UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington D.C. 20549

FORM 10-Q

~~FORM~~
~~10-Q~~



☒			QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the quarterly period ended July ~~4, 2020~~3, 2021



☐			TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the transition period from ................................ to ...............................................

Commission File Number 001-36267

BLUE BIRD CORPORATION

(Exact name of registrant as specified in its charter)

Delaware 46-3891989

(State or other jurisdiction of incorporation or organization) (I.R.S. Employer Identification No.)

3920 Arkwright Road,, 2nd Floor,, Macon,, Georgia31210

(Address of principal executive ~~offices)~~

~~(Zip Code)~~

offices and zip code)

(
~~478~~)

(478) 822-2801

(Registrant’s telephone number, including area code)

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

Title of each class

Trading Symbol(s)

Name of each exchange on which registered

Common stock, $0.0001 par value

BLBD

NASDAQ Global Market

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.

Yes ☒ No ☐

Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files).

Yes ☒ No ☐

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and "emerging growth company" in Rule 12b-2 of the Exchange Act.

Large accelerated filer

☐

Accelerated Filer

☒

Non-accelerated filer

☐

Smaller reporting company

☐☒

Emerging growth company

☐

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ☐

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes ☐ No ☒

At August ~~7, 2020, 27,048,404~~6, 2021, 27,204,435 shares of the registrant’s common stock, $0.0001 par value, were outstanding.

BLUE BIRD CORPORATION

FORM 10-Q

TABLE OF CONTENTS

PART I – FINANCIAL INFORMATION

Item 1. Financial Statements (Unaudited).

BLUE BIRD CORPORATION AND SUBSIDIARIES

CONDENSED CONSOLIDATED BALANCE SHEETS

(Unaudited)


(in thousands of dollars, except for share data)	July 3, 2021		October 3, 2020
Assets
Current assets
Cash and cash equivalents	$	11,223	$	44,507
Accounts receivable, net	10,451		7,623
Inventories	133,540		56,523
Other current assets	6,982		8,243
Total current assets	$	162,196	$	116,896
Property, plant and equipment, net	106,022		103,372
Goodwill	18,825		18,825
Intangible assets, net	49,945		51,632
Equity investment in affiliate	14,485		14,320
Deferred tax assets	4,015		4,365
Finance lease right-of-use assets	5,860		6,983
Other assets	1,597		1,022
Total assets	$	362,945	$	317,415
Liabilities and Stockholders' Deficit
Current liabilities
Accounts payable	$	113,152	$	57,602
Warranty	7,373		8,336
Accrued expenses	21,154		15,773
Deferred warranty income	7,945		8,540
Finance lease obligations	1,315		1,280
Other current liabilities	7,656		10,217
Current portion of long-term debt	13,613		9,900
Total current liabilities	$	172,208	$	111,648
Long-term liabilities

Long-term debt	$	153,005	$	164,204
Warranty	11,407		13,038
Deferred warranty income	12,563		14,048
Deferred tax liabilities	589		254
Finance lease obligations	4,874		5,879
Other liabilities	15,433		14,315
Pension	39,677		47,259
Total long-term liabilities	$	237,548	$	258,997
Guarantees, commitments and contingencies (Note 6)	0		0
Stockholders' deficit
Preferred stock, $0.0001 par value, 10,000,000 shares authorized, 0 shares outstanding at July 3, 2021 and October 3, 2020	$	0	$	0
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	3		3
Additional paid-in capital	92,169		88,910
Accumulated deficit	(31,365)		(33,464)
Accumulated other comprehensive loss	(57,336)		(58,397)
Treasury stock, at cost, 1,782,568 shares at July 3, 2021 and October 3, 2020	(50,282)		(50,282)
Total stockholders' deficit	$	(46,811)	$	(53,230)
Total liabilities and stockholders' deficit	$	362,945	$	317,415

(in thousands of dollars, except for share data) July 4, 2020 September 28, 2019
Assets
Current assets
Cash and cash equivalents $ 12,538
$ 70,959
Accounts receivable, net 13,694
10,537
Inventories 155,717
78,830
Other current assets 9,459
11,765
Total current assets $ 191,408
$ 172,091
Property, plant and equipment, net 104,667
100,058
Goodwill 18,825
18,825
Intangible assets, net 52,404
54,720
Equity investment in affiliate 11,946
11,106
Deferred tax assets 3,882
3,600
Finance lease right-of-use assets 5,790
4,638
Other assets 1,133
375
Total assets $ 390,055
$ 365,413
Liabilities and Stockholders' Deficit
Current liabilities
Accounts payable $ 95,538
$ 102,266
Warranty 8,123
9,161
Accrued expenses 15,638
28,697
Deferred warranty income 8,448
8,632
Finance lease obligations 1,032
716
Other current liabilities 13,425
10,310
Current portion of long-term debt 9,900
9,900
Total current liabilities $ 152,104
$ 169,682
Long-term liabilities
Revolving credit facility $ 45,000
$ —
Long-term debt 166,467
173,226
Warranty 12,705
13,182
Deferred warranty income 13,597
15,413
Deferred tax liabilities 792
168
Finance lease obligations 4,870
3,921
Other liabilities 13,251
12,108
Pension 43,197
45,524
Total long-term liabilities $ 299,879
$ 263,542
Guarantees, commitments and contingencies (Note 6)

Stockholders' deficit
Preferred stock, $0.0001 par value, 10,000,000 shares authorized, 0 shares issued at July 4, 2020 and September 28, 2019 $ —
$ —
Common stock, $0.0001 par value, 100,000,000 shares authorized, 27,048,404 and 26,476,336 shares outstanding at July 4, 2020 and September 28, 2019, respectively 3
3
Additional paid-in capital 88,930
84,271
Accumulated deficit (45,405 ) (45,649 )
Accumulated other comprehensive loss (55,174 ) (56,154 )
Treasury stock, at cost, 1,782,568 shares at July 4, 2020 and September 28, 2019 (50,282 ) (50,282 )
Total stockholders' deficit $ (61,928 ) $ (67,811 )
Total liabilities and stockholders' deficit $ 390,055
$ 365,413

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

BLUE BIRD CORPORATION AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS

(Unaudited)


	Three Months Ended						Nine Months Ended							Three Months Ended				Nine Months Ended
(in thousands of dollars except for share data)	July 4, 2020			June 29, 2019			July 4, 2020			June 29, 2019			(in thousands of dollars except for share data)	July 3, 2021		July 4, 2020		July 3, 2021		July 4, 2020
Net sales	$	189,181		$	308,774		$	597,810		$	675,342		Net sales	$	196,659	$	189,181	$	491,791	$	597,810
Cost of goods sold	168,099			266,992			531,259			588,496			Cost of goods sold	170,500		168,099		432,671		531,259
Gross profit	$	21,082		$	41,782		$	66,551		$	86,846		Gross profit	$	26,159	$	21,082	$	59,120	$	66,551
Operating expenses													Operating expenses
Selling, general and administrative expenses	17,793			20,996			58,146			61,197			Selling, general and administrative expenses	18,073		17,793		50,124		58,146
Operating profit	$	3,289		$	20,786		$	8,405		$	25,649		Operating profit	$	8,086	$	3,289	$	8,996	$	8,405
Interest expense	(2,406		)	(3,369		)	(9,961		)	(10,241		)	Interest expense	(2,805)		(2,406)		(7,069)		(9,961)
Interest income	27			—			27			9			Interest income	0		27		1		27
Other income (expense), net	181			(410		)	555			(1,034		)
Other income, net													Other income, net	426		181		1,491		555
Loss on debt modification													Loss on debt modification	0		0		(598)		0
Income (loss) before income taxes	$	1,091		$	17,007		$	(974	)	$	14,383		Income (loss) before income taxes	$	5,707	$	1,091	$	2,821	$	(974)
Income tax (expense) benefit	(765		)	(3,248		)	378			(2,833		)	Income tax (expense) benefit	(1,892)		(765)		(888)		378
Equity in net income of non-consolidated affiliate	960			842			840			1,158			Equity in net income of non-consolidated affiliate	517		960		166		840
Net income	$	1,286		$	14,601		$	244		$	12,708		Net income	$	4,332	$	1,286	$	2,099	$	244

Earnings per share:													Earnings per share:
Basic weighted average shares outstanding	27,027,731			26,451,107			26,784,404			26,449,751			Basic weighted average shares outstanding	27,172,162		27,027,731		27,116,915		26,784,404
Diluted weighted average shares outstanding	27,080,015			26,720,110			26,980,480			26,788,306			Diluted weighted average shares outstanding	27,428,877		27,080,015		27,337,360		26,980,480
Basic earnings per share	$	0.05		$	0.55		$	0.01		$	0.48		Basic earnings per share	$	0.16	$	0.05	$	0.08	$	0.01
Diluted earnings per share	$	0.05		$	0.55		$	0.01		$	0.47		Diluted earnings per share	$	0.16	$	0.05	$	0.08	$	0.01

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

BLUE BIRD CORPORATION AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME

(Unaudited)


	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
Other comprehensive income, net of tax:
Net change in defined benefit pension plan	354		327		1,061		980

Total other comprehensive income	$	354	$	327	$	1,061	$	980
Comprehensive income	$	4,686	$	1,613	$	3,160	$	1,224

Three Months Ended Nine Months Ended
(in thousands of dollars) July 4, 2020 June 29, 2019 July 4, 2020 June 29, 2019
Net income $ 1,286
$ 14,601
$ 244
$ 12,708
Other comprehensive income, net of tax
Net change in defined benefit pension plan 327
524
980
1,572
Total other comprehensive income $ 327
$ 524
$ 980
$ 1,572
Comprehensive income $ 1,613
$ 15,125
$ 1,224
$ 14,280

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

BLUE BIRD CORPORATION AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

(Unaudited)


	Nine Months Ended
(in thousands of dollars)	July 3, 2021		July 4, 2020
Cash flows from operating activities
Net income	$	2,099	$	244
Adjustments to reconcile net income to net cash used in operating activities:
Depreciation and amortization	10,145		10,728
Non-cash interest expense	2,219		3,560
Share-based compensation	1,923		4,105
Equity in net income of non-consolidated affiliate	(166)		(840)
Gain on disposal of fixed assets	(681)		(100)
Deferred taxes	350		32
Amortization of deferred actuarial pension losses	1,397		1,289
Loss on debt modification	598		0
Changes in assets and liabilities:
Accounts receivable	(2,828)		(3,157)
Inventories	(77,017)		(76,887)
Other assets	1,682		2,480
Accounts payable	55,150		(3,115)
Accrued expenses, pension and other liabilities	(9,109)		(16,644)

Total adjustments	$	(16,337)	$	(78,549)
Total cash used in operating activities	$	(14,238)	$	(78,305)
Cash flows from investing activities
Cash paid for fixed assets	$	(10,304)	$	(16,724)
Proceeds from sale of fixed assets	901		150
Total cash used in investing activities	$	(9,403)	$	(16,574)
Cash flows from financing activities
Borrowings under the revolving credit facility	$	0	$	45,000

Repayments under the senior term loan	(7,425)		(7,425)
Principal payments on finance leases	(1,147)		(854)
Cash paid for debt costs	(2,476)		(935)
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	0		4,240


Total cash (used in) provided by financing activities	$	(9,643)	$	36,458
Change in cash and cash equivalents	(33,284)		(58,421)
Cash and cash equivalents, beginning of period	44,507		70,959
Cash and cash equivalents, end of period	$	11,223	$	12,538

Supplemental disclosures of cash flow information
Cash paid or received during the period:
Interest paid, net of interest received	$	8,855	$	6,616
Income tax paid (received), net of tax refunds	52		(1,668)
Non-cash investing and financing activities:
Changes in accounts payable for capital additions to property, plant and equipment	$	400	$	(3,613)

Cashless exercise of stock options	0		5,246

Right-of-use assets obtained in exchange for finance lease obligations	0		1,942
Right-of-use assets obtained in exchange for operating lease obligations	107		0

Nine Months Ended
(in thousands of dollars) July 4, 2020 June 29, 2019
Cash flows from operating activities
Net income $ 244
$ 12,708
Adjustments to reconcile net income to net cash used in operating activities:
Depreciation and amortization 10,728
7,406
Non-cash interest expense 3,560
2,172
Share-based compensation 4,105
3,146
Equity in net income of non-consolidated affiliate (840 ) (1,158 )
(Gain) loss on disposal of fixed assets (100 ) 50
Deferred taxes 32
500
Amortization of deferred actuarial pension losses 1,289
2,068
Foreign currency hedges —
109
Changes in assets and liabilities:
Accounts receivable (3,157 ) (16,162 )
Inventories (76,887 ) (83,355 )
Other assets 2,480
(5,014 )
Accounts payable (3,115 ) 42,429
Accrued expenses, pension and other liabilities (16,644 ) 15,988
Total adjustments $ (78,549 ) $ (31,821 )
Total cash used in operating activities $ (78,305 ) $ (19,113 )
Cash flows from investing activities
Cash paid for fixed assets $ (16,724 ) $ (30,154 )
Proceeds from sale of fixed assets 150
—
Total cash used in investing activities $ (16,574 ) $ (30,154 )
Cash flows from financing activities
Borrowings under the revolving credit facility $ 45,000
$ 25,000
Borrowings under the senior term loan —
50,000
Repayments under the senior term loan (7,425 ) (7,425 )
Principal payments on finance leases (854 ) —
Cash paid for debt issuance costs (935 ) —
Cash paid for employee taxes on vested restricted shares and stock option exercises (3,568 ) (622 )
Proceeds from exercises of warrants 4,240
1,499
Tender offer repurchase of common stock and preferred stock —
(50,370 )
Total cash provided by financing activities $ 36,458
$ 18,082
Change in cash and cash equivalents (58,421 ) (31,185 )
Cash and cash equivalents, beginning of period 70,959
60,260
Cash and cash equivalents, end of period $ 12,538
$ 29,075

Supplemental disclosures of cash flow information
Cash paid during the period for:
Interest paid, net of interest received $ 6,616
$ 7,916
Income tax paid, net of tax refunds (1,668 ) 2,431
Non-cash investing and financing activities:
Changes in accounts payable for capital additions to property, plant and equipment $ (3,613 ) $ (1,307 )
Cashless exercise of stock options 5,246
295
Right-of-use assets obtained in exchange for finance lease obligations 1,942
—
Right-of-use assets obtained in exchange for operating lease obligations —
8,040
Conversion of preferred stock into common stock —
9,264

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

BLUE BIRD CORPORATION AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF STOCKHOLDERS' DEFICIT

(Unaudited)


	Three Months Ended
(in thousands of dollars, except for share data)	Common Stock					Convertible Preferred Stock							Treasury Stock
	Shares	Par Value		Additional Paid-In-Capital		Shares	Amount		Accumulated Other Comprehensive Loss		Accumulated Deficit		Shares	Amount		Total Stockholders' Deficit
Balance, 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)


	Three Months Ended																							Nine Months Ended
(in thousands of dollars, except for share data)	Common Stock						Convertible Preferred Stock									Treasury Stock							(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' Deficit
Balance, April 4, 2020	27,027,272	$	3	$	87,408		—	$	—	$	(55,501	)	$	(46,691	)	1,782,568	$	(50,282	)	$	(65,063	)
Balance, October 3, 2020																							Balance, October 3, 2020	27,048,404	$	3	$	88,910	—	$	—	$	(58,397)	$	(33,464)	1,782,568	$	(50,282)	$	(53,230)

