NFI results dramatically impacted by the COVID-19 pandemic
and related facility idling resulting in 2020 Q2 performance as
follows:
- Delivered 545 EUs in 2020 Q2, with total revenue of
$333.3 million
- Net loss of ($74.1) million,
or ($1.18) per Share and Adjusted
EBITDA loss of ($24.2) million
- Adjusted Net Earnings (Loss) of ($60.6) million, or ($0.97) per Share, which is normalized for
$12.1 million of one-time COVID-19
related adjustments
- NFI remains confident in its liquidity position ending the
quarter with $436 million in
available capacity. NFI declared dividends of C$13.3 million in the quarter
- NFI backlog position of 10,004 EUs (4,400 EUs Firm and 5,604
options) valued at $4.9 billion
- The Company launched "NFI Forward," a group-wide
transformational initiative expected to generate more than
$75 million in annualized cost
savings (reducing overhead and SG&A by 8%-10%) by the end of
2022
- Fiscal 2020 Adjusted EBITDA guidance of $145 million to $155
million
All figures quoted in US dollars unless otherwise noted.
WINNIPEG, MB, Aug. 6, 2020 /CNW/ - (TSX:NFI) NFI
Group Inc. ("NFI" or the "Company"), one of the world's
leading independent bus manufacturers, today announced its
financial results for 2020 Q2. NFI Group reported
$333.3 million in Q2 revenue, a 51.2%
decline year-over-year that significantly impacted gross margin and
net income as a result of the COVID-19 pandemic related facility
idling and reduced output for the quarter.
Second quarter adjusted net earnings (loss) was ($60.6) million, a decrease of 335% compared to
Q2 2019. Full reconciliation of net earnings (loss) to Adjusted Net
Earnings (Loss) is available in the accompanying tables of this
press release.
|
|
|
|
|
(unaudited, in
millions except per Share amounts)
|
2020
Q2
|
Year over
Year Change(2)
|
2020 Q2
LTM
|
Year over Year
Change(2)
|
|
|
|
|
|
Deliveries
(EUs)
|
545
|
(630)
|
5,060
|
821
|
|
|
|
|
|
IFRS
Measures
|
|
|
|
|
Revenue
|
$333.3
|
$(350.1)
|
$2,686.7
|
$169.0
|
Net earnings
(loss)
|
(74.1)
|
(82.6)
|
(108.2)
|
(212.7)
|
Net earnings (loss)
per Share
|
(1.18)
|
(1.32)
|
(1.73)
|
(3.41)
|
|
|
|
|
|
Non-IFRS
Measures(1)
|
|
|
|
|
Adjusted
EBITDA
|
$(24.2)
|
$(105.3)
|
$212.6
|
$(78.9)
|
Adjusted Net Earnings
(Loss)
|
(60.6)
|
(86.4)
|
(15.2)
|
(152.2)
|
Adjusted Net Earnings
(Loss) per Share
|
(0.97)
|
(1.52)
|
(0.24)
|
(2.45)
|
Free Cash
Flow
|
(43.1)
|
(84.5)
|
57.7
|
(87.3)
|
Liquidity
|
$436.4
|
$234.2
|
$436.4
|
$234.2
|
(1)
|
Adjusted EBITDA,
Adjusted Net Earnings, Adjusted Net Earnings per Share and Free
Cash Flow are not recognized earnings measures and do not have
standardized meanings prescribed by IFRS. Therefore, they may not
be comparable to similar measures presented by other issuers. See
"Non-IFRS Measures" and detailed reconciliations of IFRS Measures
to Non-IFRS Measures in the Appendix of this press
release.
|
(2)
|
Results noted herein
are for the 13-week period ("2020 Q2") and the 52-week period
("2020 Q2 LTM") ended June 28, 2020. The comparisons reported in
this press release compare 2020 Q2 and Q2 2020 LTM to the 13-week
period ("2019 Q2") and the 52-week period ended June 30, 2019
("2019 Q2 LTM"). Comparisons and comments are also made to the
13-week period ("2019 Q4") ended December 29, 2019. Readers are
advised to view the unaudited interim consolidated financial
statements (the "Financial Statements") and the related
Management's Discussion and Analysis (the "MD&A") that are
available at the Company's website at:
https://www.nfigroup.com/investor-relations/performance-reports/
and under the Company's profile on www.sedar.com
|
Manufacturing segment sales for 2020 Q2 decreased by
$334.5 million, or 57.4%, compared to
2019 Q2. The decrease is primarily driven by the impact of lower
production volumes and deliveries as a result of the temporary
idling of production facilities for much of the quarter due to the
COVID-19 pandemic. 2020 Q2 Manufacturing Adjusted EBITDA decreased
by $94.3 million, or 152.3% with
margins impacted by reduced fixed cost absorption resulting from
the sales decline.
