THE WESTAIM CORPORATION
ANNUAL REPORT 2023
THE WESTAIM CORPORATION
ANNUAL REPORT 2023
Contents
Letter to Shareholders
Management’s Discussion and Analysis
Management’s Responsibility for Financial Information
Independent Auditor’s Report
Consolidated Financial Statements
Notes to Consolidated Financial Statements
Board of Directors
Shareholder and Corporate Information
1
5
38
39
43
47
66
66
All currency amounts are in United States dollars, unless otherwise indicated.
LETTER TO SHAREHOLDERS1
LETTER TO SHAREHOLDERS(1)
March 27, 2024
Dear Fellow Shareholders,
We believe The Westaim Corporation (“Westaim” or the “Company”) materially increased the intrinsic value per diluted share of the Company due to the
excellent operating performance of your businesses, Skyward Specialty Insurance Group, Inc. ("Skyward Specialty"), Arena and Arena FINCOs, highlighted
by the Initial Public Offering (“IPO”) of Skyward Specialty early in the year. We are incredibly pleased with the results in 2023, as they reflect several years of
value creating activities in both of your businesses. Summarized below are the performances of Skyward Specialty, Arena and Arena FINCOs.
Skyward Specialty
On January 13, 2023, Skyward Specialty completed an Initial Public Offering ("IPO") on the NASDAQ exchange, priced at $15.00 per Skyward Specialty
common share, which immediately enjoyed a strong market reception. After an extraordinarily strong debut, Skyward Specialty received broad analyst
coverage highlighting management's "Rule Our Niche" underwriting discipline across eight core business lines. As we write this letter, Skyward Specialty
trades around $36.00 per Skyward Specialty common share, producing a realized and unrealized profit for Westaim of approximately $275 million over our
cash investment of approximately $170 million.
Andrew Robinson, Skyward Specialty's Chairman and CEO, leads an impressive organization of 515 employees that collectively delivered exceptional results:
(cid:120) Gross written premium increased 27.6% to $1,459.8 million in FY 2023 versus $1,144.0 million in FY 2022
(cid:120)
(cid:120)
(cid:120)
Net income was $86.0 million in FY 2023 versus $39.4 million in FY 2022
Adjusted combined ratio of 90.9% in FY 2023 versus 92.6% in FY 2022
Annualized adjusted return-on-equity ("ROE") and annualized adjusted return-on-tangible equity ("ROTE") were 14.9% and 17.9% in FY2023,
versus 13.8% and 17.6% in FY 2022
Shareholders' equity increased to $661.0 million on December 31, 2023, from $421.7 million at December 31, 2022, due primarily to net income
and fixed income portfolio performance and executing a follow-on treasury offering of 2,150,000 Skyward Specialty common shares at $30.50.
Most impressively, fully diluted book value finished the year at $15.96 per share, an increase of 24% over $12.87 per share at the end of 2022. A
tremendously successful year by any measure.
(cid:120)
Westaim elected not to sell any Skyward Specialty shares in the January 2023 IPO offering and owned 14,567,139 Skyward Specialty common shares or
approximately 38.7% of the 37.7 million fully diluted Skyward Specialty common shares outstanding immediately post IPO.
As the first step in monetizing our investment, during 2023 Westaim participated in two follow-on secondary Skyward Specialty common share offerings. On
June 12, 2023, Westaim sold 3,987,500 Skyward Specialty common shares at $23.00 per share, resulting in net proceeds of $87.4 million. On November 20,
2023, Westaim sold an additional 3,600,000 Skyward Specialty common shares at $30.50 per share, resulting in approximately $104.9 million in net proceeds.
Currently, Westaim owns 6,979,639 Skyward Specialty common shares or approximately 17.5% of the common shares outstanding.
On November 30, 2023, Rob Kittel and I resigned from the Skyward Specialty Board of Directors. In full cooperation with Andrew Robinson, we agreed it was
time to transition the Skyward Specialty Board to independent directors, all with exceptional experience, who will provide strong counsel to management and
good governance to all stakeholders. Rob and I want to personally acknowledge our enjoyment and privilege of working alongside such a group of high-quality
professionals. Thank you.
Westaim's support and conviction of Skyward Specialty are well ingrained, and we have ongoing confidence in the management's ability to attract and retain
exceptional talent, all of whom are aligned to deliver on their ongoing commitment to be a "top quartile financial performer."
1 This Letter to Shareholders contains forward-looking information and should be read in conjunction with the Company’s historical financial statements including the notes thereto and the related MD&A as well as the Company’s other
public filings. Please also read the Company’s cautionary notes on forward-looking information as may be found in the Company’s MD&A and annual information form.
- 1 -
Arena and Arena FINCOs
Our aligned partnership with Arena is executed through two distinct entities: Arena Investors Group Holdings, LLC (“AIGH” or “Arena”) and Arena FINCOs.
(cid:120)
Arena has essentially two related and complementary businesses:
(cid:120)
Arena Investors is a global asset manager that originates and underwrites credit-oriented "senior" investments across eight business
units to provide its clients with highly diversified and uncorrelated returns, employing minimal leverage and a average duration of
approximately two-years.
Arena Institutional Services ("AIS") monetizes in-house intellectual property without using Arena's capital. AIS includes Quaestor
Consulting Group, which provides workouts and special services for fee-paying third parties; Quaestor Capital Markets and Arena
Business Solutions facilitate capital-raising services for Arena-related investments and third parties.
Arena FINCOs represents Westaim's proprietary capital invested in a portfolio of Arena Investor’s multi-strategy approach.
(cid:120)
(cid:120)
Arena’s aim is to build portfolios that reflect the best return per unit of risk available based on the immense investment universe that Arena accesses on a
global basis. At its core, this can be demonstrated simply by the follow chart:2
As of December 31, 2023, Arena's committed assets under management ("AUM") are $3.2 billion versus $3.5 billion as of December 31, 2022. Arena's AUM
is allocated amongst separately managed accounts, open-ended pooled funds, and drawdown fund structures. With the rise in interest rates and an expanded
opportunity set, Arena’s management believes that underwritten IRRs have moved higher by 2 to 3% and the opportunity see has grown dramatically.
The AUM decline year over year reflects distributions from liquidating fund structures as gains are harvested and capital is returned to investors. With six fund
raising campaigns afoot, all drawdown or closed-end oriented, with the largest being ASOP III, we expect Arena's committed AUM growth to return in 2024.2
2 Actual results may vary. Target performance is not indicative of future performance. The information presented is illustrative.2 Note gross IRRs higher than 20% are capped at 20%, net IRRs assume annual management fees of 2%
and an incentive fee of 20%. Pre-2020, ASOP I was seeded with a pool of existing investments.
3 Note gross IRRs higher than 20% are capped at 20%, net IRRs assume annual management fees of 2% and an incentive fee of 20%. Pre-2020, ASOP I was seeded with a pool of existing investments.
- 2 -
Summary of Exited Holdings since Arena's Launch in October 2015(4)
# Positions
195
Top Attachment
Point
2%
Closing LTV
58%
Coupon
13.2%
Gross Underwritten
IRR
16.3%
Gross Realized
IRR (5)
20.1%
Average Loan Term
(Years) (6)
1.7
AIGH achieved the following financial results in FY 2023:
(cid:120)
(cid:120)
(cid:120)
AIGH reported revenue of $63.1 million in FY 2023 versus $48.2 million in FY 2022. Total Arena EBITDA of $10.1 million in FY 2023 versus $3.3
million in FY 2022. Net income of $8.7 million in FY 2023 versus $1.5 million in FY 2022.
Arena Investors reported recurring revenue of $42.8 million in FY 2023 versus $43.3 million in FY 2022, achieving $2.2 million in fee related earnings
in FY 2023 versus $8.3 million in FY 2022 and $6.5 million in EBITDA in FY 2023 versus $6.4 million in FY 2022.
AIS produced $11.5 million of revenue in FY 2023 versus $0.6 million in FY 2022 and $5.7 million of EBITDA in FY 2023 versus ($0.8) million in
FY 2022. We expect AIS profitable growth to continue.
As you will recall from prior communications, Arena is of the view that the market "slow rolling implosion" that commenced in 2021 continues, created by a
decade of irresponsible monetary policy and Covid-inspired acceleration of fiscal imprudence. This has elevated interest rates and inflation, putting monetary
authorities in an exceedingly difficult position. The by-product of these actions is a market opportunity for Arena that has never been greater and will continue
to grow. Arena's platform is built, and we are collectively laser focused on capitalizing on this opportunity.
Westaim
In 2023, Westaim enjoyed our best operating results – ever. Westaim's share price, book value per diluted share and our views on our “intrinsic value per
diluted share" increased significantly. As at December 31, 2023:
(cid:120) Westaim shares closed at C$3.76, an increase of 43.0% versus C$2.63 on December 31, 2022
(cid:120)
(cid:120)
(cid:120)
(cid:120)
Net income was $183.9 million in FY 2023 versus $18.0 million in FY 2022
Diluted earnings per share of $1.32 in FY 2023 versus diluted earnings per share of $0.12 in FY 2022
Book value per fully diluted share of $3.83 (C$5.08) as of December 31, 2023; a rise of 49.6% versus $2.56 (C$3.46) at December 31, 2022
Shareholders' equity ended 2023 at $518.3 million, an increase of 42.8% versus $363.2 million at December 31, 2022
The most significant contributor to the above-noted metrics would be the appreciation of Skyward Specialty shares, which increased from $15.00 on the IPO
and ended the year at $33.88 per share, for a gain of 125.9%. Westaim's participation in two follow-on secondary offerings of Skyward Specialty common
shares netted $192.3 million. Westaim utilized prior tax losses, allowing the realized and unrealized gain in our total Skyward Specialty position to be largely
sheltered in 2023. Unfortunately (or fortunately you could say), all of our tax attributes were essential utilized in 2023, so Westaim will be a cash tax payor
moving forward.
On June 12, 2023, Westaim elected to redeem all of the 5,000,000 5% subordinate preferred securities (C$50 million) of Westaim held by certain affiliates of
Fairfax Financial Holdings Limited (“Fairfax”) and, as part of a related transaction, Fairfax surrendered 14.3 million common share warrants to the Company.
Your management team believed this transaction was accretive to Westaim shareholders and made an excellent use of proceeds.
In 2023, we significantly ramped up activity on our Normal Course Issuer Bid (“NCIB”). In 2023, Westaim acquired and cancelled 9.9 million Common Shares
at an average price of $2.67 per share. At December 31, 2023, Westaim had 131.8 million common shares outstanding, versus 141.4 million at December
31, 2022. In conversations with our shareholders and other investors and through our quarterly materials, we do our best to highlight and communicate the
intrinsic value within Westaim. As noted in our quarterly Investor Presentations, our balance sheet is debt-free, with core assets consisting of cash and
securities carried at market value, and little value attributed to our investment in Arena. Despite the positive share appreciation in 2023, Westaim shares
continue to trade at a value meaningfully below our book value per share. We will continue to utilize our NCIB to repurchase our Common Shares.
4 Portfolio characteristics summarize privately negotiated private investments currently or previously held by Arena’s multi-strategy approach as of December 31, 2023. In addition, Arena has invested in liquid investments, including
convertible structured investments summarized as “Corporate Securities” and other private investments in Arena’s stable income strategies that are not listed herein.
5 Current and realized IRR calculations are presented net of expenses and gross of Arena-level fees. Actual results may vary. Performance of all vehicles is available upon request.
6 Average loan term refers to the weighted average time in years between the funding date and exit date.
- 3 -
Westaim enjoys financial strength to respond to attractive investment opportunities. Our relationships and brand awareness have increased over the years,
providing Westaim a flow of opportunities that we would not have been made aware of in years past. However, our focus remains unchanged - we seek high-
quality management teams within an aligned partnership to build great businesses over the long term. Alongside any potential transactions, management and
the board of directors continually consider all options to deploy Westaim's capital, including more substantial share buybacks and/or dividends.
The Annual General Meeting and Investor Day will be held on Thursday, May 16, 2024, at 9:00 am ET. The schedule will include a business overview
and discussion with Westaim and Arena’s management, followed by a question-and-answer session. We look forward to seeing you there.
Respectfully,
Cameron MacDonald
President and Chief Executive Officer
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The Westaim Corporation
Management’s Discussion and Analysis
Year ended December 31, 2023
(Currency amounts in millions of United States dollars except per share data, unless otherwise indicated)
TABLE OF CONTENTS
1.
THE COMPANY
2. OVERVIEW OF PERFORMANCE
3.
4.
INVESTMENTS
FINANCING
5. ANALYSIS OF FINANCIAL RESULTS
6. ANALYSIS OF FINANCIAL POSITION
7. OUTLOOK
8.
LIQUIDITY AND CAPITAL RESOURCES
9. RELATED PARTY TRANSACTIONS
10. CRITICAL ACCOUNTING ESTIMATES AND ASSUMPTIONS
11. CRITICAL ACCOUNTING POLICIES AND RECENTLY ADOPTED AND PENDING ACCOUNTING PRONOUNCEMENTS
12. QUARTERLY FINANCIAL INFORMATION
13. RISKS
14. ADDITIONAL ARENA FINCOS INVESTMENT SCHEDULES
15. NON-GAAP MEASURES
16. CAUTIONARY NOTE REGARDING FORWARD-LOOKING INFORMATION
The “Company” in this Management’s Discussion and Analysis (“MD&A”) refers to The Westaim Corporation (“Westaim”) on a consolidated basis. This
MD&A, which has been approved by the Board of Directors of Westaim, should be read in conjunction with the Company’s audited consolidated financial
statements including notes for the year ended December 31, 2023 and 2022 as set out on pages 43 to 65 of this annual report (“Financial Statements”).
Financial data in this MD&A has been derived from the Financial Statements and is intended to enable the reader to assess the Company’s results of
operations for the three months and year ended December 31, 2023 and financial condition as at December 31, 2023. The Company reports its
consolidated Financial Statements using generally accepted accounting principles (“GAAP”) and accounting policies consistent with International Financial
Reporting Standards (“IFRS”). All currency amounts are in United States dollars (“US$”), the functional and presentation currency of the Company, unless
otherwise indicated. Canadian dollars are referenced as C$. The following commentary is current as of March 27, 2024. Additional information relating
to the Company is available on SEDAR+ at www.sedarplus.ca. Certain comparative figures have been reclassified to conform to the presentation of the
current year, and certain totals, subtotals and percentages may not reconcile due to rounding.
IFRS for Investment Entities
The Company qualifies as an investment entity under IFRS and uses fair value as the key measure to monitor and evaluate its primary investments. The
Company reports its financial results in accordance with IFRS applicable to investment entities.
Functional and Presentation Currency
The US$ is the functional and presentation currency of the Company. International Accounting Standard 21 “The Effects of Changes in Foreign Exchange
Rates” describes functional currency as the currency of the primary economic environment in which an entity operates. A significant majority of the
Company’s revenues and costs are earned and incurred in US$, respectively.
Non-GAAP Measures
The Company uses both IFRS and non-generally accepted accounting principles (“non-GAAP”) measures to assess performance. The Company cautions
readers about non-GAAP measures that do not have a standardized meaning under IFRS and are unlikely to be comparable to similar measures used by
other companies. Management believes these measures allow for a more complete understanding of the underlying business. These measures are used
to monitor the Company's results and should not be viewed as a substitute for those determined in accordance with IFRS. Reconciliations of such
measures to the most comparable IFRS figures are contained in Section 15, Non-GAAP Measures of this MD&A.
- 5 -
The Westaim Corporation
Management’s Discussion and Analysis
Year ended December 31, 2023
(Currency amounts in millions of United States dollars except per share data, unless otherwise indicated)
Cautionary Statement Regarding the Valuation of Investments in Private Entities
In the absence of an active market for its investments in private entities, fair values for these investments are determined by management using the
appropriate valuation methodologies after considering the history and nature of the business, operating results and financial conditions, outlook and
prospects, general economic, industry and market conditions, capital market and transaction market conditions, contractual rights relating to the
investment, public market comparables, net asset value, discounted cash flow analysis, comparable recent arm’s length transactions, private market
transaction multiples and, where applicable, other pertinent considerations. The process of valuing investments for which no active market exists is
inevitably based on inherent uncertainties and the resulting values may differ from values that would have been used had an active market existed. The
amounts at which the Company's investments in private entities could be disposed of may differ from the fair value assigned and the differences could be
material.
Cautionary Statement Regarding Financial Information of the Arena FINCOs and Arena
Supplementary financial measures concerning the Arena FINCOs (as hereinafter defined) and Arena (as hereinafter defined) (the “Arena Supplementary
Financial Measures”) contained in this MD&A are unaudited and have been derived from the audited consolidated financial statements of the Arena
FINCOs and Arena for the years ended December 31, 2023 and 2022 and the unaudited consolidated financial statements of Arena FINCOs and Arena
for the three months ended December 31, 2023 and 2022, which have been prepared in accordance with either IFRS or US GAAP. Such statements are
the responsibility of the management of the Arena FINCOs and Arena. The Arena Supplementary Financial Measures, including any Arena FINCOs and
Arena non-GAAP measures contained therein, may not be reconciled to IFRS and so may not be comparable to the financial information of issuers that
present their financial information in accordance with IFRS.
The Arena Supplementary Financial Measures should be read in conjunction with the Company’s historical financial statements including the notes thereto
and the related MD&A as well as the Company’s other public filings.
The Arena Supplementary Financial Measures have been primarily provided by the management of the Arena FINCOs and Arena. Although Westaim
has no knowledge that would indicate that any of the Arena Supplementary Financial Measures contained herein are untrue or otherwise misleading,
neither Westaim nor any of its directors or officers assumes any responsibility for the accuracy or completeness of such information, or for any failure by
the Arena FINCOs and Arena to disclose to Westaim events or facts which may have occurred or which may affect the significance or accuracy of any
such financial information but which are unknown to Westaim.
Westaim disclaims and excludes all liability (to the extent permitted by law), for losses, claims, damages, demands, costs and expenses of whatever
nature arising in any way out of or in connection with the Arena Supplementary Financial Measures, its accuracy, completeness or by reason of reliance
by any person on any of it.
Forward-Looking Information
This MD&A may contain forward-looking statements that involve risks and uncertainties. The Company’s actual results could differ materially from these
forward-looking statements as a result of various factors, including those discussed hereinafter, and in the Company’s Annual Information Form for its
fiscal year ended December 31, 2022, which is available on SEDAR+ at www.sedarplus.ca, as same may be modified or superseded by a subsequently
filed Annual Information Form. Please refer to Section 16, Cautionary Note Regarding Forward-Looking Information of this MD&A.
- 6 -
The Westaim Corporation
Management’s Discussion and Analysis
Year ended December 31, 2023
(Currency amounts in millions of United States dollars except per share data, unless otherwise indicated)
1.
THE COMPANY
The Westaim Corporation (TSXV: WED) is a Canadian investment company specializing in providing long-term capital to businesses operating
primarily within the global financial services industry. The Company invests, directly and indirectly, through acquisitions, joint ventures and other
arrangements, with the objective of providing its shareholders with capital appreciation and real wealth preservation. Westaim’s strategy is to pursue
investment opportunities with a focus towards the global financial services industry and grow shareholder value over the long term.
The Company’s principal investments consist of Skyward Specialty Insurance Group, Inc. (“Skyward Specialty”), the Arena FINCOs and Arena. See
discussion in Section 3, Investments of this MD&A for additional information on these investments.
2. OVERVIEW OF PERFORMANCE
Highlights
Three months ended December 31
2022
2023
Year ended December 31
2022
2023
Revenue and net change in value of investments
Net expenses
Income taxes (expense) recovery
$ 53.3
(16.1)
(2.1)
$ 35.1
(2.5)
0.2
$ 212.8
(26.6)
(2.3)
$ 27.4
(9.8)
0.4
Profit and comprehensive income
$ 35.1
$ 32.8
$ 183.9
$ 18.0
Earnings per share – basic
Earnings per share – diluted
At December 31:
Shareholders’ equity
Number of Common Shares outstanding 1
Book value per fully diluted share – in US$ 2
Book value per fully diluted share – in C$ 3
$ 0.26
$ 0.26
$ 0.23
$ 0.23
$ 1.33
$ 1.32
$ 0.13
$ 0.12
$ 518.3
131,757,285
$ 3.83
$ 5.08
$ 363.2
141,386,718
$ 2.56
$ 3.46
1 Westaim’s common shares (“Common Shares”) are listed and posted for trading on the TSX Venture Exchange (“TSXV”) under the symbol “WED”.
2 See Section 15, Non-GAAP Measures of this MD&A.
3 Period end exchange rates: 1.32405 at December 31, 2023 and 1.35360 at December 31, 2022.
Three months ended December 31, 2023 and 2022
The Company reported a profit and comprehensive income of $35.1 and $32.8 for the three months ended December 31, 2023 and 2022,
respectively.
Revenue and net change in value of investments was a net increase of $53.3 for the three months ended December 31, 2023 (2022 – $35.1), and
consisted of interest income of $1.6 (2022 - $0.3), dividend income paid to the Company from the Arena FINCOs of $nil (2022 - $0.5), advisory fees
of $0.2 (2022 - $0.3), an increase of $51.9 in the value of the investment in Skyward Specialty (2022 – $40.5), a decrease of $0.9 in the value of the
investments in the Arena FINCOs (2022 – decrease of $6.6, which was a decrease of $6.1 before dividends paid of $0.5), the Company’s share of
Arena’s comprehensive income of $0.6 (2022 – $0.1) and a decrease in the value of the Company’s investment in Arena Special Opportunities
Fund, LP (“ASOF LP”) of $0.1 (2022 – decrease of a nominal amount).
Net expenses for the three months ended December 31, 2023 of $16.1 (2022 – $2.5) consisted of salaries and benefits of $12.2 (2022 - $1.2),
general, administrative and other expenses of $0.2 (2022 - $0.2), professional fees of $0.5 (2022 - $0.2), share-based compensation expense $2.9
(2022 – $0.2), a foreign exchange loss of $0.3 (2022 – $0.2), and interest on preferred securities of $nil (2022 - $0.5).
The Company reported income taxes expense for the three months ended December 31, 2023 of $2.1 (2022 – recovery of $0.2).
Years ended December 31, 2023 and 2022
The Company reported a profit and comprehensive income of $183.9 and $18.0 for the years ended December 31, 2023 and 2022, respectively.
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The Westaim Corporation
Management’s Discussion and Analysis
Year ended December 31, 2023
(Currency amounts in millions of United States dollars except per share data, unless otherwise indicated)
2. OVERVIEW OF PERFORMANCE (continued)
Revenue and net change in value of investments was a net increase of $212.8 for the year ended December 31, 2023 (2022 – $27.4), and consisted
of interest income of $3.7 (2022 - $1.3), dividend income paid to the Company from the Arena FINCOs of $4.4 (2022 - $8.4), advisory fees of $0.5
(2022 - $1.0), an increase of $210.3 in the value of the investment in Skyward Specialty (2022 – $26.8), a decrease of $10.4 in the value of the
investments in the Arena FINCOs, which was a decrease of $6.0 before dividends paid of $4.4 (2022 – decrease of $10.8, which was a decrease of
$2.4 before dividends paid of $8.4), the Company’s share of Arena’s comprehensive income of Arena of $4.5 (2022 – $0.7) and a decrease in the
value of the Company’s investment in ASOF LP of $0.2 (2022 – a decrease of a nominal amount).
Net expenses for the year ended December 31, 2023 of $26.6 (2022 – $9.8) consisted of salaries and benefits of $16.0 (2022 - $4.8), general,
administrative and other expenses of $0.9 (2022 - $0.9), professional fees of $1.5 (2022 - $1.5), share-based compensation expense $6.7 (2022 –
$0.9), a foreign exchange loss of $0.6 (2022 – gain of $0.1), interest on preferred securities of $1.0 (2022 - $1.9) and a gain resulting from a change
in the fair value of the vested Warrants (as hereinafter defined) of $0.1 (2022 – $0.1).
The Company reported income taxes expense for the year ended December 31, 2023 of $2.3 (2022 – recovery of $0.4).
3.
INVESTMENTS
The Company’s principal investments consist of its investments in Skyward Specialty, the Arena FINCOs and Arena.
Skyward Specialty
Arena FINCOs
Arena
Place of
establishment
Delaware, U.S.
Delaware, U.S.
Delaware, U.S.
Principal place
of business
Texas, U.S.
New York, U.S.
New York, U.S.
Ownership interest
at December 31, 2023
17.5% owned by the Company 1
100% owned by the Company
51% owned the Company 2
Ownership interest
at December 31, 2022
43.8% owned by the Company 1
100% owned by the Company
51% owned the Company 2
1 See section 3.A. Investment in Skyward Specialty for details of the Company’s ownership in Skyward Specialty.
2 Legal equity ownership is 51% (December 31, 2022 - 51%) is subject to change over time pursuant to the earn-in rights granted to Bernard Partners, LLC (“BP LLC”)
described below under “Investment in Arena”.
For additional information on the Company’s corporate structure, see the Company’s Annual Information Form for its fiscal year ended December
31, 2022, which is available on SEDAR+ at www.sedarplus.ca, as same may be modified or superseded by a subsequently filed Annual Information
Form.
Skyward Specialty
The Company owns a significant ownership interest in Skyward Specialty (NASDAQ: SKWD), a U.S. based publicly traded diversified specialty
property & casualty insurance holding company that underwrites select property, casualty, surety, and accident and health insurance coverages
through its insurance and reinsurance subsidiaries. The Company’s investment in Skyward Specialty is recorded under investments in the
Company’s consolidated financial statements. For additional information on Skyward Specialty, see Electronic Data Gathering, Analysis, and
Retrieval (“EDGAR”) filings at www.sec.gov/edgar/search-and-access.
Arena FINCOs
The Arena FINCOs are private companies which include specialty finance companies that primarily purchase fundamentals-based, asset-oriented
credit and other investments for their own account and a company that primarily facilitates the origination of fundamentals-based, asset-oriented
credit investments for its own account and/or possible future sale to specialty finance companies, clients of Arena Investors and/or other third parties.
Fundamentals-based, asset-oriented credit investments refer to loans or credit arrangements which are generally secured by assets. Fundamentals-
based, asset-oriented lenders and investors manage their risk and exposure by carefully assessing the value of the assets securing the loan or
investment, receiving periodic and frequent reports on collateral value and the status of those assets, and tracking the financial performance of
borrowers. The Company’s investments in the Arena FINCOs are recorded under investments in the Company’s consolidated financial statements.
Arena FINCOs refers to WOH, AFHC (as each is defined hereinafter) and each of their respective subsidiaries.
Arena
Arena Investors Group Holdings, LLC (“AIGH” or “Arena”), is a private company, through its wholly-owned subsidiaries and subsidiaries which Arena
has a controlling interest. Arena consists of two main business lines, Arena Investors and Arena Institutional Services (“AIS”). Arena Investors
operates as a global investment manager offering third-party clients, including the Arena FINCOs, access to fundamentals-based, credit and asset-
oriented investments that aim to deliver above-market returns with low volatility. Arena Investors provides investment services primarily to
institutional third-party clients consisting of, but not limited to, insurance companies, endowments, foundations, pensions, sovereign funds and other
pooled investment vehicles or private investment funds. AIS leverages certain intellectual property to offer third-party services to other entities to
assist in the management of their investments.
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The Westaim Corporation
Management’s Discussion and Analysis
Year ended December 31, 2023
(Currency amounts in millions of United States dollars except per share data, unless otherwise indicated)
3.
INVESTMENTS (continued)
The Company’s investment in Arena is accounted for using the equity method and consists of investments in corporations or limited partnerships
where the Company has significant influence.
The following chart illustrates a simplified organizational structure of Arena and the Arena FINCOs:
The Westaim Corporation
(“Westaim”)”)
100%
The Westaim Corporation of
America
(“WCA”)
51% 1
100%
100%
Arena Investors Group Holdings,
LLC (“AIGH” or “Arena”)
Westaim Origination
Holdings, Inc.
(“WOH”)
Arena Finance Holdings Co.,
LLC (“AFHC”)
Subsidiaries
operating as
Arena Investors
(“Arena Investors”)
Subsidiaries
operating as
Arena Institutional
Services (“AIS”)
100%
100%
Arena Origination Co., LLC
(“AOC”)
Arena Finance, LLC
and subsidiaries
(“AF”)
Arena
Arena FINCOs
1 Legal equity ownership and profit percentage are 51%. Ownership and profit percentage are subject to change over time pursuant to the earn-in rights granted to
BP LLC described under “Investment in Arena”.
