UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington D.C. 20549

FORM 10-Q



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

For the quarterly period ended ~~June 29, 2019~~July 4, 2020



~~[ ]~~☐	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.)~~

Delaware46-3891989

(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)

~~(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.

YesX☒ 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 X☒ 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.

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. o☐

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes☐NoX☒

At August ~~5, 2019, 26,475,918~~7, 2020, 27,048,404 shares of the registrant’s common stock, $0.0001 par value, were outstanding.

BLUE BIRD CORPORATION

FORM 10-Q

TABLE OF CONTENTS

~~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. 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;~~

~~changes in the market for Blue Bird products; and~~

~~expansion plans and opportunities.~~

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”), specifically the sections titled “Risk Factors” and “Management’s Discussion and Analysis of Financial Condition and Results of Operations” in the Company’s 2018 Form 10-K, filed with the SEC on December 12, 2018. 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 2018 Form 10-K, filed with the SEC on December 12, 2018.

~~Available Information~~

We are subject to the reporting and information requirements of the Securities Exchange Act of 1934, as amended, 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. 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. Any materials we file with, or furnish to, the SEC may also be read and/or copied at the SEC's Public Reference Room at 100 F Street, N.E., Washington, D.C. 20549. Information on the operation of the Public Reference Room may be obtained by calling the SEC at 1-800-SEC-0330.

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)	June 29, 2019			September 29, 2018			July 4, 2020			September 28, 2019
Assets
Current assets
Cash and cash equivalents	$	29,075		$	60,260		$	12,538		$	70,959
Accounts receivable, net	40,229			24,067			13,694			10,537
Inventories	140,688			57,333			155,717			78,830
Other current assets	12,036			8,183			9,459			11,765
Total current assets	$	222,028		$	149,843		$	191,408		$	172,091
Property, plant and equipment, net	94,727			66,054			104,667			100,058
Goodwill	18,825			18,825			18,825			18,825
Intangible assets, net	55,492			55,472			52,404			54,720
Equity investment in affiliate	12,281			11,123			11,946			11,106
Deferred tax assets	4,559			4,437			3,882			3,600
Finance lease right-of-use assets							5,790			4,638
Other assets	466			1,676			1,133			375
Total assets	$	408,378		$	307,430		$	390,055		$	365,413
Liabilities and Stockholders' Deficit
Current liabilities
Accounts payable	$	135,902		$	95,780		$	95,538		$	102,266
Warranty	9,008			9,142			8,123			9,161
Accrued expenses	28,163			21,935			15,638			28,697
Deferred warranty income	8,408			8,159			8,448			8,632
Finance lease obligations							1,032			716
Other current liabilities	15,691			3,941			13,425			10,310
Current portion of long-term debt	9,900			9,900			9,900			9,900
Total current liabilities	$	207,072		$	148,857		$	152,104		$	169,682
Long-term liabilities
Revolving credit facility	$	25,000		$	—		$	45,000		$	—
Long-term debt	175,479			132,239			166,467			173,226
Warranty	13,512			13,504			12,705			13,182
Deferred warranty income	15,177			15,032			13,597			15,413
Deferred tax liabilities	1,088			197			792			168
Finance lease obligations							4,870			3,921
Other liabilities	12,402			4,924			13,251			12,108
Pension	19,834			21,013			43,197			45,524
Total long-term liabilities	$	262,492		$	186,909		$	299,879		$	263,542
Guarantees, commitments and contingencies (Note 6)
Stockholders' deficit
Preferred stock, $0.0001 par value, 10,000,000 shares authorized, 0 and 93,000 issued with liquidation preference of $0 and $9,300 at June 29, 2019 and September 29, 2018, respectively	$	—		$	9,300
Common stock, $0.0001 par value, 100,000,000 shares authorized, 26,460,456 and 27,259,262 shares outstanding at June 29, 2019 and September 29, 2018, respectively	3			3
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	83,189			70,023			88,930			84,271
Accumulated deficit	(57,241		)	(69,235		)	(45,405		)	(45,649		)
Accumulated other comprehensive loss	(36,855		)	(38,427		)	(55,174		)	(56,154		)
Treasury stock, at cost, 1,782,568 and 0 shares at June 29, 2019 and September 29, 2018, respectively	(50,282		)	—
Treasury stock, at cost, 1,782,568 shares at July 4, 2020 and September 28, 2019							(50,282		)	(50,282		)
Total stockholders' deficit	$	(61,186	)	$	(28,336	)	$	(61,928	)	$	(67,811	)
Total liabilities and stockholders' deficit	$	408,378		$	307,430		$	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
(in thousands of dollars except for share data) June 29, 2019 June 30, 2018 June 29, 2019 June 30, 2018
Net sales $ 308,774
$ 314,186
$ 675,342
$ 693,363
Cost of goods sold 266,992
277,213
588,496
614,074
Gross profit $ 41,782
$ 36,973
$ 86,846
$ 79,289
Operating expenses
Selling, general and administrative expenses 20,996
20,489
61,197
64,226
Operating profit $ 20,786
$ 16,484
$ 25,649
$ 15,063
Interest expense (3,369 ) (1,834 ) (10,241 ) (5,112 )
Interest income —
25
9
42
Other expense, net (410 ) (667 ) (1,034 ) (399 )
Income before income taxes $ 17,007
$ 14,008
$ 14,383
$ 9,594
Income tax (expense) benefit (3,248 ) 7,485
(2,833 ) 5,662
Equity in net income of non-consolidated affiliate 842
398
1,158
632
Net income $ 14,601
$ 21,891
$ 12,708
$ 15,888

Earnings per share:
Net income (from above) $ 14,601
$ 21,891
$ 12,708
$ 15,888
Less: preferred stock dividends —
182
—
1,715
Net income available to common stockholders $ 14,601
$ 21,709
$ 12,708
$ 14,173

Basic weighted average shares outstanding 26,451,107
26,209,697
26,449,751
24,677,838
Diluted weighted average shares outstanding 26,720,110
28,556,914
26,920,285
25,809,491

Basic earnings per share $ 0.55
$ 0.83
$ 0.48
$ 0.57
Diluted earnings per share $ 0.55
$ 0.77
$ 0.47
$ 0.55

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

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

The Company’s significant accounting policies are described in the Company’s ~~2018~~2019 Form 10-K, filed with the SEC on December 12, ~~2018.~~2019. 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 ~~June 29, 2019,~~July 4, 2020, except as follows ~~(as also~~(and as discussed in the Recently Adopted Accounting Standards section of this Note 2):

~~Revenue Recognition~~Amortization of Deferred Pension Losses

~~The~~Historically, the Company ~~records revenue, net~~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 ~~tax, when~~ the ~~following five steps have been completed:~~


