<PAGE>
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
(Mark One)
[x] JOINT QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934.
For the period ended May 1, 1999
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934.
For the transition period from _______ to ________
<TABLE>
<CAPTION>
Commission File Number 33-49544-01 Commission File Number 33-49544
<S> <C>
BLUE BIRD CORPORATION BLUE BIRD BODY COMPANY
(Exact name of registrant as specified (Exact name of registrant as specified
in its charter) 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 (Address of principal executive
offices, including zip code) offices, including zip code)
(912) 757-7100 (912) 757-7100
(Registrant's telephone number, (Registrant's telephone number,
including area code) including area code)
</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
--- ---
As of June 1, 1999, 9,204,778 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 ("BLUE BIRD" OR THE "COMPANY") IS A WHOLLY-OWNED
SUBSIDIARY OF BLUE BIRD CORPORATION ("BBC"). BLUE BIRD MEETS THE CONDITIONS SET
FORTH IN GENERAL INSTRUCTION H(1) (a) AND (b) OF FORM 10-Q AND IS THEREFORE
FILING CERTAIN PORTIONS OF THIS FORM 10-Q APPLICABLE TO IT WITH THE REDUCED
DISCLOSURE FORMAT PERMITTED BY SUCH GENERAL INSTRUCTION.
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BLUE BIRD CORPORATION
BLUE BIRD BODY COMPANY
QUARTERLY REPORT ON FORM 10-Q
FOR THE THREE-MONTH AND SIX-MONTH PERIODS
ENDED MAY 1, 1999
TABLE OF CONTENTS
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PAGE
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PART I. FINANCIAL INFORMATION
Item 1. Financial Statements:
Condensed Consolidated Balance Sheets
as of May 1, 1999 and
October 31, 1998....................................................................1
Condensed Consolidated Statements of
Income for the three-month and six-month
periods ended May 1, 1999 and
May 2, 1998.........................................................................2
Condensed Consolidated Statements of
Cash Flows for the six-month
periods ended May 1, 1999
and May 2, 1998.....................................................................3
Notes to Condensed Consolidated
Financial Statements................................................................4
Item 2. Management's Discussion and Analysis
of Financial Condition and Results of
Operations..........................................................................6
Item 3. Quantitative and Qualitative Disclosures
about Market Risk....................................................................9
PART II. OTHER INFORMATION
Item 1. Legal Proceedings.....................................................................9
Item 6. Exhibits and Reports on Form 8-K......................................................9
Signatures............................................................................10
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BLUE BIRD CORPORATION AND SUBSIDIARIES
BLUE BIRD BODY COMPANY AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
MAY 1, 1999 AND OCTOBER 31, 1998
($ IN THOUSANDS)
ASSETS
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<CAPTION>
MAY 1, OCTOBER 31,
1999 1998
-------------- --------------
(UNAUDITED)
<S> <C> <C>
CURRENT ASSETS:
Cash and cash equivalents $ 7,875 $ 54,558
Trade receivables 23,904 20,226
Leases receivable 48,662 48,262
Inventories 175,306 85,148
Prepaid expenses 2,309 1,149
Other current assets 1,738 1,913
-------------- --------------
Total current assets 259,794 211,256
LEASES RECEIVABLE, NONCURRENT 66,139 63,205
PROPERTY, PLANT, AND EQUIPMENT 75,604 71,183
Less accumulated depreciation (38,404) (35,293)
-------------- --------------
Property, plant, and equipment, net 37,200 35,890
-------------- --------------
GOODWILL AND DEBT ISSUE COSTS 162,506 162,506
Less accumulated amortization (30,194) (27,642)
-------------- --------------
Goodwill & debt issue costs, net 132,312 134,864
-------------- --------------
OTHER ASSETS 8,128 4,743
-------------- --------------
Total assets $ 503,573 $ 449,958
-------------- --------------
-------------- --------------
LIABILITIES AND STOCKHOLDERS' (DEFICIT) EQUITY
CURRENT LIABILITIES:
Revolving credit facilities $ 32,400 $ 0
Current portion of long-term debt 18,750 16,750
Accounts payable 50,612 29,763
Income taxes payable 2,001 7,444
Deferred income taxes 3,931 5,356
Other current liabilities 44,769 38,259
-------------- --------------
Total current liabilities 152,463 97,572
LONG-TERM DEBT 322,969 329,733
DEFERRED INCOME TAXES 4,577 4,844
OTHER LIABILITIES 21,917 21,925
REDEEMABLE COMMON STOCK, NET 45,950 48,445
-------------- --------------
Total liabilities 547,876 502,519
STOCKHOLDERS' (DEFICIT) EQUITY:
Common stock, $.01 par value; 25,000,000 shares
authorized; 7,704,778 shares outstanding 77 77
Additional paid-in capital 77,023 77,023
Retained earnings (deficit) (117,685) (125,309)
Other comprehensive income (3,718) (4,352)
-------------- --------------
Total stockholders' (deficit) equity (44,303) (52,561)
-------------- --------------
Total liabilities and stockholders' (deficit) equity $ 503,573 $ 449,958
-------------- --------------
-------------- --------------
</TABLE>
The accompanying notes are an integral part of these condensed consolidated
statements.