Aftermarket segment sales in 2020 Q2 decreased by
$15.5 million, or 15.6%, compared to
2019 Q2. The decline in revenue was primarily driven by lower parts
volumes within both the NFI Parts and ADL parts businesses due to
COVID-19. 2020 Q2 Aftermarket adjusted EBITDA decreased by
$9.8 million, or 44.7%. The reduction
was driven by lower revenue, decreased margins from NFI Parts
product mix and consistent fixed SG&A costs on a lower revenue
base.
Liquidity
NFI's liquidity position as at June 28,
2020 was $436.2 million an
increase from $146.6 million on
March 29, 2020 and $209.3 million at Dec 31,
2019. The Company generated $100
million in positive working capital during the quarter
through the completion and delivery of excess vehicles in
work-in-progress inventory and a focused effort on collection of
receivables. In addition, the Company entered into two new
credit facilities; a new £50 million unsecured facility to be used
for ADL's international operations, and a $250 million unsecured, one-year sidecar credit
facility (the "Sidecar"), available for general corporate
purposes. To resume operations, NFI invested $100 million in working capital to make supplier
payments current and to purchase raw material inventory required
for vehicle production.
Management obtained credit covenant relief on its $1.25 billion revolving credit facility as part
of the negotiations in obtaining the Sidecar. The covenant waiver
is in place until September 28, 2020,
at which time the covenants will resume at more relaxed levels
based on a pro-rated calculation that excludes 2020 Q2 results.
Covenant calculations for the fourth quarter of 2020 and first
three quarters of 2021 will all be based on this pro-rated LTM
approach that excludes 2020 Q2 results. Full details on the
covenant calculations can be found in the Company's MD&A.
While the additional credit capacity improves the Company's
overall financial flexibility, management believes the credit
capacity under its existing credit facility is currently sufficient
to fund operations, meet financial obligations as they come due and
provide the necessary funds for capital expenditures, dividend
payments and other operational needs.
Outlook
After idling facilities for the majority of the second quarter,
the Company restarted all manufacturing facilities in mid-May
through June and has now begun the recovery from the impacts of
COVID-19. Based on the Company's contractually obligated vehicle
sales, updated production schedule, expected private market
deliveries and anticipated aftermarket sales, management is now
reintroducing Adjusted EBITDA guidance for Fiscal 2020. Management
expects NFI will deliver Adjusted EBITDA of $145 million to $155
million for Fiscal 2020, which would represent $113 million to $123
million during the second half of 2020.
While operations have resumed production, levels are not yet at
pre-COVID levels. With some Public customer orders having been
deferred or delayed, manufacturing resumed at lower levels to match
contracted orders and anticipated backlog option conversion for
2020 and 2021. Private segment production at both MCI and ADL
are not expected to reach pre-COVID-19 levels until at least
2021.
The medium and long-term recovery of the Company's end markets
from the COVID-19 pandemic are expected to be dependent on several
factors, including; government support, COVID-19 case rates, travel
restrictions and economic reopening activity. The Company has
implemented a robust risk management process to ensure the health
and safety of its team members and continued access to material
supply inputs, but the ongoing nature of the pandemic may adversely
impact NFI's results in the future.
NFI Forward
On July 27,
NFI announced a transformational initiative, "NFI Forward", that is
expected to generate more than $75
million in annualized cost savings by the end of fiscal
2022. The program is a combination of numerous projects that will
drive $65.0 million in annual
Adjusted EBITDA savings plus an additional $10.0 million in annualized Free Cash Flow
savings. The annual impact from cost savings in Adjusted EBITDA
will be recorded in the following categories:
- $20.0 million in business unit
SG&A driven by organizational structure changes and
efficiencies at the business unit level
- $5.0 million in centralized
functional administration activities included in SG&A
- $20.0 million in manufacturing
overhead (a component of cost of sales) reduction from facility
closures and distribution center reductions
- $20.0 million in production
material costs savings (a component of cost of sales)
In order to generate the significant cost saving reductions
management estimates that it will incur one-time restructuring and
facility closing costs ranging from $15
million to $20 million during
Fiscal 2020 to Fiscal 2022.
Further details are included in the Company's 2020 Q2 MD&A
and will be discussed during the August 6,
2020 Earnings call.
Management Remarks
"Following record deliveries in the fourth quarter of 2019, NFI
started 2020 with a very strong outlook, a solid first quarter and
an ambitious full year plan. Unfortunately, the COVID-19 pandemic
has had a dramatic impact on global bus and coach ridership and
operators cost structures" said Paul
Soubry, President and CEO of NFI. "As the pandemic
began, our priority focused on the safety of our team members, our
customers and their essential service riders. Our response included
implementing an intensified health and safety protocol, idling
nearly all of our facilities, maintaining customer service and
parts support, and quickly launching a family of Clean and Protect
products to assist our operating customers."
