Blue Bird's Business Segments

The Company was incorporated in Delaware on September 24, 2013. On February 24, 2015 (the “Closing Date”), the Company consummated the previously announced business combination (the “Business Combination”), pursuant to which the Company acquired all of the outstanding capital stock of School Bus Holdings Inc. (“School Bus Holdings” or “SBH”) from The Traxis Group, B.V. (the “Seller”), in accordance with the purchase agreement, dated as of September 21, 2014, by and among the Company, the Seller and, solely for purposes of Section 10.01(a) thereof, Hennessy Capital Partners I LLC (the “HCAC Sponsor”), as amended on February 10, 2015 and February 18, 2015 (as so amended, the “Purchase Agreement”). Pursuant to the Purchase Agreement, the total purchase price was paid in a combination of cash in the amount of $100 million and in shares of the Company’s common stock, $0.0001 par value (the “Common Stock”) (12,000,000 shares valued at a total of $120 million).

In connection with the closing of the Business Combination, the Company changed its name from Hennessy Capital Acquisition Corp. to Blue Bird Corporation. Unless expressly stated otherwise in this Report, Blue Bird Corporation shall be referred to as “Blue Bird” or the “Company,” and includes its consolidated subsidiaries.

We are the leading independent designer and manufacturer of school buses, with more than 550,000 buses sold since our formation in 1927 and approximately 180,000 buses in operation today.

We review and present our business in two reportable segments (“segments”) - Buses and Aftermarket Parts. Financial information is reported on the basis that it is used internally by the chief operating decision maker in evaluating segment performance and deciding how to allocate resources to segments. Our Chief Executive Officer has been identified as the chief operating decision maker. Our management evaluates the segments based primarily upon revenues and gross profit. See Note 12 to the Company’s consolidated financial statements for additional financial information regarding our reportable segments including primary geographic areas in which we earn revenues.

Our performance in recent years has been driven by the implementation of repeatable processes focused on product initiatives, continuous improvement of competitiveness and manufacturing flexibility, and new market initiatives, as described below:

Product initiatives include the introduction of the second generation propane-powered powertrain through an exclusive relationship with Ford and Roush CleanTech, and the introduction of differentiating features such as Blue Bird’s new E-Z window design, telematics ("Blue Bird Connect"), electronic stability control and re-designed luggage boxes.

Increased cost competitiveness driven by the consolidation of assembly operations from two plants into one, increasing production at the Fort Valley assembly plant, increasing overall capacity, the reduction of the number of bus architectures and the implementation of long-term supply contracts (addressing both component price and supply) covering a substantial portion of the value of Blue Bird’s purchases from suppliers, including long-term agreements with its major single-source suppliers.

New sales and marketing initiatives include an account planning process to drive annual sales with our dealers, a data driven market plan for the replacement of under-performing dealers, an expansion of export markets and the introduction of a comprehensive electronic parts catalog across a broad number of service points.

School buses are typically powered by diesel engines. However, in 2007, Blue Bird introduced the first OEM-installed, propane-powered Type C school bus. Propane is currently the fastest growing powertrain offering in the school bus market. Blue Bird was, until recently, the only manufacturer of propane-powered Type C buses for school districts. Our management believes that the growth of the propane share of total school bus sales will accelerate further with the entrance of our two principal competitors (Thomas Built Bus and IC Bus) into this market. Although propane-powered school buses require some dedicated infrastructure and are somewhat more expensive on a per unit basis than diesel, they are significantly less expensive to operate. Over the lifetime of a school bus, the fuel and maintenance cost savings from the use of propane-powered engines can be substantial. In addition, propane-powered buses are aligned with the increased national focus on green technologies and improving the environment as they generate significantly less emissions than diesel buses. Further, domestically sourced propane gas reduces dependence on foreign sources of oil. Blue Bird is also a leading manufacturer of school buses fueled by CNG. In the school bus industry, CNG is a niche product that is attractive to customers in certain markets that contain an existing refueling infrastructure. CNG requires significantly higher upfront refueling infrastructure investment and higher acquisition cost compared with propane. CNG-powered buses are typically only sold in states that offer significant grants for clean fuel solutions, such as California.

As a result of the concentration of Blue Bird’s sales in the school bus industry in the United States and Canada, our operations are affected by national, state and local economic and political factors that impact spending for public and, to a lesser extent, private education. However, unlike the discretionary portion of school budgets, the offering of school bus services is typically viewed as a mandatory part of the public infrastructure across most of the United States and Canada, ensuring that funding for new school buses receives some level of priority in all economic climates.

The school bus industry is currently in recovery, supported by positive demographic trends. Our management believes, based on our industry forecast model developed using R.L. Polk school bus registration data and considering population changes of school age children, that Type C and Type D school bus registrations are expected to grow to a projected level of approximately 31,000 units in 2016. Our management believes that there will be a continued recovery for the school bus industry. We believe that (i) the industry has been operating below its historical long-term average of approximately 30,550 unit sales per year since the recession, (ii) there are approximately 150,000 buses in the United States & Canada fleet that have been in service for 15 or more years, and (iii) the population of school age children is growing in several key states that are significant users of school buses.

