OncoCyte Annual Report 2019

Plain-text annual report

2019 Annual Report CHAIRMAN’S LETTER Dear Shareholders, The year just past was an active and productive one for Onex. Our private equity platforms invested $2.7 billion. Of that amount, $1.1 billion came from our limited partners, about $470 million from Onex Corporation and $1.2 bil- lion from certain other investors. The most notable investments were the acquisition of WestJet, Canada’s second larg- est airline, and the launch of Convex, a specialty insurance provider being built with top industry entrepreneurs. The unusually high amount of capital from investors outside our funds stemmed from various motivations and highlights the strong partnerships we’ve built with our investors. We were even more active with private equity realizations, with the Onex Group total coming in at $3.7 billion – the second-largest amount in our history. Onex Corporation’s share was $1.2 billion. Contributing to the great year were the sales of Jack’s Family Restaurants and BrightSpring Health and secondary share sales of Clarivate Analytics and SIG Combibloc. Together with the increase in value of our unrealized investments, the gross value of Onex’ private equity investments climbed 21% in 2019. We also made an important strategic acquisition. In June, we acquired Gluskin Sheff + Associates Inc. (“Gluskin Sheff”), Canada’s pre-eminent wealth management ﬁrm. Our goal is to build a comprehensive wealth manager with institutional-calibre public and private market strategies, and best-in-class ﬁnancial planning offerings tailored to sophisticated high net worth clients. Our new partners at Gluskin Sheff are just beginning to introduce their clients to the beneﬁts of being part of the Onex family, but we’re already excited by the prospects. A growing number of high net worth investors and family ofﬁces want both publicly traded and private market investment opportunities. The combination of Gluskin Sheff with Onex creates one of the few platforms in North America fully capable of meeting that market demand. Gluskin Sheff ﬁnished the year with C$8.3 billion of fee-generating client capital, an increase of approximately 2% since our acquisition. Our private credit platform grew fee-generating assets under management by 16% to $10.5 billion in 2019. This was driven by the issuance of three collateralized loan obligations and the introduction of Senior Credit funds to Gluskin Sheff clients in September. We have also begun to add to our direct origination capabilities in middle-market lending in anticipation of the launch of Onex Credit’s second direct lending fund. Lastly, we’ve made good progress to further integrate environmental, social and governance (“ESG”) considerations across the organization. In 2019 we established an ESG Committee, comprised of representatives from all Onex plat- forms and our corporate ofﬁce, which is focused on enhancing the ﬁrm’s holistic approach to ESG. We also became an Alliance Member of the Sustainability Accounting Standards Board (“SASB”) and are incorporating SASB standards throughout the investing lifecycle. These steps do not mark a change in how we do business or our view as to the importance of responsible investing, but rather are formal acknowledgements of the standards we’ve always believed are fundamental to successful investing. At Onex, we pride ourselves on the strength of our team, our successful long-term track record, our entrepreneurial culture and our strong partnerships. As I hope all of you know, alignment between Onex, our team and our sharehold- ers is core to our culture and critical to our success. This is evidenced by the Onex management team’s $1.9 billion investment in Onex shares, DSUs and various Onex funds. Overall, 2019 was a good year for Onex. As we enter a new decade, we’d like to thank you – whether you’ve been with us throughout the past 10 years or are just starting to support us in 2020 – for entrusting Onex with your capital. We are committed to delivering results that will make you proud of your decision to invest with us. [signed] Gerald W. Schwartz Chairman and Chief Executive Ofﬁcer, Onex Corporation Onex Corporation December 31, 2019 1 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, 2019 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 statements of earnings, consolidated statements of comprehensive earnings, consolidated balance sheets, consolidated statement of equity 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 using accounting policies that are consistent with International Financial Reporting Standards (“IFRS”) to provide information about Onex and should not be considered as providing sufﬁcient information to make an investment or lending decision in regard to any particular Onex operating business, private equity fund, credit strategy or other investments. The following MD&A is the responsibility of management and is as of February 27, 2020. Prepara- tion of the MD&A includes the review of the disclosures by senior management 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, composed 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: 4 Company Overview 12 2019 Activity 22 Financial Review 67 Glossary Onex Corporation’s ﬁnancial ﬁlings, including the 2019 Annual Report, 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”, “poten- tial”, “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 information 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. 2 Onex Corporation December 31, 2019 M A N A G E M E N T ’ S D I S C U S S I O N A N D A N A LY S I S 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 standard- ized meaning prescribed under IFRS and is therefore unlikely to be comparable to similar ﬁnancial measures presented by other companies. Onex management believes these ﬁnancial measures provide helpful informa- tion to investors. Reconciliations of the non-GAAP ﬁnancial measures to information contained in the consoli- dated ﬁnancial statements have been presented where practical. References References to Onex or the Company represent Onex Corporation. References to the Onex management team include the management of Onex, Onex Partners, ONCAP, Onex Credit and Gluskin Sheff. References to man- agement without the use of “team” include only the relevant group. For example, Onex management does not include management of Onex Partners, ONCAP, Onex Credit or Gluskin Sheff. References to an Onex Partners Group represent Onex, the limited partners of the relevant Onex Partners Fund, the Onex management team and, where applicable, certain other limited partners as co-investors. References to an ONCAP Group represent Onex, the limited partners of the relevant ONCAP Fund, the Onex management team and, where applicable, certain other limited partners as co-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 co-investors. A glossary of terms commonly used within the MD&A is included on page 67. Onex Corporation December 31, 2019 3 M A N A G E M 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 OVERVIEW Onex is a public company, the shares of which trade on the Toronto Stock Exchange under the symbol ONEX. The Company manages and invests capital in its private equity, credit and wealth management platforms on behalf of shareholders, institutional investors and high net worth families from its ofﬁces in Toronto, New York, New Jersey and London. INVESTING ASSET MANAGEMENT WEALTH MANAGEMENT PRIVATE EQUITY PRIVATE CREDIT DIRECT INVESTMENTS Onex is an investor ﬁrst and foremost, with $7.2 billion of shareholder capital ($69.47 or C$90.23 per fully diluted share) at December 31, 2019, primarily invested in or committed to its private equity and credit platforms. As at December 31, 2019, Onex also managed $31.2 billion of invested and committed capital on behalf of insti- tutional investors and high net worth families from around the world, including public and private pension plans, sovereign wealth funds, insurance companies and family ofﬁces that have chosen to invest alongside us. Onex’ policy is to maintain a ﬁnancially strong parent company with funds available to meet capital commit- ments to its investing platforms and to support the growth of its asset and wealth management businesses. Critical to Onex’ success is the strong alignment of interests between shareholders, limited partners, clients and the Onex management team. Onex’ distinctive ownership culture is evidenced by the Onex manage- ment team’s $1.9 billion investment in Onex shares, DSUs and various Onex funds. With an experienced management team, signiﬁcant ﬁnancial resources and no external debt, Onex is well- positioned to continue building shareholder value through its investment activities and its asset and wealth management platforms. 4 Onex Corporation December 31, 2019 M A N A G E M E N T ’ S D I S C U S S I O N A N D A N A LY S I S INVESTING At December 31, 2019, substantially all of Onex’ shareholder capital was invested in or committed to its private equity and credit platforms. Onex’ Investment Allocation at December 31, 2019 Onex’ Investment Allocation at December 31, 2018 Credit 10% Other Investments 1% Credit 11% Other Investments 2% Private Equity 61% Private Equity 64% Cash and Near-Cash Items 28% Cash and Near-Cash Items 23% Private Equity Founded in 1984, Onex is one of the oldest and most successful private equity ﬁrms. Today, the Company primarily invests in its two private equity platforms: Onex Partners for larger transactions and ONCAP for middle-market and smaller transactions. Onex’ private equity funds acquire and build high-quality businesses in partnership with talented management teams and focus on execution theses rather than macro-economic or industry trends. Onex has always been the largest limited partner in each of its private equity funds. Onex’ private equity funds typically acquire control positions, which allow the funds to drive important strategic decisions and effect change at the operating businesses. The Onex management team and Onex private equity funds do not get involved in the daily decisions of the operating businesses. Over 35 years, Onex has built more than 105 operating businesses, completing about 655 acquisitions with a total value of $81 billion. Since inception, Onex has generated a Gross MOC of 2.5 times, resulting in a 27% Gross IRR on realized, substantially realized and publicly traded investments. Onex Corporation December 31, 2019 5 M A N A G E M 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 at December 31, 2019, Onex’ investments in private equity totalled $4.0 billion (2018 – $4.0 billion). Onex’ $4.0 billion Investment in Private Equity at December 31, 2019 Onex’ $4.0 billion Investment in Private Equity at December 31, 2018 ONCAP 13% Direct Investing 11% ONCAP 12% Direct Investing 9% Onex Partners 76% Onex Partners 79% Credit Established in 2007, Onex Credit invests primarily in non-investment grade debt through collateralized loan obligations (“CLOs”), direct lending and other credit strategies. Onex Credit practises value-oriented investing, employing a bottom-up, fundamental and structural analysis of the underlying borrowers. Stringent oversight of portfolio proﬁle and construction risk, along with liquidity management, complement Onex Credit’s approach to investment research. The Onex Credit team maintains disciplined risk management, with a focus on capital preservation across all strategies, and targets strong risk-adjusted and absolute returns across market cycles. Onex is a signiﬁcant investor across its private credit strategies. Onex Credit’s senior loan strategies, which represent the vast majority of its assets under management, have generated strong risk-adjusted returns, low defaults and low loan losses. Since December 2007 and up to December 2019, Onex Credit has invested $32 billion across more than 920 borrowers in North America and, se- lectively, in Europe. During this period, those strategies experienced very few defaults, representing an annualized principal default rate of 0.36%(1), well below the leveraged loan market default rate of 2.88%(1) over the same period. (1) The annualized principal and leveraged loan market default rates are calculated as the average default rate for each 12-month period since December 2007. The leveraged loan market default rate is based on historical default rates reported by J.P. Morgan’s U.S. High-Yield and Leveraged Loan Strategy. 6 Onex Corporation December 31, 2019 M A N A G E M 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 at December 31, 2019, Onex’ investments in Onex Credit strategies totalled $649 million (2018 – $726 million). In addition, Onex had $97 million (2018 – $89 million) invested in an Onex Credit strategy included in cash and near-cash items. Onex’ $649 million Investment in Onex Credit Strategies at December 31, 2019 Onex’ $726 million Investment in Onex Credit Strategies at December 31, 2018 CLO Warehouses 8% EURO CLOs 14% CLO Warehouses 16% EURO CLOs 9% U.S. CLOs 53% U.S. CLOs 47% Direct Lending 11% Onex Credit Funds 14% Direct Lending 6% Onex Credit Funds 22% ASSET MANAGEMENT As of December 31, 2019, Onex managed $31.2 billion (2018 – $23.2 billion) of invested and committed capital on behalf of institutional investors and high net worth families from around the world. Onex’ $31.2 billion of Investor Capital at December 31, 2019 Onex’ $23.2 billion of Investor Capital at December 31, 2018 Onex Credit 34% ONCAP 4% Onex Credit 40% ONCAP 5% Onex Partners 42% Onex Partners 55% Public Debt Strategies 10% Public Equity Strategies 10% Investor capital includes capital managed on behalf of co-investors and the Onex management team. Onex Corporation December 31, 2019 7 M A N A G E M E N T ’ S D I S C U S S I O N A N D A N A LY S I S Managing investor capital provides Onex with two signiﬁcant ﬁnancial beneﬁts: (i) a committed stream of annual management fees and (ii) the opportunity to share in investors’ gains. Onex has run-rate management fees from investor capital of $256 million, consisting of $134 million from private equity, $69 million from pub- lic equity and public debt strategies and $53 million from private credit. Onex had $25.7 billion of assets under management subject to carried interest or performance fees at December 31, 2019. Private Equity In private equity, Onex has raised nine Onex Partners and ONCAP Funds since 1999 and is currently investing Onex Partners V, a $7.15 billion fund, and ONCAP IV, a $1.1 billion fund. During the initial fee period of the Onex Partners and ONCAP Funds, Onex receives a management fee based on limited partners’ committed capital. At December 31, 2019, the management fees of Onex Partners V and ONCAP IV were determined on this basis, with management fee rates of 1.7% and 2.0%, respectively. Following the termination of the initial fee period, Onex is entitled to a management fee based on limited partners’ net funded commitments. At December 31, 2019, management fees were determined on this basis for Onex Partners III (1.0%), Onex Partners IV (1.0%), ONCAP II (2.0%) and ONCAP III (1.5%). As realizations occur in these funds, the management fees earned by Onex will decrease. Onex is entitled to 40% of the carried interest realized from limited partners in the Onex Partners and ONCAP Funds, while Onex, Onex Partners and ONCAP management are entitled to the remaining 60%. Carried interest is calculated as 20% of the realized net gains of the limited partners in each Fund, provided the limited partners have achieved a minimum 8% net compound annual return on their investment. For ONCAP IV, carried interest participation increases from 20% to 25% of the realized net gains in ONCAP IV once investors achieve a net return of two times their aggregate capital contributions. The following table presents carried interest received by Onex since 2015. ($ millions) 2015 2016 2017 2018 2019 Total Carried Interest Received $ 1 14 121 37 43 $ 216 The amount of carried interest ultimately received by Onex is based on realizations, the timing of which can vary signiﬁcantly from year to year. 8 Onex Corporation December 31, 2019 M A N A G E M 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’ ability to raise new private equity capital is primarily dependent on the general fundraising environment and Onex’ investment track record. The following table summarizes the performance of the Onex Partners and ONCAP Funds from their inception up to December 31, 2019. The Net IRR and Net MOC represent the perfor- mance for fee-paying limited partners of the Onex Partners and ONCAP Funds. Onex Partners Funds – Invested Onex Partners I(3) Onex Partners II Onex Partners III Onex Partners IV Total Onex Partners Funds – Invested(4) ONCAP Funds – Invested ONCAP I(3)(5) ONCAP II(5) ONCAP III(5) Total ONCAP Funds – Invested(4)(5) Onex Partners and ONCAP Funds – Investing Onex Partners V(6) ONCAP IV Performance Returns(1) Vintage Gross IRR Net IRR(2) Gross MOC Net MOC (2) 2003 2006 2009 2014 1999 2006 2011 2018 2016 55% 17% 18% 9% 26% 43% 30% 24% 39% – 12% 38% 13% 12% 5% n/a 33% 21% 18% n/a – 2% 4.0x 2.2x 2.2x 1.3x 2.0x 4.1x 4.1x 3.0x 3.5x 1.1x 1.1x 3.1x 1.9x 1.8x 1.2x n/a 3.1x 2.8x 2.2x n/a 1.0x 1.0x (1) Performance returns are non-GAAP ﬁnancial measures. Onex management believes that performance returns are useful to investors since Onex’ ability to raise capital in new funds may be materially impacted by the performance returns of current and prior funds. (2) Net IRR and Net MOC are presented for limited partners in the Onex Partners and ONCAP Funds and exclude the capital contributions and distributions attributable to Onex’ commitment as a limited partner in each fund. (3) Onex Partners I is substantially realized and ONCAP I has been fully realized. (4) Represents the aggregate performance returns for all invested Onex Partners and ONCAP Funds. Invested funds are those funds that do not have uncalled commitments that can be used for future Onex-sponsored investments. Net IRR and Net MOC are not calculable across the aggregate Onex Partners and ONCAP Funds. (5) Performance returns are calculated in Canadian dollars, the functional currency of these ONCAP Funds. (6) Performance returns reflect 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. The Net MOC is 1.0x for an Onex Partners V limited partner that elected to participate in the credit facility of Onex Partners V. Onex Corporation December 31, 2019 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 Private Credit Onex Credit continues to grow the product lines and distribution channels for its non-investment grade credit investing. To date, Onex Credit has closed 20 CLOs, raised its ﬁrst direct lending fund with an investing capacity of $1.1 billion and has several other active credit strategies. As of December 31, 2019, Onex Credit earns run-rate management fees of $53 million on $10.5 billion of fee-generating assets under management: As at December 31, 2019 CLOs Onex Credit Funds Direct lending Fee-Generating Assets Under Management Management Fee Basis Management Fee % $ 8,990 $ 969 $ 532 Collateral principal balance up to 0.50% Net asset value or 0.45% to 1.50% Gross invested assets Funded commitments Unfunded commitments 0.55% up to 1.25% up to 0.50% Onex Credit is also entitled to performance fees on $9.5 billion of assets under management as at December 31, 2019. Performance fees range between 15% and 20% of net gains and are generally subject to a hurdle or mini- mum preferred return to investors. WEALTH MANAGEMENT In June 2019, Onex acquired Gluskin Sheff, a Canadian wealth management ﬁrm serving high net worth fami- lies and institutional investors, as described on page 29 of this MD&A. Gluskin Sheff invests the capital of its clients mainly across a number of public debt and public equity strategies and earns revenue primarily from base management fees and performance fees. As at December 31, 2019, Gluskin Sheff had total fee-generating client capital of $6.4 billion (C$8.3 billion). As of December 31, 2019, Gluskin Sheff earns base management fees of up to 1.50% on assets under man- agement, with run-rate management fees of $69 million (C$90 million). Gluskin Sheff is also entitled to perfor- mance fees on $5.1 billion (C$6.7 billion) of assets under management, which range between 10% and 25% and may be subject to performance hurdles. 10 Onex Corporation December 31, 2019 M A N A G E M E N T ’ S D I S C U S S I O N A N D A N A LY S I S FIRM RESOURCES 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 155 years of investing experience and have worked at Onex for an average of 28 years. Onex’ stability results from its ownership culture, rigorous recruiting standards and highly collegial environment. Onex’ 130 investment professionals are each dedicated to a separate investment platform: Onex Part- ners (63), ONCAP (21), Onex Credit (27) and Wealth Management (19). These investment teams are supported by approximately 175 professionals dedicated to Onex’ corporate functions and investment platforms. Substantial ﬁnancial resources available for future growth Onex seeks to maintain a ﬁnancially strong parent company with funds available to meet its capital commit- ments to its investing platforms and to support the growth of its asset and wealth management businesses. Onex’ ﬁnancial strength comes from both its own capital as well as the capital committed by its investors. Today, Onex has substantial ﬁnancial resources available to support its investing platforms with: • approximately $1.8 billion of cash and near-cash items and no external debt; • $4.0 billion of limited partner uncalled capital available for future Onex Partners V investments; and • $235 million of limited partner uncalled capital available for future ONCAP IV investments. Strong alignment of interests Critical to Onex’ success is the strong alignment of interests between shareholders, 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 its private credit platform, the Company’s distinctive ownership culture requires the Onex management team to have a signiﬁcant ownership in Onex shares and to invest meaningfully in each private equity investment. At December 31, 2019, the Onex management team: • was the largest shareholder in Onex, with a combined holding of approximately 15.8 million shares, or 16% of outstanding shares, and 0.7 million DSUs; • had a total investment in Onex’ private equity investments at market value of approximately $500 million; • had a total investment in Onex Credit strategies at market value of approximately $280 million; and • had a total investment managed by Gluskin Sheff at market value of approximately $65 million. Onex and Onex Partners management are also required to reinvest up to 25% of all Onex Partners carried interest and MIP distributions in Onex shares and must hold these shares for at least three years. OUR OBJECTIVE Onex works to create long-term value for shareholders and to have that value reﬂected in its share price. Onex delivers this value by (i) investing Onex’ shareholder capital primarily in Onex’ private equity funds and Onex Credit strategies and (ii) managing and growing the third-party capital invested in and committed to its pri- vate equity, public equity and credit platforms. Onex believes it has the investment philosophy, talent, ﬁnancial resources and track record to continue to deliver on this objective. Onex Corporation December 31, 2019 11 M A N A G E M E N T ’ S D I S C U S S I O N A N D A N A LY S I S 2019 ACTIVITY PRIVATE EQUITY INVESTING Capital Deployment The table below presents the signiﬁcant private equity investments made since January 1, 2019. Fund Onex Partners V Onex Partners V ONCAP IV Direct investment Onex Partners IV ONCAP IV Total Company WestJet Convex Enertech RSG PowerSchool ILAC Transaction Original investment Original investment Original investment Add-on investment Add-on investment Original investment Period Dec ’19 Apr ’19 Nov ’19 Mar ’19 Nov ’19 Aug ’19 Onex’ Share ($ millions) $ 261 124 39 25 13 7 $ 469 In March 2019, Onex invested an additional $25 million in common equity of RSG to support the company’s acquisition activities. In April 2019, Onex invested $124 million in Onex Partners V as its share of the fund’s investment in Convex, a de novo specialty property and casualty insurance company. In August 2019, Onex invested $7 million in ONCAP IV as its share of the fund’s investment in ILAC, an English language school in Canada. In November 2019, Onex invested $39 million in ONCAP IV as its share of the fund’s investment in Enertech, a provider of wireless infrastructure services to telecommunications carriers and tower owners in the United States. In November 2019, Onex invested an additional $13 million in Onex Partners IV to support PowerSchool’s acqui- sition activities. In December 2019, Onex invested $261 million in Onex Partners V as its share of the fund’s investment in WestJet, a Canadian airline based in Calgary, Alberta. At December 31, 2019, Onex had uncalled committed capital of $1.5 billion to Onex Partners V and $162 million to ONCAP IV. 12 Onex Corporation December 31, 2019 M A N A G E M E N T ’ S D I S C U S S I O N A N D A N A LY S I S Realizations The table below presents the signiﬁcant private equity realizations and distributions during the year ended December 31, 2019. Fund Company Transaction Onex Partners IV Onex Partners IV Onex Partners IV Onex Partners I Onex Partners III Clarivate Analytics Secondary offerings and distribution SIG Jack’s BrightSpring Health BrightSpring Health Secondary offerings and dividend Sale of business and distributions Sale of business Sale of business Distributions Direct investment RSG ONCAP II ONCAP III PURE Canadian Gaming Distribution PURE Canadian Gaming Distribution Onex Partners III BBAM Distributions Total Period Various Various Various Mar ’19 Mar ’19 Various Jul ’19 Jul ’19 Various Onex’ Share ($ millions) (1) $ 441 296 231 99 92 19 14 3 10 $ 1,205 (1) Includes carried interest received by Onex and is reduced for amounts paid under management incentive programs, if applicable. Includes Onex’ share of proceeds as a co-investor, if applicable. In March 2019, the Onex Partners I and Onex Partners III Groups sold BrightSpring Health (formerly ResCare), a provider of residential, training, educational and support services for people with disabilities and special needs in the United States, for an enterprise value of approximately $1.3 billion. Onex’ share of the net proceeds from Onex Partners I and Onex Partners III was $99 million and $92 million, respectively, including carried interest of $39 million and net of the MIP distribution of $12 million. The investment in BrightSpring Health generated a Gross MOC of 5.7 times and a Gross IRR of 17%. In August 2019, the Onex Partners IV Group sold Jack’s, a regional quick-service restaurant operator. Onex’ share of the net proceeds from Onex Partners IV as a result of this sale was $224 million, net of the MIP distribu- tion of $12 million. The investment in Jack’s generated a Gross MOC of 3.6 times and a Gross IRR of 38%. In September 2019, the Onex Partners IV Group sold approximately 30.0 million shares of SIG at a price of CHF 12.00 per share and in November 2019, the Onex Partners IV Group sold approximately 31.4 million shares of SIG at a price of CHF 13.30 per share. SIG is a leading systems and solutions provider for aseptic carton packaging. Onex’ combined share of the net proceeds from the Onex Partners IV Group was CHF 273 million ($276 million). No amounts were paid on account of the MIP as the required realized investment return hurdle for Onex was not met on realizations to date. In September 2019, the Onex Partners IV Group sold approximately 27.5 million ordinary shares of Clarivate Analytics at a price of $16.00 per share and in December 2019, the Onex Partners IV Group sold approximately 49.7 million ordinary shares of Clarivate Analytics at a price of $17.25 per share. Clarivate Analytics is a global analytics provider. Onex’ combined share of the net proceeds from the Onex Partners IV Group was $387 mil- lion. No amounts were paid on account of the MIP as the required realized investment return hurdle for Onex was not met on realizations to date. Onex Corporation December 31, 2019 13 M A N A G E M E N T ’ S D I S C U S S I O N A N D A N A LY S I S In November 2019, the Onex Partners IV Group received a distribution from Clarivate Analytics in relation to the settlement of a tax receivable agreement that was entered into with the company in connection with Clarivate Analytics’ initial public offering in January 2019. The agreement entitled the Onex Partners IV Group to a portion of the tax beneﬁts realized by Clarivate Analytics relating to tax attributes that were present at the time of the initial public offering. Onex’ share of the distribution was $54 million. Fund-level Developments During the year ended December 31, 2019, the Onex Partners and ONCAP operating businesses continued to execute on their investment theses: • completing follow-on acquisitions for total consideration of approximately $545 million; • collectively raising or reﬁnancing approximately $3.2 billion of debt; • paying down debt totalling approximately $385 million; • in Onex Partners III, York was acquired by Sedgwick Claims Management Services in exchange for equity in the combined business; • in Onex Partners IV, Clarivate Analytics merged with Churchill Capital Corp and publicly listed its shares on the New York Stock Exchange under the symbol CCC. Additionally, in early October 2019, SMG merged with AEG Facilities to form ASM Global; and • in Onex Partners IV and Onex Partners V, KidsFoundation completed in January 2020 its acquisition of Partou Holding B.V., the second-largest childcare provider in the Netherlands. Performance During the year ended December 31, 2019, Onex’ investment segment had net gains from private equity invest- ments of $683 million, which included a decrease of $66 million in the fair value of corporate investments related to changes to the Onex management team’s participation, as described on page 62 of this MD&A. The following table presents the recent gross performance of Onex’ private equity investments: Increase in value of Onex’ private equity investments in U.S. dollars(1): Onex Partners ONCAP Direct investments Total private equity investments Year Ended December 31, 2019 25% 3% 12% 21% (1) Adjusted for capital deployed, realizations and distributions. Performance results are gross of management incentive programs and an allocation of management fees and carried interest on Onex’ capital. 14 Onex Corporation December 31, 2019 M A N A G E M E N T ’ S D I S C U S S I O N A N D A N A LY S I S PRIVATE CREDIT INVESTING Capital Deployment During 2019, Onex invested $197 million in Onex Credit strategies, including the following: Strategy Direct lending EURO CLO-3 CLO-18 warehouse CLO-17 warehouse CLO-17 Transaction OCLP I and origination investments Equity investment Warehouse investments Warehouse investments Equity investment EURO CLO-4 warehouse Warehouse investments CLO-16 Total Equity investment Period Various May ’19 Various Various Jul ’19 Various Mar ’19 Amount Invested ($ millions) $ 45 40 (1) 30 24 23 22 (1) 13 $ 197 (1) The investments made by Onex in EURO CLO-3 and the warehouse for EURO CLO-4 were made in euros and totalled 235 million and 220 million, respectively. On closing, Onex received approximately $50 million and $24 million plus interest for the investments that sup- ported the warehouse facilities for CLO-16 and CLO-17, respectively, and €55 million ($61 million) plus interest for the investment that supported the warehouse facility for EURO CLO-3. At December 31, 2019, Onex had a net investment of $503 million in its CLOs, including $52 million in two warehouse facilities. Realizations Onex receives regular quarterly distributions from its CLO investments, including $85 million during the year ended December 31, 2019 (2018 – $59 million). Additionally, Onex received distributions of $4 million from CLO-2, which was redeemed in November 2018, and distributions totalling $25 million from direct lending. During the fourth quarter of 2019, Onex received distributions totalling $71 million from the Onex Debt Oppor tunity Fund. The distributions received were in connection with the dissolution of the Fund, which is expected to be completed during 2020. Performance During the year ended December 31, 2019, Onex had net gains of $64 million on its Onex Credit strategies investments, representing a 7% increase in value. Onex primarily invests in the equity tranches of its 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’ long-term target Net IRR for its CLO equity investments is 12%. Onex had mark-to-market net gains of $9 million on its CLO investments during the three months ended December 31, 2019 (2018 – net losses of $69 million) and generated mark-to-market net gains of $41 million during the year ended December 31, 2019 (2018 – net losses of $76 million). All of the Onex Credit CLOs remain onside with their various coverage tests and Onex remains a long-term investor in its CLOs. To date, Onex has fully realized three CLOs, generating a Net IRR of approximately 12%. Onex Corporation December 31, 2019 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 INVESTMENT SEGMENT EARNINGS During the three months ended December 31, 2019, Onex’ investing segment generated net earnings of $160 million ($1.55 per fully diluted share), which was primarily driven by $145 million of net gains from private equity investments. Onex’ investing segment net earnings for the three months ended December 31, 2019 were reduced by an allocation to the asset and wealth management segment of $16 million, representing manage- ment fees and carried interest that would have been earned by the asset and wealth management segment had Onex’ capital been subject to management fees and carried interest under the same terms as third-party lim- ited partners of the Onex Partners and ONCAP Funds. These allocations were made in accordance with IFRS 8, Operating segments (“IFRS 8”) as this presentation of segmented results is used by management, in part, to assess the performance of Onex. During the year ended December 31, 2019, Onex’ investing segment generated net earnings of $756 mil- lion ($7.33 per fully diluted share), which was primarily driven by $683 million of net gains from private equity investments. Onex’ investing segment net earnings for the year ended December 31, 2019 were reduced by a net allocation to the asset and wealth management segment of $57 million, representing management fees and a net reversal of carried interest, as described above. ASSET AND WEALTH MANAGEMENT In June 2019, Onex acquired Gluskin Sheff for C$445 million ($329 million). Gluskin Sheff is a pre-eminent Canadian wealth management ﬁrm serving high net worth families and institutional investors with fee-generating client capital of C$8.3 billion ($6.4 billion) at December 31, 2019. Gluskin Sheff invests the capital of its clients primarily across a number of public debt and public equity strategies and earns its revenue mainly from base management fees, calculated as a percentage of fee-generating assets under management, and performance fees. At December 31, 2019, Onex’ third-party assets under management totalled $31.2 billion (2018 – $23.2 billion), of which $27.5 billion was fee-generating (2018 – $20.6 billion). The increase in fee-generating investor capital under management was primarily driven by the acquisition of Gluskin Sheff. ($ millions) Total Fee-Generating Investor Capital Under Management(1)(2) December 31, 2019 December 31, 2018 Change in Total December 31, 2019 December 31, 2018 Change in Total Onex Partners Funds Onex Credit Strategies Public Debt Strategies(3) Public Equity Strategies(3) ONCAP Funds(4) $ 13,077 10,689 3,225 2,977 1,247 $ 12,681 9,230 – – 1,269 Total $ 31,215 $ 23,180 3 % 16 % n/a n/a (2)% 35 % $ 10,038 10,491 3,149 2,775 1,039 $ 10,534 9,010 – – 1,057 $ 27,492 $ 20,601 (5)% 16 % n/a n/a (2)% 33 % (1) Capital under management is a non-GAAP financial measure. (2) Invested amounts included in investor capital under management are presented at fair value and include investor co-investments and capital invested by the Onex management team, as applicable. (3) Capital under management for Gluskin Sheff’s public debt and public equity strategies is in Canadian dollars and has been converted to U.S. dollars using the exchange rate on December 31, 2019. (4) Capital under management for ONCAP II and III is in Canadian dollars and has been converted to U.S. dollars using the exchange rates on December 31, 2019 and December 31, 2018, respectively. 16 Onex Corporation December 31, 2019 M A N A G E M E N T ’ S D I S C U S S I O N A N D A N A LY S I S Since the June 2019 acquisition, Gluskin Sheff clients have been provided access to Onex’ private equity and credit strategies. Gluskin Sheff clients had invested their capital across the following strategies: ($ millions) Total Fee-Generating December 31, 2019 December 31, 2018(1) December 31, 2019 December 31, 2018 (1) Gluskin Sheff Client Capital Public Debt Strategies Public Equity Strategies Onex Credit Strategies Onex Private Equity Total $ 3,225 2,977 383 53 $ 3,088 3,095 – – $ 3,149 2,775 382 52 $ 3,067 2,936 – – $ 6,638 $ 6,183 $ 6,358 $ 6,003 (1) Gluskin Sheff client capital at December 31, 2018 does not represent Onex’ assets under management as Gluskin Sheff was acquired by Onex in June 2019. During the three months and year ended December 31, 2019, Onex’ asset and wealth management segment gen- erated net earnings of $51 million ($0.49 per fully diluted share) and $80 million ($0.76 per fully diluted share), respectively, as described on pages 31 and 32 of this MD&A. These amounts include contributions of $21 mil- lion and $34 million during the three months and year ended December 31, 2019, respectively, from Wealth Management since the acquisition of Gluskin Sheff on June 1, 2019. Onex’ asset and wealth management seg- ment would have generated net earnings of approximately $94 million ($0.90 per fully diluted share) for the year ended December 31, 2019 had Gluskin Sheff been acquired on January 1, 2019. Onex’ asset and wealth management segment net earnings for the three months ended December 31, 2019 included allocations from the investing segment of $15 million (2018 – $13 million) of management fees and a net increase in carried interest of $1 million (2018 – net reversal of $12 million) that would have been recognized by the asset and wealth management segment had Onex’ capital been subject to management fees and carried interest under the same terms as third-party limited partners of the Onex Partners and ONCAP Funds. For the year ended December 31, 2019, these management fee and carried interest allocations from the investing segment were $61 million (2018 – $46 million) and a net reversal of $4 million (2018 – $9 million), respectively. These allo- cations were made in accordance with IFRS 8 as this presentation of segmented results is used by management, in part, to assess the performance of Onex. Onex Corporation December 31, 2019 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 Segment management and advisory fees during the year ended December 31, 2019 totalled $302 million (2018 – $199 million). A net reversal of segment carried interest of $5 million (2018 – $46 million) was recognized during the year ended December 31, 2019 primarily as a result of changes in fair value of certain underlying investments in Onex Partners II, Onex Partners III and ONCAP IV. ($ millions) Onex Partners Funds(1) Onex Credit Strategies ONCAP Funds(2) Public Debt Strategies(3) Public Equity Strategies(3) Segment Management and Advisory Fees Three Months Ended December 31, 2019 Three Months Ended December 31, 2018 Change in Total Year Ended December 31, 2019 Year Ended December 31, 2018 $ 43 13 8 10 8 $ 37 13 7 – – $ 6 $ 179 $ 120 – 1 10 8 52 28 25 18 50 29 – – Change in Total $ 59 2 (1) 25 18 Total $ 82 $ 57 $ 25 $ 302 $ 199 $ 103 (1) Includes advisory fees from the Onex Partners operating businesses. (2) Includes advisory fees from the ONCAP operating businesses. (3) Management and advisory fees for the public debt and public equity strategies include the results of Gluskin Sheff since its acquisition by Onex in June 2019, as described on page 29 of this MD&A. The increase in management and advisory fees for Onex Partners was driven by Onex Partners V beginning to accrue management fees in late 2018. Management and advisory fees also increased as a result of the acquisition of Gluskin Sheff in June 2019. Carried interest is typically received only on the realization of underlying fund investments. During the year ended December 31, 2019, Onex received $43 million of carried interest primarily from the sale of BrightSpring Health, as described on page 13 of this MD&A. The General Partner of Onex Partners IV elected to defer the receipt of carried interest related to the sale of Jack’s and the secondary offerings by Clarivate Analytics and SIG, as described on page 13 of this MD&A. At December 31, 2019, unrealized carried interest outstanding totalled $66 million (2018 – $110 million). ($ millions) Onex Partners Funds ONCAP Funds Total Unrealized Carried Interest(1) As at December 31, 2018 Realizations Change in Fair Value $ 89 21 $ 110 $ (41) (2) $ (43) $ – (1) $ (1) As at December 31, 2019 $ 48 18 $ 66 (1) Excludes unrealized carried interest related to Onex’ capital. The actual amount of carried interest earned by Onex will depend on the ultimate performance of each underlying fund. 18 Onex Corporation December 31, 2019 M A N A G E M E N T ’ S D I S C U S S I O N A N D A N A LY S I S Over the past ﬁve years, fee-generating capital under management has increased at a compound annual growth rate (“CAGR”) of 15%, which includes the fee-generating capital of Gluskin Sheff acquired in June 2019. Fee-Generating Capital Under Management Fee-Generating Capital Under Management (December 31, 2014 to December 31, 2019) 28 26 24 22 20 18 16 14 12 10 8 s n o i l l i B 15% CAGR over the past five years Dec-2014 Dec-2015 Dec-2016 Dec-2017 Dec-2018 Dec-2019 SHARE PRICE Onex’ objective is to have the value of its investing and asset and wealth management activities reﬂected in its share price. These efforts are supported by a long-standing quarterly dividend and an active stock buyback program. In May 2019, Onex increased its quarterly dividend by 14% to C$0.10 per SVS beginning in July 2019. This increase follows similar increases in the previous six years and reﬂects Onex’ continued growth and ongoing commitment to its shareholders. Onex has had an active share repurchase program for more than 20 years and has reduced its shares outstanding by nearly half of the original share count when it launched the program in 1997. During the year ended December 31, 2019, $28 million was returned to shareholders through dividends and Onex repurchased and cancelled 629,027 SVS at a total cost of $34 million (C$46 million), or an average purchase price of $54.80 (C$73.59) per share. Through its dividends and share repurchase program, Onex has returned more than C$2.2 billion to shareholders since 1997. 28 26 24 22 20 18 16 14 12 10 8 6 Onex Corporation December 31, 2019 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 At December 31, 2019, Onex’ SVS closed at C$82.17, an 11% increase from December 31, 2018. This compares to a 19% increase in the S&P/TSX Composite Index (“TSX”). The following chart shows the performance of Onex’ SVS in Canadian dollars during the year ended Decem- ber 31, 2019 relative to the TSX. Onex Relative Performance (CAD) (December 31, 2018 to December 31, 2019) ONEX (CAD) TSX 8 1 0 2 , 1 3 r e b m e c e D n o 0 0 1 t a d e x e d n I 125 120 115 110 105 100 95 90 TSX 19% ONEX 11% 31-Dec-18 31-Mar-19 30-Jun-19 30-Sep-19 31-Dec-19 20 Onex Corporation December 31, 2019 M A N A G E M 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 and management fees 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 the year ended December 31, 2019, the value of Onex’ SVS increased by 16% in U.S. dollars compared to a 29% increase in the Standard & Poor’s 500 Index (“S&P 500”). The chart below shows the performance of Onex’ SVS in U.S. dollars during the year ended December 31, 2019 relative to the S&P 500. Onex Relative Performance (USD) (December 31, 2018 to December 31, 2019) 135 130 125 120 115 110 105 100 8 1 0 2 , 1 3 r e b m e c e D n o 0 0 1 t a d e x e d n I 95 31-Dec-18 ONEX (USD) S&P 500 S&P 500 29% ONEX 16% 31-Mar-19 30-Jun-19 30-Sep-19 31-Dec-19 Onex Corporation December 31, 2019 21 M A N A G E M E N T ’ S D I S C U S S I O N A N D A N A LY S I S FINANCIAL REVIEW This section discusses the signiﬁcant changes in Onex’ consolidated statement of earnings, consolidated balance sheet and consolidated statement of cash flows for the ﬁscal year ended December 31, 2019 compared to those for the year ended December 31, 2018 and, in selected areas, to those for the year ended December 31, 2017. In simple terms, Onex is an investor and asset manager. As Users of the consolidated ﬁnancial statements discussed below, Onex’ ﬁnancial and operating informa- may note detailed line-item disclosures relating to inter- tion for the year ended December 31, 2019 is presented in a company loans. IFRS requires speciﬁc disclosures and manner that more closely reﬂects its business and activities. presentation of intercompany loans between Onex and the Investments and investing activity refer to the Asset Managers, and the Investment Holding Companies. investment of Onex’ shareholder capital primarily in its pri- Speciﬁcally, IFRS requires that: vate equity funds, Onex Credit strategies and certain invest- ments held outside the private equity funds and credit • intercompany loans payable by Onex and the Asset Managers to the Investment Holding Companies are rec- strategies. These investments are held directly or indi- ognized as liabilities in Onex’ consolidated balance sheet. rectly through wholly-owned subsidiaries of Onex, which A corresponding and offsetting amount is recognized are referred to as Investment Holding Companies. While within corporate investments in Onex’ consolidated bal- there are a number of Investment Holding Companies, ance sheet, representing the related loan receivable from substantially all of these companies are direct or indirect Onex and the Asset Managers; and subsidiaries of Onex Private Equity Holdings LLC, Onex • intercompany loans payable by Investment Holding Com- CLO Holdings LLC or Onex Credit Holdings LLC. These panies to Onex and the Asset Managers are part of the three companies, which are referred to as the Primary fair value measurement of Onex’ corporate investments Investment Holding Com panies, are wholly-owned sub- in the consolidated balance sheet, which reduces the fair sidiaries of Onex and are the holding companies for sub- value of Onex’ corporate investments. Onex classi ﬁes the stantially all of Onex’ investments, excluding intercompany corresponding loan receivable from Invest ment Holding loans receivable from Onex and the Asset Managers. Companies within corporate investments in its consoli- Asset management refers to the activity of man- dated balance sheet, which increases the value of Onex’ aging capital in Onex’ private equity funds, private credit corporate investments by the same amount as the related strategies, public debt strategies and public equity strate- loans payable. gies. This activity is conducted through wholly-owned subsidiaries of Onex, which are the managers of the Onex There is no impact to net assets or net earnings from Partners Funds, ONCAP Funds, Onex Credit strategies and these intercompany loans in Onex’ consolidated ﬁnancial Gluskin Sheff strategies. These subsidiaries are referred to statements. as Onex’ Asset Managers and are consolidated by Onex. 22 Onex Corporation December 31, 2019 M A N A G E M 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 simpliﬁed diagram below illustrates the types of subsidiaries included within Onex’ corporate structure and the basis on which they are accounted for following the change in Onex’ investment entity status on January 1, 2019. Intercompany loans between consolidated subsidiaries and investment holding companies(1) CORPORATION Consolidated Subsidiaries ASSET MANAGERS Investment Holding Companies(2) ONEX PRIVATE EQUITY HOLDINGS LLC ONEX CLO HOLDINGS LLC ONEX CREDIT HOLDINGS LLC Private equity investments including Onex Partners and ONCAP Funds(3) Onex Credit CLO investments(3) Onex Credit Fund and direct lending investments(3) (1) Onex Corporation and the consolidated asset management subsidiaries enter into intercompany loans that, in aggregate, have no net effect on Onex’ financial position. Intercompany loans payable by Onex and the consolidated subsidiaries to the Investment Holding Companies are recognized as liabilities in the consolidated balance sheet, with the corresponding loans receivable classified as an asset within corporate investments in the consolidated balance sheet. (2) Onex’ investments in the Investment Holding Companies are recorded as corporate investments at fair value through net earnings. (3) Onex’ investments in private equity, direct lending, CLOs and Onex Credit Funds are typically held directly or indirectly through wholly-owned investment holding companies, which are subsidiaries of the Primary Investment Holding Companies identified above. As discussed in the investment entity status section on the drawing conclusions from period-to-period comparisons following page, on January 1, 2019, Onex determined that and changes. Onex is required to provide comparative it met the deﬁnition of an investment entity, as deﬁned by IFRS 10, Consolidated ﬁnancial statements (“IFRS 10”). While this does not represent a change in accounting stan- ﬁnancial statements and to discuss in the accompanying MD&A both the current and prior period information and the changes therein. However, the change in Onex’ invest- dards, this change in status has fundamentally altered ment entity status and, as a result, the presentation of its how Onex prepares, presents and discusses its ﬁnancial ﬁnancial results can cause direct comparisons between results relative to periods ending on or before December 31, dates or across periods to be inappropriate or not meaning- 2018. Accordingly, users of this MD&A and the consoli- ful if not carefully considered in this context. Prior periods dated ﬁnancial statements to which it relates should exer- have not been restated to reﬂect the change in Onex’ invest- cise signiﬁcant caution in reviewing, considering and ment entity status. Onex Corporation December 31, 2019 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 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 In June 2019, Onex management updated its assessment of whether Onex, the parent company, met the deﬁnition of This section should be read in conjunction with Onex’ an investment entity under IFRS 10 following the acquisi- consolidated statements of earnings and corresponding tion of Gluskin Sheff, as described on page 29 of this MD&A. notes thereto. Onex management concluded that Onex, the parent com- pany, remained an investment entity as deﬁned by IFRS 10 I N V E S T M E N T E N T I T Y S T A T U S subsequent to its acquisition of Gluskin Sheff. On January 1, 2019, Onex determined that it met the deﬁ- 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 nition of an investment entity, as deﬁned by IFRS 10. This change in status resulted from the change in how Onex mea- The Company has adopted the following new accounting sures and evaluates the performance of its investments, which standard, along with any consequential amendments, effec- are now performed on a fair value basis for substantially all of Onex’ investments. This change was driven primarily by tive January 1, 2019. This change was made in accordance with applicable transitional provisions. the following factors: (i) performance metrics reviewed by Onex management have evolved over time and now primar- ily focus on the fair value of Onex’ investments; (ii) growth of Onex’ investment in Onex Credit strategies ($815 million as IFRS 16 – Leases IFRS 16, Leases (“IFRS 16”) supersedes IAS 17, Leases (“IAS 17”) and requires lessees to recognize a right-of-use at January 1, 2019), for which the measurement and evalua- asset and a lease liability for substantially all lease con- tion have always been performed on a fair value basis; and tracts. On January 1, 2019, Onex adopted IFRS 16 on a (iii) Onex’ disposition of certain investments that were not modiﬁed retrospective basis and has chosen to not restate measured and evaluated on a fair value basis. comparative information in accordance with the transi- As a result of this change in status, the assets and tional provisions in IFRS 16. As a result, the comparative liabilities of Onex’ subsidiaries that do not provide invest- information continues to be presented in accordance with ment-related services are no longer included in Onex’ con- the Company’s previous accounting policies. solidated balance sheet, and Onex’ investments in these On adoption of IFRS 16, Onex recognized lease lia- subsidiaries are instead presented as corporate invest- bilities totalling $72 million in relation to leases which had ments at fair value totalling $9.2 billion as at January 1, 2019, previously been classiﬁed as operating leases under IAS 17. including intercompany loans receivable from Investment The lease liabilities were measured at the present value Holding Companies. Onex recorded a net gain on the transi- of the remaining lease payments, discounted using Onex’ tion to investment entity status of $3.5 billion on January 1, incremental borrowing rates as at January 1, 2019. Onex’ 2019, including items reclassiﬁed from accumulated other weighted-average incremental borrowing rate applied to comprehensive loss, reﬂecting the difference between the the lease liabilities on January 1, 2019 was 3.20%. corporate investments’ fair values and their previous carry- The associated right-of-use assets recognized at ing values. These corporate investments are subsequently January 1, 2019 totalled $71 million and were measured at measured at fair value through net earnings. The change in an amount equal to the recognized lease liabilities, adjusted investment entity status has been accounted for prospec- for previously recognized lease accruals, in accordance with tively from January 1, 2019 in accordance with IFRS 10. the transitional provisions of IFRS 16, and consist entirely of real estate premises. There was no impact to retained earn- ings on January 1, 2019 as a result of adopting IFRS 16. 