UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington D.C. 20549

FORM 10-Q

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

For the quarterly period ended April 3, 2021

OR

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

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

Commission File Number 001-36267

BLUE BIRD CORPORATION

(Exact name of registrant as specified in its charter)

     Delaware                                 46-3891989

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

3920 Arkwright Road, 2nd Floor, Macon, Georgia 31210

(Address of principal executive offices and zip code)

(478) 822-2801

(Registrant’s telephone number, including area code)

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

Title of each class	Trading Symbol(s)	Name of each exchange on which registered
Common stock, $0.0001 par value	BLBD	NASDAQ Global Market

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

Yes ☒ No ☐

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

Yes ☒ No ☐

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

Large accelerated filer	☐	Accelerated Filer	☒
Non-accelerated filer	☐	Smaller reporting company	☒
		Emerging growth company	☐

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

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

At May 7, 2021, 27,153,872 shares of the registrant’s common stock, $0.0001 par value, were outstanding.

BLUE BIRD CORPORATION

FORM 10-Q

TABLE OF CONTENTS

PART I – FINANCIAL INFORMATION	2
Item 1. Financial Statements (Unaudited).	2
Condensed Consolidated Balance Sheets	2
Condensed Consolidated Statements of Operations	3
Condensed Consolidated Statements of Comprehensive Loss	4
Condensed Consolidated Statements of Cash Flows	5
Condensed Consolidated Statements of Stockholders' Deficit	6
Notes to Condensed Consolidated Financial Statements	8
Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations.	18
Item 3. Quantitative and Qualitative Disclosures About Market Risk.	33
Item 4. Controls and Procedures.	33
PART II – OTHER INFORMATION	34
Item 1. Legal Proceedings.	34
Item 1A. Risk Factors.	34
Item 6. Exhibits.	34
SIGNATURES	35

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)	April 3, 2021		October 3, 2020
Assets
Current assets
Cash and cash equivalents	$	18,722	$	44,507
Accounts receivable, net	6,502		7,623
Inventories	91,960		56,523
Other current assets	7,141		8,243
Total current assets	$	124,325	$	116,896
Property, plant and equipment, net	105,597		103,372
Goodwill	18,825		18,825
Intangible assets, net	50,448		51,632
Equity investment in affiliate	13,969		14,320
Deferred tax assets	4,828		4,365
Finance lease right-of-use assets	6,234		6,983
Other assets	1,757		1,022
Total assets	$	325,983	$	317,415
Liabilities and Stockholders' Deficit
Current liabilities
Accounts payable	$	80,843	$	57,602
Warranty	7,438		8,336
Accrued expenses	15,775		15,773
Deferred warranty income	8,038		8,540
Finance lease obligations	1,303		1,280
Other current liabilities	10,052		10,217
Current portion of long-term debt	12,375		9,900
Total current liabilities	$	135,824	$	111,648
Long-term liabilities
Long-term debt	$	156,433	$	164,204
Warranty	11,743		13,038
Deferred warranty income	12,686		14,048
Deferred tax liabilities	477		254
Finance lease obligations	5,208		5,879
Other liabilities	15,076		14,315
Pension	41,124		47,259
Total long-term liabilities	$	242,747	$	258,997
Guarantees, commitments and contingencies (Note 6)
Stockholders' deficit
Preferred stock, $0.0001 par value, 10,000,000 shares authorized, 0 shares outstanding at April 3, 2021 and October 3, 2020	$	—	$	—
Common stock, $0.0001 par value, 100,000,000 shares authorized, 27,153,872 and 27,048,404 shares outstanding at April 3, 2021 and October 3, 2020, respectively	3		3
Additional paid-in capital	91,078		88,910
Accumulated deficit	(35,697)		(33,464)
Accumulated other comprehensive loss	(57,690)		(58,397)
Treasury stock, at cost, 1,782,568 shares at April 3, 2021 and October 3, 2020	(50,282)		(50,282)
Total stockholders' deficit	$	(52,588)	$	(53,230)
Total liabilities and stockholders' deficit	$	325,983	$	317,415