For a detailed discussion of the business of Arena and the Arena FINCOs, see the Company’s Annual Information Form for its fiscal year ended
December 31, 2022, which is available on SEDAR+ at www.sedarplus.ca, as same may be modified or superseded by a subsequently filed Annual
Information Form.
Accounting for the Company’s Investments
The Company qualifies as an investment entity under IFRS and uses fair value as the key measure to monitor and evaluate its primary investments.
Accordingly, the Company’s investments in Skyward Specialty, the Arena FINCOs and ASOF LP are accounted for at fair value through profit or
loss (“FVTPL”). The Company’s investment in Arena is accounted for using the equity method since the Company does not exercise control but
exercises significant influence over Arena. For a detailed description of the accounting and valuation of the Company’s investments, see Note 4,
Investments in the Notes to the Financial Statements.
Dividend income from investments in private entities are reported under “Revenue” in the consolidated statements of profit and comprehensive
income. Changes in the fair value of the Company’s investments in Skyward Specialty, the Arena FINCOs and ASOF LP and the Company’s share
of Arena’s comprehensive income are reported under “Net results of investments” in the consolidated statements of profit and comprehensive
income.
- 9 -
The Westaim Corporation
Management’s Discussion and Analysis
Year ended December 31, 2023
(Currency amounts in millions of United States dollars except per share data, unless otherwise indicated)
3.
INVESTMENTS (continued)
A. INVESTMENT IN SKYWARD SPECIALTY
The Company’s investment in Skyward Specialty consists of the following:
HIIG Partnership-Company’s share of Skyward Specialty common shares 1
HIIG Partnership-Company’s share of other HIIG Partnership net assets
Skyward Specialty convertible preferred shares held by the Company 2
Skyward Specialty common shares held by the Company 2
HIIG Partnership-Company’s share of Skyward Specialty common shares 1
HIIG Partnership-Company’s share of other HIIG Partnership net assets
Skyward Specialty convertible preferred shares held by the Company 2
Skyward Specialty common shares held by the Company 2
HIIG Partnership-Company’s share of Skyward Specialty common shares 1
HIIG Partnership-Company’s share of other HIIG Partnership net assets
Skyward Specialty convertible preferred shares held by the Company 2
Skyward Specialty common shares held by the Company 2
HIIG Partnership-Company’s share of Skyward Specialty common shares 1
HIIG Partnership-Company’s share of other HIIG Partnership net assets
Skyward Specialty convertible preferred shares held by the Company 2
Skyward Specialty common shares held by the Company 2
Skyward
Specialty
preferred shares
converted to
common shares
$ -
-
-
-
$ -
Proceeds from sale
of Skyward
Specialty common
shares
$ -
-
-
(104.9)
$ (104.9)
Opening
Balance
$ -
-
-
289.5
$ 289.5
Skyward
Specialty
preferred shares
converted to
common shares
$ -
-
-
-
$ -
Proceeds from sale
of Skyward
Specialty common
shares
$ -
-
-
-
$ -
Opening
Balance
$ 89.0
0.4
89.0
-
$ 178.4
Skyward
Specialty
preferred shares
converted to
common shares
$ -
-
(109.3)
109.3
$ -
Proceeds from sale
of Skyward
Specialty common
shares
$ -
-
-
(192.3)
$ (192.3)
Opening
Balance
$ 109.2
0.4
109.3
-
$ 218.9
Skyward
Specialty
preferred shares
converted to
common shares
$ -
-
-
-
$ -
Proceeds from sale
of Skyward
Specialty common
shares
$ -
-
-
-
$ -
Opening
Balance
$ 95.8
0.4
-
95.9
$ 192.1
Three months ended December 31, 2023
Net increase
in value of
investment
$ -
-
-
51.9
$ 51.9
Dissolution of
HIIG
Partnership
$ -
-
-
-
$ -
Ending
Balance
$ -
-
-
236.5
$ 236.5
Three months ended December 31, 2022
Net increase
in value of
investment
$ 20.2
-
20.3
-
$ 40.5
Dissolution of
HIIG
Partnership
$ -
-
-
-
$ -
Ending
Balance
$ 109.2
0.4
109.3
-
$ 218.9
Year ended December 31, 2023
Net increase
in value of
investment
$ 63.3
-
-
146.9
$ 210.3
Dissolution of
HIIG
Partnership
$ (172.5)
(0.4)
-
172.5
$ (0.4)
Ending
Balance
$ -
-
-
236.5
$ 236.5
Year ended December 31, 2022
Net increase
in value of
investment
$ 13.4
-
13.4
$ 26.8
Dissolution of
HIIG
Partnership
$ -
-
-
-
$ -
Ending
Balance
$ 109.2
0.4
109.3
$ 218.9
1 The Company’s share of Skyward Specialty common shares held by the Westaim HIIG Limited Partnership (the “HIIG Partnership”).
2 The Skyward Specialty convertible preferred shares were automatically converted to Skyward Specialty common shares on January 18, 2023.
On January 18, 2023, Skyward Specialty closed its initial public offering (the “IPO”). In connection with the IPO, the Skyward Specialty common
shares became listed on the Nasdaq Global Select Market under the ticker symbol “SKWD”. Also in connection with the IPO, the Skyward Specialty
convertible preferred shares automatically converted into Skyward Specialty common shares, including those owned by the Company which
converted into 7,285,359 Skyward Specialty common shares.
- 10 -
The Westaim Corporation
Management’s Discussion and Analysis
Year ended December 31, 2023
(Currency amounts in millions of United States dollars except per share data, unless otherwise indicated)
3. INVESTMENTS (continued)
On June 12, 2023, Skyward Specialty closed its underwritten secondary public offering (the “Skyward Secondary Offering”). Under the Skyward
Secondary Offering, Westaim sold 3,850,000 Skyward Specialty common shares at a price to the public of $23.00 per Skyward Specialty common
share (the “Secondary Offering Price”). The underwriters also exercised in full their option to purchase an additional 577,500 Skyward Specialty
common shares from the selling stockholders at the Skyward Offering Price, of which 137,500 Skyward Specialty common shares were sold by
Westaim. The proceeds to Westaim from the 3,987,500 Skyward Specialty common shares it sold, less underwriting commissions of 4.75%, were
approximately $87.4.
On July 31, 2023, the HIIG Partnership expired pursuant to the terms of HIIG Partnership’s limited partnership agreement, originally made as of
March 12, 2014 and amended and restated as of June 27, 2014 and as further amended on November 10, 2022. Accordingly, on July 31, 2023, the
HIIG Partnership was dissolved and distributed its net assets to its limited partners, resulting in the Company (in its capacity as a limited partner)
receiving 7,281,780 Skyward Specialty common shares valued at $172.5 ($23.69 per Skyward Specialty common share on July 31, 2023) and $0.4
in cash on the dissolution date.
On November 20, 2023, Skyward Specialty closed its upsized follow-on offering (the “Skyward Upsized Follow-On Offering”). Under the Skyward
Upsized Follow-On Offering, Westaim sold 3,600,000 Skyward Specialty common shares at a price to the public of $30.50 per Skyward Specialty
common share. The proceeds to Westaim from the 3,600,000 Skyward Specialty common shares it sold, less underwriting commissions of 4.5%,
were approximately $104.9.
At December 31, 2023, Westaim directly held 6,979,639 Skyward Specialty common shares. At December 31, 2022, Westaim directly held Skyward
Specialty preferred shares which were convertible into 7,285,359 common shares and indirectly held 7,281,780 Skyward Specialty common shares
through the Company’s interest in the HIIG Partnership for a total of 14,567,139 Skyward Specialty common shares.
(i) Fair Value
The investment in Skyward Specialty is classified at Level 1 of the fair value hierarchy and is accounted for at FVTPL. At December 31, 2023, the
Company’s estimated fair value of Skyward Specialty common shares held directly by the Company was supported by the “SKWD” closing trading
price on the Nasdaq Global Select Market of $33.88 per Skyward Specialty common share on the last trading day of 2023. At December 31, 2022,
the Company’s estimated fair value of Skyward Specialty’s fully diluted common shares, using multiple valuation techniques, was determined to be
$15.00 per Skyward Specialty common shares. See Note 4, Investment in Skyward Specialty in the Notes to the Financial Statements.
At December 31, 2023, the fair value of the Company’s investment in Skyward Specialty was determined to be $236.5 which consisted of 6,979,639
Skyward Specialty common shares held directly by the Company at $33.88 per Skyward Specialty common share. At December 31, 2022 the fair
value of the Company’s investment in Skyward Specialty was determined to be $218.9 and consisted of the aggregate fair value of (i) its share of
the Skyward Specialty common shares held by the HIIG Partnership of 7,281,780 Skyward Specialty common shares at $15.00 per Skyward
Specialty common share for $109.2, (ii) its share of the other net assets of the HIIG Partnership of $0.4, and (iii) convertible preferred shares held
directly by the Company, which were convertible into 7,285,359 Skyward Specialty common shares at $15.00 per Skyward Specialty common share
for $109.3.
The Company recorded an increase in the value on its investment in Skyward Specialty of $51.9 and $210.3 in the three months and year ended
December 31, 2023, respectively, and $40.5 and $26.8 in the three months and year ended December 31, 2022, respectively.
B. INVESTMENT IN THE ARENA FINCOS
The following table shows a continuity of the carrying value of the Company’s investments in the Arena FINCOs included in the Company’s
investments in private entities.
Opening balance
Return of capital to the Company
Decrease in value before dividends
Dividends paid to the Company
Ending balance
Three months ended December 31
2022
2023
Year ended December 31
2022
2023
$
$
148.1
-
(0.9)
-
147.2
$
$
168.6
(1.9)
(6.1)
(0.5)
160.1
$
$
160.1
(2.5)
(6.0)
(4.4)
147.2
$
$
172.8
(1.9)
(2.4)
(8.4)
160.1
- 11 -
The Westaim Corporation
Management’s Discussion and Analysis
Year ended December 31, 2023
(Currency amounts in millions of United States dollars except per share data, unless otherwise indicated)
3. INVESTMENTS (continued)
The Arena FINCOs invest in both debt and equity, hard assets and real estate owned investments, with an emphasis on debt instruments comprised
of multiple investment strategies including, but not limited to, corporate private investments, real estate private investments, commercial & industrial
assets, structured finance investments, consumer assets, and other securities. The Arena FINCOs do not have a target range of investment; the
size of the loans and/or other credit investments acquired depends on, among other things, any diversity requirements which may be imposed by
any lender as well as their own investment policy. In the absence of such requirements, the Arena FINCOs are not subject to concentration limitations
but the management of the Arena FINCOs will use their best judgment as to what is prudent in the circumstances.
The Arena FINCOs seek to capitalize on opportunities in both private as well as public investments subject to approved investment policies. These
investment strategies include:
Corporate Private Investments
Senior private corporate debt, bank debt, including, without limitation, secondary market bank debt, distressed debt such as senior secured bank
debt before or during a Chapter 11 bankruptcy filing, corporate bonds, including, without limitation, bonds in liquidation or out-of-court exchange
offers and trade claims of distressed companies in anticipation of a recapitalization, bridge loans/transition financing, debtor-in-possession (“DIP”)
financings, junior secured loans, junior capital to facilitate restructurings, equity co-investments or warrants alongside corporate loans.
Real Estate Private Investments
Real property, secured or unsecured mezzanine financings, DIP loans, “A-tranche” loans (senior secured loans) and “B-tranche” loans (junior
secured loans) for real estate properties requiring near-term liquidity, structured letters of credit, real estate loans secured by office buildings, retail
centres, hotels, land, single family homes, multi-family apartments, condominium towers, hospitality providers, health care service providers, and
corporate campuses, leases and lease residuals.
Structured Finance and Assets
Commercial receivables, investments in entities (including, without limitation, start-up businesses) engaged, or to be engaged, in activities or
investments such as distressed commercial and industrial loans, commercial and industrial assets such as small-scale asset-based loans, trade
claims and vendor puts, specialized or other types of equipment leases and machinery, non-performing loans globally, hard assets (including, without
limitation, airplanes and components, industrial machinery), commodities (physical and synthetic), reinsurance and premium finance within life and
property casualty insurance businesses, legal-related finance including, without limitation, law firm loans, settled and appellate judgments and
probate finance, royalties, trust certificates, intellectual property and other financial instruments that provide for the contractual or conditional payment
of an obligation. Thinly traded or less liquid loans and securities backed by mortgages (commercial and residential), other small loans including,
without limitation, equipment leases, auto loans, commercial mortgage-backed securities, residential mortgage-backed securities, collateralized loan
obligations, collateralized debt obligations, other structured credits and consumer-related assets, aviation and other leased asset securitizations,
esoteric asset securitization, revenue interests, synthetics, and catastrophe bonds. Auto and title loans, credit cards, consumer installment loans,
charged-off consumer obligations, consumer bills, consumer receivables, product-specific purchase finance, residential mortgages, tax liens, real
estate owned homes, other consumer-related assets, retail purchase loans and unsecured consumer loans as well as distressed or charged-off
obligations of all of these types, peer-to-peer originated loans of all types, manufactured housing, and municipal consumer obligations.
Corporate and Other Securities
Positions in asset-backed securities, collateralized debt obligations, collateralized loan obligations, residential mortgage backed securities,
commercial mortgage backed securities, other securitized bonds or non-bond tranches and liquid positions including, hedged and unhedged
investments in public securities (including, without limitation, public real estate and special purpose acquisition companies (“SPACs”)), preferred
stock, common stock, municipal bonds, senior public corporate debt, other industry relative value, merger arbitrage in transactions such as mergers,
hedged investments in regulated utilities, integrated utilities, merchant energy providers, acquisitions, tender offers, spin-offs, recapitalizations and
Dutch auctions, limited partnership interests, interests in fund start-ups and investment managers, event-driven relative value equity investments in
transactions such as corporate restructurings, strategic block, other clearly defined events, high-yield bonds, credit arbitrage and convertible bond
arbitrage, in/post-bankruptcy equities, demutualizations, liquidations and litigation claims, real estate securities, business development companies,
master limited partnership interests, royalty trusts, publicly traded partnerships, options and other equity derivatives.
Before acquiring or originating any such loans or other investments, the Arena FINCOs review the nature of the loan, the creditworthiness of the
borrower, the nature and extent of any collateral and the expected return on such loan or investment. The Arena FINCOs originate and/or acquire
such loans or investments based on their assessment of the fair market value of the investment at the time of purchase.
The primary revenue of the Arena FINCOs consists of interest income, dividend income and/or investment-related fees earned on the investments
that it originates or acquires. The operating results of the Arena FINCOs also include gains (losses) on their investments.
- 12 -
The Westaim Corporation
Management’s Discussion and Analysis
Year ended December 31, 2023
(Currency amounts in millions of United States dollars except per share data, unless otherwise indicated)
3. INVESTMENTS (continued)
(i) Accounting for the Arena FINCOs
The Company’s investment in the Arena FINCOs is accounted for at FVTPL. Using net asset value as the primary valuation technique, management
determined that 1.0x the book value, or 100% of the shareholder’s equity of the Arena FINCOs at December 31, 2023, in the amount of $147.2
approximated the fair value of the Company’s investments in the Arena FINCOs. See Note 4, Investments in the Arena FINCOs in the Notes to the
Financial Statements.
The fair value of the Company’s investment in the Arena FINCOs was determined to be $147.2 and $160.1 at December 31, 2023 and 2022,
respectively.
The Company recorded a decrease in the value of its investments in the Arena FINCOs of $0.9 in the three months ended December 31, 2023, and
a decrease in the value of its investments in the Arena FINCOs of $10.4, which was a decrease of $6.0 before dividends paid to the Company of
$4.4 in the year ended December 31, 2023. The Company recorded a decrease in the value of its investments in the Arena FINCOs of $6.6, which
was a decrease of $6.1 before dividends paid to the Company of $0.5 in the three months ended December 31, 2022, and a decrease in the value
of its investments in the Arena FINCOs of $10.8, which was a decrease of $2.4 before dividends paid to the Company of $8.4 in the year ended
December 31, 2022. In addition, the Arena FINCOs returned capital to the Company of $nil and $2.5 in the three months and year ended December
31, 2023, respectively. The Arena FINCOs returned capital returned to the Company of $1.9 in the three months and year ended December 31,
2022.
(ii) Arena FINCOs Supplementary Financial Measures for the three months and year ended December 31, 2023 and 2022
The Company considers certain financial results of the Arena FINCOs to be important measures in assessing the Company’s financial position and
performance, in particular, the net assets which can be invested to generate investment income, and operating expenses. Supplementary Financial
Measures related to the Arena FINCOs set out below is unaudited and has been derived from the unaudited financial statements of WOH and AFHC,
the audited financial statements of AOC and the audited consolidated financial statements of AF and its subsidiaries for the years ended December
31, 2023 and 2022, and the unaudited financial statements of AOC, AF and its subsidiaries for the three months ended December 31, 2023 and
2022, which have been prepared in accordance with IFRS or US GAAP. AOC financial statements and AF consolidated financial statements are
the responsibility of the management of the Arena FINCOs. Readers are cautioned that the financial information has not been reconciled to IFRS
and so may not be comparable to the financial information of issuers that present their financial information in accordance with IFRS.
A summary of the net assets of the Arena FINCOs is as follows:
Cash and cash equivalents
Investments:
Loans / private assets
Other securities
Total investments
Other net assets
Due to brokers, net
Senior secured notes payable
Revolving credit facility payable
Net assets of the Arena FINCOs
December 31, 2023
27.3
$
December 31, 2022
16.7
$
162.3
29.7
192.0
3.9
(12.1)
(44.4)
(19.5)
147.2
$
161.2
37.8
199.0
7.9
(17.0)
(43.9)
(2.6)
160.1
$
Due from brokers consists of cash balances as well as net amounts due from brokers for unsettled securities transactions. Investment securities
are net of short positions. In the normal course of the Arena FINCOs’ operations, the Arena FINCOs enter into US$ currency hedges to reduce its
non-US$ currency exposure.
Arena Finance II LLC (“AFII”), one of the Arena FINCOs, has a private placement of $45.0 of 6.75% senior secured notes payable to improve net
returns by leveraging invested assets. AFII incurred issuance costs relating to the notes of $1.7 which is recorded as a discount to the net proceeds
received and is amortized over the life of the notes. The net proceeds received from these notes are being used by the Arena FINCOs in accordance
with its investment objectives.
- 13 -
The Westaim Corporation
Management’s Discussion and Analysis
Year ended December 31, 2023
(Currency amounts in millions of United States dollars except per share data, unless otherwise indicated)
3. INVESTMENTS (continued)
AFII has a revolving credit facility with third party lenders with a commitment amount of $25.0 expiring on September 30, 2024. Unpaid principal
amounts under the revolving credit facility will bear interest at the 3-month Secured Overnight Finance Rate (“SOFR”) plus 3.06161%. Additionally,
an unused facility fee accrues at a rate of 0.50% per annum and is payable monthly in arrears. At December 31, 2023 and 2022, there were draws
of $19.5 and $2.6 outstanding, respectively. The loan is secured by AFII’s equity interests in its subsidiaries, carries a parental guarantee from AF,
and ranks senior to AFII’s senior secured notes payable. The net proceeds received under the revolving credit facility are intended to be used as
working capital and liquidity support in lieu of maintaining cash reserves and therefore are expected to keep AFII’s equity and term debt capital fully
invested.
For additional information on the investments of the Arena FINCOs, see Section 14, Additional Arena FINCOs Investment Schedules of this MD&A.
A summary of the operating results of the Arena FINCOs attributable to the Company is as follows:
Net operating results of the Arena FINCOs:
Investment income
Net (losses) gains on investments
Interest expense
Net investment income (loss)
Management and asset servicing fees
Incentive fees recovery (expense)
Other operating expenses
Net operating results before holding companies’ expenses
Arena FINCOs holding companies’ expenses:
Advisory fees paid to the Company
Net operating results of the Arena FINCOs
Three months ended December 31
2022
2023
Year ended December 31
2022
2023
$ 6.0
(4.3)
(1.3)
0.4
(1.0)
-
(0.2)
(0.8)
$
1.9
(5.5)
(1.1)
(4.7)
(1.0)
0.1
(0.4)
(6.0)
$ 6.6
(2.7)
(4.8)
(0.9)
(3.9)
(0.1)
(0.9)
(5.8)
$
5.2
2.4
(4.1)
3.5
(4.3)
(0.4)
(1.0)
(2.2)
(0.1)
$ (0.9)
(0.1)
(6.1)
$
(0.2)
$ (6.0)
(0.2)
(2.4)
$
The Net Return on the investment portfolios of the Arena FINCOs was -0.5% and -3.7% for the three months and year ended December 31, 2023,
respectively, and -3.6% and -1.6% for the three months and year ended December 31, 2022, respectively. See Section 15, Non-GAAP Measures
of this MD&A.
- 14 -
The Westaim Corporation
Management’s Discussion and Analysis
Year ended December 31, 2023
(Currency amounts in millions of United States dollars except per share data, unless otherwise indicated)
3. INVESTMENTS (continued)
C. INVESTMENT IN ARENA
Changes in the Company’s investment in associates are summarized as follows:
Investment in Arena
Opening balance
The Company’s share Arena’s comprehensive income
The Company’s share of cash and non-cash distributions from
Arena
Ending balance
Three months ended December 31
2022
2023
Year ended December 31
2022
2023
$ 28.8
0.6
(1.8)
$ 27.6
$ 26.8
0.1
-
$ 26.9
$ 26.9
4.5
(3.8)
$ 27.6
$ 26.2
0.7
-
$ 26.9
Arena Investors generates revenues primarily from Management Fees, Incentive Fees and Asset Servicing Fees. “Management Fees” are the fees
generally calculated on Arena Investors’ various segregated client accounts and private pooled investment vehicles, as a percentage of either
committed investing capital inclusive of profits earned, or total assets inclusive of financing, and the fees generally calculated on the Arena FINCOs,
as a percentage of committed investing capital inclusive of profits earned but excluding financing. “Incentive Fees” are the fees generally calculated
as a percentage of net profits earned by clients of Arena Investors, including the Arena FINCOs, as of the end of each fiscal year or applicable
withdrawal date related to client accounts subject to a “high water mark” and loss carryforward provisions for each measurement date. “Asset
Servicing Fees” are the fees earned in connection with the management and servicing of the illiquid portion of clients’ investment portfolios including
the Arena FINCOs. AIS leverages its intellectual capital to provide non-investment advisory services primarily for third parties.
At December 31, 2023, Arena Investors had committed assets under management (“AUM”) of approximately $3.2 billion (December 31, 2022: $3.5
billion). AUM refers to the assets for which Arena Investors provides investment management, advisory or certain other investment-related services.
AUM is generally based on the net asset value of the funds managed by Arena Investors plus any unfunded commitments. Arena Investors’
calculation of AUM may differ from the calculations of other asset managers, and as a result, may not be comparable to similar measures presented
by other asset managers. Arena Investors’ calculations of AUM are not based on any definition set forth in the governing documents of the investment
funds and are not calculated pursuant to any regulatory definitions. At December 31, 2023, AUM included the net assets of the Arena FINCOs and
the Company’s investment in ASOF LP of approximately $150 (December 31, 2022: $163).
(i) Rights Granted to BP LLC
On August 31, 2015, agreements were entered into between the Company and BP LLC in respect of AIGH (the “Associate Agreements”). The
Associate Agreements set forth the members’ respective rights and obligations, as well as BP LLC’s right to participate in distributions of the capital
and profit of the associates. BP LLC’s initial profit sharing percentage was 49%, and under the Associate Agreements, BP LLC has the right to earn-
in up to 75% equity ownership percentage in the associates and to thereby share up to 75% of the profit of the associates based on achieving certain
AUM and cash flow (measured by the margin of trailing twelve months earnings before interest, income taxes, depreciation and amortization
(“EBITDA”) to trailing twelve month revenues) thresholds in accordance with the Associate Agreements. At December 31, 2023 and 2022, the
Company’s equity ownership and profit sharing percentage of Arena was 51%.
(ii) Accounting for Arena
The Company has a revolving loan to Arena (the “Arena Revolving Loan”) with a limit of $35 at December 31, 2023 (December 31, 2022 - $35) in
order to continue funding growth initiatives and working capital needs of Arena. The loan facility matures on March 31, 2025 and bore an interest
rate of 5.60% per annum through to March 31, 2023 and increased to 7.25% per annum on April 1, 2023. Arena had drawn down the loan facility
by $24 at December 31, 2023 (December 31, 2022 - $24). The loan facility is secured by all the assets of Arena.
The Company’s investment in Arena is accounted for using the equity method. The carrying amount of the Company’s investment in Arena was
$27.6 and $26.9 at December 31, 2023 and 2022, respectively. The Company’s 51% share of Arena’s comprehensive income that amounted to
$0.6 and $4.5 for the three months and year ended December 31, 2023, respectively, and a share of Arena’s comprehensive income that amounted
to $0.1 and $0.7 for the three months and year ended December 31, 2022, respectively, was reported under “Net results of investments” in the
consolidated statements of profit and comprehensive income.
- 15 -
The Westaim Corporation
Management’s Discussion and Analysis
Year ended December 31, 2023
(Currency amounts in millions of United States dollars except per share data, unless otherwise indicated)
3. INVESTMENTS (continued)
(iii) Arena Supplementary Financial Measures for the three months and year ended December 31, 2023 and 2022
The Company considers certain financial results of Arena to be important measures in assessing the Company’s financial position and performance,
in particular, revenues from the provision of investment management services, and operating expenses. Supplementary Financial Measures related
to Arena set out below is unaudited and has been derived from the audited financial statements of AIGH for the years ended December 31, 2023
and 2022 and the unaudited financial statements of AIGH for the three months ended December 31, 2023 and 2022, which have been prepared in
accordance with US GAAP. Such statements are the responsibility of the management of Arena. Arena presents their performance results as Arena
Investors’ fee related earnings (“FRE”), Arena Investors’ net incentive fees, and AIS EBITDA. Arena’s Supplementary Financial Measures includes
EBITDA which is a common measure for operating profitability. Management of the Company concluded that any reconciling items to IFRS are not
material.
Supplementary Financial Measures from Arena’s Statement of Financial Position
Cash and cash equivalents
Restricted cash
Arena’s Revolving Loan from the Company
Other net assets (liabilities)
Net assets
Less: net assets attributable to non-controlling interests
Net assets attributable to Arena
Company’s share of Arena’s net assets
Arena’s Revolving Loan from the Company
Carrying amount of the Company’s investment in Arena
December 31, 2023
$ 8.1
16.7
(24.0)
10.4
11.2
4.5
$ 6.7
$ 3.6
24.0
$ 27.6
December 31, 2022
$ 4.8
28.2
(24.0)
(3.2)
5.8
0.2
$ 5.6
$ 2.9
24.0
$ 26.9
Restricted cash includes deposits received in advance for pre-funded work fees and prepaid deposits primarily from investment loans.
Supplementary Financial Measures from Arena’s Statement of Income and Other Comprehensive Income
Three months ended December 31
20221
2023
Year ended December 31
20221
2023
Arena Investors
Management fees
Asset servicing fees
Other income
Total recurring revenue
Operating expenses allocated to recurring revenue
Fee related earnings
Incentive fees
Incentive fees compensation expense
Net incentive fees
Arena Investors’ EBITDA
Arena Institutional Services
AIS revenue
AIS operating expenses
Employee profit share
AIS EBITDA
AIGH general and administrative costs
AIGH other income and expenses
Total Arena EBITDA
Depreciation
Revolving loan interest expense paid to the Company
Taxes
Net income attributable to Arena
Company’s share of Arena’s comprehensive income (51%)
$ 7.6
2.7
0.4
10.7
(10.2)
0.5
3.1
(0.6)
2.5
3.0
(1.6)
(0.1)
0.4
(1.3)
(0.3)
(0.4)
1.0
-
(0.4)
0.5
$ 1.1
$ 0.6
$ 8.3
2.3
0.9
11.5
(10.3)
1.2
(0.6)
1.1
0.5
1.7
0.6
(0.8)
(0.2)
(0.4)
(0.2)
(0.3)
0.8
(0.1)
(0.3)
(0.1)
$ 0.3
$ 0.1
$ 30.8
11.0
1.0
42.8
(40.6)
2.2
8.8
(4.5)
4.3
6.5
11.5
(1.5)
(4.3)
5.7
(0.8)
(1.3)
10.1
(0.3)
(1.6)
0.5
$ 8.7
$ 4.5
$ 31.9
10.6
0.8
43.3
(35.0)
8.3
4.3
(6.2)
(1.9)
6.4
0.6
(1.2)
(0.2)
(0.8)
(0.8)
(1.5)
3.3
(0.2)
(1.3)
(0.3)
$ 1.5
$ 0.7
1 Adjusted to conform to the presentation of the current period financial statements.
- 16 -
The Westaim Corporation
Management’s Discussion and Analysis
Year ended December 31, 2023
(Currency amounts in millions of United States dollars except per share data, unless otherwise indicated)
3. INVESTMENTS (continued)
D. INVESTMENT IN ASOF LP
The Company’s investment in ASOF LP, a fund managed by Arena Investors, with a fair value of $3.0 and $3.2 at December 31, 2023 and 2022,
respectively, is included under investments in the consolidated statements of financial position. The Company’s decrease in the value on its
investment in ASOF LP was $0.1 and $0.2 in the three months and year ended December 31, 2023, respectively, and a decrease of a nominal
amount in each of the three months and year ended December 31, 2022.