Restricted stock activity	—	—		(255		)	—	—		—			—			—	—			(255		)	Restricted stock activity	36,404	—		(517)		—	—		—		—		—	—		(517)
Stock option activity	21,132	—		—			—	—		—			—			—	—			—			Stock option activity	119,627	—		1,922		—	—		—		—		—	—		1,922

Share-based compensation expense	—	—		1,777			—	—		—			—			—	—			1,777			Share-based compensation expense	—	—		1,854		—	—		—		—		—	—		1,854

Net income																							Net income	—	—		—		—	—		—		2,099		—	—		2,099
Other comprehensive income, net of tax																							Other comprehensive income, net of tax	—	—		—		—	—		1,061		—		—	—		1,061
Balance, July 3, 2021																							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																							Balance, September 28, 2019	26,476,336	$	3	$	84,271	—	$	—	$	(56,154)	$	(45,649)	1,782,568	$	(50,282)	$	(67,811)

Warrant exercises																							Warrant exercises	368,712	—		4,240		—	—		—		—		—	—		4,240
Restricted stock activity																							Restricted stock activity	94,724	—		(1,623)		—	—		—		—		—	—		(1,623)
Stock option activity																							Stock option activity	108,632	—		(1,945)		—	—		—		—		—	—		(1,945)

Share-based compensation expense																							Share-based compensation expense	—	—		3,987		—	—		—		—		—	—		3,987

Net income	—	—		—			—	—		—			1,286			—	—			1,286			Net income	—	—		—		—	—		—		244		—	—		244
Other comprehensive income, net of tax	—	—		—			—	—		327			—			—	—			327			Other comprehensive income, net of tax	—	—		—		—	—		980		—		—	—		980
Balance, July 4, 2020	27,048,404	$	3	$	88,930		—	$	—	$	(55,174	)	$	(45,405	)	1,782,568	$	(50,282	)	$	(61,928	)	Balance, July 4, 2020	27,048,404	$	3	$	88,930	—	$	—	$	(55,174)	$	(45,405)	1,782,568	$	(50,282)	$	(61,928)

Balance, March 30, 2019	26,440,663	$	3	$	81,889		—	$	—	$	(37,379	)	$	(71,842	)	1,782,568	$	(50,261	)	$	(77,590	)
Warrant exercises	17,750	—		204			—	—		—			—			—	—			204
Stock option activity	2,043	—		(20		)	—	—		—			—			—	—			(20		)
Share-based compensation expense	—	—		1,095			—	—		—			—			—	—			1,095
Tender offer share repurchases	—	—		21			—	—		—			—			—	(21		)	—
Net income	—	—		—			—	—		—			14,601			—	—			14,601
Other comprehensive income, net of tax	—	—		—			—	—		524			—			—	—			524
Balance, June 29, 2019	26,460,456	$	3	$	83,189		—	$	—	$	(36,855	)	$	(57,241	)	1,782,568	$	(50,282	)	$	(61,186	)

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
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
Restricted stock activity 94,724
—
(1,623 ) —
—
—
—
—
—
(1,623 )
Stock option activity 108,632
—
(1,945 ) —
—
—
—
—
—
(1,945 )
Share-based compensation expense —
—
3,987
—
—
—
—
—
—
3,987
Net income —
—
—
—
—
—
244
—
—
244
Other comprehensive income, net of tax —
—
—
—
—
980
—
—
—
980
Balance, July 4, 2020 27,048,404
$ 3
$ 88,930
—
$ —
$ (55,174 ) $ (45,405 ) 1,782,568
$ (50,282 ) $ (61,928 )

Balance, September 29, 2018 27,259,262
$ 3
$ 70,023
93,000
$ 9,300
$ (38,427 ) $ (69,235 ) —
$ —
$ (28,336 )
Adoption of new revenue recognition standard (ASC 606) adjustment —
—
—
—
—
—
(714 ) —
—
(714 )
Warrant exercises 130,385
—
1,499
—
—
—
—
—
—
1,499
Restricted stock activity 51,195
—
(596 ) —
—
—
—
—
—
(596 )
Stock option activity 2,567
—
(26 ) —
—
—
—
—
—
(26 )
Share-based compensation expense —
—
3,077
—
—
—
—
—
—
3,077
Tender offer share repurchases (1,782,568 ) —
(52 ) (364 ) (36 ) —
—
1,782,568
(50,282 ) (50,370 )
Preferred stock conversion 799,615
—
9,264
(92,636 ) (9,264 ) —
—
—
—
—
Net income —
—
—
—
—
—
12,708
—
—
12,708
Other comprehensive income, net of tax —
—
—
—
—
1,572
—
—
—
1,572
Balance, June 29, 2019 26,460,456
$ 3
$ 83,189
—
$ —
$ (36,855 ) $ (57,241 ) 1,782,568
$ (50,282 ) $ (61,186 )

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

BLUE BIRD CORPORATION

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

1. Nature of Business and Basis of Presentation

Nature of Business

Blue Bird Body Company, a wholly-owned subsidiary of Blue Bird Corporation, was incorporated in 1958 and has manufactured, assembled and sold school buses to a variety of municipal, federal and commercial customers since 1927. The majority of Blue Bird’s sales are made to an independent distributor network, which in turn sells buses to ultimate end users. We are headquartered in Macon, Georgia. References in these notes to financial statements to “Blue ~~Bird”,~~Bird,” the “Company,” “we,” “our,” or “us” ~~refer~~relate to Blue Bird Corporation and its wholly-owned subsidiaries, unless the context specifically indicates otherwise.

COVID-19

~~During~~Beginning at the end of our second quarter of fiscal year 2020 and continuing through the third quarter of fiscal ~~2020,~~year 2021, the novel coronavirus known as "COVID-19" ~~continued to~~ spread throughout the world, ~~perpetuating~~resulting in a global pandemic. The pandemic ~~materially~~significantly impacted our ~~third quarter~~financial results for the second half of fiscal year 2020, ~~results~~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.~~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 ~~continuing~~ pandemic would likely have a material adverse impact on our financial results.

Basis of Presentation

The accompanying unaudited condensed consolidated financial statements include the accounts of the Company and its wholly-owned subsidiaries. All significant inter-company transactions and accounts have been eliminated in consolidation.

The accompanying unaudited condensed consolidated financial statements have been prepared in accordance with accounting principles generally accepted ~~accounting principles~~in the United States of America (“GAAP”) for interim financial reporting and Article 8 of Regulation S-X. The Company’s fiscal year ends on the Saturday closest to September 30 with its quarters consisting of thirteen weeks in most years. InFiscal year 2021, which ends on October 2, 2021, consists of 52 weeks while fiscal year 2020, ~~there is a total~~which ended on October 3, 2020, consisted of 53 weeks. The third quarters of fiscal ~~2020~~years 2021 and ~~2019~~2020 both included 13 weeks. The nine month periods in fiscal years 2021 and 2020 included 39 and ~~2019 included~~ 40 ~~and 39~~ weeks, respectively.

In the opinion of management, all adjustments considered necessary for a fair presentation of financial results have been made. Such adjustments consist of only those of a normal recurring nature. Operating results for any interim period are not necessarily indicative of the results that may be expected for the entire year. Accordingly, they do not include all of the information and footnotes required by ~~generally accepted accounting principles~~GAAP for complete financial statements.

The Condensed Consolidated Balance Sheet data as of ~~September 28, 2019~~October 3, 2020 was derived from the Company’s audited financial statements but does not include all disclosures required by ~~generally accepted accounting principles.~~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 ~~September 28, 2019~~October 3, 2020 as set forth in the Company's ~~2019~~2020 Form 10-K filed on December ~~12, 2019.~~17, 2020.

Use of Estimates and Assumptions

The preparation of financial statements in accordance with ~~accounting principles generally accepted in the United States of America (“U.S. GAAP”)~~GAAP requires management to make estimates and assumptions. At the date of the financial statements, these estimates and assumptions affect the reported amounts of assets and liabilities and disclosures of contingent assets and liabilities, and during the reporting period, these estimates and assumptions affect the reported amounts of revenues and expenses. For example, significant management judgments are required in determining excess, obsolete, or unsalable ~~inventory,~~inventory; the allowance for doubtful ~~accounts,~~accounts; potential impairment of long-lived assets, goodwill and ~~intangibles,~~intangible assets; and the accounting for self-insurance reserves, warranty reserves, pension obligations, income taxes, environmental liabilities and contingencies. Future events, including the extent and duration of COVID-19 related economic impacts, and their effects cannot be predicted with certainty, and, accordingly, the Company’s accounting estimates require the exercise of judgment. The accounting estimates used in the preparation of the Company’s condensed consolidated financial statements may change as new events occur, as more experience is acquired, as additional information is obtained and as the Company’s operating environment changes. The

Company evaluates and updates its assumptions and estimates on an ongoing basis and may employ outside experts to assist in the Company’s evaluations. Actual results could differ from the estimates that the Company has used.

2. Summary of Significant Accounting Policies and Recently Issued Accounting Standards

The Company’s significant accounting policies are described in the Company’s ~~2019~~2020 Form 10-K, filed with the SEC on December ~~12, 2019.~~17, 2020. Our senior management has reviewed these significant accounting policies and related disclosures and determined that there were no significant changes in our critical accounting policies in the nine months ended July ~~4, 2020, except as follows (and as discussed in the Recently Adopted Accounting Standards section of this Note 2):~~

~~Amortization of Deferred Pension Losses~~

3, 2021.

~~Historically, the Company has amortized deferred losses from our frozen defined benefit pension plan accounted for under ASC 715,~~
~~Compensation - Retirement Benefits,~~ over the expected remaining employment period of the participants who remained employed with the Company. ASC 715 states that if all or almost all of a plan's participants are inactive, the average remaining life expectancy of the inactive participants shall be used to amortize the unrecognized net gain or loss instead of the average remaining service period of active plan participants. In the first quarter of 2020, the ratio of active (employed) to inactive participants in our plan declined to less than 10%, a figure we believe meets the definition of almost all participants as inactive. Accordingly, we have changed the amortization period from approximately seven years in 2019 to approximately 23 years in 2020. Future amortization periods (remaining life expectancy) will be determined based on the participant and actuarial data at that time.

Recently Adopted Accounting Standards

ASU ~~2018-02 –~~2016-13 In ~~February 2018,~~June 2016, the ~~FASB~~Financial Accounting Standards Board ("FASB") issued ~~ASU No. 2018-02,~~Accounting Standards Update ("ASU") 2016-13, ~~Income Statement~~Financial Instruments - ~~Reporting Comprehensive Income~~Credit Losses (Topic ~~220)~~326): Measurement of Credit Losses on Financial Instruments~~. This ASU provides~~, 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 ~~a reclassification from accumulated other comprehensive income ("AOCI") to retained earnings for~~October 4, 2020, the ~~effect~~first day of the tax rate change resulting from the Tax Cuts and Jobs Act (H.R.1) (the "Tax Act"). The amendments eliminate the stranded tax effects resulting from the Tax Act and will improve the usefulness of information reported to financial statement users. This ASU is effective for fiscal years, and interim periods within those fiscal years, beginning after December 15, 2018, with early adoption permitted. We adopted this ASU, in theCompany’s first quarter of fiscal ~~2020, and~~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 ~~elect to reclassify~~have any impact on the ~~income tax effects of the Tax Act from AOCI to retained earnings. We use a specific identification approach to release the income tax effects in AOCI.~~Company’s condensed consolidated financial statements.

~~ASU 2019-12 –~~ ~~In December 2019, the FASB issued ASU No. 2019-12,~~ ~~Simplifying the Accounting for Income Taxes~~, which simplifies the process for calculating interim (intraperiod) income taxes and the accounting for deferred tax liabilities for foreign equity-method investments, among other simplifications. We have early adopted this standard effective the first quarter of fiscal 2020. The impacts of adopting this standard were not material to us.

Recently Issued Accounting Standards

ASU 2020-04– On March 12, 2020, the FASB issued ASU 2020-04, Reference Rate Reform (Topic 848): Facilitation of the Effects of Reference Rate Reform on Financial Reporting, providing temporary guidance to ease the potential burden in accounting for reference rate reform primarily resulting from the discontinuation of LIBOR (defined below), which ~~is currently~~was initially expected to occur on December 31, 2021. The amendments in ASU 2020-04 are elective and apply to all entities that have contracts, hedging relationships, and other transactions that reference LIBOR or another reference rate expected to be discontinued.

ASU 2021-01 On January 7, 2021, the FASB issued ASU 2021-01, Reference Rate Reform (Topic 848): Scope, which refines the scope of Accounting Standards Codification Topic ("ASC") 848, Reference Rate Reform, and clarifies some of its guidance as part of the FASB’s ongoing monitoring of global reference rate reform activities. The ASU permits entities to elect certain optional expedients and exceptions when accounting for derivative contracts and certain hedging relationships affected by changes in the interest rates used for discounting cash flows, computing variation margin settlements, and calculating price alignment interest in connection with reference rate reform activities under way in global financial markets.

The above amendments are effective for all entities from March 12, 2020 through December 31, 2022. An entity may elect to apply the amendments ~~prospectively~~to contract modifications on a (i) full retrospective basis as of any date from the beginning of an interim period that includes or is subsequent to March 12, 2020 or (ii) prospective basis from any date within an interim period that includes or is subsequent to March 12, 2020 through the date that the interim financial statements are issued or available to be issued.

On March 5, 2021, the Intercontinental Exchange, Inc. ("ICE") Benchmark Administration ("IBA"), the administrator of the United States Dollar London Interbank Offering Rate ("LIBOR"), issued a statement, following the completion of a formal consultation process, reaffirming the preliminary announcement it made on November 30, 2020, to cease publication of (i) 1 week and 2 month LIBOR subsequent to December 31, ~~2022. Our~~2021 and (ii) the overnight and 1, 3, 6 and 12 month LIBOR tenors subsequent to June 30, 2023. The IBA’s statement regarding such cessation dates primarily resulted from a majority of LIBOR panel banks communicating to the IBA that they would be unwilling to continue contributing to the relevant LIBOR settings after such dates. As a result, the IBA determined that it would be unable to publish the relevant LIBOR settings on a representative basis after such dates. The United Kingdom Financial Conduct Authority ("FCA"), which regulates the IBA, confirmed that, based on information it received from LIBOR panel banks, it does not expect that any LIBOR settings will become unrepresentative before the announced cessation dates summarized above.

Currently, the Company’s interest rate collar, which is not designated in a hedge accounting relationship, and Amended Credit Agreement (defined below) are the only contracts that reference an interest rate index (i.e., 3 month LIBOR) that is subject to the reference rate reform guidance included in the above amendments. While the termination date of the interest rate collar, September 30, 2022, occurs prior to the July 1, 2023 date on which the IBA will no longer publish 3 month LIBOR, the Amended Credit Agreement matures on September 13, 2023, approximately 2.5 months subsequent to such cessation date. 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). 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 ~~and derivative agreements currently reference LIBOR. Contract language~~effective interest rate, as applicable, neither of which is expected to ~~be incorporated into these agreements to address~~have a material impact on the ~~transition to an alternative reference rate. We are currently evaluating the impact this ASU may have on our~~ consolidated financial statements.

