2018 Annual Report 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 $51 billion, generate annual revenues of $32 billion and employ approximately 217,000 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, IV and V. 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 91 Consolidated Financial Statements 87 Glossary 184 Shareholder Information CHAIRMAN’S LETTER Dear Shareholders, As a year comes to a close, we often look back with pride at our accomplishments on your behalf. This was not the case last year. Several of our operating businesses underperformed relative to our expectations, which con- tributed to a 6% annual decline in the fair market value of our private equity portfolio. It is no surprise our share price reflected the disappointment of our fellow shareholders and declined more steeply than the comparative indices. This is not the first time we have been disappointed in our performance, but thankfully it has been many years since we have had a year like this one. As anyone on our team will tell you, we are improving the performance of all our businesses and driving change where needed. As investors with controlling interests, this is exactly what we can and must do. We believe our efforts will be rewarded and have evidenced that confidence by repurchasing 1.2 million Subordinate Voting Shares at an average cost per share of $67.11 (C$86.78). The year was not without significant achievements: • We invested approximately $2.3 billion in nine new businesses, including: – Onex Partners’ investment in PowerSchool, a non-instructional software provider primarily to K-12 primary schools. PowerSchool is our first significant investment in the software sector; – Onex Partners’ acquisition of KidsFoundation, a leading provider of childcare services in the Netherlands. KidsFoundation is our first investment in a business headquartered in the Netherlands; and – ONCAP’s four investments totalling more than $310 million, with the largest investment through Walter Surface Technologies, a provider of innovative solutions for the metal working industry. • We returned approximately $1.9 billion to Onex and our partners, through realizations and distributions, including the sales of Mavis Discount Tire and Tecta America, as well as the initial public offering of SIG Combibloc; • We increased our assets under management at Onex Credit by 7% and now manage $10.3 billion. Con- tributing to the increase was the issuance of CLO-15 and the capital raised for our first private debt fund, of which more than 70% of the $1.1 billion of available capital has been invested; • We started investing Onex Partners V, a $7.15 billion fund, which further enhances Onex’ operating leverage on its private equity manager. Our total run-rate management fees from our private equity and credit platforms increased to $192 million; and • Our operating businesses completed 38 follow-on acquisitions, collectively raised or refinanced debt totalling $7 billion and paid down approximately $295 million of debt. Last year, our team invested $135 million across our private equity platform, credit funds and Onex shares, bringing our total investment to approximately $1.7 billion. Alignment between managers and shareholders is core to our culture and critical to our success. From all of us at Onex, we thank you for your continued support and look forward to sharing better news in the years to come. [signed] Gerald W. Schwartz Chairman and Chief Executive Officer, Onex Corporation Onex Corporation December 31, 2018 1 ONEX CORPORATION Who We Are and What We Do Onex is an investor first and foremost, with $6.4 billion of shareholder capital primarily invested in or commit- ted to private equity and non-investment grade credit. We also manage $23.2 billion of invested and committed capital on behalf of fund investors from around the world, including public and private pension plans, sovereign wealth funds, banks, insurance companies and family offices, that have chosen to invest alongside us. With an experienced management team, significant financial resources and no debt at the parent com- pany, Onex is well-positioned to continue building shareholder value through its investing and asset manage- ment activities. Private Equity Investing Founded in 1984, Onex is one of the oldest and most successful private equity firms. We acquire and build high- quality businesses in partnership with talented management teams. Onex invests through its two private equity platforms: Onex Partners for larger transactions and ONCAP for middle-market transactions. We are focused on three primary investment strategies: (i) cost reduction and operational restructurings; (ii) platforms for add-on acquisitions; and (iii) carve-outs of subsidiaries and mission-critical supply divisions from multinational corporations. We have built over 100 operating businesses, completing about 630 acquisitions with a total value of $78 billion. Onex’ private equity investing has generated a gross MOC of 2.6 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 collateral- ized loan obligations, private debt and other credit strategies. We practise value-oriented investing, employing 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 capi- tal preservation, Onex Credit now manages $10.3 billion. 2 Onex Corporation December 31, 2018 Onex Capital At December 31, 2018, Onex’ $6.4 billion of capital was primarily invested in or committed to its private equity and credit platforms. Onex’ $6.4 billion of Capital at December 31, 2018 Onex’ $6.8 billion of Capital at December 31, 2017 Large-Cap Private Equity 52% Large-Cap Private Equity 49% Cash and Near-Cash Items 23% Cash and Near-Cash Items 29% Middle-Market Private Equity 8% Credit 11% Middle-Market Private Equity 9% Credit 10% Real Estate and Other Investments 6% Real Estate and Other Investments 3% The How We Are Invested schedule details Onex’ $6.4 billion of capital at December 31, 2018 (December 31, 2017 – $6.8 billion). In the year ended December 31, 2018, Onex capital per share decreased by 5% (3% increase in Canadian dollars). Over the past five years, Onex capital per share has increased by 4% per year (9% per year in Canadian dollars). Onex Corporation December 31, 2018 3 65 60 55 50 45 40 35 30 Nav per Share (USD) Onex Capital per Share (USD) (December 31, 2013 to December 31, 2018) $65 $60 $55 $50 $45 $40 $35 4% annual growth over the past five years Dec-2013 Dec-2014 Dec-2015 Dec-2016 Dec-2017 Dec-2018 Fund Investor Capital Onex manages $23.2 billion of invested and committed capital on behalf of investors from around the world. In November 2018, Onex completed fundraising for Onex Credit Lending Partners I, reaching aggregate com- mitments of $413 million, including Onex’ commitment of $100 million. Onex’ $23.2 billion of Fund Investor Capital at December 31, 2018 Onex’ $24.2 billion of Fund Investor Capital at December 31, 2017 Onex Partners 55% Onex Partners 57% Onex Credit 40% Onex Credit 36% ONCAP 5% ONCAP 7% Fund investor capital includes capital managed on behalf of co-investors and the Onex management team. 4 Onex Corporation December 31, 2018 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 $192 million, consisting of $142 million from private equity and $50 million from credit. During the 12 months ended December 31, 2018, combined management fees and carried interest received more than offset operating expenses. For the 12 months ended December 31, 2018, fee-generating capital under management decreased by 5% to $20.6 billion, driven by realizations in private equity, the redemption of CLO-2 and net fair value decreases in Onex’ private equity portfolio. Partially offsetting these decreases was the closing of CLO-15 and Onex Credit Lending Partners. Over the past five years, fee-generating capital under management has increased by 11% per year. Fee-Generating Capital Under Management Fee-Generating Capital Under Management (December 31, 2013 to December 31, 2018) 22 20 18 16 14 12 10 8 s n o i l l i B 11% annual growth over the past five years Dec-2013 Dec-2014 Dec-2015 Dec-2016 Dec-2017 Dec-2018 22 20 18 16 14 12 10 8 6 Onex Corporation December 31, 2018 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’ $6.4 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, 2018 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, 2018 H O W W E A R E I N V E S T E D Onex Capital December 31, 2018 September 30, 2018 December 31, 2017 $ 2,261 835 $ 2,258 1,252 $ 2,492 536 425 40 110 158 3,829 526 200 726 149 216 1,439 − 550 53 155 195 4,463 571 212 783 164 206 1,247 − 563 − 185 188 3,964 485 171 656 238 17 1,947 − $ 6,359 $ 61.24 C$ 83.55 $ 6,863 $ 65.61 C$ 84.93 $ 6,822 $ 64.79 C$ 81.28 As at Private Equity Onex Partners Private Companies(1)(2) Public Companies(2)(3) ONCAP Private Companies(4)(5) Public Company(5)(6) Unrealized Carried Interest(7) Direct Investment – Public Company(8) Credit Collateralized Loan Obligations(9) Onex Credit Funds and Private Lending(10) Real Estate Other Investments(11) Cash and Near-Cash(12)(13) Debt(14) Onex Capital Onex Capital per Share (U.S. dollars)(15)(16) Onex Capital per Share (Canadian dollars)(15)(16) (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 $45 million and any debt financing within the Onex Partners Funds (September 30, 2018 – $38 million; December 31, 2017 – $40 million). (2) In October 2018, SIG completed an initial public offering of 151.8 million ordinary shares (SIX: SIGN), including the exercise of an over-allotment option, priced at CHF 11.25 per share. At December 31, 2017, SIG was included in the private companies of Onex Partners. (3) Based on closing prices on December 31, 2018, September 30, 2018 and December 31, 2017 and net of the estimated MIP liability on these investments of $33 million (September 30, 2018 – $50 million; December 31, 2017 – $49 million). (4) Based on the fair value of the investments in ONCAP, net of the estimated management incentive programs liability on these investments of $33 million (September 30, 2018 – $58 million; December 31, 2017 – $70 million). (5) In February 2018, Pinnacle Renewable Energy completed an initial public offering of approximately 15.3 million common shares (TSX: PL), including the exercise of an over-allotment option, priced at C$11.25 per share. In June 2018, Pinnacle Renewable Energy also completed a secondary offering of 4.2 million common shares, including the exercise of an over-allotment option, priced at C$13.75 per share. At December 31, 2017, Pinnacle Renewable Energy was included in the private companies of ONCAP. (6) Based on the closing prices on December 31, 2018 and September 30, 2018 and net of the estimated MIP liability on this investment of $4 million (September 30, 2018 – $9 million). (7) Represents Onex’ share of the unrealized carried interest for Onex Partners and ONCAP Funds. (8) Based on the closing prices on December 31, 2018, September 30, 2018 and December 31, 2017. (9) Includes warehouse facilities. (10) Onex Credit Funds excludes $89 million (September 30, 2018 – $187 million; December 31, 2017 – $181 million) invested in an Onex Credit unlevered senior secured loan strategy fund, which has been included with Cash and Near-Cash items. (11) Primarily includes Onex’ investments in Ryan Specialty Group, LLC (since June 2018) and Incline Aviation Fund. (12) Includes $279 million (September 30, 2018 – $277 million; December 31, 2017 – $1.0 billion) of investments managed by third-party investment managers. (13) Includes $205 million (September 30, 2018 – $162 million; December 31, 2017 – $107 million) of management fees receivable from the limited partners of its private equity platforms. (14) Represents debt at Onex Corporation, the parent company. (15) Calculated on a fully diluted basis. Fully diluted shares were 110.0 million at December 31, 2018 (September 30, 2018 – 111.7 million; December 31, 2017 – 112.1 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. (16) 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, 2018 7 H O W W E A R E I N V E S T E D Public Companies As at December 31, 2018 Onex Partners Emerald Expositions(2) JELD-WEN SIG(3) ONCAP Pinnacle Renewable Energy(4) Public and Private Company Information Shares Subject to Carried Interest (millions) Shares Held by Onex (millions) Closing Price per Share(1) Market Value of Onex’ Investment 33.1 20.3 51.4 4.3 11.4 8.1 57.5 5.0 $ 12.34 $ 14.21 CHF 10.46 ($ 10.62) C$ 12.00 ($ 8.80) $ 141 116 611 44 912 (37) 875 158 $ 1,033 Estimated Management Incentive Program Liabilities Direct Investment – Celestica(5) – 18.0 $ 8.77 Significant Private Companies As at December 31, 2018 Onex Partners Onex’ and its Limited Partners’ Economic Ownership LTM Adjusted EBITDA(6) Net Debt(7) Cumulative Distributions Onex’ Economic Ownership Original Cost of Onex’ Investment AIT(8) BBAM(10) Carestream Health Clarivate Analytics(8) Jack’s(8) KidsFoundation Meridian Aviation Parkdean Resorts(8)(14) PowerSchool Ryan Save-A-Lot(8) Schumacher(8) sgsco SMG Survitec(8) WireCo(8) York 50% 35% 91% 72% 95% 98% 100% 94% 50% 42% 99% 68% 92% 99% 79% 71% 88% n/a $ 133 246 311(12) 66 2 21 n/a 88(15) n/a(18) 111(19) 87 94 115(12) 85(21) £ £ 54 108 115 2 $ n/a (20)(11) 985 2,003 227 85 n/a £ 660(15) n/a(18) 281(19) 761 583 683 549 £ 423 628 938 $ 250(9) 576 1,311 – 88 – 149 − − – – – – – – − – 13% 9% 33%(5) 27% 31% 27% 25% 28% 16% 14% 32% 22% 23% 32% 21% 23% 29% $ 53 36 186 445 76 47 (13) 19 164 (16)(17) 283 103 (20) 210 105 66 139 103 (16) 86 173 $ 2,294 (1) Closing prices on December 31, 2018. (2) (3) (4) In March 2018, Emerald Expositions completed a secondary offering. The Onex Partners III Group sold 6.75 million shares in Emerald Expositions, including the exercise of an over-allotment option. The Onex Partners III Group continues to hold approximately 47.1 million shares of Emerald Expositions’ common stock for a 66% economic and voting interest. Onex continues to hold approximately 11.4 million shares for a 16% economic interest in Emerald Expositions. In October 2018, SIG completed an initial public offering. The Onex Partners IV Group received approximately 209.0 million ordinary shares in exchange for its ordinary and preferred shares in SIG and sold approximately 45.9 million ordinary shares in SIG in conjunction with the initial public offering, including the exercise of an over-allotment option. The Onex Partners IV Group continues to hold approximately 163.2 million ordinary shares of SIG for an economic interest of 51%. Onex continues to hold approximately 57.5 million ordinary shares for an 18% economic interest in SIG. In February 2018, Pinnacle Renewable Energy completed an initial public offering. The ONCAP II Group received approximately 14.1 million shares in exchange for its preferred shares in Pinnacle Renewable Energy and its convertible debt. The ONCAP II Group did not sell any common shares as part of the initial public offering. In June 2018, Pinnacle Renewable Energy completed a secondary offering. The ONCAP II Group sold approximately 3.7 million shares in Pinnacle Renewable Energy in conjunction with the secondary offering, including the exercise of an over-allotment option. The ONCAP II Group continues to hold approximately 10.4 million shares of Pinnacle Renewable Energy for an economic and voting interest of 32%. Onex continues to hold approximately 5.0 million shares for a 15% economic interest in Pinnacle Renewable Energy. (5) Excludes shares held in connection with the MIP. (6) Adjusted EBITDA is a non-GAAP financial measure and is based on the local accounting standards of the individual operating companies. 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. (7) Net debt excludes restricted cash and other similar amounts. (8) Onex’ economic ownership and the original cost of Onex’ investment reflect the increase in Onex’ interest in Onex Partners IV since the initial investment in the private companies. The original cost of Onex’ investment has been adjusted to include the additional cost of the companies at original cost. (9) Cumulative distributions for AIT include a purchase price adjustment of $4 million. (10) 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. (11) Net debt for BBAM is reduced for accrued compensation liabilities. (12) LTM adjusted EBITDA is presented on a pro-forma basis to reflect the impact of acquired and/or divested businesses. (13) The investment in KidsFoundation was made in euros and converted to U.S. dollars using the effective exchange rate on the date of the investment. (14) In February 2018, Parkdean Resorts made a partial repayment of a loan note held by the Onex Partners IV Group and the remaining principal balance outstanding was converted into additional equity of Parkdean Resorts. (15) 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. (16) 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 dates of the investments. (17) The investment in Parkdean Resorts is adjusted to reflect the loan note held by the Onex Partners IV Group into additional equity of Parkdean Resorts in February 2018. (18) LTM adjusted EBITDA and net debt for PowerSchool will begin to be presented as of March 31, 2019 following the integration of the PeopleAdmin business. (19) Represents the LTM EBITDA and Net Debt as at November 30, 2018. (20) The investment in Ryan was partially funded by a revolving credit facility which was entered into by the Onex Partners IV Group. Onex, the parent company, is only obligated with respect to borrowings under the revolving credit facility based on its proportionate share of the Onex Partners IV Group’s investment in Ryan. (21) LTM adjusted EBITDA is presented on a pro-forma basis to reflect the impact of run-rate earnings from venue management services. 8 Onex Corporation December 31, 2018 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, 2018 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 28, 2019. 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 28 Financial Review 87 Glossary Onex Corporation’s financial filings, including the 2018 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, 2018 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. Refer- ences to the ONCAP Groups represent Onex, the limited partners of the relevant ONCAP Fund, the Onex man- agement team and, where applicable, certain other limited partners as investors. For example, references to the Onex Partners IV Group represent Onex, the limited partners of Onex Partners IV, 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 • “Parkdean Resorts” – Parkdean Resorts • “AutoSource” – AutoSource Holdings, Inc. • “Pinnacle Renewable Energy” – • “BBAM” – BBAM Limited Partnership Pinnacle Renewable Energy, Inc. • “Bradshaw” – Bradshaw International, Inc. • “PowerSchool” – PowerSchool Group LLC • “BrightSpring Health” – Res-Care, Inc. • “Precision” – Precision Global • “Carestream Health” – Carestream Health, Inc. • “PURE Canadian Gaming” – PURE Canadian • “Celestica” – Celestica Inc. • “Chatters” – Chatters Canada Gaming Corp. • “RSG” – Ryan Specialty Group, LLC • • • “Clarivate Analytics” – Clarivate Analytics • “Ryan” – Ryan, LLC “Davis-Standard” – Davis-Standard Holdings, Inc. • “Save-A-Lot” – Save-A-Lot “Emerald Expositions” – Emerald Expositions Events, Inc. • “Schumacher” – Schumacher Clinical Partners • “EnGlobe” – EnGlobe Corp. • “sgsco” – SGS International, LLC • “Flushing Town Center” – Flushing Town Center • “SIG” – SIG Combibloc Group AG • “FLY Leasing Limited” – FLY Leasing Limited • “SMG” – SMG Holdings Inc. • • • “Hopkins” – Hopkins Manufacturing Corporation • “Survitec” – Survitec Group Limited “Incline Aviation Fund” – Incline Aviation Fund • “Tecta” – Tecta America Corporation “IntraPac” – IntraPac International Corporation • “USI” – USI Insurance Services • “Jack’s” – Jack’s Family Restaurants • “JELD-WEN” – JELD-WEN Holding, Inc. • • “Venanpri Group” – Venanpri Group “Walter Surface Technologies” – Walter Surface • “KidsFoundation” – KidsFoundation Holdings B.V. Technologies • “Laces” – Laces Group • “WireCo” – WireCo WorldGroup • “Mavis Discount Tire” – Mavis Tire Supply LLC • “Wyse” – Wyse Meter Solutions Inc. • “Meridian Aviation” – Meridian Aviation • “York” – York Risk Services Holding Corp. Partners Limited and affiliates A glossary of terms commonly used within the MD&A is included on page 87. 10 Onex Corporation December 31, 2018 M A N A G E M 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 2.6 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 bot- tom-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 150 years of investing experience and have worked at Onex for an average of 27 years. Onex’ stability results from its ownership culture, rigorous recruiting standards and highly collegial environment. Onex’ 103 investment professionals are each dedicated to a separate investment platform: Onex Part- ners (59), ONCAP (21) and Onex Credit (23). These investment teams are supported by approximately 80 profes- sionals dedicated to Onex’ corporate functions and its investment platforms. Onex Corporation December 31, 2018 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 $1.4 billion of cash and near-cash items, and no debt at the parent company; • $5.4 billion of limited partner uncalled capital available for future Onex Partners V investments; • $330 million of limited partner uncalled capital available for future ONCAP IV investments; and • $55 million of limited partner uncalled capital for Onex Credit Lending Partners (“OCLP I”). In November 2018, Onex completed the final closing for OCLP I, reaching aggregate commitments of $413 mil- lion. The aggregate commitments to OCLP I include a $100 million commitment from Onex and a $75 million commitment from 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, 2018, the Onex management team: • was the largest shareholder in Onex, with a combined holding of approximately 16.2 million shares, or 16% of outstanding shares, and 0.7 million DSUs; • had a total cash investment in Onex’ current operating businesses of approximately $480 million; and • had a total investment in credit strategies at market value of approximately $325 million. As well, Onex management is required to reinvest 25% of all Onex Partners carried interest and MIP distribu- tions in Onex shares until they individually own at least one million shares and must hold these shares until retirement. OUR OBJECTIVE: Onex’ business objective is to create long-term value for shareholders and to have that value reflected in our share price. Our strategies to deliver this value are concentrated on (i) acquiring and 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’ve performed relative to those strategies in 2018. 12 Onex Corporation December 31, 2018 M A N A G E M E N T ’ S D I S C U S S I O N A N D A N A LY S I S OUR STRATEGIES Acquiring and building industry-leading businesses The growth in Onex capital is largely driven by the performance of our private equity investments. Our private equity investing 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, 2018, Onex’ capi- tal per share was $61.24 (C$83.55) (December 31, 2017 – $64.79 (C$81.28)). The following table outlines the increase (decrease) in Onex’ capital per share and the return from Onex’ private equity investments as of December 31, 2018. The decrease in capital per share for the year ended December 31, 2018 was primarily driven by decreases in the fair value of Onex’ private equity and CLO investments. Increase (decrease) in value of Onex’ private equity investments in U.S. dollars(2) Increase (decrease) in capital per share in U.S. dollars(3) Increase in capital per share in Canadian dollars(3) (1) Represents the annualized percentage increase. (2) Adjusted for realizations and distributions. (3) Includes the impact of cash, credit investments and other investments. Year ended December 31, 2018 Five years ended December 31, 2018 (1) (6)% (5)% 3 % 10% 4% 9% The table below presents the significant private equity investments made since January 1, 2018 and Onex’ share thereof: Company PowerSchool SMG Ryan RSG Fund Transaction Onex Partners IV Onex Partners IV Onex Partners IV Original investment Original investment Original investment Direct investment Original investment KidsFoundation Onex Partners IV and V Original investment Walter Surface Technologies ONCAP IV Precision AutoSource Wyse Total ONCAP IV ONCAP IV ONCAP IV Original investment Original investment Original investment Original investment Period Aug ’18 Jan ’18 Oct ’18 Jun ’18 Nov ’18 Sep ’18 Aug ’18 May ’18(4) Nov ’18 Total Amount ($ millions) Onex’ Share ($ millions) $ 872 $ 283 429 317(1) 175(2) 170(3) 135 111 41 26(5) 139 103 (1) 172 (2) 47 (3) 53 44 16 10 $ 2,276 $ 867 (1) The investment in Ryan by the Onex Partners IV Group was partially funded by a revolving credit facility, with a capacity of $65 million, entered into by the Onex Partners IV Group, as described on page 37 of this MD&A. (2) The total investment made in RSG by Onex and Onex management was comprised of $150 million in preferred equity and $25 million in common equity. Onex’ share of the investment in RSG was comprised of $148 million in preferred equity and $24 million in common equity. (3) The investment made in KidsFoundation is comprised of ordinary shares, preference shares and loan notes. (4) Onex transferred its investment in AutoSource to the ONCAP IV Group in September 2018, as described on page 35 of this MD&A. (5) The investment made in Wyse is comprised of both preferred shares and convertible debt. Onex Corporation December 31, 2018 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 August 2018, the Onex Partners IV Group acquired an interest in PowerSchool, a non-instructional software provider primarily to K-12 primary schools, from Vista Equity Partners (“Vista”). Concurrent with this trans- action, PowerSchool acquired PeopleAdmin, a provider of cloud-based talent management solutions for the education sector and also previously owned by Vista. The Onex Partners IV Group invested $872 million for an economic interest of 50% in PowerSchool and is an equal partner with Vista. Onex’ share of the investment is $283 million for an economic interest of 16%. In January 2018, the Onex Partners IV Group acquired 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 million for an economic interest of 32%. In October 2018, the Onex Partners IV Group acquired an interest in Ryan, a global tax services and software provider. The Onex Partners IV Group invested $317 million for a 42% economic interest in Ryan. Onex’ share of the investment was $103 million for an economic interest of 14%. In June 2018, Onex and Onex management invested $175 million in RSG, a leading international specialty insur- ance organization, which includes a wholesale insurance brokerage firm and an underwriting management organization. The investment was comprised of $150 million in preferred equity and $25 million in common equity. Onex’ share of the investment was $172 million. In November 2018, the Onex Partners IV and Onex Partners V Groups acquired KidsFoundation, a leading pro- vider of childcare services in the Netherlands. The combined investment made by the Onex Partners IV Group, Onex Partners V Group and a certain limited partner as a co-investor was €150 million ($170 million) for a 98% economic interest in KidsFoundation. Onex’ share of the investment was €42 million ($47 million) for an economic interest of 27%. In September 2018, the ONCAP IV Group acquired Walter Surface Technologies, a provider of innovative solu- tions for the metal working industry. Excluding the impact of foreign exchange hedges, the ONCAP IV Group’s total investment was C$175 million ($135 million) for an economic interest of 94%. Onex’ share of the investment was C$69 million ($53 million) for an economic interest of 37%. In August 2018, the ONCAP IV Group acquired Precision, a leading global manufacturer of dispensing solutions. The ONCAP IV Group’s total investment was $111 million for an initial economic interest of 99%. Onex’ share of the investment was $44 million for an initial economic interest of 39%. In May 2018, Onex invested $41 million to acquire AutoSource, a used vehicle retailer specializing in branded title vehicles, for an initial economic and voting interest of 50% and 60%, respectively. In September 2018, the investment in AutoSource was transferred to the ONCAP IV Group for $41 million, which represents the original cost of the investment made by Onex. As a result of this transaction, the ONCAP IV Group’s economic and voting interest in AutoSource is 50% and 60%, respectively. Onex’ share of the investment, as a limited partner of ONCAP IV, is $16 million for an economic interest of 20%. 14 Onex Corporation December 31, 2018 M A N A G E M E N T ’ S D I S C U S S I O N A N D A N A LY S I S In November 2018, the ONCAP IV Group invested in Wyse, a leading provider of submetering and utility expense management solutions for the multi-residential, condominium and commercial markets in Canada. Excluding the impact of foreign exchange hedges, the ONCAP IV Group’s investment in Wyse was C$35 million ($26 mil- lion) for an economic interest of 41%. Onex’ share of the investment was C$14 million ($10 million) for an eco- nomic interest of 16%. The investment in Wyse is comprised of both preferred shares and convertible debt. Today, we have approximately $7.9 billion of uncalled capital available to deploy for new private equity invest- ments, including approximately $2.2 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 share- holders and partners. Building businesses During 2018, 16 of our operating businesses completed 38 follow-on acquisitions for total consideration of approx- imately $1.4 billion. 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 period. In addition, our existing businesses paid down debt totalling approximately $295 million. Realizing on value The table below presents the significant proceeds received during 2018 and up to February 28, 2019 from real- izations and cash distributions primarily from private equity activity. Company Fund Transaction Mavis Discount Tire ONCAP III Sale of business SIG Tecta Onex Partners IV Initial public offering ONCAP III and ONCAP IV Sale of business Onex Real Estate Direct investment Distributions Emerald Expositions Onex Partners III Secondary offering and dividends Parkdean Resorts Onex Partners IV Repayment of loan note Pinnacle Renewable Energy ONCAP II Repayment of shareholder subordinated Period Mar ’18 Oct ’18 Nov ’18 Various Various Feb ’18 BBAM Onex Partners III Distributions Meridian Aviation Onex Partners III Distribution Various Sep ’18 debt, secondary offering and dividends Various Total Amount ($ millions) Onex’ Share ($ millions) (1) $ 518(2) $ 173 511(2) 412 134 134 74(2) 56 38 25 180 133 117 36 22 26 12 8 Total $ 1,902 $ 707 (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. (2) Includes proceeds received by certain limited partners and others. In March 2018, the ONCAP III Group sold its entire investment in Mavis Discount Tire for net proceeds of $518 million. The ONCAP III Group acquired Mavis Discount Tire in October 2014 and in total made an equity investment of $150 million. Onex’ portion of the sale proceeds was $173 million, including carried interest of $15 million and after the reduction for amounts paid to the Onex and ONCAP management teams. The invest- ment in Mavis Discount Tire generated a Gross MOC of 3.4 times in U.S. dollars and 3.8 times in Canadian dollars. Onex Corporation December 31, 2018 15 M A N A G E M E N T ’ S D I S C U S S I O N A N D A N A LY S I S In October 2018, SIG completed an initial public offering of 151.8 million ordinary shares (SIX: SIGN), including the exercise of an over-allotment option. The offering was priced at CHF 11.25 per share for gross proceeds of CHF 1.7 billion. As part of the offering, SIG issued 105.0 million treasury shares. The net proceeds from treasury shares were primarily used to reduce SIG’s existing long-term debt. The Onex Partners IV Group sold approxi- mately 45.9 million ordinary shares in the transaction for net proceeds of CHF 504 million ($511 million). Onex’ portion of the net proceeds was CHF 178 million ($180 million). The Onex Partners IV Group continues to hold approximately 163.2 million ordinary shares in SIG for an economic interest of 51%. Onex continues to hold approximately 57.5 million ordinary shares for an 18% economic interest in SIG. In November 2018, the ONCAP III and ONCAP IV Groups sold their entire investment in Tecta for combined net proceeds of $416 million. Onex’ share of the net proceeds from the sale was $134 million, including carried interest of $12 million and after the reduction for amounts paid to the Onex and ONCAP management teams. Included in the net proceeds is $4 million held in escrow, of which Onex’ share is $1 million. The ONCAP III and ONCAP IV Groups’ investment of $124 million in Tecta was made in August 2016 and generated a Gross MOC of 3.4 times in both U.S. and Canadian dollars. During 2018 and up to February 28, 2019, Flushing Town Center distributed $134 million of proceeds primarily from the sale of residential condominium units. Onex’ share of the distributions was $117 million. In March 2018, Emerald Expositions completed a secondary offering of 6.75 million shares of its common stock, including the exercise of an over-allotment option. The offering was priced at $18.50 per share for gross pro- ceeds of $125 million. No treasury shares were issued as part of the offering. The Onex Partners III Group sold all of the shares in this transaction for net proceeds of $120 million. Onex’ portion of the net proceeds was $32 million, including $3 million of carried interest. The Onex Partners III Group continues to hold approxi- mately 47.1 million shares of Emerald Expositions’ common stock for an economic and voting interest of 66%. Onex continues to hold approximately 11.4 million shares for a 16% economic interest in Emerald Expositions. In February 2018, Parkdean Resorts made a partial repayment of a loan note held by the Onex Partners IV Group, totalling £52 million ($74 million), including accrued interest, with net proceeds from a sale-leaseback transaction. Onex’ share of the repayment was £15 million ($22 million). In February 2018, Pinnacle Renewable Energy completed an initial public offering of 15.3 million shares of its common stock (TSX: PL), including the exercise of an over-allotment option. The offering was priced at C$11.25 per share for gross proceeds of C$173 million. As part of the offering, Pinnacle Renewable Energy issued approximately 6.2 million treasury shares. The net proceeds from treasury shares were used to repay C$29 mil- lion 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 mil- lion). The ONCAP II Group did not sell any common shares as part of this transaction. 16 Onex Corporation December 31, 2018 M A N A G E M E N T ’ S D I S C U S S I O N A N D A N A LY S I S In June 2018, Pinnacle Renewable Energy completed a secondary offering of approximately 4.2 million common shares, including the exercise of an over-allotment option. The offering was priced at C$13.75 per share for gross proceeds of C$58 million. No treasury shares were issued as part of the offering. The ONCAP II Group sold approximately 3.7 million shares for net proceeds of C$49 million ($37 million). Onex’ portion of the net proceeds was C$22 million ($17 million), including C$1 million ($1 million) of carried interest. The ONCAP II Group continues to hold approximately 10.4 million common shares of Pinnacle Re- newable Energy for an economic and voting interest of 32%. Onex continues to hold approximately 5.0 million common shares for a 15% economic interest in Pinnacle Renewable Energy. During 2018, BBAM distributed $38 million to the Onex Partners III Group, of which Onex’ share was $12 million, including $2 million of carried interest. The distribution was funded by the company’s free cash flow. During 2018, Meridian Aviation distributed $25 million to the Onex Partners III Group, of which Onex’ share was $8 million, including $1 million of carried interest. The distribution was funded primarily from proceeds from aircraft sales. In December 2018, the Company entered into an agreement to sell BrightSpring Health for an enterprise value of approximately $1.3 billion. Under the terms of the agreement, the Onex Partners I and Onex Partners III Groups will receive combined net proceeds of approximately $780 million. Onex’ portion of the net proceeds will be approximately $190 million, including estimated carried interest of $39 million and net of the estimated MIP dis- tribution. The transaction is expected to close during the first quarter of 2019 and is subject to customary closing conditions and regulatory approvals. Managing and growing fund investor capital Over the years, Onex has raised $27.7 billion of fund investor capital for its private equity and credit platforms. In private equity, Onex has raised nine Onex Partners and ONCAP Funds. Onex is currently investing Onex Partners V, a $7.15 billion fund raised in November 2017, and ONCAP IV, a $1.1 billion fund raised in November 2016, which is approximately 50% invested. Onex Credit continues to focus on growing its product lines and distribution channels and at Decem- ber 31, 2018 managed $9.2 billion of fund investor capital through its CLOs, private debt and other credit strategies. To date, Onex Credit has closed 17 CLOs and at December 31, 2018, capital under management related to the remaining CLOs was $8.2 billion, including $413 million of Onex capital. During 2018, Onex completed fundraising for its first Onex Credit Lending Partners fund, which is a natu- ral extension of its existing credit strategies and leverages the firm’s infrastructure and knowledge of the loan market. OCLP I’s aggregate commitments total $413 million, including $100 million from Onex and $75 million from the Onex management team. The strategy employs leverage and at December 31, 2018 had approximately $800 million of its $1.1 billion available capital invested. Onex Corporation December 31, 2018 17 M A N A G E M E N T ’ S D I S C U S S I O N A N D A N A LY S I S The management of fund investor capital provides two significant benefits to Onex: (i) we earn management fees on $20.6 billion of fee-generating capital under management; and (ii) we have the opportunity to share in our investors’ profits through carried interest and incentive fee participation. This enhances Onex’ return from its investment activities. Onex earned a total of $153 million in management fees during the year ended December 31, 2018 (2017 – $148 million), and today has run-rate management fees of $192 million. Onex expects future management fees, carried interest and incentive fees will offset operating expenses. Our private equity funds contribute $142 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 Credit contributes $50 million to the run-rate management fees, which includes $2 million of man- agement fees earned on Onex’ capital invested in Onex Credit Lending Partners and Onex Credit Funds. At December 31, 2018, Onex’ share of the unrealized carried interest from the Onex Partners and ONCAP Funds based on the fair values of the funds’ operating businesses was $110 million compared to $185 million at December 31, 2017. The unrealized carried interest decreased since December 31, 2017 primarily due to a net decrease in the fair value of operating businesses, as well as $37 million of carried interest received during 2018. The actual amount of carried interest realized by Onex will depend on the ultimate performance of each fund. At December 31, 2018, Onex managed $23.2 billion of fund investor capital, in addition to Onex’ capital. ($ millions) Total Fee-Generating Uncalled Commitments Fund Investor Capital Under Management(1)(2) December 31, 2018(3) December 31, 2017(3) Change in Total December 31, 2018 December 31, 2017 December 31, 2018(3) December 31, 2017 (3) Funds Onex Partners $ 12,681 $ 13,787 ONCAP(4) Onex Credit 1,269 9,230 1,788 8,644 Total $ 23,180 $ 24,219 (8)% (29)% 7 % (4)% $ 10,534 $ 11,666 $ 5,779 $ 6,787 1,057 9,010 1,479 8,534 376 82 606 175 $ 20,601 $ 21,679 $ 6,237 $ 7,568 (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 by Onex Credit Lending Partners, after giving effect to the final close and borrowings under the revolving credit facility. 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, 2018 are reduced for management fees receivable of $205 million (December 31, 2017 – $107 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, 2018 and December 31, 2017. 18 Onex Corporation December 31, 2018 M A N A G E M 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 2018, fee-generating capital under management decreased by 5%, driven by realizations in private equity, the redemption of CLO-2 and net fair value decreases in Onex’ private equity portfolio. Partially off- setting these decreases was the closing of CLO-15 and Onex Credit Lending Partners. Over the past five years, fee-generating capital under management has increased by 11% 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, 2018. Funds Onex Partners I Onex Partners II Onex Partners III Onex Partners IV Onex Partners V(3)(4) ONCAP I(5)(6) ONCAP II(5) ONCAP III(5) ONCAP IV Performance Returns(1) Vintage Gross IRR Net IRR(2) Gross MOC Net MOC (2) 2003 2006 2009 2014 2017 1999 2006 2011 2016 55% 17% 19% 2% − 43% 30% 26% 29% 38 % 13 % 13 % (2)% − 33 % 21 % 19 % 12 % 4.0x 2.3x 2.1x 1.0x 1.0x 4.1x 4.0x 3.0x 1.2x 3.1x 1.9x 1.8x 1.0x 0.7x 3.1x 2.8x 2.2x 1.1x (1) Performance returns are a non-GAAP financial measure. (2) Net IRR and Net MOC are presented for limited partners in the Onex Partners and ONCAP Funds and exclude the capital contributions and distributions attributable to Onex’ and the Onex management team’s commitment as limited partners in each fund. (3) Performance reflects the short operating period of Onex Partners V. Cash outflows occurred in November 2018 to fund the first investment made by the Fund. The Gross IRR and Net IRR are not presented as they are not meaningful due to the short operating period of Onex Partners V. (4) The Net IRR and Net MOC for Onex Partners V represents the performance returns for limited partners that elected to not participate in the Onex Partners V revolving credit facility. (5) Returns are calculated in Canadian dollars, the functional currency of these ONCAP Funds. (6) ONCAP I has been fully realized. The pending sale of BrightSpring Health is expected to close in the first quarter of 2019, as described on page 38 of this MD&A, and is the final investment held in Onex Partners I. Onex Partners I was Onex’ first large-cap private equity fund, which invested $1.5 billion of limited partner capital in 10 operating companies. Upon closing of the pending sale of BrightSpring Health, Onex Partners I will have returned approximately $5.8 billion to its investors, including $1.4 billion to Onex, generating a Gross MOC of 4.0 times (Net MOC of 3.1 times) and a Gross IRR of 55% (Net IRR of 38%). In addition, Onex will have received carried interest of approximately $240 million from Onex Partners I. Onex Corporation December 31, 2018 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, 2018, Onex had a net investment of $577 million in CLOs after dispositions and distribu- tions, including $116 million in two warehouse facilities. 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 incurred mark-to-market losses of $76 million on its CLO investments during the year ended December 31, 2018 (2017 – gains of $46 million). All of Onex’ CLOs remain onside with their various coverage tests. Onex received $59 million of distribu- tions from its CLO investments during 2018. Additionally, Onex received $9 million on the redemption of CLO-2 and $11 million from the partial sale of its investment in CLO-7. To date, Onex has fully realized three CLOs, generating a Net IRR of approximately 11%. 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 2018, Onex increased its quarterly dividend by 17% to C$0.0875 per SVS beginning in July 2018. This increase follows similar increases in the previous five years and reflects Onex’ success and ongoing commitment to its shareholders. During 2018, $25 million was returned to shareholders through dividends and Onex repurchased and cancelled 1,169,733 SVS at a total cost of $79 million (C$102 million), or an average purchase price of $67.11 (C$86.78) per share. At December 31, 2018, Onex’ SVS closed at C$74.35, a 19% decrease from December 31, 2017. This com- pares to a 12% decrease 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, 2017 to December 31, 2018) ONEX (CAD) TSX 7 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 110 105 100 95 90 85 80 75 TSX –12% ONEX –19% 31-Dec-17 31-Mar-18 30-Jun-18 30-Sep-18 31-Dec-18 20 Onex Corporation December 31, 2018 M A N A G E M 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 2018, the value of Onex’ SVS decreased by 26% in U.S. dollars compared to a 6% decrease in the Stan- dard & 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, 2017 to December 31, 2018) ONEX (USD) S&P 7 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 110 105 100 95 90 85 80 75 70 S&P 500 –6% ONEX –26% 31-Dec-17 31-Mar-18 30-Jun-18 30-Sep-18 31-Dec-18 Onex Corporation December 31, 2018 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, 2018, Onex had eight reportable industry segments. In January 2018, the Onex Part- ners IV Group completed the acquisition of SMG, the results of which have been presented in the busi- ness and information services industry segment. In August 2018, the ONCAP IV Group completed the acquisition of Precision, the results of which have been presented in the packaging products and ser- vices industry segment. In September 2018, the ONCAP IV Group completed the acquisition of Walter Surface Technologies, the results of which have been presented in the other industry segment. In September 2018, the ONCAP IV Group acquired an interest in AutoSource, the results of which have been presented in the other industry segment. In November 2018, the Onex Partners IV and Onex Partners V Groups completed the acquisition of KidsFoundation, the results of which have been pre- sented in the other industry segment. In December 2018, the Company entered into an agreement to sell BrightSpring Health. The results of operations of BrightSpring Health, which were previously included in the health and human services segment, are presented in the other segment as a discon- tinued operation. A description of our operating businesses by industry segment, and the economic and voting ownerships of Onex, the parent company, and its limited partners in those businesses, is pre- sented below and in the pages that follow. The information by segment is presented in the chronological order in which the operating segments became reportable. Industry Segments Companies Electronics Manufacturing Services Celestica Inc. (TSX/NYSE: CLS), a global provider of electronics manufacturing services (www.celestica.com). Onex shares held: 18.0 million(a) Onex’ & Limited Partners’ Economic Ownership Onex’ Economic/ Voting Ownership 13%(a) 13%(a)/80% Healthcare Imaging Carestream Health, Inc., a global provider of medical and dental imaging and healthcare information technology solutions (www.carestream.com). 91% 33%(a)/100% Total Onex 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 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, 2018 M A N A G E M 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 Precision Global, a global manufacturer of dispensing solutions (www.precisionglobal.com). Total ONCAP IV Group investment at original cost: $111 million Onex portion at cost: $44 million ONCAP IV portion subject to a carried interest: $55 million Onex’ & Limited Partners’ Economic Ownership Onex’ Economic/ Voting Ownership 97% 38%/97% 96% 38%/96% 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). 92% 23%/92% 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 SIG Combibloc Group AG(a) (SIX: SIGN), a world-leading provider of aseptic carton packaging solutions for beverages and liquid food (www.sig.biz). 51% 18%/53% Total Onex Partners IV Group shares held: 163.2 million Onex shares held: 57.5 million Onex Partners IV shares subject to a carried interest: 51.4 million Business and Information Services Clarivate Analytics, owner and operator of a collection of leading subscription-based businesses focused on scientific and academic research, patent analytics and regulatory standards, pharmaceutical and biotech intelligence, trademark protection, domain brand protection and intellectual property management (www.clarivate.com). 72% 27%/72% Total Onex Partners IV Group investment at original cost: $1,177 million Onex portion at cost: $445 million Onex Partners IV portion subject to a carried interest: $418 million Emerald Expositions Events, Inc.(b) (NYSE: EEX), a leading operator of business- to-business trade shows in the United States (www.emeraldexpositions.com). 66% 16%/66% Total Onex Partners III Group shares held: 47.1 million Onex shares held: 11.4 million Onex Partners III shares subject to a carried interest: 33.1 million SMG Holdings Inc., a leading global manager of convention centres, stadiums, arenas, theatres, performing arts centres and other venues (www.smgworld.com). 99% 32%/99% Total Onex Partners IV Group investment at original cost: $429 million Onex portion at cost: $139 million Onex Partners IV portion subject to a carried interest: $261 million (a) In October 2018, SIG completed an initial public offering, as described on page 36 of this MD&A. (b) In March 2018, Emerald Expositions completed a secondary offering, as described on page 35 of this MD&A. Onex Corporation December 31, 2018 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 Companies Jack’s Family Restaurants, a regional premium quick-service restaurant operator based in the United States (www.eatatjacks.com). Total Onex Partners IV Group investment at original cost: $234 million Onex portion at cost: $76 million Onex Partners IV portion subject to a carried interest: $140 million Onex’ & Limited Partners’ Economic Ownership Onex’ Economic/ Voting Ownership 95% 31%/100% Save-A-Lot, one of the largest hard-discount grocery retailers for value-seeking shoppers in the United States (www.save-a-lot.com). 99% 32%/99% Total Onex Partners IV Group investment at original cost: $660 million Onex portion at cost: $210 million Onex Partners IV portion subject to a carried interest: $394 million Credit Strategies, a platform that is comprised of: Onex Credit Manager specializes in managing non-investment grade debt. 100% 100%/(a) Industry Segments Food Retail and Restaurants Credit Strategies Onex Credit Collateralized Loan Obligations, leveraged structured vehicles that hold a widely diversified collateral asset portfolio funded through the issuance of long-term debt in a series of rated tranches of secured notes and equity. Total Onex investment in collateralized loan obligations, including warehouse facilities, at market value: $526 million Onex Credit Funds, investment funds, other than the CLOs and Private Lending, providing exposure to the performance of actively managed, diversified portfolios. Onex investment in Onex Credit Funds at market value: $243 million, of which $89 million is invested in an unlevered senior secured loan portfolio that purchases assets with greater liquidity and $154 million is invested in other Onex Credit Funds. Private Lending, primarily consisting of 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 Private Lending at market value: $46 million (a) Onex controls the Onex Credit asset management platform through contractual rights. 24 Onex Corporation December 31, 2018 M A N A G E M 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 • Aerospace Automation, Tooling and Components Companies 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 Onex Partners IV portion subject to a carried interest: $134 million Onex’ & Limited Partners’ Economic Ownership Onex’ Economic/ Voting Ownership 50% 13%/50%(a) • 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%(a) 9%/(a) 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. 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 • Building Products JELD-WEN Holding, Inc. (NYSE: JELD), one of the world’s largest manufacturers of interior and exterior doors, windows and related products for use primarily in the residential and light commercial new construction and remodelling markets (www.jeld-wen.com). 32% 8%/32% 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 • Childcare Services KidsFoundation, a leading provider of childcare services in the Netherlands (www.kidsfoundation.nl). 98% 27%/98% Total Onex Partners IV and Onex Partners V Groups investment at original cost: $170 million(b) Onex portion at cost: $47 million(b) Onex Partners IV portion subject to a carried interest: $33 million(b) Onex Partners V portion subject to a carried interest: $72 million(b) • Education Software PowerSchool Group LLC, a leading education technology platform for K-12 schools (www.powerschool.com). 50% 16%/50%(a) Total Onex Partners IV Group investment at original cost: $872 million Onex portion at cost: $283 million Onex Partners IV portion subject to a carried interest: $530 million (a) 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. (b) The investment in KidsFoundation was made in euros and converted to U.S. dollars using the prevailing exchange rate on the date of the investment. Onex Corporation December 31, 2018 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) • Health and Human Services (Discontinued Operation) Companies BrightSpring Health (formerly ResCare)(a), a leading provider of residential, training, educational and support services for people with disabilities and special needs in the United States (www.brightspringhealth.com). 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 Onex’ & Limited Partners’ Economic Ownership Onex’ Economic/ Voting Ownership 98% 20%/100% • Holiday Parks Parkdean Resorts, a leading operator of caravan holiday parks in the 94%(b) 28%(b)/80% United Kingdom (www.parkdeanresorts.co.uk). Total Onex Partners IV Group investment at original cost: $551 million(b)(c) Onex portion at cost: $164 million(b)(c) Onex Partners IV portion subject to a carried interest: $233 million(b)(c) • 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%/68% Total Onex Partners IV Group investment at original cost: $323 million Onex portion at cost: $105 million Onex Partners IV portion subject to a carried interest: $193 million • Industrial Products 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 Onex Partners IV portion subject to a carried interest: $161 million 71% 23%/71% • Survival Equipment Survitec Group Limited, a market-leading provider of mission-critical marine, defence and aerospace survival equipment (www.survitecgroup.com). 79% 21%/68% Total Onex Partners IV Group investment at original cost: $390 million(d) Onex portion at cost: $103 million(d) Onex Partners IV portion subject to a carried interest: $256 million(d) (a) In December 2018, Onex entered into an agreement to sell BrightSpring Health, as described on page 38 of this MD&A. As a result of the pending sale, the operations of BrightSpring Health are presented in the other segment and as a discontinued operation in Onex’ consolidated financial statements. (b) 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 34 of this MD&A. (c) The investment in Parkdean Resorts was made in pounds sterling and converted to U.S. dollars using the prevailing exchange rate on the date of the investment. (d) The investments in Survitec were made primarily in pounds sterling and converted to U.S. dollars using the prevailing exchange rate on the dates of the investments. 26 Onex Corporation December 31, 2018 M A N A G E M 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 Industry Segments Other Businesses (cont’d) • Tax Services Ryan, LLC, a global tax services and software provider (www.ryan.com). 42% 14%/(a) Total Onex Partners IV Group investment at original cost: $317 million Onex portion at cost: $103 million Onex Partners IV portion subject to a carried interest: $162 million(b) • 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) (TSX: PL) 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), Venanpri Group (www.agrisolutionscorp.com) and Chatters (www.chatters.ca). Total ONCAP III Group unrealized investments at original cost: $373 million (C$401 million) Onex portion at cost: $110 million (C$119 million) ONCAP III limited partners portion at cost: $228 million (C$245 million) ONCAP IV 100% 39%/100% ONCAP IV actively manages investments in AutoSource (www.myautosource.com), Laces (www.maytex.com), Walter Surface Technologies (www.walter.com) and Wyse (www.wysemeter.com). ONCAP IV also actively manages investments in IntraPac and Precision, which are included in the Packaging Products and Services industry segment. Total ONCAP IV Group unrealized investments at original cost: $304 million(d) Onex portion at cost: $120 million(d) ONCAP IV limited partners portion at cost: $153 million(d) Flushing Town Center, a three million-square-foot development located on approximately 14 acres in Flushing, New York. The project is substantially complete and consists of approximately 1,200 condominium units constructed above retail space and parking structures. Onex’ remaining investment in Flushing Town Center at fair value: $149 million • Real Estate 88% 88%/100% (a) Onex has certain contractual rights and protections, including the right to appoint members to the board of directors, in respect of this entity, which is accounted for at fair value in Onex’ consolidated financial statements. (b) Excludes the portion of the investment in Ryan that was funded by the Onex Partners IV Group’s revolving credit facility, as described on page 37 of this MD&A. (c) This represents Onex’ blended economic ownership in the ONCAP II investments. (d) Excludes amounts relating to IntraPac and Precision, which are included in the Packaging Products and Services industry segment. Onex Corporation December 31, 2018 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 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, 2018 compared to those for the year ended December 31, 2017 and, in selected areas, to those for the year ended December 31, 2016. 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 Certain new judgements and estimates are This section should be read in conjunction with Onex’ allocating the transaction price among performance obli- consolidated statements of earnings and corresponding gations; determining when performance obligations are required in applying IFRS 15, including: identifying and notes thereto. satisfied; and measuring progress of completion when per- formance obligations are satisfied over time. Changes in accounting policies The Company has adopted the following new standards, The effects on the consolidated financial state- ments as a result of adopting IFRS 15 were not significant along with any consequential amendments, effective Janu- and include an increase in total equity on January 1, 2017 of ary 1, 2018. These changes were made in accordance with $13 million. applicable transitional provisions. a) IFRS 15 – Revenue from Contracts with Customers IFRS 15, Revenue from Contracts with Customers, supersedes International Accounting Standard (“IAS”) 18, Reve nue, and provides a comprehensive five-step revenue recognition b) IFRS 9 – Financial Instruments IFRS 9, Financial Instruments, supersedes IAS 39, Financial Instruments: Recognition and Measurement. On January 1, 2018, the Company adopted IFRS 9 retrospectively and has chosen to not restate comparative information in accor- model for all contracts with customers. On Janu ary 1, 2018, dance with the transitional provisions in IFRS 9. As a result, and in accordance with the transition provisions in IFRS 15, the comparative information continues to be presented in the standard was adopted retrospectively and comparative accordance with the Company’s previous accounting poli- period information has been restated with the exception of cies. The following significant accounting policy changes information for the year ended December 31, 2016, which were adopted as of January 1, 2018: continues to be presented in accordance with IAS 18. Under IAS 18, revenue from product sales was rec- Classification – Financial Assets ognized when the following criteria were met: significant As of January 1, 2018, financial assets are classified in the risks and rewards of ownership had been transferred; following measurement categories: involvement in the capacity as an owner of the goods had • Those to be subsequently measured at fair value through ceased; revenue and costs incurred could be reliably mea- earnings; sured; and economic benefits were expected to be realized. • Those to be subsequently measured at fair value through As a result of adopting IFRS 15, revenue on product sales is other comprehensive income; and recognized when or as performance obligations are satis- • Those to be measured at amortized cost. fied by transferring control of the goods to the customer. Revenue recognition relating to the provision of services by The classification depends on the business model for man- Onex’ operating companies was not significantly impacted aging the financial assets and the contractual terms of the as a result of adopting IFRS 15. cash flows. 28 Onex Corporation December 31, 2018 M A N A G E M E N T ’ S D I S C U S S I O N A N D A N A LY S I S Classification – Financial Liabilities Critical accounting policies and estimates As of January 1, 2018, financial liabilities are classified in the following measurement categories: • Those to be subsequently measured at fair value through earnings; and • Those to be measured at amortized cost. Modification of Financial Liabilities When a financial liability that is measured at amortized cost has its cash flows modified without resulting in derecogni- tion, the carrying value of the financial liability is adjusted to the present value of its modified cash flows, discounted at the financial liability’s original effective interest rate, with a resulting gain or loss recognized in earnings. For certain variable-rate financial liabilities that are pre-payable at par, amendments to the contractual terms of the financial liability to revise the interest rate to a new market interest rate are accounted for over the remaining term of the financial liability by adjusting the financial liability’s effective interest rate. Impairment Onex’ operating companies have applied the simplified approach, permitted by IFRS 9, to calculate the expected credit losses on accounts receivable. This approach requires the expected lifetime losses of accounts receivable to be recognized at the initial recognition of the accounts receiv- able, using the company’s historical credit loss experience to assign provision rates depending on the number of days that the accounts receivable have been outstanding, adjusted to reflect current and forward-looking information. Interest Income Interest income recognized by the Company primarily re lates to interest earned from investments recognized at fair value through net earnings. Impact of adoption as of January 1, 2018 As a result of adopting IFRS 9, total equity on January 1, 2018 increased by $12 million due to adjustments related to previous modifications of long-term debt that did not result in derecognition. Note 1 to the consolidated finan- cial statements provides information concerning the reclassification of financial instruments on January 1, 2018 as a result of adopting IFRS 9. 