OncoCyte Annual Report 2021

Plain-text annual report

2021 Annual Report CHAIRMAN’S LETTER Dear Shareholders, This year, 2022, marks an important milestone for Onex. Thirty-five years ago, we became a public company, listing on the Toronto Stock Exchange. Much has changed since then, but what has remained constant is our ded- ication to responsible investing and our strong alignment with stakeholders, which we believe drives increased accountability and value. Our business has remained rooted in the simple principle of finding great companies that we can sustainably grow. Over time, we expanded that to new platforms, generating new client relationships along the way. Onex now offers products across the private investing spectrum, including private equity and credit. With the addition of Gluskin Sheff, we also now reach high net worth clients, extending beyond our traditional institutional base. As we enter 2022, we are building on a strong foundation. Last year, we made progress across all our businesses and delivered solid financial performance. Our investing capital per share increased by 24%, which is the highest annual increase in Onex’ history. In our private equity businesses, we deployed more than $3 billion of Onex and third-party capital, a record amount invested in any year of our history. We also continued to build out our operating capabilities, ensuring we effectively identify and execute on the full value opportunity within each of our investments. In total, our private equity platforms delivered gross returns of 32% to Onex in 2021. In Onex Credit, we were focused on the integration of Onex Falcon and also brought together our Credit and Gluskin Sheff investment teams. This resulted in substantial enhancements to our product offering and strength- ened our sourcing and origination capabilities. Onex Credit raised approximately $2.4 billion of new fee- generating assets in 2021, bringing its total fee-generating assets under management to nearly $23 billion. Our Gluskin Sheff clients continued to add to their investment across Onex private strategies, ending the year with more than $1.3 billion allocated – an increase of over 65% in the year. We continue to accelerate on Onex’ commitment to ESG, including diversity and inclusion. We made substan- tial progress on both in 2021 – including the appointment of our first Head of ESG. A strong focus in these areas makes good business sense, but it’s also critical to our ability to be an employer of choice in our industry. Invest- ing well requires strong investors and we recognize the value that an inclusive environment brings to our talent management efforts. An important occasion for Onex last year was our Investor Day in October. This event was an opportunity for us to speak directly with our shareholders, to share our strategic roadmap for the future and present the leaders who, with their teams, are responsible for executing on it. We feel confident in the plan we presented, knowing that we have the right culture, team and expertise to successfully deliver. The replay is available on our website, and we encourage you to watch it if you have not yet had the opportunity. Onex Corporation December 31, 2021 1 To succeed today, companies must continue to evolve, while also remaining true to their values. Onex is going through a phase in its own evolution. We’ve made significant changes in recent years that position us well to continue to expand, grow and drive value through our business. What unites our team is our focus on our “One Onex” approach. We have incredible expertise across our organization. Leveraging this expertise and our strong relationships is driving added value every day. We accomplished a great deal in 2021. I am proud of the work our team is doing, and we know there is more to do. The next few years will be pivotal as we execute on the strategic growth plan we’ve laid out. As focused, experienced, long-term investors with a strong foundation, we feel confident in our ability to continue to drive shareholder value over the long term. From all of us at Onex, thank you for your continued support. [signed] Gerald W. Schwartz Chairman and Chief Executive Officer of Onex 2 Onex Corporation December 31, 2021 MANAGEMENT’S DISCUSSION AND ANALYSIS Throughout this MD&A, all amounts are in U.S. dollars unless otherwise indicated. This Management’s Discussion and Analysis (“MD&A”) provides a review of Onex Corporation’s (“Onex”) consol- idated financial results for the year ended December 31, 2021 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 bal- ance sheets, consolidated statements 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 Interna- tional 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 24, 2022. Preparation 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 this MD&A by the Board of Directors. The Board of Directors has approved this disclosure. The MD&A is presented in the following sections: 5 Company Overview 13 2021 Activity 23 Financial Review 64 Glossary Onex Corporation’s financial filings, including the 2021 Annual Report, interim quarterly reports, Annual Infor- mation Form and Management Information Circular, are available on Onex’ website, www.onex.com, and on the Canadian System for Electronic Document Analysis and Retrieval (“SEDAR”) at www.sedar.com. Forward-Looking/Safe Harbour Statements This MD&A may contain, without limitation, statements concerning possible or assumed future operations, performance or results preceded by, followed by or that include words such as “believes”, “expects”, “potential”, “anticipates”, “estimates”, “intends”, “plans” and words of similar connotation, which would constitute forward- looking statements. Forward-looking statements are not guarantees. The reader should not place undue reliance on forward-looking statements and 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. Onex Corporation December 31, 2021 3 Non-GAAP Financial Measures and Ratios This MD&A contains non-GAAP financial measures and ratios which have been calculated using methodologies that are not in accordance with IFRS. The presentation of financial measures and ratios in this manner does not have a standardized meaning prescribed under IFRS and is therefore unlikely to be comparable to similar finan- cial measures or ratios presented by other companies. Onex management believes these financial measures and ratios provide helpful information to investors. Reconciliations of the non-GAAP financial measures to informa- tion contained in the consolidated financial statements have been presented where practical. 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 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 this MD&A is included on page 64. 4 Onex Corporation December 31, 2021 MANAGEMENT’S DISCUSSION AND ANALYSISCOMPANY 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, private credit and public strategies on behalf of shareholders, institutional investors and high net worth families from its offices in Toronto, New York, New Jersey, Boston and London. INVESTING ASSET MANAGEMENT PRIVATE EQUITY PRIVATE CREDIT DIRECT INVESTMENTS Onex manages and invests $8.2 billion of its shareholders’ investing capital ($90.75 or C$115.05 per fully diluted share(1)) as at December 31, 2021, which is primarily invested in or committed to its private equity and credit platforms. As at December 31, 2021, Onex also manages $40.0 billion of invested and committed capital, includ- ing $33.0 billion of fee-generating assets under management(1), on behalf of institutional investors and high net worth families from around the world, including public and private pension plans, sovereign wealth funds, insur- ance companies and family offices. 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 $2.4 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 manage- ment platform. (1) Refer to the glossary of this MD&A for further details concerning the composition of investing capital per share and assets under management. Onex Corporation December 31, 2021 5 MANAGEMENT’S DISCUSSION AND ANALYSISPrivate 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 middle-market and 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’ private equity funds typically acquire control positions, which allow the funds to drive impor- tant 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 37 years, Onex has built approximately 115 operating businesses, completing approximately 790 acqui- sitions with a total value of approximately $103 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 Credit Onex Credit invests primarily in non-investment grade credit with strategies focused on CLOs, direct lending, and opportunistic and structured credit, as well as actively managed public equity and public credit funds. As at December 31, 2021, Onex Credit has fee-generating assets under management of $22.8 billion, which includes Gluskin Sheff client capital in private credit and public strategies, reflecting the integration of the Gluskin Sheff investment team into the Onex Credit platform. Onex Credit has a successful track record of executing a disciplined approach to credit investing with a focus on capital preservation and strong risk-adjusted returns through credit cycles. The platform’s sourc- ing capabilities and data intelligence help to better inform its investment decisions and dynamically manage its portfolios in varying market conditions. This allows Onex Credit to meet the diverse needs of institutional and high net worth investors and tailor investing strategies accordingly. The platform practises value-oriented investing, employing a rigorous bottom-up, fundamental and structural analysis of the underlying borrowers, coupled with active portfolio management, to continually seek to optimize portfolio positioning. 6 Onex Corporation December 31, 2021 MANAGEMENT’S DISCUSSION AND ANALYSISINVESTING At December 31, 2021, substantially all of Onex’ shareholder capital was invested in or committed to its private equity and private credit platforms. Onex’ Investment Allocation at December 31, 2021 Onex’ Investment Allocation at December 31, 2020 Private Credit 10% Private Credit 11% Other Investments 1% Private Equity 70% Private Equity 68% Cash and Near-Cash Items 20% Cash and Near-Cash Items 20% Private Equity As at December 31, 2021, Onex’ investments in private equity totalled $5.8 billion (December 31, 2020 – $4.6 billion, including $269 million of unrealized carried interest (2020 – $87 million)). Onex’ $5.8 billion Investment in Private Equity at December 31, 2021 Onex’ $4.6 billion Investment in Private Equity at December 31, 2020 ONCAP 10% Direct Investing 12% ONCAP 14% Direct Investing 16% Onex Partners 78% Onex Partners 70% Onex Corporation December 31, 2021 7 MANAGEMENT’S DISCUSSION AND ANALYSISPrivate Credit As at December 31, 2021, Onex’ investments in private credit strategies totalled $823 million (December 31, 2020 – $751 million), including $18 million of unrealized carried interest (2020 – nil). Onex’ $823 million Investment in Private Credit Strategies at December 31, 2021 Onex’ $751 million Investment in Private Credit Strategies at December 31, 2020 Senior Loan Strategies 12% Opportunistic & Special Situation Strategies 13% Structured Credit & High Yield Strategies 5% Senior Loan Strategies 12% Opportunistic & Special Situation Strategies 9% Structured Credit & High Yield Strategies 1% U.S. CLOs 38% U.S. CLOs 51% EURO CLOs 12% CLO Warehouse 3% Direct Lending 4% Middle-Market Lending 13% EURO CLOs 15% Middle-Market Lending 12% ASSET MANAGEMENT As of December 31, 2021, Onex managed $40.0 billion (December 31, 2020 – $36.3 billion) of invested and com- mitted capital on behalf of institutional investors and high net worth families from around the world. Onex’ $40.0 billion of Assets under Management at December 31, 2021(1) Onex’ $36.3 billion of Assets under Management at December 31, 2020(1) Private Credit 46% Private Credit 44% Private Equity 40% Private Equity 41% (1) Excludes Onex capital. (1) Excludes Onex capital. Public Strategies 14% Public Strategies 15% 8 Onex Corporation December 31, 2021 MANAGEMENT’S DISCUSSION AND ANALYSISOnex’ asset management platform provides the Company with two significant financial benefits: (i) a committed stream of management fees and (ii) the opportunity to share in investors’ gains. As at December 31, 2021, Onex has run-rate management fees(1) of $273 million from fee-generating assets under management of $33.0 billion, consisting of $116 million from private equity and $157 million from Onex Credit. At December 31, 2021, Onex managed $26.3 billion of capital from which it may earn carried interest or performance fees. Private Equity In private equity, Onex has raised five Onex Partners and four ONCAP Funds since 1999 and is currently invest- ing Onex Partners V, a $7.15 billion fund, and ONCAP IV, a $1.1 billion fund. During the initial fee period of the Onex Partners and ONCAP Funds, Onex receives a management fee based on limited partners’ committed capital. At December 31, 2021, the management fees of Onex Partners V and ONCAP IV were determined on this basis, with management fee rates of 1.7% and 2.0%, respectively. Following the termination of the initial fee period, Onex is entitled to a management fee based on lim- ited partners’ net funded commitments. At December 31, 2021, management fees were determined on this basis for Onex Partners IV (1.0%) and ONCAP III (1.5%). As realizations occur in these funds, the management fees earned by Onex will decrease. Onex is entitled to 40% of the carried interest realized from limited partners in the Onex Partners and ONCAP Funds, while Onex Partners and ONCAP management are entitled to the remaining 60%. Carried interest is typically calculated as 20% of the realized net gains of the limited partners in each Fund, provided the limited partners have achieved a minimum 8% net compound annual return on their investment. ($ millions) 2017 2018 2019 2020 2021 Total Carried Interest Received $ 121 37 43 – 48 $ 249 Onex’ share of unrealized carried interest at December 31, 2021 from private equity investments totalled $269 million. The amount of carried interest ultimately received by Onex is based on realizations, the timing of which can vary significantly from year to year. (1) Refer to page 67 of this MD&A for further details concerning the composition of run-rate management fees. Onex Corporation December 31, 2021 9 MANAGEMENT’S DISCUSSION AND ANALYSISThe following table summarizes the performance of the Onex Partners and ONCAP Funds from their inception up to December 31, 2021. Net IRR and Net MOC represent the performance for fee-paying limited partners. 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% 17% 14% 26% 43% 29% 25% 39% 27% 18% 38% 13% 11% 10% n/a 33% 21% 19% n/a 24% 10% 4.0x 2.2x 2.1x 1.7x 2.2x 4.1x 4.3x 3.9x 4.1x 1.3x 1.6x 3.1x 1.8x 1.8x 1.5x n/a 3.1x 2.9x 2.8x n/a 1.2x 1.3x (1) Performance returns are supplementary 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. The glossary, beginning on page 64 of this MD&A, further describes the composition of performance returns. (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) The performance returns of Onex Partners V represent a limited partner that elected to participate in the credit facility of Onex Partners V. Performance returns for a limited partner that did not participate in the credit facility of Onex Partners V are as follows: 15% Net IRR and 1.2x Net MOC. Onex Credit Onex Credit continues to grow the product lines and distribution channels for its private credit investing and public credit and equity strategies. During 2021, Onex Credit raised approximately $2.4 billion of third-party capital for certain of its private credit strategies, including approximately $1.9 billion of third-party capital raised through its CLO platform. 10 Onex Corporation December 31, 2021 MANAGEMENT’S DISCUSSION AND ANALYSISAs at December 31, 2021, Onex Credit earns run-rate management fees of $157 million on $22.8 billion of fee- generating assets under management: As at December 31, 2021 CLOs Direct lending (1) Fee-Generating Assets Under Management Management Fee Basis Management Fee % Collateral principal balance up to 0.50% $ 11,223 $ 3,916 Invested capital Committed capital Other private credit strategies (2) $ 2,213 Net asset value; Gross invested assets; Funded commitments; or Unfunded commitments up to 1.50% up to 1.75% up to 1.25% up to 1.75% up to 1.25% up to 0.50% Public credit strategies Public equity strategies (1) Represents the Onex Falcon Funds. $ $ 1,928 3,523 Assets under management up to 1.50% Assets under management up to 1.25% (2) Includes OCLP, senior loan strategies, opportunistic and special situation strategies, and structured credit and high yield strategies. Onex Credit is also entitled to performance fees on $2.2 billion of perpetual assets under management as at Decem- ber 31, 2021. Performance fees range between 10% and 20% of net gains and may be subject to performance hurdles. In addition, Onex Credit is entitled to carried interest on $13.9 billion of assets under management as at Decem- ber 31, 2021. Carried interest ranges between 12.5% and 20% of net gains and are generally subject to a hurdle or minimum preferred returns to investors. The Onex Falcon management team is allocated the entire carried interest for Onex Falcon Funds acquired with Onex Falcon in December 2020, with the exception of Private Credit Oppor- tunities Fund VI (“Onex Falcon VI”), where Onex Falcon management is entitled to 80% of the carried interest. In most cases, the Onex Credit management team is allocated 50% of the carried interest or performance fees and Onex is entitled to the remaining 50% of the carried interest and performance fees realized from the private credit investments. At December 31, 2021, Onex had $18 million (2020 – nil) of unrealized carried interest from third-party limited partners in the Onex Credit Funds. Since acquiring Gluskin Sheff in 2019, Onex has generated $53 million in performance fees from its public strategies. ($ millions) 2019 2020 2021 Total Performance Fees from Public Strategies $ 24 16 13 $ 53 Onex Corporation December 31, 2021 11 MANAGEMENT’S DISCUSSION AND ANALYSISFIRM RESOURCES Experienced team with signiﬁcant depth Onex is led by the firm’s founder and CEO, Gerry Schwartz, and its President, Bobby Le Blanc, as well as experi- enced leadership teams at each of its investment platforms. Onex’ 171 investment professionals are each dedicated to a separate investment platform: Onex Part- ners (59), ONCAP (23) and Onex Credit (89). These investment teams are supported by approximately 250 pro- fessionals dedicated to Onex’ corporate functions and investment platforms, including Client & Product Solutions professionals and Gluskin Sheff’s Client Wealth Management team. Substantial ﬁnancial resources available for future growth Onex seeks to maintain a financially strong parent company with funds available to meet capital commitments to its investing platforms and to support the growth of its asset management business. Onex’ financial strength comes from its own capital as well as the capital committed by its investors. Today, Onex has significant cash and near-cash items available to support its investing activity as well as limited partner uncalled capital from Onex Partners V and ONCAP IV to grow its asset management business. Strong alignment of interests Critical to Onex’ success is the strong alignment of interests between shareholders, limited partners, clients and the Onex management team. In addition to Onex being the largest limited partner in each of its private equity funds, 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, 2021, the Onex management team: • was the largest shareholder in Onex, with a combined holding of approximately 13.6 million shares, or 16% of outstanding shares, and 0.8 million DSUs; and • had a total investment in Onex’ private equity, private credit and public strategies at a market value of approximately $1.3 billion. Onex Partners management is also required to reinvest up to 25% of all Onex Partners carried interest distribu- tions in Onex shares and must hold these shares for at least three years. OUR OBJECTIVE Onex works to create long-term value for shareholders and to have that value reflected in its share price. Onex delivers this value by (i) investing Onex’ capital primarily in Onex’ private equity funds and private credit strate- gies and (ii) managing and growing fee-generating third-party capital invested in and committed to its investing platforms. Onex believes it has the investment philosophy, talent, financial resources and track record to continue to deliver on this objective. 12 Onex Corporation December 31, 2021 MANAGEMENT’S DISCUSSION AND ANALYSIS2021 ACTIVITY PRIVATE EQUITY INVESTING Capital Deployment The table below presents the private equity investments made during 2021. Fund Company Transaction Onex Partners V Imagine Learning Original investment Onex Partners V Wealth Enhancement Group Original investment Onex Partners V Newport Healthcare Original investment Onex Partners V Fidelity Building Services Group Original investment ONCAP IV Komar Industries Original investment Period Mar ’21 Sep ’21 Jul ’21 Dec ’21 Jun ’21 Other investments Total (1) Includes Onex’ share of investments as a co-investor, if applicable. Onex’ Share(1) ($ millions) $ 279 226 185 83 20 51 $ 844 During 2021, Onex made the following significant private equity investments: • $279 million as part of the Onex Partners V Group’s investment in Imagine Learning (formerly Weld North Education), a K-12 digital curriculum company in the United States. Onex’ investment included $100 million as a co-investor; • $226 million as part of the Onex Partners V Group’s investment in Wealth Enhancement Group (“WEG”), an independent wealth management firm offering comprehensive and customized financial planning and investment management services in the United States. Onex’ investment included $54 million as a co-investor; • $185 million as part of the Onex Partners V Group’s investment in Newport Healthcare, a provider in the United States of evidence-based healing centres for teens and young adults struggling with primary mental health issues; • $83 million as part of the Onex Partners V Group’s investment in Fidelity Building Services Group (“Fidelity BSG”), a provider of technical building solutions for the commercial and industrial facilities market; and • $20 million as part of the ONCAP IV Group’s investment in Komar Industries, Inc. (“Komar”). Komar is a designer and manufacturer of industrial waste and recycling processing systems. In February 2022, Onex invested approximately $96 million as part of the Onex Partners V Group’s acquisition of Tes Global (“Tes”). Based in London, England, Tes is an international provider of comprehensive software solutions for the education sector. In February 2022, Onex invested approximately $16 million as part of the ONCAP IV Group’s acquisition of Merrithew Corporation (“Merrithew”). Merrithew is a developer, manufacturer and retailer of Pilates equip- ment, accessories, content and education. In February 2022, the Onex Partners V Group announced an agreement to invest in Resource Environmental Solutions, LLC (“RES”). RES is an ecological restoration company that supports the public and private sectors with solutions for environmental mitigation, stormwater, water quality, and climate and flooding resilience. The transaction is expected to close in the first quarter of 2022, subject to customary closing conditions and regulatory approvals. Onex Corporation December 31, 2021 13 MANAGEMENT’S DISCUSSION AND ANALYSIS In February 2022, the Onex Partners V Group announced an agreement to invest in Analytic Partners, Inc. (“Analytic Partners”). Analytic Partners is a cloud-based, managed software platform which helps customers assess market- ing spend effectiveness and optimize future allocations across offline and online media channels. The transaction is expected to close later in 2022, subject to customary closing conditions and regulatory approvals. Realizations The table below presents the private equity realizations and distributions during 2021. Fund Company Transaction Period Onex’ Share(1) ($ millions) Direct investment RSG Initial public offering and distributions Various $ 500 Onex Partners IV Clarivate Analytics Secondary offerings Onex Partners III ONCAP III ONCAP III ONCAP II JELD-WEN Bradshaw Secondary offerings Sale of the company Davis-Standard Sale of the company Pinnacle Sale of the company Onex Partners V Acacium Group Repayment of shareholder loan Various Various Oct ’21 Dec ’21 Apr ’21 Jun ’21 Other realizations and distributions Total 224 203 135 (2) 75 43 16 65 $ 1,261 (1) Includes carried interest received by Onex and is reduced for amounts paid under management incentive programs, if applicable, and includes Onex’ share of proceeds as a co-investor, if applicable. (2) Includes estimated proceeds from amounts held in escrow. The following significant private equity realizations and distributions occurred during 2021: • Ryan Specialty Group (“RSG”) completed an initial public offering of approximately 65.5 million shares of its Class A common stock (NYSE: RYAN), including the exercise of an over-allotment option. The offering was priced at $23.50 per share. In connection with this transaction, RSG acquired all of Onex’ preferred unit interests in the company and redeemed approximately 8.1 million Class A shares held by Onex. With the completion of this transaction, net proceeds received by Onex were $492 million. Onex continues to hold approximately 12.3 million Class A shares of RSG; • In June 2021, the Onex Partners IV Group sold approximately 10.6 million ordinary shares of Clarivate Analyt- ics Plc (“Clarivate Analytics”) at a price of $26.00 per share. Onex’ share of the net proceeds was $101 million. In September 2021, the Onex Partners IV Group sold approximately 18.0 million ordinary shares of Clarivate Analytics at a price of $25.25 per share. Onex’ share of the net proceeds was $123 million, net of payments under the management incentive programs. At December 31, 2021, Onex holds approximately 16.2 million ordinary shares of Clarivate Analytics through Onex Partners IV; • The Onex Partners III Group sold its remaining 32.9 million shares in JELD-WEN Holding, Inc. (“JELD-WEN”). Onex’ combined share of the net proceeds was $203 million, including carried interest and net of payments under the management incentive programs. In total, Onex realized approximately $718 million, including 14 Onex Corporation December 31, 2021 MANAGEMENT’S DISCUSSION AND ANALYSIS carried interest of $61 million and net of payments under the management incentive programs, on its invest- ment of $245 million in JELD-WEN. The investment in JELD-WEN generated a Gross MOC of 2.9 times and a Gross IRR of 20%; • The ONCAP III Group sold Bradshaw International, Inc. (“Bradshaw”). Onex’ share of the net proceeds was $135 million, including carried interest of $20 million and net of payments under the management incentive programs. In total, Onex realized approximately $149 million, including carried interest and net of payments under the management incentive programs, on its investment of $24 million in Bradshaw. The investment in Bradshaw generated a Gross MOC of 6.6 times and a Gross IRR of 26%, including estimated proceeds from amounts held in escrow; • The ONCAP III Group sold Davis-Standard, LLC (“Davis-Standard). Onex’ share of the net proceeds was $75 million, including carried interest and net of payments under the management incentive programs. The investment in Davis-Standard generated a Gross MOC of 2.4 times and a Gross IRR of 9%; • The ONCAP II Group sold its remaining 10.4 million shares in Pinnacle Renewable Energy Inc. (“Pinnacle”) for C$11.30, in connection with the sale of Pinnacle to Drax Group plc. Onex’ share of the net proceeds was C$54 million ($43 million). In total, Onex realized approximately C$93 million, including carried interest and after the reduction for amounts paid under management incentive programs, on its investment of C$34 mil- lion in Pinnacle. The investment generated a Gross MOC of 2.8 times and a Gross IRR of 13%; and • Acacium Group repaid the shareholder loan held by the Onex Partners V Group. Onex’ share of the repay- ment was £12 million ($16 million). Fund-level Developments During 2021, the Onex Partners and ONCAP operating businesses continued to execute on their investment theses: • • • • completing follow-on acquisitions for total consideration of approximately $1.6 billion; collectively raising or refinancing approximately $6.1 billion of debt; paying down debt totalling approximately $1.2 billion; in Onex Partners IV, PowerSchool acquired Hobsons’ Naviance and Intersect solutions. Naviance is a college, career and life readiness solution used by students across U.S. schools for assessing and developing students’ interests and competencies in preparation for life after high school. Intersect is an innovative admissions solution connecting Naviance students to their best-fit higher education opportunities; • in July 2021, PowerSchool completed an initial public offering of its Class A common stock (NYSE: PWSC). The Onex Partners IV Group did not sell any shares of PowerSchool as part of this offering. As a result of the initial public offering, Onex holds approximately 24.4 million Class A common shares of PowerSchool through Onex Partners IV; and • in Onex Partners IV, Clarivate Analytics acquired ProQuest, a global software, data and analytics provider to academic, research and national institutions. • in Onex Partners V, Acacium acquired Favorite Healthcare Staffing, a U.S.-based specialized healthcare staff- ing business that focuses on placing nurses in both acute and non-acute settings of care. • in Onex Partners V, Imagine Learning acquired Twig Education, a provider of high-quality science curricu- lum products designed to improve science literacy. Onex Corporation December 31, 2021 15 MANAGEMENT’S DISCUSSION AND ANALYSISPerformance During 2021, Onex’ investing segment recognized a net gain from private equity investments of $1.2 billion. The following table presents the recent gross performance of Onex’ private equity investments: Gross performance of Onex’ private equity investments in U.S. dollars (1)(2): Onex Partners ONCAP Direct investments Total private equity investments Year Ended Year Ended December 31, 2021 December 31, 2020 23% 33% 83% 32% 20% 23% 50% 24% (1) The increase in value of Onex’ private equity investments is a non-GAAP ratio calculated using methodologies that are not in accordance with IFRS. The presentation of these ratios does not have a standardized meaning prescribed under IFRS and are therefore unlikely to be comparable to similar financial measures presented by other companies. The net gains used to calculate the gross performance of Onex’ private equity investments are gross of management incentive programs and an allocation of management fees and carried interest on Onex’ capital. Onex management believes that the gross performance of Onex’ private equity investments provides helpful information to investors in assessing the performance of Onex’ investment in private equity strategies. During the three months and year ended December 31, 2021, Onex recognized a net gain on corporate investments of $317 million and $1.7 billion, respectively (2020 – $702 million and $848 million, respectively). (2) Adjusted for capital deployed, realizations and distributions. Overall, the net gain from Onex’ private equity investments during the year ended December 31, 2021 was driven by improved operating performance and expectations for further economic recovery, in the long term, from the impact of the COVID-19 pandemic. The operating businesses in Onex’ private equity platforms operate across a broad range of countries and industry segments, providing beneficial diversification. PRIVATE CREDIT INVESTING During the year ended December 31, 2021, Onex’ investments in private credit strategies generated net realiza- tions of $201 million, as outlined in the following table: Year ended December 31, 2021 Private Credit Strategies U.S. CLOs EURO CLOs CLO warehouses Middle-market lending Senior loan strategies Opportunistic and special situation strategies Structured credit and high yield strategies Direct lending Total net realizations from Private Credit Strategies Net Realization (Investment) ($ millions) $ 163 32 (26) 4 101 (23) (31) (19) $ 201 During 2021, Onex reduced its net investments in CLOs by $195 million. This decrease was driven by the sale of a portion of its equity interest in certain U.S. and European CLOs for total proceeds of $131 million and $114 million of regular quarterly distributions. 16 Onex Corporation December 31, 2021 MANAGEMENT’S DISCUSSION AND ANALYSISDuring 2021, Onex also invested a total of $55 million to support the warehouse facilities for its twenty- second and twenty-third CLOs denominated in U.S. dollars (“CLO-22” and “CLO-23”, respectively). During the fourth quarter of 2021, Onex closed CLO-22 and CLO-23 and received $56 million, including interest, for the investments that supported the warehouse facilities for these CLOs. Onex also invested €24 million ($27 million) to support the warehouse facilities for its fifth European CLO (“EURO CLO-5”). In the first quarter of 2021, Onex redeemed all of its investment in the Onex Credit Partners Senior Float- ing Income Fund, which totalled $98 million. The proceeds from this redemption were invested in Onex Senior Credit Fund II, which was subsequently redeemed later in the year. Onex’ net investment in the direct lending strategy consisted of an investment in a warehouse facility to support the strategy. In October 2021, Onex received $99 million for investments in the warehouse facility as a result of third-party capital commitments to a direct lending fund. Performance During the year ended December 31, 2021, Onex had a net gain of $157 million on its private credit investments, representing a return of 20%. This performance was primarily driven by the strengthening of the leveraged loan market, which returned 5%(1) during 2021, and the structural leverage employed in certain of the underly- ing strategies. Onex primarily invests in the equity tranches of its CLOs. Market pricing for CLO equity is more vola- tile than that of 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 had a net gain of $115 million on its CLO investments during the year ended December 31, 2021 (2020 – $35 million). All of the Onex Credit CLOs remain onside their various coverage tests and Onex remains a long-term investor in its CLOs. INVESTING SEGMENT EARNINGS During the three months ended December 31, 2021, Onex’ investing segment generated net earnings of $263 mil- lion ($2.90 per fully diluted share) (2020 – $609 million ($6.65 per fully diluted share)), which were primarily driven by a $247 million net gain from private equity investments and a $23 million net gain from private credit strategies. Onex’ investing segment net gain for the three months ended December 31, 2021 was reduced by an allocation of $28 million to the asset management segment (2020 – $39 million), representing management fees and carried interest that would have been earned by the asset management segment had Onex’ capital been subject to man- agement fees and carried interest under the same terms as third-party limited 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, 2021, Onex’ investing segment generated net earnings of $1.3 billion ($14.22 per fully diluted share) (2020 – $773 million ($8.05 per fully diluted share)), which were primarily driven by a $1.2 billion net gain from private equity and a $157 million net gain from private credit strategies. Onex’ investing segment net earnings for the year ended December 31, 2021 were reduced by an allocation of $164 million to the asset management segment (2020 – $70 million), as described above. (1) Based on the performance of the Credit Suisse Leveraged Loan Index. Onex Corporation December 31, 2021 17 MANAGEMENT’S DISCUSSION AND ANALYSISASSET MANAGEMENT At December 31, 2021, Onex’ assets under management, excluding Onex capital, totalled $40.0 billion (Decem- ber 31, 2020 – $36.3 billion), of which $33.0 billion was fee-generating (December 31, 2020 – $30.6 billion). ($ millions) Fee-Generating Total Third-Party Assets Under Management(1) December 31, December 31, 2021 2020 Change in Total December 31, December 31, 2021 2020 Change in Total Private Credit Strategies $ 17,352 $ 15,114 15% $ 18,266 $ 15,952 Private Equity Funds (2) Public Strategies (3) 10,205 5,451 10,238 5,296 Total $ 33,008 $ 30,648 – 3% 8% 15,890 5,798 14,741 5,595 $ 39,954 $ 36,288 15% 8% 4% 10% (1) Assets under management is a supplementary financial measure and is presented as defined in the glossary, includes co-investments and capital invested by the Onex management team, as applicable, and excludes capital invested by Onex. (2) Assets under management for ONCAP II and III are in Canadian dollars and have been converted to U.S. dollars using the exchange rates on December 31, 2021 and December 31, 2020, respectively. (3) Assets under management for the public strategies are in Canadian dollars and have been converted to U.S. dollars using the exchange rates on December 31, 2021 and December 31, 2020, respectively. Onex’ third-party assets under management include the assets of Gluskin Sheff clients. In addition to Onex’ public credit and equity strategies, these clients are provided access to Onex’ private credit and equity strategies. The table below outlines the allocation of Gluskin Sheff client capital across these strategies: ($ millions) Public Equity Strategies Public Debt Strategies Private Credit Strategies Private Equity Total Gluskin Sheff Client Capital Fee-Generating December 31, December 31, 2021 2020 Change in Total $ 3,523 $ 2,647 1,928 1,219 87 2,649 710 76 $ 6,757 $ 6,082 33 % (27)% 72 % 14 % 11 % During the year ended December 31, 2021, Gluskin Sheff clients reallocated approximately $442 million of capital from public debt and public equity strategies to private credit strategies. Gluskin Sheff’s client capital is mostly invested in Canadian dollar-denominated strategies. As a result, the $675 million or 11% increase in Gluskin Sheff’s fee-generating client capital during the year ended December 31, 2021 included an increase of approximately $20 million due to the translation of Canadian dollar-denominated capital into U.S. dollars. 