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Item 1. Financial Statements

2022-02-09 compared with 2021-08-12 · 190 added, 183 removed, 250 unchanged (60% of the section changed)

2 unchanged sentences

CONDENSED CONSOLIDATED BALANCE SHEETS

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

(in thousands of dollars, except for share data) January 1, 2022 October 2, 2021

Current assets

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Total assets $ 364,048 $ 356,020

Liabilities and Stockholders' Deficit

Liabilities and Stockholders' Equity (Deficit)

Current liabilities

8 unchanged sentences

Long-term liabilities

Revolving credit facility $ 5,000 $ 45,000

Long-term debt 144,181 149,573

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Guarantees, commitments and contingencies (Note 6)

Stockholders' deficit

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

Common stock, $ 0.0001 par value, 100,000,000 shares authorized, 27,204,435 and 27,048,404 shares outstanding at July 3, 2021 and October 3, 2020, respectively

Stockholders' equity (deficit)

Preferred stock, $ 0.0001 par value, 10,000,000 shares authorized, 0 shares outstanding at January 1, 2022 and October 2, 2021

Common stock, $ 0.0001 par value, 100,000,000 shares authorized, 31,975,274 and 27,205,269 shares outstanding at January 1, 2022 and October 2, 2021, respectively

Additional paid-in capital 171,150 96,170

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Accumulated other comprehensive loss ( 44,573 ) ( 44,794 )

Treasury stock, at cost, 1,782,568 shares at July 3, 2021 and October 3, 2020

Treasury stock, at cost, 1,782,568 shares at January 1, 2022 and October 2, 2021

( 50,282 ) ( 50,282 )

Total stockholders' deficit $ ( 46,811 ) $ ( 53,230 )

Total liabilities and stockholders' deficit $ 362,945 $ 317,415

Total stockholders' equity (deficit) $ 38,463 $ ( 32,656 )

Total liabilities and stockholders' equity (deficit) $ 364,048 $ 356,020

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

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CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS

Three Months Ended Nine Months Ended

(in thousands of dollars except for share data) July 3, 2021 July 4, 2020 July 3, 2021 July 4, 2020

Three Months Ended

(in thousands of dollars except for share data) January 1, 2022 January 2, 2021

Net sales $ 129,223 $ 130,434

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Selling, general and administrative expenses 18,233 14,690

Operating profit $ 8,086 $ 3,289 $ 8,996 $ 8,405

Operating loss $ ( 2,036 ) $ ( 222 )

Interest expense ( 3,082 ) ( 1,930 )

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Loss on debt modification ( 561 ) ( 598 )

Income (loss) before income taxes $ 5,707 $ 1,091 $ 2,821 $ ( 974 )

Income tax (expense) benefit ( 1,892 ) ( 765 ) ( 888 ) 378

Equity in net income of non-consolidated affiliate 517 960 166 840

Net income $ 4,332 $ 1,286 $ 2,099 $ 244

Earnings per share:

Loss before income taxes $ ( 4,943 ) $ ( 2,106 )

Income tax benefit 1,762 521

Equity in net loss of non-consolidated affiliate ( 901 ) ( 29 )

Net loss $ ( 4,082 ) $ ( 1,614 )

Loss per share:

Basic weighted average shares outstanding 28,118,450 27,060,259

Diluted weighted average shares outstanding 28,118,450 27,060,259

Basic earnings per share $ 0.16 $ 0.05 $ 0.08 $ 0.01

Diluted earnings per share $ 0.16 $ 0.05 $ 0.08 $ 0.01

Basic loss per share $ ( 0.15 ) $ ( 0.06 )

Diluted loss per share $ ( 0.15 ) $ ( 0.06 )

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

BLUE BIRD CORPORATION AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME

Three Months Ended Nine Months Ended

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

Net income $ 4,332 $ 1,286 $ 2,099 $ 244

CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE LOSS

Three Months Ended

(in thousands of dollars) January 1, 2022 January 2, 2021

Net loss $ ( 4,082 ) $ ( 1,614 )

Other comprehensive income, net of tax:

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Total other comprehensive income $ 221 $ 353

