Blue Bird Corp, et al. – ‘10-K405’ for 11/1/97

As of:  Friday, 1/30/98   ·   For:  11/1/97   ·   Accession #:  1047469-98-2606   ·   File #s:  33-49544, -01

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Annual Report — [x] Reg. S-K Item 405   —   Form 10-K
Filing Table of Contents

Document/Exhibit                   Description                      Pages   Size 

 1: 10-K405     Annual Report -- [x] Reg. S-K Item 405                67    284K 
 2: EX-12.1     Statement re: Computation of Ratios                    1      8K 
 3: EX-27       Financial Data Schedule (Pre-XBRL)                     2      6K 

10-K405   —   Annual Report — [x] Reg. S-K Item 405
Document Table of Contents

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SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549  

FORM 10-K 

  JOINT ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF
    THE SECURITIES AND EXCHANGE ACT OF 1934 (FEE REQUIRED)
  For the fiscal year ended November 1, 1997

                                                        [Enlarge/Download Table]
                                                                                          
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 offices    (Address of principal executive offices      
          including ZIP code)                         including ZIP code)                 

             (912) 757-7100                               (912) 757-7100                  
------------------------------------------  ----------------------------------------------
       (Registrant's telephone                       (Registrant's telephone              
      number, including area code)                number, including area code)            


Securities registered pursuant to Section 12(b) of the Act:             

                                                                [Download Table]
                                                                  
     None                                            None         
---------------                                  ---------------  
(Title of class)                                  (Title of class)


Securities registered pursuant to Section 12(g) of the Act:             

                                                                [Download Table]

                                                                  
     None                                            None         
---------------                                  ---------------  
(Title of class)                                  (Title of class)


 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__                    

  Indicate by check mark if disclosure of delinquent filers pursuant to Item
405 of Regulation S-K is not contained herein, and will not be contained, to the
best of registrants' knowledge, in definitive proxy or information statements   
incorporated by reference in Part III of this Form 10-K or any amendment to this
Form 10-K. /x/                                                                  

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All of the voting stock of the registrants is held by affiliates. All   
officers, directors and more than 5% stockholders of the registrants are        
deemed "affiliates" of the registrants for the purpose of determining the       
foregoing. The registrants, however, do not represent that such persons, or     
any of them, would be deemed "affiliates" of the registrants for any other      
purpose under the Securities Exchange Act of 1934 or the Securities Act of      
1933.                                                                           

 As of January 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 is a wholly-owned subsidiary of Blue Bird        
Corporation. Blue Bird Body Company meets the conditions set forth in General   
Instruction I(1)(a) and (b) of Form 10-K and is therefore filing certain        
portions of this Form 10-K applicable to it with the reduced disclosure         
format.                                                                         

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PART I

ITEM 1. BUSINESS.                                                               

GENERAL                                                                         

Blue Bird Body Company ("Blue Bird" or the "Company"), a wholly-owned   
subsidiary of Blue Bird Corporation ("BBC"), is the leading manufacturer of     
school buses in North America. Approximately 78% of the Company's net sales     
in fiscal 1997 were derived from sales of school bus products. The Company      
also manufactures the Q-Bus and Commercial Shuttle ("CS"), which target         
purchasers of medium-sized buses for commercial uses, and two luxury            
recreational vehicle ("RV") models, the Wanderlodge and the Blue Bird Motor     
Coach ("BMC"). Commercial and recreational vehicles accounted for               
approximately 17% and 5%, respectively, of the Company's fiscal 1997 net        
sales. The Company manufactures both quality steel bus bodies for mounting on   
chassis manufactured by third parties and complete bus units (body and          
chassis). Chassis generally consist of frames with engines, transmissions,      
drive trains, axles, wheels, power steering, brakes and fuel cells. The         
Company markets its products primarily through a network of approximately 60    
independent distributors, which resell the products to customers, including     
municipalities, states, transportation contracting companies, churches and      
other independent organizations. Through its special purpose lease financing    
subsidiary, Blue Bird Capital Corporation ("Blue Bird Capital"), the Company    
provides lease financing alternatives, principally to tax-exempt customers of   
its school bus products. Management believes that providing a variety of        
alternative leasing packages to its customers creates a significant             
competitive advantage for the Company. For the year ended November 1, 1997,     
the Company had $576.1 million in net sales and $54.5 million in earnings       
before interest, taxes, depreciation and amortization.                          

 Purchasers of school buses are categorized into two ownership groups: (i)
public (consisting of states and school districts); and (ii) private            
(consisting of independent transportation contracting companies and other       
private entities). In the United States, approximately 75% of the estimated     
444,000 school buses currently in operation are publicly owned, with the        
remainder being privately owned. Management estimates that deliveries of        
school buses in North America in fiscal 1997 totaled approximately 33,400       
units. This estimate is based in part on information in industry trade          
publications as well as information gathered by the Company's distributors      
based on reviews of public school bus bid documentation. In addition,           
management estimates that in fiscal 1997, 3,500 units was the total market      
demand for the types of school bus and commercial bus products that the         
Company manufactures and sells to countries outside of North America. In        
fiscal 1997, the Company sold approximately 13,800 school bus units and         
estimates that it had approximately 41% market share.                           

The Company's business strategy is to continue to utilize its leading   
market position in the school bus market as a platform from which to expand     
its product offerings. The Company will continue to focus on its core school    
bus business, while seeking to expand its commercial bus product offerings to   
various markets, including the shuttle bus market, the smaller urban bus        
market and the "line haul" or inter-city coach market. Within the school bus    
market, the Company will continue to emphasize sales to distributors, as        
opposed to states and large transportation contracting companies, reflecting    
its belief that the former market provides greater growth and profit            
opportunities. The Company will also seek to expand its international bus       
sales, particularly in developing countries.                                    

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The Company's principal executive offices are located at 3920 Arkwright 
Road, Macon, Georgia 31210. The Company is organized under the laws of the      
state of Georgia and BBC is organized under the laws of the state of Delaware.  

INDUSTRY OVERVIEW                                                               

SCHOOL BUSES. The two principal components of a school bus are the body 
and chassis. Bodies and chassis are sold either as integrated units, provided   
by a single supplier, or separately, in which case end-users purchase bodies    
and chassis from different suppliers and have the two components assembled by   
the bus body manufacturer. Approximately 48% of the Company's school bus        
sales in 1997, on a unit basis, were of integrated units. The ability to        
provide integrated units enables manufacturers to submit bids on completed      
school bus units to school bus end-users. The Company believes that             
integrated sales permit school bus body manufacturers to offer end-users a      
lower cost complete school bus while increasing their share of the profits      
realized on any sale of a unit. Many end-users, particularly those that         
participate in a state bid process for school bus purchases, however, may       
prefer to purchase the body and chassis separately.                             

 School bus purchasing is typically a centralized process involving orders
of multiple units. Purchasers of school buses are categorized into two          
ownership groups: public (i.e., states and school districts); and private       
(i.e., independent transportation contracting companies and other private       
entities). It has been management's experience that the transportation          
director of a state or school district, or the chief procurement officer of a   
transportation contracting company, as the case may be, will typically          
determine transportation needs on an annual basis. In addition to replacement   
requirements based on changes in safety standards and incremental needs due     
to pupil population growth, factors which influence the need to purchase        
school buses include the age of the existing school bus fleet, changes in       
school bus travel routes, regulatory changes such as compliance with new        
emissions standards, extracurricular activity usage and changes in the          
education structure in the United States such as the development of preschool   
"head start" programs, special education programs and magnet schools. In the    
case of public purchasers, the transportation director may also be affected     
by certain budgetary constraints, and will consider the availability of         
financing in making the purchasing decision.                                    

Once the decision relating to the purchase of replacement or new school 
buses is finalized, the transportation director or the chief procurement        
officer will decide on the type and brand of product to be purchased. Product   
performance, manufacturer reputation, the manufacturer's ability to             
accommodate specifications regarding bus design, relationships with             
distributors, price, the availability of financing alternatives (e.g.,          
leasing options), fleet standardization and post-sale support and service are   
all key factors influencing the decision to purchase a particular product.      
While price is an important factor, it is not the sole determinant of the       
purchase decision, and the lowest bid is not necessarily awarded the            
contract. As a result, manufacturer and distributor relationships are           
critical to the sale of school bus products.                                    

 Florida, Kentucky, North Carolina, South Carolina and West Virginia award
contracts for school buses based on a state bid process, with the state         
generally serving as the aggregate purchaser on behalf of all of its school     
Fdistricts. State officials compile the total number of buses their districts   
require and then solicit bids from bus body and chassis manufacturers. This     
process is much more competitive and price sensitive than the local bidding     
process, and manufacturers generally must be the low bidder to win the          
contract. Bus body and chassis manufacturers typically                          

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bid these purchases on a direct basis, rather than through distributors, and    
view these contracts as low margin, incremental volume. The Company estimates   
that approximately 11% of annual U.S. public school bus purchases are awarded   
through these bids.                                                             

In the United States, approximately 75% of the estimated 444,000 school 
buses currently in operation are publicly owned, with the remainder privately   
owned. The Company estimates that approximately 50% of the privately owned      
school buses in operation in the U.S. are owned by the five largest national    
contractors. These contracting companies are fleet buyers and, therefore,       
pricing in this segment of the market is highly competitive. In addition to     
these large national transportation contractors, local contracting companies    
are also classified as private purchasers of school buses. As is the case       
with individual school districts, these smaller institutions typically          
purchase buses through distributors.                                            

Management estimates that deliveries of school buses in North America in
fiscal 1997 totaled approximately 33,400 units. In addition, management         
estimates that the market demand for school bus and commercial products that    
the Company manufactures and sells to countries outside of North America        
totaled approximately 3,500 units in fiscal 1997.                               

COMMERCIAL VEHICLES.  Management divides the commercial bus             
transportation market into three segments, consisting of (i) public             
transportation, (ii) shuttle transportation and (iii) tour, charter and         
commuter uses. The public transportation sector consists of several vehicle     
markets, including vans, medium-duty buses under 35 feet in length,             
heavy-duty buses up to 40 feet, articulated buses up to 60 feet, and            
inter-city coaches designed to transport passengers from suburbs to cities.     
The shuttle market is broader with users such as airports, car rental           
agencies, "park-and-ride" operators, hotels, educational and religious          
institutions, and providers of employee and health care-related                 
transportation. The tour, charter and commuter segment of the market            
typically requires large over-the-road coaches ranging from 40 feet to 45       
feet in length.                                                                 

The Company's participation in the broad commercial bus market is       
limited, as the Company produces only medium-sized commercial buses as well     
as shuttle products. See "--Products." Medium-sized buses are purchased by      
public transportation authorities and by tour, charter and commuter operators   
to supplement a fleet of large vehicles or to facilitate smaller scale          
charter and contract transportation needs. Management believes that rural and   
urban public transit authorities are beginning to reevaluate their              
traditional preference, especially in urban areas, for fleets consisting        
primarily of large buses. Management further believes a trend is developing     
toward purchases of the medium-sized buses similar to those built by the        
Company, in part because medium-sized buses are more economical and easier to   
operate. The Company believes it is well positioned to benefit from this        
trend. The shuttle market is served by a variety of products which include a    
variety of vans, "cutaway" vans (a fiberglass body on a van chassis), small     
and medium-sized coaches and some hybrid van and bus products. Management       
believes that the shuttle segment will grow as airports grow larger and move    
further away from cities and the number of elderly citizens requiring shuttle   
transportation increases.                                                       

   RECREATIONAL VEHICLES.  The Company participates in the luxury niche of the
recreational motor home vehicle market. This segment of the market is small,    
relatively stable, and consists of a limited number of competitors. Although    
this segment of the market is profitable for the Company, it is not expected to 
grow significantly. Management estimates that in a given year, the market       
demand is approximately 400 luxury motor home products similar to those         
manufactured by the Company                                                     

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sold in the United States and believes that in order for the Company to         
increase sales, it will need to increase its market share relative to its       
competitors.                                                                    

PRODUCT LIABILITY CLAIMS AND INSURANCE COVERAGE                                 

The Company is subject to various product liability claims for personal 
injuries and other matters allegedly relating to the use of products            
manufactured or sold by it. The Company is also subject to recalls of its bus   
products from customers to cure manufacturing defects or in the event of a      
failure to comply with applicable regulatory standards. During 1997, the        
National Highway Traffic Safety Administration (the "NHTSA") tested a Blue      
Bird Type D (as herein defined) model which failed crash tests when fuel        
tanks were punctured upon impact. The Company is evaluating with the NHTSA      
the scope of a proposed product recall as a result of the NHTSA's               
noncompliance determination. If a product recall is issued, management          
estimates that the cost of repairs required to be paid by the Company to        
bring the vehicle into compliance will not be material. Manufacturing defects   
or the failure to comply with applicable regulatory standards can serve as      
the basis for a variety of claims from customers of the Company and bus         
passengers who use the Company's products.                                      

Management considers product liability litigation to be in the ordinary 
course of its business. The ultimate outcome of the claims, or potential        
future claims, against it cannot presently be determined and the amount of      
the Company's product liability insurance coverage with respect to such         
claims varies from year to year. While the Company believes that any losses     
and expenses (including defense costs) resulting from such claims will not be   
material to the Company's financial position or results of operations, there    
can be no assurance that this will be true or that the amount of losses and     
expenses relating to any claim or claims will not have a material adverse       
effect on the Company. While the Company expects to continue to be able to      
obtain adequate insurance coverage at acceptable rates, there can be no         
certainty that such coverage will ultimately be available to the Company at     
acceptable rates or at all, that future rate increases might not make such      
insurance uneconomical for the Company to maintain, that current levels of      
deductibles will continue to be available, or that the Company's insurers will  
be financially viable if and when payment of a claim is required. The inability 
of the Company to obtain adequate insurance coverage at acceptable rates is     
likely to have a material adverse effect on the Company. In addition, the       
running of statutes of limitations for personal injuries to minor children      
typically is suspended during the children's legal minority. Therefore, it is   
possible that accidents causing injuries to minor children on school buses may  
not give rise to lawsuits until a number of years later. See "--Legal           
Proceedings."                                                                   

For a discussion of other contingent liabilities, including potential   
environmental liabilities, see "-- Environmental Matters" and note 11 to the    
Notes to Audited Consolidated Financial Statements included elsewhere in this   
Report.                                                                         

GOVERNMENTAL REGULATION                                                         

    The Company's products must satisfy certain standards applicable to vehicles
established by the NHTSA. Certain of its products must also satisfy             
specifications established by other federal, state and local regulatory         
agencies, primarily dealing with safety standards applicable to school buses.   
The cost of compliance with existing regulations results in an incremental cost 
of doing business to the Company and the cost of compliance with future         
regulations cannot be predicted                                                 

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with any degree of certainty and may significantly affect the Company's         
operations. Further, a substantial change in any such regulation could have a   
significant impact on the business of the Company. In addition, the scheduled   
effectiveness in 1998 of more restrictive United States Environmental           
Protection Agency ("EPA") emissions standards may impact upon the Company's     
operations. See "--Product Liability Claims and Insurance Coverage."            

    School bus manufacturers must conform to vehicle guidelines set forth in the
Federal Motor Vehicle Safety Standards ("FMVSS"), as well as to state and local 
specifications. FMVSS regulations have in the past directly affected            
manufacturers of school bus bodies and chassis, as well as end-users, by        
altering specifications and, as a result, increasing costs.                     

 With respect to environmental regulation, the most immediate issue facing
the school bus industry will be the effectiveness in 1998 of more restrictive   
EPA emissions standards. These regulations will mandate certain engine          
changes and result in increased costs to both manufacturers and end-users of    
school buses. Blue Bird management believes that the general public will        
continue to mandate improved safety standards and ongoing resolution of         
environmental issues beyond 1998, and thereby will generate continuing demand   
for new school bus models over the long term. See "--Legal Proceedings" for a   
discussion of a recall of certain of the Company's products.                    

LIMITED NUMBER OF CHASSIS SUPPLIERS                                             

In general, buses consist of a body mounted on a chassis, which includes
the bus engine. A substantial portion of the units sold by the Company are      
Type C (as defined herein) buses for which the Company does not manufacture a   
chassis. The Company offers an "integrated" Type C bus by purchasing a          
chassis pursuant to the GM Chassis Agreement (as defined herein) and            
assembling it with the Company's Type C bus body. In addition, the Company      
sells Type C bus bodies for assembly on non-GM chassis. Because of the          
importance of the Type C bus to the Company, obtaining an adequate supply of    
chassis could thus become critical to the Company's ability to compete in the   
school bus market.                                                              

There are only three major chassis manufacturers in the United States:  
General Motors Corporation ("GM"), Freightliner Custom Chassis Corp.            
("Freightliner") and Navistar International Corporation ("Navistar").           
Navistar, which accounts for approximately 60% of the chassis market, owns      
AmTran of Illinois, Inc. ("AmTran"), a bus manufacturer that is one of the      
Company's major competitors. Since its acquisition of AmTran, Navistar has      
continued to make its chassis available to AmTran's competitors as well as to   
school districts and other purchasers who wish to combine Navistar chassis      
with other bus bodies, such as those made by the Company. There can be no       
assurance that Navistar will continue to make its chassis available to          
purchasers other than AmTran.                                                   

    On May 6, 1991, the Company entered into a chassis supply agreement (the "GM
Chassis Agreement") with GM to secure a steady supply of chassis. This agreement
may be terminated by GM or by the Company upon two years' notice to the other   
party. There can be no assurance that GM will not terminate the GM Chassis      
Agreement. If the GM Chassis Agreement were to be terminated or if, for any     
reason, GM were to (i) cease manufacturing chassis or (ii) cease selling them to
the Company and/or school districts and other customers who combine GM chassis  
with Blue Bird bodies, there also can be no assurances that (i) Blue Bird would 
be able to purchase sufficient quantities of chassis from Navistar and the      
remaining suppliers to fill orders or (ii) school                               

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districts or other customers would continue to order bodies from Blue Bird if   
such customers cannot be assured of being able to obtain chassis. If the        
Company were required to manufacture more chassis for its own use, it would     
likely materially effect its future results of operations and, potentially,     
its profitability.                                                              

PRODUCTS                                                                        

SCHOOL BUS PRODUCTS                                                     

GENERAL.  Blue Bird produces a full range of school bus models and it is
the largest manufacturer of both conventional and transit school bus bodies     
in the industry. In addition, Blue Bird sells complete Type D buses by          
integrating its Type D bodies with chassis manufactured by the Company.         

In 1997 Blue Bird derived approximately 17% of its net sales from the   
sale of its various school bus body models and 56% of its net sales from the    
sale of its integrated school buses. For classification purposes, the school    
bus industry has categorized these different models into the following four     
general product designations:                                                   

Type A. A "Type A" school bus is a conversion of a van or a body        
constructed on a van-type compact truck chassis, with a gross vehicle weight    
("GVW") rating of 10,000 pounds or less, designed to carry up to 21             
passengers. The engine is located in front of the windshield and the entrance   
door is located behind the front wheels. The Company offers one model in this   
category, the Micro-Bird, which can be ordered in several configurations. The   
Company does not manufacture chassis for the Micro-Bird. Chassis are            
purchased by the customer and delivered to the Company, which in turn           
installs the bus body. Wholesale selling prices for Type A vehicle bus bodies   
typically range from approximately $10,500 to $16,000.                          

Type B. A "Type B" school bus is a body constructed and installed on a  
van-type or stripped chassis, with a GVW rating of more than 10,000 pounds,     
designed to carry up to 38 passengers. Part of the engine is located beneath    
and/or behind the windshield and next to the driver's seat and the entrance     
door on a Type B bus is located behind the front wheels. The Company offers     
one model in this category, the Mini-Bird, which can be ordered in several      
configurations. The Company does not manufacture a Type B chassis. Chassis      
are purchased by the customer and delivered to the Company, which in turn       
installs the bus body. Wholesale selling prices for Type B vehicle bus bodies   
typically range from approximately $13,000 to $22,000.                          