3. Supplemental Financial Information

Inventories

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


(in thousands of dollars)	July 3, 2021		October 3, 2020
Raw materials	$	94,173	$	43,272
Work in process	33,755		8,989
Finished goods	5,612		4,262
Total inventories	$	133,540	$	56,523

(in thousands of dollars) July 4, 2020 September 28, 2019
Raw materials $ 108,041
$ 60,033
Work in process 29,790
16,663
Finished goods 17,886
2,134
Total inventories $ 155,717
$ 78,830

Product Warranties

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 4, 2020 June 29, 2019 July 4, 2020 June 29, 2019
Balance at beginning of period $ 21,398
$ 21,520
$ 22,343
$ 22,646
Add current period accruals 1,947
3,358
6,076
7,196
Current period reductions of accrual (2,517 ) (2,358 ) (7,591 ) (7,322 )
Balance at end of period $ 20,828
$ 22,520
$ 20,828
$ 22,520


	Three Months Ended				Nine Months Ended
(in thousands of dollars)	July 3, 2021		July 4, 2020		July 3, 2021		July 4, 2020
Balance at beginning of period	$	19,181	$	21,398	$	21,374	$	22,343
Add current period accruals	2,040		1,947		4,932		6,076
Current period reductions of accrual	(2,441)		(2,517)		(7,526)		(7,591)
Balance at end of period	$	18,780	$	20,828	$	18,780	$	20,828

Extended Warranties

The following table reflects activity in deferred warranty income (current and long-term portions combined), for the sale of extended warranties of two to five years, for the periods presented:


	Three Months Ended				Nine Months Ended
(in thousands of dollars)	July 3, 2021		July 4, 2020		July 3, 2021		July 4, 2020
Balance at beginning of period	$	20,724	$	22,948	$	22,588	$	24,045
Add current period deferred income	1,921		1,769		4,421		5,058
Current period recognition of income	(2,137)		(2,672)		(6,501)		(7,058)
Balance at end of period	$	20,508	$	22,045	$	20,508	$	22,045

Three Months Ended Nine Months Ended
(in thousands of dollars) July 4, 2020 June 29, 2019 July 4, 2020 June 29, 2019
Balance at beginning of period $ 22,948
$ 22,901
$ 24,045
$ 23,191
Add current period deferred income 1,769
2,880
5,058
6,686
Current period recognition of income (2,672 ) (2,196 ) (7,058 ) (6,292 )
Balance at end of period $ 22,045
$ 23,585
$ 22,045
$ 23,585

The outstanding balance of deferred warranty income in the table above is considered a "contract ~~liability",~~liability," and represents a performance obligation of the Company that we satisfy over the term of the arrangement but for which we have been paid in full at the time the warranty was sold. We expect to recognize ~~$2.3~~$2.2 million of the outstanding contract liability during the remainder of fiscal ~~2020, $7.8~~2021, $7.3 million in fiscal ~~2021,~~2022, and the remaining balance thereafter.

Self-Insurance

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


(in thousands of dollars)	July 3, 2021		October 3, 2020
Current portion	$	2,675	$	2,993
Long-term portion	1,813		1,962
Total accrued self-insurance	$	4,488	$	4,955

(in thousands of dollars) July 4, 2020 September 28, 2019
Current portion $ 2,732
$ 2,933
Long-term portion 1,794
1,775
Total accrued self-insurance $ 4,526
$ 4,708

The current and long-term portions of the accrued self-insurance liability are reflected in accrued expenses and other liabilities, respectively, on the Condensed Consolidated Balance Sheets.

Shipping and Handling Revenues

Shipping and handling revenues were ~~$3.9~~$3.3 million and ~~$6.0~~$3.9 million for the three months ended July 3, 2021 and July 4, 2020, ~~and June 29, 2019,~~ respectively, and ~~$11.5~~$9.2 million and ~~$12.5~~$11.5 million for the nine months ended July 3, 2021 and July 4, 2020, ~~and June 29, 2019,~~ respectively. The related cost of goods sold was ~~$3.4~~$2.9 million and ~~$5.3~~$3.4 million for the three months ended July 3, 2021 and July 4, 2020, ~~and June 29, 2019,~~ respectively, and ~~$10.0~~$8.0 million and ~~$11.0~~$10.0 million for the nine months ended July 3, 2021 and July 4, 2020, ~~and June 29, 2019,~~ 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
Interest cost	$	1,057	$	1,237	$	3,171	$	3,711
Expected return on plan assets	(1,944)		(1,846)		(5,832)		(5,538)
Amortization of prior loss	466		430		1,397		1,289
Net periodic benefit cost	$	(421)	$	(179)	$	(1,264)	$	(538)
Amortization of prior loss, recognized in other comprehensive income	466		430		1,397		1,289
Total recognized in net periodic pension benefit cost and other comprehensive income	$	(887)	$	(609)	$	(2,661)	$	(1,827)

Three Months Ended Nine Months Ended
(in thousands of dollars) July 4, 2020 June 29, 2019 July 4, 2020 June 29, 2019
Interest cost $ 1,237
$ 1,512
$ 3,711
$ 4,535
Expected return on plan assets (1,846 ) (1,905 ) (5,538 ) (5,714 )
Amortization of prior loss 430
689
1,289
2,068
Net periodic benefit cost $ (179 ) $ 296
$ (538 ) $ 889
Amortization of prior loss, recognized in other comprehensive income 430
689
1,289
2,068
Total recognized in net periodic pension benefit cost and other comprehensive income $ (609 ) $ (393 ) $ (1,827 ) $ (1,179 )

Derivative Instruments

We are charged variable rates of interest on our indebtedness outstanding under the Amended Credit Agreement (defined below) which exposes us to fluctuations in interest rates. On October 24, 2018, the Company entered into a four-year interest rate collar with a $150.0 million notional value with an effective date of November 30, 2018. The collar was entered into in order to partially mitigate our exposure to interest rate fluctuations on our variable rate debt. The collar establishes a range ~~where~~whereby we will pay the counterparty if the ~~three-month~~three month LIBOR rate falls below the established floor rate of 1.5%, and the counterparty will pay us if the ~~three-month~~three month LIBOR rate exceeds the ceiling rate of 3.3%. The collar settles quarterly through the termination date of September 30, 2022. No payments or receipts are exchanged on the interest rate collar ~~contracts~~contract unless interest rates rise above or fall below the contracted ceiling or floor rates. During the ~~three-months~~nine months ended July ~~4, 2020,~~3, 2021, the ~~three-month~~three month LIBOR rate fell below the established floor, which required ~~an immaterial payment~~$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.

Changes in the interest rate collar fair value are recorded in interest expense as the collar does not qualify for hedge accounting. At July ~~4, 2020,~~3, 2021, the fair value of the interest rate collar contract was ~~$(4.2)~~$(2.5) million and is included in ~~"other~~other current ~~liabilities"~~liabilities on the Condensed Consolidated Balance Sheets. The fair value of the interest rate collar is a Level 2 fair value measurement, based on quoted prices of similar items in active markets.

~~Equity Investment in Affiliate~~

The Company holds a 50% equity interest in Micro Bird Holdings, Inc. (“Micro Bird”), and accounts for Micro Bird under the equity method of accounting. The carrying amount of the equity method investment is adjusted for the Company’s proportionate share of net earnings and losses and any dividends received. At July 4, 2020 and September 28, 2019, the carrying value of the Company's investment was $11.9 million and $11.1 million, respectively.

In recognizing the Company’s 50% portion of Micro Bird net income, the Company recorded $0.8 million and $1.2 million in Equity in net income of non-consolidated affiliate for the nine months ended July 4, 2020 and June 29, 2019, respectively. Summarized unaudited financial information for these periods for Micro Bird is as follows:

Nine Months Ended
(in thousands of dollars) July 4, 2020 June 29, 2019
Revenues $ 58,883
$ 86,364
Gross profit 7,318
9,961
Operating income 1,557
3,717
Net income 1,103
2,409

4. Debt

~~for an aggregate lender commitment of $41.9 million of additional revolving commitments bringing the total revolving commitments to $141.9 million. The revolving commitments under the~~Third Amended Credit Agreement, ~~mature~~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 ~~13, 2023,~~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 ~~fifth anniversary~~ratio of the ~~effective date~~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 ~~First Amendment.~~ 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 ~~interest rate pricing grid remained unchanged, but~~Company incurred approximately $2.5 million in lender fees and other issuance costs relating to the ~~LIBOR floor was amended from 0% to 0.75%. We incurred~~third amendment. Of such total, $1.1 million and $0.9 million ~~in fees related to the amendment. The fees were~~was capitalized towithin other assets and long-term debt (as a contra-balance), respectively, on the Condensed Consolidated Balance Sheets and ~~are~~will be amortized as an adjustment to interest expense on a straight-line basis toand utilizing the effective interest ~~expense~~method, respectively, until maturity of the ~~agreement.~~Credit Agreement. The remaining $0.5 million was recorded to loss on debt modification on the Condensed Consolidated Statements of Operations.

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

Term debt consisted of the following at the dates indicated:


(in thousands of dollars)	July 3, 2021		October 3, 2020
2023 term loan, net of deferred financing costs of $2,307 and $2,246, respectively	$	166,618	$	174,104
Less: current portion of long-term debt	13,613		9,900
Long-term debt, net of current portion	$	153,005	$	164,204

(in thousands of dollars) July 4, 2020 September 28, 2019
2023 term loan, net of deferred financing costs of $2,458 and $3,124, respectively $ 176,367
$ 183,126
Less: current portion of long-term debt 9,900
9,900
Long-term debt, net of current portion $ 166,467
$ 173,226

Term loans are recognized on the Condensed Consolidated Balance Sheets at the unpaid principal balance, and are not subject to fair value measurement; however, given the variable rates on the loans, the Company estimates that the unpaid principal balance approximates fair value. If measured at fair value in the financial statements, the term loans would be classified as Level 2 in the fair value hierarchy. At July 4,3, 2021 and October 3, 2020, ~~and September 28, 2019, $178.8~~$168.9 million and ~~$186.3~~$176.4 million, respectively, were outstanding on the term loans.

At July 4,3, 2021 and October 3, 2020, ~~and September 28, 2019,~~ the stated interest rates on the term loans were ~~2.8%~~4.0% and ~~4.4%~~3.5%, respectively. At July 4,3, 2021 and October 3, 2020, ~~and September 28, 2019,~~ the weighted-average annual effective interest rates for the term loans were ~~4.1%~~6.0% and ~~5.0%~~4.1%, respectively, which includes amortization of the deferred financing ~~costs.~~costs and interest relating to the interest rate collar, as applicable.

At July ~~4, 2020, $45.0~~3, 2021, $6.9 million inof Letters of Credit were outstanding, which reduces the availability on the revolving line of credit. NaN borrowings were outstanding on the Revolving Credit ~~Facility and $6.9 million of Letters of Credit were outstanding;~~Facility; therefore, the Company would have been able to borrow ~~$90.0~~$93.1 million on the revolving line of credit.

Interest expense on all indebtedness was ~~$2.4~~$2.8 million and ~~$3.4~~$2.4 million for the three months ended July 3, 2021 and July 4, 2020, ~~and June 29, 2019,~~ respectively, and ~~$10.0~~$7.1 million and ~~$10.3~~$10.0 million for the nine months ended July 3, 2021 and July 4, 2020, ~~and June 29, 2019,~~ respectively.

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


(in thousands of dollars)
Fiscal Year	Principal Payments
2021	$	2,475
2022	14,850
2023	151,600



Total remaining principal payments	$	168,925

(in thousands of dollars)
Year Principal Payments
2020 $ 2,475
2021 9,900
2022 14,850
2023 196,600
Total remaining principal payments $ 223,825

5. Income Taxes

Income tax provisions for interim periods are based on estimated annual income tax rates, adjusted to reflect the effects of any significant infrequent or unusual items ~~which~~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. In periods where our operating income approximates or is equal to break-even, the effective tax rates for quarter-to-date and full-year periods may not be meaningful due to discrete period items.

On ~~March~~December 27, 2020, the President of the United States signed the ~~Coronavirus Aid, Relief and Economic Security~~Consolidated Appropriations Act ~~("CARES Act"~~(the "Act") into law. While the ~~CARES~~ 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 0 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.

Three Months

The effective tax rate for the ~~three-month~~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 ~~income~~ tax rate of 21%. The difference is mainly due to discrete period tax expense from prior year tax return adjustments and normal tax rate items, such as the benefit from federal and state tax credits (net of valuation allowance), which were partially offset by net non-deductible compensation expenses and other tax adjustments.

Nine Months

The effective tax rate for the ~~three-month~~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 ~~June 29, 2019~~July 4, 2020 was ~~19.1%~~38.8%, which differed from the statutory federal tax rate of 21%. The difference is mainly due to normal tax rate benefit items, such as federal and state tax credits (net of valuation allowance), which were partially offset by non-deductible share-based compensation expenses and other tax adjustments.

~~Nine Months~~

~~The effective tax rate for the nine-month period ended July 4, 2020 was 38.8% and differed from the statutory federal tax rate of 21%. The difference is mainly due to~~ a net discrete period tax benefit from share-based compensation expenses, but also due to normal tax rate items, such as the benefit from federal and state tax credits (net of valuation allowance), which were partially offset by net non-deductible compensation expenses and other tax adjustments.

The effective tax rate for the nine-month period ended June 29, 2019 was 19.7% and differed from the statutory federal income tax rate of 21%. The difference is mainly due to normal tax rate benefit items, primarily federal and state tax credits (net of valuation allowance), which were partially offset by non-deductible share-based compensation expenses and other tax adjustments.

6. Guarantees, Commitments and Contingencies

Litigation

At July ~~4, 2020,~~3, 2021, the Company had a number of product liability and other cases pending. Management believes that, considering the Company’s insurance coverage and its intention to vigorously defend its positions, the ultimate resolution of these matters will not have a material adverse effect on the Company’s financial statements.

Environmental

The Company is subject to a variety of environmental regulations relating to the use, storage, discharge and disposal of hazardous materials used in its manufacturing processes. Failure by the Company to comply with present and future regulations could subject it to future liabilities. In addition, such regulations could require the Company to acquire costly equipment or to incur other significant expenses to comply with environmental regulations. The Company is currently not involved in any material environmental proceedings and therefore, management believes that the resolution of pending environmental matters will not have a material adverse effect on the Company’s financial statements.

Guarantees

In the ordinary course of business, we may provide guarantees for certain transactions entered into by our dealers. At July ~~4, 2020,~~3, 2021, we had a $3.0 million guarantee outstanding ~~which~~that relates to a guarantee of dealer indebtedness for a term loan with remaining maturity up to ~~2.5~~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. At July ~~4, 2020, $0.3~~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.

