2002 Onex Annual Information Form

Transcription

ONEX CORPORATION
Annual Information Form
for the Year Ended December 31, 2004
March 23, 2005
T
A B L E
ITEM 1
ITEM 2
O F
C
O N T E N T S
Key Definitions
2
Background of Onex
Incorporation and Principal Office
4
General Development of Onex
Business Development Highlights
Principal Businesses
Celestica
ClientLogic
Cineplex Galaxy
J.L. French Automotive, Performance Logistics Group,
Commercial Vehicle Group
Magellan Health Services, ResCare, Center for Diagnostic Imaging,
AMR/EmCare
Radian Communication Services
Cosmetic Essence, Inc.
ONCAP Investment Partners
Other
ITEM 3
ITEM 4
ITEM 5
Business of Onex
Overview
Electronics Manufacturing Services Segment
Customer Management Services Segment
Theatre Exhibition Segment
Automotive Products Segment
Healthcare Segment
Communications Infrastructure Business
Personal Care Products Business
Small Capitalization Business
Other Businesses
Prior Businesses
Selected Consolidated Financial Information
Five-Year Information
Quarterly Information
Dividend Policy
5
5
5
6
6
7
9
10
10
11
12
13
16
23
28
34
40
51
57
61
68
70
80
81
82
Management’s Discussion and Analysis of Results of
Operations and Financial Condition
83
ITEM 6
Capital Structure
84
ITEM 7
Market for the Securities of Onex
86
ITEM 8
Material Contracts
89
ITEM 9
Directors and Officers
90
ITEM 10
Audit and Corporate Governance Committee
92
ITEM 11
Additional Information
103
K
E Y
D
E F I N I T I O N S
The following is a list of defined terms and names used throughout this Annual
Information Form:
AIF
This Annual Information Form for Onex dated March 23, 2005.
AMR/EmCare
American Medical Response, Inc. and EmCare, Inc., and all of
their subsidiaries
Armtec
Armtec Limited and all of its subsidiaries
Automotive Industries
Automotive Industries Holding, Inc.
BC Sugar
BC Sugar Refinery, Limited
Bostrom
Bostrom Holding, Inc. (formerly Commercial Vehicle Systems,
Inc. and Bostrom plc) and all of its subsidiaries
Caterair International
Caterair International Corporation and Caterair International
or Caterair
Inc.
CDI or Center for
Center for Diagnostic Imaging Inc. and all of its subsidiaries
Diagnostic Imaging
CEI or
Cosmetic Essence, Inc. and all of its subsidiaries
Cosmetic Essence
Celestica
Celestica Inc. and all of its subsidiaries
Cinemex
Grupo Cinemex, S.A. de C.V.
CGIF
Cineplex Galaxy Income Fund
CGLP
Cineplex Galaxy Limited Partnership
ClientLogic
ClientLogic Corporation and all of its subsidiaries
CMC or
CMC Electronics Inc. (formerly BAE Systems
CMC Electronics
Canada Inc.) and all of its subsidiaries
Consolidated Financial
The consolidated financial information in respect of Onex
Information
and its subsidiaries or investees set out in this AIF
CVG or Commercial
Commercial Vehicle Group, Inc.
Vehicle Group
CVS
Commercial Vehicle Systems, Inc. and all of its subsidiaries
Cypress
Cypress Property and Casualty Insurance Company
DMA
Designated market areas
Dura or
Dura Automotive Systems, Inc. (formerly Dura Mechanical)
Dura Automotive
and all of its subsidiaries
Edwards Baking
Edwards Baking Company
EEN
EnSource Energy Services Ltd. and all of its subsidiaries
Enerflex
Enerflex Systems Ltd.
Galaxy or Galaxy
Galaxy Entertainment Inc.
Entertainment
Hidden Creek
Hidden Creek Industries
Information Circular
Notice of Annual Meeting of Shareholders and Information
Circular of Onex dated March 23, 2005
InsLogic
InsLogic Holding Corporation and all of its subsidiaries
2
K
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D
E F I N I T I O N S
J.L. French or
J.L. French Automotive
Lantic Sugar
Loeks-Star or
Star Theatres
Loews or
Loews Cineplex
Magellan or Magellan
Health Services
MAGNATRAX
NAD
Oaktree Capital
OEM
ONCAP
Onex or Company
Onex Partners
Onex Real Estate Partners
Phoenix Pictures
PLG
PMG
Purolator Courier
Radian
(continued)
J.L. French Automotive Castings, Inc. and all of its subsidiaries
Lantic Sugar Limited
Loeks-Star Partners
Loews Cineplex Entertainment Corporation and all of its
subsidiaries and partnerships
Magellan Health Services, Inc. and all of its subsidiaries
MAGNATRAX Corporation and all of its subsidiaries
National Accounts Division of The Martin-Brower Company
Oaktree Capital Management LLC
Original Equipment Manufacturer
Onex Corporation
Onex Partners LP
Onex Real Estate Partners LP
Phoenix Pictures, Inc.
Performance Logistics Group and all of its subsidiaries
Performance Marketing Global and all of its subsidiaries
Purolator Courier, Ltd.
Radian Communication Services Corporation
(formerly LeBlanc Ltd. and BMS Communications Services
Ltd.) and all of its subsidiaries
ResCare
Res-Care, Inc.
Ripplewood
Ripplewood Holdings LLC
Rogers Sugar
Rogers Sugar Ltd.
RSIF
Rogers Sugar Income Fund
Scotsman Industries
Scotsman Industries, Inc.
Sky Chefs
Onex Food Services, Inc., including its subsidiary, Sky Chefs,
Inc., and all of its subsidiaries
Trim Systems
Trim Systems, Inc. and all of its subsidiaries
Unitive
Unitive Inc.
Vencap
Vencap, Inc. (formerly Vencap Equities Alberta Ltd.)
Whitlenge
Whitlenge Drink Equipment Ltd.
WIS or Western Inventory Western Inventory Service Ltd.
All references in this AIF to dollar amounts are to Canadian dollars, unless otherwise specified.
3
ITEM 1
Background of Onex
Incorporation and Principal Office
Onex was incorporated under the Business Corporations Act (Ontario) on December 30,
1980 and its corporate name was changed to its present name by articles of amendment
dated March 11, 1987. The business of Onex commenced in January 1984 through a
related private company, Onex Capital Corporation. On March 13, 1987, through a series
of transactions, substantially all the business interests of Onex Capital Corporation at that
date were acquired by Onex.
The share provisions of Onex were established by articles of amendment dated
April 16, 1987, and amended on August 5, 1993 to remove all dividend rights attaching
to the Multiple Voting Shares. The Articles were subsequently restated on August 13,
1993. On December 3, 1998, the articles were further amended to create Senior Preferred
Shares, Series 1. A summary of the Company’s share provisions can be found in the
Information Circular.
For convenience, references to “Onex” or the “Company” for any period prior to
March 13, 1987 shall refer to Onex Capital Corporation and, unless the context otherwise
requires, references to the “Company” include its subsidiaries.
Onex’ registered and principal office is located on the 49th Floor, BCE Place,
161 Bay Street, P.O. Box 700, Toronto, Ontario, Canada M5J 2S1.
4
ITEM 2
Business Development Highlights
This section reviews the major events in the development of the businesses that currently
form Onex Corporation.
Principal Businesses
The following are the principal operating companies of Onex and the percentage equity
interest held:
Percentage of Equity Shares Directly
or Indirectly Held by Onex
(1)
Principal Operating
Subsidiaries
Organized under
the laws of
Celestica
ClientLogic
Cineplex Galaxy
J.L. French Automotive Castings
Magellan
Center for Diagnostic Imaging
Emergency Medical Services
Cosmetic Essence
Radian
InsLogic
ONCAP
Ontario
Delaware
Delaware
Delaware
Delaware
Delaware
Delaware
Delaware
Ontario
Delaware
Ontario
At
December 31, 2004 (1)
18%
68%
31%
77%
6%
21%
89%
52%
28%
At
March 23, 2005
14%
68%
31%
77%
6%
20%
37%
21%
89%
28%
Percentage Voting
Interest of Onex
At
December 31, 2004
84%
88%
100%
100%
50%
100%
100%
57%
100%
On a fully-diluted basis, equity ownership as at December 31, 2004 is as follows: Celestica - 16%; ClientLogic - 65%; Cineplex
Galaxy - 31%; J.L. French – 66%; Magellan – 5%; Cosmetic Essence - 21% and Radian - 82%.
Onex also has an ownership interest in ResCare, which provides residential, therapeutic,
job training and education support services to people with developmental or other
disabilities, to youth with specials needs and to adults who are experiencing barriers to
employment. Onex made its initial investment in ResCare in 2004.
Celestica
In October 1996, Onex acquired Celestica, one of the leading participants in the global
electronics manufacturing services (“EMS”) industry. Celestica provides a broad range of
integrated services and solutions to a diversified customer set in the computing,
communications, aerospace and defense, automotive, industrial and consumer industries.
The company’s services include: design and product development, supply chain
management, advanced manufacturing, final assembly and test, direct order fulfillment
and after-market services and support.
Celestica has completed numerous acquisitions since its purchase by Onex,
greatly expanding its customer base, service offerings and manufacturing capabilities in
the Americas, Europe and Asia.
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ITEM 2
Principal Businesses (continued)
In July 1998, Celestica completed its initial public offering of shares with
secondary offerings completed in March 1999, November 1999, March 2000 and May
2001. The shares are listed on the New York and Toronto Stock Exchanges.
In August 2000, Celestica completed an offering of 20-year Liquid Yield Option
Notes (“LYONS”), which are listed on the New York Stock Exchange.
In June 2004, Celestica completed a US$500 million offering of 7.875% Senior
Subordinated Notes due 2011, which are available in the US Debt market.
ClientLogic
Onex formed ClientLogic in September 1998, following the purchase of North Direct
Response, Inc. and SOFTBANK Services Group. ClientLogic is a leading business
process outsourcer in the contact centre and fulfillment industry; the company provides
services for clients in the telecommunications, Internet services, technology, consumer
goods, retail, transportation, finance and utility industries. ClientLogic has completed
several acquisitions since its formation by Onex that have expanded its customer base,
operational capabilities and geographic reach in North America, Europe and Asia.
In August 2000, ClientLogic completed a $149 million equity offering, of which
Onex invested $34 million and the balance was from a large Canadian pension fund.
In October 2000, ClientLogic acquired with its own equity the TeleServices
division of Associates Commerce Solutions, Inc. (“ACS”), a wholly-owned subsidiary of
Associates First Capital Corporation (now Citigroup). ACS was a North Carolina-based
provider of integrated customer management services.
In July 2001, ClientLogic entered into an agreement with Ignite Solutions
(formerly BT Syncordia Solutions), a subsidiary of British Telecom, under which
ClientLogic manages Ignite Solutions’ outsourced customer care centres in the United
Kingdom, and Ignite manages the technology and network infrastructure at all of
ClientLogic’s European locations.
In July 2003, ClientLogic formed a venture with ITC Infotech Ltd., a company
based in India. The venture manages and operates two customer contact management
facilities in Bangalore, India, and is majority owned by ClientLogic.
In late December 2003, ClientLogic acquired Service Zone Holdings, Inc., a lowcost provider of high-quality call centre operations. This acquisition brought ClientLogic
new customers, a skilled management team and contact centres in the United States and
the Philippines. Onex invested $24 million in additional equity in ClientLogic as part of
this acquisition.
Cineplex Galaxy
In 1999, Onex partnered with Ellis Jacob, former Chief Operating Officer of Cineplex
Odeon, to create Galaxy Entertainment Inc. (“Galaxy”). Galaxy developed a chain of
modern megaplex theatres for small-to-medium-sized markets in Canada and had 15
megaplex theatres and 125 screens in operation.
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ITEM 2
In November 2003, Onex and other shareholders of Galaxy sold all of their
shares to the Cineplex Galaxy Income Fund (“CGIF”) as part of that company’s initial
public offering.
CGIF completed an initial public offering in Canada of 17.5 million units
(“CGIF Units”) at $10.00 per unit in November 2003. On December 24, 2003, an
additional 1.9 million CGIF Units were sold to the public in Canada at $10.00 per unit
pursuant to an over-allotment option exercised by the underwriters in the offering.
Proceeds from these sales were used by CGIF to acquire, through a newly formed limited
partnership, Cineplex Galaxy Limited Partnership (“CGLP”), substantially all of the
assets of Cineplex Odeon Corporation from Loews Cineplex Entertainment Corporation
(“Loews Cineplex”) and all of the shares of Galaxy, from its controlling shareholder,
Onex, and other Galaxy shareholders.
CGIF is one of the leading film exhibition companies in Canada operating
theatres under the Cineplex Odeon and Galaxy brands. The company owns, operates or
has an interest in 86 theatres with 775 screens in six provinces.
Hidden Creek Industries, J.L. French Automotive, Performance Logistics Group and
Commercial Vehicle Group
In 1989, Onex formed a partnership with Hidden Creek Industries (“Hidden Creek”) for
the purpose of building an automotive OEM supply business. The first acquisition was
made in April 1990 with the purchase of Automotive Industries Holding, Inc.
(“Automotive Industries”), a major supplier of interior trim systems and blow-molded
products to car and light truck manufacturers; these included Ford, DaimlerChrysler and
General Motors, as well as most of the Japanese companies with manufacturing
operations in North America. The business was built through eight acquisitions from
1990 to 1995 and revenues grew from $230 million to more than $1.2 billion by 1995.
Automotive Industries was taken public in 1992 and sold in 1995 to Lear Corporation at a
significant profit to Onex and other shareholders.
In November 1990, Onex acquired Dura Automotive Systems, Inc. (“Dura
Automotive”), the world’s largest independent designer and manufacturer of drivercontrol systems and a leading supplier of seating control systems, engineered assemblies,
structural door modules and integrated glass systems for the global automotive industry.
Dura Automotive has integrated 21 acquisitions since its inception, enabling it to expand
into new geographic markets, add new customers and provide new product
manufacturing, technology and service capabilities. In addition, Dura completed several
public equity offerings in 1996 and 1998. Its revenues grew from $167 million in 1990 to
over $3.3 billion in 2003. In April 2004, Onex sold its remaining shares of Dura
Automotive for proceeds of $23 million.
In October 1997, Onex and Hidden Creek acquired Trim Systems, Inc. (“Trim
Systems”), a joint venture formed between Hidden Creek and ASC Incorporated. Trim
Systems is a leading supplier of heavy-truck interior trim systems. Trim Systems has
completed two acquisitions since that time and reported $107 million in revenues in
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ITEM 2
2003. In June 2001, Onex increased its ownership interest in Trim Systems from 35% to
77% with the purchase of the original owner’s remaining interest. Onex also acquired
some of Trim Systems’ debt at a significant discount and provided a senior loan to the
company. The amount invested by Onex in these items was approximately $18 million.
In April 1999, Onex and Hidden Creek acquired J.L. French Automotive
Castings, Inc. (“J.L. French”) as part of a recapitalization transaction. J.L. French is a
leading designer and manufacturer of aluminum die-cast components and assemblies for
the global automotive market. J.L. French has completed three acquisitions since April
1999, expanding its revenues from $377 million in 1998 to $691 million in 2004.
In December 1999, Onex and Hidden Creek formed Performance Logistics
Group, Inc. (“PLG”) to acquire Hadley Auto Transport, a leading provider of automotive
transport and logistics services to North American automotive OEMs. PLG completed its
second acquisition with the purchase of E. and L. Transport Company (“E&L”) in May
2000; that company was also a leading automotive transport company. PLG’s annual
revenues totalled $260 million in 2003.
In March 2000, Onex, through Hidden Creek, acquired Commercial Vehicle
Systems, Inc., a manufacturer and assembler of wiper systems, mirror systems and
controls components for the North American medium- and heavy-duty truck markets.
In October 2000, Onex, through Hidden Creek, acquired Bostrom plc, a
manufacturer and assembler of seat systems for the North American and European heavyduty truck, construction and agricultural markets. Bostrom operates through two principal
subsidiaries, National Seating, which serves the North American market, and KAB
Seating, which serves the European market.
In March 2003, Onex through Hidden Creek, merged Commercial Vehicle
Systems, Inc. and Bostrom to form Bostrom Holding, Inc. (“Bostrom”)
In March 2004, PLG acquired Leaseway Auto Carrier Group from Penske Truck
Leasing Co., L.P. in a share-exchange transaction. As part of this acquisition, PLG issued
additional shares, which diluted Onex’ ownership in PLG to 26 percent from 50 percent
and at which time Onex ceased to have voting control of the company.
In early August 2004, the operations of Bostrom and Trim Systems were merged
to form Commercial Vehicle Group, Inc. (“CVG”). CVG became a leading supplier of
interior systems, vision safety solutions and other cab-related products for the global
commercial vehicle market, including the heavy-duty (Class 8) truck market, the
construction market and other specialized transportation markets. The company's
products include suspension seat systems, interior trim systems, such as instrument and
door panels, headliners, cabinetry and floor systems, mirrors, wiper systems, controls and
switches specifically designed for applications in commercial vehicle cabs. CVG
subsequently completed a $180 million initial public offering in late August. As part of
that offering, Onex sold some of its CVG shares, receiving $54 million in net proceeds.
8
ITEM 2
In addition, Onex received approximately $27 million on the repayment of debt held by
the Company. As a result of the offering and sale of shares, Onex’ equity ownership in
CVG was reduced from 55 percent to 24 percent, and Onex ceased to have voting control
of the company at that time.
Magellan Health Services, ResCare, Center for Diagnostic Imaging and AMR/EmCare
On January 5, 2004, Onex completed the purchase of its equity investment in Magellan
Health Services, Inc. (“Magellan”). The investment followed Magellan’s emergence from
bankruptcy, which commenced on March 11, 2003. Magellan is the leading managed
behavioral healthcare organization in the United States. Its customers include health
plans, corporations and government agencies. Onex’ net cash investment was $131
million for an approximate 24% ownership interest in Magellan. The investment in
Magellan was completed through Onex’ new fund, Onex Partners LP (“Onex Partners”).
Onex’ share of this investment was $30 million for an approximate 6% ownership
interest. Onex controls the general partner of Onex Partners and thus controls Magellan.
Onex is an approximate 24% limited partner in Onex Partners.
In June 2004, Onex completed a $114 million equity investment in Res-Care,
Inc. (“ResCare”) for an approximate 28% ownership interest in the company. ResCare is
a human service company providing residential, therapeutic, job training and educational
supports to people with developmental or other disabilities, to youth with special needs
and to adults who are experiencing barriers to employment. The investment in ResCare
was funded through Onex Partners, with Onex’ portion of that investment being about
$27 million for an approximate 7% ownership interest. Onex is an approximate 24%
limited partner in Onex Partners and controls the General Partner.
In early January 2005, Onex acquired Center for Diagnostic Imaging, Inc. in a
transaction valued at approximately $225 million. CDI is a leading provider of diagnostic
and therapeutic radiology services. The company operates 32 diagnostic imaging centres
in nine markets in the United States. CDI’s imaging services include magnetic resonance
imaging (“MRI”), computed tomography (“CT”), diagnostic and therapeutic injection
procedures and other procedures such as PET/CT, conventional x-ray, mammography
and ultrasound. This acquisition was undertaken through Onex Partners, which invested
approximately $88 million in the equity of the business for an approximate 84%
ownership interest. Onex’ share of this investment was $21 million for an approximate
20% ownership interest. Onex is an approximate 24% limited partner in Onex Partners
and controls the General Partner.
In early February 2005 Onex purchased American Medical Response, Inc.
(“AMR”) and EmCare Holdings, Inc. (“EmCare”) in a transaction valued at
approximately $1 billion. The purchase of these businesses was completed through
Emergency Medical Services, L.P. (“EMS”). Onex invested approximately $270 million
for an approximate 97% ownership interest. This investment was funded through Onex
Partners and certain of its limited partners, of which Onex’ initial share of that investment
was approximately $100 million for an approximate 37% ownership interest.
9
ITEM 2
AMR, headquartered in Denver, Colorado, is the largest U.S. provider of
ambulance transport services. The company provides emergency response services on
behalf of communities, municipalities and other local government agencies as well as
non-emergency transports between healthcare facilities or from a healthcare facility to a
patient’s home. AMR also provides additional services such as contracted dispatching to
public safety agencies, medical stand-by support for public events, mobile health
services, and paramedic training. AMR has the broadest geographic footprint and the
largest network of ambulance services in the United States, operating 4,100 vehicles
through more than 260 locations in 34 states with approximately 17,800 employees
EmCare, headquartered in Dallas, Texas, is the leading provider of outsourced
hospital emergency department (“ED”) physician staffing and management services. The
company assists its clients in the operation of their EDs, providing recruiting services,
staff coordination, quality assurance, departmental accreditation, risk management,
billing, record keeping, third-party payment, and other administrative services. EmCare
also recruits and schedules physicians, called hospitalists, to provide medical care for
patients in hospital inpatient settings. EmCare has operations across the U.S., with over
320 contracts in 39 states and approximately 4,200 employees and clinicians.
Radian Communication Services Corporation
Effective January 1, 2001, Onex formed Radian Communication Services Corporation
(“Radian”), following the acquisitions of LeBlanc Ltd. and BMS Communications
Services Ltd. Radian is a leading provider of communications infrastructure, including
network design, installation and management, as well as tower engineering and
construction for the telecommunications and broadcast industries. Onex invested $83
million for an 89% ownership interest and a 100% voting interest.
Cosmetic Essence, Inc.
In December 2004, Onex acquired BMP/CEI Holdings, Inc., the parent company of
Cosmetic Essence, Inc. (“CEI”) in a transaction valued at approximately $300 million.
This transaction was completed through Onex Partners, with an investment of
approximately $138 million for a 92 percent ownership interest. Onex’ share of this
investment was approximately $33 million for an approximate 21% ownership interest.
CEI is a leading provider of outsourced supply chain management services to the
personal care products industry, which includes formulating, manufacturing, filling,
packaging, and distribution services. The company manufactures products such as
fragrances, crèmes, lotions and colour cosmetics for a diversified customer base of
leading branded manufacturers and major retailers.
10
ITEM 2
In 1999, Onex formed ONCAP Investment Partners (“ONCAP”), a $400 million fund to
invest in North American-based, small-capitalization companies. Onex has committed
$120 million to the Fund. An Onex subsidiary is the General Partner of the Fund.
In April 2001, ONCAP completed the acquisition of BAE SYSTEMS Canada,
which was subsequently renamed CMC Electronics Inc (“CMC”). CMC is a designer,
manufacturer and marketer of high technology electronic products for the aerospace and
defense industries. ONCAP invested $65 million, of which Onex’ share was $16 million.
As part of this transaction, Onex also co-invested an additional $41 million. In August
2001, ONCAP acquired Armtec Limited (“Armtec”). ONCAP invested equity of $36
million, of which Onex’ share was $8 million.
In July 2002, CMC acquired 100% of Flight Visions, Inc., a military aviation
company that designs and manufactures a range of cockpit systems and products. As part
of this transaction, CMC issued equity of $5 million, of which ONCAP’s share was $1
million from Onex.
In March 2003, ONCAP acquired 100% of Western Inventory Service Ltd.
(“WIS”) for a total purchase price of $73 million. ONCAP invested $12 million in the
equity of WIS, of which Onex’ portion was $3 million. As well, ONCAP invested $18
million in debt, of which Onex’ portion was $4 million. WIS is a data collection and
verification company. WIS’s core business is to perform inventory counts for its
customers and to gather baseline inventory information needed for planning, forecasting
and accounting reconciliation.
In February 2004, ONCAP acquired a controlling interest in Futuremed Health
Care Products LP (“Futuremed”) for $25 million. Onex’ share of that investment was $8
million. Futuremed is Canada’s leading supplier of medical supplies and equipment to
long-term care facilities. The company’s products range from nursing supplies to
furniture, equipment and mattresses for long-term care facilities.
In April 2004, ONCAP acquired Canadian Securities Registration Systems
(“CSRS”). ONCAP invested $29 million. Onex’ portion of that investment was $9
million. CSRS is the only national provider of Personal Property Security Act (“PPSA”)
registration and search services. The company specializes in registering PPSA charges on
assets, conducting PPSA searches and registering securities under the Bank Act.
In July 2004, ONCAP sold all its shares of Armtec Limited through that
company’s initial public offering of income trust units (TSX:ARF_u). ONCAP received
net proceeds of $76 million on the sale of its Armtec shares, of which Onex received $25
million of those proceeds.
In December 2004, CMC sold its Cincinnati Electronics business (“Cincinnati
Electronics”) for net proceeds of $226 million and in January 2005, CMC sold the major
portion of its 55% ownership interest in NovAtel Inc. (bringing it down to approximately
16%) for proceeds of $118 million. CMC Electronics used the proceeds to repay its
senior debt and a portion was distributed to all CMC Electronics shareholders, including
ONCAP and Onex. ONCAP received proceeds of approximately $136 million, of which
11
ITEM 2
Onex’ portion was $40 million. In addition, Onex received an additional $77 million in
proceeds from the sale due to its direct ownership interest in CMC Electronics.
