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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
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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 OCTOBER 31, 1998
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COMMISSION FILE NUMBER 33-49544-01 COMMISSION FILE NUMBER 33-49544
BLUE BIRD CORPORATION BLUE BIRD BODY COMPANY
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(Exact name of registrant as (Exact name of registrant as
specified in its charter) specified in its charter)
DELAWARE GEORGIA
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(State or other jurisdiction (State or other jurisdiction
of incorporation or organization) of incorporation or organization)
13-3638126 58-0813156
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(I.R.S. Employer Identification No.) (I.R.S. Employer Identification No.)
3920 ARKWRIGHT ROAD 3920 ARKWRIGHT ROAD
MACON, GEORGIA 31210 MACON, GEORGIA 31210
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(Address of principal executive (Address of principal executive
offices including ZIP code) offices including ZIP code)
(912) 757-7100 (912) 757-7100
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(Registrant's telephone number, (Registrant's telephone number,
including area code) including area code)
SECURITIES REGISTERED PURSUANT TO SECTION 12(b) OF THE ACT:
NONE NONE
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(Title of class) (Title of class)
SECURITIES REGISTERED PURSUANT TO SECTION 12(g) OF THE ACT:
NONE NONE
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(Title of class) (Title of class)
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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/
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, 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 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.
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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 77% of the Company's net sales in
fiscal 1998 were derived from sales of school bus products. The Company also
manufactures commercial buses and recreational vehicles which target purchasers
of buses for applications other than school transportation. Commercial and
recreational vehicles accounted for approximately 18% and 5%, respectively, of
the Company's fiscal 1998 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 65 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 October
31, 1998, the Company had $626.4 million in net sales and $78.1 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 450,000 school buses
currently in operation are publicly owned, with the remainder being privately
owned. Management estimates deliveries of school buses in North America in
fiscal 1998 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 1998, 3,500
units was the total market demand for the types of bus products that the Company
manufactures and sells to countries outside of North America. In fiscal 1998,
the Company sold approximately 14,130 school bus units and estimates it had
approximately 42% 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.
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
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the bus body manufacturer. Approximately 47% of the Company's school bus sales
in 1998, 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 the sale of integrated
units provides school bus body manufacturers the opportunity to offer end-users
a competitively priced, purpose-built product while increasing the 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 North
America 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.
In the states of Florida, Kentucky, North Carolina and West Virginia and in
the Canadian Maritimes and Province of Manitoba, contract awards for school
buses are based on a bid process, with the state/ province generally serving as
the aggregate purchaser on behalf of all of its school districts. 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 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 15% of annual North America public school
bus purchases are awarded through these bids.
In the United States, approximately 75% of the estimated 450,000 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 North America are owned by the four 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 1998 totaled approximately 33,400 units. In addition, management
estimates that the market demand for school bus and
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commercial products that the Company manufactures and sells to countries outside
of North America totaled approximately 3,500 units in fiscal 1998.
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 37 feet to 45 feet in length.
The Company participates in the commercial bus market with its line of
medium-duty buses and over-the-road coaches. See "Products." Medium-duty buses
are purchased by public transportation authorities, private contractors,
corporations (for shuttle use), and by charter and commuter operators. The
Company's over-the-road coaches are positioned to compete in the larger coach
tour/charter market. As a result of record transit funding by the U.S.
Government, rural and urban public transit authorities are re-evaluating their
traditional preferences for larger buses, especially in urban areas, for fleets
consisting primarily of large- and medium- duty buses similar to those built by
the Company, in part because medium duty buses are more economical and easier to
operate. The Company believes it is well positioned to benefit from this trend.
The shuttle market is serviced by a variety of products which include a variety
of vans, "cutaway" vans (a fiberglass body on a van chassis), small- and medium-
duty buses 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 as well as the growing 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. Customers
for this product are well financed and demand custom designed interiors and
quality performing products. Management estimates that in a given year, the
market demand is approximately 350 to 400 luxury motor home products similar to
those manufactured by the Company in the United States. Management believes that
in order for the Company to increase sales, it will need to increase its market
share relative to 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. 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
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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 would likely 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 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.
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.
The most immediate issue facing the school bus industry involves more
restrictive EPA emission standards that went into effect in 1998. These
regulations mandate certain engine changes and result in increased costs to
manufacturers and end-users of 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.
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 currently only three major manufacturers of Type C chassis in
North America: General Motors Corporation ("GM"), Freightliner Custom Chassis
Corp. ("Freightliner") and Navistar International Corporation ("Navistar").
Navistar, which accounts for approximately 65% of the chassis market, owns
AmTran of Illinois, Inc. ("AmTran"), and Freightliner, which accounts for less
than 10% of the Chassis market, owns Thomas Built Bus Company ("Thomas"). Both
AmTran and Thoms are bus manufacturers that are major competitors of the
Company. 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. Freightliner recently purchased Thomas, and
has continued to make its chassis available to Thomas' competitors. There can be
no assurance that Navistar or Freightliner will continue to make chassis
available to purchasers other than AmTran or Thomas.
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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 twelve months' 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
Freightliner to fill orders or (ii) school 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 1998 Blue Bird derived approximately 17% of its net sales from the sale
of its various school bus body models and 54% 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 $10,000 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 $12,000 to $18,000.
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 1998. 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 $12,000 to $25,000, while prices for integrated products range
from approximately $42,000 to $55,000.
TYPE D. "Type D" school buses accounted for approximately 23% of the
vehicles sold by the Company in 1998. 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
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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
MEDIUM-DUTY COACH. A 37 foot long coach introduced in 1992 enabled the
Company to compete in the medium-duty 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.
OVER-THE-ROAD COACH. In 1997, the Company introduced a 40 foot
over-the-road coach with seating capacity for up to 47 passengers including
lavatory, 300 cubic feet of 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 tour, charter and commuter operators traveling from the
suburban locations to urban work offices. Management believes the Company's
coach products to be a viable alternative to 45 foot vehicles for a variety of
reasons. The 40 foot coach is designed with the same running gear as the 45 foot
coach; however, the technique to manufacture the Company's 40 foot coach offers
cost savings not offered in the larger coaches. Also, the Company's 40 foot
coach is manufactured in the U.S., while the 45 foot coaches are foreign made,
adding import costs. Wholesale prices for the Company's coaches typically range
from approximately $125,000 to $230,000.
The Company also manufacturers medium-duty buses configured for shuttle,
transit, and demand response applications. These products, offered in models
ranging from 24 feet to 39 feet in length, are designed to offer customers
durable, affordable alternatives to lightweight products such as cutaway vans
(fiberglass body on a van chassis) and heavy duty, expensive transit buses.
Wholesale selling prices for these medium-duty buses typically range from
approximately $55,000 to $150,000.
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 adaptations of the Type A, B, C and D school
bus in commercial form. These buses, known as "Activity Buses," offer basic
transportation for churches, colleges, universities, commuter, shuttle,
government agencies, and international customers. These products offer basic
paint schemes, diesel and natural gas engine options, and very functional
interiors for passenger comfort. Wholesale selling prices for the Activity Buses
typically range from approximately $15,000 for non-integrated products to
$100,000 for integrated products.
RECREATIONAL VEHICLE PRODUCTS
GENERAL. The Company manufactures complete motor homes by integrating the
motor home shell with Blue Bird-manufactured chassis. The Company offers three
luxury motor home models, all of which are targeted for the premium high-end
market.
WANDERLODGE. The Wanderlodge is a premium motor home manufactured by the
Company. The Wanderlodge is available in three models, 40 foot, 41 foot and 43
foot. In 1997, the Company redesigned its line of motor coaches to project a
more European look. The 40 foot LX unit is the Company's production coach that
is available with upscale interiors, giving the customer 6 floor plans and a
variety of paint designs. The 41 foot and 43 foot LXi is the Company's custom
coach offering the customer numerous choices in materials, components and
colors. An added benefit to the Company's LXi coach line is a room expanding
slide out feature, giving the owner additional living space while on location.
The Company's slide out model is designed to increase the size of the
gally/living room and also the bedroom. Key features of the Wanderlodge units
include (i) the ultra-premium design of the product, (ii) steel body
construction
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and a body-on-chassis design, (iii) a wide selection of optional interior
equipment available to the purchaser, and (iv) the extensive product support
capability provided by Blue Bird's RV distributors. Suggested retails prices for
the Wanderlodge range from approximately $550,000 to $650,000.