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

2

BLUE BIRD CORPORATION AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS

(Unaudited)

	Three Months Ended				Six Months Ended
(in thousands of dollars except for share data)	April 3, 2021		April 4, 2020		April 3, 2021		April 4, 2020
Net sales	$	164,698	$	255,412	$	295,132	$	408,629
Cost of goods sold	146,205		231,243		262,171		363,160
Gross profit	$	18,493	$	24,169	$	32,961	$	45,469
Operating expenses
Selling, general and administrative expenses	17,361		19,858		32,051		40,353
Operating profit	$	1,132	$	4,311	$	910	$	5,116
Interest expense	(2,334)		(5,658)		(4,264)		(7,555)
Interest income	—		—		1		—
Other income, net	422		180		1,065		374
Loss on debt modification	—		—		(598)		—
Loss before income taxes	$	(780)	$	(1,167)	$	(2,886)	$	(2,065)
Income tax benefit	483		817		1,004		1,143
Equity in net loss of non-consolidated affiliate	(322)		(289)		(351)		(120)
Net loss	$	(619)	$	(639)	$	(2,233)	$	(1,042)
Earnings per share:
Basic weighted average shares outstanding	27,118,452		26,866,822		27,089,342		26,667,860
Diluted weighted average shares outstanding	27,118,452		26,866,822		27,089,342		26,667,860
Basic loss per share	$	(0.02)	$	(0.02)	$	(0.08)	$	(0.04)
Diluted loss per share	$	(0.02)	$	(0.02)	$	(0.08)	$	(0.04)

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

3

BLUE BIRD CORPORATION AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE LOSS

(Unaudited)

	Three Months Ended				Six Months Ended
(in thousands of dollars)	April 3, 2021		April 4, 2020		April 3, 2021		April 4, 2020
Net loss	$	(619)	$	(639)	$	(2,233)	$	(1,042)
Other comprehensive income, net of tax:
Net change in defined benefit pension plan	354		326		707		653
Total other comprehensive income	$	354	$	326	$	707	$	653
Comprehensive loss	$	(265)	$	(313)	$	(1,526)	$	(389)

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

4

BLUE BIRD CORPORATION AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

(Unaudited)

	Six Months Ended
(in thousands of dollars)	April 3, 2021		April 4, 2020
Cash flows from operating activities
Net loss	$	(2,233)	$	(1,042)
Adjustments to reconcile net loss to net cash used in operating activities:
Depreciation and amortization	6,811		7,086
Non-cash interest expense	1,458		2,926
Share-based compensation	1,595		2,297
Equity in net loss of non-consolidated affiliate	351		120
Loss (gain) on disposal of fixed assets	21		(121)
Deferred taxes	(463)		(291)
Amortization of deferred actuarial pension losses	931		859
Loss on debt modification	598		—
Changes in assets and liabilities:
Accounts receivable	1,121		3,455
Inventories	(35,437)		(65,112)
Other assets	1,363		(1,350)
Accounts payable	22,832		17,782
Accrued expenses, pension and other liabilities	(10,146)		(14,818)
Total adjustments	$	(8,965)	$	(47,167)
Total cash used in operating activities	$	(11,198)	$	(48,209)
Cash flows from investing activities
Cash paid for fixed assets	$	(7,007)	$	(14,251)
Proceeds from sale of fixed assets	—		150
Total cash used in investing activities	$	(7,007)	$	(14,101)
Cash flows from financing activities
Borrowings under the revolving credit facility	$	—	$	30,000
Repayments under the senior term loan	(4,950)		(4,950)
Principal payments on finance leases	(765)		(540)
Cash paid for debt costs	(2,476)		—
Net cash received (paid) for exercises and employee taxes on vested restricted shares and stock option exercises	611		(3,313)
Proceeds from exercises of warrants	—		4,240
Total cash (used in) provided by financing activities	$	(7,580)	$	25,437
Change in cash and cash equivalents	(25,785)		(36,873)
Cash and cash equivalents, beginning of period	44,507		70,959
Cash and cash equivalents, end of period	$	18,722	$	34,086
Supplemental disclosures of cash flow information
Cash paid or received during the period:
Interest paid, net of interest received	$	6,119	$	4,807
Income tax paid, net of tax refunds	46		327
Non-cash investing and financing activities:
Changes in accounts payable for capital additions to property, plant and equipment	$	409	$	(4,041)
Cashless exercise of stock options	—		5,246
Right-of-use assets obtained in exchange for finance lease obligations	—		1,942
Right-of-use assets obtained in exchange for operating lease obligations	107		—