Type C. "Type C" school buses are the Company's largest-selling product,
accounting for more than half of the vehicles sold by Blue Bird in 1997. The    
Type C bus, which is a "traditional" full-size school bus, is a body installed  
on a flat back "cowl" chassis, with a GVW rating of more than 10,000 pounds,    
designed to carry up to 77 passengers. The engine is located in front of the    
windshield and the entrance door is located behind the front wheels. The Company
offers two models in this category, the Conventional and an integrated unit sold
with a GM chassis, each of which can be ordered in several configurations.      
Wholesale selling prices for Type C vehicle bus bodies typically range from     
approximately $12,500 to $25,000, while prices for integrated products range    
from approximately $42,000 to $55,000.                                          

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Type D. "Type D" school buses accounted for approximately 20% of the    
vehicles sold by the Company in 1997. A Type D school bus is a transit-type     
(flat front) body installed on a chassis, with a GVW rating of more than        
10,000 pounds, designed to carry up to 90 passengers. Type D buses are sold     
only on an integrated basis with a chassis manufactured by the Company. The     
engine is located behind the windshield and may be mounted next to the          
driver's seat, at the rear of the bus, or midship between the front and rear    
axles. The entrance door on a Type D bus is located ahead of the front          
wheels. The Company's models in this category include the TC/2000 and the All   
American, each of which can be ordered in several configurations. Wholesale     
selling prices for Type D vehicle buses (including chassis) typically range     
from approximately $45,000 to $95,000.                                          

COMMERCIAL VEHICLE PRODUCTS                                                     

Q-Bus. The "Q-Bus," a 37 foot long coach introduced in 1992, enables the
Company to compete in the medium-duty tour, charter and commuter markets. The   
unit offers bus operators a medium-duty bus with many of the "big bus"          
features, including seating capacities for up to 45 passengers, restroom,       
audio and visual systems, luggage capacity of up to 240 cubic feet and engine   
options up to 300 horsepower. In 1996 the Company introduced a larger version   
of the Q-Bus with seating capacity for up to 47 passengers, additional          
luggage capacity and a 400-horsepower diesel engine. This unit is designed to   
compete with more expensive over-the-road coaches such as those used by         
operators to carry commuters from suburban locations to urban work offices.     
Management believes the Company's medium-sized bus products to be a viable      
alternative to larger vehicles for a variety of reasons, including the fact     
that the medium-sized buses offer lower operating costs and flexibility in      
terms of matching bus size to passenger load demands. Wholesale selling         
prices for the Q-Bus typically range from approximately $113,000 to $210,000.   

 CS.  The CS series coach is designed primarily for the shuttle market. It
is offered in ten models ranging from 24 feet to 39 feet in length. In 1995,    
to address a growing market segment for the airport to city/hotels commutes,    
the Company introduced a CS coach known as the EZLoader. The EZLoader is        
designed with a low-floor rear-end luggage compartment to allow the operator    
fast and easy access for luggage handling. The unit seats up to 30              
passengers. In 1996, to meet the growing "demand response" market in the        
public transportation sector, in which riders such as disabled and elderly      
persons call a shuttle service for door-to-door pick-up and drop-off services   
(such as from home to the hospital), the Company introduced the TranShuttle     
CS, a 25-foot coach with a flat floor for multiple wheelchair accessibility.    
This product has been designed to compete with the lightweight bus and          
cutaway van while providing greater durability than is typical of those         
products. Wholesale selling prices for CS series coaches typically range from   
approximately $51,000 to $89,000.                                               

MODIFIED SCHOOL BUS PRODUCTS.  The Company has taken advantage of its   
high volume purchases for school bus components, and its rapid assembly-line    
efficiencies, to produce and market an adaptation of the Type C and Type D      
school bus in commercial form. The bus, known as the "Activity Bus," offers     
basic "no-frills" transportation for commuter, shuttle, churches, colleges,     
and universities. The product offers basic paint schemes, diesel and natural    
gas engine options, and very functional interiors for passenger comfort.        
Wholesale selling prices for the Activity Bus typically range from              
approximately $12,000 for non-integrated products to $85,000 for integrated     
products.                                                                       

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WORK STATION Q AND QMC.  The Company's Work Station Q unit and the QMC  
are designed to service the executive and corporate transport markets, and      
can include features such as luxury seating, a small galley, and a restroom.    
Both products are designed to carry a limited number of passengers in comfort   
and style. Wholesale selling prices for the Work Station Q and the QMC          
typically range from approximately $150,000 to $250,000.                        

RECREATIONAL VEHICLE PRODUCTS                                                   

 GENERAL. The Company manufactures complete motor homes by integrating the
motor home shell with Blue Bird-manufactured chassis. The Company offers two    
luxury motor home products, both of which are targeted for the premium and      
mid- to high-end markets.                                                       

 WANDERLODGE.  The Wanderlodge is a premium motor home manufactured by the
Company. The Wanderlodge is available in two models, 41 and 43 feet in          
length, with a capacity of up to six passengers and sleeping accommodations     
for four. Key features of the unit include (i) the ultra-premium design of      
the product, (ii) steel body construction and a body-on-chassis design, (iii)   
a wide selection of optional equipment available to the purchaser, and (iv)     
the extensive product support capability provided by Blue Bird's two RV         
distributors. During fiscal year 1997, 69% of recreational vehicles delivered   
by the Company were Wanderlodge units. Suggested retail prices for the          
Wanderlodge range from approximately $550,000 to $650,000.                      

BLUE BIRD MOTOR COACH.  The BMC is offered as a 37- or 40-foot long     
motorcoach designed to meet product demand for the expanding                    
middle-to-high-end segment of the luxury recreational vehicle market. Like      
the Wanderlodge, it features steel body construction and a body-on-chassis      
design. During fiscal year 1997, 31% of RVs delivered by the Company were BMC   
units. The BMC has a suggested retail price ranging from approximately          
$350,000 to $465,000.                                                           

SERVICE PARTS                                                                   

All of Blue Bird's distributors maintain parts inventories to service   
owners of Blue Bird products. Many of such distributors purchase parts from     
Blue Bird's Service Parts Group (the "Parts Group"). In addition to these       
sales to distributors, the Parts Group sells parts to fleet accounts on a       
direct basis. These direct sales accounts include the U.S. General Services     
Administration (the "GSA"), the national transportation contracting companies   
and other accounts in southern Georgia, South Carolina and Kentucky. The        
Company currently operates an 80,000-square foot facility in Fort Valley,       
Georgia to house the Parts Group.                                               

MARKETING AND DISTRIBUTION                                                      

The Company sells its bus products through distributors (89% of 1997 net
sales) and directly to end-users (11% of 1997 net sales). During 1997, no       
customer accounted for as much as 10% of Blue Bird's net sales. Direct sales    
customers include states, transportation contracting companies, the GSA and     
all export buyers. All other sales are made through the Company's               
distributors. Direct sales typically involve bids for large contracts, which    
are highly competitive. Accordingly, direct sales margins are typically lower   
than distributor sales margins.                                                 

Blue Bird has approximately 60 independent distributors in the U.S. and 
Canada, including RV distributors. One of the Company's 26 commercial bus       
distributors also distributes the                                               

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Company's school bus products. The Company's two RV distributors together       
have five locations. One of these distributors, Buddy Gregg Motor Homes,        
Inc., accounts for approximately 70% of the Company's RV unit volume.           

Many of Blue Bird's school bus distributors have close and longstanding 
relationships with transportation directors of states and school districts.     
The Company believes that its distributors are well situated to understand      
the needs and specifications of local school districts. In 1997, no single      
distributor accounted for more than 7% of the Company's sales of school bus     
products.                                                                       

Blue Bird distributors are bound by the terms of a distributor contract,
pursuant to which distributors are granted a non-exclusive right to sell the    
Company's buses and service parts in a designated territory. Distributors are   
restricted from selling other products which compete with Blue Bird's           
products. The Company's distributor contract also requires distributors to      
service Blue Bird products. Sales to distributors are on a cash-at-delivery     
basis. Sales by distributors to end-users, such as school boards, are also      
usually on a cash-at-delivery basis.                                            

Blue Bird's sales organization services all of its distributors and     
direct sales customers. Ten regional sales managers work exclusively with       
distributors in their respective regions and are responsible for coordinating   
sales and marketing campaigns, pricing policies, strategic market planning      
and related functions. These regional sales managers regularly visit            
distributors in order to disseminate product knowledge, supply marketing        
advice and serve as direct distributor support. The regional managers often     
accompany distributors' salespeople to meetings with prospective purchasers.    
The Company sponsors an annual international sales meeting to bring all of      
its distributors together, and regional sales meetings are also conducted       
annually to focus on regional strategic planning, advertising and other         
issues. Additionally, Blue Bird management meets with a Dealer Advisory         
Council on a regular basis to discuss strategic product and market issues,      
and to assist in the Company's long-term planning process.                      

The Company's advertisements are run in national and regional trade     
journals for the transportation and education industries. Representatives of    
the Company attend national and regional product conventions as well as         
conventions for educational trade groups such as the National School Board      
Association, the National Association of Pupil Transportation and the           
National School Transportation Association. Blue Bird also utilizes its         
network of independent distributors to promote its products and disseminate     
product literature. Distributors attend these conventions at the state level    
and are usually accompanied by a representative of the Company.                 

LEASING                                                                         

    The Company has provided lease financing to school bus customers since 1984,
principally through its leasing division, Blue Bird Credit ("Blue Bird Credit").
On October 26, 1995, the Company formed a wholly-owned subsidiary, Blue Bird    
Capital, for the purpose of expanding the availability of lease financing       
alternatives to customers of its school bus products. Blue Bird Capital has     
since become the Company's principal provider of leasing alternatives focusing  
on tax-exempt lessees. Generally, upon receipt of orders for municipal lease    
customers, the Company provides buses to be delivered by Blue Bird Capital to   
the appropriate distributor, who in turn delivers the buses to municipal        
customers pursuant to leases. Upon receipt of lease documents, Blue Bird Capital
borrows approximately 90% of the lease amount pursuant to the LaSalle Credit    
Facility (herein defined) in order to pay the Company. Under the typical Blue   
Bird Capital lease with a tax                                                   

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exempt lessee, title is held by the lessee with a lien held by Blue Bird        
Capital. The average lease term is approximately three years and the lessee's   
down payment is typically 10% of the lease amount. The Company accounts for     
the lease as a sale and the related borrowings as long-term debt. Under the     
LaSalle Credit Facility, Blue Bird Capital is required to maintain certain      
financial ratios, including a ratio of Total Liabilities to Tangible Net        
Worth, that cannot exceed 10 to 1. Blue Bird Capital pays the Company as        
promptly as possible and generally does not carry unsold inventory. Leases      
held by Blue Bird Capital are generally tax-exempt and accrue interest at       
rates ranging from 5.06% to 8.00%. The Company and Blue Bird Capital have       
entered into an Income Taxes Agreement whereby the Company reimburses Blue      
Bird Capital for the tax benefit generated by the tax free leases.              

MANUFACTURING PROCESS                                                           

The production of Blue Bird's extensive line of bus models involves     
various assembly processes. The bus body assembly process begins with the       
assembly of floor panels on a carriage that will carry the body assembly        
along the production line. Roof bows, internal and external metal panels are    
riveted in place and front and rear sections are added prior to painting.       
Windows, seats, flooring and other finishing items are added prior to           
attaching the bus body to the chassis. Each Blue Bird chassis is manufactured   
for a specific body, and a copy of the production order travels through the     
production process with the chassis. All of the chassis built by Blue Bird      
are for use with a Type D bus body. Some of these transit-type buses require    
the engine to be mounted in the front of the chassis, and others specify        
mounting in the rear. All Blue Bird chassis are tested to check the gauges,     
speedometer, fluid systems and electrical connections for the bus body          
components.                                                                     

 The construction of both bodies and chassis must conform to various state
and federal regulations. The most significant and comprehensive of these        
regulations is set forth in the FMVSS, which apply to all school buses built    
during and after 1977. The FMVSS specify requirements for a variety of          
vehicle components including controls and displays, automatic transmission,     
defrost/defog systems, windshield wipers, braking systems, reflectors and       
lights, mirrors, vehicle identification numbers, tires and wheels,              
accelerator controls, warning devices, occupant protection systems, steering    
systems, glazing materials, seats, windshields and windows, rollover            
protection, body joints and fuel systems. See "--Governmental Regulation."      

INTERNATIONAL                                                                   

  Other than maintaining a manufacturing facility in Canada, which accounted
for sales of approximately 1,040 buses to Canadian customers in 1997            
(approximately $32.7 million in net sales), and a facility in Monterrey, Mexico,
the Company's operations are based in the United States. The Company exported   
approximately 530 bus products in 1997, primarily to developing countries. Since
foreign purchases of Blue Bird buses are typically non-school-related, the      
Company is unable to rely on the perceived strengths and marketability of its   
traditional school bus products. However, the Company believes that there are   
opportunities to grow its export business, particularly in developing countries,
as these countries begin to demand additional basic transportation products. In 
general, the Company plans to increase its focus on the export segment of its   
businesses by developing modified school bus and commercial products which meet 
the specifications of purchasers in the Middle East, Africa, Europe, Mexico and 
Central and South America.                                                      

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In Mexico, the easing of import restrictions on new trucks and buses in 
connection with the North American Free Trade Agreement may present a           
significant opportunity for Blue Bird to expand its export business in that     
region; however, Blue Bird's ability to expand its business in Mexico depends   
largely on the stability of Mexico's economy. The opening of this marketplace   
could generate opportunities in other Latin American countries as well as       
enhance the reputation of Blue Bird's products throughout the region. Blue      
Bird's Mexican plant currently is used primarily to produce vehicles which      
are imported into the United States, but could be used in the future to         
service Latin American markets.                                                 

The Q-Bus and CS bus may also provide opportunities overseas,           
particularly in Western Europe where conventional North American school bus     
bodies and chassis are not marketable. In Eastern Europe, the Company's         
current product line may be salable as the region becomes accessible to         
exporters. In addition, the Company has developed a prototype right-hand        
drive chassis which will be used with the Q-Bus body as a product for           
selected Western European and African countries. Deliveries to these regions    
were minimal during 1997.                                                       

NEW PRODUCT DEVELOPMENT                                                         

Blue Bird's research and development program studies bus sales trends to
identify potential growth opportunities for the business and designs products   
to exploit these growth opportunities. This process includes evaluating         
potential new materials and components for use in existing products as well     
as developing new product designs, especially for the Company's commercial      
and RV product lines. Developmental projects are currently underway for         
expanded product offerings in the commercial market. Blue Bird's                
manufacturing processes incorporate sufficient production flexibility to        
enable Blue Bird to produce new designs with minimum lead time. Research and    
development costs for 1997 were $.7 million.                                    

COMPETITION                                                                     

 SCHOOL BUS MARKET. Four major school bus manufacturers, Blue Bird, Thomas
Built Buses, Inc. ("Thomas"), and CBW, Inc., which are privately owned          
companies, and AmTran, which was acquired by Navistar in the fourth quarter     
of 1995, account for substantially all dollar sales of school buses. All of     
these companies manufacture bus bodies which are mounted on a chassis           
supplied by GM, Freightliner and Navistar, although GM has agreed to supply     
chassis for Type C bus bodies exclusively to Blue Bird pursuant to the GM       
Chassis Agreement. See "--Raw Materials and Components." The Company and        
Thomas, which together accounted for approximately two-thirds of aggregate      
domestic school bus sales in 1997, manufacture chassis as well as bodies for    
certain of their bus models. Competition in the industry is intense, as all     
four manufacturers typically compete for each significant contract that comes   
up for bid.                                                                     

 The three major school bus chassis manufacturers are GM, Freightliner and
Navistar. Of these, Navistar is the leading manufacturer, accounting for        
approximately 60% of sales in 1997. The Company does not believe the            
Navistar's recent acquisition of AmTran will have a material impact on the      
Company's business. In the conventional chassis market, Navistar currently      
continues to make its chassis available to all bus body manufacturers. See      
"--Limited Number of Chassis Suppliers."                                        

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Since Blue Bird does not manufacture discrete chassis units for sale to 
third-party purchasers, the Company does not directly compete with other        
chassis manufacturers. However, the Company has experienced indirect            
competition with some of these manufacturers, particularly Navistar, in the     
integrated bidding process.                                                     

COMMERCIAL MARKET.  The Company has different competitors in each of the
major commercial market segments. In the medium-duty tour, charter, and         
commuter market, the Company's principal competitors include Eldorado           
National, a business of Thor Industries, Inc. ("Eldorado"), and Metrotrans      
Corporation ("Metrotrans"). Its competitors in the shuttle market are           
Champion Motor Coach, Inc. ("Champion"), Eldorado, Goshen Coach, Metrotrans,    
Supreme Corporation and Thomas. In the urban and rural transit market, the      
Company's principal competitors are Eldorado, Champion and Thomas.              

RV MARKET.  In the motor home market, the Company considers its         
competition to be those companies building high-end motor homes on              
over-the-road coaches such as those produced by Prevost Car, Inc., Motor        
Coach Industries, Inc., Marathon Coach, Inc., Liberty Coach, Inc., Vantare      
International, Inc., Country Coach, Inc., Mitchell Coach Mfg. Co., and Custom   
Coach Corp. An additional competitor, Newell Coach, Inc., is the only           
high-end manufacturer that builds on its own chassis and body similar to the    
Wanderlodge. There are several other small competitors who periodically enter   
and exit the market. Although the BMC has a steel body construction like the    
Wanderlodge, it also competes with motor home products made by Monaco Coach,    
Inc., Beaver Motor Coach, Inc., Country Coach, Inc., American Eagle by          
Fleetwood Enterprises, Inc., and Foretravel, Inc.                               

RAW MATERIALS AND COMPONENTS                                                    

The largest production-related expense incurred by the Company is the   
cost of purchased materials. In fiscal year 1997, material purchases            
represented approximately 71% of total production costs. The Company            
purchases raw materials and components from over 2,500 suppliers. Other than    
GM, the Company's principal chassis supplier, no one supplier accounts for      
more than 10% of the Company's aggregate expenditures on raw materials and/or   
components. Since Blue Bird does not manufacture engines and does not           
manufacture chassis for its Type A, Type B and Type C bus products, the cost    
of engines, purchased chassis and components for Company-manufactured chassis   
constitute the largest components of the Company's material expense.            

Because Type A and Type B bus purchasers obtain their chassis separately
and look to the Company only for a bus body, chassis supply is relevant for     
these product lines only to the extent that it may impact the number of Type    
A and Type B bus bodies ultimately sold. The Company manufactures all of its    
Type D chassis, with the result that chassis components constitute a major      
portion of Type D production costs.                                             

The three major school bus Type C chassis manufacturers are GM,         
Freightliner and Navistar. Navistar is the industry leader with a market        
share estimated by market researchers of in excess of 60% in 1997. In late      
1990, management of Blue Bird was concerned about the possibility that Ford     
and GM might decide to discontinue supplying Type C chassis, resulting in a     
situation in which Navistar might become the sole supplier of these Type C      
chassis and thus be in a position to exert increased influence over school      
bus manufacturers. Type C school buses represent approximately                  

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63% of the total units sold by the Company. In addition, a trend toward         
integrated bidding (body and chassis) among school bus purchasers caused Blue   
Bird to consider establishing a formal relationship with a Type C chassis       
supplier to enhance the Company's competitive position in the Type C bus        
segment of the market. Blue Bird and GM entered into the GM Chassis Agreement   
in May 1991. The agreement can be terminated by either party on two years'      
notice. As of the date of this Report neither party has given notice of         
termination. In general, management does not believe that termination of the    
GM Chassis Agreement would have a material adverse effect upon the Company's    
operations, because management believes that chassis would be available from    
other suppliers. However, there can be no assurance that, given the limited     
number of chassis suppliers, the Company will not be materially adversely       
affected in its manufacturing efforts. See "--Limited Number of Chassis         
Suppliers."                                                                     

Under the terms of the GM Chassis Agreement, GM supplies its medium-duty
chassis for Type C school buses to Blue Bird on an exclusive basis, and Blue    
Bird purchases the Type C chassis model exclusively from GM. Nothing in the     
GM Chassis Agreement precludes the Company from mounting its bus bodies on      
other makes of chassis if the chassis are purchased by Blue Bird's customers    
or distributors. In addition, the Company is not required to purchase a         
minimum number of chassis from GM under the GM Chassis Agreement. The Company   
believes that offering an integrated Type C product permits the Company to      
offer a competitively priced product while allowing it to realize a profit on   
the sale of the chassis, thereby increasing the total amount of profit that     
the Company realizes on the sale of each unit. The Company's distributors and   
GM's 750 medium-duty truck dealers participate in servicing the end user        
after the initial sale. This enhanced network provides the Blue Bird/GM         
product with broad post-sale servicing and support.                             

BACKLOG ORDERS                                                                  

As of November 1, 1997, the dollar amount of backlog orders believed by 
the Company to be firm totaled approximately $314 million. It is expected       
that all such orders will be filled during fiscal year 1998.                    

