New Flyer Announces Results for the Second Quarter of 2009 Fiscal Year

• 2009 Q2 consolidated revenue of $273.5 million increased by 5.0% compared to 2008 Q2 revenue of $260.4 million.
• 2009 Q2 consolidated Adjusted EBITDA of $22.7 million decreased by 12.4% compared to 2008 Q2 due to foreign exchange, lower bus deliveries and contract rectification costs. 
• Continued growth of aftermarket operations resulted in 2009 Q2 revenue and Adjusted EBITDA increase of 7.0% and 25.0%, respectively, compared to 2008 Q2.
  
• 2009 Q2 Distributable Cash of C$19.9 million (C$0.40 per unit) increased by 8.1% compared to 2008 Q2 Distributable Cash resulting in a payout ratio of 72.2% in 2009 Q2 compared to 74.0% in 2008 Q2.
  
• Costs and staff reductions to be initiated immediately as a result of previously-announced deferral of customer order.
  
• New orders have sustained total bus order backlog of approximately $4.0 billion.
  

WINNIPEG, August 17, 2009 – New Flyer Industries Inc. (TSX:NFI.UN), (“New Flyer” or the “Company”), the leading manufacturer of heavy-duty transit buses in Canada and the United States, today announced its results for the 13-week period ended July 5, 2009 (“2009 Q2”). Full financial statements and Management’s Discussion and Analysis (the “MD&A”) are available at the Company’s web site at: www.www.newflyer.com/index/financialreport. Unless otherwise indicated all monetary amounts in this press release are expressed in U.S. dollars.

Favourable bus sales mix and continued growth in aftermarket operations resulted in consolidated revenue for 2009 Q2 of $273.5 million, which represents an increase of 5.0% compared to consolidated revenue for the 13-week period ended June 29, 2008 (“2008 Q2”) of $260.4 million.

• Bus manufacturing revenue in 2009 Q2 of $246.1 million increased by 4.8% compared to bus manufacturing revenue of $234.8 million in 2008 Q2, primarily resulting from an increase in revenue attributable to favourable product sales mix when comparing average selling price in the current period to 2008 Q2, primarily due to increased sales of hybrid buses.  Although consolidated revenue increased in 2009 Q2 compared to 2008 Q2, total bus deliveries of 558 equivalent units in 2009 Q2 decreased 4.8% as compared to 2008 Q2 deliveries of 586 equivalent units.
• Another contributing factor of the overall increase in consolidated revenue was the 2009 Q2 aftermarket operations revenue of $27.4 million, increased 7.0% in 2009 Q2 compared to $25.6 million in 2008 Q2. The continued strong growth in aftermarket operations is a result of an increase in market share as New Flyer buses continue to represent a larger share of the active installed fleet in the combined United States and Canadian market.

Consolidated Adjusted EBITDA for 2009 Q2 totaled $22.7 million compared to $25.9 million in 2008 Q2 which represents a decrease of 12.4%. The impact of the depreciation of the value of the Canadian dollar in 2009 Q2 compared to 2008 Q2, reduced Adjusted EBITDA by approximately $2.3 million ($1.6 million reduction in bus manufacturing operations and $0.7 million reduction in aftermarket operations).

• 2009 Q2 bus manufacturing operations Adjusted EBITDA of $16.3 million remained fairly consistent as compared with the 14-week period ended April 5, 2009 (“2009 Q1”) Adjusted EBITDA of $17.0 million, however decreased by 21.5% compared to bus manufacturing operations Adjusted EBITDA of $20.8 million in 2008 Q2. The decrease in bus manufacturing operations is primarily the result of fewer deliveries, the foreign exchange impact that the strengthening U.S. dollar had on the 2009 Q2 Canadian bus sales and a write-down to the cost of inventory related to certain customers’ contracts to net realizable value.  However, these factors were partially offset by contract runs with higher average contract margins in the bus manufacturing operations sales mix.
• 2009 Q2 aftermarket operations Adjusted EBITDA of $6.4 million (23.2% of revenue) increased by 25.0% compared to $5.1 million (19.9% of revenue) in 2008 Q2, primarily due to higher margins realized and a 7.0% increase in sales volume in the current period, as the distribution center in Kentucky had just opened in 2008 Q2. A new distribution center in Fresno, California was opened at the end of 2009 Q2.

