UNITED STATES
SECURITIES AND EXCHANGE COMMISSION

Washington D.C. 20549

FORM 10-Q
[X]
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the quarterly period ended January 4, 2020

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)
(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 X No

Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files).
Yes X No     

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

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. o
    
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes No X

At February 7, 2020, 26,839,825 shares of the registrant’s common stock, $0.0001 par value, were outstanding.


BLUE BIRD CORPORATION
FORM 10-Q

TABLE OF CONTENTS

 
 
2
2
2
3
4
5
6
7
12
20
20
21
21
21
    Item 6. Exhibits.
21
23







Special Note Regarding Forward-Looking Statements

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

•
the future financial performance of the Company;
•
changes in the market for Blue Bird products; and
•
expansion plans and opportunities.

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

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

Available Information

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





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)
January 4, 2020
 
September 28, 2019
Assets
 
 
 
Current assets
 
 
 
Cash and cash equivalents
$
7,700

 
$
70,959

Accounts receivable, net
5,918

 
10,537

Inventories
138,627

 
78,830

Other current assets
11,853

 
11,765

Total current assets
$
164,098

 
$
172,091

Property, plant and equipment, net
104,341

 
100,058

Goodwill
18,825

 
18,825

Intangible assets, net
53,948

 
54,720

Equity investment in affiliate
11,275

 
11,106

Deferred tax assets
3,725

 
3,600

Finance lease right-of-use assets
4,439

 
4,638

Other assets
283

 
375

Total assets
$
360,934

 
$
365,413

Liabilities and Stockholders' Deficit
 
 
 
Current liabilities
 
 
 
Accounts payable
$
75,045

 
$
102,266

Warranty
8,475

 
9,161

Accrued expenses
23,904

 
28,697

Deferred warranty income
8,424

 
8,632

Finance lease obligations
724

 
716

Other current liabilities
7,764

 
10,310

Current portion of long-term debt
9,900

 
9,900

Total current liabilities
$
134,236

 
$
169,682

Long-term liabilities
 
 
 
Revolving credit facility
$
35,000

 
$
—

Long-term debt
170,973

 
173,226

Warranty
13,256

 
13,182

Deferred warranty income
14,320

 
15,413

Deferred tax liabilities
271

 
168

Finance lease obligations
3,734

 
3,921

Other liabilities
12,085

 
12,108

Pension
44,915

 
45,524

Total long-term liabilities
$
294,554

 
$
263,542

Guarantees, commitments and contingencies (Note 6)

 

Stockholders' deficit
 
 
 
Preferred stock, $0.0001 par value, 10,000,000 shares authorized, 0 shares issued at January 4, 2020 and September 28, 2019
$
—

 
$
—

Common stock, $0.0001 par value, 100,000,000 shares authorized, 26,511,641 and 26,476,336 shares outstanding at January 4, 2020 and September 28, 2019, respectively
3

 
3

Additional paid-in capital
84,302

 
84,271

Accumulated deficit
(46,052
)
 
(45,649
)
Accumulated other comprehensive loss
(55,827
)
 
(56,154
)
Treasury stock, at cost, 1,782,568 shares at January 4, 2020 and September 28, 2019
(50,282
)
 
(50,282
)
Total stockholders' deficit
$
(67,856
)
 
$
(67,811
)
Total liabilities and stockholders' deficit
$
360,934

 
$
365,413

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
(in thousands of dollars except for share data)
January 4, 2020
 
December 29, 2018
Net sales
$
153,217

 
$
154,926

Cost of goods sold
131,917

 
135,816

Gross profit
$
21,300

 
$
19,110

Operating expenses
 
 
 
Selling, general and administrative expenses
20,495

 
17,273

Operating profit
$
805

 
$
1,837

Interest expense
(1,897
)
 
(2,874
)
Interest income
—

 
9

Other income (expense), net
194

 
(349
)
Loss before income taxes
$
(898
)
 
$
(1,377
)
Income tax benefit
326

 
236

Equity in net income (loss) of non-consolidated affiliate
169

 
(79
)
Net loss
$
(403
)
 
$
(1,220
)
 
 
 
 
Earnings per share:
 
 
 
Basic weighted average shares outstanding
26,481,441

 
26,302,865

Diluted weighted average shares outstanding
26,481,441

 
26,302,865

Basic loss per share
$
(0.02
)
 
$
(0.05
)
Diluted loss per share
$
(0.02
)
 
$
(0.05
)
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
(in thousands of dollars)
January 4, 2020
 
December 29, 2018
Net loss
$
(403
)
 
$
(1,220
)
Other comprehensive income (loss), net of tax
 
 
 
Net change in defined benefit pension plan
327

 
524

Net unrealized loss on cash flow hedges
—

 
(814
)
Total other comprehensive income (loss)
$
327

 
$
(290
)
Comprehensive loss
$
(76
)
 
$
(1,510
)

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)
 
Three Months Ended
(in thousands of dollars)
January 4, 2020
 
December 29, 2018
Cash flows from operating activities
 
 
 
Net loss
$
(403
)
 
$
(1,220
)
Adjustments to reconcile net loss to net cash used in operating activities:
 
 
 
Depreciation and amortization
3,457

 
2,193

Non-cash interest expense
618

 
213

Share-based compensation
1,093

 
852

Equity in net income of affiliate
(169
)
 
79

(Gain) loss on disposal of fixed assets
(121
)
 
30

Deferred taxes
(125
)
 
267

Amortization of deferred actuarial pension losses
430

 
689

Foreign currency hedges
—

 
109

Changes in assets and liabilities:
 
 
 
Accounts receivable
4,619

 
13,793

Inventories
(59,797
)
 
(26,884
)
Other assets
3

 
(4,805
)
Accounts payable
(25,071
)
 
(28,299
)
Accrued expenses, pension and other liabilities
(10,522
)
 
(5,225
)
Total adjustments
$
(85,585
)
 
$
(46,988
)
Total cash used in operating activities
$
(85,988
)
 
$
(48,208
)
Cash flows from investing activities
 
 
 
Cash paid for fixed assets
$
(9,287
)
 
$
(10,787
)
Proceeds from sale of fixed assets
150

 
—

Total cash used in investing activities
$
(9,137
)
 
$
(10,787
)
Cash flows from financing activities
 
 
 
Borrowings under the revolving credit facility
$
35,000

 
$
20,000

Borrowings under the senior term loan
—

 
50,000

Repayments under the senior term loan
(2,475
)
 
(2,475
)
Principal payments on finance leases
(225
)
 
—

Cash paid for employee taxes on vested restricted shares and stock option exercises
(806
)
 
(243
)
Proceeds from exercises of warrants
372

 
620

Tender offer repurchase of common stock and preferred stock
—

 
(50,349
)
Total cash provided by financing activities
$
31,866

 
$
17,553

Change in cash and cash equivalents
(63,259
)
 
(41,442
)
Cash and cash equivalents, beginning of period
70,959

 
60,260

Cash and cash equivalents, end of period
$
7,700

 
$
18,818

 
 
 
 
Supplemental disclosures of cash flow information
 
 
 
Cash paid during the period for:
 
 
 
Interest paid, net of interest received
$
2,235

 
$
2,430

Income tax paid, net of tax refunds
—

 
9

Non-cash investing and financing activities:
 
 
 
Changes in accounts payable for capital additions to property, plant and equipment
$
(2,150
)
 
$
(1,575
)
Employee taxes payable on vested restricted shares and stock option exercises
(572
)
 
—

Cashless exercise of stock options
195

 
—

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

 
8,040

Conversion of preferred stock into common stock
—

 
9,264

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

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, September 28, 2019
26,476,336

 
$
3

 
$
84,271

 
—

 
$
—

 
$
(56,154
)
 
$
(45,649
)
 
1,782,568

 
$
(50,282
)
 
$
(67,811
)
Warrant exercises
32,321

 
—

 
372

 
—

 
—

 
—

 
—

 
—

 
—

 
372

Restricted stock activity
2,915

 
—

 
(1,368
)
 
—

 
—

 
—

 
—

 
—

 
—

 
(1,368
)
Stock option activity
69

 
—

 
(10
)
 
—

 
—

 
—

 
—

 
—

 
—

 
(10
)
Share-based compensation expense
—

 
—

 
1,037

 
—

 
—

 
—

 
—

 
—

 
—

 
1,037

Net loss
—

 
—

 
—

 
—

 
—

 
—

 
(403
)
 
—

 
—

 
(403
)
Other comprehensive income, net of tax
—

 
—

 
—

 
—

 
—

 
327

 
—

 
—

 
—

 
327

Balance, January 4, 2020
26,511,641

 
$
3

 
$
84,302

 
—

 
$
—

 
$
(55,827
)
 
$
(46,052
)
 
1,782,568

 
$
(50,282
)
 
$
(67,856
)
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Balance, September 29, 2018
27,259,262

 
$
3

 
$
70,023

 
93,000

 
$
9,300

 
$
(38,427
)
 
$
(69,235
)
 
—

 
$
—

 
$
(28,336
)
Adoption of new revenue recognition standard (ASC 606) adjustment
—

 
—

 
—

 
—

 
—

 
—

 
(714
)
 
—

 
—

 
(714
)
Warrant exercises
54,435

 
—

 
620

 
—

 
—

 
—

 
—

 
—

 
—

 
620

Restricted stock activity
20,513

 
—

 
(239
)
 
—

 
—

 
—

 
—

 
—

 
—

 
(239
)
Stock option activity
331

 
—

 
(4
)
 
—

 
—

 
—

 
—

 
—

 
—

 
(4
)
Share-based compensation expense
—

 
—

 
821

 
—

 
—

 
—

 
—

 
—

 
—

 
821

Tender offer share repurchases
(1,782,568
)
 
—

 
(52
)
 
(364
)
 
(36
)
 
—

 
—

 
1,782,568

 
(50,261
)
 
(50,349
)
Preferred stock conversion
799,615

 
—

 
9,264

 
(92,636
)
 
(9,264
)
 
—

 
—

 
—

 
—

 
—

Net loss
—

 
—

 
—

 
—

 
—

 
—

 
(1,220
)
 
—

 
—

 
(1,220
)
Other comprehensive loss, net of tax
—

 
—

 
—

 
—

 
—

 
(290
)
 
—

 
—

 
—

 
(290
)
Balance, December 29, 2018
26,351,588

 
$
3

 
$
80,433

 
—

 
$
—

 
$
(38,717
)
 
$
(71,169
)
 
1,782,568

 
$
(50,261
)
 
$
(79,711
)

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 



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


6

BLUE BIRD CORPORATION
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)

1. Nature of Business and Basis of Presentation

Nature of Business

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

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 generally accepted accounting principles 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. In fiscal year 2020, there is a total of 53 weeks. The first quarters of fiscal 2020 and 2019 included 14 weeks and 13 weeks, respectively.

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

The Condensed Consolidated Balance Sheet data as of September 28, 2019 was derived from the Company’s audited financial statements but does not include all disclosures required by generally accepted accounting principles. For additional information, including the Company’s significant accounting policies, refer to the consolidated financial statements and related footnotes for the fiscal year ended September 28, 2019 as set forth in the Company's 2019 Form 10-K filed on December 12, 2019.

