What changed in this filing

/stocks — the workspaceLOADING

Item 2. Management’s Discussion and Analysis

2021-08-12 compared with 2021-05-12 · 121 added, 112 removed, 299 unchanged (44% of the section changed)

Management’s Discussion and Analysis of Financial Condition and Results of Operations.

The following discussion and analysis of financial condition and results of operations of Blue Bird Corporation ("Blue Bird" or the "Company") should be read in conjunction with the Company’s unaudited financial statements for the three and six months ended April 3, 2021 and April 4, 2020 and related notes appearing in Part I, Item 1 of this Quarterly Report of Form 10-Q ("Report").

The following discussion and analysis of financial condition and results of operations of Blue Bird Corporation ("Blue Bird" or the "Company") should be read in conjunction with the Company’s unaudited financial statements for the three and nine months ended July 3, 2021 and July 4, 2020 and related notes appearing in Part I, Item 1 of this Quarterly Report of Form 10-Q ("Report").

Our actual results may not be indicative of future performance.

2 unchanged sentences

Accordingly, figures shown as totals in certain tables may not be the arithmetic aggregation of the figures that precede them, and figures expressed as percentages in the text may not total 100% or, as applicable, when aggregated, may not be the arithmetic aggregation of the percentages that precede them.

We refer to the fiscal year ending October 2, 2021 as "fiscal 2021" and fiscal year ended October 3, 2020 as “fiscal 2020." We refer to the quarter ended April 3, 2021 as the “second quarter of fiscal 2021” and we refer to the quarter ended April 4, 2020 as the “second quarter of fiscal 2020.”

We refer to the fiscal year ending October 2, 2021 as "fiscal 2021" and fiscal year ended October 3, 2020 as “fiscal 2020." We refer to the quarter ended July 3, 2021 as the “third quarter of fiscal 2021” and we refer to the quarter ended July 4, 2020 as the “third quarter of fiscal 2020.”

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

The second quarters of fiscal 2021 and 2020 both included 13 weeks.

The six month periods in fiscal 2021 and 2020 included 26 and 27 weeks, respectively.

The third quarters of fiscal 2021 and 2020 both included 13 weeks.

The nine month periods in fiscal 2021 and 2020 included 39 and 40 weeks, respectively.

Special Note Regarding Forward-Looking Statements

40 unchanged sentences

Beginning in our second fiscal quarter of 2020, the novel coronavirus known as "COVID-19" began to spread throughout the world, resulting in a global pandemic.

The pandemic triggered a significant downturn in global commerce as early as February 2020 and the challenging market conditions continued throughout the second half of fiscal 2020 and into the first half of fiscal 2021, and may continue for an extended period of time.

The pandemic triggered a significant downturn in global commerce as early as February 2020 and the challenging market conditions continued throughout the second half of fiscal 2020 and into the first three quarters of fiscal 2021, and may continue for an extended period of time.

In an effort to contain the spread of COVID-19, maintain the well-being of our employees and stakeholders, address the reduced demand from our customers and be responsive and efficient with supply chain constraints, management took decisive actions including closing our manufacturing facilities for two weeks in April 2020 and implementing stringent safety protocols, including administering COVID-19 testing for all manufacturing and office employees and requesting office employees to work from home.

We have continued to manufacture buses since April 2020 without further material disruption, although management decided to cease production for one week in March 2021 due to supply chain disruptions that resulted in a shortage of critical components.

This temporary closure of our manufacturing facility did not materially impact our operations for the second quarter of fiscal 2021 as we did not need to operate at full capacity to fill sales orders during the quarter.

However, such supply chain disruptions could continue in future periods and could materially impact our results if we are unable to produce during quarters having higher sales volumes.

Management also decided to cease production for a full week in each of March and May 2021 due to supply chain disruptions that resulted in a shortage of critical components.

Additionally, management closely monitors the expected receipt of critical components on a daily basis and has had to cease part or all of production for shorter periods of time as a result of supply shortages.

These temporary closures of our manufacturing facility did not materially impact our operations during the first and second quarters of fiscal 2021 as we did not need to operate at full capacity to fill sales orders.

However, such supply chain disruptions did significantly impact our operations and results during the third quarter of fiscal 2021 as a result of higher freight costs incurred to expedite receipt of critical components, increased manufacturing inefficiencies and our inability to complete the production of buses to fill sales orders.

Specifically, management estimates that the sale of over 500 units was deferred from the third quarter of fiscal 2021 into subsequent

quarters as a result of the shortage of critical components that prevented the Company from initiating or completing, as applicable, the production process for certain units that were otherwise scheduled to be delivered to customers during the quarter.

Including these units, the Company's backlog exceeded 3,900 units as of July 3, 2021 as demand for our products remains strong, with no sales orders canceled as a result of delays in our production process.