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

5

BLUE BIRD CORPORATION AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF STOCKHOLDERS' DEFICIT

(Unaudited)

	Three Months Ended
(in thousands of dollars, except for share data)	Common Stock					Convertible Preferred Stock							Treasury Stock
	Shares	Par Value		Additional Paid-In-Capital		Shares	Amount		Accumulated Other Comprehensive Loss		Accumulated Deficit		Shares	Amount		Total Stockholders' Deficit
Balance, January 2, 2021	27,091,808	$	3	$	89,171	—	$	—	$	(58,044)	$	(35,078)	1,782,568	$	(50,282)	$	(54,230)
Stock option activity	62,064	—		1,055		—	—		—		—		—	—		1,055
Share-based compensation expense	—	—		852		—	—		—		—		—	—		852
Net loss	—	—		—		—	—		—		(619)		—	—		(619)
Other comprehensive income, net of tax	—	—		—		—	—		354		—		—	—		354
Balance, April 3, 2021	27,153,872	$	3	$	91,078	—	$	—	$	(57,690)	$	(35,697)	1,782,568	$	(50,282)	$	(52,588)
Balance, January 4, 2020	26,511,641	$	3	$	84,302	—	$	—	$	(55,827)	$	(46,052)	1,782,568	$	(50,282)	$	(67,856)
Warrant exercises	336,391	—		3,868		—	—		—		—		—	—		3,868
Restricted stock activity	108,563	—		—		—	—		—		—		—	—		—
Stock option activity	70,677	—		(1,935)		—	—		—		—		—	—		(1,935)
Share-based compensation expense	—	—		1,173		—	—		—		—		—	—		1,173
Net loss	—	—		—		—	—		—		(639)		—	—		(639)
Other comprehensive income, net of tax	—	—		—		—	—		326		—		—	—		326
Balance, April 4, 2020	27,027,272	$	3	$	87,408	—	$	—	$	(55,501)	$	(46,691)	1,782,568	$	(50,282)	$	(65,063)

6

	Six Months Ended
(in thousands of dollars, except for share data)	Common Stock					Convertible Preferred Stock							Treasury Stock
	Shares	Par Value		Additional Paid-In-Capital		Shares	Amount		Accumulated Other Comprehensive Loss		Accumulated Deficit		Shares	Amount		Total Stockholders' Deficit
Balance, October 3, 2020	27,048,404	$	3	$	88,910	—	$	—	$	(58,397)	$	(33,464)	1,782,568	$	(50,282)	$	(53,230)
Restricted stock activity	36,404	—		(518)		—	—		—		—		—	—		(518)
Stock option activity	69,064	—		1,128		—	—		—		—		—	—		1,128
Share-based compensation expense	—	—		1,558		—	—		—		—		—	—		1,558
Net loss	—	—		—		—	—		—		(2,233)		—	—		(2,233)
Other comprehensive income, net of tax	—	—		—		—	—		707		—		—	—		707
Balance, April 3, 2021	27,153,872	$	3	$	91,078	—	$	—	$	(57,690)	$	(35,697)	1,782,568	$	(50,282)	$	(52,588)
Balance, September 28, 2019	26,476,336	$	3	$	84,271	—	$	—	$	(56,154)	$	(45,649)	1,782,568	$	(50,282)	$	(67,811)
Warrant exercises	368,712	—		4,240		—	—		—		—		—	—		4,240
Restricted stock activity	73,592	—		(1,368)		—	—		—		—		—	—		(1,368)
Stock option activity	108,632	—		(1,945)		—	—		—		—		—	—		(1,945)
Share-based compensation expense	—	—		2,210		—	—		—		—		—	—		2,210
Net loss	—	—		—		—	—		—		(1,042)		—	—		(1,042)
Other comprehensive income, net of tax	—	—		—		—	—		653		—		—	—		653
Balance, April 4, 2020	27,027,272	$	3	$	87,408	—	$	—	$	(55,501)	$	(46,691)	1,782,568	$	(50,282)	$	(65,063)