Comprehensive income $ 4,686 $ 1,613 $ 3,160 $ 1,224

Comprehensive loss $ ( 3,861 ) $ ( 1,261 )

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

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CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

Nine Months Ended

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

Three Months Ended

(in thousands of dollars) January 1, 2022 January 2, 2021

Cash flows from operating activities

Net income $ 2,099 $ 244

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

Net loss $ ( 4,082 ) $ ( 1,614 )

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

Depreciation and amortization 3,288 3,471

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Share-based compensation 1,673 724

Equity in net income of non-consolidated affiliate ( 166 ) ( 840 )

Gain on disposal of fixed assets ( 681 ) ( 100 )

Equity in net loss of non-consolidated affiliate 901 29

Loss (gain) on disposal of fixed assets 9 ( 1 )

Deferred taxes ( 1,704 ) ( 106 )

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Cash paid for fixed assets $ ( 1,570 ) $ ( 3,317 )

Proceeds from sale of fixed assets 901 150

Total cash used in investing activities $ ( 1,570 ) $ ( 3,317 )

Cash flows from financing activities

Borrowings under the revolving credit facility $ — $ 45,000

Repayments under the senior term loan ( 7,425 ) ( 7,425 )

Principal payments on finance leases ( 1,147 ) ( 854 )

Payments of revolving credit facility borrowings $ ( 40,000 ) $ —

Principal payments of senior term loan borrowings ( 3,713 ) ( 2,475 )

Principal payments of finance lease borrowings ( 328 ) ( 382 )

Cash paid for debt costs ( 2,468 ) ( 2,476 )

Net cash received (paid) for exercises and employee taxes on vested restricted shares and stock option exercises 1,405 ( 3,568 )

Proceeds from exercises of warrants — 4,240

Total cash (used in) provided by financing activities $ ( 9,643 ) $ 36,458

Proceeds from Private Placement (Note 11) 75,000 —

Cash paid for repurchases of common stock in connection with employee stock award exercises ( 1,484 ) ( 518 )

Cash received from employee stock option exercises — 74

Total cash provided by (used in) financing activities $ 27,007 $ ( 5,777 )

Change in cash and cash equivalents ( 7,640 ) ( 20,591 )

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Changes in accounts payable for capital additions to property, plant and equipment $ 469 $ 340

Cashless exercise of stock options — 5,246

Right-of-use assets obtained in exchange for finance lease obligations — 1,942

Accrue common stock issuance fees 178 —

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

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BLUE BIRD CORPORATION AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF STOCKHOLDERS' DEFICIT

CONDENSED CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY (DEFICIT)

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, April 3, 2021 27,153,872 $ 3 $ 91,078 — $ — $ ( 57,690 ) $ ( 35,697 ) 1,782,568 $ ( 50,282 ) $ ( 52,588 )

Stock option activity 50,563 — 794 — — — — — — 794

Share-based compensation expense — — 297 — — — — — — 297

Net income — — — — — — 4,332 — — 4,332

Other comprehensive income, net of tax — — — — — 354 — — — 354

Balance, July 3, 2021 27,204,435 $ 3 $ 92,169 — $ — $ ( 57,336 ) $ ( 31,365 ) 1,782,568 $ ( 50,282 ) $ ( 46,811 )

Balance, April 4, 2020 27,027,272 $ 3 $ 87,408 — $ — $ ( 55,501 ) $ ( 46,691 ) 1,782,568 $ ( 50,282 ) $ ( 65,063 )

Restricted stock activity — — ( 255 ) — — — — — — ( 255 )

Stock option activity 21,132 — — — — — — — — —

Share-based compensation expense — — 1,777 — — — — — — 1,777

Net income — — — — — — 1,286 — — 1,286

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

Balance, July 4, 2020 27,048,404 $ 3 $ 88,930 — $ — $ ( 55,174 ) $ ( 45,405 ) 1,782,568 $ ( 50,282 ) $ ( 61,928 )

Nine 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

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

Balance, October 2, 2021 27,205,269 $ 3 $ 96,170 — $ — $ ( 44,794 ) $ ( 33,753 ) 1,782,568 $ ( 50,282 ) $ ( 32,656 )

