Onex Corporation
TSX : OCX

Onex Corporation

February 24, 2011 16:00 ET

Onex Reports Full-Year 2010 Results

TORONTO, ONTARIO--(Marketwire - Feb. 24, 2011) -

All amounts in Canadian dollars unless otherwise stated

Onex Corporation ("Onex") (TSX:OCX) today announced its consolidated financial results for the fourth quarter and full year ended December 31, 2010 and an update on matters following year end.

Highlights

  • Onex and Canada Pension Plan Investment Board acquired Tomkins in a transaction valued at approximately US$5 billion; Onex Partners III and certain limited partners invested US$1.2 billion in the equity of the business, of which Onex' share was US$315 million.

  • Onex Partners III acquired the remaining interest in ResCare not owned by Onex Partners; Onex Partners III invested US$120 million, of which Onex' share was US$22 million.

  • ONCAP II sold CSI Global Education, receiving net proceeds of $126 million, of which $50 million was Onex' share. Including prior amounts received, total proceeds were $146 million, generating a multiple of invested capital of 5.8 times and a gross IRR of 57%.

  • ONCAP II acquired Sport Supply Group in a transaction valued at approximately US$200 million; ONCAP II invested US$56 million of equity in the business, of which Onex' portion was US$29 million.

  • Onex Credit Partners, Onex' credit investing platform, raised over $340 million through the initial public offering of OCP Senior Credit Fund (TSX: OSL.UN).

  • In 2010, our businesses paid US$505 million in distributions, of which Onex received US$140 million, and retired US$775 million of debt.

  • The value of our interest in Onex Partners' private investments increased 37% to US$2.1 billion in 2010, which includes distributions received by Onex from these companies during the year. Overall, the value of Onex' proprietary capital grew by 19% in 2010.

  • At December 31, the unrealized carried interest was approximately US$133 million based on the public companies held at market value and on the year-end fair values of the private companies in the Onex Partners Funds.

  • During the year, Onex repurchased over 2 million shares for $52 million.

  • At December 31, Onex had no debt at the parent company and approximately $690 million of cash and near-cash investments, which excludes expected net proceeds from the announced EMSC sale.

Onex is an investor and asset manager generating value from (i) growth in the Company's $4.4 billion of proprietary capital; (ii) management fees based on the US$8.7 billion of third-party capital committed to its Funds, and (iii) a carried interest based on the performance of those Funds.

Investing

"As we look back on 2010, we're pleased with what we've accomplished. We acquired three great businesses and grew the value of our existing portfolio," said Gerald W. Schwartz, Chairman and Chief Executive Officer of Onex. "In the face of ongoing macroeconomic challenges, our operating companies not only persevered but in almost all cases strengthened their competitive positions. This was in large part due to the tremendous efforts to manage costs while still investing in new technologies. The results are tangible – our companies grew their earnings, reduced debt and in some cases paid meaningful distributions." 

During the fourth quarter, a number of our operating companies paid distributions totaling US$322 million, of which Onex' share was US$73 million. Combined with earlier distributions from Husky International, Carestream Health and TMS International, the total paid in 2010 was US$505 million, of which Onex received US$140 million.

Based on the valuations reported to our limited partners, the value of our private investments in the Onex Partners Funds grew 37% to US$2.1 billion, which includes distributions received during the year. The value of Onex' investment in ONCAP II increased 22% to $184 million. The performance of our Funds contributed to an overall increase in the value of Onex' proprietary capital of 19% to US$4.4 billion.

In February, it was announced that a definitive agreement had been reached to sell Emergency Medical Services Corporation to Clayton, Dubilier & Rice LLC for a purchase price of $64 per share. Under the proposed transaction, Onex, Onex Partners I and certain co-investors (the "Onex group") will sell their remaining 13.7 million EMSC shares, or 31% equity interest, for net proceeds of US$878 million. Based on the per-share cash cost of US$6.67 to acquire the business in 2005, this sale would result in a multiple of invested capital of approximately 10 times. Onex' portion of these net proceeds would be US$339 million including carried interest. The Onex group invested US$214 million in the company and will receive total net proceeds of US$1.65 billion, including the secondary offerings completed in 2009. This would result in a multiple of invested capital of approximately 8 times. The transaction is subject to certain customary closing conditions and is expected to close in the second quarter. 