Use of Estimates and Assumptions

The preparation of financial statements in accordance with accounting principles generally accepted in the United States of America (“U.S. GAAP”) 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, allowance for doubtful accounts, potential impairment of long-lived assets, goodwill and intangibles, the accounting for self-insurance reserves, warranty reserves, pension obligations, income taxes, environmental liabilities and contingencies. Future events and their effects cannot be predicted with certainty, and, accordingly, the Company’s accounting estimates require the exercise of judgment. The accounting estimates used in the preparation of the Company’s condensed consolidated financial statements may change as new events occur, as more experience is acquired, as additional information is obtained and as the Company’s operating environment changes. The Company evaluates and updates its assumptions and estimates on an ongoing basis and may employ outside experts to assist in the Company’s evaluations. Actual results could differ from the estimates that the Company has used.

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

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


7

Amortization of Deferred Pension Losses

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

Recently Adopted Accounting Standards

ASU 2018-02 – In February 2018, the FASB issued ASU No. 2018-02, Income Statement - Reporting Comprehensive Income (Topic 220). This ASU provides guidance on a reclassification from accumulated other comprehensive income ("AOCI") to retained earnings for the effect of the tax rate change resulting from the Tax Cuts and Jobs Act (H.R.1) (the "Tax Act"). The amendments eliminate the stranded tax effects resulting from the Tax Act and will improve the usefulness of information reported to financial statement users. This ASU is effective for fiscal years, and interim periods within those fiscal years, beginning after December 15, 2018, with early adoption permitted. We adopted this ASU, in the first quarter of fiscal 2020, and did not elect to reclassify the income tax effects of the Tax Act from AOCI to retained earnings. We use a specific identification approach to release the income tax effects in AOCI.

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

Recently Issued Accounting Standards

Other than the adoptions of ASU 2019-12 and ASU 2018-02 noted above, we believe that no new accounting guidance was issued during the three months ended January 4, 2020 that is relevant to our financial statements.

3. Supplemental Financial Information

Inventories

The following table presents the components of inventories at the dates indicated:
(in thousands of dollars)
January 4, 2020
 
September 28, 2019
Raw materials
$
113,186

 
$
60,033

Work in process
23,614

 
16,663

Finished goods
1,827

 
2,134

Total inventories
$
138,627

 
$
78,830


Product Warranties

The following table reflects activity in accrued warranty cost (current and long-term portions combined) for the periods presented:
 
Three Months Ended
(in thousands of dollars)
January 4, 2020
 
December 29, 2018
Balance at beginning of period
$
22,343

 
$
22,646

Add current period accruals
1,501

 
1,590

Current period reductions of accrual
(2,113
)
 
(2,378
)
Balance at end of period
$
21,731

 
$
21,858

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
(in thousands of dollars)
January 4, 2020
 
December 29, 2018
Balance at beginning of period
$
24,045

 
$
23,191

Add current period deferred income
951

 
1,366

Current period recognition of income
(2,252
)
 
(2,025
)
Balance at end of period
$
22,744

 
$
22,532


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 $6.4 million of the outstanding contract liability during the remainder of fiscal 2020, $6.9 million in fiscal 2021, 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)
January 4, 2020
 
September 28, 2019
Current portion
$
3,061

 
$
2,933

Long-term portion
1,844

 
1,775

Total accrued self-insurance
$
4,905

 
$
4,708


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

Shipping and Handling Revenues

Shipping and handling revenues were $3.5 million and $3.3 million for the three months ended January 4, 2020 and December 29, 2018, respectively. The related cost of goods sold was $3.1 million and $3.0 million for the three months ended January 4, 2020 and December 29, 2018, respectively.

Pension Expense

Components of net periodic pension benefit cost were as follows for the periods presented:
 
Three Months Ended
(in thousands of dollars)
January 4, 2020
 
December 29, 2018
Interest cost
$
1,237

 
$
1,512

Expected return on plan assets
(1,846
)
 
(1,905
)
Amortization of prior loss
430

 
689

Net periodic benefit cost
$
(179
)
 
$
296

Amortization of prior loss, recognized in other comprehensive income
430

 
689

Total recognized in net periodic pension benefit cost and other comprehensive income
$
(609
)
 
$
(393
)

Warrants

At January 4, 2020, there were a total of 683,674 warrants outstanding to purchase 341,837 shares of our Common Stock. The warrants expire on February 24, 2020.


8

Derivative Instruments

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

Changes in the interest rate collar fair value are recorded in interest expense as the collar does not qualify for hedge accounting. At January 4, 2020, the fair value of the interest rate collar contract was $(0.8) 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.

4. Debt

Term debt consisted of the following at the dates indicated:
(in thousands of dollars)
January 4, 2020
 
September 28, 2019
2023 term loan, net of deferred financing costs of $2,902 and $3,124, respectively
$
180,873

 
$
183,126

Less: current portion of long-term debt
9,900

 
9,900

Long-term debt, net of current portion
$
170,973

 
$
173,226


Term loans are recognized on the Condensed Consolidated Balance Sheets at the unpaid principal balance, and are not subject to fair value measurement; however, given the variable rates on the loans, the Company estimates that the unpaid principal balance approximates fair value. If measured at fair value in the financial statements, the term loans would be classified as Level 2 in the fair value hierarchy. At January 4, 2020 and September 28, 2019, $183.8 million and $186.3 million, respectively, were outstanding on the term loans.

At January 4, 2020 and September 28, 2019, the stated interest rates on the term loans were 4.0% and 4.4%, respectively. At January 4, 2020 and September 28, 2019, the weighted-average annual effective interest rates for the term loans were 4.5% and 5.0%, respectively, which includes amortization of the deferred financing costs.

At January 4, 2020, $35.0 million in borrowings were outstanding on the Revolving Credit Facility and $6.9 million of Letters of Credit were outstanding; therefore, the Company would have been able to borrow $58.1 million on the revolving line of credit.

Interest expense on all indebtedness was $1.9 million and $2.9 million for the three months ended January 4, 2020 and December 29, 2018, respectively.

The schedule of remaining principal payments through maturity for total debt is as follows:
(in thousands of dollars)
Year
 
Principal Payments
2020
 
$
7,425

2021
 
9,900

2022
 
14,850

2023
 
186,600

Total remaining principal payments
 
$
218,775


5. Income Taxes

Income tax provisions for interim periods are based on estimated annual income tax rates, adjusted to reflect the effects of any significant infrequent or unusual items which are required to be discretely recognized within the current interim period. The effective tax rates in the periods presented are largely based upon the forecast pre-tax earnings mix and allocation of certain expenses in various taxing jurisdictions where the Company conducts its business, primarily the United States.

9


Three Months

The effective tax rate for the three month period ended January 4, 2020 was 36.3%, which differed from the 2019 statutory federal income tax rate of 21%. The difference is mainly due to normal tax rate items, such as federal and state tax credits (net of valuation allowance), which were partially offset by net non-deductible compensation expenses and other tax adjustments.

The effective tax rate for the three month period ended December 29, 2018 was 17.1%, which differed from the statutory federal tax rate of 21%. The difference is mainly due to normal tax rate benefit items, such as federal and state tax credits (net of valuation allowance), which were partially offset by non-deductible share-based compensation expenses and other tax adjustments.

6. Guarantees, Commitments and Contingencies

Litigation

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

Environmental

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

Guarantees

In the ordinary course of business, we may provide guarantees for certain transactions entered into by our dealers. At January 4, 2020, we had a $3.0 million guarantee outstanding which relates to a guarantee of indebtedness for a term loan with remaining maturity up to 3.0 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 January 4, 2020, $0.4 million was included in other current liabilities on our Condensed Consolidated Balance Sheets for the estimated fair value of the guarantee.    

Lease Commitments

We have operating and finance leases for office space, warehouse space, or a combination of both. Our leases have a remaining term of 5.5 to 7.9 years with the option to extend leases for up to five years.

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:


10

Net sales
 
Three Months Ended
(in thousands of dollars)
January 4, 2020
 
December 29, 2018
Bus (1)
$
134,772

 
$
139,210

Parts (1)
18,445

 
15,716

Segment net sales
$
153,217

 
$
154,926

 
(1) Parts segment revenue includes $1.2 million and $0.6 million for the three months ended January 4, 2020 and December 29, 2018, respectively, related to inter-segment sales of parts that were eliminated by the Bus segment upon consolidation.

Gross profit
 
Three Months Ended
(in thousands of dollars)
January 4, 2020
 
December 29, 2018
Bus
$
14,867

 
$
13,515

Parts
6,433

 
5,595

Segment gross profit
$
21,300

 
$
19,110


The following table is a reconciliation of segment gross profit to consolidated loss before income taxes for the periods presented:
 
Three Months Ended
(in thousands of dollars)
January 4, 2020
 
December 29, 2018
Segment gross profit
$
21,300

 
$
19,110

Adjustments:
 
 
 
Selling, general and administrative expenses
(20,495
)
 
(17,273
)
Interest expense
(1,897
)
 
(2,874
)
Interest income
—

 
9

Other income (expense), net
194

 
(349
)
Loss before income taxes
$
(898
)
 
$
(1,377
)

Sales are attributable to geographic areas based on customer location and were as follows for the periods presented:
 
Three Months Ended
(in thousands of dollars)
January 4, 2020
 
December 29, 2018
United States
$
136,266

 
$
151,485

Canada
13,156

 
3,076

Rest of world
3,795

 
365

Total net sales
$
153,217

 
$
154,926


8. Revenue

The following table disaggregates revenue by product category for the periods presented:
 
Three Months Ended
(in thousands of dollars)
January 4, 2020
 
December 29, 2018
Diesel buses
$
76,750

 
$
89,820

Alternative fuel buses (1)
51,734

 
43,081

Other (2)
6,843

 
6,802

Parts
17,890

 
15,223

Net sales
$
153,217

 
$
154,926

 
(1) Includes buses sold with any fuel source other than diesel (e.g. gasoline, propane, CNG, electric).
(2) Includes shipping and handling revenue, extended warranty income, surcharges, chassis, and bus shell sales.


11

9. Earnings Per Share

The following table presents the earnings per share computation for the periods presented:
 
Three Months Ended
(in thousands except for share data)
January 4, 2020
 
December 29, 2018
Numerator:
 
 
 
Net loss
$
(403
)
 
$
(1,220
)
 
 
 
 
Denominator:
 
 
 
Weighted-average common shares outstanding
26,481,441

 
26,302,865

Effect of dilutive securities (1)
—

 
—

Weighted-average shares and dilutive potential common shares
26,481,441

 
26,302,865

 
 
 
 
Earnings per share:
 
 
 
Basic loss per share
$
(0.02
)
 
$
(0.05
)
Diluted loss per share
$
(0.02
)
 
$
(0.05
)
 
(1) Potentially dilutive securities representing 1.3 million and 1.5 million shares of common stock were excluded from the computation of diluted earnings per share for the three months ended January 4, 2020 and December 29, 2018, respectively, because their effect would have been antidilutive.

