Financial Results
Fiscal 2022
March 2, 2023
Dear Shareholders,
Fiscal 2022 was a period of dramatic contrast. We saw record demand for our products and services countered by
continued supply chain disruption, associated production inefficiencies, and the impacts of significant inflation and
rapid foreign exchange movements. Our
those realities, with declines in certain
performance metrics paired with significant growth in backlog and pricing, providing us with added confidence and
excitement about our future.
results reflect
financial
We were not alone in responding to the macro challenges stemming from the global pandemic that impacted the
global economy. Our industry was hit especially hard as we design and manufacture highly customized vehicles,
often on multi-year contracts. We took numerous actions to combat the adverse impacts, including seeking price
adjustments wherever possible, lowering new vehicle production rates, bringing on alternative sources of supply,
increasing inventory levels of components on hand, providing longer lead times to suppliers, and reducing
overhead and administrative costs.
Since the pandemic began in March 2020, we have rationalized 25 sites and reduced our global employee count
by more than 2,000 people – not a distinction we are proud of, but necessary as we worked through the pandemic
and matched production to supply availability. We defend our decision not to cut deeper or hold back on our
product development as our future is bright; we remained loyal and committed to our team members who are
critical to our recovery and achievement of our future targets.
At NFI, we do not have a demand problem. Record investments in public transportation in all major markets drove
record bid activity, and our highest new order performance since 2017 (a 23% increase year-over-year). We
secured new orders from customers in Mississauga, Toronto, Las Vegas, New Jersey, New York, Philadelphia,
San Diego, Washington, Manchester, London (UK), Hong Kong, and others, many for zero-emission buses
(“ZEBs”).
In 2022, zero-emission electric vehicles represented 23% of our total deliveries (up from 17% in 2021) and were a
record 29% of our backlog. We also achieved a multi-year milestone with over 100 million zero-emission miles
driven by NFI vehicles and the installation of more than 340 EV chargers.
Our teams around the world were relentless in their pursuit of operational excellence, safety, and delivering the
best for our customers, even in this challenging environment. We are extremely proud of our teams’ efforts, and
the work they’ve completed with our customers to deliver new buses and coaches, commission infrastructure,
keep vehicles in service, and deliver parts.
Our book-to-bill ratio1 of orders to deliveries was over 100% for the second consecutive year, and our total
backlog1 of firm orders and options is now over $5 billion. We expect to see additional backlog growth in 2023
coming from the record number of procurements we responded to in 2022. We expect to see additional backlog
growth in 2023 coming from the record number of procurements we responded to in 2022.
Certain contracts that we will deliver in 2023 will continue to be at inflation impacted margins, a result of those
contracts originally being bid in 2020 and 2021. Going forward, our updated pricing, inflation-adjusted option
backlog, and higher ZEB deliveries are expected to drive stronger margins. The aftermarket segment was a
significant bright spot in 2022, delivering profitability while navigating through their own supply disruption issues,
and we anticipate additional margin improvement in 2023.
We continued to advance our environmental, social and governance (“ESG”) initiatives, completing a materiality
assessment to determine the ESG issues most pertinent to our business. NFI was proud to have ranked among
Corporate Knights’ 2022 Best 50 Corporate Citizens in Canada, and our New Flyer business was one of the first
original equipment manufacturers to commit to the American Public Transportation Association’s Racial Equity
Commitment Program. (continued on next page ->)
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1. Represents a supplementary financial measure. See Non-IFRS and Other Financial Measures section.
(-> continued) We introduced a new board member in Wendy Kei, recipient of the 2022 Institute of Corporate
Directors Fellowship Award. With Wendy’s addition, our Board of Directors is now 40% female, a significant
accomplishment as we continue to drive towards our goal of meeting Canada’s 50-30 Challenge (with a goal of
50% female representation on our Board).
As we ended 2022, we completed another credit amendment, our sixth in three years, to provide us with
additional runway as we work towards NFI’s recovery. We also announced a $187 million financial support
program from the Government of Manitoba and Export Development Canada that will be critically important in
strengthening our financial position and improving liquidity. We are now engaged with our banking partners to
develop a new long-term, multi-year credit agreement with the capacity and covenants matched to our historic
results and expected financial recovery. We expect that we will be able to get this completed in the first half of
2023. Cash flow and capital allocation remains our top priority as we strive to generate cash flows, lower leverage,
and strengthen our balance sheet.
With businesses that have a combined history of over 450 years in the bus and coach industry, our impressive
offering of market-leading products and technology, service support, and aftermarket parts distribution are leading
the zero-emission evolution (what we call the ZEvolutionTM) and moving millions of people around the world every
day.
Our strategy of focusing on innovation, remaining flexible on integrating new and complex technologies onto our
proven bus and coach platforms, produced on common production lines, has served us well and will continue as
supply health improves and we move beyond this period of disruption.
As we look to 2023, we know there will be some continued challenges, with supply chains expected to improve
but not yet back to full health, and our operations running at lower production rates in the first half of the year. We
do expect significant improvement, with a planned ramp-up of production levels later in 2023 and financial
recovery throughout the year, and a major step increase in 2024.
The past few years have been challenging for all our stakeholders: employees, customers, suppliers, investors,
and banking partners. You, our fellow shareholders, have experienced first-hand our reality, and we thank you for
your ongoing support.
After 17 years as chair of NFI’s Board of Directors, the Honourable Brian Tobin will be stepping down from the
Board in May 2023, in compliance with our age and term limits. Brian had originally reached our term limit in 2021,
but remained for two one-year term extensions upon the request of our other Board members as we navigated
through the COVID-19 pandemic and ongoing supply disruption. As the Company has now moved beyond the
worst impacts of the pandemic and anticipate recovery, Brian is taking his well-deserved retirement from our
Board.
Brian has been a tremendous champion for NFI, and his contributions to our company over his nearly two
decades as a director, partner and leader cannot be understated. Our entire leadership team and all NFI team
members are grateful for all Brian has done for NFI. Further details on a new Board Chairperson will be discussed
in the coming weeks as we head towards our May Annual and Special Meeting of Shareholders.
While the past few years have been incredibly difficult, we look forward to our next chapter where we will maintain
our market leadership and drive recovery and financial performance. We remain proud of our history, and excited
about our future.
Larry Edwards
Corporate Director; Chair, Human
Resources, Compensation and
Corporate Governance Committee
NFI Group Inc.
Paul Soubry
President & Chief
Executive Officer
NFI Group Inc.
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NFI’s mobility
solutions
ecosystem
Parts, Publications
& Service
Infrastructure
Solutions
Workforce Development
& Training
Buses
& Coaches
Financing
Connected Vehicles
& Diagnostics
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In 2022, despite a challenging macro economic
environment, NFI continued to innovate.
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We have more than 105,000 buses and
coaches in service in 12 countries
around the world…
North American Market Leader in Heavy-Duty
Transit Buses and Infrastructure Solutions
North American Market Leader in Motor Coaches
World Leader in Double Deck Buses;
UK Market Leader in Bus
North American Market Leader in Low-Floor
Cutaway and Medium-Duty Shuttle Buses
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We have seen record long-term government
funding in our major markets …
$100+B
through the five-year Infrastructure Investment
and Jobs Act
C$34B
through the Green Recovery Funding, Transit
Funding Program and Canadian Infrastructure
Bank
£7B
to overhaul and level up major local transport
outside of London
… paired with record demand for our
vehicles, infrastructure, and services.
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In 2022, NFI subsidiaries supported and
received new orders from customers
around the world, driving change and
leading zero-emission mobility.
Select Customer Wins in 2022
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We are focused on generating long-term,
sustainable value for our business and for
all stakeholders.
OUR SUSTAINABILITY PLEDGE:
OUR VISION: To lead the evolution of
sustainable on-road mass transportation
and mobility.
OUR MISSION: To design, deliver, and
support market-leading bus and motor
coach solutions that are safe, accessible,
efficient, and reliable.
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We have a fundamental role to play in
meeting the challenge of climate change.
Transportation is one of the biggest
global polluters
Buses are leading the vehicle transition
to zero emission around the globe
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In 2022, we concentrated on these ESG priorities:
Company
Management
Business
performance
Leading with
integrity
Quality products,
continuous
innovation
Robust governance
Environment
Employees
Community
Zero-emission
products and
solutions
Emissions
management,
including footprint
rationalization
Energy and water
consumption
management
Celebrating,
fostering and
measuring diversity,
equity and inclusion
Environmental
health and safety
Responsible
corporate citizen
Human Rights
Respectful and
vibrant workplace
culture
Community and
charitable initiatives
Infrastructure
Solutions to support
zero-emission
projects
Workforce
development,
Community Benefits
Framework and
initiatives
Team and
community spirit,
supported by the
Community Benefits
Framework
Supply chain
management
Battery recycling
partnership
Advance 50-30
Challenge
United Way
sponsorship
program
and completed our first materiality assessment.
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In addition, in 2022 we:
•
Initiated a sustainability roadmap to action the results of our materiality assessment and overall
sustainability strategy;
• Continued to prioritize the health, safety, and well-being of our employees;
• Completed our first annual disclosure to the S&P Global Corporate Sustainability Assessment and our
second annual disclosure to the CDP Climate Change questionnaire;
•
•
Implemented an action plan to address key issues identified in our 2021 Group-wide diversity, equity
and inclusion (“DEI”) survey and implemented NFI’s DEI Strategic Framework to guide NFI’s work
towards equity and inclusion across the organization;
Increased the gender and sexual diversity target for the board and senior management from 30% to
50%; reached 40% female representation on our Board of Directors in 2022;
• Added a diversity target for the board and senior management of 30% for other equity deserving groups
(racialized, black, people of colour, people with disabilities, and Indigenous peoples);
• Updated our Code of Business Conduct and Ethics affirming the Company’s prohibition against child
labour (defined as anyone under the age of 16);
• Changed the performance share unit ("PSU") performance metric for the long-term incentive plan
("LTIP") in the Executive Compensation Program from being based solely on a return on invested capital
(“ROIC”) target to a combination of ROIC, ESG target, and a Strategic target;
•
Implemented a Community Benefit Agreement for the New Flyer Anniston plant that: establishes goals
of 45% of new hires and 20% of promotions coming from groups who have historically been under-
represented or underserved including people of colour, women, and veterans, enhances training
programs, and focuses on increasing access to employment and career advancement
for these
historically disadvantaged groups;
• Enhanced commitments to Freedom of Association outlined in our Code of Business Conduct and
Ethics, our Human Rights Statement, and included in the NFI Group Freedom of Association Statement
released earlier in 2022;
•
Implemented a series of projects called “NFI Forward 2.0”, by completing a detailed review of our
remaining North American footprint with a view to match production capacity and facility investments to
customer demand, local labour availability, and zero-emission fleet investment plans;
• Shifted some of our strategic priorities to withstand supply chain challenges for the long-term health of
the business; and
• Raised over $381,000 through our annual United Way campaign, supporting 18 communities across
North America.
NFI’s 5th annual ESG Report will be released in
May 2023, with additional information.
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NFI continues to lead the ZEvolutionTM:
the evolution to a zero-emission future.
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Notes to readers
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS FOR THE 13-WEEKS AND 52-WEEKS ENDED JANUARY 1, 2023
Information in this Management’s Discussion and Analysis (“MD&A”) relating to the financial
condition and results of operations of NFI Group Inc. (“NFI” or the "Company") is supplemental to,
and should be read in conjunction with, NFI’s audited consolidated financial statements (including
notes) (the “Financial Statements”) for the 52-week period ended January 1, 2023 and has been
prepared as of March 2, 2023.
This MD&A contains forward-looking statements, which are subject to a variety of factors that could
cause actual
results to differ materially from those contemplated by such forward-looking
statements, including, but not limited to, the factors described in the Company's public filings
available on SEDAR at www.sedar.com. See “Forward-Looking Statements” in Appendix A. The
Financial Statements have been prepared in accordance with International Financial Reporting
Standards (“IFRS”) and, except where otherwise indicated, are presented in U.S. dollars, which is
the functional currency of NFI. Unless otherwise indicated, the financial information contained in
this MD&A has been prepared in accordance with IFRS and references to “$” or “dollars” mean
U.S. dollars, "C$" means Canadian dollars, and "GBP" and "£" mean British Pounds Sterling.
QUARTERLY AND ANNUAL REPORTING PERIODS
The quarterly and annual reporting periods for the current and prior year are as follows:
Period from January 3, 2022 to January 1, 2023
Period from December 28, 2020 to January 2, 2022
(“Fiscal 2022”)
Period End Date
Quarter 1
Quarter 2
April 3, 2022
("2022 Q1")
July 3, 2022
("2022 Q2")
Quarter 3
October 2, 2022
("2022 Q3")
Quarter 4
January 1, 2023
("2022 Q4")
Fiscal year
January 1, 2023
# of
Calendar
Weeks
13
13
13
13
52
(“Fiscal 2021”)
Period End Date
Quarter 1
March 28, 2021
("2021 Q1")
Quarter 2
June 27, 2021
("2021 Q2")
Quarter 3
September 26, 2021
("2021 Q3")
Quarter 4
January 2, 2022
("2021 Q4")
Fiscal year
January 2, 2022
# of
Calendar
Weeks
13
13
13
14
53
Specific references and definitions are used throughout this MD&A, please see the Non-IFRS and
Other Financial Measures section. References to LTM mean last-twelve months ("LTM"). Adjusted
earnings before interest, taxes, depreciation and amortization (Adjusted EBITDA), Invested Capital,
net operating profit after taxes ("NOPAT"), return on invested capital ("ROIC"), Free Cash Flow,
Free Cash Flow per Share, Adjusted Net Loss, Adjusted Net Loss per Share, Liquidity, Working
Capital Days, Book-to-Bill, Payout Ratio and Backlog are non-IFRS measures and should not be
considered substitutes or alternatives for IFRS measures. These are not defined terms under IFRS
and do not have standard meanings, so may not be a reliable way to compare NFI to other
companies.
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Notes to readers
The Company has two reportable segments which are the Company’s strategic business units:
Manufacturing Operations and Aftermarket Operations. The strategic business units offer different
products and services, and are managed separately because they require different technology and
marketing strategies.
The Manufacturing Operations segment derives its revenue from the manufacture, service and
support of new transit buses, coaches, medium-duty and cutaway buses. Based on management’s
judgment and applying the aggregation criteria in IFRS 8.12,
the Company’s bus/coach
manufacturing operations and medium-duty/cutaway manufacturing operations fall under a single
reportable segment. Aggregation of these operating segments is based on the segments having
similar economic characteristics with similar long-term average returns, products and services,
production methods, distribution and regulatory environment.
The Aftermarket Operations segment derives its revenue from the sale of aftermarket parts for
transit buses, coaches and medium-duty/cutaway buses, both for the Company's and third-party
products.
Single and double deck buses manufactured by New Flyer and Alexander Dennis Limited
("Alexander Dennis" or "ADL") are classified as "transit buses". ARBOC manufactures body on-
“cutaway” and "medium-duty" buses that service transit, paratransit, and shuttle
chassis or
applications. Collectively,
transit buses, medium-duty buses and cutaways, are referred to as
"buses". A “motor coach” or “coach” is a 35-foot to 45-foot over-the-highway bus typically used for
intercity transportation and travel over longer distances than heavy-duty transit buses, and is
typically characterized by (i) high deck floor, (ii) baggage compartment under the floor, (iii) high-
backed seats with a coach-style interior (often including a lavatory), and (iv) no room for standing
passengers. “Product lines” include heavy-duty transit buses, motor coaches, pre-owned coaches,
cutaway and medium-duty buses.
Zero-emission buses ("ZEBs") consist of trolley-electric, hydrogen fuel cell-electric, and battery-
electric buses and motor coaches. All of the data presented in this MD&A with respect to the
number of transit buses, medium-duty buses, cutaways and motor coaches in service and delivered,
is measured in, or based on, “equivalent units” (or "EUs"). One EU represents one production “slot”,
being one 30-foot, 35-foot, 40-foot, 45-foot heavy-duty transit bus, one double deck bus, one
medium-duty bus, one cutaway bus or one motor coach, whereas one articulated transit bus
represents two EUs. An articulated transit bus is an extra-long transit bus (approximately 60-feet in
length), composed of two passenger compartments connected by a joint mechanism. The joint
mechanism allows the vehicle to bend when the bus turns a corner, yet have a continuous interior.
A summary of the Company’s order, delivery and backlog information can be found in Appendix B.
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NFI GROUP INC. FISCAL 2022 FINANCIAL RESULTS
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NFI is leading zero-emission electric mobility.
100M+
Electric service miles
driven
2,725
ZEB EUs delivered
since 2015
328
ZEB EUs delivered in
2022 Q4 (32% of total
deliveries)
693
ZEB EUs delivered in
2022 FY (23% of total
deliveries)
51%
of North American
Public Bid Universe
is ZEBs
~8,000
EUs annual ZEB
production capacity
2,628
ZEBs in backlog
29%
of total backlog is ZEBs
120+
Cities have NFI
ZEBs in service or
on order
6
Countries have
NFI ZEBs in service
or on order
340+
EV chargers installed
via Infrastructure
SolutionsTM since 2018
58+ MW
Charging capacity
installed via
Infrastructure
SolutionsTM since 2018
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FY 2022 Highlights (US$)
$2.1B
Total Revenue
$49.1M
Gross Profit
$277.8M
Net Loss
$241.9M
Cash Flow Used In Operating Activities
$3.60
Net Loss Per Share
5,786 EUs
in New Orders
3,039
EUs Delivered
($59.1)M
Adjusted EBITDA (1)
($170.3)M
Free Cash Flow (1)
$173.5M
Liquidity (2)(3)
$2.09
Adjusted Net Loss Per Share (4)
10,507 EUs
Active Bids
$18.5M
Adjusted EBITDA(1) Savings from NFI Forward
9,186 EUs
in Backlog (Value of $5.6B) (2)
1.
2.
3.
4.
Represents a non-IFRS measure, meaning it is not a defined term under IFRS and does not have a standard meaning, so it may not be a reliable way to compare NFI
to other companies. See Non-IFRS and Other Financial Measures section.
Represents a supplementary financial measure. See Non-IFRS and Other Financial Measures section.
Without consideration given to the minimum liquidity requirement of $25 million.
Represents a non-IFRS ratio, meaning it is derived from a non-IFRS measure, which does not have a standard meaning, so it may not be a reliable way to compare
NFI to other companies. The ratio is calculated using adjusted net income, which is a non-IFRS measure. See Non-IFRS and Other Financial Measures section.
Revenue by Geography
Revenue by Product
North
America
76%
United
Kingdom
and
Europe
21%
Asia
Pacific
3%
Transit
60%
Motor Coach
15%
Low-Floor
Cutaway and
Medium Duty
2%
Aftermarket
24%
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KEY PERFORMANCE INDICATORS
Deliveries (EUs)
Revenue ($ millions)
Net Loss ($ millions)
Adjusted Net Loss1 ($ millions)
Adjusted EBITDA1 ($ millions)
Net cash generated by (used in) operating activities ($ millions)
Working Capital Days2
Total Liquidity2 ($ millions)
Backlog (EUs)
ROIC3
Footnotes
1.
2.
3.
Represents a non-IFRS measure, meaning it is not a defined term under IFRS and does not have a standard meaning, so it may not be a reliable way to
compare NFI to other companies. See Non-IFRS and Other Financial Measures section.
Represents a supplementary financial measure. See Non-IFRS and Other Financial Measures section.
Represents a non-IFRS ratio, meaning it is derived from a non-IFRS measure, which does not have a standard meaning, so it may not be a reliable way to
compare NFI to other companies. The ratio is calculated using net operating profit after tax and average invested capital both of which are non-IFRS
measures. See Non-IFRS and Other Financial Measures section.
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1,0871,0343,7833,039Q4' 21Q4 '22FY 21FY 22$694.8$682.6$2,343.8$2,053.9Q4 '21Q4 '22FY 21FY 22($8.7)($150.4)(14.5)($277.8)Q4 '21Q4 '22FY 21FY 22($15.6)($23.6)($12.1)($161.6)Q4 '21Q4 '22FY 21FY 22$26.2($5.1)$164.2($59.1)Q4 '21Q4 '22FY 21FY 22$150.2$1.5$115.2($241.9)Q4 '21Q4 '22FY 21FY 226970727068Q4 '21Q1 '22Q2 '22Q3 '22Q4 '22$794.3$649.0$628.5$471.4$173.5Q4 '21Q1 '22Q2 '22Q3 '22Q4 '223,6354,0574,3664,1534,5584,8134,8515,3084,3524,610FirmOptionsQ4 '21Q1 '22Q2 '22Q3 '22Q4 '223.6%1.1%(1.5)%(3.3)%(4.4)%LTM Q4 '21LTM Q1 '22LTM Q2 '22LTM Q3 '22LTM Q4 '22
FINANCIAL RESULTS
NFI’s 2022 Q4 financial results were significantly impacted by continued global supply chain challenges, and the impact of
heightened inflation and surcharges and rapid foreign exchange movements on legacy contracts. In 2022 Q4, the Company took the
prudent approach to reduce production rates to align with supply chain lead times and allow for teams to complete offline work-in-
progress ("WIP") inventory. This resulted in lower than planned new vehicle deliveries and negative impacts to financial performance
metrics within the Company's Manufacturing business segment ("Manufacturing"). The Company's end markets are recovering from the
pandemic, which is demonstrated by recent order activity, a record North American bid environment and unprecedented government
funding for public transit. The Aftermarket business segment ("Aftermarket") experienced a small decrease in year-over-year margin
results in North America, United Kingdom, and Europe, despite consistent revenues.
Full details of the Company’s orders, deliveries and backlog information can be found in Appendix B.
Deliveries (EUs)
Transit buses
Motor coaches
Medium-duty and cutaway
New vehicle deliveries
Pre-owned coach
2022 Q4
2021 Q4 % Change
Fiscal 2022 Fiscal 2021 % Change
764
169
101
1,034
68
855
192
40
1,087
38
(10.6) %
(12.0) %
152.5 %
(4.9) %
78.9 %
2,253
2,765
524
262
3,039
190
678
340
3,783
389
(18.5) %
(22.7) %
(22.9) %
(19.7) %
(51.2) %
Zero-emission deliveries
(included in the above totals)
Zero-emission deliveries as a percentage of
total new vehicle deliveries
328
331
(0.9) %
693
661
4.8 %
31.7 %
30.5 %
3.9 %
22.8 %
17.5 %
30.3 %
Revenue
(dollars in millions)
Transit buses
Motor coaches
Medium-duty and cutaway
2022 Q4
2021 Q4 % Change
Fiscal 2022 Fiscal 2021 % Change
441.8
97.7
12.8
441.8
122.5
— %
1,212.5
1,429.5
(15.2) %
(20.2) %
296.2
361.6
(18.1) %
5.4
137.0 %
31.7
35.3
(10.2) %
Total New Vehicle Revenue
552.3
569.7
(3.1) %
1,540.4
1,826.4
(15.7) %
Pre-owned coach revenue
Infrastructure SolutionsTM
Fiberglass reinforced polymer components
Manufacturing Revenue
Aftermarket
Total Revenue
5.2
2.7
2.2
2.3
4.0
1.3
562.4
577.3
120.2
117.5
126.1 %
(32.5) %
69.2 %
(2.6) %
2.3 %
12.8
8.5
7.0
20.7
17.6
5.1
(38.2) %
(51.7) %
37.3 %
1,568.7
1,869.8
(16.1) %
485.2
474.0
2.4 %
682.6
694.8
(1.8) %
2,053.9
2,343.8
(12.4) %
North America
United Kingdom and Europe
Asia Pacific
503.3
165.2
465.7
181.2
8.1 %
(8.8) %
14.1
47.9
(70.6) %
1,555.0
1,776.3
(12.5) %
440.8
58.1
440.5
127.0
0.1 %
(54.3) %
Manufacturing revenue for 2022 Q4 decreased by $15.0 million, or 2.6%, compared to 2021 Q4. The decrease was driven by lower
deliveries within heavy-duty transit and motor coach, somewhat offset by higher average sale prices of heavy-duty transit vehicles
and increased deliveries of medium-duty and low floor cutaway vehicles. Overall deliveries are down significantly relative to pre-
COVID-19 levels due to global supply chain logistics challenges and related production inefficiencies. These challenges are largely the
result of suppliers recovering from impacts of the COVID-19 pandemic, which has created numerous bottlenecks in the supply chain
and disruptions to certain parts availability. WIP inventory decreased by $125.7 million from Q3 2022, as many buses awaiting parts
have been completed and delivered. The previously disrupted control module supply, originally announced in 2022 Q2, that impacted
the completion of a significant number of North American transit buses, has recovered according to plan, however the alternate
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NFI GROUP INC. 2022 FINANCIAL RESULTS
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modules developed, has introduced certain other delays. During 2022 Q4, the Company completed and delivered the remaining buses
that were missing these specific module components generating a positive impact, lowering WIP by $38.6 million, or 68 EUs.
Quarterly revenue of the Company's Infrastructure SolutionsTM division declined by $1.3 million. The decrease is primarily due to the
timing of revenue recognition on open contracts. Global supply chain challenges have had a residual effect on infrastructure and
charger commissions resulting in delays to Infrastructure SolutionsTM revenue recognition. Since its inception, Infrastructure
SolutionsTM has been responsible for the delivery of 311 plug-in and 33 on-route charger projects for 51 different customers.
Aftermarket revenue for 2022 Q4 increased by $2.7 million, or 2.3% compared to 2021 Q4. The increase is mainly related to
increased volume in the North America region, this increased volume is despite of a one-week decrease in the period compared to
2021 Q4. The Company continues to benefit from a multi-year retrofit program in the Asia-Pacific region, which continued
throughout 2022, but at a lower run rate. Fiscal 2022 sales under the program were $58.1 million, a decrease of $68.9 million
compared to Fiscal 2021 sales of $127.0 million; this multi-year retrofit program is expected to unwind in 2023 Q1.
Net Earnings (Loss)
(dollars in millions, except per share amounts)
Manufacturing
Aftermarket
Corporate
Net Loss
2022 Q4
2021 Q4 % Change
Fiscal 2022 Fiscal 2021 % Change
(147.1)
(34.3)
(328.9) %
(309.5)
(55.7)
(455.7) %
18.6
21.2
(12.3) %
67.0
83.3
(19.6) %
(21.9)
(150.4)
4.4
(597.7) %
(35.2)
(42.2)
16.6 %
(8.7) (1,628.7) %
(277.8)
(14.5) (1,815.9) %
Adjusted Net Loss1
(23.6)
(15.6)
(51.3) %
(161.6)
(12.1) (1,235.5) %
Net Loss per Share
Adjusted Net Loss per Share1
(1.94)
(0.31)
(0.12) (1,516.7) %
(0.21)
(47.6) %
(3.60)
(2.09)
(0.21) (1,614.3) %
(0.17) (1,129.4) %
Adjusted EBITDA1
(dollars in millions)
Manufacturing
Aftermarket
Corporate
Total Adjusted EBITDA1
2022 Q4
2021 Q4 % Change
Fiscal 2022 Fiscal 2021 % Change
(30.5)
(7.7)
(296.1) %
(149.2)
22.9
2.5
(5.1)
25.1
8.8
26.2
(8.8) %
(71.6) %
86.2
3.9
51.7
98.7
13.8
(388.6) %
(12.7) %
(71.7) %
(119.5) %
(59.1)
164.2
(136.0) %
Adjusted EBITDA as a percentage of revenue
Manufacturing
Aftermarket
Total
(5.4) %
19.0 %
(0.7) %
(1.3) %
(315.4) %
21.3 %
(10.8) %
3.8 %
(118.4) %
(9.6) %
17.9 %
(2.9) %
2.8 %
(442.9) %
20.8 %
(13.9) %
7.0 %
(141.4) %
1. Non-IFRS Measure - See Non-IFRS and Other Financial Measures section.
2022 Q4 Manufacturing Adjusted EBITDA decreased by $22.8 million, or 296.1%, compared to 2021 Q4. The decrease was driven by a
decrease in deliveries, unfavorable sales mix, and heightened inflation and surcharges. Decreased margins were the result of
operational and production inefficiencies caused by continuing supply disruptions. In addition, the Company did not receive any
government wage subsidy grants in 2022 Q4, as compared to $2.3 million received in 2021 Q4, as the programs were either
discontinued or NFI was no longer eligible. Manufacturing experienced a 2022 Q4 net loss of $147.1 million compared to a net loss of
$34.3 million in 2021 Q4. The increase in Manufacturing net loss was mainly attributable to a $103.9 million non-cash goodwill
impairment charge in ARBOC ($23.2 million) and the ADL Manufacturing ($80.7 million) cash generating units ("CGUs"). The goodwill
impairment reflects increases in market rates, as well as timing of the market recovery from the COVID-19 pandemic and the related
supply chain disruptions. Also contributing to the net loss are the same items that impacted Manufacturing Adjusted EBITDA.
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NFI GROUP INC. 2022 FINANCIAL RESULTS
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2022 Q4 Aftermarket realized Adjusted EBITDA results of $22.9 million, a $2.2 million, or 8.8%, year-over-year decrease. The
decrease in Adjusted EBITDA was primarily due to product mix and inflationary impacts to both freight and part costs and freight
surcharges, where the Company was not fully able to pass along these impacts to its customers. 2021 Q4 saw the Company achieve
heightened Aftermarket Adjusted EBITDA results, partially related to a multi-year retrofit program in the Asia-Pacific region, which
will continue into 2023 Q1, but at a lower run rate as the program unwinds. 2022 Q4 Aftermarket net earnings decreased by $2.6
million, or 12.3%, primarily due to the same items that impacted Aftermarket Adjusted EBITDA.
2022 Q4 Corporate Adjusted EBITDA decreased by $6.2 million, or 71.6%, compared to 2021 Q4, primarily as a result of foreign
exchange revaluation adjustments to monetary balances. Corporate expenses included in the calculation of net loss increased by
$26.4 million, or 597.7%, primarily due to increased interest on long-term debt and unfavourable mark-to-market adjustments to the
Company's interest rate swaps. These are somewhat offset by a favourable fair value adjustment to the Company's convertible
debenture cash conversion option.
Free Cash Flow1 and net cash generated by
operating activities
(dollars in millions, except per share amounts)
2022 Q4
2021 Q4 % Change
Fiscal 2022 Fiscal 2021 % Change
Net cash (used in) generated by operating
activities
Free Cash Flow
Free Cash Flow (CAD dollars)
1.5
(21.8)
(29.5)
150.2
(18.9)
(23.9)
(99.0) %
(15.3) %
(23.4) %
Declared Dividends (CAD dollars)
—
16.4
(100.0) %
Free Cash Flow per Share (CAD dollars)2
(0.38)
(0.33)
(15.2) %
Dividends per Share (CAD dollars)
—
0.21
(100.0) %
(241.9)
(170.3)
(224.9)
12.3
(2.91)
0.16
115.2
(310.0) %
23.0
28.5
61.6
0.41
0.85
(840.4) %
(889.1) %
(80.0) %
(809.8) %
(81.2) %
Payout Ratio (Declared Dividends divided by
Free Cash Flow)2
— %
(68.6) %
(100.0) %
(5.5) %
216.1 %
(102.5) %
1. Non-IFRS Measure - See Non-IFRS and Other Financial Measures section.
2. Represents a non-IFRS ratio, meaning it is derived from a non-IFRS measure, which does not have a standard meaning, so it may not be a reliable way
to compare NFI to other companies. The ratio is calculated using Free Cash Flow, which is a non-IFRS measure. See Non-IFRS and Other Financial
Measures section.
Free Cash Flow in 2022 Q4 decreased by $2.9 million, or 15.3%, compared to 2021 Q4, mainly due to a higher Adjusted EBITDA loss
and higher outflows from changes in non-cash working capital. "NFI Forward", the Company's transformational restructuring initiative
to generate cost savings, generated Adjusted EBITDA savings of $18.5 million and an additional $3.0 million Free Cash Flow savings in
the quarter.
Net cash generated by operating activities in 2022 Q4 was $1.5 million, a decrease of $148.7 million or 99.0%, compared to cash
generated in 2021 Q4, mainly due to the increase in cash used in working capital. The Fiscal 2022 net cash generated by operating
activities decreased by 310.0%, primarily due to a increase in net losses and cash used in working capital.
Working Capital Days1
Liquidity ($ million)1
Backlog (EUs)
ROIC1
2022 Q4
2022 Q3
2022 Q2
2022 Q1
2021 Q4
68
70
72
70
69
$
173.5
$
471.4
$
628.5
$
649.0
$
794.3
9,186
8,505
9,674
8,908
8,448
(4.4) %
(3.3) %
(1.5) %
1.1 %
3.6 %
1. Working Capital Days and Liquidity represent supplementary financial measures. ROIC represents a non-IFRS ratio for the last 12-month period. See
Non-IFRS and Other Financial Measures section.
As part of the Company's increased focus on cash conversion and leverage reduction, the Company is actively focused on reducing
Working Capital Days, especially as it navigates through supply-related disruption to its operations. In 2022 Q4, Working Capital Days
were 68, compared to 70 at the end of 2022 Q3, and 69 at the end of 2021 Q4. The decrease in Working Capital Days in 2022 Q4
compared to 2022 Q3 is mostly attributable to the decrease in average working capital balances, mainly due to decreases in WIP
inventory. WIP inventory decreased by $125.7 million as buses previously awaiting parts have been completed and delivered.
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NFI GROUP INC. 2022 FINANCIAL RESULTS
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The Company's liquidity position, which combines cash on-hand plus available capacity under its credit facilities, without
consideration given to the minimum liquidity requirement ($25 million) under the Amended Facilities1, was $173.5 million as at the
end of 2022 Q4, down $297.9 million from the end of 2022 Q3, where the minimum liquidity requirement was $250 million. The
decrease in liquidity is primarily due to amendments to both the Company's credit and UK facilities. Total borrowing under the
amended credit facility has decreased to $1 billion, a $250 million decrease. Total borrowing under the amended UK facility has
decreased to £40 million, a £10 million decrease. Also contributing to the decrease in liquidity is increased drawings under the
amended facilities.
At the end of 2022 Q4, the Company's total backlog (firm and options) was 9,186 EUs, an increase of 7.8% compared to 8,505 EUs at
the end of 2022 Q3. The increase was driven by high levels of new awards in North American and UK transit operations in the
quarter, offset somewhat by higher deliveries and option expiries. In addition, 806 EUs of new firm and option orders were pending
from customers at the end of 2022 Q4, where approval of the award to the Company had been made by the customer’s board,
council, or commission, as applicable, but purchase documentation had not yet been received by the Company and therefore not yet
included in the backlog.
LTM 2022 Q4 ROIC decreased by 1.1% from LTM 2022 Q3, due to the decrease in Adjusted EBITDA offset by a lower invested capital
base. The decrease in invested capital is primarily due to a decrease in shareholders' equity, partially offset by the increase in
average long-term debt.
Footnotes
1. As defined in the Capital Allocation section.
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2022 Q4 HIGHLIGHTS
Similar to the first three quarters of 2022, the fourth quarter of 2022 continued to be a representation of the broader operating and
economic environment, with numerous long-term positive indicators, including increases in new orders, higher contract pricing, and high
backlog and bid activity, offset by near-term challenges related to supply chain disruptions and heightened inflation. Manufacturing
operations continued to experience inflation impacts and operational inefficiencies resulting from global supply chain and logistics
challenges which created bottlenecks and significant disruptions to NFI's operations. In response to these challenges, NFI continued to
operate at reduced new vehicle input rates, primarily by adjusting production, and by delaying some new vehicle line entries to match
timing of parts availability. Within the fourth quarter of 2022, the Company did see success from the various actions taken to lower
vehicle inventory balances by completing buses and coaches with the required parts as they were received, with WIP inventory
decreasing by $125.7 million during the fourth quarter.