~~Lease Commitments~~

~~We have operating and finance leases for office and/or warehouse space and for equipment. Our leases have remaining terms of 4.4 to 7.4 years.~~

7. Segment Information

We manage our business in 2 operating segments: (i) the Bus segment, which includes the manufacturing and assembly of buses to be sold to a variety of customers across the United States, Canada and in international markets; and (ii) the Parts segment, which consists primarily of the purchase of parts from third parties to be sold to dealers within the Company’s network. The tables below present segment net sales and gross profit for the periods presented:

~~Net sales~~

Three Months Ended Nine Months Ended
(in thousands of dollars) July 4, 2020 June 29, 2019 July 4, 2020 June 29, 2019
Bus (1) $ 180,592
$ 292,166
$ 554,061
$ 626,441
Parts (1) 8,589
16,608
43,749
48,901
Segment net sales $ 189,181
$ 308,774
$ 597,810
$ 675,342


Net sales
	Three Months Ended				Nine Months Ended
(in thousands of dollars)	July 3, 2021		July 4, 2020		July 3, 2021		July 4, 2020
Bus (1)	$	181,735	$	180,592	$	449,876	$	554,061
Parts (1)	14,924		8,589		41,915		43,749
Segment net sales	$	196,659	$	189,181	$	491,791	$	597,810

(1) Parts segment revenue includes ~~$0.8~~$0.9 million and ~~$1.0~~$0.8 million for the three months ended July 3, 2021 and July 4, 2020, ~~and June 29, 2019,~~ respectively, and ~~$3.2~~$2.9 million and ~~$2.5~~$3.2 million for the nine months ended July 3, 2021 and July 4, 2020, ~~and June 29, 2019,~~ respectively, related to inter-segment sales of parts that ~~was~~were eliminated by the Bus segment upon consolidation.

~~Gross profit~~

Three Months Ended Nine Months Ended
(in thousands of dollars) July 4, 2020 June 29, 2019 July 4, 2020 June 29, 2019
Bus $ 18,079
$ 35,996
$ 50,884
$ 69,653
Parts 3,003
5,786
15,667
17,193
Segment gross profit $ 21,082
$ 41,782
$ 66,551
$ 86,846


Gross profit
	Three Months Ended				Nine Months Ended
(in thousands of dollars)	July 3, 2021		July 4, 2020		July 3, 2021		July 4, 2020
Bus	$	20,471	$	18,079	$	43,265	$	50,884
Parts	5,688		3,003		15,855		15,667
Segment gross profit	$	26,159	$	21,082	$	59,120	$	66,551

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
Segment gross profit	$	26,159	$	21,082	$	59,120	$	66,551
Adjustments:
Selling, general and administrative expenses	(18,073)		(17,793)		(50,124)		(58,146)
Interest expense	(2,805)		(2,406)		(7,069)		(9,961)
Interest income	0		27		1		27
Other income, net	426		181		1,491		555
Loss on debt modification	0		0		(598)		0
Income (loss) before income taxes	$	5,707	$	1,091	$	2,821	$	(974)

Three Months Ended Nine Months Ended
(in thousands of dollars) July 4, 2020 June 29, 2019 July 4, 2020 June 29, 2019
Segment gross profit $ 21,082
$ 41,782
$ 66,551
$ 86,846
Adjustments:
Selling, general and administrative expenses (17,793 ) (20,996 ) (58,146 ) (61,197 )
Interest expense (2,406 ) (3,369 ) (9,961 ) (10,241 )
Interest income 27
—
27
9
Other income (expense), net 181
(410 ) 555
(1,034 )
Income (loss) before income taxes $ 1,091
$ 17,007
$ (974 ) $ 14,383

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
United States	$	179,850	$	175,433	$	436,286	$	544,176
Canada	15,072		13,429		49,257		49,331
Rest of world	1,737		319		6,248		4,303
Total net sales	$	196,659	$	189,181	$	491,791	$	597,810

Three Months Ended Nine Months Ended
(in thousands of dollars) July 4, 2020 June 29, 2019 July 4, 2020 June 29, 2019
United States $ 175,433
$ 286,499
$ 544,176
$ 629,668
Canada 13,429
21,639
49,331
43,499
Rest of world 319
636
4,303
2,175
Total net sales $ 189,181
$ 308,774
$ 597,810
$ 675,342

8. Revenue

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

Three Months Ended Nine Months Ended
(in thousands of dollars) July 4, 2020 June 29, 2019 July 4, 2020 June 29, 2019
Diesel buses $ 88,299
$ 135,246
$ 278,698
$ 335,553
Alternative fuel buses (1) 80,975
141,939
245,766
260,340
Other (2) 11,583
15,486
30,931
32,061
Parts 8,324
16,103
42,415
47,388
Net sales $ 189,181
$ 308,774
$ 597,810
$ 675,342


	Three Months Ended				Nine Months Ended
(in thousands of dollars)	July 3, 2021		July 4, 2020		July 3, 2021		July 4, 2020
Diesel buses	$	76,753	$	88,299	$	212,578	$	278,698
Alternative power buses (1)	95,877		80,975		214,133		245,766
Other (2)	9,495		11,583		24,240		30,931


Parts	14,534		8,324		40,840		42,415
Net sales	$	196,659	$	189,181	$	491,791	$	597,810

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

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

9. Earnings Per Share

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

Three Months Ended Nine Months Ended
(in thousands except for share data) July 4, 2020 June 29, 2019 July 4, 2020 June 29, 2019
Numerator:
Net income $ 1,286
$ 14,601
$ 244
$ 12,708

Denominator:
Weighted-average common shares outstanding 27,027,731
26,451,107
26,784,404
26,449,751
Weighted-average dilutive securities, restricted stock 50,769
94
135,792
29,149
Weighted-average dilutive securities, warrants —
150,292
—
178,290
Weighted-average dilutive securities, stock options 1,515
118,617
60,284
131,116
Weighted-average shares and dilutive potential common shares 27,080,015
26,720,110
26,980,480
26,788,306

Earnings per share:
Basic earnings per share $ 0.05
$ 0.55
$ 0.01
$ 0.48
Diluted earnings per share $ 0.05
$ 0.55
$ 0.01
$ 0.47


	Three Months Ended				Nine Months Ended
(in thousands except for share data)	July 3, 2021		July 4, 2020		July 3, 2021		July 4, 2020
Numerator:
Net income	$	4,332	$	1,286	$	2,099	$	244

Denominator:
Weighted-average common shares outstanding	27,172,162		27,027,731		27,116,915		26,784,404
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)	27,428,877		27,080,015		27,337,360		26,980,480

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 ~~three and~~ nine months ~~ended~~ending July 3, 2021 and July 4, 2020, respectively, as their effect would have been ~~anti-dilutive.~~antidilutive.

10. Accumulated Other Comprehensive Loss

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


	Three Months Ended		Nine Months Ended
(in thousands of dollars)	Defined Benefit Pension Plan		Total AOCL		Defined Benefit Pension Plan		Total AOCL
July 3, 2021
Beginning Balance	$	(57,690)	$	(57,690)	$	(58,397)	$	(58,397)

Amounts reclassified and included in earnings	466		466		1,397		1,397
Total before taxes	466		466		1,397		1,397
Income taxes	(112)		(112)		(336)		(336)
Ending Balance July 3, 2021	$	(57,336)	$	(57,336)	$	(57,336)	$	(57,336)

July 4, 2020
Beginning Balance	$	(55,501)	$	(55,501)	$	(56,154)	$	(56,154)

Amounts reclassified and included in earnings	430		430		1,289		1,289
Total before taxes	430		430		1,289		1,289
Income taxes	(103)		(103)		(309)		(309)
Ending Balance July 4, 2020	$	(55,174)	$	(55,174)	$	(55,174)	$	(55,174)

Three Months Ended Nine Months Ended
(in thousands of dollars) Defined Benefit Pension Plan Total Defined Benefit Pension Plan Total
July 4, 2020
Beginning Balance $ (55,501 ) $ (55,501 ) $ (56,154 ) $ (56,154 )
Amounts reclassified from other comprehensive loss and included in earnings 430
430
1,289
1,289
Total other comprehensive income, before taxes 430
430
1,289
1,289
Income tax expense (103 ) (103 ) (309 ) (309 )
Ending Balance July 4, 2020 $ (55,174 ) $ (55,174 ) $ (55,174 ) $ (55,174 )

June 29, 2019
Beginning Balance $ (37,379 ) $ (37,379 ) $ (38,427 ) $ (38,427 )
Amounts reclassified from other comprehensive loss and included in earnings 689
689
2,068
2,068
Total other comprehensive income, before taxes 689
689
2,068
2,068
Income tax expense (165 ) (165 ) (496 ) (496 )
Ending Balance June 29, 2019 $ (36,855 ) $ (36,855 ) $ (36,855 ) $ (36,855 )

Item 2. 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~~"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 June 29, 2019~~ and related notes appearing in Part I, Item 1 of this ~~Report.~~Quarterly Report of Form 10-Q ("Report"). Our actual results may not be indicative of future performance. This discussion and analysis contains forward-looking statements and involves numerous risks and uncertainties, including, but not limited to, those discussed or incorporated by reference in the sections of this Report titled “Special Note Regarding Forward-Looking Statements” and “Risk ~~Factors”.~~Factors.” Actual results may differ materially from those contained in any forward-looking statements. Certain monetary amounts, percentages and other figures included in this Report have been subject to rounding adjustments. 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 ~~September 28, 2019~~October 3, 2020 as “fiscal ~~2019”.~~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” and we refer to the quarter ended June 29, 2019 as the “third quarter~~2020.”

Fiscal year 2021 consists of 52 weeks while fiscal ~~2019”.~~year 2020 consisted of 53 weeks. The third quarters of fiscal ~~2020~~2021 and ~~2019~~2020 both included 13 weeks. The nine month periods in fiscal 2021 and 2020 included 39 and ~~2019 included~~ 40 ~~and 39~~ weeks, respectively.

Special Note Regarding Forward-Looking Statements

This ~~Quarterly~~ Report ~~on Form 10-Q (this “Report”) of Blue Bird Corporation (“Blue Bird” or the “Company”)~~ contains forward-looking statements intended to qualify for the safe harbors from liability established by the Private Securities Litigation Reform Act of 1995. Except as otherwise indicated by the context, references in this Report to “we,” “us” and “our” are to the consolidated business of the Company. All statements in this Report, including those made by the management of the Company, other than statements of historical fact, are forward-looking statements. These forward-looking statements are based on management’s estimates, projections and assumptions as of the date hereof and include the assumptions that underlie such statements. Forward-looking statements may contain words such as “may,” “will,” “should,” “could,” “would,” “expect,” “plan,” “estimate,” “project,” “forecast,” “seek,” “target,” “anticipate,” “believe,” ~~“estimate,”~~ “predict,” “potential” and “continue,” the negative of these terms, or other comparable terminology. Examples of forward-looking statements include statements regarding the Company’s future financial results, research and development results, regulatory approvals, operating results, business strategies, projected costs, products, competitive positions, management’s plans and objectives for future operations, and industry trends. These forward-looking statements relate to expectations for future financial performance, business strategies or expectations for our business. Specifically, forward-looking statements may include statements relating to:

•the future financial performance of the Company;

•negative changes in the market for Blue Bird products;

•expansion plans and opportunities;

•challenges or unexpected costs related to manufacturing;

•future impacts from the novel coronavirus pandemic known as ~~"COVID-19",~~"COVID-19," and any other pandemics, public health crises, or epidemics, on capital markets, manufacturing and supply chain abilities, consumer and customer demand, school system operations, workplace conditions, and any other unexpected impacts, which could include, among other effects:


◦	~~disruption in global financial and credit markets;~~


◦	~~supply shortages and supplier financial risk, especially from our single-source suppliers impacted by the pandemic;~~


◦	~~negative impacts to manufacturing operations or the supply chain from shutdowns or other disruptions in operations;~~


◦	~~negative impacts on capacity and/or production in response to changes in demand due to the pandemic, including possible cost containment actions;~~


◦	~~financial difficulties of our customers impacted by the pandemic;~~


◦	~~reductions in market demand for our products due to the pandemic; and~~


◦	~~potential negative impacts of various actions taken by federal, state and/or local governments in response to the pandemic.~~

◦disruption in global financial and credit markets;

◦supply shortages and supplier financial risk, especially from our single-source suppliers impacted by the pandemic;

◦negative impacts to manufacturing operations or the supply chain from shutdowns or other disruptions in operations;

◦negative impacts on capacity and/or production in response to changes in demand due to the pandemic, including possible cost containment actions;

◦financial difficulties of our customers impacted by the pandemic;

◦reductions in market demand for our products due to the pandemic; and

◦potential negative impacts of various actions taken by federal, state and/or local governments in response to the pandemic.

These forward-looking statements are based on information available as of the date of this Report (or, in the case of forward-looking statements incorporated herein by reference, as of the date of the applicable filed document), and current expectations, forecasts and assumptions, and involve a number of judgments, risks and uncertainties. Accordingly, forward-looking statements should not be relied upon as representing our views as of any subsequent date, and we do not undertake any obligation to update forward-looking statements to reflect events or circumstances after the date they were made, whether as a result of new information, future events or otherwise, except as may be required under applicable securities laws. As a result of a number of known and unknown risks and uncertainties, our actual results or performance may be materially different than those expressed or implied by these forward-looking statements.

Any expectations based on these forward-looking statements are subject to risks and uncertainties and other important factors, including those discussed in the reports we file with the Securities and Exchange Commission ~~(the “SEC”~~(“SEC”), specifically the sections titled “Risk Factors” and “Management’s Discussion and Analysis of Financial Condition and Results of Operations” in the Company’s ~~2019~~2020 Form 10-K, filed with the SEC on December ~~12, 2019.~~17, 2020. Other risks and uncertainties are and will be disclosed in the Company’s prior and future SEC filings. The following information should be read in conjunction with the financial statements included in the Company’s ~~2019~~2020 Form 10-K, filed with the SEC on December ~~12, 2019.~~17, 2020.

Available Information

We are subject to the reporting and information requirements of the Securities Exchange Act of 1934, as amended (the “Exchange Act”), and as a result are obligated to file annual, quarterly, and current reports, proxy statements, and other information with the SEC. We make these filings available free of charge on our website (http://www.blue-bird.com) as soon as reasonably practicable after we electronically file them with, or furnish them to, the SEC. Information on our website does not constitute part of this ~~Quarterly Report on Form 10-Q.~~Report. In addition, the SEC maintains a website (http://www.sec.gov) that contains our annual, quarterly, and current reports, proxy and information statements, and other information we electronically file with, or furnish to, the SEC.

Executive Overview

Blue Bird is the leading independent designer and manufacturer of school buses. Our longevity and reputation in the school bus industry have made Blue Bird an iconic American brand. We distinguish ourselves from our principal competitors by dedicating our focus to the design, engineering, manufacture and sale of school buses, and related parts. As the only principal manufacturer of chassis and body production specifically designed for school bus applications, Blue Bird is recognized as an industry leader for school bus innovation, safety, product quality/reliability/durability, efficiency, and lower operating costs. In addition, Blue Bird is the market leader in ~~alternative~~alternatives to ~~diesel fuel~~diesel-powered applications with its propane-powered, gasoline-powered, compressed natural gas (“CNG”)-powered, and all-electric-powered school buses.

Blue Bird sells its buses and parts through an extensive network of United States and Canadian dealers that, in their territories, are exclusive to Blue Bird on Type C and Type D school buses. Blue Bird also sells directly to major fleet operators, the United States Government, state governments, and authorized dealers in a number of foreign countries.