1.	~~Identification of the contract(s) with a customer;~~


2.	~~Identification of the performance obligation(s) in the contract;~~


3.	~~Determination of the transaction price;~~


4.	~~Allocation of the transaction price to the performance obligations in the contract; and~~


5.	~~Recognition of revenue when, or as, we satisfy performance obligations.~~

~~The Company records revenue when performance obligations are satisfied by transferring control~~participants who remained employed with the Company. ASC 715 states that if all or almost all of a ~~promised good or service to~~plan's participants are inactive, the ~~customer. The Company evaluates the transfer of control primarily from the customer’s perspective where the customer has the ability to direct the use of, and obtain substantially all~~average remaining life expectancy of the ~~remaining benefits from, that good~~inactive participants shall be used to amortize the unrecognized net gain or ~~service.~~

Our product revenue includes sales of buses and bus parts, each of which are generally recognized as revenue at a point in time, once all conditions for revenue recognition have been met, as they represent our performance obligations in a sale. For buses, control is generally transferred and the customer has the ability to direct the use of and obtain substantially allloss instead of the average remaining ~~benefits~~service period of active plan participants. In the ~~product when~~first quarter of 2020, the ~~product is delivered or when~~ratio of active (employed) to inactive participants in our plan declined to less than 10%, a figure we believe meets the ~~product has been completed, is ready for delivery, has been paid for, its title has transferred and it is awaiting pickup by~~definition of almost all participants as inactive. Accordingly, we have changed the ~~customer. For certain bus sale transactions, we may provide incentives including payment of a limited amount of future interest charges our customers may incur related~~amortization period from approximately seven years in 2019 to ~~their purchase and financing of the bus with third party financing companies. We reduce revenue at the recording date by the full amount of potential future interest we may~~approximately 23 years in 2020. Future amortization periods (remaining life expectancy) will be obligated to pay, which is an application of the "most likely amount" method. For parts sales, control is generally transferred when the customer has the ability to direct the use of and obtain substantially all of the remaining benefits of the products, which generally coincides with the point in time when the customer has assumed risk of loss and title has passed for the goods sold.

~~The Company sells extended warranties related to its products. Revenue related to these contracts is recognized~~determined based on the ~~stand-alone selling price of the arrangement, on a straight-line basis over the contract period,~~participant and ~~costs thereunder are expensed as incurred.~~actuarial data at that time.

The Company includes shipping and handling revenues, which represents costs billed to customers, in net sales on the Condensed Consolidated Statements of Operations. The related costs incurred by the Company are included in cost of goods sold on the Condensed Consolidated Statements of Operations.

~~Leases~~

We determine if an arrangement is a lease at inception. Operating leases include lease right-of-use (“ROU”) assets, which we include in property, plant and equipment on our Condensed Consolidated Balance Sheets. The lease liabilities associated with operating leases are included in other current liabilities and other liabilities on our Condensed Consolidated Balance Sheets. We do not have any finance leases.

ROU assets represent our right to use an underlying asset for the lease term and lease liabilities represent our obligation to make lease payments arising from the lease. Operating lease ROU assets and liabilities are recognized at commencement date based on the present value of lease payments over the lease term. As the leases recorded do not provide an implicit rate, we use our incremental borrowing rate based on the information available at commencement date in determining the present value of lease payments. The operating lease ROU asset also includes any base rental or lease payments made and excludes lease incentives. Our lease terms may include options to extend or terminate the lease when it is reasonably certain that we will exercise that option. Lease expense is recognized on a straight-line basis over the lease term as a component of selling, general and administrative expenses on the Condensed Consolidated Statements of Operations.

~~Derivative Instruments~~

In limited circumstances, we may utilize derivative instruments to manage certain exposures to changes in foreign currency exchange rates or as cash flow hedges for variable rate debt. The fair values of all derivative instruments are recognized as assets or liabilities at the balance sheet date. Changes in the fair value of these derivative instruments are recognized in our operating results or included in other comprehensive income (loss), depending on whether the derivative instrument is a fair value or cash flow hedge and whether it qualifies for hedge accounting treatment. If realized, gains and losses on derivative instruments are recognized in the operating results line item that reflects the underlying exposure that was hedged. The exchange of cash, if any, associated with derivative transactions is classified in the same category as the cash flows from the items subject to the economic hedging relationships.

~~Statement of Cash Flows~~

We classify distributions received from our equity method investment using the nature of distribution approach, such that distributions received are classified based on the nature of the activity of the investee that generated the distribution. Returns on investment are classified within operating activities, while returns of investment are classified within investing activities.

~~Recently Issued Accounting Standards~~

~~We believe that no new accounting guidance was issued during the three months ended June 29, 2019 that is relevant to our financial statements.~~

Recently Adopted Accounting Standards

ASU ~~2017-07~~ —2018-02 – In ~~March 2017,~~February 2018, the ~~Financial Accounting Standards Board ("FASB")~~FASB issued ASU No. ~~2017-07,~~ ~~Compensation—Retirement Benefits~~2018-02, Income Statement - Reporting Comprehensive Income (Topic ~~715)~~, ~~Improving~~220). This ASU provides guidance on a reclassification from accumulated other comprehensive income ("AOCI") to retained earnings for the ~~Presentation~~effect of ~~Net Periodic Pension Cost and Net Periodic Postretirement Benefit Cost,~~ ~~which requires that an employer report~~ the service cost component (if any) of pension expense in the same line item or items as other compensation costs arising from services rendered by the pertinent employees during the period. The other components of net benefit cost are required to be presented in the income statement separatelytax rate change resulting from the ~~service cost component~~Tax Cuts and ~~outside a subtotal~~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 ~~income from operations, if one~~information reported to financial statement users. This ASU is presented. If a separate line item or items are used to present the other components of net benefit cost, that line item or items must be appropriately described. If a separate line item or items are not used, the line item or items used in the income statement to present the other components of net benefit cost must be disclosed.

effective for fiscal years, and interim periods within those fiscal years, beginning after December 15, 2018, with early adoption permitted. We adopted this ~~new standard~~ASU, in the first quarter of fiscal ~~2019 on~~2020, and did not elect to reclassify the income tax effects of the Tax Act from AOCI to retained earnings. We use a ~~retrospective basis, as required. There is no service cost component~~specific identification approach to ~~our periodic pension expense. Previously all components of our pension expense were recorded as a component of operating expenses, and~~release the ~~new standard requires these expenses to be outside a subtotal of operating profit. As a result, we have revised previously reported results of operations, as follows:~~income tax effects in AOCI.