4.
FINANCING
Preferred Securities
On June 2, 2017, the Company closed the sale to certain affiliates of Fairfax Financial Holdings Limited (collectively referred to as “Fairfax”) of 5,000,000
Preferred Securities for C$50 million. On July 17, 2023, the Company redeemed and delisted all of the 5,000,000 Preferred Securities and paid
C$50 million (equivalent to $37.9), plus all accrued and unpaid interest thereon. In connection with the redemption: (a) the Company and Fairfax
terminated the governance agreement dated June 2, 2017 between the parties; (b) Fairfax surrendered and disposed of, without any further
consideration, all of the Warrants, which were immediately cancelled by the Company; and (c) Westaim paid a $0.1 work fee to Fairfax. The C$
principal amount of the Preferred Securities was converted to US$ at the period end exchange rate, resulting in a carrying amount of the Preferred
Securities at December 31, 2023 of $nil (December 31, 2022 - $36.9). See Note 6, Preferred Securities in the Notes to the Financial Statements.
Canadian Dollar Currency Forward Contracts
The Company had entered into Canadian dollar forward contracts to reduce the currency exposure arising from the liabilities denominated in
Canadian dollars including the Preferred Securities. On June 14, 2023, the Company settled its C$ exchange forward contract to purchase C$50
million and the Company is no longer party to any C$ exchange forward contract. During the three months and year ended December 31, 2023, the
Company’s C$ forward contracts resulted in foreign exchange gain of $nil and $0.3, respectively. During the three months and year ended December
31, 2022, the Company’s C$ forward contracts resulted in foreign exchange gain of $0.8 and a foreign exchange loss of $3.0, respectively. See
Note 7, C$ Exchange Forward Contracts in the Notes to the Financial Statements. The Company has not designated these Canadian dollar currency
forward contracts as accounting hedges.
Derivative Warrant Liability
In conjunction with the purchase by Fairfax of C$50 million in Preferred Securities on June 2, 2017, Westaim issued to Fairfax 14,285,715 warrants to
purchase Common Shares (the “Warrants”) at a strike price of C$3.50, with all of the Warrants having vested on June 2, 2017. On July 17, 2023, in
connection with the redemption of the Preferred Securities, Fairfax surrendered and disposed of, without any further consideration, all of the
Warrants, which were immediately cancelled by the Company. The Warrants were subject to a cashless exercise at the discretion of Fairfax and
were classified as a derivative liability and measured at FVTPL. At December 31, 2023, a liability of $nil (December 31, 2022 - $0.1) has been
reported in the consolidated statements of financial position. See Note 8, Derivative Warrant Liability in the Notes to the Financial Statements.
- 17 -
The Westaim Corporation
Management’s Discussion and Analysis
Year ended December 31, 2023
(Currency amounts in millions of United States dollars except per share data, unless otherwise indicated)
5. ANALYSIS OF FINANCIAL RESULTS
Details of the Company’s operating results are as follows:
Revenue
Interest income
Dividend income from investments in private entities
Advisory fees
Net results of investments
Net expenses
Salaries and benefits
General, administrative and other
Professional fees
Share-based compensation
Foreign exchange (loss) gain
Interest on preferred securities
Derivative warrant gain
Income taxes (expense) recovery
Three months ended December 31
2022
2023
Year ended December 31
2022
2023
$
$
$
1.6
-
0.2
1.8
51.5
(12.2)
(0.2)
(0.5)
(2.9)
(0.3)
-
-
(16.1)
(2.1)
$
$
0.3
0.5
0.3
1.1
34.0
$
$
3.7
4.4
0.5
8.6
$
$
204.2
1.3
8.4
1.0
10.7
16.7
(1.2)
(0.2)
(0.2)
(0.2)
(0.2)
(0.5)
-
$ (2.5)
0.2
$
(16.0)
(0.9)
(1.5)
(6.7)
(0.6)
(1.0)
0.1
(26.6)
(2.3)
(4.8)
(0.9)
(1.5)
(0.9)
0.1
(1.9)
0.1
$ (9.8)
0.4
Profit and comprehensive income
$ 35.1
$
32.8
$ 183.9
$
18.0
5.1 Revenue
In the three months ended December 31, 2023, the Company earned interest on loans made to Arena of $0.4 (2022 - $0.3), earned interest on bank
balances of $1.2 (2022 – a nominal amount), received dividends paid to the Company from the Arena FINCOs of $nil (2022 - $0.5), and earned
advisory fees from Skyward Specialty of $nil (2022 - $0.1) and from the Arena FINCOs and Arena of $0.2 (2022 - $0.2).
In the year ended December 31, 2023, the Company earned interest on loans made to Arena of $1.6 (2022 - $1.3), earned interest on bank balances
of $2.1 (2022 – a nominal amount), received dividends paid to the Company from the Arena FINCOs of $4.4 (2022 - $8.4), and earned advisory fees
from Skyward Specialty of a nominal amount (2022 - $0.5) and from the Arena FINCOs and Arena of $0.5 (2022 - $0.5).
5.2 Net Results of Investments
In the three months ended December 31, 2023, the net results of investments of $51.5 (2022 – $34.0) consisted of an increase of $51.9 in the value
of the investment in Skyward Specialty (2022 – $40.5), a decrease of $0.9 in the value of the investments in the Arena FINCOs (2022 – decrease
of $6.6, which was a decrease of $6.1 before dividends paid of $0.5), the Company’s share of Arena’s comprehensive income of $0.6 (2022 – $0.1)
and a decrease in the value of the Company’s investment in ASOF LP of $0.1 (2022 – a decrease of a nominal amount).
In the year ended December 31, 2023, the net results of investments of $204.2 (2022 – $16.7) consisted of an increase of $210.3 in the value of the
investment in Skyward Specialty (2022 – $26.8), a decrease of $10.4 in the value of the investments in the Arena FINCOs, which was a decrease
of $6.0 before dividends paid of $4.4 (2022 – decrease of $10.8, which was a decrease of $2.4 before dividends paid of $8.4), the Company’s share
of Arena’s comprehensive income of $4.5 (2022 – $0.7) and a decrease in the value of the Company’s investment in ASOF LP of $0.2 (2022 –
decrease of a nominal amount).
See discussion in Section 3, Investments of this MD&A.
- 18 -
The Westaim Corporation
Management’s Discussion and Analysis
Year ended December 31, 2023
(Currency amounts in millions of United States dollars except per share data, unless otherwise indicated)
5. ANALYSIS OF FINANCIAL RESULTS (continued)
5.3 Expenses
Salaries and benefits in the three months and year ended December 31, 2023 were higher than the corresponding periods in the prior year due to
special bonuses awarded with regards to the realized gains reported in the Company’s investment in Skyward Specialty.
General, administrative and other expenses in the three months and year ended December 31, 2023 were comparable to the corresponding periods
in the prior year.
Professional fees increased by $0.3 in the three months ended December 31, 2023 when compared to the corresponding period in the prior year
due to certain expenses relating to non-recurring consultation and legal fees. Professional fees for the year ended December 31, 2023 were
comparable to the corresponding period in the prior year.
Changes in share-based compensation expense from period to period result from the issuance of restricted share units (“RSUs”) and stock
appreciation rights (“SARs”) to Westaim management, and deferred share units (“DSUs”) to directors in lieu of director fees, as well as movement
in the Company’s share price which affects the per unit valuation of outstanding RSUs and DSUs. See Section 8, Liquidity and Capital Resources
of this MD&A for additional information on the Company’s share-based compensation plans.
The Company, from time to time, holds C$ denominated assets and liabilities and the Company’s operating results include foreign exchange gains
or losses arising from the revaluation of the Company’s C$ denominated net liabilities and revaluation of C$ foreign exchange forward contracts into
US$ at period end exchange rates. The following is a breakdown of the major components of the foreign exchange (loss) gain in the three months
and year ended December 31, 2023 and 2022:
Foreign exchange (losses) gains relating to:
- Liabilities for RSUs and DSUs
- Preferred securities
- Canadian dollar currency forward contracts and cash balance
Three months ended December 31
2022
2023
Year ended December 31
2022
2023
$ (0.3)
-
-
$ (0.3)
$ (0.2)
(0.8)
0.8
$ (0.2)
$ (0.2)
(1.0)
0.6
$ (0.6)
$ 0.5
2.6
(3.0)
$ 0.1
- 19 -
The Westaim Corporation
Management’s Discussion and Analysis
Year ended December 31, 2023
(Currency amounts in millions of United States dollars except per share data, unless otherwise indicated)
6. ANALYSIS OF FINANCIAL POSITION
The Company’s assets, liabilities and shareholders’ equity as at the dates indicated below consisted of the following:
Assets
Cash
Income taxes receivable
Other assets
Investments
Deferred tax asset
Liabilities
Accounts payable and accrued liabilities
Income taxes payable
Preferred securities
Derivative warrant liability
Deferred tax liability
Shareholders’ equity
Total liabilities and shareholders’ equity
6.1 Cash
December 31, 2023
December 31, 2022
$
$
$
$
135.0
0.5
1.0
414.3
1.0
551.8
31.3
1.0
-
-
1.2
33.5
518.3
551.8
$
$
$
$
3.4
-
0.6
409.1
0.2
413.3
12.9
0.2
36.9
0.1
-
50.1
363.2
413.3
At December 31, 2023, the Company had cash of $135.0 (December 31, 2022 - $3.4).
6.2 Income taxes receivable
At December 31, 2023, the Company had an income taxes receivable of $0.5 for its United States federal and state current year income taxes
(December 31, 2022 - $nil).
6.3 Other Assets
At December 31, 2023, the Company had other assets of $1.0 (December 31, 2022 - $0.6). Other assets at December 31, 2023, included right of
use asset of $0.1 (December 31, 2022 - $0.3), and other receivables of $0.9 (December 31, 2022 - $0.3). See Note 3, Other Assets in the Notes to
the Financial Statements.
6.4 Investments
Investments were $414.3 and $409.1 at December 31, 2023 and 2022, respectively, and consisted of the investments in: Skyward Specialty, the
Arena FINCOs, Arena, and ASOF LP.
The Company’s investment in Skyward Specialty, which is accounted for at FVTPL, was determined to be $236.5 and $218.9 at December 31, 2023
and 2022, respectively. See discussion in Section 3, Investment in Skyward Specialty of this MD&A.
The Company’s investment in the Arena FINCOs, which is accounted for at FVTPL, was determined to be $147.2 and $160.1 at December 31, 2023
and 2022, respectively. See discussion in Section 3, Investment in the Arena FINCOs of this MD&A.
The Company’s investment in Arena, which is accounted for using the equity method, was determined to be $27.6 and $26.9 at December 31, 2023
and 2022, respectively. See discussion in Section 3, Investment in Arena of this MD&A.
The Company’s investment in ASOF LP, which is accounted for at FVTPL, was determined to be $3.0 and $3.2 at December 31, 2023 and 2022,
respectively. See discussion in Section 3, Investment in ASOF LP of this MD&A.
- 20 -
The Westaim Corporation
Management’s Discussion and Analysis
Year ended December 31, 2023
(Currency amounts in millions of United States dollars except per share data, unless otherwise indicated)
6. ANALYSIS OF FINANCIAL POSITION (continued)
6.5 Deferred Tax Asset
At December 31, 2023, the Company reported a deferred tax asset of $1.0 (December 31, 2022 – $0.2) primarily related to recognized temporary
differences of its United States taxable income and it is probable that taxable profits will be available against which those temporary differences can
be utilized. See Note 2(k), Summary of Material Accounting Policies Income Taxes and Note 13, Income Taxes in the Notes to Financial Statements.
6.6 Accounts Payable and Accrued Liabilities
Accounts payable and accrued liabilities were $31.3 at December 31, 2023 (December 31, 2022 - $12.9). Accounts payable and accrued liabilities
at December 31, 2023 included liabilities related to accrued employee bonuses of $13.2 (December 31, 2022 - $2.4), RSUs of $9.3 (December 31,
2022 - $5.8), DSUs of $2.9 (December 31, 2022 - $2.6), SARs of $1.9 (December 31, 2022 - $nil), lease liability of $0.1 (December 31, 2022 - $0.3),
interest accrued on the Preferred Securities of $nil (December 31, 2022 - $0.5), fair value of Canadian dollar currency forward contract of $nil
(December 31, 2022 - $0.5), liability for automatic share purchase plan (“ASPP”) under the NCIB of $2.4 (December 31, 2022 - $nil) and other
accrued liabilities of $1.5 (December 31, 2022 - $0.8). See Note 3, Other Assets in the Notes to the Financial Statements for additional information
on the lease liability. See Note 5, Accounts Payable and Other Accrued Liabilities in the Notes to the Financial Statements for additional information
on the ASPP. See Section 8, Liquidity and Capital Resources of this MD&A for additional information on the Company’s share-based compensation
plans.
6.7 Income Taxes Payable
At December 31, 2023, the Company had an income taxes payable of $1.0 for its Canadian and United States current year income taxes (December
31, 2022 - $0.2).
6.8 Preferred Securities
At December 31, 2023, the Company had no Preferred Securities outstanding and, as a result, the Preferred Securities liability was $nil. See
discussion in Section 4, Financing of this MD&A. At December 31, 2022, the C$50 million principal amount of the Preferred Securities outstanding
at that time was converted to US$ at the period end exchange rate, resulting in a carrying amount of the Preferred Securities of $36.9.
6.9 Derivative Warrant Liability
At December 31, 2023, the Company had no Warrants outstanding and, as a result, the Derivative Warrant Liability was $nil. See discussion in
Section 4, Financing of this MD&A. At December 31, 2022, a liability of $0.1 representing the estimated fair value of the vested Warrants had been
accrued in the interim consolidated statements of financial position.
6.10 Deferred Tax Liability
At December 31, 2023, the Company reported a deferred tax liability of $1.2 (December 31, 2022 – $nil) primarily related to recognized temporary
differences of its Canadian taxable income and it is probable that taxable profits will be available against which those temporary differences can be
utilized. See Note 2(k), Summary of Material Accounting Policies Income Taxes and Note 13, Income Taxes in the Notes to Financial Statements.
6.11 Shareholders’ Equity
The details of shareholders’ equity are as follows:
Share capital
Contributed surplus
Accumulated other comprehensive loss
Retained earnings (deficit)
Shareholders’ equity
- 21 -
$
December 31, 2023
353.8
13.7
(2.2)
153.0
518.3
$
$
December 31, 2022
378.6
17.7
(2.2)
(30.9)
363.2
$
The Westaim Corporation
Management’s Discussion and Analysis
Year ended December 31, 2023
(Currency amounts in millions of United States dollars except per share data, unless otherwise indicated)
6. ANALYSIS OF FINANCIAL POSITION (continued)
Share Capital
Westaim had 131,757,285 Common Shares outstanding at December 31, 2023 and 141,386,718 Common Shares outstanding at December 31,
2022. In the three months and year ended December 31, 2023, Westaim acquired and canceled 3,761,100 and 9,896,178, respectively, Common
Shares that it had acquired at a net cost of $10.1 and $26.4, respectively through its normal course issuer bid (“NCIB”). In the year ended December
31, 2022, Westaim cancelled 1,300,000 Common Shares that it had acquired at a cost of $2.5 through its NCIB. In the three months ended December
31, 2023, the Company issued 26,442 Common Shares through the exercise of 26,442 of the Company’s stock options for proceeds of $0.1 which
increased share capital. In the year ended December 31, 2023, the Company issued 266,745 Common Shares through the exercise and net
exercise of 2,779,382 of the Company’s stock options increasing share capital by $1.6 and decreasing contributed surplus. There were no options
exercised for the three months and year ended December 31, 2022. See discussion in Section 8, Liquidity and Capital Resources, Share Based
Compensation Plans of this MD&A and Note 10, Share Capital in the Notes to the Financial Statements.
Contributed Surplus
The Company had $13.7 in contributed surplus at December 31, 2023 and $17.7 at December 31, 2022. The decrease of $4.0 in the year ended
December 31, 2023, in contributed surplus was $1.6 to record the settlement of 2,779,382 of the Company’s stock options, which increased share
capital noted above, and $2.4 to establish the ASPP liability. See discussion in Section 8, Liquidity and Capital Resources, Share Based
Compensation Plans of this MD&A and Note 10, Share Capital in the Notes to the Financial Statements. For details on the ASPP, see Note 5,
Accounts Payable and Other Accrued Liabilities in the Notes to the Financial Statements.
Accumulated Other Comprehensive Loss
Accumulated other comprehensive loss of $2.2 at December 31, 2023 and 2022, was comprised of the cumulative exchange differences from
currency translation as a result of a change in presentation currency from the C$ to the US$ on August 31, 2015.
Retained Earnings
The increase in the retained earnings to $153.0 at December 31, 2023 from a deficit of $30.9 at December 31, 2022 is the result of the profit and
comprehensive income for the year ended December 31, 2023.
7. OUTLOOK
With the Arena platform largely built (product suite, geographies, IT systems, investment capability), its more than 180 people across seven global
offices and operating in twenty countries are poised to deploy committed capital within Arena Investors and intellectual capital within Arena
Institutional Services to grow its earnings.
Generally, the US property and casualty insurance market has shifted to a cycle of increasing insurance rates and improved underwriting terms.
Skyward Specialty is well positioned to take advantage of the continued hard insurance market and accelerate its profitable growth and return on
equity. Skyward Specialty continues to acquire additional key talent, executes on underwriting actions to optimize its product mix and effectively
manages its investment portfolio to result in improved investment returns. Skyward Specialty has an AM Best rating “A-“ with a Positive Outlook.
Skyward Specialty’s objective is to build a top quartile property and casualty specialty publicly traded insurer trading at or above peer multiples of
book value.
The Company will continue to evaluate opportunities to monetize its investments and use the proceeds to acquire its shares. The Company will also
continue to seek additional investment opportunities to create shareholder value through partnering with other aligned and experienced management
teams to build profitable businesses that generate attractive returns to the Company’s shareholders over the long term.
8.
LIQUIDITY AND CAPITAL RESOURCES
Capital Management Objectives
The Company’s capital currently consists of common shareholders’ equity.
The Company’s guiding principles for capital management are to maintain the stability and safety of the Company’s capital for its stakeholders
through an appropriate capital mix and a strong balance sheet.
The Company monitors the mix and adequacy of its capital on a continuous basis. The Company employs internal metrics. The capital of the
Company is not subject to any restrictions.
- 22 -
The Westaim Corporation
Management’s Discussion and Analysis
Year ended December 31, 2023
(Currency amounts in millions of United States dollars except per share data, unless otherwise indicated)
8.
LIQUIDITY AND CAPITAL RESOURCES (continued)
Share Capital
Westaim’s authorized share capital consists of an unlimited number of Common Shares, Class A preferred shares and Class B preferred shares.
At December 31, 2023, Westaim had 131,757,285 Common Shares outstanding (December 31, 2022 – 141,386,718), with a stated capital of $353.8
(December 31, 2022 - $378.6).
There were no Class A or Class B preferred shares outstanding at December 31, 2023 or 2022. See Note 10, Share Capital in the Notes to the
Financial Statements.
Dividends
No dividends were paid by the Company in the three months or year ended December 31, 2023 and 2022.
Share-based Compensation Plans
Westaim’s long-term equity incentive plan (the “Incentive Plan”) provides for grants of RSUs, DSUs, SARs and other share-based awards. Westaim
also has a stand-alone incentive stock option plan (the “Option Plan”).
The Option Plan is a “rolling plan” which provides, subject to the terms of the Option Plan, the aggregate number of Common Shares which may be
reserved for issuance thereunder is limited to not more than 10% of the aggregate number of Common Shares outstanding. However, each of the
Incentive Plan and the Option Plan provide that, subject to the terms of the plan, the number of Common Shares issuable under such plan, together
with RSUs outstanding, shall not exceed 10% of the aggregate number of Common Shares outstanding. As the DSUs and SARs are settled solely
in cash, they are not included in this 10% limitation.
Westaim had 7,597,513 stock options outstanding at December 31, 2023 at strike prices ranging from C$3.00 to C$3.10 (December 31, 2022 -
10,428,337 stock options outstanding at strike prices ranging from C$3.00 to C$3.25). During the three months ended December 31, 2023, 26,442
stock options were exercised and the Company received $0.1 and issued 26,442 Common Shares to the option holder. During the year ended
December 31, 2023, 2,779,382 stock options were exercised or net exercised and the Company received $0.1 and issued 266,745 Common Shares
to the option holders. Also, during the year ended December 31, 2023, 51,442 stock options were forfeited by a former employee. There were no
stock options exercised or forfeited in the year ended December 31, 2022.
Westaim had 3,455,198 RSUs outstanding at December 31, 2023 (December 31, 2022 – 2,975,198 RSUs). In the year ended December 31, 2023,
480,000 RSUs were issued to certain members of the Company’s management. There were no RSUs issued in the year ended December 31, 2022.
The RSUs, at the election of the holder, can be settled in Common Shares or cash based on the prevailing market price of the Common Shares on
the settlement date. There were no RSUs settled in the three months or year ended December 31, 2023 and 2022.
At December 31, 2023, 1,027,583 DSUs were vested and outstanding (December 31, 2022 – 1,355,133 DSUs). DSUs are issued to certain directors
in lieu of director fees, at their election, at the market value of Common Shares at the date of grant.
With respect to the DSUs that are outstanding, they are paid out solely in cash no later than the end of the calendar year following the year the
participant ceases to be a director. In the year ended December 31, 2023, 485,787 DSUs were settled for $1.2 in cash paid to a former director of
the Company. In the three months ended December 31, 2023 and 2022, and in the year ended December 31, 2022, no DSUs were settled.
At December 31, 2023, 4,338,530 SARs were vested and outstanding (December 31, 2022 – nil SARs). These SARs were issued to certain
management of Westaim which vested immediately and will be paid out solely in cash for the amount that the Westaim trading price at the time of
exercise, if any, is in excess of the SARs strike price of C$3.83.
At December 31, 2023, accounts payable and accrued liabilities included amounts related to RSUs of $9.3 (December 31, 2022 - $5.8), DSUs of
$2.9 (December 31, 2022 - $2.6) and SARs of $1.9 (December 31, 2022 - $nil).
See Note 11, Share-based Compensation in the Notes to the Financial Statements.
Market for Securities
Westaim’s Common Shares are listed and posted for trading on the TSXV under the symbol “WED”.
- 23 -
The Westaim Corporation
Management’s Discussion and Analysis
Year ended December 31, 2023
(Currency amounts in millions of United States dollars except per share data, unless otherwise indicated)
8.
LIQUIDITY AND CAPITAL RESOURCES (continued)
Cash Flow Objectives
The Company manages its liquidity with a view to ensuring that there is sufficient cash to meet all financial commitments and obligations as they fall
due including having access to liquidity from dividends from the Arena FINCOs. The Company has sufficient funds to meet its financial obligations.
As part of pursuing one or more new opportunities, the Company may from time to time issue shares from treasury.
The following tables illustrate the duration of the financial assets of the Company compared to its financial obligations:
December 31, 2023
Financial assets:
Cash
Other assets (excluding capital, right-of-use and deferred tax
assets)
Investments
Total financial assets
Financial obligations:
Other liabilities (excluding lease, ASPP and deferred tax
liabilities)
Total financial obligations
Net financial assets
December 31, 2022
Financial assets:
Cash
Other assets (excluding capital, right-of-use and deferred tax
assets)
Investments
Total financial assets
Financial obligations:
Other liabilities (excluding lease and derivative warrant
liabilities)
Preferred securities
Total financial obligations
Net financial (obligations) assets
One year or
less
One to five
years
No specific
date / later than
five years
Total
$ 135.0
$ -
$ -
$ 135.0
1.4
-
136.4
-
24.0
24.0
-
390.3
390.3
1.4
414.3
550.7
15.7
15.7
$ 120.7
1.9
1.9
$ 22.1
12.2
12.2
$ 378.1
29.8
29.8
$ 520.9
One year or
less
One to five
years
No specific
date / later than
five years
Total
$ 3.4
$ -
$ -
$ 3.4
0.3
-
3.7
-
24.0
24.0
-
385.1
385.1
0.3
409.1
412.8
4.4
-
4.4
$ (0.7)
-
-
-
$ 24.0
8.4
36.9
45.3
$ 339.8
12.8
36.9
49.7
$ 363.1
The Company’s investment guidelines stress preservation of capital and market liquidity to support payment of liabilities. The matching of the
duration of financial assets and liabilities is monitored with a view to ensuring that all obligations will be met.
9. RELATED PARTY TRANSACTIONS
Related parties include key management personnel and directors, close family members of key management personnel and entities which are,
directly or indirectly, controlled by, jointly controlled by or significantly influenced by key management personnel or their close family members. Key
management personnel are those persons having authority and responsibility for planning, directing and controlling the activities of the Company,
directly or indirectly, and include executive officers and directors of the Company.
See Note 12, Related Party Transactions in the Notes to the Financial Statements.
- 24 -
The Westaim Corporation
Management’s Discussion and Analysis
Year ended December 31, 2023
(Currency amounts in millions of United States dollars except per share data, unless otherwise indicated)
10. CRITICAL ACCOUNTING ESTIMATES AND ASSUMPTIONS
Preparation of the financial statements in conformity with IFRS requires management to make estimates and assumptions, some of which relate to
matters that are uncertain. As more information becomes known, these estimates and assumptions could change and thus have a material impact
on the Company’s financial condition and results of operations in the future. The Company has established detailed policies and control procedures
that are intended to ensure that management’s judgments and estimates are well controlled, independently reviewed and consistently applied from
period to period. Management believes that its estimates for determining the valuation of the Company’s assets and liabilities are appropriate.
Management used the trading price of the publicly traded shares at the close of the reporting period as the primary valuation technique in determining
the fair value of the Company’s investment in Skyward Specialty and net asset value as the primary valuation technique in determining the fair value
of the Company’s investment in the Arena FINCOs and ASOF LP at December 31, 2023. Management determined that these valuation techniques
produced the best indicator of the fair value of the Company’s investments measured at FVTPL at December 31, 2023. The significant unobservable
inputs used in the valuation of the Arena FINCOs at December 31, 2023 was the equity of the entities at December 31, 2023 and the multiple applied
to net assets of the Arena FINCOs. For a detailed description of the valuation of the Company’s investments in private entities, see Note 4,
Investments in the Notes to the Financial Statements. Due to the inherent uncertainty of valuation, management’s estimated values may differ
significantly from the values that would have been used had an active market for the investment existed, and the differences could be material.
Other key estimates include the Company’s fair value of share-based compensation, deferred tax assets and deferred tax liabilities. Details of these
items are disclosed in Note 11 and Note 13, respectively, to the Company’s audited consolidated financial statements for the years ended December
31, 2023 and 2022.
11. CRITICAL ACCOUNTING POLICIES AND RECENTLY ADOPTED AND PENDING ACCOUNTING PRONOUNCEMENTS
A description of the Company’s accounting policies is disclosed in Note 2, Summary of Material Accounting Policies in the Notes to the Financial
Statements.
At December 31, 2023, there were no new pronouncements that impacted the Company.
12. QUARTERLY FINANCIAL INFORMATION
Revenue
Increase (decrease) in value of investments, less
dividends
Net expenses
Income taxes (expense) recovery
Profit (loss) and comprehensive income (loss)
Q4
2023
$ 1.8
Q3
2023
$ 1.1
Q2
2023
$ 3.3
Q1
2023
$ 2.4
Q4
2022
$ 1.1
Q3
2022
$ 3.4
Q2
2022
$ 3.2
Q1
2022
$ 3.0
51.5
(16.1)
(2.1)
$ 35.1
23.7
(1.8)
-
$ 23.0
32.6
(4.7)
0.1
$ 31.3
96.4
(4.0)
(0.3)
$ 94.5
34.0
(2.5)
0.2
(2.7)
(2.4)
0.3
$ 32.8 $ (16.7) $ (1.6)
(18.5)
(2.5)
0.9
3.9
(2.4)
(1.0)
$ 3.5
The Company’s quarterly financial results do not follow any special trends and are not generally subject to seasonal variation but are instead
impacted by general market and economic conditions, regulatory risks and foreign exchange fluctuations. In addition, share-based compensation
is impacted by fluctuations in the trading price of the Company’s shares, discount rates, and foreign exchange fluctuations.