~~Impact of~~ COVID-19 ~~on Our Business~~Impact

~~During~~Beginning in our ~~third~~second fiscal quarter of 2020, the novel coronavirus known as "COVID-19" ~~continued~~began to spread throughout the world, ~~perpetuating~~resulting in a global pandemic. The pandemic ~~had~~ triggered a significant downturn in global commerce as early as February 2020 and the challenging market conditions ~~are expected to~~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 ~~early April, 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, ~~we closed~~management took decisive actions including closing our manufacturing facilities for two weeks in April 2020 and ~~requested our~~implementing stringent safety protocols, including administering COVID-19 testing for all manufacturing and office employees and requesting office employees to work from home. ~~In late April,~~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 ~~successfully restarted manufacturing~~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 ~~continued~~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 ~~manufacture buses since~~new sales orders and are intended to mitigate the impact of rising purchase costs on our operations and results. In general, management believes that ~~time without further material disruption. While~~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,~~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.

The pandemic has resulted, and is likely to continue to result, in significant economic disruption and has adversely affected our business. ItWe currently believe that it will continue to adversely impact our business for the remainder of our fiscal ~~year 2020~~2021 and perhaps beyond. Significant uncertainty exists concerning the magnitude of the impact and duration of the COVID-19 pandemic and its impact on the overall ~~U.S~~economy, both within the United States and ~~global economy. While the global market downturn, closures and limitations on movement are expected to be temporary,~~globally. Accordingly, the duration of any demand reductions, production and supply chain disruptions, and related financial impacts, cannot be estimated at this time.

The ~~full~~continuing impacts from COVID-19 on the Company's ~~financial results~~operations in the first three quarters of fiscal ~~year 2020 are uncertain as we~~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 ~~timely~~ 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 ~~remaining portion~~remainder of ~~our~~ fiscal ~~year.~~2021 and beyond. A prolonged economic downturn ~~would likely~~could have a material adverse impact on our sales and financial results beyond fiscal ~~2020.~~2021. See PART ~~II,~~I, Item ~~1A. Risk~~1.A. "Risk Factors," of ~~this Quarterly Report~~our 2020 Form 10-K, filed with the SEC on December 17, 2020, for a discussion of the material risks we believe we face particularly related to the COVID-19 pandemic.

The Company has also taken actions to control spending and ~~improve~~secure adequate liquidity, including ~~minor~~ headcount rationalization and ~~an increase in the revolving credit facility from $100.0 million to $141.9 million with a Second Amendment~~changes to the minimum required financial covenants via execution of a third amendment to our Credit ~~Agreement.~~Agreement in December 2020. Further detail and discussion of this amendment can be found in the "Liquidity and Capital Resources" section of this Item 2. "Management’s Discussion and Analysis of Financial Condition and Results of Operations" of this ~~Quarterly Report on Form 10-Q.~~Report. Even with adequate liquidity, we are evaluating and considering further actions to reduce costs and spending across our organization to be responsive to potential

longer-term impacts ofon our business ~~interruption~~ from the pandemic. Our actions may include reducing hiring activities, limiting discretionary spending, limiting spending on capital investment projects or other steps necessary to preserve adequate liquidity. We will continue to actively monitor the situation and may need to take further actions required by federal, state or local authorities, or enact measures we determine are in the best interests of our employees, customers, suppliers and shareholders. For further details and discussion about our liquidity, refer to the following "Liquidity and Capital Resources" section of this Item 2. "Management’s Discussion and Analysis of Financial Condition and Results of Operations" of this ~~Quarterly Report on Form 10-Q.~~Report.

Critical Accounting Policies and Estimates, Recent Accounting Pronouncements

The preparation of financial statements in conformity with ~~U.S. GAAP~~accounting principles generally accepted in the United States of America (“GAAP”) requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosures of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. Blue Bird evaluates its estimates on an ongoing basis, based on historical experience and on various other assumptions that are believed to be reasonable under the circumstances. Application of these accounting policies involves the exercise of judgment and use of assumptions as to future uncertainties and, as a result, actual results could differ from these estimates.

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 ~~2019~~2020 Form 10-K, filed with the SEC on December ~~12, 2019~~17, 2020, under the caption ~~“ Management’s~~“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 nine months ended July ~~4, 2020, except as follows:~~

~~Amortization of Deferred Pension Losses~~

3, 2021.

~~Historically, the Company has amortized deferred losses from our frozen defined benefit pension plan accounted for under ASC 715,~~ ~~Compensation - Retirement Benefits,~~ over the expected remaining employment period of the participants who remained employed with the Company. ASC 715 states that if all or almost all of a plan's participants are inactive, the average remaining life expectancy of the inactive participants shall be used to amortize the unrecognized net gain or loss instead of the average remaining service period of active plan participants. In the first quarter of 2020, the ratio of active (employed) to inactive participants in our plan declined to less than 10%, a figure we believe meets the definition of almost all participants as inactive. Accordingly, we have changed the amortization period from approximately seven years in 2019 to approximately 23 years in 2020. Future years will be determined based on the participant data at that time.

Recent Accounting Pronouncements

See Note 2 of Notes to Condensed Consolidated Financial Statements (Unaudited) included in Part I, Item 1 of this Report for a discussion of new and recently adopted accounting pronouncements.

Factors Affecting Our Revenues

Our revenues are driven primarily by the following factors:

•

•Property tax revenues. Property tax revenues are one of the major sources of funding for school districts, and therefore new school buses. Property tax revenues are a function of land and building prices, relying on assessments of property value by state or county assessors and millage rates voted by the local electorate.

•Student enrollment and delivery mechanisms for learning. 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.

•Revenue mix. We are able to charge more for certain of our products (e.g., Type C propane-powered school buses, Type D buses, and buses with higher option content) than other products. The mix of products sold in any fiscal period can directly impact our revenues for the period.

•Strength of the dealer network. We rely on our dealers, as well as a small number of major fleet operators, to be the direct point of contact with school districts and their purchasing agents. An effective dealer is capable of expanding revenues within a given school district by matching that district’s needs to our capabilities, offering options that would not otherwise be provided to the district.

•Pricing. Our products are sold to school districts throughout the United States and Canada. Each state and each Canadian province has its own set of regulations that governs the purchase of products, including school buses, by their school districts. We and our dealers must navigate these regulations, purchasing procedures, and the districts’ specifications in order to reach mutually acceptable price terms. Pricing may or may not be favorable to us, depending upon a number of factors impacting purchasing decisions.

•Buying patterns of major fleets. Major fleets regularly compete against one another for existing accounts. Fleets are also continuously trying to win the business of school districts that operate their own transportation services. These activities can have either a positive or negative impact on our sales, depending on the brand preference of the fleet that wins the business. Major fleets also periodically review their fleet sizes and replacement patterns due to funding availability as well as the profitability of existing routes. These actions can impact total purchases by fleets in a given year.

•Seasonality. Historically, our sales have been subject to seasonal variation based on the school calendar with the peak season during our third and fourth fiscal quarters. 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, 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.

. Property tax revenues are one of the major sources of funding for school districts, and therefore new school buses. Property tax revenues are a function of land and building prices, relying on assessments of property value by state or county assessors and millage rates voted by the local electorate.

•

~~Student enrollment and delivery mechanisms for learning.~~ 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.


•	~~Revenue mix. We are able to charge more for certain of our products (e.g.~~, Type C propane-powered school buses, Type D buses, and buses with higher option content) than other products. The mix of products sold in any fiscal period can directly impact our revenues for the period.

•

~~Strength of the dealer network~~. We rely on our dealers, as well as a small number of major fleet operators, to be the direct point of contact with school districts and their purchasing agents. An effective dealer is capable of expanding revenues within a given school district by matching that district’s needs to our capabilities, offering options that would not otherwise be provided to the district.

•

~~Pricing~~. Our products are sold to school districts throughout the United States and Canada. Each state and each Canadian province has its own set of regulations that governs the purchase of products, including school buses, by their school districts. We and our dealers must navigate these regulations, purchasing procedures, and the districts’ specifications in order to reach mutually acceptable price terms. Pricing may or may not be favorable to us, depending upon a number of factors impacting purchasing decisions.

•

~~Buying patterns of major fleets~~. Major fleets regularly compete against one another for existing accounts. Fleets are also continuously trying to win the business of school districts that operate their own transportation services. These activities can have either a positive or negative impact on our sales, depending on the brand preference of the fleet that wins the business. Major fleets also periodically review their fleet sizes and replacement patterns due to funding availability as well as the profitability of existing routes. These actions can impact total purchases by fleets in a given year.

•

~~Seasonality.~~ Historically, our sales have been subject to seasonal variation based on the school calendar with the peak season during our third and fourth fiscal quarters. 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. Seasonality and variations from historical seasonality have impacted the comparison of results between fiscal periods.

Factors Affecting Our Expenses and Other Items

Our expenses and other line items on our unaudited Condensed Consolidated Statements of Operations are principally driven by the following factors:

•

~~Cost of goods sold~~. The components of our cost of goods sold consist of material costs (principally powertrain components, steel and rubber, as well as aluminum and copper), labor expense, and overhead. Our cost of goods sold may vary from period to period due to changes in sales volume, efforts by certain suppliers to pass through the economics associated with key commodities, design changes with respect to specific components, design changes with respect to specific bus models, wage increases for plant labor, productivity of plant labor, delays in receiving materials and other logistical problems, and the impact of overhead items such as utilities.

•

~~Selling, general and administrative expenses~~. Our selling, general and administrative expenses include costs associated with our selling and marketing efforts, engineering, centralized finance, human resources, purchasing, information technology services, and 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. Changes from period to period are typically driven by the number of our employees, as well as by merit increases provided to experienced personnel.


•	~~Interest expense~~. Our interest expense relates to costs associated with our debt instruments and reflects both the amount of indebtedness and the interest rate that we are required to pay on our debt. Interest expense also includes unrealized gains or losses from interest rate hedges, if any, as well as expenses related to debt guarantees, if any.


•	~~Income taxes~~. We make estimates of the amounts to recognize for income taxes in each tax jurisdiction in which we operate. In addition, provisions are established for withholding taxes related to the transfer of cash between jurisdictions and for uncertain tax positions taken.


•	~~Other income (expense), 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 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.~~

•Cost of goods sold. The components of our cost of goods sold consist of material costs (principally powertrain components, steel and rubber, as well as aluminum and copper), labor expense, and overhead. Our cost of goods sold may vary from period to period due to changes in sales volume, efforts by certain suppliers to pass through the economics associated with key commodities, design changes with respect to specific components, design changes with respect to specific bus models, wage increases for plant labor, productivity of plant labor, delays in receiving materials and other logistical problems, and the impact of overhead items such as utilities.

•Selling, general and administrative expenses. 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. Changes from period to period are typically driven by the number of our employees, as well as by merit increases provided to experienced personnel.

•Interest expense. Our interest expense relates to costs associated with our debt instruments and reflects both the amount of indebtedness and the interest rate that we are required to pay on our debt. Interest expense also includes unrealized gains or losses from interest rate hedges, if any, and changes in the fair value of interest rate derivatives not designated in hedge accounting relationships, if any, as well as expenses related to debt guarantees, if any.

•Income taxes. We make estimates of the amounts to recognize for income taxes in each tax jurisdiction in which we operate. In addition, provisions are established for withholding taxes related to the transfer of cash between jurisdictions and for uncertain tax positions taken.

•Other income, net. 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.

Key Non-GAAP Financial Measures We Use to Evaluate Our Performance

This ~~filing~~Report includes the following non-GAAP financial measures: “Adjusted ~~EBITDA”,~~EBITDA;” “Adjusted EBITDA ~~Margin”,~~Margin;” and “Free Cash Flow.”

Adjusted EBITDA and Free Cash Flow are financial metrics that are utilized by management and the board of directors to determine (a) the annual cash bonus payouts, if any, to be made to certain members of management based upon the terms of the Company’s Management Incentive Plan, and (b) whether the performance criteria have been met for the vesting of certain equity awards granted annually to certain members of management based upon the terms of the Company’s Omnibus Equity Incentive Plan. Additionally, consolidated EBITDA, which is an adjusted EBITDA metric defined by our Amended Credit Agreement that could differ from Adjusted EBITDA discussed above as the adjustments to the calculations are not uniform, is used to determine the Company's ongoing compliance with several financial covenant requirements, including being utilized in the denominator of the calculation of the Total Net Leverage Ratio, when applicable. Accordingly, management views these non-GAAP financial metrics as key for the above purposes and as a useful way to ~~look at~~evaluate the performance of our operations ~~between periods and to exclude decisions on capital investment and financing that might otherwise impact the review of profitability of the business based on present market conditions.~~as discussed further below.

Adjusted EBITDA is defined as net income prior to interest ~~income,~~income; interest expense including the component of operating lease expense (which is presented as a single operating expense in selling, general and administrative expenses in our GAAP financial statements) that represents interest expense on lease ~~liabilities,~~liabilities; income ~~taxes,~~taxes; and depreciation and amortization including the component of operating lease expense (which is presented as a single operating expense in selling, general and administrative expenses in our GAAP financial statements) that represents amortization charges on right-of-use lease ~~assets, and disposals,~~assets; as adjusted ~~to add back~~for certain non-cash charges or credits that we may record ~~each year,~~

on a recurring basis such as stock-compensation expense and unrealized gains or losses on certain derivative financial instruments; net gains or losses on the disposal of assets as well as ~~non-recurring~~certain charges such as (i) significant product design changes; (ii) transaction related costs; (iii) discrete expenses related to major cost cutting initiatives; or (iv) costs directly attributed to the COVID-19 pandemic. ~~We believe these~~While certain of the charges that are added back in the Adjusted EBITDA calculation, such as transaction related costs and operational transformation and major product redesign initiatives, represent operating expenses ~~and non-recurring charges are~~that may be recorded in more than one annual period, the significant project or transaction giving rise to such expenses is not considered ~~an indicator~~to be indicative of the Company’s normal operations. Accordingly, we believe that these, as well as the other credits and charges that comprise the amounts utilized in the determination of Adjusted EBITDA described above, should not be used in evaluating the Company’s ongoing ~~company~~annual operating performance.

We define Adjusted EBITDA ~~margin~~Margin as Adjusted EBITDA as a percentage of net sales. Adjusted EBITDA and Adjusted EBITDA ~~margin~~Margin are not measures of performance defined in accordance with GAAP. The measures are used as a supplement to GAAP results in evaluating certain aspects of our business, as described below.

We believe that Adjusted EBITDA and Adjusted EBITDA ~~margin~~Margin are useful to investors in evaluating our performance because the measures consider the performance of our ongoing operations, excluding decisions made with respect to capital investment, financing, and certain other ~~non-recurring charges~~significant initiatives or transactions as outlined in the preceding paragraph. We believe the non-GAAP ~~metrics~~measures offer additional financial metrics that, when coupled with the GAAP results and the reconciliation to GAAP results, provide a more complete understanding of our results of operations and the factors and trends affecting our business.

