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 1, 2023

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 8, 2023, 32,036,149 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 Income (Loss)	4
Condensed Consolidated Statements of Cash Flows	5
Condensed Consolidated Statements of Stockholders' (Deficit) Equity	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	35
Item 1. Legal Proceedings.	35
Item 1A. Risk Factors.	35
Item 6. Exhibits.	35
SIGNATURES	36

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 1, 2023		October 1, 2022
Assets
Current assets
Cash and cash equivalents	$	17,773	$	10,479
Accounts receivable, net	13,635		12,534
Inventories	129,161		142,977
Other current assets	11,478		8,486
Total current assets	$	172,047	$	174,476
Restricted cash	$	238	$	—
Property, plant and equipment, net	98,506		100,608
Goodwill	18,825		18,825
Intangible assets, net	46,428		47,433
Equity investment in affiliate	12,325		10,659
Deferred tax assets	12,507		10,907
Finance lease right-of-use assets	1,385		1,736
Other assets	2,088		1,482
Total assets	$	364,349	$	366,126
Liabilities and Stockholders' (Deficit) Equity
Current liabilities
Accounts payable	$	136,622	$	107,937
Warranty	6,597		6,685
Accrued expenses	21,748		16,386
Deferred warranty income	7,404		7,205
Finance lease obligations	576		566
Other current liabilities	5,620		6,195
Current portion of long-term debt	19,800		19,800
Total current liabilities	$	198,367	$	164,774
Long-term liabilities
Revolving credit facility	$	—	$	20,000
Long-term debt	119,752		130,390
Warranty	8,957		9,285
Deferred warranty income	12,677		11,590
Deferred tax liabilities	143		—
Finance lease obligations	1,283		1,574
Other liabilities	8,506		11,107
Pension	15,782		16,024
Total long-term liabilities	$	167,100	$	199,970
Guarantees, commitments and contingencies (Note 6)
Stockholders' (deficit) equity
Preferred stock, $0.0001 par value, 10,000,000 shares authorized, 0 shares outstanding at April 1, 2023 and October 1, 2022	$	—	$	—
Common stock, $0.0001 par value, 100,000,000 shares authorized, 32,036,149 and 32,024,911 shares outstanding at April 1, 2023 and October 1, 2022, respectively	3		3
Additional paid-in capital	174,313		173,103
Accumulated deficit	(83,676)		(79,512)
Accumulated other comprehensive loss	(41,476)		(41,930)
Treasury stock, at cost, 1,782,568 shares at April 1, 2023 and October 1, 2022	(50,282)		(50,282)
Total stockholders' (deficit) equity	$	(1,118)	$	1,382
Total liabilities and stockholders' (deficit) equity	$	364,349	$	366,126

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 1, 2023		April 2, 2022		April 1, 2023		April 2, 2022
Net sales	$	299,814	$	207,659	$	535,546	$	336,882
Cost of goods sold	264,165		204,502		492,440		317,528
Gross profit	$	35,649	$	3,157	$	43,106	$	19,354
Operating expenses
Selling, general and administrative expenses	23,205		19,858		40,037		38,091
Operating profit (loss)	$	12,444	$	(16,701)	$	3,069	$	(18,737)
Interest expense	(5,192)		(2,491)		(9,388)		(5,573)
Interest income	12		—		12		—
Other (expense) income, net	(342)		744		(578)		1,480
Loss on debt modification	—		—		(537)		(561)
Income (loss) before income taxes	$	6,922	$	(18,448)	$	(7,422)	$	(23,391)
Income tax (expense) benefit	(1,389)		7,415		1,592		9,177
Equity in net income (loss) of non-consolidated affiliate	1,597		(1,114)		1,666		(2,015)
Net income (loss)	$	7,130	$	(12,147)	$	(4,164)	$	(16,229)
Earnings (loss) per share:
Basic weighted average shares outstanding	32,033,709		31,981,073		32,029,999		30,039,240
Diluted weighted average shares outstanding	32,322,163		31,981,073		32,029,999		30,039,240
Basic earnings (loss) per share	$	0.22	$	(0.38)	$	(0.13)	$	(0.54)
Diluted earnings (loss) per share	$	0.22	$	(0.38)	$	(0.13)	$	(0.54)