The supply chain disruptions and uncertainty have been especially challenging to NFI and others in the bus and motor vehicle industries.
The majority of NFI's transit and coach customer orders are highly customized, with significant specification requirements by customers.
In addition, production is typically subject to local content rules, such as Buy America provisions or local manufacturing requirements.
These various factors limit the Company's ability to use alternative sources of supply and require dedicated manufacturing facilities for
different product types by region.
NFI’s customers continue to be very accommodating to the supply chain challenges that have continually adjusted the Company's
production and delivery schedules. NFI has continued to communicate with its customers to provide updates and coordinate delivery
schedules based on supply availability. Similar to the third quarter of 2022, NFI worked with customers in the fourth quarter to seek
vehicle price increases and/or milestone payments in response to rising input costs. As of January 1, 2023, the Company had received
$36.1 million in prepayments and is continuing to work with other customers on plans that would help alleviate some of NFI's working
capital investments while it navigates through the supply chain challenges. This program is ongoing and, if successful, may have a
positive impact on 2023 working capital investments and operating cash flows.
In the fourth quarter of 2022, the Company announced amendments to the Company’s Amended Facilities to provide covenant relief from
previous key financial covenants for the fourth quarter of 2022 and the first two quarters of 2023 to the period ending June 30, 2023 (the
“Waiver Period”). The full details of these amendments can be found in the Capital Allocation section of this MD&A.
NFI and its banking syndicate partners are now focused on developing new long-term credit arrangements, and NFI will be seeking
agreements that provide appropriate capacity and covenants matched to the Company’s anticipated financial performance and recovery.
The Company is targeting completion of these changes prior to the end of the Waiver Period.
Subsequent to quarter end, the Company announced that it had finalized agreements for the previously announced financial support
package of approximately $187 million with the Manitoba Development Corporation, an entity that provides financial services and
financial instruments on behalf of the Province of Manitoba, and Export Development Canada (“EDC”), a Canadian government Crown
corporation.
The financial support package includes two debt facilities, a $37 million facility (C$50 million) from the Manitoba Development
Corporation (the "Manitoba Facility") and a $50 million facility from EDC (the "EDC Facility"), as well as an up to $100 million surety
reinsurance support arrangement with EDC for NFI’s surety and performance bonding requirements.
Strong Market Demand and Increasing Procurements
The Company continued to see strong metrics that measure future demand and activity during the fourth quarter of 2022. In 2022 Q4,
new orders increased by 60.4% year-over-year, active bids of 10,507 EUs were at record levels, up 53.5% year-over-year, with 806 EUs in
bid awards pending. This positions NFI for a strong quarter of backlog growth in the first quarter of 2023. The Company's 2022 Q4 Book-
to-Bill1 ratio was 144.0%, an increase from 131.9% in 2021 Q4; its Fiscal 2022 Book-to-Bill was 133.9%, an increase from 115.1% at the
same time last year.
NFI's Total Public Bid Universe for North America was a record 30,784 EUs, up 17.0% year-over-year. The Company ended 2022 Q4 with
5,169 EUs of bids in process (the highest quarter on record), and another 5,338 EUs of bids submitted, down from the record high of
7,226 in 2022 Q3. See Appendix B for details.
Footnotes
1. Represents a supplementary financial measure. See Non-IFRS and Other Financial Measures section.
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Given the highly customized nature of NFI's products, there is significant lead time between when an order is received to when a vehicle
is delivered. Generally, in North America, NFI will begin production on an order six to twelve months after it is awarded. In international
markets, this lead time can be anywhere from three to eight months. This pre-production period is utilized to complete final
engineering, coordinate supply delivery, and align production schedules. Due to this timing structure, there is a lag between when orders
are received and when they impact NFI's financial results in the form of deliveries.
Zero-Emission Mobility—The ZEvolutionTM
In 2022 Q4, NFI received orders for 1,118 EUs of battery-electric, ZEBs, a 780% increase from the 127 EUs in orders received in 2022 Q3.
These 1,118 EUs of ZEBs equate to 43.4% of all new firm and option orders for the quarter, which increased from 28.0% in 2022 Q3.
At the end of 2022 Q4, NFI had 2,628 ZEBs in the backlog, representing a record of approximately 28.6% of the total backlog, and 15,689
EUs, or 51.0%, of the Total Bid Universe was ZEBs, an increase of 54.6% year-over-year, which supports management's expectations for a
continued increase in the demand for ZEBs.
NFI sells buses to all of the 25 largest transit authorities in North America and has electric vehicles in service with 17 of the top 25 transit
agencies in North America. Within the fourth quarter of 2022, the Company announced new zero-emission and electric orders for
customers in Greater Manchester, UK; Winnipeg, Canada; Pittsburgh, Pennsylvania; and San Diego, California; and MCI delivered its first
zero-emission J4500 CHARGETM to a customer in California. Alexander Dennis also announced that it had received the largest bus order in
the UK by number of vehicles since 2019, for 200 low-emission double deck buses.
Low-No Grants
In 2022, as part of the Federal Transit Administration’s (“FTA”) 2022 Low or No Emission (“Low-No”) and Buses and Bus Facilities Grant
Programs, New Flyer supported the successful applications for almost $200 million in grants awarded to 15 U.S. public transit agencies.
NFI was the named partner for two individual agency awards of over $25 million each, an increase from the $40 million in Low-No grants
awarded to nine U.S. public transit agencies that NFI subsidiaries supported in 2021.
While New Flyer has been named as a partner, new awards will not be added to NFI’s backlog until contract documentation is completed
and a formal purchase order is received. New Flyer’s success with Low-No and Buses and Bus Facilities grants provide future backlog
growth opportunities. In addition, approximately $800 million in Low-No grants were provided to transit agencies that had not yet
formally named a preferred partner, which the Company expects will generate future bidding activities going forward.
NFI Forward Update
In the quarter, NFI continued to realize savings from “NFI Forward”, the Company’s transformational cost reduction and sourcing
initiative, which is expected to lower NFI’s overhead and selling general and administrative (“SG&A”) expenses by 8% to 10%,
respectively, based on 2019 revenue levels, and to provide direct material savings from input cost reductions and an estimated $10
million in annualized Free Cash Flow generation. The Company has now achieved its NFI Forward target for Adjusted EBITDA savings of
$67 million (from 2019 levels), one year earlier than its original target of the end of 2023. Total one-time investments incurred to
achieve the NFI Forward program were $14.1 million, a $103,000 increase from 2022 Q3.
In July 2022, NFI launched a series of additional projects called “NFI Forward 2.0”, that are expected to generate additional annualized
Adjusted EBITDA savings in 2023 and beyond. The initial project was the integration of NFI's Delaware parts distribution facility (a legacy
parts warehouse of NABI that NFI acquired in 2013) into its existing NFI Parts™ footprint, which occurred during the third quarter of 2022
and the facility has been successfully subleased. The Company is also planning to close the MCI coach manufacturing facility in Pembina,
North Dakota, in the first half of 2023.
NFI Forward 2.0 will be smaller in scale and financial impact when compared to the original NFI Forward initiatives. In total, the
Company believes NFI Forward 2.0 will generate $5 million to $8 million in annual savings from one-time capital investments of $8 million
to $10 million. The majority of these benefits are expected to be recognized in 2023.
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NFI GROUP INC. 2022 FINANCIAL RESULTS
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OUTLOOK
NFI continues to face challenges to its business from macro trends, including ongoing supply constraints, inflation in parts, raw
materials and labour, and higher interest rates. While supply chain shortages have caused significant dislocation and disruption to
NFI's operating and financial performance in recent years, these pressures are starting to alleviate and there are signs of
improvement. Despite these broader market challenges, NFI's business outlook remains strong based on its record backlog, growing
demand for its products and government funding reaching historically high levels in its core markets. NFI has received significant new
orders in 2022 that support the Company's anticipated financial recovery, including new firm and option orders for 5,786 EUs, an
increase of 60% from 2021. NFI's closing backlog (firm and options) was 9,186 EUs (valued at $5.6 billion).
NFI was also encouraged by the high volume of active bus and motor coach procurements taking place in both North American and
international markets during 2022. The Company's North American active bids of 10,507 EUs at year end were at a record level,
increasing by 53.5% year-over-year, which is expected to drive additional backlog growth in 2023, and revenue growth in the
medium- and longer-term. NFI is also seeing increasing numbers of bids for zero-emission buses and coaches, with individual order
sizes for those vehicle types increasing in size. In 2022 Q4, NFI received orders for 1,118 EUs of battery-electric, ZEBs, a 780%
increase from the 127 EUs from 2022 Q3. NFI expects active bids will continue to remain high throughout 2023 as markets recover
from the COVID-19 pandemic, supply shortages, and government funding is used by transit agencies and operators.
While the Company had anticipated it would begin to ramp-up its production in earnest during the second half of 2022 and the first
half of 2023, ongoing supply chain disruption and longer supplier lead times have pushed out the expected ramp up of production to
the second half of 2023; ramp up remains subject to supply chain health showing sustained improvement. NFI anticipates its supply
chains and parts availability will slowly improve, and the Company will be able to source additional labour required to drive higher
production and volume deliveries in 2023, with the majority of the improvements coming in the second half of the year.
Longer than anticipated supplier lead times and disrupted parts availability resulted in an increase of vehicles in inventory missing
certain parts throughout 2022. NFI believes that the third quarter of 2022 was the peak of this inventory build-up; as WIP inventories
decreased in the fourth quarter of 2022 once required parts were received and vehicles were completed and delivered. This included
the successful delivery of all vehicles that were missing the previously disrupted control module supply.
Similar to the entire global manufacturing industry, NFI has and continues to experience significant inflation with respect to supplier
pricing and employee wages, and through raw materials purchased directly by NFI. The Company embedded an anticipated level of
inflation assumptions into its 2022 budget projections; however, inflation for certain components exceeded those projections. NFI
has worked with customers to reprice certain contracts and a number of other contracts have clauses where a government purchase
price index ("PPI") is applied which assists in passing through manufacturing cost inflation. Generally, when an option contract is
exercised from NFI's North American backlog, a PPI adjustment is recorded to reflect the higher input costs of a new vehicle. For
those contracts where these clauses are not applicable, NFI is seeking price increases and surcharges through negotiations with
customers and surcharge letters. The Company has experienced some success with these efforts and expects they will help offset
some of the inflation related margin pressure on select 2023 vehicle builds.
NFI has completed the majority of its legacy contracts bid in 2020 and 2021 that are impacted by heightened inflation, but, due to
supply chain constraints on delivery schedules, some depressed margin contracts will be realized in NFI's expected 2023 results.
Credit Agreement Discussions and Deleveraging the Balance Sheet
With covenant relief in place under the Company's amended facilities until June 30, 2023, management is now focused on working
with its banking syndicate partners to develop new multi-year credit arrangements. NFI will be seeking agreements that provide
appropriate capacity, flexibility, and covenants which support the Company’s anticipated operational and financial recovery. The
Company is targeting completion of revised credit arrangements during the first half of 2023.
As the Company works to complete the new credit agreements, it remains focused on cash management, liquidity and strengthening
its balance sheet. Proceeds from the Manitoba Facility and the EDC Facility received in January 2023, will provide additional liquidity
as will the continuing unwind of working capital primarily related to investments in WIP and raw material inventory. The inventory
unwind will be somewhat offset by the impacts of deferred revenue where NFI received prepayments and deposits in 2022. In total,
NFI anticipates it will see a net inflow of cash from working capital in 2023. NFI is also continuing to pursue advance payments and
deposits from customers, wherever possible, and exploring other potential opportunities to generate cash flows, including capital
markets activities and potential sale and leaseback of select Company manufacturing facilities.
The Company has two interest rate swaps in place to fix the interest rate which the Company will pay. One swap is in place on
$540.0 million at 2.27% plus an applicable margin until October 2023 and another on $200 million at 0.24% plus an applicable margin
that matures in 2024. The Company also has a 5% annual coupon rate on its convertible debentures which mature in 2027. These
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NFI GROUP INC. 2022 FINANCIAL RESULTS
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have assisted in lowering the Company's exposure to floating interest rate increases, although the Company does expect it will see an
increase in interest costs in 2023 as the $540 million interest rate swap matures and higher base interest rates apply to debt portions
that do not have an interest rate swap in place.
As the Company expects to be unable to comply with certain of its financial covenants under the terms of its credit facilities
beginning on July 1, 2023. These events result in a material uncertainty that may cast significant doubt as to the ability of the
Company to continue as a going concern. The audited consolidated financial statements do not reflect adjustments that would be
necessary if the Company was not a going concern. The Company expects operations to continue into the long-term. The Company is
taking a number of operational steps including cost savings measures to ensure adequate short-term liquidity. Additionally, the
Company is continuing to work directly with suppliers and sub-suppliers to search for alternate or substitute parts where possible,
increase production line parts inventories and develop longer lead times to better support new vehicle production.
In assessing whether the going concern assumption was appropriate, the Company took into account all relevant information
available about the future including its backlog, demand for its products, government funding levels in its core markets and the
Company's ability to raise additional capital from various sources, including capital markets. Full details can be found in Note 2.1 of
the audited consolidated financial statements.
Market Recovery Post-COVID-19 Pandemic and Supply Chain Constraints
The Company’s bus and coach product lines (New Flyer, ARBOC, MCI and ADL) are primarily used for public transit, which remains a
critical method of transportation and economic enabler for users in cities around the world. Public transit has also been a significant
area of investment focus for governments as they seek to improve ridership access, reduce urban congestion, and achieve emissions
targets. These investments increased NFI's new orders in 2022, that when combined with existing backlog and bid activity, are
expected to drive significant revenue growth for NFI from 2023 through 2025 and beyond. This anticipated revenue growth when
combined with expected improvements in margins from operating efficiencies and movement beyond current inflationary pressures,
are also expected to generate Adjusted EBITDA improvements.
The importance of long-term government funding in key markets cannot be understated, as it allows public transit agencies to
proceed with confidence regarding their multi-year fleet replacement plans and procurements. In addition to funding, ridership has
started to recover, with American Public Transportation Association ("APTA") reporting that public transit ridership in the U.S. for
September 2022 surpassed 70% of pre-pandemic levels.
Late in Fiscal 2021, NFI began to experience significant supplier disruption across key components such as windows, air conditioning
units, emission systems, plastics, hoses and key electrical components that contain micro-processors. The Company saw some
improvement in the second quarter of 2022, but critical electrical components remained a significant challenge. In the third and
fourth quarters of 2022 there was further disruption driven by wire harnesses, electrical hybrid drive systems and inverters for
electric buses. There was some improvement in supply of these components, especially wire harnesses, to end 2022 and at the start
of 2023 electrical sub-component supply has improved to NFI's Tier 1 suppliers. Overall risks remain elevated for certain suppliers
who are reliant on electrical components and microprocessors. NFI has taken numerous proactive efforts to improve supply chain
health including the use of alternative suppliers, working several levels down in the supply chain, finding components for our Tier 1
suppliers, increasing inventories of raw materials on hand, and increasing our lead times to suppliers, in some cases moving from 6
weeks of lead time to more than 12 weeks. Based on discussions with suppliers the Company continues to expect that suppliers will
be able to support NFI's planned production ramp-up in the second half of 2023.
NFI's overall continued end market recovery will be dependent upon several factors, including inflation rates, labour availability,
reliability of supply of component parts, government funding for public transit, other COVID-19-related impacts, and green fleet
investments. These factors will differ by business, product type and geography. It is also important to note that there are significant
lead times between when NFI receives an order and when a vehicle enters production.
Strong Government Support for Recovery and Zero-Emission Transition
In each of NFI’s end markets, government support for public transit vehicles continues to be at an all-time high. Not only has
government support for transit operations remained strong during the global pandemic, governments have also committed billions of
dollars for long-term fleet investments in zero-emission vehicles and infrastructure.
In the U.S., the Infrastructure Investment and Jobs Act ("IIJA") signed in 2021 includes $86.9 billion over five years for the FTA; the
IIJA also authorized an additional $21.2 billion in supplemental appropriations from general revenues, for a total of $108 billion in
FTA funding, a 63% increase from the previous government funding act. Generally, U.S. public agencies can secure up to 80% of the
capital costs for a new transit bus from FTA funds, with the remaining 20% coming from state and local sources. The Canadian
government has committed over C$17 billion to 2027 to support Canadian public transit. The funding includes C$1.5 billion flowing
through the Canada Infrastructure Bank ("CIB") to support the adoption of ZEBs and charging infrastructure.
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NFI GROUP INC. 2022 FINANCIAL RESULTS
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The UK government also continues to support purchases of low- and zero-emission buses, and has previously committed to
introducing 4,000 British-built zero-emission buses through its various funding programs, with several rounds of the Zero Emission Bus
Regional Areas, or ZEBRA, funding scheme having already been released. Alexander Dennis has received several customer orders for
ZEBs funded by ZEBRA.
As the market leader in North American transit and coach operations and the UK's leading provider of buses and coaches,
management believes NFI is extremely well-positioned for both the near- and long-term based on the multi-year commitments being
made by governments in all of the Company's core markets.
The Company also continues to focus on growing its Infrastructure SolutionsTM business. Since its inception, Infrastructure SolutionsTM
has been responsible for the delivery of 311 plug-in and 33 overhead charger projects, for a total of 58 megawatts ("MW") charging
capacity, for 51 different customers. Currently, Infrastructure SolutionsTM has projects under contract for 2023/24 with 10 existing
and 7 new customers, which will add 140 plug-in and 32 overhead depot chargers, for a total of 41 MW.
Other International Markets
NFI's international expansion through ADL is expected to continue, with plans for further growth in new and existing markets
including New Zealand, Australia, Hong Kong, Singapore and Germany where multi-year, multi-million dollar funding investments are
being made by governments with commitments to deliver zero-emission transportation.
Although the proposed legislation, government plans and announcements referred to above are encouraging for the future of public
transit, management does not yet know how, when or if the proposals and funds will materialize, contracts will be awarded to the
Company, or the expected impact on NFI's financial performance. NFI will continue to monitor and provide updates as appropriate.
Management anticipates that the strong underlying financial support from governments will provide significant opportunities for
NFI to grow revenue from increased market demand for its products.
Financial Guidance and Targets
NFI presents the following guidance for Fiscal 2023 and Fiscal 2024, and targets for Fiscal 2025:
Revenue
$3.2 billion
$2.5 to $2.8 billion
$3.2 to $3.6 billion
~$4 billion
2019 Pro-forma
Results
2023 Guidance
2024 Guidance
2025 Targets
ZEB (electric) as a percentage
of manufacturing sales
Adjusted EBITDA2
Cash Capital Expenditures –
including NFI Forward 2.0
Return on Invested Capital -
provided for 2025 targets
6%
25% - 30%
30% - 35%
~40%
$331 million
$30 to $60 million
$250 to $300 million
~$400 million
$38 million
$35 to $40 million
$50 to $60 million
~$50 million
9.8%
>12%
1.
Non-IFRS Measure. See Non-IFRS and Other Financial Measures section.
The above table outlines guidance ranges for selected Fiscal 2023 and Fiscal 2024 financial metrics and 2025 financial targets. These
ranges take into consideration management's current outlook combined with 2022 and 2023 year-to-date results and are based on
the assumptions set out below. The purpose of the financial guidance and targets are to assist investors, shareholders, and others
in understanding management's expectations for the Company's financial performance going forward. The information may not be
appropriate for other purposes. Information about guidance and targets, including the various assumptions underlying it, is
forward-looking and should be read in conjunction with the section “Forward-Looking Statements” and the related disclosure and
information about various assumptions, factors, and risks that may cause actual future financial and operating results to differ
from management’s current expectations.
NFI has adjusted its Fiscal 2025 long-term targets, originally announced in January 2021, with expectations to now deliver
approximately $4 billion in revenue, and Adjusted EBITDA of approximately $400 million, with ~40% of vehicle sales coming from
ZEBs and a ROIC of greater than 12% (unchanged). The original targets were for $3.9 to $4.1 billion of revenue, $400 to $450 million
of Adjusted EBITDA and a ROIC of greater than 12%. The 2025 targets have been lowered slightly to reflect the anticipated timing of
market recoveries based on the challenges experienced in 2022 and the expectation that the first half of 2023 will continue to be
challenged by supply disruption and that new vehicle production rates will not increase until later in 2023. In addition, the expected
timing of significant UK government funding for fleet replacements has been moved from 2023 and 2024 into 2024 and 2025,
impacting the anticipated timing of vehicle delivery volumes in that market.
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NFI GROUP INC. 2022 FINANCIAL RESULTS
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The 2023 and 2024 guidance ranges provided above and the 2025 targets are driven by numerous expectations and assumptions
including, but not limited to, the following:
a.
b.
c.
Revenue: Anticipated revenue growth in 2023, 2024 and 2025 is based on NFI's firm order backlog, current 2023 and 2024
production schedules, expected backlog option order conversion, and anticipated 2023, 2024 and 2025 new vehicle orders
and aftermarket parts sales. Revenue guidance and targets reflect higher volume of ZEB sales and anticipated product mix
benefits plus expected international sales expansion. The guidance ranges also reflect potential variances in delivery
volumes from supply disruption, product mix and expected timing of production recovery driving improved efficiency in the
second half of 2023 and Fiscal 2024 and Fiscal 2025.
ZEB Sales: Expected growth in the percentage of ZEB sales is based on NFI's firm order backlog, the Company’s existing
vehicle inventory, 2023 and 2024 production schedules, anticipated 2023, 2024 and 2025 new vehicle orders, anticipated
backlog option order conversion and from review of customers capital and fleet renewal plans that suggest there will
continue to be increases in their demand for electric vehicles.
Adjusted EBITDA: Adjusted EBITDA is expected to increase in both 2023, 2024 and 2025 as the Company anticipates
recoveries in new vehicle deliveries, changes to product mix, a higher percentage of ZEB deliveries and improved operating
margins, especially from the second half of 2023 onwards, due to anticipated recovery in supply chain health. In addition,
while there will be some impact to margins from legacy inflation adjusted contracts in 2023, the majority of NFI's contracts
going forward reflect updated pricing with higher input costs and inflation adjustments. In addition, the Company has now
achieved its targeted cost savings of $67 million from the NFI Forward initiative, which are expected to continue, and
anticipates an additional $5 million to $8 million of additional savings from projects entitled NFI Forward 2.0. The total
cost savings achieved under NFI Forward are expected to be somewhat offset by the impacts of inflation on wage and other
input costs.
d.
ROIC: 2025 Targets are driven by the factors noted above combined with the expectation that there will not be significant
changes in tax rates from current levels.
Guidance and targets above are conditional on several factors and expectations, including the recovery of supply chains and other
COVID-19-related impacts, a higher percentage of ZEB sales (which provide a higher revenue and dollar margin benefit), the
mitigation of inflationary pressures, end markets recovering inline with management expectations, international expansion,
aftermarket parts sales, continuous improvement initiatives as well as obtaining a new multi-year credit agreement and availability
of adequate liquidity.
NFI's guidance and targets are subject to the risk of extended duration of the current supply disruptions and the risk of additional
supply disruptions affecting particular key components. In addition, the guidance and targets do not reflect potential escalated
impact on supply chains or other factors arising directly or indirectly as a result of the ongoing Russian invasion of Ukraine. Although
NFI does not have direct suppliers based in Russia or Ukraine, additional supply delays and possible shortages of critical components
may arise as the conflict progresses and if certain suppliers’ operations and/or subcomponent supply from affected countries are
disrupted further. In addition, there may also be further general industry-wide price increases for components and raw materials
used in vehicle production as well as further increases in the cost of labour and potential difficulties in sourcing an increase in the
supply of labour. See Appendix A Forward Looking Statements for risks and other factors and the Company's filings on SEDAR.
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NFI GROUP INC. 2022 FINANCIAL RESULTS
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SELECTED QUARTERLY AND ANNUAL FINANCIAL AND OPERATING INFORMATION
The following selected condensed consolidated financial and operating information of the Company has been derived from and should be
read in conjunction with the historical and current Financial Statements of the Company.
(U.S. dollars in thousands, except per Share figures)
Fiscal Period
Quarter
Revenue
Earnings (loss)
from operations
Net earnings
(loss) Adjusted EBITDA1
Earnings (loss)
per Share
2022
2021
2020
Q4
Q3
Q2
Q1
682,604
514,047
397,952
459,330
(140,153)
(150,360)
(43,479)
(64,218)
(41,763)
(42,595)
(56,740)
(28,068)
(5,103)
(15,709)
(21,345)
(16,942)
Total
2,053,933
(289,613)
(277,763)
(59,099)
Q4
Q3
Q2
Q1
694,843
492,038
582,794
574,119
Total
2,343,794
Q4
Q3
Q2
Q1
711,523
663,934
333,334
710,384
(4,785)
(2,797)
26,675
26,918
46,011
32,531
(16,453)
(72,001)
(25,406)
(8,691)
(15,415)
2,588
7,033
26,154
31,330
51,856
54,841
(14,485)
164,181
8,465
(24,912)
(74,050)
(67,239)
64,956
60,885
(24,229)
56,071
157,683
(1.94)
(0.56)
(0.74)
(0.36)
(3.60)
(0.12)
(0.22)
0.04
0.10
(0.21)
0.14
(0.40)
(1.18)
(1.08)
(2.52)
Total
2,419,175
(81,329)
(157,736)
COMPARISON OF FOURTH QUARTER 2022 RESULTS
(U.S. dollars in thousands)
Statement of Earnings Data
Revenue
North America
United Kingdom and Europe
Asia Pacific
Other
Manufacturing operations
North America
United Kingdom and Europe
Asia Pacific
Other
Aftermarket operations
Total revenue
(Loss) earnings from operations
(Loss) earnings before interest and income taxes
Net Loss
Adjusted EBITDA1
Cash capital expenditures
1. Non-IFRS Measure - See Non-IFRS and Other Financial Measures section.
2022 Q4
2021 Q4
Fiscal 2022
Fiscal 2021
408,192
379,501
1,179,846
1,428,001
145,265
161,867
361,681
362,052
8,907
35,970
27,234
79,713
—
—
—
—
562,364
577,338
1,568,761
1,869,766
95,102
19,954
5,184
—
86,242
19,311
11,952
—
375,103
348,247
79,166
30,903
—
78,448
47,333
—
120,240
117,505
485,172
474,028
682,604 $
694,843 $ 2,053,933 $ 2,343,794
(140,153) $
(4,785) $
(289,613) $
46,011
(136,634) $
(10,398) $
(288,450) $
34,108
(150,360) $
(8,691) $
(277,763) $
(14,484)
(5,103) $
26,154 $
(59,099) $
164,181
4,732 $
12,948 $
21,371 $
33,514
$
$
$
$
$
$
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NFI GROUP INC. 2022 FINANCIAL RESULTS
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Results of Operations
The discussion below with respect to revenue, operating costs, expenses, and earnings from operations has been divided between the
Manufacturing and Aftermarket operations segments.
Revenue
(U.S. dollars in thousands)
Manufacturing Revenue
Aftermarket Revenue
Total Revenue
(Loss) earnings from Operations
(Loss) earnings before interest and income taxes
Loss before income tax expense
Net Loss
2022 Q4
562,364
120,240
682,604
(140,153)
(136,634)
(161,308)
(150,360)
2021 Q4
577,338
117,505
694,843
Fiscal 2022
Fiscal 2021
1,568,761
1,869,766
485,172
474,028
2,053,933
2,343,794
(4,785)
(10,398)
(9,757)
(8,691)
(289,613)
(288,450)
(325,184)
46,011
34,108
(4,928)
(277,763)
(14,484)
Manufacturing revenue for 2022 Q4 decreased by $15.0 million, or 2.6%, compared to 2021 Q4. Manufacturing revenue for Fiscal 2022
decreased by $301.0 million, or 16.1%, compared to Fiscal 2021. 2022 Q4 revenue decreased as a result of decreased deliveries during the
quarter. Fiscal 2022 figures decreased primarily as a result of the overall reduction in deliveries resulting from global supply chain and
logistics challenges, which created numerous bottlenecks in the supply chain and disruptions to parts availability, resulting in operational
inefficiencies.
Aftermarket revenue for 2022 Q4 increased by $2.7 million, or 2.3% compared to 2021 Q4. Aftermarket revenue for Fiscal 2022 increased by
$11.1 million, or 2.4%, compared to Fiscal 2021. The increase in revenue for both periods is related to increased volume, the increased
volume is despite the additional week in 2021 Q4. The Company also continues to benefit from a multi-year retrofit program in the Asia-
Pacific region, which has continued throughout 2022, but at a lower run rate as the program unwinds. This decrease of sales in the Asia-
Pacific region is offset by increases in the North America region.
Cost of sales
(U.S. dollars in thousands)
Manufacturing
Direct cost of sales
Depreciation and amortization
Other overhead
Manufacturing cost of sales
As percent of Manufacturing Sales
Aftermarket
Direct cost of sales
Depreciation and amortization
Aftermarket cost of sales
As percent of Aftermarket Sales
Total Cost of Sales
As percent of Sales
2022 Q4
2021 Q4
Fiscal 2022
Fiscal 2021
491,847
19,867
63,153
574,867
478,929
1,372,231
1,505,047
22,490
72,583
77,788
204,132
86,539
189,736
574,002
1,654,151
1,781,322
102.2 %
99.4 %
105.4 %
95.3 %
83,094
2,713
85,807
77,340
2,629
79,969
339,945
10,707
350,652
316,261
10,616
326,877
71.4 %
68.1 %
72.3 %
69.0 %
660,674
653,971
2,004,803
2,108,199
96.8 %
94.1 %
97.6 %
89.9 %
The consolidated cost of sales for 2022 Q4 increased by $6.7 million, or 1.0%, compared to 2021 Q4. The consolidated cost of sales for Fiscal
2022 decreased by 103.4 million, or 4.9%, compared to Fiscal 2021.
Cost of sales from Manufacturing operations in 2022 Q4 was $574.9 million (102.2% of Manufacturing operations revenue) compared to $574.0
million (99.4% of Manufacturing operations revenue) in 2021 Q4, an increase of $0.9 million, or 0.2%. Cost of sales from Manufacturing
operations in Fiscal 2022 was $1.7 billion (105.4% of Manufacturing operations revenue) compared to $1.8 billion (95.3% of Manufacturing
operations revenue) in Fiscal 2021. Cost of sales increased as a percentage of revenue in both periods, mainly due to operational
inefficiencies resulting from supply shortages and impacts of inflation. Government grant programs, which were primarily received to assist
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NFI GROUP INC. 2022 FINANCIAL RESULTS
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with the retention of skilled personnel, ended and therefore resulted in no amounts being recorded in 2022 compared to the significant
support received in the same period in 2021, resulting in lower cost of sales as a percentage of revenue in the prior year.
Cost of sales from Aftermarket operations in 2022 Q4 was $85.8 million (71.4% of Aftermarket revenue) compared to $80.0 million (68.1% of
Aftermarket revenue) in 2021 Q4, an increase of 3.3% as a percentage of revenue. Cost of sales from Aftermarket operations in Fiscal 2022
was $350.7 million (72.3% of Aftermarket revenue) compared to $326.9 million (69.0% of Aftermarket revenue) in Fiscal 2021. Cost of sales
increased as a percentage of revenue in both periods primarily due to product mix and the effects of inflation, including freight costs, that
were not fully transferred to the end customer.
Gross Margins
(U.S. dollars in thousands)
Manufacturing
Aftermarket
Total Gross Margins
As a percentage of sales
Manufacturing
Aftermarket
2022 Q4
(12,520)
34,432
21,912
2021 Q4
Fiscal 2022
Fiscal 2021
3,336
37,536
40,872
(85,409)
134,520
49,111
88,445
147,150
235,595
(2.2) %
28.6 %
3.2 %
0.6 %
31.9 %
5.9 %
(5.4) %
27.7 %
2.4 %
4.7 %
31.0 %
10.1 %
There was negative gross margin in Manufacturing for 2022 Q4 of $12.5 million ((2.2%) of Manufacturing revenue), which decreased by $15.9
million compared to a gross margin of $3.3 million (0.6% of revenue) for 2021 Q4. There were negative gross margins in Manufacturing for
Fiscal 2022 of $85.4 million ((5.4)% of Manufacturing revenue), which decreased by 173.9 million, or 196.6%, compared to a gross margin of
$88.4 million (4.7% of Manufacturing revenue) in Fiscal 2021.
Manufacturing gross margin decreased as a percentage of revenue in both periods, mainly due to heightened inflation and operational
inefficiencies resulting from supply chain and logistics challenges. The supply chain challenges that caused a shortage of key parts caused low
production volumes, resulting in the Company absorbing more fixed overhead on a per unit basis. At the end of 2021, the Company was no
longer eligible for government grants, which were primarily received to assist with the retention of skilled personnel. This resulted in no
amounts being recorded in 2022 compared to the significant support received in the same period in 2021, contributing to a lower gross margin
percentage.
Aftermarket gross margins for 2022 Q4 of $34.4 million (28.6% of Aftermarket revenue) decreased by $3.1 million, or 8.3%, compared to 2021
Q4 gross margins of $37.5 million (31.9% of Aftermarket revenue). Aftermarket gross margins for Fiscal 2022 of 134.5 million (27.7% of
Aftermarket revenue) decreased by 12.6 million, or 8.6%, compared to Fiscal 2021 gross margins of 147.2 million (31.0% of Aftermarket
revenue). The decrease in gross margins and gross margins as a percentage of revenue for both periods is mainly due to product mix and the
effects of inflation as increases to labour, freight and product costs were not fully transferred to the end customer.
Selling, general and administrative costs and other operating expenses (“SG&A”)
(U.S. dollars in thousands)
Selling expenses
General and administrative expenses
Other costs
Total SG&A
2022 Q4
2021 Q4
Fiscal 2022
Fiscal 2021
7,484
48,981
1,163
57,628
7,735
46,557
1,094
55,386
32,009
198,739
9,300
27,271
176,868
1,030
240,048
205,169
The consolidated SG&A for 2022 Q4 of $57.6 million (8.4% of consolidated revenue) increased by $2.2 million, or 4.0%, compared to $55.4
million (8.0% of consolidated revenue) in 2021 Q4. The consolidated SG&A for Fiscal 2022 of $240.0 million (11.7% of consolidated revenue)
increased by 34.9 million, or 17.0%, compared to $205.2 million (8.8% of consolidated revenue) in Fiscal 2021.
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NFI GROUP INC. 2022 FINANCIAL RESULTS
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SG&A expenses in 2022 Q4 increased across business units to meet operational needs and have increased due to the effects of inflation.
Additionally, the increase for Fiscal 2022 is impacted by a $7.0 million legal settlement which was incurred during 2022 Q2, and a liability
related to the closure of the Pembina facility and the related withdrawal from the multi-employer pension plan of $7.0 million. In 2021 Q4,
the Company received $2.5 million of government grants and $7.7 million for Fiscal 2021. These grants offset costs during those periods,
while in 2022 the Company was no longer eligible for these specific grants that were primarily received to assist with the retention of skilled
personnel. This resulted in no amounts being recorded in 2022 compared to the significant support received in the same periods in 2021,
resulting in higher SG&A as a percentage of revenue.