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 man- agement to make judgements, assumptions and estimates that affect the reported amounts of assets, liabilities and equity, disclosures of contingent assets and liabilities and the reported amounts of revenue and expenses for the peri- ods of the consolidated financial statements. Onex and its operating companies evaluate their estimates and assump- tions on an ongoing basis and any revisions are recognized in the affected periods. Included in Onex’ consolidated financial statements are estimates used in determining the expected credit losses on accounts receivable, 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, the timing and amount of revenue recognition, 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 certain operating com- panies and structured entities. The assessment of goodwill, intangible assets and long-lived assets for impairment, income taxes, legal contingencies and actuarial valuations of pension and other post-retirement benefits also requires the use of significant judgement by Onex and its operating companies. Onex Corporation December 31, 2018 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 Business combinations In a business combination, substantially all identifiable information and are usually based on valuation methods and techniques generally recognized as standard within assets, liabilities and contingent liabilities acquired are the industry. recorded at the date of acquisition at their respective fair Models use observable data to the extent prac- values. One of the most significant estimates relates to the ticable. However, areas such as credit risk (both own and determination of the fair value of these assets and liabilities. counterparty), volatilities and correlations may require Land, buildings and equipment are usually independently the Company to make estimates. Changes in assumptions appraised while short-term and long-term investments about these factors could affect the reported fair value of are valued at market prices. If any intangible assets are financial instruments. identified, depending on the type of intangible asset and the complexity of determining its fair value, an indepen- Limited Partners’ Interests, carried interest and dent external valuation expert may determine the fair value. These valuations are linked closely to the assumptions investments in joint ventures and associates The measurement of the Limited Partners’ Interests for made by management regarding the future performance of the Onex Partners and ONCAP Funds, carried interest and the assets concerned and any changes in the discount rate investments in joint ventures and associates is significantly applied. Note 4 to the consolidated financial statements impacted by the fair values of the investments held by provides additional disclosure on business combinations. the Onex Partners and ONCAP Funds. Joint ventures and associates are defined under IFRS as those investments in Consolidation of structured entities Onex indirectly controls and consolidates the operations of operating businesses over which Onex has joint control or significant influence, but not control. In accordance with the CLOs of Onex Credit. The CLOs are structured entities IFRS, certain of these investments are designated, upon for which voting and similar rights are not the dominant initial recognition, at fair value in the consolidated balance factor in determining control of the CLOs. Onex has used sheets. The fair value of investments in joint ventures and judgement when assessing the many factors that determine associates is assessed at each reporting date with changes control, including its exposure through investments in the in fair value recognized in the consolidated statements of most subordinate capital of the CLOs, its role in the forma- earnings. Similarly, the Limited Partners’ Interests for the tion of the CLOs, the rights of other investors in the CLOs Onex Partners and ONCAP Funds represent the interests of and its control of the asset manager of the CLOs. Onex has limited partner investors, and carried interest, represent- determined that it is a principal of the CLOs with the power ing the General Partner’s share of the net gains of the Onex to affect the returns of its investment and, as a result, indi- Partners and ONCAP Funds, is recorded at fair value. The rectly controls the CLOs. fair value is significantly affected by the change in the fair CLOs are further discussed in note 1 to the con- value of the underlying investments in the Onex Partners solidated financial statements. and ONCAP Funds. The valuation of non-public investments requires Fair value of investments and debt of credit strategies significant judgement by Onex due to the absence of not quoted in an active market The fair value of investments and debt of the credit strate- quoted market values, inherent lack of liquidity and the long-term nature of such investments. Valuation method- gies not quoted in an active market may be determined by ologies include discounted cash flows and observations of Onex Credit using reputable pricing sources (such as pric- the trading multiples of public companies considered com- ing agencies) or indicative prices from bond/debt market parable to the private companies being valued. The valua- makers. Broker quotes as obtained from the pricing sources tions take into consideration company-specific items, the may be indicative and not executable or binding. The lack of liquidity inherent in a non-public investment and Company has exercised judgement and estimates on the the fact that comparable public companies are not identi- quantity and quality of the pricing sources used. Where no cal to the companies being valued. Such considerations are market data is available, Onex Credit may value positions necessary because, in the absence of a committed buyer using models, which include the use of third-party pricing and completion of due diligence procedures, there may be 30 Onex Corporation December 31, 2018 M A N A G E M E N T ’ S D I S C U S S I O N A N D A N A LY S I S company-specific items that are not fully known that may valuation models are used to determine fair value. These affect value. A variety of additional factors are reviewed models are subjective and require management of the par- by management, including, but not limited to, financing ticular operating company to exercise judgement in making and sales transactions with third parties, current operat- assumptions about future results, including revenues, oper- ing performance and future expectations of the particular ating expenses, capital expenditures and discount rates. In investment, changes in market outlook and the third-party the year of acquisition, the fair value in excess of the carry- financing environment. In determining changes to the fair ing value at an operating company will typically be minimal value of investments, emphasis is placed on current com- as a result of the recent business combination accounting. pany performance and market conditions. The impairment test for intangible assets and long-lived For publicly traded investments, the valuation is assets with limited lives is similar to that for goodwill. based on closing market prices less adjustments, if any, for Impairment charges for intangible assets and long-lived regulatory and/or contractual sale restrictions. assets may subsequently be reversed if fair value is deter- The changes to the fair value of the investments mined to be higher than carrying value. The reversal is lim- in joint ventures and associates are reviewed on page 44 of ited, however, to restoring the carrying amount that would this MD&A. have been determined, net of amortization, had no impair- Included in the measurement of the Limited ment loss been recognized in prior periods. Impairment Partners’ Interests is an adjustment for the change in car- losses for goodwill are not reversed in future periods. ried interest as well as any contributions by and distri- Impairment charges recorded by the operating butions to limited partners in the Onex Partners and businesses under IFRS may not impact the fair values of ONCAP Funds. The changes to the fair value of the Limited the operating businesses used in determining the increase Partners’ Interests for the Onex Partners and ONCAP Funds or decrease in investments in joint ventures and associates, are reviewed on page 49 of this MD&A. the change in carried interest and for calculating the Limited Partners’ Interests liability for the Onex Partners and ONCAP Impairment testing of goodwill, intangible assets Funds. Fair values of the operating businesses are assessed at and long-lived assets Goodwill in an accounting context represents the excess the enterprise level, while impairment charges are assessed at the level of an asset, a CGU or a group of CGUs. of the aggregate consideration paid and the amount of During 2018, certain operating companies any non-controlling interests in the acquired company recorded charges for impairments of goodwill, intangible compared to the fair value of the identifiable net assets assets and long-lived assets. These charges are reviewed on acquired. Substantially all of the goodwill amount that page 48 of this MD&A and in note 28 to the consolidated appears in Onex’ consolidated balance sheets was recorded financial statements. by the operating companies. Goodwill is not amortized, but is assessed for impairment at the level of either an indi- vidual cash generating unit (“CGU”) or a group of CGUs Revenue recognition Certain judgements and estimates are required in deter- annually, or sooner if events or changes in circumstances or mining the timing and amount of revenue recognition, market conditions indicate that the carrying amount could including: identifying and allocating the transaction price exceed fair value. The test for goodwill impairment used by among performance obligations; determining when per- our operating companies is to assess whether the fair value formance obligations are satisfied; and measuring progress of each CGU within an operating company is less than its of completion when performance obligations are satisfied carrying value and then determine if the goodwill associ- over time. ated with that CGU is impaired. This assessment takes into Revenue that is recognized over time and that is consideration several factors, including, but not limited to, not billed until the delivery of finished products to custom- future cash flows and market conditions. If the fair value is ers involves significant estimates, judgements and assump- determined to be lower than the carrying value of an indi- tions in determining the timing of revenue recognition, the vidual CGU, goodwill is then considered to be impaired measures of work in process, and estimates and timing of and an impairment charge must be recognized. Internal expected returns, revenues and related costs. Onex Corporation December 31, 2018 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 Revenue recognized by Schumacher in the other segment for uninsured patients requires certain judgements Legal contingencies Onex, including its operating companies, can become to be made with respect to the transaction price. Factors involved in various legal proceedings in the normal course considered in determining the estimated transaction price of operations. While we cannot predict the final outcomes include historical collection trends for each of its primary of such legal proceedings, they may have a significant payor sources of revenue, reimbursement rate trends, reso- effect on Onex’ consolidated financial position, results of lution of credit balances, patient acuity levels, physician operations or cash flows. The filing or disclosure of a suit or documentation, aging of accounts receivable, and other rel- formal assertion of a claim does not automatically indicate evant factors. Due to the inherent uncertainty in the trans- that a provision may be appropriate. Management, with action price estimation process, including the challenges in the assistance of internal and external lawyers, regularly assessing such factors as changes in the economy impact- analyzes current information about these matters and pro- ing the type and level of insurance carried by patients, new vides provisions for probable contingent losses, including developments could result in subsequent adjustments to the estimate of legal expenses to resolve these matters. previously reported revenues. Income taxes Onex, including its operating companies, is subject to Employee benefits Onex, the parent company, does not provide a pension plan to the employees of the operating companies; how- changing tax laws and the interpretation of existing tax laws ever, certain of its operating companies do. Management in multiple jurisdictions. Significant judgement is necessary of the operating companies use actuarial valuations to in determining worldwide income tax liabilities. Although account for their pension and other post-retirement bene- management of Onex and the operating companies believe fits. These valuations rely on statistical and other factors in that they have made reasonable estimates about the final order to anticipate future events. These factors include key outcome of tax uncertainties, no assurance can be given actuarial assumptions such as the discount rate, expected that the outcome of these tax matters will be consistent salary increases and mortality rates. These actuarial with what is reflected in the historical income tax provi- assumptions may differ significantly from actual develop- sions. Such differences could have an effect on income tax ments due to changing market and economic conditions, liabilities and deferred tax liabilities in the period in which and therefore may result in a significant change in post- such determinations are made. At each balance sheet date, retirement employee benefit obligations and the related management of Onex and the operating companies assess future expense in the consolidated financial statements. whether the realization of future tax benefits is sufficiently Note 34 to the consolidated financial statements provides probable to recognize deferred tax assets. This assessment details on the estimates used in accounting for pensions requires the exercise of judgement on the part of manage- and post-retirement benefits. ment with respect to, among other things, benefits that could be realized from available tax strategies and future taxable income, as well as other positive and negative fac- Stock-based compensation Onex’ stock-based compensation accounting for its MIP tors. The recorded amount of total deferred tax assets could options is completed using an internally developed valua- be reduced if estimates of projected future taxable income tion model. The critical assumptions and estimates used in and benefits from available tax strategies are lowered, or if the valuation model include the fair value of the underly- changes in current tax regulations are enacted that impose ing investments, the time to expected exit from each invest- restrictions on the timing or extent of Onex’ or its operating ment, a risk-free rate and an industry comparable historical companies’ ability to utilize future tax benefits. volatility for each investment. The fair value of the under- lying investments includes critical assumptions and esti- mates, as described for Limited Partners’ Inter ests, carried interest and investments in joint ventures and associates. 32 Onex Corporation December 31, 2018 M A N A G E M 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 C E N T L Y 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 • The assets and liabilities of other subsidiaries, includ- ing the operating companies, will be derecognized from Onex’ consolidated balance sheet; Standards, amendments and interpretations • Investments that are no longer consolidated will be rec- not yet adopted or effective IFRS 16 – Leases In January 2016, the International Accounting Standards Board (“IASB”) issued IFRS 16, Leases, which replaces IAS 17, Leases. The standard provides an updated definition of a lease contract, including guidance on the combina- tion and separation of contracts. The standard requires ognized at fair value and will be subsequently measured at fair value through net earnings; and • A gain resulting from the difference between the fair values of those investments and their previous carrying values as of January 1, 2019 will be recognized in the con- solidated statement of earnings. lessees to recognize a right-of-use asset and a lease liabil- ity for substantially all lease contracts. The accounting Variability of results Onex’ consolidated operating results may vary substantially for lessors is substantially unchanged from IAS 17. IFRS 16 from quarter to quarter and year to year for a number of is effective for annual periods beginning on or after Janu- reasons, including some of the following: the current eco- ary 1, 2019, with earlier application permitted. The Com pany nomic environment; the current political environment; the is completing the execution of its implementation plan and impact of foreign exchange fluctuations; acquisitions or dis- adopted IFRS 16 on January 1, 2019 on a modified retrospec- positions of businesses by Onex, the parent company; the tive basis. Onex, the parent company, currently expects the change in value of stock-based compensation for both the following impacts as a result of adopting IFRS 16: parent company and its operating businesses; changes in • The recognition of right-of-use assets and lease liabilities the fair value of Onex’ publicly traded operating businesses; totalling approximately $75 million on January 1, 2019, changes in the fair value of Onex’ privately held operating excluding the impact of finance leases previously recog- businesses; changes in the fair value of credit securities; nized in the consolidated balance sheets; changes in tax legislation or in the application of tax legis- • Operating lease expenses will no longer be recognized lation; changes in international trade legislation or in the within the consolidated statements of earnings; application of international trade legislation; and activi- • Amortization expense for right-of-use assets will be rec- ties at Onex’ operating businesses. These activities may ognized within the consolidated statements of earnings; include the purchase or sale of businesses; fluctuations in • Interest expense will be recognized for lease liabilities customer demand, materials and employee-related costs; within the consolidated statements of earnings; and changes in the mix of products and services produced or • Within the consolidated statements of cash flows, cash delivered; changes in the financing of the business; changes flows from operating activities will increase, with a corre- in contract accounting estimates; impairments of good- sponding decrease in cash flows from financing activities. will, intangible assets or long-lived assets; litigation; deci- Investment entity status As a result of a reassessment performed by management, sions to restructure operations; and natural disasters. Given the diversity of Onex’ operating businesses, the associated exposures, risks and contingencies may be many, varied Onex, the parent company, has determined that it meets and material. the criteria of an investment entity, as defined in IFRS 10, Consolidated financial statements. Onex will account for the change in its status prospectively effective January 1, Investments held by credit strategies, as well as debt issued by the CLOs, are recorded at fair value, with changes in fair value recognized in the consolidated state- 2019, resulting in the following financial statement impacts ments of earnings. Fair values are impacted by the CLO mar- as of January 1, 2019 and in future financial statements: ket, leveraged loan market and credit risk (both own and • Subsidiaries of Onex that provide investment-related ser- counterparty), which may vary substantially from quarter to vices will continue to be consolidated; quarter and year to year. Onex Corporation December 31, 2018 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 Significant transactions Transactions in this section are presented in chronological order by private equity and credit. Acquisition of SMG In January 2018, the Onex Partners IV Group completed the Initial and secondary offerings by Pinnacle Renewable Energy In February 2018, Pinnacle Renewable Energy completed an initial public offering of approximately 15.3 million common shares (TSX: PL), including the exercise of an over-allotment option. The offering was priced at C$11.25 per share for gross acquisition of SMG, a leading global manager of conven- proceeds of C$173 million. As part of the offering, Pinnacle tion centres, stadiums, arenas, theatres, performing arts Renewable Energy issued approximately 6.2 million treasury centres and other venues. The Onex Partners IV Group’s shares. The net proceeds from treasury shares were used to total investment was $429 million for an economic inter- repay C$29 million of existing shareholder subordinated est of 99%. Onex’ share of the investment was $139 million debt, with the balance to fund construction of production for an economic interest of 32%. The remainder of the pur- facilities and for other general corporate purposes. The chase price was financed through a rollover of equity by ONCAP II Group received C$20 million ($16 million) for its management of SMG and debt financing, without recourse share of the repayment of the existing shareholder subordi- to Onex Corporation. SMG is included within the business nated debt, of which Onex’ share was C$9 million ($7 mil- and information services segment. lion). The ONCAP II Group did not sell any common shares As part of the acquisition of SMG, the Onex Part- as part of this transaction. ners IV Group also acquired $44 million of SMG’s second As a result of this transaction, the ONCAP II Group lien debt, which bears interest at LIBOR plus a margin no longer controls Pinnacle Renewable Energy. The inter- of up to 7.00% and matures in January 2026. To finance est held by the Company has been recorded as a long- the investment in SMG’s second lien debt, the Onex Part- term investment at fair value, with changes in fair value ners IV Group entered into a revolving credit facility in recognized in the consolidated statements of earnings. January 2018. The facility bears interest at LIBOR (subject to In addition, a gain of $82 million was recorded based on a floor of 0.00%) plus a margin of 1.75%, matures in January the excess of the interest retained at fair value over the 2021 and is reimbursable by capital calls upon the limited historical accounting carrying value of the investment. partners of Onex Partners IV. Onex Corporation, the parent The gain is entirely attributable to the equity holders of company, is only obligated with respect to borrowings under Onex Corporation, as the interests of the Limited Partners the revolving credit facility based on its proportionate share were recorded as a financial liability at fair value. Pinnacle of the Onex Partners IV Group’s investment in SMG. Renewable Energy does not represent a separate major Partial loan note repayment by Parkdean Resorts In February 2018, Parkdean Resorts made a partial repay- line of business, and as a result, the operating results up to the date of the loss of control have not been presented as a discontinued operation. ment of a loan note outstanding with the Onex Partners In June 2018, Pinnacle Renewable Energy com- IV Group totalling £52 million ($74 million), including pleted a secondary offering of approximately 4.2 million accrued interest, with net proceeds from a sale-leaseback common shares, including the exercise of an over-allot- transaction completed for certain parks in August 2017. ment option. The offering was priced at C$13.75 per share Onex’ share of the repayment was £15 million ($22 mil- for gross proceeds of C$58 million. No treasury shares lion). The remaining principal balance of £25 million were issued as part of the offering. The ONCAP II Group ($31 million) outstanding under the loan note, of which sold approximately 3.7 million shares for net proceeds of Onex’ share was £7 million ($9 million), was converted C$49 million ($37 million). Onex’ portion of the net pro- into additional equity of Parkdean Resorts in accordance ceeds was C$22 million ($17 million), including carried with the loan note agreement. As of December 31, 2018, the interest and after the reduction for amounts paid to the Onex Partners IV Group has a 94% economic interest in ONCAP management team. No gain was realized in the Parkdean Resorts, of which Onex’ share is 28%. consolidated statements of earnings as a result of this trans- action as the Company’s interest in Pinnacle Renewable Energy is recorded at fair value. 34 Onex Corporation December 31, 2018 M A N A G E M 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’ share of the carried interest received was C$1 million ($1 million) and was included in the net pro- Sale of Mavis Discount Tire In March 2018, the ONCAP III Group sold its entire invest- ceeds to Onex. ONCAP management’s share of the carried ment in Mavis Discount Tire. The ONCAP III Group interest was C$4 million ($3 million), including C$2 mil- received net proceeds of $518 million, of which Onex’ share lion ($2 million) from Onex and Onex management. No was $173 million, including carried interest and after the amounts were paid on account of the MIP for this transac- reduction for amounts paid to the Onex and ONCAP man- tion as the required realized investment return hurdle was agement teams. No gain was realized in the consolidated not met on realizations to date. statements of earnings as a result of this transaction as the The ONCAP II Group continues to hold approxi- Company’s interest in Mavis Discount Tire was recorded at mately 10.4 million common shares of Pinnacle Renewable fair value. Energy for an economic and voting interest of 32%. Onex Onex’ share of the carried interest received was continues to hold approximately 5.0 million common shares $15 million and was included in the net proceeds to Onex. for a 15% economic interest in Pinnacle Renewable Energy. ONCAP management’s share of carried interest was $37 mil- lion, including $14 million from Onex and Onex manage- Secondary offering by Emerald Expositions In March 2018, Emerald Expositions completed a second- ment. Management of Onex and ONCAP earned $14 million on account of management incentive programs related to ary offering of 6.75 million shares of its common stock, this transaction. including the exercise of an over-allotment option. The In addition, the consolidated financial statements offering was priced at $18.50 per share for gross proceeds of include net proceeds of $15 million from the sale of Mavis $125 million. No treasury shares were issued as part of the Discount Tire attributable to a third-party investor. offering. The Onex Partners III Group sold all of the shares in this transaction for net proceeds of $120 million. Onex’ portion of the net proceeds was $32 million, including car- ried interest. Acquisition of AutoSource In May 2018, Onex invested $41 million to acquire Auto- Source, a used vehicle retailer specializing in branded title Amounts received on account of the carried inter- vehicles, for an initial economic and voting interest of 50% est related to this transaction totalled $8 million. Onex’ and 60%, respectively. share of the carried interest received was $3 million and In September 2018, the investment in AutoSource was included in the net proceeds to Onex. Management’s was transferred to the ONCAP IV Group for $41 million, share of the carried interest was $5 million. No amounts which represents the original cost of the investment made were paid on account of the MIP for this transaction as the by Onex. As a result of this transaction, the ONCAP IV required realized investment return hurdle was not met on Group’s economic and voting interest in AutoSource is 50% realizations to date. and 60%, respectively. Onex’ share of the investment, as a The Onex Partners III Group continues to hold limited partner of ONCAP IV, is $16 million for an economic approximately 47.1 million shares of Emerald Expositions’ interest of 20%. AutoSource is included within the other common stock for a 66% economic and voting inter- segment. est. Onex continues to hold approximately 11.4 mil- lion shares for a 16% economic interest. Since the sale of shares by the Onex Partners III Group did not result in a loss of control over Emerald Expositions, the transaction was recorded as a transfer from the equity holders of Onex Corporation to non-controlling interests in the consoli- dated financial statements, with the cash proceeds received in excess of the historical accounting carrying value of $49 million being recorded directly to retained earnings. Onex Corporation December 31, 2018 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 Investment in Ryan Specialty Group In June 2018, Onex and Onex management invested a total Acquisition of Walter Surface Technologies In September 2018, the ONCAP IV Group acquired Walter of $175 million in RSG, a leading international specialty Surface Technologies, a provider of innovative solutions for insurance organization, which includes a wholesale insur- the metal working industry. Excluding the impact of foreign ance brokerage firm and an underwriting management exchange hedges, the ONCAP IV Group’s total investment organization. The investment was comprised of $150 mil- was C$175 million ($135 million) for an economic interest lion in preferred equity and $25 million in common equity. of 94%. Onex’ share of the investment was C$69 million Onex’ share of the investment was $172 million. ($53 million) for an economic interest of 37%. The remain- The investment in RSG is recorded as a long-term der of the purchase price was financed through a rollover investment at fair value with changes in fair value recog- of equity by the founders of Walter Surface Tech nologies, nized in the consolidated statements of earnings. equity investments made by management of Walter Surface Investment in PowerSchool In August 2018, the Onex Partners IV Group acquired an interest in PowerSchool, a non-instructional software Technologies and certain other investors, and debt finan- cing, without recourse to Onex Corporation. Walter Surface Technologies is included within the other segment. provider primarily to K-12 primary schools, from Vista Equity Partners (“Vista”). Concurrent with this transaction, Initial public offering by SIG In October 2018, SIG completed an initial public offering PowerSchool acquired PeopleAdmin, a provider of cloud- of approximately 151.8 million ordinary shares (SIX: SIGN), based talent management solutions for the education sec- including the exercise of an over-allotment option. The tor and also previously owned by Vista. The Onex Partners offering was priced at CHF 11.25 per share for gross pro- IV Group invested $872 million for an economic interest ceeds of CHF 1.7 billion. As part of the offering, SIG issued of 50% in PowerSchool and is an equal partner with Vista. 105.0 million treasury shares. The net proceeds from trea- Onex’ share of the investment was $283 million for an sury shares were primarily used to reduce SIG’s long-term economic interest of 16%. debt. The Onex Partners IV Group sold approximately The investment in PowerSchool is recorded as a 45.9 million shares in the transaction for net proceeds of long-term investment at fair value with changes in fair value CHF 504 million ($511 million). Onex’ portion of the net recognized in the consolidated statements of earnings. proceeds was CHF 178 million ($180 million). The Onex Partners IV Group continues to hold Acquisition of Precision In August 2018, the ONCAP IV Group acquired Precision, a approximately 163.2 million ordinary shares in SIG for a 51% economic interest. Onex continues to hold approximately global manufacturer of dispensing solutions. The ONCAP IV 57.5 million ordinary shares for an 18% economic inter- Group’s total investment was $111 million for an initial est. Since the sale of shares by the Onex Partners IV Group economic interest of 99%. Onex’ share of the investment did not result in a loss of control over SIG, the transaction was $44 million for an initial economic interest of 39%. was recorded as a transfer from the equity holders of Onex The re mainder of the purchase price was financed through Corporation to non-controlling interests in the consoli- a rollover of equity by management of Precision and dated financial statements, with the cash proceeds received debt financ ing, without recourse to Onex Corporation. in excess of the historical accounting carrying value of Precision is included within the packaging products and $256 million being recorded directly to retained earnings. services segment. 36 Onex Corporation December 31, 2018 The issuance of new shares by SIG as part of the initial public offering resulted in the dilution of the Com- pany’s ownership interest in SIG. The Company recorded a transfer from the non-controlling interests in the consoli- dated statements of equity. This reflected Onex’ share of the increase in the book value of the net assets of SIG due to the issuance of additional common shares at a value above the Company’s historical accounting carrying value of SIG. M A N A G E M E N T ’ S D I S C U S S I O N A N D A N A LY S I S Investment in Ryan In October 2018, the Onex Partners IV Group acquired an Sale of Tecta In November 2018, the ONCAP III and ONCAP IV Groups interest in Ryan, a global tax services and software pro- sold their entire investment in Tecta for net proceeds of vider. The Onex Partners IV Group’s total investment was $416 million. Onex’ share of the net proceeds from the sale $317 million for an economic interest of 42%. Onex’ share was $134 million, including carried interest and after the of the investment was $103 million for an economic inter- reduction for amounts paid to the Onex and ONCAP man- est of 14%. agement teams. Included in the net proceeds is $4 mil- The investment in Ryan was partially funded by lion held in escrow, of which Onex’ share is $1 million. a revolving credit facility, with a capacity of $65 million, As a result of this transaction, a gain of $261 million was entered into by the Onex Partners IV Group in October recorded based on the excess of the net proceeds over the 2018. The facility bears interest at LIBOR (subject to a floor historical accounting carrying value of the investment. of 0.00%) plus a margin of 1.75%, matures in October 2021 Onex’ share of the carried interest received was and is reimbursable by capital calls upon the limited part- $12 million and was included in the net proceeds to Onex. ners of Onex Partners IV. Onex, the parent company, is only ONCAP management’s share of the carried interest was obligated with respect to borrowings under the revolving $32 million, including $3 million from Onex and Onex credit facility based on its proportionate share of the Onex management. Amounts paid on account of the MIP totalled Partners IV Group’s investment in Ryan. $7 million for this transaction and have been deducted In connection with the investment in Ryan, the from the net proceeds to Onex. Onex Partners IV Group has committed to invest up to an Tecta does not represent a separate major line additional $100 million in equity to partially fund future of business, and as a result, the operating results have add-on acquisitions over a two-year period, subject to cer- not been presented as a discontinued operation. Non- tain terms and conditions. controlling interests of the Company decreased by $7 mil- The investment in Ryan is recorded as a long-term lion as a result of no longer consolidating Tecta. The cash investment at fair value with changes in fair value recog- proceeds recorded in the consolidated statements of cash nized in the consolidated statements of earnings. flows for the sale of Tecta were reduced for Tecta’s cash and Investment in Wyse In November 2018, the ONCAP IV Group invested in Wyse, a provider of submetering and utility expense manage- ment solutions for the multi-residential, condominium and commercial markets in Canada. Excluding the impact of foreign exchange hedges, the ONCAP IV Group’s invest- ment in Wyse was C$35 million ($26 million) for an eco- nomic interest of 41%. Onex’ share of the investment was C$14 million ($10 million) for an economic interest of 16%. The investment is comprised of both preferred shares and convertible debt. cash equivalents of $2 million at the date of sale. Acquisition of KidsFoundation In November 2018, the Onex Partners IV and Onex Part- ners V Groups acquired KidsFoundation, a leading provider of childcare services in the Netherlands, for €246 million. Excluding the impact of foreign exchange hedges, the Onex Partners IV Group’s investment was €48 million ($55 mil- lion), the Onex Partners V Group’s investment was €97 mil- lion ($109 million) and an investment of €5 million ($6 million) was made as a co-investment for a combined economic interest of 98%. Onex’ share of the investment was The investment in Wyse is recorded as a long-term $47 million for an economic interest of 27%. The remain- investment at fair value with changes in fair value recog- der of the purchase price was financed through a rollover nized in the consolidated statements of earnings. of equity by management shareholders and debt financing, Acquisition of Impakt by Celestica In November 2018, Celestica acquired Impakt Holdings, LLC (“Impakt”), a vertically integrated manufacturer in the semiconductor and display industries, for $331 million. The purchase price was financed with borrowings under Celestica’s existing secured credit facility. without recourse to Onex Corporation. KidsFoundation is included within the other segment. Onex Corporation December 31, 2018 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 Pending sale of BrightSpring Health In December 2018, the Company entered into an agreement Pending merger of SMG with AEG Facilities In February 2019, SMG entered into an agreement to merge to sell BrightSpring Health for an enterprise value of approx- with AEG Facilities. The Onex Partners IV Group is expected imately $1.3 billion. Under the terms of the agreement, the to have an economic interest in the merged entity of Onex Partners I and Onex Partners III Groups will receive approximately 50%, of which Onex’ share is expected to be combined net proceeds of approximately $780 million. approximately 16%. The merger is expected to close later in Onex’ portion of the net proceeds will be approximately 2019, subject to customary closing conditions and regula- $190 million, including estimated carried interest of $39 mil- tory approvals. lion and net of the estimated MIP distribution. The transac- tion is expected to close during the first quarter of 2019 and is subject to customary closing conditions and regulatory Distributions from operating businesses During 2018 and up to February 28, 2019, Onex and its part- approvals. ners received distributions of $336 million from certain The operations of BrightSpring Health have been operating businesses. Onex’ portion of the distributions presented as discontinued in the consolidated statements was $184 million, including carried interest. The distribu- of earnings and cash flows and the year ended Decem- tions include the repayment of a loan note by Parkdean ber 31, 2017 has been restated to report BrightSpring Health Resorts and the repayment of existing shareholder subordi- as discontinued on a comparative basis. BrightSpring Health nated debt by Pinnacle Renewable Energy, as described on has been reclassified from the health and human services page 34 of this MD&A. The other significant distributions segment to the other segment. received by the Company are described below. During 2018 and up to February 28, 2019, Flushing Pending merger of Clarivate Analytics with Churchill In January 2019, Clarivate Analytics entered into an agree- Town Center distributed $134 million of proceeds primarily from the sale of residential condominium units, of which ment to merge with Churchill Capital Group (“Churchill”). Onex’ share was $117 million. As part of the agreement, the merged entity will be publicly During 2018, BBAM distributed $38 million to the listed on the New York Stock Exchange. Capital invested in Onex Partners III Group, of which Onex’ share was $12 mil- the merged entity by Churchill is expected to be used to lion. The distributions were funded by the company’s free pay down Clarivate Analytics’ existing long-term debt and cash flow. for working capital and other general corporate purposes. During 2018, Meridian Aviation distributed $25 mil- The Onex Partners IV Group and its partner Baring Private lion to the Onex Partners III Group, of which Onex’ share Equity Asia will not sell any shares as part of this transac- was $8 million. The distribution was funded primarily from tion and are expected to have an economic interest in the proceeds from aircraft sales. merged entity of approximately 74% upon completion of the transaction, assuming no redemptions are made by Churchill’s public shareholders. Onex’ economic interest Credit Strategies Warehouse facility of EURO CLO-3 in the merged entity is expected to be approximately 20% In March 2018, Onex established a warehouse facility upon completion of the transaction, assuming no redemp- in connection with its third CLO denominated in euros tions are made by Churchill’s public shareholders. The transaction is expected to close during the second quar- ter of 2019, subject to approval by Churchill’s sharehold- ers, Churchill having a specified minimum amount of cash available after any shareholder redemptions and transac- (“EURO CLO-3”). During the year ended December 31, 2018, Onex invested €55 million ($66 million) to support the warehouse facility and a financial institution provided borrowing capacity of up to €220 million ($252 million) backed by the underlying collateral. tion expenses, and other customary closing conditions. Onex consolidates the warehouse facility for EURO CLO-3. 38 Onex Corporation December 31, 2018 M A N A G E M E N T ’ S D I S C U S S I O N A N D A N A LY S I S Closing of CLO-15 Redemption of CLO-2 In June 2018, Onex closed its fifteenth CLO denominated In November 2018, the Company redeemed its second in U.S. dollars (“CLO-15”), which was funded through the CLO denominated in U.S. dollars. CLO-2 was established issuance of collateralized loan instruments in a series of in November 2012 and its reinvestment period ended tranches of secured notes and preference shares in a pri- in November 2018. Upon the redemption of CLO-2, all vate placement transaction for an aggregate principal secured notes were repaid, including accrued interest, amount of $614 million. and the equity was settled for the residual proceeds in the On closing, Onex invested $57 million for 100% of CLO. In aggregate, Onex received $29 million of proceeds the most subordinated capital of CLO-15. Reinvestment can and distributions related to CLO-2 compared to its origi- be made in collateral by the CLO up to July 2023, or earlier, nal investment of $26 million. In addition, Onex expects to subject to certain provisions. receive a final distribution of $4 million from CLO-2. Warehouse facility of CLO-16 At redemption, CLO-2 transferred $13 million, $11 million, $4 million and $12 million in assets for fair In August 2018, Onex established a warehouse facility in value consideration to CLO-8, CLO-9, CLO-10 and the ware- connection with its sixteenth CLO denominated in U.S. dol- house facility for CLO-16, respectively. The fair values used lars (“CLO-16”). During the year ended December 31, 2018, for the transfers were reviewed by a third party. Onex invested $50 million to support the warehouse facil- ity and a financial institution provided borrowing capacity Distributions of up to $200 million backed by the underlying collateral. During the year ended December 31, 2018, Onex received Onex consolidates the warehouse facility for CLO-16. $59 million of distributions from its CLO investments. Fund closing for OCLP I Additionally, Onex received $9 million on the redemption of CLO-2 and $11 million from the partial sale of its invest- In November 2018, Onex completed the final closing for ment in CLO-7. OCLP I, reaching aggregate commitments of $413 million, including Onex’ commitment of $100 million. At Decem- ber 31, 2018, after giving effect to the final close and bor- rowings under the revolving credit facility, Onex’ remain- ing unfunded commitment for OCLP I was $26 million. The duration of the commitment period for OCLP I will be up to November 2021, subject to extensions of up to an additional two years. During 2018, OCLP I made investments in the debt of middle-market, upper middle-market and large private equity sponsor-owned portfolio companies and, selec- tively, other corporate borrowers, which were funded by borrowings from OCLP I’s credit facilities and capital calls of $111 million from investors, of which Onex’ share was $28 million. Onex consolidates the operations of OCLP I and records changes in the fair value of the asset portfolio through net earnings. Onex Corporation December 31, 2018 39 M A N A G E M E N T ’ S D I S C U S S I O N A N D A N A LY S I S R E V I E W O F D E C E M B E R 3 1 , 2 0 1 8 C O N S O L I D A T E D F I N A N C I A L S T A T E M E N T S The discussions that follow identify those material factors that affected Onex’ operating segments and Onex’ consolidated results for the year ended December 31, 2018. Discontinued operations for the year ended December 31, 2018 represent the results of BrightSpring Health. Discontinued operations for the year ended December 31, 2017 represent the results of operations of BrightSpring Health, JELD-WEN (up to May 2017) and USI (up to May 2017). Consolidated revenues and cost of sales Table 1 provides revenues and cost of sales by industry segment. Revenues and Cost of Sales by Industry Segment TABLE 1 ($ millions) Year ended December 31 Revenues Cost of Sales 2018 2017 Change 2018 2017 Change Electronics Manufacturing Services $ 6,633 $ 6,143 Healthcare Imaging Insurance Services(a) Packaging Products and Services(b) Business and Information Services(c) Food Retail and Restaurants(d) Credit Strategies(e) Other(f) Total 1,601 793 2,776 1,647 4,467 3 5,865 1,862 775 2,395 1,262 4,724 4 5,602 $ 23,785 $ 22,767 8 % (14)% 2 % 16 % 31 % (5)% (25)% 5 % 4 % $ 6,117 $ 5,645 959 – 1,839 699 3,838 – 4,111 1,068 – 1,528 517 3,984 – 3,882 $ 17,563 $ 16,624 8 % (10)% n/a 20 % 35 % (4)% n/a 6 % 6 % 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. (b) The packaging products and services segment consists of IntraPac, Precision, sgsco and SIG. IntraPac began to be consolidated in December 2017, after the business was acquired by the ONCAP IV Group. Precision began to be consolidated in August 2018, after the business was acquired by the ONCAP IV Group. (c) The business and information services segment consists of Clarivate Analytics, Emerald Expositions and SMG. SMG began to be consolidated in January 2018, after 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. (e) The credit strategies segment consists of (i) Onex Credit Manager, (ii) Onex Credit Collateralized Loan Obligations, (iii) Onex Credit Funds and (iv) Private Lending (since May 2017). Costs of the credit strategies segment are recorded in operating expenses. (f) 2018 other includes Flushing Town Center, KidsFoundation (since November 2018), Meridian Aviation, Parkdean Resorts, Schumacher, Survitec, WireCo, the operating companies of ONCAP II, III and IV (excluding IntraPac and Precision) and the parent company. 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. 40 Onex Corporation December 31, 2018 M A N A G E M 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) Year ended December 31 Revenues Cost of Sales 2017 2016(a) Change 2017 2016(a) Change Electronics Manufacturing Services $ 6,143 $ 6,016 Healthcare Imaging Insurance Services Packaging Products and Services(b) Business and Information Services(c) Food Retail and Restaurants(d) Credit Strategies(e) Other(f) Total 1,862 775 2,395 1,262 4,724 4 5,602 1,990 745 2,414 525 689 4 3,637 $ 22,767 $ 16,020 2 % (6)% 4 % (1)% 140 % 586 % – 54 % 42 % $ 5,645 $ 5,510 1,068 – 1,528 517 3,984 – 3,882 1,127 – 1,541 180 578 – 2,614 $ 16,624 $ 11,550 2 % (5)% n/a (1)% 187 % 589 % n/a 49 % 44 % Results are reported in accordance with IFRS and may differ from those reported by the individual operating companies. (a) 2017 revenues and cost of sales have been restated to conform with IFRS 15, Revenue From Contracts with Customers, which was adopted by the company on January 1, 2018. The impact from adopting IFRS 15 was not significant. 2016 revenues and cost of sales have not been restated to conform with IFRS 15, Revenue From Contracts with Customers. (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. (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. (e) The credit strategies segment consists of (i) Onex Credit Manager, (ii) Onex Credit Collateralized Loan Obligations, (iii) Onex Credit Funds and (iv) Private Lending (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, 2018 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 Electronics Manufacturing Services Celestica’s revenues during 2018 were up 8%, or $490 mil- Healthcare Imaging Carestream Health’s revenues for 2018 decreased by 14%, lion, compared to 2017. Revenue increased in the Con- or $261 million, and cost of sales decreased by 10%, or nectivity and Cloud Solutions segment primarily due to $109 million, compared to 2017. The decreases in revenues increased demand and new programs, partially offset and cost of sales were primarily driven by the sale of the by lower demand from certain of its legacy customers. Dental Digital business, lower volumes and pricing in Revenue from the Advanced Technology Solutions segment Medical Digital and a net unfavourable foreign exchange also increased, driven by new programs in aerospace and impact of $20 million, partially offset by higher volumes in defence, including from acquisitions, as well as stronger Film, primarily during the first half of 2018. demand from the industrial business, which more than off- Carestream Health’s revenues for 2017 decreased set lower demand in the capital equipment business. by 6%, or $128 million, compared to 2016. Cost of sales for Cost of sales during 2018 increased by 8%, or 2017 decreased by 5%, or $59 million, compared to 2016. $472 million. Gross profit increased by 4% to $516 million The decrease in revenues was primarily driven by the sale compared to 2017. Gross profit was positively impacted of the Dental Digital business, partially offset by higher vol- by higher revenue in both the Connectivity and Cloud umes in Film. Gross profit for 2017 decreased by $69 million Solutions and Advanced Technology Solutions segments, compared to 2016. This was primarily due to the sale of the including from new programs and acquisitions. These Dental Digital business and unfavourable commodity costs, increases were partially offset by unfavourable changes in partially offset by cost productivity. overall mix and increased pricing pressures primarily in the Connectivity and Cloud Solutions segment, higher pro- visions related to certain aged inventory and lower demand Insurance Services York’s revenues for 2018 increased by 2%, or $18 million, to from the capital equipment business, primarily the semi- $793 million compared to 2017. The increase in revenues was conductor business. primarily driven by acquisitions and organic growth. York Celestica’s revenues during 2017 were up 2%, or records its cost of services in operating costs. $127 million, and cost of sales increased by 2%, or $135 mil- York reported revenues of $775 million during lion, compared to 2016. Gross profit decreased by 2% to 2017, an increase of 4%, or $30 million, compared to 2016. $498 million compared to 2016. Revenues and cost of sales The increase in revenues during 2017 was driven by acqui- increased primarily due to demand strength in certain sitions and organic growth. customer programs and new program growth in the com- munications end market, and from its capital equipment business, all particularly in the first half of 2017, which more than offset certain demand softness in its Enterprise busi- ness, decreases in revenue driven by its exit from the solar panel manufacturing business during 2017 and the comple- tion of consumer programs in the second half of 2016. Gross profit was negatively impacted by unfavourable changes in mix, increased pricing pressures, most significantly in the Connectivity and Cloud Solutions markets, and higher costs of ramping up new programs. These decreases were partially offset by lower provisions, as the prior year was impacted by higher provisions related to its former solar panel business. 42 Onex Corporation December 31, 2018 M A N A G E M E N T ’ S D I S C U S S I O N A N D A N A LY S I S Packaging Products and Services The packaging products and services segment consists Food Retail and Restaurants The food retail and restaurants segment consists of the oper- of the operations of IntraPac, Precision, sgsco and SIG. ations of Jack’s and Save-A-Lot. Save-A-Lot was acquired by IntraPac and Precision were acquired by the ONCAP IV the Onex Partners IV Group in December 2016. Group in December 2017 and August 2018, respectively. During 2018, the food retail and restaurants seg- During the year ended December 31, 2018, the ment reported a decrease in revenues of 5%, or $257 mil- packaging products and services segment reported an lion, and a decrease in cost of sales of 4%, or $146 million, increase in revenues of 16%, or $381 million, and an increase compared to 2017. The decrease in revenues and cost of in cost of sales of 20%, or $311 million, compared to 2017. sales was primarily due to same-store-sales pressure at Excluding the impact of foreign exchange translation, the Save-A-Lot as the company works on its transformation increase in revenues and cost of sales was primarily due to plan and commercial initiatives, which are in the early the inclusion of IntraPac and Precision. stages of implementation, as well as the closure of under- During the year ended December 31, 2017, the performing stores. packaging products and services segment reported a During the year ended December 31, 2017, the decrease in revenues of 1%, or $19 million, and a decrease increase in revenues and cost of sales in the food retail and in cost of sales of 1%, or $13 million, compared to 2016. The restaurants segment was driven by the inclusion of Save-A- decrease in revenues and cost of sales was primarily due to Lot, which was acquired in December 2016. lower sales volumes at SIG. Business and Information Services The business and information services segment consists of Credit Strategies Revenues reported in the credit strategies segment consist of fees earned by Onex Credit Manager, which include fees the operations of Clarivate Analytics, Emerald Expositions earned from Onex Credit Collateralized Loan Obligations, and SMG. Clarivate Analytics was acquired by the Onex Onex Credit Funds and Private Lending. Revenue earned Part ners IV Group in October 2016. SMG was acquired by by Onex Credit Manager from Onex credit strategies that the Onex Partners IV Group in January 2018. are consolidated by Onex are eliminated in Onex’ consoli- During the year ended December 31, 2018, the busi- dated financial statements. References to gross revenues ness and information services segment reported an increase earned by Onex Credit Manager include revenues earned in revenues of 31%, or $385 million, and an increase in on credit strategies consolidated by Onex. cost of sales of 35%, or $182 million, compared to 2017. The Gross revenues earned by Onex Credit Manager increase in revenues and gross profit was primarily driven during 2018 were $50 million compared to $45 million in by the inclusion of the results of SMG. 2017. For the year ended December 31, 2018, gross revenues During the year ended December 31, 2017, the included $3 million earned on investments in Onex Credit increase in revenues and cost of sales in the business and Funds held by Onex, the parent company, compared to information services segment was primarily driven by the $3 million in 2017. Credit strategies segment revenue for inclusion of Clarivate Analytics, which was acquired in 2018, net of management and incentive fees from credit October 2016. strategies which are eliminated upon consolidation, was $3 million, compared to $4 million in 2017. Costs of the credit strategies segment are recorded in operating expenses. Onex Corporation December 31, 2018 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 Gross revenues earned by Onex Credit Manager during 2017 were $45 million compared to $43 million in Interest expense New investments are structured with the acquired com- 2016. For the year ended December 31, 2017, gross revenues pany having sufficient equity to enable it to self-finance included $3 million earned on investments in Onex Credit a significant portion of its acquisition cost with a prudent Funds held by Onex, the parent company, compared to amount of debt. The level of debt is commensurate with $5 million in 2016. Credit strategies segment revenue for the operating company’s available cash flow, including 2017, net of management and incentive fees from credit consideration of funds required to pursue growth oppor- strategies which are eliminated upon consolidation, was tunities. It is the responsibility of the acquired operating $4 million, unchanged from 2016. company to service its own debt obligations. Consolidated interest expense for the year ended Other Businesses The other businesses segment consists of the revenues and December 31, 2018 was $1.4 billion, up $248 million, or 21%, from 2017. The increase was primarily due to: (i) the cost of sales of Flushing Town Center, KidsFoundation (since inclusion of interest expense for Parkdean Resorts, SMG, November 2018), Meridian Aviation, Parkdean Resorts (since Precision, Walter Surface Technologies and KidsFoundation, March 2017), Schumacher, Survitec, WireCo (since Sep- which were acquired in March 2017, January 2018, August tember 2016), the ONCAP companies (excluding IntraPac 2018, September 2018 and November 2018, respectively; and Precision, which are included in the packaging products and (ii) additional debt from CLOs and OCLP. The increase and services segment) and the parent company. in interest expense was partially offset by the repayment of During 2018, revenues increased by 5%, or $263 mil- debt by Carestream Health using net proceeds from the sale lion, to $5.9 billion compared to 2017. Cost of sales dur- of its Dental Digital business in September 2017. ing 2018 increased by 6%, or $229 million, to $4 billion compared to 2017. The increase in revenues and cost of sales was primarily driven by the inclusion of the results of Laces, AutoSource and KidsFoundation, which were Increase (decrease) in value of investments in joint ventures and associates at fair value, net Investments in joint ventures and associates are defined acquired in December 2017, May 2018 and November 2018, under IFRS as those investments in operating businesses respectively, and the inclusion of a full half-year’s results of over which Onex has joint control or significant influence, Parkdean Resorts, which was acquired in March 2017. but not control. These investments are measured at fair During 2017, revenues increased by 54%, or $2.0 bil- value with both realized and unrealized gains and losses lion, to $5.6 billion compared to 2016. Cost of sales during recognized in the consolidated statements of earnings as 2017 increased by 49%, or $1.3 billion, to $3.9 billion com- a result of increases or decreases in fair value. Investments pared to 2016. The increase in revenues and cost of sales was deemed to be investments in joint ventures or associates primarily driven by the inclusion of the results of Parkdean and measured at fair value through earnings primarily Resorts, Tecta and WireCo, which were acquired in March comprise AIT, BBAM, JELD-WEN (since May 2017), Mavis 2017, August 2016 and September 2016, respectively, partially Discount Tire (up to March 2018), Pinnacle Renewable offset by the sale of CiCi’s Holdings, Inc. in August 2016. In Energy (since February 2018), PowerSchool (since August addition, 2017 also benefited from the acquisition of ECI 2018), Ryan (since October 2018), Venanpri Group, and Wyse Healthcare Partners (“ECI”) by Schumacher in June 2016 and (since November 2018). higher revenues at Flushing Town Center from condomin- ium sales from Phase 2 of the development. 44 Onex Corporation December 31, 2018 M A N A G E M 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 2018, Onex recorded a net decrease in the Table 2 details the change in stock-based compensation of fair value of investments in joint ventures and associates of Onex, the parent company, and Onex’ operating companies. $585 million compared to a $760 million increase in 2017. The decrease was primarily due to the decrease in the pub- Stock-Based Compensation (Recovery) Expense lic share price of JELD-WEN, partially offset by an increase in the fair value of BBAM and Mavis Discount Tire (up to March 2018). Of the total net fair value decrease recorded dur- ing 2018, $456 million (2017 – increase of $543 million) is attributable to the limited partners in the Onex Partners and ONCAP Funds, which impacts the Limited Partners’ Interests recovery discussed on page 49 of this MD&A. Onex’ share of the total net fair value decrease was $129 million (2017 – increase of $217 million). Stock-based compensation (recovery) expense Onex recorded a consolidated stock-based compensa- tion recovery of $58 million during 2018 compared to a $175 million expense in 2017. Stock option and MIP equity interests of Onex, the parent company, represented a TABLE 2 Year ended December 31 ($ millions) 2018 2017 Change Onex, the parent company, stock options $ (143) $ 50 $ (193) Onex, the parent company, MIP equity interests Onex operating companies(a) Total stock-based compensation 2 83 52 73 (50) 10 (recovery) expense $ (58) $ 175 $ (233) (a) Includes stock-based compensation classified as liabilities that are remeasured at each reporting date. Other gains Table 3 provides a breakdown of other gains. recovery of $141 million (2017 – expense of $102 million). Other Gains In accordance with IFRS, the expense recorded for Onex’ stock options and MIP equity interests is determined TABLE 3 Year ended December 31 ($ millions) based on the fair value of the liability at the end of each reporting period. The fair value of the Onex stock options and MIP equity interests is determined using an option valuation model, with the stock options primarily impacted by the change in the market value of Onex’ shares and the MIP equity interests affected primarily by the change in the fair value of Onex’ investments. The recovery recorded by Onex, the parent company, on its stock options during 2018 was primarily due to the 19% decrease in the market value of Onex’ shares since December 31, 2017, partially offset by additional vesting of stock options. This compares to a 1% increase in the market value during 2017. 2018 2017 $ 261 $ − Gain on sale of Tecta Gain from loss of control of Pinnacle Renewable Energy Gain on sales by Carestream Health 82 – – 731 Total other gains $ 343 $ 731 Gain on sale of Tecta In November 2018, the ONCAP III and ONCAP IV Groups sold Tecta, as described on page 37 of this MD&A. Gain from loss of control of Pinnacle Renewable Energy In February 2018, Pinnacle Renewable Energy completed an initial public offering, resulting in a gain of $82 million being recognized by the Company, as described on page 34 of this MD&A. Onex Corporation December 31, 2018 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 Gain on sales by Carestream Health In September 2017, Carestream Health completed the sale of its Dental Digital business for an enterprise value of Losses on investments and long-term debt in credit strategies, net Net losses of $206 million on investments and long-term $810 million. Carestream Health received net proceeds debt in credit strategies during 2018 (2017 – $111 million) of $859 million from the sale of its Dental Digital busi- were driven by net realized and unrealized gains and losses ness along with net proceeds received from an additional on the investments and long-term debt recognized at fair transaction completed during the fourth quarter of 2017. value through earnings in credit strategies. Net proceeds from these transactions were used to repay $758 million of the company’s term loans. Transition, integration and other Transition, integration and other expenses typically pro- Other expense Table 4 provides a breakdown of and the change in other vide for the costs of establishing and transitioning an operating company from a prior parent company upon acquisition and to integrate new acquisitions at the operat- ing companies. In addition, expenses may relate to the dis- position and transition of business units at the operating companies. The costs may be incurred over several years as the establishment and transition of activities progress. Transition, integration and other expenses for 2018 were primarily due to Clarivate Analytics, Carestream Health and Survitec. Transition, integration and other expenses for 2017 were primarily due to Clarivate Analytics and Carestream Health. Derivatives losses (gains), net Net derivatives losses (gains) for 2018 and 2017 were pri- marily related to embedded derivatives associated with debt agreements and foreign exchange hedges. expense. Other Expense TABLE 4 Year ended December 31 ($ millions) 2018 2017 Change Losses on investments and long-term debt in credit strategies, net $ 206 $ 111 $ 95 Transition, integration and other Derivatives (gains) losses, net Restructuring Transaction costs 146 105 87 82 186 (22) 125 62 (40) 127 (38) 20 Change in fair value of contingent consideration, net (6) (29) 23 Change in fair value of other investments, net (11) 44 (55) Foreign exchange losses (gains), net (22) 104 (126) Carried interest charge (recovery) due to Onex and ONCAP management Other (42) (28) 147 (25) (189) (3) Total other expense $ 517 $ 703 $ (186) 46 Onex Corporation December 31, 2018 M A N A G E M E N T ’ S D I S C U S S I O N A N D A N A LY S I S Restructuring Restructuring expenses typically provide for the costs of Transaction costs Transaction costs are incurred by Onex and its operating facility consolidations and workforce reductions incurred companies to complete business acquisitions, and typically at the operating companies. Table 5 provides a breakdown include advisory, legal and other professional and consult- of and the change in restructuring charges by operating ing costs. company. TABLE 5 Celestica Year ended December 31 ($ millions) Carestream Health Save-A-Lot SIG Other 2018 $ 35 23 8 5 16 2017 $ 29 1 63 22 10 Total restructuring charges $ 87 $ 125 Celestica Celestica’s restructuring charges during 2018 were primarily associated with workforce reductions. Celestica’s restruc- Transaction costs for 2018 were primarily due to the acquisitions of KidsFoundation, Precision, SMG and Walter Surface Technologies, in addition to acquisitions completed by the operating companies. Transaction costs for 2017 were primarily due to the acquisition of Parkdean Resorts, in addition to acquisitions completed by the oper- ating companies. Foreign exchange losses (gains), net Net foreign exchange gains during 2018 were primarily due to gains recognized by SIG, partially offset by the recog- nition of accumulated currency translation adjustments related to the loss of control over Pinnacle Renewable Energy. Foreign exchange losses during 2017 were primarily turing charges for 2017 primarily related to organizational due to losses recognized by SIG. changes as a result of corporate initiatives. Carestream Health The charges recorded by Carestream Health in 2018 and 2017 primarily related to the reorganization of certain busi- nesses and operations. Save-A-Lot Save-A-Lot’s restructuring charge during 2018 was primar- ily related to the reorganization of the company’s logistics Carried interest charge (recovery) 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 net gains of the limited partners in each fund, as determined in accordance with the limited partnership agreements, and as described on page 77 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 operations. Save-A-Lot’s restructuring charge during 2017 statements of earnings. primarily related to costs associated with the closure of certain facilities. SIG SIG’s restructuring charges during 2018 and 2017 primarily related to the reorganization of certain corporate functions. 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 2018, a recovery of $42 million (2017 – charge of $147 million) was recorded in the consolidated statements of earnings for management’s share of carried interest primarily due to a decrease 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. Onex Corporation December 31, 2018 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 Impairment of goodwill, intangible assets and long-lived assets, net Table 6 provides a breakdown of the net impairment of Save-A-Lot During 2018, Save-A-Lot recorded a non-cash impairment charge of $150 million to impair certain of its intangible goodwill, intangible assets and long-lived assets by oper- assets and property, plant and equipment as a result of lower ating company for the years ended December 31, 2018 sales at certain locations due to increased competition. The and 2017. impairment charge was recorded in the food retail and res- Impairment of Goodwill, Intangible Assets and Long-lived Assets, Net TABLE 6 Year ended December 31 ($ millions) Parkdean Resorts Save-A-Lot Survitec sgsco Schumacher Other, net Total 2018 2017 $ 170 $ 56 150 144 52 50 61 – – – 106 17 $ 627 $ 179 Parkdean Resorts During 2018, Parkdean Resorts recorded a non-cash good- will impairment charge of $170 million, measured in accor- dance with IAS 36, Impairment of Assets, primarily due to lower than expected caravan sales driven by a reduction in consumer spending in the United Kingdom, which is taurants segment. Survitec During 2018, Survitec recorded a non-cash goodwill impair- ment charge of $144 million, measured in accordance with IAS 36, Impairment of Assets. The impairment charge was recorded in the other segment. sgsco During 2018, sgsco recorded a non-cash goodwill impair- ment charge of $52 million, measured in accordance with IAS 36, Impairment of Assets, primarily due to lower sales in the United States. The impairment charge was recorded in the packaging products and services segment. Schumacher During 2018, Schumacher recorded a non-cash goodwill impairment charge of $50 million, measured in accordance with IAS 36, Impairment of Assets, primarily due to lower patient volumes. The impairment charge was recorded in impacted by ongoing uncertainty surrounding the United the other segment. Kingdom’s pending withdrawal from the European Union. During 2017, Schumacher recorded a non-cash The impairment charge was recorded in the other segment. During 2017, Parkdean Re sorts recorded a non-cash goodwill impairment charge of $56 million, measured in accordance with IAS 36, Impair ment of Assets, due to weaker than expected performance since acquisition, driven pri- marily by lower caravan sales. The impairment charge was recorded in the other segment. goodwill impairment charge of $106 million, measured in accordance with IAS 36, Impairment of Assets, primarily due to changes in customer mix related to the implementa- tion of the Affordable Care Act. The impairment charge was recorded in the other segment. Note 28 to the consolidated financial statements provides additional information on the impairment calculations. 48 Onex Corporation December 31, 2018 M A N A G E M 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 recovery (charge) The Limited Partners’ Interests charge in Onex’ consoli- Recovery of (provision for) income taxes For the year ended December 31, 2018, Onex reported an dated statements of earnings primarily represents the income tax provision of $89 million (2017 – recovery of change in the fair value of the underlying investments in $66 million). The increase in the income tax provision was the Onex Partners and ONCAP Funds and credit strategies primarily driven by a one-time recovery in 2017 related to that is allocated to the limited partners and recorded as a significant change in the U.S. tax rate applied to deferred Limited Partners’ Interests liability in Onex’ consolidated tax assets and liabilities. balance sheets. The Limited Partners’ Interests charge for the Onex Partners and ONCAP Funds includes the fair value changes of consolidated operating companies, Loss from continuing operations Onex recorded a loss from continuing operations of investments in joint ventures and associates and other $846 million during 2018 compared to $699 million during investments that are held in the Onex Partners and ONCAP 2017. The loss from continuing operations attributable to Funds. The Limited Partners’ Interests charge for the credit equity holders of Onex Corporation was $711 million ($7.05 strategies includes the fair value changes of the underlying per share) compared to $768 million ($7.51 per share) in investments in the Onex Credit Lending Partners and Onex 2017. For the year ended December 31, 2016, Onex recorded Credit Funds consolidated by Onex. a loss from continuing operations of $647 million. The loss During 2018, Onex recorded a recovery of $715 mil- from continuing operations attributable to equity holders lion (2017 – charge of $1.3 billion) for Limited Part ners’ of Onex Corporation was $687 million ($6.62 per share) Inter ests for the Onex Partners and ONCAP Funds. The net in 2016. Note 36 to the consolidated financial statements decrease (2017 – increase) in the fair value of the invest- shows the earnings (loss) from continuing operations by ments held in the Onex Partners and ONCAP Funds con- industry segment for the years ended December 31, 2018 tributed to the Limited Partners’ Interests recovery (2017 and 2017. – charge) for the Onex Partners and ONCAP Funds. Included in the loss from continuing operations Included in the Limited Partners’ Interests recov- for 2018 are earnings of $102 million recorded in the other ery for the Onex Partners and ONCAP Funds is a decrease segment compared to a loss of $1.1 billion recorded dur- of $93 million (2017 – increase of $215 million) in carried ing 2017 and a loss of $712 million recorded during 2016. interest for the year ended December 31, 2018. Onex’ share Table 7 shows the major components of the earnings (loss) of the change in carried interest for 2018 was a decrease from continuing operations recorded in the other segment. of $38 million (2017 – increase of $84 million). The change in the amount of carried interest that has been netted against the Limited Partners’ Interests charge for the Onex Partners and ONCAP Funds decreased during 2018 due to a net decrease in the fair value of the investments in the Onex Partners and ONCAP Funds. The ultimate amount of carried interest realized will be dependent on the actual realizations for each fund in accordance with the limited partnership agreements. During 2018, Onex recorded a charge of $1 million (2017 – $20 million) for Limited Partners’ Interests for the credit strategies. Onex Corporation December 31, 2018 49 M A N A G E M E N T ’ S D I S C U S S I O N A N D A N A LY S I S Earnings (Loss) from Continuing Operations Recorded in the Other Segment TABLE 7 Year ended December 31 ($ millions) 2018 2017 2016 Earnings (loss) from continuing operations – other: Limited Partners’ Interests recovery (charge) Other gains Stock-based compensation recovery (expense) Unrealized carried interest due to Onex and ONCAP management Increase (decrease) in value of investments in joint ventures and associates at fair value, net Interest expense Impairment of goodwill, intangible assets and long-lived assets, net Other $ 715 $ (1,330) $ (587) 343 131 42 (585) (324) (386) 166 − (111) (147) 760 (270) (165) 161 28 (145) (59) 180 (138) – 9 Earnings (loss) from continuing operations – other segment $ 102 $ (1,102) $ (712) Earnings from discontinued operations The loss of control by the Company over Pinnacle Renew- JELD-WEN In May 2017, the Onex Partners III Group sold approximately able Energy, as described on page 34 of this MD&A, and the 15.7 million shares of JELD-WEN common stock in a sec- sale of Tecta, as described on page 37 of this MD&A, did not ondary offering. As a result of this sale, the Onex Partners represent separate major lines of business, and as a result, III Group no longer controls JELD-WEN. The operations of have not been presented as discontinued operations. JELD-WEN have been presented as discontinued in the con- Onex recorded after-tax earnings from discontin- solidated statements of earnings and cash flows for the years ued operations of $50 million during 2018 (2017 – $3.1 bil- ended December 31, 2017 and 2016. lion). The after-tax earnings from discontinued operations attributable to equity holders of Onex Corporation were $48 million ($0.48 per share) during 2018 (2017 – $3.2 bil- USI In May 2017, the Onex Partners III Group sold its entire lion ($31.05 per share)). Earnings from discontinued opera- investment in USI. The operations of USI have been pre- tions for 2018 represent the results of BrightSpring Health. sented as discontinued in the consolidated statements of Earnings from discontinued operations for 2017 represent earnings and cash flows for the years ended Decem ber 31, the results of BrightSpring Health, JELD-WEN (up to May 2017 and 2016. 