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

3

BLUE BIRD CORPORATION AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (LOSS)

(Unaudited)

	Three Months Ended				Six Months Ended
(in thousands of dollars)	April 1, 2023		April 2, 2022		April 1, 2023		April 2, 2022
Net income (loss)	$	7,130	$	(12,147)	$	(4,164)	$	(16,229)
Other comprehensive income, net of tax:
Net change in defined benefit pension plan	227		221		454		442
Total other comprehensive income	$	227	$	221	$	454	$	442
Comprehensive income (loss)	$	7,357	$	(11,926)	$	(3,710)	$	(15,787)

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 1, 2023		April 2, 2022
Cash flows from operating activities
Net loss	$	(4,164)	$	(16,229)
Adjustments to reconcile net loss to net cash provided by (used in) operating activities:
Depreciation and amortization expense	7,068		6,678
Non-cash interest expense	777		2,509
Share-based compensation expense	1,288		2,486
Equity in net (income) loss of non-consolidated affiliate	(1,666)		2,015
Loss on disposal of fixed assets	11		12
Impairment of fixed assets	—		1,354
Deferred income tax benefit	(1,600)		(9,127)
Amortization of deferred actuarial pension losses	598		581
Loss on debt modification	537		561
Changes in assets and liabilities:
Accounts receivable	(1,101)		(1,236)
Inventories	13,816		(30,469)
Other assets	(2,380)		(3,072)
Accounts payable	28,116		38,883
Accrued expenses, pension and other liabilities	3,416		(6,356)
Total adjustments	$	48,880	$	4,819
Total cash provided by (used in) operating activities	$	44,716	$	(11,410)
Cash flows from investing activities
Cash paid for fixed assets	$	(3,740)	$	(3,478)
Total cash used in investing activities	$	(3,740)	$	(3,478)
Cash flows from financing activities
Revolving credit facility borrowings	$	35,000	$	55,000
Revolving credit facility repayments	(55,000)		(100,000)
Term loan repayments	(9,900)		(7,425)
Principal payments on finance leases	(281)		(659)
Cash paid for debt costs	(3,272)		(2,468)
Sale of common stock	—		75,000
Cash paid for common stock issuance costs	—		(202)
Repurchase of common stock in connection with stock award exercises	(57)		(1,503)
Cash received from stock option exercises	66		303
Total cash (used in) provided by financing activities	$	(33,444)	$	18,046
Change in cash, cash equivalents, and restricted cash	7,532		3,158
Cash, cash equivalents, and restricted cash at beginning of period	10,479		11,709
Cash, cash equivalents, and restricted cash at end of period	$	18,011	$	14,867
Supplemental disclosures of cash flow information
Cash paid or received during the period:
Interest paid, net of interest received	$	8,125	$	6,940
Income tax (received) paid, net of tax refunds	(52)		18
Non-cash investing and financing activities:
Changes in accounts payable for capital additions to property, plant and equipment	$	1,019	$	1,119
Accrue common stock issuance costs	—		178
Right-of-use assets obtained in exchange for operating lease obligations	199		—

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) EQUITY

(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) Equity
Balance, December 31, 2022	32,032,067	$	3	$	173,592	—	$	—	$	(41,703)	$	(90,806)	1,782,568	$	(50,282)	$	(9,196)
Stock option activity	4,082	—		66		—	—		—		—		—	—		66
Share-based compensation expense	—	—		655		—	—		—		—		—	—		655
Net income	—	—		—		—	—		—		7,130		—	—		7,130
Other comprehensive income, net of tax	—	—		—		—	—		227		—		—	—		227
Balance, April 1, 2023	32,036,149	$	3	$	174,313	—	$	—	$	(41,476)	$	(83,676)	1,782,568	$	(50,282)	$	(1,118)
Balance, January 1, 2022	31,975,274	$	3	$	171,150	—	$	—	$	(44,573)	$	(37,835)	1,782,568	$	(50,282)	$	38,463
Private placement stock issuance costs	—	—		(24)		—	—		—		—		—	—		(24)
Stock option activity	15,586	—		284		—	—		—		—		—	—		284
Share-based compensation expense	—	—		781		—	—		—		—		—	—		781
Net loss	—	—		—		—	—		—		(12,147)		—	—		(12,147)
Other comprehensive income, net of tax	—	—		—		—	—		221		—		—	—		221
Balance, April 2, 2022	31,990,860	$	3	$	172,191	—	$	—	$	(44,352)	$	(49,982)	1,782,568	$	(50,282)	$	27,578