Private Placement (Note 11) 4,687,500 — 74,822 — — — — — — 74,822

Restricted stock activity 82,505 — ( 1,484 ) — — — — — — ( 1,484 )

1 unchanged sentence

Share-based compensation expense — — 1,642 — — — — — — 1,642

Net income — — — — — — 2,099 — — 2,099

Net loss — — — — — — ( 4,082 ) — — ( 4,082 )

Other comprehensive income, net of tax — — — — — 221 — — — 221

Balance, July 3, 2021 27,204,435 $ 3 $ 92,169 — $ — $ ( 57,336 ) $ ( 31,365 ) 1,782,568 $ ( 50,282 ) $ ( 46,811 )

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

Warrant exercises 368,712 — 4,240 — — — — — — 4,240

Balance, January 1, 2022 31,975,274 $ 3 $ 171,150 — $ — $ ( 44,573 ) $ ( 37,835 ) 1,782,568 $ ( 50,282 ) $ 38,463

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

Restricted stock activity 36,404 — ( 518 ) — — — — — — ( 518 )

1 unchanged sentence

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

Net income — — — — — — 244 — — 244

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

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

Balance, July 4, 2020 27,048,404 $ 3 $ 88,930 — $ — $ ( 55,174 ) $ ( 45,405 ) 1,782,568 $ ( 50,282 ) $ ( 61,928 )

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

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

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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.

Blue Bird Body Company ("BBBC"), 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 BBBC’s sales are made to an independent distributor network, which in turn sells buses to ultimate end users.

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

We are headquartered in Macon, Georgia.

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

Beginning at the end of our second quarter of fiscal year 2020 and continuing through the third 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 throughout the first nine months 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, March 2021, and May 2021.

The continuing development and fluidity of the pandemic and its trailing impact 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 pandemic would likely have a material adverse impact on our financial results.

Basis of Presentation

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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 accompanying unaudited condensed consolidated financial statements have been prepared in accordance with accounting principles generally accepted in the United States of America (“U.S.

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, which ends on October 2, 2021, consists of 52 weeks while fiscal year 2020, which ended on October 3, 2020, consisted of 53 weeks.

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

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

The fiscal years ending October 1, 2022 ("fiscal 2022") and ended October 2, 2021 ("fiscal 2021") consist or consisted of 52 weeks.

The first quarters of fiscal 2022 and fiscal 2021 both included 13 weeks.

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

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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.

Accordingly, they do not include all of the information and footnotes required by U.S.

GAAP for complete financial statements.

The Condensed Consolidated Balance Sheet data as of October 2, 2021 was derived from the Company’s audited financial statements but does not include all disclosures required by U.S.

For additional information, including the Company’s significant accounting policies, refer to the consolidated financial statements and related footnotes as of and for the fiscal year ended October 2, 2021 as set forth in the Company's fiscal 2021 Form 10-K filed on December 15, 2021.

Towards the end of our second quarter of the fiscal year that ended October 3, 2020 ("fiscal 2020") and continuing through the first quarter of fiscal 2022, the novel coronavirus known as "COVID-19" spread throughout the world, resulting in a global pandemic.

The pandemic has significantly impacted our financial results from the second half of fiscal 2020, continuing throughout the first quarter of fiscal 2022, causing, among other matters, reduced demand for school buses and major supply chain disruptions during portions of this period of time.

A prolonged economic downturn resulting from the pandemic would likely have a material adverse impact on our financial results.

Use of Estimates and Assumptions

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

The preparation of financial statements in accordance with U.S.

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.

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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 nine months ended July 3, 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.

The Company’s significant accounting policies are described in the Company’s fiscal 2021 Form 10-K, filed with the Securities and Exchange Commission (“SEC”) on December 15, 2021.

Recently Issued Accounting Standards

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

ASU 2020-04 On March 12, 2020, the Financial Accounting Standards Board ("FASB") issued Accounting Standards Update ("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 (defined below), which was initially expected to occur on December 31, 2021.

