SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
(Mark One)
/x/ JOINT QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934.
For the period ended January 31,May 2, 1998
/ / 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 (Exact name of registrant as
specified in its charter) specified in its charter)
Delaware Georgia
(State or other jurisdiction of (State or other jurisdiction of
incorporation or organization) incorporation or organization)
13-3638126 58-0813156
(I.R.S. Employer Identification No.) (I.R.S. Employer Identification No.)
3920 Arkwright Road 3920 Arkwright Road
Macon, Georgia 31210 Macon, Georgia 31210
(Address of principal executive (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 MarchJune 1, 1998, 8,434,778 shares of Blue Bird Corporation's
common stock and 10 shares of Blue Bird Body Company's common stock
were outstanding.
BLUE BIRD BODY COMPANY ("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.
BLUE BIRD CORPORATION
BLUE BIRD BODY COMPANY
Quarterly Report on Form 10-Q
For the Three-Month Periodand Six-Month Periods
Ended January 31,May 2, 1998
Table of Contents
Page
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements:
Condensed Consolidated Balance Sheets
as of January 31,May 2, 1998 and
November 1, 1997 ..................................... 1
Condensed Consolidated Statements of
Income for the three-month and
six-month periods ended January 31,May 2, 1998 and
February 1,May 3, 1997 .............................................................................. 2
Condensed Consolidated Statements of
Cash Flows for the three-monthsix-month
periods ended January 31,May 2, 1998
and February 1,May 3, 1997 ....................................................................... 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 .................................... 78
PART II. OTHER INFORMATION
Item 1. Legal Proceedings ...................................... 8
Item 6. Exhibits and Reports on Form 8-K ....................... 8
Signatures ............................................. 9
BLUE BIRD CORPORATION AND SUBSIDIARIES
BLUE BIRD BODY COMPANY AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
JANUARY 31,MAY 2, 1998 AND NOVEMBER 1, 1997
($ IN THOUSANDS)
JANUARY 31,MAY 2, NOVEMBER 1,
1998 1997
--------- ----------
(UNAUDITED)
ASSETS
CURRENT ASSETS
Cash and cash equivalents $ 4,6593,979 $ 31,031
Trade receivables 16,14315,522 16,515
Leases receivable 44,66944,399 43,116
Inventories 105,471172,659 76,385
Prepaid expenses 2,7022,449 1,611
Other current assets 1,7922,320 1,703
-------- --------
Total current assets 175,436241,328 170,361
LEASES RECEIVABLE, NONCURRENT 57,43158,058 59,207
PROPERTY, PLANT, AND EQUIPMENT 69,04569,498 68,604
Less accumulated depreciation (31,939)(33,260) (30,503)
-------- --------
Property, plant, and equipment, net 37,10636,238 38,101
GOODWILL AND DEBT ISSUE COSTS 162,463 162,463
Less accumulated amortization (23,770)(25,047) (22,494)
-------- --------
Goodwill & debt issue costs, net 138,693137,416 139,969
-------- --------
OTHER ASSETS 4,7754,729 4,862
-------- --------
Total assets $ 413,441477,769 $ 412,500
======== ========
LIABILITIES AND STOCKHOLDERS' (DEFICIT) EQUITY
CURRENT LIABILITIES:
Revolving credit facilities $ 5,50033,200 $ 0
Current portion of long-term debt 13,750 12,750
Accounts payable 24,46551,057 21,708
Income taxes payable 3978 42
Deferred income taxes 2,3402,615 4,474
Other current liabilities 28,80843,553 32,116
-------- --------
Total current liabilities 74,902144,253 71,090
LONG-TERM DEBT 336,881331,098 339,563
DEFERRED INCOME TAXES 5,9745,772 4,612
OTHER LIABILITIES 21,84222,028 21,678
REDEEMABLE COMMON STOCK, NET 19,13118,526 20,676
-------- --------
Total liabilities 458,730521,677 457,619
-------- --------
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) earnings (119,164)(117,772) (119,206)
Other stockholders' (deficit) equity (3,225)(3,236) (3,013)
-------- --------
Total stockholders' (deficit) equity (45,289)(43,908) (45,119)
-------- --------
Total liabilities and
stockholders' (deficit) equity $ 413,441477,769 $ 412,500
======== ========
The accompanying notes are an integral part of these condensed
consolidated statements.