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' Equity (Deficit)
Balance, October 1, 2022	32,024,911	$	3	$	173,103	—	$	—	$	(41,930)	$	(79,512)	1,782,568	$	(50,282)	$	1,382
Restricted stock activity	7,156	—		(57)		—	—		—		—		—	—		(57)
Stock option activity	4,082	—		66		—	—		—		—		—	—		66
Share-based compensation expense	—	—		1,201		—	—		—		—		—	—		1,201
Net loss	—	—		—		—	—		—		(4,164)		—	—		(4,164)
Other comprehensive income, net of tax	—	—		—		—	—		454		—		—	—		454
Balance, April 1, 2023	32,036,149	$	3	$	174,313	—	$	—	$	(41,476)	$	(83,676)	1,782,568	$	(50,282)	$	(1,118)
Balance, October 2, 2021	27,205,269	$	3	$	96,170	—	$	—	$	(44,794)	$	(33,753)	1,782,568	$	(50,282)	$	(32,656)
Private placement	4,687,500	—		74,798		—	—		—		—		—	—		74,798
Restricted stock activity	82,505	—		(1,484)		—	—		—		—		—	—		(1,484)
Stock option activity	15,586	—		284		—	—		—		—		—	—		284
Share-based compensation expense	—	—		2,423		—	—		—		—		—	—		2,423
Net loss	—	—		—		—	—		—		(16,229)		—	—		(16,229)
Other comprehensive income, net of tax	—	—		—		—	—		442		—		—	—		442
Balance, April 2, 2022	31,990,860	$	3	$	172,191	—	$	—	$	(44,352)	$	(49,982)	1,782,568	$	(50,282)	$	27,578

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

7

BLUE BIRD CORPORATION

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

1. Nature of Business and Basis of Presentation

Nature of Business

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

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 (“U.S. GAAP”) for interim financial reporting and Article 8 of Regulation S-X. The Company’s fiscal year ends on the Saturday closest to September 30 with its quarters consisting of thirteen weeks in most years. The fiscal years ending September 30, 2023 ("fiscal 2023") and ended October 1, 2022 ("fiscal 2022") consist or consisted of 52 weeks. The second quarters of fiscal 2023 and fiscal 2022 both included 13 weeks. The six month periods in fiscal 2023 and 2022 both included 26 weeks.

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 U.S. GAAP for complete financial statements.

The Condensed Consolidated Balance Sheet data as of October 1, 2022 was derived from the Company’s audited financial statements but does not include all disclosures required by U.S. GAAP. For additional information, including the Company’s significant accounting policies, refer to the consolidated financial statements and related footnotes as of and for the fiscal year ended October 1, 2022 as set forth in the Company's fiscal 2022 Form 10-K filed with the Securities and Exchange Commission ("SEC") on December 12, 2022.

Impacts of COVID-19 and Subsequent Supply Chain Constraints on our Business

Towards the end of our second quarter of the fiscal year that ended October 3, 2020 ("fiscal 2020"), the novel coronavirus known as "COVID-19" spread throughout the world, resulting in a global pandemic. Countermeasures taken to address the COVID-19 pandemic included virtual and hybrid schooling in many jurisdictions throughout the United States of America ("U.S.") and Canada. The uncertainty of when and how schools would open materially affected demand for new buses and replacement/maintenance parts during the second half of fiscal 2020 and first half of the fiscal year that ended October 2, 2021 ("fiscal 2021"), significantly impacting our business and operations.