June 30, 2018
Three Months Ended Nine Months Ended
(in thousands of dollars) As Previously Reported New Standard Adjustment As Restated As Previously Reported New Standard Adjustment As Restated
Selling, general and administrative expenses $ 20,950
$ (461 ) $ 20,489
$ 65,609
$ (1,383 ) $ 64,226
Operating profit 16,023
461
16,484
13,680
1,383
15,063
Other expense, net (206 ) (461 ) (667 ) 984
(1,383 ) (399 )
Net income 21,891
—
21,891
15,888
—
15,888

ASU ~~2018-15~~ — 2019-12 – In ~~August 2018,~~December 2019, the FASB issued ASU No. ~~2018-15,~~ ~~Intangibles—Goodwill and Other—Internal-Use Software (Subtopic 350-40): Customer’s~~2019-12, Simplifying the Accounting for ~~Implementation Costs Incurred in a Cloud Computing Arrangement That Is a Service Contract~~Income Taxes, which ~~aligns~~simplifies the ~~requirements~~process for ~~capitalizing implementation costs incurred in a hosting arrangement that is a service contract with~~calculating interim (intraperiod) income taxes and the ~~requirements~~accounting for ~~capitalizing implementation costs incurred to develop or obtain internal-use software.~~deferred tax liabilities for foreign equity-method investments, among other simplifications. We have early adopted this standard ~~on a prospective (applies only to eligible costs incurred after adoption) basis in~~effective the first quarter of fiscal ~~2019,~~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, which is currently expected to occur on December 31, 2021. The amendments in ASU 2020-04 are elective and ~~there was not a significant~~apply to all entities that have contracts, hedging relationships, and other transactions that reference LIBOR or another reference rate expected to be discontinued. An entity may elect to apply the amendments prospectively from March 12, 2020 through December 31, 2022. Our debt and derivative agreements currently reference LIBOR. Contract language is expected to be incorporated into these agreements to address the transition to an alternative reference rate. We are currently evaluating the impact this ASU may have on our consolidated financial statements.

~~ASU 2017-12~~ ~~— In August 2017, the FASB issued ASU No. 2017-12,~~ ~~Derivatives and Hedging (Topic 815): Targeted Improvements to Accounting for Hedging Activities~~, which intends to simplify the application of hedge accounting guidance and better align an entity's risk management activities and financial reporting for hedging relationships through changes to both the designation and measurement guidance for qualifying hedging relationships and the presentation of hedge results. The amendments expand and refine hedge accounting for both non-financial and financial risk components and align the recognition and presentation of the effects of the hedging instrument and the hedged item in the financial statements. We adopted this amended guidance in the first quarter of fiscal 2019 using the required modified retrospective approach; however we had no hedging relationships in effect at the adoption date that were impacted by the guidance. We do not expect the impact on the Company's consolidated financial statements to be material.

~~ASU 2016-12 and 2016-10~~ ~~— In May 2016, the FASB issued ASU No. 2016-12, Revenue from Contracts with Customers (Topic 606): Narrow-Scope Improvements and Practical Expedients, and in April 2016 issued ASU No. 2016-10,~~ ~~Revenue from Contracts with Customers (Topic 606): Identifying Performance Obligations and Licensing, both of which provide further clarification to be considered when implementing ASU 2014-09,~~ ~~Revenue from Contracts with Customers (Topic 606)~~. We adopted this standard in the first quarter of fiscal 2019 using the modified retrospective transition approach, which we applied to all contracts impacted by the new standard at the date of initial application. At adoption, we accounted for specific sales incentives offered to our customers by recording an increase of $0.9 million in accrued liabilities, a $0.7 million adjustment to retained earnings, and a $0.2 million deferred tax asset. Amounts recorded in prior comparative periods have not been restated and continue to be reported under the accounting standards in effect for those periods. Please see Note 8, ~~Revenue, for additional information regarding the adoption of this new accounting standard.~~

~~ASU 2018-05— In March 2018, the FASB issued ASU No. 2018-05,~~ ~~Income Taxes (Topic 740): Amendments to SEC Paragraphs Pursuant to SEC Staff Accounting Bulletin No. 118~~, which updates income tax accounting to reflect the SEC's interpretive guidance released on December 22, 2017, when the Tax Cuts and Jobs Act (the "Tax Act") was signed into law. For more information regarding the impact of the Tax Act, see Note 5, ~~Income Taxes~~.

~~ASU 2016-02~~ ~~— In February 2016, the FASB issued ASU No. 2016-02,~~ ~~Leases (Topic 842)~~, which requires lessees to recognize assets on the balance sheet for the rights and obligations created by all leases with terms greater than 12 months. The standard will also require certain qualitative and quantitative disclosures designed to give financial statement users information on the amount, timing, and uncertainty of cash flows arising from leases. We adopted this standard in the first quarter of fiscal 2019 using the modified retrospective adoption approach with a cumulative-effect adjustment recognized on the balance sheet on the adoption date with prior periods not recast, and electing the practical expedients allowed under the standard. At adoption, we recognized right-of-use assets totaling $7.3 million and operating lease liabilities totaling $9.2 million. The impact on our results of operations and cash flows was not material.

~~ASU 2016-15~~ ~~— In August 2016, the FASB issued ASU No. 2016-15,~~ ~~Statement of Cash Flows (Topic 230): Classification of Certain Cash Receipts and Cash Payments~~, which made targeted changes to how cash receipts and cash payments are presented and classified in the statement of cash flows. We adopted this standard in the first quarter of fiscal 2019 and contemporaneous with adoption made a policy election to classify distributions received from our equity method investment using the nature of distribution approach. Adoption of the standard had no current impact on the Company's consolidated financial statements, as this is the manner in which we have recorded previous distributions from our equity method investee. There were no distributions in the nine months ended June 29, 2019.

3. Supplemental Financial Information

Inventories

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



(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

(in thousands of dollars) June 29, 2019 September 29, 2018
Raw materials $ 94,452
$ 42,439
Work in process 34,730
13,141
Finished goods 11,506
1,753
Total inventories $ 140,688
$ 57,333

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) June 29, 2019 June 30, 2018 June 29, 2019 June 30, 2018
Balance at beginning of period $ 21,520
$ 19,283
$ 22,646
$ 20,910
Add current period accruals 3,358
3,421
7,196
7,786
Current period reductions of accrual (2,358 ) (2,853 ) (7,322 ) (8,845 )
Balance at end of period $ 22,520
$ 19,851
$ 22,520
$ 19,851

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 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

Three Months Ended Nine Months Ended
(in thousands of dollars) June 29, 2019 June 30, 2018 June 29, 2019 June 30, 2018
Balance at beginning of period $ 22,901
$ 20,461
$ 23,191
$ 19,295
Add current period deferred income 2,880
2,974
6,686
7,800
Current period recognition of income (2,196 ) (1,434 ) (6,292 ) (5,094 )
Balance at end of period $ 23,585
$ 22,001
$ 23,585
$ 22,001

~~With the adoption of ASU No. 2016-12 (as described in Note 2,~~ ~~Summary of Significant Accounting Policies and Recently Issued Accounting Standards),~~ ~~the~~The outstanding balance of deferred warranty income in the table above is considered a "contract liability", and represents a performance obligation of the Company that we satisfy over the term of the arrangement but for which we have been paid in full at the time the warranty was sold. We expect to recognize ~~$3.0~~$2.3 million of the outstanding contract liability during the remainder of fiscal ~~2019, $7.5~~2020, $7.8 million in fiscal ~~2020,~~2021, and the remaining balance thereafter.

