Blue Bird Corp 10-Q

Item 1. Financial Statements (Unaudited). BLUE BIRD CORPORATION AND SUBSIDIARIES CONDENSED CONSOLIDATED BALANCE SHEETS (Unaudited) (in thousands of dollars, except for share data) January 2, 2021 October 3, 2020 Assets Current assets Cash and cash equivalents $ 23,916 $ 44,507 Accounts receivable, net 4,902 7,623 Inventories 69,141 56,523 Other current assets 8,188 8,243 Total current assets $ 106,147 $ 116,896 Property, plant and equipment, net 104,536 103,372 Goodwill 18,825 18,825 Intangible assets, net 50,950 51,632 Equity investment in affiliate 14,291 14,320 Deferred tax assets 4,471 4,365 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 Current liabilities Accounts payable $ 51,397 $ 57,602 Warranty 7,572 8,336 Accrued expenses 16,440 15,773 Deferred warranty income 8,289 8,540 Finance lease obligations 1,297 1,280 Other current liabilities 12,866 10,217 Current portion of long-term debt 11,138 9,900 Total current liabilities $ 108,999 $ 111,648 Long-term liabilities Long-term debt $ 159,851 $ 164,204 Warranty 12,135 13,038 Deferred warranty income 13,443 14,048 Deferred tax liabilities 365 254 Finance lease obligations 5,532 5,879 Other liabilities 15,286 14,315 Pension 46,372 47,259 Total long-term liabilities $ 252,984 $ 258,997 Guarantees, commitments and contingencies (Note 6) Stockholders' deficit 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 Accumulated deficit ( 35,078 ) ( 33,464 ) Accumulated other comprehensive loss ( 58,044 ) ( 58,397 ) 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 ) Total liabilities and stockholders' deficit $ 307,753 $ 317,415 The accompanying notes are an integral part of these condensed consolidated financial statements. 2 BLUE BIRD CORPORATION AND SUBSIDIARIES CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS (Unaudited) Three Months Ended (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 (loss) profit $ ( 222 ) $ 805 Interest expense ( 1,930 ) ( 1,897 ) Interest income 1 — 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: Basic weighted average shares outstanding 27,060,259 26,481,441 Diluted weighted average shares outstanding 27,060,259 26,481,441 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. 3 BLUE BIRD CORPORATION AND SUBSIDIARIES CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE LOSS (Unaudited) Three Months Ended (in thousands of dollars) January 2, 2021 January 4, 2020 Net loss $ ( 1,614 ) $ ( 403 ) Other comprehensive income, net of tax: Net change in defined benefit pension plan 353 327 Total other comprehensive income $ 353 $ 327 Comprehensive loss $ ( 1,261 ) $ ( 76 ) The accompanying notes are an integral part of these condensed consolidated financial statements. 4 BLUE BIRD CORPORATION AND SUBSIDIARIES CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (Unaudited) Three Months Ended (in thousands of dollars) January 2, 2021 January 4, 2020 Cash flows from 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 Non-cash interest expense 563 618 Share-based compensation 724 1,093 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 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 ) Accrued expenses, pension and other liabilities 571 ( 10,522 ) Total adjustments $ ( 9,883 ) $ ( 85,585 ) Total cash used in operating activities $ ( 11,497 ) $ ( 85,988 ) Cash flows from investing activities Cash paid for fixed assets $ ( 3,317 ) $ ( 9,287 ) Proceeds from sale of fixed assets — 150 Total cash used in investing activities $ ( 3,317 ) $ ( 9,137 ) Cash flows from financing activities Borrowings under the revolving credit facility $ — $ 35,000 Repayments under the senior term loan ( 2,475 ) ( 2,475 ) Principal payments on finance leases ( 382 ) ( 225 ) 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 Total cash (used in) provided by financing activities $ ( 5,777 ) $ 31,866 Change in cash and cash equivalents ( 20,591 ) ( 63,259 ) Cash and cash equivalents, beginning of period 44,507 70,959 Cash and cash equivalents, end of period $ 23,916 $ 7,700 Supplemental disclosures of cash flow information Cash paid or received during the period: Interest paid, net of interest received $ 3,689 $ 2,235 Income tax paid, net of tax refunds 25 — Non-cash investing and financing activities: 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 operating lease obligations 107 — The accompanying notes are an integral part of these condensed consolidated financial statements. 5 BLUE BIRD CORPORATION AND SUBSIDIARIES CONDENSED CONSOLIDATED STATEMENTS OF STOCKHOLDERS' DEFICIT (Unaudited) Three Months Ended (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 — — — — — — — — — — Restricted stock activity 36,404 — ( 518 ) — — — — — — ( 518 ) Stock option activity 7,000 — 73 — — — — — — 73 Share-based compensation expense — — 706 — — — — — — 706 Net loss — — — — — — ( 1,614 ) — — ( 1,614 ) Other comprehensive income, net of tax — — — — — 353 — — — 353 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 ) Warrant exercises 32,321 — 372 — — — — — — 372 Restricted stock activity 2,915 — ( 1,368 ) — — — — — — ( 1,368 ) Stock option activity 69 — ( 10 ) — — — — — — ( 10 ) Share-based compensation expense — — 1,037 — — — — — — 1,037 Net loss — — — — — — ( 403 ) — — ( 403 ) Other comprehensive income, net of tax — — — — — 327 — — — 327 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. 