"While our investment pipeline activity has not yet returned to pre-recession levels, the acquisition market continues to improve and we are much busier than we have been in the last few years," said Mr. Schwartz. "We are hopeful that improving macroeconomic conditions and operating performance as well as stable debt markets will persuade business owners that this is an opportune time to sell subsidiaries or mission-critical supply divisions. This segment of the market has represented some of our best investments."

Although it is difficult to predict investment pace, Onex is well-positioned to respond to the right opportunities. The Company continues to be in excellent financial condition, with approximately $690 million in cash and near-cash investments, no debt at the parent company and approximately US$3.1 billion of uncalled committed capital for acquisitions through the Onex Partners and ONCAP Funds. 

Over 26 years, Onex has established a strong culture that is based on long-held investing principles. The Company believes that long-term value is best created by focusing on enhancing the productivity and profitability of its businesses. By transforming undervalued businesses into industry leaders, Onex has produced impressive returns over its 26-year history. As of December 31, 2010, Onex has generated a 26-year gross IRR of 29% and an average multiple of 3.6 times invested capital from its private equity investing.

Onex continues to believe that its success is a result of the strong alignment of interests between Onex shareholders, our limited partners and the management team. At December 31, 2010, Onex' management team had almost $1.3 billion invested in Onex shares and in its operating companies.

Asset Management

Onex' earns recurring asset management fees and carried interest on US$8.7 billion of third-party capital. The current annualized rate of total management fees received is approximately US$97 million, which offsets Onex' operating costs.

At December 31, 2010, there was approximately US$49 million of unrealized carried interest allocable to Onex based on the public companies held at market value in Onex Partners I. In addition, Onex has the potential to earn a further US$84 million of carried interest on its private businesses in the Onex Partners Funds based on the fair values determined at year-end. Ultimately, the carried interest received will be determined upon the final returns of each Fund.

During the fourth quarter, Onex Credit Partners ("OCP") raised over $340 million for the new OCP Senior Credit Fund (TSX:OSL.UN), a publicly-traded Canadian retail fund. This contributed to a 50% increase of OCP's assets under management during the year, which is a testament to Onex' credit team, their track record and the strength of the Onex brand. 

In February, ONCAP, Onex' mid-market private equity platform, began fundraising for ONCAP III, with a target fund size of $700 million. As with each of its Funds, Onex will be the largest limited partner in ONCAP III.

Consolidated Fourth-Quarter and Full-Year Results

Onex' quarterly and full-year consolidated financial results do not follow any specific trends due to acquisitions and dispositions of businesses, the impact of foreign currency translation and varying business cycles at its operating companies.

On a consolidated basis for the fourth quarter, revenues increased 6% to $6.5 billion and operating earnings were up 14% to $584 million compared to the same period of the prior year. Onex reported a net loss of $3 million compared to net earnings of $40 million in the fourth quarter of 2009. Cash flow from operations decreased 17% to $465 million as companies invested in inventory and receivables due to growing business activity.

On a consolidated basis for the full year ended December 31, 2010, revenues were down 2% to $24.4 billion and operating earnings increased 3% to $2.0 billion compared to the same period of the prior year. Net loss was $51 million compared to net earnings of $112 million for the year ended December 31, 2009. There were $69 million of gains recorded in 2010, the majority of which was associated with the sale of CSI Global Education. The 2009 net earnings included $349 million of gains primarily from the sale of EMSC shares and Onex' remaining ownership in Cineplex Entertainment, and a non-cash $100 million income tax recovery. Onex reported cash generated from operations for the full year of $917 million compared to $1.3 billion in 2009. 

The Company paid a fourth-quarter dividend of $0.0275 per Subordinate Voting Share on January 31, 2011 to shareholders of record on January 10, 2011.

Operating earnings as referred to in this press release are a non-GAAP measure. See Management's Discussion and Analysis for the definition and reconciliation to the consolidated statements of earnings. 

Attached are the Consolidated Balance Sheets, Statements of Earnings, Statements of Cash Flows and information by industry segment for the full year ended December 31, 2010 and 2009. The complete financial statements, including Management's Discussion and Analysis of the results, are posted on Onex' website, www.onex.com, and are also available on SEDAR at www.sedar.com. Also attached is the "How We Are Invested" schedule, which details Onex' $4.4 billion of proprietary capital and provides private company performance information.