2017) and USI (up to May 2017). Note 8 to the consolidated financial statements provides earnings from discontinued operations and gain on sale, net of tax, for the years ended Consolidated net earnings (loss) Table 8 presents the net earnings (loss) attributable to December 31, 2018 and 2017. equity holders of Onex Corporation and non-controlling BrightSpring Health In December 2018, the Onex Partners I and Onex Part- ners III Groups entered into an agreement to sell Bright- Spring Health, as described on page 38 of this MD&A. As a result of this pending sale, the operations of BrightSpring Health have been presented as discontinued in the consoli- dated statements of earnings and cash flows and prior peri- ods have been restated to report the results of BrightSpring Health as discontinued on a comparative basis. interests. Net Earnings (Loss) TABLE 8 Year ended December 31 ($ millions) 2018 2017 2016 Net earnings (loss) attributable to: Equity holders of Onex Corporation $ (663) $ 2,401 $ (130) Non-controlling interests (133) 3 94 Net earnings (loss) for the year $ (796) $ 2,404 $ (36) 50 Onex Corporation December 31, 2018 M A N A G E M 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 9 presents the net earnings (loss) per SVS of Onex Co rporation. Other comprehensive earnings (loss) Other comprehensive earnings (loss) represent the unreal- ized gains or losses, net of income taxes, related to cash flow Net Earnings (Loss) per SVS of Onex Corporation hedges, remeasurements for post-employment benefit plans and foreign exchange gains or losses on foreign self-sustain- ing operations. During the year ended December 31, 2018, Onex reported an other comprehensive loss of $312 million compared to other comprehensive earnings of $601 mil- lion in 2017. The loss recorded during 2018 was largely due to unfavourable currency translation adjustments on foreign operations of $236 million (2017 – favourable adjustments of $374 million). In addition, 2017 included other comprehen- sive earnings from discontinued operations of $174 million. TABLE 9 Year ended December 31 ($ per share) 2018 2017 2016 Basic and Diluted: Continuing operations $ (7.05) $ (7.51) $ (6.62) Discontinued operations 0.48 31.05 5.37 Net earnings (loss) per SVS for the year $ (6.57) $ 23.54 $ (1.25) Note 36 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, 2018 and 2017. 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 Table 10 presents the statements of earnings for the three months ended December 31, 2018 and 2017. Fourth Quarter Statements of Earnings 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 Increase (decrease) in value of investments in joint ventures and associates at fair value, net Stock-based compensation recovery Other gains Other expense Impairment of goodwill, intangible assets and long-lived assets, net Limited Partners’ Interests recovery (charge) Earnings (loss) before income taxes and discontinued operations Recovery of income taxes Earnings from continuing operations Earnings from discontinued operations Net Earnings 2018 2017 $ 6,090 $ 5,844 (4,567) (1,037) 149 (162) (192) (459) (384) 118 261 (452) (324) 947 (12) 85 73 15 88 $ (4,249) (1,017) 104 (155) (172) (325) 361 2 73 (177) (63) (186) 40 228 268 36 $ 304 Onex Corporation December 31, 2018 51 M A N A G E M E N T ’ S D I S C U S S I O N A N D A N A LY S I S Fourth quarter consolidated revenues and cost of sales Table 11 provides a breakdown of the 2018 and 2017 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 2018 2017 Change 2018 2017 Change Electronics Manufacturing Services $ 1,727 $ 1,570 Healthcare Imaging Insurance Services(a) Packaging Products and Services(b) Business and Information Services(c) Food Retail and Restaurants(d) Credit Strategies(e) Other(f) Total 421 197 844 404 1,096 – 1,401 470 201 714 285 1,139 1 1,464 $ 6,090 $ 5,844 10 % (10)% (2)% 18 % 42 % (4)% (100)% (4)% 4 % $ 1,585 $ 1,448 257 − 565 166 979 − 266 − 445 118 961 − 1,015 1,011 $ 4,567 $ 4,249 9 % (3)% n/a 27 % 41 % 2 % n/a – 7 % 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. (b) The packaging products and services segment consists of IntraPac, Precision, sgsco and SIG. IntraPac began to be consolidated in December 2017, after the business was acquired by the ONCAP IV Group. Precision began to be consolidated in August 2018, after the business was acquired by the ONCAP IV Group. (c) The business and information services segment consists of Clarivate Analytics, Emerald Expositions and SMG. SMG began to be consolidated in January 2018, after 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. (e) The credit strategies segment consists of (i) Onex Credit Manager, (ii) Onex Credit Collateralized Loan Obligations, (iii) Onex Credit Funds and (iv) Private Lending. Costs of the credit strategies segment are recorded in operating expenses. (f) 2018 other includes Flushing Town Center, KidsFoundation (since November 2018), Meridian Aviation, Parkdean Resorts, Schumacher, Survitec, WireCo, the operating companies of ONCAP II, III and IV (excluding IntraPac and Precision) and the parent company. 2017 other includes Flushing Town Center, Meridian Aviation, Parkdean Resorts, Schumacher, Survitec, WireCo, the operating companies of ONCAP II, III and IV (excluding IntraPac) and the parent company. During the fourth quarter of 2018, revenues and cost of sales in the packaging products and services segment, con- Fourth quarter interest expense Fourth quarter 2018 interest expense totalled $459 million sisting of Precision, IntraPac, sgsco and SIG, increased by compared to $325 million during the fourth quarter of 2017. $130 million and $120 million, respectively, compared to Fourth quarter interest expense increased by $134 mil- the same quarter of 2017. The increase was primarily due to lion primarily due to the inclusion of interest expense for the inclusion of the results of Intrapac and Precision, which AutoSource, KidsFoundation, Precision, SMG and Walter were acquired by the ONCAP IV Group in December 2017 Sur face Technologies, which were acquired in May 2018, Nov- and August 2018, respectively. ember 2018, August 2018, January 2018 and September 2018, Revenues and cost of sales in the business and respectively, and additional debt from CLOs and OCLP I. information services segment, consisting of Clarivate Analytics, Emerald Expositions and SMG, increased by Increase (decrease) in value of investments $119 million and $48 million, respectively, compared to the fourth quarter of 2017. The increase was primarily due to in joint ventures and associates at fair value, net During the fourth quarter of 2018, Onex recorded a decrease the inclusion of SMG, which was acquired by the Onex Part- in fair value of investments in joint ventures and associates ners IV Group in January 2018. of $384 million compared to an increase of $361 million in 2017. Page 44 of this MD&A discusses the decrease in value of investments in joint ventures and associates. 52 Onex Corporation December 31, 2018 M A N A G E M 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 stock-based compensation recovery During the fourth quarter of 2018, Onex recorded a consoli- Fourth quarter recovery of income taxes During the fourth quarter of 2018, Onex recorded an income dated stock-based compensation recovery of $118 million tax recovery of $85 million compared to $228 million in the compared to $2 million for the same quarter of 2017. Onex, fourth quarter of 2017. The change in the income tax recov- the parent company, recorded a stock-based compensa- ery was primarily driven by a one-time recovery in 2017 tion recovery of $139 million in the fourth quarter of 2018 related to a significant change in the U.S. tax rate applied to (2017 – $43 million) related to its stock options and MIP deferred tax assets and liabilities. equity interests. The recovery was primarily due to a 16% decrease in the market value of Onex’ shares in the fourth quarter of 2018 compared to a 4% decrease in the fourth quarter of 2017. Fourth quarter other expense During the fourth quarter of 2018, Onex recorded other expense of $452 million compared to $177 million during the same quarter of 2017. The increase in other expense for the fourth quarter of 2018 was driven by the losses on invest- Fourth quarter earnings from discontinued operations During the fourth quarters of 2018 and 2017, Onex recorded earnings from discontinued operations of $15 million and $36 million, respectively. The earnings recognized rep- resent the results of BrightSpring Health, as discussed on page 50 of this MD&A. Fourth quarter cash flow Table 12 presents the major components of cash flow for ments and long-term debt in credit strategies of $288 million the fourth quarters of 2018 and 2017. (2017 – $23 million), as well as losses related to derivatives of $119 million compared to gains on derivatives of $7 million Major Cash Flow Components in the prior year. The increase in other expense was partially offset by a recovery of $53 million related to carried inter- TABLE 12 ($ millions) est due to Onex and ONCAP management compared to a Cash from operating activities charge of $28 million in the same quarter of 2017. Cash from financing activities 2018 258 379 $ $ 2017 664 559 $ $ Cash used in investing activities $ (470) $ (217) Fourth quarter impairment of goodwill, Consolidated cash and cash equivalents intangible assets and long-lived assets, net During the fourth quarter of 2018, $324 million of impair- held by continuing operations $ 2,680 $ 3,362 ments of goodwill, intangible assets and long-lived assets Cash from financing activities in the fourth quarter of were recorded compared to $63 million recorded during 2018 included (i) $1.2 billion from the issuance of share the same quarter of 2017. A discussion of these impairments capital primarily due to SIG’s issuance of treasury shares by company is provided on page 48 of this MD&A. in its initial public offering; (ii) $511 million of proceeds from the Onex Partners IV Group’s sale of a portion of its Fourth quarter Limited Partners’ Interests shares in SIG’s initial public offering; and (iii) $317 mil- recovery (charge) During the fourth quarter of 2018, Onex recorded a lion of contributions received from the limited partners of the Onex Partners and ONCAP Funds primarily related to $947 million recovery for Limited Partners’ Interests com- the acquisition of KidsFoundation and the investments in pared to a $186 million charge during 2017. The decrease Ryan and Wyse. Partially offsetting the cash from financing (2017 – increase) in the fair value of certain of the private activities were (i) distributions of $597 million primarily investments in the Onex Partners and ONCAP Funds con- to the limited partners of the Onex Partners and ONCAP tributed significantly to the Limited Partners’ Interests Funds; (ii) $505 million of net debt repayment driven by recovery (2017 – charge). The Limited Partners’ Interests SIG and partially offset by debt issued for the acquisition of recovery (2017 – charge) is net of an $81 million decrease KidsFoundation; and (iii) $327 million of cash interest paid. (2017 – $27 million increase) in carried interest in the Onex Partners and ONCAP Funds for the three months ended December 31, 2018. Onex Corporation December 31, 2018 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 Cash from financing activities in the fourth quar- KidsFoundation; and (ii) $344 million for investments in ter of 2017 included (i) $915 million of net debt issuances joint ventures and associates, which primarily related to primarily for CLO-14 and EURO CLO-2; (ii) $198 million Onex Partners IV Group’s investment in Ryan. Partially off- from the sale of the previously acquired interest in Onex setting the cash used in investing activities was $410 million Partners IV; and (iii) $133 million of contributions by lim- of proceeds from the sale of Tecta. ited partners primarily related to the acquisition of IntraPac. Cash used in investing activities in the fourth quar- Partially offsetting the cash from financing activities were ter of 2017 primarily consisted of (i) $426 million of net pur- (i) distributions of $466 million paid primarily to the lim- chases of investments and securities by credit strategies; ited partners of the Onex Partners and ONCAP Funds; and (ii) $246 million of cash used to fund acquisitions, which (ii) cash interest paid of $273 million. was primarily for the acquisitions of IntraPac and Laces by Cash used in investing activities in the fourth quarter of property, plant and equipment. Partially offsetting the cash 2018 primarily consisted of (i) $721 million of cash used used in investing activities was $591 million of proceeds to fund acquisitions, which primarily related to the Onex primarily from the partial sale of JELD-WEN by the Onex Partners IV and Onex Partners V Groups’ acquisition of Partners III Group. the ONCAP IV Group; and (iii) $225 million in purchases of S U M M A R Y O F Q U A R T E R L Y I N F O R M A T I O N Table 13 summarizes Onex’ key consolidated financial information for the last eight quarters. Historical financial informa- tion has been restated for discontinued operations. Consolidated Quarterly Financial Information TABLE 13 ($ millions except per share amounts) 2018 2017 Revenues $ 6,090 $ 6,105 $ 5,999 $ 5,591 $ 5,844 $ 5,916 $ 5,753 $ 5,254 Dec. Sept. June March Dec. Sept. June March Earnings (loss) from continuing operations Net earnings (loss) Net earnings (loss) attributable to: $ $ 73 88 $ (470) $ (272) $ (177) $ (458) $ (262) $ (164) $ $ 268 304 $ $ 358 368 $ (513) $ (812) $ 2,668 $ (936) Equity holders of Onex Corporation $ 173 $ (425) $ (253) $ (158) $ 276 $ 324 $ 2,712 $ (911) Non-controlling Interests (85) (33) (9) (6) 28 44 (44) (25) Net earnings (loss) $ 88 $ (458) $ (262) $ (164) $ 304 $ 368 $ 2,668 $ (936) Earnings (loss) per SVS of Onex Corporation Earnings (loss) from continuing operations $ 1.57 $ (4.33) $ (2.59) $ (1.69) $ 2.37 $ 3.10 $ (5.12) $ (7.78) Earnings (loss) from discontinued operations 0.14 0.11 0.09 0.13 0.36 0.08 31.72 (1.10) Net earnings (loss) $ 1.71 $ (4.22) $ (2.50) $ (1.56) $ 2.73 $ 3.18 $ 26.60 $ (8.88) 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. 54 Onex Corporation December 31, 2018 M A N A G E M 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 $45.4 billion at December 31, 2018 compared to $44.7 billion at December 31, 2017. Onex’ con- solidated assets increased primarily due to the acquisitions of AutoSource, KidsFoundation, Precision, SMG and Walter Surface Technologies, along with the investments in PowerSchool, Ryan and Wyse, and the closing of CLO-15. The increase was partially offset by the loss of control over Pinnacle Renewable Energy, the sales of Mavis Discount Tire and Tecta, and the redemption of CLO-2. Table 14 shows consolidated assets by industry segment as at December 31, 2018, 2017 and 2016. The industry segment percentages of consolidated assets are also shown. Consolidated Assets by Industry Segment TABLE 14 ($ millions) 2018 Percentage Breakdown 2017 Percentage Breakdown 2016 Percentage Breakdown Electronics Manufacturing Services $ 3,738 Healthcare Imaging Insurance Services Packaging Products and Services(a) Business and Information Services(b) Food Retail and Restaurants(c) Credit Strategies(d) Other(e) Assets held by continuing operations Other – assets held by discontinued operations(f) 1,192 1,487 6,771 6,526 1,784 10,247 12,524 44,269 1,148 9% 3% 3% 15% 15% 4% 23% 28% 100% $ 2,964 1,321 1,524 6,808 5,656 2,094 10,048 13,310 43,725 971 7% 3% 3% 16% 13% 5% 23% 30% 100% Total consolidated assets $ 45,417 $ 44,696 $ 2,822 1,473 1,545 6,144 5,765 2,185 7,624 8,580 36,138 6,775 $ 42,913 8% 4% 4% 17% 16% 6% 21% 24% 100% (a) The packaging products and services segment consists of IntraPac, Precision, sgsco and SIG. The Company began consolidating Precision in August 2018, when the business was acquired by the ONCAP IV Group. IntraPac began to be consolidated in December 2017, when the business was acquired by the ONCAP IV Group. (b) The business and information services segment consists of Clarivate Analytics, Emerald Expositions and SMG. The Company began consolidating SMG in January 2018, when the business was acquired by the Onex Partners IV Group. Clarivate Analytics began to be consolidated in October 2016, when the business was acquired by the Onex Partners IV Group. (c) The food retail and restaurants segment consists of Jack’s and Save-A-Lot. Save-A-Lot began to be consolidated in December 2016, when the business was acquired by the Onex Partners IV Group. (d) The credit strategies segment consists of (i) Onex Credit Manager, (ii) Onex Credit Collateralized Loan Obligations, (iii) Onex Credit Funds and (iv) Private Lending. Onex Credit Lending Partners began to be consolidated in May 2017, when OCLP I was established. (e) Other includes Flushing Town Center, KidsFoundation (since November 2018), Meridian Aviation, Parkdean Resorts (since March 2017), Survitec, Schumacher, WireCo, the operating companies of ONCAP II, III and IV (excluding IntraPac and Precision) and the parent company. In addition, other includes the following investments, which are accounted for at fair value: AIT, BBAM, JELD-WEN (since May 2017), Incline Aviation Fund, Mavis Discount Tire (up to March 2018), PowerSchool (since August 2018), RSG (since June 2018), Ryan (since October 2018), Pinnacle Renewable Energy (since February 2018), Venanpri Group, and Wyse (since November 2018). (f) At December 31, 2018 and 2017, the assets of BrightSpring Health are included in the other segment and have been presented as a discontinued operation. At December 31, 2016, the assets of BrightSpring Health, JELD-WEN and USI are included in the other segment and have been presented as discontinued operations. Onex Corporation December 31, 2018 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 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 Total consolidated long-term debt (consisting of the current and long-term portions of long-term debt, net of financing charges) was $22.3 billion at December 31, 2018 compared to $22.0 billion at December 31, 2017. The current portion of long-term debt was $879 million at December 31, 2018 compared to $333 million at December 31, 2017. Table 15 shows consolidated long-term debt by industry segment as at December 31, 2018, 2017 and 2016. Consolidated Long-Term Debt, Without Recourse to Onex Corporation TABLE 15 As at December 31 ($ millions) Electronics Manufacturing Services Healthcare Imaging Insurance Services Packaging Products and Services(a) Business and Information Services(b) Food Retail and Restaurants(c) Credit Strategies(d) Other(e)(f) Current portion of long-term debt Total 2018 2017 2016 $ 747 $ 187 $ 226 1,149 950 2,762 3,088 953 8,420 4,275 22,344 (879) 1,132 939 3,770 2,566 943 7,877 4,635 22,049 (333) 1,920 939 3,447 2,667 886 5,912 6,866 22,863 (407) $ 21,465 $ 21,716 $ 22,456 (a) The packaging products and services segment consists of IntraPac, Precision, sgsco and SIG. The Company began consolidating Precision in August 2018, when the business was acquired by the ONCAP IV Group. IntraPac began to be consolidated in December 2017, when the business was acquired by the ONCAP IV Group. (b) The business and information services segment consists of Clarivate Analytics, Emerald Expositions and SMG. The Company began consolidating SMG in January 2018, when the business was acquired by the Onex Partners IV Group. (c) The food retail and restaurants segment consists of Jack’s and Save-A-Lot. (d) The credit strategies segment consists of (i) Onex Credit Manager, (ii) Onex Credit Collateralized Loan Obligations, (iii) Onex Credit Funds and (iv) Private Lending, which includes Onex Credit Lending Partners. Onex Credit Lending Partners began to be consolidated in May 2017, when OCLP I was established. (e) Other includes Flushing Town Center, KidsFoundation (since November 2018), Meridian Aviation, Parkdean Resorts (since March 2017), Survitec, Schumacher, WireCo, the operating companies of ONCAP II, III and IV (excluding IntraPac and Precision) and the parent company. (f) At December 31, 2018 and 2017, the long-term debt of BrightSpring Health is included in the other segment and has been presented as a discontinued operation. At December 31, 2016, the long-term debt of BrightSpring Health, JELD-WEN and USI are included in the other segment and have been presented as discontinued operations. 56 Onex Corporation December 31, 2018 M A N A G E M 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 discussions that follow identify those significant changes in industry segments that affected Onex’ consoli- SMG (Business and Information Services segment) The Onex Partners IV Group acquired SMG in January 2018, dated long-term debt as at December 31, 2018. Note 14 to as described on page 34 of this MD&A. In January 2018, the consolidated financial statements provides details of SMG entered into a senior secured credit facility consisting the long-term debt outstanding by operating company and of a $415 million first lien term loan, a $180 million second by significant credit facility. lien term loan, of which $44 million was acquired by the Onex Partners IV Group, and a $55 million revolving credit Onex Partners V (Other segment) In December 2017 and January 2018, Onex Partners V facility. Borrowings under the first lien term loan bear interest at LIBOR plus a margin of up to 3.25%, depending entered into a $997 million revolving credit facility. The on the company’s leverage ratio. The first lien term loan limited partners of Onex Partners V could elect to partici- matures in January 2025. Borrowings under the second pate in the credit facility at the time of their commitment. lien term loan bear interest at LIBOR plus a margin of up Of the aggregate commitments to Onex Partners V, 46% of to 7.00%, depending on the company’s leverage ratio. The the commitments were from limited partners that elected second lien term loan matures in January 2026. Borrowings to participate in the credit facility. Onex, as a limited part- under the revolving credit facility bear interest at LIBOR ner of Onex Partners V, did not elect to participate in the plus a margin of up to 3.25%, depending on the compa- credit facility. The credit facility is available to finance ny’s leverage ratio. The revolving credit facility matures in Onex Partners V capital calls, bridge investments in Onex January 2023. Substantially all of SMG’s assets are pledged Partners V operating companies and to finance other uses as collateral under the senior secured credit facility. permitted by Onex Partners V’s limited partnership agree- At December 31, 2018, $412 million was outstanding ment. Borrowings under the credit facility are limited to under the first lien term loan, $180 million was outstanding the lesser of the amount available under the credit facility under the second lien term loan, of which $44 million was and the maximum amount of obligations permitted under held by the Onex Partners IV Group, and no amounts were the partnership agreement. Amounts under the credit facil- outstanding under the revolving credit facility. ity are available in U.S. dollars, Canadian dollars, euros, pounds sterling and other currencies as requested, subject to the approval of the lenders. Onex Partners IV (Other segment) In January 2018, the Onex Partners IV Group entered into Borrowings drawn on the credit facility bear inter- a revolving credit facility, as described on page 34 of this est at either: an adjusted LIBOR rate, plus a margin of 1.50%, MD&A. At December 31, 2018, $44 million was outstanding with respect to LIBOR rate loans; or the reference rate in under this revolving credit facility. effect from day to day, plus a margin of 1.50%, for reference In October 2018, the Onex Partners IV Group rate loans. In addition, a fee of 0.25% per annum accrues on entered into a second revolving credit facility, as described the portion of the credit facility that is available but unused. on page 37 of this MD&A. At December 31, 2018, $65 million The credit facility matures on the earlier of was outstanding under this revolving credit facility. December 15, 2020, or upon the occurrence of certain events defined in the agreement, with an option to extend for an additional 364 days. sgsco (Packaging Products and Services segment) In February 2018, sgsco’s delayed draw term loan was fully At December 31, 2018, $59 million was outstanding drawn for $80 million to partially finance an acquisition. under the revolving credit facility. ONCAP IV (Other segment) In January 2018, ONCAP IV repaid $64 million under its In June 2018, sgsco amended its secured credit facility to reduce the rate at which borrowings under its first lien term loan and revolving credit facility bear inter- est to LIBOR (subject to a floor of 0.00%) plus a margin of credit facility from capital contributions made primarily by up to 3.25%, depending on the company’s leverage ratio. the limited partners of ONCAP IV. At December 31, 2018, no The amendment resulted in a total interest rate reduction amounts were outstanding under the credit facility. of 25 basis points on the company’s first lien term loan and revolving credit facility. Onex Corporation December 31, 2018 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 At December 31, 2018, $569 million was outstand- ing under the first lien term loan, including the delayed BrightSpring Health (Other segment) In March 2018, BrightSpring Health amended and restated draw term loan, and $18 million was outstanding under the its existing senior secured credit facility, resulting in a revolving credit facility. In addition, $105 million was out- term loan of $390 million and a revolving credit facility of standing under the second lien term loan. $300 million. The term loan and revolving credit facil- SIG (Packaging Products and Services segment) In March 2018, SIG amended its senior secured credit facility ity bear interest at LIBOR (subject to a floor of 0.00%) plus a margin of up to 2.75%, depending on the company’s leverage ratio. The maturity dates for the term loan and to reduce the rate at which borrowings under its U.S. dollar- revolving credit facility were extended to March 2023. The denominated term loan bear interest to LIBOR (subject to company may also borrow up to an additional $150 million a floor of 1.00%) plus a margin of 2.75%. The amendment on either its term loan or revolving credit facility, subject to resulted in a total interest rate reduction of 25 basis points the company’s leverage ratio. on the company’s U.S. dollar-denominated term loan. At December 31, 2018, BrightSpring Health is In October 2018, SIG entered into a new senior secured credit facility consisting of a €1.25 billion term loan, a €350 million term loan and a €300 million revolving credit facility. Borrowings under the €1.25 billion term loan bear interest at EURIBOR (subject to a floor of 0.00%) plus a mar- accounted for as a discontinued operation, as described on page 38 of this MD&A. Jack’s (Food Retail and Restaurants segment) In May 2018, Jack’s amended its existing credit facility to gin of up to 2.00%, depending on the company’s leverage ratio. The €1.25 billion term loan matures in October 2023. Borrowings under the €350 million term loan bear interest at EURIBOR (subject to a floor of 0.00%) plus a margin of up reduce the rate at which borrowings under its term loan bear interest to LIBOR (subject to a floor of 1.00%) plus a margin of up to 3.50%, depending on the company’s leverage ratio. In addition, the rate at which the company to 2.50%, depending on the company’s leverage ratio. The €350 million term loan matures in October 2025. Borrowings under the revolving credit facility bear interest at EURIBOR borrows under its revolving credit facility was reduced to LIBOR (subject to a floor of 0.00%) plus a margin of up to 3.50%, depending on the company’s leverage ratio. The (subject to a floor of 0.00%) plus a margin of up to 1.75%, amendment resulted in a total interest rate reduction of depending on the company’s leverage ratio. The revolving 50 and 75 basis points on the company’s term loan and credit facility matures in October 2023. The net proceeds revolving credit facility, respectively. from both the new senior secured credit facility and treasury At December 31, 2018, $239 million was outstand- shares issued in SIG’s initial public offering, as described on ing under the term loan and no amounts were outstanding page 36 of this MD&A, were used to repay borrowings under under the revolving credit facility. the existing credit facility and senior notes. At December 31, 2018, $1.4 billion (€1.2 billion) was outstanding under the term loan maturing in October 2023, $400 million (€350 million) was outstanding under the term loan maturing in October 2025 and no amounts WireCo (Other segment) In May 2018, WireCo 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 were outstanding under the revolving credit facility. floor of 1.00%) plus a margin of 5.00%. The amendment resulted in a total interest rate reduction of 50 basis points on the company’s first lien term loan. At December 31, 2018, $450 million was outstand- ing under the first lien term loan. In addition, $135 mil- lion was outstanding under the second lien term loan and $51 million was outstanding under the revolving credit facility. 58 Onex Corporation December 31, 2018 M A N A G E M E N T ’ S D I S C U S S I O N A N D A N A LY S I S Celestica (Electronics Manufacturing Services segment) In June 2018, Celestica entered into a new $800 million At December 31, 2018, the company was in com- pliance with its debt covenants and the following balances secured credit facility consisting of a $350 million term were outstanding under the company’s senior secured loan and a $450 million revolving credit facility. Borrowings credit facility: (i) $179 million (£140 million) under the under the term loan bear interest at LIBOR plus a margin of 2.00%. The term loan matures in June 2025. Borrowings under the revolving credit facility bear interest at a base rate plus a margin of up to 2.50%, depending on the com- pound sterling-denominated term loan; (ii) $200 mil- lion (€175 million) under the euro-denominated term loan maturing in March 2022; (iii) $152 million (€133 million) under the euro-denominated term loan maturing in March pany’s leverage ratio. The revolving credit facility matures 2022; (iv) $20 million (£16 million) under the pound ster- in June 2023. The net proceeds from the secured credit ling-denominated revolving credit facility; and (v) $18 mil- facility were used to repay the existing debt facility. lion (£14 million) under the pound sterling-denominated In November 2018, Celestica utilized the accordion acquisition facility. feature under its new secured credit facility to add a new $250 million term loan. Borrowings under the new term loan bear interest at LIBOR plus a margin of 2.50%. The new KidsFoundation (Other segment) The Onex Partners IV and Onex Partners V Groups acquired term loan matures in June 2025 and proceeds from the new KidsFoundation in November 2018, as described on page 37 term loan were used to partially fund Celestica’s acquisi- of this MD&A. In November 2018, KidsFoundation tion of Impakt, as described on page 37 of this MD&A. In addition, the rate at which borrowings under the company’s existing term loan bear interest was changed to LIBOR plus entered into a senior secured credit facility consisting of a €90 million term loan and a €75 million acquisition facil- ity. Borrowings under the term loan and acquisition facility a margin of 2.13% as a result of the utilization of the accor- bear interest at EURIBOR (subject to a floor of 0.00%) plus a dion feature. margin of up to 7.75%, depending on the company’s lever- At December 31, 2018, $348 million was outstand- age ratio. The term loan and acquisition facility mature in ing under the term loan, $250 million was outstanding November 2025. under the incremental term loan and $159 million was out- standing under the revolving credit facility. At December 31, 2018, $103 million (€90 million) was outstanding under the term loan and $16 million (€14 million) was outstanding under the acquisition facility. Survitec (Other segment) As a result of operational difficulties driven by the ongo- ing integration of Wilhelmsen Safety, Survitec was not in Carestream Health (Healthcare Imaging segment) In December 2018, Carestream Health amended and re- compliance with its debt covenant ratio at June 30, 2018. In stated its existing credit facility to extend the maturity dates July 2018, the company amended its senior secured credit for a majority of its first lien term loan to February 2021, its facility to revise its debt covenant ratio such that it did not second lien term loan to June 2021 and its revolving credit have an event of default. In addition, the rate at which bor- facility to February 2021. In addition, the rate at which bor- rowings under the company’s senior secured credit facility rowings under the company’s credit facility bear interest bear interest was changed to: (i) LIBOR plus a margin of was changed to: (i) LIBOR (subject to a floor of 1.00%) plus up to 5.25% for its pound sterling-denominated term loan; a margin of up to 5.75% for the majority of its first lien term (ii) EURIBOR plus a margin of up to 4.75% for its euro- loan; (ii) LIBOR (subject to a floor of 1.00%) plus a margin denominated term loans; and (iii) LIBOR plus a margin of 9.50% for the majority of its second lien term loan; and of up to 4.50% for both its pound sterling-denominated (iii) LIBOR (subject to a floor of 1.00%) plus a margin of acquisition facility and pound sterling-denominated 5.50% for the majority of its revolving credit facility. revolving credit facility. The amendment resulted in a total At December 31, 2018, $754 million was outstand- interest rate increase of up to 50 basis points on all debt ing under the extended first lien term loan, $369 million under the company’s senior se cured credit facility, subject was outstanding under the extended second lien term loan to the company’s leverage ratio. and no amounts were outstanding under the extended revolving credit facility. Onex Corporation December 31, 2018 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 Credit Strategies (Credit Strategies segment) OCLP I $550 million and are due in July 2031. The secured notes bear interest at a rate of LIBOR plus a margin of 1.10% to In February 2018, OCLP I amended its asset backed financ- 5.85%. Interest on the secured notes is payable beginning ing facility to increase the size of the facility to $700 mil- in January 2019. The secured notes are measured at fair lion. At December 31, 2018, $478 million was outstanding value through net earnings in these consolidated finan cial under the asset backed financing facility. statements. CLO-15 The secured notes are subject to redemption and pre-payment provisions, including mandatory redemption, In June 2018, Onex closed CLO-15, which was funded if certain coverage tests are not met by CLO-15. Optional through the issuance of collateralized loan instruments redemption of the secured notes is available beginning in in a series of tranches of secured notes and preference July 2020. Optional repricing for certain secured obliga- shares, as described on page 39 of this MD&A. The secured tions is available subject to certain customary terms and notes were offered in an aggregate principal amount of conditions being met by CLO-15. Table 16 details the aggregate debt maturities as at December 31, 2018 for Onex’ operating businesses for each of the years up to 2023 and in total thereafter. As the table includes debt of investments in joint ventures and associates and excludes debt of the credit strategies segment, the total amount does not correspond to total reported consolidated debt. As the following table illustrates, significant maturities occur in 2022 and thereafter. Debt Maturity Amounts by Year TABLE 16 ($ millions) 2019 2020 2021 2022 2023 Thereafter Total Consolidated operating companies(a) $ 583 $ 267 $ 2,321 $ 2,541 $ 4,192 $ 4,253 $ 14,157 Investments in joint ventures and associates(a) 78 118 73 432 447 2,358 3,506 Total $ 661 $ 385 $ 2,394 $ 2,973 $ 4,639 $ 6,611 $ 17,663 (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 of discontinued operations. 60 Onex Corporation December 31, 2018 M A N A G E M 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, 2016 to December 31, 2018. Limited Partners’ Interests TABLE 17 ($ millions) Balance – December 31, 2016 Limited Partners’ Interests charge Contributions by Limited Partners Distributions paid to Limited Partners Limited Partnership commitments acquired by Onex, the parent company(b) Balance – December 31, 2017(c) Limited Partners’ Interests charge (recovery) Contributions by Limited Partners Distributions paid to Limited Partners Balance – December 31, 2018 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 $ 8,660 $ (556) $ 8,104 $ 370 $ 8,474 1,545 560 (2,582) (156) 8,027 (808) 1,465 (1,228) 7,456 (641) (215) − 307 − (464) 93 – 94 (277) 98 1,330 560 (2,275) (156) 7,563 (715) 1,465 (1,134) 7,179 (543) 20 113 (42) − 461 1 131 (93) 500 (17) 1,350 673 (2,317) (156) 8,024 (714) 1,596 (1,227) 7,679 (560) Non-current portion of Limited Partners’ Interests $ 6,815 $ (179) $ 6,636 $ 483 $ 7,119 (a) Net of incentive fees in credit strategies. (b) In 2017, Onex, the parent company, acquired an interest in Onex Partners IV. (c) 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) redemption requests received by certain Onex Credit Funds. (d) At December 31, 2018, the current portion of the Limited Partners’ Interests was $560 million. The current portion consisted primarily of the limited partners’ share of the proceeds from the pending sale of BrightSpring Health. The Limited Partners’ Interests charge (recovery) is discussed in detail on page 49 of this MD&A. Onex Corporation December 31, 2018 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 Contributions by limited partners The Limited Partners’ Interests liability for the Onex Equity Table 18 provides a reconciliation of the change in equity Partners and ONCAP Funds increased by $1.5 billion from December 31, 2017 to December 31, 2018. Onex’ con- for contributions made by the limited partners in 2018, solidated statements of equity also show the changes to the which related primarily to the acquisitions of AutoSource, components of equity for the year ended December 31, 2018. KidsFoundation, Laces, Precision, SMG and Walter Surface Technologies, in addition to the investments in Power- Change in Equity School, Ryan and Wyse. During the year ended December 31, 2017, the TABLE 18 ($ millions) Limited Partners’ Interests liability for the Onex Partners Equity as at December 31, 2017 $ 5,038 and ONCAP Funds increased by $560 million for contri- Change in accounting policy butions made during the period, primarily for the acquisi- Dividends declared tions of IntraPac and Parkdean Resorts. Options exercised Note 17 to the consolidated financial statements Repurchase and cancellation of shares provides additional information on contributions made Investments in operating companies by shareholders by limited partners for the years ended December 31, 2018 other than Onex and 2017. Distributions to limited partners The Limited Partners’ Interests liability for the Onex Distributions to non-controlling interests Repurchase of shares of operating companies Sale of interests in operating companies under continuing control Partners and ONCAP Funds was reduced by distributions Non-controlling interests derecognized on sale of $1.1 billion in 2018, primarily from: (i) net proceeds from of investments in operating companies the sale of shares in SIG’s initial public offering in October Non-controlling interests derecognized on loss of control 2018; (ii) the sales of Mavis Discount Tire and Tecta; (iii) net of investment in operating companies proceeds from the sale of shares in Emerald Expositions’ Net loss for the year and Pinnacle Renewable Energy’s secondary offerings in Other comprehensive loss for the year, net of tax 12 (25) 2 (79) 1,638 (28) (122) 364 (7) (48) (796) (312) March 2018 and June 2018, respectively; (iv) the repayment Equity as at December 31, 2018 $ 5,637 Change in accounting policy On January 1, 2018, Onex adopted IFRS 9, Financial Instru ments, as described on page 28 of this MD&A. Dividend policy In May 2018, Onex announced that it had increased its quar- terly dividend by 17% to C$0.0875 per SVS beginning with the dividend declared by the Board of Directors payable in July 2018. of the shareholder loan note by Parkdean Resorts; (v) the repayment of shareholder subordinated debt by Pinnacle Renewable Energy; and (vi) distributions received from BBAM, Meridian Aviation and PURE Canadian Gaming. During the year ended December 31, 2017, the Limited Partners’ Interests liability for the Onex Partners and ONCAP Funds was reduced by distributions of $2.3 bil- lion primarily from the net proceeds from the sale of USI; the sale of shares in JELD-WEN’s public offerings; distribu- tions and proceeds from the partial sale of BBAM; and the sale of shares in Emerald Expositions’ initial public offering. Note 17 to the consolidated financial statements provides additional information on distributions made to limited partners for the years ended December 31, 2018 and 2017. 62 Onex Corporation December 31, 2018 M A N A G E M E N T ’ S D I S C U S S I O N A N D A N A LY S I S Table 19 presents Onex’ dividend paid per share for the last twelve months ended December 31 during the past five Shares outstanding At December 31, 2018, Onex had 100,000 Multiple Voting years. The table reflects the increase in the dividend per Shares outstanding, which have a nominal paid-in value share over this time. TABLE 19 ($ per share amounts) Last twelve months ended December 31: 2014 2015 2016 2017 2018 Dividend Paid Per Share C$ 0.18 C$ 0.23 C$ 0.26 C$ 0.29 C$ 0.33 reflected in Onex’ consolidated financial statements. Onex also had 100,403,493 SVS issued and outstanding. Note 20 to the consolidated financial statements provides addi- tional information on Onex’ share capital. There was no change in the Multiple Voting Shares outstanding during 2018 or 2017. Table 20 shows the change in the number of SVS outstanding from December 31, 2016 to January 31, 2019. 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, 2016 102,787,628 Shares repurchased and cancelled: Normal Course Issuer Bids Private transaction Issuance of shares: Options exercised Dividend Reinvestment Plan (523,209) (750,000) 10,181 7,581 SVS outstanding at December 31, 2017 101,532,181 Shares repurchased and cancelled: Normal Course Issuer Bid Private transaction Issuance of shares: Options exercised Dividend Reinvestment Plan (1,075,860) (500,000) 33,292 10,445 SVS outstanding at January 31, 2019 100,000,058 $ 75.07 $ 71.24 $ 74.40 $ 73.89 $ 59.87 $ 72.23 $ 59.41 $ 66.65 $ 95.04 $ 94.98 $ 39 $ 53 $ 93.33 $ $ 96.23 less than $ 1 1 $ 78.96 $ 93.00 $ 79.02 $ 86.97 $ 64 $ 36 $ $ 2 1 $ 50 $ 71 $ $ 1 1 $ 85 $ 47 $ $ 3 1 Onex Corporation December 31, 2018 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 Shares repurchased and cancelled The NCIB enables Onex to repurchase up to 10% of its pub- exemption, if available, or by way of private agreement pursuant to an issuer bid exemption order, if sought and lic float of SVS during the period of the relevant Bid. Onex received, under the new NCIB. The new NCIB commenced believes that it is advantageous for Onex and its sharehold- on April 18, 2018 and will conclude on the earlier of the date ers to continue to repurchase Onex’ SVS from time to time on which purchases under the NCIB have been completed when the SVS are trading at prices that reflect a significant and April 17, 2019. A copy of the Notice of Intention to make discount to their value as perceived by Onex, while taking the NCIB filed with the Toronto Stock Exchange is available into account other opportunities to invest Onex’ cash. at no charge to shareholders by contacting Onex. On April 18, 2018, Onex renewed its NCIB follow- Under the previous NCIB that expired on April 17, ing the expiry of its previous NCIB on April 17, 2018. Under 2018, Onex repurchased 709,489 SVS at a total cost of the new NCIB, Onex is permitted to purchase up to 10% $53 million (C$66 million) or an average purchase price of of its public float of SVS, or 8,305,710 SVS. Onex may pur- $74.21 (C$93.01) per share. chase up to 32,165 SVS during any trading day, being 25% of The private transactions represent the repurchase its average daily trading volume for the six months ended of SVS that were held indirectly by Mr. Gerald W. Schwartz, March 31, 2018. Onex may also purchase SVS from time to Onex’ controlling shareholder, as described on page 79 of time under the Toronto Stock Exchange’s block purchase this MD&A. Table 21 shows a summary of Onex’ repurchases of SVS for the past 10 years. Onex’ Repurchases of SVS for the Past 10 Years Shares Repurchased Total Cost of Shares Repurchased (in C$ millions) Average Share Price (in C$ per share) 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 1,169,733 C$ 41 52 105 24 159 163 218 250 121 102 C$ 23.04 25.44 33.27 38.59 51.81 62.98 70.70 80.14 95.00 86.78 21,914,309 C$ 1,235 C$ 56.34 TABLE 21 2009 2010 2011 2012 2013(1) 2014(2) 2015(3) 2016(4) 2017(5) 2018(6) 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. (6) Includes 500,000 SVS repurchased in a private transaction. 64 Onex Corporation December 31, 2018 M A N A G E M E N T ’ S D I S C U S S I O N A N D A N A LY S I S Issuance of shares – Dividend Reinvestment Plan Onex’ Dividend Reinvestment Plan enables Canadian share- Stock Option Plan Onex, the parent company, has a Stock Option Plan in holders to reinvest cash dividends to acquire new SVS of place that provides for options and/or share apprecia- Onex at a market-related price at the time of reinvestment. tion rights to be granted to Onex directors, officers and During the period from January 1, 2018 to January 31, 2019, employees for the acquisition of SVS of Onex, the parent Onex issued 10,445 SVS at an average cost of C$86.97 per company, for a term not exceeding 10 years. The options SVS, creating a cash savings of $1 million (C$1 million). vest equally over five years, apart from a total of 4,025,000 options, which vest at a rate of 15% per year during the first Investments in operating companies by four years and 40% in the fifth year. The exercise price of shareholders other than Onex Onex recorded an increase in equity of $1.6 billion during the options issued is at the market value of the SVS on the business day preceding the day of the grant. Vested options 2018 primarily due to the investment by public shareholders are not exercisable unless the average five-day market price in new common shares issued in the initial public offering of of Onex SVS is at least 25% greater than the exercise price at SIG, as described on page 36 of this MD&A. the time of exercise. Repurchase of shares of operating companies Onex recorded a decrease in equity of $122 million during 2018 primarily due to shares repurchased by Celestica and At December 31, 2018, Onex had 13,491,917 options outstanding to acquire SVS, of which 7,121,717 options were vested and exercisable. Emerald Expositions. Table 22 provides information on the activity from Decem- Sale of interests in operating company under continuing control Onex recorded an increase in equity of $364 million dur- ing 2018 due to the sale of shares by the Onex Partners III Group in the March 2018 secondary offering of Emerald TABLE 22 ber 31, 2016 to December 31, 2018. Change in Stock Options Outstanding Expositions and the sale of shares by the Onex Partners IV Outstanding at December 31, 2016 12,943,183 C$ 55.98 Group in SIG’s initial public offering in October 2018, as Granted described on pages 35 and 36, respectively, of this MD&A. Non-controlling interests derecognized on loss of control of investment in operating companies Onex recorded a decrease in equity of $48 million during Surrendered Exercised Expired 2018 related to the non-controlling interests in Pinnacle Granted in December 2018 Renewable Energy, which were derecognized upon loss of Other grants in 2018 control over the company. Under IFRS, non-controlling interests represent the ownership interests of shareholders, other than Onex and its third-party limited partners in the Surrendered Exercised Expired Outstanding at December 31, 2017 12,378,442 C$ 57.81 Granted in January 2018(1) Number of Options Weighted Average Exercise Price 170,000 C$ 100.90 (597,641) C$ 28.97 (13,250) C$ 23.35 (123,850) C$ 68.31 1,052,250 C$ 92.15 1,002,350 C$ 78.64 23,500 C$ 93.08 (836,675) C$ 36.03 (40,000) C$ 15.95 (87,950) C$ 86.58 Onex Partners and ONCAP Funds, in Onex’ controlled oper- Outstanding at December 31, 2018 13,491,917 C$ 63.38 ating companies. Prior to the February 2018 initial public offering by Pinnacle Renewable Energy, the non-controlling interests balance included the ownership interests of management and the founding shareholders. (1) Options granted in January 2018 relate to services provided during the year ended December 31, 2017. During 2018, 2,078,100 options to acquire SVS were issued with a weighted average exercise price of C$85.64 per share, including 1,052,250 options granted in relation to services provided during the year ended December 31, 2017. The options vest at a rate of 20% per year from the date of grant. Onex Corporation December 31, 2018 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 During 2017, 170,000 options to acquire SVS were issued with a weighted average exercise price of C$100.90 Management Deferred Share Unit Plan In early 2017, Onex issued 28,670 DSUs to management per share. The options vest at a rate of 20% per year from having an aggregate value, at the date of grant, of $2 mil- the date of grant. lion (C$3 million) in lieu of that amount of cash compen- During 2018, 836,675 options were surrendered at sation for Onex’ 2016 fiscal year. In early 2018, Onex issued a weighted average exercise price of C$36.03 for aggregate 74,646 DSUs to management having an aggregate value, at cash consideration of $32 million (C$42 million), 40,000 the date of grant, of $5 million (C$7 million) in lieu of that options were exercised at a weighted average exercise price amount of cash compensation for Onex’ 2017 fiscal year. of C$15.95 and 87,950 options expired. At December 31, 2018, there were 743,139 (Decem- During 2017, 597,641 options were surrendered at ber 31, 2017 – 665,921) Management DSUs outstanding. a weighted average exercise price of C$28.97 for aggregate In early 2019, Onex issued 14,472 DSUs to man- cash consideration of $30 million (C$40 million), 13,250 agement having an aggregate value, at the date of grant, of options were exercised at a weighted average exercise price $1 million (C$1 million) in lieu of that amount of cash com- of C$23.35 and 123,850 options expired. pensation for Onex’ 2018 fiscal year. Director Deferred Share Unit Plan During the second quarter of 2018, an annual grant of counterparty financial institution to economically hedge Onex’ exposure to changes in the value of all outstanding 26,931 DSUs was issued to directors having an aggregate Management DSUs. Forward agreements were entered into with a value, at the date of grant, of $2 million (C$3 million). At December 31, 2018, there were 653,410 Director DSUs out- standing. Onex has economically hedged 584,421 of the outstanding Director DSUs with a counterparty financial institution. Director DSUs must be held until retirement from the Board and Management DSUs must be held until leaving the employ- ment of Onex. Table 23 reconciles the changes in the DSUs outstanding at December 31, 2018 from December 31, 2016. Change in Outstanding Deferred Share Units TABLE 23 Outstanding at December 31, 2016 Granted Additional units issued in lieu of compensation and cash dividends Outstanding at December 31, 2017 Granted Redeemed Director DSU Plan Management DSU Plan Number of DSUs Weighted Average Price Number of DSUs Weighted Average Price 665,871 27,720 10,445 704,036 26,931 C$ 100.74 C$ 96.69 C$ 93.88 (90,626) C$ 84.60 635,326 – – 30,595 C$ 88.00 665,921 – – – – Additional units issued in lieu of compensation and cash dividends 13,069 C$ 87.68 77,218 C$ 90.48 Outstanding at December 31, 2018 Hedged with a counterparty financial institution at December 31, 2018 Outstanding at December 31, 2018 – Unhedged 653,410 (584,421) 68,989 743,139 (743,139) – 66 Onex Corporation December 31, 2018 M A N A G E M 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 conserva- tive cash management policy driven towards maintain- has invested in cash and cash equivalents, near-cash invest- ing liquidity and preserving principal in all its short-term ments, short- and long-term investments managed by third- investments. party investment managers, and the investments made in At December 31, 2018, the fair value of investments, the operating businesses, credit strategies and other invest- including cash yet to be deployed, managed by third-party ments. Onex also manages capital from other investors in investment managers was $279 million (Decem ber 31, 2017 – the Onex Partners and ONCAP Funds and credit strategies. $1.0 billion). The decrease in investments managed by Onex’ objectives in managing capital are to: third-party investment managers was primarily driven by • preserve a financially strong parent company with appro- redemptions by Onex to fund investments completed dur- priate liquidity and no, or a limited amount of, debt so ing the year ended December 31, 2018. The investments are that funds are available to pursue new acquisitions and managed in a mix of short-term and long-term portfolios. growth opportunities, as well as support expansion of Short-term investments consist of liquid investments and its existing businesses. Onex does not generally have include money market instruments and commercial paper the ability to draw cash from its operating businesses. with original maturities of three months to one year. Long- Accordingly, maintaining adequate liquidity at the parent term investments consist of securities and include money company is important; market instruments, federal and municipal debt instru- • achieve an appropriate return on capital invested com- ments, corporate obligations and structured products with mensurate with the level of assumed risk; maturities of one to five years. The short- and long-term • build the long-term value of its operating businesses; investments have current Standard & Poor’s ratings ranging • control the risk associated with capital invested in any from BBB to AAA. The portfolio concentration limits range particular business or activity. All debt financing is within from a maximum of 10% for BBB investments to 100% for the operating businesses and each company is required AAA investments. The investments are managed to maintain to support its own debt. Onex Corporation does not an overall weighted average duration of two years or less. guarantee the debt of the operating businesses and there At December 31, 2018, Onex had access to uncalled are no cross-guarantees of debt between the operating committed limited partner capital for investments through businesses; and Onex Partners V ($5.4 billion) and ONCAP IV ($330 million), • have appropriate levels of committed limited partners’ as well as OCLP I ($82 million) after giving effect to the final capital available to invest along with Onex’ capital. This close and borrowings under the revolving credit facility. allows Onex to respond quickly to opportunities and pursue acquisitions of businesses of a size it could not achieve using only its own capital. The management of Non-controlling interests Non-controlling interests in equity in Onex’ consolidated limited partners’ capital also provides management fees balance sheets as at December 31, 2018 primarily represent to Onex and the ability to enhance Onex’ returns by earn- the ownership interests of shareholders, other than Onex ing a carried interest on the profits of limited partners. and its limited partners in the funds, in Onex’ controlled At December 31, 2018, Onex, the parent company, had totalled $3.1 billion at December 31, 2018 (2017 – $2.1 bil- $866 million of cash and cash equivalents on hand and lion). The balance increased primarily due to the issuance $573 million of near-cash items at fair value. Near-cash of treasury shares and the sale of common stock by the items include short- and long-term investments managed Onex Partners IV Group in SIG’s initial public offering in by third-party investment managers, as described below, October 2018. operating companies. The non-controlling interests balance $89 million invested in an unlevered fund managed by Onex Credit and $205 million in management fees receiv- able from limited partners of its private equity platforms. Onex Corporation December 31, 2018 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 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, 2018 were: notes thereto. Table 24 summarizes the major consolidated • a $159 million increase in accounts receivable primarily cash flow components for the years ended December 31, at Celestica and Clarivate Analytics, partially offset by a 2018 and 2017. Major Cash Flow Components TABLE 24 ($ millions) 2018 2017 decrease at Carestream Health; • a $273 million increase in inventory primarily at Celes- tica, SIG and WireCo, partially offset by a decrease in inventory at Flushing Town Center; • a $60 million increase in other current assets primar- Cash from operating activities $ 1,348 $ 1,875 ily at Credit Strategies, partially offset by a decrease at Cash from (used in) financing activities $ 2,130 $ (1,590 ) Flushing Town Center; and Cash from (used in) investing activities $ (4,084) $ 683 • a $229 million increase in accounts payable, accrued lia- Consolidated cash and cash equivalents bilities and other current liabilities primarily at Celestica. held by continuing operations $ 2,680 $ 3,362 Cash from operating activities Table 25 provides a breakdown of cash from operating Cash from operating activities for the year ended Decem- ber 31, 2018 also included $129 million of cash flows from the operating activities of discontinued operations. Dis- activities by cash generated from operations and changes continued operations for the year ended December 31, 2018 in non-cash working capital items, other operating activi- represent the operations of BrightSpring Health. ties and operating activities of discontinued operations for the years ended December 31, 2018 and 2017. The significant changes in non-cash working capital items Components of Cash from Operating Activities • a $59 million decrease in other current assets primarily TABLE 25 ($ millions) 2018 2017 at Flushing Town Center, Save-A-Lot and SIG; and • a $123 million increase in accounts payable, accrued lia- Cash generated from operations $ 1,425 $ 1,557 bilities and other current liabilities primarily at Celestica Changes in non-cash working capital items: and SIG. for the year ended December 31, 2017 were: 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 from operating activities of discontinued operations (159) (273) (60) 229 (263) 57 129 (34) 55 59 Cash from operating activities for the year ended Decem- ber 31, 2017 also included $110 million of cash flows from the operating activities of discontinued operations. Discon- 123 tinued operations for the year ended December 31, 2017 represent the operations of BrightSpring Health, JELD- WEN (up to May 2017) and USI (up to May 2017). 203 5 110 Cash from operating activities $ 1,348 $ 1,875 68 Onex Corporation December 31, 2018 M A N A G E M 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 from financing activities was $2.1 billion for 2018 Partially offsetting these were: • $826 million of net new long-term debt primarily from compared to cash used in financing activities of $1.6 billion the closing of a new CLO. This was partially offset by for 2017. Cash from financing activities for the year ended debt repayments made by Carestream Health, Emerald December 31, 2018 included: Expositions and Flushing Town Center; • $1.6 billion of contributions received primarily from the • $673 million of contributions received primarily from the limited partners of the Onex Partners and ONCAP Funds, limited partners of the Onex Partners and ONCAP Funds, as discussed under the Limited Partners’ Interests on as discussed under the Limited Partners’ Interests on page 62 of this MD&A; page 62 of this MD&A; • $1.4 billion of net new long-term debt primarily from • $259 million of proceeds from the Onex Partners III new long-term debt at KidsFoundation, Precision and Group’s sale of a portion of its shares in Emerald Expo- SMG, the closing of a new CLO and an increase in out- sitions and JELD-WEN’s initial public offerings; and standing debt at Celestica primarily related to acquisi- • $198 million from the issuance of share capital primarily tions, partially offset by the repayment of debt by SIG; due to Emerald Expositions’ issuance of treasury shares • $1.3 billion from the issuance of share capital primarily in its initial public offering. due to SIG’s issuance of treasury shares in its initial pub- lic offering, as discussed on page 36 of this MD&A; and • $631 million of proceeds from the Onex Partners III Cash from (used in) investing activities Cash used in investing activities totalled $4.1 billion for Group’s sale of a portion of its shares in Emerald Expo- the year ended December 31, 2018 compared to cash from sitions’ March 2018 secondary offering and the Onex investing activities of $683 million in 2017. Cash used in Partners IV Group’s sale of a portion of its shares in SIG’s investing activities for the year ended December 31, 2018 October 2018 initial public offering. primarily consisted of: Partially offsetting these were: • $2.6 billion used to fund acquisitions primarily related to the Onex Partners IV Group’s acquisition of SMG, the • $1.3 billion of distributions primarily to the limited part- Onex Partners IV and Onex Partners V Group’s acquisition ners of the Onex Partners and ONCAP Funds, as dis- of KidsFoundation, the ONCAP IV Group’s acquisitions of cussed under the Limited Partners’ Interests on page 62 AutoSource, Precision and Walter Surface Tech nologies of this MD&A; and and Celestica’s acquisitions of Atrenne Integrated Solu- • $1.2 billion of cash interest paid. tions and Impakt; • $1.8 billion of net purchases of investments and securi- For the year ended December 31, 2017, cash used in financ- ties by the credit strategies; ing activities was $1.6 billion and included: • $1.2 billion for investments in joint ventures and asso- • $2.3 billion of distributions primarily to the limited part- ciates, of which $872 million and $317 million related ners of the Onex Partners and ONCAP Funds, as dis- to the Onex Partners IV Group’s investments in Power- cussed under the Limited Partners’ Interests on page 62 School and Ryan, respectively; and of this MD&A; • $654 million used for the purchase of property, plant and • $1.0 billion of cash interest paid; and equipment primarily at Carestream Health, Celestica, • $156 million of net cash used by Onex, the parent com- Parkdean Resorts, Save-A-Lot, SIG and Survitec. pany, to acquire an interest in Onex Partners IV from a limited partner. Onex Corporation December 31, 2018 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 Partially offsetting these were: Partially offsetting these were: • $578 million of net proceeds received primarily from • $970 million used to fund acquisitions primarily related third-party investment managers from the sales of invest- to the Onex Partners IV Group’s acquisition of Parkdean ments and securities by Onex, the parent company, par- Resorts and the ONCAP IV Group’s acquisition of IntraPac tially offset by Onex and Onex management’s $175 million and Laces; investment in RSG; • $944 million of net purchases of investments and securi- • $570 million from the sale of investments in joint ven- ties by the credit strategies; tures and associates, representing the sale of Mavis Dis- • $709 million used for the purchase of property, plant and count Tire and the sale of common stock of Pinnacle equipment primarily at Carestream Health, Celestica, Renewable Energy in its June 2018 secondary offering; Parkdean Resorts, Pinnacle Renewable Energy, SIG and • $522 million of cash interest received primarily by the Survitec; and CLOs in credit strategies; and • $691 million of net purchases of investments and securi- • $410 million received from the sale of Tecta. ties primarily by Onex, the parent company, from third- party investment managers. Cash from investing activities totalled $683 million for the year ended December 31, 2017 and consisted primarily of: • $3.2 billion from the sale of companies and businesses Consolidated cash resources At December 31, 2018, consolidated cash held by continu- no longer controlled, primarily representing the sale of ing operations decreased to $2.7 billion from $3.4 billion at USI, the sale of common stock of JELD-WEN in its May December 31, 2017. The major component at December 31, 2017 secondary offering and the sale by Carestream 2018 was $866 million of cash on hand at Onex, the parent Health of its Dental Digital business; company (December 31, 2017 – $628 million). In addition • $591 million from the sale of investments in joint ven- to cash at the parent company, Onex had $573 million of tures and associates primarily representing the sale of near-cash items at December 31, 2018 (December 31, 2017 – common stock of JELD-WEN in its November 2017 sec- $1.3 billion). Near-cash items at December 31, 2018 include ondary offering; and short-term and long-term investments managed by third- • $367 million of cash interest received primarily by the party investment managers, as described on page 67 of CLOs in credit strategies. this MD&A, $89 million (December 31, 2017 – $181 million) invested in an unlevered fund managed by Onex Credit and $205 million (December 31, 2017 – $107 million) in manage- ment fees receivable from limited partners of its private equity platforms. 70 Onex Corporation December 31, 2018 M A N A G E M E N T ’ S D I S C U S S I O N A N D A N A LY S I S Cash and near-cash at Onex, the parent company Table 26 provides a reconciliation of the change in cash and near-cash at Onex, the parent company, from December 31, 2017 to December 31, 2018. Change in Cash and Near-Cash at Onex, the Parent Company TABLE 26 ($ millions) Cash and near-cash on hand at December 31, 2017(a) Private equity realizations: SIG initial public offering Mavis Discount Tire sale Tecta sale Emerald Expositions secondary offering and dividends Pinnacle Renewable Energy repayment of shareholder subordinated debt, secondary offering and dividends Parkdean Resorts repayment of loan note BBAM distributions Meridian Aviation distribution Other Private equity investments: Investment in PowerSchool Investment in RSG Acquisition of SMG Investment in Ryan Acquisition of Walter Surface Technologies Acquisition of KidsFoundation Acquisition of Precision Acquisition of AutoSource Investment in Wyse Other Flushing Town Center distributions Net credit strategies investment activity, including warehouse facilities Onex share repurchases, options exercised and dividends Net investment in Incline Aviation Fund Net other, including capital expenditures, management fees, operating costs and treasury income(b) Cash and near-cash on hand at December 31, 2018(a)(b) 180 173 133 36 26 22 12 8 13 (283) (172) (139) (86) (53) (47) (44) (16) (10) (5) Amount $ 1,947 603 (855) 101 (144) (134) (13) (66) $ 1,439 (a) Includes $279 million (December 31, 2017 – $1.0 billion) of short- and long-term investments managed by third-party investment managers, $89 million (December 31, 2017 – $181 million) invested in an Onex Credit unlevered senior secured loan strategy fund and $205 million (December 31, 2017 – $107 million) of management fees receivable. (b) Other includes the impact of incentive compensation payments paid in 2018, related to 2017, and foreign exchange on cash. Onex Corporation December 31, 2018 71 M A N A G E M E N T ’ S D I S C U S S I O N A N D A N A LY S I S A D D I T I O N A L U S E S O F C A S H Contractual obligations Table 27 presents the contractual obligations of Onex and its operating companies as at December 31, 2018. Contractual Obligations TABLE 27 ($ millions) Payments Due by Period Long-term debt, without recourse to Onex(a) $ 22,584 $ 895 Finance and operating leases Purchase obligations 3,743 233 328 163 Total Less than 1 year 1–3 years $ 2,727 526 61 4–5 years After 5 years $ 7,212 $ 11,750 369 9 2,520 – Total contractual obligations $ 26,560 $ 1,386 $ 3,314 $ 7,590 $ 14,270 (a) Excludes debt amounts of subsidiaries held by Onex, the parent company, debt of investments in joint ventures and associates, and debt of operating companies classified as discontinued operations. 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, 2018, Onex and its operating companies tions related to their defined benefit pension plans. The had total commitments of $1.8 billion. Commitments by operating companies estimate that $10 million of contri- Onex and its operating companies provided in the normal butions will be required in 2019 for their defined benefit course of business include commitments for corporate pension plans. Onex, the parent company, does not provide investments, capital assets and letters of credit, letters of pension, other retirement or post-retirement benefits to guarantee and surety and performance bonds. employees of any of the operating companies. In addition, Approximately $1.5 billion of the total commit- Onex, the parent company, does not have any obligations ments in 2018 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 guarantees. ment is provided in table 15 on page 56 of this MD&A. In These guarantees are without recourse to Onex, the parent addition, notes 14 and 15 to the consolidated financial company. statements provide further disclosure on long-term debt In February 2017, Mr. Gerald W. Schwartz, who is and lease commitments. Our consolidated operating com- Onex’ controlling shareholder, assumed $25 million of panies currently believe they have adequate cash from Onex’ commitment to Incline Aviation Fund, reducing the operations, cash on hand and borrowings available to them amount committed by Onex to investing in Incline Aviation to meet anticipated debt service requirements, capital Fund to $50 million. At December 31, 2018, Onex had expenditures and working capital needs. There is, however, uncalled commitments of $31 million (2017 – $45 million) no assurance that our consolidated operating companies to Incline Aviation Fund. will generate sufficient cash flow from operations or that Onex, the parent company, committed $100 million future borrowings will be available to enable them to grow to OCLP I. At December 31, 2018, Onex’ uncalled commit- their business, service all indebtedness or make antici- ted capital to OCLP I was $26 million, after giving effect to pated capital expenditures. the final close of OCLP I and borrowings under the revolving credit facility. 