13. RISKS
The Company is subject to a number of risks which could affect its business, prospects, financial condition, results of operations and cash flows,
including risks relating to lack of significant revenues, regulatory risks, foreign exchange risks and risks relating to the businesses of Skyward
Specialty, the Arena FINCOs and Arena. A detailed description of the risk factors associated with the Company and its business is contained in the
Company’s Annual Information Form for its fiscal year ended December 31, 2022, which is available on SEDAR+ at www.sedarplus.ca, as same
may be modified or superseded by a subsequently filed Annual Information Form.
- 25 -
The Westaim Corporation
Management’s Discussion and Analysis
Year ended December 31, 2023
(Currency amounts in millions of United States dollars except per share data, unless otherwise indicated)
14. ADDITIONAL ARENA FINCOs’ INVESTMENT SCHEDULES
The investments of the Arena FINCOs shown by investment strategy is as follows:
Investments by Strategy
December 31, 2023
Corporate Private Investments
Real Estate Private Investments
Structured Finance and Assets
Other Securities
Investments by Strategy
Corporate Private Investments
Real Estate Private Investments
Structured Finance and Assets
Other Securities
Number of
positions
25
40
47
109
221
Number of
positions
24
36
49
188
297
Cost
$
49.8
50.8
56.8
38.1
195.5
$
$
Fair value
52.9
53.3
56.1
29.7
192.0
$
Cost
$
50.1
47.0
59.1
44.0
200.2
$
$
Fair value
60.2
45.8
55.2
37.8
199.0
$
Percentage of
investments at
fair value
27.6%
27.8%
29.2%
15.4%
100.0%
%
Debt investments
6.3%
20.2%
22.5%
6.4%
55.4%
%
Equity, hard
assets and real
estate owned
investments
21.3%
7.6%
6.7%
9.0%
44.6%
December 31, 2022
Percentage of
investments at
fair value
30.2%
23.0%
27.8%
19.0%
100.0%
%
Debt investments
7.6%
15.9%
21.7%
5.8%
51.0%
%
Equity, hard
assets and real
estate owned
investments
22.6%
7.1%
6.1%
13.2%
49.0%
Investments in Corporate Private Investments, Real Estate Private Investments, and Structured Finance relate to loans issued to privately held
entities. Investments in Other Securities are net of short positions and comprise publicly traded corporate bonds, equity securities, bank debt,
structured convertible notes and derivatives.
The investments of the Arena FINCOs shown by geographic breakdown is as follows:
Investments by
Geographic Breakdown
December 31, 2023
December 31, 2022
Loans / Private Assets
North America
Europe
Asia/Pacific
Latin America
Other Securities 1
North America
Asia/Pacific
Europe
Latin America
Other
1
Net of short positions.
Cost
Fair value
$ 104.9
35.6
14.7
2.2
157.4
$ 105.2
42.7
12.0
2.4
162.3
25.6
2.5
9.9
0.1
-
38.1
21.0
1.8
7.0
(0.1)
-
29.7
Percentage of
investments at
fair value
54.8%
22.2%
6.3%
1.3%
84.6%
10.9%
0.9%
3.6%
0.0%
0.0%
15.4%
Cost
Fair value
$ 111.1
30.1
13.4
1.6
156.2
$ 111.8
35.1
12.5
1.8
161.2
30.7
5.2
7.8
-
0.3
44.0
30.6
3.9
3.1
-
0.2
37.8
Percentage of
investments at
fair value
56.2%
17.6%
6.3%
0.9%
81.0%
15.4%
2.0%
1.5%
0.0%
0.1%
19.0%
$
195.5
$
192.0
100.0%
$ 200.2
$199.0
100.0%
- 26 -
The Westaim Corporation
Management’s Discussion and Analysis
Year ended December 31, 2023
(Currency amounts in millions of United States dollars except per share data, unless otherwise indicated)
14. ADDITIONAL ARENA FINCOs’ INVESTMENT SCHEDULES (continued)
The investments of the Arena FINCOs shown by industry is as follows:
Investments by Industry
December 31, 2023
December 31, 2022
Cost
Fair value
Percentage of
investments at fair
value
Cost
Fair value
Percentage of
investments at
fair value
Loans / Private Assets
Corporate Private Investments
Basic Materials
Business Services
Consumer Products
Financial Services
Oil and Gas 1
Other Assets
Retail
Real Estate Private Investments
Commercial
Hospitality
Land - Commercial Development
Land - Multi-Family Development
Land - Single-Family Development
Mixed Use
Retail
Residential
Multi-Family
Structured Finance and Assets
Lease/Equipment
Other Assets
Consumer Assets
$ -
9.4
2.4
1.4
20.2
14.2
2.2
49.8
2.6
17.4
5.9
5.6
4.1
-
5.1
9.8
0.3
50.8
0.5
40.0
16.3
56.8
$ -
6.8
2.9
0.8
22.3
17.6
2.5
52.9
2.8
19.9
7.5
3.6
3.4
-
5.1
10.7
0.3
53.3
1.1
40.0
15.0
56.1
Total Loans / Private Assets
157.4
162.3
Other Securities (2)
Basic Materials
Biotechnology
Business Services
Consumer Products
Diversified
Energy
Financial Services
Foreign Exchange Forwards/Options
Fund Investment
Healthcare Services
Industrial
Information Technology
Interest Rate Derivatives
Mining
Oil and Gas
Other Assets
Real Estate
Retail
Technology
Telecommunications
-
1.5
3.4
9.2
2.0
-
2.7
-
3.0
1.6
4.8
0.3
0.4
0.1
1.1
-
0.6
-
7.0
0.4
38.1
$ 195.5
-
2.2
3.7
5.7
2.1
-
2.6
(1.2)
3.7
1.8
4.3
-
0.1
0.1
1.3
0.1
0.8
-
2.0
0.4
29.7
$ 192.0
0.0%
3.6%
1.5%
0.4%
11.6%
9.2%
1.3%
27.6%
1.4%
10.4%
3.9%
1.9%
1.8%
0.0%
2.6%
5.6%
0.2%
27.8%
0.6%
20.8%
7.8%
29.2%
84.6%
0.0%
1.2%
1.9%
2.9%
1.1%
0.0%
1.4%
(0.6)%
1.9%
0.9%
2.2%
0.0%
0.1%
0.0%
0.7%
0.0%
0.4%
0.0%
1.1%
0.2%
15.4%
100.0%
$ 0.5
9.9
2.5
1.4
20.7
14.5
0.6
50.1
$ 0.6
10.0
2.6
0.8
27.4
18.1
0.7
60.2
1.4
8.9
6.5
4.7
4.4
0.4
6.8
13.9
-
47.0
1.7
37.5
19.9
59.1
1.3
9.8
6.8
2.7
3.9
0.4
6.7
14.2
-
45.8
2.5
36.7
16.0
55.2
156.2
161.2
2.0
0.8
-
11.9
9.0
0.3
2.5
-
3.2
0.5
3.1
1.6
0.4
0.1
0.8
-
2.0
0.1
3.4
2.3
44.0
$ 200.2
2.1
0.9
-
8.9
7.8
0.4
2.4
(1.0)
3.6
0.7
2.3
1.2
0.4
0.1
1.3
-
0.8
0.1
3.5
2.3
37.8
$ 199.0
0.3%
5.0%
1.3%
0.4%
13.7%
9.1%
0.4%
30.2%
0.6%
4.9%
3.4%
1.4%
2.0%
0.2%
3.4%
7.1%
0.0%
23.0%
1.3%
18.4%
8.1%
27.8%
81.0%
1.1%
0.4%
0.0%
4.5%
3.9%
0.2%
1.2%
(0.5)%
1.8%
0.4%
1.1%
0.6%
0.2%
0.1%
0.7%
0.0%
0.4%
0.1%
1.7%
1.1%
19.0%
100.0%
1 The Arena FINCOs’ exposure to commodity price risk in its private loans is generally mitigated as borrowers are typically required to hedge the commodity price risk by selling product forward and/or employing the use
of other derivatives to substantially reduce all risk.
2 Net of short positions.
- 27 -
The Westaim Corporation
Management’s Discussion and Analysis
Year ended December 31, 2023
(Currency amounts in millions of United States dollars except per share data, unless otherwise indicated)
December 31, 2023
Total coupon
(including PIK) (2)
LTV (3)
n/a (4)
n/a (4)
n/a (4)
n/a (4)
6.47%
16.35%
10.00%
12.00%
12.00%
14.50%
15.85%
8.75%
14.00%
n/a (4)
19.35%
10.00%
n/a (4)
10.00%
10.00%
n/a (4)
n/a (11)
n/a (4)
n/a (4)
10.00%
12.00%
n/a (9)
11.64%
n/a (4)
n/a (4)
n/a (4)
n/a (4)
n/a (11)
49.3%
76.5%
22.7%
40.9%
50.1%
37.7%
45.7%
53.7%
n/a (4)
100%+
1.8%
n/a (4)
0.3%
0.9%
n/a (4)
43.0%
n/a (4)
n/a (4)
0.8%
3.8%
n/a (9)
43.5%
14. ADDITIONAL ARENA FINCOs’ INVESTMENT SCHEDULES (continued)
Details of the Loan and Private Asset positions of the Arena FINCOs are as follows:
Details of Loan and Private Asset Positions
Investments by industry
Ref. no.
Corporate Private Investments
CPC-2209
CPC-3222
CPC-3349
CPC-5143EQY
CPC-7277
CPC-7871
CPC-4985
CPC-6859
CPC-5325
CPC-9129
CPC-7312
CPC-2170
CPC-5889
CPC-2397
CPC-7677
CPC-6677
CPC-7312EQY
CPC-5914
CPC-5913
CPC-5830
CPC-1010
CPC-6374
CPC-9140
CPC-6373
CPC-5856
CPC-3083
Subtotal / Weighted average %
Other Assets
Oil & Gas
Business Services
Oil & Gas
Consumer Products
Retail
Oil & Gas
Business Services
Oil & Gas
Retail
Business Services
Oil & Gas
Consumer Products
Financial Services
Financial Services
Business Services
Business Services
Business Services
Business Services
Business Services
Oil & Gas
Business Services
Business Services
Business Services
Business Services
Business Services
Principal (1)
Investments
at cost
Investments
at fair value
Geographic
location
Collateral
13.8
11.5
6.1
2.6
2.0
2.1
1.3
1.1
3.2
0.8
0.9
1.7
0.6
1.1
0.4
0.3
0.3
0.2
0.2
0.2
0.2
0.0
0.2
0.1
0.1
0.0
51.0
14.2
11.7
6.1
2.6
2.0
1.4
1.3
1.1
3.2
0.8
0.6
1.2
0.4
1.0
0.4
0.3
0.3
0.2
0.2
0.2
0.2
0.1
0.1
0.1
0.1
0.0
49.8
Europe
North America
Asia Pacific
North America
Asia Pacific
North America
North America
Asia Pacific
North America
Europe
North America
North America
North America
North America
North America
Europe
North America
Europe
Europe
Europe
North America
Europe
North America
Europe
Europe
North America
Equity
Equity
Equity
Hard Asset
1st Lien
1st Lien
1st Lien
1st Lien
1st Lien
1st Lien
1st Lien
1st Lien
1st Lien
Equity
1st Lien
1st Lien
Equity
1st Lien
1st Lien
Equity
1st Lien
Equity
Equity
1st Lien
1st Lien
Equity
17.6
16.2
2.9
2.5
2.4
1.7
1.7
1.4
1.0
0.8
0.8
0.7
0.5
0.4
0.4
0.3
0.3
0.2
0.2
0.2
0.2
0.2
0.1
0.1
0.1
0.0
52.9
- 28 -
The Westaim Corporation
Management’s Discussion and Analysis
Year ended December 31, 2023
(Currency amounts in millions of United States dollars except per share data, unless otherwise indicated)
14. ADDITIONAL ARENA FINCOs’ INVESTMENT SCHEDULES (continued)
Details of the Loan and Private Asset positions of the Arena FINCOs are as follows:
Details of Loan and Private Asset Positions (continued)
December 31, 2023
Investments by industry
Principal (1)
Investments at
cost
Investments at
fair value
Geographic
location
Collateral
Total coupon
(including PIK)
(2)
Ref. no.
Real Estate Private Investments
RECPC-6932
RECPC-9082
RECPC-2277
Hospitality
Hospitality
Land - Commercial
Development
Retail
Residential
Hospitality
Land - Multi-Family
Development
Residential
Residential
Commercial
Land - Commercial
Development
Residential
Land - Multi-Family
Development
Land - Single-Family
Development
Hospitality
Hospitality
Land - Single-Family
Development
Residential
Hospitality
Land - Commercial
Development
Commercial
Hospitality
Retail
Residential
Land - Single-Family
Development
Hospitality
Land - Commercial
Development
Commercial
Residential
Land - Single-Family
Development
Multi-Family
Residential
Land - Single-Family
Development
Land - Single-Family
Development
Commercial
Residential
Land - Single-Family
Development
Residential
Land - Commercial
Development
Land - Commercial
Development
Residential
Land - Single-Family
Development
Land - Single-Family
Development
RECPC-8192
RECPC-7586
RECPC-8135
RECPC-2683
RECPC-7488
RECPC-4220
RECPC-8031
RECPC-5905
RECPC-9232
RECPC-8795
RECPC-6996
RECPC-6592
RECPC-2560
RECPC-6506TL1
RECPC-6854
RECPC-7027
RECPC-8888
RECPC-7554
RECPC-8433
RECPC-7654
RECPC-9390
RECPC-6995
RECPC-6129
RECPC-2592
RECPC-6384EQ
RECPC-9006
RECPC-8040
RECPC-7826
RECPC-7390
RECPC-6505
RECPC-6242
RECPC-8843
RECPC-9087
RECPC-8118
RECPC-8682
RECPC-1047
RECPC-1015
RECPC-8417
RECPC-9238
RECPC-9372
5.4
4.9
3.3
4.5
2.4
2.3
4.5
1.3
2.5
1.2
1.2
1.1
1.1
1.0
0.9
1.4
1.2
0.7
0.7
0.8
0.6
0.5
0.6
0.5
0.5
0.6
0.4
0.3
0.3
0.3
0.3
0.3
0.5
0.5
0.2
0.2
0.2
0.1
0.1
0.1
0.0
0.0
0.0
6.4
4.9
3.3
4.5
2.4
2.2
4.5
1.7
2.5
1.4
1.2
1.1
1.1
0.9
0.9
1.4
1.2
0.7
0.7
0.8
0.7
0.5
0.6
0.5
0.5
0.4
0.4
0.3
0.3
0.3
0.3
0.3
0.5
0.5
0.2
0.2
0.2
0.1
0.1
0.1
0.0
0.0
0.0
8.1
4.9
4.9
4.5
2.9
2.7
2.5
2.2
2.1
1.4
1.2
1.2
1.1
Europe
North America
North America
1st Mortgage
1st Mortgage
1st Mortgage
North America
Europe
Europe
North America
Asia Pacific
North America
Europe
North America
1st Mortgage
1st Mortgage
Real Property
Real Property
1st Mortgage
Real Property
Real Property
1st Mortgage
Europe
North America
Real Property
1st Mortgage
18.49%
12.10%
24.00%
10.82%
12.50%
n/a (6)
n/a (6)
13.00%
n/a (6)
n/a (6)
19.92%
n/a (6)
25.00%
LTV (3)
100%+
53.9%
100%+
52.5%
88.2%
n/a (6)
n/a (6)
81.7%
n/a (6)
n/a (6)
67.6%
n/a (6)
42.5%
1.1
Asia Pacific
1st Mortgage
19.80%
68.8%
1.1
0.9
0.9
0.9
0.9
0.8
0.8
0.8
0.6
0.5
0.5
0.5
0.5
0.4
0.3
0.3
0.3
0.3
0.2
North America
North America
Asia Pacific
1st Mortgage
Real Property
1st Mortgage
Europe
Europe
North America
1st Mortgage
Real Property
1st Mortgage
Europe
Europe
North America
Europe
Asia Pacific
Real Property
Real Property
1st Mortgage
Real Property
1st Mortgage
North America
North America
1st Mortgage
1st Mortgage
North America
Europe
North America
Asset Pool
1st Lien
1st Mortgage
Europe
North America
Asia Pacific
Real Property
1st Mortgage
1st Mortgage
11.82%
n/a (6)
8.00%
17.87%
n/a (6)
15.34%
n/a (6)
n/a (6)
11.50%
n/a (6)
12.00%
14.00%
n/a (6)
n/a (4)
16.55%
16.31%
n/a (6)
20.00%
12.00%
30.1%
n/a (6)
100%+
60.4%
n/a (6)
34.5%
n/a (6)
n/a (6)
12.1%
n/a (6)
51.4%
73.2%
n/a (6)
n/a (4)
59.2%
48.1%
n/a (6)
100%+
51.4%
0.2
Asia Pacific
1st Mortgage
13.63%
100%+
0.2
0.2
0.2
0.1
0.1
Europe
Europe
Asia Pacific
1st Lien
Real Property
1st Mortgage
Europe
North America
Real Property
1st Mortgage
18.90%
n/a (6)
15.12%
n/a (6)
15.00%
55.6%
n/a (6)
100%+
n/a (6)
53.0%
0.0
North America
Real Property
n/a (6)
n/a (6)
0.0
0.0
Asia Pacific
Asia Pacific
1st Mortgage
1st Lien
12.00%
n/a (11)
51.4%
51.4%
0.0
Asia Pacific
1st Lien
13.63%
100%+
Subtotal / Weighted average %
49.5
50.8
53.3
16.09%
78.2%
- 29 -
The Westaim Corporation
Management’s Discussion and Analysis
Year ended December 31, 2023
(Currency amounts in millions of United States dollars except per share data, unless otherwise indicated)
14. ADDITIONAL ARENA FINCOs’ INVESTMENT SCHEDULES (continued)
Details of the Loan and Private Asset positions of the Arena FINCOs are as follows:
Details of Loan and Private Asset Positions (continued)
December 31, 2023
Investments by industry
Ref. no.
Structured Finance and Assets
Other Assets
SF-2239
Other Assets
CI-4898
Other Assets
CI-8707
Consumer
CA-5898
Other Assets
CI-6785
Other Assets
CI-2651
Consumer
CA-7474
Consumer
CA-4946
Consumer
CA-6444
Other Assets
SF-8578
Other Assets
CI-3045
Other Assets
CI-5177
Other Assets
CI-1999EQ
Other Assets
CI-5554A
Other Assets
CPC-7227EQY
Other Assets
CI-8399
Other Assets
SF-7254
Consumer
CA-5596C
Lease/Equipment
CI-2201
Other Assets
CI-6750
Other Assets
CI-3978
Consumer
CA-6154
Other Assets
CI-6648TL
Other Assets
SF-7242
Consumer
CA-4718
Other Assets
CI-2000
Other Assets
CI-7442
Other Assets
CI-8104
Consumer
CA-7092
Other Assets
CI-6565
Consumer
CA-7491
Other Assets
CI-1520
Other Assets
CI-1035
Other Assets
CI-6004
Consumer
CA-5596
Other Assets
CI-4967
Consumer
CA-6288
Other Assets
CI-7166
Other Assets
CI-7492
Other Assets
CI-2064
Consumer
CA-8621
Other Assets
CI-6253
Other Assets
CI-7985
Other Assets
SF-5396
Other Assets
CA-6328
Consumer
CA-8720
Consumer
CA-4727
Consumer
CA-2729
Lease/Equipment
CI-6006
Consumer
CA-1052F
Consumer
CA-1052S
Other Assets
CI-2686
Other Assets
CI-1018
Other Assets
CI-8048
Consumer
CA-7573
Other Assets
CI-7721
CI-1999
Other Assets
Subtotal / Weighted average %
Principal (1)
Investments
at cost
Investments
at fair value
Geographic
location
Collateral
Total coupon
(including PIK) (2)
4.4
4.0
2.3
2.7
3.3
4.0
1.8
2.1
1.9
1.6
1.0
0.8
3.0
1.7
1.3
1.2
1.1
1.1
0.5
0.9
1.8
0.8
0.8
0.8
0.4
1.0
0.7
0.6
0.6
0.5
0.2
0.2
0.4
0.3
0.3
0.3
0.2
0.2
0.2
0.0
0.2
0.2
0.2
0.2
0.2
0.1
0.1
0.1
0.0
2.6
1.5
0.4
0.2
0.0
0.0
0.0
0.0
57.0
5.1
4.0
2.3
2.6
3.0
4.3
1.8
2.1
1.9
1.5
1.0
0.8
3.0
1.3
1.3
1.2
1.1
1.1
0.5
0.9
1.8
0.8
0.8
0.8
0.4
1.0
0.7
0.6
0.6
0.5
0.0
0.2
0.4
0.3
0.3
0.3
0.2
0.2
0.2
0.0
0.2
0.2
0.2
0.2
0.2
0.1
0.0
0.1
0.0
2.6
1.5
0.4
0.2
0.0
0.0
0.0
0.0
56.8
North America
North America
North America
North America
North America
North America
North America
North America
Latin America
North America
North America
North America
North America
North America
North America
North America
North America
North America
North America
Europe
North America
Europe
North America
North America
North America
North America
North America
North America
North America
North America
North America
North America
North America
Latin America
North America
North America
North America
North America
North America
North America
North America
North America
North America
North America
North America
North America
North America
North America
North America
North America
North America
North America
North America
North America
Asia Pacific
North America
North America
5.3
4.1
3.5
3.2
3.0
2.8
2.4
2.1
2.1
2.1
2.0
1.7
1.5
1.4
1.4
1.2
1.1
1.1
1.0
0.9
0.8
0.8
0.8
0.8
0.8
0.7
0.7
0.7
0.7
0.5
0.5
0.4
0.3
0.3
0.3
0.3
0.3
0.3
0.3
0.3
0.2
0.2
0.2
0.2
0.2
0.2
0.2
0.1
0.1
0.0
0.0
0.0
0.0
0.0
0.0
0.0
0.0
56.1
1st Lien
1st Lien
Asset Pool
Asset Pool
1st Lien
Hard Asset
Asset Pool
1st Lien
Asset Pool
1st Lien
Asset Pool
Hard Asset
Equity
1st Lien
Equity
1st Lien
1st Lien
Asset Pool
Hard Asset
1st Lien
Hard Asset
1st Lien
1st Lien
1st Lien
Asset Pool
Equity
Hard Asset
Hard Asset
1st Lien
1st Lien
Asset Pool
1st Lien
1st Lien
Hard Asset
Asset Pool
Hard Asset
1st Lien
Hard Asset
Hard Asset
Equity
Asset Pool
1st Lien
1st Lien
1st Lien
1st Lien
Asset Pool
1st Lien
1st Lien
1st Lien
1st Lien
1st Lien
Equity
1st Lien
Hard Asset
Asset Pool
1st Lien
1st Lien
n/a (11)
18.37%
n/a (7)
n/a (7)
13.50%
n/a (4)
n/a (7)
20.39%
n/a (7)
18.66%
n/a (11)
n/a (4)
n/a (14)
10.00%
n/a (4)
13.85%
27.00%
n/a (7)
n/a (12)
24.00%
n/a (12)
18.50%
16.20%
17.38%
n/a (7)
n/a (9)
n/a (4)
n/a (4)
9.00%
18.00%
n/a (7)
n/a (8)
0.00%
n/a (4)
n/a (7)
n/a (4)
10.00%
n/a (4)
n/a (4)
n/a (4)
n/a (7)
7.88%
15.00%
18.66%
12.00%
n/a (7)
29.00%
n/a (11)
13.97%
15.00%
n/a (5)
n/a (4)
0.00%
n/a (4)
n/a (7)
7.88%
n/a (10)
16.91%
LTV (3)
8.6%
41.5%
n/a (7)
n/a (7)
70.1%
n/a (4)
n/a (7)
100%+
n/a (7)
17.6%
63.3%
n/a (4)
n/a (14)
73.6%
n/a (4)
58.3%
82.2%
n/a (7)
n/a (12)
62.2%
n/a (12)
61.8%
62.2%
79.7%
n/a (7)
n/a (9)
n/a (4)
n/a (4)
73.4%
62.2%
n/a (7)
47.8%
100.0%
n/a (4)
n/a (7)
n/a (4)
31.2%
n/a (4)
n/a (4)
n/a (4)
n/a (7)
100%+
62.2%
87.0%
83.1%
n/a (7)
66.0%
100.0%
91.1%
100.0%
100.0%
n/a (4)
100.0%
n/a (4)
n/a (7)
100%+
n/a (10)
54.0%
Total / Weighted average %
$ 157.5
$ 157.4
$ 162.3
15.57%
64.7%
- 30 -
The Westaim Corporation
Management’s Discussion and Analysis
Year ended December 31, 2023
(Currency amounts in millions of United States dollars except per share data, unless otherwise indicated)
14. ADDITIONAL ARENA FINCOs’ INVESTMENT SCHEDULES (continued)
Details of the Loan and Private Asset positions of the Arena FINCOs are as follows:
1 Principal represents the total funding commitment of a loan which, if applicable, is inclusive of any unfunded portion of the commitment at the end of the reporting period. Where a loan is
issued at a discount, the cost amount includes the accreted discount as of the end of the reporting period. A loan may also be acquired at a cost lower than the par value of the principal
outstanding.
2 Some investments bear interest at a rate that may be determined by reference to SOFR or Prime which reset daily, monthly, quarterly, or semi-annually and may be subject to a floor. For
each, the Company has provided the current contractual interest rate in effect at December 31, 2023. Interest rates listed are inclusive of PIK, where applicable. PIK is interest paid in
kind through an increase in the principal amount of the loan. The internal rate of return for many investments is generally greater than or equal to the total coupon (additional yield resulting
from original issue discounts and/or some form of profit sharing, e.g. warrants). In the event that the internal rate of return on the investment is less than the stated rate, the lower rate is
noted.
3 Loan to value (“LTV”) represents the value of the outstanding loan as a percentage of the estimated fair value of the underlying collateral as of December 31, 2023.
4
5
6
Investment is not a loan. Stated coupon and LTV are not applicable.
Interest not accrued on loans purchased as non-performing.
Investment represents owned real estate either purchased or acquired through a lender default. Metric is not available.
7 Investment represents an unsecured credit pool purchase with no stated interest rate and no LTV.
8 This investment represents a claim against proceeds subject to a litigation result whereby the FINCOs are not accruing interest.
9
Investment is an equity investment. Stated coupon and LTV are not applicable.
Investment is in maturity default where the Company and its partners acquired the borrower in bankruptcy. Metric is not applicable.
10
11 State coupon and/or LTV are not applicable.
12
Investment is an aircraft purchase and is not a loan.
- 31 -
The Westaim Corporation
Management’s Discussion and Analysis
Year ended December 31, 2023
(Currency amounts in millions of United States dollars except per share data, unless otherwise indicated)
December 31, 2022
Total coupon
(including PIK) (2)
LTV (3)
n/a (14)
n/a (14)
n/a (14)
12.75%
14.00%
11.00%
10.00%
n/a (14)
3.50%
n/a (14)
10.00%
13.77%
9.50%
20.00%
10.00%
n/a (14)
n/a (14)
10.00%
12.29%
10.00%
n/a (14)
10.00%
11.00%
14.00%
14.00%
n/a (14)
11.79%
n/a (14)
n/a (14)
n/a (14)
100%+
27.0%
27.0%
17.0%
n/a (14)
100%+
n/a (14)
0.0%
84.0%
10.0%
66.7%
3.0%
n/a (14)
n/a (14)
1.4%
100%+
2.3%
n/a (14)
2.2%
4.0%
43.0%
34.6%
n/a (14)
77.4%
14. ADDITIONAL ARENA FINCOs’ INVESTMENT SCHEDULES (continued)
Details of the Loan and Private Asset positions of the Arena FINCOs are as follows:
Details of Loan and Private Asset Positions
Investments by industry
Ref. no.