"We then resumed operations carefully with a focus on liquidity,
cash management and ensuring that all necessary safety protocols
where in place. This approach was the right course for our
business. The idling resulted in a negative impact on profitability
in the second quarter, with lower sales and under absorption of
overheads. To counter the financial impacts, management implemented
several cost reduction and cash flow improvement measures, but
looked to balance these actions to ensure NFI maintained the
required structure to support the long-term success of our
business."
"To mitigate the adverse impacts COVID-19 had on NFI's markets,
we have accelerated and extended our transformational NFI Forward
initiative to remove approximately 8% to 10% in both our overhead
and general and administrative costs by Fiscal 2022." said Pipasu
Soni, NFI Group Executive Vice President and Chief Financial
Officer. "These cost reduction initiatives will come from a reduced
number of business units, facility rationalization, reduced
overhead and a more efficient and integrated company."
"NFI is the market leader for buses and coaches in all of our
major markets including Canada,
the United States and the
United Kingdom. We have over
105,000 vehicles in service and the strongest offering in the
industry. Our products are used by millions of people every day,
primarily for public transit, which remains a critical method of
mass transportation and an economic enabler for cities around the
world. As the economy restarts, we expect orders will resume as
customers who have relied on us for decades execute capital fleet
investments and transition to zero-emission buses. We have seen
delays in new vehicle awards, option conversion and delivery timing
that will impact 2020 and 2021, but we expect a strong long-term
recovery with NFI benefiting not only from market growth, but from
an improved operating structure and a lower cost base." Soubry
concluded.
Corporate Social Responsibility
NFI's vision is to enable the future of mobility with innovative
and sustainable solutions through the design and delivery of
exceptional transportation solutions that are safe, accessible,
efficient and reliable. The Company's end products are a key
driver to enable cities to lower emissions, decrease congestion and
drive economic opportunity for less-fortunate members of various
communities. NFI is committed to employees, customers and
shareholders, while also being responsible to the environment and
the communities that we live and work in, by focusing on using
renewable power, reducing waste, purchasing supplies from
disadvantaged business enterprises, promoting diversity and
adhering to our detailed governance structure. NFI's 2019
Environmental Social Governance Report can be accessed on the
Company's website.
Conference Call
A conference call for analysts and interested listeners will be
held on Thursday, August 6, 2020 at
9:00 a.m. Eastern Time (ET). The
call-in number for listeners is 888-231-8191 or 647-427-7450. An
accompanying results presentation will be available prior to the
call at www.nfigroup.com/investor-relations.
A live audio feed of the call will also be available at:
https://produceredition.webcasts.com/starthere.jsp?ei=1344538&tp_key=2c0041894a
A replay of the call will be available from 12:30 p.m. (ET) on August
6, 2020 until 11:59 p.m. (ET)
on September 6, 2020. To access the
replay, call 855-859-2056 or 416-849-0833 and then enter pass code
number 3272219. The replay will also be available on NFI's web site
at www.nfigroup.com.
About NFI Group
With more than 9,000 team members operating from 50 facilities
across ten countries, NFI is a leading independent global bus
manufacturer providing a comprehensive suite of mass transportation
solutions under brands: New Flyer® (heavy-duty transit buses),
Alexander Dennis Limited (single and double-deck buses), Plaxton
(motor coaches), MCI® (motor coaches), ARBOC® (low-floor
cutaway and medium-duty buses), and NFI Parts™. NFI vehicles
incorporate the widest range of drive systems available including:
clean diesel, natural gas, diesel-electric hybrid, and
zero-emission electric (trolley, battery, and fuel cell). In
total, NFI now supports over 105,000 buses and coaches currently in
service around the world.
NFI common shares are traded on the Toronto Stock Exchange under
the symbol NFI. Further information is available
at www.nfigroup.com, www.newflyer.com, www.mcicoach.com, www.arbocsv.com, www.nfi.parts, www.alexander-dennis.com,
and www.carfaircomposites.com.
Appendix - Reconciliation Tables
Reconciliation of Net Earnings to Adjusted
EBITDA
Management believes that Adjusted EBITDA is an important measure
in evaluating the historical operating performance of the Company.
However, Adjusted EBITDA is not a recognized earnings measure under
International Financial Reporting Standards ("IFRS") and does not
have a standardized meaning prescribed by IFRS. Accordingly,
Adjusted EBITDA may not be comparable to similar measures presented
by other issuers. Readers of this press release are cautioned that
Adjusted EBITDA should not be construed as an alternative to net
earnings or loss determined in accordance with IFRS as indicators
of the Company's performance, or cash flows from operating
activities determined in accordance with IFRS as a measure of
liquidity and cash flow. See Non-IFRS measures for the definition
of Adjusted EBITDA. The following table reconciles net earnings to
Adjusted EBITDA based on the historical Financial Statements of the
Company for the periods indicated.