24 Onex Corporation December 31, 2019 M A N A G E M 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 applying IFRS 16, the Company used the following practical expedients as permitted by the standard: C R I T I C A L A C C O U N T I N G P O L I C I E S A N D E S T I M A T E S • Previous assessments were relied on to determine whether leases were onerous; • Operating leases with a remaining lease term of less than Corporate investments Corporate investments include Onex’ investments in its 12 months at January 1, 2019 were treated as short-term subsidiaries, primarily consisting of Investment Holding leases under IFRS 16; Com panies, that meet the investment entity exception to • Initial direct costs were excluded from the measurement consolidation criteria in IFRS 10. These subsidiaries primar- of right-of-use assets at the date of initial application; ily invest Onex’ shareholder capital in the Onex Partners and • Payments associated with leases of low-value assets are recognized on a straight-line basis as an expense in the consolidated statement of earnings. Funds, ONCAP Funds and Onex Credit strategies. Corporate investments are measured at fair value through net earn- ings, in accordance with IFRS 9, Financial instruments (“IFRS 9”). The fair value of corporate investments includes the fair value of both intercompany loans receivable from The Company also elected to not reassess whether a con- and payable to Onex and the Asset Managers. In addition, tract is or contains a lease as at January 1, 2019, as permit- the fair value of corporate investments includes Onex’ por- ted by IFRS 16. tion of the carried interest earned on investments made by the Onex Partners and ONCAP Funds and the liability asso- From January 1, 2019, leases are recognized as a right-of- ciated with management incentive programs, including the use asset and a corresponding lease liability at the date at Management Investment Plan (the “MIP”). which the leased asset is available for use, with the excep- At December 31, 2019, substantially all of the tion of leases of low-value assets or leases with a term of Company’s corporate investments, excluding intercom- 12 months or less, which are recognized on a straight-line pany loans, consisted of investments made in the Primary basis as an expense. For leases recognized in the con- Investment Holding Companies and investments made in solidated balance sheet, each lease payment is allocated operating businesses directly by Onex. between the repayment of the lease liability and the ﬁnance cost. The ﬁnance cost is charged to the consoli- dated statement of earnings over the lease period so as to Intercompany loans with Investment Holding Companies Intercompany loans payable to Investment Holding Com- produce a constant periodic rate of interest on the remain- panies represent ﬁnancial liabilities that are payable to ing balance of the lease liability for each period. The right- subsidiaries of Onex, which are recorded at fair value in of-use asset is depreciated on a straight-line basis over the the consolidated ﬁnancial statements. Intercompany loans shorter of the asset’s useful life and the lease term. Right- receivable from Investment Holding Companies are classi- of-use assets and lease liabilities arising from a lease are ﬁed as corporate investments and represent loans receiv- initially measured on a present value basis. Right-of-use able from subsidiaries of Onex, which are recorded at fair assets are included within property and equipment in the value in the consolidated ﬁnancial statements. Onex has consolidated balance sheet at December 31, 2019. elected to measure these ﬁnancial instruments at fair value through net earnings, in accordance with IFRS 9. Onex Corporation December 31, 2019 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 Revenue recognition The Company’s signiﬁcant revenue streams during the year in the net asset value of clients’ assets under manage- ment. Performance allocations are allocated to the Com- ended December 31, 2019 were as follows: pany as a General Partner of certain Gluskin Sheff Funds. Management and advisory fees Performance fees associated with the Gluskin Sheff Funds range between 10% and 25% and may be subject to perfor- Onex earns management and advisory fees for managing mance hurdles. investor capital through its private equity funds, private Onex is also entitled to performance fees on inves- credit strategies, public debt strategies and public equity tor capital it manages within the Onex Credit strategies. strategies, and for services provided directly to certain Performance fees for these strategies range between 15% underlying operating businesses. Onex accounts for man- and 20% of net gains and are generally subject to a hurdle agement and advisory fees as revenue from contracts with or minimum preferred return to investors. customers using the ﬁve-step model outlined in note 1 to the 2019 annual consolidated ﬁnancial statements. Asset management services are provided over time and the Signiﬁcant accounting estimates and judgements Onex prepares its consolidated ﬁnancial statements in accor- amount earned is generally calculated based on a percent- dance with IFRS. The preparation of ﬁnancial statements in age of limited partners’ committed capital, limited part- conformity with IFRS requires management to make judge- ners’ net funded commitments, unfunded commitments, ments, estimates and assumptions that affect the reported the collateral principal balance, gross invested assets or net amounts of assets, liabilities and equity, the related disclosures asset value of the respective strategies. Revenues earned of contingent assets and liabilities at the date of the ﬁnancial from management and advisory fees are recognized over statements, and the reported amounts of revenue, expenses time as the services are provided. and gains (losses) on ﬁnancial instruments during the report- ing period. Actual results could differ materially from those Reimbursement of expenses from investment funds estimates and assumptions. These estimates and underlying and operating businesses assumptions are reviewed on an ongoing basis. Revisions to Certain deal investigation, research and other expenses accounting estimates are recognized in the period in which the incurred by the Asset Managers are recoverable from the estimate is revised if the revision affects only that period, or Onex Partners Funds, ONCAP Funds, Onex Credit strategies in the period of the revision and future periods if the revision and certain operating businesses of the Onex Partners and affects both current and future periods. ONCAP Funds. These expense reimbursements are recog- nized as revenue in accordance with IFRS 15, Revenue from contracts with customers (“IFRS 15”). Areas that involve critical judgements, assump- tions and estimates and that have a signiﬁcant inﬂuence on the amounts recognized in the consolidated ﬁnancial state- ments are further described as follows: Performance fees Onex accounts for performance fees as revenue from con- Investment entity status tracts with customers using the ﬁve-step model outlined in Judgement was required when determining whether Onex, note 1 to the 2019 annual consolidated ﬁnancial statements. the parent company, meets the deﬁnition of an investment Perfor mance fees are recognized as revenue to the extent entity, which IFRS 10 deﬁnes as an entity that: (i) obtains the fees are highly probable to not reverse, which is typically funds from one or more investors for the purpose of provid- at the end of each performance year, or upon closure of an ing those investors with investment management services; account or transfer of assets to a different investment model. (ii) commits to its investors that its business purpose is to Performance fees associated with the management invest funds solely for returns from capital appreciation, of the Gluskin Sheff Funds include both performance fees investment income, or both; and (iii) measures and evalu- and performance allocations. Performance fees are deter- ates the performance of substantially all of its investments mined by applying an agreed-upon formula to the growth on a fair value basis. When determining whether Onex 26 Onex Corporation December 31, 2019 M A N A G E M E N T ’ S D I S C U S S I O N A N D A N A LY S I S met the deﬁnition of an investment entity under IFRS 10, For publicly traded investments, the valuation is Onex management applied signiﬁcant judgement when based on closing market prices less adjustments, if any, for assessing whether the Company measures and evaluates regulatory and/or contractual sale restrictions. the performance of substantially all of its investments on a The fair value of underlying investments in Onex fair value basis. Credit strategies that are not quoted in an active market Onex conducts its business primarily through may be determined by using reputable pricing sources controlled subsidiaries, which consist of entities provid- (such as pricing agencies) or indicative prices from bond/ ing asset management services, investment holding com- debt market makers. Broker quotes as obtained from the panies and General Partners of private equity funds, credit pricing sources may be indicative and not executable or funds and limited partnerships. Certain of these subsidiar- binding. Judgement and estimates are exercised to deter- ies were formed for legal, regulatory or similar reasons by mine the quantity and quality of the pricing sources used. Onex and share a common business purpose. The assess- Where no market data is available, positions may be valued ment of whether Onex, the parent company, meets the deﬁnition of an investment entity was performed on an using models that include the use of third-party pricing information and are usually based on valuation methods aggregate basis with these subsidiaries. and techniques generally recognized as standard within Corporate investments the industry. Models use observable data to the extent practicable. However, areas such as credit risk (both own The measurement of corporate investments is signiﬁcantly and counterparty), volatilities and correlations may require impacted by the fair values of the investments held by the estimates to be made. Changes in assumptions about these Onex Partners Funds, ONCAP Funds and Onex Credit strat- factors could affect the reported fair value of the underly- egies. The fair value of corporate investments is assessed at ing investments in Onex Credit strategies. each reporting date with changes in fair value recognized The MIP is included in the fair value of corporate through net earnings. investments and is determined using an internally devel- The valuation of non-public investments requires oped valuation model. The critical assumptions and esti- signiﬁcant judgement due to the absence of quoted market mates used in the valuation model include the fair value of values, inherent lack of liquidity and the long-term nature the underlying investments, the time to expected exit from of such investments. Valuation methodologies include dis- each investment, a risk-free rate and an industry compa- counted cash ﬂows and observations of the trading mul- rable historical volatility for each investment. The fair value tiples of public companies considered comparable to the of the underlying investments includes the same critical private companies being valued. The valuations take into assumptions and estimates previously described. consideration company-speciﬁc items, the lack of liquidity The changes in fair value of corporate investments inherent in a non-public investment and the fact that com- are further described on page 34 of this MD&A. parable public companies are not identical to the compa- nies being valued. Such considerations are necessary since, The Company assessed whether its underlying subsidiaries in the absence of a committed buyer and completion of met the deﬁnition of an investment entity, as deﬁned under due diligence procedures, there may be company-speciﬁc IFRS 10. In certain circumstances, this assessment was per- items that are not fully known that may affect the fair value. formed together with other entities that were formed in A variety of additional factors are reviewed, including, but connection with each other for legal, regulatory or similar not limited to, ﬁnancing and sales transactions with third reasons. Similarly, where a subsidiary’s current business parties, current operating performance and future expec- purpose is to facilitate a common purpose with a group of tations of the particular investment, changes in market entities, the assessment of whether those subsidiaries met outlook and the third-party ﬁnancing environment. In the deﬁnition of an investment entity was performed on an determining changes to the fair value of the underlying aggregated basis. private equity investments, emphasis is placed on current company performance and market conditions. Onex Corporation December 31, 2019 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 Certain subsidiaries were formed for various growth rates, weighted average cost of capital and tax rates. business purposes that, in certain circumstances, have These estimates, including the methodology used, can evolved since their formation. When the Company assessed have a material impact on the respective values and ulti- whether these subsidiaries met the deﬁnition of an invest- mately the amount of any goodwill impairment. Likewise, ment entity, as deﬁned under IFRS 10, professional judge- whenever property, equipment and other intangible assets ment was exercised to determine the primary business are tested for impairment, the determination of the assets’ purpose of these subsidiaries and the measurement basis, recoverable amount involves the use of estimates by man- which were signiﬁcant factors in determining their invest- agement and can have a material impact on the respective ment entity status. values and ultimately the amount of any impairment. Business combination Income taxes In June 2019, Onex acquired 100% of Gluskin Sheff and The Company operates and earns income in various coun- accounted for this acquisition as a business combina- tion in accordance with IFRS 3, Business combinations. Substantially all of Gluskin Sheff’s identiﬁable assets and tries and is subject to changing tax laws or application of tax laws in multiple jurisdictions within these countries. Sig- niﬁcant judgement is necessary in determining worldwide liabilities were recorded at their respective fair values on income tax liabilities. Although management believes that the date of acquisition. One of the most signiﬁcant areas it has made reasonable estimates about the ﬁnal outcome of judgement and estimation related to the determination of tax uncertainties, no assurance can be given that the ﬁnal of the fair value of these assets and liabilities. Investments outcome of these tax matters will be consistent with what is were valued at market prices while intangible assets that reﬂected in the historical income tax provisions. Such dif- were identiﬁed were valued by an independent external ferences could have an effect on income tax liabilities and valuation expert using appropriate valuation techniques, deferred tax liabilities in the period in which such determi- which were generally based on a forecast of the total nations are made. At each balance sheet date, the Company expected future net cash ﬂows. These valuations are linked assesses whether the realization of future tax beneﬁts is closely to the assumptions made by management regard- sufﬁciently probable to recognize deferred tax assets. This ing the future performance of the assets concerned and assessment requires the exercise of judgement on the any changes in the discount rate applied. part of management with respect to, among other things, beneﬁts that could be realized from available tax strategies Goodwill impairment tests and recoverability of assets and future taxable income, as well as other positive and The Company tests at least annually whether goodwill has negative factors. The recorded amount of total deferred tax suffered any impairment, in accordance with its account- assets could be reduced if estimates of projected future tax- ing policies. The determination of the recoverable amount able income and beneﬁts from available tax strategies are of a cash-generating unit (“CGU”) to which goodwill is lowered, or if changes in current tax regulations are enacted allocated involves the use of estimates by management. that impose restrictions on the timing or extent of the Com- The Company generally uses discounted cash ﬂow-based pany’s ability to utilize future tax beneﬁts. methods to determine these values. These discounted cash The Company uses signiﬁcant judgement when ﬂow calculations typically use ﬁve-year projections that are determining whether to recognize deferred tax liabili- based on the operating plans approved by management. ties with respect to taxable temporary differences associ- Cash ﬂow projections take into account past experience ated with corporate investments, in particular whether the and represent management’s best estimate of future devel- Company is able to control the timing of the reversal of the opments. Cash ﬂows after the planning period are extrap- temporary differences and whether it is probable that the olated using estimated growth rates. Key assumptions on temporary differences will not reverse in the foreseeable which management has based its determination of fair future. Judgement includes consideration of the Company’s value less costs to sell and value in use include estimated future cash requirements in its numerous tax jurisdictions. 28 Onex Corporation December 31, 2019 M A N A G E M E N T ’ S D I S C U S S I O N A N D A N A LY S I S Legal provisions and contingencies In addition, the fair values of Onex’ underlying The Company in the normal course of operations can investments in Onex Credit strategies are impacted by the become involved in various legal proceedings. While the CLO market, leveraged loan market and credit risk (both Company cannot predict the ﬁnal outcome of such legal own and counterparty), which may vary substantially from proceedings, the outcome of these matters may have a quarter to quarter and year to year. material effect on the Company’s consolidated ﬁnancial position, results of operations or cash ﬂows. Management A C Q U I S I T I O N O F G L U S K I N S H E F F regularly analyzes current information about these mat- ters and provides provisions for probable contingent losses, In June 2019, Onex acquired 100% of Gluskin Sheff for including an estimate of legal expenses to resolve the mat- C$445 million ($329 million). Gluskin Sheff is a Canadian ters. Internal and external counsel are used for these assess- wealth management ﬁrm serving high net worth families ments. In making the decision regarding the need for and institutional investors. The Company acquired Gluskin provisions, management considers the degree of probabil- ity of an unfavourable outcome and the ability to make a Sheff to diversify and expand its distribution channels and to grow its fee-generating assets under management. As sufﬁciently reliable estimate of the amount of loss. The ﬁling part of the acquisition, certain members of the Gluskin Sheff of a suit or formal assertion of a claim or the disclosure of management team exchanged their Gluskin Sheff com- any such suit or assertion does not automatically indicate mon shares for Onex SVS and limited partnership units that a provision may be appropriate. V A R I A B I L I T Y O F R E S U L T S from a subsidiary of Onex. In connection with this transac- tion, Onex issued 247,359 SVS with a fair value of $13 mil- lion (C$18 million) and limited partnership units of an Onex consolidated subsidiary with a fair value of $8 million Onex’ consolidated operating results may vary substan- (C$11 million), in addition to cash consideration paid of tially from quarter to quarter and year to year for a number $308 million (C$416 million). Gluskin Sheff’s revenues and of reasons. Those reasons may be signiﬁcant with respect to expenses are substantially denominated in Canadian dollars. (i) Onex’ asset and wealth management activities and the Onex determined that Gluskin Sheff and the fees and carried interest associated therewith; (ii) the aggre- wholly-owned subsidiaries that were formed to acquire gate fair value of its investments in and related to the private the company did not meet the deﬁnition of an investment equity funds, including the underlying private equity operat- entity under IFRS 10 and that the entities’ primary busi- ing businesses, and credit strategies as the result of not only ness purpose, as a whole, is to provide investment-related changes in speciﬁc underlying values but also new invest- services. As such, Onex consolidates the ﬁnancial results of ments or realizations by those funds; or (iii) Onex’ cash posi- Gluskin Sheff and the wholly-owned subsidiaries that were tion or the amount and value of its treasury investments. formed to acquire the company. More broadly, Onex’ results may be materially affected by such factors as changes in the economic or political envi- ronment, foreign exchange and interest rates, the value of stock-based compensation, and tax and trade legisla- tion or its application, for example. Given the diversity of Onex’ asset and wealth management businesses and of the Onex Partners and ONCAP Funds’ operating businesses and Onex Credit investments, the exposures, risks and contin- gencies that could impact Onex’ investments may be many, varied and material. Certain of those matters are discussed under the heading “Risk Factors” in Onex’ 2019 Annual Infor - mation Form. Onex Corporation December 31, 2019 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 R E V I E W O F 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 A N D F O U R T H Q U A R T E R R E S U L T S Tables 1 and 2 present the segmented results for the three months and year ended December 31, 2019. Onex’ seg- mented results include allocations of management fees and carried interest that would have been recognized on Onex’ The discussions that follow identify those material factors capital in the Onex Partners and ONCAP Funds had Onex’ that affected Onex’ consolidated ﬁnancial results for the capital been subject to the same terms as third-party limited year ended December 31, 2019. As a result of the change in partners. These allocations are made as this presentation of Onex’ investment entity status, Onex has two reportable segmented results is used by Onex management, in part, to segments as of January 1, 2019, and most ﬁnancial state- assess Onex’ performance. During 2019, these allocations, ment line items are not comparable to the ﬁnancial results on a net basis, reduced Onex’ investing segment income and for the years ended December 31, 2018 and 2017 following increased Onex’ asset and wealth management segment the change in Onex’ investment entity status, as described income, with no net impact to total segment net earnings. on page 24 of this MD&A. Onex’ segmented results exclude revenues and expenses associated with recoverable expenses from the Consolidated net earnings (loss) Onex recorded consolidated net earnings of $4.3 billion Onex Partners Funds, ONCAP Funds, Onex Credit strategies and the operating businesses of Onex Partners and ONCAP. and diluted net earnings per share of $42.74 during the year Onex management excludes these amounts when assess- ended December 31, 2019, which included a non-recurring ing Onex’ performance given the nature of these expenses, net gain of $3.5 billion as a result of the derecognition of pre- which are recoverable at cost. viously consolidated corporate investments following the change in Onex’ investment entity status, as described on page 24 of this MD&A. During the same period in 2018, Onex recorded a consolidated net loss of $796 million and the net loss attributable to equity holders of Onex was $663 million ($6.57 diluted net loss per share). 30 Onex Corporation December 31, 2019 TABLE 1 ($ millions) Three months ended December 31, 2019 Net gains on corporate investments (including an increase in carried interest) Management and advisory fees Interest and net treasury investment income Performance fees Other income Total segment income Compensation Amortization of right-of-use assets Other expense Segment net earnings Stock-based compensation Amortization of property, equipment and intangible assets, excluding right-of-use assets Integration expenses Earnings before income taxes Recovery of income taxes Net earnings Segment net earnings per share(d) Net earnings per share – diluted M A N A G E M E N T ’ S D I S C U S S I O N A N D A N A LY S I S Investing $ 156(b)(c) – 4 – – 160 – – – Asset and Wealth Management(a) $ 10(b) 82(c) – 23 1 116 (48) (2) (15) Total $ 166 (b)(c) 82 (c) 4 23 1 276 (48) (2) (15) $ 160 $ 51 $ 211 (7) (13) (5) 186 1 $ 187 $ 2.04 $ 1.86 (a) The asset and wealth management segment includes the costs of Onex’ corporate functions. (b) The asset and wealth management segment includes an allocation of $1 million from the investing segment, representing carried interest that would have been recognized by the asset and wealth management segment had Onex’ capital been subject to carried interest under the same terms as third-party limited partners of the Onex Partners and ONCAP Funds. This allocation was made in accordance with IFRS 8 as this presentation is used by management, in part, to assess the performance of Onex. (c) The asset and wealth management segment includes an allocation of $15 million from the investing segment, representing management fees that would have been earned by the asset and wealth management segment had Onex’ capital been subject to management fees under the same terms as third-party limited partners of the Onex Partners and ONCAP Funds. This allocation was made in accordance with IFRS 8 as this presentation is used by management, in part, to assess the performance of Onex. (d) Calculated on a fully diluted basis. Net earnings in the investing segment for the three months ended December 31, 2019 were primarily driven by net gains on corporate investments of $156 million. Net earnings in the asset and wealth management segment for the three months ended December 31, 2019 were primarily driven by management and advisory fees of $82 million along with performance fees of $23 million, substantially all from Gluskin Sheff managed funds, partially offset by $48 million of compensation expense. Onex Corporation December 31, 2019 31 M A N A G E M E N T ’ S D I S C U S S I O N A N D A N A LY S I S TABLE 2 ($ millions) Year ended December 31, 2019 Net gains (losses) on corporate investments (including a decrease in carried interest) Management and advisory fees Interest and net treasury investment income Performance fees Other income Total segment income Compensation Amortization of right-of-use assets Other expense Segment net earnings Stock-based compensation Investing $ 743(b)(c) – 14 – – 757 – – (1) Asset and Wealth Management(a) $ (5)(b) 302(c) – 24 3 324 (178) (9) (57) Total $ 738 (b)(c) 302 (c) 14 24 3 1,081 (178) (9) (58) $ 756 $ 80 $ 836 Amortization of property, equipment and intangible assets, excluding right-of-use assets Acquisition and integration expenses(d) Gain on derecognition of previously consolidated corporate investments Reclassification from accumulated other comprehensive loss on derecognition of previously consolidated corporate investments Earnings before income taxes Recovery of income taxes Net earnings Segment net earnings per share(e) Net earnings per share – diluted (60) (36) (50) 3,719 (170) 4,239 38 $ 4,277 $ 8.09 $ 42.74 (a) The asset and wealth management segment includes the costs of Onex’ corporate functions. (b) The asset and wealth management segment includes an allocation of $4 million from the investing segment, representing a net reversal of carried interest that would have been recognized by the asset and wealth management segment had Onex’ capital been subject to carried interest under the same terms as third-party limited partners of the Onex Partners and ONCAP Funds. This allocation was made in accordance with IFRS 8 as this presentation is used by management, in part, to assess the performance of Onex. (c) The asset and wealth management segment includes an allocation of $61 million from the investing segment, representing management fees that would have been earned by the asset and wealth management segment had Onex’ capital been subject to management fees under the same terms as third-party limited partners of the Onex Partners and ONCAP Funds. This allocation was made in accordance with IFRS 8 as this presentation is used by management, in part, to assess the performance of Onex. (d) Primarily relates to expenses associated with the retirement of the Onex Credit chief executive ofﬁcer, as described on page 39 of this MD&A. (e) Calculated on a fully diluted basis. Net earnings in the investing segment for the year ended earnings of approximately $94 million ($0.90 per fully December 31, 2019 were primarily driven by net gains on diluted share) for the year ended December 31, 2019 had corporate investments of $743 million. Net earnings in the Gluskin Sheff been acquired on January 1, 2019, and the asset and wealth management segment for the year ended investing segment net earnings would have remained December 31, 2019 were primarily driven by manage- unchanged. Total segment net earnings would have been ment and advisory fees of $302 million, partially offset by $850 million ($8.23 per fully diluted share) for the year $178 million of compensation expense. Onex’ asset and ended December 31, 2019 had Gluskin Sheff been acquired wealth management segment would have generated net on January 1, 2019. 32 Onex Corporation December 31, 2019 M A N A G E M E N T ’ S D I S C U S S I O N A N D A N A LY S I S Net earnings (loss) for the three and twelve months ended December 31, 2018 are not comparable to the results in tables 1 and 2 following the change in Onex’ investment entity status, as described on page 24 of this MD&A. Net earnings (loss) for the year ended December 31, 2018 are presented by industry segment in note 58 to the consolidated ﬁnancial statements. The statements of earnings for the three months and year ended December 31, 2018 are as follows: TABLE 3 ($ 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 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 Loss before income taxes and discontinued operations Recovery of (provision for) income taxes Earnings (loss) from continuing operations Earnings from discontinued operations Net Earnings (Loss) Three Months Ended December 31, 2018 Year Ended December 31, 2018 $ 6,090 $ 23,785 (4,567) (1,037) 149 (162) (192) (459) (384) 118 261 (452) (324) 947 (12) 85 73 15 88 $ (17,563) (4,077) 538 (643) (744) (1,439) (585) 58 343 (517) (627) 714 (757) (89) (846) 50 $ (796) Table 4 presents the net earnings (loss) attributable to Net Earnings (Loss) per SVS of Onex Corporation equity holders of Onex Corporation and non-controlling interests. Net Earnings (Loss) TABLE 4 ($ millions) Year ended December 31 2019 2018 2017 Net earnings (loss) attributable to: Equity holders of Onex Corporation $ 4,277 $ (663) $ 2,401 Non-controlling interests – (133) 3 Net earnings (loss) for the year $ 4,277 $ (796) $ 2,404 TABLE 5 ($ per share) Year ended December 31 2018 2017 Basic and Diluted: Continuing operations Discontinued operations Net earnings (loss) per SVS $ (7.05) $ (7.51) 0.48 31.05 for the year $ (6.57) $ 23.54 Note 58 to the consolidated ﬁnancial statements shows the consolidated net earnings (loss) by industry segment and the amounts attributable to the equity holders of Onex Cor- poration and non-controlling interests for the year ended During the year ended December 31, 2019, basic and diluted December 31, 2018. earnings per share were $42.78 and $42.74, respectively. Basic and diluted earnings per share during the years ended December 31, 2018 and 2017 are presented in table 5. Onex Corporation December 31, 2019 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 Consolidated income for the three and twelve months ended December 31, 2019 Consolidated income for the three and twelve months ended managing client and limited partner capital through its private equity funds, private credit strategies, public debt strategies and public equity strategies. During the three and December 31, 2019 primarily consisted of: (i) net gains on twelve months ended December 31, 2018, Onex did not rec- corporate investments, which primarily consisted of Onex’ ognize any income for gains (losses) on corporate invest- share of the net gains (losses) in the Onex Partners Funds, ments in its consolidated statement of earnings given its ONCAP Funds and Onex Credit strategies; and (ii) manage- investment entity status during this time, as described on ment and advisory fees, which Onex earns primarily from page 24 of this MD&A. Net gains on corporate investments in the investing segment of $156 million and $743 million for the three and twelve months ended December 31, 2019, respectively, were primarily attributable to the following private equity investments and Onex Credit strategies: TABLE 6 ($ millions) Onex Partners Funds(a) Onex Partners I Onex Partners II Onex Partners III Onex Partners IV Onex Partners V Management incentive programs Total net gains from Onex Partners Funds ONCAP Funds(a) ONCAP II ONCAP III ONCAP IV Management incentive programs Total net gains from ONCAP Funds Net gains from other private equity investments Management fees on Onex’ capital(b) Carried interest on Onex’ capital(c) Total net gains from private equity Onex Credit Strategies U.S. CLOs EURO CLOs CLO warehouses Direct lending OCP Senior Floating Income Fund Onex Debt Opportunity Fund Onex Senior Credit Fund Net Gains (Losses) on Corporate Investments Three Months Ended December 31, 2019 Year Ended December 31, 2019 $ – (27) 45 108 46 (88) 84 17 12 15 (6) 38 39 (15) (1) $ 145 $ 7 2 – 2 1 (2) 2 $ 1 (48) 24 793 48 (136) 682 10 8 (4) – 14 44 (61) 4 $ 683 $ 33 – 8 7 8 – 8 Total net gains from Onex Credit Strategies $ 12 $ 64 (a) Onex’ investments in the Onex Partners and ONCAP Funds include co-investments, where applicable. (b) Represents management fees that would have been incurred had Onex’ capital been subject to management fees under the same terms as third-party limited partners of the Onex Partners and ONCAP Funds. These management fees reduce Onex’ investing segment income in the periods and increase Onex’ asset and wealth management segment income. (c) Represents carried interest that would have been recognized had Onex’ capital been subject to carried interest under the same terms as third-party limited partners of the Onex Partners and ONCAP Funds. The carried interest allocations increase (decrease) Onex’ investing segment income in the periods, with a corresponding decrease (increase) in Onex’ asset and wealth management segment income. 34 Onex Corporation December 31, 2019 M A N A G E M E N T ’ S D I S C U S S I O N A N D A N A LY S I S During the three and twelve months ended December 31, 2019 was primarily driven by an increase in the underlying 2019, net gains on corporate investments were primarily fair value of SIG. The net increase in the fair value of Onex’ driven by the net increase in fair value of Onex’ investment investment in Onex Partners IV during the year ended in Onex Partners IV, partially offset by a decrease in fair December 31, 2019 was primarily driven by increases in the value related to changes to the Onex management team’s underlying fair values of Clarivate Analytics, Jack’s and SIG, participation, as described on page 62 of this MD&A. The partially offset by a decrease in the fair values of Save-A-Lot net increase in the fair value of Onex’ investment in Onex and Survitec. Partners IV during the three months ended December 31, Management and advisory fees for the three and twelve months ended December 31, 2019 were generated from the follow- ing sources: TABLE 7 ($ millions) Source of management and advisory fees Onex Partners Funds(a) Onex Credit Strategies Public Debt Strategies(b) Public Equity Strategies(b) ONCAP Funds(c) Total management and advisory fees earned Management fees on Onex’ capital(d) Total segment management and advisory fees Management and Advisory Fees Three Months Ended December 31, 2019 Year Ended December 31, 2019 $ 31 $ 129 13 10 8 5 67 15 52 25 18 17 241 61 $ 82 $ 302 (a) Includes advisory fees earned from Onex Partners operating businesses. (b) Includes management fees earned from Gluskin Sheff since June 2019, when Onex acquired the company, as described on page 29 of this MD&A. (c) Includes advisory fees earned from ONCAP operating businesses. (d) Represents management fees that would have been earned had Onex’ capital been subject to management fees under the same terms as third-party limited partners of the Onex Partners and ONCAP Funds. These management fees reduce Onex’ investing segment income in the period and increase Onex’ asset and wealth management segment income. Certain deal investigation, research and other costs incurred Onex also receives performance fees from investor capital it by the Asset Managers are recoverable from the Onex Part- ners Funds, ONCAP Funds, Onex Credit strategies and the manages within the Onex Credit strategies and Gluskin Sheff Funds. During the three and twelve months ended Decem- operating businesses of Onex Partners and ONCAP. These ber 31, 2019, Onex recognized $23 million and $24 million of cost reimbursements are recognized as revenue in accor- performance fees, which were realized from the public debt dance with IFRS 15. During the three and twelve months and public equity strategies of Gluskin Sheff. ended December 31, 2019, Onex recognized $8 million and $24 million, respectively, in revenues and expenses associ- ated with these reimbursements. Onex Corporation December 31, 2019 35 M A N A G E M E N T ’ S D I S C U S S I O N A N D A N A LY S I S Consolidated revenues and cost of sales for the three and twelve months ended December 31, 2018 and 2017 Consolidated revenues and cost of sales for the three and Partners and ONCAP Funds. During the three and twelve months ended December 31, 2019, Onex did not recognize any revenues or cost of sales from the controlled operating companies of the Onex Partners and ONCAP Funds in its twelve months ended December 31, 2018 and 2017 were consolidated statement of earnings following the change in primarily derived from products sold and services ren- the Company’s investment entity status on January 1, 2019, dered by the controlled operating companies of the Onex as described on page 24 of this MD&A. Tables 8 and 9 provide revenues and cost of sales by industry segment for the three and twelve months ended December 31, 2018 and 2017. Revenues and Cost of Sales by Industry Segment for the Three Months Ended December 31, 2018 and 2017 TABLE 8 ($ 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 were reported in accordance with IFRS. These results may differ from those reported by the individual operating companies. (a) The insurance services segment consisted of York, which reported its costs in operating expenses. (b) The packaging products and services segment consisted 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 consisted 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 consisted of Jack’s and Save-A-Lot. (e) The credit strategies segment consisted of (i) Onex Credit Manager, (ii) Onex Credit CLOs, (iii) Onex Credit Funds and (iv) Direct Lending. Costs of the credit strategies segment were recorded in operating expenses. (f) 2018 other included Flushing Town Center, KidsFoundation (since November 2018), Meridian Aviation, Parkdean Resorts, SCP Health, Survitec, WireCo, the operating companies of ONCAP II, III and IV (excluding IntraPac and Precision) and the parent company. 2017 other included Flushing Town Center, Meridian Aviation, Parkdean Resorts, SCP Health, Survitec, WireCo, the operating companies of ONCAP II, III and IV (excluding IntraPac) and the parent company. 36 Onex Corporation December 31, 2019 M A N A G E M E N T ’ S D I S C U S S I O N A N D A N A LY S I S Revenues and Cost of Sales by Industry Segment for the Twelve Months Ended December 31, 2018 and 2017 TABLE 9 ($ millions) Revenues Cost of Sales Year ended December 31 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 were reported in accordance with IFRS and may differ from those reported by the individual operating companies. (a) The insurance services segment consisted of York, which reported its costs in operating expenses. (b) The packaging products and services segment consisted 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 consisted 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 consisted of Jack’s and Save-A-Lot. (e) The credit strategies segment consisted of (i) Onex Credit Manager, (ii) Onex Credit CLOs, (iii) Onex Credit Funds and (iv) Direct Lending (since May 2017). Costs of the credit strategies segment were recorded in operating expenses. (f) 2018 other included Flushing Town Center, KidsFoundation (since November 2018), Meridian Aviation, Parkdean Resorts, SCP Health, Survitec, WireCo, the operating companies of ONCAP II, III and IV (excluding IntraPac and Precision) and the parent company. 2017 other included Flushing Town Center, Meridian Aviation, Parkdean Resorts (since March 2017), SCP Health, Survitec, WireCo, the operating companies of ONCAP II, III and IV (excluding IntraPac) and the parent company. An analysis of changes in revenues and cost of sales for the years ended December 31, 2018 and 2017 are presented begin- ning on page 42 of Onex’ 2018 MD&A. Onex Corporation December 31, 2019 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 Compensation Compensation expense for the three and twelve months Stock-based compensation During the three and twelve months ended December 31, ended December 31, 2019 was $48 million and $178 mil- 2019, Onex recorded consolidated stock-based compen- lion, respectively, and included the compensation expense sation expense of $7 million and $60 million, respectively, of Onex Partners, ONCAP, Onex Credit, Gluskin Sheff (since compared to a recovery of $118 million and $58 million, June 2019) and Onex corporate, excluding stock-based respectively, during the same periods in 2018. The stock- compensation. During the three and twelve months ended based compensation expense recognized during the three December 31, 2018, compensation expense was classiﬁed and twelve months ended December 31, 2019 related as cost of sales and operating expenses in the consolidated to Onex, the parent company, for its stock options and statement of earnings and included the compensation Director DSUs. The recovery recognized during the same expense for employees of the Onex controlled operating periods in 2018 also included the expense (recovery) asso- companies, Onex Partners, ONCAP, Onex Credit and Onex ciated with the MIP equity interests and stock-based com- corporate. The change in classiﬁcation of compensation expense in the consolidated statement of earnings was a pensation plans at the controlled operating companies. The expense associated with the MIP equity interests dur- result of the change in the Company’s investment entity ing the three and twelve months ended December 31, 2019 status, as described on page 24 of this MD&A. was included as a component of the net gains on corpo- rate investments following the change in Onex’ investment entity status. The expense and recovery associated with the stock-based compensation plans at the previously consoli- dated operating companies is no longer recognized follow- ing the change in Onex’ investment entity status. Table 10 details the change in stock-based compensation. Stock-Based Compensation TABLE 10 ($ millions) Three Months Ended December 31 Year Ended December 31 Onex, the parent company, stock options Onex, the parent company, director DSU plan Onex, the parent company, MIP equity interests Onex operating companies 2019 $ 6 1 – – 2018 Change $ (130) $ 136 – (9) 21 1 9 (21) 2019 $ 59 1 – – 2018 Change $ (143) $ 202 – 2 83 1 (2) (83) Total stock-based compensation expense (recovery) $ 7 $ (118) $ 125 $ 60 $ (58) $ 118 Amortization of property, equipment and intangible assets Amortization of property, equipment and intangible assets respectively, and was classiﬁed as amortization of property, plant and equipment and amortization of intangible assets and deferred charges in the consolidated statement of earn- for the three and twelve months ended December 31, 2019 ings, and included the expenses of the controlled operating was $15 million and $45 million, respectively, and con- companies as well as Onex. The decrease in amortization sisted primarily of amortization expense of client relation- expense and the change in classi ﬁ cation were primarily ship intangible assets, right-of-use assets and leasehold driven by the derecognition of previously consolidated con- improvements related to Onex’ leased premises. During the trolled operating companies on January 1, 2019, as described three and twelve months ended December 31, 2018, amor- on page 24 of this MD&A. tization expense totalled $354 million and $1.4 billion, 38 Onex Corporation December 31, 2019 M A N A G E M E N T ’ S D I S C U S S I O N A N D A N A LY S I S Acquisition, integration and other expenses During 2019, the chief executive ofﬁcer of Onex Credit (the “Onex Credit CEO”) retired from the Company. The Onex Gain on derecognition of previously consolidated corporate investments As a result of a change in Onex’ investment entity status on Credit CEO holds an interest in Onex Credit that entitles January 1, 2019, as described on page 24 of this MD&A, a him to distributions from the business through 2034 (the non-recurring gain on derecognition of previously consoli- “CEO’s Participation”). Distributions associated with the dated corporate investments of $3.7 billion was recorded in CEO’s Participation were previously recognized as compen- the consolidated statement of earnings for the year ended sation expense. Following the retirement, Onex no longer December 31, 2019. The gain represents the difference receives services associated with the CEO’s Participation. As between the fair value of previously consolidated corporate a result, Onex recorded an expense of $44 million for the investments and their carrying values on January 1, 2019. year ended December 31, 2019, representing a discounted value of the future distributions in respect of the CEO’s Participation. Onex has a total of $47 million recorded in other liabilities, including a previously recognized retire- ment obligation, which economically represents Onex’ cost Reclassiﬁcation from accumulated other comprehensive loss on derecognition of previously consolidated corporate investments As a result of a change in Onex’ investment entity status to ultimately acquire the CEO’s Participation. on January 1, 2019, a non-recurring $170 million loss was Other expenses for the three and twelve months reclassiﬁed from accumulated other comprehensive loss ended December 31, 2018 are not comparable to the results to net earnings for the year ended December 31, 2019 as a in the same periods in 2019 as a result of the change in result of the derecognition of previously consolidated cor- Onex’ investment entity status, as described on page 24 porate investments, as described on page 24 of this MD&A. of this MD&A. Other expenses for the year ended Decem- The accumulated other comprehensive loss primarily con- ber 31, 2018 are presented in note 52 to the consolidated sisted of currency translation adjustments. ﬁnan cial statements. Interest expense Consolidated interest expense for the three and twelve Decrease in value of investments in joint ventures and associates at fair value, net During the three and twelve months ended December 31, months ended December 31, 2019 was less than $1 million 2019, Onex did not have any investments classiﬁed as invest- and $2 million, respectively, relating to lease liabilities, and ments in joint ventures and associates as a result of the was classi ﬁed as other expense in the consolidated state- change in its investment entity status on January 1, 2019, as ment of earnings. Consolidated interest expense for the described on page 24 of this MD&A. During the three and three and twelve months ended December 31, 2018 was twelve months ended December 31, 2018, investments in $459 million and $1.4 billion, respectively, and included joint ventures and associates represented those investments the consolidated interest expense of the previously con- in operating businesses over which Onex had joint control solidated operating companies and credit strategies. The or signiﬁcant inﬂuence, but not control. These investments decrease in interest expense was primarily driven by the were measured at fair value with both realized and unreal- derecognition of previously consolidated controlled oper- ized gains and losses recognized in the 2018 consolidated ating companies and credit strategies on January 1, 2019, statement of earnings as a result of increases or decreases as described on page 24 of this MD&A. in fair value. Investments deemed to be investments in joint ventures or associates and measured at fair value through net earnings (loss) during the three and twelve months ended December 31, 2018 primarily consisted of AIT, BBAM, JELD-WEN, Mavis Discount Tire (up to March 2018), Pinnacle Renewable Energy (since February 2018), Power- School (since August 2018), Ryan (since October 2018), Venan pri Group and Wyse (since November 2018). Onex Corporation December 31, 2019 39 M A N A G E M E N T ’ S D I S C U S S I O N A N D A N A LY S I S During the three months ended December 31, 2018, Onex recorded a net decrease in the fair value of Other gains In February 2018, Pinnacle Renewable Energy completed investments in joint ventures and associates of $384 mil- an initial public offering. As a result of this transaction, the lion. The decrease was primarily due to the decrease in ONCAP II Group no longer controlled Pinnacle Renewable the public share price of JELD-WEN, partially offset by an Energy, and a gain of $82 million was recorded during increase in the fair value of BBAM. the year ended December 31, 2018 based on the interest Of the total net fair value decrease recorded dur- retained at fair value over the historical accounting carrying ing the fourth quarter of 2018, $279 million was attributable value of the investment. The gain was entirely attributable to the limited partners in the Onex Partners and ONCAP to the equity holders of Onex, as the interests of the Limited Funds, which impacted the Limited Partners’ Interests Partners were recorded as a ﬁnancial liability at fair value. recovery. Onex’ share of the total net fair value decrease In November 2018, the ONCAP III and ONCAP IV was $105 million. Groups sold their entire investment in Tecta, resulting in a During the year ended December 31, 2018, Onex recorded a net decrease in the fair value of investments in gain of $261 million. The gain was entirely attributable to the equity holders of Onex, as the interests of the Limited joint ventures and associates of $585 million. The decrease Partners were recorded as a ﬁnancial liability at fair value. was primarily due to the decrease in the public share price Following Onex’ change in its investment entity of JELD-WEN, partially offset by an increase in the fair status on January 1, 2019, as described on page 24 of this value of BBAM and Mavis Discount Tire (up to March 2018). MD&A, Onex no longer recognizes gains from the loss of Of the total net fair value decrease recorded dur- control of operating companies as Onex no longer consoli- ing the year ended December 31, 2018, $456 million was dates its controlled operating companies. attributable to the limited partners in the Onex Partners and ONCAP Funds, which impacted the Limited Partners’ Interests recovery. Onex’ share of the total net fair value decrease was $129 million. Impairment of goodwill, intangible assets and long-lived assets, net Onex did not recognize an impairment of goodwill, intangi- ble assets and long-lived assets during the three and twelve months ended December 31, 2019. Table 11 provides a breakdown of the net impairment of goodwill, intangible assets and long-lived assets by operating company for the three and twelve months ended December 31, 2018. The decrease in impairment of goodwill, intangible assets and long-lived assets was driven by the derecognition of pre- viously consolidated controlled operating companies on January 1, 2019, as described on page 24 of this MD&A. Impairment of Goodwill, Intangible Assets and Long-Lived Assets, Net TABLE 11 ($ millions) Parkdean Resorts Save-A-Lot Survitec sgsco SCP Health Other, net Total 40 Onex Corporation December 31, 2019 Three Months Ended December 31, 2018 Year Ended December 31, 2018 $ – 80 144 52 – 48 $ 170 150 144 52 50 61 $ 324 $ 627 M A N A G E M 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) Onex did not recognize a Limited Partners’ Interest charge During the three and twelve months ended Decem- ber 31, 2018, Onex recorded a recovery of $34 million and during the three and twelve months ended December 31, a charge of $1 million, respectively, for Limited Partners’ 2019 as a result of the change in its investment entity status Interests for the credit strategies. on January 1, 2019, as described on page 24 of this MD&A. The Limited Partners’ Interests recovery in Onex’ consolidated statement of earnings for the year ended Recovery of (provision for) income taxes As a result of the acquisition of Gluskin Sheff in June 2019, December 31, 2018 primarily represented the change in Onex recognized a deferred tax liability attributable to the the fair value of the underlying investments in the Onex acquired limited life intangible assets of Gluskin Sheff, Partners Funds, ONCAP Funds and Onex Credit strategies which was included in the acquired net assets of Gluskin that was allocated to the limited partners and recorded as Sheff, as described in note 2 to the consolidated ﬁnancial Limited Partners’ Interests liability in Onex’ 2018 consoli- statements. In connection with this transaction, Onex rec- dated balance sheet. The Limited Partners’ Interests recov- ery for the Onex Partners and ONCAP Funds included the ognized a deferred tax asset relating to income tax losses that are available to offset this future income tax liability, fair value changes of consolidated operating companies, resulting in a $1 million and $38 million deferred income investments in joint ventures and associates and other tax recovery recognized during the three and twelve months investments that were held in the Onex Partners and ONCAP ended December 31, 2019, respectively. The deferred tax lia- Funds. The Limited Partners’ Interests charge for the credit bility and deferred tax asset will be amortized over the useful strategies included the fair value changes of the underlying life of the limited life intangible assets. investments in the Onex Credit Lending Partners and Onex During the three months ended December 31, Credit Funds that were consolidated by Onex. 2018, the consolidated recovery of income taxes was During the three and twelve months ended $85 million and during the year ended December 31, 2018, December 31, 2018, Onex recorded a recovery of $913 mil- the consolidated provision for income taxes was $89 mil- lion and $715 million, respectively, for Limited Partners’ lion. During the three and twelve months ended Decem- Interests for the Onex Partners and ONCAP Funds. The net ber 31, 2018, the consolidated recovery of (provision for) decrease in the fair value of certain of the investments held income taxes included the consolidated recovery of (provi- in the Onex Partners and ONCAP Funds contributed to the sion for) income taxes of the previously consolidated oper- Limited Partners’ Interests recovery for the Onex Partners ating companies. and ONCAP Funds recorded during the three and twelve months ended December 31, 2018. Included in the Limited Partners’ Interests recov- Earnings (loss) from continuing operations During 2019, Onex did not record any results from discon- ery for the Onex Partners and ONCAP Funds was a decrease tinued operations. As a result, Onex’ earnings from continu- of $81 million and $93 million in carried interest for the ing operations are discussed in the net earnings section on three and twelve months ended December 31, 2018, respec- page 30 of this MD&A. Onex recorded a loss from continu- tively. Onex’ share of the change in carried interest for the ing operations of $846 million during 2018 compared to fourth quarter of 2018 was a decrease of $33 million. For the $699 million in 2017. During 2018, the loss from continu- year ended December 31, 2018, Onex’ share of the change ing operations attributable to equity holders of Onex Cor- in carried interest was a decrease of $38 million. The ulti- po ration was $711 million ($7.05 per share) compared to mate amount of carried interest realized will be dependent $768 million ($7.51 per share) in 2017. Note 58 to the consoli- on the actual realizations for each fund in accordance with dated ﬁnancial statements shows the earnings (loss) from the limited partnership agreements. continuing operations by reportable segment for the year ended December 31, 2018. Onex Corporation December 31, 2019 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 Earnings from discontinued operations The Company did not have earnings or losses from dis- Other comprehensive losses for the year ended December 31, 2018 represent the unrealized gains or losses, continued operations during the three and twelve months net of income taxes, related to cash ﬂow hedges, remea- ended December 31, 2019. surements for post-employment beneﬁt plans and foreign During 2018, Onex recorded after-tax earnings exchange gains or losses on foreign self-sustaining opera- from discontinued operations of $50 million. The after- tions. During the year ended December 31, 2018, Onex tax earnings from discontinued operations attributable to reported other comprehensive losses of $312 million. The equity holders of Onex Corporation were $48 million ($0.48 loss recorded during 2018 was largely due to unfavourable per share). Earnings from discontinued operations for 2018 currency translation adjustments on foreign operations of represented the results of BrightSpring Health, which are $236 million. further described in note 34 to the consolidated ﬁnancial statements. 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 Other comprehensive earnings (loss) Other comprehensive earnings of $184 million for the Tables 12 and 13 summarize Onex’ key consolidated ﬁnan- cial information for the last eight quarters. Historical ﬁnan- year ended December 31, 2019 are due to the $170 million cial information has been restated for the discontinued reclassiﬁcation of accumulated other comprehensive loss of operations of BrightSpring Health. the previously consolidated operating companies to the con- Onex’ quarterly consolidated ﬁnancial results fol- solidated statement of earnings as a result of the change in lowing the change in Onex’ investment entity status on Onex’ investment entity status under IFRS 10, as described on Janu ary 1, 2019, as described on page 24 of this MD&A, are page 24 of this MD&A, as well as favourable currency transla- not comparable to the historical results. In addition, Onex’ tion adjustments of $14 million. quarterly consolidated results up to December 31, 2018 did not follow any speciﬁc trends due to the acquisitions or dis- positions of businesses by Onex, and the varying business activities and cycles at Onex’ operating businesses and Onex Credit strategies. 42 Onex Corporation December 31, 2019 M A N A G E M E N T ’ S D I S C U S S I O N A N D A N A LY S I S Consolidated Quarterly Financial Information TABLE 12 ($ millions except per share amounts) 2019 Total segment income Total segment expenses Segment net earnings Other non-segment items Net earnings Segment net earnings per share(i) Net earnings per share – basic and diluted (i) Calculated on a fully diluted basis. December September June March $ 276 $ 197 $ 355 $ 253 (65) 211 (24) (66) 131 (31) (56) 299 (41) $ 187 $ 100 $ 258 $ 2.04 $ 1.86 $ 1.27 $ 0.99 $ 2.90 $ 2.58 (58) 195 3,537 $ 3,732 $ 1.91 $ 37.37 Consolidated Quarterly Results Prior to Change in Investment Entity Status TABLE 13 ($ millions except per share amounts) 2018 Revenues Earnings (loss) from continuing operations Net earnings (loss) Net earnings (loss) attributable to: Equity holders of Onex Non-controlling Interests Net earnings (loss) Earnings (loss) per share Earnings (loss) from continuing operations Earnings from discontinued operations Net earnings (loss) December September June March $ 6,090 $ $ 73 88 $ 6,105 $ $ (470) (458) $ 5,999 $ $ (272) (262) $ 5,591 $ $ (177) (164) $ 173 $ (425) $ (253) $ (158) (85) (33) (9) (6) $ 88 $ (458) $ (262) $ (164) $ 1.57 0.14 $ 1.71 $ (4.33) 0.11 $ (4.22) $ (2.59) 0.09 $ (2.50) $ (1.69) 0.13 $ (1.56) Onex Corporation December 31, 2019 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 S H A R E H O L D E R C A P I T A L As at December 31, 2019, Onex’ shareholder capital was $7.2 billion ($69.47 or C$90.23 per fully diluted share). Shareholder capital and shareholder capital per share are non-GAAP ﬁnancial measures used by Onex management to, in part, assess Onex’ performance. A reconciliation of total segmented assets to shareholder capital is included in the following table: ($ millions except per share amounts) TABLE 14 As at December 31, 2019 Total segmented assets Accounts payable and accrued liabilities Accrued compensation Lease and other liabilities DSU hedge assets Total shareholder capital Shareholder capital per share (U.S. dollars)(i) Shareholder capital per share (Canadian dollars)(i) (i) Calculated on a fully diluted basis. C A S H A N D N E A R - C A S H Investing $ 6,561 – – – – $ 6,561 $ 63.77 $ 82.83 Asset and Wealth Management Total $ 1,024 $ 7,585 (39) (109) (153) (82) (39) (109) (153) (82) $ 641 $ 7,202 $ 5.70 $ 7.40 $ 69.47 $ 90.23 Table 15 provides a breakdown of cash and near-cash at Onex at December 31, 2019. Cash and Near-Cash ($ millions) TABLE 15 As at December 31, 2019 Cash and cash equivalents(a) Cash and cash equivalents within Investment Holding Companies(b) Treasury investments Treasury investments within Investment Holding Companies Management fees receivable(c) OCP Senior Floating Income Fund Cash and near-cash(a) $ 832 328 306 89 190 97 $ 1,842 (a) Excludes cash and cash equivalents allocated to the asset and wealth management segment related to accrued incentive compensation and the liability relating to the retirement of the Onex Credit chief executive ofﬁcer, as described on page 39 of this MD&A. (b) Includes restricted cash and cash equivalents of $22 million for which the Company can readily remove the external restriction. (c) Includes management fees receivable from the Onex Partners and ONCAP Funds. 44 Onex Corporation December 31, 2019 M A N A G E M E N T ’ S D I S C U S S I O N A N D A N A LY S I S Table 16 provides a reconciliation of the change in cash and near-cash at Onex from December 31, 2018 to Decem ber 31, 2019. Change in Cash and Near-Cash TABLE 16 ($ millions) Cash and near-cash at December 31, 2018(a) Private equity realizations: Onex Partners Clarivate Analytics secondary offerings and distribution SIG secondary offerings and dividend Jack’s sale and distributions BrightSpring Health sale BBAM distributions ONCAP PURE Canadian Gaming distribution Direct investments RSG distributions Other Private equity investments: Onex Partners WestJet Convex PowerSchool ONCAP Enertech ILAC Direct investments RSG Other Flushing Town Center distributions Net Onex Credit Strategies investment activity, including warehouse facilities Acquisition of Gluskin Sheff Onex share repurchases, options exercised and dividends Net other, including capital expenditures, management fees, operating costs and treasury income(b) Cash and near-cash at December 31, 2019(a) 441 296 231 191 10 17 19 11 (261) (124) (13) (39) (7) (25) (2) Amount $ 1,439 1,216 (471) 53 133 (297) (108) (123) $ 1,842 (a) Includes $395 million (2018 – $279 million) of treasury investments, $97 million (2018 – $89 million) invested in an Onex Credit unlevered senior secured loan strategy fund and $190 million (2018 – $205 million) of management fees. (b) Other includes the impact of incentive compensation payments paid during 2019 related to the 2018 ﬁscal year and acquisition and integration expenses. Onex Corporation December 31, 2019 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 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 $11.8 billion at December 31, 2019 compared to $45.4 billion at December 31, 2018. The decrease in consolidated assets was primarily driven by the derecognition of previously consolidated corporate investments and credit strategies on January 1, 2019 following the change in Onex’ investment entity status, as described on page 24 of this MD&A. Table 17 presents consolidated assets by reportable segment as at December 31, 2019. Consolidated Assets by Reportable Segment TABLE 17 ($ millions) As at December 31, 2019 Cash and cash equivalents Treasury investments Management and advisory fees, recoverable fund expenses and other receivables Corporate investments Other assets Property and equipment Intangible assets Goodwill Total segment assets Investing $ 832 306 190(b) 5,233 – – – – Asset and Wealth Management $ 156(a) $ – 142 – 126 181 158 261 Total 988 306 332 5,233 126 181 158 261 $ 6,561 $ 1,024 $ 7,585 Intercompany loans receivable, comprising part of the fair value of Investment Holding Companies Total assets 4,217 $ 11,802 (a) Cash and cash equivalents allocated to the asset and wealth management segment relate to accrued employee incentive compensation and the liability relating to the retirement of the Onex Credit chief executive ofﬁcer, as described on page 39 of this MD&A. (b) Represents management fees receivable that Onex has elected to defer cash receipt from the Onex Partners and ONCAP Funds. 46 Onex Corporation December 31, 2019 M A N A G E M 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 18 shows consolidated assets by reportable segment as at December 31, 2018 and 2017. Consolidated Assets by Reportable Segment TABLE 18 ($ 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) Assets held by continuing operations Other – assets held by discontinued operations(f) As at December 31, 2018 $ 3,738 1,192 1,487 6,771 6,526 1,784 10,247 12,524 44,269 1,148 Percentage Breakdown 9% 3% 3% 15% 15% 4% 23% 28% 100% As at December 31, 2017 $ 2,964 1,321 1,524 6,808 5,656 2,094 10,048 13,310 43,725 971 Percentage Breakdown 7% 3% 3% 16% 13% 5% 23% 30% 100% Total consolidated assets $ 45,417 $ 44,696 (a) The packaging products and services segment consisted 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 consisted 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 consisted of Jack’s and Save-A-Lot. (d) The credit strategies segment consisted of (i) Onex Credit Manager, (ii) Onex Credit Collateralized Loan Obligations, (iii) Onex Credit Funds and (iv) Direct Lending. Onex Credit Lending Partners began to be consolidated in May 2017, when OCLP I was established. (e) Other included Flushing Town Center, KidsFoundation (since November 2018), Meridian Aviation, Parkdean Resorts (since March 2017), Survitec, SCP Health, WireCo, the operating companies of ONCAP II, III and IV (excluding IntraPac and Precision) and the parent company. In addition, other included 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 were included in the other segment and were presented as a discontinued operation. Onex Corporation December 31, 2019 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 Corporate investments At December 31, 2019, the Company’s interests in Investment Holding Companies were recorded at fair value through net earnings. The Investment Holding Companies directly or indirectly invest the Company’s capital in the Onex Partners Funds, ONCAP Funds, Onex Credit strategies and other investments. The Company’s corporate investments include the following amounts at December 31, 2019: TABLE 19 ($ millions) Onex Partners Funds ONCAP Funds Other private equity Carried interest Total private equity investments Onex Credit Strategies Real estate Other net assets(a) Total corporate investments excluding January 1, 2019 $ 3,050 458 375 110 3,993 815 148 434 Capital Deployed Realizations and Distributions Change in Fair Value December 31, 2019 $ 398 $ (1,131) $ 682 $ 2,999 46 27 n/a 471 197 – (845) (17) (25) (43) (1,216) (330) (53) 820 14 44 (1) 739 64 (5) 1 501 421 66 3,987 746 90 410 intercompany loans 5,390 (177) (779) 799 5,233 Intercompany loans receivable from Onex and the Asset Managers 3,766 530 Intercompany loans payable to Onex and the Asset Managers Intercompany loans receivable from Investment Holding Companies Total corporate investments (414) (357) 414 $ 9,156 357 $ 353 (79) 57 (57) – – – 4,217 (714) 714 $ (858) $ 799 $ 9,450 (a) Other net assets consist of the assets (primarily cash, cash equivalents, receivables and treasury investments) and liabilities of the Investment Holding Companies, excluding investments in private equity, Onex Credit strategies, real estate and intercompany loans receivable from and payable to Onex and the Asset Managers. Capital deployed and realizations and distributions of other net assets represent the cash flows of the Investment Holding Companies associated with investments in private equity, Onex Credit strategies, real estate and intercompany loans receivable from and payable to Onex and the Asset Managers. At December 31, 2019, Onex’ corporate investments, which and distributions received from Onex’ CLOs, as described are more fully described in note 6 to the consolidated on page 15 of this MD&A. ﬁnan cial statements, totalled $9.5 billion (January 1, 2019 – During the year ended December 31, 2019, the $9.2 billion). change in fair value of Onex’ corporate investments totalled During the year ended December 31, 2019, Onex’ $799 million, which was primarily driven by changes in the investment of capital primarily consisted of investments fair value of Onex’ private equity investments, which are made in Onex Partners V, ONCAP IV, RSG and certain CLOs, more fully described on page 34 of this MD&A. as described on pages 12 and 15 of this MD&A. The valuation of public investments held directly During the year ended December 31, 2019, reali- by Onex or through the Onex Partners Funds and ONCAP zations and distributions to Onex primarily consisted of Funds is based on their publicly traded closing prices at Onex’ share of the proceeds from the Onex Partners IV December 31, 2019. For certain public investments, a dis- Group’s sale of Jack’s and the secondary offerings by Clari- count was applied to the closing price in relation to trading vate Analytics and SIG, as described on page 13 of this restrictions that were in place at December 31, 2019 relat- MD&A, proceeds from the Onex Partners I and Onex Part- ing to Onex, the Onex Partners Funds or the ONCAP Funds ners III sale of Bright Spring Health, as described on page 13 holdings in these investments. These discounts resulted of this MD&A, and the return of CLO warehouse investments in a reduction of $84 million in the fair value of corporate investments (January 1, 2019 – $52 million). 