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BLUE BIRD CORPORATION AND SUBSIDIARIES
BLUE BIRD BODY COMPANY AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF INCOME
FOR THE THREE MONTH AND SIX MONTH PERIODS ENDED MAY 1, 1999 AND MAY 2, 1998
($ IN THOUSANDS)
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<CAPTION>
THREE MONTHS ENDED SIX MONTHS ENDED
---------------------------- -----------------------------
MAY 1, MAY 2, MAY 1, MAY 2,
1999 1998 1999 1998
------------- ------------- ------------- ------------
(UNAUDITED) (UNAUDITED) (UNAUDITED) (UNAUDITED)
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Net sales $ 136,710 $ 102,713 $ 237,274 $ 193,614
Cost of goods sold 111,503 82,553 193,336 157,168
--------- --------- --------- ---------
Gross profit 25,207 20,160 43,938 36,446
Selling, general and administrative expenses 11,918 11,474 23,401 22,701
Amortization of goodwill and other intangibles 960 960 1,920 1,920
--------- --------- --------- ---------
Operating income 12,329 7,726 18,617 11,825
Interest income 1,987 1,690 4,176 3,629
Interest and debt issue expense (7,798) (8,636) (15,602) (17,098)
Other income 430 307 736 605
--------- --------- --------- ---------
Income (loss) before income taxes 6,948 1,087 7,927 (1,039)
Provision (benefit) for income taxes 2,425 300 2,798 (322)
--------- --------- --------- ---------
Net income (loss) $ 4,523 $ 787 $ 5,129 $ (717)
--------- --------- --------- ---------
--------- --------- --------- ---------
</TABLE>
The accompanying notes are an integral part of these condensed consolidated
statements.
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BLUE BIRD CORPORATION AND SUBSIDIARIES
BLUE BIRD BODY COMPANY AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR THE SIX-MONTH PERIODS ENDED MAY 1, 1999 AND MAY 2, 1998
($ IN THOUSANDS)
<TABLE>
<CAPTION>
SIX MONTHS ENDED
---------------------------------------
MAY 1, MAY 2,
1999 1998
------------- -------------
(UNAUDITED) (UNAUDITED)
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CASH FLOWS FROM OPERATING ACTIVITIES:
Net income (loss) $ 5,129 $ (717)
------------- -------------
Adjustments to reconcile net income (loss) to net
cash provided by (used in) operating activities:
Depreciation and amortization 5,629 5,782
Increase (decrease) in cash surrender value of life insurance 19 11
Deferred income taxes (1,692) (699)
Changes in operating assets and liabilities:
(Increase) decrease in trade receivables (3,678) 993
(Increase) decrease in inventories (90,158) (96,274)
(Increase) decrease in prepaid expenses (1,160) (838)
Increase (decrease) in accounts payable 20,849 29,349
Increase (decrease) in income taxes payable (5,443) 36
Other 3,012 11,239
------------- -------------
Total adjustments (72,622) (50,401)
------------- -------------
Net cash used in operating activities (67,493) (51,118)
------------- -------------
CASH FLOWS FROM INVESTING ACTIVITIES:
Property, plant, and equipment acquisitions (4,116) (1,303)
(Increase) decrease in leases receivable (3,334) (134)
------------- -------------
Net cash used in investing activities (7,450) (1,437)
------------- -------------
CASH FLOWS FROM FINANCING ACTIVITIES:
Net borrowing on revolving credit agreements 34,000 31,100
Repayment of long-term debt (6,375) (5,375)
------------- -------------
Net cash provided by financing activities 27,625 25,725
------------- -------------
EFFECT OF EXCHANGE RATE FLUCTUATIONS 635 (222)
------------- -------------
NET DECREASE IN CASH AND CASH EQUIVALENTS (46,683) (27,052)
CASH AND CASH EQUIVALENTS AT BEGINNING OF PERIOD 54,558 31,031
------------- -------------
CASH AND CASH EQUIVALENTS AT END OF PERIOD $ 7,875 $ 3,979
------------- -------------
------------- -------------
SUPPLEMENTAL INFORMATION:
Cash interest paid $ 15,066 $ 16,554
------------- -------------
------------- -------------
Cash income taxes paid $ 9,866 $ 312
------------- -------------
------------- -------------
</TABLE>
The accompanying notes are an integral part of these condensed consolidated
statements.