(U.S. dollars in
thousands)
|
2020
Q2
|
2019
Q2
|
|
26-Weeks Ended
June 28, 2020
|
26-Weeks Ended
June 30, 2019
|
|
52-Weeks Ended
June 28, 2020
|
52-Weeks Ended
June 30, 2019
|
Net earnings
(loss)
|
(74,050)
|
8,507
|
|
(141,289)
|
24,656
|
|
(108,245)
|
104,502
|
Addback(1)
|
|
|
|
|
|
|
|
|
Income
taxes
|
(12,907)
|
5,869
|
|
(8,329)
|
13,524
|
|
20,144
|
33,362
|
Interest
expense
|
16,890
|
24,967
|
|
54,025
|
43,024
|
|
84,355
|
60,619
|
Amortization
|
28,146
|
22,399
|
|
58,286
|
41,380
|
|
121,476
|
75,503
|
Loss (gain) on
disposition of property, plant and equipment
|
229
|
15
|
|
392
|
(5)
|
|
351
|
231
|
Fair value adjustment
for total return swap(11)
|
(275)
|
(800)
|
|
1,695
|
(756)
|
|
3,400
|
4,332
|
Unrealized foreign
exchange loss (gain) on non-current monetary items and forward
foreign exchange contracts
|
(2,163)
|
(2,358)
|
|
(2,206)
|
(3,293)
|
|
1,147
|
(4,631)
|
Costs associated with
assessing strategic and corporate
initiatives(8)
|
1,231
|
13,338
|
|
1,231
|
13,343
|
|
957
|
13,343
|
Past service
costs(13)and other pension costs (recovery)
|
48
|
—
|
|
(415)
|
—
|
|
(2,016)
|
—
|
Non-recurring
restructuring costs(9)
|
1,075
|
—
|
|
1,097
|
—
|
|
1,462
|
—
|
Fair value adjustment
to acquired subsidiary company's inventory and deferred
revenue(10)
|
—
|
8,690
|
|
—
|
8,690
|
|
22,314
|
8,690
|
Proportion of the
total return swap realized(12)
|
(529)
|
430
|
|
(1,469)
|
377
|
|
(2,472)
|
(3,273)
|
Equity settled
stock-based compensation
|
551
|
558
|
|
565
|
977
|
|
1,154
|
1,490
|
Recovery on currency
transactions(15)
|
—
|
(4,287)
|
|
—
|
(4,287)
|
|
—
|
(4,287)
|
Prior year sales tax
provision(16)
|
(30)
|
3,794
|
|
(86)
|
3,794
|
|
214
|
3,794
|
Release of provisions
related to purchase accounting(14)
|
—
|
—
|
|
—
|
—
|
|
—
|
(2,138)
|
COVID-19
costs(17)
|
17,557
|
—
|
|
17,557
|
—
|
|
17,557
|
—
|
Impairment loss on
goodwill(18)
|
—
|
—
|
|
50,790
|
—
|
|
50,790
|
—
|
Adjusted
EBITDA(1)
|
(24,227)
|
81,122
|
|
31,844
|
141,424
|
|
212,587
|
291,537
|
|
|
|
|
|
|
|
|
|
Adjusted EBITDA is
comprised of:
|
|
|
|
|
|
|
|
|
Manufacturing
|
(32,356)
|
61,910
|
|
3,086
|
108,922
|
|
150,261
|
242,765
|
Aftermarket
|
12,059
|
21,873
|
|
32,996
|
39,785
|
|
67,783
|
74,363
|
Corporate
|
(3,930)
|
(2,661)
|
|
(4,238)
|
(7,283)
|
|
(5,457)
|
(25,591)
|
See footnotes on page 7 and 8.
Reconciliation of Net Earnings to Adjusted Net
Earnings
Adjusted Net Earnings and Adjusted Earnings per Share are not
recognized measures under IFRS and do not have a standardized
meaning prescribed by IFRS. Accordingly, Adjusted Net Earnings and
Adjusted Earnings per Share may not be comparable to similar
measures presented by other issuers. Readers of this press release
are cautioned that Adjusted Net Earnings and Adjusted Earnings per
Share should not be construed as an alternative to net earnings, or
net earnings per Share, determined in accordance with IFRS as
indicators of the Company's performance. See Non-IFRS Measures for
the definition of Adjusted Net Earnings and Adjusted Earnings per
Share. The following tables reconcile net earnings to
Adjusted Net Earnings based on the historical Financial Statements
of the Company for the periods indicated.