The Company has also experienced increased purchase costs for certain of its raw materials during the pandemic that have negatively impacted the gross profit it recognized on sales during the nine months ended July 3, 2021.

However, in July 2021, the Company announced two sales price increases that will apply to new sales orders and are intended to mitigate the impact of rising purchase costs on our operations and results.

In general, management believes that such supply chain disruptions will continue in future periods and will materially impact our results if we are unable to i) produce during quarters having higher sales volumes and/or ii) pass along rising costs to our customers.

Additionally, although we have not experienced any pervasive COVID-19 illnesses to-date, if we were to experience some form of outbreak within our facilities, we would take all appropriate measures to protect the health and safety of our employees, which could include another temporary halt in production.

3 unchanged sentences

Accordingly, the duration of any demand reductions, production and supply chain disruptions, and related financial impacts, cannot be estimated at this time.

The continuing impacts from COVID-19 on the Company's operations in the first half of fiscal 2021 negatively affected our revenue and profit.

The continuing impacts from COVID-19 on the Company's operations in the first three quarters of fiscal 2021 negatively affected our revenue and profit.

We continue to monitor and assess the level of future customer demand, the ability of school boards to make decisions regarding reinstating normal in-person learning in the foreseeable future, the ability of suppliers to resume and maintain operations, the ability of our employees to continue to work, and our ability to maintain continuous production as we plan for the remainder of fiscal 2021 and beyond.

15 unchanged sentences

The Company’s accounting policies that we believe are the most critical to aid in fully understanding and evaluating our reported financial results are described in the Company’s 2020 Form 10-K, filed with the SEC on December 17, 2020, under the caption “Management’s Discussion and Analysis of Financial Condition and Results of Operations – Critical Accounting Policies and Estimates,” which description is incorporated herein by reference.

Our senior management has reviewed these critical accounting policies and related disclosures and determined that there were no significant changes in our critical accounting policies during the six months ended April 3, 2021.

Recent Accounting Pronouncements

7 unchanged sentences

Increases or decreases in the number of school bus riders have a direct impact on school district demand.

Due to the COVID-19 pandemic and evolving protocols for social distancing and

public health concerns, the future form of educational delivery is uncertain, and increased remote learning could reasonably be expected to decrease the number of school bus riders.

Due to the COVID-19 pandemic and evolving protocols for social distancing and public health concerns, the future form of educational delivery is uncertain, and increased remote learning could reasonably be expected to decrease the number of school bus riders.

• Revenue mix .

17 unchanged sentences

Sales during the third and fourth fiscal quarters were typically greater than the first and second fiscal quarters due to the desire of municipalities to have any new buses that they order available to them at the beginning of the new school year.

With the COVID-19 pandemic impact on school systems and the uncertainty surrounding in-person schooling schedules and duration, seasonality has become unpredictable.

With the COVID-19 pandemic impact on school systems and the uncertainty surrounding in-person schooling schedules and duration, when coupled with its impact on supply chains, seasonality has become unpredictable.

Seasonality and variations from historical seasonality have impacted the comparison of results between fiscal periods.

6 unchanged sentences

Our selling, general and administrative expenses include costs associated with our selling and marketing efforts, engineering, centralized finance, human resources, purchasing, information technology services, along with other administrative matters and functions.

In most instances, other than direct costs associated with sales and marketing programs, the principal component of these costs is salary expense.

In most instances, other than direct costs associated with sales

and marketing programs, the principal component of these costs is salary expense.

Changes from period to period are typically driven by the number of our employees, as well as by merit increases provided to experienced personnel.

6 unchanged sentences

• Other income, net.

This includes periodic pension expense as well as gains or losses on foreign currency, if any.

Other immaterial amounts not associated with operating expenses may also be included here.

• Equity in net loss of non-consolidated affiliate .

This primarily includes periodic pension expense as well as other amounts not associated with our operating results.

• Equity in net income of non-consolidated affiliate .

We include in this line item our 50% share of net income or loss from our investment in Micro Bird, our unconsolidated Canadian joint venture.

34 unchanged sentences

Financial information is reported on the basis that it is used internally by the chief operating decision maker (“CODM”) in evaluating segment performance and deciding how to allocate resources to segments.

The President and Chief Executive Officer of the Company has been identified as the CODM.

The Chief Executive Officer of the Company has been identified as the CODM.

Management evaluates the segments based primarily upon revenues and gross profit.

