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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION

Washington D.C. 20549

FORM 10-Q

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

For the quarterly period ended July 3, 2021

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

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

Commission File Number 001-36267

BLUE BIRD CORPORATION
(Exact name of registrant as specified in its charter)


     Delaware                                 46-3891989
(State or other jurisdiction of incorporation or organization)                (I.R.S. Employer Identification No.)

        
3920 Arkwright Road, 2nd Floor, Macon, Georgia 31210
(Address of principal executive offices and zip code)

(478) 822-2801
(Registrant’s telephone number, including area code)

Securities registered pursuant to Section 12(b) of the Act:
Title of each class Trading Symbol(s) Name of each exchange on which registered
Common stock, $0.0001 par value BLBD NASDAQ Global Market

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.
Yes ☒ No ☐

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

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

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

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


BLUE BIRD CORPORATION
FORM 10-Q

TABLE OF CONTENTS

2
2
2
3
4
5
6
8
18
32
32
33
33
33
    Item 6. Exhibits.
33
34







PART I – FINANCIAL INFORMATION

Item 1. Financial Statements (Unaudited).

BLUE BIRD CORPORATION AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
(Unaudited)
(in thousands of dollars, except for share data) July 3, 2021 October 3, 2020
Assets
Current assets
Cash and cash equivalents $ 11,223  $ 44,507 
Accounts receivable, net 10,451  7,623 
Inventories 133,540  56,523 
Other current assets 6,982  8,243 
Total current assets $ 162,196  $ 116,896 
Property, plant and equipment, net 106,022  103,372 
Goodwill 18,825  18,825 
Intangible assets, net 49,945  51,632 
Equity investment in affiliate 14,485  14,320 
Deferred tax assets 4,015  4,365 
Finance lease right-of-use assets 5,860  6,983 
Other assets 1,597  1,022 
Total assets $ 362,945  $ 317,415 
Liabilities and Stockholders' Deficit
Current liabilities
Accounts payable $ 113,152  $ 57,602 
Warranty 7,373  8,336 
Accrued expenses 21,154  15,773 
Deferred warranty income 7,945  8,540 
Finance lease obligations 1,315  1,280 
Other current liabilities 7,656  10,217 
Current portion of long-term debt 13,613  9,900 
Total current liabilities $ 172,208  $ 111,648 
Long-term liabilities
Long-term debt $ 153,005  $ 164,204 
Warranty 11,407  13,038 
Deferred warranty income 12,563  14,048 
Deferred tax liabilities 589  254 
Finance lease obligations 4,874  5,879 
Other liabilities 15,433  14,315 
Pension 39,677  47,259 
Total long-term liabilities $ 237,548  $ 258,997 
Guarantees, commitments and contingencies (Note 6)
Stockholders' deficit
Preferred stock, $0.0001 par value, 10,000,000 shares authorized, 0 shares outstanding at July 3, 2021 and October 3, 2020
$ —  $ — 
Common stock, $0.0001 par value, 100,000,000 shares authorized, 27,204,435 and 27,048,404 shares outstanding at July 3, 2021 and October 3, 2020, respectively
3  3 
Additional paid-in capital 92,169  88,910 
Accumulated deficit (31,365) (33,464)
Accumulated other comprehensive loss (57,336) (58,397)
Treasury stock, at cost, 1,782,568 shares at July 3, 2021 and October 3, 2020
(50,282) (50,282)
Total stockholders' deficit $ (46,811) $ (53,230)
Total liabilities and stockholders' deficit $ 362,945  $ 317,415 

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 Nine Months Ended
(in thousands of dollars except for share data) July 3, 2021 July 4, 2020 July 3, 2021 July 4, 2020
Net sales $ 196,659  $ 189,181  $ 491,791  $ 597,810 
Cost of goods sold 170,500  168,099  432,671  531,259 
Gross profit $ 26,159  $ 21,082  $ 59,120  $ 66,551 
Operating expenses
Selling, general and administrative expenses 18,073  17,793  50,124  58,146 
Operating profit $ 8,086  $ 3,289  $ 8,996  $ 8,405 
Interest expense (2,805) (2,406) (7,069) (9,961)
Interest income —  27  1  27 
Other income, net 426  181  1,491  555 
Loss on debt modification —  —  (598) — 
Income (loss) before income taxes $ 5,707  $ 1,091  $ 2,821  $ (974)
Income tax (expense) benefit (1,892) (765) (888) 378 
Equity in net income of non-consolidated affiliate 517  960  166  840 
Net income $ 4,332  $ 1,286  $ 2,099  $ 244 
Earnings per share:
Basic weighted average shares outstanding 27,172,162  27,027,731  27,116,915  26,784,404 
Diluted weighted average shares outstanding 27,428,877  27,080,015  27,337,360  26,980,480 
Basic earnings per share $ 0.16  $ 0.05  $ 0.08  $ 0.01 
Diluted earnings per share $ 0.16  $ 0.05  $ 0.08  $ 0.01 
The accompanying notes are an integral part of these condensed consolidated financial statements.

3

BLUE BIRD CORPORATION AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME
(Unaudited)
Three Months Ended Nine Months Ended
(in thousands of dollars) July 3, 2021 July 4, 2020 July 3, 2021 July 4, 2020
Net income $ 4,332  $ 1,286  $ 2,099  $ 244 
Other comprehensive income, net of tax:
Net change in defined benefit pension plan 354  327  1,061  980 
Total other comprehensive income $ 354  $ 327  $ 1,061  $ 980 
Comprehensive income $ 4,686  $ 1,613  $ 3,160  $ 1,224 

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)
Nine Months Ended
(in thousands of dollars) July 3, 2021 July 4, 2020
Cash flows from operating activities
Net income $ 2,099  $ 244 
Adjustments to reconcile net income to net cash used in operating activities:
Depreciation and amortization 10,145  10,728 
Non-cash interest expense 2,219  3,560 
Share-based compensation 1,923  4,105 
Equity in net income of non-consolidated affiliate (166) (840)
Gain on disposal of fixed assets (681) (100)
Deferred taxes 350  32 
Amortization of deferred actuarial pension losses 1,397  1,289 
Loss on debt modification 598  — 
Changes in assets and liabilities:
Accounts receivable (2,828) (3,157)
Inventories (77,017) (76,887)
Other assets 1,682  2,480 
Accounts payable 55,150  (3,115)
Accrued expenses, pension and other liabilities (9,109) (16,644)
Total adjustments $ (16,337) $ (78,549)
Total cash used in operating activities $ (14,238) $ (78,305)
Cash flows from investing activities
Cash paid for fixed assets $ (10,304) $ (16,724)
Proceeds from sale of fixed assets 901  150 
Total cash used in investing activities $ (9,403) $ (16,574)
Cash flows from financing activities
Borrowings under the revolving credit facility $ —  $ 45,000 
Repayments under the senior term loan (7,425) (7,425)
Principal payments on finance leases (1,147) (854)
Cash paid for debt costs (2,476) (935)
Net cash received (paid) for exercises and employee taxes on vested restricted shares and stock option exercises 1,405  (3,568)
Proceeds from exercises of warrants —  4,240 
Total cash (used in) provided by financing activities $ (9,643) $ 36,458 
Change in cash and cash equivalents (33,284) (58,421)
Cash and cash equivalents, beginning of period 44,507  70,959 
Cash and cash equivalents, end of period $ 11,223  $ 12,538 
Supplemental disclosures of cash flow information
Cash paid or received during the period:
Interest paid, net of interest received $ 8,855  $ 6,616 
Income tax paid (received), net of tax refunds 52  (1,668)
Non-cash investing and financing activities:
Changes in accounts payable for capital additions to property, plant and equipment $ 400  $ (3,613)
Cashless exercise of stock options —  5,246 
Right-of-use assets obtained in exchange for finance lease obligations —  1,942 
Right-of-use assets obtained in exchange for operating lease obligations 107  — 

The accompanying notes are an integral part of these condensed consolidated financial statements.
5

BLUE BIRD CORPORATION AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF STOCKHOLDERS' DEFICIT
(Unaudited)
Three Months Ended
(in thousands of dollars, except for share data) Common Stock Convertible Preferred Stock Treasury Stock
 Shares Par Value Additional Paid-In-Capital Shares Amount Accumulated Other Comprehensive Loss Accumulated Deficit Shares Amount Total Stockholders' Deficit
Balance, April 3, 2021 27,153,872  $ 3  $ 91,078  —  $ —  $ (57,690) $ (35,697) 1,782,568  $ (50,282) $ (52,588)
Stock option activity 50,563  —  794  —  —  —  —  —  —  794 
Share-based compensation expense —  —  297  —  —  —  —  —  —  297 
Net income —  —  —  —  —  —  4,332  —  —  4,332 
Other comprehensive income, net of tax —  —  —  —  —  354  —  —  —  354 
Balance, July 3, 2021 27,204,435  $ 3  $ 92,169  —  $ —  $ (57,336) $ (31,365) 1,782,568  $ (50,282) $ (46,811)
Balance, April 4, 2020 27,027,272  $ 3  $ 87,408  —  $ —  $ (55,501) $ (46,691) 1,782,568  $ (50,282) $ (65,063)
Restricted stock activity —  —  (255) —  —  —  —  —  —  (255)
Stock option activity 21,132  —  —  —  —  —  —  —  —  — 
Share-based compensation expense —  —  1,777  —  —  —  —  —  —  1,777 
Net income —  —  —  —  —  —  1,286  —  —  1,286 
Other comprehensive income, net of tax —  —  —  —  —  327  —  —  —  327 
Balance, July 4, 2020 27,048,404  $ 3  $ 88,930  —  $ —  $ (55,174) $ (45,405) 1,782,568  $ (50,282) $ (61,928)
6

Nine Months Ended
(in thousands of dollars, except for share data) Common Stock Convertible Preferred Stock Treasury Stock
 Shares Par Value Additional Paid-In-Capital Shares Amount Accumulated Other Comprehensive Loss Accumulated Deficit Shares Amount Total Stockholders' Deficit
Balance, October 3, 2020 27,048,404  $ 3  $ 88,910  —  $ —  $ (58,397) $ (33,464) 1,782,568  $ (50,282) $ (53,230)
Restricted stock activity 36,404  —  (517) —  —  —  —  —  —  (517)
Stock option activity 119,627  —  1,922  —  —  —  —  —  —  1,922 
Share-based compensation expense —  —  1,854  —  —  —  —  —  —  1,854 
Net income —  —  —  —  —  —  2,099  —  —  2,099 
Other comprehensive income, net of tax —  —  —  —  —  1,061  —  —  —  1,061 
Balance, July 3, 2021 27,204,435  $ 3  $ 92,169  —  $ —  $ (57,336) $ (31,365) 1,782,568  $ (50,282) $ (46,811)
Balance, September 28, 2019 26,476,336  $ 3  $ 84,271  —  $ —  $ (56,154) $ (45,649) 1,782,568  $ (50,282) $ (67,811)
Warrant exercises 368,712  —  4,240  —  —  —  —  —  —  4,240 
Restricted stock activity 94,724  —  (1,623) —  —  —  —  —  —  (1,623)
Stock option activity 108,632  —  (1,945) —  —  —  —  —  —  (1,945)
Share-based compensation expense —  —  3,987  —  —  —  —  —  —  3,987 
Net income —  —  —  —  —  —  244  —  —  244 
Other comprehensive income, net of tax —  —  —  —  —  980  —  —  —  980 
Balance, July 4, 2020 27,048,404  $ 3  $ 88,930  —  $ —  $ (55,174) $ (45,405) 1,782,568  $ (50,282) $ (61,928)

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

7

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

1. Nature of Business and Basis of Presentation

Nature of Business

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

COVID-19

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

Basis of Presentation

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

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

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

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

Use of Estimates and Assumptions

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

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

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

Recently Adopted Accounting Standards

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

Recently Issued Accounting Standards

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

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

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

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

Currently, the Company’s interest rate collar, which is not designated in a hedge accounting relationship, and Amended Credit Agreement (defined below) are the only contracts that reference an interest rate index (i.e., 3 month LIBOR) that is subject to the reference rate reform guidance included in the above amendments. While the termination date of the interest rate collar, September 30, 2022, occurs prior to the July 1, 2023 date on which the IBA will no longer publish 3 month LIBOR, the Amended Credit Agreement matures on September 13, 2023, approximately 2.5 months subsequent to such cessation date. However, as management does not currently forecast that the Company will have sufficient cash to fund the term loan borrowings that are expected to be outstanding under the terms of the Amended Credit Agreement upon maturity, it is expecting to refinance such borrowings prior to maturity, with such refinancing likely to occur before the July 1, 2023 LIBOR cessation date. Therefore, it is highly likely that neither the interest
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rate collar nor Amended Credit Agreement will be modified to reflect the discontinuation of 3 month LIBOR effective July 1, 2023 and accordingly, the Company will not be required to decide whether or not to elect to adopt such amendments prior to or on December 31, 2022 (i.e., the last effective date for adopting the amendments). However, to the extent that either or both of the contracts are modified prior to December 31, 2022, the Company plans to adopt the amendments on a prospective basis by adjusting the derivative fair value and/or debt effective interest rate, as applicable, neither of which is expected to have a material impact on the consolidated financial statements.


3. Supplemental Financial Information

Inventories

The following table presents the components of inventories at the dates indicated:
(in thousands of dollars) July 3, 2021 October 3, 2020
Raw materials $ 94,173  $ 43,272 
Work in process 33,755  8,989 
Finished goods 5,612  4,262 
Total inventories $ 133,540  $ 56,523 

Product Warranties

The following table reflects activity in accrued warranty cost (current and long-term portions combined) for the periods presented:
Three Months Ended Nine Months Ended
(in thousands of dollars) July 3, 2021 July 4, 2020 July 3, 2021 July 4, 2020
Balance at beginning of period $ 19,181  $ 21,398  $ 21,374  $ 22,343 
Add current period accruals 2,040  1,947  4,932  6,076 
Current period reductions of accrual (2,441) (2,517) (7,526) (7,591)
Balance at end of period $ 18,780  $ 20,828  $ 18,780  $ 20,828 
Extended Warranties
The following table reflects activity in deferred warranty income (current and long-term portions combined), for the sale of extended warranties of two to five years, for the periods presented:
Three Months Ended Nine Months Ended
(in thousands of dollars) July 3, 2021 July 4, 2020 July 3, 2021 July 4, 2020
Balance at beginning of period $ 20,724  $ 22,948  $ 22,588  $ 24,045 
Add current period deferred income 1,921  1,769  4,421  5,058 
Current period recognition of income (2,137) (2,672) (6,501) (7,058)
Balance at end of period $ 20,508  $ 22,045  $ 20,508  $ 22,045 

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 $2.2 million of the outstanding contract liability during the remainder of fiscal 2021, $7.3 million in fiscal 2022, and the remaining balance thereafter.
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Self-Insurance

The following table reflects our total accrued self-insurance liability, comprised of workers' compensation and health insurance related claims, at the dates indicated:
(in thousands of dollars) July 3, 2021 October 3, 2020
Current portion $ 2,675  $ 2,993 
Long-term portion 1,813  1,962 
Total accrued self-insurance $ 4,488  $ 4,955 

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 $3.3 million and $3.9 million for the three months ended July 3, 2021 and July 4, 2020, respectively, and $9.2 million and $11.5 million for the nine months ended July 3, 2021 and July 4, 2020, respectively. The related cost of goods sold was $2.9 million and $3.4 million for the three months ended July 3, 2021 and July 4, 2020, respectively, and $8.0 million and $10.0 million for the nine months ended July 3, 2021 and July 4, 2020, respectively.

Pension Expense

Components of net periodic pension benefit cost were as follows for the periods presented:
Three Months Ended Nine Months Ended
(in thousands of dollars) July 3, 2021 July 4, 2020 July 3, 2021 July 4, 2020
Interest cost $ 1,057  $ 1,237  $ 3,171  $ 3,711 
Expected return on plan assets (1,944) (1,846) (5,832) (5,538)
Amortization of prior loss 466  430  1,397  1,289 
Net periodic benefit cost $ (421) $ (179) $ (1,264) $ (538)
Amortization of prior loss, recognized in other comprehensive income 466  430  1,397  1,289 
Total recognized in net periodic pension benefit cost and other comprehensive income $ (887) $ (609) $ (2,661) $ (1,827)

Derivative Instruments

We are charged variable rates of interest on our indebtedness outstanding under the Amended Credit Agreement (defined below) which exposes us to fluctuations in interest rates. On October 24, 2018, the Company entered into a four-year interest rate collar with a $150.0 million notional value with an effective date of November 30, 2018. The collar was entered into in order to partially mitigate our exposure to interest rate fluctuations on our variable rate debt. The collar establishes a range whereby we will pay the counterparty if the three month LIBOR rate falls below the established floor rate of 1.5%, and the counterparty will pay us if the three month LIBOR rate exceeds the ceiling rate of 3.3%. The collar settles quarterly through the termination date of September 30, 2022. No payments or receipts are exchanged on the interest rate collar contract unless interest rates rise above or fall below the contracted ceiling or floor rates. During the nine months ended July 3, 2021, the three month LIBOR rate fell below the established floor, which required $1.4 million in total cash payments to the counterparty. Additionally, $0.5 million was paid in the first quarter of fiscal year 2021 for amounts owed to the counterparty that were accrued in the fourth quarter of fiscal 2020.