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 (87% of 1998 net
sales) and directly to end-users (13% of 1998 net sales). During 1998, 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 65 independent distributors in the U.S. and
Canada, including RV distributors. The Company's two RV distributors together
have five locations. One of these distributors, Buddy Gregg Motor Homes, Inc.,
accounts for approximately 69% 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 1998, no single distributor
accounted for more than 7.5% 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
encouraged to sell only 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 and product 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.
Regional sales meetings are also conducted annually to focus on regional
strategic planning, advertising and other issues.
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 various conventions at the state level and are usually
accompanied by a representative of the Company.
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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 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 4.99% to 8.0%. 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 1,500 buses to Canadian customers in 1998
(approximately $41 million in net sales), and a facility in Monterrey, Mexico,
the Company's operations are based in the United States. The Company exported
approximately 800 bus products in 1998, 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
8
<PAGE>
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, Mexico and Central and South America. However, the Company's
ability to increase export sales will be affected by world wide economic
conditions.
In Mexico, the easing of import restrictions on new trucks and buses in
connection with the North American Free Trade Agreement presented an opportunity
for Blue Bird to expand its 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 improve 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.
In addition, for international markets, the Company has developed right-hand
drive chassis for its integrated products and assembly kits for both bodies and
integrated products.
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 1998 were $.6
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, 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 70% of aggregate domestic school bus sales in 1998,
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 of Type C chassis are GM,
Freightliner and Navistar. Of these, Navistar is the leading manufacturer,
accounting for approximately 65% of sales in 1998. The Company does not believe
Navistar's acquisition of AmTran will result in a material impact on the
Company's business. Navistar has continued to make its chassis available to all
bus body manufacturers. Freightliner, which recently acquired Thomas, currently
is offering its chassis to all bus body manufacturers as well. See "Limited
Number of Chassis Suppliers."
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 large over-the-road coach area of the
tour, charter and commuter markets, the Company's principal competitors include
MCI, Van Hool and Prevost. In the medium-duty bus market, competition includes
Eldorado National ("Eldorado") and Champion Motor Coach, Inc. ("Champion"),
9
<PAGE>
both businesses of Thor Industries, Inc., Metrotrans Corporation ("Metrotrans"),
Goshen Coach, Supreme Corporation and Thomas. In the medium-duty urban and rural
public 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 highline motor homes such as those converted by
Marathon Coach, Inc., Liberty Coach, Inc., Vantare International, Inc., Country
Coach, Inc. and Custom Coach Corp. These convertors build on coaches made by
Prevost Car and MCI. An additional competitor, Newell Coach, Inc. is the only
highline 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.
RAW MATERIALS AND COMPONENTS
The largest production-related expense incurred by the Company is the cost
of purchased materials. In fiscal year 1998, material purchases represented
approximately 72% 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 materials 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 65% in 1998. 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 57% 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 twelve months
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
medium-duty truck dealers participate in servicing the end user
10
<PAGE>
after the initial sale. This enhanced network provides the Blue Bird/GM product
with broad post-sale servicing and support.
BACKLOG ORDERS
As of October 31, 1998, the dollar amount of backlog orders believed by the
Company to be firm totaled approximately $391 million. It is expected that all
such orders will be filled during fiscal year 1999.
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.
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, 1999, the Company had approximately 2,877 employees, of
whom approximately 2,385 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,
ten-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.
11
<PAGE>
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.
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, the Seaboard
chemical site in Jamestown, North Carolina and the Four County Landfill in
DeLong, Indiana. In each instance, 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 CERCLA
liability in connection with the Seaboard site. Although the cost of such buyout
is not currently known, it is not expected to be material.
In December, 1998, the Company received correspondence from the Four County
Landfill PRP Group (the "PRP Group") demanding that the Company provide
reimbursement in the amount of $20,208.00 for certain past soil remediation
costs. The PRP Group also demanded that the Company agree to fund a portion of
future studies to determine the extent of groundwater contamination at the Four
County Landfill. The Company is currently evaluating the merits of these claims.
If the claims are found to be meritorious, it is not expected that any resulting
costs to the Company will 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.
12
<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 two 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 (as hereinafter defined). 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, LTC-40, parts 843,000 1,518
fabrication
Service Parts Fort Valley, Georgia Parts 80,000 N.A.(b)
Wanderlodge Fort Valley, Georgia Wanderlodge, parts fabrication 216,000 306
Blue Bird North Georgia LaFayette, Georgia Conventional, TC/2000 226,000 293
Blue Bird Midwest Mt. Pleasant, Iowa Conventional, Mini-Bird 227,400 299
Blue Bird Canada Brantford, ON (Canada) TC/2000, Conventional, Micro- Bird, 270,300 331
parts fabrication
Blue Bird de Mexico Monterrey, Mexico Conventional 118,300 130
---------- -----
Total Company 1,981,000 2,877
</TABLE>
- ------------------------
(a) As of January 1, 1999.
(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 28 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, 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
13
<PAGE>
coverage for occurrences in each of the past several years has been $25 million
in excess of a $2 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.
The Company has sued one of its suppliers of power trains. The suit charges
defective, late and undelivered power trains. The supplier has counterclaimed,
alleging default by the Company in its obligations. Management believes that the
outcome of the litigation will not have a material adverse effect on the
Company; however, there can be no assurance that the amount of expense of
pursuing the claim or the losses or expenses relating to the defense of the
counterclaim will not have a material adverse 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. During 1998, the Company
recalled the affected models as a result of the NHTSA's noncompliance
determination and made the repairs required to bring the vehicle into
compliance. A reserve for the cost of such repairs, which was not material, was
established during fiscal 1997.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY-HOLDERS
Not applicable.
14
<PAGE>
PART II
ITEM 5. MARKET FOR THE REGISTRANTS' COMMON EQUITY AND RELATED STOCKHOLDER
MATTERS
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.
HOLDERS
As of January 1, 1999, there was one holder of the Company's common stock
and 23 holders of BBC's common stock.
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.
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 "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 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 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").
15
<PAGE>
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.
ITEM 6. SELECTED FINANCIAL DATA
Set forth below is certain selected historical consolidated financial data
for BBC for fiscal years 1998, 1997, 1996, 1995 and 1994. 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
-------------------------------------------------------------------
OCTOBER 31, NOVEMBER 1, NOVEMBER 2, OCTOBER 28, OCTOBER 29,
1998 1997 1996 1995 1994
----------- ------------- ------------- ----------- -----------
<S> <C> <C> <C> <C> <C>
(DOLLARS IN MILLIONS)
INCOME STATEMENT DATA:
Net sales.............................................. $ 626.4 $ 576.1 $ 570.2 $ 517.4 $ 476.2
Cost of goods sold..................................... 515.1 473.4 474.1 430.6 392.9
----------- ------ ------ ----------- -----------
Gross profit........................................... 111.3 102.7 96.1 86.8 83.3
Selling, general and administrative expenses........... 48.0 62.4 42.6 39.8 39.0
Amortization of goodwill and non-compete agreements.... 3.8 3.8 3.8 4.7 5.6
----------- ------ ------ ----------- -----------
Operating income (loss)................................ 59.5 36.5 49.7 42.3 38.7
Interest income........................................ 7.4 6.3 7.0 4.6 4.1
Interest expense....................................... (34.6) (33.8) (16.9) (18.5) (17.4)
Other income (expense)................................. 1.0 1.9 0.2 0.1 0.2
----------- ------ ------ ----------- -----------
Income (loss) before income taxes...................... 33.3 10.9 40.0 28.5 25.6
Provision (benefit) for income taxes................... 11.6 (2.7) 14.8 11.6 10.2
----------- ------ ------ ----------- -----------
Net income before extraordinary item................... 21.7 13.6 25.2 16.9 15.4
Loss on extinguishment of debt......................... 0 (3.0) (1.4) -- --
----------- ------ ------ ----------- -----------
Net income (loss)...................................... $ 21.7 $ 10.6 $ 23.8 $ 16.9 $ 15.4
----------- ------ ------ ----------- -----------
----------- ------ ------ ----------- -----------
BALANCE SHEET DATA (AS OF END OF PERIOD):
Working capital........................................ $ 113.7 $ 99.3 $ 80.4 $ 61.7 $ 65.3
Total assets........................................... 450.0 412.5 391.0 379.8 332.8
Long-term debt, excluding current maturities........... 329.7 339.6 131.4 113.8 125.8
Redeemable common stock, net........................... 48.4 20.7 29.3 20.9 17.5
Stockholders' equity (deficit)......................... (52.6) (45.1) 118.2 102.6 88.8
</TABLE>
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
GENERAL
Approximately 77% of the Company's fiscal 1998 net sales are derived from
school bus sales and approximately 18% and 5% of the Company's fiscal 1998 net
sales are derived from the sale of commercial and recreational vehicles,
respectively. From fiscal 1994 to fiscal 1998, the Company's gross profit, and
with the exception of fiscal 1997, operating income, have risen primarily due to
increasing sales volume. Fiscal
16
<PAGE>
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.
