Blue Bird Corporation — FY2019 Form 10-K
Business context and reporting period. Blue Bird designs and manufactures school buses and sells replacement parts through two segments, Bus and Parts. This annual report covers the 52-week fiscal year ended September 28, 2019; fourth-quarter figures are unaudited. The company describes itself as the leading independent school-bus manufacturer and a leader in alternative-fuel buses.
Key financial results
| Metric | FY2019 | FY2018 |
|---|---|---|
| Net sales | $1,018.9 million | $1,025.0 million |
| Gross profit / margin | $133.5 million / 13.1% | $122.0 million / 11.9% |
| Operating profit / margin | $43.8 million / 4.3% | $35.1 million / 3.4% |
| Net income | $24.3 million | $30.8 million |
| Diluted EPS | $0.90 | $1.08 |
| Adjusted EBITDA / margin | $81.8 million / 8.0% | $70.4 million / 6.9% |
| Cash from operating activities | $55.7 million | $48.4 million |
| Free cash flow | $20.2 million | $16.2 million |
Gross margin improved as cost of goods sold fell to 86.9% of sales from 88.1%. Adjusted EBITDA is a non-GAAP measure; the company’s reconciliation includes substantial add-backs for operational transformation and product redesign initiatives.
- Q4: Net sales were $343.5 million versus $331.6 million in Q4 FY2018; operating profit was $18.2 million versus $20.0 million; net income was $11.6 million versus $14.9 million.
- Segments: Bus revenue decreased 1.1% to $952.2 million, while Parts revenue increased 7.1% to $66.6 million. Bus gross profit rose to $110.0 million from $100.0 million; Parts gross profit rose to $23.5 million from $22.0 million.
- Volumes and mix: Bus units booked declined to 11,017 from 11,649, while average net selling price per unit rose 4.6%. Alternative-fuel bus sales were 5,343 units, up 20.7%; alternative-fuel bus revenue increased to $426.5 million from $344.0 million.
Liquidity, debt and balance sheet
- Cash and cash equivalents were $71.0 million at year-end, up from $60.3 million. An additional $93.1 million was available under the revolving credit facility; no revolver borrowings were outstanding.
- Term-loan principal was $186.3 million; the balance-sheet carrying amount, net of financing costs, was $183.1 million. The stated rate was 4.4%, and the weighted-average effective rate was 5.0%. Debt matures in 2023, with $151.6 million of principal scheduled for that year.
- Current assets were $172.1 million and current liabilities $169.7 million. Total assets were $365.4 million; total liabilities were $433.2 million, and stockholders’ deficit was $67.8 million.
- Capital spending on fixed and intangible assets was $35.5 million, primarily reflecting investment in the new paint facility. Management said existing cash and expected operating cash flows should cover operating requirements for at least 12 months.
Changes, outlook and notable items
- Sales slipped 0.6% as lower bus bookings were partly offset by higher pricing and stronger Parts sales. Commodity costs and tariffs raised average bus cost of goods sold per unit 3.2%, partly offset by operational savings.
- Operating profit increased 25.0%, supported by higher gross profit, but SG&A rose $2.7 million, largely due to product-development initiatives and share-based compensation. Interest expense nearly doubled to $12.9 million, reflecting higher borrowing levels, a higher effective rate, and interest-rate collar valuation changes.
- Net income declined despite improved operating profit, in part because FY2019 recorded $7.6 million of tax expense versus a $2.6 million tax benefit in FY2018. FY2018 included significant one-time tax benefits.
- Operating cash flow improved, while inventory increased $21.5 million and was a use of cash. The defined-benefit pension deficit increased to $45.5 million from $21.0 million, principally reflecting actuarial assumption changes, including a lower discount rate; FY2019 included $17.7 million of after-tax pension-related other comprehensive loss. The plan is frozen.
- In October 2018, the company borrowed $50.0 million and used the proceeds principally for a tender offer costing approximately $50.4 million, including fees, to repurchase common and preferred shares. All remaining preferred shares were converted into common stock in November 2018.
- Management expected near-term Type C and Type D industry registrations to remain around recent levels, citing fleet replacement needs, school-age population growth, and school-bus funding opportunities. This is qualitative commentary, not quantified company guidance; the filing provides no specific FY2020 revenue or earnings guidance.
- Principal risks include dependence on municipal and property-tax budgets, seasonality and cyclical demand, single-source suppliers, fixed-price contracts exposed to commodity costs and tariffs, product warranty and liability exposure, pension funding, variable-rate debt and covenant requirements, and potential environmental obligations at the Fort Valley facility. The company reported $0.4 million of recorded environmental liability and estimated $0.8 million of undiscounted future costs; actual expenditures could be higher.
- The annual report received unqualified audit opinions, and management and the auditor concluded internal control over financial reporting was effective at year-end.
Key facts for investors to verify
- Whether lower unit bookings and flat-to-lower Bus sales persist, and whether higher pricing can continue to offset input-cost inflation.
- Whether the paint-facility investment and operational initiatives deliver expected capacity, productivity, and cost savings.
- Debt service and covenant headroom, refinancing exposure around the 2023 maturity, and sensitivity to interest rates despite the collar.
- Pension assumptions, future required contributions, and the effect of discount-rate and asset-return changes on the reported deficit.
- Warranty claims, product-liability matters, and the scope and cost of any environmental corrective action at Fort Valley.
- Cash conversion and inventory levels, given seasonal working-capital swings and the year’s significant inventory build.