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

7

BLUE BIRD CORPORATION

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

oi1. Nature of Business and Basis of Presentation

Nature of Business

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

COVID-19

Beginning at the end of our second quarter of fiscal year 2020 and continuing through the second quarter of fiscal year 2021, the novel coronavirus known as "COVID-19" spread throughout the world, resulting in a global pandemic. The pandemic significantly impacted our financial results for the second half of fiscal year 2020, which continued into the first half of fiscal year 2021, causing, among other matters, lower customer orders for both buses and bus parts, supply disruptions, higher rates of absenteeism among our hourly production workforce and a temporary shutdown of manufacturing in April 2020 and March 2021. The continuing development and fluidity of the pandemic precludes any prediction as to the ultimate severity of the adverse impacts on our business, financial condition, results of operations, and liquidity. A prolonged economic downturn resulting from the continuing pandemic would likely have a material adverse impact on our financial results.

Basis of Presentation

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

The accompanying unaudited condensed consolidated financial statements have been prepared in accordance with accounting principles generally accepted in the United States of America (“GAAP”) for interim financial reporting and Article 8 of Regulation S-X. The Company’s fiscal year ends on the Saturday closest to September 30 with its quarters consisting of thirteen weeks in most years. Fiscal year 2021, which ends on October 2, 2021, consists of 52 weeks while fiscal year 2020, which ended on October 3, 2020, consisted of 53 weeks. The second quarters of fiscal years 2021 and 2020 both included 13 weeks. The six month periods in fiscal years 2021 and 2020 included 26 and 27 weeks, respectively.

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

The Condensed Consolidated Balance Sheet data as of October 3, 2020 was derived from the Company’s audited financial statements but does not include all disclosures required by GAAP. For additional information, including the Company’s significant accounting policies, refer to the consolidated financial statements and related footnotes for the fiscal year ended October 3, 2020 as set forth in the Company's 2020 Form 10-K filed on December 17, 2020.

Use of Estimates and Assumptions

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

8

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

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

The Company’s significant accounting policies are described in the Company’s 2020 Form 10-K, filed with the SEC on December 17, 2020. Our senior management has reviewed these significant accounting policies and related disclosures and determined that there were no significant changes in our critical accounting policies in the six months ended April 3, 2021.

Recently Adopted Accounting Standards

ASU 2016-13 In June 2016, the Financial Accounting Standards Board ("FASB") issued Accounting Standards Update ("ASU") 2016-13, Financial Instruments - Credit Losses (Topic 326): Measurement of Credit Losses on Financial Instruments, which requires that credit losses on most financial instruments measured at amortized cost and certain other financial instruments be measured using an expected credit loss model. Under this model, entities are required to estimate credit losses over the entire contractual term of the financial instrument from the date of initial recognition of the instrument. As required, the Company adopted this guidance on October 4, 2020, the first day of the Company’s first quarter of fiscal year 2021. While a number of financial instruments are subject to the scope of ASU 2016-13, its provisions applied only to the Company’s accounts receivable. Given that the Company extends credit with short contractual terms on only a small percentage of its sales, the adoption of the expected credit loss model did not have any impact on the Company’s condensed consolidated financial statements.