48 Onex Corporation December 31, 2019 M A N A G E M E N T ’ S D I S C U S S I O N A N D A N A LY S I S Intercompany loans payable to Investment Holding Companies. The accounting treatment for Invest- Holding Companies as at December 31, 2019 Onex and the Asset Managers have intercompany loans pay- ment Holding Companies changed on January 1, 2019 as a result of the change in Onex’ investment entity status, as able to the Investment Holding Companies as at Decem - described on page 24 of this MD&A. ber 31, 2019. The loans are primarily due on demand and are non-interest bearing. At December 31, 2019, intercom- pany loans payable to the Investment Holding Com panies totalled $4.2 billion and the corresponding receivable of $4.2 billion was included in the fair value of the Investment Consolidated long-term debt, without recourse to Onex Corporation as at December 31, 2018 and 2017 Onex did not have consolidated long-term debt at Decem- Holding Companies within corporate investments. There ber 31, 2019. The consolidated long-term debt balances at is no impact on net assets or net earnings from these inter- December 31, 2018 and 2017 consisted of the long-term debt company loans. of the previously consolidated operating companies and At December 31, 2018, intercompany loans pay- able to the Investment Holding Companies were elimi- Onex Credit strategies. Table 20 shows consolidated long- term debt by industry segment as at December 31, 2018 nated in the Company’s consolidated balance sheet, as and 2017. Onex consolidated the ﬁnancial results of all Investment Consolidated Long-Term Debt, Without Recourse to Onex Corporation TABLE 20 ($ millions) As at December 31 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 $ 747 $ 187 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) $ 21,465 $ 21,716 (a) The packaging products and services segment consisted of IntraPac, Precision, sgsco and SIG. The Company began consolidating Precision in August 2018, when the business was acquired by the ONCAP IV Group. (b) The business and information services segment consisted 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 consisted of Jack’s and Save-A-Lot. (d) The credit strategies segment consisted of (i) Onex Credit Manager, (ii) Onex Credit Collateralized Loan Obligations, (iii) Onex Credit Funds and (iv) Direct Lending, which included Onex Credit Lending Partners. (e) Other included Flushing Town Center, KidsFoundation (since November 2018), Meridian Aviation, Parkdean Resorts, Survitec, SCP Health, WireCo, the operating companies of ONCAP II, III and IV (excluding IntraPac and Precision) and the parent company. (f) The long-term debt of BrightSpring Health was included in the other segment and has been presented as a discontinued operation. Note 40 to the consolidated ﬁnancial statements provides additional details concerning the long-term debt outstanding at December 31, 2018. Onex Corporation December 31, 2019 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 Limited Partners’ Interests as at December 31, 2018 and 2017 Limited Partners’ Interests liability at December 31, 2018 and 2017 represented the fair value of limited partners’ invested capital in the Onex Partners, ONCAP, Onex Credit Lending Partners and Onex Credit Funds and was 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. Beginning in January 1, 2019, Onex no longer recognizes Limited Partners’ Interests as a result of the change in its investment entity status, as described on page 24 of this MD&A. Table 21 shows the change in Limited Partners’ Interests from December 31, 2017 to December 31, 2018. Limited Partners’ Interests TABLE 21 ($ millions) Onex Partners and ONCAP Funds Gross Limited Partners’ Interests Carried Interest Net Limited Partners’ Interests Credit Strategies Net Limited Partners’ Interests(a) Total Balance – December 31, 2017 $ 8,027 $ (464) $ 7,563 $ 461 $ 8,024 Limited Partners’ Interests charge (recovery) Contributions by Limited Partners Distributions paid to Limited Partners Balance – December 31, 2018 Current portion of Limited Partners’ Interests(b) (808) 1,465 (1,228) 7,456 (641) 93 – 94 (277) 98 (715) 1,465 (1,134) 7,179 (543) 1 131 (93) 500 (17) (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 the credit strategies. (b) At December 31, 2018, the current portion of the Limited Partners’ Interests was $560 million. The current portion consisted primarily of the limited partners’ share of the proceeds from the pending sale of BrightSpring Health. Changes to the Limited Partners’ Interests balance from December 31, 2017 to December 31, 2018 are described in note 43 to the consolidated ﬁnancial statements. 50 Onex Corporation December 31, 2019 Equity Table 22 provides a reconciliation of the change in equity from December 31, 2018 to December 31, 2019. Change in Equity TABLE 22 ($ millions) Balance – December 31, 2018 Derecognition of previously consolidated corporate investments Dividends declared Options exercised Repurchase and cancellation of shares Equity issued in connection with the acquisition of Gluskin Sheff(a) Net earnings Currency translation adjustments included in other comprehensive earnings M A N A G E M E N T ’ S D I S C U S S I O N A N D A N A LY S I S Derecognition of consolidated corporate investments As a result of the change in Onex’ investment entity status on January 1, 2019, as described on page 24 of this MD&A, the non-controlling interests and accumulated other com- prehensive loss associated with controlled operating com- panies that were previously consolidated by Onex were $ 5,637 derecognized from the consolidated statement of equity. (2,905) (29) 2 (34) 21 4,277 14 Dividend policy In May 2019, Onex announced that it had increased its quarterly dividend by 14% to C$0.10 per SVS beginning with the dividend declared by the Board of Directors payable in July 2019. Table 23 presents Onex’ dividends paid per share for the twelve months ended December 31 during the past ﬁve years. The table reﬂects the increase in dividends per share Equity as at December 31, 2019 $ 6,983 over this time. (a) Includes $13 million and $8 million, respectively, related to the issuance TABLE 23 ($ per share amounts) of Onex SVS and limited partnership units of an Onex subsidiary in connection with the acquisition of Gluskin Sheff, as described on page 29 of this MD&A. Twelve months ended December 31: 2015 2016 2017 2018 2019 Dividends Paid per Share C$ 0.23 C$ 0.26 C$ 0.29 C$ 0.33 C$ 0.38 Onex Corporation December 31, 2019 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 Shares outstanding At December 31, 2019, Onex had 100,000 Multiple Voting Shares outstanding, which have a nominal paid-in value reﬂected in Onex’ consolidated ﬁnancial statements. Onex also had 100,063,143 SVS issued and outstanding. Note 16 to the consoli- dated ﬁnancial statements provides additional information on Onex’ share capital. There was no change in the Multiple Voting Shares outstanding during the year ended December 31, 2019. Table 24 shows the change in the number of SVS outstanding from December 31, 2017 to January 31, 2020. TABLE 24 ($ millions except per share amounts) Number of SVS (USD) (CAD) (USD) (CAD) Average Price per Share Total Cost SVS outstanding at December 31, 2017 101,532,181 Shares repurchased and cancelled: Normal Course Issuer Bids Private transaction Issuance of shares: Options exercised Dividend Reinvestment Plan (669,733) (500,000) 33,292 7,753 $ 63.30 $ 72.23 $ 59.78 $ 70.68 $ 82.14 $ 93.00 $ 79.02 $ 91.08 SVS outstanding at December 31, 2018 100,403,493 Shares repurchased and cancelled: Normal Course Issuer Bid (629,027) $ 54.80 $ 73.59 Issuance of shares: Acquisition of Gluskin Sheff Options exercised Dividend Reinvestment Plan 247,359 35,145 6,173 $ 54.71 $ 60.28 $ 57.85 SVS outstanding at January 31, 2020 100,063,143 $ 74.01 $ 79.82 $ 42 $ 36 $ $ 2 1 $ 34 $ 13 $ 2 $ 55 $ 47 $ $ 3 1 $ 46 $ 18 $ 3 $ 77.50 less than $ 1 less than $ 1 Shares repurchased and cancelled The NCIB enables Onex to repurchase up to 10% of its pub- March 31, 2019. Onex may also purchase SVS from time to time under the Toronto Stock Exchange’s block purchase lic ﬂoat of SVS during the period of the relevant Bid. Onex exemption, if available, or by way of private agreement believes that it is advantageous for Onex and its sharehold- pursuant to an issuer bid exemption order, if sought and ers to continue to repurchase Onex’ SVS from time to time when the SVS are trading at prices that reﬂect a discount to received, under the new NCIB. The new NCIB commenced on April 18, 2019 and will conclude on the earlier of the date their value as perceived by Onex, while taking into account on which purchases under the NCIB have been completed other opportunities to invest Onex’ cash. and April 17, 2020. A copy of the Notice of Intention to make On April 18, 2019, Onex renewed its NCIB follow- the NCIB ﬁled with the Toronto Stock Exchange is available ing the expiry of its previous NCIB on April 17, 2019. Under at no charge to shareholders by contacting Onex. the new NCIB, Onex is permitted to purchase up to 10% of Under the previous NCIB that expired on April 17, its public ﬂoat of SVS, or 8,213,787 SVS. Onex may purchase 2019, Onex repurchased 1,536,532 SVS at a total cost of up to 36,400 SVS during any trading day, being 25% of its $94 million (C$124 million) or an average purchase price of average daily trading volume for the six months ended $61.39 (C$81.02) per share. 52 Onex Corporation December 31, 2019 M A N A G E M E N T ’ S D I S C U S S I O N A N D A N A LY S I S Table 25 shows a summary of Onex’ repurchases of SVS for the past 10 years. Onex’ Repurchases of SVS for the Past 10 Years TABLE 25 2010 2011 2012 2013(1) 2014(2) 2015(3) 2016(4) 2017(5) 2018(6) 2019 Total (1) Includes 1,000,000 SVS repurchased in a private transaction. (2) Includes 1,310,000 SVS repurchased in private transactions. (3) Includes 275,000 SVS repurchased in private transactions. (4) Includes 1,000,000 SVS repurchased in a private transaction. (5) Includes 750,000 SVS repurchased in a private transaction. (6) Includes 500,000 SVS repurchased in a private transaction. Shares Repurchased Total Cost of Shares Repurchased (in C$ millions) Average Share Price (in C$ per share) 2,040,750 3,165,296 627,061 3,060,400 2,593,986 3,084,877 3,114,397 1,273,209 1,169,733 629,027 C$ 52 105 24 159 163 218 250 121 102 46 C$ 25.44 33.27 38.59 51.81 62.98 70.70 80.14 95.00 86.78 73.59 20,758,736 C$ 1,240 C$ 59.72 Issuance of shares – Dividend Reinvestment Plan Onex’ Dividend Reinvestment Plan enabled Canadian share- require Onex to redeem the partnership units in exchange for 144,579 SVS of Onex or cash consideration which holders to reinvest cash dividends to acquire new SVS of approximates the market value of 144,579 SVS of Onex at Onex at a market-related price at the time of reinvestment. the time of redemption. Onex has the option to settle the During 2019, Onex issued 6,173 SVS at an average cost of redemption request by paying cash consideration or issuing C$77.50 per SVS in connection with the Dividend Reinvest- SVS. The fair value of these limited partnership units when ment Plan. issued in June 2019 was $8 million (C$11 million) and was The Company’s Dividend Reinvestment Plan was recorded as an increase to share capital. suspended in September 2019. Issuance of equity instruments – acquisition of Gluskin Sheff As part of the acquisition of Gluskin Sheff in June 2019, Stock Option Plan Onex, the parent company, has a Stock Option Plan in place that provides for options and/or share appreciation rights to be granted to Onex directors, ofﬁcers and employees for the certain members of the Gluskin Sheff management team acquisition of SVS of Onex, the parent company, for a term exchanged their Gluskin Sheff common shares for 247,359 not exceeding 10 years. The options vest equally over ﬁve SVS of Onex with a fair value when issued of $13 million years. The exercise price of the options issued is at the market (C$18 million), as described on page 29 of this MD&A, and value of the SVS on the business day preceding the day of the limited partnership units of an Onex consolidated subsid- grant. Vested options are not exercisable unless the average iary. Subject to certain terms and conditions, the limited ﬁve-day market price of Onex SVS is at least 25% greater than partnership units include the right for the unit holder to the exercise price at the time of exercise. Onex Corporation December 31, 2019 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 At December 31, 2019, Onex had 14,073,050 options out- During 2019, 1,694,317 options were surrendered at standing to acquire SVS, of which 7,786,300 options were a weighted average exercise price of C$46.57 for aggregate vested and exercisable. cash consideration of $42 million (C$56 million), 51,000 options were exercised at a weighted average exercise price Table 26 provides information on the activity from Decem- of C$24.63 and 405,300 options expired. ber 31, 2017 to December 31, 2019. TABLE 26 Number of Options Weighted Average Exercise Price During 2018, 836,675 options were surrendered at a weighted average exercise price of C$36.03 for aggregate cash consideration of $32 million (C$42 million), 40,000 options were exercised at a weighted average exercise price Outstanding at December 31, 2017 12,378,442 C$ 57.81 of C$15.95 and 87,950 options expired. January 2018 Grant(1) December 2018 Grant Other grants during 2018 Surrendered Exercised Expired 1,052,250 C$ 92.15 1,002,350 C$ 78.64 23,500 C$ 93.08 (836,675) C$ 36.03 (40,000) (87,950) C$ 15.95 C$ 86.58 Outstanding at December 31, 2018 13,491,917 C$ 63.38 December 2019 Grant 2,711,750 C$ 82.10 Other grants during 2019 20,000 C$ 78.78 Surrendered Exercised Expired (1,694,317) C$ 46.57 (51,000) C$ 24.63 (405,300) C$ 86.42 Outstanding at December 31, 2019 14,073,050 C$ 68.50 (1) Options granted in January 2018 related to services provided during the year ended December 31, 2017. Director Deferred Share Unit Plan During the second quarter of 2019, a grant of 34,014 DSUs was issued to directors having an aggregate value, at the date of grant, of $2 million (C$3 million). At December 31, 2019, there were 702,857 Director DSUs outstanding. Onex has economically hedged 587,261 of the outstanding Direc- tor DSUs with a counterparty ﬁnancial institution. Management Deferred Share Unit Plan In early 2019, 14,472 DSUs were issued to the Onex manage- ment team having an aggregate value, at the date of grant, of $1 million (C$1 million) in lieu of that amount of cash compensation for Onex’ 2018 ﬁscal year. At December 31, 2019, there were 707,048 Management DSUs outstanding (2018 – 743,139). During 2019, 2,731,750 options to acquire SVS were issued Forward agreements were entered into with a with a weighted average exercise price of C$82.08 per counterparty ﬁnancial institution to economically hedge share. The options vest at a rate of 20% per year from the Onex’ exposure to changes in the value of all outstanding date of grant. Management DSUs. Forward agreements with a fair value During 2018, 2,078,100 options to acquire SVS were of $82 million at December 31, 2019, including those associ- issued with a weighted average exercise price of C$85.64 ated with Director DSUs, are recorded within other assets in per share, including 1,052,250 options granted in relation the consolidated balance sheet. to services provided during the year ended December 31, 2017. The options vest at a rate of 20% per year from the date of grant. 54 Onex Corporation December 31, 2019 M A N A G E M E N T ’ S D I S C U S S I O N A N D A N A LY S I S Director DSUs must be held until retirement from the Board and Management DSUs must be held until leaving the employ- ment of Onex. Table 27 reconciles the changes in the DSUs outstanding at December 31, 2019 from December 31, 2017. Change in Outstanding Deferred Share Units TABLE 27 Outstanding at December 31, 2017 Granted Redeemed Additional units issued in lieu of compensation and cash dividends Outstanding at December 31, 2018 Granted Redeemed Director DSU Plan Management DSU Plan Number of DSUs Weighted Average Price Number of DSUs Weighted Average Price 704,036 26,931 (90,626) 13,069 653,410 34,014 – C$ 93.88 C$ 84.60 C$ 87.68 C$ 75.22 – 665,921 − − – – 77,218 C$ 90.48 – C$ 78.41 C$ 75.12 743,139 − (54,173) 18,082 707,048 (707,048) – Additional units issued in lieu of compensation and cash dividends 15,433 C$ 79.23 Outstanding at December 31, 2019 Hedged with a counterparty financial institution at December 31, 2019 Outstanding at December 31, 2019 – Unhedged 702,857 (587,261) 115,596 Management of capital Onex considers the capital it manages to be the amounts At December 31, 2019, Onex had $1.8 billion of cash and near-cash items, including $328 million of cash and cash it has invested in cash and cash equivalents, near-cash equivalents held within Investment Holding Companies, investments, treasury investments managed by third-party and $682 million of near-cash items at fair value. Near- investment managers, investments made in the Onex cash items include treasury investments managed by third- Partners Funds, ONCAP Funds, Onex Credit strategies and party investment managers, as described below, $97 million other investments. Onex also manages capital from other invested in an unlevered fund managed by Onex Credit and investors in the Onex Partners Funds, ONCAP Funds, $190 million of management fees receivable from limited Gluskin Sheff strategies and Onex Credit strategies. Onex’ partners of its private equity platforms. objectives in managing capital are to: Onex has a conservative cash management policy • preserve a ﬁnancially strong parent company with driven towards maintaining liquidity and preserving prin- appropriate liquidity and no, or a limited amount of, cipal in all its treasury investments. external debt so that funds are available to pursue new At December 31, 2019, the fair value of trea- investments and growth opportunities as well as support sury investments, including cash yet to be deployed, was expansion of its existing businesses; $646 million (2018 – $279 million). The increase in trea- • achieve an appropriate return on capital invested com- sury investments was primarily driven by realizations in mensurate with the level of assumed risk; the Onex Partners Funds, partially offset by investments • build the long-term value of its corporate investments; in Onex Partners V and the acquisition of Gluskin Sheff. • control the risk associated with capital invested in any Treasury investments are managed in a mix of short-term particular strategy. Onex Corporation does not guarantee and long-term portfolios and consist of money market the debt of its investment funds or the underlying oper- instruments, commercial paper with original maturities ating businesses of its private equity funds. of three months to one year, federal and municipal debt Onex Corporation December 31, 2019 55 M A N A G E M E N T ’ S D I S C U S S I O N A N D A N A LY S I S instruments, corporate obligations and structured products with maturities of one to ﬁve years. The treasury invest- Cash provided by operating activities Table 29 provides a breakdown of cash provided by (used in) ments have current Standard & Poor’s ratings ranging from operating activities by cash generated from operations and BBB to AAA. The portfolio concentration limits range from changes in non-cash working capital items, other operating a maximum of 10% for BBB investments to 100% for AAA activities and operating activities of discontinued operations investments. The investments are managed to maintain an for the years ended December 31, 2019 and 2018. overall weighted average duration of two years or less. Today, Onex has access to uncalled commit- Components of Cash from Operating Activities ($ millions) TABLE 29 Year ended December 31 2019 2018 Cash generated from operations $ 488 $ 1,425 Changes in non-cash working capital items: Management and advisory fees, recoverable fund expenses and other receivables Other assets Accounts receivable Inventories Accounts payable, accrued liabilities and other liabilities Accrued compensation Decrease in cash and cash equivalents due to changes in non-cash working capital items Increase in other operating activities Cash from operating activities (47) (2) – – (9) 30 (28) 5 − – (60) (159) (273) 229 – (263) 57 129 2018 of discontinued operations $ 1,348 $ 2,130 Cash provided by operating activities $ 465 $ 1,348 ted limited partner capital for investments through Onex Partners V ($4.0 billion) and ONCAP IV ($235 million). In addition, Onex has uncalled committed capital of $325 mil- lion from other Onex Partners and ONCAP Funds that may be used for possible future funding of existing businesses and funding of partnership expenses. L I Q U I D I T Y A N D C A P I T A L R E S O U R C E S Major cash ﬂow components This section should be read in conjunction with the con- solidated statements of cash ﬂows and the corresponding notes thereto. Table 28 summarizes the major consolidated cash ﬂow components for the year ended December 31, 2019 and 2018. Major Cash Flow Components ($ millions) TABLE 28 Year ended December 31 Cash provided by operating activities Cash provided by ﬁnancing activities Cash used in investing activities Decrease in cash due to the derecognition of previously consolidated corporate $ $ $ 2019 465 378 (390) $ (4,084) investments $ (2,169) $ – Consolidated cash and cash equivalents held by continuing operations $ 988 $ 2,680 56 Onex Corporation December 31, 2019 M A N A G E M 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 generated from operations includes net earnings (loss) from continuing operations before interest and income Cash provided by ﬁnancing activities Cash provided by ﬁnancing activities was $378 million for taxes, adjusted for cash taxes paid and items not affecting the year ended December 31, 2019 compared to $2.1 billion cash and cash equivalents, in addition to cash ﬂows from for the same period in 2018. Cash provided by ﬁnancing Onex’ investments in and loans made to the Investment activities for the year ended December 31, 2019 primarily Holding Companies. The signiﬁcant changes in non-cash consisted of $451 million of net loan issuances with the working capital items for the year ended Decem ber 31, Invest ment Holding Companies, partially offset by $36 mil- 2019 were: lion of cash used to repurchase Onex stock, as described • a $47 million increase in management and advisory fees, on page 52 of this MD&A, and $28 million of cash divi- recoverable fund expenses and other receivables, driven dends paid. by an increase in fees earned but not yet received from the limited partners of the Onex Partners and ONCAP Cash provided by ﬁnancing activities during the year ended Funds. This compares to no change during the year ended December 31, 2018 as this change was eliminated December 31, 2018 primarily consisted of: • $1.6 billion of contributions received primarily from the on consolidation prior to the change in Onex’ investment limited partners of the Onex Partners and ONCAP Funds, entity status on January 1, 2019, as described on page 24 as discussed under the Limited Partners’ Interests on of this MD&A; page 50 of this MD&A; • a $9 million decrease in accounts payable, accrued lia- • $1.4 billion of net new long-term debt primarily from bili ties and other liabilities primarily as a result of the new long-term debt at KidsFoundation, Precision and payment of transaction-related liabilities acquired with SMG, the closing of a new CLO and an increase in out- Gluskin Sheff. This compares to an increase in accounts standing debt at Celestica primarily related to acquisi- payable, accrued liabilities and other liabilities of tions, partially offset by the repayment of debt by SIG; $229 million during the year ended December 31, 2018, • $1.3 billion from the issuance of share capital primarily which included the previously consolidated controlled due to SIG’s issuance of treasury shares in its initial pub- operating companies of Onex prior to the change in Onex’ lic offering, as described in note 29(k) to the 2019 annual investment entity status, as described on page 24 of this consolidated ﬁnancial statements; and MD&A; and • $631 million of proceeds from the Onex Partners III • a $30 million increase in accrued compensation as a result Group’s sale of a portion of its shares in Emerald Exposi- of accrued incentive compensation related to the 2019 tions’ March 2018 secondary offering and the Onex Part- ﬁscal year, partially offset by the payment of incentive ners IV Group’s sale of a portion of its shares in SIG’s compensation related to the 2018 ﬁscal year and accrued October 2018 initial public offering. compensation acquired with Gluskin Sheff. This com- pares to no change during the year ended December 31, Partially offsetting these were: 2018 as this change was part of accounts payable, accrued • $1.3 billion of distributions primarily to the limited part- liabilities and other liabilities prior to the change in Onex’ ners of the Onex Partners and ONCAP Funds, as dis- investment entity status on January 1, 2019, as described cussed under the Limited Partners’ Interests on page 50 on page 24 of this MD&A. of this MD&A; and • $1.2 billion of cash interest paid. Onex Corporation December 31, 2019 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 Cash used in investing activities Cash used in investing activities totalled $390 million for the year ended December 31, 2019 compared to $4.1 bil- Decrease in cash due to the derecognition of previously consolidated corporate investments During the year ended December 31, 2019, cash decreased lion during the same period in 2018. Cash used in investing by $2.2 billion due to the derecognition of previously con- activities during the year ended December 31, 2019 primar- solidated corporate investments on January 1, 2019 as a ily consisted of $297 million of net cash consideration for result of the change in Onex’ investment entity status, as the acquisition of Gluskin Sheff, as described on page 29 described on page 24 of this MD&A. of this MD&A, and net purchases of treasury investments totalling $105 million. Fourth quarter cash ﬂow Table 30 presents the major components of cash ﬂow for Cash used in investing activities during the year ended the fourth quarters of 2019 and 2018. December 31, 2018 primarily consisted of: • $2.6 billion used to fund acquisitions primarily related to the Onex Partners IV Group’s acquisition of SMG, the Major Cash Flow Components Onex Partners IV and Onex Partners V Group’s acquisition TABLE 30 ($ millions) of KidsFoundation, the ONCAP IV Group’s acquisitions of Cash from operating activities AutoSource, Precision and Walter Surface Technologies Cash from financing activities 2019 $ 77 $ 215 2018 258 379 $ $ and Celestica’s acquisitions of Atrenne Integrated Solu- Cash used in investing activities $ (255) $ (470) tions and Impakt; Consolidated cash and cash equivalents • $1.8 billion of net purchases of investments and securi- held by continuing operations $ 988 $ 2,680 ties by the credit strategies; • $1.2 billion for investments in joint ventures and asso- Cash provided by ﬁnancing activities in the fourth quarter ciates, of which $872 million and $317 million related of 2019 primarily consisted of $225 million of net loan issu- to the Onex Partners IV Group’s investments in Power- ances with the Investment Holding Companies, partially School and Ryan, respectively; and offset by $8 million of cash dividends paid. • $654 million used for the purchase of property, plant and Cash from ﬁnancing activities in the fourth quar- equipment primarily at Carestream Health, Celestica, ter of 2018 included (i) $1.2 billion from the issuance of Park dean Resorts, Save-A-Lot, SIG and Survitec. share capital primarily due to SIG’s issuance of treasury Partially offsetting these were: shares in its initial public offering; (ii) $511 million of pro- ceeds from the Onex Partners IV Group’s sale of a portion of • $578 million of net proceeds received primarily from its shares in SIG’s initial public offering; and (iii) $317 mil- third-party investment managers from the sales of invest- ments and securities by Onex, the parent company, par- lion of contributions received from the limited partners of the Onex Partners and ONCAP Funds primarily related to tially offset by Onex and Onex management’s $175 million the acquisition of KidsFoundation and the investments in investment in RSG; Ryan and Wyse. Partially offsetting the cash from ﬁnanc- • $570 million from the sale of investments in joint ventures ing activities were (i) distributions of $597 million primar- and associates, representing the sale of Mavis Dis count ily to the limited partners of the Onex Partners and ONCAP Tire and the sale of common stock of Pinnacle Renew able Funds; (ii) $505 million of net debt repayment driven by Energy in its June 2018 secondary offering; SIG and partially offset by debt issued for the acquisition of • $522 million of cash interest received primarily by the KidsFoundation; and (iii) $327 million of cash interest paid. CLOs in credit strategies; and • $410 million received from the sale of Tecta. 58 Onex Corporation December 31, 2019 M A N A G E M E N T ’ S D I S C U S S I O N A N D A N A LY S I S Cash used in investing activities during the fourth quarter of 2019 primarily consisted of the net purchases of treasury investments totalling $261 million. Consolidated cash resources At December 31, 2019, consolidated cash and cash equiva- lents held by continuing operations decreased to $1.0 bil- Cash used in investing activities in the fourth lion from $2.7 billion at December 31, 2018. The signiﬁcant quarter of 2018 primarily consisted of (i) $721 million of decrease in consolidated cash was driven by the derecog- cash used to fund acquisitions, which primarily related to nition of previously consolidated operating companies as the Onex Partners IV and Onex Partners V Groups’ acqui- a result of the change in Onex’ investment entity status on sition of KidsFoundation; and (ii) $344 million for invest- January 1, 2019, as described on page 24 of this MD&A, as ments in joint ventures and associates, which primarily well as Onex’ acquisition of Gluskin Sheff, as described on related to Onex Partners IV Group’s investment in Ryan. page 29 of this MD&A. Partially offsetting the cash used in investing activities was At December 31, 2019, Onex had $1.8 billion of $410 million of proceeds from the sale of Tecta. cash and near-cash on hand, as discussed on page 44 of this MD&A. Onex management reviews the amount of cash and near-cash on hand when assessing the liquidity of the Company. Onex’ commitment to the Funds Tables 31 and 32 provide information on Onex’ commitments to the Onex Partners and ONCAP Funds: TABLE 31 Onex Partners I Onex Partners II Onex Partners III Onex Partners IV Onex Partners V Final Close Date February 2004 August 2006 December 2009 March 2014 November 2017 Onex Total Commitments Onex Commitments Invested(i) Onex Remaining Commitments (ii) $ 400 $ 1,407 $ 1,200 $ 1,700(iii) $ 2,000 $ 346 $ 1,164 $ 929 $ 1,539(iii) $ 416 $ $ $ $ 16 158 104 129 $ 1,536 (i) Amounts include capitalized acquisition costs and bridge ﬁnancing, where applicable. (ii) Onex’ remaining commitment is calculated based on the assumption that all remaining limited partners’ commitments are invested. (iii) Excludes an additional commitment that was acquired by Onex from a limited partner in 2017. The remaining commitments for Onex Partners I, Onex Partners II and Onex Partners III are for future funding partnership expenses. The remaining commitments for Onex Partners IV are for possible future funding of remaining businesses and future funding of partnership expenses. The remaining commitments for Onex Partners V are primarily for funding of future Onex-sponsored investments. TABLE 32 ONCAP II ONCAP III ONCAP IV Final Close Date May 2006 September 2011 November 2016 Onex Total Commitments Onex Commitments Invested(i) Onex Remaining Commitments (ii) C$ C$ 252 252 $ 480 C$ C$ 221 186 $ 280 C$ C$ 1 30 $ 162 (i) Amounts include capitalized acquisition costs and bridge ﬁnancing, where applicable. (ii) Onex’ remaining commitment is calculated based on the assumption that all remaining limited partners’ commitments are invested. The remaining commitments for ONCAP II are for future funding of partnership expenses. The remaining commit ments for ONCAP III are for possible future funding of remaining businesses and future funding of partnership expenses. The remaining commitments for ONCAP IV are primarily for funding of future Onex-sponsored investments. Onex Corporation December 31, 2019 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 As at December 31, 2019, Onex has invested $74 million and executives. As a result of this review, there were sev- (2018 – $46 million) of its $100 million commitment in eral changes to the Onex compensation and investment OCLP I and the duration of the commitment period is up to programs. Overall, the changes: (i) simplify the programs November 2021, subject to extensions of up to an additional to make them more transparent, easier to understand and two years. less costly for Onex to administer; (ii) respect and further improve the alignment of Onex, its shareholders and its lim- R E L A T E D P A R T Y T R A N S A C T I O N S ited partners with that of Onex investment professionals and Investment programs Investment programs are designed to align the Onex man- corporate executives according to their roles and respon- sibilities; (iii) maintain consistent levels of at-risk invest- ment opportunities for investment professionals without agement team’s interests with those of Onex’ shareholders increasing dilution for Onex and its shareholders; (iv) treat and the limited partner investors in Onex’ Funds. the investment of Onex capital in private equity on a similar During 2019, Onex management undertook a com- prehensive review of the existing compensation and invest- basis as third-party capital; and (v) ensure that compensa- tion and investment programs fairly and consistently reward ment programs, the overall organizational structure of Onex performance for all Onex team members. Changes to the and its growing investment platforms, and the changing various investment programs are described in detail in the roles and responsibilities of Onex investment professionals following pages. 60 Onex Corporation December 31, 2019 M A N A G E M E N T ’ S D I S C U S S I O N A N D A N A LY S I S The various investment programs are described in detail in the following pages and certain key aspects are summarized in table 33. TABLE 33 Investment Program Management Investment Plan(i) Minimum Performance Return Hurdle 15% Compounded Return Vesting 6 years Onex Partners Carried Interest Program(ii) 8% Compounded Return 6 years Management Investment & Application • personal “at risk” equity investment required • applicable to: – Onex capital invested in Onex Partners I–IV transactions – Certain Onex capital invested outside Onex Partners prior to 2020 • not applicable to: – Onex Partners V transactions – future Onex transactions • personal “at risk” equity investment required • applicable to: – third-party capital invested in Onex Partners I–IV transactions – Onex and third-party capital invested in Onex Partners V transactions – Onex capital invested in Onex Partners originated co-investments and direct investments since 2019 ONCAP Carried Interest Program(ii) Management DSU Plan(iii) Director DSU Plan(iv) Onex Partners Reinvestment Program(v) Stock Option Plan(vi) 8% Compounded Return 5 years • personal “at risk” equity investment required • applicable to: – Onex and third-party capital invested in ONCAP transactions N/A N/A • investment of elected portion of annual variable cash compensation in Management DSUs • value reflects changes in Corporation’s share price, including risk associated with price decrease • units not redeemable until retirement N/A N/A • investment of up to 100% of annual directors’ fees N/A N/A in Director DSUs • value reflects changes in Corporation’s share price, including risk associated with price decrease • units not redeemable until retirement • required purchase of Subordinate Voting Shares or Management DSUs for up to 25% of gross MIP and Onex Partners carried interest proceeds 25% Share Price Appreciation 5 years • satisfaction of exercise price (market value at grant date) Onex Corporation December 31, 2019 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 (i) Management Investment Plan (ii) Onex Partners and ONCAP carried interest programs The MIP required the Onex management team members The General Partners of the Onex Partners and ONCAP to invest in each of the operating businesses acquired or Funds are entitled to a carried interest of 20% on the real- invested in by Onex. Management’s required cash invest- ized net gains of the limited partners in each fund, subject ment was 1.5% of Onex’ interest in each acquisition or to an 8% compound annual preferred return to those limited investment. An amount invested in an Onex Partners partners on all amounts contributed in each particular fund. acquisition under the fund’s investment requirement (dis- Onex is entitled to 40% of the carried interest realized in the cussed below) was also applied toward the 1.5% investment Onex Partners and ONCAP Funds. Onex and Onex Partners requirement under the MIP. management are allocated 60% of the carried interest real- In addition to the 1.5% participation, manage- ized in the Onex Partners Funds. ONCAP management is ment was allocated 7.5% of Onex’ realized gain from an allocated 60% of the carried interest realized in the ONCAP operating business investment, subject to certain condi- Funds and an equivalent carried interest on Onex’ capital. tions. In particular, Onex must realize the full return of its investment plus a net 15% internal rate of return from the Once the ONCAP IV investors achieve a return of two times their aggregate capital contributions, carried interest partici- investment in order for management to be allocated the pation increases from 20% to 25% of the realized net gains in additional 7.5% of Onex’ gain. The plan has vesting require- ONCAP IV. Under the terms of the partnership agreements, ments, certain limitations and voting requirements. the General Partners may receive carried interest as realiza- During 2019, management received $24 million tions occur. The ultimate amount of carried interest earned under the MIP (2018 – $22 million). Note 26(f ) to the con- will be based on the overall performance of each fund, inde- solidated ﬁnancial statements provides additional details pendently, and includes typical catch-up and claw-back on the MIP. provisions within each fund, but not between funds. Following a review in 2019, Onex eliminated the As described on page 60 of this MD&A, changes MIP for all future investments and for existing invest- to the Onex investment programs were completed, which ments in Onex Part ners V. Onex Partners management will include changes to Onex management’s and Onex Partners now be eligible to receive carried interest on Onex’ real- management’s participation in the carried interest pro- ized net gain in Onex Partners V and future Onex Partners gram for future Onex Partners investments and for existing investments, including co-investments made by Onex, as investments in Onex Partners V. For Onex Partners V, Onex described in the following section. For existing pre-Onex Partners management will be entitled to a carried interest Partners V investments, Onex and Onex Partners manage- of 12% of the realized net gains from Onex capital, subject ment will continue to participate in Onex’ gains under the to an 8% compound annual preferred return to Onex on MIP. In certain circumstances, Onex and Onex Partners amounts contributed to the fund. This carried interest par- management will have an additional opportunity to partic- ticipation is in addition to and consistent with the carried ipate in these gains such that the total participation for the interest entitlement on the realized net gains from the lim- team is consistent with that provided on third-party capital ited partners of Onex Part ners V, which is described in the via the carried interest program. The Company recognized preceding paragraph. a decrease of $66 million in the fair value of its corporate During the year ended December 31, 2019, man- investments during the fourth quarter of 2019 to account agement of Onex, Onex Partners and ONCAP received car- for this additional potential allocation to the team. Other ried interest totalling $68 million, primarily from the sale contemporaneous changes to Onex’ compensation and of BrightSpring Health. Management have the potential to investment programs are expected to decrease expenses receive $127 million of carried interest on businesses in the going forward such that Onex’ overall cost from these pro- Onex Partners and ONCAP Funds based on their values as grams is unchanged. determined at December 31, 2019. During the year ended December 31, 2018, man- agement of Onex, Onex Partners and ONCAP received car- ried interest totalling $90 million primarily from the sales of Mavis Discount Tire and Tecta; the partial sales of Emerald Expo si tions and Pinnacle Renewable Energy; and distribu- tions from BBAM and Meridian Aviation. 62 Onex Corporation December 31, 2019 M A N A G E M 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) Management Deferred Share Unit Plan forward agreements with a counterparty ﬁnancial institu- Effective December 2007, a Management DSU Plan was tion representing approximately 84% of the grants under established as a further means of encouraging personal the Director DSU Plan. Table 27 on page 55 of this MD&A and direct economic interests by the Company’s senior provides details of the change in the DSUs outstanding management in the performance of the SVS. Under the during 2019 and 2018. Management DSU Plan, members of the Company’s senior management team are given the opportunity to designate (v) Investment in Onex shares and other investments all or a portion of their annual compensation to acquire In 2006, Onex adopted a program designed to further align DSUs based on the market value of Onex shares at the the interests of the Company’s senior management and time in lieu of cash. Holders of DSUs are entitled to receive other investment professionals with those of Onex share- for each DSU, upon redemption, a cash payment equiva- holders through increased share ownership. The terms of lent to the market value of an SVS at the redemption date. this program were updated in February 2020. Under the The DSUs vest immediately, are only redeemable once the holder ceases to be an ofﬁcer or employee of the Company updated terms of the program, members of senior manage- ment of Onex are required to invest up to 25% of all amounts or an afﬁliate, and must be redeemed by the end of the received under the MIP and the Onex Partners’ carried inter- year following the year of termination. Additional units are est in Onex SVS. The size of the reinvestment requirement issued equivalent to the value of any cash dividends that generally increases with the seniority of the participant would have been paid on the SVS. To hedge Onex’ exposure and the cumulative proceeds they have realized from the to changes in the trading price of Onex shares associated MIP and Onex Partners’ carried interest. Onex SVS acquired with the Management DSU Plan, the Company enters into under this program are subject to a minimum three-year forward agreements with a counterparty ﬁnancial institu- hold period. During 2019 Onex management reinvested tion for all grants under the Management DSU Plan. The C$10 million (2018 – C$5 million) to acquire Onex SVS and/ costs of those arrangements are borne by participants in or management DSUs under this program. the Management DSU Plan. DSUs are redeemable only for Members of management and the Board of Direc- cash and no shares or other securities of Onex will be issued tors of Onex can invest limited amounts in partnership on the exercise, redemption or other settlement thereof. with Onex in all acquisitions outside the Onex Partners and Table 27 on page 55 of this MD&A provides details of the ONCAP Funds, including co-investment opportunities, at change in the DSUs outstanding during 2019 and 2018. the same time and cost as Onex and other outside investors. (iv) Director Deferred Share Unit Plan During 2019, $3 million (2018 – $12 million) in investments were made by the Onex management team and directors Onex, the parent company, established a Director DSU primarily in Incline Aviation Fund. Plan in 2004, which allows Onex directors to apply direc- tors’ fees to acquire DSUs based on the market value of (vi) Stock Option Plan Onex shares at the time. Grants of DSUs may also be made Onex has a Stock Option Plan in place that provides for to Onex directors from time to time. Holders of DSUs are options and/or share appreciation rights to be granted to entitled to receive for each DSU, upon redemption, a cash Onex directors, ofﬁcers and employees for the acquisition payment equivalent to the market value of an SVS at the of SVS of Onex, the parent company, for a term not exceed- redemption date. The DSUs vest immediately, are only ing 10 years. The options vest equally over ﬁve years. The redeemable once the holder retires from the Board of exercise price of the options is the market value of the SVS Directors and must be redeemed by the end of the year fol- on the business day preceding the day of the grant. Vested lowing the year of retirement. Additional units are issued options are not exercisable unless the average ﬁve-day equivalent to the value of any cash dividends that would market price of Onex SVS is at least 25% greater than the have been paid on the SVS. To hedge Onex’ exposure to exercise price at the time of exercise. Table 26 on page 54 changes in the trading price of Onex shares associated of this MD&A provides details of the change in the stock with the Director DSU Plan, the Company has entered into options outstanding at December 31, 2019 and 2018. Onex Corporation December 31, 2019 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 Onex management team investments in Onex’ Funds The Onex management team invests meaningfully in each The Onex management team may also invest in funds managed by Gluskin Sheff. At December 31, 2019, operating business acquired by the Onex Partners and investments at market value held by the Onex management ONCAP Funds and in strategies managed by Onex Credit. team in Gluskin Sheff funds were approximately $65 million. The structure of the Onex Partners and ONCAP Funds requires the management of Onex Partners and ONCAP Funds to invest a minimum of 1% in all acquisitions, Related-party revenues Onex receives management fees on limited partners’ and with the exception of Onex Partners IV, Onex Partners V and clients’ capital within the Onex Partners Funds, ONCAP ONCAP IV, which require a minimum 2% investment in all Funds, Onex Credit strategies and advisory fees directly acquisitions. This investment includes the minimum “at risk” from certain operating businesses. Onex also receives per- equity investment associated with management’s carried formance fees from the Onex Credit strategies and recov- interest participation, as described on page 62 of this MD&A. ers certain deal investigation, research and other expenses The Onex management team and directors have committed to invest 4% of the total capital invested by from the Onex Partners Funds, ONCAP Funds, Onex Credit strategies and the operating businesses of Onex Partners Onex Partners V for new investments completed during and ONCAP. Onex indirectly controls the Onex Partners 2020, including the minimum “at risk” equity investment. Funds, ONCAP Funds and Onex Credit strategies, and The Onex management team and directors have commit- therefore the management and performance fees earned ted to invest 8% of the total capital invested by ONCAP IV from these sources represent related-party transactions. for new investments completed during 2020, including the Furthermore, Onex indirectly controls, jointly controls or minimum “at risk” equity investment. The Onex manage- has signiﬁcant inﬂuence over certain operating businesses ment team and directors invest in any add-on investments held by the Onex Partners and ONCAP Funds, and as such, in existing businesses pro-rata with their initial investment advisory fees from these operating businesses represent in the relevant business. related-party transactions. The total amount invested during 2019 by the Onex Gluskin Sheff has agreements to manage its management team and directors in acquisitions and invest- pooled fund vehicles, where it generally acts as the trustee, ments completed through the Onex Partners and ONCAP manager, transfer agent and principal distributor. In the Funds was $60 million (2018 – $145 million). case of those pooled fund vehicles that are limited partner- In addition, the Onex management team may in - ships, Gluskin Sheff or an afﬁliate of Gluskin Sheff is the vest in Onex Credit strategies. At December 31, 2019, in vest- General Partner. As such, the Gluskin Sheff pooled fund ments at market value held by the Onex management team vehicles are related parties of the Company. in Onex Credit strategies were approximately $280 million (2018 – approximately $325 million). Related-party revenues recognized during the year ended December 31, 2019 included the following: ($ millions) TABLE 34 Year ended December 31, 2019 Management and Advisory Fees Reimbursement of Expenses Performance Fees Source of related-party revenues Onex Partners Funds Onex Credit Strategies Gluskin Sheff pooled fund vehicles(i) ONCAP Funds Total related-party revenues Gluskin Sheff third-party revenues Total revenues $ 129 $ 21 52 39 17 $ 237 4 $ 241 1 1 2 $ 25 – $ 25 $ – – 24 – $ 24 – $ 24 (i) Revenues associated with the reimbursement of expenses from the Gluskin Sheff pooled fund vehicles are included within other income. 64 Onex Corporation December 31, 2019 Total $ 150 53 64 19 $ 286 4 $ 290 M A N A G E M E N T ’ S D I S C U S S I O N A N D A N A LY S I S At December 31, 2019, related party receivables included the following: ($ millions) TABLE 35 As at December 31, 2019 Management and Advisory Fees Receivable Recoverable Fund and Operating Expenses Receivable Performance Fees Other Receivables Onex Partners Funds Credit strategies ONCAP Funds Gluskin Sheff pooled fund vehicles Onex Partners and ONCAP operating businesses Total related-party receivables Third-party receivables Total $ 187 $ 77 $ – $ 1 10 3 3 1 $ 204 1 $ 205 – 5 – – $ 82 – $ 82 – – 20 – $ 20 – $ 20 1 – – – $ 2 23 $ 25 Total $ 265 11 8 23 1 $ 308 24 $ 332 Onex Credit management fees During 2018, Onex Credit earned management fees on Tax loss transactions with a related party During 2018, Onex entered into the sale of an entity, the other investors’ capital. Management fees earned on the sole assets of which were certain tax losses, to a company capital invested by Onex, the parent company, were elimi- controlled by Mr. Gerald W. Schwartz, who is Onex’ con- nated in the 2018 consolidated ﬁnancial statements. trolling shareholder. Onex had signiﬁcant non-capital and In addition, Onex Credit was entitled to incentive capital losses available; however, Onex did not expect to fees on certain other investors’ capital. Incentive fees ranged generate sufﬁcient taxable income to fully utilize these between 15% and 20%. Certain incentive fees (including losses in the foreseeable future. As such, no beneﬁt was incentive fees on CLOs) were subject to a hurdle or mini- recognized in the 2018 consolidated ﬁnancial statements mum preferred return to investors. for these losses. In connection with this transaction, an During the year ended December 31, 2018, gross independent accounting ﬁrm retained by Onex’ Audit and management and incentive fees earned by the credit Cor porate Governance Committee provided an opinion strategies segment were $50 million and nil, respectively, that the value received by Onex for the tax losses was fair including management and incentive fees from Onex from a ﬁnancial point of view. Onex’ Audit and Corporate Credit Funds, Onex Credit Lending Partners and CLOs con- Governance Committee, all the members of which were solidated by Onex. The management and incentive fees independent Directors, unanimously approved the trans- from Onex Credit Funds, Onex Credit Lending Partners and action. During 2018, Onex received $4 million in cash for CLOs consolidated by Onex, the parent company, during tax losses of $41 million. The entire $4 million was recorded 2018 were $47 million and nil. Credit strategies segment as a gain and included in other income (expense) in the revenues for 2018, net of management and incentive fees 2018 consolidated statement of earnings. from Onex Credit Funds, Onex Credit Lending Partners and CLOs consolidated by Onex, were $3 million. Private share repurchase In May 2018, Onex repurchased in a private transaction 500,000 of its SVS that were held indirectly by Mr. Gerald W. Schwartz. The private transaction was approved by the disinterested directors of the Board of Directors of the Company. The shares were repurchased at a cash cost of $72.23 (C$93.00) per share or a total cost of $36 million (C$47 million), which represented a slight discount to the trading price of Onex shares at that date. Onex Corporation December 31, 2019 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 D I S C L O S U R E C O N T R O L S A N D P R O C E D U R E S A N D I N T E R N A L C O N T R O L S O V E R F I N A N C I A L R E P O R T I N G Limitation on scope of design Management has limited the scope of the design of inter- nal controls over ﬁnancial reporting and disclosure controls and procedures to exclude the controls, policies and proce- The Chief Executive Ofﬁcer and the Chief Financial Ofﬁcer dures of Gluskin Sheff (acquired in June 2019), the operat- have designed, or caused to be designed under their super- ing results of which are included in the December 31, 2019 vision, internal controls over ﬁnancial reporting to provide reasonable assurance regarding the reliability of ﬁnancial reporting and the preparation of ﬁnancial statements for external purposes in accordance with IFRS. The Chief consolidated ﬁnancial statements of Onex. The scope limita- tion is in accordance with National Instrument 52-109, Certi ﬁcation of Disclosure in Issuer’s Annual and Interim Filings, which allows an issuer to limit its design of internal controls Executive Ofﬁcer and the Chief Financial Ofﬁcer have also over ﬁnancial reporting and disclosure controls and proce- designed, or caused to be designed under their supervi- dures to exclude the controls, policies and procedures of a sion, disclosure controls and procedures to provide reason- able assurance that information required to be disclosed company acquired not more than 365 days before the end of the ﬁnancial period to which the certiﬁcate relates. by the Company in its corporate ﬁlings has been recorded, processed, summarized and reported within the time peri- Table 36 shows a summary of the ﬁnancial information for ods speciﬁed in securities legislation. Gluskin Sheff, which is included in the December 31, 2019 A control system, no matter how well conceived consolidated ﬁnancial statements of Onex. and operated, can provide only reasonable, not absolute, assurance that its objectives are met. Due to the inherent TABLE 36 ($ millions) limitations in all such systems, no evaluation of controls Year ended December 31, 2019 can provide absolute assurance that all control issues, if Total income any, within a company have been detected. Accordingly, Net earnings Onex’ internal controls over ﬁnancial reporting and dis- closure controls and procedures are effective in providing As at December 31, 2019 reasonable, not absolute, assurance that the objectives of Onex’ control systems have been met. Total assets Total liabilities Gluskin Sheff $ 70 $ 13 $ 419 $ 48 R I S K E N V I R O N M E N T The Company’s Annual Information Form for the year ended December 31, 2019, as ﬁled on SEDAR, and note 24 to the 2019 annual consolidated ﬁnancial statements set out certain risks that could be material to Onex and could have a material adverse effect on Onex’ business, ﬁnancial condition, results of operations and cash ﬂows and the value of the Company’s shares. The risks described in these documents are not the only risks that may impact the Company’s business, operations and ﬁnancial results. Additional risks not currently known to the Company or that Onex management currently believe are immaterial when considered across the Company’s investment and asset management activities as a whole may also have a material adverse effect on future business, operations and performance. 66 Onex Corporation December 31, 2019 M A N A G E M 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 businesses. 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, annualized pro-forma adjustments for acquisitions, the impact of derivative instruments that no longer qualify for hedge accounting, the impacts of purchase accounting and other similar amounts. Assets under management are the sum of the fair value of invested assets and uncalled committed capital that Onex manages on behalf of investors, including Onex’ own uncalled committed capital in excess of cash and cash equivalents. Carried interest is an allocation of part of an investor’s gains to Onex and its management team after the investor has realized 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 establish the CLO ware- houses. Co-investment is a direct investment made by limited partners alongside a fund. Collateral principal amount is the aggregate principal balance of the CLO investments in debt obligations, excluding defaulted debt obligations, and also includes the principal balance of cash deposits. Collateralized Loan Obligation (“CLO”) is a structured investment fund that invests in non-investment grade debt. Interests in these funds are sold in rated and unrated 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 the Onex management team, where the gain or loss mirrors the performance of the SVS. DSUs may be issued to directors in lieu of director fees and to senior management in lieu of a portion of their annual short-term incentive compensation. Direct Lending consists of Onex Credit Lending Partners and direct lending originated by Onex. 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. Onex Corporation December 31, 2019 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 Fee-generating capital is the assets under management on which the Company receives management fees, per- formance fees and/or carried interest. 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. Fully diluted shares used in the calculations of segment net earnings (loss) per share are calculated using the treasury stock method. 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 calculated 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 performance fees. International Financial Reporting Standards (“IFRS”) are a set of standards adopted by Onex to determine accounting policies for the consolidated ﬁnancial statements that were formulated by the International Accounting Standards Board, and allow for comparability and consistency across businesses. As a publicly listed entity in Canada, Onex is required to report under IFRS. Investing capital represents Onex’ investing assets that are invested in private equity, Onex Credit strategies, treasury investments, cash and cash equivalents and near-cash available for investing. Investing capital is determined on the same basis as segmented assets for Onex’ investing segment. Investing capital per share is Onex investing capital divided by the number of fully diluted shares outstanding. Investor capital is the invested and committed uncalled capital of third-party investors. 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. Leveraged loans refer to the non-investment grade senior secured debt of relatively highly leveraged borrowers. A leveraged loan is often issued by a company in connection with it being acquired by a private equity or corpo- rate investor. Limited partner is an investor whose liability is generally limited to the extent of their share of the partnership. 68 Onex Corporation December 31, 2019 M A N A G E M E N T ’ S D I S C U S S I O N A N D A N A LY S I S Limited Partners’ Interests charge 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. 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 Onex and Onex Partners 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 internal rate of return (“Net IRR”) is the annualized percentage return earned by the limited partners of a fund, excluding Onex as a limited partner, 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 interest and taxes, to limited partners subject to carried interest and management fees in the funds, excluding Onex as a limited partner, 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 share- holders 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 Direc- tors 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, 2019 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 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 certain funds managed by Onex Credit in which Onex holds an investment. Onex Credit Lending Partners (“OCLP”) is a direct lending 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. Performance fees include performance allocations and are generated on high net worth clients and institu- tional investors’ capital managed by Onex Credit and Gluskin Sheff, some of which are subject to a hurdle or preferred return to investors. Private equity platform refers to Onex’ investing and asset management activities carried on through the Onex Partners and ONCAP Funds. Run-rate management fees is a forward-looking calculation representing management fees that would be earned over a twelve-month period based on the annual management fee rates and the basis or method of calculation in place at period end. Shareholder capital represents Onex’ total assets adjusted to include accounts payable and accrued liabilities, and lease and other liabilities, and to exclude associated DSU hedge assets. Shareholder capital per share is shareholder capital divided by the number of fully diluted shares outstanding. 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. Wealth management is a platform that includes capital managed by Gluskin Sheff in its public equity and debt strategies. 