1
BLUE BIRD CORPORATION AND SUBSIDIARIES
BLUE BIRD BODY COMPANY AND SUBIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF INCOME
FOR THE THREE-MONTH AND SIX-MONTH PERIODS
ENDED
JANUARY 31,MAY 2, 1998 AND FEBRUARY 1,MAY 3, 1997
($ IN THOUSANDS)
THREE MONTHS ENDED JANUARY 31, FEBRUARY 1,SIX MONTHS ENDED
MAY 2, MAY 3, MAY 2, MAY 3,
1998 1997 1998 1997
---------- ---------- --------- ----------
(UNAUDITED) (UNAUDITED) (UNAUDITED) (UNAUDITED)
Net sales $ 90,901102,713 $ 84,10794,808 $ 193,614 $ 178,915
Cost of goods sold 74,615 69,56082,553 76,700 157,168 146,260
-------- -------- --------- ----------
Gross profit 16,286 14,54720,160 18,108 36,446 32,655
Selling, general and
administrative expense 11,227 10,79011,474 11,558 22,701 22,348
Amortization of goodwill
and other intangibles 960 960 1,920 1,920
Nonrecurring items 0 0 0 16,506
-------- -------- -------- --------
Operating (loss) income (loss) 4,099 (13,709)7,726 5,590 11,825 (8,119)
Interest income 1,939 1,5341,690 1,408 3,629 2,942
Interest and debt issue
expense (8,462) (7,554)(8,636) (8,595) (17,098) (16,149)
Other income (expense) 298 237307 568 605 805
-------- -------- -------- --------
(Loss) income before
income taxes (2,126) (19,492)1,087 (1,029) (1,039) (20,521)
(Benefit) provision
from income taxes (622) (12,992)300 (256) (322) (13,248)
-------- -------- -------- --------
Net (loss) income before
extraordinary items (1,504) (6,500)787 (773) (717) (7,273)
Extraordinary item - loss on
early extinguishment of debt 0 0 0 (2,986)
-------- -------- -------- --------
Net (loss) income $ (1,504)787 $ (9,486)(773) $ (717) $ (10,259)
======== ======== ======== ========
The accompanying notes are an integral part of these consolidated
statements.
2
BLUE BIRD CORPORATION AND SUBSIDIARIES
BLUE BIRD BODY COMPANY AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR THE THREE-MONTHSIX-MONTH PERIODS ENDED JANUARY 31,MAY 2, 1998 AND FEBRUARY 1,MAY 3, 1997
($ IN THOUSANDS)
THREESIX MONTHS ENDED
JANUARY 31, FEBRUARY 1,MAY 2, MAY 3,
1998 1997
--------- ---------
(UNAUDITED) (UNAUDITED)
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income (loss) $ (1,504)(717) $ (9,486)(10,259)
------- -------
Adjustments to reconcile net income (loss)
to net cash provided by (used in)
operating activities:
Extraordinary loss on extinguishment of debt 0 4,755
Depreciation and amortization 2,834 2,8245,782 5,668
Increase (decrease) in cash surrender value
of life insurance 1 (9)11 (10)
Deferred income taxes (772) 98(699) (17)
Changes in operating assets and liabilities:
(Increase) decrease in trade receivables 372 (633)993 (3,386)
(Increase) decrease in inventories (29,086) (19,017)(96,274) (83,031)
(Increase) decrease in prepaid expenses (1,091) (3,197)(838) (1,610)
Increase (decrease) in accounts payable 2,757 (7,365)29,349 25,074
Increase (decrease) in income taxes payable (3) (9,270)36 (9,227)
Other (3,111) (9,474)11,239 (4,721)
------- -------
Total adjustments (28,099) (41,288)(50,401) (66,505)
------- -------
Net cash used in operating activities (29,603) (50,774)(51,118) (76,764)
------- -------
CASH FLOWS FROM INVESTING ACTIVITIES:
Property, plant, and equipment acquisitions (593) (855)(1,303) (3,126)
(Increase) decrease in leases receivable 223 (1,576)(134) (7,744)