Other
Onex holds interests in a number of other companies and partnerships that are intended to
give Onex an initial ownership interest in an industry that has good growth potential;
examples of these holdings are Phoenix Pictures, Inc. (“Phoenix”) and Cypress Property
and Casualty Insurance Company (“Cypress”). In other instances, minority ownership
interests such as Ripplewood are residual interests arising from the sale of Onex’
controlling positions in related companies.
In mid-January, Onex established Onex Real Estate Partners LP, a fund dedicated to
acquiring and improving real estate assets in North America. Onex has initially
committed US$200 million to the fund, which is expected to increase in size over time
with the involvement of institutional invested. Onex’ commitment will be funded as
acquisitions are completed.
12
ITEM 3
Business of Onex
Overview
Onex is a diversified global company operating on five continents primarily in electronics
manufacturing services, customer management services, theatre exhibition, automotive
products, managed healthcare, personal care products and communications infrastructure.
At the end of 2004, Onex had consolidated revenues of $16.2 billion, assets of $11.8
billion, and approximately 83,000 employees worldwide.
Management’s objective is to build substantial value for its shareholders,
customers, partners and employees. Onex’ compound annual return on its invested capital
for all its realized and publicly traded businesses is 29% from inception in 1984 to
December 31, 2004. Onex generally finances a large portion of each acquisition with debt
provided by third-party lenders; this debt is serviced or supported by the cash flow,
profitability and assets of the acquired company. This strategy gives Onex the potential,
with attendant risk, to enhance its returns on invested equity capital and enables the
Company to pursue a larger-scale investment program. All debt financing of subsidiaries
is without recourse to Onex, and there are no cross-guarantees of such debt between
subsidiaries. Operating management of an acquired company generally purchase equity
ownership in such company at the time of the acquisition, and the vendor or outside
investors may take an equity interest. Management of Onex believes the relative position
of the major operating companies in their respective industry segments and the significant
other investments as at March 23, 2005 to be as follows:
• Electronics Manufacturing Services: Celestica is a leading provider of electronics
manufacturing services to electronics original equipment manufacturers (“OEMs”)
worldwide.
• Customer Management Services: ClientLogic is a leading business process outsourcer
in the contact centre and fulfillment industries that provides services to clients across
North America, Europe and Asia.
• Theatre Exhibition: Cineplex Galaxy is one the two leading film exhibition companies
in Canada operating theatres under the Cineplex Odeon and Galaxy brands. The company
owns and operates 86 theatres with 775 screens in six provinces in Canada.
• Automotive Products: J.L. French Automotive Castings, Inc. is a leading designer and
manufacturer of aluminum die-cast components and assemblies for the global automotive
market. Performance Logistics Group is a leading provider of automotive transport and
logistics services to the automotive OEMs. Commercial Vehicle Group, Inc. is a leading
supplier of interior systems, vision safety solutions and other cab-related products to the
global commercial vehicle market and other specialized transportation markets.
• Healthcare: Magellan Health Services is the leading behavioural managed healthcare
organization in the United States. ResCare is a human service company providing
residential, therapeutic, job training and educational supports to people with development
or other disabilities, to youth with special needs and to adults who are experiencing
barriers to employment. Center for Diagnostic Imaging is a leading provider of diagnostic
and therapeutic radiology services that operates 32 diagnostic imaging centres in nine
markets in the United States. American Medical Response is the largest
13
ITEM 3
Business of Onex
Overview (continued)
U.S. provider of ambulance transport services. The company provides emergency
response services on behalf of communities, municipalities and other local government
agencies as well as non-emergency transports between healthcare facilities or from a
healthcare facility to a patient’s home. EmCare is the leading provider of outsourced
hospital emergency department physician staffing and management services.
• Personal Care Products: CEI is a leading provider of outsourced supply chain
management services to the personal care products industry, which includes formulating,
manufacturing, filling, packaging, and distribution services.
• Communications Infrastructure: Radian is a leading North American wireless
communications infrastructure and network services company.
• Small-Capitalization: ONCAP is a $400 million fund focused on acquiring and
building the value of small-capitalization companies based in North America.
• Other Businesses: Onex holds non-controlling ownership interests in the following
further businesses:
•
Phoenix Pictures, an integrated film entertainment company.
•
Ripplewood, a US-based acquisition fund.
•
Cypress, a property and casualty insurance company.
•
Onex Real Estate Partners, a fund dedicated to acquiring and improving real
estate assets in North America.
Revenues of Onex by industry segment for the years ended December 31, 2004 and 2003
are presented in the following table:
Year Ended December 31,
($ millions)
Electronics Manufacturing Services
Theatre Exhibition
Healthcare
Customer Management Services
Automotive Products
Parent and Other (1)
Total Revenues
(1)
2004
2003
$11,480
356
2,199
730
932
547
$16,244
$9,382
336
605
1,394
402
$12,119
2004 includes revenues of Parent Company, Radian and ONCAP.
2003 includes revenues of Parent Company, Radian and ONCAP.
14
ITEM 3
Business of Onex
Overview (continued)
During 2004, Onex operated primarily in the geographical areas of the United States,
Canada and Europe. The following table shows 2004 consolidated revenues by industry
segment and geography.
Consolidated
Revenues
($ millions)
Electronics Manufacturing Services
Theatre Exhibition
Healthcare
Customer Management Services
Automotive Products
Parent and Other (1)
$11,480
356
2,199
730
932
547
Total
$16,244
United
States
Canada
Europe
Other
17%
100%
47%
81%
17%
18%
100%
10%
82%
21%
36%
19%
-
44%
7%
1%
(1) Includes revenues of Parent Company, Radian and ONCAP.
The following sections set out the industry segments in which Onex has operating
companies and a description of those companies. Within each description, the operating
company is referred to as the “company.”
15
ITEM 3
Business of Onex
(continued)
Electronics Manufacturing Services Segment
The Electronics Manufacturing Services (“EMS”) segment consists of the business of
Celestica Inc. and its subsidiaries (“Celestica”).
Overview of the Business
Celestica is a world leader in the delivery of innovative electronics manufacturing
services to original equipment manufacturers (“OEMs”), with revenues of $11.5 billion
for the year ended December 31, 2004. Celestica operates more than 40 facilities located
in the Americas, Europe and Asia. The company provides a wide variety of products and
services to its customers, including the manufacture, assembly and testing of complex
printed circuit assemblies and the full system assembly of final products. Celestica’s
broad range of EMS services include: design, system assembly, fulfillment and aftermarket services and support.
During the period from 2001 to 2003, the EMS industry experienced an
unprecedented decline from its key end-markets: computing and communications
infrastructure.
During this challenging period, in which it was difficult to predict demand,
Celestica responded by initiating restructuring plans to rebalance its global manufacturing
network, which increased the company’s presence in lower-cost geographies and reduced
capacity. The company was also focussed on improving operating margins, diversifying
into new markets and expanding its integrated and solutions offerings.
Development of the Business
In October 1996, Onex acquired Celestica in a transaction valued at approximately
US$560 million. Onex initially invested US$114 million for a 55% equity interest. The
acquisition was financed through equity of US$200 million, a U.S. private placement of
Senior Subordinated Notes of US$200 million and secured credit facilities. The debt of
Celestica was without recourse to Onex.
Equity Offerings
In January 1997, the total equity of Celestica was increased to provide a pool of capital
for acquisitions by Celestica. In conjunction with this, Onex increased its investment in
Celestica’s equity from US$114 million to US$148 million. Onex’ ownership interest at
that time was 42%. Other investors acquired shares from treasury during 1997, thereby
diluting Onex’ ownership interest at December 31, 1997 to 41% from 42%.
On July 7, 1998, Celestica completed an initial public offering of equity resulting
in net after-tax proceeds to Celestica of US$399 million. The shares are listed on the New
York and Toronto Stock exchanges. This transaction caused Onex’ ownership interest to
be reduced to approximately 29%. Onex’ ownership decreased to approximately 27%
following the issuance of shares for the acquisition of International Manufacturing
Services, Inc. in December 1998.
16
ITEM 3
Business of Onex
Electronics Manufacturing Services Segment (continued)
In March 1999, Celestica completed an offering of 18.4 million shares at
US$14.325 per share, raising net after-tax proceeds of approximately US$254 million.
Onex’ ownership decreased to 24% from 27%. In November 1999, Celestica completed
an offering of 16.1 million shares at US$30.313 per share, raising net after-tax proceeds
of approximately US$473 million. Onex’ ownership decreased to 22%.
In March 2000, Celestica completed an offering of 16.6 million shares at
US$45.625 per share, raising net after-tax proceeds of approximately US$740 million.
Onex’ ownership decreased to 19%. Following this transaction, Onex effectively
purchased additional shares of Celestica at a market value of $60 million, increasing its
ownership from 19% to 20%.
In August 2000, Celestica issued 20-year Liquid Yield Option Notes (“LYONs”)
with a principal amount at maturity of US$1.8 billion, exchangeable for Celestica Inc.
subordinate voting shares. Net after-tax proceeds were approximately US$850 million.
In May 2001, Celestica completed an offering of 12 million shares at US$59.50
per share, raising net after-tax proceeds of approximately US$707 million.
In June 2004, Celestica completed an offering of 7.875% Senior Subordinated
Notes due 2011 with an aggregate principal amount of US$500 million, raising net aftertax proceeds of approximately US$490 million.
Celestica completed two Normal Course Issuer Bids (“NCIBs”), each of which
permitted it to repurchase up to 10% of its subordinate voting shares for cancellation. The
company had repurchased a total of 22.6 million subordinate voting shares pursuant to its
two NCIBs during the period from August 2002 to July 2004, at an average price of
US$13.60 per share.
In an effort to reduce the leverage on its balance sheet, Celestica began to
repurchase its LYONs in the open market. Through December 31, 2004, Celestica
repurchased LYONs with a total principal amount at maturity of US$1.2 billion, for total
cash of US$623.5 million. As at December 31, 2004, the company has outstanding
LYONs with a principal amount at maturity of US$614.4 million payable August 1,
2020. Holders of the instruments have the option to require Celestica to repurchase their
LYONs on August 2, 2005, at a price of $572.82 per LYON, or a total of US$352.0
million. Celestica may elect to settle its repurchase obligation in cash or shares, or any
combination thereof.
Acquisitions
In January 1997, Celestica acquired the assets and operations of Design to Distribution
Limited from International Computers Limited Plc (“ICL”) and entered into an
agreement to supply manufacturing and other services to ICL.
In July and August 1997, Celestica acquired the assets of Hewlett-Packard’s
printed circuit assembly operations in Colorado and New Hampshire.
In October 1997, Celestica acquired Ascent Power Technology Inc., a Canadianbased manufacturer and developer of high- and low-voltage power supply systems.
17
ITEM 3
Business of Onex
In February 1998, Celestica acquired a manufacturing facility in Ireland from
Madge Networks and purchased HP’s printed circuit assembly-layout design operation in
Colorado.
In March 1998, Celestica acquired assets related to HP’s embedded systems
organization in Massachusetts, further expanding the company’s design capabilities.
In April 1998, Celestica acquired a manufacturing facility from Lucent
Technologies Inc. in Mexico, providing the company with a lower-cost manufacturing
solution.
In May 1998, Celestica acquired Analytic Design based in California.
In June 1998, Celestica acquired assets related to the manufacturing facility of
Silicon Graphics Inc. in Wisconsin.
In September 1998, Celestica acquired Accu-Tronics, based in North Carolina,
expanding Celestica’s prototype capabilities.
In December 1998, Celestica acquired International Manufacturing Services, an
electronics manufacturing services provider with facilities in California, Mexico, Hong
Kong, China, and Thailand. This gave the company a strategic foothold in Asia.
In April 1999, Celestica acquired certain assets of Gossen-Metrawatt’s
manufacturing operation in the Czech Republic, which provided Celestica with a strategic
presence in a low-cost geography in Central Europe, and signed a long-term supply
agreement.
In September 1999, Celestica acquired VXI Electronics, Inc. in Oregon, which
enhanced Celestica’s power systems product and service operations in North America.
In October 1999, Celestica acquired certain assets related to the HP Healthcare
Solutions Group’s printed circuit board assembly operations in Massachusetts.
In December 1999, Celestica acquired EPS Wireless Inc. of Texas, a whollyowned subsidiary of Preferred Networks Inc., which specializes in the repair and
refurbishment of mobile and wireless products. Celestica also acquired the repair
facilities of Fujitsu-ICL in December 1999, which focuses on the repair of printed circuit
boards, scanners, retail point-of-sale terminals, hand-held units, peripherals and monitors.
These two acquisitions expanded Celestica’s repair capabilities within North America.
In February and May 2000, Celestica acquired certain assets from the Enterprise
Systems Group and Microelectronics Division of IBM in Minnesota and two facilities in
Italy, respectively; the company also signed two, three-year strategic supply agreements
with IBM. The Minnesota operation provides printed circuit board assembly and test
services. The Italian operations provide printed circuit board assembly services and
systems assembly services.
In June 2000, Celestica acquired NDB Industrial Ltda., NEC Corporation’s
wholly-owned manufacturing subsidiary in Brazil, which enhanced Celestica’s presence
in South America.
In August 2000, Celestica acquired Bull Electronics Inc. in Massachusetts.
18
ITEM 3
Business of Onex
In November 2000, Celestica acquired NEC Technologies (UK) Ltd. based in the
United Kingdom.
In January 2001, Celestica acquired Excel Electronics, Inc., which enhanced
Celestica’s prototype service offerings in the southern region of the United States.
In February 2001, Celestica acquired certain assets in Ireland and Iowa from
Motorola Inc. and signed supply agreements.
In March 2001, Celestica acquired certain assets relating to a repair business
from N.K. Techno Co. Ltd., which expanded Celestica’s presence in Japan.
In May 2001, Celestica acquired certain assets from Avaya Inc. in Arkansas and
Colorado and in August 2001, acquired certain Avaya assets in France and signed a
supply agreement with the company.
In June 2001, Celestica acquired Sagem, CR s.r.o. in the Czech Republic, which
enhanced Celestica’s presence in central Europe.
In August 2001, Celestica acquired Primetech Electronics Inc., an electronics
manufacturer in Canada.
Celestica also acquired certain assets in Ohio and Oklahoma from Lucent
Technologies, Inc. in August 2001 and signed a supply agreement.
In October 2001, Celestica acquired Omni Industries Limited (“Omni”), an EMS
provider headquartered in Singapore, with locations in Singapore, Malaysia, China,
Indonesia and Thailand. Omni provides printed circuit board assembly and system
assembly services, as well as other related supply chain services, including plastic
injection moulding and distribution. Celestica also established a greenfield operation in
Shanghai in 2001.
In March 2002, Celestica acquired certain assets in two facilities in Japan from
NEC Corporation, and signed a supply agreement to provide a complete range of
electronics manufacturing services for a broad range of NEC’s optical backbone and
broadband access equipment.
In August 2002, Celestica acquired certain assets from Corvis Corporation in the
United States and signed a multi-year supply agreement, which positions Celestica as the
exclusive manufacturer of Corvis’ terrestrial optical networking products and sub-sea
terminating equipment.
In March 2004, Celestica acquired Manufacturers’ Services Limited (“MSL”), a
full-service global electronics manufacturing and supply chain services company. This
acquisition provides Celestica with an expanded customer base and service offerings.
MSL’s markets include industrial, aerospace and defense, automotive, retail systems,
communications and network storage, and peripherals.
In April 2004, Celestica acquired certain assets in the Philippines from NEC
Corporation.
The aggregate purchase price for the acquisitions completed in 2004 was $437
million, $175 million for those completed in 2002, $2,997 million for those completed in
2001, $950 million for those completed in 2000, $96 million for those completed in 1999,
$286 million for those completed in 1998, and $390 million for those completed in 1997.
19
ITEM 3
Business of Onex
Together, these acquisitions provide Celestica with expanded geographic reach,
broader range of services and strategic customer relationships. Financing for these
acquisitions was obtained in part from Celestica’s available cash resources set aside for
such purposes, from bank financing and, in some instances, by the issuance of shares,
options and warrants.
Summary Financial Information
($ millions)
Revenues
2004
$11,480
2003
$9,382
Principal Products/Operations
Celestica serves OEMs across the computing, communications, aerospace and defense,
automotive, industrial and consumer industries. The products we manufacture can be
found in a wide array of end products, including: cell phones and pagers, electronic
metering devices, hubs and switches, LAN and WAN networking cards, laser printers,
mainframe computers, mass storage devices, medical products, modems, multimedia
peripherals, PBX switches, personal computers, PDAs, photonic devices printers and
related supplies, routers, scalable processors, servers, switching products, video
broadcasting equipment, wireless base stations, wireless loop systems and workstations.
Celestica’s full range of integrated EMS services spans from product design to systems
assembly, fulfillment and after-market services and support.
Celestica employed over 46,000 permanent and temporary (contract) employees
at December 31, 2004. Some of Celestica’s employees are unionized at its facilities in the
United Kingdom, France, Italy, Mexico, the Unites States, Japan, Brazil and Spain.
Celestica has an environmental policy and is subject to federal, provincial, state
and local environmental regulations relating to the use, storage, treatment, discharge,
disposal and redemption of contaminants, hazardous substances and wastes. The
company does not expect its continued environmental compliance efforts to result in any
unusual level of costs. Many of Celestica’s facilities are also ISO 14001 registrants
(International Standards Organization, Environmental Standards).
Celestica holds licenses to various technologies, which were acquired in
connection with acquisitions from Fujitsu-ICL, Hewlett-Packard, IBM, NEC and other
companies. The company believes they have secured access to all required technology
that is material to the current conduct of business.
During 2004, Celestica invested approximately US$16 million in research and
development (2003 – US$24 million).
20
ITEM 3
Business of Onex
Markets and Competition
Historically, OEMs have been fully integrated product development and manufacturing
companies. They invested heavily in manufacturing assets, establishing facilities around
the world to support the manufacture, service and distribution of their products. Since the
1970s, the EMS market has evolved significantly. In the early stages of the EMS
development, EMS companies acted as subcontractors and performed simple material
assembly functions mainly on a consignment basis for OEMs. Accordingly, the
relationship between OEMs and EMS providers tended originally to be transactional in
nature. Significant manufacturing process technology in the 1980s enabled EMS
companies to transfer cost savings to the OEMs while increasing the quality of their
products.
As EMS firms have increased their capabilities, the relationship with its
customers has evolved into a strategic one: OEMs now utilize on a global basis the wide
range of end-to-end services and expertise offered by EMS companies. An increasing
number of OEMs have made the decision not to compete on the basis of manufacturing,
electing to focus on other core competencies and to outsource significant amounts of their
manufacturing and supply-chain management requirements. In addition, a growing
number of traditionally integrated OEMs have divested manufacturing facilities to EMS
companies as part of their movement towards increased outsourcing. In recent years, to
support the evolving needs of their OEM customers, large and sophisticated EMS
providers have further expanded their capabilities to include services in support of their
OEM customers; these range from design, new product introduction and supply-chain
management, to system assembly, logistics and after-market services.
With their global manufacturing networks and large, diversified customer bases,
the major EMS companies generally achieve a lower cost structure, superior
technological know-how and more advanced manufacturing processes relative to most of
the OEM customers they serve.
The EMS industry is comprised of companies that provide a broad range of
electronics manufacturing services to OEMs. Celestica’s competitors include a large
number of domestic and foreign companies, such as Flextronics International, HON Hai
Precision Industry, Sanmina-SCI, Solectron Corporation and Jabil Circuit, as well as
smaller EMS companies that have a regional, product, service or industry specific focus.
Celestica’s top ten customers accounted for 65% of revenues in 2004. As noted,
Celestica supplies a range of products for diverse markets.
Approximately 59% of the Celestica group of companies’ revenues is derived
from sales to customers in North America, 21% from sales to customers in Europe and
20% from sales to customers in Asia and other regions.
21
ITEM 3
Business of Onex
Properties
The location, size and nature of the ownership of the company’s principal facilities are
summarized as follows:
Location (1)
Square Feet
Ontario
New Hampshire (3)
Texas (2)
Colorado (2)
California
Minnesota
Arkansas
Iowa (3)
North Carolina (2)(3)
England
France (2)
Ireland
Spain (2)
Italy
Czech Republic (2)
Mexico (2)
Brazil
Puerto Rico
China (2)
Japan (2)
Thailand (2)
Hong Kong
Malaysia (2)
Singapore (2)
Philippines
888,000
278,000
137,000
369,000
131,000
154,000
424,000
69,000
375,000
132,000
272,000
133,000
576,000
550,000
336,000
1,154,000
134,000
94,000
1,126,000
317,000
760,000
53,000
729,000
354,000
125,000
Owned/Leased
Owned
Leased
Leased
Owned/Leased
Leased
Leased
Owned
Leased
Leased
Leased
Owned
Leased
Owned/Leased
Owned
Owned
Leased
Leased
Leased
Owned/Leased
Owned/Leased
Leased
Leased
Owned/Leased
Leased
Leased
(1)
As part of Celestica’s restructuring plans, the company has consolidated
facilities and changed its strategic focus as to the number and geography of
its sites. Celestica is rationalizing its global manufacturing network to
increase the percentage of facilities in lower-cost geographies.
(2)
This represents multiple facilities.
(3)
As part of Celestica’s restructuring plans, the company has announced the
closure of its site in Iowa and New Hampshire and one of its sites in North
Carolina in 2005.
The land and facility leases above expire at various dates from 2005 through 2040. Assets
under capital lease are secured under those leases.
22
ITEM 3
Business of Onex
(continued)
Customer Management Services Segment
The Customer Management Services (“CMS”) segment consists of the business of
ClientLogic Corporation and its subsidiaries (“ClientLogic”).
ClientLogic is a leading business process outsourcer in the contact centre and fulfillment
industries. ClientLogic focuses on helping its clients acquire, retain, and maximize the
value of customer relationships.
The company has two broad service offerings: Customer Contact Management
and Fulfillment. Customer Contact Management services includes customer service and
technical support delivered through voice, email, online chat, self-help services, fax and
mail. Fulfillment includes warehousing, order and item processing, and pick, pack and
ship services. The company also offers certain marketing solution services, which include
database analysis, data mining, list management, continuity and subscription programs
and campaign management. ClientLogic has a staff of approximately 20,000 employees,
40 North American, European, Asian and African customer contact management centres,
5 distribution facilities, and state-of-the-art information systems. These comprehensive
capabilities enable ClientLogic to position itself as an international customer
management services company. The company had revenues of $730 million for the year
ended December 31, 2004. Onex currently has a 68% ownership interest in ClientLogic.
The building of ClientLogic began in April 1998 with the acquisition of North Direct
Response, Inc. (“NDR”). NDR was a Toronto-based call centre company with clients in
the technology, consumer products and insurance industries. Onex invested $15 million
for an initial 68% equity interest.
In September 1998, ClientLogic was formed. In October 1998, ClientLogic
acquired SOFTBANK Services Group (“SSG”). SSG, headquartered in Buffalo, New
York, was a leading provider of outsourced customer management services to the
technology sector. It had call centres in Buffalo, New York; Las Vegas, Nevada;
Bartlesville, Oklahoma; Kingstree, South Carolina; Albuquerque, New Mexico; Oak
Ridge, Tennessee; Yakima, Washington; Dublin, Ireland and London, England. It also
had a 200,000 square foot distribution facility near Columbus, Ohio. Onex invested $67
million for an initial 83% interest.
In January 1999, ClientLogic acquired LCS Industries, Inc. (“LCS”). LCS
provided a complete range of outsourced services for companies engaged in direct
marketing activities. These services included continuity programs, catalog services, list
management and database design. Onex invested a further $43 million in the equity of
ClientLogic as part of the funding for this transaction.
In March 1999, ClientLogic acquired from Canadian Access Insurance Services
certain software and technology assets for the sale and servicing of insurance worldwide.
23
ITEM 3
Business of Onex
Customer Management Services Segment (continued)
ClientLogic subsequently divested this insurance business by dividending its share
ownership to InsLogic, an Onex subsidiary.
In October 1999, ClientLogic acquired Cordena Call Management (“Cordena”), a
leading European outsourced customer service provider headquartered in The Hague,
Netherlands. Cordena had integrated systems that handled every aspect of distribution,
from order receipt (by telephone, Internet, fax or mail) to the distribution process (pick,
pack, ship and payment). Onex invested $38 million in the equity of ClientLogic to
provide part of the acquisition funding.
In October 1999, ClientLogic acquired Groupe Adverbe International S.A.
(“Adverbe”), a leading customer contact service provider located in Paris, France.
Adverbe expanded ClientLogic’s distribution network by enabling it to provide services
24 hours a day, 7 days a week across the European continent. Onex invested $13 million.
In December 1999, ClientLogic acquired MarketVision, Inc., a pioneering
creator of marketing solutions that included advanced campaign management, contact
management and outsourced database marketing technology. Onex invested $18 million
in the equity of ClientLogic to provide part of the acquisition funding.
In August 2000, ClientLogic completed a $149 million private equity offering.
Onex invested $34 million and a large Canadian pension fund invested $115 million. The
offering diluted Onex’ ownership from 81% to 72%.
In October 2000, ClientLogic acquired the TeleServices division of Associates
Commerce Solutions, Inc. (“ACS”), a wholly-owned subsidiary of Associates First
Capital Corporation (now Citigroup). ClientLogic issued common shares valued at $30
million as part of the $33 million total purchase price. ACS TeleServices was an Illinoisbased provider of integrated customer management services. This transaction further
reduced Onex’ ownership from 72% to 70%.