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 delivery buses to customers.
In 1993, the Company began a company-wide assessment of the vulnerability of
its 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 January 1, 1999, the Company estimates that it has
completed approximately 95% of the necessary revisions and testing. Hardware and
network systems review is scheduled for completion in early 1999. The Company is
also in the process of surveying major vendors and customers to determine their
efforts toward resolution of the Year 2000 Problem. The Company currently has no
specific written contingency plan in the event either the Company or its
significant vendors or customers have not remedied the Year 2000 Problem;
however, management of the Company is in the process of developing a contingency
plan and anticipates completing such plan in 1999.
Since 1993, the Company has treated the costs associated with modifying
affected systems as on-going software maintenance and estimates that
approximately $.4 million has been expended in connection therewith through
fiscal 1998. The Company believes that the remaining costs associated with
completion of the internal resolution of the Year 2000 Problem will be
approximately $.2 million.
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 operations
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.
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
17
<PAGE>
compared with the Company. The following table sets forth certain operating
results as a percentage of net sales for the historical periods indicated:
<TABLE>
<CAPTION>
FISCAL YEAR ENDED
-------------------------------------------
OCTOBER 31, NOVEMBER 1, NOVEMBER 2,
1998 1997 1996
------------- ------------- -------------
<S> <C> <C> <C>
Net sales................................................................ 100.0% 100.0% 100.0%
Cost of goods sold....................................................... (82.2) (82.2) (83.1)
Gross profit............................................................. 17.8 17.8 16.9
Selling, general and administrative expense.............................. (7.7) (10.8) (7.5)
Operating income......................................................... 9.5 6.3 8.7
</TABLE>
FISCAL 1998 COMPARED TO FISCAL 1997. Net sales increased to $626.4 million
in fiscal 1998 from $576.1 million in fiscal 1997, an increase of $50.3 million
or 8.7%. The increase was primarily due to increased sales volume of the Type D
product lines.
Gross profit increased to $111.3 million in fiscal 1998 compared to $102.7
million in fiscal 1997, an increase of $8.6 million or 8.4%. The increase was
due to increased sales volume. The gross margin of 17.8% was the same as the
1997 gross margin.
Selling, general and administrative expenses decreased to $48.0 million in
fiscal 1998 compared to $62.4 million in fiscal 1997, a decrease of $14.4
million or 23.1%. The decrease 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 in fiscal 1997.
Interest income increased to $7.4 million compared to $6.3 million in fiscal
1997. The increase was primarily due to increased interest income from the
Company's lease portfolio which increased in size during fiscal 1998.
Interest expense increased to $34.6 million in 1998 from $33.8 million in
fiscal 1997 due to increased borrowing to support a larger lease portfolio.
For fiscal 1998, there was tax provision of $11.6 million compared to a tax
benefit of $2.7 million in fiscal 1997. During fiscal 1997, the deductibility of
the distributions paid to management shareholders from the Recapitalization
created a tax benefit which more than offset the income tax provision on
operating income.
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 1998 as compared to 1996. Other
interest income, excluding interest related to leasing, was also lower.
18
<PAGE>
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
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.
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 $6.3
million for fiscal 1999.
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.
19
<PAGE>
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 February 25, 1998 (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 $100.0
million, of which $92.4 million was outstanding as of October 31, 1998. Blue
Bird Capital expects to increase the maximum borrowing amount of the LaSalle
Credit Facility during 1999. Management expects no difficulty in obtaining
approval of the increase.
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 October 31, 1998, the Company had total
consolidated indebtedness at such date of approximately $346.5 million,
consisting primarily of $99.7 million principal amount of the Notes, borrowings
of $151.6 million under the New Credit Agreement and $92.4 million of borrowings
under the LaSalle Credit Facility. The Company had the ability to borrow an
additional $7.6 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 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 the Recapitalization. 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 $16.8 million in fiscal 1999, $20.8 million
in fiscal 2000 and $22.8 million in fiscal 2001.
Under the New Credit Agreement, the Company is permitted to accumulate up to
$40.0 million in its lease portfolio of leases for its own account in addition
to leases held by Blue Bird Capital. As of October 31, 1998, the Company had
approximately $7.9 million of such leases in its lease portfolio. In addition,
as of such date, Blue Bird Capital had approximately $103.6 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 October 31, 1998, was
$44.5 million compared to $6.3 million in fiscal 1997. This difference was
primarily the result of significant increases in net income, trade accounts
payable and income taxes payable. There were no net borrowings under the
Company's working capital facility in fiscal 1998 or fiscal 1997. Net borrowing
under the LaSalle Credit Facility were $6.9 during the current year compared to
$26.9 in fiscal 1997.
Cash and cash equivalents were $54.6 at October 31, 1998, compared to $31.0
million at the end of fiscal 1997. Net working capital was $113.7 million at
October 31, 1998, an increase of $14.4 million during the current fiscal year.
Significant factors affecting the increase in working capital were the increases
in cash, leases receivable and inventory, offset by increases in trade accounts
payable, income taxes payable and other accrued liabilities.
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
20
<PAGE>
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 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.
<TABLE>
<CAPTION>
1998 1997 1996 1995
--------- --------- --------- ---------
<S> <C> <C> <C> <C>
First Quarter............................................................. 14.5% 14.6% 16.3% 14.8%
Second Quarter............................................................ 16.4 16.5 18.7 20.4
Third Quarter............................................................. 32.0 33.6 25.7 26.5
Fourth Quarter............................................................ 37.1 35.3 39.3 38.3
--------- --------- --------- ---------
100.0% 100.0% 100.0% 100.0%
--------- --------- --------- ---------
--------- --------- --------- ---------
</TABLE>
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 October
31, 1998; all information is provided as of such date:
<TABLE>
<CAPTION>
NAME AGE POSITION AND EXPERIENCE
- --------------------------------------- --- ------------------------------------------------------------------
<S> <C> <C>
Paul E. Glaske......................... 65 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.
Bobby G. Wallace....................... 64 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.
</TABLE>
21
<PAGE>
<TABLE>
<CAPTION>
NAME AGE POSITION AND EXPERIENCE
- --------------------------------------- --- ------------------------------------------------------------------
<S> <C> <C>
James H. Grantham...................... 57 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...................... 46 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.
William T. Gourley..................... 53 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.
Gerald S. Armstrong.................... 55 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 the Managing Partner of Arena
Capital Partners, Inc., a private investment firm that he
established in 1998. Prior thereto, he was a Partner and a
director of Stonington Partners, Inc., a private investment firm,
from 1993 until 1997. 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>
22
<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 the 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.
A. Clark Daugherty..................... 75 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.
Donald C. Trauscht..................... 64 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.
23
<PAGE>
ITEM 11. EXECUTIVE COMPENSATION.
SUMMARY OF CASH AND CERTAIN OTHER COMPENSATION. The following table sets
forth, for fiscal years 1998, 1997 and 1996, the cash compensation paid by BBC
and its subsidiaries, as well as certain other compensation paid or accrued for
fiscal years 1998, 1997 and 1996, 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:
SUMMARY COMPENSATION TABLE
<TABLE>
<CAPTION>
LONG TERM
COMPENSATION
AWARDS
ANNUAL COMPENSATION --------------
SECURITIES
FISCAL ---------------------- UNDERLYING
NAME AND PRINCIPAL POSITION YEAR SALARY (A) BONUS OPTIONS
- ---------------------------------------------------------------------- ----------- ----------- --------- --------------
<S> <C> <C> <C> <C>
Paul E. Glaske........................................................ 1998 $ 578,602 $ 497,427 --
Chairman of the Board and President and Director 1997 544,709 500,000 --
1996 506,410 438,485
Bobby G. Wallace...................................................... 1998 339,600 225,250 --
Vice President--Finance and Admin., Treasurer, Secretary and Director 1997 312,983 225,600 40,000(e)
1996 289,094 196,746 --
James H. Grantham..................................................... 1998 219,273 146,413 --
Vice President--Manufacturing of the Company 1997 201,648 144,000 --
1996 185,847 127,732 --
Richard E. Maddox..................................................... 1998 200,099 131,396 --
Vice President--Sales of the Company 1997 177,857 130,400 --
1996 164,997 115,150 --
William T. Gourley.................................................... 1998 141,914 45,050 --
Vice President--Controller of the Company 1997 135,308 41,760 --
1996 111,762 38,434 --
<CAPTION>
ALL OTHER
NAME AND PRINCIPAL POSITION COMPENSATION
- ---------------------------------------------------------------------- --------------
<S> <C>
Paul E. Glaske........................................................ $ 24,128(b)
Chairman of the Board and President and Director $ 23,933(c)
20,203(d)
Bobby G. Wallace...................................................... 5,280(b)
Vice President--Finance and Admin., Treasurer, Secretary and Director 4,750(f)
4,500(f)
James H. Grantham..................................................... 5,280(b)
Vice President--Manufacturing of the Company 4,750(f)
4,500(f)
Richard E. Maddox..................................................... 5,280(b)
Vice President--Sales of the Company 5,124(f)
5,196(f)
William T. Gourley.................................................... 5,280(b)
Vice President--Controller of the Company 6,110(f)
4,346(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 $10,000
in 1998, $9,500 in 1997 and $9,500 in 1996.