70 Onex Corporation December 31, 2019 M A N A G E M E N T ’ S D I S C U S S I O N A N D A N A LY S I S Throughout the MD&A and consolidated ﬁnancial statements, the following operating businesses are referenced as follows: • “AIT” – Advanced Integration Technology LP • “Mavis Discount Tire” – Mavis Tire Supply LLC • “AutoSource” – AutoSource Holdings, Inc. • “Meridian Aviation” – Meridian Aviation • “BBAM” – BBAM Limited Partnership • “Bradshaw” – Bradshaw International, Inc. • “BrightSpring Health” – Res-Care, Inc. • “Carestream Health” – Carestream Health, Inc. • “Celestica” – Celestica Inc. • “Chatters” – Chatters Canada • • • • “Clarivate Analytics” – Clarivate Analytics Plc “Convex” – Convex Group Limited “Davis-Standard” – Davis-Standard Holdings, Inc. “Emerald Expositions” – Emerald Expositions Events, Inc. • “Enertech” – TAC Enertech Resources Holdings, LLC • “EnGlobe” – EnGlobe Corp. • “Flushing Town Center” – Flushing Town Center • “FLY Leasing Limited” – FLY Leasing Limited • • • • “Hopkins” – Hopkins Manufacturing Corporation “ILAC” – International Language Academy of Canada “Incline Aviation Fund” – Incline Aviation Fund “IntraPac” – IntraPac International Corporation • “Jack’s” – Jack’s Family Restaurants • “JELD-WEN” – JELD-WEN Holding, Inc. Partners Limited and afﬁliates • “Parkdean Resorts” – Parkdean Resorts • “Pinnacle Renewable Energy” – Pinnacle Renewable Holdings, Inc. • “PowerSchool” – PowerSchool Group LLC • “Precision” – Precision Global • “PURE Canadian Gaming” – PURE Canadian Gaming Corp. • “RSG” – Ryan Specialty Group, LLC • “Ryan” – Ryan, LLC • • “Save-A-Lot” – Save-A-Lot “SCP Health” – SCP Health (formerly Schumacher Clinical Partners) • “sgsco” – SGS International, LLC • “SIG” – SIG Combibloc Group AG • “SMG” – SMG Holdings Inc. • “Survitec” – Survitec Group Limited • “Tecta” – Tecta America Corporation • • “Venanpri Group” – Venanpri Group “Walter” – Walter Surface Technologies • “WestJet” – WestJet Airlines Ltd. • “WireCo” – WireCo WorldGroup • “Wyse” – Wyse Meter Solutions Inc. • “KidsFoundation” – KidsFoundation Holdings B.V. • “York” – York Risk Services Holding Corp. • “Laces” – Laces Group Onex Corporation December 31, 2019 71 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 notes 1 and 28 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] [signed] Christopher A. Govan Chief Financial Ofﬁcer February 27, 2020 Derek C. Mackay Managing Director, Finance 72 Onex Corporation December 31, 2019 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, 2019 and 2018, and its ﬁnancial performance and its cash ﬂows for the years then ended 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, 2019 and 2018; • the consolidated statements of earnings for the years then ended; • the consolidated statements of comprehensive earnings for the years then ended; • the consolidated statements of equity for the years then ended; • the consolidated statements of cash ﬂows for the years then ended; 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 the 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. Onex Corporation December 31, 2019 73 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. 74 Onex Corporation December 31, 2019 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 27, 2020 Onex Corporation December 31, 2019 75 As at December 31, 2019 $ 988 306 332 9,450 126 181 158 261 11,802 (4,217) $ 7,585 $ 39 109 301 153 602 $ 6,983 342 6,641 $ 6,983 DECEMBER 31, 2019 CONSOLIDATED BALANCE SHEET (in millions of U.S. dollars) Assets Cash and cash equivalents (note 3) Treasury investments (note 4) Management and advisory fees, recoverable fund expenses and other receivables (note 5) Corporate investments (including intercompany loans receivable from Onex and the Asset Managers of $4,217, comprising part of the fair value of Investment Holding Companies) (note 6) Other assets (note 7) Property and equipment (note 8) Intangible assets (note 9) Goodwill (note 9) Total assets Intercompany loans payable to Investment Holding Companies (note 10) Total assets net of intercompany loans payable to Investment Holding Companies Other liabilities Accounts payable and accrued liabilities Accrued compensation (note 11) Stock-based compensation payable (note 12) Lease and other liabilities (notes 13 and 20) Total other liabilities Net assets Equity Share capital (note 16) Retained earnings and accumulated other comprehensive earnings Total equity See accompanying notes to the consolidated financial statements, including changes to the accounting treatment of certain Onex subsidiaries on January 1, 2019, as described in note 1. Signed on behalf of the Board of Directors [signed] Director [signed] Director 76 Onex Corporation December 31, 2019 DECEMBER 31, 2018 CONSOLIDATED BALANCE SHEET (in millions of U.S. dollars) Assets Current assets Cash and cash equivalents (note 31) Short-term investments (note 31) Accounts receivable Inventories (note 32) Other current assets (note 33) Assets held by discontinued operations (note 34) Property, plant and equipment (note 35) Long-term investments (note 36) Other non-current assets (note 37) Intangible assets (note 38) Goodwill (note 38) Liabilities and Equity Current liabilities Accounts payable and accrued liabilities Current portion of provisions (note 39) Other current liabilities Current portion of long-term debt, without recourse to Onex Corporation (note 40) Current portion of Limited Partners’ Interests (note 43) Liabilities held by discontinued operations (note 34) Non-current portion of provisions (note 39) Long-term debt, without recourse to Onex Corporation (note 40) Other non-current liabilities (note 44) Deferred income taxes (note 45) Limited Partners’ Interests (note 43) Equity Share capital (note 16) Non-controlling interests (note 46) Retained earnings and accumulated other comprehensive loss As at December 31, 2018 $ 2,680 77 3,186 2,656 1,124 1,148 10,871 4,913 12,756 616 8,048 8,213 $ 45,417 $ 4,116 151 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 $ 45,417 See accompanying notes to the consolidated financial statements, including changes to the accounting treatment of certain Onex subsidiaries on January 1, 2019, as described in note 1. Onex Corporation December 31, 2019 77 DECEMBER 31, 2019 CONSOLIDATED STATEMENT OF EARNINGS (in millions of U.S. dollars except per share data) Year ended December 31 Income Net gains on corporate investments (including a decrease in carried interest of $1) (note 6) $ Management and advisory fees (note 17) Reimbursement of expenses from investment funds and operating businesses (note 17) Performance fees (note 17) Interest and net treasury investment income (note 18) Other income Total income Expenses Compensation Stock-based compensation (note 19) Acquisition and integration (note 20) Amortization of property, equipment and intangible assets (notes 8 and 9) Recoverable expenses from investment funds and operating businesses Other expenses (note 20) Total expenses Gain on derecognition of previously consolidated corporate investments (note 1) Reclassification from accumulated other comprehensive loss on derecognition of previously consolidated corporate investments (note 1) Net gain on derecognition of previously consolidated corporate investments Earnings before income taxes Recovery of income taxes (note 15) Net earnings Net earnings per Subordinate Voting Share of Onex Corporation (note 21) Basic Diluted See accompanying notes to the consolidated financial statements, including changes to the accounting treatment of certain Onex subsidiaries on January 1, 2019, as described in note 1. 78 Onex Corporation December 31, 2019 2019 799 241 24 24 14 3 1,105 (178) (60) (50) (45) (24) (58) (415) 3,719 (170) 3,549 4,239 38 $ 4,277 $ 42.78 $ 42.74 DECEMBER 31, 2018 CONSOLIDATED STATEMENT OF EARNINGS (in millions of U.S. dollars except per share data) Year ended December 31 Revenues (note 47) Cost of sales (excluding amortization of property, plant and equipment, intangible assets and deferred charges) (note 48) Operating expenses (note 48) Interest income (note 28) Amortization of property, plant and equipment (note 35) Amortization of intangible assets and deferred charges (note 38) Interest expense (note 49) Decrease in value of investments in joint ventures and associates at fair value, net (note 36) Stock-based compensation recovery (note 50) Other gains (note 51) Other expense (note 52) Impairment of goodwill, intangible assets and long-lived assets, net (note 53) Limited Partners’ Interests recovery (note 43) Loss before income taxes and discontinued operations Provision for income taxes (note 45) Loss from continuing operations Earnings from discontinued operations (note 34) Net loss Loss from continuing operations attributable to: Equity holders of Onex Corporation Non-controlling Interests Loss from continuing operations Net loss attributable to: Equity holders of Onex Corporation Non-controlling Interests Net loss Net earnings (loss) per Subordinate Voting Share of Onex Corporation (note 21) Basic and Diluted: Continuing operations Discontinued operations Net loss per Subordinate Voting Share See accompanying notes to the consolidated financial statements, including changes to the accounting treatment of certain Onex subsidiaries on January 1, 2019, as described in note 1. 2018 $ 23,785 (17,563) (4,077) 538 (643) (744) (1,439) (585) 58 343 (517) (627) 714 (757) (89) (846) 50 $ (796) $ (711) (135) $ (846) $ (663) (133) $ (796) $ (7.05) 0.48 $ (6.57) Onex Corporation December 31, 2019 79 CONSOLIDATED STATEMENTS OF COMPREHENSIVE EARNINGS (in millions of U.S. dollars) Year ended December 31 Net earnings (loss) 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 losses on financial assets Reclassification to net earnings on derecognition of previously consolidated corporate investments (note 1) Items that will not be reclassified to net earnings (loss): Remeasurements for post-employment benefit plans Other comprehensive earnings (loss), net of tax Total comprehensive earnings (loss) Total comprehensive earnings (loss) attributable to: Equity holders of Onex Corporation Non-controlling Interests Total comprehensive earnings (loss) 2019 2018 $ 4,277 $ (796) 14 – – 170 184 – 184 (236) (19) (4) – (259) (53) (312) $ 4,461 $ (1,108) $ 4,461 – $ 4,461 $ (863) (245) $ (1,108) See accompanying notes to the consolidated financial statements, including changes to the accounting treatment of certain Onex subsidiaries on January 1, 2019, as described in note 1. 80 Onex Corporation December 31, 2019 CONSOLIDATED STATEMENTS OF EQUITY (in millions of U.S. dollars except per share data) Balance – December 31, 2017 Change in accounting policy Dividends declared(b) Options exercised Repurchase and cancellation of shares (note 16) Investments in operating companies by shareholders other than Onex(c) Distributions to non-controlling interests Repurchase of shares of operating companies(d) Sale of interest in operating company under continuing control (note 29) Non-controlling interests derecognized on loss of control of investment in operating company (note 29) Non-controlling interests derecognized on sale of investments in operating companies (note 29) Comprehensive Loss Net loss Other comprehensive loss, 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 57) Balance – December 31, 2018 Derecognition of previously consolidated corporate investments (note 1) Dividends declared(b) Options exercised Repurchase and cancellation of shares (note 16) Equity issued in connection with the acquisition of Gluskin Sheff(f) Net earnings Currency translation adjustments included in other comprehensive earnings Share Capital (note 16) Retained Earnings Accumulated Other Comprehensive Earnings (Loss) Total Equity Attributable to Equity Holders of Onex Corporation Non- controlling Interests Total Equity $ 321 $ 2,547 $ 25(a) $ 2,893 $ 2,145 $ 5,038 – 1 2 (4) – – – – – – – – – – – 11 (26) – (75) 318 – – 305 – – (663) – – – (5) – – – – – – – – – – – (189) (3) (3) – 11 (25) 2 (79) 318 – – 305 – – (663) (189) (3) (3) (5) 1 – – – 1,320 (28) (122) 59 (48) (7) (133) (47) (16) (1) (48) 12 (25) 2 (79) 1,638 (28) (122) 364 (48) (7) (796) (236) (19) (4) (53) $ 320 $ 2,412 $ (170)(e) $ 2,562 $ 3,075 $ 5,637 – – 2 (1) 21 – – – (29) – (33) – 4,277 – 170 – – – – – 14 $ 14(g) 170 (29) 2 (34) 21 4,277 14 $ 6,983 $ (3,075) (2,905) – – – – – – – (29) 2 (34) 21 4,277 14 $ 6,983 Balance – December 31, 2019 $ 342 $ 6,627 (a) 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 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. (b) Dividends declared per Subordinate Voting Share were C$0.3875 for the year ended December 31, 2019 (2018 – C$0.3375). During 2019, shares issued under the dividend reinvestment plan amounted to less than $1 (2018 – $1). There are no tax effects for Onex on the declaration or payment of dividends. (c) 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 2018 consisted primarily of shares repurchased by Celestica and Emerald Expositions. (e) Accumulated Other Comprehensive 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 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) In June 2019, Onex issued subordinate voting shares of Onex Corporation and limited partnership units of an Onex subsidiary, as described in notes 2 and 16. (g) Accumulated other comprehensive income as at December 31, 2019 consisted of currency translation adjustments of positive $14. Income taxes did not have a significant effect on this item. See accompanying notes to the consolidated financial statements, including changes to the accounting treatment of certain Onex subsidiaries on January 1, 2019, as described in note 1. Onex Corporation December 31, 2019 81 DECEMBER 31, 2019 CONSOLIDATED STATEMENT OF CASH FLOWS (in millions of U.S. dollars) Year ended December 31 Operating activities Net earnings Adjustments to net earnings: Recovery of income taxes Interest and net treasury investment income Interest expense Earnings before interest and provision for income taxes Cash taxes paid Investments made in and loans made to Investment Holding Companies Distributions and loan repayments received from Investment Holdings Companies Items not affecting cash and cash equivalents: Amortization of property, equipment and intangible assets (notes 8 and 9) Net gains on corporate investments (note 6) Stock-based compensation (note 19) Gain on derecognition of previously consolidated corporate investments (note 1) Reclassification from accumulated other comprehensive loss on derecognition of previously consolidated corporate investments (note 1) Foreign exchange loss Expense related to future Onex Credit asset manager distributions (note 20) Other Changes in non-cash working capital items: Management and advisory fees, fund expenses and other receivables Other assets Accounts payable, accrued liabilities and other liabilities Accrued compensation Decrease in cash and cash equivalents due to changes in non-cash working capital items Increase in other operating activities Cash provided by operating activities Financing activities Cash dividends paid (note 16) Principal elements of lease payments (note 13) Cash interest paid (note 13) Repurchase of share capital of Onex Corporation (note 16) Issuance of loans from Investment Holding Companies Repayment of loans to Investment Holding Companies Cash provided by financing activities Investing activities Acquisition of Gluskin Sheff, net of cash and cash equivalents acquired of $11 (note 2) Purchases of property and equipment Cash interest received Net purchases of treasury investments Increase due to other investing activities Cash used in investing activities Increase in cash and cash equivalents Decrease in cash due to the derecognition of previously consolidated corporate investments, including cash from discontinued operations (note 1) Decrease in cash due to changes in foreign exchange rates Cash and cash equivalents, beginning of the period – continuing operations Cash and cash equivalents, beginning of the period – discontinued operations (note 34) Cash and cash equivalents See accompanying notes to the consolidated financial statements, including changes to the accounting treatment of certain Onex subsidiaries on January 1, 2019, as described in note 1. 82 Onex Corporation December 31, 2019 2019 $ 4,277 (38) (14) 2 4,227 (1) (358) 855 45 (799) 16 (3,719) 170 5 44 3 488 (47) (2) (9) 30 (28) 5 465 (28) (7) (2) (36) 530 (79) 378 (297) (3) 12 (105) 3 (390) 453 (2,169) (3) 2,680 27 $ 988 DECEMBER 31, 2018 CONSOLIDATED STATEMENT OF CASH FLOWS (in millions of U.S. dollars) Year ended December 31 Operating activities Loss for the year from continuing operations Adjustments to loss from continuing operations: Provision for income taxes Interest income Interest expense of operating companies and credit strategies Earnings before interest and provision for income taxes Cash taxes paid Items not affecting cash and cash equivalents: Amortization of property, plant and equipment (note 35) Amortization of intangible assets and deferred charges Decrease in value of investments in joint ventures and associates at fair value, net Stock-based compensation recovery Other gains Foreign exchange gain Impairment of goodwill, intangible assets and long-lived assets, net (note 53) Limited Partners’ Interests recovery (note 43) 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 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 34) Cash provided by operating activities 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 43) Issuance of share capital by operating companies Proceeds from sale of interests in operating companies under continuing control (note 29) Distributions paid to non-controlling interests and Limited Partners (note 43) Decrease due to other financing activities Cash flows from financing activities of discontinued operations (note 34) Cash provided by financing activities Investing activities Acquisitions, net of cash and cash equivalents in acquired companies of $105 (note 30) Purchase of property, plant and equipment Proceeds from sales of operating companies and businesses no longer controlled (note 34) Proceeds from sale of investments in joint ventures and associates (note 36) Distributions received from investments in joint ventures and associates (note 36) Purchase of investments in joint ventures and associates (note 36) Cash interest received Cash dividends received Net purchases of investments and securities for credit strategies (note 36) Net sales of investments and securities at the parent company and operating companies (note 36) Increase due to other investing activities Cash flows used in investing activities of discontinued operations (note 34) Cash used in investing activities Decrease in cash and cash equivalents Decrease in cash due to changes in foreign exchange rates Cash and cash equivalents, beginning of the period – continuing operations Cash and cash equivalents, beginning of the period – discontinued operations (note 34) Cash and cash equivalents Cash and cash equivalents held by discontinued operations (note 34) Cash and cash equivalents held by continuing operations 2018 $ (846) 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 (1,781) 578 165 (145) (4,084) (606) (63) 3,362 14 2,707 27 $ 2,680 See accompanying notes to the consolidated financial statements, including changes to the accounting treatment of certain Onex subsidiaries on January 1, 2019, as described in note 1. Onex Corporation December 31, 2019 83 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (in millions and in U.S. dollars except per share data) Onex Corporation and its wholly-owned subsidiaries manage capital invested and committed by investors from around the world and invest shareholder capital primarily in private equity and non-investment grade credit strategies. Onex invests in its two private equity platforms: Onex Partners for larger transactions and ONCAP for middle-market and smaller transactions. Onex is currently investing through Onex Partners V, a $7,150 fund raised in November 2017, and ONCAP IV, a $1,107 fund raised in November 2016. Onex also invests in Onex Credit strategies, which consist of non-investment grade debt in collateralized loan obligations, Onex Credit Lending Partners, a $413 direct lending fund raised in November 2018, and other credit strategies. Throughout these statements, the terms “Onex” and the “Company” refer to Onex Corporation, the ultimate parent company. Onex is a Canadian corporation domiciled in Canada and listed on the Toronto Stock Exchange under the symbol ONEX. Onex’ shares are traded in Canadian dollars. The registered address for Onex is 161 Bay Street, Toronto, Ontario. Mr. Gerald W. Schwartz controls Onex through his ownership of all of the outstanding Multiple Voting Shares of the corporation. Mr. Schwartz also indirectly held 12% of the outstanding Subordinate Voting Shares of the corporation at December 31, 2019. All amounts are in millions of U.S. dollars unless otherwise noted. The consolidated financial statements were authorized for issue by the Board of Directors on February 27, 2020. S TAT E M E N T O F C O M P L I A N C E Asset management refers to the activity of managing capital in Onex’ private equity funds, private credit strategies, The consolidated ﬁnancial statements have been prepared in public debt strategies and public equity strategies. This activity is accordance with International Financial Reporting Standards conducted through wholly-owned subsidiaries of Onex, which are (“IFRS”) as issued by the International Accounting Standards the managers of the Onex Partners Funds, ONCAP Funds, Onex Board. These consolidated ﬁnancial statements were prepared on Credit strategies and the Gluskin Sheff + Associates Inc. (“Gluskin a going concern basis. Sheff”) strategies. These subsidiaries are referred to as Onex’ Asset The U.S. dollar is Onex’ functional currency and the Managers and are consolidated by Onex. ﬁnan cial statements have been reported on a U.S. dollar basis. References to the Onex management team include the management of Onex, Onex Partners, ONCAP, Onex Credit and 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 Gluskin Sheff. References to management without the use of “team” A C C O U N T I N G P O L I C I E S – 2 019 B A S I S O F P R E PA R AT I O N – 2 019 include only the relevant group. References to an Onex Partners Group represent Onex, the limited partners of the relevant Onex Partners Fund, the Onex management team and, where applicable, Throughout the notes to the 2019 consolidated ﬁnancial state- certain other limited partners as investors. References to an ONCAP ments, investments and investing activity of Onex’ capital pri- Group represent Onex, the limited partners of the relevant ONCAP marily relate to its private equity funds, credit strategies and Fund, the Onex management team and, where applicable, certain certain investments held outside the private equity funds and other limited partners as investors. credit strategies. These investments are held directly or indirectly through wholly-owned subsidiaries of Onex, which are referred On January 1, 2019, Onex determined it met the deﬁnition of an to as Investment Holding Companies. While there are a number investment entity, as deﬁned by IFRS 10, Consolidated ﬁnancial of Investment Holding Companies, substantially all of these com- statements (“IFRS 10”). This change in status resulted from the panies consist of direct or indirect subsidiaries of Onex Private change in how Onex measures and evaluates the performance of Equity Holdings LLC, Onex CLO Holdings LLC or Onex Credit its investments, which are now performed on a fair value basis for Holdings LLC. These three companies, which are referred to as the substantially all of Onex’ investments. This change was driven pri- Primary Investment Holding Companies, are the holding com- marily by the following factors: (i) performance metrics reviewed by panies for substantially all of Onex’ investments, excluding inter- Onex management have evolved over time and now primarily focus company loans receivable from Onex and the Asset Managers, as on the fair value of Onex’ investments; (ii) growth of Onex’ invest- deﬁned below. The Primary Investment Holding Companies were ment in credit strategies ($815 as at January 1, 2019), for which the formed in the United States. 84 Onex Corporation December 31, 2019 N O T E S T O C O N S O L I D AT E D F I N A N C I A L S TAT E M E N T S measurement and evaluation have always been performed on a fair The Company has also performed an assessment to value basis; and (iii) Onex’ disposition of certain investments that determine which of its subsidiaries are investment entities, as were not measured and evaluated on a fair value basis. deﬁned under IFRS 10. When performing this assessment, the As a result of this change in status, the assets and liabili- Company considered the subsidiaries’ current business purpose ties of Onex’ subsidiaries that do not provide investment-related along with the business purpose of the subsidiaries’ direct or indi- services have been derecognized from Onex’ consolidated bal- rect investments. The Company has concluded that the Primary ance sheet, and Onex’ investments in these subsidiaries have Investment Holding Companies meet the deﬁnition of an invest- been recognized as corporate investments at fair value totalling ment entity. $9,156 as at January 1, 2019, including intercompany loans receiv- Throughout these consolidated ﬁnancial statements, able from Investment Holding Companies. Onex recognized a gain wholly-owned subsidiaries of Onex that are recognized at fair value on the transition to investment entity status of $3,549 on Janu- during 2019 are referred to as Investment Holding Compa nies. ary 1, 2019, including items reclassiﬁed from accumulated other Invest ment Holding Companies include subsidiaries determined comprehensive loss, reﬂecting the difference between the cor- to be investment entities under IFRS 10, and all other subsidiaries porate investments’ fair values and their previous carrying val- that do not provide investment-related services and are not invest- ues. These corporate investments are subsequently measured at ment entities. fair value through net earnings. The change in investment entity status has been accounted for prospectively from January 1, 2019, in accordance with IFRS 10. The simpliﬁed diagram below illustrates the types of subsidiaries included within Onex’ corporate structure and the basis on which they are accounted for following the change in Onex’ investment entity status on January 1, 2019. Intercompany loans between consolidated subsidiaries and investment holding companies(1) CORPORATION Consolidated Subsidiaries ASSET MANAGERS Investment Holding Companies(2) ONEX PRIVATE EQUITY HOLDINGS LLC ONEX CLO HOLDINGS LLC ONEX CREDIT HOLDINGS LLC Private equity investments including Onex Partners and ONCAP Funds(3) Onex Credit CLO investments(3) Onex Credit Fund and direct lending investments(3) (1) Onex Corporation and the consolidated asset management subsidiaries enter into intercompany loans that, in aggregate, have no net effect on Onex’ financial position. Intercompany loans payable by Onex and the consolidated subsidiaries to the Investment Holding Companies are recognized as liabilities in the consolidated balance sheet, with the corresponding loans receivable classified as an asset within corporate investments in the consolidated balance sheet. (2) Onex’ investments in the Investment Holding Companies are recorded as corporate investments at fair value through net earnings. (3) Onex’ investments in private equity, direct lending, CLOs and Onex Credit Funds are typically held directly or indirectly through wholly-owned investment holding companies, which are subsidiaries of the Primary Investment Holding Companies identified above. Onex Corporation December 31, 2019 85 N O T E S T O C O N S 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 June 2019, Onex management updated its assessment of whether Onex, the parent company, meets the deﬁnition of an investment entity under IFRS 10 following the acquisition of Gluskin Sheff, as described in note 2. Onex management concluded that Onex, the parent com- pany, remains an investment entity as deﬁned by IFRS 10 subsequent to its acquisition of Gluskin Sheff. The following table presents the material unconsolidated subsidiaries as well as associates and joint ventures of the Investment Holding Com pa nies at December 31, 2019. Other private equity investments Celestica Inc. Onex Partners II Carestream Health, Inc. Onex Partners III BBAM Limited Partnership Emerald Expositions Events, Inc JELD-WEN Holding, Inc. Meridian Aviation Partners Limited and affiliates SGS International, LLC Onex Partners IV Advanced Integration Technology LP ASM Global Clarivate Analytics Plc Parkdean Resorts PowerSchool Group LLC Ryan, LLC SCP Health SIG Combibloc Group AG WireCo WorldGroup Onex Partners IV and Onex Partners V KidsFoundation Holdings B.V. Onex Partners V Convex Group Limited WestJet Airlines Ltd. Headquarters(a) Onex’ Economic Interest Voting Interest (b) Canada United States United States United States United States Ireland United States United States United States United Kingdom United Kingdom United States United States United States Switzerland United States The Netherlands United Kingdom Canada 15% 36% 9% 16% 8% 25% 23% 13% 16% 11% 28% 16% 14% 22% 11% 23% 27% 12% 21% 81% 100% (c) 66% 32% (c) 100% 92% 50% (c) 49% 30% (c) 80% 50% (c) (c) 68% 32% (c) 72% 98% 96% 76% (a) Certain entities were formed in a different jurisdiction than where they are headquartered. (b) Onex controls the General Partner and Manager of the Onex Partners Funds and as such, the voting interests in each Onex Partners investment includes voting securities held by the related Onex Partners Fund Group. The voting interests include shares that Onex has the right to vote through contractual arrangements or through multiple voting rights attached to particular shares. (c) Onex exerts joint control or significant influence over these investments through its right to appoint members to the boards of directors of these entities. 86 Onex Corporation December 31, 2019 N O T E S T O C O N S O L I D AT E D F I N A N C I A L S TAT E M E N T S S 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 – 2 019 Foreign currency translation Recoverable fund expenses include amounts owing to the Asset Managers from the Onex Partners Funds, ONCAP Funds, The Company’s functional currency is the U.S. dollar, as it is Onex Credit strategies and certain operating companies of the the currency of the primary economic environment in which it Onex Partners and ONCAP Funds related to certain deal investiga- operates. For such operations, monetary assets and liabilities tion, research and other expenses incurred by the Asset Managers denominated in foreign currencies are translated into U.S. dollars which are recoverable at cost. at the year-end exchange rates. Non-monetary assets and liabili- The Company’s receivables are recognized initially at ties denominated in foreign currencies are translated at histori- fair value and are subsequently measured at amortized cost. The cal rates and revenue and expenses are translated at the average Company recognizes a loss allowance for receivables based on exchange rates prevailing during the relevant period of the trans- the 12-month expected credit losses for receivables that have not action. Exchange gains and losses also arise on the settlement had a signiﬁcant increase in credit risk since initial recognition. of foreign-currency denominated transactions. These exchange For receivables with a credit risk that has signiﬁcantly increased gains and losses are recognized in earnings. since initial recognition, the Company records a loss allowance The functional currency of Gluskin Sheff is the Canadian based on the lifetime expected credit losses. Signiﬁcant ﬁnancial dollar and as such, the assets and liabilities of Gluskin Sheff are difﬁculties of the counterparty and default in payments are con- translated into U.S. dollars using the year-end exchange rate. The sidered indicators that the credit risk associated with a receivable revenue and expenses of Gluskin Sheff are translated at the average balance may have changed since initial recognition. exchange rates prevailing during the relevant period of the transac- tion. Gains and losses arising from the translation of Gluskin Sheff’s Corporate investments ﬁnancial results are deferred in the currency translation account Corporate investments include Onex’ investments in its subsid- included in equity. Cash and cash equivalents iaries, primarily consisting of Investment Holding Companies, that meet the investment entity exception to consolidation cri- teria in IFRS 10. These subsidiaries primarily invest Onex’ share- Cash and cash equivalents include liquid investments such as term holder capital in the Onex Partners Funds, ONCAP Funds and deposits, money market instruments and commercial paper with Onex Credit strategies. Corporate investments are measured at original maturities of less than three months. The investments fair value through net earnings, in accordance with IFRS 9. The are carried at cost plus accrued interest, which approximates fair value of corporate investments includes the fair value of both fair value. Treasury investments intercompany loans receivable from and payable to Onex and the Asset Managers. In addition, the fair value of corporate invest- ments includes Onex’ portion of the carried interest earned on Treasury investments include commercial paper, federal and investments made by the Onex Partners and ONCAP Funds and municipal debt instruments, corporate obligations and struc- the liability associated with management incentive programs, tured products. Treasury investments are measured at fair value including the Management Investment Plan (the “MIP”), as through net earnings in accordance with IFRS 9, Financial instru- described in note 26. ments (“IFRS 9”). At December 31, 2019, substantially all of the Company’s corporate investments, excluding intercompany loans, con- Management and advisory fees, recoverable fund expenses and other receivables sisted of investments made in the Primary Investment Holding Companies and investments made in operating businesses directly Management and advisory fees receivable represent amounts by Onex. owing to Onex and the Asset Managers from the Onex Partners Funds, ONCAP Funds, Onex Credit strategies, Gluskin Sheff Funds, Gluskin Sheff clients and certain operating companies of the Onex Partners and ONCAP Funds. Onex Corporation December 31, 2019 87 N O T E S T O C O N S O L I D AT E D F I N A N C I A L S TAT E M E N T S Leases The Company also elected to not reassess whether a contract is or IFRS 16, Leases (“IFRS 16”) supersedes IAS 17, Leases (“IAS 17”) and contains a lease as at January 1, 2019, as permitted by IFRS 16. requires lessees to recognize a right-of-use asset and a lease liabil- ity for substantially all lease contracts. On January 1, 2019, Onex From January 1, 2019, leases are recognized as a right-of-use asset adopted IFRS 16 on a modiﬁed retrospective basis and has cho- and a corresponding lease liability at the date at which the leased sen to not restate comparative information in accordance with asset is available for use, with the exception of leases of low-value the transitional provisions in IFRS 16. As a result, the compara- assets or leases with a term of 12 months or less, which are recog- tive information continues to be presented in accordance with the nized on a straight-line basis as an expense. Each lease payment is Company’s previous accounting policies. allocated between the repayment of the lease liability and ﬁnance On adoption of IFRS 16, Onex recognized lease liabili- cost. The ﬁnance cost is charged to the consolidated statement ties in relation to leases which had previously been classiﬁed as of earnings over the lease period to produce a constant periodic operating leases under IAS 17. The lease liabilities were measured rate of interest on the remaining balance of the lease liability for at the present value of the remaining lease payments, discounted each period. The right-of-use asset is depreciated on a straight- using Onex’ incremental borrowing rates as at January 1, 2019. line basis over the shorter of the asset’s useful life and the lease Onex’ weighted-average incremental borrowing rate applied to term. Right-of-use assets and lease liabilities arising from a lease the lease liabilities on January 1, 2019 was 3.20%. The details of the are initially measured on a present value basis. Right-of-use assets lease liabilities recognized as at January 1, 2019 are as follows: are included within property and equipment in the consolidated balance sheet at December 31, 2019. Operating lease commitments disclosed as at December 31, 2018 Operating lease commitments related $ 2,085 Property and equipment Property and equipment are recorded at cost less accumulated to subsidiaries no longer consolidated by Onex amortization and provisions for impairment, if any. Cost con- as at January 1, 2019 Discounting of future commitments as at January 1, 2019 Other (1,999) sists of expenditures directly attributable to the acquisition of (12) (2) the asset. Subsequent expenditures for maintenance and repairs are expensed as incurred, while costs related to betterments and improvements that extend the useful lives of property and equip- Lease liabilities recognized as at January 1, 2019 $ 72 ment are capitalized. The associated right-of-use assets recognized totalled $71 and asset’s useful life and the lease term on a straight-line basis. were measured at an amount equal to the recognized lease liabil- ities, adjusted for previously recognized lease accruals, in accor- Amortization is provided for other property and equipment on dance with the transitional provisions of IFRS 16, and were com- a straight-line basis over the estimated useful lives of the assets Right-of-use assets are amortized over the shorter of the prised entirely of real estate premises. There was no impact to as follows: retained earnings on January 1, 2019 as a result of adopting IFRS 16. In applying IFRS 16, the Company used the following practical Leasehold improvements up to the term of the lease expedients, as permitted by the standard: Furniture and equipment up to 10 years Aircraft up to 20 years • Previous assessments were relied on to determine whether leases were onerous; • Operating leases with a remaining lease term of less than 12 months at January 1, 2019 were treated as short-term leases under IFRS 16; 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 • Initial direct costs were excluded from the measurement of prospectively as required. right-of-use assets at the date of initial application; and • Payments associated with leases of low-value assets were rec- ognized on a straight-line basis as an expense in the consoli- dated statement of earnings. 88 Onex Corporation December 31, 2019 N O T E S T O C O N S 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 and intangible assets Impairment losses for long-lived assets are reversed Goodwill and intangible assets are recorded at their fair value at in future periods if the circumstances that led to the impairment the date of acquisition of the related subsidiary or at cost if pur- no longer exist. The reversal is limited to restoring the carrying chased. Goodwill is initially measured as the excess of the aggre- amount that would have been determined, net of amortization, had gate of the consideration transferred, the fair value of any contin- no impairment loss been recognized in prior periods. gent consideration, the amount of any non-controlling interest in the acquired company and, for a business combination achieved Intercompany loans with Investment Holding Companies in stages, the fair value at the acquisition date of the Company’s Intercompany loans payable to Investment Holding Companies previously held interest in the acquired company compared to represent ﬁnancial liabilities that are payable to subsidiaries of the net fair value of the identiﬁable assets and liabilities acquired. Onex, which are recorded at fair value in the consolidated ﬁnancial Goodwill is not amortized and is tested for impairment annu- statements. Intercompany loans receivable from Investment ally, or more frequently if conditions exist which indicate that Holding Companies are classiﬁed as corporate investments and goodwill may be impaired. Subsequent to initial recognition, represent loans receivable from subsidiaries of Onex, which are goodwill is recorded at cost less accumulated impairment losses, recorded at fair value in the consolidated ﬁnancial statements. if any. Judgement is required in determining whether events or Onex has elected to measure these ﬁnancial instruments at fair changes in circumstances during the year are indicators that a value through net earnings, in accordance with IFRS 9. review for impairment should be conducted prior to the annual impairment test. For the purposes of impairment testing, good- Income taxes will is allocated to the cash generating units (“CGUs”) of the busi- Income taxes are recorded using the asset and liability method of ness whose acquisition gave rise to the goodwill. Impairment income tax allocation. Under this method, assets and liabilities of goodwill is tested at the level where goodwill is monitored are recorded for the future income tax consequences attributable for internal management purposes. Therefore, goodwill will be to differences between the ﬁnancial statement carrying values of assessed for impairment at the level of either an individual CGU assets and liabilities and their respective income tax bases, and on or a group of CGUs. The determination of CGUs and the level at tax loss and tax credit carryforwards. Deferred tax assets are recog- which goodwill is monitored requires judgement by management. nized only to the extent that it is probable that taxable proﬁt will The carrying amount of a CGU or a group of CGUs is compared to be available against which the deductible temporary differences its recoverable amount, which is the higher of its value-in-use or as well as tax loss and tax credit carryforwards can be utilized. fair value less costs to sell, to determine if an impairment exists. These deferred income tax assets and liabilities are recorded using Impairment losses for goodwill are not reversed in future periods. substantively enacted income tax rates. The effect of a change in income tax rates on these deferred income tax assets or liabilities Amortization is provided for intangible assets with a limited life on is included in net earnings in the period in which the rate change a straight-line basis over their estimated useful lives as follows: occurs. Certain of these differences are estimated based on current Client relationships Software up to 15 years up to 5 years Impairment of long-lived assets Property, equipment and intangible assets are reviewed for impairment annually or whenever events or changes in circum- stances suggest that the carrying amount of the asset may not be recoverable. Judgement is required in determining whether events or changes in circumstances during 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. tax legislation and the Company’s interpretation thereof. Income tax expense or recovery is based on the income earned or loss incurred in each tax jurisdiction and the enacted or substantively enacted tax rate applicable to that income or loss. Tax expense or recovery is recognized in the consolidated state- ment of net earnings, except to the extent that it relates to items recognized directly in equity, in which case the tax effect is also recognized in equity. Deferred tax liabilities for taxable temporary differences associated with investments in subsidiaries are recognized, except when the Company is able to control the timing of the reversal of temporary differences and it is probable that the temporary dif- ferences will not reverse in the foreseeable future. Onex Corporation December 31, 2019 89 N O T E S T O C O N S O L I D AT E D F I N A N C I A L S TAT E M E N T S In the ordinary course of business, there are transac- Revenue recognition requires management to make tions for which the ultimate tax outcome is uncertain. The ﬁnal tax certain judgements and estimates including the identiﬁcation of outcome of these matters may be different from the judgements performance obligations, the allocation and amount of the trans- and estimates originally made by the Company in determining action price, and the collectability of cash consideration. its income tax provisions. The Company periodically evaluates Signiﬁcant revenue recognition streams during the year the positions taken with respect to situations in which applicable ended December 31, 2019 were as follows: tax rules and regulations are subject to interpretation. Provisions related to tax uncertainties are established where appropriate Management and advisory fees based on the most likely amount or expected value that will ulti- Onex earns management and advisory fees for managing investor mately be paid to or received from tax authorities. Accrued interest capital through its private equity funds, private credit strategies, and penalties relating to tax uncertainties are recorded in current public debt strategies and public equity strategies, and for services income tax expense, in accordance with IAS 12, Income Taxes. provided directly to certain underlying operating businesses. Asset Note 15 provides further details on income taxes. management services are provided over time and the amount Revenue recognition earned is generally calculated based on a percentage of limited partners’ committed capital, limited partners’ net funded commit- Revenue from management fees, advisory fees, performance fees ments, unfunded commitments, the collateral principal balance, and the reimbursement of expenses from investment funds and gross invested assets or net asset value of the respective strategies. operating businesses is recognized using the following ﬁve-step Revenues earned from management and advisory fees are recog- model, in accordance with IFRS 15, Revenue from contracts with nized over time as the services are provided. customers (“IFRS 15”): 1) identify the contract or contracts with the client; 2) identify the separate performance obligations in the contract; 3) determine the transaction price; 4) allocate the trans- Reimbursement of expenses from investment funds and operating businesses action price to separate performance obligations; and 5) recog- Certain deal investigation, research and other expenses incurred nize revenue when or as each performance obligation is satisﬁed, by the Asset Managers are recoverable from the Onex Partners collection of consideration is probable and control of the good or Funds, ONCAP Funds, Onex Credit strategies and certain oper- service has been transferred to the client. ating businesses of the Onex Partners and ONCAP Funds. These The transaction price represents the amount of con- expense reimbursements are recognized as revenue, in accor- sideration that the Company expects to be entitled to and may dance with IFRS 15. include variable components such as performance fees and per- formance allocations. Management estimates the amount of vari- Performance fees able consideration to be included in the transaction price to the Performance fees are recognized as revenue to the extent the fees extent that it is highly probable that a signiﬁcant reversal in the are highly probable to not reverse, which is typically at the end of amount of cumulative revenue recognized will not occur when each performance year, or upon closure of an account or transfer the uncertainty associated with the variable consideration is sub- of assets to a different investment model. sequently resolved. This estimate is updated at each reporting Performance fees associated with the management of date until the uncertainty is resolved. the Gluskin Sheff Funds are comprised of performance fees and The Company transfers the beneﬁt of its services to cli- performance allocations. Performance fees are determined by ents and limited partners as it performs the services, and there- applying an agreed-upon formula to the growth in the net asset fore satisﬁes its performance obligations over time. value of clients’ assets under management. Performance alloca- A receivable is recognized when the transfer of control tions are allocated to the Company as a General Partner of cer- for services to a client occurs prior to the client paying consider- tain Gluskin Sheff Funds. Performance fees associated with the ation if the right to the consideration is unconditional. A contract Gluskin Sheff Funds range between 10% and 25% and may be sub- liability is recognized when the client’s payment of consideration ject to performance hurdles. precedes the completion of a performance obligation. Onex is entitled to performance fees on investor capital it manages within the Onex Credit strategies. Performance fees for these strategies range between 15% and 20% of net gains and are gen- erally subject to a hurdle or minimum preferred return to investors. 90 Onex Corporation December 31, 2019 N O T E S T O C O N S 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 or an afﬁliate, and must be redeemed by the end of the year The Company follows the fair value-based method of accounting following the year of termination. Additional units are issued for all stock-based compensation plans. During the year ended equivalent to the value of any cash dividends that would have December 31, 2019, the Company had three types of stock-based been paid on the SVS. The Company has recorded a liability compensation plans: for the future settlement of the DSUs by reference to the value 1) The Company’s Stock Option Plan (the “Plan”), which provides of the underlying SVS at the balance sheet date. On a quarter- that in certain situations the Company has the right, but not the ly basis, the liability is adjusted for the change in the market obligation, to settle any exercisable option under the Plan by the value of the underlying shares, with the corresponding amount payment of cash to the option holder. The Company has recorded reﬂected in the consolidated statement of earnings. To eco- a liability for the potential future settlement of the vested options nomically hedge the Company’s exposure to changes in the at the balance sheet date by reference to the fair value of the lia- trading price of Onex shares associated with the Management bility. The liability is adjusted each reporting period for changes DSU Plan, the Company enters into forward agreements with in the fair value of the options, with the corresponding amount a counterparty ﬁnancial institution for all grants under the reﬂected in the consolidated statement of earnings. Management DSU Plan. As such, the change in value of the for- 2) The Company’s Director Deferred Share Unit Plan (“Director ward agreements will be recorded to offset the amounts record- DSU Plan”), which entitles the holder to receive, upon redemp- ed as stock-based compensation under the Management DSU tion, a cash payment equivalent to the market value of a Plan. The administrative costs of those arrangements are borne Subordinate Voting Share (“SVS”) at the redemption date. The by participants in the plan. Management DSUs are redeemable Director DSU Plan enables Onex directors to apply directors’ only for cash and no shares or other securities of Onex will be fees earned to acquire Deferred Share Units (“DSUs”) based issued on the exercise, redemption or other settlement thereof. on the market value of Onex shares at the time. Grants of DSUs may also be made to Onex directors from time to time. Stock-based compensation for the year ended December 31, 2019 The DSUs vest immediately, are redeemable only when the no longer includes the expense (recovery) and liability associated holder retires and must be redeemed within one year follow- with the MIP as it is incorporated in the fair value measurement ing the year of retirement. Additional units are issued for any of corporate investments and the corresponding net gains (losses) cash dividends paid on the SVS. The Company has recorded a on corporate investments (note 6). liability for the future settlement of the DSUs by reference to the value of the underlying SVS at the balance sheet date. On Financial assets and financial liabilities a quarterly basis, the liability is adjusted for the change in the Financial assets and ﬁnancial liabilities are initially recognized market value of the underlying shares, with the corresponding at fair value and are subsequently accounted for based on their amount reﬂected in the consolidated statement of earnings. classiﬁcation, as described below. Transaction costs in respect of To economically hedge a portion of the Company’s exposure an asset or liability not recorded at fair value through net earn- to changes in the trading price of Onex shares, the Company ings are added to the initial carrying amount. Gains and losses for enters into forward agreements with a counterparty ﬁnancial ﬁnancial instruments recognized through net earnings are pri- institution. The change in value of the forward agreements will marily recognized in net gains (losses) on corporate investments be recorded to partially offset the amounts recorded as stock- in the 2019 consolidated statement of earnings. The classiﬁcation based compensation under the Director DSU Plan. of ﬁnancial assets depends on the business model for managing 3) The Company’s Management Deferred Share Unit Plan (“Man- the ﬁnancial assets and the contractual terms of the cash ﬂows. agement DSU Plan”), which enables the Onex management The classiﬁcation of ﬁnancial liabilities depends on the purpose team to apply all or a portion of their annual compensation for which the ﬁnancial liabilities were incurred and their charac- earned to acquire DSUs based on the market value of Onex teristics. Except in very limited circumstances, the classiﬁcation shares at the time in lieu of cash. Holders of DSUs are entitled of ﬁnancial assets and ﬁnancial liabilities are not changed subse- to receive for each DSU, upon redemption, a cash payment quent to initial recognition. Financial assets purchased and sold, equivalent to the market value of an SVS at the redemption where the contract requires the asset to be delivered within an date. The DSUs vest immediately, are only redeemable once established time frame, are recognized on a trade-date basis. the holder ceases to be an ofﬁcer or employee of the Company Onex Corporation December 31, 2019 91 N O T E S T O C O N S 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) Financial assets – amortized cost d) Financial liabilities measured at fair value through Financial assets with the following characteristics are accounted net earnings for at amortized cost using the effective interest rate method: Financial liabilities that are incurred with the intention of gener- • The ﬁnancial asset is held within a business model whose ating earnings in the near term are classiﬁed as fair value through objective is achieved by collecting contractual cash ﬂows; and net earnings. Other ﬁnancial liabilities may be designated as • The contractual terms of the ﬁnancial asset give rise on speci- fair value through net earnings on initial recognition if doing so ﬁed dates to cash ﬂows that are solely payments of principal eliminates or signiﬁcantly reduces a measurement or recognition and interest. inconsistency, or the group of ﬁnancial liabilities is managed, and its performance is evaluated on a fair value basis. Intercompany The Company recognizes loss allowances for ﬁnancial assets ac- loans payable to Investment Holdings Companies are designated counted for at amortized cost based on the ﬁnancial assets’ ex- as fair value through net earnings. pected credit losses, which are assessed on a forward-looking basis. b) Financial assets – fair value through other Financial liabilities not classiﬁed as fair value through net earn- comprehensive income ings are accounted for at amortized cost using the effective inter- e) Financial liabilities measured at amortized cost Financial assets with the following characteristics are accounted est rate method. for at fair value, with changes in fair value recorded in other com- prehensive income (“OCI”): f) Interest Income • The ﬁnancial asset is held within a business model whose Interest income recognized by the Company primarily relates to objective is achieved by both collecting contractual cash ﬂows interest earned from investments recognized at fair value through and selling ﬁnancial assets; and net earnings. • The contractual terms of the ﬁnancial asset give rise on speciﬁed dates to cash ﬂows that are solely payments of princi- Derecognition of financial instruments pal and interest. A ﬁnancial asset is derecognized if substantially all the risks and rewards of ownership and, in certain circumstances, control of the The Company recognizes loss allowances through net earnings ﬁnancial asset are transferred. A ﬁnancial liability is derecognized for ﬁnancial assets accounted for at fair value through OCI based when it is extinguished, with any gain or loss on extinguishment on the ﬁnancial instrument’s expected credit losses, which are to be recognized in other expense in the consolidated statement assessed on a forward-looking basis. Gains and losses realized on of earnings. disposal, which are calculated on an average cost basis, are recog- nized in net earnings. Foreign exchange gains and losses are recog- Earnings per share nized immediately in net earnings. Basic earnings per share is based on the weighted average num- ber of SVS outstanding during the year. Diluted earnings per share At December 31, 2019, the Company had no ﬁnancial assets out- is calculated using the treasury stock method, which includes standing that were accounted for at fair value through OCI. the impact of converting certain limited partnership units issued c) Financial assets – fair value through net earnings excludes the impact of converting outstanding stock options into Financial assets that do not meet the criteria for amortized cost Onex SVS, given Onex accounts for the liability associated with or fair value through OCI are measured at fair value through net outstanding stock options issued under its Stock Option Plan as a earnings. Financial assets may also be designated as fair value liability at fair value through net earnings. in June 2019 in an Onex subsidiary into 144,579 of Onex SVS and through net earnings on initial recognition if doing so eliminates or signiﬁcantly reduces a measurement or recognition inconsis- Dividend distributions tency. Intercompany loans receivable from Investment Holding Dividend distributions to the shareholders of Onex Corporation Companies, which are presented within Corporate Investments, are recognized as a liability in the consolidated balance sheet in are designated as fair value through net earnings. the period in which the dividends are declared and authorized by the Board of Directors. 