------- -------
Net cash used in investing activities (370) (2,431)(1,437) (10,870)
------- -------
CASH FLOWS FROM FINANCING ACTIVITIES:
Net borrowing on working capital revolvers 6,000 14,40031,100 49,500
Borrowing on long-term debt 0 274,699
Repayment of long-term debt (2,188)(5,375) (86,000)
Dividends paid 0 (185,345)
Debt prepayment premium 0 (3,369)
Debt issuance costs 0 (9,416)(9,693)
Proceeds from management notes 0 3,800
------- -------
Net cash provided by
financing activities 3,812 8,76925,725 43,592
------- -------
EFFECT OF EXCHANGE RATE FLUCTUATIONS (211) (66)(222) (713)
------- -------
NET DECREASE IN CASH AND CASH EQUIVALENTS (26,372) (44,502)(27,052) (44,755)
CASH AND CASH EQUIVALENTS AT BEGINNING OF PERIOD 31,031 46,253
------- -------
CASH AND CASH EQUIVALENTS AT END OF PERIOD $ 4,6593,979 $ 1,7511,498
======= =======
SUPPLEMENTAL INFORMATION:
Cash interest paid $ 11,03916,554 $ 5,14210,438
======= =======
Cash income taxes paid $ 162312 $ 9,6209,850
======= =======
The accompanying notes are an integral part of these condensed
statements.
3
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 November 1, 1997.
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
1998 and 1997 botheach contain 52 weeks.
4
2. INVENTORIES
Inventories are valued at the lower of cost or market, cost being
determined on the last-in, first-out basis. If the first-in,
first-out method had been used, inventories would have been
approximately $3,200,000$3,500,000 higher at January 31,May 2, 1998 and approximately
$2,900,000 higher at November 1, 1997.
The components of inventory consist of the following at January
31,May 2, 1998
and November 1, 1997 (dollars in thousands):
1998 1997
---- ----
Raw materials $ 31,24337,496 $22,251
Work in process 45,00971,785 26,792
Finished goods 29,21963,378 27,342
------ ------
$105,471$172,659 $76,385
======== =======
3. CONTINGENCIES
PENDING LITIGATION AND INSURANCE PROGRAM
As of January 31,May 2, 1998, 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 then-existingexisting
Subordinated Notes were repurchased at a premium of $3.4 million.
Debt issuance costs related to the recapitalization were $9.7
million. A nonrecurring recapitalization charge was taken in
November to recognize the $3.4 million premium cost, $1.4 million
of original debt issue costs written off and $16.5 million
General and Administrative expenses related to the distribution
payment to option holders for a total of $21.3 million.
5. REDEEMABLE COMMON STOCK
The Company quarterly records an adjustment to the redeemable
common stock based on an estimated Company valuation net of
outstanding debt in accordance with the formula in the
stockholders' agreement.
5
Item 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
RESULTS OF OPERATIONS
THREE MONTHS ENDED JANUARY 31,MAY 2, 1998 COMPARED TO THREE MONTHS
ENDED FEBRUARY 1,MAY 3, 1997
Net sales for the quarter ended January 31,May 2, 1998, were $90.9$102.7 million, an increase
of $6.8$7.9 million or 8.1%8.3% compared to the corresponding period in 1997. This
increase was due to more deliveries during the current reporting period as
compared to the 1997 period.period as well as a higher average selling price per
unit in 1998.
