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Item 1. Financial Statements

2021-02-11 compared with 2020-08-13 · 161 added, 222 removed, 233 unchanged (62% of the section changed)

2 unchanged sentences

CONDENSED CONSOLIDATED BALANCE SHEETS

(in thousands of dollars, except for share data)

September 28, 2019

(in thousands of dollars, except for share data) January 2, 2021 October 3, 2020

Current assets

1 unchanged sentence

Accounts receivable, net 4,902 7,623

Inventories 69,141 56,523

Other current assets 8,188 8,243

1 unchanged sentence

Property, plant and equipment, net 104,536 103,372

Goodwill 18,825 18,825

Intangible assets, net 50,950 51,632

2 unchanged sentences

Finance lease right-of-use assets 6,609 6,983

Other assets 1,924 1,022

Total assets $ 307,753 $ 317,415

Liabilities and Stockholders' Deficit

1 unchanged sentence

Accounts payable $ 51,397 $ 57,602

Warranty 7,572 8,336

Accrued expenses 16,440 15,773

5 unchanged sentences

Long-term liabilities

Revolving credit facility

Long-term debt $ 159,851 $ 164,204

Warranty 12,135 13,038

Deferred warranty income 13,443 14,048

2 unchanged sentences

Other liabilities 15,286 14,315

Pension 46,372 47,259

Total long-term liabilities $ 252,984 $ 258,997

1 unchanged sentence

Stockholders' deficit

Preferred stock, $0.0001 par value, 10,000,000 shares authorized, 0 shares issued at July 4, 2020 and September 28, 2019

Common stock, $0.0001 par value, 100,000,000 shares authorized, 27,048,404 and 26,476,336 shares outstanding at July 4, 2020 and September 28, 2019, respectively

Preferred stock, $0.0001 par value, 10,000,000 shares authorized, 0 shares outstanding at January 2, 2021 and October 3, 2020 $ — $ —

Common stock, $0.0001 par value, 100,000,000 shares authorized, 27,091,808 and 27,048,404 shares outstanding at January 2, 2021 and October 3, 2020, respectively 3 3

Additional paid-in capital 89,171 88,910

1 unchanged sentence

Accumulated other comprehensive loss ( 58,044 ) ( 58,397 )

Treasury stock, at cost, 1,782,568 shares at July 4, 2020 and September 28, 2019

Treasury stock, at cost, 1,782,568 shares at January 2, 2021 and October 3, 2020 ( 50,282 ) ( 50,282 )

Total stockholders' deficit $ ( 54,230 ) $ ( 53,230 )

4 unchanged sentences

Three Months Ended

Nine Months Ended

(in thousands of dollars except for share data)

June 29, 2019

(in thousands of dollars except for share data) January 2, 2021 January 4, 2020

Net sales $ 130,434 $ 153,217

Cost of goods sold 115,966 131,917

Gross profit $ 14,468 $ 21,300

Operating expenses

Selling, general and administrative expenses 14,690 20,495

Operating profit

Operating (loss) profit $ ( 222 ) $ 805

Interest expense ( 1,930 ) ( 1,897 )

Interest income 1 —

Other income (expense), net

Income (loss) before income taxes

Income tax (expense) benefit

Equity in net income of non-consolidated affiliate

Other income, net 643 194

Loss on debt modification ( 598 ) —

Loss before income taxes $ ( 2,106 ) $ ( 898 )

Income tax benefit 521 326

Equity in net (loss) income of non-consolidated affiliate ( 29 ) 169

Net loss $ ( 1,614 ) $ ( 403 )

Earnings per share:

1 unchanged sentence

Diluted weighted average shares outstanding 27,060,259 26,481,441

Basic earnings per share

Diluted earnings per share

Basic loss per share $ ( 0.06 ) $ ( 0.02 )

Diluted loss per share $ ( 0.06 ) $ ( 0.02 )

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

BLUE BIRD CORPORATION AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME

CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE LOSS

Three Months Ended

Nine Months Ended

(in thousands of dollars)

June 29, 2019

(in thousands of dollars) January 2, 2021 January 4, 2020

Net loss $ ( 1,614 ) $ ( 403 )

Other comprehensive income, net of tax:

1 unchanged sentence

Total other comprehensive income $ 353 $ 327

Comprehensive income

Comprehensive loss $ ( 1,261 ) $ ( 76 )

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

1 unchanged sentence

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

Nine Months Ended

(in thousands of dollars)

June 29, 2019

Three Months Ended

(in thousands of dollars) January 2, 2021 January 4, 2020

Cash flows from operating activities

Adjustments to reconcile net income to net cash used in operating activities:

Net loss $ ( 1,614 ) $ ( 403 )

Adjustments to reconcile net loss to net cash used in operating activities:

Depreciation and amortization 3,471 3,457

1 unchanged sentence

Share-based compensation 724 1,093

Equity in net income of non-consolidated affiliate

(Gain) loss on disposal of fixed assets

Equity in net loss (income) of non-consolidated affiliate 29 ( 169 )

Gain on disposal of fixed assets ( 1 ) ( 121 )

Deferred taxes ( 106 ) ( 125 )

