New Flyer Announces Results for the Second Quarter of 2012 Fiscal Year

Summary (U.S. Dollars except as noted):

• Net earnings of $3.6 million in 2012 Q2 increased compared to a net loss of $7.3 million in 2011 Q2.
• Revenue of $227.0 million increased by 0.5% compared to 2011 Q2, as the number of EUs delivered increased by 2.3%.
• Consolidated Adjusted EBITDA of $16.4 million decreased by 18.3% compared to 2011 Q2 due to lower contract margins sales mix.
• Aftermarket Adjusted EBITDA decreased 31.0% compared to 2011 Q2 due to pricing pressure and reduced non-recurring used bus sales.
• Free Cash Flow was C$5.8 million and declared dividends were C$9.5 million.
• The Board approved NFI's new dividend policy of C$0.585 per common share per annum, effective for dividends declared following the redemption of the remaining Subordinated Notes on August 20, 2012.

WINNIPEG, Aug. 8, 2012 /CNW/ - New Flyer Industries Inc. (TSX: NFI) (TSX: NFI.UN) (TSX: NFI.DB.U), ("New Flyer", "NFI", 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 1, 2012 ("2012 Q2"). Full financial statements and Management's Discussion and Analysis (the "MD&A") are available at the Company's web site at: www.newflyer.com/index/financialreport. Unless otherwise indicated all monetary amounts in this press release are expressed in U.S. dollars.

Operating Results

Bus Deliveries (U.S. dollars in thousands)	2012 Q2	2011 Q2	change	2012 YTD	2011 YTD	change
Number of units delivered (EUs)	441	431	2.3%	883	899	-1.8%
Average EU selling price	$447.5	$451.8	-0.9%	$445.8	$425.1	4.9%

Consolidated Revenue (U.S. dollars in millions)	2012 Q2	2011 Q2	change	2012 YTD	2011 YTD	change
Bus Aftermarket	$197.4 29.6	$194.7 31.1	1.4% -4.9%	$393.6 61.0	$382.2 58.0	3.0% 5.2%
Total Revenue	$227.0	$225.9	0.5%	$454.6	$440.2	3.3%

• The increase in 2012 Q2 revenue primarily resulted from a 2.3% increase in total bus deliveries, offset by a 0.9% decrease in average selling price per equivalent unit ("EU").

• The decrease in revenue from aftermarket operations is due to a $1.6 million reduction in used bus sales when comparing the periods, as the revenue from aftermarket operations (excluding used bus sales) in 2012 Q2 was $29.3 million as compared to $29.2 million in 2011 Q2. Used bus sales is not a ongoing source of revenue.

• Revenue from bus manufacturing operations for the 26-week period ended July 1, 2012 ("2012 YTD") also increased compared to the 26-week period ended July 3, 2011 ('2011 YTD"). The 2012 YTD increase is due to higher average selling price per EU in 2012 YTD offset by decreased deliveries resulting from lower production rates in 2012 YTD compared to 2011 YTD to meet management's plan for a sustainable production rate for the 2012 fiscal year.

• Revenue from aftermarket operations for 2012 YTD increased 5.2% compared to 2011 YTD as a result of higher parts volumes in the U.S.

Consolidated Adjusted EBITDA (U.S. dollars in millions)	2012 Q2	2011 Q2	change	2012 YTD	2011 YTD	change
Bus Aftermarket	$11.3 5.1	$12.7 7.4	-11.0% -31.0%	$22.2 10.8	$29.0 13.0	-23.5% -16.6%
Total Adjusted EBITDA	$16.4	$20.0	-18.3%	$33.1	$42.0	-21.3%

• 2012 Q2 bus manufacturing operations Adjusted EBITDA decreased primarily as a result of lower contract margins and lower average selling price which was offset somewhat by increased efficiencies resulting from the Company's Operational Excellence initiatives.

• The decrease in bus manufacturing operations Adjusted EBITDA is primarily a result of a sales mix with lower average margins, decreased investment tax credits realized in 2012 YTD of $0.5 million compared to $3.1 million in 2011 YTD and a $0.5 million charge as a result of the one-time signing bonus provided to union employees under in the Company's Winnipeg collective bargaining agreement; however the benefit will be realized over the remaining two quarters of Fiscal 2012 due to the negotiated wage freeze.