72 Onex Corporation December 31, 2018 M A N A G E M E N T ’ S D I S C U S S I O N A N D A N A LY S I S Onex’ commitment to the Funds Onex, the parent company, is the largest limited partner Pension plans At December 31, 2018, seven (2017 – six) of Onex’ operat- in each of the Onex Partners and ONCAP Funds. Table 28 ing companies have defined benefit pension plans, includ- presents the commitment and the uncalled committed cap- ing Carestream Health and SIG. At December 31, 2018, the ital of Onex, the parent company, in these funds at Decem- defined benefit pension plans at these operating compa- ber 31, 2018. nies had combined assets of $1.1 billion (2017 – $1.3 billion) against combined obligations of $1.2 billion (2017 – $1.3 bil- Commitment and Uncalled Committed Capital of Onex, the Parent Company, at December 31, 2018 lion), with a net deficit of $113 million (2017 – $52 million). A surplus in any plan is not available to offset deficiencies TABLE 28 ($ millions) Fund Size Onex’ Commitment 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 $ 400 $ 1,407 $ 1,200 $ 1,700 $ 2,000 C$ C$ $ 252 252 480 Onex’ Uncalled Committed Capital(a) $ $ $ $ 20 (b) 158 (b) 106(c) 121 $ 1,965 (d) C$ C$ 1 (b) 30 (c) in others. Onex, the parent company, has no obligation to the pension plans of its operating companies. The oper- ating companies with significant defined benefit pension plans are described below. At December 31, 2018, Carestream Health’s defined benefit pension plans were in an underfunded position of approximately $86 million (2017 – $89 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 $ 218 $1 million in 2019 to its defined benefit pension plans, and (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. it does not believe that future pension contributions will materially impact its liquidity. At December 31, 2018, SIG’s defined benefit pen- sion plans were in a net overfunded position of approxi- (c) Uncalled committed capital for Onex Partners III and ONCAP III is available mately $24 million (2017 – $30 million). The company’s for possible future funding of a remaining business and future funding of management fees and partnership expenses. (d) Amount is presented after giving effect to borrowings under the revolving credit facility, as described on page 57 of this MD&A. pension plan assets are broadly diversified in equity and debt investment funds, as well as other investments. SIG estimates that $5 million of contributions will be required for its defined benefit pension plans in 2019. Onex Corporation December 31, 2018 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 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 investments that are within the investment During 2003, Onex raised its first large-cap fund, Onex mandate of the funds and that are not related to Onex’ Partners I, with $1.655 billion of committed capital, includ- operating companies that existed prior to the formation of ing committed capital of $400 million from Onex. Since the funds. The funds provide a substantial pool of commit- 2003, Onex Partners I has completed 10 investments, ted capital, which enables Onex to be flexible and timely in investing $1.5 billion, including Onex. While Onex Part- responding to investment opportunities. ners I has concluded its investment period at December 31, 2018, the fund still has uncalled limited partners’ committed Table 29 provides a summary of the remaining commit- capital of $64 million for possible future funding of partner- ments available from limited partners at December 31, ship expenses. As a result of previously approved extensions, 2018. The remaining commitments for Onex Partners V the term of Onex Partners I was extended to February 4, and ONCAP IV will be primarily used for future Onex- 2021 and management fees are no longer being earned from sponsored acquisitions. The remaining commitments from Onex Partners I as of February 4, 2016. limited partners of Onex Partners I and II are for future funding of partnership expenses. The remaining commit- During 2006, Onex raised its second large-cap fund, Onex ments for Onex Partners III are for possible future funding Partners II, a $3.45 billion private equity fund, including of a remaining business and future funding of management committed capital of $1.4 billion from Onex. Onex Part- fees and partnership expenses. The remaining commit- ners II has completed seven investments, investing $2.9 bil- ments from limited partners of ONCAP II are for possible lion, including Onex. While Onex Partners II has concluded future funding of partnership expenses. The remaining its investment period, at December 31, 2018, the fund commitments from limited partners of Onex Partners IV still has uncalled limited partners’ committed capital of and ONCAP III are for possible future funding of remain- $241 million for possible future funding of partnership ing businesses and future funding of management fees and expenses. As a result of previously approved extensions, the partnership expenses. term of Onex Partners II was extended to August 1, 2019. Private Equity Funds’ Uncalled Limited Partners’ Committed Capital at December 31, 2018 During 2009, Onex completed fundraising for its third large- cap private equity fund, Onex Partners III, a $4.7 billion pri- vate equity fund. Onex’ commitment to Onex Partners III has been $1.2 billion for new investments completed since May 15, 2012. Onex Partners III has completed 10 invest- Available Uncalled Committed Capital (excluding Onex) (a) $ $ $ $ 64 241 336 255 ments, investing $4.2 billion, including Onex. The amount invested includes capitalized costs. While Onex Partners III has concluded its investment period, at December 31, 2018, the fund had uncalled limited partners’ committed capital $ 5,387 (b) of $336 million for possible future funding for one of Onex C$ C$ 2 70 $ 330 Partners III’s remaining businesses and for management fees and partnership expenses. In October 2017, the term of Onex Partners III was extended to April 29, 2020. TABLE 29 ($ millions) Onex Partners I Onex Partners II Onex Partners III Onex Partners IV Onex Partners V ONCAP II ONCAP III ONCAP IV (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) Amount is presented after giving effect to borrowings under the revolving credit facility, as described on page 57 of this MD&A. 74 Onex Corporation December 31, 2018 M A N A G E M E N T ’ S D I S C U S S I O N A N D A N A LY S I S During 2014, Onex completed fundraising for its fourth During 2011, Onex raised its third mid-market private large-cap private equity fund, Onex Partners IV, a $5.7 bil- equity fund, ONCAP III, a C$800 million private equity lion private equity fund. Since June 3, 2015, Onex’ com- fund, including committed capital of C$252 million from mitment to Onex Partners IV was $1.7 billion, until Onex Onex. ONCAP III has completed eight investments, invest- acquired an additional interest of $220 million in Onex ing C$632 million, including Onex. While ONCAP III has Partners IV from a limited partner during 2017. Onex Part- concluded its investment period, at December 31, 2018, ners IV has completed 13 investments, investing $5.4 bil- the fund had uncalled limited partners’ committed capi- lion, including Onex. The amount invested includes tal of C$70 million for possible future funding for any of capitalized costs. While Onex Partners IV has concluded ONCAP III’s remaining businesses and for management its investment period, at December 31, 2018, Onex Part- fees and partnership expenses. ners IV had $255 million of uncalled limited partners’ com- mitted capital available for possible future funding of Onex In November 2016, Onex raised its fourth mid-market pri- Partners IV’s remaining businesses and for management vate equity fund, ONCAP IV, reaching aggregate commit- fees and partnership expenses. ments of $1.1 billion, including Onex’ commitment of $480 million. ONCAP IV has completed seven investments, During 2017, Onex completed fundraising for its fifth investing $595 million, including Onex. At December 31, large-cap private equity fund, Onex Partners V, a $7.15 bil- 2018, ONCAP IV had uncalled limited partners’ committed lion private equity fund. Onex’ commitment to the fund is capital of $330 million available for future investments and $2.0 billion. As of December 31, 2018, Onex Partners V had for management fees and partnership expenses. completed one investment, investing $111 million, including Onex. At December 31, 2018, Onex Partners V had $5.4 billion of uncalled limited partners’ committed capital available for Onex Credit Lending Partners Onex’ private debt fund provides a pool of committed capi- future investments and for management fees and partner- tal for investments in senior secured loans and other loan ship expenses. investments in middle-market, upper middle-market and large private equity sponsor-owned portfolio companies During 2006, Onex raised its second mid-market fund, and, selectively, other corporate borrowers predominantly ONCAP II, a C$574 million private equity fund, includ- in the United States and, selectively, in Canada and Europe. ing a commitment of C$252 million from Onex. ONCAP II In November 2018, Onex completed the closing has completed eight investments, investing C$483 mil- of OCLP I, reaching aggregate commitments of $413 mil- lion, including Onex. At December 31, 2018, the fund had lion, including $100 million from Onex. At December 31, uncalled committed limited partners’ capital of C$2 mil- 2018, after giving effect to the final close and borrowings lion for possible future funding of partnership expenses. under the revolving credit facility, OCLP I had uncalled As a result of previously approved extensions, the term of limited partners’ committed capital of $82 million available ONCAP II was extended to Novem ber 22, 2020. for future investments, management fees and partnership expenses. Onex Corporation December 31, 2018 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 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 76 Onex Corporation December 31, 2018 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 ending in November 2024 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 4,025,000 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 • 25% of gross proceeds to be reinvested in SVS or Management DSUs until 1,000,000 shares and DSUs owned • corresponds to participation in minimum “at risk” ONCAP management equity investment • satisfaction of exercise price (market value at grant date) n/a n/a • investment of elected portion of annual compensation in Management DSUs • value reflects changes in Onex’ share price • units not redeemable while employed • investment of elected portion of annual directors’ fees in Director DSUs • value reflects changes in Onex’ share price • units not redeemable until retirement M A N A G E M E N T ’ S D I S C U S S I O N A N D A N A LY S I S (i) Management Investment Plan 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, 2018. 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 2014 2015 2016 2017 2018 Total Carried Interest Received $ 171 1 14 121 37 $ 344 additional 7.5% of Onex’ gain. The plan has vesting require- During 2018, Onex, the parent company, received carried ments, certain limitations and voting requirements. interest totalling $37 million primarily from the sales of During 2018, management received $22 million Mavis Discount Tire and Tecta; the partial sales of Emerald under the MIP (2017 – $34 million). Notes 1 and 33(d) to Expositions and Pinnacle Renewable Energy; and distri- the consolidated financial statements provide additional butions from BBAM and Meridian Aviation. Onex has the details on the MIP. (ii) Carried interest participation potential to receive $110 million of carried interest on its businesses in the Onex Partners and ONCAP Funds based on their fair values as determined at December 31, 2018. The General Partners of the Onex Partners and ONCAP During 2017, Onex, the parent company, received Funds, which are controlled by Onex, are entitled to a car- carried interest totalling $121 million primarily from the ried interest of 20% on the realized net gains of the limited sale of USI and the partial sales of BBAM, Emerald Expo- partners in each fund, subject to an 8% compound annual sitions and JELD-WEN. preferred return to those limited partners on all amounts contributed in each particular fund. Onex is entitled to 40% During the year ended December 31, 2018, management of the carried interest realized in the Onex Partners and of Onex and ONCAP received carried interest totalling ONCAP Funds. Onex management is allocated 60% of the $90 million primarily from the sales of Mavis Discount Tire carried interest realized in the Onex Partners Funds and and Tecta; the partial sales of Emerald Expositions and ONCAP management is allocated 60% of the carried inter- Pinnacle Renewable Energy; and distributions from BBAM est realized in the ONCAP Funds and an equivalent carried and Meridian Aviation. Management of Onex and ONCAP interest on Onex’ capital. Once the ONCAP IV investors have the potential to receive $195 million of carried inter- achieve a return of two times their aggregate capital contri- est on businesses in the Onex Partners and ONCAP Funds butions, carried interest participation increases from 20% based on their values as determined at December 31, 2018. to 25% of the realized net gains in ONCAP IV. Under the During the year ended December 31, 2017, manage- terms of the partnership agreements, the General Partners ment of Onex and ONCAP received carried interest totalling may receive carried interest as realizations occur. The ulti- $186 million primarily from the sale of USI and the partial mate amount of carried interest earned will be based on sales of BBAM, Emerald Expositions and JELD-WEN. the overall performance of each fund, independently, and includes typical catch-up and claw-back provisions within each fund, but not between funds. Onex Corporation December 31, 2018 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 (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 4,025,000 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 65 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, 2018 and 2017. Company has entered into forward agreements with a coun- terparty financial institution representing approximately (iv) Management Deferred Share Unit Plan 89% of the grants under the Director DSU Plan. Table 23 on Effective December 2007, a Management DSU Plan was page 66 of this MD&A provides details of the change in the established as a further means of encouraging personal DSUs outstanding during 2018 and 2017. and direct economic interests by the Company’s senior management in the performance of the SVS. Under the Management DSU Plan, the members of the Company’s Onex management team investments in Onex’ Funds The Onex management team invests meaningfully in each senior management team are given the opportunity to operating business acquired by the Onex Partners and designate all or a portion of their annual compensation to ONCAP Funds and in strategies managed by Onex Credit. acquire DSUs based on the market value of Onex shares at The structure of the Onex Partners and ONCAP the time in lieu of cash. Management DSUs vest immedi- Funds requires the management of Onex Partners and ately but are redeemable by the participant only after he or ONCAP Funds to invest a minimum of 1% in all acquisitions, she has ceased to be an officer or employee of the Company with the exception of Onex Partners IV, Onex Partners V and or an affiliate for a cash payment equal to the then current ONCAP IV, which require a minimum 2% investment in all market price of SVS. Additional units are issued equiva- acquisitions. This investment includes the minimum “at lent to the value of any cash dividends that would have risk” equity investment, on which the management of Onex been paid on the SVS. To hedge Onex’ exposure to changes and ONCAP earn carried interest, as described on page 77 of in the trading price of Onex shares associated with the this MD&A. Management DSU Plan, the Company enters into forward The Onex management team and directors have agreements with a counterparty financial institution for committed to invest 4% of the total capital invested by all grants under the Management DSU Plan. The costs of Onex Partners V for new investments completed in 2019, those arrangements are borne entirely by participants in including the minimum “at risk” equity investment. The the Management DSU Plan. DSUs are redeemable only for Onex management team and directors have committed to cash and no shares or other securities of Onex will be issued invest 8% of the total capital invested by ONCAP IV for new on the exercise, redemption or other settlement thereof. investments completed in 2019, including the minimum “at Table 23 on page 66 of this MD&A provides details of the risk” equity investment. The Onex management team and change in the DSUs outstanding during 2018 and 2017. directors invest in any add-on investments in existing busi- nesses pro-rata with their initial investment in the relevant business. 78 Onex Corporation December 31, 2018 M A N A G E M 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 2018 by the Onex management team and directors in acquisitions and Tax loss transaction During 2018 and 2017, 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 $145 million (2017 – $41 million). Mr. Gerald W. Schwartz, who is Onex’ controlling share- In addition, the Onex management team may holder. Onex received $4 million (2017 – $5 million) in cash invest in Onex Credit strategies. At December 31, 2018, for tax losses of $41 million (2017 – $48 million). The cash investments at market held by the Onex management team received was recorded as a gain in other expense (income). in Onex Credit strategies were approximately $325 million Onex has significant non-capital and capital losses avail- (2017 – approximately $355 million). able; however, Onex does not expect to generate sufficient taxable income to fully utilize these losses in the foresee- Investment in Onex shares and other investments In 2006, Onex adopted a program designed to further able future. As such, no benefit was previously recognized in the consolidated financial statements for the tax losses align the interests of the Company’s senior management sold. In connection with the 2018 and 2017 transactions, and other investment professionals with those of Onex an independent accounting firm retained by Onex’ Audit shareholders through increased share ownership. Under and Corporate Governance Committee provided an opin- this program, members of senior management of Onex ion that the value received by Onex for the tax losses was are required to invest at least 25% of all amounts received fair from a financial point of view. The transactions were on the 7.5% gain allocated under the MIP and the Onex 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 2018 Onex management reinvested C$5 million (2017 – C$33 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, 2018, Onex’ uncalled commitment to Incline ONCAP Funds, including co-investment opportunities, at Aviation Fund was $31 million. the same time and cost as Onex and other outside investors. Management of Onex has committed approxi- During 2018, $12 million (2017 – $1 million) in investments mately $40 million to Incline Aviation Fund, which includes were made by the Onex management team and directors in the $25 million commitment by Mr. Schwartz. Incline Aviation Fund. Repurchase of shares In May 2018, Onex repurchased in a private transaction Celestica real property sale In July 2015, Celestica entered into an agreement of pur- chase and sale to sell certain of its real property to a spe- 500,000 (March 2017 – 750,000) of its SVS that were held cial-purpose entity to be formed by a consortium of real indirectly by Mr. Gerald W. Schwartz, who is Onex’ control- estate developers (the “Property Purchaser”). Mr. Gerald W. ling shareholder. The private transaction was approved by Schwartz, who is Onex’ controlling shareholder and who the disinterested directors of the Board of Directors of the was a director of Celestica until December 31, 2016, has an Company. The shares were repurchased at C$93.00 (March indirect interest in the Property Purchaser. 2017 – C$94.98) per SVS, or a total cost of $36 million In September 2018, the agreement of purchase (C$47 million) (March 2017 – $53 million (C$71 million)), and sale was assigned to a new purchaser who is unrelated which represents a slight discount to the trading price of to the Property Purchaser, Celestica or Onex. The Property Onex shares at that date. Purchaser may be granted an option to retain a minimal interest in the transaction, subject to certain terms and conditions. Onex Corporation December 31, 2018 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 Management fees Onex receives management fees on limited partner capi- Incentive fees Onex Credit is entitled to incentive fees on $8.6 billion of tal through its private equity platforms (Onex Partners and fund investor capital that it manages as of December 31, ONCAP Funds), its credit platform (Onex Credit Funds, 2018. Incentive fees range between 15% and 20%. Certain CLOs and Onex Credit Lending Partners) and directly incentive fees are subject to a hurdle or minimum pre- from certain of its operating businesses. As Onex consoli- ferred return to investors. dates the Onex Partners, ONCAP and Onex Credit Lending Partners Funds, CLOs and certain Onex Credit Funds, the management fees received in respect of limited partner capital represent related party transactions. During the initial fee period of the Onex Partners 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 and ONCAP Funds, Onex receives a management fee based The Chief Executive Officer and the Chief Financial Officer on limited partners’ committed capital to each fund. At have designed, or caused to be designed under their super- December 31, 2018, the management fees of Onex Part- vision, internal controls over financial reporting to provide ners V and ONCAP IV are determined based on limited reasonable assurance regarding the reliability of financial partners’ committed capital. reporting and the preparation of financial statements for Following the termination of the initial fee period, external purposes in accordance with IFRS. The Chief Onex becomes entitled to a management fee based on lim- Executive Officer and the Chief Financial Officer have also ited partners’ net funded commitments. At December 31, designed, or caused to be designed under their supervi- 2018, the management fees of Onex Partners III and IV and sion, disclosure controls and procedures to provide reason- ONCAP II and III are determined based on their limited able assurance that information required to be disclosed partners’ net funded commitments. As realizations occur in by the Company in its corporate filings has been recorded, these funds, the management fees calculated based on lim- processed, summarized and reported within the time peri- ited partners’ net funded commitments will decrease. ods specified in securities legislation. Onex has elected to defer cash receipt of manage- A control system, no matter how well conceived ment fees from limited partners of certain private equity and operated, can provide only reasonable, not absolute, funds until the later stages of each fund’s life. At Decem- assurance that its objectives are met. Due to the inherent ber 31, 2018, $205 million (December 31, 2017 – $107 million) limitations in all such systems, no evaluations of controls of management fees were receivable from the limited part- can provide absolute assurance that all control issues, if ners of the private equity funds. any, within a company have been detected. Accordingly, Onex Credit earns management fees on $9.0 bil- our internal controls over financial reporting and disclo- lion of fund investor capital as of December 31, 2018. The sure controls and procedures are effective in providing rea- management fees currently range from 0.45% to 1.50% of sonable, not absolute, assurance that the objectives of our the net asset value or 0.55% of the gross invested assets in control systems have been met. Onex Credit Funds, up to 0.50% on the capital invested in its CLOs, and up to 1.25% of funded commitments, as well as up to 0.50% of unfunded commitments in Onex Credit Lending Partners. 80 Onex Corporation December 31, 2018 M A N A G E M 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 our approach to managing certain Onex maintains an active involvement in its oper- risks that we believe could be material to Onex and could ating businesses in the areas of strategic planning, financial adversely affect Onex’ business, financial condition or structures, and negotiations and acquisitions. In the early results of operations. The risks described below are not stages of ownership, Onex may provide resources for busi- the only risks that may impact our business. Certain addi- ness and strategic planning and financial reporting while tional risks are described in our Annual Information Form an operating business builds these capabilities in-house. for the year ended December 31, 2018 as filed on SEDAR. In almost all cases, Onex ensures there is oversight of its Additional risks not currently known to us or that we cur- investment through representation on the acquired com- rently believe are immaterial may also have a material pany’s board of directors. Onex does not get involved in the adverse effect on future business and operations. day-to-day operations of acquired companies. As managers, it is our responsibility to identify Operating businesses are encouraged to reduce and manage business risk. As shareholders, we require an risk and/or expand opportunity by diversifying their cus- appropriate return for the risk we accept. tomer bases, broadening their geographic reach or product Managing risk Onex’ general approach to the management of risk is to and service offerings, and improving productivity. In certain instances, we may also encourage an operating business to seek additional equity in the public markets in order to con- apply common-sense business principles to the manage- tinue its growth without eroding its balance sheet. One ele- ment of the Company, the ownership of its operating busi- ment of this approach may be to use new equity investment, nesses and the acquisition of new businesses. Each year, when financial markets are favourable, to prepay existing detailed reviews are conducted of many opportunities to debt and absorb related penalties. Some of the strategies purchase either new businesses or add-on acquisitions for and policies to manage business risk at Onex and its operat- existing businesses. Onex’ primary interest is in acquiring ing businesses are discussed in this section. well-managed companies with a strong position in growing industries. In addition, diversification among Onex’ operat- ing businesses enables Onex to participate in the growth Business cycles Diversification by industry and geography is a deliber- of a number of high-potential industries with varying busi- ate strategy at Onex to reduce the risk inherent in busi- ness cycles. ness cycles. Onex’ practice of owning companies in various As a general rule, Onex attempts to arrange as industries with differing business cycles reduces the risk many factors as practical to minimize risk without ham- of holding a major portion of Onex’ assets in just one or pering its opportunity to maximize returns. When an two industries. Similarly, the Company’s focus on build- acquisition opportunity meets Onex’ criteria, for example, ing industry leaders with extensive international opera- typically a fair price is paid for a high-quality business. tions reduces the financial impact of downturns in specific Onex does not commit all of its capital to a single acquisi- regions. Onex is well-diversified among various industry tion and has equity partners with whom it shares the risk of segments, with no single industry or business representing ownership. The Onex Partners and ONCAP Funds stream- more than 12% of its capital. The table in note 36 to the con- line Onex’ process of sourcing and drawing on commit- solidated financial statements provides information on the ments from such equity partners. geographic diversification of Onex’ consolidated revenues. An acquired company is not burdened with more debt than it can likely sustain, but rather is structured so that it has the financial and operating leeway to maxi- 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. Onex Corporation December 31, 2018 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 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 depen- can do to control risk is to maintain a strong parent com- dent in part on its ability to successfully complete large pany with an appropriate level of liquidity. Onex needs acquisitions. Our preferred course is to complete acquisi- to be in a position to support its operating businesses tions on an exclusive basis. However, we also participate when and if it is appropriate and reasonable for Onex, as in large acquisitions through investment bank-led auction an equity owner with paramount duties to act in the best processes with multiple potential purchasers. These pro- interests of Onex shareholders, to do so. Maintaining suffi- cesses are often very competitive for the large-scale acqui- cient liquidity is important because Onex, as a holding sitions that are Onex’ primary interest, and the ability to company, generally does not have guaranteed sources of make knowledgeable, timely investment commitments is a meaningful cash flow other than management fees. The key component in successful purchases. In such instances, $192 million in run-rate management fees that are expected the vendor often establishes a relatively short time frame to be earned in 2019 will be used to substantially offset the for Onex to respond definitively. In order to improve the costs of running the parent company. efficiency of Onex’ internal processes on both auction and A significant portion of the purchase price for exclusive acquisition processes, and so reduce the risk of new acquisitions is generally funded with debt provided missing out on high-quality acquisition opportunities, by third-party lenders. This debt, sourced exclusively on Onex has committed pools of capital from limited partner the strength of the acquired company’s financial condition investors with the Onex Partners and ONCAP Funds. As and prospects, is debt of the acquired company at closing at December 31, 2018, Onex Partners V and ONCAP IV had and is without recourse to Onex, the parent company, or $5.4 billion and $330 million, respectively, of uncalled com- to its other operating companies or partnerships. The fore- mitted limited partners’ capital. most consideration, however, in developing a financing During 2017, Onex Partners V raised $7.15 billion structure for an acquisition is identifying the appropriate of committed limited partners’ capital, including Onex’ amount of equity to invest. In Onex’ view, this should be $2.0 billion commitment. The ability to raise new capital the amount of equity that maximizes the risk/reward equa- commitments is dependent on the fundraising environ- tion for both shareholders and the acquired company. In ment generally and the track record Onex has achieved other words, it allows the acquired company to not only with the investment and management of prior funds. To manage its debt through reasonable business cycles but date, Onex has a strong track record of investing other also to have sufficient financial latitude for the business to investors’ capital and many investors in the original Onex vigorously pursue its growth objectives. Partners and ONCAP Funds have committed to invest in While Onex seeks to optimize the risk/reward the successor funds that have been established. equation in all acquisitions, there is the risk that the Capital commitment risk The limited partners acquired company will not generate sufficient profitability in the Onex Partners and ONCAP Funds comprise a rela- or cash flow to service its debt requirements and/or meet tively small group of high-quality, primarily institutional, related debt covenants or provide adequate financial investors. To date, each of these investors has met its com- flexibility for growth. In such circumstances, additional mitments on called capital, and Onex has received no investment by the equity partners, including Onex, may be indications that any investor will be unable to meet its com- appropriate. In severe circumstances, the recovery of Onex’ mitments in the future. While Onex’ experience with its lim- equity and any other investment in that operating com- ited partners suggests that commitments will be honoured, pany is at risk. there is always the risk that a limited partner may not be able to meet its entire commitment over the life of the fund. 82 Onex Corporation December 31, 2018 M A N A G E M E N T ’ S D I S C U S S I O N A N D A N A LY S I S Financial risks In the normal course of business, Onex and its operating had a fixed interest rate or the interest rate was effectively fixed by interest rate swap contracts. The risk inherent in companies may face a variety of risks related to financial such a strategy is that, should interest rates decline, the management. In dealing with these risks, it is a matter of benefit of such decline may not be obtainable or may only Company policy that neither Onex nor its operating com- be achieved at the cost of penalties to terminate existing panies engage in speculative derivatives trading or other arrangements. There is also the risk that the counterparty speculative activities. on an interest rate swap agreement may not be able to Default on known credit As previously noted, meet its commitments. Guidelines are in place that specify new investments generally include a meaningful amount the nature of the financial institutions that operating com- of third-party debt. Those lenders typically require that the panies can deal with on interest rate contracts. acquired company meet ongoing tests of financial perfor- Onex Credit Lending Partners and the CLOs mance as defined by the terms of the lending agreement, are exposed to interest rate risk on the debt issued by such as ratios of total debt to operating income (or EBITDA) each fund, as substantially all interest for debt issued by and the ratio of operating income (or EBITDA) to interest the funds is based on a spread over a floating base rate. costs. It is Onex’ practice to not burden acquired compa- However, the interest rate risk is largely offset within each nies with levels of debt that might put at risk their ability to fund by holding investments in debt securities which generate sufficient levels of profitability or cash flow to ser- receive interest based on a spread over the same or similar vice their debts – and thereby meet their related debt cov- floating base rate. enants – or which might hamper their flexibility to grow. Onex, the parent company, has exposure to inter- Financing risk Volatility in the global credit mar- est rate risk primarily through its short- and long-term kets has created some unpredictability about whether busi- investments managed by third-party investment manag- nesses will be able to obtain new loans. This represents ers. As interest rates change, the fair values of fixed income a risk to the ongoing viability of many otherwise healthy investments are inversely impacted. Investments with businesses whose loans or operating lines of credit are shorter durations are less impacted by changes in inter- up for renewal in the short term. A significant portion of est rates compared to investments with longer durations. Onex’ operating companies’ refinancings will take place in At December 31, 2018, Onex’ short- and long-term invest- 2022 and thereafter. Table 16 on page 60 of this MD&A pro- ments included $216 million of fixed income securities vides the aggregate debt maturities for Onex’ consolidated measured at fair value, which are subject to interest rate operating companies and investments in joint ventures risk. These securities had a weighted average duration of and associates for each of the years up to 2023 and in total 1.4 years. Other factors, including general economic and thereafter. political conditions, may also affect the value of fixed Interest rate risk An important element in con- income securities. These risks are monitored on an ongo- trolling risk is to manage, to the extent reasonable, the ing basis and the short- and long-term investments may be impact of fluctuations in interest rates on the debt of the repositioned in response to changes in market conditions. operating company. Currency fluctuations The functional currency of Onex’ operating companies generally seek to fix Onex, the parent company, and a majority of Onex’ oper- the interest on some of their term debt or otherwise mini- ating companies, is the U.S. dollar. Onex’ investments in mize the effect of interest rate increases on a portion of operating companies that have a functional currency other their debt at the time of acquisition. This is achieved by than the U.S. dollar or companies with global operations taking on debt at fixed interest rates or entering into inter- increase Onex’ exposure to changes in many currency est rate swap agreements or financial contracts to control exchange rates. In addition, a number of the operating the level of interest rate fluctuation on variable rate debt. companies conduct business outside the United States and At December 31, 2018, excluding credit strategies, approxi- as a result are exposed to currency risk on the portion of mately 39% of Onex’ operating companies’ long-term debt business that is not based on the U.S. dollar. Fluctuations Onex Corporation December 31, 2018 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 in the value of the U.S. dollar relative to these other cur- Additionally, resin and aluminum are significant rencies impact Onex’ reported results and consolidated commodities used by SIG. The company generally pur- financial position. Onex’ operating companies may use chases commodities at spot market prices and actively uses currency derivatives in the normal course of business to derivative instruments to hedge the exposure in relation to hedge against adverse fluctuations in key operating curren- the cost of resin (and its components) and aluminum. Due cies, but speculative activity is not permitted. Additionally, to this approach, the company has been able to fix prices where possible, Onex and its operating companies aim one year forward for approximately 80% of its expected to reduce the exposure to foreign currency fluctuations resin and aluminum purchases, which substantially min- through natural hedges by transacting in local currencies. imizes the exposure to the price fluctuations of the com- Onex’ results are reported in U.S. dollars, and modities over that period. fluctuations in the value of the U.S. dollar relative to other Rod, polymers and synthetic fibres are significant currencies will have an impact on Onex’ reported results commodities used by WireCo in its manufacturing opera- and consolidated financial position. During 2018, Onex’ tions, in addition to certain energy sources, principally equity balance reflected a $236 million decrease in the electricity, natural gas and propane. The company moni- value of Onex’ equity for the translation of its operations tors the cost of raw materials and, where possible, passes with non-U.S. dollar functional currencies (2017 – increase along price increases and decreases accordingly. The com- of $549 million). pany does not enter into commodity contracts to manage Fair value changes The fair value measurements the exposure on forecasted purchases of raw materials. for investments in joint ventures and associates, Limited Partners’ Interests and carried interest are primarily driven by the underlying fair value of the investments in the Onex Regulatory risk Certain of Onex’ operating companies and investment Partners and ONCAP Funds. A change to a reasonably pos- advisor affiliates may be subject to extensive government sible alternative estimate and/or assumption used in the regulations and oversight with respect to their business valuation of non-public investments in the Onex Partners activities. Failure to comply with applicable regulations, and ONCAP Funds could have a significant impact on the obtain applicable regulatory approvals or maintain those fair values calculated for investments in joint ventures and approvals may subject the applicable operating company associates, Limited Partners’ Interests and carried interest, to civil penalties, suspension or withdrawal of any regula- which would impact both Onex’ financial condition and tory approval obtained, injunctions, operating restrictions results of operations. Commodity price risk Certain Onex operating companies are vulnerable to price fluctuations in major commodities. Individual operat- ing companies may use financial instruments to offset the and criminal prosecutions and penalties, which could, individually or in the aggregate, have a material adverse effect on Onex’ consolidated financial position. Integration of acquired companies An important aspect of Onex’ strategy for value creation is impact of anticipated changes in commodity prices related to acquire what we consider to be “platform” companies. to the conduct of their businesses. Such companies often have distinct competitive advantages In particular, silver is a significant commodity in products or services in their respective industries that used in Carestream Health’s manufacturing of x-ray film. provide a solid foundation for growth in scale and value. In The company’s management continually monitors move- these instances, Onex works with company management ments and trends in the silver market and enters into collar to identify attractive add-on acquisitions that may enable and forward agreements when considered appropriate to the platform company to achieve its goals more quickly and mitigate some of the risk of future price fluctuations, gen- successfully than by focusing solely on the development erally for periods of up to a year. and/or diversification of its customer base, which is known 84 Onex Corporation December 31, 2018 M A N A G E M 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 organic growth. Growth by acquisition, however, may carry more risk than organic growth. While as many of these Significant customers Some of Onex’ major acquisitions have been divisions of risks as possible are considered in the acquisition planning, large companies. As part of these purchases, the acquired operating companies undertaking these acquisitions also company has often continued to supply its former owner face such risks as unknown expenses related to the cost- through long-term supply arrangements. It has been Onex’ effective amalgamation of operations, the retention of key policy to encourage its operating companies to quickly personnel and customers, and the future value of goodwill, diversify their customer bases to the extent practical in intangible assets and intellectual property. There are also order to manage the risk associated with serving a single risk factors associated with the industry and the combined major customer. Certain Onex operating companies have business more generally. Onex works with company man- major customers that represent more than 10% of their agement to understand and attempt to mitigate such risks annual revenues. None of the major customers of the oper- as much as possible. ating companies represents more than 10% of Onex’ con- solidated revenues. Dependence on government funding Some of the revenues of businesses in the U.S. healthcare industry are partially dependent on funding from federal, Environmental considerations Onex has an environmental policy that has been adopted state and local government agencies, especially those agen- by its operating businesses subject to company-specific cies responsible for state Medicaid and Medicare funding. modifications; many of the operating businesses have also Budgetary pressures, as well as economic, industry, politi- adopted supplemental policies appropriate to their indus- cal and other factors, could influence governments to not tries or businesses. Senior officers at each of the operating increase or, in some cases, to decrease appropriations for businesses are ultimately responsible for ensuring compli- the services that are offered by Onex’ operating subsidiar- ance with these policies. They are required to report annu- ies, which could reduce their revenues materially. Future ally to their company’s board of directors and/or Onex revenues may be affected by changes in rate-setting struc- regarding compliance. tures, methodologies or interpretations that may be pro- Environmental management by the operating posed or are under consideration. Ongoing pressure on businesses is typically accomplished through the edu- government appropriations is a normal aspect of business cation of employees about environmental regulations for companies in the U.S. healthcare industry. Productivity and appropriate operating policies and procedures; site improvements and other initiatives are utilized to minimize inspections by environmental consultants; the addition of the effect of possible funding reductions. proper equipment or modification of existing equipment to reduce or eliminate environmental hazards; remediation Political uncertainty Recent and pending political events in a number of coun- activities as required; and ongoing waste reduction and recycling programs. Environmental consultants may be tries have resulted in increased uncertainty on aspects of engaged to advise on current and upcoming environmen- the business, operations or financial affairs of some of the tal regulations that may be applicable. businesses in which Onex is invested. The impact of those Certain operating businesses are involved in the events and ongoing or future developments cannot be remediation of particular environmental situations, such known or quantified at this time and may or may not have as soil contamination. In almost all cases, these situa- a material effect on Onex’ consolidated financial position. tions have occurred prior to Onex’ acquisition of those businesses, and the estimated costs of remedial work and related activities are managed either through agreements with the vendor of the company or through provisions Onex Corporation December 31, 2018 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 established at the time of acquisition. Manufacturing activ- ities carry the inherent risk that changing environmental Other contingencies Onex and its operating companies are or may become par- regulations may identify additional situations requiring ties to legal, product liability and warranty claims arising capital expenditures or remedial work and associated costs in the ordinary course of business. The operating com- to meet those regulations. Income taxes The Company has investments in companies that oper- panies have recorded liability provisions based on their consideration and analysis of their exposure in respect of such claims. Such provisions are reflected, as appropriate, in Onex’ consolidated financial statements. Onex, the par- ate in a number of tax jurisdictions. Onex provides for the ent company, has not currently recorded any further lia- tax on undistributed earnings of its subsidiaries that are bility provision and we do not believe that the resolution probable to reverse in the foreseeable future based on the of known claims would reasonably be expected to have a expected future income tax rates that are substantively material adverse impact on Onex’ consolidated financial enacted at the time of the income/gain recognition events. position. However, the final outcome with respect to out- Changes to the expected future income tax rate will affect standing, pending or future actions cannot be predicted the provision for future taxes, both in the current year and with certainty, and therefore there can be no assurance that in respect of prior year amounts that are still outstand- their resolution will not have an adverse effect on our con- ing, either positively or negatively, depending on whether solidated financial position. 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. 86 Onex Corporation December 31, 2018 M A N A G E M 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. Onex Corporation December 31, 2018 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 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”) are 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. 88 Onex Corporation December 31, 2018 M A N A G E M 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 entitle- ment 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 consideration. 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. Onex Corporation December 31, 2018 89 M A N A G E M E N T ’ S D I S C U S S I O N A N D A N A LY S I S 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. Private Lending consists of Onex Credit Lending Partners and private debt originated by Onex. 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. 90 Onex Corporation December 31, 2018 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 non-management independent Directors is appointed by the Board of Directors. The Audit and Corporate Governance Committee reviews the consolidated financial statements, adequacy of inter- nal controls, audit process and financial reporting with management and with the external auditors. The Audit and Corporate Governance Committee reports to the Board of Directors prior to the approval of the audited consolidated financial state- ments for publication. PricewaterhouseCoopers LLP, the Company’s external auditors, who are appointed by the holders of Subordinate Voting Shares, audited the consolidated financial statements in accordance with Canadian generally accepted auditing 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] Christopher A. Govan Chief Financial Officer February 28, 2019 [signed] Derek C. Mackay Vice President, Finance Onex Corporation December 31, 2018 91 INDEPENDENT AUDITOR’S REPORT To the Shareholders of Onex Corporation Our opinion In our opinion, the accompanying consolidated financial statements present fairly, in all material respects, the financial position of Onex Corporation and its subsidiaries (together, the Company) as at December 31, 2018 and 2017 and January 1, 2017, and its financial performance and its cash flows for the years ended December 31, 2018 and 2017 in accordance with International Financial Reporting Standards as issued by the International Accounting Standards Board (IFRS). What we have audited The Company’s consolidated financial statements comprise: • the consolidated balance sheets as at December 31, 2018 and 2017 and January 1, 2017; • the consolidated statements of earnings for the years ended December 31, 2018 and 2017; • the consolidated statements of comprehensive earnings for the years ended December 31, 2018 and 2017; • the consolidated statements of equity for the years ended December 31, 2018 and 2017; • the consolidated statements of cash flows for the years ended December 31, 2018 and 2017; and • the notes to the consolidated financial statements, which include a summary of significant accounting policies. Basis for opinion We conducted our audit in accordance with Canadian generally accepted auditing standards. Our responsibilities under those standards are further described in the Auditor’s responsibilities for the audit of the consolidated financial statements section of our report. We believe that the audit evidence we have obtained is sufficient and appropriate to provide a basis for our opinion. Independence We are independent of the Company in accordance with the ethical requirements that are relevant to our audit of the consolidated financial statements in Canada. We have fulfilled our other ethical responsibilities in accordance with these requirements. Other information Management is responsible for the other information. The other information comprises Management’s Discussion and Analysis, and the information, other than the consolidated financial statements and our auditor’s report thereon, included in the annual report. Our opinion on the consolidated financial statements does not cover the other information and we do not express any form of assurance conclusion thereon. In connection with our audit of the consolidated financial statements, our responsibility is to read the other information identified above and, in doing so, consider whether the other information is materially inconsistent with the consolidated financial statements or our knowledge obtained in the audit, or otherwise appears to be materially misstated. If, based on the work we have performed, we conclude that there is a material misstatement of this other information, we are required to report that fact. We have nothing to report in this regard. 92 Onex Corporation December 31, 2018 Responsibilities of management and those charged with governance for the consolidated financial statements Management is responsible for the preparation and fair presentation of the consolidated financial statements in accor- dance with IFRS, and for such internal control as management determines is necessary to enable the preparation of con- solidated financial statements that are free from material misstatement, whether due to fraud or error. In preparing the consolidated financial statements, management is responsible for assessing the Company’s ability to con- tinue as a going concern, disclosing, as applicable, matters related to going concern and using the going concern basis of accounting unless management either intends to liquidate the Company or to cease operations, or has no realistic alterna- tive but to do so. Those charged with governance are responsible for overseeing the Company’s financial reporting process. Auditor’s responsibilities for the audit of the consolidated financial statements Our objectives are to obtain reasonable assurance about whether the consolidated financial statements as a whole are free from material misstatement, whether due to fraud or error, and to issue an auditor’s report that includes our opin- ion. Reasonable assurance is a high level of assurance, but is not a guarantee that an audit conducted in accordance with Canadian generally accepted auditing standards will always detect a material misstatement when it exists. Misstatements can arise from fraud or error and are considered material if, individually or in the aggregate, they could reasonably be expected to influence the economic decisions of users taken on the basis of these consolidated financial statements. As part of an audit in accordance with Canadian generally accepted auditing standards, we exercise professional judgment and maintain professional skepticism throughout the audit. We also: • Identify and assess the risks of material misstatement of the consolidated financial statements, whether due to fraud or error, design and perform audit procedures responsive to those risks, and obtain audit evidence that is sufficient and appropriate to provide a basis for our opinion. The risk of not detecting a material misstatement resulting from fraud is higher than for one resulting from error, as fraud may involve collusion, forgery, intentional omissions, misrepresenta- tions, or the override of internal control. • Obtain an understanding of internal control relevant to the audit in order to design audit procedures that are appropri- ate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the Company’s internal control. • Evaluate the appropriateness of accounting policies used and the reasonableness of accounting estimates and related disclosures made by management. • Conclude on the appropriateness of management’s use of the going concern basis of accounting and, based on the audit evidence obtained, whether a material uncertainty exists related to events or conditions that may cast significant doubt on the Company’s ability to continue as a going concern. If we conclude that a material uncertainty exists, we are required to draw attention in our auditor’s report to the related disclosures in the consolidated financial statements or, if such disclosures are inadequate, to modify our opinion. Our conclusions are based on the audit evidence obtained up to the date of our auditor’s report. However, future events or conditions may cause the Company to cease to continue as a going concern. • Evaluate the overall presentation, structure and content of the consolidated financial statements, including the disclo- sures, and whether the consolidated financial statements represent the underlying transactions and events in a manner that achieves fair presentation. • Obtain sufficient appropriate audit evidence regarding the financial information of the entities or business activities within the Company to express an opinion on the consolidated financial statements. We are responsible for the direc- tion, supervision and performance of the group audit. We remain solely responsible for our audit opinion. Onex Corporation December 31, 2018 93 We communicate with those charged with governance regarding, among other matters, the planned scope and timing of the audit and significant audit findings, including any significant deficiencies in internal control that we identify during our audit. We also provide those charged with governance with a statement that we have complied with relevant ethical require- ments regarding independence, and to communicate with them all relationships and other matters that may reasonably be thought to bear on our independence, and where applicable, related safeguards. The engagement partner on the audit resulting in this independent auditor’s report is Christabelle Couture. [signed] PricewaterhouseCoopers llp Chartered Professional Accountants, Licensed Public Accountants Toronto, Ontario February 28, 2019 94 Onex Corporation December 31, 2018 CONSOLIDATED BALANCE SHEETS (in millions of U.S. dollars) Assets Current assets Cash and cash equivalents (note 5) Short-term investments (note 5) Accounts receivable Inventories (note 6) Other current assets (note 7) Assets held by discontinued operations (note 8) Property, plant and equipment (note 9) Long-term investments (note 10) Other non-current assets (note 11) Intangible assets (note 12) Goodwill (note 12) Liabilities and Equity Current liabilities Accounts payable and accrued liabilities Current portion of provisions (note 13) Other current liabilities Current portion of long-term debt, without recourse to Onex Corporation (note 14) Current portion of Limited Partners’ Interests (note 17) Liabilities held by discontinued operations (note 8) Non-current portion of provisions (note 13) Long-term debt, 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) As at December 31, 2018 As at December 31, 2017 As at January 1, 2017 $ 2,680 $ 3,376 $ 2,371 77 3,186 2,656 1,124 1,148 10,871 4,913 12,756 616 8,048 8,213 258 3,320 2,248 1,119 – 10,321 5,326 12,114 825 7,887 8,223 154 3,873 2,510 1,412 – 10,320 4,275 8,672 1,194 9,286 9,174 $ 45,417 $ 44,696 $ 42,921 $ 4,116 $ 4,396 $ 4,294 151 1,800 879 560 775 8,281 162 21,465 1,615 1,138 7,119 39,780 320 3,075 2,242 5,637 227 1,478 333 59 – 6,493 224 21,716 2,070 1,190 7,965 39,658 321 2,145 2,572 5,038 264 1,620 407 89 – 6,674 254 22,456 2,255 1,533 8,385 41,557 324 1,857 (817) 1,364 See accompanying notes to the consolidated financial statements, including the changes in accounting policies retrospectively adopted on January 1, 2018, as described in note 1. $ 45,417 $ 44,696 $ 42,921 Signed on behalf of the Board of Directors [signed] Director [signed] Director Onex Corporation December 31, 2018 95 CONSOLIDATED STATEMENTS OF EARNINGS Year ended December 31 (in millions of U.S. dollars except per share data) Revenues (note 22) Cost of sales (excluding amortization of property, plant and equipment, intangible assets and deferred charges) (note 23) Operating expenses (note 23) Interest income (note 1) Amortization of property, plant and equipment (note 9) Amortization of intangible assets and deferred charges Interest expense (note 24) Increase (decrease) in value of investments in joint ventures and associates at fair value, net (note 10) Stock-based compensation recovery (expense) (note 25) Other gains (note 26) Other expense (note 27) Impairment of goodwill, intangible assets and long-lived assets, net (note 28) Limited Partners’ Interests recovery (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 Earnings (Loss) from Continuing Operations attributable to: Equity holders of Onex Corporation Non-controlling Interests Loss from Continuing Operations for the Year Net Earnings (Loss) attributable to: Equity holders of Onex Corporation Non-controlling Interests Net Earnings (Loss) for the Year Net Earnings (Loss) per Subordinate Voting Share of Onex Corporation (note 29) Basic and Diluted: Continuing operations Discontinued operations Net Earnings (Loss) per Subordinate Voting Share for the Year 2018 2017 $ 23,785 $ 22,767 (17,563) (4,077) 538 (643) (744) (1,439) (585) 58 343 (517) (627) 714 (757) (89) (846) 50 (16,624) (3,903) 376 (612) (662) (1,191) 760 (175) 731 (703) (179) (1,350) (765) 66 (699) 3,103 $ (796) $ 2,404 $ $ $ $ (711) (135) (846) (663) (133) (796) $ $ (768) 69 (699) $ 2,401 3 $ 2,404 $ (7.05) 0.48 $ (6.57) $ (7.51) 31.05 $ 23.54 See accompanying notes to the consolidated financial statements, including the changes in accounting policies retrospectively adopted on January 1, 2018, as described in note 1. 96 Onex Corporation December 31, 2018 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 (losses) on 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 2018 2017 $ (796) $ 2,404 (236) (19) (4) (259) (53) – (312) 374 45 2 421 6 174 601 Total Comprehensive Earnings (Loss) for the Year $ (1,108) $ 3,005 Total Comprehensive Earnings (Loss) attributable to: Equity holders of Onex Corporation Non-controlling Interests Total Comprehensive Earnings (Loss) for the Year $ (863) (245) $ (1,108) $ 2,958 47 $ 3,005 See accompanying notes to the consolidated financial statements, including the changes in accounting policies retrospectively adopted on January 1, 2018, as described in note 1. Onex Corporation December 31, 2018 97 CONSOLIDATED STATEMENTS OF EQUITY Accumulated Other Comprehensive Earnings (Loss) Total Equity Attributable to Equity Holders of Onex Corporation $ (509)(a) $ (in millions of U.S. dollars except per share data) Balance – January 1, 2017 Change in accounting policy (note 1) Dividends declared(b) Options exercised Repurchase and cancellation of shares (note 20) Investments in operating companies by shareholders other than Onex(c) Distributions to non-controlling interests Repurchase of shares of operating companies(d) Sale of interests in operating companies under continuing control (note 3) Non-controlling interests derecognized on sale of investments in operating companies (note 8) Comprehensive Earnings (Loss) Net earnings 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 financial assets Remeasurements for post-employment benefit plans (note 34) Other comprehensive earnings from Share Capital (note 20) $ 324 – – 1 (4) Retained Earnings (Deficit) $ (305) (3) (23) – (89) – – – – – – – – – – 358 – – 185 – 2,401 – – – 22 discontinued operations, net of tax (note 8) Balance – December 31, 2017 Change in accounting policy (note 1) Dividends declared(b) Options exercised Repurchase and cancellation of shares (note 20) Investments in operating companies by shareholders – $ 321 – 1 2 (4) $ 1 $ 2,547 11 (26) – (75) other than Onex(c) Distributions to non-controlling interests Repurchase of shares of operating companies(d) Sale of interests in operating companies under continuing control (note 2) Non-controlling interests derecognized on loss of control of investment in operating company (note 2) Non-controlling interests derecognized on sale of investments in operating companies (note 2) Comprehensive Loss Net loss for the year Other comprehensive loss for the year, net of tax: Currency translation adjustments Change in fair value of derivatives designated as hedges Unrealized losses on financial assets Remeasurements for post-employment benefit plans (note 34) Balance – December 31, 2018 – – – – – – – – – – – 318 – – 305 – – (663) – – – (5) – – – – – – – – – – 352 28 1 – 153 25(e) – – – – – – – – – – – Non- controlling Interests $ 1,841 16 – – – 449 (15) (54) 74 (213) 3 22 17 1 (16) 20 $ 2,145 1 – – – 1,320 (28) (122) 59 (48) (7) Total Equity $ 1,351 13 (23) 1 (93) 807 (15) (54) 259 (213) 2,404 374 45 2 6 174 $ 5,038 12 (25) 2 (79) 1,638 (28) (122) 364 (48) (7) (490) (3) (23) 1 (93) 358 – – 185 – 2,401 352 28 1 22 154 $ 2,893 11 (25) 2 (79) 318 – – 305 – – (663) (133) (796) (189) (189) (3) (3) – (3) (3) (5) (47) (16) (1) (48) (236) (19) (4) (53) $ 320 $ 2,412 $ (170)(f) $ 2,562 $ 3,075 $ 5,637 (a) Accumulated Other Comprehensive Loss as at January 1, 2017 consisted of currency translation adjustments of negative $473, unrealized losses on the effective portion of cash flow hedges of $38 and unrealized gains on financial assets of $2. Accumulated Other Comprehensive Earnings (Loss) as at January 1, 2017 included $155 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 were C$0.3375 for the year ended December 31, 2018 (2017 – C$0.29375). In 2018, shares issued under the dividend (c) reinvestment plan amounted to $1 (2017 – 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 for the year ended December 31, 2017 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. Investments in operating companies by shareholders other than Onex for the year ended December 31, 2018 included the issuance of new shares by SIG in its initial public offering and a transfer of historical accounting carrying values associated with those ownership interests. (d) Repurchase of shares of operating companies during 2017 consisted primarily of shares repurchased by Celestica. Repurchase of shares of operating companies during 2018 consisted primarily of shares repurchased by Celestica and Emerald Expositions. (e) Accumulated Other Comprehensive Earnings 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 financial assets of $3. Accumulated Other Comprehensive Earnings (Loss) as at December 31, 2017 included $2 of net losses related to discontinued operations. Income taxes did not have a significant effect on these items. Accumulated Other Comprehensive Earnings (Loss) as at December 31, 2018 consisted of currency translation adjustments of negative $156 and unrealized losses on the effective portion of cash flow hedges of $14. Accumulated Other Comprehensive Earnings (Loss) as at December 31, 2018 included $2 of net losses related to discontinued operations. Income taxes did not have a significant effect on these items. (f) See accompanying notes to the consolidated financial statements, including the changes in accounting policies retrospectively adopted on January 1, 2018, as described in note 1. 98 Onex Corporation December 31, 2018 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 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 Decrease (increase) in value of investments in joint ventures and associates at fair value, net (note 10) Stock-based compensation expense (recovery) Other gains (note 26) Foreign exchange (gain) loss Impairment of goodwill, intangible assets and long-lived assets, net (note 28) Limited Partners’ Interests charge (recovery) (note 17) Change in provisions Change in carried interest 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 due to 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 Distributions paid to non-controlling interests and Limited Partners (note 17) Limited Partnership interest acquired by Onex, the parent company (note 3) Increase (decrease) due to other financing activities Cash flows from (used in) financing activities of discontinued operations (note 8) Investing Activities Acquisitions, net of cash and cash equivalents in acquired companies of $105 (2017 – $75) (note 4) Purchase of property, plant and equipment Proceeds from sales of operating companies and businesses no longer controlled (note 8) Proceeds from sales 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) Cash interest received Cash dividends received Change in restricted cash 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 2018 2017 $ (846) $ (699) 89 (538) 1,439 144 (241) 643 744 585 (111) (343) (31) 627 (714) 19 (132) 235 1,425 (159) (273) (60) 229 (263) 57 129 1,348 7,023 (5,597) (1,228) (25) (77) (122) 1,596 1,278 631 – (1,255) – (123) 29 2,130 (2,597) (654) 410 570 63 (1,243) 522 28 5 (1,781) 578 160 (145) (4,084) (606) (63) 3,362 14 2,707 27 (66) (376) 1,191 50 (241) 612 662 (760) 117 (731) 74 179 1,350 32 (39) 252 1,557 (34) 55 59 123 203 5 110 1,875 8,053 (7,227) (1,047) (22) (93) (54) 673 198 259 91 (2,332) (156) 113 (46) (1,590) (970) (709) 3,214 591 71 (6) 367 106 (38) (944) (691) (45) (263) 683 968 37 2,160 211 3,376 14 $ 2,680 $ 3,362 See accompanying notes to the consolidated financial statements, including the changes in accounting policies retrospectively adopted on January 1, 2018, as described in note 1. Onex Corporation December 31, 2018 99 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (in millions and in 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, insurance services, packaging products and services, business and information services, food retail and restaurants, aerospace automation, tooling and components, aircraft leasing and manage- ment, building products, childcare services, education software, holiday parks, hospital management services, industrial products, survival equipment and tax services, and in various middle-market private equity opportunities. Additionally, the Company has invest- ments in credit strategies and real estate. Note 36 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, 2018. All amounts are in millions and in U.S. dollars unless otherwise noted. The consolidated financial statements were authorized for issue by the Board of Directors on February 28, 2019. 