PATENTS, LICENSES AND TRADEMARKS                                                

The Company owns and maintains registrations for the Blue Bird trademark
and variations thereof in 49 countries, including the United States and         
Canada and monitors the status of its trademark registrations to maintain       
them in force and to renew them as required. Management believes that the       
Blue Bird trademarks are valuable because of the Company's strong presence in   
the bus market. Accordingly, the Company seeks to eliminate any infringement    
thereon. The Company is not currently aware of any such infringement. In        
addition, the Company has obtained patent protection in the United States on    
two safety-related components used in its buses. One component is related to    
an auxiliary heat system (which patent protection will expire in 2009) and      
the second component is related to a window opening mechanism (which patent     
protection will expire in 2010). The expiration of the patent protection of     
these two components is not expected to have a material adverse effect on the   
Company's financial condition or result of operations. The Company also takes   
steps, including legal action, to protect its patent, trademark and trade       
name rights and proprietary rights respecting product design and technology     
when circumstances warrant such action.                                         

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SEASONALITY                                                                     

The Company's sales show seasonal variation which is typical of the     
general industry seasonality. A majority of the Company's sales occur in the    
third and fourth quarters of the fiscal year, a pattern typical for the         
industry. For additional data on the seasonal nature of the Company's sales,    
see "Management's Discussion and Analysis of Financial Condition and Results    
of Operations--Liquidity and Capital Resources."                                

EMPLOYEES                                                                       

As of January 1, 1998, the Company had approximately 2,636 employees, of
whom approximately 2,170 were hourly workers. Blue Bird's U.S. and Canadian     
employees are not represented by any collective bargaining group. Blue Bird's   
Mexican employees are required by local law to be members of a union. The       
Company historically provided a competitive wage and benefit program and has    
an active communications program with its employees. Blue Bird has a            
four-day, 10-hour-per-day work week, which management believes is viewed as a   
positive feature by its labor force. The Company believes that its              
relationship with its employees is satisfactory.                                

ENVIRONMENTAL MATTERS                                                           

The Company's operations and properties are subject to numerous federal,
state, local and international laws and regulations, including those            
governing the use, storage, handling, transportation, generation, treatment,    
emission, release, discharge and disposal of certain materials, substances      
and wastes (collectively, "Hazardous Materials"), the remediation of            
contaminated soil and groundwater, and the health and safety of employees       
(collectively, "Environmental Laws"). Violation of such Environmental Laws,     
even if inadvertent, could have an adverse impact on the operations, business   
or financial results of the Company. As such, the nature of the Company's       
operations exposes it to the risk of claims with respect to such matters and    
there can be no assurance that material costs or liabilities will not be        
incurred in connection with such claims.                                        

The Company maintains an inactive landfill site at its Fort Valley,     
Georgia, location which is subject to regulation pursuant to the U.S.           
Resource Conservation and Recovery Act, as amended ("RCRA"). RCRA is            
administered in Georgia by the Environmental Protection Division of the         
Georgia Department of Natural Resources ("EPD"). The Company has closed its     
Fort Valley landfill site pursuant to a permit from the EPD that contains       
certain conditions, including 30-year post-closure groundwater monitoring. In   
connection with such permit, the Company maintains a letter of credit to        
cover the expected cost of monitoring over the life of the monitoring           
requirement. The Company currently estimates post-closure costs for the site    
at $456,000. The Company's estimate of post-closure costs is subject to         
periodic adjustment based on EPD regulations.                                   

Monitoring by the Company has detected increased levels of solvents in  
groundwater near its Fort Valley site, and the Company has so advised the       
EPD. Continued monitoring and testing is required to ascertain the source of    
these solvents. If it is determined that the Company's landfill is the source   
of such solvents, corrective action will be required. The Company believes      
that the cost of any corrective action that might be required will not be       
material to its results of operations or financial condition.                   

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The Company has discovered petroleum contamination on a portion of its  
Fort Valley facility leased to the Fort Valley Utilities Commission (the        
"Utilities Commission"). The contamination apparently originated from           
underground storage tanks operated by the Utilities Commission in connection    
with an electrical generating facility. The Utilities Commission has reported   
the contamination to EPD and is financing site investigation and cleanup.       

 The Comprehensive Environmental Response, Compensation, and Liability Act
of 1980, as amended ("CERCLA"), and similar state laws provide for responses    
to and strict liability for releases of certain Hazardous Materials into the    
environment. These obligations are imposed on certain potentially responsible   
parties ("PRPs"), including any person who arranged for the treatment or        
disposal of Hazardous Materials at a facility. Generally, liability to the      
government under CERCLA is joint and several. The Company has been named a      
PRP at the Des Moines barrel and drum site in Des Moines, Iowa and the          
Seaboard chemical site in Jamestown, North Carolina. In both instances, the     
Company is considered a DE MINIMIS PRP. In 1993, the Company settled its        
liability for cleanup costs at the Des Moines barrel and drum site for          
$5,250. The settlement contains a re-opener provision in the event future       
cleanup costs are required, but the Company is not aware of any anticipated     
cleanup costs in addition to those covered in the settlement agreement. In      
1995, the Company executed an administrative Order on Consent among the North   
Carolina Department of Environment, Health and Natural Resources, the           
Seaboard PRP Group II, and the City of High Point, North Carolina, covering     
the investigation of cleanup alternatives at the Seaboard chemical site. The    
Company anticipates that it will have the opportunity to enter into a DE        
MINIMIS buy-out relating to cleanup costs within the next two years, which      
buyout is expected to provide a release from any further liability in           
connection with the Seaboard site. Although the cost of such buyout is not      
currently known, it is not expected to be material.                             

Based upon its experience to date, the Company believes that the future 
cost of compliance with existing Environmental Laws, and liability for known    
environmental claims pursuant to such Environmental Laws, will not have a       
material effect on the Company's capital expenditures, earnings or              
competitive position. However, future events, such as new information,          
changes in existing Environmental Laws or their interpretation, and more        
vigorous enforcement policies of regulatory agencies, may give rise to          
additional expenditures or liabilities that could be material.                  

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ITEM 2. PROPERTIES.                                                             

    Blue Bird owns and operates seven facilities, six of which are manufacturing
facilities, in five different locations in the U.S., Canada and Mexico. In the  
aggregate, these plants have approximately 1.8 million square feet of production
area. Blue Bird management considers all of these facilities to be              
state-of-the-art in the school bus manufacturing industry. All of these         
facilities are subject to liens in favor of Bankers Trust Company, as agent for 
itself and other lenders, pursuant to the terms and provisions of the New       
Credit Agreement. See "--Liquidity and Capital Resources."                      

The table below provides summary descriptions of each of the plants.    

                                                        [Enlarge/Download Table]

                                                                                              Square               
Plant                                    Location                       Products               Feet      Empl.(a)  
-----------------------------  -----------------------------  ----------------------------  ----------  -----------
                                                                                                                   
Blue Bird Body Company         Fort Valley, Georgia           TC/2000, Q-Bus, CS,                                  
                                                              All-American, parts                                  
                                                              fabrication                      730,000       1,354 
Service Parts                  Fort Valley, Georgia           Parts                             80,000      N.A.(b)
Wanderlodge                    Fort Valley, Georgia           Wanderlodge, BMC, parts                              
                                                              fabrication                      216,000         260 
Blue Bird North Georgia        LaFayette, Georgia             Conventional, TC/2000            216,000         289 
Blue Bird Midwest              Mt. Pleasant, Iowa             Conventional, Mini-Bird,                             
                                                              TC/2000, Micro-Bird              227,400         291 
Blue Bird Canada               Brantford, ON (Canada)         TC/2000, Conventional,                               
                                                              Micro-Bird, parts                                    
                                                              fabrication                      251,395         319 
Blue Bird de Mexico            Monterrey, Mexico              Conventional                     118,310         123 
                                                                                             ---------       ----- 
Total Company                                                                                1,839,105       2,636 


------------------------                                                        

(a) As of January 1, 1998.                                                      

(b) Included in the number of employees for Blue Bird facility in Fort Valley,  
Georgia.                                                                

If Blue Bird operated all of its assembly plants at "maximum capacity," 
defined as two eight-hour shifts per day, five days per week, 250 days per year,
the Company could manufacture approximately 27,300 units per year. The Company's
capacity to fabricate all of the parts needed to build the buses is a constraint
as the Company's present fabrication facilities have the capacity to support the
production of approximately 25,000 units per year. With an investment of        
approximately $2.5 million in additional equipment, Blue Bird's fabrication     
capacity could support approximately 28,500 units per year.                     

ITEM 3. LEGAL PROCEEDINGS.                                                      

Blue Bird currently is a defendant in approximately 17 product liability
suits. The Company aggressively defends product liability cases and insists that
component manufacturers and chassis manufacturers such as GM and Navistar and   
smaller parts suppliers stand behind their portions of the product by either    
asserting a breach of warranty claim against such supplier or manufacturer,     

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or claiming a right of indemnification for such supplier or manufacturer        
pursuant to the terms of the Company's standard purchase order agreements or    
the relevant supplier agreement. The Company manufactures certain components    
itself and assembles the various components into the completed vehicle, which   
may give rise to independent liabilities. Moreover, the Company's manufacture   
of chassis for its Type D school buses may expose the Company to liability      
associated with such chassis. The amount of product liability insurance that    
the Company has in place has varied significantly from year to year. The        
Company's policies generally provide that the Company is responsible for the    
costs of defending product liability claims, although Blue Bird's recent        
insurance plan has included some participation by insurers in such costs at     
certain levels.                                                                 

   As of the date of this Report, neither the outcome of the Company's pending
product liability cases nor the amounts of any company liabilities related to   
these cases are known. The Company's insurance coverage for occurrences in each 
of the past several years has been $25 million in excess of a $2.5 million      
deductible (exclusive of excess liability coverage). There is no certainty that 
the currently available coverage will remain available to the Company in the    
future or at all, that future rate increases might not make such insurance      
economically impractical for the Company to maintain, that current deductible   
levels will be maintained, or that the Company's insurers will be financially   
viable if and when payment of a claim is required.                              

In addition, the statute of limitations for injuries to minor children  
(which varies between one and six years, depending on the state) does not       
generally begin to run until the child reaches majority; therefore, there may be
potential claims of which Blue Bird is not aware (or accidents of which Blue    
Bird was aware, but which did not produce any lawsuit) involving accidents going
back for a number of years. In the ordinary course of events, Blue Bird believes
that it receives notice of most potential claims within a reasonable time of the
occurrence, but there can be no assurance that Blue Bird is aware of all such   
potential claims.                                                               

Management believes that, considering, among other things, the Company's
insurance coverage, the ultimate resolution of these matters will not have a    
material adverse impact on the Company's financial position or results of       
operations, and that any losses and expenses (including defense costs) resulting
from product liability claims will be within the applicable insurance coverage. 
However, there can be no assurance that this will be true or that the amount of 
losses and expenses relating to any claim or claims will not have a material    
adverse effect on the Company.                                                  

  Several owners of motor homes made by Blue Bird have asserted claims under
state laws addressing new vehicle defects. Such claims typically seek a refund  
of the purchase price of the vehicle. Management believes that the resolution of
such claims, which are not insured, will not have a material effect on the      
Company.                                                                        

  Blue Bird, like other vehicle manufacturers, is also subject to recalls of
its products in the event of manufacturing defects or non-compliance with       
applicable regulatory standards. Such recalls can engender claims. During 1997, 
the NHTSA tested a Blue Bird Type D (as herein defined) model which failed crash
tests when fuel tanks were punctured upon impact. The Company is evaluating with
the NHTSA the scope of a proposed product recall as a result of the NHTSA's     
noncompliance determination. If a product recall is issued, management estimates
that the cost of repairs required to be paid by the Company to bring the vehicle
into compliance will not be material.                                           

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ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY-HOLDERS                     

Not applicable.                                                         

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PART II 

ITEM 5. MARKET FOR THE REGISTRANTS' COMMON EQUITY AND RELATED STOCKHOLDER       
MATTERS                                                         

(a) Market Information.                                                         

    The Company has only one class of common equity outstanding, all of which is
owned by BBC. Consequently, there is no established public trading market for   
the common equity of the Company.                                               

BBC has only one class of common equity outstanding, which is owned     
exclusively by affiliates of MLCP, certain directors of BBC and the Company and 
certain members of management of the Company. See "Security Ownership of Certain
Beneficial Owners and Management." Consequently, there is no established public 
trading market for the common equity of BBC.                                    

(b) Holders                                                                     

 As of January 1, 1998, there was one holder of the Company's common stock
and 22 holders of BBC's common stock.                                           

(c) Dividends                                                                   

On November 19, 1996, the Company completed an overall recapitalization 
pursuant to which the Company refinanced approximately $86 million (as of       
November 2, 1996) of its indebtedness and paid a special cash dividend to BBC of
$201.4 million (the "Blue Bird Dividend") on all shares of its common stock,    
$.10 par value per share ("Blue Bird Common Stock"). Immediately after the      
declaration of the Blue Bird Dividend, the Board of Directors of BBC declared a 
special cash dividend and made payments in the aggregate amount of $201.4       
million on all shares of its common stock, $.01 par value per share ("BBC Common
Stock") and in respect of options to purchase BBC Common Stock (collectively,   
the "BBC Distribution" and, together with the Blue Bird Dividend, the           
"Distribution"). Holders of BBC options received cash payments and were not     
required to exercise their options to receive their pro rata portion of the BBC 
Distribution, nor were they entitled to any antidilution adjustment to the      
exercise price for their options.                                               

(d) Recent Sales of Unregistered Securities                                     

As part of the Recapitalization (herein defined), holders of $50 million
aggregate principal amount (or 100%) of the Company's then outstanding 11 3/4%  
Senior Subordinated Notes due 2002, Series B (the 4 "Old Notes") ("Selling      
Holders") sold their Old Notes to the Company for aggregate payments (including 
accrued interest) of approximately $53.7 million. The Company's then-existing   
bank credit agreement (the "Old Credit Agreement"), under which $36 million of  
indebtedness was outstanding at November 2, 1996, was replaced and refinanced by
an amended and restated credit agreement (the "New Credit Agreement"), which    
provides for, among other things, aggregate availability of $255 million,       
including $175 million of term loan facilities and an $80 million working       
capital facility. In addition, the Company offered and sold $100,000,000        
aggregate principal amount of 10 3/4% Senior 4 Subordinated Notes due 2006 (the 
"144A Notes")(the "144A Note Offering"). Proceeds from the 144A Note Offering,  
borrowings under the New Credit Agreement and cash on hand were used to fund the
retirement of the Old Notes, the refinancing of the Old Credit                  

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Agreement and the Distribution, and to pay related fees and expenses. The       
144A Notes Offering, the retirement of the Old Notes, the replacement of the    
Old Credit Agreement with the New Credit Agreement and the Distribution are     
collectively referred to herein as the "Recapitalization." In connection with   
the sale of 144A Notes pursuant to the Purchase Agreement dated November 13,    
1996, between the Company, BBC, Merrill Lynch & Co., Merrill Lynch, Pierce,     
Fenner & Smith ("Merrill Lynch"), and BT Securities Corporation                 
(collectively, the "Initial Purchasers") the Initial Purchasers became          
entitled to the benefits of the Registration Rights Agreement dated as of       
November 19, 1996 (the "Registration Rights Agreement").                        

As a result of the Recapitalization, no Old Notes remain outstanding.   

As of January 26, 1997, all of the 144A Notes have been exchanged for   
10 3/4% Senior Subordinated Notes due 2006 (the "Exchange Notes"). The          
Exchange Notes are registered securities of the Company. No 144A Notes          
remain outstanding.                                                             

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ITEM 6. SELECTED FINANCIAL DATA                                                 

Set forth below is certain selected historical consolidated financial   
data for BBC for fiscal years 1997, 1996, 1995, 1994 and 1993. The selected     
historical consolidated financial data as of and for the fiscal years           
indicated were derived from the financial statements of BBC and subsidiaries    
which were audited by Arthur Andersen LLP. Currently, BBC conducts no           
independent operations and has no significant assets other than the capital     
stock of Blue Bird. The selected historical financial data set forth below      
should be read in conjunction with the consolidated financial statements of     
BBC and the notes thereto included elsewhere in this Report.                    

                                                        [Enlarge/Download Table]

                                                                         Fiscal Year Ended                         
                                                -------------------------------------------------------------------
                                                 November 1,    November 2,   October 28,  October 29,  October 30,
                                                    1997           1996          1995         1994         1993    
                                                -------------  -------------  -----------  -----------  -----------
                                                                       (dollars in millions)                       
                                                                                                                   
Income Statement Data:                                                                                             
Net sales......................................   $   576.1      $   570.2     $   517.4    $   476.2    $   413.5 
Cost of goods sold.............................       473.4          474.1         430.6        392.9        340.5 
                                                     ------         ------    -----------  -----------  -----------
Gross profit...................................       102.7           96.1          86.8         83.3         73.0 
Selling, general and administrative expenses...        62.4           42.6          39.8         39.0         36.3 
Amortization of goodwill and non-compete                                                                           
  agreements...................................         3.8            3.8           4.7          5.6          5.6 
                                                     ------         ------    -----------  -----------  -----------
Operating income (loss)........................        36.5           49.7          42.3         38.7         31.1 
Interest income................................         6.3            7.0           4.6          4.1          2.9 
Interest expense...............................       (33.8)         (16.9)        (18.5)       (17.4)       (18.2)
Other income (expense).........................         1.9            0.2           0.1          0.2          0.7 
                                                     ------         ------    -----------  -----------  -----------
Income (loss) before income taxes..............        10.9           40.0          28.5         25.6         16.5 
Provision (benefit) for income taxes...........        (2.7)          14.8          11.6         10.2          6.9 
                                                     ------         ------    -----------  -----------  -----------
Net income before extraordinary item...........        13.6           25.2          16.9         15.4          9.6 
Loss on extinguishment of debt.................        (3.0)          (1.4)           --           --           -- 
                                                     ------         ------    -----------  -----------  -----------
Net income (loss)..............................   $    10.6      $    23.8     $    16.9    $    15.4    $     9.6 
                                                     ------         ------    -----------  -----------  -----------
                                                     ------         ------    -----------  -----------  -----------
Balance Sheet Data (As of End of Period):                                                                          
Working capital................................   $    99.3      $    80.4     $    61.7    $    65.3    $    52.7 
Total assets...................................       412.5          391.0         379.8        332.8        342.1 
Long-term debt, excluding current maturities...       339.6          131.4         113.8        125.8        135.8 
Redeemable common stock, net...................        20.7           29.3          20.9         17.5         11.0 
Stockholders' equity (deficit).................       (45.1)         118.2         102.6         88.8         80.7 

ITEM 7.  MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS                                                 

GENERAL                                                                         

 Approximately 78% of the Company's fiscal 1997 net sales are derived from
school bus sales and approximately 17% and 5% of the Company's fiscal 1997      
net sales are derived from the sale of commercial and recreational vehicles,    
respectively. From fiscal 1993 to fiscal 1997, the Company's gross profit,      
and with the exception of fiscal 1997, operating income, have risen primarily   
due to increasing sales volume. Fiscal 1997 operating income was affected by    
a one time charge of $16.1 million related to the Recapitalization. The         
Company's operations are affected by trends in the number of students           
enrolled in grades kindergarten through 12 and overall educational spending     
by local and state governments as well as by the federal government. In         
addition to incremental needs due to pupil population growth and replacement    
requirements based on changes in safety standards, factors which influence      
the need to purchase school buses include the age of the existing school bus    
fleet, changes in school bus travel routes, regulatory changes such as          
compliance with new emissions standards, extracurricular activity usage and     
changes in the education structure in the United States such as the             
development of preschool "head start" programs, special education programs      
and magnet schools. The Company's experience has been that during periods of    
stable or increasing student enrollment, demand for its core school bus         
products has also remained stable or increased.                                 

In 1993 the Company initiated a project to review its computer hardware 
and software to ensure that its computer applications will not fail or create   
erroneous results as a result of the use of two digits in various program       
date fields (the "Year 2000 issue"). The Company's cost of addressing the       
Year 2000 issue is not expected to be material. While the consequences of an    
incomplete or untimely resolution of the Year 2000 issue could be expected to   
have a negative effect on the future financial results of the Company, the      
Company expects that its Year 2000 issues will be satisfactorily resolved       
well before the year 2000.                                                      

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RESULTS OF OPERATIONS                                                           

The discussion of results of operations that follows is based upon and  
should be read in conjunction with the financial statements, including the notes
thereto, included elsewhere in this Report. Although the financial statements   
are consolidated financial statements of BBC, the Company's parent, BBC is a    
holding company and, as such, there would be no material differences in the     
operating results of BBC, as compared with the Company. The following table sets
forth certain operating results as a percentage of net sales for the historical 
periods indicated:                                                              

                                 Fiscal Year Ended
                                 -------------------------------------------
                                 November 1,    November 2,    October 28,
                                1997           1996           1995
                                 -------------  -------------  -------------

Net sales..........................      100.0%         100.0%         100.0%   
Cost of goods sold.................      (82.2)         (83.1)         (83.2)   
Gross profit.......................       17.8           16.9           16.8    
Selling, general and                                                            
administrative expense............      (10.8)          (7.5)          (7.7)  
Operating income...................        6.3            8.7            8.2    

  Fiscal 1997 Compared to Fiscal 1996. Net sales increased to $576.1 million
in fiscal 1997 from $570.2 million in fiscal 1996, an increase of $5.9 million  
or 1.0%. This increase was primarily due to increased sales volume of the Type C
units.                                                                          

 Gross profit increased to $102.7 million in fiscal 1997 compared to $96.1
million in fiscal 1996, an increase of $6.6 million or 6.9%. The increase was   
primarily due to increased gross margin. The gross margin increased to 17.8%    
from 16.8% in 1996. The margin increase was due to selling more higher gross    
margin Type C units as compared to fiscal 1996.                                 