92 Onex Corporation December 31, 2019 N O T E S T O C O N S O L I D AT E D F I N A N C I A L S TAT E M E N T S Use of judgements and estimates Corporate investments The preparation of ﬁnancial statements in conformity with The measurement of corporate investments is signiﬁcantly IFRS requires management to make judgements, estimates and impacted by the fair values of the investments held by the Onex assumptions that affect the reported amounts of assets, liabili- Partners Funds, ONCAP Funds and Onex Credit strategies. The fair ties and equity, the related disclosures of contingent assets and value of corporate investments is assessed at each reporting date liabilities at the date of the ﬁnancial statements, and the report- with changes in fair value recognized through net earnings. ed amounts of revenue, expenses and gains (losses) on ﬁnancial The valuation of non-public investments requires sig- instruments during the reporting period. Actual results could dif- niﬁcant judgement due to the absence of quoted market val- fer materially from those estimates and assumptions. These esti- ues, inherent lack of liquidity and the long-term nature of such mates and underlying assumptions are reviewed on an ongoing investments. Valuation methodologies include discounted cash basis. Revisions to accounting estimates are recognized in the ﬂows and observations of the trading multiples of public com- period in which the estimate is revised if the revision affects only panies considered comparable to the private companies being that period, or in the period of the revision and future periods if valued. The valuations take into consideration company-speciﬁc the revision affects both current and future periods. items, the lack of liquidity inherent in a non-public investment Areas that involve critical judgements, assumptions and and the fact that comparable public companies are not identical estimates and that have a signiﬁcant inﬂuence on the amounts to the companies being valued. Such considerations are neces- recognized in the consolidated ﬁnancial statements are further sary since, in the absence of a committed buyer and completion described as follows: Investment entity status of due diligence procedures, there may be company-speciﬁc items that are not fully known that may affect the fair value. A variety of additional factors are reviewed, including, but not Judgement was required when determining whether Onex, the par- limited to, ﬁnancing and sales transactions with third parties, cur- ent company, meets the deﬁnition of an investment entity, which rent operating performance and future expectations of the par- IFRS 10 deﬁnes as an entity that: (i) obtains funds from one or more ticular investment, changes in market outlook and the third-party investors for the purpose of providing those investors with invest- ﬁnancing environment. In determining changes to the fair value ment management services; (ii) commits to its investors that its of the underlying private equity investments, emphasis is placed business purpose is to invest funds solely for returns from capital on current company performance and market conditions. appreciation, investment income, or both; and (iii) measures and For publicly traded investments, the valuation is based evaluates the performance of substantially all of its investments on closing market prices less adjustments, if any, for regulatory on a fair value basis. When determining whether Onex met the and/or contractual sale restrictions. deﬁnition of an investment entity under IFRS 10, Onex manage- The fair value of underlying investments in Onex Credit ment applied signiﬁcant judgement when assessing whether the strategies that are not quoted in an active market may be deter- Company measures and evaluates the performance of substantially mined by using reputable pricing sources (such as pricing agen- all of its investments on a fair value basis. cies) or indicative prices from bond/debt market makers. Broker Onex conducts its business primarily through con- quotes as obtained from the pricing sources may be indicative trolled subsidiaries, which consist of entities providing asset man- and not executable or binding. Judgement and estimates are exer- agement services, investment holding companies and General cised to determine the quantity and quality of the pricing sources Partners of private equity funds, credit funds and limited partner- used. Where no market data is available, positions may be valued ships. Certain of these subsidiaries were formed for legal, regu- using models that include the use of third-party pricing informa- latory or similar reasons by Onex and share a common business tion and are usually based on valuation methods and techniques purpose. The assessment of whether Onex, the parent company, generally recognized as standard within the industry. Models use meets the deﬁnition of an investment entity was performed on an observable data to the extent practicable. However, areas such aggregate basis with these subsidiaries. as credit risk (both own and counterparty), volatilities and cor- relations may require estimates to be made. Changes in assump- tions about these factors could affect the reported fair value of the underlying investments in Onex Credit strategies. Onex Corporation December 31, 2019 93 N O T E S T O C O N S O L I D AT E D F I N A N C I A L S TAT E M E N T S Management incentive programs are included in the Goodwill impairment tests and recoverability of assets fair value of corporate investments and are determined using an The Company tests at least annually whether goodwill has suf- internally developed valuation model. The critical assumptions fered any impairment, in accordance with its accounting policies. and estimates used in the valuation model include the fair value The determination of the recoverable amount of a CGU to which of the underlying investments, the time to expected exit from goodwill is allocated involves the use of estimates by manage- each investment, a risk-free rate and an industry comparable his- ment. The Company generally uses discounted cash ﬂow-based torical volatility for each investment. The fair value of the under- methods to determine these values. These discounted cash ﬂow lying investments includes the same critical assumptions and calculations typically use ﬁve-year projections that are based on estimates previously described. the operating plans approved by management. Cash ﬂow projec- Corporate investments are measured with signiﬁcant tions take into account past experience and represent manage- unobservable inputs (Level 3 of the fair value hierarchy), which ment’s best estimate of future developments. Cash ﬂows after the are further described in note 23. planning period are extrapolated using estimated growth rates. The changes in fair value of corporate investments are Key assumptions on which management has based its deter- further described in note 6. mination of fair value less costs to sell and value in use include estimated growth rates, weighted average cost of capital and The Company assessed whether its underlying subsidiaries met tax rates. These estimates, including the methodology used, can the deﬁnition of an investment entity, as deﬁned under IFRS 10. have a material impact on the respective values and ultimately In certain circumstances, this assessment was performed togeth- the amount of any goodwill impairment. Likewise, whenever er with other entities that were formed in connection with each property, equipment and other intangible assets are tested for other for legal, regulatory or similar reasons. Similarly, where a impairment, the determination of the assets’ recoverable amount subsidiary’s current business purpose is to facilitate a common involves the use of estimates by management and can have a purpose with a group of entities, the assessment of whether those material impact on the respective values and ultimately the subsidiaries met the deﬁnition of an investment entity was per- amount of any impairment. formed on an aggregated basis. Certain subsidiaries were formed for various business Income taxes purposes that, in certain circumstances, have evolved since their The Company operates and earns income in various countries formation. When the Company assessed whether these subsidiar- and is subject to changing tax laws or application of tax laws in ies met the deﬁnition of an investment entity, as deﬁned under multiple jurisdictions within these countries. Signiﬁcant judge- IFRS 10, professional judgement was exercised to determine the ment is necessary in determining worldwide income tax liabili- primary business purpose of these subsidiaries and the measure- ties. Although management believes that it has made reasonable ment basis, which were signiﬁcant factors in determining their estimates about the ﬁnal outcome of tax uncertainties, no assur- investment entity status. Business combination ance can be given that the ﬁnal outcome of these tax matters will be consistent with what is reﬂected in the historical income tax provisions. Such differences could have an effect on income In June 2019, Onex acquired 100% of Gluskin Sheff and accounted tax liabilities and deferred tax liabilities in the period in which for this acquisition as a business combination in accordance with such determinations are made. At each balance sheet date, the IFRS 3, Business combinations. Substantially all of Gluskin Sheff’s Company assesses whether the realization of future tax beneﬁts is identiﬁable assets and liabilities were recorded at their respective sufﬁciently probable to recognize deferred tax assets. This assess- fair values on the date of acquisition. One of the most signiﬁcant ment requires the exercise of judgement on the part of manage- areas of judgement and estimation related to the determination of ment with respect to, among other things, beneﬁts that could be the fair value of these assets and liabilities. Investments were val- realized from available tax strategies and future taxable income, ued at market prices while intangible assets that were identiﬁed as well as other positive and negative factors. The recorded were valued by an independent external valuation expert using amount of total deferred tax assets could be reduced if estimates appropriate valuation techniques, which were generally based on of projected future taxable income and beneﬁts from available a forecast of the total expected future net cash ﬂows. These valua- tax strategies are lowered, or if changes in current tax regulations tions are linked closely to the assumptions made by management are enacted that impose restrictions on the timing or extent of the regarding the future performance of the assets concerned and any Company’s ability to utilize future tax beneﬁts. changes in the discount rate applied. 94 Onex Corporation December 31, 2019 N O T E S T O C O N S 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 uses signiﬁcant judgement when deter- Onex determined that Gluskin Sheff and the wholly- mining whether to recognize deferred tax liabilities with respect owned subsidiaries that were formed to acquire the company did to taxable temporary differences associated with corporate invest- not meet the deﬁnition of an investment entity under IFRS 10 and ments, in particular whether the Company is able to control the that the entities’ primary business purpose, as a whole, is to pro- timing of the reversal of the temporary differences and whether it is vide investment-related services. As such, Onex consolidated the probable that the temporary differences will not reverse in the fore- ﬁnancial results of Gluskin Sheff and the wholly-owned subsidiar- seeable future. Judgement includes consideration of the Company’s ies that were formed to acquire the company. future cash requirements in its numerous tax jurisdictions. Details of the purchase price and allocation to the acquired assets Legal provisions and contingencies and liabilities of Gluskin Sheff are as follows: The Company in the normal course of operations can become involved in various legal proceedings. While the Company cannot predict the ﬁnal outcome of such legal proceedings, the outcome of these matters may have a material effect on the Company’s Cash and cash equivalents Treasury investments Management fees, recoverable fund expenses consolidated ﬁnancial position, results of operations or cash and other receivables ﬂows. Management regularly analyzes current information about Other assets these matters and provides provisions for probable contingent Property and equipment losses, including an estimate of legal expenses to resolve the mat- Intangible assets with a limited life ters. Internal and external counsel are used for these assessments. Intangible assets with an indefinite life In making the decision regarding the need for provisions, man- Goodwill agement considers the degree of probability of an unfavourable Accounts payable and accrued liabilities outcome and the ability to make a sufﬁciently reliable estimate Lease and other liabilities of the amount of loss. The ﬁling of a suit or formal assertion of Deferred income taxes a claim or the disclosure of any such suit or assertion does not Net assets acquired automatically indicate that a provision may be appropriate. $ 11 13 12 8 18 138 14 192 (29) (8) (40) $ 329 2 . A C Q U I S I T I O N O F G L U S K I N S H E F F In June 2019, Onex acquired 100% of Gluskin Sheff for C$445 ($329). Gluskin Sheff is a Canadian wealth management ﬁrm serving high net worth families and institutional investors. The Company acquired Gluskin Sheff to diversify and expand its distribution channels and to grow its fee-generating assets under manage- ment. As part of the acquisition, certain members of the Gluskin Sheff management team exchanged their Gluskin Sheff common shares for Onex SVS and limited partnership units of a subsidiary of Onex. In connection with this transaction, Onex issued 247,359 SVS with a fair value of $13 (C$18) and limited partnership units of an Onex consolidated subsidiary with a fair value of $8 (C$11), in addi- tion to cash consideration paid of $308 (C$416). The Company also incurred $2 of acquisition-related costs. Gluskin Sheff’s expenses and revenues are primarily denominated in Canadian dollars. Included in the net assets acquired are gross receivables of $12, of which all contractual cash ﬂows are expected to be recovered. The fair value of these receivables on the date of acquisition was deter- mined to be $12. Goodwill is not deductible for tax purposes and is primarily attrib- utable to Gluskin Sheff’s leading position in the Canadian high net worth private client market and the skills and competence of its workforce. Income and net earnings of Gluskin Sheff from the date of acqui- sition by the Company to December 31, 2019 were $70 and $9, respectively. The Company estimates it would have reported consolidated income of approximately $1,140 and net earnings of approximately $4,280 for the year ended December 31, 2019 had Gluskin Sheff been acquired on January 1, 2019. Onex Corporation December 31, 2019 95 N O T E S T O C O N S O L I D AT E D F I N A N C I A L S TAT E M E N T S 3 . C A S H A N D C A S H E Q U I VA L E N T S – 2 019 Cash and cash equivalents at December 31, 2019 comprised the following: 5 . M A N A G E M E N T A N D A D V I S O R Y F E E S , R E C O V E R A B L E F U N D E X P E N S E S A N D O T H E R R E C E I VA B L E S December 31, 2019 At December 31, 2019, the Company’s receivables for management Cash at bank and on hand Money market funds Commercial paper Bank term deposits and other Total cash and cash equivalents $ 137 779 61 11 $ 988 4 . T R E A S U R Y I N V E S T M E N T S Treasury investments as at December 31, 2019 comprised the fol- and advisory fees, fund expenses and other consisted of the fol- lowing: Management and advisory fees Recoverable fund and operating businesses’ expenses Performance fees Other Total December 31, 2019 $ 205 82 20 25 $ 332 lowing: December 31, 2019 Management and advisory fees receivable primarily consisted of management fees receivable of $190 from the Onex Partners and Commercial paper and corporate obligations $ 207 ONCAP Funds. Onex has elected to defer cash receipt of manage- Federal and municipal debt instruments Other Total treasury investments 82 17 $ 306 ment fees from certain funds until the later stages of each fund’s life. At December 31, 2019, the receivable for management and advi- sory fees primarily related to fees due from Onex Partners IV. 6 . C O R P O R AT E I N V E S T M E N T S The Company’s interests in its Investment Holding Companies are recorded at fair value through net earnings in accordance with IFRS 9 and IFRS 10, as described in note 1. The Investment Holding Companies directly or indirectly invest the Company’s capital in the Onex Partners Funds, ONCAP Funds, Onex Credit strategies and other investments. The Company’s corporate investments were comprised of the following amounts at December 31, 2019: Onex Partners Funds ONCAP Funds Other private equity Carried interest Total private equity investments(a) Onex Credit Strategies(b) Real estate(c) Other net assets(d) Total corporate investments excluding intercompany loans Intercompany loans receivable from Onex and the Asset Managers(e) Intercompany loans payable to Onex and the Asset Managers(f) Intercompany loans receivable from Investment Holding Companies(f) Total corporate investments 96 Onex Corporation December 31, 2019 January 1, 2019 $ 3,050 Capital Deployed $ 398 Realizations and Distributions Change in Fair Value December 31, 2019 $ (1,131) $ 682 $ 2,999 458 375 110 3,993 815 148 434 5,390 3,766 (414) 414 $ 9,156 46 27 n/a 471 197 – (845) (177) 530 (357) 357 $ 353 (17) (25) (43) (1,216) (330) (53) 820 (779) (79) 57 (57) 14 44 (1) 739 64 (5) 1 799 – – – 501 421 66 3,987 746 90 410 5,233 4,217 (714) 714 $ (858) $ 799 $ 9,450 N O T E S T O C O N S 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) Private equity investments The Company’s private equity investments were comprised of the following amounts at December 31, 2019: Onex Partners Funds Onex Partners I Onex Partners II Onex Partners III Onex Partners IV Onex Partners V Management incentive programs Total investment in Onex Partners Funds(i) ONCAP Funds ONCAP II ONCAP III ONCAP IV Management incentive programs Total investment in ONCAP Funds(ii) Other private equity investments(iii) Carried interest(iv) January 1, 2019 Capital Deployed Realizations and Distributions Change in Fair Value December 31, 2019 $ 90 132 614 2,262 30 (78) 3,050 113 179 206 (40) 458 375 110 $ – – – 13 385 n/a 398 – – 46 n/a 46 27 n/a $ (90) $ 1 – (84) (981) – 24 (1,131) (17) (3) – 3 (17) (25) (43) (48) 24 793 48 (136) 682 10 8 (4) – 14 44 (1) $ 1 84 554 2,087 463 (190) 2,999 106 184 248 (37) 501 421 66 Total private equity investments $ 3,993 $ 471 $ (1,216) $ 739 $ 3,987 i) Onex Partners Funds Onex Partners I and Onex Partners III The Onex Partners Funds typically make control equity invest- In March 2019, the Onex Partners I and Onex Partners III Groups ments in operating companies headquartered, organized, domi- sold BrightSpring Health (formerly ResCare), a provider of resi- ciled or whose principal executive ofﬁces are primarily in the dential, training, educational and support services for people with United States, Canada and Europe. Onex Partners V will not invest disabilities and special needs in the United States, for an enter- more than 20% of aggregate commitments in any single operat- prise value of approximately $1,300. Onex’ share of the net pro- ing company and its afﬁliates. Certain Onex Partners Funds also ceeds from Onex Partners I and Onex Partners III was $99 and $92, have limits on the amount of aggregate commitments that can respectively, including carried interest of $39. The MIP distribu- be invested in operating companies whose headquarters or prin- tion as a result of this transaction was $12. cipal executive ofﬁces are located outside of the United States and Canada. At December 31, 2019, the Onex Partners Funds had investments in 18 operating businesses in various industry sectors and geographies. Onex’ investments in the Onex Partners Funds include co-investments, where applicable. Onex Corporation December 31, 2019 97 N O T E S T O C O N S O L I D AT E D F I N A N C I A L S TAT E M E N T S Onex Partners IV Management incentive programs – Onex Partners Funds In April 2019, the Onex Partners IV Group received a dividend During the fourth quarter of 2019, Onex recognized a decrease of from SIG Combibloc Group AG (“SIG”), of which Onex’ share was $66 in the fair value of its corporate investments in connection CHF 20 ($20). with changes to the Onex management team’s participation, as In August 2019, the Onex Partners IV Group sold Jack’s, a described in note 26(f ). The remaining change in fair value of the regional quick-service restaurant operator. Onex’ share of the net Onex Partners Funds management incentive programs was primar- proceeds from Onex Partners IV was $224. The MIP distribution as ily driven by an increase in the management incentive programs a result of this transaction was $12. liability associated with Onex Partners IV. In September 2019, the Onex Partners IV Group sold approximately 30.0 million shares of SIG at a price of CHF 12.00 ii) ONCAP Funds per share and in November 2019, the Onex Partners IV Group sold The ONCAP Funds typically make control equity investments in approximately 31.4 million shares of SIG at a price of CHF 13.30 operating companies headquartered, organized, domiciled or per share. SIG is a systems and solutions provider for aseptic car- whose principal executive ofﬁces are primarily in the United States ton packaging. Onex’ combined share of the net proceeds from and Canada. ONCAP IV will not invest more than 20% of aggregate the Onex Partners IV Group was CHF 273 ($276). No amounts were commitments in any single operating company and its afﬁliates. paid on account of the MIP as the required realized investment At December 31, 2019, the ONCAP Funds had invest- return hurdle for Onex was not met on realizations to date. ments in 16 operating businesses headquartered in North America. In September 2019, the Onex Partners IV Group sold Onex’ investments in the ONCAP Funds include co-investments, approximately 27.5 million ordinary shares of Clarivate Analytics where applicable. plc (“Clarivate Analytics”) at a price of $16.00 per share and in In July 2019, the ONCAP II and ONCAP III Groups December 2019, the Onex Partners IV Group sold approximately received distributions from PURE Canadian Gaming, of which 49.7 million ordinary shares of Clarivate Analytics at a price of Onex’ share was $14 and $3, respectively. $17.25 per share. Clarivate Analytics is a global analytics provider. In November 2019, Onex invested $39 in ONCAP IV as Onex’ combined share of the net proceeds from the Onex Part- part of the fund’s investment in TAC Enertech Resources Holdings, ners IV Group was $387. No amounts were paid on account of LLC, a provider of wireless infrastructure services to telecommu- the MIP as the required realized investment return hurdle for nications carriers and tower owners in the United States. Onex was not met on realizations to date. In November 2019, the Onex Partners IV Group received iii) Other private equity investments a distribution from Clarivate Analytics in relation to a tax receiv- Other private equity investments primarily consist of Onex’ invest- able agreement that was entered into with the company in con- ments in Celestica and Ryan Specialty Group (“RSG”). In March nection with Clarivate Analytics’ initial public offering in January 2019, Onex invested an additional $25 in common equity of RSG to 2019. The agreement entitles the Onex Partners IV Group to a por- support the company’s acquisition activities. tion of the tax beneﬁts realized by Clarivate Analytics relating to tax attributes that were present at the time of the initial public iv) Carried interest offering. Onex’ share of the distribution from the Onex Partners IV The General Partner of each Onex Partners and ONCAP Fund is Group was $54. entitled to 20% of the realized net gains of the limited partners in In November 2019, Onex invested an additional $13 in such Fund provided the limited partners have achieved a mini- Onex Partners IV to support PowerSchool’s acquisition activities. mum 8% net compound annual return on their investment. This Onex Partners V performance-based capital allocation of realized net gains is referred to as carried interest. Onex is entitled to 40% of the carried In April 2019, Onex invested $124 in Onex Partners V as part of the interest realized in the Onex Partners and ONCAP Funds. Once the fund’s investment in Convex Group Limited, a de novo specialty ONCAP IV investors achieve a net return of two times their aggre- and casualty insurance company. gate capital contributions, carried interest participation increases In December 2019, Onex invested $261 in Onex Partners V from 20% to 25% of the realized net gains in ONCAP IV. The as part of the fund’s investment in WestJet Airlines Ltd., a Canadian amount of carried interest ultimately received by Onex is based on airline based in Calgary, Alberta. realizations, the timing of which can vary signiﬁcantly from period to period. 98 Onex Corporation December 31, 2019 N O T E S T O C O N S 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, 2019, Onex received of secured notes and equity. The Onex Credit U.S. CLOs invest only $43 of carried interest primarily from the sale of BrightSpring in securities denominated in U.S. dollars while the Onex Credit Health, as described above. The receipt of carried interest earned EURO CLOs invest only in securities denominated in euros. The from the sale of Jack’s and the secondary offerings by Clarivate Company primarily invests in the equity tranches of the Onex Analytics and SIG, as described in an earlier section of this note, was Credit CLOs. elected to be deferred by the General Partner of Onex Partners IV. The direct lending strategy primarily holds investments Unrealized carried interest is calculated based on the in senior secured loans and other loan investments in private current fair values of the Funds and the overall realized and unre- equity sponsor-owned portfolio companies and, selectively, other alized gains in each Fund in accordance with its limited partner- corporate borrowers. The loans are predominantly with borrowers ship agreements. b) Onex Credit strategies in the United States and, selectively, in Canada and Europe. The senior ﬂoating income strategy is an unlevered strategy, which primarily holds investments in ﬁrst-lien, senior Collateralized Loan Obligations (“CLOs”) are leveraged struc- secured loans. tured vehicles that hold a widely diversiﬁed asset portfolio funded The senior credit fund primarily holds investments in through the issuance of long-term debt in a series of rated tranches ﬁrst-lien, senior secured loans and may employ leverage. The Company’s investment in Onex Credit strategies was comprised of the following amounts at December 31, 2019: Onex Credit Strategies U.S. CLOs EURO CLOs CLO warehouses Direct lending OCP Senior Floating Income Fund Onex Debt Opportunity Fund Onex Senior Credit Fund January 1, 2019 Capital Deployed Realizations and Distributions Change in Fair Value December 31, 2019 $ 344 $ 36 $ (73) $ 33 $ 340 68 113 46 89 73 82 40 76 45 – – – (16) (145) (25) – (71) – – 8 7 8 – 8 92 52 73 97 2 90 Total investment in Onex Credit strategies $ 815 $ 197 $ (330) $ 64 $ 746 In March 2019, Onex closed its sixteenth U.S. collateralized loan During 2019, Onex invested $30 to support the ware- obligation (“CLO-16”), investing $13 for approximately 30% of the house facility for its eighteenth CLO denominated in U.S. dollars most subordinated capital of CLO-16. On closing, Onex received (“CLO-18”). $50 plus interest for the investment that supported the warehouse facility for CLO-16. During 2019, Onex invested €20 ($22) to support the warehouse facility for its fourth CLO denominated in euros In May 2019, Onex closed its third European collateral- (“EURO CLO-4”). ized loan obligation (“EURO CLO-3”), investing €35 ($40) for all of the most subordinated capital of EURO CLO-3. On closing, Onex received €55 ($61) plus interest for the investment that supported the warehouse facility for EURO CLO-3. During the year ended December 31, 2019, Onex made investments in direct lending totalling $45. During the year ended December 31, 2019, Onex received distributions of $85 from CLO investments. Additionally, Onex In July 2019, Onex closed its seventeenth U.S. collateral- received distributions of $4 from its second CLO denominated in ized loan obligation (“CLO-17”), investing $23 for approximately U.S. dollars (“CLO-2”), which was redeemed in November 2018, 56% of the most subordinated capital of CLO-17. On closing, Onex and distributions of $25 from direct lending. received approximately $24 plus interest for the investment that During the fourth quarter of 2019, Onex received distri- supported the warehouse facility for CLO-17. butions totalling $71 from the Onex Debt Opportunity Fund. The distributions received were in connection with the dissolution of the Fund, which is expected to be completed during 2020. Onex Corporation December 31, 2019 99 N O T E S T O C O N S O L I D AT E D F I N A N C I A L S TAT E M E N T S c) Real estate e) Intercompany loans receivable from Onex Onex’ investment in real estate is comprised of an investment in and the Asset Managers Flushing Town Center, a commercial and residential complex locat- The Investment Holding Companies have advanced intercompany ed in Flushing, New York. During the year ended December 31, 2019, loans to Onex and the Asset Managers. The intercompany loans Onex received distributions of $53 from Flushing Town Center, receivable from Onex and the Asset Managers of $4,217 form part which were primarily funded by the sale of residential condomini- of Onex’ net investment in the Investment Holding Companies, um units and the receipt of investment-related tax credits. which is recorded at fair value through net earnings. These inter- d) Other net assets company loans receivable are the same loans presented as inter- company loans payable to the Investment Holding Companies Other net assets consist of assets and liabilities of the Investment in the consolidated balance sheet, which total $4,217 and are Holding Companies, excluding investments in private equity, Onex described in note 10. There is no impact on net assets or net earn- Credit strategies, real estate and intercompany loans receivable ings from these intercompany loans. from and payable to Onex and the Asset Managers. At December 31, 2019, the non-investment related assets and liabilities consisted of f) Intercompany loans payable to Onex and the the following: Assets Cash and cash equivalents Treasury investments Receivables Other assets(i) Total assets Liabilities Accounts payable and accrued liabilities Other liabilities Total liabilities Net assets $ 306 89 142 46 $ 583 $ 149 24 $ 173 $ 410 (i) Other assets included $22 of restricted cash and cash equivalents for which the Company can readily remove the external restriction. Asset Managers and intercompany loans receivable from Investment Holding Companies Onex and the Asset Managers have advanced intercompany loans to the Investment Holding Companies totalling $714. The cor- responding intercompany loans payable to Onex and the Asset Managers, which total $714, form part of Onex’ net investment in the Investment Holding Companies, which is recorded at fair value through net earnings. There is no impact on net assets or net earnings from these intercompany loans. 7. O T H E R A S S E T S – 2 019 At December 31, 2019, other assets comprised the following: Forward agreements Restricted cash Prepaid expenses and other Total December 31, 2019 $ 82 30 14 $ 126 Forward agreements with a total value of $82 at December 31, 2019 represent the fair value of hedging arrangements entered into with a ﬁnancial institution to hedge the Company’s exposure to changes in the market value of Onex SVS associated with cer- tain DSUs outstanding, as described in note 16. 100 Onex Corporation December 31, 2019 N O T E S T O C O N S O L I D AT E D F I N A N C I A L S TAT E M E N T S 8 . P R O P E R T Y A N D E Q U I P M E N T – 2 019 At January 1, 2019 and December 31, 2019, the Company’s property and equipment comprised the following: At January 1, 2019 Cost Accumulated amortization Net book amount Year ended December 31, 2019 Opening net book amount Acquisition of Gluskin Sheff (note 2) Additions Amortization charge Closing net book amount At December 31, 2019 Cost Accumulated amortization Net book amount Right-of-Use Assets Aircraft Leasehold Improvements Furniture and equipment $ 71 – $ 71 $ 72 (14) $ 58 $ 53 (9) $ 44 $ 13 (3) $ 10 Total $ 209 (26) $ 183 $ 71 $ 58 $ 44 $ 10 $ 183 5 − (9) − 1 (3) 10 2 (8) 3 – (3) 18 3 (23) $ 67 $ 56 $ 48 $ 10 $ 181 $ 76 (9) $ 67 $ 73 (17) $ 56 $ 65 (17) $ 48 $ 16 (6) $ 10 $ 230 (49) $ 181 Right-of-use assets primarily relate to premises and were recognized by the Company upon the adoption of IFRS 16, as described in note 1, and the acquisition of Gluskin Sheff, as described in note 2. 9. 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 – 2 019 At January 1, 2019 and December 31, 2019, the Company’s goodwill and intangible assets comprised the following: Goodwill Tradename Client Relationships Software As at January 1, 2019 Cost Accumulated amortization Net book amount Year ended December 31, 2019 Opening net book amount Acquisition of Gluskin Sheff (note 2) Amortization charge Foreign exchange Closing net book amount As at December 31, 2019 Cost Accumulated amortization Net book amount $ 62 – $ 62 $ 62 192 − 7 $ 261 $ 261 – $ 261 Total Intangible Assets $ 43 (21) $ 22 $ – – $ – $ 43 (21) $ 22 $ – – $ – $ – $ 22 $ – $ 22 14 − 1 136 (21) 5 2 (1) – 152 (22) 6 $ 15 $ 142 $ 1 $ 158 $ 15 – $ 15 $ 180 (38) $ 142 $ 2 (1) $ 1 $ 197 (39) $ 158 Goodwill at December 31, 2019 is attributable to the acquisition of Gluskin Sheff, as described in note 2, and goodwill recognized as a result of the acquisition of the Onex Credit asset management platform in 2015, which was primarily attributable to the acquired workforce and industry relationships at Onex Credit. Management tested goodwill for impairment at December 31, 2019 and concluded that no impairments existed. The cost and accumulated amortization of client relationships have been reduced for client relationships that ended during 2019. Onex Corporation December 31, 2019 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 10 . I N T E R C O M PA N Y LO A N S PAYA B L E T O I N V E S T M E N T H O L D I N G C O M PA N I E S 13 . L E A S E S – 2 019 Onex and the Asset Managers have intercompany loans payable to the Investment Holding Companies. The loans are primarily due on demand and are non-interest bearing. At December 31, 2019, intercompany loans payable to the Investment Holding Companies totalled $4,217 and the corresponding receivable of $4,217 was included in the fair value of the Investment Holding Companies within corporate investments (note 6). There is no impact on net assets or net earnings from these intercompany loans. 11. A C C R U E D C O M P E N S AT I O N The Company leases ofﬁce space in Canada, the United States and the United Kingdom. Lease terms are negotiated on an individual basis and contain a wide range of terms and conditions. The terms of the Company’s leasing agreements are generally made for ﬁxed periods up to 2028 and in certain circumstances contain options to extend beyond the initial ﬁxed periods. In circumstances where it is reasonably certain that the Company will exercise an option to extend a leasing agreement, the minimum lease payments to be made during the extension period are included in the determina- tion of the lease liability to be recorded. The lease contracts entered into by the Company do not contain any signiﬁcant restrictions or covenants. Accrued compensation at December 31, 2019 consisted primarily of cash incentive compensation related to ﬁscal 2019 which is to be The Company’s lease liabilities at December 31, 2019 totalled $72 paid to employees and management of the Company during the and the annual minimum payment requirements for these liabili- ﬁrst quarter of 2020. ties are as follows: 12 . S T O C K - B A S E D C O M P E N S AT I O N PAYA B L E At December 31, 2019, stock-based compensation payable com- prised the following: Stock Option Plan Director DSU Plan Management DSU Plan Total stock-based compensation payable December 31, 2019 $ 212 44 45 $ 301 Included in other assets (note 7) was $82 related to forward agree- ments to economically hedge the Company’s exposure to changes in the trading price of Onex shares associated with the Man agement and Director DSU plans. For the year: 2020 2021 2022 2023 2024 Thereafter Total minimum lease payments: Less: imputed interest Balance of obligations under lease 11 11 9 10 10 31 82 (10) 72 During the year ended December 31, 2019, the Company recog- nized $2 in interest expense relating to its lease liabilities, which was included in other expenses. The Company also had total cash disbursements of $9 relating to lease liabilities. Information concerning right-of-use assets is disclosed in note 8. 102 Onex Corporation December 31, 2019 N O T E S T O C O N S 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, 2019 $ 4,217 82 (10) $ 4,289 Total $ 3,838 530 5 2 (86) (2) 2 Intercompany Loans Payable to Investment Holding Companies $ 3,766 530 – – (79) – – Lease Liabilities $ 72 – 5 2 (7) (2) 2 $ 4,217 $ 72 $ 4,289 14 . L I A B I L I T I E S A R I S I N G F R O M F I N A N C I N G A C T I V I T I E S – 2 019 The following tables provide an analysis of liabilities arising from ﬁnancing activities: Principal balance of intercompany loans payable to Investment Holding Companies Principal balance of lease liabilities Accrued and imputed interest Net financing obligations Balance – January 1, 2019 Issuance of loans Acquisition of Gluskin Sheff (note 2) Interest accrued Repayment of financing obligations Cash interest paid Foreign exchange Balance – December 31, 2019 15 . I N C O M E TA X E S – 2 019 The reconciliation of statutory income tax rates to the Company’s effective tax rate for the year ended December 31, 2019 is as follows: Year ended December 31 Income tax expense at statutory rate Changes related to: Non-taxable net gains on corporate investments Non-taxable gain on derecognition of previously consolidated corporate investments Unbenefited tax losses Recognition and utilization of tax loss carryforwards not previously benefited Income tax rate differential Other, including permanent differences Recovery of income taxes Classified as: Current Deferred Recovery of income taxes 2019 $ 1,123 (32) (941) 76 (116) (126) (22) $ (38) $ 1 (39) $ (38) Onex Corporation December 31, 2019 103 N O T E S T O C O N S O L I D AT E D F I N A N C I A L S TAT E M E N T S The Company’s deferred income tax assets and liabilities, as presented in other assets and liabilities, are presented after taking into consider- ation the offsetting of balances within the same tax jurisdiction. 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, 2019 Credited to net earnings Recognition of previously unrecognized benefits Balance – December 31, 2019 Deferred Income Tax Liabilities Balance – January 1, 2019 Credited to net earnings Acquisition of Gluskin Sheff Balance – December 31, 2019 Tax Losses $ – 19 14 $ 33 Property, Equipment, Right-of-Use Assets and Intangibles $ $ – 1 – 1 Property, Equipment, Right-of-Use Assets and Intangibles $ – (5) 42 $ 37 Total $ – 20 14 $ 34 Total $ – (5) 42 $ 37 As at December 31, 2019, Onex and the Asset Managers have During the year ended December 31, 2019, no deferred $1,186 of non-capital loss carryforwards and $70 of capital loss tax provision was recognized on income from Onex’ investments carryforwards that are available to offset current and future tax- in foreign Investment Holding Companies since the Company able income when realized. However, a net deferred tax asset has has determined, as of December 31, 2019, that it is probable these not been recognized in respect of these income tax losses since earnings will be indeﬁnitely reinvested. In addition, foreign real- it is not probable as of December 31, 2019 that sufﬁcient taxable ized and unrealized gains are typically not subject to taxation in income or taxable temporary differences will arise in the future the foreign tax jurisdictions. to utilize these losses prior to their expiry, with the exception of As a result of the acquisition of Gluskin Sheff in June 2019, taxable temporary differences associated with the acquired lim- Onex recognized a deferred tax liability attributable to the acquired ited life intangible assets of Gluskin Sheff, as described below. The limited life intangible assets of Gluskin Sheff, which was included Company will continue to assess the likelihood of sufﬁcient future in the acquired net assets of Gluskin Sheff, as described in note 2. taxable income being recognized to utilize available tax losses. In connection with this transaction, Onex recognized a deferred tax During 2019, the Canada Revenue Agency (“CRA”) reas- asset relating to income tax losses that are available to offset this sessed Onex’ 2011 taxation year, the impact of which, if sustained, future income tax liability, resulting in a $38 deferred income tax would result in a decrease to Onex’ non-capital losses of approx- recovery recognized during the year ended December 31, 2019. The imately $275 and an increase to Onex’ capital losses of approxi- deferred tax liability and deferred tax asset will be amortized over mately $265. These amounts represent the maximum impact on the useful life of the limited life intangible assets. Onex’ tax loss position. If the CRA’s position is sustained, there will At December 31, 2019, the aggregate amount of taxable be no impact on Onex’ consolidated ﬁnancial statements as Onex temporary differences not recognized in association with invest- has not recognized any deferred tax assets associated with its non- ments in subsidiaries was $2,280. capital losses. Onex has objected to the reassessments, believes that its tax ﬁling positions were appropriate and intends to defend itself vigorously. 104 Onex Corporation December 31, 2019 N O T E S T O C O N S O L I D AT E D F I N A N C I A L S TAT E M E N T S 16 . S H A R E C A P I TA L a) The authorized share capital of the Company consists of: i) 100,000 Multiple Voting Shares, which entitle their holders to elect 60% of the Company’s Directors and carry such number of votes in the aggregate as represents 60% of the aggregate votes attached to all shares of the Company carrying voting rights. The Multiple Voting Shares have no entitlement to a distribution on winding up or dissolution other than the payment of their nomi- nal paid-in value. ii) An unlimited number of SVS, which carry one vote per share and as a class are entitled to 40% of the aggregate votes attached to all shares of the Company carrying voting rights to elect 40% of the Company’s Directors and to appoint the auditors. These shares are entitled, subject to the prior rights of other classes, to distri- butions of the residual assets on winding up and to any declared but unpaid cash dividends. The shares are entitled to receive cash dividends, dividends in kind and stock dividends as and when declared by the Board of Directors. The Multiple Voting Shares and SVS are subject to provi- sions whereby, if an event of change occurs (such as Mr. Schwartz, Chairman and CEO, ceasing to hold, directly or indirectly, more than 5,000,000 SVS or related events), the Multiple Voting Shares will thereupon be entitled to elect only 20% of the Company’s Directors and otherwise will cease to have any general voting rights. The SVS would then carry 100% of the general voting rights and be entitled to elect 80% of the Company’s Directors. iii) An unlimited number of Senior and Junior Preferred Shares issuable in series. The Company’s Directors are empowered to ﬁx the rights to be attached to each series. b) At December 31, 2019, the issued and outstanding share capital consisted of 100,000 Multiple Voting Shares (December 31, 2018 – 100,000) and 100,063,143 SVS (December 31, 2018 – 100,403,493). The Multiple Voting Shares have a nominal paid-in value in these consolidated ﬁnancial statements. There were no issued and outstanding Senior and Junior Preferred shares at December 31, 2019 or December 31, 2018. The Company increased its quarterly dividend by 14% to C$0.10 per SVS beginning with the dividend declared by the Board of Directors in May 2019. Previously, the Company increased its quarterly dividend by 17% to C$0.0875 per SVS beginning with the dividend declared by the Board of Directors in May 2018. c) During 2019, under the Dividend Reinvestment Plan, the Com- pany issued 6,173 SVS (2018 – 7,753) at an average cost of C$77.50 per share (2018 – C$91.08). The Company’s Dividend Reinvest- ment Plan was suspended effective September 19, 2019. During 2019, 35,145 SVS (2018 – 33,292) were issued upon the exercise of stock options at an average cost of C$79.82 per share (2018 – C$79.02). Onex renewed its Normal Course Issuer Bid in April 2019 for one year, permitting the Company to purchase on the Toronto Stock Exchange up to 10% of the public ﬂoat of its SVS. The 10% limit represents approximately 8.2 million shares. During 2019, the Company repurchased and cancelled 629,027 of its SVS under the Normal Course Issuer Bid for a total cost of $34 (C$46) or an average cost per share of $54.80 (C$73.59). The excess of the purchase cost of these shares over the average paid-in amount was $33 (C$44), which was charged to retained earnings. As at December 31, 2019, the Company had the capac- ity under the current Normal Course Issuer Bid to repurchase 8,205,887 shares. During 2018, the Company repurchased and cancelled 1,169,733 of its SVS at a cost of $79 (C$102). The excess of the pur- chase cost of these shares over the average paid-in amount was $75 (C$97), which was charged to retained earnings. The shares repurchased were comprised of: (i) 669,733 SVS repurchased under the Normal Course Issuer Bids for a total cost of $42 (C$55) or an average cost per share of $63.30 (C$82.14); and (ii) 500,000 SVS repurchased in a private transaction for a total cost of $36 (C$47) or an average cost per share of $72.23 (C$93.00). During the second quarter of 2019, the Company issued 247,359 SVS in connection with its acquisition of Gluskin Sheff, as described in note 2. The fair value of this SVS issuance was $13 (C$18) and was recorded as an increase to share capital. During the second quarter of 2019, the Company also issued limited partnership units of an Onex consolidated subsid- iary in connection with the acquisition of Gluskin Sheff. Subject to certain terms and conditions, the limited partnership units include the right for the unit holder to require Onex to redeem the partnership units in exchange for 144,579 SVS of Onex or cash consideration which approximates the market value of 144,579 SVS of Onex at the time of redemption. Onex has the option to settle the redemption request by paying cash consideration or issuing SVS. The fair value of these limited partnership units when issued in June 2019 was $8 (C$11) and was recorded as an increase to share capital. Onex Corporation December 31, 2019 105 N O T E S T O C O N S O L I D AT E D F I N A N C I A L S TAT E M E N T S d) The Company has a Director DSU Plan and a Management DSU Plan, as described in note 1. Details of DSUs outstanding under the plans are as follows: Outstanding at December 31, 2017 Granted Redeemed Additional units issued in lieu of compensation and cash dividends Outstanding at December 31, 2018 Granted Redeemed Additional units issued in lieu of compensation and cash dividends Outstanding at December 31, 2019 Hedged with a counterparty financial institution at December 31, 2019 Outstanding at December 31, 2019 – Unhedged Director DSU Plan Management DSU Plan Number of DSUs Weighted Average Price Number of DSUs Weighted Average Price C$ 93.88 C$ 84.60 C$ 87.68 C$ 75.22 – C$ 79.23 704,036 26,931 (90,626) 13,069 653,410 34,014 – 15,433 702,857 (587,261) 115,596 − − C$ 90.48 − C$ 78.41 C$ 75.12 665,921 − − 77,218 743,139 − (54,173) 18,082 707,048 (707,048) – e) The Company has a Plan under which options and/or share appreciation rights for a term not exceeding 10 years may be grant- In addition to the options outstanding under the Plan, in January 2015, the Company issued 60,000 options in connec- ed to directors, ofﬁcers and employees for the acquisition of SVS of tion with acquiring control of the Onex Credit asset management the Company at a price not less than the market value of the shares platform. The options vest at a rate of 20% per year from the grant on the business day preceding the day of the grant. Under the Plan, date. The options are subject to the same terms and conditions as no options or share appreciation rights may be exercised unless the the Company’s existing Plan; however, the options are also subject average market price of the SVS for the ﬁve previous business days to an additional performance threshold speciﬁc to the Onex Credit exceeds the exercise price of the options or the share appreciation asset management platform. rights by at least 25% (the “hurdle price”). At December 31, 2019, 15,507,750 SVS (2018 – 15,558,750) were reserved for issuance under The details of the options outstanding were as follows: the Plan, against which options representing 14,013,050 shares (2018 – 13,431,917) were outstanding, of which 9,230,290 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. When an option is exercised, the employee has the right to request that the Company repurchase the option for an amount equal to the difference between the fair value of the stock under the option and its exercise price. Upon receipt of such request, the Company has the right to settle its obligation to the employee by the payment of cash, the issuance of shares or a combination of cash and shares. Number of Options Weighted Average Exercise Price Outstanding at December 31, 2017 12,378,442 Granted in January 2018(i) Granted in December 2018 Other grants during 2018 Surrendered Exercised Expired Outstanding at December 31, 2018 Granted in December 2019 Other grants during 2019 Surrendered Exercised Expired 1,052,250 1,002,350 23,500 (836,675) (40,000) (87,950) 13,491,917 2,711,750 20,000 (1,694,317) (51,000) (405,300) C$ C$ C$ C$ C$ C$ C$ C$ C$ C$ C$ C$ C$ 57.81 92.15 78.64 93.08 36.03 15.95 86.58 63.38 82.10 78.78 46.57 24.63 86.42 Outstanding at December 31, 2019 14,073,050 C$ 68.50 (i) Options granted in January 2018 relate to services provided during the year ended December 31, 2017. 106 Onex Corporation December 31, 2019 N O T E S T O C O N S 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 2019 and 2018, the total cash consideration paid on options surrendered was $42 (C$56) and $32 (C$42), respectively. This amount represents the difference between the market value of the SVS at the time of surrender and the exercise price, both as determined under the Plan. The weighted average share price at the date of exercise was C$79.59 per share (2018 – C$85.94). Options outstanding at December 31, 2019 consisted of the following: Exercise Prices C$ 23.35 – 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 17. R E V E N U E S – 2 019 Number of Options Outstanding Number of Options Exercisable Hurdle Prices 119,350 783,500 6,943,450 4,392,850 1,833,900 14,073,050 119,350 783,500 C$ 36.61 – C$ 36.61 C$ 41.39 – C$ 50.44 6,883,450 C$ 71.15 – C$ 85.71 – – C$ 93.59 – C$ 103.00 C$ 114.48 – C$ 127.03 7,786,300 Weighted Average Remaining Life (years) 1.0 2.6 4.1 2.9 7.6 During the year ended December 31, 2019, the Company derived revenues from the provision of asset management and advisory services from the following sources: Year ended December 31, 2019 Onex Partners Funds(i) Onex Credit Strategies Public Debt Strategies(ii) Public Equity Strategies(ii) ONCAP Funds(iii) Total Management and Advisory Fees Performance Fees Reimbursement of expenses $ 129 $ – $ 21 52 25 18 17 – 18 6 – 1 – – 2 Total $ 150 53 43 24 19 $ 241 $ 24 $ 24 $ 289 (i) Includes advisory fees and expense reimbursements from Onex Partners operating businesses. (ii) Includes management and performance fees earned from the Gluskin Sheff strategies since June 2019, when Onex acquired the company, as described in note 2. (iii) Includes advisory fees and expense reimbursements from ONCAP operating businesses. Management and advisory fees, and the reimbursement of ex- In addition, segment income (note 27) includes an allocation of penses from investment funds and operating businesses, are rec- $61 relating to management fees on Onex’ capital for the year ognized over time. Performance fees are typically recognized at ended December 31, 2019. These management fees reduce Onex’ the end of each performance year, or upon closure of an account investing segment income in the period and are included in Onex’ or transfer of assets to a different investment model. asset and wealth management segment income. Onex Corporation December 31, 2019 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 18 . I N T E R E S T A N D N E T T R E A S U R Y I N V E S T M E N T 2 0 . A C Q U I S I T I O N , I N T E G R AT I O N A N D OT H E R I N C O M E – 2 019 E X P E N S E S – 2 019 Interest and net treasury investment income recognized by the During 2019, the chief executive ofﬁcer of Onex Credit (the “Onex Company consists of income earned from certain investments Credit CEO”) retired from the Company. The Onex Credit CEO holds recognized at fair value through net earnings. an interest in Onex Credit that entitles him to distributions from the business through 2034 (the “CEO’s Participation”). Dis tribu tions 19. S TO C K - B A S E D C O M P E N S AT I O N E X P E N S E – 2 019 associated with the CEO’s Participation were previously recognized Year ended December 31 Stock Option Plan Director DSU Plan Total stock-based compensation expense 2019 $ 59 1 $ 60 The fair value of Onex’ stock option plan is determined using an option valuation model. The signiﬁcant inputs into the model as compensation expense. Following the retirement, Onex no longer receives services associated with the CEO’s Participation. As a result, Onex recorded an expense of $44 within acquisition and integra- tion expenses for the year ended December 31, 2019, representing a discounted value of the future distributions in respect of the CEO’s Participation. Onex has a total of $47 recorded in other liabilities, including a previously recognized retirement obligation, which economically represents Onex’ cost to ultimately acquire the CEO’s were the share price at December 31, 2019 of C$82.17 (2018 – Participation. C$74.35), the exercise price of the options, the remaining life of each option issuance, the volatility of each option issuance rang- Other expenses during the year ended December 31, 2019 comprised ing from 16.95% to 18.76% (2018 – 16.09% to 22.43%), an average the following: dividend yield of 0.49% (2018 – 0.47%) and an average risk-free rate of 1.68% (2018 – 1.88%). The volatility is measured as the his- Year ended December 31 torical volatility based on the remaining life of each respective Professional services option issuance. Travel expense The fair values of the Director DSU and Management Information technology DSU plans are determined by reference to the value of the under- lying SVS at the balance sheet date, as described in note 1. Facilities Foreign exchange Directors’ compensation Interest expense from lease liabilities Administrative and other Total 2019 $ 16 6 6 5 5 4 2 14 $ 58 21. NET EARNINGS (LOSS) PER SUBORDINATE VOTING SHARE The weighted average number of SVS for the purpose of the earn- ings (loss) per share calculations was as follows: Year ended December 31 2019 2018 Weighted average number of shares outstanding (in millions): Basic Diluted 100 100 101 101 108 Onex Corporation December 31, 2019 N O T E S T O C O N S 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 . F I N A N C I A L I N S T R U M E N T S – 2 019 Financial assets held by the Company at December 31, 2019, presented by ﬁnancial statement line item, were as follows: December 31, 2019 Assets as per balance sheet Cash and cash equivalents Treasury investments Management and advisory fees, recoverable fund expenses and other receivables Corporate investments Other assets Total Fair Value through Net Earnings Recognized Designated Amortized Cost Total $ 988 306 $ – 8,736 116 – – – 714 – $ – – $ 988 306 332 – – 332 9,450 116 $ 10,146 $ 714 $ 332(i) $ 11,192 (i) The carrying value of financial assets at amortized cost approximates their fair value. Financial liabilities held by the Company at December 31, 2019, presented by ﬁnancial statement line item, were as follows: Fair Value through Net Earnings – Designated Amortized Cost Total December 31, 2019 Liabilities as per balance sheet Intercompany loans payable to Investment Holding Companies $ 4,217 $ Accounts payable and accrued liabilities Lease liabilities Other liabilities Total – – – – 39 72 27 $ 4,217 39 72 27 $ 4,217 $ 138 $ 4,355 Intercompany loans payable to Investment Holding Companies that are recorded at fair value through net earnings have contractual amounts due on maturity of $4,217. Onex Corporation December 31, 2019 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 The gains (losses) recognized by the Company related to ﬁnancial 2 3 . FA I R VA L U E M E A S U R E M E N T S – 2 019 assets and liabilities during the year ended December 31, 2019 were as follows: Year ended December 31, 2019 Financial assets recognized at fair value through net earnings Net gains on corporate investments Net gains and interest income from treasury investments Net gains from forward agreements(i) Financial liabilities at amortized cost Interest expense Total net gains recognized Earnings (Loss) $ 799 14 12 (2) $ 823 (i) Onex has entered into forward agreements with its Director and Management DSU plans, as described in note 1. Fair values of ﬁnancial instruments The estimated fair values of ﬁnancial instruments as at Decem- ber 31, 2019 are based on relevant market prices and information available at that date. The carrying values of receivables, accounts payable and accrued liabilities, and lease liabilities, approximate the fair values of these ﬁnancial instruments. Financial instruments measured at fair value are allo- cated 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 2019. 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”). The allocation of ﬁnancial assets in the fair value hierarchy, excluding cash and cash equivalents, at December 31, 2019 was as follows: Financial assets at fair value through net earnings Investments in equities Investments in debt Intercompany loans receivable from Investment Holding Companies Restricted cash and other Total financial assets at fair value Level 1 Level 2 Level 3 Total $ – $ – – 30 – 306 714 86 $ 8,736 $ 8,736 – – – 306 714 116 $ 30 $ 1,106 $ 8,736 $ 9,872 Financial liabilities measured at fair value at December 31, 2019 consisted solely of intercompany loans payable to Investment Holding Companies totalling $4,217, which are a Level 2 measurement in the fair value hierarchy. Details of ﬁnancial assets and liabilities measured at fair value with signiﬁcant unobservable inputs (Level 3) were as follows: Financial Assets at Fair Value through Net Earnings Long-Term Debt of Credit Strategies at Fair Value through Net Earnings Other Financial Liabilities at Fair Value through Net Earnings Balance – December 31, 2018 Derecognition of previously consolidated corporate investments (note 1) Recognition of corporate investments (note 1) Change in fair value recognized in net earnings Net cash flows related to intercompany loans and distributions Balance – December 31, 2019 Unrealized change in fair value of assets and liabilities held at the end of the reporting period $ 226 (226) 8,742 799 (805) $ 8,736 $ 799 $ 7,506 (7,506) – – – – – $ $ $ 230 (230) – – – – $ $ – 110 Onex Corporation December 31, 2019 N O T E S T O C O N S 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, 2019, ﬁnancial assets mea- the ONCAP Funds holdings in these investments. These discounts sured at fair value with signiﬁcant unobservable inputs (Level 3) resulted in a reduction of $84 in the fair value of corporate invest- were recognized in the consolidated statement of earnings in ments (January 1, 2019 – $52). the following line items: (i) net gains on corporate investments; The valuation of investments in debt securities is mea- (ii) gain on derecognition of previously consolidated corporate sured at fair value with signiﬁcant other observable inputs (Level 2) investments; and (iii) reclassiﬁcation from accumulated other generally determined by obtaining quoted market prices or dealer comprehensive loss on derecognition of previously consolidated quotes for identical or similar instruments in inactive markets, or corporate investments. other inputs that are observable or can be corroborated by observ- The valuation of ﬁnancial assets and liabilities measured at fair able market data. value with signiﬁcant unobservable inputs (Level 3) is determined The Company utilized the adjusted net asset method to derive quarterly utilizing company-speciﬁc considerations and available the fair values of its investments in its Investment Holding market data of comparable public companies. The valuation of Companies, by reference to the underlying fair value of the investments in the Onex Partners and ONCAP Funds is reviewed Investment Holding Companies’ assets and liabilities, along with and approved by the General Partner of the respective Fund assessing any required discount or premium to be applied to the each quarter. net asset values. The discount or premium applied to the net asset At December 31, 2019, the fair value measurements for values of the Investment Holding Companies was a signiﬁcant corporate investments were primarily driven by the underlying unobservable input. The Company determined that the adjusted net asset values of Onex’ investments in the Onex Partners Funds, net asset method was the appropriate valuation technique to be ONCAP Funds and Onex Credit strategies. A change to reason- used, considering the value of the Investment Holding Companies ably possible alternative estimates and assumptions used in the is primarily derived from the assets they hold, which primar- valuation of non-public investments in the Onex Partners Funds ily consist of investments in private equity, investments in Onex and ONCAP Funds, and investments held in Onex Credit strate- Credit strategies, treasury investments and intercompany loans gies, may have a signiﬁcant impact on the fair values calculated receivable from Onex and the Asset Managers. The Company has for these ﬁnancial assets. determined that no discount or premium was required for the net The valuation of public investments held directly by asset values of its Investment Holding Companies at December 31, Onex or through the Onex Partners Funds and ONCAP Funds is 2019. If a discount of 1% or a premium of 1% were applied to all based on their publicly traded closing prices at December 31, 2019. of the Investment Holding Companies’ net asset values, with all For certain public investments, a discount was applied to the clos- other variables remaining constant, the total fair value of the ing price in relation to trading restrictions that were in place at Company’s corporate investments at December 31, 2019 would December 31, 2019 relating to Onex, the Onex Partners Funds or decrease or increase by $87. Valuation methodologies for the underlying private equity investments may include observations of the trading multiples of public companies considered comparable to the private companies being valued and discounted cash ﬂows. The following table presents the signiﬁcant unobservable inputs used to value the private equity funds’ underlying private securities at December 31, 2019 that impact the valuation of corporate investments. Investment Platform Valuation Technique Significant Unobservable Inputs Inputs at December 31, 2019 Onex Partners Funds Market comparable companies Adjusted EBITDA multiple 8.4x – 13.0x Onex Partners Funds Discounted cash flow Weighted average cost of capital 13.4% – 15.8% ONCAP Funds ONCAP Funds Market comparable companies Adjusted EBITDA multiple Exit multiple 5.3x – 16.0x 6.9x – 9.5x Discounted cash flow Weighted average cost of capital 12.5% – 22.9% Exit multiple 7.0x – 10.5x In addition, at December 31, 2019, the Onex Partners Funds had one investment that was valued using market comparable transactions, one investment that was valued based on a multiple of book value and one investment that was valued using the adjusted cost approach. The adjusted cost approach incorporated adjustments to the original cost based on the ﬁnancial performance of the investment since the date the Onex Partners Fund agreed to purchase the investment to December 31, 2019. Onex Corporation December 31, 2019 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 Onex’ investments in the Onex Credit CLOs are valued using third- of unobservable inputs, certain of which are signiﬁcant, including party pricing models, without adjustment by the Company, based default rates, timing of defaults, recovery rates, timing of recoveries, on a projection of the future cash ﬂows expected to be realized from discount rates, prepayment rates and reinvestment rates. Signiﬁcant the underlying collateral of the CLOs, which are a Level 3 measure- increases or decreases in any of the unobservable inputs in isolation ment in the fair value hierarchy. The fair values determined by third may result in a signiﬁcantly lower or higher fair value measurement. parties are reviewed by the Onex Credit management team, who The impact on the fair value of corporate investments as a result of corroborate the fair values with available pricing data and other a change in one or more of these inputs has not been provided in internal analysis. The third-party pricing models include a number the following tables as the information is not reasonably available. The impact to the fair value of corporate investments as at Decem ber 31, 2019 from changes in the signiﬁcant unobservable inputs used to value the private equity funds’ underlying private securities include the following: Investment Platform Valuation Technique Significant Unobservable Inputs Onex Partners Funds Market comparable companies Adjusted EBITDA multiple ONCAP Funds Market comparable companies Adjusted EBITDA multiple Investment Platform Valuation Technique Significant Unobservable Inputs Onex Partners Funds Discounted cash flow ONCAP Funds Discounted cash flow Exit multiple Exit multiple Investment Platform Valuation Technique Significant Unobservable Inputs Onex Partners Funds Discounted cash flow Weighted average cost of capital ONCAP Funds Discounted cash flow Weighted average cost of capital Multiple Increase by 0.5 Multiple Decrease by 0.5 $ 68 $ 37 $ (68) $ (38) Multiple Increase by 0.5 Multiple Decrease by 0.5 $ 34 $ 12 Decrease of 0.5% $ 15 $ 4 $ (34) $ (12) Increase of 0.5% $ (15) $ (4) Generally, adjusted EBITDA represents earnings before interest, taxes, depreciation and amortization as well as other adjust- ments. Other adjustments can include non-cash costs of stock-based compensation and retention plans, transition and restructur- ing expenses including severance payments, annualized pro-forma adjustments for acquisitions, the impact of derivative instru- ments that no longer qualify for hedge accounting, the impacts of purchase accounting and other similar amounts. Adjusted EBITDA is a measurement that is not deﬁned under IFRS. 24 . FINANCIAL INSTRUMENT RISKS 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. Cash and cash equivalents and treasury investments include investments in debt securities which are subject to credit risk. Certain underlying assets within corporate investments are also debt securities which are subject to credit risk. At December 31, 2019, Onex, including its Investment Holding Companies, had $1,160 of cash on hand and $682 of near- cash items at market value. Cash and cash equivalents are held with ﬁnancial institutions having a current Standard & Poor’s rat- ing of A-1+ or above. Near-cash items include treasury investments managed by third-party investment managers, as described below, $97 invested in a segregated unlevered fund managed by Onex Credit and $190 in management fees receivable from the Onex Partners and ONCAP Funds. The treasury investments have cur- rent Standard & Poor’s ratings ranging from BBB to AAA. The port- folio concentration limits range from a maximum of 10% for BBB investments to 100% for AAA investments. The Company’s recoverable fund expenses and other receivables are also subject to credit risk. 112 Onex Corporation December 31, 2019 N O T E S T O C O N S O L I D AT E D F I N A N C I A L S TAT E M E N T S Liquidity risk Interest rates Liquidity risk is the risk that Onex will have insufﬁcient funds on The Company is exposed to changes in future cash ﬂows as hand to meet its obligations as they come due. Onex needs to be a result of changes in the interest rate environment, primar- in a position to support the operating businesses its private equity ily through the cash and cash equivalents held, which are held in funds invest in when and if it is appropriate and reasonable for money market funds, short-term term deposits and commercial Onex, as an equity owner with paramount duties to act in the best paper. Assuming no signiﬁcant changes in cash balances held by interests of Onex shareholders, to do so. Maintaining sufﬁcient the Company from those at December 31, 2019, a 0.25% increase liquidity at Onex is important because Onex, as a holding com- (0.25% decrease) in the interest rate (including the Canadian and pany, generally does not have guaranteed sources of meaningful U.S. prime rates) would result in a minimal impact on annual cash ﬂow to support its investing activities. interest income. Accounts payable are generally due within 90 days. The Onex also has exposure to interest rate risk through its repayment schedule for leases is disclosed in note 13. Onex has treasury investments managed by third-party investment managers. no external debt and does not guarantee the debt of the operating As interest rates change, the fair values of ﬁxed income investments businesses of the Onex Partners and ONCAP Funds or any other are inversely impacted. Investments with shorter durations are less operating business Onex invests in directly. impacted by changes in interest rates compared to investments Market risk with longer durations. At December 31, 2019, Onex’ treasury invest- ments included $221 of ﬁxed income securities measured at fair Market risk is the risk that the future cash ﬂows of a ﬁnancial value, which are subject to interest rate risk. These securities had a instrument will ﬂuctuate due to changes in market prices. The weighted average duration of 1.3 years. Other factors, including gen- Company is primarily exposed to ﬂuctuations in the foreign cur- eral economic conditions and political conditions, may also affect rency exchange rates associated with the Canadian and U.S. dol- the value of ﬁxed income securities. These risks are monitored on an lars and the euro as well as ﬂuctuations in LIBOR, EURIBOR and ongoing basis and the treasury investments may be repositioned in the U.S. prime interest rate. response to changes in market conditions. Foreign currency exchange rates Price risk The functional currency of Onex is the U.S. dollar; however, cer- Price risk is the risk of variability in fair value as a result of move- tain cash and cash equivalents, treasury investments, receivables, ments in equity prices. Onex is exposed to price risk in relation to corporate investments, forward agreements, payables and lease the equity interests in its private equity investment held within liabilities are denominated in Canadian dollars while certain Onex its corporate investments. At December 31, 2019, had the price of Credit corporate investments are denominated in euros. In addi- equity securities held within corporate investments, related to tion, the Company has a lease liability denominated in pounds private equity investments, decreased by 5%, with all other vari- sterling. As a result, Onex is exposed to currency risk related to ables held constant, the decrease in net earnings would have been these ﬁnancial instruments. At December 31, 2019, had the U.S. $207. Conversely, had the price increased by 5%, with all other dollar strengthened by 5% relative to the Canadian dollar, the euro variables held constant, the increase in net earnings would have and pound sterling, with all other variables held constant, the net been $207. Onex’ investments in Onex Credit strategies are pri- decrease in net earnings would have been $21. Conversely, had the marily held in underlying debt instruments. Onex is not exposed U.S. dollar weakened by 5% relative to the Canadian dollar, the to a signiﬁcant price risk associated with its equity interest in euro and pound sterling, with all other variables held constant, the these investments. net increase in net earnings would have been $21. Certain underly- ing investments held by the Onex Partners and ONCAP Funds may Regulatory risk be denominated in Canadian dollars, euros, pounds sterling or Onex is subject to government regulations and oversight with Swiss francs, while Onex’ investments in these Funds are denomi- respect to its business activities. Failure to comply with applicable nated in U.S. dollars, with the exception of investments made in regulations, obtain applicable regulatory approvals or maintain the ONCAP II and III Funds which are denominated in Canadian those approvals may subject Onex to civil penalties, suspension dollars. As such, Onex is also indirectly exposed to foreign curren- or withdrawal of any regulatory approval obtained, injunctions, cy exchange risk associated with these underlying investments. operating restrictions and criminal prosecutions and penalties, which could, individually or in the aggregate, have a material adverse effect on Onex’ consolidated ﬁnancial position. Onex Corporation December 31, 2019 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 2 5 . CAPITAL DISCLOSURES Onex considers the capital it manages to be the amounts it has in cash and cash equivalents, near-cash investments, treasury investments managed by third-party investment managers and the investments made in its private equity funds, credit strategies and other investments. Onex also manages the capital of other investors in the Onex Partners and ONCAP Funds, private cred- it strategies, public debt strategies and public equity strategies. Onex’ objectives in managing capital are to: • preserve a ﬁnancially strong parent company with appro- priate liquidity and no, or a limited amount of, external debt so that funds are available to pursue new investments and corporate obligations and structured products with maturities of one year to ﬁve years. The investments are managed to maintain an overall weighted average duration of two years or less. At December 31, 2019, Onex had access to uncalled committed limited partner capital for acquisitions through Onex Partners V ($4,039) and ONCAP IV ($235). The strategy for risk management of capital has not changed signiﬁcantly since December 31, 2018. 