<PAGE>
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-K
JOINT ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF
THE SECURITIES AND EXCHANGE ACT OF 1934 (FEE REQUIRED)
For the fiscal year ended November 1, 1997
<TABLE>
<S> <C>
Commission File Number 33-49544-01 Commission File Number 33-49544
Blue Bird Corporation Blue Bird Body Company
- ------------------------------------------ ----------------------------------------------
(Exact name of registrant as (Exact name of registrant as
specified in its charter) specified in its charter)
Delaware Georgia
- ------------------------------------------ ----------------------------------------------
(State or other jurisdiction of (State or other jurisdiction of
incorporation or organization) incorporation or organization)
13-3638126 58-0813156
- ------------------------------------------ ----------------------------------------------
(I.R.S. Employer Identification No.) (I.R.S. Employer Identification No.)
3920 Arkwright Road 3920 Arkwright Road
Macon, Georgia 31210 Macon, Georgia 31210
- ------------------------------------------ ----------------------------------------------
(Address of principal executive offices (Address of principal executive offices
including ZIP code) including ZIP code)
(912) 757-7100 (912) 757-7100
- ------------------------------------------ ----------------------------------------------
(Registrant's telephone (Registrant's telephone
number, including area code) number, including area code)
</TABLE>
Securities registered pursuant to Section 12(b) of the Act:
<TABLE>
<S> <C>
None None
--------------- ---------------
(Title of class) (Title of class)
</TABLE>
Securities registered pursuant to Section 12(g) of the Act:
<TABLE>
<S> <C>
None None
--------------- ---------------
(Title of class) (Title of class)
</TABLE>
Indicate by check mark whether the registrants (1) have filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrants were required to file such reports), and (2) have been subject to
such filing requirements for the past 90 days. Yes X No__
Indicate by check mark if disclosure of delinquent filers pursuant to Item
405 of Regulation S-K is not contained herein, and will not be contained, to the
best of registrants' knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-K or any amendment to this
Form 10-K. /x/
<PAGE>
All of the voting stock of the registrants is held by affiliates. All
officers, directors and more than 5% stockholders of the registrants are
deemed "affiliates" of the registrants for the purpose of determining the
foregoing. The registrants, however, do not represent that such persons, or
any of them, would be deemed "affiliates" of the registrants for any other
purpose under the Securities Exchange Act of 1934 or the Securities Act of
1933.
As of January 1, 1998, 8,434,778 shares of Blue Bird Corporation's common
stock and 10 shares of Blue Bird Body Company's common stock were outstanding.
Blue Bird Body Company is a wholly-owned subsidiary of Blue Bird
Corporation. Blue Bird Body Company meets the conditions set forth in General
Instruction I(1)(a) and (b) of Form 10-K and is therefore filing certain
portions of this Form 10-K applicable to it with the reduced disclosure
format.
2
<PAGE>
PART I
ITEM 1. BUSINESS.
GENERAL
Blue Bird Body Company ("Blue Bird" or the "Company"), a wholly-owned
subsidiary of Blue Bird Corporation ("BBC"), is the leading manufacturer of
school buses in North America. Approximately 78% of the Company's net sales
in fiscal 1997 were derived from sales of school bus products. The Company
also manufactures the Q-Bus and Commercial Shuttle ("CS"), which target
purchasers of medium-sized buses for commercial uses, and two luxury
recreational vehicle ("RV") models, the Wanderlodge and the Blue Bird Motor
Coach ("BMC"). Commercial and recreational vehicles accounted for
approximately 17% and 5%, respectively, of the Company's fiscal 1997 net
sales. The Company manufactures both quality steel bus bodies for mounting on
chassis manufactured by third parties and complete bus units (body and
chassis). Chassis generally consist of frames with engines, transmissions,
drive trains, axles, wheels, power steering, brakes and fuel cells. The
Company markets its products primarily through a network of approximately 60
independent distributors, which resell the products to customers, including
municipalities, states, transportation contracting companies, churches and
other independent organizations. Through its special purpose lease financing
subsidiary, Blue Bird Capital Corporation ("Blue Bird Capital"), the Company
provides lease financing alternatives, principally to tax-exempt customers of
its school bus products. Management believes that providing a variety of
alternative leasing packages to its customers creates a significant
competitive advantage for the Company. For the year ended November 1, 1997,
the Company had $576.1 million in net sales and $54.5 million in earnings
before interest, taxes, depreciation and amortization.
Purchasers of school buses are categorized into two ownership groups: (i)
public (consisting of states and school districts); and (ii) private
(consisting of independent transportation contracting companies and other
private entities). In the United States, approximately 75% of the estimated
444,000 school buses currently in operation are publicly owned, with the
remainder being privately owned. Management estimates that deliveries of
school buses in North America in fiscal 1997 totaled approximately 33,400
units. This estimate is based in part on information in industry trade
publications as well as information gathered by the Company's distributors
based on reviews of public school bus bid documentation. In addition,
management estimates that in fiscal 1997, 3,500 units was the total market
demand for the types of school bus and commercial bus products that the
Company manufactures and sells to countries outside of North America. In
fiscal 1997, the Company sold approximately 13,800 school bus units and
estimates that it had approximately 41% market share.
The Company's business strategy is to continue to utilize its leading
market position in the school bus market as a platform from which to expand
its product offerings. The Company will continue to focus on its core school
bus business, while seeking to expand its commercial bus product offerings to
various markets, including the shuttle bus market, the smaller urban bus
market and the "line haul" or inter-city coach market. Within the school bus
market, the Company will continue to emphasize sales to distributors, as
opposed to states and large transportation contracting companies, reflecting
its belief that the former market provides greater growth and profit
opportunities. The Company will also seek to expand its international bus
sales, particularly in developing countries.
3
<PAGE>
The Company's principal executive offices are located at 3920 Arkwright
Road, Macon, Georgia 31210. The Company is organized under the laws of the
state of Georgia and BBC is organized under the laws of the state of Delaware.
INDUSTRY OVERVIEW
SCHOOL BUSES. The two principal components of a school bus are the body
and chassis. Bodies and chassis are sold either as integrated units, provided
by a single supplier, or separately, in which case end-users purchase bodies
and chassis from different suppliers and have the two components assembled by
the bus body manufacturer. Approximately 48% of the Company's school bus
sales in 1997, on a unit basis, were of integrated units. The ability to
provide integrated units enables manufacturers to submit bids on completed
school bus units to school bus end-users. The Company believes that
integrated sales permit school bus body manufacturers to offer end-users a
lower cost complete school bus while increasing their share of the profits
realized on any sale of a unit. Many end-users, particularly those that
participate in a state bid process for school bus purchases, however, may
prefer to purchase the body and chassis separately.
School bus purchasing is typically a centralized process involving orders
of multiple units. Purchasers of school buses are categorized into two
ownership groups: public (i.e., states and school districts); and private
(i.e., independent transportation contracting companies and other private
entities). It has been management's experience that the transportation
director of a state or school district, or the chief procurement officer of a
transportation contracting company, as the case may be, will typically
determine transportation needs on an annual basis. In addition to replacement
requirements based on changes in safety standards and incremental needs due
to pupil population growth, factors which influence the need to purchase
school buses include the age of the existing school bus fleet, changes in
school bus travel routes, regulatory changes such as compliance with new
emissions standards, extracurricular activity usage and changes in the
education structure in the United States such as the development of preschool
"head start" programs, special education programs and magnet schools. In the
case of public purchasers, the transportation director may also be affected
by certain budgetary constraints, and will consider the availability of
financing in making the purchasing decision.
Once the decision relating to the purchase of replacement or new school
buses is finalized, the transportation director or the chief procurement
officer will decide on the type and brand of product to be purchased. Product
performance, manufacturer reputation, the manufacturer's ability to
accommodate specifications regarding bus design, relationships with
distributors, price, the availability of financing alternatives (e.g.,
leasing options), fleet standardization and post-sale support and service are
all key factors influencing the decision to purchase a particular product.
While price is an important factor, it is not the sole determinant of the
purchase decision, and the lowest bid is not necessarily awarded the
contract. As a result, manufacturer and distributor relationships are
critical to the sale of school bus products.
Florida, Kentucky, North Carolina, South Carolina and West Virginia award
contracts for school buses based on a state bid process, with the state
generally serving as the aggregate purchaser on behalf of all of its school
Fdistricts. State officials compile the total number of buses their districts
require and then solicit bids from bus body and chassis manufacturers. This
process is much more competitive and price sensitive than the local bidding
process, and manufacturers generally must be the low bidder to win the
contract. Bus body and chassis manufacturers typically
4
<PAGE>
bid these purchases on a direct basis, rather than through distributors, and
view these contracts as low margin, incremental volume. The Company estimates
that approximately 11% of annual U.S. public school bus purchases are awarded
through these bids.
In the United States, approximately 75% of the estimated 444,000 school
buses currently in operation are publicly owned, with the remainder privately
owned. The Company estimates that approximately 50% of the privately owned
school buses in operation in the U.S. are owned by the five largest national
contractors. These contracting companies are fleet buyers and, therefore,
pricing in this segment of the market is highly competitive. In addition to
these large national transportation contractors, local contracting companies
are also classified as private purchasers of school buses. As is the case
with individual school districts, these smaller institutions typically
purchase buses through distributors.
Management estimates that deliveries of school buses in North America in
fiscal 1997 totaled approximately 33,400 units. In addition, management
estimates that the market demand for school bus and commercial products that
the Company manufactures and sells to countries outside of North America
totaled approximately 3,500 units in fiscal 1997.
COMMERCIAL VEHICLES. Management divides the commercial bus
transportation market into three segments, consisting of (i) public
transportation, (ii) shuttle transportation and (iii) tour, charter and
commuter uses. The public transportation sector consists of several vehicle
markets, including vans, medium-duty buses under 35 feet in length,
heavy-duty buses up to 40 feet, articulated buses up to 60 feet, and
inter-city coaches designed to transport passengers from suburbs to cities.
The shuttle market is broader with users such as airports, car rental
agencies, "park-and-ride" operators, hotels, educational and religious
institutions, and providers of employee and health care-related
transportation. The tour, charter and commuter segment of the market
typically requires large over-the-road coaches ranging from 40 feet to 45
feet in length.
The Company's participation in the broad commercial bus market is
limited, as the Company produces only medium-sized commercial buses as well
as shuttle products. See "--Products." Medium-sized buses are purchased by
public transportation authorities and by tour, charter and commuter operators
to supplement a fleet of large vehicles or to facilitate smaller scale
charter and contract transportation needs. Management believes that rural and
urban public transit authorities are beginning to reevaluate their
traditional preference, especially in urban areas, for fleets consisting
primarily of large buses. Management further believes a trend is developing
toward purchases of the medium-sized buses similar to those built by the
Company, in part because medium-sized buses are more economical and easier to
operate. The Company believes it is well positioned to benefit from this
trend. The shuttle market is served by a variety of products which include a
variety of vans, "cutaway" vans (a fiberglass body on a van chassis), small
and medium-sized coaches and some hybrid van and bus products. Management
believes that the shuttle segment will grow as airports grow larger and move
further away from cities and the number of elderly citizens requiring shuttle
transportation increases.
RECREATIONAL VEHICLES. The Company participates in the luxury niche of the
recreational motor home vehicle market. This segment of the market is small,
relatively stable, and consists of a limited number of competitors. Although
this segment of the market is profitable for the Company, it is not expected to
grow significantly. Management estimates that in a given year, the market
demand is approximately 400 luxury motor home products similar to those
manufactured by the Company
5
<PAGE>
sold in the United States and believes that in order for the Company to
increase sales, it will need to increase its market share relative to its
competitors.
PRODUCT LIABILITY CLAIMS AND INSURANCE COVERAGE
The Company is subject to various product liability claims for personal
injuries and other matters allegedly relating to the use of products
manufactured or sold by it. The Company is also subject to recalls of its bus
products from customers to cure manufacturing defects or in the event of a
failure to comply with applicable regulatory standards. During 1997, the
National Highway Traffic Safety Administration (the "NHTSA") tested a Blue
Bird Type D (as herein defined) model which failed crash tests when fuel
tanks were punctured upon impact. The Company is evaluating with the NHTSA
the scope of a proposed product recall as a result of the NHTSA's
noncompliance determination. If a product recall is issued, management
estimates that the cost of repairs required to be paid by the Company to
bring the vehicle into compliance will not be material. Manufacturing defects
or the failure to comply with applicable regulatory standards can serve as
the basis for a variety of claims from customers of the Company and bus
passengers who use the Company's products.
Management considers product liability litigation to be in the ordinary
course of its business. The ultimate outcome of the claims, or potential
future claims, against it cannot presently be determined and the amount of
the Company's product liability insurance coverage with respect to such
claims varies from year to year. While the Company believes that any losses
and expenses (including defense costs) resulting from such claims will not be
material to the Company's financial position or results of operations, there
can be no assurance that this will be true or that the amount of losses and
expenses relating to any claim or claims will not have a material adverse
effect on the Company. While the Company expects to continue to be able to
obtain adequate insurance coverage at acceptable rates, there can be no
certainty that such coverage will ultimately be available to the Company at
acceptable rates or at all, that future rate increases might not make such
insurance uneconomical for the Company to maintain, that current levels of
deductibles will continue to be available, or that the Company's insurers will
be financially viable if and when payment of a claim is required. The inability
of the Company to obtain adequate insurance coverage at acceptable rates is
likely to have a material adverse effect on the Company. In addition, the
running of statutes of limitations for personal injuries to minor children
typically is suspended during the children's legal minority. Therefore, it is
possible that accidents causing injuries to minor children on school buses may
not give rise to lawsuits until a number of years later. See "--Legal
Proceedings."
For a discussion of other contingent liabilities, including potential
environmental liabilities, see "-- Environmental Matters" and note 11 to the
Notes to Audited Consolidated Financial Statements included elsewhere in this
Report.
GOVERNMENTAL REGULATION
The Company's products must satisfy certain standards applicable to vehicles
established by the NHTSA. Certain of its products must also satisfy
specifications established by other federal, state and local regulatory
agencies, primarily dealing with safety standards applicable to school buses.
The cost of compliance with existing regulations results in an incremental cost
of doing business to the Company and the cost of compliance with future
regulations cannot be predicted
6
<PAGE>
with any degree of certainty and may significantly affect the Company's
operations. Further, a substantial change in any such regulation could have a
significant impact on the business of the Company. In addition, the scheduled
effectiveness in 1998 of more restrictive United States Environmental
Protection Agency ("EPA") emissions standards may impact upon the Company's
operations. See "--Product Liability Claims and Insurance Coverage."
School bus manufacturers must conform to vehicle guidelines set forth in the
Federal Motor Vehicle Safety Standards ("FMVSS"), as well as to state and local
specifications. FMVSS regulations have in the past directly affected
manufacturers of school bus bodies and chassis, as well as end-users, by
altering specifications and, as a result, increasing costs.
With respect to environmental regulation, the most immediate issue facing
the school bus industry will be the effectiveness in 1998 of more restrictive
EPA emissions standards. These regulations will mandate certain engine
changes and result in increased costs to both manufacturers and end-users of
school buses. Blue Bird management believes that the general public will
continue to mandate improved safety standards and ongoing resolution of
environmental issues beyond 1998, and thereby will generate continuing demand
for new school bus models over the long term. See "--Legal Proceedings" for a
discussion of a recall of certain of the Company's products.
LIMITED NUMBER OF CHASSIS SUPPLIERS
In general, buses consist of a body mounted on a chassis, which includes
the bus engine. A substantial portion of the units sold by the Company are
Type C (as defined herein) buses for which the Company does not manufacture a
chassis. The Company offers an "integrated" Type C bus by purchasing a
chassis pursuant to the GM Chassis Agreement (as defined herein) and
assembling it with the Company's Type C bus body. In addition, the Company
sells Type C bus bodies for assembly on non-GM chassis. Because of the
importance of the Type C bus to the Company, obtaining an adequate supply of
chassis could thus become critical to the Company's ability to compete in the
school bus market.
There are only three major chassis manufacturers in the United States:
General Motors Corporation ("GM"), Freightliner Custom Chassis Corp.
("Freightliner") and Navistar International Corporation ("Navistar").
Navistar, which accounts for approximately 60% of the chassis market, owns
AmTran of Illinois, Inc. ("AmTran"), a bus manufacturer that is one of the
Company's major competitors. Since its acquisition of AmTran, Navistar has
continued to make its chassis available to AmTran's competitors as well as to
school districts and other purchasers who wish to combine Navistar chassis
with other bus bodies, such as those made by the Company. There can be no
assurance that Navistar will continue to make its chassis available to
purchasers other than AmTran.
On May 6, 1991, the Company entered into a chassis supply agreement (the "GM
Chassis Agreement") with GM to secure a steady supply of chassis. This agreement
may be terminated by GM or by the Company upon two years' notice to the other
party. There can be no assurance that GM will not terminate the GM Chassis
Agreement. If the GM Chassis Agreement were to be terminated or if, for any
reason, GM were to (i) cease manufacturing chassis or (ii) cease selling them to
the Company and/or school districts and other customers who combine GM chassis
with Blue Bird bodies, there also can be no assurances that (i) Blue Bird would
be able to purchase sufficient quantities of chassis from Navistar and the
remaining suppliers to fill orders or (ii) school
7
<PAGE>
districts or other customers would continue to order bodies from Blue Bird if
such customers cannot be assured of being able to obtain chassis. If the
Company were required to manufacture more chassis for its own use, it would
likely materially effect its future results of operations and, potentially,
its profitability.
PRODUCTS
SCHOOL BUS PRODUCTS
GENERAL. Blue Bird produces a full range of school bus models and it is
the largest manufacturer of both conventional and transit school bus bodies
in the industry. In addition, Blue Bird sells complete Type D buses by
integrating its Type D bodies with chassis manufactured by the Company.
In 1997 Blue Bird derived approximately 17% of its net sales from the
sale of its various school bus body models and 56% of its net sales from the
sale of its integrated school buses. For classification purposes, the school
bus industry has categorized these different models into the following four
general product designations:
Type A. A "Type A" school bus is a conversion of a van or a body
constructed on a van-type compact truck chassis, with a gross vehicle weight
("GVW") rating of 10,000 pounds or less, designed to carry up to 21
passengers. The engine is located in front of the windshield and the entrance
door is located behind the front wheels. The Company offers one model in this
category, the Micro-Bird, which can be ordered in several configurations. The
Company does not manufacture chassis for the Micro-Bird. Chassis are
purchased by the customer and delivered to the Company, which in turn
installs the bus body. Wholesale selling prices for Type A vehicle bus bodies
typically range from approximately $10,500 to $16,000.
Type B. A "Type B" school bus is a body constructed and installed on a
van-type or stripped chassis, with a GVW rating of more than 10,000 pounds,
designed to carry up to 38 passengers. Part of the engine is located beneath
and/or behind the windshield and next to the driver's seat and the entrance
door on a Type B bus is located behind the front wheels. The Company offers
one model in this category, the Mini-Bird, which can be ordered in several
configurations. The Company does not manufacture a Type B chassis. Chassis
are purchased by the customer and delivered to the Company, which in turn
installs the bus body. Wholesale selling prices for Type B vehicle bus bodies
typically range from approximately $13,000 to $22,000.
Type C. "Type C" school buses are the Company's largest-selling product,
accounting for more than half of the vehicles sold by Blue Bird in 1997. The
Type C bus, which is a "traditional" full-size school bus, is a body installed
on a flat back "cowl" chassis, with a GVW rating of more than 10,000 pounds,
designed to carry up to 77 passengers. The engine is located in front of the
windshield and the entrance door is located behind the front wheels. The Company
offers two models in this category, the Conventional and an integrated unit sold
with a GM chassis, each of which can be ordered in several configurations.
