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SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
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FORM 10-Q
(Mark One)
[x] JOINT QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934.
For the period ended January 30, 1999
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934.
For the transition period from _____ to ______
Commission File Number 33-49544-01 Commission File Number 33-49544
BLUE BIRD CORPORATION BLUE BIRD BODY COMPANY
(Exact name of registrant as specified (Exact name of registrant as specified
in its charter) in its charter)
DELAWARE GEORGIA
(State or other jurisdiction of (State or other jurisdiction of
incorporation or organization) incorporation or organization)
13-3638126 58-0813156
(I.R.S. Employer Identification No.) (I.R.S. Employer Identification No.)
3920 Arkwright Road 3920 Arkwright Road
MACON, GEORGIA 31210 MACON, GEORGIA 31210
(Address of principal executive (Address of principal executive
offices, including zip code) offices, including zip code)
(912) 757-7100 (912) 757-7100
(Registrant's telephone number, (Registrant's telephone number,
including area code) including area code)
Indicate by check mark whether the registrants (1) have filed all
reports required to be filed by Section 13 or 15(d) of the Securities Exchange
Act of 1934 during the preceding 12 months (or for such shorter period that the
registrants were required to file such reports), and (2) have been subject to
such filing requirements for the past 90 days. Yes X No
As of March 1, 1999, 9,204,778 shares of Blue Bird Corporation's common
stock and 10 shares of Blue Bird Body Company's common stock were outstanding.
BLUE BIRD BODY COMPANY ("BLUE BIRD" OR THE "COMPANY") IS A WHOLLY-OWNED
SUBSIDIARY OF BLUE BIRD CORPORATION ("BBC"). BLUE BIRD MEETS THE CONDITIONS SET
FORTH IN GENERAL INSTRUCTION H(1) (A) AND (B) OF FORM 10-Q AND IS THEREFORE
FILING CERTAIN PORTIONS OF THIS FORM 10-Q APPLICABLE TO IT WITH THE REDUCED
DISCLOSURE FORMAT PERMITTED BY SUCH GENERAL INSTRUCTION.
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BLUE BIRD CORPORATION
BLUE BIRD BODY COMPANY
QUARTERLY REPORT ON FORM 10-Q
FOR THE THREE-MONTH PERIOD
ENDED JANUARY 30, 1999
Table Of Contents
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Page
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PART I. FINANCIAL INFORMATION
Item 1. Financial Statements:
Condensed Consolidated Balance Sheets
as of January 30, 1999 and
October 31, 1998....................................................................1
Condensed Consolidated Statements of
Income for the three-month periods
ended January 30, 1999 and
January 31, 1998....................................................................2
Condensed Consolidated Statements of
Cash Flows for the three-month
periods ended January 30, 1999
and January 31, 1998................................................................3
Notes to Condensed Consolidated
Financial Statements................................................................4
Item 2. Management's Discussion and Analysis
of Financial Condition and Results of
Operations..........................................................................6
Item 3. Quantitative and Qualitative Disclosures
about Market Risk...................................................................8
PART II. OTHER INFORMATION
Item 1. Legal Proceedings....................................................................8
Item 6. Exhibits and Reports on Form 8-K.....................................................8
Signatures...........................................................................9
</TABLE>
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BLUE BIRD CORPORATION AND SUBSIDIARIES
BLUE BIRD BODY COMPANY AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
JANUARY 30, 1999 AND OCTOBER 31, 1998
($ IN THOUSANDS)
ASSETS
<TABLE>
<CAPTION>
January 30, October 31,
1999 1998
---------------- ----------------
(Unaudited)
<S> <C> <C>
CURRENT ASSETS:
Cash and cash equivalents $ 5,887 $ 54,558
Trade receivables 18,086 20,226
Leases receivable 47,916 48,262
Inventories 127,086 85,148
Prepaid expenses 2,731 1,149
Other current assets 1,063 1,913
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Total current assets 202,769 211,256
LEASES RECEIVABLE, NONCURRENT 65,562 63,205
PROPERTY, PLANT, AND EQUIPMENT 72,541 71,183
Less accumulated depreciation (36,816) (35,293)
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Property, plant, and equipment, net 35,725 35,890
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GOODWILL AND DEBT ISSUE COSTS 162,506 162,506
Less accumulated amortization (28,918) (27,642)
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Goodwill & debt issue costs, net 133,588 134,864
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OTHER ASSETS 8,028 4,743
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Total assets $ 445,672 $ 449,958
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LIABILITIES AND STOCKHOLDERS' (DEFICIT) EQUITY
CURRENT LIABILITIES:
Revolving credit facilities $ 4,900 $ 0