10. Accumulated Other Comprehensive Loss

The following table provides information on changes in accumulated other comprehensive loss for the periods presented:
 
 
Three Months Ended
(in thousands of dollars)
 
Defined Benefit Pension Plan
 
Cash Flow Hedges (Effective Portion)
 
Total
January 4, 2020
 
 
 
 
 
 
Beginning Balance
 
$
(56,154
)
 
$
—

 
$
(56,154
)
Amounts reclassified from other comprehensive loss and included in earnings
 
430

 
—

 
430

Total other comprehensive income, before taxes
 
430

 
—

 
430

Income tax expense
 
(103
)
 
—

 
(103
)
Ending Balance January 4, 2020
 
$
(55,827
)
 
$
—

 
$
(55,827
)
 
 
 
 
 
 
 
December 29, 2018
 
 
 
 
 
 
Beginning Balance
 
$
(38,427
)
 
$
—

 
$
(38,427
)
Other comprehensive income, gross
 
—

 
(1,130
)
 
(1,130
)
Amounts reclassified from other comprehensive loss and included in earnings
 
689

 
59

 
748

Total other comprehensive income (loss), before taxes
 
689

 
(1,071
)
 
(382
)
Income tax (expense) benefit
 
(165
)
 
257

 
92

Ending Balance December 29, 2018
 
$
(37,903
)
 
$
(814
)
 
$
(38,717
)

Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations.

The following discussion and analysis of financial condition and results of operations of the Company should be read in conjunction with the Company’s unaudited financial statements for the three months ended January 4, 2020 and December 29, 2018 and related notes appearing in Part I, Item 1 of this Report. Our actual results may not be indicative of future performance. This discussion and analysis contains forward-looking statements and involves numerous risks and uncertainties, including, but not limited to, those discussed or incorporated by reference in the sections of this Report titled “Special Note Regarding Forward-Looking Statements” and “Risk Factors”. Actual results may differ materially from those contained in any forward-looking statements. Certain monetary amounts, percentages and other figures included in this Report have been subject to rounding adjustments. Accordingly, figures shown as totals in certain tables may not be the arithmetic aggregation of the figures that precede them, and figures expressed as percentages in the text may not total 100% or, as applicable, when aggregated, may not be the arithmetic aggregation of the percentages that precede them.

We refer to the fiscal year ended September 28, 2019 as “fiscal 2019”. We refer to the quarter ended January 4, 2020 as the “first quarter of fiscal 2020” and we refer to the quarter ended December 29, 2018 as the “first quarter of fiscal 2019”. There were 14 weeks in the first quarter of fiscal 2020, and 13 weeks in the first quarter of fiscal 2019.

Executive Overview

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

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

Critical Accounting Policies and Estimates, Recent Accounting Pronouncements

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

The Company’s accounting policies that we believe are the most critical to aid in fully understanding and evaluating our reported financial results are described in the Company’s 2019 Form 10-K, filed with the SEC on December 12, 2019 under the caption “ Management’s Discussion and Analysis of Financial Condition and Results of Operations – Critical Accounting Policies and Estimates,” which description is incorporated herein by reference. Our senior management has reviewed these critical accounting policies and related disclosures and determined that there were no significant changes in our critical accounting policies during the three months ended January 4, 2020, except as follows:

Amortization of Deferred Pension Losses

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


12

Recent Accounting Pronouncements

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

Factors Affecting Our Revenues

Our revenues are driven primarily by the following factors:

•
Property tax revenues. Property tax revenues are one of the major sources of funding for school districts, and therefore new school buses. Property tax revenues are a function of land and building prices, relying on assessments of property value by state or county assessors and millage rates voted by the local electorate.
•
Student enrollment. Increases or decreases in the number of school bus riders have a direct impact on school district demand.
•
Revenue mix. We are able to charge more for certain of our products (e.g., Type C propane-powered school buses, Type D buses, and buses with higher option content) than other products. The mix of products sold in any fiscal period can directly impact our revenues for the period.
•
Strength of the dealer network. We rely on our dealers, as well as a small number of major fleet operators, to be the direct point of contact with school districts and their purchasing agents. An effective dealer is capable of expanding revenues within a given school district by matching that district’s needs to our capabilities, offering options that would not otherwise be provided to the district.
•
Pricing. Our products are sold to school districts throughout the United States and Canada. Each state and each Canadian province has its own set of regulations that governs the purchase of products, including school buses, by their school districts. We and our dealers must navigate these regulations, purchasing procedures, and the districts’ specifications in order to reach mutually acceptable price terms. Pricing may or may not be favorable to us, depending upon a number of factors impacting purchasing decisions.
•
Buying patterns of major fleets. Major fleets regularly compete against one another for existing accounts. Fleets are also continuously trying to win the business of school districts that operate their own transportation services. These activities can have either a positive or negative impact on our sales, depending on the brand preference of the fleet that wins the business. Major fleets also periodically review their fleet sizes and replacement patterns due to funding availability as well as the profitability of existing routes. These actions can impact total purchases by fleets in a given year.
•
Seasonality. Our sales are subject to seasonal variation based on the school calendar. The peak season has historically been during our third and fourth fiscal quarters. Sales during the third and fourth fiscal quarters are typically greater than the first and second fiscal quarters due to the desire of municipalities to have any new buses that they order available to them at the beginning of the new school year. There are, however, variations in the seasonal demands from year to year depending in large part upon municipal budgets, distinct replacement cycles, and student enrollment. The seasonality and annual variations of seasonality could impact the ability to compare results between fiscal periods.

Factors Affecting Our Expenses and Other Items

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

•
Cost of goods sold. The components of our cost of goods sold consist of material costs (principally powertrain components, steel and rubber, as well as aluminum and copper), labor expense, and overhead. Our cost of goods sold may vary from period to period due to changes in sales volume, efforts by certain suppliers to pass through the economics associated with key commodities, design changes with respect to specific components, design changes with respect to specific bus models, wage increases for plant labor, productivity of plant labor, delays in receiving materials and other logistical problems, and the impact of overhead items such as utilities.
•
Selling, general and administrative expenses. Our selling, general and administrative expenses include costs associated with our selling and marketing efforts, engineering, centralized finance, human resources, purchasing, information technology services, along with other administrative matters and functions. In most instances, other than direct costs associated with sales and marketing programs, the principal component of these costs is salary expense. Changes from period to period are typically driven by the number of our employees, as well as by merit increases provided to experienced personnel.


13

•
Interest expense. Our interest expense relates to costs associated with our debt instruments and reflects both the amount of indebtedness and the interest rate that we are required to pay on our debt. Interest expense also includes unrealized gains or losses from interest rate hedges, if any, as well as expenses related to debt guarantees, if any.
•
Income taxes. We make estimates of the amounts to recognize for income taxes in each tax jurisdiction in which we operate. In addition, provisions are established for withholding taxes related to the transfer of cash between jurisdictions and for uncertain tax positions taken.
•
Other income (expense), net. This includes periodic pension expense as well as gains or losses on foreign currency, if any. Other immaterial amounts not associated with operating expenses may also be included here.
•
Equity in net income (loss) of non-consolidated affiliate. We include in this line item our 50% share of net income or loss from our investment in Micro Bird, our unconsolidated Canadian joint venture.

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

This filing includes the following non-GAAP financial measures: “Adjusted EBITDA”, “Adjusted EBITDA Margin”, and “Free Cash Flow.” Management views these metrics as a useful way to look at the performance of our operations between periods and to exclude decisions on capital investment and financing that might otherwise impact the review of profitability of the business based on present market conditions.

Adjusted EBITDA is defined as net income prior to interest income, interest expense including the component of lease expense (which is presented as a single operating expense in selling, general and administrative expenses in our GAAP financial statements) that represents interest expense on lease liabilities, income taxes, depreciation and amortization including the component of lease expense (which is presented as a single operating expense in selling, general and administrative expenses in our GAAP financial statements) that represents amortization charges on right-of-use lease assets, and disposals, as adjusted to add back certain charges that we may record each year, such as stock-compensation expense, as well as non-recurring charges such as (i) significant product design changes; (ii) transaction related costs; or (iii) discrete expenses related to major cost cutting initiatives. We believe these expenses and non-recurring charges are not considered an indicator of ongoing company performance. We define Adjusted EBITDA margin as Adjusted EBITDA as a percentage of net sales. Adjusted EBITDA and Adjusted EBITDA margin are not measures of performance defined in accordance with GAAP. The measures are used as a supplement to GAAP results in evaluating certain aspects of our business, as described below.

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

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

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

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

We define free cash flow as total cash provided by/used in operating activities minus cash paid for fixed assets and acquired intangible assets. We use free cash flow, and ratios based on the free cash flow, to conduct and evaluate our business because, although it is similar to cash flow from operations, we believe it is a more conservative measure of cash flow since purchases of fixed assets and intangible assets are a necessary component of ongoing operations. In limited circumstances in which proceeds from sales of fixed or intangible

14

assets exceed purchases, free cash flow would exceed cash flow from operations. However, since we do not anticipate being a net seller of fixed or intangible assets, we expect free cash flow to be less than operating cash flows.

Our Segments

We manage our business in two operating segments, which are also our reportable segments: (i) the Bus segment, which involves the design, engineering, manufacture and sales of school buses and extended warranties; and (ii) the Parts segment, which includes the sales of replacement bus parts. Financial information is reported on the basis that it is used internally by the chief operating decision maker (“CODM”) in evaluating segment performance and deciding how to allocate resources to segments. The President and Chief Executive Officer of the Company has been identified as the CODM. Management evaluates the segments based primarily upon revenues and gross profit.


15

Consolidated Results of Operations for the Three Months Ended January 4, 2020 and December 29, 2018:
 
 
Three Months Ended
(in thousands of dollars)
 
January 4, 2020
 
December 29, 2018
Net sales
 
$
153,217

 
$
154,926

Cost of goods sold
 
131,917

 
135,816

Gross profit
 
$
21,300

 
$
19,110

Operating expenses
 
 
 
 
Selling, general and administrative expenses
 
20,495

 
17,273

Operating profit
 
$
805

 
$
1,837

Interest expense
 
(1,897
)
 
(2,874
)
Interest income
 
—

 
9

Other income (expense), net
 
194

 
(349
)
Loss before income taxes
 
$
(898
)
 
$
(1,377
)
Income tax benefit
 
326

 
236

Equity in net income (loss) of non-consolidated affiliate
 
169

 
(79
)
Net loss
 
$
(403
)
 
$
(1,220
)
Other financial data:
 
 
 
 
Adjusted EBITDA
 
$
8,025

 
$
7,216

Adjusted EBITDA margin
 
5.2
%
 
4.7
%

The following provides the results of operations of Blue Bird’s two reportable segments:
(in thousands of dollars)
 
Three Months Ended
Net Sales by Segment
 
January 4, 2020
 
December 29, 2018
Bus
 
$
134,772

 
$
139,210

Parts
 
18,445

 
15,716

Total
 
$
153,217

 
$
154,926

 
 
 
 
 
Gross Profit by Segment
 
 
 
 
Bus
 
$
14,867

 
$
13,515

Parts
 
6,433

 
5,595

Total
 
$
21,300

 
$
19,110


Net sales. Net sales were $153.2 million for the first quarter of fiscal 2020, a decrease of $1.7 million, or 1.1%, compared to $154.9 million for the first quarter of fiscal 2019.

Bus sales decreased $4.4 million, or 3.2%, reflecting a decrease in units booked and higher sales prices per unit. Bus volumes were impacted by the timing of orders and customer delivery requirements. In the first quarter of fiscal 2020, 1,460 units were booked compared to 1,600 units booked for the same period in fiscal 2019. The 6.1% increase in unit price for the first quarter of fiscal 2020 compared to the same period in fiscal 2019 mainly reflects pricing actions taken to partially offset commodity costs, as well as product and customer mix changes.