Selling, general and administrative expenses increased to $62.4 million 
in fiscal 1997 compared to $42.6 million in fiscal 1996, an increase of $19.8   
million or 46.5%. The increase was primarily due to a $16.1 million             
distribution paid as a result of the Recapitalization to certain members of     
management as stock option holders which was recorded as compensation. The      
remaining difference was due mainly to increased engineering costs as well as   
a negotiated settlement in a product liability case.                            

    Interest income decreased to $6.3 million compared to $7.0 million in fiscal
1996. The decrease was due in part to lower investment income resulting from    
lower cash available for investment during 1997 as compared to 1996. Other      
interest income, excluding interest related to leasing, was also lower.         

 Interest expense increased to $33.8 million in fiscal 1997 as compared to
$16.9 million in fiscal 1996. The increase was due primarily to the higher debt 
and interest rates resulting from the Recapitalization.                         

    For fiscal 1997, there was an income tax benefit of $2.7 million compared to
an income tax provision of $14.8 million for fiscal 1996. The decrease was due  
in part to income before income taxes being significantly lower in fiscal 1997  
than fiscal 1996. In addition, due to the deductibility of the distributions    
paid to management shareholders from the Recapitalization, the resulting income 

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tax benefit more than offset the income tax provision on operating income,      
resulting in a net income tax benefit for fiscal 1997.                          

  Fiscal 1996 Compared to Fiscal 1995. Net sales increased to $570.2 million
in fiscal 1996 from $517.4 million in fiscal 1995, an increase of $52.8 million 
or 10.2%. This increase was due to increased sales volume of the Type C, Type D,
CS and Q-Bus units.                                                             

Gross profit increased to $96.1 million in fiscal 1996 compared to $86.8
million in fiscal 1995, an increase of $9.3 million or 10.7%. The increase was  
due to increased sales volume. The gross margin of 16.8% was unchanged compared 
to fiscal 1995.                                                                 

  Selling, general and administrative expenses increased to $42.6 million in
fiscal 1996 compared to $39.8 million in fiscal 1995, an increase of $2.8       
million or 7.0%. The increase was due primarily to higher engineering, marketing
and selling expenses.                                                           

Amortization expense decreased to $3.8 million in fiscal 1996 from $4.7 
million in 1995. The decrease reflects completion in fiscal 1995 of the         
amortization of certain non-compete agreements related to the 1992 Acquisition. 

    Interest income increased to $7.0 million compared to $4.6 million in fiscal
1995. The increase was due primarily to a higher average dollar amount of leases
in the lease portfolio in fiscal 1996 as compared to fiscal 1995.               

 Interest expense decreased to $16.9 million in fiscal 1996 as compared to
$18.5 million in fiscal 1995. This was due to lower interest rates on bank debt 
as well as lower debt levels due to the repurchase of $25 million of the Old    
Notes in December, 1995.                                                        

The provision for income taxes increased to $14.8 million in fiscal 1996
from $11.6 million in fiscal 1995. The increase was due to increased taxable    
income resulting from higher net sales and operating income. The provision for  
income taxes in fiscal 1996 decreased as a percentage of income before taxes as 
compared to fiscal 1995. The decrease was due to increased tax-exempt lease     
income as well as lower non-deductible amortization items related to the 1992   
Acquisition.                                                                    

   On December 14, 1995, the Company repurchased, for cash on the open market,
$25 million in principal amount of outstanding Old Notes for the purchase price 
(expressed as a percentage of principal amount) of 106.500% plus accrued        
interest to the purchase date. An extraordinary loss of $1.4 million net of a   
tax benefit of $.8 million occurred during the 1996 period due to the early     
extinguishment of such Old Notes.                                               

  Fiscal 1995 Compared to Fiscal 1994. Net sales increased to $517.4 million
in fiscal 1995 from $476.2 million in fiscal 1994, an increase of $41.2 million,
or 8.7%. This increase was due to increased sales of Type D, Q-Bus and CS units,
as well as increased sales of Type C units.                                     

Gross profit increased to $86.8 million in fiscal 1995 compared to $83.3
million in fiscal 1994, an increase of $3.5 million, or 4.2%. The increase was  
due to increased sales volume. Gross margin decreased to 16.8% in fiscal 1995   
from 17.5% in fiscal 1994. The reduced margin was due primarily to increased    
sales of Type C units, on which the Company generally realizes lower margins due
to the inclusion of GM chassis.                                                 

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 Selling, general and administrative expenses were $39.8 million in fiscal
1995 compared to $39 million in fiscal 1994, an increase of 2.0%. The increase  
was due primarily to higher expenses related to engineering and product         
development.                                                                    

 Amortization expense decreased to $4.7 million in fiscal 1995 compared to
$5.6 million in fiscal 1994. The amortization of certain non-compete agreements 
was completed during the first half of fiscal 1995.                             

 Interest income increased to $4.6 million in fiscal 1995 compared to $4.1
million in fiscal 1994. The increase was due to a higher average dollar amount  
of leases held in the lease portfolio in fiscal 1995 compared to fiscal 1994.   

Interest expense increased to $18.5 million in fiscal 1995 from $17.4   
million fiscal 1994, an increase of $1.1 million. The increase was due to a     
higher interest rate on credit facility borrowings as compared to fiscal 1994.  

The provision for income taxes increased to $11.6 million in fiscal 1995
from $10.2 million in fiscal 1994. The increase was due to increased taxable    
income resulting from higher net sales and operating income.                    

LIQUIDITY AND CAPITAL RESOURCES                                                 

 The Company's liquidity requirements arise primarily from funding working
capital needs, which consist primarily of inventory and accounts receivable, and
principal and interest payments on indebtedness. The Company also requires funds
for capital expenditures, of which the Company anticipates approximately $6.1   
million for fiscal 1998.                                                        

BBC is a holding company that conducts all of its business operations   
through the Company, which is a wholly-owned subsidiary. In connection with any 
liquidity needs, including needs arising out of the BBC Guarantee, BBC is       
dependent entirely upon cash generated by the Company.                          

   Historically, the Company has funded its working capital needs through cash
generated from operations and borrowings under the Old Credit Agreement. In     
addition, LaSalle National Bank, as agent for itself and other lenders, provides
Blue Bird Capital with a revolving credit facility pursuant to a Loan Agreement,
dated October 18, 1995, as amended and restated on March 29, 1996 (as so amended
and restated, the "LaSalle Credit Agreement"). Revolving loans under the LaSalle
Credit Agreement (the "LaSalle Credit Facility") are used to finance school bus 
leases of up to a maximum aggregate principal amount of $100 million, of which  
$85.5 million was outstanding as of November 1, 1997. Following the             
Recapitalization, the Company's liquidity needs arise primarily from debt       
service on the substantial indebtedness incurred in connection with the         
Recapitalization, as well as from the funding of inventory and accounts         
receivable. As of November 1, 1997, the Company had total consolidated          
indebtedness at such date of approximately $352.3 million, consisting primarily 
of $99.7 million principal amount of the Notes, borrowings of $164.4 million    
under the New Credit Agreement and $85.5 million of borrowings under the LaSalle
Credit Facility. The Company had the ability to borrow an additional $14.5      
million under the LaSalle Credit Facility to finance school bus leases and $80.0
million under the New Credit Agreement (assuming all of such funds would have   
been available under the borrowing base calculation under the Revolving Facility
of the New Credit Agreement). Such Revolving Facility will be available to meet 
future                                                                          

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working capital and other business needs of the Company. The maximum amount     
available to be borrowed under such facility is based on the sum of 85% of      
Eligible Accounts Receivable (as defined in the New Credit Agreement) and 60%   
of Eligible Inventory (as defined in the New Credit Agreement) of the Company   
(the "Borrowing Base").                                                         

The Company's interest expense as a result of the Recapitalization is   
substantially higher than immediately prior to such transactions. Loans under   
the New Credit Agreement bear interest at floating rates based upon the interest
rate option selected by the Company. With respect to the term loan borrowings   
under the New Credit Agreement, the Company will be required to make scheduled  
principal payments of approximately $12.8 million in fiscal 1998, $16.8 million 
in fiscal 1999 and $20.8 million in fiscal 2000.                                

    Under the New Credit Agreement, the Company is permitted to accumulate up to
$40 million in its lease portfolio of leases for its own account in addition to 
leases held by Blue Bird Capital. As of November 1, 1997, the Company had       
approximately $7.5 million of such leases in its lease portfolio. In addition,  
as of such date, Blue Bird Capital had approximately $94.9 million in its lease 
portfolio. Blue Bird Capital is required to maintain certain financial ratios,  
including a ratio of Total Liabilities to Tangible Net Worth (as such terms are 
defined in the LaSalle Credit Facility) that cannot exceed 10 to 1. See         
"Business--Leasing."                                                            

   Net cash provided by operations during the year ended November 1, 1997, was
$6.3 million compared to $59.6 million in fiscal 1996. This difference was      
primarily the result of significant decreases in net income, trade accounts     
payable and income taxes payable as well as an increase in inventory. There were
no net borrowings under the Company's working capital facility in fiscal 1997 or
fiscal 1996. Net borrowing under the LaSalle Credit Facility were $26.9 during  
the current year compared to $22.9 in fiscal 1996. The early extinguishment of  
$25 million of outstanding Old Notes (see "--Results of Operations--Fiscal 1996 
Compared to Fiscal 1995") was funded primarily from internally generated cash   
and partially from an increase in the working capital revolver.                 

   Cash and cash equivalents were $31.0 at November 1, 1997, compared to $46.3
million at the end of fiscal 1996. Net working capital was $99.3 million at     
November 1, 1997, an increase of $18.9 million during the current fiscal year.  
Significant factors affecting working capital were increases in trade           
receivables, leases receivable, inventory and accrued liabilities of $3.1       
million, $9.8 million, $6.6 million and $6.0 million, respectively, with        
decreases in cash, accounts payable and income taxes payable of $15.2 million,  
$6.0 million and $9.2 million, respectively.                                    

As a result of the Recapitalization, the Company's future operating     
performance and ability to service or refinance the Notes and to repay, extend  
or refinance the New Credit Agreement are subject to future economic conditions 
and to financial, business and other factors, many of which are beyond the      
Company's control. The Company's liquidity may also be impacted by product      
liability claims and environmental matters.                                     

 The Company's business is seasonal in nature. A majority of the Company's
sales occur in the third and fourth quarters of the fiscal year, a pattern      
typical for the industry. The Company's working capital needs increase during   
the second and third quarters as production activity increases in response to   
the higher seasonal sales volume. Working capital needs decrease toward the end 
of this period, although beginning in December or January, working capital and  
related bank borrowings begin to increase as parts for assembly into buses are  
manufactured and distributed to                                                 

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the assembly plants. Inventory is at its highest during July and August prior   
to heavy seasonal school deliveries. The following table shows the              
percentages of the Company's net sales per quarter for the last four fiscal     
years.                                                                          

                             1997       1996       1995       1994
                              ---------  ---------  ---------  ---------
First Quarter...................       14.6%      16.3%      14.8%      18.5%   
Second Quarter..................       16.5       18.7       20.4       17.0    
Third Quarter...................       33.6       25.7       26.5       30.0    
Fourth Quarter..................       35.3       39.3       38.3       34.5    
                              ---------  ---------  ---------  ---------
                                   100.0%     100.0%     100.0%     100.0%
                              ---------  ---------  ---------  ---------
                              ---------  ---------  ---------  ---------

ITEM 8. FINANCIAL STATEMENTS                                                    

   See Index to Financial Statements for a listing of the financial statements
filed with this report.                                                         

ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND         
FINANCIAL DISCLOSURE.                                           

None.                                                                   

PART III

ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANTS.                   

 The following table sets forth certain information concerning the persons
who are executive officers and directors of the Company and BBC as of November  
1, 1997; all information is provided as of such date:                           

                                                        [Enlarge/Download Table]

Name                                  Age                            Position and Experience                       
------------------------------------  ---     ---------------------------------------------------------------------
                                                                                                                   

Paul E. Glaske......................      64  Chairman of the Board and President of the Company and BBC; director 
                                              of the Company and BBC. At the time the 1992 Acquisition was         
                                              consummated (the "Effective Time"), Mr. Glaske was appointed Chairman
                                              of the Board and President of the Company and BBC and a director of  
                                              BBC. Mr. Glaske has served as President of the Company since 1986 and
                                              a director of the Company since 1984. He is also a director of       
                                              Borg-Warner Automotive, Inc.                                         

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Name                                  Age                            Position and Experience                       
------------------------------------  ---     ---------------------------------------------------------------------
                                                                                                                   
Bobby G. Wallace....................      63  Vice President--Finance and Administration, Treasurer and Secretary  
                                              of the Company; Vice President, Treasurer and Secretary of BBC;      
                                              director of the Company and BBC. At the Effective Time, Mr. Wallace  
                                              was appointed to his current positions with the Company and BBC. Mr. 
                                              Wallace has served as the Vice President--Finance and Administration 
                                              of the Company since 1987. In 1986, he was named Vice President--    
                                              Controller.                                                          

James H. Grantham...................      56  Vice President--Manufacturing of the Company. In 1990, Mr. Grantham  
                                              was promoted to his current position. In 1988, he was named Vice     
                                              President--Materials, and, in 1987, became Vice President--Canadian  
                                              Operations. In 1983, he became General Manager of Blue Bird's plant  
                                              in Lafayette, Georgia, a promotion from his former position of       
                                              Production Manager of such plant. Mr. Grantham joined Blue Bird in   
                                              1965.                                                                

Richard E. Maddox...................      45  Vice President--Sales of the Company. In 1990, Mr. Maddox was        
                                              promoted to his current position from his prior position of          
                                              Director--U.S. Sales, to which he was appointed in 1988. In 1986, he 
                                              was named Manager--U.S. Sales, and, in 1982, he was appointed        
                                              Manager--Field Sales. Mr. Maddox joined Blue Bird in 1974 and has    
                                              held various positions in sales since that time.                     

Wilbur C. Rumph.....................      68  Vice President--Engineering, Research & Development of the Company.  
                                              Mr. Rumph was appointed to his present position in 1968. He joined   
                                              Blue Bird in 1948, where he has held various positions in the        
                                              engineering area.                                                    

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Name                                  Age                            Position and Experience                       
------------------------------------  ---     ---------------------------------------------------------------------
                                                                                                                   
William G. Milby....................      51  Vice President of Product Planning and Development. Mr. Milby was    
                                              promoted to his present position in 1997 from Vice President and     
                                              General Manager--Canadian Blue Bird, to which he was appointed in    
                                              1989. In 1985, he was named Vice President and General Manager of the
                                              Wanderlodge division. Mr. Milby joined the Company in 1971 as an     
                                              engineer.                                                            

William T. Gourley..................      52  Vice President-Controller of the Company. In 1996, Mr. Gourley was   
                                              promoted to his current position from his prior position of Corporate
                                              Controller, to which he was appointed in 1992. Mr. Gourley joined    
                                              Blue Bird in 1976 and has held various positions in finance since    
                                              that time.                                                           

B. Richard Benedict.................      54  Vice President and General Manager--Blue Bird Midwest. Mr. Benedict  
                                              was promoted to his current position in 1988 from General Manager, to
                                              which he was appointed in 1984. In 1977, Mr. Benedict was named      
                                              Production Manager. Mr. Benedict joined the Company in 1962.         

Gerald S. Armstrong.................      54  Director of the Company and BBC. Mr. Armstrong served as Vice        
                                              President, Treasurer and Secretary of BBC prior to the 1992          
                                              Acquisition. Mr. Armstrong is Managing Partner of Arena Capital      
                                              Partners, LLC. Mr. Armstrong was a Partner and a director of         
                                              Stonington Partners, Inc., a private investment firm. He has also    
                                              been a member of the Board of Directors of MLCP, an affiliate of     
                                              Merrill Lynch since 1988. He was a Partner of MLCP from 1993 to July 
                                              1994 and an Executive Vice President of MLCP from 1988 to 1994. MLCP 
                                              is the general partner of several limited partnerships which         
                                              indirectly own shares of BBC Common Stock. Mr. Armstrong was also a  
                                              Managing Director of the Investment Banking Division of Merrill Lynch
                                              from 1988 to 1994. Mr. Armstrong is also a director of AnnTaylor     
                                              Stores Corporation and World Color Press, Inc.                       

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Name                                  Age                            Position and Experience                       
------------------------------------  ---     ---------------------------------------------------------------------
                                                                                                                   
Alexis P. Michas....................      40  Director of the Company and BBC. Mr. Michas served as Chairman of the
                                              Board and President of BBC from its inception until the Effective    
                                              Time. Mr. Michas is a Managing Partner and a director of Stonington  
                                              Partners, Inc., a private investment firm, a position that he has    
                                              held since 1993. He has also been a member of the Board of Directors 
                                              of MLCP since 1989. He was a Partner of MLCP from 1993 to 1994 and   
                                              Senior Vice President of MLCP from 1989 to 1993. MLCP is the general 
                                              partner of several limited partnerships which indirectly own shares  
                                              of BBC Common Stock. Mr. Michas was also a Managing Director of the  
                                              Investment Banking Division of Merrill Lynch from 1991 to July 1994  
                                              and a director in the Investment Banking Division of Merrill Lynch   
                                              from 1990 to 1991. Mr. Michas is also a Director of Borg-Warner      
                                              Automotive, Inc., Borg-Warner Security Corporation, Dictaphone       
                                              Corporation, Goss Graphic Systems, Inc. and Packard BioScience       
                                              Company.                                                             

Alfred C. Daugherty.................      74  Director of the Company and BBC. Mr. Daugherty served as a director  
                                              of Blue Bird prior to the 1992 Acquisition. Mr. Daugherty was        
                                              Chairman of Duracell International, Inc., a manufacturer of premium  
                                              batteries, and Executive Vice President of Dart Industries, Inc., a  
                                              maker of consumer products and chemical specialties, as well as a    
                                              director of both companies, until his retirement on January 1, 1995. 
                                              Mr. Daugherty is also a director of A. Duda and Sons, Inc., Atlantic 
                                              Acquaculture Technologies, Inc., Goss Graphic Systems, Inc. and GGS  
                                              Holdings, Inc.                                                       

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Name                                  Age                            Position and Experience                       
------------------------------------  ---     ---------------------------------------------------------------------
                                                                                                                   
Donald C. Trauscht..................      63  Director of the Company and BBC. Mr. Trauscht was elected to the     
                                              Board of Directors in December 1993. Since January 1996, Mr. Trauscht
                                              has been Chairman of BW Capital Corp., a private investment company. 
                                              From February 1993 to December 1995, he was Chairman and Chief       
                                              Executive Officer of Borg-Warner Security Corporation, an electronic 
                                              and physical security company. From December 1991 to January 1993, he
                                              was Chairman and Chief Executive Officer of Borg-Warner Corporation, 
                                              a diversified corporation. Prior to December 1991, he was President  
                                              of Borg-Warner Corporation and held various other executive positions
                                              since 1967. He is currently a director of Baker Hughes Inc., Thiokol 
                                              Corp., IMO Industries, Inc., Borg-Warner Automotive, Inc.,           
                                              Borg-Warner Security Corporation, ESCO Electronics Corp. and Hydac   
                                              International Corp.                                                  

 Each director of the Company and BBC is elected annually and serves until
the next annual meeting or until his successor is duly elected and qualified.   
Each executive officer of the Company and BBC serves at the discretion of the   
Boards of Directors of the Company and BBC, respectively.                       