Amortization of deferred actuarial pension losses 465 430

Foreign currency hedges

Loss on debt modification 598 —

Changes in assets and liabilities:

Accounts receivable 2,721 4,619

Inventories ( 12,618 ) ( 59,797 )

Other assets 245 3

Accounts payable ( 6,545 ) ( 25,071 )

8 unchanged sentences

Borrowings under the revolving credit facility $ — $ 35,000

Borrowings under the senior term loan

Repayments under the senior term loan ( 2,475 ) ( 2,475 )

Principal payments on finance leases ( 382 ) ( 225 )

Cash paid for debt issuance costs

Cash paid for debt costs ( 2,476 ) —

Cash paid for employee taxes on vested restricted shares and stock option exercises ( 444 ) ( 806 )

Proceeds from exercises of warrants — 372

Tender offer repurchase of common stock and preferred stock

Total cash provided by financing activities

Total cash (used in) provided by financing activities $ ( 5,777 ) $ 31,866

Change in cash and cash equivalents ( 20,591 ) ( 63,259 )

2 unchanged sentences

Supplemental disclosures of cash flow information

Cash paid during the period for:

Cash paid or received during the period:

Interest paid, net of interest received $ 3,689 $ 2,235

2 unchanged sentences

Changes in accounts payable for capital additions to property, plant and equipment $ 340 $ ( 2,150 )

Employee taxes payable on vested restricted shares and stock option exercises — ( 572 )

Cashless exercise of stock options — 195

Right-of-use assets obtained in exchange for finance lease obligations

Right-of-use assets obtained in exchange for operating lease obligations 107 —

Conversion of preferred stock into common stock

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

2 unchanged sentences

Three Months Ended

(in thousands of dollars, except for share data)

Convertible Preferred Stock

Treasury Stock

Additional Paid-In-Capital

Accumulated Other Comprehensive Loss

Accumulated Deficit

Total Stockholders' Deficit

Balance, April 4, 2020

Restricted stock activity

Stock option activity

Share-based compensation expense

Other comprehensive income, net of tax

Balance, July 4, 2020

Balance, March 30, 2019

Warrant exercises

Stock option activity

Share-based compensation expense

Tender offer share repurchases

Other comprehensive income, net of tax

Balance, June 29, 2019

Nine Months Ended

(in thousands of dollars, except for share data)

Convertible Preferred Stock

Treasury Stock

Additional Paid-In-Capital

Accumulated Other Comprehensive Loss

Accumulated Deficit

Total Stockholders' Deficit

Balance, September 28, 2019

(in thousands of dollars, except for share data) Common Stock Convertible Preferred Stock Treasury Stock

Shares Par Value Additional Paid-In-Capital Shares Amount Accumulated Other Comprehensive Loss Accumulated Deficit Shares Amount Total Stockholders' Deficit

Balance, October 3, 2020 27,048,404 $ 3 $ 88,910 — $ — $ ( 58,397 ) $ ( 33,464 ) 1,782,568 $ ( 50,282 ) $ ( 53,230 )

Warrant exercises — — — — — — — — — —

2 unchanged sentences

Share-based compensation expense — — 706 — — — — — — 706

Net loss — — — — — — ( 1,614 ) — — ( 1,614 )

Other comprehensive income, net of tax — — — — — 353 — — — 353

Balance, July 4, 2020

Balance, January 2, 2021 27,091,808 $ 3 $ 89,171 — $ — $ ( 58,044 ) $ ( 35,078 ) 1,782,568 $ ( 50,282 ) $ ( 54,230 )

Balance, September 28, 2019 26,476,336 $ 3 $ 84,271 — $ — $ ( 56,154 ) $ ( 45,649 ) 1,782,568 $ ( 50,282 ) $ ( 67,811 )

Adoption of new revenue recognition standard (ASC 606) adjustment

Warrant exercises 32,321 — 372 — — — — — — 372

2 unchanged sentences

Share-based compensation expense — — 1,037 — — — — — — 1,037

Tender offer share repurchases

Preferred stock conversion

Net loss — — — — — — ( 403 ) — — ( 403 )

Other comprehensive income, net of tax — — — — — 327 — — — 327

Balance, June 29, 2019

Balance, January 4, 2020 26,511,641 $ 3 $ 84,302 — $ — $ ( 55,827 ) $ ( 46,052 ) 1,782,568 $ ( 50,282 ) $ ( 67,856 )

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

7 unchanged sentences

References in these notes to financial statements to “Blue Bird”, the “Company,” “we,” “our,” or “us” refer to Blue Bird Corporation and its wholly-owned subsidiaries, unless the context specifically indicates otherwise.

During our third quarter of fiscal 2020, the novel coronavirus known as "COVID-19" continued to spread throughout the world, perpetuating a global pandemic.

The pandemic materially impacted our third quarter of fiscal 2020 results causing lower customer orders for both buses and bus parts, supply disruptions, higher rates of absenteeism among our hourly production workforce and a temporary shutdown of manufacturing.

Beginning at the end of our second quarter of fiscal year 2020 and continuing through the first quarter of fiscal year 2021, the novel coronavirus known as "COVID-19" spread throughout the world, resulting in a global pandemic.