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However, as management does not currently forecast that the Company will have sufficient cash to fund the term loan borrowings that are expected to be outstanding under the terms of the Amended Credit Agreement upon maturity, it is expecting to refinance such borrowings prior to maturity, with such refinancing likely to occur before the July 1, 2023 LIBOR cessation date.

Therefore, it is highly likely that neither the interest

rate collar nor Amended Credit Agreement will be modified to reflect the discontinuation of 3 month LIBOR effective July 1, 2023 and accordingly, the Company will not be required to decide whether or not to elect to adopt such amendments prior to or on December 31, 2022 (i.e., the last effective date for adopting the amendments).

Therefore, it is highly likely that neither the interest rate collar nor Amended Credit Agreement will be modified to reflect the discontinuation of 3 month LIBOR effective July 1, 2023 and accordingly, the Company will not be required to decide whether or not to elect to adopt such amendments prior to or on December 31, 2022 (i.e., the last effective date for adopting the amendments).

However, to the extent that either or both of the contracts are modified prior to December 31, 2022, the Company plans to adopt the amendments on a prospective basis by adjusting the derivative fair value and/or debt effective interest rate, as applicable, neither of which is expected to have a material impact on the consolidated financial statements.

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

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

(in thousands of dollars) January 1, 2022 October 2, 2021

Raw materials $ 102,972 $ 74,862

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The following table reflects activity in accrued warranty cost (current and long-term portions combined) for the periods presented:

Three Months Ended Nine Months Ended

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

Three Months Ended

(in thousands of dollars) January 1, 2022 January 2, 2021

Balance at beginning of period $ 18,550 $ 21,374

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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 Nine Months Ended

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

Three Months Ended

(in thousands of dollars) January 1, 2022 January 2, 2021

Balance at beginning of period $ 20,144 $ 22,588

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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) July 3, 2021 October 3, 2020

(in thousands of dollars) January 1, 2022 October 2, 2021

Current portion $ 3,194 $ 2,781

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Shipping and Handling Revenues

Shipping and handling revenues were $ 3.3 million and $ 3.9 million for the three months ended July 3, 2021 and July 4, 2020, respectively, and $ 9.2 million and $ 11.5 million for the nine months ended July 3, 2021 and July 4, 2020, respectively.

The related cost of goods sold was $ 2.9 million and $ 3.4 million for the three months ended July 3, 2021 and July 4, 2020, respectively, and $ 8.0 million and $ 10.0 million for the nine months ended July 3, 2021 and July 4, 2020, respectively.

Shipping and handling revenues were $ 3.4 million and $ 2.7 million for the three months ended January 1, 2022 and January 2, 2021, respectively.

The related cost of goods sold was $ 3.1 million and $ 2.4 million for the three months ended January 1, 2022 and January 2, 2021, respectively.

Pension Expense

Components of net periodic pension benefit cost were as follows for the periods presented:

Three Months Ended Nine Months Ended

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

Components of net periodic pension benefit (income) expense were as follows for the periods presented:

Three Months Ended

(in thousands of dollars) January 1, 2022 January 2, 2021

Interest cost $ 1,092 $ 1,057

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Amortization of prior loss 291 465

Net periodic benefit cost $ ( 421 ) $ ( 179 ) $ ( 1,264 ) $ ( 538 )

Net periodic benefit income $ ( 739 ) $ ( 422 )

Amortization of prior loss, recognized in other comprehensive income ( 291 ) ( 465 )

Total recognized in net periodic pension benefit cost and other comprehensive income $ ( 887 ) $ ( 609 ) $ ( 2,661 ) $ ( 1,827 )

Total recognized in net periodic pension benefit income and other comprehensive income $ ( 1,030 ) $ ( 887 )

Derivative Instruments

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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 nine months ended July 3, 2021, the three month LIBOR rate fell below the established floor, which required $ 1.4 million in total cash payments to the counterparty.

Additionally, $ 0.5 million was paid in the first quarter of fiscal year 2021 for amounts owed to the counterparty that were accrued in the fourth quarter of fiscal 2020.

During the three months ended January 1, 2022, the three month LIBOR rate fell below the established floor, which required us to make $ 0.5 million in total cash payments to the counterparty.