Recently Issued Accounting Standards

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

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

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

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

Currently, the Company’s interest rate collar, which is not designated in a hedge accounting relationship, and Amended Credit Agreement (defined below) are the only contracts that reference an interest rate index (i.e., 3 month LIBOR) that is subject to the reference rate reform guidance included in the above amendments. While the termination date of the interest rate collar, September 30, 2022, occurs prior to the July 1, 2023 date on which the IBA will no longer publish 3 month LIBOR, the Amended Credit Agreement matures on September 13, 2023, approximately 2.5 months subsequent to such cessation date. However, as management does not currently forecast that the Company will have sufficient cash to fund the term loan borrowings that are expected to be outstanding under the terms of the Amended Credit Agreement upon maturity, it is expecting to refinance such borrowings prior to maturity, with such refinancing likely to occur before the July 1, 2023 LIBOR cessation date. Therefore, it is highly likely that neither the interest

9

rate collar nor Amended Credit Agreement will be modified to reflect the discontinuation of 3 month LIBOR effective July 1, 2023 and accordingly, the Company will not be required to decide whether or not to elect to adopt such amendments prior to or on December 31, 2022 (i.e., the last effective date for adopting the amendments). However, to the extent that either or both of the contracts are modified prior to December 31, 2022, the Company plans to adopt the amendments on a prospective basis by adjusting the derivative fair value and/or debt effective interest rate, as applicable, neither of which is expected to have a material impact on the consolidated financial statements.

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3. Supplemental Financial Information

Inventories

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

(in thousands of dollars)	April 3, 2021		October 3, 2020
Raw materials	$	59,663	$	43,272
Work in process	28,297		8,989
Finished goods	4,000		4,262
Total inventories	$	91,960	$	56,523

Product Warranties

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

	Three Months Ended				Six Months Ended
(in thousands of dollars)	April 3, 2021		April 4, 2020		April 3, 2021		April 4, 2020
Balance at beginning of period	$	19,707	$	21,731	$	21,374	$	22,343
Add current period accruals	1,589		2,628		2,892		4,129
Current period reductions of accrual	(2,115)		(2,961)		(5,085)		(5,074)
Balance at end of period	$	19,181	$	21,398	$	19,181	$	21,398

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				Six Months Ended
(in thousands of dollars)	April 3, 2021		April 4, 2020		April 3, 2021		April 4, 2020
Balance at beginning of period	$	21,732	$	22,744	$	22,588	$	24,045
Add current period deferred income	1,341		2,338		2,500		3,289
Current period recognition of income	(2,349)		(2,134)		(4,364)		(4,386)
Balance at end of period	$	20,724	$	22,948	$	20,724	$	22,948

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 $4.3 million of the outstanding contract liability during the remainder of fiscal 2021, $6.9 million in fiscal 2022, and the remaining balance thereafter.

Self-Insurance

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

(in thousands of dollars)	April 3, 2021		October 3, 2020
Current portion	$	2,947	$	2,993
Long-term portion	1,939		1,962
Total accrued self-insurance	$	4,886	$	4,955

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

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Shipping and Handling Revenues

Shipping and handling revenues were $3.2 million and $4.1 million for the three months ended April 3, 2021 and April 4, 2020, respectively, and $5.9 million and $7.6 million for the six months ended April 3, 2021 and April 4, 2020, respectively. The related cost of goods sold was $2.7 million and $3.5 million for the three months ended April 3, 2021 and April 4, 2020, respectively, and $5.1 million and $6.6 million for the six months ended April 3, 2021 and April 4, 2020, respectively.

Pension Expense

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

	Three Months Ended				Six Months Ended
(in thousands of dollars)	April 3, 2021		April 4, 2020		April 3, 2021		April 4, 2020
Interest cost	$	1,057	$	1,237	$	2,114	$	2,474
Expected return on plan assets	(1,944)		(1,846)		(3,888)		(3,692)
Amortization of prior loss	466		429		931		859
Net periodic benefit cost	$	(421)	$	(180)	$	(843)	$	(359)
Amortization of prior loss, recognized in other comprehensive income	466		429		931		859
Total recognized in net periodic pension benefit cost and other comprehensive income	$	(887)	$	(609)	$	(1,774)	$	(1,218)