Consolidated Results of Operations for the Three Months Ended April 3, 2021 and April 4, 2020:

Consolidated Results of Operations for the Three Months Ended July 3, 2021 and July 4, 2020:

Three Months Ended

(in thousands of dollars) April 3, 2021 April 4, 2020

(in thousands of dollars) July 3, 2021 July 4, 2020

$ 196,659 $ 189,181

6 unchanged sentences

Interest expense (2,805) (2,406)

Interest income — 27

Other income, net 426 181

Loss before income taxes $ (780) $ (1,167)

Income tax benefit 483 817

Equity in net loss of non-consolidated affiliate (322) (289)

Net loss $ (619) $ (639)

Income before income taxes $ 5,707 $ 1,091

Income tax expense (1,892) (765)

Equity in net income of non-consolidated affiliate 517 960

Net income $ 4,332 $ 1,286

Other financial data:

5 unchanged sentences

Net Sales by Segment

April 3, 2021 April 4, 2020

$ 150,307 $ 238,697

July 3, 2021 July 4, 2020

$ 181,735 $ 180,592

3 unchanged sentences

$ 26,159 $ 21,082

Net sales were $164.7 million for the second quarter of fiscal 2021, a decrease of $90.7 million, or 35.5%, compared to $255.4 million for the second quarter of fiscal 2020.

The decrease in net sales is attributed to the COVID-19 pandemic which caused an increase in remote learning arrangements.

Bus sales decreased $88.4 million, or 37.0%, reflecting a decrease in units booked, which was partially offset by higher sales prices per unit.

In the second quarter of fiscal 2021, 1,489 units were booked compared to 2,594 units booked for the same period in fiscal 2020.

The decrease is mainly attributed to lower orders due to the uncertainties caused by the COVID-19 pandemic.

The 9.7% increase in unit price for the second quarter of fiscal 2021 compared to the same period in fiscal 2020 mainly results from pricing actions taken by management to partially offset increases in commodity costs, as well as product and customer mix changes.

Parts sales decreased $2.3 million, or 13.9%, for the second quarter of fiscal 2021 compared to the second quarter of fiscal 2020, as we had lower sales volume, mainly from lower school bus units in operation which reduced bus repair and maintenance activities.

The lower units in operation results from school schedule changes and increased remote learning arrangements caused by the COVID-19 pandemic.

Net sales were $196.7 million for the third quarter of fiscal 2021, an increase of $7.5 million, or 4.0%, compared to $189.2 million for the third quarter of fiscal 2020.

The increase in net sales is primarily attributed to increased volumes in both bus and parts sales.

Bus sales increased $1.1 million, or 0.6%, reflecting an increase in units booked, which was partially offset by lower sales prices per unit.

In the third quarter of fiscal 2021, 2,024 units were booked compared to 1,948 units booked for the same period in fiscal 2020.

The increase is mainly attributed to more schools offering, or expecting to offer, in-person learning in 2021 compared to 2020, when most schools were conducting learning remotely due to the COVID-19 pandemic.

The 3.1% decrease in unit price for the third quarter of fiscal 2021 compared to the same period in fiscal 2020 mainly reflects product and customer mix changes.

Parts sales increased $6.3 million, or 73.8%, for the third quarter of fiscal 2021 compared to the third quarter of fiscal 2020.

This increase is primarily attributed to more schools offering in-person learning in 2021 compared to 2020, which increased school bus units in operation and thus increased bus repair and maintenance activities.

Cost of goods sold .

Total cost of goods sold was $146.2 million for the second quarter of fiscal 2021, a decrease of $85.0 million, or 36.8%, compared to $231.2 million for the second quarter of fiscal 2020.

Total cost of goods sold was $170.5 million for the third quarter of fiscal 2021, an increase of $2.4 million, or 1.4%, compared to $168.1 million for the third quarter of fiscal 2020.

As a percentage of net sales, total cost of goods sold improved from 88.9% to 86.7%.

Bus segment cost of goods sold decreased $83.5 million, or 37.8%, for the second quarter of fiscal 2021 compared to the same period in fiscal 2020, which aligned with the decrease in sales volume noted above.

The average cost of goods sold per unit for the second quarter of fiscal 2021 was 8.3% higher compared to the second quarter of fiscal 2020 due to increases in manufacturing costs from several COVID-19 related factors including absenteeism among our hourly workforce and supply disruptions, each of which created manufacturing inefficiencies and higher costs.

The $1.5 million, or 14.3%, decrease in parts segment cost of goods sold for the second quarter of fiscal 2021 compared to the second quarter of fiscal 2020 aligned with the decrease in sales volume noted above.

Bus segment cost of goods sold decreased $1.2 million, or 0.8%, for the third quarter of fiscal 2021 compared to the same period in fiscal 2020.

The average cost of goods sold per unit for the third quarter of fiscal 2021 was 4.5% lower compared to the third quarter of fiscal 2020 due to decreases in manufacturing costs from several COVID-19 related factors including improved absenteeism among our hourly workforce and manufacturing efficiencies.

The decreases in manufacturing costs per unit were partially offset by an increase in the volume of units produced and sold, driven by increased in-person learning in 2021 compared to 2020.