The pandemic significantly impacted our financial results for the second half of fiscal year 2020, which continued into the first quarter of fiscal year 2021, causing, among other matters, lower customer orders for both buses and bus parts, supply disruptions, higher rates of absenteeism among our hourly production workforce and a temporary shutdown of manufacturing in April 2020.

The continuing development and fluidity of the pandemic precludes any prediction as to the ultimate severity of the adverse impacts on our business, financial condition, results of operations, and liquidity.

3 unchanged sentences

All significant inter-company transactions and accounts have been eliminated in consolidation.

The accompanying unaudited condensed consolidated financial statements have been prepared in accordance with generally accepted accounting principles for interim financial reporting and Article 8 of Regulation S-X.

The accompanying unaudited condensed consolidated financial statements have been prepared in accordance with accounting principles generally accepted in the United States of America (“GAAP”) for interim financial reporting and Article 8 of Regulation S-X.

The Company’s fiscal year ends on the Saturday closest to September 30 with its quarters consisting of thirteen weeks in most years.

In fiscal year 2020 , there is a total of 53 weeks.

The third quarters of fiscal 2020 and 2019 both included 13 weeks.

The nine month periods in fiscal 2020 and 2019 included 40 and 39 weeks, respectively.

Fiscal year 2021 consists of 52 weeks while fiscal year 2020 consisted of 53 weeks.

The first quarters of fiscal years 2021 and 2020 included 13 and 14 weeks, respectively.

In the opinion of management, all adjustments considered necessary for a fair presentation of financial results have been made.

1 unchanged sentence

Operating results for any interim period are not necessarily indicative of the results that may be expected for the entire year.

Accordingly, they do not include all of the information and footnotes required by generally accepted accounting principles for complete financial statements.

The Condensed Consolidated Balance Sheet data as of September 28, 2019 was derived from the Company’s audited financial statements but does not include all disclosures required by generally accepted accounting principles.

For additional information, including the Company’s significant accounting policies, refer to the consolidated financial statements and related footnotes for the fiscal year ended September 28, 2019 as set forth in the Company's 2019 Form 10-K filed on December 12, 2019 .

Accordingly, they do not include all of the information and footnotes required by GAAP for complete financial statements.

The Condensed Consolidated Balance Sheet data as of October 3, 2020 was derived from the Company’s audited financial statements but does not include all disclosures required by GAAP.

For additional information, including the Company’s significant accounting policies, refer to the consolidated financial statements and related footnotes for the fiscal year ended October 3, 2020 as set forth in the Company's 2020 Form 10-K filed on December 17, 2020.

Use of Estimates and Assumptions

The preparation of financial statements in accordance with accounting principles generally accepted in the United States of America (“U.S.

GAAP”) requires management to make estimates and assumptions.

The preparation of financial statements in accordance with GAAP requires management to make estimates and assumptions.

At the date of the financial statements, these estimates and assumptions affect the reported amounts of assets and liabilities and disclosures of contingent assets and liabilities, and during the reporting period, these estimates and assumptions affect the reported amounts of revenues and expenses.

For example, significant management judgments are required in determining excess, obsolete, or unsalable inventory, allowance for doubtful accounts, potential impairment of long-lived assets, goodwill and intangibles, the accounting for self-insurance reserves, warranty reserves, pension obligations, income taxes, environmental liabilities and contingencies.

For example, significant management judgments are required in determining excess, obsolete, or unsalable inventory;

the allowance for doubtful accounts;

potential impairment of long-lived assets, goodwill and intangible assets;

and the accounting for self-insurance reserves, warranty reserves, pension obligations, income taxes, environmental liabilities and contingencies.

Future events, including the extent and duration of COVID-19 related economic impacts, and their effects cannot be predicted with certainty, and, accordingly, the Company’s accounting estimates require the exercise of judgment.

The accounting estimates used in the preparation of the Company’s condensed consolidated financial statements may change as new events occur, as more experience is acquired, as additional information is obtained and as the Company’s operating environment changes.

The Company evaluates and updates its assumptions and estimates on an ongoing basis and may employ outside experts to assist in the Company’s evaluations.

Company evaluates and updates its assumptions and estimates on an ongoing basis and may employ outside experts to assist in the Company’s evaluations.

Actual results could differ from the estimates that the Company has used.

1 unchanged sentence

The Company’s significant accounting policies are described in the Company’s 2020 Form 10-K, filed with the SEC on December 17, 2020.

Our senior management has reviewed these significant accounting policies and related disclosures and determined that there were no significant changes in our critical accounting policies in the nine months ended July 4, 2020 , except as follows (and as discussed in the Recently Adopted Accounting Standards section of this Note 2 ):

Amortization of Deferred Pension Losses

Historically, the Company has amortized deferred losses from our frozen defined benefit pension plan accounted for under ASC 715, Compensation - Retirement Benefits, over the expected remaining employment period of the participants who remained employed with the Company.

ASC 715 states that if all or almost all of a plan's participants are inactive, the average remaining life expectancy of the inactive participants shall be used to amortize the unrecognized net gain or loss instead of the average remaining service period of active plan participants.