Self-Insurance

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



(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

(in thousands of dollars) June 29, 2019 September 29, 2018
Current portion $ 2,882
$ 3,332
Long-term portion 1,757
1,901
Total accrued self-insurance $ 4,639
$ 5,233

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 ~~$6.0~~$3.9 million and ~~$6.5~~$6.0 million for the three months ended July 4, 2020 and June 29, 2019, ~~and June 30, 2018,~~ respectively, and ~~$12.5~~$11.5 million and ~~$13.5~~$12.5 million for the nine months ended July 4, 2020 and June 29, 2019, ~~and June 30, 2018,~~ respectively. The related cost of goods sold was ~~$5.3~~$3.4 million and ~~$5.8~~$5.3 million for the three months ended July 4, 2020 and June 29, 2019, ~~and June 30, 2018,~~ respectively, and ~~$11.0~~$10.0 million and ~~$11.7~~$11.0 million for the nine months ended July 4, 2020 and June 29, 2019, ~~and June 30, 2018,~~ 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 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	)

Three Months Ended Nine Months Ended
(in thousands of dollars) June 29, 2019 June 30, 2018 June 29, 2019 June 30, 2018
Interest cost $ 1,512
$ 1,357
$ 4,535
$ 4,071
Expected return on plan assets (1,905 ) (1,776 ) (5,714 ) (5,328 )
Amortization of prior loss 689
880
2,068
2,640
Net periodic benefit cost $ 296
$ 461
$ 889
$ 1,383
Amortization of prior loss, recognized in other comprehensive income 689
880
2,068
2,640
Total recognized in net periodic pension benefit cost and other comprehensive income $ (393 ) $ (419 ) $ (1,179 ) $ (1,257 )

Pension expense is recognized as a component of other expense, net on our Condensed Consolidated Statement of Operations. As disclosed in Note 2, we reclassified previously reported pension expense amounts of $0.5 million and $1.4 million from selling, general and administrative expenses to other expense, net for the three and nine months ended June 30, 2018, respectively.

~~Warrants~~

~~At June 29, 2019, there were a total of 820,614 warrants outstanding to purchase 410,307 shares of our Common Stock.~~

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 we will pay the counterparty if the three-month LIBOR rate falls below the established floor rate of 1.5%, and the counterparty will pay us if the three-month LIBOR rate exceeds the ceiling rate of 3.3%. The collar settles quarterly through the termination date of September 30, 2022. No payments or receipts are exchanged on the interest rate collar contracts unless interest rates rise above or fall below the contracted ceiling or floor rates. During the three-months ended July 4, 2020, the three-month LIBOR rate fell below the established floor, which required an immaterial payment to the counterparty.

Changes in the interest rate collar fair value are recorded in interest expense as the collar does not qualify for hedge accounting. At ~~June 29, 2019,~~July 4, 2020, the fair value of the interest rate collar contract was ~~$(1.1)~~$(4.2) million and is included in "other current liabilities" on the Condensed Consolidated Balance Sheets. The fair value of the interest rate collar is a Level 2 fair value measurement, based on quoted prices of similar items in active markets.

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

~~Amended Credit Agreement~~

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

for an aggregate lender commitment of $41.9 million of additional revolving commitments bringing the total revolving commitments to $141.9 million. The revolving commitments under the Amended Credit Agreement provided for additional funding of $50.0 million and was funded in the first quarter of fiscal 2019. Substantially all the proceeds were used to complete a tender offer to purchase shares of our common and preferred stock.

~~The Amended Credit Agreement also increased the revolving credit facility to $100.0 million from $75.0 million. The amendment extended the maturity date to~~mature on September 13, 2023, ~~five years from~~which is the fifth anniversary of the effective date of the ~~first~~First Amendment. The interest rate pricing grid remained unchanged, but the LIBOR floor was amended from 0% to 0.75%. We incurred $0.9 million in fees related to the amendment. ~~In connection with~~The fees were capitalized to other assets on the ~~Amended Credit Agreement, we incurred $2.0 million of debt discount~~Consolidated Balance Sheets and ~~issuance costs, which were recorded as contra-debt and will be~~are amortized ~~over the life~~on a straight-line basis to interest expense until maturity of the ~~Amended Credit Agreement using the effective interest method.~~

~~Additional Disclosures~~

agreement.

Term debt consisted of the following at the dates indicated:



(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

(in thousands of dollars) June 29, 2019 September 29, 2018
2023 and 2021 term loans, net of deferred financing costs of $3,346 and $4,011, respectively $ 185,379
$ 142,139
Less: current portion of long-term debt 9,900
9,900
Long-term debt, net of current portion $ 175,479
$ 132,239

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 ~~June 29, 2019~~July 4, 2020 and September ~~29, 2018, $188.7~~28, 2019, $178.8 million and ~~$146.2~~$186.3 million, respectively, were outstanding on the term loans.

At ~~June 29, 2019~~July 4, 2020 and September ~~29, 2018,~~28, 2019, the stated interest rates on the term loans were ~~4.4%~~2.8% and ~~4.5%~~4.4%, respectively. At ~~June 29, 2019~~July 4, 2020 and September ~~29, 2018,~~28, 2019, the weighted-average annual effective interest rates for the term loans were ~~5.0%~~4.1% and ~~4.1%~~5.0%, respectively, which includes amortization of the deferred financing costs.

At ~~June 29, 2019, $25.0~~July 4, 2020, $45.0 million in borrowings were outstanding on the Revolving Credit Facility and $6.9 million of Letters of Credit were outstanding; therefore, the Company would have been able to borrow ~~$68.1~~$90.0 million on the revolving line of credit.