Corporate Private Investments
CPC-3222
CPC-2209
CPC-3349
CPC-5325
CPC-7044
CPC-6859
CPC-4985
CPC-5143EQY
CPC-2170
CPC-7227
CPC-5830
CPC-5027
CPC-7018
CPC-8155
CPC-6677
CPC-6374
CPC-2397
CPC-5913
CPC-7677
CPC-5914
CPC-7312EQY
CPC-6373
CPC-5856
CPC-1010
CPC-5889
CPC-7167
Subtotal / Weighted average %
Oil & Gas
Other Assets
Business Services
Oil & Gas
Consumer Products
Business Services
Oil & Gas
Oil & Gas
Oil & Gas
Other Assets
Business Services
Retail
Business Services
Basic Materials
Business Services
Business Services
Financial Services
Business Services
Financial Services
Business Services
Business Services
Business Services
Business Services
Oil & Gas
Consumer Products
Business Services
Principal (1)
Investments
at cost
Investments
at fair value
Geographic
location
Collateral
13.6
12.2
5.4
2.7
3.6
1.3
1.3
1.3
1.7
0.7
0.5
0.6
0.5
0.6
0.4
0.0
1.0
0.3
0.5
0.3
0.3
0.2
0.1
0.2
0.0
0.0
49.3
13.8
13.8
5.4
2.9
2.5
1.4
1.3
1.3
1.2
0.7
0.6
0.6
0.5
0.5
0.5
0.1
1.0
0.4
0.4
0.3
0.3
0.3
0.1
0.2
0.0
0.0
50.1
North America
Europe
Asia Pacific
North America
North America
Asia Pacific
North America
North America
North America
North America
Europe
North America
Europe
Asia Pacific
Europe
Europe
North America
Europe
North America
Europe
North America
Europe
Europe
North America
North America
North America
Equity
Equity
Equity
1st Lien
1st Lien
1st Lien
1st Lien
Hard Asset
1st Lien
Asset Pool
1st Lien
1st Lien
1st Lien
1st Lien
1st Lien
Equity
Equity
1st Lien
1st Lien
1st Lien
Equity
1st Lien
1st Lien
1st Lien
1st Lien
Equity
20.3
17.4
4.6
3.3
2.6
1.6
1.5
1.4
0.7
0.7
0.7
0.7
0.6
0.6
0.5
0.5
0.4
0.4
0.4
0.3
0.3
0.3
0.2
0.2
0.0
0.0
60.2
- 32 -
The Westaim Corporation
Management’s Discussion and Analysis
Year ended December 31, 2023
(Currency amounts in millions of United States dollars except per share data, unless otherwise indicated)
14. ADDITIONAL ARENA FINCOs’ INVESTMENT SCHEDULES (continued)
Details of the Loan and Private Asset positions of the Arena FINCOs are as follows:
Details of Loan and Private Asset Positions (continued)
December 31, 2022
Investments by industry
Principal (1)
Investments at
cost
Investments at
fair value
Geographic
location
Collateral
Total coupon
(including PIK)
(2)
5.0
5.0
4.5
4.4
2.5
2.4
2.3
2.3
1.8
1.4
1.1
1.1
1.1
1.1
1.0
0.9
0.9
0.8
0.8
0.7
0.6
0.5
0.5
Europe
North America
North America
1st Mortgage
Real Property
1st Mortgage
North America
Europe
North America
1st Mortgage
1st Mortgage
Real Property
North America
North America
Asia Pacific
Europe
North America
1st Mortgage
Real Property
1st Mortgage
Real Property
1st Mortgage
North America
Europe
North America
Real Property
1st Mortgage
1st Mortgage
North America
Asia Pacific
1st Mortgage
1st Mortgage
Europe
North America
Asia Pacific
Real Property
1st Mortgage
1st Mortgage
Europe
Asia Pacific
1st Mortgage
1st Mortgage
North America
Asia Pacific
Asset Pool
1st Mortgage
13.80%
n/a (9)
19.00%
9.68%
12.50%
n/a (9)
7.00%
n/a (9)
13.00%
n/a (9)
12.94%
n/a (9)
15.69%
19.38%
9.53%
18.00%
n/a (9)
12.10%
8.00%
16.69%
20.00%
n/a (4)
15.00%
LTV (3)
93.7%
n/a (9)
65.0%
30.0%
78.0%
n/a (9)
30.0%
n/a (9)
71.0%
n/a (9)
100%+
n/a (9)
58.0%
62.0%
50.1%
57.0%
n/a (9)
100%+
73.0%
67.0%
91.0%
n/a (4)
76.0%
0.4
Asia Pacific
1st Mortgage
12.00%
40.0%
0.4
Asia Pacific
1st Mortgage
9.18%
88.0%
0.4
0.4
0.4
0.3
0.3
Europe
North America
North America
Europe
North America
Real Property
1st Mortgage
1st Mortgage
Real Property
Real Property
n/a (9)
24.00%
18.00%
n/a (9)
n/a (9)
n/a (9)
75.2%
51.5%
n/a (9)
n/a (9)
0.2
Asia Pacific
1st Mortgage
11.50%
100%+
0.1
Asia Pacific
1st Mortgage
11.00%
77.0%
Europe
North America
Real Property
1st Mortgage
Asia Pacific
North America
1st Mortgage
Real Property
0.1
0.1
0.0
0.0
45.8
n/a (9)
15.00%
12.00%
n/a (9)
n/a (9)
53.0%
40.0%
n/a (9)
13.59%
67.5%
Ref. no.
Real Estate Private Investments
RECPC-6932
RECPC-1068S4
RECPC-2277
Hospitality
Residential
Land - Commercial
Development
Retail
Residential
Land - Multi-Family
Development
Retail
Residential
Residential
Hospitality
Land - Commercial
Development
Hospitality
Residential
Land - Commercial
Development
Hospitality
Land - Single-Family
Development
Hospitality
Residential
Land - Single-Family
Development
Residential
Land - Single-Family
Development
Commercial
Land - Single-Family
Development
Land - Single-Family
Development
Land - Single-Family
Development
Commercial
Hospitality
Mixed Use
Commercial
Land - Multi-Family
Development
Land - Single-Family
Development
Land - Single-Family
Development
Commercial
Land - Commercial
Development
Residential
Land - Commercial
Development
RECPC-8192
RECPC-7586
RECPC-2683
RECPC-7654
RECPC-4220
RECPC-7488
RECPC-8135
RECPC-2592
RECPC-2560
RECPC-7319
RECPC-5905
RECPC-6592
RECPC-6996
RECPC-7027
RECPC-7390
RECPC-6506TL1
RECPC-6854
RECPC-5476
RECPC-6384EQ
RECPC-6194
RECPC-6995
RECPC-6242
RECPC-7554
RECPC-6129
RECPC-8622
RECPC-6334
RECPC-4698
RECPC-6505
RECPC-8118
RECPC-6048
RECPC-1047
RECPC-8417
RECPC-1015
3.6
5.1
3.2
4.5
2.1
4.3
2.3
2.3
1.3
1.3
2.0
0.9
0.9
1.1
0.9
0.9
0.6
0.8
0.8
0.6
0.6
0.4
0.5
0.4
0.4
0.6
0.4
0.4
0.2
0.4
0.4
0.1
0.2
0.1
0.0
0.2
4.7
5.1
3.2
4.5
2.4
4.3
2.3
2.3
1.7
1.3
2.0
0.9
1.0
1.1
0.9
1.0
0.7
0.8
0.8
0.6
0.7
0.4
0.5
0.4
0.5
0.6
0.4
0.4
0.2
0.4
0.4
0.1
0.2
0.1
0.0
0.1
Subtotal / Weighted average %
44.8
47.0
- 33 -
The Westaim Corporation
Management’s Discussion and Analysis
Year ended December 31, 2023
(Currency amounts in millions of United States dollars except per share data, unless otherwise indicated)
14. ADDITIONAL ARENA FINCOs’ INVESTMENT SCHEDULES (continued)
Details of the Loan and Private Asset positions of the Arena FINCOs are as follows:
Details of Loan and Private Asset Positions (continued)
December 31, 2022
Investments by industry
Ref. no.
Structured Finance and Assets
Other Assets
SF-2239
Other Assets
CI-4898
Other Assets
CI-6785
Other Assets
CI-3045
Other Assets
CI-2651
Consumer
CA-6834
Consumer
CA-5596C
Consumer
CA-5898
Consumer
CA-4946
Other Assets
CI-1999EQ
Lease/Equipment
CI-2201
Other Assets
SF-8578
Consumer
CA-7491
Other Assets
CI-2000
Other Assets
CI-3978
Other Assets
CI-5554
Consumer
CA-6444
Other Assets
SF-7254
Consumer
CA-7474
Other Assets
CI-6253
Other Assets
CI-5177
Consumer
CA-6154
Lease/Equipment
CI-6006
Other Assets
CI-6750
Other Assets
CI-6648TL
Consumer
CA-7092
Other Assets
CI-6016
Consumer
CA-8720
Other Assets
CI-8104
Other Assets
CI-6004
Other Assets
CI-6565
Other Assets
CI-7166
Other Assets
CI-7492
Consumer
CA-4718
Other Assets
CI-1520
Consumer
CA-6288
Other Assets
CI-1035
Consumer
CA-4727
Other Assets
CI-4967
Other Assets
CI-2064
Other Assets
SF-5396
Other Assets
CI-7985
Consumer
CA-8621
Consumer
CA-1052F
Consumer
CA-2729
Other Assets
CI-8048
Other Assets
CI-2686
Consumer
CA-7573
Other Assets
CA-6328
Other Assets
CI-7721
Consumer
CA-1052S
Other Assets
CI-7140
Other Assets
CI-1018
CI-1999
Other Assets
Subtotal / Weighted average %
Principal (1)
Investments
at cost
Investments
at fair value
Geographic
location
Collateral
Total coupon
(including PIK) (2)
5.0
4.0
3.6
1.3
4.0
2.3
2.3
2.5
1.8
3.0
0.9
1.6
1.7
0.9
1.7
1.4
1.1
1.2
1.2
1.2
0.9
0.7
0.8
0.9
0.8
0.5
0.6
0.5
0.5
0.5
0.5
0.4
0.3
0.4
0.2
0.2
0.5
0.1
0.2
0.0
0.2
0.2
0.2
2.6
0.0
0.0
0.2
0.0
0.0
0.0
1.5
1.0
0.2
0.0
58.3
5.7
4.0
3.6
1.3
4.3
2.3
2.3
2.5
1.8
3.0
0.9
1.6
1.7
0.9
1.8
1.4
1.1
1.2
1.2
1.1
0.9
0.9
0.8
0.9
0.8
0.6
0.5
0.5
0.5
0.5
0.5
0.4
0.3
0.4
0.2
0.2
0.5
0.1
0.2
0.0
0.2
0.2
0.2
2.6
0.0
0.0
0.2
0.0
0.0
0.0
1.5
0.6
0.2
0.0
59.1
North America
North America
North America
North America
North America
North America
North America
North America
North America
North America
North America
North America
North America
North America
North America
North America
Latin America
North America
North America
North America
North America
Europe
North America
Europe
North America
North America
North America
North America
North America
Latin America
North America
North America
North America
North America
North America
North America
North America
North America
North America
North America
North America
North America
North America
North America
North America
North America
North America
Asia Pacific
North America
North America
North America
North America
North America
North America
6.5
4.2
3.6
2.8
2.6
2.4
2.3
2.1
1.8
1.8
1.6
1.6
1.6
1.4
1.4
1.4
1.3
1.2
1.2
1.1
1.0
0.9
0.9
0.9
0.8
0.6
0.5
0.5
0.5
0.5
0.5
0.5
0.4
0.4
0.3
0.3
0.3
0.3
0.3
0.2
0.2
0.2
0.2
0.1
0.0
0.0
0.0
0.0
0.0
0.0
0.0
0.0
0.0
0.0
55.2
1st Lien
1st Lien
1st Lien
Asset Pool
Hard Asset
Asset Pool
Asset Pool
Asset Pool
1st Lien
Equity
Hard Asset
1st Lien
Asset Pool
Equity
Hard Asset
1st Lien
Asset Pool
1st Lien
Asset Pool
1st Lien
Hard Asset
1st Lien
1st Lien
Asset Pool
1st Lien
1st Lien
1st Lien
Asset Pool
Hard Asset
Hard Asset
1st Lien
Hard Asset
Hard Asset
Asset Pool
1st Lien
1st Lien
1st Lien
1st Lien
Hard Asset
2nd Lien
1st Lien
1st Lien
Asset Pool
1st Lien
1st Lien
Hard Asset
Equity
Asset Pool
1st Lien
1st Lien
1st Lien
1st Lien
1st Lien
1st Lien
n/a (10)
16.80%
13.50%
n/a (7)
n/a (14)
n/a (10)
n/a (10)
n/a (10)
16.39%
n/a (14)
n/a (4)
9.50%
n/a (10)
n/a (14)
n/a (4)
10.00%
n/a (10)
20.00%
n/a (10)
13.88%
n/a (14)
18.50%
13.79%
24.00%
16.20%
9.00%
15.00%
n/a (10)
n/a (14)
n/a (14)
18.00%
n/a (14)
n/a (14)
n/a (10)
n/a (11)
10.00%
9.90%
29.00%
n/a (14)
15.00%
15.00%
15.00%
n/a (10)
15.66%
n/a (10)
n/a (14)
n/a (14)
n/a (10)
12.00%
10.88%
15.66%
n/a (14)
9.26%
n/a (16)
15.16%
LTV (3)
29.0%
42.1%
97.0%
29.4%
n/a (14)
n/a (10)
n/a (10)
n/a (10)
89.0%
n/a (14)
n/a (4)
23.8%
n/a (10)
n/a (14)
n/a (4)
77.0%
n/a (10)
69.3%
n/a (10)
44.0%
n/a (14)
62.0%
100.0%
86.0%
86.0%
29.0%
88.7%
n/a (10)
n/a (14)
n/a (14)
86.0%
n/a (14)
n/a (14)
n/a (10)
48.0%
60.8%
100.0%
66.0%
n/a (14)
67.0%
100%+
86.0%
n/a (10)
100.0%
100.0%
n/a (14)
n/a (14)
n/a (10)
99.0%
44.0%
100.0%
n/a (14)
100.0%
n/a (16)
57.5%
Total / Weighted average %
$ 152.4
$ 156.2
$ 161.2
13.70%
66.0%
- 34 -
The Westaim Corporation
Management’s Discussion and Analysis
Year ended December 31, 2023
(Currency amounts in millions of United States dollars except per share data, unless otherwise indicated)
14. ADDITIONAL ARENA FINCOs’ INVESTMENT SCHEDULES (continued)
Details of the Loan and Private Asset positions of the Arena FINCOs are as follows:
1 Principal represents the total funding commitment of a loan which, if applicable, is inclusive of any unfunded portion of the commitment at the end of the reporting period. Where a loan is
issued at a discount, the cost amount includes the accreted discount as of the end of the reporting period. A loan may also be acquired at a cost lower than the par value of the principal
outstanding.
2 Some investments bear interest at a rate that may be determined by reference to LIBOR or Prime which reset daily, monthly, quarterly, or semi-annually and may be subject to a floor.
For each, the Company has provided the current contractual interest rate in effect at December 31, 2022. Interest rates listed are inclusive of PIK, where applicable. PIK is interest paid
in kind through an increase in the principal amount of the loan. The internal rate of return for many investments is generally greater than or equal to the total coupon (additional yield
resulting from original issue discounts and/or some form of profit sharing, e.g. warrants). In the event that the internal rate of return on the investment is less than the stated rate, the lower
rate is noted.
3 Loan to value (“LTV”) represents the value of the outstanding loan as a percentage of the estimated fair value of the underlying collateral as of December 31, 2022.
Investment is not a loan. Metric is not applicable.
4
5 Denotes subordinate position within the structure.
6
7
Interest not accrued on loans purchased as non-performing.
Investment represents a credit pool purchase with no stated interest rate.
8 Investment is a maturity default past its maturity date and has an uncertain holding period as of December 31, 2022.
9 Investment represents owned real estate. Metric is not available.
10 Investment represents an unsecured credit pool purchase with no stated interest rate.
11 This investment represents a claim against proceeds subject to a litigation result whereby the FINCOs are not accruing interest.
12 Investment with no stated coupon rate.
13 Investment is a preferred equity investment.
14
Investment is an equity interest in an operating company. Stated coupon and LTV are not applicable.
Investment is a warrant to purchase an equity interest in an operating company. Stated coupon and LTV are not applicable.
Investment is in maturity default where the Company and its partners acquired the borrower in bankruptcy. LTV is not applicable.
15
16
- 35 -
The Westaim Corporation
Management’s Discussion and Analysis
Year ended December 31, 2023
(Currency amounts in millions of United States dollars except per share data, unless otherwise indicated)
15. NON-GAAP MEASURES
(a) Book value per share
Book value per share is computed as book value divided by the adjusted number of Common Shares. The table below provides the reconciliation
of the Company’s shareholders’ equity at the end of the period, determined on an IFRS basis, to book value, and the number of Common Shares
outstanding at the end of the period to the adjusted number of Common Shares:
Book value:
Shareholders’ equity per IFRS
Adjustments:
RSU liability 1
ASPP liability 2
Derivative warrant liability 3
Assumed proceeds of exercised in-the-money options 4
Number of Common Shares:
Number of Common Shares outstanding
Adjustments for assumed exercise of:
Outstanding RSUs 1
In-the-money options 4
Adjusted number of Common Shares
Book value per share - in US$
Book value per share - in C$ 5
Westaim TSXV closing share price - in C$
December 31, 2023
December 31, 2022
$
518.3
$
363.2
9.3
2.4
-
17.5
547.5
5.8
-
0.1
-
369.1
$
$
131,757,285
141,386,718
3,455,198
7,597,513
142,809,996
$
$
$
3.83
5.08
3.76
2,975,198
-
144,361,916
$
$
$
2.56
3.46
2.63
1 See Note 11, Share-based Compensation in the Notes to the Financial Statements. Liability related to RSUs converted from C$ to US$ at period end exchange
rates. RSUs are exercisable for Common Shares or cash at no cost to the holders. Adjustment made to reflect a reclassification of the RSU liability to shareholders’
equity assuming all outstanding RSUs were exercised for Common Shares.
2 See Note 5, Accounts Payable and Other Accrued Liabilities in the Notes to the Financial Statements. Shareholders’ equity per IFRS was reduced by the liability
required for the maximum amount that would be required to settle the ASPP.
3 See Note 8, Derivative Warrant Liability in the Notes to the Financial Statements. Derivative warrant liability converted from C$ to US$ at period end exchange
rates. Adjustment made as the non-cash fair value change in the derivative warrant liability from period to period is not indicative of the change in the intrinsic
value of the Company. There were no outstanding Vested Warrants at December 31, 2023. Vested Warrants were not included in the adjusted number of Common
Shares at December 31, 2022 as none of them were in-the-money.
4 See Note 11, Share-based Compensation in the Notes to the Financial Statements. Adjustments were made for all of the options outstanding at December 31,
2023, since they were in-the-money. No adjustments were made for options at December 31, 2022, since they were not in-the money. The exercise of in-the-
money options would have resulted in an infusion of capital to the Company.
5 Book value per share converted from US$ to C$ at period end exchange rates. Period end exchange rates: 1.32405 at December 31, 2023, and 1.35360 at
December 31, 2022.
(b) Net returns on the Arena FINCOs investment portfolios
Net Return on the Arena FINCOs investment portfolios is the aggregate of investment income, net of gains (losses) on investments less interest
expense, management, asset servicing and incentive fees, and other operating expenses of the Arena FINCOs divided by average carrying values
for the Arena FINCOs, for the period.
- 36 -
The Westaim Corporation
Management’s Discussion and Analysis
Year ended December 31, 2023
(Currency amounts in millions of United States dollars except per share data, unless otherwise indicated)
16. CAUTIONARY NOTE REGARDING FORWARD-LOOKING INFORMATION
Certain portions of this MD&A, as well as other public statements by the Company, contain forward-looking statements information which reflect the
current expectations of management regarding the Company’s future growth, results of operations, performance and business prospects and
opportunities. In particular, the words "strategy", "may", "will", "continue", "developed", "objective", "potential", "exploring", "could", "expect",
"expected", "expects", “tends”, "indicates", and words and expressions of similar import, are intended to identify forward-looking statements. Such
forward-looking statements include but are not limited to statements concerning: strategies, alternatives and objectives to maximize value for
shareholders; expectations and assumptions relating to the Company’s business plan; expectations and assumptions relating to the business and
operations of Skyward Specialty, the Arena FINCOs and Arena; expectations regarding the Company’s assets and liabilities; the Company using
the proceeds of its investments to acquire Common Shares; the Company’s ability to retain key employees; management’s belief that its estimates
for determining the valuation of the Company’s assets and liabilities are appropriate; the Company’s views regarding potential future remediation
costs; the effect of changes to interpretations of tax legislation on income tax provisions in future periods; and the Company’s determination that the
adoption of new accounting standards will not have a material impact on its consolidated financial statements.
These statements are based on current expectations that are subject to risks, uncertainties and assumptions and the Company can give no
assurance that these expectations are correct.
The Company’s actual results or financial position could differ materially from those anticipated by these forward-looking statements for various
reasons generally beyond the Company’s control, including, without limitation, the following factors: risks inherent in acquisitions generally; the
Company’s cash flow; liquidity and financing risks; the Company’s ability to raise additional capital; regulatory requirements may delay or deter a
change in control of the Company; the potential treatment of the Company as a passive foreign investment company (“PFIC”) for U.S. federal income
tax purposes that may affect Westaim’s U.S. shareholders; market turmoil, risk of volatile markets and market disruption risk; exposure to epidemics
and/or pandemics; Company employee error or misconduct; cybersecurity risks; Skyward Specialty’s ability to accurately assess underwriting risk;
the effect of intense competition and/or industry consolidation on Skyward Specialty’s business; Skyward Specialty’s reliance on brokers and third
parties to sell its products to clients; Skyward Specialty’s ability to alleviate risk through reinsurance; Skyward Specialty’s reserves may prove to be
inadequate; Skyward Specialty’s ability to maintain its financial strength and issuer credit ratings; unexpected changes in the interpretation of
Skyward Specialty’s coverage or claims; Skyward Specialty receiving reimbursement for claims by reinsurers on a timely basis; Skyward Specialty’s
ability to pay claims accurately and timely; severe weather conditions, including the effects of climate change, catastrophes, pandemics as well as
man-made events; plan administrators; Skyward Specialty’s reliance on renewal of existing insurance contracts; the effect of environmental, social
and governance (“ESG”) matters on Skyward Specialty’s business; the effect of any changes in accounting practices and future pronouncements
on Skyward Specialty’s business; adverse economic factors; the cyclical nature of the insurance industry on Skyward Specialty’s business; the
performance of Skyward Specialty’s investment portfolio; Skyward Specialty meeting liquidity requirements; the effect of additional legislation or
market regulation enacted by the U.S. federal government on Skyward Specialty’s business; Skyward Specialty’s ability to receive dividends from
its subsidiaries; the effect of change of control requirements under Texas insurance laws and regulations on Skyward Specialty’s ability to
successfully pursue its acquisition strategy; the effect of Skyward Specialty’s future capital requirements; the loss by Skyward Specialty of key
personnel or an inability to attract and retain qualified personnel; Skyward Specialty’s reliance on information technology and telecommunications
systems; Skyward Specialty’s ability to manage growth effectively; the effect of litigation on Skyward Specialty; Skyward Specialty’s reliance on
vendor relationships; Skyward Specialty’s reliance on its intellectual property rights and Skyward Specialty not infringing the intellectual property
rights of others; increased costs of Skyward Specialty being a public company; material weaknesses identified in Skyward Specialty’s internal control
over financial reporting; Skyward Specialty’s reduced reporting and disclosure obligations as an emerging growth company; the volatility or decline
in Skyward Specialty’s stock price and operating results; substantial future sales of shares of Skyward Specialty’s common stock or the perception
thereof; changes in Skyward Specialty’s underwriting guidelines or strategy without stockholder approval; anti-takeover provisions in Skyward
Specialty’s organizational documents; the Court of Chancery of the State of Delaware has the exclusive forum for substantially all Skyward Specialty
disputes; the condition of the global financial markets and economic and geopolitical conditions affecting Arena’s business; the variable nature of
Arena Investors’ revenues, results of operations and cash flows; the effect of rapid changes and growth in AUM on Arena; Arena’s ability to mitigate
operational and due diligence risks; the subjective nature of the valuation of the Arena FINCOs’ investments; Arena’s ability to mitigate litigation-
related and other legal-related risks; Arena’s ability to find appropriate investment opportunities; Arena’s ability to successfully navigate and secure
compliance with regulations applicable to it and its business; Arena’s ability to mitigate private litigation risks; Arena’s ability to manage conflicts of
interest; the effects of a decrease in revenues as a result of significant redemptions in AUM on Arena Investor’s business; the investment performance
of Arena Investors; Arena Investors’ investment in illiquid investments; Arena’s ability to retain qualified management staff; Arena’s ability to mitigate
the risk of employee misconduct and employee error; the effect of epidemics, pandemics, outbreaks of disease and public health issues on Arena’s
business; effect of market conditions on the Arena FINCOs; Arena’s ability to implement effective risk management systems; dependence by the
Arena FINCOs on the creditworthiness of borrowers; the ability of the Arena FINCOs to mitigate the risk of default by and bankruptcy of a borrower;
the ability of the Arena FINCOs to adequately obtain, perfect and secure loans; the ability of the Arena FINCOs to limit the need for enforcement or
liquidation procedures; the ability of the Arena FINCOs to protect against fraud; the Arena FINCOs’ ability to realize profits; the Arena FINCOs’
investment in illiquid investments; loan concentration; changes to the regulation of the asset-based lending industry; United States tax law
implications relating to the conduct of a U.S. trade or business; Arena FINCOs’ use of leverage; and other risk factors set forth herein or in the
Company’s annual report or other public filings.
The Company disclaims any intention or obligation to revise forward-looking statements whether as a result of new information, future developments
or otherwise except as required by law. All forward-looking statements are expressly qualified in their entirety by this cautionary statement.
- 37 -
March 27, 2024
MANAGEMENT'S RESPONSIBILITY
FOR FINANCIAL INFORMATION
The accompanying consolidated financial statements including the notes thereto have been prepared by,
and are the responsibility of, the management of The Westaim Corporation. This responsibility includes
selecting appropriate accounting policies and making estimates and informed judgments based on the
anticipated impact of current transactions, events and trends, consistent with International Financial
Reporting Standards. The Board of Directors is responsible for ensuring that management fulfills its
responsibility for financial reporting and internal control. In meeting our responsibility for the reliability and
timeliness of financial information, the Company maintains and relies upon a comprehensive system of
internal controls including organizational, procedural and disclosure controls. The Audit Committee,
which is comprised of three Directors, all of whom are independent, meets with management as well as
the external auditors to satisfy itself that management is properly discharging its financial reporting
responsibilities and to review the consolidated financial statements and the report of the auditors. It
reports its findings to the Board of Directors who approve the consolidated financial statements.
The accompanying consolidated financial statements have been audited by Deloitte LLP, the independent
auditors, in accordance with Canadian generally accepted auditing standards. The auditors have full and
unrestricted access to the Audit Committee.