Government Grants
The Company recorded government grants during the year on a net basis to the following categories:
(U.S. dollars in thousands)
2022 Q4
2021 Q4
Fiscal 2022
Fiscal 2021
Cost of sales
—
2,039.0
—
48,382.0
Selling, general and administration costs and other operating
expenses
Total government grants
—
—
295.0
2,334.0
—
—
8,059.0
56,441.0
Realized foreign exchange loss/gain
In 2022 Q4, the Company recorded a realized foreign exchange loss of $0.6 million compared to a gain of $9.7 million in 2021 Q4. In Fiscal
2022, the Company recorded a realized foreign exchange gain of $5.2 million compared to a gain of $15.6 million in Fiscal 2021.
The Company uses foreign exchange forward contracts to buy various currencies in which it operates with U.S. dollars, Canadian dollars and
GBP. The purchase of these currencies using foreign exchange forward contracts at favorable forward rates compared to the spot rates at
settlement were the primary reason for the gains in the fiscal period.
Earnings (loss) from operations
Consolidated losses from operations in 2022 Q4 were $140.2 million ((20.5%) of consolidated revenue) compared to losses of $4.8 million
((0.7%) of consolidated revenue) in 2021 Q4, an increase of $135.4 million or 2820.8%. Consolidated losses from operations in Fiscal 2022 were
289.7 million ((14.1)% of consolidated revenue) compared to earnings of 46.0 million (2.0% of consolidated revenue) in Fiscal 2021.
2022 Q4 losses from operations attributable to the Manufacturing Segment were $156.6 million ((27.9)% of Manufacturing revenue) compared
to losses of $35.6 million ((6.2)% of Manufacturing revenue) in 2021 Q4. Losses from Manufacturing operations in Fiscal 2022 were $356.1
million ((22.7)% of Manufacturing revenue) compared to losses of $46.0 million ((2.5)% of Manufacturing revenue) in Fiscal 2021. The decrease
as a percentage of revenue in 2022 Q4 was primarily attributable to lower new vehicle deliveries, increased inflation and operational
inefficiencies resulting from supply chain and logistics challenges.
Earnings from operations related to Aftermarket operations in 2022 Q4 were $17.7 million (14.7% of Aftermarket revenue) compared to $21.2
million (18.0% of Aftermarket revenue) in 2021 Q4. Earnings from operations related to Aftermarket operations in Fiscal 2022 were $66.0
million (13.6% of Aftermarket revenue) compared to $83.3 million (17.6% of Aftermarket revenue) in Fiscal 2021. Earnings from Aftermarket
operations over both periods were lower due to unfavourable sales mix, and the inflationary impact on costs that were not fully passed
through to the customer.
Unrealized foreign exchange gain/loss
The Company has recognized a net unrealized foreign exchange gain (loss) consisting of the following:
(U.S. dollars in thousands)
Unrealized gain (loss) on forward foreign exchanges contracts
Unrealized gain (loss) on other long-term monetary assets/liabilities
2022 Q4
2021 Q4
Fiscal 2022
Fiscal 2021
5,657
(1,728)
3,929
594
(6,393)
(5,799)
(6,631)
7,229
598
(4,048)
(7,743)
(11,791)
At January 1, 2023, the Company had $50 million of foreign exchange forward contracts to buy currencies in which the Company operates
(U.S. dollars, Canadian dollars, and GBP). The related asset of $1.7 million (January 2, 2022: $0.4 million asset) is recorded on the audited
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NFI GROUP INC. 2022 FINANCIAL RESULTS
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consolidated statement of financial positions as a current derivative financial instruments asset and the corresponding change in the fair
value of the foreign exchange forward contracts is recorded in the audited consolidated statements of net loss and total comprehensive loss.
Earnings (loss) before interest and income taxes (“EBIT”)
In 2022 Q4, the Company recorded an EBIT loss of $136.6 million compared to EBIT loss of $10.4 million in 2021 Q4. In Fiscal 2022, the
Company recorded EBIT loss of $288.5 million compared to EBIT of $34.1 million in Fiscal 2021.
Interest and finance costs
The interest and finance charges for 2022 Q4 of $24.7 million increased by $25.4 million compared 2021 Q4. The quarterly increase is
primarily due to higher interest cost, a fair market value loss on the adjustment to the Company's interest rate swaps and lower gain on the
adjustment to the Company's embedded derivatives. The Company had a fair market value loss on the interest rate swap of $1.2 million in
2022 Q4 compared to a gain of $9.9 million in 2021 Q4. The Company had a fair market value gain on its cash conversion option of $5.6
million compared to $10.9 million in 2021 Q4.
The interest and finance charges for Fiscal 2022 of $36.7 million decreased by $2.3 million compared to Fiscal 2021. The yearly decrease is
mostly related to higher fair market value gain on the adjustment to the Company's interest rate swap as well as the Company's cash
conversion option, offset by increased interest related to the Company's convertible debt. The Company had a fair market value gain on the
interest rate swap of $37.7 million in Fiscal 2022 compared to a gain of $23.2 million in Fiscal 2021. The Company had a fair market value
gain on the cash conversion option of $16.6 million in Fiscal 2022 compared to $10.9 million in Fiscal 2021.
The fair market value adjustments on the interest rate swaps relate to risk management activities management has undertaken to reduce the
uncertainty related to the Company's cost of borrowing. The Company's first interest rate swap fixes the interest rate which the Company will
pay on $600.0 million of its long-term debt at 2.27% plus an applicable margin. The fixed portion amortizes $20 million annually and matures
in October 2023. The notional value of the swap as at January 1, 2023 was $540 million.
On July 9, 2020, the Company entered into a $200 million amortizing notional interest rate swap designed to hedge floating rate exposure on
its Credit Facility. The interest rate swap fixes the interest rate at 0.243% plus applicable margin until July 2025. The swap begins amortizing
on January 9, 2023 at a rate of $20 million per annum. The Company's accounting policy does not designate these types of instruments as
accounting hedges. As a result, interest rate increases will result in mark-to-market gains, while interest rate decreases will result in mark-
to-market losses.
The fair value of the interest rate swap asset of $27.8 million at January 1, 2023 (January 2, 2022: liability of $30.5 million) was recorded on
the audited consolidated statements of financial position as a derivative financial instruments liability and the change in fair value has been
recorded in finance costs for the reported period.
Earnings (loss) before income taxes (“EBT”)
EBT loss for 2022 Q4 of $161.3 million increased by $151.6 million compared to EBT loss of $9.8 million in 2021 Q4. EBT loss for Fiscal 2022 of
$325.2 million increased by $320.3 million compared to EBT loss of $4.9 million in Fiscal 2021. The primary driver is a $103.9 million non-cash
goodwill impairment charge in ARBOC ($23.2 million) and the ADL Manufacturing ($80.7 million) cash generating units ("CGUs"). The goodwill
impairment reflects increases in market interest rates, as well as timing of the market recovery from the COVID-19 pandemic and the related
supply chain disruptions. Other factors attributing to the changes of EBT are addressed in the Earnings (loss) from Operations and interest and
finance costs sections above.
Income tax expense
The income tax recovery for 2022 Q4 was $10.9 million compared to $1.1 million in 2021 Q4. The income tax recovery is primarily due to
reduced earnings before taxes, and the recognition of previously unrecognized foreign tax credits, offset by the detrimental impact of a non-
deductible goodwill impairment, and the derecognition of deferred tax assets associated with Canadian loss carryforwards, and restricted
interest in the UK.
The income tax recovery for Fiscal 2022 was $47.4 million compared to an expense of $9.6 million in Fiscal 2021. The increase in the overall
income tax recovery is primarily due to reduced earnings before taxes, recovery of state income taxes, the recognition of previously
derecognized foreign tax credits, and the impact of the revaluation of deferred tax balances due to the increase in the UK corporate tax rate
from 19% to 25%, which negatively impacted the Fiscal 2021 Effective Tax Rate ("ETR"). The above beneficial items were offset by the
detrimental impact of a non-deductible goodwill impairment, non-deductible foreign exchange, and the derecognition of deferred tax assets
associated with both Canadian loss carryforwards, and restricted interest in the UK.
The ETR for 2022 Q4 was 6.8% and the ETR for 2021 Q4 was 10.9%. The ETR for Fiscal 2022 was 14.6% and the ETR for Fiscal 2021 was
(193.9)%.
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NFI GROUP INC. 2022 FINANCIAL RESULTS
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The 2022 Q4 ETR is favourably impacted by state income taxes, and the recognition of previously unrecognized foreign tax credits. These
benefits are more than offset by the detrimental impact on ETR from the non-deductible goodwill impairment, combined with the
derecognition of deferred tax assets associated with Canadian loss carryforwards, and restricted interest in the UK.
Net loss
The Company reported net losses of $150.4 million in 2022 Q4, an increase of 141.7 million, or 1630.1%, compared to net losses of $8.7
million in 2021 Q4. The Company reported net losses of $277.8 million in Fiscal 2022, an increase of net losses of 263.3 million, or 1817.7%,
compared to net losses of 14.5 million in Fiscal 2021. The net losses are a result of the items discussed above.
Net loss
(U.S. dollars in millions, except per Share figures)
2022 Q4
2021 Q4
Fiscal 2022
Fiscal 2021
(Loss) earnings from operations
(140.2)
(4.8)
(289.7)
Gain (loss) on disposition of property, plant and equipment
Unrealized foreign exchange gain (loss) on monetary items
Interest and finance costs
Income tax recovery (expense)
Net Loss
Net loss per Share (basic)
Net loss per Share (fully diluted)
(0.4)
3.9
(24.6)
10.9
0.2
(5.8)
0.6
1.1
0.6
0.6
(36.7)
47.4
(150.4)
(8.7)
(277.8)
(1.9)
(1.9)
(0.1)
(0.1)
(3.6)
(3.6)
46.0
(0.1)
(11.8)
(39.0)
(9.6)
(14.5)
(0.2)
(0.2)
The Company recorded net loss per Share for 2022 Q4 of $1.94 compared to net loss per Share of $0.12 in 2021 Q4. The Company's net loss
per Share for Fiscal 2022 of $3.6 compared to a net loss per Share of $0.21 in Fiscal 2021. The per Share net loss increased in both periods as
a result of decreased earnings during the period, offset by increased Shares outstanding as discussed below.
Cash Flow
The cash flows of the Company are summarized as follows:
(U.S. dollars in thousands)
Cash (used in) generated by operating activities before non-cash working
capital items and interest and income taxes paid
Interest paid
Income taxes recovered (paid)
Cash flow (invested in) provided by working capital
Net cash (used in) generated by operating activities
Net cash generated by (used in) financing activities
Net cash used in investing activities
Cash flows from operating activities
2022 Q4
2021 Q4
Fiscal 2022
Fiscal 2021
(11,727)
(15,467)
(3,044)
31,743
1,505
23,568
(17,254)
2,998
143,848
153,160
17,175
(118,821)
(8,504)
(18,971)
(88,755)
(58,348)
1,422
(96,169)
(241,850)
238,279
(24,531)
153,180
(64,224)
(19,550)
45,824
115,230
(59,992)
(30,792)
The 2022 Q4 net operating cash used in operating activities of $1.5 million is mainly comprised of $30.2 million of net cash loss and $31.7
million of cash invested in working capital. The 2021 Q4 net operating cash outflow of $153.2 million is comprised of $9.3 million of net cash
earnings and $143.8 million of cash generated by working capital.
The Fiscal 2022 net operating cash used in operating activities of $241.9 million is mainly comprised of $145.7 million of net cash loss and
$96.2 million of cash invested in working capital. The Fiscal 2021 net operating cash inflow of $115.2 million is comprised of net cash earnings
of $69.4 million and $45.8 million of cash provided by working capital.
Cash flow from financing activities
The cash generated by financing activities of $17.2 million during 2022 Q4 is comprised mainly of proceeds of revolving credit facilities of
$25.8 million and proceeds from lease obligations under capital of $3.1 million. As at Fiscal 2022, $238.3 million of cash has been generated
by financing activities due to the proceeds from revolving credit facilities of $285.2 million, which was offset by dividend payments of $22.4
million, and lease obligation repayments of $24.5 million.
34
NFI GROUP INC. 2022 FINANCIAL RESULTS
NFIGROUP.COM
Cash flow from investing activities
(U.S. dollars in thousands)
Acquisition of intangible assets
Proceeds from disposition of property, plant and equipment
Long-term restricted deposits
Acquisition of property, plant and equipment
Cash used in investing activities
2022 Q4
2021 Q4
Fiscal 2022
Fiscal 2021
(3,736)
2,803
—
(4,732)
(5,665)
(1,888)
(10,212)
1,277
(5,412)
(12,948)
(18,971)
1,687
5,365
(21,371)
(24,531)
(2,748)
6,182
(712)
(33,514)
(30,792)
Cash used in investing activities was lower in 2022 Q4, primarily due to decreased investments in long-term restricted deposits and property,
plant and equipment.
Credit risk
Financial instruments which potentially subject the Company to credit risk and concentrations of credit risk consist principally of cash,
accounts receivable and derivatives. Management believes that the credit risk associated with accounts receivable is mitigated by the
significant proportion of counterparties that are well established public transit authorities. Additionally, the U.S. federal government funds a
substantial portion of U.S. public sector customer payments - up to 80% of the capital cost of new transit buses, coaches or cutaways, while
the remaining 20% comes from state and municipal sources. There are a few U.S. public sector customers that obtain 100% of their funding
from state and municipal sources. The maximum exposure to the risk of credit for accounts receivables corresponds to their book value.
Historically, the Company has experienced nominal bad debts as a result of the customer base being principally comprised of municipal and
other local transit authorities. Management has not observed, and does not anticipate, significant changes to credit risk as a result of the
COVID-19 pandemic.
The purchase of new coaches, transit buses or cutaways by private fleet operators is paid from the operators' own capital budgets and funded
by their own cash flow. A significant portion of private fleet operators choose to finance new coach purchases with lending organizations. In
some cases, MCI assists in arranging this financing, and in some cases, it provides financing through its ultimate net loss program. The
Company has experienced a nominal amount of bad debts with its private sales customers as most transactions require payment on delivery.
Management has not observed, and does not anticipate, significant changes to credit risk as a result of the COVID-19 pandemic.
The carrying amount of accounts receivable is reduced through the use of an allowance account and the amount of the loss is recognized in
the earnings statement within SG&A. When a receivable balance is considered uncollectible, it is written off against the allowance for
doubtful accounts. Subsequent recoveries of amounts previously written off are credited against SG&A in the consolidated statements of net
loss and total comprehensive loss.
The following table details the aging of the Company’s receivables and related allowance for doubtful accounts:
U.S. dollars in thousands
Current, including holdbacks
Past due amounts but not impaired
1 – 60 days
Greater than 60 days
Less: allowance for doubtful accounts
Total accounts receivables, net
January 1, 2023
January 2, 2022
344,920
375,012
15,931
5,480
(107)
366,224
15,857
5,892
(270)
396,491
The counterparties to the Company's derivatives are chartered Canadian banks and international financial institutions. The Company could be
exposed to loss in the event of non-performance by the counterparty. However, credit ratings and concentration of risk of the financial
institutions are monitored on a regular basis.
35
NFI GROUP INC. 2022 FINANCIAL RESULTS
NFIGROUP.COM
Commitments and Contractual Obligations
The following table describes the Company’s maturity analysis of the undiscounted cash flows of leases and accrued benefit liabilities as at
January 1, 2023:
U.S. dollars in thousands
Leases
Accrued benefit liability
Total
2023
2024
2025
2026
2027
Post 2027
208,795
25,533
20,558
16,013
13,875
12,223
120,593
3,700
3,700
—
—
—
—
—
212,495
29,233
20,558
16,013
13,875
12,223
120,593
As at January 1, 2023, outstanding surety bonds guaranteed by the Company totaled $375.6 million (January 2, 2022: $375.9 million). The
estimated maturity dates of the surety bonds outstanding at January 1, 2023 range from February 2023 to December 2039. Management
believes that adequate facilities exist to meet projected surety requirements.
The Company has not recorded a liability under these guarantees as management believes that no material events of default exist under any
applicable contracts with customers.
Under the Credit Facility, the Company has established a letter of credit sub-facility of $100.0 million (January 2, 2022: $100.0 million). As at
January 1, 2023, letters of credit totaling $24.5 million (January 2, 2022: $11.8 million) remain outstanding as security for contractual
obligations of the Company under the Credit Facility.
As at January 1, 2023, letters of credit in the UK totaling $18.3 million remain outstanding as a security for contractual obligations of the
Company outside of the UK facility (January 2, 2022: $40.6 million). Additionally, there are $25.3 million of letters of credit outstanding
outside of the Credit Facility.
As at January 1, 2023, management believes that the Company was in compliance in all material respects with all applicable contractual
obligations and the Company has not provided for any costs associated with these letters of credit.
The Company does not have any off-balance sheet arrangement or any material capital asset commitments at January 1, 2023.
Share Option Plan
The Board adopted a Share Option Plan (the “2013 Option Plan”) for NFI on March 21, 2013, under which certain employees of NFI and certain
of its affiliates may receive grants of options for Shares. The 2013 Option Plan was amended and restated on December 8, 2015, December
31, 2018 and August 5, 2020. Directors who are not employed with NFI are not eligible to participate in the 2013 Option Plan. A maximum of
3,600,000 Shares are reserved for issuance under the 2013 Option Plan. The options vest one-quarter on the first grant date anniversary and
an additional one-quarter on the second, third and fourth anniversary of the grant date.
Option Grant dates
March 26, 2013
Number
490,356
Exercised
(490,356)
Expired
—
Vested Unvested
—
—
Expiry date
March 26, 2021
December 30, 2013
612,050
(602,419)
(9,631)
—
December 28, 2014
499,984
(252,233)
(11,368)
(236,383)
December 28, 2015
221,888
(19,532)
—
(202,356)
September 8, 2016
2,171
—
(2,171)
—
151,419
(1,610)
(11,888)
(137,921)
January 3, 2017
January 2, 2018
January 2, 2019
July 15, 2019
December 31, 2019
December 28, 2020
February 10, 2021
August 16, 2021
January 3, 2022
April 1, 2022
152,883
284,674
2,835
519,916
258,673
1,894
601
311,892
1,728
—
(29,198)
(123,685)
—
(59,186)
(169,118)
56,370
—
—
(2,126)
709
—
(78,772)
(330,861)
110,283
—
(26,603)
(116,041)
116,029
—
—
—
—
—
—
(7,940)
—
(947)
(150)
947
451
—
—
303,952
1,728
The vested options granted on December 28, 2014 due to expire on December 28, 2022 remain exercisable.
3,512,964 (1,366,150)
(236,757)
(1,319,588)
590,469
—
—
—
—
—
—
December 30, 2021
December 28, 2022
December 28, 2023
September 8, 2024
January 3, 2025
January 2, 2026
January 2, 2027
July 15, 2027
December 31, 2027
December 28, 2028
December 28, 2028
August 16, 2029
January 3, 2030
April 3, 2030
Exercise
price
$10.20
Fair Value
at grant
date
$1.55
$10.57
$13.45
$26.75
$42.83
$40.84
$54.00
$33.43
$35.98
$26.81
$24.70
$28.74
$30.79
$20.26
$16.25
$27.41
$1.44
$1.83
$4.21
$8.06
$7.74
$9.53
$5.01
$4.90
$3.36
$6.28
$6.28
$6.28
$6.10
$6.51
36
NFI GROUP INC. 2022 FINANCIAL RESULTS
NFIGROUP.COM
The Board adopted a new share option plan on March 12, 2020 (the "2020 Option Plan"), which was approved by shareholders on May 7, 2020,
and amended on August 5, 2020, under which certain employees of NFI and certain of its affiliates may receive grants of options for Shares.
Directors who are not employed with NFI are not eligible to participate in the 2020 Option Plan. A maximum of 3,200,000 Shares are reserved
for issuance under the 2020 Option Plan. The options vest one-quarter on the first grant date anniversary and an additional one-quarter on
the second, third and fourth anniversary of the grant date. No options have been issued under the 2020 Option Plan.
The following reconciles the Share options outstanding:
Balance at beginning of period
Granted during the period
Expired during the period
Exercised during the period
Balance at end of period
Fiscal 2022
Fiscal 2021
Number
1,617,759
313,620
(21,322)
—
1,910,057
Weighted average
exercise price
C$28.82
C$20.24
C$28.84
C$0.00
C$27.41
Number
1,503,117
261,168
(110,449)
(36,077)
1,617,759
Weighted average
exercise price
C$29.32
C$24.73
C$31.93
C$10.49
C$28.82
Restricted Share Unit Plan for Non-Employee Directors
Pursuant to the Company’s Restricted Share Unit Plan for Non-Employee Directors, a maximum of 500,000 Shares are reserved for issuance to
non-employee directors. The Company issued 20,292 director restricted Share units (“Director RSUs”), with a total value of $0.2 million, in
2022 Q4. Approximately $0.1 million of the issued Director RSUs were exercised and exchanged for 7,603 Shares.
Compensation of Key Management
Key management, who represent related parties of NFI, includes members of the Board of Directors, President and CEO, the CFO, presidents
of each business unit, executive vice presidents and vice presidents. The compensation expense for key management for employee services is
shown below:
Salaries and short-term employee benefits
Post-employment benefits
Share-based payment benefits
Fiscal 2022
$
$
10,412 $
554
492
11,458 $
Fiscal 2021
11,775
619
2,144
14,538
Share-based payment benefits shown above represent the PSU, RSU, Director RSU, DSU and stock option expense that was recorded in the
period.
Critical accounting estimates and judgments
The Company's critical accounting estimates and judgments can be found within note 2 to the 2022 Annual Financial Statements.
New and amended standards adopted by the Company
No new or amended standards were adopted by the Company during the period.
Future Changes to Accounting Standards
The following issued accounting pronouncements represent a summary of the pronouncements that are likely to, or may at some future time,
have an impact on the Company.
IFRS 17 – Insurance Contracts:
In May 2017, with amendments in June 2020, the IASB issued IFRS 17, Insurance Contracts which will replace IFRS 4, effective for annual
reporting periods beginning on or after January 1, 2023, which introduced new guidance for recognition, measurement, presentation and
disclosure of insurance contracts.
The standard requires entities to measure insurance contract liabilities as the risk-adjusted present value of the cash flows plus the
contractual service margin, which represents the unearned profit the entity will recognize as future service is provided. Depending on the
type of contract, this is measured using the general measurement model or the variable fee approach. Expedients are specified, provided the
insurance contracts meet certain conditions. The premium allocation approach is permitted for the liability for remaining coverage on
contracts with a duration of one year or less, or where the use of the premium allocation approach closely approximates the use of the
general measurement model. If, at initial recognition or subsequently, the fulfillment cash flows are in a net outflow, the contract is
considered onerous and the excess is recognized immediately in profit. A loss recovery component is recognized immediately in profit
37
NFI GROUP INC. 2022 FINANCIAL RESULTS
NFIGROUP.COM
representing amounts recoverable from reinsurers related to onerous contracts. Management is currently assessing the impact of this standard
on its consolidated financial statements.
IAS 1 - Presentation of Financial Statements:
Disclosure of Accounting policies which amends IAS 1, Presentation of financial statements was issued in February 2021, effective for annual
reporting periods beginning on or after January 1, 2023. The amendments to the standard clarify some requirements relating to materiality,
order of notes, subtotals, accounting policies and disaggregation.The amended paragraphs require entities to disclose their material
accounting policy information rather than significant accounting policies, as well as provided a four-step materiality process to determine
which accounting policy disclosures are required. Management is currently assessing the impact of this standard on its consolidated financial
statements.
Classification of Liabilities as Current or Non-current, which amends IAS 1, was issued January 2020, effective for annual reporting periods
beginning on or after January 1, 2024. This clarified a criterion in IAS 1 for classifying a liability as non-current: the requirement for an entity
to have the right to defer settlement of the liability for at least 12 months after the reporting period. Management is currently assessing the
impact of this standard on its consolidated financial statements.
38
NFI GROUP INC. 2022 FINANCIAL RESULTS
NFIGROUP.COM
NON-IFRS AND OTHER FINANCIAL MEASURES
This MD&A is based on reported earnings in accordance with IFRS and on the following non-IFRS and other financial measures:
Adjusted EBITDA and Net Operating Profit after Taxes
Management believes that Adjusted EBITDA, and net operating profit after taxes ("NOPAT") are important measures in evaluating the
historical operating performance of the Company. However, Adjusted EBITDA and NOPAT are not recognized earnings measures under IFRS
and do not have standardized meanings prescribed by IFRS. Accordingly, Adjusted EBITDA and NOPAT may not be comparable to similar
measures presented by other issuers. Readers of this MD&A are cautioned that Adjusted EBITDA should not be construed as an alternative
to net earnings or loss determined in accordance with IFRS and NOPAT should not be construed as an alternative to earnings (loss) from
operations determined in accordance with IFRS as an indicator of the Company's performance.
The Company defines Adjusted EBITDA as earnings before interest, income tax, depreciation and amortization after adjusting for the
effects of certain non-recurring, non-operating, and items occurring outside of normal operations that do not reflect the current ongoing
cash operations of the Company. These adjustments are provided in the following table reconciling net earnings or losses to Adjusted
EBITDA based on the historical Financial Statements of the Company for the periods indicated.
The company defines NOPAT as Adjusted EBITDA less depreciation of plant and equipment, depreciation of right-of-use assets and income
taxes at a rate of 31%.
(U.S. dollars in thousands)
Net loss
Addback
Income taxes
Interest expense15
Amortization
(Gain) loss on disposition of property, plant and equipment
Fair value adjustment for total return swap9
Unrealized foreign exchange (gain) loss on non-current monetary items and
forward foreign exchange contracts
Costs associated with assessing strategic and corporate initiatives7
Past service costs and other pension costs11
Proportion of the total return swap realized10
Equity settled stock-based compensation
Unrecoverable insurance costs and other12
Expenses incurred outside of normal operations17
Prior year sales tax provision 13
COVID-19 costs14
Out of period costs16
Impairment loss on goodwill18
Restructuring costs8
Adjusted EBITDA
2022 Q4
2021 Q4
Fiscal 2022 Fiscal 2021
(150,360)
(8,691)
(277,763)
(14,484)
(10,948)
(1,066)
(47,421)
24,673
(641)
36,734
22,580
25,117
88,495
410
—
(186)
647
(565)
952
9,556
39,036
97,154
112
681
(3,929)
5,799
(598)
11,791
—
—
—
397
164
1,708
—
—
(938)
103,900
(106)
—
(106)
—
(597)
293
—
—
1,996
2,926
1,234
7,000
(275)
1,346
8,489
3,761
—
—
(1,597)
—
103,900
—
(712)
1,738
718
—
2,036
3,959
1,234
—
7,240
(571)
18,443
11,468
(5,103)
26,154
(59,099)
164,181
Depreciation of property, plant and equipment and right of use assets
(14,884)
(16,965)
(57,013)
(64,368)
Tax at 31%
NOPAT
Adjusted EBITDA is comprised of:
Manufacturing
Aftermarket
Corporate
(Footnotes on page 41)
6,196
(2,849)
35,995
(30,942)
(13,791)
6,340
(80,117)
68,871
(30,521)
(7,711)
(149,164)
22,882
25,083
2,536
8,782
86,154
3,911
51,654
98,669
13,858
39
NFI GROUP INC. 2022 FINANCIAL RESULTS
NFIGROUP.COM
Free Cash Flow and Free Cash Flow per Share
Management uses Free Cash Flow and Free Cash Flow per Share as non-IFRS measures to evaluate the Company’s operating performance
and liquidity and to assess the Company’s ability to pay dividends on the Shares, service debt, pay interest on Convertible Debentures and
meet other payment obligations. However, Free Cash Flow and Free Cash Flow per Share are not recognized earnings measures under IFRS
and do not have standardized meanings prescribed by IFRS. Accordingly, Free Cash Flow and the associated per Share figure may not be
comparable to similar measures presented by other issuers. Readers of this MD&A are cautioned that Free Cash Flow should not be
construed as an alternative to cash flows from operating activities determined in accordance with IFRS as a measure of liquidity and cash
flow. The Company defines Free Cash Flow as net cash generated by or used in operating activities adjusted for changes in non-cash
working capital items and adjusted for items as shown in the reconciliation of net cash generated by operating activities (an IFRS
measure) to Free Cash Flow (a non-IFRS measure) based on the Company’s historical Financial Statements.
The Company generates its Free Cash Flow from operations and management expects this will continue to be the case for the foreseeable
future. Net cash flows generated from operating activities are significantly impacted by changes in non-cash working capital. The
Company uses its credit facilities to finance working capital and therefore has excluded the impact of working capital in calculating Free
Cash Flow.
The Company defines Free Cash Flow per Share as Free Cash Flow divided by the average number of Shares outstanding.
(U.S. dollars in thousands, except per Share figures)
Net cash generated by (used in) operating activities
Changes in non-cash working capital items3
Interest paid3
Interest expense3
Income taxes paid (recovered)3
Current income tax (expense) recovery3
Repayment of obligations under lease
Cash capital expenditures
Acquisition of intangible assets
Proceeds from disposition of property, plant and equipment
Costs associated with assessing strategic and corporate initiatives7
Defined benefit funding4
Defined benefit expense4
Past service costs and other pension costs11
Expenses incurred outside of normal operations17
Equity hedge
Proportion of the total return swap realized10
Unrecoverable insurance costs and other12
Out of period costs16
Prior year sales tax provision13
Restructuring costs8
COVID-19 costs14
Foreign exchange gain (loss) on cash held in foreign currency5
Free Cash Flow1
U.S. exchange rate2
Free Cash Flow (C$)1
Free Cash Flow per Share (C$)6
Declared dividends on Shares (C$)
Declared dividends per Share (C$)6
2022 Q4
2021 Q4
Fiscal 2022 Fiscal 2021
1,505
150,246
(241,850)
115,230
(31,743)
(139,640)
96,169
(45,824)
15,467
17,254
58,348
64,224
(24,156)
(20,108)
(77,797)
(70,432)
3,044
(2,998)
(1,422)
19,550
21,556
(10,517)
19,809
(22,430)
(5,647)
(2,206)
(24,535)
(18,192)
(4,732)
(12,948)
(21,371)
(33,514)
(3,736)
(1,888)
(10,212)
(2,748)
2,649
(106)
1,590
1,687
—
4,265
6,182
(106)
3,652
(3,070)
(3,497)
(6,420)
14
—
(301)
916
—
1,708
(582)
—
164
(938)
—
5,678
—
(20)
—
—
—
(597)
—
1,234
1,996
171
2,926
(2,873)
7,000
3,762
(1,003)
(275)
8,489
(333)
—
11,741
—
771
(21,803)
(18,885)
(170,254)
1.3538
1.2634
1.3209
(29,517)
(23,859)
(224,889)
(0.3826)
(0.3272)
(2.9140)
—
—
16,390
0.2125
12,288
0.1599
—
—
—
(712)
718
1,234
2,036
9,516
3,959
(2,897)
23,026
1.2385
28,518
0.4072
61,645
0.8500
40
NFI GROUP INC. 2022 FINANCIAL RESULTS
NFIGROUP.COM
1.
2.
3.
4.
5.
6.
7.
8.
9.
Free Cash Flow is not a recognized measure under IFRS and does not have a standardized meaning prescribed by IFRS.
U.S. exchange rate (C$ per US$) is the weighted average exchange rate applicable to dividends declared for the period.
Changes in non-cash working capital are excluded from the calculation of Free Cash Flow as these temporary fluctuations are
managed through the credit facilities which are available to fund general corporate requirements, including working capital
requirements, subject to borrowing capacity restrictions. Changes in non-cash working capital are presented on the consolidated
statements of cash flows net of interest and income taxes paid.
The cash effect of the difference between the defined benefit expense and funding is included in the determination of cash from
operating activities. This cash effect is excluded in the determination of Free Cash Flow as management believes that the defined
benefit expense amount provides a more appropriate measure, as the defined benefit funding can be impacted by special payments
to reduce the unfunded pension liability.
Foreign exchange gain (loss) on cash held in foreign currency is excluded in the determination of cash from operating activities under
IFRS; however, because it is a cash item, management believes it should be included in the calculation of Free Cash Flow.
Per Share calculations for Free Cash Flow (C$) are determined by dividing Free Cash Flow by the total number of all issued and
outstanding Shares using the weighted average over the period. The weighted average number of Shares outstanding for 2022 Q4 was
77,154,934 and 72,927,889 for 2021 Q4. The weighted average number of Shares outstanding for Fiscal 2022 and Fiscal 2021 are
77,144,445 and 70,039,835, respectively. Per Share calculations for declared dividends (C$) are determined by dividing the amount
of declared dividends by the number of outstanding Shares at the respective period end date.
Normalized to exclude non-operating expenses and recoveries related to the costs of assessing strategic and corporate initiatives.
Normalized to exclude non-operating restructuring costs. Costs primarily relate to severance costs, inefficient labour costs,
increased medical costs and right-of-use asset impairments and inventory impairments associated with NFI Forward restructuring
initiatives. Free Cash Flow reconciling amounts are net of right-of-use asset and property, plant and equipment impairments.
The fair value adjustment of the total return swap is a non-cash (gain) loss that is excluded from the definition of Adjusted EBITDA.
Beginning in Q2 2022, hedge accounting was applied to the total return swap derivative and therefore, the portion of the (gain) loss
on the fair value adjustment, which does not apply to the current period is recognized in other comprehensive income.
10. A portion of the fair value adjustment of the total return swap is added to Adjusted EBITDA and Free Cash Flow to match the
equivalent portion of the related deferred compensation expense recognized. Beginning in Q2 2022, hedge accounting was applied to
the total return swap derivative and therefore, the portion of the (gain) loss on the fair value adjustment, which does not apply to
the current period is recognized in other comprehensive income.
11. Costs and recoveries associated with amendments to, and closures of, the Company's pension plans. Q2 2022 includes $7.0 million for
the liability related to the closure of the Pembina facility and withdrawal from the multi-employer pension plan.
12. Normalized to exclude non-operating costs related to an insurance event that are not recoverable, or are related to the deductible.
13. Provision for sales taxes as a result of an ongoing state sales tax review.
14. Normalized to exclude COVID-19 related costs. Costs primarily relate to asset impairments, medical costs directly related to
COVID-19 and miscellaneous operating costs associated with COVID-19. Asset impairments are primarily attributable to pre-owned
coach inventory. During 2022, management determined costs related to sanitization and masks were an operating cost and would no
longer be included in the definition.
15.
16.
17.
Includes fair market value adjustments to interest rate swaps and the cash conversion option on the Convertible Debentures. 2022 Q4
includes a loss of $1.2 million and 2021 Q4 includes a gain of $9.9 million for the interest rate swaps. 2022 Q4 includes a gain of $5.6
million and 2021 Q4 includes a gain of $10.9 million on the cash conversion option. Fiscal 2022 includes a gain of $37.7 million and
Fiscal 2021 includes a gain of $23.2 million for the interest rate swaps. Fiscal 2022 includes a gain of $16.6 million and Fiscal 2021
includes a gain of $10.9 million for the cash conversion option.
Includes adjustments made related to expenses that pertain to prior years. Fiscal 2022 includes expenses related to amounts that
should have been capitalized from Fiscal years 2010 - 2021. Fiscal 2021 includes expenses related to amounts owed from Fiscal years
2016 - 2020, and expenses related to amounts owed from Fiscal years 2014 - 2020.
Includes adjustments made related to items that occurred outside of normal operations. This includes specified items purchased in
broker markets at a premium and associated broker fees, which the Company provided to suppliers, and does not normally directly
purchase. Also included is the additional labour costs associated with the shortage of the specified item.
18.