Interest expense on all indebtedness was ~~$3.4~~$2.4 million and ~~$1.8~~$3.4 million for the three months ended July 4, 2020 and June 29, 2019, ~~and June 30, 2018,~~ respectively, and ~~$10.3~~$10.0 million and ~~$5.1~~$10.3 million for the nine months ended July 4, 2020 and June 29, 2019, ~~and June 30, 2018,~~ respectively.

The ~~schedules~~schedule of remaining principal ~~maturities~~payments through maturity for total debt ~~for the next five fiscal years are~~is as follows:



(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

(in thousands of dollars)
Year Principal Payments
2019 $ 2,475
2020 9,900
2021 9,900
2022 14,850
2023 176,600
Total remaining principal payments $ 213,725

5. Income Taxes

Income tax provisions for interim periods are based on estimated annual income tax rates, adjusted to reflect the effects of any significant infrequent or unusual items which are required to be discretely recognized within the current interim period. The effective tax rates in the periods presented are largely based upon the forecast pre-tax earnings mix and allocation of certain expenses in various taxing jurisdictions where the Company conducts its business, primarily the United States. In periods where our operating income approximates or is equal to break-even, the effective tax rates for quarter-to-date and full-year periods may not be meaningful due to discrete period items.

On March 27, 2020 the President of the United States signed the Coronavirus Aid, Relief and Economic Security Act ("CARES Act") into law. While the CARES Act has broad income tax implications for many companies, it did not have a material impact on our reported income tax accounts.

Three Months

The effective tax rate for the three-month period ended July 4, 2020 was 70.1%, which differed from the statutory federal income tax rate of 21%. The difference is mainly due to discrete period tax expense from prior year tax return adjustments and normal tax rate items, such as the benefit from federal and state tax credits (net of valuation allowance), which were partially offset by net non-deductible compensation expenses and other tax adjustments.

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

~~For~~Nine Months

The effective tax rate for the ~~three month~~nine-month period ended ~~June 30, 2018, we recorded~~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 ~~of $8.1 million~~from share-based compensation expenses, but also due to the lapse of statute of limitations on the underlying item that created our uncertain tax position. We also recorded a $1.7 million benefit related to the filing of our prior year tax returns. The benefit resulted from various deductions that were accelerated and reported in a highernormal tax rate ~~year. The return filing also allowed us to reassess~~items, such as the benefit from federal and ~~reverse a $0.5 million~~state tax credits (net of valuation ~~allowance for our foreign~~allowance), which were partially offset by net non-deductible compensation expenses and other tax ~~credit carryforward that had been recorded earlier in 2018.~~adjustments.

The effective tax rate for the three month period ended June 30, 2018 was (53.4)%, which significantly differed from the transitional 2018 statutory federal tax rate of 24.5%. The difference is mainly due to the above noted release of uncertain tax positions and provision to return adjustments, but the rate was also favorably impacted by normal tax rate benefit items, such as the domestic production activities deduction, state tax credits, and share based award related deductions in excess of recorded book expense.

~~Nine Months~~

~~The effective tax rate for the nine month~~nine-month period ended June 29, 2019 was 19.7%~~, which~~ and differed from the ~~2019~~ 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.

For the nine month period ended June 30, 2018, we recorded a tax benefit of $8.1 million due to the lapse of statute of limitations on the underlying item that created our uncertain tax position. We also recorded a $1.7 million benefit related to the filing of our prior year tax returns. The benefit resulted from various deductions that were accelerated and reported in a higher tax rate year. The return filing also allowed us to reassess and reverse a $0.5 million valuation allowance for our foreign tax credit carryforward that had been recorded earlier in 2018.

The effective tax rate for the nine month period ended June 30, 2018 was (59.0)% and significantly differed from the transitional 2018 statutory federal income tax rate of 24.5%. The difference is mainly due to the above noted release of uncertain tax positions and provision to return adjustments, but was partially offset by a $2.4 million expense recorded in the prior fiscal quarter to reflect the newly enacted Tax Act. The Tax Act adjustments include resetting our deferred tax accounts to the new rates as well as $1.1 million of expense from increasing the carrying value of our uncertain tax positions, and $0.5 million of additional valuation allowance for our foreign tax credit carryforward. Of this adjustment amount, the portion relating to uncertain tax positions and valuation allowance were reversed in the current quarter. The rate was also favorably impacted by normal tax rate benefit items, such as the domestic production activities deduction, state tax credits, and share based award related deductions in excess of recorded book expense.

6. Guarantees, Commitments and Contingencies

Litigation

At ~~June 29, 2019,~~July 4, 2020, 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 ~~June 29, 2019,~~July 4, 2020, we had a $3.0 million ~~in aggregate guarantees~~guarantee outstanding which ~~relate~~relates to ~~guarantees~~a guarantee of indebtedness for a term ~~loans~~loan with remaining ~~maturities of~~maturity up to ~~3.6~~2.5 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 ~~June 29, 2019, $0.4~~July 4, 2020, $0.3 million was included in other current liabilities on our Condensed Consolidated Balance Sheets for the estimated fair value of the ~~guarantees.~~guarantee.

Lease Commitments

We ~~lease~~have operating and finance leases for office ~~and~~and/or warehouse space and for ~~use in our operations, which are accounted for as operating leases. The operating~~equipment. Our leases have remaining terms ~~ranging from seven months~~of 4.4 to ~~8.4 years. One of our leases includes a renewal option to extend the lease for five~~7.4 years.

Total operating lease expense was $0.5 million and $1.4 million for the three and nine months ended June 29, 2019, respectively, and is recorded in selling, general and administrative expenses on the Condensed Consolidated Statements of Operations. Total rent expense was $0.2 million and $0.5 million for the three and nine months ended June 30, 2018, respectively, and is recorded in selling, general

and administrative expenses on the Condensed Consolidated Statements of Operations. Cash paid for amounts included in the measurement of lease liabilities included in operating cash flows was $1.2 million for the nine months ended June 29, 2019.

At June 29, 2019, right-of-use assets totaling $7.3 million were included in property, plant and equipment, net, and lease liabilities totaling $1.4 million and $8.0 million were included in other current liabilities and other liabilities (non-current), respectively.