J. Cameron MacDonald
President and Chief Executive Officer
Glenn G. MacNeil
Chief Financial Officer
- 38 -
(cid:24)(cid:286)(cid:367)(cid:381)(cid:349)(cid:410)(cid:410)(cid:286)(cid:3)(cid:62)(cid:62)(cid:87)(cid:3)
(cid:17)(cid:258)(cid:455)(cid:3)(cid:4)(cid:282)(cid:286)(cid:367)(cid:258)(cid:349)(cid:282)(cid:286)(cid:3)(cid:28)(cid:258)(cid:400)(cid:410)(cid:3)
(cid:1012)(cid:3)(cid:4)(cid:282)(cid:286)(cid:367)(cid:258)(cid:349)(cid:282)(cid:286)(cid:3)(cid:94)(cid:410)(cid:396)(cid:286)(cid:286)(cid:410)(cid:3)(cid:116)(cid:286)(cid:400)(cid:410)(cid:3)
(cid:94)(cid:437)(cid:349)(cid:410)(cid:286)(cid:3)(cid:1006)(cid:1004)(cid:1004)(cid:3)
(cid:100)(cid:381)(cid:396)(cid:381)(cid:374)(cid:410)(cid:381)(cid:3)(cid:75)(cid:69)(cid:3)(cid:68)(cid:1009)(cid:44)(cid:3)(cid:1004)(cid:4)(cid:1013)(cid:3)
(cid:18)(cid:258)(cid:374)(cid:258)(cid:282)(cid:258)(cid:3)
(cid:3)
(cid:100)(cid:286)(cid:367)(cid:855)(cid:3)(cid:1008)(cid:1005)(cid:1010)(cid:882)(cid:1010)(cid:1004)(cid:1005)(cid:882)(cid:1010)(cid:1005)(cid:1009)(cid:1004)(cid:3)
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(cid:3)(cid:3)(cid:3)
(cid:3)
(cid:47)(cid:374)(cid:282)(cid:286)(cid:393)(cid:286)(cid:374)(cid:282)(cid:286)(cid:374)(cid:410)(cid:3)(cid:4)(cid:437)(cid:282)(cid:349)(cid:410)(cid:381)(cid:396)(cid:918)(cid:400)(cid:3)(cid:90)(cid:286)(cid:393)(cid:381)(cid:396)(cid:410)(cid:3)
(cid:3)
(cid:100)(cid:381)(cid:3)(cid:410)(cid:346)(cid:286)(cid:3)(cid:94)(cid:346)(cid:258)(cid:396)(cid:286)(cid:346)(cid:381)(cid:367)(cid:282)(cid:286)(cid:396)(cid:400)(cid:3)(cid:258)(cid:374)(cid:282)(cid:3)(cid:410)(cid:346)(cid:286)(cid:3)(cid:17)(cid:381)(cid:258)(cid:396)(cid:282)(cid:3)(cid:381)(cid:296)(cid:3)(cid:24)(cid:349)(cid:396)(cid:286)(cid:272)(cid:410)(cid:381)(cid:396)(cid:400)(cid:3)(cid:381)(cid:296)(cid:3)
(cid:100)(cid:346)(cid:286)(cid:3)(cid:116)(cid:286)(cid:400)(cid:410)(cid:258)(cid:349)(cid:373)(cid:3)(cid:18)(cid:381)(cid:396)(cid:393)(cid:381)(cid:396)(cid:258)(cid:410)(cid:349)(cid:381)(cid:374)(cid:3)
(cid:3)
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(cid:381)(cid:296)(cid:3)(cid:282)(cid:381)(cid:349)(cid:374)(cid:336)(cid:3)(cid:400)(cid:381)(cid:3)(cid:449)(cid:381)(cid:437)(cid:367)(cid:282)(cid:3)(cid:396)(cid:286)(cid:258)(cid:400)(cid:381)(cid:374)(cid:258)(cid:271)(cid:367)(cid:455)(cid:3)(cid:271)(cid:286)(cid:3)(cid:286)(cid:454)(cid:393)(cid:286)(cid:272)(cid:410)(cid:286)(cid:282)(cid:3)(cid:410)(cid:381)(cid:3)(cid:381)(cid:437)(cid:410)(cid:449)(cid:286)(cid:349)(cid:336)(cid:346)(cid:3)(cid:410)(cid:346)(cid:286)(cid:3)(cid:393)(cid:437)(cid:271)(cid:367)(cid:349)(cid:272)(cid:3)(cid:349)(cid:374)(cid:410)(cid:286)(cid:396)(cid:286)(cid:400)(cid:410)(cid:3)(cid:271)(cid:286)(cid:374)(cid:286)(cid:296)(cid:349)(cid:410)(cid:400)(cid:3)(cid:381)(cid:296)(cid:3)(cid:400)(cid:437)(cid:272)(cid:346)(cid:3)
(cid:272)(cid:381)(cid:373)(cid:373)(cid:437)(cid:374)(cid:349)(cid:272)(cid:258)(cid:410)(cid:349)(cid:381)(cid:374)(cid:856)(cid:3)
(cid:100)(cid:346)(cid:286)(cid:3)(cid:286)(cid:374)(cid:336)(cid:258)(cid:336)(cid:286)(cid:373)(cid:286)(cid:374)(cid:410)(cid:3)(cid:393)(cid:258)(cid:396)(cid:410)(cid:374)(cid:286)(cid:396)(cid:3)(cid:381)(cid:374)(cid:3)(cid:410)(cid:346)(cid:286)(cid:3)(cid:258)(cid:437)(cid:282)(cid:349)(cid:410)(cid:3)(cid:396)(cid:286)(cid:400)(cid:437)(cid:367)(cid:410)(cid:349)(cid:374)(cid:336)(cid:3)(cid:349)(cid:374)(cid:3)(cid:410)(cid:346)(cid:349)(cid:400)(cid:3)(cid:349)(cid:374)(cid:282)(cid:286)(cid:393)(cid:286)(cid:374)(cid:282)(cid:286)(cid:374)(cid:410)(cid:3)(cid:258)(cid:437)(cid:282)(cid:349)(cid:410)(cid:381)(cid:396)(cid:859)(cid:400)(cid:3)(cid:396)(cid:286)(cid:393)(cid:381)(cid:396)(cid:410)(cid:3)(cid:349)(cid:400)(cid:3)(cid:28)(cid:396)(cid:349)(cid:272)(cid:3)(cid:62)(cid:286)(cid:381)(cid:393)(cid:381)(cid:367)(cid:282)(cid:856)(cid:3)
(cid:3)
(cid:876)(cid:400)(cid:876)(cid:3)(cid:24)(cid:286)(cid:367)(cid:381)(cid:349)(cid:410)(cid:410)(cid:286)(cid:3)(cid:62)(cid:62)(cid:87)(cid:3)
(cid:3)
(cid:18)(cid:346)(cid:258)(cid:396)(cid:410)(cid:286)(cid:396)(cid:286)(cid:282)(cid:3)(cid:87)(cid:396)(cid:381)(cid:296)(cid:286)(cid:400)(cid:400)(cid:349)(cid:381)(cid:374)(cid:258)(cid:367)(cid:3)(cid:4)(cid:272)(cid:272)(cid:381)(cid:437)(cid:374)(cid:410)(cid:258)(cid:374)(cid:410)(cid:400)(cid:3)
(cid:62)(cid:349)(cid:272)(cid:286)(cid:374)(cid:400)(cid:286)(cid:282)(cid:3)(cid:87)(cid:437)(cid:271)(cid:367)(cid:349)(cid:272)(cid:3)(cid:4)(cid:272)(cid:272)(cid:381)(cid:437)(cid:374)(cid:410)(cid:258)(cid:374)(cid:410)(cid:400)(cid:3)(cid:3)
(cid:68)(cid:258)(cid:396)(cid:272)(cid:346)(cid:3)(cid:1006)(cid:1011)(cid:853)(cid:3)(cid:1006)(cid:1004)(cid:1006)(cid:1008)(cid:3)
(cid:3)
(cid:3)
- 42 -
The Westaim Corporation
Consolidated Statements of Financial Position
(thousands of United States dollars)
ASSETS
Cash
Income tax receivable (note 13)
Other assets (note 3)
Investments
Investment in Skyward Specialty (note 4)
Investment in Arena FINCOs (note 4)
Investment in Arena (note 4)
Investment in ASOF LP (note 4)
Deferred tax asset (note 13)
LIABILITIES
Accounts payable and accrued liabilities (note 5)
Income taxes payable (note 13)
Preferred securities (note 6)
Derivative warrant liability (note 8)
Deferred tax liability (note 13)
Commitments and contingent liabilities (note 9)
SHAREHOLDERS' EQUITY
Share capital (note 10)
Contributed surplus (note 2m)
Accumulated other comprehensive loss (note 2n)
Retained earnings (deficit)
December 31
2023
December 31
2022
$
$
$
$
$
135,032
494
988
236,470
147,234
27,536
3,024
414,264
1,043
551,821
31,269
1,004
-
-
1,202
33,475
$
$
3,434
-
552
218,879
160,113
26,957
3,179
409,128
178
413,292
12,940
245
36,939
94
-
50,218
353,843
13,745
(2,227)
152,985
518,346
551,821
$
378,563
17,735
(2,227)
(30,997)
363,074
413,292
The accompanying notes are an integral part of these consolidated financial statements.
Approved on behalf of the Board
Ian W. Delaney
Director
John W. Gildner
Director
- 43 -
The Westaim Corporation
Consolidated Statements of Profit and Comprehensive Income
(thousands of United States dollars except share and per share data)
Revenue
Interest income (note 12)
Dividend income from investment in Arena FINCOs (note 4 and 12)
Fee income (note 12)
Net results of investments
Increase in value of investment in Skyward Specialty (note 4)
Decrease in value of investment in Arena FINCOs, less dividends (note 4)
Share of income from investment in Arena (note 4)
Decrease in value of investment in ASOF LP (note 4)
Net expenses
Salaries and benefits
General, administrative and other
Professional fees
Share-based compensation expense (note 11)
Foreign exchange loss (gain)
Interest on preferred securities (note 6)
Derivative warrant gain (note 8)
Profit before income taxes
Income taxes (expense) recovery (note 13)
Profit and comprehensive income
Earnings per share (note 14)
Basic
Diluted
Weighted average common shares outstanding - basic
Weighted average common shares outstanding - diluted
The accompanying notes are an integral part of these consolidated financial statements.
- 44 -
Year Ended December 31
2023
2022
$
$
3,754
4,400
473
8,627
210,255
(10,379)
4,437
(155)
204,158
15,914
930
1,445
6,703
600
1,010
(98)
26,504
1,382
8,350
950
10,682
26,868
(10,853)
783
(43)
16,755
4,811
860
1,525
874
(80)
1,900
(57)
9,833
$
$
$
186,281
(2,299)
17,604
357
183,982
$
17,961
1.33 $
1.32 $
0.13
0.12
138,299,601
142,394,672
141,901,513
144,876,711
The Westaim Corporation
Consolidated Statements of Changes in Equity
Year ended December 31, 2023
(thousands of United States dollars)
Share
Capital
Contributed
Surplus
Accumulated Other
Comprehensive Loss
Retained
Earnings
(Deficit)
Total
Equity
Balance at January 1, 2023
$
378,563
$
17,735
$
(2,227)
$
(30,997)
$
363,074
Cancellation of common shares (note 10)
Automatic stock purchase plan ("ASPP") (note 5)
Shares issued from exercise of stock options (note 10)
Exercise and net exercise of stock options (note 10)
Profit and comprehensive income
(26,386)
-
102
1,564
-
-
(2,426)
-
(1,564)
-
-
-
-
-
-
-
-
-
-
183,982
(26,386)
(2,426)
102
-
183,982
Balance at December 31, 2023
$
353,843
$
13,745
$
(2,227)
$
152,985
$
518,346
Year ended December 31, 2022
(thousands of United States dollars)
Share
Capital
Contributed
Surplus
Accumulated Other
Comprehensive Loss
Retained
Earnings
(Deficit)
Total
Equity
Balance at January 1, 2022
Cancellation of common shares (note 10)
Profit and comprehensive income
Balance at December 31, 2022
$
$
381,127
$
17,735
$
(2,227)
$
(48,958)
$
347,677
(2,564)
-
-
-
-
-
-
17,961
(2,564)
17,961
378,563
$
17,735
$
(2,227)
$
(30,997)
$
363,074
The accompanying notes are an integral part of these consolidated financial statements.
- 45 -
The Westaim Corporation
Consolidated Cash Flow Statements
(thousands of United States dollars)
Operating activities
Profit
Increase in value of investment in Skyward Specialty (note 4)
Decrease in value of investment in Arena FINCOs, less dividends (note 4)
Share of income from investment in Arena (note 4)
Decrease in value of investment in ASOF LP (note 4)
Share-based compensation expense (note 11)
Share-based compensation payments (note 11)
Depreciation and amortization
Unrealized foreign exchange loss (gain)
Derivative warrant gain (note 8)
Change in income taxes receivable, payable and deferred (note 13)
Net changes in other non-cash balances
Change in other assets
Change in other accounts payable and accrued liabilities
Cash used in operating activities
Investing activities
Receipt from dissolution of HIIG Partnership (note 4)
Proceeds from partial sale of Skyward Specialty common shares (note 4)
Return of capital from investments in Arena FINCOs (note 4)
Distribution received from Arena
Cash provided from investing activities
Financing activities
Settlement of Preferred Securities (note 6)
Purchase and cancellation of Common Shares (note 10)
Proceeds from exercise of options and issuance of Common Shares (note 10)
Cash used in financing activities
Net increase (decrease) in cash
Cash, beginning of year
Cash, end of year
Supplemental disclosure of cash flow information:
Interest paid
The accompanying notes are an integral part of these consolidated financial statements.
- 46 -
Year Ended December 31
2023
2022
$
183,982
(210,255)
10,379
(4,437)
155
6,703
(1,187)
137
688
(98)
734
(571)
10,678
(3,092)
449
192,215
2,500
3,726
198,890
(37,916)
(26,386)
102
(64,200)
131,598
3,434
135,032
$
17,961
(26,868)
10,853
(783)
43
874
-
141
(3,105)
(57)
(437)
64
(1,146)
(2,460)
-
-
1,900
-
1,900
-
(2,564)
-
(2,564)
(3,124)
6,558
3,434
1,476
$
1,932
$
$
$
The Westaim Corporation
Notes to Consolidated Financial Statements
For the years ended December 31, 2023 and 2022
(Currency amounts in thousands of United States dollars except per share data, unless otherwise indicated)
1
Nature of Operations
The Westaim Corporation (“Westaim”) was incorporated on May 7, 1996 by articles of incorporation under the Business Corporations Act
(Alberta). Westaim’s head office is located at Suite 1700, 70 York Street, Toronto, Ontario, Canada. These consolidated financial statements
were authorized for issue by the Board of Directors of Westaim on March 27, 2024.
These consolidated financial statements include the accounts of Westaim and its wholly owned subsidiaries, Westaim HIIG GP Inc. (“HIIG GP”),
Arena Finance Company II Inc. (“AFCII”) and The Westaim Corporation of America (“WCA”) and are collectively referred to as the “Company”.
Westaim is a Canadian investment company specializing in providing long-term capital to businesses operating primarily within the global
financial services industry. The Company’s principal investments consist of Skyward Specialty Insurance Group, Inc. (“Skyward Specialty”),
Arena FINCOs (as defined in note 4) and Arena (as defined in note 4). Westaim’s common shares (“Common Shares”) are listed and posted
for trading on the TSX Venture Exchange (the “TSXV”) under the symbol “WED”.
All currency amounts are expressed in thousands of United States dollars (“US$”), the functional and presentation currency of the Company,
except per share data, unless otherwise indicated.
2
Summary of Material Accounting Policies
The material accounting policies used to prepare these consolidated financial statements are as follows:
(a) Basis of preparation
These consolidated financial statements are prepared in compliance with International Financial Reporting Standards (“IFRS”).
The financial statements of entities controlled by Westaim which provide investment-related services are consolidated. These entities consist of
its wholly owned subsidiaries, HIIG GP, AFCII and WCA. The financial results of these entities are included in the consolidated financial
statements from the date that control commences until the date that control ceases. The Company controls an entity when the Company has
power over the entity, is exposed to, or has rights to, variable returns from its involvement with the entity and has the ability to affect those
returns through its power over the entity. Assessment of control is based on the substance of the relationship between the Company and the
entity and includes consideration of both existing voting rights and, if applicable, potential voting rights that are currently exercisable or
convertible. Intercompany balances and transactions are eliminated upon consolidation.
The Company follows the material accounting policies included under IAS 1 “Presentation of Financial Statements” which states, effective for
annual reporting periods beginning on or after 1 January 2023, an entity shall disclose material accounting policy information. Accounting policy
information is material if, when considered together with other information included in the Company’s financial statements, it can reasonably be
expected to influence decisions that the primary users of its financial statements make on the basis of those financial statements.
The Company meets the definition of an investment entity under IFRS 10 "Consolidated Financial Statements" ("IFRS 10") and measures its
investments in relevant subsidiaries at fair value through profit or loss (“FVTPL”), instead of consolidating those subsidiaries in its consolidated
financial statements. Investments accounted for at FVTPL consist of Skyward Specialty (including Westaim HIIG Limited Partnership (the “HIIG
Partnership”)), the Arena FINCOs and Arena Special Opportunities Fund, LP (“ASOF LP”). See note 4 for investments’ definitions.
Investment in associates are accounted for using the equity method in accordance with IAS 28 “Investments in Associates and Joint Ventures”
(“IAS 28”) and consists of investments in corporations or limited partnerships where the Company has significant influence. Significant influence
is the power to participate in the financial and operating policy decisions of the investee but is not control or joint control over these policies.
The Company’s investment in associates consist of its investment in Arena and is reported under “Investment in Arena” in the consolidated
statements of financial position, with the Company’s share of comprehensive income of Arena reported under “Net results of investments” in the
consolidated statements of profit and comprehensive income.
(b) Functional and presentation currency
The US$ is the functional and presentation currency of the Company. IAS 21 “The Effects of Changes in Foreign Exchange Rates” describes
functional currency as the currency of the primary economic environment in which an entity operates. A significant majority of the Company’s
revenues and costs are earned and incurred in US$, respectively.
(c) Use of estimates
The preparation of financial statements requires management to make estimates that affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during
the reporting period. Actual results could differ from these estimates and changes in estimates are recorded in the reporting period in which
- 47 -
The Westaim Corporation
Notes to Consolidated Financial Statements
For the years ended December 31, 2023 and 2022
(Currency amounts in thousands of United States dollars except per share data, unless otherwise indicated)
2
Summary of Material Accounting Policies (continued)
they are determined. Key estimates include the fair value of investments classified as FVTPL, fair value of share-based compensation, fair
value of derivative warrant liability, and deferred tax assets and liabilities.
(d) Judgments made by management
Key areas where management has made difficult, complex or subjective judgments in the process of applying the Company’s accounting
policies, often as a result of matters that are inherently uncertain, include determining that the Company meets the definition of an investment
entity under IFRS 10, valuation techniques for fair value determination of investments classified as FVTPL, applying the equity method of
accounting for associates and determining that the Company’s functional currency is the US$. For additional information on these judgments,
see note 4 for investments and note 2(b) for functional currency.
(e) Foreign currency translation
Transactions in foreign currencies, including Canadian dollars (“C$”), are translated into US$ at rates of exchange prevailing at the time of such
transactions. Monetary assets and liabilities transacted in foreign currencies are translated into US$ at rates of exchange at the end of the
reporting period. Non-monetary items measured at fair value in a foreign currency are translated using exchange rates at the date when the
fair value was measured. Any resulting foreign exchange gain or loss is included in the consolidated statements of profit and comprehensive
income.
From time to time, the Company may enter into C$ exchange forward contracts to manage C$ currency exposures arising from C$ denominated
transactions. The Company has not designated any C$ exchange forward contracts as accounting hedges. Any resulting C$ exchange gain
or loss arising from the C$ exchange forward contracts is included in the consolidated statements of profit and comprehensive income.
(f) Revenue recognition
Interest income is recognized on an accrual basis and dividend income is recognized on the ex-dividend date. Advisory and management fees
are recorded as fee income over time as these services are performed.
(g) Cash and cash equivalents
Cash and cash equivalents generally consist of cash on deposit and highly liquid short-term investments with original maturities of 90 days or
less. At December 31, 2023 and 2022, the Company’s cash consisted of cash on deposit in both C$ and US$ in Canada at Canadian Imperial
Bank of Commerce and in the US at Citibank.
(h) Capital assets
The Company’s capital assets are included in other assets and are reported at cost less accumulated depreciation. Depreciation is calculated
based on the estimated useful life of the particular assets which is 3 to 10 years for furniture and equipment. Leasehold improvements are
depreciated using the straight-line method over the lesser of the term of the lease or the estimated useful life of the assets. At the end of each
reporting period, management reviews the carrying amounts of capital assets for any indication of impairment. An impairment loss is recognized
for the amount by which the carrying amount of the asset exceeds its recoverable amount. The recoverable amount is the higher of fair value
less cost to sell and value in use.
(i) Leases
A contract is, or contains, a lease if the contract conveys the right to control the use of an identified asset for a period of time in exchange for
consideration. To assess whether a contract conveys a right to control the use of an identified asset, the Company assesses whether, i) the
contract involves an identified asset, which is physically distinct and cannot be substituted by the supplier, ii) the Company has the right to obtain
substantially all of the economic benefits from the use of the identified asset during the period of use, and iii) the Company has the right to
operate the identified asset or the Company designed the identified asset in a way that predetermines how and for what purpose the identified
asset will be used.
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
at cost, which comprises the initial amount of the lease liability adjusted for any lease payments made on or before the commencement date,
plus any costs incurred to dismantle and remove the underlying asset or restore the underlying asset or the site on which it is located, less any
lease incentives received.
The right of use asset is measured at cost less any accumulated depreciation and any accumulated impairment losses. Depreciation is measured
using the straight-line method from the commencement date to the earlier of the end of the useful life of the right of use asset or the end of the
- 48 -
The Westaim Corporation
Notes to Consolidated Financial Statements
For the years ended December 31, 2023 and 2022
(Currency amounts in thousands of United States dollars except per share data, unless otherwise indicated)
2
Summary of Material Accounting Policies (continued)
lease term.
The lease liability is initially measured at the present value of the future lease payments not paid at the commencement date and the lease
payments are discounted using the interest rate implicit in the lease if the rate can be readily determined, or the lessee’s incremental borrowing
rate if the rate cannot be determined.
In accordance with IFRS 16 “Leases” (“IFRS 16”), the Company has elected not to recognize right of use assets and lease liabilities for short
term leases of less than a term of 12 months and leases of low value. The Company recognizes the lease payments associated with these
leases as an expense on a straight-line basis over the term of the lease.
(j) Investments
The Company’s investments in Skyward Specialty, Arena FINCOs and ASOF LP are classified as FVTPL and are carried at fair value. At initial
recognition, these investments were measured at cost, which was representative of fair value, and subsequently, at each reporting date,
recorded at fair value with increases and decreases arising from changes in fair values including the impact of dividends and/or distributions
being recorded in the consolidated statements of profit and comprehensive income for the period in which they arise. Transaction costs on the
investments are expensed as incurred.
Investment in Arena was initially recorded at cost and subsequently adjusted to recognize the Company’s share of comprehensive income of
Arena, any dividends and/or distributions received from Arena, and the balance of the Company’s revolving loan to Arena.
Investments in public entities are valued at unadjusted published quotes for identical investments exchanged in active markets. Investments in
financial assets and instruments that are not traded in an active market, including private entities, are generally valued initially at the cost of
acquisition on the basis that such cost is a reasonable estimate of fair value. Such investments are subsequently revalued using accepted
industry valuation techniques. The Company considers a variety of methods and makes assumptions that are based on market conditions
existing at each period end date. Valuation techniques used may include initial acquisition cost, net asset value, discounted cash flow analysis,
comparable recent arm’s length transactions, comparable publicly traded company metrics, reference to other instruments that are substantially
the same, option pricing models and other valuation techniques commonly used by market participants. Any sale, size or other liquidity
restrictions on the investment are also considered by management in its determination of fair value. Due to the inherent uncertainty of valuation,
management’s estimated values may differ significantly from the values that would have been used had an active market for the investments
existed, and the differences could be material.
The Company may use internally developed models, which are usually based on valuation methods and techniques generally recognized as
accepted within the industry. Valuation models are used primarily to value unlisted equity and debt securities for which no market quotes exist
or where markets were or have been inactive during the financial period. Some of the inputs to these models may not be observable and are
therefore estimated based on assumptions. The output of a model is always an estimate or approximation of a value that cannot be determined
with certainty, and valuation techniques employed may not fully reflect all factors relevant to the positions the Company holds. Valuations are
therefore adjusted, where appropriate, to allow for additional factors including model risk, liquidity risk and counterparty risk.
Management is responsible for performing fair value measurements included in the Company’s consolidated financial statements for each
reporting period. The Company prepares a detailed valuation for each reporting period describing the valuation processes and procedures
undertaken by management. The applicable valuation memoranda are provided to members of the Company’s audit committee and all valuation
results are reviewed with the audit committee as part of its review of the Company’s consolidated financial statements.
(k) Income taxes
Income taxes expense is recognized in the consolidated statements of profit and comprehensive income. Current taxes, based on taxable
income in countries where the Company operates, may differ from tax expense (recovery) included in profit and comprehensive income because
of items of income or expense that are taxable or deductible in other years and items that are never taxable or deductible.
Deferred tax assets are generally recognized for all deductible temporary income tax differences to the extent that it is probable that taxable
profits will be available against which those deductible temporary differences can be utilized. Deferred tax liabilities are generally recognized
for all taxable temporary differences. Deferred tax assets and liabilities are determined based on the enacted or substantively enacted tax laws
and rates that are anticipated to apply in the year of realization. The measurement of deferred tax assets and liabilities reflects the tax
consequences that would follow from the manner in which the Company expects to recover or settle the carrying amount of the related assets
and liabilities. The carrying amount of the deferred tax assets is 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.
Income tax assets and liabilities are offset when the Company intends to settle on a net basis and there is a legally enforceable right to do so.
- 49 -
The Westaim Corporation
Notes to Consolidated Financial Statements
For the years ended December 31, 2023 and 2022
(Currency amounts in thousands of United States dollars except per share data, unless otherwise indicated)
2
Summary of Material Accounting Policies (continued)
(l) Warrants
Warrants subject to a cashless exercise at the discretion of the holder are classified as a derivative liability and measured at FVTPL. Change
in the fair value of the warrants is reported in the consolidated statements of profit and comprehensive income for the period in which they arise.
(m) Contributed surplus
When share capital of the Company is repurchased by the Company, the amount by which the cost to repurchase the shares exceeds the
average carrying value of the shares is included in contributed surplus. The cost of stock options was recognized over the period from the issue
date to the vesting date and recorded as contributed surplus. When the Company enters into an issuer automatic purchase plan agreement
(“ASPP”) that is effective during the reporting period, the Company records an increase or decrease in contributed surplus for the maximum
amount that would be required to settle the ASPP at the end of the reporting period.
(n) Accumulated other comprehensive loss
Accumulated other comprehensive loss consists of cumulative exchange differences from currency translation as a result of a change in
presentation currency from C$ to US$ on August 31, 2015.
(o) Share-based compensation
The Company maintains share-based compensation plans, which are described in note 11. The value attributed to stock options at issuance
are recognized in income as an expense over the period from the issue date to the end of the vesting date with a corresponding increase in
contributed surplus. Any consideration paid by stock option holders for the purchase of stock is credited to share capital.
Obligations related to Deferred Share Units (“DSUs”), Restricted Share Units (“RSUs”), and Stock Appreciation Rights (“SARs”) are recorded
as liabilities at fair value at each reporting date. DSUs and RSUs fair values are re-measured with reference to the fair value of the Company’s
stock price and the number of units that have vested. SARs fair value is re-measured using the Black-Scholes Method to determine fair value.
When a change in value occurs, it is recognized in share-based compensation expense and foreign exchange loss (gain) in the applicable
financial period.
(p) Earnings per share
Basic earnings per share is calculated by dividing profit and comprehensive income by the weighted average number of Common Shares
outstanding during the reporting period. See note 14 for the calculation of the weighted average number of Common Shares outstanding.
Diluted earnings per share is calculated by dividing profit and comprehensive income by the weighted average number of shares outstanding
during the reporting period after adjusting both amounts for the effects of all dilutive potential Common Shares, which consist of options, RSUs
and warrants. Anti-dilutive potential Common Shares are not included in the calculation of diluted earnings per share. For the purpose of
calculating diluted earnings per share, the Company assumes the exercise of dilutive options. The assumed proceeds from these options shall
be regarded as having been received from the issue of Common Shares at the average market price of the Common Shares during the period.
The difference between the number of Common Shares issued and the number of Common Shares that would have been issued at the average
market price of Common Shares during the period are treated as an issue of Common Shares for no consideration.
3
Other Assets
Other assets consist of the following:
Capital assets
Right of use asset
Accounts receivable and other
- 50 -
$
December 31, 2023
8
116
864
988
$
$
December 31, 2022
19
242
291
552
$
The Westaim Corporation
Notes to Consolidated Financial Statements
For the years ended December 31, 2023 and 2022
(Currency amounts in thousands of United States dollars except per share data, unless otherwise indicated)
3
Other Assets (continued)
Effective, December 1, 2019, the Company entered into a new operating lease for its office premises in Toronto, Ontario, Canada expiring on
November 30, 2024. At the commencement date of the lease, in accordance with IFRS 16, a right of use asset was recorded at cost under other
assets and a lease liability was recorded at amortized cost under accounts payable and accrued liabilities in the consolidated statements of
financial position. Subsequent to initial recognition, the right of use asset is depreciated using the straight-line method over the term of the lease
with depreciation recorded in the consolidated statements of profit and comprehensive income. Each lease payment reduces the lease liability
and the accretion of the lease liability is recorded as interest expense included under general, administrative and other in the consolidated
statements of profit and comprehensive income.