Wholesale selling prices for Type C vehicle bus bodies typically range from
approximately $12,500 to $25,000, while prices for integrated products range
from approximately $42,000 to $55,000.
8
<PAGE>
Type D. "Type D" school buses accounted for approximately 20% of the
vehicles sold by the Company in 1997. A Type D school bus is a transit-type
(flat front) body installed on a chassis, with a GVW rating of more than
10,000 pounds, designed to carry up to 90 passengers. Type D buses are sold
only on an integrated basis with a chassis manufactured by the Company. The
engine is located behind the windshield and may be mounted next to the
driver's seat, at the rear of the bus, or midship between the front and rear
axles. The entrance door on a Type D bus is located ahead of the front
wheels. The Company's models in this category include the TC/2000 and the All
American, each of which can be ordered in several configurations. Wholesale
selling prices for Type D vehicle buses (including chassis) typically range
from approximately $45,000 to $95,000.
COMMERCIAL VEHICLE PRODUCTS
Q-Bus. The "Q-Bus," a 37 foot long coach introduced in 1992, enables the
Company to compete in the medium-duty tour, charter and commuter markets. The
unit offers bus operators a medium-duty bus with many of the "big bus"
features, including seating capacities for up to 45 passengers, restroom,
audio and visual systems, luggage capacity of up to 240 cubic feet and engine
options up to 300 horsepower. In 1996 the Company introduced a larger version
of the Q-Bus with seating capacity for up to 47 passengers, additional
luggage capacity and a 400-horsepower diesel engine. This unit is designed to
compete with more expensive over-the-road coaches such as those used by
operators to carry commuters from suburban locations to urban work offices.
Management believes the Company's medium-sized bus products to be a viable
alternative to larger vehicles for a variety of reasons, including the fact
that the medium-sized buses offer lower operating costs and flexibility in
terms of matching bus size to passenger load demands. Wholesale selling
prices for the Q-Bus typically range from approximately $113,000 to $210,000.
CS. The CS series coach is designed primarily for the shuttle market. It
is offered in ten models ranging from 24 feet to 39 feet in length. In 1995,
to address a growing market segment for the airport to city/hotels commutes,
the Company introduced a CS coach known as the EZLoader. The EZLoader is
designed with a low-floor rear-end luggage compartment to allow the operator
fast and easy access for luggage handling. The unit seats up to 30
passengers. In 1996, to meet the growing "demand response" market in the
public transportation sector, in which riders such as disabled and elderly
persons call a shuttle service for door-to-door pick-up and drop-off services
(such as from home to the hospital), the Company introduced the TranShuttle
CS, a 25-foot coach with a flat floor for multiple wheelchair accessibility.
This product has been designed to compete with the lightweight bus and
cutaway van while providing greater durability than is typical of those
products. Wholesale selling prices for CS series coaches typically range from
approximately $51,000 to $89,000.
MODIFIED SCHOOL BUS PRODUCTS. The Company has taken advantage of its
high volume purchases for school bus components, and its rapid assembly-line
efficiencies, to produce and market an adaptation of the Type C and Type D
school bus in commercial form. The bus, known as the "Activity Bus," offers
basic "no-frills" transportation for commuter, shuttle, churches, colleges,
and universities. The product offers basic paint schemes, diesel and natural
gas engine options, and very functional interiors for passenger comfort.
Wholesale selling prices for the Activity Bus typically range from
approximately $12,000 for non-integrated products to $85,000 for integrated
products.
9
<PAGE>
WORK STATION Q AND QMC. The Company's Work Station Q unit and the QMC
are designed to service the executive and corporate transport markets, and
can include features such as luxury seating, a small galley, and a restroom.
Both products are designed to carry a limited number of passengers in comfort
and style. Wholesale selling prices for the Work Station Q and the QMC
typically range from approximately $150,000 to $250,000.
RECREATIONAL VEHICLE PRODUCTS
GENERAL. The Company manufactures complete motor homes by integrating the
motor home shell with Blue Bird-manufactured chassis. The Company offers two
luxury motor home products, both of which are targeted for the premium and
mid- to high-end markets.
WANDERLODGE. The Wanderlodge is a premium motor home manufactured by the
Company. The Wanderlodge is available in two models, 41 and 43 feet in
length, with a capacity of up to six passengers and sleeping accommodations
for four. Key features of the unit include (i) the ultra-premium design of
the product, (ii) steel body construction and a body-on-chassis design, (iii)
a wide selection of optional equipment available to the purchaser, and (iv)
the extensive product support capability provided by Blue Bird's two RV
distributors. During fiscal year 1997, 69% of recreational vehicles delivered
by the Company were Wanderlodge units. Suggested retail prices for the
Wanderlodge range from approximately $550,000 to $650,000.
BLUE BIRD MOTOR COACH. The BMC is offered as a 37- or 40-foot long
motorcoach designed to meet product demand for the expanding
middle-to-high-end segment of the luxury recreational vehicle market. Like
the Wanderlodge, it features steel body construction and a body-on-chassis
design. During fiscal year 1997, 31% of RVs delivered by the Company were BMC
units. The BMC has a suggested retail price ranging from approximately
$350,000 to $465,000.
SERVICE PARTS
All of Blue Bird's distributors maintain parts inventories to service
owners of Blue Bird products. Many of such distributors purchase parts from
Blue Bird's Service Parts Group (the "Parts Group"). In addition to these
sales to distributors, the Parts Group sells parts to fleet accounts on a
direct basis. These direct sales accounts include the U.S. General Services
Administration (the "GSA"), the national transportation contracting companies
and other accounts in southern Georgia, South Carolina and Kentucky. The
Company currently operates an 80,000-square foot facility in Fort Valley,
Georgia to house the Parts Group.
MARKETING AND DISTRIBUTION
The Company sells its bus products through distributors (89% of 1997 net
sales) and directly to end-users (11% of 1997 net sales). During 1997, no
customer accounted for as much as 10% of Blue Bird's net sales. Direct sales
customers include states, transportation contracting companies, the GSA and
all export buyers. All other sales are made through the Company's
distributors. Direct sales typically involve bids for large contracts, which
are highly competitive. Accordingly, direct sales margins are typically lower
than distributor sales margins.
Blue Bird has approximately 60 independent distributors in the U.S. and
Canada, including RV distributors. One of the Company's 26 commercial bus
distributors also distributes the
10
<PAGE>
Company's school bus products. The Company's two RV distributors together
have five locations. One of these distributors, Buddy Gregg Motor Homes,
Inc., accounts for approximately 70% of the Company's RV unit volume.
Many of Blue Bird's school bus distributors have close and longstanding
relationships with transportation directors of states and school districts.
The Company believes that its distributors are well situated to understand
the needs and specifications of local school districts. In 1997, no single
distributor accounted for more than 7% of the Company's sales of school bus
products.
Blue Bird distributors are bound by the terms of a distributor contract,
pursuant to which distributors are granted a non-exclusive right to sell the
Company's buses and service parts in a designated territory. Distributors are
restricted from selling other products which compete with Blue Bird's
products. The Company's distributor contract also requires distributors to
service Blue Bird products. Sales to distributors are on a cash-at-delivery
basis. Sales by distributors to end-users, such as school boards, are also
usually on a cash-at-delivery basis.
Blue Bird's sales organization services all of its distributors and
direct sales customers. Ten regional sales managers work exclusively with
distributors in their respective regions and are responsible for coordinating
sales and marketing campaigns, pricing policies, strategic market planning
and related functions. These regional sales managers regularly visit
distributors in order to disseminate product knowledge, supply marketing
advice and serve as direct distributor support. The regional managers often
accompany distributors' salespeople to meetings with prospective purchasers.
The Company sponsors an annual international sales meeting to bring all of
its distributors together, and regional sales meetings are also conducted
annually to focus on regional strategic planning, advertising and other
issues. Additionally, Blue Bird management meets with a Dealer Advisory
Council on a regular basis to discuss strategic product and market issues,
and to assist in the Company's long-term planning process.
The Company's advertisements are run in national and regional trade
journals for the transportation and education industries. Representatives of
the Company attend national and regional product conventions as well as
conventions for educational trade groups such as the National School Board
Association, the National Association of Pupil Transportation and the
National School Transportation Association. Blue Bird also utilizes its
network of independent distributors to promote its products and disseminate
product literature. Distributors attend these conventions at the state level
and are usually accompanied by a representative of the Company.
LEASING
The Company has provided lease financing to school bus customers since 1984,
principally through its leasing division, Blue Bird Credit ("Blue Bird Credit").
On October 26, 1995, the Company formed a wholly-owned subsidiary, Blue Bird
Capital, for the purpose of expanding the availability of lease financing
alternatives to customers of its school bus products. Blue Bird Capital has
since become the Company's principal provider of leasing alternatives focusing
on tax-exempt lessees. Generally, upon receipt of orders for municipal lease
customers, the Company provides buses to be delivered by Blue Bird Capital to
the appropriate distributor, who in turn delivers the buses to municipal
customers pursuant to leases. Upon receipt of lease documents, Blue Bird Capital
borrows approximately 90% of the lease amount pursuant to the LaSalle Credit
Facility (herein defined) in order to pay the Company. Under the typical Blue
Bird Capital lease with a tax
11
<PAGE>
exempt lessee, title is held by the lessee with a lien held by Blue Bird
Capital. The average lease term is approximately three years and the lessee's
down payment is typically 10% of the lease amount. The Company accounts for
the lease as a sale and the related borrowings as long-term debt. Under the
LaSalle Credit Facility, Blue Bird Capital is required to maintain certain
financial ratios, including a ratio of Total Liabilities to Tangible Net
Worth, that cannot exceed 10 to 1. Blue Bird Capital pays the Company as
promptly as possible and generally does not carry unsold inventory. Leases
held by Blue Bird Capital are generally tax-exempt and accrue interest at
rates ranging from 5.06% to 8.00%. The Company and Blue Bird Capital have
entered into an Income Taxes Agreement whereby the Company reimburses Blue
Bird Capital for the tax benefit generated by the tax free leases.
MANUFACTURING PROCESS
The production of Blue Bird's extensive line of bus models involves
various assembly processes. The bus body assembly process begins with the
assembly of floor panels on a carriage that will carry the body assembly
along the production line. Roof bows, internal and external metal panels are
riveted in place and front and rear sections are added prior to painting.
Windows, seats, flooring and other finishing items are added prior to
attaching the bus body to the chassis. Each Blue Bird chassis is manufactured
for a specific body, and a copy of the production order travels through the
production process with the chassis. All of the chassis built by Blue Bird
are for use with a Type D bus body. Some of these transit-type buses require
the engine to be mounted in the front of the chassis, and others specify
mounting in the rear. All Blue Bird chassis are tested to check the gauges,
speedometer, fluid systems and electrical connections for the bus body
components.
The construction of both bodies and chassis must conform to various state
and federal regulations. The most significant and comprehensive of these
regulations is set forth in the FMVSS, which apply to all school buses built
during and after 1977. The FMVSS specify requirements for a variety of
vehicle components including controls and displays, automatic transmission,
defrost/defog systems, windshield wipers, braking systems, reflectors and
lights, mirrors, vehicle identification numbers, tires and wheels,
accelerator controls, warning devices, occupant protection systems, steering
systems, glazing materials, seats, windshields and windows, rollover
protection, body joints and fuel systems. See "--Governmental Regulation."
INTERNATIONAL
Other than maintaining a manufacturing facility in Canada, which accounted
for sales of approximately 1,040 buses to Canadian customers in 1997
(approximately $32.7 million in net sales), and a facility in Monterrey, Mexico,
the Company's operations are based in the United States. The Company exported
approximately 530 bus products in 1997, primarily to developing countries. Since
foreign purchases of Blue Bird buses are typically non-school-related, the
Company is unable to rely on the perceived strengths and marketability of its
traditional school bus products. However, the Company believes that there are
opportunities to grow its export business, particularly in developing countries,
as these countries begin to demand additional basic transportation products. In
general, the Company plans to increase its focus on the export segment of its
businesses by developing modified school bus and commercial products which meet
the specifications of purchasers in the Middle East, Africa, Europe, Mexico and
Central and South America.
12
<PAGE>
In Mexico, the easing of import restrictions on new trucks and buses in
connection with the North American Free Trade Agreement may present a
significant opportunity for Blue Bird to expand its export business in that
region; however, Blue Bird's ability to expand its business in Mexico depends
largely on the stability of Mexico's economy. The opening of this marketplace
could generate opportunities in other Latin American countries as well as
enhance the reputation of Blue Bird's products throughout the region. Blue
Bird's Mexican plant currently is used primarily to produce vehicles which
are imported into the United States, but could be used in the future to
service Latin American markets.
The Q-Bus and CS bus may also provide opportunities overseas,
particularly in Western Europe where conventional North American school bus
bodies and chassis are not marketable. In Eastern Europe, the Company's
current product line may be salable as the region becomes accessible to
exporters. In addition, the Company has developed a prototype right-hand
drive chassis which will be used with the Q-Bus body as a product for
selected Western European and African countries. Deliveries to these regions
were minimal during 1997.
NEW PRODUCT DEVELOPMENT
Blue Bird's research and development program studies bus sales trends to
identify potential growth opportunities for the business and designs products
to exploit these growth opportunities. This process includes evaluating
potential new materials and components for use in existing products as well
as developing new product designs, especially for the Company's commercial
and RV product lines. Developmental projects are currently underway for
expanded product offerings in the commercial market. Blue Bird's
manufacturing processes incorporate sufficient production flexibility to
enable Blue Bird to produce new designs with minimum lead time. Research and
development costs for 1997 were $.7 million.
COMPETITION
SCHOOL BUS MARKET. Four major school bus manufacturers, Blue Bird, Thomas
Built Buses, Inc. ("Thomas"), and CBW, Inc., which are privately owned
companies, and AmTran, which was acquired by Navistar in the fourth quarter
of 1995, account for substantially all dollar sales of school buses. All of
these companies manufacture bus bodies which are mounted on a chassis
supplied by GM, Freightliner and Navistar, although GM has agreed to supply
chassis for Type C bus bodies exclusively to Blue Bird pursuant to the GM
Chassis Agreement. See "--Raw Materials and Components." The Company and
Thomas, which together accounted for approximately two-thirds of aggregate
domestic school bus sales in 1997, manufacture chassis as well as bodies for
certain of their bus models. Competition in the industry is intense, as all
four manufacturers typically compete for each significant contract that comes
up for bid.
The three major school bus chassis manufacturers are GM, Freightliner and
Navistar. Of these, Navistar is the leading manufacturer, accounting for
approximately 60% of sales in 1997. The Company does not believe the
Navistar's recent acquisition of AmTran will have a material impact on the
Company's business. In the conventional chassis market, Navistar currently
continues to make its chassis available to all bus body manufacturers. See
"--Limited Number of Chassis Suppliers."
13
<PAGE>
Since Blue Bird does not manufacture discrete chassis units for sale to
third-party purchasers, the Company does not directly compete with other
chassis manufacturers. However, the Company has experienced indirect
competition with some of these manufacturers, particularly Navistar, in the
integrated bidding process.
COMMERCIAL MARKET. The Company has different competitors in each of the
major commercial market segments. In the medium-duty tour, charter, and
commuter market, the Company's principal competitors include Eldorado
National, a business of Thor Industries, Inc. ("Eldorado"), and Metrotrans
Corporation ("Metrotrans"). Its competitors in the shuttle market are
Champion Motor Coach, Inc. ("Champion"), Eldorado, Goshen Coach, Metrotrans,
Supreme Corporation and Thomas. In the urban and rural transit market, the
Company's principal competitors are Eldorado, Champion and Thomas.
RV MARKET. In the motor home market, the Company considers its
competition to be those companies building high-end motor homes on
over-the-road coaches such as those produced by Prevost Car, Inc., Motor
Coach Industries, Inc., Marathon Coach, Inc., Liberty Coach, Inc., Vantare
International, Inc., Country Coach, Inc., Mitchell Coach Mfg. Co., and Custom
Coach Corp. An additional competitor, Newell Coach, Inc., is the only
high-end manufacturer that builds on its own chassis and body similar to the
Wanderlodge. There are several other small competitors who periodically enter
and exit the market. Although the BMC has a steel body construction like the
Wanderlodge, it also competes with motor home products made by Monaco Coach,
Inc., Beaver Motor Coach, Inc., Country Coach, Inc., American Eagle by
Fleetwood Enterprises, Inc., and Foretravel, Inc.
RAW MATERIALS AND COMPONENTS
The largest production-related expense incurred by the Company is the
cost of purchased materials. In fiscal year 1997, material purchases
represented approximately 71% of total production costs. The Company
purchases raw materials and components from over 2,500 suppliers. Other than
GM, the Company's principal chassis supplier, no one supplier accounts for
more than 10% of the Company's aggregate expenditures on raw materials and/or
components. Since Blue Bird does not manufacture engines and does not
manufacture chassis for its Type A, Type B and Type C bus products, the cost
of engines, purchased chassis and components for Company-manufactured chassis
constitute the largest components of the Company's material expense.
Because Type A and Type B bus purchasers obtain their chassis separately
and look to the Company only for a bus body, chassis supply is relevant for
these product lines only to the extent that it may impact the number of Type
A and Type B bus bodies ultimately sold. The Company manufactures all of its
Type D chassis, with the result that chassis components constitute a major
portion of Type D production costs.
The three major school bus Type C chassis manufacturers are GM,
Freightliner and Navistar. Navistar is the industry leader with a market
share estimated by market researchers of in excess of 60% in 1997. In late
1990, management of Blue Bird was concerned about the possibility that Ford
and GM might decide to discontinue supplying Type C chassis, resulting in a
situation in which Navistar might become the sole supplier of these Type C
chassis and thus be in a position to exert increased influence over school
bus manufacturers. Type C school buses represent approximately
14
<PAGE>
63% of the total units sold by the Company. In addition, a trend toward
integrated bidding (body and chassis) among school bus purchasers caused Blue
Bird to consider establishing a formal relationship with a Type C chassis
supplier to enhance the Company's competitive position in the Type C bus
segment of the market. Blue Bird and GM entered into the GM Chassis Agreement
in May 1991. The agreement can be terminated by either party on two years'
notice. As of the date of this Report neither party has given notice of
termination. In general, management does not believe that termination of the
GM Chassis Agreement would have a material adverse effect upon the Company's
operations, because management believes that chassis would be available from
other suppliers. However, there can be no assurance that, given the limited
number of chassis suppliers, the Company will not be materially adversely
affected in its manufacturing efforts. See "--Limited Number of Chassis
Suppliers."
Under the terms of the GM Chassis Agreement, GM supplies its medium-duty
chassis for Type C school buses to Blue Bird on an exclusive basis, and Blue
Bird purchases the Type C chassis model exclusively from GM. Nothing in the
GM Chassis Agreement precludes the Company from mounting its bus bodies on
other makes of chassis if the chassis are purchased by Blue Bird's customers
or distributors. In addition, the Company is not required to purchase a
minimum number of chassis from GM under the GM Chassis Agreement. The Company
believes that offering an integrated Type C product permits the Company to
offer a competitively priced product while allowing it to realize a profit on
the sale of the chassis, thereby increasing the total amount of profit that
the Company realizes on the sale of each unit. The Company's distributors and
GM's 750 medium-duty truck dealers participate in servicing the end user
after the initial sale. This enhanced network provides the Blue Bird/GM
product with broad post-sale servicing and support.