26 . COMMITMENTS AND RELATED-PARTY TRANSACTIONS growth opportunities as well as support expansion of its exist- a) Incline Aviation Fund, letters of guarantee and ing businesses; other commitments • achieve an appropriate return on capital invested commensu- rate with the level of assumed risk; • build the long-term value of its corporate investments; Incline Aviation Fund is an aircraft investment fund managed by BBAM, which in turn is an operating business of Onex Part- ners III. At December 31, 2019, Onex’ uncalled commitment to • control the risk associated with capital invested in any particu- Incline Aviation Fund was $34 (2018 – $31). lar strategy. Onex Corporation does not guarantee the debt of The Company has commitments with respect to leases, its investment funds or the underlying operating businesses of which are disclosed in note 13. its private equity funds. A portion of the Company’s capital is managed by third-party investment managers. At December 31, 2019, the fair value of invest- ments, including cash yet to be deployed, managed by third-party investment managers was $646. The investments are managed in a mix of short- and long-term portfolios. Treasury investments con- sist of liquid investments including money market instruments and commercial paper with original maturities of three months to one year, in addition to longer-term investments, which include money b) Legal contingencies Onex is or may become a party to legal claims arising in the ordi- nary course of business. Onex has not currently recorded any legal provision and does not believe that the resolution of known claims would reasonably be expected to have a material adverse impact on Onex’ consolidated ﬁnancial position. However, the ﬁnal outcome with respect to outstanding, pending or future actions cannot be predicted with certainty, and therefore there can be no assurance that their resolution will not have an adverse market instruments, federal and municipal debt instruments, effect on Onex’ consolidated ﬁnancial position. 114 Onex Corporation December 31, 2019 N O T E S T O C O N S O L I D AT E D F I N A N C I A L S TAT E M E N T S c) 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 pro- vide committed capital for Onex-sponsored acquisitions not related to Onex’ direct investments or ONCAP. Onex controls the General Partner and Manager of the Onex Partners Funds. The following table provides information on Onex’ commitments to the Onex Partners Funds: Onex Partners I Onex Partners II Onex Partners III Onex Partners IV Onex Partners V Final Close Date Onex Total Commitments Onex Commitments Invested(i) Onex Remaining Commitments (ii) February 2004 August 2006 December 2009 March 2014 November 2017 $ 400 $ 1,407 $ 1,200 $ 1,700(iii) $ 2,000 $ 346 $ 1,164 $ 929 $ 1,539(iii) $ 416 $ $ $ $ 16 158 104 129 $ 1,536 (i) Amounts include capitalized acquisition costs and bridge financing, where applicable. (ii) Onex’ remaining commitment is calculated based on the assumption that all remaining limited partners’ commitments are invested. (iii) Excludes the impact of an additional commitment that was acquired by Onex from a limited partner in 2017. The remaining commitments for Onex Partners I, Onex Part- minimum commitment to Onex Partners V for Onex management ners II and Onex Partners III are for future funding partnership is 2%, which may be adjusted annually to a maximum of 10%. At expenses. The remaining commitments for Onex Partners IV are December 31, 2019, Onex management and directors have com- for possible future funding of remaining businesses and future mitted 4% to Onex Partners V for new investments completed in funding of partnership expenses. The remaining commitments for 2020. The original amount invested at cost in the Onex Partners Onex Partners V are primarily for future funding of Onex-sponsored Funds’ remaining investments by Onex management and direc- investments. tors at December 31, 2019 was $458 (2018 – $513), of which $51 Onex management has committed, as a group, to invest (2018 – $112) was invested in the year ended December 31, 2019, a minimum percentage in each of the Onex Partners Funds. The including bridge ﬁnancing where applicable. d) Commitments to ONCAP Funds ONCAP II, ONCAP III and ONCAP IV (the “ONCAP Funds”) were established to provide committed capital for acquisitions of small and medium-sized businesses. Onex controls the General Partner and Manager of the ONCAP Funds. The following table provides information on Onex’ commitments to the ONCAP Funds: ONCAP II ONCAP III ONCAP IV Final Close Date May 2006 September 2011 November 2016 Onex Total Commitments Onex Commitments Invested(i) Onex Remaining Commitments (ii) C$ 252 C$ 252 $ 480 C$ 221 C$ 186 $ 280 C$ 1 C$ 30 $ 162 (i) Amounts include capitalized acquisition costs and bridge financing, where applicable. (ii) Onex’ remaining commitment is calculated based on the assumption that all remaining limited partners’ commitments are invested. The remaining commitments for ONCAP II are for future fund- 2%. The commitment from management of Onex and ONCAP and ing of partnership expenses. The remaining commitments for directors may be increased to a maximum of 10% of ONCAP IV. At ONCAP III are for possible future funding of remaining businesses December 31, 2019, management of Onex and ONCAP and directors and future funding of partnership expenses. The remaining com- had committed 8% to ONCAP IV for new investments completed mitments for ONCAP IV are primarily for funding of future Onex- in 2020. The original amount invested at cost in the ONCAP Funds’ sponsored investments. remaining investments by management of Onex and ONCAP and ONCAP management has committed, as a group, to directors at December 31, 2019 was $122 (2018 – $113), of which $9 invest a minimum percentage in each of the ONCAP Funds. The was invested in the year ended December 31, 2019 (2018 – $33). minimum commitment to ONCAP IV for ONCAP management is Onex Corporation December 31, 2019 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 e) Carried interest participation During the year ended December 31, 2019, manage- The General Partners of the Onex Partners and ONCAP Funds ment of Onex, Onex Partners and ONCAP received carried interest are entitled to a carried interest of 20% on the realized net gains through its Investment Holding Companies totalling $68, primarily of the limited partners in each fund, subject to an 8% compound from the sale of BrightSpring Health. Management have the poten- annual preferred return to those limited partners on all amounts tial to receive $127 of carried interest on businesses in the Onex contributed in each particular fund. Onex is entitled to 40% of the Partners and ONCAP Funds based on their values as determined at carried interest realized in the Onex Partners and ONCAP Funds. December 31, 2019. Onex and Onex Partners management are allocated 60% of the car- During the year ended December 31, 2018, management ried interest realized in the Onex Partners Funds. ONCAP manage- of Onex, Onex Partners and ONCAP received carried interest total- ment is allocated 60% of the carried interest realized in the ONCAP ling $90 primarily from the sales of Mavis Discount Tire and Tecta; Funds and an equivalent carried interest on Onex’ capital. Once the partial sales of Emerald Expositions and Pinnacle Renewable the ONCAP IV investors achieve a return of two times their aggre- Energy; and distributions from BBAM and Meridian Aviation. gate capital contributions, carried interest participation increases from 20% to 25% of the realized net gains in ONCAP IV. Under the f) Management Investment Plan terms of the partnership agreements, the General Partners may The MIP required the Onex management team members to invest receive carried interest as realizations occur. The ultimate amount in each of the operating businesses acquired or invested in by of carried interest earned will be based on the overall performance Onex. Management’s required cash investment was 1.5% of Onex’ of each fund, independently, and includes typical catch-up and interest in each acquisition or investment. An amount invested in claw-back provisions within each fund, but not between funds. an Onex Partners acquisition under the fund’s investment require- Carried interest received from Onex Partners I, Onex ment, as described in note 26(c), was also applied toward the 1.5% Partners II and Onex Partners III has fully vested for Onex man- investment requirement under the MIP. agement. Carried interest received from Onex Partners IV and In addition to the 1.5% participation, management was Onex Partners V for management will vest equally over six years allocated 7.5% of Onex’ realized gain from an operating business from August 2014 and November 2018, respectively. Carried inter- investment, subject to certain conditions. In particular, Onex est received from ONCAP II and ONCAP III has fully vested for must realize the full return of its investment plus a net 15% inter- ONCAP management. Carried interest received from ONCAP IV nal rate of return from the investment in order for management will vest equally over ﬁve years ending November 2021 for ONCAP to be allocated the additional 7.5% of Onex’ gain. The investment management. rights to acquire the additional 7.5% vest equally over six years During 2019, Onex management undertook a compre- with the investment rights vesting in full if the Company disposes hensive review of the existing compensation and investment pro- of all of an investment before the seventh year. grams, the overall organizational structure of Onex and its growing Realizations under the MIP distributed during 2019 were investment platforms, and the changing roles and responsibili- $24 (2018 – $22) and were distributed by certain Investment Holding ties of Onex investment professionals and executives. As a result Companies which are accounted for as corporate investments at fair of this review, there were several changes to the Onex compensa- value through net earnings, as described in note 1. tion and investment programs, including changes to Onex man- Following a review in 2019, Onex eliminated the MIP for agement’s and Onex Partners management’s participation in the all future investments and for existing investments in Onex Part- carried interest program for future Onex Partners investments and ners V. Onex Partners management will now be eligible to receive for existing investments in Onex Partners V. For Onex Partners V, carried interest on Onex’ realized net gain in Onex Part ners V and Onex Partners management will be entitled to a carried interest of future Onex Partners investments, including co-investments made 12% of the realized net gains from Onex capital, subject to an 8% by Onex, as described in note 26(e). For existing pre-Onex Part- compound annual preferred return to Onex on amounts contrib- ners V investments, Onex and Onex Partners management will uted to the fund. This carried interest participation is in addition continue to participate in Onex’ gains under the MIP. In certain to and consistent with the carried interest entitlement on the real- circumstances, Onex and Onex Partners management will have an ized net gains from the limited partners of Onex Partners V, which additional opportunity to participate in these gains such that the is described in the preceding paragraphs. total participation for the team is consistent with that provided on third-party capital via the carried interest program. The Company recognized a decrease of $66 in the fair value of its corporate investments during the fourth quarter of 2019 to account for this additional potential allocation to the team. Other contemporane- ous changes to Onex’ compensation and investment programs are expected to decrease compensation expenses going forward such that Onex’ overall cost from these programs is unchanged. 116 Onex Corporation December 31, 2019 N O T E S T O C O N S 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) Stock Option Plan l) Management investment in Onex Credit Onex has a Stock Option Plan in place that provides for options The Onex management team may invest in strategies managed by and/or share appreciation rights to be granted to Onex directors, Onex Credit. At December 31, 2019, investments at market value ofﬁcers and employees for the acquisition of SVS of Onex, as more held by the Onex management team in Onex Credit strategies fully described in note 16(e). were approximately $280 (2018 – $325). h) Management Deferred Share Unit Plan m) Management investment in Gluskin Sheff funds Onex has a Management Deferred Share Unit Plan which enables The Onex management team may invest in funds managed by the Onex management team to apply all or a portion of their Gluskin Sheff. At December 31, 2019, investments at market value annual compensation earned to acquire DSUs based on the mar- held by the Onex management team in Gluskin Sheff funds were ket value of Onex shares at the time in lieu of cash, as more fully approximately $65. described in note 1. i) Director Deferred Share Unit Plan other investments Onex has a Director Deferred Share Unit Plan which entitles Onex Members of management and the Board of Directors of Onex can directors to apply directors’ fees earned to acquire DSUs based invest limited amounts in partnership with Onex in all acquisi- on the market value of Onex shares at the time, as more fully tions outside the Onex Partners and ONCAP Funds, including n) Management and Directors’ investment in described in note 1. co-investment opportunities, at the same time and cost as Onex and other outside investors. During 2019, $3 (2018 – $12) in invest- j) Management reinvestment of MIP and carried interest ments were made by the Onex management team and directors, Members of Onex management are required to reinvest up to 25% primarily in Incline Aviation Fund. of the gross proceeds received related to their share of the MIP investment rights and the Onex Partners’ carried interest partic- o) Remuneration to key management ipation to acquire Onex SVS in the market and/or management Remuneration to key management includes amounts recognized DSUs. The size of the reinvestment requirement generally increas- in the consolidated statement of earnings as compensation. Stock- es with the seniority of the participant and the cumulative pro- based compensation associated with Onex stock options is included ceeds they have realized from the MIP and Onex Partners’ carried based on the cash ultimately paid while DSUs issued to Onex direc- interest. Onex SVS and/or management DSUs acquired under this tors are included at the grant date fair value. Payments received by program are subject to a minimum three-year hold period. During key management from investment holding companies related to 2019, Onex management reinvested C$10 (2018 – C$5) to acquire their carried interest participation and the MIP are excluded and are Onex SVS and/or management DSUs under this program. described in notes 26(e) and 26(f ), respectively. Aggregate payments to the Company’s key management were as follows: k) OCLP I Onex Credit Lending Partners (“OCLP I”) provides committed cap- Year ended December 31 ital for investments in senior secured loans and other loan invest- Share-based payments(i) ments in middle-market, upper middle-market and large private Short-term employee benefits and costs equity sponsor-owned portfolio companies and, selectively, other corporate borrowers. As at December 31, 2019, Onex has invested Total 2019 $ 23 21 $ 44 $74 (2018 – $46) of its $100 commitment in OCLP I and the dura- (i) Share-based payments include $20 paid on the exercise of Onex stock options tion of the commitment period is up to November 2021, subject (note 16). to extensions of up to an additional two years. Onex controls the General Partner and Manager of OCLP I. The Onex management team has committed, as a group, to invest $72 in OCLP I. The total amount invested at cost in OCLP I by the Onex management team at December 31, 2019 was $53 (2018 – $34), of which $20 was invest- ed in the year ended December 31, 2019 (2018 – $27). Onex Corporation December 31, 2019 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 p) Related-party revenues sources represent related-party transactions. Furthermore, Onex Onex receives management fees on limited partners’ and clients’ indirectly controls, jointly controls or has signiﬁcant inﬂuence capital within the Onex Partners Funds, ONCAP Funds, Onex over certain operating businesses held by the Onex Partners and Credit strategies and advisory fees directly from certain operating ONCAP Funds, and as such, advisory fees from these operating businesses. Onex also receives performance fees from the Onex businesses represent related-party transactions. Credit strategies and recovers certain deal investigation, research Gluskin Sheff has agreements to manage its pooled fund and other expenses from the Onex Partners Funds, ONCAP Funds, vehicles, where it generally acts as the trustee, manager, transfer Onex Credit Strategies and the operating businesses of Onex agent and principal distributor. In the case of those pooled fund Partners and ONCAP. Onex indirectly controls the Onex Partners vehicles that are limited partnerships, Gluskin Sheff or an afﬁliate Funds, ONCAP Funds and Onex Credit strategies, and there- of Gluskin Sheff is the General Partner. As such, the Gluskin Sheff fore the management and performance fees earned from these pooled fund vehicles are related parties of the Company. Related-party revenues recognized during the year ended December 31, 2019 included the following: Year ended December 31, 2019 Source of related-party revenues Onex Partners Funds Onex Credit Strategies Gluskin Sheff pooled fund vehicles(i) ONCAP Funds Total related-party revenues Gluskin Sheff third-party revenues Total revenues Management and Advisory Fees Reimbursement of Expenses Performance Fees $ 129 $ 21 52 39 17 $ 237 4 $ 241 1 1 2 $ 25 – $ 25 $ – – 24 – $ 24 – $ 24 (i) Revenue associated with the reimbursement of expenses from the Gluskin Sheff pooled fund vehicles is included within other income. At December 31, 2019, related-party receivables included the following: As at December 31, 2019 Onex Partners Funds Credit strategies ONCAP Funds Gluskin Sheff pooled fund vehicles Onex Partners and ONCAP operating businesses Total related-party receivables Third-party receivables Total Management and Advisory Fees Receivable Recoverable Fund and Operating Expenses Receivable Performance Fees Other Receivables $ 187 $ 77 $ – $ 1 10 3 3 1 $ 204 1 $ 205 – 5 – – $ 82 – $ 82 – – 20 – $ 20 – $ 20 1 – – – $ 2 23 $ 25 Total $ 150 53 64 19 $ 286 4 $ 290 Total $ 265 11 8 23 1 $ 308 24 $ 332 q) Services received from operating companies During the year ended December 31, 2019, Onex received services from certain operating companies, the value of which was not signiﬁcant. 118 Onex Corporation December 31, 2019 N O T E S T O C O N S O L I D AT E D F I N A N C I A L S TAT E M E N T S 2 7. I N FO R M AT I O N B Y R E P O R TA B L E S E G M E N T – 2 019 Onex’ segmented results include allocations of management fees 2019 Reportable Segments On January 1, 2019, Onex’ status as an investment entity changed, as described in note 1. Prior to this change in status, the controlled pri- vate equity operating businesses were included in the consolidated ﬁnancial results of the Company and the ﬁnancial results of Onex, the parent company, and the Asset Managers did not separately rep- resent a signiﬁcant component of the consolidated ﬁnancial results. Following the change in Onex’ status as an investment entity, the controlled operating businesses are no longer consolidated and are instead recorded at fair value through net earnings. Management has reassessed its reportable segments as a result of this change and has identiﬁed the following two reportable segments: • Investing, which comprises the activity of investing Onex’ capital; and • Assetandwealthmanagement, which comprises the asset and wealth management activities provided by Onex to support its private equity, public equity and credit investing platforms as well as Onex’ corporate functions. Year ended December 31, 2019 Net gains on corporate investments (including a decrease in carried interest) Management and advisory fees Interest and net treasury investment income Performance fees Other income Total segment income Compensation Amortization of right-of-use assets Other expense Segment net earnings Stock-based compensation and carried interest that would have been earned on Onex’ capital in the Onex Partners and ONCAP Funds, as this presentation is used by Onex management, in part, to assess Onex’ performance. During the year ended December 31, 2019, these allocations, on a net basis, reduced Onex’ investing segment income and increased Onex’ asset and wealth management segment income, with no net impact to total segment net earnings. Onex’ segmented results exclude revenues and expens- es associated with recoverable expenses from the Onex Partners, ONCAP and Onex Credit Funds, and the operating businesses of Onex Partners and ONCAP. Onex management excludes these amounts when assessing Onex’ performance given the nature of these expenses, which are recoverable at cost. Investing $ 743(i)(ii) – 14 – – 757 – – (1) Asset and Wealth Management $ (5)(i) 302(ii) – 24 3 324 (178) (9) (57) Total $ 738 (i)(ii) 302 (ii) 14 24 3 1,081 (178) (9) (58) $ 756 $ 80 $ 836 Amortization of property, equipment and intangible assets, excluding right-of-use assets Acquisition and integration expenses(iii) Gain on derecognition of previously consolidated corporate investments Reclassification from accumulated other comprehensive loss on derecognition of previously consolidated corporate investments Earnings before income taxes Recovery of income taxes Net earnings (60) (36) (50) 3,719 (170) 4,239 38 $ 4,277 (i) The asset and wealth management segment includes an allocation of $4 from the investing segment, representing a net reversal of carried interest that would have been recognized by the asset and wealth management segment had Onex’ capital been subject to carried interest under the same terms as third-party limited partners of the Onex Partners and ONCAP Funds. (ii) The asset and wealth management segment includes an allocation of $61 from the investing segment, representing management fees that would have been earned by the asset and wealth management segment had Onex’ capital been subject to management fees under the same terms as third-party limited partners of the Onex Partners and ONCAP Funds. (iii) Primarily relates to expenses associated with the pending retirement of the Onex Credit chief executive officer, as described in note 20. Onex Corporation December 31, 2019 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 Onex’ asset and wealth management segment would have generated net earnings of approximately $94 for the year ended Decem- ber 31, 2019 had Gluskin Sheff been acquired on January 1, 2019, and the investing segment net earnings would have remained unchanged. Total segment net earnings would have been approximately $850 for the year ended December 31, 2019 had Gluskin Sheff been acquired on January 1, 2019. Segmented assets include the following: As at December 31, 2019 Cash and cash equivalents Treasury investments Management and advisory fees, recoverable fund expenses and other receivables Corporate investments Other assets Property and equipment Intangible assets Goodwill Total segment assets Investing $ 832 306 190(b) 5,233 – – – – Asset and Wealth Management $ 156(a) $ – 142 – 126 181 158 261 Total 988 306 332 5,233 126 181 158 261 $ 6,561 $ 1,024 $ 7,585 Intercompany loans receivable, comprising part of the fair value of Investment Holding Companies Total assets 4,217 $ 11,802 (a) Cash and cash equivalents allocated to the asset and wealth management segment relate to accrued employee incentive compensation and the liability relating to the pending retirement of the Onex Credit chief executive officer, as described in note 20. (b) Represents management fees receivable that Onex has elected to defer cash receipt from the Onex Partners and ONCAP Funds. Geographic Segments Revenues(b) Property and equipment Intangible assets Goodwill As at December 31, 2019 Canada United States $ 85 $ 116 $ 141 $ 199 $ 150 $ 44 $ 17 $ 62 Other(a) $ 54 $ 21 $ $ – – Total $ 289 $ 181 $ 158 $ 261 (a) Other consists of operations in Ireland and the United Kingdom, including overseas territories of the United Kingdom. (b) Revenues were attributed to geographic areas based on the location of the funds and strategies. During the year ended December 31, 2019, Onex had additions to property and equipment, intangible assets and goodwill in the asset and wealth management segment. These additions were primarily related to the acquisition of Gluskin Sheff, as described in note 2. 2 8 . 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 Onex, the parent company, held investments, CLOs of Onex Credit A C C O U N T I N G P O L I C I E S – 2 018 and Onex Credit Lending Partners, referred to collectively as “Onex Credit” or “credit strategies”. C O N S O L I D AT I O N – 2 018 The results of operations of subsidiaries are included in The 2018 consolidated ﬁnancial statements represent the accounts the 2018 consolidated ﬁnancial statements from the date that con- of Onex and its subsidiaries, including its controlled operating trol commenced until the date that control ceased. All signiﬁcant companies. Onex also controlled and consolidated the operations intercompany balances and transactions were eliminated. of Onex Partners I, Onex Partners II, Onex Partners III, Onex Part- Certain investments in operating companies over which ners IV and Onex Partners V, referred to collectively as “Onex the Company had joint control or signiﬁcant inﬂuence, but not Partners”, and ONCAP II, ONCAP III and ONCAP IV, referred to col- control, were measured at fair value through net earnings (loss). lectively as “ONCAP”. In addition, Onex controlled and consolidated These investments were recorded at fair value in the 2018 consoli- the operations of the Onex Credit asset management platform, cer- dated balance sheet, with changes in fair value recognized in the tain funds managed by Onex Credit (“Onex Credit Funds”) in which 2018 consolidated statement of earnings. 120 Onex Corporation December 31, 2019 N O T E S T O C O N S 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 were as follows as at December 31, 2018: 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 SCP Health (formerly “Schumacher Clinical Partners”) 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) 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”) December 31, 2018 Onex’ and Limited Partners’ Ownership Onex’ Ownership 14% 36% 9% 16% 8% 25% 23% 29% 20% 13% 27% 31% 28%(d) 16% 14% 32% 22% 18% 32% 21% 23% 27% 88% 47%(j) 29% 39% 14% 91% 35% 66% 32% 100% 92% 88% 98% 50% 72% 95% 94%(d) 50% 42% 99% 68% 51% 99% 79% 71% 98% 88% 100% 100% 100% Voting 80% 100% (a) 66% 32% (a) 100% 92% 100% 100% 50% (a) 72% 100% 80% 50% (a) (a) 99% 68% 53% 99% 68% 71% 98% 100% 100% 100% 100% (a) Onex exerts joint control or significant influence over these investments, which were measured at fair value through net earnings (loss), 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 29(d). (c) BrightSpring Health was accounted for as a discontinued operation, as described in note 34. (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 29(b). (e) The ownership interest in PowerSchool was acquired in August 2018, as described in note 29(h). (f) The ownership interest in Ryan was acquired in October 2018, as described in note 29(l). (g) SIG completed an initial public offering in October 2018, as described in note 29(k). (h) SMG was acquired in January 2018, as described in note 29(a). (i) KidsFoundation was acquired in November 2018, as described in note 29(p). (j) Represents Onex’ blended economic ownership in the ONCAP II investments. Onex Corporation December 31, 2019 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 The preceding ownership percentages are before the effect of any Certain operating companies entered into agreements potential dilution relating to the MIP, as described in note 26(f ). to sell accounts receivable, whereby the accounts receivable were The allocation of net earnings (loss) and comprehensive earnings transferred to an unrelated third party. The transfers were recorded (loss) attributable to equity holders of Onex Corporation and non- as sales of accounts receivable, as the operating companies did not controlling interests was calculated using the economic owner- retain any ﬁnancial or legal interest in the accounts receivable that ship of Onex and the limited partners. were sold. The accounts receivable were sold at their face value The voting interests include shares that Onex has the less a discount, as provided for in the agreements. right to vote through contractual arrangements or through mul- tiple voting rights attached to particular shares. In certain circum- Inventories stances, the voting arrangements give Onex the right to elect the Inventories were recorded at the lower of cost or net realiz- majority of the boards of directors of the companies. Onex may able value. The determination of net realizable value required also control a company through contractual rights. signiﬁcant judgement, including consideration of factors such as 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 – 2 018 Foreign currency translation shrinkage, the aging of and future demand for inventory, and con- tractual arrangements with customers. To the extent that circum- stances subsequently changed such that the net realizable value During 2018, accounting policies concerning foreign curren- increased, previous writedowns were reversed and recognized in cy translation were consistent with those in 2019, as described the 2018 consolidated statement of earnings. Certain inventories in note 1. Cash and cash equivalents in the food retail and restaurants, healthcare imaging and pack- aging products and services segments were stated using an aver- age cost method. For substantially all other inventories, cost was During 2018, accounting policies concerning cash and cash equiv- determined on a ﬁrst-in, ﬁrst-out basis. alents were consistent with those in 2019, as described in note 1. Property, plant and equipment Short-term investments During 2018, accounting policies concerning property, plant and Short-term investments consisted of liquid investments that equipment were consistent with the property and equipment pol- include money market instruments and commercial paper with icies in 2019, as described in note 1. original maturities of three months to one year. The investments were carried at fair value. Accounts receivable Leases During 2018, leases of property, plant and equipment where the Company, as a lessee, had substantially all the risks and rewards Accounts receivable were recognized initially at fair value and sub- of ownership were classiﬁed as ﬁnance leases. Finance leases sequently measured at amortized cost using the effective interest were capitalized at the lease’s commencement at the lower of the method, less loss allowances. During the year ended December 31, fair value of the leased property or the present value of the mini- 2018, Onex’ operating companies applied the simpliﬁed approach mum lease payments. Each lease payment was allocated between to measure expected credit losses, as permitted by IFRS 9, which the liability and ﬁnance charges to achieve a constant interest rate uses a lifetime expected loss allowance for all accounts receivable. on the balance outstanding. The corresponding lease obligations, To measure the expected credit losses, accounts receivable were net of ﬁnance charges, were included in the 2018 consolidated grouped based on days past due and assigned provision rates based balance sheet. Property, plant and equipment acquired under on the individual operating companies’ historical credit loss expe- ﬁnance leases were depreciated over the shorter of the useful life rience, adjusted to reﬂect current and forward-looking information. of the asset and the lease term. A provision expense was recorded with an offsetting Leases in which a signiﬁcant portion of the risks and amount recorded as an allowance, reducing the carrying value of rewards of ownership were retained by the lessor were classiﬁed the receivable. The provision expense was included in operating as operating leases. When the Company was the lessee, payments expenses in the 2018 consolidated statement of earnings. When a made under operating leases (net of any incentives received receivable was considered permanently uncollectible, the receiv- from the lessor) were recorded in the 2018 consolidated state- able was written off against the allowance account. ment of earnings on a straight-line basis over the period of the lease. Certain operating companies leased their property, plant and equipment under operating leases to third parties. When the Company was the lessor, payments received under operating leases (net of any incentives provided by the operating companies) were recognized in the 2018 consolidated statement of earnings on a straight-line basis over the period of the lease. 122 Onex Corporation December 31, 2019 N O T E S T O C O N S 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 Financing charges At December 31, 2018, substantially all of the Company’s goodwill Financing charges consisted of costs incurred relating to the amounts were recorded by the controlled operating companies. issuance of term borrowings and revolving credit facilities. The accounting policies concerning goodwill during 2018 were Transaction costs relating to term borrowings were amortized consistent with those in 2019, as described in note 1. over the term of the related debt or as the debt was retired, if ear- Impairment charges recorded by the operating compa- lier. These unamortized ﬁnancing charges were netted against the nies under IFRS may not impact the fair values of the operating carrying value of long-term debt. companies used in determining the change in carried interest and Costs incurred to establish revolving credit facilities for calculating the Limited Partners’ Interests liability. Fair values were recognized as an other current or non-current asset and of the operating companies were assessed at the enterprise level, were amortized on a straight-line basis over the term of the facil- while impairment charges were assessed at the level of either an ity; however, to the extent that the Company expected to draw on individual CGU or group of CGUs. the facility, the costs were deferred until the amounts were drawn on the facility and were then amortized over the remaining term Impairment of long-lived assets of the facility. During 2018, accounting policies concerning the impairment of long-lived assets were consistent with those in 2019, as described Provisions in note 1. A provision is a liability of uncertain timing or amount and is gen- erally recognized when the Company has a present obligation as Investments in joint ventures and associates a result of a past event, it is probable that payment will be made Joint ventures and associates were those entities over which the to settle the obligation and the payment can be reliably estimat- Company had joint control or signiﬁcant inﬂuence, but not control. ed. During 2018, judgement was required to determine the extent Certain investments in joint ventures and associates were designat- of an obligation and whether it was probable that payment would ed, upon initial recognition, at fair value with changes in fair value be made. The Company’s signiﬁcant provisions consisted of the recognized through the 2018 consolidated statement of earnings in following: accordance with IFRS 9. As a result, the investments were recorded at fair value in the December 31, 2018 consolidated balance sheet. a) Self-insurance Certain investments in joint ventures and associates Self-insurance provisions may have been established for automo- were initially recognized at cost, and the carrying amount of the bile, workers’ compensation, healthcare coverage, general liability, investment was adjusted to recognize the Company’s share of the professional liability and other claims. Provisions were established proﬁt or loss in the investment, from the date that joint control for claims based on an assessment of actual claims and claims or signiﬁcant inﬂuence commenced until the date that joint con- incurred but not reported. The reserves may have been established trol or signiﬁcant inﬂuence ceased, in accordance with IAS 28, based on consultation with independent third-party actuaries Investments in Associates and Joint Ventures. In the year ended using actuarial principles and assumptions that consider a number December 31, 2018, the Company’s share of the proﬁt or loss of factors, including historical claim payment patterns and changes was recognized in other expense and any distributions received in case reserves, and the assumed rate of inﬂation in healthcare reduced the carrying amount of the investment. costs and property damage repairs. b) Warranty Certain operating companies offered assurance-type warranties on the sale of products or services. A provision was recorded to provide for future warranty costs based on management’s best estimate of probable claims under these warranties. The provision was based on the terms of the warranty, which vary by customer and product or service, and historical experience. The appropriateness of the provision was evaluated at the end of the reporting period. Onex Corporation December 31, 2019 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 c) Restructuring Remeasurements, consisting of actuarial gains or losses, Restructuring provisions are recognized only when a detailed the actual return on plan assets (excluding the net interest com- formal plan for the restructuring – including the business or ponent) and any change in the asset ceiling, were recognized in part of the business concerned, the principal locations affected, other comprehensive earnings. Remeasurements recognized in details regarding the employees affected, the restructuring’s tim- other comprehensive earnings were directly recorded in retained ing and the expenditures that will have to be undertaken – has earnings, without recognition in the 2018 consolidated statement been developed and the restructuring has either commenced or of earnings. the plan’s main features have been publicly announced to those Deﬁned contribution plan accounting was applied to affected by it. multi-employer deﬁned beneﬁt plans for which the operating Note 39 provides further details on provisions recog- companies had insufﬁcient information to apply deﬁned beneﬁt nized by the Company. accounting. Note 57 provides further details on pension and non- Pension and non-pension post-retirement benefits pension post-retirement beneﬁts. Onex, the parent company, did not provide pension, other retire- ment or post-retirement beneﬁts to the employees of the oper- Limited Partners’ Interests ating companies during the years ended December 31, 2019 and The interests of the limited partners and other investors through 2018. The operating companies that offered pension and non- the Onex Partners, ONCAP, Onex Credit Lending Partners and pension post-retirement beneﬁts accrued their obligations under Onex Credit Funds were recognized as ﬁnancial liabilities in such employee beneﬁt plans and related costs, net of plan assets. accordance with IAS 32, Financial Instruments: Presentation dur- The costs of deﬁned beneﬁt pensions and other post-retirement ing the year ended December 31, 2018. The structure of the Onex beneﬁts earned by employees were accrued in the period incurred Partners, ONCAP, Onex Credit Lending Partners and Onex Credit and were actuarially determined using the projected unit credit Funds, as deﬁned in their respective governing agreements, method pro-rated on length of service, based on management’s speciﬁcally the limited life of the Onex Partners, ONCAP and Onex judgement and best estimates of assumptions for factors which Credit Lending Partners Funds, and the redemption provisions of impact the ultimate cost, including salary escalation, the retire- the Onex Credit Funds, required presentation of the limited part- ment ages of employees, the discount rate used in measuring the ners’ interests as a liability. The liability was recorded at fair value liability and expected healthcare costs. and was primarily impacted by the change in fair value of the Plan assets were recorded at fair value at December 31, underlying investments in the Onex Partners, ONCAP, Onex Credit 2018. Where a plan was in a surplus, the value of the net asset Lending Partners and Onex Credit Funds, the change in carried recognized was restricted to the present value of any economic interest on investments held by the Onex Partners and ONCAP beneﬁts available in the form of refunds from the plan or reduc- Funds, the change in incentive fees on investments held by the tions in future contributions to the plan. Onex Credit Lending Partners and Onex Credit Funds, as well The cost of deﬁned beneﬁt plans recognized in the con- as any contributions by and distributions to limited partners in solidated statement of earnings for the year ended December 31, those Funds. Adjustments to the fair value of the Limited Partners’ 2018 comprises the net total of the service cost for that year, the Interests were reﬂected through earnings, net of the change in past service cost, gains or losses from settlements and the net carried interest and incentive fees. interest expense or income. The service cost for the year ended Note 43 provides further details on Limited Partners’ December 31, 2018 represents the increase in the present value Interests. of the plan liabilities expected to arise from employee service in that period. The past service cost is the change in the beneﬁt obli- Income taxes gation in respect of employee service in prior periods and which During 2018, accounting policies concerning income taxes were results from a plan amendment or curtailment. Past service costs consistent with those in 2019, as described in note 1. (or recoveries) from plan amendments were recognized immedi- ately in earnings, whether vested or unvested. 124 Onex Corporation December 31, 2019 N O T E S T O C O N S 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 Depending on the terms under which the operating com- During the year ended December 31, 2018, the Company’s consoli- panies supplied their products, they may have been responsible for dated revenue primarily consisted of revenue from goods and ser- some or all of the repair or replacement costs of defective products. vices sold by its operating companies, which were accounted for Where this represented a separate service, the transaction price using the ﬁve-step model outlined in note 1. was allocated respectively to account for multiple performance During 2018, certain revenue arrangements consisted obligations. When such responsibility only provided assurance that of multiple deliverables of goods and services. Goods or services a product will function as expected and in accordance with certain were accounted for as a separate performance obligation when speciﬁcations, it was not a separate performance obligation but they were distinct. This occurred when the customer could beneﬁt a warranty. The operating companies established provisions for from the good or service either on its own or together with other issues that were probable and estimable in amounts management readily available resources and the good or service was separately believed were adequate to cover the ultimate projected claim costs. identiﬁable from the other performance obligations in a contract. The ﬁnal amounts determined to be due related to these matters Determining whether a good or service was distinct may have could differ signiﬁcantly from recorded estimates. required signiﬁcant judgement. Revenue recognition policies speciﬁc to the operating The transaction price represented the amount of con- segments were as follows: sideration that the Company expected to be entitled to and may have included variable components such as performance-related Electronics Manufacturing Services bonuses and incentives, discounts, rebates, refunds and other Revenue from the electronics manufacturing services segment similar allowances. Management estimated the amount of vari- consisted primarily of products and services manufactured to able consideration to be included in the transaction price to the customer speciﬁcations. Revenue was recognized when perfor- extent that it was highly probable that a signiﬁcant reversal in the mance obligations were satisﬁed and when the associated con- amount of cumulative revenue recognized would not occur when trol over the products was passed to the customer and no mate- the uncertainty associated with the variable consideration was rial uncertainties remained as to the collection of receivables. subsequently resolved. For certain customer contracts, products were custom-made to Where a contract included multiple performance obli- meet speciﬁc requirements and such customers were obligated gations, the transaction price was allocated to each performance to compensate the company for the work performed to date. For obligation based on the stand-alone selling prices. The amount such contracts, revenue was recognized over time as produc- of consideration was adjusted for the effects of the time value of tion progressed to completion, or as the services were rendered. money if the timing of payments agreed to in the contract pro- Revenue was generally estimated for work in process based on vided either the customer or the entity with a signiﬁcant beneﬁt costs incurred to date plus a reasonable proﬁt margin for eligi- of ﬁnancing. ble products for which there were no alternative uses. For other Revenue was recognized when or as performance obliga- contracts that did not qualify for revenue recognition over time, tions were satisﬁed by transferring control of goods or services to a revenue was recognized at the point in time where control was customer. Control was either transferred over time or at a point in passed to the customer, which was generally upon shipment, and time, which impacted the timing of when revenue was recognized. no further performance obligation remained except for standard A receivable was recognized when the transfer of con- manufacturing or service warranties. trol of goods or services to a customer occurred prior to the cus- tomer paying consideration if the right to the consideration was Healthcare Imaging unconditional, whereas a contract asset was recognized if the per- Revenue from the healthcare imaging segment was recognized formance obligation had been satisﬁed but the right to the con- when performance obligations were satisﬁed and when the asso- sideration was conditional. A contract liability was recognized ciated control over products had passed to the customer. These when the customer’s payment of consideration preceded the criteria were met for the healthcare imaging segment when completion of a performance obligation. there was persuasive evidence of an arrangement and delivery Revenue recognition requires management to make cer- had occurred. Revenue recognition did not occur until: products tain judgements and estimates, including the identiﬁcation of per- were shipped or services had been provided; risk of loss had been formance obligations, the allocation and amount of the transaction transferred to the customer; and there was evidence that custom- price, and the collectability of cash consideration. The signiﬁcant er acceptance provisions had been satisﬁed. Revenue was recog- judgements and estimates made by management during the 2018 nized on sales to resellers when control had been transferred and revenue recognition process are discussed within this section and the other revenue recognition criteria had been met. the “Use of judgements and estimates” section of note 28. Onex Corporation December 31, 2019 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 Insurance Services Other Revenue from the insurance services segment primarily consisted Other segment revenues consisted of product sales, services and of fee and service revenues. Revenue was recognized when obliga- construction contracts: tions under the terms of a contract with a customer were satisﬁed, • Where products were custom-made to meet speciﬁc require- which generally occurred when services were rendered. Service ments for which customers were obligated to compensate the revenues from managed care, specialized loss adjusting and ﬁeld company for the work performed to date, revenue was recog- investigations were recognized at the time of service. Service reve- nized over time as production progressed. The estimated per- nues from ﬁxed price contracts were recognized on each contract centage completion was based on the method that manage- proportionately over the life of the contract. ment determined to most accurately reﬂect progress, which Packaging Products and Services included percentage of total costs expected to be incurred or the number of units produced. Where product sales were sub- Revenue from the packaging products and services segment ject to customer acceptance, revenue was recognized at the primarily consisted of sales of goods and services. Revenue was earlier of receipt of customer acceptance or expiration of the recognized when control over a product or service was trans- acceptance period. Where product sales required the company ferred to the customer. The timing of when control over a prod- to install the product at the customer location and such instal- uct or service was transferred to a customer varied depending on lation was essential to the functionality of the product, rev- the individual contract terms. The amount of sales incentives to enue was recognized when the product was delivered to and be earned or taken by customers was estimated and considered installed at the customer location. when calculating the transaction price. • Revenue from services was recognized at the time of service. Business and Information Services Where applicable, the transaction price took into consider- ation an estimate for uncompensated care. Where services Revenue from the business and information services segment pri- performed were subject to customer acceptance, revenue was marily consisted of sales of subscription services, staging of trade recognized at the earlier of receipt of customer acceptance or shows and conference events, and event and operations services expiration of the acceptance period. provided to public assembly facilities. Revenue from subscription arrangements was recognized on a straight-line basis over the term Research and development of the subscription. Usage fees in excess of the base subscription Research and development activities during the year ended fee were recognized as services were delivered. Revenue from stag- December 31, 2018 were either (a) contracted or (b) self-initiated: ing of trade shows and conference events was generally recognized when the events were staged. Revenue from event and operations services was recognized over time as the services were provided. a) Costs for contracted research and development activities car- ried out within the scope of externally ﬁnanced research and devel- opment contracts were expensed when the related revenues were Food Retail and Restaurants recorded. Revenue from the food retail and restaurants segment primarily consisted of product sales, distribution services, logistics services and professional services. Product sales revenue was recognized b) Costs for self-initiated research and development activities were assessed to determine if they qualiﬁed for recognition as when a customer accepted control over the products, which usu- internally generated intangible assets. Apart from complying with ally occurred when payment was tendered at the point of sale. the general requirements for initial measurement of an intangi- Distribution services revenue was recognized upon delivery of the ble asset, qualiﬁcation criteria were met only when technical as related products, at which point control of the promised good or well as commercial feasibility could be demonstrated and the cost service was transferred to the customer. could be reliably measured. It must also have been probable that Credit Strategies the intangible asset would generate future economic beneﬁts, be clearly identiﬁable and allocable to a speciﬁc product. Further to Revenue from credit strategies consisted of fees earned by Onex meeting these criteria, only such costs that related solely to the Credit Manager, which included fees earned from Onex Credit development phase of a self-initiated project were capitalized. CLOs, Onex Credit Funds and OCLP I. Revenue earned by Onex Any costs that were classiﬁed as part of the research phase of a Credit Manager from Onex credit strategies that were consolidated self-initiated project were expensed as incurred. If the research by Onex were eliminated in Onex’ consolidated ﬁnancial statements phase could not be clearly distinguished from the development for the year ended December 31, 2018. Revenue was recognized phase, the respective project-related costs were treated as if they when performance obligations were fulﬁlled in accordance with the were incurred in the research phase only. terms of the relevant investment management agreements. 