Current portion of long-term debt 17,750 16,750
Accounts payable 30,982 29,763
Income taxes payable 499 7,444
Deferred income taxes 4,863 5,356
Other current liabilities 35,514 38,259
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Total current liabilities 94,508 97,572
LONG-TERM DEBT 327,652 329,733
DEFERRED INCOME TAXES 4,710 4,844
OTHER LIABILITIES 22,061 21,925
REDEEMABLE COMMON STOCK, NET 42,981 48,445
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Total liabilities 491,912 502,519
STOCKHOLDERS' (DEFICIT) EQUITY:
Common stock, $.01 par value; 25,000,000 shares
authorized; 7,704,778 shares outstanding 77 77
Additional paid-in capital 77,023 77,023
Retained earnings (deficit) (119,239) (125,309)
Other comprehensive income (4,101) (4,352)
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Total stockholders' (deficit) equity (46,240) (52,561)
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Total liabilities and stockholders' (deficit) equity $ 445,672 $ 449,958
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</TABLE>
The accompanying notes are an integral part of these
condensed consolidated statements.
1
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BLUE BIRD CORPORATION AND SUBSIDIARIES
BLUE BIRD BODY COMPANY AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF INCOME
FOR THE THREE-MONTH PERIODS ENDED JANUARY 30, 1999 AND JANUARY 31, 1998
($ IN THOUSANDS)
<TABLE>
<CAPTION>
THREE MONTHS ENDED
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JANUARY 30, JANUARY 31,
1999 1998
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(UNAUDITED) (UNAUDITED)
<S> <C> <C>
Net sales $ 100,564 $ 90,901
Cost of goods sold 81,833 74,615
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Gross profit 18,731 16,286
Selling, general and administrative expenses 11,483 11,227
Amortization of goodwill and other intangibles 960 960
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Operating income 6,288 4,099
Interest income 2,189 1,939
Interest and debt issue expense (7,804) (8,462)
Other income (expense) 306 298
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Income (Loss) before income taxes 979 (2,126)
Provision (benefit) for income taxes 373 (622)
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Net income (loss) $ 606 $ (1,504)
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</TABLE>
The accompanying notes are an integral part of
these condensed consolidated statements.
2
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BLUE BIRD CORPORATION AND SUBSIDIARIES
BLUE BIRD BODY COMPANY AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR THE THREE-MONTH PERIODS ENDED JANUARY 30, 1999 AND JANUARY 31, 1998
($ IN THOUSANDS)
<TABLE>
<CAPTION>
THREE MONTHS ENDED
------------------------------------------
JANUARY 30, JANUARY 31,
1999 1998
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(UNAUDITED) (UNAUDITED)
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income (loss) $ 606 $ (1,504)
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Adjustments to reconcile net income (loss) to net
cash provided by (used in) operating activities:
Depreciation and amortization 2,775 2,834
Increase (decrease) in cash surrender value of life insurance 6 1
Deferred income taxes (627) (772)
Changes in operating assets and liabilities:
(Increase) decrease in trade receivables 2,140 372
(Increase) decrease in inventories (41,938) (29,086)
(Increase) decrease in prepaid expenses (1,582) (1,091)
Increase (decrease) in accounts payable 1,219 2,757
Increase (decrease) in income taxes payable (6,945) (3)
Other (5,322) (3,111)
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Total adjustments (50,274) (28,099)
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Net cash used in operating activities (49,668) (29,603)
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CASH FLOWS FROM INVESTING ACTIVITIES:
Property, plant, and equipment acquisitions (1,056) (593)
(Increase) decrease in leases receivable (2,011) 223
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Net cash used in investing activities (3,067) (370)
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CASH FLOWS FROM FINANCING ACTIVITIES:
Net borrowing on revolving credit agreements 7,000 6,000
Repayment of long-term debt (3,188) (2,188)
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Net cash provided by financing activities 3,812 3,812
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EFFECT OF EXCHANGE RATE FLUCTUATIONS 252 (211)
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NET DECREASE IN CASH AND CASH EQUIVALENTS (48,671) (26,372)
CASH AND CASH EQUIVALENTS AT BEGINNING OF PERIOD 54,558 31,031
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CASH AND CASH EQUIVALENTS AT END OF PERIOD $ 5,887 $ 4,659
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SUPPLEMENTAL INFORMATION:
Cash interest paid $ 10,212 $ 11,039
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Cash income taxes paid $ 7,880 $ 162
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</TABLE>
The accompanying notes are an integral part of these condensed
consolidated statements.