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



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4. Debt

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

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

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

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

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

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

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

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

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

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

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At July 3, 2021, $6.9 million of Letters of Credit were outstanding, which reduces the availability on the revolving line of credit. No borrowings were outstanding on the Revolving Credit Facility; therefore, the Company would have been able to borrow $93.1 million on the revolving line of credit.

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

The schedule of remaining principal payments through maturity for total debt is as follows:
(in thousands of dollars)
Fiscal Year Principal Payments
2021 $ 2,475 
2022 14,850 
2023 151,600 
Total remaining principal payments $ 168,925 


5. Income Taxes

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

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

The guidance for accounting for uncertainty in income taxes requires that a determination be made regarding whether a tax position, based solely on its technical merits, is more likely than not to be sustained upon examination, which is the threshold required for recognition of the tax position in the financial statements. As of October 2, 2020, there were no amounts recorded in the consolidated financial statements for gross unrecognized tax benefits. During the three months ended July 3, 2021, management obtained additional information that resulted in a conclusion that certain tax positions previously recognized in specific prior year financial statements may be subject to adjustment in conjunction with an examination. Accordingly, such determination resulted in the derecognition of these tax positions during the third quarter of fiscal year 2021, resulting in gross unrecognized tax benefits of $0.5 million as of July 3, 2021. These tax positions would impact the Company's effective tax rate in future periods if subsequently recognized. The Company recognizes accrued interest and penalties related to unrecognized tax positions in income tax expense, with such accrual totaling $0.3 million as of July 3, 2021. The Company's liability arising from uncertain tax positions ("UTPs"), including accrued interest and penalties, is recorded in other liabilities in the Condensed Consolidated Balance Sheets.

Three Months

The effective tax rate for the three months ended July 3, 2021 was 33.2%, which differed from the statutory federal income tax rate of 21%. The difference is mainly due to normal tax rate items, including impacts from state taxes, net non-deductible compensation expenses and other tax adjustments. The effective tax rate was also impacted by discrete period tax expense resulting from recording a liability for UTPs, including accrued interest and penalties, that was partially offset by discrete period tax benefits resulting from share-based compensation expenses and prior year tax return adjustments.

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

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Nine Months

The effective tax rate for the nine months ended July 3, 2021 was 31.5%, which differed from the statutory federal income tax rate of 21%. The difference is mainly due to normal tax rate items, including impacts from state taxes, net non-deductible compensation expenses and other tax adjustments. The effective tax rate was also impacted by discrete period tax benefits resulting from share-based compensation expenses and prior year tax return adjustments that were partially offset by discrete period tax expense resulting from recording a liability for UTPs, including accrued interest and penalties.

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


6. Guarantees, Commitments and Contingencies

Litigation

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

Environmental

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

Guarantees

In the ordinary course of business, we may provide guarantees for certain transactions entered into by our dealers. At July 3, 2021, we had a $3.0 million guarantee outstanding that relates to a guarantee of dealer indebtedness for a term loan with remaining maturity up to 1.5 years. The $3.0 million represents the estimated maximum amount we would be required to pay upon default of all guaranteed indebtedness, and we believe the likelihood of required performance to be remote. At July 3, 2021, $0.2 million was included in other current liabilities on our Condensed Consolidated Balance Sheets for the estimated fair value of the guarantee.    


7. Segment Information

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

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Net sales
Three Months Ended Nine Months Ended
(in thousands of dollars) July 3, 2021 July 4, 2020 July 3, 2021 July 4, 2020
Bus (1) $ 181,735  $ 180,592  $ 449,876  $ 554,061 
Parts (1) 14,924  8,589  41,915  43,749 
Segment net sales $ 196,659  $ 189,181  $ 491,791  $ 597,810 
(1) Parts segment revenue includes $0.9 million and $0.8 million for the three months ended July 3, 2021 and July 4, 2020, respectively, and $2.9 million and $3.2 million for the nine months ended July 3, 2021 and July 4, 2020, respectively, related to inter-segment sales of parts that were eliminated by the Bus segment upon consolidation.

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

The following table is a reconciliation of segment gross profit to consolidated income (loss) before income taxes for the periods presented:
Three Months Ended Nine Months Ended
(in thousands of dollars) July 3, 2021 July 4, 2020 July 3, 2021 July 4, 2020
Segment gross profit $ 26,159  $ 21,082  $ 59,120  $ 66,551 
Adjustments:
Selling, general and administrative expenses (18,073) (17,793) (50,124) (58,146)
Interest expense (2,805) (2,406) (7,069) (9,961)
Interest income —  27  1  27 
Other income, net 426  181  1,491  555 
Loss on debt modification —  —  (598) — 
Income (loss) before income taxes $ 5,707  $ 1,091  $ 2,821  $ (974)

Sales are attributable to geographic areas based on customer location and were as follows for the periods presented:
Three Months Ended Nine Months Ended
(in thousands of dollars) July 3, 2021 July 4, 2020 July 3, 2021 July 4, 2020
United States $ 179,850  $ 175,433  $ 436,286  $ 544,176 
Canada 15,072  13,429  49,257  49,331 
Rest of world 1,737  319  6,248  4,303 
Total net sales $ 196,659  $ 189,181  $ 491,791  $ 597,810 

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8. Revenue

The following table disaggregates revenue by product category for the periods presented:
Three Months Ended Nine Months Ended
(in thousands of dollars) July 3, 2021 July 4, 2020 July 3, 2021 July 4, 2020
Diesel buses $ 76,753  $ 88,299  $ 212,578  $ 278,698 
Alternative power buses (1) 95,877  80,975  214,133  245,766 
Other (2) 9,495  11,583  24,240  30,931 
Parts 14,534  8,324  40,840  42,415 
Net sales $ 196,659  $ 189,181  $ 491,791  $ 597,810 
(1) Includes buses sold with any power source other than diesel (e.g., gasoline, propane, compressed natural gas "CNG", electric).
(2) Includes shipping and handling revenue, extended warranty income, surcharges and chassis and bus shell sales.


9. Earnings Per Share

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

Three Months Ended Nine Months Ended
(in thousands except for share data) July 3, 2021 July 4, 2020 July 3, 2021 July 4, 2020
Numerator:
Net income $ 4,332  $ 1,286  $ 2,099  $ 244 
Denominator:
Weighted-average common shares outstanding 27,172,162  27,027,731  27,116,915  26,784,404 
Weighted-average dilutive securities, restricted stock 121,399  50,769  144,835  135,792 
Weighted-average dilutive securities, stock options 135,316  1,515  75,610  60,284 
Weighted-average shares and dilutive potential common shares (1) 27,428,877  27,080,015  27,337,360  26,980,480 
Earnings per share:
Basic earnings per share $ 0.16  $ 0.05  $ 0.08  $ 0.01 
Diluted earnings per share $ 0.16  $ 0.05  $ 0.08  $ 0.01 
(1) Potentially dilutive securities representing 0.0 million and 0.4 million shares of common stock were excluded from the computation of diluted earnings per share for the three months ending July 3, 2021 and July 4, 2020, respectively, and potentially dilutive securities representing 0.1 million and 0.3 million shares of common stock were excluded from the computation of diluted earnings per share for the nine months ending July 3, 2021 and July 4, 2020, respectively, as their effect would have been antidilutive.


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10. Accumulated Other Comprehensive Loss

The following table provides information on changes in accumulated other comprehensive loss ("AOCL") for the periods presented:
Three Months Ended Nine Months Ended
(in thousands of dollars) Defined Benefit Pension Plan Total AOCL Defined Benefit Pension Plan Total AOCL
July 3, 2021
Beginning Balance $ (57,690) $ (57,690) $ (58,397) $ (58,397)
Amounts reclassified and included in earnings 466  466  1,397  1,397 
Total before taxes 466  466  1,397  1,397 
Income taxes (112) (112) (336) (336)
Ending Balance July 3, 2021 $ (57,336) $ (57,336) $ (57,336) $ (57,336)
July 4, 2020
Beginning Balance $ (55,501) $ (55,501) $ (56,154) $ (56,154)
Amounts reclassified and included in earnings 430  430  1,289  1,289 
Total before taxes 430  430  1,289  1,289 
Income taxes (103) (103) (309) (309)
Ending Balance July 4, 2020 $ (55,174) $ (55,174) $ (55,174) $ (55,174)

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

The following discussion and analysis of financial condition and results of operations of Blue Bird Corporation ("Blue Bird" or the "Company") should be read in conjunction with the Company’s unaudited financial statements for the three and nine months ended July 3, 2021 and July 4, 2020 and related notes appearing in Part I, Item 1 of this Quarterly Report of Form 10-Q ("Report"). Our actual results may not be indicative of future performance. This discussion and analysis contains forward-looking statements and involves numerous risks and uncertainties, including, but not limited to, those discussed or incorporated by reference in the sections of this Report titled “Special Note Regarding Forward-Looking Statements” and “Risk Factors.” Actual results may differ materially from those contained in any forward-looking statements. Certain monetary amounts, percentages and other figures included in this Report have been subject to rounding adjustments. Accordingly, figures shown as totals in certain tables may not be the arithmetic aggregation of the figures that precede them, and figures expressed as percentages in the text may not total 100% or, as applicable, when aggregated, may not be the arithmetic aggregation of the percentages that precede them.

We refer to the fiscal year ending October 2, 2021 as "fiscal 2021" and fiscal year ended October 3, 2020 as “fiscal 2020." We refer to the quarter ended July 3, 2021 as the “third quarter of fiscal 2021” and we refer to the quarter ended July 4, 2020 as the “third quarter of fiscal 2020.”

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


Special Note Regarding Forward-Looking Statements

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

•the future financial performance of the Company;
•negative changes in the market for Blue Bird products;
•expansion plans and opportunities;
•challenges or unexpected costs related to manufacturing;
•future impacts from the novel coronavirus pandemic known as "COVID-19," and any other pandemics, public health crises, or epidemics, on capital markets, manufacturing and supply chain abilities, consumer and customer demand, school system operations, workplace conditions, and any other unexpected impacts, which could include, among other effects:
◦disruption in global financial and credit markets;
◦supply shortages and supplier financial risk, especially from our single-source suppliers impacted by the pandemic;
◦negative impacts to manufacturing operations or the supply chain from shutdowns or other disruptions in operations;
◦negative impacts on capacity and/or production in response to changes in demand due to the pandemic, including possible cost containment actions;
◦financial difficulties of our customers impacted by the pandemic;
◦reductions in market demand for our products due to the pandemic; and
◦potential negative impacts of various actions taken by federal, state and/or local governments in response to the pandemic.

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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 (“SEC”), specifically the sections titled “Risk Factors” and “Management’s Discussion and Analysis of Financial Condition and Results of Operations” in the Company’s 2020 Form 10-K, filed with the SEC on December 17, 2020. Other risks and uncertainties are and will be disclosed in the Company’s prior and future SEC filings. The following information should be read in conjunction with the financial statements included in the Company’s 2020 Form 10-K, filed with the SEC on December 17, 2020.

Available Information

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

Executive Overview

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

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

COVID-19 Impact

Beginning in our second fiscal quarter of 2020, the novel coronavirus known as "COVID-19" began to spread throughout the world, resulting in a global pandemic. The pandemic triggered a significant downturn in global commerce as early as February 2020 and the challenging market conditions continued throughout the second half of fiscal 2020 and into the first three quarters of fiscal 2021, and may continue for an extended period of time. In an effort to contain the spread of COVID-19, maintain the well-being of our employees and stakeholders, address the reduced demand from our customers and be responsive and efficient with supply chain constraints, management took decisive actions including closing our manufacturing facilities for two weeks in April 2020 and implementing stringent safety protocols, including administering COVID-19 testing for all manufacturing and office employees and requesting office employees to work from home. Management also decided to cease production for a full week in each of March and May 2021 due to supply chain disruptions that resulted in a shortage of critical components. Additionally, management closely monitors the expected receipt of critical components on a daily basis and has had to cease part or all of production for shorter periods of time as a result of supply shortages.

These temporary closures of our manufacturing facility did not materially impact our operations during the first and second quarters of fiscal 2021 as we did not need to operate at full capacity to fill sales orders. However, such supply chain disruptions did significantly impact our operations and results during the third quarter of fiscal 2021 as a result of higher freight costs incurred to expedite receipt of critical components, increased manufacturing inefficiencies and our inability to complete the production of buses to fill sales orders. Specifically, management estimates that the sale of over 500 units was deferred from the third quarter of fiscal 2021 into subsequent
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quarters as a result of the shortage of critical components that prevented the Company from initiating or completing, as applicable, the production process for certain units that were otherwise scheduled to be delivered to customers during the quarter. Including these units, the Company's backlog exceeded 3,900 units as of July 3, 2021 as demand for our products remains strong, with no sales orders canceled as a result of delays in our production process. The Company has also experienced increased purchase costs for certain of its raw materials during the pandemic that have negatively impacted the gross profit it recognized on sales during the nine months ended July 3, 2021. However, in July 2021, the Company announced two sales price increases that will apply to new sales orders and are intended to mitigate the impact of rising purchase costs on our operations and results. In general, management believes that such supply chain disruptions will continue in future periods and will materially impact our results if we are unable to i) produce during quarters having higher sales volumes and/or ii) pass along rising costs to our customers. Additionally, although we have not experienced any pervasive COVID-19 illnesses to-date, if we were to experience some form of outbreak within our facilities, we would take all appropriate measures to protect the health and safety of our employees, which could include another temporary halt in production.

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

The continuing impacts from COVID-19 on the Company's operations in the first three quarters of fiscal 2021 negatively affected our revenue and profit. We continue to monitor and assess the level of future customer demand, the ability of school boards to make decisions regarding reinstating normal in-person learning in the foreseeable future, the ability of suppliers to resume and maintain operations, the ability of our employees to continue to work, and our ability to maintain continuous production as we plan for the remainder of fiscal 2021 and beyond. A prolonged economic downturn could have a material adverse impact on our sales and financial results beyond fiscal 2021. See PART I, Item 1.A. "Risk Factors," of our 2020 Form 10-K, filed with the SEC on December 17, 2020, for a discussion of the material risks we believe we face particularly related to the COVID-19 pandemic.

The Company has also taken actions to control spending and secure adequate liquidity, including headcount rationalization and changes to the minimum required financial covenants via execution of a third amendment to our Credit Agreement in December 2020. Further detail and discussion of this amendment can be found in the "Liquidity and Capital Resources" section of this Item 2. "Management’s Discussion and Analysis of Financial Condition and Results of Operations" of this Report. Even with adequate liquidity, we are evaluating and considering further actions to reduce costs and spending across our organization to be responsive to potential longer-term impacts on our business from the pandemic. Our actions may include reducing hiring activities, limiting discretionary spending, limiting spending on capital investment projects or other steps necessary to preserve adequate liquidity. We will continue to actively monitor the situation and may need to take further actions required by federal, state or local authorities, or enact measures we determine are in the best interests of our employees, customers, suppliers and shareholders. For further details and discussion about our liquidity, refer to the following "Liquidity and Capital Resources" section of this Item 2. "Management’s Discussion and Analysis of Financial Condition and Results of Operations" of this Report.

Critical Accounting Policies and Estimates, Recent Accounting Pronouncements

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

The Company’s accounting policies that we believe are the most critical to aid in fully understanding and evaluating our reported financial results are described in the Company’s 2020 Form 10-K, filed with the SEC on December 17, 2020, under the caption “Management’s Discussion and Analysis of Financial Condition and Results of Operations – Critical Accounting Policies and Estimates,” which description is incorporated herein by reference. Our senior management has reviewed these critical accounting policies and related disclosures and determined that there were no significant changes in our critical accounting policies during the nine months ended July 3, 2021.

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Recent Accounting Pronouncements

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

Factors Affecting Our Revenues

Our revenues are driven primarily by the following factors:

•Property tax revenues. Property tax revenues are one of the major sources of funding for school districts, and therefore new school buses. Property tax revenues are a function of land and building prices, relying on assessments of property value by state or county assessors and millage rates voted by the local electorate.
•Student enrollment and delivery mechanisms for learning. Increases or decreases in the number of school bus riders have a direct impact on school district demand. Due to the COVID-19 pandemic and evolving protocols for social distancing and public health concerns, the future form of educational delivery is uncertain, and increased remote learning could reasonably be expected to decrease the number of school bus riders.
•Revenue mix. We are able to charge more for certain of our products (e.g., Type C propane-powered school buses, Type D buses, and buses with higher option content) than other products. The mix of products sold in any fiscal period can directly impact our revenues for the period.
•Strength of the dealer network. We rely on our dealers, as well as a small number of major fleet operators, to be the direct point of contact with school districts and their purchasing agents. An effective dealer is capable of expanding revenues within a given school district by matching that district’s needs to our capabilities, offering options that would not otherwise be provided to the district.
•Pricing. Our products are sold to school districts throughout the United States and Canada. Each state and each Canadian province has its own set of regulations that governs the purchase of products, including school buses, by their school districts. We and our dealers must navigate these regulations, purchasing procedures, and the districts’ specifications in order to reach mutually acceptable price terms. Pricing may or may not be favorable to us, depending upon a number of factors impacting purchasing decisions.
•Buying patterns of major fleets. Major fleets regularly compete against one another for existing accounts. Fleets are also continuously trying to win the business of school districts that operate their own transportation services. These activities can have either a positive or negative impact on our sales, depending on the brand preference of the fleet that wins the business. Major fleets also periodically review their fleet sizes and replacement patterns due to funding availability as well as the profitability of existing routes. These actions can impact total purchases by fleets in a given year.
•Seasonality. Historically, our sales have been subject to seasonal variation based on the school calendar with the peak season during our third and fourth fiscal quarters. Sales during the third and fourth fiscal quarters were typically greater than the first and second fiscal quarters due to the desire of municipalities to have any new buses that they order available to them at the beginning of the new school year. With the COVID-19 pandemic impact on school systems and the uncertainty surrounding in-person schooling schedules and duration, when coupled with its impact on supply chains, seasonality has become unpredictable. Seasonality and variations from historical seasonality have impacted the comparison of results between fiscal periods.