In 2001 ClientLogic entered into a strategic alliance with Ignite Solutions,
formerly British Telecom’s Syncordia Solutions, a subsidiary of British Telecom. Under
the agreement, ClientLogic assumed management of Ignite Solutions’ outsourced
customer care centres in the United Kingdom, and Ignite assumed management of the
technology and network infrastructure at all of ClientLogic’s European locations.
In July 2003, ClientLogic formed a venture with ITC Infotech Ltd., a company
based in India. The venture manages and operates two customer contact management
facilities in Bangalore, India, and is majority owned by ClientLogic.
In late December 2003, ClientLogic acquired Service Zone Holdings, Inc., a
provider of high-quality call centre operations. The acquisition brought ClientLogic new
customers, a skilled management team and contact centres in the United States and the
Philippines. Onex invested $24 million in additional equity in ClientLogic as part of the
acquisition.
24
ITEM 3
Business of Onex
($ millions)
Revenues
2004
$730
2003
$605
ClientLogic’s customers are primarily engaged in providing Internet access and telephone
service, computer hardware and software manufacturing, retailing, consumer goods
manufacturing, transportation services, and financial services.
The company operates call centres that provide customer support, technical
support, sales support and order processing, primarily by responding to inbound
telephone calls. Customer communications are also received via the Internet, mail and
fax. In a few cases, ClientLogic also performs outbound customer communications for
clients as part of a complete customer management solution.
ClientLogic also offers physical product fulfillment services, including receiving,
warehousing, “breaking-bulk” and “pick-pack-and-ship” services. In addition, the
company provides ancillary services related to distribution, such as order and item
processing, billing and collections.
The company has a wide variety of contracts and billing arrangements with its
clients. Call centre activities are typically billed on a per-minute-of-talk-time basis.
Contracts often specify minimum call volumes and require minimum quality and service
levels. Database activities are often billed on a per-hour basis pursuant to contracts of
varied duration. Distribution services are usually billed on a per-unit basis.
When selecting a customer management services organization, clients place a
premium on quality, reliability, ability to quickly deliver technological excellence and
flexible reporting capabilities. Clients also place a premium on suppliers that offer a
complete, international solution that can be customized to their needs, thus minimizing
the number of supplier relationships they are required to manage.
The company’s operations are highly labour intensive. ClientLogic has
approximately 18,400 employees, none of whom are covered by a collective bargaining
agreement. ClientLogic’s management believes that the company is in compliance with
current environmental protection requirements. No material levels of capital expenditures
are expected to be necessary to conform to any known environmental protection
requirements.
25
ITEM 3
Business of Onex
ClientLogic’s competitors generally provide some portion of the services offered by
ClientLogic but very few offer expertise in the entire spectrum. These services can be
broadly grouped into teleservices, fulfillment and database management. As the market
evolves, those competitors that provide a full range of services will be ClientLogic’s
direct competitors.
In the call centre segment, activities are generally divided between inbound
teleservices and outbound telemarketing. Inbound activities are for a broad range of
services, including direct marketing response, customer service and support, sales
support, technical support and related services.
Some of ClientLogic’s competitors in the call centre segment are primarily
outbound teleservices companies; however the vast majority provides a mix of outbound
and inbound services. ClientLogic’s call centre activities consist almost entirely of
inbound services. In the distribution and fulfillment segment, the company’s competitors
include integrated fulfillment companies, distribution/logistics companies and small
niche participants.
Over the last few years, ClientLogic has witnessed a market shift toward multinational, offshore and newshore labour sourcing for customer management services. This
evolution brings new offshore-based companies, such as those in India, as potential
competitors. ClientLogic is well positioned to compete in this global sourcing market
given its presence in 13 countries across North America, Europe, Asia and Africa.
The worldwide, outsourced market for customer management services (including
teleservices, database and fulfillment) is expected to grow at 12.4% compounded annual
growth rate to $73 billion by 2008.
26
ITEM 3
Business of Onex
Properties
ClientLogic’s facilities are both owned and leased, and are summarized as follows:
Space (Square Feet)
Location
Call Centre
Warehouse
47,806
43,756
39,900
41,411
34,443
37,952
30,000
43,756
33,000
35,000
43,756
50,536
53,637
14,865
43,756
59,872
43,756
57,426
43,756
50,701
43,756
43,756
11,582
393,969
495,971
72,113
-
29,637
10,761
19,463
18,113
-
936,597
973,635
77,974
Almelo, Netherlands
Alness, United Kingdom
Baguio City, Philippines
Bangalore, India
Bristol, United Kingdom
Cardiff, United Kingdom
Derby, United Kingdom
Dublin, Ireland
9,400
19,000
24,000
38,375
21,800
32,500
38,500
-
10,927
-
Dundee, United Kingdom
Dusseldorf, Germany
Exeter, United Kingdom
Newcastle, United Kingdom
Paris, France
Pasig City (Manila), Philippines
Rabat, Morocco
Salzburg, Austria
The Hague, Netherlands
Troyes, France
Watford, United Kingdom
42,683
21,853
22,070
43,000
30,408
52,399
30,451
7,191
32,292
5,000
-
5,769
10,000
470,922
-
26,696
1,407,519
973,635
104,670
Albuquerque, New Mexico
Andalusia, Alabama
Asheville, North Carolina
Bathurst, New Brunswick
Bartlesville, Oklahoma
Bloomfield, New Jersey
Buffalo, New York
Clifton, New Jersey
Columbus (Grove City), Ohio
Columbus (Janitrol Road), Ohio
Hamilton, Alabama
Huntington, West Virginia
Kingstree, South Carolina
Lake City, Florida
Las Vega, Nevada
Milford, Delaware
Moncton, New Brunswick
Monterrey, Mexico
Nashville, Tennessee
Norman, Oklahoma
Oak Ridge, Tennessee
Port Arthur, Texas
Saint John, New Brunswick
Starkville, Mississippi
Toronto, Ontario
Washington Parish, Louisiana
Weehawken, New Jersey
Winfield, Alabama
North America (including Mexico)
United Kingdom, Europe and Other
Total
Office
ClientLogic also has office space in Fairlawn, New Jersey and Westchester, New York.
27
ITEM 3
Business of Onex
(continued)
Theatre Exhibition Segment
The Theatre Exhibition segment consists of Cineplex Galaxy Limited Partnership
(“CGLP”) and other operations of Cineplex Odeon Corporation, not included in CGLP,
which collectively are referred to as Cineplex Galaxy.
Cineplex Galaxy is one of the leading exhibition companies in Canada operating theatres
under the Cineplex Odeon and Galaxy brands. Cineplex Galaxy owns, operates or has an
interest in 86 theatres with 775 screens in six provinces.
All the theatre exhibition companies included in the Theatre Exhibition segment
derive the majority of their revenues from movie admission ticket sales and the sale of
concession offerings to movie patrons.
In 1999, Onex partnered with Ellis Jacob, former Chief Operating Officer of Cineplex
Odeon Corporation, to create Galaxy Entertainment Inc. (“Galaxy”). Galaxy initially
began operations by acquiring seven theatres with 33 screens in small- to medium-sized
markets in Ontario and used these theatres as a springboard into the industry. From that
date, Galaxy pursued opportunities to either build new modern megaplex theatres or
acquire existing megaplex theatres that were of a quality consistent with the company’s
business plan.
In April 2002, Galaxy purchased and cancelled 442,007 common shares held by
Famous Players Inc. The total purchase price was $4.2 million. As a result of this share
repurchase, Onex’ ownership in Galaxy increased from 67% to 73%.
In November 2003, Cineplex Galaxy Income Fund (“CGIF”) completed an initial
public offering in Canada of 17.5 million units (“CGIF Units”) at $10.00 per unit. In
December 2003, an additional 1.9 million CGIF Units were sold to the public in Canada
at $10.00 per unit pursuant to an over-allotment option exercised by the underwriters in
the offering. Proceeds from these sales were used by CGIF to acquire, through the
Partnership, substantially all of the assets of Cineplex Odeon Corporation from Loews
Cineplex Entertainment Corporation (“Loews Cineplex”) and all of the shares of Galaxy
Entertainment, Inc. from Onex, its controlling shareholder, and other Galaxy
shareholders.
As consideration for the sale of its assets, Loews Cineplex received $214 million
and 21.1 million Class B limited partnership units of the Partnership, representing 44% of
the total outstanding units of all classes (the “LP Units”) of the Partnership. As
consideration for its contribution of Galaxy into the limited partnership, Onex received
$20 million and 4.4 million Class B limited partnership units representing 9% of the total
outstanding LP Units.
At December 31, 2004, CGIF indirectly held 20.0 million LP Units, representing
42.1% of the total outstanding LP Units. Pursuant to its limited partnership agreement,
the Partnership will make monthly distributions of all of its distributable cash (as defined
in the limited partnership agreement) to holders of the LP Units, including Onex and
28
ITEM 3
Business of Onex
Theatre Exhibition Segment (continued)
indirectly, CGIF. CGIF will make monthly cash distributions to holders of the CGIF
Units based on the amounts it receives as an indirect holder of LP Units. The CGIF Units
are listed for trading on the Toronto Stock Exchange under the trading symbol CGX.UN.
Onex and the other holders of LP Units controlled by Onex (the “Onex Group”)
collectively held 25.6 million LP Units representing 54% of the total outstanding LP
Units. The LP Units held by the Onex Group are convertible at the option of the holder
into CGIF Units at any time. The holders of the LP Units have entered into a Security
holders Agreement that provides, among other things, that the Onex Group is entitled to
appoint a majority of the directors of Cineplex Galaxy General Partner Corporation
(“Cineplex Galaxy GP”), the general partner and manager of the Partnership, for as long
as the Onex Group continues to hold, on a fully converted and diluted basis, at least 30%
of the outstanding CGIF Units. Also during this period, the Onex Group is entitled to
appoint one trustee to the board of trustees of the fund and to nominate the remaining
trustees, who must be independent of the Onex Group, for election by the holders of
CGIF Units.
In November 2003, the Partnership entered into new credit facilities comprised of
a $110 million senior secured term facility that matures in November 2006 and two
senior secured revolving credit facilities, one in the principal amount of $20 million (the
working capital facility) and the other in the principal amount of $40 million (the
development facility). Both senior secured revolving credit facilities are three-year,
revolving term loans and are payable at maturity. The senior secured term facility
requires that the principal be paid at maturity and bears interest at the prime business rate
plus a margin, depending on certain financial ratios. The average interest rate on the
senior secured term facility for the year ended December 31, 2004 was 5.7%. The senior
secured revolving credit facilities bear interest at the prime business rate plus a margin,
depending on certain financial ratios. As at December 31, 2004 there was $16 million
outstanding on the development facility and no amounts outstanding on the working
capital facility.
In July 2004, Onex sold its interest in Loews Cineplex and as part of that sale
retained Loews Cineplex’ interest in Cineplex Galaxy, whose units had a value of $112
million at the time of sale.
Cineplex Galaxy
($ millions)
2004
2003
Revenues
$356
$336
29
ITEM 3
Business of Onex
Cineplex Galaxy’s revenues are primarily generated from box office and concession
sales, which in turn are driven by attendance and price levels. In addition, ancillary
revenues from sources such as advertising and promotions are an increasingly important
component of Cineplex Galaxy’s overall revenues and future growth.
Box Office and Concessions Revenues
Box office revenues accounted for approximately 67% of Cineplex Galaxy’s revenues for
the twelve months ended December 31, 2004. Cineplex Galaxy strives to provide its
patrons with a premium movie going experience, including a high level of customer
service. This level of service, combined with targeted film selection and the overall
appeal of those films, drives attendance at Cineplex Galaxy’s theatres. Tickets are sold at
Cineplex Galaxy’s theatres through box offices and automated ticketing machines, as
well as remotely via the telephone and, in the case of certain Cineplex Odeon theatres,
the Internet. Cineplex Galaxy also offers corporate sales, group ticketing and gift
certificates.
Concession revenues accounted for approximately 27% of Cineplex Galaxy’s
revenues for the twelve months ended December 31, 2004. Concession sales have a much
higher margin than admission sales. Cineplex Galaxy’s theatres feature prominent and
appealing primary concession stations designed for rapid and efficient service. Auxiliary
concession stations offering a wide variety of products are also located throughout many
of Cineplex Galaxy’s larger theatres for additional sales.
Ancillary Revenues
Cineplex Galaxy is continually developing and expanding its revenue streams from
sources other than box office and concession revenues. Ancillary revenues accounted for
6% of Cineplex Galaxy revenues for the twelve months ended December 31, 2004. Some
of these ancillary revenues include advertising, games revenues and other as discussed
below.
Advertising. Advertising currently represents Cineplex Galaxy’s largest source of
ancillary revenues. Cineplex Galaxy’s in-theatre advertising programs currently consist
of rolling stock and slide commercials (which are shown before feature presentations),
video monitors, display signage, third-party branding and product sampling. Cineplex
Galaxy offers advertisers a variety of packages that include options such as on-screen and
in-lobby advertising, as well as third-party branding and product sampling. In-theatre
advertising generates high margins because it utilizes existing theatre assets and
personnel with minimal incremental capital and operating costs. Cineplex Galaxy also
acts as an agent on a commission basis for selling in-theatre advertising for several other
theatre exhibition circuits. Management believes that the concentration of Cineplex
Odeon theatres in major metropolitan markets and Cineplex Galaxy’s role as an agent for
other exhibitors in Canada provides an attractive platform for advertisers by allowing
30
ITEM 3
Business of Onex
them to target a large and desirable customer base. The addition of digital delivery and
projection technologies will further improve the quality of the media that Cineplex
Galaxy offers for sale to advertisers, enable Cineplex Galaxy to streamline the delivery of
advertising content, allow for more interactive and targeted marketing and an expanded
advertising base. Cineplex Galaxy will install this technology in 21 Toronto-extended
market area theatres in the first half of 2005. In-theatre advertising is more broadly used
by advertisers in many international markets than it is in Canada. For example, in-theatre
advertising spending as a proportion of all advertising expenditures is three times higher
in Europe than in Canada. Management believes that Canadian advertising sales will
grow as in-theatre media becomes more accepted and new technologies emerge.
Games revenue. Cineplex Galaxy’s theatre experience is complemented by games rooms
featuring a broad variety of current and popular game machines. The game machines are
owned by third-party suppliers, with Cineplex Galaxy receiving a percentage of all sales.
The third parties service and rotate game machines on a regular basis.
Other. Cineplex Galaxy also generates ancillary revenues by leasing its theatres for
motion picture premieres and screenings, broadcasting sporting events, other
entertainment related events, corporate events and private parties. Some of Cineplex
Galaxy’s theatres have earned reputations as the “preferred” theatres for these events
within their markets. Other sources of ancillary revenues include management fees (for
booking and operating non-owned theatres) and fees from ATMs located in theatre
lobbies. Cineplex Galaxy also has promotional partnerships, which enhance its marketing
capabilities. The company is continually exploring additional ancillary revenue
opportunities.
Cineplex Galaxy employs approximately 3,953 people, of which are approximately 9.5%
are full-time employees and approximately 90.5% are part-time employees.
Approximately 7% of Cineplex Galaxy’s employees are represented by unions.
Cineplex Galaxy is one of the leading theatre exhibitors in Canada and owns, operates or
has an interest in 775 screens in 86 theatres in six provinces. The Canadian circuit holds
approximately 32% of the total theatre exhibition market in Canada, and more than 90%
of the Canadian theatres are located in the top ten Canadian DMAs.
31
ITEM 3
Business of Onex
The theatre exhibition industry is highly competitive. Cineplex Galaxy believes
that the principal competitive factors in the industry are:
a) the ability to secure appropriate film product on favourable licensing terms;
b) the seating capacity, location, quality and reputation of an exhibitor’s
theatres;
c) the quality of projection and sound equipment at an exhibitors theatres;
d) the level of customer service and amenities such as stadium seating; and
e) the ability and willingness to promote the films to be exhibited.
Cineplex Galaxy theatres are subject to varying degrees of competition in the
locations in which they operate because its competitors vary substantially in size, number
and proximity in each location. The building of new theatres or the addition of screens to
existing theatres by competitors in areas in which Cineplex Galaxy has theatres may
result in excess capacity in those areas that could reduce Cineplex Galaxy’s attendance
levels. In addition to competing for patrons at its existing theatres, Cineplex Galaxy also
faces competition in acquiring and developing new theatre sites and acquiring theatre
circuits. However, we believe that in Cineplex Galaxy’s core markets, its prominent
presence, the resulting operating efficiencies and the expertise it derives will continue to
provide a competitive advantage over many of its competitors in those markets.
In addition to other exhibitors, the theatre exhibition segment competes for the
public’s leisure time and disposable income with alternative forms of entertainment, such
as sporting events, music concerts, live theatre and restaurants. Theatres also compete
with a number of secondary movie distribution channels, such as cable and satellite
television, DVDs and videocassettes, as well as pay-per-view services and downloads
and delivery services via the Internet.
32
ITEM 3
Business of Onex
Properties
Cineplex Galaxy
The table below shows the locations, size and number of screens as at December 31,
2004.
Cineplex Odeon Theatres
Alberta
British Columbia
Manitoba
Ontario
Quebec
Saskatchewan
Total
Galaxy Theatres
Screens
Theatres
Screens
Theatres
109
53
8
265
136
21
592
10
7
1
28
15
3
64
20
8
—
99
34
22
183
2
1
—
12
4
3
22
The Partnership owns three theatres, leases 76 theatres independently and leases
seven theatres with joint venture partners. In general, the Partnership leases theatres
under long-term leases, with original terms typically ranging from 15 to 20 years (with
lease payment increases typically every five years) and containing various renewal
options, usually in intervals of five to ten years and, in some cases, termination rights.
Leases for 24 theatres expire within five years (20 of which have renewal options). The
Partnership’s theatre leases generally provide for minimum rental payments. The leases
for several of the Cineplex Odeon theatres which were renegotiated during COC’s
restructuring provide both the tenant and the landlord the right to terminate the lease by
providing notice, in some cases only upon the occurrence of certain events beyond the
Partnership’s control. However, at the majority of these locations, the Partnership owns
the equipment at the theatre, which would make it economically difficult for a landlord to
bring in a new theatre tenant.
33
ITEM 3
Business of Onex
(continued)
Automotive Products Segment
In 1989, Onex formed a partnership with Hidden Creek Industries for the purpose of
building an automotive OEM supply business. The Automotive Products segment
currently consists of the businesses of J.L. French Automotive Castings, Inc. (“J.L.
French”), based in Sheboygan, Wisconsin; Performance Logistics Group, Inc. (“PLG”),
based in Wayne Michigan; and Commercial Vehicle Group, Inc. (“CVG”), headquartered
in New Albany, Ohio.
At December 31, 2004, Onex owned (on an undiluted basis) 77% of J.L. French,
26% of PLG, and 24% of CVG. J.L. French was acquired in April 1999, PLG was
acquired in December 1999, and CVG is comprised of 3 separate acquisitions; Trim
Systems, which was acquired in October 1997, Commercial Vehicle Systems, which was
acquired in March 2000, and Bostrom, which was acquired in October 2000. Onex’
interests in these companies are managed through an industrial acquisition partnership,
Hidden Creek Industries of Minneapolis, Minnesota. Automotive Industries Inc., based in
Rochester Hills, Michigan and Dura Automotive, based in Rochester Hills, Michigan,
were also part of this segment until their sales in mid-August 1995 and April 2004,
respectively.
J.L. French is a leading designer and manufacturer of aluminum die-cast components and
assemblies for the global automotive market. The company’s primary product offerings
include engine- and drive train components and assemblies such as oil pans, engine front
covers, transmission cases and various other aluminum die-cast components. J.L.
French’s principal customers include Ford, General Motors and Tier 1 automotive
suppliers.
PLG is a leading provider of automotive transport and logistics services with
operations in 23 states, primarily in the southwest and midwestern regions of the United
States. Its principal customers are Ford and DaimlerChrysler.
CVG, which was formed following the merger of Trim Systems and Bostrom, is
a leading supplier of interior systems, vision safety solutions and other cab-related
products to the global commercial vehicle market and other specialized transportation
markets.
J.L. French
In April 1999, Hidden Creek and Onex completed their first acquisition in the aluminum
die-cast components segment of the automotive market. J.L. French is a leading designer
and manufacturer of aluminum die-cast components and assemblies whose customers
include Ford, General Motors and Tier 1 suppliers. Onex invested $118 million of the
$257 million total common equity for a 45% interest in the company.
34
ITEM 3
Business of Onex
Automotive Products Segment (continued)
In August 1999, J.L. French completed the asset acquisition of Inyecta Alum, a
manufacturer of die-cast automotive components in Saltillo, Mexico. The total purchase
price was approximately $22 million and was financed with borrowings under J.L.
French’s senior credit facility.
In October 1999, J.L. French acquired all of the outstanding common stock of
Nelson Metal Products Company (“Nelson”) for approximately $258 million. Nelson,
which had manufacturing facilities in Grandville, Michigan and Glasgow, Kentucky,
manufactures aluminum die-cast components for the automotive industry, principally
General Motors and Ford. The purchase price was financed with $15 million of cash on
hand, $148 million of borrowings under J.L. French’s amended senior credit facility,
$44 million of borrowings under a convertible subordinated note and $52 million of
additional common equity. Onex contributed $28 million of the additional equity to
maintain its 45% ownership. In May 2003, the Grandville, MI facility was closed and is
being held for sale.
In March 2000, J.L. French purchased Michigan-based Shoreline Industries, Inc.,
a manufacturer of high pressure aluminum die-cast parts for automotive OEMs, for a total
purchase price of $9 million. This purchase was financed with J.L. French's cash on hand.
In November 2000, J.L. French issued $95 million of Class P Preferred shares, of
which Onex acquired $41 million.
In December 2002, J.L. French completed a US$190 million financing
transaction. Onex contributed about US$10 million. A portion of this amount,
approximately US$1 million, was made as an investment in the company’s equity. Onex’
share of this was approximately US$0.6 million, which increased Onex’ ownership
interest in J.L. French from 37% to approximately 56%.
In August 2004, J.L. French completed a US$630 million financing transaction.
The new financing consisted of a US$465 million first lien and second lien credit facility,
US$164 million preferred stock issuance and a US$1 million common stock issuance.
The proceeds were used to retire J.L. French’s former senior and second lien credit
facilities and to repurchase a majority of its outstanding senior subordinated notes. The
refinancing substantially improved J.L. French’s financial flexibility.
In connection with the refinancing, Onex invested a total of US$39 million and
increased its ownership percentage of J.L. French from 56% to 77%.
Onex believes that the company’s unrealized value as at December 31, 2004 is
less than the total cost of the equity investment over time.
J.L. French
($ millions)
2004
2003
Revenues
$691
$732
35
ITEM 3
Business of Onex
Performance Logistics Group
In December 1999, for an initial investment of $19 million, Onex acquired a 62% stake in
Performance Logistics Group ("PLG"), which was formed to acquire Hadley Auto
Transport. Hadley was a leading provider of automotive transport and logistics services
in North America to a variety of automotive OEMs. Other equity investors contributed
$10 million to PLG at the time of this acquisition; the balance of the purchase price was
provided by bank financing and is without recourse to Onex.
In May 2000, PLG acquired E. and L. Transport Company, a leading provider of
automotive transport and handling services in the midwest United States, for a total
purchase of price of $134 million. The purchase was financed with $104 million of thirdparty financing, which is without recourse to Onex, and the issuance of $30 million in
PLG shares. Onex invested $13 million as part of the offering.
In March 2004, PLG acquired Leaseway Auto Carrier Group from Penske Truck
Leasing Co., L.P. in a share-exchange transaction. As part of this acquisition, PLG issued
additional shares, which diluted Onex’ ownership in PLG to 26 percent from 50 percent
and at which time Onex ceased to have voting control of the company.
Commercial Vehicle Group, Inc.
In October 1997, Hidden Creek and Onex completed their first acquisition of a supplier
to the heavy-truck segment of the automotive market. Hidden Creek and ASC
Incorporated, a Detroit-based designer and manufacturer of automotive components,
formed a joint venture to acquire Trim Systems, LLC. Trim Systems was one of the
leading suppliers of heavy truck interior systems, with customers such as Freightliner,
and PACCAR and Volvo. Onex invested $5 million of the $11 million in common
equity. The balance of the purchase price was provided by third-party debt financing of
Trim Systems.
In November 1997, Trim Systems completed the acquisition of the heavy-truck
division of Illinois-based Landmark Industries (“Landmark”). Landmark was a leading
supplier of interior trim components to the heavy-truck OEMs, principally the Kenworth
division of PACCAR. Onex invested $3 million of the $6 million in common equity. The
balance of the purchase price was provided by third-party borrowings of Trim Systems,
which are without recourse to Onex.
In October 1998, Trim Systems acquired Tempress, Inc. (“Tempress”), a Seattlebased manufacturer of heavy truck interior components. Tempress’ customers included
Freightliner, PACCAR and Volvo. Onex invested approximately $4 million of the
$9 million in common equity. The balance of the purchase price was provided by thirdparty borrowings, which are without recourse to Onex. In October 1999, Onex invested
additional equity of $2 million in Trim Systems that increased Onex’ ownership to 34%.