The Company reported a net loss of $14.7 million in 2009 Q2 compared to a net loss of $10.7 million in 2008 Q2. In addition to the decrease in consolidated Adjusted EBITDA of $3.2 million in 2009 Q2 compared to 2008 Q2, the net loss was also impacted by the increase in non-cash charges which was offset by lower income tax expense.

The Company generated Distributable Cash of C$19.9 million during 2009 Q2 and declared distributions of C$14.4 million, which represents a 2009 Q2 payout ratio of 72.2%. By comparison, in 2008 Q2, the Company generated Distributable Cash of C$18.4 million and declared distributions of C$13.6 million, resulting in a payout ratio of 74.0%. While foreign exchange rate has negatively impacted Adjusted EBITDA, the Company’s Canadian denominated interest, income tax costs and hedging activities result in very little impact on C$ Distributable Cash. Cumulatively, since the Company’s initial public offering on August 19, 2005 (the “IPO”), the Company has generated a cumulative surplus of C$45.2 million and a payout ratio of 81.7%.

The Company’s liquidity position decreased from $70.7 million as at December 28, 2008 to $33.9 million as at July 5, 2009. The July 5, 2009 liquidity position is comprised of bank indebtedness of $16.1 million and a $50.0 million revolving credit facility. As at July 5, 2009, there were no direct borrowings under this secured revolver as the bank indebtedness balance of $16.1 million at July 5, 2009 was calculated from cash on hand net of outstanding cheques. The decrease in cash as at July 5, 2009 is substantially the result of increased inventory related to the significant customer contract with a design deficiency as disclosed in the Company’s December 28, 2008 MD&A and described above, and timing of a few large accounts receivables totaling $21.5 million, which were received subsequent to July 5, 2009.  Work in process inventory levels have also increased as a result of the Company ramping up production levels at the end of 2009 Q1 from 48 to 50 equivalent units per week. While the design deficiency has been rectified, the completion and delivery of the 225 equivalent units included in all of this customer’s orders were delayed. As of July 5, 2009, 72 units have been delivered to the customer. Management expects that this inventory buildup will be reduced during the second half of 2009 in accordance with the planned delivery of these buses. The relationship with this customer remains solid, and as a result of open and effective communication and achievement of the customer’s specifications, the customer has initiated the process of further option conversions.

During 2009 Q2, as a result of working capital fluctuations in the previous quarter, dividend payments by NFL Holdings, Inc. to the Company and to New Flyer LLC were restricted under the provisions of the note indenture governing the Subordinated Notes. Therefore, during this period, New Flyer Industries Canada ULC (“NFI ULC”) utilized its available cash and draws on its revolving facility to make an inter-company loan to the Company to support dividend payments by the Company on its common shares and to support a loan by the Company to New Flyer LLC in lieu of dividends to New Flyer LLC on its Class B and Class C Shares. Subsequent to 2009 Q2, management determined that similar loan arrangements to support dividend payments relating to 13-week period ended October 4, 2009 (“2009 Q3”) will be required.

On July 30, 2009, the Company announced that production of 140 diesel-electric hybrid articulated buses (representing 280 equivalent units) under a major U.S. customer order that was planned to commence the last week of July, 2009, had been deferred indefinitely as a result of delays in the customer receiving state funding. All of these 140 buses were planned to be delivered to the customer in the second half of the 53-week period ended January 3, 2010 (“Fiscal 2009”).

Notwithstanding the deferred order, Management expects that full-year total production for fiscal 2009 should not be less than the 2,164 EUs delivered by the Company in fiscal 2008. This expectation is based on the assumption regarding production schedule gaps, the revised production levels resulting from the deferral, the Company being able to successfully deliver all other customers’ orders as planned and the Company being able to successfully increase the rate of reduction of existing excess work in process.