Parts sales increased $2.7 million, or 17.4%, for the first quarter of fiscal 2020 compared to the first quarter of fiscal 2019, as we had higher sales volumes, due in part to the extra week in the first quarter of fiscal 2020 compared to fiscal 2019.

Cost of goods sold. Total cost of goods sold was $131.9 million for the first quarter of fiscal 2020, a decrease of $3.9 million, or 2.9%, compared to $135.8 million for the first quarter of fiscal 2019. As a percentage of net sales, total cost of goods sold improved from 87.7% to 86.1%.


16

Bus segment cost of goods sold decreased $5.8 million, or 4.6%, for the first quarter of fiscal 2020 compared to the same period in fiscal 2019. The average cost of goods sold per unit for the first quarter of fiscal 2020 was 4.5% higher compared to the first quarter of fiscal 2019 due to raw material price increases related to rising commodity costs and tariffs, which were partially offset by cost savings resulting from our operational improvement initiatives.

The $1.9 million, or 18.7%, increase in parts segment cost of goods sold for the first quarter of fiscal 2020 compared to the first quarter of fiscal 2019 was attributed to higher sales volumes and a change in product mix.

Operating profit. Operating profit was $0.8 million for the first quarter of fiscal 2020, a decrease of $1.0 million, compared to operating profit of $1.8 million for the first quarter of fiscal 2019. Profitability was negatively impacted by an increase of $3.2 million in selling, general and administrative expenses, which was partially offset by an increase of $2.2 million in gross profit.

Interest expense. Interest expense was $1.9 million for the first quarter of fiscal 2020, a decrease of $1.0 million, or 34.0%, compared to $2.9 million for the first quarter of fiscal 2019. The decrease was primarily attributed to changes in the interest rate collar fair value recorded in interest expense.

Income taxes. We recorded an income tax benefit of $0.3 million for the first quarter of fiscal 2020, compared to an income tax benefit of $0.2 million for the same period in fiscal 2019.

The effective tax rate for the three month period ended January 4, 2020 was 36.3%, which differed from the 2019 statutory federal income tax rate of 21%. The difference is mainly due to normal tax rate items, such as federal and state tax credits (net of valuation allowance), which were partially offset by net non-deductible compensation expenses and other tax adjustments.

The effective tax rate for the three month period ended December 29, 2018 was 17.1%, which differed from the statutory federal tax rate of 21%. The difference is mainly due to normal tax rate benefit items, such as federal and state tax credits (net of valuation allowance), which were partially offset by non-deductible share-based compensation expenses and other tax adjustments.

Adjusted EBITDA. Adjusted EBITDA was $8.0 million, or 5.2% of net sales, for the first quarter of fiscal 2020, an increase of $0.8 million, or 11.2%, compared to $7.2 million, or 4.7% of net sales, for the first quarter of fiscal 2019. The increase in Adjusted EBITDA is primarily the result of an increase of $2.2 million in gross profit, which was partially offset by higher adjusted selling, general and administrative expenses.

The following table sets forth a reconciliation of net loss to adjusted EBITDA for the periods presented:
 
Three Months Ended
(in thousands of dollars)
January 4, 2020
 
December 29, 2018
Net loss
$
(403
)
 
$
(1,220
)
Adjustments:
 
 
 
Interest expense, net (1)
1,993

 
2,968

Income tax benefit
(326
)
 
(236
)
Depreciation, amortization, and disposals (2)
3,538

 
2,407

Operational transformation initiatives
1,114

 
244

Foreign currency hedges
—

 
109

Share-based compensation
1,093

 
852

Product redesign initiatives
1,010

 
2,149

Other
6

 
(57
)
Adjusted EBITDA
$
8,025

 
$
7,216

Adjusted EBITDA margin (percentage of net sales)
5.2
%
 
4.7
%
 
(1) Includes $0.1 million for both fiscal periods, representing interest expense on lease liabilities, which are a component of lease expense and presented as a single operating expense in selling, general and administrative expenses on our Condensed Consolidated Statements of Operations.
(2) Includes $0.2 million for both fiscal periods, representing amortization charges on right-of-use lease assets, which are a component of lease expense and presented as a single operating expense in selling, general and administrative expenses on our Condensed Consolidated Statements of Operations.

17

Liquidity and Capital Resources

The Company’s primary sources of liquidity are cash generated from its operations, available cash and cash equivalents and borrowings under its credit facility. At January 4, 2020, the Company had $7.7 million of available cash (net of outstanding checks) and $58.1 million of additional borrowings available under the revolving line of credit portion of its secured credit facility. The Company’s revolving line of credit is available for working capital requirements, capital expenditures and other general corporate purposes.

Detailed descriptions of the Company’s original Credit Agreement dated December 12, 2016 and its Amended Credit Agreement dated September 13, 2018 are set forth under “Management’s Discussion and Analysis of Financial Condition and Results of Operations - Liquidity and Capital Resources” contained in the Company’s Annual Report on Form 10-K for the fiscal year ended September 28, 2019, filed with the Securities and Exchange Commission on December 12, 2019.

At January 4, 2020, the Borrower (as defined, Blue Bird Body Company, a subsidiary of the Company) and the guarantors under the Amended Credit Agreement were in compliance with all covenants.

Short-Term and Long-Term Liquidity Requirements

Our ability to make principal and interest payments on borrowings under the Credit Facilities and our ability to fund planned capital expenditures will depend on our ability to generate cash in the future, which, to a certain extent, is subject to general economic, financial, competitive, regulatory and other conditions. Based on the current level of operations, we believe that our existing cash balances and expected cash flows from operations will be sufficient to meet our operating requirements for at least the next 12 months.

Seasonality

Our business is highly seasonal. Most school districts seek to buy their new school buses so that they will be available for use on the first day of the school year, typically in mid-August to early September. As a result, our two busiest quarters are our third and fourth fiscal quarters, the latter ending on the Saturday closest to September 30. Our quarterly results of operations, cash flows, and liquidity are likely to be impacted by these seasonal patterns. For example, our revenues are typically highest in our third and fourth fiscal quarters. There are, however, variations in the seasonal demands from year to year depending, in part, on large direct sales to major fleet customers for which short-term trade credit is generally offered. Working capital, on the other hand, is typically a significant use of cash during the first fiscal quarter and a significant source of cash generation in the fourth fiscal quarter. We typically conduct planned shutdowns during our first fiscal quarter.

Cash Flows

The following table sets forth general information derived from our Condensed Consolidated Statements of Cash Flows:
 
Three Months Ended
(in thousands of dollars)
January 4, 2020
 
December 29, 2018
Cash and cash equivalents at beginning of period
$
70,959

 
$
60,260

Total cash used in operating activities
(85,988
)
 
(48,208
)
Total cash used in investing activities
(9,137
)
 
(10,787
)
Total cash provided by financing activities
31,866

 
17,553

Change in cash and cash equivalents
$
(63,259
)
 
$
(41,442
)
Cash and cash equivalents at end of period
$
7,700

 
$
18,818


Total cash used in operating activities

Cash flows used in operating activities totaled $86.0 million for the three months ended January 4, 2020, as compared to $48.2 million of cash flows used in operating activities for the three months ended December 29, 2018. The $37.8 million increase in cash used was primarily attributed to an inventory increase compared to prior year's inventory change totaling $32.9 million, a decrease in the impact of changes in accounts receivable totaling $9.2 million, non-cash components of net income totaling $0.8 million, and lower net income of $0.8 million. The increase in cash used was partially offset by a decrease in the impact of changes in accounts payable of $3.2 million between years.


18

Total cash used in investing activities

Cash flows used in investing activities totaled $9.1 million for the three months ended January 4, 2020, as compared to $10.8 million of cash flows used in investing activities for the three months ended December 29, 2018. The $1.7 million decrease was due to a reduction of spending on manufacturing assets as the new paint facility was completed in fiscal 2019.

Total cash provided by financing activities

Cash flows provided by financing activities totaled $31.9 million for the three months ended January 4, 2020, as compared to $17.6 million of cash flows provided by financing activities for the three months ended December 29, 2018. The $14.3 million increase was primarily attributed to a $15.0 million increase in borrowings under the revolving credit facility compared to the first quarter of fiscal 2019.

Free cash flow

Management believes the non-GAAP measurement of free cash flow, defined as net cash used in operating activities less cash paid for fixed assets, fairly represents the Company’s ability to generate surplus cash that could fund activities not in the ordinary course of business. See “Key Non-GAAP Measures We Use to Evaluate Our Performance”. The following table sets forth the calculation of free cash flow for the periods presented:
 
Three Months Ended
(in thousands of dollars)
January 4, 2020
 
December 29, 2018
Net cash used in operating activities
$
(85,988
)
 
$
(48,208
)
Cash paid for fixed assets
(9,287
)
 
(10,787
)
Free cash flow
$
(95,275
)
 
$
(58,995
)

Free cash flow for the three months ended January 4, 2020 was $36.3 million lower than the three months ended December 29, 2018, due to, as discussed above, a decrease of $1.5 million in cash paid for fixed assets and a $37.8 million increase in cash used in operating activities.

Off-Balance Sheet Arrangements

We had outstanding letters of credit totaling $6.9 million at January 4, 2020, the majority of which secure our self-insured workers compensation program, the collateral for which is regulated by the State of Georgia.

At January 4, 2020, there were 0.3 million shares of common stock issuable upon exercise of outstanding warrants. The warrants expire on February 24, 2020.

We had a $3.0 million guarantee outstanding at January 4, 2020 which relates to a guarantee of indebtedness for a term loan with a remaining maturity up to 3.0 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.


19


Item 3. Quantitative and Qualitative Disclosures About Market Risk

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

Item 4. Controls and Procedures.

Evaluation of Disclosure Controls and Procedures

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

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

Changes in Internal Control over Financial Reporting
There have been no changes in our internal control over financial reporting that occurred during the fiscal quarter ended January 4, 2020 that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.







20

PART II – OTHER INFORMATION

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

Item 1. Legal Proceedings.

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

Item 1A. Risk Factors.

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

Item 6. Exhibits.
        
The following Exhibits are filed with this Report:

Exhibit No.    Description                                                

3.1

3.2

10.1*††

10.2*††

10.3*††

31.1*

31.2*

32.1*

101.INS*^
XBRL Instance Document.

101.SCH*^
XBRL Taxonomy Extension Schema Document.

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

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

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

101.PRE*^
XBRL Taxonomy Extension Presentation Linkbase Document.
 
*
Filed herewith.

21

††
Management contract or compensatory plan or arrangement.

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





22

SIGNATURES

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



 
Blue Bird Corporation
 
 
 
 
 
 
Dated:
February 13, 2020
 /s/ Philip Horlock
 
 
Philip Horlock
 
 
Chief Executive Officer
 
 
 
Dated:
February 13, 2020
 /s/ Phillip Tighe
 
 
Phillip Tighe
 
 
Chief Financial Officer

                                


23
Exhibit 10.1




SEVERANCE AGREEMENT


THIS SEVERANCE AGREEMENT (this "Agreement") is made and entered into as of this 10th day of May, 2012, by and between Blue Bird Corporation (the "Company") and Charles Jenkins III (the "Employee") (the "Company" and the "Employee," collectively, the "Parties," each a "Party").