In June 2001, Onex acquired additional shares of Trim Systems for a nominal
amount, increasing its ownership to 77% and as part of that transaction also acquired a
third of Trim Systems’ senior credit facility for $11 million.
36
ITEM 3
Business of Onex
In March 2000, Onex acquired a 45% equity interest in Commercial Vehicle
Systems, Inc. (“CVS”) for an initial investment of $17 million. CVS was a supplier of
wiper, mirror and control systems for the North American medium- and heavy-truck
markets. The balance of the $125 million purchase price was provided by other equity
investors and bank financing, which is without recourse to Onex.
In October 2000, Onex and Hidden Creek acquired a 52% interest in Bostrom
plc, a manufacturer and assembler of seat systems for the North American and European
heavy-truck and large equipment markets. The total purchase price was $123 million, of
which $72 million came from third-party borrowings, which are without recourse to
Onex and $51 million was raised through the issuance of Bostrom plc equity. Onex
invested $26 million in the equity and has voting control of Bostrom plc. Bostrom plc
operates in the U.S. as National Seating and in Europe as KAB Seating
In March 2003, CVS merged with Bostrom to form Bostrom Holding, Inc.
(“Bostrom”).
In early August 2004, the operations of Bostrom and Trim Systems were merged
to form Commercial Vehicle Group, Inc. (“CVG”). CVG became a leading supplier of
interior systems, vision safety solutions and other cab-related products for the global
commercial vehicle market, including the heavy-duty (Class 8) truck market, the
construction market and other specialized transportation markets. The company's
products include suspension seat systems, interior trim systems, such as instrument and
door panels, headliners, cabinetry and floor systems, mirrors, wiper systems, controls and
switches specifically designed for applications in commercial vehicle cabs. CVG
subsequently completed a $180 million initial public offering in late August. As part of
that offering, Onex sold some of its CVG shares, receiving $54 million in net proceeds.
In addition, Onex received approximately $27 million on the repayment of debt held by
the Company. As a result of the offering and sale of shares, Onex’ equity ownership in
CVG was reduced from 55 percent to 24 percent, and Onex ceased to have voting control
of the company at that time.
In December 2004, Onex and the HCI management team agreed to end our
formal partnership as Onex’ holdings in the automotive sector were significantly reduced.
HCI management will continue to be involved with Onex’ holdings, but they will also be
free to provide advice to other private equity firms and investors who can make the best
use of their expertise in building value of smaller organization.
J.L. French
J.L. French primarily supply parts and/or assemblies to North American and European
OEMs for selected car and light truck models. J.L. French’s principal products are highly
engineered, value-added assemblies, consisting of machined aluminum die-cast
components and various fastened parts. The primary product offerings include engine and
drive train components and assemblies such as oil pans, engine front
37
ITEM 3
Business of Onex
covers, transmission cases, cam covers, ladder frames, timing chain housings and water
pump housings. J.L. French’s principal raw material is aluminum.
J.L. French has approximately 2,700 employees and none of these employees are
covered by collective bargaining agreements.
Senior officers of J.L. French are ultimately responsible for ensuring compliance
with Onex’ environmental protection policy. Management for J.L. French believes its
present operations meet current environmental protection requirements. With its
acquisition of Nelson, J.L. French has been obligated to remedy contamination at a
facility formerly operated by Nelson; prior to the acquisition, the clean-up costs were
estimated to be about $0.4 million. J.L. French has retained an environmental consultant
to investigate the facility and prepare a plan detailing the necessary work and an estimate
of the cost of completing the cleanup. The former stockholders of Nelson have agreed to
indemnify J.L. French for 85% of the losses arising out of these issues, to the extent such
losses exceed $0.4 million.
Ford, DaimlerChrysler and General Motors make up 59% of the North American
automotive and light truck market; operations of Japanese companies and other foreign
manufacturers have captured approximately 41% of this market, according to Ward’s
Automotive Reports. For the year ended December 31, 2004, approximately 83% of J.L.
French’s 2004 revenues were derived from two customers, Ford and General Motors.
J.L. French has long-standing supply relationships with OEM customers and
strong reputations for quality, delivery and service. J.L. French is typically a sole supplier
for over 95% of OEM requirements for the specific products manufactured by them.
Purchase orders to supply parts for cars depend on market demand for specific
models. When J.L. French is given orders, the OEM indicates its planned volume of
production, but such plans do not guarantee a minimum number of pieces. Purchase
orders, however, are generally effective for the life of the automotive line, which results
in ongoing and profitable production runs for successful models. Revenues for each part
are dependent on the total number of respective car units produced by OEMs.
The companies operate in a highly competitive environment. The primary factors
for competitive success are price, product quality, delivery performance and engineering
support. All companies, in the view of their management, are acknowledged to be among
the industry leaders on these measures and have been given high quality ratings by major
OEM customers for substantially all of their operating plants.
J.L. French’s major competitors are Ryobi Die Casting (USA), Inc., Honsel
International Technologies, Toralcast, Bocar/Auma and Teksid, as well as the internal
aluminum casting operations of General Motors and DaimlerChrysler.
J.L. French typically experiences decreased revenues and operating income
during the third calendar quarter of each year. This typically results from model year
changeovers by the OEMs.
38
ITEM 3
Business of Onex
Properties
The location, size and nature of the ownership of the respective company’s facilities as at
December 31, 2004 are summarized as follows:
J.L. French
J.L. French’s corporate office is located in Sheboygan, Wisconsin. Its principal facilities
are as follows:
Location
Type
Sheboygan, Wisconsin (2 facilities)
Die-Casting and
Machining Plant
Machining and
Die-Casting Plant
Warehouse
Die-Casting Plant
Die-Casting Plant
Machining Plant
Warehouse
Die-Casting Plant
Die-Casting Plant
Die-Casting Plant
Die-Casting Plant
Die-Casting Plants
Benton Harbor, Michigan
Grandville, Michigan
Glasgow, Kentucky
(1)
Witham, England
Presteigne, Wales
Cheshunt, England
San Andres de Echevarria, Spain
(1)
Saltillo, Mexico (2 facilities)
Square Feet
Owned/Leased
411,000
Owned
50,000
10,000
224,000
175,000
172,000
108,000
328,000
136,000
44,000
171,000
147,000
Leased
Leased
Owned
Owned
Leased
Leased
Owned
Owned
Leased
Owned
Owned
(1) The Grandville, MI and Saltillo, Mexico facilities are being held for sale
The company also has sales and service offices located in Ashland, Ohio; Novi,
Michigan; Indianapolis, Indiana; Bridgend, Wales; Valencia, Spain; Cologne and
Düsseldorf, Germany.
Utilization of J.L. French’s facilities varies with North American and European
light vehicle production. All locations are principally used for manufacturing. The
Sheboygan, Wisconsin facilities also include the operating headquarters. All properties in
the United States and 65% of the equity of the United Kingdom, Spanish and Mexican
subsidiaries are pledged as collateral to secure the repayment of the senior credit facility.
The die-casting facility in Glasgow, Kentucky is financed through approximately
$1.6 million of industrial revenue bonds, which were issued to Glasgow/Barrien County
Industrial Development Economic Authority. To secure repayment of these bonds, J.L.
French has transferred title of this facility to Glasgow/Barrien County, which leases back
the facility to J.L. French. Upon the final lease payment on November 1, 2006, J.L.
French has the right to purchase this property from Glasgow/Barrien County for $1.00.
39
ITEM 3
Business of Onex
(continued)
Healthcare Segment
The Healthcare segment consists of the operations of Magellan Health Services, Inc.
(“Magellan”) and its subsidiaries, Res-Care, Inc. (“ResCare”), Center for Diagnostic
Imaging, Inc. (“CDI”) and its subsidiaries, and EMS with its subsidiaries, American
Medical Response, Inc. (“AMR”) and EmCare Holdings, Inc. (“EmCare”).
Magellan
Magellan is the leading managed behavioral healthcare organization in the United States.
Magellan coordinates and manages the delivery of behavioral healthcare treatment
services that are provided through its contracted network of third-party treatment
providers, which includes psychiatrists, psychologists and other behavioral health
professionals. Magellan’s managed behavioral healthcare network also includes
contractual arrangements with certain third-party treatment facilities. The treatment
services provided through these provider networks include outpatient programs (such as
counseling or therapy), intermediate care programs (such as intensive outpatient
programs and partial hospitalization services), inpatient treatment and crisis intervention
services. Magellan provides these services primarily through: (i) risk-based products,
where Magellan assumes all or a portion of the responsibility for the cost of providing
treatment services in exchange for a fixed per-member, per-month fee; (ii) Administrative
Services Only ("ASO") products, where Magellan provides services such as utilization
review, claims administration and/or provider network management; (iii) Employee
Assistance Programs ("EAP"); and, (iv) products that combine features of some or all of
Magellan's risk-based, ASO, or EAP products.
On January 5, 2004, Onex completed the purchase of its equity investment in Magellan
following Magellan’s emergence from bankruptcy, which had commenced on March 11,
2003. Onex’ net cash investment was $131 million for an approximate 24% ownership
interest in Magellan and 50% voting interest. The investment in Magellan was completed
through Onex Partners LP (“Onex Partners”). Onex’ share of this investment was $30
million for an approximate 6% ownership interest. Onex controls the general partner of
Onex Partners and thus controls Magellan. Onex is an approximately 24% limited partner
in Onex Partners.
Magellan provides managed behavioral healthcare services to managed care companies,
health insurers, health plans, corporations, labor unions and various governmental
agencies. Within the managed behavioral healthcare business, Magellan operates in the
following four segments, based on the services it provides and/or the customers that it
serves, as described below:
40
ITEM 3
Business of Onex
Healthcare Segment (continued)
Health Plan Solutions
Magellan’s Health Plan Solutions segment provides managed behavioral healthcare
services primarily to beneficiaries of managed care companies, health insurers and other
health plans. This segment’s contracts encompass both risk-based and ASO contracts.
Although certain health plans provide their own managed behavioral healthcare services,
many health plans “carve out” behavioral healthcare from their general healthcare
services and subcontract such services to managed behavioral healthcare companies such
as Magellan. In the Health Plan Solutions segment, Magellan's members are the
beneficiaries of the health plan (the employees and dependents of the customer of the
health plan), for which the behavioral healthcare services have been carved out to
Magellan.
Employer Solutions
Magellan's Employer Solutions segment generally reflects the provision of EAP services,
managed behavioral healthcare services and integrated products under contracts with
employers, including corporations and governmental agencies, and labor unions. This
segment’s managed behavioral healthcare services are primarily ASO products.
Public Sector Solutions
Magellan’s Public Sector Solutions segment generally reflects managed behavioral
healthcare services provided to Medicaid recipients under contracts with state and local
governmental agencies. This segment’s contracts encompass both risk-based and ASO
contracts. Public Sector Solutions risk contracts generally have higher per-member
premiums, cost and (to some degree) more volatility than either the Health Plan Solutions
and Employer Solutions segments due to the nature of the populations served, benefits
provided and other matters.
Corporate and Other
This segment of Magellan is composed primarily of operational support functions such as
sales and marketing and information technology as well as corporate support functions
such as executive, finance human resources and legal.
Magellan’s business is highly competitive. Magellan competes with other managed
behavioral healthcare organizations as well as with insurance companies, health
maintenance organizations (“HMOs”), preferred provider organizations (“PPOs”), thirdparty administrators (“TPAs”), independent practitioner associations (“IPAs”), multidisciplinary medical groups and other managed care companies. Many of Magellan’s
competitors, particularly certain insurance companies and HMOs, are significantly larger
and have greater financial, marketing and other resources than Magellan, and some of
Magellan's competitors provide a broader range of services. Magellan may also encounter
competition in the future from new market entrants. In addition, some of Magellan's
41
ITEM 3
Business of Onex
customers that are managed care companies may seek to provide managed behavioral
healthcare services directly to their subscribers, rather than by contracting with Magellan
for such services.
Magellan believes it benefits from the competitive strengths described below:
Industry Leadership
Magellan believes that it is the largest provider of managed behavioral healthcare
services in the United States, consistent with the enrollment data reported in an industry
trade publication entitled “Open Minds Yearbook of Managed Behavioral Health Market
Share in the United States 2002-2003” published by Open Minds, Gettysburg,
Pennsylvania (hereinafter referred to as “Open Minds”). Based on data reported in Open
Minds, Magellan believes that it also has the number one market position in each of the
major managed behavioral healthcare product markets in which it competes.
Broad Product Offering and Nationwide Provider Network
Magellan offers managed behavioral healthcare products that can be designed to meet
specific customer needs, including risk-based and partial risk-based products, integrated
EAPs, stand-alone EAPs and ASO products. Magellan's managed behavioral healthcare
network consists of approximately 63,000 behavioral healthcare providers, including
professionals at all levels of care, and facilities at all points of the spectrum of behavioral
health services.
Broad Base of Customer Relationships
Magellan's customers include: (i) Blue Cross/Blue Shield organizations; (ii) national
HMOs and other mid-sized insurers; (iii) large corporations; (iv) state and local
governmental agencies; and (v) certain agencies of the federal government.
42
ITEM 3
Business of Onex
Properties
The following table summarizes the locations of Magellan as of December 31, 2004:
Location
Alaska
Arizona
California
Colorado
Connecticut
Georgia
Iowa
Illinois
Indiana
Kentucky
Maine
Maryland
Massachusetts
Michigan
Minnesota
Missouri
North Carolina
Nebraska
New Jersey
New York
Ohio
Pennsylvania
Puerto Rico
Tennessee
Texas
Utah
Vermont
Washington
Square Feet
7,045
3,317
22,936
2,939
12,063
44,045
15,720
36,211
4,334
1,624
6,201
194,106
10,610
8,798
893
310,198
1,476
4,952
58,052
5,170
31,087
117,811
2,208
24,374
33,697
101,341
1,442
1,400
Owned/Leased
Leased
Leased
Leased
Leased
Owned
Leased
Leased
Leased
Leased
Leased
Leased
Leased
Leased
Leased
Leased
Leased
Leased
Leased
Leased
Leased
Leased
Leased
Leased
Leased
Leased
Leased
Leased
Leased
As of December 31, 2004, Magellan had 44 leased facilities. The leases listed
above have varied terms ranging from 1 month to 9 years.
Center for Diagnostic Imaging
Center for Diagnostic Imaging, Inc. (“CDI”) is a premier, physician-led provider of highquality, cost-effective diagnostic and therapeutic radiology services via a network of
freestanding outpatient imaging centres across the United States. CDI currently operates
32 centres in 9 markets concentrated primarily in the central and upper midwest, with
additional markets in Florida and Washington. The majority of CDI’s centres are multimodality centres, formed in partnerships with local radiologists or hospitals. CDI
provides imaging procedures for all parts of the human anatomy with subspecialty
concentrations in six key areas: musculoskeletal, spine, head and neck, body,
neuroradiology and diagnostic and therapeutic injections (DTI).
43
ITEM 3
Business of Onex
In January 2005, Onex acquired CDI in a transaction value at approximately $225
million. Onex’ investment was $88 million for an approximate 84% ownership interest in
CDI. The investment will be completed through Onex Partners. Onex’ share of this
investment was $21 million for an approximate 20% ownership interest in the company.
As Onex controls the general partner of Onex Partners, Onex has control of CDI and is an
approximate 24% limited partner in Onex Partners.
Nearly all of CDI’s centres are multi-modality. The company’s full range of imaging
technology includes Magnetic Resonance Imaging (MRI – nearly all of which are 1.5T
high-field short-bore scanners), Computed Tomography (CT), DTI (image-guided
injections), Positron Emission Tomography (PET), Positron Emission Tomography
combined with CT (PET/CT), ultrasound, nuclear medicine, mammography, fluoroscopy,
and x-ray. This full range of technology assists CDI with offering targeted product and
service lines to more than 48 different types of referring physicians.
CDI provides (1) imaging services to patients via referring physicians and (2) imaging
partnerships and collaboration to hospitals, physicians and radiologists.
Imaging Services
CDI’s product and services lines are organized in market-oriented, radiologistchampioned business lines:
Musculoskeletal: Focused on primary care, orthopedics, orthopedic surgery and sports
medicine.
Neuroradiology: Targeted to neurology, neuroscience, neurological surgery, ENT and
primary care, these products and services include anatomical as well as functional
imaging.
Diagnostic and Therapeutic Injections (DTI): Targeted to primary
orthopedics/surgery, spine practices/surgery, sports medicine and chiropractics.
care,
PET & PET/CT: The emerging applications of Positron Emission Tomography (PET)
and PET combined with Computed Tomography (PET/CT) continue to prove clinically
valuable in the diagnosis, staging, restaging and treatment planning of various cancers
and, more recently, in neurological conditions such as Alzheimer’s disease and frontotemporal dementia.
Spine: Targets primary care, spine practices/surgery, orthopedics/surgery, sports
medicine and chiropractics.
44
ITEM 3
Business of Onex
Cardiovascular: Primary care and invasive cardiology are the primary targets for CDI’s
non-invasive cardiovascular imaging services, including mobile nuclear medicine, mobile
echo and Heart CT.
Body: CDI’s abdominal imaging products and services include a variety of CT, MR and
ultrasound applications, focused on primary care, ob/gyn, internal medicine, oncology,
urology, pulmonology, and other physician specialties associated with organs and
systems.
CDI’s diverse product and service offerings serve a broad range of referring physicians,
protecting the company from significant loss of business from too narrow a market
segment and positioning the organization for continued strategic growth locally and
nationally.
Imaging Partnerships and Collaboration
CDI sees partnerships as a critical aspect of its continued same-market and new-market
growth plans. CDI offers partnership models for three primary audiences: physician
groups, radiologists and hospitals.
Geographically, CDI’s business is currently concentrated in the central and upper
Midwest, with additional markets in central Florida and Washington State. The company
currently operates 32 outpatient imaging centres, and maintains an industry and marketleading position due to its ongoing commitment to high-quality, cost-effective
subspecialized diagnostic imaging and DTI services.
The business of diagnostic imaging is highly fragmented, locally focused and
aggressive. In addition to competition from other national and local radiology groups and
traditional hospital radiology practices, CDI faces increasing competition from physician
groups performing diagnostic imaging services in-house.
CDI has been successful in achieving continued growth via a number of strategies
with specific market segments in the geographic areas in which it operates. CDI focuses
on the following key areas of competency in growing revenues and differentiating from
the competition:
•
•
Partnership facilitation and management: New centre/new market growth via well
researched, locally-focused, collaborative, physician-centric partnerships with
hospitals, physician groups and radiologists
Market development: Same-centre and new-centre growth via business line/product
line development, alliances/partnerships, clinical communications/education, account
management
45
ITEM 3
•
•
•
Business of Onex
The CDI Institute: Subspecialty-oriented physician recruitment, collaboration and
development via robust peer review, CQI, research opportunities, payer relationship
development, and legislative relations
State-of-the-art information technology: Efficiency, productivity and market
differentiation via a sophisticated, filmless/paperless, and fully integrated scheduleto-delivery system and physician access to online reports and images; advanced
equipment and applications
Culture of excellence: Market differentiation, associate retention and industry
leadership via the “CDI Experience,” including robust safety, compliance, HIPAA
and customer service initiatives, as well as associate development, training and
recognition
Properties
The location, size and nature of CDI’s facilities are summarized as follows:
Location/Centres
Minnesota (12)
Wisconsin (3)
Florida (3)
Washington (3)
Indiana (4)
Missouri (3)
Illinois (3)
Kansas (1)
Square Feet
84,050
15,272
14,004
20,318
21,927
13,409
13,324
4,827
Owned/Leased
Leased
Leased
Leased
Leased
Leased
Leased
Leased
Leased
ResCare
In June 2004, Onex completed its $114 million equity investment in Res-Care, Inc.
(“ResCare”) for an approximate 28% interest in the company. ResCare provides
residential, therapeutic, job training and educational support to people with
developmental or other disabilities, to youth with special needs and to adults who are
experiencing barriers to employment. This acquisition was undertaken through Onex
Partners. Onex’ share of this investment was $27 million for a 7% interest in ResCare.
Emergency Medical Services, L.P.
Emergency Medical Services, L.P. (“EMS”) includes the operations of American Medical
Response, Inc. (“AMR”) and EmCare Holdings Inc. (“EmCare”) and their respective
subsidiaries.
46
ITEM 3
Business of Onex
AMR provides emergency 911 transportation services, primarily under contracts with
communities and other local governmental agencies. These services generally require
AMR to respond to 911 calls in the designated area within a specified response time
determined by the communities. AMR’s business also includes non-emergency
transportation services to patients requiring varying degrees of medical care between
healthcare facilities or between healthcare facilities and their homes. AMR provides call
centre and dispatch services, event medical services, managed transportation services and
other services to public safety agencies, hospitals, communities, fire departments and other
healthcare providers, including operating a paramedic and EMT training school. EmCare’s
principal activity is providing staffing and management services to hospital emergency
departments. Generally, EmCare is responsible for recruiting, evaluating credentials and
scheduling qualified physicians to staff the emergency departments of contracting
hospitals. EmCare also recruits and schedules physicians to provide medical care and
treatment of patients in hospital inpatient settings and provides unbundled services such as
billing, scheduling, recruitment and risk management to its customers.
In early February 2005, Onex purchased AMR and EmCare in a transaction valued at
approximately $1 billion. The purchase of these businesses was completed through
Emergency Medical Services, L.P. (“EMS”). Onex invested approximately $270 million
for an approximate 97% ownership interest. This investment was funded through Onex
Partners and certain of its limited partners, of which Onex’ initial share of that investment
was approximately $100 million for an approximate 37% ownership interest. Onex is a
24% limited partner in Onex Partners and controls the general partner of Onex Partners.
EMS provides emergency healthcare services to communities, government agencies,
private insurers, and healthcare facilities, including hospitals. EMS operates in the
following two segments based on the services provided to its customers.
Ambulance Transport Services
EMS provides emergency and non-emergency transport services through its wholly
owned subsidiary, American Medical Response, Inc. AMR provides most of its
emergency ambulance response services pursuant to contracts with counties, fire districts
and municipalities. These contracts typically appoint AMR as the exclusive provider of
emergency ambulance services in a designated service area and require AMR to respond
to every emergency medical call within that area. Contracts are typically three to five
years in length and are generally obtained through a competitive bid process. In some
instances where AMR is the existing provider, communities elect to renegotiate existing
contracts rather than initiate new bidding processes. Most emergency or 911 contracts are
granted exclusive supplier status through the issuance of a certificate of need or a public
service agreement. Some municipalities divide requirements into services zones.
47
ITEM 3
Business of Onex
Exclusive supplier status agreements are linked to service level measurements regarding
response times and performance. Most municipalities also govern set rates that may be
charged for the ambulance services. Non-emergent transport services are generally
provided through preferred provider contracts with hospitals and other healthcare
facilities and organizations and are typically two years in length. Revenue from AMR’s
contracts with communities and healthcare providers is typically collected from invoices
generated by AMR for each patient transport. In some cases, revenue is based on
negotiated fess paid periodically by the community, and patients are then billed directly
by the community.
Emergency Management Services
EMS provides emergency management services through its wholly owned subsidiary,
EmCare Holdings Inc. EmCare recruits and schedules physicians and emergency support
staff for the management of emergency departments. EmCare is the leading recruiter of
board-certified emergency medicine physicians. Their physician recruiters are trained to
identify and pre-screen all candidates and recommend the right physician for each
position. EmCare provides its services pursuant to contracts with hospitals. These
contracts are usually three years in length and are awarded on a competitive bidding
basis. Depending on contractual agreements with clients, EmCare may bill the hospitals,
the third-party payors, including patients, or a combination of both for services provided.
In all cases the hospitals are directly responsible for billing and collecting all nonphysician related services.
Market/Competition
EMS’s business is highly fragmented both in its ambulance transport services and
emergency management services markets. The ambulance transport market has more than
14,000 private, public and non-profit service providers accounting for an estimated 36
million ambulance transports in 2004. In the emergency management services market,
there are more than 4,700 hospitals in the United States that operate emergency
departments and approximately 67% of these hospitals outsource their physician staffing
and management for this department. There are more than 800 national, regional, and
local providers handling over 110 million patient visits in 2004.
EMS believes it benefits from the competitive strengths described below:
Industry Leadership
EMS is a leading provider of emergency medical services in the United States. AMR’s
net revenue is more than twice that of its only national competitor. EmCare has 32%
more emergency department staffing contracts than its principal national competitor. This
leading position affords EMS the opportunity to participate and effectively compete in
the bidding process for substantially all new 911 ambulance service and emergency
department outsourcing contracts.
48
ITEM 3
Business of Onex
Significant Scale and Geographic Presence
EMS believes its scale and geographic presence provide competitive advantages in
employee recruitment and retention, national contracting and preferred provider
relationships, cost efficiencies, and broad service offerings. These benefits will allow
EMS to lower costs associated with employee turnover and increase customer
satisfaction, enable EMS to enter into national and regional contracts with managed care
organizations and insurance companies, and provide high quality service offerings to our
customers at competitive rates.