Derivative Instruments

We are charged variable rates of interest on our indebtedness outstanding under the Amended Credit Agreement (defined below) which exposes us to fluctuations in interest rates. On October 24, 2018, the Company entered into a four-year interest rate collar with a $150.0 million notional value with an effective date of November 30, 2018. The collar was entered into in order to partially mitigate our exposure to interest rate fluctuations on our variable rate debt. The collar establishes a range whereby we will pay the counterparty if the three month LIBOR rate falls below the established floor rate of 1.5%, and the counterparty will pay us if the three month LIBOR rate exceeds the ceiling rate of 3.3%. The collar settles quarterly through the termination date of September 30, 2022. No payments or receipts are exchanged on the interest rate collar contract unless interest rates rise above or fall below the contracted ceiling or floor rates. During the six months ended April 3, 2021, the three month LIBOR rate fell below the established floor, which required $1.0 million in total cash payments to the counterparty. Additionally, $0.5 million was paid in the first quarter of fiscal year 2021 for amounts owed to the counterparty that were accrued in the fourth quarter of fiscal 2020.

Changes in the interest rate collar fair value are recorded in interest expense as the collar does not qualify for hedge accounting. At April 3, 2021, the fair value of the interest rate collar contract was $(2.9) 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.

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4. Debt

On December 4, 2020, the Company executed the third amendment to the Credit Agreement, dated as of December 12, 2016; as amended by that certain first amendment to the Credit Agreement, dated as of September 13, 2018 (the "First Amended Credit Agreement") and second amendment to the Credit Agreement, dated as of May 7, 2020 (the "Second Amended Credit Agreement'); and as further amended by the third amendment (the "Third Amended Credit Agreement" and collectively, the "Amended Credit Agreement"). The Third Amended Credit Agreement, among other things, provides for certain temporary amendments to the Credit Agreement from the third amendment effective date through and including the first date on which (a)(i) a compliance certificate is timely delivered with respect to a fiscal quarter ending on or after March 31, 2022 demonstrating compliance with certain financial performance covenants for such fiscal quarter (the “Limited Availability Period”), or (ii) the Borrower elects to terminate the Limited Availability Period; and (b) the absence of a default or event of default.

Amendments to the financial performance covenants provide that during the Limited Availability Period, a higher maximum total net leverage ratio is permitted, and requires the Company to maintain liquidity (in the form of undrawn availability under the Revolving Credit Facility and unrestricted cash and cash equivalents) of at least $15.0 million. For the duration between the fiscal quarter ending on or around December 31, 2020 and the fiscal quarter ending on or around September 30, 2021 that falls within the Limited Availability Period, a quarterly minimum consolidated EBITDA covenant applies instead of a maximum total net leverage ratio.

The pricing grid in the First Amended Credit Agreement, which is based on the ratio of the Company’s consolidated net debt to consolidated EBITDA, remains unchanged. However, during the Limited Availability Period, an additional margin of 0.50% applies.

During the Limited Availability Period, the Borrower is required to prepay existing revolving loans and, if undrawn and unreimbursed letters of credit exceed $7.0 million, cash collateralize letters of credit if unrestricted cash and cash equivalents exceed $20.0 million, as determined on a semimonthly basis. Any issuance, amendment, renewal, or extension of credit during the Limited Availability Period may not cause unrestricted cash and cash equivalents to exceed $20.0 million, or cause the aggregate outstanding Revolving Credit Facility principal to exceed $100.0 million. The Third Amended Credit Agreement also implements a cap on permissible investments, restricted payments, certain payments of indebtedness and the fair market value of all assets subject to permitted dispositions during the Limited Availability Period.

For the duration of the Limited Availability Period, there are additional monthly reporting requirements and requirements relating to subordination agreements and intercreditor arrangements for certain other indebtedness and liens subject to administrative agent approval.

The Company incurred approximately $2.5 million in lender fees and other issuance costs relating to the third amendment. Of such total, $1.1 million and $0.9 million was capitalized within other assets and long-term debt (as a contra-balance), respectively, on the Condensed Consolidated Balance Sheets and will be amortized as an adjustment to interest expense on a straight-line basis and utilizing the effective interest method, respectively, until maturity of the Credit Agreement. The remaining $0.5 million was recorded to loss on debt modification on the Condensed Consolidated Statements of Operations.