(U.S. dollars in
thousands, except per Share figures)
|
2020
Q2
|
2019
Q2
|
|
26-Weeks Ended
June 28, 2020
|
26-Weeks Ended
June 30, 2019
|
|
52-Weeks Ended
June 28, 2020
|
52-Weeks Ended
June 30, 2019
|
Net earnings
(loss)
|
($74,050)
|
$8,507
|
|
($141,289)
|
$24,656
|
|
($108,247)
|
$104,502
|
|
|
|
|
|
|
|
|
|
Adjustments, net of
tax (1) (8)
|
|
|
|
|
|
|
|
|
Fair value
adjustments of total return swap(5)
|
(189)
|
(518)
|
|
1,170
|
(488)
|
|
2,207
|
3,402
|
Unrealized foreign
exchange (gain) loss
|
(1,493)
|
(1,492)
|
|
(1,523)
|
(2,127)
|
|
639
|
(3,013)
|
Unrealized loss on
interest rate swap
|
868
|
—
|
|
16,378
|
—
|
|
14,834
|
16,513
|
Impairment loss on
goodwill(12)
|
—
|
—
|
|
50,790
|
—
|
|
50,790
|
—
|
Portion of the total
return swap realized(6)
|
(365)
|
279
|
|
(1,014)
|
243
|
|
(1,619)
|
(2,563)
|
Costs associated with
assessing strategic and corporate
initiatives(2)
|
1,231
|
13,340
|
|
1,231
|
13,343
|
|
957
|
13,343
|
Fair value adjustment
to acquired subsidiary company's inventory and deferred
revenue(4)
|
—
|
5,612
|
|
—
|
5,612
|
|
12,331
|
5,612
|
Equity settled
stock-based compensation
|
380
|
347
|
|
390
|
631
|
|
665
|
997
|
Gain on disposition
of property, plant and equipment
|
158
|
11
|
|
270
|
(3)
|
|
246
|
164
|
Past service
costs(7)and other pension costs (recovery)
|
33
|
—
|
|
(286)
|
—
|
|
(1,213)
|
—
|
Gain on release of
provision related to purchase accounting (9)
|
—
|
—
|
|
—
|
—
|
|
—
|
(1,623)
|
Recovery on currency
transactions(10)
|
—
|
(2,768)
|
|
—
|
(2,768)
|
|
287
|
(2,768)
|
Prior year sales tax
provision(11)
|
(20)
|
2,450
|
|
(59)
|
2,450
|
|
(140)
|
2,450
|
COVID-19
costs(13)
|
12,114
|
—
|
|
12,114
|
—
|
|
12,114
|
—
|
Non-recurring
restructuring costs(3)
|
742
|
—
|
|
757
|
—
|
|
968
|
—
|
Adjusted Net Earnings
(Loss)
|
$
(60,591)
|
$
25,768
|
|
$
(61,071)
|
$
41,549
|
|
$
(15,181)
|
$
137,016
|
|
|
|
|
|
|
|
|
|
Earnings (Loss) per
Share (basic)
|
$
(1.18)
|
$
0.14
|
|
$
(2.26)
|
$
0.40
|
|
$
(1.74)
|
$
1.68
|
Earnings (Loss) per
Share (fully diluted)
|
$
(1.18)
|
$
0.14
|
|
$
(2.26)
|
$
0.40
|
|
$
(1.74)
|
$
1.67
|
|
|
|
|
|
|
|
|
|
Adjusted Earnings
(Loss) per Share (basic)
|
$
(0.97)
|
$
0.55
|
|
$
(0.98)
|
$
0.91
|
|
$
(0.24)
|
$
2.21
|
Adjusted Earnings
(Loss) per Share (fully diluted)
|
$
(0.97)
|
$
0.54
|
|
$
(0.98)
|
$
0.90
|
|
$
(0.24)
|
$
2.19
|
1.
|
Addback items are
derived from the historical Financial Statements of the
Company.
|
2.
|
Normalized to exclude
non-recurring expenses related to the costs of assessing strategic
and corporate initiatives.
|
3.
|
Normalized to exclude
non-recurring restructuring costs.
|
4.
|
The revaluation of
ADL's inventory included an adjustment of $31.0 million in Fiscal
2019 after-tax value of $17.9 million. These revaluation
adjustments relate to purchase accounting as a result of the
related acquisitions.
|
5.
|
The fair value
adjustment of the total return swap is a non-cash (gain) loss that
is deducted from the definition of Adjusted EBITDA.
|
6.
|
A portion of the fair
value adjustment of the total return swap is added to Adjusted
EBITDA to match the equivalent portion of the related deferred
compensation expense recognized.
|
7.
|
In 2019 Q3, the
Company received $1.6 million recovery related to the closing of
one of its pension plans. An additional amount of $0.5 million was
received in 2020 Q1.
|
8.
|
In 2020 Q2, the
Company has utilized a rate of 31% to tax effect the
adjustments.
|
9.
|
During 2018 Q4
purchase accounting provisions recorded during the acquisition of
MCI were deemed to be no longer needed and were released resulting
in an increase to net earnings. The amounts released have
been deducted in the calculation of Adjusted EBITDA.
|
10.