Significant Investment in Core Technologies
EMS utilizes technology as a means to differentiate the quality and reduce the cost of our
service offerings. AMR’s proprietary electronic patient care record, or e-PCR, technology
enables them to eliminate the use of manual patient records by replacing them with
electronic records. AMR’s Millennium software enables them to integrate medical
protocol, managed care criteria and local logistics to improve response-time and cost
efficiency. EmCare uses a proprietary system which links billing, collection, recruiting,
scheduling, credentials coordination, and payroll functions allowing best practices and
procedures to be delivered and implemented nationwide, while retaining the familiarity
and flexibility of a regionally-based service provider.
Broad Base of Customer Relationships
EMS’s long-standing customer relationships, significant portion of revenue under
contracts, and customer and geographic diversity provide us with a stable revenue base.
EMS has developed strong relationships with some of the largest and most respected
providers in the healthcare services industry. AMR and EmCare have maintained their
relationships with their ten largest customers for an average of 33 and 11 years,
respectively.
49
ITEM 3
Business of Onex
Properties
The following table summarizes the locations of EMS:
State
Alabama
California
Colorado
Connecticut
Florida
Georgia
Hawaii
Indiana
Iowa
Kansas
Louisiana
Maine
Massachusetts
Michigan
Mississippi
Missouri
Montana
Nevada
New Hampshire
New Mexico
New York
North Carolina
Ohio
Oklahoma
Oregon
South Carolina
South Dakota
Texas
Virginia
Washington
Wyoming
50
Total Sq Ft
32,100
749,253
65,434
135,400
75,746
73,037
29,363
32,443
2,850
25,300
21,600
1,200
184,820
108,475
40,696
13,650
29,650
40,111
1,800
6,220
92,600
1,904
54,368
1,300
73,592
8,750
2,275
83,426
20,000
118,508
2,175
Total Properties
4
238
9
11
23
5
23
4
2
7
7
3
24
8
5
1
5
12
4
3
2
1
8
2
28
1
1
24
1
44
2
Leased/Owned
Leased
Leased/Owned
Leased/Owned
Leased
Leased
Leased
Leased
Leased
Leased
Leased/Owned
Leased
Leased
Leased/Owned
Leased/Owned
Leased
Leased
Leased
Leased/Owned
Leased
Leased
Leased
Leased
Leased
Leased
Leased
Leased
Leased
Leased/Owned
Leased
Leased/Owned
Leased
ITEM 3
Business of Onex
(continued)
Communications Infrastructure Business
The Communications Infrastructure business consists of the business of Radian
Communication Services Corporation and its subsidiaries (“Radian”).
Radian is a leading North American communications infrastructure and integrated
network services company to the telecommunications and broadcast industries. Radian’s
services include: wireless network design, installation, management and optimization,
tower engineering, manufacturing and broadcast systems. Rapid, efficient deployment of
infrastructure across large numbers of geographically dispersed sites requires specialized
coordination and management skills, operational scale, and depth of experience. Radian’s
deployment expertise ranges from stand-alone projects - such as a broadcast facility to
large network deployment on a nationwide basis for wireless communications systems.
The communications infrastructure segment of the telecommunications industry
has been hit disproportionately hard by the economic downturn of the past three years,
uncertainty arising from pending mergers (Cingular and AWS) as well as litigation over
spectrum. These events – now concluded with the regulatory approval of the Cingular
and AWS merger and resolution of the spectrum cases - have tempered spending in 2004
but created optimism for increased capital spending in 2005. Nevertheless, these carriers
remain under pressure to add infrastructure that will accommodate more subscribers
using more minutes on cellular telephones and other wireless devices driven by
aggressive marketing and pricing campaigns.
In January 2001, Onex formed Radian with the purchase of LeBlanc Ltd. and BMS
Communications Services Ltd. The total purchase price of $88 million was raised
predominately through the issuance of equity of Radian, including $15 million from prior
shareholders. Onex invested $63 million for a 71% ownership interest.
In December 2001, Radian issued 10 million preferred shares that raised
$10 million, which was used to develop Radian’s operating infrastructure. Onex acquired
all of the preferred shares, thus increasing its ownership interest in Radian to 73%.
In January 2002, Radian raised $3.8 million through the issuance of 4.2 million
common shares to employees. These funds were used to pay down bank debt.
In December 2003, Radian acquired all of the assets related to the tower and
tower accessory manufacturing operations of ROHN Industries, Inc. for cash of $10.4
million. This line of products, which includes light-weight towers, hollow-leg towers,
tapered monopoles, masts and antenna mounts for the wireless telecommunications,
lighting, wind power and utility transmission/distribution sectors, complements Radian’s
extensive line of towers and tower accessories. Onex funded this purchase under a
promissory note facility that Onex has established with Radian.
51
ITEM 3
Business of Onex
Communications Infrastructure Business (continued)
In February 2004, Radian completed a $12.5 million equity financing from
existing shareholders through the issuance of 12.5 billion shares. The proceeds from this
financing were used to repay the $10.4 million of principal plus interest outstanding
under the promissory note with Onex, and to fund integration costs and working capital
requirements for the acquisition of the ROHN assets.
Based on Radian’s recent financial performance and the current unfavourable
market for wireless infrastructure services, Onex believes the company’s unrealized value
at December 31, 2004 was less than the cost of the investment.
($ millions)
Revenues
2004
$113
2003
$108
Radian has the scale, speed and scope of services to deliver a fully integrated field and
network deployment solution. Its services include project management, network and
system hosting, tower services, aerial services, wireless engineering services, wireless
field deployment, and broadcast services. Radian is an ISO 9001: 2000 registrant for its
engineering group, manufacturing facility and wireless services capabilities. The
company’s engineering group and manufacturing facility also hold the American Institute
of Steel Construction (AISC) certification for Complex Structures as well as the
Canadian Welding Bureau (CWB) Accreditation. Radian’s Oakville, Ontario
manufacturing facility is the only tower manufacturing facility in North America to be
both ISO 9001:2000 and AISC certified.
Radian’s services are available either individually or as complete solutions,
enabling customers to outsource the entire delivery of communications infrastructure
and/or services.
Project Management
Timely delivery of major, geographically distributed infrastructure projects depends on a
disciplined, rigorous project management process. From initial planning, design and
construction, through deployment, operation, and maintenance, Radian applies project
management best practices backed by high-quality information systems.
52
ITEM 3
Business of Onex
Tower Services
Radian is a leading manufacturer of communication towers. Services include engineering
design, manufacturing, installation and maintenance of all types of communication
towers such as PCS, Cellular, Microwave, Broadcast, and Trunked Radio Systems. Each
guyed, self-supporting, monopole or aesthetic configuration is designed to meet specific
customer requirements and prevailing codes. Restoration services stand ready to rapidly
erect and deploy communications structures in times of emergency.
Aerial Services
Aerial services include supply, installation and testing of antennas, transmission lines,
antenna orientation, antenna and line inspection, antenna and line verification, rooftop
installations, tenant improvements and co-location of installations.
Wireless Engineering / Technical Services
Radian offers engineering and technical services for the design and deployment of
communication networks for both telecom carriers and equipment vendors. These
services include: consulting, project management, site qualification and acquisition,
network design, microwave transmission engineering, equipment engineering,
installation, commissioning and coverage optimization surveys. Radian also provides
outsourced maintenance services.
Broadcast Services
Radian offers new structural installations, upgrades or modifications to existing broadcast
facilities. Services include design, manufacture and installation of guyed and selfsupported towers, and antenna systems for AM/FM radio and television broadcast
systems. These services are offered as standalone components or full turnkey solutions.
Markets & Competition
Radian competes in four major market segments: Carriers/OEM, Broadcast, Government,
and Enterprise.
Carriers/OEMs
The wireless industry is driven by the number of subscribers and their usage of the
network, both of which have risen dramatically in recent years despite declining levels of
network spending by wireless carriers. Infrastructure service providers such as Radian
compete based on their deployment skills and ability to integrate various technologies to
meet the service providers’ needs.
The wireless industry as a whole is experiencing significant growth for several reasons:
•
The number of wireless users continues to grow annually;
53
ITEM 3
Business of Onex
•
The average user is increasing his minutes of use – expected to rise by 51% by the
end of 2006; and
•
While the industry continues to develop new wireless data applications, coverage and
voice quality remain key competitive differentiators, as these services comprise the
bulk of revenues to carriers. This will be particularly evident post the Cingular AWS
merger.
Wireless service providers, facing serious competitive pressures, are responding to the
above trends with a customer-centric approach that focuses on:
•
Speed to market for the new services;
•
Acquisition of new spectrum and the efficient deployment of the high frequency
radio networks necessary to support the delivery of the new products and services;
and
•
More effective utilization of their human and financial capital to achieve the
operational performance necessary to attract capital and to retain and increase clients.
As a result of the competitive pressures affecting the wireless service providers, the
implications for the infrastructure providers such as Radian are the following:
•
Deployment of new technology supporting the carriers’ need to satisfy the
user/subscriber growth and needs.
•
Consolidation of infrastructure companies to achieve the scale and scope necessary
to satisfy the requirements of their service provider clients.
•
Outsourcing of the development and management of network infrastructure by both
existing and new service providers allowing them to focus their human and financial
capital on their customers and not infrastructure.
The wireless infrastructure industry in North America is fragmented and small in terms of
absolute total revenues. The industry is led by a few, relatively large public companies
that provide a full range of network infrastructure services and includes smaller
competitors that provide a specific service only.
The design, construction and operation of a wireless network requires a range of very
specific skills in the following areas:
•
•
•
•
•
54
Site acquisition
Site/tower design
Project management
Site tower construction
Network design
•
•
•
•
•
Network installation
Network software
Network optimization
Site management
Network management
ITEM 3
Business of Onex
In the broader North American context, the major competitors can be divided along five
business groupings:
•
•
•
•
•
Service and Network Companies (Baran (formerly o2 Wireless), Westower, SPX)
General Contractors (Bechtel, General Dynamics)
OEMs (Nortel, Lucent, Ericsson, Alcatel)
Wireless Carriers In-house Staff; and
Tower Consolidators (Crown Castle, American Tower, SBA)
Radian provides the following services in this market segment:
•
•
•
Site acquisition
Site/tower design
Project management
•
•
•
Network installation
Site/tower construction
Site management
Broadcast
The United States is currently in the midst of the transition to digital television (“DTV”)
as mandated by the Federal Communications Commission (“FCC”). In an August 2004
announcement, the FCC hastened the completion of this transition by requiring that all
commercial stations (e.g. networks) complete the transition by July 2005 and all noncommercial stations (e.g. PBS) by July 2006. Although a large number of stations have
shifted to digital, the majority of those have done so with a low power transmitter and
antenna systems. These systems will need to be replaced by high power transmission
over the next two years to ensure FCC compliance.
Radian provides the following services in this market:
•
•
•
•
Tower engineering, fabrication &
installation
System engineering & design
VSWR optimization
Antenna repair
•
•
•
•
•
Equipment supply and installation
Structure reinforcement
Antenna troubleshooting
Inspection and maintenance
Emergency restoration services
Major competitors in this segment include:
•
•
•
•
Manufacturers (ERI, Kline)
Tower Consolidators (Crown Castle, SpectraSite, American Tower)
In-house Engineering Staffs
Broadcast OEMs
55
ITEM 3
Business of Onex
Government
Emergency services and governments are large users of radio communications systems.
Budgetary pressures are focusing their resources on core operations. Telecommunications
outsourcing is a method often used to reduce costs. Many of these services have
substantial radio assets, including attractive tower sites that can be used by commercial
operators to generate site sharing and management revenue.
Major competitors in this segment include:
•
•
•
•
General contractors
Service companies
Engineering consultants
OEMs
Staffing
Radian currently employs 600 non-unionized employees in Canada and the United States.
Properties
The location, size and nature of ownership of Radian’s facilities as at December 31, 2004
are summarized as follows:
Location
Oakville, ON
Nisku, AB
St. Hubert, QC
Langley, BC
Truro, NS
Winnipeg, MB
Oakville, ON
Richmond, BC
Saskatoon, SK
Edmonton, AB
Calgary, AB
Mississauga, ON
Peoria, IL
Vacaville, CA
Orange, CA
Bothell, WA
Syracuse, NY
Richardson, TX
Tampa, FL
Las Vegas, NV
Square Feet
58,600
8,800
9,500
4,700
6,200
4,500
6,330
6,000
3,200
10,000
2,250
6,018
131,950
8,280
10,000
7,875
4,000
6,415
3,200
4,000
Owned/Leased
Owned
Owned
Owned
Owned
Owned
Owned
Owned
Leased
Leased
Leased
Leased
Leased
Leased
Leased
Leased
Leased
Leased
Leased
Leased
Leased
All locations are principally used for sales, installation and service. The Oakville, Ontario
and Peoria, Illinois locations are used for manufacturing. The Oakville, Ontario
manufacturing and the Richardson, Texas facilities include the corporate head offices.
Substantially all of the assets of Radian are pledged as security for the borrowings of
Radian.
56
ITEM 3
Business of Onex
(continued)
Personal Care Products Business
The Personal Care Products Business consists of the operations of Cosmetic Essence, Inc.
and its subsidiaries (“CEI”).
CEI is a leading provider of supply chain management (“SCM”) services and other fullyintegrated outsourced solutions to the US$34 billion United States personal care products
industry. CEI’s broad SCM service offering incorporates a wide range of value-added
services, including: (i) research, development and formulation (“R&D”); (ii) package
design, development and sourcing; (iii) manufacturing and filling; (iv) packaging and
assembly; and (v) logistics and distribution. The breadth of the company’s extensive
product capabilities include the production of: (i) alcohol-based fragrance products such
as perfumes, colognes, and splashes; (ii) crèmes and lotions, such as moisturizers, body
washes, and cleansers; (iii) color cosmetics, such as pressed and loose powders, lip
products, and liners; and (iv) other ancillary products such as specialty hair care and
select over-the-counter (“OTC”) products.
On December 3, 2004, Onex completed the purchase of Cosmetics Essence, Inc. Onex’
investment was $138 million for an approximate 92% ownership interest in CEI. The
investment in CEI was completed through Onex Partners. Onex’ portion of that
investment was $33 million for an approximate 21% ownership interest. Onex controls
the general partner of Onex Partners and is an approximate 24% limited partner in Onex
Partners.
CEI is a leading provider of supply chain management services and other fully-integrated
outsourced solutions to leading marketers and retailers of personal care products. The
company offers a significant value proposition to its customers by delivering innovative
and quality products, and providing seamless services that increase speed-to-market and
allow its customers to focus resources on their own core strengths of developing,
branding, marketing, and retailing products. All of this is accomplished at a lower overall
cost than could otherwise be achieved by the customer internally or through the use of
another strategic partner.
The company’s broad SCM service offering includes: R&D; package design,
development, and sourcing; manufacturing and filling; packaging and assembly; and
logistics and distribution services. CEI has the capabilities and expertise to manage a
customer’s entire supply chain or just those discrete services that the customer chooses to
outsource. For example, CEI has the ability to take a personal care product from
conceptualization to the retail store shelf. CEI welcomes a customer at any point along
the service continuum and then strives to enlarge the relationship to provide a broader
array of SCM services.
57
ITEM 3
Business of Onex
Personal Care Products Business (continued)
Research & Development
The breadth of CEI’s R&D capabilities includes product conceptualization, formulation,
testing, and pilot production across multiple product platforms. The company’s R&D
department works closely with its sales team in a “customer-centric” model that assesses
the customer’s product needs. The R&D team then develops customer-specific
formulations based on its knowledge of emerging market trends and customer direction to
ensure that such products are marketable, current, and desirable. CEI has extensive
relationships with specialty suppliers, which allow it to remain current with emerging and
cutting-edge ingredients. Through strategic alliances with suppliers and technologydriven companies, the company has access to proprietary ingredients and processes. This
ensures that CEI can offer its customers technologically superior products in advance of
its competitors.
Packaging Design, Development and Sourcing
As part of its complete SCM services platform, CEI possesses full-service packaging
capabilities, including design, development, and component sourcing. CEI’s customers
often enlist the company’s services to design, develop, and source new, cutting-edge
packaging concepts that are appropriate for the product being produced. The company
leverages its extensive purchasing expertise and supplier relationships to cost effectively
source packaging components from across the globe, including glass from Europe, pumps
and caps from Asia, and other components from domestic and international suppliers.
This department includes in-house development engineers, purchasing representatives,
and external consultants.
Manufacturing and Filling
Over its 20- year history, CEI has established itself as the premier manufacturer and filler
of fragrances, crèmes and lotions, and color cosmetics for leading marketers and retailers
of personal care products. This industry-leading position is a result of a number of factors
including:
• The breadth of the company’s manufacturing and filling capabilities;
• The depth of the company’s manufacturing capacity in terms of extensive
manufacturing facilities in its network and the number of filling lines in each of its
facilities;
• The flexibility of the manufacturing equipment to produce products in a wide range of
sizes and configurations;
• The quality of the CEI’s equipment;
• The security of its plants; and
• The sophistication of its information systems and the ability to supply critical supply
chain information electronically or otherwise.
58
ITEM 3
Business of Onex
Packaging and Assembly
CEI maintains packaging and assembly capabilities throughout its network of facilities.
Traditional packaging and assembly services include cellophane shrink wrapping,
labelling, inkjet coding, carton sealing, bar coding, and gift set assembly. Many of these
packaging services are performed “in-line” after the products have been filled. The
company also provides secondary packaging services, including the design, manufacture,
and assembly of custom thermoformed packaging and rigid set boxes for the personal
care industry.
Logistics and Distribution
CEI’s global logistics and distribution services include order fulfillment (i.e. computer
order receiving, bar coding, and label making); flexible delivery from “customer pick-up”
to direct store delivery; outsourced MIS (i.e. financial reports, monthly invoices,
inventory cycle counts); and logistics management (i.e. order entry, full order tracking
information, proof of delivery).
Markets & Competition
CEI competes in a highly fragmented market populated with a limited number of sizeable
competitors. Management believes that none of its competitors possess the breadth or the
quality of services that CEI offers. Many of its competitors are smaller with limited
capabilities and financial resources and typically focus on one product type of service
offering.
CEI enjoys excellent, long-term relationships with a loyal, high quality base of
leading marketers and retailers of personal care products across all channels of the
distribution channel including mass market, specialty retail, prestige, home shopping, and
other. Many of these relationships date back more than 15 years. In addition, most of
CEI’s customers do not possess internal manufacturing capabilities, including nine of its
top ten. Accordingly, the company is viewed as a strategic partner in developing,
producing, and distributing its customers’ products in a cost-effective and timely manner.
59
ITEM 3
Business of Onex
Properties
The location, size and nature of ownership of CEI’s facilities as of December 31, 2004
are summarized as follows:
Location
Square Feet
Owned/Leased
Holmdel, NJ
497,000
Leased
Cranbury, NJ
483,000
Leased
Roanoke, VA
370,000
Owned
Ridgefield, NJ
325,000
Leased
Teterboro, NJ
221,000
Leased
Edison, NJ
117,000
Leased
Roseland, NJ
85,000
Leased
Burbank, CA
6,000
Leased
Bentonville, AR
1,000
Leased
The Holmdel, Roanoke, Ridgefield, Teterboro and Edison facilities are used for storage
and manufacturing. The Cranbury facility is used for distribution. The Burbank and
Bentonville locations are primarily used for sales. The Roseland facility is currently
unoccupied and held for sublease.
60
ITEM 3
Business of Onex
(continued)
Small Capitalization Business
The Small Capitalization Business consists of the business of ONCAP Investment
Partners (“ONCAP”) and its related companies. ONCAP currently has interests in the
businesses of CMC Electronics Inc. based in Montreal, Quebec; Western Inventory
Service Ltd. based in Toronto, Ontario; Futuremed Health Care Products LP, based in
Concord, Ontario; and Canadian Securities Registration Systems, based in Burnaby,
British Columbia.
ONCAP is a $400 million partnership formed by Onex to invest in small-capitalization,
North American-based companies. Onex has committed $120 million to the Fund and a
subsidiary is the General Partner of the Fund. ONCAP intends to invest in opportunities
requiring between $10 million and $80 million in equity or equity-related capital. The
investments will usually be controlling interests; in the case of a non-controlling interest,
the investment will be accompanied by appropriate controls and board representation.
ONCAP intends to provide the capital and management expertise necessary to grow
small public or private companies into larger companies in order to take advantage of the
greater investor appeal, higher valuations and increased attractiveness to strategic buyers
of large capitalization companies.
In April 2001, an investor group led by ONCAP completed the acquisition of all of the
shares of BAE Systems Canada (“BAE”) for approximately $580 million. ONCAP
invested $65 million in equity as part of this transaction, and Onex also co-invested $41
million as part of this acquisition. BAE generated annual sales of approximately $300
million from the design, manufacturing and marketing of high technology electronic
products for the aerospace and defense industries. In 2001, the company was
subsequently renamed CMC Electronics Inc. (“CMC”).
In July 2002, an add-on investment in CMC of $5 million was made to finance
the acquisition of Flight Visions, Inc. (“Flight Visions”), of Sugar Grove, Illinois. Flight
Visions is a well-established military aviation company that designs and manufactures a
range of cockpit systems and products.
In March 2003, ONCAP acquired 100% of Western Inventory Service Ltd.
(“WIS”). WIS is a data collection and verification company. WIS’s core business is to
perform inventory counts for its customers and to gather baseline inventory information
needed for planning, forecasting, and accounting reconciliation. WIS is the largest data
collection and verification company in Canada and the third largest in the U.S. WIS
generates 75% of its revenue in Canada and the remainder in the U.S. The company
performs over 41,000 inventory counts annually, primarily for retail customers. ONCAP
invested $30 million as part of this transaction.
61
ITEM 3
Business of Onex
Small Capitalization Business (continued)
In February 2004, ONCAP acquired a controlling interest in Futuremed Health
Care Products LP (“Futuremed”) for $25 million. Onex’ share of that investment was $8
million. Futuremed is Canada’s leading supplier of medical supplies and equipment to
long-term care facilities. The company’s products range from nursing supplies to
furniture, equipment and mattresses for long-term care facilities.
In April 2004, ONCAP acquired Canadian Securities Registration Systems
(“CSRS”). ONCAP invested a total of $29 million. Onex’ portion of that investment was
$9 million. CSRS is the only national provider of Personal Property Security Act
(“PPSA”) registration and search services. The company specializes in registering PPSA
charges on assets, conducting PPSA searches and registering securities under the Bank
Act.
In December 2004, CMC sold its Cincinnati Electronics business (“Cincinnati
Electronics”) for net proceeds of $226 million and in January 2005, CMC sold the major
portion of its 55% ownership interest in NovAtel Inc. (bringing it down to approximately
16%) for proceeds of $118 million. Proceeds from these transactions were first used to
pay down debt and subsequently to issue a dividend to all shareholders. ONCAP received
a dividend of approximately $136 million, of which Onex’ portion was $40 million. In
addition, Onex received an additional $77 million in dividends due to its direct ownership
interest in CMC.
During 2004, Onex bought out some of ONCAP’s limited partners, which
resulted in Onex’ commitment to ONCAP’s fund increasing from 25% to 28%.
Principal Products / Operations
CMC Electronics Inc.
CMC has been designing and building innovative communication and electronics systems
since 1903, pursuing niche markets which require products of the utmost quality, highest
reliability and most innovative functions. It is a major supplier to the aerospace and high
technology industries, airlines, military agencies and government customers around the
world. CMC operates through two wholly owned subsidiaries: CMC Electronics Inc and
CMC Electronics Aurora Inc. (“CMC Aurora”).
Pursuing a strategy of focusing on aviation electronics in 2002, CMC completed
the acquisition of Flight Visions, a leading provider of innovative heads-up displays and
mission computing solutions for military aircraft. Flight Vision was renamed CMC
Aurora Inc. In addition, CMC divested its military communications business in
September 2002. In December 2002, CMC divested Northstar Technologies Inc., a
designer, manufacturer and seller of marine navigation systems and chart-plotters. In
December 2004, CMC divested CMC Electronics Cincinnati, its infrared and space
electronics business. In January 2005, CMC sold a major portion of its shares in NovAtel
Inc., reducing its equity ownership from 55% to approximately 16%.
62
ITEM 3
Business of Onex
CMC employed approximately 985 employees at December 31, 2004, of which
about 520 employees are covered by six collective agreements in Canada.
The company manufactures its own products and systems at its various
manufacturing plants and produces a small number of specialized parts for its own use. It
purchases a wide range of both standard and custom electronic and electromechanical
components such as microcircuits, connectors and switches. These are typically available
through local distributors from a large supply base. Availability has generally been good,
although there has historically been a trend for allocation on some electronic components,
and prices are fairly stable.
CMC has adopted an environmental protection and health and safety policy,
which establishes a program to ensure compliance with laws and regulations, and which
promotes the objectives of designing, manufacturing and distributing all products in a
manner that safeguards human health and the environment from adverse effects. Through
its subsidiaries, CMC owns several patents and trademarks, principally in Canada and in
the United States, which relate to its products, technologies and systems and their design,
development, integration, manufacture, identification, commercialization and usage.
The cost of research and development, net of government participation, carried
out during the year ended December 31, 2004 was $26 million.