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

At July 3, 2021, the fair value of the interest rate collar contract was $( 2.5 ) million and is included in other current liabilities on the Condensed Consolidated Balance Sheets.

At January 1, 2022, the fair value of the interest rate collar contract was $ 1.2 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.

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 semi-monthly 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.

On November 24, 2021, the Company executed a fourth amendment to the Credit Agreement, dated as of December 12, 2016;

as amended by the first amendment to the Credit Agreement, dated as of September 13, 2018 (the "First Amended Credit Agreement"), the second amendment to the Credit Agreement, dated as of May 7, 2020 (the "Second Amended Credit Agreement"), and the third amendment to the Credit Agreement, dated as of December 4, 2020 (the "Third Amended Credit Agreement");

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

The Fourth Amended Credit Agreement, among other things, provides for certain temporary amendments to the Credit Agreement from the third amendment effective date through and including (a) April 1, 2023 (the “Amended Limited Availability Period”) or (b) the first date on which BBBC (the "Borrower") elects to terminate the Amended Limited Availability Period, in each case, subject to (x) the absence of a default or event of default and (y) pro forma compliance with the financial covenant performance covenants under the Fourth Amended Credit Agreement.

With respect to the financial performance covenants, during the Amended Limited Availability Period for the fiscal quarters ending January 1, 2022 through October 1, 2022, the Total Net Leverage Ratio ("TNLR") requirement is not applicable, although it continues to impact the interest rate that is charged on outstanding borrowings as discussed below.

Instead, the minimum consolidated EBITDA that the Company is required to maintain during the Amended Limited Availability Period was updated to include fiscal 2022 as set forth in the table below (in millions):

Period Minimum Consolidated EBITDA

Fiscal quarter ending January 1, 2022 $ 14.5

Fiscal quarter ending April 2, 2022 $( 4.5 )

Fiscal quarter ending July 2, 2022 $( 6.8 )

Fiscal quarter ending October 1, 2022 $ 20.0

However, in the event that Borrower elects to terminate the Amended Limited Availability Period in fiscal 2022, the maximum TNLR permitted is 3.50 x.

The minimum liquidity (in the form of undrawn availability under the revolving credit facility and unrestricted cash and cash equivalents) that the Company must maintain during the Amended Limited Availability Period was amended as set forth in the table below (in millions):

Period Minimum Liquidity

Fourth amendment effective date through January 1, 2022 $ 10.0

January 2, 2022 through April 2, 2022 $ 5.0

April 3, 2022 through July 2, 2022 $ 15.0

Thereafter $ 20.0

Additionally, a new financial performance covenant was added in the Fourth Amended Credit Agreement, requiring that school bus units manufactured by the Company (“Units”) not fall below the pre-set thresholds set forth in the table below on a three month trailing basis (“Units Covenant”).

The Units Covenant is triggered only if the Company’s liquidity for the most-recently ended fiscal month is less than $ 50 million during the Amended Limited Availability Period:

Period Minimum Units Manufactured

Three month period ending November 27, 2021 1,128

Three month period ending January 1, 2022 776

Three month period ending January 29, 2022 748

Three month period ending February 26, 2022 727

Three month period ending April 2, 2022 763

Three month period ending April 30, 2022 1,111

Three month period ending May 28, 2022 1,525

Three month period ending July 2, 2022 2,053

Three month period ending July30, 2022 2,072

Three month period ending August 27, 2022 2,199

Three month period ending October 1, 2021 2,306

If the Units during any three fiscal month period set forth above is less than the minimum required by the Units Covenant, Borrower may elect to carry forward up to 50 % of certain applicable excess Units to satisfy the Units Covenant requirement.

However, Borrower may not make such election in two consecutive three fiscal month periods.

