Winnipeg, Manitoba, Canada; August 14, 2006 -

Highlights:

  • 22.3% year-to-date increase in firm order activity

  • Continued strong performance in Aftermarket Operations resulting in 23.6% year-to-date revenue growth for that business unit

  • Improved heavy-duty transit bus demand in U.S. market

  • Results impacted by strike at Winnipeg facility

  • Plans to recover from strike in process for the second half of 2006

New Flyer Industries Inc. (TSX:NFI.UN), the leading manufacturer of heavy-duty transit buses in Canada and the United States, today announced its results and those of its subsidiary, New Flyer Holdings, Inc. ("New Flyer" or the "Company") for the 26-week period ended July 2, 2006 ("2006 YTD"). Full financial statements and Management’s Discussion and Analysis (the "MD&A") are available at the Company's web site at: www.newflyer.com.

New Flyer completed its initial public offering ("IPO") of income deposit securities and the associated acquisition of its operating business on August 19, 2005. In order to provide investors with a meaningful assessment of its recent performance, New Flyer also provided results for the comparable 26-week period ended July 3, 2005 ("2005 YTD") of its predecessor company, Transit Holdings, Inc., as described in the MD&A. Note that all figures are in United States dollars unless stated otherwise.

The Company’s order backlog existing at July 2, 2006 was approximately $1.9 billion (comprised of approximately $0.8 billion of firm bus orders and $1.1 billion of options for buses). The backlog has remained highly stable relative to the $2.0 billion level at the end of the last fiscal year on January 1, 2006 and to the $2.0 billion level at the time of the Company’s IPO. Importantly, the firm order component of the order backlog has increased by $140.2 million since January 1, 2006, representing an increase of 22.3%.

During 2006 YTD, the Company was awarded firm bus orders totaling $390.3 million compared to $245.1 million awarded during 2005 YTD, which represents an increase of 59.2%. Included in awarded firm bus orders are exercised options of $271.5 million (representing 69.6% of the firm orders awarded) in 2006 YTD compared to $161.0 million (representing 65.7% of the firm bus orders awarded) for 2005 YTD. Based on the recent increase in firm order activity and the general bid activity in the U.S. heavy-duty transit bus market, management believes that U.S. market demand is beginning to improve following a period of reduced demand during the past few years.

The Company’s strong backlog position, comprised 73% of US orders and 27% of Canadian orders, continues to provide the order visibility to allow the Company to efficiently plan the production schedule, thereby minimizing expenses and working capital requirements.

The first half of the fiscal year was negatively impacted by a strike by the Company’s unionized workforce at its Winnipeg facility. Although New Flyer did not receive any cancellations of bus orders from its customers during the strike, the financial performance of the Company was negatively impacted.

As more fully described in the MD&A, the strike resulted in delayed deliveries and additional costs which impacted 2006 YTD Adjusted EBITDA in the amount of $10.8 million. Of this amount, $6.4 million relates to production delays and temporary increases in inventory levels, which resulted in deferred sales. These deferrals in deliveries included higher-margin bus orders. Management expects to produce these bus orders in the second half of 2006, which should result in the Company substantially achieving the pre-strike 2006 plan of 1,648 delivered units.

In addition, as a result of the strike, incremental labour inefficiencies and indirect overhead costs were incurred in the amount of $4.4 million. These costs were incurred to move production to the US plants during the strike and to position the Company to recover lost revenue during the second half of 2006.

For 2006 YTD, New Flyer generated revenue of $272.5 million, compared with $296.3 million for 2005 YTD. Revenue from Bus Manufacturing Operations for 2006 YTD declined 11.2% to $239.4 million from $269.5 million for 2005 YTD, due to the reduction in bus deliveries attributable to the strike. Bus deliveries during this period totaled 655 equivalent units compared with 832 equivalent units for 2005 YTD.

Revenue from Aftermarket Operations continued to be strong in 2006 YTD, as revenue increased 23.6% to $33.2 million from $26.8 million in the corresponding period of last year. This growth rate is comparable to growth in prior years as New Flyer buses continue to represent a larger share of the active installed fleet in the combined United States and Canadian market. In addition, the reduction of new bus deliveries experienced in the U.S. market in 2004, 2005 and in early 2006 has contributed to higher demand in the aftermarket business as customers maintain older fleets.

Adjusted EBITDA for 2006 YTD decreased 37.7% to $22.6 million from $36.3 million for 2005 YTD, primarily the result of the strike-related costs of $4.4 million and the related $6.4 million of earnings reduction due to delayed bus deliveries. The remaining $2.9 million reduction in Adjusted EBITDA is due to lower planned production levels, exclusive of the strike impact, in 2006 YTD compared to the same period in 2005. Management anticipates that if the planned production increases are achieved in the second half of 2006, the Company should substantially achieve Adjusted EBITDA for the 2006 fiscal year as a whole approximately equal to the level of Adjusted EBITDA reported for the twelve-month period ended April 2, 2006.