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BLUE BIRD CORPORATION AND SUBSIDIARIES
BLUE BIRD BODY COMPANY AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
1. BASIS OF FINANCIAL STATEMENTS AND FORMATION AND ORGANIZATION
The accompanying unaudited condensed consolidated financial statements
of Blue Bird Corporation and subsidiaries ("BBC") have been prepared in
accordance with generally accepted accounting principles for interim
financial information and with the instructions to Form 10-Q and
Article 10 of Regulation S-X. Accordingly, they do not include all of
the information and footnotes required by generally accepted accounting
principles for complete financial statements. It is suggested that
these condensed consolidated financial statements be read in
conjunction with the financial statements and the notes thereto
included in the joint annual report of BBC and Blue Bird Body Company
on Form 10-K for the fiscal year ended October 31, 1998.
The accompanying unaudited financial statements include, in the opinion
of management, all adjustments, which are of a normal recurring nature,
necessary for a fair presentation for the periods presented. Results
for the interim periods presented are not necessarily indicative of
results that may be expected for a full fiscal year.
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 1999 and
1998 each contain 52 weeks.
2. INVENTORIES
Inventories are valued at the lower of cost or market, cost being
determined on the last-in, first-out basis. If the first-in, first-out
method had been used, inventories would have been approximately $3.5
million higher at May 1, 1999 and approximately $2.9 million higher at
October 31, 1998.
4
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The components of inventory consist of the following at May 1, 1999 and
October 31, 1998 (dollars in thousands):
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1999 1998
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Raw materials $ 30,207 $23,923
Work in process 71,133 31,956
Finished goods 73,966 29,269
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$175,306 $85,148
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3. CONTINGENCIES
PENDING LITIGATION AND INSURANCE PROGRAM
As of May 1, 1999, a number of product liability cases were pending
against a subsidiary of BBC. Neither the outcome of certain cases nor
the amounts of any liabilities related to these certain cases are
known; however, management believes that the ultimate resolution of
these matters will not have a material adverse impact on BBC's
financial position or results of operations.
4. RECAPITALIZATION
During November 1996, Blue Bird was recapitalized, resulting in the
repayment of the then existing $86 million of debt, the issuance of new
debt in the amount of $275 million and a distribution paid to
shareholders and holders of options for BBC common stock of $185.3
million and $16.5 million, respectively. The existing Subordinated
Notes were repurchased at a premium of $3.4 million. Debt issuance
costs related to the recapitalization were $9.7 million. A nonrecurring
recapitalization charge was taken in November to recognize the $3.4
million premium cost, $1.4 million of original debt issue costs written
off and $16.5 million General and Administrative expenses related to
the distribution payment to option holders for a total of $21.3
million.
5. REDEEMABLE COMMON STOCK
The Company quarterly records an adjustment to the redeemable common
stock based on an estimated Company valuation net of outstanding debt
in accordance with the formula in the stockholders' agreement.
5
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6. COMPREHENSIVE INCOME
Effective November 1, 1998, the Company adopted Statement of Financial
Accounting Standards No. 130, Reporting Comprehensive Income, which
requires companies to disclose comprehensive income and its components,
defined as the total of net income and all other nonowner changes in
equity. The Company has other nonowner changes in equity ("other
comprehensive income") in the form of cumulative translation
adjustments and unrealized gains on available-for-sale equity
securities. Total comprehensive income for the quarters ended May 1,
1999 and May 2, 1998 was $4.9 million and $.8 million respectively.
Total comprehensive income (loss) for the six months ended May 1, 1999
and May 2, 1998 was $5.8 million and ($.9), respectively.
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
RESULTS OF OPERATIONS
THREE MONTHS ENDED MAY 1, 1999 COMPARED TO THREE MONTHS ENDED MAY 2, 1998
Net sales for the quarter ended May 1, 1999, were $136.7 million, an increase of
$34.0 million or 33.1% compared to the corresponding period in 1998. This
increase was due to more deliveries during the current reporting period as
compared to the 1998 period.
Gross profit increased to $25.2 million in the second quarter of 1999 from $20.2
million in the second quarter of 1998, an increase of $5.0 million or 24.8% as a
result of higher sales volume. The gross margin decreased to 18.4% compared to
19.6% in the 1998 period. The mix of buses delivered during the 1998 period
resulted in unusually high margins.