Includes impairment charges with respect to ARBOC's goodwill of $23.2 million and the ADL manufacturing CGU's goodwill of $80.7
million.
41
NFI GROUP INC. 2022 FINANCIAL RESULTS
NFIGROUP.COM
Liquidity
Liquidity is not a recognized measure under IFRS and does not have a standardized meaning prescribed by IFRS. The Company defines
liquidity as cash on-hand plus available capacity under its credit facilities, without consideration given to the minimum liquidity
requirement under the Amended Facilities.
Backlog
Backlog value is not a recognized measure under IFRS and does not have a standardized meaning prescribed by IFRS. The Company defines
backlog as the number of EUs in the backlog multiplied by their expected selling price.
Book-to-Bill Ratio
Book-to-bill ratio is not a recognized measure under IFRS and does not have a standardized meaning prescribed by IFRS. The company
defines book-to-bill ratio as new firm orders and exercised options divided by new deliveries.
Working Capital Days
Working Capital Days is not a recognized measure under IFRS and does not have a standardized meaning prescribed by IFRS. The Company
defines Working Capital Days as the calculated number of days to convert working capital to cash. It is calculated by the number of days
in the fiscal year (2022 Q4 YTD - 365 days) divided by the working capital turnover ratio (total sales for the last twelve months divided by
average working capital for the last thirteen months).
Working Capital Days is calculated based on the following financial statement line items: Accounts Receivable and Inventories less
Accounts Payables, Deferred Revenue and Provisions.
Payout Ratio
Payout ratio is not a recognized measure under IFRS and does not have a standardized meaning prescribed by IFRS. Management believes
the payout ratio is an important measure of the Company's ability to pay dividends with cash generated. The Company defines payout
ratio as the declared dividends divided by the Free Cash Flow.
42
NFI GROUP INC. 2022 FINANCIAL RESULTS
NFIGROUP.COM
Adjusted Net Earnings (Loss) and Adjusted Net Earnings (Loss) per Share
Management believes that Adjusted Net Earnings (Loss) and the associated per Share figure are important measures in evaluating the
historical operating performance of the Company. Adjusted Net Earnings (Loss) and Adjusted Net Earnings (Loss) per Share are not
recognized measures under IFRS and do not have standardized meanings prescribed by IFRS. Accordingly, Adjusted Net Earnings (Loss) and
Adjusted Net Earnings (Loss) per Share may not be comparable to similar measures presented by other issuers. Readers of this MD&A are
cautioned that Adjusted Net Earnings (Loss) and Adjusted Net Earnings (Loss) per Share should not be construed as an alternative to Net
Earnings (Loss), or Net Earnings (Loss) per Share, determined in accordance with IFRS as indicators of the Company's performance.
The Company defines Adjusted Net Earnings (Loss) as net earnings (loss) after adjusting for the after tax effects of certain non-recurring,
non-operating and items occurring outside of normal operation, that do not reflect the current ongoing cash operations of the Company.
These adjustments are provided in the following reconciliation of net earnings (loss) to Adjusted Net Earnings (Loss) based on the
historical Financial Statements of the Company for the periods indicated.
The Company defines Adjusted Net Earnings (Loss) per share as Adjusted Net Earnings (Loss) divided by the average number of Shares
outstanding.
(U.S. dollars in thousands, except per Share figures)
Net loss
Adjustments, net of tax1, 7
Fair value adjustments of total return swap4
Unrealized foreign exchange loss (gain)
Unrealized loss (gain) on interest rate swap
Unrealized gain on Cash Conversion Option
Portion of the total return swap realized5
Costs associated with assessing strategic and corporate
initiatives2
Equity settled stock-based compensation
(Gain) loss on disposition of property, plant and equipment
Past service costs and other pension costs6
Unrecoverable insurance costs and other12
Expenses incurred outside of normal operations13
Prior year sales tax provision8
Other tax adjustments10
COVID-19 costs9
Out of period costs11
Accretion in carrying value of convertible debt and cash
conversion option
Impairment loss on goodwill14
Restructuring costs3
Adjusted Net Loss
Loss per Share (basic)
Loss per Share (fully diluted)
2022 Q4
2021 Q4
Fiscal 2022 Fiscal 2021
(150,360)
(8,691)
(277,763)
(14,484)
—
(2,711)
795
(3,831)
295
2,639
657
(413)
310
5,365
(4,496)
(4,965)
(26,019)
(11,439)
(10,538)
(4,965)
—
(272)
(190)
(324)
—
274
283
—
114
1,178
(106)
134
(85)
—
—
—
—
908
—
929
(390)
4,830
5,858
2,595
—
22,292
(2,833)
18,984
—
(1,911)
1,342
103,900
1,331
562
274
—
—
(1,102)
5,272
103,900
(106)
791
51
—
327
—
926
2,669
1,801
562
274
—
4,996
(260)
12,726
5,218
(23,639)
(15,565)
(161,565)
(12,123)
(1.94)
(1.94)
(0.12)
(0.12)
(3.60)
(3.60)
(0.21)
(0.21)
Adjusted Net Loss per Share (basic)
(0.31)
(0.21)
(2.09)
(0.17)
Adjusted Net Loss per Share (fully diluted)
(0.31)
(0.21)
(2.09)
(0.17)
43
NFI GROUP INC. 2022 FINANCIAL RESULTS
NFIGROUP.COM
1.
2.
3.
4.
5.
6.
7.
8.
9.
Addback items are derived from the historical financial statements of the Company.
Normalized to exclude non-operating expenses and recoveries related to the costs of assessing strategic and corporate initiatives.
Normalized to exclude non-operating restructuring costs. Costs primarily relate to severance costs, inefficient labour costs,
increased medical costs and right-of-use asset impairments and inventory impairments associated with NFI Forward restructuring
initiatives. Free Cash Flow reconciling amounts are net of right-of-use asset and property, plant and equipment impairments.
The fair value adjustment of the total return swap is a non-cash (gain) loss that is excluded from the definition of Adjusted EBITDA.
Beginning in Q2 2022, hedge accounting was applied to the total return swap derivative and therefore, the portion of the (gain) loss
on the fair value adjustment, which does not apply to the current period is recognized in other comprehensive income.
A portion of the fair value adjustment of the total return swap is added to Adjusted EBITDA and Free Cash Flow to match the
equivalent portion of the related deferred compensation expense recognized. Beginning in Q2 2022, hedge accounting was applied to
the total return swap derivative and therefore, the portion of the (gain) loss on the fair value adjustment, which does not apply to
the current period is recognized in other comprehensive income.
Costs and recoveries associated with amendments to, and closures of, the Company's pension plans. Q2 2022 includes $7.0 million for
the liability related to the closure of the Pembina facility and withdrawal from the multi-employer pension plan.
The Company has utilized a rate of 54.5% to tax effect the adjustments in periods related to Fiscal 2021. A rate of 31.0% has been
used to tax effect the adjustments for all other periods.
Provision for sales taxes as a result of an ongoing state sales tax review.
Normalized to exclude COVID-19 related costs. Costs primarily relate to asset impairments, medical costs directly related to
COVID-19 and miscellaneous operating costs associated with COVID-19. Asset impairments are primarily attributable to pre-owned
coach inventory. During 2022, management determined costs related to sanitization and masks were an operating cost and would no
longer be included in the definition.
10.
Includes the impact of changes in deferred tax balances as a result of substantively enacted tax rate changes. The 2021 and 2022
amounts include the impact of the revaluation of deferred tax balances due to the enacted increase in the UK corporate tax rate
from 19% to 25% in 2021 Q3. Also included in 2022 Q4 is the impact of the reduction of deferred tax assets related to the
derecognition of loss carry forwards in Canada, and restricted interest in the UK.
11.
Includes adjustments made related to expenses that pertain to prior years. Fiscal 2022 includes expenses related to amounts that
should have been capitalized from Fiscal years 2010 - 2021. Fiscal 2021 includes expenses related to amounts owed from Fiscal years
2016 - 2020, and expenses related to amounts owed from Fiscal years 2014 - 2020.
12. Normalized to exclude non-operating costs related to an insurance event that are not recoverable, or are related to the deductible.
13.
Includes adjustments made related to items that occurred outside of normal operations. This includes specified items purchased in
broker markets at a premium and associated broker fees, which the Company provided to suppliers, and does not normally directly
purchase. Also included is the additional labour costs associated with the shortage of the specified item.
14. Includes impairment charges with respect to ARBOC's goodwill of $23.2 million and the ADL manufacturing CGU's goodwill of $80.7
million.
ROIC
ROIC is not a recognized measure under IFRS and its components do not have standardized meanings prescribed by IFRS. Management
believes that ROIC is an important measure in evaluating the historical performance of the Company. The Company defines ROIC as net
operating profit after taxes divided by average invested capital for the last 12-month period.
44
NFI GROUP INC. 2022 FINANCIAL RESULTS
NFIGROUP.COM
Reconciliation of Shareholders' Equity to Invested Capital
(U.S. dollars in thousands)
Shareholders' Equity
Addback
Long term debt
Obligation under lease
Convertible debentures
Derivatives
Cash
Bank indebtedness
Invested Capital
2022 Q4
2022 Q3
2022 Q2
2022 Q1
$
577,151
710,984
783,905
850,323
896,626
859,297
718,139
677,996
131,625
122,666
131,077
139,129
217,516
211,281
224,947
229,673
(21,620)
(18,904)
(8,179)
4,806
(49,987)
(39,832)
(50,274)
(26,604)
—
—
—
1,233
1,751,311 1,845,492 1,799,615 1,876,556
Average of invested capital over the quarter 1,798,402 1,822,554 1,838,086 1,829,374
Shareholders' Equity
Addback
Long term debt
Capital leases
Convertible debentures
Derivatives
Cash
Bank indebtedness
Invested Capital
2021 Q4
2021 Q3
2021 Q2
2021 Q1
871,772
787,010
814,502
824,643
586,411 1,049,273
963,630 1,008,733
143,675
150,212
153,967
150,553
225,768
—
—
—
31,883
20,920
21,609
23,996
(77,318)
(64,822)
(47,695)
(23,063)
—
—
—
1
1,782,191 1,942,593 1,906,013 1,984,863
Average of invested capital over the quarter 1,862,392 1,924,303 1,945,438 1,927,577
45
NFI GROUP INC. 2022 FINANCIAL RESULTS
NFIGROUP.COM
Capital Allocation Policy
The Company has established a capital allocation policy based on an operating model intended to provide consistent and predictable cash
flow and maintain a strong balance sheet. This policy has established guidelines that are reviewed by the Board on a quarterly basis and
provides targets for maintaining financial flexibility, business investment, and return of capital to shareholders.
Maintaining Financial Flexibility
The Company plans to prudently use leverage to manage liquidity risk. Liquidity risk arises from the Company’s financial obligations and from
the management of its assets, liabilities and capital structure. This risk is managed by regularly evaluating the liquid financial resources to
fund current and long-term obligations, and to meet the Company’s capital commitments in a cost-effective manner.
The main factors that affect liquidity include sales mix, production levels, cash production costs, working capital requirements, capital
expenditure requirements, scheduled repayments of long-term debt obligations, funding requirements of the Company’s pension plans,
income taxes, credit capacity, expected future debt and equity capital market conditions.
The Company’s liquidity requirements are met through a variety of sources, including cash on hand, cash generated from operations, the
credit facilities, leases, and debt and equity capital markets.
At January 1, 2023, the Company has convertible debentures outstanding of $338 million. The Debentures may be converted in whole or in
part from time to time at the holder’s option into 30.1659 Shares for each C$1,000 principal amount of Debentures, representing a
conversion price of approximately C$33.15 per Share and total potential conversion of 10,196,074 shares.
On December 29, 2022, the Company amended the Credit Facility and the UK Facility (together the "amended facilities"). Amendments
provide relief from previous key financial covenants (Total Leverage Ratio (“TLR”), Minimum Adjusted EBITDA and Interest Coverage Ratio
(“ICR”)) for the fourth quarter of 2022 and the first two quarters of 2023 (the period ending June 30, 2023 (the “Waiver Period”)) to provide
the Company with relaxed covenants as the Company navigates supply chain disruptions, heightened inflation and other impacts of the
COVID-19 pandemic. During the Waiver Period, the Company is subject to a Total Net Debt to Capitalization (“TNDC”) ratio, starting in
January 2023, and a minimum Adjusted EBITDA covenant starting in March 2023. The terms of the amended facilities impose restrictions over
the declaration and payment of dividends until the Waiver Period has ended.
On January 20, 2023 the Company entered into agreements with the Government of Manitoba for a C$50 million debt facility, for general
corporate purposes, and EDC for credit facilities of up to $150 million to support supply chain financing ($50 million) and surety and
performance bonding requirements for new contracts (up to $100 million).
The Credit Facility has a total borrowing limit of $1 billion, which includes a $100 million letter-of-credit facility subject to the Company
being in compliance with its credit covenants. $24.5 million of outstanding letters-of-credit were drawn against the Credit Facility at January
1, 2023. The Credit Facility bears interest at a rate equal to LIBOR or a U.S. base rate for loans denominated in U.S. dollars and a Canadian
prime rate or bankers' acceptance rate for loans denominated in Canadian dollars, plus an applicable margin to those rates and matures on
August 2, 2024.
The UK Facility has a total borrowing limit of £40 million which matures on June 30, 2023. Amounts drawn under the UK Facility bear interest
at a rate equal to LIBOR plus an applicable margin.
The details of the covenants under the amended facilities are as follows:
January 1, 2023
January 2, 2023 - March 31, 2023
April 1, 2023 - April 30, 2023
May 1, 2023 - May 31, 2023
June 1 - June 30, 2023
July 3, 2023 - October 1, 2023
October 2, 2023 - December 31, 2023
January 1, 2024 and thereafter
Total Leverage
Ratio
Interest
Coverage Ratio
Total Net Debt
to Capitalization
Minimum
Cumulative
Adjusted EBITDA
Minimum
Liquidity
Waived
Waived
Waived
Waived
Waived
<4.50
<4.00
<3.75
Waived
Waived
Waived
Waived
Waived
>2.00
>2.50
>3.00
Waived
Waived
<0.62:1.00
>($28,000)
<0.62:1.00
>($31,000)
<0.62:1.00
>($35,000)
<0.62:1.00
>($35,000)
N/A
N/A
N/A
N/A
N/A
N/A
$25,000
$25,000
$25,000
$25,000
$25,000
$25,000
$25,000
$25,000
1.
TLR is calculated as borrowings on the Credit Facilities, not including the Company’s 5.0% convertible debentures, less unrestricted
cash and cash equivalents, divided by Adjusted EBITDA, typically calculated on a trailing twelve-month basis. When the TLR is
46
NFI GROUP INC. 2022 FINANCIAL RESULTS
NFIGROUP.COM
reintroduced in 2023 Q3, Adjusted EBITDA will be annualized until a full rolling four quarters of results are available (i.e., period
ending 2023 Q3);
2.
3.
4.
5.
ICR is calculated as the same trailing twelve month Adjusted EBITDA as the TLR divided by trailing twelve month interest expense
on the Credit Facilities, the Company’s 5.0% convertible debentures and other interest and bank charges.
Total Net Debt to Capitalization is calculated as borrowings on the Credit Facilities, less unrestricted cash and cash equivalents,
divided by Shareholder’s Equity, as shown on the Company’s balance sheet, plus borrowings on the Credit Facilities. The calculation
of shareholder's equity is adjusted to exclude up to $100 million of goodwill impairment.
Cumulative Adjusted EBITDA starting with 2023 Q1 results.
Liquidity is calculated as unrestricted cash and cash equivalents plus the aggregate amount of credit available under the Credit
Facilities.
US dollars in thousands
Liquidity Position (must be greater than $25 million[2021: must be greater than $50 million])
January 1, 2023
January 2, 2022
$
173,507
$
794,332
1. Represents a supplementary financial measure. See Non-IFRS and Other Financial Measures section.
As of January 1, 2023, NFI's liquidity was $173.5 million, without consideration given to the minimum liquidity requirement of $25 million
under the amended facilities. As part of the Company's efforts to improve working capital and liquidity, NFI requested prepayments and
deposits from certain customers. As of January 1, 2023, the Company has received $36.1 million in prepayments and is continuing to work
with other customers on plans that would help alleviate some of NFI's working capital investments while it navigates through the supply chain
challenges.
Due to the ongoing uncertainty created by continuing supply chain disruptions, the Company now expects that lower Adjusted EBITDA
combined with the Company's anticipated debt profile will affect the Company's ability to comply, after the expiry of the Waiver Period, with
certain financial covenants under the amended facilities. These events result in a material uncertainty that may cast significant doubt as to
the ability of the Company to continue as a going concern.
The Company expects operations to continue into the long-term. The Company is taking a number of operational steps including cost savings
measures to ensure adequate short-term liquidity. Additionally, the Company is continuing to work directly with suppliers and sub-suppliers
to search for alternate or substitute parts where possible, increase production line parts inventories and develop longer lead times to better
support new vehicle production.
NFI and its banking syndicate partners are now focused on developing new long-term credit arrangements, and NFI will be seeking agreements
that provide appropriate capacity and covenants matched to the Company’s anticipated financial performance and recovery. The Company is
targeting completion of these changes prior to the end of the Waiver Period.
In assessing whether the going concern assumption was appropriate, the Company took into account all relevant information available about
the future including its backlog, demand for its products, government funding levels in its core markets and the Company's ability to raise
additional capital from various lenders by issuing long-term debt or additional common shares, or other securities through either a public
offering, rights offering or private placement.
The Company believes that, its cash position and capacity under its amended facilities, combined with anticipated future cash flows and
access to capital markets, will be sufficient to fund operations, meet financial obligations as they come due and provide the funds necessary
for capital expenditures, and other operational needs. See Appendix A.
The Company remains focused on deleveraging its balance sheet and returning to its target leverage of 2.0x to 2.5x total debt to Adjusted
EBITDA. Management had originally expected the Company to return to those levels 18 to 24 months following the acquisition of ADL in May
2019, but the impact of COVID-19 and the continuing supply chain disruptions has extended the expected timing of deleveraging. Management
believes it will achieve its longer-term leverage targets as the recovery from COVID-19 continues, the anticipated supply of parts and
components slowly stabilizes, the Company achieves the benefits of the NFI Forward strategic cost reduction initiatives and the Company
continues to focus on reducing working capital.
Compliance with financial covenants is reviewed monthly by management and reported quarterly to the Board. Other than the requirements
imposed by borrowing agreements, the Company is not subject to any externally imposed capital requirements. Capital management
objectives are reviewed on a quarterly basis or when strategic capital transactions arise.
47
NFI GROUP INC. 2022 FINANCIAL RESULTS
NFIGROUP.COM
Business Investment
The Company plans to invest in the current business for future growth and will continue to invest in common systems and lean manufacturing
operations to improve quality and cost effectiveness, while also investing to expand the Company's expertise in ZEBs, Infrastructure
SolutionsTM, and Advanced Driver Assistance Systems ("ADAS") and automated vehicles. The Company has made significant investments in its
ZEB production capabilities to be prepared for the expected longer-term transition to a more electrified fleet. New Flyer now has the
capability to manufacture ZEBs at all of its North American facilities. Alexander Dennis is the market leader in ZEBs with production
capabilities at all of its UK facilities, MCI has invested in its electric coach offering for both public and private customers, and ARBOC
developed its medium-duty Equess CHARGETM electric bus. NFI is planning for the roll-out of next generation battery technology through a
second battery supplier for a first quarter 2023 launch based on projects that originally kicked off in 2020. In November 2022, Alexander
Dennis announced that several of its vehicles will now offer its next-generation electric driveline and future-proof battery system, with first
deliveries planned for 2023. To support customers making the transition to zero-emission fleets, NFI launched its Infrastructure SolutionsTM
business in 2018. Infrastructure SolutionsTM has helped numerous agencies develop and launch infrastructure installation projects.
The Company has automated bus projects in development with specialized partners who have a deep understanding of artificial intelligence
and ADAS. As part of this program to advance automated vehicles and ADAS, on January 29, 2021, NFI announced the launch of the New Flyer
Xcelsior AV™, North America's first automated Level 4 transit bus. The first vehicles using this technology went into production in the fourth
quarter of 2021. Alexander Dennis continues to advance its autonomous bus programs in the United Kingdom with ongoing pilot programs in
Scotland and expectations for additional trials on its new Enviro100AEW bus platform in 2023. NFI has also made numerous investments into
telematics solutions to ensure customers can track detailed performance and maintenance metrics associated with their vehicles.
NFI has also made investments to reduce the company's overall manufacturing footprint and integrate operations through its NFI Forward and
NFI Forward 2.0 initiatives. These investments have generated significant annualized cost savings that will positively contribute to NFI's
financial results going forward.
The Company will consider business acquisitions and partnerships that will further grow and diversify the business and contribute to long-term
competitiveness, but the Company's capital allocation priorities are currently focused on deleveraging, strengthening its balance sheet and
supporting the recovery of operations. As such investments will primarily be focused on internal initiatives. Investment decisions are based on
several criteria, including but not limited to: investment required to maintain or enhance operations; enhancement of cost effectiveness
through vertical integration of critical supply and sub-assembly in-sourcing; and acquisitions in current or adjacent markets that are
considered accretive to the business.
Return of Capital to Shareholders
The Company intends to have a Share dividend policy that is consistent with the Company's financial performance and the desire to retain
certain cash flows to support the ongoing requirements of the business and to provide the financial flexibility to pursue revenue
diversification and growth opportunities. Under the terms of NFI's credit facilities, the Company is not permitted to declare or pay dividends.
Currently dividends have been suspended, future decisions on the resumption of dividend payments will be dependent on financial
performance and compliance with credit facility covenants.
The Company's 2022 Q4 Free Cash Flow was (C$29.5) million with no dividends declared during this period. For 2021 Q4 Free Cash Flow was
C$(23.9) million compared to declared dividends of C$16.4 million. This resulted in payout ratio1 of nil% in 2022 Q4 compared to (68.6)% in
2021 Q4.
Total Capital Distributions to Shareholders
(U.S. dollars in millions)
Dividends paid
$
— $
11.9 $
9.4 $
46.5
2022 Q4
2021 Q4
Fiscal 2022
Fiscal 2021
1. Represents a non-IFRS ratio, meaning it is derived from a non-IFRS measure, which does not have a standard meaning, so it may not be a reliable way to
compare NFI to other companies. The ratio is calculated using Free Cash Flow, which is a non-IFRS measure. See Non-IFRS and Other Financial Measures section.
48
NFI GROUP INC. 2022 FINANCIAL RESULTS
NFIGROUP.COM
Controls and Procedures
Internal Controls over Financial Reporting
Management is responsible for establishing and maintaining internal controls over financial reporting (“ICFR”), as defined under rules adopted
by the Canadian Securities Administrators. ICFR were designed under the supervision of, and with the participation of, the President and
Chief Executive Officer (“CEO”) and the Chief Financial Officer (“CFO”). The Company’s ICFR are designed to provide reasonable assurance
regarding the reliability of financial reporting and the preparation of Financial Statements for external purposes in accordance with IFRS.
Management adheres to the “Internal Control – Integrated Framework 2013” (“COSO 2013”) from the Committee of Sponsoring Organizations
of the Treadway Commission.
Management, under the supervision of the CEO and CFO, evaluated the design and operational effectiveness of the Company’s ICFR as of
January 1, 2023 in accordance with the criteria established in COSO 2013, and concluded that the Company’s ICFR are effective.
ICFR, no matter how well designed, have inherent limitations. Therefore, ICFR can provide only reasonable assurance with respect to
financial statement preparation and may not prevent or detect all misstatements.
Disclosure Controls
Management is responsible for establishing and maintaining disclosure controls and procedures in order to provide reasonable assurance that
material information relating to the Company is made known to them in a timely manner and that information required to be disclosed is
reported within time periods prescribed by applicable securities legislation. There are inherent limitations to the effectiveness of any system
of disclosure controls and procedures, including the possibility of human error and the circumvention or overriding of the controls and
procedures. Accordingly, even effective disclosure controls and procedures can only provide reasonable assurance of achieving their control
objectives. The Company’s CEO and CFO have concluded that disclosure controls and procedures as at January 1, 2023 were effective.
49
NFI GROUP INC. 2022 FINANCIAL RESULTS
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Appendix A - Meaning of Certain References
References in this MD&A to the “Company” are to NFI and all of its direct or indirect subsidiaries, including New Flyer Industries
Canada ULC (“NFI ULC”), New Flyer of America Inc. (“NFAI”), The Aftermarket Parts Company, LLC (“TAPC”), KMG Fabrication, Inc.
("KMG"), Carfair Composites Inc. (“CCI”) and Carfair Composites USA, Inc. (“CCUI”, and together with "CCI", "Carfair"), The Reliable
Insurance Company Limited, ARBOC Specialty Vehicles, LLC ("ARBOC"), New MCI Holdings, Inc. and its affiliated entities (collectively,
"MCI”), NFI Holdings Luxembourg s.a.r.l., and Alexander Dennis Limited and its affiliated entities (collectively, "ADL") References to
“New Flyer” generally refer to NFI ULC, NFAI, TAPC, KMG, CCI, and CCUI. References in this MD&A to “management” are to senior
management of NFI and the Company.
The Shares trade on the Toronto Stock Exchange (“TSX”) under the symbol NFI and the Convertible Debentures trade on the TSX
under the symbol NFI.DB. As at January 1, 2023, 77,155,016 Shares were issued and outstanding. Additional information about NFI
and the Company, including NFI’s Annual Information Form and information circular, is available on SEDAR at www.sedar.com.
References to NFI's geographic regions for the purpose of reporting global revenues are as follows: "North America" refers to Canada,
United States, and Mexico; United Kingdom and Europe refer to the United Kingdom and Europe; "Asia Pacific" or "APAC" refers to
Hong Kong, Malaysia, Singapore, Australia, and New Zealand; and the "Other" category includes any sales that do not fall into the
categories above.
Forward-Looking Statements
This MD&A contains “forward-looking information” and “forward-looking statements” within the meaning of applicable Canadian
securities laws, which reflect the expectations of management regarding the Company’s future growth, financial performance, and
liquidity and objectives and the Company’s strategic initiatives, plans, business prospects and opportunities, including the duration,
impact of and recovery from the COVID-19 pandemic, supply chain disruptions and plans to address them, and the Company's
expectation of obtaining long-term credit arrangements and sufficient liquidity. The words “believes”, “views”, “anticipates”,
“plans”, “expects”, “intends”, “projects”, “forecasts”, “estimates”, “guidance”, “goals”, “objectives” and “targets” and similar
expressions of future events or conditional verbs such as “may”, “will”, “should”, “could”, “would” are intended to identify
forward-looking statements. These forward-looking statements reflect management’s current expectations regarding future events
(including the temporary nature of the supply chain disruptions and operational challenges, production improvement, the recovery of
the Company’s markets, and the expected benefits to be obtained through its “NFI Forward” initiative) and the Company’s financial
and operating performance and speak only as of the date of this MD&A. By their very nature, forward-looking statements require
management to make assumptions and involve significant risks and uncertainties, should not be read as guarantees of future events,
performance or results, and give rise to the possibility that management’s predictions, forecasts, projections, expectations or
conclusions will not prove to be accurate, that the assumptions may not be correct and that the Company’s future growth, financial
condition, ability to generate sufficient cash flow and maintain adequate liquidity, obtain long-term credit arrangements, and the
Company’s strategic initiatives, objectives, plans, business prospects and opportunities, including the Company’s plans and
expectations relating to the duration, impact of and recovery from the COVID-19 pandemic, supply chain disruptions, operational
challenges, and inflationary pressures, will not occur or be achieved.
A number of factors that may cause actual results to differ materially from the results discussed in the forward-looking statements
include: the Company’s business, operating results, financial condition and liquidity may be materially adversely impacted by the
ongoing COVID-19 pandemic and related supply chain and operational challenges, employee absenteeism and inflationary effects; the
Company’s business, operating results, financial condition and liquidity may be materially adversely impacted by the Russian invasion
of Ukraine due to factors including but not limited to further supply chain disruptions and inflationary pressures; funding may not
continue to be available to the Company’s customers at current levels or at all; the Company’s business is affected by economic
factors and adverse developments in economic conditions which could have an adverse effect on the demand for the Company’s
products and the results of its operations; currency fluctuations could adversely affect the Company’s financial results or
competitive position; interest rates could change substantially, materially impacting the Company’s revenue and profitability; an
active, liquid trading market for the Shares and/or the Debentures may cease to exist, which may limit the ability of securityholders
to trade Shares and/or Debentures; the market price for the Shares and/or the Debentures may be volatile; if securities or industry
analysts do not publish research or reports about the Company and its business, if they adversely change their recommendations
regarding the Shares or if the Company’s results of operations do not meet their expectations, the Share price and trading volume
could decline, in addition, if securities or industry analysts publish inaccurate or unfavorable research about the Company or its
business, the Share price and trading volume of the Shares could decline; competition in the industry and entrance of new
competitors; current requirements under U.S. “Buy America” regulations may change and/or become more onerous or suppliers’
“Buy America” content may change; failure of the Company to comply with the U.S. Disadvantaged Business Enterprise (“DBE”)
program requirements or the failure to have its DBE goals approved by the U.S. FTA; absence of fixed term customer contracts,
exercise of options and customer suspension or termination for convenience; local content bidding preferences in the United States
may create a competitive disadvantage; requirements under Canadian content policies may change and/or become more onerous;
the Company’s business may be materially impacted by climate change matters, including risks related to the transition to a lower-
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NFI GROUP INC. 2022 FINANCIAL RESULTS
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carbon economy; operational risk resulting from inadequate or failed internal processes, people and/or systems or from external
events, including fiduciary breaches, regulatory compliance failures, legal disputes, business disruption, pandemics, floods,
technology failures, processing errors, business integration, damage to physical assets, employee safety and insurance coverage;
international operations subject the Company to additional risks and costs and may cause profitability to decline; compliance with
international trade regulations, tariffs and duties; dependence on unique or limited sources of supply (such as engines, components
containing microprocessors or, in other cases, for example, the supply of transmissions, batteries for battery-electric buses, axles or
structural steel tubing) resulting in the Company’s raw materials and components not being readily available from alternative
sources of supply, being available only in limited supply, a particular component may be specified by a customer, the Company’s
products have been engineered or designed with a component unique to one supplier or a supplier may have limited or no supply of
such raw materials or components or sells such raw materials or components to the Company on less than favorable commercial
terms; the Company’s vehicles and certain other products contain electronics, microprocessors control modules, and other computer
chips, for which there has been a surge in demand, resulting in a worldwide supply shortage of such chips in the transportation
industry, and a shortage or disruption of the supply of such microchips could materially disrupt the Company’s operations and its
ability to deliver products to customers; dependence on supply of engines that comply with emission regulations; a disruption,
termination or alteration of the supply of vehicle chassis or other critical components from third-party suppliers could materially
adversely affect the sales of certain of the Company’s products; the Company’s profitability can be adversely affected by increases
in raw material and component costs; the Company may incur material losses and costs as a result of product warranty costs, recalls
and remediation of transit buses and motor coaches; production delays may result in liquidated damages under the Company’s
contracts with its customers; catastrophic events, including those related to impacts of climate change, may lead to production
curtailments or shutdowns; the Company may not be able to successfully renegotiate collective bargaining agreements when they
expire and may be adversely affected by labour disruptions and shortages of labour; the Company’s operations are subject to risks
and hazards that may result in monetary losses and liabilities not covered by insurance or which exceed its insurance coverage; the
Company may be adversely affected by rising insurance costs; the Company may not be able to maintain performance bonds or
letters of credit required by its contracts or obtain performance bonds and letters of credit required for new contracts; the Company
is subject to litigation in the ordinary course of business and may incur material losses and costs as a result of product liability and
other claims; the Company may have difficulty selling pre-owned coaches and realizing expected resale values; the Company may
incur costs in connection with regulations relating to axle weight restrictions and vehicle lengths; the Company may be subject to
claims and liabilities under environmental, health and safety laws; dependence on management information systems and cyber
security risks; the Company’s ability to execute its strategy and conduct operations is dependent upon its ability to attract, train and
retain qualified personnel, including its ability to retain and attract executives, senior management and key employees; the
Company may be exposed to liabilities under applicable anti-corruption laws and any determination that it violated these laws could
have a material adverse effect on its business; the Company’s risk management policies and procedures may not be fully effective in
achieving their intended purposes; internal controls over financial reporting, no matter how well designed, have inherent limitations;
there are inherent limitations to the effectiveness of any system of disclosure controls and procedures, including the possibility of
human error and the circumvention or overriding of the controls and procedures; ability to successfully execute strategic plans and
maintain profitability; development of competitive or disruptive products, services or technology; development and testing of new
products or model variants; acquisition risk; reliance on third-party manufacturers; third-party distribution/dealer agreements;
availability to the Company of future financing; the Company may not be able to generate the necessary amount of cash to service
its existing debt, which may require the Company to refinance its debt; the Company’s substantial consolidated indebtedness could
negatively impact the business; the restrictive covenants in the Company’s credit facilities could impact the Company’s business and
affect its ability to pursue its business strategies; payment of dividends is not guaranteed; a significant amount of the Company’s
cash may be distributed, which may restrict potential growth; the Company is dependent on its subsidiaries for all cash available for
distributions; the Company may not be able to make principal payments on the Debentures; redemption by the Company of the
Debentures for Shares will result in dilution to holders of Shares; Debentures may be redeemed by the Company prior to maturity;
the Company may not be able to repurchase the Debentures upon a change of control as required by the trust indenture under which
the Debentures were issued (the “Indenture”); conversion of the Debentures following certain transactions could lessen or eliminate
the value of the conversion privilege associated with the Debentures; future sales or the possibility of future sales of a substantial
number of Shares or Debentures may impact the price of the Shares and/or the Debentures and could result in dilution; payments to
holders of the Debentures are subordinated in right of payment to existing and future Senior Indebtedness (as described under the
Indenture) and will depend on the financial health of the Company and its creditworthiness; if the Company is required to write
down goodwill or other intangible assets, its financial condition and operating results would be negatively affected; and income and
other tax risk resulting from the complexity of the Company’s businesses and operations and the income and other tax
interpretations, legislation and regulations pertaining to the Company’s activities being subject to continual change.
Factors relating to the global COVID-19 pandemic include: the magnitude and duration of the global, national and regional economic
and social disruption being caused as a result of the pandemic; the impact of national, regional and local governmental laws,
regulations and “shelter in place” or similar orders relating to the pandemic which may materially adversely impact the Company’s
ability to continue operations; partial or complete closures of one, more or all of the Company’s facilities and work locations or the
reduction of production rates (including due to government mandates and to protect the health and safety of the Company’s
employees or as a result of employees being unable to come to work due to COVID-19 infections with respect to them or their family
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NFI GROUP INC. 2022 FINANCIAL RESULTS
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members or having to isolate or quarantine as a result of coming into contact with infected individuals); production rates may be
further decreased as a result of the pandemic; ongoing and future supply delays and shortages of parts and components, and shipping
and freight delays, and disruption to labour supply as a result of the pandemic; the pandemic will likely adversely affect operations
of suppliers and customers, and reduce and delay, for an unknown period, customers’ purchases of the Company’s products and the
supply of parts and components by suppliers; the anticipated recovery of the Company’s markets in the future may be delayed or
increase in demand may be lower than expected as a result of the continuing effects of the pandemic; the Company’s ability to
obtain access to additional capital if required; and the Company’s financial performance and condition, obligations, cash flow and
liquidity and its ability to maintain compliance with the covenants under its credit facilities. While management expects that the
Company will have sufficient liquidity to continue operations in the ordinary course, it is possible that unexpected events (such as
delayed customer payments, supply chain issues, product recalls, warranty claims, etc.) could significantly impair the Company’s
liquidity and there can be no assurance that the Company would be able to obtain additional liquidity when required in such
circumstances. There can be no assurance that the Company will be able to maintain sufficient liquidity for an extended period,
obtain long-term credit arrangements, or access to additional capital or access to government financial support or as to when
production operations will return to previous production rates. There is also no assurance that governments will provide continued or
adequate stimulus funding during or after the pandemic for public transit agencies to purchase transit vehicles or that public or
private demand for the Company’s vehicles will return to pre-pandemic levels in the anticipated period of time. The Company
cautions that due to the dynamic, fluid and highly unpredictable nature of the pandemic and its impact on global and local
economies, supply chains, businesses and individuals, it is impossible to predict the severity of the impact on the Company’s
business, operating performance, financial condition and ability to generate sufficient cash flow and maintain adequate liquidity and
any material adverse effects could very well be rapid, unexpected and may continue for an extended and unknown period of time.