BACKLOG ORDERS
As of November 1, 1997, the dollar amount of backlog orders believed by
the Company to be firm totaled approximately $314 million. It is expected
that all such orders will be filled during fiscal year 1998.
PATENTS, LICENSES AND TRADEMARKS
The Company owns and maintains registrations for the Blue Bird trademark
and variations thereof in 49 countries, including the United States and
Canada and monitors the status of its trademark registrations to maintain
them in force and to renew them as required. Management believes that the
Blue Bird trademarks are valuable because of the Company's strong presence in
the bus market. Accordingly, the Company seeks to eliminate any infringement
thereon. The Company is not currently aware of any such infringement. In
addition, the Company has obtained patent protection in the United States on
two safety-related components used in its buses. One component is related to
an auxiliary heat system (which patent protection will expire in 2009) and
the second component is related to a window opening mechanism (which patent
protection will expire in 2010). The expiration of the patent protection of
these two components is not expected to have a material adverse effect on the
Company's financial condition or result of operations. The Company also takes
steps, including legal action, to protect its patent, trademark and trade
name rights and proprietary rights respecting product design and technology
when circumstances warrant such action.
15
<PAGE>
SEASONALITY
The Company's sales show seasonal variation which is typical of the
general industry seasonality. A majority of the Company's sales occur in the
third and fourth quarters of the fiscal year, a pattern typical for the
industry. For additional data on the seasonal nature of the Company's sales,
see "Management's Discussion and Analysis of Financial Condition and Results
of Operations--Liquidity and Capital Resources."
EMPLOYEES
As of January 1, 1998, the Company had approximately 2,636 employees, of
whom approximately 2,170 were hourly workers. Blue Bird's U.S. and Canadian
employees are not represented by any collective bargaining group. Blue Bird's
Mexican employees are required by local law to be members of a union. The
Company historically provided a competitive wage and benefit program and has
an active communications program with its employees. Blue Bird has a
four-day, 10-hour-per-day work week, which management believes is viewed as a
positive feature by its labor force. The Company believes that its
relationship with its employees is satisfactory.
ENVIRONMENTAL MATTERS
The Company's operations and properties are subject to numerous federal,
state, local and international laws and regulations, including those
governing the use, storage, handling, transportation, generation, treatment,
emission, release, discharge and disposal of certain materials, substances
and wastes (collectively, "Hazardous Materials"), the remediation of
contaminated soil and groundwater, and the health and safety of employees
(collectively, "Environmental Laws"). Violation of such Environmental Laws,
even if inadvertent, could have an adverse impact on the operations, business
or financial results of the Company. As such, the nature of the Company's
operations exposes it to the risk of claims with respect to such matters and
there can be no assurance that material costs or liabilities will not be
incurred in connection with such claims.
The Company maintains an inactive landfill site at its Fort Valley,
Georgia, location which is subject to regulation pursuant to the U.S.
Resource Conservation and Recovery Act, as amended ("RCRA"). RCRA is
administered in Georgia by the Environmental Protection Division of the
Georgia Department of Natural Resources ("EPD"). The Company has closed its
Fort Valley landfill site pursuant to a permit from the EPD that contains
certain conditions, including 30-year post-closure groundwater monitoring. In
connection with such permit, the Company maintains a letter of credit to
cover the expected cost of monitoring over the life of the monitoring
requirement. The Company currently estimates post-closure costs for the site
at $456,000. The Company's estimate of post-closure costs is subject to
periodic adjustment based on EPD regulations.
Monitoring by the Company has detected increased levels of solvents in
groundwater near its Fort Valley site, and the Company has so advised the
EPD. Continued monitoring and testing is required to ascertain the source of
these solvents. If it is determined that the Company's landfill is the source
of such solvents, corrective action will be required. The Company believes
that the cost of any corrective action that might be required will not be
material to its results of operations or financial condition.
16
<PAGE>
The Company has discovered petroleum contamination on a portion of its
Fort Valley facility leased to the Fort Valley Utilities Commission (the
"Utilities Commission"). The contamination apparently originated from
underground storage tanks operated by the Utilities Commission in connection
with an electrical generating facility. The Utilities Commission has reported
the contamination to EPD and is financing site investigation and cleanup.
The Comprehensive Environmental Response, Compensation, and Liability Act
of 1980, as amended ("CERCLA"), and similar state laws provide for responses
to and strict liability for releases of certain Hazardous Materials into the
environment. These obligations are imposed on certain potentially responsible
parties ("PRPs"), including any person who arranged for the treatment or
disposal of Hazardous Materials at a facility. Generally, liability to the
government under CERCLA is joint and several. The Company has been named a
PRP at the Des Moines barrel and drum site in Des Moines, Iowa and the
Seaboard chemical site in Jamestown, North Carolina. In both instances, the
Company is considered a DE MINIMIS PRP. In 1993, the Company settled its
liability for cleanup costs at the Des Moines barrel and drum site for
$5,250. The settlement contains a re-opener provision in the event future
cleanup costs are required, but the Company is not aware of any anticipated
cleanup costs in addition to those covered in the settlement agreement. In
1995, the Company executed an administrative Order on Consent among the North
Carolina Department of Environment, Health and Natural Resources, the
Seaboard PRP Group II, and the City of High Point, North Carolina, covering
the investigation of cleanup alternatives at the Seaboard chemical site. The
Company anticipates that it will have the opportunity to enter into a DE
MINIMIS buy-out relating to cleanup costs within the next two years, which
buyout is expected to provide a release from any further liability in
connection with the Seaboard site. Although the cost of such buyout is not
currently known, it is not expected to be material.
Based upon its experience to date, the Company believes that the future
cost of compliance with existing Environmental Laws, and liability for known
environmental claims pursuant to such Environmental Laws, will not have a
material effect on the Company's capital expenditures, earnings or
competitive position. However, future events, such as new information,
changes in existing Environmental Laws or their interpretation, and more
vigorous enforcement policies of regulatory agencies, may give rise to
additional expenditures or liabilities that could be material.
17
<PAGE>
ITEM 2. PROPERTIES.
Blue Bird owns and operates seven facilities, six of which are manufacturing
facilities, in five different locations in the U.S., Canada and Mexico. In the
aggregate, these plants have approximately 1.8 million square feet of production
area. Blue Bird management considers all of these facilities to be
state-of-the-art in the school bus manufacturing industry. All of these
facilities are subject to liens in favor of Bankers Trust Company, as agent for
itself and other lenders, pursuant to the terms and provisions of the New
Credit Agreement. See "--Liquidity and Capital Resources."
The table below provides summary descriptions of each of the plants.
<TABLE>
<CAPTION>
Square
Plant Location Products Feet Empl.(a)
- ----------------------------- ----------------------------- ---------------------------- ---------- -----------
<S> <C> <C> <C> <C>
Blue Bird Body Company Fort Valley, Georgia TC/2000, Q-Bus, CS,
All-American, parts
fabrication 730,000 1,354
Service Parts Fort Valley, Georgia Parts 80,000 N.A.(b)
Wanderlodge Fort Valley, Georgia Wanderlodge, BMC, parts
fabrication 216,000 260
Blue Bird North Georgia LaFayette, Georgia Conventional, TC/2000 216,000 289
Blue Bird Midwest Mt. Pleasant, Iowa Conventional, Mini-Bird,
TC/2000, Micro-Bird 227,400 291
Blue Bird Canada Brantford, ON (Canada) TC/2000, Conventional,
Micro-Bird, parts
fabrication 251,395 319
Blue Bird de Mexico Monterrey, Mexico Conventional 118,310 123
--------- -----
Total Company 1,839,105 2,636
</TABLE>
- ------------------------
(a) As of January 1, 1998.
(b) Included in the number of employees for Blue Bird facility in Fort Valley,
Georgia.
If Blue Bird operated all of its assembly plants at "maximum capacity,"
defined as two eight-hour shifts per day, five days per week, 250 days per year,
the Company could manufacture approximately 27,300 units per year. The Company's
capacity to fabricate all of the parts needed to build the buses is a constraint
as the Company's present fabrication facilities have the capacity to support the
production of approximately 25,000 units per year. With an investment of
approximately $2.5 million in additional equipment, Blue Bird's fabrication
capacity could support approximately 28,500 units per year.
ITEM 3. LEGAL PROCEEDINGS.
Blue Bird currently is a defendant in approximately 17 product liability
suits. The Company aggressively defends product liability cases and insists that
component manufacturers and chassis manufacturers such as GM and Navistar and
smaller parts suppliers stand behind their portions of the product by either
asserting a breach of warranty claim against such supplier or manufacturer,
18
<PAGE>
or claiming a right of indemnification for such supplier or manufacturer
pursuant to the terms of the Company's standard purchase order agreements or
the relevant supplier agreement. The Company manufactures certain components
itself and assembles the various components into the completed vehicle, which
may give rise to independent liabilities. Moreover, the Company's manufacture
of chassis for its Type D school buses may expose the Company to liability
associated with such chassis. The amount of product liability insurance that
the Company has in place has varied significantly from year to year. The
Company's policies generally provide that the Company is responsible for the
costs of defending product liability claims, although Blue Bird's recent
insurance plan has included some participation by insurers in such costs at
certain levels.
As of the date of this Report, neither the outcome of the Company's pending
product liability cases nor the amounts of any company liabilities related to
these cases are known. The Company's insurance coverage for occurrences in each
of the past several years has been $25 million in excess of a $2.5 million
deductible (exclusive of excess liability coverage). There is no certainty that
the currently available coverage will remain available to the Company in the
future or at all, that future rate increases might not make such insurance
economically impractical for the Company to maintain, that current deductible
levels will be maintained, or that the Company's insurers will be financially
viable if and when payment of a claim is required.
In addition, the statute of limitations for injuries to minor children
(which varies between one and six years, depending on the state) does not
generally begin to run until the child reaches majority; therefore, there may be
potential claims of which Blue Bird is not aware (or accidents of which Blue
Bird was aware, but which did not produce any lawsuit) involving accidents going
back for a number of years. In the ordinary course of events, Blue Bird believes
that it receives notice of most potential claims within a reasonable time of the
occurrence, but there can be no assurance that Blue Bird is aware of all such
potential claims.
Management believes that, considering, among other things, the Company's
insurance coverage, the ultimate resolution of these matters will not have a
material adverse impact on the Company's financial position or results of
operations, and that any losses and expenses (including defense costs) resulting
from product liability claims will be within the applicable insurance coverage.
However, there can be no assurance that this will be true or that the amount of
losses and expenses relating to any claim or claims will not have a material
adverse effect on the Company.
Several owners of motor homes made by Blue Bird have asserted claims under
state laws addressing new vehicle defects. Such claims typically seek a refund
of the purchase price of the vehicle. Management believes that the resolution of
such claims, which are not insured, will not have a material effect on the
Company.
Blue Bird, like other vehicle manufacturers, is also subject to recalls of
its products in the event of manufacturing defects or non-compliance with
applicable regulatory standards. Such recalls can engender claims. During 1997,
the NHTSA tested a Blue Bird Type D (as herein defined) model which failed crash
tests when fuel tanks were punctured upon impact. The Company is evaluating with
the NHTSA the scope of a proposed product recall as a result of the NHTSA's
noncompliance determination. If a product recall is issued, management estimates
that the cost of repairs required to be paid by the Company to bring the vehicle
into compliance will not be material.
19
<PAGE>
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY-HOLDERS
Not applicable.
20
<PAGE>
PART II
ITEM 5. MARKET FOR THE REGISTRANTS' COMMON EQUITY AND RELATED STOCKHOLDER
MATTERS
(a) Market Information.
The Company has only one class of common equity outstanding, all of which is
owned by BBC. Consequently, there is no established public trading market for
the common equity of the Company.
BBC has only one class of common equity outstanding, which is owned
exclusively by affiliates of MLCP, certain directors of BBC and the Company and
certain members of management of the Company. See "Security Ownership of Certain
Beneficial Owners and Management." Consequently, there is no established public
trading market for the common equity of BBC.
(b) Holders
As of January 1, 1998, there was one holder of the Company's common stock
and 22 holders of BBC's common stock.
(c) Dividends
On November 19, 1996, the Company completed an overall recapitalization
pursuant to which the Company refinanced approximately $86 million (as of
November 2, 1996) of its indebtedness and paid a special cash dividend to BBC of
$201.4 million (the "Blue Bird Dividend") on all shares of its common stock,
$.10 par value per share ("Blue Bird Common Stock"). Immediately after the
declaration of the Blue Bird Dividend, the Board of Directors of BBC declared a
special cash dividend and made payments in the aggregate amount of $201.4
million on all shares of its common stock, $.01 par value per share ("BBC Common
Stock") and in respect of options to purchase BBC Common Stock (collectively,
the "BBC Distribution" and, together with the Blue Bird Dividend, the
"Distribution"). Holders of BBC options received cash payments and were not
required to exercise their options to receive their pro rata portion of the BBC
Distribution, nor were they entitled to any antidilution adjustment to the
exercise price for their options.
(d) Recent Sales of Unregistered Securities
As part of the Recapitalization (herein defined), holders of $50 million
aggregate principal amount (or 100%) of the Company's then outstanding 11 3/4%
Senior Subordinated Notes due 2002, Series B (the 4 "Old Notes") ("Selling
Holders") sold their Old Notes to the Company for aggregate payments (including
accrued interest) of approximately $53.7 million. The Company's then-existing
bank credit agreement (the "Old Credit Agreement"), under which $36 million of
indebtedness was outstanding at November 2, 1996, was replaced and refinanced by
an amended and restated credit agreement (the "New Credit Agreement"), which
provides for, among other things, aggregate availability of $255 million,
including $175 million of term loan facilities and an $80 million working
capital facility. In addition, the Company offered and sold $100,000,000
aggregate principal amount of 10 3/4% Senior 4 Subordinated Notes due 2006 (the
"144A Notes")(the "144A Note Offering"). Proceeds from the 144A Note Offering,
borrowings under the New Credit Agreement and cash on hand were used to fund the
retirement of the Old Notes, the refinancing of the Old Credit
21
<PAGE>
Agreement and the Distribution, and to pay related fees and expenses. The
144A Notes Offering, the retirement of the Old Notes, the replacement of the
Old Credit Agreement with the New Credit Agreement and the Distribution are
collectively referred to herein as the "Recapitalization." In connection with
the sale of 144A Notes pursuant to the Purchase Agreement dated November 13,
1996, between the Company, BBC, Merrill Lynch & Co., Merrill Lynch, Pierce,
Fenner & Smith ("Merrill Lynch"), and BT Securities Corporation
(collectively, the "Initial Purchasers") the Initial Purchasers became
entitled to the benefits of the Registration Rights Agreement dated as of
November 19, 1996 (the "Registration Rights Agreement").
As a result of the Recapitalization, no Old Notes remain outstanding.
As of January 26, 1997, all of the 144A Notes have been exchanged for
10 3/4% Senior Subordinated Notes due 2006 (the "Exchange Notes"). The
Exchange Notes are registered securities of the Company. No 144A Notes
remain outstanding.
22
<PAGE>
ITEM 6. SELECTED FINANCIAL DATA
Set forth below is certain selected historical consolidated financial
data for BBC for fiscal years 1997, 1996, 1995, 1994 and 1993. The selected
historical consolidated financial data as of and for the fiscal years
indicated were derived from the financial statements of BBC and subsidiaries
which were audited by Arthur Andersen LLP. Currently, BBC conducts no
independent operations and has no significant assets other than the capital
stock of Blue Bird. The selected historical financial data set forth below
should be read in conjunction with the consolidated financial statements of
BBC and the notes thereto included elsewhere in this Report.
<TABLE>
<CAPTION>
Fiscal Year Ended
-------------------------------------------------------------------
November 1, November 2, October 28, October 29, October 30,
1997 1996 1995 1994 1993
------------- ------------- ----------- ----------- -----------
(dollars in millions)
<S> <C> <C> <C> <C> <C>
Income Statement Data:
Net sales...................................... $ 576.1 $ 570.2 $ 517.4 $ 476.2 $ 413.5
Cost of goods sold............................. 473.4 474.1 430.6 392.9 340.5
------ ------ ----------- ----------- -----------
Gross profit................................... 102.7 96.1 86.8 83.3 73.0
Selling, general and administrative expenses... 62.4 42.6 39.8 39.0 36.3
Amortization of goodwill and non-compete
agreements................................... 3.8 3.8 4.7 5.6 5.6
------ ------ ----------- ----------- -----------
Operating income (loss)........................ 36.5 49.7 42.3 38.7 31.1
Interest income................................ 6.3 7.0 4.6 4.1 2.9
Interest expense............................... (33.8) (16.9) (18.5) (17.4) (18.2)
Other income (expense)......................... 1.9 0.2 0.1 0.2 0.7
------ ------ ----------- ----------- -----------
Income (loss) before income taxes.............. 10.9 40.0 28.5 25.6 16.5
Provision (benefit) for income taxes........... (2.7) 14.8 11.6 10.2 6.9
------ ------ ----------- ----------- -----------
Net income before extraordinary item........... 13.6 25.2 16.9 15.4 9.6
Loss on extinguishment of debt................. (3.0) (1.4) -- -- --
------ ------ ----------- ----------- -----------
Net income (loss).............................. $ 10.6 $ 23.8 $ 16.9 $ 15.4 $ 9.6
------ ------ ----------- ----------- -----------
------ ------ ----------- ----------- -----------
Balance Sheet Data (As of End of Period):
Working capital................................ $ 99.3 $ 80.4 $ 61.7 $ 65.3 $ 52.7
Total assets................................... 412.5 391.0 379.8 332.8 342.1
Long-term debt, excluding current maturities... 339.6 131.4 113.8 125.8 135.8
Redeemable common stock, net................... 20.7 29.3 20.9 17.5 11.0
Stockholders' equity (deficit)................. (45.1) 118.2 102.6 88.8 80.7
</TABLE>
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
GENERAL
Approximately 78% of the Company's fiscal 1997 net sales are derived from
school bus sales and approximately 17% and 5% of the Company's fiscal 1997
net sales are derived from the sale of commercial and recreational vehicles,
respectively. From fiscal 1993 to fiscal 1997, the Company's gross profit,
and with the exception of fiscal 1997, operating income, have risen primarily
due to increasing sales volume. Fiscal 1997 operating income was affected by
a one time charge of $16.1 million related to the Recapitalization. The
Company's operations are affected by trends in the number of students
enrolled in grades kindergarten through 12 and overall educational spending
by local and state governments as well as by the federal government. In
addition to incremental needs due to pupil population growth and replacement
requirements based on changes in safety standards, factors which influence
the need to purchase school buses include the age of the existing school bus
fleet, changes in school bus travel routes, regulatory changes such as
compliance with new emissions standards, extracurricular activity usage and
changes in the education structure in the United States such as the
development of preschool "head start" programs, special education programs
and magnet schools. The Company's experience has been that during periods of
stable or increasing student enrollment, demand for its core school bus
products has also remained stable or increased.
In 1993 the Company initiated a project to review its computer hardware
and software to ensure that its computer applications will not fail or create
erroneous results as a result of the use of two digits in various program
date fields (the "Year 2000 issue"). The Company's cost of addressing the
Year 2000 issue is not expected to be material. While the consequences of an
incomplete or untimely resolution of the Year 2000 issue could be expected to
have a negative effect on the future financial results of the Company, the
Company expects that its Year 2000 issues will be satisfactorily resolved
well before the year 2000.
