Blue Bird Corporation — FY2017 Form 10-K
Reporting period: Fiscal year ended September 30, 2017 (52 weeks). Although the request references 2017 Q4, this filing reports full-year results, not standalone fourth-quarter financials. Blue Bird designs and manufactures school buses and sells aftermarket parts; its reportable segments are buses and parts.
Financial performance and liquidity
| Metric | FY2017 | FY2016 |
|---|---|---|
| Net sales | $990.6 million | $932.0 million |
| Gross profit / margin | $127.4 million / 12.9% | $129.4 million / 13.9% |
| Operating profit / margin | $54.5 million / 5.5% | $26.6 million / 2.9% |
| Net income | $28.8 million | $6.9 million |
| Diluted EPS | $0.74 | $0.16 |
| Adjusted EBITDA / margin | $68.9 million / 7.0% | $72.2 million / 7.7% |
| Cash from operations | $47.6 million | $25.1 million |
| Capital spending | $9.3 million | $9.6 million |
| Free cash flow (non-GAAP) | $38.6 million | $15.7 million |
Sales rose 6.3%, with bus units booked increasing to 11,317 from 10,616; aftermarket parts sales rose 7.0% to $59.9 million. Gross profit declined as cost of goods sold grew faster than sales, reflecting higher commodity costs and a less favorable bus product/customer mix. Bus average selling price per unit decreased 0.3%, while average cost per unit increased 0.7%.
Operating profit increased substantially largely because FY2016 SG&A included $17.1 million of nonrecurring special compensation and $9.8 million more share-based compensation. FY2017 also included $1.8 million of product redesign costs. Adjusted EBITDA declined 4.5%, and its margin fell 0.7 percentage points, indicating weaker underlying adjusted profitability despite higher sales.
Cash and cash equivalents were $62.6 million at year-end, up from $52.3 million. The company reported $67.3 million of additional revolver availability, after $7.7 million of letters of credit, and said existing cash and expected operating cash flows should cover requirements for at least 12 months. Working capital was approximately $21.7 million. Total debt principal was $154.0 million (carrying value approximately $151.2 million), versus $161.5 million principal a year earlier. The company had a $160 million term loan and $75 million revolving facility, both maturing December 2021; the term loan was secured by substantially all assets. It was in covenant compliance at year-end. Stockholders’ deficit was $58.5 million.
Material changes and notable items
- Interest expense declined to $7.3 million from $16.4 million, following the December 2016 refinancing and lower average borrowings. The refinancing produced a $10.1 million loss on extinguishment, which reduced reported pretax income.
- Net income improved, but includes the effects of lower interest expense, a large year-over-year decline in unusual compensation costs, and the debt-extinguishment charge. Preferred dividends were $4.3 million; the company also recorded a $6.1 million preferred-stock repurchase amount in calculating income available to common shareholders.
- The company repurchased 864,752 common shares during FY2017 for approximately $34.3 million in cash, at an average price of $18.23 per share. It also repurchased preferred stock and warrants in a transaction with the Common/Preferred Investor.
- Backlog at year-end was 1,446 buses valued at $128.7 million, up from 1,193 buses and $102.9 million a year earlier. Backlog may be cancellable and is not a guaranteed purchase commitment.
- The defined-benefit pension plan remained underfunded by $32.4 million, improved from $56.4 million. The company contributed $5.4 million in FY2017 and expected to contribute approximately $5.9 million in FY2018.
Outlook, commentary and risks
Management forecast Type C and Type D school-bus registrations to grow 1%–2% annually from FY2018 through FY2020, citing fleet age, student enrollment and recovery in school-district funding. This is an industry forecast, not company-specific financial guidance. Management planned commercial availability of Type C and Type D electric buses in FY2018 and continued a product-enhancement and cost-reduction program. Electric-bus timing and sales outcomes remain uncertain.
Key risks include dependence on municipal budgets and property-tax receipts; cyclical and seasonal demand; competition and potential price pressure; reliance on single-source suppliers; fixed-price contracts exposed to commodity and labor cost increases; warranty, product-liability and recall exposure; variable-rate debt; and the need to meet leverage covenants. Environmental investigation and potential remediation at the Fort Valley facility remain a contingency: the recorded liability was $0.5 million, while estimated undiscounted expenditures over ten years were approximately $1.0 million; actual costs could exceed estimates. Legal proceedings were described as ordinary-course matters, with management not expecting a material adverse outcome.
Management reported effective disclosure controls and internal control over financial reporting as of September 30, 2017. The external auditor gave an unqualified opinion on the financial statements but was not engaged to opine on internal-control effectiveness. The filing also notes prior-year material weaknesses that management said had been remediated.
Important facts for investors to verify
- Whether bus volume, backlog conversion and school-district funding support the projected industry recovery, and whether backlog orders are retained.
- Whether margins recover from higher material costs and whether cost-reduction and product-redesign initiatives deliver measurable savings.
- Debt balances, variable interest-rate exposure, covenant headroom and the availability of the revolver; a 100-basis-point rate change was estimated to affect annual expense by $1.5 million.
- The adequacy of warranty reserves, pension assumptions and contributions, and environmental remediation estimates for the Fort Valley site.
- Potential dilution and capital allocation from preferred stock, outstanding warrants, equity awards and continued repurchases; the company had no common-stock dividend plan.