|
Recovery of prior
period banking fees related to foreign exchange
transactions.
|
11.
|
Provision for sales
taxes as a result of an ongoing state tax review.
|
12.
|
Impairment charge on
MCI's goodwill.
|
13.
|
Normalized to exclude
non-recurring COVID-19 related costs. These costs include but are
not limited to the purchase of personal protective equipment, plant
sanitation activities, incremental cleaning activities. This
also includes write downs of various balance sheet items that
occurred as a result of COVID-19. These write downs include
but are not limited to the write down of accounts receivable and
the write down of inventory. Management will continue to
assess the costs for COVID-19 and will make an assessment of
whether they are deemed in fact to be one time and
non-recurring. As more information becomes available,
management may change its assessment.
|
Appendix - Non-IFRS Measures
References to "Adjusted EBITDA" are to earnings before interest,
income taxes, depreciation and amortization after adjusting for the
effects of certain non-recurring and/or non-operations related
items that do not reflect the current ongoing cash operations of
the Company. These adjustments include gains or losses on disposal
of property, plant and equipment, fair value adjustment for total
return swap, unrealized foreign exchange losses or gains on
non-current monetary items and forward foreign exchange contracts,
costs associated with assessing strategic and corporate
initiatives, past service costs and other pension costs or
recovery, non-recurring restructuring costs, fair value adjustment
to acquired subsidiary company's inventory and deferred revenue,
proportion of the total return swap realized, equity settled
stock-based compensation, recovery of currency transactions, prior
year sales tax provision, release of provision related to purchase
accounting, COVID-19 costs and impairment loss on goodwill.
"Free Cash Flow" means net cash generated by or used in
operating activities adjusted for changes in non-cash working
capital items, interest paid, interest expense, income taxes paid,
current income tax expense, principal portion of finance lease
payments, cash capital expenditures, proceeds from disposition of
property, plant and equipment, costs associated with assessing
strategic and corporate initiatives, fair value adjustment to
acquired subsidiary company's inventory and deferred revenue,
defined benefit funding, defined benefit expense, past service
costs and other pension costs or recovery, proportion of total
return swap, recovery on currency transactions, prior year sales
tax provision, non-recurring restructuring costs, Release of
provision related to purchase accounting, COVID-19 costs, foreign
exchange gain or loss on cash held in foreign currency.
References to "ROIC" are to net operating profit after taxes
(calculated as Adjusted EBITDA less depreciation of plant and
equipment, depreciation of right-of-use assets and income taxes at
a rate of 31%) divided by average invested capital for the last
twelve month period (calculated as to shareholders' equity plus
long-term debt, obligations under leases, other long-term
liabilities and derivative financial instrument liabilities less
cash).
References to "Adjusted Net Earnings (Loss)" are to net earnings
after adjusting for the after tax effects of certain non-recurring
and/or non-operational related items that do not reflect the
current ongoing cash operations of the Company including: fair
value adjustments of total return swap, unrealized foreign exchange
loss or gain, unrealized gain or loss on the interest rate swap,
portion of the total return swap realized, costs associated with
assessing strategic and corporate initiatives, fair value
adjustment to acquired subsidiary company's inventory and deferred
revenue, equity settled stock-based compensation, gain or loss on
disposal of property, plant and equipment, past service costs and
other pension costs or recovery, gain on release of provision
related to purchase accounting, recovery on currency transactions,
prior year sales tax provision, COVID-19 costs and non-recurring
restructuring costs .
References to "Adjusted Earnings (Loss) per Share" are to
Adjusted Net Earnings divided by the average number of Shares
outstanding.
Management believes Adjusted EBITDA, ROIC, Free Cash Flow,
Adjusted Net Earnings (Loss) and Adjusted Earnings (Loss) per Share
are useful measures in evaluating the performance of the Company.
However, Adjusted EBITDA, ROIC, Free Cash Flow, Adjusted Net
Earnings (Loss) and Adjusted Earnings (Loss) per Share are not
recognized earnings measures under IFRS and do not have
standardized meanings prescribed by IFRS. Readers of this MD&A
are cautioned that ROIC, Adjusted Net Earnings (Loss) and Adjusted
EBITDA should not be construed as an alternative to net earnings or
loss or cash flows from operating activities determined in
accordance with IFRS as an indicator of NFI's performance, and Free
Cash Flow should not be construed as an alternative to cash flows
from operating, investing and financing activities determined in
accordance with IFRS as a measure of liquidity and cash flows. A
reconciliation of net earnings to Adjusted EBITDA, based on the
Financial Statements, has been provided under the headings
"Reconciliation of Net Earnings to Adjusted EBITDA". A
reconciliation of Free Cash Flow to cash flows from operations is
provided under the heading "Summary of Free Cash Flow". A
reconciliation of net earnings to Adjusted Net Earnings (Loss) is
provided under the heading "Reconciliation of Net Earnings to
Adjusted Net Earnings (Loss)".