Webcast

Onex management will host a conference call to review the Company's fiscal 2010 results at 4:30 p.m. ET today. A live webcast of this conference call will be available in listen-only mode on its website, www.onex.com.

About Onex

Onex is one of North America's oldest and most successful investment firms committed to acquiring and building high-quality businesses in partnership with talented management teams. Onex manages investment platforms focused on private equity, real estate and credit securities. In total, the company manages approximately US$14 billion, of which US$10 billion is third-party capital. As well, Onex invests its own capital directly and as a substantial limited partner in its Funds.

Onex' businesses generate annual revenues of $36 billion, have assets of $42 billion and employ more than 238,000 people worldwide. Onex shares trade on the Toronto Stock Exchange under the stock symbol OCX. For more information on Onex, visit its website at www.onex.com. The Company's security filings can also be accessed at www.sedar.com.

This news release may contain forward-looking statements that are based on management's current expectations and are subject to known and unknown uncertainties and risks, which could cause actual results to differ materially from those contemplated or implied by such forward-looking statements. Onex is under no obligation to update any forward-looking statements contained herein should material facts change due to new information, future events or otherwise.

How We Are Invested
As at December 31, 2010
  Proprietary Capital
  (US$ millions) (CDN$ millions)
Private Equity        
  Onex Partners        
  Private Companies $ 2,0981 $ 2,0861
  Public Companies   5212   5182
  Unrealized Carried Interest on Onex Partners Investments   1333   1323
ONCAP   1844   1834
Direct Investments        
  Private Companies   2515   3405
  Public Companies   1722   1712
    3,359   3,430
Alternative Assets        
Onex Real Estate Partners   1416   1406
Onex Credit Partners   997   987
    240   238
Other Investments   75   75
Cash and Near-Cash   6908   6868
Onex Corporation Debt   Nil   Nil
   $  4,364  $  4,429
  1. Based on the US$ fair value of the investments in Onex Partners' financial statements and US$/CDN$ exchange rate of 0.9946.
  2. Based on the December 31, 2010 market values and US$/CDN$ exchange rate of 0.9946.
  3. Represents unrealized carried interest on public and private companies in the Onex Partners Funds.
  4. Based on the CDN$ fair value of the investments in ONCAP's financial statements and US$/CDN$ exchange rate of 0.9946.
  5. Historical US$ and historical CDN$ cost amounts.
  6. Based on carrying value of Onex Real Estate Partners' investments at December 31, 2010.
  7. Based on the December 31, 2010 market values and US$/CDN$ exchange rate of 0.9946. Excludes CDN$156 (US$157) million investment in Onex Credit Partners' unleveraged senior secured loan strategy fund, which is included with cash and near-cash items.
  8. Includes approximately CDN$156 (US$157) million invested in Onex Credit Partners' unleveraged senior secured loan strategy fund.
 
Significant Public Companies
               
  Shares/      
  Units     Market
  Subject Shares/   Value of
  to Units Closing Onex'
  Carried Held by Price Investment2
  Interest   Onex   per   (US$   (CDN$
  (millions)   (millions)   Share1   millions)   millions)
Onex Partners                        
  Emergency Medical Services 7.0   4.8   US$ 64.61   $ 3103   $ 3083
  Skilled Healthcare 10.7   3.5   US$ 8.98     313     313
  Spirit AeroSystems 17.2   8.6   US$ 20.81     1803     1793
                  521     518
Direct Investments                        
Celestica -   17.8   US$ 9.70     172     171
                $ 693   $ 690
  1. Closing price on December 31, 2010.
  2. Based on closing price on December 31, 2010 and US$/CDN$ exchange rate of 0.9946.
  3. Excludes Onex' potential participation in the carried interest.
                   