In the first quarter of 2020, the ratio of active (employed) to inactive participants in our plan declined to less than 10 % , a figure we believe meets the definition of almost all participants as inactive.

Accordingly, we have changed the amortization period from approximately seven years in 2019 to approximately 23 years in 2020.

Future amortization periods (remaining life expectancy) will be determined based on the participant and actuarial data at that time .

Recently Adopted Accounting Standards

ASU 2018-02 – In February 2018, the FASB issued ASU No.

2018-02, Income Statement - Reporting Comprehensive Income (Topic 220) .

This ASU provides guidance on a reclassification from accumulated other comprehensive income ("AOCI") to retained earnings for the effect of the tax rate change resulting from the Tax Cuts and Jobs Act (H.R.1) (the "Tax Act").

The amendments eliminate the stranded tax effects resulting from the Tax Act and will improve the usefulness of information reported to financial statement users.

This ASU is effective for fiscal years, and interim periods within those fiscal years, beginning after December 15, 2018, with early adoption permitted.

We adopted this ASU, in the first quarter of fiscal 2020, and did not elect to reclassify the income tax effects of the Tax Act from AOCI to retained earnings.

We use a specific identification approach to release the income tax effects in AOCI.

ASU 2019-12 – In December 2019, the FASB issued ASU No.

2019-12, Simplifying the Accounting for Income Taxes , which simplifies the process for calculating interim (intraperiod) income taxes and the accounting for deferred tax liabilities for foreign equity-method investments, among other simplifications.

We have early adopted this standard effective the first quarter of fiscal 2020.

The impacts of adopting this standard were not material to us.

ASU 2016-13 In June 2016, the Financial Accounting Standards Board ("FASB") issued Accounting Standards Update ("ASU") 2016-13, Financial Instruments - Credit Losses (Topic 326):

Measurement of Credit Losses on Financial Instruments , which requires that credit losses on most financial instruments measured at amortized cost and certain other financial instruments be measured using an expected credit loss model.

Under this model, entities are required to estimate credit losses over the entire contractual term of the financial instrument from the date of initial recognition of the instrument.

As required, the Company adopted this guidance on October 4, 2020, the first day of the Company’s first quarter of fiscal year 2021.

While a number of financial instruments are subject to the scope of ASU 2016-13, its provisions applied only to the Company’s accounts receivable.

Given that the Company extends credit with short contractual terms on only a small percentage of its sales, the adoption of the expected credit loss model did not have any impact on the Company’s condensed consolidated financial statements.

Recently Issued Accounting Standards

ASU 2020-04 On March 12, 2020, the FASB issued ASU 2020-04, Reference Rate Reform (Topic 848):

Facilitation of the Effects of Reference Rate Reform on Financial Reporting, providing temporary guidance to ease the potential burden in accounting for reference rate reform primarily resulting from the discontinuation of LIBOR, which is currently expected to occur on December 31, 2021.

Facilitation of the Effects of Reference Rate Reform on Financial Reporting , providing temporary guidance to ease the potential burden in accounting for reference rate reform primarily resulting from the discontinuation of LIBOR, which is currently expected to occur on June 30, 2023 for legacy contracts.

The amendments in ASU 2020-04 are elective and apply to all entities that have contracts, hedging relationships, and other transactions that reference LIBOR or another reference rate expected to be discontinued.

ASU 2021-01 On January 7, 2021, the FASB issued ASU 2021-01, Reference Rate Reform (Topic 848):

Scope , which refines the scope of Accounting Standards Codification Topic ("ASC") 848, Reference Rate Reform , and clarifies some of its guidance as part of the FASB’s ongoing monitoring of global reference rate reform activities.

The ASU permits entities to elect certain optional expedients and exceptions when accounting for derivative contracts and certain hedging relationships affected by changes in the interest rates used for discounting cash flows, computing variation margin settlements, and calculating price alignment interest in connection with reference rate reform activities under way in global financial markets.

An entity may elect to apply the amendments prospectively from March 12, 2020 through December 31, 2022.

Our debt and derivative agreements currently reference LIBOR.

The Company’s debt and derivative agreements currently reference LIBOR.

Contract language is expected to be incorporated into these agreements to address the transition to an alternative reference rate.

We are currently evaluating the impact this ASU may have on our consolidated financial statements.

The Company is currently evaluating the impact that these ASUs may have on its consolidated financial statements.

Supplemental Financial Information

The following table presents the components of inventories at the dates indicated:

(in thousands of dollars)

September 28, 2019

(in thousands of dollars) January 2, 2021 October 3, 2020

Raw materials $ 51,559 $ 43,272

5 unchanged sentences

Three Months Ended

Nine Months Ended

(in thousands of dollars)

June 29, 2019

(in thousands of dollars) January 2, 2021 January 4, 2020

Balance at beginning of period $ 21,374 $ 22,343

5 unchanged sentences

Three Months Ended

Nine Months Ended

(in thousands of dollars)

June 29, 2019

(in thousands of dollars) January 2, 2021 January 4, 2020

Balance at beginning of period $ 22,588 $ 24,045

6 unchanged sentences

The following table reflects our total accrued self-insurance liability, comprised of workers' compensation and health insurance related claims, at the dates indicated:

(in thousands of dollars)

September 28, 2019

(in thousands of dollars) January 2, 2021 October 3, 2020

Current portion $ 2,959 $ 2,993

3 unchanged sentences

Shipping and Handling Revenues

Shipping and handling revenues were $ 3.9 million and $ 6.0 million for the three months ended July 4, 2020 and June 29, 2019 , respectively, and $ 11.5 million and $ 12.5 million for the nine months ended July 4, 2020 and June 29, 2019 , respectively.