WHEREAS, the Employee is employed by the Company as Vice President Purchasing; and

WHEREAS, the Parties wish to set forth the terms and conditions of any future termination of the Employee's employment with the Company;

NOW, THEREFORE, in consideration of the mutual promises contained herein, the receipt and sufficiency of which are hereby acknowledged, the Parties agree as follows:

1. Effective Date; Term. This Agreement shall be effective as of the date hereof and shall
remain effective until the end of the Severance Period (the "Term").
    
2. Eligibility for Severance Benefits. The Employee shall receive the benefits provided for in
Section 3 herein ("Severance Benefits") provided that:

a. the Employee's employment with the Company is terminated by the Company without Cause (as defined below) a "Qualifying Termination"; and

b. the Employee has complied and continues to comply with the restrictions and obligations set forth in Section 7 herein; and
    
c. the Employee signs, and does not revoke, a valid general release of all
claims against the Company and its parents, subsidiaries, Affiliates (as defined in Section 7(a) herein), successors and assigns, and all such entities' respective current and former directors, officers, shareholders, members, partners, employees and agents in a form reasonably acceptable to the Company (the "Release"); and

d. the Employee has not breached any of the provisions of the Release or
any provisions of this Agreement, as determined by the Company.

e. the Employee has not entered into a subsequent employment relationship. It is required that the Employee advise the Company in the event during the Severance period if they have accepted and the date that they began other employment. The paid severance will terminate at this point.

For the purposes of this Agreement, "Cause" means, as determined by the Company, (i) conviction of or plea of nolo contendere to a felony by the Employee; (ii) acts of dishonesty by the Employee resulting or intending to result in personal gain or enrichment at the expense of the Company or its parents, subsidiaries or Affiliates; (iii) the Employee's material breach of any agreement between the Company and the Employee or other Company policies as may be in effect from time to time, as amended from time to time; (iv) conduct by the Employee in connection with his or her duties that is fraudulent, unlawful or grossly negligent, including, but not limited to, acts of discrimination; (v) engaging in personal conduct by the Employee (including but not limited to employee harassment or discrimination, the use or possession at work of any illegal controlled substance) which seriously discredits or damages the Company or its parents, subsidiaries or Affiliates; (vi) continuing failure by the Employee to adequately perform his or her duties or continuing inattention to such duties; or (vii) breach of the Employee's restrictions and obligations set forth in Section 7 herein before the Termination Date.



Exhibit 10.1


3. Severance Benefits. In the event of a Qualifying Termination in which the Employee satisfies the conditions set forth in Section 2, the Employee shall receive as of the effective date of the termination of the Employee's employment with the Company (the "Termination Date") the following Severance Benefits:

a. Continued payment of Base Salary as in effect on the Termination Date
for a period of six (6) months after the Termination Date (the "Severance Period") (such continued payments, "Severance Payments"); and

b. reimbursement of the cost of continuation coverage of group health
coverage pursuant to the Consolidated Omnibus Budget Reconciliation Act of 1986 ("COBRA") from the Termination Date until the earlier of (i) the last day of the Severance Period, or (ii) the date the Employee becomes eligible for group health benefits under a plan, policy or program of a subsequent employer, or (iii) the end of the Employee's eligibility period under COBRA; provided that the Employee is eligible for and elects such continuation coverage, and subject to the terms of the plan and applicable law. During any remaining period of continuation coverage, the Employee shall be responsible for the entire cost of such continuation coverage.

No other amounts (including, without limitation, any unpaid bonuses or amounts under any other severance plan, policy or arrangement) or benefits shall be payable or owed to the Employee upon or after the Termination Date, unless otherwise provided for under this Agreement or as otherwise may be required by law.

4. Payment of Severance Benefits. Severance Payments shall be made to the
Employee in six (6) equal monthly installments, commencing on the first day of the month following the effective date of the Release. Notwithstanding the foregoing, the Employee shall not be entitled to any Severance Benefits upon or after the Termination Date if the Employee has breached any of the covenants contained in Section 7. If the Company determines that the Employee has breached any of the provisions of the Release or any provisions of this Agreement after the Termination Date, in addition to any other remedies it may have, the Company shall not be liable to the Employee for any Severance Benefits that remain to be paid or provided to the Employee as of the date of the Company's determination that the Employee has breached any such provision. Furthermore, the Employee will immediately return to the Company any such Severance Benefits previously received under this Agreement upon such a breach, and, in the event of such breach, the Company will have no obligation to pay any Severance Benefits that otherwise remain payable.

5. Other Compensation and Benefits. In addition to any amounts received by the
Employee pursuant to Section 3, upon termination of the Employee's employment with the Company the Employee shall also be entitled to: (i) the Employee's accrued but unpaid Base Salary to the Termination Date and any employee benefits the Employee may be entitled to pursuant to the employee benefit plans of the Company; (ii) the unpaid portion of any bonus, if any, relating to the calendar year prior to the calendar year of the Employee's termination of employment, payable on the earlier of (x) thirty days after the approval by the Board of the consolidated financial statements of the Company, and (y) the date on which the Company pays annual bonuses to other similarly situated employees of the Company; (iii) reimbursement for all appropriate business expenses incurred by the Employee in connection with his or her employment by the Company in accordance with the policies of the Company as in effect from time to time that are incurred but not yet reimbursed to the Employee through the Termination Date; and (iv) in the event of a Qualifying Termination, payment for accrued unused vacation days, payable in accordance with Company policy.

6. Tax Withholding. The Company is authorized to withhold from any benefit provided or payment due hereunder, the amount of withholding taxes due under any federal, state or local authority in respect of such benefit or payment and to take such other action as may be necessary in the opinion of the Board to satisfy all obligations for the payment of such withholding taxes.



Exhibit 10.1


7. Restrictions and Obligations of the Employee.

a.
Confidentiality.

i. During the course of the Employee's employment by the Company, the Employee has had and will have access to certain trade secrets and confidential information relating to the Company, its parents and/or subsidiaries and/or the Affiliates (as defined below) of the Company, its parents and/or subsidiaries (the "Protected Parties") which is not readily available from sources outside the Company. For purposes of this Agreement, "Affiliate" means, any entity directly or indirectly controlling, controlled by or under common control with the Company and/or its parents and/or subsidiaries, respectively. The confidential and proprietary information and, in any material respect, trade secrets of the Protected Parties are among their most valuable assets, including but not limited to, their customer, supplier and vendor lists, databases, competitive strategies, computer programs, frameworks, or models, their marketing programs, their sales, financial, marketing, training and technical information, their product development (and proprietary product data) and any other information, whether communicated orally, electronically, in writing or in other tangible forms concerning how the Protected Parties create, develop, acquire or maintain their products and, marketing plans, target their potential customers and operate their retail and other businesses. The Protected Parties invested, and continue to invest, considerable amounts of time and money in their process, technology, know-how, obtaining and developing the goodwill of their customers, their other external relationships, their data systems and data bases, and all the information described above (hereinafter collectively referred to as "Confidential Information"), and any misappropriation or unauthorized disclosure of Confidential Information in any form would irreparably harm the Protected Parties. The Employee acknowledges that such Confidential Information constitutes valuable, highly confidential, special and unique property of the Protected Parties. The Employee shall hold in a fiduciary capacity for the benefit of the Protected Parties all Confidential Information relating to the Protected Parties and their businesses, which shall have been obtained by the Employee during the Employee's employment by the Company and which shall not be or become public knowledge (other than by acts by the Employee or representatives of the Employee in violation of this Agreement). Except as required by law or an order of a court or governmental agency with jurisdiction, the Employee shall not, during the period the Employee is employed by the Company or at any time thereafter, disclose any Confidential information, directly or indirectly, to any person or entity for any reason or purpose whatsoever, nor shall the Employee use it in any way, except in the course of the Employee's employment with the Company and for the benefit of the Protected Parties or to enforce any rights or defend any claims hereunder or under any other agreement to which the Employee is a party, provided that such disclosure is relevant to the enforcement of such rights or defense of such claims and is only disclosed in the formal proceedings related thereto. The Employee shall take all reasonable steps to safeguard the Confidential information and to protect it against disclosure, misuse, espionage, loss and theft. The Employee understands and agrees that the Employee shall acquire no rights to any such Confidential information.

ii. All files, records, documents, drawings, specifications, data, computer programs, evaluation mechanisms and analytics and similar items relating thereto or to the Protected Parties' businesses, as well as all customer lists, specific customer information, compilations of product research and marketing techniques of the Protected Parties, whether prepared by the Employee or otherwise coming into the Employee's possession, shall remain the exclusive property of the Protected Parties, and the Employee shall not remove any such items from the premises of the Protected Parties, except in furtherance of the Employee's duties.

iii. It is understood that while employed by the Company the Employee will promptly disclose to it, and assign to it the Employee's interest in any invention, improvement or discovery made or conceived by the Employee, either alone or


Exhibit 10.1


jointly with others, which arises out of the Employee's employment. At the Company's request and expense, the Employee will assist the Protected Parties during the period of the Employee's employment by the Company and thereafter in connection with any controversy or legal proceeding relating to such invention, improvement or discovery and in obtaining domestic and foreign patent or other protection covering the same.

iv. As requested by the Company and at the Company's expense,
from time to time and upon the termination of the Employee's employment with the Company for any reason, the Employee will promptly deliver to the Company all copies and embodiments, in whatever form, of all Confidential information in the Employee's possession or within his or her control (including, but not limited to, memoranda, records, notes, plans, photographs, manuals, notebooks, documentation, program listings, flow charts, magnetic media, disks, diskettes, tapes and all other materials containing any Confidential information) irrespective of the location or form of such material. If requested by the Company, the Employee will provide the Company with written confirmation that all such materials have been delivered to the Company as provided herein.

b. Non-Solicitation or Hire. During the Employee's employment with the
Company and for a period of one (1) year following the Employee's termination of employment for any reason, the Employee shall not directly or indirectly solicit or attempt to solicit or induce, directly or indirectly, (i) any party who is a customer of School Bus Holdings Inc. or any of its subsidiaries, or who was a customer of School Bus Holdings Inc. or any of its subsidiaries at any time during the twelve (12) month period immediately prior to the Termination Date, for the purpose of marketing selling or providing to any such party any services or products offered by or available from School Bus Holdings Inc. or any of its subsidiaries (provided that if the Employee intends to solicit any such party for any other purpose, he shall notify the Company of such intention and receive prior written approval from the Company), (ii) any supplier to School Bus Holdings Inc. or any of its subsidiaries to terminate, reduce or alter negatively its relationship with School Bus Holdings Inc. or any of its subsidiaries or in any manner interfere with any agreement or contract between School Bus Holdings Inc. or any of its subsidiaries and such supplier or (iii) any employee of School Bus Holdings Inc. or any of its subsidiaries or any person who was an employee of School Bus Holdings Inc. or any of its subsidiaries during the twelve (12) month period immediately prior to the date the Employee's employment terminates to terminate such employee's employment relationship with School Bus Holdings Inc. or any of its subsidiaries in order, in either case, to enter into a similar relationship with the Employee, or any other person or any entity in competition with the Business of School Bus Holdings Inc. or any of its subsidiaries.