3
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BLUE BIRD CORPORATION AND SUBSIDIARIES
BLUE BIRD BODY COMPANY AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
1. BASIS OF FINANCIAL STATEMENTS AND FORMATION AND ORGANIZATION
The accompanying unaudited condensed consolidated financial statements
of Blue Bird Corporation and subsidiaries ("BBC") have been prepared in
accordance with generally accepted accounting principles for interim
financial information and with the instructions to Form 10-Q and
Article 10 of Regulation S-X. Accordingly, they do not include all of
the information and footnotes required by generally accepted accounting
principles for complete financial statements. It is suggested that
these condensed consolidated financial statements be read in
conjunction with the financial statements and the notes thereto
included in the joint annual report of BBC and Blue Bird Body Company
on Form 10-K for the fiscal year ended October 31, 1998.
The accompanying unaudited financial statements include, in the opinion
of management, all adjustments, which are of a normal recurring nature,
necessary for a fair presentation for the periods presented. Results
for the interim periods presented are not necessarily indicative of
results that may be expected for a full fiscal year.
FISCAL YEAR
BBC's fiscal year ends on the Saturday nearest October 31 of each year,
generally referred to as a "52-/53-week year." Fiscal years 1999 and
1998 each contain 52 weeks.
2. INVENTORIES
Inventories are valued at the lower of cost or market, cost being
determined on the last-in, first-out basis. If the first-in, first-out
method had been used, inventories would have been approximately $10.9
million higher at January 30, 1999 and approximately $10.1 million
higher at October 31, 1998.
4
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The components of inventory consist of the following at January 30,
1999 and October 31, 1998 (dollars in thousands):
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1999 1998
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Raw materials $ 31,762 $23,923
Work in process 51,384 31,956
Finished goods 43,940 29,269
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$127,086 $85,148
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</TABLE>
3. CONTINGENCIES
PENDING LITIGATION AND INSURANCE PROGRAM
As of January 30, 1999, a number of product liability cases were
pending against a subsidiary of BBC. Neither the outcome of certain
cases nor the amounts of any liabilities related to these certain cases
are known; however, management believes that the ultimate resolution of
these matters will not have a material adverse impact on BBC's
financial position or results of operations.
4. RECAPITALIZATION
During November 1996, Blue Bird was recapitalized, resulting in the
repayment of the then existing $86 million of debt, the issuance of new
debt in the amount of $275 million and a distribution paid to
shareholders and holders of options for BBC common stock of $185.3
million and $16.5 million, respectively. The existing Subordinated
Notes were repurchased at a premium of $3.4 million. Debt issuance
costs related to the recapitalization were $9.7 million. A nonrecurring
recapitalization charge was taken in November to recognize the $3.4
million premium cost, $1.4 million of original debt issue costs written
off and $16.5 million General and Administrative expenses related to
the distribution payment to option holders for a total of $21.3
million.
The Company quarterly records an adjustment to the redeemable common
stock based on an estimated Company valuation net of outstanding debt
in accordance with the formula in the stockholders' agreement.
5
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5. COMPREHENSIVE INCOME
Effective November 1, 1998, the Company adopted Statement of Financial
Accounting Standards No. 130, Reporting Comprehensive Income, which
requires companies to disclose comprehensive income and its components,
defined as the total of net income and all other nonowner changes in
equity. The Company has other comprehensive income in the form of
cumulative translation adjustments and unrealized gains on
available-for-sale equity securities. The total of other comprehensive
income for the three months ended January 30, 1999 and January 31, 1998
was $.3 million and ($.2) million, respectively. The total of
comprehensive income for the same periods was $.9 million and ($1.7)
million, respectively.