(b) Represents life and disability insurance premiums of $18,848 paid by the
Company on behalf of Mr. Glaske and the Company's matching contribution
under its 401(k) Plan of 55% of the first 6% of each participant's pre-tax
contribution for 1998, up to a maximum of $5,280 per participant.
(c) 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.
(d) Represents life and disability insurance premiums of $15,703 paid by the
Company on behalf of Mr. Glaske. Under the 401(k) plan, the Company makes
matching contributions equal to 50% of the first 6% of each participant's
pre-tax contribution for 1996.
(e) In 1997, Mr. Wallace was granted an option to purchase 40,000 shares of BBC
Common Stock.
(f) The amounts shown represent matching contributions to the Company's 401(k)
plan made by the Company on behalf of the named executive officer. Under the
401(k) plan, the Company makes matching contributions equal to 50% of the
first 6% of each participant's pre-tax contribution.
STOCK OPTIONS AND STOCK APPRECIATION RIGHTS. No stock options were granted
by the Company during fiscal year 1998 to any of the named executives.
OPTION/SAR EXERCISES AND HOLDINGS. The following table sets forth
information with respect to the named executive officers concerning the exercise
of options held by such executives during 1998.
24
<PAGE>
AGGREGATED OPTION/SAR EXERCISES IN LAST FISCAL YEAR AND
FISCAL YEAR-END OPTION/SAR VALUES
<TABLE>
<CAPTION>
NUMBER OF VALUE OF
SECURITIES UNEXERCISED
UNDERLYING IN-THE-MONEY
UNEXERCISED OPTIONS/SARS AT
OPTIONS/SARS FISCAL YEAR-END
SHARES ----------------- -------------------
ACQUIRED ON VALUE EXERCISABLE/ EXERCISABLE/
NAME EXERCISE (#) REALIZED($)(A) UNEXERCISABLE UNEXERCISABLE
- ----------------------------------------------------- ------------ ------------- ----------------- -------------------
<S> <C> <C> <C> <C>
Paul E. Glaske....................................... 350,000 $ 9,600,500 0/0 0/0
Bobby G. Wallace..................................... 100,000 2,743,000 0/0 0/0
James H. Grantham.................................... 80,000 2,194,400 0/0 0/0
Richard E. Maddox.................................... 80,000 2,194,400 0/0 0/0
William T. Gourley................................... 20,000 548,600 0/0 0/0
</TABLE>
- ------------------------
(a) Computed using net proceeds value of $27.43 per share at October 31, 1998,
determined by formula in the Blue Bird Corporation Management Stock Option
Plan (the "Management Stock Option Plan").
During 1998, all outstanding stock options held by the named executives and
all executives and employees of the Company were exercised. As of October 31,
1998, no options under the Management Stock Option Plan were outstanding or
available for issuance.
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:
PENSION PLAN TABLE
<TABLE>
<CAPTION>
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>
- ------------------------
* 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
25
<PAGE>
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 (12 years),
Mr. Wallace (12 years), Mr. Grantham (30 years), Mr. Maddox (24 years) and Mr.
Gourley (22 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 $625,000, 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 $375,000, 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 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 1998 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
26
<PAGE>
(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 9,204,778. 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."
27
<PAGE>
<TABLE>
<CAPTION>
AMOUNT AND NATURE PERCENTAGE OF
OF BENEFICIAL SHARES OF BBC
NAME AND ADDRESS OF BENEFICIAL OWNER OWNERSHIP* COMMON STOCK**
- ------------------------------------------------------------------------------ ------------------ ---------------
<S> <C> <C>
ML Entities(a)................................................................ 7,665,000 90.9%
Paul E. Glaske(b)............................................................. 580,557 6.6%
Blue Bird Body Company
3920 Arkwright Road
Macon, Georgia 31210
Bobby G. Wallace(b)........................................................... 170,000 2.0%
Blue Bird Body Company
3920 Arkwright Road
Macon, Georgia 31210
James H. Grantham(b).......................................................... 160,000 1.9%
Blue Bird Body Company
3920 Arkwright Road
Macon, Georgia 31210
Richard E. Maddox(b).......................................................... 160,000 1.9%
Blue Bird Body Company
3920 Arkwright Road
Macon, Georgia 31210
William T. Gourley(b)......................................................... 40,000 0.5%
Blue Bird Body Company
3920 Arkwright Road
Macon, Georgia 31210
Donald C. Trauscht(b)......................................................... 4,778 0.1%
BW Capital 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 (c)....................................................... 0 --
Stonington Partners, Inc.
767 Fifth Avenue
New York, New York 10153
Alexis P. Michas (c).......................................................... 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(d) 12.6%
</TABLE>
- ------------------------
* Unless otherwise indicated, all such ownership is direct.
** Calculated in accordance with Rule 13d-3 under the Exchange Act.
(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
28
<PAGE>
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) 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.
(d) 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. One director of the
Company and BBC is a partner and director of Stonington Partners, Inc. and acts
as a 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.
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 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 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 New Credit
Agreement and the Indenture, as applicable.
29
<PAGE>
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.
30
<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.)
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).
31
<PAGE>
(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.
32
<PAGE>
SIGNATURES
Pursuant to the requirements of the 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
------------------------------------------
Paul E. Glaske
CHAIRMAN OF THE BOARD AND PRESIDENT AND
DIRECTOR
(PRINCIPAL EXECUTIVE OFFICER)
Date: January , 1999
BLUE BIRD BODY COMPANY
BY
------------------------------------------
Paul E. Glaske
CHAIRMAN OF THE BOARD AND PRESIDENT AND
DIRECTOR
(PRINCIPAL EXECUTIVE OFFICER)
Date: January , 1999
Pursuant to the requirements of the Securities Exchange Act of 1933, this
registration statement or amendment thereto has been signed below by the
following persons inthe capacities and on January , 1999.
BLUE BIRD CORPORATION
<TABLE>
<CAPTION>
SIGNATURE TITLE DATE
- ------------------------------ -------------------------- -------------------
<C> <S> <C>
Chairman of the Board and
President and Director
- ------------------------------ (Principal Executive January , 1999
Paul E. Glaske Officer)
Vice President, Treasurer
and Secretary and
- ------------------------------ Director (Principal January , 1999
Bobby G. Wallace Financial and Accounting
Officer)
- ------------------------------ Director January , 1999
Gerald S. Armstrong
- ------------------------------ Director January , 1999
Alexis P. Michas
- ------------------------------ Director January , 1999
Donald C. Trauscht
- ------------------------------ Director January , 1999
A. Clark Daugherty
</TABLE>
33
<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.
34
<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 October 31, 1998 and November 1, 1997.................................. F-3
Consolidated Statements of Income for the Years Ended October 31, 1998, November 1, 1997 and November 2,
1996................................................................................................... F-5
Consolidated Statements of Changes in Stockholders' Equity for the Years Ended October 31, 1998, November
1, 1997 and November 2, 1996........................................................................... F-6
Consolidated Statements of Cash Flows for the Years Ended October 31, 1998, November 1, 1997 and November
2, 1996................................................................................................ F-7
NOTES TO AUDITED CONSOLIDATED FINANCIAL STATEMENTS......................................................... F-8
</TABLE>
35
<PAGE>
BLUE BIRD CORPORATION AND SUBSIDIARIES
CONSOLIDATED FINANCIAL STATEMENTS AS OF
OCTOBER 31, 1998, NOVEMBER 1, 1997, AND NOVEMBER 2, 1996
TOGETHER WITH
AUDITORS' REPORT
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 October 31, 1998 and
November 1, 1997 and the related consolidated statements of income, changes in
stockholders' deficit, and cash flows for each of the three years in the period
ended October 31, 1998. 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 October 31, 1998 and November 1, 1997 and the
results of their operations and their cash flows for each of the three years in
the period ended October 31, 1998 in conformity with generally accepted
accounting principles.