Factors relating to the Company's “NFI Forward” initiative include: the Company's ability to successfully execute the initiative and to
generate the planned savings in the expected time frame or at all; management may have overestimated the amount of savings and
production efficiencies that can be generated or may have underestimated the amount of costs to be expended; the implementation
of the initiative may take longer than planned to achieve the expected savings; further restructuring and cost-cutting may be
required in order to achieve the objectives of the initiative; the estimated amount of savings generated under the initiative may not
be sufficient to achieve the planned benefits; combining business units and/or reducing the number of production or parts facilities
may not achieve the efficiencies anticipated; and the impact of the continuing global COVID-19 pandemic, supply chain challenges
and inflationary pressures. There can be no assurance that the Company will be able to achieve the anticipated financial and
operational benefits, cost savings or other benefits of the initiative.
Factors relating to the Company’s financial guidance and targets disclosed in this MD&A include, in addition to the factors set out
above, the degree to which actual future events accord with, or vary from, the expectations of, and assumptions used by, NFI’s
management in preparing the financial guidance and targets and the Company’s ability to successfully execute the “NFI Forward”
initiative and to generate the planned savings in the expected time frame or at all.
Although the Company has attempted to identify important factors that could cause actual actions, events or results to differ
materially from those described in forward-looking statements, there may be other factors that could cause actions, events or
results not to be as anticipated, estimated or intended or to occur or be achieved at all. Specific reference is made to “Risk Factors”
in the Company’s Annual Information Form for a discussion of the factors that may affect forward-looking statements and
information. Should one or more of these risks or uncertainties materialize, or should underlying assumptions prove incorrect, actual
results may vary materially from those described in forward-looking statements and information. The forward-looking statements and
information contained herein are made as of the date of this MD&A (or as otherwise indicated) and, except as required by law, the
Company does not undertake to update any forward-looking statement or information, whether written or oral, that may be made
from time to time by the Company or on its behalf. The Company provides no assurance that forward-looking statements and
information will prove to be accurate, as actual results and future events could differ materially from those anticipated in such
statements. Accordingly, readers and investors should not place undue reliance on forward-looking statements and information.
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Appendix B - 2022 Fourth Quarter Order Activity
Demand for Transit Buses and Motor Coaches
The Company’s "Bid Universe" metric tracks known active public competitions in Canada and the United States and attempts to
provide an overall indication of anticipated heavy-duty transit bus and motor coach public sector market demand. It is a point-in-
time snapshot of: (i) EUs in active competitions, defined as all requests for proposals received by the Company and in process of
review plus bids submitted by the Company and awaiting customer action, and (ii) management’s forecast, based on data provided
by operators for their fleet replacement plans, of expected EUs to be placed out for competition over the next five years.
NFI's end markets continued to show strong signs of recovery throughout 2022. Following large declines in the second half of 2020 as
a result of the pandemic delaying orders in core markets, active bids rebounded significantly in 2021, averaging 6,850 EUs from 2021
Q2 through 2021 Q4. As of 2022 Q4, active bids reached 10,507 EUs, up 53.5% year-over-year, the highest number of active bids on
record. The Company ended 2022 Q4 with 5,169 bids in process, and another 5,338 bids submitted. Management expects active bids
will continue to remain high through 2023 as markets recover during the continuing COVID-19 pandemic and new government funding
is used by transit agencies.
The forecasted five-year North American industry procurement has rebounded from the lows of the first half of 2021. Year-over-year,
the Total Bid Universe increased by 17.0%, or 4,471 EUs. NFI expects that the forecasted five-year North American industry
procurement will remain high through 2023 as transit agencies continue to formalize their short- and long-term procurement plans
linked to the multi-billion funding programs announced and/or launched by governments in Canada and the U.S.
As at 2022 Q4, 15,689 EUs, or 51.0%, of the Total Bid Universe is ZEBs, an increase of 54.6% year-over-year, which supports
management's expectations for a continued increase in the demand for ZEBs.
The Bid Universe EUs fluctuate significantly from quarter-to-quarter based on public tender activity procurement and award
processes.
2021 Q4
2022 Q1
2022 Q2
2022 Q3
2022 Q4
Bids in Process (EUs) Bids Submitted (EUs)
Active EUs
1,783
805
4,477
2,881
5,169
5,062
4,757
3,105
7,226
5,338
6,845
5,562
7,582
10,107
10,507
Forecasted Industry
Procurement over 5
Years (EUs)1
19,468
20,809
21,565
20,377
20,277
Total Bid Universe
(EUs)
26,313
26,371
29,147
30,484
30,784
1. Management’s estimate of anticipated future industry procurement over the next five years is based on direct discussions with select U.S. and
Canadian transit authorities. This estimate includes potential public customers activity for New Flyer and MCI vehicles, but excludes potential ARBOC
and ADL U.S. and Canadian sales.
Procurement of heavy-duty transit buses and motor coaches by the U.S. and Canadian public sector is typically accomplished through
formal multi-year contracts and purchasing schedules (state and national contracts, agency purchasing contracts), while
procurement by the private sector in North America, the UK and Europe and Asia Pacific is typically made on a transactional basis. As
a result, the Company does not maintain a Bid Universe for private sector buses and coaches.
The sale of cutaway and medium-duty buses manufactured by ARBOC is accomplished on a transactional purchase order basis through
non-exclusive third-party dealers who hold contracts directly with the customers. Bids are submitted by and agreements are held
with a network of dealers. Cutaway and medium-duty bus activity therefore is not included in the Bid Universe metric.
ADL does not currently have a Bid Universe metric for the UK and European or Asia Pacific markets similar to New Flyer and MCI's
North American Bid Universe; however, ADL does maintain a sales pipeline. Management does not believe a similar Bid Universe
metric for those markets is suitable given that the majority of customers in those regions are private operators who make annual
purchase decisions. The overall UK market declined from 2015 to 2019, and was expected to increase in 2020 before it was hit
disproportionately hard by the COVID-19 pandemic, with bus ridership down by nearly 80% at its worst point in 2020. While
management saw signs of recovery in 2021 and 2022, supply chain challenges have continued to disrupt the market. In 2023,
management expects stronger recovery based on customers' fleet recovery plans and an aging UK vehicle fleet. Governments
continue to focus on the green recovery and government funding is starting to materialize. This funding, plus future investments
under plans to expand transport service in communities outside of London is expected to contribute to market growth in 2023 and
beyond. Alexander Dennis has seen the benefits of this anticipated recovery as it has essentially sold the majority of its UK
production slots for 2023, although at slightly lower production rates. Alexander Dennis continues to grow its installed fleet in
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NFI GROUP INC. 2022 FINANCIAL RESULTS
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Europe with multi-year contracts in Ireland and Germany. The European market is highly fragmented with numerous players
providing niche opportunities for ADL in the future.
In Asia Pacific, the Hong Kong market is highly cyclical, and, following busier periods in 2015 through 2018, the market has declined
as anticipated. As in other regions, Hong Kong was also impacted by the COVID-19 pandemic, but ADL remains the leader in double-
deck buses and retains deep customer relationships in Hong Kong. Management saw some recovery in 2022 and continues to expect
the Hong Kong market to see stable annual deliveries and a slow recovery through 2023, including the delivery of Alexander Dennis'
first battery-electric buses to key customers in Hong Kong as transit companies gear up for the transition to zero-emission buses.
New Zealand and Singapore remain highly cyclical markets with more predictable purchasing expectations based on vehicle age;
Alexander Dennis continues to see significant opportunities in both markets and is also pursuing additional expansion programs in
South Africa and the Middle-East region.
Order activity
New orders (firm and options) during 2022 Q4 totaled 2,578 EUs, an increase of 60.4% from 2021 Q4. The timing of new orders can
vary based on transit agency procurement processes, with the fourth quarter typically being a busier period tied to agency and
operator approval meetings. The new firm and option orders awarded to the Company for Fiscal 2022 were 5,786 EUs, an increase of
22.5% from Fiscal 2021. The Company was successful at converting 118 EUs of options to firm orders during 2022 Q4, a decrease from
the 217 EUs converted in 2022 Q3 and from the 277 EUs converted in 2021 Q4; option conversions vary quarter-to-quarter. These 118
EUs of option conversions contributed to the 638 EUs converted to firm orders during Fiscal 2022. While, there were declines in
option conversions from 2021 to 2022, these were primarily related to older contracts and changes in customers expected fleet
replacement plans. Further details are provided below under the "Options" section.
In 2022 Q4, NFI received orders for 1,118 EUs of battery-electric, zero-emission vehicles, a 780% increase from the 127 EUs from 2022
Q3. These 1,118 EUs of ZEBs equate to 43.4% of all new firm and option orders for the quarter, which increased from 28.0% in 2022
Q3.
In addition, 806 EUs of new firm and option orders were pending from customers at the end of 2022 Q4, where approval of the award
to the Company had been made by the customer’s board, council, or commission, as applicable, but purchase documentation had not
yet been received by the Company and therefore not yet included in the backlog. This was down from the 1,360 EUs of pending new
firm and option orders as of the end of 2022 Q3, as the Company received a high number of new awards in 2022 Q3. NFI anticipates
that the majority of the units currently in bid award pending will convert into backlog during 2023 Q1.
2021 Q4
2022 Q1
2022 Q2
2022 Q3
2022 Q4
New Orders
in Quarter
(Firm and
Option EUs)
1,607
1,407
1,348
453
2,578
LTM New Orders
(Firm and
Option EUs)
Option
Conversions in
Quarter (EUs)
4,724
4,919
5,147
4,815
5,786
277
218
85
217
118
LTM Option
Conversions (EUs)
1,110
1,051
734
797
638
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Options
In 2022 Q4, 831 options expired, as compared to 804 options in 2022 Q3, and as compared to 117 options that expired in 2021 Q4.
Option expiries can vary significantly quarter-to-quarter and management is not concerned about the large number of option expiries
in 2022 Q4. Certain agencies are letting a portion of older options expire as they re-evaluate their longer-term fleet planning
decisions with an increased focus on the procurement of ZEBs rather than traditional internal combustion engine propulsion. In
certain cases, customers have issued new procurements to replace the expired options. NFI replenished a significant amount of the
expired options through new orders in 2022. Overall demand remains at record levels and will support future option orders.
A significant number of public transit contracts in the U.S. and Canada have a term of three to five years. In addition, some
contracts in the UK and APAC also have multi-year terms. The table below shows the number of option EUs that have either expired
or have been exercised annually over the past five years, as well as the current backlog of options that will expire each year if not
exercised.
2017 2018
2019
2020 2021 2022 2023 2024 2025 2026
2027
Total
A) Options Expired (EUs)
331
741
512
1,202
819 1,924
B) Options Exercised (EUs)
C) Current Options by year of expiry
(EUs)
1,404 1,795 1,518
953 1,110
638
D) Conversion rate % = B / (A+B)
81 % 71 % 75 %
44 % 58 % 25 %
5,529
7,418
750
258
537 1,559
1,506
4,610
The Company's conversion rate can vary significantly from quarter-to-quarter and should be looked at on an annual or LTM basis.
Option expirations in 2020, 2021, and 2022 were primarily a result of agencies allowing a portion of their options from older
contracts awarded in 2016 and 2017 to expire as they re-evaluate their longer-term fleet planning decisions.
In addition to contracts for identified public customers, the Company has increased its focus on purchasing schedules (state and
national contracts, cooperative agency purchasing agreements) with the objective of having multiple available schedules, from
which customers within a prescribed region or from defined list, can purchase. The Company is currently named on over 30 of these
purchasing schedules, either directly or through its dealers. These schedules are not recorded in backlog as they do not have defined
quantities allocated to the Company or any other original equipment manufacturer. Once a customer purchases a bus under one of
these agreements, the purchase is recorded as a firm order. The Company has received more than 1,050 vehicle awards from these
schedules since the start of 2018, showing their growing use by transit agencies as a procurement alternative in North America.
The Company's 2022 Q4 Book-to-Bill1 ratio (defined as new firm orders and exercised options divided by new deliveries) was 144.0%,
an increase from 131.9% in 2021 Q4. This increase in Book-to-Bill was driven by a 60.4% increase in year-over-year orders combined
with lower deliveries. Fiscal 2022 Book-to-Bill was 133.9%, an increase from 115.1% for Fiscal 2021. Active bids, including bids
submitted, are at record levels (see page 46).
Backlog
The Company's total backlog consists of buses sold primarily to U.S. and Canadian public customers and private operators in the UK
and Europe. The majority of the backlog relates to New Flyer transit buses for public customers with some of the backlog consisting
of units from MCI, ADL and ARBOC. Options for ARBOC vehicles are held by dealers, rather than the operator, and are not included as
options in the NFI backlog, but are converted to firm backlog when vehicles are ordered by the dealer.
Transit buses and motor coaches incorporating clean propulsion systems, including compressed natural gas, diesel-electric hybrid,
and ZEBs, which consist of trolley-electric, fuel cell-electric, and battery-electric buses, represent approximately 63.6% of the total
backlog as of the end of 2022 Q4, up slightly from 62.6% as of the end of 2022 Q3. As at the end of 2022 Q4, there were 2,628 ZEBs in
the backlog, representing a record of 28.6% of the total backlog, up from the previous record of 21.2% in 2022 Q3.
Footnotes
1. Represents a supplementary financial measure. See Non-IFRS and Other Financial Measures section.
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NFI GROUP INC. 2022 FINANCIAL RESULTS
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2022 Q4
2022 Q3
2021 Q4
Firm
Firm
Firm
Orders Options
Total
Orders Options
Total
Orders Options
Total
Beginning of period
4,153
4,352 8,505
4,366
5,308
9,674
3,346
4,757
8,103
New orders
Options exercised
Shipments1
1,371
1,207 2,578
388
65
453
1,157
450
1,607
118
(118)
—
217
(217)
—
277
(277)
—
(1,034)
— (1,034)
(783)
—
(783)
(1,087)
—
(1,087)
Cancelled/expired
(32)
(831)
(863)
(35)
(804)
(839)
(58)
(117)
(175)
End of period
Consisting of:
4,576 4,610 9,186
4,153 4,352 8,505
3,635 4,813 8,448
Heavy-duty transit buses
3,602
4,342 7,944
3,114
4,082
7,196
2,726
4,515
7,241
Motor coaches
347
268
Cutaway and medium-duty buses
627
—
615
627
358
270
681
—
628
681
373
298
536
—
671
536
Total Backlog
4,576 4,610 9,186
4,153 4,352 8,505
3,635 4,813 8,448
1. Shipments do not include delivery of pre-owned coaches as these coaches are not included in the backlog.
At the end of 2022 Q4, the Company's total backlog (firm and options) of 9,186 EUs (valued at $5.6 billion2), increased compared to
8,505 EUs (valued at $4.9 billion2) at the end of 2022 Q3. The increase was driven by high levels of new awards in North American
and UK transit operations in the quarter, offset somewhat by high deliveries and option expiries. In addition, 806 EUs of new firm
and option orders were pending from customers at the end of 2022 Q4, where approval of the award to the Company had been made
by the customer’s board, council, or commission, as applicable, but purchase documentation had not yet been received by the
Company and therefore not yet included in the backlog. The summary of the values is provided below.
2022 Q4
2022 Q3
2021 Q4
EUs
EUs
Total firm orders
Total options
Total backlog2
$
2,515.4
4,576 $
2,276.2
4,153 $
1,981.1
3,123.0
4,610
2,589.5
4,352
2,553.2
$
5,638.4
9,186 $
4,865.7
8,505 $
4,534.3
EUs
3,635
4,813
8,448
2. Represents a supplementary financial measure. See Non-IFRS and Other Financial Measures section.
In the Company's 2022 Q3 financial report, the average price of an EU in backlog was incorrectly stated as $640.9 thousand due to a
calculation error; the correct number should have been $572.1 thousand. As of 2022 Q4, the average price of an EU in backlog is now
$613.7 thousand, a 14% increase from 2021 Q4.
56
NFI GROUP INC. 2022 FINANCIAL RESULTS
NFIGROUP.COM
Consolidated Financial Statements of
NFI GROUP INC.
January 1, 2023
TABLE OF CONTENTS
Consolidated Statements of Net Loss and Comprehensive Loss
Consolidated Statements of Financial Position
Consolidated Statements of Changes in Equity
Consolidated Statements of Cash Flows
Notes to the Consolidated Financial Statements
Page
8
9
10
11
12 - 48
Deloitte LLP
360 Main Street
Suite 2300
Winnipeg MB R3C 3Z3
Canada
Tel: 204-942-0051
Fax: 204-947-9390
www.deloitte.ca
March 2, 2023
Independent Auditor's Report
To the Shareholders of NFI Group Inc.
Opinion
We have audited the consolidated financial statements of NFI Group Inc. (the “Company”), which
comprise the consolidated statements of financial position as at January 1, 2023 and January 2, 2022, and
the consolidated statements of net loss and total comprehensive loss, changes in equity and cash flows
for the years then ended, and notes to the consolidated financial statements, including a summary of
significant accounting policies (collectively referred to as the "financial statements").
In our opinion, the accompanying financial statements present fairly, in all material respects, the financial
position of the Company as at January 1, 2023 and January 2, 2022, and its financial performance and its
cash flows for the years then ended in accordance with International Financial Reporting Standards
(“IFRS”).
Basis for Opinion
We conducted our audit in accordance with Canadian generally accepted auditing standards ("Canadian
GAAS"). Our responsibilities under those standards are further described in the Auditor’s Responsibilities
for the Audit of the Financial Statements section of our report. We are independent of the Company in
accordance with the ethical requirements that are relevant to our audit of the financial statements in
Canada, and we have fulfilled our other ethical responsibilities in accordance with these requirements.
We believe that the audit evidence we have obtained is sufficient and appropriate to provide a basis for
our opinion.
Material Uncertainty related to Going Concern
We draw attention to Note 2 in the financial statements, which indicates that the Company expects to be
unable to comply with certain of its financial covenants under the terms of its credit facilities beginning
on July 3, 2023. As stated in Note 2, these events indicate that a material uncertainty exists that may cast
significant doubt on the Company’s ability to continue as a going concern. Our opinion is not modified in
respect of this matter.
Key Audit Matter
Key audit matters are those matters that, in our professional judgment, were of most significance in our
audit of the consolidated financial statements for the year ended January 1, 2023. These matters were
addressed in the context of our audit of the consolidated financial statements as a whole, and in forming
our opinion thereon, and we do not provide a separate opinion on these matters.
In addition to the matter described in the Material Uncertainty Related to Going Concern section, we
have determined the matter described below to be the key audit matter to be communicated in our
auditor’s report.
Goodwill – ARBOC, ADL manufacturing, ADL aftermarket parts operations — Refer to Notes 2 and
7 of the financial statements
Key Audit Matter Description
Annually, the Company’s evaluation of goodwill for impairment involves the comparison of the
recoverable amount of each cash generating units (“CGU”), which is the higher of its fair value less costs
of disposal and its value in use, to their carrying amount. The Company determined the recoverable
amount of the ARBOC, ADL manufacturing and ADL aftermarket parts CGUs (collectively “identified
CGUS”) to be value in use, which was estimated using a discounted cash flow model. This required
management to make significant estimates and assumptions including those related to future cash
inflows and outflows, growth rates and discount rates. At the annual evaluation date, the carrying
amount of the ARBOC and ADL Manufacturing CGUs exceeded their recoverable amounts and
impairment losses were recognized. The recoverable amount of the ADL aftermarket parts operations
CGU exceeded its carrying amount and no impairment was recognized.
While there are several key assumptions that are required to estimate the recoverable amount of the
identified CGUs, the assumptions with the highest degree of subjectivity and impact on the recoverable
amounts are related to the determination of forecasts of future revenues, operating margins and
discount rates. This required significant auditor attention as these estimates are subject to estimation
uncertainty. Auditing these estimates and assumptions required a high degree of subjectivity in applying
audit procedures and in evaluating the results of those procedures. This resulted in an increased extent of
audit effort including the involvement of fair value specialists.
How the Key Audit Matter Was Addressed in the Audit
Our audit procedures related to the determination of the forecasts of future revenues, operating margins
and discount rates used to estimate the recoverable amount of the identified CGU’s included the
following, among others:
•
•
Evaluated management’s ability to accurately forecast future revenues and operating margins by
comparing actual results to management’s historical forecasts;
Evaluated the reasonableness of the forecast of future revenues and operating margins by
comparing the forecasts to:
o Historical revenues and operating margins;
o Known changes in the Company’s operations and its industry, including the impact of the
global supply issues and sensitivity due to production constraints, which are expected to
impact future operating performance;
Internal reports including production and backlog supported by contracts;
o
Internal communications to management and the Board of Directors;
o
o Forecasted information included in the Company’s press releases as well as in analyst
reports; and
o Macroeconomic and market specific information;
• With the assistance of fair value specialists, evaluated the reasonableness of the discount rates by
testing the source information underlying the determination of the discount rates, developing a
range of independent estimates and comparing those to the discount rates selected by
management.
Other Information
Management is responsible for the other information. The other information comprises Management's
Discussion and Analysis.
Our opinion on the financial statements does not cover the other information and we do not express any
form of assurance conclusion thereon. In connection with our audit of the financial statements, our
responsibility is to read the other information identified above and, in doing so, consider whether the
other information is materially inconsistent with the financial statements or our knowledge obtained in
the audit, or otherwise appears to be materially misstated.
We obtained Management’s Discussion and Analysis prior to the date of this auditor’s report. If, based on
the work we have performed on this other information, we conclude that there is a material
misstatement of this other information, we are required to report that fact in this auditor’s report. We
have nothing to report in this regard.
Responsibilities of Management and Those Charged with Governance for the
Financial Statements
Management is responsible for the preparation and fair presentation of the financial statements in
accordance with IFRS, and for such internal control as management determines is necessary to enable the
preparation of financial statements that are free from material misstatement, whether due to fraud or
error.
In preparing the financial statements, management is responsible for assessing the Company’s ability to
continue as a going concern, disclosing, as applicable, matters related to going concern and using the
going concern basis of accounting unless management either intends to liquidate the Company or to
cease operations, or has no realistic alternative but to do so.
Those charged with governance are responsible for overseeing the Company’s financial reporting process.
Auditor's Responsibilities for the Audit of the Financial Statements
Our objectives are to obtain reasonable assurance about whether the financial statements as a whole are
free from material misstatement, whether due to fraud or error, and to issue an auditor’s report that
includes our opinion. Reasonable assurance is a high level of assurance, but is not a guarantee that an
audit conducted in accordance with Canadian GAAS will always detect a material misstatement when it
exists. Misstatements can arise from fraud or error and are considered material if, individually or in the
aggregate, they could reasonably be expected to influence the economic decisions of users taken on the
basis of these financial statements.
As part of an audit in accordance with Canadian GAAS, we exercise professional judgment and maintain
professional skepticism throughout the audit. We also:
•
Identify and assess the risks of material misstatement of the financial statements, whether due to
fraud or error, design and perform audit procedures responsive to those risks, and obtain audit
evidence that is sufficient and appropriate to provide a basis for our opinion. The risk of not
detecting a material misstatement resulting from fraud is higher than for one resulting from
error, as fraud may involve collusion, forgery, intentional omissions, misrepresentations, or the
override of internal control.
• Obtain an understanding of internal control relevant to the audit in order to design audit
procedures that are appropriate in the circumstances, but not for the purpose of expressing an
opinion on the effectiveness of the Company’s internal control.
• Evaluate the appropriateness of accounting policies used and the reasonableness of accounting
estimates and related disclosures made by management.
• Conclude on the appropriateness of management’s use of the going concern basis of accounting
and, based on the audit evidence obtained, whether a material uncertainty exists related to
events or conditions that may cast significant doubt on the Company’s ability to continue as a
going concern. If we conclude that a material uncertainty exists, we are required to draw
attention in our auditor’s report to the related disclosures in the financial statements or, if such
disclosures are inadequate, to modify our opinion. Our conclusions are based on the audit
evidence obtained up to the date of our auditor’s report. However, future events or conditions
may cause the Company to cease to continue as a going concern.
•
Evaluate the overall presentation, structure and content of the financial statements, including the
disclosures, and whether the financial statements represent the underlying transactions and
events in a manner that achieves fair presentation.
• Obtain sufficient appropriate audit evidence regarding the financial information of the entities or
business activities within the Company to express an opinion on the financial statements. We are
responsible for the direction, supervision and performance of the group audit. We remain solely
responsible for our audit opinion.
We communicate with those charged with governance regarding, among other matters, the planned
scope and timing of the audit and significant audit findings, including any significant deficiencies in
internal control that we identify during our audit.
We also provide those charged with governance with a statement that we have complied with relevant
ethical requirements regarding independence, and to communicate with them all relationships and other
matters that may reasonably be thought to bear on our independence, and where applicable, related
safeguards.
From the matters communicated with those charged with governance, we determine those matters that
were of most significance in the audit of the consolidated financial statements of the current period and
are therefore the key audit matters. We describe these matters in our auditor's report unless law or
regulation precludes public disclosure about the matter or when, in extremely rare circumstances, we
determine that a matter should not be communicated in our report because the adverse consequences
of doing so would reasonably be expected to outweigh the public interest benefits of such
communication.
The engagement partner on the audit resulting in this independent auditor’s report is Michael Boucher.
/s/ Deloitte LLP
Chartered Professional Accountants
Winnipeg, Manitoba
March 2, 2023
NFI GROUP INC.
CONSOLIDATED STATEMENTS OF NET LOSS AND COMPREHENSIVE LOSS
52-weeks ended January 1, 2023 ("Fiscal 2022") and 53-weeks ended January 2, 2022 ("Fiscal 2021")
(in thousands of U.S. dollars except per share figures)
Revenue (note 23)
Cost of sales (note 4)
Gross profit
Sales, general and administration costs and other operating expenses
Foreign exchange gain
Impairment loss on goodwill (note 7)
(Loss) earnings from operations
Gain (loss) on disposition of property, plant and equipment
Unrealized foreign exchange gain (loss) on monetary items
(Loss) earnings before interest and income taxes
Interest and finance costs
Interest on long-term debt
Interest on convertible debt
Accretion in carrying value of long-term debt (note 16)
Accretion in carrying value of convertible debt and cash conversion option (note 17)
Interest expense on lease liability
Other interest and bank charges
Fair market value gain on interest rate swap
Fair market value gain on cash conversion option (note 17)
Loss before income tax expense
Income tax expense (recovery) (note 15)
Current income tax (recovery) expense
Deferred income tax recovery
Net loss for the period
Other comprehensive loss
Fiscal 2022
Fiscal 2021
$
2,053,933 $
2,343,794
2,004,803
2,108,199
49,130
240,048
235,595
205,169
(5,205)
(15,585)
103,900
(289,613)
565
598
(288,450)
52,674
14,002
5,582
7,641
5,780
5,341
(37,708)
(16,578)
36,734
(325,184)
(19,809)
(27,612)
(47,421)
—
46,011
(112)
(11,791)
34,108
58,702
1,092
2,075
602
6,478
4,161
(23,161)
(10,913)
39,036
(4,928)
22,430
(12,874)
9,556
$
(277,763) $
(14,484)
Actuarial gain on defined benefit pension plan - this item will not be reclassified subsequently to
profit or loss
14,844
11,932
Unrealized foreign exchange loss on translation of foreign operations - this item will not be
reclassified subsequently to profit or loss
Net loss on equity hedge of restricted share plan
Total comprehensive loss for the period
Net loss per share (basic) (note 19)
Net loss per share (diluted) (note 19)
(23,449)
(4,898)
(287)
—
(286,655)
(7,450)
$
$
(3.60) $
(3.60) $
(0.21)
(0.21)
The accompanying notes are an integral part of the consolidated financial statements.
8
NFI GROUP INC 2022 ANNUAL REPORT
NFI GROUP INC.
CONSOLIDATED STATEMENTS OF FINANCIAL POSITION
As at January 1, 2023
(in thousands of U.S. dollars)
Assets
Current
Cash
Accounts receivable (note 3, 22d)
Inventories (note 4)
Income tax receivable
Derivative financial instruments (note 22a, b)
Prepaid expenses and deposits
Property, plant and equipment (note 5, 23)
Right-of-use asset (note 6)
Derivative financial instruments (note 22a, b)
Goodwill and intangible assets (note 7)
Accrued benefit asset (note 10)
Other long-term assets (note 8)
Deferred tax assets (note 15)
Liabilities
Current
Accounts payable and accrued liabilities
Income tax payable
Derivative financial instruments (note 22a, b)
Current portion of long-term debt (note 16)
Current portion of long-term liabilities (note 9)
Accrued benefit liability (note 10)
Obligations under leases (note 6)
Deferred compensation obligation (note 11)
Deferred revenue (note 13)
Provisions (note 14)
Deferred tax liabilities (note 15)
Derivative financial instruments (note 17, 22 a,b)
Long-term debt (note 16)
Convertible debentures (note 17)
Commitments and contingencies (note 25)
Shareholders' equity
Share capital (note 18)
Stock option and restricted share unit reserve (note 12)
Accumulated other comprehensive (loss) income
Deficit
The accompanying notes are an integral part of the consolidated financial statements.
9
NFI GROUP INC 2022 ANNUAL REPORT
January 1, 2023
January 2, 2022
$
49,987 $
366,224
732,096
40,142
1,720
16,928
1,207,097
195,783
107,631
27,800
986,421
14,747
32,126
17,665
77,318
396,535
567,698
21,396
442
7,549
1,070,938
221,338
121,761
—
1,144,963
4,116
36,504
—
$
2,589,270 $
2,599,620
455,368
—
2,837
17,901
167,251
643,357
2,927
114,044
1,497
20,776
71,299
56,914
6,067
878,725
216,513
$
2,012,119 $
988,218
11,285
(2,979)
(419,373)
577,151 $
2,589,270 $
$
$
$
458,864
1,104
1,799
—
142,860
604,627
11,211
120,414
2,769
19,818
63,498
62,806
30,526
586,411
225,768
1,727,848
987,943
10,105
5,921
(132,197)
871,772
2,599,620
NFI GROUP INC.
CONSOLIDATED STATEMENTS OF CHANGES IN EQUITY
For the period ended January 1, 2023
(in thousands of U.S. dollars)
Stock Option
and Restricted
Share Unit
Reserve
Accumulated
Other
Comprehensive
(Loss) Income
Share Capital
Retained
Earnings
(Deficit)
Total
Shareholders’
Equity
Balance, December 27, 2020
$
681,405 $
8,400 $
(1,113) $
(68,551) $
620,141
Net loss
Other comprehensive income
Dividends declared on common shares
Equity transaction cost
Share-based compensation, net of deferred income taxes
Shares issued
Balance, January 2, 2022
Net loss
Other comprehensive loss
Dividends declared on common shares
Equity transaction cost (note 17, 18)
Share-based compensation, net of deferred income taxes
Shares issued
Balance, January 1, 2023
—
—
—
(10,148)
—
316,686
—
—
—
—
2,191
(486)
—
(14,484)
(14,484)
7,034
—
7,034
—
—
—
—
(49,162)
—
—
—
(49,162)
(10,148)
2,191
316,200
$
987,943 $
10,105 $
5,921 $
(132,197) $
871,772
—
—
—
—
—
—
—
—
275
1,455
(275)
—
(277,763)
(277,763)
(8,900)
—
—
—
—
—
(9,413)
—
—
—
(8,900)
(9,413)
—
1,455
—
$
988,218 $
11,285 $
(2,979) $
(419,373) $
577,151
The accompanying notes are an integral part of the consolidated financial statements.
10
NFI GROUP INC 2022 ANNUAL REPORT
NFI GROUP INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
52-weeks ended January 1, 2023 ("Fiscal 2022") and 53-weeks ended January 2, 2022 ("Fiscal 2021")
(in thousands of U.S. dollars)
Operating activities
Net loss for the period
Income tax (recovery) expense
Depreciation of plant and equipment
Amortization of intangible assets
Share-based compensation
Interest and finance costs recognized in profit or loss
Fair value adjustment for total return swap
Unrealized foreign exchange (gain) loss on monetary items
Foreign exchange (gain) loss on cash held in foreign currency
Gain on fair value adjustment for cash conversion option
(Gain) loss on disposition of property, plant and equipment
Impairment loss on property, plant and equipment
Impairment loss on right-of-use asset
Impairment loss on goodwill
Defined benefit expense
Defined benefit funding
Cash (used in) generated by operating activities before non-cash working capital items and interest and
income taxes paid
Changes in non-cash working capital items (note 20)
Cash (used in) generated by operating activities before interest and income taxes paid
Interest paid
Income taxes recovered (paid)
Net cash (used in) generated by operating activities
Financing activities
Debt issue costs
Repayment of obligations under lease
Proceeds from (repayment of) revolving credit facilities
Share issuance
Proceeds from issue of convertible debentures
Equity transaction cost
Dividends paid
Net cash generated by (used in) financing activities
Investing activities
Acquisition of intangible assets
Proceeds from disposition of property, plant and equipment
Investment in long-term restricted deposits
Acquisition of property, plant and equipment
Net cash used in investing activities
Effect of foreign exchange rate on cash
(Decrease) increase in cash
Cash — beginning of period
Cash — end of period
The accompanying notes are an integral part of the consolidated financial statements.
11
NFI GROUP INC 2022 ANNUAL REPORT
Fiscal 2022
Fiscal 2021
$
(277,763) $
(14,484)
(47,421)
57,013
31,482
1,346
53,311
1,955
(598)
(771)
(16,578)
(565)
2,558
4,144
103,900
3,497
(4,265)
9,556
64,368
32,786
1,738
39,036
681
11,791
2,897
—
112
682
1,269
—
6,400
(3,652)
(88,755)
153,180
(96,169)
45,824
(184,924)
199,004
(58,348)
1,422
(64,224)
(19,550)
(241,850)
115,230
—
(24,535)
285,204
(2)
—
—
(22,388)
238,279
(10,212)
1,687
5,365
(21,371)
(24,531)
771
(27,331)
77,318
$
49,987 $
(10,383)
(18,192)
(546,137)
316,200
258,716
(13,683)
(46,513)
(59,992)
(2,748)
6,182
(712)
(33,514)
(30,792)
(2,897)
21,549
55,769
77,318
NFI GROUP INC.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
As at January 1, 2023
(in thousands of U.S. dollars except per share figures)
1. CORPORATE INFORMATION
NFI Group Inc. (“NFI” or the “Company”) was incorporated on June 16, 2005 under the laws of the Province of Ontario. NFI is a leading
independent global bus manufacturer providing a comprehensive suite of mass transportation solutions under brands: New Flyer®
(heavy-duty transit buses), Alexander Dennis Limited ("ADL") (single and double-deck buses), Plaxton (motor coaches), MCI® (motor
coaches), ARBOC Specialty Vehicles, LLC ("ARBOC") (low-floor cutaway and medium-duty buses) and NFI Parts™ (aftermarket parts
sales). The Company’s common shares (the “Shares”) are listed on the Toronto Stock Exchange (“TSX”) under the symbol “NFI”. The
Company's convertible debentures are listed on the TSX under the symbol "NFI.DB".