23
<PAGE>
RESULTS OF OPERATIONS
The discussion of results of operations that follows is based upon and
should be read in conjunction with the financial statements, including the notes
thereto, included elsewhere in this Report. Although the financial statements
are consolidated financial statements of BBC, the Company's parent, BBC is a
holding company and, as such, there would be no material differences in the
operating results of BBC, as compared with the Company. The following table sets
forth certain operating results as a percentage of net sales for the historical
periods indicated:
Fiscal Year Ended
-------------------------------------------
November 1, November 2, October 28,
1997 1996 1995
------------- ------------- -------------
Net sales.......................... 100.0% 100.0% 100.0%
Cost of goods sold................. (82.2) (83.1) (83.2)
Gross profit....................... 17.8 16.9 16.8
Selling, general and
administrative expense............ (10.8) (7.5) (7.7)
Operating income................... 6.3 8.7 8.2
Fiscal 1997 Compared to Fiscal 1996. Net sales increased to $576.1 million
in fiscal 1997 from $570.2 million in fiscal 1996, an increase of $5.9 million
or 1.0%. This increase was primarily due to increased sales volume of the Type C
units.
Gross profit increased to $102.7 million in fiscal 1997 compared to $96.1
million in fiscal 1996, an increase of $6.6 million or 6.9%. The increase was
primarily due to increased gross margin. The gross margin increased to 17.8%
from 16.8% in 1996. The margin increase was due to selling more higher gross
margin Type C units as compared to fiscal 1996.
Selling, general and administrative expenses increased to $62.4 million
in fiscal 1997 compared to $42.6 million in fiscal 1996, an increase of $19.8
million or 46.5%. The increase was primarily due to a $16.1 million
distribution paid as a result of the Recapitalization to certain members of
management as stock option holders which was recorded as compensation. The
remaining difference was due mainly to increased engineering costs as well as
a negotiated settlement in a product liability case.
Interest income decreased to $6.3 million compared to $7.0 million in fiscal
1996. The decrease was due in part to lower investment income resulting from
lower cash available for investment during 1997 as compared to 1996. Other
interest income, excluding interest related to leasing, was also lower.
Interest expense increased to $33.8 million in fiscal 1997 as compared to
$16.9 million in fiscal 1996. The increase was due primarily to the higher debt
and interest rates resulting from the Recapitalization.
For fiscal 1997, there was an income tax benefit of $2.7 million compared to
an income tax provision of $14.8 million for fiscal 1996. The decrease was due
in part to income before income taxes being significantly lower in fiscal 1997
than fiscal 1996. In addition, due to the deductibility of the distributions
paid to management shareholders from the Recapitalization, the resulting income
24
<PAGE>
tax benefit more than offset the income tax provision on operating income,
resulting in a net income tax benefit for fiscal 1997.
Fiscal 1996 Compared to Fiscal 1995. Net sales increased to $570.2 million
in fiscal 1996 from $517.4 million in fiscal 1995, an increase of $52.8 million
or 10.2%. This increase was due to increased sales volume of the Type C, Type D,
CS and Q-Bus units.
Gross profit increased to $96.1 million in fiscal 1996 compared to $86.8
million in fiscal 1995, an increase of $9.3 million or 10.7%. The increase was
due to increased sales volume. The gross margin of 16.8% was unchanged compared
to fiscal 1995.
Selling, general and administrative expenses increased to $42.6 million in
fiscal 1996 compared to $39.8 million in fiscal 1995, an increase of $2.8
million or 7.0%. The increase was due primarily to higher engineering, marketing
and selling expenses.
Amortization expense decreased to $3.8 million in fiscal 1996 from $4.7
million in 1995. The decrease reflects completion in fiscal 1995 of the
amortization of certain non-compete agreements related to the 1992 Acquisition.
Interest income increased to $7.0 million compared to $4.6 million in fiscal
1995. The increase was due primarily to a higher average dollar amount of leases
in the lease portfolio in fiscal 1996 as compared to fiscal 1995.
Interest expense decreased to $16.9 million in fiscal 1996 as compared to
$18.5 million in fiscal 1995. This was due to lower interest rates on bank debt
as well as lower debt levels due to the repurchase of $25 million of the Old
Notes in December, 1995.
The provision for income taxes increased to $14.8 million in fiscal 1996
from $11.6 million in fiscal 1995. The increase was due to increased taxable
income resulting from higher net sales and operating income. The provision for
income taxes in fiscal 1996 decreased as a percentage of income before taxes as
compared to fiscal 1995. The decrease was due to increased tax-exempt lease
income as well as lower non-deductible amortization items related to the 1992
Acquisition.
On December 14, 1995, the Company repurchased, for cash on the open market,
$25 million in principal amount of outstanding Old Notes for the purchase price
(expressed as a percentage of principal amount) of 106.500% plus accrued
interest to the purchase date. An extraordinary loss of $1.4 million net of a
tax benefit of $.8 million occurred during the 1996 period due to the early
extinguishment of such Old Notes.
Fiscal 1995 Compared to Fiscal 1994. Net sales increased to $517.4 million
in fiscal 1995 from $476.2 million in fiscal 1994, an increase of $41.2 million,
or 8.7%. This increase was due to increased sales of Type D, Q-Bus and CS units,
as well as increased sales of Type C units.
Gross profit increased to $86.8 million in fiscal 1995 compared to $83.3
million in fiscal 1994, an increase of $3.5 million, or 4.2%. The increase was
due to increased sales volume. Gross margin decreased to 16.8% in fiscal 1995
from 17.5% in fiscal 1994. The reduced margin was due primarily to increased
sales of Type C units, on which the Company generally realizes lower margins due
to the inclusion of GM chassis.
25
<PAGE>
Selling, general and administrative expenses were $39.8 million in fiscal
1995 compared to $39 million in fiscal 1994, an increase of 2.0%. The increase
was due primarily to higher expenses related to engineering and product
development.
Amortization expense decreased to $4.7 million in fiscal 1995 compared to
$5.6 million in fiscal 1994. The amortization of certain non-compete agreements
was completed during the first half of fiscal 1995.
Interest income increased to $4.6 million in fiscal 1995 compared to $4.1
million in fiscal 1994. The increase was due to a higher average dollar amount
of leases held in the lease portfolio in fiscal 1995 compared to fiscal 1994.
Interest expense increased to $18.5 million in fiscal 1995 from $17.4
million fiscal 1994, an increase of $1.1 million. The increase was due to a
higher interest rate on credit facility borrowings as compared to fiscal 1994.
The provision for income taxes increased to $11.6 million in fiscal 1995
from $10.2 million in fiscal 1994. The increase was due to increased taxable
income resulting from higher net sales and operating income.
LIQUIDITY AND CAPITAL RESOURCES
The Company's liquidity requirements arise primarily from funding working
capital needs, which consist primarily of inventory and accounts receivable, and
principal and interest payments on indebtedness. The Company also requires funds
for capital expenditures, of which the Company anticipates approximately $6.1
million for fiscal 1998.
BBC is a holding company that conducts all of its business operations
through the Company, which is a wholly-owned subsidiary. In connection with any
liquidity needs, including needs arising out of the BBC Guarantee, BBC is
dependent entirely upon cash generated by the Company.
Historically, the Company has funded its working capital needs through cash
generated from operations and borrowings under the Old Credit Agreement. In
addition, LaSalle National Bank, as agent for itself and other lenders, provides
Blue Bird Capital with a revolving credit facility pursuant to a Loan Agreement,
dated October 18, 1995, as amended and restated on March 29, 1996 (as so amended
and restated, the "LaSalle Credit Agreement"). Revolving loans under the LaSalle
Credit Agreement (the "LaSalle Credit Facility") are used to finance school bus
leases of up to a maximum aggregate principal amount of $100 million, of which
$85.5 million was outstanding as of November 1, 1997. Following the
Recapitalization, the Company's liquidity needs arise primarily from debt
service on the substantial indebtedness incurred in connection with the
Recapitalization, as well as from the funding of inventory and accounts
receivable. As of November 1, 1997, the Company had total consolidated
indebtedness at such date of approximately $352.3 million, consisting primarily
of $99.7 million principal amount of the Notes, borrowings of $164.4 million
under the New Credit Agreement and $85.5 million of borrowings under the LaSalle
Credit Facility. The Company had the ability to borrow an additional $14.5
million under the LaSalle Credit Facility to finance school bus leases and $80.0
million under the New Credit Agreement (assuming all of such funds would have
been available under the borrowing base calculation under the Revolving Facility
of the New Credit Agreement). Such Revolving Facility will be available to meet
future
26
<PAGE>
working capital and other business needs of the Company. The maximum amount
available to be borrowed under such facility is based on the sum of 85% of
Eligible Accounts Receivable (as defined in the New Credit Agreement) and 60%
of Eligible Inventory (as defined in the New Credit Agreement) of the Company
(the "Borrowing Base").
The Company's interest expense as a result of the Recapitalization is
substantially higher than immediately prior to such transactions. Loans under
the New Credit Agreement bear interest at floating rates based upon the interest
rate option selected by the Company. With respect to the term loan borrowings
under the New Credit Agreement, the Company will be required to make scheduled
principal payments of approximately $12.8 million in fiscal 1998, $16.8 million
in fiscal 1999 and $20.8 million in fiscal 2000.
Under the New Credit Agreement, the Company is permitted to accumulate up to
$40 million in its lease portfolio of leases for its own account in addition to
leases held by Blue Bird Capital. As of November 1, 1997, the Company had
approximately $7.5 million of such leases in its lease portfolio. In addition,
as of such date, Blue Bird Capital had approximately $94.9 million in its lease
portfolio. Blue Bird Capital is required to maintain certain financial ratios,
including a ratio of Total Liabilities to Tangible Net Worth (as such terms are
defined in the LaSalle Credit Facility) that cannot exceed 10 to 1. See
"Business--Leasing."
Net cash provided by operations during the year ended November 1, 1997, was
$6.3 million compared to $59.6 million in fiscal 1996. This difference was
primarily the result of significant decreases in net income, trade accounts
payable and income taxes payable as well as an increase in inventory. There were
no net borrowings under the Company's working capital facility in fiscal 1997 or
fiscal 1996. Net borrowing under the LaSalle Credit Facility were $26.9 during
the current year compared to $22.9 in fiscal 1996. The early extinguishment of
$25 million of outstanding Old Notes (see "--Results of Operations--Fiscal 1996
Compared to Fiscal 1995") was funded primarily from internally generated cash
and partially from an increase in the working capital revolver.
Cash and cash equivalents were $31.0 at November 1, 1997, compared to $46.3
million at the end of fiscal 1996. Net working capital was $99.3 million at
November 1, 1997, an increase of $18.9 million during the current fiscal year.
Significant factors affecting working capital were increases in trade
receivables, leases receivable, inventory and accrued liabilities of $3.1
million, $9.8 million, $6.6 million and $6.0 million, respectively, with
decreases in cash, accounts payable and income taxes payable of $15.2 million,
$6.0 million and $9.2 million, respectively.
As a result of the Recapitalization, the Company's future operating
performance and ability to service or refinance the Notes and to repay, extend
or refinance the New Credit Agreement are subject to future economic conditions
and to financial, business and other factors, many of which are beyond the
Company's control. The Company's liquidity may also be impacted by product
liability claims and environmental matters.
The Company's business is seasonal in nature. A majority of the Company's
sales occur in the third and fourth quarters of the fiscal year, a pattern
typical for the industry. The Company's working capital needs increase during
the second and third quarters as production activity increases in response to
the higher seasonal sales volume. Working capital needs decrease toward the end
of this period, although beginning in December or January, working capital and
related bank borrowings begin to increase as parts for assembly into buses are
manufactured and distributed to
27
<PAGE>
the assembly plants. Inventory is at its highest during July and August prior
to heavy seasonal school deliveries. The following table shows the
percentages of the Company's net sales per quarter for the last four fiscal
years.
1997 1996 1995 1994
--------- --------- --------- ---------
First Quarter................... 14.6% 16.3% 14.8% 18.5%
Second Quarter.................. 16.5 18.7 20.4 17.0
Third Quarter................... 33.6 25.7 26.5 30.0
Fourth Quarter.................. 35.3 39.3 38.3 34.5
--------- --------- --------- ---------
100.0% 100.0% 100.0% 100.0%
--------- --------- --------- ---------
--------- --------- --------- ---------
ITEM 8. FINANCIAL STATEMENTS
See Index to Financial Statements for a listing of the financial statements
filed with this report.
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE.
None.
PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANTS.
The following table sets forth certain information concerning the persons
who are executive officers and directors of the Company and BBC as of November
1, 1997; all information is provided as of such date:
<TABLE>
<CAPTION>
Name Age Position and Experience
- ------------------------------------ --- ---------------------------------------------------------------------
<S> <C> <C>
Paul E. Glaske...................... 64 Chairman of the Board and President of the Company and BBC; director
of the Company and BBC. At the time the 1992 Acquisition was
consummated (the "Effective Time"), Mr. Glaske was appointed Chairman
of the Board and President of the Company and BBC and a director of
BBC. Mr. Glaske has served as President of the Company since 1986 and
a director of the Company since 1984. He is also a director of
Borg-Warner Automotive, Inc.
</TABLE>
28
<PAGE>
<TABLE>
<CAPTION>
Name Age Position and Experience
- ------------------------------------ --- ---------------------------------------------------------------------
<S> <C> <C>
Bobby G. Wallace.................... 63 Vice President--Finance and Administration, Treasurer and Secretary
of the Company; Vice President, Treasurer and Secretary of BBC;
director of the Company and BBC. At the Effective Time, Mr. Wallace
was appointed to his current positions with the Company and BBC. Mr.
Wallace has served as the Vice President--Finance and Administration
of the Company since 1987. In 1986, he was named Vice President--
Controller.
James H. Grantham................... 56 Vice President--Manufacturing of the Company. In 1990, Mr. Grantham
was promoted to his current position. In 1988, he was named Vice
President--Materials, and, in 1987, became Vice President--Canadian
Operations. In 1983, he became General Manager of Blue Bird's plant
in Lafayette, Georgia, a promotion from his former position of
Production Manager of such plant. Mr. Grantham joined Blue Bird in
1965.
Richard E. Maddox................... 45 Vice President--Sales of the Company. In 1990, Mr. Maddox was
promoted to his current position from his prior position of
Director--U.S. Sales, to which he was appointed in 1988. In 1986, he
was named Manager--U.S. Sales, and, in 1982, he was appointed
Manager--Field Sales. Mr. Maddox joined Blue Bird in 1974 and has
held various positions in sales since that time.
Wilbur C. Rumph..................... 68 Vice President--Engineering, Research & Development of the Company.
Mr. Rumph was appointed to his present position in 1968. He joined
Blue Bird in 1948, where he has held various positions in the
engineering area.
</TABLE>
29
<PAGE>
<TABLE>
<CAPTION>
Name Age Position and Experience
- ------------------------------------ --- ---------------------------------------------------------------------
<S> <C> <C>
William G. Milby.................... 51 Vice President of Product Planning and Development. Mr. Milby was
promoted to his present position in 1997 from Vice President and
General Manager--Canadian Blue Bird, to which he was appointed in
1989. In 1985, he was named Vice President and General Manager of the
Wanderlodge division. Mr. Milby joined the Company in 1971 as an
engineer.
William T. Gourley.................. 52 Vice President-Controller of the Company. In 1996, Mr. Gourley was
promoted to his current position from his prior position of Corporate
Controller, to which he was appointed in 1992. Mr. Gourley joined
Blue Bird in 1976 and has held various positions in finance since
that time.
B. Richard Benedict................. 54 Vice President and General Manager--Blue Bird Midwest. Mr. Benedict
was promoted to his current position in 1988 from General Manager, to
which he was appointed in 1984. In 1977, Mr. Benedict was named
Production Manager. Mr. Benedict joined the Company in 1962.
Gerald S. Armstrong................. 54 Director of the Company and BBC. Mr. Armstrong served as Vice
President, Treasurer and Secretary of BBC prior to the 1992
Acquisition. Mr. Armstrong is Managing Partner of Arena Capital
Partners, LLC. Mr. Armstrong was a Partner and a director of
Stonington Partners, Inc., a private investment firm. He has also
been a member of the Board of Directors of MLCP, an affiliate of
Merrill Lynch since 1988. He was a Partner of MLCP from 1993 to July
1994 and an Executive Vice President of MLCP from 1988 to 1994. MLCP
is the general partner of several limited partnerships which
indirectly own shares of BBC Common Stock. Mr. Armstrong was also a
Managing Director of the Investment Banking Division of Merrill Lynch
from 1988 to 1994. Mr. Armstrong is also a director of AnnTaylor
Stores Corporation and World Color Press, Inc.
</TABLE>
30
<PAGE>
<TABLE>
<CAPTION>
Name Age Position and Experience
- ------------------------------------ --- ---------------------------------------------------------------------
<S> <C> <C>
Alexis P. Michas.................... 40 Director of the Company and BBC. Mr. Michas served as Chairman of the
Board and President of BBC from its inception until the Effective
Time. Mr. Michas is a Managing Partner and a director of Stonington
Partners, Inc., a private investment firm, a position that he has
held since 1993. He has also been a member of the Board of Directors
of MLCP since 1989. He was a Partner of MLCP from 1993 to 1994 and
Senior Vice President of MLCP from 1989 to 1993. MLCP is the general
partner of several limited partnerships which indirectly own shares
of BBC Common Stock. Mr. Michas was also a Managing Director of the
Investment Banking Division of Merrill Lynch from 1991 to July 1994
and a director in the Investment Banking Division of Merrill Lynch
from 1990 to 1991. Mr. Michas is also a Director of Borg-Warner
Automotive, Inc., Borg-Warner Security Corporation, Dictaphone
Corporation, Goss Graphic Systems, Inc. and Packard BioScience
Company.
Alfred C. Daugherty................. 74 Director of the Company and BBC. Mr. Daugherty served as a director
of Blue Bird prior to the 1992 Acquisition. Mr. Daugherty was
Chairman of Duracell International, Inc., a manufacturer of premium
batteries, and Executive Vice President of Dart Industries, Inc., a
maker of consumer products and chemical specialties, as well as a
director of both companies, until his retirement on January 1, 1995.
Mr. Daugherty is also a director of A. Duda and Sons, Inc., Atlantic
Acquaculture Technologies, Inc., Goss Graphic Systems, Inc. and GGS
Holdings, Inc.
</TABLE>
31
<PAGE>
<TABLE>
<CAPTION>
Name Age Position and Experience
- ------------------------------------ --- ---------------------------------------------------------------------
<S> <C> <C>
Donald C. Trauscht.................. 63 Director of the Company and BBC. Mr. Trauscht was elected to the
Board of Directors in December 1993. Since January 1996, Mr. Trauscht
has been Chairman of BW Capital Corp., a private investment company.
From February 1993 to December 1995, he was Chairman and Chief
Executive Officer of Borg-Warner Security Corporation, an electronic
and physical security company. From December 1991 to January 1993, he
was Chairman and Chief Executive Officer of Borg-Warner Corporation,
a diversified corporation. Prior to December 1991, he was President
of Borg-Warner Corporation and held various other executive positions
since 1967. He is currently a director of Baker Hughes Inc., Thiokol
Corp., IMO Industries, Inc., Borg-Warner Automotive, Inc.,
Borg-Warner Security Corporation, ESCO Electronics Corp. and Hydac
International Corp.
</TABLE>
Each director of the Company and BBC is elected annually and serves until
the next annual meeting or until his successor is duly elected and qualified.
Each executive officer of the Company and BBC serves at the discretion of the
Boards of Directors of the Company and BBC, respectively.
Item 11. Executive Compensation.