The $3.7 million, or 65.3%, increase in parts segment cost of goods sold for the third quarter of fiscal 2021 compared to the third quarter of fiscal 2020 largely aligned with the increase in sales volume noted above, with slight variation due to product and channel mix.

Operating profit .

Operating profit was $1.1 million for the second quarter of fiscal 2021, a decrease of $3.2 million, compared to operating profit of $4.3 million for the second quarter of fiscal 2020.

Profitability was negatively impacted by a decrease of $5.7 million in gross profit as outlined in the revenue and cost of goods sold discussion.

This was partially offset by a decrease of $2.5 million in selling, general and administrative expenses as we have taken actions to control spending during the pandemic.

Operating profit was $8.1 million for the third quarter of fiscal 2021, an increase of $4.8 million, compared to operating profit of $3.3 million for the third quarter of fiscal 2020.

Profitability was positively impacted by an increase of $5.1 million in gross profit as outlined in the revenue and cost of goods sold discussion.

This was partially offset by an increase of $0.3 million in selling, general and administrative expenses.

Interest expense .

Interest expense was $2.3 million for the second quarter of fiscal 2021, a decrease of $3.3 million, or 58.7%, compared to $5.7 million for the second quarter of fiscal 2020.

The decrease was primarily attributable to a $2.6 million net increase in the fair value of the interest rate collar (a liability balance) recorded in interest expense in the second quarter of fiscal 2020 with the corresponding activity recorded in the second quarter of fiscal 2021 netting to an immaterial amount.

The remainder of the decrease primarily results from lower outstanding debt balances during the second quarter of fiscal 2021 when compared with the second quarter of fiscal 2020.

Interest expense was $2.8 million for the third quarter of fiscal 2021, an increase of $0.4 million, or 16.6%, compared to $2.4 million for the third quarter of fiscal 2020.

The increase was primarily attributable an increase in the stated term loan interest rate from 2.8% at July 4, 2020 to 4% at July 3, 2021.

Income taxes .

We recorded an income tax benefit of $0.5 million for the second quarter of fiscal 2021, compared to an income tax benefit of $0.8 million for the same period in fiscal 2020.

The effective tax rate for the three month period ended April 3, 2021 was 61.9%, which differed from the statutory federal income tax rate of 21%.

The difference is mainly due to discrete period tax benefit from share-based compensation expenses, but also due to normal tax rate items, including impacts from state taxes.

The effective tax rate for the three month period ended April 4, 2020 was 70.0%, which differed from the statutory federal tax rate of 21%.

The difference is mainly due to 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.

We recorded income tax expense of $1.9 million for the third quarter of fiscal 2021, compared to income tax expense of $0.8 million for the same period in fiscal 2020.

The effective tax rate for the three month period ended July 3, 2021 was 33.2%, which differed from the statutory federal income tax rate of 21%.

The difference is mainly due to normal tax rate items, including impacts from state taxes, net non-deductible compensation expenses and other tax adjustments.

The effective tax rate was also impacted by discrete period tax expense resulting from recording a liability for UTPs, including accrued interest and penalties, that was partially offset by discrete period tax benefits resulting from share-based compensation expenses and prior year tax return adjustments.

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

Adjusted EBITDA .

Adjusted EBITDA was $7.5 million, or 4.6% of net sales, for the second quarter of fiscal 2021, a decrease of $4.7 million, or 38.5%, compared to $12.3 million, or 4.8% of net sales, for the second quarter of fiscal 2020.

The decrease in Adjusted EBITDA primarily results from a decrease of $5.7 million in gross profit, mainly from lower sales volumes due to the COVID-19 pandemic as well as higher manufacturing costs.

The decrease was partially offset by lower adjusted selling, general and administrative expenses.

The following table sets forth a reconciliation of net loss to adjusted EBITDA for the periods presented:

Adjusted EBITDA was $13.2 million, or 6.7% of net sales, for the third quarter of fiscal 2021, an increase of $0.7 million, or 5.4%, compared to $12.5 million, or 6.6% of net sales, for the third quarter of fiscal 2020.

The increase in Adjusted EBITDA primarily results from an increase of $5.1 million in gross profit, as outlined in the revenue and cost of goods sold discussion.

This was largely offset by lower adjustments for the third quarter of fiscal 2021 compared to the third quarter of fiscal 2020, particularly in depreciation, amortization, and disposals, and share-based compensation.

The following table sets forth a reconciliation of net income to adjusted EBITDA for the periods presented:

Three Months Ended

(in thousands of dollars) April 3, 2021 April 4, 2020

Net loss $ (619) $ (639)

(in thousands of dollars) July 3, 2021 July 4, 2020

Net income $ 4,332 $ 1,286

Interest expense, net (1) 2,887 2,466

Income tax benefit (483) (817)

Income tax expense 1,892 765

Depreciation, amortization, and disposals (2) 2,851 3,861

2 unchanged sentences

Product redesign initiatives 641 1,071

Restructuring charges — 364

Costs directly attributed to the COVID-19 pandemic (3) 216 521

5 unchanged sentences

(3) Primarily represents costs incurred for third party cleaning services and personal protective equipment for our employees.