Western Inventory Service Ltd.
WIS operates through two entities: Western Inventory Service Ltd. and Western
Inventory Service, Inc. (“WISI”).
WIS operates in Canada and is headquartered in Toronto, Ontario. WISI operates
in the United States and is headquartered in Pittsburgh, PA.
The core service offered by both operations is the performance of inventory
counts for its customers. Historically, many businesses performed their own inventory
counts. However, more businesses are realizing the benefits of outsourcing inventory
services such as: independent verification, increased speed and improved accuracy.
The other services offered by WIS include: warehouse inventory counts;
inventory counting; system rentals; fixed asset tracking; retail price verification; bin
capping and mystery shopping. The company employed approximately 230 full-time
employees and 1,500 part-time employees as of December 31, 2004. The work force is
non-unionized.
Futuremed Health Care Products L.P.
Futuremed is Canada’s leading distributor of medical supplies and equipment to longterm care facilities (i.e. nursing homes) with leading market share in Ontario and Alberta.
Products range from nursing and incontinent supplies to furniture, equipment and
mattresses. In total, the company distributes more than 7,000 products, the majority of
which are disposable and recurring purchases in nature.
63
ITEM 3
Business of Onex
Canadian Securities Registration Systems
CSRS is the only national provider of Personal Property Security Act (“PPSA”)
registration and search services. The company specializes in registering PPSA charges on
assets, conducting PPSA searches and registering securities under the Bank Act. The
Registration Act allows lenders to secure the payment of debt financing by registering a
security interests in personal property of a borrower, thus establishing a priority position
in the collateral.
CMC Electronics Inc.
CMC and CMC Aurora Inc., which makes up Avionic Electronics, operate in three main
business units: military avionics, commercial avionics and electronics components.
In military and commercial avionics, CMC and CMC Aurora are leaders in the
design, development, production and support of a wide range of aerospace systems and
products. CMC was a pioneer in Omega and Doppler systems, and is in the forefront in
the development of Global Positioning System (GPS)-based Flight Management Systems
and satellite communications (Satcom) technologies. CMC plans to maintain and enhance
its position as a primary supplier of aviation electronics systems to the world’s airlines,
aircraft and helicopter operators, and military and government agencies. CMC and CMC
Aurora’s major product lines and services include: aircraft satellite communication
antennas, aircraft navigation systems and sensors, aircraft flight management systems,
cockpit display systems, systems integration, GPS units for ground stations and related
software, enhanced vision systems, human factors engineering, head up displays, mission
computers and control panels.
In the electronic components market, CMC designs and manufactures hybrid
microcircuits, power supplies, magnetic devices, display panels, precision machined parts
and injection-molded plastic parts, and offers computer-aided design of printed-circuit
and hybrid layouts. These components are sold to outside customers and are used in the
company’s own products as well.
64
ITEM 3
Business of Onex
For the year ending December 31, 2004, approximately 40% of the companyconsolidated revenues were generated from sales to military customers and
approximately 60% from sales to its commercial market base. Products are sold largely to
international markets, with 84% of total revenues generated outside of Canada in the year..
The company sells electronic products and services to the U.S. Government through its
departments and agencies. Revenues from several contracts with the U.S. Government
exceed 10% of CMC’s total revenues. At December 31, 2004, order backlog reached
$165 million.
Western Inventory Services
During the past two decades, use of computerized inventory systems and the advent of
perpetual inventory systems have led to an increased dependence on inventory data for
day-to-day strategic management decision-making purposes. Third-party inventory
service companies are seen as an independent, reliable and convenient source of ensuring
the accuracy and reliability of inventory information. Third-party inventory service
providers, such as WIS, offer their clients the trained labour force to conduct the count,
the management, to plan and supervise the count and the technology to conduct the count
in the most efficient and accurate manner. The benefits of the entire count service include
increased accuracy and efficiency with minimal disruption to normal day-to-day
operations. Inventory service providers serve various industries; however, the majority of
customers are in the retail sector. WIS has over 4,000 customers in Canada and
approximately 150 customers in the U.S. These customers range in size from large bluechip international companies to independent retailers in both the retail and industrial
marketplace.
WIS’s key competitors are two other companies with large-scale inventory
service operations in North America, as well as a number of small regional companies.
Futuremed has in excess of 2,500 customers across Canada. These range from single
units owned by families or municipalities, through small clusters owned by individuals or
charitable groups, to multiple locations owned and or administered by companies.
The company has over 700 relationships that supply 7,000 products distributed to
the nursing home market.
65
ITEM 3
Business of Onex
CSRS targets institutions that submit large volumes of PPSA registration and searches
throughout Canada. The institutions’ priorities are to ensure that their security on the
assets are registered accurately and in a timely manner to remove any financial exposure
in the event of a default or new lien on the asset. CSRS’s nationwide service offers
customers a “one-stop shop” and is a significant marketing advantage since competitors
typically provide only regional solutions. By outsourcing their in-house registration and
search functions to CSRS, their customers eliminate a cost centre that requires staff and
systems to manually input the data and store information onsite. Compared to in-house
services, CSRS provides significant advantages including greater accuracy, efficiency,
quality and economies of scale leading to direct cost savings for their clients.
CSRS’ customers include all Schedule A banks and major auto acceptance and
leasing companies throughout Canada.
Competitors are primarily small, local and/or provincial organizations that
largely service clients with limited transactions volume such as law firms or are onetime users such as smaller credit unions.
Properties
CMC
Location
Ville Saint-Laurent, Quebec
Ottawa, Ontario
Branch offices across Canada (B.C., Nlfd., N.S.)
Flight Visions Inc. – Sugar Grove, Illinois
66
Square Feet
Owned/Leased
250,000
93,300
10,000
45,000
Owned
Leased
Leased
Leased
ITEM 3
Business of Onex
Small Capitalization Businesses (continued)
WIS
Location
Square Feet
Owned/Leased
United States
Georgia
960
Leased
Maryland
900
Leased
New Jersey
1,184
Leased
New York
Shared
Leased
North Carolina
Shared
Leased
Ohio
1,593
Leased
Pennsylvania
Shared
Leased
Virginia
Shared
Leased
840
600
481
Leased
Leased
Leased
West Virginia
Florida
South Carolina
Canada
Alberta
3,616
Leased
British Columbia
6,922
Leased
Vancouver, British Columbia
3,180
Leased & Sub-Leased
Manitoba
1220
Leased
New Brunswick
200
Leased
Newfoundland
Shared
Leased
Nova Scotia
1,650
Leased
Ontario
11,211
Leased
Toronto, Ontario
12,649
Owned/Leased
Quebec
6,043
Leased
612
Leased
Square Feet
Owned/Leased
Saskatchewan
Location
Concord, Ontario
79,000
Leased
Calgary, Alberta
13,600
Leased
Richmond, British Columbia
14,400
Leased
Location
Burnaby, B.C – Head Office
Square Feet
Owned/Leased
21,833
Leased
Edmonton, Alberta - Warehouse
2,576
Leased
Toronto, Ontario
2,969
Leased
67
ITEM 3
Business of Onex
(continued)
Other Businesses
Phoenix Pictures
In November 1995, Onex invested $21 million in Phoenix Pictures, a newly formed
integrated entertainment company. A further $7 million was invested by Onex in
February 1998 in conjunction with the establishment of new distribution agreements.
Onex’ ownership interest in Phoenix Pictures is 21%. Onex’ partners in Phoenix are
veteran studio head Mike Medavoy, entertainment executive Arnold W. Messer, Sony
Pictures Entertainment, British-based Pearson Plc and Showtime, the cable programming
subsidiary of Viacom Inc. Phoenix Pictures’ objective is to create studio-quality filmed
entertainment for a broad spectrum of markets worldwide and to develop a motion
picture library with significant asset value. More recently, Phoenix Pictures began to
execute a strategy of generating fees and profit participations by producing pictures for
other studios, while assuming less of the risk associated with motion picture production.
Based on the cash and other assets of Phoenix Pictures at December 31, 2004,
Onex believes the value of the company at that time is below the cost of the investment to
date.
Ripplewood
In October 1995, Onex invested with Mr. Timothy Collins to form a new U.S.-based
acquisition fund and its management company, Ripplewood. Mr. Collins had been Senior
Managing Director of the Onex office in New York. The objective of Ripplewood is to
make acquisitions in collaboration with senior industry executives who will be partners in
the acquired businesses. Onex transferred to Ripplewood, at fair value, its 52%
ownership in Dayton Superior Corporation (“Dayton Superior”), as well as its interest in
the Gibson and Garvin partnerships, which it has formed previously. Onex has an
approximate 15% interest in Ripplewood. In February 1999, Ripplewood sold its
remaining interest in Dayton Superior for a net gain of $13 million.
In February 1998, Ripplewood completed its first investment in the construction
and industrial equipment and distribution industry. In May 1998, Ripplewood completed
its first investment in the automotive parts retail industry. Onex did not directly invest in
either of these acquisitions.
In 1999, Ripplewood established an equity fund to invest in Japanese companies.
Ripplewood also completed the acquisition of one of the largest providers of educational
products and services to the primary and secondary school markets in the United States.
It also formed a partnership to pursue acquisitions in the chemical segment. Onex did not
directly invest in any of these acquisitions.
68
ITEM 3
Business of Onex
Other Businesses (continued)
Cypress
In November 1996, Onex formed a partnership with Alan Fishman, known as Columbia
Financial Partners, with the purpose of building a specialty finance business. The first
transaction was completed in November 1998 with the formation of Cypress Property &
Casualty Insurance Company (“Cypress”), a Florida homeowners insurance company.
Onex invested $13 million for a non-controlling interest. Cypress began writing
homeowners policies in January 1999. In 2000, Onex dissolved its partnership with Alan
Fishman and Columbia Financial Partners; however, Onex continues to hold its indirect
interest in Cypress.
Onex has received dividend distributions of approximately $10 million from
Cypress since acquisition.
In December 2004, Onex made an additional investment in Cypress of $5 million
in equity and $6 million of debt.
In mid-January, Onex established Onex Real Estate Partners LP, a fund dedicated to
acquiring and improving real estate assets in North America. Onex has initially
committed US$200 million to the fund, which is expected to increase in size over time
with the involvement of institutional invested. Onex’ commitment will be funded as
acquisitions are completed.
69
ITEM 3
Business of Onex
(continued)
Prior Business Units
Ball Canada
In November 1984, Onex acquired the Canadian subsidiaries of American Can Company
for $220 million. Onex initially invested $14 million for an ownership position of
approximately 55%. Renamed Onex Packaging, the company was one of Canada’s
largest manufacturers of rigid packaging. In December 1988, Onex formed a joint venture
with Ball Corporation, a U.S. packaging business, which acquired the operating
company, effectively taking it private; the company was renamed Ball Canada. Onex
realized $49 million at that time on its total investment of approximately $25 million. At
that time, Ball Corporation assumed management responsibility for Ball Packaging
Products Canada, Inc. (“Ball Canada”). In March 1991, the lenders to Ball Canada placed
the company in receivership. Ball Corporation then reached an agreement with the
lenders and acquired all the shares of Ball Canada. Onex received no further proceeds on
its ownership interest.
Norex Leasing
Onex acquired the majority of the assets of Citibank Leasing from Citibank Canada in
June 1987 for $690 million, including debt and equity. The operations of the company
were renamed Norex Leasing Inc. At the time, Norex Leasing was Canada’s largest
small-equipment leasing company, engaged principally in the business of commercial
equipment leasing and equipment finance. Onex invested $32 million for an initial 64%
equity ownership interest. In May 1988, Onex increased its ownership interest in Norex
Leasing to 84% by purchasing, for $16 million, the equity interest of certain minority
shareholders of the company.
In December 1990, the shares of Norex Leasing were sold to a Canadian
chartered bank for gross proceeds to Onex of $50 million.
Beatrice Foods
Beatrice Foods Inc. (“Beatrice Foods”), a major Canadian-based food processing
company, was acquired from TLC Group in November 1987 for $316 million. Onex
invested $22 million in Beatrice Foods for an initial 73% equity ownership interest. In
March 1989, Beatrice Foods purchased Eplett Dairies Company Limited and, in August
1990, acquired Palm Dairies Limited. Onex invested an additional $7 million in the
equity of Beatrice Foods in transactions related to the Palm acquisition.
In November 1991, Onex sold Beatrice Foods for $475 million and received
$99 million for its equity interest.
Automotive Industries
In April 1990, Onex acquired Automotive Industries Holding Inc. (“Automotive
Industries”), a major supplier of interior-trim systems and blow-molded products to car
and light truck manufacturers. The purchase price for the entire company was $208
70
ITEM 3
Business of Onex
Prior Business Units (continued)
million; Onex invested $23 million of the total common equity of $33 million. The
balance of the funds for the acquisition was provided in the form of debt and preferredshare financing by third parties and the vendor.
From 1990 through 1995 Automotive Industries completed eight acquisitions. In
May 1992, the company completed an initial public offering of shares of common stock
and, in July and August 1993, completed a secondary public offering of shares. Onex’
ownership in Automotive Industries was reduced to 19% as a result of the public
offerings and sales of shares by Onex.
In August 1995, Lear Seating Corporation offered to acquire all the outstanding
shares of Automotive Industries. Onex sold its remaining 19% interest in Automotive
Industries for net proceeds of $148 million. Combined with the proceeds from previous
sales of shares of Automotive Industries, Onex realized total proceeds of $206 million
from an original investment of $23 million.
Johnstown America
In October 1991, Onex acquired the Freight Car Division of Bethlehem Steel, renaming it
Johnstown America Corporation (“Johnstown America”). Johnstown America
manufactures a variety of railroad freight equipment, principally coal gondolas, flat cars
and open and covered hoppers. The total purchase price was $63 million. Onex invested
$9 million of the total equity of $18 million for an initial 54% ownership interest. Thirdparty lenders provided the balance of the acquisition financing.
In July 1993, Johnstown America completed an initial public offering of shares,
at which time Onex sold approximately 0.5 million shares of Johnstown America. In
1994, Onex sold a further 1.9 million shares of the company and the final ownership
interest was sold by Onex in February 1999. Over the period of ownership, Onex realized
a total gain of $56 million on its total investment of $9 million.
Delfield and Whitlenge
In May 1991, Onex acquired The Delfield Company (“Delfield”), a producer of
commercial foodservice equipment for all segments of the North American foodservice
industry. In April 1992, the Company acquired an 86% equity interest in Whitlenge
Drink Equipment Ltd. (“Whitlenge”), the premier manufacturer of dispensing systems for
soft drinks and beer in the United Kingdom. The total investment by Onex in Delfield
and Whitlenge was approximately $8 million.
In April 1994, Onex exchanged its shares of Delfield and Whitlenge for an
interest in Scotsman Industries and cash. The total value received at that time was
$46 million; this amount comprised $20 million in cash, convertible preferred shares of
$15 million, and common shares of Scotsman Industries having a value of $11 million at
the date of the exchange. Onex also received 329,174 additional common shares from
Scotsman, with a market value at March 17, 1995 of approximately $8 million, when
Delfield and Whitlenge achieved defined financial performance levels. In November
1996, Onex converted the preferred shares to common shares.
71
ITEM 3
Business of Onex
In March 1998, Onex sold its remaining interest in Scotsman for proceeds of
approximately $62 million. The proceeds received at that time, combined with proceeds
received in prior years, brought the total received for Delfield and Whitlenge to
approximately $95 million compared to total investment of approximately $8 million.
Imperial Parking
In March 1996, Onex’ wholly-owned subsidiary, Vencap Acquisition Holdings Inc.
acquired Imperial Parking Limited (“Imperial Parking”) from Canadian Maple Leaf
Financial Corporation. Imperial Parking is Canada’s largest manager of parking lots and
parkades. The company is also a leading manufacturer of parking lot equipment.
In April 1997, Onex sold its ownership interest in Imperial Parking for proceeds
of $59 million. Onex recorded a gain of $29 million on the sale.
ProSource Distribution
In June 1992, Onex acquired certain assets and assumed certain liabilities of Burger King
Distribution Services. The business, which was subsequently renamed ProSource
Services Corporation, is a foodservice distributor specializing in distribution to chain
restaurants in the United States. Systems foodservice distribution involves the
purchasing, warehousing, sales and transportation of frozen, refrigerated and dry
products, beverages and supplies from manufacturers and other suppliers to individual
restaurants. ProSource completed three acquisitions, the largest being the National
Accounts Division of The Martin-Brower Company, a foodservice distributor for multiunit restaurant chains across the United States and Canada. In January 1998, ProSource
entered into a merger agreement with AmeriServe Food Distribution, Inc., which was
completed during the second quarter of 1998. At that time, Onex received proceeds of
$124 million for its ownership interest in ProSource, and recorded a gain of $75 million
on the sale.
Purolator Courier
In April 1987, Onex acquired Purolator Courier Limited, Canada’s largest courier
company, from its U.S. parent for $234 million. Onex invested $14 million for an initial
68% equity interest and also purchased $31 million of the subordinate debt of Purolator
Courier. In May 1988, Onex increased its ownership in Purolator Courier by purchasing,
for $9 million, an additional 15% equity interest held by certain minority shareholders of
the company.
Purolator Courier acquired Gelco Express from Air Canada in March 1989, with
Air Canada becoming an owner of common equity and subordinated debt in Purolator
Courier. Effective December 1990, Onex converted its ownership in the subordinated
debt to common equity. In addition, Onex at the time invested $16 million out of a total
of $20 million provided by certain shareholders of Purolator Courier for additional
common equity in the company. As a result, Onex’ equity ownership interest in Purolator
Courier increased to 78%.
72
ITEM 3
Business of Onex
In November 1993, Onex completed a strategic partnership with Canada Post
Corporation in which Canada Post acquired a 75% interest in Purolator Courier. Onex
received cash proceeds of $33 million and a subordinated note of $5 million, of which
$4 million was repaid in March 1994 and the remainder in 1997 and 1998. In January
1999, Onex completed the sale to Canada Post Corporation of its remaining interest in
Purolator Courier. Onex received net proceeds of $52 million for its 19% interest and
recorded a pre-tax gain of approximately $42 million. Onex had been carrying its
remaining interest in Purolator Courier at a value of $9 million since 1993.
Alliance Atlantis
In 1994, Onex acquired a $17 million, 6.5% convertible, unsecured debenture of Alliance
Atlantis Communications Inc. Alliance Atlantis is a publicly traded Canadian supplier of
high-quality television and filmed entertainment to North American and international
markets.
In July 1998, the debenture plus accrued interest was converted to 462,842 Class
A shares of Alliance Atlantis and an $9 million, 6.5% convertible, unsecured debenture
of Alliance Atlantis. The debenture was convertible by Onex into Alliance Atlantis Class
A shares at $19 per share after October 1995 and until April 2002. In September 1999,
Onex sold its Class A shares and its $9 million, 6.5% debenture plus accrued interest in
Alliance Atlantis for proceeds of $26 million.
Sky Chefs
In May 1986, Onex acquired Sky Chefs from AMR Corporation, the parent company of
American Airlines, for $213 million. Total equity in the purchase was $33 million, of
which Onex initially invested $19 million for a 59% equity interest in the company.
In May 1988, Onex increased its ownership interest in Sky Chefs to 83% by
purchasing the interests of certain minority shareholders of the company for $40 million.
In December 1993, Sky Chefs and LSG Lufthansa Service (“LSG”), Europe’s
largest airline caterer, formed an international marketing alliance that included the
purchase of 25% of Sky Chefs by LSG for $82 million.
In September 1995, Sky Chefs acquired substantially all of the global operations
of Caterair International in a transaction valued at $700 million. As part of this
transaction, the former shareholders of Caterair International also received approximately
6.5% ownership in the combined operations, which resulted in Onex’ ownership being
reduced from 60% to 58%.
In May 1999, Onex sold LSG an additional interest in Sky Chefs for
$409 million, which reduced Onex’ ownership to approximately 47%.
In June 2001, Onex sold its remaining 47% ownership interest to LSG for
proceeds of approximately $1.3 billion. In total, Onex realized proceeds of $1.7 billion on
its $99 million total investment.
73
ITEM 3
Business of Onex
Gramercy Communications Partners
In 1999, Onex established Gramercy Communications Partners as a vehicle to invest in
the telecommunications industry. Gramercy made ten investments to December 31, 2000
for a total cost of approximately US$100 million. Gramercy's investments were
concentrated on the development and support of high-growth telecommunications
companies operating primarily in the services sector.
Effective July 1, 2001, Gramercy was restructured with a new management team
assuming responsibility for managing the wind-down of the remaining investments in
which Gramercy had interests. The new management company is an affiliate of Onex.
By December 31, 2001, Gramercy had distributed all of Onex’ realized post-restructuring
interests. Onex’ total investment in Gramercy was $50 million and this has been written
down to a value of NIL. Onex continues to hold an interest in some residual Gramercyrelated assets. As the ultimate value of these interests is unknown, Onex has been
conservative and written them off.
@Onex
In mid-1999, Onex formed @Onex LLC to acquire early-stage ownership in companies
developing web-based, business-to-business solutions and Internet infrastructure. @Onex
has made a variety of investments since its foundation that include: a company in online
commercials and direct marketing; a web-based marketplace for industrial manufactured
products; an Internet marketplace linking restaurants and suppliers; an online provider of
financial services for small- and medium-sized enterprises; an e-procurement service for
the electronic components industry; and a web-based portal for the aerospace and
aviation industry. In 2000, @Onex sold one of its holdings, SupplierMarket.com, to
Ariba, Inc. for five times its original investment.
MAGNATRAX Corporation
In May 1999, Onex acquired American Buildings Company and its subsidiaries, a major
manufacturer of engineering building products, for $297 million. Onex invested $76
million for a 55% equity interest.
In September 1999, MAGNATRAX acquired Republic Builders Company for
approximately $71 million. Onex invested an additional $10 million in the equity of
MAGNATRAX as part of the funding for the acquisition, maintaining its 55% ownership
interest in MAGNATRAX.
In March 2000, MAGNATRAX acquired Jannock Limited in a transaction
valued at $635 million. Onex invested an additional $71 million in the equity of
MAGNATRAX as part of the funding for the transaction. As a result of other investors
acquiring equity in MAGNATRAX at that time, Onex’ ownership in MAGNATRAX
was reduced to 53%.
In November 2002, MAGNATRAX issued $16 million of equity, of which Onex
acquired $15 million. This additional equity increased Onex’ ownership to 92%.
74
ITEM 3
Business of Onex
In May 2003, MAGNATRAX filed a voluntary petition for reorganization under
Chapter 11 in the United States and under the Companies’ Creditors Arrangement Act in
Canada. When Onex acquired MAGNATRAX in 1999, the company was structured to
withstand a significant downturn in its sales. Over the past three years, the unpredictable
and unprecedented decline in industry volumes, extreme price competitiveness and
punitive tariffs on imported steel that impacted revenues and costs simultaneously
exceeded MAGNATRAX’ capacity to continue to operate under its then financial
structure. Onex’ $173 million investment in MAGNATRAX had been more than written
off in the Company’s consolidated financial statements prior to 2002. In September 2003,
the Canadian operations of MAGNATRAX emerged from bankruptcy protection. Both
MAGNATRAX and Onex relinquished essentially all of their ownership interests and
ceased to control the Canadian operations at that time. MAGNATRAX’ U.S. operations
received court approval of its reorganization plan filed in Bankruptcy Court during the
fourth quarter of 2003. As a result, under the approved plan, Onex ceased to have control
of MAGNATRAX.
Performance Marketing Global
In May 1999, Performance Marketing Global (“PMG”) was formed to acquire Campbell
& Co. in a transaction valued at $22 million. Campbell is a marketing and public
relations firm specializing in the automotive industry, providing services primarily to
Ford Motor Company. Onex invested $5 million of the $8 million in common equity. In
January 2003, Campbell management acquired substantially all of the operations of
Campbell & Co. from PMG for nominal consideration. In the event Campbell & Co.
attains certain earnings targets in the future, PMG will have the right to receive additional
payments at that time based upon a predetermined valuation formula. In addition, if the
current owners of Campbell & Co. realize value in the future through the sale of their
equity interests in the Company, PMG will have the right to receive compensation based
on the amount of such value realized.
Tower Automotive
Onex acquired an initial 76% equity ownership interest in R.J. Tower Corporation in
April 1993, at which time it was a leading manufacturer of automotive structural-steel
components and assemblies in the United States. Onex invested $8 million of the $10
million in common equity. Onex’ ownership in the company was subsequently reduced to
72% when management of R.J. Tower acquired shares. In 1994, the name of R.J. Tower
was changed to Tower Automotive, Inc.
Tower Automotive completed initial and secondary public offerings in August
1994, June 1996 and April 1997. Concurrent with those offerings, Onex sold the majority
of its shares in Tower Automotive for proceeds of approximately $110 million. In
February 2004, Onex sold its remaining 1 million shares in Tower Automotive for
additional proceeds of $8 million.
75
ITEM 3
Business of Onex
EnSource
In 2000, ONCAP made its first investment in EnSource Industries Inc. (“EnSource”), a
private company operating under two principal subsidiaries: Syndicated Technologies,
Inc., the largest electrical and instrumentation contractor in western Canada, and Presson
Manufacturing, a leading provider of engineered oil and gas processing equipment.