Adjusted EBITDA from Bus Manufacturing Operations for 2006 YTD was $15.4 million, a decrease of 49.7% from Adjusted EBITDA of $30.7 million in the corresponding period of last year. This reduction is primarily attributable to reduced earnings resulting from strike-related costs and the delay in bus deliveries. Bus Manufacturing Operations’ Adjusted EBITDA margin of 6.4% during this period compared with 11.4% during 2005 YTD, reflecting the strike-related production decline and delayed bus deliveries.

Adjusted EBITDA from Aftermarket Operations for 2006 YTD of $7.0 million increased by 27.2% compared with $5.5 million for 2005 YTD, a result of the increase in segment sales. Aftermarket Operations’ Adjusted EBITDA margin of 21.1% for this period compared with 20.5% for 2005 YTD.

Unallocated Adjusted EBITDA for 2006 YTD was $0.2 million compared with $0.1 million for 2005 YTD. These amounts consisted primarily of realized foreign exchange gains.

"While our first half financial results were negatively impacted by the strike and related delayed delivery of higher-margin buses, this period was also characterized by improvement in the US heavy-duty transit bus market," said John Marinucci, President and Chief Executive Officer of New Flyer. "As evidenced in part by the 22% increase in firm bus orders in the first half of 2006, we believe that we're now beginning to experience the positive affects of the pent-up demand attributable to the deferral of bus purchases in recent periods."

New Flyer generated Distributable Cash of $10.4 million, or C$11.9 million, in the 26-weeks ended July 2, 2006. Cash distributions totaled C$24.3 million for this period, with the shortfall, which was primarily attributable to the strike, funded by cash balances. As at July 2, 2006, the Company had cash balances of $17.1 million and a $40 million revolving credit facility, which was undrawn. Cash balances have increased by $13.4 million during 2006 Q2 primarily through a reduction in working capital.

The shortfall in Distributable Cash is expected to be recovered as the production ramp up is achieved. Management believes that the unfavourable financial impact of the strike will not affect the Company’s ability to maintain the current distribution levels for the remainder of the year.

New Flyer reported net earnings of $18.2 million for 2006 YTD compared with $5.4 million for 2005 YTD. The increase was primarily the result of a gain attributable to the reduction in the fair value of the Class B shares and Class C shares of New Flyer Holdings, Inc. This gain was offset by higher interest costs resulting from the change in capital structure as a result of the IPO. These interest costs are higher due to the interest paid on the 14% subordinated notes issued as part of the income deposit securities in the IPO and the distributions paid on the Class B shares and Class C shares.

Management’s expectations relating to the Company’s ability to achieve the production, EBITDA, Adjusted EBITDA and distribution results referred to above are based on the assumption that the Company will be able to successfully execute the planned increased levels of production in the second half of 2006 and to do so on schedule and within the planned costs. One of the risks in the Company’s successful execution of the planned increase in production levels is the availability of additional labour. See also "Forward-Looking Statements" below.

 

Conference Call

A conference call for analysts and interested listeners will be held Tuesday, August 15 at 10:00 a.m. (ET). The call-in numbers for listeners are 416-644-3426 or 866-249-2157. A live audio feed of the call will also be available at:

http://www.newswire.ca/en/webcast/viewEvent.cgi?eventID=1564200

A replay of the call will be available from 12:00 p.m. (ET) on August 15 until 11:59 p.m. (ET) on August 22. To access the replay, call 416-640-1917 or 877-289-8525, enter pass code number 21199684, and then press the pound (#) sign. The replay will also be available on the Company’s web site at www.newflyer.com.

Non-GAAP Measures

Adjusted EBITDA consists of earnings before interest, income taxes, depreciation, amortization and other non-cash charges adjusted for IPO related costs 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. Specifically, management believes that Adjusted EBITDA is the appropriate measure from which to make adjustments to determine "Distributable Cash" (being Adjusted EBITDA decreased for maintenance capital expenditures, principal payments on capital leases, interest on the Company's credit facility and capital leases, interest on New Flyer Industries Canada ULC's subordinated notes (not forming part of IDSs) and cash taxes). 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 1,800 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. New Flyer's Income Deposit Securities 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 New Flyer Industries Inc.’s and 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 include estimated results for the balance of 2006. 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 costs, material losses and costs may be incurred as a result of product liability claims, 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 may change and/or become more onerous, production delays may result in liquidated damages under the Company’s contracts with its customers, 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 contracts, third party debt service obligations may have important consequences to the Company, interest rates could change substantially and materially impact the Company’s profitability, the dependence on limited sources of supply and 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 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 neither New Flyer Industries Inc. nor the Company assumes any obligation to update or revise them to reflect new events or circumstances.

For further information:

Glenn Asham, Chief Financial Officer

Phone: (204) 224-1251

E-mail: investor@newflyer.com