NFI's method of calculating Adjusted EBITDA, ROIC, Free Cash
Flow, Adjusted Net Earnings (Loss) and Adjusted Earnings per Share
may differ materially from the methods used by other issuers and,
accordingly, may not be comparable to similarly titled measures
used by other issuers. Dividends paid from Free Cash Flow are not
assured, and the actual amount of dividends received by holders of
Shares will depend on, among other things, the Company's financial
performance, debt covenants and obligations, working capital
requirements and future capital requirements, all of which are
susceptible to a number of risks, as described in NFI's public
filings available on SEDAR at www.sedar.com.
Forward-Looking Statements
Certain statements in this press release are "forward-looking
statements", which reflect the expectations of management regarding
the Company's future growth, liquidity, results of operations,
performance and business prospects, plans and opportunities.
The words "believes", "anticipates", "plans", "expects", "intends",
"projects", "forecasts", "estimates", "may", "will" and similar
expressions are intended to identify forward looking statements.
These forward-looking statements reflect management's current
expectations regarding future events and financial and operating
performance and speak only as of the date of this press release.
Forward-looking statements involve significant risks and
uncertainties, should not be read as guarantees of future
performance or results, and will not necessarily be accurate
indications of whether or not or the times at or by which such
performance or results will be achieved. Actual results may differ
materially and adversely from management expectations set forth in
forward-looking statements for a variety of reasons and due to a
number of factors, including, but not limited to those described
below.
With respect to forward-looking statements relating to the
Company's "NFI Forward" initiative, including the costs savings,
cash flow improvement and other benefits expected to be achieved
and the costs expected to be expended in implementing the
initiative, such factors include: the Company's ability to
successfully execute the initiative and to generate the planned
savings in the expected time frame or at all; management may have
overestimated the amount of savings that can be generated or
underestimated the amount of costs to be expended; the
implementation of the initiative may take longer than planned to
achieve the expected savings; further restructuring and
cost-cutting may be required in order to achieve the objectives of
the initiative; the estimated amount of savings generated under the
initiative may not be sufficient to achieve the planned benefits;
combining business units and/or the reduction of production or
parts facilities may not achieve the efficiencies anticipated; and
the impact of the global COVID-19 pandemic. There can be no
assurance that the Company will be able to achieve the anticipated
cost savings or other benefits of the initiative.
With respect to all forward-looking statements, such factors
relating to the global COVID-19 pandemic include: the magnitude and
length of the global, national and regional economic and social
disruption being caused as a result of the pandemic; the impact of
national, regional and local governmental laws, regulations and
"shelter in place" or similar orders relating to the pandemic which
may materially adversely impact the Company's ability to continue
operations; partial or complete closures of one, more or all of the
Company's facilities and work locations (including to protect the
health and safety of the Company's employees); production rates may
be further decreased as a result of the pandemic; continuing and
worsening supply delays and shortages of parts and components and
disruption to labour supply as a result of the pandemic; the
pandemic will likely adversely affect operations of customers and
delay, for an unknown period, customers' purchases of the Company's
products; the anticipated return of the Company's markets at some
future date may be delayed or increase in demand may be lower than
expected as a result of the continuing effects of the pandemic; the
Company's ability to obtain access to additional capital; the
Company's financial performance and condition, obligations, cash
flow and liquidity and its ability to maintain compliance with the
covenants under its credit facilities, which may also negatively
impact the ability of the Company to fund dividends. There can be
no assurance that the Company will be able to maintain sufficient
liquidity for an extended period, obtain future covenant relief
under its credit facilities or access to additional capital or
access to government financial support or as to when production
operations will return to previous production rates. The
Company cautions that due to the dynamic, fluid and highly
unpredictable nature of the pandemic and its impact on global and
local economies, businesses and individuals, it is impossible to
predict the severity of the impact on the Company's business,
operating performance and financial condition and any material
adverse effects could very well be rapid, unexpected and may
continue for an extended and unknown period of time.