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
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and marketing programs, the principal component of these costs is salary expense. Changes from period to period are typically driven by the number of our employees, as well as by merit increases provided to experienced personnel.
•Interest expense. Our interest expense relates to costs associated with our debt instruments and reflects both the amount of indebtedness and the interest rate that we are required to pay on our debt. Interest expense also includes unrealized gains or losses from interest rate hedges, if any, and changes in the fair value of interest rate derivatives not designated in hedge accounting relationships, if any, as well as expenses related to debt guarantees, if any.
•Income taxes. We make estimates of the amounts to recognize for income taxes in each tax jurisdiction in which we operate. In addition, provisions are established for withholding taxes related to the transfer of cash between jurisdictions and for uncertain tax positions taken.
•Other income, net. This primarily includes periodic pension expense as well as other amounts not associated with our operating results.
•Equity in net income of non-consolidated affiliate. We include in this line item our 50% share of net income or loss from our investment in Micro Bird, our unconsolidated Canadian joint venture.

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

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

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

Adjusted EBITDA is defined as net income prior to interest income; interest expense including the component of operating lease expense (which is presented as a single operating expense in selling, general and administrative expenses in our GAAP financial statements) that represents interest expense on lease liabilities; income taxes; and depreciation and amortization including the component of operating lease expense (which is presented as a single operating expense in selling, general and administrative expenses in our GAAP financial statements) that represents amortization charges on right-of-use lease assets; as adjusted for certain non-cash charges or credits that we may record on a recurring basis such as stock-compensation expense and unrealized gains or losses on certain derivative financial instruments; net gains or losses on the disposal of assets as well as certain charges such as (i) significant product design changes; (ii) transaction related costs; (iii) discrete expenses related to major cost cutting initiatives; or (iv) costs directly attributed to the COVID-19 pandemic. While certain of the charges that are added back in the Adjusted EBITDA calculation, such as transaction related costs and operational transformation and major product redesign initiatives, represent operating expenses that may be recorded in more than one annual period, the significant project or transaction giving rise to such expenses is not considered to be indicative of the Company’s normal operations. Accordingly, we believe that these, as well as the other credits and charges that comprise the amounts utilized in the determination of Adjusted EBITDA described above, should not be used in evaluating the Company’s ongoing annual operating 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 ongoing operations, excluding decisions made with respect to capital investment, financing, and certain other significant initiatives or transactions as outlined in the preceding paragraph. We believe the non-GAAP measures offer additional financial metrics that, when coupled with the GAAP results and the reconciliation to GAAP results, provide a more complete understanding of our results of operations and the factors and trends affecting our business.

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Adjusted EBITDA and Adjusted EBITDA Margin should not be considered as alternatives to net income or loss as an indicator of our performance or as alternatives to any other measure prescribed by GAAP as there are limitations to using such non-GAAP measures. Although we believe that Adjusted EBITDA and Adjusted EBITDA Margin may enhance an evaluation of our operating performance based on recent revenue generation and product/overhead cost control because they exclude the impact of prior decisions made about capital investment, financing, and certain other significant initiatives or transactions, (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 ongoing operating results.

Our measure of Free Cash Flow is used in addition to and in conjunction with results presented in accordance with GAAP and it should not be relied upon to the exclusion of GAAP financial measures. Free Cash Flow reflects an additional way of evaluating our liquidity that, when viewed with our GAAP results, provides a more complete understanding of factors and trends affecting our cash flows. We strongly encourage investors to review our financial statements and publicly-filed 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 as adjusted for net cash paid for the acquisition of fixed assets and intangible assets. We use Free Cash Flow, and ratios based on 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. Accordingly, Free Cash Flow will be less than operating cash flows.

Our Segments

We manage our business in two operating segments, which are also our reportable segments: (i) the Bus segment, which involves the design, engineering, manufacture and sales of school buses and extended warranties; and (ii) the Parts segment, which includes the sale of replacement bus parts. Financial information is reported on the basis that it is used internally by the chief operating decision maker (“CODM”) in evaluating segment performance and deciding how to allocate resources to segments. The Chief Executive Officer of the Company has been identified as the CODM. Management evaluates the segments based primarily upon revenues and gross profit.
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Consolidated Results of Operations for the Three Months Ended July 3, 2021 and July 4, 2020:
Three Months Ended
(in thousands of dollars) July 3, 2021 July 4, 2020
Net sales
$ 196,659  $ 189,181 
Cost of goods sold
170,500  168,099 
Gross profit $ 26,159  $ 21,082 
Operating expenses
Selling, general and administrative expenses 18,073  17,793 
Operating profit $ 8,086  $ 3,289 
Interest expense (2,805) (2,406)
Interest income —  27 
Other income, net 426  181 
Income before income taxes $ 5,707  $ 1,091 
Income tax expense (1,892) (765)
Equity in net income of non-consolidated affiliate 517  960 
Net income $ 4,332  $ 1,286 
Other financial data:
Adjusted EBITDA
$ 13,161  $ 12,481 
Adjusted EBITDA margin
6.7  % 6.6  %

The following provides the results of operations of Blue Bird’s two reportable segments:
(in thousands of dollars) Three Months Ended
Net Sales by Segment
July 3, 2021 July 4, 2020
Bus
$ 181,735  $ 180,592 
Parts
14,924  8,589 
Total
$ 196,659  $ 189,181 
Gross Profit by Segment
Bus
$ 20,471  $ 18,079 
Parts
5,688  3,003 
Total
$ 26,159  $ 21,082 

Net sales. Net sales were $196.7 million for the third quarter of fiscal 2021, an increase of $7.5 million, or 4.0%, compared to $189.2 million for the third quarter of fiscal 2020. The increase in net sales is primarily attributed to increased volumes in both bus and parts sales.

Bus sales increased $1.1 million, or 0.6%, reflecting an increase in units booked, which was partially offset by lower sales prices per unit. In the third quarter of fiscal 2021, 2,024 units were booked compared to 1,948 units booked for the same period in fiscal 2020. The increase is mainly attributed to more schools offering, or expecting to offer, in-person learning in 2021 compared to 2020, when most schools were conducting learning remotely due to the COVID-19 pandemic. The 3.1% decrease in unit price for the third quarter of fiscal 2021 compared to the same period in fiscal 2020 mainly reflects product and customer mix changes.

Parts sales increased $6.3 million, or 73.8%, for the third quarter of fiscal 2021 compared to the third quarter of fiscal 2020. This increase is primarily attributed to more schools offering in-person learning in 2021 compared to 2020, which increased school bus units in operation and thus increased bus repair and maintenance activities.

Cost of goods sold. Total cost of goods sold was $170.5 million for the third quarter of fiscal 2021, an increase of $2.4 million, or 1.4%, compared to $168.1 million for the third quarter of fiscal 2020. As a percentage of net sales, total cost of goods sold improved from 88.9% to 86.7%.

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Bus segment cost of goods sold decreased $1.2 million, or 0.8%, for the third quarter of fiscal 2021 compared to the same period in fiscal 2020. The average cost of goods sold per unit for the third quarter of fiscal 2021 was 4.5% lower compared to the third quarter of fiscal 2020 due to decreases in manufacturing costs from several COVID-19 related factors including improved absenteeism among our hourly workforce and manufacturing efficiencies. The decreases in manufacturing costs per unit were partially offset by an increase in the volume of units produced and sold, driven by increased in-person learning in 2021 compared to 2020.

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

Operating profit. Operating profit was $8.1 million for the third quarter of fiscal 2021, an increase of $4.8 million, compared to operating profit of $3.3 million for the third quarter of fiscal 2020. Profitability was positively impacted by an increase of $5.1 million in gross profit as outlined in the revenue and cost of goods sold discussion. This was partially offset by an increase of $0.3 million in selling, general and administrative expenses.

Interest expense. Interest expense was $2.8 million for the third quarter of fiscal 2021, an increase of $0.4 million, or 16.6%, compared to $2.4 million for the third quarter of fiscal 2020. The increase was primarily attributable an increase in the stated term loan interest rate from 2.8% at July 4, 2020 to 4% at July 3, 2021.

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

The effective tax rate for the three month period ended July 3, 2021 was 33.2%, which differed from the statutory federal income tax rate of 21%. The difference is mainly due to normal tax rate items, including impacts from state taxes, net non-deductible compensation expenses and other tax adjustments. The effective tax rate was also impacted by discrete period tax expense resulting from recording a liability for UTPs, including accrued interest and penalties, that was partially offset by discrete period tax benefits resulting from share-based compensation expenses and prior year tax return adjustments.

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

Adjusted EBITDA. Adjusted EBITDA was $13.2 million, or 6.7% of net sales, for the third quarter of fiscal 2021, an increase of $0.7 million, or 5.4%, compared to $12.5 million, or 6.6% of net sales, for the third quarter of fiscal 2020. The increase in Adjusted EBITDA primarily results from an increase of $5.1 million in gross profit, as outlined in the revenue and cost of goods sold discussion. This was largely offset by lower adjustments for the third quarter of fiscal 2021 compared to the third quarter of fiscal 2020, particularly in depreciation, amortization, and disposals, and share-based compensation.

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The following table sets forth a reconciliation of net income to adjusted EBITDA for the periods presented:
Three Months Ended
(in thousands of dollars) July 3, 2021 July 4, 2020
Net income $ 4,332  $ 1,286 
Adjustments:
Interest expense, net (1) 2,887  2,466 
Income tax expense 1,892  765 
Depreciation, amortization, and disposals (2) 2,851  3,861 
Operational transformation initiatives 14  339 
Share-based compensation 328  1,808 
Product redesign initiatives 641  1,071 
Restructuring charges —  364 
Costs directly attributed to the COVID-19 pandemic (3) 216  521 
Adjusted EBITDA
$ 13,161  $ 12,481 
Adjusted EBITDA margin (percentage of net sales)
6.7  % 6.6  %
(1) Includes $0.1 million for both fiscal periods, representing interest expense on lease liabilities, which are a component of lease expense and presented as a single operating expense in selling, general and administrative expenses on our Condensed Consolidated Statements of Operations.
(2) Includes $0.2 million for both fiscal periods, representing amortization charges on right-of-use lease assets, which are a component of lease expense and presented as a single operating expense in selling, general and administrative expenses on our Condensed Consolidated Statements of Operations.
(3) Primarily represents costs incurred for third party cleaning services and personal protective equipment for our employees.
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Consolidated Results of Operations for the Nine Months Ended July 3, 2021 and July 4, 2020:
Nine Months Ended
(in thousands of dollars) July 3, 2021 July 4, 2020
Net sales
$ 491,791  $ 597,810 
Cost of goods sold
432,671  531,259 
Gross profit
$ 59,120  $ 66,551 
Operating expenses
Selling, general and administrative expenses
50,124  58,146 
Operating profit $ 8,996  $ 8,405 
Interest expense (7,069) (9,961)
Interest income 1  27 
Other income, net 1,491  555 
Loss on debt extinguishment (598) — 
Income (loss) before income taxes $ 2,821  $ (974)
Income tax (expense) benefit (888) 378 
Equity in net income of non-consolidated affiliate 166  840 
Net income $ 2,099  $ 244 
Other financial data:
Adjusted EBITDA
$ 26,484  $ 32,778 
Adjusted EBITDA margin
5.4  % 5.5  %

The following provides the results of operations of Blue Bird’s two reportable segments:
(in thousands of dollars) Nine Months Ended
Net Sales by Segment July 3, 2021 July 4, 2020
Bus
$ 449,876  $ 554,061 
Parts
41,915  43,749 
Total $ 491,791  $ 597,810 
Gross Profit by Segment
Bus
$ 43,265  $ 50,884 
Parts
15,855  15,667 
Total
$ 59,120  $ 66,551 

Net sales. Net sales were $491.8 million for the nine months ended July 3, 2021, a decrease of $106.0 million, or 17.7%, compared to $597.8 million for the nine months ended July 4, 2020. The decrease in net sales is attributed to the COVID-19 pandemic which caused an increase in remote learning arrangements during the majority of the 2020/2021 school year, which significantly impacted our operations as a result of the reduced demand for new school buses and parts.

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

Parts sales decreased $1.8 million, or 4.2%, for the nine months ended July 3, 2021 compared to the nine months ended July 4, 2020, as we had lower sales volume, mainly from lower school bus units in operation which reduced bus repair and maintenance activities. The lower units in operation results from school schedule changes and increased remote learning arrangements caused by the COVID-19 pandemic.

27


Cost of goods sold. Total cost of goods sold was $432.7 million for the nine months ended July 3, 2021, a decrease of $98.6 million, or 18.6%, compared to $531.3 million for the nine months ended July 4, 2020. As a percentage of net sales, total cost of goods sold improved from 88.9% to 88.0%.

Bus segment cost of goods sold decreased $96.6 million, or 19.2%, for the nine months ended July 3, 2021 compared to the nine months ended July 4, 2020, which aligned with the decrease in sales volume noted above. The average cost of goods sold per unit for the nine months ended July 3, 2021 was 1.7% higher compared to the nine months ended July 4, 2020 due to increases in manufacturing costs from several COVID-19 related factors including absenteeism among our hourly workforce and supply disruptions, each of which created manufacturing inefficiencies and higher costs.

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

Operating profit. Operating profit was $9.0 million for the nine months ended July 3, 2021, an increase of $0.6 million compared to an operating profit of $8.4 million for the nine months ended July 4, 2020. Profitability was negatively impacted by a decrease of $7.4 million in gross profit as outlined in the revenue and cost of goods sold discussion. This was offset by a decrease of $8.0 million in selling, general and administrative expenses as we have taken actions to control spending during the pandemic.

Interest expense. Interest expense was $7.1 million for the nine months ended July 3, 2021, a decrease of $2.9 million, or 29.0%, compared to $10.0 million for the nine months ended July 4, 2020. The decrease was primarily attributable to a $3.0 million net increase in the fair value of the interest rate collar (a liability balance) recorded in interest expense in the nine months ended July 4, 2020 with the corresponding activity recorded in the nine months ended July 3, 2021 netting to an immaterial amount.

Loss on debt modification. Loss on debt modification was $(0.6) million for the nine months ended July 3, 2021. The amount is related to the execution of the third amendment to the Credit Agreement on December 4, 2020 for which we paid $2.5 million in lender fees and other issuance costs. Of the fees and issuance costs, only $2.0 million could be capitalized with the remainder, $0.5 million, expensed in the period incurred. In addition, $0.1 million in previously capitalized lender fees and other issuance costs capitalized in prior periods were expensed during the first quarter of fiscal 2021 in conjunction with executing the third amendment.

Income taxes. Income tax expense was $0.9 million for the nine months ended July 3, 2021, compared to income tax benefit of $0.4 million for the same period in fiscal 2020. The increase is primarily due to reporting pre-tax income of $2.8 million for the nine months ended July 3, 2021, compared to pre-tax loss of $(1.0) million for the same period in fiscal 2020.

The effective tax rate for the nine months ended July 3, 2021 was 31.5%, which differed from the statutory federal income tax rate of 21%. The difference is mainly due to normal tax rate items, including impacts from state taxes, net non-deductible compensation expenses and other tax adjustments. The effective tax rate was also impacted by discrete period tax benefits resulting from share-based compensation expenses and prior year tax return adjustments that were partially offset by discrete period tax expense resulting from recording a liability for UTPs, including accrued interest and penalties.

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

Adjusted EBITDA. Adjusted EBITDA was $26.5 million, or 5.4% of net sales, for the nine months ended July 3, 2021, a decrease of $6.3 million, or 19.2%, compared to $32.8 million, or 5.5% of net sales, for the nine months ended July 4, 2020. The decrease in Adjusted EBITDA is primarily the result of a decrease of $7.4 million in gross profit, mainly from lower sales volumes due the COVID-19 pandemic and higher manufacturing costs, as well as reductions in certain adjustment balances such as operational transformation initiatives and share-based compensation expense. These decreases were partially offset by lower adjusted selling, general and administrative expenses due to actions taken to control spending during the pandemic.


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The following table sets forth a reconciliation of net income to adjusted EBITDA for the periods presented:
Nine Months Ended
(in thousands of dollars) July 3, 2021 July 4, 2020
Net income $ 2,099  $ 244 
Adjustments:
Interest expense, net (1) 7,321  10,213 
Income tax expense (benefit) 888  (378)
Depreciation, amortization, and disposals (2) 10,118  11,215 
Operational transformation initiatives 222  3,218 
Loss on debt modification 598  — 
Share-based compensation 1,923  4,105 
Product redesign initiatives 1,908  3,163 
Restructuring charges 494  364 
Costs directly attributed to the COVID-19 pandemic (3) 913  628 
Other —  6 
Adjusted EBITDA $ 26,484  $ 32,778 
Adjusted EBITDA margin (percentage of net sales) 5.4  % 5.5  %
(1) Includes $0.3 million for both fiscal periods representing interest expense on lease liabilities, which are a component of lease expense and presented as a single operating expense in selling, general and administrative expenses on our Condensed Consolidated Statements of Operations.
(2) Includes $0.6 million and $0.5 million for the nine months ended July 3, 2021 and July 4, 2020, respectively, representing amortization charges on right-of-use lease assets, which are a component of lease expense and presented as a single operating expense in selling, general and administrative expenses on our Condensed Consolidated Statements of Operations.
(3) Primarily costs incurred for third party cleaning services and personal protective equipment for our employees.