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 dates the operations of the Onex Credit asset management plat- 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 form, certain funds managed by Onex Credit (“Onex Credit Funds”) in which Onex, the parent company, holds investments, collateralized loan obligations (“CLOs”) of Onex Credit and Onex The consolidated financial statements have been prepared in accor- Credit Lending Partners, referred to collectively as “Onex Credit” dance with International Financial Reporting Standards (“IFRS”) as or “credit strategies”. issued by the International Accounting Standards Board (“IASB”). The results of operations of subsidiaries are included in These consolidated financial statements were prepared on a going the consolidated financial statements from the date that control concern basis, under the historical cost convention, as modified by commences until the date that control ceases. All significant inter- the revaluation of financial assets and financial liabilities (including company balances and transactions have been eliminated. derivative instruments) at fair value through total comprehensive Certain investments in operating companies over earnings. which the Company has joint control or significant influence, but The U.S. dollar is Onex’ functional currency. As such, not control, are measured at fair value through earnings. These the financial statements have been reported on a U.S. dollar basis. investments are recorded at fair value in the consolidated balance sheets, with changes in fair value recognized in the consolidated C O N S O L I D AT I O N statements of earnings. The consolidated financial statements represent the accounts References to the Onex management team include the of Onex and its subsidiaries, including its controlled operat- management of Onex, ONCAP and Onex Credit. References to ing companies. Onex also controls and consolidates the opera- management without the use of team include only the relevant tions of Onex Partners LP (“Onex Partners I”), Onex Partners II LP group. References to the Onex Partners Groups represent Onex, (“Onex Partners II”), Onex Partners III LP (“Onex Partners III”), the limited partners of the relevant Onex Partners Fund, the Onex Onex Partners IV LP (“Onex Partners IV”) and Onex Partners V LP management team and, where applicable, certain other limited (“Onex Partners V”), referred to collectively as “Onex Partners”, partners as investors. References to the ONCAP Groups represent and ONCAP II L.P. (“ONCAP II”), ONCAP III LP (“ONCAP III”) and Onex, the limited partners of the relevant ONCAP Fund, the Onex ONCAP IV LP (“ONCAP IV”), referred to collectively as “ONCAP”, management team and, where applicable, certain other limited as described in note 33. In addition, Onex controls and consoli- partners as investors. 100 Onex Corporation December 31, 2018 N O T E S T O C O N S 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, 2018 December 31, 2017 Onex’ and Limited Partners’ Ownership Onex’ Ownership Voting Onex’ Ownership Onex’ and Limited Partners’ Ownership Voting 14% 36% 9% 16% 8% 25% 23% 29% 14% 80% 91% 100% 35% 66% 32% 100% 92% 88% (a) 66% 32%(a) 100% 92% 100% 13% 36% 9% 18% 8% 25% 24% 29% 13% 79% 91% 100% 35% 74% 31% 100% 94% 88% (a) 74% 31% (a) 100% 94% 100% 20% 98% 100% 20% 98% 100% 13% 27% 31% 28%(d) 16% 14% 32% 22% 18% 32% 21% 23% 50% 72% 95% 94%(d) 50% 42% 99% 68% 51% 99% 79% 71% 50%(a) 72% 100% 80% 50%(a) (a) 99% 68% 53% 99% 68% 71% 13% 27% 31% 28%(d) – – 32% 22% 35% – 21% 23% 50% 72% 95% 93%(d) – – 99% 68% 99% – 79% 71% 50% (a) 72% 100% 80% – – 99% 68% 94% – 68% 71% Investment made through Onex Celestica Inc. (“Celestica”) Investments made through Onex and Onex Partners II Carestream Health, Inc. (“Carestream Health”) Investments made through Onex and Onex Partners III BBAM Limited Partnership (“BBAM”) Emerald Expositions Events, Inc. (“Emerald Expositions”)(b) JELD-WEN Holding, Inc. (“JELD-WEN”) Meridian Aviation Partners Limited and affiliates (“Meridian Aviation”) SGS International, LLC (“sgsco”) York Risk Services Holding Corp. (“York”) Investments made through Onex, Onex Partners I and Onex Partners III BrightSpring Health Services (“BrightSpring Health”)(c) Investments made through Onex and Onex Partners IV Advanced Integration Technology LP (“AIT”) Clarivate Analytics Jack’s Family Restaurants (“Jack’s”) Parkdean Resorts PowerSchool Group LLC (“PowerSchool”)(e) Ryan, LLC (“Ryan”)(f) Save-A-Lot Schumacher Clinical Partners (“Schumacher”) SIG Combibloc Group AG (“SIG”)(g) SMG Holdings Inc. (“SMG”)(h) Survitec Group Limited (“Survitec”) WireCo WorldGroup (“WireCo”) Investments made through Onex, Onex Partners IV and Onex Partners V KidsFoundation Holdings B.V. (“KidsFoundation”)(i) 27% 98% 98% – – – Investment 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”) 88% 88% 100% 88% 88% 100% 47%(j) 29% 39% 100% 100% 100% 100% 100% 100% 47%(j) 29% 39% 100% 100% 100% 100% 100% 100% (a) Onex exerts joint control or significant influence over these investments, which are measured at fair value through earnings, through its right to appoint members to the boards of directors of these entities. (b) Emerald Expositions completed a secondary offering in March 2018, as described in note 2(d). (c) BrightSpring Health, formerly ResCare, is recorded as a discontinued operation, as described in note 2(q). (d) Ownership interests 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). (e) The ownership interest in PowerSchool was acquired in August 2018, as described in note 2(h). (f) The ownership interest in Ryan was acquired in October 2018, as described in note 2(l). (g) SIG completed an initial public offering in October 2018, as described in note 2(k). (h) SMG was acquired in January 2018, as described in note 2(a). (i) KidsFoundation was acquired in November 2018, as described in note 2(p). (j) Represents Onex’ blended economic ownership in the ONCAP II investments. Onex Corporation December 31, 2018 101 N O T E S T O C O N S O L I D AT E D F I N A N C I A L S TAT E M E N T S The ownership percentages are before the effect of any potential C H A N G E S I N A C C O U N T I N G P O L I C I E S dilution relating to the Management Investment Plan (the “MIP”), The Company has adopted the following new standards, along as described in note 33(d). The allocation of net earnings (loss) with any consequential amendments, effective January 1, 2018. and comprehensive earnings (loss) attributable to equity holders These changes were made in accordance with applicable transi- of Onex Corporation and non-controlling interests is calculated tional provisions. using the economic ownership of Onex and the limited partners. The voting interests include shares that Onex has the a) IFRS 15 – Revenue from Contracts with Customers right to vote through contractual arrangements or through multiple IFRS 15, Revenue from Contracts with Customers, supersedes IAS 18, voting rights attached to particular shares. In certain circumstanc- Revenue, and provides a comprehensive five-step revenue recogni- es, the voting arrangements give Onex the right to elect the major- tion model for all contracts with customers. On January 1, 2018, ity of the boards of directors of the companies. Onex may also con- and in accordance with the transition provisions in IFRS 15, the trol, jointly control or exert significant influence over a company standard was adopted retrospectively and comparative period through contractual rights. information has been restated. As a result of adopting IFRS 15, total equity on January 1, 2017 increased by $13. b) IFRS 9 – Financial Instruments IFRS 9, Financial Instruments, supersedes IAS 39, Financial Instru ments: Recognition and Measurement. On January 1, 2018, the Company adopted IFRS 9 retrospectively and has chosen to not restate comparative information in accordance with the transitional provisions in IFRS 9. As a result, the comparative information continues to be presented in accordance with the Company’s previous accounting policies. As a result of adopting IFRS 9, total equity on January 1, 2018 increased by $12 due to adjustments related to previous mod ifi- cations of long-term debt that did not result in derecognition. Financial assets were assessed to determine which measurement category they apply to, resulting in the following reclassifications: January 1, 2018 Opening balance – IAS 39 Fair Value through Net Earnings Recognized Designated Fair Value through OCI (2017 – Available-for-Sale) Amortized Cost (2017 – Loans and Receivables) Derivatives Used for Hedging Total $ 4,398 $ 11,109 $ 88 $ 3,875 $ 130 $ 19,600 Reclassification of investments held by Onex credit strategies(a) Reclassification of cash and cash equivalents(a) Other 7,142 3,376 408 (7,142) (3,376) (220) Opening balance – IFRS 9 $ 15,324 $ 371 $ – – 11 99 – – (69) – – (130) – – – $ 3,806 $ – $ 19,600 a) Under IFRS 9, financial assets that are managed and whose performance is measured on a fair value basis are required to be measured at fair value through net earnings. The Company previously made an election under IAS 39 to measure these financial assets at fair value through net earnings. 102 Onex Corporation December 31, 2018 N O T E S T O C O N S O L I D AT E D F I N A N C I A L S TAT E M E N T S Financial assets held by the Company, presented by financial statement line item, immediately following the adoption of IFRS 9 on January 1, 2018 were as follows: January 1, 2018 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 Fair Value through OCI Amortized Cost Total $ $ 3,376 $ 247 69 172 11,276 184 – – – – 371 – $ 15,324 $ 371 $ – 11 – 11 77 – 99 $ – – 3,251 430 10 115 $ 3,376 258 3,320 613 11,734 299 $ 3,806 $ 19,600 There were no significant changes to the classification of financial liabilities as a result of adopting IFRS 9. 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 Accounts receivable Accounts receivable are recognized initially at fair value and sub- The Company’s functional currency is the U.S. dollar, as it is sequently measured at amortized cost using the effective interest the currency of the primary economic environment in which it method, less loss allowances. During the year ended December 31, operates. For such operations, monetary assets and liabilities 2018 Onex’ operating companies applied the simplified approach denominated in foreign currencies are translated into U.S. dollars to measure expected credit losses, permitted by IFRS 9, Financial at the year-end exchange rates. Non-monetary assets and liabili- Instruments, which uses a lifetime expected loss allowance for ties denominated in foreign currencies are translated at histori- all accounts receivable. To measure the expected credit losses, cal rates and revenue and expenses are translated at the average accounts receivable have been grouped based on days past due exchange rates prevailing during the relevant period of the trans- and assigned provision rates based on the individual operating action. Exchange gains and losses also arise on the settlement companies’ historical credit loss experience, adjusted to reflect of foreign-currency denominated transactions. These exchange current and forward-looking information. During the year ended gains and losses are recognized in earnings. December 31, 2017, the impairment for accounts receivable was Assets and liabilities of foreign operations with non-U.S. recorded when there was objective evidence that the Company dollar functional currencies are translated into U.S. dollars using would not be able to collect all amounts due according to the the year-end exchange rates. Revenue and expenses are translated original terms of the receivable. at the average exchange rates prevailing during the relevant period A provision expense is recorded with an offsetting of the transaction. Gains and losses arising from the translation of amount recorded as an allowance, reducing the carrying value these foreign operations are deferred in the currency translation of the receivable. The provision expense is included in operat- account included in equity. ing expenses in the consolidated statements of earnings. When a receivable is considered permanently uncollectible, the receivable Cash and cash equivalents is written off against the allowance account. Cash and cash equivalents include liquid investments such as Operating companies may enter into agreements to sell term deposits, money market instruments and commercial paper accounts receivable when considered appropriate, whereby the with original maturities of less than three months. The invest- accounts receivable are transferred to an unrelated third party. ments are carried at cost plus accrued interest, which approxi- The transfers are recorded as sales of accounts receivable, as the mates fair value. Short-term investments operating companies do not retain any financial or legal interest in the accounts receivable that are sold. The accounts receivable are sold at their face value less a discount, as provided for in the Short-term investments consist of liquid investments that include agreements. money market instruments and commercial paper with original maturities of three months to one year. The investments are carried at fair value. Onex Corporation December 31, 2018 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 Inventories Leases Inventories are recorded at the lower of cost or net realizable value. Leases of property, plant and equipment where the Company, as The determination of net realizable value requires significant a lessee, has substantially all the risks and rewards of ownership judgement, including consideration of factors such as shrink- are classified as finance leases. Finance leases are capitalized at age, the aging of and future demand for inventory, and contractual the lease’s commencement at the lower of the fair value of the arrangements with customers. To the extent that circumstances leased property or the present value of the minimum lease pay- subsequently change such that the net realizable value increases, ments. Each lease payment is allocated between the liability and previous writedowns are reversed and recognized in the consoli- finance charges so as to achieve a constant interest rate on the dated statements of earnings in the period during which the rever- balance outstanding. The corresponding lease obligations, net of sal occurs. Certain inventories in the food retail and restaurants, finance charges, are included in the consolidated balance sheets. healthcare imaging and packaging products and services segments Property, plant and equipment acquired under finance leases are are stated using an average cost method. For substantially all other depreciated over the shorter of the useful life of the asset and the inventories, cost is determined on a first-in, first-out basis. lease term. Property, plant and equipment Leases in which a significant portion of the risks and rewards of ownership are retained by the lessor are classified as Property, plant and equipment is recorded at cost less accumu- operating leases. When the Company is the lessee, payments made lated amortization and provisions for impairment, if any. Cost under operating leases (net of any incentives received from the les- consists of expenditures directly attributable to the acquisition of sor) are recorded in the consolidated statements of earnings on the asset. The costs of construction of qualifying long-term assets a straight-line basis over the period of the lease. Certain operat- include capitalized interest, as applicable. ing companies lease their property, plant and equipment under Subsequent expenditures for maintenance and repairs operating leases to third parties. When the Company is the lessor, are expensed as incurred, while costs related to betterments and payments received under operating leases (net of any incentives improvements that extend the useful lives of property and equip- provided by the operating companies) are recognized in the con- ment are capitalized. solidated statements of earnings on a straight-line basis over the Substantially all land is not amortized. For substantially period of the lease. all remaining property, plant and equipment, amortization is pro- vided for on a straight-line basis over the estimated useful lives of Intangible assets the assets as follows: Buildings Machinery and equipment up to 50 years up to 22 years Leasehold improvements up to the term of the lease When components of an asset have a significantly different useful life or residual value than the primary asset, the components are amortized separately. Residual values, useful lives and methods of amortization are reviewed at each fiscal year end and adjusted prospectively. Intangible assets, including intellectual property and software, are recorded at their fair value at the date of acquisition of the related operating company or at cost if internally generated or purchased. Amortization is provided for intangible assets with a limited life. For substantially all limited life intangible assets, amortization is provided for on a straight-line basis over their estimated useful lives as follows: Trademarks and licenses Customer relationships Computer software Other up to 23 years up to 24 years up to 20 years up to 50 years Other intangible assets with a limited life include information databases and content collections of Clarivate Analytics with use- ful lives of 13 to 20 years. Intangible assets with indefinite useful lives are not amortized and the assessment of indefinite life is reviewed annu- ally. Changes in the useful life from indefinite to finite are made on a prospective basis. 104 Onex Corporation December 31, 2018 N O T E S T O C O N S O L I D AT E D F I N A N C I A L S TAT E M E N T S Goodwill Impairment losses for long-lived assets are reversed Goodwill is initially measured as the excess of the aggregate of the in future periods if the circumstances that led to the impairment consideration transferred, the fair value of any contingent consid- no longer exist. The reversal is limited to restoring the carrying eration, the amount of any non-controlling interest in the acquired amount that would have been determined, net of amortization, had company and, for a business combination achieved in stages, the no impairment loss been recognized in prior periods. fair value at the acquisition date of the Company’s previously held interest in the acquired company compared to the net fair value Investments in joint ventures and associates of the identifiable assets and liabilities acquired. Substantially all Joint ventures and associates are those entities over which the of the goodwill and intangible asset amounts that appear in the Company has joint control or significant influence, but not con- consolidated balance sheets are recorded by the operating com- trol. Certain investments in joint ventures and associates are panies. The recoverability of goodwill is assessed annually or designated, upon initial recognition, at fair value with changes whenever events or changes in circumstances indicate that the in fair value recognized through the statement of earnings in carrying amount may not be recoverable. Judgement is required accordance with IFRS 9 (2017 – IAS 39, Financial Instruments: in determining whether events or changes in circumstances dur- Recognition and Measurement). As a result, the investments are ing the year are indicators that a review for impairment should recorded at fair value in the consolidated balance sheets. be conducted prior to the annual assessment. For the purposes of Certain investments in joint ventures and associates are impairment testing, goodwill is allocated to the cash generating initially recognized at cost, and the carrying amount of the invest- units (“CGUs”) of the business whose acquisition gave rise to the ment is adjusted to recognize the Company’s share of the profit or goodwill. Impairment of goodwill is tested at the level where good- loss in the investment, from the date that joint control or significant will is monitored for internal management purposes. Therefore, influence commences until the date that joint control or significant goodwill will be assessed for impairment at the level of either an influence ceases, in accordance with IAS 28, Investments in Asso individual CGU or a group of CGUs. The determination of CGUs ciates and Joint Ventures. The Company’s share of the profit or loss and the level at which goodwill is monitored requires judgement is recognized in other income (expense) and any distributions by management. The carrying amount of a CGU or a group of received will reduce the carrying amount of the investment. 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 Financing charges impairment exists. Impairment losses for goodwill are not reversed Financing charges consist of costs incurred relating to the issu- in future periods. ance of term borrowings and revolving credit facilities. Transaction Impairment charges recorded by the operating compa- costs relating to term borrowings are amortized over the term of nies under IFRS may not impact the fair values of the operating the related debt or as the debt is retired, if earlier. These unam- companies used in determining the change in carried interest and ortized financing charges are netted against the carrying value of for calculating the Limited Partners’ Interests liability. Fair values of long-term debt, as described in note 14. the operating companies are assessed at the enterprise level, while Costs incurred to establish revolving credit facilities are impairment charges are assessed at the level of either an individual recognized as an other current or non-current asset and are amor- CGU or group of CGUs. Impairment of long-lived assets tized on a straight-line basis over the term of the facility; however, to the extent that the Company expects to draw on the facility, the costs are deferred until the amounts are drawn on the facility and Property, plant and equipment, investment property and intan- are then amortized over the remaining term of the facility. gible assets are reviewed for impairment annually or whenever events or changes in circumstances suggest that the carrying amount of an asset may not be recoverable. Judgement is required in determining whether events or changes in circumstances dur- ing the year are indicators that a review for impairment should be conducted prior to the annual assessment. An impairment loss is recognized when the carrying value of an asset or CGU exceeds the recoverable amount. The recoverable amount of an asset or CGU is the greater of its value in use or its fair value less costs to sell. Onex Corporation December 31, 2018 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 Provisions Pension and non-pension post-retirement benefits A provision is a liability of uncertain timing or amount and is gen- Onex, the parent company, did not provide pension, other retire- erally recognized when the Company has a present obligation as a ment or post-retirement benefits to the employees of the operat- result of a past event, it is probable that payment will be made to ing companies during the years ended December 31, 2018 and 2017. settle the obligation and the payment can be reliably estimated. The operating companies that offer pension and non-pension post- Judgement is required to determine the extent of an obligation and retirement benefits accrue their obligations under such employ- whether it is probable that payment will be made. The Company’s ee benefit plans and related costs, net of plan assets. The costs of significant provisions consist of the following: defined benefit pensions and other post-retirement benefits earned a) Self-insurance by employees are accrued in the period incurred and are actuari- ally determined using the projected unit credit method pro-rated Self-insurance provisions may be established for automobile, on length of service, based on management’s judgement and best workers’ compensation, healthcare coverage, general liability, estimates of assumptions for factors which impact the ultimate cost, professional liability and other claims. Provisions are established including salary escalation, the retirement ages of employees, the for claims based on an assessment of actual claims and claims discount rate used in measuring the liability and expected health- incurred but not reported. The reserves may be established based care costs. on consultation with independent third-party actuaries using Plan assets are recorded at fair value at each reporting actuarial principles and assumptions that consider a number of date. Where a plan is in a surplus, the value of the net asset recog- factors, including historical claim payment patterns and changes nized is restricted to the present value of any economic benefits in case reserves, and the assumed rate of inflation in healthcare available in the form of refunds from the plan or reductions in costs and property damage repairs. future contributions to the plan. b) Warranty The cost of defined benefit plans recognized in the con- solidated statements of earnings comprises the net total of the Certain operating companies offer assurance-type warranties on current service cost, the past service cost, gains or losses from the sale of products or services. A provision is recorded to provide settlements and the net interest expense or income. The current for future warranty costs based on management’s best estimate of service cost represents the increase in the present value of the plan probable claims under these warranties. The provision is based on liabilities expected to arise from employee service in the current the terms of the warranty, which vary by customer and product or period. The past service cost is the change in the benefit obligation service, and historical experience. The appropriateness of the pro- in respect of employee service in prior periods and which results vision is evaluated at the end of each reporting period. from a plan amendment or curtailment. Past service costs (or recoveries) from plan amendments are recognized immediately in c) Restructuring earnings, whether vested or unvested. Restructuring provisions are recognized only when a detailed Remeasurements, consisting of actuarial gains or losses, formal plan for the restructuring – including the business or the actual return on plan assets (excluding the net interest compo- part of the business concerned, the principal locations affected, nent) and any change in the asset ceiling, are recognized in other details regarding the employees affected, the restructuring’s tim- comprehensive earnings. Remeasurements recognized in other ing and the expenditures that will have to be undertaken – has comprehensive earnings are directly recorded in retained earnings, been developed and the restructuring has either commenced or without recognition in the consolidated statements of earnings. the plan’s main features have been publicly announced to those Defined contribution plan accounting is applied to affected by it. multi-employer defined benefit plans for which the operating companies have insufficient information to apply defined benefit Note 13 provides further details on provisions recognized by the accounting. Company. Note 34 provides further details on pension and non- pension post-retirement benefits. 106 Onex Corporation December 31, 2018 N O T E S T O C O N S O L I D AT E D F I N A N C I A L S TAT E M E N T S Limited Partners’ Interests Deferred tax liabilities for taxable temporary differences The interests of the limited partners and other investors through associated with investments in subsidiaries, joint ventures and the Onex Partners, ONCAP, Onex Credit Lending Partners and associates are recognized, except when the Company is able to Onex Credit Funds are recognized as financial liabilities in accor- control the timing of the reversal of temporary differences and it dance with IAS 32, Financial Instruments: Presentation. The struc- is probable that the temporary differences will not reverse in the ture of the Onex Partners, ONCAP, Onex Credit Lending Partners foreseeable future. and Onex Credit Funds, as defined in their respective govern- In the ordinary course of business, there are transac- ing agreements, specifically the limited life of the Onex Partners, tions for which the ultimate tax outcome is uncertain. The final tax ONCAP and Onex Credit Lending Partners Funds, and the redemp- outcome of these matters may be different from the judgements tion provisions of the Onex Credit Funds, requires presentation of and estimates originally made by the Company in determining the limited partners’ interests as a liability. The liability is record- its income tax provisions. The Company periodically evaluates ed at fair value and is primarily impacted by the change in fair the positions taken with respect to situations in which applicable value of the underlying investments in the Onex Partners, ONCAP, tax rules and regulations are subject to interpretation. Provisions Onex Credit Lending Partners and Onex Credit Funds, the change related to tax uncertainties are established where appropriate in carried interest on investments held by the Onex Partners and based on the best estimate of the amount that will ultimately be ONCAP Funds, the change in incentive fees on investments held by paid to or received from tax authorities. Accrued interest and pen- the Onex Credit Lending Partners and Onex Credit Funds, as well alties relating to tax uncertainties are recorded in current income as any contributions by and distributions to limited partners in tax expense, in accordance with IAS 12, Income Taxes. those Funds. Adjustments to the fair value of the Limited Partners’ Note 19 provides further details on income taxes. Interests are reflected through earnings, net of the change in car- ried interest and incentive fees. Revenue recognition Note 17 provides further details on Limited Partners’ The Company’s subsidiaries operate in multiple industries and Interests. Income taxes derive revenue from contracts with customers from the transfer of goods and services. Revenue is recognized following a five-step model: 1) identify the contract or contracts with the customer; Income taxes are recorded using the asset and liability method of 2) identify the separate performance obligations in the contract; income tax allocation. Under this method, assets and liabilities 3) determine the transaction price; 4) allocate the transaction price are recorded for the future income tax consequences attributable to separate performance obligations; and 5) recognize revenue to differences between the financial statement carrying values of when or as each performance obligation is satisfied, collection of assets and liabilities and their respective income tax bases, and on consideration is probable and control of the good or service has tax loss and tax credit carryforwards. Deferred tax assets are recog- transferred to the customer. nized only to the extent that it is probable that taxable profit will Certain revenue arrangements consist of multiple deliv- be available against which the deductible temporary differences erables of goods and services. Goods or services are accounted for as well as tax loss and tax credit carryforwards can be utilized. as a separate performance obligation when they are distinct. This These deferred income tax assets and liabilities are recorded using occurs when the customer can benefit from the good or service substantively enacted income tax rates. The effect of a change in either on its own or together with other readily available resources income tax rates on these deferred income tax assets or liabili- and the good or service is separately identifiable from the other ties is included in income in the period in which the rate change performance obligations in a contract. Determining whether a occurs. Certain of these differences are estimated based on current good or service is distinct may require significant judgement. tax legislation and the Company’s interpretation thereof. The transaction price represents the amount of con- Income tax expense or recovery is based on the income sideration that the Company expects to be entitled to and may earned or loss incurred in each tax jurisdiction and the enacted or include variable components such as performance-related substantively enacted tax rate applicable to that income or loss. bonuses and incentives, discounts, rebates, refunds and other Tax expense or recovery is recognized in the income statement, similar allowances. Man agement estimates the amount of vari- except to the extent that it relates to items recognized directly in able consideration to be included in the transaction price to the equity, in which case the tax effect is also recognized in equity. extent that it is highly probable that a significant reversal in the amount of cumulative revenue recognized will not occur when the uncertainty associated with the variable consideration is sub- sequently resolved. This estimate is updated at each reporting date until the uncertainty is resolved. Onex Corporation December 31, 2018 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 Where a contract includes multiple performance obli- Revenue recognition policies specific to the operating gations, the transaction price is allocated to each performance segments are as follows: obligation based on the stand-alone selling prices. The amount of consideration is adjusted for the effects of the time value of Electronics Manufacturing Services money if the timing of payments agreed to in the contract pro- Revenue from the electronics manufacturing services segment vides either the customer or the entity with a significant benefit of consists primarily of products and services manufactured to cus- financing. tomer specifications. Revenue is recognized when performance Revenue is recognized when or as performance obliga- obligations have been satisfied and when the associated con- tions are satisfied by transferring control of goods or services to trol over the products has passed to the customer and no mate- a customer. Control is either transferred over time or at a point rial uncertainties remain as to the collection of receivables. For in time, which impacts the timing of when revenue is recognized. certain customer contracts, products are custom made to meet A receivable is recognized when the transfer of control specific requirements and such customers are obligated to com- for goods or services to a customer occurs prior to the customer pensate the company for the work performed to date. For such paying consideration if the right to the consideration is uncondi- contracts, revenue is recognized over time as production pro- tional, whereas a contract asset is recognized if the performance gresses to completion, or as the services are rendered. Revenue is obligation has been satisfied but the right to the consideration is generally estimated for work in process based on costs incurred conditional. A contract liability is recognized when the customer’s to date plus a reasonable profit margin for eligible products for payment of consideration precedes the completion of a perfor- which there are no alternative uses. For other contracts that do mance obligation. not qualify for revenue recognition over time, revenue is recog- Revenue recognition requires management to make cer- nized at the point in time where control is passed to the customer, tain judgements and estimates including the identification of per- which is generally upon shipment, and no further performance formance obligations, the allocation and amount of the transaction obligation remains except for standard manufacturing or service price, and the collectability of cash consideration. The significant warranties. judgements and estimates made by management during the rev- enue recognition process are discussed within this section and the Healthcare Imaging “Use of judgements and estimates” section of note 1. Revenue from the healthcare imaging segment is recognized Depending on the terms under which the operating when performance obligations have been satisfied and when companies supply products, they may also be responsible for the associated control over products has passed to the customer. some or all of the repair or replacement costs of defective prod- These criteria are met for the healthcare imaging segment when ucts. Where this represents a separate service, the transaction there is persuasive evidence of an arrangement and delivery has price is allocated respectively to account for multiple perfor- occurred. Revenue recognition does not occur until: products mance obligations. When such responsibility only provides assur- have been shipped or services have been provided; risk of loss ance that a product will function as expected and in accordance has been transferred to the customer; and there is evidence that with certain specifi cations, it is not a separate performance obli- customer acceptance provisions have been satisfied. Revenue is gation but a warranty. The companies establish provisions for recognized on sales to resellers when control has been transferred issues that are probable and estimable in amounts management and the other revenue recognition criteria have been met. believes are adequate to cover the ultimate projected claim costs. The final amounts determined to be due related to these matters Insurance Services could differ significantly from recorded estimates. Revenue from the insurance services segment primarily consists of fee and service revenues. Revenue is recognized when obligations under the terms of a contract with a customer are satisfied, which generally occurs when services are rendered. Service revenues from managed care, specialized loss adjusting and field investigations are recognized at the time of service. Service revenues from fixed price contracts are recognized on each contract proportionately over the life of the contract. 108 Onex Corporation December 31, 2018 N O T E S T O C O N S O L I D AT E D F I N A N C I A L S TAT E M E N T S Packaging Products and Services Other Revenue from the packaging products and services segment pri- Other segment revenues consist of product sales, services and marily consists of sales of goods and services. Revenue is recog- construction contracts: nized when control over a product or service is transferred to the • Where products are custom-made to meet specific requirements customer. The timing of when control over a product or service is for which customers are obligated to compensate the company transferred to a customer varies depending on the individual con- for the work performed to date, revenue is recognized over time tract terms. The amount of sales incentives to be earned or taken as production progresses. The estimated percentage completion by customers is estimated and considered when calculating the is based on the method that management determines to most transaction price. Business and Information Services accurately reflect progress, which includes percentage of total costs expected to be incurred or the number of units produced. Where product sales are subject to customer acceptance, rev- Revenue from the business and information services segment pri- enue is recognized at the earlier of receipt of customer accep- marily consists of sales of subscription services, staging of trade tance or expiration of the acceptance period. Where product shows and conference events, and event and operations services sales require the company to install the product at the customer provided to public assembly facilities. Revenue from subscription location and such installation is essential to the functionality of arrangements is recognized on a straight-line basis over the term the product, revenue is recognized when the product has been of the subscription. Usage fees in excess of the base subscription delivered to and installed at the customer location. fee are recognized as services are delivered. Revenue from staging • Revenue from services is recognized at the time of service. of trade shows and conference events is generally recognized when Where applicable, the transaction price takes into consider- the events are staged. Revenue from event and operations services ation an estimate for uncompensated care. Where services per- is recognized over time as the services are provided. formed are subject to customer acceptance, revenue is recog- nized at the earlier of receipt of customer acceptance or expira- Food Retail and Restaurants tion of the acceptance period. Revenue from the food retail and restaurants segment primarily consists of product sales, distribution services and logistics and Research and development professional services. Product sales revenue is recognized when a Research and development activities can be either (a) contracted customer accepts control over the products, which usually occurs or (b) self-initiated: when payment is tendered at the point of sale. Distribution ser- vices revenue is recognized upon delivery of the related products, at which point control of the promised good or service is trans- ferred to the customer. Credit Strategies a) Costs for contracted research and development activities, car- ried out within the scope of externally financed research and development contracts, are expensed when the related revenues are recorded. Revenue from Credit Strategies consists of fees earned by Onex Credit Manager, which includes fees earned from Onex Credit b) Costs for self-initiated research and development activities are assessed to determine if they qualify for recognition as internally Collateralized Loan Obligations, Onex Credit Funds and OCLP I. generated intangible assets. Apart from complying with the gen- Revenue earned by Onex Credit Manager from Onex credit strate- eral requirements for initial measurement of an intangible asset, gies that are consolidated by Onex are eliminated in Onex’ con- qualification criteria are met only when technical as well as com- solidated financial statements. Revenue is recognized when per- mercial feasibility can be demonstrated and the cost can be reli- formance obligations are fulfilled in accordance with the terms of ably measured. It must also be probable that the intangible asset the relevant investment management agreements. will generate future economic benefits, be clearly identifiable and allocable to a specific product. Further to meeting these criteria, only such costs that relate solely to the development phase of a self-initiated project are capitalized. Any costs that are classified as part of the research phase of a self-initiated project are expensed as incurred. If the research phase cannot be clearly distinguished from the development phase, the respective project-related costs are treated as if they were incurred in the research phase only. Onex Corporation December 31, 2018 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 Capitalized development costs are generally amortized over the the future settlement of the DSUs by reference to the value of the estimated number of units produced. In cases where the number of underlying SVS at the balance sheet date. On a quarterly basis, units produced cannot be reliably estimated, capitalized develop- the liability is adjusted for the change in the market value of the ment costs are amortized over the estimated useful life of the inter- underlying shares, with the corresponding amount reflected in nally generated intangible asset. Internally generated intangible the consolidated statements of earnings. To economically hedge assets are reviewed for impairment annually when the asset is not a portion of the Company’s exposure to changes in the trading yet in use or when events or changes in circumstances indicate that price of Onex shares, the Company enters into forward agree- the carrying amount may not be recoverable and the asset is in use. ments with a counterparty financial institution. The change in During 2018, $189 (2017 – $213) of research and develop- value of the forward agreements will be recorded to partially off- ment costs were expensed and $51 (2017 – $44) of development set the amounts recorded as stock-based compensation under costs were capitalized. the Director DSU Plan. Details of the Director DSUs outstanding under the plan and the amount hedged by the Company are pro- Stock-based compensation vided in note 20. The Company follows the fair value-based method of accounting The fourth type of plan is the Management Deferred for all stock-based compensation plans. Share Unit Plan (“Management DSU Plan”). The Management There are five types of stock-based compensation DSU Plan enables Onex management to apply all or a portion plans. The first is the Company’s Stock Option Plan (the “Plan”), of their annual compensation earned to acquire DSUs based on described in note 20(e), which provides that in certain situa- the market value of Onex shares at the time in lieu of cash. The tions the Company has the right, but not the obligation, to settle DSUs vest immediately and are redeemable only when the holder any exercisable option under the Plan by the payment of cash to has ceased to be an officer or employee of the Company, or an the option holder. The Company has recorded a liability for the affiliate, for a cash payment equal to the then current market potential future settlement of the vested options at the balance price of SVS. Additional units are issued for any cash dividends sheet date by reference to the fair value of the liability. The liabil- paid on the SVS. The Company has recorded a liability for the ity is adjusted each reporting period for changes in the fair value future settlement of the DSUs by reference to the value of the of the options, with the corresponding amount reflected in the underlying SVS at the balance sheet date. On a quarterly basis, consolidated statements of earnings. the liability is adjusted for the change in the market value of the The second type of plan is the MIP, which is described underlying shares, with the corresponding amount reflected in in note 33(d). The MIP provides that exercisable investment rights the consolidated statements of earnings. To economically hedge may be settled by issuance of the underlying shares or, in cer- the Company’s exposure to changes in the trading price of Onex tain situations, by a cash payment for the value of the investment shares associated with the Management DSU Plan, the Company rights. The Company has recorded a liability for the potential enters into forward agreements with a counterparty financial future settlement of the vested rights at the balance sheet date by institution for all grants under the Management DSU Plan. reference to the fair value of the liability. The liability is adjusted As such, the change in value of the forward agreements will be each reporting period for changes in the fair value of the rights, recorded to offset the amounts recorded as stock-based compen- with the corresponding amount reflected in the consolidated sation under the Management DSU Plan. The administrative costs statements of earnings. of those arrangements are borne entirely by participants in the The third type of plan is the Director Deferred Share plan. Management DSUs are redeemable only for cash and no Unit Plan (“Director DSU Plan”). A Deferred Share Unit (“DSU”) shares or other securities of the Corporation will be issued on the entitles the holder to receive, upon redemption, a cash payment exercise, redemption or other settlement thereof. Details of the equivalent to the market value of a Subordinate Voting Share Management DSUs outstanding under the plan are provided in (“SVS”) at the redemption date. The Director DSU Plan enables note 20(d). Onex Directors to apply directors’ fees earned to acquire DSUs The fifth type of plan is the employee stock option and based on the market value of Onex shares at the time. Grants of other stock-based compensation plans in place for employees at DSUs may also be made to Onex Directors from time to time. various operating companies, under which, on payment of the The DSUs vest immediately, are redeemable only when the hold- exercise price, stock of the particular operating company or cash er retires and must be redeemed within one year following the is issued. The Company records a compensation expense for such year of retirement. Additional units are issued for any cash divi- options based on the fair value over the vesting period. dends paid on the SVS. The Company has recorded a liability for 110 Onex Corporation December 31, 2018 N O T E S T O C O N S 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 Financial assets and financial liabilities Onex, as the General Partner of the Onex Partners and ONCAP Financial assets and financial liabilities are initially recognized Funds, is entitled to 20% of the realized net gains of the lim- at fair value and are subsequently accounted for based on their ited partners in each Fund, provided the limited partners have classification, as described below. Transaction costs in respect of achieved a minimum 8% return on their investment. This share an asset or liability not recorded at fair value through net earn- of the net gains is referred to as carried interest. Onex is entitled ings are added to the initial carrying amount. Gains and losses for to 40% of the carried interest realized in the Onex Partners and financial instruments recognized through net earnings are pri- ONCAP Funds. Onex management is entitled to the remaining marily recognized in other income (expense) in the consolidat- 60% of the carried interest realized in the Onex Partners Funds ed statements of earnings. During the year ended December 31, and ONCAP management is entitled to 60% of the carried interest 2018, the classification of financial assets depended on the busi- realized in the ONCAP Funds and an equivalent carried interest ness model for managing the financial assets and the contractual on Onex capital. Once ONCAP IV investors achieve a return of two terms of the cash flows. During the year ended December 31, 2017, times their aggregate capital contributions, carried interest par- the classification of financial assets depended on the purpose ticipation increases from 20% to 25% of the realized net gains in for which the financial assets were acquired and their character- ONCAP IV. istics. During the years ended December 31, 2018 and 2017, the The unrealized carried interest of the Onex Partners and classification of financial liabilities depended on the purpose for ONCAP Funds is calculated based on the fair values of the under- which the financial liabilities were incurred and their characteris- lying investments and the overall unrealized gains in each respec- tics. Except in very limited circumstances, the classification is not tive Fund, in accordance with the limited partnership agreements. changed subsequent to initial recognition. Financial assets pur- The unrealized carried interest reduces the amount due to the chased and sold, where the contract requires the asset to be deliv- limited partners and will eventually be paid through the realiza- ered within an established time frame, are recognized on a trade- tion of the limited partners’ share of the underlying Onex Partners date basis. and ONCAP Fund investments. The change in net carried interest attributable to Onex is recognized as a reduction to the charge or a) Financial assets – amortized cost recovery for the Limited Partners’ Interests. The unrealized car- During the year ended December 31, 2018, financial assets with ried interest of the Onex Partners and ONCAP Funds attributable the following characteristics were accounted for at amortized cost to management is recognized as a liability within other current using the effective interest rate method: and non-current liabilities. The charge for the change in net car- • The financial asset is held within a business model whose ob - ried interest attributable to management is recorded within other jective is achieved by collecting contractual cash flows; and income (expense) in the consolidated statements of earnings and • The contractual terms of the financial asset give rise on speci- reduces the charge or recovery for the Limited Partners’ Interests. fied dates to cash flows that are solely payments of principal Incentive fees and interest. Onex Credit is entitled to incentive fees on fund investors’ capital it The Company recognizes loss allowances for financial assets manages. Incentive fees range between 15% and 20%, where appli- accounted for at amortized cost based on the financial assets’ cable. Certain incentive fees (including incentive fees on CLOs) are expected credit losses. subject to a hurdle or a minimum preferred return to investors. b) Financial assets – fair value through other comprehensive income During the year ended December 31, 2018, financial assets with the following characteristics were accounted for at fair value, with changes in fair value recorded in other comprehensive income (“OCI”): • The financial asset is held within a business model whose objective is achieved by both collecting contractual cash flows and selling financial assets; and • The contractual terms of the financial asset give rise on speci- fied dates to cash flows that are solely payments of principal and interest. Onex Corporation December 31, 2018 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 Company recognizes loss allowances through net earnings for f) Loans and receivables financial assets accounted for at fair value through OCI based on During the year ended December 31, 2017, financial assets that the financial instrument’s expected credit losses. Gains and losses were non-derivative with fixed or determinable payments that realized on disposal, which are calculated on an average cost basis, were not quoted in an active market were classified as loans and are recognized in net earnings. Foreign exchange gains and losses receivables. These instruments were accounted for at amortized are recognized immediately in net earnings. cost using the effective interest rate method. c) Financial assets – fair value through net earnings g) Financial liabilities measured at fair value During the year ended December 31, 2018, financial assets that do Financial liabilities that are incurred with the intention of generat- not meet the criteria for amortized cost or fair value through OCI ing earnings in the near term are classified as fair value through are measured at fair value through net earnings. Financial assets net earnings. Other financial liabilities may be designated as may also be designated as fair value through net earnings on ini- fair value through net earnings on initial recognition if doing so tial recognition if doing so eliminates or significantly reduces a eliminates or significantly reduces a measurement or recognition measurement or recognition inconsistency. inconsistency, or the group of financial liabilities is managed and During the year ended December 31, 2017, financial its performance is evaluated on a fair value basis. The long-term assets that are purchased with the intention of generating earn- debt of the CLOs is designated at fair value through net earnings ings in the near term were classified as fair value through net upon initial recognition. earnings. Other instruments may be designated as fair value through net earnings on initial recognition if doing so eliminates h) Financial liabilities measured at amortized cost or significantly reduces a measurement or recognition inconsis- Financial liabilities not classified as fair value through net earn- tency, or the group of financial assets is managed and its perfor- ings are accounted for at amortized cost using the effective interest mance is evaluated on a fair value basis. rate method. d) Available-for-sale i) Modification of financial liabilities During the year ended December 31, 2017, financial assets classi- During the year ended December 31, 2018, when a financial liabil- fied as available-for-sale were carried at fair value, with the changes ity that is measured at amortized cost has its cash flows modified in fair value recorded in other comprehensive earnings. Securities without resulting in derecognition, the carrying value of the classified as available-for-sale that do not have a quoted price financial liability is adjusted to the present value of its modified in an active market were recorded at fair value, unless fair value cash flows, discounted at the financial liability’s original effective is not reliably determinable, in which case they were recorded at interest rate, with a resulting gain or loss recognized in earnings. cost. Available-for-sale securities were written down to fair value For certain variable-rate financial liabilities that are pre-payable through earnings whenever it was necessary to reflect an impair- at par, amendments to the contractual terms of the financial lia- ment. Gains and losses realized on the disposal of available-for- bility to revise the interest rate to a new market interest rate are sale securities, which are calculated on an average cost basis, were accounted for over the remaining term of the financial liability by recognized in earnings. Impairments were determined based on adjusting the financial liability’s effective interest rate. all relevant facts and circumstances for each investment and rec- During the year ended December 31, 2017, when a finan- ognized when appropriate. Foreign exchange gains and losses on cial liability that is measured at amortized cost had its cash flows available-for-sale assets were recognized immediately in earnings. modified without resulting in derecognition, the correspond- e) Held-to-maturity investments ing gain or loss was recognized over the remaining term of the financial liability by adjusting the financial liability’s effective During the year ended December 31, 2017, securities that have fixed interest rate. or determinable payments and a fixed maturity date, which the Company intended and had the ability to hold to maturity, were j) Interest Income classified as held-to-maturity and accounted for at amortized cost Interest income recognized by the Company primarily relates to using the effective interest rate method. Investments classified as interest earned from investments recognized at fair value through held-to-maturity were written down to fair value through earnings net earnings. whenever it was necessary to reflect an impairment. Impairments were determined based on all relevant facts and circumstances for each investment and recognized when appropriate. 112 Onex Corporation December 31, 2018 N O T E S T O C O N S O L I D AT E D F I N A N C I A L S TAT E M E N T S Derivatives and hedge accounting When a hedging instrument expires or is sold, or when At the inception of a hedging relationship, the Company docu- a hedge no longer meets the criteria for hedge accounting, any ments the relationship between the hedging instrument and the cumulative gain or loss existing in other comprehensive earnings hedged item, its risk management objectives and its strategy for at that time remains in other comprehensive earnings until the undertaking the hedge. The Company also requires a documented forecasted transaction is recognized in the consolidated state- assessment, both at hedge inception and on an ongoing basis, of ments of earnings. When a forecasted transaction is no longer whether or not the derivatives that are used in the hedging transac- expected to occur, the cumulative gain or loss that was reported in tions are highly effective in offsetting the changes attributable to other comprehensive earnings is immediately transferred to the the hedged risks in the fair values or cash flows of the hedged items. consolidated statements of earnings. Derivatives that are not designated as effective hedg- ing relationships continue to be accounted for at fair value, with c) Net investment hedges changes in fair value being included in other income (expense) in Hedges of net investments in foreign operations are accounted for the consolidated statements of earnings. in a manner similar to cash flow hedges. Any gain or loss on the When derivatives are designated as effective hedging hedging instrument relating to the effective portion of the hedge relationships, the Company classifies them either as: (a) hedges is recognized in other comprehensive earnings. The gain or loss of the change in fair value of recognized assets or liabilities or firm relating to the ineffective portion is recognized immediately in the commitments (fair value hedges); (b) hedges of the variability consolidated statements of earnings in other income (expense). in highly probable future cash flows attributable to a recognized Gains and losses accumulated in other comprehensive earnings asset or liability or a forecasted transaction (cash flow hedges); or are included in the consolidated statements of earnings upon the (c) hedges of net investments in a foreign self-sustaining opera- reduction or disposal of the investment in the foreign operation. tion (net investment hedges). Contingent consideration a) Fair value hedges Contingent consideration is established for business acquisi- Changes in the fair value of derivatives that are designated and tions where the Company has the obligation to transfer additional qualify as fair value hedging instruments are recorded in the con- assets or equity interests to the former owners if specified future solidated statements of earnings along with changes in the fair events occur or conditions are met. The fair value of contingent value of the assets, liabilities or group thereof that are attributable consideration liabilities is typically based on the estimated future to the hedged risk. b) Cash flow hedges financial performance of the acquired business. Financial targets used in the estimation process include certain defined financial targets and realized internal rates of return. Contingent consid- The Company is exposed to variability in future interest cash eration is classified as a liability when the obligation requires set- flows on non-trading assets and liabilities that bear interest at tlement in cash or other assets, and is classified as equity when variable rates or are expected to be reinvested in the future. the obligation requires settlement in own equity instruments. The effective portion of changes in the fair value of Contingent consideration that is classified as a liability is included derivatives that are designated and qualify as cash flow hedges is in the other liabilities financial statement line items. recognized in other comprehensive earnings. Any gain or loss in fair value relating to the ineffective portion is recognized immedi- Impairment of financial instruments ately in the consolidated statements of earnings in other income During the year ended December 31, 2018, the Company assessed (expense). on a forward-looking basis the expected credit losses associ- Amounts accumulated in other comprehensive earnings ated with financial instruments carried at amortized cost and at are reclassified in the consolidated statements of earnings in the fair value through OCI. The impairment methodology applied period in which the hedged item affects earnings. However, when depends on whether there has been a significant increase in credit the forecasted transaction that is hedged results in the recogni- risk. For accounts receivable, the Company applies the simplified tion of a non-financial asset or a non-financial liability, the gains approach permitted by IFRS 9, which requires the expected life- and losses previously deferred in other comprehensive earnings time losses to be recognized from initial recognition of the are transferred from other comprehensive earnings and included accounts receivable. in the initial measurement of the cost of the asset or liability. Onex Corporation December 31, 2018 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 During the year ended December 31, 2017, the Company Use of judgements and estimates assessed whether there was objective evidence that a financial The preparation of financial statements in conformity with IFRS asset or group of financial assets was impaired. Where an impair- requires management to make judgements, estimates and assump- ment existed for available-for-sale financial assets, the cumulative tions that affect the reported amounts of assets, liabilities and equi- loss, measured as the difference between the acquisition cost and ty, the related disclosures of contingent assets and liabilities at the the current fair value, less any impairment loss on that financial date of the financial statements, and the reported amounts of reve- asset previously recognized in earnings, was removed from equity nue and expenses during the reporting period. Actual results could and recognized in earnings. Derecognition of financial instruments differ materially from those estimates and assumptions. These 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 their ent condition and management is committed to, and has initi- respective fair values on the date of acquisition. 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-term and long-term investments are valued at market prices. committed to its plan to sell the asset. Assets that are classified as If any intangible assets are identified, depending on the type of held for sale are measured at the lower of their carrying amount intangible asset and the complexity of determining its fair value, an or fair value less costs to sell and are no longer depreciated. The independent external valuation expert may determine the fair value determination of fair value less costs to sell involves judgement by using appropriate valuation techniques, which are generally based management to determine the probability and timing of disposi- on a forecast of the total expected future net cash flows. These valu- tion and the amount of recoveries and costs. ations are linked closely to the assumptions made by management A discontinued operation is a component of the regarding the future performance of the assets concerned and any Company that has either been disposed of, or satisfies the criteria changes 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. 