The pricing grid in the Fourth Amended Credit Agreement, which is based on the TNLR, is determined in accordance with the amended pricing matrix set forth below:

Level Total Net Leverage Ratio ABR Loans Eurodollar Loans

I Less than 2.00x 0.75 % 1.75 %

II Greater than or equal to 2.00x and less than 2.50x 1.00 % 2.00 %

III Greater than or equal to 2.50x and less than 3.00x 1.25 % 2.25 %

IV Greater than or equal to 3.00x and less than 3.25x 1.50 % 2.50 %

V Greater than or equal to 3.25x and less than 3.50x 1.75 % 2.75 %

VI Greater than or equal to 3.50x and less than 4.50x 2.00 % 3.00 %

VII Greater than or equal to 4.50x and less than 5.00x 3.25 % 4.25 %

VIII Greater than 5.00x 4.25 % 5.25 %

During the Amended Limited Availability Period, the applicable rate for outstanding revolving loans is the sum of the rate determined by the administrative agent in accordance with the pricing grid set forth above, plus 0.50 %.

Additional allowances were made in the Fourth Amended Credit Agreement for the Company to issue or incur up to $ 100.0 million of qualified equity interests issued by the Company, unsecured subordinated indebtedness or unsecured convertible indebtedness (collectively, “Junior Capital”).

Upon the issuance or incurrence of any Junior Capital, the Company is required to prepay the outstanding revolving loans (with no permanent reduction in the revolving commitments) in an amount equal to the lesser of (a) 100 % of the net proceeds from such Junior Capital and (b) the aggregate of revolving exposures then outstanding.

Prior to the initial issuance or incurrence of any Junior Capital, any issuance, amendment, renewal, or extension of credit during the Amended Limited Availability Period may not cause the aggregate outstanding Revolving Credit Facility principal to exceed $ 110.0 million (“Availability Cap”).

Following the issuance and sale of $ 75.0 million of common stock in a private placement transaction on December 15, 2021 (see Note 11 for further details), the Availability Cap was permanently reduced to $ 100.0 million.

For the duration of the Amended Limited Availability Period, the Fourth Amended Credit Agreement sets forth additional monthly reporting requirements in connection with the manufactured school bus units required by the financial performance covenants, when applicable.

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

Of such total, approximately $ 1.1 million and $ 0.8 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 Amended Credit Agreement.

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

In conjunction with executing the fourth amendment, previously capitalized lender fees and other issuance costs incurred in prior periods totaling approximately $ 0.1 million were also 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) July 3, 2021 October 3, 2020

(in thousands of dollars) January 1, 2022 October 2, 2021

2023 term loan, net of deferred financing costs of $ 2,469 and $ 2,027 , respectively

5 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 3, 2021 and October 3, 2020, $ 168.9 million and $ 176.4 million, respectively, were outstanding on the term loans.

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

At July 3, 2021 and October 3, 2020, the weighted-average annual effective interest rates for the term loans were 6.0 % and 4.1 %, respectively, which includes amortization of the deferred financing costs and interest relating to the interest rate collar, as applicable.

At July 3, 2021, $ 6.9 million of Letters of Credit were outstanding, which reduces the availability on the revolving line of credit.

No borrowings were outstanding on the Revolving Credit Facility;

At January 1, 2022 and October 2, 2021, $ 162.7 million and $ 166.5 million, respectively, were outstanding on the term loans.

At January 1, 2022 and October 2, 2021, the stated interest rates on the term loans were 6.0 % and 4.0 %, respectively.

At January 1, 2022 and October 2, 2021, the weighted-average annual effective interest rates for the term loans were 7.2 % and 6.0 %, respectively, which includes amortization of the deferred financing costs and interest relating to the interest rate collar, as applicable.

At January 1, 2022, $ 6.3 million of letters of credit were outstanding, which reduces the availability on the revolving line of credit.

$ 5.0 million of borrowings were outstanding on the revolving credit facility;

therefore, the Company would have been able to borrow $ 88.7 million on the revolving line of credit.

Interest expense on all indebtedness was $ 2.8 million and $ 2.4 million for the three months ended July 3, 2021 and July 4, 2020, respectively, and $ 7.1 million and $ 10.0 million for the nine months ended July 3, 2021 and July 4, 2020, respectively.

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

Interest expense on all indebtedness was $ 3.1 million and $ 1.9 million for the three months ended January 1, 2022 and January 2, 2021, respectively.