Gross profit increased to $16.3$20.2 million in the firstsecond quarter of 1998 from
$14.5$18.1 million in the firstsecond quarter of 1997, an increase of $1.8$2.1 million or
12.4%11.6% as a result of higher sales volume. The
grossGross margin increased to 17.9%19.6%
compared to 17.3%19.1% in the 1997 period, due to the mix of units delivered having
higher gross margin compared to the prior year.
Selling, general and administrative expenses decreased to $11.5 million from
$11.6 million in the 1997 period, a decrease of $.1 million or .9%. This
decrease was due primarily to lower warranty costs.
Interest and debt issue expense of $8.6 million in the current period was the
same as the prior year period.
The provision for income taxes was $.3 million in the current period compared
to a benefit of $.3 million in the 1997 period. The benefit in 1997 resulted
from the net loss incurred for the period.
SIX MONTHS ENDED MAY 2, 1998 COMPARED TO SIX MONTHS ENDED MAY 3, 1997
Net sales for the six months ended May 2, 1998, were $193.6 million, an
increase of $14.7 million or 8.2% compared to the corresponding period in
1997. This increase was due to more deliveries during the current reporting
period as compared to the 1997 period as well as a higher average selling
price per unit in 1998.
Gross profit increased deliveriesto $36.4 million in the current period as compared to
$32.6 million in the 1997 period. This was an increase of Commercial$3.8 million or
11.7% was due to higher sales volume. Gross margin increased to 18.8% compared
to 18.3% in the 1997 period due to the mix of units and
increased service parts sales.delivered having a higher
gross margin compared to the prior year.
Selling, general and administrative expenses increased to $11.2$22.7 million from
$10.8$22.3 million in the 1997 period, an increase of $.4 million or 4.0%1.8%. ThisThe
increase was due primarily to increased engineering and selling expenses.
Nonrecurring general and administrative charges of $16.5 million were taken in
the prior year at the time of the recapitalization.
Interest and debt issue expense increased to $8.5$17.1 million in the current
period from $7.6$16.1 million in the prior year period due to the increased
average debt in the current period as compared to the prior period.
6 The benefit for income taxes was $.6$.3 million in the current period compared
to $13.0$13.2 million in the 1997 period which reflected the tax effects of the
recapitalization. The higher benefit and effective tax rate for 1997 waswere a
result of the combined effect of certain tax benefits, in particular, the tax
benefit related to a portion of the dividend paid to shareholders in the
recapitalization being deductible for tax purposes as well as the tax benefit
related to the ordinary loss and the nonrecurring charge.
The extraordinary loss of $3.0 million, net of a tax benefit of $1.8 million,
occurring in the 1997 period was due to the early extinguishment of $50
million of Subordinated Notes as part of the recapitalization.
6FINANCIAL 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. ManagementThe Company 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 threesix month period of fiscal
1998 was $29.6$51.1 million. This amount reflects the customary seasonal increase
in inventory, slightly offset in part by a related increase in accounts payable.
Scheduled repayments of the term debt used additional funds of $5.4 million.
The Company's principal sources of funds during this period were cash and cash
equivalents on hand at year-endthe beginning of the year and borrowings on the Bankers
Trust revolving line of credit.credit to date. One of the Company's subsidiaries,
Blue Bird Capital Corporation, has extended its revolving credit agreement
with LaSalle National Bank until March 31, 2001, thereby extending the
maturity date on the LaSalle revolving debt until the same date.
During November 1996, Blue Bird was recapitalized, resulting in the repayment
of the then-existingthen 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 then-existingexisting 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.
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
7
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.
7Part II. OTHER INFORMATION
Item 1. Legal Proceedings.
Reference is made to BBC's and the Predecessor's Joint Annual
Report on Form 10-K for the fiscal year ended November 1, 1997
for a description of certain legal proceedings to which BBC or
the Predecessor 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 31,May 2, 1998.
8
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: MarchJune 16, 1998 Date: MarchJune 16, 1998
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: MarchJune 16, 1998 Date: MarchJune 16, 1998
9