The audited consolidated financial statements (the "Statements") are prepared on a 52-week basis ended January 1, 2023, the
comparative period is a 53-week basis ended January 2, 2022. Therefore, the amounts presented in the financial statements are not
entirely comparable as the prior period represents an additional week. For practical reasons the entities accounting period is normally
52-weeks long. Over time, the additional day per year accumulates to a week and the period will be 53-weeks, such is the case in the
previous year.
These Statements were approved by the Company's board of directors (the "Board") on March 2, 2023.
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
The principal accounting policies applied in the preparation of these Statements are set out below. These policies have been
consistently applied to all periods presented, unless otherwise stated.
2.1
Basis of preparation
The Statements were prepared on a going concern basis in accordance with International Financial Reporting Standards (“IFRS”) as
issued by the International Accounting Standards Board ("IASB") which require management to make judgments, estimates and
assumptions that affect the application of accounting policies and the reported amounts of assets and liabilities, revenue and expenses.
Actual results may differ from these estimates.
The going concern basis asserts that the Company has the ability to realize its assets and discharge its liabilities and commitments in
the normal course of business. At January 1, 2023, as a result of ongoing supply chain disruptions, the Company expects to be unable
to comply with certain of its financial covenants under the terms of its credit facilities beginning on July 1, 2023.
These events result in a material uncertainty that may cast significant doubt as to the ability of the Company to continue as a going
concern. The audited consolidated financial statements do not reflect adjustments that would be necessary if the Company was not a
going concern.
The Company expects operations to continue into the long-term. The Company is taking a number of operational steps including cost
savings measures to ensure adequate short-term liquidity. Additionally, the Company is continuing to work directly with suppliers and
sub-suppliers to search for alternate or substitute parts where possible, increase production line parts inventories and develop longer
lead times to better support new vehicle production.
Subsequent to the balance sheet date, the Company entered into agreements on two additional credit facilities. A Canadian dollar $50
million debt facility from the Manitoba Development Corporation for general corporate purposes. A $50 million debt facility to support
supply chain financing and an arrangement of up to $100 million of surety reinsurance support for the Company's surety and
performance bonding requirements for new contracts, both provided by Export Development Canada.
NFI and its banking syndicate partners are developing new long-term credit arrangements, and the Company will be seeking agreements
that provide appropriate capacity and covenants matched to the Company’s anticipated financial performance and recovery. The
Company is targeting completion of these new agreements before July 1, 2023, although there is no assurances that such agreements
will become available.
In assessing whether the going concern assumption was appropriate, the Company took into account all relevant information available
about the future including its backlog, demand for its products, government funding levels in its core markets and the Company's ability
to raise additional capital from various sources, including capital markets.
12
NFI GROUP INC 2022 ANNUAL REPORT
NFI GROUP INC.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
As at January 1, 2023
(in thousands of U.S. dollars except per share figures)
2.
2.2
SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)
Principles of consolidation
The Statements include the accounts of the Company's subsidiaries.
Subsidiaries
Subsidiaries are entities over which the Company has control, where control is achieved when the Company: has power over the
investee; is exposed, or has rights, to variable returns from its involvement with the investee; and has the ability to use its power to
affect its returns. The Company holds 100% of the voting rights in, and therefore controls, its subsidiaries.
The effects of potential voting rights that are currently exercisable are considered when assessing whether control exists. Subsidiaries
are fully consolidated from the date control is transferred to the Company, and are de-consolidated from the date control ceases.
The acquisition method of accounting is used to account for the acquisition of subsidiaries as follows:
•
•
•
•
cost is measured as the fair value of the assets given, equity instruments issued and liabilities incurred or assumed at the date of
exchange, and business acquisition related expenses are expensed as incurred;
identifiable assets acquired and liabilities assumed are measured at their fair values at the acquisition date;
the excess of acquisition cost over the fair value of the identifiable net assets acquired is recorded as goodwill; and
if the acquisition cost is less than the fair value of the net assets acquired, the fair value of the net assets is reassessed and any
remaining difference is recognized directly in the consolidated statements of net loss and comprehensive loss.
Inter-company transactions between subsidiaries are eliminated on consolidation.
2.3
Reportable Segments
The Company’s reportable segments are organized around the markets it serves and are reported in a manner consistent with the
internal reporting provided to the chief operating decision-maker (“CODM”). The President and Chief Executive Officer of the Company
has authority for resource allocation and assessment of the Company’s performance and therefore acts as the CODM.
2.4
Foreign currency
The Company operates with multiple functional currencies. The Company’s consolidated financial statements are presented in U.S.
dollars as this presentation is most meaningful to financial statement users. References to “$” are to U.S. dollars, references to “C$”
are to Canadian dollars, references to "£" are to British pounds sterling. For those subsidiaries with different functional currencies,
exchange rate differences arising from the translation of items that form part of the net investment in the foreign operation are
recorded in unrealized foreign exchange (losses) gain on translation of foreign operations in other comprehensive loss.
Monetary balances denominated in a currency other than U.S. dollars are translated at the rates of exchange existing at the end of the
period, and the results of the operations are translated at average rates of exchange over the period. Non-monetary balances are
translated at the exchange rate prevailing at the date of the transaction.
Foreign exchange gains and losses that relate to borrowings, non-current monetary items and non-current forward foreign exchange
contracts are presented in the consolidated statements of net loss and comprehensive loss within “unrealized foreign exchange loss
(gain) on non-current monetary items”.
All other foreign exchange gains and losses are presented in the consolidated statements of net loss and comprehensive loss within
“foreign exchange gain or loss”.
2.5
Revenue recognition
Manufacturing Operations
Persuasive evidence of an arrangement exists in the form of a written contract. A process is in place that initiates a pre-shipment
acceptance by the customer at the Company’s plant. This acceptance prior to shipment mitigates the likelihood of customer’s
dissatisfaction with the final product upon delivery to the customer. Revenue is recorded when the vehicle is delivered, shipped, or
picked up by the customer. The customer does not have a legal right to return the delivered products after the acceptance period, or
deviate from the agreed upon price. The Company’s contract clearly identifies a fixed and determinable price.
13
NFI GROUP INC 2022 ANNUAL REPORT
NFI GROUP INC.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
As at January 1, 2023
(in thousands of U.S. dollars except per share figures)
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)
In connection with its sales of new coaches, the Company at times agrees to accept a pre-owned coach in exchange and gives the buyer
a credit equal to the pre-owned coach's then-current fair value. Any credit provided to the customer in excess of the fair value of the
pre-owned coach is deducted from the selling price of the new coach.
When a single sale transaction requires the delivery of more than one product or service (multiple performance obligations), the
revenue recognition criteria are applied to the separately identifiable performance obligations. A performance obligation is considered
to be separately identifiable if the product or service delivered has stand-alone value to that customer and the fair value associated
with the product or service can be measured reliably. The amount recognized as revenue for each performance obligation is its fair
value in relation to the fair value of the contract as a whole. Management has determined that the standard base warranty included in
the bus or coach purchase is not a separate performance obligation and therefore recognized upon delivery of the vehicle.
The Company sells extended warranty contracts that provide coverage in addition to the basic coverage. Proceeds from the sale of
these contracts are deferred and amortized into revenue over the extended warranty period commencing at the end of the basic
warranty period.
The Company also receives proceeds from the sale of extended warranties relating to major subsystems such as engines, transmissions,
axles and air conditioning that are purchased for the customer from the original equipment manufacturer (“OEM”). Revenue is not
recognized on these proceeds, as the Company is an agent to the transaction.
The Company, from time-to-time, may enter into arrangements with customers where the customer has requested that the Company
defer shipping a vehicle and instead hold it for a specified period until the customer is able to take possession.The Company recognizes
revenue for bill and hold arrangements when the arrangement is substantive, the product is identified separately as belonging to the
customer and ready for physical transfer to the customer, and the Company cannot use the product or allocate it to another customer.
The Company does not recognize revenue on any bus or coach firm or option orders that have not yet been delivered except on bill and
hold arrangements.
The Infrastructure SolutionsTM division sources, installs and commissions electric vehicle chargers, and constructs the related charging
infrastructure. Revenues related to the supply, installation and commissioning of electric vehicle chargers are recognized once the
chargers pass final customer acceptance testing. Revenues related to construction of charging infrastructure are recognized over time
using the cost-to-cost input method. The cost-to-cost method measures the Company's progress toward completion based on the total
costs incurred relative to the total estimated contract costs.
Operating lease revenue is recorded on a straight-line basis in the period earned over the life of the contract and is recognized in
revenue in the consolidated statements of net loss and comprehensive loss due to its operating nature.
Aftermarket Operations
Persuasive evidence of an arrangement exists in the form of an authorized sales order. The customer is invoiced, and revenue is
recorded at the time the part is delivered using a commercial shipper. For parts not kept in stock, the parts required by the customer
and shipment details are provided to the supplier and the parts are shipped from the supplier directly to the customer's location, these
transactions are recorded on a gross basis as the Company is the principal in the arrangement. The price list for parts clearly identifies
a fixed and determinable price, while also describing that the Company has no legal obligation to accept the return of goods other than
on defective and/or warrantable parts product. Aftermarket parts revenue does not contain any revenue related to the bus or coach
warranty.
2.6
Employee benefits
For defined benefit pension plans and other post-employment benefits, the net periodic pension expense is actuarially determined by
independent actuaries using the projected unit credit method. Actuarial remeasurement is comprised of actuarial gains and losses, the
effect of the changes to the asset ceiling (if applicable) and the return on plan assets (excluding interest), and is reflected immediately
in the statement of financial position with a charge or credit recognized in other comprehensive income in the period in which they
occur. Remeasurement recognized in other comprehensive income is reflected immediately in accumulated other comprehensive
income and will not be reclassified to profit or loss. Past service cost is recognized in profit or loss in the period of a plan amendment.
Net interest is calculated by applying the discount rate at the beginning of the period to the net defined benefit liability or asset.
Defined benefit costs are comprised of service costs (including current service cost, past service cost and gain or losses on curtailments
and settlements), net interest expense or income and remeasurement.
14
NFI GROUP INC 2022 ANNUAL REPORT
NFI GROUP INC.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
As at January 1, 2023
(in thousands of U.S. dollars except per share figures)
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)
The asset or liability recognized in the consolidated statements of financial position is the present value of the defined benefit
obligation at the end of the reporting period less the fair value of plan assets, together with adjustments for past service costs. The
present value of the defined benefit obligation is determined by discounting the estimated future cash outflows using interest rates of
high-quality corporate bonds that are denominated in the currency in which the benefits will be paid and that have terms to maturity
approximating the terms of the related pension liability. For funded plans, surpluses are recognized only to the extent that the surplus
is considered recoverable. Recoverability is primarily based on the extent to which the Company can unilaterally reduce future
contributions to the plan.
Payments to defined contribution plans are expensed as incurred, which is as the related employee service is rendered.
2.7
Share-based compensation plans
The Company operates cash-settled and equity-settled share-based compensation plans under which it receives services from executive
management and non-employee members of the Board.
For the cash-settled plans (note 11), the expense is determined based on the fair value of the liability at the end of the reporting
period until the awards are settled. Certain share-based compensation plans include non-market performance conditions. The
Company`s accounting policy is to recognize the impact of non-market performance conditions by adjusting the number of awards that
are expected to vest. At the end of each reporting period, the Company re-assesses its estimates of the number of awards that are
expected to vest and recognizes the impact of the revisions on compensation expense (note 23) in the consolidated statements of net
loss and comprehensive loss.
For the equity-settled plans (note 12), share-based payments to executive management are measured at the fair value of the equity
instruments at the grant date. The fair value is measured at grant date and each tranche is recognized on a graded-vesting basis over
the period in which the options vest. The offset to the recorded cost is the stock option reserve. Consideration received on the
exercise of stock options is recorded as share capital and the related stock option reserve is transferred to share capital. Upon expiry,
the recorded value is transferred to retained earnings. At the end of each reporting period, the Company revises its estimate of the
number of equity instruments expected to vest. The impact of the revision of the original estimates, if any, is recognized in the
consolidated statements of net loss and comprehensive loss such that the cumulative expense reflects the revised estimate, with a
corresponding adjustment to the stock option reserve. Where the terms and conditions of options are modified, the increase in the fair
value of the options, measured immediately before and after the modification, is also charged to the consolidated statements of net
loss and comprehensive loss.
2.8
Cash
Cash and cash equivalents comprise cash on hand, demand deposits and investments with an original maturity at the date of purchase
of three months or less.
2.9 Accounts receivables
Accounts receivables are amounts due from customers from the rendering of services or sale of goods in the ordinary course of
business. Accounts receivables are classified as current assets if payment is due within one year or less. Accounts receivables are
recognized initially at fair value and subsequently measured at amortized cost, less impairment, if any.
The Company maintains an allowance for doubtful accounts and sales adjustments to provide for impairment of trade receivables. The
expense relating to doubtful accounts is included within “Sales, general and administration costs and other operating expenses” in the
consolidated statements of net loss and comprehensive loss.
2.10 Inventories
Inventories are measured at the lower of cost and net realizable value. The cost of inventories is based on the first-in first-out
principle, and includes expenditures incurred in acquiring the inventories, production or conversion costs and other costs incurred in
bringing them to their existing location and condition. In the case of finished goods inventories and work in progress, cost includes an
appropriate share of production overheads based on normal operating capacity. Net realizable value is the estimated selling price in
the ordinary course of business, less the estimated costs of completion and selling expenses.
15
NFI GROUP INC 2022 ANNUAL REPORT
NFI GROUP INC.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
As at January 1, 2023
(in thousands of U.S. dollars except per share figures)
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)
2.11
Property, plant and equipment
Property, plant and equipment are recorded at cost reduced by applicable investment tax credits, less accumulated depreciation.
Depreciation is calculated at the following annual rates:
Building and building improvements
Machinery and equipment
Demo buses and coaches
Computer hardware and software
Office equipment
Buses and coaches available for lease
4% declining-balance basis
25% declining-balance basis
20% - 50% straight-line basis
30% declining-balance basis
20% declining-balance basis
20% - 50% straight-line basis
Property, plant and equipment are tested for impairment as described under “Impairment of non-financial assets” in note 2.15.
2.12
Right-of-use assets
At inception of a contract, the Company assesses whether a contract is, or contains, a lease based on whether the contract conveys a
right to control the use of an identified asset for a period of time in exchange for consideration.
The Company recognizes a right-of-use asset and a lease liability at the lease commencement date. The right-of-use asset is initially
measured based on the initial amount of the lease liability adjusted for any lease payments made at or before the commencement
date, plus any initial direct costs incurred and an estimate of costs to dismantle and remove the underlying asset or to restore the
underlying asset or the site on which it is located, less any lease incentives received. The assets are depreciated based on the lease
term of the asset using the straight-line method. The lease term includes periods covered by an option to extend if the Company is
reasonably certain to exercise that option. Lease terms are as follows:
Land, building and building improvements
Machinery and equipment
Automobiles
Office equipment
4 - 35 years
15 months - 5 years
13 months - 3 years
14 months - 5 years
The lease liability is initially measured at the present value of the lease payments that are not paid at commencement date,
discounted using the interest rate implicit in the lease or, if the rate cannot be determined, the Company uses its incremental
borrowing rate. The lease liability is measured at amortized cost using the effective interest method. It is remeasured when there is a
change in the future lease payments arising from a change in an index or rate or if the Company changes its assessment of whether it
will exercise a purchase, extension or termination option.
When the lease liability is remeasured in this way, a corresponding adjustment is made to the carrying amount of the right-of-use
asset, or is recorded in profit or loss if the carrying amount of the right-of-use asset has been reduced to zero.
The Company has elected to apply the practical expedient not to recognize right-of-use assets and lease liabilities for short-term leases
that have a lease term of 12 months or less and leases of low-value assets. The lease payments associated with these leases are
recognized as an expense on a straight-line basis over the lease term.
2.13
Intangible assets
Identifiable intangible assets are initially recorded at cost. Based on management’s forecasts and business plans and the going concern
of the Company, the trade names intangible asset (note 7) has been deemed to have an indefinite life, except for the "NABI Parts"
tradename which is amortized over its useful life of 12 years. For purposes of impairment testing, the fair value of trade names is
determined using an income approach.
Intangible assets that have a finite life are amortized using the straight-line method over the estimated useful lives of the assets as
follows:
Patents and Licenses
Backlog of sales orders
Customer relationships
Internally developed intellectual property
16
NFI GROUP INC 2022 ANNUAL REPORT
5-12 years
1-2 years
21 years
5-7 years
NFI GROUP INC.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
As at January 1, 2023
(in thousands of U.S. dollars except per share figures)
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)
Identifiable intangible assets with finite and indefinite lives are tested for impairment as described under “Impairment of non-financial
assets” in note 2.15.
2.14
Goodwill
Goodwill represents the excess of the cost of an acquisition over the fair value of the Company’s share of the net identifiable assets of
the acquired business at the date of acquisition. Separately recognized goodwill is tested at the end of every reporting period for
possible impairment when there are events or changes in circumstances that indicate that their carrying amounts may not be
recoverable and also tested annually for impairment. Goodwill is carried at cost less accumulated impairment losses. Gains and losses
on the disposal of an entity include the carrying amount of goodwill relating to the entity sold.
2.15
Impairment of non-financial assets
Non-financial assets with finite lives are tested at the end of every reporting period for possible impairment when there are events or
changes in circumstances that indicate that their carrying amounts may not be recoverable. In addition, non-financial assets that are
not amortized are subject to an annual impairment assessment. The carrying values of identifiable intangible assets with indefinite
lives are tested annually for impairment because they are not amortized. Impairment is determined by comparing the recoverable
amount of such assets with their carrying amounts. Any impairment loss is recognized for the amount by which the asset’s carrying
amount exceeds its recoverable amount within earnings of continuing or discontinued operations, as appropriate.
The recoverable amount is the higher of an asset’s fair value less cost to sell or its value in use. For the purpose of assessing
impairment, assets are grouped at the lowest levels for which there are separately identifiable cash inflows or cash generating units
(“CGUs”). The Company evaluates impairment losses for potential reversals, other than goodwill impairment, when events or changes
in circumstances warrant such consideration.
2.16 Provisions
Provisions represent liabilities to the Company for which the amount or timing is uncertain. Provisions are recognized when the
Company has a present legal or constructive obligation as a result of past events, it is probable that an outflow of resources will be
required to settle the obligation and the amount can be reliably estimated. Provisions are not recognized for future operating losses,
unless the losses relate to an onerous contract.
Provisions are measured at the present value of the expenditures expected to be required to settle the obligation using a discount rate
that reflects current market assessments of the time value of money and the risks specific to the obligation. Provisions are re-measured
at each consolidated statements of financial position date using the current discount rate. The increase in the provision due to passage
of time is recognized as interest expense.
At the time of sale, a provision for warranty claims relating to the base warranty on the entire bus or motor coach and a corrosion
warranty on the related structure, is recorded and charged against operations. This warranty provision is based upon management's
best estimate of expected future warranty costs utilizing past claims experience. Actual warranty expenditures are charged against the
provision as incurred.
A provision for onerous contracts is recognized when the expected benefits to be derived by the Company from a contract are lower
than the unavoidable cost of meeting its obligations under the contract. The provision is measured at the present value of the lower of
the expected cost of terminating the contract and the expected net cost of continuing with the contract. Before a provision is
established, the Company recognizes any impairment loss on the assets associated with that contract.
2.17
Long-term debt
Long-term debt is recognized initially at fair value, net of transaction costs incurred. Debt is subsequently stated at amortized cost
with any difference between the proceeds and the amortized cost recognized in the consolidated statements of net loss and
comprehensive loss over the term of the debt using the effective interest method.
Debt is classified as a current liability unless the Company has an unconditional right to defer settlement for at least 12 months after
the date of the consolidated statements of financial position.
17
NFI GROUP INC 2022 ANNUAL REPORT
NFI GROUP INC.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
As at January 1, 2023
(in thousands of U.S. dollars except per share figures)
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)
2.18
Convertible Debentures
Convertible debentures issued by the Company are convertible unsecured debentures that can be converted to share capital at the
option of the holder. Upon conversion, the Company has the option pay the holder out in share capital or cash, this creates a derivative
liability. The host liability component of the financial instrument is recognized initially at fair value of a similar liability that does not
have a conversion option, net of transaction costs incurred, and is subsequently stated at amortized cost with any difference between
the proceeds and the amortized cost recognized in the consolidated statements of net loss and comprehensive loss.
The cash conversion option, net of transaction costs is treated as an embedded derivative which is recognized at fair value through
profit and loss.
2.19
Financial instruments
Financial assets
Purchases and sales of financial assets are recognized on the settlement date, which is the date on which the asset is delivered to or by
the Company. Financial assets are derecognized when the rights to receive cash flows from the investments have expired or were
transferred and the Company has transferred substantially all risks and rewards of ownership. Financial assets are classified in the
following categories at the time of initial recognition based on the purpose for which the financial assets were acquired:
Financial assets at fair value through profit or loss
Classification
Financial assets at fair value through profit or loss are financial assets held for trading or designated as fair value through profit or loss.
A financial asset is classified in this category if acquired principally for the purpose of selling in the short-term or if so designated by
management. Assets in this category include derivative financial instruments and are classified as short or long term assets in the
consolidated statements of financial position.
Recognition and measurement
Financial assets are initially recognized at fair value and subsequently carried at fair value through profit and loss, with changes
recognized in the consolidated statements of net loss and comprehensive loss. Transaction costs are expensed as incurred.
Financial assets carried at amortized cost
Classification
Financial assets classified as amortized cost are non-derivative financial assets that the Company intends to hold in order to collect the
contractual cash flows and have fixed or determinable payments that are not quoted in an active market. They are included in current
assets, except for those with maturities greater than 12 months after the consolidated statements of financial position date, which are
classified as non-current assets. Assets in this category include accounts receivables, income tax receivables, deposits and cash and are
classified as current assets in the consolidated statements of financial position.
Recognition and measurement
Financial assets carried at amortized cost are initially recognized at fair value plus transaction costs and subsequently carried at
amortized cost using the effective interest method.
Financial liabilities carried at amortized cost
Financial liabilities primarily consist of accounts payable and accrued liabilities, derivative financial instruments, convertible debt,
other long-term liabilities and long-term debt. Financial liabilities are initially measured at fair value and subsequently measured at
amortized cost unless classified as fair value through profit or loss.
Hedge accounting and derivative instruments
The Company enters into foreign currency, interest rate, and share forward contract derivatives to manage the associated risks.
Derivatives are initially recognized at fair value on the date a contract is entered into and are subsequently re-measured at their fair
value. Changes in the fair value of derivative instruments are recognized in the consolidated statement of net loss, except for effective
changes for designated derivatives under hedge accounting.
18
NFI GROUP INC 2022 ANNUAL REPORT
NFI GROUP INC.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
As at January 1, 2023
(in thousands of U.S. dollars except per share figures)
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)
Cash flow hedges of Restricted Share Unit plan liabilities
In Q2 2022, the Company applied hedge accounting to certain designated derivatives related to the cash flow hedge of Restricted Share
Unit plan liabilities. Under hedge accounting, to the extent effective, the gain or loss on the hedging derivatives is recorded in other
comprehensive loss. Amounts accumulated in other comprehensive loss are reclassified to the statement of net loss in the
corresponding line item to the hedged risk.
On initial designation of the derivative as a hedging instrument, the Company formally documents the relationship between the hedging
instrument and the hedged item, including the risk management objectives, the strategy in undertaking the hedge transaction and the
hedged risk, the identification of the nature of the risk being hedged and how the Corporation will assess whether the hedging
relationship meets the hedge effectiveness requirements. The Corporation makes an assessment, both at the inception of the hedge
relationship as well as on an ongoing basis, of whether the hedging relationship meets the hedge effectiveness requirements including
the economic relationship, the conclusion that credit risk does not dominate the value changes from that economic relationship and the
hedge ratio is appropriate. To the extent that the hedge is ineffective, such differences are recognized in the statement of net loss.
When the hedged net investment is disposed of, the relevant amount in the translation reserve is transferred to the statement of net
loss as part of the gain or loss on disposal.
When a hedging instrument expires, is sold or terminated, or when a hedge no longer meets the criteria for hedge accounting, any
cumulative deferred gain or loss and deferred costs of hedging in equity at that time remains in equity until the forecast transaction
occurs. When the forecast transaction is no longer expected to occur, the cumulative gain or loss and deferred costs of hedging that
were reported in equity are immediately reclassified to the statement of net loss.
Cash Conversion Option
An embedded derivative is a derivative component attached to a non-derivative contract. The Company has an embedded derivative,
the cash conversion option of the Company’s convertible debentures (note 17). The cash conversion option meets separation criteria
outlined in IFRS 9.4.3.3, and is recognized and measured separately from convertible debentures. This embedded derivative is
measured in accordance with IFRS, measured initially at fair value, with changes in fair values recognized within the consolidated
statements net loss.
2.20
Taxation
Tax expense comprises current and deferred tax. Tax is recognized in the consolidated statements of net loss and comprehensive loss
except to the extent it relates to items recognized directly in equity, in which case the related tax is recognized in equity.
Current tax expense is based on the results for the period as adjusted for items that are not taxable or not deductible. Current tax is
calculated using the tax rates under the laws that were enacted or substantively enacted at the date of the consolidated statements of
financial position.
Deferred tax is accounted for using the liability approach and is the tax expected to be payable or recoverable on temporary
differences between the carrying amount of assets and liabilities in the consolidated statements of financial position and the
corresponding tax base used in the computation of taxable profit. Deferred tax is calculated based on the expected manner of
realization or settlement of the carrying amount of assets and liabilities, using tax rates that are expected to apply to the year of
realization or settlement based on tax rates and laws enacted or substantively enacted at the date of the consolidated statements of
financial position.
Deferred tax assets are recognized to the extent it is probable that taxable profits will be available against which the deductible
temporary differences can be utilized, unless the deferred tax asset arises from the initial recognition of an asset or liability in a
transaction that is not a business combination, and at the time of the transaction, affects neither accounting profit nor taxable profit
(tax loss). The carrying amount of deferred tax assets is reviewed at each consolidated statements of financial position date and
reduced to the extent that it is no longer probable that sufficient taxable profits will be available to allow all or part of the asset to be
recovered.
Deferred tax liabilities are generally recognized for all taxable temporary differences except to the extent that the deferred tax
liability arises from: the initial recognition of goodwill; or the initial recognition of an asset or liability in a transaction which is not a
business combination and, at the time of the transaction, affects neither accounting profit nor taxable profit (tax loss). As well,
deferred tax liabilities are recognized for taxable temporary differences arising on investments in subsidiaries except where the
reversal of the temporary difference can be controlled and it is probable that the difference will not reverse in the foreseeable future.
19
NFI GROUP INC 2022 ANNUAL REPORT
NFI GROUP INC.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
As at January 1, 2023
(in thousands of U.S. dollars except per share figures)
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)
2.21
Investment tax credits
The Company has earned investment tax credits (“ITCs”) relating to a percentage of eligible current and capital research and
development expenditures incurred in each taxation year. ITCs are recognized when there is reasonable assurance that the Company
will comply with the associated conditions and the grants will be received. The ITCs are recognized either as a reduction in cost of
sales on the consolidated statements of net loss and comprehensive loss, or as a reduction in intangibles, or property, plant and
equipment, depending on where the original costs which gave rise to the credits were recorded.
2.22
Vendor Rebates
The Company records certain consideration received from a vendor, which is probable and can be reasonably estimated, as a reduction
of the cost of purchases during the period.
2.23
Critical accounting estimates and judgments
Estimates and judgments are continually evaluated and are based on historical experience and other factors, including expectations of
future events that are believed to be reasonable under the circumstances.
Critical accounting estimates and assumptions
Management makes estimates and assumptions concerning the future. The resulting accounting estimates will, by definition, seldom
equal the actual results. Estimates are reviewed on a regular basis and, as adjustments become necessary, they are reported in the
consolidated statements of net loss and comprehensive loss in the periods in which they become known. The assets and liabilities which
require management to make significant estimates and assumptions in determining carrying values include, inventories, property, plant
and equipment, intangible assets, goodwill, provisions, accrued benefit liability, deferred compensation obligation, and deferred
income taxes.
Information about assumptions and estimation uncertainties that have a significant risk of resulting in a material adjustment are
addressed below.
Inventories
The value associated with inventory require management to make estimates associated with allocating labour and overhead costs to
inventory in the period. Determining the net realizable values of inventory also requires management to make significant estimates.
Property, plant and equipment
The values associated with property, plant and equipment is dependent on the estimated useful lives and the residual value of the
assets. Actual results will vary from these estimates.
Intangible assets and goodwill
The values associated with the initial recognition and impairment tests of the intangible assets and goodwill involve significant
estimates and assumptions, including those with respect to future cash inflows and outflows, discount rates and asset lives.
These significant estimates are subject to the Company’s future results. These determinations will affect the amount of amortization
expense on intangible assets recognized in future periods.
Management assesses impairment by comparing the recoverable amount of an intangible asset or goodwill with its carrying value. The
determination of the recoverable amount involves significant estimation by management.
Management has determined that for purposes of this evaluation the Company has five CGUs: North American bus/coach
manufacturing, ARBOC, ADL manufacturing, ADL aftermarket parts operations, and NFI Parts - aftermarket parts operations.
Goodwill is allocated to the Company’s five CGUs for the purpose of impairment testing. The Company performs its annual test for
impairment of goodwill in the fourth quarter of each year and also when indicators of impairment exist.
20
NFI GROUP INC 2022 ANNUAL REPORT
NFI GROUP INC.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
As at January 1, 2023
(in thousands of U.S. dollars except per share figures)
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)
Insurance provisions
Estimated provision around the companies insurance risk retention involves significant estimates. Management estimates the related
provision based on historical information, as well as any available information on actual claims. Management engages an actuary to
assist with these calculations, but future experience could vary significantly from historical information.
Accrued benefit liability
The present value of the defined benefit obligation is determined by discounting the estimated future cash outflows using interest rates
of high-quality corporate bonds that are denominated in the currency in which the benefits will be paid and that have terms to
maturity approximating the terms of the related pension liability. Determination of benefit expense requires assumptions such as the
discount rate to measure obligations and return on assets, the projected age of employees upon retirement, life expectancy and the
expected rate of future compensation changes.
Actual results will differ from results which are estimated based on assumptions. See note 2.6 for certain assumptions made with
respect to employee benefits.
Deferred compensation obligation
The deferred compensation obligation is based on estimated future results of the Company. These results could vary significantly from
actual future results. This would result in a significant change to the future compensation expense.
Income Taxes
Estimation of income taxes includes evaluating the recoverability of deferred tax assets based on an assessment of the Company’s
ability to utilize the underlying future tax deductions against future taxable income before they expire. Management’s assessment is
based upon existing tax laws and estimates of future taxable income. If the assessment of the Company’s ability to utilize the
underlying future tax deductions changes, the Company would be required to recognize more or fewer of the tax deductions as assets,
which would decrease or increase the income tax expense in the period in which this is determined.
The Company is subject to taxation in multiple jurisdictions. Significant judgment is required in determining the worldwide provision
for taxation. There are many transactions and calculations for which the ultimate tax determination is uncertain during the ordinary
course of business. The Company maintains provisions for uncertain tax positions that it believes appropriately reflect its risk with
respect to tax matters under active discussion, audit, dispute or appeal with tax authorities, or which are otherwise considered to
involve uncertainty. These provisions for uncertain tax positions are made using management’s best estimate of the amount expected
to be paid based on a qualitative assessment of all relevant factors. Management reviews the adequacy of these provisions at the date
of each consolidated statement of financial position. However, it is possible that at some future date an additional liability could result
from audits by taxing authorities. Where the final tax outcome of these matters is different from the amounts that were initially
recorded, such differences will affect the tax provisions in the period in which such determination is made.
Provision for Warranty and Campaign Costs
The Company offers warranties on the buses and coaches it sells. Management estimates the related provision for future warranty
claims and campaigns based on historical warranty claim information, as well as recent trends that might suggest that past cost
information may differ from future claims. Factors that could impact the estimated claim information include quality initiatives, as
well as parts and labour costs.
Critical judgments in applying accounting policies
The following critical judgments that were made by management have the most significant effect on the amounts recognized in the
financial statements.
Revenue recognition
As described in note 2.5, management assessed the criteria for the recognition of revenue related to arrangements that have multiple
components as set out in IFRS 15. Also, judgment is necessary to determine when components can be recognized separately and the
allocation of the related consideration allocated to each component.
Also described in note 2.5, management assessed the criteria for the recognition of revenue in an agency relationship related to the
sale of extended warranties that are purchased for the customer from the OEM as set out in IFRS 15.
21
NFI GROUP INC 2022 ANNUAL REPORT
NFI GROUP INC.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
As at January 1, 2023
(in thousands of U.S. dollars except per share figures)
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)
Functional currency
Management assessed the criteria for the determination of functional currency as set out in International Accounting Standards ("IAS")
21. An entity is required to place the greatest weight on the currency that influences the pricing of the transactions or the primary
economic environment in which the entity operates, rather than focusing on the currency in which the transactions are denominated
in. Items included in the financial statements of each consolidated entity of the Company are measured using the functional currency.
The consolidated financial statements are presented in the U.S. dollar, which is the Company's functional and presentation currency.
The financial statements of entities that have a functional currency different from that of the Company's (“foreign operations”) are
translated into U.S. dollars. All resulting changes are recognized in other comprehensive income as cumulative translation adjustments.
Goodwill
Judgment is required in the selection of CGUs and the allocation of assets and liabilities to these CGUs, which is necessary to assess the
impairment of long-term assets, goodwill and intangible assets.
2.24
Standards Issued but not yet adopted
IFRS 17 – Insurance Contracts:
In May 2017, with amendments in June 2020, the IASB issued IFRS 17, Insurance Contracts which will replace IFRS 4, effective for
annual reporting periods beginning on or after January 1, 2023, which introduced new guidance for recognition, measurement,
presentation and disclosure of insurance contracts.
The standard requires entities to measure insurance contract liabilities as the risk-adjusted present value of the cash flows plus the
contractual service margin, which represents the unearned profit the entity will recognize as future service is provided. Depending on
the type of contract, this is measured using the general measurement model or the variable fee approach. Expedients are specified,
provided the insurance contracts meet certain conditions. The premium allocation approach is permitted for the liability for remaining
coverage on contracts with a duration of one year or less, or where the use of the premium allocation approach closely approximates
the use of the general measurement model. If, at initial recognition or subsequently, the fulfillment cash flows are in a net outflow,
the contract is considered onerous and the excess is recognized immediately in profit. A loss recovery component is recognized
immediately in profit representing amounts recoverable from reinsurers related to onerous contracts. Management is currently
assessing the impact of this standard on its consolidated financial statements.
IAS 1 - Presentation of Financial Statements:
Disclosure of Accounting policies which amends IAS 1, Presentation of financial statements was issued in February 2021, with
amendments issued October 2022, effective for annual reporting periods beginning on or after January 1, 2023. The amendments to the
standard clarify some requirements relating to materiality, order of notes, subtotals, accounting policies and disaggregation. The
amended paragraphs require entities to disclose their material accounting policy information rather than significant accounting
policies, as well as provided a four-step materiality process to determine which accounting policy disclosures are required.