Selling, general and administrative expenses increased to $11.9 million from
$11.5 million in the 1998 period, an increase of $.4 million or 3.5%. The
increase was due primarily to higher selling and engineering expenses related to
higher sales volume.
Interest and debt issue expenses decreased to $7.8 million in the current period
from $8.6 million in the prior year period due to lower average interest rates
and decreased average debt in the current period as compared to the prior year
period.
The provision for income taxes was $2.4 million in the current period compared
to $.3 million in the 1998 period as a result of increased taxable income.
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SIX MONTHS ENDED MAY 1, 1999 COMPARED TO SIX MONTHS ENDED MAY 2, 1998
Net Sales for the six months ended May 1, 1999, were $237.3 million, an increase
of $43.7 million or 22.6% compared to the corresponding period in 1998. This
increase was due to more deliveries during the current reporting period as
compared to the 1998 period.
Gross profit increased to $43.9 million in the current period as compared to
$36.4 million in the 1998 period. This increase was $7.5 million or 20.6% due to
higher sales volume. The gross margin of 18.5% was down slightly compared to the
gross margin for the prior year period of 18.8%. The prior year period mix of
units delivered generated a slightly higher gross margin.
Selling, general and administrative expenses increased to $23.4 million from
$22.7 million in the 1998 period, an increase of $.7 million or 3.1%. This
increase was due to increased engineering and selling expenses related to higher
sales volume.
Interest and debt issue expense decreased to $15.6 million in the current period
from $17.1 million in the prior year period due to lower average interest rates
and decreased average debt in the current period as compared to the prior
period.
The provision for income taxes was $2.8 million in the current period compared
to a benefit of $.3 million in the 1998 period. The 1998 period reflected a
loss.
YEAR 2000
As a result of certain computer programs being written using two digits rather
than four to define the applicable year, information systems that have date
sensitive software may be unable to properly recognize and process dates and
date-sensitive information on and beyond January 1, 2000 (the "Year 2000
Problem"). The Year 2000 Problem, which is common to most businesses, could, if
not resolved, have a detrimental effect on the Company's operations, and
interfere with the Company's ability to engage in normal business activities. If
unremedied, the Year 2000 Problem could result in systems failures or
miscalculations causing disruptions, including among other things, a temporary
slowdown of manufacturing operations due to parts shortages and, consequently, a
temporary inability to deliver buses to customers.
In 1993, the Company began a company-wide assessment of the vulnerability of its
information technology systems to the Year 2000 Problem and began modifying all
affected software. Approximately 90% of the software used by the company was
developed and is maintained in house. All software systems have been reviewed to
determine Year 2000 compliance. As of May 1, 1999, the Company estimates that it
has completed approximately 97% of the necessary revisions and testing. Hardware
and network systems review is scheduled for completion in mid summer of 1999.
The Company also has been assessing its non-information technology systems to
identify potential Year 2000 problems. The review to date has not identified any
major non-information technology system problems that
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would adversely affect operations in a significant way. The evaluation and
testing of non-information technology systems is scheduled to be completed by
mid summer of 1999.
The Company is also in process of surveying major suppliers and customers to
determine their efforts toward resolution of the Year 2000 Problem. The Company
has developed contingency plans to address various Year 2000 problems which
would result in the failure of critical business systems of the Company, its
significant suppliers or customers.
Since 1993, the Company has treated the costs associated with modifying affected
systems as on-going software maintenance using primarily in-house resources. The
Company estimates that approximately $.6 million has been expended in connection
therewith through the second quarter of fiscal 1999, mainly costs associated
with employee payroll. The Company believes that the remaining costs associated
with completion of the Year 2000 Problem will be approximately $.3 million,
again mainly internal payroll related, including the additional cost of an
outside contractor. Remediation costs comprise less than 15 percent of the
information technology budget for fiscal 1999. All remediation costs are
funded from current operating income.
Although the Company believes that it will be able to modify or replace its
affected systems in time to minimize any detrimental effects on its operation
caused by the Year 2000 Problem, it can make no assurance that the Company will
be successful in such efforts, or that its major vendors or customers will
successfully modify or replace their affected systems or that such failures
would not have a material adverse effect on the Company's consolidated results
of operations, liquidity or capital resources in the future.
FINANCIAL CONDITION
WORKING CAPITAL
The Company's working capital needs are seasonal. Working capital and related
bank borrowings are lowest immediately after heavy school bus deliveries late in
the fourth fiscal quarter. Beginning in December or January, working capital and
related bank borrowings typically start to increase as parts are purchased or
manufactured and distributed to the assembly plants for assembly into buses.
