2016 ANNUAL REPORT WHAT WE STAND FOR We come to work every day with one common goal—to design, build, sell and service the world’s finest school bus. That’s what we do—no distrac- tions, no competing priorities. We are heirs to a rich legacy, one of listening to our customers, embracing their needs, and delivering innovations that lead the market. We commit ourselves to four driving priorities— safety, quality, durability and serviceability. We embody the interests of every child that rides us, every driver that drives us, every service techni- cian that services us and every district that buys us. More than a business, this work is our heri- tage, and we have been at it since 1927—that’s purpose driven. SCHOOL BUS )3<,)09+»: WINNING CULTURE One Team, One Blue Bird Customer Focused ࠮*VTTVU]PZPVUHUKNVHSZ ࠮,HZ`[VKVI\ZPULZZ^P[O ࠮)S\L)PYKJVTLZMPYZ[ ࠮<UKLYZ[HUKV[OLYZ»ULLKZ ࠮>PUHUKJLSLIYH[L[VNL[OLY ࠮0UMVYTHUKILPUMVYTLK Trust, Respect, Honesty and Integrity ࠮;YHUZWHYLUJ`HUKVWLUULZZ ࠮([[HJR[OLWYVISLTUV[[OLWLYZVU ࠮=HS\LLHJOV[OLYHUKHS^H`ZKV[OLYPNO[[OPUN Obligation and Desire Edge and Tenacity ࠮)\PSKL_JLSSLUJLHUK[HRL ࠮9LSLU[SLZZPTWH[PLU[ V^ULYZOPW J\YPV\ZHUKMVJ\ZLK ࠮:LPaL[OLVWWVY[\UP[` ࠮:[YP]L[VILIL[[LY ࠮+YP]L[V^PU ࠮*VUMPKLU[UL]LYJVJR` cc Fellow SHAREHOLDERS ^HZHUV[OLYL_JP[PUN`LHYVMNYV^[OH[)S\L)PYKHZ^LHJOPL]LKZL]LYHS¸MPYZ[Z¹PUJS\KPUN [OLSH\UJOVMHYLJVYKU\TILYVMPTWVY[HU[UL^HUKL_JS\ZP]LWV^LY[YHPUZHUK[OLHKKP[PVU VMHZLJVUKZOPM[PUV\Y-VY[=HSSL`MHJPSP[`[VTLL[OPNOLYKLTHUK>LTL[V\YMPUHUJPHS VIQLJ[P]LZHUKZH^V\YZOHYLWYPJLNYV^I` PUMPZJHS0^HU[[V[OHURHSSVMV\Y ZOHYLOVSKLYZMVY[OLPYZ\WWVY[K\YPUN[OLWHZ[`LHY:WLJPHS[OHURZNV[V(TLYPJHU:LJ\YP[PLZ ^OV[VVRHTHQVYP[`WVZP[PVUPUV\YJVTWHU`PUI`HJX\PYPUN[OLZOHYLZWYL]PV\ZS`OLSK I`*LYILY\Z*HWP[HS4HUHNLTLU[)S\L)PYKILULMP[[LKNYLH[S`MYVT*LYILY\Z»V^ULYZOPW ZPUJLSH[LHUK^L[OHUR[OLTMVY[OLPYZ\WWVY[HUKZ[L^HYKZOPWV]LY[OL`LHYZ OUR ONE-TEAM FOCUS FINANCIAL HIGHLIGHTS We added 400 associates in fiscal 2016, with employment As measured by new vehicle registrations, the overall peaking at 2,300 in support of a daily capacity of 70 North American school bus market grew by a strong buses, compared with 46 in fiscal 2015. With an average 9% to 32,700 units in fiscal 2016. We built and shipped tenure of almost 14 years, our plant associates are skilled just over 10,600 new buses and grew our North American in bus manufacturing and assembly, which is critical market share from 30% to 31%. Our top-line revenue in meeting the customization needs of the school bus of $932 million and Adjusted EBITDA of $72 million market. Our Blue Bird team is supported in the market were in line with our guidance provided mid-year and by some 900 skilled dealership professionals, many represented solid revenue and profit growth. employed in second and third generation family-owned Our Adjusted Free Cash Flow of $33 million, which dealerships, with unsurpassed school bus knowledge excludes one-time expenses associated with the busi- and expertise. The entire Blue Bird and dealership team ness combination and the change of control, represented operates with one clear goal: To Build, Sell and Service nearly 50% of Adjusted EBITDA and is a strong feature the World’s Finest School Bus. Each year, we host of Blue Bird’s business model. For the second consec- our annual dealer business meeting, which included utive year, we used $25 million of these proceeds to nearly 300 attendees in 2016, as we set our joint priori- voluntarily pay down our existing debt. In December ties for the new school year. We were joined by our guest 2016, we announced the refinancing of our term loan speaker, Executive Chairman of Ford Motor Company, and revolving credit facility—lowering our interest rate Bill Ford, who spoke of the special and exclusive by about 4 points and saving over $4 million in interest relationship between our companies and the out- expense in the coming year. This was a terrific job by look for the automotive market. We thank Bill for a rous- our finance and legal teams, and a great endorsement ing discussion! of our business model by our new lenders, led by BMO. In 2016, we launched an unprecedented four all-new powertrains, comprised of three new engines and a PRODUCT LEADERSHIP new transmission—first-to-market and/or exclusive We strive to be the product leader by being first-to- in most cases. On the alternative-fuel front, we again market with new, exciting and affordable products that grew our customer base and increased our leadership provide customers with real and measurable value. position in alternative-fuel powered buses, led by our In 2016, we added to our alternative-fuel portfolio with class-leading propane-powered bus. I am very proud our all-new gasoline- and CNG-powered Type C bus of our team’s performance in 2016 and we are well