29

Liquidity and Capital Resources

The Company’s primary sources of liquidity are cash generated from its operations, available cash and cash equivalents and borrowings under its credit facility. At July 3, 2021, the Company had $11.2 million of available cash (net of outstanding checks) and $93.1 million of additional borrowings available under the revolving line of credit portion of its credit facility. The Company’s revolving line of credit is available for working capital requirements, capital expenditures and other general corporate purposes.

Third Amendment to the Credit Agreement

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

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

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

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

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

Detailed descriptions of the Credit Agreement, First Amended Credit Agreement and Second Amended Credit Agreement are set forth under “Management’s Discussion and Analysis of Financial Condition and Results of Operations - Liquidity and Capital Resources” contained in the Company’s Annual Report on Form 10-K for the fiscal year ended October 3, 2020, filed with the SEC on December 17, 2020.

At July 3, 2021, the Borrower (as defined, Blue Bird Body Company, a subsidiary of the Company) and the guarantors under the Amended Credit Agreement were in compliance with all covenants.

Short-Term and Long-Term Liquidity Requirements

Our ability to make principal and interest payments on borrowings under our credit facilities and our ability to fund planned capital expenditures will depend on our ability to generate cash in the future, which, to a certain extent, is subject to general economic, financial, competitive, regulatory and other conditions.

The continuing adverse impacts from the COVID-19 pandemic materially impacted our results in the first three quarters of fiscal 2021, causing lower customer orders for both buses and parts, supply disruptions, and higher rates of absenteeism among our hourly production workforce. The continuing development and fluidity of the pandemic precludes any prediction as to the ultimate severity of the adverse impacts on our business, financial condition, results of operations, and liquidity. A prolonged economic downturn resulting from the continuing pandemic would likely have a material adverse impact on our financial results. See PART I, Item 1.A. "Risk Factors," of our 2020 Form 10-K, filed with the SEC on December 17, 2020, for a discussion of the material risks we believe we face particularly related to the COVID-19 pandemic.
30


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

Seasonality

Historically, our business has been highly seasonal with school districts buying 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. This has resulted in our third and fourth fiscal quarters being our two busiest quarters, the latter ending on the Saturday closest to September 30. Our quarterly results of operations, cash flows, and liquidity have been, and are likely to continue to be, impacted by the seasonal patterns. Working capital has historically been a significant use of cash during the first fiscal quarter and a significant source of cash generation in the fourth fiscal quarter, with planned shutdowns during our first fiscal quarter. With the COVID-19 pandemic impact on school systems and the uncertainty surrounding in-person schooling schedules and duration, when coupled with its impact on supply chains, seasonality and working capital trends have become unpredictable. Seasonality and variations from historical seasonality have impacted the comparison of working capital and liquidity results between fiscal periods.

Cash Flows

The following table sets forth general information derived from our Condensed Consolidated Statements of Cash Flows:
Nine Months Ended
(in thousands of dollars) July 3, 2021 July 4, 2020
Cash and cash equivalents at beginning of period $ 44,507  $ 70,959 
Total cash used in operating activities (14,238) (78,305)
Total cash used in investing activities (9,403) (16,574)
Total cash (used in) provided by financing activities (9,643) 36,458 
Change in cash and cash equivalents $ (33,284) $ (58,421)
Cash and cash equivalents at end of period $ 11,223  $ 12,538 

Total cash used in operating activities

Cash flows used in operating activities totaled $14.2 million for the nine months ended July 3, 2021, as compared to $78.3 million for the nine months ended July 4, 2020. The $64.1 million decrease in cash used was primarily attributed to a positive $66.0 million difference (source of cash) from the impacts of changes in working capital and accrued expenses between fiscal periods.

Total cash used in investing activities

Cash flows used in investing activities totaled $9.4 million for the nine months ended July 3, 2021, as compared to $16.6 million for the nine months ended July 4, 2020. The $7.2 million decrease was due to a reduction of spending on manufacturing assets and a delay of certain projects due to the COVID-19 pandemic.

Total cash (used in) provided by financing activities

Cash flows used in financing activities totaled $9.6 million for the nine months ended July 3, 2021, as compared to $36.5 million of cash flows provided by financing activities for the nine months ended July 4, 2020. The $46.1 million decrease between fiscal periods was primarily attributed to a $45.0 million decrease in cash borrowings under the revolving credit facility and a $1.5 million increase in cash paid for debt costs.

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Free cash flow

Management believes the non-GAAP measurement of free cash flow, defined as net cash used in operating activities plus cash paid for fixed assets, fairly represents the Company’s ability to generate surplus cash that could fund activities not in the ordinary course of business. See “Key Non-GAAP Measures We Use to Evaluate Our Performance.” The following table sets forth the calculation of free cash flow for the periods presented:
Nine Months Ended
(in thousands of dollars) July 3, 2021 July 4, 2020
Net cash used in operating activities $ (14,238) $ (78,305)
Cash paid for fixed assets (10,304) (16,724)
Free cash flow
$ (24,542) $ (95,029)

Free cash flow for the nine months ended July 3, 2021 was $70.5 million higher than the nine months ended July 4, 2020, due to a $64.1 million decrease in cash used in operating activities and a decrease of $6.4 million in cash paid for fixed assets.

Off-Balance Sheet Arrangements

We had outstanding letters of credit totaling $6.9 million at July 3, 2021, the majority of which secure our self-insured workers compensation program, the collateral for which is regulated by the State of Georgia.

We had a $3.0 million guarantee outstanding at July 3, 2021 which relates to a guarantee of indebtedness for a term loan issued by a Company dealer with a remaining maturity up to 1.5 years. The $3.0 million represents the estimated maximum amount we would be required to pay upon default of all guaranteed indebtedness, and we believe the likelihood of required performance to be remote.

Item 3. Quantitative and Qualitative Disclosures About Market Risk.

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 2020 Form 10-K.

Item 4. Controls and Procedures.

Evaluation of Disclosure Controls and Procedures

The Company maintains a system of disclosure controls and procedures (as defined in Rules 13a-15(e) and 15d-15(e) of the 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 July 3, 2021.

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






32

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 2020 Form 10-K. Such risk factors are expressly incorporated herein by reference, and could materially adversely affect our business, financial condition, cash flows or future results. The risks described in the 2020 Form 10-K are not the only risks facing the Company. Additional risks and uncertainties not currently known to us or that we currently deem to be immaterial also may materially adversely affect our business, financial condition, cash flows and/or operating results.

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

Exhibit No. Description
3.1
3.2
10.1*
10.2*
10.3*
10.4*
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
104 Cover Page Interactive Data File (formatted as Inline XBRL and contained in Exhibit 101)
33


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


SIGNATURES

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


Blue Bird Corporation
Dated: August 12, 2021  /s/ Philip Horlock
Philip Horlock
Chief Executive Officer
Dated: August 12, 2021  /s/ Phillip Tighe
Phillip Tighe
Chief Financial Officer

                                

34
Exhibit 10.1

TRANSITION AGREEMENT
This TRANSITION AGREEMENT (“Agreement”), dated as of June 21, 2021, sets forth the mutual agreement of Blue Bird Corporation, a Delaware corporation (the “Company”), and Philip Horlock (“Executive”) regarding Executive’s retirement from the Company.

1.     Executive’s Retirement; Consultancy. Executive agrees to retire from and terminate his employment with the Company under the terms and conditions described in this Agreement.

a.     Retirement. Executive’s retirement will be effective and his employment with the Company and any related entity(ies) will terminate on December 31, 2021 (the “Termination Date”).

b.     President and Chief Executive Officer Transition. Executive resigns as President of the Company effective as of July 1, 2021. Executive will continue to serve as the Company’s Chief Executive Officer until October 31, 2021, or such earlier date as of which the successor Chief Executive Officer is appointed by the Company and assumes such role (the “Transition Date”), unless otherwise determined by the Company’s Board of Directors (the “Board”). Executive resigns as Chief Executive Officer of the Company effective as of the Transition Date, and during the period from the Transition Date through the Termination Date, Executive will be employed by the Company as a Senior Advisor supporting a smooth transition of leadership to the new Chief Executive Officer.

c.     Consultancy. The Company and Executive will enter into a Consulting Agreement, substantially in the form attached hereto as Exhibit A, to be effective immediately following the Termination Date.

d.     Board Service. Executive will continue to serve on the Board as a Class III director through the remainder of his current term.

2.     Base Salary and Benefits Through the Termination Date. Except as otherwise provided in this Agreement, Executive will continue to receive base salary at the current level and will continue to be eligible to participate in and to be entitled to all other compensation and benefits under the Company’s plans, programs, agreements and policies applicable to him as a Company employee, through the Termination Date, consistent with the Company’s payroll and benefits practices and procedures.

3.     Annual Bonuses. If Executive signs this Agreement and does not revoke it during the Revocation Period (defined in paragraph 18), and except as otherwise provided in paragraph 5, Executive will participate in the Company’s annual bonus program with respect to the period through his Termination Date, as follows:

a.     Minimum Annual Bonus for Fiscal Year 2021. Executive will be eligible for an award under the terms of the Company’s Annual Management Incentive Plan (“MIP”) for the Company’s fiscal year ending in 2021 (“FY2021”) of no less than the percentage payout approved by the Compensation Committee of the Board (the “Compensation Committee”) for the FY2021 MIP bonuses for the levels of the Company’s achievement of financial performance targets for the fiscal year (without adjustment for individual performance). The annual bonus amount determined in accordance with this paragraph 3.a. will be paid to Executive in cash at the same time as payouts pursuant to the MIP are made to other MIP participants for FY2021, but in no event later than December 20, 2021.

b.    Pro Rata Bonus for Fiscal Year 2022. For the Company’s fiscal year ending in 2022 (“FY2022”), Executive will be paid a pro rata MIP bonus amount not less than 25% of the percentage payout approved by the Compensation Committee for the FY2022 MIP bonuses for the levels of the Company’s achievement of financial performance targets for the fiscal year (without adjustment for individual performance). The pro rata bonus amount described in this paragraph 3.b. will be paid to Executive in cash at the same time as payouts pursuant to the MIP are made to other MIP participants for FY2022, but in no event later than December 20, 2022.

c.     Section 409A. Annual bonus payment amounts described in this paragraph 3 shall be administered consistent with the requirements for the short-term deferral exception under Section 409A of the Internal Revenue Code of 1986, as amended, and regulations thereunder (“Section 409A”), as described in Treas. Reg. Section 1.409A-1(b)(4).

4.     Long Term Incentive Plan. If Executive signs this Agreement and does not revoke it during the Revocation Period (defined in paragraph 18), and except as otherwise provided in paragraph 5, Executive’s outstanding awards under the Blue Bird Corporation Amended and Restated 2015 Omnibus Equity Incentive Plan (the “LTIP”) will be treated as follows:


Exhibit 10.1
a.     Accelerated Vesting. Effective October 31, 2021 (the “Vesting Date”), vesting of all of Executive’s awards under the LTIP that were awarded for fiscal years 2019, 2020 and 2021 that are otherwise unvested on that date will be accelerated. Such LTIP awards will be immediately fully vested, as follows:

(i)     Vesting Amounts. Effective as of the Vesting Date, (x) for all such LTIP awards that would vest with continued service over a specified time period (or periods), such time-based vesting requirements shall be deemed to have been satisfied, and (y) for all such LTIP awards that would vest only upon achievement (or the degree of achievement) of performance goals, such performance-vesting requirements shall be deemed to have been satisfied at the level(s) that would result in 100% vesting of such awards.

(ii)     Exercise of Stock Options. All unvested stock options awarded to Executive under the LTIP will, upon such accelerated vesting on the Vesting Date, immediately be fully and freely exercisable subject to the applicable terms and conditions described in the LTIP and related award documents, and will remain exercisable for five years after Executive’s Termination Date; provided that, in no event may any such stock options be exercised later than the end of the maximum (10-year) term of the options described in the LTIP.

(iii)     Settlement of Restricted Stock Units, etc. All unvested restricted stock units or other awards to Executive under the LTIP (other than stock options) will, upon such accelerated vesting on the Vesting Date, be paid to Executive, in cash or shares of Company common stock under the terms of the LTIP or related award documents, as soon as practicable following the Vesting Date.

b.     Section 409A. Stock options under the LTIP described in this paragraph 4 shall be administered consistent with the requirements for the Section 409A exception applicable to certain stock rights, as described in Treas. Reg. Section 1.409A-1(b)(5). Restricted Stock Units described in this paragraph 4 shall be administered consistent with the requirements for the short-term deferral exception under Section 409A described in Treas. Reg. Section 1.409A-1(b)(4) and, accordingly, shall be paid no later than March 15, 2022.

5.     Continued Employment; Early Termination of Executive’s Employment; Forfeiture of Retirement Incentives. During the period of Executive’s continued employment through the Termination Date, Executive will act in good faith and in a professional manner.

a.     Termination for Violation of Terms; Voluntary Termination by Executive; Forfeiture of Benefits. If the Compensation Committee determines, in good faith, that Executive has materially violated any of the terms of this Agreement, the provisions of any employment or similar agreement, confidentiality, noncompetition and/or nonsolicitation or similar agreement regarding restrictive covenants, or other agreement with the Company, or a Company code of conduct or other Company written policy generally applicable to employees of Executive’s level and position, while a Company employee, the Company may terminate Executive’s employment after giving Executive written notice, a reasonable opportunity to cure, and Executive has failed to cure, and in such event the date of such termination will be Executive’s Termination Date for purposes of this Agreement. If Executive voluntarily resigns without the approval or consent of the Compensation Committee before the Termination Date described in paragraph 1, his Termination Date for purposes of this Agreement will be the effective date of such resignation. Upon any early Termination Date described in this paragraph 5.a., Executive (i) will not be eligible to receive any further amounts described in this Agreement, including without limitation any further base salary amounts or benefits under paragraph 2 of this Agreement and any further annual bonus payment amounts under paragraph 3, and (ii) will forfeit any further rights or entitlements under paragraph 4 of this Agreement, including without limitation any right to exercise stock options and any entitlement to a distribution with respect to restricted stock units with respect to which vesting was (or would be) accelerated under paragraph 4 (to the extent not previously exercised or paid), all such amounts and entitlements to be forfeited immediately upon such early Termination Date. Executive’s rights, if any, to any benefit under the Company’s health and welfare or retirement plans, or to any equity grants, will be governed by the applicable plan, program, policy or equity agreement.

b.     Other Early Termination by Company; Executive’s Death or Disability; Acceleration of Retirement Incentives. If Executive’s employment is terminated by the Company before the Termination Date described in paragraph 1, for any reason other than a termination in connection with a violation by Executive of the terms of any agreement with the Company as described in paragraph 5.a., or if Executive’s employment is terminated before the Termination Date described in paragraph 1 upon Executive’s death or disability, the date of such employment termination will be Executive’s Termination Date for purposes of this Agreement. Upon any such early termination described in paragraph 5.b., (i) Executive (or his estate, in the event of Executive’s death) will be entitled to (A) a lump-sum cash payment equal to the amount of base salary that would have been paid to Executive pursuant to paragraph 2 after such early Termination Date had Executive’s employment not been terminated early, and (B) payment of the annual bonus amounts described in paragraphs 3.a and 3.b, and (ii) if such early termination is before the Vesting Date (described in paragraph 4.b.), Executive will be entitled to accelerated vesting of all of Executive’s unvested awards under the LTIP, and related treatment, as described in paragraph 4, as of the early Termination Date.

Exhibit 10.1
The lump-sum cash payment described in clause (i)(A) of this paragraph 5.b. will be paid within 60 days after Executive’s early Termination Date, the bonus payment amounts described in clause (i)(B) of this paragraph 5.b. will be paid as and when each such bonus amount is payable under the terms in paragraphs 3.a and 3.b, respectively, and the accelerated vesting and related treatment of Executive’s unvested LTIP awards described in clause (ii) of this paragraph 5.b. will be effective immediately on such early Termination Date, with stock options immediately becoming fully and freely exercisable and restricted stock units or other awards (other than options) being paid out within 60 days after such early Termination Date.