18 Onex Corporation December 31, 2021 MANAGEMENT’S DISCUSSION AND ANALYSISDuring the three months and year ended December 31, 2021, Onex’ asset management segment generated net earnings of $67 million ($0.75 per fully diluted share) (2020 – $99 million ($1.07 per fully diluted share)) and $384 million ($4.20 per fully diluted share) (2020 – $87 million ($0.90 per fully diluted share)), respectively, as described on pages 31 and 32 of this MD&A. Onex’ asset management segment net earnings for the three months ended December 31, 2021 included allocations from the investing segment of $13 million (2020 – $14 million) of management fees and carried interest of $15 million (2020 – $25 million) that would have been earned by the asset 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, 2021, the management fees and carried interest allocations from the investing segment were $53 million (2020 – $56 million) and $111 mil- lion (2020 – $14 million), respectively. These allocations were made in accordance with IFRS 8, as this presenta- tion of segmented results is used by management, in part, to assess the performance of Onex. Segment management and advisory fees during the three months and year ended December 31, 2021 totalled $81 million (2020 – $76 million) and $330 million (2020 – $300 million), respectively. Segment Management and Advisory Fees Three Months Three Months Ended Ended December 31, December 31, ($ millions) Private Equity Funds (1) Private Credit Strategies Public Strategies Total 2021 $ 43 23 15 $ 81 Change in Total $ (4) 8 1 Year Ended Year Ended December 31, December 31, 2021 $ 178 90 62 2020 $ 185 54 61 Change in Total $ (7) 36 1 2020 $ 47 15 14 $ 76 $ 5 $ 330 $ 300 $ 30 (1) Includes advisory fees from the Onex Partners and ONCAP operating businesses. During the three months and year ended December 31, 2021, management and advisory fees increased compared to the same periods in 2020 primarily as a result of the acquisition of Falcon Investment Advisors, LLC (“Falcon” or “Onex Falcon”) in late December 2020. During the three months and year ended December 31, 2021, segment carried interest of $59 million (2020 – $79 million) and $359 million (2020 – $35 million), respectively, was earned primarily as a result of changes in fair value of certain underlying investments in Onex Partners V and ONCAP IV, and unrealized carried interest from certain Onex Credit Funds. Changes in the fair value of certain underlying investments in Onex Partners IV also contributed to the increase in segment carried interest during the year ended December 31, 2021. Carried interest is typically received only on the realization of underlying fund investments. During the three months ended December 31, 2021, Onex received $28 million of carried interest from ONCAP III. During the year ended December 31, 2021, Onex received $48 million of carried interest primarily from Onex Partners III and ONCAP III. At December 31, 2021, unrealized carried interest outstanding totalled $287 million (December 31, 2020 – $87 million). Onex Corporation December 31, 2021 19 MANAGEMENT’S DISCUSSION AND ANALYSISUnrealized Carried Interest(1) ($ millions) December 31, 2020 Distributions As at Realizations and Onex Partners Funds ONCAP Funds Private credit funds Total $ 52 35 – $ 87 $ (16) (32) – $ (48) Change in Fair Value $ 208 22 18 $ 248 As at December 31, 2021 $ 244 25 18 $ 287 (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. Over the past five years, fee-generating assets under management has increased at a compound annual growth rate (“CAGR”) of 16%, which includes the fee-generating assets under management of Onex Falcon and Gluskin Sheff, which were acquired in December 2020 and June 2019, respectively. Fee-generating assets under manage- ment, excluding acquired capital, has increased at a CAGR of 8% over the same period. Fee-Generating Assets Under Management (December 31, 2016 to December 31, 2021) 34 32 30 28 26 24 22 20 18 16 14 12 10 s n o i l l i B 16% CAGR over the past five years Dec-2016 Dec-2017 Dec-2018 Dec-2019 Dec-2020 Dec-2021 34 32 30 28 26 24 22 20 18 16 14 12 10 8 20 Onex Corporation December 31, 2021 MANAGEMENT’S DISCUSSION AND ANALYSISSHARE PRICE Onex’ objective is to have the value of its investing and asset management activities reflected in its share price. Onex has had an active share repurchase program for more than 20 years and has reduced its shares out- standing by more than half of the original share count at the time it launched the program in 1997. During 2021, $28 million was returned to shareholders through dividends and Onex repurchased and cancelled 3,521,526 SVS at a total cost of $249 million (C$313 million), or an average purchase price of $70.63 (C$88.85) per share. Through dividends and its share repurchase program, Onex has returned more than C$3.6 billion to shareholders since 1997. At December 31, 2021, Onex’ SVS closed at C$99.28, a 36% increase from December 31, 2020. This compares to a 22% 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, 2021 relative to the TSX. Onex Relative Performance (CAD) (December 31, 2020 to December 31, 2021) ONEX (CAD) TSX 0 2 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 150 140 130 120 110 100 90 80 ONEX 36% TSX 22% 31-Dec-20 31-Jan-21 28-Feb-21 31-Mar-21 30-Apr-21 31-May-21 30-Jun-21 31-Jul-21 31-Aug-21 30-Sep-21 31-Oct-21 30-Nov-21 31-Dec-21 Onex Corporation December 31, 2021 21 MANAGEMENT’S DISCUSSION AND ANALYSIS 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, 2021, the value of Onex’ SVS increased by 37% in U.S. dollars compared to a 27% 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, 2021 relative to the S&P 500. Onex Relative Performance (USD) (December 31, 2020 to December 31, 2021) ONEX (USD) S&P 500 0 2 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 150 140 130 120 110 100 90 80 ONEX 37% S&P 500 27% 31-Dec-20 31-Jan-21 28-Feb-21 31-Mar-21 30-Apr-21 31-May-21 30-Jun-21 31-Jul-21 31-Aug-21 30-Sep-21 31-Oct-21 30-Nov-21 31-Dec-21 22 Onex Corporation December 31, 2021 MANAGEMENT’S DISCUSSION AND ANALYSIS FINANCIAL REVIEW This section discusses the significant changes in Onex’ consolidated statement of earnings, consoli- dated balance sheet and consolidated statement of cash flows for the fiscal year ended December 31, 2021 compared to those for the year ended December 31, 2020 and, in selected areas, to those for the year ended December 31, 2019. In simple terms, Onex is an investor and asset manager. Users of the consolidated financial statements may note Invest ments and investing activity refer to the investment detailed line-item disclosures relating to intercompany of Onex’ investing capital primarily in its private equity loans. IFRS requires specific disclosures and presentation of funds, credit strategies and certain investments held out- intercompany loans between Onex and the Asset Managers, side the private equity funds and credit strategies. These and the Investment Holding Companies. Specifically, IFRS investments are primarily held directly or indirectly through requires that: wholly-owned subsidiaries of Onex, which are referred to as • intercompany loans payable by Onex and the Asset Man- Investment Holding Companies. While there are a number agers to the Investment Holding Companies are recog- of Investment Holding Companies, substantially all of these nized as liabilities in Onex’ consolidated balance sheets. companies consist of direct or indirect subsidiaries of Onex A corresponding and offsetting amount is recognized Private Equity Holdings LLC, Onex CLO Holdings LLC or within corporate investments in Onex’ consolidated bal- Onex Credit Holdings LLC. These three companies, which ance sheets, representing the related loans receivable are referred to as the Primary Investment Holding Com- from Onex and the Asset Managers; and panies, are the holding companies for the majority of Onex’ • intercompany loans payable by Investment Holding investments, excluding intercompany loans receivable from Companies to Onex and the Asset Managers are part of the Onex and the Asset Managers. The Primary Investment fair value measurement of Onex’ corporate investments Holding Companies were formed in the United States. in the consolidated balance sheets, which reduces the Asset management refers to the activity of man- fair value of Onex’ corporate investments. Onex classi- aging capital in Onex’ private equity funds, private credit fies the corresponding loans receivable from Investment strategies and public strategies. This activity is conducted Holding Companies within corporate investments in its through wholly-owned subsidiaries of Onex, which are consolidated balance sheets, which increases the value of the managers of the Onex Partners Funds, ONCAP Funds, Onex’ corporate investments by the same amount as the private credit strategies and public strategies. These subsid- related loans payable. iaries are referred to as Onex’ Asset Managers and are con- solidated by Onex. Onex’ private credit strategies and public There is no impact to net assets or net earnings (loss) strategies are managed by the Onex Credit platform. from these intercompany loans in Onex’ consolidated financial statements. Onex Corporation December 31, 2021 23 MANAGEMENT’S DISCUSSION AND ANALYSISThe simplified diagram below illustrates the types of subsidiaries included within Onex’ corporate structure and the basis on which they are accounted for. 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 Funds(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 sheets, with the corresponding loans receivable classified as assets within corporate investments in the consolidated balance sheets. (2) Onex’ investments in the Investment Holding Companies are recorded as corporate investments at fair value through net earnings (loss). (3) Onex’ investments in private equity and the Onex Credit strategies are typically held directly or indirectly through wholly-owned investment holding companies, which are subsidiaries of the Primary Investment Holding Companies identified above. 24 Onex Corporation December 31, 2021 MANAGEMENT’S DISCUSSION AND ANALYSISC 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 Revenue recognition The Company’s significant revenue streams are as follows: This section should be read in conjunction with Onex’ consolidated statements of earnings and corresponding Management and advisory fees notes thereto. 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 Corporate investments Corporate investments include Onex’ investments in its subsidiaries, primarily consisting of Investment Holding Companies, that meet the investment entity exception to consolidation criteria in IFRS 10. These subsidiaries primar- ily invest Onex’ capital in the Onex Partners Funds, ONCAP Funds and certain private credit strategies. Corporate investments are measured at fair value through net earn- ings (loss) 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 and payable to Onex and the Asset Managers. In addition, the fair value of corporate investments includes Onex’ por- tion of the carried interest earned on investments made by the Onex Partners Funds and ONCAP Funds, and the liabil- ity associated with management incentive programs, includ- ing the Management Investment Plan (the “MIP”). The majority of the Company’s corporate invest- ments, excluding intercompany loans, consisted of invest- ments made in the Primary Investment Holding Compa- nies and investments made in operating businesses directly by Onex. Intercompany loans with Investment Holding Companies Intercompany loans payable to the Investment Holding Companies represent financial liabilities that are payable to subsidiaries of Onex, which are recorded at fair value in the consolidated financial statements. Intercompany loans receivable from the Investment Holding Companies are classified as corporate investments and represent loans receivable from subsidiaries of Onex, which are recorded at fair value in the consolidated financial statements. Onex has elected to measure these financial instruments at fair value through net earnings (loss) in accordance with IFRS 9. Onex earns management and advisory fees for managing investor capital through its private equity funds, private credit strategies and public strategies, and for services pro- vided directly to certain underlying operating businesses. Asset management services are provided over time and the amount earned is generally calculated based on a percentage of limited partners’ committed capital, limited partners’ net funded commitments, unfunded commitments, the collat- eral principal balance, invested capital, gross invested assets, net asset value or assets under management of the respective strategies. Revenues earned from management and advisory fees are recognized over time as services are provided. Reimbursement of expenses from investment funds and operating businesses Certain deal investigation, research and other expenses incurred by the Asset Managers are recoverable, at cost, from the Onex private equity funds, private credit strategies and certain operating businesses of the Onex Partners and ONCAP Funds. These expense reimbursements are recog- nized as revenue in accordance with IFRS 15, Revenue from contracts with customers (“IFRS 15”). Performance fees Performance fees are recognized as revenue to the extent the fees are highly probable to not reverse, which is typically at the end of each performance year, or upon closure of an account or transfer of assets to a different investment model. Performance fees associated with the management of certain public strategies and private credit strategies are comprised of performance fees and performance allo- cations. Performance fees are determined by applying an agreed-upon formula to the growth in the net asset value of clients’ assets under management. Performance allocations are allocated to the Company as a General Partner of cer- tain public strategy funds. Performance fees associated with capital managed by Onex Credit range between 10% and 20% and may be subject to performance hurdles. Onex Corporation December 31, 2021 25 MANAGEMENT’S DISCUSSION AND ANALYSISCarried interest – Onex Credit Funds Signiﬁcant accounting estimates and judgements The general partners of the Onex Credit Funds are entitled Onex prepares its consolidated financial statements in to a carried interest of up to 20% on the realized net gains accordance with IFRS. The preparation of financial state- from limited partners in certain private credit funds, subject ments in conformity with IFRS requires management to to a hurdle or minimum preferred return to investors. The make judgements, estimates and assumptions that affect Onex Falcon management team is allocated the entire car- the reported amounts of assets, liabilities and equity, the ried interest for Onex Falcon Funds acquired with Onex Fal- related disclosures of contingent assets and liabilities at the con in December 2020, with the exception of Private Credit date of the financial statements, and the reported amounts Opportunities Fund VI (“Onex Falcon VI”), where Onex Fal- of revenue, expenses and gains (losses) on financial instru- con management is entitled to approximately 80% of the ments during the reporting period. Actual results could dif- carried interest and Onex’ entitlement is approximately 20%. fer materially from those estimates and assumptions. These In most other cases, the Onex Credit management team is estimates and underlying assumptions are reviewed on an allocated 50% of the carried interest from other private credit funds and Onex is entitled to the remaining 50% of the ongoing basis. Revisions to accounting estimates are recog- nized in the period in which the estimate is revised if the carried interest realized from the private credit investments. revision affects only that period, or in the period of the revi- Carried interest earned by Onex from the Onex sion and future periods if the revision affects both current Credit Funds is recognized as revenue to the extent it is and future periods. highly probable to not reverse, which typically occurs when Areas that involve critical judgements, assump- the investments held by a given fund are substantially real- tions and estimates and that have a significant influence on ized, towards the end of the fund’s term. the amounts recognized in the consolidated financial state- ments are further described as follows: Contingent consideration Contingent consideration is established for business acqui- Investment entity status sitions where the Company has the obligation to transfer Judgement was required when determining whether Onex, additional assets or equity interests to the former owners the parent company, meets the definition of an investment if specified future events occur or conditions are met. The entity, which IFRS 10 defines as an entity that: (i) obtains fair value of contingent consideration liabilities is typically funds from one or more investors for the purpose of provid- based on the estimated future financial performance of the ing those investors with investment management services; acquired business. Financial targets used in the estimation (ii) commits to its investors that its business purpose is to process include certain defined financial targets and inter- invest funds solely for returns from capital appreciation, nal rates of return. Contingent consideration is classified as investment income, or both; and (iii) measures and evalu- a liability when the obligation requires settlement in cash ates the performance of substantially all of its investments or other assets, and as equity when the obligation requires on a fair value basis. When determining whether Onex met settlement in own equity instruments. Contingent consid- the definition of an investment entity under IFRS 10, Onex eration classified as a liability is remeasured at fair value at management applied significant judgement when assess- each reporting date, with changes in fair value recognized ing whether the Company measures and evaluates the per- through net earnings (loss). formance of substantially all of its investments on a fair value basis. Onex management also considered the impact of acquisitions made by the Company when determining whether Onex met the definition of an investment entity under IFRS 10. 26 Onex Corporation December 31, 2021 MANAGEMENT’S DISCUSSION AND ANALYSISOnex conducts its business primarily through con- For publicly traded investments, the valuation is trolled subsidiaries, which consist of entities providing asset based on closing market prices less adjustments, if any, for management services, investment holding companies and regulatory and/or contractual sale restrictions. General Partners of private equity funds, credit funds and The fair value of underlying investments in pri- limited partnerships. Certain of these subsidiaries were vate credit strategies that are not quoted in an active mar- formed for legal, regulatory or similar reasons by Onex ket may be determined by using reputable pricing sources and share a common business purpose. The assessment of (such as pricing agencies) or indicative prices from bond/ whether Onex, the parent company, meets the definition of debt market makers. Broker quotes as obtained from the an investment entity was performed on an aggregate basis pricing sources may be indicative and not executable or with these subsidiaries. Corporate investments binding. Judgement and estimates are exercised to deter- mine the quantity and quality of the pricing sources used. Where no market data is available, positions may be val- The measurement of corporate investments is significantly impacted by the fair values of the investments held by the ued using models that include the use of third-party pricing information, and are usually based on valuation methods Onex Partners Funds, ONCAP Funds and private credit strat- and techniques generally recognized as standard within the egies. The fair value of corporate investments is assessed at industry. Models use observable data to the extent practica- each reporting date with changes in fair value recognized ble. However, areas such as credit risk (both own and coun- through net earnings (loss). terparty), volatilities and correlations may require estimates The valuation of non-public investments requires to be made. Changes in assumptions about these factors significant judgement due to the absence of quoted market could affect the reported fair value of the underlying invest- values, inherent lack of liquidity and the long-term nature ments in private credit strategies. of such investments. Valuation methodologies include dis- Management incentive programs are included in counted cash flows and observations of the trading multi- the fair value of corporate investments and are determined ples of public companies considered comparable to the pri- using an internally developed valuation model. The critical vate companies being valued. Key assumptions made in the assumptions and estimates used in the valuation model valuations include unlevered free cash flows, including the include the fair value of the underlying investments, the timing of earnings projections and the expected long-term time to expected exit from each investment, a risk-free rate revenue growth, the weighted average costs of capital and and an industry-comparable historical volatility for each the exit multiples. The valuations take into consideration investment. The fair value of the underlying investments company-specific items, the lack of liquidity inherent in a includes the same critical assumptions and estimates pre- non-public investment and the fact that comparable public viously described. companies are not identical to the companies being valued. The changes in fair value of corporate investments Such considerations are necessary since, in the absence of are further described on page 34 of this MD&A. a committed buyer and completion of due diligence proce- dures, there may be company-specific items which are not The Company assessed whether its underlying subsidiaries fully known that may affect the fair value. A variety of addi- met the definition of an investment entity, as defined under tional factors are reviewed, including, but not limited to, IFRS 10. In certain circumstances, this assessment was per- financing and sales transactions with third parties, current formed together with other entities that were formed in operating performance and future expectations of the par- connection with each other for legal, regulatory or similar ticular investment, changes in market outlook and the third- reasons. Similarly, where a subsidiary’s current business party financing environment. In determining changes to purpose is to facilitate a common purpose with a group of the fair value of the underlying private equity investments, entities, the assessment of whether those subsidiaries met emphasis is placed on current company performance and the definition of an investment entity was performed on an market conditions. aggregated basis. Onex Corporation December 31, 2021 27 MANAGEMENT’S DISCUSSION AND ANALYSISCertain subsidiaries were formed for various busi- the methodology used, can have a material impact on the ness purposes that, in certain circumstances, have evolved respective values and ultimately the amount of any goodwill since their formation. When the Company assessed whether impairment. Likewise, whenever property, equipment and these subsidiaries met the definition of an investment entity, other intangible assets are tested for impairment, the deter- as defined under IFRS 10, professional judgement was exer- mination of the assets’ recoverable amount involves the cised to determine the primary business purpose of these use of estimates by management, and can have a material subsidiaries and the measurement basis, which were signif- impact on the respective values and ultimately the amount icant factors in determining their investment entity status. of any impairment. Business combination Income and other taxes Onex acquired Falcon in December 2020 and accounted The Company operates and earns income in various coun- for this acquisition as a business combination in accor- dance with IFRS 3, Business combinations. Substantially all of the identifiable assets and liabilities of Onex Falcon tries and is subject to changing tax laws or application of tax laws in multiple jurisdictions within these countries. Significant judgement is necessary in determining world- were recorded at their fair values on the date of the acqui- wide income and other tax liabilities. Although manage- sition. One of the most significant areas of judgement and ment believes that it has made reasonable estimates about estimation was related to the determination of the fair val- the final outcome of tax uncertainties, no assurance can be ues of these assets and liabilities, including the fair value given that the final outcome of these tax matters will be con- of contingent consideration. Intangible assets that were sistent with what is reflected in the historical income tax pro- identified were valued by independent external valuation visions. Such differences could have an effect on income and experts using appropriate valuation techniques, which were other tax liabilities and deferred tax liabilities in the period in generally based on a forecast of the total expected future which such determinations are made. At each balance sheet net cash flows. These valuations were linked closely to the date, the Company assesses whether the realization of future assumptions made by management regarding the future tax benefits is sufficiently probable to recognize deferred performance of the assets concerned and any changes in tax assets. This assessment requires the exercise of judge- the discount rate applied. ment on the part of management with respect to, among other things, benefits that could be realized from available Goodwill impairment tests and recoverability of assets tax strategies and future taxable income, as well as other The Company tests at least annually whether goodwill has positive and negative factors. The recorded amount of total suffered any impairment, in accordance with its accounting deferred tax assets could be reduced if estimates of projected policies. The determination of the recoverable amount of a future taxable income and benefits from available tax strate- cash-generating unit to which goodwill is allocated involves gies are lowered, or if changes in current tax regulations are the use of estimates by management. The Company gener- enacted that impose restrictions on the timing or extent of ally uses discounted cash flow-based methods to determine the Company’s ability to utilize future tax benefits. these values. These discounted cash flow calculations typi- The Company uses significant judgement when cally use five-year projections that are based on the operat- determining whether to recognize deferred tax liabilities ing plans approved by management. Cash flow projections with respect to taxable temporary differences associated take into account past experience and represent manage- with corporate investments, in particular whether the ment’s best estimate of future developments. Cash flows Company is able to control the timing of the reversal of the after the planning period are extrapolated using estimated temporary differences and whether it is probable that the growth rates. Key assumptions on which management has temporary differences will not reverse in the foreseeable based its determination of fair value less costs to sell and future. Judgement includes consideration of the Company’s value in use include estimated growth rates, weighted aver- future cash requirements in its numerous tax jurisdictions. age cost of capital and tax rates. These estimates, including 28 Onex Corporation December 31, 2021 MANAGEMENT’S DISCUSSION AND ANALYSISLegal provisions and contingencies uncertainty regarding the long-term impact of COVID-19. The Company, in the normal course of operations, can The ultimate impact of COVID-19 on the financial results of become involved in various legal proceedings. While the the Company will depend on future developments, includ- Company cannot predict the final outcome of such legal ing the duration and spread of the pandemic and related proceedings, the outcome of these matters may have a advisories and restrictions. These developments and the material effect on the Company’s consolidated financial impact of COVID-19 on the financial markets and the overall position, results of operations or cash flows. Management economy are highly uncertain and difficult to predict. If the regularly analyzes current information about such matters financial markets and/or the overall economy are impacted and provides provisions for probable contingent losses, for a period significantly longer than currently implied by including an estimate of legal expenses to resolve the the markets, the financial results of the Company, including matters. Internal and external counsel are used for these the fair value of its corporate investments, may be materi- assessments. In making the decision regarding the need for ally adversely affected. provisions, management considers the degree of probability of an unfavourable outcome and the ability to make a suffi- ciently reliable estimate of the amount of loss. The filing of a suit or formal assertion of a claim or the disclosure of any such suit or assertion does not automatically indicate that a provision may be appropriate. Impact of COVID-19 on significant estimates During March 2020, the World Health Organization char- acterized COVID-19 as a pandemic. COVID-19 has had a material adverse impact on global economies, including economies that the underlying private equity operating businesses operate in, as well as global credit markets. As a result of COVID-19, the fair value estimates of the Com- pany’s private equity investments were impacted as follows: • higher weightings were given to valuation approaches that reflected more current market information; • cash flow forecasts used in discounted cash flow valuation models were updated to reflect the known and expected impacts of COVID-19; and • risk premiums implied by equity and credit markets due to the uncertainty surrounding the long-term impacts of COVID-19 were considered. As a result of the above impacts, certain private equity investments held by the Company at December 31, 2020 reflected significant fair value declines. Determining the impact of COVID-19 on the valuation of the Company’s corporate investments and the recover- able amount of the Company’s goodwill and intangible assets required significant judgement given the amount of V A R I A B I L I T Y O F R E S U L T S Onex’ consolidated operating results may vary substan- tially from quarter to quarter and year to year for a number of reasons. Those reasons may be significant with respect to (i) Onex’ asset management activities and the fees and carried interest associated therewith; (ii) the aggregate fair value of its investments in and related to the private equity funds, including the underlying private equity operat- ing businesses, and credit strategies as a result of not only changes in specific underlying values but also new invest- ments or realizations by those funds; or (iii) Onex’ cash posi- tion or the amount and value of its treasury investments. More broadly, Onex’ results may be materially affected by such factors as changes in the economic or political envi- ronment, pandemics or outbreaks of new infectious dis- eases or viruses (including the COVID-19 pandemic), foreign exchange and interest rates, the value of stock-based com- pensation, and tax and trade legislation or its application, for example. Given the diversity of Onex’ asset management businesses and of the Onex Partners and ONCAP Funds’ operating businesses and private credit investments, the exposures, risks and contingencies that could impact Onex’ investments may be many, varied and material. Certain of those matters are discussed under the heading “Risk Fac- tors” in Onex’ 2021 Annual Information Form. In addition, the fair values of Onex’ underlying investments in private credit strategies are impacted by the CLO market, leveraged loan market and credit risk (both own and counterparty), which may vary substantially from quarter to quarter and year to year. Onex Corporation December 31, 2021 29 MANAGEMENT’S DISCUSSION AND ANALYSISA C Q U I S I T I O N O F F A L C O N In December 2020, Onex Credit acquired 100% of Falcon for a value of $131 million. Falcon is a U.S. private credit 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 manager, which provides private credit financing solutions The discussions that follow identify those material factors and employs an opportunistic approach to mezzanine and that affected Onex’ consolidated financial results for the other direct lending investments for U.S. middle-market three months and year ended December 31, 2021. companies. The Company acquired Falcon to grow and complement its existing credit platform. Following the acquisition, the business operates as Onex Falcon. Consolidated net earnings Onex recorded consolidated net earnings of $214 million The purchase price consisted of $98 million paid and net earnings per diluted share of $2.45 during the three on closing and additional amounts of up to $80 million months ended December 31, 2021 compared to net earnings payable based primarily on Onex Falcon’s financial per- formance from 2022 to 2024 and the size and performance of $597 million and net earnings per diluted share of $6.61 recorded during the three months ended December 31, 2020. of future funds to be launched by Onex Falcon. The con- Onex recorded consolidated net earnings of $1.4 bil- tingent consideration was recognized at a fair value of lion and net earnings per diluted share of $15.76 during the $33 million as part of the purchase price for the transaction. year ended December 31, 2021 compared to net earnings At December 31, 2021, the fair value of contingent consider- of $730 million and net earnings per diluted share of $7.63 ation in connection with the acquisition of Onex Falcon was recorded during the year ended December 31, 2020. $43 million, which was recognized as a liability in Onex’ Tables 1 and 2 present the segmented results consolidated balance sheet. for the three months and years ended December 31, 2021 Onex determined that Onex Falcon and the whol- and 2020. Onex’ segmented results include allocations of ly-owned subsidiaries that were formed to acquire the com- management fees and carried interest that would have pany did not meet the definition of an investment entity been recognized on Onex’ capital in the Onex Partners under IFRS 10 and that the entities’ primary business pur- and ONCAP Funds had Onex’ capital been subject to the pose, as a whole, is to provide investment-related services. As same terms as third-party limited partners. These alloca- such, Onex’ consolidated balance sheets include the assets tions are made as this presentation of segmented results is and liabilities of Onex Falcon and the wholly-owned subsid- used by Onex management, in part, to assess Onex’ perfor- iaries that were formed to acquire the company. No revenues, mance. During the three months and years ended Decem- expenses or operating cash flows from Onex Falcon were rec- ber 31, 2021 and 2020, these allocations, on a net basis, ognized in Onex’ 2020 consolidated statements of earnings decreased Onex’ investing segment income and increased and cash flows given the short operating period from the date Onex’ asset management segment income, with no net of acquisition of Onex Falcon to December 31, 2020. impact to total segment net earnings. 30 Onex Corporation December 31, 2021 MANAGEMENT’S DISCUSSION AND ANALYSISOnex’ segmented results also include unrealized Onex’ segmented results exclude revenues and carried interest from third-party limited partners in the Onex expenses associated with recoverable expenses from the Credit Funds, which are recognized based on the fair values Onex Partners Funds, ONCAP Funds, private credit strat- of the underlying investments and the unrealized net gains egies and the operating businesses of Onex Partners and in each respective Fund, in accordance with the limited part- ONCAP. Onex management excludes these amounts when nership agreements. In Onex’ consolidated financial state- assessing Onex’ performance given the nature of these ments, carried interest from the Onex Credit Funds is recog- expenses, which are recoverable at cost. nized when realized, as described on page 26 of this MD&A. TABLE 1 ($ millions) Three Months Ended December 31, 2021 Three Months Ended December 31, 2020 Investing Management(a) Total Investing Management(a) Total Asset Asset Net gain on corporate investments (including an increase in carried interest) $ 263(b)(c) $ 59(b) $ 322(b)(c) $ 609(b)(c) Management and advisory fees Performance fees Other income Total segment income Compensation Amortization of right-of-use assets Other expenses Segment net earnings – – – 263 – – – 81(c) 81(c) 13 1 154 (64) (3) (20) 13 1 417 (64) (3) (20) – – – 609 – – – $ 79(b) 76(c) 16 1 172 (61) (2) (10) $ 688 (b)(c) 76 (c) 16 1 781 (61) (2) (10) $ 263 $ 67 $ 330 $ 609 $ 99 $ 708 Stock-based compensation expense Amortization of property, equipment and intangible assets, excluding right-of-use assets Acquisition and integration expenses Contingent consideration expense Unrealized carried interest revenue – Onex Credit Funds Earnings before income taxes Recovery of income taxes Net earnings Segment net earnings per share (d) Net earnings per share – diluted (78) (11) – (10) (18) $ 213 1 $ 214 $ 3.65 $ 2.45 (87) (12) (12) – – $ 597 – $ 597 $ 7.72 $ 6.61 (a) The asset management segment includes the costs of Onex’ corporate functions. (b) The asset management segment includes an allocation of $15 million (2020 – $25 million) from the investing segment, representing carried interest that would have been earned by the asset management segment had Onex’ private equity capital been subject to carried interest under the same terms as third-party limited partners of the Onex Partners and ONCAP Funds. The asset management segment also includes a net gain of $18 million (2020 – nil) for unrealized carried interest from third-party limited partners in the Onex Credit Funds. (c) The asset management segment includes an allocation of $13 million (2020 – $14 million) from the investing segment, representing management fees that would have been earned by the asset management segment had Onex’ private equity capital been subject to management fees under the same terms as third-party limited partners of the Onex Partners and ONCAP Funds. (d) Calculated on a fully diluted basis. Onex Corporation December 31, 2021 31 MANAGEMENT’S DISCUSSION AND ANALYSISTABLE 2 ($ millions) Year Ended December 31, 2021 Year Ended December 31, 2020 Investing Management(a) Total Investing Management(a) Total Asset Asset Net gain on corporate investments (including an increase in carried interest) $ 1,304(b)(c) $ 359(b) $ 1,663(b)(c) $ 757(b)(c) Management and advisory fees Performance fees Interest and net treasury investment income Other income – – 1 – 330(c) 330(c) 13 – 3 13 1 3 Total segment income 1,305 705 2,010 Compensation Amortization of right-of-use assets Other expenses – – – (248) (12) (61) (248) (12) (61) – – 16 – 773 – – – $ 35(b) 300(c) $ 792 (b)(c) 300 (c) 16 – 3 354 (207) (10) (50) 16 16 3 1,127 (207) (10) (50) Segment net earnings $ 1,305 $ 384 $ 1,689 $ 773 $ 87 $ 860 Stock-based compensation recovery (expense) Amortization of property, equipment and intangible assets, excluding right-of-use assets Acquisition and integration expenses Contingent consideration expense Unrealized carried interest revenue – Onex Credit Funds Impairment of goodwill Earnings before income taxes Recovery of income taxes Net earnings Segment net earnings per share (d) Net earnings per share – diluted (205) (47) (5) (10) (18) – $ 1,404 1 $ 1,405 $ 18.42 $ 15.76 21 (47) (19) – – (85) $ 730 – $ 730 $ 8.95 $ 7.63 (a) The asset management segment includes the costs of Onex’ corporate functions. (b) The asset management segment includes an allocation of $111 million (2020 – $14 million) from the investing segment, representing carried interest that would have been earned by the asset management segment had Onex’ private equity capital been subject to carried interest under the same terms as third-party limited partners of the Onex Partners and ONCAP Funds. The asset management segment also includes a net gain of $18 million (2020 – nil) for unrealized carried interest from third-party limited partners in the Onex Credit Funds. (c) The asset management segment includes an allocation of $53 million (2020 – $56 million) from the investing segment, representing management fees that would have been earned by the asset management segment had Onex’ private equity capital been subject to management fees under the same terms as third-party limited partners of the Onex Partners and ONCAP Funds. (d) Calculated on a fully diluted basis. 32 Onex Corporation December 31, 2021 MANAGEMENT’S DISCUSSION AND ANALYSISTable 3 presents the segmented results for the years ended December 31, 2020 and 2019. TABLE 3 ($ millions) Year Ended December 31, 2020 Year Ended December 31, 2019 Investing Management(a) Total Investing Management(a) Total Asset Asset Net gain (loss) on corporate investments (including an increase in carried interest) $ 757(b)(c) $ 35(b) $ 792(b)(c) $ 743(b)(c) $ (5)(b) $ 738 (b)(c) Management and advisory fees Performance fees Interest and net treasury investment income Other income Total segment income Compensation Amortization of right-of-use assets Other expenses – – 16 – 773 – – – 300(c) 300(c) 16 – 3 354 (207) (10) (50) 16 16 3 1,127 (207) (10) (50) – – 14 – 757 – – (1) 302(c) 24 – 3 324 (178) (9) (57) 302 (c) 24 14 3 1,081 (178) (9) (58) Segment net earnings $ 773 $ 87 $ 860 $ 756 $ 80 $ 836 Stock-based compensation recovery (expense) Amortization of property, equipment and intangible assets, excluding right-of-use assets Acquisition and integration expenses Impairment of goodwill 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 (d) Net earnings per share – diluted 21 (47) (19) (85) – – $ 730 – $ 730 $ 8.95 $ 7.63 (60) (36) (50) – 3,719 (170) $ 4,239 38 $ 4,277 $ 8.09 $ 42.74 (a) The asset management segment includes the costs of Onex’ corporate functions. (b) The asset management segment includes an allocation of $14 million (2019 – net reversal of $4 million) from the investing segment, representing carried interest that would have been earned by the asset 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. (c) The asset management segment includes an allocation of $56 million (2019 – $61 million) from the investing segment, representing management fees that would have been earned by the asset 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. (d) Calculated on a fully diluted basis. Onex Corporation December 31, 2021 33 MANAGEMENT’S DISCUSSION AND ANALYSISConsolidated income for the three months and years ended December 31, 2021 and 2020 Consolidated income for the three months and years ended During the three months and year ended December 31, 2021, Onex’ investing segment recognized a net gain on corporate investments of $263 million and $1.3 billion, respectively December 31, 2021 and 2020 primarily consisted of: (i) a net (2020 – $609 million and $757 million, respectively), which gain on corporate investments, which primarily consisted was primarily attributable to the following private equity of Onex’ share of the net gain in the Onex Partners Funds investments and private credit strategies: and ONCAP Funds; and (ii) management and advisory fees, which Onex earns primarily from managing client and lim- ited partner capital through its private equity funds, private credit strategies and public strategies. TABLE 4 ($ millions) Net Gain (Loss) on Private Equity Investments Onex Partners Funds(a) Onex Partners II Onex Partners III Onex Partners IV Onex Partners V Management incentive programs Total net gain from Onex Partners Funds ONCAP Funds(a) ONCAP II ONCAP III ONCAP IV Management incentive programs Total net gain from ONCAP Funds Net gain from other private equity investments Management fees on Onex’ private equity capital(b) Carried interest on Onex’ private equity capital(c) Three Months Ended December 31, 2021 Three Months Ended December 31, 2020 Year Ended December 31, 2021 Year Ended December 31, 2020 $ 2 22 1 84 1 110 16 11 46 (14) 59 106 (13) (15) $ (6) $ (41) 50 149 181 (40) 334 17 32 39 (16) 72 116 (14) (25) 96 454 313 (71) 751 47 92 57 (36) 160 422 (53) (111) $ (32) (103) 569 149 (96) 487 (4) 62 69 (26) 101 213 (56) (14) Total net gain from private equity $ 247 $ 483 $ 1,169 $ 731 (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’ private equity 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 and increase Onex’ asset management segment income. (c) Represents carried interest that would have been recognized had Onex’ private equity 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, with a corresponding decrease (increase) in Onex’ asset management segment income. 