c. Non-Competition. During the Employee's employment with the Company and for a period of one (1) year following the Employee's termination of employment for any reason, the Employee shall not, whether individually, as a director, manager, member, stockholder, partner, owner, employee, consultant or agent of any business, or in any other capacity, other than on behalf of School Bus Holdings Inc. or any of its subsidiaries, organize, establish, own, operate, manage, control, engage in, participate in, invest in, permit his or her name to be used by, act as a consultant or advisor to, render services for (alone or in association with any person, firm, corporation or business organization), or otherwise assist any person or entity that engages in or owns, invests in, operates, manages or controls any venture or enterprise which engages or proposes to engage in any business conducted by School Bus Holdings Inc. or any of its subsidiaries on the Termination Date or within twelve (12) months of the Employee's termination of employment with the Company in the geographic locations where School Bus Holdings Inc. or any of its subsidiaries, respectively engage or propose to engage in such business (the "Business"). Notwithstanding the foregoing, nothing in this Agreement shall prevent the Employee from owning for passive investment purposes not intended to circumvent this Agreement, less than five percent (5%) of the publicly traded common equity securities of any company engaged in the Business (so long as the Employee has no power to manage, operate,


Exhibit 10.1


advise, consult with or control the competing enterprise and no power, alone or in conjunction with other affiliated parties, to select a director, manager, general partner, or similar governing official of the competing enterprise other than in connection with the normal and customary voting powers afforded the Employee in connection with any permissible equity ownership).

d. Non-disparagement. The Employee shall not at any time (whether during or after the Term) publish or communicate to any person or entity any Disparaging (as defined below) remarks, comments or statements concerning the Company, its parents, subsidiaries and/or Affiliates, and their respective present and former members, partners, directors, officers, shareholders, employees, agents, attorneys, successors and assigns. "Disparaging" remarks, comments or statements are those that impugn the character, honesty, integrity or morality or business acumen or abilities in connection with any aspect of the operation of business of the individual or entity being disparaged.

e. Property. The Employee acknowledges that all originals and copies of materials, records and documents generated by him or coming into his or her possession during his or her employment by the Company are the sole property of the Company ("Company Property"). During the Term, and at all times thereafter, the Employee shall not remove, or cause to be removed, from the premises of the Company or its parents, subsidiaries or Affiliates copies of any record, file, memorandum, document, computer related information or equipment, or any other item relating to the Business, except in furtherance of his or her duties. When the Employee's employment with the Company terminates, or upon request of the Company at any time, the Employee shall promptly deliver to the Company all copies of Company Property in his or her possession or control.

8. Remedies; Specific Performance. The Parties acknowledge and agree that the
Employee's breach or threatened breach of any of the restrictions set forth in Section 7 will result in irreparable and continuing damage to the Company and its parents, subsidiaries, and, as applicable, the Affiliates of the Company and its parents and subsidiaries, for which there may be no adequate remedy at law and that the Company and its parents and subsidiaries, and, as applicable, the Affiliates of the Company and its parents and subsidiaries, shall be entitled to equitable relief, including specific performance and injunctive relief as remedies for any such breach or threatened or attempted breach. The Employee hereby consents to the grant of an injunction (temporary or otherwise) against the Employee or the entry of any other court order against the Employee prohibiting and enjoining him from violating, or directing him to comply with any provision of Section 7. The Employee also agrees that such remedies shall be in addition to any and all remedies, including damages, available to the Company against him or her for such breaches or threatened or attempted breaches.

9. Severability. If any term, provision, covenant or restriction of this Agreement,
or any part thereof, is held by a court of competent jurisdiction of any foreign, federal, state, county or local government or any other governmental, regulatory or administrative agency or authority to be invalid, void, unenforceable or against public policy for any reason, the remainder of the terms, provisions, covenants and restrictions of this Agreement shall remain in full force and effect and shall in no way be affected or impaired or invalidated. The Employee acknowledges that the restrictive covenants contained in Section 7 are a condition of this Agreement and are reasonable and valid in temporal scope and in all other respects.

10. Judicial Modification. If any court of competent jurisdiction determines that any of the covenants in Section 7, or any part of any of them, is invalid or unenforceable (including, without limitation, because of the geographic or temporal scope of such provision), such covenant or part thereof shall apply to the maximum extent otherwise permitted at applicable law with such modifications as will be necessary to make it valid and enforceable.

11. Miscellaneous.



Exhibit 10.1


a. No Right to Employment. This Agreement does not create for the Employee any employment right. This Agreement is not a contract of employment and does not alter the employment at-will relationship. Either Party may terminate the employment relationship at any time for any reason.

b. Entire Agreement. This Agreement contains the entire agreement
between the Parties with respect to the subject matter hereof and supersedes all prior agreements, written or oral, with respect thereto.

c. Waiver and Amendments. This Agreement may be amended, modified,
superseded, canceled, renewed or extended, and the terms and conditions hereof may be waived, only by a written instrument signed by the Parties or, in the case of a waiver, by the Party waiving compliance. No delay on the part of any Party in exercising any right, power or privilege hereunder shall operate as a waiver thereof, nor shall any waiver on the part of any right, power or privilege hereunder, nor any single or partial exercise of any right, power or privilege hereunder, preclude any other or further exercise thereof or the exercise of any other right, power or privilege hereunder

d. Notices. Any notice or other communication required or which may be
given hereunder shall be in writing and shall be delivered personally, telegraphed, telexed, sent by facsimile transmission or sent by certified, registered or express mail, postage prepaid or overnight mail and shall be deemed given when so delivered personally, telegraphed, telexed, or sent by facsimile transmission or, if mailed, four (4) days after the date of mailing or one (1) day after overnight mail, as follows:

i. If the Company, to:
Blue Bird Corporation
402 Blue Bird Boulevard
Fort Valley, GA 31030
Attention: Mike McCurdy
Telephone: (478) 822-2008
Fax: (478) 822-2427

ii. If the Employee, to the Employee's home address reflected in the Company's records.

e. Governing Law. This Agreement shall be governed and construed in
accordance with the laws of the State of Georgia applicable to agreements made and not to be performed entirely 'within such state, without regard to conflicts of laws principles.

f. Dispute Resolution and Venue. The Parties agree irrevocably to submit to the exclusive jurisdiction of the federal courts or, if no federal jurisdiction exists, the state courts, located in Macon, Georgia, for the purposes of any suit, action or other proceeding brought by any Party arising out of any breach of any of the provisions of this Agreement and hereby waive, and agree not to assert by way of motion, as a defense or otherwise, in any such suit, action, or proceeding, any claim that it is not personally subject to the jurisdiction of the above-named courts, that the suit, action or proceeding is brought in an inconvenient forum, that the venue of the suit, action or proceeding is improper, or that the provisions of this Agreement may not be enforced in or by such courts. In addition, the Parties agree to the waiver of a jury trial.

g. Assignability by the Company and the Employee. This Agreement, and the rights and obligations hereunder, may not be assigned by the Company or the Employee without written consent signed by the other Party; provided that the Company may assign the Agreement to any successor that continues the business of the Company.

h. Counterparts. This Agreement may be executed in counterparts, each of which shall be deemed an original but all of which shall constitute one and the same instrument.



Exhibit 10.1


i. Headings. The headings in this Agreement are for convenience of reference only and shall not limit or otherwise affect the meaning of terms contained herein.

j. Survival Sections 7, 8, 9, 10 and 11 of this Agreement shall survive after the Term.

IN WITNESS WHEREOF, the Parties hereto, intending to be legally bound hereby, have executed this Agreement as of the day and year first above mentioned.

 
 
EMPLOYEE
 
 
 
 
 
 
 
 
 
 
/s/ Charles Jenkins III
 
 
 
 
Charles Jenkins III
 
 
 
 
 
 
 
 
 
 
BLUE BIRD BODY COMPANY
 
 
 
 
 
 
 
 
 
 
By:
/s/ Michael McCurdy
 
 
 
 
 
Name: Michael McCurdy
 
 
 
 
 
Title: Vice-President, Human Resources
 
 
            



Exhibit 10.2

BLUE BIRD CORPORATION
NONQUALIFIED STOCK OPTION GRANT AGREEMENT
This Stock Option Grant Agreement (the “Grant Agreement”) is made and entered into effective on the Date of Grant set forth in Exhibit A (the “Date of Grant”) by and between Blue Bird Corporation, a Delaware corporation (the “Company”), and the individual named in Exhibit A hereto (the “Optionee”).

WHEREAS, the Company desires to provide the Optionee an incentive to participate in the success and growth of the Company through the opportunity to earn a proprietary interest in the Company; and

WHEREAS, to give effect to the foregoing intention, the Company desires to grant the Optionee an option pursuant to the Blue Bird Corporation 2015 Omnibus Equity Incentive Plan (the “Plan”) to acquire the Company’s common stock, par value $.0001 per share (the “Common Stock”);

NOW, THEREFORE, in consideration of the mutual covenants hereinafter set forth and for good and valuable consideration, the parties hereto agree as follows:

1.    Grant. The Company hereby grants the Optionee a Nonqualified Stock Option (the “Option”) to purchase up to the number of shares of Common Stock (the “Shares”) set forth in Exhibit A hereto at the exercise price per Share (the “Exercise Price”) set forth in Exhibit A, subject to the terms and conditions set forth herein and the provisions of the Plan, the terms of which are incorporated herein by reference. Capitalized terms used but not otherwise defined in this Grant Agreement shall have the meanings as set forth in the Plan.

2.    Vesting. Except as otherwise provided in this Agreement or in Exhibit A (which shall supersede this Section 2 in the event of any inconsistency between this Section 2 and Exhibit A), the Options shall vest in accordance with the following vesting schedule subject to adjustment based on the payout of the Management Performance Bonus Plan for the prior fiscal year:

The following percentage
of the Options:
Shall vest on the following date; provided that the Awardee is in the Service of the Company or any of its Subsidiaries on such date:
1/3rd
December 11, 2020
1/3rd
December 11, 2021
1/3rd
December 11, 2022

Any Option not vested due to a failure to achieve the prior fiscal year’s Management Performance Bonus Plan shall be forfeited. Further, each tranche of Options is subject to downward adjustments consistent with each respective fiscal year’s actual percentage payout based solely on the financial metrics of the Management Performance bonus award. Any given tranche may not vest less than 50% and may not vest more than 100%, regardless of the results of the Management Performance bonus award results. For example, if the Company achieves a 75% payout of the fiscal year 2020 Management Performance Bonus Plan, then 75% of 1/3rd of the Option award shall vest on December 11, 2020. If the Company fails to achieve any payout of the fiscal year 2020 Management Performance Bonus Plan, then 50% of 1/3rd the Option shall be deemed forfeited. The performance objectives of each fiscal year’s Management Performance Plan shall be set by the Company’s Compensation Committee at its sole discretion and may vary year to year.



Exhibit 10.2

Notwithstanding anything to the contrary, no portion of the Option shall vest and become exercisable after the date on which the Optionee’s Service with the Company and its Subsidiaries terminates. The vesting of all unvested shares of Common Stock subject to the Option will automatically be accelerated in connection with a “Change in Control”, as defined in the Plan.

