SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
(Mark One)
/x/ JOINT QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934.
For the period ended May 2,August 1, 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 JuneSeptember 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 and Six-MonthNine-Month Periods
Ended May 2,August 1, 1998
Table of Contents
Page
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements:
Condensed Consolidated Balance Sheets
as of May 2,August 1, 1998 and
November 1, 1997 ..................................... 1
Condensed Consolidated Statements of
Income for the three-month and
six-monthnine-month periods ended May 2,August 1, 1998 and
May 3,August 2, 1997 ................................................................................ 2
Condensed Consolidated Statements of
Cash Flows for the six-monthnine-month
periods ended May 2,August 1, 1998
and May 3,August 2, 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 .................................... 89
PART II. OTHER INFORMATION
Item 1. Legal Proceedings ...................................... 89
Item 6. Exhibits and Reports on Form 8-K ....................... 89
Signatures ............................................. 910
BLUE BIRD CORPORATION AND SUBSIDIARIES
BLUE BIRD BODY COMPANY AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
MAY 2,AUGUST 1, 1998 AND NOVEMBER 1, 1997
($ IN THOUSANDS)
MAY 2,AUGUST 1, NOVEMBER 1,
1998 1997
--------- ----------
(UNAUDITED)
ASSETS
CURRENT ASSETS
Cash and cash equivalents $ 3,9798,677 $ 31,031
Trade receivables 15,52236,629 16,515
Leases receivable 44,39941,906 43,116
Inventories 172,659180,526 76,385
Prepaid expenses 2,4491,938 1,611
Other current assets 2,3202,450 1,703
-------- --------
Total current assets 241,328272,126 170,361
LEASES RECEIVABLE, NONCURRENT 58,05856,469 59,207
PROPERTY, PLANT, AND EQUIPMENT 69,49870,173 68,604
Less accumulated depreciation (33,260)(34,636) (30,503)
-------- --------
Property, plant, and equipment, net 36,23835,537 38,101
GOODWILL AND DEBT ISSUE COSTS 162,463 162,463
Less accumulated amortization (25,047)(26,323) (22,494)
-------- --------
Goodwill & debt issue costs, net 137,416136,140 139,969
-------- --------
OTHER ASSETS 4,7294,642 4,862
-------- --------
Total assets $ 477,769504,914 $ 412,500
======== ========
LIABILITIES AND STOCKHOLDERS' (DEFICIT) EQUITY
CURRENT LIABILITIES:
Revolving credit facilities $ 33,20045,800 $ 0
Current portion of long-term debt 13,75014,750 12,750
Accounts payable 51,05754,562 21,708
Income taxes payable 781,690 42
Deferred income taxes 2,6155,832 4,474
Other current liabilities 43,55342,149 32,116
-------- --------
Total current liabilities 144,253164,783 71,090
LONG-TERM DEBT 331,098328,516 339,563
DEFERRED INCOME TAXES 5,7725,565 4,612
OTHER LIABILITIES 22,02822,211 21,678
REDEEMABLE COMMON STOCK, NET 18,52618,357 20,676
-------- --------
Total liabilities 521,677539,432 457,619
-------- --------
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) (117,772)(107,870) (119,206)
Other stockholders' (deficit) equity (3,236)(3,748) (3,013)
-------- --------
Total stockholders' (deficit) equity (43,908)(34,518) (45,119)
-------- --------
Total liabilities and
stockholders' (deficit) equity $ 477,769504,914 $ 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-MONTHNINE-MONTH PERIODS
MAY 2,ENDED AUGUST 1, 1998 AND MAY 3,AUGUST 2, 1997
($ IN THOUSANDS)
THREE MONTHS ENDED SIXNINE MONTHS ENDED
MAYAUGUST 1, AUGUST 2, MAY 3, MAYAUGUST 1, AUGUST 2, MAY 3,
1998 1997 1998 1997
---------- ---------- --------- ----------
(UNAUDITED) (UNAUDITED) (UNAUDITED) (UNAUDITED)
Net sales $ 102,713200,558 $ 94,808193,672 $ 193,614394,172 $ 178,915372,587
Cost of goods sold 82,553 76,700 157,168 146,260165,582 160,162 322,750 306,422
-------- -------- --------- ----------
Gross profit 20,160 18,108 36,446 32,65534,976 33,510 71,422 66,165
Selling, general and
administrative expense 11,474 11,558 22,701 22,348expenses 11,932 11,703 34,633 34,051
Amortization of goodwill
and other intangibles 960 960 1,920 1,9202,880 2,880
Nonrecurring items 0 0 0 16,506
-------- -------- -------- --------
Operating (loss) income 7,726 5,590 11,825 (8,119)22,084 20,847 33,909 12,728
Interest income 1,690 1,408 3,629 2,9421,694 1,440 5,323 4,382
Interest and debt issue
expense (8,636) (8,595) (17,098) (16,149)(9,357) (9,371) (26,455) (25,520)
Other income (expense) 307 568 605 805139 369 744 1,174
-------- -------- -------- --------
(Loss) incomeIncome (loss) before
income taxes 1,087 (1,029) (1,039) (20,521)
(Benefit) provision
from14,560 13,285 13,521 (7,236)
Provision (benefit)
for income taxes 300 (256) (322) (13,248)4,827 4,920 4,505 (8,328)
-------- -------- -------- --------
Net (loss) income before
extraordinary items 787 (773) (717) (7,273)9,733 8,365 9,016 1,092
Extraordinary item - loss on
early extinguishment of debt 0 0 0 (2,986)
-------- -------- -------- --------
Net income (loss) income $ 7879,733 $ (773)8,365 $ (717)9,016 $ (10,259)(1,894)
======== ======== ======== ========
The accompanying notes are an integral part of these condensed
consolidated statements.