34 Onex Corporation December 31, 2021 MANAGEMENT’S DISCUSSION AND ANALYSISDuring the three months ended December 31, 2021, the net of Onex Partners IV was primarily due to Parkdean Resorts, gain from private equity investments was primarily driven PowerSchool, SCP Health and SIG, partially offset by the by net gains from other private equity investments and underlying fair value decrease of Clarivate Analytics. Onex Partners V. The increase in fair value of other private The increase in fair value of other private equity equity investments was primarily due to Celestica and RSG. investments during the three months ended December 31, The net gain from Onex Partners V was primarily due to the 2020 was primarily due to RSG. underlying fair value increases of Convex, Imagine Learn- ing, OneDigital and Partou, partially offset by the underly- During the year ended December 31, 2020, the net gain from ing fair value decrease of Emerald. private equity investments reflected the overall resiliency and diversification of the operating businesses that Onex During the year ended December 31, 2021, the net gain from has invested in directly or through the Onex Partners and private equity investments was primarily driven by net gains ONCAP Funds, despite certain operating businesses having from other private equity investments, Onex Partners IV and Onex Partners V. The increase in fair value of other private individually declined in fair value as a result of being more directly impacted by the market volatility and economic equity investments was primarily due to RSG. The net gain disruption resulting from the COVID-19 pandemic. The net from Onex Partners IV was primarily due to the underlying gain from private equity investments benefitted slightly fair value increases of Advanced Integration Technology, from the weakening of the U.S. dollar against the Canadian ASM Global, Parkdean Resorts, Ryan LLC, SCP Health and dollar and pound sterling during the year ended Decem- WireCo WorldGroup, partially offset by the underlying fair ber 31, 2020, which increased the fair value of certain under- value decrease of Clarivate Analytics. The net gain from lying investments. Onex Partners V was primarily due to the underlying fair In the Onex Partners Funds, the increase in fair value increases of Acacium Group, Convex, Imagine Learn- value of Onex Partners IV was primarily due to Clarivate ing and OneDigital. Analytics, PowerSchool and SIG, partially offset by the underlying fair value decrease of ASM Global. The decrease During the three months ended December 31, 2020, the net in fair value of Onex Partners III was primarily due to the gain from private equity investments was primarily driven underlying fair value decrease of Emerald. by increases in the fair value of Onex’ investments in the The increase in fair value of other private equity Onex Partners Funds. The increase in fair value of Onex investments during the year ended December 31, 2020 was Partners V was primarily due to some improvement in the primarily due to RSG. fair values of Emerald and WestJet. The increase in fair value TABLE 5 ($ millions) Net Gain (Loss) on Investments in Private Credit Strategies Private Credit Strategies U.S. CLOs EURO CLOs CLO warehouses Middle-market lending Senior loan strategies Opportunistic and special situation strategies Structured credit and high yield strategies Direct lending Three Months Ended December 31, 2021 Three Months Ended December 31, 2020 Year Ended December 31, 2021 Year Ended December 31, 2020 $ 13 – 1 3 2 2 – 2 $ 90 23 – 7 8 6 – – $ 93 21 1 13 10 12 5 2 $ 33 (3) 5 3 5 10 1 – Total net gain from Private Credit Strategies $ 23 $ 134 $ 157 $ 54 Onex Corporation December 31, 2021 35 MANAGEMENT’S DISCUSSION AND ANALYSIS The net gain on investments in private credit strategies The net gain on investments in private credit strategies rec- recognized during the three months ended December 31, ognized during the three months and year ended Decem- 2021 was primarily driven by a net gain on U.S. CLOs and ber 31, 2020 was primarily driven by net gains from the middle-market lending. Onex Credit CLOs due to a strengthening of the leveraged loan market following the market volatility and economic The net gain on investments in private credit strategies disruption resulting from the COVID-19 pandemic. recognized during the year ended December 31, 2021 was primarily driven by U.S. CLOs and EURO CLOs. Management and advisory fees for the three months and years ended December 31, 2021 and 2020 were generated from the following sources: TABLE 6 ($ millions) Source of management and advisory fees Private Equity Funds (a) Private Credit Strategies Public Strategies Total management and advisory fees earned Management fees on Onex’ private equity capital (b) Total segment management and advisory fees Management and Advisory Fees Three Months Ended December 31, 2021 Three Months Ended December 31, 2020 Change in Total $ 30 23 15 $ 68 13 $ 81 $ $ $ 33 15 14 62 14 76 $ (3) 8 1 6 (1) $ $ 5 (9)% 53 % 7 % 10 % (7)% 7 % (a) Includes advisory fees earned from Onex Partners and ONCAP operating businesses. (b) Represents management fees that would have been earned had Onex’ private equity 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 management segment income. Segmented management and advisory fees for the three months ended December 31, 2021 were $81 million compared to $76 million in the same period in 2020. The increase was primarily due to increased management fees earned by private credit in connection with the acquisition of Onex Falcon in December 2020, as described on page 30 of this MD&A. During the three months ended December 31, 2021, Onex recognized $13 million of performance fees from its public strate- gies compared to $16 million in the same period in 2020. 36 Onex Corporation December 31, 2021 MANAGEMENT’S DISCUSSION AND ANALYSISTABLE 7 ($ millions) Management and Advisory Fees Year Ended December 31, 2021 Year Ended December 31, 2020 Change in Total Source of management and advisory fees Private Equity Funds (a) Private Credit Strategies Public Strategies Total management and advisory fees earned Management fees on Onex’ private equity capital (b) Total segment management and advisory fees $ 125 90 62 $ 277 53 $ 330 $ 129 $ (4) 54 61 $ 244 56 $ 300 36 1 $ 33 (3) $ 30 (3)% 67 % 2 % 14 % (5)% 10 % (a) Includes advisory fees earned from Onex Partners and ONCAP operating businesses. (b) Represents management fees that would have been earned had Onex’ private equity 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 management segment income. Segmented management and advisory fees for the year ended December 31, 2021 were $330 million compared to $300 million in the same period in 2020. The increase was primarily due to increased management fees earned by private credit in connec- tion with the acquisition of Onex Falcon in December 2020, as described on page 30 of this MD&A. During 2021, Onex recognized $13 million of performance fees from its public strategies, compared to $16 million in the same period in 2020. Management and advisory fees for the years ended December 31, 2020 and 2019 were generated from the following sources: TABLE 8 ($ millions) Management and Advisory Fees Year Ended December 31, 2020 Year Ended December 31, 2019 Change in Total Source of management and advisory fees Private Equity Funds (a) Public Strategies (b) Private Credit Strategies Total management and advisory fees earned Management fees on Onex’ private equity capital (c) Total segment management and advisory fees $ 129 61 54 $ 244 56 $ 300 $ 146 $ (17) 43 52 $ 241 61 $ 302 18 2 3 (5) $ $ (2) (12)% 42 % 4 % 1 % (8)% (1)% (a) Includes advisory fees earned from Onex Partners and ONCAP operating businesses. (b) Includes management fees earned from Gluskin Sheff since June 2019, when Onex acquired the company. (c) Represents management fees that would have been earned had Onex’ private equity 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 management segment income. Onex Corporation December 31, 2021 37 MANAGEMENT’S DISCUSSION AND ANALYSISThe decrease in segment management and advisory fees for the year ended December 31, 2020 was primarily due Compensation Compensation expense for the three months and year ended to a decrease from the Onex Partners Funds as realizations December 31, 2021 was $64 million and $248 million, respec- decreased the management fees in funds determined on the tively, compared to $61 million and $207 million, respectively, basis of limited partners’ net funded commitments, substan- during the same period in 2020. The increase in compensa- tially offset by the acquisition of Gluskin Sheff in June 2019. tion expense during the year ended December 31, 2021 was During the year ended December 31, 2020, Onex recognized Credit in connection with the acquisition of Onex Falcon in $16 million of performance fees compared to $24 million in December 2020 and to support the growth of the business. primarily due to increased compensation expense at Onex the same period in 2019. Performance fees recognized during these periods were primarily from Onex’ public strategies. Stock-based compensation expense (recovery) During the three months ended December 31, 2021, Onex Certain deal investigation, research and other costs in- curred by the Asset Managers are recoverable from the recorded a consolidated stock-based compensation expense of $78 million compared to $87 million during the same Onex private equity funds, private credit strategies and the period in 2020. The stock-based compensation expense operating businesses of Onex Partners and ONCAP. These recorded during the three months ended December 31, 2021 cost reimbursements are recognized as revenue in accor- dance with IFRS 15, Revenue from contracts with customers (“IFRS 15”). During the three months and year ended Decem- was primarily due to an 11% increase in the market value of Onex’ shares to C$99.28 at December 31, 2021 from C$89.54 at September 30, 2021. ber 31, 2021, Onex recognized $10 million and $42 million, During the year ended December 31, 2021, Onex respectively, in revenues and expenses associated with these recorded a consolidated stock-based compensation expense reimbursements (2020 – $6 million and $14 million, respec- of $205 million compared to a recovery of $21 million during tively). During the year ended December 31, 2019, Onex rec- the same period in 2020. The stock-based compensation ognized $24 million in revenues and expenses associated expense recorded during the year ended December 31, 2021 with these reimbursements. was primarily due to the 36% increase in the market value of Onex’ shares to C$99.28 at December 31, 2021 from C$73.06 at December 31, 2020. Table 9 details the change in stock-based compensation expense (recovery). Stock-Based Compensation Expense (Recovery) TABLE 9 ($ millions) Three Months Ended December 31 Year Ended December 31 Stock Option Plan Director DSU Plan Other Total stock-based compensation 2021 $ 77 1 – 2020 $ 86 1 – Change $ (9) – – 2021 $ 199 2 4 2020 $ (20) (1) – Change $ 219 3 4 expense (recovery) $ 78 $ 87 $ (9) $ 205 $ (21) $ 226 Amortization of property, equipment and intangible assets Amortization of property, equipment and intangible assets and $57 million, respectively) and consisted primarily of amortization expenses related to client relationship intan- gible assets, right-of-use assets and leasehold improve- for the three months and year ended December 31, 2021 was ments related to Onex’ leased premises. $14 million and $59 million, respectively (2020 – $14 million 38 Onex Corporation December 31, 2021 MANAGEMENT’S DISCUSSION AND ANALYSISImpairment of goodwill During the fourth quarter of 2021, management concluded that the goodwill and intangible assets associated with the acquisitions of Onex Falcon, Gluskin Sheff and Onex Credit were not impaired. charge of C$114 million ($85 million) associated with the goodwill of Gluskin Sheff, measured in accordance with IAS 36, Impairment of Assets (“IAS 36”). The impairment was primarily due to the decrease in assets under management as a result of the COVID-19 pandemic. The impairment for Gluskin Sheff was calculated on a fair value less costs Management concluded that as at March 31, 2020, condi- of disposal basis, which resulted in a recoverable amount tions existed which may indicate that goodwill and intan- of C$310 million ($219 million) as at March 31, 2020. As at gible assets associated with the acquisitions of Gluskin December 31, 2021, goodwill associated with the acqui- Sheff and Onex Credit were impaired as a result of the sition of Gluskin Sheff was C$146 million ($114 million) market volatility and economic disruption which began in (2020 – C$146 million ($114 million)). March 2020 in connection with the COVID-19 pandemic. Management determined that the goodwill and As a result, management tested the goodwill and intangi- ble assets of Gluskin Sheff and Onex Credit for impairment intangible assets associated with the acquisition of Onex Credit were not impaired as at March 31, 2020, based on as at March 31, 2020 and recorded a goodwill impairment their value in use. Other expenses Other expenses comprised the following: Other Expenses ($ millions) TABLE 10 Year ended December 31 Professional services Information technology Contingent consideration related to the acquisition of Falcon (note 26) Acquisition and integration expenses Facilities Travel Directors’ compensation Interest expense from lease liabilities Donations Insurance Foreign exchange Administrative and other Total 2021 $ 18 12 10 5 5 4 2 2 2 2 – 14 76 $ 2020 $ 13 10 – 19 4 4 3 2 2 1 (1) 12 $ 69 During 2021, Onex recognized $5 million (2020 – $19 million) of acquisition and integration expenses, primarily related to Other comprehensive earnings Other comprehensive earnings of $1 million for the three the continued integration activities of Falcon, as described months and year ended December 31, 2021 (2020 – $12 mil- on page 30 of this MD&A, and continued integration activi- lion and nil, respectively) were due to favourable currency ties for Gluskin Sheff and Onex Credit. translation adjustments associated with the consolidation of Gluskin Sheff’s net assets (2020 – favourable). Onex Corporation December 31, 2021 39 MANAGEMENT’S DISCUSSION AND ANALYSISS U M M A R Y O F Q U A R T E R L Y I N F O R M A T I O N Table 11 summarizes Onex’ key consolidated financial information for the last eight quarters. Consolidated Quarterly Financial Information ($ millions except TABLE 11 per share amounts) 2021 2020 December September June March December September June March Total segment income (loss) $ 417 $ 688 $ 355 $ 550 $ 781 $ 585 $ 754 $ (993) Total segment expenses Segment net earnings (loss) (87) 330 (81) 607 (75) 280 Other non-segment items (116) (5) (106) Net earnings (loss) $ 214 $ 602 $ 174 Segment net earnings (loss) per share (i) $ 3.65 $ 6.59 $ 3.04 Net earnings (loss) per share – basic $ 2.45 $ 6.77 $ 1.95 Net earnings (loss) per share – diluted $ 2.45 $ 6.76 $ 1.95 (78) 472 (57) 415 5.12 4.60 4.59 $ $ $ $ (73) 708 (70) 515 (65) 689 (59) (1,052) (111) (14) (60) 55 $ 597 $ 501 $ 629 $ (997) $ 7.72 $ 5.39 $ 7.02 $ (10.34) $ 6.62 $ 6.61 $ 5.30 $ 6.44 $ (9.97) $ 5.29 $ 6.43 $ (9.97) (i) Calculated on a fully diluted basis. C A S H A N D N E A R - C A S H At December 31, 2021, Onex’ consolidated cash and cash equivalents balance was $547 million (2020 – $706 million) and Onex’ cash and near-cash consisted of the following: Cash and Near-Cash(a) TABLE 12 ($ millions) Cash and cash equivalents – Investing segment (b) Cash and cash equivalents within Investment Holding Companies (c) Treasury investments (d) Treasury investments within Investment Holding Companies (d) Management fees and recoverable fund expenses receivable (e) Subscription financing receivable (f) OCP Senior Floating Income Fund (g) Cash and near-cash (a) December 31, 2021 December 31, 2020 $ 357 228 290 310 308 130 – $ 505 111 234 307 122 – 98 $ 1,623 $ 1,377 (a) Cash and near-cash is a non-GAAP financial measure calculated using methodologies that are not in accordance with IFRS. The presentation of these measures does not have a standardized meaning prescribed under IFRS and are therefore unlikely to be comparable to similar financial measures presented by other companies. Onex management believes that cash and near-cash provides helpful information to investors to assess how the Company is managing its capital. (b) Excludes cash and cash equivalents allocated to the asset management segment related to accrued incentive compensation ($147 million (2020 – $125 million)) and contingent consideration related to the acquisition of Onex Falcon ($43 million (2020 – $33 million)). Cash and cash equivalents at December 31, 2020 were also reduced for the liability relating to the retirement of the Onex Credit chief executive officer ($43 million). (c) Includes restricted cash and cash equivalents of $21 million (December 31, 2020 – $22 million) for which the Company can readily remove the external restriction. Excludes cash and cash equivalents reserved for payments under the management incentive programs. (d) Includes net working capital managed by a third-party investment manager. (e) Includes management fees receivable from the Onex Partners and ONCAP Funds. The December 31, 2021 balance also includes recoverable fund expenses from the Onex Partners and ONCAP Funds. (f) Subscription financing receivable from the Onex Capital Solutions Fund attributable to third-party investors. (g) During the first quarter of 2021, Onex redeemed all of its investment in the Onex Credit Partners Senior Floating Income Fund. The proceeds from this redemption were invested in Onex Senior Credit Fund II, which was subsequently redeemed later in the year. 40 Onex Corporation December 31, 2021 MANAGEMENT’S DISCUSSION AND ANALYSISTable 13 provides a reconciliation of the change in cash and near-cash at Onex from December 31, 2020 to December 31, 2021. Change in Cash and Near-Cash TABLE 13 ($ millions) Cash and near-cash at December 31, 2020(a) Private equity realizations: Onex Partners Clarivate Analytics secondary offerings JELD-WEN secondary offerings Acacium Group shareholder loan repayment Other ONCAP Sale of Bradshaw Sale of Davis-Standard Sale of Pinnacle Other Direct investments RSG initial public offering and distributions Incline Aviation Fund I and Fund II Private equity investments: Onex Partners Imagine Learning investment Wealth Enhancement Group investment Newport Healthcare investment Fidelity BSG investment Other ONCAP Komar investment Other Direct investments Incline Aviation Fund I and Fund II Flushing Town Center distributions Net private credit strategies investment activity Onex share repurchases, options exercised, DSUs exercised and dividends Net other, including capital expenditures, management fees, operating costs, treasury income and changes in working capital (b) Cash and near-cash at December 31, 2021(a) (a) Refer to reconciliation in table 12. 224 203 16 20 132 75 43 35 500 13 (279) (226) (185) (83) (10) (20) (1) (40) Amount $ 1,377 1,261 (844) 14 103 (320) 32 $ 1,623 (b) Other includes recoverable fund expenses receivable from the Onex Partners and ONCAP Funds as at December 31, 2020. Beginning December 31, 2021, Onex treats recoverable fund expenses receivable from the Onex Partners and ONCAP Funds as near-cash. In February 2022, Onex invested approximately $96 million as part of the Onex Partners V Group’s acquisition of Tes Global, as described on page 13 of this MD&A. In February 2022, Onex invested approximately $16 million as part of the ONCAP IV Group’s acquisition of Merrithew, as described on page 13 of this MD&A. Onex Corporation December 31, 2021 41 MANAGEMENT’S DISCUSSION AND ANALYSISC 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 $12.9 billion at December 31, 2021 compared to $11.9 billion at December 31, 2020. The increase in consolidated assets was primarily driven by an increase in the fair value of the Company’s corporate investments, as described on page 34 of this MD&A, partially offset by a decrease in cash and cash equivalents, as described on page 41 of this MD&A, and a net decrease in intercompany loans receivable from Onex and the Asset Managers, which are included within corpo- rate investments. Table 14 presents consolidated assets by reportable segment as at December 31, 2021 and December 31, 2020. Consolidated Assets by Reportable Segment TABLE 14 ($ millions) As at December 31, 2021 As at December 31, 2020 Cash and cash equivalents Treasury investments Management and advisory fees, recoverable fund expenses and other receivables Corporate investments Unrealized carried interest – Onex Credit Funds Other assets Property and equipment Intangible assets Goodwill Investing $ 357 290 308(b) 7,239 18 – – – – Asset Management $ 190(a) $ – 61 – – 136 148 139 264 Total Investing 547 290 $ 505 234 369 7,239 18 136 148 139 264 122(b) 5,926 – – – – – Asset Management $ 201(a) $ – 139 – – 98 169 167 264 Total 706 234 261 5,926 – 98 169 167 264 Total segment assets $ 8,212 $ 938 $ 9,150 $ 6,787 $ 1,038 $ 7,825 Net intercompany loans receivable, comprising part of the fair value of Investment Holding Companies Unrealized carried interest – Onex Credit Funds Total assets Investing capital per share (U.S. dollars) (c) $ 90.75 Investing capital per share (Canadian dollars) (c) $ 115.05 3,755 (18) $ 12,887 $ 73.61 $ 93.73 4,043 – $ 11,868 (a) Cash and cash equivalents allocated to the asset management segment relate to accrued employee incentive compensation and contingent consideration related to the acquisition of Falcon. At December 31, 2020, cash and cash equivalents allocated to the asset management segment also included a liability relating to the retirement of the Onex Credit chief executive officer. (b) Represents management fees receivable that Onex has elected to defer cash receipt from the Onex Partners and ONCAP Funds. At December 31, 2021, the balance also included recoverable fund expenses from the Onex Partners and ONCAP Funds. (c) Calculated on a fully diluted basis. 42 Onex Corporation December 31, 2021 MANAGEMENT’S DISCUSSION AND ANALYSISTable 15 presents consolidated assets by reportable segment as at December 31, 2020 and December 31, 2019. Consolidated Assets by Reportable Segment TABLE 15 ($ millions) As at December 31, 2020 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 Investing $ 505 234 122(b) 5,926 – – – – Asset Management $ 201(a) $ – 139 – 98 169 167 264 Total Investing 706 234 $ 832 306 261 5,926 98 169 167 264 190(b) 5,233 – – – – Asset Management $ 156(a) $ – 142 – 126 181 158 261 Total 988 306 332 5,233 126 181 158 261 Total segment assets $ 6,787 $ 1,038 $ 7,825 $ 6,561 $ 1,024 $ 7,585 Net intercompany loans receivable, comprising part of the fair value of Investment Holding Companies Total assets Investing capital per share (U.S. dollars) (c) $ 73.61 Investing capital per share (Canadian dollars) (c) $ 93.73 4,043 $ 11,868 4,217 $ 11,802 $ 63.77 $ 82.83 (a) Cash and cash equivalents allocated to the asset management segment relate to accrued employee incentive compensation and the liabilities relating to the retirement of the Onex Credit chief executive officer and contingent consideration related to the acquisition of Falcon. At December 31, 2020, cash and cash equivalents allocated to the asset management segment also included a contingent consideration related to the acquisition of Falcon. (b) Represents management fees receivable that Onex has elected to defer cash receipt from the Onex Partners and ONCAP Funds. (c) Calculated on a fully diluted basis. Onex Corporation December 31, 2021 43 MANAGEMENT’S DISCUSSION AND ANALYSISCorporate investments The Company’s interests in Investment Holding Companies are recorded at fair value through net earnings (loss). The Invest- ment Holding Companies directly or indirectly invest the Company’s capital in the Onex Partners Funds, ONCAP Funds, private credit strategies and other investments. The Company’s corporate investments include the following amounts: TABLE 16 ($ millions) Onex Partners Funds ONCAP Funds Other private equity Carried interest Total private equity investments Private Credit Strategies Real estate Other net assets (a) December 31, 2020 Capital Deployed Realizations and Distributions Change in Fair Value December 31, 2021 $ 3,169 $ 783 $ (447) $ 751 $ 4,256 606 743 87 4,605 849 62 410 21 40 n/a 844 641 – (1,583) (98) 174 (26) 26 76 (253) (513) (48) 160 422 230 (1,261) 1,563 (842) (14) 1,830 (287) (462) 22 (22) 157 4 (26) 1,698 – – – 534 692 269 5,751 805 52 631 7,239 3,755 (429) 429 $ (749) $ 1,698 $ 10,994 Total corporate investments excluding intercompany loans 5,926 Intercompany loans receivable from Onex and the Asset Managers Intercompany loans payable to Onex and the Asset Managers Intercompany loans receivable from Investment Holding Companies 4,043 (425) 425 Total corporate investments $ 9,969 $ (a) Other net assets consist of the assets (primarily cash and near-cash items) and liabilities of the Investment Holding Companies, excluding investments in private equity, private 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, private credit strategies, real estate and intercompany loans receivable from and payable to Onex and the Asset Managers. 44 Onex Corporation December 31, 2021 MANAGEMENT’S DISCUSSION AND ANALYSISTABLE 17 ($ millions) Onex Partners Funds ONCAP Funds Other private equity Carried interest Total private equity investments Private Credit Strategies Real estate Other net assets (a) Total corporate investments excluding intercompany loans 5,233 Intercompany loans receivable from Onex and the Asset Managers Intercompany loans payable to Onex and the Asset Managers Intercompany loans receivable from Investment Holding Companies 4,217 (714) 714 December 31, 2019 Capital Deployed Realizations and Distributions Change in Fair Value December 31, 2020 $ 2,999 $ 518 $ (835) $ 487 $ 3,169 501 421 66 3,987 746 90 410 5 145 n/a 668 383 – (895) 156 172 (24) 24 (1) (36) – (872) (334) (20) 915 (311) (346) 313 (313) 101 213 21 822 54 (8) (20) 848 – – – 606 743 87 4,605 849 62 410 5,926 4,043 (425) 425 Total corporate investments $ 9,450 $ 328 $ (657) $ 848 $ 9,969 (a) Other net assets consist of the assets (primarily cash and near-cash items) and liabilities of the Investment Holding Companies, excluding investments in private equity, private 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, private credit strategies, real estate and intercompany loans receivable from and payable to Onex and the Asset Managers. At December 31, 2021, Onex’ corporate investments, which During the year ended December 31, 2020, realiza- are more fully described in note 5 to the consolidated finan- tions and distributions to Onex primarily consisted of Onex’ cial statements, totalled $11.0 billion (December 31, 2020 – share of the proceeds from the Onex Partners IV Group for $10.0 billion). the secondary offerings by Clarivate and SIG, and realiza- During the year ended December 31, 2021, Onex’ tions and distributions received from Onex’ CLOs and CLO investment of capital primarily consisted of the investments warehouse facilities. made in Onex Partners V, as described on page 13 of this During the year ended December 31, 2020, the MD&A, and investments made in private credit strategies, change in fair value of Onex’ corporate investments totalled as described on page 16 of this MD&A. an increase of $848 million, which was primarily driven by During the year ended December 31, 2021, realiza- changes in fair value of Onex’ investments in private equity, tions and distributions to Onex primarily consisted of the pri- which are more fully described on page 35 of this MD&A. vate equity and private credit activities described on pages 14 The valuation of public investments held directly and 16 of this MD&A. by Onex or through the Onex Partners Funds and ONCAP During the year ended December 31, 2021, the Funds is based on their publicly traded closing prices at change in fair value of Onex’ corporate investments totalled December 31, 2021 and 2020. For certain public investments, an increase of $1.7 billion, primarily driven by changes in the a discount was applied to the closing price in relation to fair value of Onex’ investments in private equity, which are restrictions that were in place at December 31, 2021 and 2020 more fully described on page 35 of this MD&A. relating to the securities held by Onex, the Onex Partners During the year ended December 31, 2020, Onex’ Funds or the ONCAP Funds. At December 31, 2021, these dis- investment of capital primarily consisted of investments counts resulted in a reduction of $77 million in the fair value made in Onex Partners V, investments made in certain oppor- of corporate investments (December 31, 2020 – $63 million). tunistic and special situation strategies, CLOs and CLO ware- house facilities, and an investment made in RSG. Onex Corporation December 31, 2021 45 MANAGEMENT’S DISCUSSION AND ANALYSISOnex’ private equity investments include direct and indirect investments in 38 operating businesses, which operate in a variety of industries and countries. Details of these operating businesses’ revenues, assets and debt are as follows: ($ millions) TABLE 18 Year ended December 31, 2021 Operating Business Revenues (a) Operating Business Revenues by Industry Vertical – Year Ended December 31, 2021(a) Industrials Services Healthcare Consumer & Retail Financial Services Total $ 12,296 3,780 3,766 2,156 2,036 51% 16% 16% 9% 8% $ 24,034 100% (a) Includes revenues during the period that Onex controls, jointly controls or has significant influence over the operating businesses. Healthcare 16% Consumer & Retail 9% Financial Services 8% Industrials 51% Services 16% ($ millions) TABLE 19 As at December 31, 2021 Operating Business Assets(a) Operating Business Debt(a) (a) Includes revenues during the period that Onex controls, jointly controls or has significant influence over the operating businesses. Industrials Services Financial Services Healthcare Consumer & Retail Total $ 13,921 11,001 10,317 4,883 3,385 32% 25% 24% 11% 8% $ 5,083 4,133 2,442 2,815 1,471 $ 43,507 100% $ 15,944 32% 26% 15% 18% 9% 100% (a) Includes the assets and debt of operating businesses that Onex controls, jointly controls or has significant influence over. 46 Onex Corporation December 31, 2021 MANAGEMENT’S DISCUSSION AND ANALYSIS Operating Business Assets by Industry Vertical – December 31, 2021(a) Operating Business Debt by Industry Vertical – December 31, 2021(a) Financial Services 24% Consumer & Retail 8% Healthcare 11% Industrials 32% Services 25% Consumer & Retail 9% Financial Services 15% Industrials 32% Services 26% Healthcare 18% (a) Includes the assets of operating businesses that Onex controls, (a) Includes the debt of operating businesses that Onex controls, jointly controls or has significant influence over. jointly controls or has significant influence over. Operating Business Revenues by Country – Year Ended December 31, 2020(a) Operating Business Assets by Country – December 31, 2020(a) Mexico 4% Thailand 4% Japan 3% Other 13% Netherlands 3% China 2% Thailand 2% Other 9% United States 45% United States 43% Canada 10% United Kingdom 10%(b) China 6% Netherlands 5% Canada 21% United Kingdom 20%(b) (a) Includes revenues of operating businesses that are controlled or jointly controlled by Onex. 2021 data will be available beginning in the first quarter of 2022. (a) Includes assets of operating businesses that are controlled or jointly controlled by Onex. 2021 data will be available beginning in the first quarter of 2022. (b) Includes revenues recognized in United Kingdom Overseas Territories. (b) Includes assets held in United Kingdom Overseas Territories. Onex Corporation December 31, 2021 47 MANAGEMENT’S DISCUSSION AND ANALYSIS Intercompany loans payable to Investment Holding Companies Lease liabilities Onex leases office space in Canada, the United States and Onex and the Asset Managers have intercompany loans the United Kingdom. Lease terms are negotiated on an payable to the Investment Holding Companies. The loans individual basis and contain a wide range of terms and are primarily due on demand and non-interest bearing. conditions. The terms of the Onex leasing agreements are At December 31, 2021, intercompany loans payable to the generally made for fixed periods up to 2032 and in certain Investment Holding Companies totalled $3.8 billion (2020 – circumstances contain options to extend beyond the ini- $4.0 billion) and the corresponding receivable of $3.8 bil- tial fixed periods. In circumstances where it is reasonably lion (2020 – $4.0 billion) was included in the fair value of the certain that Onex will exercise an option to extend a leas- Investment Holding Companies within corporate invest- ing agreement, the minimum lease payments to be made ments. There is no impact on net assets or net earnings (loss) during the extension period are included in the determina- from these intercompany loans. Onex’ total lease liabilities were as follows. tion of the lease liability to be recorded. The lease contracts entered into by Onex do not contain any significant restric- tions or covenants. TABLE 20 ($ millions) Total lease liabilities December 31, 2021 December 31, 2020 December 31, 2019 $ 71 $ 75 $ 72 The minimum lease payment requirements are more fully described in note 12 to the consolidated financial statements. Equity Table 21 provides a reconciliation of the change in equity Dividend policy Table 22 presents Onex’ dividends paid per share for the from December 31, 2020 to December 31, 2021. twelve months ended December 31 during the past five Change in Equity TABLE 21 ($ millions) Balance – December 31, 2020 Dividends declared Options exercised Repurchase and cancellation of shares Net earnings Currency translation adjustments included in other comprehensive earnings Equity as at December 31, 2021 years. The table reflects the increase in dividends per share over this time. TABLE 22 ($ per share amounts) $ 7,243 Twelve months ended December 31: 2017 2018 2019 2020 2021 (28) 2 (249) 1,405 1 $ 8,374 Dividend Paid per Share C$ 0.29 C$ 0.33 C$ 0.38 C$ 0.40 C$ 0.40 48 Onex Corporation December 31, 2021 MANAGEMENT’S DISCUSSION AND ANALYSISShares outstanding At December 31, 2021, Onex had 100,000 Multiple Voting Shares outstanding, which have a nominal paid-in value reflected in Onex’ consolidated financial statements. Onex also had 86,805,538 SVS issued and outstanding. Note 15 to the consolidated 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, 2021. Table 23 shows the change in the number of SVS outstanding from December 31, 2019 to January 31, 2022. ($ millions except Average Price per Share Total Cost TABLE 23 per share amounts) Number of SVS (USD) (CAD) (USD) (CAD) SVS outstanding at December 31, 2019 100,063,143 Shares repurchased and cancelled: Normal Course Issuer Bid (9,780,411) $ 45.35 $ 60.86 $ 444 $ 595 Issuance of shares: Options exercised 28,199 $ 55.65 $ 72.15 $ 2 $ 2 SVS outstanding at December 31, 2020 90,310,931 Shares repurchased and cancelled: Normal Course Issuer Bids Private transactions Issuance of shares: Options exercised (2,421,526) (1,100,000) $ 70.34 $ 71.28 $ 88.19 $ 90.30 $ 171 $ 78 $ 214 $ 99 16,133 $ 76.17 $ 97.43 $ 2 $ 2 SVS outstanding at January 31, 2022 86,805,538 Shares repurchased and cancelled order, if sought and received, under the new NCIB. The new The NCIB enables Onex to repurchase up to 10% of its pub- NCIB commenced on April 18, 2021 and will conclude on lic float of SVS during the period of the relevant Bid. Onex the earlier of the date on which purchases under the NCIB believes that it is advantageous for Onex and its sharehold- have been completed and April 17, 2022. A copy of the Notice ers to continue to repurchase Onex’ SVS from time to time of Intention to renew the NCIB filed with the TSX is available when the SVS are trading at prices that reflect a discount to at no charge to shareholders by contacting Onex. their value as perceived by Onex, while considering other opportunities to invest Onex’ cash. On April 18, 2021, Onex renewed its NCIB following Under the previous NCIB that expired on April 17, 2021, Onex repurchased 8,035,011 SVS at a total cost of $382 mil- the expiry of its previous NCIB on April 17, 2021. Under the lion (C$506 million) or an average purchase price of $47.57 new NCIB, Onex is permitted to purchase up to 10% of its (C$63.00) per share. public float of SVS, or 7,398,197 SVS. Onex may purchase up to 37,775 SVS during any trading day, being 25% of its aver- The private transactions represented the repurchase of age daily trading volume for the six months ended March 31, SVS that were held indirectly by Mr. Gerald W. Schwartz, 2021. Onex may also purchase SVS from time to time under Onex’ controlling shareholder, as described on page 62 of the TSX’s block purchase exemption, if available, or by way this MD&A. of private agreement pursuant to an issuer bid exemption Onex Corporation December 31, 2021 49 MANAGEMENT’S DISCUSSION AND ANALYSISOnex’ Repurchases of SVS for the Past 10 Years TABLE 24 2012 2013(1) 2014(2) 2015(3) 2016(4) 2017(5) 2018(6) 2019 2020 2021(7) Total (1) Includes 1,000,000 SVS repurchased in a private transaction. (2) Includes 1,310,000 SVS repurchased in private transactions. (3) Includes 275,000 SVS repurchased in private transactions. (4) Includes 1,000,000 SVS repurchased in a private transaction. (5) Includes 750,000 SVS repurchased in a private transaction. (6) Includes 500,000 SVS repurchased in a private transaction. (7) Includes 1,100,000 SVS repurchased in private transactions. Shares Repurchased Total Cost of Shares Repurchased (in C$ millions) Average Share Price (in C$ per share) 627,061 3,060,400 2,593,986 3,084,877 3,114,397 1,273,209 1,169,733 629,027 9,780,411 3,521,526 24 159 163 218 250 121 102 46 595 313 38.59 51.81 62.98 70.70 80.14 95.00 86.78 73.59 60.86 88.85 28,854,627 C$ 1,991 C$ 68.99 Stock Option Plan Onex, the parent company, has a Stock Option Plan in place day of the grant. Vested options are not exercisable unless the average five-day market price of Onex SVS is at least 25% that provides for options and/or share appreciation rights greater than the exercise price at the time of exercise. to be granted to Onex directors, officers and employees for the acquisition of SVS of Onex, the parent company, for a At December 31, 2021, Onex had 12,116,370 options out- term not exceeding 10 years. The options vest equally over standing to acquire SVS, of which 6,136,590 options were five years. The exercise price of the options issued is at the vested and exercisable. market value of the SVS on the business day preceding the 50 Onex Corporation December 31, 2021 MANAGEMENT’S DISCUSSION AND ANALYSISTable 25 provides information on the activity from December 31, 2019 to December 31, 2021. TABLE 25 Outstanding at December 31, 2019 Grants Surrendered Exercised Expired Outstanding at December 31, 2020 Grants Surrendered Exercised Expired Outstanding at December 31, 2021 Number of Options Weighted Average Exercise Price 14,073,050 68,750 (247,850) (50,000) (721,200) 13,122,750 687,000 (1,394,830) (25,000) (273,550) 12,116,370 C$ 68.50 C$ 61.15 C$ 35.17 C$ 31.20 C$ 82.44 C$ 68.47 C$ 75.09 C$ 53.30 C$ 33.11 C$ 84.85 C$ 70.30 During 2021, 687,000 options to acquire SVS were issued with a weighted average exercise price of C$75.09, 1,394,830 Director Deferred Share Unit Plan During 2021, grants totalling 30,406 DSUs were issued to options were surrendered at a weighted average exercise price directors having an aggregate value of $2 million (C$3 mil- of C$53.30 for aggregate cash consideration of $40 million lion) and 35,500 DSUs were redeemed in connection with (C$49 million), 25,000 options were exercised at a weighted the retirement of a director. At December 31, 2021, there average exercise price of C$33.11 and 273,550 options expired. were 659,955 Director DSUs outstanding (2020 – 661,837). At December 31, 2021, Onex had economically hedged 90% of During 2020, 68,750 options to acquire SVS were issued the outstanding Director DSUs with counterparty financial with a weighted average exercise price of C$61.15 per share, institutions. 