Arthur Andersen LLP
Atlanta, Georgia
January 28, 1999
F-2
<PAGE>
BLUE BIRD CORPORATION AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
OCTOBER 31, 1998 AND NOVEMBER 1, 1997
(IN THOUSANDS)
ASSETS
<TABLE>
<CAPTION>
1998 1997
---------- ----------
<S> <C> <C>
CURRENT ASSETS:
Cash and cash equivalents............................................................... $ 54,558 $ 31,031
Trade receivables....................................................................... 20,226 16,515
Leases receivable....................................................................... 48,262 43,116
Inventories............................................................................. 85,148 76,385
Other current assets.................................................................... 3,062 3,314
---------- ----------
Total current assets................................................................ 211,256 170,361
---------- ----------
LEASES RECEIVABLE, NONCURRENT............................................................. 63,205 59,207
---------- ----------
PROPERTY, PLANT, AND EQUIPMENT:
Land.................................................................................... 4,164 4,070
Buildings............................................................................... 19,236 18,919
Machinery and equipment................................................................. 33,202 31,728
Automobiles, trucks, and airplane....................................................... 7,336 7,574
Office furniture and equipment.......................................................... 5,269 4,706
Construction in progress................................................................ 1,976 1,607
---------- ----------
71,183 68,604
Less accumulated depreciation........................................................... (35,293) (30,503)
---------- ----------
Net property, plant, and equipment.................................................. 35,890 38,101
---------- ----------
OTHER ASSETS:
Deferred debt issuance costs, net of accumulated amortization of $2,513 and $1,257 in
1998 and 1997, respectively........................................................... 7,250 8,515
Goodwill, net of accumulated amortization of $25,078 and $21,238 in 1998 and 1997,
respectively.......................................................................... 127,614 131,454
Other assets............................................................................ 4,743 4,862
---------- ----------
Total other assets.................................................................. 139,607 144,831
---------- ----------
Total assets........................................................................ $ 449,958 $ 412,500
---------- ----------
---------- ----------
</TABLE>
F-3
<PAGE>
BLUE BIRD CORPORATION AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
OCTOBER 31, 1998 AND NOVEMBER 1, 1997
LIABILITIES AND STOCKHOLDERS' DEFICIT
(IN THOUSANDS, EXCEPT SHARE AND PER SHARE DATA)
<TABLE>
<CAPTION>
1998 1997
---------- ----------
<S> <C> <C>
CURRENT LIABILITIES:
Current portion of long-term debt....................................................... $ 16,750 $ 12,750
Trade accounts payable.................................................................. 29,763 21,708
Deposits and amounts due customers...................................................... 1,694 2,923
Income taxes payable.................................................................... 7,444 42
Accrued warranty........................................................................ 5,647 5,609
Accrued interest........................................................................ 5,712 5,872
Other accrued liabilities............................................................... 25,206 17,713
Deferred income taxes................................................................... 5,356 4,474
---------- ----------
Total current liabilities........................................................... 97,572 71,091
---------- ----------
LONG-TERM LIABILITIES:
Long-term debt.......................................................................... 326,983 336,813
Bonds payable........................................................................... 2,750 2,750
Accrued pension expense................................................................. 10,042 9,788
Deferred income taxes................................................................... 4,844 4,612
Other long-term liabilities............................................................. 11,883 11,889
---------- ----------
Total long-term liabilities......................................................... 356,502 365,852
---------- ----------
COMMITMENTS AND CONTINGENCIES (NOTES 10 AND 11)
REDEEMABLE COMMON STOCK, $.01 PAR VALUE; 1,500,000 AND 730,000 SHARES ISSUED AND
OUTSTANDING IN 1998 AND 1997, RESPECTIVELY (NOTE 9)....................................... 56,145 20,676
MANAGEMENT NOTES (NOTE 13)................................................................ (7,700) 0
---------- ----------
48,445 20,676
---------- ----------
STOCKHOLDERS' DEFICIT:
Common stock, $.01 par value; 25,000,000 shares authorized, 7,704,778 shares issued and
outstanding in 1998 and 1997.......................................................... 77 77
Additional paid-in capital.............................................................. 77,023 77,023
Accumulated deficit..................................................................... (125,309) (119,206)
Other stockholders' equity.............................................................. (4,352) (3,013)
---------- ----------
Total stockholders' deficit......................................................... (52,561) (45,119)
---------- ----------
Total liabilities and stockholders' deficit......................................... $ 449,958 $ 412,500
---------- ----------
---------- ----------
</TABLE>
The accompanying notes are an integral part of these consolidated balance
sheets.
F-4
<PAGE>
BLUE BIRD CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF INCOME
FOR THE YEARS ENDED OCTOBER 31, 1998, NOVEMBER 1, 1997,
AND NOVEMBER 2, 1996
(IN THOUSANDS)
<TABLE>
<CAPTION>
1998 1997 1996
---------- ---------- ----------
<S> <C> <C> <C>
NET SALES.................................................................... $ 626,445 $ 576,110 $ 570,185
COST OF GOODS SOLD........................................................... 515,158 473,402 474,067
---------- ---------- ----------
GROSS PROFIT................................................................. 111,287 102,708 96,118
---------- ---------- ----------
SELLING, GENERAL, AND ADMINISTRATIVE EXPENSES................................ 47,985 62,349 42,569
AMORTIZATION OF GOODWILL..................................................... 3,840 3,840 3,830
---------- ---------- ----------
51,825 66,189 46,399
---------- ---------- ----------
OPERATING INCOME............................................................. 59,462 36,519 49,719
INTEREST INCOME.............................................................. 7,429 6,256 6,999
INTEREST EXPENSE............................................................. (34,556) (33,754) (16,889)
OTHER INCOME, NET............................................................ 998 1,858 224
---------- ---------- ----------
INCOME BEFORE INCOME TAXES................................................... 33,333 10,879 40,053
PROVISION (BENEFIT) FOR INCOME TAXES......................................... 11,666 (2,704) 14,872
---------- ---------- ----------
NET INCOME BEFORE EXTRAORDINARY ITEM......................................... 21,667 13,583 25,181
LOSS ON EXTINGUISHMENT OF DEBT, NET OF TAX BENEFIT OF $0, $1,767, AND $838 IN
1998, 1997, AND 1996, RESPECTIVELY (NOTE 5)................................ 0 (2,986) (1,416)
---------- ---------- ----------
NET INCOME................................................................... $ 21,667 $ 10,597 $ 23,765
---------- ---------- ----------
---------- ---------- ----------
</TABLE>
The accompanying notes are an integral part of these consolidated statements.
F-5
<PAGE>
BLUE BIRD CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS' DEFICIT
FOR THE YEARS ENDED OCTOBER 31, 1998, NOVEMBER 1, 1997,
AND NOVEMBER 2, 1996
(IN THOUSANDS)
<TABLE>
<CAPTION>
RETAINED
ADDITIONAL EARNINGS CUMULATIVE
COMMON PAID-IN (ACCUMULATED TRANSLATION
STOCK CAPITAL DEFICIT) ADJUSTMENTS
------------- ----------- ------------ -------------
<S> <C> <C> <C> <C>
BALANCE, OCTOBER 28, 1995.................................... $ 77 $ 77,023 $ 27,896 $ (2,369)
Net income................................................. 0 0 23,765 0
Accretion of redeemable common stock....................... 0 0 (8,433) 0
Translation adjustments.................................... 0 0 0 229
--- ----------- ------------ -------------
BALANCE, NOVEMBER 2, 1996.................................... 77 77,023 43,228 (2,140)
Net income................................................. 0 0 10,597 0
Dividend distribution...................................... 0 0 (185,346) 0
Accretion of redeemable common stock....................... 0 0 12,315 0
Translation adjustments.................................... 0 0 0 (873)
--- ----------- ------------ -------------
BALANCE, NOVEMBER 1, 1997.................................... 77 77,023 (119,206) (3,013)
Net income................................................. 0 0 21,667 0
Accretion of redeemable common stock....................... 0 0 (27,770) 0
Translation adjustments.................................... 0 0 0 (1,339)
--- ----------- ------------ -------------
BALANCE, OCTOBER 31, 1998.................................... $ 77 $ 77,023 $ (125,309) $ (4,352)
--- ----------- ------------ -------------
--- ----------- ------------ -------------
</TABLE>
The accompanying notes are an integral part of these consolidated statements.