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
RESULTS OF OPERATIONS
THREE MONTHS ENDED JANUARY 30, 1999 COMPARED TO THREE MONTHS ENDED JANUARY
31, 1998
Net sales for the quarter ended January 30, 1999, were $100.6 million, an
increase of $9.7 million or 10.7% compared to the corresponding period in
1998. This increase was due to more deliveries during the current reporting
period as compared to the 1998 period.
Gross profit increased to $18.7 million in the first quarter of 1999 from $16.3
million in the first quarter of 1998, an increase of $2.4 million or 14.7% as a
result of higher sales volume. The gross margin increased to 18.6% compared to
17.9% in the 1998 period due to the mix of units delivered having higher gross
margins compared to prior year.
Selling, general and administrative expenses increased to $11.5 million from
$11.2 million in the 1998 period, an increase of $.3 million or 2.7%. The
increase was due primarily to increased R&D expenses and higher warranty
expenses.
Interest and debt issue expenses decreased to $7.8 million in the current period
from $8.5 million in the prior period due to lower average interest rates and
decreased average debt in the current period as compared to the prior period.
The provision for income taxes was $.4 million in the current period compared to
a benefit of $.6 million in the 1998 period. The 1998 period reflected a loss.
6
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YEAR 2000
As a result of certain computer programs being written using two digits rather
than four to define the applicable year, information systems that have date
sensitive software may be unable to properly recognize and process dates and
date-sensitive information on and beyond January 1, 2000 (the "Year 2000
Problem"). The Year 2000 Problem, which is common to most businesses, could, if
not resolved, have a detrimental effect on the Company's operations, and
interfere with the Company's ability to engage in normal business activities. If
unremedied, the Year 2000 Problem could result in systems failures or
miscalculations causing disruptions, including among other things, a temporary
slowdown of manufacturing operations due to parts shortages and, consequently, a
temporary inability to deliver buses to customers.
In 1993, the Company began a company-wide assessment of the vulnerability of
its information technology systems to the Year 2000 Problem and began
modifying all affected software. Approximately 90% of the software used by
the Company was developed and is maintained in-house. All software systems
have been reviewed to determine Year 2000 compliance. As of January 31, 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 also has been assessing its non-information technology systems to
identify potential Year 2000 problems. The review to date has not identified
any major non-IT system problems that would adversely affect operations in
any significant way. The evaluation and testing of non-IT systems is
scheduled to be completed by mid 1999.
The Company is also in the process of surveying major suppliers and customers
to determine their efforts toward resolution of the Year 2000 Problem. The
Company has developed contingency plans to address various Year 2000 problems
which would result in the failure of critical business systems of the
Company, its significant suppliers or customers.
Since 1993, the Company has treated the costs associated with modifying
affected system as on-going software maintenance using primarily in-house
resources. The Company estimates that approximately $.5 million has been
expended in connection therewith through the first quarter of fiscal 1999,
mainly costs associated with employee payroll. The Company believes that the
remaining costs associated with completion of the Year 2000 Problem will be
approximately $.3 million, again mainly internal payroll related, including
the additional cost of an outside contractor. Remediation costs comprise less
than 15 percent of the IT budget for fiscal 1999. All remediation costs are
funded from current operating income.
Although the Company believes that it will be able to modify or replace its
affected systems in time to minimize any detrimental effects on its operation
caused by the Year 2000 Problem, it can make no assurance that the Company will
be successful in such efforts, or that its major vendors or customers will
successfully modify or replace their affected systems or that such failures
would not have a material adverse effect on the Company's consolidated results
of operations, liquidity or capital resources in the future.
FINANCIAL CONDITION
WORKING CAPITAL
The Company's working capital needs are seasonal. Working capital and related
bank borrowings are lowest immediately after heavy school bus deliveries late in
the fourth fiscal quarter. Beginning in December or January, working capital and
related bank borrowings typically start to increase as parts are purchased or
manufactured and distributed to the assembly plants for assembly into buses.
Management tries to build buses as close to expected delivery time as possible.
Inventory is at its highest during May, June and July prior to heavy seasonal
deliveries.