The right of use asset recorded for the Company’s office premises was $116 and $242 at December 31, 2023 and 2022, respectively. The
depreciation on the right of use asset was $126 in each of the years ended December 31, 2023 and 2022.
The lease liability recorded for the Company’s office premises was $128 and $261 at December 31, 2023 and 2022, respectively. The lease
payments were $142 and $132 in the years ended December 31, 2023 and 2022, respectively, and the interest expense on the lease liability
was $3 and $5 in the years ended December 31, 2023 and 2022, respectively. The Company recorded an unrealized foreign exchange loss
relating to the lease liability of $5 in the year ended December 31, 2023, and an unrealized foreign exchange gain relating to the lease liability
of $25 in the year ended December 31, 2022.
4
Investments
The Company’s principal investments consist of its investment in Skyward Specialty, Arena FINCOs and Arena. Investments in Skyward
Specialty and Arena FINCOs are measured at FVTPL and the investment in Arena is accounted for using the equity method.
Place of
establishment
Principal place
of business
Ownership interest at
December 31, 2023
Ownership interest at
December 31, 2022
Skyward Specialty
Arena FINCOs
Arena
Delaware, U.S.
Delaware, U.S.
Delaware, U.S.
1 See “Investment in Skyward Specialty” as described below for details of the Company’s ownership in Skyward Specialty.
2 Legal equity ownership is 51% (December 31, 2022 - 51%) denotes profit percentage subject to change over time pursuant to the earn-in rights granted to Bernard Partners,
17.5% owned by the Company1
100% owned by the Company
51% owned by the Company2
43.8% owned by the Company1
100% owned by the Company
51% owned by the Company2
Texas, U.S.
New York, U.S.
New York, U.S.
LLC (“BP LLC") described below under “Investment in Associates”.
The Company’s investments in Skyward Specialty and Arena FINCOs are classified as FVTPL and are carried at fair value under investments
in the consolidated statements of financial position. Changes in fair value are reported under "Net results of investments" in the consolidated
statements of profit and comprehensive income.
The table below summarizes the fair value hierarchy under which the Company’s investments classified as FVTPL are valued. Level 1 fair value
measurements are those derived from quoted prices (unadjusted) in active markets for identical assets or liabilities. Level 2 fair value
measurements are those derived from inputs other than quoted prices included within Level 1 that are observable for the asset or liability, either
directly or indirectly. Level 3 fair value measurements are those derived from valuation techniques that include inputs for the asset or liability
that are not based on observable market data (unobservable inputs). Inputs are considered observable if they are developed using market data,
such as publicly available information about actual events or transactions, and that reflect the assumption that market participants would use
when pricing the asset or liability.
- 51 -
The Westaim Corporation
Notes to Consolidated Financial Statements
For the years ended December 31, 2023 and 2022
(Currency amounts in thousands of United States dollars except per share data, unless otherwise indicated)
4
Investments (continued)
The Company’s investments classified as FVTPL are as follows:
December 31, 2023
- Skyward Specialty
- Arena FINCOs
- ASOF LP
December 31, 2022
- Skyward Specialty
- Arena FINCOs
- ASOF LP
Fair value
Level 1
Level 2
Level 3
$
236,470
147,234
3,024
$ 386,728
$ 236,470
$
-
-
$ 236,470
$
Fair value
Level 1
Level 2
$
218,879
160,113
3,179
$ 382,171
$
$
-
-
-
-
$
$
-
-
-
-
-
-
-
-
$ -
147,234
3,024
$
150,258
Level 3
$ 218,879
160,113
3,179
$
382,171
During the year ended December 31, 2023, the Company’s investment in Skyward Specialty transferred from a Level 3 investment to a Level
1, and there were no transfers among Levels 1, 2 and 3 for the Company’s investments in Arena FINCOs or ASOF LP. During the year ended
December 31, 2022, there were no transfers among Levels 1, 2 and 3. The Company’s investment in Skyward Specialty became a Level 1
investment as a result of the availability of quoted prices in an active market following the closing of Skyward Specialty’s initial public offering
(the “IPO”), which took place on January 18, 2023. In connection with the IPO, the Skyward Specialty common shares became listed on the
Nasdaq Global Select Market under the ticker symbol “SKWD”.
Investment in Skyward Specialty
The Company’s investment in Skyward Specialty consists of the following:
Year ended December 31, 2023
Proceeds
from sale of
Skyward
Specialty
common
shares
Net change
in
unrealized
gain in
value of
investment
Realized
gain in
value of
investment
Opening
Balance
Net
increase in
value of
investment
Dissolution of
HIIG
Partnership
Ending
Balance
Company’s share of Skyward Specialty common
shares held by the HIIG Partnership
$ 109,227
$ -
$ -
$ 63,278
$ 63,278
$ (172,505)
$ -
Company’s share of other net assets of the HIIG
Partnership
Skyward Specialty common shares held directly
by the Company
372
-
-
77
77
(449)
-
109,280
$ 218,879
(192,215)
118,512
$ (192,215) $ 118,512
28,388
$ 91,743
146,900
$ 210,255
$ 172,505
$ (449)
236,470
$ 236,470
Year ended December 31, 2022
Proceeds
from sale of
Skyward
Specialty
common
shares
Realized
gain in
value of
investment
Net
change in
unrealized
gain (loss)
in value of
investment
Net
increase
(decrease)
in value of
investment
Opening
Balance
Dissolution of
HIIG
Partnership
Ending
Balance
Company’s share of Skyward Specialty common
shares held by the HIIG Partnership
$ 95,785
$ -
$ -
$ 13,442
$ 13,442
$ - $ 109,227
Company’s share of other net assets of the HIIG
Partnership
Skyward Specialty convertible preferred shares
held directly by the Company
394
-
-
(22)
(22)
-
372
95,832
$ 192,011
-
$ -
-
$ -
13,448
$ 26,868
13,448
$ 26,868
-
$ -
109,280
$ 218,879
- 52 -
The Westaim Corporation
Notes to Consolidated Financial Statements
For the years ended December 31, 2023 and 2022
(Currency amounts in thousands of United States dollars except per share data, unless otherwise indicated)
4
Investments (continued)
At December 31, 2023, the Company’s $236,470 valuation of its investment in Skyward Specialty consisted solely of the 6,979,639 Skyward
Specialty common shares held directly by the Company. At December 31, 2022, the Company’s $218,879 valuation of its investment in Skyward
Specialty consisted of the aggregate fair value of: (i) 7,281,780 Skyward Specialty common shares held by the HIIG Partnership of $109,227,
(ii) its share of the other net assets of the HIIG Partnership of $372, and (iii) Skyward Specialty convertible preferred shares held directly by the
Company, which were convertible into 7,285,359 Skyward Specialty common shares, of $109,280.
On January 18, 2023, Skyward Specialty closed the IPO. With the closing of the IPO, the Skyward Specialty convertible preferred shares,
including those which the Company owned, automatically converted into Skyward Specialty shares of common stock.
On June 12, 2023, Skyward Specialty closed its underwritten secondary public offering (the “Skyward Specialty Secondary Offering”). Under
the Skyward Specialty Secondary Offering, Westaim sold 3,850,000 Skyward Specialty common shares at a price to the public of $23.00 per
Skyward Specialty common share (the “Secondary Offering Price”). The underwriters also exercised in full their option to purchase an additional
577,500 Skyward Specialty common shares from the selling stockholders at the Secondary Offering Price, of which 137,500 Skyward Specialty
common shares were sold by Westaim. The proceeds to Westaim from the 3,987,500 Skyward Specialty common shares it sold, less
underwriting commissions of 4.75%, were $87,356. The accounting cost for the Skyward Specialty common shares sold, which the Company
had held directly, was $24,084 and resulted in the Company recognizing an accounting realized gain of $63,272.
On July 31, 2023, the HIIG Partnership expired pursuant to the terms of HIIG Partnership’s limited partnership agreement, originally made as
of March 12, 2014 and amended and restated as of June 27, 2014 and as further amended on November 10, 2022. Accordingly, on July 31,
2023, the HIIG Partnership was dissolved and distributed its net assets to its limited partners, resulting in the Company (in its capacity as limited
partner) receiving 7,281,780 Skyward Specialty common shares and $449 in cash.
On November 20, 2023, Skyward Specialty closed its upsized follow-on offering (the “Skyward Specialty Upsized Follow-On Offering”). Under
the Skyward Specialty Upsized Follow-On Offering, Westaim sold 3,600,000 Skyward Specialty common shares at a price to the public of $30.50
per Skyward Specialty common share. The proceeds to Westaim from the 3,600,000 Skyward Specialty common shares it sold, less underwriting
commissions of 4.5%, were $104,859. The accounting cost for the Skyward Specialty common shares sold was $49,619 and resulted in the
Company recognizing an accounting realized gain of $55,240.
The Company, through HIIG GP, had a management services agreement with Skyward Specialty (the “Skyward Specialty MSA”), whereby HIIG
GP was entitled to receive from Skyward Specialty an advisory fee of $500 annually. The Skyward Specialty MSA automatically terminated
with the closing of the IPO of Skyward Specialty on January 18, 2023. The Company earned advisory fees of $23 and $500 from Skyward
Specialty in the years ended December 31, 2023 and 2022, respectively.
FVTPL
The investment in Skyward Specialty is classified at Level 1 of the fair value hierarchy and is accounted for at FVTPL. The fair value of the
Company’s investment in Skyward Specialty was determined to be $236,470 at December 31, 2023 and $218,879 at December 31, 2022.
At December 31, 2023, the Company’s estimated fair value of Skyward Specialty common shares held by the Company was supported by the
SKWD closing trading price on the last trading day of 2023. At December 31, 2023, the Company’s investment in Skyward Specialty of $236,470
consisted of 6,979,639 Skyward Specialty common shares held directly by the Company at $33.88 per share.
At December 31, 2022, the Company used multiple valuation techniques including a series of discussions with various market participants. The
market participants’ valuation was determined through the process Skyward Specialty initiated in 2022 with third party firms to establish a public
market through an initial public offering of the Skyward Specialty IPO. Westaim’s management selected $15.00 per Skyward Specialty share
at December 31, 2022 as the best estimate of fair value for its valuation for Skyward Specialty’s common shares. The Skyward Specialty
convertible preferred shares were valued at their common share equivalent on an as converted basis.
The Company recorded a net realized and unrealized increase in the value on its investment in Skyward Specialty of $210,255 and an unrealized
gain of $26,868 in the years ended December 31, 2023 and 2022, respectively, in the consolidated statements of profit and comprehensive
income.
Management considers other secondary valuation methodologies as a way to ensure no significant contradictory evidence exists that would
suggest an adjustment to the fair value as determined by the primary valuation methodology used. In order to do this, the Company may also
consider valuation techniques including multiples of net asset value, the discounted cash flow method, the review of comparable arm’s length
transactions involving other specialty insurance companies and comparable publicly traded company valuations. For certainty, the secondary
valuation techniques were not used to arrive at the fair value of the Company’s investment in Skyward Specialty at the end of each reporting
period.
,
- 53 -
The Westaim Corporation
Notes to Consolidated Financial Statements
For the years ended December 31, 2023 and 2022
(Currency amounts in thousands of United States dollars except per share data, unless otherwise indicated)
4
Investments (continued)
For purposes of assessing the sensitivity of the Skyward Specialty per share value on the valuation of the Company’s investment in Skyward
Specialty, if the value of a Skyward Specialty common share was higher by $1.00 per share, the fair value of the Company’s investment in
Skyward Specialty at December 31, 2023 would have increased by approximately $6,980 (December 31, 2022 - $14,567) and the change in
the value of investment in Skyward Specialty for the year ended December 31, 2023 would have increased by approximately $6,980 (for the
year ended December 31, 2022 - $14,567). If the value of a Skyward Specialty common share at December 31, 2023 was lower by $1.00 per
share, an opposite effect would have resulted.
Investment in the Arena FINCOs
The Company owns a 100% interest in the Arena FINCOs and exercises control over the businesses of the Arena FINCOs.
Arena FINCOs are private companies which include specialty finance companies that primarily purchase fundamentals-based, asset-oriented
credit and other investments for their own account and a company that primarily facilitates the origination of fundamentals-based, asset-oriented
credit investments for its own account and/or possible future sale to specialty finance companies, clients of Arena and/or other third parties.
The Company’s investment in the Arena FINCOs is accounted for at FVTPL in the Company’s consolidated financial statements.
The Company’s investment in the Arena FINCOs consists of the following:
Opening balance
Return of capital from the Arena FINCOs to the Company
Decrease in value before dividends
Dividends paid by the Arena FINCOs to the Company
Ending balance
FVTPL
Year ended December 31
2022
2023
$ 172,866
$ 160,113
(1,900)
(2,500)
(2,503)
(5,979)
(8,350)
(4,400)
$ 160,113
$ 147,234
The Company’s investment in the Arena FINCOs is classified at Level 3 of the fair value hierarchy and is accounted for at FVTPL. The fair
value of the Company’s investment in the Arena FINCOs was determined to be $147,234 at December 31, 2023 and $160,113 at December
31, 2022.
Management used net asset value as the primary valuation technique and determined that 100% (or 1.0x) of the equity of the Arena FINCOs at
December 31, 2023 in the amount of $147,234 approximated the fair value of the Company’s investment in the Arena FINCOs. Management
determined that the net asset value valuation technique produced the best indicator of the fair value of the Arena FINCOs at December 31,
2023. This same valuation technique was used to determine the fair value of the Company’s investment in the Arena FINCOs of $160,113 at
December 31, 2022.
The significant unobservable inputs used in the valuation of the Arena FINCOs at December 31, 2023 were the aggregate equity of the Arena
FINCOs at December 31, 2023 and the multiple applied. Management applied a multiple of 1.0x as the equity of each of the entities reflected
the net assets of the respective entity which were carried at fair value at December 31, 2023, as described below (December 31, 2022 – 1.0x).
The equity contained certain significant judgments and estimates made by management of the Arena FINCOs, including the determination of
the fair value of their subsidiaries’ investments as noted below.
The carrying values of cash and cash equivalents, short-term investments, accounts receivable, senior secured notes payable, revolving credit
facility payable, accounts payable and accrued liabilities of the Arena FINCOs approximate their fair values due to the short maturity of these
financial instruments. The Arena FINCOs also make investments in equity securities, corporate bonds, private loans and other private
investments, warrants and derivative instruments. When an investment is acquired or originated, its fair value is generally the value of the
consideration paid or received. Subsequent to initial recognition, the Arena FINCOs determine the fair value of the investments using the
following valuation techniques and inputs:
(cid:120)
(cid:120)
Equity securities that are actively traded on a securities exchange are valued based on quoted prices from the applicable exchange. Equity
securities traded on inactive markets and certain foreign equity securities are valued using significant other observable inputs, if available,
which include broker quotes or evaluated price quotes received from pricing services. If the inputs are not observable or available on a
timely basis, the values of these securities are determined using valuation methodologies for Level 3 investments described below.
Corporate bonds are valued using various inputs and techniques, which include third-party pricing services, dealer quotations, and recently
executed transactions in securities of the issuer or comparable issuers. Adjustments to individual bonds can be applied to recognize
- 54 -
The Westaim Corporation
Notes to Consolidated Financial Statements
For the years ended December 31, 2023 and 2022
(Currency amounts in thousands of United States dollars except per share data, unless otherwise indicated)
4
Investments (continued)
trading differences compared to other bonds issued by the same issuer. Values for high-yield bonds are based primarily on pricing services
and dealer quotations from relevant market makers. The dealer quotations received are supported by credit analysis of the issuer that
takes into consideration credit quality assessments, daily trading activity, and the activity of the underlying equities, listed bonds, and
sector-specific trends. If these inputs are not observable or timely, the values of corporate bonds and convertible bonds are determined
using valuation methodologies for Level 3 investments described below.
(cid:120)
Private loans and other private investments are valued using valuation methodologies for Level 3 investments. When valuing private
loans, factors evaluated include the impact of changes in market yields, credit quality of the borrowers and estimated collateral values. If
there is sufficient credit coverage, a yield analysis is performed by projecting cash flows for the instrument and discounting the cash flows
to present value using a market-based, risk adjusted rate. On each valuation date, an analysis of market yields is also performed to
determine if any adjustments to the fair values are necessary. Techniques used to value collateral, real estate, and other hard assets
include discounted cash flows, with the discount rate being the primary unobservable input, recent transaction pricing and third-party
appraisals. Private investments held through joint ventures are valued net of each respective joint venture waterfall and other joint venture
assets and liabilities.
(cid:120) Warrants that are actively traded on a securities exchange are valued based on quoted prices. Warrants that are traded over the counter
or are privately issued are valued based on observable market inputs, if available. If these inputs are not observable or timely, the values
of warrants are determined using valuation methodologies for Level 3 investments described below.
(cid:120)
Listed derivative instruments, such as listed options, that are actively traded on a national securities exchange are valued based on quoted
prices from the applicable exchange. Derivative instruments that are not listed on an exchange are valued using pricing inputs observed
from actively quoted markets. If the pricing inputs used are not observable and/or the market for the applicable derivative instruments is
inactive, the values of the derivative instruments are determined using valuation methodologies for Level 3 investments described below.
Where pricing inputs are unobservable and there is little, if any, market activity for Level 3 investments, fair values are determined by
management of the Arena FINCOs using valuation methodologies that consider a range of factors, including but not limited to the price at which
the investment was acquired, the nature of the investment, local market conditions, trading values on public exchanges for comparable
securities, current and projected operating performance and financing transactions subsequent to the acquisition of the investment. The inputs
into the determination of fair value may require significant judgment by management of the Arena FINCOs. Due to the inherent uncertainty of
these estimates, these values may differ materially from the values that would have been used had a ready market for these investments existed.
Management considers other secondary valuation methodologies as a way to ensure no significant contradictory evidence exists that would
suggest an adjustment to the fair value as determined by the primary valuation methodology used. In order to do this, the Company may also
consider valuation techniques including the review of comparable arm’s length transactions involving other specialty finance companies and
comparable publicly traded company valuations. For certainty, these secondary valuation techniques were not used to arrive at the fair values
of the Company’s investment in the Arena FINCOs at the end of each reporting period.
The Company recorded a decrease in the value of its investment in the Arena FINCOs of $5,979 before dividends paid of $4,400 in the year
ended December 31, 2023, in the consolidated statements of profit and comprehensive income. In addition, the Arena FINCOs returned capital
in the amount of $2,500 in the year ended December 31, 2023. The Company recorded a decrease in the value of its investment in the Arena
FINCOs of $2,503 before dividends paid of $8,350 in the year ended December 31, 2022. In addition, the Arena FINCOs returned capital in the
amount of $1,900 in the year ended December 31, 2022.
For purposes of assessing the sensitivity of the equity of the Arena FINCOs on the valuation of the Company’s investment in the Arena FINCOs,
if the equity of the Arena FINCOs at December 31, 2023 was higher by $1,000, the fair value of the Company’s investment in the Arena FINCOs
at December 31, 2023 would have increased by $1,000 (December 31, 2022 - $1,000) and the change in the value of the investment in the
Arena FINCOs for the year ended December 31, 2023 would have increased by $1,000 (for the year ended December 31, 2022 - $1,000). If
the equity of the Arena FINCOs at December 31, 2023 was lower by $1,000, an opposite effect would have resulted.
Investment in Arena
Arena Investors Group Holdings, LLC (“AIGH” or “Arena”), a private company, operates two businesses, Arena Investors and Arena Institutional
Services (“AIS”). Arena Investors is a US-based investment manager offering third-party clients access to primarily fundamentals-based, asset-
oriented credit and other investments that aim to deliver attractive yields with low volatility. Arena Investors provides investment services to
third-party clients consisting of but not limited to institutional clients, insurance companies, private investment funds, other pooled investment
vehicles, and the Arena FINCOs. AIS provides non-investment advisory services for Arena and third parties.
On August 31, 2015, agreements were entered into between the Company and BP LLC in respect of Arena (the “Associate Agreements”). BP
LLC’s initial profit sharing percentage is 49%, and under the Associate Agreements, BP LLC has the right to earn-in up to 75% equity ownership
- 55 -
The Westaim Corporation
Notes to Consolidated Financial Statements
For the years ended December 31, 2023 and 2022
(Currency amounts in thousands of United States dollars except per share data, unless otherwise indicated)
4
Investments (continued)
percentage in Arena and share up to 75% of the profit of Arena based on achieving certain assets under management (“AUM”) and cash flow
(measured by the margin of trailing twelve months earnings before interest, income taxes, depreciation and amortization to trailing twelve month
revenues) thresholds in accordance with the Associate Agreements. At December 31, 2023 and 2022, the Company’s equity ownership of
Arena and its profit sharing percentage was 51%.
The Company concluded that based on the contractual rights and obligations under the Associate Agreements, the Company does not exercise
control but exercises significant influence over Arena. The Company’s investment in Arena is therefore accounted for using the equity method
in accordance with IAS 28.
The following summarized financial information represents amounts within the financial statements of Arena:
Financial information of Arena:
Assets
Liabilities
Net assets
Less: net assets attributable to non-controlling interests
Net assets attributable to Arena
Company’s share
Arena Revolving Loan with the Company
Carrying amount of the Company’s investment in Arena
Financial information of Arena:
Revenue and other investment gains (losses)
Operating expenses 1
Net Income
Other comprehensive loss
Comprehensive income
Comprehensive income attributable to non-controlling
interests
Comprehensive income attributable to Arena
December 31, 2023
December 31, 2022
$ 81,877
(70,656)
11,221
4,458
$ 6,763
$ 3,536
24,000
$ 27,536
$ 86,525
(80,798)
5,727
178
$ 5,549
$ 2,957
24,000
$ 26,957
Year ended December 31
2022
2023
$ 64,033
(51,020)
13,013
(34)
12,979
$ 48,727
(47,011)
1,716
-
1,716
4,280
$ 8,699
178
$ 1,538
Company’s share of comprehensive income of Arena (51%)
1 Includes interest expense on the Arena’s Revolving Loan granted by the Company of $1,642 and $1,344 in the years ended December 31, 2023 and 2022,
respectively.
$ 4,437
$ 783
The following table shows the continuity of the carrying amount of the Company’s investment in Arena:
Carrying amount of investment in Arena:
Opening balance
Company’s share of income and other comprehensive
loss of Arena (51%)
Company’s share of cash and non-cash distributions from
Arena to members
Ending balance
Year ended December 31
2022
2023
$ 26,957
$ 26,174
4,437
783
(3,858)
$ 27,536
-
$ 26,957
The Company has a revolving loan to Arena (the “Arena Revolving Loan”) with a limit of $35,000 at December 31, 2023 (December 31, 2022 -
$35,000) in order to continue funding growth initiatives and working capital needs of Arena. The loan facility matures on March 31, 2025 and
bore an interest rate of 5.60% per annum through to March 31, 2023 and increased to 7.25% per annum effective on April 1, 2023. Arena had
drawn down the loan facility by $24,000 at December 31, 2023 (December 31, 2022 - $24,000). The loan facility is secured by all the assets of
Arena. The Company earned and received interest on the Arena Revolving Loan of $1,642 and $1,344 for the years ended December 31, 2023
and 2022, respectively, which was reported under “Interest income” in the consolidated statements of profit and comprehensive income.
- 56 -
The Westaim Corporation
Notes to Consolidated Financial Statements
For the years ended December 31, 2023 and 2022
(Currency amounts in thousands of United States dollars except per share data, unless otherwise indicated)
4
Investments (continued)
The Company’s 51% share of comprehensive income of Arena was $4,437 and $783 in the years ended December 31, 2023 and 2022,
respectively, which was reported under “Share of income from investment in Arena” in the consolidated statements of profit and comprehensive
income.
Investment in ASOF LP
The Company’s investment in ASOF LP, a fund managed by Arena Investors, is classified at Level 3 of the fair value hierarchy and measured
at FVTPL. At December 31, 2023 and 2022, the fair value of the Company’s minority interest in ASOF LP was determined by Arena Investors
to be $3,024 and $3,179, respectively. The Company reported a decrease in the value of its investment in ASOF LP of $155 and $43 in the
years ended December 31, 2023 and 2022, respectively, which was reported under “Decrease in value of investment in ASOF LP” in the
consolidated statements of profit and comprehensive income.
5
Accounts Payable and Accrued Liabilities
Accounts payable and accrued liabilities consist of the following:
RSUs (note 11)
DSUs (note 11)
SARs (note 11)
Lease liability (note 3)
Interest on Preferred Securities (note 6)
C$ exchange forward contract payable (note 7)
ASPP liability
Other accounts payable and accrued liabilities
Ending balance
$
December 31, 2023
9,285
2,918
1,909
128
-
-
2,426
14,603
31,269
$
$
December 31, 2022
5,781
2,633
-
261
466
478
-
3,321
12,940
$
Effective on October 1, 2023, in connection with the normal course issuer bid (“NCIB”), the Company established an ASPP, whereby Common
Shares may be repurchased at the discretion of the third-party broker to the ASPP using commercially reasonable efforts and subject to trading
parameters set out in the ASPP. At December 31, 2023, the Company recorded an other current liability of $2,426 representing the maximum
amount that would be required to settle the purchase price with respect to all of the Common Shares which have or may be purchased under
the ASPP with a corresponding decrease in contributed surplus. See note 17, subsequent events.
6
Preferred Securities
On April 3, 2017, the Company announced that it had entered into an agreement pursuant to which Fairfax Financial Holdings Limited, through
certain of its subsidiaries (collectively, “Fairfax”), had agreed to make an investment of up to C$100 million in Westaim in exchange for the
issuance by Westaim of 5% interest bearing notes (the “Preferred Securities”) and Common Share purchase warrants (the “Warrants”) (see
note 8). The Preferred Securities are governed by the terms of an indenture dated June 2, 2017 between, inter alia, Westaim and Computershare
Trust Company of Canada (the “Indenture”). On June 2, 2017, the Company closed the subscription by Fairfax of C$50 million of Preferred
Securities (the “Fairfax Financing”).
On July 17, 2023, the Company redeemed and delisted all of the 5,000,000 Preferred Securities for C$ 50 million ($37,916), plus all accrued
and unpaid interest thereon. In connection with the redemption: (a) the Company and Fairfax terminated the governance agreement dated
June 2, 2017 between the parties; (b) Fairfax surrendered and disposed of, without any further consideration, all of the Warrants, which were
immediately cancelled by the Company; and (c) Westaim paid a $100 work fee to Fairfax. As a result, there were no Preferred Securities
outstanding at December 31, 2023 (December 31, 2022: 5,000,000 Preferred Securities).
The Preferred Securities were denominated in C$, each issuable for a principal amount of C$10 and carry interest at a rate of 5% per annum.
The Preferred Securities were subordinate secured securities that would mature on May 26, 2116 but were redeemable by Westaim, in whole or
in part, at the sole discretion of the Company at any time on or after June 2, 2022 at a price equal to C$10 per Preferred Security, plus all accrued
and unpaid interest up to the date of redemption.
The Preferred Securities liability was translated into US$ at rates of exchange at the end of each reporting period and any resulting foreign
exchange gain or loss was included in the consolidated statements of profit and comprehensive income. The carrying amount of the Preferred
Securities, which approximated fair value, was $nil and $36,939 at December 31, 2023 and 2022, respectively. The Company recorded an
- 57 -
The Westaim Corporation
Notes to Consolidated Financial Statements
For the years ended December 31, 2023 and 2022
(Currency amounts in thousands of United States dollars except per share data, unless otherwise indicated)
6
Preferred Securities (continued)
unrealized foreign exchange loss relating to the Preferred Securities of $977 and an unrealized foreign exchange gain relating to the Preferred
Securities of $2,615 in the years ended December 31, 2023 and 2022, respectively.
Interest expense on the Preferred Securities amounted to $1,010 and $1,900 in the years ended December 31, 2023 and 2022, respectively.
Accrued interest expense was $nil and $466 at December 31, 2023 and 2022, respectively, and was reported under accounts payable and
accrued liabilities in the consolidated statements of financial position.
7
C$ Exchange Forward Contracts
The Company had entered into Canadian dollar forward contracts to reduce the currency exposure arising from the liabilities denominated in
Canadian dollars including the Preferred Securities. On June 14, 2023, the Company settled its C$ exchange forward contract to purchase
C$50 million and the Company is no longer party to any C$ exchange forward contract. The Company’s C$ exchange forward contracts to
purchase C$50 million resulted in foreign exchange gain of $344 in the year ended December 31, 2023, and a foreign exchange loss of $3,008
for the year ended December 31, 2022, and was reported under foreign exchange loss (gain) in the consolidated statements of profit and
comprehensive income.