F-6
<PAGE>
BLUE BIRD CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR THE YEARS ENDED OCTOBER 31, 1998, NOVEMBER 1, 1997,
AND NOVEMBER 2, 1996
(IN THOUSANDS)
<TABLE>
<CAPTION>
1998 1997 1996
--------- --------- ---------
<S> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
NET INCOME..................................................................... $ 21,667 $ 10,597 $ 23,765
ADJUSTMENTS TO RECONCILE NET INCOME TO NET CASH PROVIDED BY OPERATING
ACTIVITIES:
EXTRAORDINARY LOSS ON EXTINGUISHMENT OF DEBT................................. 0 4,755 2,254
DEPRECIATION AND AMORTIZATION................................................ 11,439 11,179 11,518
INCREASE IN CASH SURRENDER VALUE OF LIFE INSURANCE........................... (148) (153) (110)
DEFERRED INCOME TAXES........................................................ 1,114 (5,300) (1,047)
GAIN ON SALE OF ASSETS....................................................... (37) (628) 0
CHANGES IN ASSETS AND LIABILITIES:
TRADE RECEIVABLES.......................................................... (3,711) (3,072) 5,423
INVENTORIES................................................................ (8,763) (6,609) 13,570
TRADE ACCOUNTS PAYABLE..................................................... 8,055 (5,996) 1,961
INCOME TAXES PAYABLE....................................................... 7,402 (9,229) 2,344
ACCRUED INTEREST........................................................... (160) 5,248 (1,412)
OTHER CURRENT LIABILITIES.................................................. 6,070 2,349 (312)
OTHER...................................................................... 1,529 3,137 1,633
--------- --------- ---------
TOTAL ADJUSTMENTS........................................................ 22,790 (4,319) 35,822
--------- --------- ---------
NET CASH PROVIDED BY OPERATING ACTIVITIES................................ 44,457 6,278 59,587
--------- --------- ---------
CASH FLOWS FROM INVESTING ACTIVITIES:
PROPERTY, PLANT, AND EQUIPMENT ACQUISITIONS, NET............................... (4,680) (5,358) (7,281)
INCREASES IN LEASES RECEIVABLE................................................. (9,144) (28,245) (11,855)
PROCEED FROM SALE OF ASSETS.................................................... 83 2,798 0
--------- --------- ---------
NET CASH USED IN INVESTING ACTIVITIES.................................... (13,741) (30,805) (19,136)
--------- --------- ---------
CASH FLOWS FROM FINANCING ACTIVITIES:
PROCEEDS FROM LONG-TERM DEBT................................................... 0 274,699 0
REPAYMENTS OF LONG-TERM DEBT................................................... (12,750) (96,650) (37,000)
NET BORROWINGS (REPAYMENTS) UNDER REVOLVING CREDIT AGREEMENTS.................. 6,900 26,900 22,938
DEBT PREPAYMENT PREMIUM........................................................ 0 (3,369) (1,625)
DEBT ISSUANCE COSTS............................................................ 0 (9,741) 0
DIVIDEND PAID.................................................................. 0 (185,346) 0
OTHER.......................................................................... 0 3,686 (192)
--------- --------- ---------
NET CASH (USED IN) PROVIDED BY FINANCING ACTIVITIES...................... (5,850) 10,179 (15,879)
--------- --------- ---------
EFFECT OF EXCHANGE RATE FLUCTUATIONS............................................. (1,339) (874) 229
--------- --------- ---------
NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS............................. 23,527 (15,222) 24,801
CASH AND CASH EQUIVALENTS AT BEGINNING OF YEAR................................... 31,031 46,253 21,452
--------- --------- ---------
CASH AND CASH EQUIVALENTS AT END OF YEAR......................................... $ 54,558 $ 31,031 $ 46,253
--------- --------- ---------
--------- --------- ---------
SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION:
CASH PAID DURING THE YEAR FOR:
INTEREST..................................................................... $ 32,187 $ 27,534 $ 11,936
--------- --------- ---------
--------- --------- ---------
INCOME TAXES................................................................. $ 2,226 $ 10,167 $ 12,725
--------- --------- ---------
--------- --------- ---------
</TABLE>
The accompanying notes are an integral part of these consolidated statements.
F-7
<PAGE>
BLUE BIRD CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
OCTOBER 31, 1998, NOVEMBER 1, 1997, AND NOVEMBER 2, 1996
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 1998, 1997, and 1996
contained 52, 52, and 53 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
$565,000, $331,000, and $54,000 were recorded in fiscal years 1998, 1997, and
1996, respectively.
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 October 31, 1998 and November 1, 1997.
F-8
<PAGE>
BLUE BIRD CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
OCTOBER 31, 1998, NOVEMBER 1, 1997, AND NOVEMBER 2, 1996
1. NATURE OF BUSINESS (CONTINUED)
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 $88,062,000 and $79,300,000 at October 31, 1998 and November 1,
1997, respectively.
The components of inventory as of October 31, 1998 and November 1, 1997
consist of the following (in thousands):
<TABLE>
<CAPTION>
1998 1997
--------- ---------
<S> <C> <C>
Raw materials........................................................... $ 23,923 $ 22,170
Work in process......................................................... 31,956 26,695
Finished goods.......................................................... 29,269 27,520
--------- ---------
Total inventories (LIFO cost)....................................... $ 85,148 $ 76,385
--------- ---------
--------- ---------
</TABLE>
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:
<TABLE>
<S> <C>
20-33
Buildings....................................................... years
Machinery and equipment......................................... 5-10 years
Automobiles, trucks, and airplane............................... 3-5 years
Office furniture and equipment.................................. 3-10 years
</TABLE>
F-9
<PAGE>
BLUE BIRD CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
OCTOBER 31, 1998, NOVEMBER 1, 1997, AND NOVEMBER 2, 1996
1. NATURE OF BUSINESS (CONTINUED)
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 approximately $6,183,000, $5,975,000, and
$5,517,000 were recorded for the years ended October 31, 1998, November 1, 1997,
and November 2, 1996, 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 approximately $152,692,000 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
approximately $5,770,000, $5,689,000, and $6,185,000 for the years ended October
31, 1998, November 1, 1997, and November 2, 1996, respectively.
ACCOUNTING STANDARDS YET TO BE ADOPTED
In June 1997, the Financial Accounting Standards Board ("FASB") issued
Statement of Financial Accounting Standards ("SFAS") No. 130, "Reporting
Comprehensive Income," which is designed to improve the reporting of changes in
equity from period to period. SFAS No. 130 is effective for the Company's 1999
year-end financial statements. Since this statement requires only additional
disclosure, there will be no effect on the Company's results of operations or
financial position.
Also in June 1997, the FASB issued SFAS No. 131, "Disclosure about Segments
of an Enterprise and Related Information." SFAS No. 131 requires that an
enterprise disclose certain information about operating segments. SFAS No. 131
is effective for the Company's 1999 year-end financial statements. Since this
statement requires only additional disclosure, there will be no effect on the
Company's results of operations or financial position.
F-10
<PAGE>
BLUE BIRD CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
OCTOBER 31, 1998, NOVEMBER 1, 1997, AND NOVEMBER 2, 1996
1. NATURE OF BUSINESS (CONTINUED)
In February 1998, the FASB issued SFAS No. 132, "Employer's Disclosure About
Pension and Other Post-Retirement Benefits." This statement revises employers'
disclosures about pension and other postretirement benefit plans. SFAS No. 132
is effective for the Company's 1999 year-end financial statements. Since this
statement requires only additional disclosure, there will be no effect on the
Company's results of operations or financial position.
In June 1998, the FASB issued SFAS No. 133, "Accounting for Derivative
Instruments and Hedging Activities." This statement establishes accounting and
reporting standards for derivative instruments, including certain derivative
instruments embedded in other contracts (collectively referred to as
derivatives), and for hedging activities. It requires that an entity recognize
all derivatives as either assets or liabilities in the statement of financial
position and measure those instruments at fair value. Management does not expect
SFAS No. 133 to have a significant impact on the Company's financial condition
or results of operations.
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.