Item 11. Executive Compensation.                                                

 SUMMARY OF CASH AND CERTAIN OTHER COMPENSATION.  The following table sets
forth, for fiscal years 1997, 1996 and 1995, the cash compensation paid by BBC  
and its subsidiaries, as well as certain other compensation paid or accrued for 
fiscal years 1997, 1996 and 1995, to each of the five most highly compensated   
executive officers of BBC (considering Messrs. Grantham, Maddox and Gourley,    
Vice Presidents of the Company, to be executive officers of BBC) (collectively, 
the "named executive officers") in all capacities in which they served:         

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                                  SUMMARY COMPENSATION TABLE

                                                        [Enlarge/Download Table]


                                                                                               LONG TERM                
                                                                                              COMPENSATION              
                                                                                              ------------              
                                                                                                 AWARDS                 
                                                                                              ------------              
                                                                       ANNUAL COMPENSATION     SECURITIES               
                                                           FISCAL     ----------------------   UNDERLYING    ALL OTHER  
NAME AND PRINCIPAL POSITION                                 YEAR      SALARY (a)    BONUS        OPTIONS    COMPENSATION
-------------------------------------------------------  -----------  ----------  ----------  ------------  ------------
                                                                                                                        
Paul E. Glaske.........................................        1997   $  544,709  $  500,000            --    $23,933(b)
Chairman of the Board and President                            1996      506,410     438,485            --     20,203(c)
and Director                                                   1995      466,898     428,606            --     19,753(c)
Bobby G. Wallace.......................................        1997      312,983     225,600     40,000(d)      4,750(e)
Vice President--Finance and Admin.,                            1996      289,094     196,746            --      4,500(e)
Treasurer, Secretary and Director                              1995      265,388     168,175            --      4,050(f)
James H. Grantham......................................        1997      201,648     144,000            --      4,750(e)
Vice President--Manufacturing of the                           1996      185,847     127,732            --      4,500(e)
Company                                                        1995      171,006     123,008            --      4,050(f)
Richard E. Maddox......................................        1997      177,857     130,400            --      5,124(e)
Vice President--Sales of the Company                           1996      164,997     115,150            --      5,196(e)
                                                               1995      151,996     110,707            --      6,159(f)
William T. Gourley.....................................        1997      135,308      41,760            --      6,110(e)
Vice President--Controller of the                              1996      111,762      38,434            --      4,346(e)
Company                                                        1995      101,842      36,902            --      3,862(f)

------------------------                                                        

(a) Includes amounts deferred at the election of the named executive officer    
    pursuant to the Company's 401(k) plan. Employees may contribute up to 15% of
  their salaries to the 401(k) plan on a pre-tax basis, not to exceed $9,500
in 1997, $9,500 in 1996, and $9,240 in 1995.                            

(b) Represents life and disability insurance premiums of $19,183 paid by the    
 Company on behalf of Mr. Glaske. Under the 401(k) plan, the Company makes
 matching contributions equal to 50% of the first 6% of each participant's
pre-tax contribution for 1997.                                          

(c) Represents life and disability insurance premiums of $15,703 paid by the    
 Company on behalf of Mr. Glaske. Under the 401(k) plan, the Company makes
 matching contributions equal to 45% of the first 6% of each participant's
    pre-tax contribution for 1995, and 50% of the first 6% of each participant's
pre-tax contribution for 1996.                                          

(d) In 1997, Mr. Wallace was granted an option to purchase 40,000 shares of BBC 
Common Stock.                                                           

(e) The amounts shown represent matching contributions to the Company's 401(k)  
    plan made by the Company on behalf of the named executive officer. Under the
 401(k) plan, the Company makes matching contributions equal to 50% of the
first 6% of each participant's pre-tax contribution.                    

(f) The amounts shown represent matching contributions to the Company's 401(k)  
    plan made by the Company on behalf of the named executive officer. Under the
 401(k) plan, the Company makes matching contributions equal to 45% of the
first 6% of each participant's pre-tax contribution.                    

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STOCK OPTIONS AND STOCK APPRECIATION RIGHTS.  The following table sets  
forth stock options granted in fiscal 1997 to the named executive officers:     

                                                        [Enlarge/Download Table]


                                      INDIVIDUAL GRANTS                                                                 
                                  ----------------------------                                   POTENTIAL REALIZABLE   
                                    NUMBER OF       PERCENT                                     VALUE AT ASSUMED ANNUAL 
                                    SECURITIES      OF TOTAL                                     RATES OF STOCK PRICE   
                                    UNDERLYING     OPTIONS/SARs   EXERCISE                         APPRECIATION FOR     
                                   OPTIONS/SARs     GRANTED TO    OR BASIC                           OPTION TERM        
                                      GAINED        EMPLOYEES      PRICES      EXPIRATION    ---------------------------
    NAME                               (#)       IN FISCAL YEAR     ($SH)         DATE           5%($)          10%($)  
------------------------------------------------------------------------------------------------------------------------
                                                                                                                        
Bobby G. Wallace                    40,000(a)        100.0%        $9.00        4/16/02        $99,461        $219,784  

(a) Represents options that were fully vested on the date of grant. Such        
options are non-transferable and terminate (subject to certain put and call     
arrangements) upon termination of employment with BBC or an affiliate of BBC.   

  OPTION/SAR EXERCISES AND HOLDINGS.  None of the named executives exercised
any options and/or SARs during the last fiscal year. The following table sets   
forth information with respect to the named executive officers concerning the   
value of unexercised options and SARs held as of the end of the last fiscal     
year:                                                                           

                                                        [Enlarge/Download Table]

                                        FISCAL YEAR-END OPTION/SAR VALUES                                                  
                                                                 NUMBER OF SECURITIES            VALUE OF UNEXERCISED      
                                                                UNDERLYING UNEXERCISED         IN-THE-MONEY OPTIONS/SARS   
                                                                     OPTIONS/SARS               AT FISCAL YEAR-END (A)     
                                                            ---------------------------------------------------------------
                           NAME                             EXERCISABLE    UNEXERCISABLE    EXERCISABLE     UNEXERCISABLE  
----------------------------------------------------------  -----------  -----------------  ------------  -----------------
                                                                                                                           
Paul E. Glaske............................................     350,000             -0-      $  6,412,000            -0-    
Bobby G. Wallace..........................................     100,000             -0-         1,832,000            -0-    
James H. Grantham.........................................      80,000             -0-         1,465,600            -0-    
Richard E. Maddox.........................................      80,000             -0-         1,465,600            -0-    
Willliam T. Gourley.......................................      20,000             -0-           366,400            -0-    

------------------------                                                        

(a) Computed using net proceeds value of $18.32 per share at November 1, 1997,  
  determined by formula in the Blue Bird Corporation Management Stock Option
Plan (the "Management Stock Option Plan").                              

PENSION PLANS.  Blue Bird maintains a qualified defined benefit pension 
plan (the "Pension Plan") which covers all U.S. salaried employees. Benefits    
are determined under a formula (which is integrated with Social Security)       
calculated with reference to an employee's five-year final average earnings     
and such employee's years of service. The amount of estimated annual benefits   
payable under the Pension Plan based upon various levels of compensation and    
years of service, determined before application of the limitations imposed by   
Sections 401(a)(17) and 415 of the Internal Revenue Code of 1986, as amended    
(the "Code"), is set forth below:                                               

                                                                [Download Table]

                          PENSION PLAN TABLE                                        
 FINAL FIVE                              YEARS OF SERVICE                           
 YEAR ANNUAL   -------------------------------------------------------------------- 
COMPENSATION        15            20            25            30            35      
-------------  ------------  ------------  ------------  ------------  ------------ 
                                                                                    
     $125,000  $     29,445  $     39,260  $     49,075  $     58,890  $     58,890 
      150,000        35,820        47,760        59,700        71,640        71,640 
      175,000        42,195*       56,260*       70,325*       84,390*       84,390*
      200,000        48,570*       64,760*       80,950*       97,140*       97,140*
      225,000        54,945*       73,260*       91,575*      109,890*      109,890*
      250,000        61,320*       81,760*      102,200*      122,640*      122,640*
      300,000        74,070*       98,760*      123,450*      148,140*      148,140*
      400,000        99,570*      132,760*      165,950*      199,140*      199,140*
      500,000       125,070*      166,760*      208,450*      250,140*      250,140*
    1,000,000       252,570*      336,760*      420,950*      505,140*      505,140*
    2,000,000       507,570*      676,760*      846,950*    1,015,140*    1,015,140*
    4,000,000     1,017,570*    1,356,760*    1,695,950*    2,035,140*    2,035,140*

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------------------------                                                        

*   Determined before application of current limitations of Sections 401(a)(17) 
and 415 of the Code.                                                    

   Compensation covered by the Pension Plan is limited to gross wages reported
on Form W-2. Such covered compensation includes all compensation reported in the
Summary Compensation Table (other than amounts representing Company matching    
contributions to the 401(k) plan) plus the value, if any, realized upon the     
exercise of SARs in connection with the 1992 Acquisition. The covered           
compensation for Messrs. Glaske, Wallace, Grantham, Maddox and Gourley does not 
differ by more than 10% from that set forth in the Summary Compensation Table.  
The estimated credited years of service for each of the named executive officers
is as follows: Mr. Glaske (11 years), Mr. Wallace (11 years), Mr. Grantham (30  
years), Mr. Maddox (22 years) and Mr. Gourley (21 years). Benefits from the     
Pension Plan, which are integrated with Social Security but are not offset by   
any other amounts, are payable in the form of a straight life annuity or, in the
case of married participants, an actuarially equivalent joint and survivor      
annuity.                                                                        

   In addition, Blue Bird adopted a non-qualified supplemental retirement plan
(the "SERP") effective January 1, 1991 for selected executive officers to       
restore the cutback in benefits under the Pension Plan on account of certain    
limitations imposed by Code Sections 401(a)(17) and 415. The SERP provides a    
lump sum payout upon retirement.                                                

COMPENSATION OF DIRECTORS                                                       

    Two of the four non-employee directors of the Company and BBC receive annual
retainers of $24,000 and meeting fees of $1,500 per meeting for up to four      
meetings per year for services as directors of the Company and BBC. The         
remaining directors of the Company and BBC do not receive compensation for their
services as directors and none of the directors of the Company and BBC receive  
compensation for their services as members of the committees of the Boards of   
Directors of the Company and BBC.                                               

EMPLOYMENT CONTRACTS AND TERMINATION OF EMPLOYMENT AND CHANGE-IN-CONTROL        
ARRANGEMENTS                                                                    

 Mr. Glaske's current employment agreement with the Company provides for a
three-year term with an annual base salary of $560,000, plus participation in an
incentive bonus program, the SERP and other employee benefit plans sponsored by 
the Company. If Mr. Glaske's employment is terminated by the Company without    
good cause or by Mr. Glaske for good reason (as such terms are defined in the   
employment agreement), the Company's obligation for the duration of the         
employment agreement for salary, employee benefits, supplemental benefits and   
various perquisites shall continue without mitigation. Under the terms of the   
employment agreement, Mr. Glaske agrees not to disclose confidential information
for so long a such information remains competitively sensitive. During the term 
of the employment agreement and for three years after its termination, Mr.      
Glaske agrees not to render services to, or have greater than a 2% equity       
interest in, any business which is competitive with the Company. Mr. Glaske's   
employment agreement does not contain any change of control provisions.         

   Mr. Wallace's employment agreement with the Company provides for a one-year
term, renewable annually, with an annual base salary of $330,000, plus          
participation in an incentive bonus program, the SERP and other employee benefit
plans sponsored by the Company. The employment agreement may be terminated by   
either party at the end of any given 12-month period. Under the                 

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terms of the employment agreement, Mr. Wallace agrees not to disclose           
confidential information for so long as such information remains competitively  
sensitive. During the term of the employment agreement and for three years after
its termination, Mr. Wallace agrees not to render services to, or have greater  
than a 2% equity interest in, any business which is competitive with the        
Company. Mr. Wallace's employment agreement does not contain any change of      
control provisions.                                                             

COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION                     

    The members of the compensation committees of the Company's and BBC's Boards
of Directors during fiscal year 1997 were Messrs. Michas, Armstrong and         
Daugherty. During such time, Mr. Glaske served as the Chairman of the Board and 
President of the Company and BBC.                                               

The Stockholders' Agreement provides that in the event that Messrs.     
Armstrong, Michas, Glaske and Wallace are unwilling or unable to serve, or      
otherwise cease to serve, as directors of BBC, the ML Entities (herein defined) 
shall be entitled to fill the resulting vacancies on the Board of Directors. In 
addition, the Stockholders' Agreement provides that the ML Entities are entitled
to nominate successors for all BBC directors and that the stockholders of BBC   
will cooperate in any removal of directors proposed by the ML Entities.         

   At the time of the 1992 Acquisition (herein defined), Messrs. Armstrong and
Michas were each executive officers of Merrill Lynch Capital Partners, Inc.     
("MLCP") and Managing Directors of Merrill Lynch. MLCP is an affiliate of       
Merrill Lynch. In connection with the 1992 Acquisition, Merrill Lynch served as 
placement agent for the Old Notes and BBC issued 7,700,000 shares of BBC Common 
Stock (or approximately 91% of the then outstanding BBC Common Stock) to the ML 
Entities.                                                                       

ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT.        

The Blue Bird Common Stock is the only class of capital stock that the  
Company has outstanding. BBC owns 10 shares, which represent 100% of the issued 
and outstanding shares of the Company's common stock. The BBC Common Stock is   
the only class of capital stock of BBC outstanding. The issued and outstanding  
number of shares of BBC Common Stock is 8,434,778. The following table sets     
forth the number and percentage of shares of BBC Common Stock beneficially owned
by (i) each person known to BBC to be the beneficial owner of more than 5% of   
the outstanding shares of BBC Common Stock, (ii) each director of BBC, (iii)    
each named executive officer, and (iv) all directors and executive officers of  
BBC as a group. Unless otherwise indicated in a footnote, each person listed    
below possesses sole voting and investment power with respect to the shares     
indicated as beneficially owned by them. The ML Entities, Management Investors  
and BBC are parties to a stockholders' agreement described under "Certain       
Relationships and Related Transactions."                                        

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                                                                 AMOUNT AND                 
                                                                  NATURE       PERCENTAGE OF
          NAME AND ADDRESS OF                                  OF BENEFICIAL   SHARES OF BBC
          BENEFICIAL OWNER                                        OWNERSHIP    COMMON STOCK*
-------------------------------------                           -------------  -------------
                                                                                            
ML Entities(a)................................................    7,665,000            90.9%
Paul E. Glaske(b).............................................      580,557(c)          6.6%
  Blue Bird Body Company                                                                    
  3920 Arkwright Road                                                                       
  Macon, Georgia 31210                                                                      
Bobby G. Wallace(b)...........................................      170,000(d)          2.0%
  Blue Bird Body Company                                                                    
  3920 Arkwright Road                                                                       
  Macon, Georgia 31210                                                                      
James H. Grantham(b)..........................................      160,000(e)          1.9%
  Blue Bird Body Company                                                                    
  3920 Arkwright Road                                                                       
  Macon, Georgia 31210                                                                      
Richard E. Maddox(b)..........................................      160,000(f)          1.9%
  Blue Bird Body Company                                                                    
  3920 Arkwright Road                                                                       
  Macon, Georgia 31210                                                                      
William T. Gourley(b).........................................       40,000(g)          0.5%
  Blue Bird Body Company                                                                    
  3920 Arkwright Road                                                                       
  Macon, Georgia 31210                                                                      
Donald C. Trauscht(b).........................................        4,778             0.1%
  Borg-Warner Security Corporation                                                          
  200 South Michigan Avenue                                                                 
  Chicago, Illinois 60604                                                                   
A. Clark Daugherty(b).........................................       25,000             0.3%
  321 Indian Harbor Road                                                                    
  Vero Beach, Florida 32963                                                                 
Gerald S. Armstrong (h).......................................            0              -- 
  Stonington Partners, Inc.                                                                 
  767 Fifth Avenue                                                                          
  New York, New York 10153                                                                  
Alexis P. Michas (h)..........................................            0              -- 
  Stonington Partners, Inc.                                                                 
  767 Fifth Avenue                                                                          
  New York, New York 10153                                                                  
All directors and executive officers as a group (9 persons)...    1,140,335(i)        12.6% 

------------------------                                                        

*   Calculated in accordance with Rule 13d-3 under the Exchange Act.            

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(a) Shares of BBC Common Stock beneficially owned by the ML Entities are owned  
of record as follows: 3,740,188 by Merrill Lynch Capital Appreciation   
Partnership No. B-XV, L.P., 2,370,278 by ML Offshore LBO Partnership No.
 B-XV, 1,300,619 by ML IBK Positions, Inc., 42,500 by Merrill Lynch KECALP
L.P. 1989, 150,000 by Merrill Lynch KECALP L.P. 1991 and 61,415 by MLCP 
Associates L.P. No. II. The address for the ML Entities other than ML   
Offshore LBO Partnership No. B-XV is 225 Liberty Street, World Financial
  Center--South Tower, New York, New York 10080. The address for ML Offshore
 LBO Partnership No. B-XV is P.O. Box 25, Roseneath, The Grange, St. Peter
Port, Guernsey Channel Island, British Isles. Each entity disclaims     
beneficial ownership of the shares not owned of record by it.           

(b) Messrs. Glaske and Wallace are directors and executive officers of the      
    Company and BBC. Messrs. Grantham, Maddox and Gourley are executive officers
    of the Company who perform policy making functions for BBC and are therefore
deemed executive officers of BBC. Messrs. Trauscht and Daugherty are    
directors of the Company and BBC.                                       

(c) Includes 175,000 shares subject to vested options and 175,000 shares subject
to performance options granted to Mr. Glaske under the Management Stock 
Option Plan which are currently exercisable.                            

(d) Includes 75,000 shares subject to vested options and 25,000 shares subject  
to performance options granted to Mr. Wallace under the Management Stock
Option Plan which are currently exercisable.                            

(e) Includes 40,000 shares subject to vested options and 40,000 shares subject  
 to performance options granted to Mr. Grantham under the Management Stock
Option Plan which are currently exercisable.                            

(f) Includes 40,000 shares subject to vested options and 40,000 shares subject  
to performance options granted to Mr. Maddox under the Management Stock 
Option Plan which are currently exercisable.                            

(g) Includes 10,000 shares subject to vested options and 10,000 shares subject  
to performance options granted to Mr. Gourley under the Management Stock
Option Plan which are currently exercisable.                            

(h) Messrs. Armstrong and Michas are directors of the Company, BBC and MLCP.    
Messrs. Armstrong and Michas are limited partners of the general partner
    ("LBO") of Merrill Lynch Capital Appreciation Partnership No. B-XV, L.P. and
 ML Offshore LBO Partnership No. B-XV. MLCP is the general partner of LBO.
  Messrs. Armstrong and Michas each disclaims beneficial ownership of shares
beneficially owned by the ML Entities.                                  

(i) Includes 340,000 shares subject to vested options and 290,000 shares subject
    to performance options granted to executive officers of BBC as a group under
  the Management Stock Option Plan which are currently exercisable. Does not
include any shares beneficially owned by the ML Entities.               

ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS.                        

BBC is owned by affiliates (the "ML Entities") of Merrill Lynch Capital 
Partners, Inc. ("MLCP"), certain directors of BBC and the Company and certain   
members of management of the Company (the "Management Investors"), who together 
acquired the Company in a leveraged buyout transaction in 1992 (the "1992       
Acquisition").                                                                  

  Merrill Lynch is an affiliate of the Company and BBC. Two of the directors
of the Company and BBC are partners and directors of Stonington Partners, Inc.  
and act as consultants to MLCP.                                                 

 The Management Investors' purchase of BBC Common Stock in connection with
the 1992 Acquisition was funded through a combination of (i) $200,000 in        
cash, (ii) the rollover of approximately $3.65 million of SARs on a pre-tax     
basis, and (iii) nonrecourse promissory notes of the Management Investors       
(the "Management Notes") in an aggregate principal amount of $4.15 million.     
Cash distributions received in respect of the shares of BBC Common Stock        
purchased with the proceeds of borrowings under the Management Notes were       
required to be applied toward repayment of such notes. The Management Notes     
were repaid as a result of the Recapitalization.                                

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  Pursuant to the terms of the Stockholders' Agreement entered into on April
15, 1992 by BBC, the Management Investors and the ML Entities (the              
"Stockholders' Agreement"), all shares of BBC Common Stock purchased at the     
closing of the 1992 Acquisition by the Management Investors and issued upon     
exercise of options are subject to certain restrictions on transfer and certain 
put and call arrangements in the event that the holder of such shares terminates
his employment with BBC or any of its subsidiaries.                             

 Management Investors will have the right to require BBC to purchase their
shares and options in the event of death, disability, retirement or involuntary 
termination for a fair value price determined pursuant to a formula based upon a
multiple of BBC's earnings before interest and taxes. BBC will have the right to
require a Management Investor to sell such Management Investor's shares and     
options if such Management Investor's employment terminates at prices determined
by formulas varying under different circumstances, but in no event will such    
price be higher than the greater of the initial purchase price and the fair     
value price. Payments under the puts and calls are subject to certain           
restrictions under the Existing Credit Agreement and the indenture for the Old  
Notes, and will be subject to certain restrictions under the New Credit         
Agreement and the Indenture, as applicable.                                     

The Stockholders' Agreement also provides that in the event that Messrs.
Armstrong, Michas, Glaske and Wallace are unwilling or unable to serve, or      
otherwise cease to serve, as directors of BBC, then the ML Entities shall be    
entitled to fill the resulting vacancies on the Board of Directors of BBC. In   
addition, the Stockholders' Agreement provides that the ML Entities are entitled
to nominate successors to all BBC directors and that the stockholders of BBC    
will cooperate in any removal of directors proposed by the ML Entities.         