Consolidated Results of Operations for the Six Months Ended April 3, 2021 and April 4, 2020:

Six Months Ended

(in thousands of dollars) April 3, 2021 April 4, 2020

Consolidated Results of Operations for the Nine Months Ended July 3, 2021 and July 4, 2020:

Nine Months Ended

(in thousands of dollars) July 3, 2021 July 4, 2020

$ 491,791 $ 597,810

10 unchanged sentences

Loss on debt extinguishment (598) —

Loss before income taxes $ (2,886) $ (2,065)

Income tax benefit 1,004 1,143

Equity in net loss of non-consolidated affiliate (351) (120)

Net loss $ (2,233) $ (1,042)

Income (loss) before income taxes $ 2,821 $ (974)

Income tax (expense) benefit (888) 378

Equity in net income of non-consolidated affiliate 166 840

Net income $ 2,099 $ 244

Other financial data:

3 unchanged sentences

The following provides the results of operations of Blue Bird’s two reportable segments:

(in thousands of dollars) Six Months Ended

Net Sales by Segment April 3, 2021 April 4, 2020

(in thousands of dollars) Nine Months Ended

Net Sales by Segment July 3, 2021 July 4, 2020

$ 449,876 $ 554,061

5 unchanged sentences

$ 59,120 $ 66,551

Net sales were $295.1 million for the six months ended April 3, 2021, a decrease of $113.5 million, or 27.8%, compared to $408.6 million for the six months ended April 4, 2020.

The decrease in net sales is attributed to the COVID-19 pandemic which caused an increase in remote learning arrangements.

Bus sales decreased $105.3 million, or 28.2%, reflecting a decrease in units booked and higher sales prices per unit.

In the six months ended April 3, 2021, 2,744 units were booked compared to 4,054 units booked for the same period in fiscal 2020.

The decrease is mainly attributed to lower orders due to the uncertainties caused by the COVID-19 pandemic.

The average net sales price per unit for the six months ended April 3, 2021 was 6.1% higher than the price per unit for the six months ended April 4, 2020.

Net sales were $491.8 million for the nine months ended July 3, 2021, a decrease of $106.0 million, or 17.7%, compared to $597.8 million for the nine months ended July 4, 2020.

The decrease in net sales is attributed to the COVID-19 pandemic which caused an increase in remote learning arrangements during the majority of the 2020/2021 school year, which significantly impacted our operations as a result of the reduced demand for new school buses and parts.

Bus sales decreased $104.2 million, or 18.8%, primarily due to a decrease in units booked and partially offset by higher sales prices per unit.

In the nine months ended July 3, 2021, 4,768 units were booked compared to 6,002 units booked for the same period in fiscal 2020.

The decrease is mainly attributed to lower orders due to the uncertainties caused by the COVID-19 pandemic and production limitations caused by supply chain shortages.

The average net sales price per unit for the nine months ended July 3, 2021 was 2.2% higher than the price per unit for the nine months ended July 4, 2020.

The increase in unit price mainly reflects pricing actions taken by management to partially offset increases in commodity costs, as well as product and customer mix changes.

Parts sales decreased $8.2 million, or 23.2%, for the six months ended April 3, 2021 compared to the six months ended April 4, 2020, as we had lower sales volume, mainly from lower school bus units in operation which reduced bus repair and maintenance activities.

Parts sales decreased $1.8 million, or 4.2%, for the nine months ended July 3, 2021 compared to the nine months ended July 4, 2020, as we had lower sales volume, mainly from lower school bus units in operation which reduced bus repair and maintenance activities.

The lower units in operation results from school schedule changes and increased remote learning arrangements caused by the COVID-19 pandemic.

Cost of goods sold .

Total cost of goods sold was $262.2 million for the six months ended April 3, 2021, a decrease of $101.0 million, or 27.8%, compared to $363.2 million for the six months ended April 4, 2020.

Total cost of goods sold was $432.7 million for the nine months ended July 3, 2021, a decrease of $98.6 million, or 18.6%, compared to $531.3 million for the nine months ended July 4, 2020.

As a percentage of net sales, total cost of goods sold improved from 88.9% to 88.0%.

Bus segment cost of goods sold decreased $95.3 million, or 28.0%, for the six months ended April 3, 2021 compared to the six months ended April 4, 2020, which aligned with the decrease in sales volume noted above.

