Financial Results
Fiscal 2023
February 29, 2024
Dear shareholders and stakeholders,
Throughout 2023, we displayed our resiliency and drive towards business recovery to deliver for
our employees, customers, shareholders, and communities, truly living up to NFI’s purpose: To
Move People, the world’s most precious cargo.
With our focus on the long-term, we completed our comprehensive refinancing plan in August
2023, raising total gross proceeds of approximately $444 million, allowing us to improve our
liquidity, strengthen our balance sheet, increase our financial flexibility, and establish a
covenant profile matched to our projected financial trajectory. We took this support as a strong
signal that NFI investors believe in our business and our future.
Supply disruption has plagued our industry since 2021, and, when combined with heightened
inflation, led to a number of our competitors exiting the U.S. market. Through the dedicated
actions of our team, we have navigated through these challenges and, in 2023 versus 2022, saw a
19% increase in year-over-year vehicle deliveries, improvements to weekly vehicle line entry
rates, and a reduction in work-in-process inventory. We ended the year with only a handful of
high-risk/high-impact suppliers and have seen significant improvement in on-time supply
performance and parts availability. While labour markets have also been challenging, we
managed to significantly reduce employee turnover in 2023, and added required labour to NFI’s
global team to support production ramp up.
The Aftermarket business, which supports over 100,000 vehicles in service, continued its
extremely strong performance, delivering a record $500 million of revenue, $120 million of
Adjusted EBITDANG and $102 million of net earnings in 2023. The Aftermarket team was critical in
keeping our customers operating as our customers’ businesses and ridership also recovered.
NFI ended 2023 with a total backlogNG of over 10,500 equivalent units (“EUs”) valued at nearly $8
billion, our highest level ever, with zero-emission buses (“ZEB”) representing 36% of our total
backlogNG. In 2023, we secured new ZEB orders in Toronto, Ottawa, Baltimore, Boston, Miami,
Philadelphia, Phoenix, Washington, London (UK), Ireland, Scotland, Hong Kong, and from many
others. At year end, we were also advised by customers that over 3,800 EUs were to be awarded
to NFI with contractual documents not yet received and therefore not yet added to backlogNG.
The demand environment remains healthy, and we expect the first quarter of 2024 to be even
busier, with potential to record our highest number of quarterly awards ever, further enhancing
our market-leading position.
Our teams continue to be relentless in their pursuit of deploying leading technology, seeking
operational excellence, ensuring safety, and delivering the best for our customers, no matter the
circumstances. During 2023, we launched several new models, including the game changing
Alexander Dennis Enviro 400EV double deck, and the “big small bus” Enviro100EV, and
relaunched double deck production for North America. We also met a critical milestone in 2023,
surpassing over 150 million zero-emission miles driven by NFI buses and motor coaches, with
Infrastructure SolutionsTM. We are
nearly 450 chargers delivered since the inception of NFI
extremely proud of our teams’ efforts, and we thank you, our fellow stakeholders, for your
ongoing support.
We remain committed to delivering a better product, a better workplace, and a better world
through our environmental, social and governance (“ESG”) initiatives. This included continuing to
innovate and grow our broad portfolio of comprehensive mobility solutions to support our
customers at various stages in their zero-emission journeys; maintaining our focus on safety;
completing our third submission to CDP (formerly the Carbon Disclosure Project) and second
submission to the S&P (continued on next page ->)
NG. Represents a supplementary financial measure. See Non-IFRS and Other Financial Measures section.
NFI GROUP INC. FISCAL 2023 FINANCIAL RESULTS
2
(-> continued) Global Corporate Sustainability Assessment; continued focus on talent acquisition
and workforce developments efforts to meet higher production levels; a company-wide Employee
Pulse Check survey; successful negotiation of two new collective bargaining agreements; an
expanded supplier base and instating a Conflict and Critical Minerals Policy; and establishing a
Sustainability Council, to give strategic leadership to NFI's ESG and sustainability programs. NFI
was also proud to have ranked among Corporate Knights’ Best 50 Corporate Citizens in Canada
for the second year in a row.
As part of our ESG program, we are focused on driving and delivering long-term sustainable value
for all our stakeholders. To ensure alignment, we evolved the executive performance share unit
("PSU") element of the long-term incentive plan ("LTIP") from being based solely on a return on
invested capital (“ROIC”) to now include a combination of ROIC, ESG, and Strategic performance
targets.
There are still headwinds in the market, including labour availability and overall supply chain
health, two critical areas of management focus and attention, but, as we look to Fiscal 2024, we
expect to see continued improvement in our financial results with significant growth in Adjusted
EBITDANG, a return to net profit, and a reduction in debt leverage ratios.
Our guidance range for Fiscal 2024 Adjusted EBITDANG of $240 million to $280 million reflects our
expectations for bus and coach manufacturing recovery and continued strong performance from
the Aftermarket segment. These positives will somewhat offset by the delivery of remaining
legacy inflation-impacted contracts which are planned for the first half 2024, and operational
labour inefficiencies experienced as we ramp manufacturing production to meet heightened
demand and execute on our secured backlogNG.
After 9 years as a director on NFI’s Board of Directors (“Board”) and Chair of the Audit
Committee, Phyllis Cochran will be retiring from the Board in May 2024 at the Annual General
Meeting of Shareholders (the “Shareholders’ Meeting”). On behalf of the Board and management,
we extend a sincere thank you to Phyllis for her contributions, dedication, and leadership as a
Director, Audit Chair, and partner to NFI. Ms. Anne Marie O’Donovan, FCPA, FCA, ICD, will be
nominated as a new independent Director on NFI’s Board. If Ms. O’Donovan is elected to the
Board,
the Audit Committee of NFI. The
materials for the Shareholders’ Meeting and voting instructions will be sent to shareholders
in advance of the meeting and will also be available on NFI's website.
she will also become the Chairperson of
As always, we remain proud of our history, excited about our future, and inspired by the positive
impact of NFI on the communities in which it operates. NFI is the leader in this industry, and we
plan to keep it that way. Thank you for your continued support.
Wendy Kei,
Chair, Board of Directors,
NFI Group Inc.
Paul Soubry
President & Chief
Executive Officer
NFI Group Inc.
NG. Represents a supplementary financial measure. See Non-IFRS and Other Financial Measures section.
NFI GROUP INC. FISCAL 2023 FINANCIAL RESULTS
3
NFI continued to innovate in 2023.
NFI GROUP INC. FISCAL 2023 FINANCIAL RESULTS
4
We had a few big firsts.
MCI delivered its first battery-
electric J4500 CHARGETM coach
to a Canadian customer
Alexander Dennis
formally launched the
Enviro100EV and
Enviro400EV
KMB celebrated its 90th birthday with
the launch of its 1st next-generation
Alexander Dennis Enviro500EV
NFI GROUP INC. FISCAL 2023 FINANCIAL RESULTS
5
And we continued to strengthen
relationships with our stakeholders.
NFI GROUP INC. FISCAL 2023 FINANCIAL RESULTS
6
There is high demand for
our vehicles, infrastructure,
and services.
Workforce Development
& Training
Buses
& Coaches
Infrastructure
Solutions
Parts, Publications
& Service
Financing
Connected Vehicles
& Diagnostics
NFI GROUP INC. FISCAL 2023 FINANCIAL RESULTS
7
In 2023, we concentrated
on these ESG priorities :
• Focused on the shared vision of a zero-emissions future to accelerate EV adoption and support
through partnership and
in underserved and socially vulnerable communities
employment
collaboration with thought leaders and industry groups across our value chains;
• Established a Sustainability Council to give strategic leadership to NFI's ESG and sustainability
programs, expanding our sustainability governance approach with an emphasis on risk management
and strategic alignment to advance sustainable growth and climate action;
•
•
Successfully negotiated new collective bargaining agreements with Unifor and GMB/Unite;
In accordance with our Freedom of Association commitments, reached three first agreements with
the Communications Workers of America and United Steelworkers Unions at our Jamestown,
Shepherdsville, and Anniston facilities;
• Completed a company wide Employee Pulse Check Survey with a 65% response rate;
• Continued to innovate and grow our broad portfolio of comprehensive mobility solutions to support
our customers at various stages in their zero-emission journeys;
• Explored opportunities amid sourcing challenges by diversifying our supplier base and focusing efforts
on human rights and critical minerals by enhancing our Supplier Code of Conduct to and instating a
Conflict and Critical Minerals Policy;
• Confirmed alignment to SASB industry-specific topics and to several TCFD recommended disclosure
topics to support investor decision-making;
• Focused on significant
recruitment and talent pipeline and workforce
developments efforts to meet higher production levels, with concentrated efforts in electrical
technician training and partnering with industry trade associations to address skilled trade shortages;
talent acquisition,
• Continued to retrain and upskill our workforce for high-demand skills to support the transition to a
zero-emission future by investing nearly $10m in total organizational expenditure;
• Retained focus on maintaining the highest priority for the health, safety, and well-being of our
employees through consistent improvement efforts and the addition of our Carfair Winnipeg
fabrication site to our ISO 14001 and 45001 registration;
• Completed our third annual disclosure to the CDP Climate Change questionnaire and our second
annual disclosure to the S&P Global Corporate Sustainability Assessment;
• Changed the PSU performance metric for the LTIP in the Executive Compensation Program from being
based solely on a ROIC target to a combination of ROIC, an ESG target, and a Strategic target;
• Built Diversity, Equity and Inclusion (“DEI”) maturity across the business through our Group DEI
strategic framework commitments; and
• Contributed to community well-being through several employee led programs, in addition to our 6th
North American United Way Campaign raising $422,253 for United Way agencies throughout North
America.
NFI’s 6th annual ESG Report will be released in
May 2024.
NFI GROUP INC. FISCAL 2023 FINANCIAL RESULTS
8
Notes to readers
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS FOR THE 13-WEEKS AND 52-WEEKS ENDED DECEMBER 31, 2023
Information in this Management’s Discussion and Analysis (“MD&A”) relating to the financial
condition and results of operations of NFI Group Inc. and its subsidiaries (collectively referred
is supplemental to, and should be read in conjunction with,
to as “NFI” or the "Company")
NFI’s audited consolidated financial statements (including notes) (the “Financial Statements”)
for the 52-week period ended December 31, 2023, and has been prepared as of February 28,
2024.
available on SEDAR at www.sedarplus.ca. See “Forward-Looking
This MD&A contains
forward-looking statements, which are subject to a variety of factors
that could cause actual results to differ materially from those contemplated by such forward-
looking statements, including, but not limited to, the factors described in the Company's public
Statements” in
filings
Appendix A. The Financial Statements have been prepared in accordance with International
Financial Reporting Standards (“IFRS”) and, except where otherwise indicated, are presented
dollars, which is the functional currency of NFI. Unless otherwise indicated, the
in U.S.
information contained in this MD&A has been prepared in accordance with IFRS and
financial
references to “$” or “dollars” mean U.S. dollars, "C$" means Canadian dollars, and "GBP" and
"£" mean British Pounds Sterling.
The Company retrospectively adopted IFRS 17 - Insurance Contracts on January 2, 2023. Refer
for details of the
to the section, "new and amended standards adopted by the Company"
impact of
the adoption on this MD&A. NFI's Financial Statements were prepared on a going
concern basis in accordance with IFRS. Readers are recommended to read the section, "capital
allocation policy" regarding the completion of the Company’s comprehensive refinancing plan.
QUARTERLY AND ANNUAL REPORTING PERIODS
The quarterly and annual reporting periods for the current and prior year are as follows:
Period from January 2, 2023 to December 31, 2023
Period from January 3, 2022 to January 1, 2023
(“Fiscal 2023”)
Period End Date
Quarter 1
Quarter 2
April 2, 2023
("2023 Q1")
July 2, 2023
("2023 Q2")
Quarter 3
October 1, 2023
("2023 Q3")
Quarter 4
December 31, 2023
("2023 Q4")
Fiscal year
December 31, 2023
# of
Calendar
Weeks
13
13
13
13
52
(“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
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"), (continued on next page ->)
NFI GROUP INC. FISCAL 2023 FINANCIAL RESULTS
9
Notes to readers
(-> continued) return on invested capital ("ROIC"), Free Cash Flow, Free Cash Flow per Share,
Adjusted Net Loss, Adjusted Net Loss per Share, Total Liquidity, Banking Covenant Liquidity,
Working Capital Days, Payout Ratio, Book-to-Bill ratio, Backlog, Total Leverage Ratio, Interest
Coverage Ratio, Total Net Debt to Capitalization, Minimum Cumulative Adjusted EBITDA and
Senior Secured Net Leverage Ratio 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. Non-
IFRS measures in this MD&A have been denoted with an "NG".
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, marketing strategies and operations.
The Manufacturing Operations segment derives its revenue from the design, manufacture, service
and support of new transit buses, motor coaches, medium-duty, cutaway buses, and installation
of infrastructure for electric vehicles and the sales of fiberglass reinforced polymer components.
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 "AD") are classified as "transit buses". ARBOC Specialty Vehicles, LLC
manufactures body on-chassis or low floor “cutaway” and "medium-duty" buses that service
transit, paratransit, and shuttle 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 accommodation 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 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
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.
composed
length),
two
of
in
A summary of the Company’s order, delivery, and backlogNG information can be found in
Appendix B.
NFI GROUP INC. FISCAL 2023 FINANCIAL RESULTS
10
Leader in zero-emission transportation
150M+
Electric service miles
driven
236
ZEB EUs delivered
in 2023 Q4 (19% of total
EUs delivered)
878
ZEB EUs delivered in
Fiscal 2023
22%
of new EUs delivered in
Fiscal 2023 were ZEBs
52%
of North American
Public Bid Universe
is ZEBs
3,603
ZEB EUs delivered since
2015
3,779
ZEB EUs in backlogNG
36%
of total backlogNG
is ZEB EUs
150+
Cities have NFI
ZEBs in service or
on order
6
Countries have
NFI ZEBs in service
or on order
445+
EV chargers and 72*
megawatts delivered
via Infrastructure
SolutionsTM since 2018
17
Zero-emission bus and
coach models offered by
NFI
* In the Company’s 2023 Q3 financial report, the total number of megawatts (MW) of charging
capacity installed by NFI Infrastructure SolutionsTM was incorrectly stated as 82 MW due to a
calculation error. As of 2023 Q4, the total number of MW installed by NFI Infrastructure SolutionsTM is
72 MW.
NFI GROUP INC. FISCAL 2023 FINANCIAL RESULTS
11
Fiscal 2023 Highlights (US$)
$2,685.2M
Total Revenue
$220.8M
Gross Profit
$136.2M
Net Loss
$63.8M
Cash Flow Used In Operating Activities
$1.48
Net Loss Per Share
6,121 EUs
in LTM New Orders
10,586 EUs
In Backlog(2)
4,001
EUs Delivered
$69.2M
Adjusted EBITDA(1)
($101.4)M
Free Cash Flow(1)
$188.2M
Liquidity (2)(3)
$1.27
Adjusted Net Loss Per Share(4)
8,732 EUs
Active Bids
$7.9B
Value of Backlog(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 $25 million.
Represents a non-IFRS ratio, meaning it is derived from a non-IFRS measure, which does not have a standard meaning, so it may not be a reliable way to
compare NFI to other companies. The ratio is calculated using adjusted net income, which is a non-IFRS measure. See Non-IFRS and Other Financial Measures
section.
North
America
79%
United Kingdom
and Europe
19%
Asia Pacific
2%
Transit
62%
Motor Coach
15%
Low-Floor
Cutaway and
Medium-Duty
2%
Aftermarket
21%
Revenue by Geography
Revenue by Product
NFI GROUP INC. FISCAL 2023 FINANCIAL RESULTS
12
Key Performance Indicators
Deliveries (EUs)
Revenue ($ millions)
Q4 '22
Q4 '23
Fiscal 2022
Fiscal 2023
1,034
1,227
3,039
4,001
Q4 '22
Q4 '23
Fiscal 2022
Fiscal 2023
$689.4
$791.6
$2,060.7
$2,685.2
Net Loss ($ millions)
Adjusted Net LossNG ($ millions)
Q4 '22
Q4 '23
($152.4)
($2.3)
Q4 '22
Q4 '23
($25.7)
($5.9)
Fiscal 2022
($276.4)
Fiscal 2023
($136.2)
Fiscal 2022
($160.2)
Fiscal 2023
($116.8)
Adjusted EBITDANG ($ millions)
Net cash generated by (used in) operating activities ($ millions)
Q4 '22
Q4 '23
($7.1)
$38.5
Q4 '22
Q4 '23
$1.5
$55.1
Fiscal 2022
($57.6)
Fiscal 2023
Fiscal 2022
($241.9)
$69.2
Fiscal 2023
($63.8)
Working Capital DaysNG
Total LiquidityNG ($ millions)
Q4 '22
Q1 '23
Q2 '23
Q3 '23
Q4 '23
BacklogNG (EUs)
Q4 '22
Q1 '23
Q2 '23
Q3 '23
Q4 '23
68
69
64
63
61
Q4 '22
Q1 '23
Q2 '23
Q3 '23
Q4 '23
ROICNG
$143.5
$124.1
$81.5
$169.8
$188.2
4,576
4,610
Q4 '22
(4.4)%
4,910
5,089
4,863
5,012
5,161
4,714
4,693
5,574
Firm
Options
Q1 '23
Q2 '23
Q3 '23
Q4 '23
(3.4)%
(2.1)%
(1.0)%
0.8%
13
NFI GROUP INC. 2023 FINANCIAL RESULTS
NFIGROUP.COM
Financial Results
NFI’s 2023 fourth quarter financial results saw sequential and year-over-year improvement with increases in vehicle deliveries, revenue and
gross profit. NFI continued to increase production rates in the fourth quarter of 2023 as the Company recovers from the impacts of global
supply chain challenges, labour supply challenges, and associated production inefficiencies. This increase in production saw improvements
to efficiencies supporting stronger absorption of overhead. NFI's financial performance in 2023 Q4 and throughout Fiscal 2023 was impacted
by the aforementioned supply and labour challenges and production inefficiencies, and the impacts of inflation and rapid foreign exchange
movements on select legacy contracts bid in 2020 and 2021. The remaining legacy contracts are expected to be completed in the first half
of 2024. While these challenges negatively impacted results, there was significant improvement when compared to the same period in 2022,
as overall supply chains showed improvement, and there were fewer production inefficiencies, supporting stronger absorption of overheads.
The Company's end markets remain strong, with significant order and award activity, a robust North American public bid environment, and
unprecedented continued government funding for public transit across multiple markets. The Aftermarket segment experienced another
strong period of performance, with year-over-year revenue and Adjusted EBITDANG growth. Fiscal 2023 saw Aftermarket deliver its highest
revenue and Adjusted EBITDANG performance in NFI's history.
Full details of the Company’s orders, deliveries, and backlogNG information can be found in Appendix B.
Deliveries (EUs)
Transit buses
Motor coaches
Medium-duty and cutaway
New vehicle deliveries
Pre-owned coach
Zero-emission deliveries
(included in the above totals)
2023 Q4
2022 Q4
% Change
Fiscal 2023
Fiscal 2022
% Change
923
202
102
1,227
37
764
169
101
1,034
68
20.8 %
19.5 %
1.0 %
18.7 %
(45.6 %)
2,942
2,253
635
424
4,001
236
524
262
3,039
190
30.6 %
21.2 %
61.8 %
31.7 %
24.2 %
236
328
(28.0 %)
878
693
26.7 %
Zero-emission deliveries as a percentage of total new
vehicle deliveries
19.2 %
31.7 %
(39.4 %)
21.9 %
22.8 %
(3.8 %)
Revenue
($ millions)
Transit buses
Motor coaches
Medium-duty and cutaway
2023 Q4
2022 Q4
% Change
Fiscal 2023
Fiscal 2022
% Change
506.1
121.7
14.4
448.6
97.7
12.8
12.8 %
24.6 %
12.5 %
1,647.2
1,219.3
390.8
50.7
296.2
31.7
35.1 %
31.9 %
59.9 %
Total New Vehicle Revenue
642.2
559.1
14.9 %
2,088.7
1,547.2
35.0 %
Pre-owned coach
Infrastructure SolutionsTM
Fiberglass reinforced polymer components
Manufacturing Revenue
Aftermarket
Total Revenue
North America
United Kingdom and Europe
Asia Pacific
5.8
5.1
2.8
655.9
135.7
791.6
605.3
164.2
22.1
5.2
2.7
2.2
569.2
120.2
689.4
11.5 %
88.9 %
27.3 %
15.2 %
12.9 %
14.8 %
21.6
11.0
8.9
12.8
8.5
7.0
2,130.2
1,575.5
555.0
485.2
2,685.2
2,060.7
510.1
18.7 %
2,112.1
1,561.8
68.8 %
29.4 %
27.1 %
35.2 %
14.4 %
30.3 %
35.2 %
18.7 %
165.2
(0.6 %)
14.1
56.7 %
523.4
49.7
440.8
58.1
(14.5 %)
14
NFI GROUP INC. 2023 FINANCIAL RESULTS
NFIGROUP.COM
Manufacturing revenue for 2023 Q4 increased by $86.7 million, or 15.2%, compared to 2022 Q4. The increase was largely driven by higher
new vehicle deliveries and contribution from Infrastructure SolutionsTM. Quarterly deliveries saw improvement both year-over-year and
sequentially for the fourth consecutive quarter. Manufacturing production and deliveries in 2023 Q4 and Fiscal 2023 were impacted by
supply chain challenges, labour supply challenges, and related production inefficiencies, which created numerous bottlenecks and
disruptions to parts availability. NFI has seen significant improvement in supplier performance and on-time production during the quarter,
supporting NFI's continued ramp-up in vehicle production rates.
In Fiscal 2023, Manufacturing deliveries increased by 962 EUs, or 31.7%, with increases in all product categories driving a 35.4% increase in
new vehicle revenue.
For Fiscal 2023, overall zero-emission bus and coach deliveries increased by 26.7%, but were down year-over-year in the fourth quarter,
reflecting sales mix with higher diesel and compressed natural gas deliveries in the period. ZEBs as a percentage of total new vehicle
deliveries declined slightly for Fiscal 2023 as the Company increased total deliveries by 31.7%. Growth in motor coach and medium-duty
cutaway deliveries, which are earlier in the transition to zero-emission technology and utilize more traditional propulsion systems,
contributed to this overall lower percentage.
Quarterly revenue of the Company's Infrastructure SolutionsTM division increased by $2.4 million. The increase is primarily due to the timing
of revenue recognition on open contracts. Since its inception, Infrastructure SolutionsTM has been responsible for the delivery of 415 plug-in
and 35 overhead charger projects, for 64 different customers.
Aftermarket revenue for 2023 Q4 increased by $15.5 million, or 12.9% compared to 2022 Q4. The increase is mainly related to increased
volume in the North America region and dynamic pricing adjustments due to heightened inflation on parts. In Fiscal 2023, the Aftermarket
segment delivered its highest revenue performance ever. During this period, the Company also benefitted from retrofit programs in North
America and continued to benefit from a multi-year retrofit program in the Asia-Pacific region, but at a lower run rate than those seen in
Fiscal 2022.
Net Earnings (Loss)
($ millions, except per share amounts)
Manufacturing
Aftermarket
Corporate
Net Loss
2023 Q4
2022 Q4
% Change
Fiscal 2023
Fiscal 2022
% Change
8.9
24.7
(35.9)
(2.3)
(147.1)
106.1 %
18.6
32.8 %
(23.9)
(50.2 %)
(152.4)
98.5 %
(96.5)
101.7
(141.4)
(136.2)
(309.5)
67.0
68.8 %
51.8 %
(33.9)
(317.1 %)
(276.4)
50.7 %
Adjusted Net LossNG
(5.9)
(25.7)
77.0 %
(116.8)
(160.2)
27.1 %
Net Loss per Share
Adjusted Net Loss per ShareNG
(0.02)
(0.05)
(1.98)
(0.33)
99.0 %
84.8 %
(1.48)
(1.27)
(3.58)
(2.08)
58.7 %
38.9 %
Adjusted EBITDANG
($ millions)
Manufacturing
Aftermarket
Corporate
Total Adjusted EBITDANG
2023 Q4
2022 Q4
% Change
Fiscal 2023
Fiscal 2022
% Change
11.1
29.5
(2.1)
38.5
(30.5)
136.4 %
22.9
0.5
(7.1)
28.8 %
(520.0 %)
642.3 %
(42.1)
120.2
(8.9)
69.2
(149.2)
86.2
71.8 %
39.4 %
5.4
(264.8 %)
(57.6)
220.1 %
Adjusted EBITDANG as a percentage of revenue
Manufacturing
Aftermarket
Total
1.7 %
21.7 %
4.9 %
(5.4 %)
131.6 %
19.1 %
14.1 %
(1.0 %)
572.2 %
(2.0 %)
21.7 %
2.6 %
(9.5 %)
17.8 %
79.1 %
21.9 %
(2.8 %)
192.2 %
15
NFI GROUP INC. 2023 FINANCIAL RESULTS
NFIGROUP.COM
In 2023 Q4, Manufacturing Adjusted EBITDANG increased by $41.6 million, or 136.4%, compared to 2022 Q4. The increase was driven by
significantly improved gross margins from higher overall deliveries, favourable sales mix, and a lower number of legacy inflation-impacted
contracts. Manufacturing experienced net earnings of $8.9 million in 2023 Q4 compared to a net loss of $147.1 million in 2022 Q4. The
change in Manufacturing net earnings from 2022 Q4’s net loss was primarily due to a goodwill impairment charge of $103.9 million related to
ARBOC and AD recognized in 2022 Q4 and the Company’s decision not to close MCI’s Pembina facility, which resulted in a reversal of $7
million of closure costs in 2023 Q4. Also contributing to the improvement are the same items that impacted Manufacturing Adjusted
EBITDANG. The increase in Fiscal 2023 Manufacturing Adjusted EBITDANG is attributable to the same items that impacted quarterly increases.