2
BLUE BIRD CORPORATION AND SUBSIDIARIES
BLUE BIRD BODY COMPANY AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR THE SIX-MONTHNINE-MONTH PERIODS ENDED MAY 2,AUGUST 1, 1998 AND MAY 3,AUGUST 2, 1997
($ IN THOUSANDS)
SIXNINE MONTHS ENDED
MAYAUGUST 1, AUGUST 2, MAY 3,
1998 1997
--------- ---------
(UNAUDITED) (UNAUDITED)
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income (loss) $ (717)9,016 $ (10,259)(1,894)
------- -------
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 5,782 5,6688,664 8,488
Increase (decrease) in cash surrender value
of life insurance 11 (10)(76) (109)
Deferred income taxes (699) (17)2,311 (1,205)
Changes in operating assets and liabilities:
(Increase) decrease in trade receivables 993 (3,386)(20,114) (19,724)
(Increase) decrease in inventories (96,274) (83,031)(104,141) (81,509)
(Increase) decrease in prepaid expenses (838) (1,610)(327) (780)
Increase (decrease) in accounts payable 29,349 25,07432,854 25,050
Increase (decrease) in income taxes payable 36 (9,227)1,648 (9,214)
Other 11,239 (4,721)10,229 9,003
------- -------
Total adjustments (50,401) (66,505)(68,952) (65,245)
------- -------
Net cash used in operating activities (51,118) (76,764)(59,936) (67,139)
------- -------
CASH FLOWS FROM INVESTING ACTIVITIES:
Property, plant, and equipment acquisitions (1,303) (3,126)(2,369) (4,759)
(Increase) decrease in leases receivable (134) (7,744)3,948 (13,241)
------- -------
Net cash used in investing activities (1,437) (10,870)1,579 (18,000)
------- -------
CASH FLOWS FROM FINANCING ACTIVITIES:
Net borrowing on working capital revolvers 31,100 49,50045,300 52,200
Borrowing on long-term debt 0 274,699
Repayment of long-term debt (5,375) (86,000)(8,563) (89,375)
Dividends paid 0 (185,345)
Debt prepayment premium 0 (3,369)
Debt issuance costs 0 (9,693)(9,695)
Proceeds from management notes 0 3,800
------- -------
Net cash provided by
financing activities 25,725 43,59236,737 42,915
------- -------
EFFECT OF EXCHANGE RATE FLUCTUATIONS (222) (713)(734) (415)
------- -------
NET DECREASE IN CASH AND CASH EQUIVALENTS (27,052) (44,755)(22,354) (42,639)
CASH AND CASH EQUIVALENTS AT BEGINNING OF PERIOD 31,031 46,253
------- -------
CASH AND CASH EQUIVALENTS AT END OF PERIOD $ 3,9798,677 $ 1,4983,614
======= =======
SUPPLEMENTAL INFORMATION:
Cash interest paid $ 16,55428,102 $ 10,43822,232
======= =======
Cash income taxes paid $ 312456 $ 9,85010,044
======= =======
The accompanying notes are an integral part of these condensed
consolidated 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 YEARFiscal 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 each
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 $3,500,000$3.8 million higher at May 2,August 1, 1998
and approximately $2,900,000$2.9 million higher at November 1, 1997.
The components of inventory consist of the following at May 2,August 1, 1998 and
November 1, 1997 (dollars in thousands):
1998 1997
---- ----
Raw materials $ 37,496 $22,251
Work in process 71,785 26,792
Finished goods 63,378 27,342
------ ------
$172,659 $76,385
======== =======
1998 1997
-------- ---------
Raw materials $ 38,445 $22,251
Work in process 63,488 26,792
Finished goods 78,593 27,342
-------- ---------
$180,526 $76,385
======== =========
3. CONTINGENCIES
PENDING LITIGATION AND INSURANCE PROGRAMPending Litigation and Insurance Program
As of May 2,August 1, 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 existing
Subordinated Notes were repurchased at a premium of $3.4 million.
Debt issuance costs related to the recapitalization were $9.7
million. A nonrecurring recapitalization charge was taken in
November to recognize the $3.4 million premium cost, $1.4 million
of original debt issue costs written off and $16.5 million
General and Administrative expenses related to the distribution
payment to option holders for a total of $21.3 million.
5. REDEEMABLE COMMON STOCK
The Company quarterly records an adjustment to the redeemable
common stock based on an estimated Company valuation net of
outstanding debt in accordance with the formula in the
stockholders' agreement.