The average cost of goods sold per unit for the six months ended April 3, 2021 was 6.4% higher compared to the six months ended April 4, 2020 due to increases in manufacturing costs from several COVID-19 related factors including absenteeism among our hourly workforce and supply disruptions, each of which created manufacturing inefficiencies and higher costs.

The $5.7 million, or 25.2%, decrease in parts segment cost of goods sold for the six months ended April 3, 2021 compared to the six months ended April 4, 2020 aligns with the decrease in sales volume noted above.

Bus segment cost of goods sold decreased $96.6 million, or 19.2%, for the nine months ended July 3, 2021 compared to the nine months ended July 4, 2020, which aligned with the decrease in sales volume noted above.

The average cost of goods sold per unit for the nine months ended July 3, 2021 was 1.7% higher compared to the nine months ended July 4, 2020 due to increases in manufacturing costs from several COVID-19 related factors including absenteeism among our hourly workforce and supply disruptions, each of which created manufacturing inefficiencies and higher costs.

The $2.0 million, or 7.2%, decrease in parts segment cost of goods sold for the nine months ended July 3, 2021 compared to the nine months ended July 4, 2020 largely aligned with the decrease in sales volume noted above, with slight variation due to product and channel mix.

Operating profit .

Operating profit was $0.9 million for the six months ended April 3, 2021, a decrease of $4.2 million compared to an operating profit of $5.1 million for the six months ended April 4, 2020.

Operating profit was $9.0 million for the nine months ended July 3, 2021, an increase of $0.6 million compared to an operating profit of $8.4 million for the nine months ended July 4, 2020.

Profitability was negatively impacted by a decrease of $7.4 million in gross profit as outlined in the revenue and cost of goods sold discussion.

This was partially offset by a decrease of $8.3 million in selling, general and administrative expenses as we have taken actions to control spending during the pandemic.

This was offset by a decrease of $8.0 million in selling, general and administrative expenses as we have taken actions to control spending during the pandemic.

Interest expense .

Interest expense was $4.3 million for the six months ended April 3, 2021, a decrease of $3.3 million, or 43.6%, compared to $7.6 million for the six months ended April 4, 2020.

The decrease was primarily attributable to a $2.6 million net increase in the fair value of the interest rate collar (a liability balance) recorded in interest expense in the six months ended April 4, 2020 with the corresponding activity recorded in the six months ended April 3, 2021 netting to an immaterial amount.

The remainder of the decrease primarily results from lower outstanding debt balances during the six months ended April 3, 2021 when compared with the the six months ended April 4, 2020 .

Interest expense was $7.1 million for the nine months ended July 3, 2021, a decrease of $2.9 million, or 29.0%, compared to $10.0 million for the nine months ended July 4, 2020.

The decrease was primarily attributable to a $3.0 million net increase in the fair value of the interest rate collar (a liability balance) recorded in interest expense in the nine months ended July 4, 2020 with the corresponding activity recorded in the nine months ended July 3, 2021 netting to an immaterial amount.

Loss on debt modification .

Loss on debt modification was $(0.6) million for the six months ended April 3, 2021.

Loss on debt modification was $(0.6) million for the nine months ended July 3, 2021.

The amount is related to the execution of the third amendment to the Credit Agreement on December 4, 2020 for which we paid $2.5 million in lender fees and other issuance costs.

2 unchanged sentences

Income taxes .

Income tax benefit was $1.0 million for the six months ended April 3, 2021, compared to income tax benefit of $1.1 million for the same period in fiscal 2020.

The effective tax rate for the six months ended April 3, 2021 was 34.8%, which differed from the statutory federal income tax rate of 21%.

The difference is mainly due to discrete period tax benefit from share-based compensation expenses, but also due to normal tax rate items, including impacts from state taxes.

The effective tax rate for the six months ended April 4, 2020 was 55.4%, which differed from the statutory federal tax rate of 21%.

Income tax expense was $0.9 million for the nine months ended July 3, 2021, compared to income tax benefit of $0.4 million for the same period in fiscal 2020.

The increase is primarily due to reporting pre-tax income of $2.8 million for the nine months ended July 3, 2021, compared to pre-tax loss of $(1.0) million for the same period in fiscal 2020.

The effective tax rate for the nine months ended July 3, 2021 was 31.5%, which differed from the statutory federal income tax rate of 21%.

The difference is mainly due to normal tax rate items, including impacts from state taxes, net non-deductible compensation expenses and other tax adjustments.

The effective tax rate was also impacted by discrete period tax benefits resulting from share-based compensation expenses and prior year tax return adjustments that were partially offset by discrete period tax expense resulting from recording a liability for UTPs, including accrued interest and penalties.

The effective tax rate for the nine months ended July 4, 2020 was 38.8%, which differed from the statutory federal tax rate of 21%.

Adjusted EBITDA .