The 2023 Q4 Aftermarket segment achieved record Adjusted EBITDANG of $29.5 million, a $6.6 million, or 28.8%, year-over-year increase.
The increase in Adjusted EBITDANG was primarily due to improved sales volume and favourable product mix. Dynamic pricing, reduced
freight costs, and higher demand for parts has also contributed to the increase in Adjusted EBITDANG. The 2023 Q4 Aftermarket net earnings
increased by $6.1 million, or 32.8%, primarily due to the same items that impacted Aftermarket Adjusted EBITDANG. Increases in net earnings
and Adjusted EBITDANG for Fiscal 2023 are primarily due to the same items that impacted quarterly increases.
The 2023 Q4 Corporate Adjusted EBITDANG decreased by $2.6 million compared to 2022 Q4, primarily due to increased professional fees,
insurance, and incentive compensation, partially offset by a decrease in realized foreign exchange gains. Corporate net loss increased by
$12.0 million compared to 2022 Q4, primarily due to increased interest on long-term debt, and unfavourable fair value adjustments to the
Company's convertible debenture cash conversion option, offset by accounting gains on the debt modification of the Company’s Secured
Facilities1 as a result of Refinancing. In Fiscal 2023, Corporate Adjusted EBITDANG decreased due to the same items that impacted quarterly
results. The Fiscal 2023 net loss increased due to higher interest and finance costs incurred compared to Fiscal 2022 offset by an accounting
gain on the debt modification of Secured Facilities, as discussed above.
Free Cash FlowNG and net cash generated by (used in)
operating activities
($ millions, except per share amounts)
2023 Q4
2022 Q4
% Change
Fiscal 2023
Fiscal 2022
% Change
Net cash generated by (used in) operating activities
55.1
1.5
3,573.3 %
Free Cash FlowNG
Free Cash FlowNG (CAD dollars)
Declared Dividends (CAD dollars)
Free Cash Flow per ShareNG (CAD dollars)
Dividends per Share (CAD dollars)
2.7
3.6
-
0.03
-
(23.9)
111.3 %
(32.3)
111.1 %
(63.8)
(101.4)
(134.8)
(241.9)
(169.0)
(223.1)
73.6 %
40.0 %
39.6 %
-
0.0 %
-
12.3
(100.0 %)
(0.42)
107.1 %
(1.47)
(2.89)
49.1 %
0.00
0.0 %
-
0.16
(100.0 %)
Payout RatioNG (Declared Dividends divided by Free
Cash Flow)
0.0 %
0.0 %
0.0 %
0.0 %
(5.5 %)
100.0 %
Free Cash FlowNG in 2023 Q4 increased by $26.6 million, or 111.3%, compared to 2022 Q4, mainly due to increased cash generated by
operating activities for the period offset by an increase in interest paid, income taxes, and cash capital expenditures.
Cash generated by operating activities in 2023 Q4 was $55.1 million, an increase of $53.6 million or 3,573.3%, compared to cash generated
by operating activities in 2022 Q4 of $1.5 million. The increase is mainly due to a significant decrease in net losses. Also contributing is an
increase in changes to non-cash working capital offset by increases in interest paid. The Fiscal 2023 net cash used in operating activities
decreased by 73.6% compared to Fiscal 2022, primarily due to a decrease in net losses offset by interest paid, income taxes, and cash
capital expenditures.
Working Capital DaysNG
Total LiquidityNG ($ million)
BacklogNG (EUs)
ROICNG
Footnotes:
1. As described in the Capital Allocation section on page 36
2023 Q4
2023 Q3
2023 Q2
2023 Q1
2022 Q4
61
63
$188.2
$169.8
10,586
0.8 %
9,556
(1.0 %)
64
$81.5
9,803
(2.1 %)
69
$124.1
10,071
(3.4 %)
68
$143.5
9,186
(4.4 %)
16
NFI GROUP INC. 2023 FINANCIAL RESULTS
NFIGROUP.COM
As part of the Company's increased focus on cash conversion and leverage reduction, the Company is actively focused on reducing Working
Capital DaysNG. In 2023 Q4, Working Capital DaysNG were 61, compared to 63 at the end of 2023 Q3, and 68 at the end of 2022 Q4. The
decrease in Working Capital DaysNG in 2023 Q4 compared to 2023 Q3 is mostly attributable to the increase in sales over the last twelve
months, offset by an increase in average working capital balances. The increase of average working capital is primarily due to increases in
accounts receivable as the Company had higher deliveries compared to 2023 Q3. As a result of these higher deliveries, work-in-progress has
decreased from 2023 Q3, while raw materials has increased to support increased production levels. NFI is continuing focused efforts to lower
work-in-process inventory and accelerate customer acceptance programs to lower working capital balances and improve Working Capital
DaysNG.
The Company's liquidityNG position, which combines cash on-hand plus available capacity under its Secured Facilities1, without consideration
given to the minimum banking liquidityNG requirement of $50 million under the Secured Facilities1, was $188.2 million at the end of 2023 Q4,
up $18.4 million from the end of 2023 Q3. Total liquidityNG improved as cash generated by operating activities being used to make
repayments on the Company’s North American and UK Secured Facilities1.
At the end of 2023 Q4, the Company's total backlogNG (firm and options) was 10,586 EUs, a 10.8% increase compared to 9,556 EUs at the end
of 2023 Q3, and an increase of over 1,000 EUs from 2022 Q4. The year-over-year increase was driven by higher awards in the period and less
cancellations/expiry of options. BacklogNG for 2023 Q4 had a total dollar value of $7.9 billion. In addition, there were 3,832 EUs of new firm
and option orders that were in bid award pending at the end of 2023 Q4, up from the 1,834 EUs as of the end of 2023 Q3. These are orders
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 received by the Company and therefore not recorded in BacklogNG.
Fiscal 2023 ROICNG increased by 5.2% from Fiscal 2022, due to the increase in Adjusted EBITDANG and a slight decrease in the invested capital
baseNG. The decrease in invested capitalNG is primarily due to a decrease in long-term debt and cash as the Company has made repayments
on its Secured Facilities1 and Senior Unsecured Debt2. Also contributing is an elimination of the Company's interest rate swaps and equity
hedge, which were extinguished during the year.
Footnotes:
2. As described in the Capital Allocation section on page 33.
17
NFI GROUP INC. 2023 FINANCIAL RESULTS
NFIGROUP.COM
2023 Q4 Highlights
The fourth quarter of 2023 saw significant improvement in year-over-year vehicle deliveries, revenue, gross profit and Adjusted EBITDANG, as
the Company continues to recover from the challenges of supply disruption and heightened inflation that has impacted operations and
results over the past few years. The demand environment remained very strong in the quarter, with higher new orders, higher contract
pricing, and near-record bid activity. NFI also grew its backlogNG to 10,586 EUs valued at $7.9 billion.
NFI continued to see supply chain performance improvement during the quarter and maintained its plan to prudently increase line entry
rates. NFI increases manufacturing production slowly to match the addition of new team members and training requirements, and to ensure
consistent supply. To support this ramp-up, NFI has taken numerous actions to drive supply performance improvement, including longer
lead-times to suppliers, use of alternative suppliers at different levels of the supply chain, where appropriate, and carrying higher levels of
inventory for certain components. The Company has also seen an easing of inflationary pressures related to components and raw materials.
NFI's Aftermarket segment delivered a record performance in Fiscal 2023, with its highest revenue and Adjusted EBITDA ever as NFI
benefitted from heightened demand in various jurisdictions, a reflection of more vehicles being put into service as transit agencies and
private operators increased service levels, an increase in overall fleet age due to lower industry deliveries in 2020, 2021, and 2022, and
customers purchasing additional parts inventory to avoid supply shortages.
As of the end of 2023 Q4, NFI had 8,566 team members across all of its global locations.
Strong Market Demand and Increasing Procurements
Demand metrics remained strong in 2023 Q4. While new orders were down 8.4% from 2022 Q4, they were up 143.4% from 2023 Q3. Active
bids of 8,732 EUs were down from both 2022 Q4 and 2023 Q3, but bids submitted were up 43.0% year-over-year. The Company also had
3,832 EUs in bid awards pending (where NFI had received notification of award from the customer, but formal purchase order
documentation had not yet been finalized) as at the end of 2023 Q4. This positions NFI for another expected quarter of strong backlogNG
growth in the first quarter of 2024.
NFI's Total Public Bid Universe for North America was at an all-time high of 30,830 EUs generating another consecutive quarter of record
EUs. See Appendix B for details.
Given the highly customized nature of NFI's products, there is significant lead time between when an order is received and 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. During 2020 to 2022, the time between receipt of an order and
production was extended even further than under typical circumstances due to the impacts of the pandemic and supply disruption. 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. This timing
structure also saw NFI’s Manufacturing segment experience inflation impacts related to legacy contracts, originally bid in 2020 and 2021.
The Company has nearly completed delivery of these legacy contracts, with a significant number delivered in 2023 impacting NFI’s financial
performance.
Efforts to Strengthen Bus Manufacturing in the U.S.
In October 2023, the American Public Transportation Association (“APTA”) created a Bus Manufacturing Task Force (“Task Force”) to
recommend immediate actions that can support a more competitive and stable bus manufacturing capacity in the U.S. This Task Force was
assembled in response to a reduction in heavy-duty transit bus capacity in the U.S. following the exit of two players and the bankruptcy of
another. These changes have led to a capacity decrease in the U.S. and improvements to NFI’s overall competitive position. NFI is a member
of this Task Force along with several other manufacturers, suppliers, and transit agencies.
Subsequent to the quarter, on February 7, 2024, the White House, in coordination with APTA and the Federal Transit Administration (“FTA”)
convened a Roundtable on Clean Bus Manufacturing. APTA and other members of the Task Force, including NFI, presented to the White
House and provided recommendations on how to improve the financial health of U.S. manufacturers. These recommendations included the
ability to complete pricing adjustments to reflect inflationary pressure on contracts bid from 2020 to 2023, the incorporation of progress
payments (deposits, advances, and milestone payments), and pricing adjustments to future contracts to reflect price inflation or deflation.
Following the Roundtable, the FTA released a Dear Colleague letter to U.S. public transit agencies, describing actions the FTA is taking to
strengthen the American bus manufacturing industry, reduce vehicle contract costs, and shorten vehicle delivery times to public transit
agencies. The proposed changes included within the APTA recommendations and the FTA Dear Colleague letter may have a positive impact
on NFI’s financial performance in future periods, especially as it relates to working capital investments. These potential changes are further
discussed in the Outlook of this MD&A.
18
NFI GROUP INC. 2023 FINANCIAL RESULTS
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Zero-Emission Mobility—The ZEvolutionTM
As at the end of 2023 Q4, NFI had 3,779 EUs of ZEBs in the backlogNG, representing 35.7% of the total backlogNG, down slightly from the
record of 36.4% as at the end of 2023 Q1, but up from 28.6% at the end of 2022 Q4. As of 2023 Q4, 52.4%, of the Total Bid Universe was
ZEBs, an increase of 3.1% 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 these transit agencies.
NFI also serves all of the UK's major transit and coach operators.
Within the fourth quarter of 2023, the Company announced zero-emission vehicle orders with customers in the US, the UK and Hong Kong. In
Fiscal 2023, NFI delivered 878 zero-emission EUs, a 26.7% increase from Fiscal 2022.
During the fourth quarter, the Company continued to innovate and position itself for future success in the zero-emission market:
•
•
•
•
NFI announced a battery pack supply agreement with American Battery Solutions, to increase the resiliency of NFI's North
American battery supply chain.
New Flyer announced that it had designed the 60-foot zero-emission, battery-electric Xcelsior CHARGE NG™ to include additional
battery strings, thereby increasing the range of the bus. The addition of the seventh and eighth battery strings to the Xcelsior
CHARGE NG raises the total capacity of the bus’s energy storage system by 33%, resulting in the addition of approximately 46 more
miles of range per charge.
NFI announced that NFI's subsidiaries New Flyer of America Inc., Motor Coach Industries, Inc., ARBOC Specialty Vehicles, LLC, and
Alexander Dennis Incorporated are now qualified manufacturers for the commercial clean vehicle credit under the Inflation
Reduction Act. NFI’s electric vehicles in the United States are eligible for up to $40,000 USD in U.S. tax credits, per vehicle.
Alexander Dennis launched its next generation of battery-electric buses for the UK and Ireland, unveiling the new Enviro100EV
midibus and Enviro400EV double-deck bus, designed in house and using an integrated electric drive system.
On December 18, 2023, NFI held a formal event to announce financing from Prairies Economic Development Canada (“PrairiesCan”), part of
the Government of Canada, to support innovation of zero-emission heavy-duty transit and coach offerings, as well as modernization
upgrades to the MCI facility in Winnipeg. As first announced with NFI’s 2023 Q2 financial results, NFI entered into an agreement for up to
C$10 million in interest-free financing from PrairiesCan through Canada’s Jobs and Growth Fund. The financing is non-interest-bearing and
matures on March 1, 2030. The financing matches investments previously made by NFI into its zero-emission vehicle capabilities from late
2021 into 2023, and funds being invested into facility upgrades in 2024.
Subsequent Events
Subsequent to December 31, 2023, NFI entered into an agreement with EDC to increase the size of our Guarantee Facility from $100 million
to $125 million. The Guarantee Facility is made up of Account Performance Security Guarantee (“Account PSG”) up to $50 million and Surety
Reinsurance Support up to $125 million. The aggregate amount of the Guarantee Facility cannot exceed $125 million.
On January 17, 2024, NFI provided an update on its fourth quarter 2023 deliveries, orders and backlog and an update on its financial
guidance for 2024 and targets for 2025. Details are provided within the Outlook section.
On January 26, 2024, NFI entered into an agreement for a new interest rate swap to hedge its exposure to changing interest rates. The
contract has a notional value of $500 million from January 26, 2024 until October 25, 2024, and thereafter a notional value of $450 million
until its expiry on April 25, 2025. The swap carries an interest rate of 4.6%.
On February 8, 2024, NFI announced a Chief Financial Officer transition, with Brian Dewsnup being appointed as Executive Vice President
and CFO of the Company effective March 1, 2024, succeeding previous CFO Pipasu Soni.
On February 9, 2024, NFI announced that it presented at the White House Roundtable on Clean Bus Manufacturing.
19
NFI GROUP INC. 2023 FINANCIAL RESULTS
NFIGROUP.COM
Outlook
NFI anticipates continued improvements to revenue, gross profit, Adjusted EBITDANG and Free Cash FlowNG, a shift to net earnings, and
improvement in ROICNG over the next 12 to 24 months, as it ramps-up production, delivers on its backlogNG, and benefits from growing
demand for its buses, coaches, parts, and Infrastructure SolutionsTM services.
Market demand is evident through the high volume of active bus and motor coach procurements in both North America and international
markets. As of 2023 Q4, the Company's North American active bids remained high at 8,732 EUs. This bid activity is expected to drive
additional backlogNG growth throughout 2024, and revenue growth in the medium- and longer-term. The current five-year forecasted
demand within the Company's North American bid universe is also strong at 22,098 EUs, and, when combined with active bids, provides a
record Total Bid Universe of 30,830 EUs.
In addition to the increased numbers of bids for ZEBs, the number of EUs per bid has increased, as transit agencies are progressing from
pilot or trials to more active deployment and operation of ZEB fleets. NFI expects active ZEB bids to remain high through the coming years
based on government funding levels supporting state, provincial and municipal ZEB adoption targets.
NFI is working closely with its suppliers to monitor performance, and, due to the Company's strong backlog, has been able to provide longer-
term visibility to its supply base for 2024 production. As part of NFI’s supplier development program, the Company provides a risk rating to
all its key suppliers based upon their on-time delivery performance and other factors. NFI completes detailed monitoring of moderate and
high-risk suppliers, who can have severe impacts on production operations. NFI has seen the number of these moderate and high-risk
suppliers decrease from a combination of overall improvements to supply chain health and from actions taken by NFI's supply and sourcing
teams, including keeping higher material inventory on hand. The Company also appointed a dedicated Vice President of Supplier
Development, and, when combined with these improvements, support expected increases to 2024 production volumes.
In 2023 Q4, NFI continued increasing new vehicle production rates and hiring new team members to support this increase. While there has
been positive improvement, the labour market within the United States and the UK remains challenging. NFI will continue to ramp-up
production and add personnel on a phased approach in 2024 with gradual headcount additions ensuring that the ramp-up is matched to
consistent supply and labour availability.
Gross margins and other profitability metrics are expected to improve in line with increases in production rates, increases to bus and coach
deliveries, the reduction of work-in-progress vehicle inventory, and the completion of the remaining inflation-impacted legacy contracts.
NFI anticipates that the remaining legacy inflation-impacted contracts will be delivered during the first half of 2024 and will represent
approximately 10% of first half deliveries. The Company has seen signs of commodities and raw material costs easing and anticipates that
newer contracts in NFI's backlogNG now reflect appropriate, inflation-adjusted costing and pricing.
Strong Government Support for Recovery and Zero-Emission Transition
The Company’s bus and coach product lines (New Flyer, ARBOC, MCI and AD) are primarily used for public transit, which remains a critical
method of transportation and an economic enabler for users in cities around the world. Public transit has also been a significant and focused
area of investment for governments as they seek to improve ridership access, reduce urban congestion, and achieve emissions targets. These
investments increased NFI's new orders throughout 2022 and 2023.
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 capital asset procurements. In addition to funding, ridership trends have
begun to recover. According to the APTA Ridership Trends Dashboard and a recent policy brief, national public transit ridership in the U.S.
was up an average of 70% from pandemic levels from January through November 2023, recovering to more than 77% of pre-pandemic levels
in November 2023. Continued recovery in ridership levels are important to support transit agencies operating costs, including the purchase
of Aftermarket parts and service.
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.
NFI continues to advance discussions with industry and government to improve bus manufacturing contract structures in the United States.
In February 2024, NFI participated in a White House Roundtable on Clean Bus Manufacturing, and the U.S. FTA issued a Dear Colleague letter
to transit agencies that receive federal funding for bus purchases. Please see the 2023 Q4 Highlights section of this MD&A for more
information.
20
NFI GROUP INC. 2023 FINANCIAL RESULTS
NFIGROUP.COM
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 to support the adoption of ZEBs and charging infrastructure.
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,
but, overall, the release of UK government funding has been slower than expected. In September 2023, Alexander Dennis hosted the UK
government announcement of a new £129 million funding program, ZEBRA 2; ZEBRA 2 will provide £129 million to support the introduction
of ZEBs in financial years 2023 to 2024, and 2024 to 2025, via a single-stage funding competition to award funding over both financial years.
As the market leader in North American transit and coach production 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 NFI's core markets.
NFI’s private customer markets within Alexander Dennis, MCI and ARBOC continue to see recovery with volumes increasing and pricing now
reflecting current input costs and inflation. The North American motor coach space has been especially positive with strong demand in the
tour and charter segment.
NFI’s Aftermarket business primarily sells spare parts to public and private customers, and also provides service to private operators. The
Aftermarket business has continued to deliver strong performance with increased volumes and margins in Fiscal 2023 for both public and
private markets in North America and internationally. As private markets continue to recover and through the execution of several large-
scale mid-life vehicle programs, NFI anticipates that its Aftermarket segment will continue to generate revenue growth and strong margin
contribution in 2024 and 2025, although Adjusted EBITDANG margin percentages, and overall dollar contributions, may be slightly lower than
those seen in 2023.
The Company also continues to focus on growing its NFI Infrastructure SolutionsTM business to assist customers in assessing their charging
infrastructure requirements and to project manage infrastructure procurement and installation. Since its inception, Infrastructure
SolutionsTM has been responsible for the delivery of 415 plug-in and 35 overhead charger projects, for a total of 721 megawatts ("MW")
charging capacity, for 64 different customers. Currently, Infrastructure SolutionsTM has projects under contract for 2024-2025 with 26
existing and 4 new customers, which will add 142 plug-in and 42 overhead depot chargers, for a total of 34 MW.
Other International Markets
NFI's international expansion through Alexander Dennis is expected to continue, with plans for further growth in export 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 transition to 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 reiterates its previously provided financial guidance for Fiscal 2024 and targets for Fiscal 2025. Full details are provided in the table
below.
1 In the Company’s 2023 Q3 financial report, the total number of megawatts (MW) of charging capacity installed by NFI Infrastructure SolutionsTM was incorrectly
stated as 82 MW due to a calculation error. As of 2023 Q4, the total number of MW installed by NFI Infrastructure SolutionsTM is 72 MW.
21
NFI GROUP INC. 2023 FINANCIAL RESULTS
NFIGROUP.COM
2023 Results
2024 Guidance
2025 Targets
Revenue
$2.7 billion
$3.2 to $3.6 billion
ZEBs (electric) deliveries as a percentage of total deliveries
22%
30% to 35%
Adjusted EBITDANG
$69 million
$240 to $280 million
~$4 billion
~40%
>$350 million
(with a $400 million annualized
run rate by the fourth quarter)
Cash Capital Expenditures (excludes lease payments)
$35 million
$50 to $60 million
~$55 million
Return on Invested CapitalNG - provided for 2025 targets
0.8 %
>12%
The 2024 guidance ranges and the 2025 targets for selected financial metrics provided in the table above take into consideration
management’s current outlook combined with Fiscal 2023 and 2024 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.
The guidance and targets in the table above are driven by numerous expectations and assumptions, including but not limited to the
following:
·
·
·
·
·
Revenue: Anticipated revenue growth in 2024 and 2025 is based on NFI's firm order backlogNG, current 2024 and 2025 production
schedules, expected backlogNG option order conversion, and anticipated 2024 and 2025 new vehicle orders and Aftermarket parts
sales. Revenue guidance and targets reflect higher volume of ZEB sales, higher average vehicle prices in NFI's backlogNG 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. NFI expects to
deliver approximately 5,000 EUs in Fiscal 2024.
ZEB deliveries as a percentage of total deliveries: NFI has updated its ZEB targets to now be ZEB deliveries as a percentage of
total deliveries rather than as a percentage of manufacturing sales dollars to better match with internal compensation targets and
external reporting metrics. These expectations are based on NFI’s firm and option backlogNG, anticipated option conversions from
backlogNG, active bids and anticipated future orders in 2024 and 2025, and customers ZEB transition plans.
Adjusted EBITDANG: Adjusted EBITDANG performance is driven by anticipated new vehicle deliveries in 2024 and 2025, product mix,
including a higher percentage of ZEB deliveries, Aftermarket segment contributions and anticipated improvements in operating
margins due to recovery in supply chain health, improved labour efficiency, higher average vehicle sales prices (as currently
reflected in NFI’s backlogNG), expected additions to backlogNG, and impacts from the relaunch of double deck production in North
America. There will be some impact to margins in the first half of 2024 from legacy inflation-impacted contracts (expected to
make up approximately 10% of first half deliveries), contracts secured in the second half of 2022 and Fiscal 2023 reflect updated
pricing and improved margins.
Cash Capital Expenditures: Cash capital expenditures are based on investments made in 2023 and expected future maintenance
and growth projects planned for 2024 and 2025. The guidance numbers include the expected acquisition and disposal of property,
plant and equipment and the acquisition of intangible assets, but do not include expected lease payments.
ROIC: Targets provided for 2025 are driven by the factors noted above combined with the expectation that there will not be
significant changes in tax rates from current levels.
In 2024, NFI anticipates seasonality based on expected production ramp up, the timing of certain zero-emission bus deliveries, impacts of
legacy inflation-impacted contracts, and sales mix. The Company expects to deliver approximately 35% of annual Adjusted EBITDA in the
first half of 2024, with approximately 65% of annual Adjusted EBITDA expected to be delivered in the second half of the year. Sequentially,
the Company anticipates a decrease in Adjusted EBITDA in the first quarter of 2024 as compared to the fourth quarter of 2023, as the first
quarter of the year is typically the slowest period in private markets and it delivers legacy inflation-impacted contracts.
Based on expected revenue growth and associated investments in working capital, Adjusted EBITDANG guidance, cash capital expenditures,
lease payments and cash taxes, NFI anticipates that its current and expected liquidityNG will be sufficient to fund operations (including
working capital), capital investments, and bonding requirements in 2024 and the longer-term. In 2024, NFI expects to lower its overall debt
22
NFI GROUP INC. 2023 FINANCIAL RESULTS
NFIGROUP.COM
leverage ratios from Adjusted EBITDANG growth rather than significant debt repayments. Through at least the first half of 2024, NFI expects
that its Total LiquidityNG position will be lower than at the end of 2023 Q4 as WIP and finished goods inventory balances increase in line with
increases in production rates. The Company remains focused on cash and liquidity management, including efforts to accelerate deliveries
and customer acceptances, the acceleration of customer payments, through the pursuit of advance payments and deposits, and
improvements to supplier payment terms where possible.