Adjusted EBITDA and Adjusted EBITDA ~~margin~~Margin should not be considered as alternatives to net income or loss as an indicator of our performance or as alternatives to any other measure prescribed by GAAP as there are limitations to using such non-GAAP measures. Although we believe that Adjusted EBITDA and Adjusted EBITDA ~~margin~~Margin may enhance an evaluation of our operating performance based on recent revenue generation and product/overhead cost control because they exclude the impact of prior decisions made about capital investment, financing, and certain other ~~expenses,~~significant initiatives or transactions, (i) other companies in Blue Bird’s industry may define Adjusted EBITDA and Adjusted EBITDA ~~margin~~Margin differently than we do and, as a result, they may not be comparable to similarly titled measures used by other companies in Blue Bird’s industry, and (ii) Adjusted EBITDA and Adjusted EBITDA ~~margin~~Margin exclude certain financial information that some may consider important in evaluating our performance.

We compensate for these limitations by providing disclosure of the differences between Adjusted EBITDA and GAAP results, including providing a reconciliation to GAAP results, to enable investors to perform their own analysis of our ongoing operating results.

Our measure of ~~“Free~~Free Cash ~~Flow”~~Flow is used in addition to and in conjunction with results presented in accordance with GAAP and ~~free cash flow~~it should not be relied upon to the exclusion of GAAP financial measures. Free ~~cash flow~~Cash Flow reflects an additional way of ~~viewing~~evaluating our liquidity that, when viewed with our GAAP results, provides a more complete understanding of factors and trends affecting our cash flows. We strongly encourage investors to review our financial statements and ~~publicly filed~~publicly-filed reports in their entirety and not to rely on any single financial measure.

We define ~~free cash flow~~Free Cash Flow as total cash provided by/used in operating activities ~~minus~~as adjusted for net cash paid for the acquisition of fixed assets and ~~acquired~~ intangible assets. We use ~~free cash flow,~~Free Cash Flow, and ratios based on ~~the free cash flow,~~Free Cash Flow, to conduct and evaluate our business because, although it is similar to cash flow from operations, we believe it is a more conservative measure of cash flow since purchases of fixed assets and intangible assets are a necessary component of ongoing operations. In limited circumstances in which proceeds from sales of fixed or intangible assets exceed purchases, free cash flow would exceed cash flow from operations. However, since we do not anticipate being a net seller of fixed or intangible assets, we expect free cash flow toAccordingly, Free Cash Flow will be less than operating cash flows.

Our Segments

We manage our business in two operating segments, which are also our reportable segments: (i) the Bus segment, which involves the design, engineering, manufacture and sales of school buses and extended warranties; and (ii) the Parts segment, which includes the ~~sales~~sale of replacement bus parts. 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. Management evaluates the segments based primarily upon revenues and gross profit.

Consolidated Results of Operations for the Three Months Ended July 3, 2021 and July 4, ~~2020 and June 29, 2019:~~2020:


	Three Months Ended
(in thousands of dollars)	July 3, 2021			July 4, 2020
Net sales	$	196,659		$	189,181
Cost of goods sold	170,500			168,099
Gross profit	$	26,159		$	21,082
Operating expenses
Selling, general and administrative expenses	18,073			17,793
Operating profit	$	8,086		$	3,289
Interest expense	(2,805)			(2,406)
Interest income	—			27
Other income, net	426			181

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:
Adjusted EBITDA	$	13,161		$	12,481
Adjusted EBITDA margin	6.7		%	6.6		%

Three Months Ended
(in thousands of dollars) July 4, 2020 June 29, 2019
Net sales $ 189,181
$ 308,774
Cost of goods sold 168,099
266,992
Gross profit $ 21,082
$ 41,782
Operating expenses
Selling, general and administrative expenses 17,793
20,996
Operating profit $ 3,289
$ 20,786
Interest expense (2,406 ) (3,369 )
Other income (expense), net 181
(410 )
Income before income taxes $ 1,091
$ 17,007
Income tax expense (765 ) (3,248 )
Equity in net income of non-consolidated affiliate 960
842
Net income $ 1,286
$ 14,601
Other financial data:
Adjusted EBITDA $ 12,481
$ 29,041
Adjusted EBITDA margin 6.6 % 9.4 %

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


(in thousands of dollars)	Three Months Ended
Net Sales by Segment	July 3, 2021		July 4, 2020
Bus	$	181,735	$	180,592
Parts	14,924		8,589
Total	$	196,659	$	189,181

Gross Profit by Segment
Bus	$	20,471	$	18,079
Parts	5,688		3,003
Total	$	26,159	$	21,082

(in thousands of dollars) Three Months Ended
Net Sales by Segment July 4, 2020 June 29, 2019
Bus $ 180,592
$ 292,166
Parts 8,589
16,608
Total $ 189,181
$ 308,774

Gross Profit by Segment
Bus $ 18,079
$ 35,996
Parts 3,003
5,786
Total $ 21,082
$ 41,782

Net sales. 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, a decrease of $119.6 million, or 38.7%, compared to $308.8 million for the third quarter of fiscal 2019.~~2020. The ~~decrease~~increase in net sales is primarily attributed to ~~the COVID-19 pandemic which caused the unplanned~~increased volumes in both bus and ~~abrupt increase in remote learning arrangements as school districts remain unsure of how schooling will be administered in the fall of 2020 and beyond.~~parts sales.

Bus sales ~~decreased $111.6~~increased $1.1 million, or ~~38.2%~~0.6%, reflecting ~~a decrease~~an increase in units booked, which was partially offset by ~~higher~~lower sales prices per unit. ~~Bus volumes reflect the timing of orders.~~ In the third quarter of fiscal ~~2020, 1,948~~2021, 2,024 units were booked compared to ~~3,420~~1,948 units booked for the same period in fiscal ~~2019.~~2020. The ~~decrease~~increase is mainly attributed to ~~lower orders~~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 uncertainties caused by~~ the COVID-19 pandemic. The ~~8.5% increase~~3.1% decrease in unit price for the third quarter of fiscal ~~2020~~2021 compared to the same period in fiscal ~~2019~~2020 mainly reflects ~~pricing actions taken in fiscal 2019 to partially offset commodity costs, as well as~~ product and customer mix changes.

Parts sales ~~decreased $8.0~~increased $6.3 million, or ~~48.3%~~73.8%, for the third quarter of fiscal ~~2020~~2021 compared to the third quarter of fiscal ~~2019, as we had lower sales volume, mainly from lower~~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 ~~due to early school closures caused by the COVID-19 pandemic. Stay at home orders~~ and ~~school closures reduced~~thus increased bus repair and maintenance ~~activities due to less bus use.~~activities.

Cost of goods sold. 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, a decrease of $98.9 million, or 37.0%, compared to $267.0 million for the third quarter of fiscal 2019.~~2020. As a percentage of net sales, total cost of goods sold ~~increased~~improved from ~~86.5%~~88.9% to ~~88.9%~~86.7%.

Bus segment cost of goods sold decreased ~~$93.7~~$1.2 million, or ~~36.6%~~0.8%, for the third quarter of fiscal ~~2020~~2021 compared to the same period in fiscal ~~2019, which aligned with the decrease in sales volume noted above.~~2020. The average cost of goods sold per unit for the third quarter of fiscal ~~2020~~2021 was ~~11.4% higher~~4.5% lower compared to the third quarter of fiscal ~~2019~~2020 due to ~~increases~~decreases in manufacturing costs from several COVID-19 related factors including improved absenteeism ~~amongst~~among our hourly workforce and ~~supply disruptions, each~~manufacturing efficiencies. The decreases in manufacturing costs per unit were partially offset by an increase in the volume of ~~which created manufacturing inefficiencies~~units produced and ~~higher costs.~~sold, driven by increased in-person learning in 2021 compared to 2020.

The ~~$5.2~~$3.7 million, or ~~48.4%~~65.3%, ~~decrease~~increase in parts segment cost of goods sold for the third quarter of fiscal ~~2020~~2021 compared to the third quarter of fiscal ~~2019~~2020 largely aligned with the ~~decrease~~increase in sales volume noted ~~above.~~above, with slight variation due to product and channel mix.

Operating profit. 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, a decrease of $17.5 million, compared to operating profit of $20.8 million for the third quarter of fiscal 2019.~~2020. Profitability was ~~negatively~~positively impacted by ~~a decrease~~an increase of ~~$20.7~~$5.1 million in gross profit as outlined in the revenue and cost of goods sold discussion. This was partially offset by ~~a decrease~~an increase of ~~$3.2~~$0.3 million in selling, general and administrative ~~expenses as we have taken actions to control spending during the pandemic.~~expenses.

Interest expense. 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, a decrease of $1.0 million, or 28.6%, compared to $3.4 million for the third quarter of fiscal 2019.~~2020. The ~~decrease~~increase was primarily ~~attributed~~attributable an increase in the stated term loan interest rate from 2.8% at July 4, 2020 to ~~lower interest rates and a lower average borrowing level on the senior term debt.~~4% at July 3, 2021.

Income taxes. We recorded income tax expense of ~~$0.8~~$1.9 million for the third quarter of fiscal ~~2020,~~2021, compared to income tax expense of ~~$3.2~~$0.8 million for the same period in fiscal ~~2019.~~2020.

The effective tax rate for the ~~three-month~~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 ~~income~~ tax rate of 21%. The difference is mainly due to discrete period tax expense from prior year tax return adjustments and normal tax rate items, such as the benefit from federal and state tax credits (net of valuation allowance), which were partially offset by net non-deductible compensation expenses and other tax adjustments. ~~The rate is also disproportionately impacted by the discrete items due to near break-even pretax book income.~~

The effective tax rate for the three-month period ended June 29, 2019 was 19.1%, which differed from the statutory federal tax rate of 21%. The difference is mainly due to normal tax rate benefit items, such as federal and state tax credits (net of valuation allowance), which were partially offset by non-deductible share-based compensation expenses and other tax adjustments.

Adjusted EBITDA. 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, a decrease~~2020. The increase in Adjusted EBITDA primarily results from an increase of ~~$16.6~~$5.1 million ~~or 57.0%, compared to $29.0 million, or 9.4%~~in gross profit, as outlined in the revenue and cost of ~~net sales,~~goods sold discussion. This was largely offset by lower adjustments for the third quarter of fiscal ~~2019. The decrease in Adjusted EBITDA is primarily result of a decrease of $20.7 million in gross profit, mainly from lower sales volumes due~~2021 compared to the ~~COVID-19 pandemic as well as higher manufacturing costs. The decrease was partially offset by lower adjusted selling, general~~third quarter of fiscal 2020, particularly in depreciation, amortization, and ~~administrative expenses.~~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							Three Months Ended
(in thousands of dollars)	July 4, 2020			June 29, 2019			(in thousands of dollars)	July 3, 2021			July 4, 2020
Net income	$	1,286		$	14,601		Net income	$	4,332		$	1,286
Adjustments:							Adjustments:
Interest expense, net (1)	2,466			3,472			Interest expense, net (1)	2,887			2,466
Income tax expense	765			3,248			Income tax expense	1,892			765
Depreciation, amortization, and disposals (2)	3,861			2,750			Depreciation, amortization, and disposals (2)	2,851			3,861
Operational transformation initiatives	339			679			Operational transformation initiatives	14			339
Share-based compensation	1,808			1,101			Share-based compensation	328			1,808
Product redesign initiatives	1,071			3,075			Product redesign initiatives	641			1,071
Restructuring charges	364			—			Restructuring charges	—			364
Costs directly attributed to the COVID-19 pandemic (3)	521			—			Costs directly attributed to the COVID-19 pandemic (3)	216			521
Other	—			115

Adjusted EBITDA	$	12,481		$	29,041		Adjusted EBITDA	$	13,161		$	12,481
Adjusted EBITDA margin (percentage of net sales)	6.6		%	9.4		%	Adjusted EBITDA margin (percentage of net sales)	6.7		%	6.6		%

(1) Includes $0.1 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 $0.2 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.

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

Consolidated Results of Operations for the Nine Months Ended July 3, 2021 and July 4, ~~2020 and June 29, 2019:~~2020:


	Nine Months Ended
(in thousands of dollars)	July 3, 2021			July 4, 2020
Net sales	$	491,791		$	597,810
Cost of goods sold	432,671			531,259
Gross profit	$	59,120		$	66,551
Operating expenses
Selling, general and administrative expenses	50,124			58,146
Operating profit	$	8,996		$	8,405
Interest expense	(7,069)			(9,961)
Interest income	1			27
Other income, net	1,491			555
Loss on debt extinguishment	(598)			—
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:
Adjusted EBITDA	$	26,484		$	32,778
Adjusted EBITDA margin	5.4		%	5.5		%

Nine Months Ended
(in thousands of dollars) July 4, 2020 June 29, 2019
Net sales $ 597,810
$ 675,342
Cost of goods sold 531,259
588,496
Gross profit $ 66,551
$ 86,846
Operating expenses
Selling, general and administrative expenses 58,146
61,197
Operating profit $ 8,405
$ 25,649
Interest expense (9,961 ) (10,241 )
Interest income 27
9
Other income (expense), net 555
(1,034 )
(Loss) income before income taxes $ (974 ) $ 14,383
Income tax benefit (expense) 378
(2,833 )
Equity in net income of non-consolidated affiliate 840
1,158
Net income $ 244
$ 12,708
Other financial data:
Adjusted EBITDA $ 32,778
$ 48,459
Adjusted EBITDA margin 5.5 % 7.2 %

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


(in thousands of dollars)	Nine Months Ended
Net Sales by Segment	July 3, 2021		July 4, 2020
Bus	$	449,876	$	554,061
Parts	41,915		43,749
Total	$	491,791	$	597,810

Gross Profit by Segment
Bus	$	43,265	$	50,884
Parts	15,855		15,667
Total	$	59,120	$	66,551

(in thousands of dollars) Nine Months Ended
Net Sales by Segment July 4, 2020 June 29, 2019
Bus $ 554,061
$ 626,441
Parts 43,749
48,901
Total $ 597,810
$ 675,342

Gross Profit by Segment
Bus $ 50,884
$ 69,653
Parts 15,667
17,193
Total $ 66,551
$ 86,846

Net sales. 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, a decrease of $77.5 million, or 11.5%, compared to $675.3 million for the nine months ended June 29, 2019.~~2020. The decrease in net sales is attributed to the COVID-19 pandemic ~~during our second and third fiscal quarters~~ which caused an ~~unplanned and abrupt~~ 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 ~~districts remain unsure of how schooling will be administered in the fall of 2020~~buses and ~~beyond.~~parts.

Bus sales decreased ~~$72.4~~$104.2 million, or ~~11.6%~~18.8%, ~~reflecting~~primarily due to a decrease in units booked and partially offset by higher sales prices per unit. In the nine months ended July ~~4, 2020, 6,002~~3, 2021, 4,768 units were booked compared to ~~7,291~~6,002 units booked for the same period in fiscal ~~2019~~.2020. The decrease is mainly attributed to lower orders due to the uncertainties caused by the COVID-19 ~~pandemic.~~pandemic and production limitations caused by supply chain shortages. The average net sales price per unit for the nine months ended July ~~4, 2020~~3, 2021 was ~~7.4%~~2.2% higher than the price per unit for the nine months ended ~~June 29, 2019.~~July 4, 2020. The increase in unit price mainly reflects pricing actions taken ~~in fiscal 2019~~by management to partially offset increases in commodity costs, as well as product and customer mix changes.