5
Item 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
RESULTS OF OPERATIONS
THREE MONTHS ENDED MAY 2, 1998 COMPARED TO THREE MONTHS
ENDED MAY 3, 1997
Net sales for the quarter ended May 2, 1998, were $102.7 million, an increase
of $7.9 million or 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 as well as a higher average selling price per
unit in 1998.
Gross profit increased to $20.2 million in the second quarter of 1998 from
$18.1 million in the second quarter of 1997, an increase of $2.1 million or
11.6% as a result of higher sales volume. Gross margin increased to 19.6%
compared to 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 to $36.4 million in the current period as compared to
$32.6 million in the 1997 period. This was an increase of $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 delivered having a higher
gross margin compared to the prior year.
Selling, general and administrative expenses increased to $22.7 million from
$22.3 million in the 1997 period, an increase of $.4 million or 1.8%. The
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 $17.1 million in the current
period from $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 $.3 million in the current period compared
to $13.2 million in the 1997 period which reflected the tax effects of the
recapitalization. The higher benefit and effective tax rate for 1997 were 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.
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. The 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 six month period of fiscal
1998 was $51.1 million. This amount reflects the customary seasonal increase
in inventory, 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 the beginning of the year and borrowings on the Bankers
Trust revolving line of 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 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
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
RESULTS OF OPERATIONS
THREE MONTHS ENDED AUGUST 1, 1998 COMPARED TO THREE MONTHS ENDED AUGUST 2,
1997
Net sales for the quarter ended August 1, 1998, were $200.6 million compared to
$193.7 million for the corresponding period in 1997. The increase was due to a
higher average selling price per unit in 1998.
Gross profit increased to $35.0 million in the third quarter of 1998 from $33.5
million in the third quarter of 1997, an increase of $1.5 million or 4.5% due
to higher sales volume. The gross margin of 17.4% was in line with the 1997
period gross margin of 17.3%.
Selling, general and administrative expenses increased to $11.9 million from
$11.7 million in the 1997 period, an increase of $.2 million or 1.7%. The
increase was related to increased R&D costs associated with new product
development and introduction.
Interest income increased to $1.7 million from $1.4 million in the 1997 period,
an increase of $.3 million or 21.4%. The increase was due to a larger average
lease portfolio balance in the current year.
The provision for income taxes was $4.8 million in the current period compared
to a provision of $4.9 million in the 1997 period. The decrease in the
provision was due to the lower effective tax rate in the current year period,
reflecting increased tax exempt interest income.
NINE MONTHS ENDED AUGUST 1, 1998 COMPARED TO NINE MONTHS ENDED AUGUST 2,
1997
Net sales for the nine months ended August 1, 1998, were $394.2 million, an
increase of $21.6 million or 5.8% compared to the corresponding period in 1997.
This increase was due to a higher average selling price per unit in 1998.
Gross profit increased to $71.4 million in the current period as compared to
$66.2 million in the 1997 period. This was an increase of $5.2 million or 7.9%
due to higher sales volume and gross margin. The gross margin increased to
18.1% compared to 17.8% in the 1997 period due to the mix of units delivered
having a higher gross margin compared to prior year.
Selling, general and administrative expenses increased to $34.6 million from
$34.1 million in the 1997 period, an increase of $.5 million or 1.5% related to
increased sales activity. Nonrecurring general and administrative charges of
$16.5 million were taken in the prior year at the time of the recapitalization.
6
Interest income increased to $5.3 million from $4.4 million in the 1997 period,
an increase of $.9 million or 20.5%. The increase was due to a larger average
lease portfolio balance compared to 1997.
Interest expense increased to $26.5 million in the current period from $25.5
million in the prior year period due to the increased average debt in the
current period to support the larger lease portfolio.
The provision for income taxes was $4.5 million in the current period compared
to a benefit for income taxes of $8.3 million in the 1997 period. The 1997
period reflected a loss. The higher effective tax rate for 1997 was 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.
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. The Company currently expects to have most of the necessary
revisions and testing to such systems and processes completed by December 31,
1998. 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.
7
Since 1993, the Company has treated the costs associated with modifying
affected systems as on-going software maintenance; accordingly, no separate
budget or historic costs have seen set or maintained. The Company believes
that the remaining costs associated with completion of the internal resolution
of the Year 2000 Problem will not have a material effect on the financial
position, liquidity or results of operations of the Company.
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.
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 nine month period of fiscal
1998 was $59.9 million. This amount reflects the customary seasonal increase
in trade receivables and inventory, partially offset by a related increase in
accounts payable. Scheduled repayments of the term debt during the period used
additional funds of $8.6 million. The Company's principal sources of funds
during this period were cash and cash equivalents on hand at the beginning of
the fiscal year, borrowings on the Bankers Trust revolving line of credit
during the period and funds generated by current operations. One of the
Company's subsidiaries, Blue Bird Capital Corporation, has exercised its
option to extend 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 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.
8
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.
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.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 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 May 2,August 1, 1998.
89
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: June 16,September 15, 1998 Date: June 16,September 15, 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: June 16,September 15, 1998 Date: June 16,September 15, 1998
910