6 BLUE BIRD CORPORATION NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Unaudited) 1. Nature of Business and Basis of Presentation Nature of Business Blue Bird Body Company, a wholly-owned subsidiary of Blue Bird Corporation, was incorporated in 1958 and has manufactured, assembled and sold school buses to a variety of municipal, federal and commercial customers since 1927. The majority of Blue Bird’s sales are made to an independent distributor network, which in turn sells buses to ultimate end users. We are headquartered in Macon, Georgia. 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. COVID-19 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. A prolonged economic downturn resulting from the continuing pandemic would likely have a material adverse impact on our financial results. Basis of Presentation The accompanying unaudited condensed consolidated financial statements include the accounts of the Company and its wholly-owned subsidiaries. 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 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. 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. Such adjustments consist of only those of a normal recurring nature. 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 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 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; 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 7 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. 2. Summary of Significant Accounting Policies and Recently Issued Accounting Standards 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 three months ended January 2, 2021. Recently Adopted Accounting Standards 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 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. 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. The Company is currently evaluating the impact that these ASUs may have on its consolidated financial statements. 8 3. Supplemental Financial Information Inventories The following table presents the components of inventories at the dates indicated: (in thousands of dollars) January 2, 2021 October 3, 2020 Raw materials $ 51,559 $ 43,272 Work in process 10,258 8,989 Finished goods 7,324 4,262 Total inventories $ 69,141 $ 56,523 Product Warranties The following table reflects activity in accrued warranty cost (current and long-term portions combined) for the periods presented: Three Months Ended (in thousands of dollars) January 2, 2021 January 4, 2020 Balance at beginning of period $ 21,374 $ 22,343 Add current period accruals 1,303 1,501 Current period reductions of accrual ( 2,970 ) ( 2,113 ) Balance at end of period $ 19,707 $ 21,731 Extended Warranties The following table reflects activity in deferred warranty income (current and long-term portions combined), for the sale of extended warranties of two to five years , for the periods presented: Three Months Ended (in thousands of dollars) January 2, 2021 January 4, 2020 Balance at beginning of period $ 22,588 $ 24,045 Add current period deferred income 1,159 951 Current period recognition of income ( 2,015 ) ( 2,252 ) Balance at end of period $ 21,732 $ 22,744 The outstanding balance of deferred warranty income in the table above is considered a "contract liability", and represents a performance obligation of the Company that we satisfy over the term of the arrangement but for which we have been paid in full at the time the warranty was sold. We expect to recognize $ 6.4 million of the outstanding contract liability during the remainder of fiscal 2021, $ 6.5 million in fiscal 2022, and the remaining balance thereafter. Self-Insurance 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) January 2, 2021 October 3, 2020 Current portion $ 2,959 $ 2,993 Long-term portion 1,982 1,962 Total accrued self-insurance $ 4,941 $ 4,955 The current and long-term portions of the accrued self-insurance liability are reflected in accrued expenses and other liabilities, respectively, on the Condensed Consolidated Balance Sheets. 9 Shipping and Handling Revenues 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 Components of net periodic pension benefit cost were as follows for the periods presented: Three Months Ended (in thousands of dollars) January 2, 2021 January 4, 2020 Interest cost $ 1,057 $ 1,237 Expected return on plan assets ( 1,944 ) ( 1,846 ) Amortization of prior loss 465 430 Net periodic benefit cost $ ( 422 ) $ ( 179 ) Amortization of prior loss, recognized in other comprehensive income 465 430 Total recognized in net periodic pension benefit cost and other comprehensive income $ ( 887 ) $ ( 609 ) Derivative Instruments We are charged variable rates of interest on our indebtedness outstanding under the Amended Credit Agreement (defined below) which exposes us to fluctuations in interest rates. On October 24, 2018, the Company entered into a four-year interest rate collar with a $ 150.0 million notional value with an effective date of November 30, 2018. 