SUMMARY OF CASH AND CERTAIN OTHER COMPENSATION. The following table sets
forth, for fiscal years 1997, 1996 and 1995, the cash compensation paid by BBC
and its subsidiaries, as well as certain other compensation paid or accrued for
fiscal years 1997, 1996 and 1995, to each of the five most highly compensated
executive officers of BBC (considering Messrs. Grantham, Maddox and Gourley,
Vice Presidents of the Company, to be executive officers of BBC) (collectively,
the "named executive officers") in all capacities in which they served:
32
<PAGE>
SUMMARY COMPENSATION TABLE
<TABLE>
<CAPTION>
LONG TERM
COMPENSATION
------------
AWARDS
------------
ANNUAL COMPENSATION SECURITIES
FISCAL ---------------------- UNDERLYING ALL OTHER
NAME AND PRINCIPAL POSITION YEAR SALARY (a) BONUS OPTIONS COMPENSATION
- ------------------------------------------------------- ----------- ---------- ---------- ------------ ------------
<S> <C> <C> <C> <C> <C>
Paul E. Glaske......................................... 1997 $ 544,709 $ 500,000 -- $23,933(b)
Chairman of the Board and President 1996 506,410 438,485 -- 20,203(c)
and Director 1995 466,898 428,606 -- 19,753(c)
Bobby G. Wallace....................................... 1997 312,983 225,600 40,000(d) 4,750(e)
Vice President--Finance and Admin., 1996 289,094 196,746 -- 4,500(e)
Treasurer, Secretary and Director 1995 265,388 168,175 -- 4,050(f)
James H. Grantham...................................... 1997 201,648 144,000 -- 4,750(e)
Vice President--Manufacturing of the 1996 185,847 127,732 -- 4,500(e)
Company 1995 171,006 123,008 -- 4,050(f)
Richard E. Maddox...................................... 1997 177,857 130,400 -- 5,124(e)
Vice President--Sales of the Company 1996 164,997 115,150 -- 5,196(e)
1995 151,996 110,707 -- 6,159(f)
William T. Gourley..................................... 1997 135,308 41,760 -- 6,110(e)
Vice President--Controller of the 1996 111,762 38,434 -- 4,346(e)
Company 1995 101,842 36,902 -- 3,862(f)
</TABLE>
- ------------------------
(a) Includes amounts deferred at the election of the named executive officer
pursuant to the Company's 401(k) plan. Employees may contribute up to 15% of
their salaries to the 401(k) plan on a pre-tax basis, not to exceed $9,500
in 1997, $9,500 in 1996, and $9,240 in 1995.
(b) Represents life and disability insurance premiums of $19,183 paid by the
Company on behalf of Mr. Glaske. Under the 401(k) plan, the Company makes
matching contributions equal to 50% of the first 6% of each participant's
pre-tax contribution for 1997.
(c) Represents life and disability insurance premiums of $15,703 paid by the
Company on behalf of Mr. Glaske. Under the 401(k) plan, the Company makes
matching contributions equal to 45% of the first 6% of each participant's
pre-tax contribution for 1995, and 50% of the first 6% of each participant's
pre-tax contribution for 1996.
(d) In 1997, Mr. Wallace was granted an option to purchase 40,000 shares of BBC
Common Stock.
(e) The amounts shown represent matching contributions to the Company's 401(k)
plan made by the Company on behalf of the named executive officer. Under the
401(k) plan, the Company makes matching contributions equal to 50% of the
first 6% of each participant's pre-tax contribution.
(f) The amounts shown represent matching contributions to the Company's 401(k)
plan made by the Company on behalf of the named executive officer. Under the
401(k) plan, the Company makes matching contributions equal to 45% of the
first 6% of each participant's pre-tax contribution.
33
<PAGE>
STOCK OPTIONS AND STOCK APPRECIATION RIGHTS. The following table sets
forth stock options granted in fiscal 1997 to the named executive officers:
<TABLE>
<CAPTION>
INDIVIDUAL GRANTS
---------------------------- POTENTIAL REALIZABLE
NUMBER OF PERCENT VALUE AT ASSUMED ANNUAL
SECURITIES OF TOTAL RATES OF STOCK PRICE
UNDERLYING OPTIONS/SARs EXERCISE APPRECIATION FOR
OPTIONS/SARs GRANTED TO OR BASIC OPTION TERM
GAINED EMPLOYEES PRICES EXPIRATION ---------------------------
NAME (#) IN FISCAL YEAR ($SH) DATE 5%($) 10%($)
- ------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Bobby G. Wallace 40,000(a) 100.0% $9.00 4/16/02 $99,461 $219,784
</TABLE>
(a) Represents options that were fully vested on the date of grant. Such
options are non-transferable and terminate (subject to certain put and call
arrangements) upon termination of employment with BBC or an affiliate of BBC.
OPTION/SAR EXERCISES AND HOLDINGS. None of the named executives exercised
any options and/or SARs during the last fiscal year. The following table sets
forth information with respect to the named executive officers concerning the
value of unexercised options and SARs held as of the end of the last fiscal
year:
<TABLE>
<CAPTION>
FISCAL YEAR-END OPTION/SAR VALUES
NUMBER OF SECURITIES VALUE OF UNEXERCISED
UNDERLYING UNEXERCISED IN-THE-MONEY OPTIONS/SARS
OPTIONS/SARS AT FISCAL YEAR-END (A)
---------------------------------------------------------------
NAME EXERCISABLE UNEXERCISABLE EXERCISABLE UNEXERCISABLE
- ---------------------------------------------------------- ----------- ----------------- ------------ -----------------
<S> <C> <C> <C> <C>
Paul E. Glaske............................................ 350,000 -0- $ 6,412,000 -0-
Bobby G. Wallace.......................................... 100,000 -0- 1,832,000 -0-
James H. Grantham......................................... 80,000 -0- 1,465,600 -0-
Richard E. Maddox......................................... 80,000 -0- 1,465,600 -0-
Willliam T. Gourley....................................... 20,000 -0- 366,400 -0-
</TABLE>
- ------------------------
(a) Computed using net proceeds value of $18.32 per share at November 1, 1997,
determined by formula in the Blue Bird Corporation Management Stock Option
Plan (the "Management Stock Option Plan").
PENSION PLANS. Blue Bird maintains a qualified defined benefit pension
plan (the "Pension Plan") which covers all U.S. salaried employees. Benefits
are determined under a formula (which is integrated with Social Security)
calculated with reference to an employee's five-year final average earnings
and such employee's years of service. The amount of estimated annual benefits
payable under the Pension Plan based upon various levels of compensation and
years of service, determined before application of the limitations imposed by
Sections 401(a)(17) and 415 of the Internal Revenue Code of 1986, as amended
(the "Code"), is set forth below:
<TABLE>
<CAPTION>
PENSION PLAN TABLE
FINAL FIVE YEARS OF SERVICE
YEAR ANNUAL --------------------------------------------------------------------
COMPENSATION 15 20 25 30 35
- ------------- ------------ ------------ ------------ ------------ ------------
<S> <C> <C> <C> <C> <C>
$125,000 $ 29,445 $ 39,260 $ 49,075 $ 58,890 $ 58,890
150,000 35,820 47,760 59,700 71,640 71,640
175,000 42,195* 56,260* 70,325* 84,390* 84,390*
200,000 48,570* 64,760* 80,950* 97,140* 97,140*
225,000 54,945* 73,260* 91,575* 109,890* 109,890*
250,000 61,320* 81,760* 102,200* 122,640* 122,640*
300,000 74,070* 98,760* 123,450* 148,140* 148,140*
400,000 99,570* 132,760* 165,950* 199,140* 199,140*
500,000 125,070* 166,760* 208,450* 250,140* 250,140*
1,000,000 252,570* 336,760* 420,950* 505,140* 505,140*
2,000,000 507,570* 676,760* 846,950* 1,015,140* 1,015,140*
4,000,000 1,017,570* 1,356,760* 1,695,950* 2,035,140* 2,035,140*
</TABLE>
34
<PAGE>
- ------------------------
* Determined before application of current limitations of Sections 401(a)(17)
and 415 of the Code.
Compensation covered by the Pension Plan is limited to gross wages reported
on Form W-2. Such covered compensation includes all compensation reported in the
Summary Compensation Table (other than amounts representing Company matching
contributions to the 401(k) plan) plus the value, if any, realized upon the
exercise of SARs in connection with the 1992 Acquisition. The covered
compensation for Messrs. Glaske, Wallace, Grantham, Maddox and Gourley does not
differ by more than 10% from that set forth in the Summary Compensation Table.
The estimated credited years of service for each of the named executive officers
is as follows: Mr. Glaske (11 years), Mr. Wallace (11 years), Mr. Grantham (30
years), Mr. Maddox (22 years) and Mr. Gourley (21 years). Benefits from the
Pension Plan, which are integrated with Social Security but are not offset by
any other amounts, are payable in the form of a straight life annuity or, in the
case of married participants, an actuarially equivalent joint and survivor
annuity.
In addition, Blue Bird adopted a non-qualified supplemental retirement plan
(the "SERP") effective January 1, 1991 for selected executive officers to
restore the cutback in benefits under the Pension Plan on account of certain
limitations imposed by Code Sections 401(a)(17) and 415. The SERP provides a
lump sum payout upon retirement.
COMPENSATION OF DIRECTORS
Two of the four non-employee directors of the Company and BBC receive annual
retainers of $24,000 and meeting fees of $1,500 per meeting for up to four
meetings per year for services as directors of the Company and BBC. The
remaining directors of the Company and BBC do not receive compensation for their
services as directors and none of the directors of the Company and BBC receive
compensation for their services as members of the committees of the Boards of
Directors of the Company and BBC.
EMPLOYMENT CONTRACTS AND TERMINATION OF EMPLOYMENT AND CHANGE-IN-CONTROL
ARRANGEMENTS
Mr. Glaske's current employment agreement with the Company provides for a
three-year term with an annual base salary of $560,000, plus participation in an
incentive bonus program, the SERP and other employee benefit plans sponsored by
the Company. If Mr. Glaske's employment is terminated by the Company without
good cause or by Mr. Glaske for good reason (as such terms are defined in the
employment agreement), the Company's obligation for the duration of the
employment agreement for salary, employee benefits, supplemental benefits and
various perquisites shall continue without mitigation. Under the terms of the
employment agreement, Mr. Glaske agrees not to disclose confidential information
for so long a such information remains competitively sensitive. During the term
of the employment agreement and for three years after its termination, Mr.
Glaske agrees not to render services to, or have greater than a 2% equity
interest in, any business which is competitive with the Company. Mr. Glaske's
employment agreement does not contain any change of control provisions.
Mr. Wallace's employment agreement with the Company provides for a one-year
term, renewable annually, with an annual base salary of $330,000, plus
participation in an incentive bonus program, the SERP and other employee benefit
plans sponsored by the Company. The employment agreement may be terminated by
either party at the end of any given 12-month period. Under the
35
<PAGE>
terms of the employment agreement, Mr. Wallace agrees not to disclose
confidential information for so long as such information remains competitively
sensitive. During the term of the employment agreement and for three years after
its termination, Mr. Wallace agrees not to render services to, or have greater
than a 2% equity interest in, any business which is competitive with the
Company. Mr. Wallace's employment agreement does not contain any change of
control provisions.
COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION
The members of the compensation committees of the Company's and BBC's Boards
of Directors during fiscal year 1997 were Messrs. Michas, Armstrong and
Daugherty. During such time, Mr. Glaske served as the Chairman of the Board and
President of the Company and BBC.
The Stockholders' Agreement provides that in the event that Messrs.
Armstrong, Michas, Glaske and Wallace are unwilling or unable to serve, or
otherwise cease to serve, as directors of BBC, the ML Entities (herein defined)
shall be entitled to fill the resulting vacancies on the Board of Directors. In
addition, the Stockholders' Agreement provides that the ML Entities are entitled
to nominate successors for all BBC directors and that the stockholders of BBC
will cooperate in any removal of directors proposed by the ML Entities.
At the time of the 1992 Acquisition (herein defined), Messrs. Armstrong and
Michas were each executive officers of Merrill Lynch Capital Partners, Inc.
("MLCP") and Managing Directors of Merrill Lynch. MLCP is an affiliate of
Merrill Lynch. In connection with the 1992 Acquisition, Merrill Lynch served as
placement agent for the Old Notes and BBC issued 7,700,000 shares of BBC Common
Stock (or approximately 91% of the then outstanding BBC Common Stock) to the ML
Entities.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT.
The Blue Bird Common Stock is the only class of capital stock that the
Company has outstanding. BBC owns 10 shares, which represent 100% of the issued
and outstanding shares of the Company's common stock. The BBC Common Stock is
the only class of capital stock of BBC outstanding. The issued and outstanding
number of shares of BBC Common Stock is 8,434,778. The following table sets
forth the number and percentage of shares of BBC Common Stock beneficially owned
by (i) each person known to BBC to be the beneficial owner of more than 5% of
the outstanding shares of BBC Common Stock, (ii) each director of BBC, (iii)
each named executive officer, and (iv) all directors and executive officers of
BBC as a group. Unless otherwise indicated in a footnote, each person listed
below possesses sole voting and investment power with respect to the shares
indicated as beneficially owned by them. The ML Entities, Management Investors
and BBC are parties to a stockholders' agreement described under "Certain
Relationships and Related Transactions."
36
<PAGE>
<TABLE>
<CAPTION>
AMOUNT AND
NATURE PERCENTAGE OF
NAME AND ADDRESS OF OF BENEFICIAL SHARES OF BBC
BENEFICIAL OWNER OWNERSHIP COMMON STOCK*
- ------------------------------------- ------------- -------------
<S> <C> <C>
ML Entities(a)................................................ 7,665,000 90.9%
Paul E. Glaske(b)............................................. 580,557(c) 6.6%
Blue Bird Body Company
3920 Arkwright Road
Macon, Georgia 31210
Bobby G. Wallace(b)........................................... 170,000(d) 2.0%
Blue Bird Body Company
3920 Arkwright Road
Macon, Georgia 31210
James H. Grantham(b).......................................... 160,000(e) 1.9%
Blue Bird Body Company
3920 Arkwright Road
Macon, Georgia 31210
Richard E. Maddox(b).......................................... 160,000(f) 1.9%
Blue Bird Body Company
3920 Arkwright Road
Macon, Georgia 31210
William T. Gourley(b)......................................... 40,000(g) 0.5%
Blue Bird Body Company
3920 Arkwright Road
Macon, Georgia 31210
Donald C. Trauscht(b)......................................... 4,778 0.1%
Borg-Warner Security Corporation
200 South Michigan Avenue
Chicago, Illinois 60604
A. Clark Daugherty(b)......................................... 25,000 0.3%
321 Indian Harbor Road
Vero Beach, Florida 32963
Gerald S. Armstrong (h)....................................... 0 --
Stonington Partners, Inc.
767 Fifth Avenue
New York, New York 10153
Alexis P. Michas (h).......................................... 0 --
Stonington Partners, Inc.
767 Fifth Avenue
New York, New York 10153
All directors and executive officers as a group (9 persons)... 1,140,335(i) 12.6%
</TABLE>
- ------------------------
* Calculated in accordance with Rule 13d-3 under the Exchange Act.
37
<PAGE>
(a) Shares of BBC Common Stock beneficially owned by the ML Entities are owned
of record as follows: 3,740,188 by Merrill Lynch Capital Appreciation
Partnership No. B-XV, L.P., 2,370,278 by ML Offshore LBO Partnership No.
B-XV, 1,300,619 by ML IBK Positions, Inc., 42,500 by Merrill Lynch KECALP
L.P. 1989, 150,000 by Merrill Lynch KECALP L.P. 1991 and 61,415 by MLCP
Associates L.P. No. II. The address for the ML Entities other than ML
Offshore LBO Partnership No. B-XV is 225 Liberty Street, World Financial
Center--South Tower, New York, New York 10080. The address for ML Offshore
LBO Partnership No. B-XV is P.O. Box 25, Roseneath, The Grange, St. Peter
Port, Guernsey Channel Island, British Isles. Each entity disclaims
beneficial ownership of the shares not owned of record by it.
(b) Messrs. Glaske and Wallace are directors and executive officers of the
Company and BBC. Messrs. Grantham, Maddox and Gourley are executive officers
of the Company who perform policy making functions for BBC and are therefore
deemed executive officers of BBC. Messrs. Trauscht and Daugherty are
directors of the Company and BBC.
(c) Includes 175,000 shares subject to vested options and 175,000 shares subject
to performance options granted to Mr. Glaske under the Management Stock
Option Plan which are currently exercisable.
(d) Includes 75,000 shares subject to vested options and 25,000 shares subject
to performance options granted to Mr. Wallace under the Management Stock
Option Plan which are currently exercisable.
(e) Includes 40,000 shares subject to vested options and 40,000 shares subject
to performance options granted to Mr. Grantham under the Management Stock
Option Plan which are currently exercisable.
(f) Includes 40,000 shares subject to vested options and 40,000 shares subject
to performance options granted to Mr. Maddox under the Management Stock
Option Plan which are currently exercisable.
(g) Includes 10,000 shares subject to vested options and 10,000 shares subject
to performance options granted to Mr. Gourley under the Management Stock
Option Plan which are currently exercisable.
(h) Messrs. Armstrong and Michas are directors of the Company, BBC and MLCP.
Messrs. Armstrong and Michas are limited partners of the general partner
("LBO") of Merrill Lynch Capital Appreciation Partnership No. B-XV, L.P. and
ML Offshore LBO Partnership No. B-XV. MLCP is the general partner of LBO.
Messrs. Armstrong and Michas each disclaims beneficial ownership of shares
beneficially owned by the ML Entities.
(i) Includes 340,000 shares subject to vested options and 290,000 shares subject
to performance options granted to executive officers of BBC as a group under
the Management Stock Option Plan which are currently exercisable. Does not
include any shares beneficially owned by the ML Entities.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS.
BBC is owned by affiliates (the "ML Entities") of Merrill Lynch Capital
Partners, Inc. ("MLCP"), certain directors of BBC and the Company and certain
members of management of the Company (the "Management Investors"), who together
acquired the Company in a leveraged buyout transaction in 1992 (the "1992
Acquisition").
Merrill Lynch is an affiliate of the Company and BBC. Two of the directors
of the Company and BBC are partners and directors of Stonington Partners, Inc.
and act as consultants to MLCP.
The Management Investors' purchase of BBC Common Stock in connection with
the 1992 Acquisition was funded through a combination of (i) $200,000 in
cash, (ii) the rollover of approximately $3.65 million of SARs on a pre-tax
basis, and (iii) nonrecourse promissory notes of the Management Investors
(the "Management Notes") in an aggregate principal amount of $4.15 million.
Cash distributions received in respect of the shares of BBC Common Stock
purchased with the proceeds of borrowings under the Management Notes were
required to be applied toward repayment of such notes. The Management Notes
were repaid as a result of the Recapitalization.
38
<PAGE>
Pursuant to the terms of the Stockholders' Agreement entered into on April
15, 1992 by BBC, the Management Investors and the ML Entities (the
"Stockholders' Agreement"), all shares of BBC Common Stock purchased at the
closing of the 1992 Acquisition by the Management Investors and issued upon
exercise of options are subject to certain restrictions on transfer and certain
put and call arrangements in the event that the holder of such shares terminates
his employment with BBC or any of its subsidiaries.