In November 2000, EnSource merged with Enhanced Energy Services Ltd.
(“EEN”), a publicly traded company.
In July 2002, publicly traded Enerflex Systems Ltd. (“Enerflex”) purchased all of
the issued and outstanding shares of EEN. As a result, ONCAP held a minority position
of 2,193,995 Enerflex shares.
In October 2003, ONCAP completed the sale of approximately 77.5% of the
investment in Enerflex Systems Ltd. for net proceeds of approximately $28.1 million.
In December 2003, ONCAP completed the sale of the remaining shares of
Enerflex Systems Ltd. for net proceeds of approximately $8.2 million.
Lantic Sugar/Rogers Sugar
In August 1997, Onex and a minority partner completed the acquisition of BC Sugar.
Following the acquisition, the business was structured into three operating units: Rogers
Sugar Ltd. (“Rogers Sugar”), Refined Sugars, Inc. (“RSI”) and Lantic Sugar Limited
(“Lantic Sugar”). Rogers Sugar, BC Sugar’s operations in western Canada, is the leading
refiner, processor, distributor and marketer of sugar products in western Canada. An
income fund was formed for Rogers Sugar. Onex subsequently sold $415 million of tenyear debentures that were exchangeable for the trust units of the Rogers Sugar Income
Fund (“RSIF”). By September 15, 1998, all of the debentures were exchanged for the
trust units. Proceeds from the issuance of the debentures were used to repay the entire
amount of bank borrowings associated with the acquisition of BC Sugar. Onex retained a
share investment in Rogers Sugar and managed that company; it also had a 61%
ownership interest in the sugar refining and marketing operations in eastern Canada,
Lantic Sugar. Lantic Sugar’s U.S. operations, RSI, operated a sugar refinery that serves
the northeastern United States. RSI was sold in December 1998.
In March 2002, Onex and other Lantic Sugar shareholders exchanged all of their
common shares of Lantic Sugar for 35.5 million units of RSIF, of which Onex received
21.1 million RSIF units.
In July 2003, Onex sold its remaining interest in Rogers Sugar Income Fund
(“RSIF”), for net proceeds of $90 million.
Vencap
In January 1996, Onex acquired Vencap, an Alberta-based company that invested in midmarket growth opportunities in western Canada and the Pacific Northwest and Rocky
Mountain regions of the United States. The acquisition was financed with $65 million of
bank indebtedness, $25 million of common equity provided by Onex, and cash on hand in
Vencap. Onex’ investment was subsequently reduced to $24 million (86% equity interest)
due to investments in the company by Vencap management and other parties. Onex’
76
ITEM 3
Business of Onex
ownership increased to 99% by 1999 with the purchase of a minority interest. The bank
debt acquisition facility was entirely repaid within the first six months of Onex’
ownership. Onex and Vencap management undertook a strategy of selling assets and
raising capital for its portfolio of companies. In March 2003, Vencap sold the last of its
portfolio companies, bringing gross proceeds to $170 million received by Onex from
Vencap.
Unitive, Inc.
In February 2001, Onex lead a private equity financing in Unitive, Inc., a U.S.-based
provider of a wide variety of semiconductor packaging services, including patented flipchip processes that enable the company to manufacture advanced interconnect solutions
from a broad array of materials. These services allow semiconductors to be made smaller,
faster and cheaper than those currently in use. As part of this financing, Onex invested
$15 million for an 18% ownership interest and acquired options that could effectively
double Onex’ ownership interest. In November 2003, Onex invested an additional $2
million in equity and warrants, resulting in Onex having an 18% ownership interest in
Unitive. In August 2004, Onex sold its ownership interest in Unitive for proceeds of $13
million. At March 23, 2005, Onex continued to hold a $7 million note receivable for the
balance of the sale proceeds.
InsLogic
Late in 1999, Onex formed InsLogic following the divestiture of software and technology
assets that an Onex subsidiary, ClientLogic, had purchased from Canadian Access
Insurance Services Ltd. As part of this transaction, Onex initially invested $10 million,
which included a dividend payout by ClientLogic on InsLogic’s assets, for a 75% equity
interest. InsLogic is a private-label, multi-channel solution for selling and servicing
insurance. InsLogic commenced operations in Canada with two brand partners and three
insurance carriers.
In March 2000, InsLogic issued approximately 39.5 million Series B Preferred
shares for $44 million, of which Onex acquired $4 million. Following this issuance,
Onex’ economic interested was reduced to 49%.
In May 2001, InsLogic issued approximately 20 million Series C Preferred shares
that raised approximately $23 million. In November 2001, InsLogic entered into an
agreement to issue approximately 320 million Series D Preferred shares, and an
additional 1.1 million of Series C Preferred shares, for total proceeds of approximately
$24 million. The Series D Preferred shares were issued pursuant to a schedule of four
investment tranches from November 15, 2001 through October 1, 2002. Onex invested
$29 million in those two share issuances, increasing its economic ownership to 51%.
77
ITEM 3
Business of Onex
In March 2003, InsLogic issued additional Series D-1 Preferred Shares for
approximately US$12 million, of which Onex acquired US$7.6 million. In June 2003, an
intervening reverse-split transaction occurred in an effort to reduce the number of shares
in the capital stock of InsLogic. In October 2003, InsLogic issued convertible notes of
US$3 million, of which Onex purchased approximately US$1.9 million. The following
transaction resulted in Onex’ ownership increasing to 52%.
In mid January 2005, Onex sold InsLogic for proceeds of $22 million.
Dura Automotive
In November 1990, Onex acquired certain assets and liabilities of the Dura Automotive
Hardware and Mechanical Components Divisions of Wickes Manufacturing Company
for a total cost of $7 million, and created a new company, Dura Mechanical. Onex
invested $3.3 million for an initial 95% ownership interest and third-party lenders
provided the balance of the funding. Onex’ ownership was subsequently diluted to 80%
when the management of Dura Mechanical acquired shares. Subsequently, the company
was renamed to Dura Automotive, Inc. (“Dura Automotive”), which at the time was one
of the largest North American suppliers of window regulators and parking brakes,
primarily to Ford, General Motors, Chrysler, Toyota and NUMMI (a joint venture
between Toyota and General Motors).
From 1994 through 2003, Dura Automotive completed 16 acquisitions. In August
1996 the company completed an initial public offering of 3.8 million shares of common
stock for proceeds of $75 million. While Onex did not sell any of its shares, the offering
reduced Onex’ equity interest in Dura Automotive to approximately 20%. Dura
Automotive completed additional share offerings as part of various acquisitions, which
further reduced Onex’ ownership interest in the company to 8% in 1999.
Onex purchased an additional 30,000, 15,000 and 5,000 shares of Dura
Automotive for approximately $1.4 million in March 2002, May 2002 and November
2003, respectively.
On April 1, 2004, Onex sold its remaining interest in Dura Automotive. Onex
received net proceeds of approximately $23 million. This brings total proceeds from
Onex’ ownership in Dura Automotive to $44 million compared to a total investment of
$7 million in the company made since 1990.
Loews Cineplex Entertainment Corporation
In March 2002, Onex and its partner, Oaktree Capital Management, LLC (“Oaktree”),
completed the acquisition of Loews Cineplex Entertainment Corporation (“Loews
Cineplex”) and all of its wholly-owned subsidiaries following the company’s emergence
from bankruptcy. Onex converted $277 million of Loews Cineplex’ bank debt held for an
initial 60% equity interest in the restructured company and invested an additional $33
million the in the equity of the company upon closing.
In April 2002, Onex and Oaktree purchased a 49% interest in the Loeks-Star
Partnership (“Loeks-Star”) not previously owned by Loews Cineplex. This brought Star
78
ITEM 3
Business of Onex
Theatres, based in Michigan, United States, under Loews Cineplex’ control. Star Theatres
was a leading theatre exhibition company in its market with 10 theatres and a total of 156
screens, located primarily in metropolitan Detroit. Subsequently in April 2003, Onex and
Oaktree purchased the remaining 1% interest in Loeks-Star that Loews Cineplex did not
previously own.
In June 2002, Onex and Oaktree completed the acquisition of Cinemex, a leading
theatre exhibition company in Mexico. Cinemex is the largest exhibitor in the Mexico
City metropolitan area where the majority of its 31 theatres and 349 screens were located
at the time of acquisition. In December 2002, Onex received $20 million in proceeds
from the refinancing of Cinemex.
Both acquisitions completed by Onex and Oaktree - Star Theatres and Cinemex were subsequently rolled into Loews Cineplex.
In July 2002, Onex and Oaktree made an additional $33 million investment in
Loews Cineplex, of which Onex’ contribution was $17 million, for Loews Cineplex’
purchase of an additional ownership interest in Megabox Cineplex, its South Korean
theatre exhibition partnership that increased from 25% to 50%. Megabox Cineplex is a
leading theatre exhibition company in South Korea with five theatres and 48 screens.
Megabox Cineplex also owns the 16-screen theatre in Seoul, which has the highest
attendance of any theatre in the world with approximately 6.2 million patrons annually.
In September 2003, Loews Cineplex sold substantially all of its assets of
Cineplex Odeon Corporation, its Canadian theatre operations, to Cineplex Galaxy Income
Fund (“CGIF”) for proceeds of US$120 million. In addition, as part of the sale, Loews
Cineplex retained a 44% ownership interest in CGIF.
In July 2004, Onex and Oaktree sold Loews Cineplex for approximately $2
billion. Onex received proceeds of approximately $739 million for its interest and
retained Loews Cineplex’ interest in CGIF, its Canadian operations, whose units had a
value of $112 million at the time of sale.
Armtec Limited
In August 2001, ONCAP acquired 100% of Armtec Limited (“Armtec”) from
MAGNATRAX Corporation. ONCAP invested $36 million in the equity of the company
as part of this transaction. Armtec is a leading manufacturer and distributor of steel and
plastic products, and a provider of engineered solutions to the Canadian civil engineering
industry for over 95 years. The company’s products include corrugated steel and highdensity polyethylene pipes for culverts, storm and sanitary sewers, steel engineered
products including specialty bridge plate, guardrail and retaining walls, water control
gates, and geosynthetic products. Armtec serves the infrastructure, natural resources,
agricultural, and residential construction markets.
In late July 2004, Armtec completed an initial public offering of income fund
units in Canada (TSX: ARF_U). ONCAP sold all of its ownership in Armtec as part of
that offering for proceeds of $76 million, more than double its original investment. Onex’
share of those proceeds was $25 million.
79
ITEM 4
Five-Year Information
The following is a summary of key consolidated financial information of Onex for the
five fiscal years ended December 31:
Year ended December 31
2004
2003
2002
2001
$16,244
(14,510)
$ 12,119
(10,859)
$ 15,911
(14,004)
$ 18,352
(16,200)
($ millions except per share amounts)
Revenues
Cost of sales
Selling, general and administrative
expenses
Earnings before the undernoted items
Amortization of property, plant and
equipment
Amortization of goodwill, intangible
assets and deferred charges
Interest expense of operating companies
Interest and other income
Equity accounted investments
Foreign exchange gains (loss)
Stock-based compensation
Derivative instruments
Gains on shares of
operating companies, net
Acquisition, restructuring and
other expenses
Debt prepayment costs
Writedown of goodwill and
intangible assets
(953)
$
781
Writedown of long-lived assets
Earnings (loss) before income taxes,
non-controlling interests and discontinued
operations
Recovery (provision) for income taxes
Non-controlling interests of operating
companies
Earnings (loss) from
continuing operations
Earnings (loss) from
discontinued operations (a)
(766)
$
$
$ 1,018
$ 16,376
(14,664)
(1,030)
$ 1,122
(861)
$
851
(416)
(407)
(510)
(454)
(275)
(94)
(253)
111
(8)
(116)
(104)
29
(91)
(191)
81
(122)
14
-
(172)
(151)
69
18
142
-
(293)
(194)
121
16
-
(227)
(161)
115
10
-
182
129
21
164
209
(211)
(8)
(151)
(11)
(673)
(25)
(434)
-
(36)
(3)
(393)
(402)
(425)
(427)
(22)
(94)
(88)
(594)
(347)
(745)
(67)
(688)
65
(379)
9
461
(109)
781
256
560
230
(201)
(160)
(556)
(63)
(140)
151
195
Net earnings (loss) for the year
(889)
494
2000
35
-
224
$
(332)
-
(82)
$
(145)
-
938
$
798
37
$
188
Total assets
Shareholders’ equity
$ 11,809
$ 227
$ 14,621
$ 293
$ 19,890
$ 1,044
$ 20,870
$ 2,219
$ 19,719
$ 1,431
Dividends declared per
Subordinate Voting Share:
Regular
$
$
$
$
$
Earnings (loss) per Subordinate Voting
Share:
Continuing operations
Net earnings (loss)
Fully diluted
$ (1.12)
$ 0.25
$ 0.25
0.11
0.11
$ (3.62)
$ (2.16)
$ (2.16)
0.11
$ (0.39)
$ (0.90)
$ (0.90)
0.11
$ (0.87)
$ 4.95
$ 4.95
0.11
$ 0.93
$ 1.15
$ 1.07
(a) The earnings from discontinued operations from 2000 to 2001 include the sale of Sky Chefs. The earnings from discontinued
operations from 2000 to 2003 include the sale of Lantic Sugar/Rogers Sugar and MAGNATRAX. The earnings from discontinued
operations from 2000 to 2004 include the sale of Dura Automotive, Loews Cineplex Group, Cincinnati Electronics, Armtec and
InsLogic. Previously reported consolidated revenues and earnings figures for the year 2000 to 2003 have been restated to classify the
results of the above entities as discontinued operations.
80
ITEM 4
(continued)
Quarterly Information
The following is a summary of key consolidated financial information of the Company
for the last eight quarterly periods.
2003
2004
Dec
Sept
June
$3,894
$3,230
$2,889
$ 2,886
(3,867)
(3,408)
(2,883)
(2,594)
(2,610)
(2,772)
(261)
(263)
(176)
(203)
(192)
(195)
293
(112)
$ 223
(100)
$ 171
(100)
84
(103)
$ 147
(107)
Dec
Sept
June
Mar
Revenues
$3,925
$ 4,004
$ 4,421
Cost of sales
(3,720)
(3,515)
(180)
(249)
($ millions except per share amounts)
Selling, general and
administrative expenses
Earnings before the undernoted
items
Amortization of capital assets
Amortization of goodwill and
other intangible assets
Interest expenses of operating
companies
Interest and other income
Equity income (loss) in long-term
investments
Foreign exchange gain (loss)
Stock-based compensation
Derivative instruments
Gains (loss) on shares of
operating companies
Acquisition, integration and other
expenses of operating companies
Debt prepayment costs
Impairment of goodwill and
impairment of long lived assets
$ 25
(99)
$
240
(105)
$
$
92
(97)
$
Mar
$ 3,114
(26)
(25)
(22)
(21)
(23)
(23)
(20)
(25)
(89)
92
(61)
11
(49)
2
(54)
6
(73)
31
(36)
5
(34)
19
(48)
26
(4)
(52)
(34)
(9)
(6)
(79)
9
117
2
13
(37)
(59)
2
(42)
(20)
(51)
6
-
12
7
-
(48)
(31)
-
(35)
32
-
5
83
4
90
116
(1)
(5)
19
(59)
(2)
(50)
(4)
(75)
(2)
(27)
0
(45)
(2)
(72)
-
(32)
1
(2)
(10)
(480)
-
(5)
(2)
(259)
(231)
Earnings (loss) before income
taxes and non-controlling
interests
(732)
130
(47)
55
(229)
(344)
Recovery (provision) for income
taxes
(318)
(17)
(8)
(4)
(71)
(3)
5
2
786
25
(23)
(7)
176
65
27
(12)
(264)
138
(78)
44
(124)
(282)
(137)
(13)
50
143
9
(7)
276
(5)
(25)
(22)
$ 152
$ (287)
$ (162)
$ (35)
Non-controlling interests in results
of operating companies
Earnings from continuing
operations
Earnings from discontinued
operations
Net earnings (loss)
$ (214)
$281
$
(69)
$
37
-
(169)
-
(3)
Earnings per Subordinate
Voting Share:
Basic
Net earnings
Diluted
Net earnings
$(1.90)
$(1.54)
$ 0.97
$ 2.02
$ (0.55)
$ (0.49)
$ 0.30
$ 0.26
$(0.82)
$(1.01)
$ (1.85)
$ (1.88)
$ (0.90)
$ (1.06)
$ (0.08)
$ (0.23)
$(1.90)
$(1.54)
$ 0.97
$ 2.02
$ (0.55)
$ (0.49)
$ 0.30
$ 0.26
$(0.82)
$(1.01)
$ (1.85)
$ (1.88)
$ (0.90)
$ (1.06)
$ (0.08)
$ (0.23)
81
ITEM 4
(continued)
Dividends and Dividend Policy
Dividends are paid quarterly on or about the last day of January, April, July and October
in each year. The Board of Directors normally reviews dividends in May of each year,
with any changes becoming effective with the July payment. As of March 22, 2004, the
quarterly dividend was $0.0275 per Subordinate Voting Share.
In January 1989, a special stock dividend at that time of $1.50 (pre-splits) per
Subordinate Voting Share was paid from the net gain on the sale of the Onex Packaging
Inc. shares. These figures do not reflect the 2-for-1 stock splits effective June 1, 2000 and
1999.
On December 30, 1991, a special stock dividend at that time at the rate of $3.50
(pre-splits) per Subordinate Voting Share was paid from the proceeds of sale of Beatrice
Foods. Recipients of the special dividend were offered the opportunity to reinvest all or
part of the proceeds in Subordinate Voting Shares of Onex at price of $5.90 (pre-splits)
per share. Upon completion of the dividend investment rights offering on February 28,
1992, an additional 7,560,475 (pre-splits) Subordinate Voting Shares were issued for net
proceeds of $44.2 million. These figures do not reflect the 2-for-1 stock splits effective
June 1, 2000 and 1999.
On August 5, 1993, the shareholders approved a special resolution amending the
Articles of the Company that removed all dividend rights attaching to the Multiple
Voting Shares. Subsequently, a Special Dividend was declared to the holder of Multiple
Voting Shares by way of a stock dividend of 7,097,370 (pre-splits) Subordinate Voting
Shares which, immediately following issuance, represented 20% of the total issued and
outstanding Subordinate Voting Shares. These figures do not reflect the 2-for-1 stock
splits effective June 1, 2000 and 1999.
82
ITEM 5
Management’s Discussion and Analysis of Results
Of Operations and Financial Condition
The information is in Onex’ December 31, 2004 Report, which is incorporated herein by
reference.
83
ITEM 6
Capital Structure
Onex Corporation had the following authorized and outstanding share capital:
i) 100,000 Multiple Voting Shares, which entitle their holders to elect 60% of the
Company’s Directors and carry such number of votes in the aggregate as represents
60% of the aggregate votes attached to all shares of the Company carrying voting
rights. The Multiple Voting Shares have no entitlement to a distribution on windingup or dissolution other than the payment of their nominal paid-up value. As at March
23, 2005, Onex had 100,000 Multiple Voting Shares outstanding.
ii) An unlimited number of Subordinate Voting Shares, which carry one vote per share
and as a class are entitled: to 40% of the aggregate votes attached to all shares of the
Company carrying voting rights; to elect 40% of the Directors; and to appoint the
auditors. These shares are entitled, subject to the prior rights of other classes, to
distributions of the residual assets on winding-up and to any declared but unpaid cash
dividends. The shares are entitled to receive cash dividends, dividends in kind and
stock dividends as and when declared by the Board of Directors. These shares trade on
the Toronto Stock Exchange, under the symbol OCX.SV. As at March 23, 2005, Onex
had 139,015,924 Subordinate Voting Shares issued and outstanding.
The Multiple Voting Shares and Subordinate Voting Shares are subject to
provisions whereby, if an event of change occurs (such as Mr. Schwartz ceasing to
hold, directly or indirectly, more than 5,000,000 Subordinate Voting Shares or related
events), the Multiple Voting Shares will thereupon be entitled to elect only 20% of the
Directors and otherwise will cease to have any general voting rights. The Subordinate
Voting Shares would then carry 100% of the general voting rights and be entitled to
elect 80% of the Directors.
iii) An unlimited number of Senior and Junior Preferred Shares issuable in series. The
Directors are empowered to fix the rights to be attached to each series. There is no
consolidated paid-in value for these shares. As at March 23, 2005, Onex had 176,078
Series 1 Senior Preferred Shares issued and outstanding. All of these shares were held
by an affiliated company.
84
ITEM 6
Capital Structure
(continued)
Share Trading Information
January
February
March
April
May
June
July
August
September
October
November
December
Share
Volume
(millions)
21.4
9.6
15.3
6.5
8.4
12.1
7.8
3.5
5.0
3.8
5.8
5.1
Fiscal 2004
104.3
2004
Share Price
High
Low
17.03
16.50
16.60
17.02
17.00
17.42
16.80
16.73
17.24
17.94
18.99
20.40
14.75
15.50
15.65
16.12
16.21
15.50
15.90
15.99
16.25
16.91
17.20
18.65
20.01
14.90
85
ITEM 7
Market for Securities of Onex
Public Offering of Shares in 1994
In February 1994, Onex issued 5,500,000 (pre-splits) Subordinate Voting Shares at
$17.75 (pre-split) per share pursuant to a public offering; net proceeds were
$93.7 million. After the offering, Onex had 41,013,404 (pre-splits) Subordinate Voting
Shares outstanding. These figures do not reflect the 2-for-1 stock splits, effective June 1,
2000 and 1999.
Public Offering of Shares in 1997
In January 1997, Onex issued 7,650,000 (pre-splits) Subordinate Voting Shares at $23.00
(pre-splits) per share pursuant to a public offering; net proceeds were $168.7 million.
After the offering, Onex had 47,507,282 Subordinate Voting Shares outstanding. These
figures do not reflect the two for one stock splits effective June 1, 2000 and 1999.
Stock Split
On March 5, 1999, the Board of Directors approved a split of Onex’ Subordinate Voting
Shares on a two-for-one basis, subject to shareholder approval at the Annual and Special
Meeting. On May 13, 1999, shareholders approved the two for one stock split of Onex’
Subordinate Voting Shares for those shares held of record on June 1, 1999. On March 21,
2000, the Board of Directors approved a further split of Onex’ Subordinate Voting Shares
on a two for one basis subject to shareholder approval at the Annual and Special Meeting.
On May 11, 2000 shareholders approved the two for one stock split of Onex’ Subordinate
Voting Shares for those shares held on record June 1, 2000.
Stock Option Plan
Under the 1994 Stock Option Plan of Onex, options and/or share appreciation rights for a
term not exceeding ten years may be granted to Directors, officers and employees relative
to the acquisition of Subordinate Voting Shares (“SVS”) of the Corporation at a price not
less than the market value of the shares on the business date preceding the date of the
grant. Options or share appreciation rights may not be exercised unless the average
market price (in the five business days prior to the exercise) of the Subordinate Voting
Shares exceeds the exercise price of the options or share appreciation rights by at least
25%. The payment, if any, of special distributions to holders of Subordinate Voting
Shares could result in an adjustment of the exercise price. There are 15,632,000 SVS
reserved for issuance, post June 1, 1999 and June 1, 2000 stock splits, under the Stock
Option Plan. At December 31, 2004, options representing 13,961,700 shares were
outstanding. Further Information is set out on page 15 of the Information Circular under
the heading “Executive Compensation Report”, which information is incorporated herein
by reference.
86
ITEM 7
(continued)
Dividend Reinvestment Plan
In October 1999, Onex reinstated its Dividend Reinvestment Plan (“the Plan”). The Plan
provides a means for Canadian holders of Onex’ Subordinate Voting Shares to reinvest
cash dividends into new Subordinate Voting Shares issued by Onex at a five percent
discount to a market-related value and without payment of brokerage commissions. The
Plan was amended in March 2004 to remove the discount to market so that future shares
acquired under the Plan would be determined based on a 20 trading day market value.
During 2004, the Company issued 72,166 Subordinate Voting Shares under the plan at an
average cost of $15.08 per share.
Normal Course Issuer Bids
In 2004, Onex had in place Normal Course Issuer Bids, which enables to Company to
repurchase up to 10 percent of its public float of Subordinate Voting Shares. At
December 31, 2004, Onex had repurchased 9,143,100 Subordinate Voting Shares at a
total cost of $150 million.
Other Securities
9.25% Exchangeable Debentures
Ten-year debentures in the total principal amount of approximately $415 million, were
issued by Onex in October 1997 that were exchangeable at any time, at the option of the
holder, for trust units of Rogers Sugar Income Fund. Interest on the debentures was
payable quarterly. Onex was required to pay a minimum of 1% annually and could, in
certain circumstances, defer interest payments in excess of 1%. Each $1,000 principal
amount of debenture was exchangeable for 100 trust units. Onex had the right to redeem
the balance of the debentures once 66.67% of the debentures had been exchanged, or
after October 2000. As of December 31, 1997, $109.9 million of debentures had been
exchanged for 10,989,050 Trust Units. All the Rogers Sugar Income Fund Trust Units,
held by Onex and Balaclava Acquisition Inc., were held as collateral for the balance of its
exchange obligation. In September 1998, Onex exercised its right to convert the
remaining outstanding exchangeable debentures. Onex’ obligation related to the
exchange of the exchangeable debentures was satisfied through delivery of the RSIF
Trust Units.