Management is currently assessing the impact of this standard on its consolidated financial statements.
Classification of Liabilities as Current or Non-current, which amends IAS 1, was issued January 2020, effective for annual reporting
periods beginning on or after January 1, 2024. This clarified a criterion in IAS 1 for classifying a liability as non-current: the
requirement for an entity to have the right to defer settlement of the liability for at least 12 months after the reporting period.
Management is currently assessing the impact of this standard on its consolidated financial statements.
3. ACCOUNTS RECEIVABLE
Trade, net of allowance for doubtful accounts (note 15c)
Other
January 1, 2023
January 2, 2022
$
$
333,598 $
32,626
366,224 $
368,548
27,987
396,535
22
NFI GROUP INC 2022 ANNUAL REPORT
NFI GROUP INC.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
As at January 1, 2023
(in thousands of U.S. dollars except per share figures)
4.
INVENTORIES
Raw materials
Work in process
Finished goods
Cost of inventories recognized as expense and included in cost of sales
January 1, 2023
January 2, 2022
329,388 $
343,424
59,284
732,096 $
281,826
246,364
39,508
567,698
Fiscal 2022
1,892,039 $
Fiscal 2021
2,047,664
$
$
$
Write-down of inventory to net realizable value in cost of sales
8,362
3,025
5. PROPERTY, PLANT AND EQUIPMENT
Land, building
and building
improvements
Machinery
and
equipment
Computer
hardware
and
software
Demo
buses
and
coaches
Buses and
coaches
available
for lease
Office
equipment
Total
Cost
$
118,253 $ 202,362 $ 53,163 $
7,812 $ 46,358 $
25,631 453,579
Accumulated depreciation
17,900
118,756
33,581
5,018
29,176
16,998 221,429
December 27, 2020 net book value
100,353
83,606
19,582
2,794 17,182
8,633 232,150
Additions
Transfer from (to) inventory
Disposals
Depreciation charge
Impairment
Cumulative translation adjustment
January 2, 2022 net book value
Additions
Transfer to inventory
Disposals
Depreciation charge
Impairment (note 29)
Cumulative translation adjustment
2,449
18,097
4,277
193 8,282
216
33,514
(50)
(1,226)
418
(447)
—
(15)
— 1,241
1,249
2,858
(20) (2,829)
—
(4,537)
(3,762)
(19,990)
(5,728)
(559) (8,045)
(3,473) (41,557)
—
(63)
(550)
(127)
(131)
(73)
—
—
—
(118)
—
(28)
(681)
(409)
97,701
81,007
17,912
2,408 15,713
6,597 221,338
3,290
13,458
1,745
67 2,799
12
21,371
—
—
(138)
(475)
—
—
—
—
(908)
(640)
(2,178)
(3,086)
—
(1,253)
(4,860)
(16,384)
(4,441)
(521) (6,752)
(2,341) (35,299)
(2,558)
—
—
(904)
(2,719)
(225)
—
7
—
(902)
—
(2,558)
13
(4,730)
January 1, 2023 net book value
$
92,531 $
74,887 $ 14,991 $
1,961 $ 9,310 $
2,103 $ 195,783
Recorded as:
Cost
Accumulated depreciation
January 2, 2022 net book value
Cost
Accumulated depreciation
January 1, 2023 net book value
Land, building
and building
improvements
Machinery
and
equipment
Computer
hardware
and
software
Office
equipment
Demo
buses
and
coaches
Buses and
coaches
available
for lease
Total
$
$
$
$
119,363 $ 219,753 $
57,221 $
7,985 $ 52,934 $
27,068 $ 484,324
21,662
138,746
39,309
5,577
37,221
20,471
262,986
97,701 $
81,007 $
17,912 $
2,408 $ 15,713 $
6,597 $ 221,338
119,053 $ 230,017 $
58,741 $
8,059 $ 53,283 $
24,915 $ 494,068
26,522
155,130
43,750
6,098
43,973
22,812
298,285
92,531 $
74,887 $
14,991 $
1,961 $ 9,310 $
2,103 $ 195,783
23
NFI GROUP INC 2022 ANNUAL REPORT
NFI GROUP INC.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
As at January 1, 2023
(in thousands of U.S. dollars except per share figures)
6. RIGHT-OF-USE ASSETS
Cost
Accumulated Depreciation
December 27, 2020 net book value
Additions
Disposals
Impairment
Depreciation charge
Cumulative translation adjustment
January 2, 2022 net book value
Additions
Disposals
Impairment
Depreciation charge
Cumulative translation adjustment
Land, building
and building
improvements
Machinery
and
equipment
Computer
hardware
and software
140,250
27,411
112,839
17,178
(5,756)
(1,181)
(15,288)
304
$
108,096 $
15,133
(4,223)
(4,144)
(14,401)
(2,681)
49,708
30,014
19,694
706
(44)
(88)
(7,140)
81
13,209 $
1,210
(78)
—
(5,818)
(184)
13,690 $
12,850
840 $
—
—
—
(384)
—
456 $
1,501
—
—
(444)
—
Total
203,648
70,275
133,373
17,884
(5,800)
(1,269)
(22,812)
385
121,761
17,844
(4,301)
(4,144)
(20,663)
(2,865)
January 1, 2023 net book value
$
97,780 $
8,339 $
1,513 $
107,632
Recorded as:
Cost
Accumulated Depreciation
January 2, 2022 net book value
Cost
Accumulated Depreciation
January 1, 2023 net book value
Land, building
and building
improvements
Machinery
and
equipment
Computer
hardware
and software
146,952
38,856
108,096
151,037
53,257
49,454
36,245
13,209
50,402
42,063
13,690
13,234
456
15,191
13,678
$
97,780 $
8,339 $
1,513 $
Total
210,096
88,335
121,761
216,630
108,998
107,632
Total cash outflows for payments on lease liabilities was $27.3 million for the period ended January 1, 2023 (2021: $23.9 million) of
which $24.5 million (2021: $18.2 million) was for principal repayments.
Right-of-use asset impairments are associated with a service center location and production facility location that will not be used by
the Company for the remaining duration of the lease as a result of the "NFI Forward" restructuring program (see note 29). The
impairments total of $4.1 million (2021: $1.3 million) are reflected in the Manufacturing reportable segment.
The Company assessed the extension periods embedded within each lease for inclusion in the lease liabilities on a lease-by-lease basis.
When it determined it was reasonably certain to exercise the extension option within the lease, the Company has included those
extension periods in the initial recognition of the right-of-use asset and lease liability. Significant leases where assumptions have been
made are long-term building leases.
24
NFI GROUP INC 2022 ANNUAL REPORT
NFI GROUP INC.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
As at January 1, 2023
(in thousands of U.S. dollars except per share figures)
7. GOODWILL AND INTANGIBLE ASSETS
Goodwill
Trade
names
Patents
and
Licenses
Customer
relationships
Backlog of
sales
orders
Internally
developed
intellectual
property
Total
Cost
$ 529,487 $ 270,499 $ 154,405 $
530,228 $
21,004
— $ 1,505,623
Accumulated amortization
—
1,788
133,260
172,190
21,004
—
328,242
December 27, 2020 net book value
529,487
268,711
21,145
358,038
Additions
Amortization charge
Impairment loss
—
—
—
—
(275)
—
Cumulative translation adjustment
(904)
(145)
1,078
—
(7,576)
(24,935)
—
61
—
(1,392)
January 2, 2022 net book value
528,583
268,291
14,708
331,711
Additions
Amortization charge
Impairment loss
—
—
—
—
—
(275)
(6,797)
(23,661)
(103,900)
—
—
—
Cumulative translation adjustment
(14,980)
(4,857)
(1,030)
(11,961)
—
—
—
—
—
—
—
—
—
—
— 1,177,381
1,670
2,748
—
—
—
(32,786)
—
(2,380)
1,670 1,144,963
10,212
10,212
(749)
(31,482)
—
(103,900)
(544)
(33,372)
January 1, 2023 net book value
$ 409,703 $ 263,159 $
6,881 $
296,089 $
— $
10,589 $
986,421
Recorded as:
Cost
$ 528,583 $ 270,354 $ 155,800 $
528,995 $
21,738 $
1,670 1,507,140
Accumulated amortization
—
2,063
141,092
197,284
21,738
—
362,177
January 2, 2022 net book value
528,583
268,291
14,708
331,711
Cost
409,703
265,497
154,770
517,034
Accumulated amortization
—
2,338
147,889
220,945
—
—
—
1670 1,144,963
11,338 1,358,342
749
371,921
January 1, 2023 net book value
$ 409,703 $ 263,159 $
6,881 $
296,089 $
— $
10,589 $
986,421
The recoverable amount of the Company’s CGUs is determined based on the greater of value-in-use calculations and fair value less
costs to sell. Value-in-use calculations, which was determined to be the recoverable amount, use estimated cash flow projections
based on adjusted financial plans approved by the Board covering five-year periods and discount rates based on weighted average cost
of capital of like businesses that range between 13% and 17% per annum for the ADL and the North American bus/coach manufacturing
CGUs; between 13% and 18% for the ARBOC CGU; and between 11.4% and 15.6% per annum for the NFI parts - aftermarket parts and
ADL parts CGUs. Cash flows beyond this period are extrapolated using a steady estimated growth rate based on the long-term average
annual growth rate of 3% for each industry in which the CGUs operate. Management has determined planned cash flows based on a
projected production schedule, past performance and expectations of market development. The discount rates used reflect specific
risks relating to the relevant CGUs.
Based upon the results of the quantitative impairment tests, the Company concluded:
•
•
the estimated recoverable amount of the ARBOC manufacturing CGU, which is the value-in-use, was $91.2 million and that
the carrying amount exceeded the recoverable amount, which resulted in a goodwill impairment charge of $23.2 million;
the estimated recoverable amount of the ADL manufacturing CGU, which is the value-in-use, was $177.7 million and that the
carrying amount exceeded the recoverable amount, which resulted in a goodwill impairment charge of $80.7 million.
Both the ARBOC and ADL manufacturing CGUs goodwill impairment reflects increases in market interest rates, as well as timing of the
market recovery from the COVID-19 pandemic and the related supply chain disruptions.
The impacts of the COVID-19, and the global supply chain issues have impacted the cash flow projections for all of the CGUs. Sensitivity
testing is conducted as part of the annual impairment tests. Management believes that any reasonable change in the key assumptions
used to determine the recoverable amounts would not result in an impairment at the North American bus/coach manufacturing CGU,
or NFI Parts- aftermarket parts CGU.
Impairment of the remaining CGUs may result if one of the following changes occurs:
25
NFI GROUP INC 2022 ANNUAL REPORT
NFI GROUP INC.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
As at January 1, 2023
(in thousands of U.S. dollars except per share figures)
7. GOODWILL AND INTANGIBLE ASSETS (Continued)
ADL parts CGU
• the discount rate is higher by at least 3%
Based upon historical operating results, management’s forecasts and business plans, the Company’s trade names were assigned an
indefinite life, except for the "NABI Parts" tradename (net book value of $1,100 at January 1, 2023) which is amortized over its useful
life, which ends in 2025.
8. OTHER LONG-TERM ASSETS
Long-term restricted deposit
Long-term accounts receivable
January 1, 2023
January 2, 2022
$
$
25,351 $
6,775
32,126 $
30,712
5,792
36,504
Long-term restricted deposit is collateral for certain of the Company's letters of credit.
9. CURRENT PORTION OF LONG TERM LIABILITIES
Deferred revenue (note 13)
Provisions (note 14)
Deferred compensation obligation (note 11)
Obligations under leases
10. ACCRUED BENEFIT ASSET (LIABILITY)
Defined benefit plan
January 1, 2023
January 2, 2022
$
$
128,426 $
20,708
536
17,581
167,251 $
98,408
20,151
1,040
23,261
142,860
Certain of the Company's subsidiaries have defined benefit plans which cover certain employees in Canada and the United States.
Actuarial valuations for the Company's subsidiaries were last performed as at December 31, 2020 and December 31, 2021.
26
NFI GROUP INC 2022 ANNUAL REPORT
NFI GROUP INC.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
As at January 1, 2023
(in thousands of U.S. dollars except per share figures)
10. ACCRUED BENEFIT ASSET (LIABILITY) (Continued)
Information in respect of the Company's defined benefit plans is as follows:
Change in plan assets
Plan assets at fair value — beginning of period
Interest income
Remeasurement gains (losses) - return on plan assets (excluding amounts in net interest)
Administrative expenses
Employer’s contributions
Benefits paid
Plan settlement
Foreign exchange loss
Plan assets at fair value — end of period
Change in defined benefit obligation
Defined benefit obligation — beginning of period
Current service cost
Interest cost
Benefits paid
Foreign exchange loss
Actuarial gain arising from changes in financial assumptions
Actuarial gain arising from experience adjustments assumptions
Defined benefit obligation — end of period
Accrued benefit asset (liability) - present value of unfunded obligations
The actual loss on the plan assets for Fiscal 2022 was $13,028 (Fiscal 2021: $7,468).
January 1,
2023
January 2,
2022
$
109,324 $
108,750
3,175
(16,203)
(239)
4,254
(5,651)
(3,706)
(5,892)
2,520
4,948
(183)
3,565
(6,478)
—
(3,798)
85,062
109,324
116,419
129,492
4,597
3,362
5,088
2,998
(9,358)
(12,522)
(4,828)
2,331
(36,950)
(10,834)
—
(134)
73,242
116,419
$
11,820 $
(7,095)
The significant actuarial assumptions adopted in measuring the Company’s accrued benefit obligation and net pension plan expenses
are as follows:
Country
Canada
Canada
US
Country
Canada
Canada
Mortality Table
CPM2014 Private sector with Scale MI-2017 with size adjustment
CPM2014 Private combined with the MI-2017 improvement scale
Private-2012 MP2021
Fiscal 2022
Fiscal 2021
Discount Rate
5.10 %
2.20% - 5.10%
5.15 %
2.40 %
3.00 %
Discount rate - sensitivity
Life expectancy - sensitivity
Last valuation date
Next valuation
date
Then obligation
would decrease
by:
Then obligation
would increase
by:
Then obligation
would increase
by:
Then obligation
would decrease
by:
1% increase
1% decrease one year increase one year decrease
Dec. 31, 2020
Dec. 31, 2023
Dec. 31, 2019
Dec. 31, 2022
14.0 %
24.2 %
17.5 %
30.2 %
1.3 %
2.4 %
1.3 %
2.3 %
The defined benefit plans typically expose the Company to actuarial risks such as: investment risk, interest rate risk and longevity risk.
Investment risk
The present value of the defined benefit plan liability is calculated using a discount rate determined by reference to high quality
corporate bond yields; if the return on plan assets is below this rate, it will create a plan deficit. Management believes the plans
currently have a relatively balanced investment in equity securities and debt instruments. Due to the long-term nature of the plan
liabilities, the Company's pension committee considers it appropriate that a reasonable portion of the plan assets should be invested in
equity securities to leverage the return generated by the fund.
27
NFI GROUP INC 2022 ANNUAL REPORT
NFI GROUP INC.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
As at January 1, 2023
(in thousands of U.S. dollars except per share figures)
10. ACCRUED BENEFIT ASSET (LIABILITY) (Continued)
Interest rate risk
A decrease in the bond interest rate will increase the plan liability; however, this will be partially offset by an increase in the return on
the plan’s debt investments.
Longevity risk
The present value of the defined benefit plan liability is calculated by reference to the best estimate of the mortality of plan
participants both during and after their employment. An increase in the life expectancy of the plan participants will increase the plan’s
liability.
The Company’s defined benefit plans are a fixed benefit plan and, as a result, the rate of compensation increases does not have any
impact on the actuarially determined accrued benefit liability. Expected contributions to the defined benefit plan for the 52-week
period ending January 1, 2023 are $3,700.
The Company's defined benefit pension plan expense, included in cost of sales and sales, general and administration costs and other
operating expenses is as follows:
Current service costs
Net interest expense
Administrative expenses
Foreign exchange loss
Fiscal 2022
Fiscal 2021
$
4,597 $
5,088
187
239
—
477
183
652
Components of defined benefit costs recognized in net earnings (loss)
$
5,023 $
6,400
Fiscal 2022
Fiscal 2021
Remeasurement (losses) gains - return on plan assets (excluding amounts in net interest)
$
(16,203) $
Actuarial gains arising from changes in financial assumptions
Actuarial gains arising from experience adjustments assumptions
Foreign exchange gain
Deferred income taxes recorded through other comprehensive loss
36,950
—
(30)
20,717
(5,873)
Net actuarial gains recognized in other comprehensive loss
$
14,844 $
An analysis of the assets of the plans by investment category is provided as follows:
4,948
10,834
134
65
15,981
(4,049)
11,932
Asset category
Cash and cash equivalents
Canadian equities
Foreign equities
Real estate
Bonds
January 1, 2023
January 2, 2022
72.7 %
4.9 %
11.6 %
0.0 %
10.8 %
100.0 %
0.0 %
18.0 %
27.6 %
5.5 %
48.9 %
100.0 %
At January 1, 2023, the Company was in the process of transferring its cash assets into the other investment categories in accordance
with its plan documents, the temporary allocation is due to changing the service provider, who holds the Company's investments.
28
NFI GROUP INC 2022 ANNUAL REPORT
NFI GROUP INC.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
As at January 1, 2023
(in thousands of U.S. dollars except per share figures)
11. DEFERRED COMPENSATION OBLIGATION
Restricted share units under PRSU Plan (officers and executive management)
Deferred share units under DSU Plan (non-employee board of directors)
Less: current portion
January 1, 2023
January 2, 2022
536
1,497
2,033
536
$
1,497 $
1,040
2,769
3,809
1,040
2,769
Effective December 17, 2012, the Board approved the Performance and Restricted Share Unit Plan (the “PRSU Plan”) and it was
amended on December 16, 2013, December 18, 2018 and August 5, 2020. The terms of the amended PRSU Plan govern awards made on
or after the 2014 plan year, 2018 plan year and August 2020, respectively.
The purposes of the PRSU Plan are to attract, retain and motivate key personnel, reward officers and executive management and to
align their interests with those of shareholders by making a significant portion of their incentive compensation directly dependent on
achieving key strategic, financial and operational objectives that are crucial to the ongoing growth and profitability of the Company.
Under the terms of the PRSU Plan, the Human Resources, Compensation and Corporate Governance committee of the Board may grant
eligible participants performance share units (“PSUs”) or restricted share units (“RSUs”), which give the holders thereof the right to
receive, upon vesting and redemption of a unit, a cash payment equal to the fair market value of a Share at the time of redemption.
When dividends are paid on a Share, additional units equivalent to the amount of the dividends multiplied by the number of PSUs and
RSUs held (and determined based on the then fair market value of the Shares) are credited to a participant’s account. The actual value
of a PSU on the settlement date is contingent on the Share price and the Company’s actual performance over a three-year period
relative to the established objectives.
The actual value of an RSU on the settlement date is contingent on the Share price only and RSUs generally vest and settle as to one-
third on each of the first, second and third anniversaries of the grant date. PSUs and RSUs also immediately vest upon a participant's
termination without cause or resignation for good reason within a specified period of time following the closing of a transaction
resulting in certain change of control events and upon certain terminations of employment and, with respect to PSUs and RSUs granted
prior to 2019, upon the closing of a transaction resulting in certain change of control events.
RSUs and PSUs granted in Fiscal 2022 were determined based on the volume weighted average trading price of a Share for the last five
trading days of 2021 and the desired compensation value.
As well, the Board adopted NFI’s Deferred Share Unit Plan for Non-Employee Directors (the "DSU Plan") on November 7, 2011 and it was
amended and restated on December 8, 2015, December 18, 2015, March 14, 2019 and September 14, 2020. Pursuant to the plan, non-
employee directors may elect once each calendar year to receive all or a portion of their annual retainer and meeting fees in the form
of deferred share units (“DSUs”) and RSUs instead of cash. A DSU is the right to receive a cash payment based on the value of a Share
credited by means of a bookkeeping entry to an account in the name of the non-employee director. DSUs are credited to the director’s
account on the first day of each calendar quarter, the number of which is determined by dividing the amount of the applicable portion
of the director’s elected amount by the volume weighted average trading price of a Share for the last five trading days.
When dividends are paid on a Share, additional DSUs equivalent to the amount of the dividend multiplied by the number of DSUs held
(and determined based on the then fair market value of the Shares) will be credited to the director’s account. At the end of the
director’s tenure as a member of the Board, the director will be entitled to receive a cash redemption payment equal to the fair
market value of a share multiplied by the number of DSUs held.
29
NFI GROUP INC 2022 ANNUAL REPORT
NFI GROUP INC.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
As at January 1, 2023
(in thousands of U.S. dollars except per share figures)
11. DEFERRED COMPENSATION OBLIGATION (Continued)
Units outstanding at December 27, 2020
Units granted
Distribution units granted
Units Expired
Units Redeemed
Vested and reclassified as current liability
Units outstanding at January 2, 2022
Units granted
Distribution units granted
Units Expired
Vested and reclassified as current liability
Units outstanding at January 1, 2023
Vested units
Unvested units
PSUs
RSUs
217,891
129,106
2,039
77,018
64,553
3,549
(349,036)
(10,754)
—
—
—
163,287
—
(21,644)
(57,320)
55,402
81,643
2,104
(163,287)
(1,481)
—
—
—
—
(63,541)
74,127
—
74,127
DSUs
145,588
23,704
5,042
—
—
—
174,334
43,513
3,011
—
—
220,858
220,858
—
Total
440,497
217,363
10,630
(359,790)
(21,644)
(57,320)
229,736
288,443
5,115
(164,768)
(63,541)
294,985
220,858
74,127
12. SHARE-BASED COMPENSATION - EQUITY SETTLED
The Board adopted a Share Option Plan (the “2013 Option Plan”) for NFI on March 21, 2013, under which employees of NFI and certain
of its affiliates may receive grants of share options. The 2013 Option Plan was amended and restated on December 8, 2015, December
31, 2018 and August 5, 2020. A maximum of 3,600,000 Shares are reserved for issuance under the 2013 Option Plan. One quarter of the
share options become vested on the first grant date anniversary and an additional one-quarter on the second, third and fourth
anniversary of such date.
The Board adopted a new share option plan on March 12, 2020 (the "2020 Option Plan"), which was approved by shareholders on May 7,
2020 and amended on August 5, 2020, under which employees of NFI and certain of its affiliates may receive grants of options for
shares. A maximum of 3,200,000 Shares are reserved for issuance under the 2020 Option Plan. The options become vested as to one-
quarter on the first grant date anniversary and an additional one-quarter on the second, third and fourth anniversary of the grant date.
No options have been granted under the 2020 Option Plan.
Directors who are not employed with NFI are not eligible to participate in the 2013 Option Plan and the 2020 Option Plan.
Option Grant
dates
Number
Exercised
Expired
Vested
Unvested
Expiry date
Exercise
price
Fair Value
at grant
date
March 26, 2013
490,356
(490,356)
—
December 30, 2013
612,050
(602,419)
(9,631)
—
—
—
March 26, 2021
— December 30, 2021
December 28, 2014
499,984
(252,233)
(11,368)
(236,383)
— December 28, 2022
December 28, 2015
221,888
(19,532)
—
(202,356)
— December 28, 2023
September 8, 2016
2,171
—
(2,171)
—
151,419
(1,610)
(11,888)
(137,921)
January 3, 2017
January 2, 2018
January 2, 2019
July 15, 2019
152,883
284,674
2,835
December 31, 2019
519,916
December 28, 2020
258,673
February 10, 2021
August 16, 2021
January 3, 2022
April 1, 2022
1,894
601
311,892
1,728
—
—
—
September 8, 2024
January 3, 2025
January 2, 2026
January 2, 2027
—
—
—
—
—
—
—
—
—
(29,198)
(123,685)
(59,186)
(169,118)
56,370
—
(2,126)
(78,772)
(330,861)
(26,603)
(116,041)
—
—
(947)
(150)
709
July 15, 2027
110,283 December 31, 2027
116,029 December 28, 2028
947 December 28, 2028
451
August 16, 2029
(7,940)
—
—
—
303,952
1,728
January 3, 2030
April 3, 2030
3,512,964 (1,366,150)
(236,757)
(1,319,588)
590,469
30
NFI GROUP INC 2022 ANNUAL REPORT
$10.20
$10.57
$13.45
$26.75
$42.83
$40.84
$54.00
$33.43
$35.98
$26.81
$24.70
$28.74
$30.79
$20.26
$16.25
$27.41
$1.55
$1.44
$1.83
$4.21
$8.06
$7.74
$9.53
$5.01
$4.90
$3.36
$6.28
$6.28
$6.28
$6.10
$6.51
NFI GROUP INC.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
As at January 1, 2023
(in thousands of U.S. dollars except per share figures)
12. SHARE-BASED COMPENSATION - EQUITY SETTLED (Continued)
The vested options granted on December 28, 2014 due to expire on December 28, 2022 remain exercisable.
The following reconciles the share options outstanding:
Balance at beginning of period
Granted during the period
Expired during the period
Exercised during the period
Balance at end of period
Fiscal 2022
Fiscal 2021
Number
1,617,759
313,620
(21,322)
—
1,910,057
Weighted average
exercise price
C$28.82
C$20.24
C$28.84
C$0.00
C$27.41
Number
1,503,117
261,168
(110,449)
(36,077)
1,617,759
Weighted average
exercise price
C$29.32
C$24.73
C$31.93
C$10.49
C$28.82
Fair values were measured based on the Black-Scholes formula. Expected volatility is estimated by considering historic average share
price volatility. The inputs used in the measurement of the fair values of the share-based payment plans granted in Fiscal 2022 and
Fiscal 2021 are the following:
Options grant date
Fair value at grant date (C$)
Share price (C$)
Exercise price (C$)
Expected volatility
Option life (expected weighted average life)
Expected dividends
Risk-free interest rate (based on government bonds)
January 3, 2022 December 28, 2020
$6.10-$6.51
$16.25-$20.26
$16.25-$20.26
46.0%-47.9%
5.5 years
1.63%-3.77%
1.29%-2.45%
$6.28
$24.70
$24.70
44.0 %
5.5 years
4.57 %
0.45 %
On May 8, 2014, shareholders’ approved the Company’s Restricted Share Unit Plan for Non-Employee Directors (the “Director RSU
Plan”). The Director RSU Plan was amended and restated on December 8, 2015, December 31, 2017, March 14, 2019 and September 14,
2020. A maximum of 500,000 Shares are reserved for issuance under the Director RSU Plan. Pursuant to the Director RSU Plan, non-
employee directors are permitted to elect, once each calendar year, to receive all or a portion of their annual retainer in the form of
restricted share units ("Director RSUs") and/or DSUs instead of cash. A Director RSU is a right to acquire a fully-paid and non-assessable
Share credited by means of a bookkeeping entry to an account in the name of the non-employee director.
Pursuant to the plan, non-employee directors may elect once each calendar year to receive all or a portion of their annual retainer
and meeting fees in the form of deferred share units (“DSUs”) and restricted share units instead of cash. The Board, in its sole
discretion, may award additional Director RSUs, subject to an annual aggregate value of $150 per director. The number of Director
RSUs to be awarded to a director is determined by dividing the amount of the applicable portion of the director’s annual retainer by
the applicable fair market value of a Share on that date. When dividends are paid on a Share, additional Director RSUs equivalent to
the aggregate number of Director RSUs held by a director on the dividend record date multiplied by the amount of dividend paid by NFI
on each Share, and then divided by the fair market value of the Shares on the dividend payment date, will automatically be credited to
the director’s account. Under the Director RSU Plan, Director RSUs vest immediately as at each applicable award date. A director
(other than a U.S. director) will be permitted to exercise the Director RSUs credited to his or her account at any time prior to
December 15 of the year following the year in which the director ceases to be a non-employee director of NFI or one of its affiliates. A
U.S. director will be required to specify the exercise date in the annual election form in accordance with Section 409A of the U.S.
Internal Revenue Code.
31
NFI GROUP INC 2022 ANNUAL REPORT
NFI GROUP INC.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
As at January 1, 2023
(in thousands of U.S. dollars except per share figures)
12. SHARE-BASED COMPENSATION - EQUITY SETTLED (Continued)
Balance – December 27, 2020
Director RSUs issued
Director RSUs exercised
Balance – January 2, 2022
Director RSUs issued
Director RSUs exercised
Balance – January 1, 2023
13. DEFERRED REVENUE
Extended warranties
Progress payments
Less: current portion of deferred revenue (note 9)
Number of Director RSUs
45,470
37,926
(13,828)
69,568
64,947
(24,374)
110,141
January 1, 2023
January 2, 2022
$
$
25,835 $
123,367
149,202
(128,426)
20,776 $
25,970
92,256
118,226
(98,408)
19,818
Deferred revenue is comprised of progress payments that have not yet qualified for recognition as revenue under the Company’s
revenue recognition policies and also deferred revenue from the sale of extended warranty contracts which are amortized over the
extended warranty period commencing at the end of the basic warranty period.
14. PROVISIONS
The Company's insurance risk retention provision is based on insurance risk which the Company has chosen not to mitigate with third
party insurance.
The restructuring provision consists of employee termination benefits associated with the "NFI Forward" restructuring initiative that was
announced on July 27, 2020 (note 29).
The Company generally provides its customers with a base warranty on the entire vehicle, a corrosion warranty on the related structure
and a defect warranty on batteries.
The Company provides for onerous contracts when the unavoidable costs of meeting the contract are greater than the economic
benefits expected to be received under it.
The movements in the provisions are as follows:
32
NFI GROUP INC 2022 ANNUAL REPORT
NFI GROUP INC.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
As at January 1, 2023
(in thousands of U.S. dollars except per share figures)
14. PROVISIONS (Continued)
December 27, 2020
Additions
Amounts used/realized
Unused provision
Unwinding of discount and effect of changes in the
discount rate
Exchange rate differences
January 2, 2022
Additions
Amounts used/realized
Unused provision
Unwinding of discount and effect of changes in the
discount rate
Exchange rate differences
Less current portion (note 9)
January 1, 2023
15. DEFERRED TAXES AND INCOME TAX EXPENSE
Insurance Risk
Retention
$
$
23,179
7,785
(4,745)
(974)
—
(2)
25,243
6,720
(5,690)
(248)
—
4
26,029
1,022
Restructuring
Warranty
3,706 $
57,928 $
Onerous
Contracts
—
—
—
—
—
—
— $
3,705
Total
84,813
55,736
(55,415)
(1,628)
39
104
83,649
41,864
44,837
(46,975)
—
39
92
55,920 $
24,439
(21,133)
(1,582)
(30,890)
—
(351)
(248)
17
(2,050)
57,193
17,900
—
14
1,786
1,786
17
(2,032)
92,008
20,708
71,300
3,114
(3,695)
(654)
—
14
2,485 $
7,000
(2,485)
—
—
—
7,000
—
$
25,007 $
7,000 $
39,293 $
— $
Deferred income tax assets and liabilities are offset when there is a legally enforceable right to offset current tax assets against
current tax liabilities and when the deferred income tax assets and liabilities relate to income taxes levied by the same taxation
authority on either the taxable entity or different taxable entities where there is an intention to settle the balances on a net basis. The
offset amounts by tax jurisdiction presented on the statements of financial position are as follows:
As presented on statements of financial position:
Deferred tax assets
Deferred tax liabilities
The gross movement on the deferred income tax account is as follows:
Beginning of period
Exchange rate differences
Tax recorded through net loss
Tax recorded through other comprehensive loss
Tax recorded through equity
End of period
January 1, 2023
January 2, 2022
$
$
17,665 $
56,914
39,249 $
—
62,806
62,806
Fiscal 2022
Fiscal 2021
$
(62,806) $
(598)
27,612
(5,794)
2,337
$
(39,249) $
(76,689)
1,217
12,874
(4,074)
3,866
(62,806)
33
NFI GROUP INC 2022 ANNUAL REPORT
NFI GROUP INC.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
As at January 1, 2023
(in thousands of U.S. dollars except per share figures)
15. DEFERRED TAXES AND INCOME TAX EXPENSE (Continued)
The movement in deferred income tax assets and liabilities during the period, without taking into consideration the offsetting of
balances within the same tax jurisdiction, is as follows:
Deferred tax liabilities
December 27, 2020
Tax recorded through net loss
Cumulative translation adjustment
January 2, 2022
Tax recorded through net loss
Tax recorded through other comprehensive loss
Cumulative translation adjustment
January 1, 2023
Property
Plant and
Equipment
Goodwill and
Intangibles
Right of Use
Assets
Other
Total
(20,381)
(152,131)
(26,150)
(3,228) $
(201,890)
3,132
—
(497)
(113)
2,679
(5,743)
—
—
(429)
(113)
(17,249)
(152,741)
(23,471)
(8,971)
(202,432)
8,148
8,027
(638)
(7,923)
79
2,337
7,614
79
2,337
$
(9,101) $
(142,377) $
(24,109) $
(16,815) $
(192,402)
Deferred tax assets
Reserves
and accruals
not
currently
deductible
Provisions
Right of Use
Assets
Loss carry
forward
Pension
Deferred
Financing
Costs and
Interest
Other
Total
December 27, 2020
$
27,803 $
23,442 $
28,109 $
28,332 $
6,811 $
1,269 $
9,435 $
125,201
Tax recorded through net
loss
Tax recorded through
other comprehensive loss
Tax recorded through
equity
Exchange rate differences
(10,464)
(5,079)
(2,410)
18,184
1,148
10,217
1,707
13,303
—
—
—
—
(4,074)
—
—
(4,074)
—
285
—
233
—
280
—
282
—
68
3,586
13
393
56
3,979
1,217
January 2, 2022
$
17,624 $
18,596 $
25,979 $
46,798 $
3,953 $
15,085 $
11,591 $
139,626
Tax recorded through net
loss
Tax recorded through
other comprehensive loss
Exchange rate differences
(5,504)
3,112
1,368
8,191
1,937
12,606
(1,712) $
19,998
—
(75)
—
(79)
—
(110)
—
(5,873)
(196)
(17)
—
(66)
— $
(5,873)
(55) $
(598)
January 1, 2023
$
12,045 $
21,629 $
27,237 $
54,793 $
— $
27,625 $
9,824 $
153,153
Deferred income tax assets are recognized to the extent it is probable that sufficient future taxable income will be available to allow a
deferred tax asset to be utilized. At January 1, 2023, the Company has recognized all of its deferred income tax assets with the
exception of: loss carry forwards in Canada - $11,131, restricted interest in the UK - $9,663, and $8,681 of U.S. excess foreign tax
credits that will likely not be applied against U.S. income tax otherwise payable.