Management has explored a variety of actions to mitigate the effects of this order deferral, including advancing the production of certain other customer orders into the 2009 production schedule, re-allocating certain labour resources to increase the rate of reduction of existing excess work in process levels and reviewing other means of reducing expenses and fixed overhead costs that relate to the previously planned higher production rate. As a result, the Company will reduce its unionized workforce by up to approximately 270 positions at its facilities located in Winnipeg, Manitoba and its facilities in Crookston and St. Cloud, Minnesota. The Company will also reduce its salaried workforce by up to approximately 50 positions, the majority of the salaried workforce reduction to take place in Winnipeg. Some of the workforce reductions will take place immediately, with the balance of the reductions taking place over the remainder of the year. This reduction of employees represents approximately 13 percent of New Flyer’s total workforce in Canada and the United States. In addition to the workforce reductions, the Company plans to shutdown its facilities in Winnipeg, Crookston and St. Cloud during the last two weeks of the year (six production days) while continuing to ship completed buses.

Despite this order deferral and expected reduction in sales for the second half of 2009, management expects that Adjusted EBITDA for Fiscal 2009 should not be less than the Company’s Adjusted EBITDA for fiscal 2008. Further, management believes the Company will be able to continue to make monthly distributions to the holders of its IDSs at the current rate and to maintain compliance with the financial covenants under the Company’s senior credit facility. Management also anticipates that the payout ratio for Fiscal 2009 should not be higher than the Company’s payout ratio for fiscal 2008 of 79.7%. In addition to the assumptions already discussed above, management’s expectations regarding the anticipated financial results will depend on the Company being able to collect payment for buses from customers in accordance with the terms of such customers’ contracts and being able to successfully manage the Company’s working capital.

The Company has not been advised by other customers of any other material funding issues nor has it received any other material firm order deferrals from any of its other customers.

The total order backlog (including firm orders and options) of approximately $4.0 billion (representing 9,425 equivalent units) as at July 5, 2009 increased slightly compared to the total order backlog of approximately $4.0 billion (representing 9,236 equivalent units) as at April 5, 2009. The firm order backlog, which represents 2,388 equivalent units of production, while some orders specify when the deliveries must occur, the majority of the firm orders do not contain limitations on deliveries and as such provides the Company with the order visibility to efficiently plan the production schedule, thereby minimizing expenses and working capital requirements, and is supportive of the current and planned levels of production.

As of July 21, 2009, there are approximately 11,000 EUs in New Flyer’s new potential order pipeline or bid universe for heavy-duty transit buses, a slight reduction from the approximately 12,000 EUs reported as of April 5, 2009. New Flyer’s new order pipeline includes: bids that have been submitted, bids currently in process of completion as a result of a tender, and anticipated bid activity to the end of the year based on management’s understanding of transit customers’ fleet procurement plans. Management is not able to predict at this stage how many bids will result in awarded orders.

Conference Call
A conference call for analysts and interested listeners will be held on Tuesday, August 18th, at 9:00 a.m. (ET). The call-in number for listeners is 800-733-7560 or 416-644-3414. A live audio feed of the call will also be available at:

http://www.newswire.ca/en/webcast/viewEvent.cgi?eventID=2770900

A replay of the call will be available from 11:00 a.m. (ET) on August 18th until 11:59 p.m. (ET) on August 25th. To access the replay, call 416-640-1917 or 877-289-8525, enter pass code number 21312606 followed by the pound sign (#). The replay will also be available on the Company’s web site at www.www.newflyer.com.