3.    Exercise Period Following Termination of Service. This Option shall terminate and be canceled, to the extent not exercised, on the ninetieth (90th) day after the Optionee’s Service with the Company and its Subsidiaries terminates, except that if such termination of Service with the Company and its Subsidiaries is due to the death or Disability of the Optionee, this Option shall terminate and be canceled on the one-year anniversary of the date of such termination of Service. Notwithstanding the foregoing, in the event that the Optionee’s Service with the Company and its Subsidiaries is terminated for “Cause” (as defined below), then the Option (whether or not then exercisable to any extent) shall immediately terminate on the date of such termination of Service and shall not be exercisable for any period following such date. Notwithstanding anything contained herein to the contrary, in no event may this Option be exercised later than the Expiration Date set forth in Exhibit A and in no event shall this Option be exercised for more Shares than the Shares which otherwise have become exercisable as of the date of termination of Service.

For purposes of the foregoing, the Optionee’s Service with the Company and its Subsidiaries shall be deemed to be terminated for “Cause” if such termination is due to the Optionee’s (i) conviction of, or the entry of a plea of guilty or no contest to, a felony or any other crime that causes the Company or its Affiliates public disgrace or disrepute, or that materially and adversely affects the Company’s or its Affiliates’ operations or financial performance or the relationship the Company has with its customers or suppliers, (ii) gross negligence or willful misconduct with respect to the Company or any of its Affiliates, including, without limitation fraud, embezzlement, theft or proven dishonesty in the course of Optionee’s employment; (iii) refusal to perform any lawful, material obligation or fulfill any duty (other than any duty or obligation of the type described in clause (v) below) to the Company or its Affiliates (other than due to a Disability), which refusal, if curable, is not cured within 10 days after delivery of written notice thereof; (iv) material breach of any agreement with or duty owed to the Company or any of its Affiliates, which breach, if curable, is not cured within 10 days after the delivery of written notice thereof; or (v) breach of any obligation or duty to the Company or any of its Affiliates (whether arising by statute, common law or agreement) relating to confidentiality, noncompetition, nonsolicitation or proprietary rights. Notwithstanding the foregoing, if Optionee and the Company (or any of its Subsidiaries) have entered into an employment agreement, consulting agreement or other similar agreement that specifically defines “cause,” then “Cause” shall have the meaning defined in that employment agreement, consulting agreement or other agreement.

4.    Method of Exercise. This Option is exercisable by delivery to the Company of an exercise notice (the “Exercise Notice”) in a form satisfactory to the Committee or by such other form or means as the Committee may permit or require. Any Exercise Notice shall state or provide the number of Shares with respect to which the Option is being exercised (the “Exercised Shares”), and include such other representations and agreements as may be required by the Company pursuant to the provisions of the Plan. The Exercise Notice shall be accompanied by payment of the aggregate Exercise Price for the Exercised Shares (i) in cash; (ii) by check; or (iii) in such other manner as is acceptable to the Committee, provided that such form of consideration is permitted by the Plan and by applicable law. Upon exercise of the Option by the Optionee and prior to the delivery of such Exercised Shares, the Company shall have the right to require the Optionee to satisfy applicable Federal and state tax income tax withholding requirements and the Optionee’s share of applicable employment withholding taxes in a method satisfactory to the Company. Notwithstanding the foregoing, no Exercised Shares shall be issued unless such exercise and issuance complies with the requirements relating to the administration of stock option plans and other applicable equity plans under U.S. state corporate laws, U.S. federal and state securities laws, the Code, any stock exchange or quotation system


Exhibit 10.2

on which the Common Stock is listed or quoted, and the applicable laws of any foreign country or jurisdiction where stock grants or other applicable equity grants are made under the Plan; assuming such compliance, for income tax purposes the Exercised Shares shall be considered transferred to the Optionee on the date the Option is exercised with respect to such Shares.

5.    Covenants Agreement. This Option shall be subject to forfeiture at the election of the Company in the event that the Optionee breaches any agreement between the Optionee and the Company with respect to noncompetition, nonsolicitation, assignment of inventions and contributions and/or nondisclosure obligations of the Optionee.

6.    Taxes. By executing this Grant Agreement, Optionee acknowledges and agrees that Optionee is solely responsible for the satisfaction of any applicable taxes that may be imposed on Optionee that arise as a result of the grant, vesting or exercise of the Option, including without limitation any taxes arising under Section 409A of the Code (regarding deferred compensation) or Section 4999 of the Code (regarding golden parachute excise taxes), and that neither the Company nor the Committee shall have any obligation whatsoever to pay such taxes or otherwise indemnify or hold Optionee harmless from any or all of such taxes.

7.    Non-Transferability of Option. This Option may not be transferred in any manner otherwise than by will or by the laws of descent or distribution and may be exercised during the lifetime of the Optionee only by the Optionee. The terms of the Plan and this Grant Agreement shall be binding upon the executors, administrators, heirs, successors and assigns of the Optionee.

8.    Securities Matters. All Shares and Exercised Shares shall be subject to the restrictions on sale, encumbrance and other disposition provided by Federal or state law. The Company shall not be obligated to sell or issue any Shares or Exercised Shares pursuant to this Grant Agreement unless, on the date of sale and issuance thereof, such Shares are either registered under the Securities Act of 1933, as amended (the “Securities Act”), and all applicable state securities laws, or are exempt from registration thereunder. Regardless of whether the offering and sale of Shares under the Plan have been registered under the Securities Act, or have been registered or qualified under the securities laws of any state, the Company at its discretion may impose restrictions upon the sale, pledge or other transfer of such Shares (including the placement of appropriate legends on stock certificates or the imposition of stop-transfer instructions) if, in the judgment of the Company, such restrictions are necessary in order to achieve compliance with the Securities Act or the securities laws of any state or any other law.

9.    Investment Purpose. The Optionee represents and warrants that unless the Shares are registered under the Securities Act, any and all Shares acquired by the Optionee under this Grant Agreement will be acquired for investment for the Optionee’s own account and not with a view to, for resale in connection with, or with an intent of participating directly or indirectly in, any distribution of such Shares within the meaning of the Securities Act. The Optionee agrees not to sell, transfer or otherwise dispose of such Shares unless they are either (1) registered under the Securties Act and all applicable state securities laws, or (2) exempt from such registration in the opinion of Company counsel.

10.    Lock-Up Agreement. The Optionee hereby agrees that in the event that the Optionee exercises this Option during a period in which any directors or officers of the Company have agreed with one or more underwriters not to sell securities of the Company, then, as a condition to such exercise, the Optionee shall enter into an agreement, in form and substance satisfactory to the Company, pursuant to which the Optionee shall agree to restrictions on transferability of the Shares comparable to the restrictions agreed upon by such directors or officers of the Company.



Exhibit 10.2

11.    Other Plans. No amounts of income received by the Optionee pursuant to this Grant Agreement shall be considered compensation for purposes of any pension or retirement plan, insurance plan or any other employee benefit plan of the Company or its subsidiaries, unless otherwise expressly provided in such plan.

12.    No Guarantee of Continued Service. The Optionee acknowledges and agrees that the right to exercise the Option pursuant to the exercise schedule hereof is earned only by continuing Service with the Company and/or its Subsidiaries (and not through the act of being hired, being granted an option or purchasing shares hereunder). The Optionee further acknowledges and agrees that (i) this Grant Agreement, the transactions contemplated hereunder and the exercise schedule set forth herein do not constitute an express or implied promise of continued employment or other Service for the exercise period or for any other period, and shall not interfere with the Optionee’s right or the right of the Company or its Subsidiaries to terminate the employment or Service relationship at any time, with or without cause, subject to the terms of any written employment agreement that the Optionee may have entered into with the Company or any of its Subsidiaries; and (ii) the Company would not have granted this Option to the Optionee but for these acknowledgements and agreements.

13.    Entire Agreement; Governing Law. The Plan is incorporated herein by reference. The Plan and this Grant Agreement constitute the entire agreement of the parties with respect to the subject matter hereof and supersede in their entirety all prior undertakings and agreements of the Company and the Optionee with respect to the subject matter hereof, and may not be modified adversely to the Optionee’s interest except by means of a writing signed by the Company and the Optionee. In the event of any conflict between this Grant Agreement and the Plan, the Plan shall be controlling, except as otherwise specifically provided in the Plan. This Grant Agreement shall be construed under the laws of the State of Delaware, without regard to conflict of laws principles.

14.    Opportunity for Review. Optionee and the Company agree that this Option is granted under and governed by the terms and conditions of the Plan and this Grant Agreement. The Optionee has reviewed the Plan and this Grant Agreement in their entirety, has had an opportunity to obtain the advice of counsel prior to executing this Grant Agreement and fully understands all provisions of the Plan and this Grant Agreement. The Optionee hereby agrees to accept as binding, conclusive and final all decisions or interpretations of the Committee upon any questions relating to the Plan and this Grant Agreement. The Optionee further agrees to notify the Company upon any change in the residence address indicated herein.

15.    Section 409A.    This Option is intended to be excepted from coverage under Section 409A and shall be administered, interpreted and construed accordingly. The Company may, in its sole discretion and without the Optionee’s consent, modify or amend the terms of this Grant Agreement, impose conditions on the timing and effectiveness of the exercise of the Option by Optionee, or take any other action it deems necessary or advisable, to cause the Option to be excepted from Section 409A (or to comply therewith to the extent the Company determines it is not excepted).



[Signature Page Follows]



Exhibit 10.2



IN WITNESS WHEREOF, the parties hereto have executed this Grant Agreement as of the date set forth in Exhibit A.


 
 
BLUE BIRD CORPORATION
 
 
 
 
 
 
 
 
 
 
By:
/s/ Phil Horlock
 
 
 
 
 
Name: Phil Horlock
 
 
 
 
 
Title: President & Chief Executive Officer
 
 
 
 
 
 
 
 
 
 
OPTIONEE
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Name:
 
 





Exhibit 10.2




EXHIBIT A

BLUE BIRD CORPORATION

NONQUALIFIED STOCK OPTION GRANT AGREEMENT


    
(a).    Optionee’s Name:_____________________________            


(b).    Date of Grant:________________________________            

    
(c).    Number of Shares Subject to the Option:     ________    


(d).    Exercise Price: $____ per Share


(e).    Expiration Date: ______________________________        





_______ (Initials)
Optionee


_______ (Initials)
Company Signatory







Exhibit 10.3


BLUE BIRD CORPORATION
RESTRICTED STOCK UNIT AWARD AGREEMENT
This Restricted Stock Unit Award Agreement (the “Agreement”), dated as of the “Award Date” set forth in the attached Exhibit A (the “Award Date”), is entered into between Blue Bird Corporation, a Delaware corporation (the “Company”), and the individual named in Exhibit A hereto (the “Awardee”).
WHEREAS, the Company desires to provide the Awardee an incentive to participate in the success and growth of the Company through the opportunity to earn a proprietary interest in the Company; and
WHEREAS, to give effect to the foregoing intention, the Company desires to grant the Awardee an award of Restricted Stock Units pursuant to the Blue Bird Corporation 2015 Omnibus Equity Incentive Plan (the “Plan”);
NOW, THEREFORE, in consideration of the mutual covenants hereinafter set forth and for good and valuable consideration, the parties hereto agree as follows:
1.Award. The Company hereby awards the Awardee the number of Restricted Stock Units (each an “RSU” and collectively the “RSUs”) set forth in Exhibit A hereto, subject to the terms and conditions set forth herein and the provisions of the Plan, the terms of which are incorporated herein by reference. Capitalized terms used but not otherwise defined in this Agreement shall have the meanings as set forth in the Plan.