NFI’s guidance does not include the potential impacts of proposed changes to payment structures on U.S. public heavy-duty transit
contracts, as it is still early in the process and their financial impact will be dependent upon adoption of the APTA recommendations and
FTA proposals by U.S. transit agencies.
Guidance and targets above are conditional on several factors and expectations, including the supply chain performance, consistent
availability and training of labour, a higher percentage of ZEB sales (which provide a higher revenue and dollar margin benefit), the
mitigation of inflationary pressures, end markets recovering in-line with management expectations, growth in international markets,
aftermarket parts sales, and continuous improvement initiatives.
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 parts or 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 ongoing conflicts in Ukraine, Russia, Israel and Palestine. Although
NFI does not have direct suppliers in these regions, additional supply delays, possible shortages of critical components or increases in raw
material costs may arise as the conflicts progress 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 at www.sedarplus.ca.
23
NFI GROUP INC. 2023 FINANCIAL RESULTS
NFIGROUP.COM
Selected Quarterly and Annual Financial and Operating
Information
The following selected audited 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.
($ thousands, except per Share figures)
Fiscal Period
Quarter
Revenue
Earnings (loss)
from operations
Net earnings
(loss)
Adjusted
EBITDANG
Earnings (loss) per
Share
2023
2022
2021
Q4
Q3
Q2
Q1
Total
Q4
Q3
Q2
Q1
791,631
709,620
659,569
524,411
2,685,231
689,353
514,047
397,952
459,330
Total
2,060,682
Q4
Q3
Q2
Q1
694,843
492,038
582,794
574,119
Total
2,343,794
25,555
(13,760)
(11,297)
(21,749)
(21,251)
(142,144)
(41,051)
(63,497)
(41,481)
(288,173)
(4,785)
(2,797)
26,675
26,918
46,011
(2,329)
(39,926)
(48,101)
(45,964)
(136,164)
(152,405)
(40,167)
(56,009)
(27,795)
(276,376)
(8,691)
(15,415)
2,588
7,033
(14,485)
38,455
11,167
12,178
7,409
69,209
(7,094)
(13,281)
(20,624)
(16,660)
(57,659)
26,154
31,330
51,856
54,841
164,181
(0.02)
(0.42)
(0.62)
(0.60)
(1.48)
(1.98)
(0.53)
(0.73)
(0.36)
(3.58)
(0.12)
(0.22)
0.04
0.10
(0.21)
Comparison of Fourth Quarter and Fiscal 2023 Results
($ thousands)
Statement of Earnings Data
Revenue
North America
United Kingdom and Europe
Asia Pacific
Manufacturing operations
North America
United Kingdom and Europe
Asia Pacific
Aftermarket operations
Total revenue
Earnings (loss) from operations
Earnings (loss) before interest and income taxes
Net Loss
Adjusted EBITDANG
Cash capital expenditures
2023 Q4
2022 Q4
Fiscal 2023
Fiscal 2022
496,110
142,831
16,950
655,891
109,180
21,409
5,151
135,740
791,631
25,555
22,757
(2,329)
38,455
10,122
$
$
$
$
$
$
414,941
145,265
8,907
1,666,486
435,919
27,873
569,113
2,130,278
95,102
19,954
5,184
445,657
87,512
21,784
120,240
554,953
689,353 $
2,685,231
(142,144) $
(21,251)
(138,625) $
(16,828)
(152,405) $
(136,164)
(7,094) $
69,209
4,732 $
26,714
$
$
$
$
$
$
1,186,595
-
-
361,681
-
-
27,234
-
-
1,575,510
-
-
375,103
-
-
79,166
-
-
30,903
-
-
485,172
-
-
2,060,682 $
$
-
-
(288,173)$
$
-
-
-
-
(287,010)$
$
$
(276,376)$
-
-
(57,659)$
$
-
-
21,371 $
$
-
-
$
$
$
$
$
$
24
NFI GROUP INC. 2023 FINANCIAL RESULTS
NFIGROUP.COM
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
($ thousands)
Manufacturing Revenue
Aftermarket Revenue
Total Revenue
Earnings (loss) from Operations
Earnings (loss) before interest and income taxes
Loss before income tax expense
Net Loss
2023 Q4
655,891
135,740
791,631
25,555
22,757
(14,521)
(2,329)
2022 Q4
Fiscal 2023
Fiscal 2022
569,113
120,240
689,353
(142,144)
(138,625)
(163,354)
(152,405)
2,130,278
1,575,510
554,953
485,172
2,685,231
2,060,682
(21,251)
(16,828)
(169,070)
(136,164)
(288,173)
(287,010)
(323,798)
(276,376)
Manufacturing revenue for 2023 Q4 increased by $86.8 million, or 15.2%, compared to 2022 Q4. Manufacturing revenue for Fiscal 2023
increased by $554.8 million, or 35.2%, compared to Fiscal 2022. Both quarter and annual figures increased as a result of increased deliveries
during the period.
Aftermarket revenue for 2023 Q4 increased by $15.5 million, or 12.9% compared to 2022 Q4. Aftermarket revenue for Fiscal 2023 increased
by $69.8 million, or 14.4%, compared to Fiscal 2022. Both quarter-to-date and year-to-date figures increased due to higher sales volume as
the Aftermarket segment has experienced an increase in demand during the respective periods. Aftermarket sales were higher in the North
American region offset by lower sales in the Asia-Pacific Region, as a specific multi-year retrofit program continues, but at lower run rates.
Cost of sales
($ 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
2023 Q4
2022 Q4
Fiscal 2023
Fiscal 2022
550,085
17,255
45,195
612,535
498,596
1,811,490
1,378,980
19,867
63,153
71,027
200,663
77,788
204,132
581,616
2,083,180
1,660,900
93.4 %
102.2 %
97.8 %
105.4 %
89,730
2,425
92,155
67.9 %
83,094
2,713
85,807
71.4 %
371,532
9,754
381,286
68.7 %
339,945
10,707
350,652
72.3 %
704,690
667,423
2,464,466
2,011,552
89.0 %
96.8 %
91.8 %
97.6 %
The consolidated cost of sales for 2023 Q4 increased by $37.3 million, or 5.6%, compared to 2022 Q4. The consolidated cost of sales for
Fiscal 2023 increased by $452.9 million, or 22.5%, compared to Fiscal 2022.
Cost of sales from Manufacturing operations in 2023 Q4 was $612.5 million (93.4% of Manufacturing operations revenue) compared to $581.6
million (102.2% of Manufacturing operations revenue) in 2022 Q4, an increase of $30.9 million, or 5.3%. Cost of sales from Manufacturing
operations in Fiscal 2023 was $2,083.2 million (97.8% of Manufacturing operations revenue) compared to $1,660.9 million (105.4% of
Manufacturing operations revenue) in Fiscal 2022. The increase in both periods was driven by higher new vehicle deliveries. Cost of sales
decreased as a percentage of revenue in both periods, mainly due to a reduction in operational inefficiencies that resulted from supply
shortages and impacts of inflation.
25
NFI GROUP INC. 2023 FINANCIAL RESULTS
NFIGROUP.COM
Cost of sales from Aftermarket operations in 2023 Q4 was $92.2 million (67.9% of Aftermarket revenue) compared to $85.8 million (71.4% of
Aftermarket revenue) in 2022 Q4, a decrease of 3.5% as a percentage of revenue. Cost of sales from Aftermarket operations in Fiscal 2023
was $381.3 million (68.7% of Aftermarket revenue) compared to $350.7 million (72.3% of Aftermarket revenue) in Fiscal 2022. Cost of sales
decreased as a percentage of revenue in both periods primarily due to increased sales, and favourable product mix. Also contributing is
mitigated inflationary impacts on labour, freight costs, and surcharges.
Gross Margins
($ thousands)
Manufacturing
Aftermarket
Total Gross Margins
As a percentage of sales
Manufacturing
Aftermarket
2023 Q4
43,356
43,585
86,941
2022 Q4
(12,503)
34,433
21,930
Fiscal 2023
Fiscal 2022
47,098
173,667
220,765
(85,390)
134,520
49,130
6.6 %
32.1 %
11.0 %
(2.2)%
28.6 %
3.2 %
2.2 %
31.3 %
8.2 %
(5.4)%
27.7 %
2.4 %
Manufacturing gross margin for 2023 Q4 of $43.4 million (6.6% of Manufacturing revenue), increased by $55.9 million compared to a negative
gross margin of $12.5 million ((2.2)% of Manufacturing revenue) for 2022 Q4. Manufacturing had a gross margin for Fiscal 2023 of $47.1
million (2.2% of Manufacturing revenue), an improvement of $132.5 million, or 155.2%, compared to a negative gross margin of $85.4 million
((5.4)% of Manufacturing revenue) in Fiscal 2022.
Manufacturing gross margin increased as a percentage of revenue in both periods, mainly due to a reduction of operational inefficiencies
that resulted from supply shortages and impacts of inflation. A healthier supply chain is now allowing higher production volumes, resulting in
less fixed overhead on a per unit basis.
Aftermarket gross margins for 2023 Q4 of $43.6 million (32.1% of Aftermarket revenue) increased by $9.2 million, or 26.6%, compared to
2022 Q4 gross margins of $34.4 million (28.6% of Aftermarket revenue). Aftermarket gross margins for Fiscal 2023 of $173.7 million (31.3% of
Aftermarket revenue) increased by $39.1 million, or 29.1%, compared to Fiscal 2022 gross margins of $134.5 million (27.7% of Aftermarket
revenue). The increase in gross margins and gross margins as a percentage of revenue are mainly due to increased sales, favourable product
mix and the mitigated inflationary impacts on the costs of labour, freight and surcharges.
Selling, general and administrative costs and other operating expenses (“SG&A”)
($ thousands)
Selling expenses
General and administrative expenses
Other costs
Total SG&A
2023 Q4
8,836
54,112
-
62,948
2022 Q4
Fiscal 2023
Fiscal 2022
7,484
50,973
1,163
59,620
29,539
215,726
-
245,265
32,009
199,612
6,987
238,608
The consolidated SG&A for 2023 Q4 of $62.9 million (8.0% of consolidated revenue) increased by $3.3 million, or 5.6%, compared to $59.6
million (8.6% of consolidated revenue) in 2022 Q4. The consolidated SG&A for Fiscal 2023 of $245.3 million (9.1% of consolidated revenue)
increased by $6.7 million, or 2.8%, compared to $238.6 million (11.6% of consolidated revenue) in Fiscal 2022.
Consolidated SG&A increased in both periods primarily due to increased performance incentive compensation expenses, employee
compensation, insurance premiums, and cash settled compensation expense based on share grants. These increases were partially offset by
restructuring costs incurred throughout Fiscal 2022 which did not re-occur, and by realized fair value increases in the Company's total return
swap as these swaps were extinguished during 2023 Q3. Please see Note 24(c) of the audited consolidated financial statements for disclosure
of financial instruments and risk management.
26
NFI GROUP INC. 2023 FINANCIAL RESULTS
NFIGROUP.COM
Realized foreign exchange loss/gain
In 2023 Q4, the Company recorded a realized foreign exchange gain of $1.6 million compared to a loss of $0.6 million in 2022 Q4. During
Fiscal 2023, the Company recorded a realized foreign exchange gain of $3.2 million compared to a gain of $5.2 million in Fiscal 2022.
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 earnings from operations in 2023 Q4 were $25.6 million (3.2% of consolidated revenue) compared to losses of $142.1 million
((20.6)% of consolidated revenue) in 2022 Q4, an improvement of $167.7 million, or 118.0%. Consolidated losses from operations in Fiscal
2023 were $21.3 million ((0.8)% of consolidated revenue) compared to a loss of $288.2 million ((14.0)% of consolidated revenue) in Fiscal
2022.
In 2023 Q4, losses from operations attributable to the Manufacturing segment were $3.3 million ((0.5)% of Manufacturing revenue) compared
to losses of $156.6 million ((27.5)% of Manufacturing revenue) in 2022 Q4. Losses from Manufacturing operations in Fiscal 2023 were $119.1
million ((5.6)% of Manufacturing revenue) compared to losses of $356.1 million ((22.6)% of Manufacturing revenue) in Fiscal 2022, an
improvement of $237.1 million, or 66.6%. The decreased loss as a percentage of revenue in both periods is attributable to increased new
vehicle deliveries, and a reduction in operational inefficiencies resulting from supply chain challenges. Also contributing to the decrease in
losses from operations is a goodwill impairment charge of $103.9 million that occurred in 2022 Q4.
Earnings from operations related to Aftermarket operations in 2023 Q4 were $24.7 million (18.2% of Aftermarket revenue) compared to
$17.7 million (14.7% of Aftermarket revenue) in 2022 Q4. Earnings from operations related to Aftermarket operations in Fiscal 2023 were
$101.7 million (18.3% of Aftermarket revenue) compared to $66.0 million (13.6% of Aftermarket revenue) in Fiscal 2022. Earnings from
Aftermarket operations increased due to favourable sales mix and a reduction of inflationary impacts on the cost of labour, freight, and
surcharges.
Unrealized foreign exchange gain (loss)
The Company has recognized a net unrealized foreign exchange loss consisting of the following:
($ thousands)
Unrealized gain (loss) on forward foreign exchanges contracts
Unrealized gain (loss) on other long-term monetary assets/liabilities
2023 Q4
1,694
(2,954)
(1,260)
2022 Q4
Fiscal 2023
Fiscal 2022
5,657
(1,728)
3,929
76
(3,772)
(3,696)
(6,631)
7,229
598
At December 31, 2023, the Company had $21.7 million of foreign exchange forward contracts to buy currencies in which the Company
operates (U.S. dollars, Canadian dollars, and GBP). The related liability of $1.5 million (January 1, 2023: $1.7 million asset) is recorded on
the audited consolidated statements of financial position as a current derivative financial instruments liability 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
comprehensive loss.
Earnings (loss) before interest and income taxes (“EBIT”)
In 2023 Q4, the Company recorded EBIT of $22.8 million compared to an EBIT loss of $138.6 million in 2022 Q4. In Fiscal 2023, the Company
recorded EBIT loss of $16.8 million compared to EBIT loss of $287.0 million in Fiscal 2022. The year-over-year improvement in EBIT loss was
driven by increased vehicle deliveries, revenues and Adjusted EBITDANG growth. In 2022, NFI reported goodwill impairment of $103.9 million
related to ARBOC and AD that contributed to the EBIT loss for 2022 Q4 and Fiscal 2022.
Interest and finance costs
The interest and finance charges for 2023 Q4 of $37.3 million increased by $12.6 million compared to $24.7 million in 2022 Q4. The interest
and finance charges for Fiscal 2023 of $152.2 million increased by $115.5 million compared to interest and finance charges of $36.8 million
in Fiscal 2022.
The quarterly increase is primarily due to higher interest cost on long-term debt as a result of elevated debt levels, and higher interest rates
on components of the Company's debt, as described in the Capital Allocation section of this MD&A. Also contributing to the yearly increase is
fair market value losses on the adjustment to the Company's interest rate swaps, and the cash conversion option related to the convertible
debt. The Company had no fair market value adjustment in 2023 Q4 compared to a loss of $1.2 million in 2022 Q4. The Company had a fair
market value loss on its cash conversion option of $0.5 million compared to a gain of $5.6 million in 2022 Q4.
27
NFI GROUP INC. 2023 FINANCIAL RESULTS
NFIGROUP.COM
The Company had a fair market value loss on the interest rate swap of $9.4 million in Fiscal 2023 compared to a gain of $37.7 million in
Fiscal 2022. The Company had a fair market value loss on its cash conversion option of $4.0 million in Fiscal 2023 compared to a gain of
$16.6 million in Fiscal 2022.
On July 20, 2023, the Company extinguished its interest rate swap contracts (valued at $20.2 million asset at the end of 2023 Q2) for total
proceeds of $18.4 million. NFI's equity hedge (valued at $2.6 million liability at the end of 2023 Q2) was settled and removed from liabilities
on the balance sheet. Please see Note 24 of the audited consolidated financial statements for disclosure of financial instruments and risk
management.
Earnings (loss) before income taxes (“EBT”)
EBT loss for 2023 Q4 of $14.5 million decreased by $148.9 million compared to EBT loss of $163.4 million in 2022 Q4. EBT loss for Fiscal 2023
of $169.1 million decreased by $154.7 compared to EBT loss of $323.8 million in Fiscal 2022. The primary drivers of the changes of EBT are
addressed in the Earnings (loss) from Operations and interest and finance costs sections above.
Income tax recovery
The income tax recovery for 2023 Q4 was $12.2 million compared to $10.9 million in 2022 Q4. While the overall tax recovery remained
consistent, the detrimental impact of the reduced in-quarter loss was offset by the absence of the detrimental impact the 2022 goodwill
write-down had on the 2022 tax recovery.
The income tax recovery for Fiscal 2023 is $32.9 million, compared to $47.4 million in Fiscal 2022. The decrease in the overall income tax
recovery is primarily due to the lower EBT loss, offset by the absence of the detrimental impact of the goodwill write-off experienced in
Fiscal 2022.
The Effective Tax Rate ("ETR") for 2023 Q4 was 84.0% and the ETR for 2022 Q4 was 6.7%. The ETR for Fiscal 2023 was 19.5% and the ETR for
Fiscal 2022 was 14.6%. The 2023 Q4 ETR is positively impacted by the recognition and subsequent utilization of, a previously unrecognized
deferred tax asset associated with US foreign tax credits (“FTC”). The utilization of the previously unrecognized FTC also gives rise to a
recovery of BEAT incurred in prior years.
Net loss
The Company reported net losses of $2.3 million in 2023 Q4, a decrease of $150.1 million, or 98.5%, compared to net losses of $152.4 million
in 2022 Q4. The Company reported net losses of $136.2 million in Fiscal 2023, a decrease of $140.2 million, or 50.7%, compared to net losses
of $276.4 in Fiscal 2022. The decrease in net loss for both periods is primarily due to increases in the Company's earnings from operations,
previously discussed above, partially offset by increases in interest and finance costs. During Fiscal 2023, the Company recorded a gain on
debt modification stemming from the Company’s Refinancing Plan which occurred during 2023 Q3, which contributed to the decrease in net
losses.
Net loss
($ millions, except per Share figures)
Gain (loss) from operations
Gain (loss) on disposition of property, plant and equipment
Gain (loss) on debt modification
Unrealized foreign exchange (loss) gain on monetary items
Interest and finance costs
Income tax recovery
Net Loss
Net loss per Share (basic)
Net loss per Share (fully diluted)
2023 Q4
25.6
0.1
(1.6)
(1.3)
(37.3)
12.2
(2.3)
(0.02)
(0.02)
2022 Q4
(142.1)
(0.4)
-
3.9
(24.7)
10.9
(152.4)
(1.98)
(1.98)
Fiscal 2023
Fiscal 2022
(21.3)
(288.2)
(0.8)
8.9
(3.7)
(152.2)
32.9
(136.2)
(1.48)
(1.48)
0.6
-
0.6
(36.8)
47.4
(276.4)
(3.58)
(3.58)
The Company recorded net loss per Share for 2023 Q4 of $0.02 compared to net loss per Share of $1.98 in 2022 Q4. The Company's net loss
per Share for Fiscal 2023 of $1.48 decreased from net loss per Share of $3.58 in Fiscal 2022. The per Share net loss decreased in Fiscal 2023
as a result of a decreased loss during the period, and an increase in the outstanding number of Shares as discussed below.
28
NFI GROUP INC. 2023 FINANCIAL RESULTS
NFIGROUP.COM
Cash Flow
The cash flows of the Company are summarized as follows:
($ thousands)
Cash generated by (used in) operating activities before non-cash
working capital items and interest and income taxes paid
Interest paid
Income taxes recovered (paid)
Cash flow provided by (invested in) working capital
Net cash generated by (used in) operating activities
Net cash (used in) generated by financing activities
Net cash used in investing activities
Cash flows from operating activities
2023 Q4
2022 Q4
Fiscal 2023
Fiscal 2022
46,658
(19,110)
8,407
19,171
55,126
(65,072)
(12,431)
(13,770)
(15,465)
(3,044)
33,785
1,506
17,175
(8,504)
61,234
(109,389)
29,304
(44,962)
(63,813)
117,836
(53,342)
(87,369)
(58,348)
1,422
(97,555)
(241,850)
238,279
(24,531)
The 2023 Q4 net operating cash generated by operating activities of $55.1 million is mainly comprised of $36.0 million of net cash earnings
and $19.2 million of cash provided by working capital. The 2022 Q4 net cash generated by operating activities of $1.5 million is comprised of
$32.3 million of net cash loss and $33.8 million of cash provided by working capital.
The Fiscal 2023 net operating cash used of $63.8 million is comprised of $18.9 million of net cash loss and $45.0 million of cash invested in
working capital. The Fiscal 2022 net operating cash used of $241.9 million is comprised of $144.3 million of net cash loss and $97.6 million
of cash invested in working capital.
Cash flow from financing activities
The cash used in financing activities of $65.1 million during 2023 Q4 is comprised mainly of repayments made to the Company's Secured
Facilities1, totaling $57.5 million. Also contributing are repayments of obligations under lease of $6.7 million. The cash generated of $117.8
million during Fiscal 2023 is due to proceeds from Refinancing and proceeds from Senior Unsecured Debt2 totaling $332.0, partially offset by
repayments of Secured Facilities1, senior unsecured debt, and obligations under leases totaling $213.4 million.
Cash flow from investing activities
($ 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
2023 Q4
(2,828)
519
-
(10,122)
(12,431)
2022 Q4
(3,736)
14
(50)
(4,732)
(8,504)
Fiscal 2023
Fiscal 2022
(10,274)
1,769
(18,123)
(26,714)
(53,342)
(10,212)
1,687
5,365
(21,371)
(24,531)
Cash used in investing activities was higher in 2023 Q4, primarily due to increased investments in property, plant and equipment. Cash used
in investing activities was higher in Fiscal 2023, primarily due to increased investments in long-term restricted deposits and intangible
assets. Long-term restricted deposit is collateral for certain of the Company's letters of credit.
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.
29
NFI GROUP INC. 2023 FINANCIAL RESULTS
NFIGROUP.COM
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 or third party financing. 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. 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.
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 audited 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:
$ 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
December 31, 2023
January 1, 2023
438,165
$
333,522
20,123
8,669
(604)
466,353
$
15,931
5,480
(107)
354,826
$
$
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.
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
December 31, 2023:
$ thousands
Leases
Total
2024
2025
2026
2027
2028
Post 2028
210,912
26,242
21,809
19,014
17,377
11,909
114,561
Accrued benefit liability
3,269
3,269
214,181
29,511
21,809
19,014
17,377
11,909
114,561
As at December 31, 2023, outstanding surety bonds guaranteed by the Company totaled $312.7 million (January 1, 2023: $375.6 million).
The estimated maturity dates of the surety bonds outstanding at December 31, 2023 range from January 2024 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 North American Secured Facility1, the Company has established a letter of credit sub-facility of $150.0 million (January 1, 2023:
$100.0 million). As at December 31, 2023, letters of credit totaling $96.6 million (January 1, 2023: $24.5 million) remain outstanding as
security for contractual obligations of the Company under the North American Secured Facility1. This increase is primarily driven by
collateral requirements provided to support bonds associated with new contracts.
The Export Development Canada (“EDC”) facility includes up to $100 million of surety reinsurance support for NFI’s surety and performance
bonding requirements ("bonding support facility"). The bonding support facility is made up of account performance security guarantee
("PSG") up to $25 million and surety reinsurance support up to $100 million.
Subsequent to December 31, 2023, NFI entered into an agreement with EDC to increase the size of our Guarantee Facility from $100 million
to $125 million. The Guarantee Facility is made up of Account Performance Security Guarantee (“Account PSG”) up to $50 million and Surety
Reinsurance Support up to $125 million. The aggregate amount of the Guarantee Facility cannot exceed $125 million. Please refer to note 31
of the audited consolidated financial statements.
Footnotes:
1.
2.
As described in the Capital Allocation section on page 33.
As described in the Capital Allocation section on page 33.
30
NFI GROUP INC. 2023 FINANCIAL RESULTS
NFIGROUP.COM
The PSG program is in place to cover a standby letter of credit or letter of guarantee (in each case an “LOC”), required as part of a
collateral package provided to support a surety facility where the new bonding capacity is a minimum of at least twice the face value of the
LC. The underlying surety facility must only be supporting surety bonds required under contracts entered into by the NFI, and where such
Surety Bonds are bid bonds, performance bonds, regulatory bonds, license and permit bonds.
As at December 31, 2023, there is $74.2 million outstanding under the bonding support facility.
As at December 31, 2023, letters of credit in the UK totaling $18.7 million remain outstanding as a security for contractual obligations of
the Company outside of the UK facility (January 1, 2023: $18.3 million). Additionally, there are $45.8 million (January 1, 2023: $25.3
million) of letters of credit outstanding outside of the Secured Facility1.
Management believes that the Company was in compliance in all material respects with all applicable contractual obligations as at
December 31, 2023. 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 December 31, 2023.
Through the normal course of operations, the Company has guaranteed payments and residual values to third party lenders on behalf of
customers. As at December 31, 2023, the Company had guaranteed $2.4 million of these arrangements. 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.