247,850 options were surrendered at a weighted average exercise price of C$35.17 for aggregate cash consideration of $9 million (C$11 million), 50,000 options were exercised Management Deferred Share Unit Plan In early 2021, 111,088 DSUs were issued to the Onex manage- at a weighted average exercise price of C$31.20 and 721,200 ment team, having an aggregate value, at the date of grant, options expired. of $6 million (C$8 million), in lieu of that amount of cash compensation for Onex’ 2020 fiscal year. At December 31, 2021, there were 881,943 Management DSUs outstanding (2020 – 770,540). At December 31, 2021, Onex had economically hedged 100% of the outstanding Management DSUs with counterparty financial institutions. Forward agreements with a fair value of $116 million at December 31, 2021, includ- ing those associated with Director DSUs, were recorded within other assets in the consolidated balance sheet. Onex Corporation December 31, 2021 51 MANAGEMENT’S DISCUSSION AND ANALYSISDirector DSUs must be held until retirement from the Board and Management DSUs must be held until management is no lon- ger employed by Onex. Table 26 reconciles the changes in the DSUs outstanding at December 31, 2021 from December 31, 2019. Change in Outstanding Deferred Share Units TABLE 26 Outstanding at December 31, 2019 Granted Redeemed Additional units issued in lieu of compensation and cash dividends Outstanding at December 31, 2020 Granted Redeemed Additional units issued in lieu of compensation and cash dividends Outstanding at December 31, 2021 Hedged with counterparty financial institutions at December 31, 2021 Outstanding at December 31, 2021 – Unhedged Director DSU Plan Management DSU Plan Number of DSUs Weighted Average Price Number of DSUs Weighted Average Price C$ 60.85 C$ 65.13 C$ 60.73 C$ 82.58 C$ 98.12 C$ 86.84 702,857 42,486 (102,407) 18,901 661,837 22,401 (35,500) 11,217 659,955 (593,740) 66,215 707,048 − – 63,492 770,540 – (3,785) 115,188 881,943 (881,943) – − – C$ 84.29 – C$ 90.38 C$ 73.59 Management of capital Onex considers the capital it manages to be the amounts it At December 31, 2021, Onex had $1.6 billion of cash and near-cash items, as described on page 40 of this MD&A. has invested in cash and cash equivalents, near-cash invest- Onex has a conservative cash management policy ments, treasury investments managed by a third-party driven toward maintaining liquidity and preserving princi- investment manager, investments made in the Onex Part- pal in all its treasury investments. ners Funds, ONCAP Funds and private credit strategies, and At December 31, 2021, the fair value of treasury other investments. Onex also manages capital from other investments, including cash yet to be deployed and net investors in the Onex Partners Funds, ONCAP Funds, pri- working capital managed by a third-party investment man- vate credit strategies and public strategies. Onex’ objectives ager, was $677 million (2020 – $554 million). The increase in managing capital are to: in treasury investments was primarily driven by the transfer • preserve a financially strong parent company with appro- of cash and cash equivalents to the Company’s third-party priate liquidity and no, or a limited amount of, external investment manager. Treasury investments are managed in debt so that funds are available to pursue new investments a mix of short-term and long-term portfolios and consist of and growth opportunities as well as support expansion of commercial paper with original maturities of three months its existing businesses; to one year, federal debt instruments, corporate obligations • achieve an appropriate return on capital invested com- and structured products with maturities of one to five years. mensurate with the level of assumed risk; Treasury investments have current Standard & Poor’s rat- • build the long-term value of its corporate investments; and ings ranging from BBB to AAA. The portfolio concentration • control the risk associated with capital invested in any limits range from a maximum of 10% for BBB investments particular strategy. Onex Corporation does not guarantee to 100% for AAA investments. The investments are managed the debt of its investment funds or the underlying operat- to maintain an overall weighted average duration of two ing businesses of its private equity funds. years or less. 52 Onex Corporation December 31, 2021 MANAGEMENT’S DISCUSSION AND ANALYSISToday, Onex has access to uncalled committed lim- imately $155 million). In addition, Onex has uncalled com- ited partner capital for investments through Onex Partners V mitted capital of $305 million from other Onex Partners and (approximately $860 million), which excludes capital called ONCAP Funds that may be used for possible future funding for the pending investment in RES, and ONCAP IV (approx- of existing businesses and funding of partnership expenses. L I Q U I D I T Y A N D C A P I T A L R E S O U R C E S Major cash ﬂow components This section should be read in conjunction with the consolidated statements of cash flows and the corresponding notes thereto. Table 27 summarizes the major consolidated cash flow components for the years ended December 31, 2021 and 2020. Major Cash Flow Components ($ millions) TABLE 27 Year ended December 31 Cash provided by operating activities Cash used in financing activities Cash used in investing activities Consolidated cash and cash equivalents 2021 $ 361 $ (465) $ (55) $ 547 2020 $ 382 $ (657) $ (9) $ 706 Cash provided by operating activities Table 28 provides a breakdown of cash provided by operating activities by cash generated from operations and changes in non-cash working capital items for the years ended December 31, 2021 and 2020. Components of Cash Provided by Operating Activities ($ millions) TABLE 28 Year ended December 31 Cash generated from operations Changes in non-cash working capital items: Management and advisory fees, recoverable fund expenses and other receivables Other assets Accounts payable, accrued liabilities and other liabilities Accrued compensation Increase (decrease) in cash and cash equivalents due to changes in non-cash working capital items Decrease in other operating activities Cash provided by operating activities 2021 $ 496 (107) (1) (49) 22 (135) – 2020 $ 304 67 (1) (3) 16 79 (1) $ 361 $ 382 Onex Corporation December 31, 2021 53 MANAGEMENT’S DISCUSSION AND ANALYSISCash generated from operations includes net earnings same period in 2020, which was primarily as a result of from operations before interest and income taxes, adjusted accrued incentive compensation related to the 2020 fis- for cash taxes received (paid) and items not affecting cash cal year, partially offset by the payment of 2019 incentive and cash equivalents, in addition to cash flows from Onex’ compensation during the first quarter of 2020. investments in and loans made to the Investment Holding Companies. The significant changes in non-cash working capital items for the years ended December 31, 2021 and 2020 were: Cash used in ﬁnancing activities Cash used in financing activities was $465 million for the year ended December 31, 2021 compared to $657 million • a $107 million increase in management and advisory fees, for the same period in 2020. Cash used in financing activ- recoverable fund expenses and other receivables, primar- ities for the year ended December 31, 2021 primarily con- ily driven by a net increase in fees and expenses due from sisted of $249 million of cash used to repurchase Onex stock the Onex Partners Funds. This compares to a $67 million (2020 – $444 million), as described on pages 49 and 62 of this decrease during the year ended December 31, 2020, which was driven by the receipt of management fees from the MD&A, a $173 million net loan repayment to the Investment Holding Companies (2020 – $174 million) and $28 million of limited partners of the Onex Partners’ Funds, partially off- cash dividends paid (2020 – $29 million). set by management fees earned but not yet received from the limited partners of the ONCAP Funds; • a $49 million decrease in accounts payable, accrued lia- Cash used in investing activities Cash used in investing activities totalled $55 million for the bilities and other liabilities (2020 – $3 million), primarily year ended December 31, 2021 compared to $9 million for driven by a payment made in connection with the former the same period in 2020. Cash used in investing activities Onex Credit CEO’s participation in the Onex Credit busi- for the year ended December 31, 2021 primarily consisted of ness; and the net purchase of treasury investments totalling $56 mil- • a $22 million increase in accrued compensation, primar- lion (2020 – net sale of $77 million). In addition, cash used ily as a result of accrued incentive compensation related in investing activities during the year ended December 31, to the 2021 fiscal year, partially offset by the payment of 2020 included $97 million of net cash consideration for the 2020 incentive compensation during the first quarter of acquisition of Falcon. 2021. This compares to a $16 million increase during the Fourth quarter cash flows Table 29 presents the major components of cash flow for the fourth quarters of 2021 and 2020. Major Cash Flow Components TABLE 29 ($ millions) Cash provided by operating activities Cash provided by (used in) financing activities Cash provided by (used in) investing activities Consolidated cash and cash equivalents 54 Onex Corporation December 31, 2021 2021 144 25 $ $ $ (213) $ 547 2020 $ 89 $ (57) $ 300 $ 706 MANAGEMENT’S DISCUSSION AND ANALYSISCash provided by financing activities during the fourth quar- ter of 2021 primarily consisted of a $107 million net loan issu- Consolidated cash resources At December 31, 2021, consolidated cash and cash equivalents ance with the Investment Holding Companies (2020 – net decreased to $547 million from $706 million at December 31, loan repayments of $41 million), partially offset by $71 mil- 2020. The major components of cash and cash equivalents at lion of cash used to repurchase Onex stock (2020 – $7 million) December 31, 2021 included $353 million of money market and $6 million of cash dividends paid (2020 – $7 million). funds (2020 – $503 million) and $188 million of cash on hand (2020 – $190 million). Cash used in investing activities during the fourth quarter of At December 31, 2021, Onex had $1.6 billion of cash 2021 primarily consisted of a net purchase of treasury invest- and near-cash on hand (2020 – $1.4 billion), as discussed ments totalling $212 million (2020 – net sale of $396 million). on page 40 of this MD&A. Onex management reviews the Cash provided by investing activities during the fourth quar- amount of cash and near-cash on hand when assessing the ter of 2020 was partially offset by $97 million of net cash liquidity of the Company. consideration for the acquisition of Falcon, as described on page 30 of this MD&A. Commitments Tables 30 and 31 provide information on Onex’ commitments to the Onex Partners and ONCAP Funds: TABLE 30 Onex Partners I Onex Partners II Onex Partners III Onex Partners IV Onex Partners V Total Onex Commitments Onex Commitments Invested(i) Remaining Onex Commitments(ii) Final Close Date February 2004 August 2006 December 2009 $ 400 $ 1,407 $ 1,200 $ 346 $ 1,164 $ 929 March 2014 $ 1,700(iii) $ 1,546(iii) November 2017 $ 2,000 $ 1,375 $ 16 $ 158 $ 100 $ 123 $ 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 of 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. Onex Corporation December 31, 2021 55 MANAGEMENT’S DISCUSSION AND ANALYSISTABLE 31 ONCAP II ONCAP III ONCAP IV Final Close Date May 2006 September 2011 November 2016 Total Onex Commitments Onex Commitments Invested(i) Remaining Onex Commitments(ii) C$ 252 C$ 252 $ 480 C$ 221 C$ 186 $ 306 C$ 1 C$ 30 $ 124 (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 During 2021, Onex Credit continued fundraising funding of partnership expenses. The remaining com- for the Onex Capital Solutions Fund, reaching aggregate mitments for ONCAP III are for possible future funding of remaining businesses and future funding of partnership commitments of $272 million, including $100 million from Onex and $34 million from the Onex management team. expenses. The remaining commitments for ONCAP IV are The fund invests primarily in loans, bonds, trade claims and primarily for funding of future Onex-sponsored investments. credit default swaps, among other assets. As at December 31, 2021, Onex had invested $20 million in the Onex Capital During 2020, Onex Credit completed fundraising for the Solutions Fund as an investor in the fund. Onex Senior Loan Opportunity Fund, which invests pri- OCLP I provides committed capital for invest- marily in North American and European first-lien, senior ments in senior secured loans and other loan investments secured loans, second-lien loans and other debt investments in middle-market, upper middle-market and large private having similar characteristics, reaching aggregate commit- equity sponsor-owned portfolio companies and, selectively, ments of $85 million, including $20 million from Onex and other corporate borrowers. As at December 31, 2021, Onex $25 million from the Onex management team. In addition had invested $74 million (2020 – $74 million) of its $100 mil- to Onex’ $20 million commitment to the fund, Onex com- lion commitment in OCLP I, and the duration of the com- mitted $80 million which was invested through a separately mitment period is up to June 2022. managed account which followed a similar strategy as the Onex Senior Loan Opportunity Fund. During the year ended Incline Aviation Fund is an aircraft investment fund man- December 31, 2021, the Onex Senior Loan Opportunity Fund aged by BBAM, which in turn is an operating business of was dissolved. Onex Partners III. At December 31, 2021, Onex’ uncalled com- During 2021, Onex Credit continued fundraising mitment to Incline Aviation Fund was $18 million (2020 – for the Onex Structured Credit Opportunities Fund, which $22 million). invests primarily in U.S. and European collateralized loan Incline Aviation Fund II is an aircraft investment obligations, reaching aggregate commitments of $457 mil- fund managed by BBAM and focused on investments in lion, including $25 million from Onex and $43 million from contractually leased commercial jet aircraft. At Decem- the Onex management team. In addition to Onex’ $25 mil- ber 31, 2021, Onex’ uncalled commitment to Incline Aviation lion commitment to the fund, Onex committed $25 million Fund II was $99 million (2020 – $125 million). which was invested through a separately managed account which followed a similar strategy as the Onex Struc- Onex also has commitments with respect to leases, which are tured Credit Opportunities Fund. As at December 31, 2021, described in note 12 to the consolidated financial statements. Onex had invested $37 million (2020 – $2 million) of its aggregate $50 million commitment. R E L A T E D - P A R T Y T R A N S A C T I O N S Investment programs Onex’ investment programs are designed to align the Onex management team’s interests with those of Onex’ share- holders and the limited partner investors in Onex’ Funds. 56 Onex Corporation December 31, 2021 MANAGEMENT’S DISCUSSION AND ANALYSISThe various investment programs are described in detail in the following pages and certain key aspects are summarized in table 32. TABLE 32 Investment Program Minimum Performance Return Hurdle Management 15% Vesting 6 years Management Investment & Application • personal “at risk” equity investment required Investment Plan (i) Compounded Return • 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 Onex Partners Carried Interest Program(ii) 8% 6 years • personal “at risk” equity investment required Compounded Return • 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 8% 5 years • personal “at risk” equity investment required Carried Interest Compounded Return • applicable to: Program(ii) Onex Falcon Carried Interest Program(iii) Management DSU Plan (iv) Director DSU Plan (v) – Onex and third-party capital invested in ONCAP transactions 8% Net IRR 5 years • personal “at risk” equity investment required • applicable to: – third-party capital invested in Onex Falcon Funds n/a n/a • investment of elected portion of annual variable cash compensation in Management DSUs • value reflects changes in the 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 in Director DSUs • value reflects changes in Corporation’s share price, including risk associated with price decrease • units not redeemable until retirement Onex Partners n/a n/a • required purchase of SVS or Management DSUs Reinvestment Program (vi) for up to 25% of gross Onex Partners carried interest proceeds Stock Option Plan (vii) 25% Share 5 years • satisfaction of exercise price (market value at grant date) Price Appreciation Onex Corporation December 31, 2021 57 MANAGEMENT’S DISCUSSION AND ANALYSIS(i) Management Investment Plan During the year ended December 31, 2021, man- For all investments completed prior to 2020 and excluding all agement of Onex, Onex Partners and ONCAP received Onex Partners V investments, the MIP required Onex man- $106 million (2020 – less than $1 million) in carried inter- agement team members to invest in each of the operating est. Management has the potential to receive $522 mil- businesses acquired or invested in by Onex. In addition to lion of carried interest on businesses in the Onex Partners this required investment, management was allocated 12% of and ONCAP Funds based on their values as determined at Onex’ realized gain from an operating business investment, December 31, 2021. subject to certain conditions. In particular, Onex must real- ize the full return of its investment plus a net 15% internal (iii) Onex Falcon Carried Interest Program rate of return from the investment in order for management Onex Falcon is entitled to a carried interest of 20% on the to be allocated the additional gain on Onex’ investment. realized net gains of the limited partners in each Onex Fal- Realizations under the program during 2021 were con Fund, provided the limited partners have achieved a $132 million (2020 – $70 million) and are satisfied by certain minimum 8% Net IRR on their investment. Onex Falcon Investment Holding Companies, which are accounted for as management is entitled to the entire carried interest for corporate investments at fair value through net earnings. existing funds at the date Onex acquired the company in December 2020, with the exception of Onex Falcon VI. For (ii) Onex Partners and ONCAP carried interest programs Onex Falcon VI, Onex Falcon management is entitled to The General Partners of the Onex Partners and ONCAP Funds approximately 80% of the carried interest and Onex is enti- are entitled to a carried interest of 20% on the realized net tled to the remaining approximately 20%. gains of the limited partners in each fund, subject to an 8% Onex is entitled to 50% of the carried interest real- compound annual preferred return to those limited partners ized on Onex Falcon Funds launched after December 2020, on all amounts contributed in each particular fund. Onex is with the remaining 50% allocated to the Onex Credit team. entitled to 40% of the carried interest realized in the Onex During the year ended December 31, 2021, Onex Partners and ONCAP Funds. Onex and Onex Partners man- Falcon management received $27 million (2020 – nil) in car- agement are allocated 60% of the carried interest realized in ried interest. Onex Falcon management has the potential to the Onex Partners Funds. For Onex Partners V, Onex Partners receive $110 million (2020 – $62 million) of carried interest management are also entitled to a carried interest of 12% of from the Onex Falcon Funds based on their values as deter- the realized gains from Onex’ capital, subject to an 8% com- mined at December 31, 2021. pound annual preferred return to Onex on amounts contrib- uted to the fund. ONCAP management is allocated 60% of the (iv) Management Deferred Share Unit Plan carried interest realized in the ONCAP Funds and an equiv- Effective December 2007, a Management DSU Plan was alent carried interest on Onex’ capital. Once the ONCAP IV established as a further means of encouraging personal and investors achieve a return of two times their aggregate capital direct economic interests by the Company’s senior manage- contributions, carried interest participation increases from ment in the performance of the SVS. Under the Management 20% to 25% of the realized net gains. Under the terms of the DSU Plan, members of the Company’s senior management partnership agreements, the General Partners may receive team are given the opportunity to designate all or a portion carried interest as realizations occur. The ultimate amount of their annual compensation to acquire DSUs based on of carried interest earned will be based on the overall per- the market value of Onex shares at the time in lieu of cash. formance of each fund, independently, and includes typical Holders of DSUs are entitled to receive for each DSU, upon catch-up and clawback provisions within each fund, but not redemption, a cash payment equivalent to the market value between funds. of an SVS at the redemption date. The DSUs vest immedi- ately, are only redeemable once the holder ceases to be an 58 Onex Corporation December 31, 2021 MANAGEMENT’S DISCUSSION AND ANALYSISofficer or employee of the Company or an affiliate, and must (vi) Investment in Onex shares and other investments be redeemed by the end of the year following the year of ter- In 2006, Onex adopted a program designed to further align mination. Additional units are issued equivalent to the value the interests of the Company’s senior management and of any cash dividends that would have been paid on the SVS. other investment professionals with those of Onex share- To economically hedge Onex’ exposure to changes in the holders through increased share ownership. The terms of trading price of Onex shares associated with the Management this program were updated in February 2020. Under the DSU Plan, the Company enters into forward agreements with updated terms of the program, members of senior manage- counterparty financial institutions for all grants under the ment of Onex are required to invest up to 25% of all amounts Management DSU Plan. The costs of those arrangements are received from Onex Partners’ carried interest in Onex SVS borne by participants in the Management DSU Plan. Man- and/or management DSUs. The size of the reinvestment agement DSUs are redeemable only for cash and no shares requirement generally increases with the seniority of the or other securities of Onex will be issued on the exercise, participant and the cumulative proceeds they have realized redemption or other settlement thereof. Table 26 on page 52 from Onex Partners’ carried interest. Onex SVS and/or man- of this MD&A provides details of the change in the DSUs out- agement DSUs acquired under this program are subject to a standing during 2021 and 2020. minimum three-year holding period. During 2021 and 2020, no amounts were invested under this program. (v) Director Deferred Share Unit Plan Members of management and the Board of Direc- Onex, the parent company, established a Director DSU Plan tors of Onex can invest limited amounts in partnership in 2004, which allows Onex directors to apply directors’ fees with Onex in all acquisitions outside the Onex Partners and earned to acquire DSUs based on the market value of Onex ONCAP Funds, including co-investment opportunities, at shares at the time. Grants of DSUs may also be made to Onex the same time and cost as Onex and other outside investors. directors from time to time. Holders of DSUs are entitled to During 2021, a total of $18 million (2020 – $19 million) in receive for each DSU, upon redemption, a cash payment investments were made by the Onex management team and equivalent to the market value of an SVS at the redemption directors in Incline Aviation Fund II and the co-investments date. The DSUs vest immediately, are only redeemable once for WEG and Imagine Learning (2020 – primarily co-invest- the holder retires from the Board of Directors and must be ments for Convex and OneDigital). redeemed within one year following the year of retirement. Additional units are issued equivalent to the value of any cash (vii) Stock Option Plan dividends that would have been paid on the SVS. To econom- Onex has a Stock Option Plan in place that provides for ically hedge Onex’ exposure to changes in the trading price of options and/or share appreciation rights to be granted to Onex shares associated with the Director DSU Plan, the Com- Onex directors, officers and employees for the acquisition of pany has entered into forward agreements with counterparty SVS of Onex, the parent company, for a term not exceeding financial institutions representing approximately 90% of 10 years. The options vest equally over five years. The exer- the grants under the Director DSU Plan. Director DSUs are cise price of the options is the market value of the SVS on the redeemable only for cash and no shares or other securities business day preceding the day of the grant. Vested options of Onex will be issued on the exercise, redemption or other are not exercisable unless the average five-day market price settlement thereof. Table 26 on page 52 of this MD&A pro- of Onex SVS is at least 25% greater than the exercise price at vides details of the change in the DSUs outstanding during the time of exercise. Table 25 on page 51 of this MD&A pro- 2021 and 2020. vides details of the change in the stock options outstanding at December 31, 2021 and 2020. Onex Corporation December 31, 2021 59 MANAGEMENT’S DISCUSSION AND ANALYSISOnex management team investments in Onex’ Funds Related-party revenues The Onex management team invests meaningfully in each Onex receives management fees on limited partners’ and operating business acquired by the Onex Partners and clients’ capital within the Onex private equity funds and ONCAP Funds and in strategies managed by Onex Credit. private credit strategies, and advisory fees directly from The structure of the Onex Partners and ONCAP certain operating businesses. Onex also receives perfor- Funds requires management of Onex Partners and ONCAP mance fees from the private credit strategies and recovers Funds to invest a minimum of 1% in all acquisitions, with certain deal investigation, research and other expenses the exception of Onex Partners IV, Onex Partners V and from the Onex private equity funds, private credit strategies ONCAP IV, which require a minimum 2% investment in all and the operating businesses of Onex Partners and ONCAP. acquisitions. This investment includes the minimum “at risk” Onex indirectly controls the Onex private equity funds and equity investment associated with management’s carried private credit strategies, and therefore the management interest participation, as described on page 58 of this MD&A. and performance fees earned from these sources repre- The Onex management team and directors have committed to invest 4% of the total capital invested by sent related-party transactions. Furthermore, Onex indi- rectly controls, jointly controls or has significant influence Onex Partners V for new investments completed during over certain operating businesses held by the Onex private 2022, including the minimum “at risk” equity investment. equity funds, and as such, advisory fees from these operat- The Onex management team and directors have commit- ing businesses represent related-party transactions. ted to invest 10% of the total capital invested by ONCAP IV Gluskin Sheff has agreements to manage its pooled for new investments completed during 2022, including the fund vehicles, where it generally acts as the trustee, man- minimum “at risk” equity investment. The Onex manage- ager, transfer agent and principal distributor. In the case of ment team and directors invest in any add-on investments those pooled fund vehicles that are limited partnerships, in existing businesses pro-rata with their initial investment Gluskin Sheff or an affiliate of Gluskin Sheff is the General in the relevant business. Partner. As such, the Gluskin Sheff pooled fund vehicles are The total amount invested during 2021 by the Onex related parties of the Company. management team and directors in acquisitions and invest- ments completed through the Onex Partners and ONCAP Funds was $102 million (2020 – $47 million). In addition, the Onex management team may invest in strategies and funds managed by Onex Credit. At December 31, 2021, investments at market value held by the Onex management team in strategies and funds managed by Onex Credit were approximately $605 million (2020 – approximately $353 million). 60 Onex Corporation December 31, 2021 MANAGEMENT’S DISCUSSION AND ANALYSISRelated-party revenues comprised the following: TABLE 33 ($ millions) Three Months Ended December 31, 2021 Year Ended December 31, 2021 Management and Advisory Fees Reimbursement of Expenses Performance Fees Total Management and Advisory Fees Reimbursement of Expenses Performance Fees Total Source of related-party revenues Private Equity Funds (a) $ 30 $ Private Credit Strategies Gluskin Sheff pooled fund vehicles(b) Total related-party 23 14 7 3 – $ – – 13 $ 37 $ 125 $ 32 $ – $ 157 26 27 90 56 10 – – 13 100 69 revenues $ 67 $ 10 $ 13 $ 90 $ 271 $ 42 $ 13 $ 326 Gluskin Sheff third-party revenues Total revenues 1 $ 68 – $ 10 – 1 6 $ 13 $ 91 $ 277 – $ 42 – 6 $ 13 $ 332 (a) Includes advisory fees and expense reimbursements from Onex Partners and ONCAP operating businesses. (b) Revenue associated with the reimbursement of expenses from the Gluskin Sheff pooled fund vehicles is included within other income. TABLE 34 ($ millions) Three Months Ended December 31, 2020 Year Ended December 31, 2020 Management and Advisory Fees Reimbursement of Expenses Performance Fees Total Management and Advisory Fees Reimbursement of Expenses Performance Fees Total Source of related-party revenues Private Equity Funds (a) $ 33 $ Private Credit Strategies Gluskin Sheff pooled fund vehicles(b) Total related-party 15 13 3 3 – $ – – 16 $ 36 $ 129 $ 10 $ 18 29 54 57 4 – – – 16 $ 139 58 73 revenues $ 61 $ 6 $ 16 $ 83 $ 240 $ 14 $ 16 $ 270 Gluskin Sheff third-party revenues Total revenues 1 $ 62 – 6 $ – 1 4 $ 16 $ 84 $ 244 – $ 14 – 4 $ 16 $ 274 (a) Includes advisory fees and expense reimbursements from Onex Partners and ONCAP operating businesses. (b) Revenue associated with the reimbursement of expenses from the Gluskin Sheff pooled fund vehicles is included within other income. Onex Corporation December 31, 2021 61 MANAGEMENT’S DISCUSSION AND ANALYSISRelated-party receivables comprised the following: ($ millions) TABLE 35 As at December 31, 2021 Private Equity Funds Private Credit Strategies Gluskin Sheff pooled fund vehicles Onex Partners and ONCAP operating businesses Total related-party receivables Third-party receivables Total ($ millions) TABLE 36 As at December 31, 2020 Private Equity Funds Private Credit Strategies 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 $ 186 $ 122 $ 14 5 2 $ 207 1 $ 208 11 1 4 $ 138 – $ 138 12 6 2 $ 142 – $ 142 3 1 5 $ 87 – $ 87 – – 13 – $ 13 – $ 13 – – 17 – $ 17 – $ 17 $ $ – – – – – 10 $ 10 $ $ – 1 2 – 3 12 $ 15 Management and Advisory Fees Receivable Recoverable Fund and Operating Expenses Receivable Performance Fees Other Receivables $ 122 $ 78 $ Total $ 308 25 19 6 $ 358 11 $ 369 Total $ 200 16 26 7 $ 249 12 $ 261 Services received from operating companies During the three months and years ended December 31, 2021 and 2020, Onex received services from certain operating com- panies, the value of which was not significant. Repurchase of shares During 2021, Onex repurchased 1,100,000 of its SVS that were held indirectly by Mr. Gerald W. Schwartz, who is Onex’ con- trolling shareholder, in two private transactions. The shares were repurchased at a weighted average cost of $71.28 (C$90.30) per SVS, or a total cost of $78 million (C$99 million), which represented a discount to the trading price of Onex shares on the dates of the transactions. 62 Onex Corporation December 31, 2021 MANAGEMENT’S DISCUSSION AND ANALYSISD 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 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, 2021, as filed on SEDAR, and note 23 The Chief Executive Officer and the Chief Financial Officer to the 2021 annual consolidated financial statements set out have designed, or caused to be designed under their super- certain risks that could be material to Onex and could have vision, internal controls over financial reporting to provide a material adverse effect on Onex’ business, financial con- reasonable assurance regarding the reliability of financial dition, results of operations and cash flows, and the value reporting and the preparation of the consolidated financial of the Company’s shares. The risks described in these docu- statements for external purposes in accordance with IFRS. ments are not the only risks that may impact the Company’s The Chief Executive Officer and the Chief Financial Officer business, operations and financial results. Additional risks have also designed, or caused to be designed under their not currently known to the Company or that Onex manage- supervision, disclosure controls and procedures to pro- vide reasonable assurance that information required to be ment currently believes are immaterial when considered across the Company’s investment and asset management disclosed by the Company in its corporate filings has been activities as a whole may also have a material adverse effect recorded, processed, summarized and reported within the on future business, operations and performance. time periods specified in securities legislation. A control system, no matter how well conceived and operated, can provide only reasonable, not absolute, assurance that its objectives are met. Due to the inherent limitations in all such systems, no evaluation of controls can provide absolute assurance that all control issues, if any, within a company have been detected. Accordingly, Onex’ internal controls over financial reporting and disclosure controls and procedures are effective in providing reason- able, not absolute, assurance that the objectives of Onex’ control systems have been met. Onex Corporation December 31, 2021 63 MANAGEMENT’S DISCUSSION AND ANALYSISGLOSSARY The following is a list of commonly used terms in Onex’ MD&A and consolidated financial statements and their corresponding definitions. Assets under management are the assets that Onex manages on behalf of investors, including Onex’ own capital, co-investments and capital invested by the Onex management team, where applicable. Onex’ assets under manage- ment include: (i) The fair value of private equity invested assets and uncalled committed capital to the private equity funds, includ- ing Onex’ own uncalled committed capital in excess of cash and cash equivalents, as applicable; (ii) The par value of invested assets and cash available for reinvestment of the collateralized loan obligations; (iii) The fair value of gross invested and uncalled commitments in middle-market lending, senior loan opportunity, structured credit opportunities and Onex Falcon Funds; and (iv) The gross invested assets or net asset value of the public credit, public equity and other private credit funds. 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 warehouses. Co-investment is a direct investment made by Onex, the Onex management team or other investors alongside a fund. Collateral principal balance is the aggregate principal balance of the CLO investments in debt obligations, excluding defaulted debt obligations, and 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 investments 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. 64 Onex Corporation December 31, 2021 MANAGEMENT’S DISCUSSION AND ANALYSISDirect Lending consists of the Onex Falcon Funds. Fee-generating assets under management is the assets under management on which the Company receives recurring management fees. Fully diluted shares are calculated using the treasury stock method and include all outstanding SVS as well as out- standing stock options where Onex’ share price exceeds the exercise price of the stock options. General partner is a partner that determines most of the actions of a partnership and can legally bind the partnership. 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 pay- ments under the MIP, carried interest or performance fees. International Financial Reporting Standards (“IFRS”) are a set of standards adopted by Onex to determine account- ing 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, private 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 assets under management of third-party investors, including co-investments and capital invested by the Onex management team, as applicable. Onex Corporation December 31, 2021 65 MANAGEMENT’S DISCUSSION AND ANALYSISLeveraged loans refer to the non-investment grade senior secured debt of relatively highly leveraged borrowers. A lev- eraged loan is often issued by a company in connection with it being acquired by a private equity or corporate investor. Limited partner is an investor whose liability is generally limited to the extent of their share of the partnership. Management incentive programs include: (i) for all investments completed prior to 2020 and excluding all Onex Part- ners V investments, the management investment plan (“MIP”) required Onex management team members to invest in each of the operating businesses acquired or invested in by Onex. In addition to this required investment, management was allocated 12% of Onex’ realized gain from an operating business investment, subject to certain conditions. In par- ticular, Onex must realize the full return of its investment plus a net 15% internal rate of return from the investment in order for management to be allocated the additional gain on Onex’ investment. The MIP also has vesting requirements, certain limitations and voting requirements; (ii) the Onex Partners carried interest program, which allocates 60% of the carried interest realized in the Onex Partners Funds to management of Onex Partners. Management of Onex Partners is also entitled to a carried interest of 12% of the realized net gains from Onex capital in Onex Partners V, subject to an 8% compounded annual preferred return to Onex on amounts contributed to the fund; (iii) the ONCAP carried interest program, which allocates to the management of ONCAP 60% of the carried interest realized in the ONCAP Funds and an equivalent carried interest on Onex’ capital in the ONCAP Funds; and (iv) the Onex Falcon carried interest program, which entitles the management of Onex Falcon to 80% of the carried interest realized in Onex Falcon VI and substan- tially all of the carried interest realized on other existing Onex Falcon Funds up to December 31, 2020. The Onex Credit team is allocated 50% of the carried interest realized on Onex Falcon Funds launched after December 31, 2020. Middle-Market Lending consists of Onex Credit Lending Partners and middle-market lending originated by Onex. 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 entitlement to distri- bution 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. The December 31, 2021 near-cash balance also included recoverable fund expenses from 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. 