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

Term debt consisted of the following at the dates indicated:

(in thousands of dollars)	April 3, 2021		October 3, 2020
2023 term loan, net of deferred financing costs of $2,592 and $2,246, respectively	$	168,808	$	174,104
Less: current portion of long-term debt	12,375		9,900
Long-term debt, net of current portion	$	156,433	$	164,204

Term loans are recognized on the Condensed Consolidated Balance Sheets at the unpaid principal balance, and are not subject to fair value measurement; however, given the variable rates on the loans, the Company estimates that the unpaid principal balance approximates fair value. If measured at fair value in the financial statements, the term loans would be classified as Level 2 in the fair value hierarchy. At April 3, 2021 and October 3, 2020, $171.4 million and $176.4 million, respectively, were outstanding on the term loans.

At April 3, 2021 and October 3, 2020, the stated interest rates on the term loans were 3.8% and 3.5%, respectively. At April 3, 2021 and October 3, 2020, the weighted-average annual effective interest rates for the term loans were 6.2% and 4.1%, respectively, which includes amortization of the deferred financing costs.

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At April 3, 2021, $6.9 million of Letters of Credit were outstanding, of which $2.7 million reduces the availability on the revolving line of credit. No borrowings were outstanding on the Revolving Credit Facility; therefore, the Company would have been able to borrow $97.3 million on the revolving line of credit.

Interest expense on all indebtedness was $2.3 million and $5.7 million for the three months ended April 3, 2021 and April 4, 2020, respectively, and $4.3 million and $7.6 million for the six months ended April 3, 2021 and April 4, 2020, respectively.

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

(in thousands of dollars)
Fiscal Year	Principal Payments
2021	$	4,950
2022	14,850
2023	151,600
Total remaining principal payments	$	171,400

5. Income Taxes

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

On December 27, 2020, the President of the United States signed the Consolidated Appropriations Act (the "Act") into law. While the Act has broad income tax implications for many companies stemming from COVID-19 relief and various tax extenders, it did not have a material impact on our reported income tax accounts.

Three Months

The effective tax rate for the three months ended April 3, 2021 was 61.9%, which differed from the statutory federal income tax rate of 21%. The difference is mainly due to discrete period tax benefit from share-based compensation expenses, but also due to normal tax rate items, including impacts from state taxes.

The effective tax rate for the three months ended April 4, 2020 was 70.0%, which differed from the statutory federal tax rate of 21%. The difference is mainly due to discrete period tax benefit from share-based compensation expenses, but also due to normal tax rate items, such as the benefit from federal and state tax credits (net of valuation allowance), which were partially offset by net non-deductible compensation expenses and other tax adjustments.

Six Months

The effective tax rate for the six months ended April 3, 2021 was 34.8%, which differed from the statutory federal income tax rate of 21%. The difference is mainly due to discrete period tax benefit from share-based compensation expenses, but also due to normal tax rate items, including impacts from state taxes.

The effective tax rate for the six months ended April 4, 2020 was 55.4%, which differed from the statutory federal tax rate of 21%. The difference is mainly due to discrete period tax benefit from share-based compensation expenses, but also due to normal tax rate items, such as the benefit from federal and state tax credits (net of valuation allowance), which were partially offset by net non-deductible compensation expenses and other tax adjustments.

6. Guarantees, Commitments and Contingencies

Litigation

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

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Environmental

The Company is subject to a variety of environmental regulations relating to the use, storage, discharge and disposal of hazardous ma erials 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 April 3, 2021, we had a $3.0 million guarantee outstanding which relates to a guarantee of dealer indebtedness for a term loan with remaining maturity up to 1.8 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 April 3, 2021, $0.2 million was included in other current liabilities on our Condensed Consolidated Balance Sheets for the estimated fair value of the guarantee.    