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. The 2013 Option Plan expired on
March 21, 2023, at which point no new options can be granted under the 2013 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)
December 28, 2014
499,984
(252,233)
(247,751)
—
—
—
December 28, 2015
221,888
(19,532)
—
(202,356)
—
(2,171)
—
(1,610)
(11,888)
(137,921)
March 26, 2021
C$10.20
December 30, 2021
C$10.57
September 12, 2023
C$13.45
December 28, 2023
C$26.75
September 8, 2024
C$42.83
January 3, 2025
C$40.84
September 8, 2016
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
January 9, 2023
2,171
151,419
152,883
284,674
2,835
519,916
258,673
1,894
601
311,892
1,728
374,448
—
—
—
—
—
—
—
—
—
—
(30,942)
(62,446)
—
(83,720)
(29,250)
—
—
(121,941)
(222,228)
(2,835)
January 2, 2026
January 2, 2027
July 15, 2027
(433,006)
3,190
December 31, 2027
(171,146)
58,277
December 28, 2028
(1,421)
(301)
473
300
(13,359)
(74,638)
223,895
—
(432)
1,296
December 28, 2028
August 16, 2029
January 3, 2030
April 3, 2030
(11,987)
—
362,461
January 9, 2031
C$54.00
C$33.43
C$35.98
C$26.81
C$24.70
C$28.74
C$30.79
C$20.26
C$16.25
C$10.46
C$26.00
C$1.55
C$1.44
C$1.83
C$4.21
C$8.06
C$7.74
C$9.53
C$5.01
C$4.90
C$3.36
C$6.28
C$6.28
C$6.28
C$6.10
C$6.51
C$5.28
3,887,412 (1,366,150)
(503,145)
(1,368,225)
649,892
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.
31
NFI GROUP INC. 2023 FINANCIAL RESULTS
NFIGROUP.COM
—
—
—
—
—
—
—
—
—
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
Restricted Share Unit Plan for Non-Employee Directors
Fiscal 2023
Fiscal 2022
Number
1,910,057
374,448
(266,388)
—
2,018,117
Weighted average
exercise price
C$27.41
C$10.46
C$14.32
C$0.00
C$26.00
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
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 20,922 director restricted share units (“Director RSUs”), with a total value of $0.2 million,
in 2023 Q4. Approximately $0.2 million of the issued Director RSUs were exercised and exchanged for 12,499 Shares.
Critical accounting estimates and judgments
The Company's critical accounting estimates and judgments can be found within note 2 of the audited consolidated financial statements.
New and amended standards adopted by the Company
During the period, the Company adopted the following accounting standards:
IFRS 17 – Insurance Contracts:
Effective January 2, 2023, the Company adopted IFRS 17, which introduced new guidance for recognition, measurement, presentation and
disclosure of insurance contracts. The Company applied a full retrospective approach. The Company previously used IFRS 4, Insurance
Contracts, which is no longer in effect to account for these contracts.
The IFRS 17 Standard establishes principles for the recognition, measurement, presentation and disclosure of (re)insurance contracts.
The Company has applied the measurement method for insurance contracts using a probability weighted discounted cash flow model,
including a best estimate and an adjustment for non-financial risk calculated for groups of similar contracts. There is a reliance on actuarial
modelling techniques and the quality of underlying data. The Company has applied the premium allocation approach. 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.
The adoption of the standard resulted in a decrease to net loss and retained deficit of $1,385 for Fiscal 2022, and an increase to net loss and
retained deficit of $1,182 for 2021 and prior fiscal periods. There was no change to reported earnings (loss) per share.
The transition adjustment in 000s is as follows:
Assets
Liabilities
Shareholders'
Equity
Accounts
receivable
Prepaid expenses
and deposits
Accounts payable
and accrued
liabilities
Provisions
Retained Earnings
(Deficit)
As reported January 1, 2023
Transition adjustment
Restated January 1, 2023
$
$
366,224 $
(11,398)
354,826 $
16,928
6,524
23,452
$
$
455,368 $
(1,578)
453,790 $
71,299
(328)
70,971
$
$
(419,373)
205
(419,168)
International Accounting Standards ("IAS") 1 - Presentation of Financial Statements:
Classification of Liabilities as Current or Non-current, which amends IAS 1, was issued January 2020 and October 2022, 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 assessed that this standard does not have a material impact on the audited consolidated financial statements and that the
Company is in compliance with the required disclosure.
32
NFI GROUP INC. 2023 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 liquidityNG risk. LiquidityNG 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 liquidityNG include sales mix, production levels, cash production costs, working capital requirements, capital
expenditure requirements, scheduled repayments of long-term debt obligations, interest costs, funding requirements of the Company’s
pension plans, income taxes, credit capacity, letters of credit for surety bonds, expected future debt and equity capital market conditions.
The Company’s liquidityNG requirements are met through a variety of sources, including cash on hand, cash generated from operations,
secured facilities (see below), leases, and debt and equity capital markets. While management expects that the Company will have
sufficient liquidityNG to continue operations in the ordinary course, it is possible that unexpected events could significantly impair the
Company’s liquidityNG and there can be no assurance that the Company would be able to obtain additional liquidityNG when required in such
circumstances. Please refer to Appendix A of this MD&A for identified liquidity risks.
At December 31, 2023, the Company has convertible debentures outstanding of C$338 million ("Debentures"). 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 North American credit facility and the UK credit facility (together the "Amended
Facilities"). Amendments provided relief from previous key financial covenants (Total Leverage Ratio (“TLR”)NG, Minimum Adjusted EBITDANG
and Interest Coverage Ratio (“ICR”)NG) for the fourth quarter of 2022 and the first two quarters of 2023 ending June 30, 2023 (the “Waiver
Period”) to provide the Company with relaxed covenants as the Company navigated supply chain disruptions, heightened inflation and other
impacts of the COVID-19 pandemic. This Waiver Period was extended to August 31, 2023, in order for the Company to finalize the
comprehensive refinancing plan (“Refinancing”; see below). During the Waiver Period, the Company was subject to a Total Net Debt to
Capitalization (“TNDC”) ratioNG, starting in January 2023, and a minimum Adjusted EBITDANG covenant starting in March 2023. The terms of
the Amended Facilities imposed restrictions over the declaration and payment of dividends until the Waiver Period had ended.
On January 20, 2023, the Company entered into agreements with Manitoba Development Corporation (“MDC”) 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), as discussed in the Commitments and Contractual
Obligations section of the Results from Operations section.
The Company entered into an agreement for up to C$10,000,000 in interest-free financing through PrairiesCan, part of the Government of
Canada, to support facility enhancements and zero-emission product growth. The financing matures on March 1, 2030.
On August 25, 2023, NFI announced that it had closed its Refinancing. Through the Refinancing, the following changes to the profile and
capacity of the Amended Facilities (now referred to as the “Secured Facilities”) were effected:
•
•
The $1.0 billion revolving North American Facility converted to a $400 million first lien term loan and a $361 million first lien
revolving credit facility (total combined borrowing capacity of $761 million).
The £40 million revolving UK Facility converted to a £16.0 million term loan and a £14.4 million revolving credit facility (total
combined borrowing capacity of £30.4 million).
As part of the Refinancing, the Company:
•
•
completed a private placement on August 25, 2023, of common shares with Coliseum Capital Management for 21,656,624 Shares at
a subscription price of $6.1567 per Share (the “Subscription Price”) for total proceeds to the Company of $133.3 million.
completed a private placement on August 25, 2023, with a leading global asset manager for 5,000,000 Shares at a subscription
price of C$10.10 per Share for aggregate gross proceeds to NFI of C$50,500,000 (approximately $37.2 million).
33
NFI GROUP INC. 2023 FINANCIAL RESULTS
NFIGROUP.COM
•
•
issued 15,102,950 subscription receipts on June 6, 2023, at a price of C$8.25 per Subscription Receipt, for aggregate gross
proceeds to NFI of approximately C$125.9 million (approximately $93.1 million), inclusive of interest earned in escrow. Each
subscription receipt was redeemed for 1 Share after the Refinancing closed, on August 25, 2023.
extended the maturity of MDC’s and EDC’s Senior Unsecured Debt facilities to April 30, 2026; with a $25.0 million permanent
repayment of the EDC facility.
As part of the Refinancing, NFI's completed $180.4 million Second Lien Financing which included the following terms:
•
•
•
a five-year term and a 97% original issue discount (“OID”), generating net proceeds of $175.0 million, before fees and
commissions;
annual coupon of 14.5%, payable semi-annually; and
callable at 100% of face value with applicable premium for the first 12 months, callable at 106% of face value for months 13 to 24,
callable at 103% of face value for months 25 to 36 and callable at par from 36 months onwards.
The Second Lien debt is financed by funds and accounts managed by Coliseum Capital Management LLC. Coliseum Capital Management has
also participated in an equity transaction with the Company. Please refer to Note 20 of the audited consolidated financial statements. The
Second Lien Financing is a senior secured second lien obligation of NFI and certain material subsidiaries, that ranks behind the Secured
Facilities and all other first lien secured indebtedness of NFI and such subsidiaries, ranks ahead of any subordinated obligations of NFI and
its subsidiaries, and, by virtue of being secured, ranks ahead of any unsecured obligations.
Secured Facilities capacity change following refinancing
($ thousands)
North American Facility
Revolving credit facility
First lien term loan
UK Facility
Revolving credit facility
First lien term loan
Total Capacity
Minimum Banking LiquidityNG
Total Available LiquidityNG
Pre-Transaction
Change
Post-Transaction
$
$
$
$
$
1,000,000
$
(639,000) $
400,000
(32,668) $
20,418
251,251
$
$
$
50,796
1,050,796
(25,000)
1,025,796
$
$
$
$
361,000
400,000
18,128
20,418
799,545
(50,000)
749,545
The details of the covenants under the Secured Facilities are as follows:
December 2023
January 2024
February 2024
March 2024
2024 Q2
2024 Q3
2024 Q4
2025 Q1
2025 Q2
2025 Q3
2025 Q4 and after
Total
Leverage
RatioNG
Interest
Coverage RatioNG
Total Net Debt
to
CapitalizationNG
Minimum
Cumulative
Adjusted
EBITDANG
Minimum
Banking
LiquidityNG
Senior
Secured Net
Leverage
RatioNG
Waived
Waived
Waived
Waived
Waived
<6.00x
<4.75x
<4.75x
<4.25x
<4.25x
<3.75x
Waived
Waived
Waived
Waived
Waived
>1.25x
>1.50x
>1.75x
>2.00x
>2.25x
>2.50x
<0.65:1.00
>$3,000
<0.65:1.00
>$14,000
<0.65:1.00
>$25,000
<0.65:1.00
>$47,000
<0.65:1.00
>$105,000
N/A
N/A
N/A
N/A
N/A
N/A
N/A
N/A
N/A
N/A
N/A
N/A
$50,000
$50,000
$50,000
$50,000
$50,000
$50,000
$50,000
$50,000
$50,000
$50,000
$50,000
Waived
Waived
Waived
Waived
Waived
<4.50x
<3.50x
<3.50x
<3.25x
<3.25x
<3.00x
34
NFI GROUP INC. 2023 FINANCIAL RESULTS
NFIGROUP.COM
$ thousands
Banking Covenant LiquidityNG Position (must be greater than $50 million)
Minimum Cumulative Adjusted EBITDANG (must be greater than ($3,000) [2022: N/A])
Net Debt to Capital RatioNG (must be less than 0.65:1.00 [2022: N/A])
December 31, 2023
January 1, 2023
$
$
170,131
$
143,454
53,516
0.39
Waived
Waived
As of December 31, 2023, NFI's banking covenant liquidityNG was $170.1 million, without consideration given to the minimum banking
liquidityNG requirement of $50 million under the Secured Facilities. As part of the Company's efforts to improve working capital and
liquidityNG, the Company requested prepayments and deposits from certain customers. As of December 31, 2023, the Company has received
$89.3 million in deferred revenue and is continuing to work with other customers to help alleviate working capital required to support the
transition to ZEB’s and increased production while the Company navigates through the supply chain challenges.
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 liquidityNG. Additionally, the Company is continuing to work directly with suppliers and sub-
suppliers to search for alternate or substitute parts where practical and appropriate, increase production line parts inventories and develop
longer lead times to better support new vehicle production.
The Company believes that its cash position and capacity under its Secured 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 Outlook and 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
EBITDANG. Management had originally expected the Company to return to those levels following the acquisition of Alexander Dennis in May
2019, but the impact of COVID-19, inflation, higher rates of interest and the continuing supply chain disruptions and associated production
inefficiencies, extended the anticipated timing of deleveraging. Management believes it will achieve its longer-term leverage targets as the
Company delivers on its backlogNG, and benefits from record government investments in public transportation, and growing demand for its
buses, coaches, parts and Infrastructure SolutionsTM services. The reduction in leverage will also be driven by increased production rates,
the anticipated stabilization of parts and components supply, and the 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.
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 evolution 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 is
developing its medium-duty Equess CHARGETM electric bus and exploring potential electric cutaway platforms.
In November 2022, Alexander Dennis announced that several of its vehicles will now offer its next-generation electric chassis, driveline and
battery system. Alexander Dennis has secured orders in the UK using this new technology, and, in 2023 Q2, Alexander Dennis delivered its
first battery-electric buses to key customers in Hong Kong. On October 4, 2023, NFI announced the launch of its next generation battery
technology for the North American market with supplier partner, American Battery Solutions. The new custom battery packs will be used on
NFI's heavy-duty transit buses and coaches in North America starting in the first quarter of 2024. In Fiscal 2023, Alexander Dennis unveiled
its next generation electric buses for the UK and Ireland, with the new Enviro100EV small bus and the Enviro400EV double-decker. These
vehicles will utilize the future-proof battery systems developed in partnership with Impact Clean Power Technology. First deliveries of these
new vehicles are expected in 2024. To support customers making the transition to zero-emission fleets, NFI launched its Infrastructure
SolutionsTM business in 2018.
35
NFI GROUP INC. 2023 FINANCIAL RESULTS
NFIGROUP.COM
The Company has automated bus projects in development with specialized partners who have expertise 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. Alexander Dennis continues to advance its autonomous bus programs in the United
Kingdom with ongoing pilot programs in Scotland. NFI has also made numerous investments into telematics solutions to assist customers to
track detailed performance and maintenance metrics associated with their vehicles.
The Company's capital allocation priorities are currently focused on product development, deleveraging, strengthening its balance sheet and
supporting the recovery of operations. While the Company will consider business acquisitions and partnerships that will further grow and
diversify the business and contribute to long-term competitiveness, its current focus remains on internal initiatives, that support
deleveraging efforts. In addition, there are covenants under the Secured Facilities that limit the Company's ability to make acquisitions, pay
dividends and invest in capital expenditures. 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 the Secured Facilities, the Company is not permitted to declare or pay
dividends, until certain financial conditions exist. Currently dividends have been suspended and future decisions on the resumption of
dividend payments will be dependent on financial performance and compliance with Secured Facility covenants.
The Company's 2023 Q4 Free Cash FlowNG was C$3.6 million with no dividends declared during this period. For 2022 Q4, Free Cash FlowNG
was (C$32.3) million and no dividends were declared during the period.
Total Capital Distributions to Shareholders
($ millions)
Dividends declared
Fiscal 2023
Fiscal 2022
$
— $
9.4
36
NFI GROUP INC. 2023 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 EBITDANG and Net Operating Profit after TaxesNG
Management believes that Adjusted EBITDANG, and Net Operating Profit After Taxes ("NOPAT")NG are important measures in evaluating the
historical operating performance of the Company. However, Adjusted EBITDANG and NOPATNG are not recognized earnings measures under
IFRS and do not have standardized meanings prescribed by IFRS. Accordingly, Adjusted EBITDANG and NOPATNG may not be comparable to
similar measures presented by other issuers. Readers of this MD&A are cautioned that Adjusted EBITDANG should not be construed as an
alternative to net earnings or loss determined in accordance with IFRS and NOPATNG 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 EBITDANG 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
EBITDANG based on the historical Financial Statements of the Company for the periods indicated.
The Company defines NOPATNG as Adjusted EBITDANG less depreciation of plant and equipment, depreciation of right-of-use assets and
income taxes at a rate of 31%.
($ thousands)
Net loss
Addback
Income taxes
Interest expense12
Amortization
(Gain) loss on disposition of property, plant and equipment and right
of use assets
Loss (Gain) on debt modification16
Fair value adjustment for total return swap7
Unrealized foreign exchange loss (gain) on non-current monetary
items and forward foreign exchange contracts
Past service costs and other pension costs9
Proportion of the total return swap realized8
Equity settled stock-based compensation
Unrecoverable insurance costs and other10
Expenses incurred outside of normal operations14
Prior year sales tax provision 11
Out of period costs13
Impairment loss on goodwill15
Restructuring costs6
Adjusted EBITDANG
Depreciation of property, plant and equipment and right of use
assets
Tax at 31%
NOPATNG
Adjusted EBITDANG is comprised of:
Manufacturing
Aftermarket
Corporate
(Footnotes on page 39)
2023 Q4
(2,329)
2022 Q4
(152,405)
Fiscal 2023
(136,164)
(12,192)
37,278
19,678
(62)
1,600
-
1,260
(7,000)
-
700
893
132
41
-
-
(1,544)
38,455
(11,848)
(8,248)
18,359
(10,948)
24,727
22,580
410
-
-
(3,929)
-
-
397
164
1,708
-
(938)
103,900
7,240
(7,094)
(14,884)
6,813
(15,165)
11,094
29,480
(2,119)
(30,521)
22,882
545
(32,906)
152,242
80,780
789
(8,908)
-
3,696
(2,236)
-
2,618
893
2,166
101
-
-
6,139
69,209
(49,370)
(6,150)
13,689
(42,073)
120,187
(8,905)
-
Fiscal 2022
952
(565)
5
5
3
2
-
-
W
W
(276,376)
e
e
-
-
e
e
k
k
(47,421)
s
s
-
-
36,788
E
E
-
-
88,495
n
n
-
-
d
d
e
e
-
-
d
d
-
-
-
O
O
c
c
-
t
t
(598)
-
-
o
o
7,000
b
b
-
-
e
e
(275)
r
r
-
-
1,346
1
2
-
-
8,489
,
,
-
-
3,761
2
2
-
-
-
0
0
-
-
2
2
(1,597)
2
3
-
-
103,900
-
-
18,443
-
-
(57,659)
-
-
-
-
(57,013)
35,548
-
-
(79,124)
-
-
(149,164)
-
-
86,154
-
-
5,351
-
-
37
NFI GROUP INC. 2023 FINANCIAL RESULTS
NFIGROUP.COM
Free Cash FlowNG and Free Cash Flow per ShareNG
Management uses Free Cash FlowNG and Free Cash Flow per ShareNG as non-IFRS measures to evaluate the Company’s operating performance
and liquidityNG, to assess the Company’s ability to pay dividends on the Shares, service debt, pay interest on the Debentures and meet other
payment obligations. However, Free Cash FlowNG and Free Cash Flow per ShareNG are not recognized earnings measures under IFRS and do
not have standardized meanings prescribed by IFRS. Accordingly, Free Cash FlowNG 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 FlowNG should not be
construed as an alternative to cash flows from operating activities determined in accordance with IFRS as a measure of liquidityNG and cash
flow. The Company defines Free Cash FlowNG 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 FlowNG (a non-IFRS measure) based on the Company’s historical Financial Statements.
The Company generates its Free Cash FlowNG 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 Secured Facilities to finance working capital and therefore has excluded the impact of working capital in calculating Free Cash
FlowNG.
The Company defines Free Cash Flow per ShareNG as Free Cash FlowNG divided by the average number of Shares outstanding.
($ thousands, except per Share figures)
Net cash generated by (used in) operating activities
Changes in non-cash working capital items2
Interest paid2
Interest expense2
Income taxes (expense) recovered2
Current income tax recovery2
Repayment of obligations under lease
Cash capital expenditures
Acquisition of intangible assets
Proceeds from disposition of property, plant and equipment
Defined benefit funding3
Defined benefit (recovery) expense3
Past service costs and other pension costs9
Expenses incurred outside of normal operations14
Equity hedge
Proportion of the total return swap realized8
Unrecoverable insurance costs and other10
Out of period costs13
Prior year sales tax provision12
Restructuring costs6
Foreign exchange (loss) gain on cash held in foreign currency4
Free Cash FlowNG
U.S. exchange rate1
Free Cash Flow (C$)NG
Free Cash Flow per Share (C$)NG
Declared dividends on Shares (C$)
Declared dividends per Share (C$)5
2023 Q4
2022 Q4
Fiscal 2023
Fiscal 2022
(63,813)
44,962
109,389
(125,642)
(29,304)
11,941
(21,712)
(26,714)
(10,274)
1,769
3,185
(2,779)
(7,000)
2,166
3,765
-
893
-
101
8,691
(1,053)
55,126
(19,171)
19,110
(31,906)
(8,407)
15,873
(7,305)
(10,122)
(2,828)
519
918
(694)
(7,000)
132
-
-
893
-
41
1,011
(3,506)
2,684
1.3246
3,555
0.0299
-
-
1,506
(33,785)
15,465
(24,187)
3,044
21,556
(5,647)
(4,732)
(3,736)
14
(301)
917
-
1,708
(582)
-
164
(938)
-
5,678
(20)
(23,876)
1.3538
(32,323)
(0.4189)
-
-
(101,429)
(168,970)
1.3293
(134,827)
(1.4676)
-
-
1.3202
(223,066)
(2.8915)
12,288
0.1599
(241,850)
(77,850)
(24,535)
(21,371)
19,809
58,348
97,555
(1,422)
5
5
2
3
-
-
W
W
e
e
e
e
-
-
k
k
s
s
-
-
E
E
-
-
n
n
d
d
-
-
e
e
-
-
d
d
-
-
O
O
-
-
c
c
t
t
-
-
o
o
-
-
b
b
e
e
-
-
r
r
-
-
1
2
-
-
,
,
-
-
2
2
-
-
(1,003)
0
0
-
-
2
2
(275)
2
3
-
-
-
-
-
-
-
-
-
1,687
4,265
(3,497)
3,761
8,488
7,000
(333)
11,694
(10,212)
771
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
38
NFI GROUP INC. 2023 FINANCIAL RESULTS
NFIGROUP.COM
1.
2.
3.
4.
5.
6.
7.
8.
9.
U.S. exchange rate (C$ per US$) is the average exchange rate for the period.
Changes in non-cash working capital are excluded from the calculation of Free Cash FlowNG as these temporary fluctuations are
managed through the Secured Facilities which are available to fund general corporate requirements, including working capital
requirements, subject to borrowing capacity restrictions. Changes in non-cash working capital are presented on the audited
consolidated statements of cash flows net of interest and income taxes paid.
The cash effect of the difference between the defined benefit expense and funding is included in the determination of cash from
operating activities. This cash effect is excluded in the determination of Free Cash FlowNG as management believes that the defined
benefit expense amount provides a more appropriate measure, as the defined benefit funding can be impacted by special payments to
reduce the unfunded pension liability.
Foreign exchange gain (loss) on cash held in foreign currency is excluded in the determination of cash from operating activities under
IFRS; however, because it is a cash item, management believes it should be included in the calculation of Free Cash FlowNG.
Per Share calculations for Free Cash FlowNG (C$) are determined by dividing Free Cash FlowNG 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 2023 Q4 was
118,961,396 and 77,154,934 for 2022 Q4. The weighted average number of Shares outstanding for Fiscal 2023 and Fiscal 2022 are
91,866,613 and 77,144,445, 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 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 restructuring initiatives. Free Cash FlowNG
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 loss that is excluded from the definition of Adjusted EBITDANG.
Beginning in 2022 Q2, hedge accounting was applied to the total return swap derivative and therefore, the portion of the 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 EBITDANG and Free Cash FlowNG to match the
equivalent portion of the related deferred compensation expense recognized. Beginning in 2022 Q2, hedge accounting was applied to
the total return swap derivative and therefore, the portion of the gain 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. 2022 Q2 includes $7.0 million for
the liability related to the closure of MCI’s Pembina facility and withdrawal from the multi-employer pension plan. In 2023 Q4, the
Company made the decision to continue operations of the Pembina facility indefinitely, thereby reversing the above adjustments made
in 2022 Q2. Also included is $4.8 million of pension past service costs incurred during 2023 Q1.
10. Normalized to exclude non-operating costs related to an insurance event that are not recoverable, or are related to the deductible.
11. Provision for sales taxes as a result of a previous state sales tax review.
12.
13.
14.
Includes fair market value adjustments to interest rate swaps and the cash conversion option on the Debentures. 2023 Q4 includes a
loss of $nil and 2022 Q4 includes a loss of $1.2 million for the interest rate swaps. 2023 Q4 includes a loss of $0.5 million and 2022 Q4
includes a gain of $5.6 million on the cash conversion option.
Includes adjustments made related to expenses that pertain to prior years. 2022 Q2 includes expenses related to amounts that should
have been capitalized from prior years.
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.
15.
Includes 2022 Q4 impairment charges with respect to ARBOC's goodwill of $23.2 million and the Alexander Dennis manufacturing cash
generating unit ("CGU")'s goodwill of $80.7 million.
16. As a result of the Company's comprehensive refinancing, the Company had recognized an accounting gain in 2023 Q3 stemming from the
modification made to its Secured Facilities. In 2023 Q4, an accounting loss was recorded to adjust the gain on debt modification.