66 Onex Corporation December 31, 2021 MANAGEMENT’S DISCUSSION AND ANALYSISNormal Course Issuer Bid(s) (“NCIB” or the “Bids”) is an annual program(s) approved by the Board of Directors that enables Onex to repurchase SVS for cancellation. ONEX is the share symbol for Onex Corporation on the Toronto Stock Exchange. Onex Credit Lending Partners (“OCLP”) is a middle-market lending fund which provides credit to private equity spon- sor-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. Onex Falcon Funds are actively managed funds of Onex Credit, which include specialized private credit strategies. Performance fees include performance allocations and are generated on high net worth clients and institutional investors’ capital managed by Onex Credit, 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 Part- ners 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. Subordinate Voting Shares (“SVS”) are the non-controlling share capital of Onex. SVS shareholders are entitled to elect 40% of Onex’ directors and to 40% of the total shareholder vote on most matters. These shares are the only class of stock that economically participates in Onex Corporation. The SVS trade on the Toronto Stock Exchange. Onex Corporation December 31, 2021 67 MANAGEMENT’S DISCUSSION AND ANALYSISMANAGEMENT’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 produced. The consolidated financial statements have been prepared in accordance with International Financial Reporting Standards. The significant accounting policies which management believes are appropriate for the Company are described in note 1 to the consolidated financial statements. The Board of Directors is responsible for reviewing and approving the consolidated financial statements and over- seeing 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 standards to enable them to express to the shareholders their opinion on the consolidated financial statements. Their report is set out on the following pages. [signed] [signed] Christopher A. Govan Chief Financial Officer February 24, 2022 Derek C. Mackay Managing Director, Finance 68 Onex Corporation December 31, 2021 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, 2021 and 2020, and its finan- cial 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, 2021 and 2020; 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 significant accounting policies and other explanatory information. 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 consoli- dated financial statements in Canada. We have fulfilled our other ethical responsibilities in accordance with these requirements. Key audit matters Key audit matters are those matters that, in our professional judgment, were of most significance in our audit of the consol- idated financial statements for the year ended December 31, 2021. These matters were addressed in the context of our audit of the consolidated financial statements as a whole, and in forming our opinion thereon, and we do not provide a separate opinion on these matters. Onex Corporation December 31, 2021 69 Key audit matter How our audit addressed the key audit matter Our approach to addressing the matter involved the following procedures, amongst others: • Tested management’s process of estimating the fair value of underlying non-public investments by: – testing the appropriateness of the methodologies used by management; – evaluating the Company’s key assumptions related to unlevered free cash flows including the timing of earnings projections and expected long term revenue growth, by considering the current and past performance of the particular investment; – agreeing the components of the unlevered free cash flows and adjusted EBITDA used in the valuation models to con- firmations from the particular investment’s management; – comparing actual results to the budgeted unlevered free cash flows and adjusted EBITDA used in the prior year models; – utilizing professionals with specialized skill and knowledge in the field of valuation to assist in assessing the reason- ability of the adjusted EBITDA multiples, the weighted average costs of capital and exit multiples; and – testing the mathematical accuracy of the valuation models. • Tested the disclosures made in the consolidated financial statements, particularly with regard to the sensitivity of the weighted average costs of capital, exit multiple and adjusted EBITDA multiples key assumptions used. Valuation of corporate investments Refer to note 1 – Basis of Preparation and Significant Accounting Policies, note 5 – Corporate Investments and note 22 – Fair Value Measurements to the consolidated financial statements. Corporate investments of $10,994 million as at December 31, 2021 represent the Company’s investments in its Investment Holding Companies, which include subsidiaries determined to be investment entities under IFRS 10, and all other subsidiaries that do not provide investment-related services and are not in- vestment entities. Investment Holding Companies are measured at fair value with changes in fair value recognized through net earnings. The fair value measurement of Investment Holding Companies utilized the adjusted net asset method to derive the fair values, by reference to the underlying fair value of the Invest- ment Holding Companies’ assets and liabilities. The measurement of the Investment Holding Companies is sig- nificantly impacted by the fair values of the underlying non-public investments held by the Investment Holding Companies directly or through investment in the Onex Partners Funds, ONCAP Funds and Private Credit Strategies. The valuation of the under- lying non-public private equity investments requires significant judgment due to the absence of quoted market values, inherent lack of liquidity, the long-term nature of such investments and the heightened market uncertainty as a result of the COVID-19 pandemic. As such, for the majority of these investments, man- agement used valuation methodologies such as discounted cash flow analysis and the comparable company valuation multiple technique. Management used its own assumptions regarding unobservable inputs, where there is little, if any, market activity in the underlying investments or related observable inputs that can be corroborated as at the measurement date. For a discounted cash flow analysis, the key assumptions included unlevered free cash flows including the timing of earnings projections and the expected long-term revenue growth, the weighted average costs of capital and the exit multiples. For the comparable company valuation multiple technique, the key assumptions included esti- mated adjusted earnings before interest, taxes, depreciation and amortization (adjusted EBITDA) and adjusted EBITDA multiples. We considered this a key audit matter due to the significant judg- ments used by management when determining the fair values of the non-public investments and the high degree of complexity in assessing audit evidence related to the key assumptions made by management. In addition, the audit effort involved the use of professionals with specialized skill and knowledge in the field of valuation. 70 Onex Corporation December 31, 2021 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. 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 accordance with IFRS, and for such internal control as management determines is necessary to enable the preparation of consolidated 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 alternative 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 opinion. Reason- able assurance is a high level of assurance, but is not a guarantee that an audit conducted in accordance with Canadian gen- erally 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. Onex Corporation December 31, 2021 71 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 appropriate 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 dis- closures 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 disclo- sures 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 direction, super- vision and performance of the group audit. We remain solely responsible for our audit opinion. 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 requirements 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. 72 Onex Corporation December 31, 2021 From the matters communicated with those charged with governance, we determine those matters that were of most signif- icance in the audit of the consolidated financial statements of the current period and are therefore the key audit matters. We describe these matters in our auditor’s report unless law or regulation precludes public disclosure about the matter or when, in extremely rare circumstances, we determine that a matter should not be communicated in our report because the adverse consequences of doing so would reasonably be expected to outweigh the public interest benefits of such communication. The engagement partner on the audit resulting in this independent auditor’s report is Alaina Tennison. [signed] PricewaterhouseCoopers llp Chartered Professional Accountants, Licensed Public Accountants Toronto, Ontario February 24, 2022 Onex Corporation December 31, 2021 73 CONSOLIDATED BALANCE SHEETS (in millions of U.S. dollars) Assets Cash and cash equivalents (note 2) Treasury investments (note 3) Management and advisory fees, recoverable fund expenses and other receivables (note 4) Corporate investments (including intercompany loans receivable from Onex and the Asset Managers of $3,755 (December 31, 2020 – $4,043), comprising part of the fair value of Investment Holding Companies) (note 5) Other assets (note 6) Property and equipment (note 7) Intangible assets (note 8) Goodwill (note 8) Total assets As at As at December 31, 2021 December 31, 2020 $ 547 290 369 10,994 136 148 139 264 12,887 $ 706 234 261 9,969 98 169 167 264 11,868 Intercompany loans payable to Investment Holding Companies (notes 9 and 13) Total assets net of intercompany loans payable to Investment Holding Companies (3,755) $ 9,132 (4,043) $ 7,825 $ 25 147 462 71 53 $ 758 $ 8,374 $ 304 8,070 $ 8,374 $ 29 125 263 75 90 $ 582 $ 7,243 $ 314 6,929 $ 7,243 Other liabilities Accounts payable and accrued liabilities Accrued compensation (note 10) Stock-based compensation payable (note 11) Lease liabilities (notes 12 and 13) Contingent consideration and other liabilities (notes 14, 19 and 26) Total other liabilities Net assets Equity Share capital (note 15) Retained earnings and accumulated other comprehensive earnings Total equity See accompanying notes to the consolidated financial statements. Signed on behalf of the Board of Directors [signed] Director [signed] Director 74 Onex Corporation December 31, 2021 CONSOLIDATED STATEMENTS OF EARNINGS (in millions of U.S. dollars except per share data) Year ended December 31 Income Net gain on corporate investments (including an increase in carried interest of $230 (2020 – $21) (note 5) Management and advisory fees (note 16) Performance fees (note 16) Interest and net treasury investment income (note 17) Reimbursement of expenses from investment funds and operating businesses (note 16) Other income Total income Expenses Compensation Stock-based compensation recovery (expense) (note 18) Amortization of property, equipment and intangible assets (notes 7 and 8) Recoverable expenses from investment funds and operating businesses Impairment of goodwill (note 8) Other expenses (note 19) Total expenses Earnings before income taxes Recovery of income taxes (note 14) Net earnings Net earnings per Subordinate Voting Share of Onex Corporation (note 20) Basic Diluted See accompanying notes to the consolidated financial statements. 2021 2020 $ 1,698 $ 848 277 13 1 42 3 244 16 16 14 3 $ 2,034 $ 1,141 $ (248) (205) (59) (42) – (76) $ (207) 21 (57) (14) (85) (69) $ (630) $ (411) $ 1,404 1 $ 1,405 $ 15.79 $ 15.76 $ 730 – $ 730 $ 7.64 $ 7.63 Onex Corporation December 31, 2021 75 CONSOLIDATED STATEMENTS OF COMPREHENSIVE EARNINGS (in millions of U.S. dollars) Year ended December 31 Net earnings Other comprehensive earnings, net of tax Items that may be reclassified to net earnings (loss): Currency translation adjustments Other comprehensive earnings, net of tax Total comprehensive earnings See accompanying notes to the consolidated financial statements. 2021 $ 1,405 1 1 $ $ 1,406 2020 $ 730 – – $ $ 730 CONSOLIDATED STATEMENTS OF EQUITY (in millions of U.S. dollars except per share data) Balance – December 31, 2019 Dividends declared (b) Options exercised Repurchase and cancellation of shares (note 15) Net earnings Balance – December 31, 2020 Dividends declared (b) Options exercised Repurchase and cancellation of shares (note 15) Net earnings Currency translation adjustments included in other comprehensive earnings Balance – December 31, 2021 Share Capital (note 15) Retained Earnings Accumulated Other Comprehensive Earnings(a) Total Equity $ 342 $ 6,627 $ 14 $ 6,983 – 2 (30) – (28) – (414) 730 – – – – (28) 2 (444) 730 $ 314 $ 6,915 $ 14 $ 7,243 – 2 (12) – – (28) – (237) 1,405 – – – – – 1 (28) 2 (249) 1,405 1 $ 304 $ 8,055 $ 15 $ 8,374 (a) Accumulated other comprehensive earnings consisted solely of currency translation adjustments. Income taxes did not have a significant effect on these adjustments. (b) Dividends declared per Subordinate Voting Share were C$0.40 for the year ended December 31, 2021 (2020 – C$0.40). There are no tax effects for Onex on the declaration or payment of dividends. See accompanying notes to the consolidated financial statements. 76 Onex Corporation December 31, 2021 CONSOLIDATED STATEMENTS 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 recovery of income taxes Cash taxes received (paid) Investments made in and loans made to Investment Holding Companies Distributions and loan repayments received from Investment Holding Companies and sale of private equity investment Items not affecting cash and cash equivalents: Amortization of property, equipment and intangible assets (notes 7 and 8) Net gain on corporate investments (note 5) Stock-based compensation (note 18) Impairment of goodwill Contingent consideration expense Foreign exchange gain 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 Increase (decrease) in cash and cash equivalents due to changes in non-cash working capital items Decrease in other operating activities Cash provided by operating activities Financing activities 2021 2020 $ 1,405 $ 730 (1) (1) 2 1,405 (1) (70) 627 59 (1,698) 162 – 10 – 2 496 (107) (1) (49) 22 (135) – – (16) 2 716 1 (325) 654 57 (848) (36) 85 – (2) 2 304 67 (1) (3) 16 79 (1) $ 361 $ 382 Repurchase of share capital of Onex Corporation (note 15) $ (249) $ (444) Cash dividends paid (note 15) Principal elements of lease payments (note 12) Cash interest paid (note 12) Issuance of loans from Investment Holding Companies Repayment of loans to Investment Holding Companies Cash used in financing activities Investing activities Net sale (purchase) of treasury investments Purchases of property and equipment Cash interest received Acquisitions net of cash and cash equivalents acquired (note 26) Cash used in investing activities Decrease in cash and cash equivalents Increase in cash due to changes in foreign exchange rates Cash and cash equivalents, beginning of the period Cash and cash equivalents See accompanying notes to the consolidated financial statements. (28) (13) (2) 174 (347) (29) (8) (2) 172 (346) $ (465) $ (657) $ (56) – 1 – $ (55) $ (159) – 706 547 $ $ $ 77 (1) 12 (97) (9 ) $ (284) 2 988 $ 706 Onex Corporation December 31, 2021 77 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (in millions of U.S. dollars except per share data) Onex Corporation, along with its wholly-owned subsidiaries, manages and invests capital in its private equity funds, private credit strategies and public strategies on behalf of shareholders, institutional investors and high net worth families from around the world. Onex invests in its two private equity platforms: Onex Partners for middle-market and 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 private credit strategies, which consist of non-investment grade debt in collateralized loan obligations, middle-market lending 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 Onex at December 31, 2021. All amounts included in the notes to the consolidated financial statements 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 24, 2022. S TAT E M E N T O F C O M P L I A N C E These three companies, which are referred to as the Primary Invest- ment Holding Companies, are the holding companies for the major- The consolidated financial statements have been prepared in ity of Onex’ investments, excluding intercompany loans receivable accordance with International Financial Reporting Standards from Onex and the Asset Managers, as defined below. The Primary (“IFRS”) as issued by the International Accounting Standards Board. Investment Holding Companies were formed in the United States. These consolidated financial statements were prepared on a going Asset management refers to the activity of managing concern basis. capital in Onex’ private equity funds, private credit strategies and The U.S. dollar is Onex’ functional currency and the public strategies. This activity is conducted through wholly-owned financial statements have been reported on a U.S. dollar basis. subsidiaries of Onex, which are the managers of the Onex Partners 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 A C C O U N T I N G P O L I C I E S B A S I S O F P R E S E N TAT I O N Throughout the notes to the consolidated financial statements, in- vestments and investing activity of Onex’ capital primarily relate to its private equity funds, private credit strategies and certain invest- ments held outside the private equity funds and private credit strat- egies. These investments are primarily held directly or indirectly through wholly-owned subsidiaries of Onex, which are referred to as Investment Holding Companies. While there are a number of In- vestment Holding Companies, substantially all of these companies consist of direct or indirect subsidiaries of Onex Private Equity Hold- ings LLC, Onex CLO Holdings LLC or Onex Credit Holdings LLC. Funds, ONCAP Funds and Onex Credit strategies. These subsidiar- ies are referred to as Onex’ Asset Managers and are consolidated by Onex. Onex’ private credit strategies and public strategies are managed by the Onex Credit platform. References to the Onex management team include the management of Onex, Onex Partners, ONCAP, Onex Credit and Gluskin Sheff. References to management without the use of “team” 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 applica- ble, 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. 78 Onex Corporation December 31, 2021 Onex meets the definition of an investment entity, as defined by the business purpose of the subsidiaries’ direct and indirect invest- IFRS 10, Consolidated financial statements (“IFRS 10”). As a result, ments. The Company has concluded that the Primary Investment Onex’ investments in its subsidiaries that do not provide invest- Holding Companies meet the definition of an investment entity. ment-related services are accounted for as corporate investments Throughout these consolidated financial statements, at fair value through net earnings (loss). wholly-owned subsidiaries of Onex that are recognized at fair value The Company has also performed an assessment to de- are referred to as Investment Holding Companies. Investment Hold- termine which of its subsidiaries are investment entities, as defined ing Companies include subsidiaries determined to be investment under IFRS 10. When performing this assessment, the Company entities under IFRS 10, and all other subsidiaries that do not provide considered the subsidiaries’ current business purpose along with investment-related services and are not investment entities. The simplified diagram below illustrates the types of subsidiaries included within Onex’ corporate structure and the basis on which they are accounted for. 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 Funds(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 sheets, with the corresponding loans receivable classified as assets within corporate investments in the consolidated balance sheets. (2) Onex’ investments in the Investment Holding Companies are recorded as corporate investments at fair value through net earnings (loss). (3) Onex’ investments in private equity and the Onex Credit strategies 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, 2021 79 NOTES TO CONSOLIDATED FINANCIAL STATEMENTSThe following table presents the material unconsolidated subsidiaries as well as associates and joint ventures of the Investment Holding Companies at December 31, 2021. Headquarters(a) Onex’ Economic Interest Voting Interest (b) Other private equity investments Celestica Inc. Onex Partners II Carestream Health, Inc. Onex Partners III BBAM Limited Partnership Meridian Aviation Partners Limited and affiliates Onex Partners III and Onex Partners V Emerald Expositions Events, Inc (d) Onex Partners IV Advanced Integration Technology LP ASM Global Parkdean Resorts PowerSchool Group LLC Ryan, LLC SCP Health WireCo WorldGroup Onex Partners IV and Onex Partners V Partou (formerly KidsFoundation) Onex Partners V Acacium Group (formerly Independent Clinical Services Group) Convex Group Limited Fidelity Building Services Group Imagine Learning (formerly Weld North Education) Newport Healthcare OneDigital Wealth Enhancement Group WestJet Airlines Ltd. Canada United States United States Ireland United States United States United States United Kingdom United States United States United States United States The Netherlands United Kingdom United Kingdom United States United States United States United States United States Canada 15% 36% 9% 25% 23% 13% 16% 27% 12% 14% 22% 21% 20% 20% 13% 24% 10% 26% 12% 11% 20% 82% 100% (c) 100% 87% 50% (c) 48% (c) 92% 38% (c) 44% (c) 66% 67% 72% 74% 94% 88% 40% (c) 93% 55% 38% (c) 74% (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. (d) Economic and voting interests are presented on an as-converted basis. 80 Onex Corporation December 31, 2021 NOTES TO CONSOLIDATED FINANCIAL STATEMENTSS I G N I F I C A N T A C C O U N T I N G P O L I C I E S Foreign currency translation The Company’s receivables are recognized initially at fair value and are subsequently measured at amortized cost. The The Company’s functional currency is the U.S. dollar, as it is the cur- Company recognizes a loss allowance for receivables based on the rency of the primary economic environment in which it operates. 12-month expected credit losses for receivables that have not had For such operations, monetary assets and liabilities denominated a significant increase in credit risk since initial recognition. For in foreign currencies are translated into U.S. dollars at the year-end receivables with a credit risk that has significantly increased since exchange rates. Non-monetary assets and liabilities denominated initial recognition, the Company records a loss allowance based on in foreign currencies are translated at historical rates and revenue the lifetime expected credit losses. Significant financial difficulties and expenses are translated at the average exchange rates prevail- of the counterparty and default in payments are considered indi- ing during the relevant period of the transaction. Exchange gains cators that the credit risk associated with a receivable balance may and losses also arise on the settlement of foreign-currency denomi- have changed since initial recognition. nated transactions. These exchange gains and losses are recognized in net earnings (loss). Corporate investments The functional currency of Gluskin Sheff is the Canadian Corporate investments include Onex’ investments in its subsidiar- dollar and as such, the assets and liabilities of Gluskin Sheff are ies, primarily consisting of Investment Holding Companies, that translated into U.S. dollars using the year-end exchange rate. Rev- meet the investment entity exception to consolidation criteria in enues and expenses of Gluskin Sheff are translated at the average IFRS 10. These subsidiaries primarily invest Onex’ capital in the exchange rates prevailing during the relevant period of the transac- Onex Partners Funds, ONCAP Funds and certain private credit strat- tion. Gains and losses arising from the translation of Gluskin Sheff’s egies. Corporate investments are measured at fair value through financial results are deferred in the currency translation account net earnings (loss) in accordance with IFRS 9. The fair value of cor- included in equity. Cash and cash equivalents porate investments includes the fair value of both intercompany loans receivable from and payable to Onex and the Asset Managers. In addition, the fair value of corporate investments includes Onex’ Cash and cash equivalents include liquid investments such as term portion of the carried interest earned on investments made by the deposits, money market instruments and commercial paper with Onex Partners Funds and ONCAP Funds, and the liability associated original maturities of less than three months. These investments are with management incentive programs, including the Management carried at cost plus accrued interest, which approximates fair value. Investment Plan (the “MIP”), as described in note 25(f ). Treasury investments The majority of the Company’s corporate investments, excluding intercompany loans, consisted of investments made in Treasury investments include commercial paper, federal and pro- the Primary Investment Holding Companies and investments made vincial debt instruments, corporate obligations and structured in operating businesses directly by Onex. products. Treasury investments are measured at fair value through net earnings (loss) in accordance with IFRS 9, Financial instru- Leases ments (“IFRS 9”). Leases are recognized as a right-of-use asset and a corresponding Purchases and sales of treasury investments are recog- lease liability at the date at which the leased asset is available for nized on the settlement date of the transactions. use, with the exception of leases of low-value assets and leases with a term of 12 months or less, which are recognized on a straight- Management and advisory fees, recoverable fund expenses and other receivables line basis as an expense. Each lease payment is allocated between the repayment of the lease liability and finance cost. The finance Management and advisory fees receivable represent amounts cost is charged to the consolidated statements of earnings over the owing to Onex and the Asset Managers from the Onex private lease period to produce a constant periodic rate of interest on the equity funds, private credit strategies, Gluskin Sheff pooled fund remaining balance of the lease liability for each period. The right- vehicles and certain operating companies of the Onex Partners and of-use asset is amortized on a straight-line basis over the shorter ONCAP Funds. of the asset’s useful life and the lease term. Right-of-use assets and Recoverable fund expenses include amounts owing to liabilities arising from a lease are initially measured on a present the Asset Managers from the Onex private equity funds, private value basis. Right-of-use assets are included within property and credit strategies and certain operating companies of the Onex pri- equipment in the consolidated balance sheets. vate equity funds related to certain deal investigation, research and other expenses incurred by the Asset Managers which are recoverable at cost. Onex Corporation December 31, 2021 81 NOTES TO CONSOLIDATED FINANCIAL STATEMENTSProperty and equipment Advisors, LLC (“Falcon” or “Onex Falcon”) with the Onex Credit plat- Property and equipment are recorded at cost less accumulated form during 2021. Impairment of goodwill is tested at the level where amortization and provisions for impairment, if any. Cost consists goodwill is monitored for internal management purposes. The de- of expenditures directly attributable to the acquisition of the as- termination of CGUs and the level at which goodwill is monitored set. Subsequent expenditures for maintenance and repairs are requires judgement by management. The carrying amount of a CGU expensed as incurred, while costs related to betterments and im- or a group of CGUs is compared to its recoverable amount, which is provements that extend the useful lives of property and equipment the higher of its value-in-use or fair value less costs to sell, to deter- are capitalized. mine if an impairment exists. Impairment losses for goodwill are not Amortization is provided for other property and equipment on a straight-line basis over the estimated useful lives of the assets Amortization is provided for intangible assets with a limited life on as follows: a straight-line basis over their estimated useful lives as follows: reversed in future periods. Aircraft up to 20 years Client relationships and asset Leasehold improvements up to the term of the lease management contracts Furniture and equipment up to 10 years Trade names up to 15 years up to 10 years When components of an asset have a significantly different useful Impairment of long-lived assets life or residual value than the primary asset, the components are Property, equipment and intangible assets are reviewed for im- amortized separately. Residual values, useful lives and methods of pairment annually or whenever events or changes in circum- amortization are reviewed at each fiscal year end and adjusted pro- stances suggest that the carrying amount of the asset may not be spectively as required. Goodwill and intangible assets 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 Goodwill and intangible assets are recorded at their fair value at the assessment. An impairment loss is recognized when the carrying date of acquisition of the related subsidiary or at cost if purchased. value of an asset or CGU exceeds the recoverable amount. The re- Goodwill is initially measured as the excess of the aggregate of the coverable amount of an asset or CGU is the greater of its value in consideration transferred, the fair value of any contingent consid- use or its fair value less costs to sell. eration, the amount of any non-controlling interest in the acquired Impairment losses for long-lived assets are reversed in company and, for a business combination achieved in stages, the fair future periods if the circumstances that led to the impairment no value at the acquisition date of the Company’s previously held inter- longer exist. The reversal is limited to restoring the carrying amount est in the acquired company compared to the net fair value of the that would have been determined, net of amortization, had no im- identifiable assets and liabilities acquired. Goodwill is not amortized pairment loss been recognized in prior periods. and is tested for impairment annually, or more frequently if condi- tions exist which indicate that goodwill may be impaired. Subse- Intercompany loans with Investment Holding Companies quent to initial recognition, goodwill is recorded at cost less accumu- Intercompany loans payable to the Investment Holding Compa- lated impairment losses, if any. Judgement is required in determining nies represent financial liabilities that are payable to subsidiaries of whether events or changes in circumstances during the year are Onex, which are recorded at fair value in the consolidated financial indicators that a review for impairment should be conducted prior to statements. Intercompany loans receivable from the Investment the annual impairment test. For the purposes of impairment testing Holding Companies are classified as corporate investments and at December 31, 2021, goodwill was allocated to the cash generating represent loans receivable from subsidiaries of Onex, which are re- unit (“CGU”) of the Onex Credit platform as goodwill is monitored corded at fair value in the consolidated financial statements. Onex by management at this level following the integration of the invest- has elected to measure these financial instruments at fair value ment management functions of Gluskin Sheff and Falcon Investment through net earnings (loss) in accordance with IFRS 9. 82 Onex Corporation December 31, 2021 NOTES TO CONSOLIDATED FINANCIAL STATEMENTSIncome taxes Revenue recognition Income taxes are recorded using the asset and liability method of Revenues from management fees, advisory fees, performance fees income tax allocation. Under this method, assets and liabilities and the reimbursement of expenses from investment funds and are recorded for the future income tax consequences attributable the private equity operating businesses are recognized using the to differences between the financial statement carrying values of following five-step model in accordance with IFRS 15, Revenue from assets and liabilities and their respective income tax bases, and on contracts with customers (“IFRS 15”): 1) identify the contract or con- tax loss and tax credit carryforwards. Deferred tax assets are recog- tracts with the client; 2) identify the separate performance obliga- nized only to the extent that it is probable that taxable profit will tions in the contract; 3) determine the transaction price; 4) allocate be available against which the deductible temporary differences the transaction price to separate performance obligations; and as well as tax loss and tax credit carryforwards can be utilized. 5) recognize revenue when or as each performance obligation is These deferred income tax assets and liabilities are recorded using satisfied, collection of consideration is probable and control of the substantively enacted income tax rates. The effect of a change in good or service has been transferred to the client. income tax rates on these deferred income tax assets or liabilities The transaction price represents the amount of consider- is included in net earnings (loss) in the period in which the rate ation that the Company expects to be entitled to and may include change occurs. Certain of these differences are estimated based on variable components such as performance fees and performance current tax legislation and the Company’s interpretation thereof. allocations. Management estimates the amount of variable consid- Income tax expense or recovery is based on the income eration to be included in the transaction price to the extent that it is earned or loss incurred in each tax jurisdiction and the enacted or highly probable that a significant reversal in the amount of cumula- substantively enacted tax rate applicable to that income or loss. Tax tive revenue recognized will not occur when the uncertainty associ- expense or recovery is recognized in the consolidated statements ated with the variable consideration is subsequently resolved. This of earnings, except to the extent that it relates to items recognized estimate is updated at each reporting date until the uncertainty directly in equity, in which case the tax effect is also recognized is resolved. in equity. The Company transfers the benefit of its services to cli- Deferred tax liabilities for taxable temporary differences ents and limited partners as it performs the services, and therefore associated with investments in subsidiaries are recognized, except satisfies its performance obligations over time. when the Company is able to control the timing of the reversal of A receivable is recognized when the transfer of control for temporary differences and it is probable that the temporary differ- services to a client occurs prior to the client paying consideration if ences will not reverse in the foreseeable future. the right to the consideration is unconditional. A contract liability In the ordinary course of business, there are transactions is recognized when the client’s payment of consideration precedes for which the ultimate tax outcome is uncertain. The final tax out- the completion of a performance obligation. come of these matters may be different from the judgements and Revenue recognition requires management to make estimates originally made by the Company in determining its in- certain judgements and estimates, including the identification of come tax provisions. The Company periodically evaluates the posi- performance obligations, the allocation and amount of the transac- tions taken with respect to situations in which applicable tax rules tion price, and the collectability of cash consideration. and regulations are subject to interpretation. Provisions related to tax uncertainties are established where appropriate based on the The significant revenue recognition streams of the Company are most likely amount or expected value that will ultimately be paid as follows: to or received from tax authorities. Accrued interest and penalties relating to tax uncertainties are recorded in current income tax Management and advisory fees expense in accordance with IAS 12, Income Taxes. Onex earns management and advisory fees for managing investor Note 14 provides further details on income taxes. capital through its private equity funds, private credit strategies and public strategies, and for services provided directly to certain underlying operating businesses. Asset management services are provided over time and the amount earned is generally calculated based on a percentage of limited partners’ committed capital, lim- ited partners’ net funded commitments, unfunded commitments, the collateral principal balance, invested capital, gross invested as- sets, net asset value or assets under management of the respective strategies. Revenues earned from management and advisory fees are recognized over time as services are provided. Onex Corporation December 31, 2021 83 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS Reimbursement of expenses from investment funds and operating businesses the payment of cash to the option holder. The Company has re- corded a liability for the potential future settlement of the vested Certain deal investigation, research and other expenses incurred by options at the balance sheet date by reference to the fair value the Asset Managers are recoverable, at cost, from the Onex private of the liability. The liability is adjusted each reporting period for equity funds, private credit strategies and certain operating busi- changes in the fair value of the options, with the corresponding nesses of the Onex Partners and ONCAP Funds. These expense reim- amount reflected in the consolidated statements of earnings. bursements are recognized as revenue in accordance with IFRS 15. 