Management Investors will have the right to require BBC to purchase their
shares and options in the event of death, disability, retirement or involuntary
termination for a fair value price determined pursuant to a formula based upon a
multiple of BBC's earnings before interest and taxes. BBC will have the right to
require a Management Investor to sell such Management Investor's shares and
options if such Management Investor's employment terminates at prices determined
by formulas varying under different circumstances, but in no event will such
price be higher than the greater of the initial purchase price and the fair
value price. Payments under the puts and calls are subject to certain
restrictions under the Existing Credit Agreement and the indenture for the Old
Notes, and will be subject to certain restrictions under the New Credit
Agreement and the Indenture, as applicable.
The Stockholders' Agreement also provides that in the event that Messrs.
Armstrong, Michas, Glaske and Wallace are unwilling or unable to serve, or
otherwise cease to serve, as directors of BBC, then the ML Entities shall be
entitled to fill the resulting vacancies on the Board of Directors of BBC. In
addition, the Stockholders' Agreement provides that the ML Entities are entitled
to nominate successors to all BBC directors and that the stockholders of BBC
will cooperate in any removal of directors proposed by the ML Entities.
39
<PAGE>
BLUE BIRD CORPORATION AND SUBSIDIARIES
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS.............................................. F-2
AUDITED CONSOLIDATED FINANCIAL STATEMENTS
Consolidated Balance Sheets as of November 1, 1997 and November 2, 1996............. F-3
Consolidated Statements of Income for the Years Ended November 1, 1997,
November 2, 1996 and October 28, 1995............................................. F-5
Consolidated Statements of Changes in Stockholders' Deficit for the Years
Ended November 1, 1997, November 2, 1996 and October 28, 1995..................... F-6
Consolidated Statements of Cash Flows for the Years Ended November 1, 1997,
November 2, 1996 and October 28, 1995............................................. F-7
NOTES TO AUDITED CONSOLIDATED FINANCIAL STATEMENTS.................................... F-8
</TABLE>
F-1
<PAGE>
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
To the Stockholders and
Board of Directors of
Blue Bird Corporation:
We have audited the accompanying consolidated balance sheets of BLUE BIRD
CORPORATION (a Delaware corporation) AND SUBSIDIARIES as of November 1, 1997
and November 2, 1996 and the related consolidated statements of income,
changes in stockholders' deficit, and cash flows for each of the three years
in the period ended November 1, 1997. These financial statements are the
responsibility of the Company's management. Our responsibility is to express
an opinion on these financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to
obtain reasonable assurance about whether the financial statements are free
of material misstatement. An audit includes examining, on a test basis,
evidence supporting the amounts and disclosures in the financial statements.
An audit also includes assessing the accounting principles used and
significant estimates made by management, as well as evaluating the overall
financial statement presentation. We believe that our audits provide a
reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to above
present fairly, in all material respects, the financial position of Blue Bird
Corporation and subsidiaries as of November 1, 1997 and November 2, 1996 and
the results of their operations and their cash flows for each of the three
years in the period ended November 1, 1997 in conformity with generally
accepted accounting principles.
Arthur Andersen LLP
Atlanta, Georgia
December 4, 1997
F-2
<PAGE>
BLUE BIRD CORPORATION AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
NOVEMBER 1, 1997 AND NOVEMBER 2, 1996
<TABLE>
<CAPTION>
ASSETS 1997 1996
- ------------------------------------------------------------------ ----------- -----------
<S> <C> <C>
CURRENT ASSETS:
Cash and cash equivalents $ 31,030,559 $ 46,253,258
Trade receivables 16,515,026 13,442,724
Leases receivable 43,115,861 32,214,649
Inventories 76,384,544 69,775,802
Other current assets 3,314,652 5,304,168
------------ ------------
Total current assets 170,360,642 166,990,601
------------ ------------
LEASES RECEIVABLE, noncurrent 59,206,508 41,862,478
------------ ------------
PROPERTY, PLANT, AND EQUIPMENT:
Land 4,070,400 4,090,351
Buildings 18,918,620 17,678,238
Machinery and equipment 31,727,883 28,883,888
Automobiles, trucks, and airplane 7,574,041 7,758,985
Office furniture and equipment 4,705,375 5,178,814
Construction in progress 1,607,419 1,008,435
------------ ------------
68,603,738 64,598,711
Less accumulated depreciation (30,502,810) (25,709,736)
------------ ------------
Net property, plant, and equipment 38,100,928 38,888,975
------------ ------------
OTHER ASSETS:
Deferred debt issuance costs, net of accumulated amortization of $1,257,000
and $8,733,592 in 1997 and 1996, respectively 8,514,749 1,424,137
Goodwill, net of accumulated amortization of $21,237,500 and $17,397,500 in
1997 and 1996, respectively 131,454,106 135,294,106
Land and idle facilities 0 2,000,000
Other assets 4,862,642 4,570,450
------------ ------------
Total other assets 144,831,497 143,288,693
------------ ------------
Total assets $412,499,575 $391,030,747
------------ ------------
------------ ------------
The accompanying notes are an integral part of these consolidated balance sheets.
</TABLE>
F-3
<PAGE>
BLUE BIRD CORPORATION AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS (CONTINUED)
NOVEMBER 1, 1997 AND NOVEMBER 2, 1996
<TABLE>
<CAPTION>
LIABILITIES AND STOCKHOLDERS' (DEFICIT) EQUITY 1997 1996
- ------------------------------------------------------------------ ----------- -----------
<S> <C> <C>
CURRENT LIABILITIES:
Current portion of long-term debt $ 12,750,000 $ 16,000,000
Trade accounts payable 21,708,489 27,704,475
Deposits and amounts due customers 2,923,252 1,344,852
Income taxes payable 41,580 9,269,833
Accrued warranty 5,609,247 5,603,021
Accrued interest 5,871,716 623,844
Other accrued liabilities 17,711,915 16,947,208
Deferred income taxes 4,473,765 9,079,975
------------ ------------
Total current liabilities 71,089,964 86,573,208
------------ ------------
LONG-TERM LIABILITIES:
Long-term debt 336,813,159 128,600,000
Bonds payable 2,750,000 2,750,000
Accrued pension expense 9,788,085 8,288,463
Deferred income taxes 4,612,383 5,306,392
Other long-term liabilities 11,889,106 12,019,864
------------ ------------
Total long-term liabilities 365,852,733 156,964,719
------------ ------------
COMMITMENTS AND CONTINGENCIES (Notes 10 and 11)
REDEEMABLE COMMON STOCK, $.01 par value; 730,000 and 720,000 shares issued
and outstanding in 1997 and 1996, respectively (Note 9) 20,676,000 33,105,000
STOCK SUBSCRIPTIONS RECEIVABLE (Note 9) 0 (3,800,000)
------------ ------------
20,676,000 29,305,000
------------ ------------
STOCKHOLDERS' (DEFICIT) EQUITY:
Common stock, $.01 par value; 25,000,000 shares authorized, 7,704,778
shares issued and outstanding in 1997 and 1996 77,048 77,048
Additional paid-in capital 77,022,956 77,022,956
Accumulated (deficit) earnings (119,205,789) 43,227,960
Cumulative translation adjustments (3,013,337) (2,140,144)
------------ ------------
Total stockholders' (deficit) equity (45,119,122) 118,187,820
------------ ------------
Total liabilities and stockholders' (deficit) equity $412,499,575 $391,030,747
------------ ------------
------------ ------------
The accompanying notes are an integral part of these consolidated balance sheets.
</TABLE>
F-4
<PAGE>
<TABLE>
<CAPTION>
BLUE BIRD CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF INCOME
FOR THE YEARS ENDED NOVEMBER 1, 1997, NOVEMBER 2, 1996, AND OCTOBER 28, 1995
1997 1996 1995
---- ---- ----
<S> <C> <C> <C>
NET SALES $576,110,139 $570,184,841 $517,444,172
COST OF GOODS SOLD 473,402,463 474,066,847 430,667,432
------------ ------------ ------------
GROSS PROFIT 102,707,676 96,117,994 86,776,740
------------ ------------ ------------
SELLING, GENERAL, AND ADMINISTRATIVE
EXPENSES 62,349,085 42,568,911 39,795,821
AMORTIZATION OF GOODWILL 3,840,000 3,830,000 4,692,867
------------ ------------ ------------
66,189,085 46,398,911 44,488,688
------------ ------------ ------------
OPERATING INCOME 36,518,591 49,719,083 42,288,052
INTEREST INCOME 6,255,934 6,998,830 4,618,315
INTEREST EXPENSE (33,754,249) (16,889,261) (18,537,244)
OTHER INCOME, net 1,858,539 224,052 168,554
------------ ------------ ------------
INCOME BEFORE INCOME TAXES 10,878,815 40,052,704 28,537,677
(BENEFIT) PROVISION FOR INCOME TAXES (2,704,014) 14,872,343 11,686,056
------------ ------------ ------------
NET INCOME BEFORE EXTRAORDINARY ITEM 13,582,829 25,180,361 16,851,621
LOSS ON EXTINGUISHMENT OF DEBT, net of
tax benefit of $1,768,686, $838,364,
and $0 in 1997, 1996, and 1995
respectively (Note 5) (2,985,845) (1,415,302) 0
------------ ------------ ------------
NET INCOME $ 10,596,984 $ 23,765,059 $ 16,851,621
------------ ------------ ------------
------------ ------------ ------------
The accompanying notes are an integral part of these consolidated statements.
</TABLE>
F-5
<PAGE>
<TABLE>
<CAPTION>
BLUE BIRD CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS' DEFICIT
FOR THE YEARS ENDED NOVEMBER 1, 1997, NOVEMBER 2, 1996, AND OCTOBER 28, 1995
RETAINED MINIMUM
ADDITIONAL EARNINGS CUMULATIVE PENSION
COMMON PAID-IN (ACCUMULATED TRANSLATION LIABILITY
STOCK CAPITAL DEFICIT) ADJUSTMENTS ADJUSTMENT
------- ----------- ------------- ----------- ---------
<S> <C> <C> <C> <C> <C>
BALANCE, October 29, 1994 $77,048 $77,022,956 $ 14,368,280 $(2,254,039) $(400,000)
Net income 0 0 16,851,621 0 0
Accretion of redeemable common stock 0 0 (3,324,000) 0 0
Translation adjustments 0 0 0 (114,645) 0
Minimum pension liability adjustment 0 0 0 0 400,000
------- ----------- ------------- ----------- ---------
BALANCE, October 28, 1995 77,048 77,022,956 27,895,901 (2,368,684) 0
Net income 0 0 23,765,059 0 0
Accretion of redeemable common stock 0 0 (8,433,000) 0 0
Translation adjustments 0 0 0 228,540 0
------- ----------- ------------- ----------- ---------
BALANCE, November 2, 1996 77,048 77,022,956 43,227,960 (2,140,144) 0
Net income 0 0 10,596,984 0 0
Dividend distribution 0 0 (185,345,533) 0 0
Accretion of redeemable common stock 0 0 12,314,800 0 0
Translation adjustments 0 0 0 (873,193) 0
------- ----------- ------------- ----------- ---------
BALANCE, November 1, 1997 $77,048 $77,022,956 $(119,205,789) $(3,013,337) $ 0
------- ----------- ------------- ----------- ---------
------- ----------- ------------- ----------- ---------
The accompanying notes are an integral part of these consolidated statements.
</TABLE>
F-6
<PAGE>
BLUE BIRD CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR THE YEARS ENDED NOVEMBER 1, 1997,
NOVEMBER 2, 1996, AND OCTOBER 28, 1995
<TABLE>
<CAPTION>
1997 1996 1995
---- ---- ----
<S> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income $ 10,596,984 $ 23,765,059 $ 16,851,621
------------- ------------ ------------
Adjustments to reconcile net income
to net cash provided by operating
activities:
Extraordinary loss on extinguishment
of debt 4,754,531 2,253,666 0
Depreciation and amortization 11,178,984 11,517,766 12,558,707
Increase in cash surrender value
of life insurance (152,519) (110,113) (234,103)
Deferred income taxes (5,300,219) (1,046,707) 5,011
Gain on sale of assets (628,320) 0 0
Changes in assets and liabilities:
Trade receivables (3,072,302) 5,423,096 (4,602,234)
Inventories (6,608,742) 13,570,469 (7,561,501)
Trade accounts payable (5,995,986) 1,961,241 689,604
Income taxes payable (9,228,523) 2,343,672 5,180,641
Accrued interest 5,247,872 (1,411,558) 382,653
Other current liabilities 2,349,333 (312,039) (1,163,088)
Other 3,136,379 1,632,686 (812,688)
------------- ------------ ------------
Total adjustments (4,319,242) 35,822,179 4,443,002
------------- ------------ ------------
Net cash provided by operating
activities 6,277,742 59,587,238 21,294,623
------------- ------------ ------------
CASH FLOWS FROM INVESTING ACTIVITIES:
Property, plant, and equipment
acquisitions, net (5,358,015) (7,280,958) (3,648,833)
Increases in leases receivable (28,245,242) (11,855,103) (32,230,390)
Proceed from sale of assets 2,797,699 0 0
------------- ------------ ------------
Net cash used in investing
activities (30,805,558) (19,136,061) (35,879,223)
------------- ------------ ------------
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from long-term debt 274,699,000 0 0
Repayments of long-term debt (96,650,000) (37,000,000) (10,000,000)
Net borrowings (repayments) under
revolving credit agreements 26,900,000 22,938,427 35,661,573
Debt prepayment premium (3,369,323) (1,625,000) 0
Debt issuance costs (9,741,634) 0 0
Dividend paid (185,345,533) 0 0
Other 3,685,800 (192,000) 0
------------- ------------ ------------
Net cash provided by (used in)
financing activities 10,178,310 (15,878,573) 25,661,573
------------- ------------ ------------
EFFECT OF EXCHANGE RATE FLUCTUATIONS (873,193) 228,540 (114,645)
------------- ------------ ------------
NET (DECREASE) INCREASE IN CASH AND
CASH EQUIVALENTS (15,222,699) 24,801,144 10,962,328
CASH AND CASH EQUIVALENTS AT BEGINNING
OF YEAR 46,253,258 21,452,114 10,489,786
------------- ------------ ------------
CASH AND CASH EQUIVALENTS AT END OF YEAR $31,030,559 $46,253,258 $21,452,114
------------- ------------ ------------
------------- ------------ ------------
SUPPLEMENTAL DISCLOSURES OF CASH FLOW
INFORMATION:
Cash paid during the year for:
Interest $27,534,402 $11,935,717 $14,959,218
Income taxes $10,166,964 $12,725,475 $ 4,038,000
The accompanying notes are an integral part of these consolidated statements.
</TABLE>
F-7
<PAGE>
BLUE BIRD CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOVEMBER 1, 1997, NOVEMBER 2, 1996, AND OCTOBER 28, 1995
1. NATURE OF BUSINESS
Blue Bird Corporation and subsidiaries ("BBC" or the "Company") are
engaged in the manufacture and assembly of school and transit buses and
recreational vehicles. BBC has facilities in the United States, Canada,
and Mexico.
Fiscal Year
BBC's fiscal year ends on the Saturday nearest October 31 of each year,
generally referred to as a "52-/53-week year". Fiscal years 1997, 1996,
and 1995 contained 52, 53, and 52 weeks, respectively.
Significant Accounting Policies
Principles of Consolidation
The accompanying consolidated financial statements include the accounts
of Blue Bird Corporation and its domestic and foreign subsidiaries
(owned 100% by BBC). All significant intercompany transactions and
accounts have been eliminated in consolidation.
Translation and Remeasurement of Foreign Currencies
For the purpose of consolidation, the accounts of certain foreign
subsidiaries and foreign branches of domestic subsidiaries of the U.S.
parent are translated into U.S. dollars. Foreign currency assets and
liabilities are translated using the exchange rates in effect at the
balance sheet date. Results of operations are translated using the
weighted average exchange rates in effect during the period. The
effects of exchange rate fluctuations on translating foreign currency
assets and liabilities into U.S. dollars are accumulated as part of the
cumulative translation adjustments included in the consolidated
statement of changes in stockholders' deficit.
One foreign subsidiary (the "Subsidiary") of the U.S. parent transacts
sales denominated in U.S. dollars, while the Company provides inventory
and financing. Accordingly, the U.S. dollar is deemed to be the
functional currency. The Subsidiary does not maintain its books in U.S.
dollars but remeasures its monetary assets and liabilities at balance
sheet date rates, its nonmonetary items at historical rates, and income
and expense amounts at the weighted average rates in effect for the
period, except for depreciation and cost of goods sold which use
historical rates. The effects of exchange rate fluctuations on the
remeasurement of the Subsidiary's financial statements are recognized as
exchange gains or losses in the consolidated statements of income.
The Company recognizes exchange gains and losses from foreign currency
transactions as other income or expense for the period. Losses of
approximately $331,000, $54,000 and $617,000 were recorded in fiscal
years 1997, 1996, and 1995, respectively.
F-8
<PAGE>
Financial Instruments
BBC's financial instruments consist primarily of cash and cash
equivalents, trade receivables, leases receivable, accounts payable,
revolving credit facilities, long-term debt, and certain interest rate
agreements (Note 5). In management's opinion, the carrying amounts of
all financial instruments approximate their fair values at November 1,
1997 and November 2, 1996.
The Company uses interest rate exchange agreements in the normal course
of business to manage and reduce the risk inherent in interest rate
fluctuations. Under the interest rate exchange agreements, the Company
makes payments to counterparties at fixed interest rates and, in turn,
receives payments at variable rates. The net settlement amount under
the exchange agreements is reported as an adjustment to interest expense.
Revenue Recognition
BBC recognizes revenue on sales when the related product has been
delivered to the customer and title has passed or full payment has been
received from the customer and the product is completed and awaiting
customer pickup.
Cash and Cash Equivalents
BBC considers all highly liquid investments purchased with an original
maturity of three months or less to be cash equivalents.
Inventories
Inventories are valued at the lower of cost or market, cost being
determined on the last-in, first-out ("LIFO") basis. Such costs include
raw materials, direct labor, and manufacturing overhead.
If the first-in, first-out method had been used, inventories would have
been approximately $79,300,000 and $71,900,000 at November 1, 1997 and
November 2, 1996, respectively.
The components of inventory as of November 1, 1997 and November 2, 1996
consist of the following:
1997 1996
---- ----
Raw materials $22,170,000 $18,847,481
Work in process 26,695,000 22,915,908
Finished goods 27,519,544 28,012,413
----------- -----------
Total inventories (LIFO cost) $76,384,544 $69,775,802
----------- -----------
----------- -----------
Property, Plant, and Equipment
All assets are being depreciated on a straight-line basis over their
estimated useful lives. The following represents the estimated useful
lives of the assets:
Buildings 20-33 years
Machinery and equipment 5-10 years
Automobiles, trucks, and airplane 3-5 years
Office furniture and equipment 3-10 years
F-9
<PAGE>
Expenditures for property and repair costs which substantially increase
useful lives are capitalized. Currently, normal maintenance and repair
costs are charged to expense as incurred. Gains and losses on disposals
of property, plant, and equipment are reflected in income.
Depreciation expenses of $5,975,024, $5,516,894, and $5,575,840 were
recorded for the years ended November 1, 1997, November 2, 1996, and
October 28, 1995, respectively.
Goodwill
On April 15, 1992, BBC acquired all of the outstanding capital stock of
Blue Bird Body Company and subsidiaries. The acquisition was accounted
for as a purchase. The excess purchase price over the fair value of the
net assets, as adjusted, of $152,691,606 was allocated to goodwill. The
goodwill is being amortized using the straight-line method over 40
years. BBC periodically reviews the value assigned to goodwill to
determine whether it has been permanently impaired by adverse conditions
affecting BBC. The Company uses an estimate of its undiscounted cash
flows over the remaining life of the goodwill in measuring whether the
goodwill is recoverable. Management is of the opinion that there has
been no diminution in the value assigned to goodwill.