6.     Complete Release. The benefits to Executive under this Agreement are contingent on his execution, and non-revocation, of this Agreement including the release described in paragraph 6.a., and his execution, and non-revocation, of a final release agreement described in paragraph 6.b.

a.     Release. Executive hereby fully releases the Company and all of its owners, partners, shareholders, predecessors, successors, assigns, agents, directors, officers, employees, representatives, attorneys, subsidiaries, joint ventures, and affiliates (and agents, directors, officers, employees, representatives, and attorneys of such subsidiaries and affiliates) (collectively, “Released Parties”), from any and all known or unknown claims or demands he may have against any of them. Executive expressly waives any and all claims, whether asserted on an individual or class action basis, against the Released Parties including but not limited to all claims arising out of any contract, express or implied, and whether executory or not, any covenant of good faith and fair dealing, express or implied, any tort (whether intentional or negligent, including claims arising out of the negligence or gross negligence by the Released Parties and claims of express or implied defamation by the Released Parties), and any federal, state, or other governmental statute, regulation, or ordinance, including, without limitation, those relating to qui tam, employment discrimination, termination of employment, payment of wages or provision of benefits, Title VII of the Civil Rights Act of 1964 as amended, the Civil Rights Act of 1991, the Americans with Disabilities Act, the Genetic Information Nondiscrimination Act, the Employee Retirement Income Security Act, the Family and Medical Leave Act, the Fair Labor Standards Act, the Age Discrimination in Employment Act, the Older Workers Benefit Protection Act (“OWBPA”), the Uniformed Services Employment and Reemployment Rights Act (“USERRA”), the Worker Adjustment and Retraining Notification (“WARN”) Act, the Consolidated Omnibus Budget Reconciliation Act (“COBRA”), and the Occupational Safety and Health Act (“OSHA”). Executive further releases any and all claims that he may have under State law and any other claim under Federal law. Executive represents that he has not assigned to any other person any of such claims and that he has the full right to grant this release. Notwithstanding any other provision herein, the Company and Executive agree that Executive is not waiving any claims that may arise in the future under the Age Discrimination in Employment Act.

This release does not include and will not preclude: (a) claims by Executive for benefits under the Company’s retirement, deferred compensation or health and welfare benefit plans; (b) rights to defense, indemnification and contribution, if any, from the Company for actions taken by Executive in the course and scope of his employment with the Company and its parents, subsidiaries and/or affiliates; and/or (c) rights arising under or to enforce the terms of this Agreement.

b.     Final Release. On or about the Termination Date, the Company will provide to Executive a release agreement having substantially the same terms and scope as the release terms described in this Agreement. Such final release will also have a consideration period of at least 21 days, and a revocation period of at least seven days after such final release is signed by Executive. If Executive signs and does not revoke the final release during its revocation period, the final release will constitute an “Effective Final Release,” and the Company will provide Executive with the treatment, payments and benefits described in this Agreement, subject to the other terms and conditions described in this Agreement. If Executive fails or refuses to provide an Effective Final Release upon the Company’s request, Executive will not be eligible to receive any further amounts described in this Agreement and will forfeit all further rights or entitlements under this Agreement.

7.     Release of Unknown Claims. For the purpose of implementing a full and complete release, Executive expressly acknowledges that the release that he gives in this Agreement is intended to include in its effect, without limitation, claims that he did not know or suspect to exist in his favor at the time of the effective date of this Agreement, regardless of whether knowledge of such claims, or the facts upon which they might be based, would materially have affected the settlement of this matter, and that the consideration given under the Agreement was also for the release of those claims and contemplates the extinguishment of any such unknown claims.

8.     No Severance Pay or Benefits. Executive agrees and acknowledges that, except as expressly set forth in this Agreement, Executive is not entitled to receive from the Company any payments or benefits including but not limited to severance pay or benefits in any form, or any perquisites or property of any type, after the Termination Date (other than payments in accordance with Executive’s rights, if any, to benefits under the Company’s health and welfare or retirement plans and similar arrangements). Executive expressly waives any and all rights to severance pay, benefits or similar amounts or entitlements, under the terms of any Company plan or program, or pursuant to the terms of any understanding or agreement

Exhibit 10.1
between the parties set forth in any employment, severance or similar agreement, offer letter, term sheet or otherwise, including but not limited to the Employment Agreement, dated as of April 1, 2011, between the parties to this Agreement.

9.     Section 409A Compliance. Payments and benefits payable pursuant to this Agreement are intended either to be exempt from Section 409A as payments that would fall within the “short‐term deferral period” within the meaning of Treasury Regulation Section 1.409A‐1(b)(4), to the extent available, or to comply with the provisions of Section 409A. This Agreement shall be interpreted to avoid any penalty or sanctions under Section 409A. Accordingly, all provisions herein, or incorporated by reference, shall be construed and interpreted to the maximum extent permitted to be exempt from or compliant with Section 409A and, if necessary, any such provision shall be deemed amended to comply with Section 409A and regulations thereunder. In connection therewith:
a.     It is intended that each installment of the payments and benefits hereunder shall be treated as a separate “payment” for purposes of Section 409A.

b.     To the extent that payments and benefits under this Agreement are deferred compensation subject to Section 409A and are contingent upon Executive’s taking any employment‐related action, including without limitation execution (and non‐revocation) of another agreement, such as a release agreement, and the period within which such action(s) may be taken by Executive would begin in one calendar year and expire in the following calendar year, then such amounts or benefits shall be paid in such following calendar year.

c.     If as of the Termination Date, Executive is a “specified employee” (within the meaning of Section 409A(a)(2)(B) or any successor provision thereto), then with regard to any payment or provision of benefit that is subject to Section 409A as deferred compensation and is due upon or as a result of Executive’s “separation from service,” notwithstanding any contrary provision under this Agreement, such payment or benefit shall not be made or provided, to the extent making or providing such payment or benefit would result in additional taxes or interest under Section 409A, until the date with is the earlier of (A) expiration of the six‐month period measured from such “separation from service,” and (B) the date of Executive’s death (the “Delay Period”). Upon the expiration of the Delay Period, all payments and benefits delayed pursuant to this section (whether they would have otherwise been payable in a single sum or in installments in the absence of such delay) shall be paid or reimbursed to Executive in a lump‐sum, and any remaining payments and benefits due under this Agreement shall be paid or provided in accordance with the normal payment dates specified for them in this Agreement.

d.     While this Agreement is intended to be exempt from or compliant with Section 409A, the Company neither makes nor has made any representation, warranty or guarantee of any federal, state or local tax consequences of Executive’s entitlements under this Agreement, including, but not limited to, under Section 409A.

10.     Compensation Paid. Executive represents, warrants, and agrees that all forms of compensation and other monies, including paychecks, paid to Executive by the Company to date have been accurately calculated, have represented the proper amounts due to Executive, and have been based on the Company’s merit‐based compensation system. The consideration set forth in paragraphs 3 and 4 of this Agreement is consideration for the complete release and the Effective Final Release and is in excess of what Executive is entitled to receive. If Executive or someone on Executive’s behalf claims any entitlement to further compensation from the Company, Executive agrees that the Company is entitled to full offset of the amounts set forth in this Agreement.

11.     Company Documents, Information, or Property. Executive agrees that, on or before the Termination Date, Executive will have returned to the Company any and all documents relating to the Company or its business operations (and any and all copies thereof, whether in paper form or electronic form), computer equipment, badges, credit cards, and any other Company property in Executive’s possession or control. Executive represents and agrees that Executive will not take, nor has Executive taken, any such documents or property from the control or premises of the Company and that if, at any time after the Termination Date, Executive should come into possession of any such documents or property, Executive will return such documents or property to the Company immediately.

12.     Employment and Other Agreements. Executive agrees and acknowledges that, except as otherwise expressly provided in this Agreement with regard to severance pay, benefits or similar amounts, the provisions of agreements that Executive previously entered into with the Company, and that are intended to survive Executive’s termination, including but not limited to any restrictive covenant or similar agreements, will remain in full force and effect. In connection therewith, Executive reaffirms Executive’s intent to comply with all post‐employment obligations of Executive to the Company under such agreements.

13.     Non‐disparagement. Executive agrees that, except as may be required by law or court order Executive will not, directly or indirectly, make any statement, oral or written, or perform any act or omission which is or could be detrimental in any material respect to the reputation or goodwill of the Company or any other Released Party. Executive understands that

Exhibit 10.1
Executive’s compliance with a subpoena or other legally compulsive process or Executive’s participation as a witness in any lawsuit will not be a violation of this provision.

14.     Successors. This Agreement shall be binding upon Executive and the Company and their heirs, representatives, executors, administrators, successors, insurers, and assigns, and shall inure to the benefit of each and all of them and to their heirs, representatives, executors, administrators or assigns.

15.     Applicable Law and Venue. THIS AGREEMENT SHALL BE INTERPRETED IN ALL RESPECTS BY THE INTERNAL LAWS OF THE STATE OF GEORGIA, AND THE VENUE FOR THE RESOLUTION OF ANY DISPUTES (LOCATION OF ANY LAWSUIT) SHALL BE SOLELY IN THE STATE AND FEDERAL COURTS IN GEORGIA.

16.     Severability. The fact that one or more paragraphs (or portion thereof) of this Agreement may be deemed invalid or unenforceable by any court shall not invalidate the remaining paragraphs or portions of such paragraphs of this Agreement.

17.     Certain Acknowledgments. Executive acknowledges that he is signing this Agreement voluntarily with full knowledge of its contents. If Executive decides not to sign this Agreement, the Company will not retaliate against Executive. Executive is not relying on any promise or representation not specifically and explicitly made in this Agreement. This Agreement may not be amended or modified except by a written agreement signed by Executive and an authorized officer of the Company. Executive understands that any changes that the parties agree to make to this Agreement after it has been presented to Executive, whether such changes are material or non‐material, will not extend the amount of time Executive has to consider the Agreement.

18.     Consideration and Revocation Periods. Executive understands that he may take up to 21 days following Executive’s receipt of this Agreement to consider this Agreement. Executive understands that he may use as much or as little of this period as Executive chooses before signing the Agreement. Executive is advised to consult with an attorney before signing this Agreement. If Executive accepts this Agreement, Executive must sign it and return it to the Company’s Chief Administrative Officer on or before the expiration of the 21‐day period. By signing this Agreement, Executive acknowledges that Executive was afforded a period of at least 21 days from the date the Company’s proposal was presented to Executive in which to consider it. In addition, Executive understands that Executive has a period of seven days following the date of signing this Agreement within which to revoke this Agreement (the “Revocation Period”). To revoke this Agreement, Executive understands that Executive must provide written notification of revocation to the Chief Administrative Officer within seven days from the date Executive signed it.

If the foregoing accurately sets forth Executive’s agreement with the Company, please signify by signing below and returning this Agreement in its entirety to the Chief Administrative Officer on or before close of business on the 21st day after this Agreement was first presented to you. If the Company has not received a signed copy of this Agreement by that time, the offer reflected in this Agreement will automatically terminate and expire without further notice from the Company.

[Signatures on next page]























Exhibit 10.1


For Executive as of the Date of Agreement:
/s/ Philip Horlock
Signature

Philip Horlock
Print Name


For Blue Bird Corporation as of the Date of Agreement:
/s/ Tom Roberts
Signature

Tom Roberts
Print Name

Chief Administrative Officer
Title







































EXHIBIT A
CONSULTING AGREEMENT




Exhibit 10.1


CONSULTING AGREEMENT

This CONSULTING AGREEMENT (this “Agreement”), dated as of June 21, 2021, is entered into by and between Philip Horlock (“Consultant”), and Blue Bird Corporation, a Delaware corporation (“Company”).

BACKGROUND

A.     In recognition of Consultant’s expertise, knowledge and experience with Company and in the industry, having served as Company’s President and Chief Executive Officer prior to his retirement, and his intimate knowledge of Company’s business, financial affairs, practices and policies, Company desires to retain Consultant as an independent contractor to provide certain consulting and advisory services for a period of time.

B.     Consultant desires to provide such services to Company on the terms and conditions described in this Agreement.

NOW, THEREFORE, in consideration of the mutual promises and conditions contained herein, and other good and valuable consideration, the adequacy of which the parties hereby acknowledge, the parties hereto agree as follows:

AGREEMENT

1.     Engagement of Consultant. Company hereby engages Consultant, and Consultant hereby accepts such engagement, upon the terms and conditions described in this Agreement, beginning January 1, 2022 (the “Engagement Date”).

2.     Term of Agreement. The term of this Agreement will begin on the Engagement Date and will continue until December 31, 2022, except as otherwise provided in this Agreement. The parties may agree in writing to terminate this Agreement earlier, or to extend the term of Agreement, at any time. Notwithstanding the foregoing, the term of this Agreement may be terminated by Consultant at any time upon fifteen (15) days’ prior written notice to Company. The period from the Engagement Date until the termination of the term of this Agreement will be referred to as the “Term.”

3.     Consultant’s Services. Consultant shall provide consulting and advisory services to Company during the Term, as reasonably requested by Company, on matters with respect to which Consultant’s experience and expertise may be deemed helpful to Company. Such services may include, without limitation, providing assistance, advice and counsel as requested by Company from time to time with respect to Company’s business and affairs; Consultant’s presence at Company’s headquarters location to consult with, advise and otherwise assist Company management or its Board of Directors; participation in meetings (telephonic or in person) with Company personnel and/or others, at Company’s headquarters or elsewhere; and reviewing and/or assisting in preparation of reports, documents, information, filings or other similar papers. Consultant agrees to provide such services promptly and professionally. Company agrees to provide Consultant with such support as Company deems to be reasonably necessary for Consultant to perform the consulting and advisory services under this Agreement, including without limitation the use of office space on Company’s premises and any necessary administrative or secretarial support when Consultant is required to be present at Company’s headquarters location.

4.     Time Commitment. Consultant agrees to be available to provide a substantial level of services to or for the benefit of Company pursuant to this Agreement, and Consultant acknowledges that his presence at Company’s headquarters location for a considerable amount of time could be required in connection with such services. Accordingly, Consultant agrees not to accept other employment, engage in business or provide consulting or similar services other than to Company during the Term, except to the extent that such activities would not be contrary to the provisions of this Agreement (and the terms of any other agreement between Consultant and Company) and would not materially interfere with Consultant’s performance of the consulting services under this Agreement.

5.     Compensation. In consideration of the consulting and advisory services to be rendered by Consultant pursuant to this Agreement, Company shall pay Consultant at the monthly rate of $66,666.66, such amount to be paid promptly following the end of each month.

6.     Reimbursement of Expenses. With prior approval of Company, Consultant shall be entitled to reimbursement for reasonable business expenses Consultant incurs in connection with the services provided to Company under this Agreement including, without limitation, all reasonable travel-related expenses incurred on Company’s behalf, e.g., in connection with travel from Consultant’s residence to Company’s headquarters location.


Exhibit 10.1
7.     Relationship. The parties stipulate and agree that Consultant is an independent contractor and not an employee with respect to the services to be performed hereunder. Notwithstanding any provision hereof to the contrary, nothing in this Agreement shall be construed as giving Company primary direction or control over the judgment of Consultant as to the time, location, manner or method in which he performs the services hereunder. This Agreement describes the work to be performed by Consultant, but does not reserve to Company primary direction or control in the time, location, manner or method in which such services are to be performed. This Agreement sets forth the goals of the relationship and standards to be satisfied by Consultant, but does not create the relationship of an employer and employee. Consultant shall have full discretion and authority regarding the manner in which he performs the services described in this Agreement, without further notice, consent or approval of any party, except as otherwise expressly provided in this Agreement. Neither party will hold Consultant out to the public as an employee or agent of Company or as having authority to bind Company. Consultant will not be eligible for any employee benefits of any type whatsoever provided under Company plans, policies or programs with respect to services provided pursuant to this Agreement, and will not be subject to or eligible under any employment policies relating to common law employees (regardless of the status of Consultant for tax or other purposes).

8.     Violations of Agreement; Other Company Agreements and Policies; Rules and Regulations. Consultant agrees to comply with all Company policies, programs, arrangements and agreements to which he is subject or a party, and any rules and regulations that may apply with respect to Consultant’s work. If Company determines that Consultant has materially violated any of the terms of this Agreement, or of any other Company policy, program, arrangement or agreement, including without limitation the provisions of any employment or similar agreement, confidentiality, noncompetition and/or nonsolicitation or similar agreement regarding restrictive covenants, or other agreement with Company, or a Company code of conduct or other Company written policy generally applicable to executive employees, or applicable rule or regulation, while a Company employee or during the Term, Company may terminate this Agreement after giving Consultant written notice, and a reasonable opportunity to cure. Upon any such early termination, Consultant will not be eligible to receive any additional amounts of compensation under this Agreement.

9.     Withholding; Taxes. Consultant and Company agree that Consultant is not an employee for federal or state tax purposes. Consultant acknowledges that Company shall not withhold from the amounts payable to Consultant hereunder, any amounts for federal or state income taxes, social security payments, or other withholdings. Consultant agrees to report all income derived from Company pursuant to this Agreement to the appropriate federal, state and local agencies and to pay all taxes owing with respect to same.

