 (9) – – 753 (61) 692 – 692 630 62 692 $ $ $ (1,340) (304) – (30) (16) (21) – (3) – (4) (8) – 41 17 58 – 58 57 1 58 $ $ $ – (696) – (6) (46) (72) – (3) – (3) – – (51) 60 9 – 9 7 2 9 $ $ $ (1,525) (302) 2 (517) (418) – (3,984) (572) 1 (199) (8) (105) (150) (253) (223) (176) – (1) – (107) (2) – (116) 18 (98) – (98) (99) 1 (98) $ $ $ – (20) – (77) (7) – (214) 49 (165) – (165) (116) (49) (165) $ $ $ (18) (82) – (6) – (69) (5) – (116) 32 (84) – (84) (85) 1 (84) $ $ $ $ $ $ – (64) 346 – (5) (3,873) (1,148) 23 (164) (134) (17,921) (4,220) 376 (642) (678) (211) (270) (1,212) – – – (111) – (20) (61) – (61) – (61) 760 (111) – (288) 760 (178) 731 (707) (165) (1,330) (187) (1,350) (1,099) (4) (1,103) 3,042 $ 1,939 (731) 84 (647) 3,042 $ 2,395 (61) – (61) $ 2,047 (108) $ 1,939 $ 2,394 1 $ 2,395 (in millions of U.S. dollars) As at December 31, 2017 Total assets Long-term debt(b) Property, plant and equipment additions(c) Intangible assets with indefinite life Goodwill additions from acquisitions Goodwill Electronics Manufacturing Services Healthcare Imaging Health and Human Services $ 2,945 $ $ $ $ $ 187 95 – – 23 $ 1,321 $ 1,132 $ $ $ $ 64 8 – 227 $ $ $ $ $ $ 982 379 24 221 2 278 Insurance Services $ 1,524 $ $ $ $ $ 939 6 148 1 616 Packaging Products and Services Business and Information Services Food Retail and Restaurants Credit Strategies Other Consolidated Total $ 6,800 $ 3,770 $ 5,652 $ 2,566 $ $ $ 269 443 – $ $ $ 8 458 72 $ 2,327 $ 2,304 $ 2,094 $ 10,048 $ 13,313 $ $ $ $ $ 943 $ 7,877 $ 4,256 48 436 – 230 $ $ $ $ 1 – – $ $ $ 237 343 493 62 $ 2,156 $ 44,679 $ 22,049 $ 752 $ 2,057 $ 568 $ 8,223 (a) Represents the after-tax results of JELD-WEN (up to May 2017) and USI (up to May 2017), as described in note 8. (b) Long-term debt includes current portion, excludes finance leases and is net of financing charges. (c) Amounts for 2017 include JELD-WEN (up to May 2017) and USI (up to May 2017), which are discontinued operations, as described in note 8. Onex Corporation December 31, 2017 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 2016 Industry Segments Electronics Manufacturing Services Healthcare Imaging Health and Human Services Insurance Services Packaging Products and Services Business and Information Services Food Retail and Restaurants Credit Strategies Other Consolidated Total 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) Net earnings (loss) attributable to: Equity holders of Onex Corporation Non-controlling interests Net earnings (loss) $ 6,016 $ 1,990 $ 1,785 $ 745 $ 2,414 $ 525 $ 689 $ 4 $ 3,637 $ 17,805 (5,510) (211) 15 (66) (10) (11) – (33) – (29) – – 161 (25) 136 – $ 136 $ $ 18 118 136 (1,127) (527) 2 (64) (74) (148) – (5) – 24 (2) – 69 (30) 39 – 39 42 (3) 39 $ $ $ (1,358) (310) – (30) (16) (23) – (3) 8 (10) – – 43 (15) 28 – 28 27 1 28 $ $ $ – (655) − (9) (42) (68) – (3) − 3 (226) – (255) 23 (232) – $ (232) $ (204) (28) $ (232) $ $ $ (1,541) (296) 1 (190) (149) (218) – (1) – (23) – – (3) (41) (44) – (44) (180) (176) – (2) (104) (92) – (3) – (70) (4) – (106) (7) (113) – $ (113) (44) – (44) $ (75) (38) $ (113) (578) (60) – (15) (3) (20) – (1) – (18) – – (6) 13 7 – 7 6 1 7 $ $ $ – (38) 313 – (5) (164) – – – 222 – (60) 272 – 272 – 272 272 – 272 $ $ $ (2,614) (760) 18 (12,908) (3,033) 349 (71) (115) (138) 180 (145) 28 (120) – (587) (687) (25) (712) 583 (129) (172) 43 (129) $ $ $ (447) (518) (882) 180 (194) 36 (21) (232) (647) (512) (107) (619) 583 (36) (130) 94 (36) $ $ $ (in millions of U.S. dollars) As at December 31, 2016 Total assets Long-term debt(b) Property, plant and equipment additions Intangible assets with indefinite life Goodwill additions from acquisitions Goodwill Electronics Manufacturing Services Healthcare Imaging Health and Human Services Insurance Services $ 2,822 $ $ $ $ $ 226 77 – 4 23 $ 1,473 $ 1,920 $ $ $ $ 58 8 15 338 $ 995 $ 1,545 $ $ $ $ $ 421 28 222 1 283 $ $ $ $ $ 939 10 148 – 615 Packaging Products and Services Business and Information Services $ 6,144 $ 3,447 $ $ $ 222 422 5 $ 2,077 $ 5,765 $ 2,667 $ $ 2 441 $ 1,313 $ 2,203 Food Retail and Restaurants $ 2,185 $ $ $ $ $ 886 26 436 23 225 Credit Strategies Other Consolidated Total $ 7,624 $ 5,912 $ 14,360 $ 6,445 $ $ $ $ – – – $ $ $ 189 624 560 62 $ 3,348 $ 42,913 $ 22,863 $ 612 $ 2,301 $ 1,921 $ 9,174 (a) Represents the after-tax results of JELD-WEN, KraussMaffei (up to April 2016), Sitel Worldwide and USI, as described in note 8. (b) Long-term debt includes current portion, excludes finance leases and is net of financing charges. Geographic Segments Canada U.S. Europe 2017 Asia and Oceania Other(a) Total Canada U.S. Europe Asia and Oceania Other(a) Total 2016 $ 787 $ 14,043 $ 3,647 $ 4,535 $ 1,485 $ 24,497 $ 758 $ 9,956 $ 2,745 $ 2,984 $ 1,362 $ 17,805 $ 389 $ 1,226 $ 2,589 $ 779 $ 343 $ 5,326 $ 316 $ 1,845 $ 961 Intangible assets(c) $ 508 $ 3,489 $ 3,580 $ 170 $ 140 $ 7,887 $ 287 $ 5,029 $ 3,603 Goodwill(c) $ 357 $ 4,982 $ 2,079 $ 658 $ 147 $ 8,223 $ 210 $ 5,572 $ 2,685 $ $ $ 792 239 570 $ $ $ 361 128 137 $ 4,275 $ 9,286 $ 9,174 (a) Other consists primarily of operations in Central and South America, Mexico and Africa. (b) Revenues exclude discontinued operations, as described in note 8. Revenues are attributed to geographic areas based on the destinations of the products and/or services. (c) Amounts for 2017 exclude USI and JELD-WEN, which are discontinued operations, as described in note 8. 176 Onex Corporation December 31, 2017 Revenue(b) Property, plant and equipment(c) SHAREHOLDER INFORMATION Year-End Closing Share Price As at December 31 (in Canadian dollars) 2017 2016 2015 2014 2013 Toronto Stock Exchange $ 92.19 $ 91.38 $ 84.82 $ 67.46 $ 57.35 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 AST Trust Company (Canada) Registered holders of Onex Corporation Dividends on the Subordinate Voting Shares P.O. Box 700 are payable quarterly on or about January 31, Postal Station B 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, 2017, 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$0.30 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 a www.astﬁnancial.com/ca one mailing for the same ownership are completed currency election form to AST or inquiries@astﬁnancial.com requested to write to the Registrar and Trust Company (Canada) 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 on a timely basis, a direct mailing list The Dividend Reinvestment Plan provides Onex’ shareholder communications is maintained by the Company. If you shareholders of record who are resident electronically. You can submit your would like your name added to this list, in Canada a means to reinvest cash divi- request online by visiting the please forward your request to Investor dends in new Subordinate Voting Shares AST Trust Company (Canada) website, Relations at Onex. of Onex Corporation at a market-related www.astﬁnancial.com/ca, or price and without payment of brokerage contacting them at 1-800-387-0825. Annual Meeting of Shareholders commissions. To participate, registered Onex Corporation’s Annual Meeting of shareholders should contact Onex’ share Investor Relations Contact Shareholders will be held on May 10, 2018 registrar, AST Trust Company (Canada). Requests for copies of this report, at 10:00 a.m. (Eastern Daylight Time) at Non-registered shareholders who wish other annual reports, quarterly reports the Hockey Hall of Fame, 30 Yonge Street, to participate should contact their and other corporate communications Toronto, Ontario. investment dealer or broker. should be directed to: Investor Relations Onex Corporation 161 Bay Street P.O. Box 700 Toronto, Ontario M5J 2S1 (416) 362-7711 Typesetting by Moveable Inc. www.moveable.com Printed in Canada

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