Significant Private Companies
                   
                 
                Cost of Onex'
                Investment
      LTM Net Cumulative     (Net of
      EBITDA2 Debt Distributions Onex   Returns of
  Onex   (US$ (US$ (US$ Economic   Capital)
  Ownership1   millions) millions) millions) Ownership   (US$ millions) (CDN$ millions)
Onex Partners                  
  Center for Diagnostic Imaging   81 % $ 39 $ 39 $ - 19 % $ 17 $ 21
  The Warranty Group   92 %   1123   n/a   161 29 %   154   175
  TMS International   91 %   120   335   23 36 %   93   109
  Hawker Beechcraft   49 %   724   1,716   - 19 %   212   244
  Carestream Health   97 %   447   1,531   234 38 %   165   183
  Allison Transmission   49 %   n/a5   n/a5   - 15 %   237   250
  Husky International   98 %   224   173   100 36 %   189   191
  RSI Home Products   50 %   n/a   n/a   n/a 20 %   78   82
  Tropicana Las Vegas   74 %   n/a6   19   - 16 %   54   59
  Tomkins   56 %   n/a5   n/a5   - 14 %   315   323
  ResCare   98 %   115   381   - 20 %   41   49
                          1,555   1,686
Direct Investments                              
  Sitel Worldwide   -   $ 117 $ 628 $ - 68 %   251   340
                        $ 1,806 $ 2,026
 
  1. Includes the interest of Onex Partners' third-party limited partners and Onex management's interest via Onex Partners.
  2. Includes adjustments that are consistent with private equity industry practice. These adjustments may include non-cash costs of stock-based compensation and retention plans, transition and restructuring expenses including severance payments, the impact of derivative instruments that no longer qualify for hedge accounting, the impacts of purchase accounting, and other similar amounts. LTM EBITDA is presented for investments which have been held by the Company for at least one year.
  3. Amount presented for The Warranty Group is adjusted net earnings rather than EBITDA. Net earnings on GAAP basis, including the impacts of purchase accounting, were US$106 million.
  4. EBITDA excludes gains on debt repurchases, loss recognized on derivative instruments no longer expected to be effective hedges, severance costs, non-cash stock-based compensation and retention expense, non-cash asset impairment charges, and consulting services and internal costs related to cost-reduction initiatives.
  5. This information will be provided once the company reports to its debt holders in March.
  6. A comprehensive redevelopment underway at the Tropicana Las Vegas is causing considerable disruption to its operations, resulting in negative EBITDA that is not reflective of a fully operational hotel and casino.
Onex Corporation
CONSOLIDATED BALANCE SHEETS
 
As at December 31 (in millions of dollars)   2010     2009
Assets          
Current assets          
Cash and cash equivalents $ 2,518   $ 3,206
Marketable securities   711     636
Accounts receivable   3,397     3,062
Inventories   3,614     3,085
Other current assets   1,695     1,384
    11,935     11,373
Property, plant and equipment   4,101     3,623
Investments   3,754     3,255
Other long-term assets   2,436     2,696
Intangible assets   2,233     2,086
Goodwill   2,619     2,312
  $ 27,078   $ 25,345
Liabilities and Shareholders' Equity          
Current liabilities          
Accounts payable and accrued liabilities $ 4,307   $ 3,819
Other current liabilities   1,165     992
Current portion of long-term debt, without recourse to Onex   242     425
Current portion of obligations under capital leases, without recourse to Onex   13     21
Current portion of warranty reserves and unearned premiums   1,306     1,410
    7,033     6,667
Long-term debt of operating companies, without recourse to Onex   6,309     5,505
Long-term portion of obligations under capital leases of operating companies, without recourse to Onex   42     41
Long-term portion of warranty reserves and unearned premiums   1,770     2,034
Other liabilities   1,871     1,832
Future income taxes   1,089     1,237
    18,114     17,316
Non-controlling interests   7,483     6,370
Shareholders' equity   1,481     1,659
  $ 27,078   $ 25,345
Onex Corporation
CONSOLIDATED STATEMENTS OF EARNINGS
Year ended December 31 (in millions of dollars except per share data)   2010   2009
Revenues $ 24,366 $ 24,831
Cost of sales   (19,258)   (19,468)
Selling, general and administrative expenses   (2,599)   (2,819)
Earnings Before the Undernoted Items   2,509   2,544
Amortization of property, plant and equipment   (524)   (636)
Amortization of intangible assets and deferred charges   (332)   (364)
Interest expense of operating companies   (420)   (495)
Interest income   38   53
Loss from equity-accounted investments   (250)   (497)
Foreign exchange loss   (69)   (90)
Stock-based compensation expense   (176)   (161)
Other income   35   97
Gains on dispositions of operating investments   122   783
Acquisition, restructuring and other expenses   (233)   (219)
Writedown of goodwill, intangible assets and long-lived assets   (15)   (370)
Earnings before income taxes and non-controlling interests   685   645
Provision for income taxes   (362)   (172)
Non-controlling interests   (374)   (361)
Net Earnings (Loss) for the Year $ (51) $ 112
Net Earnings (Loss) per Subordinate Voting Share        
Basic and Diluted:        
  Net earnings (loss) $ (0.43) $ 0.92