Land and Idle Facilities
In fiscal year 1996, BBC had land and idle facilities held for sale
located in Buena Vista, Virginia. During 1997, the land was sold at a
gain of approximately $635,000, which is included in other income in the
accompanying consolidated statements of income.
Product Warranty Costs
The Company's products are warranted against defects in material and
workmanship for a period of one to five years. The Company provides for
future warranty costs based on the relationship of sales in prior
periods to actual warranty costs incurred with respect to those sales.
The provision for estimated warranty costs is recorded in the year the
unit is sold. Warranty costs totaled $5,688,688, $6,185,115, and
$5,313,438 for the years ended November 1, 1997, November 2, 1996, and
October 28, 1995, respectively.
Accounting Standards Yet to Be Adopted
In February, 1997, the Financial Accounting Standards Board ("FASB")
issued Statement of Financial Accounting Standards ("SFAS") No. 129,
"Disclosures of Information about Capital Structure," which will be
effective for fiscal 1998. In June, 1997, the FASB issued SFAS No. 130
"Reporting Comprehensive Income." Also in June, 1997, the FASB issued
SFAS No. 131, "Disclosure about Segments of an Enterprise and Related
Information." SFAS No. 130 and No. 131 will be effective for fiscal
1999.
SFAS No. 129 requires the Company to disclose information about its
capital structure. SFAS No. 130 requires the disclosure of comprehensive
income, which includes all changes in the equity of an enterprise other
than transactions with owners. SFAS No. 131 requires information
regarding the segments of a business.
SFAS No. 129 and No. 130 are not expected to have a material effect on
the Company's financial statements or disclosures. The Company has not
yet determined the impact that SFAS No. 131 will have on its financial
statements or disclosures. Other issued but not yet required FASB
standards are not currently applicable to the Company's operations.
F-10
<PAGE>
Use of Estimates
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities
and disclosure of contingent assets and liabilities at the date of the
financial statements and the reported amounts of revenues and expenses
during the reporting period. Actual results could differ from those
estimates.
Reclassifications
Certain November 2, 1996 and October 28, 1995 balances have been
reclassified to conform with the November 1, 1997 presentation.
2. LEASES RECEIVABLE
During 1995, BBC created a new subsidiary, Blue Bird Capital Corporation
("Blue Bird Capital"), for the purpose of expanding the availability of
lease financing alternatives to customers of its school bus products.
In addition, the Company has the ability, at its discretion, to sell
leases to a bank. However, no leases have been sold since fiscal 1995.
The Company is required as part of its agreement with the bank to hold a
letter of credit relating to the leases it has sold to the bank. The
letter of credit was $428,000 and $1,053,000 at November 1, 1997 and
November 2, 1996, respectively.
BBC finances the sale of buses to school districts, other tax-exempt
municipalities, and contractors under sales-type leases. Lease terms
range from one to seven years and contain a bargain purchase option at
the end of the lease term. Under the lease terms, the lessee bears
substantially all risks of ownership. BBC retains a lien on the title
until all lease payments have been made.
The net investment in leases arising from these arrangements as of
November 1, 1997 and November 2, 1996 was as follows:
1997 1996
---- ----
Leases receivable $115,028,226 $82,889,596
Unearned interest revenue (12,705,857) (8,812,469)
------------ -----------
Net leases receivable $102,322,369 $74,077,127
------------ -----------
------------ -----------
Interest income recognized on leases receivable was $5,309,199,
$4,947,064, and $2,914,928 for the years ended November 1, 1997,
November 2, 1996, and October 28, 1995, respectively. The primary
expenses associated with the Company's finance lease activities relate
to the interest expense from the revolving credit facility of Blue Bird
Capital (Note 5).
3. NET CASH SURRENDER VALUE OF LIFE INSURANCE
Details of the net cash surrender value of life insurance on the lives
of individuals in whom BBC has an insurable interest as of November 1,
1997 and November 2, 1996 are as follows:
F-11
<PAGE>
1997 1996
---- ----
Cash values $ 7,455,511 $ 7,302,352
Less life insurance loans (4,458,000) (4,457,000)
----------- -----------
Net cash surrender value,
included in other assets $ 2,997,511 $ 2,845,352
----------- -----------
----------- -----------
4. RECAPITALIZATION
On November 19, 1996, the Company completed an overall recapitalization
pursuant to which the Company refinanced approximately $86,000,000 of
its indebtedness, paid a special cash dividend of approximately
$185,346,000 on all shares of its common stock, including $15,840,000
paid to management as owners of redeemable common stock, and paid a
distribution to BBC option holders of $16,060,000. The dividend paid is
recorded as a reduction to retained earnings in the consolidated
statements of changes in stockholders' deficit. The distribution paid
to BBC option holders was recorded as compensation expense and is
included in selling, general, and administrative expenses in the
accompanying consolidated statements of income.
5. LONG-TERM DEBT
Outstanding debt at November 1, 1997 and November 2, 1996 consisted of
the following:
1997 1996
---- ----
10.75% senior subordinated notes,
due November 15, 2006; interest
payable semiannually; subordinated
to Senior Credit Facility, as defined $ 99,713,159 $ 0
Senior Credit Facility term loan,
principal and interest payable in
quarterly installments through
November 19, 2002; interest payable
at the option of BBC at either the
prime rate plus 1.5% or the
Eurodollar rate plus 2.5%; at
November 1, 1997 the Company had
approximately $5,100,000 at 10% and
$85,000,000 at 8.31%; collateralized
by all of the capital stock of the
Company, 66% of the capital stock of
Canadian Blue Bird, and substantially
all of the assets of the Company 90,100,000 0
Senior Credit Facility term loan,
principal and interest payable in
quarterly installments through
November 19, 2002; interest payable
at the option of BBC at either the
prime rate plus 2% or the Eurodollar
rate plus 3%; at November 1, 1997 the
Company had approximately $6,250,000
at 10.5% and $68,000,000 at 8.81%;
collateralized by all of the capital
stock of the Company, 66% of the
capital stock of Canadian Blue Bird,
and substantially all of the assets
of the Company 74,250,000 0
F-12
<PAGE>
1997 1996
---- ----
Blue Bird Capital revolving credit
facility with final maturity on March
31, 1999; interest payable quarterly
at the option of BBC at either the
prime rate or the Eurodollar rate
plus 1.125%; collateralized by all
the capital stock of Blue Bird
Capital $85,500,000 $58,600,000
Industrial development bonds, due
March 2001; interest payable
quarterly; interest rate at 3.65% on
November 1, 1997; secured by a letter
of credit 2,750,000 2,750,000
Bank term loan, extinguished as part
of the recapitalization 0 36,000,000
11.75% Series B senior subordinated
notes, extinguished as part of the
recapitalization 0 50,000,000
------------ ------------
352,313,159 147,350,000
Less current portion of debt 12,750,000 16,000,000
------------ ------------
Long-term debt and bonds payable $339,563,159 $131,350,000
------------ ------------
------------ ------------
As part of the recapitalization, holders of $50,000,000 of the Company's
outstanding 11.75% Series B subordinated notes (the "Old Notes") agreed
to sell their Old Notes to the Company and consented to certain
amendments to the indenture governing the Old Notes for aggregate
payments (including accrued interest) of approximately $54,000,000. The
Company recognized an extraordinary loss of $2,985,845, net of tax
benefit, related to the Company's purchase of the Old Notes, which is
included in the accompanying consolidated statements of income. Holders
of the $36,000,000 bank term loan were also paid as part of the
recapitalization.
The Company's previous bank credit agreement was replaced and refinanced
by an amended credit agreement (the "Senior Credit Facility") which
provides for an aggregate availability of $255,000,000, including
$175,000,000 of term loan facilities and $80,000,000 of revolving credit
facilities. The Senior Credit Facility provides for two term loans and
a revolving credit facility. The revolving credit facility matures in
November 2003 and requires interest payable quarterly at the Company's
option of the prime rate plus 1.5% or the Eurodollar rate plus 2.5%.
The weighted average interest rate of the revolving credit facility was
8.68% for the year ended November 1, 1997. In addition, the revolving
credit facility requires quarterly payments of a commitment fee equal to
.50% per annum of the daily unused portion. No amounts were outstanding
under this revolving credit facility at November 1, 1997. The Senior
Credit Facility contains certain restrictive covenants. The most
restrictive covenants include (1) limitations on indebtedness of the
Company, as defined, (2) certain restrictions on dividend distributions,
as defined, (3) limitations on capital expenditures, (4) minimum
interest coverage ratio, as defined, and (5) a maximum ratio of total
debt to earnings before interest, taxes, depreciation, and amortization.
As of November 1, 1997, the Company was in compliance with all of its
covenants.
In addition to the Senior Credit Facility, the Company sold $100,000,000
of 10.75% senior subordinated notes (the "New Notes"). Proceeds from
the New Notes, borrowings under the Senior Credit Facility, and cash on
hand were used to fund the retirement of the Old Notes, the retirement
of the $36,000,000 bank term loan, the payment of the dividend and
distribution discussed in Note 4, and the payment of related fees and
expenses. The New Notes are unsecured and contain certain restrictive
covenants. The most restrictive covenants include (1) limitation of
indebtedness, as defined and (2) certain restrictions on dividend
distributions, as defined. As of November 1, 1997, the Company was in
compliance with all of its covenants.
F-13
<PAGE>
Also, Blue Bird Capital has a revolving credit facility (the "Blue Bird
Capital Revolver"). The maximum capacity of the Blue Bird Capital
Revolver is $100,000,000 subject to meeting certain covenants, as
defined. The Blue Bird Capital Revolver requires quarterly payments of
a commitment fee equal to .14% and .15% as of November 1, 1997 and
November 2, 1996, respectively, not to exceed .275% per annum of the
daily unused portion of the credit commitment. The Blue Bird Capital
Revolver contains certain covenants, including net income, tangible net
worth, and interest coverage ratios. All of these covenants have been
met as of November 1, 1997.
In connection with the Senior Credit Facility, BBC purchased interest
rate cap agreements with notional principal amounts totaling $37,000,000
in order to reduce the impact of fluctuations in interest rates on its
variable rate debt. The interest rate agreements mature at dates
ranging from April 1998 to April 1999.
The Company entered into interest rate exchange agreements to hedge its
exposure to fluctuating interest rates related to its variable rate
debt. As of November 1, 1997, the exchanges carry notional principal
amounts totaling $190,000,000 and have an estimated fair value of
$300,000, which is calculated based on the estimated amount the Company
would have to pay to terminate the agreements.
The industrial development bonds accrue interest based on a variable
weekly interest rate, with interest payments due quarterly. An
irrevocable letter of credit backing the bonds has been issued which
requires adherence to certain terms and financial ratios which are the
same or less restrictive than those under the revolving credit
facilities and term loan, all of which have been met as of November 1,
1997.
The future minimum principal payments by fiscal year of outstanding debt
at November 1, 1997 are as follows:
1998 $ 12,750,000
1999 102,250,000
2000 20,750,000
2001 25,500,000
2002 20,850,000
Thereafter 170,213,159
------------
$352,313,159
------------
------------
6. INCOME TAXES
BBC follows the provisions of SFAS No. 109, "Accounting for Income
Taxes," for financial reporting purposes. Deferred tax assets or
liabilities at the end of each period are determined using the currently
enacted tax rates to apply to taxable income in the periods in which the
deferred tax asset or liability is expected to be settled or realized.
The components of the net deferred tax liability are as follows:
1997 1996
---- ----
Total deferred tax liabilities $30,600,079 $31,400,496
Total deferred tax assets (21,513,931) (17,014,129)
----------- -----------
Net deferred tax liability $ 9,086,148 $14,386,367
----------- -----------
----------- -----------
F-14
<PAGE>
The sources of and differences between the financial accounting and tax
basis of BBC's assets and liabilities which give rise to the net
deferred tax liabilities are as follows:
1997 1996
---- ----
Deferred tax liabilities:
Stepped-up basis in net assets $20,578,607 $20,625,370
Depreciation 1,326,208 1,984,361
Other 8,695,264 8,790,765
----------- -----------
$30,600,079 $31,400,496
----------- -----------
----------- -----------
Deferred tax assets:
Warranty reserves $ 5,189,217 $ 5,247,237
Pension reserve 2,148,331 1,726,652
Deferred compensation reserve 3,591,086 3,346,739
Workers' compensation reserve 1,769,930 1,761,631
Net operating loss carryforward 4,241,789 0
Other 4,573,578 4,931,870
----------- -----------
$21,513,931 $17,014,129
----------- -----------
----------- -----------
The components of the (benefit) provision for income taxes as of
November 1, 1997, November 2, 1996, and October 28, 1995 are as follows:
<TABLE>
<CAPTION>
1997 1996 1995
---- ---- ----
<S> <C> <C> <C>
Current:
Federal $ 0 $13,117,275 $ 9,945,714
Foreign 827,519 596,516 542,000
State 0 1,366,895 1,193,331
----------- ----------- -----------
Total current 827,519 15,080,686 11,681,045
----------- ----------- -----------
Deferred:
Federal and state (5,300,219) (1,043,058) 5,011
Foreign 0 (3,649) 0
----------- ----------- -----------
Deferred, net (5,300,219) (1,046,707) 5,011
----------- ----------- -----------
Tax (benefit) provision, net $(4,472,700) $14,033,979 $11,686,056
----------- ----------- -----------
----------- ----------- -----------
</TABLE>
Income from foreign operations was approximately $1,586,000, $1,630,000,
and $340,000 for the years ended November 1, 1997, November 2, 1996, and
October 28, 1995, respectively.
The Company has net operating loss carryforwards of approximately
$12,000,000 which expire in 2012.
The income tax (benefit) provision as of November 1, 1997, November 2,
1996, and October 28, 1995 differs from the amount computed by applying
the statutory rates for U.S. federal income taxes to income before
income taxes because of the following:
F-15
<PAGE>
<TABLE>
<CAPTION>
1997 1996 1995
---- ---- ----
<S> <C> <C> <C>
Income tax computed at
statutory rates $ 3,807,585 $14,018,446 $ 9,988,188
Foreign tax impact 0 0 (119,078)
Tax-exempt interest income (1,684,033) (1,372,866) (700,359)
State income taxes, net of
federal income tax effect (271,219) 942,976 775,665
Tax benefit for dividend on
redeemable common stock (5,551,000) 0 0
Goodwill amortization 1,300,024 1,296,524 1,307,024
Other (305,371) (12,737) 434,616
----------- ----------- -----------
(2,704,014) 14,872,343 11,686,056
Extraordinary item (1,768,686) (838,364) 0
----------- ----------- -----------
$(4,472,700) $14,033,979 $11,686,056
----------- ----------- -----------
----------- ----------- -----------
</TABLE>
U.S. income taxes have not been provided for the undistributed earnings
of foreign subsidiaries. These amounts will be offset largely by
foreign tax credits which will arise when this income is recognized for
U.S. income tax purposes.
7. BENEFIT PLANS
Pension Plans
BBC has several defined benefit pension plans and a defined contribution
plan covering substantially all domestic employees and a defined
contribution plan for Canadian employees. Total pension expenses
amounted to $3,333,846, $3,857,044, and $3,399,151, for the years ended
November 1, 1997, November 2, 1996, and October 28, 1995, respectively.
The board of directors adopted a supplemental excess retirement plan
(the "Unqualified Plan") effective January 1, 1991. This plan is
restricted to certain key executives, is not qualified under the
Employee Retirement Income Security Act of 1974 ("ERISA"), as amended,
and is unfunded.
The board of directors adopted a supplemental excess retirement plan in
the form of a rabbi trust (the "Rabbi Trust") (a grantor trust set up to
fund deferred compensation for certain individuals as allowed under the
Internal Revenue Code) effective November 1, 1995. This plan is
restricted to certain executives, is not qualified under ERISA, and is
not funded.
BBC's funding policy is to contribute the net periodic pension cost
accrued each year to the U.S. salaried and hourly defined benefit plans.
However, the contribution will not be less than the minimum required
contribution under ERISA or greater than the maximum tax-deductible
contribution.
F-16
<PAGE>
Net pension cost for the U.S. defined benefit plans includes the
following as of November 1, 1997, November 2, 1996, and October 28, 1995:
<TABLE>
<CAPTION>
1997 1996 1995
---- ---- ----
<S> <C> <C> <C>
Service costs/benefits earned
during the period $ 1,822,381 $ 1,860,568 $ 1,337,279
Interest costs on projected
benefit obligations 3,716,925 3,486,859 3,320,053
Return on plan assets (13,413,777) (8,793,737) (8,189,694)
Net amortization and deferral 9,152,326 5,377,327 5,453,920
----------- ----------- -----------
Net periodic pension costs $ 1,277,855 $ 1,931,017 $ 1,921,558
----------- ----------- -----------
----------- ----------- -----------
</TABLE>
The following table sets forth these plans' funded status at November 1,
1997:
<TABLE>
<CAPTION>
DEFINED
BENEFIT
PENSION UNQUALIFIED RABBI
PLANS PLAN TRUST
------------ ----------- -----------
<S> <C> <C> <C>
Pension benefit obligation:
Vested benefits $(47,205,512) $(3,284,588) $ (300,000)
Nonvested benefits (995,309) 0 0
------------ ----------- -----------
Accumulated benefit obligation $(48,200,821) $(3,284,588) $ (300,000)
------------ ----------- -----------
------------ ----------- -----------
Projected benefit obligation $(54,775,650) $(3,284,588) $ (300,000)
Market value of plan assets 62,162,848 0 0
------------ ----------- -----------
Overfunded (unfunded)
projected benefit obligation 7,387,198 (3,284,588) (300,000)
Unrecognized net gain (13,098,229) 0 0
Unrecognized prior service costs 30,359 0 0
------------ ----------- -----------
Pension liability recognized
in balance sheets $ (5,680,672) $(3,284,588) $ (300,000)
------------ ----------- -----------
------------ ----------- -----------
</TABLE>
Assets of the salaried and hourly plans are invested primarily in U.S.
government securities, common stock funds, and cash management funds.
For 1997, 1996, and 1995, the discount rate and expected long-term rate
of return on assets were both approximately 8.0%. The expected average
rate of increase in future compensation levels used is 4.8%.
The 401(k) plan for domestic employees and the pension plan covering
Canadian employees are defined contribution plans. Total expenses under
such plans for the years ended November 1, 1997, November 2, 1996, and
October 28, 1995 amounted to $2,055,991, $1,926,026, and $1,477,593,
respectively.
Medical, Dental, and Accident and Sickness Benefits
BBC provides and is partially self-insured for medical, dental, and
accident and sickness benefits. BBC maintains a voluntary employee
benefit association trust through which all cash used to pay claims is
processed. The trust is fully funded at year-end to cover incurred but
not reported claims. Therefore, neither the trust's assets nor the
liability for claims is reported in the accompanying consolidated
balance sheets.
F-17
<PAGE>
8. DEFERRED COMPENSATION AND SUPPLEMENTAL RETIREMENT BENEFITS
At November 1, 1997 and November 2, 1996, the accompanying financial
statements reflect liabilities for anticipated payment of deferred
compensation and supplemental retirement benefits described above in the
amounts of $992,151 and $1,077,086, respectively.