126 Onex Corporation December 31, 2019 N O T E S T O C O N S 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 were generally amortized over the for the Limited Partners’ Interests. The unrealized carried interest estimated number of units produced. In cases where the number of the Onex Partners and ONCAP Funds attributable to manage- of units produced could not be reliably estimated, capitalized ment was recognized as a liability within other current and non- development costs were amortized over the estimated useful life current liabilities. The charge for the change in net carried interest of the internally generated intangible asset. Internally generated attributable to management was recorded within other expense intangible assets were reviewed for impairment at December 31, in the 2018 consolidated statement of earnings and reduced the 2018 if the asset was not yet in use or earlier if events or changes in recovery for the Limited Partners’ Interests. circumstances indicated that the carrying amount may not have been recoverable and the asset was in use. Financial assets and financial liabilities During 2018, $189 of research and development costs During 2018, accounting policies concerning ﬁnancial assets were expensed and $51 of development costs were capitalized. and ﬁnancial liabilities were consistent with those in 2019, as Stock-based compensation described in note 1. In addition, when a ﬁnancial liability that was measured at amortized cost had its cash ﬂows modiﬁed with- During the year ended December 31, 2018, the Company followed out resulting in derecognition, the carrying value of the ﬁnancial the fair value-based method of accounting for all stock-based liability was adjusted to the present value of its modiﬁed cash compensation plans. The Company had ﬁve types of stock-based ﬂows, discounted at the ﬁnancial liability’s original effective compensation plans during this period, including the Stock Option interest rate, with any resulting gain or loss recognized in net Plan, the Director DSU Plan and the Management DSU Plan, earnings (loss). For certain variable-rate ﬁnancial liabilities that which were accounted for using the same accounting policies as were pre-payable at par, amendments to the contractual terms those in 2019, as described in note 1. Additionally, the Company of the ﬁnancial liability to revise the interest rate to a new mar- had the following stock-based compensation plans during the year ket interest rate were accounted for over the remaining term of ended December 31, 2018: the ﬁnancial liability by adjusting the ﬁnancial liability’s effective • The MIP, which is described in note 26(f ). The MIP provides that interest rate. exercisable investment rights may be settled by issuance of the During the year ended December 31, 2018, interest underlying shares or, in certain situations, by a cash payment income recognized by the Company primarily related to inter- for the value of the investment rights. The Company recorded est earned from investments recognized at fair value through a liability for the potential future settlement of the vested rights net earnings. at December 31, 2018 by reference to the fair value of the liabil- ity. The liability was adjusted for changes in the fair value of the Derivatives and hedge accounting rights, with the corresponding amount reﬂected in the consoli- At the inception of a hedging relationship, the Company document- dated statement of earnings for the year ended December 31, ed the relationship between the hedging instrument and the hedged 2018; and item, its risk management objectives and its strategy for undertak- • The employee stock option and other stock-based compensa- ing the hedge. The Company also required a documented assess- tion plans in place for employees at various operating com- ment, both at hedge inception and on an ongoing basis, of whether panies, under which, on payment of the exercise price, stock or not the derivatives that were used in the hedging transactions of the particular operating company or cash is issued. The were highly effective in offsetting the changes attributable to the Company recorded a compensation expense for such options hedged risks in the fair values or cash ﬂows of the hedged items. based on the fair value over the vesting period. Derivatives that were not designated as effective hedg- Carried interest ing relationships continued to be accounted for at fair value, with changes in fair value included in other expense in the 2018 con- During the year ended December 31, 2018, Onex, Onex manage- solidated statement of earnings. ment and ONCAP management were entitled to carried interest When derivatives were designated as effective hedging realized in the Onex Partners and ONCAP Funds under the same relationships, the Company classiﬁed them as either: (a) hedges terms as those outstanding in 2019, as described in note 26(e). of the change in fair value of recognized assets or liabilities or ﬁrm Unrealized carried interest reduces the amount due to commitments (fair value hedges); (b) hedges of the variability the limited partners and is eventually paid through the realiza- in highly probable future cash ﬂows attributable to a recognized tion of the limited partners’ share of the underlying Onex Partners asset or liability or a forecasted transaction (cash ﬂow hedges); or and ONCAP Fund investments. The change in net carried interest (c) hedges of net investments in a foreign self-sustaining opera- attributable to Onex was recognized as a reduction to the recovery tion (net investment hedges). Onex Corporation December 31, 2019 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) Fair value hedges Contingent consideration Changes in the fair value of derivatives that were designated and Contingent consideration was established for business acquisitions qualify as fair value hedging instruments were recorded in the where the Company had the obligation to transfer additional assets 2018 consolidated statement of earnings along with changes in the or equity interests to the former owners if speciﬁed future events fair value of the assets, liabilities or group thereof that were attrib- occurred or conditions were met. The fair value of contingent con- utable to the hedged risk. b) Cash flow hedges sideration liabilities was typically based on the estimated future ﬁnancial performance of the acquired business. Financial targets used in the estimation process included certain deﬁned ﬁnancial During the year ended December 31, 2018, the Company was targets and realized internal rates of return. Contingent consid- exposed to variability in future interest cash ﬂows on non-trading eration was classiﬁed as a liability when the obligation required assets and liabilities that bore interest at variable rates or were settlement in cash or other assets, and was classiﬁed as equity expected to be reinvested in the future. when the obligation required settlement in own equity instru- The effective portion of changes in the fair value of deriv- ments. Contingent consideration that was classiﬁed as a liability atives that were designated and qualify as cash ﬂow hedges were was included in the other liabilities ﬁnancial statement line items recognized in other comprehensive earnings. Any gain or loss in fair at December 31, 2018. value relating to the ineffective portion was recognized immediately in the 2018 consolidated statement of earnings in other expense. Assets held for sale and discontinued operations Amounts accumulated in other comprehensive earnings An asset was classiﬁed as held for sale if its carrying amount would were reclassiﬁed in the consolidated statement of earnings in the be recovered by the asset’s sale rather than by its continued use period in which the hedged item affected earnings. However, when in the business, the asset was available for immediate sale in its the forecasted transaction that was hedged resulted in the recogni- present condition and management was committed to, and had tion of a non-ﬁnancial asset or a non-ﬁnancial liability, the gains initiated, a plan to sell the asset which, when initiated, was expect- and losses previously deferred in other comprehensive earnings ed to result in a completed sale within 12 months. An extension were transferred from other comprehensive earnings and included of the period required to complete the sale did not preclude the in the initial measurement of the cost of the asset or liability. asset from being classiﬁed as held for sale, provided the delay When a hedging instrument expired or was sold, or was for reasons beyond the Company’s control and management when a hedge no longer met the criteria for hedge accounting, any remained committed to its plan to sell the asset. Assets that were cumulative gain or loss existing in other comprehensive earnings classiﬁed as held for sale were measured at the lower of their at that time remained in other comprehensive earnings until the carrying amount or fair value less costs to sell and were no lon- forecasted transaction was recognized in the consolidated state- ger depreciated. The determination of fair value less costs to sell ment of earnings. When a forecasted transaction was no longer involved judgement by management to determine the probability expected to occur, the cumulative gain or loss that was reported in and timing of disposition and the amount of recoveries and costs. other comprehensive earnings was immediately transferred to the A discontinued operation was a component of the 2018 consolidated statement of earnings. Company that was either disposed of, or satisﬁed the criteria to be c) Net investment hedges classiﬁed as held for sale, and represented a separate major line of business or geographic area of operations, was part of a single Hedges of net investments in foreign operations were account- coordinated plan to dispose of a separate major line of business ed for in a manner similar to cash ﬂow hedges. Any gain or loss or geographic area of operations, or was an operating company on the hedging instrument relating to the effective portion of the acquired exclusively with a view to its disposal. hedge was recognized in other comprehensive earnings. The gain or loss relating to the ineffective portion was recognized imme- diately in the 2018 consolidated statement of earnings in other expense. Gains and losses accumulated in other comprehensive earnings were included in the 2018 consolidated statement of earnings upon the reduction or disposal of the investment in the foreign operation. 128 Onex Corporation December 31, 2019 N O T E S T O C O N S O L I D AT E D F I N A N C I A L S TAT E M E N T S Earnings per share Consolidation of structured entities During 2018, accounting policies concerning earnings per share Onex indirectly controlled and consolidated the operations of the were consistent with those in 2019, as described in note 1. CLOs of Onex Credit during the year ended December 31, 2018. Dividend distributions CLOs are structured entities for which voting and similar rights are not the dominant factor in determining control. Onex used During 2018, accounting policies concerning dividend distribu- judgement when assessing the many factors that determine con- tions were consistent with those in 2019, as described in note 1. trol, including its exposure through investments in the most sub- Use of judgements and estimates ordinate capital of the CLOs, its role in the formation of the CLOs, the rights of other investors in the CLOs and control of the asset The preparation of the 2018 ﬁnancial statements in accordance manager of the CLOs. Onex determined that it was a principal of with IFRS required management to make judgements, estimates the CLOs with the power to affect the returns of its investment and assumptions that affected the reported amounts of assets, and, as a result, indirectly controlled the CLOs. liabilities and equity, the related disclosures of contingent assets During 2018, Onex invested capital in and received dis- and liabilities and the reported amounts of revenue and expenses. tributions and proceeds from the CLOs and warehouse facilities, The actual results could differ materially from those estimates and as described in note 29(r). assumptions. Revisions to accounting estimates were recognized in the period in which the estimate was revised if the revision affected only that period, or in the period of the revision and future periods Fair value of investments and debt of credit strategies not quoted in an active market if the revision affected both current and future periods. The fair value of investments and debt of the CLOs and Onex Areas that involved critical judgements, assumptions Credit Lending Partners not quoted in an active market may have and estimates and that had a signiﬁcant inﬂuence on the amounts been determined by Onex Credit using reputable pricing sources recognized in the 2018 consolidated ﬁnancial statements are fur- (such as pricing agencies) or indicative prices from bond/debt ther described as follows: Business combinations market makers. Broker quotes as obtained from pricing sources may be indicative and not executable or binding. The Company exercised judgement and estimates on the quantity and quality of In a business combination, substantially all identiﬁable assets, pricing sources used. Where no market data was available, Onex liabilities and contingent liabilities acquired were recorded at Credit may have valued positions using models, which included their respective fair values on the date of acquisition. One of the the use of third-party pricing information and were usually based most signiﬁcant areas of judgement and estimation relates to on valuation methods and techniques generally recognized as the determination of the fair value of these assets and liabilities, standard within the industry. including the fair value of contingent consideration, if applica- Models used observable data to the extent practicable. ble. Land, buildings and equipment were usually independently However, areas such as credit risk (both own and counterparty), appraised while short-term and long-term investments were volatilities and correlations may have required the Company to valued at market prices. If any intangible assets were identiﬁed, make estimates. Changes in assumptions about these factors depending on the type of intangible asset and the complexity could affect the reported fair value of ﬁnancial instruments. of determining its fair value, an independent external valuation expert may have determined the fair value using appropriate valuation techniques, which were generally based on a forecast of the total expected future net cash ﬂows. These valuations were Limited Partners’ Interests, carried interest and investments in joint ventures and associates at fair value through net earnings (loss) linked closely to the assumptions made by management regard- The measurement of the Limited Partners’ Interests, carried ing the future performance of the assets concerned and any interest and investments in joint ventures and associates at fair changes in the discount rate applied. value through net earnings (loss) was signiﬁcantly impacted by the fair values of the Company’s investments held by the Onex Partners and ONCAP Funds. The fair values of these investments were assessed at each reporting date, with changes reﬂected in the measurement of the Limited Partners’ Interests, carried inter- est and investments in joint ventures and associates at fair value through net earnings (loss). Onex Corporation December 31, 2019 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 Judgements and estimates made related to the valuation Income taxes of non-public investments held by the Onex Partners and ONCAP During 2018, the use of judgements and estimates relating to Funds during 2018 were consistent with those of corporate invest- income taxes were consistent with those in 2019, as described ments in 2019, as described in note 1. in note 1. The Limited Partners’ Interests and carried inter- est were measured with signiﬁcant unobservable inputs (Level 3 Legal provisions and contingencies of the fair value hierarchy). Further information is provided in During 2018, the use of judgements and estimates relating to legal note 43. With the exception of investments in JELD-WEN and provisions and contingencies were consistent with those in 2019, Pinnacle Renewable Energy, investments in joint ventures and as described in note 1. associates were also measured with signiﬁcant unobservable inputs (Level 3 of the fair value hierarchy). The fair value measure- Employee benefits ments for the investments in JELD-WEN and Pinnacle Renewable Onex, the parent company, does not provide pension, other retire- Energy included signiﬁcant other observable inputs (Level 2 of ment or post-retirement beneﬁts to any employees of the oper- the fair value hierarchy), as a marketability factor was applied to ating companies. The operating companies that offered pension the companies’ publicly traded share price. Further information is and non-pension post-retirement beneﬁts accounted for these provided in notes 36 and 55. beneﬁts in accordance with actuarial valuations. These valua- tions relied on statistical and other factors in order to anticipate Goodwill impairment tests and recoverability of assets future events. These factors included key actuarial assumptions, During 2018, the use of judgements and estimates relating to including the discount rate, expected salary increases and mortal- goodwill impairment tests and recoverability of assets were con- ity rates. These actuarial assumptions may differ materially from sistent with those in 2019, as described in note 1. actual developments due to changing market and economic con- Revenue recognition ditions. Note 57 provides details on the estimates used in account- ing for pensions and post-retirement beneﬁts during the year Certain judgements and estimates were required to determine the ended December 31, 2018. timing and amount of revenue recognition, including identifying and allocating the transaction price among performance obliga- Stock-based compensation tions, determining when performance obligations were satisﬁed The Company’s stock-based compensation accounting for its MIP and measuring progress of completion when performance obliga- options was completed using an internally developed valuation tions were satisﬁed over time. model. The critical assumptions and estimates used in the valua- Revenue that was recognized over time and was not tion model included the fair value of the underlying investments, billed until delivery of the ﬁnished product to customers involved the time to expected exit from each investment, a risk-free rate signiﬁcant estimates, judgements and assumptions in determin- and an industry comparable historical volatility for each invest- ing the timing of revenue recognition, the measures of work in ment. The fair value of the underlying investments included critical process, and estimates and timing of expected returns, revenues assumptions and estimates, as described for corporate investments and related costs. in note 1. Revenue recognized by SCP Health in the other segment for uninsured patients required certain judgements to be made with respect to the transaction price. Factors considered in deter- mining the estimated transaction price included historical col- lection trends for each of its primary payor sources of revenue, reimbursement rate trends, resolution of credit balances, patient acuity levels, physician documentation, aging of accounts receiv- able and other relevant factors. 130 Onex Corporation December 31, 2019 N O T E S T O C O N S O L I D AT E D F I N A N C I A L S TAT E M E N T S 2 9. S I G N I F I C A N T T R A N S A C T I O N S – 2 018 c) Initial and secondary offerings by Pinnacle Renewable Energy a) Acquisition of SMG In February 2018, Pinnacle Renewable Energy, Inc. (“Pinnacle In January 2018, the Onex Partners IV Group completed the acqui- Renewable Energy”) completed an initial public offering of sition of SMG, a global manager of convention centres, stadiums, approximately 15.3 million common shares (TSX: PL), including arenas, theatres, performing arts centres and other venues. The the exercise of an over-allotment option. The offering was priced at Onex Partners IV Group’s total investment was $429 for an econom- C$11.25 per share for gross proceeds of C$173. As part of the offer- ic interest of 99%. Onex’ share of the investment was $139 for an ing, Pinnacle Renewable Energy issued approximately 6.2 million economic interest of 32%. The remainder of the purchase price was treasury shares. The net proceeds from treasury shares were used ﬁnanced through a rollover of equity by management of SMG and to repay C$29 of existing shareholder subordinated debt, with the debt ﬁnancing, without recourse to Onex Corporation. SMG was balance to fund construction of production facilities and for other included within the business and information services segment. general corporate purposes. The ONCAP II Group received C$20 As part of the acquisition of SMG, the Onex Part- ($16) for its share of the repayment of the existing shareholder sub- ners IV Group also acquired $44 of SMG’s second lien debt, which ordinated debt, of which Onex’ share was C$9 ($7). The ONCAP II bore interest at LIBOR plus a margin of up to 7.00%. To ﬁnance the Group did not sell any common shares as part of this transaction. investment in SMG’s second lien debt, the Onex Partners IV Group As a result of this transaction, the ONCAP II Group entered into a revolving credit facility in January 2018. The facility no longer controlled Pinnacle Renewable Energy. The interest bore interest at LIBOR (subject to a ﬂoor of 0.00%) plus a mar- held by the Company was recorded as a long-term investment gin of 1.75% and was reimbursable by capital calls upon the lim- at fair value, with changes in fair value recognized in the 2018 ited partners of Onex Partners IV. Onex Corporation, the parent consolidated statement of earnings. In addition, a gain of $82 company, was only obligated with respect to borrowings under was recorded based on the excess of the interest retained at fair the revolving credit facility based on its proportionate share of the value over the historical accounting carrying value of the invest- Onex Partners IV Group’s investment in SMG. ment. The gain was entirely attributable to the equity holders of Onex Corporation, as the interests of the Limited Partners were b) Partial loan note repayment by Parkdean Resorts recorded as a ﬁnancial liability at fair value. Pinnacle Renewable In February 2018, Parkdean Resorts made a partial repayment of a Energy did not represent a separate major line of business, and as loan note outstanding with the Onex Partners IV Group totalling a result, the operating results up to the date of the loss of control £52 ($74), including accrued interest, with net proceeds from a were not presented as a discontinued operation. sale-leaseback transaction completed for certain parks in August In June 2018, Pinnacle Renewable Energy completed a 2017. Onex’ share of the repayment was £15 ($22). The remaining secondary offering of approximately 4.2 million common shares, principal balance of £25 ($31) outstanding under the loan note, including the exercise of an over-allotment option. The offer- of which Onex’ share was £7 ($9), was converted into addition- ing was priced at C$13.75 per share for gross proceeds of C$58. No al equity of Parkdean Resorts in accordance with the loan note treasury shares were issued as part of the offering. The ONCAP II agreement. Group sold approximately 3.7 million shares for net proceeds of C$49 ($37). Onex’ portion of the net proceeds was C$22 ($17), including carried interest and after the reduction for amounts paid to the ONCAP management team. No gain was realized as a result of this transaction as the Company’s interest in Pinnacle Renewable Energy was recorded at fair value. Onex’ share of the carried interest received was C$1 ($1) and was included in the net proceeds to Onex. ONCAP manage- ment’s share of the carried interest was C$4 ($3), including C$2 ($2) from Onex and Onex management. No amounts were paid on account of the MIP for this transaction as the required realized investment return hurdle was not met on realizations to date. The ONCAP II Group held approximately 10.4 million common shares of Pinnacle Renewable Energy for an econom- ic and voting interest of 32% at December 31, 2018. Onex held approximately 5.0 million common shares for a 15% economic interest in Pinnacle Renewable Energy at December 31, 2018. Onex Corporation December 31, 2019 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 d) Secondary offering by Emerald Expositions f) Acquisition of AutoSource In March 2018, Emerald Expositions completed a secondary offer- In May 2018, Onex invested $41 to acquire AutoSource Holdings, ing of 6.75 million shares of its common stock, including the exer- Inc. (“AutoSource”), a used vehicle retailer specializing in branded cise of an over-allotment option. The offering was priced at $18.50 title vehicles, for an initial economic and voting interest of 50% per share for gross proceeds of $125. No treasury shares were and 60%, respectively. issued as part of the offering. The Onex Partners III Group sold In September 2018, the investment in AutoSource was all of the shares in this transaction for net proceeds of $120. Onex’ transferred to the ONCAP IV Group for $41, which represents the portion of the net proceeds was $32, including carried interest. original cost of the investment made by Onex. As a result of this Amounts received on account of the carried interest transaction, the ONCAP IV Group’s economic and voting inter- related to this transaction totalled $8. Onex’ share of the carried est in AutoSource was 50% and 60%, respectively. Onex’ share of interest received was $3 and was included in the net proceeds the investment, as a limited partner of ONCAP IV, was $16 for an to Onex. Management’s share of the carried interest was $5. No economic interest of 20% at December 31, 2018. AutoSource was amounts were paid on account of the MIP for this transaction as included within the other segment. the required realized investment return hurdle was not met on realizations to date. g) Investment in Ryan Specialty Group The Onex Partners III Group held approximately 47.1 mil- In June 2018, Onex and Onex management invested a total of $175 lion shares of Emerald Expositions’ common stock for a 66% in Ryan Specialty Group, LLC (“RSG”), an international specialty economic and voting interest at December 31, 2018. Onex held insurance organization, which included a wholesale insurance approximately 11.4 million shares for a 16% economic inter- brokerage ﬁrm and an underwriting management organization. est at December 31, 2018. Since the sale of shares by the Onex The investment comprised $150 in preferred equity and $25 in Partners III Group did not result in a loss of control over Emerald common equity. Onex’ share of the investment was $172. Expositions, the transaction was recorded as a transfer from the The investment in RSG was recorded as a long-term equity holders of Onex Corporation to non-controlling interests investment at fair value with changes in fair value recognized in in the 2018 consolidated ﬁnancial statements, with the cash pro- the 2018 consolidated statement of earnings. ceeds received in excess of the historical accounting carrying value of $49 being recorded directly to retained earnings. h) Investment in PowerSchool e) Sale of Mavis Discount Tire In August 2018, the Onex Partners IV Group acquired an interest in PowerSchool, a non-instructional software provider primar- In March 2018, the ONCAP III Group sold its entire investment ily to K-12 primary schools, from Vista Equity Partners (“Vista”). in Mavis Tire Supply LLC (“Mavis Discount Tire”). The ONCAP III Concurrent with this transaction, PowerSchool acquired People- Group received net proceeds of $518, of which Onex’ share was Admin, a provider of cloud-based talent management solutions $173, including carried interest and after the reduction for for the education sector and also previously owned by Vista. The amounts paid to the Onex and ONCAP management teams. No Onex Partners IV Group invested $872 for an economic interest gain was realized as a result of this transaction as the Company’s of 50% in PowerSchool and is an equal partner with Vista. Onex’ interest in Mavis Discount Tire was recorded at fair value. share of the investment was $283 for an economic interest of 16%. Onex’ share of the carried interest received was $15 The investment in PowerSchool was recorded as a long- and was included in the net proceeds to Onex. ONCAP manage- term investment at fair value with changes in fair value recog- ment’s share of carried interest was $37, including $14 from Onex nized in the 2018 consolidated statement of earnings. and Onex management. Management of Onex and ONCAP earned $14 on account of management incentive programs related to this transaction. In addition, the 2018 consolidated ﬁnancial statements included net proceeds of $15 from the sale of Mavis Discount Tire attributable to a third-party investor. 132 Onex Corporation December 31, 2019 N O T E S T O C O N S O L I D AT E D F I N A N C I A L S TAT E M E N T S i) Acquisition of Precision The issuance of new shares by SIG as part of the initial In August 2018, the ONCAP IV Group acquired Precision Global public offering resulted in the dilution of the Company’s owner- (“Precision”), a global manufacturer of dispensing solutions. The ship interest in SIG. The Company recorded a transfer from non- ONCAP IV Group’s total investment was $111 for an initial eco- controlling interests in the 2018 consolidated statement of equity. nomic interest of 99%. Onex’ share of the investment was $44 for This reﬂected Onex’ share of the increase in the book value of the an initial economic interest of 39%. The remainder of the pur- net assets of SIG due to the issuance of additional common shares chase price was ﬁnanced through a rollover of equity by manage- at a value above the Company’s historical accounting carrying ment of Precision and debt ﬁnancing, without recourse to Onex value of SIG. Corporation. Precision was included within the packaging prod- ucts and services segment. l) Investment in Ryan In October 2018, the Onex Partners IV Group acquired an inter- j) Acquisition of Walter Surface Technologies est in Ryan, a global tax services and software provider. The Onex In September 2018, the ONCAP IV Group acquired Walter Surface Partners IV Group’s total investment was $317 for an economic Technologies, a provider of innovative solutions for the metal interest of 42%. Onex’ share of the investment was $103 for an working industry. Excluding the impact of foreign exchange economic interest of 14%. hedges, the ONCAP IV Group’s total investment was C$175 ($135) The investment in Ryan was partially funded by a for an economic interest of 94%. Onex’ share of the investment revolving credit facility, with a capacity of $65, entered into by the was C$69 ($53) for an economic interest of 37%. The remainder Onex Partners IV Group in October 2018. The facility bore interest of the purchase price was ﬁnanced through a rollover of equity by at LIBOR (subject to a ﬂoor of 0.00%) plus a margin of 1.75% and the founders of Walter Surface Technologies, equity investments is reimbursable by capital calls upon the limited partners of Onex made by management of Walter Surface Technologies and cer- Partners IV. Onex, the parent company, is only obligated with tain other investors, and debt ﬁnancing, without recourse to Onex respect to borrowings under the revolving credit facility based Corporation. Walter Surface Technologies was included within the on its proportionate share of the Onex Partners IV Group’s invest- other segment. ment in Ryan. k) Initial public offering by SIG In connection with the investment in Ryan, the Onex Partners IV Group had committed to invest up to an additional In October 2018, SIG completed an initial public offering of $100 in equity to partially fund future add-on acquisitions over a approximately 151.8 million ordinary shares (SIX: SIGN), including two-year period, subject to certain terms and conditions. the exercise of an over-allotment option. The offering was priced The investment in Ryan was 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 2018 consolidated statement of earnings. proceeds from treasury shares were primarily used to reduce SIG’s long-term debt. The Onex Partners IV Group sold approximately m) Investment in Wyse 45.9 million shares in the transaction for net proceeds of CHF 504 In November 2018, the ONCAP IV Group invested C$35 ($26) in ($511). Onex’ portion of the net proceeds was CHF 178 ($180). Wyse Meter Solutions Inc. (“Wyse”), a provider of submetering The Onex Partners IV Group held approximately and utility expense management solutions for the multi-residen- 163.2 million ordinary shares in SIG for a 51% economic interest at tial, condominium and commercial markets in Canada, for an December 31, 2018. Onex held approximately 57.5 million ordinary economic interest of 41%. Onex’ share of the investment was C$14 shares for an 18% economic interest at December 31, 2018. Since ($10) for an economic interest of 16%. The investment was com- the sale of shares by the Onex Partners IV Group did not result in a prised of both preferred shares and convertible debt. loss of control over SIG, the transaction was recorded as a transfer The investment in Wyse was recorded as a long-term from the equity holders of Onex Corporation to non-controlling investment at fair value with changes in fair value recognized in interests in the 2018 consolidated ﬁnancial statements, with the the 2018 consolidated statement of earnings. cash proceeds received in excess of the historical accounting car- rying value of $256 being recorded directly to retained earnings. Onex Corporation December 31, 2019 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 n) Acquisition of Impakt by Celestica q) Distributions from operating businesses In November 2018, Celestica acquired Impakt Holdings, LLC During 2018, Onex and its partners received distributions of $309 (“Impakt”), a vertically integrated manufacturer in the semicon- from certain operating businesses. Onex’ portion of the distri- ductor and display industries, for $331. The purchase price was butions was $165, including carried interest. The distributions ﬁnanced with borrowings under Celestica’s existing secured credit include the repayment of a loan note by Parkdean Resorts, as facility. o) Sale of Tecta previously described in note 29(b), and the repayment of existing shareholder subordinated debt by Pinnacle Renewable Energy, as previously described in note 29(c). The other signiﬁcant distribu- In November 2018, the ONCAP III and ONCAP IV Groups sold tions received by the Company are described below. their entire investment in Tecta America Corporation (“Tecta”) for net proceeds of $416. Onex’ share of the net proceeds from the During 2018, Flushing Town Center distributed $116 of proceeds sale was $134, including carried interest and after the reduction primarily from the sale of residential condominium units, of which for amounts paid to the Onex and ONCAP management teams. Onex’ share was $101. Included in the net proceeds was $4 held in escrow, of which During 2018, BBAM distributed $38 to the Onex Part- Onex’ share was $1. As a result of this transaction, a gain of $261 ners III Group, of which Onex’ share was $12. The distributions was recorded based on the excess of the net proceeds over the his- were funded by the company’s free cash ﬂow. torical accounting carrying value of the investment. During 2018, Meridian Aviation distributed $25 to the Onex’ share of the carried interest received was $12 and Onex Partners III Group, of which Onex’ share was $8. The distri- was included in the net proceeds to Onex. ONCAP management’s bution was funded primarily from proceeds from aircraft sales. share of the carried interest was $32, including $3 from Onex and Onex management. Amounts paid on account of the MIP totalled $7 for this transaction and were deducted from the net proceeds r) Credit Strategies Warehouse facility of EURO CLO-3 to Onex. In March 2018, Onex established a warehouse facility in connec- Tecta did not represent a separate major line of business, tion with EURO CLO-3. During the year ended December 31, 2018, and as a result, the operating results have not been presented as a discontinued operation. Non-controlling interests of the Com- pany decreased by $7 as a result of no longer consolidating Tecta. 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. The cash proceeds recorded in the consolidated statement of cash Onex consolidated the warehouse facility for EURO ﬂows for the year ended December 31, 2018, were reduced for CLO-3 during the year ended December 31, 2018. Tecta’s cash and cash equivalents of $2 at the date of sale. Closing of CLO-15 p) Acquisition of KidsFoundation In June 2018, Onex closed its ﬁfteenth CLO denominated in U.S. In November 2018, the Onex Partners IV and Onex Partners V dollars (“CLO-15”), which was funded through the issuance of Groups acquired KidsFoundation, a provider of childcare services in collateralized loan instruments in a series of tranches of secured 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 notes and preference shares in a private placement transaction for an aggregate principal amount of $614. On closing, Onex invested $57 for 100% of the most sub- ordinated capital of CLO-15. an economic interest of 27%. The remainder of the purchase price Warehouse facility of CLO-16 was ﬁnanced through a rollover of equity by management share- In August 2018, Onex established a warehouse facility in connec- holders and debt ﬁnancing, without recourse to Onex Corporation. tion with CLO-16. During the year ended December 31, 2018, Onex KidsFoundation was included within the other segment. invested $50 to support the warehouse facility and a ﬁnancial institution provided borrowing capacity of up to $200 backed by the underlying collateral. Onex consolidated the warehouse facility for CLO-16 during the year ended December 31, 2018. 134 Onex Corporation December 31, 2019 N O T E S T O C O N S O L I D AT E D F I N A N C I A L S TAT E M E N T S Fund closing for OCLP I 3 0 . A C Q U I S I T I O N S – 2 018 In November 2018, Onex completed the ﬁnal closing for OCLP I, reaching aggregate commitments of $413, including Onex’ com- During 2018 several acquisitions, which were accounted for as mitment of $100. business combinations, were completed either directly by Onex During 2018, OCLP I made investments in the debt of or through subsidiaries of Onex. Acquisitions completed by Onex middle-market, upper middle-market and large private equity were generally ﬁnanced with proceeds from the Onex Partners and sponsor-owned portfolio companies and, selectively, other corpo- ONCAP Funds along with debt provided by third-party lenders. rate borrowers, which were funded by borrowings from OCLP I’s Debt provided by third-party lenders was held within the acquired credit facilities and capital calls of $111 from investors, of which companies and was without recourse to Onex Corporation, the Onex’ share was $28. ultimate parent company. This debt, along with debt incurred Onex consolidated the operations of OCLP I and record- to ﬁnance acquisitions made by existing Onex subsidiaries, was ed changes in the fair value of the asset portfolio through net excluded from the purchase price allocation tables below. earnings during the year ended December 31, 2018. During the year ended December 31, 2018, business Redemption of CLO-2 combinations were accounted for using the acquisition method. The cost of an acquisition was measured as the fair value of the In November 2018, the Company redeemed CLO-2, which was assets given, equity instruments issued and liabilities incurred or established in November 2012 and had a reinvestment period assumed at the date of exchange. Identiﬁable assets acquired and which ended in November 2018. Upon the redemption of CLO-2, liabilities and contingent liabilities assumed in a business combi- all secured notes were repaid, including accrued interest, and the nation were measured initially at fair value at the date of acqui- equity was settled for the residual proceeds in the CLO. In aggre- sition, irrespective of the extent of any non-controlling interests. gate, Onex received $29 of proceeds and distributions related to The fair value was determined using a combination of valua- CLO-2 compared to its original investment of $26. tion techniques, including discounted cash ﬂows and projected At redemption, CLO-2 transferred $13, $11, $4 and $12 in earnings multiples. The key inputs to the valuation techniques assets for fair value consideration to the Company’s eighth, ninth included assumptions related to future customer demand, mate- and tenth CLOs denominated in U.S. dollars (“CLO-8”, “CLO-9” and rial and employee-related costs, changes in mix of products and “CLO-10”), and the warehouse facility for CLO-16, respectively. The services produced or delivered, and restructuring programs. Any fair values used for the transfers were reviewed by a third party. non-controlling interests in the acquired company were measured Distributions either at fair value or at the non-controlling interests’ proportion- ate share of the identiﬁable assets and liabilities of the acquired During the year ended December 31, 2018, Onex received $59 business. The excess of the aggregate of the consideration trans- of distributions from its CLO investments. Additionally, Onex ferred, the amount of any non-controlling interests in the acquired received $9 on the redemption of CLO-2 and $11 from the partial company and, for a business combination achieved in stages, sale of its investment in its seventh CLO denominated in U.S. dol- the fair value at the acquisition date of the Company’s previously lars (“CLO-7”). held interest in the acquired company compared to the fair value of the identiﬁable net assets acquired was recorded as goodwill. Acquisition-related costs were expensed as incurred and related restructuring charges were expensed in the periods after the acquisition date. Costs incurred to issue debt were deferred and recognized, as described in note 28. Subsequent changes in the fair value of contingent consideration recorded as a liability at the acquisition date were recognized in consolidated earnings or loss. The results of operations for all acquired businesses were included in the consolidated statements of earnings, comprehen- sive earnings and equity of the Company during the year ended December 31, 2018 from their respective dates of acquisition. Onex Corporation December 31, 2019 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 Details of the purchase price and allocation to the assets and liabilities acquired were as follows for the year ended December 31, 2018: 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 $ 7 62 – 241 23 358 (59) (19) 280 (2) 17 290 259 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 a) In January 2018, the Company acquired SMG, as described in Included in the acquisitions above were gross receivables due note 29(a). b) In April 2018, Celestica acquired Atrenne Integrated Solutions, Inc. for total consideration of $143. In November 2018, Celestica from customers of $184, of which all contractual cash ﬂows were expected to be recovered. The fair value of these receivables at the dates of acquisition was determined to be $183. acquired Impakt for total consideration of $331, as described in Revenue and net loss from the dates of acquisition for these note 29(n). acquisitions to December 31, 2018 were $809 and $62, respectively. c) In November 2018, the Company acquired KidsFoundation, as described in note 29(p). The Company estimated it would have reported consolidated rev- enues of approximately $24,400 and a net loss of approximately d) ONCAP included the acquisitions of AutoSource, Precision and Walter Surface Technologies, as described in notes 29(f ), $805 for the year ended December 31, 2018 if acquisitions com- pleted during 2018 had been acquired on January 1, 2018. 29(i) and 29(j), respectively, in addition to acquisitions made by Goodwill of the acquisitions was attributable primarily to the Davis-Standard Holdings, Inc. (“Davis-Standard”), EnGlobe Corp. skills and competence of the acquired workforce, non-contrac- (“EnGlobe”), Hopkins Manufacturing Corporation (“Hopkins”), tual established supplier and customer bases and technological IntraPac International Corporation (“IntraPac”) and Tecta (up to knowledge of the acquired companies. Goodwill of the acquisi- November 2018) for total consideration of $156, of which $19 was tions that was expected to be deductible for tax purposes was $249. non-cash consideration. e) Other consisted of acquisitions made by Clarivate Analytics, Emerald Expositions, sgsco and York for total consideration of $205, of which $15 was non-cash consideration. Also included in other were acquisitions made by BrightSpring Health for total consideration of $127, of which $30 was non-cash consideration. BrightSpring Health was recorded as a discontinued operation, as described in note 34. 136 Onex Corporation December 31, 2019 N O T E S T O C O N S O L I D AT E D F I N A N C I A L S TAT E M E N T S 31. C A S H A N D C A S H E Q U I VA L E N T S – 2 018 3 4 . D I S C O N T I N U E D O P E R AT I O N S – 2 018 Cash and cash equivalents at December 31, 2018 comprised the The following table shows revenues, expenses and net after- following: tax results from discontinued operations during the year ended December 31, 2018 December 31, 2018. The loss of control by the Company over Pin- Cash at bank and on hand Money market funds Commercial paper Bank term deposits and other Total cash and cash equivalents $ 1,570 997 74 39 $ 2,680 nacle Renewable Energy, as described in note 29(c), and the sale of Tecta, as described in note 29(o), did not represent separate major lines of business, and as a result have not been presented as dis- continued operations. Year ended December 31, 2018 BrightSpring Health At December 31, 2018, the fair value of investments managed by third-party investment managers was $274, of which $60 was included in short-term investments and $214 was included in long-term investments. 3 2 . I N V E N T O R I E S – 2 018 Inventories at December 31, 2018 comprised the following: Raw materials Finished goods Work in progress Real estate held for sale Total inventories December 31, 2018 $ 1,243 1,075 245 93 $ 2,656 During the year ended December 31, 2018, $12,452 of inventory was expensed in cost of sales. Note 39 provides details on inven- tory provisions recorded by the Company at December 31, 2018. 3 3 . O T H E R C U R R E N T A S S E T S – 2 018 Revenues Expenses Earnings before income taxes Provision for income taxes Net earnings for the year $ 1,821 (1,770) 51 (1) 50 $ The operations of BrightSpring Health were presented as discon- tinued in the consolidated statement of earnings and cash ﬂows for the year ended December 31, 2018. The following table shows the summarized assets and liabilities of discontinued operations at December 31, 2018. As at December 31, 2018 BrightSpring Health Cash and cash equivalents Other current assets Intangible assets Goodwill Property, plant and equipment and other non-current assets Current liabilities Non-current liabilities $ 27 270 374 371 106 1,148 (207) (568) $ 373 Other current assets at December 31, 2018 comprised the following: Net assets of discontinued operations Contract assets Prepaid expenses Restricted cash Income and value-added taxes receivable Other receivables Other Total other current assets December 31, 2018 $ 349 206 193 123 79 174 $ 1,124 The following table presents the summarized aggregate cash ﬂows from (used in) discontinued operations of BrightSpring Health during the year ended December 31, 2018. For the year ended December 31, 2018 BrightSpring Health Operating activities Financing activities Investing activities $ 129 29 (145) Increase in cash and cash equivalents for the period Cash and cash equivalents, beginning of the period Cash and cash equivalents, end of the period $ 13 14 27 Onex Corporation December 31, 2019 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 3 5 . 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 – 2 018 During 2018, property, plant and equipment comprised the following: 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 Land Buildings Machinery and Equipment Construction in Progress $ 1,385 (13) $ 1,372 $ 1,985 (506) $ 1,479 $ 4,123 (2,032) $ 2,091 $ 385 (1) $ 384 Total $ 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 Property, plant and equipment cost and accumulated amortization and impairments were reduced for components retired during 2018. At December 31, 2018, property, plant and equipment included amounts under ﬁnance leases of $662 and related accumulated amortization of $60. During 2018, borrowing costs of $1 were capitalized and were included in the cost of additions. 138 Onex Corporation December 31, 2019 N O T E S T O C O N S 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 6 . LO N G - T E R M I N V E S T M E N T S – 2 018 Investments held by Onex Credit Lending Partners at At December 31, 2018, long-term investments comprised the ings (loss). At December 31, 2018, the total value of investments December 31, 2018 were classiﬁed as fair value through net earn- following: Long-term investments held by credit strategies(a) $ 9,439 December 31, 2018 Investments in joint ventures and associates – at fair value through net earnings (loss)(b) Investments in joint ventures and associates – equity-accounted (c) Onex Corporation investments in managed accounts(d) Other (e) Total 2,413 341 214 349 $ 12,756 a) Long-term investments held by credit strategies Long-term investments held by credit strategies included invest- ments made in CLOs, Onex Credit Funds and Onex Credit Lend- ing Partners. The asset portfolio held by the CLOs consisted of cash and cash equivalents and corporate loans that were recorded at fair value. The asset portfolio of each CLO was pledged as collat- eral for its respective senior secured notes and loans. During 2018, Onex was required to consolidate the operations and results of the CLOs, as described in note 28. At December 31, 2018, the asset portfolio of the CLOs and warehouse facilities comprised the following: Closing Date 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 As at December 31, 2018 $ 5 555 362 891 467 685 688 468 467 512 563 561 564 395 477 484 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 Warehouse facilities Total held by Onex Credit Lending Partners was $780. 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 29(r) and included 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. b) Investments in joint ventures and associates – at fair value through net earnings (loss) Investments in joint ventures and associates measured at fair value through net earnings (loss) at December 31, 2018 primar- ily included investments in AIT, BBAM, JELD-WEN, Mavis Discount Tire (up to March 2018), Pinnacle Renewable Energy (since February 2018), PowerSchool (since August 2018), Ryan (since October 2018), Venanpri Group and Wyse (since November 2018). With the exception of JELD-WEN and Pinnacle Renewable Energy, the fair value measurements for these investments included signiﬁcant unobservable inputs (Level 3 of the fair value hierarchy). The fair value measurements for the investments in JELD-WEN and Pinnacle Renewable Energy included signiﬁcant other observable inputs (Level 2 of the fair value hierarchy), as a marketability factor was applied to JELD-WEN and Pinnacle Renewable Energy’s publicly traded share price. Details of changes in investments in joint ventures and associ- ates at fair value through net earnings (loss) for the year ended December 31, 2018 were as follows: Balance – December 31, 2017 Transfer of investment in Pinnacle Renewable Energy no longer under control Distributions received Purchase of investments Sale of investments Decrease in fair value of investments, net Balance – December 31, 2018 $ 2,252 136 (63) 1,243 (570) (585) $ 2,413 Pinnacle Renewable Energy In February 2018, Pinnacle Renewable Energy completed an initial public offering of approximately 15.3 million common shares. As $ 8,144 a result of this transaction, the ONCAP II Group no longer con- trolled Pinnacle Renewable Energy, as described in note 29(c). The At December 31, 2018, investments of $515 were held by Onex Credit interest held by the Company was recorded as a long-term invest- Funds and classiﬁed as fair value through net earnings (loss). ment at fair value through net earnings (loss). In June 2018, Pinnacle Renewable Energy completed a secondary offering, as described in note 29(c). Onex Corporation December 31, 2019 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 Mavis Discount Tire Included in the preceding statement of earnings ﬁnancial infor- In March 2018, the ONCAP III Group sold its entire investment in mation were the following items: Mavis Discount Tire, as described in note 29(e). PowerSchool In August 2018, the Onex Partners IV Group acquired an interest in PowerSchool, as described in note 29(h). For the year ended December 31 Amortization expense Interest income Interest expense Recovery of income taxes 2018 $ 125 $ 1 $ 72 $ 8 Ryan In October 2018, the Onex Partners IV Group acquired an interest c) Investments in joint ventures and associates – in Ryan, as described in note 29(l). equity-accounted Wyse At December 31, 2018, the balance consisted primarily of invest- ments in joint ventures and associates held by Meridian Aviation In November 2018, the ONCAP IV Group acquired an interest in and SIG. Wyse, as described in note 29(m). JELD-WEN The following tables provide summarized ﬁnancial information for JELD-WEN as of December 31, 2018 and were prepared in accordance with accounting principles generally accepted in the d) Onex Corporation investments in managed accounts Long-term investments consisted of securities that included money market instruments, federal and municipal debt instru- ments, corporate obligations and structured products with maturi- ties of one year to ﬁve years. Short-term investments consisted of liquid investments that included money market instruments and commercial paper with original maturities of three months to 2018 one year. The investments were managed to maintain an overall $ 1,155 weighted average duration of two years or less. At December 31, 1,899 3,054 674 1,612 2,286 $ 768 2018, the fair value of investments managed by third-party invest- ment managers was $274, of which $60 was included in short-term investments and $214 was included in long-term investments. e) Other long-term investments At December 31, 2018, the balance consisted primarily of Onex’ investment in RSG, as described in note 29(g), forward contracts to economically hedge the Company’s exposure to changes in the market value of Onex’ SVS associated with the outstanding DSUs and long-term investments held by certain operating companies. 3 7. O T H E R N O N - C U R R E N T A S S E T S – 2 018 Included in the balance sheet ﬁnancial information above were the following items: As at December 31 Cash and cash equivalents included in current assets Financial liabilities included in current liabilities 2018 117 312 $ $ Financial liabilities included in non-current liabilities $ 1,423 Other non-current assets at December 31, 2018 comprised the fol- For the year ended December 31 Revenues Total expenses (including provision for income taxes) Net earnings Other comprehensive loss Total comprehensive earnings lowing: Deferred income taxes (note 45) Defined benefit pensions (note 57) Restricted cash Derivatives Other Total 2018 $ 4,347 (4,203) 144 (50) $ 94 December 31, 2018 $ 164 152 46 23 231 $ 616 140 Onex Corporation December 31, 2019 United States. As at December 31 Current assets Non-current assets Current liabilities Non-current liabilities Net assets N O T E S T O C O N S 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 8 . 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 – 2 018 During 2018, goodwill and intangible assets comprised the following: Goodwill Trademarks and Licenses Customer Relationships Computer Software Other Intangible Assets with Limited Life(i) Other Intangible Assets with Indefinite Life Total Intangible Assets As at December 31, 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, the information databases and content collections had a cost of $1,726 and accumulated amortization of $234. (ii) At December 31, 2018, trademarks, licenses and customer relationships included amounts determined to have indefinite useful lives of $1,735. Additions to goodwill and intangible assets primarily arose through business combinations (note 30). Additions to intangible assets through internal development were $74 and those acquired separately were $42. Included in the net book value of intangible assets at December 31, 2018 were $188 of internally generated intangible assets. 3 9. P R O V I S I O N S – 2 018 expected loss allowance for all accounts receivable. To measure the expected credit losses, accounts receivable were grouped based on At December 31, 2018, the Company had an accounts receivable days past due and assigned a weighted average provision rate based provision of $107 and an inventory provision of $102, which were on the individual operating companies’ historical credit loss experi- presented as contra assets in the consolidated balance sheet. ence, adjusted to reﬂect current and forward-looking information. During the year ended December 31, 2018, Onex’ oper- ating companies applied the simpliﬁed approach to measure expected credit losses, as permitted by IFRS 9, which uses a lifetime Onex Corporation December 31, 2019 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 Inventory provisions were established by the operating companies for any excess, obsolete or slow-moving items at December 31, 2018. A summary of provisions presented as liabilities in the December 31, 2018 consolidated balance sheet is presented below. Current portion of provisions Non-current portion of provisions Balance – December 31, 2018 Restructuring(a) Self-Insurance(b) Warranty(c) Other(d) $ 42 10 $ 52 $ 55 92 $ 147 $ 32 8 $ 40 $ 22 52 $ 74 Total $ 151 162 $ 313 a) Restructuring provisions were typically to provide for the costs of facility consolidations and workforce reductions incurred at the d) Other included legal, transition and integration, asset retire- ment and other provisions. Transition and integration provisions operating companies. were typically recorded to provide for the costs of transitioning the The operating companies recorded restructuring provi- activities of an operating company from a prior parent company sions relating to employee terminations, contractual lease obli- upon acquisition and to integrate new acquisitions at the operating gations and other exit costs when the liability was incurred. The companies. recognition of these provisions required management to make certain judgements regarding the nature, timing and amounts 4 0 . 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 associated with the planned restructuring activities, including T O O N E X C O R P O R AT I O N – 2 018 estimating sublease income and the net recovery from equipment to be disposed of. At the end of 2018, the operating companies Long-term debt at December 31, 2018, without recourse to Onex evaluated the appropriateness of the remaining accrued balances. Corporation, comprised the following: The closing balance of restructuring provisions at December 31, 2018 comprised the 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 b) Self-insurance provisions were established by the operating companies for automobile, workers’ compensation, healthcare coverage, general liability, professional liability and other claims. Provisions were established for claims based on an assessment of actual claims and claims incurred but not reported. The reserves may have been established based on consultation with indepen- dent third-party actuaries using actuarial principles and assump- tions that consider a number of factors, including historical claim payment patterns and changes in case reserves, and the assumed rate of inﬂation in healthcare costs and property damage repairs. c) Warranty provisions were established by the operating compa- nies for warranties offered on the sale of products or services. War- ranty provisions were established to provide for future warranty costs based on management’s best estimate of probable claims under these warranties at December 31, 2018. Carestream Health(a) Celestica(b) Clarivate Analytics(c) Credit Strategies – CLOs(d) Credit Strategies – Lending Partners(e) Emerald Expositions(f) Jack’s(g) KidsFoundation(h) Meridian Aviation(i) Parkdean Resorts(j) Save-A-Lot(k) SCP Health(l) sgsco(m) SIG(n) SMG(o) Survitec(p) WireCo(q) York(r) ONCAP operating companies(s) Other(t) Long-term debt Less: financing charges Current portion of long-term debt of operating companies Consolidated long-term debt of operating companies 142 Onex Corporation December 31, 2019 December 31, 2018 $ 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 (879) $ 21,465 N O T E S T O C O N S O L I D AT E D F I N A N C I A L S TAT E M E N T S Onex Corporation does not guarantee the debt of its operating redemption of indebtedness in the event of a change of control companies, nor were there any cross-guarantees between operat- of an operating company. In addition, certain ﬁnancial covenants ing companies. Onex Corporation held debt as part of its invest- must have been met by those operating companies that had out- ment in certain operating companies, which, with the exception standing debt. Future changes in business conditions of an oper- of SMG, was excluded from the tables that follow. ating company may have resulted in non-compliance with certain The ﬁnancing arrangements for each operating com- covenants by that company. pany typically contained certain restrictive covenants, which may No adjustments to the carrying amount or classiﬁcation have included limitations or prohibitions on additional indebt- of assets or liabilities of any operating company were made in the edness, payment of cash dividends, redemption of capital, capi- consolidated ﬁnancial statements with respect to any possible tal spending, making of investments and acquisitions and sales non-compliance. of assets. The ﬁnancing arrangements may have also required the a) Carestream Health As at December 31, 2018 Size of facility Interest rate First lien term loan Second lien term loan Revolving credit facility Other Long-term debt $ 754 LIBOR + up to 5.75% 369 132 n/a LIBOR + 9.50% LIBOR + 5.50% n/a Unamortized discount and other Long-term debt, net of unamortized discount and other Substantially all of Carestream Health’s assets were pledged as collateral under the credit facility. b) Celestica As at December 31, 2018 Size of facility Interest rate Term loan Term loan Revolving credit facility(i) Long-term debt Unamortized discount Long-term debt, net of unamortized discount $ 350 LIBOR + 2.13% 250 450 LIBOR + 2.50% Base rate + up to 2.50%(ii) 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 Maturity Jun 2025 Jun 2025 Jun 2023 Gross principal outstanding $ 754 369 − 33 1,156 12 $ 1,168 Gross principal outstanding $ 348 250 159 757 (4) $ 753 (i) The revolving credit facility had an accordion feature that allowed the company to increase the credit limit by a specified amount, plus an unlimited amount to the extent that a specified leverage ratio did not exceed certain limits, in each case upon satisfaction of certain terms and conditions. Celestica had pledged certain assets as security for borrowings under its revolving credit facility. (ii) Margin varied depending on the company’s leverage ratio. The company had entered into interest rate swap agreements with notional amounts totalling $350 that swapped the variable rate portion of the term loans for a ﬁxed rate through August 2023 and December 2023. Celestica also had uncommitted bank overdraft facilities available for intraday and overnight operating requirements that totalled $133 at December 31, 2018. Onex Corporation December 31, 2019 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 c) Clarivate Analytics As at December 31, 2018 Size of facility Interest rate Floor or cap on interest rate First lien term loan Senior unsecured notes(i) Revolving credit facility Long-term debt Unamortized discount Embedded derivative Long-term debt, net of unamortized discount $ 1,550 LIBOR + 3.25% Floor 1.00% 500 175 7.875% LIBOR + up to 3.25%(ii) n/a n/a Maturity Oct 2023 Oct 2024 Oct 2023 Gross principal outstanding $ 1,484 500 45 2,029 (4) 5 $ 2,030 Substantially all of Clarivate Analytics’ assets were pledged as collateral under the senior secured credit facility. (i) Interest on the senior unsecured notes was payable semi-annually. The senior unsecured notes included an option for the company to redeem the notes at any time at various premiums above face value. (ii) Margin varied depending on the company’s leverage ratio. In connection with the senior secured credit facility, the company had entered into a series of interest rate swap agreements with initial notional amounts of $350 that swapped the variable rate portion of the ﬁrst lien term loan for ﬁxed rates through March 2021. d) Credit Strategies − CLOs The secured notes and loans and subordinated notes bore interest At December 31, 2018, the CLOs had notional secured notes and at a rate of LIBOR plus a margin and matured between April 2027 loans, subordinated notes and equity outstanding as follows: and January 2032. During 2018, the secured notes and loans, sub- 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 Closing date 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 Onex’ investment at notional amounts Total As at December 31, 2018 $ 621 420 1,020 561 764 758 512 502 558 610 611 614 407 494 8,452 (762) $ 7,690 ordinated notes and equity of the CLOs were accounted for at fair value through net earnings (loss). At December 31, 2018, the fair value of the secured notes, subordinated notes and equity held by investors other than Onex was $7,506. In addition, CLO warehouse facilities had $305 outstanding at December 31, 2018. The notes and loans of CLOs were secured by, and only had recourse to, the assets of each respective CLO. The notes and loans were subject to redemption provisions, including manda- tory redemption if certain coverage tests were not met by each respective CLO. Optional redemption of the notes was available at certain periods and optional repricing of the notes was available subject to certain customary terms and conditions being met by each respective CLO. 144 Onex Corporation December 31, 2019 N O T E S T O C O N S 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) Credit Strategies – Lending Partners OCLP I As at December 31, 2018 Size of facility Interest rate Asset backed financing facility(i) Revolving credit facility(ii) Long-term debt $ 700 138 Base rate + up to 2.50% LIBOR + 1.65% Floor or cap on interest rate Floor 0.00% Floor 0.00% Maturity Aug 2022 Jun 2020(iii) Gross principal outstanding $ 478 138 $ 616 (i) The asset backed financing facility was available to finance investments in the asset portfolio of OCLP I and for other permitted uses, and was secured by, among other things, a portion of the asset portfolio of OCLP I. (ii) The revolving credit facility was secured by, among other things, the uncalled capital committed by the limited partners of OCLP I. Onex Corporation, the parent company, was only obligated to fund capital calls based on its proportionate share as a limited partner in OCLP I. (iii) The maturity date was subject to an option to extend the maturity date for up to 364 days upon satisfaction of certain conditions. f) Emerald Expositions As at December 31, 2018 Size of facility Interest rate Floor or cap on interest rate Term loan Revolving credit facility Long-term debt Unamortized discount and other $ 565 150 LIBOR + up to 2.75%(i) LIBOR + up to 2.75%(i) n/a n/a Maturity May 2024 May 2022 Long-term debt, net of unamortized discount and other Substantially all of Emerald Expositions’ assets were pledged as collateral under the credit facility. (i) Margin varied depending on the company’s leverage ratio. g) Jack’s As at December 31, 2018 Size of facility Interest rate Term loan Revolving credit facility Long-term debt Unamortized discount and other $ 275 30 LIBOR + up to 3.50%(i) LIBOR + up to 3.50%(i) Long-term debt, net of unamortized discount and other Floor or cap on interest rate Floor 1.00% Floor 0.00% Maturity Apr 2024 Apr 2022 Gross principal outstanding $ 537 40 577 (13) $ 564 Gross principal outstanding $ 239 – 239 (12) $ 227 Substantially all of Jack’s assets, excluding specified real property owned by Jack’s, were pledged as collateral under the senior secured credit facility. (i) Margin varied depending on the company’s leverage ratio. In connection with the credit facility, the company had entered into an interest rate swap agreement with a notional amount of $81 that swapped the variable rate portion for a ﬁxed rate through June 2020. h) KidsFoundation As at December 31, 2018 Size of facility Interest rate Term loan Acquisition facility Long-term debt 2 90 2 75 EURIBOR + up to 7.75%(i) EURIBOR + up to 7.75%(i) (i) Margin varied depending on the company’s leverage ratio. Floor or cap on interest rate Floor 0.00% Floor 0.00% Maturity Nov 2025 Nov 2025 Gross principal outstanding $ 103 16 $ 119 2 90 14 2 104 Onex Corporation December 31, 2019 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 i) Meridian Aviation As at December 31, 2018 Size of facility Interest rate Revolving credit facility $ 150 LIBOR + 1.50% Maturity Nov 2019 Long-term debt j) Parkdean Resorts As at December 31, 2018 Size of facility 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) LIBOR + 8.50% LIBOR + up to 3.25%(i) n/a n/a Floor or cap on interest rate Floor 0.00% Floor 1.00% n/a n/a n/a Maturity Mar 2024 Mar 2025 Mar 2023 n/a n/a Substantially all of Parkdean Resorts’ assets were pledged as collateral under the senior secured credit facility. (i) Margin varied depending on the company’s leverage ratio. Gross principal outstanding $ 89 $ 89 Gross principal outstanding $ 714 192 − 49 16 £ 558 150 − 39 12 $ 971 £ 759 In connection with the secured credit facility, the company had entered into two interest rate swap agreements with notional amounts totalling £500 that swapped the variable rate portion of the ﬁrst lien term loan for ﬁxed rates through May 2021. k) Save-A-Lot As at December 31, 2018 Size of facility Interest rate Term loan Revolving credit facility Long-term debt Unamortized discount Long-term debt, net of unamortized discount $ 740 250 LIBOR + 6.00% LIBOR + up to 2.00%(i) Floor or cap on interest rate Floor 1.00% n/a Maturity Dec 2023 Dec 2021 Gross principal outstanding $ 727 36 763 (16) $ 747 Substantially all of Save-A-Lot’s assets were pledged as collateral under the senior secured credit facility. (i) Margin was determined based on the amount available under the revolving credit facility. Interest rate at a base rate plus a margin of 0.50% may have applied. In connection with the senior secured credit facility, the company had entered into an interest rate swap agreement with a notional amount of $445 that swapped the variable rate portion of the term loan for a ﬁxed rate through March 2021. l) SCP Health As at December 31, 2018 Size of facility Interest rate First lien term loan Second lien term loan First lien revolving loan Other Long-term debt $ 530 LIBOR + 4.00% 135 75 n/a LIBOR + 8.50% LIBOR + up to 4.00%(i)(ii) n/a Substantially all of SCP Health’s assets were pledged as collateral under the senior secured credit facility. (i) Interest rate at an alternative base rate plus a margin of 3.00% may have applied. (ii) Margin varied depending on the company’s leverage ratio. 