~~At June 29, 2019, the weighted average remaining lease term was 7.2 years and the weighted average discount rate used to calculate the present value of future lease payments was 4.5%.~~

~~Maturities of operating lease liabilities at June 29, 2019 are as follows:~~

(in thousands of dollars)
Fiscal Years Ended Amount
2019 $ 589
2020 1,577
2021 1,399
2022 1,421
2023 1,441
Thereafter 4,624
Total future minimum lease payments 11,051
Less: imputed interest 1,659
Total operating lease liabilities $ 9,392

7. Segment Information

We manage our business in ~~two~~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				Three Months Ended				Nine Months Ended
(in thousands of dollars)	June 29, 2019		June 30, 2018		June 29, 2019		June 30, 2018		July 4, 2020		June 29, 2019		July 4, 2020		June 29, 2019
Bus (1)	$	292,166	$	297,653	$	626,441	$	647,525	$	180,592	$	292,166	$	554,061	$	626,441
Parts (1)	16,608		16,533		48,901		45,838		8,589		16,608		43,749		48,901
Segment net sales	$	308,774	$	314,186	$	675,342	$	693,363	$	189,181	$	308,774	$	597,810	$	675,342

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) June 29, 2019 June 30, 2018 June 29, 2019 June 30, 2018
Numerator:
Net income $ 14,601
$ 21,891
$ 12,708
$ 15,888
Less: convertible preferred stock dividends —
182
—
1,715
Net income available to common stockholders $ 14,601
$ 21,709
$ 12,708
$ 14,173

Basic earnings per share (1):
Weighted average common shares outstanding 26,451,107
26,209,697
26,449,751
24,677,838
Basic earnings per share $ 0.55
$ 0.83
$ 0.48
$ 0.57

Diluted earnings per share (2):
Weighted average common shares outstanding 26,451,107
26,209,697
26,449,751
24,677,838
Weighted average dilutive securities, convertible preferred stock —
1,471,902
131,979
—
Weighted average dilutive securities, restricted stock 94
687
29,149
24,403
Weighted average dilutive securities, warrants 150,292
607,532
178,290
836,932
Weighted average dilutive securities, stock options 118,617
267,096
131,116
270,318
Weighted average shares and dilutive potential common shares 26,720,110
28,556,914
26,920,285
25,809,491
Diluted earnings per share $ 0.55
$ 0.77
$ 0.47
$ 0.55



	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

(1) ~~Basic earnings per share is calculated by dividing income available to common stockholders by the weighted average common shares outstanding during the period.~~

~~(2) For the nine months ended June 30, 2018, 2,791,468~~Potentially dilutive securities representing 0.4 million and 0.3 million shares of ~~convertible preferred~~common stock were excluded from the ~~dilutive calculation~~computation of diluted earnings per share for the three and nine months ended July 4, 2020, respectively, as ~~the if-converted impact~~their effect would behave been anti-dilutive.

10. Accumulated Other Comprehensive Loss

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



	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	)

Three Months Ended Nine Months Ended
(in thousands of dollars) Defined Benefit Pension Plan Total Defined Benefit Pension Plan Total
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 )

June 30, 2018
Beginning Balance $ (42,643 ) $ (42,643 ) $ (43,875 ) $ (43,875 )
Amounts reclassified from other comprehensive loss and included in earnings 880
880
2,640
2,640
Total other comprehensive income, before taxes 880
880
2,640
2,640
Income tax expense (211 ) (211 ) (739 ) (739 )
Ending Balance June 30, 2018 $ (41,974 ) $ (41,974 ) $ (41,974 ) $ (41,974 )

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 the Company should be read in conjunction with the Company’s unaudited financial statements for the three and nine months ended July 4, 2020 and June 29, 2019 ~~and June 30, 2018~~ and related notes appearing in Part I, Item 1 of this 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”. 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 ended September ~~29, 2018~~28, 2019 as “fiscal ~~2018”~~2019”. 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 of fiscal 2019” ~~and we refer to the quarter ended June 30, 2018 as the “third quarter of fiscal 2018”~~. ~~There were 13 weeks in the~~The third quarters of fiscal 2020 and 2019 both included 13 weeks. The nine month periods in fiscal 2020 and 2019 included 40 and ~~fiscal 2018.~~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", 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.

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”), specifically the sections titled “Risk Factors” and “Management’s Discussion and Analysis of Financial Condition and Results of Operations” in the Company’s 2019 Form 10-K, filed with the SEC on December 12, 2019. 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 Form 10-K, filed with the SEC on December 12, 2019.

Available Information

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 to diesel fuel applications with its propane-powered, gasoline-powered, compressed natural gas (“CNG”)-powered, ~~school buses~~ and ~~all-electric~~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

During our third fiscal quarter of 2020, the novel coronavirus known as "COVID-19" continued to spread throughout the world, perpetuating 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 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 our manufacturing facilities for two weeks and requested our office employees to work from home. In late April, we successfully restarted manufacturing operations and have continued to manufacture buses since that time without further material disruption. 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 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. It will continue to adversely impact our business for the remainder of our fiscal year 2020 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 and global economy. While the global market downturn, closures and limitations on movement are expected to be temporary, the duration of any demand reductions, production and supply chain disruptions, and related financial impacts, cannot be estimated at this time.

The full impacts from COVID-19 on the Company's financial results in fiscal year 2020 are uncertain as we continue to monitor and assess the level of future customer demand, the ability of school boards to make timely decisions, 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 for the remaining portion of our fiscal year. A prolonged economic downturn would likely have a material adverse impact on our sales and financial results beyond fiscal 2020. See PART II, Item 1A. Risk Factors, of this Quarterly Report for a discussion of the material risks we believe we face particularly related to the COVID-19 pandemic.

The Company has taken actions to control spending and improve 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 to the Credit Agreement. 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. 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 of 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.

Critical Accounting Policies and Estimates, Recent Accounting Pronouncements

The preparation of financial statements in conformity with U.S. GAAP requires management to make estimates and assumptions that affect the reported amounts of 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 ~~2018~~2019 Form 10-K, filed with the SEC on December 12, ~~2018~~2019 under the caption “ Management’s Discussion and Analysis of Financial Condition and Results of Operations – Critical Accounting Policies and Estimates,” which description is incorporated herein by reference. Our senior management has reviewed these critical accounting policies and related disclosures and determined that there were no significant changes in our critical accounting policies during the nine months ended ~~June 29, 2019,~~July 4, 2020, except as follows:

~~Revenue Recognition~~Amortization of Deferred Pension Losses


1.	~~Identification of the contract(s) with a customer;~~


2.	~~Identification of the performance obligation(s) in the contract;~~


3.	~~Determination of the transaction price;~~


4.	~~Allocation of the transaction price to the performance obligations in the contract; and~~


5.	~~Recognition of revenue when, or as, we satisfy performance obligations.~~

~~The Company records revenue when performance obligations are satisfied by transferring control~~participants who remained employed with the Company. ASC 715 states that if all or almost all of a ~~promised good or service to~~plan's participants are inactive, the ~~customer. The Company evaluates the transfer of control primarily from the customer’s perspective where the customer has the ability to direct the use of, and obtain substantially all~~average remaining life expectancy of the ~~remaining benefits from that good~~inactive participants shall be used to amortize the unrecognized net gain or ~~service.~~