Parts sales decreased ~~$5.2~~$1.8 million, or ~~10.5%~~4.2%, for the nine months ended July ~~4, 2020~~3, 2021 compared to the nine months ended ~~June 29, 2019,~~July 4, 2020, as we had lower sales volume, mainly from lower school bus units in operation ~~due to early~~which reduced bus repair and maintenance activities. The lower units in operation results from school ~~closures~~schedule changes and increased remote learning arrangements caused by the COVID-19 pandemic. ~~Stay at home orders and school closures reduced bus repair and maintenance activities due to less bus use.~~

Cost of goods sold. 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, a decrease of $57.2 million, or 9.7%, compared to $588.5 million for the nine months ended June 29, 2019.~~2020. As a percentage of net sales, total cost of goods sold ~~increased~~improved from ~~87.1%~~88.9% to ~~88.9%~~88.0%.

Bus segment cost of goods sold decreased ~~$53.6~~$96.6 million, or ~~9.6%~~19.2%, for the nine months ended July ~~4, 2020~~3, 2021 compared to the nine months ended ~~June 29, 2019.~~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 ~~4, 2020~~3, 2021 was ~~9.8%~~1.7% higher compared to the nine months ended ~~June 29, 2019~~July 4, 2020 due to increases in manufacturing costs ~~in our third fiscal quarter~~ from several COVID-19 related factors including absenteeism ~~amongst~~among our hourly workforce and supply disruptions, each of which created manufacturing inefficiencies and higher costs.

The ~~$3.6~~$2.0 million, or ~~11.4%~~7.2%, decrease in parts segment cost of goods sold for the nine months ended July ~~4, 2020~~3, 2021 compared to the nine months ended ~~June 29, 2019 aligns~~July 4, 2020 largely aligned with the decrease in sales volume noted ~~above.~~above, with slight variation due to product and channel mix.

Operating profit. 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, a decrease of $17.2 million compared to an operating profit of $25.6 million for the nine months ended June 29, 2019.~~2020. Profitability was negatively impacted by a decrease of ~~$20.3~~$7.4 million in gross profit ~~which~~as outlined in the revenue and cost of goods sold discussion. This was ~~partially~~ offset by a decrease of ~~$3.1~~$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 $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,~~2020. The decrease was primarily attributable to a ~~decrease~~$3.0 million net increase in the fair value of ~~$0.3 million, or 2.7%, compared to $10.2 million for~~ the ~~nine months ended June 29, 2019. Lower~~interest rate collar (a liability balance) recorded in interest expense ~~from lower borrowing rates~~ in the nine months ended July 4, 2020 ~~compared~~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 nine months ended July 3, 2021. The amount is related to the ~~prior period were offset by~~execution of the ~~impact of an increase of $1.9~~third amendment to the Credit Agreement on December 4, 2020 for which we paid $2.5 million in ~~mark to market charges due to changes~~lender fees and other issuance costs. Of the fees and issuance costs, only $2.0 million could be capitalized with the remainder, $0.5 million, expensed in the ~~fair value~~period incurred. In addition, $0.1 million in previously capitalized lender fees and other issuance costs capitalized in prior periods were expensed during the first quarter of ~~our interest rate hedge.~~fiscal 2021 in conjunction with executing the third amendment.

Income taxes. Income tax ~~benefit~~expense was ~~$0.4~~$0.9 million for the nine months ended July ~~4, 2020,~~3, 2021, compared to income tax ~~expense~~benefit of ~~$2.8~~$0.4 million for the same period in fiscal ~~2019.~~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-month period~~nine months ended July ~~4, 2020~~3, 2021 was ~~38.8%~~31.5%, which differed from the ~~2019~~ 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 ~~net~~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 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 rate is also disproportionately impacted by the discrete items due to near break-even pretax book income.~~

The effective tax rate for the nine-month period ended June 29, 2019 was 19.7% and differed from the transitional 2018 statutory federal income tax rate of 21%. The difference is mainly due to normal tax rate benefit items, primarily federal and state tax credits (net of valuation allowance), which were partially offset by non-deductible share-based compensation expenses and other tax adjustments.

Adjusted EBITDA. 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, a decrease of $15.7 million, or 32.4%, compared to $48.5 million or 7.2% of net sales for the nine months ended June 29, 2019.~~2020. The decrease in Adjusted EBITDA is primarily the result of a decrease of ~~$20.3~~$7.4 million in gross profit, mainly from lower sales volumes due the COVID-19 pandemic and higher manufacturing costs, as well as ~~higher manufacturing costs. The decrease was~~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.~~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 4, 2020 June 29, 2019
Net income $ 244
$ 12,708
Adjustments:
Interest expense, net (1) 10,213
10,542
Income tax (benefit) expense (378 ) 2,833
Depreciation, amortization, and disposals (2) 11,215
7,990
Operational transformation initiatives 3,218
4,193
Foreign currency hedges —
109
Share-based compensation 4,105
3,146
Product redesign initiatives 3,163
6,876
Restructuring charges 364
—
Costs directly attributed to the COVID-19 pandemic (3) 628
—
Other 6
62
Adjusted EBITDA $ 32,778
$ 48,459
Adjusted EBITDA margin (percentage of net sales) 5.5 % 7.2 %


	Nine Months Ended
(in thousands of dollars)	July 3, 2021			July 4, 2020
Net income	$	2,099		$	244
Adjustments:
Interest expense, net (1)	7,321			10,213
Income tax expense (benefit)	888			(378)
Depreciation, amortization, and disposals (2)	10,118			11,215
Operational transformation initiatives	222			3,218
Loss on debt modification	598			—
Share-based compensation	1,923			4,105
Product redesign initiatives	1,908			3,163
Restructuring charges	494			364
Costs directly attributed to the COVID-19 pandemic (3)	913			628
Other	—			6
Adjusted EBITDA	$	26,484		$	32,778
Adjusted EBITDA margin (percentage of net sales)	5.4		%	5.5		%

(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 $0.6 million and $0.5 million for ~~both fiscal periods,~~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.

Liquidity and Capital Resources

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 July ~~4, 2020,~~3, 2021, the Company had ~~$12.5~~$11.2 million of available cash (net of outstanding checks) and ~~$90.0~~$93.1 million of additional borrowings available under the revolving line of credit portion of its ~~secured~~ credit facility. The Company’s revolving line of credit is available for working capital requirements, capital expenditures and other general corporate purposes.

Third Amendment to the Credit Agreement

On ~~May 7,~~December 4, 2020, the Company ~~entered into a Second Amendment which amended~~executed the third amendment to the Credit Agreement, dated as of December 12, ~~2016 (the “Credit Agreement”,~~2016; as amended by that certain ~~First Amendment~~first amendment to the Credit Agreement, dated as of September 13, 2018 (the ~~“First Amendment”~~"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 ~~Second Amendment,~~third amendment (the "Third Amended Credit Agreement" and collectively, the ~~“Amended~~"Amended Credit ~~Agreement”~~Agreement"). The ~~Second Amendment provided $41.9 million in additional revolving commitments bringing the total revolving commitments to $141.9 million. The revolving commitments under the~~Third Amended Credit Agreement, ~~will mature~~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.

For the duration of the ~~First Amendment. The interest rate pricing grid remained unchanged, but the LIBOR floor was amended from 0%~~Limited Availability Period, there are additional monthly reporting requirements and requirements relating to ~~0.75%.~~subordination agreements and intercreditor arrangements for certain other indebtedness and liens subject to administrative agent approval.

Detailed descriptions of the ~~Company’s original~~ Credit Agreement, ~~dated December 12, 2016 and its~~First Amended Credit Agreement ~~dated September 13, 2018~~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 ~~September 28, 2019,~~October 3, 2020, filed with the ~~Securities and Exchange Commission~~SEC on December ~~12, 2019.~~17, 2020.

At July ~~4, 2020,~~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.

~~During our third quarter of fiscal 2020,~~The continuing adverse impacts from the ~~novel coronavirus known as "COVID-19" continued to spread throughout the world, perpetuating a global pandemic. The~~COVID-19 pandemic materially impacted our ~~third quarter~~results in the first three quarters of fiscal ~~2020 results~~2021, causing lower customer orders for both buses and parts, supply disruptions, and higher rates of absenteeism among our hourly production ~~workforce, and a temporary shutdown of manufacturing.~~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. A prolonged economic downturn resulting from the continuing pandemic would likely have a material adverse impact on our financial results. See PART ~~II,~~I, Item ~~1A. Risk~~1.A. "Risk Factors," of ~~this Quarterly Report~~our 2020 Form 10-K, filed with the SEC on December 17, 2020, for a discussion of the material risks we believe we face particularly related to the COVID-19 pandemic.

The pandemic could cause a severe contraction in our profits and/or liquidity which could lead to issues complying with our Amended Credit ~~Facility~~Agreement covenants. Our primary financial ~~covenant is our Total Net Leverage Ratio. Our Total Net Leverage Ratio is defined as the ratio of (a) consolidated net debt to (b)~~covenants are (i) for fiscal 2021, minimum consolidated EBITDA, ~~which includes certain add-backs~~an adjusted EBITDA metric that ~~are not reflected in the definition of~~could differ from Adjusted EBITDA appearing in the Company’s periodic filings on Form 10-K or Form 10-Q as the adjustments to the calculations are not uniform, at the end of each fiscal quarter for the consecutive four fiscal quarter period most recently then ~~ending. We~~ending; ii) for fiscal year 2021 and the first two quarters of fiscal year 2022, minimum liquidity at the end of each month, and (iii) beginning in fiscal year 2022 and thereafter, total net leverage ratio, defined as the ratio of (a) consolidated net debt to (b) consolidated EBITDA. If we are not able to comply with such covenants, we may need to seek amendment for covenant relief or even refinance the debt to a "covenant lite" or "no covenant" structure. We cannot assure our investors that we would be successful in amending or refinancing the existing debt. 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.

~~On March 27, 2020 the~~ ~~President of the United States signed the Coronavirus Aid, Relief and Economic Security Act ("CARES Act")~~ into law. The CARES Act, among other things, includes provisions related to the deferment of employer-side social security payments (the Employer Payroll Tax Payment Deferral Provision). We have elected to defer these payments that would otherwise be due and payable through December 31, 2020. A 50% minimum payment of the deferred amount is due on December 31, 2021 with the remainder due by December 31, 2022. We estimate between $4.0 and $6.0 million in payments could be delayed. ~~We also have and expect to defer contributions to our defined benefit pension plan of approximately $3.2 million for fiscal 2020. The delayed contribution payments are due on January 1, 2021.~~

Seasonality

Historically, our business has been highly seasonal with school districts buying their new ~~schools~~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 ~~becoming~~being our two busiest quarters, the latter ending on the Saturday closest to September 30. Our quarterly results of operations, cash flows, and liquidity have been, and are likely to continue to be, impacted by the seasonal patterns. 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, when coupled with its impact on supply chains, 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.

Cash Flows

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

Nine Months Ended
(in thousands of dollars) July 4, 2020 June 29, 2019
Cash and cash equivalents at beginning of period $ 70,959
$ 60,260
Total cash used in operating activities (78,305 ) (19,113 )
Total cash used in investing activities (16,574 ) (30,154 )
Total cash provided by financing activities 36,458
18,082
Change in cash and cash equivalents $ (58,421 ) $ (31,185 )
Cash and cash equivalents at end of period $ 12,538
$ 29,075


	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
Total cash used in operating activities	(14,238)		(78,305)
Total cash used in investing activities	(9,403)		(16,574)
Total cash (used in) provided by financing activities	(9,643)		36,458
Change in cash and cash equivalents	$	(33,284)	$	(58,421)
Cash and cash equivalents at end of period	$	11,223	$	12,538

Total cash used in operating activities

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, as compared to $19.1~~2020. The $64.1 million ~~of cash flows used in operating activities for the nine months ended June 29, 2019. The $59.2 million increase~~decrease in cash used was primarily attributed to a ~~$12.5 million reduction in net income and a negative $50.3~~positive $66.0 million difference ~~(use~~(source of cash) infrom the impacts of changes in working capital and accrued expenses ~~and working capital period over period. The changes were partially offset by increased non-cash components of net income in the nine months ended July 4, 2020 compared to the prior period.~~

between fiscal periods.

Total cash used in investing activities

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, as compared to $30.2 million of cash flows used in investing activities for the nine months ended June 29, 2019.~~2020. The ~~$13.6~~$7.2 million decrease was due to a reduction of spending on manufacturing assets ~~as the new paint facility was completed in fiscal 2019,~~ and ~~the~~a delay of certain projects due to the COVID-19 pandemic.

Total cash (used in) provided by financing activities

Cash flows ~~provided by~~used in financing activities totaled ~~$36.5~~$9.6 million for the nine months ended July ~~4, 2020,~~3, 2021, as compared to ~~$18.1~~$36.5 million of cash flows provided by financing activities for the nine months ended ~~June 29, 2019.~~July 4, 2020. The ~~$18.4~~$46.1 million ~~increase~~decrease between fiscal periods was primarily attributed to a ~~$20.0~~$45.0 million ~~increase~~decrease in cash borrowings under the revolving credit facility and a ~~$2.7~~$1.5 million increase in cash ~~proceeds from warrant exercises. The increases were partially offset by $0.9 million in fees~~ paid for the Second Amendment to the Credit Agreement, $0.9 million in finance lease payments, as well as an increase of $2.9 million in cash paid for employee taxes on vested restricted shares and stock option exercises.debt costs.

Free cash flow

Management believes the non-GAAP measurement of free cash flow, defined as net cash used in operating activities ~~less~~plus cash paid for fixed assets, fairly represents the Company’s ability to generate surplus cash that could fund activities not in the ordinary course of business. See “Key Non-GAAP Measures We Use to Evaluate Our ~~Performance”.~~Performance.” The following table sets forth the calculation of free cash flow for the periods presented:


	Nine Months Ended
(in thousands of dollars)	July 3, 2021		July 4, 2020
Net cash used in operating activities	$	(14,238)	$	(78,305)
Cash paid for fixed assets	(10,304)		(16,724)
Free cash flow	$	(24,542)	$	(95,029)

Nine Months Ended
(in thousands of dollars) July 4, 2020 June 29, 2019
Net cash used in operating activities $ (78,305 ) $ (19,113 )
Cash paid for fixed assets (16,724 ) (30,154 )
Free cash flow $ (95,029 ) $ (49,267 )

Free cash flow for the nine months ended July ~~4, 2020~~3, 2021 was ~~$45.8~~$70.5 million ~~lower~~higher than the nine months ended ~~June 29, 2019, primarily~~July 4, 2020, due to a ~~$59.2~~$64.1 million ~~increase~~decrease in cash used in operating activities ~~partially offset by~~and a decrease of ~~$13.4~~$6.4 million in cash paid for fixed assets.

Off-Balance Sheet Arrangements

We had outstanding letters of credit totaling $6.9 million at July ~~4, 2020,~~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 ~~4, 2020~~3, 2021 which relates to a guarantee of indebtedness for a term loan issued by a Company dealer with a remaining maturity up to ~~2.5~~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.

Item 3. Quantitative and Qualitative Disclosures About Market ~~Risk~~Risk.