2) The Company’s Director Deferred Share Unit Plan (“Director Performance fees DSU Plan”), which entitles the holder to receive, upon redemp- tion, a cash payment equivalent to the market value of a Subor- Performance fees are recognized as revenue to the extent the fees dinate Voting Share (“SVS”) at the redemption date. The Director are highly probable to not reverse, which is typically at the end of DSU Plan enables Onex directors to apply directors’ fees earned each performance year, or upon closure of an account or transfer to acquire Deferred Share Units (“DSUs”) based on the market of assets to a different investment model. value of Onex shares at the time. Grants of DSUs may also be Performance fees associated with the management of made to Onex directors from time to time. The DSUs vest imme- certain public strategies and private credit strategies are comprised diately, are redeemable only when the holder retires and must be of performance fees and performance allocations. Performance redeemed within one year following the year of retirement. Addi- fees are determined by applying an agreed-upon formula to the tional units are issued for any cash dividends paid on the SVS. The growth in the net asset value of clients’ assets under management. Company has recorded a liability for the future settlement of the Performance allocations are allocated to the Company as a General DSUs by reference to the value of the underlying SVS at the bal- Partner of certain public strategy funds. Performance fees associ- ance sheet date. On a quarterly basis, the liability is adjusted for ated with capital managed by Onex Credit range between 10% and the change in the market value of the underlying shares, with the 20% and may be subject to performance hurdles. corresponding amount reflected in the consolidated statements Carried interest – Onex Credit Funds of earnings. To economically hedge a portion of the Company’s exposure to changes in the trading price of Onex shares, the The general partners of the Onex Credit Funds are entitled to a Company enters into forward agreements with a counterparty carried interest of up to 20% on the realized net gains from limited financial institution. The change in value of the forward agree- partners in certain private credit funds, subject to a hurdle or min- ments will be recorded to partially offset the amounts recorded imum preferred return to investors. The Onex Falcon management as stock-based compensation under the Director DSU Plan. team is allocated the entire carried interest for Onex Falcon Funds Director DSUs are redeemable only for cash and no shares or acquired with Onex Falcon in December 2020, with the exception other securities of Onex will be issued on the exercise, redemp- of Private Credit Opportunities Fund VI (“Onex Falcon VI”), where tion or other settlement thereof. Onex Falcon management is entitled to approximately 80% of 3) The Company’s Management Deferred Share Unit Plan (“Man- the carried interest and Onex’ entitlement is approximately 20%. agement DSU Plan”), which enables the Onex management team In most other cases, the Onex Credit management team is allocated to apply all or a portion of their annual compensation earned 50% of the carried interest from other private credit funds and Onex to acquire DSUs based on the market value of Onex shares at is entitled to the remaining 50% of the carried interest realized from the time in lieu of cash. Holders of DSUs are entitled to receive the private credit investments. for each DSU, upon redemption, a cash payment equivalent to Carried interest earned by Onex from the Onex Credit the market value of an SVS at the redemption date. The DSUs Funds is recognized as revenue to the extent it is highly probable vest immediately, are only redeemable once the holder ceases to not reverse, which typically occurs when the investments held to be an officer or employee of the Company or an affiliate, and by a given fund are substantially realized, towards the end of the must be redeemed by the end of the year following the year of fund’s term. Stock-based compensation termination. Additional units are issued equivalent to the value of any cash dividends that would have been paid on the SVS. The Company has recorded a liability for the future settlement of the The Company follows the fair value-based method of account- DSUs by reference to the value of the underlying SVS at the bal- ing for all stock-based compensation plans and has three types of ance sheet date. On a quarterly basis, the liability is adjusted for stock-based compensation plans: the change in the market value of the underlying shares, with 1) The Company’s Stock Option Plan (the “Plan”), which provides the corresponding amount reflected in the consolidated state- that in certain situations the Company has the right, but not the ments of earnings. To economically hedge the Company’s expo- obligation, to settle any exercisable option under the Plan by sure to changes in the trading price of Onex shares associated 84 Onex Corporation December 31, 2021 NOTES TO CONSOLIDATED FINANCIAL STATEMENTSwith the Management DSU Plan, the Company enters into for- c) Financial liabilities measured at fair value through ward agreements with a counterparty financial institution for all net earnings (loss) grants under the Management DSU Plan. As such, the change Financial liabilities that are incurred with the intention of generat- in value of the forward agreements will be recorded to offset ing earnings in the near term are classified as fair value through net the amounts recorded as stock-based compensation under earnings (loss). Other financial liabilities may be designated as fair the Management DSU Plan. The administrative costs of those value through net earnings (loss) on initial recognition if doing so arrangements are borne by participants in the plan. Manage- eliminates or significantly reduces a measurement or recognition ment DSUs are redeemable only for cash and no shares or other inconsistency, or the group of financial liabilities is managed, and securities of Onex will be issued on the exercise, redemption or its performance is evaluated, on a fair value basis. Intercompany other settlement thereof. loans payable to Investment Holdings Companies are designated as Financial assets and financial liabilities Financial assets and financial liabilities are initially recognized at d) Financial liabilities measured at amortized cost fair value and are subsequently accounted for based on their classi- Financial liabilities not classified as fair value through net earnings fication, as described below. Transaction costs in respect of an asset (loss) are accounted for at amortized cost using the effective inter- fair value through net earnings (loss). or liability not recorded at fair value through net earnings (loss) are est rate method. added to the initial carrying amount. Gains and losses for financial instruments recognized through net earnings (loss) are primarily e) Interest income recognized in net gain (loss) on corporate investments in the con- Interest income recognized by the Company primarily relates to solidated statements of earnings. The classification of financial interest earned from investments recognized at fair value through assets depends on the business model for managing the financial net earnings (loss). assets and the contractual terms of the cash flows. The classifica- tion of financial liabilities depends on the purpose for which the fi- Derecognition of financial instruments nancial liabilities were incurred and their characteristics. Except in A financial asset is derecognized if substantially all the risks and very limited circumstances, the classification of financial assets and rewards of ownership and, in certain circumstances, control of the financial liabilities is not changed subsequent to initial recognition. financial asset are transferred. A financial liability is derecognized a) Financial assets – amortized cost when it is extinguished, with any gain or loss on extinguishment to be recognized in other expense in the consolidated statements Financial assets with the following characteristics are accounted for of earnings. at amortized cost using the effective interest rate method: • The financial asset is held within a business model whose objec- Contingent consideration tive is achieved by collecting contractual cash flows; and Contingent consideration is established for business acquisitions • The contractual terms of the financial asset give rise on spec- where the Company has the obligation to transfer additional assets ified dates to cash flows that are solely payments of principal or equity interests to the former owners if specified future events and interest. occur or conditions are met. The fair value of contingent consider- ation liabilities is typically based on the estimated future financial The Company recognizes loss allowances for financial assets ac- performance of the acquired business. Financial targets used in the counted for at amortized cost based on the financial assets’ expect- estimation process include certain defined financial targets and ed credit losses, which are assessed on a forward-looking basis. internal rates of return. Contingent consideration is classified as a b) Financial assets – fair value through net earnings (loss) assets, and as equity when the obligation requires settlement in own Financial assets that do not meet the criteria for amortized cost or equity instruments. Contingent consideration classified as a liability fair value through other comprehensive income are measured at is remeasured at fair value at each reporting date, with changes in fair value through net earnings (loss). Financial assets may also be fair value recognized through net earnings (loss). liability when the obligation requires settlement in cash or other designated as fair value through net earnings (loss) on initial rec- ognition if doing so eliminates or significantly reduces a measure- Earnings (loss) per share ment or recognition inconsistency. Intercompany loans receivable Basic earnings per share is based on the weighted average num- from Investment Holding Companies, which are presented within ber of SVS outstanding during the year. Diluted earnings per share Corporate Investments, are designated as fair value through net is calculated using the treasury stock method, which includes earnings (loss). the impact of converting certain limited partnership units of an Onex subsidiary into 144,579 Onex SVS and excludes the impact Onex Corporation December 31, 2021 85 NOTES TO CONSOLIDATED FINANCIAL STATEMENTSof converting outstanding stock options into Onex SVS, given assessment of whether Onex, the parent company, meets the defi- Onex accounts for the liability associated with outstanding stock nition of an investment entity was performed on an aggregate basis options issued under its Stock Option Plan as a liability at fair value with these subsidiaries. through net earnings (loss). Corporate investments Dividend distributions The measurement of corporate investments is significantly impact- Dividend distributions to the shareholders of Onex Corporation are ed by the fair values of the investments held by the Onex Partners recognized as a liability in the consolidated balance sheets in the Funds, ONCAP Funds and private credit strategies. The fair value periods in which the dividends are declared and authorized by of corporate investments is assessed at each reporting date with the Board of Directors. changes in fair value recognized through net earnings (loss). The valuation of non-public investments requires sig- Use of judgements and estimates nificant judgement due to the absence of quoted market values, The preparation of financial statements in conformity with IFRS inherent lack of liquidity and the long-term nature of such invest- requires management to make judgements, estimates and assump- ments. Valuation methodologies include discounted cash flows tions that affect the reported amounts of assets, liabilities and eq- and observations of the trading multiples of public companies con- uity, the related disclosures of contingent assets and liabilities at sidered comparable to the private companies being valued. Key the date of the financial statements, and the reported amounts assumptions made in the valuations include unlevered free cash of revenue, expenses and gains (losses) on financial instruments flows, including the timing of earnings projections and the expect- during the reporting period. Actual results could differ materially ed long-term revenue growth, the weighted average costs of capital from those estimates and assumptions. These estimates and un- and the exit multiples. The valuations take into consideration com- derlying assumptions are reviewed on an ongoing basis. Revisions pany-specific items, the lack of liquidity inherent in a non-public to accounting estimates are recognized in the period in which the investment and the fact that comparable public companies are not estimate is revised if the revision affects only that period, or in the identical to the companies being valued. Such considerations are period of the revision and future periods if the revision affects both necessary since, in the absence of a committed buyer and comple- current and future periods. tion of due diligence procedures, there may be company-specific Areas that involve critical judgements, assumptions and items which are not fully known that may affect the fair value. A estimates and that have a significant influence on the amounts variety of additional factors are reviewed, including, but not lim- recognized in the consolidated financial statements are further de- ited to, financing and sales transactions with third parties, current scribed as follows: Investment entity status operating performance and future expectations of the particular in- vestment, changes in market outlook and the third-party financing environment. In determining changes to the fair value of the un- Judgement was required when determining whether Onex, the par- derlying private equity investments, emphasis is placed on current ent company, meets the definition of an investment entity, which company performance and market conditions. IFRS 10 defines as an entity that: (i) obtains funds from one or more For publicly traded investments, the valuation is based investors for the purpose of providing those investors with invest- on closing market prices less adjustments, if any, for regulatory ment management services; (ii) commits to its investors that its and/or contractual sale restrictions. business purpose is to invest funds solely for returns from capital ap- The fair value of underlying investments in private cred- preciation, investment income or both; and (iii) measures and eval- it strategies that are not quoted in an active market may be deter- uates the performance of substantially all of its investments on a fair mined by using reputable pricing sources (such as pricing agencies) value basis. When determining whether Onex met the definition of or indicative prices from bond/debt market makers. Broker quotes an investment entity under IFRS 10, Onex management applied sig- as obtained from the pricing sources may be indicative and not nificant judgement when assessing whether the Company measures executable or binding. Judgement and estimates are exercised to de- and evaluates the performance of substantially all of its investments termine the quantity and quality of the pricing sources used. Where on a fair value basis. Onex management also considered the impact limited or no market data is available, positions may be valued of acquisitions made by the Company when determining whether using models that include the use of third-party pricing informa- Onex met the definition of an investment entity under IFRS 10. tion, and are usually based on valuation methods and techniques Onex conducts its business primarily through controlled generally recognized as standard within the industry. Models use subsidiaries, which consist of entities providing asset management observable data to the extent practicable. However, areas such as services, investment holding companies and General Partners of credit risk (both own and counterparty), volatilities and correla- private equity funds, credit funds and limited partnerships. Cer- tions may require estimates to be made. Changes in assumptions tain of these subsidiaries were formed for legal, regulatory or sim- about these factors could affect the reported fair value of the under- ilar reasons by Onex and share a common business purpose. The lying investments in private credit strategies. 86 Onex Corporation December 31, 2021 NOTES TO CONSOLIDATED FINANCIAL STATEMENTSManagement incentive programs are included in the fair Goodwill impairment tests and recoverability of assets value of corporate investments and are determined using an in- The Company tests at least annually whether goodwill has suffered ternally developed valuation model. The critical assumptions and any impairment, in accordance with its accounting policies. The de- estimates used in the valuation model include the fair value of the termination of the recoverable amount of a CGU to which goodwill is underlying investments, the time to expected exit from each invest- allocated involves the use of estimates by management. The Compa- ment, a risk-free rate of return and an industry-comparable histor- ny generally uses discounted cash flow-based methods to determine ical volatility for each investment. The fair value of the underlying these values. These discounted cash flow calculations typically use investments includes the same critical assumptions and estimates five-year projections that are based on the operating plans approved previously described. by management. Cash flow projections take into account past expe- Corporate investments are measured with significant un- rience and represent management’s best estimate of future develop- observable inputs (Level 3 of the fair value hierarchy), which are ments. Cash flows after the planning period are extrapolated using further described in note 22. estimated growth rates. Key assumptions on which management has The changes in fair value of corporate investments are based its determination of fair value less costs to sell and value in further described in note 5. use include estimated growth rates, weighted average cost of capital and tax rates. These estimates, including the methodology used, can The Company assessed whether its underlying subsidiaries met the have a material impact on the respective values and ultimately the definition of an investment entity, as defined under IFRS 10. In cer- amount of any goodwill impairment. Likewise, whenever property, tain circumstances, this assessment was performed together with equipment and other intangible assets are tested for impairment, the other entities that were formed in connection with each other for determination of the assets’ recoverable amount involves the use of legal, regulatory or similar reasons. Similarly, where a subsidiary’s estimates by management, and can have a material impact on the current business purpose is to facilitate a common purpose with a respective values and ultimately the amount of any impairment. group of entities, the assessment of whether those subsidiaries met the definition of an investment entity was performed on an aggre- Income and other taxes gated basis. The Company operates and earns income in various countries and Certain subsidiaries were formed for various business is subject to changing tax laws or application of tax laws in multiple purposes that, in certain circumstances, have evolved since their jurisdictions within these countries. Significant judgement is nec- formation. When the Company assessed whether these subsidiaries essary in determining worldwide income and other tax liabilities. met the definition of an investment entity, as defined under IFRS 10, Although management believes that it has made reasonable esti- professional judgement was exercised to determine the primary mates about the final outcome of tax uncertainties, no assurance can business purpose of these subsidiaries and the measurement ba- be given that the final outcome of these tax matters will be consistent sis, which were significant factors in determining their investment with what is reflected in the historical income tax provisions. Such entity status. Business combination differences could have an effect on income and other tax liabilities and deferred tax liabilities in the period in which such determina- tions are made. At each balance sheet date, the Company assesses Onex acquired Falcon in December 2020 and accounted for this whether the realization of future tax benefits is sufficiently probable acquisition as a business combination in accordance with IFRS 3, to recognize deferred tax assets. This assessment requires the exer- Business combinations. Substantially all of the identifiable assets cise of judgement on the part of management with respect to, among and liabilities of Onex Falcon were recorded at their fair values other things, benefits that could be realized from available tax strate- on the date of the acquisition. One of the most significant areas gies and future taxable income, as well as other positive and negative of judgement and estimation was related to the determination of factors. The recorded amount of total deferred tax assets could be the fair values of these assets and liabilities, including the fair val- reduced if estimates of projected future taxable income and bene- ue of contingent consideration. Intangible assets that were identi- fits from available tax strategies are lowered, or if changes in current fied were valued by independent external valuation experts using tax regulations are enacted that impose restrictions on the timing or appropriate valuation techniques, which were generally based on extent of the Company’s ability to utilize future tax benefits. a forecast of the total expected future net cash flows. These valua- The Company uses significant judgement when deter- tions were linked closely to the assumptions made by management mining whether to recognize deferred tax liabilities with respect regarding the future performance of the assets concerned and any to taxable temporary differences associated with corporate invest- changes in the discount rate applied. ments, in particular whether the Company is able to control the timing of the reversal of the temporary differences and whether it is probable that the temporary differences will not reverse in the fore- seeable future. Judgement includes consideration of the Company’s future cash requirements in its numerous tax jurisdictions. Onex Corporation December 31, 2021 87 NOTES TO CONSOLIDATED FINANCIAL STATEMENTSLegal provisions and contingencies 2 . C A S H A N D C A S H E Q U I VA L E N T S The Company, in the normal course of operations, can become involved in various legal proceedings. While the Company cannot Cash and cash equivalents comprised the following: predict the final outcome of such legal proceedings, the outcome of these matters may have a material effect on the Company’s consol- idated financial position, results of operations or cash flows. Man- agement regularly analyzes current information about such matters and provides provisions for probable contingent losses, including Cash at bank and on hand Money market funds Commercial paper an estimate of legal expenses to resolve the matters. Internal and Total cash and cash equivalents external counsel are used for these assessments. In making the decision regarding the need for provisions, management considers December 31, 2021 December 31, 2020 $ 188 353 6 $ 547 $ 190 503 13 $ 706 the degree of probability of an unfavourable outcome and the abil- 3 . T R E A S U R Y I N V E S T M E N T S ity to make a sufficiently reliable estimate of the amount of loss. The filing of a suit or formal assertion of a claim or the disclosure of any Treasury investments comprised the following: such suit or assertion does not automatically indicate that a provi- sion may be appropriate. Impact of COVID-19 on significant estimates During March 2020, the World Health Organization characterized Commercial paper and corporate obligations Federal debt instruments COVID-19 as a pandemic. COVID-19 has had a material adverse im- Asset-backed securities pact on global economies, including economies that the underly- Other December 31, 2021 December 31, 2020 $ 243 $ 146 20 19 8 49 29 10 ing private equity operating businesses operate in, as well as global Total treasury investments $ 290 $ 234 credit markets. As a result of COVID-19, the fair value estimates of the Company’s private equity investments were impacted as follows: • higher weightings were given to valuation approaches that re- flected more current market information; • cash flow forecasts used in discounted cash flow valuation models were updated to reflect the known and expected impacts 4 . 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 of COVID-19; and The Company’s receivables for management and advisory fees, • risk premiums implied by equity and credit markets due to the fund expenses and other comprised the following: uncertainty surrounding the long-term impacts of COVID-19 were considered. Management and advisory fees $ 208 $ 142 December 31, 2021 December 31, 2020 As a result of the above impacts, certain private equity investments Recoverable fund and operating held by the Company at December 31, 2020 reflected significant fair businesses’ expenses value declines. Determining the impact of COVID-19 on the valuation of the Com- pany’s corporate investments and the recoverable amount of the Company’s goodwill and intangible assets required significant judgement given the amount of uncertainty regarding the long- term impact of COVID-19. The ultimate impact of COVID-19 on the financial results of the Company will depend on future devel- opments, including the duration and spread of the pandemic and related advisories and restrictions. These developments and the im- pact of COVID-19 on the financial markets and the overall economy are highly uncertain and difficult to predict. If the financial markets and/or the overall economy are impacted for a period significantly longer than currently implied by the markets, the financial results of the Company, including the fair value of its corporate invest- ments, may be materially adversely affected. 88 Onex Corporation December 31, 2021 Performance fees Other Total 138 13 10 87 17 15 $ 369 $ 261 Management and advisory fees receivable, and recoverable fund and operating businesses’ expenses receivable, primarily con- sisted of management fees and recoverable expenses receivable of $308 (2020 – $200) from the Onex private equity funds. Onex has elected to defer cash receipt of management fees and recoverable expenses from certain funds until the later stages of each fund’s life. At December 31, 2021, the receivable for management and advisory fees, and recoverable fund and operating businesses’ expenses receivable, primarily related to fees due from Onex Partners IV and Onex Partners V (2020 – fees due from Onex Partners IV). NOTES TO CONSOLIDATED FINANCIAL STATEMENTS5 . 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 (loss) 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 Part- ners Funds, ONCAP Funds, private credit strategies and other investments. The Company’s corporate investments comprised the following: December 31, 2020 Capital Deployed Realizations and Distributions Change in Fair Value December 31, 2021 $ 3,169 $ 783 $ (447) $ Onex Partners Funds ONCAP Funds Other private equity Carried interest Total private equity investments (a) Private 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) 606 743 87 4,605 849 62 410 5,926 4,043 (425) 425 Total corporate investments $ 9,969 $ 21 40 n/a 844 641 – (1,583) (98) 174 (26) 26 76 (253) (513) (48) 751 160 422 230 $ 4,256 534 692 269 (1,261) 1,563 5,751 (842) (14) 1,830 (287) (462) 22 (22) 157 4 (26) 1,698 – – – 805 52 631 7,239 3,755 (429) 429 $ (749) $ 1,698 $ 10,994 Onex Partners Funds ONCAP Funds Other private equity Carried interest Total private equity investments (a) Private 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) December 31, 2019 Capital Deployed Realizations and Distributions Change in Fair Value December 31, 2020 $ 2,999 $ 518 $ (835) $ 501 421 66 3,987 746 90 410 5,233 4,217 (714) 714 5 145 n/a 668 383 – (895) 156 172 (24) 24 (1) (36) – (872) (334) (20) 915 (311) (346) 313 (313) 487 101 213 21 822 54 (8) (20) 848 – – – $ 3,169 606 743 87 4,605 849 62 410 5,926 4,043 (425) 425 Total corporate investments $ 9,450 $ 328 $ (657) $ 848 $ 9,969 Onex Corporation December 31, 2021 89 NOTES TO CONSOLIDATED FINANCIAL STATEMENTSa) Private equity investments The Company’s private equity investments comprised the following: December 31, 2020 Capital Deployed Realizations and Distributions Change in Fair Value December 31, 2021 $ 1 52 445 1,834 1,052 (215) 3,169 101 246 322 (63) 606 743 87 $ – – – – 783 n/a 783 – – 21 n/a 21 40 n/a $ – – (248) (274) (18) 93 (447) (45) (254) – 46 (253) (513) (48) $ – (41) 96 454 313 (71) 751 47 92 57 (36) 160 422 230 $ 1 11 293 2,014 2,130 (193) 4,256 103 84 400 (53) 534 692 269 $ 4,605 $ 844 $ (1,261) $ 1,563 $ 5,751 December 31, 2019 Capital Deployed Realizations and Distributions Change in Fair Value December 31, 2020 $ 1 84 554 2,087 463 (190) 2,999 106 184 248 (37) 501 421 66 $ – – – 11 507 n/a 518 – – 5 n/a 5 145 n/a $ – – (6) (833) (67) 71 (835) (1) – – – (1) (36) – $ – $ (32) (103) 569 149 (96) 487 (4) 62 69 (26) 101 213 21 1 52 445 1,834 1,052 (215) 3,169 101 246 322 (63) 606 743 87 $ 3,987 $ 668 $ (872) $ 822 $ 4,605 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) Total private equity investments 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) Total private equity investments 90 Onex Corporation December 31, 2021 NOTES TO CONSOLIDATED FINANCIAL STATEMENTSi) Onex Partners Funds In September 2021, Onex invested $226 as part of the The Onex Partners Funds typically make control equity investments Onex Partners V Group’s investment in Wealth Enhancement Group in operating companies headquartered, organized, domiciled or (“WEG”), an independent wealth management firm offering com- whose principal executive offices are in North America or Western prehensive and customized financial planning and investment Europe. Onex Partners V will not invest more than 20% of aggregate management services in the United States. Onex’ investment in- commitments in any single operating company and its affiliates. cluded $54 as a co-investor. Certain Onex Partners Funds also have limits on the amount of ag- In December 2021, Onex invested $83 as part of the Onex gregate commitments that can be invested in operating companies Partners V Group’s investment in Fidelity Building Services Group whose headquarters or principal executive offices are located out- (“Fidelity BSG”). Fidelity BSG is a provider of technical building solu- side North America. tions for the commercial and industrial facilities market. At December 31, 2021, the Onex Partners Funds had investments in 22 (2020 – 19) operating businesses which operate Onex Partners IV – 2020 in various industries and countries. Onex’ investments in the Onex During 2020, the Onex Partners IV Group sold its remaining Partners Funds include co-investments, where applicable. 101.8 million shares in SIG Combibloc Group AG (“SIG”). Onex’ com- Onex Partners III – 2021 under the management incentive programs. During 2021, the Onex Partners III Group sold its remaining 32.9 mil- In April 2020, the Onex Partners IV Group received a divi- lion shares in JELD-WEN Holding, Inc. (“JELD-WEN”). Onex’ com- dend from SIG, of which Onex’ share was CHF 9 ($9). bined share of the net proceeds was $203, including carried interest In June 2020, the Onex Partners IV Group sold approxi- and net of payments under the management incentive programs. mately 20.8 million ordinary shares of Clarivate Analytics at a price bined share of the net proceeds was CHF 537 ($590), net of payments of $22.50 per share. Onex’ share of the net proceeds was $171. Onex Partners IV – 2021 In June 2021, the Onex Partners IV Group sold approximately Onex Partners V – 2020 10.6 million ordinary shares of Clarivate Analytics Plc (“Clarivate In June and August 2020, Onex invested $72 and $35, respectively, Analytics”) at a price of $26.00 per share. Onex’ share of the net in Onex Partners V as part of the fund’s investments in preferred proceeds was $101. shares of Emerald Holding, Inc. (“Emerald”). Emerald is an oper- In September 2021, the Onex Partners IV Group sold ator of large business-to-business trade shows in the United States approximately 18.0 million ordinary shares of Clarivate Analytics across several end markets. at a price of $25.25 per share. Onex’ share of the net proceeds was In September 2020, Onex invested $64 in Onex Partners V $123, net of payments under the management incentive programs. as part of the fund’s investment in Acacium Group, a specialized At December 31, 2021, Onex held approximately 16.2 million ordi- staffing, workforce management solutions, and health and social nary shares of Clarivate Analytics through Onex Partners IV. services business operating primarily in Europe and present across In July 2021, PowerSchool completed an initial public four continents. offering of its Class A common stock (NYSE: PWSC). The Onex In November 2020, Onex invested $200 in Onex Part- Partners IV Group did not sell any shares of PowerSchool as part ners V as part of the fund’s investment in OneDigital, a U.S. provider of this offering. At December 31, 2021, Onex held approximately of employee benefits insurance brokerage and retirement consult- 24.4 million Class A common shares of PowerSchool through Onex ing services. Partners IV. Onex Partners V – 2021 In December 2020, Onex invested $136 as part of the Onex Partners V Group’s add-on investment in Convex Group Limited (“Convex”). Convex is a specialty insurer and reinsurer focused on In March 2021, Onex invested $279 as part of the Onex Partners V complex risks. Group’s investment in Imagine Learning (formerly Weld North Edu- cation), a K-12 digital curriculum company in the United States. ii) ONCAP Funds Onex’ investment included $100 as a co-investor. The ONCAP Funds typically make control equity investments in In June 2021, Acacium Group (formerly Independent operating companies headquartered, organized, domiciled or Clinical Services Group) repaid the shareholder loan held by the whose principal executive offices are in the United States or Can- Onex Partners V Group. Onex’ share of the repayment was £12 ($16). ada. ONCAP IV will not invest more than 20% of aggregate commit- In July 2021, Onex invested $185 as part of the Onex Part- ments in any single operating company and its affiliates. ners V Group’s investment in Newport Healthcare, a provider in At December 31, 2021, the ONCAP Funds had invest- the United States of evidence-based healing centres for teens and ments in 14 operating businesses (2020 – 16) headquartered in young adults struggling with primary mental health issues. North America. Onex’ investments in the ONCAP Funds include co- investments, where applicable. Onex Corporation December 31, 2021 91 NOTES TO CONSOLIDATED FINANCIAL STATEMENTSONCAP II – 2021 iv) Carried interest In April 2021, the ONCAP II Group sold its remaining 10.4 million The General Partner of each Onex Partners and ONCAP Fund is shares in Pinnacle Renewable Energy Inc. (“Pinnacle”) for C$11.30 entitled to 20% of the realized net gains of the limited partners in per share, in connection with the sale of Pinnacle to Drax Group such Fund provided the limited partners have achieved a mini- plc. Onex’ share of the net proceeds was C$54 ($43), including mum 8% net compound annual return on their investment. This carried interest and net of payments under the management performance-based capital allocation of realized net gains is re- incentive programs. ONCAP III – 2021 ferred to as carried interest. Onex is entitled to 40% of the carried interest realized in the Onex Partners and ONCAP Funds. Once the ONCAP IV investors achieve a net return of two times their aggre- In October 2021, the ONCAP III Group sold Bradshaw International, gate capital contributions, carried interest participation increases Inc. (“Bradshaw”). Onex’ share of the net proceeds was $135, includ- from 20% to 25% of the realized net gains. The amount of carried ing estimated proceeds from amounts held in escrow, carried inter- interest ultimately received by Onex is based on realizations, the est and net of payments under the management incentive programs. timing of which can vary significantly from period to period. In December 2021, the ONCAP III Group sold Davis- During 2021, Onex received $48 of carried interest from Standard, LLC (“Davis-Standard). Onex’ share of the net proceeds the sales of Bradshaw, Davis-Standard, JELD-WEN and Pinnacle, as was $75, including carried interest and net of payments under the described earlier in this note. The receipt of carried interest earned management incentive programs. from the secondary offerings by Clarivate Analytics during 2021, as described earlier in this note, was elected to be deferred by the ONCAP IV – 2021 General Partner of Onex Partners IV. The ONCAP IV Group invested in Komar Industries, Inc. (“Komar”) During 2020, Onex received less than $1 of carried inter- in June 2021. Komar is a designer and manufacturer of industrial est. The receipt of carried interest earned from the secondary offer- waste and recycling processing systems. In July 2021, Onex invest- ings by Clarivate Analytics and SIG during 2020, as described earlier ed $20 in the ONCAP IV Group in connection with the investment in this note, was elected to be deferred by the General Partner of in Komar. Onex Partners IV. Unrealized carried interest is calculated based on the During 2020, there were no significant transactions related to Onex’ current fair values of the Funds and the overall realized and un- investments in the ONCAP Funds. realized gains in each Fund in accordance with its limited partner- iii) Other private equity investments Other private equity investments primarily consist of Onex’ invest- b) Private Credit strategies ship agreements. ments in Celestica and Ryan Specialty Group (“RSG”). Collateralized Loan Obligations (“CLOs”) are leveraged structured In July 2021, RSG completed an initial public offering vehicles that hold a widely diversified asset portfolio funded through of approximately 65.5 million shares of its Class A common stock the issuance of long-term debt in a series of rated tranches of se- (NYSE: RYAN), including the exercise of the over-allotment option. cured notes and equity. The Onex Credit U.S. CLOs invest only in The offering was priced at $23.50 per share. In connection with this securities denominated in U.S. dollars, while the Onex Credit EURO transaction, RSG acquired all of Onex’ preferred unit interests in the CLOs invest only in securities denominated in euros. The Compa- company and redeemed approximately 8.1 million Class A shares ny primarily invests in the equity tranches of the Onex Credit CLOs. held by Onex. With the completion of this transaction, net pro- The middle-market lending strategy primarily holds in- ceeds received by Onex were $492. At December 31, 2021, Onex held vestments in senior secured loans and other loan investments in approximately 12.3 million Class A shares of RSG. private equity sponsor-owned portfolio companies and, selectively, In August 2020, Onex invested an additional $108 in pre- other corporate borrowers. The loans are predominantly with bor- ferred shares of RSG in connection with an add-on acquisition com- rowers in the United States and, selectively, in Canada and Europe. pleted by RSG. 92 Onex Corporation December 31, 2021 The senior loan strategies hold investments in first-lien, senior secured loans and may employ leverage. The opportunistic and special situation strategies invest primarily in North American and European first-lien, senior secured loans, second-lien loans, bonds, trade claims, credit default swaps and other debt investments having similar characteristics. The structured credit and high yield strategies invest pri- marily in U.S. and European collateralized loan obligations. NOTES TO CONSOLIDATED FINANCIAL STATEMENTSThe Company’s investment in Private Credit strategies comprised the following: Private Credit Strategies U.S. CLOs EURO CLOs CLO warehouses Middle-market lending Senior loan strategies Opportunistic and special situation strategies Structured credit and high yield strategies Direct lending December 31, 2020 Capital Deployed Realizations and Distributions Change in Fair Value December 31, 2021 $ 383 $ 112 – 89 192 68 5 – 76 7 82 50 98 153 54 121 $ (239) $ 93 $ 313 (39) (56) (54) (199) (130) (23) (102) 21 1 13 10 12 5 2 101 27 98 101 103 41 21 Total investment in Private Credit Strategies $ 849 $ 641 $ (842) $ 157 $ 805 Private Credit Strategies U.S. CLOs EURO CLOs CLO warehouses Middle-market lending Senior loan strategies Opportunistic and special situation strategies Structured credit and high yield strategies December 31, 2019 Capital Deployed Realizations and Distributions Change in Fair Value December 31, 2020 $ 340 $ 92 52 73 187 2 – 82 35 102 26 – 125 13 $ (72) (12) (159) (13) – (69) (9) $ 33 $ 383 (3) 5 3 5 10 1 112 – 89 192 68 5 Total investment in Private Credit Strategies $ 746 $ 383 $ (334) $ 54 $ 849 During 2021, Onex invested net capital of $50 in CLOs, and received During 2021, Onex Credit raised capital for its opportunis- distributions of $114. Onex also sold a portion of its equity inter- tic and special situation strategies, which included a $100 commit- ests in certain U.S. and European collateralized loan obligations for total proceeds of $114 and €14 ($17), respectively. ment from Onex to the Onex Capital Solutions Fund, as described in note 25(n). The fund invests primarily in loans, bonds, trade claims During 2021, Onex invested a total of $55 to support the and credit default swaps, among other assets. warehouse facilities for its twenty-second and twenty-third CLOs During 2021, Onex made investments in opportunistic denominated in U.S. dollars (“CLO-22” and “CLO-23”, respectively). and special situation strategies totalling $153 and received distri- During the fourth quarter of 2021, Onex closed CLO-22 and CLO-23 butions totalling $130, including $128 from the Onex Senior Loan and received $56, including interest, for the investments that sup- Opportunity Fund. The Onex Senior Loan Opportunity Fund was ported the warehouse facilities for these CLOs. Onex also invested €24 ($27) to support the warehouse facilities for its fifth European CLO (“EURO CLO-5”). dissolved during 2021. In the first quarter of 2021, Onex redeemed all of its investment in the Onex Credit Partners Senior Floating Income During 2021, Onex made investments in middle-market Fund, which totalled $98. The proceeds from this redemption were lending strategies totalling $50 and received distributions total- invested in Onex Senior Credit Fund II, which was subsequently ling $54. redeemed later in the year. During 2021, Onex made investments in structured credit and high yield strategies totalling $54. During the same period, During 2020, Onex invested net capital of $109, and received distri- Onex also made investments totalling $121 in its direct lending butions of $76 from CLO investments. strategy, which consisted of investments in a warehouse facility to During 2020, Onex made investments in middle-market support the strategy. In the fourth quarter of 2021, Onex received lending strategies totalling $26, and received distributions total- $99 for a portion of its investments as a result of third-party capital ling $13. commitments to a direct lending fund. Onex Corporation December 31, 2021 93 NOTES TO CONSOLIDATED FINANCIAL STATEMENTSDuring 2020, Onex Credit completed fundraising for the e) Intercompany loans receivable from Onex Onex Senior Loan Opportunity Fund, as described in note 25(l), and the Asset Managers which invests primarily in North American and European first-lien, The Investment Holding Companies have advanced intercompany senior secured loans, second-lien loans and other debt investments loans to Onex and the Asset Managers. At December 31, 2021, the in- having similar characteristics. During 2020, Onex invested a total of tercompany loans receivable from Onex and the Asset Managers of $10 in the Onex Senior Loan Opportunity Fund. In addition, Onex $3,755 (December 31, 2020 – $4,043) formed part of Onex’ net invest- invested a net $55 in a separately managed account which follows a ment in the Investment Holding Companies, which is recorded at fair similar strategy as the Onex Senior Loan Opportunity Fund. value through net earnings (loss). These intercompany loans receiv- During 2020, Onex Credit completed the first and second able are the same loans presented as intercompany loans payable close of fundraising for the Onex Structured Credit Opportunities to the Investment Holding Companies in the consolidated balance Fund, as described in note 25(m), which invests primarily in U.S. sheets, which at December 31, 2021 totalled $3,755 (December 31, and European collateralized loan obligations. During 2020, Onex 2020 – $4,043) and are described in note 9. There is no impact on net invested $2 in a separately managed account which follows a simi- assets or net earnings (loss) from these intercompany loans. lar strategy as the Onex Structured Credit Opportunities Fund. c) Real estate Onex’ investment in real estate is comprised of an investment in f) Intercompany loans payable to Onex and the Asset Managers and intercompany loans receivable from Investment Holding Companies Flushing Town Center, a commercial and residential complex located At December 31, 2021, Onex and the Asset Managers had advanced in Flushing, New York. During 2021, Onex received distributions of intercompany loans to the Investment Holding Companies totalling $14 (2020 – $20) from Flushing Town Center, which were primarily $429 (December 31, 2020 – $425). The corresponding intercompany funded by the sale of residential condominium units. loans payable to Onex and the Asset Managers, which at Decem- d) Other net assets ber 31, 2021 totalled $429 (December 31, 2020 – $425), formed part of Onex’ net investment in the Investment Holding Companies, Other net assets consist of assets and liabilities of the Investment which is recorded at fair value through net earnings (loss). There is Holding Companies, excluding investments in private equity, pri- no impact on net assets or net earnings (loss) from these intercom- vate credit strategies, real estate and intercompany loans receivable pany loans. from and payable to Onex and the Asset Managers. Other net assets comprised the following: December 31, 2021 December 31, 2020 Cash and cash equivalents $ 246 $ 113 Treasury investments Restricted cash Other net assets (liabilities) (i) 310 21 54 307 22 (32) Total other net assets $ 631 $ 410 (i) Included in other net assets at December 31, 2021 was $130 of subscription financing receivable, including interest receivable, from the Onex Capital Solutions Fund attributable to third-party investors. Treasury investments held by the Investment Holding Companies comprised the following: 6 . O T H E R A S S E T S Other assets comprised the following: Forward agreements Restricted cash Prepaid expenses and other Total December 31, 2021 December 31, 2020 $ 116 11 9 $ 136 $ 78 13 7 $ 98 Forward agreements with a total value of $116 (2020 – $78) repre- sent the fair value of hedging arrangements entered into with finan- cial institutions to economically hedge the Company’s exposure to changes in the market value of Onex SVS associated with certain December 31, 2021 December 31, 2020 DSUs outstanding, as described in note 15. Federal debt instruments Commercial paper and corporate obligations Asset-backed securities Other $ 172 $ 167 109 18 11 117 12 11 Total treasury investments $ 310 $ 307 94 Onex Corporation December 31, 2021 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS7. P R O P E R T Y A N D E Q U I P M E N T The Company’s property and equipment comprised the following: Year ended December 31, 2020 Opening net book amount Acquisition of Onex Falcon (note 26) Additions Amortization charge Closing net book amount At December 31, 2020 Cost Accumulated amortization Net book amount Year ended December 31, 2021 Opening net book amount Additions Amortization charge Closing net book amount At December 31, 2021 Cost Accumulated amortization Net book amount Right-of-use assets primarily consisted of leased premises. Right-of-Use Assets Aircraft Leasehold Improvements Furniture and Equipment Total $ 67 $ 56 $ 48 $ 10 $ 181 9 2 (10) – – (3) 2 – (9) $ 68 $ 53 $ 41 $ – 1 (4) 7 $ 87 (19) $ 68 $ 73 (20) $ 53 $ 67 (26) $ 41 $ 17 (10) $ 7 $ 68 $ 53 $ 41 $ 8 (12) – (7) – (8) 7 1 (3) 11 3 (26) $ 169 $ 244 (75) $ 169 $ 169 9 (30) $ 64 $ 46 $ 33 $ 5 $ 148 $ 95 (31) $ 64 $ 73 (27) $ 46 $ 67 (34) $ 33 $ 18 (13) $ 5 $ 253 (105) $ 148 Onex Corporation December 31, 2021 95 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS8 . 