LIQUIDITY AND CAPITAL RESOURCES
Net cash used in operating activities during the first three month period of
fiscal 1999 was $49.7 million. This amount reflects the customary seasonal
increase in inventory of $41.9 million and income tax payments of $6.9
million. Scheduled repayment of term debt during the period used additional
funds of $3.2 million. The Company's principal sources of funds during the
period were cash on hand at the beginning of the period and borrowings on the
Bankers Trust working capital line of credit. One of the Company's
subsidiaries, Blue Bird Capital Corporation, provides sales financing. The
increase in leases receivable is funded primarily through the LaSalle
National Bank revolving line of credit.
7
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FORWARD-LOOKING STATEMENTS
Any statements contained in this Form 10-Q which are not historical facts are
"forward-looking statements" within the meaning of the private Securities
Litigation Reform Act of 1995. The Company cautions readers that there can be no
assurance that the actual results or business conditions will not differ
materially from those projected or suggested in such forward-looking statements
as a result of various factors, including, but not limited to, the degree to
which the Company is leveraged and the Company's significant debt service
obligations, the restrictive covenants contained in and the asset encumbrances
resulting from certain of the Company's credit agreements, product liability
claims for personal injuries and other matters, the availability of insurance
coverage with respect to such claims and matters, governmental regulation of the
Company's business, the limited number of chassis suppliers, the control of the
Company by Merrill Lynch Capital Partners, Inc. and the consequences arising
under the Company's credit agreements in the event of a change of control.
Item 3. Quantitative and Qualitative Disclosures about Market Risk.
Not applicable.
PART II. OTHER INFORMATION
Item 1. Legal Proceedings.
Reference is made to BBC's and the Company's Joint Annual Report on Form 10-K
for the fiscal year ended October 31, 1998 for a description of certain legal
proceedings to which BBC or the Company is a party.
Item 6. Exhibits and Reports on Form 8-K.
(a) Exhibits.
27.1 Financial Data Schedule
(b) Reports on Form 8-K.
There were no reports on Form 8-K filed by the Registrants
during the quarter ended January 30, 1999.
8
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SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, each
Registrant has duly caused this report to be signed on its behalf by the
undersigned, thereunto duly authorized.
BLUE BIRD CORPORATION BLUE BIRD BODY COMPANY
BY /s/ PAUL E. GLASKE BY /s/ PAUL E. GLASKE
- ---------------------------------- ---------------------------
Paul E. Glaske Paul E. Glaske
Chairman of the Board and Chairman of the Board and
President and Director President and Director
(Principal Executive (Principal Executive
Officer) Officer)
Date: March 16, 1999 Date: March 16, 1999
BY /s/ BOBBY G. WALLACE BY /s/ BOBBY G. WALLACE
- ---------------------------------- ---------------------------
Bobby G. Wallace Bobby G. Wallace
Vice President, Treasurer and Vice President - Finance
Secretary and Director and Administration,
(Principal Financial and Treasurer and Secretary
Accounting Officer) and Director
(Principal Financial
and Accounting Officer)
Date: March 16, 1999 Date: March 16, 1999
9
<TABLE> <S> <C>
<PAGE>
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<MULTIPLIER> 1,000
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<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> OCT-30-1999
<PERIOD-START> NOV-01-1998
<PERIOD-END> JAN-30-1999
<CASH> 5,887
<SECURITIES> 0
<RECEIVABLES> 66,002
<ALLOWANCES> 0
<INVENTORY> 127,086
<CURRENT-ASSETS> 202,769
<PP&E> 72,541
<DEPRECIATION> (36,816)
<TOTAL-ASSETS> 445,672
<CURRENT-LIABILITIES> 94,508
<BONDS> 327,652
0
0
<COMMON> 43,058
<OTHER-SE> (46,317)
<TOTAL-LIABILITY-AND-EQUITY> 445,672
<SALES> 100,564
<TOTAL-REVENUES> 100,564
<CGS> 81,833
<TOTAL-COSTS> 12,443
<OTHER-EXPENSES> (2,495)
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 7,804
<INCOME-PRETAX> 979
<INCOME-TAX> 373
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<EXTRAORDINARY> 0
<CHANGES> 0
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