Demand for school buses strengthened substantially during the second half of fiscal 2021 as COVID-19 vaccines were administered and many jurisdictions began preparing for a return to in-person learning environments for the new school year that began in mid-August to early September 2021. However, during this same period of time, the Company, and automotive industry as a whole, began experiencing significant supply chain constraints resulting from, among others, labor shortages; the lack of maintenance on, and acquisition of, capital assets by suppliers during the extended COVID-19 global lockdowns; significant increased demand for consumer products containing certain materials required for the production of vehicles, such as microchips, as consumers spent stimulus and other funds on items for their homes; etc. These supply chain disruptions had a significant adverse impact on our operations and results during the second half of fiscal 2021 and all of fiscal 2022 due to higher purchasing costs, including freight costs incurred to expedite receipt of critical components, increased manufacturing inefficiencies and our inability to complete the production of buses to fulfill sales orders. Towards the end of fiscal 2022 and continuing into fiscal 2023, there were slight improvements in the supply chain's ability to deliver the parts and components necessary to support our production operations, resulting in increased (i) manufacturing efficiencies and (ii) production of buses to fulfill sales orders during the first half of fiscal 2023. However, the higher costs charged by suppliers to procure inventory continued into the first half of fiscal 2023 and had a

8

significant adverse impact on our operations and results. Specifically, such cost increases outpaced the increases in sales prices that we charged for the buses that were sold during the first quarter of fiscal 2023, many of which were included in the backlog of fixed price sales orders originating in fiscal 2021 and the early months of fiscal 2022 that carried forward into fiscal 2023. During the second quarter of fiscal 2023, the buses that were sold were generally included in the backlog of fixed price sales orders originating more recently (i.e., the latter months of fiscal 2022 and in fiscal 2023), with the cumulative increases in sales prices we charged for those buses generally outpacing the higher costs we paid to procure inventory, resulting in gross profit during the quarter. However, the gross margin on bus sales during the second quarter of fiscal 2023 still lags the historical gross margin reported prior to the COVID-19 pandemic.

Additionally, Russian military forces launched a large-scale invasion of Ukraine on February 24, 2022, which further exacerbated global supply chain disruptions. While the Company has no assets or customers in either of these countries, this military conflict significantly impacted our financial results during the second half of fiscal 2022 and continuing into the first half of fiscal 2023, primarily in an indirect manner since the Company does not sell to customers located in, or source goods directly from, either country. Specifically, it has contributed to increased a) costs charged by suppliers for the purchase of inventory that is at least partially dependent on resources originating from either of the countries and b) freight costs, both of which negatively impacted the gross profit recognized on sales during the second half of fiscal 2022 and continuing into the first half of fiscal 2023.

Significant uncertainty exists concerning the magnitude and duration of the the pandemic and subsequent supply chain constraints and accordingly, precludes any prediction as to the ultimate severity of the adverse impacts on our business, financial condition, results of operations, and liquidity.

Use of Estimates and Assumptions

The preparation of financial statements in accordance with U.S. GAAP requires management to make estimates and assumptions. At the date of the financial statements, these estimates and assumptions affect the reported amounts of assets and liabilities and disclosures of contingent assets and liabilities, and during the reporting period, these estimates and assumptions affect the reported amounts of revenues and expenses. 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 any COVID-19 outbreaks and continued supply chain constraints and their related economic impacts, and their effects cannot be predicted with certainty, and, accordingly, the Company’s accounting estimates require the exercise of judgment. The accounting estimates used in the preparation of the Company’s condensed consolidated financial statements may change as new events occur, as more experience is acquired, as additional information is obtained and as the Company’s operating environment changes. The Company evaluates and updates its assumptions and estimates on an ongoing basis and may employ outside experts to assist in the Company’s evaluations. Actual results could differ from the estimates that the Company has used.

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

The Company’s significant accounting policies are described in the Company’s fiscal 2022 Form 10-K, filed with the SEC on December 12, 2022. 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 1, 2023.

Recently Issued Accounting Standards

ASU 2020-04 On March 12, 2020, the Financial Accounting Standards Board ("FASB") issued Accounting Standards Update ("ASU") 2020-04, Reference Rate Reform (Topic 848): Facilitation of the Effects of Reference Rate Reform on Financial Reporting, providing temporary guidance to ease the potential burden in accounting for reference rate reform primarily resulting from the discontinuation of LIBOR (defined below), which was initially expected to occur on December 31, 2021. 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.