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 The Company’s goodwill and intangible assets comprised the following: Year ended December 31, 2020 Opening net book amount Impairment Acquisition of Onex Falcon (note 26) Amortization charge (i) Foreign exchange Closing net book amount As at December 31, 2020 Cost Accumulated amortization and impairment losses Net book amount Year ended December 31, 2021 Opening net book amount Amortization charge (i) Foreign exchange Closing net book amount As at December 31, 2021 Cost Accumulated amortization and impairment losses Net book amount Goodwill Tradename Client Relationships and Asset Management Contracts Software Total Intangible Assets $ 261 $ 15 $ 142 $ 1 $ 158 (85) 88 – – – 2 – – – 36 (30) 2 – – (1) – – 38 (31) 2 $ 264 $ 17 $ 150 $ – $ 167 $ 342 (78) $ 264 $ 17 – $ 17 $ 207 (57) $ 150 $ 2 (2) $ – $ 226 (59) $ 167 $ 264 $ 17 $ 150 $ – $ 167 – – – – (29) 1 – – (29) 1 $ 264 $ 17 $ 122 $ – $ 139 $ 342 (78) $ 264 $ 17 – $ 17 $ 203 (81) $ 122 $ 2 (2) $ – $ 222 (83) $ 139 (i) Included in amortization is $5 (2020 – $11) related to the derecognition of client relationship intangible assets resulting from client terminations. Goodwill is attributable to the acquisition of Onex Falcon, as de- ruption which began in March 2020 in connection with the COVID-19 scribed in note 26, the acquisition of Gluskin Sheff in 2019, which pandemic, as described in note 1. As a result, management tested the was primarily attributable to its leading position in the Canadian goodwill and intangible assets of Gluskin Sheff and Onex Credit for high net worth private client market and the skills and competence impairment as at March 31, 2020 and recorded a goodwill impairment of its workforce, and goodwill recognized as a result of the acquisi- charge of C$114 ($85) associated with the goodwill of Gluskin Sheff, tion of the Onex Credit asset management platform in 2015, which measured in accordance with IAS 36, Impairment of Assets (“IAS 36”). was primarily attributable to the acquired workforce and industry The impairment was primarily due to the decrease in assets under relationships at Onex Credit. Management tested goodwill for im- management as a result of the COVID-19 pandemic, as described in pairment during the fourth quarter of 2021 and concluded that no note 1. The impairment for Gluskin Sheff was calculated on a fair val- impairments existed. ue less costs of disposal basis, which resulted in a recoverable amount Management concluded that as at March 31, 2020, condi- of C$310 ($219) as at March 31, 2020. The recoverable amount was a tions existed which may indicate that goodwill and intangible assets Level 3 measurement in the fair value hierarchy due to significant associated with the acquisitions of Gluskin Sheff and Onex Credit unobservable inputs used in determining the recoverable amount, were impaired as a result of the market volatility and economic dis- which was based on a five-year discounted cash flow projection. 96 Onex Corporation December 31, 2021 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS Significant assumptions included in the discounted cash flow projection were i) a 16.5% discount rate; ii) net growth in assets under manage- ment; and iii) a terminal value growth rate of 2.5%. The impact to the goodwill impairment expense from changes in the discount rate and terminal value growth rate include the following: Significant Unobservable Inputs Decrease of 1.0 Percentage Point Increase of 1.0 Percentage Point Discount rate $28 decrease in impairment expense $23 increase in impairment expense Terminal value growth rate $14 increase in impairment expense $17 decrease in impairment expense Significant Unobservable Input Decrease of 10% Increase of 10% Net growth rate $14 increase in impairment expense $16 decrease in impairment expense As a result of the impairment charge, goodwill associated with the Included in other assets (note 6) at December 31, 2021 was $116 acquisition of Gluskin Sheff was reduced to a value of C$146 ($114) (2020 – $78) related to forward agreements to economically hedge as at December 31, 2020. the Company’s exposure to changes in the trading price of Onex Management determined that the goodwill and intangi- shares associated with the Management and Director DSU plans. ble assets associated with the acquisition of Onex Credit were not impaired as at March 31, 2020, based on their value in use. 12 . L E A S E S The cost and accumulated amortization of client relationships The Company leases office space in Canada, the United States and have been reduced for client relationships that ended during 2020 the United Kingdom. Lease terms are negotiated on an individual and 2021. 9. 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 Onex and the Asset Managers have intercompany loans payable to the Investment Holding Companies. The loans are primarily due on de- mand and non-interest bearing. At December 31, 2021, intercompany loans payable to the Investment Holding Companies totalled $3,755 (2020 – $4,043) and the corresponding receivable of $3,755 (2020 − $4,043) was included in the fair value of the Investment Holding Com- panies within corporate investments (note 5). There is no impact on net assets or net earnings (loss) from these intercompany loans. 10 . A C C R U E D C O M P E N S AT I O N Accrued compensation at December 31, 2021 consisted primarily of cash incentive compensation related to fiscal 2021 (2020 – fiscal 2020), which is to be paid to employees and management of the Company during the first quarter of 2022 (2020 – first quarter of 2021). 11. 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 Stock-based compensation payable comprised the following: 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 2032 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 ex- tend a leasing agreement, the minimum lease payments to be made during the extension period are included in the determination of the lease liability to be recorded. The lease contracts entered into by the Company do not contain any significant restrictions or covenants. The Company’s lease liabilities at December 31, 2021 totalled $71 (2020 – $75) and the annual minimum payment requirements for these liabilities were as follows: For the year: 2022 2023 2024 2025 2026 Thereafter Total minimum lease payments Less: imputed interest Balance of obligations under lease $ 13 12 12 12 11 19 $ 79 (8) $ 71 Stock Option Plan Management DSU Plan Director DSU Plan Other Total stock-based December 31, 2021 December 31, 2020 $ 338 $ 181 69 51 4 44 38 – During 2021, the Company recognized $2 (2020 – $2) in interest expense related to its lease liabilities, which was included in other expenses. The Company had total cash disbursements of $15 (2020 – $10) related to lease liabilities. compensation payable $ 462 $ 263 Information concerning right-of-use assets is disclosed in note 7. Onex Corporation December 31, 2021 97 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS13 . 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 The following tables provide an analysis of liabilities arising from financing activities: Principal balance of intercompany loans payable to Investment Holding Companies $ 3,755 $ 4,043 December 31, 2021 December 31, 2020 Principal balance of lease liabilities Accrued and imputed interest Net financing obligations Balance – December 31, 2019 Issuance of loans Acquisition of Onex Falcon (note 26) Interest accrued Lease amendments Repayment of financing obligations Cash interest paid Balance – December 31, 2020 Issuance of loans Interest accrued Lease amendments Repayment of financing obligations Non-cash settlement Cash interest paid Foreign exchange Balance – December 31, 2021 14 . I N C O M E TA X E S 79 (8) 84 (9) $ 3,826 $ 4,118 Intercompany Loans Payable to Investment Holding Companies $ 4,217 172 – – – (346) – Lease Liabilities $ 72 – 9 2 2 (8) (2) Total $ 4,289 172 9 2 2 (354) (2) $ 4,043 $ 75 $ 4,118 174 – – (347) (115) – – $ 3,755 $ – 2 8 (13) – (2) 1 71 174 2 8 (360) (115) (2) 1 $ 3,826 The reconciliation of statutory income tax rates to the Company’s effective tax rate is as follows: Year ended December 31 Income tax expense at statutory rate Changes related to: Non-taxable net gains on corporate investments Unbenefited tax losses Utilization of tax loss carryforwards not previously benefited Income tax rate differential Non-taxable dividends Non-deductible expenses (i) Other, including permanent differences Recovery of income taxes Classified as: Current Deferred Recovery of income taxes (i) Non-deductible expenses primarily relate to stock-based compensation. 98 Onex Corporation December 31, 2021 2021 $ 372 2020 $ 194 (374) – (23) (7) (37) 62 6 (1) – (1) (1) $ $ $ (70) 4 (65) (4) (74) 16 (1) – – – – $ $ $ NOTES TO CONSOLIDATED FINANCIAL STATEMENTS The Company’s deferred income tax assets and liabilities, as presented in other liabilities, are presented after taking into consideration the offsetting of balances within the same tax jurisdiction. Deferred income tax assets and liabilities, without taking into consideration the offset- ting of balances within the same tax jurisdiction, comprised the following: Deferred Income Tax Assets Balance – December 31, 2019 Credited (charged) to net earnings Balance – December 31, 2020 Credited (charged) to net earnings Balance – December 31, 2021 Deferred Income Tax Liabilities Balance – December 31, 2019 Credited to net earnings Balance – December 31, 2020 Credited to net earnings Balance – December 31, 2021 Property, Equipment, Right-of-Use Assets and Intangibles Tax Losses $ 33 (7) $ 26 (6) $ 20 $ 1 – $ 1 1 $ 2 Total $ 34 (7) $ 27 (5) $ 22 Property, Equipment, Right-of-Use Assets and Intangibles $ 37 (7) $ 30 (6) $ 24 As at December 31, 2021, Onex and the Asset Managers had $1,235 basis. Given the uncertainty over the matters currently under review, of non-capital loss carryforwards and $68 of capital loss carry- the outcomes cannot be reasonably estimated at this time. However, forwards that were available to offset current and future taxable there is no expected impact on Onex’ consolidated balance sheets income when realized. However, a net deferred tax asset has not as Onex has not recognized any deferred tax assets associated with been recognized in respect of these income tax losses since it is not its non-capital losses and the outcome of the various matters is not probable, as of December 31, 2021, that sufficient taxable income expected to exceed such amounts. Onex has objected to the 2011 or taxable temporary differences will arise in the future to utilize reassessments and believes that its tax filing positions on all mat- these losses prior to their expiry, with the exception of taxable tem- ters, including those under review, were appropriate and intends to porary differences associated with the acquired limited life intangi- defend itself vigorously. ble assets of Gluskin Sheff. The Company will continue to assess the During 2020 and 2021, no deferred tax provision was rec- likelihood of sufficient future taxable income being recognized to ognized on income from Onex’ investments in foreign Investment utilize available tax losses. Holding Companies since the Company had determined, as of During 2019, the Canada Revenue Agency (“CRA”) reas- December 31, 2021 and December 31, 2020, that it is probable these sessed Onex’ 2011 taxation year, the impact of which, if sustained, earnings will be indefinitely reinvested. In addition, foreign realized would result in a decrease to Onex’ non-capital losses of approxi- and unrealized gains are typically not subject to taxation in the for- mately $275 and an increase to Onex’ capital losses of approximately eign tax jurisdictions. $265. In 2021, Onex received proposed adjustments in respect of At December 31, 2021, the aggregate amount of taxable additional matters pertaining to the 2012 through 2014 taxation temporary differences not recognized in association with invest- years. All proposed matters are under review and it is possible that ments in subsidiaries was $1,913 (2020 – $2,052). the CRA may propose adjustments for subsequent years on the same Onex Corporation December 31, 2021 99 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS 15 . S H A R E C A P I TA L c) Onex renewed its Normal Course Issuer Bid in April 2021 for one year, permitting the Company to purchase on the Toronto Stock a) The authorized share capital of the Company consists of: Exchange up to 10% of the public float of its SVS. The 10% limit rep- resents approximately 7.4 million shares. 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 During 2021, the Company repurchased and cancelled 3,521,526 of its SVS for a total cost of $249 (C$313) or an average the aggregate as represents 60% of the aggregate votes attached to cost per share of $70.63 (C$88.85). The excess of the purchase cost all shares of the Company carrying voting rights. The Multiple Vot- of these shares over the average paid-in amount was $237 (C$299), ing Shares have no entitlement to a distribution on winding up or which was charged to retained earnings. The shares repurchased dissolution other than the payment of their nominal paid-in value. were comprised of: (i) 2,421,526 SVS repurchased under the Normal 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 Course Issuer Bid for a total cost of $171 (C$214) or an average cost per share of $70.34 (C$88.19); and (ii) 1,100,000 SVS repurchased in private transactions for a total cost of $78 (C$99) or a weighted aver- shares of the Company carrying voting rights to elect 40% of the age cost per share of $71.28 (C$90.30). As at December 31, 2021, the Company’s directors and to appoint the auditors. These shares are Company had the capacity under the current Normal Course Issuer entitled, subject to the prior rights of other classes, to distributions Bid to repurchase 4,313,371 shares. of the residual assets on winding up and to any declared but unpaid During 2020, the Company repurchased and cancelled cash dividends. The shares are entitled to receive cash dividends, 9,780,411 of its SVS under the Normal Course Issuer Bid for a to- dividends in kind and stock dividends as and when declared by the tal cost of $444 (C$595) or an average cost per share of $45.35 Board of Directors. (C$60.86). The excess of the purchase cost of these shares over the The Multiple Voting Shares and SVS are subject to provi- average paid-in amount was $414 (C$555), which was charged to sions whereby, if an event of change occurs (such as Mr. Schwartz, retained earnings. Chairman and CEO, ceasing to hold, directly or indirectly, more During 2021, 16,133 SVS (2020 – 28,199) were issued than 5,000,000 SVS or related events), the Multiple Voting Shares upon the exercise of stock options at an average cost of C$97.43 will thereupon be entitled to elect only 20% of the Company’s (2020 – C$72.15). directors and otherwise will cease to have any general voting rights. The SVS would then carry 100% of the general voting rights and be entitled to elect 80% of the Company’s directors. iii) An unlimited number of Senior and Junior Preferred Shares issuable in series. The Company’s directors are empowered to fix the rights to be attached to each series. b) At December 31, 2021, the issued and outstanding share capital consisted of 100,000 Multiple Voting Shares (2020 – 100,000) and 86,805,538 SVS (2020 – 90,310,931). The Multiple Voting Shares have a nominal paid-in value in these consolidated financial statements. There were no issued and outstanding Senior and Junior Preferred Shares at December 31, 2021 or December 31, 2020. 100 Onex Corporation December 31, 2021 NOTES TO CONSOLIDATED FINANCIAL STATEMENTSd) The Company has a Director DSU Plan and a Management DSU Plan, as described in note 1. Details of DSUs outstanding under the plans were as follows: Director DSU Plan Management DSU Plan Number of DSUs Weighted Average Price Number of DSUs Weighted Average Price Outstanding at December 31, 2019 Granted Redeemed Additional units issued in lieu of compensation and cash dividends Outstanding at December 31, 2020 Granted Redeemed Additional units issued in lieu of compensation and cash dividends Outstanding at December 31, 2021 Hedged with counterparty financial institutions at December 31, 2021 Outstanding at December 31, 2021 – Unhedged 702,857 42,486 (102,407) 18,901 661,837 22,401 (35,500) 11,217 659,955 (593,740) 66,215 C$ 60.85 C$ 65.13 C$ 60.73 C$ 82.58 C$ 98.12 C$ 86.84 − – C$ 84.29 – C$ 90.38 C$ 73.59 707,048 − – 63,492 770,540 – (3,785) 115,188 881,943 (881,943) – e) The Company has a Plan under which options and/or share appreciation rights for a term not exceeding 10 years may be granted to directors, officers and employees for the acquisition of SVS of the Company at a price not less than the market value of the shares on the business day preceding the day of the grant. Under the Plan, no options or share appreciation rights may be exercised unless the average market price of the SVS for the five previous business days exceeds the exercise price of the options or the share appreciation rights by at least 25% (the “hurdle price”). At December 31, 2021, 15,489,050 SVS (2020 – 15,505,183) were reserved for issuance under the Plan, against which options representing 12,116,370 shares (2020 – 13,122,750) were outstanding, of which 9,484,480 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 com- bination of cash and shares. In addition to the options outstanding under the Plan, in January 2015, the Company issued 60,000 options in connection with acquiring control of the Onex Credit asset management plat- form. The options are subject to the same terms and conditions as the Company’s existing Plan. The details of the options outstanding were as follows: Number of Options Weighted Average Exercise Price Outstanding at December 31, 2019 14,073,050 Grants Surrendered Exercised Expired Outstanding at December 31, 2020 Grants Surrendered Exercised Expired 68,750 (247,850) (50,000) (721,200) 13,122,750 687,000 (1,394,830) (25,000) (273,550) Outstanding at December 31, 2021 12,116,370 C$ 68.50 C$ 61.15 C$ 35.17 C$ 31.20 C$ 82.44 C$ 68.47 C$ 75.09 C$ 53.30 C$ 33.11 C$ 84.85 C$ 70.30 During 2021 and 2020, the total cash consideration paid on op- tions surrendered was $40 (C$49) and $9 (C$11), respectively. These amounts represent the difference between the market value of the SVS at the time of surrender and the exercise price, both as deter- mined under the Plan. The weighted average share price at the date of exercise was C$88.31 per share (2020 – C$81.02). Onex Corporation December 31, 2021 101 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS Options outstanding at December 31, 2021 consisted of the following: 0.9 2.2 7.3 5.6 Total $ 157 100 75 $ 332 Total $ 139 58 77 $ 274 Exercise Prices C$ 40.35 – C$ 49.99 C$ 50.00 – C$ 69.99 C$ 70.00 – C$ 89.99 C$ 90.00 – C$ 101.62 Total 16 . R E V E N U E S Number of Options Outstanding Number of Options Exercisable Weighted Average Remaining Life (Years) 323,250 5,853,620 4,293,550 1,645,950 12,116,370 323,250 5,803,340 Hurdle Prices C$ 50.44 C$ 66.04 – C$ 85.71 10,000 C$ 90.28 – C$ 111.11 – C$ 114.48 – C$ 127.03 6,136,590 The Company generated revenues from the provision of asset management and advisory services from the following sources: Year ended December 31, 2021 Private Equity Funds (i) Private Credit Strategies Public Strategies Total Management and Advisory Fees Performance Fees Reimbursement of Expenses $ 125 90 62 $ 277 $ – – 13 $ 13 $ 32 10 – $ 42 (i) Includes advisory fees and expense reimbursements from the Onex Partners and ONCAP operating businesses. Year ended December 31, 2020 Private Equity Funds (i) Private Credit Strategies Public Strategies Total Management and Advisory Fees Performance Fees Reimbursement of Expenses $ 129 54 61 $ 244 $ – – 16 $ 16 $ 10 4 – $ 14 (i) Includes advisory fees and expense reimbursements from the Onex Partners and ONCAP operating businesses. Management and advisory fees, and the reimbursement of expenses from investment funds and operating businesses, are recognized over time. Performance fees are typically recognized at the end of each performance year, or upon closure of an account or transfer of assets to a different investment model. In addition, segment income (note 28) includes allocations of $53 relating to management fees on Onex’ capital for the year ended Decem- ber 31, 2021 (2020 – $56). These management fees reduce Onex’ investing segment income in the period and are included in Onex’ asset management segment income. 102 Onex Corporation December 31, 2021 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS17. I N T E R E S T A N D N E T T R E A S U R Y 19. O T H E R E X P E N S E S I N V E S T M E N T I N C O M E Interest and net treasury investment income recognized by the integration expenses, primarily related to the continued integration Company consists of income earned from certain investments rec- activities of Falcon, as described in note 26, and continued integra- ognized at fair value through net earnings (loss). tion activities for Gluskin Sheff and Onex Credit. During 2021, Onex recognized $5 (2020 – $19) of acquisition and 18 . S T O 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 ( R E C O V E R Y ) Year ended December 31 Stock Option Plan Director DSU Plan Other Total stock-based compensation expense (recovery) 2021 $ 199 2 4 $ 205 Other expenses comprised the following: Year ended December 31 2020 Professional services $ (20) (1) – $ (21) Information technology Contingent consideration related to the acquisition of Onex Falcon (note 26) Acquisition and integration expenses Facilities Travel Directors’ compensation The fair value of Onex’ stock option plan is determined using an Interest expense from lease liabilities option valuation model. The significant inputs into the model were the share price at December 31, 2021 of C$99.28 (2020 – C$73.06), Donations Insurance the exercise price of the options, the remaining life of each option issuance, the volatility of each option issuance ranging from 20.87% Foreign exchange Administrative and other to 37.44% (2020 – 16.10% to 49.26%), an average dividend yield of Total 2021 $ 18 12 10 5 5 4 2 2 2 2 – 14 $ 76 2020 $ 13 10 – 19 4 4 3 2 2 1 (1) 12 $ 69 0.40% (2020 – 0.54%) and an average risk-free rate of 1.11% (2020 – 0.51%). The volatility is measured as the historical volatility based 2 0 . N E T E A R N I N G S P E R S U B O R D I N AT E on the remaining life of each respective option issuance. V O T I N G S H A R E The fair values of the Director DSU and Management DSU plans are determined by reference to the value of the underly- ing SVS at the balance sheet date, as described in note 1. The weighted average number of SVS for the purpose of the net earnings per share calculations was as follows: Year ended December 31 2021 2020 Weighted average number of shares outstanding (in millions): Basic Diluted 89 89 96 96 Onex Corporation December 31, 2021 103 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS21. F I N A N C I A L I N S T R U M E N T S Financial assets held by the Company, presented by financial statement line item, were as follows: December 31, 2021 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 (Loss) Recognized Designated Amortized Cost(i) Total $ 547 290 – 10,565 130 $ 11,532 $ – – – 429 – $ 429 $ – – 364 – – $ 547 290 364 10,994 130 $ 364 $ 12,325 (i) The carrying value of financial assets at amortized cost approximates their fair value. Fair Value through Net Earnings (Loss) Recognized Designated Amortized Cost (i) Total December 31, 2020 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 $ 706 234 – 9,544 91 $ 10,575 $ – – – 425 – $ 425 $ – – 261 – – $ 706 234 261 9,969 91 $ 261 $ 11,261 (i) The carrying value of financial assets at amortized cost approximates their fair value. 104 Onex Corporation December 31, 2021 NOTES TO CONSOLIDATED FINANCIAL STATEMENTSFinancial liabilities held by the Company, presented by financial statement line item, were as follows: Fair Value through Net Earnings (Loss) Recognized Designated Amortized Cost Total December 31, 2021 Liabilities as per balance sheet Intercompany loans payable to Investment Holding Companies Accounts payable and accrued liabilities Lease liabilities Contingent consideration and other liabilities $ – – – 43 $ 3,755 – – – Total $ 43 $ 3,755 $ $ – 22 71 5 98 $ 3,755 22 71 48 $ 3,896 December 31, 2020 Liabilities as per balance sheet Intercompany loans payable to Investment Holding Companies Accounts payable and accrued liabilities Lease liabilities Other liabilities Total Fair Value through Net Earnings (Loss) Recognized Designated Amortized Cost Total $ – – – 33 $ 4,043 $ – – – – 25 75 5 $ 4,043 25 75 38 $ 33 $ 4,043 $ 105 $ 4,181 At December 31, 2021, intercompany loans payable to Investment 2 2 . FA I R VA L U E M E A S U R E M E N T S Holding Companies that are recorded at fair value through net earnings (loss) had contractual amounts due on maturity of $3,755 Fair values of financial instruments (2020 – $4,043). The estimated fair values of financial instruments as at Decem- ber 31, 2021 and December 31, 2020 are based on relevant market The gains (losses) recognized by the Company related to financial prices and information available at those dates. The carrying values assets and liabilities during the years ended December 31, 2021 and of receivables, accounts payable, accrued liabilities, lease liabilities 2020 were as follows: and other liabilities approximate the fair values of these financial Year ended December 31 2021 2020 instruments. Financial assets recognized at fair value through net earnings Financial instruments measured at fair value are allocated within the fair value hierarchy based on the lowest level of input that is Net gain on corporate investments $ 1,698 $ 848 significant to the fair value measurement. Transfers between the Net gain and interest income from treasury investments Net gain (loss) from forward agreements(i) Financial liabilities recognized at fair value through net earnings Contingent consideration expense Financial liabilities at amortized cost Interest expense 1 31 (10) (2) 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 2021 and 2020. 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”). 16 (8) – (2) Total net gain recognized $ 1,718 $ 854 (i) Onex has entered into forward agreements with its Director and Management DSU plans, as described in note 1. Onex Corporation December 31, 2021 105 NOTES TO CONSOLIDATED FINANCIAL STATEMENTSThe allocation of financial assets in the fair value hierarchy, excluding cash and cash equivalents, was as follows: As at December 31, 2021 Level 1 Level 2 Level 3 Total Financial assets at fair value through net earnings (loss) Investments in equities Investments in debt Intercompany loans receivable from Investment Holding Companies Restricted cash and other Total financial assets at fair value through net earnings (loss) $ – – – 11 $ 11 $ – 290 429 119 $ 838 $ 10,565 $ 10,565 – – – 290 429 130 $ 10,565 $ 11,414 As at December 31, 2020 Level 1 Level 2 Level 3 Total Financial assets at fair value through net earnings (loss) Investments in equities Investments in debt Intercompany loans receivable from Investment Holding Companies Restricted cash and other $ – $ – $ 9,544 $ 9,544 – – 9 234 425 82 – – – 234 425 91 Total financial assets at fair value through net earnings (loss) $ 9 $ 741 $ 9,544 $ 10,294 Financial liabilities measured at fair value at December 31, 2021 consisted of intercompany loans payable to Investment Holding Companies totalling $3,755 (2020 – $4,043), which are a Level 2 measurement in the fair value hierarchy, and contingent consideration of $43 (2020 – $33), which is a Level 3 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: Balance – December 31, 2019 Acquisition of Onex Falcon (note 26) Change in fair value recognized in net earnings (loss) Net cash flows related to intercompany loans and distributions Balance – December 31, 2020 Change in fair value recognized in net earnings (loss) Net cash flows related to intercompany loans and distributions Balance – December 31, 2021 Unrealized change in fair value of assets and liabilities held at December 31, 2021 Financial Assets at Fair Value through Net Earnings (Loss) Financial Liabilities at Fair Value through Net Earnings (Loss) $ 8,736 – 848 (40) $ 9,544 1,698 (677) $ 10,565 $ 1,615 $ $ $ $ – 33 – – 33 10 – 43 10 Financial assets measured at fair value with significant unobservable inputs (Level 3) were recognized in the consolidated statements of earnings in the net gain (loss) on corporate investments line item. Financial liabilities measured at fair value with significant unobservable inputs (Level 3) were recognized in the consolidated statements of earnings in the other expenses line item. 106 Onex Corporation December 31, 2021 NOTES TO CONSOLIDATED FINANCIAL STATEMENTSThe valuation of financial assets and liabilities measured at fair The valuation of investments in debt securities is mea- value with significant unobservable inputs (Level 3) is determined sured at fair value with significant other observable inputs (Level 2) quarterly utilizing company-specific considerations and avail- generally determined by obtaining quoted market prices or dealer able market data of comparable public companies. The valuation quotes for identical or similar instruments in inactive markets, or of investments in the Onex Partners Funds and ONCAP Funds is other inputs that are observable or can be corroborated by observ- reviewed and approved by the General Partner of the respective able market data. Fund each quarter. The fair value measurements for corporate investments The Company utilized the adjusted net asset method to derive the were primarily driven by the underlying net asset values of Onex’ fair values of its investments in its Investment Holding Companies investments in the Onex Partners Funds, ONCAP Funds and private by reference to the underlying fair value of the Investment Holding credit strategies. The valuation of underlying non-public invest- Companies’ assets and liabilities, along with assessing any required ments requires significant judgement due to the absence of quoted discount or premium to be applied to the net asset values. The market values, inherent lack of liquidity, the heightened market un- discount or premium applied to the net asset values of the Invest- certainty as a result of COVID-19 and the long-term nature of such ment Holding Companies was a significant unobservable input. investments. A change to reasonably possible alternative estimates The Company determined that the adjusted net asset method was and assumptions used in the valuation of non-public investments the appropriate valuation technique to be used, considering the in the Onex Partners Funds and ONCAP Funds, and investments value of the Investment Holding Companies is primarily derived held in private credit strategies, may have a significant impact on from the assets they hold, which primarily consist of investments the fair values calculated for these financial assets. in private equity, investments in private credit strategies, treasury The valuation of public investments held directly by Onex investments and intercompany loans receivable from Onex and the or through the Onex Partners Funds and ONCAP Funds is based Asset Managers. The Company has determined that no discount on their publicly traded closing prices at December 31, 2021 and or premium was required for the net asset values of its Investment December 31, 2020. For certain public investments, a discount was Holding Companies at December 31, 2021 and December 31, 2020. applied to the closing price in relation to restrictions that were in If a discount of 1% or a premium of 1% were applied to all of the net place relating to the securities held by Onex, the Onex Partners asset values of the Investment Holding Companies, with all other Funds or the ONCAP Funds. At December 31, 2021, these discounts variables remaining constant, the total fair value of the Company’s resulted in a reduction of $77 in the fair value of corporate invest- corporate investments at December 31, 2021 would decrease or in- ments (2020 – $63). crease by $106 (2020 – $95), respectively. Valuation methodologies for the underlying private equity investments may include observations of the trading multiples of public compa- nies 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 that impact the valuation of corporate investments. Investment Platform Valuation Technique Significant Unobservable Inputs Inputs at December 31, 2021 Inputs at December 31, 2020 Onex Partners Funds Comparable company valuation multiple Adjusted EBITDA multiples 7.0x – 16.0x 9.3x – 13.7x Onex Partners Funds Discounted cash flow Weighted average costs of capital 13.7% – 18.0% 10.2% – 15.5% ONCAP Funds Comparable company valuation multiple Exit multiples Adjusted EBITDA multiples 4.0x – 17.0x 7.4x – 9.5x 4.2x – 18.0x 7.3x – 12.0x ONCAP Funds Discounted cash flow Weighted average costs of capital 10.7% – 22.4% 10.0% – 25.0% Exit multiples 7.0x – 11.0x 7.0x – 10.0x In addition, at December 31, 2021, the Onex Partners Funds had fair value. At December 31, 2020, the Onex Partners Funds had two one investment that was valued using a market approach, one investments that were valued using a market approach, one invest- investment that was valued based on a multiple of book value, one ment that was valued based on a multiple of book value and two investment that was valued using a convertible bond model and investments that were valued at cost as this approximated their three investments that were valued at cost as this approximated fair values. Onex Corporation December 31, 2021 107 NOTES TO CONSOLIDATED FINANCIAL STATEMENTSThe impact on the fair value of corporate investments as at December 31, 2021 from changes in the significant unobservable inputs used to value the private equity funds’ underlying private securities included the following: Investment Platform Valuation Technique Significant Unobservable Inputs Multiple Increase by 0.5 Multiple Decrease by 0.5 Onex Partners Funds Comparable company Adjusted EBITDA multiples $ 103 $ (103) ONCAP Funds valuation multiple Comparable company valuation multiple Adjusted EBITDA multiples $ 22 $ (22) Investment Platform Valuation Technique Significant Unobservable Inputs Onex Partners Funds Discounted cash flow ONCAP Funds Discounted cash flow Exit multiples Exit multiples Investment Platform Valuation Technique Significant Unobservable Inputs Onex Partners Funds Discounted cash flow Weighted average costs of capital ONCAP Funds Discounted cash flow Weighted average costs of capital Multiple Increase by 0.5 Multiple Decrease by 0.5 $ $ 76 33 $ (65) $ (33) Decrease of 0.5 Percentage Point Increase of 0.5 Percentage Point $ $ 21 13 $ $ (20) (13) Generally, adjusted EBITDA represents earnings before interest, taxes, depreciation and amortization as well as other adjustments. Other adjustments can include non-cash costs of stock-based compensation and retention plans, transition and restructuring expenses including severance payments, 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. Adjusted EBITDA is a measurement that is not defined under IFRS. 108 Onex Corporation December 31, 2021 NOTES TO CONSOLIDATED FINANCIAL STATEMENTSInvestments in the Onex Credit CLOs were valued using internally rates and recovery rates. Significant increases or decreases in cer- developed pricing models based on a projection of the future cash tain unobservable inputs in isolation may result in a significantly flows expected to be realized from the underlying collateral of the lower or higher fair value measurement. The fair values determined CLOs, which are a Level 3 measurement in the fair value hierarchy. by the internally developed pricing models are also compared to These pricing models include third-party pricing information and fair values determined by third-party pricing models to ensure a number of unobservable inputs, including default rates, discount management’s estimates are reasonable. The following table presents the significant unobservable inputs used to value Onex’ investments in the Onex Credit CLOs. Investment Platform Significant Unobservable Inputs Inputs at December 31, 2021 Inputs at December 31, 2020 U.S. CLOs EURO CLOs Default rate Discount rate Recovery rate Default rate Discount rate Recovery rate 2% 14% – 19% 55% 2% 12% – 17% 55% 2% 15% – 20% 55% 2% 12% – 17% 55% In addition, at December 31, 2021, Onex Credit had two U.S. CLO investments that were valued at cost as this approximated their fair value. The impact on the fair value of corporate investments as at December 31, 2021 