Our product revenue includes sales of buses and bus parts, each of which are generally recognized as revenue at a point in time, once all conditions for revenue recognition have been met, as they represent our performance obligations in a sale. For buses, control is generally transferred and the customer has the ability to direct the use of and obtain substantially allloss instead of the average remaining ~~benefits~~service period of active plan participants. In the ~~product when~~first quarter of 2020, the ~~product is delivered or when~~ratio of active (employed) to inactive participants in our plan declined to less than 10%, a figure we believe meets the ~~product has been completed, is ready for delivery, has been paid for, its title has transferred and it is awaiting pickup by~~definition of almost all participants as inactive. Accordingly, we have changed the ~~customer. For certain bus sale transactions, we may provide incentives including payment of a limited amount of future interest charges our customers may incur related~~amortization period from approximately seven years in 2019 to ~~their purchase and financing of the bus with third party financing companies. We reduce revenue at the recording date by the full amount of potential future interest we may~~approximately 23 years in 2020. Future years will be obligated to pay, which is an application of the "most likely amount" method. For parts sales, control is generally transferred when the customer has the ability to direct the use of and obtain substantially all of the remaining benefits of the products, which generally coincides with the point in time when the customer has assumed risk of loss and title has passed for the goods sold.

~~The Company sells extended warranties related to its products. Revenue related to these contracts is recognized~~determined based on the ~~stand-alone selling price of the arrangement, on a straight-line basis over the contract period and costs thereunder are expensed as incurred.~~participant data at that time.

~~Leases~~

~~Derivative Instruments~~

~~Statement of Cash Flows~~

Recent Accounting Pronouncements

See ~~discussion in~~ 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, seasonality has become unpredictable. Seasonality and variations from historical seasonality have impacted the comparison of results between fiscal periods.

~~Property tax revenues~~. Property tax revenues are one of the major sources of funding for new 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. Increases or decreases in the number of school bus riders has a direct impact on school district demand.~~

~~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.~~ Our sales are subject to seasonal variation based on the school calendar. The peak season has historically been during our third and fourth fiscal quarters. Sales during the third and fourth fiscal quarters are 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. There are, however, variations in the seasonal demands from year to year depending in large part upon municipal budgets, distinct replacement cycles and student enrollment. This seasonality and annual variations of this seasonality could impact the ability to compare 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 in part 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.

Item 3. Quantitative and Qualitative Disclosures About Market 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 ~~2018~~2019 Form ~~10-K, other than as discussed below.~~10-K.

~~Interest Rate Risk~~

In the first quarter of fiscal 2019, we entered into a four-year interest rate collar contract with a notional value of $150.0 million to partially mitigate our exposure to interest rate fluctuations on our variable rate term loan debt. The collar establishes a range where we will pay the counterparty if the three-month LIBOR rate falls below the established floor rate of 1.5%, and the counterparty will pay us if the three-month LIBOR rate exceeds the ceiling rate of 3.3%.

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”)) 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 ~~June 29, 2019.~~July 4, 2020.

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 ~~June 29, 2019~~July 4, 2020 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 ~~2018~~2019 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 ~~2018~~2019 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


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	The registrant’s Certificate of Designations establishing its Series A Convertible Preferred Stock (incorporated by reference to Exhibit 3.2 to the registrant’s Current Report on Form 8-K, filed by the registrant with the SEC on February 26, 2015).


~~3.3~~	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 Agreement, dated as of May 30, 2020, between Blue Bird Corporation and Phillip Tighe.


10.2*	Consulting Agreement, dated as of May 30, 2020, between Blue Bird Corporation and Phillip Tighe.


10.3*	Offer Letter, dated as of April 28, 2020, between Blue Bird Corporation and Jeffery L. Taylor.


10.4*	Severance Agreement, dated as of May 1, 2020, between Blue Bird Corporation and Jeffery L. Taylor.

10.5

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*^	XBRL Instance ~~Document.~~Document


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


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


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


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


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

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.

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 ~~8, 2019~~13, 2020	/s/ Philip Horlock
		Philip Horlock
		Chief Executive Officer

Dated:	August ~~8, 2019~~13, 2020	/s/ ~~Phillip Tighe~~Jeffery Taylor
		~~Phillip Tighe~~Jeffery Taylor
		Chief Financial Officer

3733


	Nine Months Ended						Nine Months Ended
(in thousands of dollars)	June 29, 2019			June 30, 2018			July 4, 2020			June 29, 2019
Cash flows from operating activities
Net income	$	12,708		$	15,888		$	244		$	12,708
Adjustments to reconcile net income to net cash (used in) provided by operating activities:
Adjustments to reconcile net income to net cash used in operating activities:
Depreciation and amortization	7,406			6,325			10,728			7,406
Non-cash interest expense	2,172			572			3,560			2,172
Share-based compensation	3,146			2,380			4,105			3,146
Equity in net income of affiliate	(1,158		)	(632		)
Loss on disposal of fixed assets	50			115
Equity in net income of non-consolidated affiliate							(840		)	(1,158		)
(Gain) loss on disposal of fixed assets							(100		)	50
Deferred taxes	500			8,422			32			500
Amortization of deferred actuarial pension losses	2,068			2,640			1,289			2,068
Foreign currency hedges	109			(828		)	—			109
Changes in assets and liabilities:
Accounts receivable	(16,162		)	(12,422		)	(3,157		)	(16,162		)
Inventories	(83,355		)	(36,872		)	(76,887		)	(83,355		)
Other assets	(5,014		)	(1,502		)	2,480			(5,014		)
Accounts payable	42,429			41,959			(3,115		)	42,429
Accrued expenses, pension and other liabilities	15,988			(19,023		)	(16,644		)	15,988
Total adjustments	$	(31,821	)	$	(8,866	)	$	(78,549	)	$	(31,821	)
Total cash (used in) provided by operating activities	$	(19,113	)	$	7,022
Total cash used in operating activities							$	(78,305	)	$	(19,113	)
Cash flows from investing activities
Cash paid for fixed and acquired intangible assets	$	(30,154	)	$	(15,572	)
Cash paid for fixed assets							$	(16,724	)	$	(30,154	)
Proceeds from sale of fixed assets	—			12			150			—
Total cash used in investing activities	$	(30,154	)	$	(15,560	)	$	(16,574	)	$	(30,154	)
Cash flows from financing activities
Borrowings under the revolving credit facility	$	25,000		$	—		$	45,000		$	25,000
Borrowings under the senior term loan	50,000			—			—			50,000
Repayments under the senior term loan	(7,425		)	(6,000		)	(7,425		)	(7,425		)
Cash paid for capital leases	—			(118		)
Payment of dividends on preferred stock	—			(1,715		)
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	(622		)	(571		)	(3,568		)	(622		)
Proceeds from exercises of warrants	1,499			15,114			4,240			1,499
Common stock repurchases under share repurchase programs	—			(18,864		)
Tender offer repurchase of common stock and preferred stock	(50,370		)	—			—			(50,370		)
Total cash provided by (used in) financing activities	$	18,082		$	(12,154	)
Total cash provided by financing activities							$	36,458		$	18,082
Change in cash and cash equivalents	(31,185		)	(20,692		)	(58,421		)	(31,185		)
Cash and cash equivalents, beginning of period	60,260			62,616			70,959			60,260
Cash and cash equivalents, end of period	$	29,075		$	41,924		$	12,538		$	29,075