9

ASU 2022-06 On December 21, 2022, the FASB issued ASU 2022-06, Reference Rate Reform (Topic 848): Deferral of the Sunset Date of Topic 848, which defers the sunset date of ASC 848 from December 31, 2022 to December 31, 2024, after which entities will no longer be permitted to apply the relief in ASC 848.

The above amendments are effective for all entities from March 12, 2020 through December 31, 2024. 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.

With the maturity of the interest rate collar on September 30, 2022 and execution of the Fifth Amended Credit Agreement (defined below) on September 2, 2022, which, among other things, changed one of the market interest rate indices that the Company can elect to accrue interest on outstanding borrowings from LIBOR to the Secured Overnight Financing Rate as administered by the Federal Reserve Bank of New York (“SOFR”) and became effective at the end of the applicable interest period for any LIBOR borrowings outstanding on the fifth amendment effective date, the Company no longer has any contracts that reference LIBOR and has no plans to enter such contracts prior to the discontinuation of LIBOR. The change in interest rate indices from LIBOR to SOFR occurred at the end of December 2022 when the LIBOR interest rate on outstanding borrowings on the fifth amendment effective date matured. At that time, the Company adjusted the effective interest rate on outstanding borrowings on a prospective basis, which did not have a material impact on the condensed consolidated financial statements.

3. Supplemental Financial Information

Inventories

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

(in thousands of dollars)	April 1, 2023		October 1, 2022
Raw materials	$	94,589	$	106,070
Work in process	29,479		35,398
Finished goods	5,093		1,509
Total inventories	$	129,161	$	142,977

Restricted Cash

The following table provides a reconciliation of cash, cash equivalents, and restricted cash reported on the applicable Condensed Consolidated Balance Sheets that sum to the total of such amounts reported on the Condensed Consolidated Statements of Cash Flows:

(in thousands of dollars)	April 1, 2023		April 2, 2022
Cash and cash equivalents	$	17,773	$	14,867
Restricted cash	238		—
Total cash, cash equivalents, and restricted cash reported on the Condensed Consolidated Statements of Cash Flows	$	18,011	$	14,867

Amounts included in restricted cash represent those required by a contractual agreement with a financial institution to serve as collateral against outstanding balances pertaining to the Company's corporate credit card program.

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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 1, 2023		April 2, 2022		April 1, 2023		April 2, 2022
Balance at beginning of period	$	15,580	$	17,252	$	15,970	$	18,550
Add current period accruals	2,432		2,051		4,465		3,287
Current period reductions of accrual	(2,458)		(2,318)		(4,881)		(4,852)
Balance at end of period	$	15,554	$	16,985	$	15,554	$	16,985

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 1, 2023		April 2, 2022		April 1, 2023		April 2, 2022
Balance at beginning of period	$	19,290	$	19,088	$	18,795	$	20,144
Add current period deferred income	2,756		1,421		5,092		2,360
Current period recognition of income	(1,965)		(2,095)		(3,806)		(4,090)
Balance at end of period	$	20,081	$	18,414	$	20,081	$	18,414

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 $3.9 million of the outstanding contract liability during the remainder of fiscal 2023, $6.3 million in fiscal 2024, 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 1, 2023		October 1, 2022
Current portion	$	3,585	$	3,996
Long-term portion	1,751		1,794
Total accrued self-insurance	$	5,336	$	5,790

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 $4.2 million and $3.5 million for the three months ended April 1, 2023 and April 2, 2022, respectively, and $8.5 million and $6.9 million for the six months ended April 1, 2023 and April 2, 2022, respectively. The related cost of goods sold was $3.9 million and $3.1 million for the three months ended April 1, 2023 and April 2, 2022, respectively, and $7.7 million and $6.2 million for the six months ended April 1, 2023 and April 2, 2022, respectively.