• 2012 Q2 and 2012 YTD aftermarket operations Adjusted EBITDA decreased compared to their 2011 respective periods, primarily due to lower profit margins driven by industry price pressure, the operating costs of the newer parts distribution centers required to achieve future revenue growth and decreased Adjusted EBITDA which resulted from the sale of used buses in 2011 Q2.

Management expects that Adjusted EBITDA during the second half of 2012 will be stronger than 2012 YTD, based on the positive impact derived from the contract sales mix, strategic insourcing and overhead cost reductions.

Net earnings (loss) (U.S. dollars in millions)	2012 Q2	2011 Q2	$ change	2012 YTD	2011 YTD	$ change
Earnings from operations Non-cash charges Interest expense Income taxes (expense) recovered	$10.7 (4.8) (4.2) 2.0	$12.8 (5.9) (13.4) (0.8)	-2.1 1.1 9.2 2.8	$18.7 (7.2) (7.9) 2.7	$27.8 (11.4) (26.6) (3.5)	-9.1 4.2 18.7 6.2
Net earnings (loss)	3.6	(7.3)	10.9	6.3	(13.7)	20.0

The Company reported a net earnings of $3.6 million in 2012 Q2 representing an improvement compared to a net loss of $7.3 million in 2011 Q2, primarily as a result of $9.2 million decrease of finance costs and $2.8 million decrease in income taxes. The decrease in income taxes when comparing the two periods was primarily the result of an $11.1 million decrease in deferred income taxes offset by an $8.3 million increase in current income taxes. The current income tax expense increased primarily as a result of increased Canadian taxable income without the previous benefit of loss carryforwards, whereas the deferred income tax recovered increased in the current period due to the exercise by New Flyer Industries Canada ULC ("NFI ULC") of the redemption right regarding the Company's aggregate principal amount of 14.0% unsecured subordinated notes (the "Subordinated Notes").

Similar to 2012 Q2, 2012 YTD net earnings of $6.3 million increased compared to 2011 YTD net loss of $13.7 million, due to significantly reduced finance costs and decrease in income tax expense which offset the decrease in investment tax credits realized during 2012 YTD.

Liquidity

Free Cash Flow (CAD dollars in millions)	2012 Q2	2011 Q2	change	2012 YTD	2011 YTD	change
Free Cash Flow	5.8	7.9	-25.7%	16.4	12.1	36.3%
Declared dividends	9.5	4.9	94.9%	19.1	9.8	94.9%

Up to this date, the board of directors of NFI (the "Board") has declared annual dividend payments of C$0.86 per common share ("Share'). As previously disclosed, the Board has maintained this dividend rate until NFI ULC redeems the remaining Subordinated Notes on August 20, 2012. On August 8, 2012, the Board approved NFI's new annual dividend rate equal to C$0.585 per Share, effective for all dividends declared following the redemption of the Subordinated Notes.

Provisions have been made to sustain dividends until the reduction of the annualized dividend payment to C$0.585 per Share. Management expects improved cash flow in the second half of 2012 as compared to 2012 YTD as a result of increased Adjusted EBITDA, lower interest costs, lower working capital balances and decrease in dividends paid. The reduced dividend is expected to produce an annual improvement in cash flows of C$12.2 million, based on the current number of Shares outstanding.

Liquidity Position (U.S. dollars in millions)	July 1 2012	April 1 2012	$ change
Cash Amount required for redemption of Subordinated Notes Available funds from revolving credit facility	67.2 (61.7) 55.6	7.5 -     69.5	59.7 (61.7) (13.9)
Total liquidity position	61.1	77.0	(15.9)

During 2012 Q2, the Company increased its cash by $59.7 million, primarily due to $61.2 million of net cash generated by the issuance of 6.25% convertible unsecured subordinated debentures ("Debentures") which will be used to redeem the Subordinated Notes on August 20, 2012.

As at July 1, 2012, there were $21.0 million of direct borrowings and $13.4 million of outstanding letters of credits related to the $90.0 million of secured revolving credit (the "Revolver"). The Revolver increased $14.0 million in 2012 Q2 as a means to finance the increased investment in working capital.

Corporate Structure transition

In 2011 New Flyer formally announced its intention to change its corporate structure from an income deposit securities ("IDS") structure to a traditional common share structure to provide greater financial flexibility to pursue strategic growth and diversification opportunities as well as other benefits.  The non-cash rights offering completed in August 2011 was the initial step in this transaction.  In June 2012 the final steps required to complete the process began and will culminate upon the redemption of the Subordinated Notes on August 20, 2012.