114 Onex Corporation December 31, 2018 N O T E S T O C O N S 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 2018 and 2017, Onex invested capital in and that performed in an actual negotiated sale process, there may be received distributions and proceeds from the CLOs and warehouse company-specific items that are not fully known that may affect facilities, as described in notes 2(t) and 3(m). Onex intends to pro- value. In addition, a variety of other factors are reviewed by man- vide additional financial collateral for CLO warehouse facilities. The agement, including, but not limited to, financing and sales transac- collateral to be provided for the warehouse facilities is expected tions with third parties, current operating performance and future to be substantially reinvested in the most subordinated notes and expectations of the particular investment, changes in market out- equity of the CLOs upon closing. Fair value of investments and debt of credit strategies not quoted in an active market look and the third-party financing environment. In determining changes to the valuations, emphasis is placed on current company performance and market conditions. For publicly traded invest- ments, the valuation is based on closing market prices less adjust- The fair value of investments and debt of the CLOs and Onex ments, if any, for regulatory and/or contractual sale restrictions. Credit Lending Partners not quoted in an active market may be The Limited Partners’ Interests and carried interest are determined by Onex Credit using reputable pricing sources (such measured with significant unobservable inputs (Level 3 of the fair as pricing agencies) or indicative prices from bond/debt market value hierarchy). Further information is provided in note 17. With makers. Broker quotes as obtained from the pricing sources may the exception of investments in JELD-WEN and Pinnacle Renewable be indicative and not executable or binding. The Company has Energy, investments in joint ventures and associates are also mea- exercised judgement and estimates on the quantity and quality of sured with significant unobservable inputs (Level 3 of the fair the pricing sources used. Where no market data is available, Onex value hierarchy). The fair value measurements for the investments Credit may value positions using models, which include the use in JELD-WEN and Pinnacle Renewable Energy include significant of third-party pricing information and are usually based on valu- other observable inputs (Level 2 of the fair value hierarchy), as a ation methods and techniques generally recognized as standard marketability factory is applied to the companies’ publicly traded within the industry. share price. Further information is provided in notes 10 and 31. Models use observable data to the extent practicable. However, areas such as credit risk (both own and counterparty), Goodwill impairment tests and recoverability of assets volatilities and correlations may require the Company to make The Company tests at least annually whether goodwill has suf- estimates. Changes in assumptions about these factors could fered any impairment, in accordance with its accounting policies. affect the reported fair value of financial instruments. The determination of the recoverable amount of a CGU (or group of Limited Partners’ Interests, carried interest and investments in joint ventures and associates at fair value through earnings CGUs) to which goodwill is allocated involves the use of estimates by management. The Company generally uses discounted cash flow-based methods to determine these values. These discounted cash flow calculations typically use five-year projections that are The measurement of the Limited Partners’ Interests, carried inter- based on the operating plans approved by management. Cash flow est and investments in joint ventures and associates at fair value projections take into account past experience and represent man- through earnings is significantly impacted by the fair values of the agement’s best estimate of future developments. Cash flows after Company’s investments held by the Onex Partners and ONCAP the planning period are extrapolated using estimated growth rates. Funds. The fair values of these investments are assessed at each Key assumptions on which management has based its determina- reporting date, with changes reflected in the measurement of the tion of fair value less costs to sell and value in use include estimated Limited Partners’ Interests, carried interest and investments in growth rates, weighted average cost of capital and tax rates. These joint ventures and associates at fair value through earnings. estimates, including the methodology used, can have a material The valuation of the non-public investments held by the impact on the respective values and ultimately the amount of any Onex Partners and ONCAP Funds requires significant judgement by goodwill impairment. In the year of acquisition, the fair value in the Company due to the absence of quoted market values, inher- excess of the carrying value at an operating company will typically ent lack of liquidity and the use of long-term projections. Valuation be minimal as a result of the recent business combination account- methodologies primarily include observations of the trading mul- ing. Note 28 provides details on the significant estimates used in tiples of public companies considered comparable to the private the calculation of the recoverable amounts for impairment testing. companies being valued and discounted cash flows. The valuations Likewise, whenever property, plant and equipment and other intan- take into consideration company-specific items, the lack of liquid- gible assets are tested for impairment, the determination of the ity inherent in a non-public investment and the fact that compa- assets’ recoverable amount involves the use of estimates by man- rable public companies are not identical to the companies being agement and can have a material impact on the respective values valued. Considerations are necessary because, in the absence and ultimately the amount of any impairment. of a committed buyer and completion of due diligence similar to Onex Corporation December 31, 2018 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 Revenue recognition The Company, including the operating companies, uses Certain judgements and estimates are required in determining the significant judgement when determining whether to recognize timing and amount of revenue recognition, including: identifying deferred tax liabilities with respect to taxable temporary differ- and allocating the transaction price among performance obliga- ences associated with investments in subsidiaries, joint ventures tions; determining when performance obligations are satisfied; and associates, in particular, whether the Company is able to con- and measuring progress of completion when performance obliga- trol the timing of the reversal of the temporary differences and tions are satisfied over time. whether it is probable that the temporary differences will not Revenue that is recognized over time and that is not reverse in the foreseeable future. Judgement includes consider- billed until the delivery of finished products to customers involves ation of the Company’s future cash requirements in its numerous significant estimates, judgements and assumptions in determin- tax jurisdictions. ing the timing of revenue recognition, the measures of work in process, and estimates and timing of expected returns, revenues Legal provisions and contingencies and related costs. The Company and its operating companies in the normal course Revenue recognized by Schumacher in the other seg- of operations can become involved in various legal proceed- ment for uninsured patients requires certain judgements to be ings, as described in note 33(b). While the Company cannot pre- made with respect to the transaction price. Factors considered dict the final outcome of such legal proceedings, the outcome of in determining the estimated transaction price include historical these matters may have a material effect on the Company’s con- collection trends for each of its primary payor sources of revenue, solidated financial position, results of operations or cash flows. reimbursement rate trends, resolution of credit balances, patient Management regularly analyzes current information about these acuity levels, physician documentation, aging of accounts receiv- matters and provides provisions for probable contingent losses, able and other relevant factors. Due to the inherent uncertainty in including the estimate of legal expenses to resolve the matters. the transaction price estimation process, including the challenges Internal and external counsel are used for these assessments. In in assessing such factors as changes in the economy impacting making the decision regarding the need for provisions, manage- the type and level of insurance carried by patients, new devel- ment considers the degree of probability of an unfavourable out- opments could result in subsequent adjustments to previously come and the ability to make a sufficiently reliable estimate of the reported revenues. Income taxes amount of loss. The filing of a suit or formal assertion of a claim or the disclosure of any such suit or assertion does not automatically indicate that a provision may be appropriate. The Company, including the operating companies, operates and earns income in numerous countries and is subject to changing Employee benefits tax laws or application of tax laws in multiple jurisdictions within Onex, the parent company, does not provide pension, other retire- these countries. Significant judgement is necessary in determining ment or post-retirement benefits to any employees of the operat- worldwide income tax liabilities. Although management believes ing companies. The operating companies that offer pension and that it has made reasonable estimates about the final outcome of non-pension post-retirement benefits account for these benefits in tax uncertainties, no assurance can be given that the final outcome accordance with actuarial valuations. These valuations rely on sta- of these tax matters will be consistent with what is reflected in the tistical and other factors in order to anticipate future events. These historical income tax provisions. Such differences could have an factors include key actuarial assumptions, including the discount effect on income tax liabilities and deferred tax liabilities in the rate, expected salary increases and mortality rates. These actuar- period in which such determinations are made. At each balance ial assumptions may differ materially from actual developments sheet date, the Company assesses whether the realization of future due to changing market and economic conditions, and therefore tax benefits is sufficiently probable to recognize deferred tax assets. may result in a significant change in post-retirement employee This assessment requires the exercise of judgement on the part of benefit obligations and the related future expense. Note 34 pro- management with respect to, among other things, benefits that vides details on the estimates used in accounting for pensions and could be realized from available tax strategies and future taxable post-retirement benefits. income, as well as other positive and negative factors. The recorded amount of total deferred tax assets could be reduced if estimates of projected future taxable income and benefits from available tax strategies are lowered, or if changes in current tax regulations are enacted that impose restrictions on the timing or extent of the Company’s ability to utilize future tax benefits. 116 Onex Corporation December 31, 2018 N O T E S T O C O N S O L I D AT E D F I N A N C I A L S TAT E M E N T S Stock-based compensation I N V E S T M E N T E N T I T Y S TAT U S The Company’s stock-based compensation accounting for its MIP As a result of a reassessment performed by management, Onex, options is completed using an internally developed valuation the parent company, has determined that it meets the criteria of model. The critical assumptions and estimates used in the valua- an investment entity, as defined in IFRS 10, Consolidated financial tion model include the fair value of the underlying investments, the statements. Onex will account for the change in its status prospec- time to expected exit from each investment, a risk-free rate and an tively effective January 1, 2019, resulting in the following financial industry comparable historical volatility for each investment. The statement impacts as of January 1, 2019 and in future financial fair value of the underlying investments includes critical assump- statements: tions and estimates, as described for Limited Partners’ Interests, • Subsidiaries of Onex that provide investment-related services carried interest and investments in joint ventures and associates. will continue to be consolidated; Comparative amounts • The assets and liabilities of other subsidiaries, including the operating companies, will be derecognized from Onex’ consoli- Certain amounts presented in prior periods have been reclassified dated balance sheet; to conform to the presentation adopted in the current year. • Investments that are no longer consolidated will be recognized 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 16 – Leases at fair value and will be subsequently measured at fair value through net earnings; and • A gain resulting from the difference between the fair values of those investments and their previous carrying values as of January 1, 2019 will be recognized in the consolidated statement In January 2016, the IASB issued IFRS 16, Leases, which replaces of earnings. IAS 17, Leases. The standard provides an updated definition of a lease contract, including guidance on the combination and sep- 2 . S I G N I F I C A N T T R A N S A C T I O N S aration of contracts. The standard requires lessees to recognize a right-of-use asset and a lease liability for substantially all lease contracts. The accounting for lessors is substantially unchanged from IAS 17. IFRS 16 is effective for annual periods beginning on or after January 1, 2019, with earlier application permitted. The Company is completing the execution of its implementation plan and adopted IFRS 16 on January 1, 2019 on a modified retrospec- tive basis. Onex, the parent company, currently expects the fol- lowing impacts as a result of adopting IFRS 16: • The recognition of right-of-use assets and lease liabilities total- ling approximately $75 on January 1, 2019, excluding the impact a) Acquisition of SMG In January 2018, the Onex Partners IV Group completed the acqui- sition of SMG Holdings Inc., a global manager of convention cen- tres, stadiums, arenas, theatres, performing arts centres and other venues. The Onex Partners IV Group’s total investment was $429 for an economic interest of 99%. Onex’ share of the investment was $139 for an economic interest of 32%. The remainder of the purchase price was financed through a rollover of equity by man- agement of SMG and debt financing, without recourse to Onex Corporation. SMG is included within the business and informa- of finance leases previously recognized in the consolidated bal- tion services segment. ance sheets; • Operating lease expenses will no longer be recognized within the consolidated statements of earnings; • Amortization expense for right-of-use assets will be recognized within the consolidated statements of earnings; • Interest expense will be recognized for lease liabilities within the consolidated statements of earnings; and • Within the consolidated statements of cash flows, cash flows from operating activities will increase, with a corresponding decrease in cash flows from financing activities. As part of the acquisition of SMG, the Onex Partners IV Group also acquired $44 of SMG’s second lien debt, which bears interest at LIBOR plus a margin of up to 7.00% and matures in January 2026. To finance the investment in SMG’s second lien debt, the Onex Partners IV Group entered into a revolving credit facility in January 2018. The facility bears interest at LIBOR (sub- ject to a floor of 0.00%) plus a margin of 1.75%, matures in January 2021 and is reimbursable by capital calls upon the limited part- ners of Onex Partners IV. Onex Corporation, the parent company, is only obligated with respect to borrowings under the revolv- ing credit facility based on its proportionate share of the Onex Partners IV Group’s investment in SMG. Onex Corporation December 31, 2018 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 b) Partial loan note repayment by Parkdean Resorts Onex’ share of the carried interest received was C$1 ($1) In February 2018, Parkdean Resorts made a partial repayment of a and was included in the net proceeds to Onex. ONCAP manage- loan note outstanding with the Onex Partners IV Group totalling ment’s share of the carried interest was C$4 ($3), including C$2 £52 ($74), including accrued interest, with net proceeds from a ($2) from Onex and Onex management. No amounts were paid sale-leaseback transaction completed for certain parks in August on account of the MIP for this transaction as the required realized 2017. Onex’ share of the repayment was £15 ($22). The remaining investment return hurdle was not met on realizations to date. principal balance of £25 ($31) outstanding under the loan note, The ONCAP II Group continues to hold approximately of which Onex’ share was £7 ($9), was converted into addition- 10.4 million common shares of Pinnacle Renewable Energy for al equity of Parkdean Resorts in accordance with the loan note an economic and voting interest of 32%. Onex continues to hold agreement. As of December 31, 2018, the Onex Partners IV Group approximately 5.0 million common shares for a 15% economic has a 94% economic interest in Parkdean Resorts, of which Onex’ interest in Pinnacle Renewable Energy. share is 28%. c) Initial and secondary offerings by Pinnacle Renewable Energy d) Secondary offering by Emerald Expositions In March 2018, Emerald Expositions completed a secondary offer- ing of 6.75 million shares of its common stock, including the exer- In February 2018, Pinnacle Renewable Energy, Inc. (“Pinnacle cise of an over-allotment option. The offering was priced at $18.50 Renew able Energy”) completed an initial public offering of per share for gross proceeds of $125. No treasury shares were approximately 15.3 million common shares (TSX: PL), including issued as part of the offering. The Onex Partners III Group sold the exercise of an over-allotment option. The offering was priced at all of the shares in this transaction for net proceeds of $120. Onex’ C$11.25 per share for gross proceeds of C$173. As part of the offer- portion of the net proceeds was $32, including carried interest. ing, Pinnacle Renewable Energy issued approximately 6.2 million Amounts received on account of the carried interest treasury shares. The net proceeds from treasury shares were used related to this transaction totalled $8. Onex’ share of the carried to repay C$29 of existing shareholder subordinated debt, with the interest received was $3 and was included in the net proceeds balance to fund construction of production facilities and for other to Onex. Management’s share of the carried interest was $5. No general corporate purposes. The ONCAP II Group received C$20 amounts were paid on account of the MIP for this transaction as ($16) for its share of the repayment of the existing shareholder sub- the required realized investment return hurdle was not met on ordinated debt, of which Onex’ share was C$9 ($7). The ONCAP II realizations to date. Group did not sell any common shares as part of this transaction. The Onex Partners III Group continues to hold approxi- As a result of this transaction, the ONCAP II Group no mately 47.1 million shares of Emerald Expositions’ common stock longer controls Pinnacle Renewable Energy. The interest held by for a 66% economic and voting interest. Onex continues to hold the Company has been recorded as a long-term investment at fair approximately 11.4 million shares for a 16% economic interest. value, with changes in fair value recognized in the consolidated Since the sale of shares by the Onex Partners III Group did not statements of earnings. In addition, a gain of $82 was recorded result in a loss of control over Emerald Expositions, the transac- based on the excess of the interest retained at fair value over the tion was recorded as a transfer from the equity holders of Onex historical accounting carrying value of the investment. The gain is Corporation to non-controlling interests in the consolidated entirely attributable to the equity holders of Onex Corporation, as financial statements, with the cash proceeds received in excess the interests of the Limited Partners were recorded as a financial of the historical accounting carrying value of $49 being recorded liability at fair value. Pinnacle Renewable Energy does not repre- directly to retained earnings. sent a separate major line of business, and as a result, the oper- ating results up to the date of the loss of control have not been e) Sale of Mavis Discount Tire presented as a discontinued operation. In March 2018, the ONCAP III Group sold its entire investment In June 2018, Pinnacle Renewable Energy completed a in Mavis Tire Supply LLC (“Mavis Discount Tire”). The ONCAP III secondary offering of approximately 4.2 million common shares, Group received net proceeds of $518, of which Onex’ share was including the exercise of an over-allotment option. The offering $173, including carried interest and after the reduction for was priced at C$13.75 per share for gross proceeds of C$58. No amounts paid to the Onex and ONCAP management teams. No treasury shares were issued as part of the offering. The ONCAP gain was realized as a result of this transaction as the Company’s II Group sold approximately 3.7 million shares for net proceeds interest in Mavis Discount Tire was recorded at fair value. of C$49 ($37). Onex’ portion of the net proceeds was C$22 ($17), Onex’ share of the carried interest received was $15 including carried interest and after the reduction for amounts and was included in the net proceeds to Onex. ONCAP manage- paid to the ONCAP management team. No gain was realized as ment’s share of carried interest was $37, including $14 from Onex a result of this transaction as the Company’s interest in Pinnacle and Onex management. Management of Onex and ONCAP earned Renewable Energy is recorded at fair value. $14 on account of management incentive programs related to this 118 Onex Corporation December 31, 2018 transaction. N O T E S T O C O N S O L I D AT E D F I N A N C I A L S TAT E M E N T S In addition, the consolidated financial statements an initial economic interest of 39%. The remainder of the pur- include net proceeds of $15 from the sale of Mavis Discount Tire chase price was financed through a rollover of equity by manage- attributable to a third-party investor. ment of Precision and debt financing, without recourse to Onex Corporation. Precision is included within the packaging products f) Acquisition of AutoSource and services segment. In May 2018, Onex invested $41 to acquire AutoSource Holdings, Inc. (“AutoSource”), a used vehicle retailer specializing in branded j) Acquisition of Walter Surface Technologies title vehicles, for an initial economic and voting interest of 50% In September 2018, the ONCAP IV Group acquired Walter Surface and 60%, respectively. Technologies, a provider of innovative solutions for the metal In September 2018, the investment in AutoSource was working industry. Excluding the impact of foreign exchange hedg- transferred to the ONCAP IV Group for $41, which represents the es, the ONCAP IV Group’s total investment was C$175 ($135) for original cost of the investment made by Onex. As a result of this an economic interest of 94%. Onex’ share of the investment was transaction, the ONCAP IV Group’s economic and voting interest in C$69 ($53) for an economic interest of 37%. The remainder of AutoSource is 50% and 60%, respectively. Onex’ share of the invest- the purchase price was financed through a rollover of equity by ment, as a limited partner of ONCAP IV, is $16 for an economic the founders of Walter Surface Technologies, equity investments interest of 20%. AutoSource is included within the other segment. made by management of Walter Surface Technologies and cer- g) Investment in Ryan Specialty Group tain other investors, and debt financing, without recourse to Onex Corporation. Walter Surface Technologies is included within the In June 2018, Onex and Onex management invested a total of $175 other segment. in Ryan Specialty Group, LLC (“RSG”), an international specialty insurance organization, which includes a wholesale insurance k) Initial public offering by SIG brokerage firm and an underwriting management organization. In October 2018, SIG completed an initial public offering of The investment was comprised of $150 in preferred equity and approximately 151.8 million ordinary shares (SIX: SIGN), including $25 in common equity. Onex’ share of the investment was $172. the exercise of an over-allotment option. The offering was priced The investment in RSG is recorded as a long-term at CHF 11.25 per share for gross proceeds of CHF 1,708. As part investment at fair value with changes in fair value recognized in of the offering, SIG issued 105.0 million treasury shares. The net the consolidated statements of earnings. proceeds from treasury shares were primarily used to reduce SIG’s h) Investment in PowerSchool long-term debt. The Onex Partners IV Group sold approximately 45.9 million shares in the transaction for net proceeds of CHF 504 In August 2018, the Onex Partners IV Group acquired an interest ($511). Onex’ portion of the net proceeds was CHF 178 ($180). in PowerSchool, a non-instructional software provider primar- The Onex Partners IV Group continues to hold approxi- ily to K-12 primary schools, from Vista Equity Partners (“Vista”). mately 163.2 million ordinary shares in SIG for a 51% economic Concurrent with this transaction, PowerSchool acquired interest. Onex continues to hold approximately 57.5 million ordi- PeopleAdmin, a provider of cloud-based talent management nary shares for an 18% economic interest. Since the sale of shares solutions for the education sector and also previously owned by by the Onex Partners IV Group did not result in a loss of control Vista. The Onex Partners IV Group invested $872 for an economic over SIG, the transaction was recorded as a transfer from the interest of 50% in PowerSchool and is an equal partner with Vista. equity holders of Onex Corporation to non-controlling interests Onex’ share of the investment was $283 for an economic interest in the consolidated financial statements, with the cash proceeds of 16%. received in excess of the historical accounting carrying value of The investment in PowerSchool is recorded as a long- $256 being recorded directly to retained earnings. term investment at fair value with changes in fair value recog- The issuance of new shares by SIG as part of the initial nized in the consolidated statements of earnings. public offering resulted in the dilution of the Company’s owner- i) Acquisition of Precision ship interest in SIG. The Company recorded a transfer from the non-controlling interests in the consolidated statements of equity. In August 2018, the ONCAP IV Group acquired Precision Global This reflected Onex’ share of the increase in the book value of the (“Precision”), a global manufacturer of dispensing solutions. The net assets of SIG due to the issuance of additional common shares ONCAP IV Group’s total investment was $111 for an initial eco- at a value above the Company’s historical accounting carrying nomic interest of 99%. Onex’ share of the investment was $44 for value of SIG. Onex Corporation December 31, 2018 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 l) Investment in Ryan o) Sale of Tecta In October 2018, the Onex Partners IV Group acquired an interest In November 2018, the ONCAP III and ONCAP IV Groups sold in Ryan LLC (“Ryan”), a global tax services and software provider. their entire investment in Tecta America Corporation (“Tecta”) The Onex Partners IV Group’s total investment was $317 for an for net proceeds of $416. Onex’ share of the net proceeds from economic interest of 42%. Onex’ share of the investment was $103 the sale was $134, including carried interest and after the reduc- for an economic interest of 14%. tion for amounts paid to the Onex and ONCAP management The investment in Ryan was partially funded by a revolv- teams. Included in the net proceeds is $4 held in escrow, of which ing credit facility, with a capacity of $65, entered into by the Onex Onex’ share is $1. As a result of this transaction, a gain of $261 was Partners IV Group in October 2018. The facility bears interest at recorded based on the excess of the net proceeds over the histori- LIBOR (subject to a floor of 0.00%) plus a margin of 1.75%, matures cal accounting carrying value of the investment. in October 2021 and is reimbursable by capital calls upon the Onex’ share of the carried interest received was $12 and limited partners of Onex Partners IV. Onex, the parent company, was included in the net proceeds to Onex. ONCAP management’s is only obligated with respect to borrowings under the revolv- share of the carried interest was $32, including $3 from Onex and ing credit facility based on its proportionate share of the Onex Onex management. Amounts paid on account of the MIP totalled Partners IV Group’s investment in Ryan. $7 for this transaction and have been deducted from the net pro- In connection with the investment in Ryan, the Onex ceeds to Onex. Partners IV Group has committed to invest up to an additional Tecta does not represent a separate major line of busi- $100 in equity to partially fund future add-on acquisitions over a ness, and as a result, the operating results have not been pres- two-year period, subject to certain terms and conditions. ented as a discontinued operation. Non-controlling interests of The investment in Ryan is recorded as a long-term the Company decreased by $7 as a result of no longer consolidat- investment at fair value with changes in fair value recognized in ing Tecta. The cash proceeds recorded in the consolidated state- the consolidated statements of earnings. ments of cash flows for the sale of Tecta were reduced for Tecta’s cash and cash equivalents of $2 at the date of sale. m) Investment in Wyse In November 2018, the ONCAP IV Group invested in Wyse Meter p) Acquisition of KidsFoundation Solutions Inc. (“Wyse”), a provider of submetering and util- In November 2018, the Onex Partners IV and Onex Partners V ity expense management solutions for the multi-residential, con- Groups acquired KidsFoundation, a provider of childcare services in dominium and commercial markets in Canada. Excluding the impact of foreign exchange hedges, the ONCAP IV Group’s invest- ment in Wyse was C$35 ($26) for an economic interest of 41%. Onex’ share of the investment was C$14 ($10) for an economic interest of 16%. The investment is comprised of both preferred shares and convertible debt. the Netherlands, for €246. Excluding the impact of foreign exchange hedges, the Onex Partners IV Group’s investment was €48 ($55), the Onex Partners V Group’s investment was €97 ($109) and an invest- ment of €5 ($6) was made as a co-investment for a combined eco- nomic interest of 98%. Onex’ share of the investment was $47 for an economic interest of 27%. The remainder of the purchase price The investment in Wyse is recorded as a long-term was financed through a rollover of equity by management share- investment at fair value with changes in fair value recognized in holders and debt financing, without recourse to Onex Corporation. the statements of earnings. KidsFoundation is included within the other segment. n) Acquisition of Impakt by Celestica q) Pending sale of BrightSpring Health In November 2018, Celestica acquired Impakt Holdings, LLC In December 2018, the Company entered into an agreement to (“Impakt”), a vertically integrated manufacturer in the semi- sell BrightSpring Health for an enterprise value of approximately conductor and display industries, for $331. The purchase price $1,300. Under the terms of the agreement, the Onex Partners I was financed with borrowings under Celestica’s existing secured and Onex Partners III Groups will receive combined net proceeds credit facility. of approximately $780. Onex’ portion of the net proceeds will be approximately $190, including estimated carried interest of $39 and net of the estimated MIP distribution. The transaction is expected to close during the first quarter of 2019 and is subject to customary closing conditions and regulatory approvals. 120 Onex Corporation December 31, 2018 N O T E S T O C O N S 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 operations of BrightSpring Health have been pre- During 2018, BBAM distributed $38 to the Onex Part- sented as discontinued in the consolidated statements of earnings ners III Group, of which Onex’ share was $12. The distributions and cash flows and the year ended December 31, 2017 has been were funded by the company’s free cash flow. restated to report BrightSpring Health as discontinued on a com- During 2018, Meridian Aviation distributed $25 to the parative basis, as described in note 8(a). BrightSpring Health has Onex Partners III Group, of which Onex’ share was $8. The distri- been reclassified from the health and human services segment to bution was funded primarily from proceeds from aircraft sales. the other segment. r) Pending merger of Clarivate Analytics with Churchill u) Credit Strategies Warehouse facility of EURO CLO-3 In January 2019, Clarivate Analytics entered into an agreement In March 2018, Onex established a warehouse facility in connec- to merge with Churchill Capital Group (“Churchill”). As part of tion with its third CLO denominated in euros (“EURO CLO-3”). the agreement, the merged entity will be publicly listed on the New York Stock Exchange. Capital invested in the merged entity by Churchill is expected to be used to pay down Clarivate Analytics’ existing long-term debt and for working capital and other general During the year ended December 31, 2018, Onex invested €55 ($66) to support the warehouse facility and a financial institution provided borrowing capacity of up to €220 ($252) backed by the underlying collateral. corporate purposes. The Onex Partners IV Group and its partner Onex consolidates the warehouse facility for EURO CLO-3. Baring Private Equity Asia will not sell any shares as part of this transaction and are expected to have an economic interest in the Closing of CLO-15 merged entity of approximately 74% upon completion of the trans- In June 2018, Onex closed its fifteenth CLO denominated in U.S. action, assuming no redemptions are made by Churchill’s pub- dollars (“CLO-15”), which was funded through the issuance of lic shareholders. Onex’ economic interest in the merged entity is collateralized loan instruments in a series of tranches of secured expected to be approximately 20% upon completion of the trans- notes and preference shares in a private placement transaction action, assuming no redemptions are made by Churchill’s public for an aggregate principal amount of $614. shareholders. The transaction is expected to close during the sec- On closing, Onex invested $57 for 100% of the most sub- ond quarter of 2019, subject to approval by Churchill’s sharehold- ordinated capital of CLO-15. Reinvestment can be made in collateral ers, Churchill having a specified minimum amount of cash available by the CLO up to July 2023, or earlier, subject to certain provisions. after any shareholder redemptions and transaction expenses, and other customary closing conditions. Warehouse facility of CLO-16 s) Pending merger of SMG with AEG Facilities nection with its sixteenth CLO denominated in U.S. dollars In February 2019, SMG entered into an agreement to merge with (“CLO-16”). During the year ended December 31, 2018, Onex AEG Facilities. The Onex Partners IV Group is expected to have invested $50 to support the warehouse facility and a financial an economic interest in the merged entity of approximately 50%, institution provided borrowing capacity of up to $200 backed by of which Onex’ share is expected to be approximately 16%. The the underlying collateral. merger is expected to close later in 2019, subject to customary Onex consolidates the warehouse facility for CLO-16. In August 2018, Onex established a warehouse facility in con- closing conditions and regulatory approvals. Fund closing for OCLP I t) Distributions from operating businesses In November 2018, Onex completed the final closing for Onex During 2018 and up to February 28, 2019, Onex and its partners Credit Lending Partners (“OCLP I”), reaching aggregate commit- received distributions of $336 from certain operating businesses. ments of $413, including Onex’ commitment of $100. At Decem- Onex’ portion of the distributions was $184, including carried ber 31, 2018, after giving effect to the final close and borrowings interest. The distributions include the repayment of a loan note under the revolving credit facility, Onex’ remaining unfunded by Parkdean Resorts, as previously described in note 2(b), and commitment for OCLP I was $26. The duration of the commit- the repayment of existing shareholder subordinated debt by ment period for OCLP I will be up to November 2021, subject to Pinnacle Renewable Energy, as previously described in note 2(c). extensions of up to an additional two years. The other significant distributions received by the Company are During 2018, OCLP I made investments in the debt of described below. middle-market, upper middle-market and large private equity During 2018 and up to February 28, 2019, Flushing Town sponsor-owned portfolio companies and, selectively, other corpo- Center distributed $134 of proceeds primarily from the sale of res- rate borrowers, which were funded by borrowings from OCLP I’s idential condominium units, of which Onex’ share was $117. credit facilities and capital calls of $111 from investors, of which Onex’ share was $28. Onex Corporation December 31, 2018 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 Onex consolidates the operations of OCLP I and records statements of equity. This reflects Onex’ share of the increase in changes in the fair value of the asset portfolio through net earnings. the book value of the net assets of JELD-WEN due to the issuance Redemption of CLO-2 of additional common shares at a value above the Company’s historical accounting carrying value of JELD-WEN. In November 2018, the Company redeemed its second CLO In May 2017, JELD-WEN completed a secondary offering denominated in U.S. dollars. CLO-2 was established in November of 16.1 million shares of its common stock, including the exercise 2012 and its reinvestment period ended in November 2018. Upon of an over-allotment option. The offering was priced at $30.75 per the redemption of CLO-2, all secured notes were repaid, includ- share for gross proceeds of $495. No treasury shares were issued ing accrued interest, and the equity was settled for the residual as part of the offering. The Onex Partners III Group sold approxi- proceeds in the CLO. In aggregate, Onex received $29 of proceeds mately 15.7 million shares in the transaction for net proceeds of and distributions related to CLO-2 compared to its original invest- $466. Onex’ portion of the net proceeds was $135, including car- ment of $26. In addition, Onex expects to receive a final distribu- ried interest. tion of $4 from CLO-2. A gain of $1,514 was recorded within discontinued oper- At redemption, CLO-2 transferred $13, $11, $4 and $12 ations during the second quarter of 2017, based on the excess of in assets for fair value consideration to CLO-8, CLO-9, CLO-10 and the net proceeds and the interest retained at fair value over the the warehouse facility for CLO-16, respectively. The fair values historical accounting carrying value of the investment. The gain used for the transfers were reviewed by a third party. on the sale was entirely attributable to the equity holders of Onex Distributions Corporation, as the interests of the Limited Partners were record- ed as a financial liability at fair value. The portion of the gain During the year ended December 31, 2018, Onex received $59 associated with measuring the interest retained in JELD-WEN at of distributions from its CLO investments. Additionally, Onex fair value was $1,136. The portion of the gain associated with the received $9 on the redemption of CLO-2 and $11 from the partial shares sold in the secondary offering was $378. sale of its investment in CLO-7. 3 . 2 017 S I G N I F I C A N T T R A N S A C T I O N S a) Initial and secondary offerings by JELD-WEN 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. As part of the offer- ing, JELD-WEN issued approximately 22.3 million treasury shares. The net proceeds from treasury shares were used to repay $375 of JELD-WEN’s combined term loan, with the balance for work- ing 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. Onex’ portion of the net pro- ceeds was $40, including carried interest. As a result of this transaction, the Onex Partners III Group’s economic ownership was reduced to 60% and Onex’ eco- nomic ownership was reduced to 15%. Since the sale of shares by the Onex Partners III Group did not result in a loss of control over JELD-WEN, the transaction was recorded as a transfer from the equity holders of Onex Corporation to non-controlling interests in the consolidated financial statements, with the cash proceeds received in excess of the historical accounting carrying value of $133 being recorded directly to retained earnings. The new shares issued by JELD-WEN in the initial public offering resulted in the dilution of the Company’s owner- ship interest in JELD-WEN. As a result, the Company recorded a transfer from the non-controlling interests in the consolidated 122 Onex Corporation December 31, 2018 As a result of this transaction, the Onex Partners III Group’s economic ownership was reduced to 45% and Onex’ eco- nomic ownership was reduced to 11%, resulting in a loss of con- trol over JELD-WEN by the Company. The remaining interest held by the Company has been recorded as a long-term investment at fair value, with changes in fair value recognized in the consolidated statements of earnings. Non-controlling interests of the Company decreased by $212 as a result of no longer consolidating JELD-WEN. In November 2017, JELD-WEN completed a second- ary 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. No treasury shares were issued as part of the offering. The Onex Partners III Group sold approximately 14.2 million shares in the transaction for net proceeds of $463. Onex’ portion of the net proceeds was $134, including carried interest. No gain was real- ized as a result of this transaction as the Company’s interest in JELD-WEN is recorded at fair value. Amounts received on account of the carried interest related to these transactions totalled $113. Onex’ share of the car- ried interest received was $45 and was included in the net pro- ceeds to Onex. Management’s share of the carried interest was $68. No amounts were paid on account of the MIP for these trans- actions as the required realized investment return hurdle for Onex was not met on realizations to date. The operations of JELD-WEN up to May 2017 are pre- sented as discontinued in the December 31, 2017 consolidated statements of earnings and cash flows and have been reclassified from the building products segment to the other segment. N O T E S T O C O N S 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) Acquisition of Parkdean Resorts The issuance of new shares by Emerald Expositions In March 2017, the Onex Partners IV Group acquired Parkdean as part of the initial public offering resulted in the dilution of Resorts, an operator of caravan holiday parks in the United King- the Company’s ownership interest in Emerald Expositions. The dom, for £1,350. Excluding the impact of foreign exchange hedges, Company recorded a transfer from the non-controlling interests the Onex Partners IV Group’s investment was $612 (£500), com- in the consolidated statements of equity. This reflected Onex’ prised of $417 from Onex Partners IV and $195 as a co-investment share of the increase in the book value of the net assets of Emerald from Onex and certain limited partners, for an initial economic Expositions due to the issuance of additional common shares at a interest of 91%. The investment in Parkdean Resorts consisted of value above the Company’s historical accounting carrying value of equity of $520 (£425) and a loan note of $92 (£75). At the time of Emerald Expositions. acquisition, Onex invested $166, comprised of $123 through Onex Partners IV and $43 as a co-investment, for an initial economic e) Sale of USI interest of 25%. Subsequent to the increase in Onex’ interest in Onex In May 2017, the Onex Partners III Group sold its entire invest- Partners IV, as described in note 3(g), Onex’ share of the investment ment in USI for an enterprise value of $4,316. The Onex Part- increased to $182, comprised of $139 through Onex Partners IV and ners III Group received net proceeds of $1,889, resulting in a gain $43 as a co-investment. The remainder of the purchase price was of $1,797 based on the excess of the net proceeds over the histori- financed through a rollover of equity by management sharehold- cal accounting carrying value of the investment. Onex’ portion of ers and debt financing, without recourse to Onex Corporation. the net proceeds was $563, including carried interest of $65 and Parkdean Resorts is included within the other segment. after the reduction for amounts on account of the MIP. The gain c) Distribution from Jack’s on the sale was entirely attributable to the equity holders of Onex Corporation, as the interests of the limited partners were recorded In April 2017, Jack’s amended its existing credit facility to increase as a financial liability at fair value. the size of its term loan to $275. The proceeds from the incremen- Amounts received on account of the carried interest tal borrowing, along with cash on hand, were used to fund a distri- related to this transaction totalled $163. Onex’ share of the carried bution of $85 to shareholders. The Onex Partners IV Group’s por- interest received was $65 and was included in the net proceeds tion of the distribution was $81, of which Onex’ share was $23. to Onex. Management’s share of the carried interest was $98. Amounts paid on account of the MIP totalled $30 for this transac- d) Initial public offering by Emerald Expositions tion and have been deducted from the net proceeds to Onex. In April 2017, Emerald Expositions completed an initial public The operations of USI up to the date of sale have been offering of approximately 17.8 million shares of its common stock presented as discontinued in the consolidated statements of earn- (NYSE: EEX), including the exercise of an over-allotment option. ings and cash flows for the year ended December 31, 2017. The The offering was priced at $17.00 per share for gross proceeds of operations of USI have been reclassified from the insurance ser- $303. As part of the offering, Emerald Expositions issued approxi- vices segment to the other segment. Non-controlling interests of mately 10.3 million treasury shares. The net proceeds from the trea- the Company decreased by $1 as a result of no longer consolidat- sury shares were used to repay $159 of Emerald Expositions’ term ing USI. loan. The Onex Partners III Group sold approximately 7.5 million shares in the transaction for net proceeds of $119. Onex’ portion of f) Sale of Dental Digital business by Carestream Health the net proceeds was $32, including $3 of carried interest. In September 2017, Carestream Health completed the sale Amounts received on account of the carried interest of its Dental Digital business for an enterprise value of $810. related to this transaction totalled $7. Onex’ share of the carried Carestream Health received net proceeds of $859 from the sale of interest received was $3 and was included in the net proceeds its Dental Digital business along with net proceeds received from to Onex. Management’s share of the carried interest was $4. No an additional transaction completed during the fourth quarter amounts were paid on account of the MIP for this transaction as of 2017. Net proceeds from these transactions were used to repay the required realized investment return hurdle for Onex was not $758 of the company’s term loans. The sale of the Dental Digital met on this realization. business, together with the additional transaction, resulted in the Since the sale of shares by the Onex Partners III Group recognition of a pre-tax gain of $731, which has been recorded in did not result in a loss of control over Emerald Expositions, the other gains. transaction was recorded as a transfer from the equity holders of Carestream Health’s Dental Digital business did not rep- Onex Corporation to non-controlling interests in the consolidated resent a separate major line of business of the Company, and as a financial statements, with the cash proceeds received in excess result, the operating results up to the date of disposition have not of the historical accounting carrying value of $52 being recorded been presented as a discontinued operation. directly to retained earnings. Onex Corporation December 31, 2018 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 g) Onex Partners IV interest acquired by Onex j) Acquisition of IntraPac In September 2017, Onex, the parent company, acquired an inter- In December 2017, the ONCAP IV Group acquired IntraPac est in Onex Partners IV from a limited partner for $354. No gain International Corporation (“IntraPac”), a designer and manufac- or loss was recorded on this transaction as the limited partners’ turer of specialty rigid packaging solutions. The ONCAP IV Group’s interests are recorded at fair value. total investment was $118 for an initial economic interest of 98%. In October 2017, Onex sold a portion of the acquired Onex’ share of the investment was $46 for an initial economic inter- interest in Onex Partners IV to certain limited partners for $198, est of 38%. The remainder of the purchase price was primarily the same value at which Onex acquired the interest in September financed through a rollover of equity by management of IntraPac 2017. Onex will continue to earn management fees and carried and debt financing, without recourse to Onex Corporation. IntraPac interest on the interest sold to certain limited partners. The car- is included within the packaging products and services segment. ried interest entitlement to Onex management was not impact- ed by this transaction, including carried interest on the portion k) Acquisition of Laces retained by Onex. In December 2017, the ONCAP IV Group acquired Laces Group The net increase in Onex’ interest in Onex Partners IV (“Laces”), a designer, manufacturer and marketer of bath accesso- resulted in an increase in Onex’ ownership percentage in invest- ries and home fashion products. The ONCAP IV Group’s total invest- ments completed by the fund. In addition, Onex’ uncalled com- ment was $102 for an economic interest of 82%. Onex’ share of the mitted capital to Onex Partners IV increased by $69 for its share of investment was $40 for an economic interest of 32%. The remain- the interest acquired in the fund. h) Partial sale of BBAM der of the Laces purchase price was primarily financed through a rollover of equity by management of Laces and debt financing, without recourse to Onex Corporation. Laces is included within the In October 2017, the Onex Partners III Group sold a portion of its other segment. investment in BBAM. The Onex Partners III Group’s economic interest in BBAM was reduced from 50% to 35% and Onex’ eco- l) Distributions from operating businesses nomic interest was reduced from 13% to 9%. Together with distri- During 2017, the Company received distributions of $281 from butions completed by BBAM in 2017, the Onex Partners III Group certain operating businesses. Onex’ portion of the distributions, received $180, of which Onex’ share was $53, including carried including carried interest, was $107. This included distributions interest of $7. from BBAM and Jack’s, as previously described in note 3(h) and Amounts received on account of the carried interest 3(c), respectively. Other significant distributions received by the related to the partial sale totalled $18. Onex’ share of the carried Company are described below. interest received was $7 and was included in the net proceeds In January 2017, PURE Canadian Gaming Corp. (“PURE to Onex. Management’s share of the carried interest was $11. No Canadian Gaming”) distributed C$15 to shareholders. The ONCAP II amounts were paid on account of the MIP for this transaction as and III Groups’ portion of the distribution to shareholders was the required realized investment return hurdle for Onex was not C$15 ($11), of which Onex’ portion was C$6 ($5). In addition, met on realizations to date. i) Onex Partners V in December 2017, PURE Canadian Gaming amended its exist- ing credit facility, and proceeds from the incremental borrowing, along with cash on hand, were used to fund a distribution of C$45 In November 2017, Onex completed fundraising for Onex Part- to shareholders. The ONCAP II and III Groups’ portion of the dis- ners V, reaching aggregate commitments of $7,150, including tribution was C$45 ($35), of which Onex’ share was C$18 ($14). Onex’ commitment of $2,000 and Onex management’s minimum In September 2017, Bradshaw International, Inc. 2% commitment. (“Bradshaw”) amended its existing credit facility. A portion of the proceeds from the incremental borrowing were used to fund a distribution of $53 to shareholders. The ONCAP III Group’s por- tion of the distribution to shareholders was $48, of which Onex’ share was $14. 124 Onex Corporation December 31, 2018 N O T E S T O C O N S 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) Credit Strategies Extension of CLO-4 Closing of EURO CLO-2 In December 2017, Onex closed EURO CLO-2, which was funded In April 2017, Onex amended CLO-4, which extended the reinvest- through the issuance of collateralized loan instruments in a series ment period of the CLO by four years to April 2021 and increased of tranches of secured and subordinated notes in a private place- the size by $105 to $600. Onex invested an additional $13 in the most subordinated capital of CLO-4 in connection with the CLO-4 amendment. Closing of EURO CLO-1 ment 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. Reinvestment can be made in collateral by the CLO up to January In May 2017, Onex closed EURO CLO-1, which was funded through 2022, or earlier, subject to certain provisions. the issuance of collateralized loan instruments in a series of tranches of secured and subordinated notes in a private placement Closing of CLO-14 transaction for an aggregate principal amount of €361 ($393). In December 2017, Onex closed CLO-14, which was funded 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. through the issuance of collateralized loan instruments in a series of tranches of secured and subordinated notes and preference shares in a private placement transaction for an aggregate princi- Reinvestment can be made in collateral by the CLO up to June 2021, pal amount of $611. or earlier, subject to certain provisions. On closing, Onex received $60 plus interest for the Redemption of CLO-3 investment that supported the warehouse facility and invested $36 for approximately 65% of the most subordinated capital of In June 2017, the Company redeemed its third CLO denominated CLO-14. Reinvestment can be made in collateral by the CLO up to in U.S. dollars. CLO-3 was established in March 2013 and its rein- November 2022, or earlier, subject to certain provisions. vestment period ended in January 2017. Upon the redemption of CLO-3, all secured notes were repaid, including accrued interest, Onex Credit Lending Partners and the equity was settled for the residual proceeds in the CLO. In During 2017, Onex raised $314 for OCLP I, including $100 from Onex. aggregate, Onex received $31 of proceeds and distributions relat- During 2017, OCLP I made investments in the debt of ed to CLO-3 compared to its original investment of $24. middle-market, upper middle-market and large private equi- At redemption, CLO-3 transferred $13, $109 and $48 in ty sponsor-owned portfolio companies and, selectively, other assets for fair value consideration to CLO-4, CLO-13 and CLO-14, corporate borrowers, which were funded by borrowings from respectively. The fair values used for the transfer were reviewed by OCLP I’s credit facilities and a capital call of $55 from investors in a third party. Closing of CLO-13 December 2017, of which Onex’ share was $18. Distributions In July 2017, Onex closed CLO-13, which was funded through the During 2017, Onex received $59 of distributions from CLO invest- issuance of collateralized loan instruments in a series of tranches of ments. Additionally, Onex received $10 on the redemption of secured and subordinated notes and preference shares in a private CLO-3 and $23 on the sale of CLO investments. placement transaction for an aggregate principal amount of $610. On closing, Onex received $70 plus interest for the investment that supported the warehouse facility and invested $40 for approximately 70% of the most subordinated capital of CLO-13. Reinvestment can be made in collateral by the CLO up to July 2022, or earlier, subject to certain provisions. Onex Corporation December 31, 2018 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 4 . A C Q U I S I T I O N S During 2018 and 2017 several acquisitions, which were accounted for as business combinations, were completed either directly by Onex or through subsidiaries of Onex. Acquisitions completed by Onex are generally financed with proceeds from the Onex Partners and ONCAP Funds along with debt provided by third-party lend- ers. Debt provided by third-party lenders is held within the acquired companies and is without recourse to Onex Corporation, the ultimate parent company. This debt, along with debt incurred to finance acquisitions made by existing Onex subsidiaries, is excluded from the purchase price allocation tables below. 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-con- trolling interests. The fair value is determined using a combina- tion of valuation techniques, including discounted cash flows and projected earnings multiples. The key inputs to the valuation tech- niques 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 company are mea- sured either at fair value or at the non-controlling interests’ pro- portionate share of the identifiable assets and liabilities of the acquired business. The excess of the aggregate of the consider- ation transferred, the amount of any non-controlling interests in the acquired company and, for a business combination 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. 2 018 A C Q U I S I T I O N S Details of the purchase price and allocation to the assets and liabilities acquired are as follows: SMG(a) Celestica(b) KidsFoundation(c) ONCAP(d) Other(e) 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 Interests in net assets acquired Non-controlling interests in net assets acquired $ 51 58 638 – 367 54 1,168 (84) (80) 1,004 (1) $ 7 78 274 – 175 29 563 (32) (57) 474 – $ 25 $ 17 $ 7 62 – 241 23 358 (59) (19) 280 (2) 290 259 28 280 159 1,033 (167) (92) 774 (51) 5 36 155 13 188 5 402 (35) (6) 361 (29) $ Total 105 469 1,388 41 1,251 270 3,524 (377) (254) 2,893 (83) $ 1,003 $ 474 $ 278 $ 723 $ 332 $ 2,810 126 Onex Corporation December 31, 2018 N O T E S T O C O N S O L I D AT E D F I N A N C I A L S TAT E M E N T S a) In January 2018, the Company acquired SMG, as described in consideration of $127, of which $30 was non-cash consideration. note 2(a). BrightSpring Health is recorded as a discontinued operation, as b) In April 2018, Celestica acquired Atrenne Integrated Solutions, Inc. for total consideration of $143. In November 2018, Celestica Included in the acquisitions above are gross receivables due from acquired Impakt for total consideration of $331, as described in customers of $184, of which all contractual cash flows are expected note 2(n). to be recovered. The fair value of these receivables at the dates of described in note 2(q). c) In November 2018, the Company acquired KidsFoundation, as described in note 2(p). acquisition was determined to be $183. Revenue and net loss from the dates of acquisition for these acqui- sitions to December 31, 2018 were $809 and $62, respectively. d) ONCAP includes the acquisitions of AutoSource, Precision and Walter Surface Technologies, as described in notes 2(f ), 2(i) and 2(j), The Company estimates it would have reported consolidated rev- respectively, in addition to acquisitions made by Davis-Standard enues of approximately $24,400 and a net loss of approximately Holdings, Inc. (“Davis-Standard”), EnGlobe Corp. (“EnGlobe”), $805 for the year ended December 31, 2018 if acquisitions com- Hopkins Manufacturing Corporation (“Hopkins”), IntraPac and pleted during 2018 had been acquired on January 1, 2018. Tecta (up to November 2018) for total consideration of $156, of which $19 was non-cash consideration. Goodwill of the acquisitions was attributable primarily to the skills e) Other consists of acquisitions made by Clarivate Analytics, Emerald Expositions, sgsco and York for total consideration of lished supplier and customer bases and technological knowledge of the acquired companies. Goodwill of the acquisitions that is $205, of which $15 was non-cash consideration. Also included expected to be deductible for tax purposes is $249. and competence of the acquired workforce, non-contractual estab- in other are acquisitions made by BrightSpring Health for total 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, other than BrightSpring Health, 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. Onex Corporation December 31, 2018 127 N O T E S T O C O N S O L I D AT E D F I N A N C I A L S TAT E M E N T S a) In March 2017, the Company acquired Parkdean Resorts, as described in note 3(b). b) Emerald Expositions completed four acquisitions for total con- sideration of $96, of which $4 was non-cash consideration. The Company estimates it would have reported consolidated revenues of approximately $24,900 and net earnings of approxi- mately $2,370 for the year ended December 31, 2017 if acquisitions completed during 2017 had been acquired on January 1, 2017. c) ONCAP includes the acquisitions of IntraPac and Laces, as described in note 3(j) and 3(k), respectively. In addition, ONCAP skills and competence of the acquired workforce, non-contractual established customer bases and technological knowledge of the includes acquisitions made by Bradshaw, Chatters, Davis- acquired companies. Goodwill of the acquisitions that is expected Standard, Hopkins and Tecta for total consideration of $119. to be deductible for tax purposes was $79. Goodwill of the acquisitions was attributable primarily to the d) Other includes acquisitions made by Clarivate Analytics, sgsco and York for total consideration of $21, of which $9 was non-cash consideration. Also included in other is one acquisi- tion made by BrightSpring Health for total consideration of $5. BrightSpring Health is recorded as a discontinued operation, as described in note 2(q). Included in the acquisitions above were gross receivables due 5 . C A S H A N D C A S H E Q U I VA L E N T S Cash and cash equivalents comprised the following: As at December 31 Cash at bank and on hand Money market funds Commercial paper 2018 $ 1,570 997 74 39 2017 $ 1,416 1,614 84 262 from customers of $102, of which all contractual cash flows were Bank term deposits and other expected to be recovered. The fair value of these receivables at the Total cash and cash equivalents $ 2,680 $ 3,376 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. 6 . I N V E N T O R I E S Inventories comprised the following: Raw materials Work in progress Finished goods Real estate held for sale Total inventories At December 31, 2018, the fair value of investments managed by third-party investment managers was $274 (2017 – $1,021), of which $60 (2017 – $247) was included in short-term investments and $214 (2017 – $774) was included in long-term investments. The decrease in investments managed by third-party investment man- agers at December 31, 2018 was primarily driven by redemptions by Onex to fund investments completed during the year ended December 31, 2018. December 31, 2018 December 31, 2017 $ 1,243 $ 245 1,075 93 985 183 914 166 January 1, 2017 $ 1,027 183 946 354 $ 2,656 $ 2,248 $ 2,510 During the year ended December 31, 2018, $12,452 (2017 – $11,737) of inventory was expensed in cost of sales. Note 13(b) provides details on inventory provisions recorded by the Company. 128 Onex Corporation December 31, 2018 N O T E S T O C O N S O L I D AT E D F I N A N C I A L S TAT E M E N T S December 31, 2018 December 31, 2017 January 1, 2017 $ 349 206 193 123 79 174 $ 329 223 149 125 109 184 $ 296 250 314 138 179 235 $ 1,124 $ 1,119 $ 1,412 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: Contract assets Prepaid expenses Restricted cash Income and value-added taxes receivable Other receivables Other Total other current assets 8 . D I S C O N T I N U E D O P E R AT I O N S The following table shows revenues, expenses and net after-tax results from discontinued operations. The loss of control by the Company over Pinnacle Renewable Energy, as described in note 2(c), and the sale of Tecta, as described in note 2(o), did not represent separate major lines of business, and as a result have not been presented as discontinued operations. Year ended December 31 2018 2017 Revenues Expenses Earnings (loss) before income taxes Recovery of (provision for) income taxes Gain, net of tax Net earnings for the year BrightSpring Health(a) BrightSpring Health(a) $ 1,821 (1,770) $ 1,764 (1,720) 51 (1) – 50 $ 44 17 – 61 $ USI(b) JELD-WEN(c) Total $ 400 $ 1,393 (510) (110) 13 1,797 (1,580) (187) 15 1,514 $ 3,557 (3,810) (253) 45 3,311 $ 1,700 $ 1,342 $ 3,103 a) BrightSpring Health The following table shows the summarized assets and liabilities The operations of BrightSpring Health have been presented as of discontinued operations. There are no assets or liabilities of discontinued in the consolidated statements of earnings and cash discontinued operations at December 31, 2017, as USI was sold in flows for the years ended December 31, 2018 and 2017, as described May 2017 and the Company ceased to consolidate JELD-WEN after in note 2(q). b) USI losing control in May 2017. The operations of USI have been presented as discontinued in the As at December 31, 2018 consolidated statements of earnings and cash flows for the year Cash and cash equivalents ended December 31, 2017, as described in note 3(e). c) JELD-WEN Other current assets Intangible assets Goodwill The operations of JELD-WEN have been presented as discontinued Property, plant and equipment and other non-current assets in the consolidated statements of earnings and cash flows for the year ended December 31, 2017, as described in note 3(a). Current liabilities Non-current liabilities Net assets of discontinued operations BrightSpring Health $ 27 270 374 371 106 1,148 (207) (568) $ 373 Onex Corporation December 31, 2018 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 The following table presents the summarized aggregate cash flows from (used in) discontinued operations of BrightSpring Health (up to December 31, 2018), USI (up to May 2017) and JELD-WEN (up to May 2017). For the year ended December 31 2018 2017 BrightSpring Health BrightSpring Health USI JELD-WEN Total Operating activities Financing activities Investing activities Increase (decrease) in cash and cash equivalents for the period Increase in cash due to changes in foreign exchange rates Cash and cash equivalents, beginning of the period Cash and cash equivalents, end of the period Proceeds from sales of operating companies no longer controlled $ 129 29 (145) 13 – 14 27 – $ 100 $ 109 $ (99) $ 110 (72) (23) 5 – 9 14 – (53) (155) (99) – 99 – 1,889 $ 1,889 79 (85) (105) 2 103 – 466 $ 466 (46) (263) (199) 2 211 14 2,355 $ 2,369 $ 27 $ 14 130 Onex Corporation December 31, 2018 N O T E S T O C O N S 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 January 1, 2017 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 $ 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) (118) (20) 363 (7) (370) (13) 51 73 2 307 (31) (493) (56) 209 (32) (368) (23) 224 101 (11) $ 283 (1) $ 282 $ 282 363 (6) − − 27 (1) (26) (1) (275) 20 1 Total $ 6,764 (2,489) $ 4,275 $ 4,275 752 (55) (612) (76) 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 Year ended December 31, 2018 Opening net book amount Additions Disposals Amortization charge Amortization charge (discontinued operations) Acquisition of subsidiaries Disposition of subsidiaries Operating company no longer under control Transfer to discontinued operations Impairment charge Transfers from construction in progress Foreign exchange Other $ 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 $ 1,372 $ 1,479 $ 2,091 $ 384 $ 5,326 3 (20) (5) − 42 − (1) (6) − − (71) 3 110 (18) (109) (9) 77 (1) (48) (35) (45) 24 (46) (18) 571 (21) (529) (19) 98 (14) (77) (47) (70) 46 (71) (5) 37 (5) − – 7 – (51) (1) (1) (70) (19) 1 721 (64) (643) (28) 224 (15) (177) (89) (116) − (207) (19) Closing net book amount $ 1,317 $ 1,361 $ 1,953 $ 282 $ 4,913 At December 31, 2018 Cost Accumulated amortization and impairments Net book amount $ 1,335 (18) $ 1,317 $ 1,948 (587) $ 1,361 $ 4,241 (2,288) $ 1,953 $ 284 (2) $ 282 $ 7,808 (2,895) $ 4,913 (i) Property, plant and equipment impairments of $32 related to Save-A-Lot have been included in other expense (note 27) as part of Save-A-Lot’s restructuring charges in 2017. Onex Corporation December 31, 2018 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 Property, plant and equipment cost and accumulated amortization At December 31, 2018 and 2017, the asset portfolio of the CLOs and and impairments have been reduced for components retired dur- warehouse facilities was comprised of the following: ing 2018 and 2017. At December 31, 2018, property, plant and equip- ment includes amounts under finance leases of $662 (2017 – $726) and related accumulated amortization of $60 (2017 – $49). During 2018, borrowing costs of $1 (2017 – $2) were capitalized and are included in the cost of additions. 10 . LO N G - T E R M I N V E S T M E N T S Long-term investments comprised the following: Long-term investments held by credit strategies(a) Investments in joint ventures and associates – December 31, 2018 December 31, 2017 $ 9,439 $ 8,491 at fair value through earnings(b) 2,413 2,252 CLO-2 CLO-4 CLO-5 CLO-6 CLO-7 CLO-8 CLO-9 CLO-10 CLO-11 CLO-12 CLO-13 CLO-14 CLO-15 Onex Corporation investments in managed accounts(c) Investments in joint ventures and associates – equity-accounted(d) Other(e) Total 214 341 349 774 380 217 EURO CLO-1 EURO CLO-2 Warehouse facilities Total $ 12,756 $ 12,114 Closing Date As at December 31, 2018 As at December 31, 2017 November 2012 $ October 2013 March 2014 June 2014 November 2014 April 2015 July 2015 October 2015 May 2016 October 2016 July 2017 December 2017 June 2018 May 2017 December 2017 5 555 362 891 467 685 688 468 467 512 563 561 564 395 477 484 $ 359 581 361 935 477 724 721 490 484 541 592 473 − 425 349 − $ 8,144 $ 7,512 a) Long-term investments held by credit strategies At December 31, 2018, investments of $515 (2017 – $609) were held by Onex Credit Funds and classified as fair value through net Long-term investments held by credit strategies include invest- earnings. ments made in CLOs, Onex Credit Funds and Onex Credit Investments held by Onex Credit Lending Partners are Lending Partners. The asset portfolio held by the CLOs consists of cash classified as fair value through net earnings. At December 31, 2018, the total value of investments held by Onex Credit Lending and cash equivalents and corporate loans that are recorded at fair Partners was $780 (2017 – $370). value. The asset portfolio of each CLO is pledged as collateral for its respective senior secured notes and loans. The CLOs have ini- tial reinvestment periods ranging from two to five years, during which reinvestment can be made in collateral. The reinvestment periods can be extended by the refinancing of the senior secured notes and loans. Onex is required to consolidate the operations and results of the CLOs, as described in note 1. During the year ended December 31, 2018, Onex com- pleted various transactions which impacted the balance of long- term investments held by credit strategies. These transactions are described in note 2(u) and include the closing of CLO-15, estab- lishing the warehouse facilities for EURO CLO-3 and CLO-16, the redemption of CLO-2 and continued investing activity for OCLP I. 132 Onex Corporation December 31, 2018 N O T E S T O C O N S 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 – Mavis Discount Tire at fair value through earnings In March 2018, the ONCAP III Group sold its entire investment in Investments in joint ventures and associates measured at fair Mavis Discount Tire, as described in note 2(e). value through earnings primarily include investments in AIT, BBAM, JELD-WEN (since May 2017), Mavis Discount Tire (up to PowerSchool March 2018), Pinnacle Renewable Energy (since February 2018), In August 2018, the Onex Partners IV Group acquired an interest in PowerSchool (since August 2018), Ryan (since October 2018), PowerSchool, as described in note 2(h). Summarized financial infor- Venanpri Group, and Wyse (since November 2018). With the excep- mation for PowerSchool is not available as at February 28, 2019. tion of JELD-WEN and Pinnacle Renewable Energy, the fair value measurements for these investments include significant unob- Ryan servable inputs (Level 3 of the fair value hierarchy). The fair value In October 2018, the Onex Partners IV Group acquired an interest measurements for the investments in JELD-WEN and Pinnacle in Ryan, as described in note 2(l). Renewable Energy include significant other observable inputs (Level 2 of the fair value hierarchy), as a marketability factor is Wyse applied to JELD-WEN and Pinnacle Renewable Energy’s publicly In November 2018, the ONCAP IV Group acquired an interest in traded share price. The joint ventures and associates typically have Wyse, as described in note 2(m). financing arrangements that restrict their ability to transfer cash and other assets to the Company. JELD-WEN Details of changes in investments in joint ventures and associates at fair value through earnings are as follows: The following tables provide summarized financial information for JELD-WEN as of December 31, 2018 and 2017 and are prepared in accordance with accounting principles generally accepted in Balance – January 1, 2017 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 $ 751 6 1,397 (71) (591) 760 the United States. As at December 31 Current assets Non-current assets Current liabilities Balance – December 31, 2017 $ 2,252 Non-current liabilities Transfer of investment in Pinnacle Renewable Energy 2018 2017 $ 1,155 $ 1,145 1,899 3,054 674 1,612 2,286 1,718 2,863 578 1,493 2,071 no longer under control Distributions received Purchase of investments Sale of investments Decrease in fair value of investments, net 136 (63) 1,243 (570) (585) Net Assets $ 768 $ 792 Included in the balance sheet financial information above are the following items: Balance – December 31, 2018 $ 2,413 As at December 31 2018 2017 Pinnacle Renewable Energy In February 2018, Pinnacle Renewable Energy completed an initial public offering of approximately 15.3 million common shares. As a Cash and cash equivalents included in current assets $ 117 $ 220 Financial liabilities included in current liabilities $ 312 $ 272 result of this transaction, the ONCAP II Group no longer controls Financial liabilities included in Pinnacle Renewable Energy, as described in note 2(c). The interest non-current liabilities $ 1,423 $ 1,265 held by the Company has been recorded as a long-term invest- ment at fair value, with changes in fair value recognized in the consolidated statements of earnings. In June 2018, Pinnacle Renewable Energy completed a secondary offering, as described in note 2(c). For the year ended December 31 2018 2017 Revenues $ 4,347 $ 3,764 Total expenses (including provision for income taxes) (4,203) (3,753) Net earnings Other comprehensive earnings (loss) 144 (50) 11 102 Total Comprehensive Earnings $ 94 $ 113 Onex Corporation December 31, 2018 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 Included in the preceding statement of earnings financial infor- in short-term investments and $214 (2017 – $774) was included in mation are the following items: For the year ended December 31 Amortization expense Interest income Interest expense Recovery of (provision for) income taxes 2018 $ 125 $ 1 $ 72 $ 8 2017 $ 111 $ 1 $ 80 $ (139) long-term investments. The decrease in investments in managed accounts was primarily driven by redemptions by Onex to fund investments completed during the year ended December 31, 2018. d) Investments in joint ventures and associates – equity-accounted At December 31, 2018 and 2017, the balances consisted primarily of investments in joint ventures and associates held by Meridian c) Onex Corporation investments in managed accounts Aviation and SIG. Long-term investments consist of securities that include money market instruments, federal and municipal debt instruments, cor- e) Other long-term investments porate obligations and structured products with maturities of one At December 31, 2018, the balance consisted primarily of Onex’ year to five years. Short-term investments consist of liquid invest- investment in RSG, as described in note 2(g), forward contracts ments that include money market instruments and commercial to economically hedge the Company’s exposure to changes paper with original maturities of three months to one year. The in the market value of Onex’ SVS associated with the outstand- investments are managed to maintain an overall weighted average ing Deferred Share Units (“DSUs”), as described in note 1, and duration of two years or less. At December 31, 2018, the fair value long-term investments held by certain operating companies. At of investments managed by third-party investment managers December 31, 2017, the balance consisted primarily of DSU for- was $274 (2017 – $1,021), of which $60 (2017 – $247) was included ward contracts held by Onex, the parent company, and long-term investments held by certain operating companies. 