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Pension Expense

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

	Three Months Ended				Six Months Ended
(in thousands of dollars)	April 1, 2023		April 2, 2022		April 1, 2023		April 2, 2022
Interest cost	$	1,509	$	1,092	$	3,018	$	2,184
Expected return on plan assets	(1,630)		(2,122)		(3,260)		(4,244)
Amortization of prior loss	299		291		598		582
Net periodic benefit expense (income)	$	178	$	(739)	$	356	$	(1,478)
Amortization of prior loss, recognized in other comprehensive income	(299)		(291)		(598)		(582)
Total recognized in net periodic pension benefit expense (income) and other comprehensive income	$	(121)	$	(1,030)	$	(242)	$	(2,060)

4. Debt

On November 21, 2022, BBBC (as "Borrower") executed a sixth amendment to the Credit Agreement, dated as of December 12, 2016 ("Credit Agreement"); as amended by the first amendment to the Credit Agreement, dated as of September 13, 2018 (the "First Amended Credit Agreement"), the second amendment to the Credit Agreement, dated as of May 7, 2020 (the "Second Amended Credit Agreement"), the third amendment to the Credit Agreement, dated as of December 4, 2020 (the "Third Amended Credit Agreement"); the fourth amendment to the Credit Agreement, dated as of November 24, 2021 (the "Fourth Amended Credit Agreement:); the fifth amendment and limited waiver to the Credit Agreement, dated as of September 2, 2022 (the "Fifth Amended Credit Agreement"); and as further amended by the sixth amendment (the "Sixth Amended Credit Agreement" and collectively, the "Amended Credit Agreement"). The Sixth Amended Credit Agreement, among other things, extends the maturity date for both the term loan and revolving credit facilities from September 13, 2023 to December 31, 2024. The total revolving credit facility commitment is reduced to an aggregate principal amount of $90.0 million, of which $80.0 million is available for Borrower to draw, with the remaining $10.0 million subject to written approval from the lenders, which, once obtained, will be irrevocable. There was no change in the term loan facility commitment; however, the Sixth Amended Credit Agreement requires principal repayments approximating $5.0 million on a quarterly basis through September 30, 2024, with the remaining balance due upon maturity. There were $151.6 million of term loan borrowings outstanding on the sixth amendment effective date.

The Sixth Amended Credit Agreement also provides for temporary amendments to certain financial performance covenants during the period from the third amendment effective date, December 4, 2020, through and including April 1, 2023 (the “Amended Limited Availability Period:), which will terminate on the date on which the Company’s Total Net Leverage Ratio ("TNLR"), defined as the ratio of (a) consolidated net debt to (b) consolidated EBITDA, for the two fiscal quarters most recently ended is each less than 4.00x and no default or event of default has occurred and is continuing. However, the Amended Limited Availability Period can re-occur upon a default or event of default or if the TNLR for the immediately preceding fiscal quarter is equal to or greater than 4.00x.

The minimum consolidated EBITDA that the Company is required to maintain during the Amended Limited Availability Period is updated as set forth in the table below (in millions):

Period	Minimum Consolidated EBITDA
Fiscal quarter ending July 1, 2023	$50.0
Fiscal quarter ending September 30, 2023	$60.0

For purposes of complying with the above minimum consolidated EBITDA covenant, the Company’s consolidated EBITDA for the (i) two fiscal quarter period ending July 1, 2023 is multiplied by 2 and (ii) three fiscal quarter period ending September 30, 2023 is multiplied by 4/3.

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The minimum liquidity (in the form of undrawn availability under the revolving credit facility and unrestricted cash and cash equivalents) that the Company is required to maintain at the end of each fiscal month during the Amended Limited Availability Period is amended as set forth in the table below (in millions):

Period	Minimum Liquidity
Sixth amendment effective date through December 30, 2023	$30.0

Additionally, the financial performance covenant requiring that school bus units manufactured by the Company (“Units”) not fall below certain pre-set thresholds on a three month trailing basis (“Units Covenant”) is amended for Units to be calculated at the end of each applicable fiscal month on a cumulative basis, with the minimum cumulative threshold that the Company is required to maintain during the Amended Limited Availability Period amended as set forth in the table below. The Units Covenant is triggered only if the Company’s liquidity for the most-recently ended fiscal month is less than $50.0 million during the Amended Limited Availability Period:

Period	Minimum Units Manufactured
Period from October 2, 2022 and ending October 29, 2022	450
Period from October 2, 2022 and ending November 26, 2022	900
Period from October 2, 2022 and ending December 31, 2022	1,400
Period from October 2, 2022 and ending January 28, 2023	1,900
Period from October 2, 2022 and ending February 25, 2023	2,400
Period from October 2, 2022 and ending April 1, 2023	3,000

The Company is not required to comply with a maximum TNLR financial maintenance covenant for any fiscal quarters from the sixth amendment effective date through September 30, 2023, with the maximum threshold amended thereafter as follows:

Period	Maximum Total  Net Leverage Ratio
Fiscal quarter ending December 30, 2023 through the fiscal quarter ending March 30, 2024	4.00:1.00
Fiscal quarter ending June 29, 2024 and thereafter	3.50:1.00

The pricing grid in the Amended Credit Agreement, which is based on the TNLR, is applicable to both term loan and revolving borrowings and is determined in accordance with the amended pricing matrix set forth below:

Level	Total Net Leverage Ratio	ABR Loans	SOFR Loans
I	Less than 2.00x	0.75%	1.75%
II	Greater than or equal to 2.00x and less than 2.50x	1.00%	2.00%
III	Greater than or equal to 2.50x and less than 3.00x	1.25%	2.25%
IV	Greater than or equal to 3.00x and less than 3.25x	1.50%	2.50%
V	Greater than or equal to 3.25x and less than 3.50x	1.75%	2.75%
VI	Greater than or equal to 3.50x and less than 4.00x	2.00%	3.00%
VII	Greater than or equal to 4.00x and less than 4.50x	2.75%	3.75%
VIII	Greater than or equal to 4.50x and less than 5.00x	3.75%	4.75%
IX	Greater than 5.00x	4.75%	5.75%

Further, the pricing margins for levels VII though IX above are each increased (x) by 0.25% if the aggregate revolving borrowings are equal to or greater than $50.0 million and less than or equal to $80.0 million and (y) by 0.50% if the aggregate revolving borrowings are greater than $80.0 million. On the sixth amendment effective date, the interest rate was set at SOFR plus 5.75% and will be adjusted, as applicable, for future fiscal quarters in accordance with the amended pricing grid set forth above.

Finally, the Company is required to deliver to the administrative agent, on a quarterly basis, a projected consolidated balance sheet and consolidated statements of projected operations and cash flows containing the next four fiscal quarters.

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The Company incurred approximately $3.3 million in lender fees and other issuance costs relating to the sixth amendment. Of such total, approximately $1.2 million and $1.5 million was capitalized within other assets and long-term debt (as a contra-balance), respectively, on the Condensed Consolidated Balance Sheets and will be amortized as an adjustment to interest expense on a straight-line basis and utilizing the effective interest method, respectively, until maturity of the Amended Credit Agreement. The remaining approximate $0.5 million was recorded to loss on debt modification on the Condensed Consolidated Statements of Operations.

Term debt consisted of the following at the dates indicated:

(in thousands of dollars)	April 1, 2023		October 1, 2022
2023 term loan, net of deferred financing costs of $2,148 and $1,410, respectively	$	139,552	$	150,190
Less: current portion of long-term debt	19,800		19,800
Long-term debt, net of current portion	$	119,752	$	130,390

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 1, 2023 and October 1, 2022, $141.7 million and $151.6 million, respectively, were outstanding on the term loans.

At April 1, 2023 and October 1, 2022, the stated interest rates on the term loans were 10.5% and 7.9%, respectively. At April 1, 2023 and October 1, 2022, the weighted-average annual effective interest rates for the term loans were 11.6% and 8.0%, respectively, which includes amortization of the deferred financing costs and interest relating to the interest rate collar, as applicable.

At April 1, 2023, $6.3 million of letters of credit were outstanding, which reduces the availability on the revolving line of credit. There were no in borrowings outstanding on the revolving credit facility; therefore, the Company would have been able to borrow $83.7 million on the revolving line of credit.

Interest expense on all indebtedness was $5.2 million and $2.5 million for the three months ended April 1, 2023 and April 2, 2022, respectively, and $9.4 million and $5.6 million for the six months ended April 1, 2023 and April 2, 2022, respectively.