 

Onex Corporation
CONSOLIDATED STATEMENTS OF CASH FLOWS
 
Year ended December 31 (in millions of dollars)   2010   2009
Operating Activities        
Net earnings (loss) for the year $ (51) $ 112
Items not affecting cash:        
  Amortization of property, plant and equipment   524   636
  Amortization of intangible assets and deferred charges   332   364
  Amortization of deferred warranty costs   67   86
  Loss from equity-accounted investments   250   497
  Foreign exchange loss   43   76
  Stock-based compensation expense   163   161
  Gains on dispositions of operating investments, net   (122)   (783)
  Non-cash component of restructuring   1   5
  Writedown of goodwill, intangible assets and long-lived assets   15   370
  Non-controlling interests   374   361
  Future income taxes   86   (104)
  Other   (90)   (66)
    1,592   1,715
Changes in non-cash working capital items:        
  Accounts receivable   (175)   381
  Inventories   (604)   (166)
  Other current assets   (360)   58
  Accounts payable, accrued liabilities and other current liabilities   652   (225)
Increase (decrease) in cash due to changes in working capital items   (487)   48
Decrease in warranty reserves and unearned premiums and other liabilities   (188)   (423)
    917   1,340
Financing Activities        
Issuance of long-term debt   2,805   1,390
Repayment of long-term debt   (2,625)   (1,962)
Cash dividends paid   (13)   (13)
Repurchase of share capital   (52)   (41)
Issuance of share capital provided by L.P. investors and operating companies   1,412   368
Distributions by operating companies and to L.P. investors   (236)   (576)
Decrease due to other financing activities   (185)   (23)
    1,106   (857)
Investing Activities        
Acquisition of operating companies, net of cash in acquired companies of $58 (2009 – $108)   (605)   (90)
Purchase of property, plant and equipment   (870)   (613)
Proceeds from sales of operating investments   127   1,110
Investment in Tomkins Limited   (1,208)  
Decrease due to other investing activities   (9)   (184)
    (2,565)   223
Increase (Decrease) in Cash for the Year   (542)   706
Decrease in cash due to changes in foreign exchange rates   (146)   (421)
Cash and cash equilavents, beginning of the year   3,206   2,921
Cash and Cash Equivalents $ 2,518 $ 3,206
Onex Corporation
INFORMATION BY INDUSTRY SEGMENT
DECEMBER 31, 2010
 
    Electronics               Customer            
  Manufacturing           Financial   Support   Metal     Consolidated
    Services Aerostructures   Healthcare   Services   Services   Services   Other   Total
Revenues $ 6,717 $ 4,293 $ 6,548 $ 1,199 $ 1,381 $ 2,091 $ 2,137 $ 24,366
Cost of sales   (6,173)   (3,578)   (4,866)   (563)   (882)   (1,914)   (1,282)   (19,258)
Selling, general and administrative expenses   (224)   (178)   (716)   (450)   (376)   (55)   (600)   (2,599)
Earnings before the undernoted items   320   537   966   186   123   122   255   2,509
Amortization of property, plant and equipment   (73)   (117)   (159)   (12)   (35)   (51)   (77)   (524)
Amortization of intangible assets and deferred charges   (16)   (4)   (213)   (18)   (19)   (13)   (49)   (332)
Interest expense of operating companies   (15)   (61)   (167)   (3)   (81)   (42)   (51)   (420)
Interest income       4     1     33   38
Loss from equity-accounted investments     (1)   (7)         (242)   (250)
Foreign exchange gains (loss)   (2)   (5)   (5)   (1)   (5)   1   (52)   (69)
Stock-based compensation expense   (43)   (30)   (12)         (91)   (176)
Other income (expense)     5   11   22   (3)       35
Gains on dispositions of operating investments               122   122
Acquisition, restructuring and other expenses   (57)   (2)   (91)   (1)   (39)     (43)   (233)
Writedown of goodwill, intangible assets and long-lived assets   (8)       (2)       (5)   (15)
Earnings (loss) before income taxes and non-controlling interests $ 106 $ 322