The Company has not designated these C$ exchange forward contracts as accounting hedges.
At December 31, 2023, the Company has no C$ exchange forward contract and, as a result, a C$ exchange forward contract payable of $nil.
At December 31, 2022, a C$ exchange forward contract payable of $478 was recorded under accounts payable and accrued liabilities in the
consolidated statements of financial position.
8
Derivative Warrant Liability
In connection with the Preferred Securities (see note 6), Westaim issued to Fairfax 14,285,715 Warrants, each exercisable for one Common
Share at an exercise price of C$3.50 on June 2, 2017. On July 17, 2023, in connection with the redemption of the Preferred Securities, Fairfax
surrendered and disposed of, without any further consideration, all of the Warrants, which were immediately cancelled by the Company.
Changes to the derivative warrant liability are as follows:
Opening balance
Change in fair value – (gain)
Unrealized foreign exchange – loss (gain)
Ending balance
$
December 31, 2023
94
(98)
4
-
$
$
December 31, 2022
156
(57)
(5)
94
$
At December 31, 2023, the Company has no Warrants outstanding and reported a derivative warrant liability of $nil. At December 31, 2022,
the Company reported the fair value of the vested Warrants of $94 using the Monte Carlo pricing model assuming no dividends are paid on the
Common Shares, a risk-free interest rate of 4.37%, an expiration date between January 1, 2023 and June 2, 2024, a volatility of the underlying
Common Shares of 24.87%, a closing price of the Common Shares of C$2.63 and a strike price of C$3.50.
The Company recorded a gain resulting from a change in the fair value of the vested Warrants of $98 and $57 in the years ended December
31, 2023 and 2022, respectively. The Company also recorded a foreign exchange loss with respect to the vested Warrants of $4 in the year
ended December 31, 2023, and a foreign exchange gain with respect to the vested Warrants of $5 in the year ended December 31, 2022, under
foreign exchange loss (gain) in the consolidated statements of profit and comprehensive income.
9 Commitments and Contingent Liabilities
Effective December 1, 2019, Westaim entered into a new operating lease for the office premises in Toronto expiring on November 30, 2024. At
December 31, 2023, the Company had a total commitment of $253 for future occupancy cost payments including payments due not later than
one year of $253 and payments due later than one year of $nil. At December 31, 2022, the Company had a total commitment of $513 for future
occupancy cost payments including payments due not later than one year of $268 and payments due later than one year of $245.
- 58 -
The Westaim Corporation
Notes to Consolidated Financial Statements
For the years ended December 31, 2023 and 2022
(Currency amounts in thousands of United States dollars except per share data, unless otherwise indicated)
10 Share Capital
Westaim’s authorized share capital consists of an unlimited number of Common Shares with no par value, Class A preferred shares with no par
value and Class B preferred shares with no par value.
At December 31, 2023, Westaim had 131,757,285 Common Shares issued and outstanding (December 31, 2022 – 141,386,718), with a stated
capital of $353,843 (December 31, 2022 - $378,563). In the year ended December 31, 2023, Westaim acquired and canceled 9,896,178
Common Shares at a cost of $26,386, through its normal course issuer bids. In the year ended December 31, 2022, Westaim cancelled
1,300,000 Common Shares that it had acquired at a cost of $2,564 through its prior NCIB.
In the year ended December 31, 2023, Westaim issued 266,745 Common Shares to option holders through the exercise and net exercise of
2,779,382 of the Company’s stock options for proceeds of $102 with an equity book value of $1,564 which increased share capital and decreased
contributed surplus. See note 11 for share-based compensation, stock options.
The NCIB, which was approved by the TSXV, provides that Westaim may, during the 12-month period commencing October 1, 2023 and ending
September 30, 2024, purchase up to 11,400,000 Common Shares in total, representing approximately 10% of Westaim’s public float and not
more than approximately 2,700,000 Common Shares within a 30-day period. The NCIB for the 12-month period which commenced October 1,
2022 and ended September 30, 2023, provided that Westaim could purchase up to 11,005,494 Common Shares in total and not more than
2,827,734 Common Shares within a 30-day period. Westaim is conducting the NCIB because it believes the Common Shares currently trade
in a price range that represents an attractive investment and a desirable use of its corporate funds. See note 17 for subsequent events.
No shares of Westaim are held by the Company, and there were no Class A preferred shares or Class B preferred shares outstanding at
December 31, 2023 and 2022.
11 Share-based Compensation
Westaim’s long-term equity incentive plan (the “Incentive Plan”) provides for grants of RSUs, DSUs, SARs and other share-based awards.
Westaim also has a stand-alone incentive stock option plan (the “Option Plan”).
The Option Plan is a “rolling plan” which provides that, subject to the terms of the Option Plan, the aggregate number of Common Shares which
may be reserved for issuance under the Option Plan is limited to not more than 10% of the aggregate number of Common Shares outstanding
or 13,175,728 at December 31, 2023 (December 31, 2022 – 14,138,671). However, each of the Incentive Plan and the Option Plan provide
that, subject to the terms of the plan, the number of Common Shares issuable under such plan, together with all other security-based
compensation arrangements of Westaim, shall not exceed 10% of the aggregate number of Common Shares outstanding. As the DSUs and
SARs are settled solely in cash, they are not included in this 10% limitation.
In certain circumstances such as a change of control of Westaim or the sale of substantially all of the assets of Westaim, all outstanding options
and RSUs will vest immediately.
Stock Options - Changes to the number of stock options are as follows:
Opening balance
Settled options
Forfeited options
Ending balance
Options vested at end of period
Year ended December 31, 2023
Year ended December 31, 2022
Number
10,428,337
(2,779,382)
(51,442)
7,597,513
7,597,513
Weighted Average
Exercise Price
C$
C$
C$
C$
C$
3.10
3.25
3.05
3.05
3.05
Number
10,428,337
-
-
10,428,337
10,428,337
Weighted Average
Exercise Price
C$
C$
C$
C$
C$
3.10
-
-
3.10
3.10
December 31, 2023
Exercise prices
3.10
C$
3.00
C$
Number of
stock options
outstanding
3,790,000
3,807,513
7,597,513
Weighted Average
Remaining
Contractual Life
(years)
1.05
0.25
0.65
Outstanding
Weighted Average
Exercise Price
C$
C$
C$
3.10
3.00
3.05
Number of
stock options
vested
3,790,000
3,807,513
7,597,513
Vested
Weighted Average
Exercise Price
C$
C$
C$
3.10
3.00
3.05
- 59 -
The Westaim Corporation
Notes to Consolidated Financial Statements
For the years ended December 31, 2023 and 2022
(Currency amounts in thousands of United States dollars except per share data, unless otherwise indicated)
11 Share-based Compensation (continued)
December 31, 2022
Exercise prices
3.10
C$
3.00
C$
3.25
C$
Number of
stock options
outstanding
3,815,000
3,860,397
2,752,940
10,428,337
Weighted Average
Remaining
Contractual Life
(years)
2.05
1.25
0.25
1.28
Outstanding
Weighted Average
Exercise Price
C$
C$
C$
C$
3.10
3.00
3.25
3.10
Number of
stock options
vested
3,815,000
3,860,397
2,752,940
10,428,337
Vested
Weighted Average
Exercise Price
C$
C$
C$
C$
3.10
3.00
3.25
3.10
On April 1, 2016, 2,752,940 options were granted to certain officers and employees of Westaim (the “2016 Options”). Subject to the terms of
the Option Plan (including extensions for options expiring during Company blackout periods), the 2016 Options had a term of seven years,
vested in three equal instalments on April 1, 2017, April 1, 2018 and April 1, 2019, and had an exercise price of C$3.25. The fair value of the
2016 Options was C$0.7332 per option estimated using the Black-Scholes option pricing model assuming no dividends are paid on the Common
Shares, a risk-free interest rate of 0.61%, an average life of 4.0 years, a volatility of 46.49%, and a grant date share price of C$2.54 converted
to US$ at an exchange rate of $1.3047. On August 23, 2023, 17,647 of the 2016 Options were exercised and the Company received $42 and
issued 17,647 Common Shares to the option holder. On August 24, 2023, the 2,735,293 remaining 2016 Options were net exercised (issuance
of Common Shares representing the in-the-money value of the 2016 Options at the time of exercise, as more fully set out in the Option Plan)
resulting in the issuance of an aggregate of 222,656 Common Shares to the option holders. As a result, at December 31, 2023, there are no
2016 Options outstanding.
On April 3, 2017, 3,860,397 options were granted to certain officers and employees of Westaim (the “2017 Options”). Subject to the terms of
the Option Plan, the 2017 Options have a term of seven years, vested in three equal instalments on December 31, 2017, December 31, 2018
and December 31, 2019, and have an exercise price of C$3.00. The fair value of the 2017 Options was C$0.8616 per option estimated using
the Black-Scholes option pricing model assuming no dividends are paid on the Common Shares, a risk-free interest rate of 1.00%, an average
life of 4.0 years, a volatility of 35.45%, and a grant date share price of C$2.98 converted to US$ at an exchange rate of $1.3386. In January
2023, 26,442 of the 2017 Options were forfeited by a prior employee. On December 28, 2023, 26,442 of the 2017 Options were exercised, the
Company received $60 and issued 26,442 Common Shares to the option holder. As a result, at December 31, 2023, there are 3,807,513 of the
2017 Options outstanding.
On January 18, 2018, 3,815,000 options were granted to certain officers and employees of Westaim (the “2018 Options”). Subject to the terms
of the Option Plan, the 2018 Options have a term of seven years, vested in three equal instalments on December 31, 2018, December 31, 2019
and December 31, 2020, and have an exercise price of C$3.10. The fair value of the 2018 Options was C$0.7185 per option estimated using
the Black-Scholes option pricing model assuming no dividends are paid on the Common Shares, a risk-free interest rate of 1.92%, an average
life of 4.0 years, a volatility of 25.35%, and a grant date share price of C$3.10 converted to US$ at an exchange rate of $1.2429. In January
2023, 25,000 of the 2018 Options were forfeited by a prior employee. As a result, at December 31, 2023, there are 3,790,000 of the 2018
Options outstanding.
No options were granted or issued in the years ended December 31, 2023 or 2022.
The amounts computed according to the Black-Scholes pricing model may not be indicative of the actual values realized upon the exercise of
options by the holders.
Compensation expense relating to options was $nil in years ended December 31, 2023 and 2022.
Restricted Share Units - RSUs vest on specific dates and became payable when vested with either cash or Common Shares, at the option of
the holder.
Changes to the number of RSUs are as follows:
Opening balance
Granted
Ending balance
Year ended December 31
2022
2,975,198
-
2,975,198
2023
2,975,198
480,000
3,455,198
On November 14, 2014, an aggregate of 2,375,000 RSUs were granted to certain officers, employees and consultants of Westaim. These
RSUs have a term of fifteen years from date of issue and at December 31, 2023, all of these RSUs have vested, of which 325,000 RSUs have
been exercised and 2,050,000 RSUs were outstanding.
- 60 -
The Westaim Corporation
Notes to Consolidated Financial Statements
For the years ended December 31, 2023 and 2022
(Currency amounts in thousands of United States dollars except per share data, unless otherwise indicated)
11 Share-based Compensation (continued)
On April 1, 2016, an additional 925,198 RSUs were granted to certain officers and employees of Westaim. These RSUs have a term of fifteen
years from date of issue and at December 31, 2023, all of these RSUs have vested and none have been exercised.
On January 23, 2023, an additional 480,000 RSUs were granted to certain officers and employees of Westaim. These RSUs vest in three equal
instalments on January 23, 2024, September 30, 2024 and September 30, 2025 and have a term of fifteen years from date of issue. At
December 31, 2023, none of these RSUs have vested or have been settled.
There were 3,455,198 RSUs outstanding at December 31, 2023 (December 31, 2022 - 2,975,198). In the year ended December 31, 2023,
480,000 RSUs were granted. There were no RSUs granted in the year ended December 31, 2022. There were no RSUs settled in the years
ended December 31, 2023 and 2022.
Compensation expenses relating to RSUs, including the impact of the change in the market value of the Common Shares, was an expense of
$3,356 and $258 in the years ended December 31, 2023 and 2022, respectively. The Company also recorded an unrealized foreign exchange
loss with respect to the RSUs of $148 in the year ended December 31, 2023 and an unrealized foreign exchange gain with respect to the RSUs
$361 in the year ended December 31, 2022, under foreign exchange loss (gain) in the consolidated statements of profit and comprehensive
income. At December 31, 2023, a liability of $9,285 (December 31, 2022 - $5,781) had been accrued by Westaim with respect to outstanding
RSUs in the consolidated statements of financial position.
Deferred Share Units - DSUs are issued to certain directors of Westaim in lieu of director fees, at their election, at the market value of the
Common Shares at the date of grant and are paid out solely in cash no later than the end of the calendar year following the year the participant
ceases to be a director.
Changes to the number of DSUs are as follows:
Opening balance
Granted
Exercised
Ending balance
Year ended December 31
2022
2023
1,093,603
1,355,133
261,530
158,237
-
(485,787)
1,355,133
1,027,583
The Company issued 158,237 DSUs in the year ended December 31, 2023, in lieu of director fees of $398, and issued 261,530 DSUs in the
year ended December 31, 2022, in lieu of director fees of $497. In the year ended December 31, 2023, 485,787 DSUs were exercised for cash
of $1,187 paid to a former director of the Company. In the year ended December 31, 2022, no DSUs were exercised.
Compensation expenses relating to DSUs, including the impact of the change in the market value of the Common Shares was an expense of
$1,433 and $616 in the years ended December 31, 2023 and 2022, respectively. The Company also recorded an unrealized foreign exchange
loss with respect to the DSUs of $39 in the year ended December 31, 2023, and an unrealized foreign exchange gain with respect to the DSUs
of $146 in the year ended December 31, 2022, under foreign exchange loss (gain) in the consolidated statements of profit and comprehensive
income. At December 31, 2023, a liability of $2,918 (December 31, 2022 - $2,633) had been accrued with respect to outstanding DSUs in the
consolidated statements of financial position.
Stock Appreciation Rights - SARs are issued to certain employees of Westaim which vest immediately and are paid out solely in cash for the
amount that the trading price of the Common Shares at the time of exercise is in excess of the SARs strike price.
On December 28, 2023, 4,338,530 SARs were issued to certain officers and employees of Westaim (the “2023 SARs”). The fair value of the
2023 SARs when issued was $2,164 estimated using the Black-Scholes model assuming no dividends are paid on the Common Shares, a risk-
free interest rate of 3.72%, expiry on December 15, 2026, a volatility of 17.32%, and a grant date share price of C$3.83 converted to US$ at an
exchange rate of $1.32120.
On December 31, 2023, the 2023 SARs had a fair value of $1,909 which were estimated using the Black-Scholes model assuming no dividends
are paid on the Common Shares, a risk-free interest rate of 3.68%, expiry on December 15, 2026, a volatility of 16.38%, and a grant date share
price of C$3.83 converted to US$ at an exchange rate of $1.32405.
- 61 -
The Westaim Corporation
Notes to Consolidated Financial Statements
For the years ended December 31, 2023 and 2022
(Currency amounts in thousands of United States dollars except per share data, unless otherwise indicated)
11 Share-based Compensation (continued)
Compensation expenses relating to SARs, including the impact of the change in the market value of the Common Shares was an expense of
$1,914 and $nil in the years ended December 31, 2023 and 2022, respectively. The Company also recorded an unrealized foreign exchange
gain with respect to the SARs of $5 and $nil in the years ended December 31, 2023 and 2022, respectively, under foreign exchange loss (gain)
in the consolidated statements of profit and comprehensive income. At December 31, 2023, a liability of $1,909 (December 31, 2022 - $nil) had
been accrued with respect to outstanding SARs in the consolidated statements of financial position.
12 Related Party Transactions
Related parties include key management personnel, close family members of key management personnel and entities which are, directly or
indirectly, controlled by, jointly controlled by or significantly influenced by key management personnel or their close family members. Key
management personnel are those persons having authority and responsibility for planning, directing and controlling the activities of the Company,
directly or indirectly, and include executive officers and current and former directors of the Company.
Compensation expense related to the Company’s key management personnel and directors are as follows:
Salaries and benefits1
Share-based compensation expense
Compensation expense
$
$
Year ended December 31
2022
2023
4,120
14,623
874
7,039
4,994
21,662
$
$
1 Salaries and benefits include director fees paid in cash of $147 and $110 in the years ended December 31, 2023 and 2022, respectively.
The Company received dividends from the Arena FINCOs in the amount of $4,400 and $8,350 in the years ended December 31, 2023 and
2022, respectively.
Arena FINCOs returned capital to the Company in the amount of $2,500 and $1,900 in the years ended December 31, 2023 and 2022,
respectively.
The Company earned and received interest on the Arena Revolving Loan of $1,642 and $1,344 in the years ended December 31, 2023 and
2022, respectively. Interest on the Arena Revolving Loan plus interest received from the Company’s bank balance are included in interest
income in the consolidated statements of profit and comprehensive income.
The Company earned advisory fees of $23 and $500 from Skyward Specialty in the years ended December 31, 2023 and 2022, respectively.
The Company earned advisory fees of $200 and $250 from the Arena FINCOs and Arena, respectively, in each of the years ended December
31, 2023 and 2022. Advisory fees are included in fee income in the consolidated statements of profit and comprehensive income.
13
Income Taxes
The following is a reconciliation of income taxes calculated at the statutory income tax rate to the income taxes expense included in the
consolidated statements of profit and comprehensive income:
Profit before income taxes
Statutory income tax rates
Income taxes at statutory income tax rates
Variations due to:
Non-taxable portion of unrealized increase
on investments classified as FVTPL
Taxable gain on sale of Skyward Specialty common shares
Taxable gain from foreign currency settlement of Preferred
Securities
Taxable gains (losses) allocated from the HIIG Partnership
Net non-taxable and non-deductible items
Difference between statutory and foreign tax rates
Change in unrecognized tax losses and investment and
minimum tax credits
Income taxes expense (recovery)
- 62 -
Year ended December 31
2022
2023
$ 17,604
$ 186,281
26.5%
26.5%
4,665
49,364
(27,034)
22,318
202
20
(186)
53
(2,638)
-
-
(7)
(2,500)
22
(42,438)
$ 2,299
101
$ (357)
The Westaim Corporation
Notes to Consolidated Financial Statements
For the years ended December 31, 2023 and 2022
(Currency amounts in thousands of United States dollars except per share data, unless otherwise indicated)
13
Income Taxes (continued)
At December 31, 2023, a current income taxes receivable of $494 (December 31, 2022 - $nil), current income taxes payable of $1,004
(December 31, 2022 - $245), a deferred tax asset of $1,043 (December 31, 2022 – $178), and a deferred tax liability of $1,202 (December 31,
2022 - $nil) were recorded in the consolidated statements of financial position.
At December 31, 2022, the realization of any additional Canadian income tax benefits was not probable, and the following had not been
recognized in the calculation of the Company’s deferred income tax assets:
Non-capital loss carry-forwards
Capital loss carry-forwards
Corporate minimum tax credits
Investment tax credits
14 Earnings per Share
December 31, 2023 December 31, 2022
$ 52,776
5,367
350
1,668
$ -
-
-
-
Westaim had 7,597,513 stock options, 3,455,198 RSUs and no Warrants outstanding at December 31, 2023. At December 31, 2022, Westaim
had 10,428,337 stock options, 2,975,198 RSUs and 14,285,715 Warrants outstanding. The stock options for the years ended December 31,
2023, were included in the calculation of diluted earnings per share as they were dilutive, and the stock options for the years ended December
31, 2022, were excluded as they were not dilutive. There were no Warrants outstanding at December 31, 2023, and the Warrants for the year
ended December 31, 2022, were excluded in the calculation of diluted earnings per share as they were not dilutive. The RSUs for the years
ended December 31, 2023 and 2022, were included in the calculation of diluted earnings per share as they were dilutive.
Earnings per share, basic and diluted, are as follows:
Basic earnings per share:
Profit and comprehensive income
Weighted average number of Common Shares outstanding
Basic earnings per share
Diluted earnings per share:
Profit and comprehensive income
Dilutive RSU expense (recovery) and related foreign exchange
Profit and comprehensive income on a diluted basis
Weighted average number of Common Shares outstanding
Dilutive impact of in-the-money options (treasury method)
Dilutive impact of RSUs
Weighted average number of Common Shares outstanding on a
dilutive basis
Diluted earnings per share
Common Shares outstanding at December 31, 2023 was 131,757,285 (December 31, 2022 - 141,386,718).
15
Capital Management
Westaim’s capital currently consists of the Preferred Securities and Common Shares.
Year ended December 31
2023
2022
$ 183,982
138,299,601
$ 1.33
$ 17,961
141,901,513
$ 0.13
$ 183,982
3,504
$ 187,486
$ 17,961
(103)
$ 17,858
138,299,601
668,805
3,426,266
141,901,513
-
2,974,198
142,394,672
$ 1.32
144,876,711
$ 0.12
The Company’s guiding principles for capital management are to maintain the stability and safety of the Company’s capital for its stakeholders
through an appropriate capital mix and a strong balance sheet.
The Company monitors the mix and adequacy of its capital on a continuous basis. The Company employs internal metrics. The capital of the
Company is not subject to any restrictions.
- 63 -
The Westaim Corporation
Notes to Consolidated Financial Statements
For the years ended December 31, 2023 and 2022
(Currency amounts in thousands of United States dollars except per share data, unless otherwise indicated)
16 Financial Risk Management
The Company is exposed to a number of risks due to its business operations. The Company’s consolidated statement of financial position at
December 31, 2023 consists of short-term financial assets and financial liabilities with maturities of less than one year, and investments in
Skyward Specialty, Arena FINCOs, Arena, and ASOF LP. The most significant identified risks which arise from holding financial instruments
include credit risk, liquidity risk, currency risk, interest rate risk and equity risk. The Company has a comprehensive risk management framework
to monitor, evaluate and manage the risks assumed in conducting its business.
Credit risk
Credit risk refers to the risk that counterparty will default on its contractual obligations resulting in financial loss to the Company. The Company’s
credit risk arises primarily from its cash and cash equivalents. The Company manages such risk by maintaining bank accounts with Schedule
1 banks in Canada and a major bank in the United States.
Liquidity risk
Liquidity risk is the risk that the Company may not be able to generate sufficient cash resources to settle its obligations in full as they fall due or
can only do so on terms that are materially disadvantageous.
The Company has made investments in level 3 investments classified as FVTPL and investments in associates which do not typically have an
active market. Private investment transactions can be highly structured, and the Company takes measures, where possible, to create defined
liquidity events and as part of its strategy, the Company has sought to create or accelerate such liquidity events. However, such liquidity events
are rarely expected in the first two or three years of making an investment and may not be realized as expected.
At December 31, 2023, the Company’s short-term financial liabilities amounted to $18,033 (December 31, 2022 - $4,510), and the Company
has access to cash and other resources to meet these financial obligations.
Currency risk
The Company’s C$ denominated monetary liabilities exceed C$ denominated monetary assets and most of its operating expenses are paid in
C$. From time to time, the Company may enter into C$ to US$ exchange forward contracts to manage its C$ currency exposures. During the
year ended December 31, 2023, the Company’s C$ exchange forward contracts and its Canadian dollar bank balance have been effective at
reducing a significant portion of the risk associated with changes in the C$ currency exchange. At December 31, 2023, it is estimated a 10%
strengthening of the C$ against the US$ would have increased the foreign exchange loss by approximately $2,104 and $835 in the years ended
December 31, 2023 and 2022, respectively. A similar weakening of the C$ would result in an opposite effect.
The Company has not designated any foreign exchange forward contracts as accounting hedges.
Interest rate risk
The Company does not believe that the results of operations or cash flows would be affected to any significant degree by a sudden change in
market interest rates relative to interest rates on its cash and cash equivalents or loans receivable. The Company is subject to interest rate
risks indirectly as a result of its investments in Skyward Specialty and the Arena FINCOs as certain underlying investments made by these
entities are sensitive to interest rate movements.
Equity risk
Since the close of Skyward Specialty’s IPO on January 18, 2023, there has been an active market for the Company’s investment in Skyward
Specialty common shares. There is no active market for the Company’s Level 3 investments. The Company holds its investments for strategic
and not trading purposes. The fair values of these investments recorded in the Company’s consolidated financial statements have been arrived
at using industry accepted valuation techniques. Due to the inherent uncertainty of valuation, these fair values may not be indicative of the
actual values which can be realized upon a liquidity event for these investments.
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The Westaim Corporation
Notes to Consolidated Financial Statements
For the years ended December 31, 2023 and 2022
(Currency amounts in thousands of United States dollars except per share data, unless otherwise indicated)
17 Subsequent Events
Subsequent to December 31, 2023, through to the close of trading on March 26, 2024, Westaim acquired 2,575,700 Common Shares at a cost
of $7,155, which includes a provision for Canadian public company 2% net share buy-back tax which became effective January 1, 2024, through
the 2023 NCIB. These acquired Common Shares were automatically canceled. As of March 27, 2024, Westaim has 129,181,585 outstanding
Common Shares as a result of these share purchases.
In connection with the 2023 NCIB, the Company established an ASPP, whereby Common Shares may be repurchased at the discretion of the
third-party broker to the ASPP using commercially reasonable efforts and subject to the trading parameters set out in the ASPP. On January
1, 2024, in preparation for the upcoming blackout period, the Company delivered to the broker an addendum to the ASPP pursuant to which the
maximum cost for the shares acquired under the ASPP would be $21,635.
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(cid:3)
(cid:94)(cid:44)(cid:4)(cid:90)(cid:28)(cid:44)(cid:75)(cid:62)(cid:24)(cid:28)(cid:90)(cid:3)(cid:47)(cid:69)(cid:38)(cid:75)(cid:90)(cid:68)(cid:4)(cid:100)(cid:47)(cid:75)(cid:69)(cid:3)
(cid:3)
BOARD OF DIRECTORS
Lisa Mazzocco 2, 3, 6
Lead Director, The Westaim Corporation
Independent Consultant
Ian W. Delaney 3
Executive Chair, The Westaim Corporation
John W. Gildner 1, 2, 3, 4
Independent Businessman
J. Cameron MacDonald
Michael Siegel 2, 3
Chief Executive Officer, Legeis Capital, LLC
Kevin E. Parker 1, 2, 3, 5
Managing Partner, Sustainable Insight Capital Management
Bruce V. Walter 1, 3
Chairman, Nunavut Iron Ore, Inc.
President and Chief Executive Officer, The Westaim
Corporation
Numbers indicate the individual’s committee membership:
1. Member of the Audit Committee
2. Member of the Human Resources and Compensation Committee
3. Member of the Nominating and Corporate Governance Committee
4. Chair of the Audit Committee
5. Chair of the Human Resources and Compensation Committee
6. Chair of the Nominating and Corporate Governance Committee
The Westaim Corporation Annual and Special Meeting of Shareholders
Thursday May 16th, 2024 9:00 A.M. EDT
Vantage Venues
150 King Street West, 27th Floor
Toronto, Ontario M5H 1J9
CORPORATE INFORMATION
STOCK INFORMATION
OFFICES
Ian W. Delaney
Executive Chair
Traded on the TSX Venture Exchange
under the symbol WED
The Westaim Corporation, Corporate
Office
70 York Street, Suite 1700
Toronto, Ontario M5J 1S9
The Westaim Corporation of America
2500 Westchester Avenue, Suite 401
Purchase, New York 10577
CONTACT INFORMATION
Tel: 416-969-3333
Fax: 416-969-3334
E-mail: info@westaim.com
www.westaim.com
J. Cameron MacDonald
Shares issued and outstanding
President and Chief Executive Officer
at December 31, 2023 were 131,757,285
Robert T. Kittel
Chief Operating Officer
Glenn G. MacNeil
Chief Financial Officer
TRANSFER AGENT & REGISTRAR
Computershare Investor Services Inc.
Home Oil Tower
800, 324 – 8th Avenue SW
Calgary, Alberta T2P 2Z2
www.investorcentre.com
Shareholder inquiries by phone
Toll Free: 1-800-564-6253
Toll : 1-514-982-7555
Fax Numbers : 1-888-453-0330
1-514-982-7635
- 66 -
THE WESTAIM CORPORATION
70 York Street, Suite 1700
Toronto, Ontario, Canada
M5J 1S9
www.westaim.com
info@westaim.com