34
NFI GROUP INC 2022 ANNUAL REPORT
NFI GROUP INC.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
As at January 1, 2023
(in thousands of U.S. dollars except per share figures)
15. DEFERRED TAXES AND INCOME TAX EXPENSE (Continued)
At January 1, 2023 the Company has the following tax credit and loss pools expiring as follows:
United States
Canada
Other
Tax Credits
Tax Losses
Tax Losses
Tax Losses
—
480
2023-2027
2028
2029
2030
2031
2032
2033
2034-2037
2038
2039
2040
2041
2042
No expiry
1,003
—
5,373
2,305
—
—
—
—
—
—
—
—
—
96
96
68
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
307
11,099
24,271
20,972
10,675
49,341
—
—
—
—
—
—
—
—
—
—
—
—
—
39,570
—
145,546
The reconciliation of income tax computed at the U.S. statutory rate, to income tax expense is as follows:
Earnings before income tax expense
Tax calculated using a 21% U.S. tax rate
Tax effect of:
Withholding and other taxes
Non-taxable income
Non-deductible impairment loss on goodwill
Derecognition of previously recognized assets
Revision of tax estimates
Foreign exchange impact
State taxes
Impact of rate change on deferred income taxes
Foreign tax credit pools and base erosion and anti-abuse tax
Rate differential on income taxed at other than U.S. statutory rate
Other
Income tax expense
Current income tax (recovery) expense
Deferred income tax recovery
Income tax expense for the period
35
NFI GROUP INC 2022 ANNUAL REPORT
Fiscal 2022
Fiscal 2021
$
(325,184) $
(4,928)
(68,289)
(1,035)
(539)
(1,473)
21,819
20,794
1,039
3,899
(8,276)
(1,854)
(17,750)
3,186
23
1,732
(2,523)
—
—
2,762
(1,266)
2,578
2,669
4,889
(17)
(233)
$
(47,421) $
9,556
$
(19,809) $
22,430
(27,612)
(12,874)
$
(47,421) $
9,556
NFI GROUP INC.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
As at January 1, 2023
(in thousands of U.S. dollars except per share figures)
16. LONG-TERM DEBT
Revolving Credit Facility, Secured (“Credit Facility”)
Revolving Credit Facility, Secured ("UK Facility")
Less current portion
Face Value Unamortized
Transaction
Costs
Net Book Value
January 1, 2023
Net Book Value
January 2, 2022
882,000
18,295
900,295
18,295
882,000
3,275
394
3,669
394
3,275
878,725
17,901
896,626
17,901
878,725
586,649
(238)
586,411
—
586,411
The Credit Facility has a total borrowing limit of $1 billion, which includes a $100 million letter-of-credit facility. At January 1, 2023,
the Credit Facility included a $25 million minimum liquidity requirement. $22.5 million of outstanding letters-of-credit were drawn
against the Credit Facility at January 1, 2023. The Credit Facility bears interest at a rate equal to LIBOR or a U.S. base rate for loans
denominated in U.S. dollars and a Canadian prime rate or bankers' acceptance rate for loans denominated in Canadian dollars, plus an
applicable margin to those rates and matures on August 2, 2024.
The UK facility has a total borrowing limit of £40 million to support ADL's operations in the UK. Amounts drawn under the UK Facility
bear interest at a rate equal to LIBOR plus an applicable margin. The UK Facility matures on June 30, 2023.
On December 29, 2022, the Company amended the Credit Facility and the UK Facility (together the "amended facilities"). The amended
facilities provide the Company with certain covenant relief until June 30, 2023 as it recovers from the impacts of COVID-19 pandemic,
and the related global supply chain disruptions.
Subsequent to January 1, 2023, the Company entered into a new long-term debt agreement. (Note 30)
17. CONVERTIBLE DEBENTURES
On December 2, 2021, the Company completed a public offering of C$300 million aggregate principal of convertible debentures (the
"Debentures") and an additional C$38 million aggregate principal of Debentures were issued on December 14, 2021, pursuant to the
partial exercise of the over-allotment option, bearing interest at a rate of 5% per annum, payable semi-annually on January 15 and
July 15 commencing on July 15, 2022. The Debentures will mature on January 15, 2027 (the "Maturity Date").
The Debentures may be converted in whole or in part from time to time at the holder’s option into 30.1659 Shares for each C$1
principal amount of Debentures (“Conversion Price”), representing a Conversion Price of approximately C$33.15 per Share, prior to
maturity and subject to adjustment in certain circumstances.
The Company has the option to settle the conversion in either Shares or cash (the "Cash Conversion Option"), this Cash Conversion
Option was determined to be a financial liability. The fair value of the Debentures and Cash Conversion Option are classified as
separate liabilities. The Debenture component will accrete to its final redemption amount of C$338 million less all conversions, at the
Maturity Date at an effective interest rate over the five–year term of the Debentures.
Convertible Debt
Cash Conversion Option
18. SHARE CAPITAL
Authorized - Unlimited
Face Value Unamortized
Transaction
Costs
Net Book Value
January 1,
2023
Net Book Value
January 2, 2022
224,516
8,004
5,150
—
229,666
8,004
216,512
5,150
221,662
225,768
20,618
246,386
January 1, 2023
January 2, 2022
Issued - 77,155,016 Common Shares (January 2, 2022: 77,130,747)
$
988,218 $
987,943
36
NFI GROUP INC 2022 ANNUAL REPORT
NFI GROUP INC.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
As at January 1, 2023
(in thousands of U.S. dollars except per share figures)
18. SHARE CAPITAL (Continued)
The following is a summary of changes to the issued and outstanding capital stock of Shares during the period:
Shares
Balance – January 2, 2022
Director RSUs exercised
Balance – January 1, 2023
19. LOSS PER SHARE
Net loss attributable to equity holders
Weighted average number of Shares in issue
Weighted average number of Shares for diluted earnings per Share
Net loss per Share (basic)
Net loss per Share (diluted)
Number
(000s)
77,131 $
24
77,155 $
Net Book Value
987,943
275
988,218
Fiscal 2022
Fiscal 2021
$
(277,763) $
(14,484)
77,144,445
70,039,835
77,144,445
70,039,835
$
$
(3.6006) $
(0.2068)
(3.6006) $
(0.2068)
Basic loss per Share is calculated by dividing the net (loss) gain attributable to equity holders of the Company by the weighted average
number of Shares outstanding during the period.
Diluted (loss) earnings per Share is calculated using the same method as basic loss per Share except that the average number of Shares
outstanding includes the potential dilutive effect of outstanding stock options and Director RSUs granted by the Company, as
determined by the treasury stock method.
20. SUPPLEMENTAL CASH FLOW INFORMATION
Changes in non-cash working capital items
Cash inflow (outflow)
Accounts receivable
Income tax receivable
Inventories
Prepaid expenses and deposits
Accounts payable and accrued liabilities
Income tax payable
Deferred revenue
Provisions
Other
Fiscal 2022
Fiscal 2021
$
26,964 $
22,555
(1,463)
(160,939)
(9,655)
8,239
—
35,788
8,358
(3,461)
(5,517)
86,480
5,760
(64,576)
1,104
3,164
(1,164)
(1,982)
$
(96,169) $
45,824
21. DEFINED CONTRIBUTION PENSION PLANS
Certain of the Company's subsidiaries maintains a defined contribution plan for certain salaried employees. The net pension expense
for the Company's defined contribution plans is as follows:
Defined contribution pension expense
Fiscal 2022
$
10,963 $
Fiscal 2021
10,270
Cash payments contributed by the Company during Fiscal 2022 for its defined benefit plans and defined contribution pension plans
amounted to $15.2 million (2021: $13.8 million).
37
NFI GROUP INC 2022 ANNUAL REPORT
NFI GROUP INC.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
As at January 1, 2023
(in thousands of U.S. dollars except per share figures)
22. FINANCIAL INSTRUMENTS AND RISK MANAGEMENT
(a) Fair value measurement of financial instruments
The Company has made the following classifications:
Cash
Restricted deposit
Receivables
Deposits
Accounts payables and accrued liabilities
Convertible Debt
Other long-term liabilities
Long-term debt
Derivative financial instruments
Fair value through profit or loss
Fair value through profit or loss
Amortized cost
Amortized cost
Amortized cost
Amortized cost
Amortized cost
Amortized cost
Fair value through profit or loss
(b) Fair value measurement of financial instruments
The Company categorizes its fair value measurements of financial instruments recorded at fair value according to a three-level
hierarchy. The hierarchy prioritizes the inputs used by the Company’s valuation techniques. A level is assigned to each fair value
measurement based on the lowest level input significant to the fair value measurement in its entirety. The three levels of the fair
value hierarchy are defined as follows:
Level 1 - fair value measurements that reflect unadjusted, quoted prices in active markets for identical assets and liabilities that the
Company has the ability to access at the measurement date.
Level 2 - fair value measurements using inputs other than quoted prices included within Level 1 that are observable for the asset or
liability, either directly or indirectly. These include quoted prices for similar assets and liabilities in active markets, quoted prices for
identical or similar assets and liabilities in inactive markets, inputs that are observable that are not prices (such as interest rates and
credit risks) and inputs that are derived from or corroborated by observable market data.
Level 3 - fair value measurements using significant non-market observable inputs. These include valuations for assets and liabilities that
are derived using data, some or all of which is not market observable data, including assumptions about risk.
The following table presents the carrying amounts and fair values of financial liabilities and financial assets, including their levels in
the fair value hierarchy. The table excludes fair value information for financial assets and financial liabilities not measured at fair
value if the carrying amount is a reasonable approximation of fair value.
38
NFI GROUP INC 2022 ANNUAL REPORT
NFI GROUP INC.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
As at January 1, 2023
(in thousands of U.S. dollars except per share figures)
22. FINANCIAL INSTRUMENTS AND RISK MANAGEMENT (Continued)
Financial assets recorded at fair value
Cash
Long-term restricted deposit
Foreign exchange forward contracts
Derivative financial instrument assets - current
Interest Rate Swap
Derivative financial instrument asset - long term
Financial liabilities recorded at fair value
Equity Hedge
Derivative financial instrument liabilities - current
Cash Conversion Option
Equity Hedge
Derivative financial instrument liabilities - long term
Financial assets recorded at fair value
Cash
Long-term restricted deposit
Foreign exchange forward contracts
Derivative financial instrument assets - current
Financial liabilities recorded at fair value
Total return swap contracts
Derivative financial instrument liabilities - current
Interest rate swap
Cash Conversion Option
Derivative financial instrument liabilities - long term
(c) Risk Management
January 1, 2023
Fair value
level
Carrying
amount
Fair value
Level 1 $
Level 1 $
49,987 $
25,351 $
49,987
25,351
Level 2 $
$
1,720 $
1,720 $
1,720
1,720
Level 2 $
$
27,800 $
27,800 $
27,800
27,800
Level 2 $
$
Level 2
Level 2 $
2,837 $
2,837 $
5,150 $
917 $
6,067 $
2,837
2,837
5,150
917
6,067
January 2, 2022
Fair value
level
Carrying
amount
Fair value
Level 1 $
Level 1 $
77,318 $
30,712 $
77,318
30,712
Level 2 $
$
442 $
442 $
442
442
Level 2 $
$
1,799 $
1,799 $
Level 2 $
Level 2 $
$
30,526 $
20,618 $
51,144 $
1,799
1,799
30,526
20,618
51,144
The Company uses derivative financial instruments including interest rate swaps, total return swaps and forward foreign exchange
contracts. These instruments are financial contracts whose value depends on interest rates, share price and foreign currency prices.
The use of derivatives allows the transfer, modification and reduction of current and expected risks, including interest rate, share
price, foreign exchange and other market risks. The Company uses derivative financial instruments to manage interest rate, share price
and foreign exchange risks in accordance with its risk management policies. Certain derivative instruments, while providing effective
economic hedges, are not designated as hedges for accounting purposes. Changes in the fair value of any derivatives that are not
designated as hedges for accounting purposes are recognized within “interest and finance costs” or “unrealized foreign exchange loss
(gain) on non-current monetary items” in the consolidated statements of net loss and comprehensive loss consistent with the
underlying nature and purpose of the derivative instruments.
39
NFI GROUP INC 2022 ANNUAL REPORT
NFI GROUP INC.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
As at January 1, 2023
(in thousands of U.S. dollars except per share figures)
22. FINANCIAL INSTRUMENTS AND RISK MANAGEMENT (Continued)
Market risk (interest rate risk and foreign currency risk)
Market risk incorporates a range of risks. Movements in risk factors, such as interest rate risk, equity price risk and foreign currency
risk, affect the fair values of financial assets and liabilities. The Company uses derivative financial instruments including interest rate
swaps, foreign exchange options and forwards foreign exchange contracts to manage its risks associated with potentially adverse
changes in interest rates and foreign exchange rates. These instruments are financial contracts whose values depends on interest rates
and foreign currency prices. The use of derivatives allows the transfer, modification and reduction of current and expected risks,
including interest rate, foreign exchange and other market risks. The Company uses derivative financial instruments to manage interest
rate and foreign exchange risks in accordance with its risk management policies.
The Company does not hold financial instruments for speculative or trading purposes.
Interest rate risk
The Company's borrowing under the Credit Facility are at variable rates of interest and expose the Company to interest rate risk. The
Company attempts to mitigate this risk through interest rate swaps that could become materially more expensive if interest rates
increase or become more volatile. If the cost of mitigating interest rate increases, the Company's debt service obligations on its
variable rate indebtedness would increase even though the amount borrowed remained the same, and the Company's net earnings and
cash available for servicing its other indebtedness would decrease.
The interest rate swap is subject to interest rate risk. As an illustration, if the interest rates as at the date of the consolidated
statements of financial position date had been 100 basis points lower, with all other variables held constant, net loss and
comprehensive loss for Fiscal 2022 would have been higher by $6.1 million (Fiscal 2021: $11.8 million), arising mainly as a result of the
related fair value adjustment recorded due to lower interest rate. If interest rates had been 100 basis points higher, with all other
variables held constant, net loss and comprehensive loss for Fiscal 2022 would have been lower by $6.1 million (Fiscal 2021: $11.8
million), arising mainly as a result of the related fair value adjustment recorded due to higher interest rate. The fair value adjustments
have a greater impact than the interest charged, as the Company is over hedged as it relates to the swap position.
On February 13, 2019, the Company blended the unrealized gain from the existing swap into a $600 million amortizing notional interest
rate swap designed to hedge floating rate exposure on the Credit Facility. The interest rate swap fixes the interest rate at 2.27% plus
applicable margin until October 2023. The notional value of the swap as at January 1, 2023 was $540 million.
On July 9, 2020, the Company entered into a $200 million amortizing notional interest rate swap designed to hedge floating rate
exposure on its Credit Facility. The interest rate swap fixes the interest rate at 0.243% plus applicable margin until July 2025. The swap
begins amortizing on January 9, 2023 at a rate of $20 million per annum.
Equity price risk
The Company entered into a total return swap transaction to hedge the exposure associated with increases in value of its Shares on a
portion of the outstanding PSUs, RSUs and DSUs. The total return swap has a re-investment feature which increases the number of
Shares in the swap when dividends are paid by the Company. As at January 1, 2023 the Company held a position of 259,812 Shares at a
weighted average price of C$28.68.
To mitigate the impact to the statement of net loss of a change in the Company’s share price, a derivative instrument was entered into
for each of the years 2020, 2021, and 2022 RSU grants, which fixes the cost of the initial grant for the Company. Any changes in fair
value will either be paid to the counterparty or be paid to the Company by the counterparty at the vesting date. This derivative fixes
the cost to the Company and does not impact the variability of the award received by the participant. The derivative financial
instrument hedges the exposure to variability in cash flow associated with the future settlement of restricted shares issued under the
Restricted Share Plan that would impact profit or loss and therefore qualifies as a cash flow hedge. On a combined basis, the initial
grant date fair value for the 2020, 2021, and 2022 programs was $4,148. The instruments are classified as a long-term financial liability
of $3,754 (2021:$1,799) and are recorded as a separate line within other comprehensive income.
Hedging gains and losses are reclassified from other comprehensive income to the consolidated statement of net loss to the extent
effective. Accordingly, $287 was reclassified from other comprehensive income in Fiscal 2022 (Fiscal 2021: $nil). No hedge
ineffectiveness was recorded during 2021 or 2020.
Foreign currency risk
The U.S. dollar is the Company's functional currency. Fluctuations in the exchange rate between the U.S. dollar, Canadian dollar and
GBP will affect the Company's reported results. However, the impact of changes in foreign exchange rates on the Company's reported
results differ over time depending on whether the Company is generating a net cash inflow or outflow of Canadian dollars and GBP.
40
NFI GROUP INC 2022 ANNUAL REPORT
NFI GROUP INC.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
As at January 1, 2023
(in thousands of U.S. dollars except per share figures)
22. FINANCIAL INSTRUMENTS AND RISK MANAGEMENT (Continued)
This is largely dependent on the Company's revenue mix by currency as operating costs denominated in Canadian dollars and GBP have
been historically relatively stable.
During Fiscal 2022, the Company generated a net outflow of Canadian dollars. As a matter of policy, the Company enters into foreign
exchange forward contracts to protect the expected net Canadian dollar exposure from exchange fluctuation. The Company recorded a
net realized foreign exchange gain of $5.2 million during Fiscal 2022 (Fiscal 2021: $15.6 million). This was comprised of a $4.1 million
gain on settlement of foreign exchange contracts and a $1.1 million foreign currency gain on translation of Canadian dollar
denominated working capital and dividends.
At January 1, 2023, the Company had $50 million of foreign exchange forward contracts to buy currencies in which the Company
operates (U.S. dollars, Canadian dollars, or GBP). These foreign exchange contracts range in expiry dates from April 2023 to July 2023.
The related asset of $1.7 million (January 2, 2022: $0.4 million) is recorded on the statements of financial position as a current
derivative financial instruments asset and the corresponding change in the fair value of the foreign exchange forward contracts is
recorded in the consolidated statements of net loss and comprehensive loss.
Currency risk is the risk that the fair value of future cash flows of a financial instrument will fluctuate because of changes in foreign
exchange rates. The Company is exposed to currency risk, primarily Canadian dollar balances. As an illustration, at January 1, 2023 if
the Canadian dollar had weakened 10 percent against the U.S. dollar, with all variables held constant, net loss for Fiscal 2022 would
have been lower by $13.9 million (Fiscal 2021: $18.3 million). Conversely, if the Canadian dollar had strengthened 10 percent against
the U.S. dollar, with all other variables held constant, net loss would have been higher by $17.0 million for Fiscal 2022 (Fiscal 2021:
$22.3 million).
(d) Liquidity Management
The Company’s approach to managing liquidity risk is to ensure, as far as possible, that it will always have sufficient liquidity to meet
liabilities when due. At January 1, 2023 the Company had a cash balance of $50.0 million (January 2, 2022: $77.3 million), $882.0
million drawn under the Credit Facility due in 2024 (January 2, 2022: $586.6 million), $18.3 million drawn under the UK Facility
(January 2, 2022: $nil), and $22.5 million of outstanding letters of credit (January 2,2022: $11.8 million). In addition, as at January 1,
2023 there are $43.6 million of the letters of credit outstanding outside of the Credit Facility. The Credit Facility has a total borrowing
limit of $1.0 billion, which includes a $100 million letter-of-credit facility. The UK Facility has a total borrowing limit of £40.0 million.
The liquidity position as at January 1, 2023 is $173.5 million, without consideration given to the minimum liquidity requirement under
the amended facilities of $25 million.
The Company's principal sources of funds are cash generated from its operating activities, share and other issuances and borrowing
capacity remaining under the credit facilities.
At January 1, 2023, as a result of ongoing supply chain disruptions, the Company expects to be unable to comply with certain of its
financial covenants under the terms of its credit facilities beginning on July 1, 2023.
The Company believes that through its action plan (Note 2.1) and in working with its banking partners, it can obtain the long-term
credit arrangements that provide appropriate capacity and covenants matched to the Company's anticipated financial performance and
recovery. The Company believes that, its cash position and capacity under its existing credit facilities, and the long-term credit
arrangements it expects to achieve together with anticipated future cash flows and access to capital markets, will be sufficient to fund
operations, meet financial obligations as they come due, and provide the funds necessary for capital expenditures, and other needs for
the foreseeable future.
41
NFI GROUP INC 2022 ANNUAL REPORT
NFI GROUP INC.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
As at January 1, 2023
(in thousands of U.S. dollars except per share figures)
22. FINANCIAL INSTRUMENTS AND RISK MANAGEMENT (Continued)
The details of the covenants under the Amended Facilities are as follows:
Total Leverage
Ratio
Interest
Coverage Ratio
Total Net Debt
to Capitalization
Minimum
Cumulative
Adjusted EBITDA
Minimum
Liquidity
January 1, 2023
January 2, 2023 - March 31, 2023
April 1, 2023 - April 30, 2023
May 1, 2023 - May 31, 2023
June 1 - June 30, 2023
July 3, 2023 - October 1, 2023
October 2, 2023 - December 31, 2023
January 1, 2024 and thereafter
Waived
Waived
Waived
Waived
Waived
<4.50
<4.00
<3.75
Waived
Waived
Waived
$25,000
Waived
<0.62:1.00
>($28,000)
$25,000
Waived
<0.62:1.00
>($31,000)
$25,000
Waived
<0.62:1.00
>($35,000)
$25,000
Waived
<0.62:1.00
>($35,000)
$25,000
>2.00
>2.50
>3.00
N/A
N/A
N/A
N/A
N/A
N/A
$25,000
$25,000
$25,000
The calculation of the liquidity position, without consideration given to the minimum liquidity requirements under the Amended
Facilities at January 1, 2023 is provided below. As at January 1, 2023, the Company was in compliance with the requirements under the
Amended Facilities.
US dollars in thousands
Liquidity Position (must be greater than $25 million[2021: must be greater than
$50 million])
January 1, 2023
January 2, 2022
$
173,507
$
794,332
Compliance with financial covenants under the Amended Facilities is reported quarterly to the Board. Other than the requirements
imposed by letters of credit collateral (note 8) and borrowing agreements, the Company is not subject to any externally imposed
capital requirements. Capital management objectives are reviewed on an annual basis or when strategic capital transactions arise.
The following table outlines the maturity analysis of the undiscounted cash flows of certain non-financial liability and committed leases
as at January 1, 2023:
US dollars in thousands
Leases
Accrued benefit liability
(e) Credit risk
Total
2023
2024
2025
2026
2027
Post
2027
208,795
25,533
20,558
16,013
13,875
12,223 120,593
3,700
3,700
—
—
—
—
—
$ 212,495 $ 29,233 $ 20,558 $ 16,013 $ 13,875 $ 12,223 $ 120,593
Financial instruments which potentially subject the Company to credit risk and concentrations of credit risk consist principally of cash,
accounts receivable and derivative financial instruments. Management has assessed that the credit risk associated with accounts
receivable is mitigated by the significant proportion for which the counterparties are well-established transit authorities, which are
government entities in North America.
Current, including holdbacks
Past due amounts but not impaired
1 – 60 days
Greater than 60 days
Less: Allowance for doubtful accounts
Total accounts receivables, net
January 1, 2023
January 2, 2022
$
344,920 $
375,012
15,931
5,480
(107)
$
366,224 $
15,857
5,892
(270)
396,491
As at January 1, 2023, there was no amount that would otherwise be past due or impaired whose terms have been renegotiated.
42
NFI GROUP INC 2022 ANNUAL REPORT
NFI GROUP INC.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
As at January 1, 2023
(in thousands of U.S. dollars except per share figures)
22. FINANCIAL INSTRUMENTS AND RISK MANAGEMENT (Continued)
(f) Capital management
The Company's objectives in managing capital are to deploy capital to provide an appropriate return to shareholders and to maintain a
capital structure that provides the flexibility to take advantage of growth and development opportunities, maintain existing assets,
meet financial obligations and enhance the value for the Shares. The capital structure of the Company consists of cash, long-term debt,
other long-term liabilities and shareholders' equity. The Company manages capital to ensure an appropriate balance between debt and
equity. In order to maintain or adjust its capital structure, the Company may raise additional capital from various sources, including
capital markets.
23. SEGMENT INFORMATION
The Company has two reportable segments which are the Company’s strategic business units: Manufacturing Operations and
Aftermarket Operations. The strategic business units offer different products and services, and are managed separately because they
require different technology and marketing strategies. For each of the strategic business units, the Company’s President and CEO
reviews internal management reports on a monthly basis.
The Manufacturing Operations segment derives its revenue from the manufacture, service and support of transit buses, coaches,
medium-duty and cutaway buses. Based on management’s judgment and applying the aggregation criteria in IFRS 8.12, the Company’s
bus/coach manufacturing operations and medium-duty/cutaway manufacturing operations fall under a single reportable segment.
Aggregation of these operating segments is based on the segments having similar economic characteristics with similar long-term
average returns, products and services, production methods, distribution and regulatory environment.
The Manufacturing Operations segment has recorded vendor rebates of $235 (2021: $266), which have been recognized into earnings
during 2022, but for which the full requirements for entitlement to these rebates have not yet been met.
The Aftermarket Operations segment derives its revenue from the sale of aftermarket parts for transit buses, coaches and medium-
duty/cutaway buses, both for the Company's and third party products.
There is no inter-segment revenue. Unallocated items in the consolidated earnings before income taxes primarily include unrealized
foreign exchange gains or losses, interest and finance costs and corporate overhead costs.
The unallocated total assets of the Company primarily include cash, certain goodwill and intangible assets, and derivative financial
instruments. Corporate assets that are shared by both operating segments are allocated fully to the Manufacturing Operations segment.
Segment information about profits and assets is as follows:
Revenue from external customers
Operating costs and expenses
Fiscal 2022
Manufacturing
Operations
Aftermarket
Operations
Unallocated
Total
$
1,568,761 $
485,172
— $
2,053,933
1,925,707
418,170
35,240
2,379,117
(Loss) earnings before income tax expense
(356,946)
67,002
(35,240)
(325,184)
Total assets
Addition of capital expenditures
Addition of goodwill and intangibles assets
Impairment loss on goodwill
Indefinite-life intangible assets
Goodwill
1,801,272
485,263
302,735
2,589,270
21,169
10,212
(103,900)
202
—
—
248,175
18,959
221,942
187,761
—
—
—
—
—
21,371
10,212
(103,900)
267,134
409,703
43
NFI GROUP INC 2022 ANNUAL REPORT
NFI GROUP INC.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
As at January 1, 2023
(in thousands of U.S. dollars except per share figures)
23. SEGMENT INFORMATION (Continued)
Revenue from external customers
Operating costs and expenses
Fiscal 2021
Manufacturing
Operations
Aftermarket
Operations
Unallocated
Total
$
1,869,766 $
474,028
— $
2,343,794
1,915,870
390,698
42,154
2,348,722
(Loss) earnings before income tax expense
(46,104)
83,330
(42,154)
(4,928)
Total assets
Addition of capital expenditures
Addition of goodwill and intangibles assets
Indefinite-life intangible assets
Goodwill
1,812,254
480,759
306,607
2,599,620
32,116
2,748
1,398
—
248,175
18,959
336,870
191,713
—
—
—
—
33,514
2,748
267,134
528,583
The Company's revenue by geography is summarized below:
North America
UK and Europe
Asia Pacific
Other
Total
Fiscal 2022
Fiscal 2021
$
1,554,952 $
1,776,248
440,843
58,138
—
440,500
127,046
—
$
2,053,933 $
2,343,794
The Company's disaggregated manufacturing revenue by major product type is provided below. The Aftermarket operations revenue
does not have similarly disaggregated categories.
Transit buses
Motor coaches
Medium-duty and cutaway buses
Pre-owned coach
Infrastructure solutions
Fiberglass reinforced polymer components
Manufacturing revenue
Fiscal 2022
Fiscal 2021
$
1,212,508 $
1,429,462
296,226
361,579
31,778
12,773
8,498
6,978
35,357
20,713
17,598
5,057
$
1,568,761 $
1,869,766
44
NFI GROUP INC 2022 ANNUAL REPORT
NFI GROUP INC.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
As at January 1, 2023
(in thousands of U.S. dollars except per share figures)
24. RELATED PARTY TRANSACTIONS
Compensation of key management
Key management includes members of the Board of Directors, President and CEO, the CFO, presidents of each business unit, executive
vice presidents and vice presidents. The compensation expense for key management for employee services is shown below:
Salaries and short-term employee benefits
Post-employment benefits
Share-based payment benefits
Fiscal 2022
$
$
10,412 $
554
492
11,458 $
Fiscal 2021
11,775
619
2,144
14,538
Share-based payment benefits shown above represent the PSU, RSU, Director RSU, DSU and stock option expense that was recorded in
the period.
25. COMMITMENTS AND CONTINGENCIES
(a)
In the normal course of business, the Company receives notice of potential legal proceedings or is named as a defendant in legal
proceedings, including those that may be related to negligence, product liability, wrongful dismissal, contractual disputes or
personal injury. Many claims are covered by the Company's insurance policies and management does not expect any of the current
claims to have a material adverse effect on the Company’s financial position, results of operations or cash flows.
(b) Through the normal course of operations, the Company has indemnified the surety companies providing surety bonds required
under various contracts with customers. In the event that the Company fails to perform under a contract and the surety companies
incur a cost on a surety bond, the Company is obligated to repay the costs incurred in relation to the claim up to the value of the
bond.
The Company's guarantee under each bond issued by the surety companies expires on completion of obligations under the
customer contract to which the bond relates. The estimated maturity dates of the surety bonds outstanding at January 1, 2023
range from February 2023 to December 2039.
At January 1, 2023, outstanding surety bonds guaranteed by the Company totaled $375.6 million (January 2, 2022: $375.9 million).
The Company has not recorded any liability under these guarantees, as management believes that no material events of default
exist under any contracts with customers.
(c) The Company has a letter of credit sub-facility of $100.0 million as part of the Credit Facility (January 2, 2022: $100.0 million). As
at January 1, 2023, letters of credit totaling $24.5 million (January 2, 2022: $11.8 million) remain outstanding as security for
contractual obligations of the Company under the Credit Facility.
As at January 1, 2023, letters of credit in the UK totaling $18.3 million were outstanding as security obligations of the Company
outside of the UK facility (January 2, 2022: $40.6 million). Additionally, there are $25.3 million (January 2, 2022: $25.3 million) of
letters of credit outstanding outside of the Credit Facility.
As at January 1, 2023, management believes that the Company was in compliance in all material respects with all applicable
contractual obligations and the Company has not provided for any costs associated with these letters of credit.
(d) Through the normal course of operations, the Company has guaranteed payments and residual values to third party lenders on
behalf of customers. As at January 1, 2023, the Company had guaranteed $2.8 million of these arrangement. The Company has
not provided for any of these costs, as it does not believe they will have to pay out on any of these arrangements.
26. GUARANTEES
The Company indemnifies its directors and officers against claims and damages that may be incurred in the performance of their
services to the Company. Liability insurance has been purchased with respect to the Company’s directors and officers.
45
NFI GROUP INC 2022 ANNUAL REPORT
NFI GROUP INC.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
As at January 1, 2023
(in thousands of U.S. dollars except per share figures)
27. SUPPLEMENTARY EXPENSE INFORMATION
Employee salary and benefit expenses
Depreciation of plant and equipment
Amortization of intangible assets
$
Fiscal 2022
404,511 $
57,013
31,482
Fiscal 2021
412,616
64.368
32.786
The expenses listed above are included in cost of sales and sales, general and administration costs and other operating expenses.
28. GOVERNMENT GRANTS
On March 27, 2020, the Canada Emergency Wage Subsidy ("CEWS") program was introduced by the Government of Canada, reimbursing
eligible employers who have experienced the required reduction in revenue for a portion of wages paid to employees during the
COVID-19 pandemic. As of October 2021, the Company was no longer eligible for the CEWS program.
On March 26, 2020, the Coronavirus Job Retention Scheme ("CJRS") program was introduced by the Government of the United Kingdom,
reimbursing employers who have been unable to maintain their workforce as a result of COVID-19's impact on operations for a portion
of wages paid to furloughed employees. The CJRS program ended on September 30, 2021.
In accordance with IAS 20 Accounting for Government Grants and Disclosure of Government Assistance, the CEWS and CJRS has been
recognized as an offset to wage expense against 'Cost of Sales' and against 'Selling, General and Administration Costs and Other
Operating Expenses' on the Company's consolidated statements of net loss and comprehensive loss.
On September 27, 2020, the Canada Emergency Rent Subsidy ("CERS") program was introduced by the Government of Canada,
reimbursing eligible employers who have experienced the required reduction in revenue for a portion of their commercial rent or
property expenses during the COVID-19 pandemic. The CERS program ended on October 23, 2021.
In accordance with IAS 20 Accounting for Government Grants and Disclosure of Government Assistance, the CERS has been recognized
as an offset to rent and property expense against 'Selling, General and Administration Costs and Other Operating Expenses' on the
Company's consolidated statements of net loss and comprehensive loss.
The claims submitted or expected to be submitted under the CEWS, CJRS and CERS programs are included on the Company's
consolidated statements of net loss and comprehensive loss as follows:
46
NFI GROUP INC 2022 ANNUAL REPORT
NFI GROUP INC.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
As at January 1, 2023
(in thousands of U.S. dollars except per share figures)
28. GOVERNMENT GRANTS (Continued)
Canada Emergency Wage Subsidy (CEWS)
Cost of sales
Selling, general and administration costs and other operating expenses
Total
Coronavirus Job Retention Scheme (CJRS)
Cost of sales
Selling, general and administration costs and other operating expenses
Total
Canada Emergency Rent Subsidy (CERS)
Selling, general and administration costs and other operating expenses
Total
Total government grants - cost of sales
Total government grants - selling, general and administration costs and other operating expenses
Total government grants
Fiscal 2022
Fiscal 2021
—
—
—
—
—
—
—
—
—
—
—
43,116
6,716
49,832
5,266
107
5,373
1,236
1,236
48,382
8,059
56,441
The government grants included in 'Accounts Receivable' on the Company's consolidated statement of financial position are as follows:
Canada Emergency Wage Subsidy (CEWS)
Canada Emergency Rent Subsidy (CERS)
Total
29. RESTRUCTURING
January 1, 2023
January 2, 2022
—
—
—
1,183
53
1,236
On July 27, 2020, the Company announced "NFI Forward", a transformational restructuring initiative to generate cost savings. These
cost reduction initiatives are expected to come from a reduced number of business units, facility rationalization, reduced overhead and
a more efficient and integrated company.
With the majority of the original projects completed, the Company is now implementing a series of additional projects called "NFI
Forward 2.0", that are expected to generate additional savings in 2023 and beyond. Within NFI Forward 2.0, the Company completed a
detailed review of its remaining North American footprint with a view to match production capacity and facility investments to
customer demand, local labor availability and zero-emission fleet investment plans. The items included in net loss for NFI Forward and
NFI Forward 2.0 are as follows:
Fiscal 2022
Fiscal 2021
Employee termination benefits
$
1,116 $
Right-of-use asset and property, plant and equipment impairments
Write-down of inventory to net realizable value
Pension liability
Other
Total restructuring costs
47
NFI GROUP INC 2022 ANNUAL REPORT
6,213
1,574
7,000
3,139
4,284
1,169
4,725
681
1,294
$
19,042 $
12,153
NFI GROUP INC.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
As at January 1, 2023
(in thousands of U.S. dollars except per share figures)
30. SUBSEQUENT EVENT
Subsequent to year end, on January 20, 2023, the Company finalized agreements with the Government of Manitoba for a C$50 million
debt facility, for general corporate purposes, and with Export Development Canada ("EDC") for two credit facilities of up to $150
million, to support supply chain financing for $50 million and surety and performance bonding requirements for new contracts for up to
$100 million.
The Government of Manitoba Facility and EDC supply chain financing facility both have one-year terms with options to extend for up to
an additional 24 months, subject to approval by the lender and the Company. The EDC bonding support facility has a one-year term for
each new contract, subject to annual renewals. Interest payments under these facilities are based on base rate plus applicable margin.
The Company has determined that this event is a non-adjusting subsequent event. Accordingly, the financial position and results of
operations as of, and for the 52-weeks ended January 1, 2023 have not been adjusted to reflect these agreements.
48
NFI GROUP INC 2022 ANNUAL REPORT