2.Vesting. Except as otherwise provided in this Agreement or in Exhibit A (which shall supersede this Section 2 in the event of any inconsistency between this Section 2 and Exhibit A), the RSUs shall vest in accordance with the following vesting schedule subject to adjustment based on the payout of the Management Performance Bonus Plan for the prior fiscal year:
The following percentage
of the RSUs:
Shall vest on the following date; provided that the Awardee is in the Service of the Company or any of its Subsidiaries on such date:
1/3rd
December 11, 2020
1/3rd
December 11, 2021
1/3rd 
December 11, 2022

Any RSUs not vested due to a failure to achieve the prior fiscal year’s Management Performance Bonus Plan shall be forfeited. Further, each tranche of RSU’s is subject to downward adjustments consistent with each respective fiscal year’s actual percentage payout based solely on the financial metrics of the Management Performance bonus award. Any given tranche may not vest less than 50% and may not vest more than 100%, regardless of the results of the Management Performance bonus award results. For example, if the Company achieves a 75% payout of the fiscal year 2020 Management Performance Bonus Plan, then only 75% of the 1/3rd RSU award shall vest on December 11, 2020. If the Company fails to achieve any payout of the fiscal year 2020 Management Performance Bonus Plan, then 50% of 1/3rd of the RSUs shall be deemed forfeited. The performance objectives of each fiscal year’s Management Performance Plan shall be set by the Company’s Compensation Committee at its sole discretion and may vary year to year.



Exhibit 10.3


For each RSU that becomes vested in accordance with this Agreement, the Company shall issue and deliver to Awardee, on or within ten (10) business days after becoming vested, one share of the Company’s common stock, par value $.0001 per share (the “Common Stock”). Except as provided above, in the event that the Awardee ceases to be in the Service of the Company or any of its Subsidiaries, any RSUs that have not vested as of the date of such cessation of Service shall be forfeited.

3.No Rights as Stockholder. The Awardee shall not be entitled to any of the rights of a stockholder with respect to any share of Common Stock that may be acquired following vesting of an RSU unless and until such share of Common Stock is issued and delivered to the Awardee. Without limitation of the foregoing, the Awardee shall not have the right to vote any share of Common Stock to which an RSU relates and shall not be entitled to receive any dividend attributable to such share of Common Stock for any period priot to the issuance and delivery of such share to Awardee.

4.Transfer Restrictions. Neither this Agreement nor the RSUs may be sold, assigned, pledged or otherwise transferred or encumbered without the prior written consent of the Committee.

5.Government Regulations. Notwithstanding anything contained herein to the contrary, the Company’s obligation hereunder to issue or deliver certificates evidencing shares of Common Stock shall be subject to the terms of the Plan, all applicable laws, rules and regulations and to such approvals by any governmental agencies or national securities exchanges as may be required.

6.Investment Purpose. The Awardee represents and warrants that any and all shares of Common Stock acquired by the Awardee under this Agreement will be acquired for investment for the Awardee’s own account and not with a view to, for resale in connection with, or with an intent of participating directly or indirectly in, any distribution of such shares of Common Stock within the meaning of the Securities Act of 1933, as amended (the “Securities Act”). The Awardee agrees not to sell, transfer or otherwise dispose of such shares unless they are either (1) registered under the Securities Act and all applicable state securities laws, or (2) exempt from such registration in the opinion of Company counsel.

7.Securities Law Restrictions. Regardless of whether the offering and sale of shares of Common Stock issuable to Awardee pursuant to this Agreement and the Plan have been registered under the Securities Act, or have been registered or qualified under the securities laws of any state, the Company at its discretion may impose restrictions upon the sale, pledge or other transfer of such shares of Common Stock (including the placement of appropriate legends on stock certificates or the imposition of stop-transfer instructions) if, in the judgment of the Company, such restrictions are necessary in order to achieve compliance with the Securities Act or the securities laws of any state or any other law.

8.Lock-Up Agreement. The Awardee hereby agrees that in the event any shares of Common Stock become deliverable to Awardee with respect to RSUs at a time during which any directors or officers of the Company have agreed with one or more underwriters not to sell securities of the Company, then Awardee shall enter into an agreement, in form and substance satisfactory to the Company, pursuant to which the Awardee shall agree to restrictions on transferability of such shares of Common Stock comparable to the restrictions agreed upon by such directors or officers of the Company.



Exhibit 10.3


9.Withholding Taxes. The Company shall have the right to require the Awardee to remit to the Company, or to withhold from amounts payable to the Awardee, as compensation or otherwise, the minimum statutory amount required to satisfy all federal, state and local income tax withholding requirements and the Awardee’s share of applicable employment withholding taxes (including, without limitation, any such income or employment taxes resulting from the vesting of RSUs and the issuance of Common Stock with respect thereto).

10.Awardee Representations. The Awardee has reviewed with the Awardee’s own tax advisors the federal, state, local and foreign tax consequences of the transactions contemplated by this Agreement. The Awardee is relying solely on such advisors, and not on any statements or representations of the Company or any of its agents, if any, made to the Awardee. The Awardee understands that the Awardee (and not the Company) shall be responsible for the Awardee’s own liability arising as a result of the transactions contemplated by this Agreement.

11.No Guarantee of Continued Service. The Awardee acknowledges and agrees that (i) nothing in this Agreement or the Plan confers on the Awardee any right to continue an employment, service or consulting relationship with the Company, nor shall it affect in any way the Awardee’s right or the Company’s right to terminate the Awardee’s employment, service, or consulting relationship at any time, with or without cause, subject to any employment agreement that may have been entered into by the Company and the Awardee; and (ii) the Company would not have granted this Award to the Awardee but for these acknowledgments and agreements.

12.Notices. Notices or communications to be made hereunder shall be in writing and shall be delivered in person, by registered mail, by confirmed facsimile or by a reputable overnight courier service to the Company at its principal office or to the Awardee at his or her address contained in the records of the Company. Alternatively, notices and other communications may be provided in the form and manner of such electronic means as the Company may permit.

13.Entire Agreement; Governing Law. The Plan is incorporated herein by reference. The Plan and this Agreement constitute the entire agreement of the parties with respect to the subject matter hereof and supersede in their entirety all prior undertakings and agreements of the Company and the Awardee with respect to the subject matter hereof, and may not be modified adversely to the Awardee’s interest except by means of a writing signed by the Company and the Awardee. In the event of any conflict between this Agreement and the Plan, the Plan shall be controlling. This Agreement shall be construed under the laws of the State of Delaware, without regard to conflict of laws principles.

14.Opportunity for Review. Awardee and the Company agree that this Award is granted under and governed by the terms and conditions of the Plan and this Agreement. The Awardee has reviewed the Plan and this Agreement in their entirety, has had an opportunity to obtain the advice of counsel prior to accepting this Agreement and fully understands all provisions of the Plan and this Agreement. The Awardee hereby agrees to accept as binding, conclusive and final all decisions or interpretations of the Committee upon any questions relating to the Plan and this Agreement. The Awardee further agrees to notify the Company upon any change in Awardee’s residence address.

15.Binding Effect. This Agreement shall be binding upon and inure to the benefit of the Company and the Awardee and their respective permitted successors, assigns, heirs, beneficiaries and representatives.
 


Exhibit 10.3


16.Section 409A Compliance. To the extent that this Agreement and the award of RSUs hereunder are or become subject to the provisions of Section 409A of the Code, the Company and the Awardee agree that this Agreement may be amended or modified by the Company, in its sole discretion and without the Awardee’s consent, as appropriate to maintain compliance with the provisions of Section 409A of the Code.

IN WITNESS WHEREOF, the parties hereto have executed this Agreement as of the date set forth in Exhibit A.

 
 
BLUE BIRD CORPORATION
 
 
 
 
 
 
 
 
 
 
By:
/s/ Phil Horlock
 
 
 
 
 
Name: Phil Horlock
 
 
 
 
 
Title: President & Chief Executive Officer
 
 
 
 
 
 
 
 
 
 
AWARDEE
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Name:
 
 




Exhibit 10.3




EXHIBIT A

BLUE BIRD CORPORATION

RESTRICTED STOCK UNIT AWARD AGREEMENT



(a).    Awardee’s Name: ____________________        

(b).    Award Date:     ________________________    
    
(c).    Number of Restricted Stock Units Granted: _______________    






_______ (Initials)
Awardee


_______ (Initials)
Company Signatory





Exhibit 31.1
CERTIFICATION OF PRINCIPAL EXECUTIVE OFFICER
PURSUANT TO SECURITIES EXCHANGE ACT RULES 13a-14(a) AND 15d-14(a)
AS ADOPTED PURSUANT TO
SECTION 302 OF THE SARBANES-OXLEY ACT OF 2002

I, Philip Horlock, the Chief Executive Officer of Blue Bird Corporation (the “registrant”), certify that:
(1) I have reviewed this quarterly report on Form 10-Q of Blue Bird Corporation;
 
(2) Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;
 
(3) Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;
 
(4) The registrant’s other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have:
  
(a) Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;

(b) Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;

(c) Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report, based on such evaluation; and

(d) Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter (the registrant's fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and

(5) The registrant’s other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of the registrant’s board of directors (or persons performing the equivalent functions):
  
(a) All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and
 
(b) Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting.

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




Exhibit 31.2
CERTIFICATION OF PRINCIPAL FINANCIAL OFFICER
PURSUANT TO SECURITIES EXCHANGE ACT RULES 13a-14(a) AND 15d-14(a)
AS ADOPTED PURSUANT TO
SECTION 302 OF THE SARBANES-OXLEY ACT OF 2002

I, Phillip Tighe, the Chief Financial Officer of Blue Bird Corporation (the “registrant”), certify that:
(1) I have reviewed this quarterly report on Form 10-Q of Blue Bird Corporation;
 
(2) Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;
 
(3) Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;
 
(4) The registrant’s other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have:
  
(a) Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;

(b) Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;

(c) Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report, based on such evaluation; and

(d) Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter (the registrant's fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and

(5) The registrant’s other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of the registrant’s board of directors (or persons performing the equivalent functions):
  
(a) All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and
 
(b) Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting.

Dated:
February 13, 2020
/s/ Phillip Tighe
 
 
Phillip Tighe
 
 
Chief Financial Officer





Exhibit 32.1

CERTIFICATION PURSUANT TO
18 U.S.C. SECTION 1350
AS ADOPTED PURSUANT TO
SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002

In connection with the quarterly report of Blue Bird Corporation (the “Company”) on Form 10-Q for the quarterly period ended January 4, 2020, as filed with the United States Securities and Exchange Commission on the date hereof (the “Report”), the undersigned, Philip Horlock, Chief Executive Officer of the Company, and Phillip Tighe, Chief Financial Officer of the Company, do hereby certify, pursuant to 18 U.S.C. 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, that:

(1)    The Report fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934, as amended; and

(2)    The information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Company.





Dated:
February 13, 2020
/s/ Philip Horlock
 
 
Philip Horlock
 
 
Chief Executive Officer
 
 
 
 
 
 
 
 
 
Dated:
February 13, 2020
/s/ Phillip Tighe
 
 
Phillip Tighe
 
 
Chief Financial Officer