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BLUE BIRD CORPORATION AND SUBSIDIARIES

INDEX TO CONSOLIDATED FINANCIAL STATEMENTS

                                                        [Enlarge/Download Table]

                                                                                       PAGE
                                                                                       ----
                                                                                           
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS.............................................. F-2 

AUDITED CONSOLIDATED FINANCIAL STATEMENTS                                                  

  Consolidated Balance Sheets as of November 1, 1997 and November 2, 1996............. F-3 

  Consolidated Statements of Income for the Years Ended November 1, 1997,                  
    November 2, 1996 and October 28, 1995............................................. F-5 

  Consolidated Statements of Changes in Stockholders' Deficit for the Years                
    Ended November 1, 1997, November 2, 1996 and October 28, 1995..................... F-6 

  Consolidated Statements of Cash Flows for the Years Ended November 1, 1997,              
    November 2, 1996 and October 28, 1995............................................. F-7 

NOTES TO AUDITED CONSOLIDATED FINANCIAL STATEMENTS.................................... F-8 


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      REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS

To the Stockholders and                                                         
Board of Directors of                                                           
Blue Bird Corporation:                                                          

We have audited the accompanying consolidated balance sheets of BLUE BIRD       
CORPORATION (a Delaware corporation) AND SUBSIDIARIES as of November 1, 1997    
and November 2, 1996 and the related consolidated statements of income,         
changes in stockholders' deficit, and cash flows for each of the three years    
in the period ended November 1, 1997.  These financial statements are the       
responsibility of the Company's management.  Our responsibility is to express   
an opinion on these financial statements based on our audits.                   

We conducted our audits in accordance with generally accepted auditing          
standards.  Those standards require that we plan and perform the audit to       
obtain reasonable assurance about whether the financial statements are free     
of material misstatement.  An audit includes examining, on a test basis,        
evidence supporting the amounts and disclosures in the financial statements.    
An audit also includes assessing the accounting principles used and             
significant estimates made by management, as well as evaluating the overall     
financial statement presentation.  We believe that our audits provide a         
reasonable basis for our opinion.                                               

In our opinion, the consolidated financial statements referred to above         
present fairly, in all material respects, the financial position of Blue Bird   
Corporation and subsidiaries as of November 1, 1997 and November 2, 1996 and    
the results of their operations and their cash flows for each of the three      
years in the period ended November 1, 1997 in conformity with generally         
accepted accounting principles.                                                 

Arthur Andersen LLP                                                             

Atlanta, Georgia                                                                
December 4, 1997                                                                

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BLUE BIRD CORPORATION AND SUBSIDIARIES

CONSOLIDATED BALANCE SHEETS 

NOVEMBER 1, 1997 AND NOVEMBER 2, 1996 

                                                        [Enlarge/Download Table]


                              ASSETS                                                 1997           1996       
------------------------------------------------------------------                -----------    -----------   
                                                                                                               
CURRENT ASSETS:                                                                                                
  Cash and cash equivalents                                                       $ 31,030,559    $ 46,253,258 
  Trade receivables                                                                 16,515,026      13,442,724 
  Leases receivable                                                                 43,115,861      32,214,649 
  Inventories                                                                       76,384,544      69,775,802 
  Other current assets                                                               3,314,652       5,304,168 
                                                                                  ------------    ------------ 
     Total current assets                                                          170,360,642     166,990,601 
                                                                                  ------------    ------------ 

LEASES RECEIVABLE, noncurrent                                                       59,206,508      41,862,478 
                                                                                  ------------    ------------ 

PROPERTY, PLANT, AND EQUIPMENT:                                                                                
  Land                                                                               4,070,400       4,090,351 
  Buildings                                                                         18,918,620      17,678,238 
  Machinery and equipment                                                           31,727,883      28,883,888 
  Automobiles, trucks, and airplane                                                  7,574,041       7,758,985 
  Office furniture and equipment                                                     4,705,375       5,178,814 
  Construction in progress                                                           1,607,419       1,008,435 
                                                                                  ------------    ------------ 
                                                                                    68,603,738      64,598,711 
Less accumulated depreciation                                                      (30,502,810)    (25,709,736)
                                                                                  ------------    ------------ 
     Net property, plant, and equipment                                             38,100,928      38,888,975 
                                                                                  ------------    ------------ 

OTHER ASSETS:                                                                                                  
  Deferred debt issuance costs, net of accumulated amortization of $1,257,000                                  
    and $8,733,592 in 1997 and 1996, respectively                                    8,514,749       1,424,137 
  Goodwill, net of accumulated amortization of $21,237,500 and $17,397,500 in                                  
    1997 and 1996, respectively                                                    131,454,106     135,294,106 
  Land and idle facilities                                                                   0       2,000,000 
  Other assets                                                                       4,862,642       4,570,450 
                                                                                  ------------    ------------ 
     Total other assets                                                            144,831,497     143,288,693 
                                                                                  ------------    ------------ 
     Total assets                                                                 $412,499,575    $391,030,747 
                                                                                  ------------    ------------ 
                                                                                  ------------    ------------ 

The accompanying notes are an integral part of these consolidated balance sheets.                              


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BLUE BIRD CORPORATION AND SUBSIDIARIES

 CONSOLIDATED BALANCE SHEETS (CONTINUED)

NOVEMBER 1, 1997 AND NOVEMBER 2, 1996 

                                                        [Enlarge/Download Table]


         LIABILITIES AND STOCKHOLDERS' (DEFICIT) EQUITY                               1997          1996      
------------------------------------------------------------------                 -----------   -----------  
                                                                                                              
CURRENT LIABILITIES:                                                                                          
  Current portion of long-term debt                                               $ 12,750,000   $ 16,000,000 
  Trade accounts payable                                                            21,708,489     27,704,475 
  Deposits and amounts due customers                                                 2,923,252      1,344,852 
  Income taxes payable                                                                  41,580      9,269,833 
  Accrued warranty                                                                   5,609,247      5,603,021 
  Accrued interest                                                                   5,871,716        623,844 
  Other accrued liabilities                                                         17,711,915     16,947,208 
  Deferred income taxes                                                              4,473,765      9,079,975 
                                                                                  ------------   ------------ 
     Total current liabilities                                                      71,089,964     86,573,208 
                                                                                  ------------   ------------ 
LONG-TERM LIABILITIES:                                                                                        
  Long-term debt                                                                   336,813,159    128,600,000 
  Bonds payable                                                                      2,750,000      2,750,000 
  Accrued pension expense                                                            9,788,085      8,288,463 
  Deferred income taxes                                                              4,612,383      5,306,392 
  Other long-term liabilities                                                       11,889,106     12,019,864 
                                                                                  ------------   ------------ 
     Total long-term liabilities                                                   365,852,733    156,964,719 
                                                                                  ------------   ------------ 
COMMITMENTS AND CONTINGENCIES (Notes 10 and 11)                                                               

REDEEMABLE COMMON STOCK, $.01 par value; 730,000 and 720,000 shares issued                                    
  and outstanding in 1997 and 1996, respectively (Note 9)                           20,676,000     33,105,000 

STOCK SUBSCRIPTIONS RECEIVABLE (Note 9)                                                      0     (3,800,000)
                                                                                  ------------   ------------ 
                                                                                    20,676,000     29,305,000 
                                                                                  ------------   ------------ 
STOCKHOLDERS' (DEFICIT) EQUITY:                                                                               
  Common stock, $.01 par value; 25,000,000 shares authorized, 7,704,778                                       
    shares issued and outstanding in 1997 and 1996                                      77,048         77,048 
  Additional paid-in capital                                                        77,022,956     77,022,956 
  Accumulated (deficit) earnings                                                  (119,205,789)    43,227,960 
  Cumulative translation adjustments                                                (3,013,337)    (2,140,144)
                                                                                  ------------   ------------ 
     Total stockholders' (deficit) equity                                          (45,119,122)   118,187,820 
                                                                                  ------------   ------------ 
     Total liabilities and stockholders' (deficit) equity                         $412,499,575   $391,030,747 
                                                                                  ------------   ------------ 
                                                                                  ------------   ------------ 

The accompanying notes are an integral part of these consolidated balance sheets.                             


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                                                        [Enlarge/Download Table]

                        BLUE BIRD CORPORATION AND SUBSIDIARIES                                  

                          CONSOLIDATED STATEMENTS OF INCOME                                     

     FOR THE YEARS ENDED NOVEMBER 1, 1997, NOVEMBER 2, 1996, AND OCTOBER 28, 1995               

                                             1997                  1996                1995     
                                             ----                  ----                ----     
                                                                                                
NET SALES                               $576,110,139           $570,184,841        $517,444,172 

COST OF GOODS SOLD                       473,402,463            474,066,847         430,667,432 
                                        ------------           ------------        ------------ 
GROSS PROFIT                             102,707,676             96,117,994          86,776,740 
                                        ------------           ------------        ------------ 

SELLING, GENERAL, AND ADMINISTRATIVE                                                            
 EXPENSES                                 62,349,085             42,568,911          39,795,821 

AMORTIZATION OF GOODWILL                   3,840,000              3,830,000           4,692,867 
                                        ------------           ------------        ------------ 
                                          66,189,085             46,398,911          44,488,688 
                                        ------------           ------------        ------------ 
OPERATING INCOME                          36,518,591             49,719,083          42,288,052 

INTEREST INCOME                            6,255,934              6,998,830           4,618,315 

INTEREST EXPENSE                         (33,754,249)           (16,889,261)        (18,537,244)

OTHER INCOME, net                          1,858,539                224,052             168,554 
                                        ------------           ------------        ------------ 
INCOME BEFORE INCOME TAXES                10,878,815             40,052,704          28,537,677 

(BENEFIT) PROVISION FOR INCOME TAXES      (2,704,014)            14,872,343          11,686,056 
                                        ------------           ------------        ------------ 
NET INCOME BEFORE EXTRAORDINARY ITEM      13,582,829             25,180,361          16,851,621 

LOSS ON EXTINGUISHMENT OF DEBT, net of                                                          
 tax benefit of $1,768,686, $838,364,                                                           
 and $0 in 1997, 1996, and 1995                                                                 
 respectively (Note 5)                    (2,985,845)            (1,415,302)                  0 
                                        ------------           ------------        ------------ 
NET INCOME                              $ 10,596,984           $ 23,765,059        $ 16,851,621 
                                        ------------           ------------        ------------ 
                                        ------------           ------------        ------------ 

    The accompanying notes are an integral part of these consolidated statements.               


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                        BLUE BIRD CORPORATION AND SUBSIDIARIES                                                  

             CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS' DEFICIT                                        

     FOR THE YEARS ENDED NOVEMBER 1, 1997, NOVEMBER 2, 1996, AND OCTOBER 28, 1995                               

                                                                         RETAINED                      MINIMUM  
                                                        ADDITIONAL       EARNINGS       CUMULATIVE     PENSION  
                                            COMMON       PAID-IN       (ACCUMULATED     TRANSLATION   LIABILITY 
                                            STOCK        CAPITAL         DEFICIT)       ADJUSTMENTS   ADJUSTMENT
                                            -------     -----------   -------------     -----------   --------- 
                                                                                                                
BALANCE, October 29, 1994                   $77,048     $77,022,956   $  14,368,280     $(2,254,039)  $(400,000)

 Net income                                       0               0      16,851,621               0           0 
 Accretion of redeemable common stock             0               0      (3,324,000)              0           0 
 Translation adjustments                          0               0               0        (114,645)          0 
 Minimum pension liability adjustment             0               0               0               0     400,000 
                                            -------     -----------   -------------     -----------   --------- 
BALANCE, October 28, 1995                    77,048      77,022,956      27,895,901      (2,368,684)          0 

 Net income                                       0               0      23,765,059               0           0 
 Accretion of redeemable common stock             0               0      (8,433,000)              0           0 
 Translation adjustments                          0               0               0         228,540           0 
                                            -------     -----------   -------------     -----------   --------- 
BALANCE, November 2, 1996                    77,048      77,022,956      43,227,960      (2,140,144)          0 

 Net income                                       0               0      10,596,984               0           0 
 Dividend distribution                            0               0    (185,345,533)              0           0 
 Accretion of redeemable common stock             0               0      12,314,800               0           0 
 Translation adjustments                          0               0               0        (873,193)          0 
                                            -------     -----------   -------------     -----------   --------- 
BALANCE, November 1, 1997                   $77,048     $77,022,956   $(119,205,789)    $(3,013,337)  $       0 
                                            -------     -----------   -------------     -----------   --------- 
                                            -------     -----------   -------------     -----------   --------- 

          The accompanying notes are an integral part of these consolidated statements.                         

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      BLUE BIRD CORPORATION AND SUBSIDIARIES

     CONSOLIDATED STATEMENTS OF CASH FLOWS

     FOR THE YEARS ENDED NOVEMBER 1, 1997,

      NOVEMBER 2, 1996, AND OCTOBER 28, 1995

                                                        [Enlarge/Download Table]

                                                 1997                 1996             1995    
                                                 ----                 ----             ----    
                                                                                               
CASH FLOWS FROM OPERATING ACTIVITIES:                                                          

 Net income                                 $  10,596,984         $ 23,765,059    $ 16,851,621 
                                            -------------         ------------    ------------ 
Adjustments to reconcile net income                                                            
 to net cash provided by operating                                                             
 activities:                                                                                   

  Extraordinary loss on extinguishment                                                         
   of debt                                      4,754,531            2,253,666               0 
  Depreciation and amortization                11,178,984           11,517,766      12,558,707 
  Increase in cash surrender value                                                             
   of life insurance                             (152,519)            (110,113)       (234,103)
  Deferred income taxes                        (5,300,219)          (1,046,707)          5,011 
  Gain on sale of assets                         (628,320)                   0               0 
  Changes in assets and liabilities:                                                           
   Trade receivables                           (3,072,302)           5,423,096      (4,602,234)
   Inventories                                 (6,608,742)          13,570,469      (7,561,501)
   Trade accounts payable                      (5,995,986)           1,961,241         689,604 
   Income taxes payable                        (9,228,523)           2,343,672       5,180,641 
   Accrued interest                             5,247,872           (1,411,558)        382,653 
   Other current liabilities                    2,349,333             (312,039)     (1,163,088)
   Other                                        3,136,379            1,632,686        (812,688)
                                            -------------         ------------    ------------ 
    Total adjustments                          (4,319,242)          35,822,179       4,443,002 
                                            -------------         ------------    ------------ 
    Net cash provided by operating                                                             
     activities                                 6,277,742           59,587,238      21,294,623 
                                            -------------         ------------    ------------ 
CASH FLOWS FROM INVESTING ACTIVITIES:                                                          
 Property, plant, and equipment                                                                
  acquisitions, net                            (5,358,015)          (7,280,958)     (3,648,833)
 Increases in leases receivable               (28,245,242)         (11,855,103)    (32,230,390)
 Proceed from sale of assets                    2,797,699                    0               0 
                                            -------------         ------------    ------------ 
    Net cash used in investing                                                                 
     activities                               (30,805,558)         (19,136,061)    (35,879,223)
                                            -------------         ------------    ------------ 

CASH FLOWS FROM FINANCING ACTIVITIES:                                                          
 Proceeds from long-term debt                 274,699,000                    0               0 
 Repayments of long-term debt                 (96,650,000)         (37,000,000)    (10,000,000)
 Net borrowings (repayments) under                                                             
  revolving credit agreements                  26,900,000           22,938,427      35,661,573 
 Debt prepayment premium                       (3,369,323)          (1,625,000)              0 
 Debt issuance costs                           (9,741,634)                   0               0 
 Dividend paid                               (185,345,533)                   0               0 
 Other                                          3,685,800             (192,000)              0 
                                            -------------         ------------    ------------ 
    Net cash provided by (used in)                                                             
     financing activities                      10,178,310          (15,878,573)     25,661,573 
                                            -------------         ------------    ------------ 
EFFECT OF EXCHANGE RATE FLUCTUATIONS             (873,193)             228,540        (114,645)
                                            -------------         ------------    ------------ 
NET (DECREASE) INCREASE IN CASH AND                                                            
 CASH EQUIVALENTS                             (15,222,699)          24,801,144      10,962,328 

CASH AND CASH EQUIVALENTS AT BEGINNING                                                         
 OF YEAR                                       46,253,258           21,452,114      10,489,786 
                                            -------------         ------------    ------------ 
CASH AND CASH EQUIVALENTS AT END OF YEAR      $31,030,559          $46,253,258     $21,452,114 
                                            -------------         ------------    ------------ 
                                            -------------         ------------    ------------ 

SUPPLEMENTAL DISCLOSURES OF CASH FLOW                                                          
 INFORMATION:                                                                                  
  Cash paid during the year for:                                                               
   Interest                                   $27,534,402          $11,935,717     $14,959,218 
  Income taxes                                $10,166,964          $12,725,475     $ 4,038,000 

    The accompanying notes are an integral part of these consolidated statements.              


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      BLUE BIRD CORPORATION AND SUBSIDIARIES

      NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

      NOVEMBER 1, 1997, NOVEMBER 2, 1996, AND OCTOBER 28, 1995

1.   NATURE OF BUSINESS                                                         

Blue Bird Corporation and subsidiaries ("BBC" or the "Company") are   
 engaged in the manufacture and assembly of school and transit buses and
  recreational vehicles.  BBC has facilities in the United States, Canada,
and Mexico.                                                           

Fiscal 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 1997, 1996,
and 1995 contained 52, 53, and 52 weeks, respectively.                

Significant Accounting Policies                                       

Principles of Consolidation                                           

 The accompanying consolidated financial statements include the accounts
of Blue Bird Corporation and its domestic and foreign subsidiaries    
(owned 100% by BBC).  All significant intercompany transactions and   
accounts have been eliminated in consolidation.                       

Translation and Remeasurement of Foreign Currencies                   

For the purpose of consolidation, the accounts of certain foreign     
subsidiaries and foreign branches of domestic subsidiaries of the U.S.
parent are translated into U.S. dollars. Foreign currency assets and  
liabilities are translated using the exchange rates in effect at the  
balance sheet date.  Results of operations are translated using the   
weighted average exchange rates in effect during the period.  The     
effects of exchange rate fluctuations on translating foreign currency 
 assets and liabilities into U.S. dollars are accumulated as part of the
cumulative translation adjustments included in the consolidated       
statement of changes in stockholders' deficit.                        

One foreign subsidiary (the "Subsidiary") of the U.S. parent transacts
 sales denominated in U.S. dollars, while the Company provides inventory
and financing.  Accordingly, the U.S. dollar is deemed to be the      
  functional currency.  The Subsidiary does not maintain its books in U.S.
dollars but remeasures its monetary assets and liabilities at balance 
 sheet date rates, its nonmonetary items at historical rates, and income
and expense amounts at the weighted average rates in effect for the   
period, except for depreciation and cost of goods sold which use      
historical rates.  The effects of exchange rate fluctuations on the   
  remeasurement of the Subsidiary's financial statements are recognized as
exchange gains or losses in the consolidated statements of income.    

The Company recognizes exchange gains and losses from foreign currency
transactions as other income or expense for the period.  Losses of    
approximately $331,000, $54,000 and $617,000 were recorded in fiscal  
years 1997, 1996, and 1995, respectively.                             

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Financial Instruments                                                 

BBC's financial instruments consist primarily of cash and cash        
equivalents, trade receivables, leases receivable, accounts payable,  
revolving credit facilities, long-term debt, and certain interest rate
agreements (Note 5).  In management's opinion, the carrying amounts of
all financial instruments approximate their fair values at November 1,
1997 and November 2, 1996.                                            

 The Company uses interest rate exchange agreements in the normal course
of business to manage and reduce the risk inherent in interest rate   
 fluctuations.  Under the interest rate exchange agreements, the Company
makes payments to counterparties at fixed interest rates and, in turn,
receives payments at variable rates.  The net settlement amount under 
   the exchange agreements is reported as an adjustment to interest expense.

Revenue Recognition                                                   

BBC recognizes revenue on sales when the related product has been     
 delivered to the customer and title has passed or full payment has been
received from the customer and the product is completed and awaiting  
customer pickup.                                                      

Cash and Cash Equivalents                                             

BBC considers all highly liquid investments purchased with an original
maturity of three months or less to be cash equivalents.              

Inventories                                                           

Inventories are valued at the lower of cost or market, cost being     
  determined on the last-in, first-out ("LIFO") basis.  Such costs include
raw materials, direct labor, and manufacturing overhead.              