39
NFI GROUP INC. 2023 FINANCIAL RESULTS
NFIGROUP.COM
Adjusted Net LossNG and Adjusted Net Loss per ShareNG
Management believes that Adjusted Net LossNG and the associated per Share figure are important measures in evaluating the historical
operating performance of the Company. Adjusted Net LossNG and Adjusted Net Loss per ShareNG are not recognized measures under IFRS and
do not have standardized meanings prescribed by IFRS. Accordingly, Adjusted Net LossNG and Adjusted Net Loss per ShareNG may not be
comparable to similar measures presented by other issuers. Readers of this MD&A are cautioned that Adjusted Net LossNG and Adjusted Net
Loss per ShareNG should not be construed as an alternative to Net Loss, or Net Loss per Share, determined in accordance with IFRS as
indicators of the Company's performance.
The Company defines Adjusted Net LossNG as net loss after adjusting for the after tax effects of certain non-recurring, non-operating and
items occurring outside of normal operation, that do not reflect the current ongoing cash operations of the Company. These adjustments are
provided in the following reconciliation of net loss to Adjusted Net LossNG based on the historical Financial Statements of the Company for
the periods indicated.
The Company defines Adjusted Net LossNG per share as Adjusted Net LossNG divided by the average number of Shares outstanding.
($ thousands, except per Share figures)
Net loss
Adjustments, net of tax1, 2
Fair value adjustments of total return swap3
Unrealized foreign exchange (gain) loss
Unrealized loss (gain) on interest rate swap
Unrealized loss (gain) on Cash Conversion Option
Unrealized loss on prepayment option of second lien debt4
Accretion in carrying value of long-term debt associated with debt
modification5
Loss (gain) on debt modification6
Accretion associated to gain on debt modification
Portion of the total return swap realized7
Equity swap settlement fee8
Equity settled stock-based compensation
(Gain) loss on disposition of property, plant and equipment
Past service costs and other pension costs9
Unrecoverable insurance costs and other10
Expenses incurred outside of normal operations11
Other tax adjustments12
Out of period costs13
2023 Q4
2022 Q4
Fiscal 2023
Fiscal 2022
(2,329)
(152,405)
(136,164)
(276,376)
-
869
-
355
(769)
-
1,104
(451)
-
-
483
(43)
(4,830)
616
(1,191)
-
-
-
(2,711)
796
(3,831)
-
-
-
-
-
-
274
283
-
113
1,179
22,292
(1,911)
-
2,550
6,505
2,730
(442)
1,014
(6,147)
(451)
-
2,428
1,806
545
(1,543)
616
213
-
-
657
(413)
(26,019)
(11,438)
-
-
-
-
(190)
-
929
(390)
4,830
5,857
2,595
18,984
(1,102)
5,272
-
103,900
12,725
Accretion in carrying value of convertible debt and cash conversion
option
1,337
1,341
5,213
Prior year sales provision14
Impairment loss on goodwill15
Restructuring costs16
Adjusted Net LossNG
Loss per Share (basic)
Loss per Share (fully diluted)
Adjusted Net Loss per Share (basic)NG
Adjusted Net Loss per Share (fully diluted)NG
28
-
(1,065)
(5,886)
-
103,900
4,996
(25,684)
(0.02)
(0.02)
(0.05)
(0.05)
(1.98)
(1.98)
(0.33)
(0.33)
71
-
4,236
(116,820)
(160,179)
(1.48)
(1.48)
(1.27)
(1.27)
(3.58)
(3.58)
(2.08)
(2.08)
40
NFI GROUP INC. 2023 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.
The Company has utilized a rate of 31.0% to tax effect the adjustments for the periods above.
The fair value adjustment of the total return swap is a non-cash loss that is excluded from the definition of Adjusted EBITDANG.
Beginning in 2022 Q2, hedge accounting was applied to the total return swap derivative and therefore, the portion of the loss on the
fair value adjustment, which does not apply to the current period is recognized in other comprehensive income.
The unrealized loss on the prepayment option is related to the Company's second lien debt instrument. The loss is the result of a
decrease in the options fair value between October 1, 2023 and December 31, 2023.
Normalized to exclude the over accretion of transaction costs relating to the Company's Secured Facilities.
As a result of the Company's comprehensive Refinancing, the Company has recognized an accounting gain stemming from the
modification made to its Secured Facilities.
A portion of the fair value adjustment of the total return swap is added to Adjusted EBITDANG and Free Cash FlowNG to match the
equivalent portion of the related deferred compensation expense recognized. Beginning in 2022 Q2, hedge accounting was applied to
the total return swap derivative and therefore, the portion of the loss on the fair value adjustment, which does not apply to the
current period is recognized in other comprehensive income.
During the year the Company settled its equity swaps which were used to hedge the exposure associated with changes in value of its
Shares with respect to outstanding management restricted units ("Management RSUs") and a portion of the outstanding performance
share units ("PSUs"), and deferred share units ("DSUs").
Costs and recoveries associated with amendments to, and closures of, the Company's pension plans. 2022 Q2 includes $7.0 million for
the liability related to the anticipated closure of MCI’s Pembina facility and withdrawal from the multi-employer pension plan. In 2023
Q4, the Company made the decision to continue operations of the Pembina facility indefinitely, thereby reversing the above
adjustments made in 2022 Q2. Also included is $4.8 million of pension past service costs incurred during 2023 Q1.
10. Normalized to exclude non-operating costs related to an insurance event that are not recoverable, or are related to the deductible.
11.
12.
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.
Includes the impact of changes in deferred tax balances as a result of substantively enacted tax rate changes. The 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.
13.
Includes adjustments made related to expenses that pertain to prior years. 2022 Q1 includes expenses related to amounts that should
have been capitalized from prior years.
14. Provision for sales taxes as a result of a previous state sales tax review.
15.
Includes 2022 Q4 impairment charges with respect to ARBOC's goodwill of $23.2 million and the Alexander Dennis manufacturing CGU's
goodwill of $80.7 million.
16. Normalized to exclude non-operating restructuring costs. Costs primarily relate to severance costs, inefficient labour costs, increased
medical costs and right-of-use asset impairments and inventory impairments associated with other restructuring initiatives. Free Cash
FlowNG reconciling amounts are net of right-of-use asset and property, plant and equipment impairments.
41
NFI GROUP INC. 2023 FINANCIAL RESULTS
NFIGROUP.COM
Reconciliation of Shareholders' Equity to Invested CapitalNG
($ thousands)
Shareholders' Equity
Addback
Long term debt
Second lien debt
Obligation under lease
Convertible debentures
Senior unsecured debt
Derivatives
Cash
Bank indebtedness
Invested CapitalNG
Average of invested capitalNG over the quarter
Shareholders' Equity
Addback
Long term debt
Second lien debt
Capital leases
Convertible debentures
Senior unsecured debt
Derivatives
Cash
Bank indebtedness
Invested CapitalNG
Average of invested capitalNG over the quarter
2023 Q4
702,913
2023 Q3
706,177
2023 Q2
495,140
2023 Q1
533,756
536,037
172,396
138,003
228,985
61,796
583,948
172,975
130,102
221,427
60,838
935,605
911,203
-
-
124,405
225,081
87,363
127,247
218,719
86,431
(17,164)
8,010
6,814
(9,422)
(49,615)
(75,498)
(57,488)
(59,375)
-
-
-
-
1,798,525
1,806,783
1,800,684
1,800,817
1,802,654
1,806,342
1,800,751
1,776,276
2022 Q4
2022 Q3
2022 Q2
2022 Q1
577,575
710,984
783,905
850,323
896,626
859,297
718,139
677,996
-
-
-
-
131,625
217,516
122,666
211,281
131,077
224,947
139,129
229,673
-
-
-
-
(21,620)
(49,987)
(18,904)
(39,832)
(8,179)
4,806
(50,274)
(26,604)
-
-
-
1,233
1,751,735
1,845,492
1,799,615
1,876,556
1,798,614
1,822,554
1,838,086
1,829,374
42
NFI GROUP INC. 2023 FINANCIAL RESULTS
NFIGROUP.COM
Invested CapitalNG
Invested CapitalNG is not a recognized measure under IFRS and does not have a standardized meaning prescribed by IFRS. Management
believes that Invested CapitalNG is an important measure in evaluating the Company’s financial position. The Company defines Invested
CapitalNG as total interest-bearing debt plus derivative liabilities plus equity less cash on hand.
ROICNG
ROICNG is not a recognized measure under IFRS and its components do not have standardized meanings prescribed by IFRS. Management
believes that ROICNG is an important measure in evaluating the historical performance of the Company. The Company defines ROICNG as
NOPATNG divided by average invested capital for the last 12-month period.
Total LiquidityNG
Total LiquidityNG is not a recognized measure under IFRS and does not have a standardized meaning prescribed by IFRS. The Company
defines total liquidityNG as cash on-hand plus available capacity under its North American and UK Secured Facilities, without consideration
given to the minimum banking liquidity requirement under the Secured Facilities.
Banking Covenant LiquidityNG
Banking Covenant LiquidityNG is not a recognized measure under IFRS and does not have a standardized meaning prescribed by IFRS. The
Company defines banking covenant liquidityNG as cash on-hand plus available capacity under its North American Secured Facilities, without
consideration given to the minimum banking liquidity requirement under the Secured Facilities.
Working Capital DaysNG
Working Capital DaysNG is not a recognized measure under IFRS and does not have a standardized meaning prescribed by IFRS. The Company
defines Working Capital DaysNG as the calculated number of days to convert working capital to cash. It is calculated by the number of days in
the last twelve months (Fiscal 2023 - 364 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 DaysNG is calculated based on the following line items on the audited consolidated statement of financial position: Accounts
Receivable and Inventories less Accounts Payables, Deferred Revenue and Provisions.
Payout RatioNG
Payout ratioNG is not a recognized measure under IFRS and does not have a standardized meaning prescribed by IFRS. Management believes
the payout ratioNG is an important measure of the Company's ability to pay dividends with cash generated. The Company defines payout
ratioNG as the declared dividends divided by the Free Cash FlowNG.
Book-to-Bill RatioNG
Book-to-bill ratioNG is not a recognized measure under IFRS and does not have a standardized meaning prescribed by IFRS. The Company
defines book-to-bill ratioNG as new firm orders and exercised options divided by new deliveries.
BacklogNG
BacklogNG value is not a recognized measure under IFRS and does not have a standardized meaning prescribed by IFRS. The Company defines
backlogNG as the number of EUs in the backlog multiplied by their expected selling price.
Total Leverage RatioNG
Total Leverage RatioNG is not a recognized measure under IFRS and does not have a standardized meaning prescribed by IFRS. TLRNG is
calculated as aggregate indebtedness of the Company, not including the Company’s Debentures and certain non-financial products, but
including any Senior Unsecured or Second Lien indebtedness, less unrestricted cash and cash equivalents up to a maximum of $50 million,
divided by Adjusted EBITDANG (calculated on a trailing twelve-month basis). The TLRNG is reintroduced in 2024 Q3.
Interest Coverage RatioNG
Interest Coverage RatioNG is not a recognized measure under IFRS and does not have a standardized meaning prescribed by IFRS. ICRNG is
calculated as the same trailing twelve month Adjusted EBITDANG as the Total Leverage RatioNG divided by trailing twelve-month interest
expense on the Secured Facilities, the Debentures, any senior unsecured or second lien indebtedness and other interest and bank charges.
43
NFI GROUP INC. 2023 FINANCIAL RESULTS
NFIGROUP.COM
Total Net Debt to CapitalizationNG
Total Net Debt to CapitalizationNG is not a recognized measure under IFRS and does not have a standardized meaning prescribed by IFRS.
TNDCNG is calculated as borrowings on the Secured Facilities and any senior unsecured or second lien indebtedness, less unrestricted cash
and cash equivalents up to a maximum of $50 million, divided by shareholders’ equity, as shown on the Company’s balance sheet, plus
borrowings on the Secured Facilities. The TNDCNG covenant excludes the impact of any actual goodwill write-downs up to a maximum of
$100 million.
Minimum Adjusted EBITDANG
The Minimum Adjusted EBITDANG is not a recognized measure under IFRS and does not have a standardized meaning prescribed by IFRS. The
Minimum Adjusted EBITDANG covenant is first tested with the month ending September 30, 2023, but includes results from the period May 1,
2023 to September 30, 2023. The covenant continues on a cumulative basis until April 30, 2024, at which point it becomes a trailing-twelve
month test for the second quarter of 2024. The Minimum Adjusted EBITDANG tests are based on calendar month-end dates from September
2023 to March 2024.
Senior Secured Net LeverageNG
Senior Secured Net LeverageNG will include the Secured Facilities and is calculated as indebtedness on those facilities, less unrestricted cash
and cash equivalents up to a maximum of $50 million, divided by Adjusted EBITDANG (calculated on a trailing twelve-month basis). The
Senior Secured Net LeverageNG is reintroduced in 2024 Q3.
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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
December 31, 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 December 31, 2023 were
effective.
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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, "AD"). 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 December 31, 2023, 118,961,932 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.sedarplus.ca.
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.
ForwardLooking 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 liquidityNG 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. 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, labour supply shortages and labour rates, the
recovery of the Company’s markets and the expected benefits to be obtained through its “NFI Forward” initiatives) 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 liquidityNG, 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, labour supply shortages and inflationary and labour rate 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 liquidityNG may be materially adversely impacted by the aftermath and
ongoing effects of COVID-19 pandemic and related supply chain and operational challenges, inflationary effects and labour supply and labour
rate challenges; while the Company is closely managing its liquidityNG, it is possible that various events (such as delayed deliveries and
customer acceptances, delayed customer payments, supply chain issues, product recalls and warranty claims) could significantly impair the
Company’s liquidity and there can be no assurance that the Company would be able to obtain additional liquidityNG when required in such
circumstances; the Company’s business, operating results, financial condition and liquidityNG may be materially adversely impacted by the
ongoing Russian invasion of Ukraine due to factors including but not limited to further supply chain disruptions, inflationary pressures and
tariffs on certain raw materials and components that may be necessary for the Company’s operations; 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 security holders 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-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 electrical components,
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, component and labour costs; the Company may incur material losses and costs as a result of
product warranty costs, recalls, failure to comply with motor vehicle manufacturing regulations and standards and the 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; in December 2022, the Board made the decision to suspend the payment of dividends given credit agreement constraints and to
support the Company’s focus on improving its liquidityNG and financial position and the resumption of dividend payments is not assured or
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 aftermath and ongoing effects of the global COVID-19 pandemic include: ongoing economic and social disruptions;
production rates may not increase as planned and may decrease; ongoing and future supply delays and shortages of parts and components,
and shipping and freight delays, and disruption to or shortage of labour supply may continue or worsen; the pandemic has adversely affected
operations of suppliers and customers and may reverse; the supply of parts and components by suppliers continues to be challenged and may
deteriorate; the recovery of the Company’s markets in the future may not continue and demand may be lower than expected; the
Company’s ability to obtain access to additional capital if required may be impaired; and the Company’s financial performance and
condition, obligations, cash flow and liquidityNG and its ability to maintain compliance with the covenants under its credit facilities may be
impaired. There can be no assurance that the Company will be able to maintain sufficient liquidityNG for an extended period or have access
to additional capital or government financial support; and there can be no assurance as to if or when production operations will return to
pre-pandemic production rates. There is also no assurance that governments will provide continued or adequate stimulus funding 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
on a sustained basis in the anticipated period of time. The Company cautions that the COVID-19 pandemic may return or worsen or other
pandemics or similar events may arise. Such events are inherently unpredictable and may have severe and far-reaching impacts on the
Company's operations, markets, and prospects.
Factors relating to the Company's “NFI Forward” initiatives 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, the Company’s management
in preparing the financial guidance and targets and the Company’s ability to successfully execute the “NFI Forward” initiatives 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.
Appendix B - 2023 Fourth Quarter Bid Universe and
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 (what NFI considers to be active bids), 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.
In 2023 Q4, active bids of 8,732 EUs were down 16.9% year-over-year and 15.7% from 2023 Q3. The decline was primarily driven by the
higher number of new awards received in 2023 Q4, with EUs moving from bids submitted to new orders. The Company ended 2023 Q4 with
1,101 bids in process, and another 7,631 bids submitted, which is expected to drive further new orders in 2024. The number of bids
submitted during 2023 Q4 was 43.0% greater than those submitted in 2022 Q4.
The forecasted five-year North American industry procurement has rebounded from the lows of the first half of 2021. As of 2023 Q4, the
Total Bid Universe sat at 30,830 EUs, down slightly from its all-time high of 31,682 EUs in 2023 Q3. Year-over-year, the Total Bid Universe
was essentially flat, increasing by 0.1%, or 46 EUs. The Company expects that the forecasted five-year North American industry procurement
will remain high through the 2024 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 2023 Q4, 16,169 EUs, or 52.4%, of the Total Bid Universe are ZEBs, an increase of 3.1% 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.
2022 Q4
2023 Q1
2023 Q2
2023 Q3
2023 Q4
Bids in Process (EUs)
Bids Submitted (EUs)
Active EUs
5,169
2,833
1,682
1,591
1,101
5,338
8,233
8,372
8,770
7,631
10,507
11,066
10,054
10,361
8,732
Forecasted Industry
Procurement over 5
Years (EUs)1
Total Bid Universe
(EUs)
20,277
20,103
21,569
21,321
22,098
30,784
31,169
31,623
31,682
30,830
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 it excludes potential ARBOC and Alexander
Dennis sales in Canada and the U.S.
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 is therefore not included in the Bid Universe metric.
Due to the transactional nature of the procurement process in the UK, European and Asia Pacific markets, Alexander Dennis does not have a
Bid Universe metric like the one seen in North American public markets. Alexander Dennis does maintain a sales pipeline and saw
improvement in this pipeline in 2023, following several periods of lower demand. The increase in market demand is driven by customers’
fleet recovery plans and an aging UK bus fleet. This has helped grow Alexander Dennis’ backlogNG for 2024 deliveries. 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 2024 and beyond. Alexander
Dennis continues to grow its installed fleet in Europe through the execution of multi-year contracts in Ireland and Germany. The European
market is highly fragmented with numerous players providing niche opportunities for Alexander Dennis in the future.
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NFI GROUP INC. 2023 FINANCIAL RESULTS
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In Asia Pacific, the Hong Kong market is highly cyclical, and, following busier periods in 2015 through 2018, the market has declined as
anticipated. Alexander Dennis remains the market leader for double-deck buses in the Hong Kong market and expects to see stable annual
deliveries and slow recovery, reflecting typical market cyclicality, in 2024. In 2023 Q2, Alexander Dennis delivered its first battery-electric
buses to key customers in Hong Kong and secured additional ZEB orders in this market in 2023 Q4. 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 2023 Q4 totaled 2,361 EUs, an 8.4% decrease from 2022 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. New firm and option orders for Fiscal 2023 were 6,121 EUs, an increase of 5.8% from Fiscal 2022. 2023 Q4 was a slower period for
option conversion, which can vary from quarter-to-quarter, with 54 EUs converted. These 54 EUs contributed to 404 EUs converted in Fiscal
2023. Further details on options are provided below under the "Options" section.
In 2023 Q4, the Company received orders for 988 EUs of battery-electric, zero-emission vehicles, an increase from the 206 EUs of ZEB orders
in 2023 Q3, down slightly from the 1,118 EUs of ZEB orders in 2022 Q4. These 988 EUs of ZEBs equate to 41.8% of all new firm and option
orders for the quarter.
3,832 EUs of new firm and option orders were pending from customers at the end of 2023 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 backlogNG. This was up from the 1,834 EUs of pending new firm and option orders as of
the end of 2023 Q3. The Company anticipates that the majority of the units currently in bid award pending will convert into backlogNG during
2024 Q1.
New Orders
in Quarter
(Firm and
Option EUs)
2,578
1,873
917
970
2,361
LTM New Orders
(Firm and
Option EUs)
Option
Conversions in
Quarter (EUs)
LTM Option
Conversions (EUs)
5,786
6,252
5,821
6,338
6,121
118
44
289
17
54
638
464
668
468
404
2022 Q4
2023 Q1
2023 Q2
2023 Q3
2023 Q4
Options
In 2023 Q4, 55 options expired, as compared to 149 options that expired in 2023 Q3, and 831 options that expired in 2022 Q4. Option
expiries can vary significantly quarter-to-quarter. Certain agencies have let 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 number
of expired options through new orders in 2022 and 2023; in Fiscal 2023, 6,121 EUs in new option orders were added to the backlogNG. The
option conversion rate improved from 25% in Fiscal 2022 to 41% in Fiscal 2023, reflecting the addition of newer contracts received in 2021
and 2022. The Company's conversion rate can vary significantly from quarter-to-quarter and should be looked at on an annual or LTM basis.
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 backlogNG of options that will expire each year if not exercised.
2018
2019
2020
2021
2022
2023
2024
2025
2026
2027
2028
Total
A) Options Expired (EUs)
B) Options Exercised (EUs)
741
512
1,202
819 1,920
575
1,795 1,518
953 1,110
638
404
5,759
6,418
C) Current Options by year of expiry (EUs)
284
749 1,223
1,707
1,611
5,574
D) Conversion rate % = B / (A+B)
71 %
75 %
44 %
58 %
25 %
41 %
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 40 of these purchasing schedules,
either directly or through its dealers. These schedules are not recorded in backlogNG as they do not have defined quantities allocated to the
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NFI GROUP INC. 2023 FINANCIAL RESULTS
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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 1,500 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 2023 Q4 Book-to-BillNG ratio (defined as new firm orders and exercised options divided by new deliveries) was 111.2%, a
decrease from 144.0% in 2022 Q4. This decrease was driven by lower total new orders and higher deliveries. Fiscal 2023 Book-to-BillNG was
113.0% a decrease from 133.9% for Fiscal 2022, primarily driven by increased deliveries and the timing of customer awards.
BacklogNG
The Company's total backlogNG consists of buses sold primarily to U.S. and Canadian public customers and private operators in the UK and
Internationally. The majority of the backlogNG relates to New Flyer transit buses for public customers with some of the backlogNG consisting
of units from MCI, AD, and ARBOC. Options for ARBOC vehicles are held by dealers, rather than the operator, and are not included as options
in the NFI backlogNG, but are converted to firm backlogNG 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 65.9% of the total backlogNG as of
the end of 2023 Q4, up from 62.2% as of the end of 2023 Q3. As at the end of 2023 Q4, there were 3,779 EUs of ZEBs in the backlogNG,
representing 35.7% of the total backlogNG, down slightly from the record of 36.4% as at the end of 2023 Q1, but up from 28.6% as at the end
of 2022 Q4.
2023 Q4
2023 Q3
2022 Q4
Firm
Orders Options
Total
Firm
Orders
Options
Total
Firm
Orders
Options
Total
Beginning of period
4,863
4,693
9,556
5,089
4,714
9,803
4,153
4,352
8,505
New orders
Options exercised
Shipments1
1,371
990
2,361
54
(54)
—
825
17
145
(17)
970
1,371
1,207
2,578
—
118
(118)
—
(1,227)
—
(1,227)
(1,051)
— (1,051)
(1,034)
—
(1,034)
Cancelled/expired
(49)
(55)
(104)
(17)
(149)
(166)
(32)
(831)
(863)
End of period
Consisting of:
5,012
5,574
10,586
4,863
4,693
9,556
4,576
4,610
9,186
Heavy-duty transit buses
4,146
5,265
9,411
3,911
4,388
8,299
3,602
4,342
7,944
Motor coaches
Cutaway and medium-duty buses
309
246
620
555
620
353
599
305
658
599
347
627
268
—
615
627
Total BacklogNG
5,012
5,574
10,586
4,863
4,693
9,556
4,576
4,610
9,186
1. Shipments do not include delivery of pre-owned coaches as these coaches are not included in the backlogNG.
At the end of 2023 Q4, the Company's total backlogNG of 10,586 EUs (firm and options) increased by 10.8% from the end of 2023 Q3, and
increased by 15.2% from the end of 2022 Q4. The increase was driven by higher awards in the quarter, offset by higher deliveries and fewer
cancellations/expiries. BacklogNG for 2023 Q4 has a total dollar value of $7.9 billion2, a 20.4% increase from 2023 Q3 and a 40.6% increase
from 2022 Q4. 3,832 EUs of new firm and option orders were in bid award pending at the end of 2023 Q4, up from 1,834 as of the end of
2023 Q3. This high number of bid award pending EUs should position NFI for a significant period of new awards in 2024 Q1.
The average price of an EU in backlogNG is now $0.75 million, an 22.0% increase from 2022 Q4.
The summary of the values is provided below.
Total firm orders
Total options
Total backlogNG
2023 Q4
2023 Q3
2022 Q4
$3,249.8
$4,677.6
EUs
5,012
5,574
$7,927.4
10,586
$2,864.6
$3,718.9
$6,583.5
EUs
4,863
4,693
9,556
$2,515.4
$3,123.0
$5,637.4
EUs
4,576
4,610
9,186
51
NFI GROUP INC. 2023 FINANCIAL RESULTS
NFIGROUP.COM
Consolidated Financial Statements of
NFI GROUP INC.
December 31, 2023
TABLE OF CONTENTS
Consolidated Statements of Net Loss and Total 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
7
8
9
10
11-48
Deloitte LLP
360 Main Street
Suite 2300
Winnipeg MB R3C C3Z
Canada
Tel: 1‐204‐942‐0051
Fax: 204‐947‐9390
www.deloitte.ca
February 28, 2024
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 December 31, 2023 and January 1, 2023, and the
consolidated statements of net loss comprehensive income, changes in equity and cash flows for the years then
ended, and notes to the consolidated financial statements, including material accounting policy information
(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 December 31, 2023 and January 1, 2023, 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.