The related cost of goods sold was $ 3.4 million and $ 5.3 million for the three months ended July 4, 2020 and June 29, 2019 , respectively, and $ 10.0 million and $ 11.0 million for the nine months ended July 4, 2020 and June 29, 2019 , respectively.

Shipping and handling revenues were $ 2.7 million and $ 3.5 million for the three months ended January 2, 2021 and January 4, 2020, respectively.

The related cost of goods sold was $ 2.4 million and $ 3.1 million for the three months ended January 2, 2021 and January 4, 2020, respectively.

Pension Expense

1 unchanged sentence

Three Months Ended

Nine Months Ended

(in thousands of dollars)

June 29, 2019

(in thousands of dollars) January 2, 2021 January 4, 2020

Interest cost $ 1,057 $ 1,237

8 unchanged sentences

The collar was entered into in order to partially mitigate our exposure to interest rate fluctuations on our variable rate debt.

The collar establishes a range where we will pay the counterparty if the three-month LIBOR rate falls below the established floor rate of 1.5 % , and the counterparty will pay us if the three-month LIBOR rate exceeds the ceiling rate of 3.3 % .

The collar establishes a range whereby we will pay the counterparty if the three-month LIBOR rate falls below the established floor rate of 1.5 %, and the counterparty will pay us if the three-month LIBOR rate exceeds the ceiling rate of 3.3 %.

The collar settles quarterly through the termination date of September 30, 2022.

No payments or receipts are exchanged on the interest rate collar contracts unless interest rates rise above or fall below the contracted ceiling or floor rates.

During the three-months ended July 4, 2020 , the three-month LIBOR rate fell below the established floor, which required an immaterial payment to the counterparty.

No payments or receipts are exchanged on the interest rate collar contract unless interest rates rise above or fall below the contracted ceiling or floor rates.

During the three-months ended January 2, 2021, the three-month LIBOR rate fell below the established floor, which required a $ 0.5 million cash payment to the counterparty.

Additionally, $ 0.5 million was paid in the first quarter of fiscal 2021 for counterparty payments accrued in the fourth quarter of fiscal 2020.

Changes in the interest rate collar fair value are recorded in interest expense as the collar does not qualify for hedge accounting.

At July 4, 2020 , the fair value of the interest rate collar contract was $( 4.2 ) million and is included in "other current liabilities" on the Condensed Consolidated Balance Sheets.

At January 2, 2021, the fair value of the interest rate collar contract was $( 3.4 ) million and is included in "other current liabilities" on the Condensed Consolidated Balance Sheets.

The fair value of the interest rate collar is a Level 2 fair value measurement, based on quoted prices of similar items in active markets.

Equity Investment in Affiliate

The Company holds a 50 % equity interest in Micro Bird Holdings, Inc.

(“Micro Bird”), and accounts for Micro Bird under the equity method of accounting.

The carrying amount of the equity method investment is adjusted for the Company’s proportionate share of net earnings and losses and any dividends received.

At July 4, 2020 and September 28, 2019 , the carrying value of the Company's investment was $ 11.9 million and $ 11.1 million , respectively.

In recognizing the Company’s 50 % portion of Micro Bird net income, the Company recorded $ 0.8 million and $ 1.2 million in Equity in net income of non-consolidated affiliate for the nine months ended July 4, 2020 and June 29, 2019 , respectively.

Summarized unaudited financial information for these periods for Micro Bird is as follows:

Nine Months Ended

(in thousands of dollars)

June 29, 2019

Operating income

On May 7, 2020, the Company entered into a Second Amendment which amended the Credit Agreement, dated as of December 12, 2016 (the “Credit Agreement”, as amended by that certain First Amendment to Credit Agreement, dated as of September 13, 2018 (the “First Amendment”), and as further amended by the Second Amendment, the “Amended Credit Agreement”).

The Second Amendment provided

for an aggregate lender commitment of $ 41.9 million of additional revolving commitments bringing the total revolving commitments to $ 141.9 million .

The revolving commitments under the Amended Credit Agreement mature on September 13, 2023, which is the fifth anniversary of the effective date of the First Amendment.

The interest rate pricing grid remained unchanged, but the LIBOR floor was amended from 0 % to 0.75 % .

We incurred $ 0.9 million in fees related to the amendment.

The fees were capitalized to other assets on the Consolidated Balance Sheets and are amortized on a straight-line basis to interest expense until maturity of the agreement.