The schedule of remaining principal payments through maturity for the term loans is as follows:

(in thousands of dollars)

Fiscal Year Principal Payments

2022 $ 11,138

Total remaining principal payments $ 162,738

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 that 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.

The effective tax rates in the periods presented are largely based upon the annual forecasted pre-tax earnings mix and allocation of certain expenses in various taxing jurisdictions where the Company conducts its business, primarily in the United States of America ("U.S.").

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.

The guidance for accounting for uncertainty in income taxes requires that a determination be made regarding whether a tax position, based solely on its technical merits, is more likely than not to be sustained upon examination, which is the threshold required for recognition of the tax position in the financial statements.

As of October 2, 2020, there were no amounts recorded in the consolidated financial statements for gross unrecognized tax benefits.

During the three months ended July 3, 2021, management obtained additional information that resulted in a conclusion that certain tax positions previously recognized in specific prior year financial statements may be subject to adjustment in conjunction with an examination.

Accordingly, such determination resulted in the derecognition of these tax positions during the third quarter of fiscal year 2021, resulting in gross unrecognized tax benefits of $ 0.5 million as of July 3, 2021.

These tax positions would impact the Company's effective tax rate in future periods if subsequently recognized.

The Company recognizes accrued interest and penalties related to unrecognized tax positions in income tax expense, with such accrual totaling $ 0.3 million as of July 3, 2021.

The Company's liability arising from uncertain tax positions ("UTPs"), including accrued interest and penalties, is recorded in other liabilities in the Condensed Consolidated Balance Sheets.

The effective tax rate for the three months 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 months 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.

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 %.

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 three months ended January 1, 2022 was 35.6 %, 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 and federal and state tax credits (net of valuation allowances), which was partially offset by discrete period tax expense resulting from net non-deductible compensation expenses and other tax adjustments.

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

The difference is mainly due to normal tax rate items, such as the impact from state taxes.

Guarantees, Commitments and Contingencies

At July 3, 2021, the Company had a number of product liability and other cases pending.

At January 1, 2022, 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 3, 2021, we had a $ 3.0 million guarantee outstanding that relates to a guarantee of dealer indebtedness for a term loan with remaining maturity up to 1.5 years.

At January 1, 2022, we had a $ 3.0 million guarantee outstanding that relates to a guarantee of dealer indebtedness for a term loan with remaining maturity up to 1.0 year.

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 3, 2021, $ 0.2 million was included in other current liabilities on our Condensed Consolidated Balance Sheets for the estimated fair value of the guarantee.

At January 1, 2022, $ 0.1 million was included in other current liabilities on our Condensed Consolidated Balance Sheets for the estimated fair value of the guarantee.

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;

(i) the Bus segment, which includes the manufacturing and assembly of buses to be sold to a variety of customers across the U.S., 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:

Three Months Ended Nine Months Ended

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

Three Months Ended

(in thousands of dollars) January 1, 2022 January 2, 2021

Bus (1) $ 112,437 $ 117,834

1 unchanged sentence

Segment net sales $ 129,223 $ 130,434

(1) Parts segment revenue includes $ 0.9 million and $ 0.8 million for the three months ended July 3, 2021 and July 4, 2020, respectively, and $ 2.9 million and $ 3.2 million for the nine months ended July 3, 2021 and July 4, 2020, respectively, related to inter-segment sales of parts that were eliminated by the Bus segment upon consolidation.

Three Months Ended Nine Months Ended

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

(1) Parts segment revenue includes $ 0.8 million for each of the three months ended January 1, 2022 and January 2, 2021 related to inter-segment sales of parts that were eliminated by the Bus segment upon consolidation.