Local property and municipal tax receipts are key drivers of school district transportation budgets. Budgets for school bus purchases are directly related to property tax receipts, which are projected to continue a recovery that began in 2012. According to one organization - CoreLogic, Haver Analytics and Macroeconomic Advisers - United States housing prices have increased 8.0% annually since 2011 and are projected to continue to rise through 2023. The forecasted continued appreciation in housing prices is expected to have a positive effect on property tax receipts going forward and school transportation budgets are expected to directly benefit from increasing municipal spending budgets. We believe that incremental demand may be achieved as a result of (i) the average age of a school bus in service (approximately 12 years), and (ii) an increased student population during the period from 2013 to 2018 (based on information from the National Center of Education Studies, we expect total student enrollment in the United States to increase by approximately 2 million students from 2015-2020).

Blue Bird Corporation is a well-established manufacturer known primarily for its production of school buses, catering predominantly to the North American market. The company, founded in 1927 and headquartered in Fort Valley, Georgia, has built a strong reputation for quality and innovation in the transportation sector. Below is an extensive outline of Blue Birds segments, products, and services, along with insights into its international operations.

Segments

1. School Buses
- Conventional Buses: The companys cornerstone offering, conventional school buses are designed with efficiency, safety, and comfort in mind. Typically built on a chassis with a front-engine layout, these buses are available in various sizes, accommodating different passenger capacities.
- Type A Buses: These are smaller buses built on a cutaway van chassis. Type A buses cater to smaller school districts or specialized student transportation needs, offering flexibility and ease of use.
- Type C Buses: One of the most popular formats, Type C buses feature a flat-front design. Widely used across North America, they are available in various configurations to meet specific district requirements and can accommodate larger student populations.
- Type D Buses: Characterized by a rear-engine layout, these buses offer enhanced maneuverability and are often favored in urban settings. They provide heavy-duty performance and are suited for transport in various environments.

2. Propulsion Systems
- Diesel Engines: Blue Bird predominantly uses diesel engines for its conventional buses, known for their reliability and efficiency in terms of performance and fuel economy.
- Alternative Fuels: In alignment with growing environmental concerns, Blue Bird has invested in buses powered by propane, compressed natural gas (CNG), and electric drivetrains. These alternative fuel options help reduce emissions and meet increasingly stringent governmental regulations regarding air quality.

3. Electric Buses
- As an emergent segment, Blue Birds electric buses represent a significant advancement in sustainable transportation. They are designed to minimize environmental impact while providing cost-effective operations over their lifecycle. The company has launched various models to meet the demand for zero-emission buses, making strides in electrifying the school bus market.

4. Parts and Service
- Blue Bird offers extensive aftermarket support, including spare parts and maintenance services. This segment ensures that school districts can rely on Blue Bird for the availability of necessary components and technical assistance, thus extending the lifespan of their fleet.

Services

- Fleet Management Solutions: Blue Bird provides tools and software solutions to help school districts manage their fleet operations efficiently. These services can include route optimization, vehicle tracking, maintenance scheduling, and compliance monitoring.

- Training Programs: The company conducts training for school bus drivers and maintenance personnel, focusing on safety, operational efficiency, and emergency preparedness. By empowering staff with knowledge, Blue Bird enhances overall safety and operational effectiveness in student transportation.

- Customization Options: Understanding that each school districts needs are unique, Blue Bird provides a range of customization options. This can involve adaptations to seating configurations, safety features, and technological integrations—ensuring buses meet specific operational needs and local regulations.

International Operations

While Blue Birds primary focus is on the North American school bus market, it has explored international opportunities as well. The companys presence outside the United States has been limited but includes segments in Canada and potential outreach to other regions as demand for safe, reliable student transportation increases globally.

1. Export Markets: Blue Bird has engaged in exporting buses to various countries where school systems seek to upgrade their fleets. This has included collaboration with international distributors and localized supply chain partnerships to enhance service delivery.

2. Compliant and Adaptable Products: In entering international markets, Blue Bird ensures that its buses comply with local regulations regarding safety, emissions, and operational protocols. This adaptability allows the company to compete effectively with local manufacturers.

3. Sustainability Focus: As international markets lean toward greener initiatives, Blue Birds sustainable product offerings, specifically in electric and alternative fuel buses, align well with the global trend towards clean energy solutions in transportation.

4. Partnerships: Collaborations with educational institutions and governmental agencies abroad have been explored to enhance the understanding and use of school transport solutions, potentially expanding Blue Birds influence and market share internationally.

In summary, Blue Bird Corporation is a key player in the school bus manufacturing industry, showcasing a diverse product range tailored to meet both domestic and evolving international demands. With a commitment to innovation, sustainability, and support services, the company continues to solidify its position as a leader in safe and efficient student transportation solutions.