On December 4, 2020, the Company executed the third amendment to the Credit Agreement, dated as of December 12, 2016;

as amended by that certain first amendment to the Credit Agreement, dated as of September 13, 2018 (the "First Amended Credit Agreement") and second amendment to the Credit Agreement, dated as of May 7, 2020 (the "Second Amended Credit Agreement');

and as further amended by the third amendment (the "Third Amended Credit Agreement" and collectively, the "Amended Credit Agreement").

The Third Amended Credit Agreement, among other things, provides for certain temporary amendments to the Credit Agreement from the third amendment effective date through and including the first date on which (a)(i) a compliance certificate is timely delivered with respect to a fiscal quarter ending on or after March 31, 2022 demonstrating compliance with certain financial performance covenants for such fiscal quarter (the “Limited Availability Period”), or (ii) the Borrower elects to terminate the Limited Availability Period;

and (b) the absence of a default or event of default.

Amendments to the financial performance covenants provide that during the Limited Availability Period, a higher maximum total net leverage ratio is permitted, and requires the Company to maintain liquidity (in the form of undrawn availability under the Revolving Credit Facility and unrestricted cash and cash equivalents) of at least $ 15.0 million.

For the duration between the fiscal quarter ending on or around December 31, 2020 and the fiscal quarter ending on or around September 30, 2021 that falls within the Limited Availability Period, a quarterly minimum consolidated EBITDA covenant applies instead of a maximum total net leverage ratio.

The pricing grid in the First Amended Credit Agreement, which is based on the ratio of the Company’s consolidated net debt to consolidated EBITDA, remains unchanged.

However, during the Limited Availability Period, an additional margin of 0.50 % applies.

During the Limited Availability Period, the Borrower is required to prepay existing revolving loans and, if undrawn and unreimbursed letters of credit exceed $ 7.0 million, cash collateralize letters of credit if unrestricted cash and cash equivalents exceed $ 20.0 million, as determined on a semimonthly basis.

Any issuance, amendment, renewal, or extension of credit during the Limited Availability Period may not cause unrestricted cash and cash equivalents to exceed $ 20.0 million, or cause the aggregate outstanding Revolving Credit Facility principal to exceed $ 100.0 million.

The Third Amended Credit Agreement also implements a cap on permissible investments, restricted payments, certain payments of indebtedness and the fair market value of all assets subject to permitted dispositions during the Limited Availability Period.

For the duration of the Limited Availability Period, there are additional monthly reporting requirements and requirements relating to subordination agreements and intercreditor arrangements for certain other indebtedness and liens subject to administrative agent approval.

The Company incurred approximately $ 2.5 million in lender fees and other issuance costs relating to the third amendment.

Of such total, $ 1.1 million and $ 0.9 million was capitalized within other assets and long-term debt (as a contra-balance), respectively, on the Condensed Consolidated Balance Sheets and will be amortized as an adjustment to interest expense on a straight-line basis and utilizing the effective interest method, respectively, until maturity of the Credit Agreement.

The remaining $ 0.5 million was recorded to loss on debt modification on the Condensed Consolidated Statements of Operations.

In conjunction with executing the third amendment, previously capitalized lender fees and other issuance costs incurred in prior periods totaling $ 0.1 million were expensed to loss on debt modification on the Condensed Consolidated Statements of Operations.

Term debt consisted of the following at the dates indicated:

(in thousands of dollars)

September 28, 2019

(in thousands of dollars) January 2, 2021 October 3, 2020

2023 term loan, net of deferred financing costs of $2,887 and $2,246, respectively $ 170,989 $ 174,104

4 unchanged sentences

If measured at fair value in the financial statements, the term loans would be classified as Level 2 in the fair value hierarchy.

At July 4, 2020 and September 28, 2019 , $ 178.8 million and $ 186.3 million , respectively, were outstanding on the term loans.

At July 4, 2020 and September 28, 2019 , the stated interest rates on the term loans were 2.8 % and 4.4 % , respectively.

At July 4, 2020 and September 28, 2019 , the weighted-average annual effective interest rates for the term loans were 4.1 % and 5.0 % , respectively, which includes amortization of the deferred financing costs.

At July 4, 2020 , $ 45.0 million in borrowings were outstanding on the Revolving Credit Facility and $ 6.9 million of Letters of Credit were outstanding;

At January 2, 2021 and October 3, 2020, $ 173.9 million and $ 176.4 million, respectively, were outstanding on the term loans.

At January 2, 2021 and October 3, 2020, the stated interest rates on the term loans were 4.0 % and 3.5 %, respectively.

At January 2, 2021 and October 3, 2020, the weighted-average annual effective interest rates for the term loans were 5.4 % and 4.1 %, respectively, which includes amortization of the deferred financing costs.

At January 2, 2021, $ 6.9 million of Letters of Credit were outstanding, of which $ 2.7 million reduces the availability on the revolving line of credit.

No borrowings were outstanding on the Revolving Credit Facility;

therefore, the Company would have been able to borrow $ 97.3 million on the revolving line of credit.

Interest expense on all indebtedness was $ 2.4 million and $ 3.4 million for the three months ended July 4, 2020 and June 29, 2019 , respectively, and $ 10.0 million and $ 10.3 million for the nine months ended July 4, 2020 and June 29, 2019 , respectively.