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 Gross principal outstanding $ 506 135 − 4 $ 645 146 Onex Corporation December 31, 2019 N O T E S T O C O N S 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) sgsco As at December 31, 2018 Size of facility Interest rate First lien and delayed draw term loans Second lien term loan Revolving credit facility Long-term debt Unamortized discount Long-term debt, net of unamortized discount $ 575 105 75 LIBOR + up to 3.25%(i) LIBOR + up to 7.50%(i) LIBOR + up to 3.25%(i) Substantially all of sgsco’s assets were pledged as collateral under the credit agreement. (i) Margin varied depending on the company’s leverage ratio. Floor or cap on interest rate Floor 0.00% Floor 0.00% Floor 0.00% Maturity Dec 2022 Dec 2023 Mar 2022 Gross principal outstanding $ 569 105 18 692 (2) $ 690 In connection with the secured credit facility, the company had 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. n) SIG As at December 31, 2018 Size of facility Interest rate Term loan Term loan Revolving credit facility Long-term debt Unamortized discount 2 1,250 2 350 2 300 EURIBOR + 2.00% EURIBOR + 2.50% EURIBOR + 1.75% Long-term debt, net of unamortized discount Floor or cap on interest rate Floor 0.00% Floor 0.00% Floor 0.00% Maturity Oct 2023 Oct 2025 Oct 2023 Gross principal outstanding $ 1,422 2 1,242 400 − 1,822 (16) 350 − 1,592 (14) $ 1,806 2 1,578 In connection with the senior secured credit facility, the company had entered into an interest rate swap agreement with a notional amount of €800 that swapped the variable rate portion of the term loan maturing in October 2023 for ﬁxed rates through December 2021. o) SMG As at December 31, 2018 Size of facility Interest rate First lien term loan Second lien term loan Revolving credit facility Long-term debt Unamortized discount Long-term debt, net of unamortized discount Second lien term loan held by the Company $ 415 180 55 LIBOR + up to 3.25%(i) LIBOR + up to 7.00%(i) LIBOR + up to 3.25%(i) Maturity Jan 2025 Jan 2026 Jan 2023 Gross principal outstanding $ 412 180 − 592 (1) 591 (44) Long-term debt, net of unamortized discount and second lien term loan held by the Company $ 547 Substantially all of SMG’s assets were pledged as collateral under the senior secured credit facility. (i) Margin varied depending on the company’s leverage ratio. In connection with the senior secured credit facility, the company had entered into two interest rate swap agreements with notional amounts totalling $177 that swapped the variable rate portion of the ﬁrst lien term loan for a ﬁxed rate through December 2021. Onex Corporation December 31, 2019 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 p) Survitec As at December 31, 2018 Size of facility Interest rate Term loan(i) Term loan Term loan(i) Revolving credit facility Acquisition facility Other Long-term debt 2 175 £ 140 2 133 £ 50 £ 30 n/a EURIBOR + up to 4.75%(ii) LIBOR + up to 5.25%(ii) EURIBOR + up to 4.75%(ii) LIBOR + up to 4.50%(ii) LIBOR + up to 4.50%(ii) n/a Substantially all of Survitec’s assets were pledged as collateral under the senior secured credit facility. (i) At December 31, 2018, 2308 was outstanding under the euro-denominated term loans. (ii) Margin varied depending on the company’s leverage ratio. Maturity Mar 2022 Mar 2022 Mar 2022 Mar 2021 Mar 2021 n/a Gross principal outstanding $ 200 £ 156 179 152 20 18 5 140 119 16 14 4 $ 574 £ 449 In connection with the senior secured credit facility, the company had entered into a series of interest rate swap agreements that swapped the variable rate portion for ﬁxed rates through June 2020. The agreements had notional amounts of £106 for the 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. q) WireCo As at December 31, 2018 Size of facility Interest rate First lien term loan Second lien term loan Revolving credit facility Other Long-term debt Unamortized discount $ 460 LIBOR + 5.00% 135 100 n/a LIBOR + 9.00% LIBOR + up to 2.25% n/a Floor or cap on interest rate Floor 1.00% Floor 1.00% Floor 0.00% n/a Maturity Sep 2023 Sep 2024 Sep 2021 n/a Long-term debt, net of unamortized discount Substantially all of WireCo’s assets were pledged as collateral under the senior secured credit facility. r) York As at December 31, 2018 Size of facility Interest rate Floor or cap on interest rate First lien and delayed draw term loans $ 665 LIBOR + 3.75% Floor 1.00% Senior unsecured notes Revolving credit facility Long-term debt Unamortized discount Unamortized embedded derivatives 315 95 8.50% LIBOR + up to 3.75%(i) n/a n/a Long-term debt, net of unamortized discount and embedded derivatives Substantially all of York’s assets were pledged as collateral under the senior secured credit facility. (i) Margin varied depending on the company’s leverage ratio. Maturity Oct 2021 Oct 2022 Jul 2021 Gross principal outstanding $ 450 135 51 5 641 (5) $ 636 Gross principal outstanding $ 638 315 20 973 (2) (8 ) $ 963 In connection with the senior secured credit facility, the company had entered into two interest rate swap agreements with notional amounts totalling $300 that swapped the variable rate portion of the ﬁrst lien term loan for ﬁxed rates through December 2019. 148 Onex Corporation December 31, 2019 N O T E S T O C O N S O L I D AT E D F I N A N C I A L S TAT E M E N T S s) ONCAP operating companies During 2018, ONCAP’s consolidated operating companies consisted of AutoSource (acquired in May 2018), Bradshaw, Chatters, Davis- Standard, EnGlobe, Hopkins, IntraPac, Laces, Precision (acquired in August 2018), PURE Canadian Gaming and Walter Surface Technologies (acquired in September 2018). Each had debt that was included in the Company’s consolidated ﬁnancial statements at December 31, 2018. There were separate arrangements for each operating company with no cross-guarantees between the operating companies, ONCAP or Onex Corporation. Under the terms of the various credit agreements, combined borrowings at December 31, 2018 were as follows: As at December 31, 2018 Term borrowings Revolving credit facilities Subordinated notes Other Long-term debt Effective interest rates(i) 5.23% to 10.54% 4.47% to 8.75% 8.00% to 17.00% n/a Maturity 2021 to 2026 2020 to 2024 2022 to 2023 n/a Gross principal outstanding $ 1,350 71 31 3 $ 1,455 Senior debt was 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 bore interest at various rates based on a base floating rate plus a margin. The subordinated notes bore interest at various fixed rates. t) 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 was available to ﬁnance ONCAP IV capital calls, that consisted of a C$50 line of credit and a C$25 deemed credit risk bridge investments in ONCAP IV operating companies and to facility. In September 2016, ONCAP III discharged the C$50 line of ﬁnance other uses permitted by ONCAP IV’s limited partnership credit facility and increased the deemed credit risk facility to C$36. agreement. The credit facility included a deemed credit risk maxi- The deemed credit risk facility was available to ONCAP III and its mum of $35 available to ONCAP IV and its operating companies operating companies for foreign exchange transactions, including for foreign exchange transactions, including foreign exchange foreign exchange options, forwards and swaps. Borrowings under options, forwards and swaps. Amounts under the credit facility the credit facility were limited to the lesser of the amount available were available in Canadian and U.S. dollars. Borrowings drawn under the deemed credit facility, 80% of the aggregate amount of on the credit facility bore interest at a base rate plus a margin of uncalled capital in the fund and the maximum amount of obliga- 1.00% or bankers’ acceptance rate (subject to a ﬂoor of 0.00%) tions permitted under the partnership agreement. Borrowings plus a margin of 3.75%. The base rate and bankers’ acceptance under the credit facility were due and payable upon demand; how- rate varied based on the currency of the borrowings. Borrowings ever, ONCAP III had 15 business days to complete a capital call under the credit facility were due and payable upon demand; to the limited partners of ONCAP III to fund the demand. Onex however, ONCAP IV had 15 business days to complete a capital Corporation, the ultimate parent company, was only obligated with call to the limited partners of ONCAP IV. Onex Corporation, the respect to borrowings under the credit facility based on its propor- parent company, was only obligated with respect to borrowings tionate share as a limited partner in ONCAP III. under the credit facility based on its proportionate share as a lim- At December 31, 2018, the amount available under the ited partner in ONCAP IV. deemed risk facility was C$36. 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 were outstanding under the credit facility. Onex Corporation December 31, 2019 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 Onex Partners V 41. L E A S E S – 2 018 In December 2017 and January 2018, Onex Partners V entered into a $997 revolving credit facility. The limited partners of Onex a) The Company as lessee Partners V could elect to participate in the credit facility at the Obligations under ﬁnance leases, without recourse to Onex Corpo- time of their commitment. Of the aggregate commitments to ration, were included in other current and non-current liabilities Onex Partners V, 46% were from limited partners that elected to in the December 31, 2018 consolidated balance sheet. Operating participate in the credit facility. Onex, as a limited partner of Onex lease expense for the year ended December 31, 2018 was $329 and Partners V, did not elect to participate in the credit facility. The primarily related to premises. Finance leases at December 31, 2018 credit facility was available to ﬁnance Onex Partners V capital calls, included minimum lease payments under Parkdean Resorts’ long- bridge investments in Onex Partners V operating companies and to dated sale-leaseback transactions. ﬁnance other uses permitted by Onex Partners V’s limited partner- ship agreement. Borrowings under the credit facility were limited b) The Company as lessor to the lesser of the amount available under the credit facility and During 2018, certain of the operating companies leased out their the maximum amount of obligations permitted under the partner- investment properties, machinery and/or equipment under oper- ship agreement. Amounts under the credit facility were available ating leases. in U.S. dollars, Canadian dollars, euros, pounds sterling and other currencies as requested, subject to the approval of the lenders. Contingent rents recognized as an expense for lessees and as Borrowings drawn on the credit facility bore interest income for lessors were not signiﬁcant to the Company’s results at either: an adjusted LIBOR rate, plus a margin of 1.50%, with for the year ended December 31, 2018. 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 4 2 . 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 addition, a fee of 0.25% per annum accrues on the portion of the F I N A N C I N G A C T I V I T I E S – 2 018 credit facility that was available but unused. The credit facility matures on the earlier of Decem- The following tables provide an analysis of liabilities and assets ber 15, 2020, or upon the occurrence of certain events deﬁned in arising from ﬁnancing activities and include amounts from discon- the agreement, with an option to extend the term for an addition- tinued operations. al 364 days. At December 31, 2018, $59 was outstanding under the As at December 31, 2018 revolving credit facility. Onex Partners IV Principal balance of debt and finance leases outstanding $ 23,207 Hedging instruments Accrued and imputed interest 3 113 (252) (64) (3) (208) $ 22,796 In January 2018, the Onex Partners IV Group entered into a revolv- Financing charges ing credit facility, as described in note 29(a). At December 31, 2018, Original issue discount on debt $44 was outstanding under the revolving credit facility. Embedded derivatives In October 2018, the Onex Partners IV Group entered Cumulative change in fair value into a second revolving credit facility, as described in note 29(l). Net financing obligations At December 31, 2018, $65 was outstanding under this revolving credit facility. 150 Onex Corporation December 31, 2019 N O T E S T O C O N S O L I D AT E D F I N A N C I A L S TAT E M E N T S Long-Term Debt Finance Leases Gross Financing Obligations Hedging Instruments Net Financing Obligations Balance – January 1, 2018 $ 22,169 $ 392 $ 22,561 $ 87 $ 22,474 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 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 4 3 . L I M I T E D PA R T N E R S ’ I N T E R E S T S – 2 018 The investments in the Onex Partners, ONCAP, Onex Credit Lending Partners and Onex Credit Funds by those other than Onex were pre- sented within Limited Partners’ Interests in the December 31, 2018 consolidated balance sheet. Details of the change in Limited Partners’ Interests were as follows: Gross Limited Partners’ Interests Onex Partners and ONCAP Funds Carried Interest Net Limited Partners’ Interests Credit Strategies Net Limited Partners’ Interests(i) Total Balance – December 31, 2017 $ 8,027 $ (464) $ 7,563 $ 461 $ 8,024 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(d) (808) 1,465 (1,228) 7,456 (641) 93 − 94 (277) 98 (715) 1,465 (1,134) 7,179 (543) 1 131 (93) 500 (17) (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 for the Onex Partners and ONCAP Funds was primarily due to net fair value decreases 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. Onex Corporation December 31, 2019 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 b) The following table shows contributions by limited partners of the Onex Partners and ONCAP Funds during the year ended Decem- ber 31, 2018. 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 Year ended December 31, 2018 $ 589 290 180 82 75 67 60 25 16 81 $ 1,465 (i) Contributions received were used to repay borrowings under the ONCAP IV credit facility, as described in note 40(t). c) The following table shows distributions made to limited partners of the Onex Partners and ONCAP Funds during the year ended Decem- ber 31, 2018. 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 Year ended December 31, 2018 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 331 311 237 93 52 25 23 20 15 27 $ 1,134 (i) Includes amounts distributed to certain limited partners and others. d) At December 31, 2018, the current portion of the Limited Partners’ Interests was $560, and consisted primarily of the limited partners’ share of the proceeds from the pending sale of BrightSpring Health. 152 Onex Corporation December 31, 2019 N O T E S T O C O N S 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 4 . 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 – 2 018 c) Other included amounts for liabilities that arose from contin- gent consideration, indemniﬁcations, embedded derivatives on Other non-current liabilities at December 31, 2018 comprised the long-term debt, mark-to-market valuations of hedge contracts and following: shareholder loan notes. December 31, 2018 Defined benefit pensions and non-pension post-retirement benefits (note 57) $ Stock-based compensation(a) Obligations under capital leases Contract liabilities and other deferred items Unrealized carried interest due to Onex and ONCAP management(b) Other(c) 355 342 337 198 136 247 Total other non-current liabilities $ 1,615 a) At December 31, 2018, the stock-based compensation liability consisted of $364 for the stock-based compensation plans at the parent company. At December 31, 2018, $22 related to the parent 4 5 . I N C O M E TA X E S – 2 018 The reconciliation of statutory income tax rates to the Compa- ny’s effective tax rate for the year ended December 31, 2018 was as follows: Income tax recovery at statutory rate $ (201 ) Year ended December 31, 2018 Changes related to: Non-deductible expenses Unbenefited tax losses Foreign exchange Non-taxable gains company stock-based compensation liability was recorded in other Recognition and utilization of tax loss carryforwards current liabilities. Included in long-term investments (note 36) not previously benefited was $72 related to forward agreements to economically hedge the Non-taxable dividends Company’s exposure to changes in the trading price of Onex shares Income tax rate differential of operating companies 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 was recog- nized primarily as a non-current liability and reduced the Limited Partners Interests’ liability, as described in note 43. At December 31, 2018, $59 of unrealized carried interest was recorded in other cur- rent liabilities. The unrealized carried interest was calculated based on the fair values of the Funds’ investments and the overall unreal- ized gains in each respective Fund in accordance with the limited partnership agreements. Limited Partners’ Interests Other, including permanent differences Provision for income taxes Classified as: Current Deferred Provision for income taxes 335 280 4 (172) (69) (59) (52) (21) 44 89 $ 248 (159) $ 89 Onex Corporation December 31, 2019 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 December 31, 2018 consolidated balance sheet and in other non-current assets (note 37), were presented after taking into consideration the offsetting of balances within the same tax jurisdiction for each respective operating 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 Scientific Research and Development Provisions Deferred Revenue Tax Losses Property, Plant and Equipment, and Intangibles Other Total 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 Deferred Income Tax Liabilities 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 Gains on Sales of Operating Companies Pension and Non-Pension Post-Retirement Benefits Property, Plant and Equipment, and Intangibles Foreign Exchange Other Total $ 11 $ 36 $ 1,470 $ 25 $ 165 $ 1,707 1 − − – − − − − − – – (10) (1) − − − – (1) $ 24 (120) (7) (1) (37) 235 (4) (18) (92) – (6) 8 − (2) – − − – − (52) – (1) (2) 17 (1) (1) (13) 13 (177) 1 (12) (42) 252 (5) (19) (105) 12 $ 1,426 $ 25 $ 125 $ 1,612 Balance – December 31, 2018 $ 12 Deferred income tax assets were recognized for tax loss carryfor- available to reduce future income taxes between 2019 and 2025, wards to the extent that the realization of the related tax beneﬁt inclusive, and $2,378 was available with expiration dates of 2026 through future taxable income was probable. At December 31, through 2038. 2018, deductible temporary differences, unused tax losses and At December 31, 2018, the aggregate amount of taxable unused tax credits for which no deferred tax asset had been rec- temporary differences not recognized in association with invest- ognized were $6,163, of which $3,206 had no expiry, $579 was ments in subsidiaries, joint ventures and associates was $4,157. 154 Onex Corporation December 31, 2019 N O T E S T O C O N S 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 6 . N O N - C O N T R O L L I N G I N T E R E S T S – 2 018 The Company’s material non-controlling interests at December 31, 2018 were associated with Celestica, Clarivate Analytics and SIG. There were no dividends paid by Celestica, Clarivate Analytics or SIG during 2018. Summarized balance sheet information based on those amounts included in the 2018 consolidated ﬁnancial statements for Celestica, Clarivate Analytics and SIG was as follows: As at December 31, 2018 Non-controlling interest Current assets Non-current assets Current liabilities Non-current liabilities Net assets Accumulated non-controlling interests Celestica Clarivate Analytics 86% $ 2,824 914 3,738 $ 1,620 786 2,406 $ 1,332 $ 1,146 28% $ 419 3,306 3,725 $ 654 2,018 2,672 $ 1,053 $ 305 SIG 49% $ 646 4,484 5,130 $ 697 2,264 2,961 $ 2,169 $ 1,057 Financial information in the 2018 statement of earnings for Celestica (electronics manufacturing services segment) is presented in note 58. Summarized income statement information for Clarivate Analytics and SIG for the year ended December 31, 2018 was as follows: Year ended December 31, 2018 Revenue Net loss Clarivate Analytics $ 963 255 Summarized cash ﬂows for Celestica, Clarivate Analytics and Emerald Expositions were as follows: Year ended December 31, 2018 Celestica Clarivate Analytics Cash flows from operating activities Cash flows from (used in) financing activities Cash flows from (used in) investing activities $ 33 419 (546) $ 87 (152) 34 SIG $ 1,974 99 SIG $ 531 (264) (205) Onex Corporation December 31, 2019 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 47. R E V E N U E S – 2 018 During the year ended December 31, 2018, the Company’s consolidated revenue included revenue from its various controlled operating businesses which had ceased to be consolidated by the Company on January 1, 2019, as described in note 1. These revenues were primarily derived from the transfer of goods and services and comprised the following: 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 Contract balances During 2018, revenues recognized from amounts included The consolidated contract assets and contract liabilities of the in contract liabilities at the beginning of 2018 were $891 and rev- Company at December 31, 2018 comprised the following: enues recognized related to performance obligations that were Contract Assets Work in progress in advance of billing Costs to obtain contracts Total contract assets Contract Liabilities Customers’ advanced payments Rebate programs and other Total contract liabilities December 31, 2018 satisﬁed in previous periods were nil. 4 8 . E X P E N S E S B Y N AT U R E – 2 018 $ 338 28 $ 366 The nature of expenses in cost of sales and operating expenses during the year ended December 31, 2018, which excluded amor- tization of property, plant and equipment, intangible assets and December 31, 2018 deferred charges, consisted of the following: $ 1,065 30 Cost of inventory, raw materials and consumables used Employee benefit expense(i) $ 1,095 Professional fees Repairs, maintenance and utilities Year ended December 31, 2018 $ 12,334 4,821 1,270 733 519 329 161 1,473 $ 21,640 Contract assets primarily related to the conditional right to con- Transportation sideration for completed performance under contracts of certain Operating lease payments of Onex’ operating companies and incurred costs to obtain or fulﬁll customer contracts. Accounts receivable were recognized Provisions Other expenses when the right to consideration became unconditional. Contract Total cost of sales and operating expenses liabilities primarily related to payments received in advance of performance obligations under the associated contracts. Contract liabilities were recognized as revenue as those performance obli- gations were met. (i) Employee benefit expense excluded employee costs capitalized into inventory and internally generated capital assets. Stock-based compensation was disclosed separately in the 2018 consolidated statement of earnings. 156 Onex Corporation December 31, 2019 N O T E S T O C O N S O L I D AT E D F I N A N C I A L S TAT E M E N T S 49. I N T E R E S T E X P E N S E – 2 018 51. O T H E R G A I N S – 2 018 Interest on long-term debt Interest on obligations under finance leases of operating companies Other financing charges(i) Total interest expense (i) Other included debt prepayment expense of $35. Year ended December 31, 2018 $ 1,225 14 200 $ 1,439 Gain on sale of Tecta(a) Gain from loss of control of Pinnacle Renewable Energy(b) Total other gains Year ended December 31, 2018 $ 261 82 $ 343 a) In November 2018, the ONCAP III and ONCAP IV Groups sold Tecta, as described in note 29(o). 5 0 . STOC K-BAS ED C OMPEN SATION R E C OV E RY – 2018 b) In February 2018, Pinnacle Renewable Energy completed an ini- tial public offering, resulting in a gain of $82 being recognized by Parent company(a) Celestica Clarivate Analytics Other Year ended December 31, 2018 the Company, as described in note 29(c). $ 141 5 2 . O T H E R E X P E N S E – 2 018 (33) (13) (37) Total stock-based compensation recovery $ 58 a) Parent company stock-based compensation primarily related to Onex’ stock option plan, as described in note 16, and the MIP, as described in note 26(f ). The expense was determined based on the fair value of the liability at the end of the reporting period. The fair value of Onex’ stock option plan was deter- mined using an option valuation model. The signiﬁcant inputs into the model were the share price at December 31, 2018 of Losses on investments and long-term debt in credit strategies, net(a) Transition, integration and other(b) Derivatives losses, 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 gains, net(f) Carried interest recovery due to Onex and C$74.35, the exercise price of the options, the remaining life of ONCAP management(g) each option issuance, the volatility of each option issuance, rang- Other ing from 16.09% to 22.43%, an average dividend yield of 0.47% Total other expense Year ended December 31, 2018 $ 206 146 105 87 82 (6) (11) (22) (42) (28) $ 517 and a weighted average risk-free rate of 1.88%. The volatility was measured as the historical volatility based on the remaining life of each respective option issuance. The fair values of the MIP options were determined using an internally developed valuation model. The signiﬁcant inputs into the model were the fair value of the underlying invest- ments, the time to expected exit from each investment, a risk-free rate of 1.88% and an industry comparable historical volatility for each investment. a) Net losses of $206 on investments and long-term debt in credit strategies during 2018 were driven by net realized and unrealized gains and losses on the investments and long-term debt recog- nized at fair value through earnings in credit strategies. b) Transition, integration and other expenses provided for the costs of establishing and transitioning from a prior parent com- pany the activities of an operating company upon acquisition and to integrate new acquisitions at the operating companies. In addi- tion, expenses may have related to the disposition and transition of business units at the operating companies. Transition, integration and other expenses for 2018 were primarily due to Carestream Health, Clarivate Analytics and Survitec. Onex Corporation December 31, 2019 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 c) Derivatives losses during 2018 were primarily related to embed- ded derivatives associated with debt agreements and foreign g) Carried interest recovery reﬂected the change in the amount of carried interest due to Onex and ONCAP management through exchange hedges. d) Restructuring expenses typically provided for the costs of facil- ity consolidations and workforce reductions incurred at the oper- ating companies. the Onex Partners and ONCAP Funds. Unrealized carried inter- est was calculated based on the current fair values of the Funds’ investments and the overall unrealized gains in each respective Fund in accordance with the limited partnership agreements. The unrealized carried interest liability was recorded primarily in other non-current liabilities and reduced the Limited Partners’ Restructuring charges recorded at the operating companies were: Interests, as described in note 43. Celestica(i) Carestream Health(ii) Save-A-Lot(iii) SIG(iv) Other During 2018, a recovery of $42 was recorded in the con- Year ended December 31, 2018 solidated statement of earnings for a decrease in management’s share of the carried interest primarily due to a decrease in the $ 35 fair value of certain of the investments in the Onex Partners and 23 8 5 16 $ 87 ONCAP Funds. 5 3 . 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 L O N G - L I V E D A S S E T S , N E T – 2 018 i) Celestica’s restructuring charge during 2018 was primarily due to workforce reductions. ii) The charges recorded by Carestream Health during 2018 pri- marily 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. iv) SIG’s restructuring charge during 2018 primarily related to the reorganization of certain corporate functions. e) Transaction costs were incurred by Onex and its operating com- panies to complete business acquisitions, and typically included advisory, legal and other professional and consulting costs. 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 operat- ing companies. 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 related to the loss of control over Pinnacle Renewable Energy. Parkdean Resorts(a) Save-A-Lot(b) Survitec(c) sgsco(d) SCP Health(e) Other, net Total Year ended December 31, 2018 $ 170 150 144 52 50 61 $ 627 a) During 2018, Parkdean Resorts recorded a non-cash goodwill impairment charge of $170, measured in accordance with IAS 36, Impairment of Assets (“IAS 36”), primarily due to lower than expect- ed caravan sales driven by a reduction in consumer spending in the United Kingdom, which was impacted by ongoing uncertainty surrounding the United Kingdom’s pending withdrawal from the European Union. The impairment was calculated on a fair value less costs of disposal basis. The recoverable amount was a Level 3 measurement in the fair value hierarchy as a result of signiﬁcant unobservable inputs used in determining the recoverable amount. The impairment charge was recorded in the other segment. 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- tions due to increased competition. The impairment charge was recorded in the food retail and restaurants segment. 158 Onex Corporation December 31, 2019 N O T E S T O C O N S O L I D AT E D F I N A N C I A L S TAT E M E N T S c) During 2018, Survitec recorded a non-cash goodwill impairment charge of $144, measured in accordance with IAS 36. The impair- e) During 2018, SCP Health recorded a non-cash goodwill impairment charge of $50, measured in accordance with IAS 36, ment was calculated on a fair value less costs of disposal basis. The primarily due to lower patient volumes. The impairment was cal- recoverable amount was a Level 3 measurement in the fair value culated on a fair value less costs of disposal basis. The recoverable hierarchy as a result of signiﬁcant unobservable inputs used in amount was a Level 3 measurement in the fair value hierarchy as a determining the recoverable amount. The impairment charge was result of signiﬁcant unobservable inputs used in determining the recorded in the other segment. recoverable amount. The impairment charge was recorded in the d) During 2018, sgsco recorded a non-cash goodwill impairment charge of $52, measured in accordance with IAS 36, primarily due The value-in-use method was used to measure the recover- to lower sales in the United States. The impairment was calculated able amount for substantially all of the Company’s goodwill and using the value-in-use method. The recoverable amount was a intangible assets with indeﬁnite useful lives. The carrying value Level 3 measurement in the fair value hierarchy as a result of sig- of goodwill and intangible assets with indeﬁnite useful lives was niﬁcant unobservable inputs used in determining the recoverable allocated on a segment basis in note 58. other segment. amount. The impairment charge was recorded in the packaging products and services segment. In measuring the recoverable amounts for goodwill and intangi- ble assets at December 31, 2018, signiﬁcant estimates included the growth rate and discount rate, which ranged from 0.0% to 16.5% and 5.8% to 16.0%, respectively. 5 4 . F I N A N C I A L I N S T R U M E N T S – 2 018 Financial assets held by the Company at December 31, 2018, 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 (Loss) 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 approximated their fair value. Onex Corporation December 31, 2019 159 N O T E S T O C O N S O L I D AT E D F I N A N C I A L S TAT E M E N T S Financial liabilities held by the Company at December 31, 2018, 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 (Loss) 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 was presented gross of financing charges. Long-term debt recorded at fair value through net earnings (loss) at December 31, 2018 had contractual amounts due on maturity of $7,690. The gains (losses) recognized by the Company related to ﬁnancial 5 5 . FA I R VA L U E M E A S U R E M E N T S – 2 018 assets and liabilities during the year ended December 31, 2018 were as follows: Fair values of financial instruments The estimated fair values of ﬁnancial instruments as at Decem- Year ended December 31, 2018 ber 31, 2018 were based on relevant market prices and information Earnings (Loss) Comprehensive Loss (i) available at that date. The carrying values of accounts receivable, accounts payable and accrued liabilities approximated the fair Fair value through net earnings(a) $ 166 $ n/a Fair value through OCI Fair value adjustments Interest income Financial assets at amortized cost Provisions and other Financial liabilities at amortized cost Interest expense Other n/a 1 (39) (1,439) 1 (4) n/a n/a n/a n/a Total net losses recognized $ (1,310) $ (4) 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 compared to a carrying value of $22,344. The fair value of consolidated long-term debt that was measured at amortized cost was substantially a Level 2 measure- ment in the fair value hierarchy and was calculated by discount- ing the expected future cash ﬂows using an observable discount rate for instruments of similar maturity and credit risk. For certain operating businesses, an adjustment was made by management for that operating business’s own credit risk, resulting in a Level 3 measurement in the fair value hierarchy. The long-term debt (i) Amounts recognized in comprehensive earnings (loss) were presented gross issued by the CLOs was recognized at fair value using third-party of the income tax effect. a) During the year ended December 31, 2018, earnings from ﬁnan- cial assets and liabilities recorded at fair value through net earn- ings (loss) primarily consisted of a Limited Partners’ Interests recovery of $714, a carried interest recovery of $42 and a decrease in value of investments in joint ventures and associates at fair value of $585. pricing models without adjustment by the Company and was a Level 3 measurement in the fair value hierarchy. The valuation methodology was based on a projection of the future cash ﬂows expected to be realized from the underlying collateral of the CLOs. Financial instruments measured at fair value were allocated within the fair value hierarchy based on the lowest level of input that was signiﬁcant to the fair value measurement. Transfers between the three levels of the fair value hierarchy were recognized on the date of the event or change in circumstances that caused the transfer. 160 Onex Corporation December 31, 2019 N O T E S T O C O N S O L I D AT E D F I N A N C I A L S TAT E M E N T S There were no signiﬁcant transfers between the three levels of the fair value hierarchy during 2018. The three levels of the fair value hierarchy were 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”). 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 (loss) 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 liabilities in the fair value hierarchy at December 31, 2018 was as follows: Financial liabilities at fair value through net earnings (loss) 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 Details of ﬁnancial assets and liabilities measured at fair value with signiﬁcant unobservable inputs (Level 3), excluding investments in joint ventures and associates designated at fair value through net earnings (loss) (note 36) and Limited Partners’ Interests designated at fair value (note 43), were as follows: Balance – December 31, 2017 Change in fair value recognized in net earnings Transfer to Level 3 Additions Acquisitions of subsidiaries Settlements Disposition of subsidiaries Foreign exchange Other Financial Assets at Fair Value through Net Earnings (Loss) Long-Term Debt of Credit Strategies at Fair Value through Net Earnings (Loss) Other Financial Liabilities at Fair Value through Net Earnings (Loss) $ 42 – 4 185 – (5) – – – $ 7,575 (206) – 2,147 – (1,971) – (39) – $ 356 (48) – 15 11 (111) (23) 4 26 Balance – December 31, 2018 $ 226 $ 7,506 $ 230 Onex Corporation December 31, 2019 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 During the year ended December 31, 2018, ﬁnancial assets and At December 31, 2018, the fair value measurements for liabilities measured at fair value with signiﬁcant unobservable investments in joint ventures and associates, Limited Partners’ inputs (Level 3) were recognized in the consolidated statement Interests for the Onex Partners and ONCAP Funds, the MIP liabil- of earnings in the following line items: (i) interest expense of ity and unrealized carried interest were primarily driven by the operating companies and credit strategies; (ii) decrease in value underlying fair value of the investments in the Onex Partners and of investments in joint ventures and associates at fair value, net; ONCAP Funds. A change to reasonably possible alternative esti- (iii) other expense; and (iv) Limited Partners’ Interests charge. mates and assumptions used in the valuation of non-public invest- The valuation of investments in debt securities was ments in the Onex Partners and ONCAP Funds could have had a measured at fair value with signiﬁcant other observable inputs signiﬁcant impact on the fair values calculated for these ﬁnancial (Level 2) generally determined by obtaining quoted market prices assets and liabilities. A change in the valuation of the underlying or dealer quotes for identical or similar instruments in inactive investments could have had multiple impacts on Onex’ consoli- markets, or other inputs that were observable or could be corrob- dated ﬁnancial statements and those impacts would have been orated by observable market data. dependent on the method of accounting used for that investment, The valuation of ﬁnancial assets and liabilities mea- the fund(s) within which that investment was held and the prog- sured at fair value with signiﬁcant unobservable inputs (Level 3) ress of that investment in meeting the MIP exercise hurdles. at December 31, 2018 was determined utilizing company-speciﬁc The fair value measurement of the Limited Partners’ considerations and available market data of comparable public Interests for the Onex Credit strategies as at December 31, 2018 companies. The valuation of investments in the Onex Partners was primarily driven by the underlying fair value of the invest- and ONCAP Funds was reviewed and approved by the General ments in the Onex Credit strategies. Partner of the respective Fund. The General Partners of the Onex Partners and ONCAP Funds are indirectly controlled by Onex Corporation. Valuation methodologies may have included observations of the trading multiples of public companies considered comparable to the private companies being valued and discounted cash ﬂows. The following table presents the signiﬁcant unobservable inputs used to value the Company’s private securities at December 31, 2018 that impacted the valuation of (i) investments in joint ventures and associates; (ii) unrealized carried interest liability due to Onex and ONCAP management; (iii) stock-based compensation liability for the MIP; and (iv) Limited Partners’ Interests. Valuation Technique Significant Unobservable Inputs Inputs at December 31, 2018 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 In addition, at December 31, 2018, an Onex Partners Fund had one At December 31, 2018, the long-term debt issued by the CLOs was investment that was valued using market comparable transactions. recognized at fair value using third-party pricing models without At December 31, 2018, an Onex Partners Fund also had an invest- adjustments by the Company. The valuation methodology was ment whose value was based on estimated sales proceeds. based on a projection of the future cash ﬂows expected to be real- Generally, adjusted EBITDA represented earnings before interest, taxes, depreciation and amortization as well as other adjustments. 5 6 . R E L AT E D PA R T Y T R A N S A C T I O N S – 2 018 ized from the underlying collateral of the CLOs. Other adjustments could have included non-cash costs of stock- based compensation and retention plans, transition and restruc- turing 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. Adjusted EBITDA is a ﬁnancial measurement that is not deﬁned under IFRS. Disclosures related to 2018 for the MIP, Onex Partners Funds, ONCAP Funds, OCLP I, management’s investment in Onex Credit, management and directors’ investment in other investments and management’s reinvestment of MIP and Onex Partners’ carried interest were included in note 26. 162 Onex Corporation December 31, 2019 N O T E S T O C O N S 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) Onex Credit management fees d) Remuneration to key management During 2018, Onex Credit earned management fees on other inves- During 2018, the Company’s key management consisted of the tors’ capital. Management fees earned on the capital invested by senior executives of Onex, ONCAP, Onex Credit and its oper- Onex, the parent company, were eliminated in the 2018 consoli- ating companies. Also included were the Directors of Onex dated ﬁnancial statements. Corporation. Carried interest and MIP payments to former senior In addition, Onex Credit was entitled to incentive fees executives of Onex and ONCAP were excluded from the aggregate on certain other investors’ capital. Incentive fees ranged between payments below. Aggregate payments to the Company’s key man- 15% and 20%. Certain incentive fees (including incentive fees on agement were as follows: CLOs) were subject to a hurdle or minimum preferred return to investors. During the year ended December 31, 2018, gross man- agement and incentive fees earned by the credit strategies seg- Short-term employee benefits and costs Share-based payments(i) ment were $50 and nil, respectively, including management and Termination benefits incentive fees from Onex Credit Funds, Onex Credit Lending Post-employment benefits Partners and CLOs previously consolidated by Onex. The man- Other long-term benefits agement and incentive fees from Onex Credit Funds, Onex Credit Total Lending Partners and CLOs previously consolidated by Onex, the Year ended December 31, 2018 $ 110 100 5 2 1 $ 218 parent company, were $47 and nil during 2018. Credit strategies segment revenues for 2018, net of management and incentive fees from Onex Credit Funds, Onex Credit Lending Partners and CLOs (i) Share-based payments included $29 paid on the exercise of Onex stock options (note 16), $10 of carried interest paid to Onex management and $16 of amounts paid under the MIP to Onex management. During 2018, Onex, the parent company, received carried interest of $37. previously consolidated by Onex, were $3. b) Tax loss transactions with a related party During 2018, Onex entered into the sale of an entity, the sole assets of which were certain tax losses, to a company controlled by Mr. Gerald W. Schwartz, who is Onex’ controlling shareholder. Onex had signiﬁcant non-capital and capital losses available; however, Onex did not expect to generate sufﬁcient taxable income to fully utilize these losses in the foreseeable future. As such, no beneﬁt had been recognized in the 2018 consolidated ﬁnancial statements for these losses. In connection with this transaction, an inde- pendent accounting ﬁrm retained by Onex’ Audit and Corporate Governance Committee provided an opinion that the value received by Onex for the tax losses was fair from a ﬁnancial point of view. Onex’ Audit and Corporate Governance Committee, all the members of which were independent directors, unanimously approved the transaction. During 2018, Onex received $4 in cash for tax losses of $41. The entire $4 was recorded as a gain and included in other expense in the 2018 consolidated statement of earnings. c) Private share repurchase In May 2018, Onex repurchased in a private transaction 500,000 of its SVS that were held indirectly by Mr. Gerald W. Schwartz. The private transaction was approved by the disinterested directors of the Board of Directors of the Company. The shares were repur- chased at a cash cost of $72.23 (C$93.00) per share or a total cost of $36 (C$47), which represented a slight discount to the trading price of Onex shares at that date. 5 7. 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 – 2 018 The operating companies had 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 included retirement and termination beneﬁts, health, dental and group life. The plans at the operating companies were independent and surpluses within certain plans could not be used to offset deﬁcits in other plans. The beneﬁt payments from the plans were typically made from trustee-administered funds; however, there were certain unfunded plans, primarily related to non-pension post-retire- ment beneﬁts, that were funded as beneﬁt payment obligations as required. Onex Corporation, the ultimate parent company, did not provide pension, other retirement or post-retirement beneﬁts to the employees of the operating companies. The plans were exposed to market risks, such as chang- es in interest rates, inﬂation and ﬂuctuations in investment val- ues. The plan liabilities were calculated using a discount rate set with reference to corporate bond yields. If the plan assets failed to achieve this yield, it would create or increase a plan deﬁcit. A decrease in corporate bond yields would have had the effect of increasing the beneﬁt obligations; however, this would have been partially offset by a fair value increase in the value of debt securi- ties held in the plans’ assets. For certain plans, the beneﬁt obli- gations were linked to inﬂation, and higher inﬂation would have resulted in a greater beneﬁt obligation. Onex Corporation December 31, 2019 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 The plans were also exposed to non-ﬁnancial risks, such During 2018, total cash payments for employee future as the membership’s mortality and demographic changes, as well beneﬁts, consisting of cash contributed by the operating com- as regulatory changes. An increase in life expectancy would have panies to their funded pension plans, cash payments directly to resulted in an increase in beneﬁt obligations. beneﬁciaries for their unfunded other beneﬁt plans and cash con- The total costs during 2018 for deﬁned contribution tributed to their deﬁned contribution plans, were $114. Included pension plans and multi-employer plans were $88. in the total was $2 contributed to multi-employer plans. Accrued beneﬁt obligations and the fair value of plan assets for accounting purposes were measured at December 31, 2018. For deﬁned beneﬁt pension plans and non-pension post-retirement plans as at December 31, 2018, the estimated present value of accrued beneﬁt obligations and the estimated market value of the net assets that were 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 $ 877 $ 450 $ 84 6 5 2 (29) (6) (4) (9) − − – – – (312) – $ 530 $1,106 6 (16) 2 2 (29) (10) – − – – (370) (1) $ 690 10 15 – (29) 1 (34) (33) 8 – – (2) – 312 4 $ 702 $ 169 11 (86) 14 1 (29) (23) 4 – – – 370 (2) $ 429 3 3 – (3) – (3) (5) 8 – – (1) (1) – (2) $ 83 $ $ − – – 2 – (2) – – – – (3) – 3 – As at December 31, 2018 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 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 Closing benefit obligations 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 164 Onex Corporation December 31, 2019 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 2018 Plan Assets 18% 26% 2% 6% 16% 2% 30% 100% Equity securities did not include direct investments in the shares of the Company or its subsidiaries, but may have been 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, 2018 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 $ 690 $ 429 $ – (530) 160 (8) (702) (273) – (83) (83) – Deferred benefit amount – asset (liability) $ 152 $ (273) $ (83) The deferred beneﬁt asset of $152 was included in the Company’s consolidated December 31, 2018 balance sheet within other non-current assets (note 37). The total deferred beneﬁt liabilities of $356 were included in the Company’s December 31, 2018 consolidated balance sheet within other non-current liabilities (note 44) and other current liabilities. Of the total deferred beneﬁt liabilities, $1 was recorded as a current liability. The following assumptions were used to account for the plans: As at December 31, 2018 Accrued benefit obligation Weighted average discount rate(i) Weighted average rate of compensation increase (i) Weighted average discount rate included inflation, where applicable to a benefit plan. Assumed healthcare cost trend rates Initial healthcare cost rate Cost trend rate declines to Year that the rate reaches the rate it is assumed to remain at Pension Benefits 0.5%−3.7% 0.5%−4.2% Non-Pension Post-Retirement Benefits 3.8% 4.6% 2018 5.7% 4.0% 2040 Onex Corporation December 31, 2019 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 assumptions underlying the discount rates, rates of compensation increase and healthcare cost trend rates had a signiﬁcant effect on the amounts reported for the pension and post-retirement beneﬁt plans. A 1% change in these assumed rates would have increased (decreased) 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) The sensitivity analysis above was based on changing one assump- 5 8 . 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 – 2 018 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 2018 consolidated ﬁnancial statements was applied. During 2018, Onex’ reportable segments operated through auton- omous companies and strategic partnerships. Operating compa- nies were aggregated into one reportable segment based on the nature of the products and services, production process, customer base, distribution model and regulatory environment at the oper- ating companies, as well as key ﬁnancial metrics such as gross margin and projected long-term revenue growth. The Company had eight reportable segments during 2018. In Decem ber 2018, the Company entered into an agreement to sell BrightSpring Health, as described in note 34. The results of opera- tions of BrightSpring Health were presented in the other segment as a discontinued operation. 166 Onex Corporation December 31, 2019 N O T E S T O C O N S 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 became 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 was an integrated provider of insurance solutions to property, casualty and workers’ compensation specialty markets primarily in the United States. Packaging Products and Services • IntraPac, 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 credit-related investments, including event-driven, long/short, long-only, par, stressed, distressed and market dislocation strategies. Onex Credit Collateralized Loan Obligations, leveraged structured vehicles that hold a widely diversiﬁed collateral asset portfolio funded through the issuance of long-term debt in a series of rated tranches of secured notes and equity. Onex Credit Funds, investment funds, other than the CLOs and Direct Lending, providing exposure to the performance of actively managed, diversiﬁed portfolios. Direct Lending, primarily consisting of Onex Credit Lending Partners, a direct lending 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, a leading operator of caravan holiday parks in the United Kingdom. SCP Health, 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 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, AutoSource (since May 2018), Walter (since September 2018) and Wyse (since November 2018). The other segment excludes IntraPac and Precision, which were included in the packaging products and services operating segment. • Joint ventures and associates at fair value: • • • • • • • • • AIT, a leading provider of automation, factory integration and tooling dedicated to the global aerospace, defence and space launch industries. BBAM, the world’s largest dedicated manager of leased aircraft. Incline Aviation Fund, 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. JELD-WEN, one of the world’s largest manufacturers of interior and exterior doors, windows and related products for use primarily in the residential and light commercial new construction and remodelling markets. Pinnacle Renewable Energy, the longest-established 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). Onex Corporation December 31, 2019 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 A number of operating companies, by the nature of their businesses, individually served major customers that accounted for a large portion of their revenues. During 2018, 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) (220) $ $ (197) (67) (264) $ (372) 1 $ (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) $ $ $ 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 $ 6,526 $ 3,088 $ $ $ 299 438 86 $ $ $ 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) Represented the after-tax results of BrightSpring Health (up to December 2018), as described in note 34. (b) Included the current portion of long-term debt, excluded finance leases and was net of financing charges. (c) Amounts for 2018 included BrightSpring Health (up to December 2018), which was a discontinued operation, as described in note 34. 2018 Geographic Segments Revenues(b) Property, plant and equipment(c) Intangible assets(c) Goodwill(c) Canada United States Europe Asia and Oceania $ 932 $ 205 $ 580 $ 377 $ 12,608 $ 1,017 $ 3,856 $ 5,132 $ 4,033 $ 2,515 $ 3,323 $ 1,935 $ 4,737 $ $ $ 888 171 606 Other(a) $ 1,475 $ $ $ 288 118 163 Total $ 23,785 $ 4,913 $ 8,048 $ 8,213 (a) Other consisted primarily of operations in Central and South America, Mexico and Africa. (b) Revenues excluded discontinued operations, as described in note 34. Revenues were attributed to geographic areas based on the destinations of the products and/or services. (c) Amounts excluded BrightSpring Health, which was a discontinued operation, as described in note 34. 168 Onex Corporation December 31, 2019 SHAREHOLDER INFORMATION Year-End Closing Share Price As at December 31 (in Canadian dollars) 2019 2018 2017 2016 2015 Toronto Stock Exchange $ 82.17 $ 74.35 $ 92.19 $ 91.38 $ 84.82 Shares Registrar and Transfer Agent The Subordinate Voting Shares of AST Trust Company (Canada) the Company are listed and traded P.O. Box 700 on the Toronto Stock Exchange. Postal Station B Website www.onex.com Auditor Share Symbol ONEX Dividends Montreal, Quebec H3B 3K3 PricewaterhouseCoopers llp (416) 682-3860 Chartered Professional Accountants or call toll-free throughout Canada and the United States 1-800-387-0825 Duplicate Communication Registered holders of Onex Corporation Dividends on the Subordinate Voting Shares www.astﬁnancial.com/ca shares may receive more than one copy are payable quarterly on or about January 31, or inquiries@astﬁnancial.com of shareholder mailings. Every effort April 30, July 31 and October 31 of each is made to avoid duplication, but when year. At December 31, 2019, the indicated All questions about accounts, stock shares are registered under different dividend rate for each Subordinate Voting certiﬁcates or dividend cheques names and/or addresses, multiple Share was C$0.40 per annum. Registered should be directed to the Registrar mailings result. Shareholders who shareholders can elect to receive dividend and Transfer Agent. payments in U.S. dollars by submitting a completed currency election form to AST Trust Company (Canada) ﬁve business days Electronic Communications with Shareholders receive but do not require more than one mailing for the same ownership are requested to write to the Registrar and Transfer Agent and arrangements will before the record date of the dividend. Non- We encourage individuals to receive be made to combine the accounts for registered shareholders who wish to receive Onex’ shareholder communications mailing purposes. dividend payments in U.S. dollars should electronically. You can submit your contact their broker to submit their cur- request online by visiting the Shares Held in Nominee Name rency election. AST Trust Company (Canada) website, To ensure that shareholders whose www.astﬁnancial.com/ca, or shares are not held in their name receive contacting them at 1-800-387-0825. all Company reports and releases Corporate Governance Policies A presentation of Onex’ corporate on a timely basis, a direct mailing list is maintained by the Company. If you governance policies is included in the Investor Relations Contact Management Information Circular Requests for copies of this report, would like your name added to this list, that is mailed to all shareholders and other annual reports, quarterly reports please forward your request to Investor is available on Onex’ website. and other corporate communications Relations at Onex. should be directed to: Investor Relations Onex Corporation 161 Bay Street P.O. Box 700 Toronto, Ontario M5J 2S1 (416) 362-7711 Annual Meeting of Shareholders Onex Corporation’s Annual Meeting of Shareholders will be held on May 14, 2020 at 10:00 a.m. (Eastern Daylight Time) at the Fairmont Royal York, 100 Front Street West, Toronto, Ontario. Typesetting by Moveable Inc. www.moveable.com Printed in Canada

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