Three Months Ended

(in thousands of dollars) January 1, 2022 January 2, 2021

Bus $ 9,642 $ 9,710

1 unchanged sentence

Segment gross profit $ 16,197 $ 14,468

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

Three Months Ended Nine Months Ended

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

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 1, 2022 January 2, 2021

Segment gross profit $ 16,197 $ 14,468

4 unchanged sentences

Loss on debt modification ( 561 ) ( 598 )

Income (loss) before income taxes $ 5,707 $ 1,091 $ 2,821 $ ( 974 )

Loss before income taxes $ ( 4,943 ) $ ( 2,106 )

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) July 3, 2021 July 4, 2020 July 3, 2021 July 4, 2020

Three Months Ended

(in thousands of dollars) January 1, 2022 January 2, 2021

United States $ 100,547 $ 119,077

3 unchanged sentences

The following table disaggregates revenue by product category for the periods presented:

Three Months Ended Nine Months Ended

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

Three Months Ended

(in thousands of dollars) January 1, 2022 January 2, 2021

Diesel buses $ 46,033 $ 59,710

3 unchanged sentences

Net sales $ 129,223 $ 130,434

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

(1) Includes buses sold with any power 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

The following table presents the earnings per share computation for the periods presented:

Three Months Ended Nine Months Ended

(in thousands except for share data) July 3, 2021 July 4, 2020 July 3, 2021 July 4, 2020

Net income $ 4,332 $ 1,286 $ 2,099 $ 244

Loss Per Share

The following table presents the loss per share computation for the periods presented:

Three Months Ended

(in thousands except for share data) January 1, 2022 January 2, 2021

Net loss $ ( 4,082 ) $ ( 1,614 )

Weighted-average common shares outstanding 28,118,450 27,060,259

Weighted-average dilutive securities, restricted stock 121,399 50,769 144,835 135,792

Weighted-average dilutive securities, stock options 135,316 1,515 75,610 60,284

Weighted-average shares and dilutive potential common shares (1) 28,118,450 27,060,259

Earnings per share:

Basic earnings per share $ 0.16 $ 0.05 $ 0.08 $ 0.01

Diluted earnings per share $ 0.16 $ 0.05 $ 0.08 $ 0.01

(1) Potentially dilutive securities representing 0.0 million and 0.4 million shares of common stock were excluded from the computation of diluted earnings per share for the three months ending July 3, 2021 and July 4, 2020, respectively, and potentially dilutive securities representing 0.1 million and 0.3 million shares of common stock were excluded from the computation of diluted earnings per share for the nine months ending July 3, 2021 and July 4, 2020, respectively, as their effect would have been antidilutive.

Loss per share:

Basic loss per share $ ( 0.15 ) $ ( 0.06 )

Diluted loss per share $ ( 0.15 ) $ ( 0.06 )

(1) Potentially dilutive securities representing 0.4 million and 0.8 million shares of common stock were excluded from the computation of diluted loss per share for the three months ending January 1, 2022 and January 2, 2021, respectively, as their effect would have been antidilutive.

Accumulated Other Comprehensive Loss

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 Total AOCL Defined Benefit Pension Plan Total AOCL

Three Months Ended

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

January 1, 2022

Beginning Balance $ ( 44,794 ) $ ( 44,794 )

2 unchanged sentences

Income taxes ( 70 ) ( 70 )

Ending Balance July 3, 2021 $ ( 57,336 ) $ ( 57,336 ) $ ( 57,336 ) $ ( 57,336 )

Ending Balance January 1, 2022 $ ( 44,573 ) $ ( 44,573 )

January 2, 2021

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

2 unchanged sentences

Income taxes ( 112 ) ( 112 )

Ending Balance July 4, 2020 $ ( 55,174 ) $ ( 55,174 ) $ ( 55,174 ) $ ( 55,174 )

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

Stockholders' Equity (Deficit)

Sale of Common Stock

On December 15, 2021, the Company issued and sold through a private placement transaction an aggregate 4,687,500 shares of its common stock at $ 16.00 per share (“Private Placement”) to Coliseum Capital Partners, L.P.

and Blackwell Partners LLC - Series A (collectively, “Coliseum”).

Subsequent to the sale, Coliseum owns an approximate 15 % equity interest in the Company.

In connection with the purchase of the shares, Coliseum received customary registration rights and the Company added Adam Gray of Coliseum as a Class II director.

The Company used the net proceeds (approximately $ 74.8 million) from the Private Placement to repay outstanding revolving loans as required by the terms of the Fourth Amended Credit Agreement.

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