Interest expense on all indebtedness was $ 1.9 million and $ 1.9 million for the three months ended January 2, 2021 and January 4, 2020, respectively.

The schedule of remaining principal payments through maturity for total debt is as follows:

(in thousands of dollars)

Principal Payments

Fiscal Year Principal Payments

Total remaining principal payments $ 173,876

Income tax provisions for interim periods are based on estimated annual income tax rates, adjusted to reflect the effects of any significant infrequent or unusual items which are required to be discretely recognized within the current interim period.

The effective tax rates in the periods presented are largely based upon the forecast pre-tax earnings mix and allocation of certain expenses in various taxing jurisdictions where the Company conducts its business, primarily the United States.

In periods where our operating income approximates or is equal to break-even, the effective tax rates for quarter-to-date and full-year periods may not be meaningful due to discrete period items.

On March 27, 2020 the President of the United States signed the Coronavirus Aid, Relief and Economic Security Act ("CARES Act") into law.

While the CARES Act has broad income tax implications for many companies, it did not have a material impact on our reported income tax accounts.

The effective tax rate for the three-month period ended July 4, 2020 was 70.1 % , which differed from the statutory federal income tax rate of 21 % .

The difference is mainly due to discrete period tax expense from prior year tax return adjustments and normal tax rate items, such as the benefit from federal and state tax credits (net of valuation allowance), which were partially offset by net non-deductible compensation expenses and other tax adjustments.

The effective tax rate for the three-month period ended June 29, 2019 was 19.1 % , which differed from the statutory federal tax rate of 21 % .

The difference is mainly due to normal tax rate benefit items, such as federal and state tax credits (net of valuation allowance), which were partially offset by non-deductible share-based compensation expenses and other tax adjustments.

The effective tax rate for the nine -month period ended July 4, 2020 was 38.8 % and differed from the statutory federal tax rate of 21 % .

The difference is mainly due to a net discrete period tax benefit from share-based compensation expenses, but also due to normal tax rate items, such as the benefit from federal and state tax credits (net of valuation allowance), which were partially offset by net non-deductible compensation expenses and other tax adjustments.

The effective tax rate for the nine -month period ended June 29, 2019 was 19.7 % and differed from the statutory federal income tax rate of 21 % .

The difference is mainly due to normal tax rate benefit items, primarily federal and state tax credits (net of valuation allowance), which were partially offset by non-deductible share-based compensation expenses and other tax adjustments.

On December 27, 2020, the President of the United States signed the Consolidated Appropriations Act (the "Act") into law.

While the Act has broad income tax implications for many companies stemming from COVID-19 relief and various tax extenders, it did not have a material impact on our reported income tax accounts.

The effective tax rate for the three-month period ended January 2, 2021 was 24.7 %, which differed from the statutory federal income tax rate of 21 %.

The difference is mainly due to impacts from state taxes.

The effective tax rate for the three-month period ended January 4, 2020 was 36.3 %, which differed from the statutory federal tax rate of 21 %.

The difference is mainly due to normal tax rate items, such as federal and state tax credits (net of valuation allowance), which were partially offset by net non-deductible compensation expenses and other tax adjustments.

Guarantees, Commitments and Contingencies

At July 4, 2020 , the Company had a number of product liability and other cases pending.

At January 2, 2021, the Company had a number of product liability and other cases pending.

Management believes that, considering the Company’s insurance coverage and its intention to vigorously defend its positions, the ultimate resolution of these matters will not have a material adverse effect on the Company’s financial statements.

5 unchanged sentences

In the ordinary course of business, we may provide guarantees for certain transactions entered into by our dealers.

At July 4, 2020 , we had a $ 3.0 million guarantee outstanding which relates to a guarantee of indebtedness for a term loan with remaining maturity up to 2.5 years .

At January 2, 2021, we had a $ 3.0 million guarantee outstanding which relates to a guarantee of dealer indebtedness for a term loan with remaining maturity up to 2.0 years.

The $ 3.0 million represents the estimated maximum amount we would be required to pay upon default of all guaranteed indebtedness, and we believe the likelihood of required performance to be remote.

At July 4, 2020 , $ 0.3 million was included in other current liabilities on our Condensed Consolidated Balance Sheets for the estimated fair value of the guarantee.

Lease Commitments

We have operating and finance leases for office and/or warehouse space and for equipment.

Our leases have remaining terms of 4.4 to 7.4 years .

At January 2, 2021, $ 0.2 million was included in other current liabilities on our Condensed Consolidated Balance Sheets for the estimated fair value of the guarantee.

Segment Information

4 unchanged sentences

Three Months Ended

Nine Months Ended

(in thousands of dollars)

June 29, 2019

(in thousands of dollars) January 2, 2021 January 4, 2020

Bus (1) $ 117,834 $ 134,772

Parts (1) 12,600 18,445

Segment net sales $ 130,434 $ 153,217

(1) Parts segment revenue includes $ 0.8 million and $ 1.0 million for the three months ended July 4, 2020 and June 29, 2019 , respectively, and $ 3.2 million and $ 2.5 million for the nine months ended July 4, 2020 and June 29, 2019 , respectively, related to inter-segment sales of parts that was eliminated by the Bus segment upon consolidation.