offerings. These new products utilize the same positioned for future growth. One Team, One Focus, proven, modern and efficient engine and trans- One Blue Bird! mission used in our propane-powered bus and are exclusive to us, through our partnership with Ford and ROUSH CleanTech. The flexibility to run propane-, gasoline- and CNG-powered school buses in a fleet, || 10,600 54% 52% Units sold by Blue Bird Growth in alternative-fuel Increase in daily capacity in FY2016 powered bus sales capability the growing alternative-fuel space, led on strong business fundamentals— Alternative-Fuel by our propane-powered bus which which we characterize simply as Powered Bus Sales holds a 75% share of this segment. “Build a Better Bus”—we are Gasoline Blue Bird is also committed to pro- confident of continued profitable CNG growth in the years ahead! Propane 2,753 viding diesel customers with the best choices possible. In 2016, we In conclusion, I would like to take 2,186 introduced the new, more affordable this opportunity to thank all of our and efficient Cummins V8 diesel customers, employees, dealers, 1,793 and Eaton transmission. These suppliers and shareholders for their 1,605 great new products are in addition continued support as we celebrate to the traditional Cummins diesel 90 years in business. engines and Alison transmissions 627 that have been the standard in the school bus industry for many years. We value our strong relationships with Cummins, Alison and Eaton 2012 2013 2014 2015 2016 and delight in providing our cus- Phil Horlock tomers with the widest array of President and product choice in the market. Chief Executive Officer utilizing the same Ford V10 engine, OUTLOOK provides lower complexity, simpler Since fiscal 2011, we have grown service requirements and peace of sales revenue and profitability each mind for technicians. year, and are looking forward to another strong year in fiscal 2017. Our alternative-fuel powered With the widest range of product bus sales grew by a substantial offerings in the business, continued 54% in 2016, representing 26% of leadership in alternative-fuel pow- all buses sold by Blue Bird. We are ered buses and our resolute focus proud to be the undisputed leader in “I am very proud of our team’s performance in 2016 and we are well positioned for future growth. One Team, One Focus, One Blue Bird!” || 2016 OVERVIEW Sold Over 10,600 Buses Launched Four All-New Powertrains Added Second Shift; Increased Daily Production Capacity by 52% Re-Entered the Commercial Bus Market Achieved 31% Market Share; Up 1 point Grew Propane Bus Sales by 33% Delivered Over 400 Gasoline Buses in September Canyon State Bus Sales Named “Dealer of the Year” || Safely Transporting OUR FUTURE :[\KLU[ZHYL :JOVVSI\ZLZRLLW HULZ[PTH[LK 50x Safer YPKPUNHZJOVVSI\Z 17.3 Million [OHUYPKPUNPUHJHY JHYZVMMVM[OLYVHK [VZJOVVS LHJOKH` ,HJOKH`TVYL[OHUZJOVVSI\ZLZ[YHUZWVY[TPSSPVUZJOVVSJOPSKYLU [VHUKMYVTZJOVVS([)S\L)PYK^L\UKLYZ[HUK[OLTHZZP]LYLZWVUZPIPSP[`VM [OPZ[HZR·VUHKHPS`IHZPZ^LHSVUN^P[O[OLI\ZVWLYH[VYHYLYLZWVUZPISLMVY [OL safety of our future generations. >P[O\UWHYHSSLSLKZHML[`HS^H`ZH[[OLMVYLMYVU[VMKLZPNU[OLHWWSPJH[PVUVM [OLZJOVVSI\ZOHZJOHUNLKZPNUPMPJHU[S`V]LY[PTL·ILNPUUPUNHZH^H`MVY JOPSKYLUPUY\YHSHYLHZ[V[YH]LS[VZJOVVS[OLUHZHIYVHK^H`[VLUHISL LX\HSHJJLZZ[VLK\JH[PVUHUKUV^HZHZVS\[PVU[VYVHKJVUNLZ[PVUHUK NYLLU[YHUZWVY[H[PVU More Than the Standard for Safety: The Beginning Simple Mode of Transportation for Students in Rural America Social Imperative Equal and Reliable Access to Education for All Children Environmental Responsibility Ease Road Congestion and Reduce Pollution cc Building a BETTER BUS >LILSPL]LZ[YVUNS`PUILPUNMPYZ[[VTHYRL[^P[OUL^HUKKPMMLYLU[PH[PUN WYVK\J[Z[OH[J\Z[VTLYZ^HU[HUK]HS\LHUK^OLYLWVZZPISLHYLL_JS\ZP]L [V)S\L)PYK0U^LHYLL_JP[LK[VOH]LSH\UJOLK[OYLLHSSUL^LUNPULZPU V\Y)S\L)PYK;`WL*=PZPVUI\ZHUK^LHYL the only school bus manufacturer to offer these engines. Our exclusive gasoline-powered Blue Bird “Fuel economy has exceeded expec- Vision bus • Blue Bird is the only manufacturer to offer a tations and we are already seeing a Type C gasoline-powered school bus reduction in service, maintenance • Lower acquisition cost than other fuel types • Simple to maintain and service and parts costs. In recent below- • Strong cold-weather starting capability freezing conditions, our gasoline • Easy fueling infrastructure • Utilizes Ford’s modern 6.8L V10 gasoline engine buses started first time. The gasoline Our exclusive CNG-powered Type C bus is truly a win-win for us and our Blue Bird Vision bus drivers love them! ” • Lower acquisition cost than Type D CNG- powered school bus • Lower fuel and maintenance costs than diesel • Environmentally friendly • Utilizes Ford’s modern 6.8L V10 engine Our first-to-market Cummins ISV diesel- powered