7. Segment Information

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

Net sales
	Three Months Ended				Six Months Ended
(in thousands of dollars)	April 3, 2021		April 4, 2020		April 3, 2021		April 4, 2020
Bus (1)	$	150,307	$	238,697	$	268,141	$	373,469
Parts (1)	14,391		16,715		26,991		35,160
Segment net sales	$	164,698	$	255,412	$	295,132	$	408,629

(1) Parts segment revenue includes $1.2 million and $0.9 million for the three months ended April 3, 2021 and April 4, 2020, respectively, and $2.0 million and $1.5 million for the six months ended April 3, 2021 and April 4, 2020, respectively, related to inter-segment sales of parts that was eliminated by the Bus segment upon consolidation.

Gross profit
	Three Months Ended				Six Months Ended
(in thousands of dollars)	April 3, 2021		April 4, 2020		April 3, 2021		April 4, 2020
Bus	$	13,084	$	17,938	$	22,794	$	32,805
Parts	5,409		6,231		10,167		12,664
Segment gross profit	$	18,493	$	24,169	$	32,961	$	45,469

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

	Three Months Ended				Six Months Ended
(in thousands of dollars)	April 3, 2021		April 4, 2020		April 3, 2021		April 4, 2020
Segment gross profit	$	18,493	$	24,169	$	32,961	$	45,469
Adjustments:
Selling, general and administrative expenses	(17,361)		(19,858)		(32,051)		(40,353)
Interest expense	(2,334)		(5,658)		(4,264)		(7,555)
Interest income	—		—		1		—
Other income, net	422		180		1,065		374
Loss on debt modification	—		—		(598)		—
Loss before income taxes	$	(780)	$	(1,167)	$	(2,886)	$	(2,065)

Sales are attributable to geographic areas based on customer location and were as follows for the periods presented:

	Three Months Ended				Six Months Ended
(in thousands of dollars)	April 3, 2021		April 4, 2020		April 3, 2021		April 4, 2020
United States	$	137,359	$	232,477	$	256,436	$	368,743
Canada	23,719		22,746		34,185		35,902
Rest of world	3,620		189		4,511		3,984
Total net sales	$	164,698	$	255,412	$	295,132	$	408,629

8. Revenue

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

	Three Months Ended				Six Months Ended
(in thousands of dollars)	April 3, 2021		April 4, 2020		April 3, 2021		April 4, 2020
Diesel buses	$	76,115	$	113,649	$	135,825	$	190,399
Alternative power buses (1)	65,955		113,057		118,256		164,791
Other (2)	8,585		12,505		14,745		19,348
Parts	14,043		16,201		26,306		34,091
Net sales	$	164,698	$	255,412	$	295,132	$	408,629

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

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

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9. Earnings Per Share

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

	Three Months Ended				Six Months Ended
(in thousands except for share data)	April 3, 2021		April 4, 2020		April 3, 2021		April 4, 2020
Numerator:
Net loss	$	(619)	$	(639)	$	(2,233)	$	(1,042)
Denominator:
Weighted-average common shares outstanding	27,118,452		26,866,822		27,089,342		26,667,860
Effect of dilutive securities (1)	—		—		—		—
Weighted-average shares and dilutive potential common shares	27,118,452		26,866,822		27,089,342		26,667,860
Earnings per share:
Basic loss per share	$	(0.02)	$	(0.02)	$	(0.08)	$	(0.04)
Diluted loss per share	$	(0.02)	$	(0.02)	$	(0.08)	$	(0.04)

(1) Potentially dilutive securities representing 0.7 million and 0.5 million shares of common stock were excluded from the computation of diluted earnings per share for April 3, 2021 and April 4, 2020, respectively, as their effect would have been antidilutive.

10. Accumulated Other Comprehensive Loss

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

	Three Months Ended				Six Months Ended
(in thousands of dollars)	Defined Benefit Pension Plan		Total AOCL		Defined Benefit Pension Plan		Total AOCL
April 3, 2021
Beginning Balance	$	(58,044)	$	(58,044)	$	(58,397)	$	(58,397)
Amounts reclassified and included in earnings	466		466		931		931
Total before taxes	466		466		931		931
Income taxes	(112)		(112)		(224)		(224)
Ending Balance April 3, 2021	$	(