from changes in the significant unobservable inputs used to value Onex’ investments in the CLOs included the following: Investment Platform Significant Unobservable Inputs U.S. CLOs EURO CLOs Default rate Default rate Investment Platform Significant Unobservable Inputs U.S. CLOs EURO CLOs Discount rate Discount rate Decrease of 1.5 Percentage Points Increase of 1.5 Percentage Points $ 52 $ 21 $ (56) $ (21) Decrease of 3.0 Percentage Points Increase of 3.0 Percentage Points $ 15 $ 7 $ (16) $ (6) Investment Platform Significant Unobservable Inputs U.S. CLOs EURO CLOs Recovery rate Recovery rate Decrease of 15.0 Percentage Points Increase of 15.0 Percentage Points $ (24) $ (9) $ 21 $ 9 Onex Corporation December 31, 2021 109 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS2 3 . F I N A N C I A L I N S T R U M E N T R I S K S Market risk Credit risk Market risk is the risk that the future cash flows of a financial in- strument will fluctuate due to changes in market prices. The Com- Credit risk is the risk that the counterparty to a financial instru- pany is primarily exposed to fluctuations in the foreign currency ment will fail to perform its obligation and cause the Company exchange rates associated with Canadian and U.S. dollars and the to incur a loss. euro, as well as fluctuations in LIBOR, EURIBOR, SOFR and the U.S. Cash and cash equivalents and treasury investments in- prime interest rate. clude investments in debt securities which are subject to credit risk. Certain underlying assets within corporate investments are also Foreign currency exchange rates debt securities which are subject to credit risk. The functional currency of Onex is the U.S. dollar; however, cer- At December 31, 2021, Onex, including its Investment tain cash and cash equivalents, treasury investments, receivables, Holding Companies, had $716 of cash on hand and $1,006 of near- corporate investments, forward agreements, payables and lease li- cash items and cash equivalents held by a third-party investment abilities are denominated in Canadian dollars, while certain private manager at market value. Cash and cash equivalents are held with credit corporate investments are denominated in euros. In addi- financial institutions having a current Standard & Poor’s rating of tion, the Company has cash and cash equivalents and a lease lia- A-1+ or above. Near-cash items include treasury investments man- bility denominated in pounds sterling. As a result, Onex is exposed aged by a third-party investment manager, as described below, $308 to currency risk related to these financial instruments. At Decem- in management fees and recoverable expenses receivable from the ber 31, 2021, had the U.S. dollar strengthened by 5% relative to the Onex Partners and ONCAP Funds. Treasury investments have cur- Canadian dollar, the euro and pound sterling, with all other vari- rent Standard & Poor’s ratings ranging from BBB to AAA. The port- ables held constant, the net decrease in net earnings from financial folio concentration limits range from a maximum of 10% for BBB instruments would have been $15. Conversely, had the U.S. dol- investments to 100% for AAA investments. lar weakened by 5% relative to the Canadian dollar, the euro and The Company’s recoverable fund expenses and other receivables crease in net earnings from financial instruments would have been pound sterling, with all other variables held constant, the net in- are also subject to credit risk. Liquidity risk $15. Certain underlying investments held by the Onex Partners and ONCAP Funds may be denominated in Canadian dollars, euros or pounds sterling, while Onex’ investments in these Funds are de- Liquidity risk is the risk that Onex will have insufficient funds on nominated in U.S. dollars, with the exception of investments made hand to meet its obligations as they come due. Onex needs to be in the ONCAP II and III Funds, which are denominated in Canadian in a position to support the operating businesses its private equi- dollars. As such, Onex is also indirectly exposed to foreign currency ty funds invest in when and if it is appropriate and reasonable for exchange risk associated with these underlying investments. Onex, as an equity owner with paramount duties to act in the best interests of Onex shareholders, to do so. Maintaining sufficient li- Interest rates quidity at Onex is important because Onex, as a holding company, The Company is exposed to changes in future cash flows as a result generally does not have guaranteed sources of meaningful cash of changes in the interest rate environment, primarily through the flow to support its investing activities. cash and cash equivalents held, which are held in money market Accounts payable are generally due within 90 days. The funds, short-term term deposits and commercial paper. Assuming repayment schedule for leases is disclosed in note 12. Onex has no significant changes in cash balances held by the Company from no external debt and does not guarantee the debt of the operating those at December 31, 2021, a 0.25% increase (0.25% decrease) in the businesses of the Onex Partners and ONCAP Funds or any other interest rate (including the Canadian and U.S. prime rates) would operating business Onex invests in directly. Onex Credit has pro- result in a minimal impact on annual interest income. vided guarantees for credit facilities that certain members of the Onex also has exposure to interest rate risk through its Onex Credit management team have access to in connection with treasury investments managed by a third-party investment man- personal investments made in certain Onex Falcon Funds, as more ager. As interest rates change, the fair values of fixed income invest- fully described in note 25(a). ments are inversely impacted. Investments with shorter durations are less impacted by changes in interest rates compared to invest- ments with longer durations. At December 31, 2021, Onex’ treasury investments included $263 of fixed income securities measured at fair value, which are subject to interest rate risk. These securities 110 Onex Corporation December 31, 2021 NOTES TO CONSOLIDATED FINANCIAL STATEMENTShad a weighted average duration of 0.8 years. Other factors, includ- A portion of the Company’s capital is managed by a third-party ing general economic conditions and political conditions, may also investment manager. At December 31, 2021, the fair value of invest- affect the value of fixed income securities. These risks are moni- ments, including cash yet to be deployed, managed by the third-party tored on an ongoing basis and the treasury investments may be investment manager was $677. The investments are managed in a repositioned in response to changes in market conditions. mix of short- and long-term portfolios. Treasury investments con- Price risk sist of liquid investments including money market instruments and commercial paper with original maturities of three months to one Price risk is the risk of variability in fair value as a result of move- year, in addition to longer-term investments, which include money ments in equity prices. Onex is exposed to price risk in relation to market instruments, federal and municipal debt instruments, corpo- the equity interests in its private equity investment held within its rate obligations and structured products with maturities of one year corporate investments. At December 31, 2021, had the price of equity to five years. The investments are managed to maintain an overall securities held within corporate investments related to private weighted average duration of two years or less. equity investments decreased by 5%, with all other variables held At December 31, 2021, Onex had access to uncalled com- constant, the decrease in net earnings would have been $288. Con- mitted limited partner capital for acquisitions through Onex Part- versely, had the price increased by 5%, with all other variables held ners V ($1,436) and ONCAP IV ($181). constant, the increase in net earnings would have been $288. Onex’ investments in private credit strategies are primarily held in under- The strategy for risk management of capital has not changed sig- lying debt instruments. Onex is not exposed to a significant price nificantly since December 31, 2020. risk associated with its equity interest in these investments. Regulatory risk Onex is subject to government regulations and oversight with re- spect to its business activities. Failure to comply with applicable regulations, obtain applicable regulatory approvals or maintain those approvals may subject Onex to civil penalties, suspension or withdrawal of any regulatory approval obtained, injunctions, oper- ating restrictions and criminal prosecutions and penalties, which could, individually or in the aggregate, have a material adverse ef- fect on Onex’ consolidated financial position. 2 4 . C A P I TA L D I S C LO S U R E S 2 5 . C O M M I T M E N T S A N D R E L AT E D - PA R T Y T R A N S A C T I O N S a) Incline Aviation Fund, letters of guarantee and other commitments Incline Aviation Fund is an aircraft investment fund managed by BBAM, which in turn is an operating business of Onex Partners III. At December 31, 2021, Onex’ uncalled commitment to Incline Avia- tion Fund was $18 (2020 – $22). Incline Aviation Fund II is an aircraft investment fund managed by BBAM and focused on investments in contractually leased commercial jet aircraft. At December 31, 2021, Onex’ uncalled commitment to Incline Aviation Fund II was $99 (2020 – $125). Onex considers the capital it manages to be the amounts it has in Onex Credit has provided guarantees for credit facilities cash and cash equivalents, near-cash investments, treasury in- that certain members of the Onex Credit management team have vestments managed by a third-party investment manager and the access to in connection with personal investments made in certain investments made in its private equity funds, credit strategies and Onex Falcon Funds. Borrowings under these credit facilities are col- other investments. Onex also manages the capital of other investors lateralized by the personal investments for each participating Onex in the Onex Partners and ONCAP Funds, private credit strategies Credit management team member. These credit facilities have a and public strategies. Onex’ objectives in managing capital are to: capacity of $9 with $4 outstanding at December 31, 2021. • preserve a financially strong parent company with appropriate The Company has commitments with respect to leases, liquidity and no, or a limited amount of, external debt so that which are disclosed in note 12. funds are available to pursue new investments and growth oppor- tunities as well as support expansion of its existing businesses; b) Legal contingencies • achieve an appropriate return on capital invested commensurate Onex is or may become a party to legal claims arising in the ordi- with the level of assumed risk; nary course of business. Onex has not currently recorded any legal • build the long-term value of its corporate investments; provision and does not believe that the resolution of known claims • control the risk associated with capital invested in any particu- would reasonably be expected to have a material adverse impact on lar strategy. Onex Corporation does not guarantee the debt of its Onex’ consolidated financial position. However, the final outcome investment funds or the underlying operating businesses of its with respect to outstanding, pending or future actions cannot be private equity funds. predicted with certainty, and therefore there can be no assurance that their resolution will not have an adverse effect on Onex’ con- solidated financial position. Onex Corporation December 31, 2021 111 NOTES TO CONSOLIDATED FINANCIAL STATEMENTSc) Commitments to Onex Partners Funds Onex Partners I, Onex Partners II, Onex Partners III, Onex Partners IV and Onex Partners V (the “Onex Partners Funds”) were established to provide committed capital for Onex-sponsored acquisitions not related to Onex’ direct investments or ONCAP. Onex controls the General Part- ner 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 February 2004 August 2006 December 2009 March 2014 November 2017 Total Onex Commitments Onex Commitments Invested(i) Remaining Onex Commitments (ii) $ 400 $ 1,407 $ 1,200 $ 1,700(iii) $ 2,000 $ 346 $ 1,164 $ 929 $ 1,546(iii) $ 1,375 $ 16 $ 158 $ 100 $ 123 $ 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 Partners II is 2%, which may be adjusted annually to a maximum of 10%. At and Onex Partners III are for future funding partnership expenses. December 31, 2021, Onex management and directors have commit- The remaining commitments for Onex Partners IV are for possible ted 4% to Onex Partners V for new investments completed in 2022. future funding of remaining businesses and future funding of part- The original amount invested at cost in the Onex Partners Funds’ nership expenses. The remaining commitments for Onex Partners V remaining investments by Onex management and directors at are primarily for future funding of Onex-sponsored investments. December 31, 2021 was $520 (2020 – $462), of which $98 (2020 – $46) Onex management has committed, as a group, to invest was invested in the year ended December 31, 2021, including bridge a minimum percentage in each of the Onex Partners Funds. The financing, where applicable. minimum commitment to Onex Partners V for Onex management d) Commitments to ONCAP Funds ONCAP II, ONCAP III and ONCAP IV (the “ONCAP Funds”) were established to provide committed capital for acquisitions of small and medium-sized businesses. Onex controls the General Partner and Manager of the ONCAP Funds. The following table provides information on Onex’ commitments to the ONCAP Funds: ONCAP II ONCAP III ONCAP IV Final Close Date May 2006 September 2011 November 2016 Total Onex Commitments Onex Commitments Invested(i) Remaining Onex Commitments (ii) C$ C$ $ 252 252 480 C$ C$ $ 221 186 306 C$ C$ 1 30 $ 124 (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. 112 Onex Corporation December 31, 2021 NOTES TO CONSOLIDATED FINANCIAL STATEMENTSThe remaining commitments for ONCAP II are for future fund- During the year ended December 31, 2021, management ing of partnership expenses. The remaining commitments for of Onex, Onex Partners and ONCAP received $106 (2020 – less than ONCAP III are for possible future funding of remaining business- $1) in carried interest. Management has the potential to receive es and future funding of partnership expenses. The remaining $522 (2020 – $205) of carried interest on businesses in the Onex commitments for ONCAP IV are primarily for funding of future Partners and ONCAP Funds based on their values as determined at Onex-sponsored investments. December 31, 2021. ONCAP management has committed, as a group, to in- vest a minimum percentage in each of the ONCAP Funds. The Onex Falcon is entitled to a carried interest of 20% on the realized minimum commitment to ONCAP IV for ONCAP management is net gains of the limited partners in each Onex Falcon Fund, provid- 2%. The commitment from management of Onex and ONCAP and ed the limited partners have achieved a minimum 8% net internal directors may be increased to a maximum of 10% of ONCAP IV. At rate of return (“net IRR”) on their investment. Onex Falcon man- December 31, 2021, management of Onex and ONCAP and directors agement is entitled to the entire carried interest for existing funds had committed 10% to ONCAP IV for new investments completed at the date Onex acquired the company in December 2020, with the in 2022. The original amount invested at cost in the ONCAP Funds’ exception of Onex Falcon VI. For Onex Falcon VI, Onex Falcon man- remaining investments by management of Onex and ONCAP and agement is entitled to approximately 80% of the carried interest directors at December 31, 2021 was $101 (2020 – $123), of which $4 and Onex is entitled to the remaining approximately 20%. was invested in the year ended December 31, 2021 (2020 – $1). Onex is entitled to 50% of the carried interest realized e) Carried interest participation remaining 50% allocated to the Onex Credit team. The General Partners of the Onex Partners and ONCAP Funds are During the year ended December 31, 2021, Onex Falcon entitled to a carried interest of 20% on the realized net gains of the management received $27 (2020 – nil) in carried interest. Onex Fal- limited partners in each fund, subject to an 8% compound annual con management has the potential to receive $110 (2020 – $62) of preferred return to those limited partners on all amounts contrib- carried interest from the Onex Falcon Funds based on their values on Onex Falcon Funds launched after December 2020, with the uted in each particular fund. Onex is entitled to 40% of the carried as determined at December 31, 2021. interest realized in the Onex Partners and ONCAP Funds. Onex and Onex Partners management are allocated 60% of the carried inter- f) Management Investment Plan est realized in the Onex Partners Funds. For Onex Partners V, Onex For all investments completed prior to 2020 and excluding all Onex Partners management is also entitled to a carried interest of 12% of Partners V investments, the MIP required Onex management team the realized gains from Onex’ capital, subject to an 8% compound members to invest in each of the operating businesses acquired or annual preferred return to Onex on amounts contributed to the invested in by Onex. In addition to this required investment, man- fund. ONCAP management is allocated 60% of the carried interest agement was allocated 12% of Onex’ realized gain from an operat- realized in the ONCAP Funds and an equivalent carried interest on ing business investment, subject to certain conditions. In particular, Onex’ capital. Once the ONCAP IV investors achieve a return of two Onex must realize the full return of its investment plus a net 15% times their aggregate capital contributions, carried interest partic- internal rate of return from the investment in order for manage- ipation increases from 20% to 25% of the realized net gains. Under ment to be allocated the additional gain on Onex’ investment. the terms of the partnership agreements, the General Partners may Realizations under the program during 2021 were $132 receive carried interest as realizations occur. The ultimate amount (2020 – $70) and are satisfied by certain Investment Holding Com- of carried interest earned will be based on the overall performance panies, which are accounted for as corporate investments at fair of each fund, independently, and includes typical catch-up and value through net earnings, as described in note 1. clawback provisions within each fund, but not between funds. Carried interest received from Onex Partners I, Onex Partners II, Onex Partners III and Onex Partners IV has fully vested for Onex management. Carried interest received from Onex Part- ners V for management will vest equally over six years from Novem- ber 2018. Carried interest received from ONCAP II, ONCAP III and ONCAP IV has fully vested for ONCAP management. Onex Corporation December 31, 2021 113 NOTES TO CONSOLIDATED FINANCIAL STATEMENTSg) Stock Option Plan l) Onex Senior Loan Opportunity Fund Onex has a Stock Option Plan in place that provides for options During 2020, Onex Credit completed fundraising for the Onex Senior and/or share appreciation rights to be granted to Onex directors, Loan Opportunity Fund, reaching aggregate commitments of $85, officers and employees for the acquisition of SVS of Onex, as more including $20 from Onex and $25 from the Onex management team. fully described in note 15(e). In addition to Onex’ $20 commitment to the fund, Onex commit- ted $80 which was invested through a separately managed account h) Management Deferred Share Unit Plan which followed a similar strategy as the Onex Senior Loan Oppor- Onex has a Management Deferred Share Unit Plan, which enables tunity Fund. During the year ended December 31, 2021, the Onex the Onex management team to apply all or a portion of their annual Senior Loan Opportunity Fund was dissolved, as described in note 5. compensation earned to acquire DSUs based on the market value of Onex shares at the time, in lieu of cash, as more fully described m) Onex Structured Credit Opportunities Fund in note 1. i) Director Deferred Share Unit Plan During 2021, Onex Credit continued fundraising for the Onex Structured Credit Opportunities Fund, reaching aggregate com- mitments of $457, including $25 from Onex and $43 from the Onex Onex has a Director Deferred Share Unit Plan, which entitles Onex management team, as described in note 5. In addition to Onex’ $25 directors to apply directors’ fees earned to acquire DSUs based on commitment to the fund, Onex committed $25 which was invested the market value of Onex shares at the time, as more fully described through a separately managed account which followed a similar in note 1. strategy as the Onex Structured Credit Opportunities Fund. As at December 31, 2021, Onex had invested $37 (2020 – $2) of its aggre- j) Management reinvestment of MIP and carried interest gate $50 commitment. Members of Onex management are required to reinvest up to 25% of the gross proceeds received related to their share of the Onex n) Onex Capital Solutions Fund Partners’ carried interest participation to acquire Onex SVS in the During 2021, Onex Credit continued fundraising for the Onex Capital market and/or management DSUs. The size of the reinvestment Solutions Fund, reaching aggregate commitments of $272, includ- requirement generally increases with the seniority of the partici- ing $100 from Onex and $34 from the Onex management team, as pant and the cumulative proceeds they have realized from the Onex described in note 5. As at December 31, 2021, Onex had invested $20 Partners’ carried interest. Onex SVS and/or management DSUs in the Onex Capital Solutions Fund as an investor in the fund. acquired under this program are subject to a minimum three-year holding period. During 2021 and 2020, no amounts were invested o) Management investment in Onex Credit under this program. k) OCLP I The Onex management team may invest in strategies and funds managed by Onex Credit. At December 31, 2021, investments at mar- ket value held by the Onex management team in strategies and funds Onex Credit Lending Partners (“OCLP I”) provides committed cap- managed by Onex Credit were approximately $605 (2020 – $353). ital for investments in senior secured loans and other loan invest- ments in middle-market, upper middle-market and large private p) Management and directors’ investment in equity sponsor-owned portfolio companies and, selectively, other other investments corporate borrowers. As at December 31, 2021, Onex has invested Members of management and the Board of Directors of Onex can $74 (2020 – $74) of its $100 commitment in OCLP I and the dura- invest limited amounts in partnership with Onex in all acquisitions tion of the commitment period is up to June 2022. Onex controls outside the Onex Partners and ONCAP Funds, including co-in- the General Partner and Manager of OCLP I. The Onex manage- vestment opportunities, at the same time and cost as Onex and ment team has committed, as a group, to invest $79 in OCLP I. The other outside investors. During 2021, a total of $18 (2020 – $19) in total amount invested at cost in OCLP I by the Onex management investments was made by the Onex management team and direc- team at December 31, 2021 was $59 (2020 – $59). There were no in- tors in Incline Aviation Fund II and the co-investments for WEG vestments made by Onex or the Onex management team during the and Imagine Learning (2020 – primarily co-investments for Convex years ended December 31, 2021 and 2020. and OneDigital). 114 Onex Corporation December 31, 2021 NOTES TO CONSOLIDATED FINANCIAL STATEMENTSq) Remuneration to key management r) Related-party revenues Remuneration to key management includes amounts recognized in Onex receives management fees on limited partners’ and clients’ the consolidated statements of earnings as compensation. Stock- capital within the Onex private equity funds and private credit strat- based compensation associated with Onex stock options is included egies, and advisory fees directly from certain operating businesses. based on the cash ultimately paid while DSUs issued to Onex direc- Onex also receives performance fees from the private credit strat- tors are included at the grant date fair value. Payments received by egies and recovers certain deal investigation, research and other key management from investment holding companies related to expenses from the Onex private equity funds, private credit strat- their carried interest participation and the MIP are excluded, and egies and the operating businesses of Onex Partners and ONCAP. are described in notes 25(e) and 25(f ), respectively. Aggregate pay- Onex indirectly controls the Onex private equity funds and private ments to the Company’s key management were as follows: credit strategies, and therefore the management and performance Year ended December 31 Share-based payments (i) Short-term employee benefits and costs Total 2021 $ 12 18 $ 30 2020 $ 7 24 $ 31 (i) Share-based payments include $10 (2020 – $4) paid on the exercise of Onex stock options (note 15). fees earned from these sources represent related-party transac- tions. Furthermore, Onex indirectly controls, jointly controls or has significant influence over certain operating businesses held by the Onex private equity funds and, as such, advisory fees from these operating businesses represent related-party transactions. Gluskin Sheff has agreements to manage its pooled fund vehicles, where it generally acts as the trustee, manager, transfer agent and principal distributor. In the case of those pooled fund vehicles that are limited partnerships, Gluskin Sheff or an affiliate of Gluskin Sheff is the General Partner. As such, the Gluskin Sheff pooled fund vehicles are related parties of the Company. Related-party revenues included the following: Year ended December 31, 2021 Source of related-party revenues Private Equity Funds (i) Private Credit Strategies Gluskin Sheff pooled fund vehicles (ii) Total related-party revenues Gluskin Sheff third-party revenues Total revenues Management and Advisory Fees Reimbursement of Expenses Performance Fees $ 125 90 56 $ 271 6 $ 277 $ 32 10 – $ 42 – $ 42 $ – – 13 $ 13 – $ 13 (i) Includes advisory fees and expense reimbursements from Onex Partners and ONCAP operating businesses. (ii) Revenue associated with the reimbursement of expenses from the Gluskin Sheff pooled fund vehicles is included within other income. Year ended December 31, 2020 Source of related-party revenues Private Equity Funds (i) Private Credit Strategies Gluskin Sheff pooled fund vehicles (ii) Total related-party revenues Gluskin Sheff third-party revenues Total revenues Management and Advisory Fees Reimbursement of Expenses Performance Fees $ 129 54 57 $ 240 4 $ 244 $ 10 4 – $ 14 – $ 14 $ – – 16 $ 16 – $ 16 (i) Includes advisory fees and expense reimbursements from Onex Partners and ONCAP operating businesses. (ii) Revenue associated with the reimbursement of expenses from the Gluskin Sheff pooled fund vehicles is included within other income. Total $ 157 100 69 $ 326 6 $ 332 Total $ 139 58 73 $ 270 4 $ 274 Onex Corporation December 31, 2021 115 NOTES TO CONSOLIDATED FINANCIAL STATEMENTSManagement and Advisory Fees Receivable Recoverable Fund and Operating Expenses Receivable Performance Fees Other Receivables $ 186 $ 122 $ Related-party receivables included the following: As at December 31, 2021 Private Equity Funds Private Credit Strategies Gluskin Sheff pooled fund vehicles Onex Partners and ONCAP operating businesses Total related-party receivables Third-party receivables Total As at December 31, 2020 Private Equity Funds Private Credit Strategies Gluskin Sheff pooled fund vehicles Onex Partners and ONCAP operating businesses Total related-party receivables Third-party receivables Total 14 5 2 $ 207 1 $ 208 11 1 4 $ 138 – $ 138 12 6 2 $ 142 – $ 142 3 1 5 87 – 87 $ $ – – 13 – $ 13 – $ 13 – – 17 – $ 17 – $ 17 $ $ – – – – – 10 $ 10 $ $ – 1 2 – 3 12 $ 15 Total $ 308 25 19 6 $ 358 11 $ 369 Total $ 200 16 26 7 $ 249 12 $ 261 Management and Advisory Fees Receivable Recoverable Fund and Operating Expenses Receivable Performance Fees Other Receivables $ 122 $ 78 $ s) Services received from operating companies During the years ended December 31, 2021 and December 31, 2020, Onex received services from certain operating companies, the value of which was not significant. t) Repurchase of shares During 2021, Onex repurchased 1,100,000 of its SVS that were held indirectly by Mr. Gerald W. Schwartz in two private transactions. The shares were repurchased at a weighted average cost of $71.28 (C$90.30) per SVS, or a total cost of $78 (C$99), which represented a discount to the trading price of Onex shares on the dates of the transactions. 116 Onex Corporation December 31, 2021 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS26 . A C Q U I S I T I O N O F FA LC O N Included in the net assets acquired are gross receivables of $1, of which substantially all contractual cash flows were recovered. The In December 2020, Onex Credit acquired 100% of Falcon for a value fair value of these receivables on the date of acquisition was deter- of $131. Falcon is a U.S. private credit manager, which provides mined to be $1. private credit financing solutions and employs an opportunistic approach to mezzanine and other direct lending investments for Goodwill is primarily attributable to Onex Falcon’s competitive U.S. middle-market companies. The Company acquired Falcon to position in the U.S. private credit market and the skills and compe- grow and complement its existing credit platform. Following the tence of its workforce. The expected value of goodwill to be deduct- acquisition, the business operates as Onex Falcon within the Onex ible for tax purposes is $50. Credit platform. The purchase price consisted of $98 paid on closing and At December 31, 2021, the Company recognized, at fair value, a lia- additional amounts of up to $80 payable based primarily on Onex bility of $43 (2020 – $33) for contingent consideration in connection Falcon’s financial performance from 2022 to 2024 and the size and with the acquisition of Onex Falcon, which is included within other performance of future funds to be launched by Onex Falcon. The liabilities in the consolidated balance sheet. The fair value of the contingent consideration was recognized at a fair value of $33 as contingent consideration was estimated by calculating the present part of the purchase price for the transaction. At December 31, 2021, value of future expected cash flows. the fair value of contingent consideration in connection with the acquisition of Onex Falcon was $43, which was recognized as a li- ability in Onex’ consolidated balance sheet. Onex determined that Onex Falcon and the wholly-owned subsidiaries that were formed to acquire the company did not meet the definition of an invest- ment entity under IFRS 10 and that the entities’ primary business purpose, as a whole, is to provide investment-related services. As such, Onex’ consolidated balance sheets include the assets and liabilities of Onex Falcon and the wholly-owned subsidiaries that were formed to acquire the company. No revenues, expenses or operating cash flows from Onex Falcon were recognized in Onex’ 2020 consolidated statements of earnings and cash flows given the short operating period from the date of acquisition of Onex Falcon to December 31, 2020. Details of the purchase price and allocation to the acquired assets and liabilities of Onex Falcon were as follows: 2 7. S U B S E Q U E N T E V E N T S In February 2022, Onex invested approximately $96 as part of the Onex Partners V Group’s acquisition of Tes Global (“Tes”). Based in London, England, Tes is an international provider of comprehensive software solutions for the education sector. In February 2022, Onex invested approximately $16 as part of the ONCAP IV Group’s acquisition of Merrithew Corporation (“Mer- rithew”). Merrithew is a developer, manufacturer and retailer of Pilates equipment, accessories, content and education. Cash and cash equivalents $ Management fees, recoverable fund expenses and other receivables Other assets Property and equipment Intangible assets with a limited life Goodwill Lease liabilities Net assets acquired 1 1 1 11 38 88 (9) $ 131 Onex Corporation December 31, 2021 117 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS2 8 . I N F O R M AT I O N B Y R E P O R TA B L E S E G M E N T Onex’ segmented results also include unrealized carried interest from third-party limited partners in the Onex Credit Funds, The Company has two reportable segments: which is recognized based on the fair values of the underlying in- • Investing, which comprises the activity of investing Onex’ capi- vestments and the unrealized net gains in each respective Fund, tal; and in accordance with the limited partnership agreements. In Onex’ • Asset management, which comprises the asset management consolidated financial statements, carried interest from the Onex activities provided by Onex to support its private equity, private Credit Funds is recognized when realized, as described in note 1. credit and public strategies, as well as Onex’ corporate functions. Onex’ segmented results exclude revenues and expens- es associated with recoverable expenses from the Onex Partners, Onex’ segmented results include allocations of management fees and ONCAP and private credit strategies, and the operating businesses carried interest that would have been recognized on Onex’ capital of Onex Partners and ONCAP. Onex management excludes these in the Onex Partners and ONCAP Funds, as this presentation is used amounts when assessing Onex’ performance given the nature of by Onex management, in part, to assess Onex’ performance. During these expenses, which are recoverable at cost. 2021 and 2020, these allocations, on a net basis, reduced Onex’ in- vesting segment income and increased Onex’ asset management segment income, with no net impact to total segment net earnings. Net gain on corporate investments (including an increase in carried interest) Management and advisory fees Performance fees Interest and net treasury investment income Other income Total segment income Compensation Amortization of right-of-use assets Other expenses Segment net earnings Year Ended December 31, 2021 Year Ended December 31, 2020 Investing Asset Management Total Investing Asset Management Total $ 1,304(i)(ii) $ 359(i) $ 1,663(i)(ii) $ 757(i)(ii) – – 1 – 1,305 – – – 330(ii) 330(ii) 13 – 3 705 (248) (12) (61) 13 1 3 2,010 (248) (12) (61) – – 16 – 773 – – – $ 35(i) 300(ii) $ 792 (i)(ii) 300 (ii) 16 – 3 354 (207) (10) (50) 16 16 3 1,127 (207) (10) (50) $ 1,305 $ 384 $ 1,689 $ 773 $ 87 $ 860 Stock-based compensation recovery (expense) Amortization of property, equipment and intangible assets, excluding right-of-use assets Acquisition and integration expenses Contingent consideration expense Unrealized carried interest revenue – Onex Credit Funds Impairment of goodwill Earnings before income taxes Recovery of income taxes Net earnings (205) (47) (5) (10) (18) – $ 1,404 1 $ 1,405 21 (47) (19) – – (85) $ 730 – $ 730 (i) The asset management segment includes an allocation of $111 (2020 – $14) from the investing segment, representing carried interest that would have been earned by the asset 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. The asset management segment also includes a net gain of $18 (2020 – nil) for unrealized carried interest from third-party limited partners in the Onex Credit Funds. (ii) The asset management segment includes an allocation of $53 (2020 – $56) from the investing segment, representing management fees that would have been earned by the asset 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. 118 Onex Corporation December 31, 2021 NOTES TO CONSOLIDATED FINANCIAL STATEMENTSSegmented assets included the following: Cash and cash equivalents Treasury investments Management and advisory fees, recoverable fund expenses and other receivables Corporate investments Unrealized carried interest – Onex Credit Funds Other assets Property and equipment Intangible assets Goodwill Total segment assets Net intercompany loans receivable, comprising part of the fair value of Investment Holding Companies Unrealized carried interest – Onex Credit Funds Total assets As at December 31, 2021 As at December 31, 2020 Investing $ 357 290 308(ii) 7,239 18 – – – – Asset Management $ 190(i) $ – 61 – – 136 148 139 264 Total 547 290 369 7,239 18 136 148 139 264 Investing $ 505 234 122(ii) 5,926 – – – – – Asset Management $ 201(i) $ – 139 – – 98 169 167 264 Total 706 234 261 5,926 – 98 169 167 264 $ 8,212 $ 938 $ 9,150 $ 6,787 $ 1,038 $ 7,825 3,755 (18) $ 12,887 4,043 – $ 11,868 (i) Cash and cash equivalents allocated to the asset management segment relate to accrued employee incentive compensation, and contingent consideration related to the acquisition of Falcon, as described in note 26. At December 31, 2020, cash and cash equivalents allocated to the asset management segment also included a liability relating to the retirement of the Onex Credit chief executive officer. (ii) Represents management fees receivable that Onex has elected to defer cash receipt from the Onex Partners and ONCAP Funds. At December 31, 2021, the balance also included recoverable fund expenses from the Onex Partners and ONCAP Funds. Geographic Segments As at December 31, 2021 As at December 31, 2020 Canada United States United Kingdom Total Canada United States United Kingdom Total Year-to-date revenues (i) Property and equipment Intangible assets Goodwill $ 99 $ 86 $ 92 $ 114 $ 233 $ 47 $ 47 $ 150 $ – $ 15 $ – $ – $ 332 $ 148 $ 139 $ 264 $ 96 $ 101 $ 114 $ 114 $ 178 $ $ 50 53 $ 150 $ – $ 18 $ – $ – $ 274 $ 169 $ 167 $ 264 (i) Revenues attributed to geographic areas are based on the location of the asset management entities. During the year ended December 31, 2020, Onex had additions to property and equipment, intangible assets and goodwill in the asset man- agement segment. These additions were primarily related to the acquisition of Onex Falcon, as described in note 26. Onex Corporation December 31, 2021 119 NOTES TO CONSOLIDATED FINANCIAL STATEMENTSSHAREHOLDER INFORMATION Year-End Closing Share Price As at December 31 (in Canadian dollars) Toronto Stock Exchange 2021 2020 2019 2018 2017 $ 99.28 $ 73.06 $ 82.17 $ 74.35 $ 92.19 Shares Registrar and Transfer Agent The Subordinate Voting Shares of TSX Trust Company the Company are listed and traded on the Toronto Stock Exchange. P.O. Box 700 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 shares may receive more than one copy Dividends on the Subordinate Voting www.tsxtrust.com Shares are payable quarterly on or or shareholderinquiries@tmx.com of shareholder mailings. Every effort about January 31, April 30, July 31 and is made to avoid duplication, but when October 31 of each year. At December 31, All questions about accounts, shares are registered under different 2021, the indicated dividend rate for each stock certificates or dividend cheques names and/or addresses, multiple Subordinate Voting Share was C$0.40 should be directed to the Registrar mailings result. Shareholders who receive per annum. Registered shareholders can and Transfer Agent. elect to receive dividend payments in U.S. dollars by submitting a completed currency election form to AST Trust Electronic Communications with Shareholders 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 be made to combine Company (Canada) five business days We encourage individuals to receive Onex’ the accounts for mailing purposes. before the record date of the dividend. shareholder communications electroni- Non-registered shareholders who wish to cally. You can submit your request online Shares Held in Nominee Name receive dividend payments in U.S. dollars by visiting the TSX Trust Company website, To ensure that shareholders whose should contact their broker to submit their www.tsxtrust.com, or contacting them shares are not held in their name currency election. at 1-800-387-0825. Corporate Governance Policies Investor Relations Contact receive all Company reports and releases on a timely basis, a direct mailing list is maintained by the A presentation of Onex’ corporate Requests for copies of this report, Company. If you would like your name governance policies is included in other annual reports, quarterly reports added to this list, please forward your the Management Information Circular and other corporate communications request to Investor Relations at Onex. that is mailed to all shareholders and is should be directed to: available on Onex’ website. Investor Relations Onex Corporation 161 Bay Street P.O. Box 700 Annual Meeting of Shareholders Onex Corporation’s Annual Meeting of Shareholders will be held virtually on May 12, 2022 at 10:00 am (Eastern Toronto, Ontario M5J 2S1 Daylight Time). (416) 362-7711 Typesetting by Moveable Inc. www.moveable.com Printed in Canada 120 Onex Corporation December 31, 2021

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