There have not been any material changes to our interest rate risks, commodity risks or currency risks previously disclosed in Part II, Item 7A of the Company’s ~~2019~~2020 Form 10-K.

Item 4. Controls and Procedures.

Evaluation of Disclosure Controls and Procedures

The Company maintains a system of disclosure controls and procedures (as defined in Rules 13a-15(e) and 15d-15(e) of the ~~Securities~~ Exchange ~~Act of 1934 (the “Exchange Act”))~~Act) that are designed to provide reasonable assurance that information required to be disclosed in its reports filed or submitted under the Exchange Act is recorded, processed, summarized and reported, within the time periods specified in the SEC’s rules and forms, and that such information is accumulated and communicated to management, including, as appropriate, the Chief Executive Officer and the Chief Financial Officer, to allow timely decisions regarding required disclosures. In designing and evaluating the disclosure controls and procedures, management recognizes that any controls and procedures, no matter how well designed and operated, can provide only reasonable assurance of achieving the desired control objectives.

Based on their evaluations, our Chief Executive Officer and Chief Financial Officer have concluded that our disclosure controls and procedures were effective as of July ~~4, 2020.~~3, 2021.

Changes in Internal Control over Financial Reporting

There have been no changes in our internal control over financial reporting that occurred during the fiscal quarter ended July ~~4, 2020~~3, 2021 that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.

PART II – OTHER INFORMATION

Items required under Part II not specifically shown below are not applicable.

Item 1. Legal Proceedings.

Blue Bird is engaged in legal proceedings in the ordinary course of its business. Although no assurances can be given about the final outcome of pending legal proceedings, at the present time management does not believe that the resolution or outcome of any of Blue Bird’s pending legal proceedings will have a material adverse effect on its financial condition, liquidity or results of operations.

Item 1A. Risk Factors.

In addition to the other information set forth in this ~~Quarterly~~ Report, you should carefully consider the risk factors discussed in Part I, Item 1A of the Company's ~~2019~~2020 Form 10-K. Such risk factors are expressly incorporated herein by reference, and could materially adversely affect our business, financial condition, cash flows or future results. The risks described in the ~~2019~~2020 Form 10-K are not the only risks facing the Company. Additional risks and uncertainties not currently known to us or that we currently deem to be immaterial also may materially adversely affect our business, financial condition, cash flows and/or operating results.

~~The risk factor below is an update to our 2019 Form 10-K.~~

The current COVID-19 pandemic has had, and other public health crises, epidemics or pandemics could have, a material adverse effect on our business, results of operations, financial condition, and cash flows, particularly resulting from supply chain disruptions, reductions in demand for our products, disruptions or other developments negatively impacting our workforce or workplace conditions, and/or reduced access to capital markets and reductions in liquidity.

During our second fiscal quarter of 2020, the novel coronavirus known as "COVID-19" spread throughout the world creating a global pandemic and continued to spread in our third quarter of fiscal 2020. The pandemic has, among other impacts:

~~triggered a significant downturn in capital markets;~~

~~caused significant disruptions in global supply chains;~~

~~significantly altered global consumer demand;~~

~~halted global manufacturing operations resulting from plant shut-downs; and~~

~~changed global workplace conditions resulting from "shelter-in-place" orders and "work from home" employer policies.~~

The pandemic materially impacted our third quarter of fiscal 2020 results causing lower customer orders for both buses and bus parts, supply disruptions, and 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, or liquidity, but we have already experienced reduced orders and enacted a manufacturing plant shut-down for the first two weeks of our third quarter in fiscal 2020. A prolonged economic downturn resulting from the continuing pandemic would likely have a material adverse impact on our business, financial condition, results of operations, and liquidity. At the present time, we consider the following areas to be the most significant material risks to our business resulting from the current pandemic:

~~Supply Chain Disruptions~~

We rely on specialist suppliers, some of which are single-source suppliers, for critical components (including but not limited to engines, transmissions and axles) and replacement of any of these components with like parts from another supplier normally requires engineering and testing resources, which entail costs and take time. We also currently rely on a limited number of single-source suppliers and/or have limited alternatives for important bus parts such as diesel engines and emission components, propane and gasoline engines including powertrains, control modules, steering systems, seats, specialty resins, and other key components. In addition to protecting our employees' health, our plant shut-down was partially due to the potential for an inability to obtain critical components from our suppliers due to COVID-19. Future delays or interruptions in the supply chain due to the COVID-19 pandemic expose us to the following risks which would likely significantly increase our costs and/or impact our ability to meet customer demand:

~~we or our third-party suppliers may lose access to critical services and components, resulting in an interruption in the manufacture, assembly, and delivery or shipment of our products;~~

~~we or our third-party suppliers may not be able to respond to unanticipated changes in customer orders;~~

~~we or our suppliers may have excess or inadequate inventory of materials and components;~~

~~we or our third-party suppliers may be subject to price fluctuations due to the pandemic and a lack of long-term supply arrangements for key components;~~

~~we may experience delays in delivery by our third-party suppliers due to changes in demand from us or their other customers;~~

~~fluctuations in demand for products that our third-party suppliers manufacture for others may affect their ability or willingness to deliver components to us in a timely manner;~~

~~we may not be able to find new or alternative components or reconfigure our products and manufacturing processes in a timely manner if the necessary components become unavailable; and~~

~~our third-party suppliers may encounter financial hardships unrelated to our demand, which could inhibit their ability to fulfill our orders and meet our requirements.~~

~~Reductions in demand for buses and bus parts~~

The school bus market is predominantly driven by long-term trends in the level of spending by states, municipalities, and independent contractors. Demand for school buses is further influenced by overall acquisition priorities of municipalities, availability of school bus financing, student population changes, school district busing policies, price and other competitive factors, fuel prices and environmental regulations. In response to the pandemic, many school systems in North America canceled in-person schooling for the remainder of the 2019-2020 school year. The cancellations disrupted the seasonal order pattern for school buses. There remains uncertainty as to when traditional in-person schooling will resume, but we do know that many school systems have already declared that they will not hold in person classes for the fall of 2020. Uncertainty in the form of learning (e.g. a reduction of in-person to more remote arrangements) may lead to a reduction in bus orders until a degree of normalcy returns to the manner in which K-12 education is provided. Anticipated delays in the start of the 2020-2021 school year will likely impact at least the near-term demand for our buses. Reductions in bus orders would negatively impact revenues in our Bus segment. A reduction in bus usage will likely reduce the demand for maintenance and replacement parts, which would negatively impact revenues in our Parts segment.

~~Disruptions or other developments negatively impacting our workforce or workplace conditions~~

Almost all U.S. states, including Georgia where our headquarters and manufacturing facilities are located, have issued “shelter-in-place” orders, quarantines, executive orders and similar government orders, restrictions and recommendations for their residents to control the spread of COVID-19. Many of these orders have been and may continue to be re-issued at or after their expiration, and future orders may introduce broader restrictions. Such orders, restrictions and recommendations, and the perception that additional orders, restrictions or recommendations could occur, have resulted in widespread closures of businesses not deemed “essential,” work stoppages, interruptions, slowdowns and delays, work-from-home policies and travel restrictions. While our business has been deemed essential by the State of Georgia, we have employed remote work policies when and where possible to be responsive to the health risks that may impact our employees. Given the nature of our business, we do not have the ability to manufacture a bus without our on-site manufacturing personnel. While 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 a temporary halt in production. Any extended production halt or diminution in production capacity would likely have a negative impact on our ability to fulfill orders and thus negatively impact our revenues.

~~Reduced profitability and liquidity, resulting in possible restructuring of our credit facilities, and/or inadequate access to credit and capital markets~~

The COVID-19 pandemic has materially adversely impacted global commercial activity and has contributed to significant volatility in financial markets. The pandemic continues to have a materially adverse impact on economic and market conditions, and may result in an extended period of global economic slowdown and significant disruptions in global financial markets, reducing our ability to access capital, which could in the future negatively affect our liquidity.

The continuing pandemic could cause a more severe contraction in our profits and/or liquidity which could lead to issues complying with the financial covenants in our credit facility. Our primary financial covenant is our Total Net Leverage Ratio. Our Total Net Leverage Ratio is defined as the ratio of (a) consolidated net debt to (b) consolidated EBITDA, which includes certain add-backs that are not reflected in the definition of Adjusted EBITDA appearing in the Company’s periodic filings on Form 10-K or Form 10-Q, at the end of each fiscal quarter for the consecutive four fiscal quarter period most recently then ending. We may need to seek amendment for covenant relief or even refinance the debt to a "covenant light" or "no covenant" structure. We cannot assure our investors that we would be successful in amending or refinancing our existing debt. 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.

Item 6. Exhibits.

The following Exhibits are filed with this Report:

~~Exhibit No.Description~~


Exhibit No.						Description
3.1						The registrant’s Second Amended and Restated Certificate of Incorporation (incorporated by reference to Exhibit 3.1 to the registrant’s Current Report on Form 8-K, filed by the registrant with the SEC on February 26, 2015).


3.2						Bylaws of Blue Bird Corporation (incorporated by reference to the Company’s Form S-1, filed with the SEC on December 20, 2013).


10.1*						~~Retirement~~Transition Agreement dated ~~as of May 30, 2020,~~June 22, 2021, between Philip Horlock and Blue Bird Corporation, ~~and Phillip Tighe.~~together with related Consulting Agreement.


10.2*						~~Consulting~~Employment Agreement ~~dated as of May 30, 2020,~~effective July 1, 2021, between Matthew Stevenson and Blue Bird ~~Corporation and Phillip Tighe.~~Corporation.


10.3*						~~Offer Letter,~~Retirement Agreement dated ~~as of April 28, 2020,~~June 22, 2021, between Tom Roberts and Blue Bird ~~Corporation and Jeffery L. Taylor.~~Corporation.


10.4*						~~Severance Agreement,~~Offer letter dated ~~as of~~ May ~~1, 2020,~~20 , 2021 between Phillip Tighe and Blue Bird ~~Corporation and Jeffery L. Taylor.~~Corporation.


~~10.5~~31.1*						Second Amendment to Credit Agreement, dated as of May 7, 2020 by and among the Company, School Bus Holdings, Inc. and certain of its subsidiaries, including Blue Bird Body Company as the borrower, Bank of Montreal, as Administrative Agent and certain other financial institutions party thereto (incorporated by reference to Exhibit 10.1 of the Company's Current Report on Form 8-K filed by the Company on May 8, 2020).


31.1*	Chief Executive Officer’s Certification Pursuant to Rule 13a-14(a) of the Securities Exchange Act of 1934.


31.2*						Chief Financial Officer’s Certification Pursuant to Rule 13a-14(a) of the Securities Exchange Act of 1934.


32.1*						Chief Executive Officer and Chief Financial Officer joint Certification Pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.


~~101.INS~~101.INS^						XBRL Instance Document


~~101.SCH~~101.SCH^						XBRL Taxonomy Extension Schema Document


~~101.CAL~~101.CAL^						XBRL Taxonomy Extension Calculation Linkbase Document


~~101.DEF~~101.DEF^						XBRL Taxonomy Extension Definition Linkbase Document


~~101.LAB~~101.LAB^						XBRL Taxonomy Extension Label Linkbase Document


~~101.PRE~~101.PRE^						XBRL Taxonomy Extension Presentation Linkbase Document


104						Cover Page Interactive Data File (formatted as Inline XBRL and contained in Exhibit 101)


*			~~Filed herewith.~~


††	~~Management contract or compensatory plan or arrangement.~~

In accordance with Regulation S-T, XBRL (Extensible Business Reporting Language) related information in Exhibit No. 101 to this Quarterly Report on Form 10-Q shall be deemed “furnished” and not “filed” for purposes of Section 18 of the Securities Exchange Act of 1934, as amended, or otherwise subject to the liabilities of that section, and shall not be incorporated by reference into any registration statement pursuant to the Securities Act of 1933, as amended, except as shall be expressly set forth by specific reference in such filing.

* Filed herewith.

^ In accordance with Regulation S-T, XBRL (Extensible Business Reporting Language) related information in Exhibit No. 101 to this Quarterly Report on Form 10-Q shall be deemed “furnished” and not “filed” for purposes of Section 18 of the Exchange Act or otherwise subject to the liabilities of that section, and shall not be incorporated by reference into any registration statement pursuant to the Securities Act of 1933, as amended, except as shall be expressly set forth by specific reference in such filing.

SIGNATURES

Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.


				Blue Bird Corporation


Dated:			August 12, 2021	~~Blue Bird Corporation~~


~~Dated:~~	~~August 13, 2020~~	/s/ Philip Horlock
				Philip Horlock
				Chief Executive Officer

Dated:			August ~~13, 2020~~12, 2021	/s/ ~~Jeffery Taylor~~Phillip Tighe
				~~Jeffery Taylor~~Phillip Tighe
				Chief Financial Officer



(in thousands of dollars, except for share data)	July 4, 2020			September 28, 2019
Assets
Current assets
Cash and cash equivalents	$	12,538		$	70,959
Accounts receivable, net	13,694			10,537
Inventories	155,717			78,830
Other current assets	9,459			11,765
Total current assets	$	191,408		$	172,091
Property, plant and equipment, net	104,667			100,058
Goodwill	18,825			18,825
Intangible assets, net	52,404			54,720
Equity investment in affiliate	11,946			11,106
Deferred tax assets	3,882			3,600
Finance lease right-of-use assets	5,790			4,638
Other assets	1,133			375
Total assets	$	390,055		$	365,413
Liabilities and Stockholders' Deficit
Current liabilities
Accounts payable	$	95,538		$	102,266
Warranty	8,123			9,161
Accrued expenses	15,638			28,697
Deferred warranty income	8,448			8,632
Finance lease obligations	1,032			716
Other current liabilities	13,425			10,310
Current portion of long-term debt	9,900			9,900
Total current liabilities	$	152,104		$	169,682
Long-term liabilities
Revolving credit facility	$	45,000		$	—
Long-term debt	166,467			173,226
Warranty	12,705			13,182
Deferred warranty income	13,597			15,413
Deferred tax liabilities	792			168
Finance lease obligations	4,870			3,921
Other liabilities	13,251			12,108
Pension	43,197			45,524
Total long-term liabilities	$	299,879		$	263,542
Guarantees, commitments and contingencies (Note 6)
Stockholders' deficit
Preferred stock, $0.0001 par value, 10,000,000 shares authorized, 0 shares issued at July 4, 2020 and September 28, 2019	$	—		$	—
Common stock, $0.0001 par value, 100,000,000 shares authorized, 27,048,404 and 26,476,336 shares outstanding at July 4, 2020 and September 28, 2019, respectively	3			3
Additional paid-in capital	88,930			84,271
Accumulated deficit	(45,405		)	(45,649		)
Accumulated other comprehensive loss	(55,174		)	(56,154		)
Treasury stock, at cost, 1,782,568 shares at July 4, 2020 and September 28, 2019	(50,282		)	(50,282		)
Total stockholders' deficit	$	(61,928	)	$	(67,811	)
Total liabilities and stockholders' deficit	$	390,055		$	365,413



(in thousands of dollars)
Year	Principal Payments
2020	$	2,475
2021	9,900
2022	14,850
2023	196,600
Total remaining principal payments	$	223,825