Non-GAAP Measures
Adjusted EBITDA consists of earnings before interest, income taxes, depreciation, amortization and other non-cash charges, adjusted for certain costs related to offerings and certain other non-recurring charges as set out in the MD&A. Management believes Adjusted EBITDA and Distributable Cash (as defined below) are useful measures in evaluating the performance of the Company. “Distributable Cash” means cash flows from operations adjusted for changes in non-cash working capital items, and effect of foreign currency rate on cash and increased for withholding taxes related to capital transactions, defined benefit funding, distributions on Class B and Class C common shares, costs related to offerings, fair market value adjustment to inventory, fair market value adjustment to prepaid expenses, proceeds on sale of redundant assets, and interest on subordinated notes forming part of the IDSs and decreased for defined benefit expense, maintenance capital expenditures, fair market value adjustment to deferred revenue, fair market value adjustment to accounts payable and accrued liabilities and principal payments on capital leases. Adjusted EBITDA and Distributable Cash are not earnings measures recognized under GAAP and do not have standardized meanings as prescribed by GAAP. Therefore, Adjusted EBITDA and Distributable Cash may not be comparable to similar measures presented by other entities. Investors are cautioned that Adjusted EBITDA and Distributable Cash should not be construed as an alternative to net income or loss determined in accordance with GAAP as an indicator of New Flyer’s performance or to cash flows from operating, investing and financing activities as measures of liquidity and cash flows.

About New Flyer
New Flyer is the leading manufacturer of heavy-duty transit buses in Canada and the United States. The Company’s three facilities – in Winnipeg, MB, St. Cloud, MN and Crookston, MN – are all ISO 9001, ISO 14001 and OHSAS 18001 certified. With a skilled workforce of approximately 2,500 employees, New Flyer is a technology leader in the heavy-duty transit market, offering the broadest product line in the industry, including drive systems powered by clean diesel, LNG, CNG and electric trolley, as well as energy-efficient gasoline-electric and diesel-electric hybrid vehicles. All of New Flyer’s products are supported by an industry-leading, comprehensive parts and service network. The IDSs are listed on the Toronto Stock Exchange under the symbol NFI.UN.

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, results of operations, performance and business prospects and opportunities. The words “believes”, “anticipates”, “plans”, “expects”, “intends”, “projects”, “estimates” and similar expressions are intended to identify forward looking statements. These forward looking statements reflect management’s current expectations regarding future events 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. A number of factors could cause actual results to differ materially from the results discussed in the forward-looking statements. Such differences may be caused by factors which include, but are not limited to, competition in the heavy-duty transit bus industry, availability of funding to the Company’s customers at current levels or at all, material losses and costs may be incurred as a result of product warranty issues, material losses and costs may be incurred as a result of product liability claims, changes in Canadian or United States tax legislation, the Company’s success depends on a limited number of key executives who the Company may not be able to adequately replace in the event that they leave the Company, the absence of fixed term customer contracts and the termination of contracts by customers for convenience, the current “Buy-America” legislation and  the Ontario government’s “Buy Canadian” purchasing policy may change and/or become more onerous, production delays may result in liquidated damages under the Company’s contracts with its customers, the Company’s ability to execute its planned production targets and reallocate production as a result of deferred bus orders, the Company’s ability to generate cash from the planned reduction in excess work in process, currency fluctuations could adversely affect the Company’s financial results or competitive position in the industry, the Company may not be able to maintain performance bonds or letters of credit required by its existing contracts or obtain performance bonds and letters of credit required for new contracts, third party debt service obligations may have important consequences to the Company, the covenants contained in NFI ULC’s senior credit facility and Subordinated Note indenture could impact the ability of the Company to fund distributions and take certain other actions, interest rates could change substantially and materially impact the Company’s profitability, the dependence on limited sources of supply, the timely supply of materials from suppliers, the possibility of fluctuations in the market prices of the pension plan investments and discount rates used in the actuarial calculations will impact pension expense and funding requirements, the Company’s profitability and performance can be adversely affected by increases in raw material and component costs and the availability of labour could have an impact on production levels. The Company cautions that this list of factors is not exhaustive. These factors and other risks and uncertainties are discussed in the Company’s press releases and materials filed with the Canadian securities regulatory authorities and are available on SEDAR at www.sedar.com.

Although the forward looking statements contained in this press release are based upon what management believes to be reasonable assumptions, investors cannot be assured that actual results will be consistent with these forward looking statements, and the differences may be material. These forward looking statements are made as of the date of this press release and the Company assume no obligation to update or revise them to reflect new events or circumstances, except as required by applicable securities laws.

For further information:
Glenn Asham
Chief Financial Officer
Tel: (204) 224-1251
E-mail: [email protected]