In order to fund the August 2012 redemption, the Company completed a public offering on June 5, 2012, on a "bought deal" basis, of $65.0 million principal amount of Debentures, bearing interest at a rate of 6.25% per annum, payable semi-annually on the last day of June and December commencing on December 31, 2012. The Debentures will mature on June 30, 2017. The pre-tax net interest savings as a result of redeeming 14.0% Subordinated Notes by issuing 6.25% Debentures is approximately $4.0 million per year.

Upon completion of the redemption of the Subordinated Notes, NFI ULC will apply to cease to be a reporting issuer under the securities laws of each province and territory of Canada.  New Flyer will also apply to de-list the IDSs from the Toronto Stock Exchange (the "TSX") and, following such de-listing, the Shares that form part of an IDS will commence trading separately and continue to be listed (together with the current Shares of NFI) on the TSX under the trading symbol "NFI".

Conference Call

A conference call for analysts and interested listeners will be held on Thursday August 9, 2012 at 2:00 p.m. (ET). The call-in number for listeners is 888-231-8191 or 647-427-7450. A live audio feed of the call will also be available at:

http://www.newswire.ca/en/webcast/detail/1012099/1093613

A replay of the call will be available from 5:00 p.m. (ET) on August 9th until 11:59 p.m. (ET) on August 16th.  To access the replay, call toll free 1-855-859-2056 and then enter pass code number 14955924. The replay will also be available on New Flyer'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 certain costs related to offerings and certain other non-recurring charges as set out in the MD&A. "Free Cash Flow" means cash flows from operations adjusted for changes in non-cash working capital items, effect of foreign currency rate on cash, defined benefit funding, business acquisition related costs, costs associated with assessing strategic and corporate initiatives, past service pension costs, proceeds on sale of redundant assets and decreased for defined benefit expense, capital expenditures and principal payments on capital leases. Management believes Adjusted EBITDA and Free Cash Flow are useful measures in evaluating the performance of the Company and/or the Issuer. However, Adjusted EBITDA and Free Cash Flow are not recognized earnings measures and do not have standardized meanings prescribed by International Financial Reporting Standards ("IFRS"). Readers of this MD&A are cautioned that Adjusted EBITDA and Free Cash Flow should not be construed as an alternative to net earnings or loss determined in accordance with IFRS as an indicator of the Company's and/or the Issuer's performance or to cash flows from operating, investing and financing activities as a measure of liquidity and cash flows. A reconciliation of Adjusted EBITDA and Free Cash Flow to net earnings and cash flow from operations, respectively, is provided in the MD&A.

About New Flyer

New Flyer is the leading manufacturer of heavy-duty transit buses in the United States and Canada. The Company's facilities are all ISO 9001, ISO 14001 and OHSAS 18001 certified. With a skilled workforce of over 2,000 employees, New Flyer is a technology leader, 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 diesel-electric hybrid vehicles. All products are supported with an industry-leading, comprehensive parts and support network. The Shares of the Company are traded on the TSX under the symbol "NFI", IDS are traded under the symbol "NFI.UN" and the Debentures are traded under the symbol "NFI.DB.U".

Forward-Looking Statements

Certain statements in this press release are "forward-looking statements", which reflect the expectations of management regarding the Issuer'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 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 to purchase buses and to exercise options and to purchase parts or services at current levels or at all, aggressive competition and reduced pricing in the industry, 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 U.S. federal "Buy-America" legislation, certain states' U.S. content bidding preferences and certain Canadian content purchasing policies 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 as required for current business and operational needs, 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 the Company'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, the availability of labour could have an impact on production levels, the ability of the Company to successfully execute strategic plans and maintain profitability and risks related to acquisitions, joint ventures and other strategic relationships with third parties. The Company and NFI ULC caution that this list of factors is not exhaustive. These factors and other risks and uncertainties are discussed in their 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 assumes no obligation to update or revise them to reflect new events or circumstances, except as required by applicable securities laws.

 

SOURCE: NEW FLYER INDUSTRIES CANADA ULC

Glenn Asham
Chief Financial Officer
Tel: [phone]
E-mail: [email protected]