 If the first-in, first-out method had been used, inventories would have
been approximately $79,300,000 and $71,900,000 at November 1, 1997 and
November 2, 1996, respectively.                                       

 The components of inventory as of November 1, 1997 and November 2, 1996
consist of the following:                                             

                                      1997              1996
                                      ----              ----
      Raw materials                    $22,170,000       $18,847,481
      Work in process                   26,695,000        22,915,908
      Finished goods                    27,519,544        28,012,413
                                       -----------       -----------
        Total inventories (LIFO cost)  $76,384,544       $69,775,802
                                       -----------       -----------
                                       -----------       -----------

Property, Plant, and Equipment                                        

All assets are being depreciated on a straight-line basis over their  
estimated useful lives.  The following represents the estimated useful
lives of the assets:                                                  

     Buildings                           20-33 years
     Machinery and equipment              5-10 years
     Automobiles, trucks, and airplane     3-5 years
     Office furniture and equipment       3-10 years

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 Expenditures for property and repair costs which substantially increase
 useful lives are capitalized.  Currently, normal maintenance and repair
  costs are charged to expense as incurred.  Gains and losses on disposals
of property, plant, and equipment are reflected in income.            

Depreciation expenses of $5,975,024, $5,516,894, and $5,575,840 were  
recorded for the years ended November 1, 1997, November 2, 1996, and  
October 28, 1995, respectively.                                       

Goodwill                                                              

 On April 15, 1992, BBC acquired all of the outstanding capital stock of
 Blue Bird Body Company and subsidiaries.  The acquisition was accounted
  for as a purchase.  The excess purchase price over the fair value of the
  net assets, as adjusted, of $152,691,606 was allocated to goodwill.  The
goodwill is being amortized using the straight-line method over 40    
years.  BBC periodically reviews the value assigned to goodwill to    
  determine whether it has been permanently impaired by adverse conditions
affecting BBC.  The Company uses an estimate of its undiscounted cash 
flows over the remaining life of the goodwill in measuring whether the
goodwill is recoverable.  Management is of the opinion that there has 
been no diminution in the value assigned to goodwill.                 

Land and Idle Facilities                                              

In fiscal year 1996, BBC had land and idle facilities held for sale   
located in Buena Vista, Virginia.  During 1997, the land was sold at a
  gain of approximately $635,000, which is included in other income in the
accompanying consolidated statements of income.                       

Product Warranty Costs                                                

The Company's products are warranted against defects in material and  
 workmanship for a period of one to five years. The Company provides for
future warranty costs based on the relationship of sales in prior     
periods to actual warranty costs incurred with respect to those sales.
The provision for estimated warranty costs is recorded in the year the
unit is sold.  Warranty costs totaled $5,688,688, $6,185,115, and     
$5,313,438 for the years ended November 1, 1997, November 2, 1996, and
October 28, 1995, respectively.                                       

Accounting Standards Yet to Be Adopted                                

In February, 1997, the Financial Accounting Standards Board ("FASB")  
issued Statement of Financial Accounting Standards ("SFAS") No. 129,  
"Disclosures of Information about Capital Structure," which will be   
 effective for fiscal 1998.  In June, 1997, the FASB issued SFAS No. 130
"Reporting Comprehensive Income."  Also in June, 1997, the FASB issued
SFAS No. 131, "Disclosure about Segments of an Enterprise and Related 
Information."  SFAS No. 130 and No. 131 will be effective for fiscal  
1999.                                                                 

SFAS No. 129 requires the Company to disclose information about its   
  capital structure. SFAS No. 130 requires the disclosure of comprehensive
 income, which includes all changes in the equity of an enterprise other
than transactions with owners.  SFAS No. 131 requires information     
regarding the segments of a business.                                 

SFAS No. 129 and No. 130 are not expected to have a material effect on
the Company's financial statements or disclosures. The Company has not
yet determined the impact that SFAS No. 131 will have on its financial
statements or disclosures. Other issued but not yet required FASB     
standards are not currently applicable to the Company's operations.   

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Use of Estimates                                                      

The preparation of financial statements in conformity with generally  
  accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities
and disclosure of contingent assets and liabilities at the date of the
financial statements and the reported amounts of revenues and expenses
during the reporting period.  Actual results could differ from those  
estimates.                                                            

Reclassifications                                                     

Certain November 2, 1996 and October 28, 1995 balances have been      
reclassified to conform with the November 1, 1997 presentation.       

2.   LEASES RECEIVABLE                                                          

  During 1995, BBC created a new subsidiary, Blue Bird Capital Corporation
 ("Blue Bird Capital"), for the purpose of expanding the availability of
lease financing alternatives to customers of its school bus products. 
In addition, the Company has the ability, at its discretion, to sell  
 leases to a bank.  However, no leases have been sold since fiscal 1995.
  The Company is required as part of its agreement with the bank to hold a
letter of credit relating to the leases it has sold to the bank.  The 
letter of credit was $428,000 and $1,053,000 at November 1, 1997 and  
November 2, 1996, respectively.                                       

BBC finances the sale of buses to school districts, other tax-exempt  
municipalities, and contractors under sales-type leases.  Lease terms 
range from one to seven years and contain a bargain purchase option at
the end of the lease term.  Under the lease terms, the lessee bears   
substantially all risks of ownership.  BBC retains a lien on the title
until all lease payments have been made.                              

The net investment in leases arising from these arrangements as of    
November 1, 1997 and November 2, 1996 was as follows:                 

                              1997              1996
                              ----              ----
   Leases receivable          $115,028,226       $82,889,596
    Unearned interest revenue   (12,705,857)       (8,812,469)
                              ------------       -----------
   Net leases receivable      $102,322,369       $74,077,127
                              ------------       -----------
                              ------------       -----------

Interest income recognized on leases receivable was $5,309,199,       
$4,947,064, and $2,914,928 for the years ended November 1, 1997,      
November 2, 1996, and October 28, 1995, respectively.  The primary    
expenses associated with the Company's finance lease activities relate
 to the interest expense from the revolving credit facility of Blue Bird
Capital (Note 5).                                                     

3.   NET CASH SURRENDER VALUE OF LIFE INSURANCE                                 

Details of the net cash surrender value of life insurance on the lives
of individuals in whom BBC has an insurable interest as of November 1,
1997 and November 2, 1996 are as follows:                             

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                                 1997               1996
                                 ----               ----
   Cash values                  $ 7,455,511        $ 7,302,352
     Less life insurance loans    (4,458,000)        (4,457,000)
                                -----------        -----------
Net cash surrender value,                               
    included in other assets    $ 2,997,511        $ 2,845,352
                                -----------        -----------
                                -----------        -----------

4.   RECAPITALIZATION                                                           

 On November 19, 1996, the Company completed an overall recapitalization
pursuant to which the Company refinanced approximately $86,000,000 of 
its indebtedness, paid a special cash dividend of approximately       
$185,346,000 on all shares of its common stock, including $15,840,000 
paid to management as owners of redeemable common stock, and paid a   
  distribution to BBC option holders of $16,060,000.  The dividend paid is
recorded as a reduction to retained earnings in the consolidated      
statements of changes in stockholders' deficit.  The distribution paid
to BBC option holders was recorded as compensation expense and is     
included in selling, general, and administrative expenses in the      
accompanying consolidated statements of income.                       

5.   LONG-TERM DEBT                                                             

Outstanding debt at November 1, 1997 and November 2, 1996 consisted of
the following:                                                        
                                                   1997         1996
                                                   ----         ----
10.75% senior subordinated notes,                                     
due November 15, 2006; interest                                       
payable semiannually; subordinated                                    
   to Senior Credit Facility, as defined          $ 99,713,159   $         0

Senior Credit Facility term loan,                                     
principal and interest payable in                                     
quarterly installments through                                        
November 19, 2002; interest payable                                   
at the option of BBC at either the                                    
prime rate plus 1.5% or the                                           
Eurodollar rate plus 2.5%; at                                         
November 1, 1997 the Company had                                      
approximately $5,100,000 at 10% and                                   
$85,000,000 at 8.31%; collateralized                                  
by all of the capital stock of the                                    
Company, 66% of the capital stock of                                  
Canadian Blue Bird, and substantially                                 
   all of the assets of the Company                 90,100,000             0

Senior Credit Facility term loan,                                     
principal and interest payable in                                     
quarterly installments through                                        
November 19, 2002; interest payable                                   
at the option of BBC at either the                                    
prime rate plus 2% or the Eurodollar                                  
rate plus 3%; at November 1, 1997 the                                 
Company had approximately $6,250,000                                  
at 10.5% and $68,000,000 at 8.81%;                                    
collateralized by all of the capital                                  
stock of the Company, 66% of the                                      
capital stock of Canadian Blue Bird,                                  
and substantially all of the assets                                   
   of the Company                                   74,250,000             0

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                                                   1997         1996
                                                   ----         ----
Blue Bird Capital revolving credit                                    
facility with final maturity on March                                 
31, 1999; interest payable quarterly                                  
at the option of BBC at either the                                    
prime rate or the Eurodollar rate                                     
plus 1.125%; collateralized by all                                    
the capital stock of Blue Bird                                        
   Capital                                         $85,500,000   $58,600,000

Industrial development bonds, due                                     
March 2001; interest payable                                          
quarterly; interest rate at 3.65% on                                  
November 1, 1997; secured by a letter                                 
   of credit                                         2,750,000     2,750,000

Bank term loan, extinguished as part                                  
   of the recapitalization                                   0    36,000,000

11.75% Series B senior subordinated                                   
notes, extinguished as part of the                                    
   recapitalization                                          0    50,000,000
                                                  ------------  ------------
                                                   352,313,159   147,350,000

   Less current portion of debt                     12,750,000    16,000,000
                                                  ------------  ------------
   Long-term debt and bonds payable               $339,563,159  $131,350,000
                                                  ------------  ------------
                                                  ------------  ------------

  As part of the recapitalization, holders of $50,000,000 of the Company's
 outstanding 11.75% Series B subordinated notes (the "Old Notes") agreed
to sell their Old Notes to the Company and consented to certain       
amendments to the indenture governing the Old Notes for aggregate     
  payments (including accrued interest) of approximately $54,000,000.  The
Company recognized an extraordinary loss of $2,985,845, net of tax    
benefit, related to the Company's purchase of the Old Notes, which is 
 included in the accompanying consolidated statements of income. Holders
of the $36,000,000 bank term loan were also paid as part of the       
recapitalization.                                                     

  The Company's previous bank credit agreement was replaced and refinanced
by an amended credit agreement (the "Senior Credit Facility") which   
provides for an aggregate availability of $255,000,000, including     
  $175,000,000 of term loan facilities and $80,000,000 of revolving credit
 facilities.  The Senior Credit Facility provides for two term loans and
a revolving credit facility.  The revolving credit facility matures in
November 2003 and requires interest payable quarterly at the Company's
option of the prime rate plus 1.5% or the Eurodollar rate plus 2.5%.  
 The weighted average interest rate of the revolving credit facility was
8.68% for the year ended November 1, 1997.  In addition, the revolving
  credit facility requires quarterly payments of a commitment fee equal to
  .50% per annum of the daily unused portion.  No amounts were outstanding
under this revolving credit facility at November 1, 1997.  The Senior 
Credit Facility contains certain restrictive covenants.  The most     
restrictive covenants include (1) limitations on indebtedness of the  
  Company, as defined, (2) certain restrictions on dividend distributions,
as defined, (3) limitations on capital expenditures, (4) minimum      
interest coverage ratio, as defined, and (5) a maximum ratio of total 
  debt to earnings before interest, taxes, depreciation, and amortization.
As of November 1, 1997, the Company was in compliance with all of its 
covenants.                                                            

  In addition to the Senior Credit Facility, the Company sold $100,000,000
of 10.75% senior subordinated notes (the "New Notes").  Proceeds from 
 the New Notes, borrowings under the Senior Credit Facility, and cash on
hand were used to fund the retirement of the Old Notes, the retirement
of the $36,000,000 bank term loan, the payment of the dividend and    
distribution discussed in Note 4, and the payment of related fees and 
expenses.  The New Notes are unsecured and contain certain restrictive
covenants.  The most restrictive covenants include (1) limitation of  
indebtedness, as defined and (2) certain restrictions on dividend     
distributions, as defined.  As of November 1, 1997, the Company was in
compliance with all of its covenants.                                 

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 Also, Blue Bird Capital has a revolving credit facility (the "Blue Bird
Capital Revolver"). The maximum capacity of the Blue Bird Capital     
Revolver is $100,000,000 subject to meeting certain covenants, as     
 defined.  The Blue Bird Capital Revolver requires quarterly payments of
a commitment fee equal to .14% and .15% as of November 1, 1997 and    
November 2, 1996, respectively, not to exceed .275% per annum of the  
daily unused portion of the credit commitment.  The Blue Bird Capital 
 Revolver contains certain covenants, including net income, tangible net
worth, and interest coverage ratios.  All of these covenants have been
met as of November 1, 1997.                                           

In connection with the Senior Credit Facility, BBC purchased interest 
  rate cap agreements with notional principal amounts totaling $37,000,000
in order to reduce the impact of fluctuations in interest rates on its
variable rate debt.  The interest rate agreements mature at dates     
ranging from April 1998 to April 1999.                                

 The Company entered into interest rate exchange agreements to hedge its
exposure to fluctuating interest rates related to its variable rate   
debt.  As of November 1, 1997, the exchanges carry notional principal 
amounts totaling $190,000,000 and have an estimated fair value of     
 $300,000, which is calculated based on the estimated amount the Company
would have to pay to terminate the agreements.                        

The industrial development bonds accrue interest based on a variable  
weekly interest rate, with interest payments due quarterly.  An       
irrevocable letter of credit backing the bonds has been issued which  
requires adherence to certain terms and financial ratios which are the
same or less restrictive than those under the revolving credit        
facilities and term loan, all of which have been met as of November 1,
1997.                                                                 

  The future minimum principal payments by fiscal year of outstanding debt
at November 1, 1997 are as follows:                                   

1998               $ 12,750,000   
1999                102,250,000   
2000                 20,750,000   
2001                 25,500,000   
2002                 20,850,000   
Thereafter          170,213,159   
                ------------
                $352,313,159
                ------------
                ------------

6.   INCOME TAXES                                                               

BBC follows the provisions of SFAS No. 109, "Accounting for Income    
Taxes," for financial reporting purposes.  Deferred tax assets or     
  liabilities at the end of each period are determined using the currently
  enacted tax rates to apply to taxable income in the periods in which the
deferred tax asset or liability is expected to be settled or realized.

The components of the net deferred tax liability are as follows:      

                                        1997          1996
                                        ----          ----
 Total deferred tax liabilities         $30,600,079    $31,400,496
  Total deferred tax assets              (21,513,931)   (17,014,129)
                                        -----------    -----------
 Net deferred tax liability             $ 9,086,148    $14,386,367
                                        -----------    -----------
                                        -----------    -----------

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 The sources of and differences between the financial accounting and tax
basis of BBC's assets and liabilities which give rise to the net      
deferred tax liabilities are as follows:                              

                                        1997          1996
                                        ----          ----
Deferred tax liabilities:                                       
 Stepped-up basis in net assets         $20,578,607    $20,625,370
 Depreciation                             1,326,208      1,984,361
 Other                                    8,695,264      8,790,765
                                        -----------    -----------
                                        $30,600,079    $31,400,496
                                        -----------    -----------
                                        -----------    -----------

Deferred tax assets:                                            
 Warranty reserves                      $ 5,189,217    $ 5,247,237
 Pension reserve                          2,148,331      1,726,652
 Deferred compensation reserve            3,591,086      3,346,739
 Workers' compensation reserve            1,769,930      1,761,631
 Net operating loss carryforward          4,241,789              0
 Other                                    4,573,578      4,931,870
                                        -----------    -----------
                                        $21,513,931    $17,014,129
                                        -----------    -----------
                                        -----------    -----------

The components of the (benefit) provision for income taxes as of      
  November 1, 1997, November 2, 1996, and October 28, 1995 are as follows:

                                                                [Download Table]

                                      1997          1996           1995    
                                      ----          ----           ----    
                                                                           
Current:                                                                   
 Federal                          $         0    $13,117,275    $ 9,945,714
 Foreign                              827,519        596,516        542,000
 State                                      0      1,366,895      1,193,331
                                  -----------    -----------    -----------
   Total current                      827,519     15,080,686     11,681,045
                                  -----------    -----------    -----------

Deferred:                                                                  
 Federal and state                 (5,300,219)    (1,043,058)         5,011
 Foreign                                    0         (3,649)             0
                                  -----------    -----------    -----------
 Deferred, net                     (5,300,219)    (1,046,707)         5,011
                                  -----------    -----------    -----------
Tax (benefit) provision, net      $(4,472,700)   $14,033,979    $11,686,056
                                  -----------    -----------    -----------
                                  -----------    -----------    -----------

  Income from foreign operations was approximately $1,586,000, $1,630,000,
  and $340,000 for the years ended November 1, 1997, November 2, 1996, and
October 28, 1995, respectively.                                       

The Company has net operating loss carryforwards of approximately     
$12,000,000 which expire in 2012.                                     

The income tax (benefit) provision as of November 1, 1997, November 2,
 1996, and October 28, 1995 differs from the amount computed by applying
the statutory rates for U.S. federal income taxes to income before    
income taxes because of the following:                                

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                                                                [Download Table]

                                      1997          1996           1995     
                                      ----          ----           ----     
                                                                            
Income tax computed at                                                      
 statutory rates                  $ 3,807,585    $14,018,446    $ 9,988,188 
Foreign tax impact                          0              0       (119,078)
Tax-exempt interest income         (1,684,033)    (1,372,866)      (700,359)
State income taxes, net of                                                  
 federal income tax effect           (271,219)       942,976        775,665 
Tax benefit for dividend on                                                 
 redeemable common stock           (5,551,000)             0              0 
Goodwill amortization               1,300,024      1,296,524      1,307,024 
Other                                (305,371)       (12,737)       434,616 
                                  -----------    -----------    ----------- 
                                   (2,704,014)    14,872,343     11,686,056 
Extraordinary item                 (1,768,686)      (838,364)             0 
                                  -----------    -----------    ----------- 
                                  $(4,472,700)   $14,033,979    $11,686,056 
                                  -----------    -----------    ----------- 
                                  -----------    -----------    ----------- 

 U.S. income taxes have not been provided for the undistributed earnings
of foreign subsidiaries.  These amounts will be offset largely by     
 foreign tax credits which will arise when this income is recognized for
U.S. income tax purposes.                                             

7.   BENEFIT PLANS                                                              

Pension Plans                                                         

  BBC has several defined benefit pension plans and a defined contribution
plan covering substantially all domestic employees and a defined      
contribution plan for Canadian employees.  Total pension expenses     
 amounted to $3,333,846, $3,857,044, and $3,399,151, for the years ended
 November 1, 1997, November 2, 1996, and October 28, 1995, respectively.

The board of directors adopted a supplemental excess retirement plan  
(the "Unqualified Plan") effective January 1, 1991.  This plan is     
restricted to certain key executives, is not qualified under the      
Employee Retirement Income Security Act of 1974 ("ERISA"), as amended,
and is unfunded.                                                      

 The board of directors adopted a supplemental excess retirement plan in
  the form of a rabbi trust (the "Rabbi Trust") (a grantor trust set up to
 fund deferred compensation for certain individuals as allowed under the
Internal Revenue Code) effective November 1, 1995.  This plan is      
restricted to certain executives, is not qualified under ERISA, and is
not funded.                                                           

BBC's funding policy is to contribute the net periodic pension cost   
  accrued each year to the U.S. salaried and hourly defined benefit plans.
However, the contribution will not be less than the minimum required  
contribution under ERISA or greater than the maximum tax-deductible   
contribution.                                                         

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Net pension cost for the U.S. defined benefit plans includes the      
   following as of November 1, 1997, November 2, 1996, and October 28, 1995:

                                                                [Download Table]

                                      1997          1996           1995     
                                      ----          ----           ----     
                                                                            
Service costs/benefits earned                                               
 during the period                $ 1,822,381    $ 1,860,568    $ 1,337,279 
Interest costs on projected                                                 
 benefit obligations                3,716,925      3,486,859      3,320,053 
Return on plan assets             (13,413,777)    (8,793,737)    (8,189,694)
Net amortization and deferral       9,152,326      5,377,327      5,453,920 
                                  -----------    -----------    ----------- 
Net periodic pension costs        $ 1,277,855    $ 1,931,017    $ 1,921,558 
                                  -----------    -----------    ----------- 
                                  -----------    -----------    ----------- 

  The following table sets forth these plans' funded status at November 1,
1997:                                                                 

                                                                [Download Table]

                                   DEFINED                                  
                                   BENEFIT                                  
                                   PENSION       UNQUALIFIED       RABBI    
                                    PLANS           PLAN           TRUST    
                                 ------------    -----------    ----------- 
                                                                            
Pension benefit obligation:                                                 
 Vested benefits                 $(47,205,512)   $(3,284,588)   $  (300,000)
 Nonvested benefits                  (995,309)             0              0 
                                 ------------    -----------    ----------- 
Accumulated benefit obligation   $(48,200,821)   $(3,284,588)   $  (300,000)
                                 ------------    -----------    ----------- 
                                 ------------    -----------    ----------- 

Projected benefit obligation     $(54,775,650)   $(3,284,588)   $  (300,000)
Market value of plan assets        62,162,848              0              0 
                                 ------------    -----------    ----------- 
Overfunded (unfunded)                                                       
 projected benefit obligation       7,387,198     (3,284,588)      (300,000)
Unrecognized net gain             (13,098,229)             0              0 
Unrecognized prior service costs       30,359              0              0 
                                 ------------    -----------    ----------- 
Pension liability recognized                                                
 in balance sheets               $ (5,680,672)   $(3,284,588)   $  (300,000)
                                 ------------    -----------    ----------- 
                                 ------------    -----------    ----------- 

Assets of the salaried and hourly plans are invested primarily in U.S.
government securities, common stock funds, and cash management funds. 
 For 1997, 1996, and 1995, the discount rate and expected long-term rate
of return on assets were both approximately 8.0%. The expected average
rate of increase in future compensation levels used is 4.8%.          