Supplemental disclosures of cash flow information
Cash paid during the period for:
Interest paid, net of interest received	$	7,916		$	4,549		$	6,616		$	7,916
Income tax paid, net of tax refunds	2,431			3,665			(1,668		)	2,431
Non-cash investing and financing activities:
Changes in accounts payable for capital additions to property, plant and equipment and other current assets for capitalized intangible assets	$	(1,307	)	$	3,574
Changes in accounts payable for capital additions to property, plant and equipment							$	(3,613	)	$	(1,307	)
Cashless exercise of stock options	295			897			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			—			—			8,040
Conversion of preferred stock into common stock	9,264			30,700			—			9,264



	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



	Three Months Ended				Nine Months Ended
(in thousands of dollars)	June 29, 2019		June 30, 2018		June 29, 2019		June 30, 2018
United States	$	286,499	$	274,984	$	629,668	$	628,046
Canada	21,639		37,490		43,499		59,949
Rest of world	636		1,712		2,175		5,368
Total net sales	$	308,774	$	314,186	$	675,342	$	693,363


	Three Months Ended				Nine Months Ended				Three Months Ended				Nine Months Ended
(in thousands of dollars)	June 29, 2019		June 30, 2018		June 29, 2019		June 30, 2018		July 4, 2020		June 29, 2019		July 4, 2020		June 29, 2019
Diesel buses	$	135,246	$	191,355	$	335,553	$	427,353	$	88,299	$	135,246	$	278,698	$	335,553
Alternative fuel buses (1)	141,939		96,189		260,340		201,067		80,975		141,939		245,766		260,340
Other (2)	15,486		10,593		32,061		20,577		11,583		15,486		30,931		32,061
Parts	16,103		16,049		47,388		44,366		8,324		16,103		42,415		47,388
Net sales	$	308,774	$	314,186	$	675,342	$	693,363	$	189,181	$	308,774	$	597,810	$	675,342


	Three Months Ended						Three Months Ended
(in thousands of dollars)	June 29, 2019			June 30, 2018			July 4, 2020			June 29, 2019
Net income	$	14,601		$	21,891		$	1,286		$	14,601
Adjustments:
Interest expense, net (1)	3,472			1,809			2,466			3,472
Income tax expense (benefit)	3,248			(7,485		)
Income tax expense							765			3,248
Depreciation, amortization, and disposals (2)	2,750			2,203			3,861			2,750
Operational transformation initiatives	679			3,169			339			679
Foreign currency hedges	—			208
Share-based compensation	1,101			870			1,808			1,101
Product redesign initiatives	3,075			1,497			1,071			3,075
Restructuring charges							364			—
Costs directly attributed to the COVID-19 pandemic (3)							521			—
Other	115			(10		)	—			115
Adjusted EBITDA	$	29,041		$	24,152		$	12,481		$	29,041
Adjusted EBITDA margin (percentage of net sales)	9.4		%	7.7		%	6.6		%	9.4		%



	Three Months Ended						Nine Months Ended
(in thousands of dollars except for share data)	June 29, 2019			June 30, 2018			June 29, 2019			June 30, 2018
Net sales	$	308,774		$	314,186		$	675,342		$	693,363
Cost of goods sold	266,992			277,213			588,496			614,074
Gross profit	$	41,782		$	36,973		$	86,846		$	79,289
Operating expenses
Selling, general and administrative expenses	20,996			20,489			61,197			64,226
Operating profit	$	20,786		$	16,484		$	25,649		$	15,063
Interest expense	(3,369		)	(1,834		)	(10,241		)	(5,112		)
Interest income	—			25			9			42
Other expense, net	(410		)	(667		)	(1,034		)	(399		)
Income before income taxes	$	17,007		$	14,008		$	14,383		$	9,594
Income tax (expense) benefit	(3,248		)	7,485			(2,833		)	5,662
Equity in net income of non-consolidated affiliate	842			398			1,158			632
Net income	$	14,601		$	21,891		$	12,708		$	15,888

Earnings per share:
Net income (from above)	$	14,601		$	21,891		$	12,708		$	15,888
Less: preferred stock dividends	—			182			—			1,715
Net income available to common stockholders	$	14,601		$	21,709		$	12,708		$	14,173

Basic weighted average shares outstanding	26,451,107			26,209,697			26,449,751			24,677,838
Diluted weighted average shares outstanding	26,720,110			28,556,914			26,920,285			25,809,491

Basic earnings per share	$	0.55		$	0.83		$	0.48		$	0.57
Diluted earnings per share	$	0.55		$	0.77		$	0.47		$	0.55



(in thousands of dollars)
Fiscal Years Ended	Amount
2019	$	589
2020	1,577
2021	1,399
2022	1,421
2023	1,441
Thereafter	4,624
Total future minimum lease payments	11,051
Less: imputed interest	1,659
Total operating lease liabilities	$	9,392



Level	Total Net Leverage Ratio	ABR Loans	Eurodollar Loans
I	Less than 2.00x	0.75%	1.75%
II	Greater than or equal to 2.00x and less than 2.50x	1.00%	2.00%
III	Greater than or equal to 2.50x and less than 3.00x	1.25%	2.25%
IV	Greater than or equal to 3.00x and less than 3.25x	1.50%	2.50%
V	Greater than or equal to 3.25x and less than 3.50x	1.75%	2.75%
VI	Greater than 3.50x	2.00%	3.00%



~~Period~~		~~Maximum Total~~ ~~Net Leverage Ratio~~
~~September 13, 2018 through the second quarter of the 2019 fiscal year~~		~~4.00:1.00~~
~~Second quarter of the 2019 fiscal year through the fourth quarter of the 2021 fiscal year~~		~~3.75:1.00~~
~~Fourth quarter of the 2021 fiscal year and thereafter~~		~~3.50:1.00~~

Large accelerated filer

Accelerated ~~filer~~Filer

Non-accelerated filer

Smaller reporting company

Emerging growth company