A number of other factors that may cause actual results to
differ materially from the results discussed in the forward-looking
statements include: funding may not continue to be available to the
Company's customers at current levels or at all; the Company's
business is affected by economic factors and adverse developments
in economic conditions could have an adverse effect on the for the
Company's products and the results of its operations; currency
fluctuations could adversely affect the Company's financial results
or competitive position; interest rates could change substantially,
materially impacting the Company's revenue and profitability; an
active, liquid trading market for the Shares may cease to exist,
which may limit the ability of shareholders to trade Shares; the
market price for the Shares may be volatile; if securities or
industry analysts do not publish research or reports about the
Company and its business, if they adversely change their
recommendations regarding the Shares or if the Company's results of
operations do not meet their expectations, the Share price and
trading volume could decline; in addition, if securities or
industry analysts publish inaccurate or unfavorable research about
the Company or its business, the Share price and trading volume of
the Shares could decline; competition in the industry and entrance
of new competitors; current requirements under "Buy America"
regulations may change and/or become more onerous or suppliers'
"Buy America" content may change; failure of the Company to comply
with the U.S. Disadvantaged Business Enterprise ("DBE") program
requirements or the failure to have its DBE goals approved by the
FTA; absence of fixed term customer contracts, exercise of options
and customer suspension or termination for convenience; local
content bidding preferences in the United
States may create a competitive disadvantage; uncertainty
resulting from the exit of the UK from the European Union;
requirements under Canadian content policies may change and/or
become more onerous; operational risk resulting from inadequate or
failed internal processes, people and/or systems or from external
events, including fiduciary breaches, regulatory compliance
failures, legal disputes, business disruption, pandemics, floods,
technology failures, processing errors, business integration,
damage to physical assets, employee safety and insurance coverage;
international operations subject the Company to additional risks
and costs and may cause profitability to decline; dependence on
limited sources or unique sources of supply; dependence on supply
of engines that comply with emission regulations; a disruption,
termination or alteration of the supply of vehicle chassis or other
critical components from third-party suppliers could materially
adversely affect the sales of certain of the Company's products;
the Company's profitability can be adversely affected by increases
in raw material and component costs; the Company may incur material
losses and costs as a result of product warranty costs, recalls and
remediation of transit buses and motor coaches; production delays
may result in liquidated damages under the Company's contracts with
its customers; catastrophic events may lead to production
curtailments or shutdowns; the Company may not be able to
successfully renegotiate collective bargaining agreements when they
expire and may be adversely affected by labour disruptions and
shortages of labour; the Company's operations are subject to risks
and hazards that may result in monetary losses and liabilities not
covered by insurance or which exceed its insurance coverage; the
Company may be adversely affected by rising insurance costs; the
Company may not be able to maintain performance bonds or letters of
credit required by its contracts or obtain performance bonds and
letters of credit required for new contracts; the Company is
subject to litigation in the ordinary course of business and may
incur material losses and costs as a result of product liability
claims; the Company may have difficulty selling pre-owned coaches
and realizing expected resale values; the Company may incur costs
in connection with regulations relating to axle weight restrictions
and vehicle lengths; the Company may be subject to claims and
liabilities under environmental, health and safety laws; dependence
on management information systems and cyber security risks; the
Company's ability to execute its strategy and conduct operations is
dependent upon its ability to attract, train and retain qualified
personnel, including its ability to retain and attract executives,
senior management and key employees; the Company may be exposed to
liabilities under applicable anti-corruption laws and any
determination that it violated these laws could have a material
adverse effect on its business; the Company's risk management
policies and procedures may not be fully effective in achieving
their intended purposes; internal controls over financial
reporting, no matter how well designed, have inherent limitations;
there are inherent limitations to the effectiveness of any system
of disclosure controls and procedures, including the possibility of
human error and the circumvention or overriding of the controls and
procedures; ability to successfully execute strategic plans and
maintain profitability; development of competitive or disruptive
products, services or technology; development and testing of new
products or model variants; acquisition risk; reliance on
third-party manufacturers; third-Party Distribution/Dealer
Agreements; availability to the Company of future financing; the
Company may not be able to generate the necessary amount of cash to
service its existing debt, which may require the Company to
refinance its debt; the restrictive covenants in the credit
facilities could impact the Company's business and affect its
ability to pursue its business strategies; payment of dividends is
not guaranteed; a significant amount of the Company's cash is
distributed, which may restrict potential growth; the Company is
dependent on its subsidiaries for all cash available for
distributions; future sales or the possibility of future sales of a
substantial number of Shares may impact the price of the Shares and
could result in dilution; if the Company is required to write down
goodwill or other intangible assets, its financial condition and
operating results would be negatively affected; income tax risk due
to the Company's operations being complex and income tax
interpretations, regulations and legislation that pertain to its
activities are subject to continual change; investment eligibility
and Canadian federal income tax risks; certain U.S. tax rules may
limit the ability of NF Holdings and its U.S. subsidiaries (the "NF
Group") to deduct interest expense for U.S. federal income tax
purposes and may increase the NF Group's tax liability and certain
financing transactions could be characterized as "hybrid
transactions" for U.S. tax purposes, which could increase the NF
Group's tax liability.
NFI cautions that the foregoing factors are not exhaustive of
all potential risks. These factors and other risks and
uncertainties are discussed in NFI's press releases, Annual
Information Form and materials filed with the Canadian securities
regulatory authorities which are available on SEDAR at
www.sedar.com. Due to the potential impact of these and other
factors, the Company disclaims any intention or obligation to
update or revise any forward-looking statements, whether as a
result of new information, future events or otherwise, unless
required by applicable law.
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SOURCE NFI Group Inc.