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 approximately $177,000 and
$428,000 at October 31, 1998 and November 1, 1997, 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 October
31, 1998 and November 1, 1997 was as follows (in thousands):
<TABLE>
<CAPTION>
1998 1997
---------- ----------
<S> <C> <C>
Leases receivable..................................................... $ 124,499 $ 115,028
Unearned interest..................................................... (13,032) (12,706)
---------- ----------
Net leases receivable................................................. $ 111,467 $ 102,322
---------- ----------
---------- ----------
</TABLE>
F-11
<PAGE>
BLUE BIRD CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
OCTOBER 31, 1998, NOVEMBER 1, 1997, AND NOVEMBER 2, 1996
2. LEASES RECEIVABLE (CONTINUED)
Interest income recognized on leases receivable was approximately
$6,438,000, $5,309,000, and $4,947,000 for the years ended October 31, 1998,
November 1, 1997, and November 2, 1996, 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 October 31, 1998 and
November 1, 1997 are as follows (in thousands):
<TABLE>
<CAPTION>
1998 1997
--------- ---------
<S> <C> <C>
Cash values.............................................................. $ 7,604 $ 7,456
Less life insurance loans............................................ (4,458) (4,458)
--------- ---------
Net cash surrender value, included in other assets....................... $ 3,146 $ 2,998
--------- ---------
--------- ---------
</TABLE>
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 approximately $15,840,000 paid to
management as owners of redeemable common stock; and paid a distribution to BBC
option holders of approximately $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.
F-12
<PAGE>
BLUE BIRD CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
OCTOBER 31, 1998, NOVEMBER 1, 1997, AND NOVEMBER 2, 1996
5. LONG-TERM DEBT
Outstanding debt at October 31, 1998 and November 1, 1997 consisted of the
following (in thousands):
<TABLE>
<CAPTION>
1998 1997
---------- ----------
<S> <C> <C>
10.75% senior subordinated notes, due November 15, 2006; interest payable
semiannually; subordinated to Senior Credit Facility, as defined................... $ 99,733 $ 99,713
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%; interest rate at
7.75% on October 31, 1998; collateralized by all of the capital stock of the
Company, 66% of the capital stock of Canadian Blue Bird Coach, Ltd. and Blue Bird
de Mexico, and substantially all of the assets of the Company...................... 78,100 90,100
Senior Credit Facility term loan, principal and interest payable in quarterly
installments through November 19, 2003; interest payable at the option of BBC at
either the prime rate plus 2% or the Eurodollar rate plus 3%; interest rate at
8.25% on October 31, 1998; collateralized by all of the capital stock of the
Company, 66% of the capital stock of Canadian Blue Bird Coach, Ltd. and Blue Bird
de Mexico, and substantially all of the assets of the Company...................... 73,500 74,250
Blue Bird Capital revolving credit facility with final maturity on March 31, 2001;
interest payable quarterly at the option of BBC at either the prime rate or the
Eurodollar rate plus 1.125%; weighted average interest rate at 6.32% on October 31,
1998; collateralized by all the capital stock of Blue Bird Capital................. 92,400 85,500
Industrial development bonds, due March 2001; interest payable quarterly; interest
rate at 3.15% on October 31, 1998; secured by a letter of credit................... 2,750 2,750
---------- ----------
346,483 352,313
Less current portion of debt......................................................... 16,750 12,750
---------- ----------
Long-term debt and bonds payable..................................................... $ 329,733 $ 339,563
---------- ----------
---------- ----------
</TABLE>
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 approximately $2,986,000, 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.
F-13
<PAGE>
BLUE BIRD CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
OCTOBER 31, 1998, NOVEMBER 1, 1997, AND NOVEMBER 2, 1996
5. LONG-TERM DEBT (CONTINUED)
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 8.74% for the year ended October 31, 1998. In addition, the
revolving credit facility requires quarterly payments of a commitment fee equal
to .5% 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 October 31, 1998, 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 October 31, 1998, the Company was in compliance
with all of its covenants.
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 .15%
as of October 31, 1998 and November 1, 1997, 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 October
31, 1998.
In connection with the Blue Bird Capital Revolver, Blue Bird Capital
purchased interest rate cap agreements with notional principal amounts totaling
$65,000,000 in order to reduce the impact of fluctuations in interest rates on
its variable rate debt. The interest rate agreements mature in April 1999.
The Blue Bird Capital also entered into interest rate exchange agreements to
hedge its exposure to fluctuating interest rates related to its variable rate
debt. As of October 31, 1998, the exchanges carry notional principal amounts
totaling $21,000,000 and have an estimated fair value of approximately $214,000,
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 October 31, 1998.
F-14
<PAGE>
BLUE BIRD CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
OCTOBER 31, 1998, NOVEMBER 1, 1997, AND NOVEMBER 2, 1996
5. LONG-TERM DEBT (CONTINUED)
The future minimum principal payments by fiscal year of outstanding debt at
October 31, 1998 are as follows (in thousands):
<TABLE>
<S> <C>
1999.............................................................. $ 16,750
2000.............................................................. 20,750
2001.............................................................. 115,150
2002.............................................................. 23,600
2003.............................................................. 70,500
Thereafter........................................................ 99,733
---------
$ 346,483
---------
---------
</TABLE>
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 (in
thousands):
<TABLE>
<CAPTION>
1998 1997
---------- ----------
<S> <C> <C>
Total deferred tax liabilities........................................ $ 29,077 $ 30,600
Total deferred tax assets............................................. (18,877) (21,514)
---------- ----------
Net deferred tax liability............................................ $ 10,200 $ 9,086
---------- ----------
---------- ----------
</TABLE>
F-15
<PAGE>
BLUE BIRD CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
OCTOBER 31, 1998, NOVEMBER 1, 1997, AND NOVEMBER 2, 1996
6. INCOME TAXES (CONTINUED)
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 (in thousands):
<TABLE>
<CAPTION>
1998 1997
--------- ---------
<S> <C> <C>
Deferred tax liabilities:
Stepped-up basis in net assets........................................ $ 20,532 $ 20,579
Depreciation.......................................................... 730 1,326
Other................................................................. 7,815 8,695
--------- ---------
$ 29,077 $ 30,600
--------- ---------
--------- ---------
Deferred tax assets:
Warranty reserves..................................................... $ 5,103 $ 5,189
Pension reserve....................................................... 2,148 2,148
Deferred compensation reserve......................................... 2,272 3,591
Workers' compensation reserve......................................... 1,866 1,770
Net operating loss carryforward....................................... 0 4,242
Other................................................................. 7,488 4,574
--------- ---------
$ 18,877 $ 21,514
--------- ---------
--------- ---------
</TABLE>
The components of the provision (benefit) for income taxes as of October 31,
1998, November 1, 1997, and November 2, 1996 are as follows (in thousands):
<TABLE>
<CAPTION>
1998 1997 1996
--------- --------- ---------
<S> <C> <C> <C>
Current:
Federal.................................................... $ 9,092 $ 0 $ 13,117
Foreign.................................................... 582 829 597
State...................................................... 878 0 1,367
--------- --------- ---------
Total current............................................ 10,552 829 15,081
--------- --------- ---------
Deferred:
Federal and state.......................................... 1,114 (5,300) (1,043)
Foreign.................................................... 0 0 (4)
--------- --------- ---------
Deferred, net.............................................. 1,114 (5,300) (1,047)
--------- --------- ---------
Tax provision (benefit), net................................. $ 11,666 $ (4,471) $ 14,034
--------- --------- ---------
--------- --------- ---------
</TABLE>
Income from foreign operations was approximately $1,193,000, $1,586,000, and
$1,630,000 for the years ended October 31, 1998, November 1, 1997, and November
2, 1996, respectively.