Key Audit Matter
A key audit matter is a matter that, in our professional judgment, was of most significance in our audit of the
consolidated financial statements for the year ended December 31, 2023. This matter was 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 this matter.
Goodwill – ARBOC and ADL Manufacturing — 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 of its 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 and
ADL Manufacturing CGUs (collectively “identified CGUs”) to be the 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.
NFI Group Inc.
February 28, 2024
Page 2
At the annual evaluation date, the recoverable amounts of the CGUs exceeded their carrying amounts 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 CGUs 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
o
o
o Macroeconomic and market specific information
Internal reports including production and backlog supported by contracts
Internal communications to management and the Board of Directors
• 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.
The information, other than the financial statements and our auditor’s report thereon, in the Annual Report.
Our opinion on the financial statements does not cover the other information and we do not and will 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.
NFI Group Inc.
February 28, 2024
Page 3
The Annual Report is expected to be made available to us after the date of the auditor's report. If, based on the
work we will perform on this other information, we conclude that there is a material misstatement of this other
information, we are required to report that fact to those charged with governance.
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.
NFI Group Inc.
February 28, 2024
Page 4
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 Paul Stauch.
/s/ Deloitte LLP
Chartered Professional Accountants
Winnipeg, Manitoba
February 28, 2024
NFI GROUP INC.
CONSOLIDATED STATEMENTS OF NET LOSS AND COMPREHENSIVE LOSS
52-weeks ended December 31, 2023 ("Fiscal 2023”) and 52-weeks ended January 1, 2023 ("Fiscal 2022”)
(in thousands of U.S. dollars except per share figures)
Revenue (note 25)
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 from operations
(Loss) gain on disposition of property, plant and equipment and right-of-use asset
Gain on debt modification
Unrealized foreign exchange (loss) gain on monetary items
Loss before interest and income taxes
Interest and finance costs
Interest on long-term debt
Interest on convertible debt
Interest on senior unsecured debt
Accretion in carrying value of long-term debt (note 17)
Accretion in carrying value of convertible debt (note 19)
Accretion in carrying value of senior unsecured debt (note 16)
Interest expense on lease liability
Other interest and bank charges
Fair market value gain on prepayment option of second lien debt (note 18)
Equity swap settlement fee
Fair market value loss (gain) on interest rate swap
Fair market value loss (gain) on cash conversion option (note 19)
Loss before income tax expense
Income tax recovery (note 15)
Current income tax recovery
Deferred income tax recovery
Net loss for the period
Other comprehensive gain (loss)
$
2
2
0
0
2
2
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3
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$
$
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3
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$
Actuarial (loss) gain on defined benefit pension plan - this item will not be reclassified subsequently to
profit or loss
Unrealized foreign exchange gain (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 21)
Net loss per share (diluted) (note 21)
The accompanying notes are an integral part of the consolidated financial statements.
4
(
1
,
4
2
2
,
(
5
0
6
5
,
7
—
1
)
3
7
)
$
$
$
$
7
NFI GROUP INC 2023 ANNUAL REPORT
Fiscal 2023
Fiscal 2022
restated (note
2.16, 2.24)
2,685,231 $ 2,060,682
514,047
2,464,466 2,011,552
507,255
709,620
49,695
220,765
62,658
245,265
797
(3,249)
—
(41,051)
(13,760)
(21,251)
544 (789)
101
8,908
2,481
1,611
(3,696)
49,130
238,608
(5,205)
103,900
(288,173)
565
—
598
(1,540)
(16,828)
(287,010)
24,930
86,456
3,138
12,519
3,045
732
1,909
10,514
4,415
7,554
25
474
1,653
8,084
105 (292)5,964
(640)
3,519
9,427
1,873
314 3,956
1,528
42,932
152,242
52,674
14,002
—
5,582
7,641
—
5,780
5,395
—
—
(37,708)
(16,578)
36,788
(44,472)
(169,070)
(323,798)
(10,133)
(4,546)
(11,941)
(20,965)
(136,164) $
(40,167)
(39,926)
(19,809)
(27,612)
(276,376)
(4,754)
14,844
(15,754)
12,137
—
—
(23,449)
(287)
(67,978)
(41,638)
(128,781)
(285,268)
$
$
(1.48) $
(1.48) $
(0.73)
(0.62)
(0.73)
(0.62)
(3.58)
(3.58)
NFI GROUP INC.
CONSOLIDATED STATEMENTS OF FINANCIAL POSITION
As at December 31, 2023
(in thousands of U.S. dollars)
Assets
Current
Cash
Accounts receivable (note 3, 24e)
Inventories (note 4)
Income tax receivable
Derivative financial instruments (note 24a, b)
Prepaid expenses and deposits
Property, plant and equipment (note 5, 25)
Right-of-use asset (note 6)
Derivative financial instruments (note 18, 24a, 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
Derivative financial instruments (note 24a, b)
Senior unsecured debt (note 6)
Current portion of long-term debt (note 17)
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 19, 24a, b)
Senior unsecured debt (note 16)
Long-term debt (note 17)
Second lien debt (note 18)
Convertible debentures (note 19)
Commitments and contingencies (note 27)
Shareholders' equity
Share capital (note 20)
Stock option and restricted share unit reserve (note 12)
Accumulated other comprehensive income (loss)
Deficit
The accompanying notes are an integral part of the consolidated financial statements.
8
NFI GROUP INC 2023 ANNUAL REPORT
December 31, 2023
January 1, 2023
restated (note 2.16,
2.24)
$
49,615 $
466,353
762,581
26,314
—
18,988
49,987
354,826
732,096
40,142
1,720
23,452
1,323,851
1,202,223
194,474
114,437
2,767
976,377
4,337
50,676
33,041
195,783
107,631
27,800
986,421
14,747
32,126
17,665
$
2,699,960 $
2,584,396
547,626
1,481
-
—
170,599
719,706
3,035
120,044
3,198
30,540
65,258
46,756
9,296
61,796
536,037
172,396
228,985
1,997,047 $
1,240,163
13,673
4,409
(555,332)
702,913 $
2,699,960 $
453,790
2,837
0
17,901
167,251
641,779
2,927
114,044
1,497
17,603
70,971
56,914
6,067
—
878,725
—
216,513
2,007,040
988,218
11,285
(2,979)
(419,168)
577,356
2,584,396
$
$
$
NFI GROUP INC.
CONSOLIDATED STATEMENTS OF CHANGES IN EQUITY
For the period ended December 31, 2023
(in thousands of U.S. dollars)
Balance, January 2, 2022 (restated) (note 2.6)
Net loss (restated) (note 2.6)
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 (restated) (note 2.24)
$
$
Net loss (restated) (note 2.24)
Other comprehensive loss
Dividends declared on common shares
Equity Transaction Cost
Share-based compensation, net of deferred income taxes
Shares issued
Net loss
Other comprehensive gain
Equity Transaction Cost
Share-based compensation, net of deferred income taxes
Shares issued – private placement (note 20)
Shares issued (note 20)
Balance, December 31, 2023
Balance, January 1, 2023 (restated) (note 2.24)
$
988,218 $
Stock Option
and Restricted
Share Unit
Reserve
10,105 $
—
—
—
—
1,030
(204)
10,105
Accumulated
Other
Comprehensive
(Loss) Income
5,921 $
—
(25,000)
—
—
—
—
$ 5,921 $
Share Capital
987,943 $
—
—
—
(2)
—
204
987,943 $
Deficit
(133,380)$
(126,712)
—
(9,412)
—
—
—
(133,380) $
Total
Shareholders’
Equity
870,589
(126,712)
(25,000)
(9,412)
(2)
1,030
—
870,589
—
—
—
—
—
275
—
—
(10,476)
—
170,458
91,963
—
—
—
—
1,455
(275)
11,285 $
—
—
—
2,756
—
(368)
—
(276,377)
(276,377)
(8,900)
—
—
—
—
(2,979) $
—
7,388
—
—
—
—
(9,411)
—
—
—
—
(18,311)
—
—
1,455
—
(419,168) $
(136,164)
577,356
(136,164)
—
—
—
—
—
7,388
(10,476)
2,756
170,458
91,595
$ 1,240,163 $
13,673 $
4,409 $
(555,332) $
702,913
The accompanying notes are an integral part of the consolidated financial statements.
9
NFI GROUP INC 2023 ANNUAL REPORT
NFI GROUP INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
52-weeks ended December 31, 2023 ("Fiscal 2023”) and 52-weeks ended January 1, 2023 ("Fiscal 2022”)
(in thousands of U.S. dollars)
2
2
0
0
2
2
2
3
Fiscal 2022
restated (note
2.24)
Fiscal 2023
Operating activities
Net loss for the period
Income tax recovery
Depreciation of property, plant and equipment
Amortization of intangible assets
Share-based compensation
Interest and finance costs recognized in profit or loss
(Gain) loss on fair value adjustment for total return swap
Unrealized foreign exchange loss (gain) on monetary items
Foreign exchange loss (gain) on cash held in foreign currency
Loss (gain) on fair value adjustment for cash conversion option
Loss (gain) on disposition of property, plant and equipment
(Recovery) impairment loss on property, plant and equipment
Impairment loss on right-of-use asset
Impairment loss on intangible asset
Gain on debt modification
Past service cost
Defined benefit expense
Defined benefit funding
Cash generated by (used in) operating activities before non-cash working capital items and interest and
income taxes paid
Changes in non-cash working capital items (note 22)
Cash generated by (used in) operating activities before interest and income taxes paid
Interest paid
Income taxes recovered
Net cash used in operating activities
Financing activities
Repayment of obligations under lease
(Repayment) proceeds from revolving credit facilities
Share issuance
Share issuance costs
Proceeds on other long-term liabilities
Proceeds from senior unsecured debt
Repayment of short-term debt
Dividends paid
Net cash generated by 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 in cash
Cash — beginning of period
Cash — end of period
The accompanying notes are an integral part of the consolidated financial statements.
10
NFI GROUP INC 2023 ANNUAL REPORT
—
3,497
—
—
(771)
(598)
(47,421)
57,013
31,482
1,955
(4,265)
53,311
(97,555)
(87,369)
(16,578)
(184,924)
(565)
2,558
677
137
2,618
1,346
4,144
3,696
7,879
2,779
4,764
(2,558)
(3,765)
(8,908)
(5,730)
16,272
61,234
(44,962)
(11,105)
(19,479)
103,900
—
(3,185)
(996)
(2,270)
148,926
(39,926)
(40,167)
(10,133)
(4,546)
(32,906)
49,370
31,410
1,053
314 3,315
789
Q
Q
3
3
$
$
$ (136,164) $ (276,376)
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(
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6
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,
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4
2
4
4
7
8
2
4
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)
(109,389)
(15,384)
(33,076)
(10,274)
(2,947)
(3,402)
(26,714)
(6,199)
(8,516)
(21,712)
(8,017)
(4,046)
(192,401)
49,615 $
262,055
(53,342)
(8,783)
117,836
39,832
49,615
(63,813)
(10,476)
(38,785)
(18,123)
18,010
18,374
67,904
29,304
61,996
49,987
(1,053)
6,556
1,769
2,345
(137)
(372)
77,318
(241,850)
(58,348)
(10,212)
(21,371)
(24,531)
(22,388)
(24,535)
(27,331)
5,365
49,987
238,279
1,687
—
(2)
—
—
—
—
$
285,204
1,422
771
NFI GROUP INC.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
As at December 31, 2023
(in thousands of U.S. dollars except per share figures)
1.
CORPORATE INFORMATION
1.1
Corporate information
NFI Group Inc. (“NFI”) was incorporated on June 16, 2005 under the laws of the Province of Ontario (NFI and its subsidiaries collectively
referred to as the “Company”). 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 ("AD") (single and double-deck buses),
Plaxton (motor coaches), MCI® (motor coaches), ARBOC® (low-floor cutaway and medium-duty buses) and NFI Parts™ (aftermarket parts
sales). NFI common shares (the “Shares”) are listed on the Toronto Stock Exchange (“TSX”) under the symbol “NFI”. NFI's convertible
debentures are listed on the TSX under the symbol "NFI.DB".
These audited consolidated financial statements (the "Statements") were approved by NFI's board of directors (the "Board") on February
28, 2024.
1.2
Refinancing plan
On August 25, 2023, NFI announced that it had closed its comprehensive refinancing plan (the "Refinancing Plan"). Under the
Refinancing Plan, the following changes to the profile and capacity of the Company's senior secured credit facilities with its North
American lenders (the "North American Facility") and UK lenders (the "UK Facility", collectively the "Secured Facilities") were effected:
•
•
•
•
The $1.0 billion revolving North American Facility converted to a $400 million first lien term loan and a $361 million first lien
revolving credit facility (total combined borrowing capacity of $761 million), which includes a $150 million letter-of-credit facility.
The £40 million revolving UK Facility converted to a £16.0 million term loan and a £14.4 million revolving credit facility (total
combined borrowing capacity of £30.4 million).
Extension of maturity dates of the Secured Facilities to April 30, 2026.
Total leverageNG and interest coverageNG covenants waived until 2024 Q3. Minimum banking liquidityNG requirement increased from
$25 million to $50 million (note 24).
Terms of NFI's completed $180.4 million second lien financing ("Second Lien Financing") included the following:
•
•
•
•
A five-year term and a 97% original issue discount, generating net proceeds of $175.0 million, before fees and commissions;
Annual coupon of 14.5%, payable semi-annually;
Callable at 100% of face value with applicable premium for the first 12 months, callable at 106% of face value for months 13 to 24,
callable at 103% of face value for months 25 to 36 and callable at par from 36 months onwards; and
The financing has been provided by funds and accounts managed by Coliseum Capital Management LLC, the Company's largest
shareholders', and a related party to it.
The Second Lien Financing is a senior secured second lien obligation of NFI and its material subsidiaries, that ranks behind the Secured
Facilities and all other first lien secured indebtedness of NFI and such subsidiaries, ranks ahead of any subordinated obligations of NFI
and its subsidiaries, and, by virtue of being secured, ranks ahead of any unsecured obligations.
As part of the refinancing plan, the Company:
•
•
•
•
Completed a private placement on August 25, 2023 of shares with Coliseum Capital Management for 21,656,624 NFI Shares at a
subscription price of $6.1567 per Share (the “Subscription Price”) of $133.3 million.
Completed a private placement on August 25, 2023 with a leading global asset manager for 5,000,000 Shares at a subscription
price of C$10.10 per Share for aggregate gross proceeds to NFI of C$50,500,000 (approximately $37.2 million).
Issued 15,102,950 subscription receipts on June 6, 2023 at a price of C$8.25 per subscription receipt, for aggregate gross proceeds
to NFI of approximately C$125.9 million (approximately $93.1 million), inclusive of interest earned in escrow. Each subscription
receipt was exchanged into for one Share after the Refinancing Plan transaction closed on August 25, 2023.
Extended the maturity of Manitoba Development Corporation’s and Export Development Canada’s (“MDC” and “EDC” respectively)
senior unsecured debt facilities to April 30, 2026; with a $25.0 million permanent repayment of the EDC facility.
11
NFI GROUP INC 2023 ANNUAL REPORT
NFI GROUP INC.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
As at December 31, 2023
(in thousands of U.S. dollars except per share figures)
2.
SUMMARY OF MATERIAL ACCOUNTING POLICIES
The material 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”) 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. References to Non-IFRS
measures have been denoted with an "NG".
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 and requires an assessment looking out at least 12 months. While our going concern assessment identified
material uncertainties up until 2023 Q3, management has concluded the material uncertainties no longer exist. That conclusion
necessarily involved management judgments, estimates and assumptions, and consideration of recent developments including:
•
•
•
•
•
The completion of the Refinancing Plan (Note 1.2 and Note 17) which resulted in more favourable debt covenants and an
extension of maturities until at least 2026;
The completion of the private placements and public offering (Note 20) which generated incremental liquidityNG;
Continued growth of order backlog in both unit and dollars;
Improvements in the supply chain; and
Revenue and margin projections and forecasts regarding performance against the debt covenants.
Actual results may differ from these estimates and assumptions.
2.2
Principles of consolidation
The Statements include the accounts of the Company's 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, all of 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.
12
NFI GROUP INC 2023 ANNUAL REPORT
NFI GROUP INC.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
As at December 31, 2023
(in thousands of U.S. dollars except per share figures)
2.
SUMMARY OF MATERIAL ACCOUNTING POLICIES (Continued)
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.
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, batteries, fuel cells, 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.
13
NFI GROUP INC 2023 ANNUAL REPORT
NFI GROUP INC.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
As at December 31, 2023
(in thousands of U.S. dollars except per share figures)
2.
SUMMARY OF MATERIAL ACCOUNTING POLICIES (Continued)
The Infrastructure SolutionsTM business 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.
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 12), 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 25) 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.
14
NFI GROUP INC 2023 ANNUAL REPORT
NFI GROUP INC.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
As at December 31, 2023
(in thousands of U.S. dollars except per share figures)
2.
SUMMARY OF MATERIAL ACCOUNTING POLICIES (Continued)
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.
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.
15
NFI GROUP INC 2023 ANNUAL REPORT
NFI GROUP INC.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
As at December 31, 2023
(in thousands of U.S. dollars except per share figures)
2.
SUMMARY OF MATERIAL ACCOUNTING POLICIES (Continued)
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
5-12 years
1-2 years
21 years
5-7 years
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
as at each consolidated statements of financial position date using the then 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.
16
NFI GROUP INC 2023 ANNUAL REPORT
NFI GROUP INC.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
As at December 31, 2023
(in thousands of U.S. dollars except per share figures)
2.
SUMMARY OF MATERIAL ACCOUNTING POLICIES (Continued)
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.
The Company elected to make a voluntary change in accounting policy on the existence of warranties to provide better information to
the readers of the financial statements. After a review of assurance and service-type warranties were performed, it was deemed more
relevant to classify certain extended warranties as assurance-type warranties in accordance with IAS 37. As the company has applied
this change in policy retrospectively, this has resulted in a prior year restatement of deferred revenue, warranty provision, revenue
and cost of sales of $6.7 million.
2.17
Long-term debt and second lien debt
Long-term debt and second lien debt are 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.
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 to 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.
17
NFI GROUP INC 2023 ANNUAL REPORT
NFI GROUP INC.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
As at December 31, 2023
(in thousands of U.S. dollars except per share figures)
2.
SUMMARY OF MATERIAL ACCOUNTING POLICIES (Continued)
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 date of the consolidated statements of financial position,
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.
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 19). 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.
Prepayment option on second lien debt
An embedded derivative is a derivative component attached to a non-derivative contract. The Company has an embedded derivative,
the prepayment option of the Company’s second lien debt (note 18). The prepayment option meets separation criteria outlined in IFRS
9.4.3.3, and is recognized and measured separately from second lien debt. 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.
18
NFI GROUP INC 2023 ANNUAL REPORT
NFI GROUP INC.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
As at December 31, 2023
(in thousands of U.S. dollars except per share figures)
2.
SUMMARY OF MATERIAL ACCOUNTING POLICIES (Continued)
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 as at the date of each consolidated statements of financial position
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.
International Tax Reform - Pillar two model rules
In May 2023, the IASB amended IAS 12, Income taxes, for International tax reform - Pillar two Model Rules. The amendments to IAS 12
have been introduced in response to the Organization for Economic Co-operation and Development’s BEPS Pillar Two rules and include
a mandatory temporary exception to the recognition and disclosure of deferred taxes arising from the jurisdictional implementation of
the Pillar Two model rules and disclosure requirements for affected entities. The mandatory temporary exception and disclosure
requirements apply immediately for annual reporting periods beginning on or after January 1, 2023, which have been adopted by the
Company as at December 31, 2023. The adoption of this amendment, the enactment of the Pillar Two legislation in the UK and the
proposed Pillar Two legislation in certain jurisdictions the Company operates in is not expected to have a significant impact on the
audited consolidated financial statements of the Company.
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.
19
NFI GROUP INC 2023 ANNUAL REPORT
NFI GROUP INC.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
As at December 31, 2023
(in thousands of U.S. dollars except per share figures)
2.
SUMMARY OF MATERIAL ACCOUNTING POLICIES (Continued)
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 – North American 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.
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 2.7 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 as at the
date of each consolidated statements 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.
20
NFI GROUP INC 2023 ANNUAL REPORT
NFI GROUP INC.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
As at December 31, 2023
(in thousands of U.S. dollars except per share figures)
2.
SUMMARY OF MATERIAL ACCOUNTING POLICIES (Continued)
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 as 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.
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 audited 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
New standards adopted
IFRS 17 – Insurance Contracts
Effective January 2, 2023, the Company adopted IFRS 17, which introduced new guidance for recognition, measurement, presentation
and disclosure of insurance contracts. The Company applied a full retrospective approach. The Company previously used IFRS 4,
Insurance Contracts, which is no longer in effect to account for these contracts.
The IFRS 17 Standard establishes principles for the recognition, measurement, presentation and disclosure of (re)insurance contracts.
The Company has applied the measurement method for insurance contracts using a probability weighted discounted cash flow model,
including a best estimate and an adjustment for non-financial risk calculated for groups of similar contracts. There is a reliance on
actuarial modelling techniques and the quality of underlying data. The Company has applied the premium allocation approach. 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.
The adoption of IFRS 17 resulted in a decrease to net loss and retained deficit of $1,385 for Fiscal 2022, and an increase to net loss and
retained deficit of $1,182 for 2021 and prior fiscal periods. There was no change to reported earnings (loss) per share.
21
NFI GROUP INC 2023 ANNUAL REPORT
NFI GROUP INC.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
As at December 31, 2023
(in thousands of U.S. dollars except per share figures)
2.
SUMMARY OF MATERIAL ACCOUNTING POLICIES (Continued)
The transition adjustment is as follows:
Assets
Liabilities
Shareholders'
Equity
Accounts
receivable
Prepaid expenses
and deposits
Accounts payable
and accrued
liabilities
Provisions
Retained
Earnings (Deficit)
As reported January 1, 2023
Transition adjustment
Restated January 1, 2023
$
$
366,224 $
(11,398)
354,826 $
16,928
6,524
23,452
$
$
455,368 $
(1,578)
453,790 $
71,299
(328)
70,971
$
$
(419,373)
205
(419,168)
IAS 1 - Presentation of Financial Statements:
Classification of Liabilities as Current or Non-current, which amends IAS 1, was issued January 2020 and October 2022, 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 assessed that this standard does not have a material impact on the audited consolidated financial statements and
that the Company is in compliance with the required disclosures.
2.25
Standards issued but not yet adopted
IFRS 7 – Supplier financing arrangements - disclosures
In May 2023, the International Accounting Standards Board (“IASB”) issued the final amendments to IAS 7 and IFRS 7 which address the
disclosure requirements to enhance the transparency of supplier finance arrangements and their effects on a company’s liabilities, cash
flows and exposure to liquidity risk. The amendments are effective January 1, 2024 and provide additional disclosure requirements for
supplier finance arrangements including disclosure of the terms and conditions, range of payment due dates, and liquidity risk
information. The amount of the liabilities that are part of the arrangements, breaking out the amounts for which the suppliers have
already received payment from the finance providers, and stating where the liabilities sit on the balance sheet must also be disclosed.
Management assessed there will be an impact on the disclosure requirements effective January 1, 2024.
3.
ACCOUNTS RECEIVABLE
Trade, net of allowance for doubtful accounts (note 24e)
Other
4.
INVENTORIES
Raw materials
Work in process
Finished goods
22
NFI GROUP INC 2023 ANNUAL REPORT
December 31, 2023
January 1, 2023
restated (note 2.24)
430,261 $
36,092
466,353 $
322,200
32,626
354,826
December 31, 2023
January 1, 2023
360,575 $
331,119
70,887
762,581 $
329,388
343,424
59,284
732,096
$
$
$
$
NFI GROUP INC.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
As at December 31, 2023
(in thousands of U.S. dollars except per share figures)
4.
INVENTORIES (Continued)
Cost of inventories recognized as expense and included in cost of sales
Write-down of inventory to net realizable value in cost of sales
Reversals of a previous write-down in inventory
2
0
2
$
3
2
0
2
$
2
Q
3
Q
3
Fiscal 2023
Fiscal 2022
639,876
$
494,193
2,363,585
$
1,892,039
3732,632
2,331
91—
225
8,362
—
5.