The 401(k) plan for domestic employees and the pension plan covering  
  Canadian employees are defined contribution plans.  Total expenses under
such plans for the years ended November 1, 1997, November 2, 1996, and
October 28, 1995 amounted to $2,055,991, $1,926,026, and $1,477,593,  
respectively.                                                         

Medical, Dental, and Accident and Sickness Benefits                   

BBC provides and is partially self-insured for medical, dental, and   
accident and sickness benefits.  BBC maintains a voluntary employee   
benefit association trust through which all cash used to pay claims is
 processed.  The trust is fully funded at year-end to cover incurred but
not reported claims.  Therefore, neither the trust's assets nor the   
liability for claims is reported in the accompanying consolidated     
balance sheets.                                                       

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8. DEFERRED COMPENSATION AND SUPPLEMENTAL RETIREMENT BENEFITS               

At November 1, 1997 and November 2, 1996, the accompanying financial  
statements reflect liabilities for anticipated payment of deferred    
  compensation and supplemental retirement benefits described above in the
amounts of $992,151 and $1,077,086, respectively.                     

9. REDEEMABLE COMMON STOCK AND STOCK SUBSCRIPTIONS RECEIVABLE               

Redeemable common stock represents shares of common stock purchased by
members of management ("Management Investors").  The Management       
Investors have the right, prior to the earlier of an initial public   
offering of equity securities or the tenth anniversary of the         
stockholders' agreement, to put these shares to BBC in the event of   
  their disability, involuntary termination not for cause, retirement (all
as defined in the stockholders' agreement), or death for a fair value 
 price, as defined in the stockholders' agreement. The redeemable common
  stock was recorded at fair value on the date of issuance.  The excess of
the fair value price over the original fair value is being accreted by
periodic charges to retained earnings.  The amounts recorded in the   
balance sheets represent the estimated maximum amount payable if all  
 management investors met the specified criteria and exercised their put
rights.                                                               

During 1997, the Company redeemed 10,000 shares of redeemable common  
stock at the accreted value.  In addition, the Company issued 20,000  
shares of redeemable common stock.  As a result, the number of        
  redeemable common shares outstanding as of November 1, 1997 and November
2, 1996 was 730,000 and 720,000, respectively.                        

Stock subscriptions receivable represented notes due from members of  
management.  Interest was payable annually at a rate of 8%.  The stock
    subscription receivable was paid as part of the recapitalization (Note 4).

10.  LEASES                                                                     

Rental expenses for operating leases were approximately $1,616,032,   
$1,194,880, and $1,625,000 for the years ended November 1, 1997,      
 November 2, 1996, and October 28, 1995, respectively.  Operating leases
relate primarily to warehouse equipment.  The future minimum lease    
payments under operating leases by fiscal year as of November 1, 1997 
are approximately as follows:                                         

1998                 $  946,587             
1999                    824,543             
2000                    385,051             
2001                    322,675             
2002                    237,674             
        ----------
        $2,716,530
        ----------
        ----------

11.  CONTINGENCIES                                                              

 As of November 1, 1997, BBC had a number of product liability and other
cases pending.  At the date of this report, neither the outcome of the
 cases nor the amounts of any company liabilities related to these cases
is known.  Management believes that, considering BBC's insurance      
coverage and its intention to vigorously defend its position, the     
ultimate resolution of these matters will not have a material adverse 
impact on BBC's financial position or results of operations.          

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12.  MANAGEMENT STOCK OPTION PLAN                                               

Effective April 15, 1992, BBC's board of directors adopted a          
nonqualified management stock option plan (the "Plan") which provided 
for the granting of options to key employees of BBC to purchase up to 
850,000 shares of common stock.  Pursuant to the Plan, on April 15,   
1992, key employees were granted options (the "Vested Options") to    
purchase an aggregate of 400,000 shares of common stock at an exercise
price equal to $10 per share (the fair value of the stock at the grant
 date as determined by the board of directors).  The Vested Options were
  fully vested at the time of grant.  Additionally, on April 15, 1992, key
employees were granted options (the "Performance Options") to purchase
an aggregate of 400,000 shares at an exercise price equal to $10 per  
 share.  The Performance Options vested ratably over five years based on
BBC's achieving certain levels of earnings performance, as defined in 
 the Plan, and are fully vested as of November 1, 1997.  During the year
ended November 1, 1997, options for 10,000 shares were exercised, and 
options for 40,000 shares were granted.  The 10,000 options exercised 
were for redeemable common stock and were subsequently redeemed by the
  Company at the accreted value.  As a result, the Company had 760,000 and
730,000 options to purchase shares outstanding as of November 1, 1997 
and November 2, 1996, respectively.                                   

During 1995, the FASB issued SFAS No. 123, "Accounting for            
Stock-Based Compensation," which defines a fair value-based           
method of accounting for an employee stock option plan. However,      
it also allows an entity to continue to measure compensation          
cost using the method of accounting prescribed by Accounting          
Principles Board ("APB") Opinion No. 25, "Accounting for Stock        
Issued to Employees."  Entities electing to remain with the           
accounting in APB Opinion No. 25 must make pro forma disclosures      
of net income as if the fair value-based method of accounting         
had been applied.                                                     

The Company has elected to account for its stock-based                
compensation plan under APB Opinion No. 25 and has computed           
its pro forma disclosures using the appropriate assumptions in        
accordance with SFAS No. 123.  As such, the value of the options      
granted since the establishment of SFAS No. 123 and their             
related costs would have caused the Company to recognize              
additional expense of $38,000 on a pro forma basis.                   

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PART IV 

ITEM 14.  EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORTS ON FORM 8-K      

(a) 1. Financial Statements                                               

See Index to Financial Statements.                          

2. Financial Statement Schedules                                  

None.                                                       

3. Exhibits                                                       

       The Exhibits filed herewith or incorporated by reference herein are
      set forth on the Exhibit Index. Included in those Exhibits are the
following management contracts or compensatory plans or     
arrangements:                                               

       Executive Employment Agreement dated April 15, 1992 between Paul E.
     Glaske and the Company (incorporated by reference to Exhibit 10.1
       to the Registrant's Registration Statement on Form S-1 No. 33-49544
filed September 11, 1992.)                                  

Supplemental Retirement Plan of the Company (incorporated by
reference to Exhibit 10.3 to the Registrant's Registration  
 Statement on Form S-1 No. 33-49544 filed September 11, 1992.)

ML Stock Subscription Agreement dated as of April 15, 1992  
   (incorporated by reference to Exhibit 10.10 to the Registrant's
       Registration Statement on Form S-1 No. 33-49544 filed September 11,
1992.)                                                      

      Management Stock Subscription Agreement dated as of April 15, 1992
   (incorporated by reference to Exhibit 10.11 to the Registrant's
       Registration Statement on Form S-1 No. 33-49544 filed September 11,
1992.)                                                      

       Stockholders' Agreement dated as of April 15, 1992 (incorporated by
reference to Exhibit 10.14 to the Registrant's Registration 
 Statement on Form S-1 No. 33-49544 filed September 11, 1992.)

  BBC Management Stock Option Plan (incorporated by reference to
    Exhibit 10.15 to the Registrant's Registration Statement on Form
S-1 No. 33-49544 filed September 11, 1992.)                 

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 Form of Vested Option Agreement (incorporated by reference to
    Exhibit 10.16 to the Registrant's Registration Statement on Form
S-1 No. 33-49544 filed September 11, 1992.)                 

      Form of Performance Option Agreement (incorporated by reference to
    Exhibit 10.17 to the Registrant's Registration Statement on Form
S-1 No. 33-49544 filed September 11, 1992.)                 

     Executive Employment Agreement dated April 15, 1993 between Bobby
    G. Wallace and the Company (incorporated by reference to Exhibit
     10.19 to the Registrant's Report on Form 10-K for the fiscal year
ended October 30, 1993 filed January 28, 1994).             

   Amendment dated October 31, 1994, amending Executive Employment
   Agreement dated April 15, 1993 between Bobby G. Wallace and the
Company (incorporated by reference to Exhibit 10.20 to the  
      Registrant's Report on Form 10-K for the fiscal year ended October
29, 1994 filed January 27, 1995).                           

    Amended and Restated Vested Option Agreement dated September 13,
  1994 between Bobby G. Wallace and the Company (incorporated by
      reference to Exhibit 10.21 to Registrant's Report on Form 10-K for
   the fiscal year ended October 29, 1994 filed January 27, 1995).

(b)    Reports on Form 8-K.                                               

None.                                                       

(c)    Exhibits                                                           

      The response to this portion of Item 14 is submitted as a separate
section of this report.                                     

(d)    Financial Statement Schedules                                      

       All schedules are omitted as the required information either is not
    applicable or is included in the Financial Statements or related
notes.                                                      

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SIGNATURES

Pursuant to the requirements of Section 13 or 15(d) 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

BY    /s/ Paul E. Glaske      
 -------------------------
  Paul E. Glaske
 Chairman of the Board and
  President and Director
  (Principal Executive
    Officer)

Date: January 27, 1998        

BLUE BIRD BODY COMPANY

BY     /s/ Paul E. Glaske     
 -------------------------
  Paul E. Glaske
 Chairman of the Board and
  President and Director
  (Principal Executive
    Officer)

Date: January 27, 1998        

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 Pursuant to the requirements of the Securities Exchange Act of 1934, this
report has been signed below by the following persons on behalf of each         
Registrant in the capacities and on the dates indicated.                        

BLUE BIRD CORPORATION 

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                 SIGNATURE                                TITLE                     DATE     
                 ---------                                -----                     ----     
                                                                                             
            /s/ Paul E. Glaske                                                               
-------------------------------------------     Chairman of the Board and    January 27, 1998
               Paul E. Glaske                     President and Director                     
                                              (Principal Executive Officer)                  

            /s/ Bobby G. Wallace                                                             
-------------------------------------------  Vice President, Treasurer and   January 27, 1998
              Bobby G. Wallace                   Secretary and Director                      
                                                (Principal Financial and                     
                                                   Accounting Officer)                       

          /s/ Gerald S. Armstrong                                                            
-------------------------------------------             Director             January 27, 1998
            Gerald S. Armstrong                                                              

           /s/ Alexis P. Michas                                                              
-------------------------------------------             Director             January 27, 1998
              Alexis P. Michas                                                               

           /s/ Donald C. Trauscht                                                            
-------------------------------------------             Director             January 27, 1998
             Donald C. Trauscht                                                              

           /s/ A. Clark Daugherty                                                            
-------------------------------------------             Director             January 27, 1998
             A. Clark Daugherty                                                              


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BLUE BIRD BODY COMPANY

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                 SIGNATURE                                TITLE                     DATE     
                 ---------                                -----                     ----     
                                                                                             
             /s/ Paul E. Glaske                                                              
-------------------------------------------     Chairman of the Board and    January 27, 1998
               Paul E. Glaske                     President and Director                     
                                              (Principal Executive Officer)                  

            /s/ Bobby G. Wallace                                                             
-------------------------------------------  Vice President, Treasurer and   January 27, 1998
              Bobby G. Wallace                   Secretary and Director                      
                                                (Principal Financial and                     
                                                   Accounting Officer)                       

         /s/  Gerald S. Armstrong                                                            
-------------------------------------------             Director             January 27, 1998
            Gerald S. Armstrong                                                              

          /s/  Alexis P. Michas                                                              
-------------------------------------------             Director             January 27, 1998
              Alexis P. Michas                                                               

           /s/ Donald C. Trauscht                                                            
-------------------------------------------             Director             January 27, 1998
             Donald C. Trauscht                                                              

          /s/  A. Clark Daugherty                                                            
-------------------------------------------             Director             January 27, 1998
             A. Clark Daugherty                                                              


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SUPPLEMENTAL INFORMATION TO BE FURNISHED WITH REPORTS FILED PURSUANT TO SECTION 
15(d) OF THE ACT BY REGISTRANTS WHICH HAVE NOT REGISTERED SECURITIES PURSUANT TO
SECTION 12 OF THE ACT.                                                          

  The Registrants have not sent any annual reports covering the Registrants'
last fiscal year or any proxy materials with respect to any annual or other     
meetings of security-holders to security-holders and do not intend to furnish   
any such report or proxy material to security-holders subsequent to the filing  
of this annual report on Form 10-K.                                             

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EXHIBIT INDEX 

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EXHIBIT                                                                                                           
  NO.                                                                                                         PAGE
-------                                                                                                       ----
                                                                                                                  

     3.1  Restated Articles of Incorporation of the Company (incorporated by reference to Exhibit 3.1 to the      
          Registrant's Registration Statement on Form S-1 No. 33-49544 filed September 11, 1992).               --

     3.2  By-laws of the Company (incorporated by reference to Exhibit 3.2 to the Registrant's Registration       
          Statement on Form S-1 No. 33-9544 filed September 11, 1992).                                          --

     3.3  Restated Certificate of Incorporation of BBC (incorporated by reference to Exhibit 3.3 to the           
          Registrant's Registration Statement on Form S-1 No. 33-49544 filed September 11, 1992).               --

     3.4  By-laws of BBC (incorporated by reference to Exhibit 3.4 to the Registrant's Registration               
          Statement on Form S-1 No. 33-49544 filed September 11, 1992).                                         --

     4.1  Indenture dated as of November 15, 1996 by and among the Company, BBC and the Chase Manhattan           
          Bank, as Trustee (incorporated by reference to Exhibit 4.1 to the Registrant's Registration             
          Statement on Form S-4 No. 333-17515 filed December 9, 1996).                                          --

     4.2  Form of Exchange Note (contained in Exhibit 4.1 as Exhibit A-2 thereto).                              --

     4.3  Purchase Agreement dated November 13, 1996 by and among the Company, BBC and Merrill Lynch and BT       
          Securities Corporation (incorporated by reference to Exhibit 4.3 to the Registrant's Registration       
          Statement on Form S-4 No. 333-17515 filed December 9, 1996).                                          --

    10.1  Registration Rights Agreement dated as of November 19, 1996 by and among the Company, BBC and           
          Merrill Lynch, Pierce, Fenner & Smith Incorporated and BT Securities Corporation (incorporated by       
          reference to Exhibit 10.1 to the Registrant's Registration Statement on Form S-4 No. 333-17515          
          filed December 9, 1996).                                                                              --

    10.2  First Amended and Restated Credit Agreement dated as of November 15, 1996 by and among the              
          Company, BBC, the lenders listed on the signature pages thereto and Bankers Trust Company, as           
          Administrative Agent and Merrill Lynch & Co., as Syndication Agent, including all exhibits thereto      
          (incorporated by reference to Exhibit 10.2 to the Registrant's Registration Statement on Form S-4       
          No. 333-17515 filed December 9, 1996).                                                                --

    10.3  Amended and Restated Loan Agreement by and among Blue Bird Capital Corporation and LaSalle              
          National Bank, as agent, and the several financial institutions from time to time parties to the        
          agreement dated as of March 29, 1996 (incorporated by reference to Exhibit 10.22 to the                 
          Registrant's Form 10-Q No. 033-49544 filed June 11, 1996).                                            --


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 10.4  Executive Employment Agreement dated April 15, 1992 between Paul E. Glaske and the Company            
       (incorporated by reference to Exhibit 10.1 to the Registrant's Registration Statement on Form S-1     
       No. 33-49544 filed September 11, 1992).                                                             --

 10.5  Supplemental Retirement Plan of the Company (incorporated by reference to Exhibit 10.3 to the         
       Registrant's Registration Statement on Form S-1 No. 33-49544 filed September 11, 1992).             --

 10.6  Form of Noncompetition and Nonsolicitation Agreement with Albert L. Luce, Jr. and Joseph P. Luce      
       (incorporated by reference to Exhibit 10.5 to the Registrant's                                        
       Registration Statement on Form S-1 No. 33-49544 filed September 11, 1992).                          --

 10.7  ML Stock Subscription Agreement dated as of April 15, 1992 (incorporated by reference to Exhibit      
       10.10 to the Registrant's Registration Statement on Form S-1 No. 33-49544 filed September 11,         
       1992).                                                                                              --

 10.8  Management Stock Subscription Agreement dated as of April 15, 1992 (incorporated by reference to      
       Exhibit 10.11 to the Registrant's Registration Statement on Form S-1 No. 33-49544 filed September     
       11, 1992).                                                                                          --

 10.9  Stockholders' Agreement dated as of April 15, 1992 (incorporated by reference to Exhibit 10.14 to     
       the Registrant's Registration Statement on Form S-1 No.33-49544 filed September 11, 1992).          --

10.10  BBC Management Stock Option Plan (incorporated by reference to Exhibit 10.15 to the Registrant's      
       Registration Statement on Form S-1 No. 33-49544 filed September 11, 1992).                          --

10.11  Form of Vested Option Agreement (incorporated by reference to Exhibit 10.16 to the Registrant's       
       Registration Statement on Form S-1 No. 33-49544 filed September 11, 1992).                          --

10.12  Form of Performance Option Agreement (incorporated by reference to Exhibit 10.17 to the               
       Registrant's Registration Statement on Form S-1 No. 33-49544 filed September 11, 1992).             --

10.13  Chassis Supply Agreement dated as of May 8, 1991 between the Company and General Motors               
       Corporation (incorporated by reference to Exhibit 10.18 to the Registrant's Registration Statement    
       on Form S-1 No. 33-49544 filed September 11, 1992).                                                 --

10.14  Executive Employment Agreement dated April 15, 1993 between Bobby G. Wallace and the Company          
       (incorporated by reference to Exhibit 10.19 to the Registrant's Report on Form 10-K for the fiscal    
       year ended October 30, 1993 filed January 28, 1994).                                                --

10.15  Amendment dated October 15, 1994, amending Executive Employment Agreement dated April 15, 1993        
       between Bobby G. Wallace and the                                                                      


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       Company (incorporated by reference to Exhibit 10.20 to the Registrant's Report on Form 10-K for the    
       fiscal year ended October 29, 1994 and filed January 27, 1995).                                      --

10.16  Amended and Restated Vested Option Agreement dated September 13, 1994 between Bobby G.Wallace and      
       the Company (incorporated by reference to Exhibit 10.21 to the Registrant's Report on Form 10-K        
       for the fiscal year ended October 29, 1994 filed January 27, 1995).                                  --

 12.1  Statements re Computation of Ratios.*                                                                --

 21.1  Subsidiaries of BBC and the Company (incorporated by reference to Exhibit 21.1 to Registrant's         
       Registration Statement on Form S-4 No. 333-17515 filed December 9, 1996).                            --

 27    Financial Data Schedule.*                                                                              

------------------------                                                        

*   Filed herewith                                                              

Dates Referenced Herein   and   Documents Incorporated by Reference

				Referenced-On Page
This ‘10-K405’ Filing		Date		First		Last			Other Filings
		11/15/06		51
		11/19/02		51
		3/31/99		52
Filed on:		1/30/98
		1/27/98		61		63
		1/1/98		2		21
		12/4/97		41
For Period End:		11/1/97		1		58
		1/26/97		22
		12/9/96		65		67			S-4
		11/19/96		21		65
		11/15/96		65
		11/13/96		22		65
		11/2/96		21		58			10-K405
		6/11/96		65					10-Q
		3/29/96		26		65
		12/14/95		25
		11/1/95		55
		10/28/95		40		57
		10/26/95		11
		10/18/95		26
		1/27/95		60		67
		1/1/95		31
		10/31/94		60
		10/29/94		45		67
		10/15/94		66
		9/13/94		60		67
		1/28/94		60		66
		10/30/93		60		66
		4/15/93		60		66
		9/11/92		59		66
		4/15/92		39		66
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