$
327

$
171

$
(58)

$
17

$
(200) $ 685
Recovery of (provision for) income taxes   (23)   (103)   (122)   (61)   6   (11)   (48)   (362)
Non-controlling interests   (76)   (204)   (166)   (78)     (4)   154   (374)
Net earnings (loss)   7   15   39   32   (52)   2   (94)   (51)
Total assets $ 3,087 $ 5,055 $ 6,146 $ 4,900 $ 669 $ 836 $ 6,385 $ 27,078
Long-term debt(a) $ $ 1,138 $ 2,972 $ 190 $ 660 $ 375 $ 1,216 $ 6,551
Property, plant and equipment additions $ 64 $ 308 $ 167 $ 10 $ 30 $ 42 $ 249 $ 870
Goodwill additions $ 11 $ $ 440 $ $ $ $ 91 $ 542
Goodwill $ 11 $ 3 $ 1,396 $ 342 $ 117 $ 238 $ 512 $ 2,619
 
(a) Long-term debt includes current portion, excludes capital leases and is net of deferred charges.
Onex Corporation
INFORMATION BY INDUSTRY SEGMENT
DECEMBER 31, 2009
 
    Electronics               Customer            
    Manufacturing           Financial   Support   Metal       Consolidated
    Services Aerostructures   Healthcare   Services   Services   Services   Other   Total
Revenues $ 6,909 $ 4,641 $ 6,590 $ 1,359 $ 1,780 $ 1,472 $ 2,080 $ 24,831
Cost of sales   (6,319)   (3,946)   (4,766)   (656)   (1,140)   (1,329)   (1,312)   (19,468)
Selling, general and administrative expenses   (224)   (199)   (771)   (509)   (487)   (48)   (581)   (2,819)
Earnings before the undernoted items   366   496   1,053   194   153   95   187   2,544
Amortization of property, plant and equipment   (86)   (130)   (200)   (13)   (57)   (66)   (84)   (636)
Amortization of intangible assets and deferred charges   (25)   (5)   (224)   (22)   (24)   (14)   (50)   (364)
Interest expense of operating companies   (39)   (50)   (226)   (3)   (82)   (49)   (46)   (495)
Interest income     8   7     1     37   53
Earnings (loss) from equity-accounted investments       7         (504)   (497)
Foreign exchange gains (loss)   (2)   3   (6)   1   (10)   (1)   (75)   (90)
Stock-based compensation expense   (43)   (12)   (7)   (1)       (98)   (161)
Other income (expense)     4   (11)         104   97
Gains on dispositions of operating investments               783   783
Acquisition, restructuring and other expenses   (92)   (1)   (44)   (2)   (25)     (55)   (219)
Writedown of goodwill, intangible assets and long-lived assets   (14)     (180)     (64)   (62)   (50)   (370)
Earnings (loss) before income taxes and non-controlling interests

$
65 $ 313

$
169

$
154

$
(108)

$
(97)

$
149

$
645
Recovery of (provision for) income taxes   (5)   (107)   (130)   (46)   (17)   7   126   (172)
Non-controlling interests   (54)   (192)   (3)   (76)   (1)   59   (94)   (361)
Net earnings (loss)   6   14   36   32   (126)   (31)   181   112
Total assets $ 3,265 $ 4,685 $ 5,616 $ 5,206 $ 745 $ 891 $ 4,937 $ 25,345
Long-term debt(a) $ 234 $ 902 $ 2,792 $ 203 $ 660 $ 401 $ 738 $ 5,930
Property, plant and equipment additions $ 69 $ 235 $ 163 $ 12 $ 25 $ 43 $ 66 $ 613
Goodwill additions $ $ $ 46 $ $ $ $ 7 $ 53
Goodwill $ $ 3 $ 1,065 $ 361 $ 124 $ 252 $ 507 $ 2,312
 
(a) Long-term debt includes current portion, excludes capital leases and is net of deferred charges.

Contact Information

  • Onex Corporation
    Donald Lewtas
    Chief Financial Officer
    416.362.7711
    or
    Onex Corporation
    Emma Thompson
    Vice President, Investor Relations
    416.362.7711