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

(in thousands of dollars)
Fiscal Year	Principal Payments
2023	$	9,900
2024	19,800
2025	112,000
Total remaining principal payments	$	141,700

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 that are required to be discretely recognized within the current interim period. The effective tax rates in the periods presented are largely based upon the annual forecasted pre-tax earnings mix and allocation of certain expenses in various taxing jurisdictions where the Company conducts its business, primarily in the U.S. In periods where our pre-tax 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.

Three Months

The effective tax rate for the three months ended April 1, 2023 was 20.1%, which aligned with the statutory federal income tax rate of 21% and is comprised of normal tax rate items, including impacts from state taxes and federal and state tax credits (net of valuation allowances), with discrete period items having a nominal impact on the effective rate during the quarter.

The effective tax rate for the three months ended April 2, 2022 was 40.2%, which differed from the statutory federal income tax rate of 21%. The difference is mainly due to normal tax rate items, including impacts from state taxes and federal and state tax credits (net of

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valuation allowances), which were partially offset by discrete period tax expense resulting from net non-deductible compensation expenses and other tax adjustments.

Six Months

The effective tax rate for the six months ended April 1, 2023 was 21.4%, which aligned with the statutory federal tax rate of 21% and is comprised of normal tax rate items, including impacts from state taxes and federal and state tax credits (net of valuation allowances), with discrete period items having a nominal impact on the effective rate during the period.

The effective tax rate for the six months ended April 2, 2022 was 39.2% and differed from the statutory federal income tax rate of 21%. The difference is mainly due to normal tax rate items, including impacts from state taxes and federal and state tax credits (net of valuation allowances), which were partially offset by discrete period tax expense resulting from net non-deductible compensation expenses and other tax adjustments.

6. Guarantees, Commitments and Contingencies

Litigation

At April 1, 2023, 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.

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 U.S., Canada and in certain limited 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 and certain large fleet customers. Management evaluates the segments based primarily upon revenues and gross profit, which are reflected in the tables below for the periods presented:

Net sales
	Three Months Ended				Six Months Ended
(in thousands of dollars)	April 1, 2023		April 2, 2022		April 1, 2023		April 2, 2022
Bus (1)	$	273,472	$	188,484	$	486,721	$	300,921
Parts (1)	26,342		19,175		48,825		35,961
Segment net sales	$	299,814	$	207,659	$	535,546	$	336,882

(1) Parts segment revenue includes $1.3 million and $1.1 million for the three months ended April 1, 2023 and April 2, 2022, respectively, and $2.4 million and $1.9 million for the six months ended April 1, 2023 and April 2, 2022, respectively, related to the inter-segment sale of parts that was eliminated by the Bus segment upon consolidation.

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Gross profit (loss)
	Three Months Ended				Six Months Ended
(in thousands of dollars)	April 1, 2023		April 2, 2022		April 1, 2023		April 2, 2022
Bus	$	23,099	$	(3,984)	$	19,368	$	5,658
Parts	12,550		7,141		23,738		13,696
Segment gross profit	$	35,649	$	3,157	$	43,106	$	19,354

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

	Three Months Ended				Six Months Ended
(in thousands of dollars)	April 1, 2023		April 2, 2022		April 1, 2023		April 2, 2022
Segment gross profit	$	35,649	$	3,157	$	43,106	$	19,354
Adjustments:
Selling, general and administrative expenses	(23,205)		(19,858)		(40,037)		(38,091)
Interest expense	(5,192)		(2,491)		(9,388)		(5,573)
Interest income	12		—		12		—
Other (expense) income, net	(342)		744		(578)		1,480
Loss on debt modification	—		—		(537)		(561)
Income (loss) before income taxes	$	6,922	$	(18,448)	$	(7,422)	$	(23,391)

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 1, 2023		April 2, 2022		April 1, 2023		April 2, 2022
United States	$	264,281	$	194,245	$	468,822	$	294,792
Canada	32,234		12,193		62,755		38,497
Rest of world	3,299		1,221		3,969		3,593
Total net sales	$	299,814	$	207,659	$	535,546	$	336,882

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 1, 2023	April 2, 2022	April 1, 2023	April 2, 2022
Diesel buses	$