PROPERTY, PLANT AND EQUIPMENT
Cost
Accumulated depreciation
January 2, 2022 net book value
Additions
Transfer to inventory
Disposals
Depreciation charge
Impairment
Cumulative translation adjustment
January 1, 2023 net book value
Additions
Transfer (to) from inventory
Disposals
Depreciation charge
Reversal of Impairment (note 30)
Cumulative translation adjustment
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
$
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
3,290
—
(138)
(4,860)
(2,558)
(904)
92,531
9,140
—
(2,306)
(4,183)
2,558
534
81,007
13,458
—
(475)
17,912
1,745
—
—
2,408
15,713
6,597
221,338
67
2,799
12
21,371
—
—
(908)
(640)
(2,178)
(3,086)
—
(1,253)
(16,384)
(4,441)
(521)
(6,752)
(2,341)
(35,299)
—
(2,719)
74,887
13,482
(57)
(143)
—
(225)
14,991
1,856
—
—
—
7
—
(902)
—
13
(2,558)
(4,730)
1,961
9,310
2,103
195,783
15
2,171
50
26,714
—
—
897
—
(1,752)
(912)
—
(2,449)
(16,622)
(4,240)
(363)
(4,268)
(257)
(29,933)
—
1,918
—
103
—
1
—
157
—
—
2,558
2,713
December 31, 2023 net book value
$
98,274 $
73,465 $
12,710 $
1,614 $ 8,267
$
144 $ 194,474
Recorded as:
Cost
Accumulated depreciation
January 1, 2023 net book value
Cost
Accumulated depreciation
December 31, 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
$
$
$
$
119,053 $
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
128,979 $
245,217 $
60,700 $
8,075 $ 56,508 $
23,213 $522,692
30,705
171,752
47,990
6,461
48,241
23,069 328,218
98,274 $
73,465 $
12,710 $
1,614 $
8,267 $ 144 $194,474
23
NFI GROUP INC 2023 ANNUAL REPORT
NFI GROUP INC.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
As at December 31, 2023
(in thousands of U.S. dollars except per share figures)
6.
RIGHT-OF-USE ASSETS
Cost
Accumulated Depreciation
January 2, 2022 net book value
Additions
Disposals
Impairment
Depreciation charge
Cumulative translation adjustment
January 1, 2023 net book value
Additions
Disposals
Impairment
Depreciation charge
Cumulative translation adjustment
Land, building
and building
improvements
Machinery
and
equipment
Computer
hardware
and software
146,952
38,856
108,096
15,133
(4,223)
(4,144)
(14,401)
(2,682)
49,454
36,245
13,209
1,210
(78)
—
(5,818)
(184)
13,690 $
13,234
456 $
1,501
—
—
(444)
—
$
97,779
$
8,339 $
1,513 $
21,421
(1,976)
—
(13,249)
385
4,867
(70)
—
(5,403)
6
1,610
—
—
(785)
—
Total
210,096
88,335
121,761
17,844
(4,301)
(4,144)
(20,663)
(2,866)
107,631
27,898
(2,046)
—
(19,437)
391
December 31, 2023 net book value
$
104,360 $
7,739 $
2,338 $
114,437
Recorded as:
Cost
Accumulated Depreciation
January 1, 2023 net book value
Cost
Accumulated Depreciation
Land, building
and building
improvements
Machinery
and
equipment
Computer
hardware
and software
151,036
53,257
97,779
170,866
66,506
50,402
42,063
8,339
55,205
47,466
15,191
13,678
1,513
16,801
14,463
December 31, 2023 net book value
$
104,360 $
7,739 $
2,338 $
Total
216,629
108,998
107,631
242,872
128,435
114,437
Total cash outflows for payments on lease liabilities was $29.8 million for the period ended December 31, 2023 (2022: $27.3 million) of
which $21.7 million (2022: $24.5 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 30). The
impairments total of nil (2022: $4.1 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 2023 ANNUAL REPORT
NFI GROUP INC.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
As at December 31, 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
$ 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
Additions
Amortization charge
Impairment loss
—
—
(103,900)
—
(275)
—
—
—
(6,797)
(23,661)
—
—
Cumulative translation adjustment
(14,980)
(4,857)
(1,030)
(11,961)
January 1, 2023 net book value
409,703
263,159
6,881
296,089
Additions
Amortization charge
Impairment loss
Cumulative translation adjustment
—
—
—
3,468
—
(275)
—
2,262
33
—
(6,454)
(23,878)
—
231
—
5,572
—
—
—
—
—
—
—
—
—
—
1,670
1,144,963
10,212
(749)
10,212
(31,482)
—
(103,900)
(544)
(33,372)
10,589
10,241
(803)
—
(441)
986,421
10,274
(31,410)
—
11,092
December 31, 2023 net book value
$ 413,171 $ 265,146
$ 691 $
277,783 $
— $
19,586 $
976,377
Recorded as:
Cost
$ 409,703 $ 265,497 $ 154,770 $
517,034 $
— $
11,338
1,358,342
Accumulated amortization
—
2,338
147,889
January 1, 2023 net book value
409,703
263,159
6,881
220,945
296,089
Cost
413,171
267,759
155,034
522,606
Accumulated amortization
—
2,613
154,343
244,823
—
—
—
—
749
371,921
10,589
986,421
21,138
1,379,708
1,552
403,331
December 31, 2023 net book value
$ 413,171 $ 265,146
$ 691 $
277,783 $
— $
19,586 $
976,377
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 13.5% and 14.8% per annum for the AD manufacturing and the AD parts CGUs; between
14.5% and 15.5% for the North American bus/coach manufacturing CGU; between 15% and 16.3% for the ARBOC CGU; and between
14.3% and 15.5% per annum for the NFI Parts CGU. 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.
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, AD manufacturing CGU, AD parts CGU or NFI Parts CGU.
Impairment of the ARBOC CGU may result if a combination of the following changes occurs:
• the discount rate is higher by at least 0.5%
• the long-term growth rate is lower by 1.0%
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 $688 at December 31, 2023) which is amortized over its useful
life, which ends in 2025.
25
NFI GROUP INC 2023 ANNUAL REPORT
NFI GROUP INC.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
As at December 31, 2023
(in thousands of U.S. dollars except per share figures)
8.
OTHER LONG-TERM ASSETS
Long-term restricted deposit(s) (note 24b)
Long-term accounts receivable
Long-term restricted deposit(s) is collateral for certain of the Company's letters of credit.
9.
CURRENT PORTION OF LONG-TERM LIABILITIES
December 31, 2023
January 1, 2023
$
$
45,441 $
5,235
50,676 $
25,351
6,775
32,126
Deferred revenue
Provisions (note 14)
Deferred compensation obligation
Obligations under leases
10. ACCRUED BENEFIT ASSET (LIABILITY)
Defined benefit plan
December 31, 2023
January 1, 2023
$
$
138,091 $
13,341
1,208
17,959
170,599 $
124,851
24,283
536
17,581
167,251
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, 2022 and December 31, 2023.
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 income (expenses)
Employer’s contributions
Benefits paid
Plan settlement
Foreign exchange gain (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 (gain)
Past service costs
Actuarial loss (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 return on the plan assets for Fiscal 2023 was $6,980 (Fiscal 2022: loss of $13,028).
26
NFI GROUP INC 2023 ANNUAL REPORT
December
31, 2023
January 1,
2023
$ 85,062 $
109,324
4,183
2,797
1,509
3,240
(6,454)
—
1,976
3,175
(16,203)
(239)
4,254
(5,651)
(3,706)
(5,892)
92,313
85,062
73,244
116,419
3,199
3,814
(6,454)
1,917
4,764
4,597
3,362
(9,358)
(4,828)
—
10,527
(36,950)
—
91,011
$ 1,302 $
—
73,242
11,820
NFI GROUP INC.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
As at December 31, 2023
(in thousands of U.S. dollars except per share figures)
10. ACCRUED BENEFIT ASSET (LIABILITY) (Continued)
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 2023
Fiscal 2022
Discount Rate
4.60 %
5.10 %
4.57% - 4.95% 2.20% - 5.10%
4.95 %
5.15%
Last valuation date Next valuation date
Discount rate - sensitivity
Life expectancy - sensitivity
1% increase
1% decrease one year increase one year decrease
Then obligation
would decrease
by:
Then obligation
would increase
by:
Then obligation
would increase
by:
Then obligation
would decrease
by:
Dec. 31, 2023
Dec. 31, 2025
Dec. 31, 2022
Dec. 31, 2025
13.5 %
12.6 %
16.8 %
15.9 %
1.3 %
4.5 %
1.3 %
4.5 %
The defined benefit plans typically exposes 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.
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 December 31, 2023 are $3,269.
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
Past service costs
Net interest (income) expense
Administrative (income) expenses
Foreign exchange loss
Components of defined benefit costs recognized in net earnings (loss)
27
NFI GROUP INC 2023 ANNUAL REPORT
Fiscal 2023
Fiscal 2022
3,199 $
4,597
4,764
(369)
(1,509)
(48)
6,037 $
187
239
—
5,023
$
$
NFI GROUP INC.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
As at December 31, 2023
(in thousands of U.S. dollars except per share figures)
10. ACCRUED BENEFIT ASSET (LIABILITY) (Continued)
Fiscal 2023
Fiscal 2022
Remeasurement gains (losses) - return on plan assets (excluding amounts in net interest)
$ 2,797 $
Actuarial (losses) gains arising from changes in financial assumptions
Actuarial gains arising from experience adjustments assumptions
Foreign exchange loss
Deferred income taxes recorded through other comprehensive loss
(10,527)
—
29
(7,701)
2,947
Net actuarial (losses) gains recognized in other comprehensive loss
$
(4,754) $
An analysis of the assets of the plans by investment category is provided as follows:
(16,203)
36,950
—
(30)
20,717
(5,873)
14,844
Asset category
Cash and cash equivalents
Canadian equities
Foreign equities
Real estate
Bonds
December 31, 2023
January 1, 2023
0.8%
9.1%
44.1%
0.0%
46.0%
100.0%
72.7%
4.9%
11.6%
0.0%
10.8%
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.
11. DEFERRED COMPENSATION OBLIGATION
Performance share units under the PRSU Plan (officers and senior management)
Restricted share units under PRSU Plan (officers and executive management)
Deferred share units under DSU Plan (non-employee board of directors)
Less: current portion
December 31, 2023
January 1, 2023
708
1,208
2,490
4,406
1,208
$
3,198 $
—
536
1,497
2,033
536
1,497
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.
28
NFI GROUP INC 2023 ANNUAL REPORT
NFI GROUP INC.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
As at December 31, 2023
(in thousands of U.S. dollars except per share figures)
11. DEFERRED COMPENSATION OBLIGATION (Continued)
RSUs and PSUs granted in Fiscal 2023 were determined based on the volume weighted average trading price of a Share for the last five
trading days of 2022 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.
Units outstanding at January 2, 2022
Units granted
Distribution units granted
Units Expired
Units Redeemed
Vested and reclassified as current liability
Units outstanding at January 1, 2023
Units granted
Distribution units granted
Units Expired
Units Redeemed
Vested and reclassified as current liability
PSUs
RSUs
55,402
81,643
2,104
(1,481)
—
(63,541)
DSUs
174,334
43,513
3,011
—
—
—
—
163,287
—
(163,287)
—
—
—
74,127
220,858
313,302
—
(5,508)
156,652
—
(3,153)
76,368
—
—
—
—
(27,450)
(40,352)
(70,991)
—
Units outstanding at December 31, 2023
307,794
129,185
256,874
Vested units
Unvested units
—
—
256,874
307,794
129,185
—
Total
229,736
288,443
5,115
(164,768)
—
(63,541)
294,985
546,322
—
(8,661)
(67,802)
(70,991)
693,853
256,874
436,979
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 options for shares. 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. 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. The 2013 Option Plan expired on March 21, 2023, at which point no new options can be granted under the 2013
Option Plan.
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.
Directors who are not employed with NFI are not eligible to participate in the 2013 Option Plan and the 2020 Option Plan.
29
NFI GROUP INC 2023 ANNUAL REPORT
NFI GROUP INC.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
As at December 31, 2023
(in thousands of U.S. dollars except per share figures)
12. SHARE-BASED COMPENSATION - EQUITY SETTLED (Continued)
Option Grant dates
Number
Exercised
Expired
Vested
Unvested
Expiry date
March 26, 2013
490,356
(490,356)
—
December 30, 2013
612,050
(602,419)
(9,631)
December 28, 2014
499,984
(252,233)
(247,751)
—
—
—
—
March 26, 2021
— December 30, 2021
— September 12, 2023
December 28, 2015
221,888
(19,532)
—
(202,356)
— December 28, 2023
—
(2,171)
—
— September 8, 2024
September 8, 2016
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
January 9, 2023
2,171
151,419
152,883
284,674
2,835
519,916
258,673
1,894
601
311,892
1,728
374,448
(1,610)
(11,888)
(137,921)
—
—
—
—
—
—
—
—
—
—
(30,942)
(121,941)
(62,446)
(222,228)
—
(2,835)
(83,720)
(433,006)
(29,250)
(171,146)
—
—
(1,421)
(301)
(13,359)
(74,638)
—
(11,987)
(432)
—
—
—
—
January 3, 2025
January 2, 2026
January 2, 2027
—
July 15, 2027
3,190 December 31, 2027
58,277 December 28, 2028
473 December 28, 2028
300
August 16, 2029
223,895
1,296
362,461
649,892
January 3, 2030
April 3, 2030
January 9, 2031
3,887,412 (1,366,150)
(503,145)
(1,368,225)
Exercise
price
Fair Value
at grant
date
C$10.20
C$10.57
C$13.45
C$26.75
C$42.83
C$40.84
C$54.00
C$33.43
C$35.98
C$26.81
C$24.70
C$28.74
C$30.79
C$20.26
C$16.25
C$10.46
C$26.00
C$1.55
C$1.44
C$1.83
C$4.21
C$8.06
C$7.74
C$9.53
C$5.01
C$4.90
C$3.36
C$6.28
C$6.28
C$6.28
C$6.10
C$6.51
C$5.28
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 2023
Fiscal 2022
Number
1,910,057
374,448
(266,388)
—
2,018,117
Weighted average
exercise price
C$27.41
C$10.46
C$14.32
—
Number
1,617,759
313,620
(21,322)
—
C$26.00
1,910,057
Weighted average
exercise price
C$28.82
C$20.24
C$28.84
C$0.00
C$27.41
Fair values were measured based on the Black-Scholes formula. Expected volatility is estimated by considering historic average share
price volatility. The inputs used in the measurement of the fair values of the share-based payment plans granted in Fiscal 2023 and
Fiscal 2022 are the following:
Options grant date
Fair value at grant date (C$)
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 9, 2023
January 3, 2022
$5.28
$10.46
$10.46
51.77%
5.5 years
0.00%
3.28%
$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%
30
NFI GROUP INC 2023 ANNUAL REPORT
NFI GROUP INC.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
As at December 31, 2023
(in thousands of U.S. dollars except per share figures)
12. SHARE-BASED COMPENSATION - EQUITY SETTLED (Continued)
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.
Balance – January 2, 2022
Director RSUs issued
Director RSUs exercised
Balance – January 1, 2023
Director RSUs issued
Director RSUs exercised
Balance – December 31, 2023
13. DEFERRED REVENUE
Extended warranties
Progress payments
Less: current portion of deferred revenue (note 9)
Number of Director RSUs
69,568
64,947
(24,374)
110,141
103,231
(48,260)
165,112
December 31, 2023
January 1, 2023
$
$
30,097 $
138,534
168,631
(138,091)
30,540 $
19,087
123,367
142,454
(124,851)
17,603
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 not mitigated 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 30) and costs associated with the closure and termination of the lease in respect of the
Guildford, UK facility.
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.
31
NFI GROUP INC 2023 ANNUAL REPORT
NFI GROUP INC.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
As at December 31, 2023
(in thousands of U.S. dollars except per share figures)
14. PROVISIONS (continued)
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.
January 2, 2022
Net adjustments due to IFRS 17
Additions
Amounts used/realized
Unused provision
Unwinding of discount and effect of changes in the
discount rate
Exchange rate differences
January 1, 2023
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)
December 31, 2023
$
Insurance Risk
Retention
25,243
(3,502)
6,720
(5,690)
(248)
—
4
Restructuring
Warranty
2,485 $
55,920
—
7,000
(2,485)
—
—
—
—
60,081
(50,027)
—
17
(2,050)
Onerous
Contracts
—
—
3,705
(1,582)
(351)
—
14
$
22,527 $
7,000 $
63,941 $
1,786 $
20,010
(11,556)
(551)
—
(1)
30,429
1,261
1,523
(406)
(7,000)
—
28
1,145
—
46,550
(65,677)
1,172
15
(263)
45,738
12,080
1,661
(1,006)
(1,243)
—
89
1,287
—
$
29,168 $
1,145 $
33,658 $ 1,287 $
Total
83,648
(3,502)
77,506
(59,784)
(599)
17
(2,032)
95,254
69,744
(78,645)
(7,622)
15
(147)
78,599
13,341
65,258
15. DEFERRED TAXES AND INCOME TAX EXPENSE
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 consolidated 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
Investment tax credits
Tax recorded through equity
End of period
December 31, 2023
January 1, 2023
33,041 $
(46,756)
(13,715) $
17,665
(56,914)
(39,249)
Fiscal 2023
Fiscal 2022
(39,249) $
163
20,965
2,947
1,768
(309)
(13,715) $
(62,806)
(598)
27,612
(5,794)
—
2,337
(39,249)
$
$
$
$
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:
32
NFI GROUP INC 2023 ANNUAL REPORT
NFI GROUP INC.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
As at December 31, 2023
(in thousands of U.S. dollars except per share figures)
15. DEFERRED TAXES AND INCOME TAX EXPENSE (Continued)
Deferred tax liabilities
January 2, 2022
Tax recorded through net loss
Tax recorded through other comprehensive loss
Cumulative translation adjustment
January 1, 2023
Tax recorded through net loss
Tax recorded through other comprehensive loss
Cumulative translation adjustment
December 31, 2023
Property
Plant and
Equipment
Goodwill and
Intangibles
Right of Use
Assets
Other
Total
(17,249)
(152,741)
(23,471)
(8,971) $
(202,432)
8,148
—
—
8,027
—
2,337
(638)
(7,923)
—
—
79
—
7,614
79
2,337
(9,101)
(142,377)
(24,109)
(16,815)
(192,402)
(534)
—
—
5,170
—
(309)
(120)
6,600
11,116
—
—
—
—
—
(309)
$
(9,635) $
(137,516) $
(24,229) $
(10,215) $
(181,595)
Deferred tax assets
January 2, 2022
Tax recorded through net
loss
Tax recorded through
other comprehensive loss
Tax recorded through
Exchange rate differences
equity
January 1, 2023
Tax recorded through net
loss
Tax recorded through
other comprehensive loss
Investment tax credits
Exchange rate differences
Property,
Plant, and
Equipment
Reserves
and accruals
not
currently
deductible
Provisions
Right of Use
Assets
Loss carry
forward
Pension
Deferred
Financing
Costs and
Interest
Other
Total
$ — $
17,624 $
18,596 $
25,979 $
46,798 $
3,953 $ 15,085 $ 11,591 $
139,626
—
—
—
—
(5,504)
3,112
1,368
8,191
1,937
12,606
(1,712)
19,998
—
—
(75)
—
—
(79)
—
—
(110)
—
—
(196)
(5,873)
—
(17)
—
—
(66)
—
—
(55)
(5,873)
—
(598)
$ — $
12,045 $
21,629 $
27,237 $
54,793 $
— $
27,625 $
9,824 $
153,153
3,228
2,358
(3,673)
634
(7,932)
(1,979)
17,151
—
—
—
—
—
9
—
—
17
—
—
21
—
—
87
2,947
—
—
—
—
22
62
—
1,768
7
9,849
2,947
1,768
163
December 31, 2023
$ 3,228
$
14,412 $
17,973 $
27,892 $
46,948 $ 968 $
44,798 $ 11,661 $
167,880
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 December 31, 2023, the Company has recognized all of its deferred income tax assets with the
exception of: loss carry forwards in Canada and the UK in the amount of $32,670 and $586 respectively, equity issuance costs in Canada
of $2,765 and restricted interest in the UK of $15,572.
At December 31, 2023 the Company has the following tax credit and loss pools expiring as follows:
33
NFI GROUP INC 2023 ANNUAL REPORT
NFI GROUP INC.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
As at December 31, 2023
(in thousands of U.S. dollars except per share figures)
15. DEFERRED TAXES AND INCOME TAX EXPENSE (Continued)
United States
Canada
Other
Tax Credits
Tax Losses
Tax Credits
Tax Losses
Tax Credits
Tax Losses
2024-2029
2030
2031-2033
2034-2037
2038
2039
2040
2041
2042
2043
No expiry
—
—
—
—
—
—
—
—
—
—
—
577
68
—
—
—
—
—
—
—
—
19,691
—
138
569
—
—
—
601
88
676
690
—
—
—
—
313
11,343
24,803
21,428
10,385
51,523
60,951
—
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 deferred tax 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
Impact of change in tax legislation
Other
Income tax recovery
Current income tax recovery
Deferred income tax recovery
Income tax recovery for the period
16. SENIOR UNSECURED DEBT
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
1,385
169,227
Fiscal 2023
Fiscal 2022
$
(169,070) $
(323,798)
(35,504)
(67,998)
592
(1,144)
—
20,705
851
794
(2,930)
—
(539)
(1,473)
21,819
20,794
1,039
3,899
(8,276)
(1,854)
(14,313)
(17,750)
(2,056)
(1,440)
1,539
(32,906) $
2,895
—
23
(47,421)
(11,941) $
(19,809)
(20,965)
(32,906) $
(27,612)
(47,421)
$
$
$
On January 20, 2023, the Company finalized agreements with MDC for a C$50 million debt facility, for general corporate purposes, and
with EDC for two credit facilities of up to $150 million, to support supply chain financing ("supply chain financing facility") for $50
million and surety and performance bonding requirements for new contracts ("bonding support facility") for up to $100 million.
The MDC agreement bears interest at a rate equal to Canadian one year benchmark bond yield plus an applicable margin. The EDC
agreement bears interest at a rate equal to adjusted term Secured Overnight Financing Rate ("SOFR") plus an applicable margin to
those rates.
34
NFI GROUP INC 2023 ANNUAL REPORT
NFI GROUP INC.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
As at December 31, 2023
(in thousands of U.S. dollars except per share figures)
16. SENIOR UNSECURED DEBT (Continued)
Both the MDC facility and EDC supply chain financing facility were extended to April 30, 2026 as part of the Refinancing Plan. The EDC
bonding support facility (note 27c) has a one-year term for each new contract, subject to annual renewals.
As part of the Refinancing Plan, $25 million was repaid on the EDC supply chain financing facility as a permanent reduction.
MDC
EDC
17. LONG-TERM DEBT
Face Value Unamortized
Transaction
Costs
$
$
37,747 $
25,000
62,747 $
267 $
684
951 $
Net Book Value
December 31, 2023
Net Book Value
January 1, 2023
37,480
24,316
61,796
—
—
—
First lien N.A. revolving credit facility, Secured (“NA Revolving
Facility”)
126,471
13,174
113,297
878,725
Face Value Unamortized
Transaction
Costs
Net Book Value
December 31, 2023
Net Book Value
January 1, 2023
First lien N.A. term loan, Secured (“NA Non-Revolving Facility”)
400,000
First lien U.K. revolving Credit Facility, Secured ("UK Revolving
Facility")
First lien U.K. Term loan, Secured (“UK Non-Revolving Facility”)
Government of Canada Loan
Less current portion
—
—
761
626
—
20,674
3,453
550,598
14,561
—
—
550,598
14,561
400,000
—
—
17,901
19,913
2,827
536,037
—
536,037
—
—
896,626
17,901
878,725
The NA Revolving Facility and the NA Non-Revolving Facility (together referred to as, the "North American Facility") have a total
borrowing limit of $761 million, which includes a $150 million letter-of-credit facility.
The $96.6 million of outstanding letters-of-credit were drawn against the North American Facility at December 31, 2023. The North
American Facility bears interest at a rate equal to SOFR 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
April 30, 2026.
The UK Revolving Facility and the UK Non-Revolving Facility (together referred to as, the "UK Facility") have a total borrowing limit of
£30.4 million to support AD's operations in the UK. Amounts drawn under the UK Facility bear interest at a rate equal to Sterling
Overnight Index Average ("SONIA") plus an applicable margin. The UK Facility matures on April 30, 2026.
The Company entered into an agreement for up to C$10 million in interest-free financing through the Government of Canada to support
facility enhancements and zero-emission product growth. The financing matures on March 1, 2030.
18. SECOND LIEN DEBT
Second Lien Debt
Prepayment Option
35
NFI GROUP INC 2023 ANNUAL REPORT
Face Value Unamortized
Transaction
Costs
180,413
10,144
2,127
—
182,540
10,144
Net Book Value
December 31, 2023
Net Book Value
January 1, 2023
170,269
2,127
172,396
—
—
—
NFI GROUP INC.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
As at December 31, 2023
(in thousands of U.S. dollars except per share figures)
18. SECOND LIEN DEBT (Continued)
The second lien debt financing is secured against all the Company's assets, and bears interest at an annual coupon of 14.5%, payable
semi-annually on January 2 and July 2 commencing on January 2, 2024. The second lien debt facility matures on August 1, 2028.
The Company can exercise an option to prepay a portion of the remaining principal (note 24) at 100% of the face value plus applicable
premium, expiring on the first anniversary of the debt facility. Prior to the second anniversary, the Company can exercise its option to
prepay a portion of the remaining principal at 106% of the face value. Prior to the third anniversary, the Company can exercise its
option to prepay a portion of the remaining principal at 103% of the face value. An option to prepay the remaining principal at par is
available from the third anniversary onwards.
At inception, the prepayment option was recognized as a derivative asset with a fair value of $2.1 million. At December 31, 2023, the
asset was revalued at $2.8 million. A fair market value gain of $0.64 million was recorded on the Company's audited consolidated
statements of net loss and comprehensive loss for the year.
The second lien debt is financed by funds and accounts managed by Coliseum Capital Management LLC. Coliseum Capital Management
also participated in an equity transaction with the Company (disclosed in Note 20).