F-16
<PAGE>
BLUE BIRD CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
OCTOBER 31, 1998, NOVEMBER 1, 1997, AND NOVEMBER 2, 1996
6. INCOME TAXES (CONTINUED)
The income tax provision (benefit) as of October 31, 1998, November 1, 1997,
and November 2, 1996 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 (in thousands):
<TABLE>
<CAPTION>
1998 1997 1996
--------- --------- ---------
<S> <C> <C> <C>
Income tax computed at statutory rates....................... $ 11,666 $ 3,808 $ 14,018
Foreign tax impact........................................... (35) 0 0
Tax-exempt interest income................................... (1,983) (1,684) (1,373)
State income taxes, net of federal income
tax effect................................................. 595 (271) 943
Tax benefit for dividend on redeemable
common stock............................................... 0 (5,551) 0
Goodwill amortization........................................ 1,300 1,300 1,297
Other........................................................ 123 (306) (13)
--------- --------- ---------
11,666 (2,704) 14,872
Extraordinary item........................................... 0 (1,767) (838)
--------- --------- ---------
$ 11,666 $ (4,471) $ 14,034
--------- --------- ---------
--------- --------- ---------
</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 approximately
$3,050,000, $3,334,000, and $3,857,000 for the years ended October 31, 1998,
November 1, 1997, and November 2, 1996, 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 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-17
<PAGE>
BLUE BIRD CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
OCTOBER 31, 1998, NOVEMBER 1, 1997, AND NOVEMBER 2, 1996
7. BENEFIT PLANS (CONTINUED)
Net pension cost for the U.S. defined benefit plans includes the following
as of October 31, 1998, November 1, 1997, and November 2, 1996 (in thousands):
<TABLE>
<CAPTION>
1998 1997 1996
--------- ---------- ---------
<S> <C> <C> <C>
Service costs/benefits earned during the period.............. $ 1,968 $ 1,822 $ 1,861
Interest costs on projected benefit obligations.............. 4,221 3,717 3,487
Return on plan assets........................................ (9,128) (13,414) (8,794)
Net amortization and deferral................................ 3,653 9,152 5,377
--------- ---------- ---------
Net periodic pension costs................................... $ 714 $ 1,277 $ 1,931
--------- ---------- ---------
--------- ---------- ---------
</TABLE>
The following table sets forth these plans' funded status at October 31,
1998 (in thousands):
<TABLE>
<CAPTION>
DEFINED
BENEFIT
PENSION UNQUALIFIED RABBI
PLANS PLAN TRUST
---------- ----------- ---------
<S> <C> <C> <C>
Pension benefit obligation:
Vested benefits........................................... $ (59,592) $ (3,197) $ (403)
Nonvested benefits........................................ (1,122) 0 0
---------- ----------- ---------
Accumulated benefit obligation.............................. $ (60,714) $ (3,197) $ (403)
---------- ----------- ---------
---------- ----------- ---------
Projected benefit obligation................................ $ (68,729) $ (3,197) $ (403)
Market value of plan assets................................. 69,721 0 0
---------- ----------- ---------
Overfunded (unfunded) projected benefit obligation.......... 992 (3,197) (403)
Unrecognized net gain....................................... (5,948) 0 0
Unrecognized prior service costs............................ 38 0 0
---------- ----------- ---------
Pension liability recognized in balance sheets.............. $ (4,918) $ (3,197) $ (403)
---------- ----------- ---------
---------- ----------- ---------
</TABLE>
Assets of the salaried and hourly plans are invested primarily in U.S.
government securities, common stock funds, and cash management funds. For 1998,
1997, and 1996, the discount rate was approximately 6.75%, 8%, and 8%,
respectively. The expected long-term rate of return on assets was 8% for 1998,
1997, and 1996. 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 October 31, 1998, November 1, 1997, and November 2,
1996 amounted to approximately $2,084,000, $2,056,000, and $1,926,000
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,
F-18
<PAGE>
BLUE BIRD CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
OCTOBER 31, 1998, NOVEMBER 1, 1997, AND NOVEMBER 2, 1996
7. BENEFIT PLANS (CONTINUED)
neither the trust's assets nor the liability for claims is reported in the
accompanying consolidated balance sheets.
8. DEFERRED COMPENSATION AND SUPPLEMENTAL RETIREMENT BENEFITS
At October 31, 1998 and November 1, 1997, the accompanying financial
statements reflect liabilities for the anticipated payment of deferred
compensation and supplemental retirement benefits described above in the amounts
of approximately $950,000 and $992,000, respectively.
9. REDEEMABLE COMMON STOCK
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 1998, the Company issued 770,000 shares of redeemable common stock
associated with the exercise of options by management (Note 12). As a result,
the number of redeemable common shares outstanding as of October 31, 1998 and
November 1, 1997 was 1,500,000 and 730,000, respectively.
10. LEASES
Rental expenses for operating leases were approximately $1,911,000,
$1,616,000, and $1,195,000 for the years ended October 31, 1998, November 1,
1997, and November 2, 1996, respectively. Operating leases relate primarily to
manufacturing and warehouse equipment. The future minimum lease payments under
operating leases by fiscal year as of October 31, 1998 are approximately as
follows (in thousands):
<TABLE>
<S> <C>
1999............................................................... $ 1,189
2000............................................................... 914
2001............................................................... 778
2002............................................................... 272
2003............................................................... 7
---------
$ 3,160
---------
---------
</TABLE>
11. CONTINGENCIES
As of October 31, 1998, 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
F-19
<PAGE>
BLUE BIRD CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
OCTOBER 31, 1998, NOVEMBER 1, 1997, AND NOVEMBER 2, 1996
11. CONTINGENCIES (CONTINUED)
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.
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 October 31, 1998. During the year ended October 31, 1998, options
for 10,000 shares were granted, and options for 770,000 shares were exercised.
The options exercised were for redeemable common stock and the proceeds of
$7,700,000 were financed by the Company through full recourse notes granted to
the employees (Note 13). As a result, the Company had 0 and 760,000 options to
purchase shares outstanding as of October 31, 1998 and November 1, 1997,
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
approximately $0 on a pro forma basis for the year ended October 31, 1998.
13. MANAGEMENT NOTES
During 1998, certain employees exercised their options to purchase
redeemable common shares at an aggregate exercise price of $7,700,000. In order
to facilitate the exercise, the Company financed the exercise through the
issuance of three-year notes expiring October 2001. The notes are full recourse
and bear interest at a rate that approximates the market rate for a similar
investment.
F-20
<PAGE>
EXHIBIT INDEX
<TABLE>
<CAPTION>
EXHIBIT
NO. PAGE
- ----------- ---------
<C> <S> <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). --
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). --
</TABLE>
38
<PAGE>
<TABLE>
<CAPTION>
EXHIBIT
NO. PAGE
- ----------- ---------
<C> <S> <C>
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 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
39
<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 OCTOBER 31, 1998, NOVEMBER 1, 1997,
NOVEMBER 2, 1996, OCTOBER 28, 1995 AND OCTOBER 29, 1994
(In Thousands Except Ratios)
BBC
<TABLE>
<CAPTION>
OCTOBER 31, NOVEMBER 1, NOVEMBER 2, OCTOBER 28, OCTOBER 29,
1998 1997 1996 1995 1994
-------------- -------------- -------------- -------------- --------------
<S> <C> <C> <C> <C> <C>
FIXED CHARGES:
Interest expense...................... $ 33,300 $ 32,488 $ 16,455 $ 16,282 $ 15,224
Interest element of rentals........... 637 539 473 536 521
Amortization of debt issuance costs... 1,265 1,266 2,688 2,245 2,209
------- ------- ------- ------- -------
$ 35,202 $ 34,293 $ 19,616 $ 19,063 $ 17,954
------- ------- ------- ------- -------
------- ------- ------- ------- -------
EARNINGS:
Net income (loss)..................... $ 21,667 $ 10,597 $ 23,765 $ 16,852 $ 15,408
Provision (benefit) for income
taxes............................... 11,666 (4,473) 14,034 11,686 10,157
Fixed charges......................... 35,202 34,293 19,616 19,063 17,954
Interest capitalized.................. -0- -0- -0- (208) (145)
------- ------- ------- ------- -------
$ 68,535 $ 40,417 $ 57,415 $ 47,393 $ 43,374
RATIO OF EARNINGS TO FIXED CHARGES.... 1.9X 1.2X 2.9X 2.5X 2.4X
</TABLE>
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<CIK> 0000889468
<NAME> BLUE BIRD BODY COMPANY
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> OCT-31-1998
<PERIOD-START> NOV-02-1997
<PERIOD-END> OCT-31-1998
<CASH> 54,558
<SECURITIES> 0
<RECEIVABLES> 68,488
<ALLOWANCES> 0
<INVENTORY> 85,148
<CURRENT-ASSETS> 211,256
<PP&E> 71,183
<DEPRECIATION> (35,293)
<TOTAL-ASSETS> 449,958
<CURRENT-LIABILITIES> 97,572
<BONDS> 329,733
0
0
<COMMON> 48,522
<OTHER-SE> (52,638)
<TOTAL-LIABILITY-AND-EQUITY> 449,958
<SALES> 626,445
<TOTAL-REVENUES> 626,445
<CGS> 515,158
<TOTAL-COSTS> 51,825
<OTHER-EXPENSES> 8,427
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 34,556
<INCOME-PRETAX> 33,333
<INCOME-TAX> 11,666
<INCOME-CONTINUING> 21,667
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 21,667
<EPS-PRIMARY> 0
<EPS-DILUTED> 0
</TABLE>