Adjusted EBITDA was $13.3 million, or 4.5% of net sales, for the six months ended April 3, 2021, a decrease of $7.0 million, or 34.4%, compared to $20.3 million, or 5.0% of net sales, for the six months ended April 4, 2020.

The decrease in Adjusted EBITDA is primarily the result of a decrease of $12.5 million in gross profit, mainly from lower sales volumes due the COVID-19 pandemic as well as higher manufacturing costs.

The decrease was partially offset by lower adjusted selling, general and administrative expenses.

The following table sets forth a reconciliation of net loss to adjusted EBITDA for the periods presented:

Six Months Ended

(in thousands of dollars) April 3, 2021 April 4, 2020

Net loss $ (2,233) $ (1,042)

Adjusted EBITDA was $26.5 million, or 5.4% of net sales, for the nine months ended July 3, 2021, a decrease of $6.3 million, or 19.2%, compared to $32.8 million, or 5.5% of net sales, for the nine months ended July 4, 2020.

The decrease in Adjusted EBITDA is primarily the result of a decrease of $7.4 million in gross profit, mainly from lower sales volumes due the COVID-19 pandemic and higher manufacturing costs, as well as reductions in certain adjustment balances such as operational transformation initiatives and share-based compensation expense.

These decreases were partially offset by lower adjusted selling, general and administrative expenses due to actions taken to control spending during the pandemic.

The following table sets forth a reconciliation of net income to adjusted EBITDA for the periods presented:

Nine Months Ended

(in thousands of dollars) July 3, 2021 July 4, 2020

Net income $ 2,099 $ 244

Interest expense, net (1) 7,321 10,213

Income tax benefit (1,004) (1,143)

Income tax expense (benefit) 888 (378)

Depreciation, amortization, and disposals (2) 10,118 11,215

8 unchanged sentences

(1) Includes $0.3 million for both fiscal periods representing interest expense on lease liabilities, which are a component of lease expense and presented as a single operating expense in selling, general and administrative expenses on our Condensed Consolidated Statements of Operations.

(2) Includes $0.4 million for both fiscal periods, representing amortization charges on right-of-use lease assets, which are a component of lease expense and presented as a single operating expense in selling, general and administrative expenses on our Condensed Consolidated Statements of Operations.

(2) Includes $0.6 million and $0.5 million for the nine months ended July 3, 2021 and July 4, 2020, respectively, representing amortization charges on right-of-use lease assets, which are a component of lease expense and presented as a single operating expense in selling, general and administrative expenses on our Condensed Consolidated Statements of Operations.

(3) Primarily costs incurred for third party cleaning services and personal protective equipment for our employees.

1 unchanged sentence

The Company’s primary sources of liquidity are cash generated from its operations, available cash and cash equivalents and borrowings under its credit facility.

At April 3, 2021, the Company had $18.7 million of available cash (net of outstanding checks) and $97.3 million of additional borrowings available under the revolving line of credit portion of its credit facility.

At July 3, 2021, the Company had $11.2 million of available cash (net of outstanding checks) and $93.1 million of additional borrowings available under the revolving line of credit portion of its credit facility.

The Company’s revolving line of credit is available for working capital requirements, capital expenditures and other general corporate purposes.

9 unchanged sentences

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.

2 unchanged sentences

Detailed descriptions of the Credit Agreement, First Amended Credit Agreement and Second Amended Credit Agreement are set forth under “Management’s Discussion and Analysis of Financial Condition and Results of Operations - Liquidity and Capital Resources” contained in the Company’s Annual Report on Form 10-K for the fiscal year ended October 3, 2020, filed with the SEC on December 17, 2020.

At April 3, 2021, the Borrower (as defined, Blue Bird Body Company, a subsidiary of the Company) and the guarantors under the Amended Credit Agreement were in compliance with all covenants.

At July 3, 2021, the Borrower (as defined, Blue Bird Body Company, a subsidiary of the Company) and the guarantors under the Amended Credit Agreement were in compliance with all covenants.

Short-Term and Long-Term Liquidity Requirements

Our ability to make principal and interest payments on borrowings under our credit facilities and our ability to fund planned capital expenditures will depend on our ability to generate cash in the future, which, to a certain extent, is subject to general economic, financial, competitive, regulatory and other conditions.

The continuing adverse impacts from the COVID-19 pandemic materially impacted our results in the first half of fiscal 2021, causing lower customer orders for both buses and parts, supply disruptions, and higher rates of absenteeism among our hourly production workforce.

The continuing adverse impacts from the COVID-19 pandemic materially impacted our results in the first three quarters of fiscal 2021, causing lower customer orders for both buses and parts, supply disruptions, and higher rates of absenteeism among our hourly production workforce.

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.

8 unchanged sentences

An amendment or refinancing of our existing debt could lead to higher interest rates and possible up front expenses not included in our historical financial statements.