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 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 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 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. 10 4. Debt 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) 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 Less: current portion of long-term debt 11,138 9,900 Long-term debt, net of current portion $ 159,851 $ 164,204 Term loans are recognized on the Condensed Consolidated Balance Sheets at the unpaid principal balance, and are not subject to fair value measurement; however, given the variable rates on the loans, the Company estimates that the unpaid principal balance approximates fair value. If measured at fair value in the financial statements, the term loans would be classified as Level 2 in the fair value hierarchy. 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. 11 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 $ 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) Fiscal Year Principal Payments 2021 $ 7,425 2022 14,850 2023 151,601 Total remaining principal payments $ 173,876 5. Income Taxes 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 in 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 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. Three Months 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. 6. Guarantees, Commitments and Contingencies Litigation 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. Environmental The Company is subject to a variety of environmental regulations relating to the use, storage, discharge and disposal of hazardous materials used in its manufacturing processes. Failure by the Company to comply with present and future regulations could subject it to future liabilities. In addition, such regulations could require the Company to acquire costly equipment or to incur other significant expenses to comply with environmental regulations. The Company is currently not involved in any material environmental proceedings and therefore, management believes that the resolution of pending environmental matters will not have a material adverse effect on the Company’s financial statements. 12 Guarantees In the ordinary course of business, we may provide guarantees for certain transactions entered into by our dealers. 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 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. 7. Segment Information We manage our business in two operating segments: (i) the Bus segment, which includes the manufacturing and assembly of buses to be sold to a variety of customers across the United States, Canada and in international markets; and (ii) the Parts segment, which consists primarily of the purchase of parts from third parties to be sold to dealers within the Company’s network. The tables below present segment net sales and gross profit for the periods presented: Net sales Three Months Ended (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 $ 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. Gross profit Three Months Ended (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 loss before income taxes for the periods presented: Three Months Ended (in thousands of dollars) January 2, 2021 January 4, 2020 Segment gross profit $ 14,468 $ 21,300 Adjustments: Selling, general and administrative expenses ( 14,690 ) ( 20,495 ) Interest expense ( 1,930 ) ( 1,897 ) Interest income 1 — Other income, net 643 194 Loss on debt modification ( 598 ) — Loss before income taxes $ ( 2,106 ) $ ( 898 ) 13 Sales are attributable to geographic areas based on customer location and were as follows for the periods presented: Three Months Ended (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 Total net sales $ 130,434 $ 153,217 8. Revenue The following table disaggregates revenue by product category for the periods presented: Three Months Ended (in thousands of dollars) January 2, 2021 January 4, 2020 Diesel buses $ 59,710 $ 76,750 Alternative fuel buses (1) 52,301 51,734 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 . 9. Earnings Per Share The following table presents the earnings per share computation for the periods presented: Three Months Ended (in thousands except for share data) January 2, 2021 January 4, 2020 Numerator: Net loss $ ( 1,614 ) $ ( 403 ) Denominator: Weighted-average common shares outstanding 27,060,259 26,481,441 Effect of dilutive securities (1) — — Weighted-average shares and dilutive potential common shares 27,060,259 26,481,441 Earnings per share: 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. 14 10. Accumulated Other Comprehensive Loss The following table provides information on changes in accumulated other comprehensive loss ("AOCL") for the periods presented: Three Months Ended (in thousands of dollars) Defined Benefit Pension Plan Total AOCL January 2, 2021 Beginning Balance $ ( 58,397 ) $ ( 58,397 ) 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 and included in earnings 430 430 Total before taxes 430 430 Income taxes ( 103 ) ( 103 ) Ending Balance January 4, 2020 $ ( 55,827 ) $ ( 55,827 ) 15