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: Defined benefit pensions (note 34) Deferred income taxes (note 19) Derivatives Restricted cash Other Total December 31, 2018 December 31, 2017 January 1, 2017 $ 152 $ 220 $ 164 23 46 231 161 115 62 267 198 415 103 168 310 $ 616 $ 825 $ 1,194 134 Onex Corporation December 31, 2018 N O T E S T O C O N S 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 January 1, 2017 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) Impairment charge (discontinued operations) Foreign exchange Other − − − − 568 (1,516) (146) (161) (7) 265 46 1 − (19) (5) 84 (43) (74) (4) – 43 – 4 − (348) (57) 354 (943) (36) (8) – 90 − 84 (5) (105) (11) 1 (3) (11) (1) – 1 (1) 10 − (187) (3) 32 (16) (2) (4) – 45 (4) − − − – − – (259) – (1) 1 1 99 (5) (659) (76) 471 (1,005) (382) (17) (1) 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 Year ended December 31, 2018 Opening net book amount $ 8,223 $ 2,063 $ 3,024 $ 391 $ 2,163 $ 246 $ 7,887 Additions Disposals Amortization charge Amortization charge (discontinued operation) Acquisition of subsidiaries Disposition of subsidiaries Operating company no longer under control Transfer to discontinued operations Impairment charge Foreign exchange Other − (2) − − 1,251 (249) (72) (371) (424) (143) – – − (24) (4) 230 (2) – (47) (24) (29) – – (5) (411) (7) 1,134 (6) (3) (85) (57) (53) − 98 (1) (116) (7) 25 (14) – (12) – – 2 18 − (192) (1) 34 (27) (3) (3) (6) (19) – − − − – 6 – – (227) – (1) – 116 (6) (743) (19) 1,429 (49) (6) (374) (87) (102) 2 Closing net book amount $ 8,213 $ 2,163 $ 3,531 $ 366 $ 1,964 $ 24 $ 8,048 As at December 31, 2018 Cost $ 8,967 $ 2,288 $ 5,820 $ 1,061 $ 2,849 $ 24 $ 12,042 Accumulated amortization and impairments (754) (125) (2,289) (695) (885) – (3,994) Net book amount(ii) $ 8,213 $ 2,163 $ 3,531 $ 366 $ 1,964 $ 24 $ 8,048 (i) At December 31, 2018, information databases and content collections had a cost of $1,726 (2017 – $1,733) and accumulated amortization of $234 (2017 – $130). (ii) At December 31, 2018, trademarks and licenses and customer relationships included amounts determined to have indefinite useful lives of $1,735 (2017 – $1,811). (iii) Intangible asset impairments of $4 related to Save-A-Lot have been included in other expense (note 27) as part of Save-A-Lot’s restructuring charges in 2017. Onex Corporation December 31, 2018 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 Additions to goodwill and intangible assets primarily arose through Goodwill primarily represents the costs of certain intellec- business combinations (note 4). Additions to intangible assets tual property and process know-how obtained in acquisitions. through internal development were $74 (2017 – $63) and those Intangible assets include trademarks, non-competition agree- acquired separately were $42 (2017 – $36). Included in the net book ments, customer relationships, software, information databases, value of intangible assets at December 31, 2018 were $188 (2017 – content collections, contract rights and expiration rights obtained $187) of internally generated intangible assets. in the acquisition of certain facilities. Certain intangible assets are determined to have indefinite useful lives when the Company has determined there is no foreseeable limit to the period over which the intangible assets are expected to generate net cash inflows. 13 . P R O V I S I O N S A summary of provisions presented contra to assets in the consolidated balance sheets detailed by the components of charges and movements is presented below. Balance – December 31, 2017 Charged (credited) to statements of earnings: Additional provisions Unused amounts reversed during the year Disposition of subsidiaries Transfer to discontinued operations Amounts used during the year Other adjustments Balance – December 31, 2018 Accounts Receivable Provision(a) Inventory Provision(b) Total $ 123 $ 85 $ 208 68 (7) (3) (19) (44) (11) 32 (2) – – (12) (1) 100 (9) (3) (19) (56) (12) $ 107 $ 102 $ 209 a) During the year ended December 31, 2018, Onex’ operating companies applied the simplified approach to measure expected credit losses, permitted by IFRS 9, Financial Instruments, which uses a lifetime expected loss allowance for all accounts receivable. To measure the expected credit losses, accounts receivable have been grouped based on days past due and assigned the following weighted average provision rates based on the individual operating companies’ historical credit loss experience, adjusted to reflect current and forward- looking information: As at December 31, 2018 Gross accounts receivable Accounts receivable provision Net accounts receivable Provision rate Current 1 to 30 days past due 31 to 60 days past due 61 to 90 days past due Over 90 days past due $ 2,309 $ 506 (10) $ 2,299 1.0% (3) $ 503 1.0% $ 131 (4) $ 127 3.1% $ $ 80 (2) 78 2.5% $ 267 (88) $ 179 33.0% During the year ended December 31, 2017, accounts receivable provisions were established by the operating companies when there was objective evidence that the company would not be able to collect all amounts due according to the original terms of the receivable. b) Inventory provisions are established by the operating companies for any excess, obsolete or slow-moving items. 136 Onex Corporation December 31, 2018 N O T E S T O C O N S O L I D AT E D F I N A N C I A L S TAT E M E N T S A summary of provisions presented as liabilities in the consolidated balance sheets detailed by the components of charges and movements is presented below. Current portion of provisions Non-current portion of provisions Balance – December 31, 2017 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 Transfer to discontinued operations Other adjustments Balance – December 31, 2018 Current portion of provisions Non-current portion of provisions Restructuring(c) Self-Insurance(d) Warranty(e) Other(f) $ $ 50 20 70 93 (4) − (102) – (3) (2) $ 52 (42) $ 10 $ 100 143 $ 243 229 − 6 (221) (20) (90) – $ 147 (55) $ 92 $ 36 10 $ 46 33 (8) 1 (28) (3) – (1) $ 40 (32) $ 8 $ 41 51 $ 92 44 (14) 5 (41) (2) (9) (1) $ 74 (22) $ 52 Total $ 227 224 $ 451 399 (26) 12 (392) (25) (102) (4) $ 313 (151) $ 162 c) Restructuring provisions are typically to provide for the costs of facility consolidations and workforce reductions incurred at the d) Self-insurance provisions are established by the operating companies for automobile, workers’ compensation, healthcare operating companies. coverage, general liability, professional liability and other claims. The operating companies record restructuring provisions Provisions are established for claims based on an assessment of relating to employee terminations, contractual lease obligations actual claims and claims incurred but not reported. The reserves and other exit costs when the liability is incurred. The recognition may be established based on consultation with independent third- of these provisions requires management to make certain judge- party actuaries using actuarial principles and assumptions that ments regarding the nature, timing and amounts associated with consider a number of factors, including historical claim payment the planned restructuring activities, including estimating sublease patterns and changes in case reserves, and the assumed rate of income and the net recovery from equipment to be disposed of. At inflation in healthcare costs and property damage repairs. the end of each reporting period, the operating companies evalu- ate the appropriateness of the remaining accrued balances. The restructuring plans are expected to result in cash outflows for the e) Warranty provisions are established by the operating compa- nies for warranties offered on the sale of products or services. operating companies between 2019 and 2027. Warranty provisions are established to provide for future warranty costs based on management’s best estimate of probable claims The closing balance of restructuring provisions comprised the under these warranties. following: As at December 31 Employee termination costs Lease and other contractual obligations Facility exit costs and other Total restructuring provisions 2018 $ 40 10 2 $ 52 2017 $ 51 15 4 $ 70 f) Other includes legal, transition and integration, asset retirement and other provisions. Transition and integration provisions are typically to provide for the costs of transitioning the activities of an operating company from a prior parent company upon acquisition and to integrate new acquisitions at the operating companies. Onex Corporation December 31, 2018 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 14 . LO N G - T E R M D E B T , W I T H O U T R E C O U R S E The financing arrangements for each operating com- T O O N E X C O R P O R AT I O N Long-term debt, without recourse to Onex Corporation, com- prised the following: BrightSpring Health(a) Carestream Health(b) Celestica(c) Clarivate Analytics(d) Credit Strategies – CLOs(e) Credit Strategies – Lending Partners(f) Emerald Expositions(g) Jack’s(h) KidsFoundation(i) Meridian Aviation(j) Parkdean Resorts(k) Save-A-Lot(l) Schumacher(m) sgsco(n) SIG(o) SMG(p) Survitec(q) WireCo(r) York(s) ONCAP operating companies(t) Other(u) Long-term debt Less: financing charges December 31, 2018 December 31, 2017 $ − $ 381 1,168 753 2,030 7,811 616 564 227 119 89 971 747 645 690 1,806 547 574 636 963 1,455 173 22,584 (240) 22,344 1,136 187 2,062 7,575 309 559 253 − 82 1,042 714 659 604 3,144 − 593 620 956 1,412 69 22,357 (308) 22,049 Current portion of long-term debt of operating companies (879) (333) Consolidated long-term debt of operating companies $ 21,465 $ 21,716 pany typically contain certain restrictive covenants, which may 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- sible non-compliance. The annual minimum repayment requirements for the next five years and thereafter on consolidated long-term debt are as follows: 2019 2020 2021 2022 2023 Thereafter Total $ 895 406 2,321 3,020 4,192 11,750 $ 22,584 a) BrightSpring Health At December 31, 2017, $381 was outstanding under BrightSpring Health’s term loan. In March 2018, BrightSpring Health amended and re stated its existing senior secured credit facility, resulting in a term loan of $390 and a revolving credit facility of $300. The term loan and revolving credit facility bear interest at LIBOR (subject to a floor of 0.00%) plus a margin of up to 2.75%, depending on the company’s Onex Corporation does not guarantee the debt of its operating leverage ratio. The maturity dates for the term loan and revolving companies, nor are there any cross-guarantees between operating credit facility were extended to March 2023. The company may also companies. Onex Corporation may hold debt as part of its invest- borrow up to an additional $150 on either its term loan or revolving ment in certain operating companies, which, with the exception of credit facility, subject to the company’s leverage ratio. SMG, is excluded from the tables that follow. At December 31, 2018, BrightSpring Health is accounted for as a discontinued operation, as described in note 8. 138 Onex Corporation December 31, 2018 N O T E S T O C O N S 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) Carestream Health As at December 31 Size of facility Interest rate First lien term loan(i) Second lien term loan(i) Revolving credit facility(i) Other Long-term debt Unamortized discount and other $ 754 LIBOR + up to 5.75% 369 132 n/a LIBOR + 9.50% LIBOR + 5.50% n/a Floor or cap on interest rate Floor 1.00% Floor 1.00% Floor 1.00% n/a Maturity Feb 2021 Jun 2021 Feb 2021 n/a Gross principal outstanding $ 2018 754 369 – 33 1,156 12 2017 $ 747 362 – 33 1,142 (6) Long-term debt, net of unamortized discount and other $ 1,168 $ 1,136 Substantially all of Carestream Health’s assets are pledged as collateral under the credit facility. (i) As amended and restated in December 2018. In December 2018, Carestream Health amended and restated its existing credit facility to extend the maturity dates for a majority of its first lien term loan, second lien term loan and revolving credit facility. As a result of this amendment, the rates at which borrowings under the first lien term loan, second lien term loan and revolving credit facility bear interest were also revised. The portion of these debt instru- ments that were not extended as part of this amendment are presented within other in the preceding table. c) Celestica As at December 31 Size of facility Interest rate Term loan Term loan Revolving credit facility(i) Term loan Long-term debt Unamortized discount $ 350 250 450 n/a LIBOR + 2.13% LIBOR + 2.50% Base rate + up to 2.50%(ii) LIBOR + up to 3.00%(ii) Maturity Jun 2025 Jun 2025 Jun 2023 n/a Gross principal outstanding $ 2018 348 250 159 – 757 (4) $ 2017 – – – 187 187 – Long-term debt, net of unamortized discount $ 753 $ 187 (i) The revolving credit facility has an accordion feature that allows the company to increase the credit limit by a specified amount, plus an unlimited amount to the extent that a specified leverage ratio does not exceed certain limits, in each case upon satisfaction of certain terms and conditions. Celestica has pledged certain assets as security for borrowings under its revolving credit facility. (ii) Margin varies depending on the company’s leverage ratio. In June 2018, Celestica entered into a new $800 secured credit In connection with the new secured credit facility, the facility consisting of a $350 term loan and a $450 revolving cred- company has entered into interest rate swap agreements with it facility. The net proceeds from the new secured credit facility notional amounts totalling $350 that swap the variable rate por- were used to repay the existing debt facility. In November 2018, tion of the term loans for a fixed rate through August 2023 and Celestica utilized the accordion feature under its new secured December 2023. credit facility to add a new $250 term loan. The proceeds from the Celestica also has uncommitted bank overdraft facilities new term loan were used to partially fund Celestica’s acquisition available for intraday and overnight operating requirements that of Impakt, as described in note 2(n). totalled $133 (2017 – $74) at December 31, 2018. Onex Corporation December 31, 2018 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 d) Clarivate Analytics As at December 31 Size of facility Interest rate Floor or cap on interest rate First lien term loan $ 1,550 LIBOR + 3.25% Floor 1.00% Senior unsecured notes(i) Revolving credit facility Long-term debt Unamortized discount Embedded derivative 500 175 7.875% LIBOR + up to 3.25%(ii) n/a n/a Maturity Oct 2023 Oct 2024 Oct 2023 Gross principal outstanding 2018 2017 $ 1,484 $ 1,531 500 45 2,029 (4) 5 500 30 2,061 (5) 6 Long-term debt, net of unamortized discount $ 2,030 $ 2,062 Substantially all of Clarivate Analytics’ assets are pledged as collateral under the senior secured credit facility. (i) Interest on the senior unsecured notes is payable semi-annually. The senior unsecured notes may be redeemed by the company at any time at various premiums above face value. (ii) Margin varies depending on the company’s leverage ratio. In connection with the existing senior secured credit facility, the company has entered into a series of interest rate swap agreements with initial notional amounts of $350 that swap the variable rate portion of the first lien term loan for fixed rates through March 2021. e) Credit Strategies – CLOs The secured notes and loans and subordinated notes bear interest As of December 31, 2018, the CLOs had notional secured notes and at a rate of LIBOR plus a margin and mature between April 2027 and loans, subordinated notes and equity outstanding as follows: January 2032. The secured notes and loans, subordinated notes and Closing date As at December 31, 2018 As at December 31, 2017 November 2012 $ October 2013 March 2014 June 2014 November 2014 April 2015 July 2015 October 2015 May 2016 October 2016 July 2017 December 2017 June 2018 May 2017 December 2017 – 621 420 1,020 561 764 758 512 502 558 610 611 614 407 494 $ 417 623 420 1,025 514 764 758 512 502 558 610 611 − 433 524 CLO-2 CLO-4 CLO-5 CLO-6 CLO-7 CLO-8 CLO-9 CLO-10 CLO-11 CLO-12 CLO-13 CLO-14 CLO-15 EURO CLO-1 EURO CLO-2 Onex’ investment at notional amounts Total 8,452 (762) 8,271 (694) $ 7,690 $ 7,577 equity of the CLOs are accounted for at fair value through net earn- ings. At December 31, 2018, the fair value of the secured notes, sub- ordinated notes and equity held by investors other than Onex was $7,506 (2017 – $7,575). In addition, CLO warehouse facilities had $305 outstanding at December 31, 2018 (2017 – nil). 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 respective CLO. Optional redemption of the notes is available at certain peri- ods and optional repricing of the notes is available subject to certain customary terms and conditions being met by each respective CLO. CLO-15 In June 2018, Onex closed CLO-15, which was funded through the issuance of collateralized loan instruments in a series of tranches of secured notes and preference shares, as described in note 2(u). The secured notes were offered in an aggregate principal amount of $550 and are due in July 2031. The secured notes bear interest at a rate of LIBOR plus a margin of 1.10% to 5.85%. Interest on the secured notes is payable beginning in January 2019. The secured notes are subject to redemption and pre- payment provisions, including mandatory redemption, if certain coverage tests are not met by CLO-15. Optional redemption of the secured notes is available beginning in July 2020. Optional repric- ing for certain secured obligations is available subject to certain customary terms and conditions being met by CLO-15. 140 Onex Corporation December 31, 2018 N O T E S T O C O N S 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) Credit Strategies – Lending Partners OCLP I As at December 31 Size of facility Interest rate Floor or cap on interest rate Asset backed financing facility(i)(ii) $ 700 Base rate + up to 2.50% Floor 0.00% Revolving credit facility(iii) 138 LIBOR + 1.65% Floor 0.00% Maturity Aug 2022 Jun 2020(iv) Long-term debt Gross principal outstanding 2018 $ 478 138 $ 616 2017 $ 219 90 $ 309 (i) The asset backed financing facility is available to finance investments in the asset portfolio of OCLP I and for other permitted uses, and is secured by, among other things, a portion of the asset portfolio of OCLP I. (ii) As amended in February 2018. (iii) The revolving credit facility is secured by, among other things, the uncalled capital committed by the limited partners of OCLP I. Onex Corporation, the parent company, is only obligated to fund capital calls based on its proportionate share as a limited partner in OCLP I. (iv) The maturity date is subject to an option to extend the maturity date for up to 364 days upon satisfaction of certain conditions. In February 2018, OCLP I amended its asset backed financing facility to increase the size of the facility to $700. g) Emerald Expositions As at December 31 Size of facility Interest rate Floor or cap on interest rate Term loan $ 565 LIBOR + up to 2.75%(i) Revolving credit facility 150 LIBOR + up to 2.75%(i) n/a n/a Maturity May 2024 May 2022 Long-term debt Unamortized discount and other Gross principal outstanding 2018 $ 537 40 577 (13) 2017 $ 562 − 562 (3) Long-term debt, net of unamortized discount and other $ 564 $ 559 Substantially all of Emerald Expositions’ assets are pledged as collateral under the credit facility. (i) Margin varies based on the company’s leverage ratio. Onex Corporation December 31, 2018 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 h) Jack’s As at December 31 Size of facility Interest rate Term loan(i) $ 275 LIBOR + up to 3.50%(ii) Revolving credit facility(i) 30 LIBOR + up to 3.50%(ii) Floor or cap on interest rate Floor 1.00% Floor 0.00% Maturity Apr 2024 Apr 2022 Long-term debt Unamortized discount and other Gross principal outstanding 2018 $ 239 − 239 (12) 2017 $ 256 − 256 (3 ) Long-term debt, net of unamortized discount and other $ 227 $ 253 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) As amended and restated in May 2018. (ii) Margin varies depending on the company’s leverage ratio. In May 2018, Jack’s amended its existing credit facility to reduce amendment resulted in a total interest rate reduction of 50 and the rate at which borrowings under its term loan bear interest to 75 basis points on the company’s term loan and revolving credit LIBOR (subject to a floor of 1.00%) plus a margin of up to 3.50%, facility, respectively. depending on the company’s leverage ratio. In addition, the rate In connection with the credit facility, the company has at which the company borrows under its revolving credit facility entered into an interest rate swap agreement with a notional was reduced to LIBOR (subject to a floor of 0.00%) plus a margin amount of $81 that swaps the variable rate portion for a fixed rate of up to 3.50%, depending on the company’s leverage ratio. The through June 2020. i) KidsFoundation As at December 31 Size of facility Interest rate Floor or cap on interest rate Term loan Acquisition facility Long-term debt € 90 € 75 EURIBOR + up to 7.75%(i) Floor 0.00% EURIBOR + up to 7.75%(i) Floor 0.00% Maturity Nov 2025 Nov 2025 Gross principal outstanding 2018 $ 103 16 $ 119 3 90 14 3 104 (i) Margin varies depending on the company’s leverage ratio. The Onex Partners IV and Onex Partners V Groups acquired KidsFoundation in November 2018, as described in note 2(p). In November 2018, KidsFoundation entered into a senior secured credit facility consisting of a €90 term loan and a €75 acquisition facility. 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 and restated in November 2017. Gross principal outstanding 2018 $ 89 $ 89 2017 $ $ 82 82 142 Onex Corporation December 31, 2018 N O T E S T O C O N S O L I D AT E D F I N A N C I A L S TAT E M E N T S k) Parkdean Resorts As at December 31 Size of facility Interest rate Floor or cap on interest rate First lien term loan Second lien term loan Revolving credit facility Preference shares Other Long-term debt £ 575 £ 150 £ 100 n/a n/a LIBOR + up to 4.25%(i) Floor 0.00% LIBOR + 8.50% Floor 1.00% LIBOR + up to 3.25%(i) n/a n/a n/a n/a n/a Maturity Mar 2024 Mar 2025 Mar 2023 n/a n/a Gross principal outstanding 2018 2017 $ 714 £ 558 $ 777 £ 575 192 150 − 49 16 − 39 12 203 − 47 15 150 − 35 11 $ 971 £ 759 $ 1,042 £ 771 Substantially all of Parkdean Resorts’ assets are pledged as collateral under the senior secured credit facility. (i) Margin varies depending on the company’s leverage ratio. 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) Save-A-Lot As at December 31 Size of facility Interest rate Floor or cap on interest rate Term loan $ 740 LIBOR + 6.00% Floor 1.00% Revolving credit facility 250 LIBOR + up to 2.00%(i) n/a Maturity Dec 2023 Dec 2021 Long-term debt Unamortized discount Gross principal outstanding 2018 $ 727 36 763 (16) 2017 $ 733 − 733 (19) Long-term debt, net of unamortized discount $ 747 $ 714 Substantially all of Save-A-Lot’s assets are pledged as collateral under the senior secured credit facility. (i) Margin is determined based on the amount available under the revolving credit facility. Interest rate at a base rate plus a margin of 0.50% may apply. In connection with the existing senior secured credit facility, the company has entered into an interest rate swap agreement with a notional amount of $445 that swaps the variable rate portion of the term loan for a fixed rate through March 2021. m) Schumacher As at December 31 Size of facility Interest rate First lien term loan $ 530 LIBOR + 4.00% Second lien term loan First lien revolving loan Other Long-term debt 135 75 n/a LIBOR + 8.50% LIBOR + up to 4.00%(i)(ii) n/a Floor or cap on interest rate Floor 1.00% Floor 1.00% Floor 0.00% n/a Maturity Jul 2022 Jul 2023 Jul 2020 n/a Substantially all of Schumacher’s assets are pledged as collateral under the senior secured credit facility. (i) Interest rate at an alternative base rate plus a margin of 3.00% may apply. (ii) Margin varies depending on the company’s leverage ratio. Gross principal outstanding 2018 $ 506 135 − 4 2017 $ 519 135 − 5 $ 645 $ 659 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. Onex Corporation December 31, 2018 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 n) sgsco As at December 31 Size of facility Interest rate Floor or cap on interest rate Maturity 2018 2017 Gross principal outstanding First lien and delayed draw term loans(i) $ 575 LIBOR + up to 3.25%(ii) Floor 0.00% Second lien term loan Revolving credit facility(i) Long-term debt Unamortized discount 105 75 LIBOR + up to 7.50%(ii) Floor 0.00% LIBOR + up to 3.25%(ii) Floor 0.00% Long-term debt, net of unamortized discount Substantially all of sgsco’s assets are pledged as collateral under the credit agreement. (i) As amended and restated in June 2018. (ii) Margin varies depending on the company’s leverage ratio. Dec 2022 Dec 2023 Mar 2022 $ 569 $ 495 105 18 692 (2) 105 6 606 (2) $ 690 $ 604 In February 2018, sgsco’s delayed draw term loan was fully drawn for $80 to partially finance an acquisition. In June 2018, sgsco amended its secured credit facility to reduce the rate at which borrowings under its first lien term loan and revolving credit facility bear interest to LIBOR (subject to a floor of 0.00%) plus a margin of up to 3.25%, depending on the company’s leverage ratio. The amendment resulted in a total interest rate reduction of 25 basis points on the company’s first lien term loan and revolving credit facility. In connection with the secured credit facility, the company has entered into an interest rate swap agreement with a notional amount of $340 that swaps the variable rate portion of the first lien term and delayed draw term loans for fixed rates through December 2020. o) SIG As at December 31 Size of facility Interest rate Term loan Term loan Revolving credit facility Term loan Term loan(i) Senior notes 2 1,250 2 350 2 300 n/a n/a n/a EURIBOR + 2.00% EURIBOR + 2.50% EURIBOR + 1.75% EURIBOR + 3.25% LIBOR + 2.75% 7.75% Long-term debt Unamortized discount Unamortized embedded derivatives(ii) Floor or cap on interest rate Floor 0.00% Floor 0.00% Floor 0.00% Floor 0.00% Floor 1.00% n/a Maturity Oct 2023 Oct 2025 Oct 2023 n/a n/a n/a Gross principal outstanding 2018 2017 $ 1,422 4 1,242 $ 400 350 – − − − – − − − 1,822 1,592 (16) – (14) – 2 − − − − − − 1,225 1,102 810 3,137 (7) 14 1,021 918 675 2,614 (6) 12 Long-term debt, net of unamortized discount and embedded derivatives $ 1,806 4 1,578 $ 3,144 2 2,620 (i) As amended and restated in March 2018. (ii) Unamortized embedded derivatives relate to the term loans and senior notes. In March 2018, SIG amended its senior secured credit facility to reduce the rate at which borrowings under its U.S. dollar-denominated term loan bear interest to LIBOR (subject to a floor of 1.00%) plus a margin of 2.75% to 3.00%. The amendment resulted in a total interest rate reduction of 25 basis points on the company’s U.S. dollar-denominated term loan. In October 2018, SIG entered into a new senior secured credit facility consisting of a €1,250 term loan, a €350 term loan and a €300 revolving credit facility. The net proceeds from the new senior secured credit facility and treasury shares issued in SIG’s initial public offering, as described in note 2(k), were used to repay borrowings under the existing credit facility and senior notes. In connection with the senior secured credit facility, the company has entered into an interest rate swap agreement with a notional amount of €800 that swaps the variable rate portion of the term loan maturing in October 2023 for fixed rates through December 2021. 144 Onex Corporation December 31, 2018 N O T E S T O C O N S 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) SMG As at December 31 Size of facility Interest rate First lien term loan Second lien term loan Revolving credit facility Long-term debt Unamortized discount $ 415 180 55 LIBOR + up to 3.25%(i) LIBOR + up to 7.00%(i) LIBOR + up to 3.25%(i) Long-term debt, net of unamortized discount Second lien term loan held by the Company Long-term debt, net of unamortized discount and second lien term loan held by the Company Substantially all of SMG’s assets are pledged as collateral under the senior secured credit facility. (i) Margin varies depending on the company’s leverage ratio. Maturity Jan 2025 Jan 2026 Jan 2023 Gross principal outstanding 2018 $ 412 180 – $ 592 (1) 591 (44) $ 547 The Onex Partners IV Group acquired SMG in January 2018, as described in note 2(a). In January 2018, SMG entered into a senior secured credit facility consisting of a $415 first lien term loan, a $180 second lien term loan and a $55 revolving credit facility. In connection with the senior secured credit facility, the company has entered into two interest rate swap agreements with notional amounts totalling $177 that swap the variable rate portion of the first lien term loan for a fixed rate through December 2021. q) Survitec As at December 31 Size of facility Interest rate Term loan(i) Term loan(i)(iii) Term loan(i)(iii) Revolving credit facility(i) Acquisition facility(i) Other Long-term debt £ 140 2 175 2 133 £ 50 £ 30 n/a LIBOR + up to 5.25%(ii) EURIBOR + up to 4.75%(ii) EURIBOR + up to 4.75%(ii) LIBOR + up to 4.50%(ii) LIBOR + up to 4.50%(ii) n/a Maturity Mar 2022 Mar 2022 Mar 2022 Mar 2021 Mar 2021 n/a Substantially all of Survitec’s assets are pledged as collateral under the senior secured credit facility. (i) As amended and restated in July 2018. (ii) Margin varies depending on the company’s leverage ratio. (iii) At December 31, 2018, 1308 (2017 – 1308) was outstanding under the euro-denominated term loans. Gross principal outstanding 2018 2017 $ 179 £ 140 $ 189 £ 140 200 152 20 18 5 156 119 16 14 4 210 159 15 20 – 155 118 11 15 – $ 574 £ 449 $ 593 £ 439 As a result of operational difficulties driven by the ongoing inte- ment resulted in a total interest rate increase of up to 50 basis gration of Wilhelmsen Safety, Survitec was not in compliance with points on all debt under the company’s senior secured credit facil- its debt covenant ratio at June 30, 2018. In July 2018, the company ity, subject to the company’s leverage ratio. At December 31, 2018, amended its senior secured credit facility to revise its debt cove- the company was in compliance with its debt covenants. nant ratio such that it did not have an event of default. In addition, In connection with the senior secured credit facility, the rate at which borrowings under the company’s senior secured the company has entered into a series of interest rate swap agree- credit facility bear interest was changed to: (i) LIBOR plus a mar- ments that swap the variable rate portion for fixed rates through gin of up to 5.25% for its pound sterling-denominated term loan; June 2020. The agreements have notional amounts of £106 for the (ii) EURIBOR plus a margin of up to 4.75% for its euro-denom- inated term loans; and (iii) LIBOR plus a margin of up to 4.50% for both its pound sterling-denominated acquisition facility and pound sterling-denominated revolving credit facility. The amend- pound sterling-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. Onex Corporation December 31, 2018 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 r) WireCo As at December 31 Size of facility Interest rate First lien term loan(i) 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 + 5.00% 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 2018 $ 450 135 51 5 641 (5) 2017 $ 454 135 29 7 625 (5) Long-term debt, net of unamortized discount $ 636 $ 620 Substantially all of WireCo’s assets are pledged as collateral under the senior secured credit facility. (i) As amended in May 2018. In May 2018, WireCo 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 5.00%. The amendment resulted in a total interest rate reduction of 50 basis points on the company’s first lien term loan. s) York As at December 31 Size of facility Interest rate Floor or cap on interest rate Maturity 2018 2017 Gross principal outstanding First lien and delayed draw term loans(i) Revolving credit facility(ii) Senior unsecured notes Long-term debt Unamortized discount Unamortized embedded derivatives $ 665 LIBOR + 3.75% Floor 1.00% 95 315 LIBOR + up to 3.75%(iii) 8.50% n/a n/a Oct 2021 Jul 2021 Oct 2022 $ 638 $ 645 20 315 973 (2) (8) 8 315 968 (3 ) (9) Long-term debt, net of unamortized discount and embedded derivatives $ 963 $ 956 Substantially all of York’s assets are pledged as collateral under the senior secured credit facility. (i) As amended in March 2017. (ii) As amended in September 2018. (iii) Margin varies depending on the company’s leverage ratio. 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. 146 Onex Corporation December 31, 2018 N O T E S T O C O N S O L I D AT E D F I N A N C I A L S TAT E M E N T S t) ONCAP operating companies Technologies (acquired in September 2018). Each has debt that is ONCAP’s consolidated operating companies consist of AutoSource included in the Company’s consolidated financial statements. (acquired in May 2018), Bradshaw, Chatters, Davis-Standard, There are separate arrangements for each operating company with EnGlobe, Hopkins, IntraPac, Laces, Pinnacle Renewable Energy no cross-guarantees between the operating companies, ONCAP or (up to February 2018), Precision (acquired in August 2018), PURE Onex Corporation. Canadian Gaming, Tecta (up to November 2018) and Walter Surface Under the terms of the various credit agreements, combined borrowings at December 31, 2018 were as follows: As at December 31 Term borrowings Revolving credit facilities Subordinated notes Other Long-term debt Effective interest rates(i) Maturity 2018 2017 Gross principal outstanding 5.23% to 10.54% 4.47% to 8.75% 8.00% to 17.00% n/a 2021 to 2026 2020 to 2024 2022 to 2023 n/a $ 1,350 $ 1,317 71 31 3 57 37 1 $ 1,455 $ 1,412 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, 2018. 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. u) Other ONCAP III ONCAP IV In January 2017, ONCAP IV entered into a $100 credit facility. The In December 2011, ONCAP III entered into a C$75 credit facility credit facility is available to finance ONCAP IV capital calls, bridge that consists of a C$50 line of credit and a C$25 deemed credit risk investments in ONCAP IV operating companies and to finance facility. In September 2016, ONCAP III discharged the C$50 line of other uses permitted by ONCAP IV’s limited partnership agree- credit facility and increased the deemed credit risk facility to C$36. ment. The credit facility includes a deemed credit risk maximum The deemed credit risk facility is available to ONCAP III and its of $35 available to ONCAP IV and its operating companies for operating companies for foreign exchange transactions, including foreign exchange transactions, including foreign exchange foreign exchange options, forwards and swaps. Borrowings under options, forwards and swaps. Amounts under the credit facil- the credit facility are limited to the lesser of the amount available ity are available in Canadian and U.S. dollars. Borrowings drawn under the deemed credit facility, 80% of the aggregate amount of on the credit facility bear interest at a base rate plus a margin of uncalled capital in the fund and the maximum amount of obli- 1.00% or bankers’ acceptance rate (subject to a floor of 0.00%) gations permitted under the partnership agreement. Borrowings plus a margin of 3.75%. The base rate and bankers’ acceptance under the credit facility are due and payable upon demand; how- rate vary based on the currency of the borrowings. Borrowings ever, ONCAP III has 15 business days to complete a capital call under the credit facility are due and payable upon demand; how- to the limited partners of ONCAP III to fund the demand. Onex ever, ONCAP IV has 15 business days to complete a capital call to Corporation, the ultimate parent company, is only obligated with the limited partners of ONCAP IV. Onex Corporation, the parent respect to borrowings under the credit facility based on its propor- company, is only obligated with respect to borrowings under the tionate share as a limited partner in ONCAP III. credit facility based on its proportionate share as a limited partner At December 31, 2018, the amount available under the in ONCAP IV. deemed risk facility was C$36 (2017 – C$29). In January 2018, ONCAP IV repaid $64 under its credit facility from capital contributions made primarily by the limited partners of ONCAP IV. At December 31, 2018, no amounts (2017 – $64) were outstanding under the credit facility. Onex Corporation December 31, 2018 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 Onex Partners V 15 . L E A S E S In December 2017 and January 2018, Onex Partners V entered into a $997 revolving credit facility. The limited partners of Onex Partners V could elect to participate 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 part- ners that elected to participate in the credit facility. Onex, as a limited partner of Onex Partners V, did not elect to participate in the credit facility. The credit facility is available to finance Onex Partners V capital calls, bridge investments in Onex Partners V operating companies and to finance other uses permitted by Onex Partners V’s limited partnership agreement. Borrowings under the credit facility are limited to the lesser of the amount available under the credit facility and the maximum amount of obligations permitted under the partnership agreement. Amounts under the credit facility are available in U.S. dollars, Canadian dollars, euros, a) The Company as lessee Future minimum lease payments are as follows: For the year: 2019 2020 2021 2022 2023 Thereafter Finance Leases Operating Leases $ 28 26 24 18 16 1,546 $ 300 262 214 177 158 974 Total future minimum lease payments $ 1,658 $ 2,085 Less: imputed interest (1,307) pounds sterling and other currencies as requested, subject to the Balance of obligations under approval of the lenders. Borrowings drawn on the credit facility bear interest at either: an adjusted LIBOR rate, plus a margin of 1.50%, with respect to LIBOR rate loans; or the reference rate in effect from day to day, plus a margin of 1.50%, for reference rate loans. In addition, a fee of 0.25% per annum accrues on the portion of the credit facility that is available but unused. finance leases, without recourse to Onex Corporation Less: current portion Non-current obligations under finance leases, without recourse 351 (14) to Onex Corporation (note 18) $ 337 The credit facility matures on the earlier of December 15, Substantially all of the lease commitments relate to the operating 2020, or upon the occurrence of certain events defined in the companies. Obligations under finance leases, without recourse to agreement, with an option to extend the term for an additional Onex Corporation, are included in other current and non-current 364 days. liabilities. Operating lease expense for the year ended Decem- At December 31, 2018, $59 (2017 – nil) was outstanding ber 31, 2018 was $329 (2017 – $294) and primarily related to prem- ises. Finance leases include minimum lease payments under Parkdean Resorts’ long-dated sale-leaseback transactions. under the revolving credit facility. Onex Partners IV In January 2018, the Onex Partners IV Group entered into a revolv- ing credit facility, as described in note 2(a). At December 31, 2018, $44 was outstanding under the revolving credit facility. In October 2018, the Onex Partners IV Group entered into a second revolving credit facility, as described in note 2(l). At December 31, 2018, $65 was outstanding under this revolving credit facility. 148 Onex Corporation December 31, 2018 N O T E S T O C O N S 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 Company as lessor 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 Certain of the operating companies lease out their investment F I N A N C I N G A C T I V I T I E S properties, machinery and/or equipment under operating leases. Future minimum lease payments receivable from lessees under The following tables provide an analysis of liabilities and assets non-cancellable operating leases are as follows: arising from financing activities and includes amounts from dis- continued operations. For the year: 2019 2020 2021 2022 2023 Thereafter Total minimum lease payments receivable As at December 31 2018 2017 $ 95 77 37 25 18 11 Principal balance of debt and finance leases outstanding Hedging instruments Accrued and imputed interest Financing charges Original issue discount on debt $ 263 Embedded derivatives Cumulative change in fair value $ 23,207 $ 22,800 3 113 (252) (64) (3) (208) (87) 140 (328) (58) 9 (2) 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, 2018 and 2017. Net financing obligations $ 22,796 $ 22,474 Onex Corporation December 31, 2018 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 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 instruments $ 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 Balance – January 1, 2018 Issuance of new debt Finance lease additions 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 paid Transfer to discontinued operations Interest accrued Amortization of original issue discounts and financing charges Change in fair value Foreign exchange Other $ 22,169 $ 392 $ 22,561 $ 87 $ 22,474 5,851 − 1,018 (2,918) (143) (173) (3,201) 636 (152) (1,192) (378) 1,215 171 (206) (332) 77 − 30 9 − (5) (1) (27) − − (12) (27) 13 − − (18) (3) 5,851 30 1,027 (2,918) (148) (174) (3,228) 636 (152) (1,204) (405) 1,228 171 (206) (350) 74 − − − − – – − − − – − – − (22) (1) (67) 5,851 30 1,027 (2,918) (148) (174) (3,228) 636 (152) (1,204) (405) 1,228 171 (184) (349) 141 Balance – December 31, 2018 $ 22,442 $ 351 $ 22,793 $ (3) $ 22,796 150 Onex Corporation December 31, 2018 N O T E S T O C O N S O L I D AT E D F I N A N C I A L S TAT E M E N T S 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 – January 1, 2017 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(d) Balance – December 31, 2017(e) Limited Partners’ Interests charge (recovery)(a) Contributions by Limited Partners(b) Distributions paid to Limited Partners(c) Balance – December 31, 2018 Current portion of Limited Partners’ Interests(e) Gross Limited Partners’ Interests Onex Partners and ONCAP Funds Carried Interest Net Limited Partners’ Interests Credit Strategies Net Limited Partners’ Interests(i) Total $ 8,660 $ (556) $ 8,104 $ 370 $ 8,474 1,545 560 (2,582) (156) 8,027 (808) 1,465 (1,228) 7,456 (641) (215) – 307 – (464) 93 − 94 (277) 98 1,330 560 (2,275) (156) 7,563 (715) 1,465 (1,134) 7,179 (543) 20 113 (42) – 461 1 131 (93) 500 (17) 1,350 673 (2,317) (156) 8,024 (714) 1,596 (1,227) 7,679 (560) Non-current portion of Limited Partners’ Interests $ 6,815 $ (179) $ 6,636 $ 483 $ 7,119 (i) Net of incentive fees in the credit strategies. a) The gross Limited Partners’ Interests recovery for the year ended December 31, 2018 (2017 – charge) for the Onex Partners and ONCAP Funds is primarily due to net fair value decreases (2017 – increases) of the underlying investments in the Onex Partners and ONCAP Funds. Onex’ share of the change in carried interest was a decrease of $38 for the year ended December 31, 2018 (2017 – an increase of $84). b) The following tables show contributions by limited partners of the Onex Partners and ONCAP Funds. Company PowerSchool SMG Ryan Walter Surface Technologies KidsFoundation Precision Laces(i) AutoSource Wyse Management fees, partnership expenses and other Contributions by Limited Partners Fund Transaction Onex Partners IV Onex Partners IV Onex Partners IV ONCAP IV Original investment Original investment Original investment Original investment Onex Partners IV and V Original investment ONCAP IV ONCAP IV ONCAP IV ONCAP IV Various Original investment Original investment Original investment Original investment Various (i) Contributions received were used to repay borrowings under the ONCAP IV credit facility, as described in note 14(u). Year ended December 31, 2018 $ 589 290 180 82 75 67 60 25 16 81 $ 1,465 Onex Corporation December 31, 2018 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 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 c) The following tables show distributions made to limited partners of the Onex Partners and ONCAP Funds. Company SIG(i) Mavis Discount Tire(i) Tecta Emerald Expositions Parkdean Resorts(i) Pinnacle Renewable Energy BBAM PURE Canadian Gaming Meridian Aviation Other Distributions to Limited Partners Fund Transaction Onex Partners IV Initial public offering ONCAP III ONCAP III and IV Onex Partners III Onex Partners IV ONCAP II Onex Partners III ONCAP II and III Onex Partners III Various Sale of business Sale of business Secondary offering and dividends Repayment of loan note Repayment of shareholder subordinated debt, secondary offering and dividend Distributions Distribution Distribution Various (i) Includes amounts distributed to certain limited partners and others. 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 and 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 (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. Year ended December 31, 2017 $ 446 72 42 $ 560 Year ended December 31, 2018 $ 331 311 237 93 52 25 23 20 15 27 $ 1,134 Year ended December 31, 2017 $ 1,198 691 109 92 58 41 34 24 13 6 9 $ 2,275 152 Onex Corporation December 31, 2018 N O T E S T O C O N S O L I D AT E D F I N A N C I A L S TAT E M E N T S d) In September 2017, Onex, the parent company, acquired an and the overall unrealized gains in each respective Fund in accor- interest in Onex Partners IV from a limited partner, as described dance with the limited partnership agreements. The liability will in note 3(g). be increased or decreased based on changes in the fair values and realizations of the underlying investments in the Onex Partners e) At December 31, 2018, the current portion of the Limited Part ners’ and ONCAP Funds. The liability will ultimately be settled upon the Interests was $560, and consisted primarily of the limited part ners’ realization of the limited partners’ share of the underlying Onex share of the proceeds from the pending sale of BrightSpring Health. Partners and ONCAP Fund investments. At December 31, 2017, the current portion of the Limited During 2018, the unrealized carried interest liability Partners’ Interests was $59, and consisted primarily of (i) the distri- decreased primarily due to a decrease in the fair value of certain of bution received from PURE Canadian Gaming; (ii) residual escrow the investments in the Onex Partners and ONCAP Funds, as well as balances from the sale of certain investments; and (iii) redemption carried interest paid during 2018. requests received by certain Onex Credit Funds. 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 c) Other includes amounts for liabilities arising from contingent consideration, indemnifi cations, embedded derivatives on long- term debt, mark-to-market valuations of hedge contracts and share- Other non-current liabilities comprised the following: holder loan notes. As at December 31 Defined benefit pensions and non-pension post-retirement benefits (note 34) $ Stock-based compensation(a) Obligations under capital leases (note 15) Contract liabilities and other deferred items Unrealized carried interest due to Onex and ONCAP management(b) Other(c) 2018 355 342 337 198 136 247 $ 2017 364 574 360 170 324 278 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 2018 2017 Income tax recovery at statutory rate $ (201) $ (203) Changes related to: Income tax rate differential of Total other non-current liabilities $ 1,615 $ 2,070 operating companies a) At December 31, 2018, the stock-based compensation liability consisted of $364 (2017 – $584) for the stock-based compensation plans at the parent company. At December 31, 2018, $22 (2017 – $10) related to the parent company stock-based compensation liability was recorded in other current liabilities. Included in long- term investments (note 10) is $72 (2017 – $92) related to forward agreements to economically hedge the Company’s exposure to changes in the trading price of Onex shares associated with the Management and Director DSU Plans. b) Unrealized carried interest due to management of Onex and ONCAP through the Onex Partners and ONCAP Funds is recog- nized primarily as a non-current liability and reduces the Limited Partners Interests’ liability, as described in note 17. At December 31, Non-taxable gains Unbenefited tax losses Recognition and utilization of tax loss carryforwards not previously benefited Foreign exchange Limited Partners’ Interests Non-deductible expenses Non-taxable dividends Other, including permanent differences (52) (172) 280 (69) 4 (21) 335 (59) 44 155 (261) 297 (44) (5) 29 94 (142) 14 Provision for (recovery of) income taxes $ 89 $ (66) Classified as: Current Deferred Provision for (recovery of) income taxes $ 248 (159) $ 89 $ 251 (317) $ (66) 2018, $59 (2017 – $3) of unrealized carried interest was recorded Included in the recovery of deferred income taxes at December 31, in other current liabilities. The unrealized carried interest is cal- 2017 is a net recovery of $162 related to changes to the income tax culated based on current fair values of the Funds’ investments rates applicable on certain deferred income tax assets and liabilities. Onex Corporation December 31, 2018 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 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 – January 1, 2017 Credited (charged) to net earnings Charged to net earnings (discontinued operations) 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 Provisions Deferred Revenue Tax Losses Property, Plant and Equipment, and Intangibles Other Total $ 1 $ 157 $ 16 – – − − 2 − − − 8 (9) (2) − 1 (6) − − 6 – − − 2 − − − $ 319 (46) – (2) 5 5 10 − (82) $ 236 $ 869 $ 1,598 (5) – − 2 4 (26) − (151) 16 (1) (5) − 10 (4) (118) (534) (21) (10) (9) 7 24 (26) (118) (767) Balance – December 31, 2017 $ 3 $ 149 $ 24 $ 209 $ 60 $ 233 $ 678 Credited (charged) to net earnings Credited (charged) to net earnings (discontinued operations) Charged directly to equity Exchange differences Acquisition of subsidiaries Disposition of subsidiaries Operating company no longer controlled Transfer to discontinued operations Other adjustments − − − − − − − − − (6) – (1) – – − (1) (22) – 7 – − (1) − − – – (1) 4 – (10) (4) 64 (1) (19) (2) − (3) (1) − (2) – − – – − (20) 3 (4) (7) 7 (2) (1) (15) (2) (18) 2 (15) (14) 71 (3) (21) (39) (3) Balance – December 31, 2018 $ 3 $ 119 $ 29 $ 241 $ 54 $ 192 $ 638 154 Onex Corporation December 31, 2018 N O T E S T O C O N S O L I D AT E D F I N A N C I A L S TAT E M E N T S Gains on Sales of Operating Companies Pension and Non-Pension Post-Retirement Benefits Property, Plant and Equipment, and Intangibles Foreign Exchange Other Total $ 42 (30) – − (1) − − − − $ 11 1 − − – − − − − − $ 31 (1) $ 2,298 (323) $ 27 (2) $ 318 $ 2,716 25 (331) – 4 2 – − − − $ 36 – – (10) (1) − − − – (1) $ 24 (45) − 68 216 (277) (468) 1 $ 1,470 (120) (7) (1) (37) 235 (4) (18) (92) – – − 1 (1) − − − 4 − 9 2 − (198) 5 (41) 4 79 217 (277) (666) 6 $ 25 $ 165 $ 1,707 (6) 8 − (2) – − − – − (52) (177) – (1) (2) 17 (1) (1) (13) 13 1 (12) (42) 252 (5) (19) (105) 12 $ 1,426 $ 25 $ 125 $ 1,612 Deferred Income Tax Liabilities Balance – January 1, 2017 Charged (credited) to net earnings Charged (credited) to net earnings (discontinued operations) Charged directly to equity Exchange differences Acquisition of subsidiaries Disposition of subsidiaries Operating company no longer controlled Other adjustments Balance – December 31, 2017 Charged (credited) to net earnings Charged (credited) to net earnings (discontinued operations) Charged directly to equity Exchange differences Acquisition of subsidiaries Disposition of subsidiaries Operating company no longer controlled Transfer to discontinued operations Other adjustments Balance – December 31, 2018 $ 12 At December 31, 2018, Onex and its investment holding compa- 2 0 . S H A R E C A P I TA L nies had $1,358 of non-capital loss carryforwards and $68 of capi- tal 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, 2018, deductible temporary differences, unused tax losses and unused tax credits for which no deferred tax asset has been recognized were $6,163 (2017 – $5,381), of which $3,206 (2017 – $2,238) had no expiry, $579 (2017 – $468) was available to reduce future income taxes between 2019 and 2025 (2017 – 2018 and 2024), inclusive, and $2,378 (2017 – $2,675) was available with expiration dates of 2026 through 2038 (2017 – 2025 through 2037). At December 31, 2018, the aggregate amount of taxable temporary differences not recognized in association with invest- ments in subsidiaries, joint ventures and associates was $4,157 (2017 – $5,072). a) The authorized share capital of the Company consists of: i) 100,000 Multiple Voting Shares, which entitle their holders to elect 60% of the Company’s Directors and carry such number of votes in the aggregate as represents 60% of the aggregate votes attached to all shares of the Company carrying voting rights. The Multiple Voting Shares have no entitlement to a distribution on winding up or dissolution other than the payment of their nomi- nal paid-in value. ii) An unlimited number of SVS, which carry one vote per share and as a class are entitled to 40% of the aggregate votes attached to all shares of the Company carrying voting rights to elect 40% of the Company’s Directors and to appoint the auditors. These shares are entitled, subject to the prior rights of other classes, to distri- butions of the residual assets on winding up and to any declared but unpaid cash dividends. The shares are entitled to receive cash dividends, dividends in kind and stock dividends as and when declared by the Board of Directors. Onex Corporation December 31, 2018 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 Multiple Voting Shares and SVS are subject to provi- sions whereby, if an event of change occurs (such as Mr. Schwartz, c) During 2018, under the Dividend Reinvestment Plan, the Com- pany issued 7,753 SVS (2017 – 7,581) at an average cost of C$91.08 Chairman and CEO, ceasing to hold, directly or indirectly, more per share (2017 – C$96.23). During 2018, 33,292 SVS (2017 – 10,181) than 5,000,000 SVS or related events), the Multiple Voting Shares were issued upon the exercise of stock options at an average cost will thereupon be entitled to elect only 20% of the Company’s of C$81.72 per share (2017 – C$93.33). Directors and otherwise will cease to have any general voting Onex renewed its Normal Course Issuer Bid in April 2018 rights. The SVS would then carry 100% of the general voting rights for one year, permitting the Company to purchase on the Toronto and be entitled to elect 80% of the Company’s Directors. Stock Exchange up to 10% of the public float of its SVS. The 10% limit represents approximately 8.3 million shares. iii) An unlimited number of Senior and Junior Preferred Shares During 2018, the Company repurchased and cancelled issuable in series. The Company’s Directors are empowered to fix 1,169,733 of its SVS at a cost of $79 (C$102). The excess of the pur- the rights to be attached to each series. chase cost of these shares over the average paid-in amount was $75 b) At December 31, 2018, the issued and outstanding share capital consisted of 100,000 Multiple Voting Shares (December 31, 2017 – (C$97), which was charged to retained earnings. The shares repur- chased were comprised of: (i) 669,733 SVS repurchased under the Normal Course Issuer Bids for a total cost of $42 (C$55) or an aver- 100,000) and 100,403,493 SVS (December 31, 2017 – 101,532,181). The age cost per share of $63.30 (C$82.14); and (ii) 500,000 SVS repur- Multiple Voting Shares have a nominal paid-in value in these con- chased in a private transaction for a total cost of $36 (C$47) or an solidated financial statements. average cost per share of $72.23 (C$93.00). As at December 31, 2018, There were no issued and outstanding Senior and Junior the Company had the capacity under the current Normal Course Preferred shares at December 31, 2018 or December 31, 2017. Issuer Bid to repurchase approximately 7,390,305 shares. The Company increased its quarterly dividend by 17% During 2017, the Company repurchased and cancelled to C$0.0875 per SVS beginning with the dividend declared by the 1,273,209 of its SVS at a cost of $93 (C$121). The excess of the pur- Board of Directors in May 2018. Previously, the Company increased chase cost of these shares over the average paid-in amount was its quarterly dividend by 9% to C$0.075 per SVS beginning with the $89 (C$116), which was charged to retained earnings. The shares dividend declared by the Board of Directors in May 2017. repurchased were comprised of: (i) 523,209 SVS repurchased under the Normal Course Issuer Bids for a total cost of $39 (C$50) or an average cost per share of $75.07 (C$95.04); and (ii) 750,000 SVS repurchased in a private transaction for a total cost of $53 (C$71) or an average cost per share of $71.24 (C$94.98). d) The Company has a Director DSU Plan and a Management DSU Plan, as described in note 1. Details of DSUs outstanding under the plans are as follows: Outstanding at December 31, 2016 Granted Additional units issued in lieu of compensation and cash dividends Outstanding at December 31, 2017 Granted Redeemed Additional units issued in lieu of compensation and cash dividends Outstanding at December 31, 2018 Hedged with a counterparty financial institution at December 31, 2018 Outstanding at December 31, 2018 – Unhedged Director DSU Plan Management DSU Plan Number of DSUs Weighted Average Price Number of DSUs Weighted Average Price C$ 100.74 C$ 96.69 C$ 93.88 C$ 84.60 C$ 87.68 665,871 27,720 10,445 704,036 26,931 (90,626) 13,069 653,410 (584,421) 68,989 − C$ 88.00 − − C$ 90.48 635,326 − 30,595 665,921 − − 77,218 743,139 (743,139) – 156 Onex Corporation December 31, 2018 N O T E S T O C O N S 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- to the same terms and conditions as the Company’s existing Plan; however, the options are also subject to an additional performance ed to Directors, officers and employees for the acquisition of SVS of threshold specific to the Onex Credit asset management platform. the Company at a price not less than the market value of the shares on the business day preceding the day of the grant. Under the Plan, The details of the options outstanding were as follows: no options or share appreciation rights may be exercised unless the average market price of the SVS for the five previous business days exceeds the exercise price of the options or the share appre- ciation rights by at least 25% (the “hurdle price”). At December 31, 2018, 15,558,750 SVS (2017 – 15,598,750) were reserved for issuance under the Plan, against which options representing 13,491,917 shares (2017 – 12,318,442) were outstanding, of which 8,701,827 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 4,025,000 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. In addition to the options outstanding under the Plan, in January 2015, the Company issued 60,000 options to Onex Credit’s chief executive officer in connection with acquiring control of the Onex Credit asset management platform. The options vest at a rate of 20% per year from the grant date. The options are subject Number of Options Weighted Average Exercise Price Outstanding at December 31, 2016 12,943,183 Granted Surrendered Exercised Expired 170,000 (597,641) (13,250) (123,850) Outstanding at December 31, 2017 12,378,442 Granted in January 2018(i) Granted in December 2018 Other grants in 2018 Surrendered Exercised Expired 1,052,250 1,002,350 23,500 (836,675) (40,000) (87,950) C$ 55.98 C$ 100.90 C$ 28.97 C$ 23.35 C$ 68.31 C$ 57.81 C$ 92.15 C$ 78.64 C$ 93.08 C$ 36.03 C$ 15.95 C$ 86.58 Outstanding at December 31, 2018 13,491,917 C$ 63.38 (i) Options granted in January 2018 relate to services provided during the year ended December 31, 2017. During 2018 and 2017, the total cash consideration paid on options surrendered was $32 (C$42) and $30 (C$40), respectively. This amount represents the difference between the market value of the SVS at the time of surrender and the exercise price, both as deter- mined under the Plan. The weighted average share price at the date of exercise was C$85.94 per share (2017 – C$95.54). Options outstanding at December 31, 2018 consisted of the following: Exercise Prices C$ 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 615,967 1,060,500 7,926,250 1,840,000 2,049,200 13,491,917 615,967 1,060,500 5,445,250 – – 7,121,717 Hurdle Prices C$ 29.19 – C$ 36.61 C$ 41.39 – C$ 50.44 C$ 71.15 – C$ 85.71 C$ 93.59 – C$ 103.00 C$ 114.48 – C$ 127.03 Weighted Average Remaining Life (years) 1.5 3.6 5.1 8.6 8.6 Onex Corporation December 31, 2018 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 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, 2018 and 2017 were associated with Celestica, Clarivate Analytics and SIG. There were no dividends paid by Celestica, Clarivate Analytics or SIG during 2018 or 2017. Summarized balance sheet information based on those amounts included in these consolidated financial statements for Celestica, Clarivate Analytics and SIG 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 SIG 2018 86% $ 2,824 914 3,738 $ 1,620 786 2,406 $ 1,332 $ 1,146 2017 87% $ 2,477 487 2,964 $ 1,267 327 1,594 $ 1,370 $ 1,171 2018 28% $ 419 3,306 3,725 $ 654 2,018 2,672 $ 1,053 $ 305 2017 28% $ 458 3,581 4,039 $ 672 2,067 2,739 $ 1,300 $ 369 2018 49% $ 646 4,484 5,130 $ 697 2,264 2,961 $ 2,169 $ 1,057 2017 1% $ 653 4,832 5,485 $ 664 3,577 4,241 $ 1,244 $ 8 Financial information in the statements of earnings for Celestica (electronics manufacturing services segment) is presented in note 36. Summarized income statement information for Clarivate Analytics and SIG for the years ended December 31, 2018 and 2017 is as follows: Year ended December 31 Revenue Net loss Clarivate Analytics SIG 2018 963 255 $ 2017 920 238 $ 2018 $ 1,974 99 2017 $ 1,888 112 Summarized cash flows for Celestica, Clarivate Analy tics and SIG are as follows: Year ended December 31 2018 2017 2018 2017 2018 2017 Cash flows from operating activities $ 33 $ 127 $ 87 $ 111 $ 531 $ 441 Celestica Clarivate Analytics SIG Cash flows from (used in) financing activities Cash flows from (used in) investing activities 419 (546) (80) (89) (152) 34 (94) (42) (264) (205) (232) (221) 158 Onex Corporation December 31, 2018 N O T E S T O C O N S 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 . R E V E N U E The Company derives revenue primarily from the transfer of goods and services and has recognized the following amounts of revenue in the statements of earnings: Year ended December 31, 2018 Type of revenue Electronics Manufacturing Services Healthcare Imaging Insurance Services Packaging Products and Services Business and Information Services Food Retail and Restaurants Credit Strategies Consolidated Total Other Revenue from product sales $ 6,395 $ 1,232 $ – $ 2,498 $ 187 $ 2,403 $ – $ 3,115 $ 15,830 Revenue from the provision of services 238 369 790 161 1,460 55 – – – – – – – 3 – – 92 25 – – – 2,007 2 – 3 – – – 2,260 5,336 418 70 2 2,425 167 27 $ 6,633 $ 1,601 $ 793 $ 2,776 $ 1,647 $ 4,467 $ 3 $ 5,865 $ 23,785 Revenue from bundled product sales and services Leasing revenue Royalties Total revenues Timing of revenue recognition Revenue recognized at a point in time $ 317 $ 1,601 $ – $ 1,983 $ Revenue recognized over time 6,316 – 793 793 723 924 $ 4,465 $ – $ 3,043 $ 12,132 2 3 2,822 11,653 Total revenues $ 6,633 $ 1,601 $ 793 $ 2,776 $ 1,647 $ 4,467 $ 3 $ 5,865 $ 23,785 Year ended December 31, 2017 Type of revenue Electronics Manufacturing Services Healthcare Imaging Insurance Services Packaging Products and Services Business and Information Services Food Retail and Restaurants Credit Strategies Consolidated Total Other Revenue from product sales $ 5,943 $ 1,443 $ – $ 2,128 $ 21 $ 2,471 $ – $ 2,910 $ 14,916 Revenue from the provision of services 200 419 773 176 1,241 62 – – – – – – – 2 – – 80 11 – – – 2,191 – – 4 – – – 2,122 4,997 500 67 3 2,691 149 14 $ 6,143 $ 1,862 $ 775 $ 2,395 $ 1,262 $ 4,724 $ 4 $ 5,602 $ 22,767 Revenue from bundled product sales and services Leasing revenue Royalties Total revenues Timing of revenue recognition Revenue recognized at a point in time $ 286 $ 1,862 $ – $ 1,695 $ Revenue recognized over time 5,857 – 775 700 526 736 $ 4,724 $ – $ 2,868 $ 11,961 – 4 2,734 10,806 Total revenues $ 6,143 $ 1,862 $ 775 $ 2,395 $ 1,262 $ 4,724 $ 4 $ 5,602 $ 22,767 Onex Corporation December 31, 2018 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 Contract balances The consolidated contract assets and contract liabilities of the Company are comprised of the following: Contract Assets Work in progress in advance of billing Costs to obtain contracts Contract Liabilities Customers’ advanced payments Rebate programs and other December 31, 2018 December 31, 2017 January 1, 2017 $ 338 28 $ 366 $ 327 7 $ 334 $ 295 3 $ 298 December 31, 2018 December 31, 2017 January 1, 2017 $ 1,065 30 $ 1,095 $ 971 13 $ 984 $ 767 10 $ 777 Contract assets primarily relate to the conditional right to consid- The preceding table excludes revenues from contracts with dura- eration for completed performance under contracts for certain of tions of one year or less and performance obligations which are Onex’ operating companies and incurred costs to obtain or fulfill satisfied as billed. In accordance with the transitional provisions customer contracts. Accounts receivable are recognized when the in IFRS 15, the Company has elected to exclude the transaction right to consideration becomes unconditional. Contract liabilities price allocated to performance obligations that were unsatisfied primarily relate to payments received in advance of performance at December 31, 2017. obligations having been satisfied under the associated contracts. Contract liabilities are recognized as revenue as those perfor- 2 3 . E X P E N S E S B Y N AT U R E mance obligations are met. The increase in contract assets and contract liabilities was primarily related to the acquisitions of AutoSource, KidsFoundation, Precision and SMG, which were partially offset by the disposition of Tecta and the classification of BrightSpring Health as a discontinued operation. During 2018, revenues recognized from amounts included The nature of expenses in cost of sales and operating expenses, which excludes amortization of property, plant and equipment, intangible assets and deferred charges, consisted of the following: Year ended December 31 2018 2017 in contract liabilities at the beginning of the year were $891 (2017 – Cost of inventory, raw materials $657) and revenues recognized related to performance obligations and consumables used $ 12,334 $ 11,781 that were satisfied in previous periods were nil (2017 – $1). Performance obligations The timing of revenues expected to be recognized for perfor- mance obligations that are unsatisfied at December 31, 2018 is as follows: Within one year Within two to five years Thereafter 2018 $ 89 116 29 $ 234 Employee benefit expense(i) Professional fees Repairs, maintenance and utilities Transportation Operating lease payments Provisions Other expenses 4,821 1,270 733 519 329 161 1,473 4,550 1,262 655 476 294 186 1,323 Total cost of sales and operating expenses $ 21,640 $ 20,527 (i) Employee benefit expense excludes employee costs capitalized into inventory and internally generated capital assets. Stock-based compensation is disclosed separately in the consolidated statements of earnings. 160 Onex Corporation December 31, 2018 N O T E S T O C O N S O L I D AT E D F I N A N C I A L S TAT E M E N T S 24 . INTEREST EXPENSE 26 . OTHER GAINS Year ended December 31 2018 2017 Year ended December 31 Interest on long-term debt $ 1,225 $ 1,037 Gain on sale of Tecta(a) Interest on obligations under finance leases of operating companies Other financing charges(i) 14 200 Gain from loss of control of Pinnacle Renewable Energy(b) Gain on sales by Carestream Health(c) 9 145 Total interest expense $ 1,439 $ 1,191 Total other gains 2018 $ 261 82 – $ 343 $ 2017 – – 731 $ 731 (i) Other includes debt prepayment expense of $35 (2017 − $20). 2 5 . STOCK-BASED COMPENSATION (RECOVERY) EXPENSE Year ended December 31 2018 2017 a) In November 2018, the ONCAP III and ONCAP IV Groups sold Tecta, as described in note 2(o). b) In February 2018, Pinnacle Renewable Energy completed an initial public offering, resulting in a gain of $82 being recognized $ (141) $ 102 by the Company, as described in note 2(c). Parent company(a) Celestica Clarivate Analytics Other 33 13 37 30 18 25 Total stock-based compensation (recovery) expense $ (58) $ 175 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 33(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, 2018 of C$74.35 (2017 – C$92.19), the exercise price of the options, the remaining life of each option issuance, the volatility of each option issuance rang- ing from 16.09% to 22.43% (2017 – 15.35% to 15.46%), an average dividend yield of 0.47% (2017 – 0.45%) and a weighted average risk- free rate of 1.88% (2017 – 2.28%). The volatility is measured as the historical volatility based on the remaining life of each respective 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 1.88% and an industry comparable historical volatility for each investment. c) During 2017, Carestream Health completed the sale of its Dental Digital business along with an additional transaction, as described in note 3(f ). 