Celestica Exchangeable Debentures
Four series of 25-year debentures, for an aggregate principal amount of approximately
$730 million, were issued by Onex in 2000 that were exchangeable at the request of the
holder into an aggregate of approximately 9.2 million Celestica Subordinate Voting
Shares. At Onex’ option, it may repay the debentures at any time by delivering the cash
equivalent based on the market price of the Celestica shares at the time of exchange, the
exchange number of shares or a combination of shares and cash. Onex has pledged
Celestica shares to secure its obligation upon any exercise of the holders’ exchange right.
In February 2005, Onex redeemed the outstanding debentures and settled the obligation
through the delivery of approximately 9.2 million Celestica subordinate voting shares.
87
ITEM 7
(continued)
Celestica Forwards
During 2000, Onex entered into four forward sale agreements of an aggregate 1,871,295
Celestica Subordinate Voting Shares that mature between April 30, 2001 and
November 2, 2025. Onex has pledged Celestica shares as collateral for these forward sale
agreements. On March 9, 2001, Onex settled two of these forward agreements, totalling
113,828 of Celestica Subordinate Voting Shares.
Deferred Share Unit Plan
In November 2004, Onex established a Deferred Share Unit Plan (“DSU Plan”), which
allows Onex directors to apply directors’ fees to acquire Deferred Share Units (“DSUs”)
based on the market value of Onex shares at the time. Grants of DSUs may also be made
to Onex directors from time to time. Holders of DSUs are entitled to receive, for each
DSU upon redemption, a cash payment equivalent to the market value of a Subordinate
Voting Share at the redemption date. The DSUs vest immediately, are only redeemable
once the holder resigns from the board of directors and must be redeemed by the end of
the year following the year of resignation. Additional units are issued equivalent to the
value of any cash dividends that would have been paid on the Subordinate Voting Shares.
At March 23, 2005, Onex had 40,000 DSUs outstanding.
88
ITEM 8
Material Contracts
In November 2003, Onex completed the initial closing of its Fund, Onex Partners LP
(“Onex Partners”), with funding commitments totalling US$1 billion. The final closing of
the Fund was completed in February 2004 with total commitments of US$1.655 billion.
The Fund is to provide committed capital for future Onex-sponsored acquisitions not
related to Onex’ existing operating companies at December 31, 2003 or ONCAP. Onex
has provided a commitment of US$400 million of the total US$1.65 billion of committed
capital to the Fund. Onex controls the General Partner and Manager of the Fund. Onex
management has committed as a group to invest a minimum of 1% of the Fund.
Onex will receive annual management fees based upon 2% of the capital
committed to the Fund by investors other than Onex or Onex management. The
management fee going forward will be reduced by the effect of capital that has invested
by the Fund. Onex will be entitled to receive a carried interest on the overall gains
achieved by Fund investors, other than Onex, to the extent of 20% of the gains as long as
the Fund investors have achieved a minimum 8% return on their investment in the Fund.
The investment by Fund investors for this purpose takes into consideration management
fees and other amounts paid in by the Fund investors.
The returns to the Fund investors are based upon all investments made through
the Fund with the result that initial carried interests achieved by Onex on gains could be
recovered from Onex if there are subsequent losses on Fund investments or the overall
target return level of 8% is not exceeded. Consistent with market practice, Onex, as
sponsor of the Fund, will be allocated 40% of the carried interest with 60% allocated to
the management of the Fund.
At March 23, 2005, Onex Partners and Onex had invested $843 million, of which
Onex’ share was $235 million.
89
ITEM 9
Directors
Information concerning the current and proposed directors of Onex is set out starting at
page 3 of the Information Circular under the heading “Election of Directors”, which
information is incorporated herein by reference.
Officers
Name and Municipality of Residence
Principal Occupation
Gerald W. Schwartz
Toronto, Ontario
Chairman of the Board
President and Chief Executive Officer
Christopher A. Govan
Oakville, Ontario
Managing Director – Taxation
Ewout R. Heersink
Oakville, Ontario
Managing Director and
Chief Financial Officer
Mark L. Hilson
Toronto, Ontario
Managing Director
Donald W. Lewtas
Toronto, Ontario
Managing Director
Anthony R. Melman
Toronto, Ontario
Managing Director
Seth M. Mersky
Toronto, Ontario
Managing Director
Andrew J. Sheiner
Toronto, Ontario
Managing Director
Nigel S. Wright
Toronto, Ontario
Managing Director
Andrea Daly
Toronto, Ontario
General Counsel
John S. Elder
Toronto, Ontario
Secretary
All of the Officers of the Company have held these positions over the past five years with
Onex Corporation with the exception of Ms. Daly. Prior to 2004, Ms. Daly was a partner
at Davis, Ward & Beck.
As at March 23, 2005, Mr. Schwartz, and the other Officers and Directors of the
Company as a group, beneficially owned directly or indirectly, or exercised control or
direction, or may be deemed to have exercised control or direction, over an aggregate of
24% of the outstanding Subordinate Voting Shares of the Company.
90
ITEM 9
(continued)
Supplementary Information
Arni C. Thornsteinson, a director of the Corporation, made a proposal under the
Bankruptcy & Insolvency Act (Canada) on November 7, 1996 and was effectively
discharged under such proceeding on October 15, 1997.
Each of Mark L. Hilson and Nigel S. Wright, officers of the Corporation, was a
director of MAGNATRAX Corporation, which made a filing under chapter 11 of the
United States Bankruptcy Code on May 12, 2003.
John S. Elder, an officer of the Corporation, is a partner of Fraser Milner
Casgrain LLP and a director of Richtree Inc. Richtree Inc. is not affiliated with Onex. In
late December 2002 and again in late December 2003 the Ontario Securities Commission
issued a temporary order prohibiting each of the directors of Richtree Inc. from trading in
the securities of Richtree Inc. until Richtree’s annual audited financial statements were
filed. The directors individually consented to the Commission issuing such orders. Such
orders were lifted in late January 2003 and late February 2004 respectively following
Richtree’s filing of the audited financial statements for the relevant fiscal year.
91
ITEM 10
Audit and Corporate Goverance Committee Charter
Purpose
The primary function of the Audit and Corporate Governance Committee (the
“Committee”) is to assist the board of directors in fulfilling its oversight responsibilities
by reviewing the financial information that will be provided to the shareholders and
others, the systems of internal controls that management and the board of directors have
established, and the Company’s and its subsidiaries' audit and financial reporting process.
The Committee has the responsibility to review and monitor the corporate governance
practices of the Company. The external auditors ultimate responsibility is to the board of
directors and the Audit and Corporate Governance Committee, as representatives of the
shareholders. These representatives have the ultimate authority to evaluate and, where
appropriate, recommend replacement of the external auditors.
The Audit and Corporate Governance Committee will primarily fulfill these
responsibilities by carrying out the activities enumerated in ensuing sections of this
Charter. The Committee is given full access to the Company's management and records
and external auditors as necessary to carry out these responsibilities.
Composition and Qualification
The Audit and Corporate Governance Committee shall be comprised of three directors,
each of whom will be an independent director, as contemplated by the guidelines of The
Toronto Stock Exchange and the proposed "Best Practices'' recommendations published
by the Ontario Securities Commission.
All members of the Committee shall be financially literate and thus be able to
read and understand a set of financial statements that have a level of complexity of
accounting that is comparable to that of the Corporation's financial statements. At least
one member of the Committee shall have accounting or related financial expertise. This
could include past employment experience in finance or accounting, requisite
professional certification in accounting, or any other comparable experience or
background which results in the individual's financial sophistication, including being or
having been a chief executive officer, chief financial officer or other senior officer of an
entity with financial oversight responsibilities.
Responsibilities and Duties
To fulfill its responsibilities and duties, the Audit and Corporate Governance Committee
shall:
(a) Review the accounting principles, policies and practices followed by the Company
and its subsidiaries in accounting for and reporting its financial results of operations.
92
ITEM 10
(continued)
(b) Review the Company's audited annual consolidated financial statements and the
unaudited quarterly financial statements. Also review and recommend to the board for
approval any accompanying related documents such as the Annual Information Form or
equivalent filings and the Management's Discussion and Analysis prior to the disclosing
of the information to the public.
(c) Review the draft earnings press release quarterly.
(d) Oversee the work of the external auditor and recommend to the board of directors the
selection of the external auditors to be put forward to the shareholders at the annual
meeting.
(e) Obtain on an annual basis a formal written statement from the external auditors
delineating the relationship between the audit firm and the Company, and review and
discuss with the external auditors such relationship to determine the "independence'' of
the auditors.
(f) Review any management letter prepared by the external auditors concerning the
Company's internal financial controls, record keeping and other matters and
management's response thereto.
(g) Discuss with the external auditors their views about the quality of the implementation
of Canadian Generally Accepted Accounting Principles, with a particular focus on the
accounting estimates and judgments made by management and management's selection
of accounting principles. Meet in private with appropriate members of management and
separately with the external auditors on a regular basis to share perceptions on these
matters, discuss any potential concerns and agree upon appropriate action plans. Review
with the external auditor their views on the adequacy of the Company's financial
personnel.
(h) Approve the scope of the annual audit, the audit plan, the access granted to the
Company's records and the co-operation of management in any audit and review
function.
(i) Review the effectiveness of the independent audit effort, including approval of the
fees charged in connection with, the annual audit, any quarterly reviews and any nonaudit services being provided.
(j) Evaluate the lead audit partner and discuss rotation of the lead audit partner and other
active audit engagement team partners.
93
ITEM 10
(continued)
(k) Assess the effectiveness of the working relationship of the external auditors with
management and become involved, if necessary, to resolve disagreements between
management and the external auditor regarding financial reporting matters.
(l) Review the financial risk management policies followed by the Company in operating
its business activities and the completeness and fairness of any disclosure thereof.
Review the use of derivative financial instruments by the Company.
(m) Review and approve management's decisions relating to any potential need for
internal auditing, including whether this function should be outsourced and if such
function is outsourced, approve the supplier of such service.
(n) Review annually the Audit and Corporate Governance Committee Charter for
adequacy and recommend any changes to the board.
(o) Determine the nature of non-audit services the external auditor is prohibited from
providing to the Company. The Committee will pre-approve all non-audit services
provided by the external auditor to the Company.
(p) Review and approve the Company's hiring policies regarding partners, employees and
former partners and employees of the external auditor.
(q) Establish and review procedures for the receipt, retention and treatment of complaints
received by the Company regarding accounting, internal accounting controls, auditing
matters and the anonymous submission by employees of the Company of concerns
regarding questionable accounting or auditing matters.
(r) Report to the board on the major items covered at each Audit and Corporate
Governance Committee meeting and make recommendations to the board and
management concerning these matters. Annually report to the board on the effectiveness
of the Audit and Corporate Governance Committee.
(s) Perform any other activities consistent with this Charter, the Company's bylaws and
governing law as the Committee or the board deems necessary or appropriate.
Corporate Governance Responsibilities
While corporate governance remains the responsibility of the board of directors, the
Committee shall review and monitor the corporate governance practices of the Company.
This includes:
a) Reviewing the corporate governance disclosures that may be made by the Company.
94
ITEM 10
(continued)
b) Reviewing compensation for members of the board of directors and recommending
compensation levels to the board.
c) Assessing on an annual basis the corporate governance practices. This would include
the completion of an annual questionnaire of the board members on corporate
governance and the effectiveness of the board.
d) Reviewing financial qualifications of Audit and Corporate Governance Committee
members.
e) Oversee the orientation program for new directors.
f) Monitoring on a continuing basis the overall effectiveness of the Company's system
of corporate governance.
Audit and Corporate Governance Meetings
The Audit and Corporate Governance Committee will meet on a quarterly basis and will
hold special meetings as circumstances require. The timing of the meetings shall be
determined by the Committee. The Committee may engage external advisors as it
determines necessary and sets the compensation for such advisors.
At all Audit and Corporate Governance Committee meetings a majority of the
members shall constitute a quorum.
95
ITEM 10
(continued)
Composition of the Audit and Corporate Governance Committee
The Audit and Corporate Governance Committee is comprised of three directors, each of
whom is an independent director. The members of the Committee are:
Audit and Corporate Governance
Committee Member
Peter C. Godsoe, O.C.
Experience and Education
Mr. Godsoe was Chairman of the Board until March
2, 2004 and Chief Executive Officer until December
2, 2003 of the Bank of Nova Scotia. From 1966, he
held positions of increasing responsibilities with the
Bank of Nova Scotia, becoming Chairman of the
Board in 1995. In 2002, Mr. Godsoe received the
Order of Canada and was inducted into the
Canadian Business Hall of Fame. Mr. Godsoe holds
a Bachelor of Science degree in Mathematics and
Physics from the University of Toronto and a
Master of Business Administration degree from
Harvard Business School. He is also a Chartered
Accountant and a Fellow of the Institute of
Chartered Accountants of Ontario.
Serge Gouin
Mr. Gouin is President and Chief Executive Officer
of Quebecor Media Inc. He is the former Vice
Chairman of Salomon Smith Barney Canada Inc.
(1998-2003) and President and Chief Operating
Officer of Le Groupe Vidéotron Ltée. (1991-1996).
Mr. Gouin holds a Bachelor of Arts degree from the
University of Montreal as well as a Bachelor of Arts
degree and Master of Business Administration
degree from the Ivey School of Business.
Arni C. Thorsteinson, C.F.A.
Mr. Thorsteinson is the President of Shelter
Canadian Properties Limited, a diversified real
estate development and management company. He
holds a Bachelor of Commerce (Honours) from the
University of Manitoba and a Chartered Financial
Analyst designation.
All of the Audit and Corporate Governance Committee members are financially literate
and are able to read and understand a set of financial statements that have a level of
complexity of accounting that is comparable to that of the Company's financial
statements.
96
ITEM 10
(continued)
Onex Audit and Non-Audit Services Pre-Approval Policies and Procedures
Purpose
The purpose of this policy is to set guidelines for the pre-approval of services that are to
be provided by the companies’ auditors, and to establish services that the auditors may
not provide (Prohibited Services). For the purpose of this policy Prime Auditor shall refer
to the auditor of Onex Corporation (the Company) and Secondary Auditor shall refer to
an auditor of a wholly owned subsidiary or operating company (the company) where that
auditor is not the same as the Prime Auditor. At the time of approval of this policy the
Prime Auditor was PricewaterhouseCoopers and the Secondary Auditors were KPMG,
D&T and E&Y.
Objective
To provide oversight of the work of the independent auditors and ensure compliance with
regulatory requirements.
Scope
This policy applies to Onex Corporation, all of its corporate wholly-owned subsidiaries,
including foreign subsidiaries, and operating companies.
Prohibited Services
The following services may not be provided by the Prime Auditor or Secondary Auditor
to the Company nor to any subsidiaries or affiliates:
•
•
•
•
•
•
management functions
human resources;
broker or dealer, investment adviser, or investment banking services;
legal services
expert services unrelated to the audit, and
any other service that the Board determines or, by regulation, is not permissible.
The following services cannot be provided by an auditor of a company to that company
or any of its subsidiaries or affiliates:
•
•
•
•
•
bookkeeping or other services related to the accounting records or financial
statements of the audit client;
financial information systems design and implementation;
appraisal or valuation services, fairness opinions, or contribution-in-kind reports;
actuarial services;
internal audit outsourcing services.
97
ITEM 10
(continued)
Pre-approval for Required Non-Audit Services
A registered public accounting firm may engage in any non-audit service, including tax
services, litigation support and internal control documentation, that is not described in the
Prohibited Services, only if the activity is approved in advance by the audit committee of
that company, in accordance with the Pre-approval Requirements section of this policy.
Pre-approval Requirements
In general:
(a) Audit Committee Action – All auditing services and non-audit services provided to a
company by the auditor of the company shall be pre-approved by the audit committee
of that company. Lists of the nature of specific services that are pre-approved is
provided below. Services not listed must be specifically pre-approved before the
engagement commences in accordance with Section 7 of this policy.
Pre-approval of Individual Services
From time to time it is expected that certain services, which are not contemplated in the
Pre-approval Requirements Section of this Policy, may need to be specifically preapproved. Where these services are to be performed for the Company then the Audit
Committee has delegated the authority to effect such pre-approval to the Chairman of the
Audit Committee or such other member of the Audit Committee as the Chairman may
choose to appoint. Where such services are to be performed for other subsidiaries or
affiliates who have their own Audit Committee, it is expected that this company’s Audit
Committee should first approve such services and thereafter communicate the nature of
such services to the Onex Audit Committee for approval.
Report of Services to the Audit Committee
At each regularly scheduled meeting of the Audit Committee, management shall report
on all new pre-approved engagements of the Prime Auditor or Secondary Auditor to the
Company.
Similarly, where a subsidiary has an Audit Committee, at each regularly
scheduled meeting management of that company should report on all new pre-approved
engagements of the Primary Auditor or Secondary Auditor to the Audit Committee.
Annually, management will present to the Audit Committee a summary of all
pre-approved services performed by the Prime Auditor or Secondary Auditor for the
Company and its subsidiaries and affiliates.
98
ITEM 10
(continued)
List of Services for Audit Committee Pre-approval
1. Audit services
Type of Service
Financial Statement
Audit
Quarterly reviews
Regulatory financial
filings
404 attestation
services
Description
Recurring audit of consolidated financial statements including
subsidiary companies, statutory audits and assistance with
statutory audit disclosures. Also including review of other
documents associated with the annual audit, MD&A, Annual
Report, AIF, Proxy Circular. Also including tax and accounting
consultations required to in connection with the financial
statement audit pertaining to complex or unusual transactions
and/or other consultations required to perform an audit in
accordance with generally accepted auditing standards.
Review of interim financial statements conducted in accordance
with generally accepted auditing standards
Services related to regulatory filings and prospectus including
consent and comfort letters.
Attestation services relating to the report on the entity’s internal
controls as specified in Section 404 of the Sarbanes-Oxley Act
and any similar requirements which may be introduced under
Canadian and other local legislation/regulations.
99
ITEM 10
(continued)
2. Non-Audit services
Type of Service
Consultation
regarding GAAP
Employee Benefit
Plans
Specified audit
procedures
Financial due
diligence
Post-acquisition
balance sheet audits
Review of other
financial information
Internal control
training / seminars
SOX advisory
services
Other attest services
Forensic
investigations
100
Description
Discussions, review of impact of new pronouncements and other
assistance in connection with the interpretation of accounting
literature, including technical update sessions.
Audit of pension and other employee benefit plans and funds for
regulatory purposes.
Such procedures being outside the scope of the normal financial
statement audit (for example specific inventory observance)
Assistance in financial and tax due diligence, including review of
financial statements, financial data and records, tax returns, tax
forms and tax filings, discussions with target’s finance and
accounting personnel.
Accounting consultations and audits in connection with
acquisitions and divestitures.
Audit services conducted on a balance sheet subsequent to a
purchase of a business which is not required by regulation or
statue, such services being executed in accordance with generally
accepted auditing standards
Reviews of financial information conducted in accordance with
standards for review engagements as provided for in generally
accepted auditing standards.
Assistance provided in training on internal controls and other
related seminars.
Advisory services with respect to complying with SarbanesOxley Section 404 and any similar requirements, which may be
introduced by Canadian and other local legislation/regulations.
Provided that at no such time shall such services involve the
auditor acting in the capacity as management
Attest services that are not required by statute or regulation,
including attest services in respect of special audit reports to
support tax filings.
Fact finding services and forensic investigations as long as such
services are permitted under independence rules.
ITEM 10
(continued)
3. Tax services
Type of Service
Corporate tax
compliance
Indirect tax
compliance and
advisory
Routine corporate tax
advisory services
Tax related M&A
advisory services
Customs and duties
Expatriate tax
services
Description
Preparation and/or review of corporate tax returns, filings and
forms. Consultation regarding handling of items for tax returns,
required disclosures, elections, and filings positions available.
Indirect tax recovery, compliance and advisory services (VAT,
PST, GST, payroll tax and other commodity taxes) including
compliance advice, audit support, recovery services.
Assistance with tax audits, examination of requests for
information. Responding to requests regarding technical
interpretations, applicable laws and regulations, and tax
accounting. Tax advice on financings, inter-company
transactions, foreign tax credits, foreign income tax, tax
accounting, foreign earnings and profits, capital tax, sales tax,
use tax, property tax, the treatment in any jurisdiction of foreign
subsidiary income, VAT, GST, excise tax or equivalent taxes in
the jurisdiction. Assistance with tax appeals that are not in front
of a tax court or its equivalent. Advice regarding tax legislation
or codes including interpretations, procedures and advance tax
rulings or private letter rulings thereof, or their equivalent, in
applicable jurisdictions in the following areas: income, capital
sales, use, property, excise, local value added (VAT and GST
taxes. Advice and assistance with respect to transfer pricing
matters, including preparation of reports used by the company to
comply with taxing authority documentation requirements
regarding royalties, services and inter-company pricing and
assistance with tax exceptions.
Tax advice on mergers, acquisitions, restructurings, financings
and other merger and acquisition related transactions proposed
and actual. Including tax due diligence and acquisition
structuring in support of M&A transactions
Compliance reviews and advice on compliance in the areas of
tariffs and classification, origin, pricing and documentation.
Assistance with customs audits or requests for information.
Preparation of individual income tax returns, advice on impact of
changes in local tax laws and consequences of changes in
compensation programs or practices. Compliance and advice in
relation to benefits and compensation, stock options, and tax
equalization policies.
101
ITEM 10
(continued)
4. Other services
Type of Service
Valuation
Financial systems
design and
implementation
Actuarial services
Internal audit
outsourcing
Description
Valuation services for non-financial reporting in connection with
tax only valuations and valuation services to review and
comment on tax related valuations prepared by the company or
third parties. Also financial reporting related valuation services
provided that such services are in accordance with the prohibited
services section of this policy.
Design or implementing a hardware of software system,
provided that such services can only be provided by in
accordance with the prohibited services section of this policy.
Such services can only be provided in accordance with the
prohibited services section of this policy.
Internal audit activities cannot be provided except in accordance
with the prohibited services section of this policy.
Fees Paid to Auditors
The following table sets forth the aggregate fees incurred by the Company and operating
companies for audit and other services performed by the Company's auditor,
PricewaterhouseCoopers, for the years ended December 31, 2004 and 2003.
2004
$580,000
2,485,000
3,065,000
11,000
5,002,000
5,013,000
2003
$758,000
5,026,000
5,784,000
11,000
5,127,000
5,138,000
38,000
5,019,000
5,057,000
49,000
1,344,000
1,393,000
$14,528,000
30,000
30,000
86,000
2,768,000
2,854,000
$13,806,000
Audit at corporate office………………………
Audit at operating companies………………….
Tax at corporate office…………………………
Tax at operating companies……………………
Internal controls for Sarbanes-Oxley and Bill 198
Corporate office
Operating companies
Other at corporate office(a)……………………
Other at operating companies(a)……………….
Total……………………………………………
(a) Includes fees for permitted statutory or regulatory filings and other non-audit services.
102
ITEM 11
Additional Information
Additional information, including information concerning the remuneration of Directors
and Officers, their indebtedness to the Company, principal holders of the Company’s
securities, options and share appreciation rights to acquire securities, interests of insiders
in material transactions, and the normal course issuer bid is, where applicable, contained
in the Information Circular for the annual meeting of shareholders of Onex to be held on
May 12, 2005. A review of the Corporation’s corporate governance policies, with
reference to the current and proposed Corporate Governance Guidelines of the Toronto
Stock Exchange, is also included in the Information Circular.
Additional financial information, including comparative consolidated audited
financial statements, is provided in the Company’s 2004 Management’s Discussion and
Analysis and Financial Statements.
Copies of the Information Circular of Onex, which is incorporated herein by
reference, and of this Annual Information Form, the Report to Shareholders, the
Consolidated Financial Statements of Onex for the year ended December 31, 2004, and
any interim unaudited financial statements of Onex subsequent to such date, are available
on the Company’s website (www.onex.com) or, upon request, from Mr. Donald W.
Lewtas, Managing Director, Onex Corporation, 161 Bay Street, P.O. Box 700, Toronto,
Ontario, M5J 2S1 or on the Canadian Systems for Electronics Document Analysis and
Retrieval (SEDAR) at www.sedar.com. In the event that Onex Corporation should file a
preliminary short-form prospectus in respect of a distribution of its securities, or should a
receipt be issued by the applicable securities regulators in respect of such a short-form
prospectus, copies of any documents, other than those referred to above, incorporated by
reference into said preliminary short-form prospectus or short-form prospectus, will also
be made available.
Registrar and Transfer Agent
The registrar and transfer agent for the Company’s Subordinate Voting Shares is:
CIBC Mellon Trust Company
P.O. Box 7010
Adelaide Street Postal Station
Toronto, Ontario M5C 2W9
(416) 643-5500
or call toll-free throughout Canada and the United States
1-800-387-0825
www.cibcmellon.ca
or inquiries@cibcmellon.ca (e-mail)
103

2002 Onex Annual Information Form

Transcription

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