(1) Parts segment revenue includes $ 0.8 million and $ 0.6 million for the three months ended January 2, 2021 and January 4, 2020, respectively, related to inter-segment sales of parts that was eliminated by the Bus segment upon consolidation.

Three Months Ended

Nine Months Ended

(in thousands of dollars)

June 29, 2019

(in thousands of dollars) January 2, 2021 January 4, 2020

Bus $ 9,710 $ 14,867

Parts 4,758 6,433

Segment gross profit $ 14,468 $ 21,300

The following table is a reconciliation of segment gross profit to consolidated income (loss) before income taxes for the periods presented:

The following table is a reconciliation of segment gross profit to consolidated loss before income taxes for the periods presented:

Three Months Ended

Nine Months Ended

(in thousands of dollars)

June 29, 2019

(in thousands of dollars) January 2, 2021 January 4, 2020

Segment gross profit $ 14,468 $ 21,300

2 unchanged sentences

Interest income 1 —

Other income (expense), net

Income (loss) before income taxes

Other income, net 643 194

Loss on debt modification ( 598 ) —

Loss before income taxes $ ( 2,106 ) $ ( 898 )

Sales are attributable to geographic areas based on customer location and were as follows for the periods presented:

Three Months Ended

Nine Months Ended

(in thousands of dollars)

June 29, 2019

(in thousands of dollars) January 2, 2021 January 4, 2020

United States $ 119,077 $ 136,266

Canada 10,466 13,156

Rest of world 891 3,795

2 unchanged sentences

Three Months Ended

Nine Months Ended

(in thousands of dollars)

June 29, 2019

(in thousands of dollars) January 2, 2021 January 4, 2020

Diesel buses $ 59,710 $ 76,750

Alternative fuel buses (1) 52,301 51,734

(1) Includes buses sold with any fuel source other than diesel (e.g.

gasoline, propane, CNG, electric).

(2) Includes shipping and handling revenue, extended warranty income, surcharges, chassis, and bus shell sales .

Other (2) 6,160 6,843

Parts 12,263 17,890

Net sales $ 130,434 $ 153,217

(1) Includes buses sold with any fuel source other than diesel (e.g., gasoline, propane, compressed natural gas ("CNG") or electric).

(2) Includes shipping and handling revenue, extended warranty income, surcharges and chassis and bus shell sales .

Earnings Per Share

1 unchanged sentence

Three Months Ended

Nine Months Ended

(in thousands except for share data)

June 29, 2019

(in thousands except for share data) January 2, 2021 January 4, 2020

Net loss $ ( 1,614 ) $ ( 403 )

Weighted-average common shares outstanding 27,060,259 26,481,441

Weighted-average dilutive securities, restricted stock

Weighted-average dilutive securities, warrants

Weighted-average dilutive securities, stock options

Effect of dilutive securities (1) — —

Weighted-average shares and dilutive potential common shares 27,060,259 26,481,441

Earnings per share:

Basic earnings per share

Diluted earnings per share

(1) Potentially dilutive securities representing 0.4 million and 0.3 million shares of common stock were excluded from the computation of diluted earnings per share for the three and nine months ended July 4, 2020 , respectively, as their effect would have been anti-dilutive.

Basic loss per share $ ( 0.06 ) $ ( 0.02 )

Diluted loss per share $ ( 0.06 ) $ ( 0.02 )

(1) Potentially dilutive securities representing 0.8 million and 1.3 million shares of common stock were excluded from the computation of diluted earnings per share for the three months ended January 2, 2021 and January 4, 2020, respectively, because their effect would have been antidilutive.

Accumulated Other Comprehensive Loss

The following table provides information on changes in accumulated other comprehensive loss for the periods presented:

The following table provides information on changes in accumulated other comprehensive loss ("AOCL") for the periods presented:

Three Months Ended

Nine Months Ended

(in thousands of dollars)

Defined Benefit Pension Plan

(in thousands of dollars) Defined Benefit Pension Plan Total AOCL

January 2, 2021

Beginning Balance $ ( 58,397 ) $ ( 58,397 )

Amounts reclassified from other comprehensive loss and included in earnings

Total other comprehensive income, before taxes

Income tax expense

Ending Balance July 4, 2020

June 29, 2019

Amounts reclassified and included in earnings 465 465

Total before taxes 465 465

Income taxes ( 112 ) ( 112 )

Ending Balance January 2, 2021 $ ( 58,044 ) $ ( 58,044 )

January 4, 2020

Beginning Balance $ ( 56,154 ) $ ( 56,154 )

Amounts reclassified from other comprehensive loss and included in earnings

Total other comprehensive income, before taxes

Income tax expense

Ending Balance June 29, 2019

Amounts reclassified and included in earnings 430 430

Total before taxes 430 430

Income taxes ( 103 ) ( 103 )

Ending Balance January 4, 2020 $ ( 55,827 ) $ ( 55,827 )

Compared sentence by sentence after normalising whitespace, quotation marks, case and digits, so re-formatting and restated figures do not read as changed language. Wording changes appear as one removal and one addition. The current filing and the prior one are authoritative.

What changed 10-Q

Item 1. Financial Statements