2 7. O T H E R E X P E N S E Year ended December 31 2018 2017 Losses on investments and long-term debt in credit strategies, net(a) $ 206 $ 111 Transition, integration and other(b) Derivatives losses (gains), net(c) Restructuring(d) Transaction costs(e) Change in fair value of contingent consideration, net Change in fair value of other investments, net Foreign exchange losses (gains), net(f) Carried interest charge (recovery) due to Onex and ONCAP management(g) Other 146 105 87 82 (6) (11) (22) (42) (28) 186 (22) 125 62 (29) 44 104 147 (25) Total other expense $ 517 $ 703 a) Net losses of $206 on investments and long-term debt in credit strategies during 2018 (2017 – $111) were driven by net realized and unrealized gains and losses on the investments and long-term debt recognized at fair value through earnings in credit strategies. Onex Corporation December 31, 2018 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 b) Transition, integration and other expenses typically provide for the costs of establishing and transitioning from a prior parent e) Transaction costs are incurred by Onex and its operating com- panies to complete business acquisitions, and typically include company the activities of an operating company upon acquisition advisory, legal and other professional and consulting costs. and to integrate new acquisitions at the operating companies. In Transaction costs for 2018 were primarily due to the addition, expenses may relate to the disposition and transition acquisitions of KidsFoundation, Precision, SMG and Walter Sur- of business units at the operating companies. The costs may be face Technologies, in addition to acquisitions completed by the incurred over several years as the establishment and transition of operating companies. Transaction costs for 2017 were primarily activities progress. due to the acquisition of Parkdean Resorts, in addition to acquisi- Transition, integration and other expenses for 2018 tions completed by the operating companies. were primarily due to Carestream Health, Clarivate Analytics and Survitec. Transition, integration and other expenses for 2017 were primarily due to Carestream Health and Clarivate Analytics. c) Derivatives losses (gains) during 2018 and 2017 were primarily related to embedded derivatives associated with debt agreements f) For the year ended December 31, 2018, foreign exchange gains were primarily due to gains recognized by SIG, partially offset by the recognition of accumulated currency translation adjustments relat- ed to the loss of control over Pin nacle Renewable Energy. Foreign exchange losses for the year ended December 31, 2017 were primar- and foreign exchange hedges. ily due to losses recognized by SIG. d) Restructuring expenses typically provide for the costs of facility consolidations and workforce reductions incurred at the operat- g) Carried interest charge (recovery) reflects the change in the amount of carried interest due to Onex and ONCAP management ing companies. through the Onex Partners and ONCAP Funds. Unrealized carried interest is calculated based on the current fair values of the Funds’ Restructuring charges recorded at the operating companies were: investments and the overall unrealized gains in each respective Fund in accordance with the limited partnership agreements. The unrealized 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 2018, a recovery of $42 (2017 – charge of $147) was recorded in the consolidated statements of earnings for a decrease in management’s share of the carried interest primarily due to a decrease in the fair value of certain of the investments in the Onex Partners and ONCAP Funds. 2 8 . 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 Parkdean Resorts(a) Save-A-Lot(b) Survitec(c) sgsco(d) Schumacher(e) Other, net Total 2018 $ 170 150 144 52 50 61 $ 627 2017 $ 56 – – – 106 17 $ 179 Year ended December 31 Celestica(i) Carestream Health(ii) Save-A-Lot(iii) SIG(iv) Other 2018 $ 35 23 8 5 16 2017 $ 29 1 63 22 10 $ 87 $ 125 i) Celestica’s restructuring charge during 2018 was primarily due to workforce reductions. Celestica’s restructuring charge during 2017 was primarily related to organizational changes as a result of corporate initiatives. ii) The charges recorded by Carestream Health in 2018 and 2017 primarily related to the reorganization of certain businesses and operations. iii) Save-A-Lot’s restructuring charge during 2018 was primarily related to the reorganization of the company’s logistics operations. Save-A-Lot’s restructuring charge during 2017 primarily related to costs associated with the closure of certain facilities. iv) SIG’s restructuring charges during 2018 and 2017 primarily related to the reorganization of certain corporate functions. 162 Onex Corporation December 31, 2018 N O T E S T O C O N S 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) During 2018, Parkdean Resorts recorded a non-cash goodwill impairment charge of $170, measured in accordance with IAS 36, e) During 2018, Schumacher recorded a non-cash goodwill impairment charge of $50, measured in accordance with IAS 36, Impairment of Assets, primarily due to lower than expected cara- Impairment of Assets, primarily due to lower patient volumes. The van sales driven by a reduction in consumer spending in the United impairment was calculated on a fair value less costs of disposal Kingdom, which is impacted by ongoing uncertainty surround- basis. The recoverable amount was a Level 3 measurement in the ing the United Kingdom’s pending withdrawal from the European fair value hierarchy as a result of significant unobservable inputs Union. The impairment was calculated on a fair value less costs of used in determining the recoverable amount. The impairment disposal basis. The recoverable amount was a Level 3 measurement charge was recorded in the other segment. in the fair value hierarchy as a result of significant unobservable During 2017, Schumacher recorded a non-cash good- inputs used in determining the recoverable amount. The impair- will impairment charge of $106, measured in accordance with ment charge was recorded in the other segment. IAS 36, Impairment of Assets, primarily due to changes in custom- During 2017, Parkdean Resorts recorded a non-cash er mix related to the implementation of the Affordable Care Act. goodwill impairment charge of $56, measured in accordance with The impairment was calculated on a fair value less costs of dis- IAS 36, Impairment of Assets, due to weaker than expected perfor- posal basis. The recoverable amount was a Level 3 measurement mance since acquisition, driven primarily by lower caravan sales. in the fair value hierarchy as a result of significant unobservable The impairment was calculated on a fair value less costs to sell inputs used in determining the recoverable amount. The impair- basis. The recoverable amount was a Level 3 measurement in the ment charge was recorded in the other segment. fair value hierarchy as a result of significant unobservable inputs used in determining the recoverable amount. The impairment The value-in-use method is used to measure the recoverable charge was recorded in the other segment. amount for substantially all of the Company’s goodwill and intan- b) During 2018, Save-A-Lot recorded a non-cash impairment charge of $150 to impair certain of its intangible assets and prop- erty, plant and equipment as a result of lower sales at certain loca- gible assets with indefinite useful lives. The carrying value of good- will and intangible assets with indefinite useful lives is allocated on a segment basis in note 36. tions due to increased competition. The impairment charge was In measuring the recoverable amounts for goodwill and intan- recorded in the food retail and restaurants segment. gible assets at December 31, 2018, significant estimates include the c) During 2018, Survitec recorded a non-cash goodwill impairment charge of $144, measured in accordance with IAS 36, Impairment growth rate and discount rate, which range from 0.0% to 16.5% and 5.8% to 16.0% (2017 – 0.5% to 20.0% and 9.5% to 17.0%), respectively. of Assets. The impairment was calculated on a fair value less costs 29. NET EARNINGS (LOSS) PER SUBORDINATE of disposal basis. The recoverable amount was a Level 3 measure- VOTING SHARE ment in the fair value hierarchy as a result of significant unob- servable inputs used in determining the recoverable amount. The impairment charge was recorded in the other segment. The weighted average number of SVS for the purpose of the earn- ings (loss) per share calculations was as follows: d) During 2018, sgsco recorded a non-cash goodwill impairment charge of $52, measured in accordance with IAS 36, Impairment Year ended December 31 2018 2017 Weighted average number of shares of Assets, primarily due to lower sales in the United States. The outstanding (in millions): impairment was calculated using the value-in-use method. The recoverable amount was a Level 3 measurement in the fair value Basic Diluted 101 101 102 102 hierarchy as a result of significant unobservable inputs used in determining the recoverable amount. The impairment charge was recorded in the packaging products and services segment. Onex Corporation December 31, 2018 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 3 0 . 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, 2018 Assets as per balance sheet Cash and cash equivalents Short-term investments Accounts receivable Other current assets Long-term investments Other non-current assets Financial assets held by discontinued operations Fair Value through Net Earnings Recognized Designated Fair Value through OCI Amortized Cost Total $ 2,680 $ 60 63 197 11,603 78 27 – – – – 780 – – $ – $ 17 – 2 32 4 – – – 3,123 431 – 90 247 $ 2,680 77 3,186 630 12,415 172 274 Total $ 14,708 $ 780 $ 55 $ 3,891(i) $ 19,434 (i) The carrying value of financial assets at amortized cost approximates their fair value. 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 – – – 3,320 430 10 115 $ – – – 31 92 7 Total $ 3,376 258 3,320 613 11,734 299 $ 4,398 $ 11,109 $ 88 $ 3,875(i) $ 130 $ 19,600 (i) The carrying value of loans and receivables approximates their fair value. January 1, 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 $ – 147 – 9 1,979 94 $ 2,371 $ – $ – – 314 6,221 197 7 – – 71 – – – 3,873 514 – 94 $ – – – 13 83 9 Total $ 2,371 154 3,873 850 8,354 394 $ 2,229 $ 9,103 $ 78 $ 4,481(i) $ 105 $ 15,996 (i) The carrying value of loans and receivables approximates their fair value. 164 Onex Corporation December 31, 2018 N O T E S T O C O N S 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, 2018 Liabilities as per balance sheet Accounts payable and accrued liabilities Other current liabilities Long-term debt(i) Obligations under finance leases Other non-current liabilities Limited Partners’ Interests Financial liabilities held by discontinued operations Fair Value through Net Earnings Recognized Designated Amortized Cost Total $ – 96 – – 176 – 1 $ – – 7,506 – 21 7,679 – $ 4,057 $ 4,057 295 15,078 351 151 – 602 391 22,584 351 348 7,679 603 Total $ 273 $ 15,206 $ 20,534 $ 36,013 (i) Long-term debt is presented gross of financing charges. December 31, 2017 Liabilities as per balance sheet Accounts payable and accrued liabilities 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. January 1, 2017 Liabilities as per balance sheet Accounts payable and accrued liabilities 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 Amortized Cost Derivatives Used for Hedging Total $ – 11 – – 386 – $ – 19 7,575 – 11 8,024 $ 4,331 184 14,782 392 135 – $ – $ 4,331 10 – – 14 – 224 22,357 392 546 8,024 $ 397 $ 15,629 $ 19,824 $ 24 $ 35,874 Fair Value through Net Earnings Recognized Designated Amortized Cost Derivatives Used for Hedging Total $ – 43 – – 550 – $ – 21 5,855 – 30 8,474 $ 4,059 300 17,394 77 113 – $ – $ 4,059 59 – – 17 – 423 23,249 77 710 8,474 $ 593 $ 14,380 $ 21,943 $ 76 $ 36,992 Long-term debt recorded at fair value through net earnings at December 31, 2018 of $7,506 (2017 – $7,575) has contractual amounts due on maturity of $7,690 (2017 – $7,577). Onex Corporation December 31, 2018 165 N O T E S T O C O N S O L I D AT E D F I N A N C I A L S TAT E M E N T S The gains (losses) recognized by the Company related to financial assets and liabilities were as follows: Year ended December 31 2018 2017 Fair value through net earnings (loss) Fair value through OCI (2017 – available-for-sale) Fair value adjustments Interest income Impairments Financial assets at amortized cost (2017 – loans and receivables) Provisions and other Financial liabilities at amortized cost Interest expense Other Derivatives used for hedging Total gains (losses) recognized Earnings (Loss) Comprehensive Earnings (Loss)(i) Earnings (Loss) Comprehensive Earnings (Loss) (i) $ 166(a) $ n/a $ (722)(a) $ n/a n/a 1 – (39) (1,439) 1 n/a (4) n/a n/a n/a n/a n/a n/a n/a 2 – (63) (1,191) – 9 4 n/a n/a n/a n/a n/a 58 $ (1,310) $ (4) $ (1,965) $ 62 (i) Amounts recognized in comprehensive earnings (loss) are presented gross of the income tax effect. a) Primarily consists of a Limited Partners’ Interests recovery of $714 (2017 – charge of $1,350), a carried interest recovery of $42 (2017 – charge of $147) and a decrease in value of investments in joint ventures and associates at fair value of $585 (2017 – increase of $760). Financial instruments measured at fair value are allocated within the fair value hierarchy based on the lowest level of input that is significant to the fair value measurement. Transfers between the three levels of the fair value hierarchy are recognized on the date of the event or change in circumstances that caused the transfer. There were no significant transfers between the three levels of the fair value hierarchy during 2018. 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 3(a). 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”). 31. 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, 2018 and December 31, 2017 are based on relevant market prices and information available at those dates. The carrying val- ues of accounts receivable, accounts payable and accrued liabili- ties 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, 2018 was $21,621 (December 31, 2017 – $22,258) compared to a carrying value of $22,344 (December 31, 2017 – $22,049). The fair value of consoli- dated long-term debt that is measured at amortized cost is sub- stantially a Level 2 measurement in the fair value hierarchy and is calculated by discounting the expected future cash flows using an observable discount rate for instruments of similar maturity and credit risk. For certain operating companies, an adjustment is made by management for that operating company’s own credit risk, resulting in a Level 3 measurement in the fair value hierar- chy. 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. 166 Onex Corporation December 31, 2018 N O T E S T O C O N S 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 financial assets held by discontinued operations and cash and cash equivalents, at December 31, 2018 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 Financial assets at fair value through OCI Investments in debt Investments in equities Other Level 1 Level 2 Level 3 Total $ – 40 – 248 10 2 – $ 9,645 $ 60 528 149 37 – 6 23 194 1,885 9 – – – $ 9,668 294 2,413 406 47 2 6 Total financial assets at fair value $ 300 $ 10,425 $ 2,111 $ 12,836 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 liabilities in the fair value hierarchy at December 31, 2018 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 Other Total financial liabilities at fair value Level 1 Level 2 Level 3 Total $ $ – – – – 5 5 $ $ – – – – 59 59 $ 7,179 $ 7,179 500 195 7,506 35 500 195 7,506 99 $ 15,415 $ 15,479 The allocation of financial liabilities in the fair value hierarchy at December 31, 2017 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 Other Total financial liabilities at fair value Level 1 Level 2 Level 3 Total $ $ – – – – 23 23 $ $ – – – – 48 48 $ 7,563 $ 7,563 461 327 7,575 29 461 327 7,575 100 $ 15,955 $ 16,026 Onex Corporation December 31, 2018 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 Details of financial assets and liabilities measured at fair value with significant unobservable inputs (Level 3), excluding investments in joint ventures and associates recorded at fair value through earnings (note 10) 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 – January 1, 2017 Change in fair value recognized in net earnings Transfer to (from) Level 3 Additions Acquisition of subsidiaries Settlements Foreign exchange Other Balance – December 31, 2017 Change in fair value recognized in net earnings Transfer to (from) Level 3 Additions Acquisitions of subsidiaries Settlements Disposition of subsidiaries Foreign exchange Other Balance – December 31, 2018 $ 1 12 4 76 – (63) – 12 42 – 4 185 – (5) – – – $ 5,855 $ 488 97 – 6,357 – (4,785) 51 – 7,575 (206) – 2,147 – (1,971) – (39) – 156 (86) 4 5 (200) 1 (12) 356 (48) – 15 11 (111) (23) 4 26 $ 226 $ 7,506 $ 230 Unrealized change in fair value of assets and liabilities held at the end of the reporting period $ – $ (198) $ (53) 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; (ii) increase (decrease) in value of investments and available market data of comparable public companies. The in joint ventures and associates at fair value, net; (iii) other income valuation of investments in the Onex Partners and ONCAP Funds (expense); and (iv) Limited Partners’ Interests charge. is reviewed and approved by the General Partner of the respec- tive Fund each quarter. The General Partners of the Onex Partners The valuation of investments in debt securities measured at fair and ONCAP Funds are indirectly controlled by Onex Corporation. value with significant other observable inputs (Level 2) is generally The fair value measurement of the Limited Partners’ determined by obtaining quoted market prices or dealer quotes Interests for the credit strategies is primarily driven by the under- for identical or similar instruments in inactive markets, or other lying fair value of the investments in the Onex Credit Funds inputs that are observable or can be corroborated by observable and OCLP I. market data. 168 Onex Corporation December 31, 2018 N O T E S T O C O N S 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, the MIP liability, and unrealized car- result in a recovery being recorded in the Limited Partners’ ried interest are primarily driven by the underlying fair value of the Interests line in the consolidated statements of earnings, with investments in the Onex Partners and ONCAP Funds. A change to a corresponding decrease to the Limited Partners’ Interests in reasonably possible alternative estimates and assumptions used the consolidated balance sheets; in the valuation of non-public investments in the Onex Partners iv) a charge may be recorded for the change in unrealized carried and ONCAP Funds may have a significant impact on the fair val- interest due to Onex and ONCAP management on the other ues calculated for these financial assets and liabilities. A change income (expense) line in the consolidated statements of earn- in the valuation of the underlying investments may have multiple ings, with a corresponding increase to other current or non- impacts on Onex’ consolidated financial statements and those current liabilities in the consolidated balance sheets; and impacts are dependent on the method of accounting used for that v) a change in the fair value of the vested investment rights held investment, the fund(s) within which that investment is held and under the MIP may result in a charge being recorded on the the progress of that investment in meeting the MIP exercise hur- stock-based compensation line in the consolidated statements dles. For example, an increase in the fair value of an investment in of earnings, with a corresponding increase to other current or an associate would have the following impacts on Onex’ consoli- non-current liabilities in the consolidated balance sheets. dated financial statements: i) an increase in the unrealized value of investments in joint Valuation methodologies may include observations of the trading ventures and associates at fair value in the consolidated state- multiples of public companies considered comparable to the pri- ments of earnings, with a corresponding increase in long- vate companies being valued and discounted cash flows. The fol- term investments in the consolidated balance sheets; lowing table presents the significant unobservable inputs used to ii) a charge would be recorded for the limited partners’ share of value the Company’s private securities that impact the valuation of the fair value increase of the investment in associate on the (i) investments in joint ventures and associates; (ii) unrealized car- Limited Partners’ Interests line in the consolidated statements ried interest liability due to Onex and ONCAP management; (iii) of earnings, with a corresponding increase to the Limited stock-based compensation liability for the MIP; and (iv) Limited Partners’ Interests in the consolidated balance sheets; Partners’ Interests. Valuation Technique Significant Unobservable Inputs Inputs at December 31, 2018 Inputs at December 31, 2017 Market comparable companies Adjusted EBITDA multiple Discounted cash flow Weighted average cost of capital Exit multiple 7.1x – 12.3x 11.3% – 18.5% 5.3x – 15.0x 7.5x – 11.3x 10.6% – 15.2% 6.5x – 12.5x In addition, at December 31, 2018 and December 31, 2017, the Com- tive instruments that no longer qualify for hedge accounting, pany had an investment that was valued using market compara- the impacts of purchase accounting and other similar amounts. ble transactions. At December 31, 2018, the Company also had an Adjusted EBITDA is a financial measurement that is not defined investment whose value was based on estimated sales proceeds. under IFRS. Generally, adjusted EBITDA represents earnings before interest, The long-term debt issued by the CLOs is recognized at fair value taxes, depreciation and amortization as well as other adjustments. using third-party pricing models without adjustments by the Other adjustments can include non-cash costs of stock-based Company. The valuation methodology is based on a projection of compensation and retention plans, transition and restructuring the future cash flows expected to be realized from the underlying expenses including severance payments, the impact of deriva- collateral of the CLOs. Onex Corporation December 31, 2018 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 3 2 . 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 included in the long-term investments line in the consolidated balance sheets con- sist 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, 2018, Onex, the parent company, had $866 of cash on hand and $573 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, $89 invested in an unlevered fund managed by Onex Credit and $205 in management fees receivable from limited partners of its private equity platforms. The short- and long-term investments have current Standard & Poor’s ratings ranging from BBB to AAA. The portfolio concentra- tion limits range from a maximum of 10% for BBB investments to 100% for AAA investments. Accounts receivable and contract assets are also subject to cred- it risk. Note 13(a) includes the aging of consolidated accounts receivable at December 31, 2018. 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 leases of the operating companies are disclosed in notes 14 and 15, respectively. Onex Corporation, the ultimate par- ent company, has no debt and does not guarantee the debt of the operating companies. Market risk Market risk is the risk that the future cash flows of a financial instrument will fluctuate due to changes in market prices. The Company is primarily exposed to fluctuations in the foreign cur- rency exchange rates associated with the Canadian and U.S. dollars, 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 currency fluctuations through natural hedges by transacting in local currencies. Interest rates The Company is exposed to changes in future cash flows as a result of changes in the interest rate environment. The parent company is exposed to interest rate changes primarily through its cash and cash equivalents, which are held in short-term term deposits and commercial paper. Assuming no significant chang- es in cash balances held by the parent company from those at December 31, 2018, a 0.25% increase (0.25% decrease) in the inter- est rate (including the Canadian and U.S. prime rates) would result in a minimal impact on annual interest income. As all of the Canadian dollar cash and cash equivalents at the parent company are accounted for at fair value through net earnings, there would be no effect on other comprehensive earnings. 170 Onex Corporation December 31, 2018 N O T E S T O C O N S 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, the parent company, has exposure to interest Regulatory risk rate risk primarily through its short- and long-term investments Certain of Onex’ operating companies and investment advisor managed by third-party investment managers. As interest rates affiliates may be subject to extensive government regulations and change, the fair values of fixed income investments are inversely oversight with respect to their business activities. Failure to comply impacted. Investments with shorter durations are less impacted with applicable regulations, obtain applicable regulatory approvals by changes in interest rates compared to investments with lon- or maintain those approvals may subject the applicable operating ger durations. At December 31, 2018, Onex’ short- and long-term company to civil penalties, suspension or withdrawal of any regu- investments included $216 of fixed income securities measured latory approval obtained, injunctions, operating restrictions and at fair value, which are subject to interest rate risk. These securi- criminal prosecutions and penalties, which could, individually or in ties had a weighted average duration of 1.4 years. Other factors, the aggregate, have a material adverse effect on Onex’ consolidated including general economic conditions and political conditions, financial position. may also affect the value of fixed income securities. These risks are monitored on an ongoing basis and the short- and long-term Capital disclosures investments may be repositioned in response to changes in mar- Onex considers the capital it manages to be the amounts it has ket conditions. in cash and cash equivalents, near-cash investments, short- and The operating companies’ results are also affected by long-term investments managed by third-party investment manag- changes in interest rates. A change in the interest rate (including ers and the investments made in the operating businesses, credit the LIBOR, EURIBOR and U.S. prime interest rate) may result in strategies and other investments. Onex also manages the capital of a change in interest expense being recorded due to the variable- other investors in the Onex Partners and ONCAP Funds, and credit rate portion of the long-term debt of the operating companies. At strategies. Onex’ objectives in managing capital are to: December 31, 2018, excluding credit strategies, approximately 39% • preserve a financially strong parent company with appropriate (2017 – 38%) of the operating companies’ long-term debt had a liquidity and no, or a limited amount of, debt so that funds are fixed interest rate or an interest rate that was effectively fixed by available to pursue new acquisitions and growth opportunities interest rate swap contracts. The long-term debt of the operating as well as support expansion of its existing businesses. Onex gen- companies is without recourse to Onex Corporation, the ultimate erally does not have the ability to draw cash from its operating parent company. Commodity risk businesses. Accordingly, maintaining adequate liquidity at the parent company is important; • achieve an appropriate return on capital invested commensu- Certain of Onex’ operating companies have exposure to com- rate with the level of assumed risk; modities. In particular, silver is a significant commodity used in • build the long-term value of its operating businesses; Carestream Health’s manufacturing of x-ray film. The company’s • control the risk associated with capital invested in any particu- management continually monitors movements and trends in the lar business or activity. All debt financing is within the operating silver market and enters into collar and forward agreements when companies and each operating company is required to support considered appropriate to mitigate some of the risk of future price its own debt. Onex Corporation does not guarantee the debt of fluctuations, generally for periods of up to a year. the operating businesses and there are no cross-guarantees of Resin and aluminum are significant commodities used debt between the operating businesses; and by SIG. The company generally purchases commodities at spot • have appropriate levels of committed limited partners’ capital market prices and actively uses derivative instruments to hedge the available to invest along with Onex’ capital. This allows Onex to exposure in relation to the cost of resin (and its components) and respond quickly to opportunities and pursue acquisitions of busi- aluminum. Due to this approach, the company has been able to nesses of a size it could not achieve using only its own capital. fix prices one year forward for approximately 80% of its expected The management of limited partners’ capital also provides man- resin and aluminum purchases, which substantially minimizes the agement fees to Onex and the ability to enhance Onex’ returns by exposure to price fluctuations of the commodities over that period. earning a carried interest on the profits of limited partners. Rod, polymers and synthetic fibres are significant com- modities used by WireCo in its manufacturing operations, in addi- tion to certain energy sources, principally electricity, natural gas and propane. The company monitors the cost of raw materials and passes along price increases and decreases to its customers accord- ingly. The company does not enter into commodity contracts to manage the exposure on forecasted purchases of raw materials. Onex Corporation December 31, 2018 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 A portion of Onex, the parent company’s, cash and cash equiva- The Company, which includes the operating companies, lents is managed by third-party investment managers. At Decem- has also provided certain indemnifications, including those related ber 31, 2018, the fair value of investments, including cash yet to be to businesses that have been sold. The maximum amounts from deployed, managed by third-party investment managers was $279. many of these indemnifications cannot be reasonably estimated at The investments are managed in a mix of short- and long-term this time. However, in certain circumstances, the Company and its portfolios. Short-term investments consist of liquid investments operating companies have recourse against other parties to miti- including money market instruments and commercial paper with gate the risk of loss from these indemnifications. original maturities of three months to one year. Long-term invest- The Company, which includes the operating companies, ments consist of securities that include money market instruments, has commitments with respect to operating leases, which are dis- federal and municipal debt instruments, corporate obligations and closed in note 15. structured products with maturities of one year to five years. The The aggregate commitments for capital assets at Decem- investments are managed to maintain an overall weighted average ber 31, 2018 amounted to $233, with the majority expected to be duration of two years or less. incurred between 2019 and 2020. At December 31, 2018, Onex had access to uncalled committed limited partner capital for acquisitions through Onex b) Legal contingencies Partners V ($5,387) and ONCAP IV ($330). Onex and its operating companies are or may become parties to legal, product liability and warranty claims arising in the ordinary The strategy for risk management of capital has not changed course of business. Certain operating companies, as conditions of significantly since December 31, 2017. acquisition agreements, have agreed to accept certain pre-acquisi- 3 3 . C O M M I T M E N T S A N D R E L AT E D PA R T Y T R A N S A C T I O N S a) Letters of credit, letters of guarantee and other commitments tion liability claims against the acquired companies. The operating companies have recorded provisions based on their consideration and analysis of their exposure in respect of such claims. Such provi- sions are reflected, as appropriate, in Onex’ consolidated financial statements, as described in note 13. Onex Corporation, the ultimate parent company, has not currently recorded any further provision Contingent liabilities in the form of letters of credit, letters of and does not believe that the resolution of known claims would guarantee and surety and performance bonds are primarily pro- reasonably be expected to have a material adverse impact on Onex’ vided by certain operating companies to various third parties consolidated financial position. However, the final outcome with and include certain bank guarantees. At December 31, 2018, the respect to outstanding, pending or future actions cannot be pre- amounts potentially payable in respect of these guarantees dicted with certainty, and therefore there can be no assurance that totalled $924. their resolution will not have an adverse effect on Onex’ consoli- In February 2017, Mr. Gerald W. Schwartz assumed $25 of dated financial position. Onex’ commitment to Incline Aviation Fund, reducing the amount committed by Onex to $50. At December 31, 2018, Onex’ uncalled c) Environmental contingencies commitment to Incline Aviation Fund was $31 (2017 – $45). The operating companies are subject to laws and regulations Meridian Aviation has entered into guarantees in rela- concerning the environment and to the risk of environmen- tion to aircraft financing transactions whereby the company would tal liability inherent in activities relating to their past and pres- be required to fulfill obligations to unrelated third-party lenders ent operations. As conditions of acquisition agreements, certain should certain conditions not be met, or if specified events occur. operating companies have agreed to accept certain pre-acquisi- The guarantees remain outstanding up until the guaranteed obliga- tion liability claims on the acquired companies after obtaining tions are repaid. The total amount guaranteed by Meridian Aviation indemnification from previous owners. at December 31, 2018 is $601 and no conditions have been broken The Company and its operating companies also have or specified events have occurred which would require Meridian insurance to cover costs incurred for certain environmental mat- Aviation to make payments under these guarantees. ters. Although the effect on operating results and liquidity, if any, cannot be reasonably estimated, management of Onex and the operating companies believe, based on current information, that these environmental matters would not reasonably be expected to have a material adverse effect on the Company’s consolidated financial condition. 172 Onex Corporation December 31, 2018 N O T E S T O C O N S O L I D AT E D F I N A N C I A L S TAT E M E N T S d) Management Investment Plan Under the terms of the MIP, management members of the Com- the 1.5% Onex investment requirement under the MIP. The invest- ment rights to acquire the remaining 5⁄6ths vest equally over six pany invest in all of the operating entities acquired or invested in years, with the investment rights vesting in full if the Company by the Company. disposes of all of an investment before the seventh year. Under The aggregate investment by management members the MIP, the investment rights related to a particular acquisition 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%) are exercisable only if the Company realizes in cash the full return of its investment and earns a minimum 15% internal rate of return 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 for the investment after giving effect to the investment rights. Realizations under the MIP distributed in 2018 were $22 same price. Amounts invested under the minimum investment (2017 – $34). requirement in Onex Partners’ transactions are allocated to meet e) Commitments to Onex Partners Funds Onex Partners I, Onex Partners II, Onex Partners III, Onex Partners IV and Onex Partners V (the “Onex Partners Funds”) were established to provide committed capital for Onex-sponsored acquisitions not related to Onex’ operating companies at December 31, 2003 or ONCAP. Onex controls the General Partner and Manager of the Onex Partners Funds. The following tables provide information on the establish- ment, commitments and management fees of the Onex Partners Funds: Onex Partners I Onex Partners II Close Date February 2004 August 2006 Onex Partners III December 2009 Onex Partners IV May 2014 Onex Partners V November 2017 Total Commitments(i) Onex Commitment $ 1,655 $ 3,450 $ 4,700 $ 5,660 $ 7,150 $ 400 $ 1,407 $ 1,200 $ 1,700(iv) $ 2,000 Basis of management fee(ii) n/a(iii) Net funded commitments Net funded commitments Net funded commitments Capital committed(v) Management fee rate (ii) n/a (iii) 1.0% 1.0% 1.0% 1.7% (v) (i) Represents total commitments as at December 31, 2018 and excludes any additional commitments made by the General Partners of the Onex Partners Funds above their minimum commitments to the funds. (ii) Represents management fees charged by the Onex Partners Funds as at December 31, 2018. (iii) Management fees are no longer earned from Onex Partners I. (iv) Onex’ commitment does not include the additional commitment which was acquired by Onex from a limited partner in 2017. (v) The annual management fee is reduced to 1% of the net funded commitments at the earlier of the end of the commitment period or when Onex accrues or receives management fees in respect of a successor fund. Beginning in November 2028, the management fee will be reduced to 0.5% of the net funded commitments. Beginning in November 2029, no management fee will be payable unless approved in accordance with the terms of the partnership agreement. As at December 31 2018 2017 Total Commitments Invested(i) Onex Commitment Invested(i) Total Remaining Commitments(ii) Onex Remaining Commitment(iii) Total Commitments Invested(i) Onex Commitment Invested(i) Total Remaining Commitments(ii) Onex Remaining Commitment (iii) Onex Partners I Onex Partners II Onex Partners III Onex Partners IV Onex Partners V(v) $ 1,475 $ 2,944 $ 4,215 $ 5,390 $ 111 $ 346 $ 1,164 $ 929 $ 1,670 $ 30 $ $ $ $ 84 399 442 376 $ $ $ $ 20 158 106 121 $ 7,352 $ 1,965 $ 1,475 $ 2,944 $ 4,215 $ 3,789 $ – $ 346 $ 1,164 $ 929 $ 1,152 $ – $ $ $ 84 399 465 $ 1,382(iv) $ 7,313 $ $ $ $ 20 158 112 461 (iv) $ 2,000 (i) Amounts include capitalized acquisition costs and bridge financing, where applicable. (ii) Includes committed amounts from Onex, management of Onex and directors based on the assumption that all remaining limited partners’ commitments are invested. (iii) Onex’ remaining commitment is calculated based on the assumption that all remaining limited partners’ commitments are invested. (iv) Remaining commitments are adjusted for the acquisition of SMG, which closed in January 2018. (v) Amounts are presented after giving effect to borrowings under the revolving credit facility, as described in note 14(u). Onex Corporation December 31, 2018 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 remaining commitments for Onex Partners I and Onex Part- Carried interest is received on the overall gains achieved ners II are for funding partnership expenses. The remaining com- by the Onex Partners Funds investors, other than Onex and Onex mitments for Onex Partners III are for possible future funding of management, to the extent of 20% of the gains, provided that those a remaining business and future funding of management fees investors have achieved a minimum 8% return on their investment and partnership expenses. The remaining commitments for Onex in the individual Onex Partners Funds over the life of the funds. Partners IV are for possible future funding of remaining busi- The investment by investors for this purpose takes into consider- nesses and future funding of management fees and partnership ation management fees and expenses paid by the investors. expenses. The remaining commitments for Onex Partners V are The returns to the investors, other than Onex and primarily for funding future Onex-sponsored investments. Onex management, are based on all investments made through Onex management has committed, as a group, to the respective funds, with the result that the initial carried inter- invest a minimum percentage in each of the Onex Partners est achieved by Onex on gains could be recovered from Onex if Funds. The minimum commitment to Onex Partners V for Onex subsequent investments do not exceed the overall target return management is 2%, which may be adjusted annually to a maxi- of 8%. Onex is allocated 40% of the Onex Partners Funds carried mum of 10%. At December 31, 2018, Onex management and interest, with 60% allocated to Onex management. Carried inter- directors have committed 4% to Onex Partners V for new invest- est received from Onex Partners I, Onex Partners II and Onex ments completed in 2019. The original amount invested at cost in Partners III has fully vested for Onex management. Carried inter- the Onex Partners Funds’ remaining investments by Onex man- est received from Onex Partners IV and Onex Partners V for man- agement and directors at December 31, 2018 was $513 (2017 – agement will vest equally over six years from August 2014 and $402), of which $112 (2017 – $18) was invested in the year ended November 2018, respectively. Carried interest received by Onex December 31, 2018, including bridge financing where applicable. from the Onex Partners Funds for the year ended December 31, 2018 was $8 (2017 – $121), while Onex management received car- ried interest of $13 (2017 – $181). f) Commitments to ONCAP Funds ONCAP II, ONCAP III and ONCAP IV (the “ONCAP Funds”) were established to provide committed capital for acquisitions of small and medium-sized businesses. Onex controls the General Partner and Manager of the ONCAP Funds. The following tables provide information on the establishment, commitments and management fees of the ONCAP Funds: ONCAP II ONCAP III ONCAP IV Close Date May 2006 September 2011 November 2016 Total Commitments(i) Onex Commitment C$ C$ 574 800 $ 1,107 C$ 252 C$ 252 $ 480 Basis of management fee(ii) Net investment Net funded commitments Capital committed(iii) Management fee rate (ii) 2.0% 1.5% 2.0% (iii) (i) Represents total commitments as at December 31, 2018 and excludes any additional commitments made by the General Partners of the ONCAP Funds above their minimum commitments to the funds. (ii) Represents management fees charged by the ONCAP Funds as at December 31, 2018. (iii) The annual management fee is reduced to 1.5% of the net funded commitments at the earlier of the end of the commitment period or when Onex receives management fees in respect of a successor ONCAP Fund. Beginning in December 2028, no management fee will be payable unless approved in accordance with the terms of the partnership agreement. As at December 31 2018 2017 Total Commitments Invested(i) Onex Commitment Invested(i) Total Remaining Commitments(ii) Onex Remaining Commitment(iii) Total Commitments Invested(i) Onex Commitment Invested(i) Total Remaining Commitments(ii) Onex Remaining Commitment (iii) ONCAP II ONCAP III ONCAP IV C$ 483 C$ 632 $ 595 C$ 221 C$ 186 $ 234 C$ 3 C$ 100 $ 548 C$ 1 C$ 30 $ 218 C$ 483 C$ 632 $ 282 C$ 221 C$ 186 $ 111 C$ 3 C$ 122 $ 922(iv) C$ 1 C$ 36 $ 367 (iv) (i) Amounts include capitalized acquisition costs and bridge financing, where applicable. (ii) Includes committed amounts from Onex, management of Onex and ONCAP, and directors based on the assumption that all remaining limited partners’ commitments are invested. (iii) Onex’ remaining commitment is calculated based on the assumption that all remaining limited partners’ commitments are invested. (iv) Remaining commitments are adjusted for the acquisition of Laces. The capital for Laces was called in January 2018. 174 Onex Corporation December 31, 2018 N O T E S T O C O N S 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 remaining commitments for ONCAP II are for future fund- g) OCLP I ing of partnership expenses. The remaining commitments for In November 2018, Onex completed the final closing for OCLP I, ONCAP III are for possible future funding of remaining businesses as described in note 2(u). OCLP I provides committed capital for and future funding of management fees and partnership expens- investments in senior secured loans and other loan investments es. The remaining commitments for ONCAP IV are primarily for in middle-market, upper middle-market and large private equity funding of future Onex-sponsored investments. sponsor-owned portfolio companies and, selectively, other cor- ONCAP management has committed, as a group, to invest porate borrowers. As at December 31, 2018, $166 (2017 – $55) has a minimum percentage in each of the ONCAP Funds. The minimum been called of the total capital committed. Onex has invested $46 commitment to ONCAP IV for ONCAP management is 2%. The com- (2017 – $18) of its $100 commitment. Onex controls the General mitment from management of Onex and ONCAP and directors may Partner and Manager of OCLP I. The Onex management team has be increased to a maximum of 10% of ONCAP IV. At December 31, committed, as a group, to invest $75 in OCLP I. The total amount 2018, management of Onex and ONCAP and direc tors have commit- invested at cost in OCLP I by the Onex management team at ted 8% to ONCAP IV for new investments completed in 2019. The December 31, 2018 was $34 (2017 – $7), of which $27 was invested original amount invested at cost in the ONCAP Funds’ remaining in the year ended December 31, 2018 (2017 – $7). A portion of the investments by management of Onex and ONCAP and directors at remaining unfunded commitments will be used to repay borrow- December 31, 2018 was $113 (2017 – $104), of which $33 was invested ings under the revolving credit facility. in the year ended December 31, 2018 (2017 – $23). Carried interest is received on the overall gains achieved h) Management investment in Onex Credit by the ONCAP Funds investors, other than management of The Onex management team may invest in strategies managed by ONCAP, to the extent of 20% of the gains, provided that those Onex Credit. At December 31, 2018, investments at market held by investors have achieved a minimum 8% return on their invest- the Onex management team in Onex Credit strategies were approx- ment in the individual ONCAP Funds over the life of the funds. imately $325 (2017 – $355), including investments made in OCLP I. Once the ONCAP IV investors achieve a return of two times their aggregate capital contributions, carried interest participation i) Management and Directors’ investment in increases to 25% of the overall gains for the ONCAP IV fund. The Incline Aviation Fund investment by investors in the ONCAP Funds for this purpose In February 2017, the Onex management team increased its com- takes into consideration management fees and expenses paid by mitment to invest in Incline Aviation Fund to $40, which includes the investors. the $25 commitment by Mr. Gerald W. Schwartz, as described in The returns to the investors, other than management of note 33(a). ONCAP, are based on all investments made through the respec- At December 31, 2018, the total amount invested by tive funds, with the result that the initial carried interest achieved the Onex management team in Incline Aviation Fund at cost, by ONCAP on gains from investments made by ONCAP II and including the amounts invested under the minimum investment ONCAP III could be recovered if subsequent investments do not requirement of the MIP, was $14 (2017 – $2). exceed the overall target return of 8%. For ONCAP IV, the initial carried interest achieved by ONCAP on gains could be recovered j) Management reinvestment of MIP and carried interest if subsequent investments do not exceed the lesser of the overall Members of Onex management are required to reinvest 25% of target return level of 8% and two times the aggregate capital con- the proceeds received related to their share of the MIP investment tributions by limited partners of the fund. Onex is allocated 40% rights and carried interest to acquire Onex SVS in the market and/ of the carried interest realized on limited partners’ capital in the or management DSUs until they individually own at least one mil- ONCAP Funds. ONCAP management is allocated 60% of the car- lion Onex SVS and/or management DSUs. During 2018, Onex man- ried interest on limited partners’ and Onex capital. Carried interest agement reinvested C$5 (2017 – C$33) to acquire Onex SVS and/or received from ONCAP II and ONCAP III has fully vested for ONCAP management DSUs. management. Carried interest received from ONCAP IV will vest equally over five years ending November 2021 for ONCAP manage- ment. Carried interest received by Onex from the ONCAP Funds for the year ended December 31, 2018 was $29 (2017 – $2), while ONCAP management received carried interest of $77 (2017 – $5). Onex Corporation December 31, 2018 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 k) Onex Credit management fees m) Private share repurchase Onex Credit earns management fees on other investors’ capital. In May 2018, Onex repurchased in a private transaction 500,000 Management fees earned on the capital invested by Onex, the (March 2017 – 750,000) of its SVS that were held indirectly by Mr. parent company, are eliminated in the consolidated financial Gerald W. Schwartz. The private transaction was approved by the statements. disinterested directors of the Board of Directors of the Company. In addition, Onex Credit is entitled to incentive fees The shares were repurchased at a cash cost of $72.23 (C$93.00) on certain other investors’ capital. Incentive fees range between (2017 – $71.24 (C$94.98)) per share or a total cost of $36 (C$47) 15% and 20%. Certain incentive fees (including incentive fees on (2017 – $53 (C$71)), which represents a slight discount to the trad- CLOs) are subject to a hurdle or minimum preferred return to ing price of Onex shares at that date. investors. During the year ended December 31, 2018, gross man- n) Celestica real property sale agement and incentive fees earned by the credit strategies seg- In July 2015, Celestica entered into an agreement of purchase and ment were $50 and nil (2017 – $43 and $2), respectively, including sale to sell certain of its real property to a special-purpose entity to management and incentive fees from Onex Credit Funds, Onex be formed by a consortium of real estate developers (the “Property Credit Lending Partners and CLOs consolidated by Onex. The Purchaser”). Mr. Gerald W. Schwartz, who is Onex’ controlling management and incentive fees from Onex Credit Funds, Onex shareholder and who was a director of Celestica until December 31, Credit Lending Partners and CLOs consolidated by Onex, the par- 2016, has an indirect interest in the Property Purchaser. ent company, were $47 and nil (2017 – $39 and $2). Credit strate- In September 2018, the agreement of purchase and sale gies segment revenues for 2018, net of management and incentive was assigned to a new purchaser who is unrelated to the Property fees from Onex Credit Funds, Onex Credit Lending Partners and Purchaser, Celestica or Onex. The Property Purchaser may be CLOs consolidated by Onex, were $3 (2017 – $4). granted an option to retain a minimal interest in the transaction, subject to certain terms and conditions. l) Tax loss transactions with a related party During 2018 and 2017, Onex entered into the sale of entities, the o) Remuneration to key management sole assets of which were certain tax losses, to companies con- The Company’s key management consists of the senior execu- trolled by Mr. Gerald W. Schwartz, who is Onex’ controlling share- tives of Onex, ONCAP, Onex Credit and its operating companies. holder. Onex has significant non-capital and capital losses avail- Also included are the Directors of Onex Corporation. Carried able; however, Onex does not expect to generate sufficient taxable interest and MIP payments to former senior executives of Onex income to fully utilize these losses in the foreseeable future. As and ONCAP are excluded from the aggregate payments below. such, no benefit has been recognized in the consolidated financial Aggregate payments to the Company’s key management were statements for these losses. In connection with these transactions, as follows: an independent accounting firm retained by Onex’ Audit and Corporate Governance Committee provided opinions that the val- Year ended December 31 2018 2017 ues received by Onex for the tax losses were fair from a financial Short-term employee benefits point of view. Onex’ Audit and Corporate Governance Committee, and costs all the members of which are independent Directors, unanimously Share-based payments(i) approved the transactions. The following transactions were com- Termination benefits pleted during 2018 and 2017: Post-employment benefits • In 2018, Onex received $4 in cash for tax losses of $41. The Other long-term benefits entire $4 was recorded as a gain and included in other income Total (expense) in the consolidated statements of earnings. $ 110 100 5 2 1 $ 167 236 6 2 – $ 218 $ 411 • In 2017, Onex received $5 in cash for tax losses of $48. The (i) Share-based payments include $29 (2017 – $24) paid on the exercise of Onex entire $5 was recorded as a gain and included in other income (expense) in the consolidated statements of earnings. stock options (note 20), $10 (2017 – $148) of carried interest paid to Onex management and $16 (2017 – $26) of amounts paid under the MIP to Onex management. During 2018, Onex, the parent company, received carried interest of $37 (2017 – $121). 176 Onex Corporation December 31, 2018 N O T E S T O C O N S 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 life expectancy will result in an increase in benefit obligations. The total costs during 2018 for defined contribution pension plans and multi-employer plans were $88 (2017 – $84). 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 2018, and the next required valuations will be in 2019. The Company estimates that in 2019 the minimum funding requirement for the defined benefit pension plans will be $10. In 2018, 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 $114 (2017 – $108). Included in the total was $2 (2017 – $6) contributed to multi- employer plans. 3 4 . 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 increase 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, 2018 177 N O T E S T O C O N S O L I D AT E D F I N A N C I A L S TAT E M E N T S 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 2018 2017 2018 2017 2018 2017 Accrued benefit obligations: Opening benefit obligations Current service cost Interest cost Contributions by plan participants Benefits paid Actuarial (gain) loss from demographic assumptions Actuarial (gain) loss from financial assumptions Foreign currency exchange rate changes Acquisition of subsidiaries Disposition of subsidiaries Operating company no longer under control Plan amendments Settlements/curtailments Reclassification of plans Other $ 877 $ 848 $ 450 $ 737 $ 84 $ 74 6 5 2 (29) (6) (4) (9) − − – – – (312) – 7 12 2 (42) 13 2 58 − − (12) (12) − − 1 10 15 – (29) 1 (34) (33) 8 – – (2) – 312 4 9 7 – (13) – 1 34 106 (14) (425) (6) − − 14 3 3 – (3) – (3) (5) 8 – – (1) (1) – (2) 2 3 – (4) – 3 5 – – – (2) – – 3 Closing benefit obligations $ 530 $ 877 $ 702 $ 450 $ 83 $ 84 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 Reclassification of plans Other Closing plan assets $ 1,106 $ 1,053 6 (16) 2 2 (29) (10) – − – – (370) (1) 15 34 2 2 (42) 70 – − (14) (12) − (2) $ 169 11 (86) 14 1 (29) (23) 4 – – – 370 (2) $ 365 $ − $ − 2 2 11 – (12) 7 87 (1) (296) (1) – 5 – – 2 – (2) – – – – (3) – 3 – – 2 – (2) – – – – (2) – 2 $ 690 $ 1,106 $ 429 $ 169 $ – $ – 178 Onex Corporation December 31, 2018 Asset Category Quoted Market Prices: Equity investment funds Debt 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 2018 18% 26% 2% 6% 16% 2% 30% 2017 17% 41% 2% 5% 14% 2% 19% 100% 100% Equity securities do not include direct investments in the shares of the Company or its subsidiaries, but may be invested indirectly as a result of the inclusion of the Company’s and its subsidiaries’ shares in certain market investment funds. The funded status of the plans of the operating companies was as follows: As at December 31 Deferred benefit amount: Plan assets, at fair value Accrued benefit obligation Plan surplus (deficit) Valuation allowance Pension Plans in which Assets Exceed Accumulated Benefits Pension Plans in which Accumulated Benefits Exceed Assets Non-Pension Post-Retirement Benefits 2018 2017 2018 2017 2018 2017 $ 690 $ 1,106 $ 429 $ 169 $ – $ – (530) 160 (8) (877) 229 (9) (702) (273) – (450) (281) – (83) (83) – (84) (84) – Deferred benefit amount – asset (liability) $ 152 $ 220 $ (273) $ (281) $ (83) $ (84) The deferred benefit asset of $152 (2017 – $220) is included in the Company’s consolidated balance sheets within other non-current assets (note 11). The total deferred benefit liabilities of $356 (2017 – $365) 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 (2017 – $1) was recorded as a current liability. The following assumptions were used to account for the plans: Year ended December 31 Accrued benefit obligation Weighted average discount rate(i) Weighted average rate of compensation increase Pension Benefits Non-Pension Post-Retirement Benefits 2018 2017 2018 2017 0.5%−3.7% 0.5%−4.2% 0.6%−3.5% 1.0%−4.0% 3.8% 4.6% (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 2018 5.7% 4.0% 2040 3.6% 4.6% 2017 5.8% 4.5% 2030 Onex Corporation December 31, 2018 179 N O T E S T O C O N S O L I D AT E D F I N A N C I A L S TAT E M E N T S The assumptions underlying the discount rates, rates of compensation increase and healthcare cost trend rates have a significant effect on the amounts reported for the pension and post-retirement benefit plans. A 1% change in these assumed rates would increase (decrease) the benefit obligations as follows: Pension Plans in which Assets Exceed Accumulated Benefits Pension Plans in which Accumulated Benefits Exceed Assets Non-Pension Post-Retirement Benefits As at December 31, 2018 1% Increase 1% Decrease 1% Increase 1% Decrease 1% Increase 1% Decrease Discount rate Rate of compensation increase Healthcare cost trend rate $ (16) $ 3 n/a $ 24 $ (2) n/a $ (100) $ 15 n/a $ 121 $ (13) n/a $ (8) $ 2 $ 6 $ 10 $ (2) $ (5) 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) The sensitivity analysis above is based on changing one assump- 3 6 . I N F O R M AT I O N B Y I N D U S T R Y S E G M E N T tion while holding all other assumptions constant. In practice, this is unlikely to occur, and changes in certain assumptions may be correlated. When calculating the sensitivity of the defined benefit obligation to changes in significant actuarial assumptions, the same method used for calculating the benefit obligation liabilities in the consolidated financial statements has been applied. 3 5 . S U B S E Q U E N T E V E N T S a) Pending merger of Clarivate Analytics with Churchill In January 2019, Clarivate Analytics entered into an agreement to merge with Churchill, as described in note 2(r). b) Pending merger of SMG with AEG Facilities In February 2019, SMG entered into an agreement to merge with AEG Facilities, as described in note 2(s). Onex’ reportable segments operate through autonomous compa- nies and strategic partnerships. Operating companies are aggre- gated into one reportable segment based on the nature of the products and services, production process, customer base, distri- bution model and regulatory environment at the operating com- panies, as well as key financial metrics such as gross margin and projected long-term revenue growth. The Company had eight reportable segments in 2018 (2017 – nine). In December 2018, the Company entered into an agreement to sell BrightSpring Health, as described in note 2(q). The results of operations of BrightSpring Health, which were pre- viously included in the health and human services segment, are presented in the other segment as a discontinued operation. 180 Onex Corporation December 31, 2018 N O T E S T O C O N S 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, 2018 consisted of: Electronics Manufacturing Services • Celestica, a global provider of electronics manufacturing services. Healthcare Imaging Insurance Services • • Carestream Health, a global provider of medical and dental imaging and healthcare information technology solutions. York, an integrated provider of insurance solutions to property, casualty and workers’ compensation specialty markets primarily in the United States. Packaging Products and Services • IntraPac (since December 2017), a designer and manufacturer of specialty rigid packaging solutions. • Precision (since August 2018), a global manufacturer of dispensing solutions. Business and Information Services Food Retail and Restaurants Credit Strategies Other • • • • • • • • • • • • • • • • • • • • 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. Clarivate Analytics, owner and operator of a collection of leading subscription-based businesses focused on scientific and academic research, patent analytics and regulatory standards, pharmaceutical and biotech intelligence, trademark protection, domain brand protection and intellectual property management. Emerald Expositions, a leading operator of business-to-business trade shows in the United States. SMG (since January 2018), a leading global manager of convention centres, stadiums, arenas, theatres, performing arts centres and other venues. Jack’s, a regional premium quick-service restaurant operator based in the United States. Save-A-Lot, one of the largest hard-discount grocery retailers for value-seeking shoppers in the United States. Onex Credit Manager specializes in managing non-investment grade debt. 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 and Private Lending, providing exposure to the performance of actively managed, diversified portfolios. Private Lending, primarily consisting of 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. KidsFoundation (since November 2018), a leading childcare provider in the Netherlands. Meridian Aviation, an aircraft investment company managed by BBAM and established by Onex Partners III. Parkdean Resorts (since March 2017), a leading operator of caravan holiday parks in the United Kingdom. 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. WireCo, a leading global manufacturer of mission-critical steel wire rope, synthetic rope, specialty wire and engineered products. Operating companies of ONCAP II: EnGlobe, Pinnacle Renewable Energy and PURE Canadian Gaming. Operating companies of ONCAP III: Hopkins, PURE Canadian Gaming, Davis-Standard, Bradshaw, Venanpri Group, Chatters and Tecta (up to November 2018). Operating companies of ONCAP IV: Tecta (up to November 2018), Laces (since December 2017), AutoSource (since May 2018), Walter (since September 2018) and Wyse (since November 2018). The other segment excludes IntraPac and Precision, which are included in the packaging products and services reportable 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, a dedicated manager of leased aircraft. Incline Aviation Fund, 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. 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. Pinnacle Renewable Energy, a leading wood pellet producer in Western Canada. PowerSchool (since August 2018), a leading education technology platform for K-12 schools. Ryan (since October 2018), a leading global tax services and software provider with an integrated suite of federal, state, local and international tax services, and the largest firm in the world dedicated exclusively to business taxes. Wyse (since November 2018), a leading provider of innovative submetering and utility expense management solutions for the multi-residential, condominium and commercial markets in Canada. • 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: BrightSpring Health (up to December 2018), USI (up to May 2017) and JELD-WEN (up to May 2017). Onex Corporation December 31, 2018 181 N O T E S T O C O N S 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 number of operating companies, by the nature of their businesses, individually serve major customers that account for a large portion of their revenues. During 2018 and 2017, no customers represented more than 10% of the Company’s consolidated revenues. 2018 Industry Segments Electronics Manufacturing Services Healthcare Imaging 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 Decrease in value of investments in joint ventures and associates at fair value, net Stock-based compensation recovery (expense) Other gains Other expense Impairment of goodwill, intangible assets and long-lived assets, net Limited Partners’ Interests recovery (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) $ 6,633 $ 1,601 $ 793 $ 2,776 $ 1,647 $ 4,467 $ 3 $ 5,865 $ 23,785 (6,117) (226) 1 (74) (15) (26) – (33) – (61) – – 82 17 99 – 99 14 85 99 $ $ $ (959) (424) 4 (62) (25) (98) – (4) – (74) – – (41) (18) (59) – (59) (52) (7) (59) $ $ $ – (700) – (9) (47) (74) – (4) – – – – (41) (9) (50) – (50) (44) (6) (50) $ $ $ (1,839) (328) 2 (238) (163) (307) – (2) – (65) (52) – (216) (4) (220) – (699) (518) – (14) (318) (201) – (23) – (96) (39) – (261) (3) (264) – (3,838) (597) 1 (87) (18) (85) – (7) – (8) (150) – (322) (49) (371) – $ (220) $ (264) $ (371) $ $ (163) (57) $ (197) (67) $ (372) 1 $ (220) $ (264) $ (371) $ $ – (49) 499 – (5) (324) – – – (206) – (1) (83) – (83) – (83) (83) – (83) (4,111) (1,235) 31 (159) (153) (324) (17,563) (4,077) 538 (643) (744) (1,439) (585) 131 343 (7) (386) 715 125 (23) 102 50 152 234 (82) 152 $ $ $ (585) 58 343 (517) (627) 714 (757) (89) (846) 50 (796) (663) (133) (796) $ $ $ (in millions of U.S. dollars) As at December 31, 2018 Total assets Long-term debt(b) Property, plant and equipment additions(c) Intangible assets with indefinite life Goodwill additions from acquisitions(c) Goodwill Electronics Manufacturing Services $ 3,738 $ $ $ $ $ 747 88 – 175 198 Healthcare Imaging Insurance Services Packaging Products and Services Business and Information Services Food Retail and Restaurants Credit Strategies Other Consolidated Total $ 1,192 $ 1,149 $ $ $ $ 41 8 – 227 $ 1,487 $ $ $ $ $ 950 6 148 1 615 $ 6,771 $ 2,762 $ $ $ 299 438 86 $ 6,526 $ 3,088 $ $ $ 14 308 433 $ 2,278 $ 2,685 $ 1,784 $ 10,247 $ 13,672 $ $ $ $ $ 953 81 436 – 230 $ 8,420 $ 4,275 $ $ $ $ 3 – – $ $ $ 189 421 556 62 $ 1,918 $ 45,417 $ 22,344 $ 721 $ 1,759 $ 1,251 $ 8,213 (a) Represents the after-tax results of BrightSpring Health (up to December 2018), as described in note 8. (b) Includes the current portion of long-term debt, excludes finance leases and is net of financing charges. (c) Amounts for 2018 include BrightSpring Health (up to December 2018), which is a discontinued operation, as described in note 8. 182 Onex Corporation December 31, 2018 N O T E S T O C O N S 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 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 Increase in value of investments in joint ventures and associates at fair value, net Stock-based compensation expense Other gain 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) $ 6,143 $ 1,862 $ 775 $ 2,395 $ 1,262 $ 4,724 $ 4 $ 5,602 $ 22,767 (5,645) (209) 2 (68) (9) (12) (1,068) (507) 2 (62) (47) (145) – (30) – (39) – – 133 (27) 106 – 106 14 92 106 $ $ $ – (4) 731 (9) – – 753 (61) 692 – 692 630 62 692 $ $ $ – (696) – (6) (46) (72) – (3) – (3) – – (51) 60 9 – 9 7 2 9 $ $ $ (1,528) (302) 2 (199) (150) (223) – (1) – (107) (2) – (115) 18 (97) – (97) (517) (414) – (8) (253) (176) – (20) – (77) (7) – (210) 48 (162) – $ (162) (98) 1 (97) $ $ (114) (48) (162) $ $ $ (3,984) (572) 1 (105) (18) (82) – (6) – (69) (5) – (116) 32 (84) – (84) (85) 1 (84) $ $ $ $ $ $ – (64) 346 – (5) (211) – – – (111) – (20) (61) – (61) – (61) (61) – (61) (3,882) (1,139) 23 (164) (134) (270) 760 (111) – (288) (165) (1,330) (1,098) (4) (1,102) 3,103 (16,624) (3,903) 376 (612) (662) (1,191) 760 (175) 731 (703) (179) (1,350) (765) 66 (699) 3,103 $ 2,001 $ 2,404 $ $ 2,108 (107) 2,001 $ $ 2,401 3 2,404 (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 $ 2,964 $ $ $ $ $ 187 95 − − 23 Healthcare Imaging Insurance Services Packaging Products and Services Business and Information Services Food Retail and Restaurants Credit Strategies Other Consolidated Total $ 1,321 $ 1,132 $ $ $ $ 64 8 – 227 $ 1,524 $ $ $ $ $ 939 6 148 1 616 $ 6,808 $ 3,770 $ $ $ 269 443 − $ 5,656 $ 2,566 $ $ $ 8 458 72 $ 2,327 $ 2,304 $ 2,094 $ 10,048 $ 14,281 $ $ $ $ $ 943 48 436 − 230 $ 7,877 $ 4,635 $ $ $ $ 1 − − $ $ $ 261 564 495 62 $ 2,434 $ 44,696 $ 22,049 $ $ $ $ 752 2,057 568 8,223 (a) Represents the after-tax results of BrightSpring Health, 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 BrightSpring Health, JELD-WEN (up to May 2017) and USI (up to May 2017), which are discontinued operations, as described in note 8. Geographic Segments Canada U.S. Europe 2018 Asia and Oceania Other(a) Total Canada U.S. Europe Asia and Oceania Other(a) Total 2017 $ 932 $ 12,608 $ 4,033 $ 4,737 $ 1,475 $ 23,785 $ 778 $ 12,287 $ 3,655 $ 4,567 $ 1,480 $ 22,767 Revenue(b) Property, plant and equipment(c) $ 205 $ 1,017 $ 2,515 $ 888 Intangible assets(c) $ 580 $ 3,856 $ 3,323 $ 171 Goodwill(c) $ 377 $ 5,132 $ 1,935 $ 606 $ $ $ 288 $ 4,913 $ 389 $ 1,226 $ 2,589 118 163 $ 8,048 $ 508 $ 3,489 $ 3,580 $ 8,213 $ 357 $ 4,982 $ 2,079 $ $ $ 779 170 658 $ $ $ 343 140 147 $ 5,326 $ 7,887 $ 8,223 (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 2018 exclude BrightSpring Health, which is a discontinued operation, as described in note 8. Onex Corporation December 31, 2018 183 SHAREHOLDER INFORMATION Year-End Closing Share Price As at December 31 (in Canadian dollars) 2018 2017 2016 2015 2014 Toronto Stock Exchange $ 74.35 $ 92.19 $ 91.38 $ 84.82 $ 67.46 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 Auditor 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, 2018, 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$0.35 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 shareholders should contact Onex’ share Investor Relations Contact Onex Corporation’s Annual Meeting of Shareholders will be held on May 9, 2019 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 184 Onex Corporation December 31, 2018