Historically, our business has been highly seasonal with school districts buying their new schools buses so that they will be available for use on the first day of the school year, typically in mid-August to early September.

Historically, our business has been highly seasonal with school districts buying their new school buses so that they will be available for use on the first day of the school year, typically in mid-August to early September.

This has resulted in our third and fourth fiscal quarters being our two busiest quarters, the latter ending on the Saturday closest to September 30.

1 unchanged sentence

Working capital has historically been a significant use of cash during the first fiscal quarter and a significant source of cash generation in the fourth fiscal quarter, with planned shutdowns during our first fiscal quarter.

With the COVID-19 pandemic impact on school systems and the uncertainty surrounding in-person schooling schedules and duration, seasonality and working capital trends have become unpredictable.

Seasonality and variations from historical seasonality have impacted the comparison of working capital and liquidity results between fiscal periods.

The following table sets forth general information derived from our Condensed Consolidated Statements of Cash Flows:

Six Months Ended

(in thousands of dollars) April 3, 2021 April 4, 2020

Nine Months Ended

(in thousands of dollars) July 3, 2021 July 4, 2020

Cash and cash equivalents at beginning of period $ 44,507 $ 70,959

5 unchanged sentences

Total cash used in operating activities

Cash flows used in operating activities totaled $11.2 million for the six months ended April 3, 2021, as compared to $48.2 million of cash flows used in operating activities for the six months ended April 4, 2020.

Cash flows used in operating activities totaled $14.2 million for the nine months ended July 3, 2021, as compared to $78.3 million for the nine months ended July 4, 2020.

The $64.1 million decrease in cash used was primarily attributed to a positive $66.0 million difference (source of cash) from the impacts of changes in working capital and accrued expenses between fiscal periods.

Total cash used in investing activities

Cash flows used in investing activities totaled $7.0 million for the six months ended April 3, 2021, as compared to $14.1 million of cash flows used in investing activities for the six months ended April 4, 2020.

Cash flows used in investing activities totaled $9.4 million for the nine months ended July 3, 2021, as compared to $16.6 million for the nine months ended July 4, 2020.

The $7.2 million decrease was due to a reduction of spending on manufacturing assets and a delay of certain projects due to the COVID-19 pandemic.

Total cash (used in) provided by financing activities

Cash flows used in financing activities totaled $7.6 million for the six months ended April 3, 2021, as compared to $25.4 million of cash flows provided by financing activities for the six months ended April 4, 2020.

The $33.0 million decrease between fiscal periods was primarily attributed to a $30.0 million decrease in cash borrowings under the revolving credit facility and $2.5 million in cash payments for fees and other costs relating to the execution of the third amendment to the Credit Agreement during the first quarter of fiscal 2021.

Cash flows used in financing activities totaled $9.6 million for the nine months ended July 3, 2021, as compared to $36.5 million of cash flows provided by financing activities for the nine months ended July 4, 2020.

The $46.1 million decrease between fiscal periods was primarily attributed to a $45.0 million decrease in cash borrowings under the revolving credit facility and a $1.5 million increase in cash paid for debt costs.

Free cash flow

1 unchanged sentence

See “Key Non-GAAP Measures We Use to Evaluate Our Performance.” The following table sets forth the calculation of free cash flow for the periods presented:

Six Months Ended

(in thousands of dollars) April 3, 2021 April 4, 2020

Nine Months Ended

(in thousands of dollars) July 3, 2021 July 4, 2020

Net cash used in operating activities $ (14,238) $ (78,305)

2 unchanged sentences

$ (24,542) $ (95,029)

Free cash flow for the six months ended April 3, 2021 was $44.3 million higher than the six months ended April 4, 2020, due to a $37.0 million decrease in cash used in operating activities and a decrease of $7.2 million in cash paid for fixed assets.

Free cash flow for the nine months ended July 3, 2021 was $70.5 million higher than the nine months ended July 4, 2020, due to a $64.1 million decrease in cash used in operating activities and a decrease of $6.4 million in cash paid for fixed assets.

Off-Balance Sheet Arrangements

We had outstanding letters of credit totaling $6.9 million at April 3, 2021, the majority of which secure our self-insured workers compensation program, the collateral for which is regulated by the State of Georgia.

We had a $3.0 million guarantee outstanding at April 3, 2021 which relates to a guarantee of indebtedness for a term loan issued by a Company dealer with a remaining maturity up to 1.8 years.

We had outstanding letters of credit totaling $6.9 million at July 3, 2021, the majority of which secure our self-insured workers compensation program, the collateral for which is regulated by the State of Georgia.

We had a $3.0 million guarantee outstanding at July 3, 2021 which relates to a guarantee of indebtedness for a term loan issued by a Company dealer with a remaining maturity up to 1.5 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.

2 unchanged sentences

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 2. Management’s Discussion and Analysis