10.     Section 409A Compliance. Amounts payable pursuant to this Agreement are intended either to be exempt from Section 409A of the Internal Revenue Code of 1986, as amended, and regulations thereunder (“Section 409A”), to the extent an exemption(s) is available, or to comply with the provisions of Section 409A. This Agreement shall be interpreted to avoid any penalty or sanctions under Section 409A. Accordingly, all provisions herein, or incorporated by reference, shall be construed and interpreted to the maximum extent permitted to be exempt from or compliant with Section 409A and, if necessary, any such provision shall be deemed amended to comply with Section 409A and regulations thereunder. In connection therewith:

a.     It is intended that each installment of the payments hereunder shall be treated as a separate “payment” for purposes of Section 409A.

b.     If as of Consultant’s employment termination date from Company, Consultant is a “specified employee” (within the meaning of Section 409A(a)(2)(B) or any successor provision thereto), then with regard to any payment or provision of benefit that is subject to Section 409A as deferred compensation and is due upon or as a result of Consultant’s “separation from service,” notwithstanding any contrary provision under this Agreement, such payment or benefit shall not be made or provided, to the extent making or providing such payment or benefit would result in additional taxes or interest under Section 409A, until the date with is the earlier of (A) expiration of the six‐month period measured from such “separation from service,” and (B) the date of Consultant’s death (the “Delay Period”). Upon the expiration of the Delay Period, all payments and benefits delayed pursuant to this section (whether they would have otherwise been payable in a single sum or in installments in the absence of such delay) shall be paid or reimbursed to Consultant in a lump‐sum, and any remaining payments and benefits due under this Agreement shall be paid or provided in accordance with the normal payment dates specified for them in this Agreement.

c.     While this Agreement is intended to be exempt from or compliant with Section 409A, Company neither makes nor has made any representation, warranty or guarantee of any federal, state or local tax consequences of Consultant’s entitlements under this Agreement, including, but not limited to, under Section 409A.
11.     Worker’s Compensation and Unemployment Insurance. Consultant is not entitled to worker’s compensation benefits or unemployment compensation benefits provided by Company. If required by law, Consultant shall maintain worker’s compensation insurance.


Exhibit 10.1
12.     Governing Law and Venue. This Agreement shall be interpreted in all respects by the internal laws of the State of Georgia, and the venue for the resolution of any disputes (location of any lawsuit) shall be solely in the state and federal courts in Georgia.

13.     Waiver. The waiver by either party of a breach of any provision of this Agreement by the other party shall not operate or be construed as a waiver of any subsequent breach by such other party.

14.     Assignment. Neither Company nor Consultant shall make or purport to make any assignment or other transfer of this Agreement or any of the rights granted to it or him under this Agreement without the prior written consent of the other party, and no such assignment or transfer shall be effective without consent of such other party.

15.     Severability. If any part of this Agreement, for any reason, is declared invalid by an arbitrator or a court of competent jurisdiction, such decision or determination will not affect the validity of any remaining portion, and such remaining portion will remain in force and effect as if this Agreement had been executed with the invalid portion eliminated; but at the same time, the provision declared invalid will not be invalidated in its entirety, but will be observed and performed by the parties to the extent such provision is valid and enforceable.

16.     Section Headings. Section and other headings contained in this Agreement are for reference purposes only and are in no way intended to describe, interpret, define or limit the scope, extent or intent of this Agreement or any provision hereof.

17.     Complete Agreement. This Agreement constitutes the entire agreement between Company and Consultant and supersedes all previous and contemporaneous written and oral agreements regarding services to be provided during the Term, and no other representations, statements, inducements, negotiations or commitments, oral or written, with respect to Consultant’s engagement that are not contained in this Agreement will be binding upon the parties. Any subsequent alteration or modification to this Agreement must be made in writing and signed by both parties.

18.     Counterparts. This Agreement may be executed in separate counterparts, each of which shall be deemed an original and both of which shall constitute one agreement, and the signature of either party to a

IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be duly executed as of the date first above written.

CONSULTANT:

/s/ Philip Horlock
Philip Horlock


COMPANY:

By: /s/ Tom Roberts
Tom Roberts
Title: Chief Administrative Officer

Exhibit 10.2
BLUEBIRDLOGO.JPG
EMPLOYMENT AGREEMENT

This EMPLOYMENT AGREEMENT (the “Agreement”), dated as of the 21st day of June 2021, by and between Blue Bird Corporation, a Delaware corporation (the “Company”), and Matthew Stevenson (the “Executive”).

WHEREAS, the Company and the Executive (each a “Party” and together the “Parties”) wish to enter into this Agreement pursuant to which the Company will employ the Executive.

NOW, THEREFORE, in consideration of the mutual covenants contained in this Agreement, the Parties agree as follows:

1.    Employment and Acceptance. The Company shall employ the Executive, and the Executive accepts such employment, subject to the terms of this Agreement, as of July 1, 2021 (the “Effective Date”).

2.    Term. Subject to earlier termination pursuant to Section 5 of this Agreement, this Agreement and the employment relationship hereunder shall continue from the Effective Date until the third (3rd) anniversary of the Effective Date, and shall automatically renew for successive one (1) year intervals thereafter unless either Party shall have given at least sixty (60) days advance written notice prior to the expiration of the Term to the other that it does not wish to extend the Term. As used in this Agreement, the “Term” shall refer to the period beginning on the Effective Date and ending on the date this Agreement terminates in accordance with this Section 2 or Section 5.

3.    Duties and Title.
    
3.1    Title. The Company shall employ the Executive to render services as described herein to the Company on a fulltime basis. Commencing on the Effective Date, the Executive shall serve as President of the Company and shall, unless otherwise determined by the Board of Directors of the Company (the “Board”), remain in such role for a transition period while reporting to the Company’s Chief Executive Officer. During this transition period, the Executive will assist the Chief Executive Officer in developing a plan to facilitate a smooth leadership transition, and implementation of this transition plan will be the primary responsibility of the Executive. No later than November 1, 2021, the Executive shall become Chief Executive Officer of the Company upon approval of the Board, and will accede to all duties and responsibilities of such position, reporting directly to the Chairman of the Board. Concurrent with assuming the Chief Executive Officer position, subject to Board approval, the Executive will be appointed to the Board.

3.2    Authority and Responsibilities. As Chief Executive Officer, the Executive will have such authority and responsibilities and will perform such executive duties as may be assigned to him by the Board, including without limitation performing services for affiliates of the Company and its subsidiaries. The Executive will devote substantially all of his full working time and attention to the performance of such duties and to the promotion of the business and interests of the Company. In order to effectively carry out the duties set forth in this Agreement, the Executive shall reside in the Macon, Georgia area (and agrees to relocate there by the end of calendar year 2021), and maintain a primary office at the Company’s corporate offices, and agrees to be physically present at such offices to the extent necessary to effectively fulfill his responsibilities under this Agreement.

4.     Compensation and Benefits. As compensation for all services rendered pursuant to this Agreement, the Company shall provide to the Executive the following during the Term:

4.1     Base Salary. The Company will pay to the Executive an annual base salary of Six Hundred Thousand Dollars ($600,000) payable in accordance with the customary payroll practices of the Company. The Base Salary shall be subject to adjustment from time to time, as determined by the Board or its designee in its sole discretion. For purposes of this Agreement, “Base Salary” shall mean Executive’s base salary as adjusted.

4.2     Annual Bonus. For each fiscal year of the Company (“Fiscal Year”) during the Term, the Executive shall be eligible to receive an annual variable bonus payment with a target gross amount of 100% of Base Salary (the “Annual Bonus”). The actual amount of the Annual Bonus payment, if any, shall be based on the operational performance of the Company and be subject to achievement of financial or other targets as set by the Board or its designee at the beginning of the Fiscal Year. If such targets are fully achieved, the Executive shall be entitled to 100% of the Annual Bonus. If the targets are under-achieved or over-achieved, the Annual Bonus shall be reduced or increased, as determined by the Board or its designee. The formula for calculating the precise bonus payment shall be determined by the Board or any committee thereof designated by the Board for such purpose in consultation with the Executive. The Annual Bonus payment shall be due on the earlier of (i) thirty days after the approval by the Board of the consolidated financial statements of the Company and (ii) the date on which

Exhibit 10.2
the Company pays annual bonuses to other members of senior management; provided that, in no event will an Annual Bonus be paid later than the 15th day of the third (3rd) month following the end of the calendar year in which such Fiscal Year ends

4.3    Participation in Employee Benefit Plans. The Executive shall be entitled, if and to the extent eligible, to participate in all of the applicable benefit plans of the Company, which may be available to other senior executives of the Company. With respect his anticipated move to the Macon, Georgia area, the Executive will be entitled to the applicable Company standard relocation program.

4.4    Expense Reimbursement. The Executive shall be entitled to receive reimbursement for all appropriate traveling and other business expenses incurred by him in connection with his duties under this Agreement in accordance with the policies of the Company as in effect from time to time.

4.5    Initial Equity Award; Ongoing Participation in Equity Plan.

(a)    On or as soon as administratively practicable after the Effective Date, the Company shall grant to the Executive, pursuant to the terms of the Company’s Amended and Restated 2015 Omnibus Equity Incentive Plan (as amended or updated from time to time, the “Equity Plan”), 160,000 restricted shares of the common stock, $0.0001 par value (“Company Stock”), subject to achievement of performance criteria described in this Section (the “Restricted Shares”). The Restricted Shares will vest, if at all, only upon achievement of Adjusted EBITDA (as defined below) targets during the first five (5) full Fiscal Years after the grant date, for so long as the Executive remains employed, as follows:

Adjusted Percentage of Restricted Shares
EBITDA Granted that Vest upon
Fiscal Year Target Achievement of Target
1. FY 2022 $85 million, or 12.5%
$100 million, 25%
2. FY 2023 $85 million or 12.5%
$100 million 25%
3. FY 2024 $100 million 25%
4. FY 2025 $100 million 25%
5. FY 2026* $100 million 12.5% or 25%*
*Only applicable if $100M Adj. EBITDA was not achieved in each of the prior four years

For purposes hereof, “Adjusted EBITDA” means the Company’s earnings before interest, taxes, depreciation and amortization as adjusted pursuant to the Company’s internal accounting and compensation practices, for a Fiscal Year, as approved by the Board or its designee.

Pursuant to this vesting schedule, the maximum amount that may vest with respect to any Fiscal Year upon achievement of one or more of the Adjusted EBITDA targets for the year is 25%, and the Executive will have up to five (5) Fiscal Years during which to fully vest in the Restricted Shares, with continued employment. Once 100% of the Restricted Shares vest pursuant to this vesting schedule, there will be no further vesting or any other benefit accruing to the Executive as a result of achievement of the Adjusted EBITDA performance target(s) for any Fiscal Year. If not fully vested by the end of the fifth (5th) Fiscal Year following the grant of the Restricted Shares, any unvested Restricted Shares shall be forfeited.

(b)     Notwithstanding the vesting schedule in Section 4.5(a) preceding, in the event there is a Change in Control (as defined below) involving the Company during the period of such vesting schedule and while the Executive remains employed by the Company, twenty percent (20%) of the Restricted Shares that then remain unvested will vest upon the Change in Control. In addition, if at the time of such a Change in Control the average closing price of Company Stock over the period of thirty (30) trading days prior to the date of the Change in Control is no less than thirty dollars ($30) per share, all remaining unvested Restricted Shares will fully vest upon the Change in Control. For purposes of this Agreement, “Change in Control” means a change in control as such term is defined in the Equity Plan, provided that, any transaction that involves any affiliate of American Securities LLC increasing its ownership of Company Stock will not constitute a Change in Control for purposes of this Agreement.

(c)     In addition to the Initial Equity Award of Restricted Shares described above in 4.5(a), the Executive may be granted other awards under the Equity Plan if and to the extent determined by the Board or its designee in its sole discretion. Beginning with Fiscal Year 2027, or 2026 if 100% of the Restricted Shares have vested by the end of FY2025, the Executive will participate in the Equity Plan with eligibility for additional awards appropriate for the Company’s Chief Executive Officer position, as determined by the Board or its designee in its sole discretion. The Executive’s participation in the Equity Plan and rights thereunder shall be subject to the terms of the Equity Plan, this Agreement and any applicable grant or other agreements under the Equity Plan as determined by the Board or its designee.

Exhibit 10.2

4.6    D&O Insurance. During the Term, the Company will obtain and maintain, at the Company’s sole cost and expense, D&O insurance coverage for the benefit of the directors and officers of the Company.

5.    Termination of Employment.

5.1    By the Company for Cause or by the Executive. If: (i) the Company terminates the Executive’s employment with the Company for Cause (as defined below) or (ii) the Executive terminates his employment for any reason, provided that the Executive shall be required to give the Company at least sixty (60) days prior written notice of any termination of employment, the Executive or the Executive’s legal representatives (as appropriate), shall be entitled to receive the following:

(a)    the Executive’s accrued but unpaid Base Salary to the date of termination and any employee benefits the Executive may be entitled to pursuant to the employee benefit plans of the Company; and

(b) expenses reimbursable under Section 4.4 incurred but not yet reimbursed to the Executive to the date of termination.

For the purposes of this Agreement, “Cause” means, as determined by the Board (or its designee), (i) conviction of or plea of nolo contendere to a felony by the Executive; (ii) acts of dishonesty by the Executive resulting or intending to result in personal gain or enrichment at the expense of the Company or its subsidiaries or the affiliates of the Company and their subsidiaries; (iii) the Executive’s material breach of his obligations under this Agreement; (iv) conduct by the Executive in connection with his duties hereunder that is fraudulent, unlawful or grossly negligent, including, but not limited to, acts of discrimination; (v) engaging in personal conduct by the Executive (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 subsidiaries or the affiliates of the Company and their subsidiaries; (vi) contravention of specific lawful direction from the Board or its designee or continuing inattention to or continuing failure to adequately perform the duties to be performed by the Executive under the terms of Section 3 of this Agreement or (vii) breach of the Executive’s covenants set forth in Section 5.5 or Section 6 below before termination of employment; provided, that, the Executive shall have fifteen (15) days after notice from the Company to cure the deficiency leading to the Cause determination (except with respect to (i) above), if curable. A termination for “Cause” shall be effective immediately (or on such other date determined by the Company).

The Executive’s employment pursuant to this Agreement shall terminate automatically on and as of the expiration date of the Term (including any extensions) as described in Section 2. Upon such expiration, the restrictions described in Section 5.5 and Section 6, and related provisions of this Agreement including without limitation Section 7, shall survive such termination and remain in effect by their terms.

5.2    By the Company Without Cause or if the Company Elects not to Extend the Term If during the Term the Company terminates the Executive’s employment without Cause (which may be done at any time without prior notice), or if the Company elects not to extend the Executive’s employment beyond the expiration of the Term (including any extensions), the Executive shall receive the severance payments set forth in this Section 5.2 (in addition to the payments upon termination specified in Section 5.1) upon execution without revocation of a valid release agreement in a form reasonably acceptable to the Company:

(a)    the unpaid portion of the Annual Bonus, if any, relating to the Fiscal Year prior to the Fiscal Year of the termination by the Company without Cause payable in accordance with Section 4.2;

(b)    continued payment of the Executive’s Base Salary, payable in accordance with the Company’s payroll policy, for a period commencing on the date of termination and ending on the first to occur of: (1) the date that the Executive enters into any subsequent employment relationship and (ii) the twelve (12) month anniversary of the date of termination; and

(c)    reimbursement of the cost of continuation coverage of group health coverage pursuant to the Consolidated Omnibus Budget Reconciliation Act of 1986, as amended (“COBRA”) for a maximum of twelve (12) months to the extent Executive elects such COBRA continuation coverage and is eligible and subject to the terms of the health plan and the law; provided, that such reimbursement shall cease to the extent that the Executive is eligible for health benefits from a new employer.

The Company shall have no obligation to provide the benefits set forth above in the event that Executive breaches the provisions of Section 6.

5.3    Termination Without Cause Upon a Change in Control. If during the Term the Company terminates the Executive’s employment without Cause at any time within six (6) months preceding or twelve (12) months following a Change in Control (as defined above in Section 4.5(b)), the Executive shall receive all payments and benefits described above in Section 5.2, except that with respect to continued payment of his Base Salary described in 5.2(b), clause (ii) thereof shall read

Exhibit 10.2
“the twenty-four (24) month anniversary of the date of termination”, upon execution without revocation of a valid release agreement in a form reasonably acceptable to the Company.

5.4    Removal from any Boards and Position. If the Executive’s employment is terminated for any reason under this Agreement, he shall be deemed to resign, effective as of the date of termination, (i) if a member, from the Board or board of directors of any subsidiary of the Company or any affiliate of the Company and its subsidiaries or any other board to which he has been appointed or nominated by or on behalf of the Company and (ii) from any position with the Company or any subsidiary of the Company or any affiliate of the Company and its subsidiaries, including, but not limited to, as an officer of the Company and any of its subsidiaries or the affiliates of the Company and their subsidiaries.

5.5    Nondisparagement. The Executive agrees that he will 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 parent, subsidiaries and 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.

6.    Restrictions and Obligations of the Executive.

6.1     Confidentiality.

(a)     During the course of the Executive’s employment by the Company and service to the Company, the Executive will have access to certain trade secrets and confidential information relating to the Company, its directors, officers, members, shareholders, investors, affiliates, partners and any parents, subsidiaries or other affiliates of the Company (the “Protected Parties”) which is not readily available from sources outside the Company. 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 Executive acknowledges that such Confidential Information constitutes valuable, highly confidential, special and unique property of the Protected Parties. The Executive 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 Executive during the Executive’s employment by the Company or its subsidiaries and which shall not be or become public knowledge (other than by acts by the Executive or representatives of the Executive in violation of this Agreement). Except as required by law or an order of a court or governmental agency with jurisdiction, the Executive shall not, during the period the Executive is employed by the Company or its subsidiaries 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 Executive use it in any way, except in the course of the Executive’s employment with, 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 Executive 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 Executive shall take all reasonable steps to safeguard the Confidential Information and to protect it against disclosure, misuse, espionage, loss and theft. The Executive understands and agrees that the Executive shall acquire no rights to any such Confidential Information.