19. 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"), with the Cash Conversion
Option 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
20. SHARE CAPITAL
Authorized - Unlimited
Face Value Unamortized
Transaction
Costs
235,317
9,296
244,613
6,332
—
6,332
Net Book Value
December 31, 2023
Net Book Value
January 1, 2023
228,985
9,296
238,281
216,513
5,150
221,663
December 31, 2023
January 1, 2023
Issued – 118,961,932 Common Shares (January 1, 2023: 77,155,016)
$
1,240,163 $
988,218
The following is a summary of changes to the issued and outstanding capital stock of Shares during the period:
36
NFI GROUP INC 2023 ANNUAL REPORT
NFI GROUP INC.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
As at December 31, 2023
(in thousands of U.S. dollars except per share figures)
20. SHARE CAPITAL (continued)
Shares
Balance – January 1, 2023
Director RSUs exercised
Issuance of Shares - public offering
Issuance of Shares - private placements
Balance – December 31, 2023
Number
(000s)
77,155 $
47
15,103
26,657
Net Book Value
988,218
368
86,805
164,772
118,962 $
1,240,163
During the period ended December 31, 2023, the Company:
•
•
•
Completed a private placement on August 25, 2023 of Shares to Coliseum Capital Management for 21,656,624 Shares at a
subscription price of $6.1567 per Share (the “Subscription Price”) for aggregate gross proceeds to NFI of $133.3 million.
Completed a private placement on August 25, 2023 with a leading global asset manager for 5,000,000 Shares at a subscription
price of C$10.10 per Share for aggregate gross proceeds to NFI of C$50,500,000 (approximately $37.2 million).
Issued 15,102,950 subscription receipts on June 6, 2023 at a price of C$8.25 per subscription receipt, for aggregate gross
proceeds to NFI of approximately C$125.9 million (approximately $93.1 million), inclusive of interest earned in escrow. Each
subscription receipt was exchanged for one Share as part of the Refinancing Plan, resulting in the issuance of 15,102,950
Shares.
21. 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)
Fiscal 2023
Fiscal 2022
restated (note
2.24)
(136,164) $
(40,167)
(39,926)
(276,376)
91,866,613
77,144,445
91,866,613
77,144,445
(1.4822) $
(0.5264)
(0.4240)
(1.4822) $
(0.5264)
(0.4240)
(3.5826)
(3.5826)
$
2
2
0
0
2
2
r
2
3
e
s
Q
Q
$
$
t
3
3
a
t
7
9
e
6
4
d
7
9
,
,
6
4
1
2
(
$
$
$
,
,
9
6
n
2
1
$
$
$
9
9
o
9
6
,
,
t
9
9
6
0
e
,
,
6
2
6
0
7
6
2
6
2
.
6
7
6
)
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 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.
37
NFI GROUP INC 2023 ANNUAL REPORT
NFI GROUP INC.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
As at December 31, 2023
(in thousands of U.S. dollars except per share figures)
22. SUPPLEMENTAL CASH FLOW INFORMATION
Changes in non-cash working capital items
Cash inflow (outflow)
Accounts receivable
Other short-term asset
Income tax receivable
Inventories
Prepaid expenses and deposits
Accounts payable and accrued liabilities
Income tax payable
Deferred revenue
Provisions
Other
2
0
2
3
$
Q
3
$
2
0
r
2
e
2
s
$
t
Q
a
$
3
t
e
d
(
n
o
t
e
$
2
.
6
)
Fiscal 2023
Fiscal 2022
(65,480)
14,103
(111,527)
$
(117)
—
—
127 64 (4,170)
(71,948)(29,573)
3,437
5,003
(852) 4,464
(5,608)
25,399 93,832
(26,305)
—
7,054 26,177
—221
13,158 (16,655)
(782)
(1,080)
1,842 (7,510)
$
(11,105)
(90,659)
(44,962)
restated (note
2.24)
$
38,362
—
(1,463)
(160,939)
(16,178)
6,661
—
29,039
11,606
(4,643)
$
(97,555)
Included in the "Other" category for fiscal 2022 is $1,385, which represents the net impact of the adoption of IFRS 17 (note 2.24).
23. 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 2023
$
12,321 $
Fiscal 2022
10,963
Cash payments contributed by the Company during Fiscal 2023 for its defined benefit plans and defined contribution pension plans
amounted to $15.6 million (2022: $15.2 million).
24. 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
Second lien debt
Fair value through profit or loss
Fair value through profit or loss
Amortized cost
Amortized cost
Amortized cost
Amortized cost
Amortized cost
Amortized cost
Amortized cost
Derivative financial instruments
Fair value through profit or loss
38
NFI GROUP INC 2023 ANNUAL REPORT
NFI GROUP INC.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
As at December 31, 2023
(in thousands of U.S. dollars except per share figures)
24. FINANCIAL INSTRUMENTS AND RISK MANAGEMENT (Continued)
(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.
39
NFI GROUP INC 2023 ANNUAL REPORT
December 31, 2023
Fair value
level
Carrying
amount
Fair value
Level 1 $
Level 1
Level 2
$
Level 2
$
$
$
Level 2
Level 2
49,615
45,441
90 $
90 $
2,767
2,767 $
1,481
1,481 $
9,296
9,296 $
49,615
45,441
90
90
2,767
2,767
1,481
1,481
9,296
9,296
January 1, 2023
Fair value
level
Carrying
amount
Fair value
Level 1 $
49,987 $
Level 1
25,351
Level 2
Level 2
Level 2
Level 2
Level 2
$
$
$
$
1,720
1,720 $
27,800
27,800 $
2,837
2,837 $
5,150
917
6,067 $
49,987
25,351
1,720
1,720
27,800
27,800
2,837
2,837
5,150
917
6,067
NFI GROUP INC.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
As at December 31, 2023
(in thousands of U.S. dollars except per share figures)
24. FINANCIAL INSTRUMENTS AND RISK MANAGEMENT (Continued)
Financial assets recorded at fair value
Cash
Long-term restricted deposit (note 8)
Derivative financial instrument assets - current
Foreign exchange forward contracts
Prepayment Option (note 18)
Derivative financial instrument assets - long term
Financial liabilities recorded at fair value
Foreign exchange forward contracts
Derivative financial instrument liabilities - current
Cash Conversion Option (note 19)
Derivative financial instrument liabilities - long term
Financial assets recorded at fair value
Cash
Long-term restricted deposit (note 8)
Foreign exchange forward contracts
Derivative financial instrument assets - current
Interest Rate Swap
Derivative financial instrument assets - long term
Financial liabilities recorded at fair value
Equity Hedge
Derivative financial instrument liabilities - current
Cash Conversion Option (note 19)
Equity Hedge
Derivative financial instrument liabilities - long term
40
NFI GROUP INC 2023 ANNUAL REPORT
NFI GROUP INC.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
As at December 31, 2023
(in thousands of U.S. dollars except per share figures)
24. FINANCIAL INSTRUMENTS AND RISK MANAGEMENT (Continued)
(c) Risk Management
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.
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 Secured Facilities are at variable rates of interest and expose the Company 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
higher, with all other variables held constant, net loss and comprehensive loss for Fiscal 2023 would have been higher by $6.8 million
(Fiscal 2022: $6.1 million, when hedged with an interest rate swap), arising mainly from higher interest costs due to the higher interest
rate. If interest rates had been 100 basis points lower, with all other variables held constant, net loss and comprehensive loss for Fiscal
2023 would have been lower by $6.8 million (Fiscal 2022: $6.1 million, when hedged with an interest rate swap), arising mainly from
lower interest costs due to the lower interest rate.
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. There were no interest rate swaps held as at December 31, 2023.
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 Secured Facilities. The interest rate swap fixed 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 Secured Facilities. The interest rate swap fixes the interest rate at 0.243% plus applicable margin until July 2025. The
swap began amortizing on January 9, 2023 at a rate of $20 million per annum.
On July 20, 2023, NFI sold its interest rate swap contracts (valued at $20.2 million asset at the end of 2023 Q2) for total proceeds of
$18.4 million. As part of the sale, NFI's equity hedge (valued at $2.6 million liability at the end of 2023 Q2) was unwound and removed
from liabilities on the balance sheet. The fees to unwind this contract are approximately C$1.4 million.
41
NFI GROUP INC 2023 ANNUAL REPORT
NFI GROUP INC.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
As at December 31, 2023
(in thousands of U.S. dollars except per share figures)
24. FINANCIAL INSTRUMENTS AND RISK MANAGEMENT (Continued)
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 part of the aforementioned sale of NFI’s interest rate swap contracts,
NFI's equity hedge (valued at $2.6 million liability at the end of 2023 Q2) was unwound and removed from liabilities on the balance
sheet. The fees to unwind this contract were approximately C$1.4 million.
Hedging gains and losses are reclassified from other comprehensive income to the consolidated statement of net loss to the extent
effective. Accordingly, nil was reclassified from other comprehensive income in Fiscal 2023 (Fiscal 2022: $287). No hedge
ineffectiveness was recorded during 2022.
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.
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 2023, 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 $3.2 million during Fiscal 2023 (Fiscal 2022: $5.2 million). This was comprised of a $2.9 million
gain on settlement of foreign exchange contracts and a $0.3 million foreign currency gain on translation of Canadian dollar
denominated working capital.
At December 31, 2023, the Company had $21.7 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 January 2024 to
February 2024. The related liability of $1.5 million (January 1, 2023: $1.7 million asset) 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 December 31, 2023
if the Canadian dollar had weakened 10 percent against the U.S. dollar, with all variables held constant, net loss for Fiscal 2023 would
have been lower by $9.1 million (Fiscal 2022: $13.9 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 $10.6 million for Fiscal 2023 (Fiscal 2022: $17
million).
(d) Liquidity5,NG Management
The Company’s approach to managing liquidityNG risk is to ensure, as far as possible, that it will always have sufficient liquidityNG to
meet liabilities when due. At December 31, 2023 the Company had a cash balance of $49.6 million (January 1, 2023: $50.0 million),
$526 million drawn under the North American Facility due in 2026 (January 1, 2023: $882 million), and $96.6 million of outstanding
letters of credit (January 1,2023: $22.5 million). The total liquidityNG position as at December 31, 2023 is $188.2 million, without
consideration given to the minimum banking liquidityNG requirement under the Secured Facilities of $50.0 million. In addition, as at
December 31, 2023 the Company had $21 million drawn under the UK Facility (January 1, 2023: $18.3 million), and $64.5 million of the
letters of credit outstanding outside of the North American Facility. The North American Facility has a total borrowing limit of $761
million, which includes a $150 million letter-of-credit facility. The UK Facility has a total borrowing limit of £30.4 million.
42
NFI GROUP INC 2023 ANNUAL REPORT
NFI GROUP INC.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
As at December 31, 2023
(in thousands of U.S. dollars except per share figures)
24. FINANCIAL INSTRUMENTS AND RISK MANAGEMENT (Continued)
The Company's principal sources of funds are cash generated from its operating activities, share and other issuances and borrowing
capacity remaining under the Secured Facilities.
The details of the covenants under the Secured Facilities are as follows:
Total Leverage
Ratio1,NG
Waived
Waived
Waived
Waived
Waived
<6.00x
<4.75x
<4.75x
<4.25x
<4.25x
<3.75x
Interest
Coverage
Ratio2,NG
Waived
Waived
Waived
Waived
Waived
>1.25x
>1.50x
>1.75x
>2.00x
>2.25x
>2.50x
Total Net Debt to
Capitalization3,NG
<0.65:1.00
<0.65:1.00
<0.65:1.00
<0.65:1.00
<0.65:1.00
N/A
N/A
N/A
N/A
N/A
N/A
Minimum
Cumulative
Adjusted
EBITDA4,NG
>$3,000
>$14,000
>$25,000
>$47,000
>$105,000
N/A
N/A
N/A
N/A
N/A
N/A
Minimum
Banking
Liquidity5,NG
$50,000
$50,000
$50,000
$50,000
$50,000
$50,000
$50,000
$50,000
$50,000
$50,000
$50,000
Senior Secured
Net Leverage
Ratio6,NG
Waived
Waived
Waived
Waived
Waived
<4.50x
<3.50x
<3.50x
<3.25x
<3.25x
<3.00x
December 2023
January 2024
February 2024
March 2024
2024 Q2
2024 Q3
2024 Q4
2025 Q1
2025 Q2
2025 Q3
2025 Q4 and after
1.
2.
3.
4.
5.
6.
Total Leverage Ratio ("TLR")NG is calculated as aggregate indebtedness of the Company not including the Company’s 5.0%
convertible debentures and certain non-financial products, but including any senior unsecured or second lien indebtedness, less
unrestricted cash and cash equivalents up to a maximum of $50 million, divided by Adjusted EBITDANG (calculated on a trailing
twelve-month basis). The TLRNG is reintroduced in the third quarter of 2024.
Interest Coverage Ratio ("ICR")NG is calculated as the same trailing twelve month Adjusted EBITDANG as the TLRNG divided by trailing
twelve-month interest expense on the Secured Facilities, the Company’s 5.0% convertible debentures, any senior unsecured or
second lien indebtedness and other interest and bank charges.
Total Net Debt to Capitalization (“TNDC”)NG is calculated as borrowings on the Secured Facilities and any senior unsecured or
second lien indebtedness, less unrestricted cash and cash equivalents up to a maximum of $50 million, divided by shareholders’
equity, as shown on the Company’s balance sheet, plus borrowings on the Secured Facilities. The TNDCNG covenant excludes the
impact of any actual goodwill write-downs up to a maximum of $100 million.
The Minimum Adjusted EBITDANG covenant is first tested with the month ending September 30, 2023, but includes results from the
period May 1, 2023 to September 30, 2023. The covenant continues on a cumulative basis until April 30, 2024, at which point it
becomes a trailing-twelve month test for the second quarter of 2024. The Minimum Adjusted EBITDANG tests are based on calendar
month-end dates from September 2023 to March 2024.
Banking LiquidityNG is calculated as unrestricted cash and cash equivalents plus the aggregate amount of credit available under the
North American Facility.
Senior Secured Net LeverageNG will include the Secured Facilities and is calculated as indebtedness on those facilities, less
unrestricted cash and cash equivalents up to a maximum of $50 million, divided by Adjusted EBITDANG (calculated on a trailing
twelve-month basis). The Senior Secured Net LeverageNG is reintroduced in 2024 Q3.
The calculation of the banking liquidityNG position, without consideration given to the minimum banking liquidityNG requirements under
the Secured Facilities at December 31, 2023 is provided below. Calculation of the cumulative Adjusted EBITDANG starts with 2023 fourth
quarter results. The calculation is adjusted for the impact of the adoption of IFRS 16 in Fiscal 2019. As at December 31, 2023, the
Company was in compliance with all covenant requirements.
43
NFI GROUP INC 2023 ANNUAL REPORT
NFI GROUP INC.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
As at December 31, 2023
(in thousands of U.S. dollars except per share figures)
24. FINANCIAL INSTRUMENTS AND RISK MANAGEMENT (Continued)
US dollars in thousands
December 31, 2023
January 1, 2023
Banking LiquidityNG Position (must be greater than $50 million)
Minimum Cumulative Adjusted EBITDANG (must be greater than ($3,000) [2022:
N/A])
Net Debt to Capital RatioNG (must be less than 0.65:1.00 [2022: N/A])
$
$
170,131
$
143,454
53,516
0.39
Waived
Waived
Compliance with financial covenants under the Secured 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.
Under the terms of the Secured Facilities, the Company is not permitted to declare or pay dividends, until certain financial conditions
exist. Currently dividends have been suspended and future decisions on the resumption of dividend payments will be dependent on
financial performance and compliance with Secured Facility covenants.
The following table outlines the maturity analysis of the undiscounted cash flows of certain non-financial liability and committed leases
as at December 31, 2023:
US dollars in thousands
Leases
Accrued benefit liability
(e) Credit risk
Total
2023
2024
2025
2026
2027 Post 2027
$ 210,912 $ 26,242 $ 21,809 $ 19,014 $ 17,377 $ 11,909 $ 114,561
3,269
$ 214,181 $
3,269
29,511 $ 21,809 $ 19,014 $ 17,377 $ 11,909 $ 114,561
Financial instruments in an asset position, 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
December 31, 2023
January 1, 2023
restated (note 2.24)
438,165 $
333,522
20,123
8,669
(604)
466,353 $
15,931
5,480
(107)
354,826
$
$
As at December 31, 2023, there was no amount that would otherwise be past due or impaired whose terms have been renegotiated.
(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 shareholders. 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.
44
NFI GROUP INC 2023 ANNUAL REPORT
NFI GROUP INC.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
As at December 31, 2023
(in thousands of U.S. dollars except per share figures)
25. 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, marketing strategies, and operations. 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 design, manufacture, service and support of transit buses,
coaches, medium-duty shuttles and low floor 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 $1,394 (Fiscal 2022: $235), which have been recognized into
earnings during 2023, 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 intersegment 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 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:
Fiscal 2023
Manufacturing
Operations
Aftermarket
Operations
Unallocated
Total
$
2,130,278 $
554,953
— $
2,685,231
2,259,665
(129,387)
453,268
101,685
141,368
2,854,301
(141,368)
(169,070)
1,914,171
504,319
281,470
2,699,960
26,082
10,274
244,265
223,607
632
—
18,334
189,564
—
—
—
—
26,714
10,274
262,599
413,171
Fiscal 2022 (restated note 2.24)
Manufacturing
Operations
Aftermarket
Operations
Unallocated
Total
$
1,575,510 $
485,172
— $
2,060,682
1,932,456
(356,946)
418,170
67,002
33,854
2,384,480
(33,854)
(323,798)
1,801,272
485,263
297,861
2,584,396
21,169
10,212
(103,900)
243,936
221,942
202
—
—
18,281
187,761
—
—
—
—
—
21,371
10,212
(103,900)
262,217
409,703
Revenue from external customers
Operating costs and expenses
(Loss) earnings before income tax (recovery) expense
Total assets
Addition of capital expenditures
Addition of intangibles assets
Indefinite-life intangible assets
Goodwill
Revenue from external customers
Operating costs and expenses
(Loss) earnings before income tax (recovery) expense
Total assets
Addition of capital expenditures
Addition of intangibles assets
Impairment loss on goodwill
Indefinite-life intangible assets
Goodwill
45
NFI GROUP INC 2023 ANNUAL REPORT
NFI GROUP INC.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
As at December 31, 2023
(in thousands of U.S. dollars except per share figures)
25. SEGMENT INFORMATION (Continued)
The Company's revenue by geography is summarized below:
North America
UK and Europe
Asia Pacific
Other
Total
2
2
0
0
$
$
2
2
2
3
$
Q
Q
3
3
$
$
$
Fiscal 2023
2,112,141 $
572,586
397,067
125,606
97,158 523,431
19,822 49,659
11,428
——
2,685,231 $
514,047
709,620
—
Fiscal 2022
1,561,701
440,843
58,138
—
2,060,682
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
26. RELATED PARTY TRANSACTIONS
Compensation of key management
2
2
0
0
$
$
2
2
2
3
$
Q
Q
3
3
$
$
$
Fiscal 2023
1,647,155 $
450,126
306,895
390,836
76,460
96,321
50,727
4,480
12,687
21,586
5,837
4,195
1,950 860
11,040
1,452
1,777
8,934
2,130,278 $
567,056
395,984
Fiscal 2022
1,219,257
296,226
31,778
12,773
8,498
6,978
1,575,510
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 2023
Fiscal 2022
$
$
16,659 $
600
5,478
22,737 $
10,412
554
492
11,458
Share-based payment benefits shown above represent the PSU, RSU, Director RSU, DSU and stock option expense that was recorded in
the period.
27. 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. Management does not currently 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 ("surety
bond") 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 December 31, 2023
range from January 2024 to December 2039.
46
NFI GROUP INC 2023 ANNUAL REPORT
NFI GROUP INC.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
As at December 31, 2023
(in thousands of U.S. dollars except per share figures)
27. COMMITMENTS AND CONTINGENCIES (Continued)
At December 31, 2023, outstanding surety bonds guaranteed by the Company totaled $312.7 million (January 1, 2023: $375.6
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 $150.0 million as part of the North American Facility (January 1, 2023: $100.0
million). As at December 31, 2023, letters of credit totaling $96.6 million (January 1, 2023: $24.5 million) remain outstanding as
security for contractual obligations of the Company under the North American Facility.
The EDC facility includes up to $100 million of surety reinsurance support ("surety reinsurance support") for NFI’s surety and
performance bonding requirements ("bonding support facility"). The bonding support facility is made up of account performance
security guarantee ("PSG") up to $25 million and surety reinsurance support up to $100 million.
The PSG program is in place to cover a standby letter of credit or letter of guarantee (in each case an “LC”), required as part of a
collateral package provided to support a surety facility where the new bonding capacity is a minimum of at least twice the face
value of the LC. The underlying surety facility must only be supporting surety bonds required under contracts entered into by NFI,
and where such surety bonds are bid bonds, performance bonds, regulatory bonds, license and permit bonds.
The Surety Reinsurance Support program is in place to cover surety bond(s) issued on behalf of NFI, provided that such surety bond
is a bid bond, performance bond, regulatory bond, license and permit bond. Surety reinsurance support is not to exceed 75% of
the surety bond amount.
As at December 31, 2023, there was $74.2 million outstanding under the bonding support facility.
As at December 31, 2023, letters of credit in the UK totaling $18.7 million were outstanding as security obligations of the Company
outside of the UK facility (January 1, 2023: $18.3 million). Additionally, there are $45.8 million (January 1, 2023: $25.3 million) of
letters of credit outstanding outside of the UK Facility.
As at December 31, 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 December 31, 2023, the Company had guaranteed $2.4 million of these arrangements. 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.
28. 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.
29. SUPPLEMENTARY EXPENSE INFORMATION
Employee salary and benefit expenses
Depreciation of plant and equipment
Amortization of intangible assets
$
Fiscal 2023
395,836 $
49,370
31,410
Fiscal 2022
404,511
57,013
31,482
The expenses listed above are included in cost of sales and sales, general and administration costs and other operating expenses.
47
NFI GROUP INC 2023 ANNUAL REPORT
NFI GROUP INC.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
As at December 31, 2023
(in thousands of U.S. dollars except per share figures)
30. RESTRUCTURING
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.
In July 2022, NFI launched a series of additional projects called “NFI Forward 2.0”, that were expected to generate additional
annualized Adjusted EBITDANG savings in 2023 and beyond. The initial project, which occurred during the third quarter of 2022, was the
integration of NFI's Delaware parts distribution operations (a legacy parts warehouse that NFI acquired when it purchased North
American Bus Industries, Inc. in 2013) into its existing NFI Parts™ footprint by subleasing the facility to a third party.
After a detailed review of the Company’s manufacturing footprint, the Company had originally planned to close the MCI coach
manufacturing facility in Pembina, North Dakota in 2023. Due to significant improvements in market conditions and increased demand
for its coach and bus products, NFI announced in the fourth quarter of 2023 that it will continue operations at the Pembina, ND facility.
With the decision to continue operations at the Pembina facility, NFI reversed a pension liability provision originally recorded in 2022.
The items included in net loss (income) for NFI Forward and NFI Forward 2.0 are as follows:
Employee termination benefits
Right-of-use asset and property, plant and equipment (recoveries) impairments
Write-down of inventory to net realizable value
Pension liability
Other
Total restructuring (recoveries) costs
2
0
$
2
3
2
0
$
2
2
Q
Q
3
3
Fiscal 2023
Fiscal 2022
$
1,749 $
—
632
—3,808
(2,558)
—
—7,000
(7,000)
—1,595 51
1,116
6,213
1,574
7,000
3,139
$
$
$
(7,758) $
—
13,035
19,042
31. SUBSEQUENT EVENTS
Subsequent to December 31, 2023, NFI entered into an agreement with EDC to increase the size of our Guarantee Facility from $100
million to $125 million. The Guarantee Facility is made up of Account Performance Security Guarantee (“Account PSG”) up to $50
million and Surety Reinsurance Support up to $125 million. The aggregate amount of the Guarantee Facility cannot exceed $125
million.
Subsequent to December 31, 2023, NFI entered into an agreement for a new interest rate swap to hedge its exposure to changing
interest rates. The contract has a notional value of $500 million from January 26, 2024 until October 25, 2024, and thereafter a
notional value of $450 million until its expiry on April 25, 2025. The swap carries an interest rate of 4.6%.
The Company has determined these items to be non-adjusting subsequent events. Accordingly, the financial position and results of
operations as of, and for the 52-weeks ended December 31, 2023 have not been adjusted to reflect these agreements.
48
NFI GROUP INC 2023 ANNUAL REPORT
NFI is leading the electrification of mass mobility
around the world. With zero-emission buses and
coaches, infrastructure, and technology, NFI meets
today’s urban demands for scalable smart mobility
solutions. Together, NFI is enabling more livable
cities through connected, clean, and sustainable
transportation.
NFI has over 8,500 team members in ten countries
and offers the widest range of sustainable drive
systems available, including zero-emission electric
(trolley, battery, and fuel cell), natural gas, electric
hybrid, and clean diesel.
In total, NFI supports its installed base of over
100,000 buses and coaches around the world.
NFI’s common shares trade on the TSX under the
symbol NFI and its convertible debentures trade on
the TSX under the symbol NFI.DB.
NFI Group Inc.
711 Kernaghan Avenue
Winnipeg, Manitoba
R2C 3T4
www.nfigroup.com