Management tries to build buses as close to expected delivery time as possible.
Inventory is at its highest during May, June and July prior to heavy seasonal
deliveries.
LIQUIDITY AND CAPITAL RESOURCES
Net cash used in operating activities during the first six month period of
fiscal 1999 was $67.5 million. This amount reflects income tax payments of $5.4
million, the customary seasonal increase in inventory of $90.2 million, offset
in part by a related increase in accounts payable of $20.8 million. Scheduled
repayment of term debt during the period used additional funds of $6.4 million.
Capital expenditures for the period were $4.1 million. The Company's principal
sources of funds during the period were cash on hand at the beginning of the
fiscal year and proceeds from a working capital line of credit. One of the
Company's subsidiaries, Blue Bird Capital Corporation, provides sales
8
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financing. The increase in leases receivable is funded primarily through a
separate revolving line of credit.
FORWARD-LOOKING STATEMENTS
Any statements contained in this Form 10-Q which are not historical facts are
"forward-looking statements" within the meaning of the Private Securities
Litigation Reform Act of 1995. The Company cautions readers that there can be no
assurance that the actual results or business conditions will not differ
materially from those projected or suggested in such forward-looking statements
as a result of various factors, including, but not limited to, the degree to
which the Company is leveraged and the Company's significant debt service
obligations, the restrictive covenants contained in and the asset encumbrances
resulting from certain of the Company's credit agreements, product liability
claims for personal injuries and other matters, the availability of insurance
coverage with respect to such claims and matters, governmental regulation of the
Company's business, the limited number of chassis suppliers, the control of the
Company by Merrill Lynch Capital Partners, Inc. and the consequences arising
under the Company's credit agreements in the event of a change of control.
Item 3. Quantitative and Qualitative Disclosures about Market Risk.
Not applicable.
PART II. OTHER INFORMATION
Item 1. Legal Proceedings.
Reference is made to BBC's and the Company's Joint Annual Report on Form 10-K
for the fiscal year ended October 31, 1998 for a description of certain legal
proceedings to which BBC or the Company is a party.
Item 6. Exhibits and Reports on Form 8-K.
(a) Exhibits.
27.1 Financial Data Schedule
(b) Reports on Form 8-K.
BBC and the Company filed one Report on Form 8-K dated
March 25, 1999, which reported certain changes in the
executive officers of BBC and the Company.
9
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SIGNATURES
Pursuant to the requirements 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 BLUE BIRD BODY COMPANY
BY /s/ Paul E. Glaske BY /s/ Paul E. Glaske
- --------------------------------- --------------------------------
Paul E. Glaske Paul E. Glaske
Chairman of the Board Chairman of the Board
and Director and Director
(Principal Executive (Principal Executive
Officer) Officer)
Date: June 15, 1999 Date: June 15, 1999
BY /s/ Bobby G. Wallace BY /s/ Bobby G. Wallace
- ----------------------------------- --------------------------------
Bobby G. Wallace Bobby G. Wallace
Vice Chairman, Treasurer, Vice Chairman, Treasurer,
Secretary and Director Secretary and Director
(Principal Financial and (Principal Financial and
Accounting Officer) Accounting Officer)
Date: June 15, 1999 Date: June 15, 1999
10
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<PAGE>
<ARTICLE> 5
<CIK> 0000889468
<NAME> BLUE BIRD BODY COMPANY
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> OCT-30-1999
<PERIOD-START> NOV-01-1998
<PERIOD-END> MAY-01-1999
<CASH> 7,875
<SECURITIES> 0
<RECEIVABLES> 72,566
<ALLOWANCES> 0
<INVENTORY> 175,306
<CURRENT-ASSETS> 259,794
<PP&E> 75,604
<DEPRECIATION> (38,404)
<TOTAL-ASSETS> 503,573
<CURRENT-LIABILITIES> 152,463
<BONDS> 322,969
0
0
<COMMON> 46,027
<OTHER-SE> (44,380)
<TOTAL-LIABILITY-AND-EQUITY> 503,573
<SALES> 237,274
<TOTAL-REVENUES> 237,274
<CGS> 193,336
<TOTAL-COSTS> 25,321
<OTHER-EXPENSES> (4,912)
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 15,602
<INCOME-PRETAX> 7,927
<INCOME-TAX> 2,798
<INCOME-CONTINUING> 5,129
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 5,129
<EPS-BASIC> 0
<EPS-DILUTED> 0
</TABLE>