(b)    All files, records, documents, drawings, specifications, data, computer programs, evaluation mechanisms and analytics and similar items relating thereto or to the Business (for the purposes of this Agreement, “Business” shall be as defined in Section 6.3 hereof), as well as all customer lists, specific customer information, compilations of product research and marketing techniques of the Company and its subsidiaries, and, if applicable, the affiliates of the Company and their subsidiaries, whether prepared by the Executive or otherwise coming into the Executive’s possession, shall remain the exclusive property of the Company and its subsidiaries and, if applicable, the affiliates of the Company and their subsidiaries, and the Executive shall not remove any such items from the premises of the Company and its subsidiaries, and, if applicable, the affiliates of the Company and their subsidiaries, except in furtherance of the Executive’s duties under any employment agreement.

(c)    It is understood that while employed by the Company or its subsidiaries, the Executive will promptly disclose to it, and assign to it the Executive’s interest in any invention, improvement or discovery made or conceived by the Executive, either alone or jointly with others, which arises out of the Executive’s employment. At the Company’s request and expense, the Executive will assist the Company and its subsidiaries and, if applicable, the affiliates of the Company and their subsidiaries, during the period of the Executive’s employment by the Company or its subsidiaries and, if applicable, the affiliates of the Company and their subsidiaries, and thereafter in connection with any controversy or legal proceeding relating

Exhibit 10.2
to such invention, improvement or discovery and in obtaining domestic and foreign patent or other protection covering the same.

(d)    As requested by the Company and at the Company’s expense, from time to time and upon the termination of the Executive’s employment with the Company for any reason, the Executive will promptly deliver to the Company and its subsidiaries, and, if applicable, the affiliates of the Company and their subsidiaries, all copies and embodiments, in whatever form, of all Confidential Information in the Executive’s possession or within his 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 Executive will provide the Company with written confirmation that all such materials have been delivered to the Company as provided herein.

6.2    Non-Solicitation or Hire. During the Term, any extended employment period thereafter and for a period of twenty-four (24) months following the termination of the Executive’s employment for any reason, the Executive: (a) shall not directly or indirectly solicit or attempt to solicit or induce, directly or indirectly, any party who is a customer of the Company, or who was a customer of the Company or its subsidiaries at any time during the twelve (12) month period immediately prior to the date the Executive’s employment terminates, for the purpose of marketing, selling or providing to any such party any services or products offered by or available from the Company or its subsidiaries (provided that if the Executive 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), (b) shall not directly or indirectly solicit or attempt to solicit or induce, directly or indirectly, any supplier to Company or any subsidiary to terminate, reduce or alter negatively its relationship with the Company or any subsidiary or in any manner interfere with any agreement or contract between the Company or any subsidiary and such supplier or (c) shall not, either directly, or on behalf of any other person or any entity in competition with the Business of the Company or any of its subsidiaries, hire, offer employment to, or otherwise directly, or indirectly, solicit or attempt to solicit or induce, directly or indirectly the employment of any employee of the Company or any of its subsidiaries or any person who was an employee of the Company or any of its subsidiaries during the twelve (12) month period immediately prior to the date the Executive’s employment terminates to terminate such employee’s employment relationship with the Protected Parties.

6.3    Non-Competition. During the Term, any extended employment period thereafter and for a period of twenty-four (24) months following the termination of Executive’s employment by the Company (for any reason), the Executive 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 the Company or a subsidiary, organize, establish, own, operate, manage, control, engage in, participate in, invest in, permit his 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 the Company or any of its subsidiaries on the date of the Executive’s termination of employment or within twelve (12) months of the Executive’s termination of employment in the United States (the “Business”). Notwithstanding the foregoing, nothing in this Agreement shall prevent the Executive 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 Executive has no power to manage, operate, 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 Executive in connection with any permissible equity ownership).

6.4    Property. The Executive acknowledges that all originals and copies of materials, records and documents generated by him or coming into his possession during his employment by the Company or its subsidiaries or, if applicable, the affiliates of the Company and their subsidiaries are the sole property of the Company and its subsidiaries or, if applicable, the affiliates of the Company and their subsidiaries (“Company Property”). During the Term, and at all times thereafter, the Executive shall not remove, or cause to be removed, from the premises of the Company or its subsidiaries or, if applicable, the affiliates of the Company and their subsidiaries, 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 duties under the Agreement. When the Executive’s employment with the Company terminates, or upon request of the Company at any time, the Executive shall promptly deliver to the Company all copies of Company Property in his possession or control.

7.    Remedies; Specific Performance. The Parties acknowledge and agree that the Executive’s breach or threatened breach of any of the restrictions set forth in Section 5.5 and Section 6 will result in irreparable and continuing damage to the Protected Parties for which there may be no adequate remedy at law and that the Protected Parties shall be entitled to equitable relief, including specific performance and injunctive relief as remedies for any such breach or threatened or attempted breach. The Executive hereby consents to the grant of an injunction (temporary or otherwise) against the Executive or the entry of any other court order against the Executive prohibiting and enjoining him from violating, or directing him to comply with any provision of Section 5.4 and Section 6. The Executive also agrees that such remedies shall be in addition to any and all remedies, including damages, available to the Protected Parties against him for such breaches or threatened or attempted breaches. In addition, without limiting the Protected Parties’ remedies for any breach of any restriction on the Executive set forth in Section 5.5 and Section 6, except as required by law, the Executive shall not be entitled to any payments set forth in Section 5.2 hereof if the Executive has breached the covenants applicable to the Executive contained in Section 5.5 or Section 6, the Executive will immediately return to the Protected Parties any such payments previously received under Section 5.2 and Section 5.3 upon such a breach, and, in the event of such breach, the Protected Parties will have no obligation to pay any of the amounts that remain payable by the Company under Section 5.2 or Section 5.3.

Exhibit 10.2

8.    Indemnification. The Company agrees, to the extent permitted by applicable law and its organizational documents, to indemnify, defend and hold harmless the Executive from and against any and all losses, suits, actions, causes of action, judgments, damages, liabilities, penalties, fines, costs or claims of any kind or nature (“Indemnified Claim”), including reasonable legal fees and related costs incurred by Executive in connection with the preparation for or defense of any indemnified Claim, whether or not resulting in any liability, to which Executive may become subject or liable or which may be incurred by or assessed against Executive, relating to or arising out of his employment by the Company or the services to be performed pursuant to this Agreement, provided that the Company shall only defend, but not indemnify or hold Executive harmless, from and against an indemnified Claim in the event there is a final, non-appealable, determination that Executive’s liability with respect to such indemnified Claim resulted from Executive’s willful misconduct or gross negligence. The Company’s obligations under this section shall be in addition to any other right, remedy or indemnification which Executive may have or be entitled to at common law or otherwise.

9.    Other Provisions.

9.1    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:

(a)    If the Company, to:

Blue Bird Corporation
3920 Arkwright Road
Suite 200
Macon, GA 31210
Attention: Felix Lin
Telephone: (478) 822-2078
Email: felix.lin@blue-bird.com

(b)    If the Executive, to the Executive’s home address reflected in the Company’s records.

9.2    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.

9.3    Representations and Warranties by Executive. The Executive represents and warrants that he is not a party to or subject to any restrictive covenants, legal restrictions or other agreements in favor of any entity or person which would in any way preclude, inhibit, impair or limit the Executive’s ability to perform his obligations under this Agreement, including, but not limited to, non-competition agreements, non-solicitation agreements or confidentiality agreements.

9.4    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.

9.5    Governing Law, Dispute Resolution and Venue.

(a)    This Agreement shall be governed and construed in accordance with the laws of the State of Georgia, without regard to conflicts of laws principles.

(b)    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.

(c)    THE PARTIES HERETO HEREBY WAIVE, TO THE EXTENT PERMITTED BY APPLICABLE LAW, TRIAL BY JURY IN ANY LITIGATION IN ANY COURT WITH RESPECT TO, IN CONNECTION WITH, OR ARISING OUT OF THIS AGREEMENT OR THE VALIDITY, INTERPRETATION OR ENFORCEMENT HEREOF. THE PARTIES HERETO AGREE THAT THIS SECTION IS A SPECIFIC AND MATERIAL ASPECT OF THIS AGREEMENT AND WOULD NOT ENTER INTO THIS AGREEMENT IF THIS SECTION WERE NOT PART OF THIS AGREEMENT.

Exhibit 10.2

9.6    Section 409A

(a)    The parties agree that this Agreement shall be interpreted to comply with or be exempt from Section 409A of the Internal Revenue Code of 1986, as amended, and the Treasury regulations and guidance promulgated thereunder (collectively “Code Section 409A”), and all provisions of this Agreement shall be construed in a manner consistent with the requirements for avoiding taxes or penalties under Code Section 409A. In no event whatsoever will the Company be liable for any additional tax, interest or penalties that may be imposed on the Executive under Code Section 409A or any damages for failing to comply with Code Section 409A.

(b)    A termination of employment shall not be deemed to have occurred for purposes of any provision of this Agreement providing for the payment of any amounts or benefits considered “nonqualified deferred compensation” under Code Section 409A upon or following a termination of employment unless such termination is also a “separation from service” within the meaning of Code Section 409A and, for purposes of any such provision of this Agreement, references to a “termination,” “termination of employment” or like terms shall mean “separation from service.” If the Executive is deemed on the date of termination to be a “specified employee” within the meaning of that term under Code Section 409A(a)(2)(B), then with regard to any payment or the provision of any benefit that is considered nonqualified deferred compensation under Code Section 409A payable on account of a “separation from service,” such payment or benefit shall be made or provided at the date which is the earlier of (i) the expiration of the six (6)-month period measured from the date of such “separation from service” of the Executive, and (ii) the date of the Executive’s death (the “Delay Period”). Upon the expiration of the Delay Period, all payments and benefits delayed pursuant to this Subsection 11(b) (whether they would have otherwise been payable in a single sum or in installments in the absence of such delay) shall be paid or reimbursed on the first business day following the expiration of the Delay Period to the Executive in a lump sum and any remaining payments and benefits due under this Agreement shall be paid or provided in accordance with the normal payment dates specified for them herein.

(c)    With regard to any provision herein that provides for reimbursement of costs and expenses or in-kind benefits, except as permitted by Code Section 409A, (i) the right to reimbursement or in-kind benefits shall not be subject to liquidation or exchange for another benefit, (ii) the amount of expenses eligible for reimbursement, or in-kind benefits, provided during any taxable year shall not affect the expenses eligible for reimbursement, or in-kind benefits, to be provided in any other taxable year, and (iii) such payments shall be made on or before the last day of the Executive’s taxable year following the taxable year in which the expense occurred. For purposes of Code Section 409A, the Executive’s right to receive any installment payments pursuant to this Agreement shall be treated as a right to receive a series of separate and distinct payments. Whenever a payment under this Agreement specifies a payment period with reference to a number of days (e.g., “payment shall be made within thirty (30) days following the date of termination”), the actual date of payment within the specified period shall be within the sole discretion of the Company.

9.7    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.

9.8    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.

9.9    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 Executive acknowledges that the restrictive covenants contained in Section 6 are a condition of this Agreement and are reasonable and valid in temporal scope and in all other respects.

9.10    Judicial Modification. If any court determines that any of the covenants in Section 6, or any part of any of them, is invalid or unenforceable, the remainder of such covenants and parts thereof shall not thereby be affected and shall be given full effect, without regard to the invalid portion. If any court determines that any of such covenants, or any part thereof, is invalid or unenforceable because of the geographic or temporal scope of such provision, such court shall reduce such scope to the minimum extent necessary to make such covenants valid and enforceable.

9.11    Tax Withholding. The Company or other payor is authorized to withhold from any benefit provided or payment due hereunder, the amount of withholding taxes due 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 or its designee to satisfy all obligations for the payment of such withholding taxes.







Exhibit 10.2




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.

EXECUTIVE:

/s/ Matthew Stevenson
Matthew Stevenson

BLUE BIRD CORPORATION

By: /s/ Tom Roberts
Name: Tom Roberts
Title: Chief Administrative Officer








Exhibit 10.3

RETIREMENT AGREEMENT

This RETIREMENT AGREEMENT (“Agreement”), dated as of June 21, 2021, sets forth the mutual agreement of Blue Bird Corporation, a Delaware corporation (the “Company”), and Tom Roberts (“Executive”) regarding Executive’s retirement from the Company.

1.     Executive’s Retirement; Consultancy. Executive agrees to retire from and terminate his employment with the Company under the terms and conditions described in this Agreement. Executive’s termination of employment with the Company will be deemed a voluntary retirement by Executive, and treated as such by the Company.

a.     Retirement. Executive’s retirement will be effective and his employment with the Company and any related entity(ies) will terminate on October 31, 2021 (the “Termination Date”).

b.     Transition of Executive’s Responsibilities. Executive will continue to serve as the Company’s Chief Administrative Officer until the Termination Date. During the period through the Termination Date, Executive will support the transition of the Chief Administrative Officer’s responsibilities to other executives as directed by the Company’s Chief Executive Officer and will perform such other duties as are assigned to him by the Company’s Chief Executive Officer.

c.     Consultancy. If requested by the Company’s Chief Executive Officer, Executive agrees to provide consulting and advisory services to the Company following the Termination Date and, in such event, the Company and Executive will enter into a Consulting Agreement, substantially in the form attached hereto as Exhibit A, pursuant to which such services will be provided.

2.     Base Salary and Benefits Through the Termination Date. Except as otherwise provided in this Agreement, Executive will continue to receive base salary at the current level and will continue to be eligible to participate in and to be entitled to all other compensation and benefits under the Company’s plans, programs, agreements and policies applicable to him as a Company employee, through the Termination Date, consistent with the Company’s payroll and benefits practices and procedures.

3.     Annual Bonus. If Executive signs this Agreement and does not revoke it during the Revocation Period (defined in paragraph 18), and except as otherwise provided in paragraph 5, Executive will be eligible to participate in the Company’s Annual Management Incentive Plan (“MIP”) to the extent described in this paragraph 3.

a.     Fiscal Year 2021 Annual Bonus. For the Company’s fiscal year ending in 2021 (“FY2021”), Executive will be eligible for a bonus under the MIP of no less than the percentage payout approved by the Compensation Committee of the Company’s Board of Directors (the “Compensation Committee”) for the FY2021 MIP bonuses for the levels of the Company’s achievement of financial performance targets for the fiscal year (without adjustment for individual performance). The Executive’s FY2021 MIP bonus shall be paid to Executive in cash at the same time as payouts pursuant to the MIP are made to other MIP participants for FY2021, and in no event later than December 20, 2021.

b.     Section 409A. Annual bonus payment amounts described in this paragraph 3 shall be administered consistent with the requirements for the short-term deferral exception under Section 409A of the Internal Revenue Code of 1986, as amended, and regulations thereunder (“Section 409A”), as described in Treas. Reg. Section 1.409A-1(b)(4).


4.     Long Term Incentive Plan. If Executive signs this Agreement and does not revoke it during the Revocation Period (defined in paragraph 18), and except as otherwise provided in paragraph 5, Executive’s outstanding awards under the Blue Bird Corporation Amended and Restated 2015 Omnibus Equity Incentive Plan (the “LTIP”) will be treated as follows:

a.    Accelerated Vesting. Effective October 31, 2021 (the “Vesting Date”), vesting of all of Executive’s awards under the LTIP that were awarded for fiscal years 2019, 2020 and 2021 that are otherwise unvested on that date will be accelerated. Such LTIP awards will be immediately fully vested, as follows:

(i)    Vesting Amounts. Effective as of the Vesting Date, (x) for all such LTIP awards that would vest with continued service over a specified time period (or periods), such time-based vesting requirements shall be deemed to have been satisfied, and (y) for all such LTIP awards that would vest only upon achievement (or the degree of achievement) of performance goals, such performance-vesting requirements shall be deemed to have been satisfied at the level(s) that would result in 100% vesting of such awards.


Exhibit 10.3
(ii)     Exercise of Stock Options. All unvested stock options awarded to Executive under the LTIP will, upon such accelerated vesting on the Vesting Date, immediately be fully and freely exercisable subject to the applicable terms and conditions described in the LTIP and related award documents, and will remain exercisable through December 31, 2026; provided that, in no event may any such stock options be exercised later than the end of the maximum (10-year) term of the options described in the LTIP.

(iii)    Settlement of Restricted Stock Units, etc. All unvested restricted stock units or other awards to Executive under the LTIP (other than stock options) will, upon such accelerated vesting on the Vesting Date, be paid to Executive, in cash or shares of Company common stock under the terms of the LTIP or related award documents, as soon as practicable following the Vesting Date.

(iv)    Section 409A. Stock options under the LTIP described in this paragraph 4 shall be administered consistent with the requirements for the Section 409A exception applicable to certain stock rights, as described in Treas. Reg. Section 1.409A-1(b)(5). Restricted Stock Units described in this paragraph 4 shall be administered consistent with the requirements for the short-term deferral exception under Section 409A described in Treas. Reg. Section 1.409A-1(b)(4) and, accordingly, shall be paid no later than March 15, 2022.