9. REDEEMABLE COMMON STOCK AND STOCK SUBSCRIPTIONS RECEIVABLE
Redeemable common stock represents shares of common stock purchased by
members of management ("Management Investors"). The Management
Investors have the right, prior to the earlier of an initial public
offering of equity securities or the tenth anniversary of the
stockholders' agreement, to put these shares to BBC in the event of
their disability, involuntary termination not for cause, retirement (all
as defined in the stockholders' agreement), or death for a fair value
price, as defined in the stockholders' agreement. The redeemable common
stock was recorded at fair value on the date of issuance. The excess of
the fair value price over the original fair value is being accreted by
periodic charges to retained earnings. The amounts recorded in the
balance sheets represent the estimated maximum amount payable if all
management investors met the specified criteria and exercised their put
rights.
During 1997, the Company redeemed 10,000 shares of redeemable common
stock at the accreted value. In addition, the Company issued 20,000
shares of redeemable common stock. As a result, the number of
redeemable common shares outstanding as of November 1, 1997 and November
2, 1996 was 730,000 and 720,000, respectively.
Stock subscriptions receivable represented notes due from members of
management. Interest was payable annually at a rate of 8%. The stock
subscription receivable was paid as part of the recapitalization (Note 4).
10. LEASES
Rental expenses for operating leases were approximately $1,616,032,
$1,194,880, and $1,625,000 for the years ended November 1, 1997,
November 2, 1996, and October 28, 1995, respectively. Operating leases
relate primarily to warehouse equipment. The future minimum lease
payments under operating leases by fiscal year as of November 1, 1997
are approximately as follows:
1998 $ 946,587
1999 824,543
2000 385,051
2001 322,675
2002 237,674
----------
$2,716,530
----------
----------
11. CONTINGENCIES
As of November 1, 1997, BBC had a number of product liability and other
cases pending. At the date of this report, neither the outcome of the
cases nor the amounts of any company liabilities related to these cases
is known. Management believes that, considering BBC's insurance
coverage and its intention to vigorously defend its position, the
ultimate resolution of these matters will not have a material adverse
impact on BBC's financial position or results of operations.
F-18
<PAGE>
12. MANAGEMENT STOCK OPTION PLAN
Effective April 15, 1992, BBC's board of directors adopted a
nonqualified management stock option plan (the "Plan") which provided
for the granting of options to key employees of BBC to purchase up to
850,000 shares of common stock. Pursuant to the Plan, on April 15,
1992, key employees were granted options (the "Vested Options") to
purchase an aggregate of 400,000 shares of common stock at an exercise
price equal to $10 per share (the fair value of the stock at the grant
date as determined by the board of directors). The Vested Options were
fully vested at the time of grant. Additionally, on April 15, 1992, key
employees were granted options (the "Performance Options") to purchase
an aggregate of 400,000 shares at an exercise price equal to $10 per
share. The Performance Options vested ratably over five years based on
BBC's achieving certain levels of earnings performance, as defined in
the Plan, and are fully vested as of November 1, 1997. During the year
ended November 1, 1997, options for 10,000 shares were exercised, and
options for 40,000 shares were granted. The 10,000 options exercised
were for redeemable common stock and were subsequently redeemed by the
Company at the accreted value. As a result, the Company had 760,000 and
730,000 options to purchase shares outstanding as of November 1, 1997
and November 2, 1996, respectively.
During 1995, the FASB issued SFAS No. 123, "Accounting for
Stock-Based Compensation," which defines a fair value-based
method of accounting for an employee stock option plan. However,
it also allows an entity to continue to measure compensation
cost using the method of accounting prescribed by Accounting
Principles Board ("APB") Opinion No. 25, "Accounting for Stock
Issued to Employees." Entities electing to remain with the
accounting in APB Opinion No. 25 must make pro forma disclosures
of net income as if the fair value-based method of accounting
had been applied.
The Company has elected to account for its stock-based
compensation plan under APB Opinion No. 25 and has computed
its pro forma disclosures using the appropriate assumptions in
accordance with SFAS No. 123. As such, the value of the options
granted since the establishment of SFAS No. 123 and their
related costs would have caused the Company to recognize
additional expense of $38,000 on a pro forma basis.
F-19
<PAGE>
PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORTS ON FORM 8-K
(a) 1. Financial Statements
See Index to Financial Statements.
2. Financial Statement Schedules
None.
3. Exhibits
The Exhibits filed herewith or incorporated by reference herein are
set forth on the Exhibit Index. Included in those Exhibits are the
following management contracts or compensatory plans or
arrangements:
Executive Employment Agreement dated April 15, 1992 between Paul E.
Glaske and the Company (incorporated by reference to Exhibit 10.1
to the Registrant's Registration Statement on Form S-1 No. 33-49544
filed September 11, 1992.)
Supplemental Retirement Plan of the Company (incorporated by
reference to Exhibit 10.3 to the Registrant's Registration
Statement on Form S-1 No. 33-49544 filed September 11, 1992.)
ML Stock Subscription Agreement dated as of April 15, 1992
(incorporated by reference to Exhibit 10.10 to the Registrant's
Registration Statement on Form S-1 No. 33-49544 filed September 11,
1992.)
Management Stock Subscription Agreement dated as of April 15, 1992
(incorporated by reference to Exhibit 10.11 to the Registrant's
Registration Statement on Form S-1 No. 33-49544 filed September 11,
1992.)
Stockholders' Agreement dated as of April 15, 1992 (incorporated by
reference to Exhibit 10.14 to the Registrant's Registration
Statement on Form S-1 No. 33-49544 filed September 11, 1992.)
BBC Management Stock Option Plan (incorporated by reference to
Exhibit 10.15 to the Registrant's Registration Statement on Form
S-1 No. 33-49544 filed September 11, 1992.)
40
<PAGE>
Form of Vested Option Agreement (incorporated by reference to
Exhibit 10.16 to the Registrant's Registration Statement on Form
S-1 No. 33-49544 filed September 11, 1992.)
Form of Performance Option Agreement (incorporated by reference to
Exhibit 10.17 to the Registrant's Registration Statement on Form
S-1 No. 33-49544 filed September 11, 1992.)
Executive Employment Agreement dated April 15, 1993 between Bobby
G. Wallace and the Company (incorporated by reference to Exhibit
10.19 to the Registrant's Report on Form 10-K for the fiscal year
ended October 30, 1993 filed January 28, 1994).
Amendment dated October 31, 1994, amending Executive Employment
Agreement dated April 15, 1993 between Bobby G. Wallace and the
Company (incorporated by reference to Exhibit 10.20 to the
Registrant's Report on Form 10-K for the fiscal year ended October
29, 1994 filed January 27, 1995).
Amended and Restated Vested Option Agreement dated September 13,
1994 between Bobby G. Wallace and the Company (incorporated by
reference to Exhibit 10.21 to Registrant's Report on Form 10-K for
the fiscal year ended October 29, 1994 filed January 27, 1995).
(b) Reports on Form 8-K.
None.
(c) Exhibits
The response to this portion of Item 14 is submitted as a separate
section of this report.
(d) Financial Statement Schedules
All schedules are omitted as the required information either is not
applicable or is included in the Financial Statements or related
notes.
41
<PAGE>
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, each Registrant has duly caused this report to be signed
on its behalf by the undersigned, thereunto duly authorized.
BLUE BIRD CORPORATION
BY /s/ Paul E. Glaske
-------------------------
Paul E. Glaske
Chairman of the Board and
President and Director
(Principal Executive
Officer)
Date: January 27, 1998
BLUE BIRD BODY COMPANY
BY /s/ Paul E. Glaske
-------------------------
Paul E. Glaske
Chairman of the Board and
President and Director
(Principal Executive
Officer)
Date: January 27, 1998
<PAGE>
Pursuant to the requirements of the Securities Exchange Act of 1934, this
report has been signed below by the following persons on behalf of each
Registrant in the capacities and on the dates indicated.
BLUE BIRD CORPORATION
<TABLE>
<CAPTION>
SIGNATURE TITLE DATE
--------- ----- ----
<C> <S> <C>
/s/ Paul E. Glaske
------------------------------------------- Chairman of the Board and January 27, 1998
Paul E. Glaske President and Director
(Principal Executive Officer)
/s/ Bobby G. Wallace
------------------------------------------- Vice President, Treasurer and January 27, 1998
Bobby G. Wallace Secretary and Director
(Principal Financial and
Accounting Officer)
/s/ Gerald S. Armstrong
------------------------------------------- Director January 27, 1998
Gerald S. Armstrong
/s/ Alexis P. Michas
------------------------------------------- Director January 27, 1998
Alexis P. Michas
/s/ Donald C. Trauscht
------------------------------------------- Director January 27, 1998
Donald C. Trauscht
/s/ A. Clark Daugherty
------------------------------------------- Director January 27, 1998
A. Clark Daugherty
</TABLE>
<PAGE>
BLUE BIRD BODY COMPANY
<TABLE>
<CAPTION>
SIGNATURE TITLE DATE
--------- ----- ----
<C> <S> <C>
/s/ Paul E. Glaske
------------------------------------------- Chairman of the Board and January 27, 1998
Paul E. Glaske President and Director
(Principal Executive Officer)
/s/ Bobby G. Wallace
------------------------------------------- Vice President, Treasurer and January 27, 1998
Bobby G. Wallace Secretary and Director
(Principal Financial and
Accounting Officer)
/s/ Gerald S. Armstrong
------------------------------------------- Director January 27, 1998
Gerald S. Armstrong
/s/ Alexis P. Michas
------------------------------------------- Director January 27, 1998
Alexis P. Michas
/s/ Donald C. Trauscht
------------------------------------------- Director January 27, 1998
Donald C. Trauscht
/s/ A. Clark Daugherty
------------------------------------------- Director January 27, 1998
A. Clark Daugherty
</TABLE>
<PAGE>
SUPPLEMENTAL INFORMATION TO BE FURNISHED WITH REPORTS FILED PURSUANT TO SECTION
15(d) OF THE ACT BY REGISTRANTS WHICH HAVE NOT REGISTERED SECURITIES PURSUANT TO
SECTION 12 OF THE ACT.
The Registrants have not sent any annual reports covering the Registrants'
last fiscal year or any proxy materials with respect to any annual or other
meetings of security-holders to security-holders and do not intend to furnish
any such report or proxy material to security-holders subsequent to the filing
of this annual report on Form 10-K.
<PAGE>
EXHIBIT INDEX
<TABLE>
<CAPTION>
EXHIBIT
NO. PAGE
------- ----
<S> <C> <C>
3.1 Restated Articles of Incorporation of the Company (incorporated by reference to Exhibit 3.1 to the
Registrant's Registration Statement on Form S-1 No. 33-49544 filed September 11, 1992). --
3.2 By-laws of the Company (incorporated by reference to Exhibit 3.2 to the Registrant's Registration
Statement on Form S-1 No. 33-9544 filed September 11, 1992). --
3.3 Restated Certificate of Incorporation of BBC (incorporated by reference to Exhibit 3.3 to the
Registrant's Registration Statement on Form S-1 No. 33-49544 filed September 11, 1992). --
3.4 By-laws of BBC (incorporated by reference to Exhibit 3.4 to the Registrant's Registration
Statement on Form S-1 No. 33-49544 filed September 11, 1992). --
4.1 Indenture dated as of November 15, 1996 by and among the Company, BBC and the Chase Manhattan
Bank, as Trustee (incorporated by reference to Exhibit 4.1 to the Registrant's Registration
Statement on Form S-4 No. 333-17515 filed December 9, 1996). --
4.2 Form of Exchange Note (contained in Exhibit 4.1 as Exhibit A-2 thereto). --
4.3 Purchase Agreement dated November 13, 1996 by and among the Company, BBC and Merrill Lynch and BT
Securities Corporation (incorporated by reference to Exhibit 4.3 to the Registrant's Registration
Statement on Form S-4 No. 333-17515 filed December 9, 1996). --
10.1 Registration Rights Agreement dated as of November 19, 1996 by and among the Company, BBC and
Merrill Lynch, Pierce, Fenner & Smith Incorporated and BT Securities Corporation (incorporated by
reference to Exhibit 10.1 to the Registrant's Registration Statement on Form S-4 No. 333-17515
filed December 9, 1996). --
10.2 First Amended and Restated Credit Agreement dated as of November 15, 1996 by and among the
Company, BBC, the lenders listed on the signature pages thereto and Bankers Trust Company, as
Administrative Agent and Merrill Lynch & Co., as Syndication Agent, including all exhibits thereto
(incorporated by reference to Exhibit 10.2 to the Registrant's Registration Statement on Form S-4
No. 333-17515 filed December 9, 1996). --
10.3 Amended and Restated Loan Agreement by and among Blue Bird Capital Corporation and LaSalle
National Bank, as agent, and the several financial institutions from time to time parties to the
agreement dated as of March 29, 1996 (incorporated by reference to Exhibit 10.22 to the
Registrant's Form 10-Q No. 033-49544 filed June 11, 1996). --
</TABLE>
<PAGE>
<TABLE>
<S> <C> <C>
10.4 Executive Employment Agreement dated April 15, 1992 between Paul E. Glaske and the Company
(incorporated by reference to Exhibit 10.1 to the Registrant's Registration Statement on Form S-1
No. 33-49544 filed September 11, 1992). --
10.5 Supplemental Retirement Plan of the Company (incorporated by reference to Exhibit 10.3 to the
Registrant's Registration Statement on Form S-1 No. 33-49544 filed September 11, 1992). --
10.6 Form of Noncompetition and Nonsolicitation Agreement with Albert L. Luce, Jr. and Joseph P. Luce
(incorporated by reference to Exhibit 10.5 to the Registrant's
Registration Statement on Form S-1 No. 33-49544 filed September 11, 1992). --
10.7 ML Stock Subscription Agreement dated as of April 15, 1992 (incorporated by reference to Exhibit
10.10 to the Registrant's Registration Statement on Form S-1 No. 33-49544 filed September 11,
1992). --
10.8 Management Stock Subscription Agreement dated as of April 15, 1992 (incorporated by reference to
Exhibit 10.11 to the Registrant's Registration Statement on Form S-1 No. 33-49544 filed September
11, 1992). --
10.9 Stockholders' Agreement dated as of April 15, 1992 (incorporated by reference to Exhibit 10.14 to
the Registrant's Registration Statement on Form S-1 No.33-49544 filed September 11, 1992). --
10.10 BBC Management Stock Option Plan (incorporated by reference to Exhibit 10.15 to the Registrant's
Registration Statement on Form S-1 No. 33-49544 filed September 11, 1992). --
10.11 Form of Vested Option Agreement (incorporated by reference to Exhibit 10.16 to the Registrant's
Registration Statement on Form S-1 No. 33-49544 filed September 11, 1992). --
10.12 Form of Performance Option Agreement (incorporated by reference to Exhibit 10.17 to the
Registrant's Registration Statement on Form S-1 No. 33-49544 filed September 11, 1992). --
10.13 Chassis Supply Agreement dated as of May 8, 1991 between the Company and General Motors
Corporation (incorporated by reference to Exhibit 10.18 to the Registrant's Registration Statement
on Form S-1 No. 33-49544 filed September 11, 1992). --
10.14 Executive Employment Agreement dated April 15, 1993 between Bobby G. Wallace and the Company
(incorporated by reference to Exhibit 10.19 to the Registrant's Report on Form 10-K for the fiscal
year ended October 30, 1993 filed January 28, 1994). --
10.15 Amendment dated October 15, 1994, amending Executive Employment Agreement dated April 15, 1993
between Bobby G. Wallace and the
</TABLE>
<PAGE>
<TABLE>
<S> <C> <C>
Company (incorporated by reference to Exhibit 10.20 to the Registrant's Report on Form 10-K for the
fiscal year ended October 29, 1994 and filed January 27, 1995). --
10.16 Amended and Restated Vested Option Agreement dated September 13, 1994 between Bobby G.Wallace and
the Company (incorporated by reference to Exhibit 10.21 to the Registrant's Report on Form 10-K
for the fiscal year ended October 29, 1994 filed January 27, 1995). --
12.1 Statements re Computation of Ratios.* --
21.1 Subsidiaries of BBC and the Company (incorporated by reference to Exhibit 21.1 to Registrant's
Registration Statement on Form S-4 No. 333-17515 filed December 9, 1996). --
27 Financial Data Schedule.*
</TABLE>
- ------------------------
* Filed herewith
<PAGE>
EXHIBIT 12.1
BLUE BIRD CORPORATION AND SUBSIDIARIES
BLUE BIRD BODY COMPANY AND SUBSIDIARIES
STATEMENTS RE COMPUTATION OF EARNINGS TO FIXED CHARGES
FOR THE YEARS ENDED NOVEMBER 1, 1997, NOVEMBER 2, 1996, OCTOBER 28, 1995,
OCTOBER 29, 1994 AND OCTOBER 30, 1993.
(In Thousands Except Ratios)
<TABLE>
<CAPTION>
BBC
-------------------------------------------------------------------
NOVEMBER 1, NOVEMBER 2, OCTOBER 28, OCTOBER 29, OCTOBER 30,
1997 1996 1995 1994 1993
----------- ----------- ----------- ----------- -----------
<S> <C> <C> <C> <C> <C>
FIXED CHARGES:
Interest expense...................... $ 32,488 $ 16,455 $ 16,282 $ 15,224 $ 15,973
Interest element of rentals........... 539 473 536 521 448
Amortization of debt issuance costs... 1,266 2,688 2,245 2,209 2,202
--------- --------- --------- --------- ---------
$ 34,293 $ 19,616 $ 19,063 $ 17,954 $ 18,623
--------- --------- --------- --------- ---------
--------- --------- --------- --------- ---------
EARNINGS:
Net income (loss)..................... $ 10,597 $ 23,765 $ 16,852 $ 15,408 $ 9,595
Provision (benefit) for income taxes.. (4,473) 14,034 11,686 10,157 6,930
Fixed charges......................... 34,293 19,616 19,063 17,954 18,623
Interest capitalized.................. -0- -0- (208) (145) -0-
--------- --------- --------- --------- ---------
$40,417 $57,415 $47,393 $43,374 $35,148
--------- --------- --------- --------- ---------
--------- --------- --------- --------- ---------
RATIO OF EARNINGS TO FIXED CHARGES..... 1.2x 2.9x 2.5x 2.4x 1.9x
--------- --------- --------- --------- ---------
--------- --------- --------- --------- ---------
</TABLE>
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<CIK>0000889468
<NAME>Blue Bird Body Company
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> NOV-01-1997
<PERIOD-START> NOV-03-1996
<PERIOD-END> NOV-01-1997
<CASH> 31,030,559
<SECURITIES> 0
<RECEIVABLES> 59,630,887
<ALLOWANCES> 0
<INVENTORY> 76,384,544
<CURRENT-ASSETS> 170,360,642
<PP&E> 68,603,738
<DEPRECIATION> (30,502,810)
<TOTAL-ASSETS> 412,499,575
<CURRENT-LIABILITIES> 71,089,964
<BONDS> 339,563,159
0
0
<COMMON> 20,753,048
<OTHER-SE> 74,009,619
<TOTAL-LIABILITY-AND-EQUITY> 412,499,575
<SALES> 576,110,139
<TOTAL-REVENUES> 576,110,139
<CGS> 473,402,463
<TOTAL-COSTS> 66,189,085
<OTHER-EXPENSES> (8,114,473)
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 33,754,249
<INCOME-PRETAX> 10,878,815
<INCOME-TAX> (2,704,014)
<INCOME-CONTINUING> 13,582,829
<DISCONTINUED> 0
<EXTRAORDINARY> (2,985,845)
<CHANGES> 0
<NET-INCOME> 10,596,984
<EPS-PRIMARY> 0
<EPS-DILUTED> 0
</TABLE>