5.     Continued Employment; Early Termination of Executive’s Employment; Forfeiture of Retirement Incentives. During the period of Executive’s continued employment through the Termination Date, Executive will act in good faith and in a professional manner.

a.     Termination for Violation of Terms; Voluntary Termination by Executive; Forfeiture of Benefits. If the Compensation Committee determines, in good faith, that Executive has materially violated any of the terms of this Agreement, the provisions of any employment or similar agreement, confidentiality, noncompetition and/or nonsolicitation or similar agreement regarding restrictive covenants, or other agreement with the Company, or a Company code of conduct or other Company written policy generally applicable to employees of Executive’s level and position, while a Company employee, the Company may terminate Executive’s employment after giving Executive written notice, a reasonable opportunity to cure, and Executive has failed to cure, and in such event the date of such termination will be Executive’s Termination Date for purposes of this Agreement. If Executive voluntarily resigns without the approval or consent of the Compensation Committee before the Termination Date described in paragraph 1, his Termination Date for purposes of this Agreement will be the effective date of such resignation. Upon any early Termination Date described in this paragraph 5.a., Executive (i) will not be eligible to receive any additional amounts described in this Agreement, including without limitation any further base salary amounts under paragraph 2 of this Agreement and annual bonus payment amounts under paragraph 3, and (ii) will forfeit any further rights or entitlements to accelerated vesting of LTIP awards under paragraph 4 of this Agreement, including without limitation any right to exercise stock options and any entitlement to a distribution with respect to restricted stock units described in paragraph 4, all such amounts and entitlements to be forfeited immediately upon such early Termination Date. Executive’s rights, if any, to any benefit under the Company’s health and welfare or retirement plans, or to any equity grants, will be governed by the applicable plan, program, policy or equity agreement.

b.     Other Early Termination by Company; Executive’s Death or Disability; Acceleration of Retirement Incentives. If Executive’s employment is terminated by the Company before the Termination Date described in paragraph 1, for any reason other than a termination in connection with a violation by Executive of the terms of any agreement with the Company as described in paragraph 5.a., or if Executive’s employment is terminated before the Termination Date described in paragraph 1 upon Executive’s death or disability, the date of such employment termination will be Executive’s Termination Date for purposes of this Agreement. Upon any such early termination described in this paragraph 5.b., (i) Executive (or his estate, in the event of Executive’s death) will be entitled to (A) a lump-sum cash payment equal to the amount of his base salary that would have been paid to him pursuant to paragraph 2 had Executive’s employment not been terminated early, and (B) payment of the annual bonus amount described in paragraph 3.a, and (ii) Executive will be entitled to accelerated vesting of all of Executive’s unvested awards under the LTIP, and related treatment, as described in paragraph 4, as of the early Termination Date. The lump-sum cash payment described in clause (i)(A) of this paragraph 5.b. will be paid within 60 days after the early Termination Date, the bonus payment amount described in clause (i)(B) of this paragraph 5.b will be paid as and when such bonus amount is payable under the terms in paragraph 3.a, and the accelerated vesting and related treatment of Executive’s unvested LTIP awards will be effective immediately on such early Termination Date, with stock options immediately becoming fully and freely exercisable and restricted stock units or other awards (other than options) being paid out within 60 days after such early Termination Date.

6.     Complete Release. The benefits to Executive under this Agreement are contingent on his execution, and non-revocation, of this Agreement including the release described in paragraph 6.a, and his execution, and non-revocation, of a final release agreement described in paragraph 6.b.


Exhibit 10.3
a.     Release. Executive hereby fully releases the Company and all of its owners, partners, shareholders, predecessors, successors, assigns, agents, directors, officers, employees, representatives, attorneys, subsidiaries, joint ventures, and affiliates (and agents, directors, officers, employees, representatives, and attorneys of such subsidiaries and affiliates) (collectively, “Released Parties”), from any and all known or unknown claims or demands he may have against any of them. Executive expressly waives any and all claims, whether asserted on an individual or class action basis, against the Released Parties including but not limited to all claims arising out of any contract, express or implied, and whether executory or not, any covenant of good faith and fair dealing, express or implied, any tort (whether intentional or negligent, including claims arising out of the negligence or gross negligence by the Released Parties and claims of express or implied defamation by the Released Parties), and any federal, state, or other governmental statute, regulation, or ordinance, including, without limitation, those relating to qui tam, employment discrimination, termination of employment, payment of wages or provision of benefits, Title VII of the Civil Rights Act of 1964 as amended, the Civil Rights Act of 1991, the Americans with Disabilities Act, the Genetic Information Nondiscrimination Act, the Employee Retirement Income Security Act, the Family and Medical Leave Act, the Fair Labor Standards Act, the Age Discrimination in Employment Act, the Older Workers Benefit Protection Act (“OWBPA”), the Uniformed Services Employment and Reemployment Rights Act (“USERRA”), the Worker Adjustment and Retraining Notification (“WARN”) Act, the Consolidated Omnibus Budget Reconciliation Act (“COBRA”), and the Occupational Safety and Health Act (“OSHA”). Executive further releases any and all claims that he may have under State law and any other claim under Federal law. Executive represents that he has not assigned to any other person any of such claims and that he has the full right to grant this release. Notwithstanding any other provision herein, the Company and Executive agree that Executive is not waiving any claims that may arise in the future under the Age Discrimination in Employment Act.

This release does not include and will not preclude: (a) claims by Executive for benefits under the Company’s retirement, deferred compensation or health and welfare benefit plans; (b) rights to defense, indemnification and contribution, if any, from the Company for actions taken by Executive in the course and scope of his employment with the Company and its parents, subsidiaries and/or affiliates; and/or (c) rights arising under or to enforce the terms of this Agreement.

b.     Final Release. On or about the Termination Date, the Company will provide to Executive a release agreement having substantially the same terms and scope as the release terms described in this Agreement. Such final release will also have a consideration period of at least 21 days, and a revocation period of at least seven days after such final release is signed by Executive. If Executive signs and does not revoke the final release during its revocation period, the final release will constitute an “Effective Final Release,” and the Company will provide Executive with the treatment, payments and benefits described in this Agreement, subject to the other terms and conditions described in this Agreement. If Executive fails or refuses to provide an Effective Final Release upon the Company’s request, Executive will not be eligible to receive any further amounts described in this Agreement and will forfeit all further rights or entitlements under this Agreement.

7.     Release of Unknown Claims. For the purpose of implementing a full and complete release, Executive expressly acknowledges that the release that he gives in this Agreement is intended to include in its effect, without limitation, claims that he did not know or suspect to exist in his favor at the time of the effective date of this Agreement, regardless of whether knowledge of such claims, or the facts upon which they might be based, would materially have affected the settlement of this matter, and that the consideration given under the Agreement was also for the release of those claims and contemplates the extinguishment of any such unknown claims.

8.     No Severance Pay or Benefits. Executive agrees and acknowledges that, except as expressly set forth in this Agreement, Executive is not entitled to receive from the Company any payments or benefits including but not limited to severance pay or benefits in any form, or any perquisites or property of any type, after the Termination Date (other than payments in accordance with Executive’s rights, if any, to benefits under the Company’s health and welfare or retirement plans and similar arrangements). Executive expressly waives any and all rights to severance pay, benefits or similar amounts or entitlements, under the terms of any Company plan or program, or pursuant to the terms of any understanding or agreement between the parties set forth in any employment, severance or similar agreement, offer letter, term sheet or otherwise.

9.     Section 409A Compliance. Payments and benefits payable pursuant to this Agreement are intended either to be exempt from Section 409A, e.g., as payments that would fall within the “short‐term deferral period” within the meaning of Treasury Regulation Section 1.409A‐1(b)(4), to the extent available, or to comply with the provisions of Section 409A. This Agreement shall be interpreted to avoid any penalty or sanctions under Section 409A. Accordingly, all provisions herein, or incorporated by reference, shall be construed and interpreted to the maximum extent permitted to be exempt from or compliant with Section 409A and, if necessary, any such provision shall be deemed amended to comply with Section 409A and regulations thereunder. In connection therewith:

a.     It is intended that each installment of the payments and benefits hereunder shall be treated as a separate “payment” for purposes of Section 409A.

Exhibit 10.3

b.     To the extent that payments and benefits under this Agreement are deferred compensation subject to Section 409A and are contingent upon Executive’s taking any employment‐related action, including without limitation execution (and non‐revocation) of another agreement, such as a release agreement, and the period within which such action(s) may be taken by Executive would begin in one calendar year and expire in the following calendar year, then such amounts or benefits shall be paid in such following calendar year.

c.     If as of the Termination Date, Executive is a “specified employee” (within the meaning of Section 409A(a)(2)(B) or any successor provision thereto), then with regard to any payment or provision of benefit that is subject to Section 409A as deferred compensation and is due upon or as a result of Executive’s “separation from service,” notwithstanding any contrary provision under this Agreement, such payment or benefit shall not be made or provided, to the extent making or providing such payment or benefit would result in additional taxes or interest under Section 409A, until the date with is the earlier of (A) expiration of the six‐month period measured from such “separation from service,” and (B) the date of Executive’s death (the “Delay Period”). Upon the expiration of the Delay Period, all payments and benefits delayed pursuant to this section (whether they would have otherwise been payable in a single sum or in installments in the absence of such delay) shall be paid or reimbursed to Executive in a lump‐sum, and any remaining payments and benefits due under this Agreement shall be paid or provided in accordance with the normal payment dates specified for them in this Agreement.

d.     While this Agreement is intended to be exempt from or compliant with Section 409A, the Company neither makes nor has made any representation, warranty or guarantee of any federal, state or local tax consequences of Executive’s entitlements under this Agreement, including, but not limited to, under Section 409A.

10.     Compensation Paid. Executive represents, warrants, and agrees that all forms of compensation and other monies, including paychecks, paid to Executive by the Company to date have been accurately calculated, have represented the proper amounts due to Executive, and have been based on the Company’s merit‐based compensation system. The consideration set forth in paragraphs 3 and 4 of this Agreement is consideration for the complete release and the Effective Final Release and is in excess of what Executive is entitled to receive. If Executive or someone on Executive’s behalf claims any entitlement to further compensation from the Company, Executive agrees that the Company is entitled to full offset of the amounts set forth in this Agreement.

11.     Company Documents, Information, or Property. Executive agrees that, on or before the Termination Date, Executive will have returned to the Company any and all documents relating to the Company or its business operations (and any and all copies thereof, whether in paper form or electronic form), computer equipment, badges, credit cards, and any other Company property in Executive’s possession or control. Executive represents and agrees that Executive will not take, nor has Executive taken, any such documents or property from the control or premises of the Company and that if, at any time after the Termination Date, Executive should come into possession of any such documents or property, Executive will return such documents or property to the Company immediately.

12.     Employment and Other Agreements. Executive agrees and acknowledges that, except as otherwise expressly provided in this Agreement with regard to severance pay, benefits or similar amounts, the provisions of agreements that Executive previously entered into with the Company, and that are intended to survive Executive’s termination, including but not limited to any restrictive covenant or similar agreements, will remain in full force and effect. In connection therewith, Executive reaffirms Executive’s intent to comply with all post‐employment obligations of Executive to the Company under such agreements.

13.     Non‐disparagement. Executive agrees that, except as may be required by law or court order Executive will not, directly or indirectly, make any statement, oral or written, or perform any act or omission which is or could be detrimental in any material respect to the reputation or goodwill of the Company or any other Released Party. Executive understands that Executive’s compliance with a subpoena or other legally compulsive process or Executive’s participation as a witness in any lawsuit will not be a violation of this provision.

14.     Successors. This Agreement shall be binding upon Executive and the Company and their heirs, representatives, executors, administrators, successors, insurers, and assigns, and shall inure to the benefit of each and all of them and to their heirs, representatives, executors, administrators or assigns.

15.     Applicable Law and Venue. THIS AGREEMENT SHALL BE INTERPRETED IN ALL RESPECTS BY THE INTERNAL LAWS OF THE STATE OF GEORGIA, AND THE VENUE FOR THE RESOLUTION OF ANY DISPUTES (LOCATION OF ANY LAWSUIT) SHALL BE SOLELY IN THE STATE AND FEDERAL COURTS IN GEORGIA.


Exhibit 10.3
16.     Severability. The fact that one or more paragraphs (or portion thereof) of this Agreement may be deemed invalid or unenforceable by any court shall not invalidate the remaining paragraphs or portions of such paragraphs of this Agreement.

17.     Certain Acknowledgments. Executive acknowledges that he is signing this Agreement voluntarily with full knowledge of its contents. If Executive decides not to sign this Agreement, the Company will not retaliate against Executive. Executive is not relying on any promise or representation not specifically and explicitly made in this Agreement. This Agreement may not be amended or modified except by a written agreement signed by Executive and an authorized officer of the Company. Executive understands that any changes that the parties agree to make to this Agreement after it has been presented to Executive, whether such changes are material or non‐material, will not extend the amount of time Executive has to consider the Agreement.

18.     Consideration and Revocation Periods. Executive understands that he may take up to 21 days following Executive’s receipt of this Agreement to consider this Agreement. Executive understands that he may use as much or as little of this period as Executive chooses before signing the Agreement. Executive is advised to consult with an attorney before signing this Agreement. If Executive accepts this Agreement, Executive must sign it and return it to Company’s Chief Executive Officer on or before the expiration of the 21‐day period. By signing this Agreement, Executive acknowledges that Executive was afforded a period of at least 21 days from the date the Company’s proposal was presented to Executive in which to consider it. In addition, Executive understands that Executive has a period of seven days following the date of signing this Agreement within which to revoke this Agreement (the “Revocation Period”). To revoke this Agreement, Executive understands that Executive must provide written notification of revocation to the Chief Executive Officer within seven days from the date Executive signed it.

If the foregoing accurately sets forth Executive’s agreement with the Company, please signify by signing below and returning this Agreement in its entirety to the Chief Executive Officer on or before close of business on the 21st day after this Agreement was first presented to you. If the Company has not received a signed copy of this Agreement by that time, the offer reflected in this Agreement will automatically terminate and expire without further notice from the Company.


For Executive as of the Date of Agreement:
/s/ Tom Roberts
Signature

Tom Roberts
Print Name


For Blue Bird Corporation as of the Date of Agreement:
/s/ Philip Horlock
Signature

Philip Horlock
Print Name

Chief Executive Officer
Title

Exhibit 10.4
IMAGE.JPG

IMAGE1.JPG


Dear Phil,

Blue Bird is pleased to confirm our offer of employment as outlined below.

Your Position

Upon Board approval, you will be appointed Interim Chief Financial Officer (CFO) with an effective date of June 1, 2021 reporting to Phil Horlock, President and Chief Executive Officer. Following the appointment of a CFO, you will transition to Senior Advisor through December 31, 2021.

Salary

Your annual salary will be $450,000, payable on the 10th and 25th of each month.

Bonus

You will be eligible to participate in the annual Blue Bird Management Incentive Bonus Plan (“MIP”) with a target of 75% of your base salary. Funding of the MIP is based on achievement of financial metrics approved by the Compensation Committee. The Compensation Committee has discretion to substantially increase the payout of the MIP bonus if the Company’s performance exceeds the target financial metrics. For the current fiscal year, you will be eligible to participate in the MIP on a pro rata basis based on your start date.

Withholding

All pay, incentives and other compensation shall be subject to applicable withholdings for federal, state and local taxes and shall be payable in accordance with State and Federal law and the Company’s regular payroll policies.

Your Benefits

While employed by the Company, you may be entitled to participate in certain benefit plans. Benefits details and eligibility requirements are available in Human Resources. Employees are eligible for benefits after 90 days of continuous service as of their date of hire.
•Medical benefits through Trustmark
•Pharmacy benefits administered by CVS/Caremark
•Optional Dental coverage is offered through Delta Dental
•Optional vision coverage is offered by Blue Cross Blue Shield
•Flexible Spending Accounts and Dependent Care options
•Life insurance and AD&D are administered by MetLife
•The Blue Bird 401(k) Plan is administered by Empower Retirement

To ensure that there is no coverage gap in your group medical insurance, Blue Bird will provide reimbursement for your COBRA coverage, net of your normal monthly contribution, until you become eligible for coverage under Blue Bird’s plans.

Expense Reimbursement

You shall be entitled to receive reimbursement for all appropriate traveling, lodging and other business expenses incurred by you in connection with your duties under this Agreement, in accordance with the policies of the Company in effect from time to time.

Amendment or Termination of Plans or Practices

The Company continues to reserve the right to modify, amend or terminate any of the employee benefit plans or practices described in these materials. In all cases, the plan rules are the exclusive source for determining rights and benefits under a benefit or compensation plan and those plans shall govern if there is conflict with these materials.

Exhibit 10.4

E-Verify

As a federal contractor, we are required to verify the eligibility of all new hires to the Department of Homeland Security utilizing the E-Verify website. As such, you will be required to provide to the Company documentary evidence of your identity and eligibility for employment in the United States. Such documentation must be provided to us within three (3) business days from your date of hire, or our employment relationship with you may be terminated. If you are unsure what documents are acceptable, please contact me prior to your start date for the current list.

As a condition of your employment, you are also required to sign and return the following documents prior to your first day of employment:

•Employment Agreement
•Non-Disclosure Agreement
•Relocation Agreement

We look forward to welcoming you at Blue Bird. To accept our offer, please email a signed copy of this letter to felix.lin@blue-bird.com.

Sincerely,

Felix Lin
Vice President – HR and External Affairs
Blue Bird Corporation


/s/ Phillip Tighe May 20, 2021
Phillip Tighe Date


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: August 12, 2021 /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: August 12, 2021  /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 July 3, 2021, 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: August 12, 2021 /s/ Philip Horlock
Philip Horlock
Chief Executive Officer
Dated: August 12, 2021  /s/ Phillip Tighe
Phillip Tighe
Chief Financial Officer